CC 2014-05-27_09.b. Solid Waste Collection Rate IncreaseMEMORANDUM
TO: CITY COUNCIL
FROM: DEBBIE MALICOAT, DIRECTOR OF ADMINISTRATIVE SERVICES r
SUBJECT: CONSIDERATION OF REQUEST FROM SOUTH COUNTY SANITARY
SERVICE FOR INTEGRATED SOLID WASTE COLLECTION RATE
INCREASE
DATE: MAY 27, 2014
RECOMMENDATION:
It is recommended the City Council adopt the attached resolution establishing integrated
solid waste collection service rates.
IMPACT ON FINANCIAL AND PERSONNEL RESOURCES:
There is no impact on staff resources related to the proposed action. There will be a
minor increase in franchise fee revenue from the increase and a minor increase to the
City's cost for solid waste collection.
BACKGROUND:
The City has had a Franchise Agreement with SCSS for collection, diversion and
disposal of solid waste since 1997. The agreement was most recently amended on
June 10, 2008, 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 periods, the operator is limited to increases resulting from inflation, tipping fee
adjustments, and franchise or regulatory fee increases. During base rate years, the
operator is able to request adjustments due to changes in other operational costs as set
forth in the Manual.
The City received a base year rate increase request of 3.2% from SCSS in September
2012, which was approved May 2013. The interim rate increase request of 2.05% was
received by the City in September 2013. Due to delays related to the County's authority
to regulate rates at the Cold Canyon Landfill, the interim rate application has been on
hold until that issue was resolved.
ANALYSIS OF ISSUES:
The City again jointly contracted with consultant Bill Statler to prepare a review of the
rate increase request to determine if it complies with the provisions of the City of San
Item 9.b. - Page 1
CITY COUNCIL
INTEGRATED SOLID WASTE RATE INCREASE
MAY 27,2014
PAGE 2
Luis Obispo Rate Setting Process and Methodology Manual for Integrated Solid Waste
Management Rates. Mr. Statler has expertise on rate adjustments since he was
responsible for development of the Manual when he served as the Director of Finance
for the City of San Luis Obispo and has provided similar services to the City of Arroyo
Grande in the past. A copy of the review is attached and Mr. Statler will present the
findings at the City Council meeting. Although he has some specific recommendations
for consistently applying methodologies in the future, he has determined the basis for
the rate increase request is consistent with the Manual. The recommendations include
submission of the rate application in August, consistently using June to June data for
CPI calculations and using the June 2009 CPI-U index as the starting benchmark for the
cumulative CPI calculation. As a result, staff recommends approval.
The review was contracted for jointly with the City of Pismo Beach, City of Grover
Beach and Oceano Community Services District. Each agency is scheduled to consider
the rate increase during May and June 2014.
The proposed change in monthly rates for residential accounts is as follows:
32 gallon container:
64 gallon container:
96 gallon container:
Current rate-$15.97
Current rate-$20.75
Current rate-$25.55
New rate-$16.30
New rate -$21 .17
New rate-$26.07
In compliance with Proposition 218, notices of the proposed rate increase were mailed
to record property owners (and tenants responsible for the account) more than 45 days
prior to the public hearing. If, at the conclusion of the public hearing, written protests
against the proposed rate increase are received from a majority, the City Council may
not adopt the proposed rates. There are currently 6159 accounts. Therefore, 3,080
would represent a majority. At the time the report was prepared, there were 4 protest
letters received.
The City Council consistently places a high priority on ensuring that increases in rates,
fees and taxes levied on the City's residents are minimized as much as possible. While
the Manual provides limited discretion to the Council when reviewing individual rate
increases, it is important to emphasize the efforts by Council to institute rate increase
protections into the process and Franchise Agreement. The Manual was designed to
ensure that the operator can only be reimbursed for appropriate and reasonable costs
through their rates. Most importantly, a clause was added to the Franchise Agreement
that provides the City with the ability to terminate the Agreement if rate increases
exceed the cumulative increase in the consumer price index up to that date. As a
result, while the operator would otherwise be allowed a 2.78% increase under the
provisions of the Manual, they have requested only a 2.05% increase due to the "cost of
living" limitation.
Item 9.b. - Page 2
CITY COUNCIL
INTEGRATED SOLID WASTE RATE INCREASE
MAY 27,2014
PAGE 3
ALTERNATIVES:
The following alternatives are provided for City Council consideration:
1. Adopt a Resolution approving the rate increase of 2.05%;
2. Do not approve an increase if justification cannot be found in the rate review;
3. Do not approve an increase if a majority of protests are received; or
4. Provide direction to staff.
ADVANTAGES:
Approval of the rate increase is consistent with the terms of the existing Franchise
Agreement. Quality of service provided by SCSS has been good. Therefore, the
recommended action will enable continuation of uninterrupted refuse collection and
recycling services at a reasonable fee level.
DISADVANTAGES:
While staff believes the fee increase request is reasonable and complies with the terms
of the Franchise Agreement, any increase in fees results in a negative financial impact
to the City and its residents.
ENVIRONMENTAL REVIEW:
No environmental review is required for this item.
PUBLIC NOTIFICATION AND COMMENTS:
South County Sanitary Service was required to mail notices to all customers and
property owners at least 45 days prior to the public hearing per Proposition 218 and
related implementation regulations. A copy of the Proposition 218 notice is attached,
which was reviewed by the City Attorney prior to distribution.
The Agenda was posted in front of City Hall on Thursday, May 22, 2014. The Agenda
and report were posted on the City's website on Friday, May 23, 2014.
ATTACHMENTS:
1. Interim Year Rate Increase Request
2. Solid Waste Rate Review
3. Proposition 218 Public Notice
Item 9.b. - Page 3
RESOLUTION NO.
A RESOLUTION OF THE CITY COUNCIL OF THE CITY OF
ARROYO GRANDE ESTABLISHING INTEGRATED SOLID
WASTE COLLECTION SERVICE RATES
WHEREAS, the City of Arroyo Grande establishes rates and charges for solid waste,
recycling and green waste collection services, pursuant to Public Resources Code
Section 40059 (a) and AGMC §§ 8.32.100 and 8.32.210.
WHEREAS, South County Sanitary Service, Inc. has submitted a rate increase
application (the "application") in accordance with the City's franchise agreement for solid
waste, recycling and green waste collection services; and
WHEREAS, the application has been comprehensively reviewed in accordance with the
City's rate-setting policies; and
WHEREAS, notices of the proposed rate increase were sent to property owners and
tenants in accordance with the requirements of Proposition 218 and a public hearing
was held on May 27, 2014 to consider protests against the proposed rate increase; and
WHEREAS, it was determined at the conclusion of the public hearing that a majority
protest to the proposed rate increase did not exist.
NOW, THEREFORE, BE IT RESOLVED by the City Council of the City of Arroyo
Grande as follows: The application for a rate increase is hereby approved and the
integrated solid waste, recycling and green waste collection service rates set forth in
Exhibit "A" attached hereto and incorporated herein shall become effective on June 1,
2014.
On motion of Council Member , seconded by Council Member
and on the following roll call vote, to wit:
AYES:
NOES:
ABSENT:
the foregoing Resolution was passed and adopted this day of '2014.
Item 9.b. - Page 4
RESOLUTION NO.
PAGE2
TONY FERRARA, MAYOR
ATTEST:
KELLY WETMORE, CITY CLERK
APPROVED AS TO CONTENT:
STEVEN ADAMS, CITY MANAGER
APPROVED AS TO FORM:
TIMOTHY J. CARMEL, CITY ATTORNEY
Item 9.b. - Page 5
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ATTACHMENT 1
South County Sanitary Service
-~-
4388 Old Santa Fe Road, San Luis Obispo, CA 93401
805-489-4246 • 805-489-3534 • 805-489-2104
City of Arroyo Grande
Steve Adams
PO Box 550
Arroyo Grande, CA 93421
September 12, 2013
Re: 2014 Interim year rate increase request
We are requesting a 2.05% across the board increase for all rates. An increase of $2.25
per ton for the disposal of garbage at Cold Canyon landfill, accounts for 0.96%. The
cost of operations is 1.09% of the increase.
The manual actually calls for an increase of 2.78%. That is limited by the cumulative
cola section of our franchise agreement I have included a copy of that calculation.
Hopefully; we can get back on track with a January 1st effective date.
Call me with questions.
~·
u
Tom Martin, General Manager
Item 9.b. - Page 10
Interim Year Rate Adjustment Application
Per rate manual
Limitation per contract
I. Rate Increase Requested
Rate Schedule
Requested Increase
Rate Schedule
Current Increased
Rate Rate
Single Family Residential
2. One Can Service $15.97 $16.30
3. Two Can Service $20.75 $21.17
4. Three Can Service $25.55 $26.07
5 Rate increases of
Adjustment
(a)
Multiunit Residential and
Non-residential will be applied to all rates in each structure
with each rate rounded up to the nearest $0.01
Certification
1.78%
..{1.73o/e
l.OS%[j
New
Rate
$16.30
$21.17
$26.07
To the best of my knowledge, the data and infonnation in this application is complete, accurate, and consistent with the instructions
provided by the City of Arroyo Grande.
Nl!lTle: TOM MARTIN Title: General Manager
Signature: Date: 09/12/13
Fiscal Year: 1-1-2014 to 12-31-2014 Pg. 1 of2
Item 9.b. - Page 11
South County SanitaJy Service
Interim Year Rate Adjustment Application
Financial Information
Section 1-Bue Year Costs
Base Year Controllable Costs
Total Allowable Costs $7,592,310
Plus Allowable Operating Profit $660,200
Plus Lease Payments to Affiliated Companies so
6.
7.
8.
9. Equals Total Controllable costs s8,252,51 o 1
10.
II.
12.
Bue Year Pass Through Costs
Tipping Fees
Plus AB 939 and Regulatory Fees
Equals Total Pass Through Costs
$1,841,193
$0
$1,844 193
13. Base Year Revenue Requirements (less Franchise Fee)
Section ll-Changes in Costs
Change in Controllable Cost
14. Historical Percentage Change in Consumer Price Index
15.
16.
17.
18
19.
Change in Pass Through Cost
Plus
Equals
Projected Base Year 2010 Tipping Fees
Projected Year 2010 AB939 Fees
Total Base Year Pass Through Costs
Projected Interim Year 20 II Tipping Fees
Pro'ected Interim Year 2011 AB939 Fees
20. Equals Total Projected Interim Year Pass Through costs
21.
22.
23.
24.
25.
26.
27.
28.
29.
30.
Projected Percentage Change in Pass Through Costs
Section 10-Calculation of Percent Change In Rates
Weighted Change in Controllable Costs
Controllable Costs as a Percent of Base Year Revenue Requirement!
Mu/tiplit Percent change in CPI
Equals Weighted Percent Change in Controllable Costs
Weighted Change in Pass Through Costs
Pass Through Costs as a Percent of Base Yr Revenue Requirements
Multiplit Percent Change in Pass Through Costs
Equals Weighted Percent Change in Pass Through Costs
Total Change
Total Percent Change in Cost (Line 24+ Line 27+ Line 28)
Divided, Adjustment for Franchise Fee (1-1 0.0 percent)
Equals Percent change in Existing Rates
I
n
I
I
II
II
II
81.7°/~l
18.3o/~l
2.0"/~1
$1z844,193l
$1,844, ~!~I
$1,931,590
so
81.7%
2.0o/c
1.63%
18.3%
4. 74o/c
0.87%
2.50%
90.00/c
Fiscal Year: 1-1-2014 to 12-31-2014 Page 2of2
South County Sanitary Service CITY OF ARROYO GRANDE
2.78-,t~l
Item 9.b. - Page 12
SOUTH COUNTY SANITARY SERVICE
Allowable Increase Per Contract
BLS
at Aug 31
2010
2011
2012
2013
cumlative cola
cumlative approved increases
maximum allowable increase
1.20%
3.80%
1.70%
2.00%
8.70%
8.70%
-6.65%
2.05%
approved approved approved
increase exception per
greenwaste contract
0.00% 0.00%
5.15% -1.70% 3.45%
0.00% 0.00%
3.20%
5.15% -1.70% 6.65%
Item 9.b. - Page 13
• •
May 5, 2014
ATTACHMENT 2
124 Cerro Romauldo Avenue
San Luis Obispo, CA 93405
805.544.5838 • Cell: 805.459.6326
bstatler@pacbell.net
www.bstatler.com
REVIEW OF SOUTH COUNTY SANITARY SERVICE
INTERIM YEAR RATE REQUEST
Cities of Arroyo Grande, Grover Beach, Pismo Beach and
Oceano Community Services District
REPORT PURPOSE
The purpose of this report is to review the rate increase for 20 14 requested by South
County Sanitary Service (SCSS) in September 2013 for the Cities of Arroyo Grande,
Grover Beach, Pismo Beach and the Oceano Community Services District, and to make
recommendations to these four agencies as appropriate .
. SCSS provides similar services to each of these agencies under formally approved
franchise agreements that regulate rates. Each agency's franchise agreement establishes
the same procedures for considering rate increases; and the financial information for
SCSS is closely related for these four agencies. Accordingly, this report jointly reviews
rate requests and recommendations for each agency.
OVERVIEW OF FINDINGS
• SCSS has provided the supporting documentation required for Interim Year rate
requests under the franchise agreements in Arroyo Grande, Grover Beach, Oceano
and Pismo Beach. SCSS's rate increase application for each agency, which requests
an across-the-board rate increase of 2.05%, is provided in the Appendix.
• Consideration of the SCSS rate application has been delayed due to concerns by
Waste Connections (owner of SCSS) regarding the County's authority to regulate
rates at the Cold Canyon Landfill. As discussed below, it is likely that this issue will
be resolved at the May 13, 2014 Board of Supervisors meeting.
• The last SCSS rate review was prepared in December 2012. Across-the-board rate
increases of 3.2% were subsequently approved by all agencies based on that review.
As discussed below, this was less than the rate increase of 5.4% that would otherwise
have been allowed under the adopted rate-setting methodology due to the cost of
-1 -
Item 9.b. - Page 14
Interim Year Solid Waste Rate Review
living "trigger" option (which is discussed below) set forth in the franchise
agreements.
Rate Recommendation
It is recommended that the governing bodies of each agency adopt SCSS's requested
Interim Year rates for 2014, which reflect a 2.05% across-the-board rate increase for all
four agencies. As discussed below, this is less than the rate increase of2.78% that would
otherwise be allowed under the adopted rate-setting methodology due to the cost of living
"trigger" option set forth in the franchise agreements. It also assumes that the Board of
Supervisors will approve Waste Connections' proposed tipping fees increase at the Cold
Canyon Landfill on May 13, 2014 of $2.25 per ton, effective July 1, 2014.
Cost of Living "Trigger" Option. Along with establishing the rate review methodology,
Section 8.3 of the franchise agreements provides that if the rate increase request
compared with the rate in effect at the date of the agreement exceeds the cumulative cost
of living increase from that same date, each agency has the option of terminating the
agreement at any time within nine months following approval of the requested rate
increase (assuming it was submitted in accordance with the rate-setting methodology).
It is important to note that this provision does not directly limit rate increase requests by
SCSS to an amount that may be less than that allowed under the rate-setting
methodology. However, subjecting the franchise agreement to possible termination if the
rate request is greater than the cost of living threshold provides a strong incentive for
SCSS to do so. As discussed below, the cost of living increase threshold for SCSS to
avoid triggering the potential for termination is 2.05%, which is the requested rate
increase. Accordingly, it is recommended that the governing bodies of these four
agencies adopt SCSS's requested Interim Year rates for 2014.
Rate Summary for Residential Customers
Table 1 summarizes the current
and proposed rates for single-
family residential (SFR)
customers.
Arroyo Grande
Gro-.er Beach
Oceano
Pismo Beach
Arroyo Grande
Gro-.er B~ach
Oceano
Pismo Beach
16.30
14.77
13.21
14.50
15.97
14.47
12.94
14.21
$21.17
19.97
19.00
29.00
20.75
19.57
18.62
28.42
$26.07
25.14
37.18
43.50
25.55
24.64
36.43
42.63
As reflected in this summary,
the increases will be very
modest. For example, for
collection of a 32-gallon
garbage container (the most
common SFR service level) as
well as separate waste wheelers
for recycling and green waste,
the proposed monthly rate will
increase by 30 cents on average
for the four agencies.
fld~Fe~~~}~25~{~~~~;~i~l~~~i!~~~~~~~~~~
Arroyo Grande 0.33 0.42 0.52
Gro-.er Beach 0.30 0.40 0.50
Oceano 0.27 0.38 0.75
Pismo Beach 0.29 0.58 0.87
-2-
Item 9.b. - Page 15
Interim Year Solid Waste Rate Review ·
BACKGROUND
In establishing a rate-setting process and methodology, each agency's franchise
agreement specifically references the City of San Luis Obispo's Rate Setting Process and
Methodology Manual for Integrated Solid Waste Management Rates (Manua[). This
comprehensive approach to rate reviews was adopted by San Luis Obispo in 1994, and
establishes detailed procedures for requesting rate increases and the required supporting
documentation to do so. It also sets cost accounting standards and allowable operating
profit ratios.
As noted above, the financial information for Arroyo Grande, Grover Beach, Oceano and
Pismo Beach is closely related. For this reason, these four agencies jointly contracted
with William C. Statler (who has extensive experience in evaluating rate requests in
accordance with the adopted methodology) in October 2013 to evaluate SCSS's Interim
Year rate increase application.
Franchise Agreement Summary
Historically, each agency has had its own approach to determining service levels and
adopted differing franchise agreements accordingly. While these became similar
beginning in 1999, in 2008 the Cities
of Arroyo Grande, Grover Beach and
Pismo Beach adopted renewed
franchise agreements, followed by the
Oceano Community Service District
in Summer 2010, which are the same
in all key provisions:
Table 2. Franchise Agreement Effective Dates
Arroyo Grande June 10, 2008
Grover Beach July 7, 2008
Oceano July 14, 2010
Pismo Beach June 3, 2008
• Each agency contracts with SCSS for garbage, green waste and recycling; and SCSS
provides the container (waste wheelers) for each service.
• Each agreement is for 15 years.
• As noted above, each agency has adopted the same rate-setting methodology,
including the option of terminating the agreement within nine months following
approval of the requested rate increase if it exceeds the cost of living threshold.
• All agencies have adopted franchise fees of 1 0%.
On September 12, 2013, SCSS submitted an Interim Year rate increase request for 2014
to the Cities of Arroyo Grande, Grover Beach, Pismo Beach and the Oceano Community
Services District.
The fo II owing is a brief summary of the differences between the two rate-setting
methodologies -Base Year and Interim Year-which follow a three-year cycle:
• Base Year. The first year ofthe cycle-the Base Year-requires a comprehensive,
detailed analysis of revenues, expenses and operating data. This information is
-3-
Item 9.b. - Page 16
Interim Year Solid Waste Rate Review
evaluated in the context of agreed upon factors in the franchise agreements in
deterni.ining fair and reasonable rates. The last Base· Year analysis for SCSS under
this approach was completed in December 2012.
• Interim Year. In both the second and third years of the three-year cycle, SCSS is
eligible for Interim Year rate adjustments that address two key change factors:
changes in the consumer price index for "controllable" operating costs; and changes
in "pass-though costs" (primarily tipping fees). These adjustment factors are
"weighted" by the proportionate share that these costs represent of total costs. The
rate review for the two Interim Years requires less information and preparation time
than the Base Year review, while still providing fair and reasonable rate adjustments.
Rate Review History
The following summarizes the SCSS rate review history since 2004 (last ten years).
Table 3. Rate Review History: 2004 to 2013 (Reflects Year of Rate Application
Year Review Type Arroyo Grande Grover Beach Oceano Pismo Beach (1)
2004 Base Year 5.60% 5.60% 5.60% 5.30%
2005 Interim Year 3.09% 3.09% 3.09% 2.95%
2006 Interim Year 3.76% 3.76% 3.76% 3.60%
2007 Base Year 3.00% 3.00% 3.00% 2.90%
2008 Interim Year 0.00% 0.00% 0.00% 0.00%
2009 Interim Year 0.00% 0.00% 0.00% 0.00%
2010 Interim Year 0.00% 0.00% 0.00% 0.00%
2011 Interim Year (2) 5.15% 5.15% 5.15% 5.15%
2012 Base Year 3.20% 3.20% 3.20% 3.20%
2013 Interim Year (3) 2.05% 2.05% 2.05% 2.05%
1. In 2007, the franchise fee rate in Pismo Beach was 6% compared with 10% in the other three
agencies, and as such, its rate increase was slightly less. In July 2011, Pismo Beach adopted
a 10% franchise fee, bringing it in alignment with the other three agencies (as well as most
other agencies in San Luis Obispo County). In implementing the 10% rate, Pismo Beach
adopted an added 3.9% increase beyond the interim year rate increase of5.15% requested by
scss.
2. SCSS did not request a rate increase in 2010 (which would have been the "normal'! cycle to
do so), and accordingly, did not submit a Base Year rate application. However, SCSS did
submit a rate request in 2011 .using an Interim Year methodology. The reasonableness of
using the resulting "hybrid" approach was discussed in detail in the 2011 Interim Year
report, which concluded that this approach was reasonable given the circumstances.
3. Proposed rate increase, to be effective 2014.
Assuming the 2013 rate application is approved, this will reflect an average annual rate
increase of 2.6%.
-4-
Item 9.b. - Page 17
Interim Year Solid Waste Rate Review
RATE REVIEW METHODOLOGY
Under the adopted franchise agreements, there are three major cost categories for revenue
recovery through rates:
• Controllable Costs. The target is an operating profit ratio of 8% on "allowable
costs," which include direct collection labor, fuel, vehicle maintenance and repairs,
depreciation, insurance and billing and collection. Allowable costs plus the operating
profit ratio equal "controllable costs."
• Pass-Through Costs. Pass-through costs such as tipping (landfill) and franchise fees
may be fully recovered through rates, but no profit is allowed on them.
• Excluded and Limited Costs. No revenue recovery through rates are allowed for any
excluded costs, which include charitable and political contributions; non-IRS
approved profit-sharing plans; entertainment, fines and penalties; and income taxes.
Additionally, there are limits on officer compensation.
In the case ofSCSS, based on the 2012 Base Year analysis, 81.7% oftheir costs are
"controllable" subject to the 8% operating profit ratio; and 18.3% are pass-through costs
that may be recovered through rates but no profit is allowed on them. (No recovery is
allowed at all for excluded costs.)
2013 Interim Year Request
In evaluating the SCSS 2013 rate application for 2014, the following submittals and
documents were reviewed in determining compliance with the Interim Year rate adjustment
provisions of the franchise agreements.
• Current franchise agreements between SCSS and the Cities of Arroyo Grande, Grover
Beach, Pismo Beach and the Oceano Community Services District.
• Prior base year and interim year rate reviews.
• Audited financial statements for 2011 and 2012.
• The correctprocess, forms and calculations were used in preparing request in accordance
with the Manual referenced in the franchise agreement as the basis for adjusting rates.
• Consumer price index data was correctly gathered and "weighted" in accordance with the
franchise agreements.
• Adjustments to projected tipping fee costs were adequately documented and
"weighted" in accordance with the franchise agreements.
• Adjustments to account for franchise fees were correctly calculated.
-5-
Item 9.b. - Page 18
Interim Year Solid Waste Rate Review
Rate Calculation Summary
There are three main drivers for Interim Year rate increases:
•
•
Controllable Costs. Rates attributable to controllable costs are allowed to increase by
changes in the U.S. consumer price index for all urban consumers (CPI-U). This
increased by 2.0% from July 2012 to July 2013 (the most recent data available at the
time the rate application was submitted in September 2013). Based on controllable
costs representing 81.7% oftotal costs (before franchise fees), an adjustment of
1.63% is allowed for increased operating and maintenance costs.
Pass-Through Costs: Tipping Fees. On May 13, 2014, the County is scheduled to
approve an increase in tipping fees at the Cold Canyon Landfill of $2.25 per ton
(from $34.25 per ton to $36.50), effective July 1, 2014. With tipping fees
representing 18.3% of
costs, an adjustment of
0.87% is allowed for
increased tipping fees.
It should be noted that
tipping fees in total are
projected to increase by
4.74%, which is less
· than the 6.6% increase
in landfill rates. This
appropriately adjusts for
two factors: green waste
is no longer taken to the
Cold Canyon Landfill;
and tonnage at the
landfill is slightly down
from the 2013 Base
Year projection.
County Review of Cold Canyon Landfill Rates
For many years, the County has reviewed and
approved tipping fees at the Cold Canyon Landfill.
However, in considering rate increases for 2014 at
the landfill, Waste Connections raised concerns about
the County's authority to do so. This has delayed
County consideration of proposed landfill rates, which
in turn has delayed consideration of the SCSS rate
application.
On May 13, 2014, the County is scheduled to review
a proposed multi,..year program of tipping fee
increases at the Cold Canyon Landfill in funding
expansion costs. The proposed multi-year program
increases rates by $2.25 per ton on July 1, 2014; and
eight additional increases of $2.25 per ton annually
thereafter, beginning on January 1, 2015.
• Pass-Through Costs: Franchise Fees. The final adjustment in the rate-setting model
is to account for pass-through franchise fees. At a 1 0% franchise fee rate, this results
in an overall allowable rate increase of2.78%.
Table 4 summarizes the
Interim Year adjustment
factors for the SCSS rate
increase proposed for 2014:
Table 4. Interim Year Ad'ustment Factors
Controllable Cost Factors
Consumer Price Index Increase
Percent of Total Costs
Allowable Adjustment
Tipping Fees
Tipping Cost Increase
Percent of Total Costs
Allowable Adjustment
Total Allowed Increase
-6-
2.00%
81.7%
1.63%
4.74%
18.3%
0.87%
2.50%
2.78%
Item 9.b. - Page 19
Interim Year Solid Waste Rate Review ·
COST OF LIVING '"'TRIGGER" OPTION
As noted above, Section 8.3 of the franchise agreements provides that ifthe rate increase
request compared with the rate in effect at the date of the agreement exceeds the
cumulative cost of living increase from that same date, each agency has the option of
terminating the agreement at any time within nine months following approval of the
requested rate increase (assuming it was submitted in accordance with the rate-setting
methodology).
While this provision does not directly limit rate increase requests by SCSS to an amount
that may be less than that allowed under the rate-setting methodology, subjecting the
franchise agreement to possible termination if the rate request is greater than the cost of
living threshold provides a strong incentive for SCSS to do so.
As detailed below, the cost of living increase threshold for SCSS to avoid the potential
for triggering early termination is 2.05%. This is the rate increase that SCSS is
requesting, although it could request 2. 78% under the franchise agreement rate-setting
methodology.
Calculation of the Cost of Living Threshold
Background
In past rate reviews, SCSS has typically submitted its rate application in October for
implementation on January 1 of the next year. Since the Manual calls for using the most
recent CPI-U index, that has meant consistently using August to August data in
calculating the change.
While submission of the rate application in October could conceptually provide enough
time for review, notice and scheduling of rate hearings by December (for rate
implementation on January 1), as a practical matter this has not occurred. (It should be
noted that failure to adopt rates in a timely matter is problematic for SCSS, since there is
no provision for retroactivity.)
Although there are other factors that have affected timely adoption of rates in the past,
one of the key reasons is the requirement under Proposition 218 for 45-day notice to
customers before the rate hearing. Moreover, while dates are not specifically referenced
in the Rate Manual, it calls for submission of the rate increase application four months
before the proposed effective date. In this case, that means September for an increase on
January 1, rather than October. However, it should be noted that in setting the four
month timeframe, the Manual did not assume the need for a 45-day notice period to
customers, since this requirement under Proposition 218 (which was approved by voters
in 1996) was not in place in when the Manual was prepared in 1994.
Given these factors, SCSS submitted its rate application in September 2013, and used
July 2012 to July 2013 for its CPI-U adjustment. This was the appropriate timeframe to
use, since the Manual calls for using the most recent index in calculating the change.
-7-
Item 9.b. - Page 20
Interim Year Solid Waste Rate Review
However, the Manual does not include guidance in calculating the cumulative CPI-U
change, since this provision only became effective in the most recent franchise
agreements, long after preparation of the Manual in 1994.
For consistency, the cumulative CPI-U increase was appropriately calculated in past rate
applications on an August to August basis. For 2014, however, SCSS used a hybrid
approach in calculating the cumulative CPI-U: August to August for 2009 to 2012 (as it
had in past rate applications); and July 2012 to July 2013 for the last year, since this was
the most recent annual data available when SCSS submitted its application in September
2013.
Given the circumstances, the hybrid approach used by SCSS for the 2014Interim Year
rate application is reasonable. And as a practical matter, which timeframe is used has no
material impact in 2014 (several optional approaches were evaluated, each resulting in
monthly rate differences of just a few pennies). However, in future years, it might make
a more significant difference. Accordingly, to ensure consistency, the following
standards should be used in calculating CPI-U changes in the future, given the 45-day
notice period and time needed for review and adoption for rates to be effective January 1
of each year:
• Rate applications should be submitted in August, following publication of June to
June CPI-U changes, for implementation the following January 1.
• Regardless of when SCSS submits its rate application, it should consistently use June
to June data in calculating annual CPI-U increases and the cumulative CPI-U.
• For the next Interim Year rate application, the CPI-U index for June 2013 is
233.504; and the CPI-U for June 2009 (the starting benchmark for the cumulative
CPI-U calculation) is 215.693.
Cumulative CPI-U and Remaining Room for an Increase within the "Trigger"
Under the hybrid approach used by SCSS, the cumulative CPI-U increase is 8. 70%. The
rate increases subject to the "trigger" threshold total 6.65%. This leaves 2.05% available
for an increase without triggering an option for early franchise agreement termination.
This is the rate increase that SCSS is requesting, although it could request 2.78% under
the franchise agreement rate-setting methodology.
SUMMARY
Based on the rate-setting policies and procedures formally adopted by Arroyo Grande,
Grover Beach Oceano and Pismo Beach in their franchise agreements, this report
concludes that:
• Assuming that the County approves an increase of $2.25 per ton, effective July 1,
2014, at the Cold Canyon Landfill on May 13, 2014, SCSS is eligible for an Interim
Year rate increase of2.78%.
-8 -
Item 9.b. - Page 21
Interim Year Solid Waste Rate Review
• However, SCSS has requested a lower rate increase of 2.05%, which avoids
triggering an option for early franchise agreement termination.
• For future rate applications, whether for a Base Year or Interim Year, CPI-U factors
should be based on June to June changes.
• • • • • • • • • • •
-9-
Item 9.b. - Page 22
APPENDIX
Interim Year Rate Adjustment Application
Submitted in 2013 for Rates Effective in 2014
A.l Arroyo Grande
A.2 Grover Beach
A.3 Oceano
A.4. Pismo Beach
Supporting Schedules
B.l Financial Information
B.2 Annual Consumer Price Index Change: July 2012 to July 2013
B.3 Cumulative Consumer Price Index Change and "Trigger" Calculation
Item 9.b. - Page 23
Arroyo Grande Appendix A.1
Interim Year Rate Adjustment Ap-plication
Requested lncrease
I.
Per rate manual
Limitation per contract
Ra1e Increase Requested
Rate Schedule
Rate Schedule
Current Increased
Rate Rate
Adjustment
(a)
II
Single Family Residential
2. One Can Service
3. Two Can Service
4. Three Can Service
5 Multiunit Residential and
Non-residential
/$15.97
r'$20.75
_ _./"$25:55
Certification
$16.30
$21.17
$26.07
Rate incn:as::s of II
will be 11pplied tO all rates in each structUre
with each rate rounded up to the nearest $0.01
2.78%
-0.73%
2.05"/oll
New
Rate
$16.30
$21.17
$26.07
2.05%11
To the best of my kno I~ and information in lhts application is complete, accurate, and consistent with the instructions
provided by th City of Arroyo Gmnde.
Name: TOM MARTIN Title: General Manager
Date: 09/12/13
Fiscal Year: 1-1-2014 to 12-31-2014 Pg.1 of2
Item 9.b. - Page 24
Appendix A.2
South County Sanitary Service CITY OF GROVER BEACH
Interim Year Rate Adjustment Application
Requested Increase
I.
Per rate manual
Limitation per contract
Rate Increase Requested
2.78%
-0.73%
II 2.05%11
Rate Schedule
Rate Schedule
Single Family Residential
2. One Can Service
3. Two Can Service
4. Three Can Service
5 Multiunit Residential and
Non-residential
Current
Rate
/$14.47
/$19.57
/$24.64
Increased Adjustment
Rate (a)
$14.77
$19.97
$25.14
Rate increases of II
New
Rate
S14.77
$19.97
$25.14
2.05%11
will be applied to all rates in each structure
with each rate rounded up to the nearest $0.01
Certification
To the best of my knowledge, the data and infonnation in this application is complete, accurate, and consistent with
the instructions pro\·idcd by the City of Grover Beach.
Name: TOM MARTIN Title: General Manager
Signature:: ~~ Date:· 09/12113
Fiscal Year: 1-1-2014 to 12-31-2014 Pg. 1 of2
Item 9.b. - Page 25
Appendix A.3
South County Sanitary Servi~ OCEANOCSD
Interim Year-Rate Adjustment Application
1.
Per rate manual
Limitation per contract
Rate Increase Requested
Rate Schedule
Single Family Residential
2. One Can Service
3. Two Can Service
4. Three Can Service
Multiunit Residential and
Non-residential
Current
Rate
$12.94
$18.62
$36.43
Increased Adjusiment
Rate (a)
$13.21
$19.00
$37.18
2.78%
-0.73%
II 2.05%lJ
New
Rate
$13.21
$19.00
$37.18
Rate i ncreas=s of II
will be applied to aU rates io each structure
with each rate rounded up to the n=arest $0.0 I
To th~ best of my knowl=dgc, the data and infonnation in this application is complete, accurate, and coruistent with
tbe iostructioru provided by the O~ano Community Service District
Name: TOM MARTIN Title: General Manager
Signature: Date: 09/12113
Fiscal Year: 1-1-2014 to 12·31-2014 Pg. 1 of2
Item 9.b. - Page 26
Appendix A.4
Soulh Coumy S1111iwy Service CITY OF PISMO BEACH
Interim Year Rate Adjustment Application
Requuted Increase
I.
Per rate manual
Limitation per contract
Rate Increase Requested
Rate Schedule
Rate Schedule
Current
Rate
Single Family Residential
2. One Can Service
3. Two Can Service
4. Three Can Service
s Multiunit Residential and
Non-residential
VS.14.21
V$2&.42
(/$42.63
C ertifi<:a tion
Increased
Rate
$14.50
$29.00
$43.50
Rate ina cases of
Adjustmen!
(a)
wm be applied to aU rates 1 n esctl 5Trucrure
wflh each rate rounded up to the nearest $0.0 I
2.78%
-0.73%
2.05%11
New
Rate
$14.50
$29.00
$43.50
2.05%11
To the best of my knowledge, the d&ta and infonnation in this application is complete, a.x:urate, and consistent witb the instructions
provided by the City of Pismo Beach.
Name: TOM MARTIN Title: General Manager
Date: 09/13/13
Item 9.b. - Page 27
Appendix 8.1
South County Sanitary SCJVicc
Interim Year Rate Adjustment Application
Financial Information
Base Year ControUable Costs
Total Allowable Costs $7,592,310
Pius Allowable Operating Profit $660.200
Plus Lease PaYtllents to Affiliated Companies $0
6.
7.
8.
9. Equals Total Controllable costs ss,2s2 51o 1
10.
II.
12.
Base Year Pass Through Costs
Tipping Fees
Plus AB 939 and Regulatory Fees
Equals Total Pass Through CostS
13. Base Year Revenue Requirements (less FriUlcbise Fee) II $10,096,703 II
!ii1:1HiiH:!ii!iiiiiil~~~~ii~:~H1~~g,~~~~~q~~~~~~~~!!iiiiiiiiiii!iiiiii!i!i!H~iHm?mH:
14.
15.
16.
17.
Change in Controllable Cost
Historical Percentage Change In Consumer Price Index
Change In Pass Through Cosl
Projected Base Year 20 J 3 Tipping Fees
Plus Projected Year 2013 AB939 Fees
Equals Total Base Year Pass Through Costs
18 Projected Interim Year 2014 Tipping Fees
19. Pro'ected Interim Year 2014AB939 Fees
20. Equals Total Projected Interim Year Pass Through costs
21. Projected Percentage Change in Pass Through Costs
II
I
II
WiHiiiH:~¢~!~~tmH~#.!~!ij!O.~@tr~:M.~i¢.~#jij#i~~~~#~~~~~!ii!i!iHiiH
22.
23.
24.
25.
26.
27.
28.
29.
30.
Weighted Change In Controllable Cosu
Controllable Costs as a Percent of Base Year Revenue Requirement
Multiplii Percent change in CPI
Equals . Weighted Percent Change in Controllable Costs
Weighted Change in Pass Through Costs
Pass Through Costs as a Percent of Base Yr Revenue Requirements
MultipliE Percent Chantte in Pass Through Costs
Equals Weighted Percent Change in Pass Through Costs
Total Change
Total Percent Change in Cost (Line 24+ Line 27+ Line 28)
Divided, Adjusonent for Franchise Fee (1-1 0.0 percent)
Equals Percent change in Existing Rates
II
II
81.7'Y~[
18.3o/41
$1z8441193l
$0
$1.844 193
4.74o/gl
g I. 7o/t
2.0o/c
1.63%
18.3o/c
4.74o/t
0.87%
2.50o/t
90.0%
Fiscal Year: 1-1-2014 to 12-31-2014 Page2 of2
2.1s%1l
Item 9.b. - Page 28
Bureau of Labor Statistics Data Appendix 8.2 Page 1 of2
A to 2 Index I FAQs I About BI.S I Contact Us Stmatle ID E-mal Updales ..
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Change Output Options: FI'DIII: J2003 i) To: Jmu i) ~
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Data~ on: September 5, 2013 (2:12:28 PM)
Conswner Price Index -All Urban Consumers
u
CUSROOOOSAO
Seasonally Adjusted
Ace&: u.s. city averaqe
:r-: All i tem.!l
.... Pariod: 1982-84•100
·2.
07103 07104 07105 07106 07107 07108 07109 0711 0 07f11 07f12 07113
Month
~YiiMT,;.-:
120031 2.1;
l2004j ~~
120051 3.1:
:20061 4.1;
i 1JI(f71 2.3 i
'20081 ss· l .. ' ., 1-2.0'
lzo10 jt.4!
'2011 1 3.6; I :zou i 1.4'
jzo:ul 2.0,
http://data.bls.gov/pdq/SurveyOutputServlet
...... ----·---·-·-·-----------·---····--··-.
9/5/2013
Item 9.b. - Page 29
SOUTH COUNTY SANITARY SERVICE
Allowable Increase Per Contract
BLS
at Aug 31
Note: CPJ-U Change
for 2013 is July to July 2010
2011
2012
2013
cumlative cola
cumlative approved increases
maximum allowable increase
1.20%
3.80%
1.70%
2.00%
8.70%
8.70%
-6.65%
2.05%
Appendix 8.3
approved approved approved
increase exception per
greenwaste contract
0.00% 0.00%
5.15% -1.70% 3.45%
0.00% 0.00%
3.20%
5.15% -1.70% 6.65%
Item 9.b. - Page 30
CITY OF ARROYO GRANDE
NOTICE OF PUBLIC HEARING REGARDING
PROPOSED SOLID WASTE RATE INCREASE
Dear Property Owners and Tenants-Customers:
ATTACHMENT 3
This notice is intended to inform you that the City of Arroyo Grande (''the City") will hold a public hearing regarding
solid waste disposal rate increases (the "Proposed Rate Increase") proposed by South County Sanitary Service (''the
Garbage Company") for properties and customers receiving solid waste services within the City. The Proposed Rate
Increase will be considered by the Arroyo Grande City Council at the date, time and location specified below. Consistent
with the requirements of Proposition 218, this notice also provides you with the following information:
• Date, Time and Place of the Public Hearing
• Majority Protest Procedures
• Reason for the Proposed Rate Increase
• Basis Upon Which the Proposed Rate Increase is Calculated
• Proposed Rate Increase Amounts
NOTICE OF PUBLIC HEARING
A Public Hearing for the Proposed Solid Waste Rate Increases within the City limits will be held on:
Date: May 27,2014
Time: 6:00 pm
Place: Arroyo Grande City Council Chambers, 215 East Branch Street, Arroyo Grande, CA
At the Public Hearing, the Arroyo Grande City Council will consider all public comment in support and in
opposition of the Proposed Rate Increase and whether or not a Majority Protest exists pursuant to the California
Constitution (below). If approved, the Proposed Rate Increase would become effective June 1, 2014.
MAJORITY PROTEST PROCEDURES
Pursuant to Section 6 of Article XIII D of the California Constitution, the following persons may submit a written protest
against the Proposed Rate Increase to the City Clerk before the close of the Public Hearing referenced above.
• An owner(s) of property (parcel(s)) receiving solid waste service within the city limits. If the person(s) signing
the protest, as an owner, is not shown on the last equalized assessment roll as the owner of the parcel(s) then the
protest must contain or be accompanied by written evidence that such person signing the protest is the owner of
the parcel(s) receiving solid waste services; and
• A Tenant(s) whose name appears on the Garbage Company's records as the customer of record for the
corresponding parcel receiving solid waste service within the city limits (tenant-customer).
A valid written protest must contain a statement that you protest the increase in solid waste rates, the address OR
Assessor's Parcel Number (APN) ofthe parcel or parcels which receive solid waste service and must be signed by either
the owner or the tenant-customer of the parcel or parcels. One written protest per parcel shall be counted in calculating a
majority protest to the proposed solid waste rate increase subject to the requirements of Section 6 of Article XIII D of the
California Constitution. Written protests will not be accepted by e-mail or by facsimile. Although oral comments at the
public hearing will not qualify as formal protests unless accompanied by a written protest, the Mayor and City Council
welcome input from the community during the public hearing. To be counted, a protest must be received in writing by the
City Clerk before the close of the Public Hearing referenced above.
Item 9.b. - Page 31
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Item 9.b. - Page 36