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88 Page 144 SBWMA January 16 Questions will be increasingly costly. But if we rethink the way material comes through the gate and into the transfer station~ we should be able to make the most efficient gains toward cost-.eflective incremental diversion of these self:'haul wa":lte streams.lfwe can attract cleaner~ more segregated loads into the SRDC~ and into the bunkers by using the labor of the self-haulers themselves, we \vill start to bring down the coslC) of creating more marketable materials. Against that backgroun~ we strongly recommend that HBC and the SBWMA work closely together to develop a series of rate-based incentives and disincentives at the SRDC inbound scales whereby we begin to change the behavior of selt:haulers (and also commercial haulers), to influence them to bring in cleaner loads which will tacilitate them segregating their materials into bunkers~ thus bypassing the TS floor and avoiding the costs of either a special sort system or tloor separation. Given the tluctuation in tonnage tigures during the past five years, HBC feels that the Diversion Guarantee Baseline should be areasonable percentage of total inbound transfer st.ation volume. HBC is willing to guarantee an increase above the average historical percentage Diversion Guarantee Baseline, but that incremental guarantee \vould be based on a tested program of diversion incentives at the inbound scale.\Ve propose that beginning in our second year of operation of the SRDC, the level of this increased guarantee will be based on two factors: (I) the composition of the inbound self-haul waste stream at the end of the first year, as verified by a waste composition aud.it; and (2) SBW.MA working with HBC to develop a mutually agreeable incentives program at the inbound scales which can be implemented when we assume transfer station operations. Once we see the impacts of the first 6 months of the incentives program, plus the waste composition audit, we will guarantee the level of incremental diversion of self-haul waste commensurate with those results. For example, if a. 100/0 gate rate discount for self-haulers results in a 5% increase in self-haul diversion during the first 6 months of the incentives program, and if the composition audit shows no appreciable reduction in certain recoverable materials~ HBC will guarantee the full 5% incremental diversion in the following year~ provided SB WMA continues the incentives program. In summary, we propose to work in partnership with the SBWMA to optimize the diversion-through-incentives program and waste stream auditing, such that optimum diversion is achieved. We believe that this reasoned approach will ultimately be in the best. interests of both the SB WMA and FlBe. As always, we look forward to continuing our discussions with you, and we look forward to working with you following our selection to operate the SBWMA facilities. Sincerely, Steve Hastings Hudson Bayloi Hudson Baylor Corporation 3/16/09 Page 5