What is the new Energy Surcharge on my Waste Management Invoice?
Beginning in April 2023, WM began introducing a new Energy Surcharge to collection customer invoices in order to recover its fuel costs on an enterprise-wide basis. The fee replaces Fuel & Environmental and Regulatory Cost Recovery charges and is pitched to customers as a simplification that demonstrates WM's commitment to sustainability and benefits customers.
However, upon closer examination of the Energy Surcharge, there are hidden complexities and uncertainties that may affect customers’ satisfaction and trust, and may have long term implications to your business' ability to control your recycling & waste costs.
Business customers should be aware of how the Energy Surcharge is calculated and applied, how transparent and auditable the fee is, and how it will affect their future invoices.
What is the Energy Surcharge?
If you are a customer of Waste Management (WM), you may have noticed some changes in your invoice starting from April 2023. WM has introduced a new ‘Energy Surcharge’ that replaces the former ‘Fuel Surcharge’ and incorporates both diesel and compressed natural gas (CNG) prices. WM has also simplified invoices by incorporating the former Environmental Charge and Regulatory Cost Recovery (RCR) Charge into the base service rate.
WM claims that these changes are meant to provide customers with safe and reliable waste services at a reasonable price, and to reflect its commitment to use more sustainable technologies such as CNG-fueled trucks, which are in part powered by the landfill-gas collection mechanisms WM has deployed across their operating landfills.
However, as a customer, you may have questions and concerns about these changes and how they will impact your future costs for service, such as:
- How is the Energy Surcharge calculated and applied?
- How is the Energy Surcharge different than Fuel & Environmental & Regulatory Cost Recovery charges?
- How transparent and fair is the Energy Surcharge?
- How will the Energy Surcharge affect your future invoices?
- What action can you take regarding the new Energy Surcharge?
In this post we will try to answer these questions and provide some insights into WM’s new billing practices.
How is the Energy Surcharge calculated and applied?
According to WM’s website, the Energy Surcharge is comprised of three variables each for diesel and CNG fuels:
- Index Variables: Diesel Market Index Price per Gallon & CNG Market Index Price per DGE (diesel gallon equivalent)
- Weight Variables: Diesel Weight % & CNG Weight %
- Factor Variables: Diesel Factor & CNG Factor
Energy Surcharge Calculation
The Index Variables are primarily based upon two nationally recognized price indices reported weekly by the Energy Information Administration of the U.S. Department of Energy (EIA/DOE): the national average price of diesel fuel and the Henry Hub Natural Gas Spot Price. These indices are subtracted from WM’s baseline cost ($0.95/gallon for diesel and $0.39/DGE for CNG).
These market index variables are multiplied by two unverifiable and un-auditable inputs private to WM, the "Weight Variables" and the "Factor Variables".
The Weight Variables account for the volume of diesel fuel and CNG consumed enterprise-wide by WM collection and disposal companies and their subcontractors, and is a logical weight for WM to apply as they transition their fleets from diesel to CNG.
The Factor Variables are, based upon the information available publicly on WM's Energy Surcharge page, undefined and unverifiable. It is not known what the range of these factors are, or what might drive the fluctuation of these factors, aside from the disclaimer that the Energy Surcharge "may be used to achieve an acceptable operating margin". Logically one might assume these factors exist primarily as levers for WM's operating margin.
Visualizing the WM Energy Surcharge formula:
WM posts the Energy Surcharge percentages on their website weekly, and includes the DOE and Henry Hub index prices used for that week's calculation:
It is not clear how the formula takes a dollar price (the Index Variables) and converts that into a flat percentage increase. Typically this would involve a reference table, where the percentage changes relative to a price. As of this writing there is no such index table available, and the relationship between the diesel and CNG index values and the WM Collection Energy Surcharge are not clear, regardless of the added ambiguity introduced by the Factor Variables and Weight Variables.
You can find an up-to-date report of each week's Energy Surcharge directly from WM by visiting this PDF report.
How the Energy Surcharge is applied
The Energy Surcharge is applied to all monthly or periodic invoice charges before taxes.
Practically, this means that your core service costs + ancillary charges are used as the basis for the Energy Surcharge. Core service costs include your base rates for commercial service, haul charges for roll-off containers, and tonnage charges for roll-off containers. Ancillary charges include overage or excess, extra pickups, and recycling contamination charges.
Based upon our data thus far, additional fees such as Recyclable Material Offset, Administrative Fees, and Late Payment Fees are not included in subtotal upon which the Energy Surcharge is applied.
How is the Energy Surcharge different than Fuel & Environmental & Regulatory Cost Recovery charges?
The previous Fuel Surcharge was dependent only on changes to the price of diesel fuel; the new Energy Surcharge applies to our consolidated base rate, incorporates both CNG and diesel fuel, and will fluctuate with the changing prices of natural gas and diesel.
You will notice the following changes:
- Fuel and Environmental Fees (F&E) are no longer on your invoice.
- Regulatory Cost Recovery (RCR) is no longer on your invoice.
- Your service base rate(s) is/are much higher to account for the removal of the F&E and RCR.
- A new Energy Surcharge line has been added (16.66% for May 1, 2023 invoices)
How transparent and fair is the Energy Surcharge?
A transition from Fuel fees to a blended Energy fee, which accounts for CNG prices, makes sense. WM's collection fleet is a majority CNG as of Q4 2022 earnings review, and it is very logical for WM to hedge against a weighted average that accounts for both diesel and CNG.
However, while WM claims that its Energy Surcharge is tied directly to objective and publicly available price indices, there are some aspects of the calculation that are not transparent or verifiable by customers. For example:
- The "Diesel and CNG Factors" determined by WM are not disclosed or explained on its website. These factors may include various costs and adjustments that are not directly related to fuel prices, such as taxes, fees, surcharges, transportation costs, or the unknown "achieve an acceptable operating margin"
- The diesel and CNG weighting based on the volume of fuel consumed enterprise-wide by WM collection and disposal companies and their subcontractors is not disclosed or updated on its website. This weighting may change over time depending on WM’s fleet composition, fuel efficiency, service routes, etc.
- The baseline cost for diesel and CNG is fixed at $0.95/gallon and $0.39/DGE respectively, regardless of when a customer’s contract begins or renews. This variable is calculable, but since it is multiplied by two unverifiable numbers, the veracity of the number is not clear.
These aspects of the calculation make it impossible for customers to audit or verify the accuracy and fairness of the Energy Surcharge. Customers have no way of knowing if they are paying more or less than the actual cost of fuel incurred by WM.
How will the Energy Surcharge affect your future invoices?
WM claims that the total invoice charges for normal recurring services did not increase as a result of these changes at the time the fee took effect. Said differently, WM designed the changes to be cost neutral during the month your account transitions, and states that future invoices will be different under the new calculation.
WM also clearly states on legal mailers included with invoices that "these changes require your consent", and further that payment of an invoice with the Energy Surcharge, or failure to contest the charge within 30 days, constitutes acceptance of this change.
WM's The Energy Surcharge will fluctuate up or down as the publicly reported prices of diesel and/or natural gas go up or down. This means that customers will see variations in their invoices depending on the market conditions. However, customers have no control over these variations and cannot predict or budget for them in advance.
With the dramatic increase in base rates from the transition to Energy Surcharges from Fuel and Environmental, the annual price increase WM applies will have a larger impact on your costs in future years.
What should I do about the Energy Surcharge?
Note: We are not lawyers and this is not legal advice. You should take what we say with a grain of salt, we are simply re-sharing what WM states publicly to help you read between the lines.
We recommend splitting this into two problems - what immediate steps can you take, and what long-term preventative steps are appropriate for your business.
In order to take any action, you first need to see if you have an Energy Surcharge on your invoice, and if this is the first month, preserve your right to negotiate the fee.
WM clearly states that paying the fee is considered consent to the change, so you'll want to coordinate with your business' accountant or controller to ensure the invoice remains unpaid.
Contact your WM account representative to better understand the fee, and your options to renegotiate the fee or your contract.
Long term preventative steps may include utilizing software or other tools to watch for these types of changes on your account. If your company is in the business of paying for waste & recycling services, our Discovery platform's automated invoice auditing capabilities can help you stay up to date on these types of sudden changes that have long term impacts. Contact us today to learn more.