Recycling Reimagined Overcoming Today’s Challenges…

1. Recycling Reimagined Overcoming Today’s Challenges… Tracy Nestor Senior Area Manager Municipal Sales Mid-Atlantic Area

2. Today’s Agenda Introduction Our Understanding: Evolving Ton Recycling Life Cycle Trends in Markets Trends in Products / Stream Impacts to Providers Route Assumptions and Risks Approaches to Recycle the Recycling Model 4 Contractual Approaches Partnership Service Changes Flat Rate Increase Contamination Fees More Information

3. The Recycling Life Cycle Factors Driving Costs • Participation rates – Higher participation, while the goal, drives more costs • Pounds per set-out – plays a significant role in service cost per household • Commodity mix – changes in the stream can impact processing costs • Residual/contamination – drives additional direct costs • Commodity value – direct impact on any returns

4. Trends in Markets • Glass has negative value in most markets, unless supported by subsidies • Corrugated Cardboard has decreased in price per ton for last 5 years • End markets impacted by global slow-downs

5. Trends in Material Trends Implications • Material no longer in circulation • 18M tons in 2000  ~2M in 2015 • Lighter-weight and limited end markets • HDPE  off-spec PET • Lighter-weight and flexible packaging not recyclable • Tin can  copolymer pouch Waste minimization increasing pressure on total waste and recycling tons

6. Lightweighting of Material Lightweighting requires processing of more material to yield a ton of marketable commodity 1. Pulp & Paper Weekly, Official Board Markets, 2016 3. International Bottled Water Association. Retrieved from http://www.bottledwater.org/

7. Importance of Public Education Yard Waste Styrofoam Pizza Boxes Food Contamination Clothing

8. Examples of Education

9. Effects on Current Recycling Businesses Collection Prices do not cover costs • Unable to subsidize from commodity sales Light-weighting leads to more items per load • We have more material to process per ton Lack of Public Education and Contamination drives additional costs • Cross contamination • Disposal costs from residual 2011 2015 Tons Collected Net Revenue Working harder to process more tons, for a fraction of the revenue

10. https://youtu.be/0d_QeQIzwEY

11. Municipal Contract Example • City of ABC • Volume based MSW and carted recycling service • 13,000 units • 85% participation • 23.5 lbs./week set out • Assumed 10% residual • Assume material value covers processing costs

12. Impact of Assumptions • Accurate assumptions are key to sustained profitability • Cannot control market factors impacting recycling • An alternative economic model is required

13. Four Approaches to Durable Contracting Contract terms need to be durable to facilitate success • Partnership – Contracts structured to cover costs, with shared upside from commodities • Service Changes – Potential changes can yield lower costs, without change in pricing to community • Flat Rate Increase – Common approach to reconciling contracts • Contamination Fees – Recognize added costs when contamination passes a certain level

14. Negotiated Variable Rate based on service delivery AND commodity values and material stream, date certain Periodic material audits Collaborative public education Transparent market/cost-based mechanisms (as applicable) Comprehensive audit procedures, including frequency Indexed commodity value matrix, or similar Clear responsibility of parties Partnership Approach Definition Critical Contractual Elements Pros • Solves for volatility • Incorporates material mix • Shared Risk/Reward – partnership • Transparency Cons • Changing/unpredictable pricing • Customer confusion • Route based characteristics • Potentially less competitive

15. Modification of level of service, frequency or size Implemented at start of contract or mid-term Requires public outreach and education New rate in payment schedule, or similar Complimented with contamination limits Clear responsibility of parties Potential recordkeeping or reporting (if desired by City) Service Change Approach Definition Critical Contractual Elements Cons Pros • Risk mitigation • Potential reduced operating costs • Potentially more competitive • Managing through change • Does not eliminate volatility • Does not protect against further downside • Capital requirements (potential)

16. Increased revenue to cover cost of service AND lower value material stream Implemented at start of contract or mid-term New rate in payment schedule, or similar Potential language for automatic ‘opener’ language (based on major changes) One-time Price Increase Approach Definition Critical Contractual Elements Cons Pros • Risk mitigation • Keep all upside in commodity markets • Does not eliminate volatility • Does not protect against further downside • Potentially less competitive

17. Pre-determined fees for glass and/or contamination; based on frequent audits Glass fee binary or percentage based Contamination fee percentage based Requires public education component Agreed upon acceptable levels of glass/contamination Fee rate(s) in payment schedule (likely tabular form) Customer options to avoid/mitigate Clear responsibility of parties Separate Contamination/Glass Fee Approach Definition Critical Contractual Elements Pros • Risk mitigation • Potential reduced operating costs • Potentially more competitive Cons • Changing/unpredictable pricing • Community confusion (don’t recycle at all) • Lower recycling participation

18. Let’s do our part to protect, preserve and sustain recycling. Help your residents learn more about the issues facing recycling and how to address them at RepublicServices.com/Sort-Smarter.