1. Workshop & Webcast 1:30 - 3:30 March 2, 2004 1

2. Damian Bassett Stewardship Ontario “Examining 2004 & 2005 Steward Fees” 2

3. TODAY’S AGENDA 1:30 – 1:35 Welcome Damian Bassett – Stewardship Ontario 1:35 – 1:45 Examining 2004 & 2005 Steward Fees Derek Stephenson – Stewardship Ontario 1:45 – 2:40 Preliminary Fees for 2004 Guy Perry – Stewardship Ontario Cost Allocation Project Dan Lantz – MacViro 2:40 – 3:25 Question Period Derek Stephenson Guy Perry 3:25 – 3:30 Closing Remarks Damian Bassett 3

4. TODAY’S INSTRUCTIONS Remember: veterans and rookies alike in audience 2 nd audience listening in on-line Save questions for Q & A at the end – Guy will break ½-way for preliminary questions * with Dan Lantz Those on-line:  download slides from our homepage within the Yahoo player, or “minimize” player, and download slides from our homepage through your web browser  e-mail Questions - from your regular email program - to: questions@stewardshipontario.ca 4

5. TODAY’S OBJECTIVES Focus on the setting of Steward fees for the second half of 2004 and the development of fees for 2005 Examine the allocation of costs to each Blue Box material collected in the Ontario municipal waste system Webcast archived – 180 days Deadline to comment – March 10, 2004 5

6. 6 “Examining 2004 & 2005 Steward Fees” Derek Stephenson Stewardship Ontario

7. Introduction Review of Fee Setting Formula Cost Allocation Preliminary Fees for 2004 Proposed Consultation Proposed Process for Setting 2005 Fees EXAMINING FEES 7

8. Blue Box Program Plan (BBPP) approved December 22, 2003 Extension of BBPP for 6 months First year “2003” stewards fees extended to be effective to end of June 2004 Minister requires 2004 fees for July though December to be submitted by March 31, 2004 EXAMINING FEES 8

9. 9 “Preliminary Fees for 2004” Guy Perry Stewardship Ontario

10. Draft for CONSULTATION – Preliminary Material Levies for Obligated Stewards for 2004 ADDITIONAL INFORMATION Information on some of the tables on these slides has been aggregated for the purposes of presentation. Detailed tables summarizing the calculation of 2004 fees are available from the website www.stewardshipontario.ca Background information may be found in the February 2003 Blue Box Program Plan (BBPP), particularly,  Section 9.10 - Setting Fees  Appendix XI – Pay In Model, and  Appendix IX - Cost Allocation Principles 10

11. Draft for CONSULTATION – Preliminary Material Levies for Obligated Stewards for 2004 INTRODUCTION Net cost of Blue Box Program represents ~82% of fees Net cost negotiated to be higher in 2004:  Net cost negotiated to be $62.5 million for first year (2003), as per BBPP gross cost of ~ $129.2 million; revenues of $66.7 million  Net cost negotiated to be $84 million for 2004 Gross cost of ~ $150.5 million; revenues of ~ $66.5 million 11

12. Draft for CONSULTATION – Preliminary Material Levies for Obligated Stewards for 2004 CONTEXT Negotiated gross cost is higher by ~16%, but in fact,  Actual costs have not increased significantly in system  Most of increase due to improved information on costs  Obtained through detailed financial survey of all municipalities (2003 financial datacall) 12

13. Draft for CONSULTATION – Preliminary Material Levies for Obligated Stewards for 2004 CONTEXT To set 2004 fees, first considered raising each material cost by same proportion  However, it was recognized that we need to improve data & to ensure there is a link between allocation & real system material costs Recommended => 2004 fees should be based on updated material-specific costs obtained from additional field study of cost for managing materials in municipal programs 13

14. Draft for CONSULTATION – Preliminary Material Levies for Obligated Stewards for 2004 FUNDING MODEL - PRINCIPLES Five key Principles: Reflect the true costs to manage each designated Blue Box material Consider the benefits to all stewards from high recycling rates achieved by some materials Encourage increased material recycling rates Minimize the total net costs to the members of Stewardship Ontario (SO), e.g., reflect positive revenue Encourage stewards to select materials that can be recycled at lower costs 14

15. Draft for CONSULTATION – Preliminary Material Levies for Obligated Stewards for 2004 BLUE BOX WASTE Blue Box Waste is defined as: Printed materials and packaging that are made of paper, glass, metal, plastics, textiles or any combination of these materials that are used by consumers and households and that make their way into municipal waste management systems. A steward is required to report on all packaging and printed materials that are primarily destined for Ontario households and therefore managed by municipal waste management systems. This includes consumer packaging and printed material sold through all distribution channels that may subsequently find its way into the municipal waste stream such as from retail and take out food service. The materials within the Blue Box are addressed within the funding model in two streams: All printed paper, and All packaging 15

16. Draft for CONSULTATION – Preliminary Material Levies for Obligated Stewards for 2004 BASIS FOR FEE PAYMENTS The fees paid by stewards are based on:  Blue Box Waste generation  Blue Box recycling rates  Gross costs for managing recyclables, and  Revenue, primarily from sale of recyclables The model for calculating fees is comprised of 3 elements: 1.Blue Box Waste generation and diversion 2.Net cost to manage (gross cost less revenue) 3.Funding formula 16

17. Draft for CONSULTATION – Preliminary Material Levies for Obligated Stewards for 2004 BASIS FOR FEE PAYMENTS Fees are to be updated annually  February - June, 2004 => 2003 fees based on 2001 system data  July – December, 2004 => 2004 fees based on 2002 system data  2005 fees will be based on 2003 system data Fees are reported as annual figures, but for the 1st 5 months of 2004 the 2003 fees will be used for the later 6 months the 2004 fees will be used 17

18. Draft for CONSULTATION – Preliminary Material Levies for Obligated Stewards for 2004 WASTE GENERATION Generation based on waste audits in several municipalities residential sector only - not sales into the marketplace Updated for 2002 => incorporated additional audits => Also population growth (1.46%) 1,578,500 tonnes of Blue Box recyclables generated in Ontario households in 2002 18

19. Draft for CONSULTATION – Preliminary Material Levies for Obligated Stewards for 2004 RECYCLED Source: annual datacall administered by WDO, MOE & SO 727,006 tonnes diverted in 2002, up 27,750 tones or ~ 4% from 2001 The overall diversion rate for the Blue Box program in 2002 was 46% 19

20. Draft for CONSULTATION – Preliminary Material Levies for Obligated Stewards for 2004 ALLOCATION OF COSTS Allocation of costs refers to attributing the cost of the Blue Box System to individual materials to set material fees Net costs (gross cost less revenue) represent ~82% of fees Although fees are expressed as $/tonne or ¢/kg, fees are NOT determined according to weight 20

21. Draft for CONSULTATION – Preliminary Material Levies for Obligated Stewards for 2004 ALLOCATION OF GROSS COSTS Fees are established by first determining the gross costs & revenues for management of each material Gross costs for managing each material are determined using “activity-based costing” (ABC)  Outlined in Blue Box Program Plan (BBPP), Appendix IX For 2003 fees => costs allocated using the best available data from studies using similar ABC approach MPAC recommended further allocation studies (field study of municipal programs) to establish 2004 material costs 21

22. Draft for CONSULTATION – Preliminary Material Levies for Obligated Stewards for 2004 ACTIVITY-BASED COSTING (ABC) 1.ABC assigns costs to the activities which incurred the costs, e.g. labour cost for sorting, cost of wire for baling, cost of fuel for collection, cost of hydro for running magnets, capital cost of conveyors 2.ABC then allocates these costs to individual materials based on what caused the cost, e.g. time spent sorting PET, quantity of wire used for newsprint bales, portion of fuel for collecting volume of cardboard, hydro for magnetic separation of steel cans, capital cost of eddy current separator for aluminum  Minimizes the allocation of costs on an arbitrary basis, i.e. costs assigned that are not related to how costs actually incurred  Covers all aspects of program, incl. capital, operating and administration 22

23. Draft for CONSULTATION – Preliminary Material Levies for Obligated Stewards for 2004 ACTIVITY-BASED COSTING (ABC) The detailed set of principles by which the costs are assigned to activities and then to specific materials is presented in Appendix IX of BBPP The principles were developed by a subcommittee of Materials Packaging Advisory Committee (MPAC) in the fall of 2002  starting with earlier work of a municipal and industry task group 23

24. Draft for CONSULTATION – Preliminary Material Levies for Obligated Stewards for 2004 COST ALLOCATION PROJECT Five municipal programs were studied in 2003/4  Both collection & processing operations  represent a range of systems, size, cost structures Field study involved conducting detailed operational measurements  time-motion studies of complete collection routes & processing facility operations,  Building & capital equipment layout,  capital equipment & all operational costs, and  production & residue rates ABC analysis to determine gross cost to manage each material in each program 24

25. Draft for CONSULTATION – Preliminary Material Levies for Obligated Stewards for 2004 COST ALLOCATION PROJECT Extrapolate gross cost for each material province-wide  assigned weighting factor to each program  represented the proportion of total tonnes marketed in the province managed by that type of program  for each material => Sum of gross cost multiplied by weighting factor from applicable program Report will be available  results,  observations about operations,  possible recommendations on how to improve the approach, and  a set of guidelines on how to conduct such ABC studies 25

26. Draft for CONSULTATION – Preliminary Material Levies for Obligated Stewards for 2004 2002 COSTS 2002 material costs calibrated to negotiated gross system cost of $150.5 million Negotiated gross cost higher for 2002 than 2001 ~ $21.5 million Higher gross cost for all materials, except  glass (due to operational changes), and  boxboard (due to improved allocation method) 26

27. Draft for CONSULTATION – Preliminary Material Levies for Obligated Stewards for 2004 2002 COSTS 27

28. Draft for CONSULTATION – Preliminary Material Levies for Obligated Stewards for 2004 2002 REVENUE For total revenue,  WDO Cost Containment Committee agreed to use the 3-year average of municipally reported revenue ~$66.5 million Adjusted to account for municipalities not reporting 3 years of data For material specific revenue,  The total municipally-reported revenue was apportioned to individual materials based on the 3- year average of CSR price sheet a monthly survey of market prices  This is consistent with approach used to establish first year fees 28

29. Draft for CONSULTATION – Preliminary Material Levies for Obligated Stewards for 2004 COMPARISON OF SELECTED PRICES 29

30. Draft for CONSULTATION – Preliminary Material Levies for Obligated Stewards for 2004 2002 REVENUE Lower for most materials, except ONP, polycoat, OBB & film Total 2002 revenue ~ $66.5 million 30

31. Draft for CONSULTATION – Preliminary Material Levies for Obligated Stewards for 2004 PROGRAM GROSS COSTS & REVENUES For 2001, the gross cost of the program negotiated to be $129.2 million & revenue negotiated to be $66.7 million, Net $62.5 million – limited survey 31

32. Draft for CONSULTATION – Preliminary Material Levies for Obligated Stewards for 2004 PROGRAM GROSS COSTS & REVENUES For 2002, the gross cost of the program negotiated to be $150 million & revenue to be $66 million, net $84 million – mostly due to better data 32

33. Draft for CONSULTATION – Preliminary Material Levies for Obligated Stewards for 2004 2002 NET COSTS – Printed Paper Negotiated Total System Net costs ~ $21.5 million higher Printed Paper net cost ~ $4.2 million higher  ~ 6% of total system net cost  ~ 20% of the “increase” in system net cost 33

34. Draft for CONSULTATION – Preliminary Material Levies for Obligated Stewards for 2004 2002 NET COSTS – Packaging Packaging net cost ~ $17.4 million higher  ~ 94% of total system net cost  ~ 80% of the “increase” in system net cost 34

35. Draft for CONSULTATION – Preliminary Material Levies for Obligated Stewards for 2004 CALCULATING MATERIAL LEVIES After setting material gross cost & revenues => net costs, The Industry portion of total net system cost is allocated to each material based on three weighting factors: 1.Recovery Rate – 40% of total cost to industry 2.Net Cost – 40% of total cost to industry 3.Equalization Factor – 20% of total cost to industry 35

36. Draft for CONSULTATION – Preliminary Material Levies for Obligated Stewards for 2004 CALCULATING MATERIAL LEVIES – Recovery Factor Recovery Rate Calculation – 40% of net cost  Recovery rates are compared relative to one another by comparing each to the mean  Separate calculations for printed paper and packaging  Net costs allocated so that levy ($/tonne) is: higher for materials with lower recovery rates lower for materials with higher recovery rates, and the same for materials with the same recovery rate  The total levy ($) will be proportional to tonnes generated 36

37. Draft for CONSULTATION – Preliminary Material Levies for Obligated Stewards for 2004 CALCULATING MATERIAL LEVIES – Net Cost Factor Net Cost Calculation – 40% of net cost  Levies are proportional to each material’s percentage of the system current net cost  40% of the net system cost is allocated in proportion to the cost of managing each material in the Blue Box system E.g, if the net cost of managing a material represents 5% of the total net cost of the current Blue Box program, it is assigned 5% of $ allocated to the net cost levy (40%) 37

38. Draft for CONSULTATION – Preliminary Material Levies for Obligated Stewards for 2004 CALCULATING MATERIAL LEVIES – Equalization Factor Equalization Calculation – 20% of net cost  A means of promoting fairness in sharing costs by accounting for different $/tonne to manage materials, and compensating for different current recycling rates, by assuming all materials are recycled at the same rate  Determine the net incremental cost to manage 75% recovery of each material  Incremental cost to manage 75% recovery calculated by: 1.multiplying 75% of the tonnes generated by the net cost per tonne to manage a given material, & 2.subtracting the current net cost 38

39. Draft for CONSULTATION – Preliminary Material Levies for Obligated Stewards for 2004 CALCULATING MATERIAL LEVIES – Equalization Factor Equalization Calculation – 20% of net cost  Levies ($) are proportional to each material’s percentage of the incremental cost (over the current system) of the system in which all materials recycled at the same rate (75% recovery) E.g, if the cost to manage 75% recovery of a material represents 5% of the total incremental cost to manage 75% of all materials, it is assigned 5% of the $ allocated to Equalization (20%) 39

40. Draft for CONSULTATION – Preliminary Material Levies for Obligated Stewards for 2004 CALCULATING MATERIAL LEVIES – Base Levy Sum of each of three levies assigned to each material  Recovery Rate Factor levy + Net Cost Factor levy + Equalization Factor levy Changing the weightings (40%, 40% and 20%) will have an impact on the levies assigned to each material, currently weightings established through a series of sensitivity analyses to minimize variance of levies between material categories 40

41. Draft for CONSULTATION – Preliminary Material Levies for Obligated Stewards for 2004 PRELIMINARY 2004 BASE FEES 41

42. Draft for CONSULTATION – Preliminary Material Levies for Obligated Stewards for 2004 OTHER COSTS Other program costs & WDO & SO Administration added to the base levy, e.g.  Ensuring compliance  Market development  Effectiveness & Efficiency Fund  Program audits – cost containment  Start-up  WDO & SO Admin, e.g. annual financial & tonnage datacall 42

43. Draft for CONSULTATION – Preliminary Material Levies for Obligated Stewards for 2004 OTHER COSTS 43

44. Draft for CONSULTATION – Preliminary Material Levies for Obligated Stewards for 2004 CALCULATING FINAL LEVIES A factor to account for de minimis & projected Year 1 compliance rate is applied.  De minimis: small businesses are exempt from paying levies < $2,000,000 in annual Ontario sales, or < 15 tonnes of Blue Box material generated  Compliance: It will take time to “capture” all stewards Lower rates are assumed for first year as program is established 44

45. Draft for CONSULTATION – Preliminary Material Levies for Obligated Stewards for 2004 PRELIMINARY 2004 FEES – Printed Paper Figures represent total fees for printed paper including,  Base Fee, Other programs, Program Delivery, Administration & Start-up  adjusted to account for compliance & de minimis factors Figures for Newsprint are after the deduction for in-kind contribution of $1.3million 45

46. Draft for CONSULTATION – Preliminary Material Levies for Obligated Stewards for 2004 CNA/OCNA IN-KIND CONTRIBUTION The in-kind contribution ($1.3 million) is deducted from the fees of CNA/OCNA stewards (excluding the SO & WDO administration & start-up costs). Deduction should not apply to fees for non-CNA/OCNA generated newsprint Calculation not presented in this way in BBPP & in information on 2004 fees  a reliable figure for the quantity of non-CNA/OCNA material will not be available until stewards have filed their sales figures Therefore, it is proposed that once data are filed, the fees will be adjusted accordingly. Preliminary audit data suggest that up to 20% to 30% of the newsprint could be generated by stewards who are not part of CNA/OCNA. Given this,  Preliminary 2004 fee for non-CNA/OCNA stewards could be ~ 0.241¢/kg  Part of the administration fee currently allocated to CNA/OCNA members will be distributed to non CNA/OCNA members, maintaining the per-kg levy for CNA/OCNA members 46

47. Draft for CONSULTATION – Preliminary Material Levies for Obligated Stewards for 2004 PRELIMINARY 2004 FEES – Packaging Figures represent total fees for packaging including,  Base Fee, Other programs, Program Delivery, Administration & Start-up, adjusted to account for compliance & de minimis factors 47

48. Draft for CONSULTATION – Preliminary Material Levies for Obligated Stewards for 2004 PRELIMINARY 2004 FEES – Selected Paper Items 48

49. Draft for CONSULTATION – Preliminary Material Levies for Obligated Stewards for 2004 PRELIMINARY 2004 FEES – Selected Packaging 49

50. Draft for CONSULTATION – Preliminary Material Levies for Obligated Stewards for 2004 CONSULTATION 0N 2004 FEES Need to submit 2004 fees to Minister by March 31, 2004 Consulting on:  Preliminary 2004 Fees  Process for Setting 2005 Fees Proposed Timeline:  MPAC & Stewards Initial ReviewFebruary 17  Stewardship Ontario BoardFebruary 20  Seminar & Webcast for Stewards & StakeholdersMarch 2  Last Date for CommentsMarch 10  Report to Stewardship Ontario Board March 10  SO Board Approval of Recommended FeesMarch 15  Report to WDO BoardMarch 16  WDO Board Approval of Recommended FeesMarch 23 50

51. Draft for CONSULTATION – Preliminary Material Levies for Obligated Stewards for 2004 PROPOSED PROCESS TO SET 2005 FEES Blue Box Program Plan says submit preliminary 2005 fees to Stewards by August 15, 2004 Plan says establish final 2005 fees by November 1, 2004 Issues:  Completion of 2003 data verification & set total net system cost  Revisit Funding Formula => 40:40:20 allocation of net cost  Additional cost allocation study 51

52. Draft for CONSULTATION – Preliminary Material Levies for Obligated Stewards for 2004 PROPOSED PROCESS TO SET 2005 FEES Proposed Timeline: 52

53. Q & A questions@stewardshipontario.ca 53

54. DATES TO REMEMBER Blue Box Plan Approved December 22, 2003 Steward Obligations Effective February 1, 2004 Steward Pre-Registration Began on January 21, 2004 www.stewardshipontario.ca Deadline to Register & Pay Fees April 20, 2004 54

55. ADDITIONAL CONSULTATION Week of March 8, 2004  Public Consultation see www.stewardshipontario.ca webcast 1:00 pm, March 11  Municipal Consultation see www.wdo.ca webcast 9:30 am, March 11 55

56. KEY NEXT STEPS Steward Deadline for Comment Wednesday, March 10 Write to: chair@stewardshipontario.ca Stewardship Board Monday, March 15 WDO Board Tuesday, March 23 Minister of the Environment Wednesday, March 31 56

57. ADDITIONAL SUPPORT Stewardship Ontario Membership Services  www.stewardshipontario.ca  1-888-288-3360  questions@stewardshipontario.ca  Stewardship Ontario 26 Wellington Street East, Suite 601 Toronto, Ontario M5E 1S2 57

58. Thank You 58