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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 It e m 9 . b . - P a g e 6 It e m 9 . b . - P a g e 7 It e m 9 . b . - P a g e 8 It e m 9 . b . - P a g e 9 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 .. Follow us ..) I Wbat's -I Release ca.ndar I Site Map Search BlS.gov . Home I Subject Areas j Databases & Tools I Publications Economic Releases I Beta Databases, Tables & Calculators by Subject Change Output Options: FI'DIII: J2003 i) To: Jmu i) ~ P"indude graphs More Formatting Ootjons .. 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 It e m 9 . b . - P a g e 3 2 It e m 9 . b . - P a g e 3 3 It e m 9 . b . - P a g e 3 4 It e m 9 . b . - P a g e 3 5 THIS PAGE INTENTIONALLY LEFT BLANK Item 9.b. - Page 36