Fremont City Council Meeting: 06/14/22 07:00 PM
3300 Capitol Avenue Div/Dept: Environmental Services
Fremont, CA 94538 Category: Agreements and Contracts
SCHEDULED
Sponsors:
STAFF REPORT (ID # 4636) DOC ID: 4636
Updated: 6/8/2022 12:48 PM by Susan Gauthier Page 1
CURBSIDE PROCESSING AGREEMENT AMENDMENT - Authorize Amendment for Curbside Processing Compensation Effective Through Contract Term Expiration of May 31, 2026
Contact Persons:
Name: Kathleen Cote-Guarnieri Suzanne Wolf
Title: Environmental Services Manager Community Services Director Div/Dept: Environmental Services Community Services
Phone: 510-494-4583 510-494-4329
E-Mail: [email protected] [email protected]
Executive Summary: Processing of the City’s curbside recyclables is provided by BLT Enterprises at the Fremont Recycling and Transfer Station under the Curbside Recyclable Material and Curbside Organic Waste Services Agreement (Curbside Processing Agreement).
Beginning December 1, 2017, the City and BLT established a series of short-term compensation agreements with amendments 3, 4, and 5, to address extraordinary impacts on the economics of processing the City’s curbside recycling material. These extraordinary conditions began with policy changes enacted by the Chinese government (known as National Sword), which increased recycling processing costs while reducing the market value of processed material. Amendment 5 expired on December 31, 2021 and curbside material processing payments have been suspended while the parties have attempted to reach agreement on a longer-term compensation arrangement (Amendment 6).
This proposed amendment would be in effect from January 1, 2022 through May 31, 2026, for the duration of the curbside processing agreement and is designed to align future compensation with anticipated costs. It is comprised of the following three components:
• $78.00 per ton incoming material processing fee (continued from Amendment 5) • $67.00 per ton mixed paper processing fee (reduced from Amendment 5) • $55.00 per ton residue landfill payment (reduced from Amendment 5)
The ongoing cost would be approximately $160,000 per month, depending upon incoming volumes. This would be a reduction to the previous payments of approximately $178,000 per month. There is adequate funding to cover the ongoing costs as the anticipated curbside processing costs were incorporated into the 2022/2023 Solid Waste Collection Rates previously set by the City Council.
Staff is proposing the revised compensation fees be applied retroactively to material processed since January 1, 2022. This would require a lump sum payment of $649,304.60 from the Integrated Waste Management Disposal Differential fund to address volumes processed from January 2022 through April 2022. Processing fees for May 2022 and later would be paid via the existing monthly administrative process. There would be no General Fund impact.
BACKGROUND: The City has been in a compensation review process with BLT Enterprises since December 1, 2017, regarding extraordinary market conditions impacting the Staff Report (ID # 4636) Meeting of June 14, 2022
Updated: 6/8/2022 12:48 PM by Susan Gauthier Page 2
processing of the City’s curbside recycling material. These conditions have been largely driven by China’s National Sword Policy, which resulted in higher processing costs to meet enhanced quality standards while depressing market revenues with reduced product demand. The volatility and uncertainty of the recycling markets created difficulties for reaching a long-term agreement, so the parties entered into a series of shorter-term compensation arrangements with Amendments 3, 4 and 5 to the curbside processing agreement.
The 3rd Amendment suspended the curbside material payment previously made to the City and established a mixed paper processing fee and landfill residue payment to BLT.
The 4th Amendment extended the 3rd Amendment compensation terms by six months while the parties negotiated the 5th Amendment terms.
The 5th Amendment established a material processing fee per incoming ton of curbside material in addition to the mixed paper processing fee and landfill residue payment that were already part of the compensation structure. The 5th Amendment compensation structure was in effect from December 1, 2019 through December 31, 2021 and included the following elements:
• $78.00 per ton processing fee for each incoming single stream ton • $86.51 per ton mixed paper processing fee
• $72.34 per ton residue landfill payment
These payments are in addition to material revenue that BLT receives for recyclable material recovered and sold in the recycling markets.
Staff anticipated that the 6th Amendment terms would revise BLT’s compensation to incorporate updated processing cost information and material revenue data.
DISCUSSION/ANALYSIS: Staff is recommending executing the 6th Amendment to the curbside processing agreement, which would be in effect for the duration of the remaining agreement term. In developing terms for the 6th Amendment, staff analyzed BLT’s operating costs for the 18-month period of July 2020 through December 2021 and material revenue data from July 2020 through March 2022. The proposed compensation would align the compensation with anticipated future costs.
Staff is recommending the payments described below be effective January 1, 2022.
• Incoming Processing Fee
o $78.00 per incoming Fremont single stream ton
o No change from 5th Amendment
o CPI adjustment incorporated into 2024 and 2026 rate setting.
• Residue Landfill Payment
o $55.00 per landfill bound residue ton
o Reduction from 5th Amendment fee of $72.34
o 2024 and 2026 rate setting adjustments will be based upon a blended index consisting of 65% of the landfill tip fee increase and 35% of the CPI index.
Staff Report (ID # 4636) Meeting of June 14, 2022
Updated: 6/8/2022 12:48 PM by Susan Gauthier Page 3
• Mixed Paper Processing Fee
o $67.00 per mixed paper ton
o Reduction from 5th Amendment fee of $86.51
o An adjustment, based upon the average material revenue change per ton, will be incorporated into the 2024 and 2026 rate setting calculation.
Processing Fee Per Incoming Ton: For the 18-month period of July 2020 – December 2021, staff has calculated the average cost per ton for processing the City’s incoming recycling material to be $72.58 per ton, exclusive of any City payments for processing, residue compensation or mixed paper processing (chart below). This analysis supports continuation of the $78.00 processing fee per ton which was established in the 5th Amendment to Curbside Recycling Processing Agreement. The parties have agreed to apply a CPI adjustment factor to the processing fee as part of the 2024 and 2026 biennial rate setting process.
Processing Cost Summary
July 2020 – December 2021
Average Cost
Per Ton
Material/Other Revenue $149.73
Revenue Reduction
(excluding landfill
disposal)* $24.39
Operating Expenses $150.47
G&A $47.45
Total Facility/Processing
Expenses $222.31
Income/ (Loss) Before
City Payments ($72.58)
*landfill disposal addressed in residue landfill payment
Residue Landfill Payment: As part of the 3rd Amendment, the City incorporated a payment of $72.34 per ton for material delivered as curbside recycling but ultimately identified as residue. Staff has determined that the City residue compensation payments made July 2020 through December 2021 exceeded the costs BLT incurred to dispose of landfill bound residue. Adjustments to the payment methodology and amount per ton are needed to more accurately align projected payments with anticipated costs.
BLT provided additional data supporting its proposed residue payment of $55.00 per ton.
The City’s analysis confirmed an average cost per ton of $54.83 for the 18-month period assuming the calculation is done on landfill bound tonnage only and excludes the other residue types that are not landfilled, such as HHW (household hazardous waste), unaccounted shrink, liquid, and mixed glass processing residue. BLT has agreed to use the revised methodology to calculate the residue landfill payment. Staff is also proposing the Staff Report (ID # 4636) Meeting of June 14, 2022
Updated: 6/8/2022 12:48 PM by Susan Gauthier Page 4
2024 and 2026 rate setting adjustment be based on a blended index including 65% of landfill tip fee increase and 35% of the CPI index. This is based upon the proportion of expense associated with landfill disposal versus transportation.
Mixed Paper Processing Fee: Staff prepared an Average Net Income Per Commodity Analysis to evaluate the net income per commodity type, before and after processing fee payments, based upon average material values and average facility processing costs. Adjustments were made to reflect commodity specific expenses and revenue associated with that commodity. Staff determined that mixed paper consistently had an average net loss even after accounting for the incoming material processing fee made by the City. Staff calculated the average loss at $66.87 per ton for the review period. This calculation supports continuation of a mixed paper processing fee, but at a reduced amount to reflect some improvement in the mixed paper revenue market. Staff is proposing a revised fee of $67.00 per ton.
Mixed Paper
Per Ton
Material Revenue $64.86
Other Revenue $68.70
Less Average CRV ($58.68)
Adjusted Revenue $74.89
Facility Operating Costs $240.35
Less Average Residue Disposal ($18.04)
Less Average 3 mix glass
processing ($5.69)
Less Average Baling Wire ($2.85)
Add baling wire - baled materials $5.98
Adjusted Operating Costs $219.75
Net Before City Payments ($144.87)
City Processing Fee $78.00
Net After City Processing Fee ($66.87)
Staff is proposing to adjust the mixed paper processing fee as part of the biennial rate setting process. The adjustment will reflect the change in the average material revenue price per ton BLT receives for preceding 12-month period (July-June) compared to the material revenue incorporated into the most current mixed paper processing fee.
Retroactive Payment: Staff is recommending the revised compensation fees be applied retroactively to material processed since January 1, 2022, calculated in accordance with the terms described in the sections above. This would require payment of $649,304.60 to address volumes processed from January 2022 through April 2022. A breakdown of the calculation is provided below.
Staff Report (ID # 4636) Meeting of June 14, 2022
Updated: 6/8/2022 12:48 PM by Susan Gauthier Page 5
Incoming Curbside Tonnage
$5,643.37
Processing Fee Per Incoming Ton $78.00
Total Incoming Processing Fee $440,182.86
Landfill Bound Residue Tonnage
1,777.63
Landfill Residue Payment Per Ton $55.00
Total Landfill Residue Payment $97,769.58
Mixed Paper Tonnage
1,661.97
Processing Fee Per Mixed Paper Ton $67.00
Total Mixed Paper Processing Fee $111,352.16
Total Retroactive Payment Jan - April $649,304.60
FISCAL IMPACT: The disposal differential account within the Integrated Waste Management Fund (Fund 115) was established to cover solid waste disposition or processing costs that are administered by the City. Contributions to this account are determined by the City Council as part of the biennial setting of solid waste collection rates. Use of the account is established through the annual budget process and any appropriations separately approved by the City Council. Curbside material processing costs were included in the 2022/2023 solid waste rates and the FY 2021/2022 budget and have been accruing in the disposal differential account. These costs have also been included in the proposed FY 2022/2023 budget. Approving the recommended 6th amendment would not require an additional spending appropriation and no increase for rate payers would be needed.
Staff is recommending that the lump sum payment of $649,304.60 come from amounts accumulated in the disposal differential account. There would be no General Fund impact.
ENVIRONMENTAL REVIEW: Authorizing an amendment to the Recycling and Yardwaste Transfer Agreement as described this staff report is exempt from and not subject to review under the California Environmental Quality Act (CEQA) because, without limitation, it is not a “project” as defined in CEQA Guidelines Section 15378(b)(5) and/or Section 15378(b)(5) and as it can be seen with certainty that there is no possibility that the activity may have a significant effect on the environment per CEQA Guidelines Section 15061(b)(3), each as a separate and independent basis for CEQA compliance..
ATTACHMENTS: None.
RECOMMENDATION: By motion, authorize the City Manager, or her designee, to execute the Sixth Amendment to the Agreement between the City of Fremont and BLT Enterprises of Fremont, LLC for Curbside Recyclable Materials and Curbside Organic Waste Services consistent with the terms outlined in this staff report. This amendment would include a Staff Report (ID # 4636) Meeting of June 14, 2022
Updated: 6/8/2022 12:48 PM by Susan Gauthier Page 6
payment of 649,304.60 from the Integrated Waste Management Disposal Differential Reserve for processing costs associated with curbside material delivered by the City from January 1, 2022 through April 30, 2022.