Reasonable Cost Bands

1. Reasonable Cost Bands Glenda Gies WDO Moderator

2. Blue Box Cost Containment • WDO’s Cost Containment Plan • submitted to Minister on July 12, 2004 • approved on December 30, 2004 • Minister requested • an accelerated timetable • Reasonable Cost Bands implemented in 2006 rather than 2008 as proposed

3. Blue Box Cost Containment • MIPC’s task • measure program performance • determine “reasonable” program performance • define Reasonable Cost Bands in relation to program performance • all to be completed by June 2006 • to apply Reasonable Cost Bands to 2004 net system cost • for calculating 2006 stewards fees

4. Our Speakers for this Session • Guy Perry – E&E Factor • Technical Services, Stewardship Ontario • Stewardship Ontario representative on MIPC • Andy Campbell – Reasonable Cost Band Agreement • Director, Solid Waste Management, Region of York • municipal representative on MIPC • Question & Answer Session

5. Efficiency & Effectiveness Factor Guy Perry Stewardship Ontario Member of MIPC’s Cost Containment Team

6. Measuring Recycling Program Performance • Dual objectives of Blue Box Program defined by Minister • increasing diversion (60% target) • cost containment – reducing system cost or minimizing increase as diversion increases • Typical measures • cost ($/tonne or $/household) • gross cost, revenue, net cost • recovery (kilograms/household/year or tonnes/year or %) • Blue Box Program Plan (BBPP) identifies these measures • Cost containment plan • measure both cost & recovery • proposed efficiency & effectiveness

7. Calculating Efficiency • Measured using net program cost per tonne of Blue Box materials recovered Net Cost/Tonne = Net Program Cost divided by Tonnes BB Material Recovered Net Program Cost = Gross Program Costs – Program Revenues • Lower net cost per tonne indicates higher efficiency Efficiency = program performance on cost

8. Calculating Effectiveness • Measured using program recovery rate (% recovery) Recovery rate (%) = Recovery of BB material divided by Generation of BB material Recovery = Tonnes of material marketed as reported in annual WDO Datacall Generation = estimated materials generated based on historic province-wide waste audit data cross-checked with steward data • Higher recovery rate indicates higher effectiveness Effectiveness = program performance on diversion

9. Calculating Generation Generation = estimated materials generated based on historic province-wide waste audit data cross-checked with steward data • Waste generation estimates are based on historic waste audits throughout province • audits in single-family (large & small urban & rural) & multi-residential • Cross-checked waste audit results with steward reports & for some materials, replaced waste audit figures • newsprint, LCBO glass, telephone directories, paint cans, aluminum foil

10. Calculating Generation (2) • For each municipality, calculated generation based on households of each type • Extensive waste audit program underway to refine these generation estimates over time • more than 28 SF audits & 12 MF audits

11. Combining Efficiency & Effectiveness • E&E Factor combines program efficiency & effectiveness for overall performance measurement • Better performers tend to have lower E&E factors • higher efficiency (lower cost) in numerator • higher effectiveness (higher % recovery) in denominator

12. Example: 2004 E&E Factor

13. Reasonable Cost Bands Agreement Andy Campbell Regional Municipality of York Member of MIPC’s Cost Containment Team

14. Reasonable Cost Bands Agreement What are “reasonable” costs?

15. MIPC’s Task • Given Minister’s request, identify options that would determine reasonable costs to achieve net system cost reduction • Negotiations took place in June 2005 • Compromise reached & approved by AMO, WDO & Stewardship Ontario boards

16. Negotiated Options

17. Reasonable Cost Principles • All programs have room for improvement • Reasonable costs are better than current costs • Effectiveness & Efficiency (E&E) Factor will be used to measure performance of better performing programs • existing eight municipal program groups used • Defined by a percentile • percentiles will be decreased for 2007 over 2006 so that cost bands in 2007 reflect better performance over 2006

18. Reasonable Cost Definition • E&E factor calculated for each program in each “cost band” grouping • Reasonable Cost E&E factor calculated as mean plus one standard deviation of E&E factors for better 75% performing programs • Reasonable Cost E&E factor converted to Reasonable Costs for each affected program by multiplying by its recovery rate

19. Municipal Cost Band Groupings

20. How Reasonable Cost Was Applied

21. The Negotiated Compromise • $24M reduction to overall net system cost over two years • $10M in year 2006 • $14M in year 2007

22. Reasonable Cost Impact (2006)

23. How is Program Funding Calculated? • Apply Municipal funding Allocation Model (MFAM) • Reduce funding for programs higher than the Reasonable Cost E&E Factor for each municipal grouping

24. MFAM Elements & Factors • Factors • material density factor • population density factor • revenue discount factor • Municipal Elements • tonnage marketed by material by municipality • population per hectare based on 2001 census data

25. MFAM & Reasonable Cost Municipal Datacall submission $5M funding reduced from poorer performing programs based on E&E factor MFAM Max & min threshold applied Adjustments made to correct for any reporting corrections from previous year 10% late submission penalty applied to applicable programs

26. 2006 Impact

27. “Best Practice” by 2008 • What does “Best Practice” mean for you? • identifying “Best Practice” • possible further reduction in funding • financial incentive to modify your program to align with “Best Practice” performance

28. Summary • 2006 funding • $10M reduction applied to 2004 net Blue Box system cost • applied to poorer performing programs based on E&E factor • minimum threshold set at 23% • 2007 funding • $14M reduction will be applied to 2005 net system cost in the same way as for 2006 • 2008 funding • “Best Practice” costs

29. Questions & Answers

30. Break

31. On-line ‘What-If’ Tool Glenda Gies WDO Moderator

32. What-If Tool • Municipal Funding Allocation Model • four workshops in spring 2004 • municipal participants consistently requested • user-friendly model • so municipalities could run their own scenarios • MIPC responded by developing a • ‘What If’ tool

33. What-If Tool • Designed to test how program changes would have affected funding, revenue & recovery rates • By modifying material recovery rates & households served in your last Datacall submission • Identifies what your funding would have been if the program changes had been implemented prior to that Datacall year • Cannot predict future funding as this is affected by • actual Blue Box system gross cost, revenue & net cost in future years • materials collected & tonnes marketed by all other Ontario Blue Box Programs in future years

34. Our Speaker for This Session • Bob Argue – Demonstration of ‘What If’ Tool • President, REIC Perth • Executive Director of ecoPerth, (a non-profit, volunteer organization working on climate change) • consultant to IWDO on development of Municipal Funding Allocation Model (MFAM) • consultant to WDO on modifications to MFAM • retained to develop a user friendly ‘What If’ version of MFAM for municipal use

35. Live Demonstration of the ‘What-If’ Tool Bob Argue REIC Perth

36. Log-In

37. 2004 Municipal What-If Tool

38. Summary Funding

39. Example of a High Recovery Scenario

40. Table of Contents

41. Household Equivalents

42. Available Materials

43. Table of Contents

44. Build Your Own Scenario

45. Example of Scenario Graph

46. Questions & Answers

47. Thank You! Waste Diversion Ontario, www.wdo.ca Stewardship Ontario, www.stewardshipontario.ca Association of Municipalities of Ontario, www.amo.on.ca