February 3, 2004

SUBJECT: Replacement of Diesel Refuse Collection Trucks with Grant Assistance—INFORMATION ONLY

REPORT IN BRIEF

Bay Counties Waste Services (BCWS) is the franchised waste and recycling hauler for the City of Sunnyvale. On November 11, 2003, the City Council voted to accept a BCWS proposal to extend its contract another seven years. This lengthens the existing contract, which would have expired in 2011, to 27 years, terminating in 2018. As part of the extension, BCWS proposed to reduce the cost of the contract by extending the depreciation on trucks and equipment from five and seven years respectively, to 10 years for both. As provided in the contract, BCWS submitted the new depreciation schedule as an Incentive Program, which means that BCWS will retain 50% of those savings, and the City’s ratepayers will realize the other 50%. Staff is working to prepare a contract amendment that implements the Council’s direction.

The City is currently in the middle of a $250,000 Bay Area Air Quality Management District (BAAQMD) grant, that is to be applied towards a BCWS purchase of five compressed natural gas (CNG) trucks. The new vehicles replace diesel engine collection trucks that have been in service for seven years. The first truck was delivered September 2003, leaving four to order.

These four trucks would have been the first to be affected by the new 10-year depreciation, since originally they were to be replaced following seven years of service. If the order for these four trucks was delayed per the new 10-year schedule, there would be about a $270,000 cost savings from the extended depreciation. The City would realize 50% of that cost savings, or about $135,000, but would lose $200,000 in grant revenue, for a net loss of around $65,000 for the City’s ratepayers. Therefore staff has concluded it would be more cost-effective to direct BCWS to proceed with purchasing these four trucks rather than follow the new 10-year replacement schedule. Unless the Council advises otherwise, the Solid Waste Division will ask BCWS to continue as scheduled with this project.

BACKGROUND

In Spring of 2000, the City initiated a long-term project to convert the BCWS refuse fleet to compressed natural gas (CNG) vehicles. The intent of this initiative is to reduce local pollution from diesel particulates. This process was assisted financially by grant funds from the BAAQMD, of which Council Member Miller is a Board Member. Grants are available to public entities where equipment, such as refuse vehicles, is purchased by private companies and used for a public service. Each truck costs approximately $270,000, and CNG conversion is about $60,000 of that cost. The grants help pay the incremental cost of the CNG conversion, up to $50,000 per truck. To date, 25 CNG trucks out of 40 have been purchased with grant funding.

On November 11, 2003, the Council voted to accept a BCWS proposal to extend its contract with the City for seven more years, creating a 27-year contract expiring in 2018. As part of the request, BCWS submitted an Incentive Program proposal that extends the depreciation schedule on equipment and rolling stock from five and seven years respectively, to 10 years. The cost savings realized from this change is split 50/50 between the contractor and the City.

On November 26, 2002, the Council approved the current grant agreement with BAAQMD that provides for five additional CNG trucks. These trucks were up for replacement because they were all at the end of the seven-year depreciation schedule. The first new truck arrived in September 2003, and the other four are scheduled to arrive in August 2004. These four would be the first to be purchased subsequent to the Council’s decision implementing the 10-year depreciation schedule.

EXISTING POLICY

Air Quality Sub-Element – Goal A: Improve Sunnyvale’s Air Quality and reduce the exposure of its citizens to air pollutants.

Air Quality Sub-Element – Policy C.4: Reduce Emissions from City of Sunnyvale fleet vehicles.

Solid Waste Sub-Element—Policy 3.2A.1: Provide convenient, competitively priced solid waste collection services.

DISCUSSION

To be consistent with the newly approved 10-year replacement schedule, the four CNG trucks to be delivered in August 2004 should be delayed three years. If delayed, the City would realize 50% of the savings on depreciation, totaling about $135,000. However, this delay would also mean canceling $200,000 in grant funding for these vehicles, creating about a $65,000 net loss for the City’s ratepayers. It is possible, but by no means certain, that future grant funding will be available when CNG trucks are next ordered. Given this uncertainty, staff believes it prudent to acquire the trucks now and capture the currently available grant funding. Unless directed otherwise by the council, staff will proceed with this refuse truck replacement project as scheduled.

PUBLIC CONTACT

Notice has been provided through the publication and posting of the City Council Agenda.  In addition, all Reports to Council are available in the Library and on the City’s internet home page. 

Prepared by:

Mark A. Bowers
Solid Waste Program Manager

Reviewed by:

Marvin A. Rose
Director, Public Works 

Approved by: