Response Form Grand Jury Report Title: a Report on the City of Ukiah Garbage Contract Report Dated: May 9, 2012*

Disagree. This finding has inaccurate statements. The gate fee at the transfer station increased by 21% per ton before surcharges, such as the $5.00/ton surcharge from Mendocino Solid Waste Management Authority (MSWMA), and 46%/cubic yard after surcharges. As the staff reported at the August 18, 2010, City Council meeting, the cost to dispose of solid waste collected at the transfer station increased by $29.23 per ton just for increased transportation costs and gate fees at the Portrero Hills Landfill. The City Council approved an increase of the gate fee at the Transfer Station of $11.13/ton. The larger percentage increase in the per yard charge was proposed to account for the higher cost to process solid waste delivered by self- haulers as compared to the cost of solid waste delivered in compacted loads by franchised waste haulers and to provide an equitable rate structure for all customers comparable to other transfer stations in the county. The increased gate fee at the transfer station was projected to increase the curbside rate in Ukiah by 6.22%. The City Council authorized notice and hearing on the necessary increase in waste collection rates pursuant to Proposition 218. That hearing was not conducted until every property owner and waste collection customer in the City received mailed notice of the proposed rate increase and the right to file written protests for a period of 45 days after the notice was given. 4. Disagree. In August 2010, the increase was sought by Solid Waste Systems, not C&SWS. 5. Disagree. Mike Sweeney, General Manager of MSWMA and Mendocino County's solid waste director, and John McCowen, member of the Mendocino County Board of Supervisors, were invited to participate in meetings that included the City Council appointed ad hoc waste collection committee, consisting of Councilmembers Mary Anne Landis and Benj Thomas, and representatives of Solid Waste Systems and Ukiah Waste Solutions. The City Council decided at its November 2, 2011, meeting to invite them to participate, after Mike Sweeney submitted a letter to the City Council listing 43 concerns with the contract. In his cover letter to the City, Sweeney stated: "I applaud the City for undertaking this major task and charting a new relationship with its franchised hauler. It is an achievement for both the City staff and the company. In rewriting major contracts from scratch, however, there are bound to be a few glitches..." 6. Disagree. The City's Finance Director and the City's consultant (CPA) jointly read and studied the financial statements provided by the companies. This effort included application of various mathematical calculations and other analyses to assure that the rates being proposed reflected costs comparable to those in the industry and the marketplace. Costs for individual services were mapped, and at each juncture, a reasonableness comparison was applied to determine that the base rates of these agreements were not overstated, and represented a return for the businesses that covered costs but did not provide profit over and above the norm for providing such services. The City's consultant has more than 30 years' experience in the solid waste collection industry and is highly qualified by education, training and experience to assess the reasonableness of the companies' financial statements. This is why the City has used his services for over 10 years in contract negotiations and rate reviews. Disagree. The City's consultant (CPA) disclosed that he provides professional services to Solid Wastes of Willits, Inc., which is a completely separate and unrelated company from Ukiah Waste Solutions or Solid Waste Systems. He noted that Solid Wastes of Willits, Inc. and C&SWS had recently entered a joint venture to operate a composting facility on Eastside Road and that C&SWS has never been a source of income to him. His consulting services to the City were limited to reviewing proposed rate changes. Given that the City's consultant (CPA) has been providing professional services to the City in negotiating solid waste related agreements and reviewing rate increases by City contractors for more than 10 years and has consistently and aggressively represented the City's interests in protecting the ratepayer, the City Council did not object to his continuing work for the City. 8. Disagree. As stated in answer to Finding #7 above, with regard to a conflict of interest on the part of the City's consultant (CPA), the City Council found no conflict. The City has no record of such discussion and disclosure in February 2012. 9. Disagree. See response to No. 8. Disagree. City staff and the ad hoc committee had extensive meetings with representatives of Solid Waste Solutions and Ukiah Waste Solutions. As is standard practice, the meetings and discussions with staff were not subject to the Brown Act and the ad hoc meetings were not subject to the Brown Act. As stated above Mike Sweeney and John McCowen were invited to participate in ad hoc committee meetings for a period of about a month before the new contracts were approved by the City Council. 11. Disagree. The City negotiated revisions to the existing Transfer Station Agreement with Solid Waste Systems, because it was negotiating revisions to an existing agreement. Moreover, Solid Waste Systems owns the transfer station property. When the existing agreement terminates in September 2016, the City would be entitled to title to the transfer station property and could negotiate with other companies, but not until then. The same was true of the Waste Collection Contract with Ukiah Waste Solutions. There was a request from Cold Creek Compost in Potter Valley to re-negotiate the existing agreement, regarding green waste and Cold Creek offered to accept food waste from the City. The City elected to continue the agreement that had been in effect since 2007, but to require Ukiah Waste Solutions to commence a food waste collection pilot program by July 2013, and a full program within six months thereafter. In proposing the full program, the agreement requires the presentation of alternatives to include other disposal options, including open air composting at Cold Creek Compost. Agree as to both the Waste Collection Contract and the Transfer Station Contract. 13. Agree. 14. Disagree. The City cannot verify "historical." The prior waste collection contract with Ukiah Waste Solutions called for automatic cost of living increases with a rate review every three years. The new contract calls for automatic cost of living increases with a full rate review every five years. 15. Disagree. The first sentence in this item is correct, but the City disagrees with the second sentence. City staff read and studied pertinent financial statements. 16. Agree. 17. Disagree. Neither the County of Mendocino nor the City of Fort Bragg required or used audited financial statements in connection with the recent long-term contract extensions of the existing waste haulers. 18. Agree, but see responses to both Numbers #1 and #11 for a complete explanation. The franchise holder and the City of Ukiah were already bound by contract; an opportunity for RFP was not present under law. The Grand Jury must also be aware that neither the County of Mendocino nor the City of Fort Bragg used an RFP process in the recent long-term contract extensions of the existing haulers. 19. Disagree. It is in the nature of a franchise agreement that the company awarded the franchise has the exclusive right to perform the franchised services. The City Code contemplates franchise agreements for a number of municipal services. The City has provided waste collection in the City through a franchise agreement with a single company for many years. The agreement assigned to Ukiah Waste Solutions began in 1992 and had been extended several times before it was assigned to Ukiah Waste Solutions in 2007. Due to the complexity of the solid waste industry, it is unrealistic to expect to bid out these services on a three to five year turn around. Such time frames do not provide for the investment necessary for current haulers to provide the range of services now required. It is a regular business practice in this industry to enter into exclusive long term franchise agreements to assure compliance with mandates as well as innovation for increased diversion rates. 20. Disagree. The father of one of the owners of SWS/UWS is a friend of the prior owner of those companies, but the prior owner is not involved in any manner in the operation of SWS or UWS. 21. Disagree. The agreements between SWS/UWS and City of Ukiah describe the parties involved in the agreements, and regulate the business practices involved in the services rendered. 22. Disagree. This is not true. The City has the right to audit financials during the "5 year rate reviews" and if the Company should request an increase based on "extraordinary events". 23. Disagree. Flow control was retained in the new agreements, and detailed procedure for approval from the City Council for a change in destination of materials was outlined specifically in Section 5.11 (d) of the Ukiah Waste Solutions Agreement, and Section 4 of the Solid Waste Systems, Inc. agreement. The approval of flow control by the City Manager in the former agreements was changed to the City Council, in the new agreements, as part of the subsequent meetings of the Ad/Hoc members after receipt of Mr. Sweeney's November 1, 2011, letter. 24. Disagree. Under the terms of the new SWS disposal contract with Lake County, providing for use of the Eastlake Landfill, disposal rates are frozen for 2012, 2013 and 2014 and will rise by 4% or CPI, whichever is higher, thereafter. SWS worked hard to negotiate these provisions, which assure reasonable disposal costs as well as protection, certainty and stability to disposal cost increases. 25. Disagree. The amended and restated transfer station agreement changes the calculation of transfer station gate fees. That method will no longer identify components of the fee, using the categories, including the construction cost component category, used in the prior agreement. Instead, Exhibit E to the contract contains the calculation of a base per ton and per yard gate fee to commence January 1, 2012. Each year thereafter, the rate will increase or decrease based on changes in the consumer price index and a fuel cost index, subject to full reviews every five years. The calculation of the base rate takes into account that after September 30, 2016, when the City will acquire ownership of the transfer station, SWS will lease the transfer station under a triple net lease. That means that it will be responsible and pay for all costs of operation, maintenance, repair, taxes and required capital improvements of the transfer station. The former construction cost component or $12.36 was included in the calculation of the SWS base rate. Until September 30, 2016, it will complete the payment of construction costs. When the lease begins in January 2017 $2.36 is allocated to the SWS costs under the lease attached as Exhibit F to the Transfer Station Contract and $10 is allocated to the lease payment required by the lease. The City will use the lease payment to cover the unfunded liability for closure and post-closure costs of the Ukiah Landfill. The City Council determined that a fixed amount $2.36 per ton in 2011 dollars to cover all future costs associated with the ownership, operation, maintenance, repair and capital improvement of the transfer station is a very good deal for City ratepayers and other transfer station customers. It concluded that the $10/ton lease payment to cover landfill closure and post closure costs should appropriately be paid by customers of the transfer station. These same customers used the Ukiah landfill for many years and should share the cost with Ukiah ratepayers of closing and monitoring the landfill. 26. Disagree. The savings from redirection of garbage from Potrero Hills landfill to Eastlake landfill was not underestimated. This issue was raised in the Sweeney letter. The Finance Director and the City's consultant examined Sweeney's calculations and satisfied the City Council that their original estimates were correct. 27. Disagree. Revenue from commodities, such as scrap metal, fluctuates greatly over time. The operator is required to provide scrap metal disposal services to the transfer station customers. In some years the value of this commodity will cover recycling processing and transportation costs relating to their final disposal. In other years the operator will sustain a loss in providing this service to the transfer station customers. In any case, the contractor is required to provide this service. The potential revenue and related recycling processing and transportation costs were taken into account in the City staff's analysis of the transfer station operation. The buy-back center is required by the City to promote recycling. It also provides a convenient recycling option for the transfer station customer. The potential revenue and related recycling processing and transportation costs were taken into account in the City staff's analysis of the transfer station operation. The buy-back operation was considered when the transfer station fees were proposed. The value of other recyclables discarded by the customer at the transfer station has been used to reduce the disposal rate for appliances to $10.00 from $15.30, a 35% savings to the customer. In most years the market value of these discarded recyclables will not cover the loss of revenue resulting from this reduced appliance disposal rate. In any case, the contractor is required to provide this service and subsidize the lower $10 rate if market value is insufficient to cover the recycling disposal costs of such appliances. 28. Disagree. Negotiations for the collection contract did not overlook the 2.56% rate increase that was to end in 2013. The previous rate had been implemented to cover the cost of entire fleet replacement necessary to meet state mandated regulations and to provide adequate equipment for curb side operations. Instead, the City negotiated for UWS to replace the fleet on an on-going, as needed, basis. Three improvements for rate payers resulted: 1) Continual as needed equipment replacement assures a fully operational and regulatory compliant fleet of trucks, instead of the previous practice which resulted in trucks breaking down, missing runs, and leaking on city streets, before the entire fleet could be replaced; 2) Rate payers are protected from additional capital replacement costs that occur over and above adopted rates for a given term; 3) Rate payers benefit from locking in a predictable and known amount devoted to fleet replacement for the term of the contract with an amount that motivates the company to buy replacement rolling stock at the best prices available in the market place. 29. Disagree. The contract provides for an annual adjustment of the recycling commodity credit. The curbside recycling commodity credit benefits the ratepayer. It insures that the rate payer will always benefit from a credit from the operator, against collection costs, of at least $5 per ton, even in years when the fair market value is less than $5 per ton. Going forward, the Contract provides that in any year in which the value is greater than $5, the rate payer will benefit from a credit, from the operator, equal to the fair market value of the commodities with no ceiling to that credit. Annually, the credit will be adjusted to fair market value per ton, based upon market value in the prior months. 30. Disagree. City Code Section §4483 has provided since 1989 that the City Council, with or without inviting bids, may enter into an exclusive contract with a business entity for collection of some or all recyclable materials in the City. It also allows the City to extend or renew a contract before or after it expires for any period of time and on terms deemed appropriate by the City Council. Section 4460 of the Ukiah City Code limits refuse collection contracts to an initial term of 15 years. That limit does not apply to a contract to collect recyclables and, in the opinion of the City Attorney; the Waste Collection Contract does not violate Section 4460. This issue was discussed during the City Council meeting and, in approving the contract; a majority of the City Council agreed that the term of the Waste Collection contract with Ukiah Waste Solutions did not violate the City Code. 31. Disagree. This response assumes that this finding refers to the Waste Collection Contract with Ukiah Waste Solutions. In the City's opinion the arbitration provisions in the contract do not limit its remedies which are ample and calibrated to be effective. Section 10.2.3 of that agreement provides that for 30 days after a dispute, the parties will attempt to mediate a resolution of the dispute. If the dispute is not resolved within 30 days, Section 10.3 provides for non-binding arbitration. However, non-binding arbitration is not required before an action can be filed in court to seek specific performance or other equitable relief or damages of $25,000 or less. After non-binding arbitration, where it is required, either party can file a law suit to resolve the dispute. Separate and apart from these dispute resolution procedures, the City has the following additional remedies under Section 10.2 of the contract, if the contractor is in material breach of the agreement: 1. Liquidated damages of $1,000/day for each day the breach continues. 2. The City has the right to terminate the agreement and to immediately grant a franchise to another company or to take possession of the contractor's trucks and equipment used by the contractor to perform the contract. 3. Any other remedy available in law or in equity. Finally, under Section 9.4 of the contract the contractor is required to post a $300,000 performance bond or financial instrument acceptable to the City to secure its faithful performance of the contract. 32. Disagree. Technology is evolving in this industry. The strategic plan provides the City of Ukiah a scope and vision for pursuing new solutions based on new technologies. Those solutions may result in reducing and ultimately eliminate the use of landfills. The City Council, as policy makers for the City of Ukiah, has determined that the pursuit of that goal is beneficial to Ukiah rate payers. The agreement includes a specific schedule for expanding waste diversion to include food waste with a pilot program to commence on or before July 1, 2013 and a full program to commence within six months thereafter. UWS is required to provide a detailed and comprehensive analysis of food waste diversion alternatives, including open air composting, in vessel composting and waste-to-energy systems using anaerobic digestion and related technologies. After the City Council considers this and other available information, it will decide which technologies make environmental and economic sense for Ukiah and which private companies to use in implementing the program. 33. Agree. Resolution 95-6 passed July 20, 1994, refers to support for an M & M Feed which proposed a commercial composting facility at Guntley Ranch in Mendocino County. The Resolution urged local, state and federal regulatory and financial agencies to issue permits and applications for the project. The City has been informed that M & M Feed was a predecessor to Cold Creek Compost. 34. Disagree. Assuming the reference is to Cold Creek Compost in Potter Valley, according to Trey Strickland, of Mendocino County Environmental Health Division, that facility was apparently fully permitted and allowed to accept food waste in 2008. 35. Disagree. This statement is incorrect. SWS (for operation of the Transfer Station) is the same corporate entity that has provided services at the Transfer Station since 2001. Ukiah Waste Solutions (UWS) (for solid waste, green waste and recycling collection) was a new provider for the curbside business when it purchased the franchise in 2007. These are separate corporate entities, and perform separate and distinct functions. 36. Agree. Cities do not perform audits. Audits are performed by independent Certified Public Accountants (CPAs). 37. Agree that C & S Waste Solutions describes itself on its website as a family of integrated companies. The City does not know the precise number of companies which are interrelated or the exact ownership of each company. It does know the relationship with and the ownership of the companies which provide waste collection and disposal services for the City, including Solid Waste Solutions, Ukiah Waste Solutions, and Pacific Recycling Solutions. It ascertained whether costs shared by more than one company were appropriately allocated to the companies contracting with or providing waste handling services to the City and concluded that the ratepayers actually benefit from the increased efficiency of multiple companies being able to share equipment and other expenses. 38. Disagree. Expenses paid by either SWS or UWS to related companies are carefully monitored and must be reasonable and market-based. These were reviewed by the City when the 2011 agreements were negotiated and will be reviewed again at the 5 year rate review. 39. Disagree. The proposed agreements were both published in the City of Ukiah agenda on Thursday October 27, 2011, and were available to the public through the date the City Council took action on this item, Wednesday December 7, 2011, a time span of 43 days. 40. Disagree. According to Trey Strickland, REHS, Mendocino County Environmental Health Division, who supervises the solid waste program (LEA-Local Enforcement Agency) for Mendocino County Environmental Health Division, which is the local representative for Cal Recycle, the State of California's permitting agency for solid waste and composting facilities, none of the three alleged compliance issues in Finding #40 is true. Mr. Strickland has informed the City that he sent a notice to the Grand Jury with this information. Two owners of SWS and UWS operate a green waste composting facility through Mendocino Earth Products, LLC, and a joint venture with the owner of SWOW, on Old River Road. This facility is commonly referred to as "Sagehorn". 41. Disagree. Pursuant to the new UWS collection agreement, plans are underway to initiate a pilot commercial food waste composting program in the fall of this year. The agreement requires a full-fledged food waste program for all customers after completion of the pilot Green waste is not trucked to Humboldt County for cogeneration as alleged. program. Only wood waste is used for this purpose and only within the constraints of applicable law, in accordance with the limitations imposed by the City in the new agreements. All green waste collected by SWS/UWS is composted at either Cold Creek Compost or at the Sagehorn facility 42. Disagree. The arrangements in the UWS agreement for delivery of green waste to Cold Creek Compost continue unchanged from the previous agreement. Moreover, these arrangements date back to 2007 and were voluntarily agreed to by the owner of Cold Creek Compost, who was represented by legal counsel, as a condition to getting an assured stream of material from the City rather than rely on normal market conditions. Cold Creek Compost had previously been charging City residents a substantially higher price for composting their green waste. The City does not control the tip fees charged by Cold Creek Compost, and claims no authority to do so. 43. Disagree. The relevance of this Finding is unclear. It appears to be an opinion summarizing a new state law. 44. Disagree. An application has been filed with the County of Mendocino and this application includes food waste composting. 45. Disagree. This statement is vague and nonspecific. The City is unable to respond. 46. Disagree. Agree except with statement that the City's franchised waste hauler has avoided the collection of food waste for 17 years. Contrary to the report's statement that Cold Creek Compost was licensed to accept food waste since 1995, the Mendocino County Department of Environmental Health confirms that Cold Creek Compost was not licensed until 2008 to receive food waste. Therefore, neither the City of Ukiah nor its waste hauler has avoided this type of collection for 17 years. Rather, the new Waste Collection contract with UWS requires a pilot program collecting food waste from commercial and industrial accounts on or before July 2013 and a full food waste collection program within six months thereafter to determine the best service solution for the City's ratepayers.