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Slide 1 August 31, 2004 Steward & Stakeholder Consultation TOPICS: Update on Stewards’ Registration Governance & Market Development: Phase II Preliminary.

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Presentation on theme: "Slide 1 August 31, 2004 Steward & Stakeholder Consultation TOPICS: Update on Stewards’ Registration Governance & Market Development: Phase II Preliminary."— Presentation transcript:

1 Slide 1 August 31, 2004 Steward & Stakeholder Consultation TOPICS: Update on Stewards’ Registration Governance & Market Development: Phase II Preliminary Stewards’ Fees for 2005

2 Consultation Process Two phased consultation to address issues identified in approved Blue Box Program Plan (BBPP)  governance structure  market development Phase I – Round Table Discussion held July 15  Circulated discussion notes to registrants for accuracy  Posted notes for comments from all stakeholders  Received comments Slide 2

3 Phase II Considering Options: Seek opinions on issues in approved BBPP only Timing of “enhancements” requested by Minister; potential impact on fees unknown Slide 3

4 Today’s Objectives Inform stewards about key activities of the organization Ensure fee setting is transparent Request feedback on matters before the Board of Directors Fulfill requirements of approved BBPP Slide 4

5 Today’s Agenda - Morning 10:15 Welcome, Damian Bassett 10:30 Update, Stewardship Ontario Registration Questions & Comments Gordon Day 10:55 Governance Questions & Comments Derek Stephenson & Dennis Darby, Chair of Board 11:45 Market Development Questions & Comments Geoff Love 12:10 (approx.) Lunch Slide 5

6 Today’s Agenda - Afternoon 12:45 Resume Meeting Preliminary Stewards 2005 Fees Questions & Comments Guy Perry 2:20 - 2:30 (approx.) Adjourn Slide 6

7 Today’s Instructions New participants from all stakeholder groups 2 nd audience listening on-line Those on-line:  we’ll note the number as we change the slide  e-mail questions/comments  from your regular email program  to the address below Webcast available in archives – 180 days Slide 7

8 Gordon Day Update on Stewards’ Registration Slide 8

9 Update on Stewards’ Registration Summary of steward reports to date Summary by sector categories Compliance & enforcement procedures Slide 9

10 Summary Of Steward Reports* 2,484 organizations have registered 1,416 declared as stewards  481 Blue Box Waste (BBW) but under $2 million  587 registered as “no BBW” Reported weight: 75.6% of projection/basis for setting fees Reported fees: 90.2% of projection/basis for setting fees * As of August 20 Slide 10

11 Still Outstanding Adjustments to stewards submissions (<50) Registered, but have not reported (300) No response to notification letter (2,000) New steward notifications (400) Slide 11

12 Summary of Reported Stewards Slide 12

13 Compliance Procedures – 4 Stages Stage 1 – Notification of Potential Stewards Stage 2 – MOE Confirmation Letter Stage 3 – MOE Enforcement Stage 4 – Stewardship Ontario Audits Slide 13

14 Stage 1- Notification First class letter to all identified potential steward organizations in January Phone calls to key potential stewards (Top 300) Thorough review & paring of original list Follow-up phone call (call centre) to all non- respondents in May/June Final warning letter part of procedures before MOE Enforcement Slide 14

15 Stage 2 – MOE Confirmation Letter Primary purpose to confirm legitimacy of Stewardship Ontario (feedback following call centre activities) Supported by MOE Enforcement Mailed August 30 th with supporting Stewardship Ontario instructions Letter targeted at the outstanding notified & registered potential stewards Slide 15

16 Stage 3 – MOE Enforcement MOE recruiting & training two dedicated enforcement officers Preparing 2-3 test cases for enforcement procedures Stewardship prepares & transfers file of evidence & contacts Once enforcement procedures begins, MOE proceeds to charging Slide 16

17 Stage 4 – Stewardship Ontario Audits Initial advisory group meeting set for September 1st Members include RCC, CCGD, FCPMC, LCBO, Refreshments Canada, BDO Dunwoody Decision to be taken on percent of stewards & percent of reported quantities to audit Target start date is October Slide 17

18 Questions & Comments Slide 18

19 Derek Stephenson & Dennis Darby, Chair of the Board “Governance” Slide 19

20 Process to Date Future Structure Committee reviewed: Slides presented at July workshop & webcast Notes on Round Table discussions circulated for review & comment by participants Comments/submissions received following workshop & notes posted Draft discussion paper prepared Recommendations of Committee approved by Board of Directors for purposes of consultation Slide 20

21 Discussion Paper Included: Overview of consultation process & timing Profile of registered stewards Key functions of Stewardship Ontario & key stakeholders identified Key governance issues to be addressed Broad options for structuring board Copies of all background material Slide 21

22 Options Identified Board consisting of stewards only with voting allocated on basis of: a) fees only b) modify existing board to reflect fees paid by sector, or c) combination of fees paid & quantities of Blue Box waste reported Board consisting of stewards & representatives from industry supply chain Board consisting of stewards, suppliers & other stakeholders Slide 22

23 Principles Identified Structure must fairly represent members who pay fees Basis for setting fees must be transparent Information used to set fees must be accessible Board must be accountable to membership Slide 23

24 Preliminary Recommendation Rationale: WDO serves as multi-stakeholder body  provides oversight of activities of Stewardship Ontario Other affected stakeholders have successfully made their views known to WDO, the Government of Ontario & Stewardship Ontario Voting representation for board by stewards only Slide 24

25 Preliminary Recommendation Rationale, continued: Key issue for AMO is calculation of annual net cost of Ontario’s Blue Box program  input is assured through equal representation on MIPC (which undertakes this work) & through their role on WDO Need remains for an industry-only body to manage obligated stewards’ affairs Effective mechanism required for input from other key stakeholders  NGOs, waste management companies, suppliers Slide 25

26 Current Board Structure Founding Board of Directors represent 7 existing industry sectors represented on WDO expected to be designated stewards Food & Consumer Products Manufacturers of Canada Canadian Council of Grocery Distributors Retail Council of Canada Refreshments Canada Canadian Newspaper Association Liquor Control Board of Ontario Canadian Paint & Coatings Association & Canadian Consumer Specialty Products Association Stewardship Ontario CEO (ex-officio) Slide 26

27 Size & Composition of Revised Board 10 - 15 members with representation by industry sector through delegate steward or trade association Consumable Products:FCPMC, Refreshments Canada, CCSPA Retail & Distribution:RCC, CCGD, ORHMA Beverage Alcohol:LCBO Printed Media:CNA, OCNA Other Sectors (TBD):durables (appliances, shoes, etc.) At large:Stewardship Ontario CEO Slide 27

28 Board Sectors Should be weighted to reflect fees paid by sector Preliminary weightings based upon stewards reports to date: SECTORSEATS Consumables6 Retail & Distribution4 Beverage Alcohol1 Printed Media1 Other Sectors (TBD)2 At large1 Total (maximum)15 Slide 28

29 Review Sectors Annually Adjust defined sectors & sector weightings if the relative percentage of fees paid by any sector varies by ± 10% Staggered appointments for individuals to board would be for three year periods Board restructuring through election by membership at Stewardship Ontario’s 2005 Annual General Meeting Slide 29

30 Feedback Appreciated On… Proposed board governance model Sector weightings Inclusion of “other” industry sectors Options for other stakeholders to have access to board  top-to-top meetings with industry sectors  committees of board  observers Size of board Slide 30

31 Next Steps Review of comments by Future Structure Committee  by September 7 Review & decision of board on September 14 Forward to WDO Slide 31

32 Questions & Comments Slide 32

33 Geoff Love Market Development Slide 33

34 Market Development Backgrounder 3 Part Presentation 1) Review 2003 Blue Box Recovery Rates 2) Present Market Development planned activities for 2005 & impact on fees 3) Invite comment for final input to Stewardship Ontario Board of Directors Slide 34

35 Background Discuss market development activities as per approved Blue Box Program Plan (BBPP) – i.e. 50% Blue Box recovery by 2006 Recognize that Minister’s request for 60% diversion of Blue Box materials by 2008 will likely require:  additional market development  enhanced recovery efforts (i.e. beyond approved plan) Slide 35

36 Summary of 2003 Residential Blue Box Recovery by Material Category (tonnes) 20022003 2002 to 2003 % Change WDO Reported Recovery Material Stewardship Ontario Projected Generation WDO Reported Recovery Stewardship Ontario Projected Generation WDO Reported Recovery Printed Paper732,000409,754635,200430,6145.1% Paper-Based Packaging* 332,300134,980328,100156,90216.2% Aluminum Cans 27,00010,77626,10010,113-6.2% Steel Cans69,10033,47266,90032,583-2.7% Glass Total179,400106,097194,700114,2497.7% Plastics Total238,70031,928219,00035,38210.8% Totals1,578,500727,0071,470,000779,8447.3% * Including polycoat Slide 36

37 Blue Box Recovery Summary Approved BBPP set target of 50% recovery by 2006  system needed addition of about 35,000 tonnes/year of curbside recycling from 2002 to 2006 (i.e. total of 145,000 tonnes) In 2003, almost 53,000 more tonnes were recycled  up from about 33,000 more tonnes in 2002 Generation of obligated printed papers & plastics are down based on additional waste audit information & in the case of ONP, stewards’ reports Projected Blue Box recovery rate has increased from 46.1% in 2002 to 53% for 2003 Steward reports & an aggressive audit program (through the E&E fund) will be used in 2005 to continue to improve accuracy of Blue Box generation estimates Slide 37

38 Three Part Market Development The BBPP contains a three part market development program to meet material specific targets:  mixed glass,  “green” procurement &  “other material” plans Slide 38

39 Glass Market Development Investment Program Two Glass Funds 1.REOI (longer term) 2. Glass Business Planning/Feasibility Study: “Glass Diversion Fund” (nearer term) Slide 39

40 1) REOI (longer term) Up to $2 M (from glass Stewards) for 2004/05 Initiating meetings with GTA municipalities re: mixed glass tonnes available Detailed RFP for qualified applicants (fall/winter) Glass Market Development Investment Program Slide 40

41 2) Glass Business Planning/Feasibility Study: “Glass Diversion Fund” (nearer term) $500K business planning & feasibility study fund to support projects up to $25K (matching funding basis) e.g. local investment opportunities Funding guidelines now posted on Stewardship Ontario website - first project funding expected in fall 2004 Glass Market Development Investment Program PROGRAM GOAL - stabilize markets, higher value uses, reduce net costs by at least $10/tonne focused on GTA/Golden Horseshoe tonnes Slide 41

42 Heard at July Consultation Five written responses to July 15 workshop materials: 1 steward; 4 material suppliers Common comments:  Quality control & increased recovery are of higher importance for most materials than market development  Need for regular “state of the market” meeting for all stakeholders  Limited interest in green procurement  Concern regarding Stewardship Ontario’s role on the issue of cooperative marketing  Two targeted materials requiring market development are mixed broken glass & plastics #3 to #7 Slide 42

43 Stewardship Ontario Green Procurement Plans for 2005 BBPP commits Stewardship Ontario to a business planning process that examines potential benefits of launching a new green procurement program Steward reaction to research to date has been neutral at best  Stewards want to see tangible benefits before making a major investment  Whatever might be done must be voluntary in nature Not seen as a 2005 high priority given other pressures & current overall system performance against 50% target Slide 43

44 Green Procurement Recommendation Focus procurement activities on tangible opportunities (e.g. examine/promote glass-in- aggregate applications developed through the glass fund) Participate in MOE & /or WDO – led procurement discussions that may result from Minister’s 60% goal On-going business planning to examine potential benefits & costs Slide 44

45 “Other Material” Market Recommendations No substantial new “Other Material” market development activities recommended until 2005/2008 targets are established by Minister Initiate planning for film/other plastics REOI in mid 2005 (for 2006 fees) = $100K in 2005 fees Develop “Enhanced Recovery” program plan in 2005 (for 2006 implementation) based on detailed analysis of February 3, 2004 datacall results Priorize “least cost next tonne”/enhanced recovery projects though E&E Fund in 2005 Slide 45

46 Questions & Comments Slide 46

47 Lunch Break Slide 47

48 Guy Perry Preliminary Stewards’ Fees for 2005 Slide 48

49 Overview Key Factors affecting Fees Overall  2005 Blue Box program costs  Generation & reporting of Blue Box waste Board decisions for 2005 fee setting Preliminary 2005 fee calculations  Relative changes for each material Next Steps Slide 49

50 Background Information February 2003 Blue Box Program Plan (BBPP), particularly,  Section 9.10 - Setting Fees  Appendix XI - Pay In Model, and  Appendix IX - Cost Allocation Principles On the Stewardship Ontario website  March 2 Presentation on preliminary fees for 2004  Cost Allocation Study - Final Report, March 2004 Slide 50

51 What Are The 2005 Fees? Fees for 2005 are significantly higher than for 2003 & 2004 Increase in per-kg fee rates  range from increases of 1to 2%  to very high increases on % basis Objective of presentation Explain how these increases arise & fall on various material groups Slide 51

52 Obligation & Fees Size of the obligation was: Municipal BB system cost + admin & program costs Apportion to all BB Materials Cost to manage Revenue from sale Recovery rate All different for each materialAll different for each material 2004 => $50.2M Slide 52

53 2004 => $50.2M 2005 => $63.8M Apportion to BB Materials in same way Different Cost to manage each material Revenue for each material Recovery rates for each material Changing Obligation & Fees Slide 53

54 Key Factors Causing Increase 50% 1. The law requires industry to pay 50% of the cost of the Blue Box system less  Until now the industry share has been significantly less than 50%  The system is growing – CPI, population, performance 2. The entire obligation must be paid - must make up any shortfall due to fee rates too low  Initial fees set without data from stewards  cost spread over too many tonnes – fee rates generally lower than required Slide 54

55 1 st – The Rising Obligation 1. By how much has industry paid less than 50% & why? 2. How much is the actual cost increasing & why? Slide 55

56 Industry Contribution 2003-2005 Note:Effective discount greater since actual revenues lower than agreed for fee setting 2003 Fees (2001 Data) 2004 Fees (2002 Data) 2005 Fees (2003 Data) Tonnes Recovered693,547726,726779,844 Estimated Gross Cost$152 m$162.2 m$182.9 m Estimated Cost/tonne$219$223$234 Effective Discount$22.8 m$11.7 m- Agreed Gross Cost$129.2 m$150.5 m$182.9 m Agreed Revenue$66.7 m$66.5 m$64.9 m Agreed Net Cost$62.5 M$84.0 M$118.0 M Equivalent Paid Share36%44%50% Slide 56

57 Blue Box System Cost ($M) 0 20 40 60 80 100 120 140 2003 (2001)2004 (2002)2005 (2003) Program Year Net cost (million $) Net Cost (actual gross cost less actual revenue) Net Cost (actual gross cost less agreed revenue) Agreed Net Cost Slide 57

58 Blue Box System Cost ($/Tonne) 0 20 40 60 80 100 120 140 160 2003 (2001)2004 (2002)2005 (2003) Program Year Net Cost ($/tonne) Net Cost/tonne (actual gross cost less actual revenue) Net Cost/tonne (actual gross cost less agreed revenue) Agreed Net Cost/tonne Slide 58

59 2003 Blue Box System Cost Note: $84M is a negotiated cost for 04 fees $118M is the verified cost for 05 fees This chart accounts for the differenceThis chart accounts for the difference $ 100 million Blue Box System Net Cost 100% 20% $ 84 million $ 91 million $ 118 million 40% 60% 80% Net System Cost for 2004 Fees Affect of no more Discount Due to change in tonnes CPI & Revenue Slide 59

60 1 st Key Cause For Change In Fees 50% The law requires industry to pay 50% of the cost of the Blue Box system less  Until now the industry share has been significantly less than 50%  The discount has now been removed  System Cost has increased ▪Tonnes recovered up ▪CPI ▪Market revenues down The affects are not equal across all materials  Changes in ▪Recovery rates ▪Cost to manage each material ▪Revenue for each material Slide 60

61 2nd – Obligation & Generation The entire obligation must be paid - must make up any shortfall due to fee rates too low  Initial fees set without data from stewards  cost spread over too many tonnes – fee rates generally lower than required Slide 61

62 Status Of Collecting Fees As of August 20: Registrations: 2,484 Obligated stewards reported:1,022 Amount of targeted packaging tonnage reported: 75.6% Amount of projected fees reported: 90.2% Projected additional recoverable levies considering possible re-filing: 5.9% Projected fees collected: 96.1% Slide 62

63 Generation & Filing Packaging & Printed Paper Generation For '04 Fees 20% 40% 60% 100% 1,285,000 tonnes 1,516,000 tonnes 1,578,500 tonnes 80% Estimated Generation for 04 Fees Revised 04 Waste Comp Data Stewards Reports Slide 63

64 Why The Shortfall? There are four reasons for this difference:  Imprecision of waste audit data  Misreporting by registered stewards  Unidentified stewards  Non-compliance Model allowed for 5% non-compliance & 5% de minimis  Meaning fees spread over 90% of estimated generation Slide 64

65 Consequences Of Shortfall If the expected tonnes are not reported, then the fees will fall short of the obligation The shortfall will not be equal for all materials  Materials for which reported generation higher than projected will have over-paid  Materials which were low, under-paid Net effect will be a deficit carried over from 03 & 04 program years AND….. Slide 65

66 Consequences cont’d Potential for shortfall in future years:  if we distribute the fees over generation projections that exceed reported generation ▪$ allocation divided by tonnes generated Therefore….. Decisions considered by Board to address the two issues:  Avoid shortfall in future years  Deal with shortfall from 03 & 04 Slide 66

67 Board Decision #1 Tie setting of annual fee rates to quantities reported by stewards  Set 2005 fee rates using current & projected stewards reports  Future years set fees after stewards report quantities Slide 67

68 Board Decision #2 Shortfall for 2003 & 2004 => $1.6 million (~2.5% of projected 05 costs including allowance for re-filing) To be reduced using unexpended program funds of $500,000  Green procurement  Market development planning  Compliance  Waste audits & program reviews Remaining shortfall to be made up in 05 fees =>$1.1 million (<2% of 05 costs) Slide 68

69 Board Decision #3 Approaches to distribution of shortfall 1.Apply shortfall to specific materials for which shortfall exists Alternatively, 2.Put a portion (or all) of shortfall across all materials in same way as other general costs (e.g. admin)  Since non-compliance is not related to complying stewards in any specific material As reporting improves, resulting over-reporting can be reallocated in future years Slide 69

70 2 nd Key Cause for Change in Fees The entire obligation must be paid  Making up the 03 & 04 shortfall in 05  Spreading the fees over a reduced number of tonnes ▪To prevent compounding shortfall ▪In future, stewards report before fees set The affects are not equal across all materials Slide 70

71 Summary Of Increases Increases due to: 1. Increased municipal obligation40% (removal of discount, increased tonnes, CPI, revenue) 2. Shortfall in fees collected<2% 3. Smaller base of tonnes23% Offset by decrease: admin & other program costs48% Overall increase in fees =>26.7% Materials not affected equally Slide 71

72 Basis of Fee Payments Same funding formula as in BBPP Based on data for 2003:  Generation  Recovery  Gross municipal cost  Municipal revenue Apportioned to materials using three factors  relative cost (40%)  recovery rate (40%)  Equalization (20%) - cost to achieve 75% recovery Add allocations for admin & other program costs Slide 72

73 Material Specific Changes Note: Changes are different for each material The absolute & relative magnitude of the changes affect fee allocations Slide 73

74 Admin & Program Costs Note:admin & program allocation in 04 fees was higher than 04 budget due to items not included in 03 fees Slide 74

75 Distribution of Admin & Program Costs For 04 fees Distribute program & admin costs according to est. relative # stewards in each material group Reduced fixed allocation to LCBO & Newspaper  Thinking at the time that relatively few stewards meant a low driver of cost But, for 05 fees, Recognize need to consider sharing cost not only for members services, but also program work e.g. datacall, verification, cost allocation & program optimization which affect all materials # stewards in each material from registration & filing Slide 75

76 Distribution of Admin & Program Costs Slide 76

77 Preliminary 2005 Fees Note: Table reflects distribution of shortfall according to stewards reports by material Alternative being considered by Board: Distribute 100% of shortfall in same way as admin & other program costs Slide 77

78 Key Drivers Of Fee Rates Net cost ($) of all materials increased, except glass Overall 3-yr average revenue down, but some more than others  Glass, because of shift to mixed glass,  Aluminum, steel down Some material revenue increased  Plastics increased on average  Other printed paper due to increased share of ONP prices Slide 78

79 Key Drivers of Fee Rates cont’d Relative recovery rates  Other printed paper still low relative to newsprint etc.  Aluminum recovery rate reported by municipalities down  Paper packaging & plastics up relative to others Credit for aluminum lower – realizing lower price & reduced relative recovery rate Redistribution of admin & program costs  No market development fees for glass  Increased allocation (% stewards) to printed paper, aluminum, steel, glass Slide 79

80 Key Drivers of Fee Rates cont’d Shortfall in fees due to under-reporting  Combination of fee rates & variance in reporting  Under-reporting for plastic laminants, other printed paper & over-reporting for aluminum leads to shortfall  Over-reporting for steel & clear glass leads to credit Slide 80

81 Key Drivers of Fee Rates cont’d Removal of in-kind contribution from non- CNA/OCNA newsprint  Contribution also no longer covers CNA/OCNA municipal obligation Fee rates higher due to use of reduced base of tonnes (stewards reports)  Note: aluminum credit lower due to higher reporting Slide 81

82 In Summary Increases in overall fees due to: 1. Increased municipal obligation (removal of discount, increased tonnes, CPI, revenue) 2. Shortfall in fees collected 3. Smaller base of tonnes Offset by decrease in: admin & other program costs Materials not affected equally  Relative recovery rates, costs & revenue Slide 82

83 Other Issues Other issues that have been raised: Aluminum credit  Account for aluminum recovered through other channels  Possibly apply credit for recycled aluminum only to recyclable aluminum, e.g. food & beverage containers Disaggregating fee rates Slide 83

84 Next Steps & Timing Review by SO Board Sept. 14 Review by WDO Board Sept. 15 Forwarded to Minister  30 to 60 day posting by MOE Approval by Minister Slide 84

85 Questions & Comments Slide 85

86 Thank You Slide 86

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