Covanta Holding Corp (CVA) Q4 2020 Earnings Call Transcript

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Covanta Holding Corp (CVA)
Q4 2020 Earnings Call
Feb 19, 2021, 8:30 a.m. ET

Contents:

• Prepared Remarks
• Questions and Answers
• Call Participants

Prepared Remarks:

Operator

Good morning, everyone, and welcome to the Covanta Holding Corporation Fourth Quarter and Full Year 2020 Financial Results Conference Call and Webcast. An archived webcast will be available two hours after the end of the conference call and can be accessed through the Investor Relations section of the Covanta website at www.covanta.com. The transcript will also be archived on the Company's website.

At this time, for opening remarks and introductions, I'd like to turn the call over to Dan Mannes, Covanta's Vice President of Investor Relations. Please go ahead.

Daniel Mannes -- Vice President of Investor Relations

Thank you, Lisa, and good morning, everyone.

Welcome to Covanta's fourth quarter and full year 2020 earnings conference call. Joining me on the call today will be Mike Ranger, our President and CEO; Derek Veenhof, our COO; and Brad Helgeson, our CFO. On today's call, Mike will provide an update on the strategic review, Derek will discuss our operating performance and Brad will provide a more detailed financial update. Afterwards, we will take your questions.

During their prepared remarks, Mike, Derek and Brad will be referencing certain slides we prepared to supplement the audio portion of this call. Those slides can be accessed now or after the call on the Investor Relations section of our website www.covanta.com. These prepared remarks should be listened to in conjunction with these slides.

Now, on to the Safe Harbor and other preliminary notes. The following discussion may contain forward-looking statements and our actual results may differ materially from these expectations. Information regarding factors that could cause such differences can be found in the Company's reports and registration statements filed with the SEC. The content of this conference call contains time sensitive information that is only accurate as of the date of this live broadcast, February 19, 2021. We do not assume any obligation to update our forward-looking information, unless required by law. Any redistribution, retransmission or rebroadcast of this call in any form without the expressed written consent of Covanta is prohibited.

The information presented includes non-GAAP financial measures. Because these measures are not calculated in accordance with U.S. GAAP, they should not be considered in isolation from our financial statements, which have been prepared in accordance with GAAP. For more information regarding definitions of our non-GAAP measures and how we use them, as well as limitations as to their usefulness for comparative purposes, please see our press release, which was issued last night and was furnished to the SEC on Form 8-K.

With that, I'd like now to turn the call over to our President and CEO, Mike Ranger. Mike?

Michael W. Ranger -- President, Chief Executive Officer

Thanks, Dan. Good morning, everyone.

When I stepped into this role about 3.5 months ago to lead the Company and the strategic review process, I brought a good perspective on the issues and opportunities given my experience with the Company and similar situations. However, we did not bring a fully formed plan at that point, and we committed to let our analysis and the data direct our decisions and actions. As we announced in October, our initial focus has been an in-depth review of the Company's businesses and strategies to understand where value can be unlocked and how to do so. With our efforts to date, I see a clear opportunity to deliver more value to shareholders and we are now in the process of selecting how exactly to do just that.

Allow me to layout some of the specific objectives and initiatives. First, we believe that some assets of the Company are undervalued by the market. As such, we will evaluate the best alternatives to recognize this value. In some cases, this could result in -- our testing the market demand for certain parts of our business in order to capitalize on potential value differentials.

Second, in our core Waste-to-Energy business, the profitability of our operations is not uniform. A subset of our plants derives the majority of our current cash flow. Our efforts here will be to improve asset level contributions, or if not possible, we will work to exit less profitable operations. The specific levers we will use for this effort will be unique in each plant situation, but we will act decisively to reduce risk and improve cash flow. In many ways, this will be the most challenging part of the strategic review and the execution, but it is an area of great importance as we look to best position the Company for the future.

Our third objective, and a likely consequence of any resizing of our asset portfolio would be an evaluation of our costs and capital allocation. I expected the Company that emerges from this review will be leaner and more focused. Importantly, we expect to be better able to pursue and fund growth in the remaining business. Lastly, an expected outcome of our activities will be reducing financial leverage. While the Company is under no market rating agency or liquidity pressure, the Board and I believe that the current leverage is an overhang on our public equity valuation. By de-levering, we can both increase the mix of equity and the enterprise value, and potentially increase our trading multiples as a broader universe of investors are able to participate in our story.

An added benefit of a less leveraged capital structure over time is increased optionality on capital allocation, whether for aggressive growth opportunities or shareholder returns. While we are not making any discrete announcements today, I anticipate that the strategic review will occur through a series of steps that will play out over the coming quarters. And I anticipate that we will begin to make announcements on specific actions by the middle of this year.

A key component of the strategic review that we have discussed explicitly is ensuring that the value of our international business is fully recognized in the share price. This is a critical piece of our growth, and we have made remarkable strides in meeting the goals that we set three years ago when we announced the partnership with GIG. Since that time we have moved four projects, totaling 1.5 million metric tons of waste processing capacity into full construction. This was no small task as this occurred during the debate over Brexit and the last two projects reached financial close in the midst of the COVID-19 pandemic and related lockdowns. And the result is that we will soon have when coupled with our Dublin project, five new assets located in one of the best markets in the world, in terms of waste pricing and public support.

As you consider our portfolio, I'd also highlight the notable construction progress we've made over the last two years with no material pandemic-related delays on the three English projects, which represent the vast majority of the profitability in our UK portfolio. As a company, we took the lead on development and construction on these projects, and we'll be the operator of all three construction, once construction is complete.

Looking at the project photos in our investor presentation, you can see the progress on some of the projects which reached financial close over the last two years. Most advanced, as you know is Rookery, which reached financial close in March 2019, so roughly two years ago. Rookery is right on schedule and budget with major construction nearly complete. Around the middle of this year, we expect to begin receiving and processing waste as the plant moves into the hot commissioning phase. Given our progress to-date and experience commissioning new plants, we expect Rookery to be in full operation and generating EBITDA in the first half of next year.

With the transition to the commercial operations at Rookery approaching next year, I wanted to highlight the sizable contributions we expect from these projects when construction is completed. Including the already operational Dublin facility, we anticipate generating at least $100 million to $110 million of annual adjusted EBITDA from our UK and Ireland portfolio with free cash flow of at least $50 million to $60 million.

Now leading this effort is our new President of Covanta Europe and fellow board member, Owen Michaelson. Owen's role will be to drive the successful completion of the four construction projects, build out the operating and management team, and create additional value through development of projects in our pipeline. In that vein, I would remind you that the UK market remains attractive for additional Waste-to-Energy development, given the significant regulatory support and market demand for landfill alternatives. From that perspective, you should view the financial outlook for international as a floor, not a ceiling. In some, the UK remains a primary growth avenue, and we believe our source of tremendous potential value for shareholders.

Now, let's move on to our financial updates. With the strategic review ongoing, it would be easy for the team to lose focus. But we finished 2020 with strong results, reporting full-year adjusted EBITDA of $424 million, which fell inside of our original pre-pandemic guidance range. We also generated free cash flow of $95 million even as we undertook a greater than typical volume of planned maintenance capital investment. These results, which Derek and Brad will discuss in more detail, were possible only with a tremendous effort of our team in incredibly challenging conditions. It is a credit to the resiliency of our people and business model and to the essential nature of our services.

Looking ahead, we expect to build on these results in 2020. Prior to the impact of any actions from the strategic review, we are initiating 2021 adjusted EBITDA guidance of $435 million to $465 million, and free cash flow of $100 million to $140 million. While we are committed to creating value through the strategic review process, I am confident that this team will remain focused on the core business and on driving improved financial results.

With that, I'd like to turn it over to Derek to discuss our operational and business highlights. Derek?

Derek W. Veenhof -- Executive Vice President, Chief Operating Officer

Thanks, Mike, and good morning, everyone.

I'll be referring to the investor presentation and will begin my comments on Slide 4. 2020 was obviously a unique year that tested our people, assets and plans in ways we never could have anticipated. And overall, I think we passed the test handily. For that, I'd like to take a moment and thank all of our employees and our customer base for meeting the challenges of the pandemic and for the personal sacrifices people made along the way. It really will be a year we will never forget in this regard.

From a waste market perspective, we witnessed a significant contraction in commercial waste volumes beginning late in the first quarter, due to the impact of the pandemic. In response, our waste marketing team leaned heavily on our integrated portfolio of assets, including strategically located transfer stations, along with our strong client relationships to ensure a steady flow of waste into the plants. Given our preferential locations and the quality of our counterparties, we kept our tip fee plants full throughout the year.

After volumes and prices bottomed during our second quarter, our weighted average tip fee prices ticked up sequentially in both the third and fourth quarter. In total, even with a greater reliance than typical on lower price spot waste, we drove 3% same-store tip fee price growth for the full year. At the same time, we opportunistically increased the total volume of contracted residential waste, which we believe provides even more stability to our mix going forward.

Looking ahead, I am pleased with the stabilization we are seeing in waste flows in our core markets. We continue to see trends in our markets that support longer term higher prices, including a tightening of disposal capacity. Similarly, we continue to see increased demand by companies looking for solutions to meet their sustainability goals. When combined with ongoing increases in new contract pricing, during 2021 we expect to see 3% to 5% same-store tip fee price improvement, even in this low inflation environment.

On the operation side, I'm proud of the fact that even with all the challenges of operating during the pandemic, we were able to maintain a 91.3% boiler availability, demonstrating our strength and execution, and the success of our robust protocols. This level of availability enabled us to process 21.2 million tons of solid waste. 2020 was also a year of significant planned investment, with maintenance capex of $160 million. To take on this volume of work during a pandemic, required incredible planning and diligence. This capex included a number of large work scope projects that will ensure the long-term reliability, safety and environmental compliance of our fleet.

Looking ahead, we expect maintenance capital to be significantly lower in 2021. As we look to future years, I expect 2020 will be a high watermark for maintenance capital spending. Our maintenance schedule for 2021 will have a more typical cadence than we experienced in 2020. Assuming the operating environment continues to normalize, you should expect a heavier weighting of spend in the first half of 2021 compared to our 2020 spend. As we deliberately deferred outage activity at the onset of the pandemic, this timing difference will be more acute in the first quarter.

On the commodity front, 2020 was a very challenging year with weak prices for both energy and metals. In both cases, we remained focused on maximizing throughput and managing our risk. In particular on energy, we remain highly hedged for the next 12 months and we will utilize our load serving business to drive incremental margins for our base load renewable energy facilities. In the latter part of 2020, we began to see improvement in metals prices. There are multiple drivers, including an improving global economy, limited inventories of finished steel and the increased demand for recycled metals as the U.S. steel industry transitions toward electric arc furnaces that rely heavily on scrap steel. As a result, we entered 2021 with better pricing as compared to 2020 in both ferrous and non-ferrous metals.

Moving on to Slide 5, I'd like to remind you of Covanta's ongoing commitment to sustainability. The foundation of our company is our ability to provide an environmentally preferable alternative to landfilling of waste. This mission drove the construction of our plants initially and really defines our commitment as a business. All of our growth initiatives are centered-around providing sustainable solutions to our clients and customers. When we look at waste to energy, we see a multitude of benefits to the broader environment. The reduced waste going to landfills, which mitigates land usage, avoids leachate production and significantly reduces greenhouse gas emissions compared to the methane released by landfills.

We also generate electricity, which offsets the need to burn fossil fuels. And in 2020 we produced base load renewable electricity to power 1 million homes. Through our metal recovery efforts we recycled materials which reduces energy-intensive mineral extraction activities. Taken as a whole for each ton of waste we process, we reduced greenhouse gases by net nearly 1 ton on a lifecycle basis compared to the same waste going to a landfill. In 2020, our plants reduced greenhouse gas emissions by a total of almost 19 million metric tons. And at time of increasing awareness of the risks of climate change and a clear focus of the new administration, we think it is essential to highlight our role in decarbonisation. Outside of our beneficial greenhouse gas impacts, we also continue to prioritize sustainability throughout our organization and in the communities where we live and work. We have a diverse workforce today and we have goals in place to even better represent the communities where we operate.

Our workforce is the backbone of our company. And we believe their safety is paramount. During 2020, even with the additional challenges of operating during the pandemic, our safety protocols proved highly effective as we achieved a recordable injury rate of 0.73, a 9% decrease compared to last year and the lowest in our history. This is a testament to our team and their commitment to operating safely. As you can see from an ESG standpoint, we have a solid cultural focus and continue to drive improvement.

With that I'll turn it over to Brad to discuss the financial results. Brad?

Brad Helgeson -- Executive Vice President, Chief Financial Officer

Thanks, Derek.

And I'll begin my review of the financial results on Slide 6. Total revenue for 2020 was $1.9 billion up $34 million from 2019, driven by higher tip fee prices which added $16 million and new electricity load serving revenue which added $31 million. These were partially offset by lower environmental services revenue related to the pandemic slowdown over the spring and summer and lower project refurbishment activity at client-owned facilities for which we earn revenue.

Commodity market prices had a $6 million negative impact on revenue in 2020, split roughly evenly between energy and ferrous metal. Transactions overall reduced revenue by $10 million with asset divestitures and closures partially offset by a full-year of operation at the Manhattan Marine Transfer Station. Completing the year-over-year bridge long-term contract transitions added $6 million.

Now, moving on to Slide 7. Adjusted EBITDA was $424 million in 2020, a $4 million decline compared to 2019. Positive drivers were 3% tip fee growth, the new wholesale load serving contracts, higher EBITDA from Covanta Environmental Solutions and lower overhead costs reflecting the cost savings program that we instituted in response to the pandemic. These items were essentially offset by higher cost of operating during the pandemic and higher planned maintenance expense. Commodity prices represented a $5 million headwind to adjusted EBITDA, while transactions and long-term contract transitions added $3 million in total.

Now, turning to Slide 8. Free cash flow was $95 million for the year compared to $140 million in 2019. The adjusted EBITDA relatively flat, the primary year-over-year driver was higher planned maintenance capex consistent with our guidance at the beginning of the year. This was partially offset by increased cash flow from working capital which reflected a $20 million upside of our accounts receivable securitization program during the fourth quarter.

I will now review our outlook for 2021, please turn to Slide 9. We are initiating 2021 adjusted EBITDA guidance of $435 million to $465 million. The year-over-year increase is driven primarily by our forecast for higher recycled metals prices as Derek discussed. Before commodities, we're expecting results to be generally similar year-over-year. However, there are a number of variances under the surface both positive and negative as the pandemic leads to some noise in the comparisons. We expect tip fee growth of 3% to 5% as waste markets have largely returned to normal and we resumed trend growth. This remains the key driver for our results.

On the expense side, we expect to see some difficult comparisons. Our pandemic cost reduction program saved nearly $25 million in 2020 and while we remain highly focused on controlling costs in 2021, most of those savings were one-time in nature, most notably the temporary salary reductions and furloughs and will not recur in 2021. In addition like many companies, we experienced a reduction in medical benefit experience in 2020. Our guidance range assumes a return to normal or toward normalized levels, so we'll see how that plays out.

Lastly, with macro pressures in the insurance market, specifically adverse claims experienced and low interest rates, we're seeing an increase in property and casualty insurance costs of approximately $10 million in this year. I will note that our guidance discussed today does not reflect any potential actions taken as part of the strategic review. When we announce specific steps, we'll update guidance at that time, if and as appropriate.

Now, turning to Slide 10. We expect to generate free cash flow in the range of $100 million to $140 million in 2021. The main drivers are the year-over-year improvement in adjusted EBITDA as discussed and significantly lower maintenance capex. Lastly, we expect working capital to represent the $10 million to $30 million headwind on a year-over-year basis, essentially implying relatively flat working capital in 2021 compared to the positive cash inflow in 2020.

Now, please turn to Slide 11, where I will discuss capital allocation. We're expanding our usual presentation here to look at the overall utilization of free cash flow. From a discretionary growth perspective, we're planning approximately $20 million of investment this year, primarily funding construction in the UK. During 2019 and 2020, we garnered premiums and development cost recovery as our partners bought into the Rookery, Protos and Newhurst project at financial close. This helped to defray our investments in these projects.

Our dividend policy change announced in April resulted in a $44 million reduction in dividend payments in 2020 with an annualized reduction of approximately $90 million at the new rate reflected in 2021. We can now confidently point to a path of reducing our leverage before taking into account any actions resulting from the strategic review and our baseline expectation is to have $40 million to $80 million available for debt reduction in 2021, all else being equal.

Now, please turn to Slide 12, where I will provide an update on the balance sheet. At December 31, net debt was $2.5 billion, a $16 million increase from the year end 2019. Our consolidated leverage ratio was 6.2 times, which has remained largely flat during 2020 and our senior credit facility covenant ratio was two times. Available liquidity under our revolving credit facility was $443 million at year end.

I'll conclude my remarks with an update on our growing business in the UK and Ireland, please turn to Slide 13. We now have four projects under construction in the UK, which are expected to move into operations in the following order; Rookery in the first half of 2022, Newhurst and Earls Gate in 2023, and Protos in 2024. The schedule on the top right of this slide presents Covanta's required equity investment into the UK projects, sale proceeds and premiums received and the net of two. We estimate an additional $140 million of net investment through 2024 to complete construction of the four projects with the majority to come in 2022. We have more than ample cash flow and liquidity to fund these amounts.

As you can see the initial sale of a 50% interest in the Dublin project in 2018, where we formed our partnership with GIG along with premiums received in the UK to-date will in effect fund the entirety of our investments in the four new projects. When all projects are operational, we estimate that our business in Ireland and the UK will generate a $100 million to $110 million of adjusted EBITDA proportional for our ownership and $50 million to $60 million of free cash flow, reflecting project equity distributions and our O&M fees.

Given these estimates, along with our proportional share of the unconsolidated project debt of approximately $650 million on a fully funded basis, you have the necessary data to estimate the emerging value of this business. As I mentioned, Rookery is expected to reach commercial operation in the first half of 2022. For modeling purposes, as this date approaches Rookery will generate approximately $30 million of adjusted EBITDA to Covanta on an annual basis. As Mike discussed, we're pursuing additional projects and look forward to providing details as these developments mature. Given the continued need for landfill alternatives in the UK, attractive economics and a supportive regulatory framework, we see more opportunities for growth here and view the financial estimates that we're providing today as our starting point.

With that operator, we would like to move on to the Q&A portion of the call.

Questions and Answers:

Operator

[Operator Instructions] Our first question today comes from Noah Kaye with Oppenheimer. Please go ahead.

Noah Kaye -- Oppenheimer -- Analyst

Good morning. Thanks for taking the questions. I hope everyone is well. Mike, can I start with a question for you? Appreciate all the color on the priorities for the strategic review. I guess I would just ask, after 100 days or so of getting started with this review, what can you share with us about what you've learned or what you kind of have come to incrementally appreciate about the business and about the opportunities you see?

Michael W. Ranger -- President, Chief Executive Officer

A couple of things. First of all, the one conclusion that we came to quickly was the business is largely organized in a homogenized fashion. So, it's very consolidated without, I think, enough scrutiny for capital allocation directed at the most profitable assets. And we still need to and we're in the process of rationalizing what the expense structure should look like, once again, to warrant expenses directed at the most profitable operations. So, that would be the first.

The other is, is that some of that consolidated character is helpful when it comes to things like our environmental services business, where we bring the breadth of services that having Waste-to-Energy facilities have, plus our dedicated environmental services facilities, and together can supply an alternative for our commercial customers that is a zero landfill opportunity at premium pricing. So, that's one where together, that's a pretty strong customer-facing business that I think is somewhat unique. And then clearly, the UK is completely different than Ireland because those are now the newest technology, newest plants in a waste environment that is looking for non-landfill solution. So, that's very different than a client service business in North America, obviously, where you've got much more dated assets and you've got contractual, both obligations and contractually constrained pricing. So, being in a more merchant market for our own plants in North America and in the UK is obviously very preferential.

Noah Kaye -- Oppenheimer -- Analyst

That makes sense. And then it looks -- I mean, there's a lot of detail here as I think Brad said about the UK portfolio with which we can make our own valuation judgments. But it does look like you may have nudged expectations for kind of the profitability portfolio slightly higher. I'm just wondering, what has improved in your view about the sort of run rate profitability of the portfolio? Can you give us any color on what you're seeing in the UK and Ireland waste markets or anything you've seen improving in the economics? Thanks.

Brad Helgeson -- Executive Vice President, Chief Financial Officer

Yeah. Good morning, it's Brad. There were a few things that led us to nudging it up. In the UK, first off, as we always said when we provided preliminary ranges, those will be finalized based on our final equity ownership positions in the project. We ended up increasing our ownership percentage in the Protos project relative to what had been assumed in that range, number one. Number two is currency. Obviously, the pound has strengthened pretty significantly here recently. So we've updated -- we note this on the slide. We've updated for current forward currency rates. And then also the range contemplates certain asset management improvement opportunities we see at the Dublin project now that we've been operating it for a few years. And so, that shouldn't be viewed necessarily as a static level of contribution.

Noah Kaye -- Oppenheimer -- Analyst

Okay. That's very helpful. Thank you.

Brad Helgeson -- Executive Vice President, Chief Financial Officer

Sure.

Operator

The next question comes from Michael Hoffman with Stifel. Please go ahead.

Michael Hoffman -- Stifel -- Analyst

Hi. Thank you very much. Back to the strategic review, have you actually concluded certain assets should be marketed and advisors have been hired? And if such, if you're asking us to apply evaluation to, say, UK, could you give us what you're thinking about selling what that EBITDA looks like so we can incorporate that also in the analysis?

Michael W. Ranger -- President, Chief Executive Officer

We're at the point now where we're organized to seek third-party value from the market in terms of some specific assets. So once we have a sense of what the market would be interested in and what those value differentials could be relative to our publicly trading -- traded multiples. We'll have a much better sense of that, but clearly, until we get market feedback, we would be guessing at what was our greatest interest to the market. But as we said from the beginning that everything really is on the table to try to maximize the value of the company. So that interaction with the market is what we're going to be engaged in here in a pretty short period of time.

Michael Hoffman -- Stifel -- Analyst

Okay. So I'm a pretty simple fellow. Very specifically, you are chopping certain assets. And if you get appropriate values and you're prepared to sell them, and if you're not, you wouldn't, is that what I'm hearing?

Michael W. Ranger -- President, Chief Executive Officer

Yeah, that's fairly accurate. Right.

Michael Hoffman -- Stifel -- Analyst

Okay. On the capital side, Mike, you made a comment in the beginning about allocation across the portfolio versus cash flow. If I look at total maintenance spend between what goes through the P&L and what goes to the cash flow statement, how would I proportion what sort of the service fee side versus the company-owned side?

Michael W. Ranger -- President, Chief Executive Officer

That's a good question. Some of it would be volumetric in terms of the biggest plants with the most volumes would warrant more continued investment. So, and clearly the skewing across 39 plants in North America would be the merchant plants garner greater capital allocation than the client service plants do.

Michael Hoffman -- Stifel -- Analyst

Okay.

Michael W. Ranger -- President, Chief Executive Officer

And the split -- if you had to do is split, you would say maybe two-thirds, one-third might be about right. One-third being the client-owned plants and two-thirds being the merchant plants that Covanta owns.

Michael Hoffman -- Stifel -- Analyst

Okay. All right. That's very helpful. And then from a standpoint, Brad, of the guidance around this transparency on Slide 13, Dublin's about $30 million now. You're suggesting Rookery's about $30 million, that's the EBITDA sort of coming into the EBITDA contribution of the $100 million to $110 million. If I apply sort of a proportion of tons versus ownership, I can kind of map out the rest. I'm assuming that's not a bad way to look at how to map out the rest to get to the range of $100 million to $110 million.

Brad Helgeson -- Executive Vice President, Chief Financial Officer

No, it's not. I suspect you'd come pretty close using that methodology.

Michael Hoffman -- Stifel -- Analyst

Okay. And then using a 50% of the EBITDA as the cash generation is sort of a reasonable, multiple to just sort of drop the cash down from each one?

Brad Helgeson -- Executive Vice President, Chief Financial Officer

Yeah, more or less.

Michael Hoffman -- Stifel -- Analyst

Okay. All right. And then layout the same kind of pathway about -- it's a first year, middle, half contribution, and then kind of roll it forward that's -- so, if I get to 2025, 2026, that's when I'm at that $100 million to $110 million full contribution.

Brad Helgeson -- Executive Vice President, Chief Financial Officer

Yeah. I mean, of course, we haven't been specific yet as to first half, second half on Protos, Newhurst and Earls Gate, but if you want to assume mid-year in absence of any more specific guidance, which we'll give as we get closer, that's not inappropriate.

Michael Hoffman -- Stifel -- Analyst

Okay. And then, given the evolution of the metals markets in your own comment, and I agree, I cover some companies that do electric arc furnace dust recycling. Is there a growing opportunity to be able to hedge some of this volatility? I mean, I get historically haven't been able to, but can we start to head some of the volatility so we take that out of a business model?

Brad Helgeson -- Executive Vice President, Chief Financial Officer

Yeah, we can. And I would say for us, it's an emerging opportunity. As we have increased our -- and improved recovery and sorting of non-ferrous materials, I think, there'll be opportunities for us to, for example, specifically hedge copper as opposed to a mixed product, which really was not hedgeable historically. We haven't yet hedged on the non-ferrous material, but we see that as an opportunity going forward. On the ferrous side, the challenge we face is that the index we sell against with our off-takers is not one that's currently hedgeable effectively with a traded contract. There is a traded contract that we would hope to transition to over time that's essentially equivalent, that has a corresponding traded financial contract. We've done that at one plant so far and actually have begun as a result hedging ferrous prices, again, for the output at just one plant. So, baby steps so far, but absolutely our objective would be to hedge this revenue increasingly going forward.

Michael Hoffman -- Stifel -- Analyst

All right. Thank you very much.

Brad Helgeson -- Executive Vice President, Chief Financial Officer

Thank you.

Operator

The next question is from Tyler Brown with Raymond James. Please go ahead.

Tyler Brown -- Raymond James -- Analyst

Hey, good morning, guys.

Michael W. Ranger -- President, Chief Executive Officer

Good morning, Tyler.

Tyler Brown -- Raymond James -- Analyst

Hey. Hey, Derek, nice job on the tip fee pricing. I think all things considered this year. I know in the deck you talked about CPI being muted in 2021, but if we do see some higher CPI prints through this year, should we expect those to kind of flow through into 2022? And then can you just remind us maybe how much of the book is directly tied to CPI?

Derek W. Veenhof -- Executive Vice President, Chief Operating Officer

Well, first of all, thanks Tyler for the compliment on the tip fees. I appreciate that. A lot of work went into that. So, on the inflation escalation on the waste side, I would expect a lot of our indices move either at the mid-year or toward the end of the year. So yes, I think, your question is, would you see a benefit if CPI is less muted, would we see it in 2022, the answer to that would be yes. And then when you look at the overall revenue base between the service fee plants and the waste revenue, we have roughly about $1 billion of revenue tied to some form of escalation, some of it being fixed within the contract, some of it being exposed to whatever indices that contract is governed by.

Tyler Brown -- Raymond James -- Analyst

Right. [Speech Overlap]. Yes they'll move in sympathy with CPI, I would think.

Michael W. Ranger -- President, Chief Executive Officer

Yeah.

Tyler Brown -- Raymond James -- Analyst

Okay. And then you mentioned -- yeah, that's perfect. You mentioned 3% to 5% tip fee growth here in 2021. So, how much of that is simply mix versus, say, call it core pricing and do you have any bigger call it chunkier volumes set to rebid over the next couple of years in the Northeast?

Michael W. Ranger -- President, Chief Executive Officer

So, it's always going to be mix, because we keep the plants full, generally speaking absent a major snowstorm or two. So it's always going to be on the mix side. So right now, Tyler we're -- over the last few years, we've been pretty heavily contracted, committed. We actually have increased our committed alignment. Again, I think we're on the merchant side roughly 83% committed for this fiscal year. So, there's not a lot of wiggle room left on what's exposed currently.

But I do feel pretty strongly that as contracts roll-off we're repricing into and you're seeing it in our results. We're repricing into much stronger markets and stronger opportunities. And we can be a lot more disciplined, I think then, if you go several years back, we had a lot of exposure at a lot of these plants and the reality is, because of our contracted nature now, we've got a lot more flexibility to be choosy about what we chase.

Tyler Brown -- Raymond James -- Analyst

Okay. Okay, very helpful. And then Brad just appreciate the simple EBITDA bridge. But I was hoping for a little more color in that core business piece. So I think you gave a little bit of color on some of the, I'm going to call it costs comebacks, but specifically how much of the headwind are all of those costs coming back, which includes healthcare and insurance, and everything. Basically, I'm trying to figure out how strong the core business is that's basically offsetting that. Does that make sense?

Brad Helgeson -- Executive Vice President, Chief Financial Officer

It does, yeah. I mean the three that we can point to relatively discretely are insurance, which I mentioned in my prepared remarks is about $10 million year-over-year. That's mostly driven by a pretty substantial increase in our premiums for property and casualty coverage which is a market phenomenon. It's not a Covanta specific phenomenon. Medical benefits for employees, the experience there, our forecast and what's assumed in our guidance has that higher by close to $10 million as well, that's based on actuarial estimates and so we'll see what happens there, it's just an estimate at this point.

And then the other that cited, that I would describe as relatively discrete was the specific cost reduction program that we've put in place last year. We benefited from that, we calculated $24 million in total cost savings specific to that program. We will retain some of those cost reductions. Certainly travel for example has not gone back to where it was, given the macro environment and other reasons we've maintained a pretty tight grip on new hiring as another example in the corporate office. So,we'll retain some of it, but most of it was by definition temporary. That was by design. So, I don't have a specific number for you, but I would say majority -- the vast majority of that $24 million should come back.

Tyler Brown -- Raymond James -- Analyst

Okay. But there could be some lingering comebacks, I guess in 2022. And there's probably some structural saves as well?

Brad Helgeson -- Executive Vice President, Chief Financial Officer

Absolutely. Well. And as Mike said at the beginning, one of the things we're looking at with the strategic review of course is, as our business evolves, what's the right cost structure for this business and so nothing we've talked about today regarding guidance reflects of course any of those thoughts.

Derek W. Veenhof -- Executive Vice President, Chief Operating Officer

And just to follow up on that. I mean, if you just think about it from a perspective of having a North American portfolio of 39 plants plus an Environmental Services business, if you make some moves to streamline the business by definition, you're going to have a step function change in cost structure. So that's one of the things that we're spending an enormous amount of time on. You want to come out of this in a very advantageous position and when you think about cost structures, that's all what we're working on. We're trying not to do it from the top-down but from the bottom-up and figure out what we need, what's essential, what will allow us to continue to operate with the integrity that we've had in the most cost-effective way. So that's why it's taking a little more time, but it's better than trying to enforce from the top, just across the board kind of reductions without that kind of thought behind it.

Tyler Brown -- Raymond James -- Analyst

Okay. That's helpful. And then my last one, if I can squeeze this one in. So, Mike, I'm just not much of a utility guy, but basically what is load serving, that line keeps creeping up. You've talked about it quite a few times in the call, but basically just what is that, what drives it and how do we think about that into the future?

Michael W. Ranger -- President, Chief Executive Officer

It's really a stabilizing force. It's the advance -- I mean, Derek used the term, so I'll use it as well. It's a renewable, sustainable base load facility, which is unusual in that regard. And so, it's able to be on-call to support the system. So if a utility, like for example in New Jersey, where we've got more wind, I mean more solar power now because of the public policy support work, so that intermittent power needs to be levelized against when it can't operate, right and so having the load stabilizing facilities like we have, basically levelizes some of the ups and downs that you would get in the system now. So the system is just more volatile.

I mean, not to get into all of this, but you could see the perfect storm in Texas was too many things that were -- that all correlated to each other. So when you've got something like we have that can operate this way, it's very different because it's not correlated to natural gas prices. It's not going to have constraints or pipelines. So, it's going to operate in a way that is somewhat counter to those things that are most sensitive on a electric system.

Tyler Brown -- Raymond James -- Analyst

Okay. That's very helpful. I didn't want to go down a rabbit hole. Thank you. Appreciate it.

Operator

Next question is from Mario Cortellacci with Jefferies. Please go ahead.

Mario Cortellacci -- Jefferies -- Analyst

Hi good morning. Just -- on the strategic review I think you touched on, obviously, you're chopping some of the assets, but I guess just could you give us a sense for whether if this could be a plant or two or three and maybe separate sales or is this something where you're even considering bundling a few plants, if the offer is right from a particular buyer?

Michael W. Ranger -- President, Chief Executive Officer

All the above and that's the whole idea of value discovery in the market, is to figure out what is the most attractive configuration to the market and what kind of valuations -- differentials can we get for it. So, everything you just described is what is in the process of being pursued.

Mario Cortellacci -- Jefferies -- Analyst

Got it. And then obviously you're still in the process. Just thinking about potential buyers, would you expect something to be more from a PE perspective or are you selling to municipalities? Obviously, like I said, this is more or less like a speculation, but if you had to guess one way or the other, I guess, who do you think would be the best strategic buyer for something like that?

Michael W. Ranger -- President, Chief Executive Officer

Well, our assets fit a lot of categories, so it depends upon where the value would come in. And clearly the nature of our business fits pretty well with private equity infrastructure focused pools of capital. So, I mean that's clearly one alternative and there are strategics in every line of our business. So, we wouldn't want to discount that either. But clearly there's a cost of capital advantage that some pools of capital would bring to the profile of our various business segments.

Mario Cortellacci -- Jefferies -- Analyst

Got it. Okay. And then just last one from me. On profiled waste, I think you guys were up 3% on the year, does that imply you are negative in Q4 and is that just driven more from the resurgence of the virus and I guess more and more restrictions or lockdowns? And then what you guys are thinking for profiled waste in 2021 in terms of volume and price that you can get there?

Brad Helgeson -- Executive Vice President, Chief Financial Officer

Yeah. Hey, Mario, it's Brad. I'm not sure what numbers you're looking at to imply down Q4, we were up Q4. So maybe we can take that offline to help reconcile that. But looking ahead to next year, we're looking at 5% to 10% growth in profiled waste. Again, which has been the rate of growth we've had in that business as far back as I can remember.

Mario Cortellacci -- Jefferies -- Analyst

Got it. Thank you.

Operator

[Operator Closing Remarks]

Duration: 48 minutes

Call participants:

Daniel Mannes -- Vice President of Investor Relations

Michael W. Ranger -- President, Chief Executive Officer

Derek W. Veenhof -- Executive Vice President, Chief Operating Officer

Brad Helgeson -- Executive Vice President, Chief Financial Officer

Noah Kaye -- Oppenheimer -- Analyst

Michael Hoffman -- Stifel -- Analyst

Tyler Brown -- Raymond James -- Analyst

Mario Cortellacci -- Jefferies -- Analyst

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