California Integrated Waste Management Board 1 CIWMB Board Meeting - Item 10 (Presented at the Strategic Policy Development Committee) Discussion of Possible Adjustments to the Recovery and Recycling Payment Rates and the Electronic Waste Recycling Fee within the Covered Electronic Waste Recycling Program April 22,

California Integrated Waste Management Board 2 This item will cover: Recap of program growth to date Preliminary findings from 2007 Net Cost Reports Summary of DOF validation project Discussion of industry business practices Analysis of fund condition / financing considerations Update on future uncertainties Open discussion But first…

California Integrated Waste Management Board 3 Handling Electronic Waste In CA Electronic waste is hazardous waste –Includes covered electronic waste (CEW) May be managed as universal waste Presently two categories: –CRT (cathode ray tube) materials –Universal waste electronic devices “CRT material handler” means any person who generates, accumulates, stores, treats, or recycles any universal waste CRT material.

California Integrated Waste Management Board 4 Handling Electronic Waste In CA DTSC regulates universal waste handling –Notification, reporting, inspections, etc CIWMB only pays approved CEW recyclers –Recyclers obligated to pay approved collectors –Collectors might compensate handlers Artificial value of CEW does create regulatory and compliance challenges

California Integrated Waste Management Board 5 Electronic Waste Recycling Act Established system to pay for the recovery and recycling of CEW – Only CEW from CA sources are eligible – Must be recycled (cancelled) in CA – CIWMB sets payment rates to cover average net costs Payment system is funded by fees assessed on consumers of new covered electronic devices (CED) – DTSC determines what constitutes a CED – CIWMB determines fee structure to maintain solvency

California Integrated Waste Management Board 6 CEW Payment System

California Integrated Waste Management Board 7 Revenue, Payments & Volumes FY 2004/05 - $31 million –$11.4 million claimed (~24 million lbs) FY 2005/06 - $78 million* –$45.9 million claimed (~95 million lbs) FY 2006/07 - ~$78 million – ~$75 million claimed (>150 million lbs) FY 2007/08 - ~$83 million projected – ~$105 million projected (>210 million lbs)

California Integrated Waste Management Board 8 (Note that 1st quarter 2008 quantities represent only a portion of anticipated claims. Recyclers may submit a claim up to 45 days after the end of a reporting month.)

California Integrated Waste Management Board 9 (Note that 1st quarter 2008 quantities represent only a portion of anticipated claims. Recyclers may submit a claim up to 45 days after the end of a reporting month.)

California Integrated Waste Management Board 10 Financial Considerations Fund Condition: –At current rates, depletion in FY 08/09 –CIWMB has authority to make adjustments Revenue Source: –Current $6, $8, or $10 fee on retail CED sales –List / nature of CEDs will change over time Cost Demands: –CIWMB, DTSC, BOE operations –Recovery and Recycling Payments ($.48/lb)

California Integrated Waste Management Board 11 Payment Rate Considerations CIWMB must reconsider “payment schedule” on or before July 1, 2008 – Rates should cover the average net cost for a collector to collect, consolidate, and transport, and for a recycler to receive, process, and recycle, covered electronic wastes. Net Cost Reports inform CIWMB Difficult to compare enterprises

California Integrated Waste Management Board 12 Net Cost Reporting Approved participants must submit annual reports as/if directed by CIWMB Latest report was due March 1, 2008 –Compliance improved –CIWMB disciplining violators Preliminary analysis of raw 2007 data –Trend of decreasing costs continued

California Integrated Waste Management Board 13 Costs Reported for 2005 Weighted AverageMeanMedian Percentage Below Standard Payment Rate Recovery Revenue Cost Net Cost % Recycling Revenue Cost Net Cost % Costs Reported for 2006 Recovery Revenue Cost Net Cost % Recycling Revenue Cost Net Cost %

California Integrated Waste Management Board 14 Net Costs Reported for 2007 (Preliminary) Weighted AverageMeanMedian Percentage Below Standard Payment Rate Recovery Revenue NA Cost NA Net Cost % Recycling Revenue NA Cost NA Net Cost %

California Integrated Waste Management Board 15 Comparison of Weighted Average* Net Costs (cents/pound) (preliminary) Recovery Recycling Total * The weighted average reflects the overall industry cost, calculated as if the industry operated as a single organization – i.e., by dividing the total reported costs by total pounds for all participants in the study sample. By its nature, this measure is affected by the costs of larger operations more than smaller ones.

California Integrated Waste Management Board 16 Net Cost Report Validation Confidence in reported costs? CIWMB retained DOF audit services –Used agreed upon procedures –Determined if available documentation supported reported costs –Targeted range of business sizes, models, and regions –Rated subjects using three-tiered scale Results mixed, but encouraging… –Refer to Attachment 3

California Integrated Waste Management Board 17 Net Cost Report Validation Dual entities (collector/recyclers) tended to score well in validation –Records supported reported costs –Applied to both collection and recycling activities Stand-alone collectors’ performance depended on focus of enterprise –Handling that was incidental to broader activities tended to score poorly –Handling that was primary focus of enterprise tended to score well

California Integrated Waste Management Board 18 Qualitative Industry Survey Program staff contacted participants – 197 collectors contacted, 146 responded – 37 recyclers contacted, 26 participated Mean payment to collectors: $.22/lb – Some recyclers paying over $.30/lb Most collectors do not pay sources – Most do not charge for extra services – Most are not charged for service above regulatory basics

California Integrated Waste Management Board 19 Qualitative Industry Survey What governs business transactions? – Agreements address pricing, packaging, transportation, labor, non-compete, other supplies/support, etc. – Written contracts – Verbal agreements – No agreements Non-CEW payment: Highly variable Evolving business climate

California Integrated Waste Management Board 20 Revenue Considerations Program funded by Electronic Waste Recycling Fee –Currently $6, $8, or $10 assessed on CEDs CIWMB has obligation to adjust fee for fund solvency –Statute establishes adjustment factors –Must be done on or before August 1 st

California Integrated Waste Management Board 21 Revenue Considerations Fee adjustments will be necessary! –Pace of CEW recovery has outstripped funds Degree & structure of adjustments will be dependent on need & trends –Program growth, payment rate will affect need –Evolving mix of CED size categories

California Integrated Waste Management Board 22 Revenue Considerations Historical total CED sales: –2005 – 9.9 million units –2006 – 10.6 million units –2007 – 10.1 million units Allocation of CED sales in size categories: –2005 – 23%72%4% –2006 – 24%67%8% –2007 – 25% 64%11%

California Integrated Waste Management Board 23 Revenue Considerations Model assumptions: – Loan of ~$40 million (repaid by late 2010) – CED sales volume and size allocations constant – Average revenue per CED sold Current average revenue is ~$7.64 per CED sold – Aiming to remain solvent for two-plus FYs For discussion purposes only!!!

California Integrated Waste Management Board 24 Model 1: No change to recycling payment rate ($.48/lb) Assumes program growth of ~4 million pounds per quarter Raise E-Waste Fee to $18.60 average revenue per CED sold Possible fee structures to achieve average per device revenue of $18.60: $6 / $22 / $28 $8 / $21 / $29 $10 / $20 / $30 Fiscal YearRevenues Retailer Admin Fee Pounds Recycled Recycling Payments All Other Expenditures Loan Payments Yr End Balance FY 08/09*$ 185,704$ (5,571)300,000$ (144,000)$ (12,660)$ (9,352)$ 28,008 FY 09/10$ 207,743$ (6,232)366,667$ (176,000)$ (12,660)$ (28,056)$ 12,803 FY 10/11$ 207,743$ (6,232)433,333$ (208,000)$ (12,660)$ (4,676)$ (11,022) *Revenue in the 2008/2009 fiscal year includes loan amount.

California Integrated Waste Management Board 25 Model 2: Change to recycling payment rate ($.40/lb) Assumes program growth of ~4 million pounds per quarter Raise E-Waste Fee to $15.60 average revenue per CED sold Possible fee structures to achieve average per device revenue of $15.60: $6 / $18 / $24 $7 / $17 / $27 $8 / $16 / $31 Fiscal YearRevenues Retailer Admin Fee Pounds Recycled Recycling Payments All Other Expenditures Loan Payments Yr End Balance FY 08/09*$ 167,330$ (5,020)300,000$ (120,000)$ (12,660)$ (9,352)$ 34,185 FY 09/10$ 174,236$ (5,227)366,667$ (146,667)$ (12,660)$ (28,056)$ 15,812 FY 10/11$ 174,236$ (5,227)433,333$ (173,333)$ (12,660)$ (4,676)$ (5,848) *Revenue in the 2008/2009 fiscal year includes loan amount.

California Integrated Waste Management Board 26 Model 3: No change to recycling payment rate ($.48/lb) Assumes program growth of ~2 million pounds per quarter Raise E-Waste Fee to $15.60 average revenue per CED sold Possible fee structures to achieve average per device revenue of $15.60: $6 / $18 / $24 $7 / $17 / $27 $8 / $16 / $31 Fiscal YearRevenues Retailer Admin Fee Pounds Recycled Recycling Payments All Other Expenditures Loan Payments Yr End Balance FY 08/09*$ 167,330$ (5,020)267,000$ (128,160)$ (12,660)$ (9,352)$ 26,025 FY 09/10$ 174,236$ (5,227)301,000$ (144,480)$ (12,660)$ (28,056)$ 9,838 FY 10/11$ 174,236$ (5,227)335,000$ (160,800)$ (12,660)$ (4,676)$ 712 *Revenue in the 2008/2009 fiscal year includes loan amount.

California Integrated Waste Management Board 27 Future Uncertainties Latest on DTV Broadcasting Transition – Consumer Electronics Association estimates DTV transition will result in only 15 million discards thru 2010 – 48% of OTA households surveyed plan to get converter box and use existing TV – Over 10 million converter box coupons have been requested from NTIA by over 5 million households

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California Integrated Waste Management Board 29 Summary Several key factors to consider –Program growth continuing; may be slowing? –Cost of recovery and recycling less than payments –Looming fund depletion –Future discard rate unclear CIWMB has authority to make adjustments –Payment rate adjustment to better reflect costs Will slow fund depletion May also slow CEW recovery; impact participants –Fee adjustment must cover shortfall Ability to adjust annually allows flexibility and prudence

California Integrated Waste Management Board 30 Next Steps Program will further evaluate need and options for payment rate adjustments Anticipate returning to Board in May for consideration of rate adjustments Program will refine models to assess impacts of fee adjustments Anticipate returning to Board in June for consideration of fee adjustments