Resolution 2020-035 approving the rates charged by the City’s franchised hauler, GreenWaste Recovery, for the collection of solid waste, recycling and organics, including special services, effective July 1, 2020

Adopt Resolution 2020-035 approving the rates charged by the City’s franchised hauler, GreenWaste Recovery, for the collection of solid waste, recycling and organics, including supplemental services, effective July 1, 2020,which is Option 1 in this Staff Report.

In the alternative, based on Council direction, Resolution 2020-035 could instead include language to implement Option 2 or Option 3 as described in this Staff Report which would not include supplemental services at this time. 

On June 17, 2014, Council approved a Franchise Agreement with GreenWaste Recovery (GWR) for the collection of solid waste, recycling and organics, subsequent to a competitive Request for Proposals selection process.  The Franchise Agreement became effective on July 1, 2015 with a 15-year term ending June 30, 2030, and stipulates that rates shall be adjusted annually using either an index-based prescribed formula or a cost-based procedure.

In January 2019, the Monterey Peninsula municipalities requested a cost-based rate adjustment, which triggered a rigorous, region-wide process. The analysis phase of the cost-based rate adjustment extended over a year and was completed in the spring of 2020. As a result, no rate adjustment occurred on July 1, 2019, and it is instead scheduled for July 1, 2020. In addition to the deferred 2019 cost-based rate adjustment, the City is now also subject to the 2020 prescribed formula rate adjustment, also effective July 1, 2020.

Cost-based Rate Adjustment

The purpose of the cost-based rate adjustment is to “true up” service fees to the actual level of service provided. The cost-based rate adjustment involved the review of GWR’s actual cost of operations during Fiscal Year 2018-2019 (including staffing levels, routes, hours, customers and their service levels, etc.) by third-party independent consultant HF&H to determine the “Total Contractor’s Compensation.” HF&H Consultants has been providing independent franchise oversight support to the municipalities of the Monterey Peninsula since the approval of the Franchise Agreement with GWR.

HF&H has a Professional Services Agreement with the City and GWR to conduct the cost-based rate adjustment.  As part of the review process, HF&H determined allowable costs per the stipulations of the Franchise Agreement between the City and GWR, as well as costs for services above and beyond those identified in the Agreement. The difference between the allowable “Total Contractor’s Compensation” and the gross receipts in the most recent calendar year (2018) was the rate adjustment factor. This calculated rate adjustment factor was applied to the existing rates to determine the rate adjustment for Fiscal Year 2019-20.

The cost-based rate adjustment results in a 21.36% rate increase across all customers in the City for the services provided per the Franchise Agreement. Additional services provided by GWR beyond the stipulations of the Franchise Agreement, and their potential impact on the rate adjustment, are further discussed below.

Index-based Prescribed Formula Rate Adjustment

The prescribed-formula rate adjustment involves (1) increasing the component of the rates for GWR labor and other operational costs by the Consumer Price Index (CPI), Employment Cost Index (ECI), and Fuel Index, and (2) adjusting the processing and disposal fees by the Monterey Regional Waste Management District (MRWMD) at their facility in Marina by their actual changes. 

The prescribed-formula rate adjustment results in an additional 6.67% rate increase for the services provided per our Franchise Agreement for Fiscal Year 2019-20. This 6.67% rate increase includes the following fee increases from the MRWMD: (1) a 5% tipping fee increase and (2) a new $40/ton fee for recyclables processing due to significant reductions in recyclable material value.

Combined Rate Adjustment

Due to compounding effects of the cost-based rate adjustment and the prescribed-formula rate adjustment, the total adjustment from current rates is a 29.46% increase. The proposed rates for all sectors are included in Attachment 2. For residential services, the new rates as of July 1, 2020 would be:

Supplemental Services not included in the Franchise Agreement

In addition to the rate increases based on the services prescribed in the Franchise Agreement, GWR has provided additional services and accommodations, as requested by the City, which were not included in the Franchise Agreement. These services are listed below and further described in a memo provided by GWR, included as Attachment 3:

·         Additional regulatory reporting in support of all Peninsula cities beyond the stipulations of the Franchise Agreement;

·         Shortened downtown waste collection time from eight to three hours to minimize impact on traffic and business;

·         Delayed collection start time from 4:00 or 6:00 am to 7:00 am in downtown areas to minimize impacts on businesses and hotels.

If the City decides to maintain these supplemental services, the cost-based rate adjustment increases from 21.36% up to 33.67%, and the cumulative rate increase, including the prescribed-formula rate adjustment, amounts to 42.09% (see Attachment 4). For residential services, the new rates as of July 1, 2020 would be:

Rate Approval Options

The Franchise Agreement requires that the City Council make a good faith effort to approve annual rate adjustments. Due to the lengthy cost-based rate adjustment process in FY 2018-19, which extended well into FY2019-20, no rate adjustment occurred in July 2019. As a result, this rate adjustment includes both cost-based rate adjustment and formula-based rate adjustments.

In April 2020, due to operational constraints from the County of Monterey’s Shelter-in-Place Order, the City sent a letter to GreenWaste Recovery requesting additional time to review and approve the rate adjustment (Attachment 5). In May 2020, GreenWaste Recovery sent a letter response to the City (Attachment 6) recommending the approval of the rate adjustment for services stipulated in the Franchise Agreement, with the option to deny, approve, or defer the decision on supplemental services not included in the Franchise Agreement.

Council has the option to approve or disagree with the rate calculations. City staff, in tandem with the MRWMD staff and HF&H Consultants, finds the rate calculation to be accurate and consistent with the Agreement.

Council also has the following approval options:

Option 1:  Council may approve the new rates based on the basic services stipulated in the Franchise Agreement, plus the supplemental services.  This Option is included in Resolution 2020-035 as presently drafted.

Option 2:  Council may approve the new rates based on the basic services stipulated in the Franchise Agreement and deny the supplemental services. If Option 2 is selected by the Council, then Resolution No. 2020-035 would need to be revised to read as below and Exhibit A would be replaced with an Exhibit (see Attachment 2) which does not include supplemental services: 

"Approve rates charged by the City’s franchised hauler, GreenWaste Recovery, for the collection of solid waste, recycling and organics, excluding  supplemental services, effective on July 1, 2020, as shown in the attached Exhibit A."

Option 3:  Council may approve the new rates based on the basic services stipulated in the Franchise Agreement and defer their decision on supplemental services. As the shelter-in-place order is lifted and the economy begins to recover, a workshop could be held to review potential modifications to the Franchise Agreement to meet local needs.  If Option 3 is selected by the Council, then Resolution No. 2020-035 would need to be revised to read as below and Exhibit A would be replaced with an Exhibit (see Attachment 2) which does not include supplemental services:

"Approve rates charged by the City’s franchised hauler, GreenWaste Recovery, for the collection of solid waste, recycling and organics, excluding  supplemental services, effective on July 1, 2020, as shown in the attached Exhibit A."

The rate sheet for new waste service rates based on the basic services stipulated in the Franchise Agreement is included in Attachment 2. For context, the table below shows current rates, new rates (without supplemental services), and monthly rate increase for a residential customer:

The City collects a Franchise Fee of 13% of gross receipts from GWR. The Franchise Fee helps cover staffing costs and expenses associated with contract management, coordination with GWR, MRWMD and regional partners, customer support, compliance with State regulatory requirements, public outreach, etc. The Franchise Fee collected in Fiscal Year 2018-19 was $329,939.

On June 17, 2014, Council approved a Franchise Agreement with GWR for the collection of solid waste, recycling and organics.

On June 5, 2018, Council approved a prescribed-formula-rate adjustment of 2.1% for the collection of solid waste, recycling and organics.