By Christine H. Rosso

The resources devoted to antitrust enforcement vary by state. There is a whole range of involvement, from states with large antitrust bureaus and many attorneys doing antitrust work full-time, to states where one assistant attorney general does antitrust work part-time. There is a National Association of Attorneys General Antitrust Committee, under whose auspices the Multistate Antitrust Task Force operates. Many of our cases are prosecuted jointly. In some ways, we function like a law firm, with tasks allocated among the various states that are participating in an investigation. Frequently, attorneys general work with the federal agencies, especially in mergers, which are on a strict timetable and require extensive analysis. State attorneys general are not entitled to the notices of mergers that the federal agencies get pursuant Hart Scott Rodino amendments to the Clayton Act, nor are they bound by its timetable.

There is a merger compact under which the states agree to abide by the federal merger timetable, and to accept the documents produced to the federal agencies, if the parties to the proposed merger file with the states and federal agencies simultaneously and invoke the compact. This compact is not utilized frequently, so in order to investigate a merger with the United States Department of Justice, attorneys general need to get clearance from the merging parties. Generally this is not hard because the parties want to avoid duplicate discovery. As a condition of their consent, the merging parties usually require that we keep the information confidential, so we cannot share it with third parties, including municipalities who might be affected by the proposed transaction.

Historically attorneys general have been involved in waste mergers working alone (New York just completed one in Westchester County), but more often they work with each other and/or the US Department of Justice. There might be only one or two states (e.g., Illinois and Missouri) involved, or more than 15 states (e.g., the Allied Waste/Republic Exchange of Assets).

When several areas are affected, the attorneys general need to determine the areas on which they will concentrate, since the merger might not create a problem in each state. Several factors are usually considered, including competitive overlap, the size of market, the volume of commerce, and the total population affected complaining witnesses. The attorneys general also need to decide whether there is a problem in hauling (usually commercial, because there are fewer barriers to entry for residential hauling) and/or in infrastructure.

Geographically, markets are usually relatively small. Route density is necessary for small, containerized commercial waste-hauling firms to be profitable. It is also not economically efficient for heavy trash-hauling equipment to travel long distances without collecting significant amounts of waste, so it is not efficient for a hauler to serve a major metropolitan area from a distant base. Also considered is whether there are regulations on where waste can be disposed of - either requiring trash from a certain area to be disposed of in a certain place or prohibiting the depositing of trash from outside a certain area in a facility located within the area.

Attorneys general consider barriers to entry, both environmental and political (in addition to franchises, and other government regulations). For example, they look at the use of long-term contracts coupled with selective pricing practices by incumbent firms. They try to determine whether there would be difficulty in building more infrastructure (such as the NIMBY phenomenon and environmental regulations). It is not easy to figure out what the constraints on infrastructure are in a given market; each situation and each geographic area is highly factually specific. If the merger creates competitive problems, the attorneys general will attempt to resolve them through negotiations with the parties. First, divestiture is considered. Divestiture must result in a real competitive force and not only in routes; an entrant cannot be reliant on the infrastructure of the divesting firms. A new entrant needs to achieve a minimum efficient scale and operating efficiencies to be able to compete. In other words, a company must own a "rational operating system." The revenue stream from hauling is important but has little real value if the costs of disposing of the trash are too high.

Attorneys general may also negotiate a modification of the terms of the incumbents’ contracts. Possibilities include (1) reducing their duration (e.g., to two years), (2) limiting renewals (e.g., to one-year periods), (3) reducing the amount of liquidated damages called for if the contract is terminated early, (4) changing the notice of termination requirements (so the contract does not have to be canceled six months before it expires or it is automatically renewed), (5) requiring that uniform terms be offered to all new customers and existing customers as they renew, and (6) possibly voiding evergreen contracts altogether.

What Municipalities Can Do in a Merger Situation

The first thing a municipality can do is tell the attorney general about a proposed merger. The antitrust laws require that merging parties must give notice of the proposed transaction (if it meets certain threshold requirements) to the Department of Justice but not the state attorneys general. Attorneys general do not always see articles in your local newspaper or read the trade press. They do not necessarily know what is going on in the waste industry, but the municipalities do. Indeed, some mergers are not subject to the notice requirements in the federal law, in which case it may be that no governmental agency will perform any review at all unless someone notifies it that there might be a problem.

A municipality can always request the attorney general to investigate. Ten municipalities recently expressed their concerns about a proposed waste transaction in Connecticut, and the attorney general has agreed to look into it.

During an investigation of a waste merger, municipalities can perform the following roles: be a complaining witness; be interviewed, if they are a customer; provide information; assist in analyzing the market (what are the constraints, both regulatory and political); provide market information (who is in the market, what are the limitations? If a municipality licenses trucks, it will have excellent information as to the market share of the respective haulers); identify potential witness to be deposed, including injured consumers; assist in determining if any proposed divestiture is realistic; object formally during the comment period (the Allied Waste/BFI proposed final judgement was amended because of formal comments by municipalities); complain if postmerger activity seems anticompetitive.

There is no attorney/client privilege between you and the attorney general, so any information that you provide may become public.

What Municipalities Can Do in a Nonmerger Situation

There are a number of ways municipalities exert influence or control over waste-hauling and disposal companies. Some have regulatory authority, licensing haulers or requiring them to have a franchise in order to use the streets. Through this authority, municipalities can determine who can do business in their communities. They can approve or disapprove of a transfer of a franchise. Through their licensing power they can eliminate or keep out companies or facilities (including poor equipment) that do not meet the criteria deemed important. Some municipalities set rates - for haulers and, if they own or regulate landfills, for landfill usage as well. Some municipalities own, operate, or regulate transfer stations. They can outlaw evergreen contracts.

All of these powers can be important tools to utilize in trying to maintain a healthy, competitive waste disposal industry in a community. Even absent a merger situation, municipalities should be vigilant about promoting competition. They can use their franchise authority to keep smaller companies in the market; actively seek bids for their contracts (never just renew a contract—always put it out for bid); keep the terms of their contracts relatively short; possibly allow bids that will split their business, particularly if their territory is too large for medium or small companies to handle; rebid the contract if their provider is leaving a market, and not just let it be assigned; and refrain from giving an exclusive license or franchise for commercial hauling (or residential, if customers are responsible for their own trash removal) - license more than one competitor.

Solid waste hauling is an industry highly susceptible to tacit or overt collusion among competing firms. More than a dozen cases involving such collusion - both criminal and civil - have been brought forward in as many years. Collusion usually involves customer allocation and price fixing and may persist over many years. Municipalities need to be alert; they need to look for collusion, such as bid rigging, price fixing, and market allocations. They know who the bidders should be and should investigate if they do not get the bids they expect. If a municipality awards a private company a trophy piece of infrastructure, it should consider using a shorter-term contract to limit the possibility of giving that firm such a dominant position that it will be able to set unfairly high prices. A municipality can use its licensing authority in commercial hauling to eliminate the criminal element. In New York City, prices plummeted after the city decided to license haulers and declined to license applicants with criminal backgrounds. A municipality should be careful not to make its bonding requirement so high that only large firms can afford to operate in its territory. Transfer stations can be used to discipline the market, possibly making a long-haul market a viable alternative. All of these actions can really make a difference in keeping a market competitive.

Industry Trends

Over the past 20 or so years, there has definitely been a move toward consolidation via acquisition and merger in both hauling and disposal. Recently, companies have not just been buying, but also selling operations they might no longer want or need. This may lead to certain large companies concentrating in certain geographical areas. Also, trading properties and routes is more popular now.

More consolidation has occurred in urban rather than suburban and rural markets, so in the future we might see more acquisition of these other kinds of operations, especially again as companies concentrate geographically. It is possible there could be a trend toward privatization, with municipalities selling their operations. Some municipalities, on the other hand, might want to take over hauling, although state laws (such as Florida’s), which require "just compensation," can make this difficult. As consolidation continues, there are fewer smaller players to be acquired, so there will be fewer situations in which divestiture will work. Therefore, you might see more absolute challenges to proposed mergers in the future.

In conclusion, municipalities need to remain vigilant to protect competition in the waste-hauling industry. They should be creative in using the various weapons in their arsenal to actively promote competition whenever possible. And working with the state attorney general can be an effective way to ensure that a merger will not unduly impair competition.

Christine H. Rosso, chief of the Public Interest Division Office of the Illinois Attorney General, presented this material in her address to SWANA’s Planning and Management Division in Chicago in August 2000.

MSW
Nov/Dec, 2000