CC 2014-05-27_09.b. Solid Waste Presentation1
May 27, 2014
South County Sanitary Service Interim Year Rate Review
City of Arroyo Grande
South County Sanitary Service Rate Review
May 27, 2014
City of Arroyo Grande
1
Report Purpose
Analyze SCSS rate request for:
City of Arroyo Grande
City of Grover Beach
Oceano Community Services District
City of Pismo Beach
Why jointly?
Similar services
Similar franchise agreements
Similar rate review methodologies
Financial information closely related for each agency
South County Sanitary Service Rate Review
May 27, 2014
City of Arroyo Grande
2
Overview of Findings
SCSS has provided the supporting documentation required for an Interim Year rate increase under the City’s franchise agreement with them.
Rate Recommendation. Approve SCSS application
for 2.05% rate increase.
South County Sanitary Service Rate Review
May 27, 2014
City of Arroyo Grande
3
Cost of Living “Trigger” Option
2.05% rate increase less than increase of 2.78% allowed under the adopted rate-setting methodology
If rate request exceeds cumulative cost of living increase, City has the option of
terminating agreement within 9 months
Does not directly limit rate increase
But subjecting franchise agreement to possible termination if rate request greater than the cost of living
threshold provides a strong incentive for SCSS to do so
Cost of living increase threshold to avoid triggering potential for termination: 2.05%
This the amount of the requested increase.
South County Sanitary Service Rate Review
May 27, 2014
City of Arroyo Grande
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Basis for Review
City of San Luis Obispo detailed manual on:
Rate-Setting Process and Methodology for Integrated Solid Waste Management Rates
Adopted by the City as the basis in its franchise agreement
with SCSS
South County Sanitary Service Rate Review
May 27, 2014
City of Arroyo Grande
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Cost Recovery Methodology
Target: 8% operating profit ratio on allowable costs
Cost recovery but no profit on pass-through costs that are not controllable by SCSS
Tipping fees
Franchise fees
No revenue recovery
at all for excluded costs
Charitable and political contributions
Entertainment
Income taxes
Limits on officer compensation
South County Sanitary Service Rate Review
May 27, 2014
City of Arroyo Grande
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Implementation: Three Year Cycle
Base Year. The first year of the cycle - Base Year - requires comprehensive, detailed analysis of revenues, expenses and operating data
Last “base year” analysis completed in December
2012
Interim Years. In second and third years, SCSS is eligible for Interim Year rate adjustments that address two key change factors
Consumer price index (CPI) for “controllable” costs
“Pass-though
costs” (primarily tipping fees), which SCSS does not control
South County Sanitary Service Rate Review
May 27, 2014
City of Arroyo Grande
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Rate Setting History
Average annual rate increase: 2.6%
South County Sanitary Service Rate Review
May 27, 2014
City of Arroyo Grande
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Document Review and Analysis
Franchise agreements for each agency
Prior base year and interim year rate reviews
SCSS audited financial statements
SCSS rate request application and supporting documentation
Correct
process, forms and calculations used in preparing request
Consumer price index data correctly gathered and “weighted”
Adjustments for tipping fee costs adequately documented and “weighted”
Adjustmen
ts to account for franchise fees correctly calculated
Cumulative CPI “trigger” correctly calculated
South County Sanitary Service Rate Review
May 27, 2014
City of Arroyo Grande
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Allowable Rate Increase Summary
South County Sanitary Service Rate Review
May 27, 2014
City of Arroyo Grande
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Cumulative CPI Trigger
South County Sanitary Service Rate Review
May 27, 2014
City of Arroyo Grande
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Future Considerations
No provision for retroactivity
Important to act on rate applications in timely way
Recommendation
Given 45-day notice requirement and time for review and adoption for January 1 implementation:
SCSS
should submit rate application in August
Consistently use June to June CPI changes for annual and cumulative calculations
South County Sanitary Service Rate Review
May 27, 2014
City of Arroyo Grande
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Conclusion
SCSS is eligible for an Interim Year rate increase of 2.78%.
However, SCSS has requested a lower rate increase of 2.05%, which avoids triggering an option for early franchise agreement
termination.
South County Sanitary Service Rate Review
May 27, 2014
City of Arroyo Grande
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Recommendation: 2.05% Rate Increase
South County Sanitary Service Rate Review
May 27, 2014
City of Arroyo Grande
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Questions?
South County Sanitary Service Rate Review
May 27, 2014
City of Arroyo Grande
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