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HEARING - Environmental Management Department recommending the Board consider the following regarding Material Recovery Facility and solid waste collection rates for Waste Connections of California, Inc., doing business as El Dorado Disposal Service, Franchise Areas A, B, and C:
1) Find that a 3.62% Consumer Price Index increase to the existing Material Recovery Facility and solid waste collection rates, both residential and commercial, in Franchise Areas A, B, and C, to be in accordance with the interim year rate-setting process as outlined in the Solid Waste Rate Setting Policies and Procedures Manual;
2) Find that a 2.74% increase to the existing Material Recovery Facility and solid waste collection rates, both residential and commercial, in Franchise Areas A, B, and C, to cover the remaining construction cost overages of the new Material Recovery Facility, to be in accordance with the Sixth Amendment, Section 11 A of the Franchise Agreement;
3) Adopt and authorize the Chair to sign Resolution 093-2025 (Attachment B), adjusting the Material Recovery Facility rates by 6.36%: and
4) Adopt and authorize the Chair to sign Resolution 094-2025 (Attachment C), adjusting the residential and commercial solid waste collection rates for El Dorado Disposal Service, Areas A, B, and C by 6.36%, to become effective immediately and apply to the rates/billing cycles as of July 2025.
FUNDING: User Fees and Franchise Fees.
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DISCUSSION / BACKGROUND
On October 21, 2014 (Legistar file 14-1047), the Board adopted Resolution No. 187-2014 authorizing a new Solid Waste Services Agreement (Franchise Agreement) between the County and Waste Connections of California, Inc., doing business as El Dorado Disposal Service (El Dorado Disposal), for the collection of solid waste throughout the franchise area and operation of the Material Recovery Facility (MRF). In addition to significant changes from the previous agreement, this Franchise Agreement also incorporated a new Solid Waste Rate Setting Policies and Procedure Manual (Rate Manual) developed by New Point Group (now Crowe LLP).
The Rate Manual provides specific requirements for the setting of collection rates during "Base" years (every third year of the Franchise Agreement) and "Interim" years (years falling between base years). Base year rate adjustments require an in-depth financial analysis to determine if rates require adjustment, the amount of the adjustment, and whether an increase or decrease to rates is warranted. Interim year rate adjustments are calculated based on 85% of the change in the U.S. City Average - Garbage and Trash Collection Consumer Price Index (CPI) of the previous 12 months (December to December). Interim year rate adjustments are subject to a minimum increase of 1% and a maximum increase of 6%. The franchise hauler is not obligated to request an increase in interim years.
On November 13, 2018, the Agreement was amended (Fourth Amendment) and approved by the Board (Legistar file 18-1693) to provide for an automatic term extension for an additional period of twenty (20) years contingent upon the Franchisee’s completion of a new state-of-the-art transfer station/Material Recovery Facility (MRF) by October 20, 2022; and also provided a mechanism for the Franchisee to recover capital costs invested in the construction of the new state-of-the-art transfer station/MRF, subject to approval by the Board, if estimated construction costs significantly exceed the Franchisee’s 2014 maximum cost estimate of twelve million dollars ($12,000,000).
On August 25, 2020, the Agreement was amended (Fifth Amendment) and approved by the Board (Legistar file 20-0918) to modify certain services provided by Franchisee and certain fees charged by Franchisee pursuant to the Agreement.
In June 2020, El Dorado Disposal contracted with Crowe, LLC, to provide an MRF Capital Cost Analysis (Attachment E). The result of that analysis showed that, due to a change in circumstances, the estimated capital cost for the project was in excess of $25,600,00. The final MRF construction cost that was completed in October 2024 resulted in a total of $38,041,520.
On November 8, 2022, the Agreement was amended (Sixth Amendment) and approved by the Board (Legistar 22-1964) to extend the timeline of the completion of the MRF from October 20, 2022, to October 20, 2024, due to unforeseen significant disruptions and delays caused by the COVID-19 pandemic, including, without limitation, due to engineering office closures, manufacturing plant shutdowns, and material availability.
Recent rate increases for El Dorado Disposal, Areas A, B, and C, and the MRF were previously approved by the Board on the following dates:
• June 12, 2018 (Legistar file 18-0825), the Board approved a base year rate increase of 5.02% to El Dorado Disposal residential and commercial customer rates, Areas A, B, and C, and a 1.69% CPI increase for MRF rates. The MRF rates are adjusted annually by CPI and are not subject to the base-year rate-setting process.
• June 25, 2019 (Legistar file 19-0920, 8.86%),
• August 25, 2020 (Legistar file 20-0919, Interim Year 6.69% to Franchise areas; Interim Year 3.46% to MRF).
• June 22, 2021 (Legistar file 21-0904, Base Year 5.52% to Franchise areas; Base Year 3.80% to the MRF)
• June 21, 2022 (Legistar file 22-0984, 4.07%)
• June 27, 2023 (Legistar file 23-0855, 5.21%)
• June 25, 2024 (Legistar file 24-1037, Base Year 7.5% for Franchise areas; Interim Year 5.56% for the MRF)
The rate increases in 2019 and 2020 reflected additional adjustments due to unforeseen circumstances resulting from increasingly restrictive changes in recycling laws and further declines in the recycling commodity market, and capital costs associated with the construction of the new Transfer Station/MRF. The Rate Manual provides for rate setting outside of the normal annual process under Section 1, C, for unforeseen circumstances.
In March 2025, El Dorado Disposal submitted an Interim Year Rate Application (Attachment A) to the Environmental Management Department for collection services for the rate year 2025 and requested a 3.62% rate increase to the MRF and residential/commercial collection rates in Franchise Areas A, B, and C. El Dorado Disposal also submitted an additional rate adjustment request of 2.74% to cover the remaining construction cost overages of the new state-of-the-art transfer station/Material Recovery Facility (MRF) as the overall construction cost of $38,041,520 exceeded the original projection of $12,000,000, as allowed under Section 11A of the Franchise Agreement, for a total increase of 6.36% (3.62% Interim Year & 2.74% for unforeseen circumstance of construction costs overages.)
Environmental Management retained Crowe LLP to conduct an analysis of the rate request. Crowe has determined that the requested combined refuse collection rate increase of 6.36% for Areas A, B, and C is consistent with the terms of the interim year rate setting procedures and unforeseen circumstances contained within the Rate Manual, and under Amendment #6 of the Franchise Agreement (Attachment D).
ALTERNATIVES
Denial of the requested 6.36% increase (3.62% interim year and/or 2.74% unforeseen circumstance of construction costs overages) would not be consistent with the terms of the Board-approved Franchise Agreement and Rate Manual incorporated therein. Section 22 of the Franchise Agreement provides that rates are "established and adjusted" in accordance with the Rate Manual. The Manual provides that a Franchisee "shall be entitled to adjust its rates" during an interim year based upon a formula that includes the CPI, as well as unforeseen circumstances. If the Board does not approve an interim year Application, deficiencies must be identified in the Application for determining the rates, which would require staff to address the deficiencies and return to the Board with a resolution for Board approval/adoption. Staff have reviewed the Application and found no deficiencies in the Application, supporting data, or the required notice.
PRIOR BOARD ACTION
See Discussion/Background above.
OTHER DEPARTMENT / AGENCY INVOLVEMENT
County Counsel has approved the proposed Resolutions.
CAO RECOMMENDATION / COMMENTS
Approve as recommended. It should be noted that although the Board has no discretion in approving the rate increase at this time due to the terms in the current Franchise Agreement, both the County and the Franchisee have the option of negotiating an amendment to the terms of the Franchise Agreement, including the Rate Setting Manual, at any time, to apply to future rate increase applications.
FINANCIAL IMPACT
The increase in rates proposed by El Dorado Disposal is directly related to the cost to provide these services to customers. The County’s Franchise Fee will remain at 5%. However, as rates are incrementally increased, the County will see a slight increase in Franchise Fee revenue.
CLERK OF THE BOARD FOLLOW-UP ACTIONS
1) Clerk of the Board will obtain the Chair’s signature on one (1) original copy of each adopted Resolution.
2) Clerk of the Board will forward one (1) copy of each executed Resolution to Environmental Management for further processing.
STRATEGIC PLAN COMPONENT
N/A
CONTACT
Jeffrey Warren, REHS, Director
Environmental Management Department