Recommendation Regarding
the City’s Solid Waste Franchise Agreement with CR&R
Prepared by
Solid Waste Consultants
to Local Government
June 7, 2022
Attachment 1
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Table of Contents
1 EXECUTIVE SUMMARY ...................................................................................................................... 1 2 RECENT TRENDS IN THE SOLID WASTE INDUSTRY.................................................................................. 2
2.1 SB 1383 – SHORT-LIVED CLIMATE POLLUTANTS .............................................................................................2
2.2 FACTORS CREATING UPWARD PRESSURE ON OPERATING COSTS .......................................................................3 3 SOLID WASTE MARKET IN ORANGE COUNTY ....................................................................................... 4
3.1 HAULER MARKET SHARE AND MAJOR SOLID WASTE FACILITIES.........................................................................4
3.2 RECENT EVENTS AND CIRCUMSTANCES...........................................................................................................5
3.3 RATE COMPARISON .....................................................................................................................................7 4 SAN CLEMENTE’S AGREEMENT WITH CR&R........................................................................................ 9
4.1 2010 FRANCHISE AGREEMENT......................................................................................................................9 5 BASIS FOR RECOMMENDATION ........................................................................................................ 11
5.1 GENERAL PROS AND CONS OF NEGOTIATING VS. ISSUING AN RFP ...................................................................11
5.2 APPLICATION OF GENERAL PROS AND CONS TO THE CITY OF SAN CLEMENTE.....................................................12
5.3 CONSIDERATION OF PROS AND CONS OF GIVING NOTICE TO END AUTOMATIC EXTENSION.................................12 6 SUMMARY OF RECOMMENDATIONS ................................................................................................. 15
1 Executive Summary
In March 2022, the City retained our firm to provide a recommendation to the City whether it should either:
• Enter into sole-source negotiationsfor a new solid waste franchise agreement with its current waste hauler, CR&R Incorporated (CR&R) or;
• Issue an RFP and solicit competitive proposals a new agreement.
In developing our recommendation, we:
1. Considered recent trends in the solid waste industry.
2. Surveyed the solid waste market in Orange County.
3. Reviewed the City’s current solid waste agreement.
4. Outlined the general pros and cons of conducting sole-source negotiations vs. issuing an RFP.
5. Analyzed those pros and cons in relation to the City’s current agreement.
Based on our review and analysis, we recommend that the City:
• Enter into negotiations now with CR&R, for a period not to exceed six (6) months. • In addition, prior to June 30, 2022, give CR&R a notice of termination of the automatic renewal of the term of the current franchise agreement. As a result of this action, the term of the current agreement will be set to end on June 30, 2024.
If the City does not give notice of automatic termination on or before June 30, 2022, due to provisions in the agreement, the term of the current agreement will automatically be extended for an additional year to June 30, 2025. • If the City and CR&R are not able to successfully negotiate a new agreement within six (6) months, conduct a competitive procurement process by developing and issuing an RFP to other qualified firms.
2 Recent Trendsin the Solid Waste Industry
The two most significant trends today in the solid waste industry in California are the implementation of SB 1383, and a combination of economic factors that are creating upward pressure on solid waste collection and recycling operating costs.
2.1 SB 1383 – Short-lived Climate Pollutants
In 2016, the State adopted SB 1383, the most significant change to solid waste handling regulations in 30 years. SB 1383 requires cities to implement programs to significantly reduce the amount of organic waste and recoverable edible food sent to landfills. The goals of SB 1383 are to reduce by 75% the amount of organic waste going to landfills by 2025, and reduce by 20% the amount of recoverable edible food that is currently landfilled.
While this new law was adopted in 2016, the final regulations that implemented the law were not finalized until November of 2020, and it did not become effective until January 2022. Although waste and recycling companies will perform many of the tasks of SB 1383, the regulatory requirements of this new law are placed squarely on the backs of local governments. SB 1383 requires local jurisdictions to:
• Amend their municipal codes to enforce the requirement that essentially all waste generators recycle their organics, including dry organics (cardboard, paper, etc.). • Ensure that their waste haulers provide organics collection service. • Estimate the amount of organic waste and recoverable edible food generated within their boundaries and provide that information to their county for facility planning purposes.
• Enhance existing edible food recovery programs to reduce the amount of recoverable edible food sent to landfills.
• Ensure that all newly constructed buildings have readily accessible space for recycling.
• Ensure that all new construction be designed with water efficient landscape. • Develop inspection and compliance review programs to ensure that waste generators fulfill the requirements of SB 1383 and the jurisdiction’s municipal code.
• Conduct periodic education and outreach to all waste generators, and specifically, generators of edible recoverable food.
• Ensure that the City’s hauler performs annual route inspections to minimize contamination.
• Procure a minimum quantity of recovered organic waste products. • Prepare and submit annual compliance reports to CalRecycle.
While SB 1383 is a major driver of the recent increase in solid waste customer rates across the State, there are several other economic factors that are contributing to this trend.
2.2 Factors Creating Upward Pressure on Operating Costs In addition to SB 1383, a significant trend in the solid waste industry today is the conflation of economic factors that are creating upward pressure on waste hauler’s operating costs, and thereby, causing increases in customer rates. These economic trends include:
• A shift in tonnage volume per unit from the commercial sector to the residential sector
• Continuing shortage of qualified truck drivers
• Continuing impact of China virtually banning the import of recyclables (China Sword)
• Supply chain constraints
• Steel prices
• Increased fuel costs
• General Inflation
3 Solid Waste Market in Orange County
Our survey of the solid waste market in South County is comprised of: 1) an overview of hauler market share and major waste facilities, 2) a description of recent events and circumstances, and, 3) a comparison of current rates.
3.1 Hauler Market Share and Major Solid Waste Facilities Chart 1 below shows the current market share of waste haulers in Orange County, as well as major waste facilities. This chart shows that one hauler (Republic) has most of the market in North County, and that two haulers, CR&R and Waste Management (WM), have all the market in South County. Chart 1 also shows that, of the three haulers with the most market share, CR&R’s facility of the Ortega Highway (and its planned facility near the Prima Desheca Landfill) are the closest to the City of San Clemente of the three haulers with the most market share.
Chart 1 – Waste Hauler Market Share and Major Facilities (Draft)
Table 1 below lists the operating facilities of the major waste haulers that are able to serve South County along with the distance of each facility from the City of San Clemente. This list shows that CR&R currently has the closest facility to the City (9 miles), and that its planned facility near the Prima Desheca Landfill will result in CR&R’s operating facility being only 4 miles away from the City.
Table 1 – Operating Facilities of Major Waste Haulers
Facility Name Hauler Location Distance from
San Clemente
CVT MRF Republic
Services
In Anaheim near intersection of 57 and 91
Freeways 38
CR&R South County
MRF CR&R Ortega Highway off of Gibby Road 9
CR&R Recycling and
Transfer (Planned for
2024)
CR&R La Pata Avenue near the Prima Desheca
Landfill 4
Sunset Environmental WM Near the intersection of Barranca and Jamboree Rd. in Irvine 28
Madison Resource
Recovery
WARE
Disposal
In Santa Ana on Fourth St. between
downtown and the I-5 Freeway 30
3.2 Recent Events and Circumstances
Table 2 the following page describes some recent events and circumstances cities in South County related to solid waste franchise agreements. Chart 2 on the following page compares the solid waste contract expiration dates of each of the cities in South County.
Table 2 – Recent Events and Circumstances in Orange County City Event
Aliso Viejo
CR&R has served the city since 2005. On November 2021 the city negotiated Amended and Restated the Franchise Agreement with CR&R. The current term of the city’s agreement is set to end in October 2027.
Dana Point
CR&R had served the city since 1996, when it acquired Solag Disposal. In 2019, the city amended its agreement with CR&R. As a result, the current term of the city’s agreement is set to end in June 2024. The city is currently in the process of negotiating amended and extended agreement; likely by 5 years.
Irvine
WM has the exclusive right (and obligation) to serve only the single-family residential sector. Several haulers openly compete for customers in the commercial and multi-family sector. WM has served the residential sector in the city for several decades. The current term of the city’s agreement is set to end in August 2026. The city is currently in negotiations with WM.
Laguna Beach
WM has served the city since 1993. The current term of the city’s agreement is set to end in June 2023. In May 2021, the city Council decided to begin a competitive procurement process. The city is now developing an RFP.
Laguna Hills
The current term of the city’ agreement with CR&R is set to end in June 2024. Lake Forest and Laguna Hills are now collaboratively conducting a single competitive procurement process.
Laguna Niguel
CR&R has served the city since 1996, when it acquired Solag Disposal. In 2018, the city negotiated a new agreement with CR&R. As a result, the current term of the city’s agreement is set to end in December 2028.
Laguna Woods
In April 2021, with less than two years remaining on its contract, and a potential option to extend its term by 5 years, WM notified the city that it would not object if the city issued an RFP. In July 2021, the City issued an RFP, and received two (2) proposals; from WM and CR&R. The city awarded the contract to CR&R in October 2021. The term of the new contract extends to 2032.
Lake Forest
The current term of the city’s agreement with CR&R is set to end in December 2028.
Lake Forest and Laguna Hills are now collaboratively conducting a single competitive procurement process.
Mission Viejo
Mission Viejo’s city code requires the city to competitively procure waste collection every 10 years. The city issued an RFP in July 2019. City received proposals from CR&R, Republic Services, and WM. CR&R and WM were shortlisted. In December 2019, city awarded an eight-year agreement to WM. As a result, the current term of the city’s agreement is set to end in December 2028.
Rancho Santa
Margarita
CR&R had served the city since 2004, when it was awarded the contract via a competitive procurement. In October 2021, city negotiated a 5-year Amended and Restated the Franchise Agreement with CR&R. As a result, the current term of the city’s agreement is set to end in June 2024.
San Juan
Capistrano
CR&R has served the city since 1996, when it acquired Solag Disposal. In May 2019, the city conducted a limited RFI (request for information) process. Three haulers submitted responses: CR&R, Republic, and WM. CR&R was selected. The new agreement has 10-year term with two options to extend the term by 5 years.
Chart 2 – Current South County Solid Waste Contract Expiration Dates
3.3 Rate Comparison
A comparison of customer rates for the most common levels of residential and commercial service are shown below in Chart 3 and Chart 4, respectively. The top portion of each bar in these charts reflects the portion of the rate that is retained by the city or attributable to street sweeping. The bottom portion reflects the portion that is retained by the hauler for solid waste collection service. The amounts shown in Chart 3 and Chart 4 are listed in Table 3 and Table 4 on the following page.
Chart 3 – Monthly Single-family Solid Waste Rates in South County Mar Jun Sep Dec Mar Jun Sep Dec Mar Jun Sep Dec Mar Jun Sep Dec Mar Jun Sep Dec Mar Jun Sep Dec Mar Jun Sep Dec M J S D M J S D M J S D M J S D M J S D M J S D M J S D Aliso Viejo
Dana Point
Irvine
Laguna Beach
Laguna Hills
Laguna Niguel
Laguna Woods
Lake Forest
Mission Viejo
Rancho Santa Margarita
San Clemente
San Juan Capistrano City of San Juan Capistrano negotiated a new agreement in 2020.
City
Automatially extended by two years beginning on October 31, 2025. Remaining term is 2-years until further notice.
City of Dana Point is currently negotiating with CR&R.
City of Irvine is currently negotiating with WM.
City of Laguna Beach is currently undertaking an RFP process.
City of Laguna Hills is currently undertaking an RFP process in concert with Lake Forest. 2032 2033 2034 2035
Automatic Extension
City of Laguna Woods has option to extend by 5-years beginning on February 28, 2032 City of Lake Fores is currently undertaking an RFP process in concert with Laguna Hills.
City of Mission Viejo completed an RFP process in 2019.
City of Rancho Santa Margarita negotiated new agreement in 2021. 2022 2023 2024 2025 2026 2027 2028 2029 2030 2031
Chart 4 – Monthly Commercial Solid Waste Rates in South County Table 3 – Monthly Single-family Solid Waste Rates in South County Table 4 – Monthly Commercial Solid Waste Rates in South County Customer Rate City Fees Hauler Portion
Laguna Woods $12.73 $0.64 $12.09
Irvine $13.01 $0.65 $12.36
Laguna Hills $15.55 $0.00 $15.55
Dana Point $16.79 $0.84 $15.95
Lake Forest $17.79 $0.89 $16.90
Aliso Viejo $19.48 $1.39 $18.09
Rancho Santa Margarita $21.09 $1.05 $20.04
Mission Viejo $21.78 $1.74 $20.04
Laguna Niguel $21.69 $1.08 $20.61
San Juan Capistrano $22.36 $1.12 $21.24
Laguna Beach $22.05 $0.00 $22.05
San Clemente $23.51 $1.18 $22.33
City
Monthly Rate
Customer Rate City Fees Hauler Portion
Lake Forest $97.70 $4.89 $92.82
Rancho Santa Margarita $101.42 $5.07 $96.35
Laguna Woods $120.39 $6.02 $114.37
Aliso Viejo $126.81 $9.07 $117.74
Laguna Hills $124.10 $0.00 $124.10
Laguna Niguel $145.20 $7.26 $137.94
Mission Viejo $153.34 $12.27 $141.07
Dana Point $155.74 $11.68 $144.06
San Juan Capistrano $154.53 $7.73 $146.80
San Clemente $165.11 $17.75 $147.36
Laguna Beach $167.86 $16.79 $151.07
Monthly Rate
City
4 San Clemente’s Agreementwith CR&R
4.1 2010 Franchise Agreement
Under the terms of the current franchise agreement, CR&R has the exclusive right and obligation to provide waste and recyclables collection service to all of the City’s singlefamily, multi-family, and commercial customers. CR&R’s relationship with the City dates back to 1996 when CR&R acquired the City’s then long-time hauler, Solag Disposal.
Term of the 2010 Agreement
The City’s current Agreement with CR&R was negotiated in 2010. The initial term of the current Agreement was for an eleven and one half (11 ½) year term through June 30, 2022. The Agreement provides that, beginning on July 1, 2020, the term of the Agreement is to be automatically extended each year on July 1st for an additional year. The term of the Agreement will continue to be extended each year unless either the City or CR&R notifies the other party prior to June 30th of any year of its intent to end the term of the Agreement.
As a result, if neither party notifies the other, the Agreement will continually have a remaining term of between two and three years. As of the date of this letter, the remaining term of the Agreement extends to June 30, 2024. If neither the City or CR&R notifies the other party of its intent to end the term by June 30, 2022, the term of the Agreement will automatically extend for another year to June 30, 2025.
The 2016 Amendment
Also in 2016, the City amended its Agreement with CR&R to direct the company to transport organic waste collected in the City to CR&R’s anaerobic digestion facility (AD facility) in the City of Perris. As a result of redirecting its organic waste away from landfills and to CR&R’s AD facility, the City’s organic waste collection program is in compliance with SB 1383.
The 2021 Amendment
Although2016 amendment to the Agreement enabled the City to comply with much of SB 1383, the SB 1383 regulations that were promulgated in November 2020 included some requirements that are not addressed in the City’s current Agreement with CR&R. These additional requirements include waste characterizations, route reviews, and edible food recovery programs.
Favorable Diversion Rates Compared to CalRecycle Targets During CR&R’s tenure, the City has met its AB 939 waste diversion requirements. AB 939 requires that cities implement waste reduction and recycling programs such that the amount of
landfilled waste originating in the city does not exceed a certain maximum allowable amount.
The actual and maximum allowable amounts are expressed in the average disposal per person per day.
From 2007 through 2019 (the most recent year that disposal data is available),the City’s average actual disposal per person per day has been below the maximum allowable amount set by CalRecycle. This is shown below in Chart 5.
Chart 5 – Actual Per Capital Disposal Compared to Maximum Allowed Rate Recent Service Issues
According to City staff, CR&R has a history of providing high quality service. However, in the last two years, the City has received many more complaints about CR&R’s service than in previous years. These complaints have been primarily about spillage, missed pickups, and improperly commingling recyclables in the same truck as regular trash (which defeats the purpose recycling). The City is in frequent communication with CR&R about service complaints, and CR&R has represented that it is working to improve service and significantly reduce the number of complaints.
Based on City staff conversations with other cities that have other waste haulers, the increase in complaints do not seem to be unique to the City of San Clemente. City staff expects that CR&R will be able to improve service quality to what it was in the past.
5 Basis for Recommendation
To develop our recommendation, we: 1) considered the general pros and cons of sole source negotiation verses a competitive procurement, 2) applied these general pros and cons to the specific circumstances of the City of San Clemente, and, 3) considered the advantages and disadvantages of providing CR&R with notice to terminate the automatic extension.
5.1 General Pros and Cons of Negotiating vs. Issuing an RFP Table 4 below lists the advantages of negotiating vs. the advantages of soliciting competitive proposalsthat would generally apply to any jurisdiction.
Table 5 – Solid Waste Agreement Negotiate vs. Competitive Procurement Advantages of Negotiating with Incumbent Hauler Advantages of Soliciting Competitive Proposals from Several Haulers
▪ If there is adequate time remaining on the
current contract term, allows the City to
subsequently issue an RFP if the negotiations
are not successful.
▪ Avoids the risk of problems arising from the
transition to a new service provider (e.g.,
changed pickup days, a new hauler will not be
familiar with the City’s unique service
requirements, etc.).
▪ Avoids the problems that may occur if the City
receives a ‘low-ball’ bid; avoids the risk of
creating a high-profile and controversial
contractor selection process.
▪ Allows the City to achieve much of the same
assurances that it has obtained a fair deal by
comparing its rates, services and terms to those
in nearby jurisdictions.
▪ May require less City Council and staff time.
▪ Provides more assurance that City has obtained
the greatest value.
▪ Provides more assurance to the public that
contractor was selected in a fair manner.
▪ City benefits from the technical creativity of
several firms in identifying a menu of program
and service options to achieve the waste
diversion requirements.
▪ Allows the City to choose from several haulers.
▪ Allows the City to ‘mix ‘n match’ features from
multiple proposals.
▪ May require more City Council and staff time.
▪ Provides opportunity for Council members to
learn about solid waste issues.
Bottom line:
More appropriate when City is already meeting its
solid waste program objectives:
▪ Hauler provides high quality, reliable service;
and,
▪ Rates are reasonable; and,
▪ City meeting diversion mandates; and,
▪ Scope of services will not change.
Bottom line:
More appropriate when City is not meeting its solid
waste program objectives:
▪ City is less satisfied with hauler, or
▪ Rates are higher than nearby, comparable
jurisdictions; or,
▪ City not meeting diversion goals; or,
▪ City intends to make significant changes to the
scope of services.
5.2 Application of General Pros and Cons to the City of San Clemente Reasons to renegotiate with CR&R:
• According to City staff, CR&R has a history of providing high-quality service.
Although CR&R has had some recent services issues, these appear to be related to COVID-19 and other challenging industry trends. Based on staff discussions with other jurisdictions, other solid waste haulers in other cities have experienced similar service issues. CR&R’s history of providing high-quality service (and CR&R’s professed intention to regain its reputation for delivering high-quality service) helps to justify entering into negotiations with CR&R for a new agreement. • The City does not intend to make significant changes to the scope of services. The 2016 amendment provided for the organics collection services needed to comply with SB 1383, and the 2021 amendment to CR&R’s agreement addressed many of the scope requirements of SB 1383. As a result, the City does not need to make any significant changes to the scope of the agreement.
• The City is meeting its diversion mandates. As shown above in Chart 5, the City has been meeting its waste diversion targets. CalRecycle has recently requested the City to prepare a Formal Plan due to low participation rates among its commercial businesses. However, this is primarily due to businesses in the City electing to not recycle.
Reason to conduct a competitive procurement:
• The City’s rates are higher than other cities in South County.
5.3 Consideration of Pros and Cons of Giving Notice to End Automatic Extension Reasons to not give notice:
• There is some risk to the City of terminating the automatic extension and setting in motion a negotiation/procurement process. If the City and CR&R are not able negotiate an agreement, and the City issues an RFP, the City may undertake curtained risks. Other haulers may perceive that CR&R (as the incumbent and with facilities that are closest to the City) has a competitive advantage. There may be a risk that the City does not receive adequate competitive proposals in response to the RFP. There is a risk that other haulers may not offer competitive rates due to their relatively higher operating costs due to their distance from the City. There is also a risk that the rates bid by CR&R in response to an RFP might be higher than those that the City might otherwise be able to negotiate.
• If the City does not give notice (and assuming that CR&R does not give notice to the City), the City would be able to enjoy continued uninterrupted service at stable (although relatively higher) rates over time.
Reasons to give notice:
• With a firm contract expiration date, both parties will be more earnest in negotiations. If the City does not give notice, both parties would have less incentive to hurry, and the process may be prolonged.
• Due to its location in the southern-most part of the County, and its relative distance from the operating yards of other competing waste haulers, the City has less negotiating leverage for waste services than other cities to its north. Due to the current negotiations and procurements of these other nearby cities, this negotiating leverage may diminish even more in the next two years as these cities renegotiate or reprocure their waste agreements. The City of San Clemente may have more negotiation leverage with CR&R now than in the next two years. • There is a risk that WM may exit the waste market in Orange County. As shown below in Table 6, twenty years ago, WM was the exclusive provider in eight cities in Orange County. This year (with the transfer of the City of Santa Ana to Republic Services), WM will be the exclusive provider in only three Orange County cities.
Table 6 – WM Decrease in Orange County Market Share
OC Contracts Held by
WM in 2002
OC Contracts Held by
WM July 2022
Irvine Irvine
La Habra
Laguna Beach Laguna Beach
Lake Forest
Mission Viejo Mission Viejo
Orange
Santa Ana
Tustin
One of these three cities is the difficult-to-serve City of Laguna Beach, which is currently in the RFP process. Another is the City of Lake Forest in which WM has the exclusive obligation to service all residential customers at some of the lowest rates in the County, while it openly competes with other haulers in the more lucrative commercial sector. WM’s other city is the City of Mission Viejo, which selected WM in an RFP process in 2019. As a result, WM has far fewer customers
over which to spread its fixed costs than it did twenty years ago, and its remaining cities may not provide the company with high profit margins.
If WM were to retain Laguna Beach, and acquire Lake Forest and Laguna Niguel, it would be less likely that it would exit the waste market in Orange County.
However, these outcomes may not be as likely given the lack of competitiveness WM demonstrated in Laguna Woods.
If another waste company were to offer to purchase WM’s contracts in Orange County, it may be more economic for WM to sell these contracts than to continue to operate at thin margins. Moreover, due to CR&R’s presence in South County, at some purchase price, WM’s current contracts in Irvine and Mission Viejo may be more valuable to CR&R than they are to WM. For all these reasons, there is a risk that WM may exit the waste market in Orange County. If this were to happen, the City of San Clemente would have even less negotiating leverage.
6 Summary of Recommendations
The reasons to initially negotiate with CR&R are summarized below in Table 7. The reasons to issue a notice to terminate the automatic extension are summarized below in Table 8.
Table 7– Reasons to Initially Negotiate with CR&R
Key Reasons Why San Clemente Should Initially Conduct Negations with CR&R ▪ CR&R has the infrastructure in place (Perris AD facility) to process the City’s organics in compliance with SB 1383.
▪ The City’s current agreement with CR&R includes all the services the City needs to comply with SB 1383
▪ Due to its market share and facilities in South County, CR&R has the ability to bring economies of scale, and thereby, more competitive rates to the City of San Clemente.
▪ The City may be able to negotiate more favorable rates. ▪ If the City and CR&R are not able to successfully negotiate a new agreement within six months, the City will still have adequate time to conduct a competitive procurement.
Table 8– Reasons to Issue a Notice to Terminate the Automatic Extension Key Reasons to Issue a Notice to Terminate
▪ Both parties will be more earnest, and an agreement would be negotiated more quickly.
▪ The City has less negotiating leverage for waste services than other cities to its north, and this negotiating leverage may diminish more over time due to other contracts becoming finalized in the next two years.
▪ There is a risk that WM may exit the waste market in Orange County in the nottoo-distant future resulting in even less negotiating leverage for the City.