PER UNIT PRICING: An Overview of Operational Issues

Transcription

1 PER UNIT PRICING: An Overview of Operational Issues PRESENTED AT North Carolina Recycling Association Conference: Recycling '92 Charlotte, North Carolina April 7-9, 1992 By: Dawn P. Jacalone, Recycling Specialist 3000 Hadley Road South Plainfield, New Jersey

2 I' Per Unit ficing: An Overview of Oprron'onal Issues Implementing the User Based Billing System The implementation of a user based billing systems whether it be a "pay per bag," "tag," or "variable can rate" program, will require careful planning in order to accurately account for program revenues. Therefore, it is necessary to answer several fundamental questions associated with the implementation of such a program, including: 1) what quantity of bags, tags or cans should be ordered? 2) what fee should be charged per bag, tag or can? 3) what method(~) should be used for distribution of the bags, tags or cans? and 4) what additional types of billing procedures are necessary to fund an entire waste collection and disposal system, including yard and bulky wastes? Each individual question will be discussed below. 1) WHAT QUANTITY OF BAGS, TAGS OR CANS SHOULD BE ORDERED? Correctly estimating the number of bags, tags or cans that will be used is critical to the success of the program simply because operating budgets are directly related to bag or tag sales or can subscription levels. Therefore, careful consideration must be given in malung this determination and will involve certain assumptions with respect to the types and quantities of solid waste to be included in the collection program, the size of the bags or cans to be used and the average weight anticipated of each bag or can set out. First, define the source(s) and estimate the quantity of municipal solid waste that will be collected and disposed utilizing a bag, tag or can billing system. Commercial waste, usually generated in large quantities and handled separately from residential waste collection, is often excluded from these types of programs. Therefore, it must not be included in the total waste quantity estimate used in determining total bag quantity requirements. Additionally, yard waste and bulky waste should also be excluded from the waste stream, if separate collection programs are provided. However, if yard waste is normally collected with MsW, then yard waste must be considered part of the waste stream that will be collected. Second, select the size(s) of bags or cans to be utilized, as well as, the size of the bag that will be used for disposal in the tag program. Some communities offer more than one size bag or can in order to maximize the economic incentive to recycle, as well as, provide flexibility for small waste generators (Le., elderly, couples). By offering varying sized bags or cans, residents that don't generate enough waste on a weekly basis to fill larger sized bags or cans won't have to store waste for two or more weeks or dispose of a half empty bag or can. In addition to correctly projecting the sources and quantities of waste managed by this program, it is equally important to accurately predict the average weight of each bag or can set out for collection. Overstuffed bags or cans can result in the sale of fewer bags or lower subscription rates, thereby resulting in lower than anticipated revenues and an overbudget program. Table 1 demonstrates the impact on the total number of bags that would be necessary for a particular Page 1

3 I' Per Unit Pricing: An Ownicw of Oprrcuional Issues TABLE 1 THE AFFECT OF DIFFERING BAG WEIGHTS ON THE TOTAL NUMBER OF BAGS REQUIRED POUNDS PER BAG NUMBER OF BAGS (Maam) 13 GALLON BAG GALLON BAG PROGRAM ASSUMPTIONS: Population... MW Disposed... 50,000 Tons Per Year Total Recyled....8,500 Tons Per Year Total M W Collected... 83,000,000 Pounds Per Year Page 2

4 I Per Unit Aicinn: An Ovcrvicw of 0IK~ onal Issues program assuming five (5) pound weight differences per bag. For example, bag manufactures report that each bag holds an equivalent amount of pounds as gallons (Le., 30 gallon = 30 pounds). However, Perkasie, Pennsylvania reports their average 30 gallon bag weight to be 40 pounds, and 15 gallon bag weight to be 20 pounds. Alternatively, one community in southern New Jersey reports 25 pounds as the average bag weight of a 30 gallon size bag. A good rule of thumb in planning a volume based billing system is to assume that bags or cans will frequently be overstuffed. A pilot study should be performed in a controlled study area to evaluate bag or can weights for program planning and budgeting purposes. This also applies to tag programs where it will be necessary for participants to utilize equal sized bags. Based on the above gathered data, the number of bags or tags needed can now be determined. Table 2 illustrates the quantity of each necessary, assuming different percentages of waste disposed in 13 and 30 gallon bags. The City of Utica has recorded inventory data on bag sales for their 16 and 33 gallon size bags. In nearly all cases, more larger bags were sold than smaller bags and in many cases by considerable amounts. 2) WHAT FEE SHOULD BE CHARGED PER BAG, TAG OR CAN? Estimating the cost of each bag, tag or can will require information on the total system cost, including collection (Le., recycling, solid waste), disposal and program administration (see Table 3). Consider including the cost of yard waste collection and bulky waste collection as well. This, however, might increase the sale price of the bag significantly beyond a reasonable rate..therefore, establish a price limitation on the cost of the bag. If the cost of the 13 gallon bag and 30 gallon bag is higher than $0.75, for example, and $1.25, respectively, then it will be necessary to establish an additional billing system to make up the difference. Table 4 illustrates the price that should be charged for each bag or tag based on anticipated bag sales. 3) WHAT METHOD(S) SHOULD BE USED FOR BAG, TAG OR CAN DISTRIBUTION?. Bags are most frequently sold through existing retail stores (Le., supermarkets, convenience stores, hardware stores). Also, consider selling bags in retail establishments that are located outside of the community. The most convenient approach for the community is for the bags to be delivered to the retailer by the manufacturer. For example, in the City of Utica, the bag manufacturer has established a weekly distribution route. Stores are required to call two weeks in advance for delivery. Delivery receipts are sent to the City on a monthly basis, documenting the quantities delivered to each retailer. The City bills the retailers for the quantity delivered minus a discount of $0.05 per bag which provides an incentive for the retailer to carry the bags. Credit checks should be performed on retailer candidates through the Credit Bureau. Additionally, retailers are required to post placards indicating the availability of bags. Less than 10% of retailers failed to promptly pay the City for the bags. The penalty for nonpayment is the forfeiture of the privilege to sell the bags. Page 3

5 I' Per Unit Pdcing: An Owm'ew of Operational Issues TABLE 2 ESTIMATING THE QUANTITY OF BAGS TO BE ORDERED 13 GALLON BAG-20 POUNDS PER BAG WASTE PERCENT ALLOCATED TO NUMBER OF 13 GALLON BAG TOTAL POUNDS BAGS NEEDED 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% 8,300,000 16,600,000 24,900,000 33,200, ,000 49,800,000 58,100,000 ww000 74,700,000 83,000, , , , ,000 2,075,000 2,490,000 2,905,000 3,320,000 3,735,000 4,150, GALLON BAG-40 POUNDS PER BAG WAS PERCENT ALLOCATED TO NUMBER OF 30 GALLON BAG TOTAL mu" BAGS NEEDED 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% 8,300,000 16,600,000 24,900,000 33,200, ,000 49,800,000 58,100,000 mw000 74,700,000 83,000, , , , , , , , , ,500 2,075,000 Page 4

6 I' Per Unit Pricing: An Overview of Operational Issues TABLE 3 ESTIMATING TOTAL SYSTEM COSTS RECYCLING COLLECTION (Capital, 0 & M, Labor, Material Revenue) TRASH COLLECTION (Debt Service, 0 & M, Labor, Transportation) $521,139 $1,993,500 ADMINISTRATION (Coordinators, Inspectors, Clerical, Bag Purchase, Salary, Fringe) $590,085 TOTAL COLLECTION COST $3,104,724 TOTAL DISPOSAL COST $2,697,500 TOTAL SYSTEM COST $5,802,224 Page 5

7 Per Unit firing: An Ovcniew of Oprran'onal Issues TABLE 4 ESTABLISHING BAG PRICING 13 GALLON BAG-20 POUNDS PER BAG wmpercent ALLOCATED TU NUMBER OF 13 GALLON BAG TOTAL POUNDS BAGS NEEDED mal COST BAG PRICE 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% 8,300,000 16,600,000 24,900,000 33,200, ,000 49,800,000 58,100,000 66,4oo,000 74,700,000 83,000, , , ,000 /fj60,000 2,075,000 2,490,000 2,905,000 3,320,000 3,735,000 4,150, , , ,667 2,320,890 2, , , , ,222,002 5,802, GALLON BAG-40 POUNDS PER BAG WASrEPERcENT ALLOCATED TO NUMBER OF 3oGuLoNBAG ~ALPOUNDS BAGS NEEDED malcost BAG PRICE 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% 8,300,000 16,600,000 24,900,000 33,200, ,000 49,800,000 58,100,000 66,400,000 74,700,000 83,000, , , , , , , ,500 16fwOo 4867,500 2,075, , , ,667 2,320,890 2, , , , ,222,002 5,802,224 Page 6

8 Per Unit pricing: An Overview of obcraabnol Issues William F. Cosulich Associates. P.C. Depending upon proximity of the bag manufacturer to the community, direct delivery service might not always be available. Alternatively the community would be required to provide adequate warehouse space for storage of plastic bags and develop an ordering and delivery network. This would require significantly more administrative and staff time than indicated in the cost analysis (Table 3). Tags are usually sold directly by the municipality or mailed to each household. However, mailing tags would require remittance of payment. This approach requires extensive accounting and follow-up. Cans would be delivered to each household and assessed a purchase and delivery fee in the first billing statement or be made available for sale in retail stores. 4) WHAT ADDITIONAL TYPES OF BILLING PROCEDURES ARE NECESSARY TO FUND ALL WASTE COLLECTION AND DISPOSAL SYSTEMS, INCLUDING YARD AND BULKY WASTES? The price of the bag, tag or can could include all or part of the costs associated with solid waste and recyclables collection and disposal, including yard and bulky wastes. An additional billing system might need to be established, however, should the bag price be higher than what the public might be willing to pay or to cover the costs of the services not included in the price set for each bag, tag or can. Other billing options include: 1, 2 or 3 tier user fee; or a flat tax billed with the utility or property taxes. The City of Utica, for example, institutes an annual 3- tier user fee payable with the first property tax installment. In 1990, single family residences were assessed $60, two-family residences were assessed $120 and 3-5 family residences were assessed $180. The user rates are established similar to those of a utility. Bag Bidding Specifications Procurement of the bags, primarily, requires thoughtful consideration of issues such as bag quality, packaging for resale, recycled content and manufacturing guarantees. Defining or standardizing bag strength, size and performance is necessary in order to obtain competitive and comparable bids. The following issues should be addressed in the bid specifications, at a minimum. Quantity-The total bag order does not need to be available at program start-up. A delivery schedule, on a quarterly basis, should be sufficient. However, at program commencement, approximately half the contracted amount should be available. Quantity adjustments should be an option for the community and could be provided by indicating minimum and maximum orders. Delivery/Reponing-Specify the distribution requirements, including delivery schedules, the number of retailers that will be carrying the bags and that deliveries will be made in case Page 7

9 I Per Unit Pricing: An Ovmrview of Opcradonal Issues load quantities. Bids should require monthly documentation listing the number of bags delivered to each retailer and the unfilled order remaining. Recycled Content-According to bag manufacturers, recycled plastic content up to 35 % could be utilize in the process without compromising bag color or quality. Define recycled content that includes plastic scrap disposed from residential, commercial or industrial sources after serving its intended use. The definition should specifically exclude scrap industrial resins generated during manufacturing processes which are utilized back in the same process. Translucent and white colors require greater percentages of virgin resins. Bags should be made from polyethylene. Strength-Preferred bag strength usually ranges between 1.O-2.0 mils. Indicating 2.0 mil FULL standardizes the definition of 2.0 mil strength to mean strength within a 5% margin of error. Dimensions-Specifying bag size in gallons is not an industry standard and will result in varying sized bags. It is important to provide actual bag dimensions such as 15" X 9" X 30" for a 16 gallon bag or 16" x 14" x 36" for a 32 gallon bag. Logo/lnstnrctions-Indicate any printing to be performed on the bags, including logo, instructions, emergency telephone numbers and bag lot number. Also indicate the color of ink to be used. Colors other than black or white are usually an additional cost. Packaging-Specify the number of bags per resale package (eg. 10 per package) and number of packages per case. Normally, 25 packages per case. Packaging can consist of bags either folded flat or rolled independently or continuously with perforated seams to separate the bags. Included in the package should be an equal amount or greater number of wire twist bag closures as bags. The outer package should contain in print the bag size, user instructions, package contents, informational telephone number and optional universal bar code system for pricing. Samples-Sample disposal bags should be requested and provided with the bid response. Pefomtance Bond-It is necessary to require a performance bond for any damages caused as a result of a delay in the receipt of the bags. This is especially critical for the first required delivery. 10) Guarantee-Manufacturer must guarantee the bag quality and accept the return of all defective and/or damaged bags and guarantee to replace those which are defective or damaged. Page 8

10 Per Unit ficins: An Oveniew of Operational Issues To conclude, "pay per bag" billing systems and other user based billing systems have been effective in reducing waste requiring disposal. The implementation of such programs, however, requires a considerable planning effort. Although, operating a system primarily requires an efficient billing and inventory program, these programs can usually be administered with a full time manager and field inspectors for enforcement. Therefore, with minimal personnel modifications, significant levels of waste reduction and recycling rates can be achieved through the implementation of volume based billing systems. Page 9