ASSOCIATION OF MUNICIPALITIES OF ONTARIO and THE CITY OF TORONTO. - and - STEWARDSHIP ONTARIO. AFFIDAVIT OF SHARON ARCARO (sworn April 22, 2014)

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1 BETWEEN: ASSOCIATION OF MUNICIPALITIES OF ONTARIO and THE CITY OF TORONTO Applicants - and - STEWARDSHIP ONTARIO AFFIDAVIT OF SHARON ARCARO (sworn April 22, 2014) Respondent I, SHARON ARCARO, of the Village of Buckhorn, in the Municipality of Trent Lakes, in the Province of Ontario, MAKE OATH AND SAY: A. Introduction 1. I am currently the Director of Field Services for Stewardship Ontario with responsibility for its two waste diversion programs under the Waste Diversion Act, 2002, S.O. 2002, c. 6 (the "Waste Diversion Act'), including the Blue Box Program that is at issue in this Arbitration. 2. Prior to joining Stewardship Ontario, I was a Senior Program Manager at Steward Edge Inc., a product stewardship consultancy, from November 2009 to April From January 2004 to November 2009, 1 was the Manager of Environmental Services for the County of Peterborough. I was responsible for the management and development of waste management programs for the County, including its blue box recycling program. In this capacity, I participated in the KPMG Best Practices Study, which I understand is being discussed in this Arbitration. Among other things, I toured with the KPMG team through the County and explained its unique geographic features. I also explained that, politically, it is a two-tier system, with waste diversion being handled at the upper tier (the County level) and garbage at the lower tier (the Township level), which is a limiting factor on the cost efficiency and effectiveness of blue box collection in the County.

2 -2-4. From January 1991 to January 2004, 1 was the Operations Manager for the City of Peterborough's Materials Recycling Facility ( "MRF"). My responsibilities included the overall management of the facility, which provided blue box and commercial recycling and collection and processing services for the City and the County of Peterborough. 5. During my time in the municipal sector, I was an active member of the Municipal Waste Association ("MWA"), which was formerly known as the Association of Municipal Recycling Coordinators ("AMRC"). I was Board Chair of the MWA from 2007 to In addition, I sat on the Waste Management Task Force of the Association of Municipalities of Ontario ( "AMO") from 2006 to 2009 and was a Director on the Board of the Municipal Waste Integration Network ("MWIN") from 2005 to In 2009, 1 was appointed as a municipal representative on the Municipal Industry Program Committee ("MIPC") of Waste Diversion Ontario ("WDO ). In that capacity, I participated actively in the MIPC discussions that led to the determination of the fee for the Stewards for 2010 pursuant to subsection 25(5) of the Waste Diversion Act. 7. As a result of my municipal experience, I was knowledgeable about the Cost Containment Plan, which amended the Blue Box Program Plan, as well as the KPMG Best Practices Study and Model. As is described in more detail in this Affidavit, I have developed an understanding of how municipal infrastructure and public services policies make for a challenging environment in which to run truly cost-effective operational services. 8. In May 2011, 1 was hired by Stewardship Ontario. Since June 2011, 1 have been a Steward representative on MIPC and was involved in the MIPC discussions that led to the determination of the fee for Stewards for 2012 and Based on my experience, which is set out in more detail in my curriculum vitae, a copy of which is at Tab 46 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 believe the information I am conveying to be true. B. Municipal Representative on MIPC 10. At paragraph 94 of his Affidavit, Andrew Campbell states the following with respect to the annual fee-setting process for subsection 25(5) of the Waste Diversion Act.

3 WE SO had four consultants working full time on Blue Box issues, MIPC and related matters, while municipal representatives on MIPC were volunteers with little or no paid support. This gave a potentially unfair advantage to the stewards at the negotiating table because they had more time to comprehensively review all the data. Municipalities had limited analytical capacity in house and often had to rely on the stewards' and WDO's analysis of the data. 11. Likewise, at paragraph 90 of his Affidavit, Derek Stephenson states: Municipalities generally lacked the resources or the expertise available to the stewards in these negotiations, and we were generally able to achieve annual cost agreements that were less than 50% of municipalities['] reported costs. 12. These statements suggest that municipalities were essentially coerced, outmaneuvered, or naive over several years during the MIPC discussions related to the determination of the Steward Obligation. 13. This suggestion of coercion is not consistent with my experience or my perspective when I was a municipal member of MIPC. I attended the MIPC meeting in mid-july 2009 as a municipal MIPC representative. The minutes from this meeting, a copy of which is at Tab 291 of the Applicants' Document Book, indicate that the municipal MIPC representatives were "willing to accept a mid-point between BP cost model output and reported system cost for 2010." From my perspective, this agreement was not based on coercion by Stewardship Ontario. Instead, it reflected a clear understanding by the municipal MIPC representatives that the Minister of the Environment (the "Minister") had amended the Blue Box Program Plan by means of the Cost Containment Plan. As a result of this amendment, the annual calculation of the total net costs incurred by the municipalities as a result of the program needed to be based on best practices costs. I understood this and the background and concepts of the KPMG Study perfectly well. Based on my knowledge of the model used and the limitations'of the current system, I felt that meeting at the mid-point was a reasonable compromise, giving municipalities more time to invest in their infrastructure to achieve Best Practices and improve overall program efficiency. C. Inefficiencies in Municipal Blue Box Programs 14. In my role at Stewardship Ontario and in my prior involvement in the municipal sector, I have observed inefficiencies in municipal blue box programs across Ontario. These inefficiencies increase the overall cost of the Blue Box Program. In this section of my Affidavit, I provide a high-level overview of the most significant inefficiencies that.l have observed.

4 -4- Economies of Scale and Consistency 15. One of the greatest barriers to true efficiency is that municipalities operate their blue box programs within their respective municipal boundaries. Cost savings could be achieved in a larger, more consistent system. 16. For example, in remote areas where service providers are few, bids on contracts are very high. In a truly open system without borders, service providers would be bidding on larger areas and would therefore be able to provide more normalized market pricing. Overall, municipalities tend to use their "standard RFP/tender" document for these operational services. Only in the past couple years has there been an improvement on contractual clauses that can help to control costs and to allow for better contract management. This is mainly due to initiatives led by the Continuous Improvement Fund ( "CIF"). 17. Another example is in the marketing of materials. Municipalities are not consistent in the materials they collect or in their processing. Commodities are often not sorted in the same manner and therefore vary in quality and value. If municipalities were to co-operate across their boundaries more often and market larger volumes of recyclable commodities that are sorted in the same manner and that contain the same mix of materials, a higher revenue stream could be brought in to offset costs. ii. Municipal Decision -Making 18. Higher costs are also driven by specific decisions made at the municipal level. For example, municipalities that operate MRFs with municipal staff, instead of contracting out the work, tend to have a higher net cost per tonne. The fact is that municipal salaries and benefits are generally more generous, and the number of labour resources used is generally higher, than in comparable private sector operations. Likewise, municipalities may decide to locate MRFs in areas that are not beneficial to the overall cost of the system. The decision may be based on political factors, without a full consideration of the rest of the system and the potential synergies that could be achieved with other municipalities. 19. Many municipalities use the same private sector contractors for both garbage and recyclables collection. As the recycling contracts are paid partly through Steward fees, it is my view that the recycling contracts can be leveraged to produce lower garbage collection contracts, where municipalities are paying with 100 cent dollars.

5 In addition, some municipalities have decided to provide a more costly, "gold-standard" service to their residents, which exceeds what is necessary to achieve the objectives of the Blue Box Program Plan. These decisions may be for good political or other reasons, but they are not necessarily made with a view to minimizing blue box costs. iii. Municipal Staff Involvement and Education 21. In all but very large municipalities, the same staff that work on the blue box program are also responsible for other waste, environmental, or public works functions. Because staff have many competing responsibilities, they do not have adequate time to spend on optimizing the efficiency of the blue box program. This is a fact of life in many municipalities. 22. Moreover, the enrollment by municipal staff in blue-box-specific training (even when offered free of charge) is generally low. Municipalities are now required to report on training in the Best Practices Section of the Annual Datacall, which has helped. However, it is still not a priority for municipal staff to seek formal training in how to manage this area of their business. iv. Promotion and Education 23. Based on my experience, another significant barrier to achieving greater efficiencies and reducing costs for municipal recycling systems is the inconsistent promotion of the program. Currently,.the 200+ municipal programs across the province do their own promotion, which is problematic for the following reasons: (a) (b) (c) economies of scale could be achieved by doing advertising on a larger scale; some municipalities put in little effort or have few resources to produce educational and promotional materials; and many consumers do not live and work within the confines of the same municipality. With different messages being communicated by different municipalities, there can be confusion among consumers as to which materials go in the recycling box, cart, bag, or bin. This leads to contamination of recyclable materials with non-recyclable materials. Moreover, municipalities are not consistent in their messaging for basic materials (e.g., "caps on" or "caps off' for plastic bottles), which results in consumers putting out their recycling at curbside in an inconsistent manner and drives up processing costs. D. The Datacall Audit Covers Only a Small Number of Municipal Programs 24. Out of the 200+ municipal blue box programs, only 20 of them are audited in WDO's annual Datacall audit. The Datacall is a very large and difficult database to fill out, with a lot of

6 -6- room for error. Furthermore, the auditor engaged by WDO is a financial auditor that tends to focus on black-and-white accounting issues. The auditor does not know the system and may not notice more detailed operational issues such as cost splitting (i.e., the need to separate the costs of blue box operations from other waste management costs). 25. Many municipalities promote and manage the recycling of materials that are not obligated under the Blue Box Program, such as hardcover and softcover books, general use paper, CD and DVD cases, metal pots and pans, and boat shrink wrap. The costs and revenues associated with the management of these materials should be deducted from the costs and revenues submitted through the Datacall; however, there is no current deduction in place through the Datacall, nor are instructions provided to ensure these deductions are made, nor do the auditors review this level of detail. 26. Because the Datacall is difficult and time-consuming, municipalities, in my experience, dislike having to complete it. This results in municipalities taking insufficient time to ensure accuracy. SWORN BEFORE ME at the City of Toronto on April 22, C mmissione or Taking Affidavits ::Y T HAR ARCARO

7 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 Tel: (416) Fax: (416) Brendan O. Brammall Tel: (416) Fax: (416) Dina Awad LSUC#: 62684J Tel: (416) Fax: (416) Lawyers for Stewardship Ontario