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Reasonable Cost Bands
Glenda Gies
WDO
Moderator
Blue Box Cost Containment
 WDO’s 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
Blue Box Cost Containment
 MIPC’s 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
Our Speakers for this Session
 Guy Perry – E&E 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
Efficiency & Effectiveness
Factor
Guy Perry
Stewardship Ontario
Member of MIPC’s Cost Containment Team
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 $/household)
• gross cost, revenue, net cost
–
–
recovery (kilograms/household/year or tonnes/year or %)
Blue Box Program Plan (BBPP) identifies these measures
 Cost containment plan
–
–
measure both cost & recovery
proposed efficiency & effectiveness
Calculating Efficiency
Efficiency = program performance on cost
 Measured using net program cost per tonne of Blue Box
materials recovered
Net Cost/Tonne = Net Program Cost divided by
Tonnes BB Material Recovered
Net Program Cost = Gross Program Costs – Program
Revenues
 Lower net cost per tonne indicates higher efficiency
Calculating Effectiveness
Effectiveness = program performance on diversion
 Measured using program recovery rate (% recovery)
Recovery rate (%) = Recovery of BB material divided by Generation
of BB material
Recovery = Tonnes of material marketed as reported in annual WDO
Datacall
Generation = estimated materials generated based on historic
province-wide waste audit data cross-checked with steward data
 Higher recovery rate indicates higher effectiveness
Calculating Generation
Generation = estimated materials generated based on historic
province-wide waste audit data cross-checked with steward data
 Waste generation estimates are based on historic waste
audits throughout province
–
audits in single-family (large & small urban & rural) &
multi-residential
 Cross-checked waste audit results with steward reports
& for some materials, replaced waste audit figures
–
newsprint, LCBO glass, telephone directories, paint
cans, aluminum foil
Calculating Generation (2)
 For each municipality, calculated
generation based on households of
each type
 Extensive waste audit program
underway to refine these generation
estimates over time
–
more than 28 SF audits & 12 MF audits
Combining Efficiency & Effectiveness
 E&E Factor combines program efficiency &
effectiveness for overall performance measurement
E & E Factor 
E & E Factor 
Efficiency
Effectiveness
Net Cost/Tonne($/tonne)
% Recovery (%)
 Better performers tend to have lower E&E factors
–
–
higher efficiency (lower cost) in numerator
higher effectiveness (higher % recovery) in denominator
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E&E Factor ($/tonne / % BB recovery)
Example: 2004 E&E Factor
Profile of Net E&E Factors for Small
Urban Municipal Blue Box Programs
10
9
8
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6
5
4
3
2
1
0
Reasonable Cost Bands
Agreement
Andy Campbell
Regional Municipality of York
Member of MIPC’s Cost Containment Team
Reasonable Cost
Bands Agreement
What are “reasonable” costs?
MIPC’s Task
 Given Minister’s 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
Negotiated Options
Option
Description
Pros
Cons
Program Net Costs
Include costs for each
program up to a
threshold
Simple to apply
Using net cost does not
consider performance on
recovery
Component Net Costs
Focuses on elements
of each program
Considers variation
program elements
adding to precision of
analysis
Using net cost does not
consider performance on
recovery
Effectiveness &
Efficiency (E&E)
Factors
Include costs for each
program up to a
threshold defined by
the selected E&E factor
Considers
performance on
recovery & the effect
on cost
More difficult to apply
Component
Effectiveness &
Efficiency (E&E)
Factors
Include costs for each
program element for
each program up to a
threshold defined by
the selected E&E factor
for each program
element
Considers
performance on
recovery & the effect
on cost
Most difficult to apply
Considers variation in
individual program
elements
Problems with different
aggregation of data
Reasonable Cost Principles
 All programs have room for improvement
 Reasonable costs are better than current costs
 Effectiveness & Efficiency (E&E) 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
Reasonable Cost Definition
 E&E factor calculated for each program in
each “cost band” grouping
 Reasonable Cost E&E factor calculated as
mean plus one standard deviation of E&E
factors for better 75% performing
programs
 Reasonable Cost E&E factor converted to
Reasonable Costs for each affected
program by multiplying by its recovery rate
Municipal Cost Band Groupings
Large Urban
# of programs
Urban Regional
71
80
70
Small Urban
60
Rural Regional
50
32
40
30
20
10
0
4
9
16 16
22 20
Municipal Groupings
Rural Collection
South
Rural Depot South
Rural collection
North
Rural Depot North
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E&E Factor ($/tonne / % BB recovery)
How Reasonable Cost Was Applied
Profile of Net E&E Factors for Small
Urban Municipal Blue Box Programs
10
9
8
7
6
5
4
3
2
1
0
Mean + Standard Deviation at 75th
Percentile
The Negotiated Compromise
 $24M reduction to overall net system cost
over two years
–
$10M in year 2006
–
$14M in year 2007
Reasonable Cost Impact (2006)
80
total # of programs
# of affected programs
No. of programs
70
60
50
40
30
20
10
0
Large
Urban
Urban
Regional
Small
Urban
Rural
Regional
Rural
Collection
South
Rural
Depot
South
Rural
collection
North
Municipal Cost Band Grouping
Rural
Depot
North
How is Program
Funding Calculated?
 Apply Municipal funding Allocation Model
(MFAM)
 Reduce funding for programs higher than
the Reasonable Cost E&E Factor for each
municipal grouping
MFAM Elements & Factors
 Factors
–
material density factor
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population density factor
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revenue discount factor
 Municipal Elements
–
tonnage marketed by material by municipality
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population per hectare based on 2001 census
data
MFAM & Reasonable Cost
Municipal Datacall submission
$5M funding reduced from
poorer performing programs
based on E&E 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
2006 Impact
Funding Reduction Due to Reasonable Cost Band
$30
Funding (millions)
$25
reduced funding
total allocated funding
$20
$15
$10
$5
$0
Large
Urban
Urban
Regional
Small
Urban
Rural
Regional
Rural
Collection
South
Rural
Depot
South
Rural
collection
North
Municipal Cost Band Grouping
Rural
Depot
North
“Best Practice” by 2008
 What does “Best Practice” mean for you?
–
identifying “Best Practice”
–
possible further reduction in funding
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financial incentive to modify your program to
align with “Best Practice” performance
Summary
 2006 funding
–
–
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$10M reduction applied to 2004 net Blue Box system
cost
applied to poorer performing programs based on E&E
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
Questions & Answers
Break
On-line ‘What-If’ Tool
Glenda Gies
WDO
Moderator
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
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‘What If’ tool
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
Our Speaker for This Session
 Bob Argue – Demonstration of ‘What If’ Tool
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President, REIC Perth
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Executive Director of ecoPerth, (a non-profit,
volunteer organization working on climate change)
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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
Live Demonstration of the
‘What-If’ Tool
Bob Argue
REIC Perth
Log-In
2004 Municipal What-If Tool
Summary Funding
Example of a High Recovery Scenario
Table of Contents
Household Equivalents
Available Materials
Table of Contents
Build Your Own Scenario
Example of Scenario Graph
Questions & Answers
Thank You!
Waste Diversion Ontario, www.wdo.ca
Stewardship Ontario, www.stewardshipontario.ca
Association of Municipalities of Ontario, www.amo.on.ca