The waste hauler with a monopoly on San Francisco refuse collection is facing another round of pointed questions, as a new report from the city controller says the company “netted profits of $23.4 million over and above” their rate-setting agreement with the city.
At Tuesday’s Board of Supervisors meeting, the supes will hash out how to structure the new Department of Sanitation and Streets that will handle street-cleaning within the Public Works department. That change is being made in the wake of the ongoing Mohammed Nuru public corruption scandal, wherein Nuru admitted to accepting bribes, and in one of those cases, allegedly took bribes from a then-Recology executive to allow the waste management company to jack up consumer rates.
Recology has agreed to reimburse SF customers to the tune of $101 million to patch up that loss of goodwill. But now we’re seeing another, shall we say “irregularity” with Recology rates. While this has nothing to do with the whole Mohammed Nuru mess, the Chronicle picks up on a city controller report that says Recology netted $23.4 million more in profits than was allowed under their 2017 Rate Application that the city approved.
In short, that 2017 rate deal allowed Recology to make a 9% profit on their arrangement to collect all city’s residential and commercial trash pick-up. As the full 49-page report “Public Integrity Review” from the city controller claims, “Recology’s actual profit margin was higher than the allowed 9 percent because its expenses were regularly lower than projected.”
The report adds, “These are actual profits even after Recology paid the $101 million settlement,” and this windfall would have been even larger if not for commercial businesses being closed and not needing trash pick-up during the pandemic.
“Recology needs to make it right for ratepayers when erroneous projections allow for profits well above the permitted margin,” City Attorney Davi Chiu said in a statement. “The rate setting process must be transparent, accurate, and include a mechanism for reconciling actual results with initial projections.”
We should note that Recology disputes these findings (though they have not yet said which findings they disagree with). Moreover, they say the 9% figure is a target rate, and not legally binding.
“We have shared these concerns with the Controller’s Office; we welcome the continued discussions with the City, as we seek to usher in a new era of accountability,” Recology CEO Sal Coniglio said in a statement to the Chronicle. “Ultimately, we share the same goal: providing the most environmentally sound refuse service, at competitive rates, with a fair wage for our employee-owners.”
The city probably cannot win a settlement similar to the $190 customer refund checks that was borne of the Nuru overpayments. But the city controller does recommend Recology put that $23.4 million "into a balancing account or a comparable mechanism” that would offset any future rate increases. Recology is currently under no obligation to do this, and they already have that money. Whether it can or would be clawed back, and whether they even accept these numbers, will be a sign of whether they are still in a penitent phase post-Nuru, or whether they feel that’s all bygones now.
But speaking of that Board of Supervisors meeting today the Chronicle reports that Supervisor Aaron Peskin will introduce some measure at the meeting to “request the beginning of a new trash rate-setting process where the credit will be used.”