In Ontario producers of printed paper and packaging (PPP) are required to pay fees to Stewardship Ontario. Stewardship Ontario sets these fees and disburses the resulting revenue to Ontario municipalities, “…in a manner that results in the total amount paid to all municipalities under the program being equal to 50 per cent of the total net costs incurred by those municipalities as a result of the program.”
And just like utility rate disputes between purchasers of gas and electricity and the utilities that provide them, this cost-based regulatory requirement for 50% recycling payments has led to an inevitable dispute between Stewardship Ontario and Ontario municipalities regarding the question of what constitutes 50%.
Is it 50% of the actual costs incurred by municipalities in delivering the blue box program or, is it 50% of reasonable costs they incurred?
The dispute on what is 50% is what led to arbitration and on November 25th 2014 arbitrator Robert Armstrong issued his decision.
He finds that, “In conclusion I find that under section 25(5) of the Act, the obligation that Stewardship Ontario pay 50 per cent of the total net costs incurred by the municipalities as a result of the program is limited by the requirement that costs be reasonable.”
Having decided that, and having also upheld the legal force of the Cost Containment Plan (CCP) – the mechanism for determining reasonable costs – he goes on to note that the Best Practices Cost Model that is core to the CCP was unsupported by sufficient evidence.
In his decision Mr. Armstrong states, “I want to make it clear that by rejecting the use of the model for the determination of the 2014 Steward Obligation, I do not reject the principles of cost containment and the objective of attempting to pursue best practices as a means of containing costs. Indeed, to do so would be ‘to throw out the baby with the bathwater.”
Without evidence to support the model he had no choice but to award Ontario municipalities their full dollar claim of $115,172,322.
Bottom line? Municipalities got their money but not on principle, and only for a lack of evidence on an alternative option. Producers must pay out $15 million more than they believed they had to, but the principle of payment of reasonable costs was upheld.
As both parties head into new negotiations it will become clear that it is difficult if not virtually impossible to set what is reasonable when the cost drivers associated with each party are beyond the control of the other.
Municipalities can’t anticipate and plan for the myriad, lightweight, complex packages that enter blue boxes. In turn, producers have no say on how the province-wide consolidation, processing and marketing of PPP could be improved to minimize costs and improve market revenue for the materials collected.
It a nutshell, shared responsibility doesn’t work. To quote W. Edwards Deming (the great industrial economist that started the Total Quality Management movement), “With shared responsibility no one is responsible”. And with the responsibility for changing the trajectory of the escalating costs of Ontario’s blue box system shared between parties, there will be no agreement on how costs should be “contained” and what is reasonable.
As I wrote in my critique of Bill 91 Waste Reduction Act, the only solution to this impasse is principled EPR whereby the regulatory requirement to collect and process PPP is transferred from municipalities to producers. Under such an approach producers will be self-determinant in working with municipalities and the private sector to drive up PPP recycling rates in order to meet regulated targets and to also drive down costs through post-collection recycling system redesign and innovation.
At the Canadian Waste Resource Conference in November, Ontario Environment Minister Glen Murray made reference to new Ontario EPR legislation for Ontario stating, “We are going to be dealing with this issue next year. It’s a 2015 issue that will be dealt with next year. Legislation will be introduced.”
Clearly the time has come for producers and municipalities to make the effort necessary to work together to craft EPR legislation and a PPP regulation that will eliminate the malaise associated with shared responsibility we have in Ontario today.