To: Honorable Mayor and Members of City Council
From: Joy Eldredge, Utilities Director
Prepared By: Kevin Miller, Materials Diversion Administrator
TITLE:
Title
Anaerobic Digestion (AD) to Renewable Natural Gas (RNG) Memorandum of Understanding (MOU)
LABEL
RECOMMENDED ACTION:
Recommendation
Adopt a resolution (1) approving and authorizing the Utilities Director to sign an Anaerobic Digestion Memorandum of Understanding with Napa Recycling & Waste Services, LLC, and execute all necessary documents to implement a CalRecycle Organic Grant (CalRecycle No. ORG7-21-0259); (2) amending the Solid Waste and Recycling Capital Improvement Budget for FY2025/26 to add project (No. 61MD26UT08 - Anaerobic Digestion to Renewable Natural Gas System); and (3) determining that the actions authorized by this resolution were adequately analyzed by a previous CEQA action.
Body
DISCUSSION:
The City’s Materials Diversion Facility (MDF), which is located in south Napa County, has been in operation since the early 1990’s and receives and processes all residential and commercial source-separated recyclable and composable materials generated within the City and collected by the City’s authorized hauler, Napa Recycling & Waste Services LLC (NRWS). The MDF also receives and processes materials delivered by haulers servicing surrounding jurisdictions (such as the unincorporated Napa County) and by private (self-haul) customers. In 2004, the City purchased the MDF and in 2005, NRWS took over as the City’s contracted operator. The MDF property was annexed into the City of Napa in March of 2014.
The City has developed a plan for the Napa Renewable Resources Project (NRRP), which, among other things, envisions enhanced composting technology and anaerobic digestion for management of the City’s organic waste streams. In the past several years, many system and capital improvements have been made to transition the MDF from open air, turned windrow composting system to a Covered Aerated Static Pile (CASP) composting system. Before compostable materials ever get to the active composting system, they go through a pre-processing system to clean and prepare organic materials.
Public Resources Code sections 48000 et seq. authorize CalRecycle to administer various grant programs in furtherance of the State of California’s efforts to reduce, recycle and reuse solid waste generated in the state thereby preserving landfill capacity and protecting public health and safety and the environment. The grants are intended to provide funding for infrastructure to reduce short-lived climate pollutants to comply with SB 1383, which will need to divert 75% of all organics from landfilling by the year 2025. In 2023, the City applied and was awarded a competitive grant from CalRecycle (No. ORG7-21-0259, City agreement No.C2024-041) in the amount of $10,000,000 to further improve and refine the organics pre-processing system at the MDF with both efficiency and final product quality benefits. It also provides funding towards an aerobic digestion (AD) facility that would capture biomethane from food scraps and other compostable organic waste and convert the biogas into renewable natural gas (RNG) to fuel heavy refuse and recycling collection vehicles owned by NRWS (and CNG-powered vehicles owned by NRWS affiliated companies such as Napa County Recycling & Waste Services). The second attachment to this staff report provides a brief project description of AD system. On December 10, 2025, the City’s grant agreement with CalRecycle was amended and extended to be in force through April 1, 2028.
Beyond financial benefits to the City (detailed in the Financial Impacts section of this report below), a functional AD facility located at the City’s MDF would have several additional benefits for the City and the Napa community. A local AD to RNG system represents a true model of environmental sustainability. The biomethane recovered from high-methane organic waste (e.g., food scraps, grace pumice, manure, etc.) is captured in an air-tight system and turned into RNG for future collection of organic waste. Thus, an AD to RNG production facility is a true “closed loop” sustainable collection infrastructure (with collected organics serving as the feedstock to provide fuel for vehicles … sometimes known as “fork to fuel”). This would result in a “carbon-negative” collection fleet (certified by the California Air Resources Board at negative 165.05 gCO2/MJ) for local Napa refuse collection. Methane gas coming from organics waste is a so-called “super pollutant” that heavily contributes to climate change and has been specifically targeted for local action by the Napa County Climate Action Committee. At full capacity, the Napa AD to RNG system would prevent 100,806 metric tons of carbon-dioxide from being released over 10 years. This is the equivalent of taking 21,222 passenger vehicles off the road (per US EPA & California Air Resources Board metrics). Additionally, one element of state law SB 1383 (Mandatory Organics Recovery) requires jurisdictions to meet certain procurement requirements for “organic-derived” waste. For the City of Napa, this would be a highly preferrable method to meet this requirement vs. the City itself purchasing finished compost from the Napa MDF that is in high demand and already sold to many other regionals users/buyers.
In late 2025, NRWS informed the City of Napa that their collective bargaining agreement for NRWS drivers and other workers represented by Teamsters (Union Local 315) was expiring and needed to be renewed. In a letter sent by NRWS to the Napa City Council and relevant City staff, NRWS noted that NRWS labor costs were 17-23% “under market” compared to average wages for surrounding waste haulers in surrounding communities (i.e., Vallejo/American Canyon, Fairfield and Vacaville) and noted the recent labor strikes against Republic Services in counties adjacent to Napa. NRWS requested a “one time” compensation adjustment to the City-NRWS agreement (City Agreement No. 8687) to address and reset allowable NRWS contractual labor costs under City Agreement No. 8687. Annual contractual labor costs were fixed for five years at 3.5% per year with the 2018 Amendment to City Agreement No. 8687 and later extended at fixed 3.5% per year until the end of the current agreement (December 31, 2031) with the 2022 Amendment to City Agreement No. 8687t (approved and executed in October of 2022).
In response to the NRWS request for a one-time compensation adjustment and in an effort to find mutually agreed-upon dealpoints that provide benefits to the City and its ratepayers while allowing the AD MOU to move forward, the City and NRWS entered into negotiations. The City and its ratepayers have an interest in negotiating and working with NRWS to ensure there is no disruption in services nor material sales revenue and to benefit from NRWS providing a driver for the new commercial glass recovery route. The City sought an adjustment to the contractual sharing of material sales revenue as an offset to potential increased NRWS labor costs. The City and its ratepayers will benefit from the avoided cost to transfer excess organics offsite as the new projects are expected to add six thousand tons of capacity to the composting area. Additionally, City ratepayers benefit from approximately $1.9 million in enhanced organics preprocessing equipment (new food de-packager, two glass crushers, 6000-gallon storage tank, trommel screen, etc.) provided by the CalRecycle AD grant that would otherwise be a rate payer expense. The conceptual dealpoints below represent the results of those negotiations to be considered by the Napa City Council. If approved by the Napa City Council, NRWS has indicated that they will sign the AD MOU letter agreement while the final contract amendment to the City-NRWS agreement is drafted.
FINANCIAL IMPACTS:
Total anticipated capital expenditure for the AD facility, de-packager, two glass crushers and 6,000-gallon tank is projected to be in the range of $28-30 million dollars. However, the City’s share of the financial investment is focused on the $10 million CalRecycle grant award that will be a “pass-through” to NRWS under the terms of the proposed AD MOU. The rest of the capital construction costs are being privately financed by the AD technology subcontractor to NRWS (Zero Waste Energy (ZWE) owned by Bulk Handling Systems). NRWS and its subcontractors have pursued supportive financing such as the investment tax credit benefit from the 2022 Federal Inflation Reduction Act which can lower the capital project tax burden by 30% and an additional 10% if qualifying domestic materials (such as domestic steel) are utilized in construction of the AD facility. If this AD MOU and the attached Resolution is approved by Council, a new $10,000,000 CIP will be added to the City’s Solid Waste and Recycling (SWR) capital improvement fund (No. 61MD26UT08) reflecting the CalRecycle grant award. The City uses outside consultants for grant tracking, progress reports, progress payments and final report submittals to CalRecycle at an estimated cost of approximately $60,000 over four City fiscal years (through City FY2027/28) with professional services budgeted in the SWR non-recurring fund.
Table C-1 in Exhibit 1 of the AD MOU details $10 million grant budget with $8,145,253 dedicated to the AD fueling facility infrastructure. Additionally, grant funds totaling $1,845,747 for a THOR model food waste de-packager equipped with a materials polisher, a “finishing” trommel screen, two glass crushers, a 6,000-gallon tank as part of the overall anaerobic digestion facility with a capacity of 32,000-44,000 tons per year at the City’s Materials Diversion Facility. The $1,845,747 will be reduced by a $200,000 credit for the AD downpayment made by the City to NRWS in December 2024 to secure the AD MOU terms and ability for the AD facility project to qualify for a “safe harbor” for the 30% investment tax credit under the 2022 Inflation Reduction Act.
If AD facility and other equipment are installed at the City’s MDF, this would allow for “new” organic processing capacity to the facility that would translate in additional revenue for the City from gate fees charged to third party users of the MDF as well as additional sales of finished compost. The City also benefits when the AD facility provides fuel to the NRWS fleet of heavy refuse and recycling vehicles and/or electricity to operate the City’s MDF. The City would own all $10 million of equipment funded by the CalRecycle grant. The $1,845,747 in AD organics pre-processing equipment would otherwise have to be funded by City ratepayers.
The AD MOU (Exhibit 1 to the attached resolution) provides the framework for a more formal contract amendment between the City and NRWS. Beyond the use of the $10 million in state grant funds, the City commits to purchasing the renewable natural gas (RNG) used by the NRWS heavy refuse and recycling collection fleet at a fixed price of $5.75 per diesel gallon equivalent (dge) in the first 36 months of operation of the AD facility and then would be priced at 10% discount vs. the local retail compressed natural gas for RNG purchased from the Napa AD facility beginning with the fourth year of operation of the Napa AD facility. The NRWS overall CNG usage was roughly 186,000 dge from October 2024 to September 2025. The usage is likely to grow in future years as service grows and new routes (such as the new commercial glass collection route) are added. At an estimated 200,000 dge per year by the time a new AD facility would be built and become operational, the cost for the first three years would be estimated at $1,150,000 per year (within the annual fuel costs projected in the 2025 five-year SWR rate study).
The AD MOU also commits the City to make annual supplemental payments to NRWS for increased NRWS labor costs as described in Table D-1 of Exhibit D in AD MOU. These supplement payments would be $1.1 million in CY2026, $1.3 million in CY2027, $1.3 million in CY2028 and up to a maximum of $1.4 million in CY2029 and CY2030. Meanwhile, the City is projected to have offsetting revenue and benefits under the pending terms of the proposed AD MOU. Beyond the $1,847,747 in grant-funded organics preprocessing equipment (described above), the City and City SWR rate payers would have an increased percentage of materials sales revenue as negotiated with NRWS vs. current contractual revenue sharing percentages. Table D-2 of Exhibit D shows the modified material sales revenue sharing designed to offset the contributions provided for labor in Table D-1. The original contract established 70% City/30% NRWS contractual revenue share for material sales. The revised scale increases the City portion of revenue to 95% above $10,600,000 and up to $12,999,999, 90% for sales from $13,000,000 to $14,999,999, and 80% for sales above $15,000,000 to $16,999,999. Material sales revenue above $17,000,000 reverts to the original 70%/30% cost share. For example, if material sales are $15 million in CY2026 (and beyond as long as the terms of the AD MOU is in force), the City will retain $1,000,000 in additional offsetting revenue. If material sales are $17 million in a given calendar year, the City will retain $1,200,000 in additional offsetting revenue. Finally, a fully functioning AD facility will allow the City’s MDF the capacity to compost an additional six thousand tons of compostable organics per year onsite and avoid shipping excess tonnage (beyond permitted limits) offsite at an estimated $45/ton, equating to $270,000/year in avoided transportation and/or processing costs at another composting facility.
If the proposed AD MOU is approved by Council, a future formal contract amendment will be presented to the City Council to amend the FY2026/27 budget.
CEQA:
City staff recommends that the City Council determine that the potential environmental effects of the Recommended Action described in this Agenda Report were adequately analyzed by the Initial Study and Mitigated Negative Declaration (IS/MND) prepared for the Napa Renewable Resource Project (File No. PL12-0022), adopted November 7, 2013 (Resolution No. PC2013-15), pursuant to CEQA Guidelines Section 15162. Additionally, since that adoption, there have been no changes proposed in the project, no changes with respect to the circumstances under which the project is undertaken, and no new information which will require revisions to the IS/MND consistent with CEQA Guidelines 15162 and 15164.
DOCUMENTS ATTACHED:
ATCH 1 - Resolution
EX 1 - Anaerobic Digestion (AD) to Renewable Natural Gas (RNG) MOU
EX 2 - Amended FY2025/26 SWR CIP Budget
ATCH 2 - Anaerobic Digestion and Renewable Natural Gas Brief Project Description
NOTIFICATION:
Courtesy Copy to:
Greg Kelley, General Manager/Managing Partner, Napa Recycling & Waste Services
Mike Murray, Controller/Chief Financial Officer, Napa Recycling & Waste Services
Evan Edgar, Edgar and Associates
Steve Lederer, Napa County Public Works Director
Jennifer Simpson-Van Dam, Interim Napa County Local Enforcement Officer/Solid Waste Program Manager