Although FEC is not scored it is important that before the scoring stage of the process there is a clear understanding of how the FEC will be calculated.
The main component of the FEC will be the amount charged by the Contractor providing the residual waste treatment. At this stage of an options appraisal cost data will carry a degree of uncertainty because of the lack of publicly available market information. Even where such data is available it should be treated with caution given the uncertainty regarding what is or is not included in the cost information and the specificity of the data that is linked to particularly schemes and technologies. For some of the newer treatment processes this uncertainty in cost data quality will be greater. In effect this uncertainty provides the opportunity to begin to understand the risks inherent in technology choices and the impact these may have on cost.
The costing required at this stage of the process is one that allows for a like for like comparison of cost over the lifetime of the project. For this reason it is recommended that the Authority makes use of standard discounted cash flow (DCF) techniques which provide a reliable method for comparing the cost of capital intensive projects over the life of the project.19 The cashflows discounted may be simple estimates of the capital expenditure, operating expenditure and revenues determined for each option.
Alternatively the Contractor's charges can be estimated through the development of a full shadow bid model. If the Authority lacks the expertise to contact such models in-house it may need to appoint specialist advisers to undertake this exercise.
The FEC is not however equal to the forecast Contractor's charges. There may be additional costs arising which fall on either the Waste Disposal Authority or on the relevant Waste Collection Authorities. If material these should be included in the FEC (but see point on landfill tax and LATS costs below).
The FEC should also take account of the shadow cost of carbon emissions. Further details are provided in Appendix 4.
As the cost of carbon emissions is included in the FEC it is inappropriate to also include the landfill tax and LATS costs.20 Although the tax arising will be broadly related to the extent of landfill required under each option it is far from an accurate measure of the relative carbon emissions. The tax is essentially a transfer from the taxpayer to central government and does not represent an actual economic cost of the waste management activity. Equally LATS costs are a transfer from one Authority to another; again they are not an economic cost to the economy as a whole. The true measure is the cost of carbon emissions as calculated in accordance with Appendix 4.
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19 The same base date should be used for all discounting exercises undertaken to calculate the FEC. See footnote 23 of Appendix 4 for further details.
20 Landfill tax and LATS costs should be included in any affordability calculations performed by the Authority. FEC is not a relevant costing for assessing affordability - an issue which is outside the scope of this guidance. FEC is also a potential misleading costing when evaluating the impact of any options involving a heavy reliance on landfill as it eliminates the impact of policy measures (i.e. landfill tax and LATS) designed with the express intention of incentivising Authorities to reduce their reliance on landfill.