This excerpt taken from the WM 10-K filed Feb 16, 2010.
Collection and disposal average yield This measure reflects the effect on our revenue from the pricing activities of our collection, transfer, landfill and waste-to-energy disposal operations, exclusive of volume changes. Revenue growth from collection and disposal average yield includes not only base rate changes and environmental and service fee increases, but also (i) certain average price changes related to the overall mix of services, which are due to both the types of services provided and the geographic locations where our services are provided; (ii) changes in average price from new and lost business; and (iii) price decreases to retain customers.
In both 2009 and 2008, the increases in revenues from yield were driven by our collection operations, which experienced substantial yield growth in all lines of business and in every geographic operating group, primarily as a result of our continued focus on pricing initiatives, including various fee increases. As discussed below, increased collection revenues due to pricing have been more than offset by revenue declines from lower collection volumes. However, increased revenue growth from yield on base business and a focus on controlling variable costs has consistently provided margin improvements in our collection line of business. In addition to the revenue growth from yield in the collection line of business, we experienced increases in revenues from yield at our landfills and our transfer stations due to our continued focus on pricing activities.
Revenues from our environmental fee, which are included in average yield on collection and disposal, increased by $37 million and $60 million for the years ended December 31, 2009 and 2008, respectively. Environmental fee revenues totaled $218 million for the year ended December 31, 2009 compared with $181 million in 2008 and $121 million in 2007.
Recycling commodities For the first nine months of 2008, record high commodity prices favorably impacted our revenue growth. Then, during the fourth quarter of 2008, we saw a rapid decline in commodity prices due to a significant decrease in the demand for commodities both domestically and internationally. Commodity demand and prices continued to be weak in the first nine months of 2009 as compared with record-high commodity prices experienced through September of 2008. However, market prices for recyclable commodities are recovering and prices have increased significantly from the record lows experienced in late 2008 and early 2009. While commodity prices are still significantly less than the levels seen in 2007 and the first nine months of 2008, the current price recovery trend contributed to revenue growth in the fourth quarter of 2009 and is expected to contribute to revenue growth in the coming year.
Electricity The changes in revenue from yield provided by our waste-to-energy business are largely due to fluctuations in rates charged for electricity under our power purchase contracts that generally correlate with natural gas prices in the markets where we operate. In 2009, we experienced a decline of $76 million in revenue from yield at our waste-to-energy facilities due to the falling electricity prices. During 2009, approximately 34% of the electricity revenue at our waste-to-energy facilities was subject to current market rates, which is an increase from 18% during 2008. Our waste-to-energy facilities exposure to market price volatility is increasing as more long-term contracts expire.
In 2008, we saw an increase of $24 million in revenue from yield provided by our waste-to-energy business. This increase was largely due to annual rate increases for electricity under long-term contracts and favorable energy market pricing.
Fuel surcharges and mandated fees Revenue generated by our fuel surcharge program decreased by $328 million and increased by $189 million for the years ended December 31, 2009 and 2008, respectively. The fluctuation is directly attributable to the fluctuation in the crude oil index prices we use for our fuel surcharge program.
The mandated fees included in this line item are primarily related to the pass-through of fees and taxes assessed by various state, county and municipal governmental agencies at our landfills and transfer stations. These mandated fees have not had a significant impact on the comparability of revenues for the periods included in the table above.
Volume Our collection business accounted for $622 million of the total volume decrease in 2009. Our industrial collection operations experienced the most significant revenue declines due to lower volumes primarily as a result of the continued slowdown in both residential and commercial construction activities across the United States. Our commercial and residential collection lines of business tend to be more recession resistant than our other lines of business. However, we still experienced some commercial and residential collection volume declines in 2009 that we attribute to the recessionary economic environment, as well as to pricing and competition.
In 2009, we also experienced a 16% decline in third-party revenue due to volume at our landfills. This decrease was most significant in our more economically sensitive special waste and construction and demolition waste streams, although municipal solid waste streams at our landfills have also decreased. Lower third-party volumes in our transfer station operations also caused revenue declines and can generally be attributed to economic conditions and the effects of pricing and competition. Lower volumes in our recycling operations caused declines in revenues of $74 million in 2009. These decreases are attributable to the drastic decline in the domestic and international demand for recyclables in late 2008. Demand for recyclable commodities has recovered throughout 2009, although it has yet to compare favorably to the levels we experienced in advance of the market shift in the fourth quarter of 2008.
In 2008, revenue declines due to lower volumes were driven by lower collection volumes and, to a lesser extent, lower transfer station and third-party disposal volumes. Declines in revenues from volumes in these lines of business were most significantly affected by (i) our focus on improving margins through increased pricing; and (ii) economic conditions, which particularly affected our industrial collection line of business. Revenue declines attributable to lower volumes also affected our recycling operations due to the rapid decline in demand for recyclable commodities experienced during the fourth quarter of 2008
Acquisitions and divestitures Revenues increased $97 million and $117 million for the years ended December 31, 2009 and 2008, respectively, due to acquisitions, principally in the collection, transfer and recycling businesses, although we also made acquisitions starting in 2008 in our Other business as we focused on entering new, complementary lines of business. Divestitures accounted for decreased revenues of $37 million and $130 million for the years ended December 31, 2009 and 2008, respectively. These divestitures were primarily comprised of collection operations and, to a lesser extent, transfer station and recycling operations. Beginning in the second quarter of 2008, revenue growth from acquisitions exceeded revenue declines from divestitures, a trend we had not seen in over two years. This change reflects our shift in focus from divesting underperforming operations to acquiring businesses.