Agenda Item # Page # --

TO:

FROM:

SUBJECT

I

CHAIR AND MEMBERS ENVIRONMENT AND TRANSPORTATION COMMITTEE

MEETING ON JUNE 1,2009

PAT McNALLY, P.Eng. GENERAL MANAGER OF ENVIRONMENTAL

& ENGINEERING SERVICES & CITY ENGINEER

UPDATE ON THE DESIGN, CONSTRUCTION AND OPERATION OF A MATERIAL RECOVERY FACILITY AND RELATED PROGRAM CHANGES

~ ~ ~

RECOMMENDATION

That, on the recommendation of the General Manager of the Environmental and Engineering Services Department and City Engineer, the following actions BE TAKEN with respect to the establishment of a City owned, privately operated, Materials Recovery Facility (MRF) conditional on approval of Federal and Provincial Stimulus Funding for this project:

(a) Development of a regional MRF BE APPROVED it being noted that there will be a decrease in capital and operating costs to the City of London for a larger regional MRF as compared to a MRF for London only;

The collection and processing of the existing list of materials in the City's recycling program plus aerosol cans BE ENDORSED it being noted that a decision on including other plastic bottles (#3, #6 and #7) or other recycled materials will be made in 2010;

Phase out the use of plastic bags to contain curbside recyclables by October 30, 2010 BE APPROVED it being noted that an implementation and financing plan for the phase out including the potential provision of an additional Blue Box for all London curbside households will be provided at a future meeting of the Environment and Transportation Committee;

Civic Administration BE DIRECTED to submit a report every three years to Environment and Transportation Committee which updates program requirements and adjustments, impact of Provincial legislation and regulation, long term forecast of future waste diversion capital requirements, revenue and the portion of any operating surplus from the MRF that could be directed to the Waste Diversion Reserve Fund.

(b)

(c)

(d)

1, . I L PREVIOUS REPORTS PERTINENT TO THIS MATTER I1 Relevant reports that can be found at http://www.london.ca/Council/meetinqDackaqes.htm include:

Infrastructure Stimulus Fund - 2nd report, Committee of the Whole Meeting on March 28, 2009, Agenda Item # I Recommended Changes to the Recycling Program, Environment & Transportation Committee (ETC) Meeting on March 17,2008, Agenda Item #9 Extension of Recycling Program Contract to Coordinate with Current Request for Proposals, Board of Control (BoC), Meeting on January 16, 2008, Agenda Item #4 Update on Materials Recovery MRF Request For Proposals (RFP), ETC Meeting on August 7,2007, Agenda Item #22 Update on Waste Diversion Projects and Reports, ETC Meeting on July 9, 2007, Agenda Item #7

Agenda Item # Page # m-

BACKGROUND

2

Agenda Item # Page #

regional MRF are listed in Table 1.

3

Program 1 Tonnage 1

DISCUSSION:

The discussion on the proposal from Miller is broken into the following sections:

Part A: Regional Versus London Only MRF Part B: Materials to be Recycled When MRF Opens Part C: Designing for the Future Part D: Collection Containers Part E: Capital and Operating Cost Part F: Waste Diversion Reserve Fund

Other nearby smaller municipalities

Part A: Regional MRF Versus London Only MRF Council requested pricing be obtained for a "London Only" MRF (designed to process 40,000 tonnes per year) and a "Regional" MRF (designed to process 75,000 tonnes per year) as part of the proposal process.

A regional MRF is being considered because Stewardship Ontario, Waste Diversion Ontario (WDO) and the Federation of Canadian Municipalities (FCM) funded a "London Regional MRF Study" to examine the potential economic and environmental benefits of a new regional MRF to process recyclables from the City of London and surrounding municipalities. This study concluded a regional MRF has strong merits most notably the economies of scale associated with a larger MRF processing more materials and the ability for better equipment utilization due to increased quantities.

2,300 Total

The anticipated location of any MRF is beside the W12A Landfill in the area designated for waste recovery facilities in the W12A Area Study. The Official Plan changes resulting from the Area Study that would permit waste recovery facilities at his location were approved by Council but have been appealed to the Ontario Municipal Board. Privately owned locations for siting the MRF also exist. 20.000

I €lain County (several Droarams) I 2.100 I 1 Oxford Countv I 3.800 1 I Stratford 1 2.700 I I Sarnia 1 4.000 I 1 St. Thomas I 2.100 I I Woodstock I 3.000 1

CaDital Cost The pricing from Miller confirms there are significant savings if a regional MRF is constructed. A regional MRF will cost approximately $3.5 million more than a London Only MRF but could generate up to $1 million or more in annual operational savings system wide.

Waste Diversion Ontario (WDO) is willing to fund the extra cost of constructing a regional MRF (see Appendix "A") because of the potential overall system savings. In exchange for the funding, the City will have to make available the increased capacity (35,000 tonnes per year) to other municipalities. The other municipalities are to be charged the cost per tonne charged to the City by Miller plus an appropriate administration fee (e.g., 10% mark-up). This kind of financing approach and partnership with the private sector is very favourable to the City as the risk of building a larger facility has been removed.

WDO is also willing to fund approximately an additional $900,000 in upgrades that will make it easier to convert the MRF to also handle single stream processing andlor increase the capacity of the MRF to 100,000 tonneslyear.

It is important to note that funding from WDO can also be leverage for additional Federal and Provincial Stimulus Funding which further reduces the capital cost for London of a regional MRF and results in the City contributing less for a Regional MRF than for a London Only MRF as shown in Table 2. The City will be using Federal gas tax funding to cover its portion of the project.

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Provincial Stimulus Funding

4

$6,000,000 $7,670,000

Federal Stimulus Funding $6,000,000 $7,670,000

! WDO Fundina I $0 I $4,400,000 ! City Cost (Federal Gas Tax Funding) I $6,000,000 $3,260 000

a - Includes $900,000 flexibility upgrades funded by WDO and $600,000 in enhanced energy conservation and building construction improvements.

Total

ODeratina Costs A regional MRF will immediately reduce operating costs even if no other municipality uses it.

$18,000,000 $23,000,000

The larger processing equipment will allow the material from London to be processed over one shift instead of two which will reduce processing costs by $3 to $8 per tonne ($90,000 to $220,000 per year).

Additional operating savings are possible when other municipalities use the MRF. It is reasonable to expect at least 10,000 tonnes of recyclables, from neighbouring municipalities that may use the MRF, which could reduce processing costs by up to $20 per tonne. This would generate between approximately $550,000 and $600,000 in annual savings for London

Recommendation It is recommended that a Regional MRF be constructed because:

the capital cost to the City for a Regional MRF is estimated to be $2,740,000 less than the cost for a London Only MRF because there is more funding available from the Waste Diversion Organization and Federal and Provincial Stimulus Funding for a Regional MRF there is an immediate reduction in City’s annual operating costs of $90,000 to $220,000 ($3 to $8 per tonne) there is the potential for a further reduction in the City’s annual operating costs up to $550,000 to $600,000 ($20 per tonne) should additional materials be processed at the MRF

Part B: Materials to be Recycled When MRF Opens Council requested the proposal process obtain pricing for three different “packages” of recyclables materials as part of the proposal process using the current two stream, householder separation approach (Le., Stream 1: paper products; Stream 2: food, beverage and liquid containers) for incoming materials:

Package 1: Newsprint, magazines, telephone books, steel beverage and food cans, aluminum beverage and food cans, aluminum foil, glass bottles and jars, boxboard, cardboard, fine and mixed paper and four types of plastic bottles (#I PET, #2 HDPE, #4 LDPE and #5 PP)

Package 2: Package 1 plus gable top juice and milk cartons, aseptic containers (drinking boxes), empty paint cans, aerosol containers and other plastic bottles (#3, #6, #7)

Package 3: Package 1 plus Package 2 plus add film plastic and expanded polystyrene foam

Packaqe 1 Package 1 is not recommended as it is a reduction in the materials currently being recycled and would require removal of gable top juice and milk cartons, aseptic containers (drinking boxes) and empty paint cans from the recycling program. These materials have relatively stable markets although the revenue for these materials is less than in previous years.

Packaqe 2 Package 2 is recommended and includes the materials in the City’s current recycling program plus aerosol containers and other plastic bottles (#3, #6, #7). Aerosol containers will be added to the City program with the opening of the new MRF. Aerosol containers have relatively stable markets although the revenue is less than in previous years. There would no increase in collection costs for aerosol containers as the amount will be small (less than 50 tonnes).

Agenda Item # Page # - 5

Some municipalities collect other plastic bottles (#3, #6, #7) and knowingly send them to the landfill as residue when there are no end markets.. These municipalities have found that they get higher capture rates for #I, #2, #4 and #5 plastic bottles if “all bottles” are allowed to go in the Blue Box. Some municipalities had found overseas markets for #3, #6 and #7 plastic bottles as part of a mixed plastics bale but these markets have deteriorated over the last year. The WDO is currently working on developing local markets for #3, #6 and #7 plastic bottles.

The additional cost for collecting #3, #6, #7 plastic bottles is approximately $15,000 per year. A decision on whether or not to include other plastic bottles (#3, #6, #7) in the City’s recycling program should be delayed until 2010 because of the volatile situation with respect to markets for these materials.

Packaae 3 Package 3 materials are not recommended because of the:

high cost unstable markets

It is estimated that approximately 600 tonnes of film plastic and expanded polystyrene foam could be collected. The majority of this material is plastic film (e.g., grocery bags, dry cleaning bags, frozen produce bags, etc.). Plastic bags are already being collected by several retail outlets in the City of London.

The Miller proposal estimated the cost to process these materials would between $500,000 and $600,000 per year. Collection costs would also increase by approximately $500,000 per year. These materials currently have a negative revenue stream (you must pay the markets to accept them). Revenue based on the I O year average commodity price would be less than $50,000 per year. WDO funding to collect and process these materials would be approximately $200,000. The overall net cost to the City of adding these materials to the recycling program would be approximately $750,000 to $850,000 per year.

Curbside collected plastic bags and expanded polystyrene foam have no stable North American market and markets in China and other overseas countries may have unknown end-uses, potential irregularities in labour practices, etc. The main facility for recycling polystyrene in Ontario is open again after a period when the doors were closed however many municipalities are not collecting polystyrene due to continued market uncertainties, stringent incoming material quality requirements, net cost of recycling this material and the downturn in the economy. It should be noted that stronger markets exist for plastic bags collected at retail outlets because of the “cleaner“ condition of these plastics as compared to film plastic collected from a curbside recycling program.

Plastic bags and expanded polystyrene foam can cause operational problems at MRFs including damage to recycling equipment and contamination of other materials. Damage is caused by the plastic bags wrapping around moving pieces in the conveyors, screens and processing equipment. Expanded polystyrene foam may break into small pieces and become lodged into other materials. These challenges can be overcome but added processing costs will be required.

recycling opportunities that already exist at retail outlets for plastic bags

potential negative impacts on MRF operations.

Recommendation It is recommended the Citv Droceed with Dackaae 2 materials which include materials in the City’s current recycling program plus aerosol cchainers but wait on adding other plastic bottles (#3, #6, #7). Staff will continue to follow the market developments with respect to other plastic bottles (#3, #6, #7) and report back in 2010 on whether or not conditions warrant adding them to the recycling program or negotiate a reduction in the processing fees.

Part C: Designing for the Future The MRF will have extra sort stations and storage bunkers which will give it the flexibility to process film plastic, expanded polystyrene foam or other materials in the future when market conditions warrant. Too often in the past new MRFs have not been designed with this flexibility which limited their ability to adapt to changing market conditions. Most MRFs that City staff are aware of have been constructed with limited flexibility. This has resulted in significant capital cost increases during retrofits and other processing changes.

Agenda Item # Page il mm 6

Other flexibility that will be included in the MRF design is the ability to:

ship newspaper loose or baled depending on markets add equipment and convert to a single stream MRF add equipment and increase capacity to 100,000 tonnes per year colour sort PET and HDPE plastics if markets warrant add a second optical sorter for plastics if required

Pari D: Collection Containers Residents are currently allowed a number of different options for placing their recyclables at the curb for collection. They can use Blue Boxes, clear bags and translucent Blue Bags. Grocery sacs can also be used to contain newspapers.

During negotiations, Miller provided MRF processing costs for a recycling collection system that allowed plastic bags as a collection container and for a recycling collection system that did not allow plastic bags as a collection container. This pricing showed significant savings if plastic bags were eliminated as collection containers.

Information on the number of plastic bags in the system, the advantages of eliminating plastic bags and advantages of keeping plastic bags are discussed below.

Quantity of Plastic Baas City audit data shows over 85% of residents use one or more Blue Boxes. Approximately one out of two stops uses a grocery bag for newspapers and approximately one in every eight collection stops uses a clear or Blue Bag (referred to as “Designated Program Bag”). The City currently has approximately 109,000 stops with 42 pickups per year which translates to approximately 2.3 million grocery bags per year and approximately 600,000 Designated Program Bags per year.

Advantaaes of No Plastic Baas as a Collection Container Consideration should be given to requiring all residents to exclusively use Blue Boxes for placing their recyclables at the curb because it:

savesmoney Miller provided costing to process recyclables for the current collection system (plastics bags allowed) and for a collection system without plastic bags being used for collection containers. The net operating cost for current collection system was approximately $9 to $1 1 per tonne more as compared to a collection system which excluded plastic bags. The annual net savings for a recycling system without plastic bags would be approximately $250,000 to $300,000 per year.

provides operational benefits at the new MRF Plastic bags can cause operational problems at MRFs including damage to recycling equipment and contamination of other materials. Damage is caused by the plastic bags wrapping around moving pieces in the conveyors, screens and processing equipment.

0 promotes reuse Reuse is considered better environmentally than recycling when other considerations are comparable. Reuse eliminates the need fornew products. This is one of the reasons many retail outlets in London are promoting the use of reusable bags over single-use plastic bags.

is consistent with other large municipalities in Ontario Table 3 (next page) shows plastic bag use in selected Ontario municipalities with two stream recycling systems. This table shows no larger municipalities allow the use of Designated Program Bags. Some programs allow the use of grocery sacs for fibers but only one larger municipality does.

Agenda Item # Page # mm 7

Advantaaes of Plastic Baas as a Collection Container The advantages of continuing to use plastic Designated Program Bags and grocery sacs are:

greater choice and convenience for residents

Some residents prefer the use of Designated Program Bags and grocery sacs. Some people find Designated Program Bags are easier to store and you do not have to retrieve your Blue Box afler collection. Designated Program Bags can be used when residents have larger than normal amounts of recyclables and they can not be accommodated in their existing Blue Boxes. Many residents use grocery sacs instead of having a new Blue Box.

potential for less litter There is the potential for less litter from Designated Program Bags and grocery sacs either from materials spilling from overflowing boxes or being blown out on windy days.

keeps material drier Designated programs bags keep recyclables materials drier on rainy days which makes is easer to process at the MRF and more desirable by end markets.

better for downtown collection Staff will be examining expanding the existing recycling program in the downtown. Using Designated Program Baas instead of Blue Boxes in the

Table 3 Plastic Bag Use in Other Municipalities

Municipality1 Association

Notes: a - Clear bags are allowed but their use is discouraged.

downtown will result in less litter and spillage as compared to Blue Boxes which could get knocked about at night or during busy times and allows the street to be cleared as soon as the recycling truck collects the material.

Summary Overall the significant advantages of eliminating the use plastic bags for the collection of recyclables outweighs the advantages of keeping plastic bags.

In order to ease the transition away from plastic bags, the City could phase out the use over a period of time, develop an education and awareness program and provide all homes with a new Blue Box to handle extra recyclables. The cost of providing a new Blue Box to every home is estimated to range from approximately $500,000 to 5600,000 which represents approximately two years of processing savings if plastic bags are eliminated. Financing the cost of the new Blue Boxes in the short term would be the subject of future report to the ETC.

Providing every home with a new Blue Box may also result in an increase in recycling. Other municipalities have found the amount of recyclables captured increased when a new Blue Box is provided.

It may also be possible to negotiate a special arrangement whereby Designated Program Bags are allowed for downtown collection for a marginal added cost. In addition, Blue Boxes and other rigid container types continue to be explored for downtown use beyond the current EnviroBins.

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I I Ivt I Recommendation It is recommended the use of plastic bags to contain curbside recyclables be phased out by October 30, 2010 and that a transition plan be developed that includes phasing out plastic bags over a period of time, an education and awareness program and providing all homes with a new Blue Box.

Part E: Capital and Operating Cost Details of the capital and operating cost are found in the report RFP Os03 Material Recovery Facilityfor the June 3, 2009 meeting of the Board of Control (Appendix A) and summarized below.

Capital Cost The original budget in 2006 for the new MRF was $15,000,000. The cost of this project has increased to $18,000,000 as shown in Table 4 due to inflation, health and safety upgrades, engineering upgrades and design improvements. The cost to construct a regional.MRF is $23,000,000.

Table 4 Breakdown of MRF Caaital Cost

Description

3riginal Budget

Inflation

Health & Safety Upgrades

Environmental Upgrades ..........................................................................

Enaineerina ImDrovements

Pevised Budget

Regional Upgrades

Regional Flexibility Upgrades

Regional Engineering Improvements

cost

b15.000.000 $750,000

$700,000

$450,000

$1.100.000

.................................

.................................

.....................................

$18,000,000

$3,500,000

$900,000

$600,000

?egional MRF Budget I $23,000,000

Comment

Originally 2007 construction planned

includes sort room enclosures, training room etc

Includes LEED Silver certification, screening

Additional eauioment. continaencv

............... ........................................................................

................................................................................................................................................

Upgrades paid for by WDO to increase processing capacity to 75,000 tonnedyear

Upgrades paid for by WDO to allow easy conversion to 1) single stream and 2) 100,000 tonnelyear capacity

Potential upgrades to enhanced energy conservation and building construction improvements

The capital cost proposed by Miller for the design and construction of a Regional MRF is approximately $21,200,000. The Miller proposal excludes contingency allowance, engineering supervision/contract administration and costs to be borne directly by the City (such as providing site services) which brings the total cost of this project to $23,000,000.

The capital cost proposed by Miller for the Design and Construction of the MRF is considered good value as presented in the Board of Control report based on a comparison with:

Other large scale MRFs constructed in Ontario in the last 5 years Engineering cost estimate of the MRF

Operatinq Cost The processing cost proposed by Miller varies from $48 per tonne to $76 on the quantity processed. The processing cost is considered good valuc

sr tonne depending and is within budget.

The net operating cost for the new MRF will be a function of the aforementioned processing cost and the revenue received from the sale of recyclables. An analysis of the processing and resulting revenue shows:

Agenda llern # P a g e #

ml-d

hw JA MFORD, M.A., M.P.A. DIRECTOR, ENVIRONMENTAL PROGRAMS & SOLID WASTE MANAGEMENT

9

PAT McNALLY, P.&d GENERAL MANAGER OF ENVIRONMENTAL 8 ENGINEERING SERVICES & CITY ENGINEER

There is wide range in net operating costs depending on the situation Under the "worst case" scenario (low revenue, high processing costs) there may be a small deficit in the net estimated operating budget On average there is expected to be an annual surplus of $1,000,000 to $1,600,000 In some years the surplus could be between $2,000,000 and $2,600,000

Part E: Future Updates As discussed above, the net operating costs can vary significantly which will make budgeting difficult for any single year. In addition, funds should be set aside for future MRF upgrades, equipment replacement and building replacement.

The report RFP 08-03 Design, Construction and Operation of a Material Recovery Facility recommends that

"Civic Administration BE DIRECTED to develop annual draft operating budgets with the surplus from the operation of the MRF going to the Waste Diversion Reserve Fund for the first three years of operation for the MRF"

It is expected that eventually when markets return to more typical levels, some of the operating surplus could be used to reduce the operating budget for waste management depending on program requirements and adjustments and the impact of Provincial legislation and regulation.

Recommendation An uDdate be Drovided everv three vears beainnina three vears afler the MRF oDens which includes program requiremfhs andadjustments, impact i f Provincial legislation and regulation, long term forecast of future waste diversion capital requirements, revenue and the portion of any operating surplus that could be used to lower operating costs.

ACKNOWLEDGEMENTS:

This report was prepared with assistance from Alan Dunbar, Manager, Financial Planning and Policy and Mike Losee, Manager - Solid Waste Planning.

II 11 PREPARED B Y

WESLEY ABBOTT, P. ENG. DIVISION MANAGER SOLID WASTE MANAGEMENT

I

!I 11 RECOMMENDED B$ I RECOMMENDED BY:

Appendix A RFP 08-03 Design, Construction And Operation of a Materials Recovery MRF (from the June 3, 2009 agenda of the Board of Control)

c: Vic Cote, General Manager of Finance & Corporate Services 8, Acting City Treasurer

Agenda Item # Page # mm

-- APPENDIX A

RFP 08-03 Design, Construction And Operation of a Materials Recovery MRF (from the June 3,2009 agenda of the Board of Control)

10

Agenda Item # Page #

TO:

FROM:

1

CHAIR AND MEMBERS BOARD OF CONTROL

MEETING ON WEDNESDAY, JUNE 3,2009

& ENGINEERING SERVICES 8 CITY ENGINEER

PAT McNALLY, P.Eng. GENERAL MANAGER OF ENVIRONMENTAL

DESIGN, CONSTRUCTION AND OPERATION OF A MATERIAL RECOVERY FACILITY

11 SUBJECT I RFP 08-03 II

II RECOMMENDATION II That on the recommendation of the General Manager of Environmental & Engineering Services & City Engineer, the following actions be taken with respect to the design, construction and operation of a Material Recovery Facility (MRF) conditional on approval of Federal and Provincial Stimulus Funding for this project:

1. The proposal submitted by Miller Waste Systems Inc., 8050 Woodbine Avenue, Markham, ON L3R 2N8, for the Design and Construction of a Materials Recovery Facility at their proposed total price of $21,221,282.24, BE ACCEPTED;

A contingency allowance of $600,000.00 for the Design and Construction of the Materials Recovery Facility, BE APPROVED.

Genivar BE AUTHORIZED to carry out a detailed design review and contract inspection for the said project in accordance with the estimate, on file, at an upset amount of $70,000 exclusive of G.S.T. based upon the Suggested Schedule of Fees for Engineering Projects, recommended by Professional Engineers of Ontario and in accordance with Council Policy 7(9A), Clause (e);

The proposal submitted by Miller Waste Systems Inc., 8050 Woodbine Avenue, Markham, ON L3R 2N8 for the Operation of the Materials Recovery Facility, for a six (6) year period, at their proposed monthly processing fees, BE ACCEPTED;

That funding for the Design and Construction Phase of this project BE APPROVED as set out in the Source of Finance Report attached hereto as Appendix “A;

Civic Administration BE DIRECTED to develop annual draft operating budgets with the surplus from the operation of the MRF going to the Waste Diversion Reserve Fund for the first three years of operation for the MRF;

Civic Administration BE AUTHORIZED to undertake all the administrative acts that are necessary in connection with this purchase; and

Approval hereby given BE CONDITIONAL upon the Corporation entering into a formal agreement or having a purchase order, or contract record relating to the subject matter of this approval.

2.

3.

4.

5.

6.

7.

8.

PREVIOUS REPORTS PERTINENT TO THIS MATTER

Relevant reports that can be found at http://www.london.ca/Council/meetinqDackaqes.htm include:

Update on the Design, Construction and Operation of a Material Recovery Facility and Related Program Changes, Environment & Transportation Committee (ETC) Meeting on June 1,2008 Infrastructure Stimulus Fund - 2”d report, Committee of the Whole Meeting March 28, 2009, Agenda Item # I

Agenda Item # Page # 2

Recommended Changes to the Recycling Program, ETC Meeting on March 17,2008, Agenda Item #9 Extension of Recycling Program Contract to Coordinate with Current Request for Proposals, Board of Control (BoC), Meeting of January 16, 2008, Agenda Item #4 Update on Materials Recovery Facility Request For Proposals (RFP), ETC Meeting on August 7,2007, Agenda Item #22 Update on Waste Diversion Projects and Reports, ETC Meeting on July 9, 2007, Agenda Item #7

II BACKGROUND II Previous reports to Council confirmed the best approach for processing recyclables was a City owned MRF that was privately operated. Based on this information, Council, at its August 15, 2007 meeting passed the following resolution:

“Staff BE DIRECTED to develop and issue a RFP to design, build and operate a publicly owned MRF for the processing of curbside recyclables, multi-residential recyclables and other potential sources.. . ”

Strategic advantages of this approach include increased competition in bids to operate the MRF in the future; control over savings from economies of scale; improved certainty in cost structures for the private sector as substantial uncertainty with respect to private investments, extended producer responsibility, etc. are removed; and more control over efforts to increase the City’s recycling and overall diversion rate.

Purchasing Process A Request for Qualification (RFQ) was issued in 2007 and six (6) submissions were received and evaluated against pre-determined criteria. Five (5) of the six (6) submissions achieved the minimum required score and those companies were invited to respond to a Request for Proposals (RFP) for two different sizes of a Material Recovery Facility (MRF), a 40,000 tonnes London Only MRF and a 75,000 tonne regional MRF.

The RFP was issued in February 2008 and closed in June 2008. There were a number of extensions from the original closing date to allow Proponents adequate time to prepare a thorough response to our request. Three (3) submissions were received however one (1) arrived after the official closing time and was returned unopened to the Proponent. The Evaluation Team then proceeded with a thorough examination of the two (2) remaining proposals.

After the initial evaluation of both proposals, clarification was sought from Proponents on a number of items that needed to be addressed. Upon receipt of the requested information the Evaluation Team was able to complete the Technical Scoring of the submissions.

The Evaluation Team included members of Purchasing, Solid Waste Management Division, Facilities Design and Construction Division, Environmental Programs Section, Genivar and HMI Business Management Solutions. The engineering consulting firm Genivar has more experience in the design and evaluation of RFPs for MRFs in Ontario than any other consulting firm. HMI Business Management Solutions has specialized expertise in MRF facility layout, selection of equipment and equipment operating performance.

A minimum Technical Score of 70% was required in order for the submissions to receive further consideration. Only one (1) of the submissions achieved at least that score. Notification was sent out to the unsuccessful Proponents and the Evaluation Team proceeded to negotiate with the preferred Proponent, Miller Waste Systems Inc. (Miller).

This recommendation to accept the proposal from Miller is the result of several months of negotiations. The Evaluation Team has completed their due diligence in negotiating all aspects of the Design, Construction and Operation of the MRF to ensure the City receives a quality facility that will support the City’s waste diversion strategy well into the future. Program specialists from Waste Diversion Ontario (WDO) were also engaged in final discussions with Miller when WDO began its final due diligence on becoming a financial partner. WDO staff assigned to this project have significant experience with processing facilities as two of the members were involved with all phases of the new MRF serving the Region of York.

Agenda Item # Page # --

Description cost

3

Comment

DISCUSSION The discussion on the proposal from Miller is broken into the following sections:

Part A: Capital Cost Part B: Operating Cost

Part A: Capital Cost The following discussion on capital cost is based on the recommendation to proceed with a Regional Facility in the report Material Recovery Facility by the General Manager of Environmental & Engineering Services & City Engineer for the June 1, 2009 meeting of the Environment and Transportation Committee.

Inflation

Reaional MRF Council reauested Dricina be obtained for a "London Onlv" Facilitv ldesianed to Drocess 40.000

$750,000 I Originally 2007 construction planned

tonnes per'year) and a "kegional" Facility (designed to process i%,~OOO ionnes per year) as. part of the proposal process based on using the current two stream, householder separation approach (Le., Stream 1: paper products; Stream 2: food, beverage and liquid containers) for incoming materials:

A financial comparison of the London Only Facility and the Regional Facility completed in the aforementioned report Material Recovery Facility concluded:

The capital cost to London for a Regional Facility will be approximately $2,700,000 less than the capital cost for a London Only Facility because of additional outside funding for a Regional MRF. There is an immediate reduction in the annual operating cost ranging from $80,000 to $220,000 (approximately $3 to $8 per tonne processed) for a Regional Facility. There is the potential for further reductions in annual operating costs of up to $550,000 to $600,000 (approximately $20 per tonne per tonne processed) when sufficient additional materials be processed at a Regional Facility.

Regional Flexibility Upgrades

CaDital Cost Breakdown The original budget in 2006 for the new MRF was $1 5,000,000. The cost of this project has increased to $18,000,000 as shown in Table 1 due to inflation, health and safety upgrades,

$900,000 Upgrades paid for by WDO to allow easy conversion to 1) single stream and 2) 100,000 tonnelyear capacity

- . _ engineering upgrades and design improvements. The cost to construct a regional facility is $23,000,000.

Regional Engineering Improvements

Regional MRF Budget

$600,000 Potential upgrades to enhanced energy conservation and building construction improvements

$23,000,000

Health & Safety Upgrades

Environmental Upgrades $450,000 Includes LEED Silver certification, screening

$700,000 Includes sort room enclosures, training room etc ~ ._. ~. ~ , . . ~.~ ..... ~ .... ~ ...................................................................................

.......................................... ........... .. . ..... . .. ~ ......................... ......................... . ~ ~ . .. .. ...... ............................ .... ~ ~.. . ..........................

I .- Engineering Improvements I $I ,100,000 Additional equipment, contingency -..

Revised Budget I $18,000,000 I - I 1 Regional Upgrades 1 $3,500,000 Upgrades paid for by WDO to increase I processing capacity to 75,000 tonneslyear I

Agenda Item # Page # --

Has the lowest capital cost per

4

MRF Estimated 2009 Cost"

Durham $21,000,000

MRF Capital Cost The capital cost proposed by Miller for the Design and Construction of a Regional MRF is $21,221,282.24. The Miller proposal excludes contingency allowance, engineering supervisionkontract administration and costs to be borne directly by the City (such as providing site services) which brings the total cost of this project to $23,000,000.

The Canadian content of the design and construction of the facility is over 80%. Approximately 50% of the construction jobs will be local and the facility will need approximately 40 employees when it opens.

The capital cost proposed by Miller for the Design and Construction of the MRF is considered good value based on a comparison with:

Other MRFs constructed in Ontario in the last 5 years Engineering cost estimate of the facility

The capital cost of three MRFs constructed in Ontario (Durham Region MRF by Metro Waste, Peel Region MRF by Waste Management and York Region MRF by Miller) in the last five years were compared to the cost of the facility proposed by Miller for London. The capital cost for these facilities are presented in Table 2 and were compared on both a cost per square metre constructed and the cost per tonne of processing capacity provided.

square metre compared to the other three MRFs Has a lower capital cost per tonne of

I

$25,000,000 Peel

York $26,000,000

The higher capital cost per tonne of processing capacity than two other recently constructed MRFs is not unexpected for two reasons. First, these MRFs have greater processing capacity (greater than 100,000 tonnes per year) than the London MRF and therefore have the advantage of "economies of scale". Second, the specifications in the RFP required larger tipping floor space for incoming materials and larger storage area for processed materials than most MRFs which increases the cost of the building without adding processing capacity. This was done because some recently constructed MRFs have quickly been constrained by the lack of space resulting in operational issues.

An engineering cost estimate of the facility proposed by Miller was prepared by Genivar and HMI Business Management Solutions. This independent engineering estimate was consistent (within 2%) with the submitted proposal price.

Continaencv and Enaineerina Services Costs Resident inspection and contract administration for the construction of the MRF will be performed by the City's Facilities Design and Construction Division and supplemented as required by firms with specialized expertise in MRF design and recycling equipment installation.

Genivar has extensive experience in overseeing the construction of MRFs in Ontario and has been involved in both RFQ and RFP processes for the City. Consequently the continued use of Genivar for detailed design review and contract inspection of specialized aspects of this project is to the financial advantage of the City. The upset limit for the design review and Genivar's portion of the contract inspection is $70,000 (excluding GST).

A contingency allowance of $600,000 is recommended to cover the cost of any and all changes in scope of this project. This represents approximately 3% of proposed Design and Construction costs.

Agenda Item # Page # --

Descriation

5

Cost"

Financial ImDact The source of financing for design and construction of the MRF, contingency and outside

Design and Construction (Miller Proposal)

engineering services is provided in Appendix A and summarized in Table 2.

$21,220,000

Contingency

I costs

$600,000

Engineering Services $70,000

I ~~

I Financing

Total $21,890,000

Federal and Provincial Stimulus Funding $14,450,000 I (67%) Waste Diversion Ontario Funding $4,390,000 I (20%) Federal Gas Tax Funding $3,050,000 1 (13%)

Total $21,890,000 I (100%)

Agenda Item # Page # --

Municipality Quantity Recycled (tonnes)

Miller Proposal 40.000

6

Processing Comment cost

($/tonne)

$53

Waterloo

Average

I Durham I 49,800 I $45 to $55 /* Durham responsible for rolling stock I

35,300 $36 to $40 Waterloo responsible for equipment maintenance, rolling stock and utilities Four stream collection which reduces processing costs but increases collection costs

There are many important differences in each MRF but this general range is a useful guide

43,000 $49 - $56

I Essex-Windsor 1 25.900 I $39to$45 I I

Expected quantity of material recycled by London in the long term andlor Potential quantity of material recycled by Regional Facilitv in the short term

40,000 $53 ................................................................................

I Hamilton I 40,500 I $50to$60 1 I

Potential quantity of material recycled by Regional Facility in the long term

$73 to $78 Separate fiber & container MRFs I Ottawa I 64,200 I Includes caDital cost I

75,000 $48

Scenario

Financial Impact The net operating cost for the new MRF will be a function of the:

Average Revenue Wtonnel

Processing cost and,

The processing cost from the proposal varies depending on the amount of material being processed as shown in Table 4.

Revenue received from the sale of recyclables.

Year to date (2009)

Table 4 - Processing Costs

$60

Scenario Quantity of Processing Recyclables cost 1 I (tonneslyear) ($/tonne)

5 year average (2004 to 2008) 10 year average (1999 to 2008)

Highest revenue for a full year (2008)

I Current auantitv of material recvcled bv London I 28.000 1 $76 I

$130 $1 20

$150

I Lowest revenue for a full Year (2001) I $95 I

Agenda item # Page #

Revenue

Low Revenue Projection ($70)

7

Net Operational Cost (Savings) High Low

($76/tonne) ($53/tonne)

$200,000 ($500,000)

-

Table 6 - Net ODerational Cost (Savinas)

Expected Average Revenue ($1 I O ) 1 ($1,000,000) I ($1,600,000) Expected Peak Revenue ($150) I ($2,000,000) I ($2,700,000)

Table 6 shows:

There is wide range in net operating costs depending on the situation Under the "worst case" scenario (low revenue, high processing costs) there may be a small deficit in the net operating budget On average there is expected to be an annual surplus of $1,000,000 to $1,600,000 In some years the surplus could be between $2,000,000 and $2,600,000

The current operating budget assumes the revenue received from recyclables covers the cost of processing. Under the Miller proposal it is expected that the MRF will on average generate a $1,000,000 to $1,600,000 annual surplus.

Waste Diversion Reserve Fund As discussed above, the net operating costs can vary significantly which will make budgeting difficult for any single year. In addition, funds should be set aside for future MRF upgrades, equipment replacement and building replacement.

Operational surpluses from the MRF (sale of recyclables less processing cost) could initially be directed to the Waste Diversion Reserve Fund and used to pay for future MRF capital costs and cover any operating "deficit" in years when revenue is less than the processing costs. It is expected that eventually when markets return to more typical levels, some of the operating surplus could be used to reduce the operating budget for waste management.

The report Update on the Design, Construction and Operation of a Material Recovery Facility And Related Program Changes on the June 1,2009 Environment &Transportation Committee agenda is recommending Civic Administration be directed to submit a report every three years to Environment and Transportation Committee which updates program requirements and adjustments, impact of Provincial legislation and regulation, long term forecast of future waste diversion capital requirements, revenue and the portion of any operating surplus from the MRF that could be directed to the Waste Diversion Reserve Fund.

Considering the above, it is recommended operating budgets are developed showing operational surpluses from the MRF being directed towards the Waste Diversion Reserve Fund for the first three years of operation for the MRF

SUMMARY: Construction of a state-of-the-art two stream 75,000 tonne per year Regional Material Recovery Facility (MRF) with LEED@ Silver Certification will provide many benefits including lowering recycling processing costs.

Agenda Item # Page # 8

ACKNOWLEDGEMENTS: This report was prepared with assistance from; Alan Dunbar, Manager, Financial Planning and Policy; Mike Losee, Manager -Solid Waste Management and Karen English, Purchasing Officer.

DIVISION MANAGER ENVIRONMENTAL PROGRAMS 8

!I 11 SOLID WASTE MANAGEMENT I SOLID WASTE MANAGEMENT

IAL SERVICES AND ACTING NVIRONMENTAL 8 I DEPUTY CITY TREASURER I ENGINEERING SERVICES 8 CITY ENGINEER

Attachments: Appendix "A" - Sources of Financing y 'shareo'5o1wasle\elc_ooc rwolts\rtp 08-03 mr! doc

cc: Vic Cote, General Manager of Finance & Corporate Services & Acting City Treasurer John Freeman, Manager, Purchasing

#09077

May 20,2009 (Award Contract)

Chair and Members Board of Control

RE: Design, Construction and Operation of a Material Recovery Facility Capital Project SW6047-Material Recovery Facility Miller Waste Systems $21,221,282.24 Genivar - $70,000

F S Conditional on the approval of Federal and Provlncial Stimulus Funding, Finance and Corporate Services confirms that the cost of this project can be accommodated by adjusting the financing in the Capital Works Budget. Subject to the adoption of the recommendation of the Director-Environmental Programs and Solid Waste, the detailed source of financing for this project is:

Approved Financing Revised Committed This Balance For ESTIMATED EXPENDITURES Budget Adjustment 1) Budget To Date Submission Future Work

Consulting Construction Contingency City Related Expenses

$1 50,000 $50,000 $200,000 $50,437 $70,000 $79,563 14,450,000 7,700,000 22.150.000 21,221,282 928,718

50,000 50,000 71 3 49,287 600,000 600,000 600,000 0

NET ESTIMATED VPENDITURES $15,250,000 $7,750,000 $23,000,000 $61,150 $21,891,282 $l,OSt,SSS

SUMMARY OF FINANCING:

Federal Gas Tax 2) $9,500,000 (6,223,334) $3,276,666 $51,150 3,051282 $174.234

Federal Stimulus Funding 3) 0 7,666,667 7,666,667 7,225,000 441,667 Provincial Stimulus Funding 3) 7,666,667 7,666,667 7,225,000 441,667

Drawdown from Sanitary Landfill RF 5,750,000 (5,750,000) 0 0

Waste Diversion Ontario 4) 0 4,390,000 4,390,000 4,390,000 0

TOTAL FINANCING $15,250,000 %750,000 $23,000,000 $61,150 $21,891,282 $1,057,568 -- - NOTES The original budget of $1 5.2 million was for a "London Only" Material Recovery Facility. The cost to construct a Regional Facility increases the budget to $23.0 million. The increased costs are offset with two-thirds funding from the FederallProvincial Stimulus Funding and Waste Diversion Ontario.

Federal Gas Tax funding can be used to finance this project within the Stimulus program provided the total contribution from federal sources does not exceed 50% of the total eligible capital cost. The Federal Gas Tax funding being released will be re-distributed to finance other eligible capital projects. Subject to confirmation from the Infrastructure Stimulus Program.

Waste Diversion Ontario (WDO) have confirmed their intent to become a financial partner in the construction of a regional recovery facility. It is expected that the MRF will on average generate a $1 million to $1.6 million annual surplus. In some years, the surplus could be between $2 million and $2.6 million. EESD is recommending that any surplus be directed to the Waste Diversion Reserve Fund for future capital costs and to cover any operating deficits in years when revenue is less than the processing cost.

- 3 Martin He$# ard

Director of Financial Planning 8 Policy