Product Safety Regulation Funding Consultation. Main Stakeholder Follow-up Meeting November 25, 2008
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1 Product Safety Regulation Funding Consultation Main Stakeholder Follow-up Meeting November 25, 2008
2 Presentation Overview Background Overview of Consultation Process Overview of Program Costs Approved Fee 2
3 Product Safety Consultation Structure A series of stakeholder consultations and working groups were established Main Committee All stakeholders 1 Risk Assessment Methodology 2 Accident & Incident Reporting Guidelines 3/4 Corrective Action & Public Notification Guidelines 5 Revocation of Approval & Recognition Rules 6 Funding Option Development Peter Jackson Elizabeth Nielsen Suzanne Alfano Peter Marcucci 3
4 1 Risk Assessment Methodology 2 Accident & Incident Reporting Guidelines Main Committee All stakeholders 3/4 Corrective Action & Public Notification Guidelines 5 Revocation of Approval & Recognition Rules 6 Funding Option Development 6 Funding Consultation WG 6 dealt with the following areas: Funding principles Cost Principles Types of activities (anything missing) Determined mandatory vs optional activities Activity level assumptions (eg: number of reports) Costing assumptions (eg: number of reports one person can handle in a year) Revenue principles Revenue options and sources 4
5 6 Scope The Resource/Funding Model (WG6) was tasked with: Advising ESA on the type and range of activities that it should undertake to accomplish its product safety objectives including addressing: Unapproved; Counterfeit; and Defective products that could affect the safety of persons or could cause property damage. Validating and providing guidance regarding the establishment of a funding model that may be considered by ESA to recover the costs associated with the implementation of the new product safety regulations and fulfilling its expanded product safety mandate. Recommending funding options to support those activities 5
6 Proposed Resource Model Principles Costs Costs and revenues from Product safety oversight would be tracked separately based on transparency Avoid cross subsidization Stakeholder role in advising on oversight activity levels Identify cost drivers and beneficiary Work towards safety performance based fees Revenue Simple to administer and fair Within ESA s authority Recovers ESA regulatory oversight costs directly Based on readily available metrics Allocation based on cost drivers Simple allocation formula Reflects the overall fee principles 6
7 Fee Options Under Consideration Option 1: Option 2: Option 3: Option 4: Option 5: Option 6: Option 7: Option 8: Continue cross-subsidization by increasing wiring inspection fees. Apply administrative penalties to those that do not comply. Continue cross-subsidization by increasing fees charged to LDC. Collect a fee from electrical product manufacturers (brand owner or 1 st importer) with a business presence in Ontario. Collect a fee from electrical product retailers and/or distributors who do not import electrical products into Ontario. Collect a fee from CB/FE clients (i.e., manufacturers brand owners, distributors, retailers) through CBs/FEAs as a pass through cost. Create an unsafe product fund to be financed by the largest retailers, manufacturers, distributors and CBs/FEAs in Ontario. Collect a licensing fee from CBs/FEAs to operate in Ontario. 7
8 1 Risk Assessment Methodology 2 Accident & Incident Reporting Guidelines Main Committee All stakeholders 3/4 Corrective Action & Public Notification Guidelines 5 Revocation of Approval & Recognition Rules 6 Funding Option Development Funding Consultation Process ( 6) 5 Funding Group meetings (Dec 07 - Feb 08) 1 Ad hoc working group meeting (Feb 08) 6 individual stakeholder meetings (primarily CBs) Draft Business Case issued for written comment April Members of WG 6 were provided a copy of the Business Case for comment A copy of the business case was posted on our website Those contacted were asked to provide written responses by May 23 Final working Group 6 meeting July 10, 2008 Feedback was reviewed either; resulting in changes to business case no change to document but rationale provided or clarification provided 8
9 Funding Consultation Process Cont d 6 participants The following stakeholders participated on WG 6: Electro Federation Canada (EFC) Consumers Association of Canada (CAC) Retail Council of Canada (RCC**) Electrical Distributors Association (EDA) Ministry of Government Services (observer) Wal-mart Canada Corp. Canadian Standards Association Individual Consumer Representative QPS Evaluation Services Intertek Testing Services NA Inc. Underwriters' Laboratories of Canada Underwriters Laboratories Inc. Sears Canada Home Hardware Who provided written feedback? The following stakeholders provided feedback: Electro Federation Canada (EFC) Consumers Association of Canada (CAC) National Electrical Manufacturers Association (NEMA) Coalition of Certification Bodies (CCB*) Retail Council of Canada (RCC**) Electrical Distributors Association (EDA) Coalition of Certification Bodies (CCB2)-second submission *CCB includes UL, ULC, CSA, Intertek **RCC comments represent the views of Sears, Home Hardware, Wal-mart Canada, Hudson s Bay Company, Canadian Tire, ToysRus Canada 9
10 Feedback Summary Feedback consisted of: 7 separate submissions that were received from 16 different organizations who provided 94 separate comments 10
11 Feedback Summary Continued Feedback Breakdown: 11 Comments in support of proposed funding option and/or program 42 Comments resulting in changes to the document 10 Comments requesting points of clarification 4 Comments not related to the funding paper 18 Comments ESA agreed with but did not result in a change 9 Comments ESA disagreed with and the rationale for ESA s position 11
12 Transition Year FY08/09 Budget COSTS / EXPENSES Total Labour 371,785 REVENUE Total Purchased Services (Contracts & Investigators) 59,000 CB/FE Recognition Fee Manufacturer Registration Fee (500) Net Revenue Total Operating Revenue 65, , , ,000 Travel Office Administration Facilities Computer Support Other Costs Insurance Expense Communication/ Public Awareness Legal and Audit Services Interdepartmental Transfer Costs 80,400 48,500 31,960 29, ,000 25,000 70,000 25,000 45,000 Operating Expense 785,645 Operating Margin $ (545,645) Net Deficiency* $ (545,645)* * Represents ESA s current level of cross-subsidization of product safety activities; will be recovered through product safety fees in subsequent years. 12
13 Program Costs ESA currently spends about $500,000 per year managing product safety related incidents. Currently, there is no direct revenue to support this activity. The working group was consulted on the range and scope of activities required to implement the Product Safety Regulation. Proposed program activities provide for a balanced strategy that includes a range of prevention, detection and response activities. Costs are estimated at about $3.2 million annually once the program is fully implemented. The costs will be incurred in proportion to development of the revenue stream to support these costs (staged implementation). 13
14 Allocation of Activities/Costs Over 3 Years Activity Category Development & Implementation Cost Recovery Prevention, Partnerships, Alliances Detection Enforcement Response Governance Legal, Admin, Insurance & Contingency %
15 Three Year Projected Cost Summary Year 1 FY09/10 Year 2 FY10/11 Year 3 FY11/12 Development and Implementation Cost Recovery 720, , ,490 Prevention Activities 299, , ,340 Partnerships & Strategic Alliances 48,300 99,700 96,250 Detection Activities 233, , ,800 Enforcement Activities 111, , ,667 Response Activities 721,000 1,001,000 1,001,000 Governance Costs 85, , ,310 Contingency 113,279 72,439 0 Legal, Insurance & Admin Support 271, , ,486 Total 2,605,427 3,259,770 3,140,342 15
16 Program Revenue/Fees Through the working group discussions 8 fee options were identified and assessed. The working group compared and evaluated all of the potential funding alternatives to determine which models presented the best viable option(s). The proposal is based on a combination of three of these 8 options. The proposed fee schedule eliminates ESA s cross subsidization of product safety. 16
17 Recommended Fee Option Based on stakeholder consultations ESA staff recommends that ESA implement a mixture of funding options to support the implementation of the product safety regulation including: a registration fee for manufacturers/first importers ($350 initial fee and $300 yearly renewal fee) (it is projected this will generate $3 million annually once fully implemented), CB/FEA recognition fee (it is projected that this will generate approximately $ 65,000 annually), and administrative penalties (it is projected that once fully implemented this will generate approximately $150,000 annually). It is anticipated that these revenue sources will recover approximately $3.2 million annually after full implementation. 17
18 Manufacturer Registration System Manufacturer = those that submit their products for certification or evaluation Approval will be conditional on registration it is assumed that 10,000 registrants exist As a group, the three main certification bodies (UL, CSA, Intertek) confirmed their unique customers for electrical product certifications total in excess of 12,000 TSSA confirmed that they successfully register approximately registrants yearly for their Stuffed Articles regime The fee would be a flat fee per registrant irrespective of the number of products intended for the Ontario marketplace The system would be based on an online registration form and payment system. The form will be available early in the new year 18
19 Revenue Projections Fully Implemented Revenue Projections Total Administrative Penalties CB/FE Recognition Fee ($2,500 per year) Manufacturer Registration Fee ($350 initial registration fee/year & $300 renewal fee/year) Total Revenue Collected $150,000 $65,000 $3,000,000 $ 3,215,000 19
20 Break Even Point The new fee proposal eliminates $500K per year ESA crosssubsidization for product safety activities. Y0 Y1 Y2 Y3 Y4 Y5 Y6 Costs 785,645 2,605,427 3,259,770 3,140,342 3,140,342 3,140,342 3,140,342 Revenue 240,000 2,890,000 3,285,000 3,215,000 3,215,000 3,215,000 3,215,000 Surplus/ Shortfall (545,645) 284,573 25,230 74,658 74,658 74,658 74,658 Cumulative Surplus/ Shortfall (545,645) (261,072) (235,842) (161,184) (86,526) (11,869) 62,789 20
21 Questions??
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