Recology to refund overcharged customers nearly $95 million

As a result of the ongoing investigation into City Hall corruption, San Francisco’s trash and recycling collection company has agreed to pay out nearly $95 million to overcharged customers, City Attorney Dennis Herrera said during a press conference Thursday.

Herrera said Recology rates were unfairly increased in 2017 at the recommendation of former Department of Public Works Director Mohammed Nuru to The City’s Refuse Collection and Disposal Rate Board. Nuru is the subject of a federal and city probe into allegations that he accepted bribes from city contractors, city officials and nonprofit organizations.

As part of a settlement in a lawsuit that Herrera filed Thursday, Recology agreed to refund residential and commercial customers a total of $94.5 million and reduce rates from April through June. In total, ratepayers are expected save over $100 million.

Herrera said the exact refund amount will depend on how long the ratepayer has been with Recology, but added that the average residential customer could receive about $190 in refunds by Sept. 1.

Also as part of the settlement agreement, Recology will be prohibited from making gift donations to city employees or contributions to nonprofits at the behest of city employees for four years.

A City Attorney’s Office investigation revealed that Recology failed to report accurate revenues they expected to receive from customers when they applied to increase rates in 2017.

The error went unnoticed and resulted in a recommendation to increase rates by 14 percent when accurate revenue only supported a 7 percent increase.

Herrera said while Recology later informed DPW of the error in 2018, the department took no action to disclose or fix the discrepancy. Instead, Recology continued to collect fees from customers at the incorrect rate for more than two years.

Herrera said:

“With this legal action, we are making San Francisco ratepayers whole and sending a clear message that … cozying up to regulators won’t be tolerated.”

He added:

“Mohammed Nuru may have had his challenges in keeping San Francisco streets clean, but he clearly excelled at cronyism, slush funds, and indifferent oversight.”

The City Attorney’s Office said they were made aware of the error by Recology’s counsel just last December.

In statement, Recology’s CEO Sal Coniglio said making customers whole again for this mistake is the company’s top priority:

“As soon as we learned of the mistake, we took immediate action. We are grateful to the City Attorney for helping us reach a resolution that benefits our San Francisco customers. We are reviewing our internal processes and working with the City to ensure an issue like this never reoccurs.”

Officials said part of The City’s civil investigation showed Nuru regularly soliciting funds from Recology to benefit himself and his employees in spite of a city law that forbids the giving and receiving of gifts by companies doing business with city officials or their departments.

The lawsuit alleges Recology and its affiliated companies provided money, meals and accommodations to city officers and officials to influence decisions that benefited the company.

Officials said in some cases, gifts were funneled and concealed through nonprofit groups.

U.S. Attorney David Anderson filed charges in November against Paul Giusti, a former Recology executive, for bribery and money laundering. The federal complaint alleges Giusti bribed Nuru with money and benefits in order to influence Nuru’s decisions in favor of Recology.

In one of the alleged schemes, federal officials say Giusti donated money from Recology to a nonprofit for children, but the funds were instead used to throw annual holiday parties for Nuru and some DPW employees.

Controller Ben Rosenfield, who partnered with Herrera’s office to investigate Nuru and city contracts, said in a statement:

“The ramifications of our work with the City Attorney on this investigation are not abstract—there are real financial consequences for San Franciscans.”

Acting DPW Director Alaric Degrafinried said in a statement that the department is in a “new chapter” and committed to ensuring a fair and transparent process.

Mayor London Breed said she was appalled by the realization that Recology had overcharged customers for years. In a statement, the mayor said:

“Not only will this make a difference for people who are struggling in this moment, but also it sends a message to everyone—from the corporations and city contractors doing business with the City to the individuals working on the City’s behalf—that we will hold everyone accountable.”