Title
Recommendation to Authorize the City Manager to Execute an Agreement Between the City of Alameda and Alameda County Industries for Collection, Transportation and Processing of Alameda's Municipal Solid Waste, Recycling, and Organic Materials for a Twelve Year Period (Ending June 30, 2033), with the Option of Two Four-Year Extensions; and
Introduction of Ordinance Approving the Franchise Agreement Between the City of Alameda and Alameda County Industries AR, Inc. (Public Works 261)
Body
To: Honorable Mayor and Members of the City Council
EXECUTIVE SUMMARY
The City of Alameda’s (City) existing Integrated Waste Franchise Agreement (Agreement) expires in October 2022. In February 2020, City Council approved a two-step procurement process in which sole source negotiations were initiated with the current franchisee, Alameda County Industries (ACI). If those negotiations were not successful, staff would have then initiated a competitive procurement. Over the remainder of 2020 and into early 2021, staff prepared a draft agreement and conducted negotiations with ACI. Additionally, staff completed a customer satisfaction survey, conducted a stakeholder outreach process, and completed a peer review of the draft agreement. At this time, staff is updating City Council on the conclusion of the sole source negotiations, and recommending City Council enter into a new Agreement with ACI for an initial term of twelve years.
BACKGROUND
The City’s existing Agreement with ACI began in 2002 and expires in October 2022. The Agreement provides for the collection, transportation, and processing of the City’s municipal solid waste, recycling, and organics. ACI is responsible for managing and paying all costs and fees associated with the collection, processing, and disposal of integrated waste, and directly billing all residential and commercial customers for these services. Through a separate agreement, the City contracts with Waste Management for the transferring and landfilling of the solid waste portion of the integrated waste stream.
Procurement Process
On February 18, 2020, City Council approved a two-step procurement process in which sole source negotiations would be initiated with the current franchisee, ACI. If those negotiations were not successful, staff would have initiated a competitive procurement beginning in September 2020. That competitive procurement process would have concluded by October 2021, offering sufficient time to transition to a new provider by October 2022. The new Agreement provides an opportunity to address significant industry changes, including the disruptions in the recycling market, labor changes such as the unionization of recycling sorters, and state and local policies requiring much more recycling and composting. Following City Council’s approval of this two-step procurement process, the City Manager’s Office convened the interdepartmental staff team, as well as the City’s solid waste consultant, HF&H, to begin the process. Over the course of about a month, in early 2020, the team engaged in the design intake process to identify applicable elements of modern solid waste franchise agreements and review the City’s existing Agreement. The process also considered existing and future regulatory requirements (i.e., Senate Bill 1383 Short-Lived Climate Pollutants: Organic Waste Methane Emissions Reductions) and Alameda’s applicable policies and plans (i.e., Zero Waste Implementation Update, Climate Action and Resiliency Plan). During this time, staff and HF&H also began preliminary negotiations with ACI regarding programmatic components of a new and modern agreement.
City Council Update #1
On July 7, 2020, staff provided City Council with an update on the sole source negotiations, noting that the new draft agreement had been shared with ACI and that, over the course of the coming months, staff would continue meeting with ACI with the focus on negotiating the new agreement. Staff also reported on the progress of stakeholder outreach, having conducted a virtual stakeholder meeting in May to share key elements of the proposed new agreement with key stakeholders within Alameda’s environmental and business community. Staff also reported that the completion of a third-party customer satisfaction survey was underway.
City Council Update #2
On October 20, 2020, staff provided City Council with an update on the sole source negotiations, and at that time staff was continuing to conduct formal negotiations with ACI with a focus on Agreement cost and terms. At the time of reporting, staff was in receipt of the initial cost submittal from ACI and had begun reviewing and negotiating the costs. Staff advised City Council that over the next months, negotiation meetings would continue and staff would report back to City Council on the viability of a new agreement in the next six months.
Survey & Results
During the October 2020 update, staff also reported on the results of the customer satisfaction survey. Staff selected FM3 to conduct a survey to assess customer satisfaction levels with ACI with the primary goals of 1) assessing opinions of both residential and commercial customers, 2) determining how satisfied customers are with their waste hauling service including the actual service provisions including communications, responsiveness, customer service, and rates, and 3) exploring issues related to Zero Waste in Alameda including reducing food waste upstream and reducing volume of organics sent to landfills.
The survey revealed that residential and commercial customers alike have broadly favorable views of ACI, with very high residential garbage service satisfaction levels. Customers were largely satisfied with material removal services and customer service, and felt rates were reasonable. There was broad support for a number of waste/diversion policies, although with a wide range of intensity around the support levels. There is support for adding bulky pickup for multi-family properties as well as requiring compost and recycling for multi-family properties and public areas and for charging fees to those who do not properly sort or compost. There is also broad support for keeping an ACI office in Alameda and for hiring someone to help educate customers, even at an additional cost of a few dollars to the customer. Few residential and commercial customers realize that ACI plays a role in addressing illegal dumping, and, it is clear that the percentage of waste diverted from landfills is more meaningful and supported than discussing the same goal in terms of pounds generated per person per day.
At this time, staff is reporting on the completion of the sole source negotiations with ACI and is presenting to City Council the resulting new proposed Agreement which is recommended for approval. Staff is also reporting on the completion of a second stakeholder meeting in January of 2021, and completion of a peer review of the new Agreement.
DISCUSSION
Stakeholder Process
In addition to the customer survey, staff conducted a stakeholder process with key representatives (with subject matter expertise) from Alameda’s environmental and business communities. In May 2020, staff met with the group to discuss the design of the draft Agreement and provide an update on the negotiation process. The stakeholder group provided input and a variety of key ideas to help Alameda best meet its Zero Waste and diversion goals, and to help Alameda get the best possible new Agreement. Specifically, the group was interested in maintaining the rate relationships in the current Agreement to incentivize customers to have less garbage service and more recycling and organics, as well as updating the bulky item collection and expanding the program to ensure it works for multi-family tenants. The group also encouraged more dedicated customer outreach to help the City meet diversion and Zero Waste goals. The group discussed a variety of exclusivity factors including the potential to have Construction and Demolition (C&D) debris removal exclusive to ACI and bringing previously allowed grandfathered accounts with other haulers into the new Agreement.
Over the course of the following months, staff worked with HF&H and ACI to discuss and incorporate stakeholder input into the proposed Agreement. The proposed Agreement will continue to incentivize recycling and organics collection by offering a discount on those services and include a free recycling and organics cart to commercial businesses. Additionally, ACI has agreed to change Alameda’s Bulky collection program to double collection capacity for residents and allow multi-family residents to participate in the program. The proposed Agreement also requires ACI to provide one full-time Recycling Specialist for technical assistance fort commercial and multi-family customers and to help the City reach diversion and Zero Waste goals. After consideration, staff recommends keeping the existing C&D process in place, which allows for permitted haulers to collect construction and demolition debris on projects valued over $100,000 dollars. Staff believes this encourages a competitive marketplace and better rates for Alameda’s businesses and residents. Upon implementation of proposed Agreement, staff will issue a 5-year notice to all grandfathered haulers that they will no longer be able to service accounts within Alameda.
Staff reconvened with the stakeholders in a second virtual meeting in January of this year to report on the incorporation of input as well as update the group on negotiations and development of the proposed Agreement. At this time staff also updated the stakeholder group on the peer review process.
Peer Review
To further ensure the modernization of the new Agreement, staff completed a peer review with an established Zero Waste expert, selected via a staff led Request for Qualifications process. The peer review was designed to ensure the City’s new Agreement was as progressive and forward looking as possible. Specifically, staff wanted to make sure the new Agreement did not overlook any opportunities for diversion, ensured progress towards Alameda’s Zero Waste goals, and included innovative and practicable methods to reduce materials sent to landfill. Initial review resulted in a number of suggested modifications to both the draft agreement and exhibits. Staff and HF&H discussed the proposed modifications with ACI in remaining negotiation sessions and incorporated several of the main recommendations, including incentivizing ACI for meeting and exceeding diversion goals, collection of textiles in the bulky program to be separated and kept clean for reuse, and allowing for the redirection of outreach event funds in the event there are long term restrictions on large social gatherings outside of the City’s control.
Proposed Agreement
From November 2020 through February 2021, staff completed formal negotiations with ACI. In the process, the parties negotiated the business terms, core services, and costs as presented below and in the proposed agreement (Exhibit 1). Following negotiations, both parties conducted their respective legal review and made updates to the proposed Agreement to incorporate the agreed upon terms and services.
Term, Compensation, and Rates
The initial term of the proposed Agreement is twelve years, beginning July 1, 2021, with the option to extend for two four-year periods at sole discretion of City Council for a potential Agreement term of twenty years. Staff is proposing that instead of starting the new Agreement term at the conclusion of the existing Agreement (October 2022), the start date be July 1, 2021. This allows for more accurate rate setting based on current cost estimates versus projected costs, and allows ACI a slightly longer term over which to amortize certain costs (e.g. collection vehicles, containers, etc.).
The proposed Agreement term may be automatically extended for a three year period at the discretion of ACI if ACI meets the prescribed diversion targets for eight (8) or more years during Rate Periods One through Ten, with the total term of the agreement not to exceed twenty years.
The overall rate impact of this new Agreement is 3.10%. The rates are comprised of a base for core services and alternative costs for the new programs and services added to this new agreement. Many of the new programs ensure the City’s compliance with SB 1383. New programs in the proposed agreement with ACI include but are not limited to an expanded bulky item program with service for multi-family customers, move-in and move-out kits for multi-family residents, SB 1383 compliant contamination monitoring, additional recycling and organics collection capacity, and one full time Sustainability Specialist dedicated to the City. Additional details are outlined below in the Proposed Agreement Summary section.
To minimize the impact of implementing new programs to the rate payers, the proposed rate increase includes using $150,000 from the Rate Stabilization Fund and $150,000 from the Balancing Account. In addition, rate impact is reduced due to ACI’s deferral of $400,000 in costs to future rate periods. The following table summarizes ACI’s compensation for Rate Period One:
The negotiation of the proposed Agreement resulted in a 3.10% increase. With the proposed 3.10% increase, the monthly residential rates in Alameda will be:
|
Cart Size (gal) |
Existing Rate |
Proposed Rate |
Differential |
|
20 |
$34.91 |
$35.99 |
$1.08 |
|
32 |
$44.07 |
$45.43 |
$1.37 |
|
64 |
$72.40 |
$74.64 |
$2.24 |
|
96 |
$101.12 |
$104.25 |
$3.13 |
The vast majority of Alameda subscribe to a 20- or 32-gallon container. For these ratepayers, this results in an increase of $1.08 and $1.37, respectively, per month.
With the proposed 3.10% increase, the monthly commercial rates in Alameda will be:
|
Bin Size & Frequency of Collection |
Existing Rate |
Proposed Rate |
Differential |
|
1 cubic yard 1x/week |
$167.85 |
$173.05 |
$5.20 |
|
1 cubic yard 3x/week |
$513.61 |
$529.53 |
$15.92 |
|
3 cubic yards 1x/week |
$503.55 |
$519.16 |
$15.61 |
|
3 cubic yards 3x/week |
$1,540.82 |
$1,588.58 |
$47.73 |
All service rates are included in the proposed Agreement in Exhibit G2.
The rate setting methodology described in Section 8.2 and Exhibit E of the proposed agreement is consistent with the methodology in the existing agreement that is comprised of index adjustments and detail cost adjustments, with a modification to the frequency of the cost adjustments (occurring in years four, eight, and twelve). The new agreement sets a cap of 5% for annual rate increases during an index adjustment, set forth in Exhibit E Section 1. Excess projected compensation exceeding the 5% cap will be included as an increase to compensation during in the following rate adjustment period. This mechanism is proposed instead of continuing the collection of rate stabilization dollars as in the existing agreement. And, the proposed Agreement provides for cost sharing between ACI and the City for the detail years.
Historically, rate increases under the existing agreement have been as follows: no increase in Rate Period 15 (July 1, 2016 through June 30, 2017); a 2.38% increase in Rate Period 16 (July 1, 2017 - June 30, 2018); a 1.68% increase in Rate Period 17 (July 1, 2018 - June 30, 2019); a 4.21% rate increase in Rate Period 18 (July 1, 2019 - June 30, 2020); and a 5.00% rate increase in Rate Period 19 (July 2020 to June 2021).
While the past five years of rate increases have been at or below 5%, Rate Period 14 of the agreement included a rate increase of 4.9% due to one-time impacts of the unionization of the materials recovery facility employees into the International Longshore and Warehouse Union for a total rate increase of 7.7%. This increase was unusual and was a result of ACI requesting a special adjustment at the request of ACI. ACI's sorters and other workers voted to join the International Longshore and Warehouse Union (ILWU), Local 6. ACI and ILWU negotiated a collective bargaining agreement. Prior to unionization, ACI had contracted with a third-party staffing agency that hired and employed the sorters.
To illustrate how Alameda’s rates compare to regional neighbors, below are the results of HF&H’s survey of solid waste rates for jurisdictions located throughout Alameda County. Residential rates for a 30-35 gallon container range from $22.23/month (City of Emeryville) to $90.35/month (City of Piedmont).
In comparison to other recent full procurements in the region, the City’s sole source process has resulted in a rate increase in the proposed Agreement that is consistent with the typical rate increases under the City’s existing Agreement and less than recent procurement results in other jurisdictions regionally. Other recent regional procurements have resulted in double digit rate increases, e.g. City of San Ramon (20%) and Castro Valley Sanitation District (19%), and particularly when switching providers.
City Reimbursements
Under the existing Agreement, ACI collects and remits a Franchise Fee, Waste Management Recycling and Program Fee, Infrastructure Impacts Mitigation Fee, Doolittle Landfill Maintenance Fee, and City Parks Fee to the City. Franchise Fees are calculated as 10% of ACI’s gross rate revenue and all other fees are adjusted annually for CPI.
The proposed Agreement with ACI maintains the same fees and annual adjustment method as the existing Agreement and allows the City to set other fees as the City deems necessary. Franchise Fees will be adjusted annually for CPI. The City reimbursements for Rate Period One of the proposed Agreement are as follows:
|
Fee/Reimbursement |
Proposed Amount |
|
Franchise Fee |
$2,100,000 |
|
Waste Management Recycling and Program Fee |
$456,432 |
|
Infrastructure Impacts Mitigation Fee |
$875,895 |
|
Doolittle Landfill Maintenance Fee |
$228,170 |
|
City Parks Fee |
$69,114 |
The proposed Franchise Fee is the result of extensive, arms’ length negotiations with ACI and represents a reasonable value for the rights provided to ACI under the Agreement and for the use of the City’s right-of-way. In addition, HF&H has confirmed that this Franchise Fee is less than or within the amount of similar franchise fees charged by other similar jurisdictions in California and the Bay Area.
Balancing Account, Revenue and Interest Expense Reconciliation, and Rate Stabilization Funds
Under the City’s existing Agreement, in setting the rates for Rate Period 12, ACI and the City agreed to establish the Balancing Account rather than increase or decrease rates due to revenue surpluses or shortfalls and fluctuations in the Commodity Revenue Share.
For many years, the City’s Balancing Account has been negative and grew to as much as -$1,437,663 in 2014. The negative Balancing Account resulted from an array of factors such as deferred rate increases, past economic challenges, and ratepayers’ downsizing garbage subscriptions due to increased recycling and composting. However, last rate period was the fourth year when the balancing account was positive (+$1,831,813). This largely reflects benefits of a previously growing economy, and payment of the City’s share of commodity (recyclables) revenues through the end of Rate Period 16 (ending June 30, 2018). The +$1,831,813 also reflects activity in the current rate period (Rate Period 18), including the City Council’s approval to use $189,050 to reduce the rate increase for Rate Period 18. The Rate Stabilization Fund was established in Rate Period 12 and rate stabilization funds of $110,000 were collected annually through Rate Period 17. Given the balance of rate stabilization funds, the rate stabilization amount was not included in Rate Period 18, instead $189,050 of rate stabilization fund balance was used as a one-time contribution to reduce rate impacts.
The proposed Agreement with ACI maintains the annual Revenue Reconciliation and Balancing Account to minimize future rate volatility and/or to fund City solid waste programs.
The following is a summary of key terms, programs, and other provisions included in the proposed agreement:
Proposed Agreement Summary
• Term: Proposed Agreement effective July 1, 2021. Base 12-year term with option to extend for two 4-year periods.
• New Programs: Multi-Family Bulky Collection, Free City Drop Box Service, Contamination Monitoring, Additional Cart Recycling Route, Bundled Cardboard, Multi-Family Motor Oil & Cooking Oil, Additional S B 1383 1/2 Organics Bin Route, Multi-Family Move-In & Move-Out Kits, Large Event & Venue Services, Bulk Compost & Mulch, Compost Give-Aways, ACI Recycling Coordinator
• Processing and Disposal: Keeping current disposal and processing arrangements: Contractor selects facilities with City approval. City maintaining landfill agreement and has option to redirect organics processing.
• Performance Reviews and Billing Audits: City has the option to perform performance review and billing audits of ACI.
• Compensation: Annual multi-index adjustments and reduced frequency of cost-based reviews, with annual adjustments not to exceed 5%. Simplified methodology to maintain the current balancing account including an annual revenue and interest expense reconciliation, with reconciliation costs to be split 50/50 with ACI.
• Rate Structure: Maintaining current rate structure, index adjustments and detail cost adjustments, with a modification to the frequency of the cost adjustments (occurring in years four, eight, and twelve).
• Diversion: Goal oriented 89% diversion requirement as identified by the City’s 2018 Zero Waste Implementation Plan. Enhanced contamination management program.
• Reporting: New, enhanced reporting to reach compliance with SB 1383 and utilizing Recyclist, a cloud-based reporting system.
• SB 1383 Compliance: New, in addition to enhanced reporting, increase in public education and outreach, mulch/compost for procurement requirements, enhanced contamination monitoring program, including route reviews
• Exclusivity: Grandfathered Recyclers allowed to continue to collect recyclable and organic materials from previously agreed upon accounts as permitted in the Municipal Code but subject to the five-year phase out noted above. Construction & Demolition materials hauling for projects valued over $100,000 and the Alameda Unified School District continue to be non-exclusive. Potential for future discussion with Alameda Unified School District for ACI services but the City lacks regulatory authority over the district.
• Alternative Fuel Vehicles: New, targeting light/medium-duty vehicle conversion to electrical vehicle with an annual evaluation to assess expansion of program to heavy duty vehicles.
Public Education and Outreach
• Public Education Prepared by ACI: City has the right to review and approve all ACI education materials. Materials will be focused on multi-family complexes and commercial properties. ACI will continue to produce a Recyclable Materials Resource Guide, hold an online webpage, and present and schools within Alameda.
• ACI Public Education Employee: New, an ACI employee will be dedicated solely to Alameda, employee will coordinate with City staff and conduct multi-family and commercial site visits.
• Customer Service: New, City staff and ACI management and customer service representatives to meet semi-annually, as well as collaboratively train new customer service representatives.
Core Services
• Single-Family: Single-family customers receive bundled cart service for solid waste, recyclable, and organic materials, motor and cooking oil collection, bundled cardboard collection, and battery collection. Customers can take batteries and CFLs to the Alameda County Household Hazardous Waste Collection Facility (located in Oakland across the Park Street Bridge).
• Multi-Family: Multi-family customers receive cart and/or bin service for solid waste, recyclable, and organic materials and motor and cooking oil collection. Agreement includes the addition of move-in and move-out kits. Customers can take batteries and CFLs to the Alameda County HHW Collection Facility.
• Commercial: Commercial customers receive cart and/or bin service for solid waste, recyclable, and organic materials.
• Bulky Program Expansion for Multi Family: New, curbside collection of allowed cubic yards of loose material for single family and multi-family residents. Materials to be preserved for reuse. Bulky pick up a-la-carte option remains available.
• Bulky Program Modernization: New, recalibration of existing program to rigid container (versus bags) and allowance for loose materials and materials to be preserved for reuse.
• City Services: City will receive additional special event services, illegal dumping clean-up, updated City facility services, and compost giveaways.
SB 1383 Compliance (Short-Lived Climate Pollutants: Organic Waste Methane Emissions Reductions)
In September 2016, California set methane emissions reduction targets for California (SB 1383 Lara, Chapter 395, Statutes of 2016) in a statewide effort to reduce emissions of short-lived climate pollutants (SLCP). The targets must:
• Reduce organic waste disposal 50% (below 2014 levels) by 2020, and 75% by 2025.
• Rescue for people to eat at least 20% of currently disposed surplus food by 2025.
CalRecycle recently finalized regulations to implement SB 1383 that will substantially change the solid waste industry in the State. The City is responsible for implementing SB 1383 regulations and must coordinate City departments, waste haulers, waste processing facilities, recyclers, commercial businesses, residents, and edible food recovery organizations. Modernization of the Agreement is a key component of ensuring the City can comply with SB 1383. The proposed Agreement includes enhanced reporting to reach compliance with SB 1383 and will require utilizing Recyclist, a cloud-based reporting system. In addition to enhanced reporting, the agreement includes increased public education and outreach, mulch/compost for procurement requirements, enhanced contamination monitoring program, including route reviews, to ensure the City is in compliance with SB 1383.
ALTERNATIVES
• Approve the Agreement and Introduce the associated Ordinance
• Direct staff to modify the Agreement and return with a revised Agreement and Ordinance
• Direct staff to proceed to competitive procurement
FINANCIAL IMPACT
The City Council's approval of this Agreement impacts the City's ratepayers. The negotiation of the proposed Agreement resulted in a 3.10% increase in rates, as noted above.
The proposed Agreement with ACI maintains the same fees and annual adjustment method as the existing Agreement and allows the City to set other fees as the City deems necessary. Franchise Fees will be adjusted annually for CPI. The City reimbursements for Rate Period One of the proposed Agreement are as follows:
|
Fee/Reimbursement |
Proposed Amount |
City Fund |
|
Franchise Fee |
$2,100,000 |
001 (General Fund) |
|
Waste Management Recycling and Program Fee |
$456,432 |
261 (Waste Management) |
|
Infrastructure Impacts Mitigation Fee |
$875,895 |
261 (Waste Management) |
|
Doolittle Landfill Maintenance Fee |
$228,170 |
260 (Solid Waste Surcharge) |
|
City Parks Fee |
$69,114 |
001 (General Fund) |
These increased fees have been incorporated into the Fiscal Years 2021-23 Budget proposal that will be subject to City Council appropriation approval in June 2021.
MUNICIPAL CODE/POLICY DOCUMENT CROSS REFERENCE
Alameda Municipal Code Section 21, Solid Waste and Recycling.
This ordinance is proposed and drafted pursuant to Sections 3-8, 3-10 and 18.1 of the Charter of the City of Alameda
ENVIRONMENTAL REVIEW
Approval of the Agreement has no potential for resulting in a direct or reasonably indirect physical change in the environment and, accordingly, does not qualify as a “project” under the California Environmental Quality Act (CEQA). Moreover, this action is statutorily exempt pursuant to CEQA Guidelines Section 15273 (a)(1) Rates, Tolls, Fares and Charges - meeting of operating expenses. In addition, this action is categorically exempt from CEQA under CEQA Guidelines Sections 15301 (Existing Facilities) and 15308 (Actions by Regulatory Agencies for the Protection of the Environment) on the ground that that the collection of solid waste and recyclables is an existing operation that will continue after award of the new franchise.
CLIMATE IMPACTS
The integrated waste franchise is an important tool in meeting the goals of the Climate Action and Resiliency Plan (2019) and Zero Waste Implementation Plan Update (2018). The increased recycling and composting of materials in lieu of landfilling helps reduce harmful greenhouse gas and methane emissions. The franchise is also a very important tool for compliance with state law and regulation.
RECOMMENDATION
Enter into an agreement between the City of Alameda and Alameda County Industries for collection, transportation and processing of Alameda's municipal solid waste, recycling, and organic materials for a twelve year period (ending June 30, 2033); and introduction of ordinance approving franchise agreement between City of Alameda and Alameda County Industries AR, Inc.
CITY MANAGER RECOMMENDATION
The City Council is being requested to consider entering into an agreement with Alameda County Industries for collection, transportation and processing of municipal solid waste, recycling and organic materials for a 12 year period and approving the franchise.
Respectfully submitted,
Gerry Beaudin, Assistant City Manager
Erin Smith, Public Works Director
By,
Liz Acord, Public Works Coordinator
Financial Impact section reviewed,
Annie To, Finance Director
Exhibit:
1. Agreement
cc: Eric Levitt, City Manager