CC 2013-01-08_11.b. Consider Change to Refuse Collection Bin SizeMEMORANDUM
TO: CITY COUNCIL
FROM: STEVEN ADAMS, CITY MANAGER I
SUBJECT: CONSIDERATION OF CONCEPTUAL CHANGES TO REFUSE
COLLECTION BIN SIZE OPTIONS AND RATE STRUCTURE
DATE: JANUARY 8, 2013
RECOMMENDATION:
It is recommended the City Council approve: 1) the addition of a 20 gallon size bin to be
offered by South County Sanitary Service (SCSS); and 2) Alternative 5 proposed
conceptual changes to the rate structure.
IMPACT ON FINANCIAL AND PERSONNEL RESOURCES:
There is no cost to the City or impact on staff resources related to the proposed action.
BACKGROUND:
On November 12, 1997, the City entered into a franchise agreement with SCSS for
collection, diversion and disposal of solid waste. On August 24, 1999, the City also
entered into a franchise agreement with SCSS for recycling services. The agreements
specify procedures for rate adjustment requests, review and approval. At the June 10,
2008 meeting, the City Council approved an Amended and Restated Solid Waste
Collection, Recycling and Greenwaste Franchise Agreement (Franchise Agreement)
with South County Sanitary Service, which extended the franchise for a 15-year period.
Per the Franchise Agreement, rate review is established in accordance with the "City of
San Luis Obispo Rate Setting Process and Methodology Manual for Integrated Solid
Waste Management Rates" (Manual). The Franchise Agreement allows for a base rate
adjustment every three years and interim rate increases in the other years. In interim
rate adjustment periods, the operator is limited to increases resulting from inflation,
tipping fee adjustments, and franchise or regulatory fee increases. During base rate
adjustment years, the operator is able to request increases due to changes in other
operational costs as set forth in the Manual. In order to better control future cost
increases, the City also negotiated in the most recent franchise a clause providing the
ability to terminate the agreement if rate increases ever exceed the cumulative cost of
living increase up to that date.
Item 11.b. - Page 1
CITY COUNCIL
CONSIDERATION OF CHANGES TO REFUSE COLLECTION BIN SIZE OPTIONS
AND RATE STRUCTURE
JANUARY 8, 2013
PAGE2
The City received and approved a 5.15% interim year rate increase from SCSS in
December 2011. During the review of that increase, the City Council requested SCSS
to present an option of including a 20 gallon refuse bin at a lower fee in the rate
structure the next time a rate increase application is submitted. On September 26,
2012, the City received a rate increase request of 3.2%. As a result, staff requested
SCSS to submit alternative rate structures that includes offering customers a 20 gallon
bin.
ANALYSIS OF ISSUES:
The purpose of providing the 20 gallon option for single family residential (SFR)
accounts is to provide those on fixed incomes, seniors and smaller households a lower
cost and to provide relief from the higher cost of a bigger bin by reducing their waste
flow. It also provides an incentive to reduce waste, which can help extend the life of the
landfill.
However, residents that select the 20 gallon option will reduce overall revenues, which
will then need to be recovered through bigger increases for other customers. As the
City has experienced with tiered water rates, the more variable the rates are
established, the lower the low volume customers' rates and the higher the high volume
customers' rates.
San Luis Obispo, Morro Bay and Los Osos have all established an option of providing
20 gallon bins. There has not been a standard rate structure established within the
County. The following are existing rates in each of these jurisdictions:
Size San Luis ObiSQO Morro Ba~ Los Osos
20 Gallon $8.16 $9.30 $12.01
32 Gallon $13.04 $14.88 $17.08
64 Gallon $26.08 $29.76 $26.22
96 Gallon $39.12 $44.64 $31.88
SCSS's General Manager has submitted four options in addition to the proposed new
rates for the existing rate structure. The rate structure needs to be decided prior to
consideration of the actual rate increase because a 45 day advance public notice is
required prior to the public hearing on the rate increase per Proposition 218.
The numbers presented include the proposed increase for comparison purposes only.
Please note that the purpose of this item is only to select the preferred rate
structure alternative at this time. Discussion and consideration of the rate increase
will be scheduled for the February 26th meeting, after the protest hearing process is
complete. Staff requested that the consultant reviewing the SCSS rate increase
application for 2013 also review the "reasonableness" of SCSS's analysis of the impact
of adding a lower-cost service option on other customers. As reflected in the attached
report, he concludes that SCSS's underlying assumptions in analyzing rate impacts
Item 11.b. - Page 2
CITY COUNCIL
CONSIDERATION OF CHANGES TO REFUSE COLLECTION BIN SIZE OPTIONS
AND RATE STRUCTURE
JANUARY 8, 2013
PAGE 3
provides a reasonable basis for the Council's consideration of the various rate structure
alternatives. However, he also notes that while reasonable, the assumptions are just
that: assumptions. The actual impact will not be known until the new rates are in place.
As such, rate structure modifications to ensure revenue neutrality may be required in
the future.
ALTERNATIVES:
Five alternatives are presented for consideration. Alternative 1 is the existing rate
structure with no 20 gallon option. Alternative 2 is modeled after the existing Los Osos
rate structure. Alternative 3 is modeled after the City of San Luis Obispo rate structure.
Alternative 4 attempts to spread the increased costs evenly among the remaining bin
sizes. Alternative 5 attempts to spread the increased costs evenly among the remaining
bin sizes, as well as to commercial accounts.
Size
20 Gallon
32 Gallon
64 Gallon
96 Gallon
ADVANTAGES:
Alternative 1
$15.97
$20.75
$25.55
Alternative 2 Alternative 3 Alternative 4 Alternative 5
$10.87 $8.16 $10.98 $10.34
$15.93 $13.04 $17.57 $16.54
$25.07 $26.08 $22.83 $21.50
$30.73 $39.12 $28.11 $26.47
Alternative 5 is recommended because it provides the 20 gallon alternative requested
by the City Council, which will provide rate relief for some on fixed incomes and
encourage more recycling, but will also minimize the impact on all other customers.
DISADVANTAGES:
Adding the 20 gallon alternative will result in bigger increases to other customers than
maintaining the existing rate structure. Alternative 5 will not provide as significant as an
incentive to recycle as the other alternatives and will also impact commercial customers.
ENVIRONMENTAL REVIEW:
No environmental review is required for this item.
PUBLIC NOTIFICATION AND COMMENTS:
The agenda was posted in front of City Hall on Thursday, January 3, 2013 and on the
City's website on Friday, January 4, 2013. No public comments were received. Once
the rate structure is selected, South County Sanitary Service will be required to mail
notices to all customers and property owners 45 days prior to the public hearing per
Proposition 218 regulations.
Attachment:
1. Memorandum from William C. Statler: Impact of Adding Lower Cost Service Option
Item 11.b. - Page 3
• •
Attachment 1
124 Cerro Romauldo Avenue
San Luis Obispo, CA 93405
805.544.5838 • Cell: 805.459.6326
bstatler@pacbell.net
www.bstatler.com
MEMORANDUM
December 20, 2012
TO: Steve Adams, City Manager
FROM: Bill Statler
SUBJECT: IMPACT OF ADDING LOWER COST SERVICE OPTION
This report is in response to your request for my review of the "reasonableness" of the
analysis prepared by South County Sanitary Service (SCSS) on the impact of adding a
lower-cost service option (20-gallon refuse bin) on other customers. The following
summarizes the results of my review:
• SCSS's underlying assumptions in analyzing rate impacts provides a reasonable basis
for the Counci I' s consideration of the various rate structure alternatives.
• However, while reasonable, the assumptions are just that: assumptions. The actual
impact will not be known until the new rates are in place. As such, rate structure
modifications to ensure revenue neutrality may be required in the future.
DISCUSSION
Background
During its review of the SCSS "interim year" application for a 5.15% rate increase in
December 20 II (which was approved at that time), the Council requested SCSS to
present an option of including a 20 gallon refuse bin for single family residential (SFR)
customers at a lower fee in the rate structure the next time a rate increase is submitted.
(Currently, the lowest cost SFR service option is a 32-gallon refuse bin.)
On September 26, 2012, the City received a rate increase request from SCSS of 3.2%. As
a result, staff requested SCSS to submit alternative rate structures that offer SFR
customers a 20 gallon bin option. In response to this request, the SCSS General Manager
prepared and submitted five "revenue neutral" options (including the existing rate
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Item 11.b. - Page 4
Impact of Adding Lower Cost Service Option
structure) that would add the lower cost service and adjust other rate categories upwards
in order to offset reduced revenues.
Rate Structure Analysis
SCSS has prepared detailed spreadsheet models of the impacts of adding a lower-cost,
20-gallon refuse bin based on the customer make-up for similar service options in San
Luis Obispo and Los Osos (Alternatives 2 and 3). Alternative 4 allocates revenue losses
evenly among the other SFR accounts. For these three options, revenue losses are
distributed solely among SFR customers. SCSS also prepared a "hybrid" option
(Alternative 5) that allocates some of the revenue loss to non-SFR customers).
Assuming the SCSS rate increase request of 3.2% is approved, the following summarizes
the five SFR rate structure options prepared by SCSS:
Alternative 5
SFR Alternative I Alternative 2 Alternative 3 Alternative 4 Some Loss to
Service Current San Luis Los Osos Spread Loss Non-SFR
Type Rate Structure Obispo Model Model Evenly Accounts
20 Gallon -$10.87 $8.16 $10.98 $10.34
32 Gallon $15.97 $15.93 $13.04 $17.57 $16.54
64 Gallon $20.75 $25.07 $26.08 $22.83 $21.50
96 Gallon $25.55 $30.73 $39.12 $28.11 $26.47
In reviewing the underlying assumptions and analysis for each of these alternatives, I
believe that each one provides a reasonable basis for the Council's consideration of the
benefits and impacts of adding a lower-cost service option. There are pros and cons for
each ofthem, which the Council will need to weigh in its policy deliberations. However,
regardless of which option the Council adopts, it can do so with confidence that there are
sound analytics supporting each one in reasonably assuring revenue neutrality.
Rate Structure Impacts. As reflected above, while the impacts vary between options, all
of them will require rate increases in other customer rate categories, due to the simple
fact that the lower revenues generated by this lower cost service must be offset by higher
revenues from other customers. This is true regardless of whether a rate increase is
approved by the Council in February 2013: the relative difference between rates under
each of the options will remain the same.
For example, separate and distinct from any rate increase that the Council may approve,
offsetting revenue losses under Alternative 5 (which has the least impact on other SFR$
customers) will require a 3.6% rate increase for 32, 64 and 96 gallon SFR customers as
well as for commercial accounts.
On the other hand, Alternative 5 also provides for a significant rate decrease of 35% for
32-gallon customers who switch to 20-gallon refuse bins.
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Item 11.b. - Page 5
Impact of Adding Lower Cost Service Option
SUMMARY
In reviewing the supporting documentation prepared by SCSS in assessing the impact of
adding a lower-cost service option, I have concluded that the options developed by SCSS
provide a sound basis for the Council's consideration of the various rate structure
alternatives in reasonably assuring revenue neutrality. However, while reasonable, the
underlying assumptions that drive the results are just that: assumptions. The actual
impact will not be known until the new rates are in place. As such, rate structure
modifications to ensure revenue neutrality may be required in the future.
Please call or email me if you have any questions concerning the report findings.
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Item 11.b. - Page 6