Rate Adjustment Calculation
On June 17, 2014, Council approved a Franchise Agreement (Agreement) with GreenWaste Recovery (GWR) for the collection of solid waste, recycling and organics, subsequent to a competitive Request for Proposals selection process. The Agreement became effective on July 1, 2015 and includes a prescribed formula to determine annual rate adjustments by GWR, which become effective each year on July 1. This formula includes the cost of disposal and processing (“tipping fee”) at the Monterey Regional Waste Management District (MRWMD) facility in Marina, inflationary indexes for adjustments to GWR labor and operating costs, and the cost of the City’s Franchise Fee of 13% and other regulatory fees.
HF&H Consultants, LLC (HF&H) was retained by the MRWMD to assist with a review of GWR’s request for an adjustment to customer rates, effective July 1, 2021, submitted to the City on April 1, 2021 (see Attachment 2). The rate review resulted in a 2% rate increase due primarily to the requirements of Senate Bill (SB) 1383, California’s Short-Lived Climate Pollutants regulation, that will go into effect on January 1, 2022. The work completed to date and upcoming tasks to determine how we will comply with the new state requirements are detailed below.
SB1383 Requirements and Actions to Date
SB1383 was signed into law in 2016 and has two primary goals:
1) Reduce organic material disposal in landfills by 75% by 2025 (2014 baseline year),
2) Recover 20% of surplus edible food for human consumption by 2025.
In November 2020, CalRecycle issued regulations to implement SB1383. The CalRecycle regulations place significant responsibility for implementation on local municipalities. In response to the new regulations, the MRWMD’s Technical Advisory Committee (TAC), which is comprised of staff from each member jurisdiction including the City, the three haulers in the MRWMD service area, Salinas Valley Recycles and MRWMD, have been working collaboratively for the past six months to plan the implementation of SB 1383. Elements of the new regulations that are being tackled by the TAC include public outreach, contamination monitoring, enforcement, reporting, and edible food recovery programs. These changes in our waste collection and recycling programs also require amendments to our hauler Agreement and the City’s Garbage Ordinance (Chapter 8.16 of the City’s Municipal Code), as well as a new Memorandum of Understanding (MOU) between jurisdictions and the MRWMD to ensure efficient and collective compliance with the new requirements. These amendments are in the process of being developed by the TAC to ensure a consistent rollout throughout the region.
Cost of SB1383
While the new requirements are known, the cost of implementation is still in the process of being determined. Estimated shared costs for work that can be completed collectively by the TAC in FY 2021-22, and associated consulting fees, totals $304,500 for all nine member jurisdictions. Some of the shared costs will be one-time costs, while others will be annual. As the MRWMD saw recycling revenues increase in FY 20/21, a $140,000 credit will be applied to that total towards SB 1383 implementation, decreasing the total shared costs to $164,500. The total shared costs are allocated between the member jurisdictions based on population and with HF&H consulting service fees split based on hauler Agreements. The City is responsible for $8,259 of the total.
In addition, there will be costs incured at the municipal and hauler level for implementation of new programs, including costs for education, outreach, enforcement, procurement of organics, monitoring and reporting. As a result, the City is making a one-time adjustment of $72,600 to the AB 939 regulatory compliance fee that was previously set at $0 in the Franchise Agreement to cover all of the new costs that have not yet been fully determined. This fee is included in the rate calculation for FY 2021-22 and is the primary driver of the 2% rate increase. Any portion of the fee that is not used for implementation of SB1383 in FY 2021-22 will be incorporated back into the rate calculation for next year’s rate adjustment.
Rate Adjustment Approval
While the Agreement requires the City Council to approve annual rate adjustments, the rate adjustment is based upon disposal fees and actual tonnage, inflationary indexes for GWR labor and operational costs, and cost for the City’s Franchise Fee and other regulatory fees. 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 methodology to be consistent with the Agreement. Therefore, staff recommends Council approve the rate adjustment, which becomes effective on July 1, 2021, in accordance with the Agreement.
Next Steps
Amendments to the Franchise Agreement, MOU with MRWMD, and Garbage Ordinance are still being drafted, reviewed and negotiated. Staff will bring the proposed Franchise Agreement amendments, MOU, and Garbage Ordinance amendments back to Council for approval at upcoming Council meetings. In order to be in compliance with the CalRecycle SB1383 regulations, these amendments should be finalized before January 1, 2022.