Reasonable Cost Bands

1
Reasonable Cost Bands

• Glenda Gies
• WDO
• Moderator

2
Blue Box Cost Containment

• WDOs 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

• MIPCs 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 EE 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 MIPCs 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

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Calculating Efficiency
Efficiency program performance on cost

• 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

8
Calculating Effectiveness
Effectiveness program performance on diversion

• 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

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

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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

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Combining Efficiency Effectiveness

• EE Factor combines program efficiency
  effectiveness for overall performance measurement

• Better performers tend to have lower EE factors
• higher efficiency (lower cost) in numerator
• higher effectiveness (higher recovery) in
  denominator

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Example 2004 EE Factor
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Reasonable Cost Bands Agreement

• Andy Campbell
• Regional Municipality of York
• Member of MIPCs Cost Containment Team

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Reasonable Cost Bands Agreement

• What are reasonable costs?

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MIPCs Task

• Given Ministers 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
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Reasonable Cost Principles

• All programs have room for improvement
• Reasonable costs are better than current costs
• Effectiveness Efficiency (EE) 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

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Reasonable Cost Definition

• EE factor calculated for each program in each
  cost band grouping
• Reasonable Cost EE factor calculated as mean
  plus one standard deviation of EE factors for
  better 75 performing programs
• Reasonable Cost EE factor converted to
  Reasonable Costs for each affected program by
  multiplying by its recovery rate

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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

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Reasonable Cost Impact (2006)
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How is Program Funding Calculated?

• Apply Municipal funding Allocation Model (MFAM)
• Reduce funding for programs higher than the
  Reasonable Cost EE Factor for each municipal
  grouping

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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 EE 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
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2006 Impact
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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

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Summary

• 2006 funding
• 10M reduction applied to 2004 net Blue Box
  system cost
• applied to poorer performing programs based on
  EE 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

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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

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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

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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

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Live Demonstration of the What-If Tool

• Bob Argue
• REIC Perth

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Log-In
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2004 Municipal What-If Tool
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Summary Funding
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Example of a High Recovery Scenario
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Table of Contents
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Household Equivalents
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Available Materials
43
Table of Contents
44
Build Your Own Scenario
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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