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

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

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

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

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

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/

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

Examples of Education

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

https://youtu.be/0d_QeQIzwEY

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

Impact of Assumptions Accurate assumptions are key to sustained profitability Cannot control market factors impacting recycling An alternative economic model is required Get new excel file

Four Approaches to Durable Contracting 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 Contract terms need to be durable to facilitate success

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

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

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

Separate Contamination/Glass Fee Approach Definition 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 Critical Contractual Elements 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 Pros Risk mitigation Potential reduced operating costs Potentially more competitive Cons Changing/unpredictable pricing Community confusion (don’t recycle at all) Lower recycling participation

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.