To: Board of Supervisors
From: John Kopchik, Director, Conservation and Development
Report Title: Changes to waste collection rates and services for residential customers in the unincorporated areas served by Mt. Diablo Resource Recovery under the County Franchise Agreement
☒Recommendation of the County Administrator ☐ Recommendation of Board Committee
RECOMMENDATIONS:
1. ACCEPT final report from consultant Crowe, LLP (Crowe), dated March 11, 2024, summarizing the results of its review of the rate application for service changes submitted by Mt. Diablo Resource Recovery (MDRR), attached as Exhibit A.
2. APPROVE and direct MDRR to implement the following recommended service changes and associated rate adjustment effective May 1, 2024, resulting in a 14.35% solid waste collection rate increase for residential customers in unincorporated areas served by MDRR under the County's Franchise Agreement based on staff and Crowe's review of MDRR's rate application:
a. Switch from bi-weekly to weekly residential organics collection and expand the list of materials accepted, and
b. Mandatory SB 1383 monitoring and reporting.
FISCAL IMPACT:
There is no impact to the County General Fund. The costs for County staff time spent and any related consulting services focused on administering the Franchise Agreement with MDRR, including the rate setting process, are covered by the solid waste/recycling collection franchise fees.
BACKGROUND:
On September 19, 2016, Governor Jerry Brown signed into law the Short-lived Climate Pollutant Reduction Act (“SB 1383”). SB 1383 required the California Department of Resources Recycling and Recovery (“CalRecycle”) to develop regulations to reduce organics in landfills as a source of methane. The regulations developed by CalRecycle under SB 1383 revised numerous provisions of division 7 of title 14 of the California Code of Regulations and added Chapter 12, entitled “Short-lived Climate Pollutants,” effective January 1, 2022. The SB 1383 Regulations require counties, cities and other local jurisdictions to adopt enforceable ordinances or other enforceable mechanisms to mandate that organic waste generators, haulers, and other entities comply with requirements in the SB 1383 Regulations. The SB 1383 Regulations generally address requirements applicable to organic waste collection services, inspection of waste containers for prohibited contaminants, regulation of commercial edible food generators, provision of education and outreach information to generators, reporting to CalRecycle on compliance with the SB 1383 Regulations, and maintenance of records of compliance with SB 1383 Regulations, with the goal of achievement of statewide organic waste disposal reduction targets. This MDRR rate review was initiated at the County's request due to the need to implement new services required to comply with requirements in the SB 1383 Regulations.
County Rate Regulation: The County establishes and regulates collection rates that MDRR can charge for residential and commercial collection services provided in their Franchise Area. These rates are established in accordance with the adopted rate setting methodology (Rate Manual) amended by the County in 2011 for use in setting rates for the County's Franchise Agreement with MDRR (owned by Garaventa Enterprises). The Rate Manual provides for recovery of the reasonable costs that MDRR will incur in performing services under the Franchise Agreement, plus allowable profit. When there are proposed rate changes that do not involve any proposed change in services, the Rate Manual establishes a process with the following components:
§ Every four (4) years: Base Year rate reviews. Such reviews rely upon data submitted in detailed rate applications and accompanying audited financial statements; and
§ Intervening years between Base Years (Interim Years): The Franchisee (MDRR) may request no change, or a change based on one of the following options. One, a rate change which does not exceed the annual change in the Consumer Price Index (CPI) (no Board approval required). The Franchisee is not required to submit audited financial data with the interim year rate application. Therefore, the Interim Year Rate Review is less rigorous than that carried out in a Base Year.
The other option is a rate change for extraordinary circumstances, where either the County or franchise hauler (MDRR) may initiate an extraordinary rate adjustment process. This may be due to the franchise hauler experiencing significant changes in costs or revenues not under its control, in which case, a rate application and appropriate documentation can be submitted for staff review and Board approval. This may also be due to the County needing the franchise hauler to implement a change in collection services being provided, as is the case at this time due to the significant change in state law.
History of Solid Waste Collection Rate Adjustments Since 2020: There have been various rate adjustments in the MDRR Franchise Area since 1999 when the County adopted a Rate Manual. Below is a summary of the rate reviews and subsequent allowable rate adjustments since 2020.
2020: Base Year Rate Review - the 2020 rate review incorporated the Fourth Amendment to the Franchise Agreement. It allowed a 4.45% rate increase and provided new services for residential and commercial customers as well as the County. Residential customers were allowed one on-call curbside collection of a bulky item (e.g. furniture, mattress, appliance) and commercial customers that subscribed to organics collection could now place food waste/scraps in the organics bin. MDRR also agreed to start right-of-way collection of reported illegal dumping. The first 200 pickups were at no charge, then $150 thereafter. MDRR also agreed to help the County facilitate compliance with mandatory recycling and organics recycling regulations mandated by the state for commercial customers.
§ 2021: No increase to rates.
§ 2022: Interim Year - CPI increase 3.15% for residential customers. Extraordinary circumstance rate adjustment for commercial customers that eliminated separate organics collection cost (75% rate of garbage collection) and approved a 7.35% increase for commercial customers to incorporate organics collection service as part of the basic collection services.
§ 2023: Interim Year - CPI Increase of 5.00%
Service Change Rate Review: MDRR requested an increase of 22.05% in the rate application based on projected costs for existing services but would increase collection frequency of organics to a weekly basis and allow food waste, food scraps, and food soiled paper. Crowe reviewed the Rate Application submitted by MDRR for consistency with the Rate Manual, County policies, and waste management industry practices. Crowe did not conduct an audit, review or compile any financial or supplemental data normally analyzed in a Base Year rate review. Rather, Crowe relied upon information provided to Crowe without investigation, but the information in their analysis was based on estimates, assumptions and other data developed by Crowe from information provided by MDRR, knowledge of and participation in other studies, data supplied by the County, and other sources deemed to be reliable. Crowe’s review of the Rate Application led to recommending reductions to various cost categories, including Direct Labor and Trucking and Equipment, that resulted in the need for fewer drivers and truck routes for an overall net decrease in annual projected costs identified in the MDRR Rate Application.
Crowe’s report recommends a rate increase of 15.02%. MDRR has agreed to a slightly reduced rate increase of 14.35% in the interest of reducing the impact for their residential customers, which is the amount of the rate increase now being recommended by staff. It should be noted this rate increase does not include a CPI adjustment. Rates were increased to account for the allowable CPI adjustment last August in the normal Interim Year rate review. As noted above, this is an extraordinary circumstance rate adjustment. The next scheduled rate adjustment will be a Base Year rate review, operational costs will be re-examined at that time.
Maximum Potential Rate Increase - Not Recommended
As part of this rate review application, staff requested MDRR include a separate rate for the additional service change to add weekly collection of recyclables. Since the County is required to have residential customers start adding food waste into the organics carts, it necessitates weekly collection of organics. MDRR said that an additional 11.03% increase would allow for the weekly collection of recycling. Combined with the required weekly collection rate increase of 14.35% for organics (with food waste), the potential rate increase for weekly collection of both recyclables and organic waste would be 25.38%. Staff is not recommending this option due to the significant rate impact. Staff recommends the Board defer consideration of the service change of including weekly recycling to a later date.
RECOMMENDED RATE INCREASE
This rate review was a focused review related to service changes needed to address requirements in the SB 1383 Regulations. County staff identified new collection services needed to comply with the state's SB 1383 mandates that must be implemented by the franchise hauler (MDRR). At a minimum, weekly collection of organics is required so customers can recycle food waste, food scraps, and food soiled paper in the organics cart, as required by SB 1383 Regulations. It also accounts for the required monitoring and reporting through route audits and “lid flipping”. Therefore, staff recommends the Board approve the 14.35% rate increase to comply with requirements in the state’s SB 1383 regulations. The recommended rate increase is shown in Table 1 below.
Table 1 - Recommended Residential Rates
|
Cart Size |
Existing Monthly Residential Rates |
Recommended Monthly Rate Increase (14.35%) |
New Recommended Monthly Rates (eff 5/1/2024) |
|
20 Gallon |
$34.25 |
$4.91 |
$39.16 |
|
32 Gallon |
$42.72 |
$6.13 |
$48.85 |
|
64 Gallon |
$49.56 |
$7.11 |
$56.67 |
|
96 Gallon |
$58.96 |
$8.46 |
$67.42 |
RECOMMENDED SERVICE CHANGES
The proposed service changes that staff is recommending that MDRR be directed to implement effective May 1, 2024, in conjunction with the recommended 14.35% rate increase are described in more detail below.
a. Switch from every other week to weekly residential organics collection - Expand the list of materials accepted in the organics cart/bin to comply with SB 1383 Regulations (e.g. food scraps, food soiled paper).
b. Mandatory SB 1383 monitoring and reporting - Perform contamination monitoring (mandated SB 1383 route reviews) involving the use of auditing staff to "flip lids" of organic waste, recycling and garbage containers and satisfy associated recordkeeping and reporting requirements in the SB 1383 Regulations.
Rate Comparison: While the proposed rate change percentage is not in single digits, Table 2 below shows the different rates of other unincorporated County franchise areas and the Central Contra Costa Solid Waste Authority (RecycleSmart) as well as the average rate for these franchises. The last two rows are the current MDRR area residential rates, and what the rates would be with the recommended rate increase (14.35%). Compared to other unincorporated areas franchised directly by the County or RecycleSmart, current MDRR residential rates are higher for the smaller collection carts. However, from MDRR’s residential customer counts, the most popular size is the 64 Gallon (over 40% of customers), and with the recommended rate increase, MDRR rates for the larger carts are lower than the average of the other franchises.
Table 2 - Rate Comparison
|
Franchise Area |
20 Gallon |
32 Gallon |
64 Gallon |
96 Gallon |
|
Republic Services / RSS (West County) |
$33.92 |
$42.01 |
$80.34 |
$119.74 |
|
Republic Services / Crockett |
$35.61 |
$42.21 |
$74.01 |
$126.63 |
|
Republic Services / Allied |
$20.72 |
$27.12 |
$40.43 |
$52.44 |
|
Alamo & Uninc RecycleSmart (Central) |
$30.51 |
$34.60 |
$65.92 |
$98.89 |
|
Average Rates |
$30.19 |
$36.49 |
$65.18 |
$99.43 |
|
MDRR / Garaventa (East County) Existing |
$34.25 |
$42.72 |
$49.56 |
$58.96 |
|
Recommended MDRR/Garaventa Rates with Weekly Organics (+14.35%) |
$39.16 |
$48.85 |
$56.67 |
$67.42 |
CONSEQUENCE OF NEGATIVE ACTION:
If the Board of Supervisors does not approve the recommended rate increase of 14.35%, the collection rates would remain the same and every other week collection service of organics without food waste would continue. The County would not be in compliance with state mandates imposed by SB 1383 regulations and could potentially face penalties of up to $10,000 per day for every day the County is not in compliance.