Product Care Ontario Programs July 15, 2020 Member Update:  MHSW transition, MHSW surplus transfer, Product Care paint/PSF fee reductions

On April 12, 2018, the Ontario Ministry of Environment, Conservation and Parks (MECP) directed Stewardship Ontario (SO) to wind up the MHSW (Municipal Hazardous and Special Waste) program pursuant to the Waste Diversion Transition Date. The MHSW transition date is now scheduled for July 1, 2021.

Product Care has been operating the Ontario Industry Stewardship Program (ISP) Paint program since July 1, 2015 and the PSF ISP program since April 1, 2016.

Product Care program members represent the following market share following the migration of stewards from SO to the Product Care ISPs:

• 99.97% of paint
• 100% of pesticides,
• 92.9% of solvents and
• 90.5% of fertilizer

SO no longer operates the programs for paint/PSF but purchases “tonnage credits” from PCA. Similarly, Automotive Materials Stewardship (AMS) operates and ISP for oil filters, oil containers and antifreeze.

When the SO MHSW program winds up on June 30, 2021, Product Care’s Industry Stewardship Programs (ISPs) for paints, pesticides, solvents and fertilizers will transition into a “Producer Responsibility Organization” (PRO) under the new EPR legislation Resource Recovery and Circular Economy Act (RRCEA). Note that the Ontario Tire Stewardship program completed its transition at the end of 2018, and single-use batteries transitioned on July 1, 2020 (formerly in the MHSW program) and the Ontario Electronic Stewardship program is scheduled to wind up at the end of 2020.

A significant element of the windup of the SO MHSW program is the surplus held by SO of over $53M which is derived from fees contributed by stewards and categorized as reserve funds, “deferred revenue” and HST ITC refunds, and varies by MHSW material. While the original MECP direction letter specified the return of surplus funds to the steward contributors, subsequent direction from the MECP directed SO to submit a wind up plan to the Resource Recovery and Productivity Authority (RPRA) with options that would see the surplus funds “benefit consumers”.

SO’s MHSW wind up plan was approved by RPRA on January 7, 2020 and included:

• A budget of $5.4M for windup costs
• Gradual return over the windup period of remaining surplus funds to stewards by way of fee reductions in order to benefit consumers. The surplus amounts would be distributed over an extended time period in order that SO would have access to contingency funds in excess of the windup budget.

At the request of industry, on April 1, 2020 MECP issued a direction requiring the amendment of the MHSW Wind Up Plan to provide that 100% of surplus funds must be transferred to the ISPs (PCA and AMS) in one lump sum pursuant to surplus transfer agreements between SO and the ISPs and then applied by the ISPs as fee reductions to stewards “for the benefit of consumers”.  A subsequent April 29, 2020 Minister’s letter set out the timing for this process.

SO consulted on revisions to the windup plan as required by the April 1, 2020 direction letter.

Industry, represented by Product Care, CPCA and CCSPA had the following issues with the SO windup plan:

• The surplus amounts were understated
• SO required an additional $2.3M of surplus funds to be held in escrow to cover possible additional windup costs
• The surplus funds would be divided between SO and Product Care stewards in proportion to the fee rates charged by SO and PCA to their respective stewards, ie the higher the fees charged, the higher the surplus allocation. For example SO solvent stewards representing 7% of the market would receive 33% of the surplus funds

On June 26, 2020 RPRA approved SO’s surplus fund addendum to the MHSW windup plan subject to conditions including:

• The requirement for updated surplus values
• The division of surplus funds between SO and Product Care based on 2019 reference year market supply share, not fee rates

As a result, SO was directed to transfer an additional $2.4M to the Product Care and AMS ISP stewards compared to the original windup plan. The final surplus transfer amounts are:

Product Care Association will hold a meeting on July 15, 2020 to review these events, and to provide the Product Care Ontario Industry Stewardship Plan members information on how the fee reductions will be applied.  A zoom meeting notice will be sent and you will need to register for the meeting.