RECOMMENDATION(S): (CONT'D)
incorporate organics collection into the basic services provided to commercial customers, and
eliminate the previously approved stand-alone organics collection rate.
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 rate setting process, are covered by solid waste/recycling collection franchise fee.
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 new costs and services required to comply with 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) approved by the County and updated in 2011 for use in setting rates for the County's Franchise Agreement with Mt. Diablo Resource Recovery. 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 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 Consumer Price Index (CPI) (no Board approval required). The hauler 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 for extraordinary circumstances, where either the County or franchise hauler may initiate an extraordinary rate adjustment process. Generally the hauler experiences 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.
SERVICE CHANGE RATE REVIEW
This is an Interim Year for rate setting purposes. Since there is no proposed change in services for residential customers, MDRR only requested the allowable CPI rate adjustment for residential customers (3.15%), which does not require County approval. MDRR is also allowed to pass-through the same CPI rate adjustment for commercial customers, however there is an additional recommended rate increase of 4.2% associated with proposed change to basic commercial services which requires Board approval (total increase of 7.35%).
This rate review only looked at commercial rates in the unincorporated communities served by the MDRR Franchise Agreement. Crowe reviewed the Rate Application submitted by MDRR for consistency with the Rate Manual, County policies, and waste management industry practices. Crowe relied upon information provided by MDRR without investigation, but the information in their analysis was based on estimates, assumptions and other data developed by Crowe, knowledge of and participation in other studies, data supplied by the County, and other sources deemed to be reliable. There are multiple factors contributing to the changes in the projected costs and revenue which drive the recommended rate adjustment. Some of these are routine factors associated with existing services (e.g., increased wages and benefits, CPI increase, adjustments to various other categories of operational costs, including trucking and equipment).
Mandatory Commercial Organics Recycling (MORe) is required under SB 1383 regulations. The primary consideration of this rate review was to consolidate the collection of all three waste streams (garbage/recycling/organics) into a single rate for the basic services to be provided to commercial customers. Currently, commercial customers in the unincorporated County served by MDRR pay an additional 75% of their garbage and recycling rate for the collection/processing of organics. By consolidating the collection of all three wastes streams into one rate, commercial customers will not be able to opt in or opt out of organics collection service, a requirement of SB 1383 regulations. Through Crowe's analysis of the rates for those customers paying the additional organics collection charge and those that currently do not have service, the rate increase spread across all commercial customers is a 4.2% increase. Adding the allowable CPI increase of 3.15%, the total recommended rate increase is 7.35% for commercial customers. Therefore, staff is recommending that MDRR be directed to implement the elimination of the extra charge for commercial organics collection (75% of commercial solid waste collection rate), in conjunction with the recommended 7.35% rate increase, effective September 1, 2022.
As a result of eliminating the stand-alone organics collection service rate, there will be an overall cost savings for those commercial customers that are already subscribing to organics collection service (approximately 30).
RATE COMPARISON
The proposed rate change percentage for commercial customers is 7.35%. In Table 1 below are the current MDRR area commercial rates for the 96-gallon cart and 2-yard bin. It shows what the rates would be with the recommended 7.35% increase, the average of the other three unincorporated County franchise commercial rates for same cart/bin sizes, and the last column shows the difference in rates from the average of other unincorporated franchise areas and the recommended rate increase. Compared to other unincorporated areas franchised directly by the County, current MDRR commercial rates, recommended to take effect on September 1, 2022, the new MDRR commercial collection rates for the 96-gallon cart would remain below the average County franchise rates by 27% and for the 2-yard bin, the rates will be 18% above the average. Additionally, by consolidating the three waste streams into one rate, all the unincorporated franchise haulers will be providing comparable services.
TABLE 1
|
Cart/Bin Size
|
Current Monthly Rate |
7.35% Rate Increase |
New Monthly Rate (eff. 9/1/22) |
Average
Unincorp.
County Rates |
Difference:
New Rate vs. Avg UI County Rates |
| 96-Gallon |
$77.80 |
$5.72 |
$83.52 |
$114.66 |
-27% |
2-yd bin 1 x per
week |
$344.42 |
$25.31 |
$369.73 |
$312.68 |
18% |
CONSEQUENCE OF NEGATIVE ACTION:
If the Board of Supervisors does not approve the recommended rate increase of 7.35% for commercial customers, the collection rates would still be increased by the allowable CPI (3.15%) and commercial customers would continue to pay an additional 75% of garbage rates for organics collection service. The County would be in jeopardy of not complying with statewide mandatory commercial organics recycling requirements and would fail to meet milestone dates in the County's action plan submitted to CalRecycle.