To: Honorable Mayor and Members of City Council
From: Phil Brun, Utilities Director
Prepared By: Kevin Miller, Materials Diversion Administrator
TITLE:
Title
Napa Recycling & Waste Services SB 1383 Contract Amendment
LABEL
RECOMMENDED ACTION:
Recommendation
Adopt a resolution authorizing the Utilities Director to execute the SB 1383 Contract Amendment to City Agreement No. 8687 with Napa Recycling & Waste Services, LLC (“NRWS”) for a term through December 31, 2031, for the collection and transportation of Municipal Solid Waste, Recyclable Materials, and Compostables, and operation of the Napa Materials Diversion Facility, and determining that the actions authorized by this resolution are exempt from CEQA.
Body
DISCUSSION:
The original contract between the City and NRWS labeled the “Contract for the Collection and Transportation of Municipal Solid Waste, Recyclable Materials, and Yardwaste and the Operation of the Napa Materials Diversion Facility” (City Agreement No. 8687) provided for a 10-year base term, from January 14, 2005 through December 31, 2015, with options to extend the term for up to four additional one-year terms. Council authorized three one-year extensions for calendar years (CY) 2016, 2017 and 2018.
On April 17, 2018, the 2018 Contract Amendment to the City-NRWS amendment was approved by Council (Council R2018-043). The 2018 Contract Amendment reset the compensation “base” of the NRWS Agreement extended the agreement for services 14 years through December 31, 2031.
On October 18, 2022, the 2022 Contract Amendment to the City-NRWS amendment was approved by Council (Council R2022-095). The 2022 Contract Amendment reset the compensation “base” of the NRWS Agreement to address operation operating and maintenance costs for the Covered Aerated Static Pile (CASP) composting and upgraded stormwater management systems at the MDF (both of which became operational in early 2020). The 2022 Contract Amendment is a full amended and restated version of City Agreement No. 8687 and clarified other key compensation items to NRWS such as the “Reconciliation Review” process to measure and compensate NRWS for growth (or decline) in services over remainder of the contract term.
As used in this report, the term “NRWS Agreement” refers to City-NRWS contract (City Agreement No. 8687), as amended in the amendments summarized above.
The proposed SB 1383 Contract Amendment, if approved by Council, will be a significant and far-reaching amendment to, and a full amended and restated version of, the NRWS Agreement. The “Proposed SB 1383 Contract Amendment” is attached to this staff report as Exhibit A to the authorizing resolution (Attachment 1 to this staff report). The “red-lined” version of the Proposed SB 1383 Contract Amendment showing section of contract with relevant changes to the 2022 Contract Amendment are shown in Attachment 2 to this staff report.
The major driver of the Proposed SB 1383 Contract Amendment is expanded and enhanced collection and processing of recyclable and compostable materials as demanded by state law, namely SB 1383. SB 1383 (Senate Bill 1383, Chapter 395, Statutes of 2016) establishes methane emissions reduction goals of 75 percent landfill disposal of organic waste from the 2014 level and increase of edible food recovery by 20 percent by the year 2025. While SB 1383 took effect on January 1, 2022, state law (SB 619) authorized the City to submit a Notification of Intent to Comply (NOIC) to CalRecycle by March 1, 2022 for an alternate SB 1383 implementation schedule. The NOIC was approved by Council on February 15, 2022 (R2022-008) and was subsequently accepted by CalRecycle in April of 2022. CalRecycle has since issued a “Corrective Action Plan” or CAP for the City of Napa largely based on the NOIC. The new and/or enhanced programs detailed below support fulfillment of the City’s SB 1383 compliance requirements detailed in the approved CAP and accepted NOIC.
HIGHLIGHTS OF PROPOSED SB 1383 CONTRACT AMENDMENT
The two major components of the proposed SB 1383 Contract Amendment are: (1) expanded organics collection from all “generators” (i.e., commercial, residential, school and multi-family customers) and (2) upgraded and enhanced processing of compostable and recyclable materials at City’s Materials Diversion Facility (MDF). City staff and NRWS have arrived at several other mutually agreed “deal points” during contract negotiations that are reflected in the proposed SB 1383 Contract Amendment. The highlights are summarized below:
1. EXPANDED SB 1383 ORGANICS COLLECTION SERVICE:
While SB 1383 is far reaching and impacts all three waste streams (i.e., recycling, compostable organics and landfill/trash) from all generators, the focus of the law is truly to capture and divert organics away from landfill disposal. As noted in the NOIC filed with CalRecycle, the City is ahead of most jurisdictions since it has had “full spectrum” compostable organics (yard trimmings, food scraps and soiled paper) available since 2015. The City (via NRWS as our service provider) is currently over 97% compliant with SB 1383 for residential generators, approximately 45% compliant with commercial generators and 11% compliant with multi-family (apartment) generators. Outreach and onboarding of commercial accounts is the primary focus of the CAP and NOIC implementation plan which prioritizes the largest generators of compostable organics such as restaurants, fast food/fast casual food businesses, and grocery stores first. In fact, the 45% compliance level (roughly 500 accounts with organics service vs. approximately 1120 overall commercial accounts) is somewhat misleading in terms of actuals collected and diverted organics which would be more in the 55-60% if measured by actual tonnages captured and composted (vs. being disposed at landfills). That said, it is a heavy lift to address the remaining commercials accounts and an even more daunting challenge to capture food scraps and soiled paper from multi-family generators in the next 2-3 years.
In order to address the goals of SB 1383 and come into full compliance with the law, the Proposed SB 1383 Contract Amendment, if approved, would authorize the City to compensate NRWS for the following new costs for expanded collection of organics:
• A new commercial compost collection vehicle with a new driver. The new truck cost was approximately $523,000 and went into service as of January 2023 (in fulfillment of CAP and NOIC implementation plan). The cost of this new commercial collection vehicle was lowered through the use of approximately $113,000 SB 1383 local assistance grant and is amortized over a nine-year period to match the current duration of the NRWS agreement (CY2023 through CY2031). The new truck and driver have been placed on a Thursday through Monday collection schedule to provide Saturday commercial compost collection (not previously offered by NRWS) and match the need for compostable organics collection during busy weekends when hospitality service needs are greater. The proposed amendment also provides for 1600 new wheeled carts for the expanded commercial organics collection (with 200 of these being locking carts for exposed accounts subject to unwanted contamination of compost stream). There is also an allowance for a subcontractor to NRWS to provide quarterly cleaning of all commercial compost carts and bins as they can get very dirty and odorous very quickly given the nature of putrescible organic waste.
• Two NRWS Recycling Outreach Specialists, and 1 ½ NRWS Customer Service Representatives (CSRs) focused on SB 1383.
Originally, the City was only anticipating the need for one NRWS Recycling Outreach Specialist and 75% of one new NRWS customer service representative (with the 25% being paid through Napa County Recycling Waste Services - NCRWS - paid through its service contract for south unincorporated Napa County). Throughout 2022, it became readily apparent to both NRWS and the City that the needs were greater than originally anticipated not just for “onboarding” new customers to organics collection but also for identifying and following up with existing customers for contamination notices, reeducation, tracking and monitoring of progress (as required by the State). Because of this greater need to provide adequate support for NRWS (City) customers and get the job done right, the Proposed SB 1383 Contract Amendment provides for two full-time NRWS Recycling Specialists and 1 ½ NRWS CSRs (with 0.50 of a full time CSR being funded/shared with NCRWS). The Proposed SB 1383 Contract Amendment also provides for electric vehicles and charging stations for the vehicles for the NRWS Recycling Outreach Specialists as well as computers, phones, public education materials and other equipment necessary for the NRWS Specialists and CSRs to perform their duties. It should be noted that, to implement the goals of the NRWS Agreement, the two NRWS Recycling Outreach Specialists will work closely with two City Waste Prevention Specialists that will be dealing with additional aspects of SB 1383 implementation including edible food recovery, school programs, special events and other solid waste and recycling programs that are reported annually to the State of California.
2. ENHANCED SB 1383-DRIVEN PROCESSING COSTS:
The City of Napa is in much better shape than most jurisdictions for the processing side of SB 1383 in that it owns a fully-permitted, award winning compost and recycling facility, namely the Materials Diversion Facility (MDF) operated by NRWS under the terms of the NRWS Agreement. But the demands of SB 1383 also compel jurisdictions to not only collect previously landfilled organics and recyclables but also keep the three streams as “clean” and uncontaminated as possible. This is accomplished “upstream” on the collection and education side described above but also necessitates constant innovation and upgraded equipment to produce high quality recyclable materials and finished composts for sale from the MDF. SB 1383 also requires very prescriptive (and expensive) quarterly facility audits and sampling that is provided for in the Proposed SB 1383 Contract Amendment. Two quarterly audits have already been completed with some very interesting data that demonstrates that there is still much room for improvement to reduce contamination of the recycling and composting streams as well as uncaptured materials currently headed to landfill disposal. Among the findings from the first two quarterly facility audits: uncaptured organics represent between 48% to 56% of materials collected as landfill (trash) waste; organics (mostly smaller paper fiber) represents between 25% to 37% of MDF residue sent for disposal to the Devlin Road Transfer Station.
In order to address the goals of SB 1383 and come into full compliance with the law, the Proposed SB 1383 Contract Amendment compensates NRWS for the following enhanced processing of recyclable and organics at the City’s MDF:
• New $1.45M Optical Sorter for Recyclables at MDF.
An innovative part of the Proposed SB 1383 Contract Amendment is the purchase and installation of a $1.45 million “optical sorter” at the Materials Recovery Facility (MRF) at the City’s MDF. NRWS has spearheaded other successful innovations at the MRF in recent years including a cardboard screen, glass cleaner, a small optical sorter, three “sorting robots” and an eddy current for greatly improved capture of high value recyclable materials. In this same spirit and based on its success with a small optical sorter, installation of new larger optical sorter has been recommended by NRWS and City staff support this investment.
The optical sorter is projected to reduce MRF residue by 25% and thus capture it for sale as mixed paper. 25% of residue is approximately 2,700 tons per year and would have a two-fold benefit. First, it would avoid landfill disposal fees (the City currently pays $71 per ton at the Devlin Road Transfer Station). Second, the 2,700 tons of paper fiber now captured by the equipment become available for sale (current pricing is between $80 and $100 per ton). The new optical sorter would be a shared investment with the City paying for 85% of the costs and NRWS paying 15% of the costs. Based on the two-fold benefits, the City would have a 3 ½ year return on investment payback period (the year-by-year ongoing projected benefit is further detailed in the financial impacts section of this staff report). This additional capture of paper fiber is also consistent and compliant with the goals and requirements of SB 1383 for sorting facilities like the MDF. If the Proposed SB 1383 Contract Amendment is approved, the optical sorter would be ordered and installed in the summer of 2023. The City 85% share of the capital cost of the optical sorter would be amortized over an eight year period from CY2024 through CY2031.
• $2.6M in Additional Organics Processing Equipment at MDF and Two New NRWS Compost Equipment Operators
Another important aspect of SB 1383 Compliance is the ability for the City and NRWS to make upgrades and improvements to the organics processing capabilities of the MDF. To this end, the proposed SB 1383 Contract Amendment includes approximately $2.6M in new organics processing equipment and two new NRWS compost equipment operators that would be employed to operate the new equipment. The City applied for, and was awarded, a $1.5M CalRecycle Organics grant that will fund a $920,000 slow-speed shredder, a $392,000 density separator (that would remove heavy rocks/ceramics and lightweight inorganic plastics from the compostable organic materials) and two $109,000 mobile stacking conveyors that would feed the density separator and other equipment at different stages of the organics processing system at the MDF. The Proposed SB 1383 Contract Amendment supplements the $1.5 million grant-funded equipment with an additional $1.1 million for a new $322,000 wheel loader, a 333,000 excavator and a $460,000 new trommel screen. Like the optical sorter, the capital costs of the $1.1 million in non-grant funded organics processing equipment would be amortized over an eight-year period from CY2024 through CY2031.
The combined impact of the new organics processing equipment (both grant-funded and locally funded) would allow for more efficient and effective organics processing at the MDF. The efficiency of organics processing is projected to improve overall efficiency by up to 25% as far as facility throughput capabilities. It would also produce a cleaner, richer finished compost (with less plastics and inert, non-organic materials) and allow a higher end-use for so-called “compost overs” which currently must be sent offsite as alternative daily cover or “ADC” at landfills (which no longer can be credited as “diversion” under SB 1383 regulations). The current ADC materials would be upgraded to qualify as “beneficial reuse” at landfills which typically do not charge a disposal tip fee for this higher value material vs. ADC disposal tip fees (approximately $17 per ton currently). The enhanced and improved “compost overs” organics-derived products may also qualify for erosion control purposes and/or use as biofilter media (as is used at the MDF’s “Covered Aerated Static Pile” or CASP system). If and when a biomass (woody waste) gasification system is installed at the MDF in the future, the new and improved organics processing equipment will allow for a cleaner feedstock for renewable energy and avoid having to truck processed wood waste and compost overs offsite (approximately 31,000 to 36,000 tons per year currently). Finally, the upgraded organics processing equipment would allow for more efficient space utilization at the MDF for organic materials allowing for more onsite composting capacity. The avoided cost savings and ongoing economic benefits are detailed further detailed in the financial impacts section of this staff report.
FINANCIAL IMPACTS:
The cost of the proposed SB 1383 Contract Amendment is fully budgeted for FY2022/23 in the City’s Solid Waste and Recycling (SWR) Enterprise Fund. This includes: (1) $323,665 for expansion of commercial organics collection, (2) $46,255 for capital cost related to expansion of commercial organics collection, (3) $395,263 for enhanced processing costs at City’s MDF and (4) $95,000 for SB 1383 required quarterly sampling audit at MDF (for three quarters) for a total of $859,182 in increased expenditures to be paid to NRWS in FY2022/23. The increase in expenditures in FY2022/23 will be reduced by credits for labor costs from NRWS for hiring of a second recycling outreach specialist position and two compost equipment operator positions which were vacant for the first three months of CY2023. The net costs for the Proposed SB 1383 Contract Amendment will also be offset by avoidance of disposal tip fees currently charged for organic materials (compost overs) currently charged as alternative daily cover at landfills (described in more detail in staff report above and estimated in proposed SWR budgets for City FY2023/24 and FY2024/25 detailed below).
Estimated FY2023/24 Impacts of Proposed SB 1383 Contract Amendment: These include (1) $658,150 for expansion of commercial organics collection, (2) $91,484 for capital cost related to expansion of commercial organics collection, (3) $800,777 for enhanced processing costs at City’s MDF, (4) $188,684 for processing capital costs and (5) $126,000 for SB 1383 required quarterly sampling audit at MDF for a total of $1,865,095 in increased contract related expenditures to be paid to NRWS in FY2023/24. However, there are some significant additional savings and/or new revenue from the Proposed SB 1383 Contract Amendment. These include the following:
• 2,700 tons per year of additional mixed paper to be recovered from the new optical sorter to be installed at the MDF. At a projected sale price of $80 per ton, this impact is projected at $216,000 of additional material sales revenue for FY2023/24 (2700 tons per year X $80 per ton sale price).
• The 2,700 tons of recovered paper from the optical sorter also translates into reduced disposal cost of $192,000 in FY2023/24 (2,700 tons X $71 per ton of disposal costs at the Devlin Road Transfer Station).
• The enhanced organics processing equipment from the $1.5 million CalRecycle organics grant combined with additional upgraded organic processing equipment at the MDF from the Proposed SB 1383 Contract Amendment are also projected to have significant additional saving for the City in FY2023/24. More specifically, $252,000 in avoided disposal cost savings for organics materials previously charged as alternative daily cover (ADC) at landfill (14,000 tons X $18/ton ADC disposal charge = $252,000).
• The upgraded organics processing equipment will also allow for estimated additional 7,000 tons of organic material to composted and/or utilized on site at the MDF and not have to be shipped out to a third-party compost facility (which currently costs the City approximately $21 per ton in transportation expenses). This means an estimated savings of $147,000 per year (7,000 tons X $21 per ton in avoided transportation expenses).
Taken together, the impact of the enhanced processing equipment at the MDF result in a $807,000 in combined additional revenue and/or avoided expenses for a full twelve-month period meaning the estimated net impact of the Proposed SB 1383 Contract Amendment is $1,058,095 for City FY2023/24 ($1,865,095 minus $807,000). The proposed SWR budget for FY2023/24 estimates collection service revenue at $30,275,000 meaning that roughly every $303,000 equates to 1% of collection rate revenue. Taken alone (with no other factors considered including potential future collection rate adjustments), the estimated net impact of the Proposed SB 1383 Contract Amendment for FY2023/24 is approximately 3.5 percent of collection service charges ($1,058,095 divided by $303,000).
Estimated FY2024/25 Impacts of Proposed SB 1383 Contract Amendment: These include (1) $679,125 for expansion of commercial organics collection, (2) $89,396 for capital costs related to expansion of commercial organics collection, (3) $822,608 for enhanced processing costs at City’s MDF and (4) $372,663 for processing capital costs and (5) $80,000 for SB 1383 required quarterly sampling audit at MDF (it is assumed that a more cost effective alternative methodology will be approved by CalRecycle/Napa County LEA) for a total of $2,043,792 in increased contract related expenditures to be paid to NRWS in FY2024/25. Again, as was the case for City in FY2023/24, there are some significant additional savings and/or new revenue from the Proposed SB 1383 Contract Amendment that will continue in FY2024/25. These include the following:
• 2,700 tons per year of additional mixed paper to be recovered from the new optical sorter to be installed at the MDF. At a projected sale price of $80 per ton, this impact is projected at $216,000 of additional material sales revenue for FY2024/25 (2700 tons per year X $80 per ton sale price).
• The 2,700 tons of recovered paper from the new optical sorter also translates into reduced disposal cost of $194,000 in FY2023/24 (2,700 tons X $72 per ton of disposal costs at Devlin Road Transfer Station).
• The enhanced organics processing equipment will continue to have ongoing benefits and significant additional saving projected for the City in FY2024/25. More specifically, $266,000 in avoided disposal cost savings for organics materials previously charged as alternative daily cover (ADC) at landfill (14,000 tons X $19/ton ADC disposal charge = $266,000).
• The upgraded organics processing equipment will allow for an estimated additional 7,000 tons of organic material to be composted and/or utilized on site at the MDF and not have to be shipped out to a third-party compost facility or disposal facility. This means an estimated savings of $154,000 per year (7,000 tons X $22 per ton in avoided transportation expenses).
Taken together, the impact of the enhanced processing equipment at the MDF result in a $830,000 in combined additional revenue and/or avoided expenses for a full twelve-month period meaning the estimated net impact of the Proposed SB 1383 Contract Amendment is $1,213,792 for City FY2024/25 ($2,043,792 minus $830,000). The proposed SWR budget for FY2024/25 estimates collection service revenue at $30,275,000 meaning that roughly every $303,000 equates to 1% of collection rate revenue. Taken alone (with no other factor considered including potential future collection rate adjustments), the estimated net impact of the proposed SB 1383 Contract Amendment for FY2024/25 is approximately 4.0 percent of collection service charges ($1,213,792 divided by $303,000).
The SWR Enterprise Fund draws on three major revenue sources being collection service rate revenue, materials sales revenue, and City MDF gate fee revenue. Collection service rates were adjusted as of January 2022 based on City Council action in 2019 and (along with materials sales and gate fee revenue) are adequate to fully cover the additional compensation to NRWS of the Proposed SB 1383 Contract Amendment in current approved SWR Fund budget for current FY2022/23. The impacts of the 2022 Contract Amendment and the Proposed SB 1383 Contract Amendment, along with additional costs to the City of compliance with state law (SB 1383), will be factored into the next multi-year rate study and rate setting process which will be conducted later this calendar year (2023) for new rates expected to become effective January 2024.
CEQA:
City staff recommends that the City Council determine that the Recommended Action is exempt under CEQA Guidelines Sections 15301 and 15302 since it (1) involves the operation of an existing facility involving negligible or no expansion of use and (2) consists of replacing or reconstructing existing structures located on the same site and will have substantially the same purpose and capacity as the structure replaced. In addition, City staff recommends that the City Council determine that the potential environmental effects of portions of the Recommended Action were adequately analyzed by an Initial Study and Mitigated Negative Declaration adopted on November 7, 2013 (Resolution No. PC2013-15) that was prepared for the Napa Renewables Resources Project (File No. PL 12-0022); Technical Addendum dated June 23, 2014; Technical Addendum dated January 17, 2017; and the Notice of Determination for the Covered Aerated Static Pile system dated March 5, 2018 (issued in accordance with Resolution No. 2018-013). Based upon this prior review, subsequent environmental review pursuant to CEQA Guidelines Section 15162 is not required.
DOCUMENTS ATTACHED:
ATCH 1 - Resolution
EXH A - Proposed SB1383 Contract Amendment: Amending and restating the City-NRWS contract incorporating the Proposed 2022 Amendment to Agreement No. 8687 with Term through 2031
ATCH 2 - Relevant Red-Lined section of Proposed SB 1383 Contract Amendment to 2022 Contract Amendment
ATCH 3 - PowerPoint Presentation to City Council for SB 1383 Contract Amendment
NOTIFICATION:
Greg Kelley, General Manager/Managing Member, Napa Recycling & Waste Services (courtesy copy)
Mike Murray, Chief Financial Officer, Napa Recycling & Waste Services (courtesy copy)