The RDOS presentation Ken is referring to is in the Feb 1st agenda package (starting on p. 53). The point of the presentation is to answer a question that has come up in the boardroom a few times: How much more espensive would it be to build a whole bunch of little composting sites rather than one large regional site?

Clearly, this is bound to be a very rough analysis. The RDOS has not done nearly as much work to cost out five local composting sites compared to the regional site. So what RDOS staff has done is supplied a range of estimates for each location.

The overall impression I get from the analysis is exactly what you might expect: A single regional compost site costs less (both in terms of capital cost and operations costs, which include trucking) than five smaller sites. Now, we have ranges here, so some might argue that it is possible that the "cheaper" option costs more than the "expensive" option. Yes, this is possible. It is just not probable.*

A more realistic approach to comparing the two alternatives is to consider the mid-points of the ranges. I have done this for the capital and operations costs estimates provided in the RDOS staff presentation:

Here we see that we should expect capital costs for multiple sites to be $7M or so higher and operations costs to be $1.3M per year higher. To get a full lifecycle view of this, we need to compute present value (PV) and/or equivalent annual cost (EAC). I have converted operations costs to PV using a discount rate of 6%, a term of 20 years, and an inflation rate of 2% (for a real interest rate of 3.9%).

My take-away from this is that the total lifecycle cost of multiple sites is about $24M more than a single regional site. Annually, this translates to a difference of about $1.8M (on a total RDOS solid waste budget of ~$6M). So I would agree with RDOS staff's simple conclusion that a single site costs less. And the difference is large enough to matter.

* The two-value estimates provided by RDOS staff correspond to the "best-case" and "worst-case" costs. According to these estimates, the capital cost for the regional compost site is unlikely to fall below the best-case estimate of $16M and equally unlikely to cost more than the worst-case estimate of $23M. But best-case and worst-case are extremes. The "most-likely" cost is somewhere in between. So say the probabilty of the worst-case capital cost for the regional compost site ($23M) is 5%. And say that the probabilty of the best-case capital cost for the five satellite sites ($25.3M) is also 5%. The absolute difference between the worst-case for the regional site and the best case for the satellite sites is quite small--$2.3M or 10%. However, the probablity of getting these two extreme outcomes is 0.05 x 0.05 = 0.0025.

## The numbers

The RDOS presentation Ken is referring to is in the Feb 1st agenda package (starting on p. 53). The point of the presentation is to answer a question that has come up in the boardroom a few times: How much more espensive would it be to build a whole bunch of little composting sites rather than one large regional site?

Clearly, this is bound to be a very rough analysis. The RDOS has not done nearly as much work to cost out five local composting sites compared to the regional site. So what RDOS staff has done is supplied a range of estimates for each location.

The

overallimpression I get from the analysis is exactly what you might expect: A single regional compost site costs less (both in terms of capital cost and operations costs, which include trucking) than five smaller sites. Now, we have ranges here, so some might argue that it is possible that the "cheaper" option costs more than the "expensive" option. Yes, this is possible. It is just not probable.*A more realistic approach to comparing the two alternatives is to consider the mid-points of the ranges. I have done this for the capital and operations costs estimates provided in the RDOS staff presentation:

Here we see that we should expect capital costs for multiple sites to be $7M or so higher and operations costs to be $1.3M per year higher. To get a full lifecycle view of this, we need to compute present value (PV) and/or equivalent annual cost (EAC). I have converted operations costs to PV using a discount rate of 6%, a term of 20 years, and an inflation rate of 2% (for a real interest rate of 3.9%).

My take-away from this is that the total lifecycle cost of multiple sites is about $24M more than a single regional site. Annually, this translates to a difference of about $1.8M (on a total RDOS solid waste budget of ~$6M). So I would agree with RDOS staff's simple conclusion that a single site costs less. And the difference is large enough to matter.

* The two-value estimates provided by RDOS staff correspond to the "best-case" and "worst-case" costs. According to these estimates, the capital cost for the regional compost site is unlikely to fall below the best-case estimate of $16M and equally unlikely to cost more than the worst-case estimate of $23M. But best-case and worst-case are extremes. The "most-likely" cost is somewhere in between. So say the probabilty of the worst-case capital cost for the regional compost site ($23M) is 5%. And say that the probabilty of the best-case capital cost for the five satellite sites ($25.3M) is also 5%. The absolute difference between the worst-case for the regional site and the best case for the satellite sites is quite small--$2.3M or 10%. However, the probablity of getting these two extreme outcomes is 0.05 x 0.05 = 0.0025.