BETWEEN:
ASSOCIATION OF MUNICIPALITIES OF ONTARIO and THE CITY OF TORONTO
Applicants
- and -
STEWARDSHIP ONTARIO
Respondent
AFFIDAVIT OF DAMIAN BASSETT
(sworn April 22, 2014)
I, DAMIAN BASSETT, of the City of Markham, in the Regional Municipality of York, in
the Province of Ontario, MAKE OATH AND SAY:
A.
INTRODUCTION
1.
I am currently the President and Principal of Aberdeen Consulting Limited, a
management consulting firm. Since October 2008, 1 have been providing consulting services to
the Coca Cola Company on matters pertaining to stewardship, strategy; and governance.
2.
Previously, I was the President and Chief Executive Officer of Corporations Supporting
Recycling ( "CSR") from January 1, 1997 until October 23, 2008. Concurrently, from October
2002 until December 2007, 1 served as the first Chief Executive Officer of Stewardship Ontario.
I also served as a Director of both CSR (1997 — 2008) and Stewardship Ontario (October 2002
— December 2007). In these roles, I was directly involved in the development and
implementation of the Blue Box Program, the first waste diversion program under the Waste
Diversion Act, 2002, S.O. 2002, c. 6 (the "Waste Diversion Act').
3.
Prior to 1997, 1 spent 18 years in the packaging industry and 6 years in the waste
management industry.
-24.
Based on my experience, which is described in more detail throughout this Affidavit and
in my curriculum vitae, a copy of which is at Tab 35 of the Respondent's Document Book, I have
personal knowledge of the matters to which I hereinafter depose, except where I have obtained
information from others. In such cases, I identify the source of the information and believe the
information I am conveying to be true.
B.
THE BLUE BOX PROGRAM PLAN AND THE COST CONTAINMENT PLAN
5.
Stewardship Ontario started as a "virtual" organization that consisted of its Steward
members and a Board of Directors. Stewardship Ontario retained CSR to be the secretariat and
to provide-support staff. As the secretariat, CSR was tasked with the responsibility of
developing the Blue Box Program Plan and, once approved by the Minister of the Environment
(the
6.
"Minister"),
implementing it.
My responsibilities were to manage the activities of the secretariat and to report to the
Boards of both CSR and Stewardship Ontario.
7.
Section 7.1 (p. 57) of the Blue Box Program Plan, which was submitted to the Minister in
February 2003, contained the following calculation of the total net costs for Year One of the Blue
Box Program:
Table 7.1: Year One Net Cost Calculation
Cost Category
Gross Cost
Gross Revenue
Net Cost
value
$129,200,000
$ Q56,700,000
$62,500,000
Industry Funding g50%
$31,250,000
In-kind Contribution of CNA/OCNA $1 00 JDOO
Total Blue Box Stewards' Financial Obligation 1
$29,950,000
underthe assumption of a full year obligation in 2003
8.
1 was an active participant in the discussions that led to the calculation of this $62.5
million figure, which was based on a best estimate of 2001 municipal costs. My mandate from
industry during these discussions was to keep the Steward Obligation (not including the in-kind
newspaper contribution) to an amount less than $30 million. $30 million was industry's "line in
the sand." This represented a significant increase as compared to what industry had previously
been paying on a voluntary basis. Indeed, prior to the enactment of the Waste Diversion Act,
CSR had been collecting approximately $6 million per year from industry.
-39.
Section 7.4 (p. 62) of the Blue Box Program Plan also contained the following chart that
projected the costs over the five subsequent years:
Year
2001
2002
2003
2004
2005
2005
10.
Scenario
Grass
Ne abated Final
129200 OD
185
Net Cost Per Tonne
lEstimate
144,402 JDQQ
Net Cost Per Tonne
204
145 % R ecove ry R ate
15(),644,000
Net Cast Per Tonne
209
150% Recove ry Rate $ 181385000 $
Net cost Per Tonne $
223 $
150 % R ecove ry R ate
187 73 00
Net Cost Per Tonne 1226
50% Recovery Rate
191 722 00
Net Cast Per Tonne
228
Total
Revenues
Net
66,700J000
C2,60J)jpop
95
89
67J063J000
77,429000
94
109
63 55 00
86 989 00
88
121
72578,000 $ 108,807,00
89 $
134
70,615 J000
1 16 6158 00
. 85
141
71 760 00
119.!@62 00
86
143
After the Blue Box Program Plan was submitted to the Minister, Waste Diversion Ontario
( "WDO") ran the first Financial Datacall in the spring of 2003. This required municipalities to
report their 2002 costs associated with blue box recycling. The results of the Financial Datacall,
which were available by July 2003, were a major surprise to both Stewardship Ontario and
industry in general. In making the projections in the Blue Box Program Plan, CSR had
underestimated the complexity of municipal infrastructure and the extent to which municipalities
would attempt to claim costs as recycling-related. Amortization of capital and indirect costs
were two of the areas that CSR did not fully appreciate.
11.
The results of the first Financial Datacall caused Stewards from all quarters to demand
that some control be brought to the Steward Obligation by the Minister. Industry was concerned
that municipal analysts were allocating costs to "recycling" that previously were unallocated.
The example most often quoted was adding a portion of municipal overhead including a portion
of the mayor's office costs and a portion of the mayor's salary. Although I was not a member of
the Cost Containment Sub-committee that WDO convened in the summer of 2003, 1 was
contemporaneously kept informed of the Sub-committee's work by Gemma Zecchini, who was
the Chair of both WDO and the Sub-committee.
12.
In December 2003, the Minister approved the Blue Box Program Plan at the same time
as she requested a cost containment strategy to ensure that municipal blue box program costs
were properly managed. This request led to the development of the Cost Containment Plan,
which was submitted to the Minister in July 2004.
M
13.
Subsequently, Stewards continued to express significant concerns about the escalating
costs of the Blue Box Program. Notably, the results of the 2004 Datacall showed that the 2003
municipal costs were, again, much higher than the 2003 projection in the Blue Box Program
Plan. This led many Stewards to contend that the Cost Containment Plan, as submitted, was
insufficient. They demanded that immediate action be taken. The Board of Stewardship
Ontario, which was in the process of setting Stewards' fees for 2005, was under great pressure
to address the concerns of their members.
14.
The dynamic facing the Board is illustrated by a slide presentation that was reviewed in
connection with setting the 2005 fees. This presentation, a copy of which is at Tab 36 of the
Respondent's Document Book, contained the following slides:
S~dsbp
Strategy
I-Iard caps
Soil caps
Cost Containment Options
Basis
Issues
(a) Freeze '05 fee
- considered
rates
inequitable by some
(b) Freeze at '03 net stewards
municipal costs
-already pay less
($117.55 M)
than 50%
Modify '03 net costs - would need to reby freezing per
open negotiations
tonne cost but allow with AMO
ii r:
- need signal of
- increases in tonnes concenn from
recovered
revenue changes
CPI
Influence costs
Accelerate WDO
agreed cost
containment
strategies
Probability
WDO —very low
Minister —very low
WDO — split vote at
best
Minister - unknown
Province to move
AMO
- cost increase in
2005 likely 10
- pass '05 fees oil
condition of
acceleration of
WDO cost
containnent
WDO—unknown
Minister—Likely to
support a WDO
recommendation
-5-
Ste-wardship Recommendation on 2005 Fee Setting
ONTARIO
Pass 2005 fees with conditions
2. Request that WDO:
a)
Freeze the average per tonne net cost
b) Accelerate approved cost containment strategy in view of
latest cost data
c)
Review through WDO Cost Effectiveness Committee
d)
Set WDO Board teleconference to review
recommendation prior to October 27 WDO Board
3. Investigate alternative funding methods for inclusion in revised
Blue Box Program Plan in 2005 (for 2005 fees)
4
15.
Consistent with these slides, Dennis Darby, the Chair of Stewardship Ontario, sent a
letter to WDO dated October 20, 2004, a copy of which is at Tab 95 of the Applicants' Document
Book. In this letter, Mr. Darby referred to the continuing escalation of the municipal costs and
stated:
Aggressive action is required to control such cost increases — they are a hardship to
both municipalities and industry. Continuing industry support for the WDA and the BBPP
is seriously at risk given that individual companies cannot project and budget for cost
increases of this magnitude, which from the outside seem to be without control, even if
they are `validated' according to the common measures agreed for the current Blue Box
Plan. We need to make changes to both the Blue Box Program Plan and to the specific
Cost Effectiveness plan as we go forward, and we will look to the support of the WDO
board to do so. [emphasis in original]
16.
In December 2004, the Minister approved the Cost Containment Plan while requesting
an expedited schedule. The Cost Containment Plan was therefore revised to require
reasonable cost bands as of 2006 and best practices cost bands as of 2008. The revised Cost
Containment Plan was submitted to the Minister on January 31, 2005.
17.
At this time, a Three-Year Strategic Plan, dated January 26, 2005, a copy of which is at
Tab 37 of the Respondent's Document Book, was circulated to members of Stewardship
Ontario's Board. This Plan referred to the revised Cost Containment Plan (at pp. 43-44):
-6Proiected Future Proaram Costs
When the Minister approved the Blue Box Program Plan, she also requested that WDO
establish principals, policies and practices to contain the cost of the Blue Box Program.
A cost containment report entitled "Cost Containment Principles, Policies and Practices"
was approved by the Minister, with a request to accelerate the timetable, when she
approved the 2005 stewards' fees. An accelerated cost containment strategy has been
renegotiated, with agreements outlined below.
Re-negotiated Cost Containment Strategy
The WDO has approved an accelerated cost containment strategy, renegotiated with
agreements outlined below.
•
Define reasonable costs to reduce the net system cost from the 2004 reported
cost for setting 2006 fees
Define best practice costs to reduce the net system cost from the 2006
•
reported cost for setting 2008 fees
MIPC has begun to discuss the principles and approaches to establishing reasonable
costs and best practice costs and the corresponding cost bands. Further work will be
required to define these before setting 2006 fees. [emphasis in original]
18.
As set out in this excerpt from the Three-Year Strategic Plan, it was the
contemporaneous understanding of Stewardship Ontario and its members that the cost bands in
the Cost Containment Plan were to be used to calculate the total net costs incurred by the
municipalities as a result of the program for the purpose the setting Stewards' fees. The
Steward Obligation was to be based on this calculation. Given .that municipalities ran their own
blue box programs and could make autonomous decisions to spend more than was necessary
to operate an efficient system, the Steward Obligation would have amounted to a blank cheque
in the absence of cost bands. Although the Cost Containment Plan also provided guidance as
to how costs could be contained in the future, the primary purpose of the Cost Containment
Plan was to address the immediate concerns that Stewards had been expressing about the
unpredictability of the municipal costs. These concerns had threatened to derail the Blue Box
Program.
19.
A slide presentation that was given at a meeting of Stewardship Ontario's Board in
March 2005 was consistent with the Three-Year Strategic Plan. The presentation, a copy of
which is at Tab 38 of the Respondent's Document Book, contained the following slides:
7-
S ewardship
ONTARIO
2e Cost Containment Update — Revised 'Strategy
Jan 19 WDO Board approved revised cost containment strategy, approved by SO Board Jan 17
In summary:
1. Implement cost bands in 2006
Define reasonable costs to reduce the net system cost from the 2004 reported cost for the
purpose of setting 2006 fees
2. Pay to best practices in 2008
Define bestpi-aefice costs to reduce the net system cost from the 2006 reported cost for
the purpose of setting 2008 fees
3. Eliminate the proposed Directed Investment Fund
4. Include interest on municipal capital in 2006
Include interest on municipal capital as part of reasonable cost for purpose of setting
2006 fees ( reported — $4 - $6 million)
6. Include administration costs in 2007
Pay administration costs to best practice
Pay using a factor, not as reported
Third party assessment of best practice in admin costs
6. Add to E&E Fund priorities - assistance toprogranas hecrrr7*
i g costs oreWde of the cost
bands
S e~dship
ONTARIO
2e Cost Containment Update - Implementation
Begun discussions with 11IIPC on implementing cost bands
1. Discussed possible principles for best practices
• Very preliminary — further work required
• AMO => generally proposing vague principles that address cost of getting to 60% &
account for program differences and existing limitations
SO => try to set service standards: performance standards; identify comparable programs;
incentivize least cost tonne
2. Differences in approach
• AMO => identify & focus primarily on oatliers among existing range of costs
SO =--variability represents inefficiency; reasonable costs & best practices within bands
covered by range of costs
3. Investigating statistical analysis to identify cost drivers / explain some of variability
Developing a study with the University of Toronto Statistics Department
4. Looking at key programs to explain & set reasonable costs for outlier programs
5. Study of MRFs and Contracts kicked-off in response to Minister's request to investigate
savings potential
-820.
Once the revised Cost Containment Plan was submitted to the Minister, the parties
proceeded to act in a manner that was consistent with an understanding of the cost bands as
being intended to reduce the net system costs. By way of illustration, Glenda Gies, then the
Executive Director of WDO, sent me a letter dated August 9, 2005, a copy of which is at Tab 39
of the Respondent's Document Book. For the purpose of setting the 2006 Steward fees, this
letter confirmed (at p. 3) that the Municipal Industry Program Committee (°MIPC") had
established a reasonable cost band for 2004 that would result in a $10 million cost reduction
applied to the 2004 net Blue Box system cost.
C.
THE IN-KIND CONTRIBUTION
21.
The Blue Box Program Plan provided for an in-kind contribution by the Canadian
Newspaper Association ("CNA") and the Ontario Community Newspapers Association
("OCNA"). In 2005, the Minister amended the Blue Box Program Plan to provide for an
expanded in-kind contribution.
22.
The in-kind contribution, and its expansion in 2005, were not supported by other
Stewards, especially the packaging Stewards. The in-kind contribution, however, was an
arrangement that the CNA and the OCNA worked out with the Minister, and it was at the
Minister's direction that this became part of the Blue Box Program Plan. Notably, Ontario was
the first jurisdiction to impose a waste diversion funding obligation on the newspaper industry.
Allowing the contribution to be made in-kind was a political compromise that was the product of
significant lobbying by the newspaper industry.
SWORN BEFORE ME at the City of
Markham, in the Province of Ontario on
April 22, 2014.
Corn i
er for Taking Affidavits
rpMAANDA JESSICA LAF1I! .
a commissioner, etc., PrcrArM8 d Ontubwhile a Student-at-Law.
Expires May 16, 2015.
ASSOCIATION OF MUNICIPALITIES OF
ONTARIO and THE CITY OF TORONTO
Applicants
and
STEWARDSHIP ONTARIO
Respondent
McCarthy Tetrault LLP
Suite 5300, Toronto Dominion Bank Tower
Toronto, Ontario M5K 1 E6
Thomas N.T. Sutton LSUC#: 40683A
Tel: (416) 601-8082
Fax: (416) 868-0673
Brendan O. Brammall
Tel: (416) 601-7518
Fax: (416) 868-0673
Dina Awad LSUC#: 62684J
Tel: (416) 601-7776
Fax: (416) 868-0673
Lawyers for Stewardship Ontario
13365709