Follow-Up on Recommendations from Report No. 17-06, Audit of the City’s Recycling Program

from Honolulu City Auditor, May, 2022

Background

This is a follow-up audit to the Audit of the City’s Recycling Program, Report No. 17-06. In December 2015, the Honolulu City Council adopted Resolution 15-315, requesting a performance audit to determine the effectiveness of the city’s recycling efforts and the effectiveness of specific recycling programs, such as the white bin program. The completed audit was issued in October 2017.

The Department of Environmental Services (ENV) is responsible for the city’s recycling programs. The ENV Division of Refuse Collection and Disposal is responsible for planning and administering the City and County of Honolulu’s municipal solid waste management program. This program includes solid waste reduction and recycling programs; collecting and transporting solid waste from single family homes; maintaining and collecting waste facilities (such as drop-off convenience centers, transfer stations, landfills, and collection yards); and managing the city’s Honolulu Program of Waste Energy Recovery (H-POWER) waste-to-energy facility.

The auditor’s conclusion to the original audit found that ENV needs to better implement parts of its recycling program. Specifically, the city has been effective in its efforts to divert municipal solid waste, as more than 75 percent of municipal solid waste has been diverted annually since 2012, and recycling has contributed significantly to landfill diversion. However, the market for selling and buying recycled waste has declined, and revenue from the sale of solid waste is insufficient to offset the costs of processing the recycled waste collected. Solid waste disposal costs can be reduced by diverting recyclable waste to the H-POWER waste to energy facility.

The community recycling program, known more commonly as the white bin program, was no longer viable. While community recycling was initially a cost-efficient way to collect mixed recyclables, its cost-efficiency declined after the 2008 service contract due to increased collection costs and the start of island-wide curbside recycling collections which impacted the original cost and collection estimates and reduced the actual collections.

The audit offered 10 recommendations:

1. (In Process) Initiate changes to city and state laws and/or permits to allow the city to divert recyclable materials to H-POWER.

2. (Completed) Evaluate the long-term financial cost of city recycling programs and the ability of those costs to be offset by revenue or cost recapture provisions in recycling processing contracts.

3. (Completed) Establish contract specifications that would allow for periodic adjustments to contract rates and guaranteed volumes based on changes in market conditions, price indexes, and material recovery volume.

4. (Completed) Amend or re-bid recycling processing contracts that are cost unfavorable in either rates or volume guarantees if such action prior to the expiration of a contract would result in an overall cost savings.

5. (In Process) Modify or cancel contracts that guarantee specific amounts of waste and guarantee electrical revenues to contractors.

6. (In Process) Reduce city payments to contractors for waste that was never processed by modifying or cancelling contracts for recycled materials.

7. (Completed) Encourage efforts toward source reduction through community education and support of legislative change to affect the amount of solid waste generated, reduce the volume to be recycled or otherwise disposed of, and which decrease overall collection and disposal costs.

8. (In Process) Pursue changes to state law, solid waste permits, and city ordinance that would encourage the most cost and environmentally effective reuse of recyclable materials including, but not limited to, conversion to energy through processing at the H-POWER waste-to-energy facility.

9. (Completed) Continue working with community groups on educational programs to promote source reduction and recycling.

10. (Completed) Not renew the School/Community Recycling (white bin) Program.

In response to the 2017 audit, ENV and the managing director concurred with the audit recommendations. ENV stated it would pursue changes in city and state laws to give flexibility in sending recycled materials to H-POWER and to maximize the recycling of materials based on environmental and economic benefits. The department also stated it would continue to amend or terminate unfavorable contract terms; avoid waste guarantees in future contracts; address paying for waste that was never processed; and use public information programs to reduce waste at the source.

The objective of this current follow-up audit is to report on the status of ENV’s implementation of the original 10 recommendations made in Report No. 17-06.

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Modify or cancel contracts that guarantee specific amounts of waste and guarantee electrical revenues to contractors. In its response to Report No. 17-06, the department generally concurred with this recommendation. ENV has one contract that includes a guarantee for waste and electrical revenues. Future contracts to generate electricity will consider the best methods to identify the appropriate recipients of electricity and provide the best benefit to the city. However, minimum tonnage guarantee contracts are a common industry practice for recycling contracts. Recycling companies rely on consistent material throughout to sustain marketing agreements and ultimately business operations. This model reflects the need for contract service providers to cover the costs of their investment in facilities and the operation costs that do not vary based on volume.

STATUS UPDATE The department’s Refuse Division has one contract that includes a commitment to deliver a certain amount of waste to the facility for the contractor to process with the contractor providing a certain electrical revenue. In the event that amount of waste is not delivered, ENV is required to financially compensate the contractor. In addition, if the contractor doesn’t meet the annual processing guarantee, it owes the city lost electric energy revenues. Since the 2017 audit, this contract has not expired or has been re-bid. However, ENV will eliminate waste guarantees in future contracts where it is practical and economical to do so.

The Covanta-operated H-POWER plant contract guarantees both specific amounts of waste and electrical revenues to contractor. The Waste Processing and Disposal Services Contract for the H-POWER project between the City and County of Honolulu and Covanta Honolulu Resource Recovery Venture, last amended on December 17, 2009, guarantees at least 800,000 tons of waste per year as well as minimum annual levels of electrical revenues to contractors for 20 years. We conclude that this recommendation is in process.

NEXT STEPS

We encourage the department to modify this existing contract when the contract is to be renewed.

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Reduce city payments to contractors for waste that was never processed by modifying or cancelling contracts for recycled materials.

In its response to Report No. 17-06, ENV concurred with this recommendation to the extent it is permitted under the contract and procurement code. The department stated it is best to address this issue of paying for waste that was never processed in the phases of developing contract specifications and procurement.

STATUS UPDATE We reviewed updated and additional data provided by the department and concluded that ENV is in the process of completing this recommendation. There are two unexpired contracts that deal with city payments and waste guarantees.

• The Waimanalo Gulch Sanitary Landfill contract with Waste Management of Hawaii states that the city will provide 250,000 tons of waste per year for $51.19 per ton. For each additional ton, the service fee is $3.41. The contract terms run through December 31, 2024. The fee can be adjusted by 100 percent of the percentage change (year-over-year) during the immediately preceding calendar year in the Consumer Price First Half Index for All Urban Consumers (All items) for Honolulu, HI.

• The Green Waste Conversion Facility contract originally guaranteed a minimum 100,000 tons of green and food waste, and sewage sludge per year. However, the contract was amended to guarantee a minimum only green waste remaining and having a guarantee of 75,000 tons. The price adjustment is done by a CPI-based adjustment, and this is done annually with the current rate per ton of $83.13 effective April 1, 2021. The contract was signed in December 2013 and goes for ten years starting upon the Commercial Operations Date.

NEXT STEPS We encourage the department to modify these existing contracts when the contracts are to be renewed.

read … Full Report

2017: Audit: City Loses $36.5M by Not Recycling Paper and Plastic into Electricity