CC 2019-06-25_09a Solid Waste Collection Rates
MEMORANDUM
TO: CITY COUNCIL
FROM: SHANNON ESENWEIN, DIRECTOR OF ADMINISTRATIVE SERVICES
SUBJECT: CONSIDERATION OF REQUEST FROM SOUTH COUNTY SANITARY
SERVICE FOR INTEGRATED SOLID WASTE COLLECTION RATE
INCREASE
DATE: JUNE 25, 2019
SUMMARY OF ACTION:
Increase solid waste collection rates paid by users of South County Sanitary Service.
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. If the proposed multi-year rate setting approach is
approved, future personnel resources will not be required to prepare Interim Year reviews,
thus providing an operational efficiency.
RECOMMENDATION:
It is recommended the City Council adopt a Resolution establishing integrated solid waste
collection service rates for July 1, 2019, January 1, 2020 and January 1, 2021.
BACKGROUND:
The City has had a Franchise Agreement with South County Sanitary Service (SCSS), a
subsidiary of Waste Connections, for collection, diversion and disposal of solid waste
since 1997.
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 two years. In interim
rate periods, the operator is limited to increases resulting from inflation, tipping fee
adjustments, and franchise or regulatory fee increases.
Item 9.a. - Page 1
CITY COUNCIL
INTEGRATED SOLID WASTE RATE INCREASE
JUNE 25, 2019
PAGE 2
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 Luis
Obispo Rate Setting Process and Methodology Manual for Integrated Solid Waste
Management Rates. The Manual ensures that the hauler’s rates are justifiable and
supportable, and reasonable to the cost of service; it also ensures that there is ongoing
review and rate stability, and that the rate setting process is easy to administer and
implement. The City goes through a formal and thorough review of the financial and
operating data to protect the rate payer. The process is designed to prevent large,
unexpected fluctuations in rates anticipated from funding a broadening scope of
integrated waste management services.
The City received a base year rate increase request of 10.06% from SCSS on March 28,
2019. On Page 12 of Mr. Statler’s report, the key drivers behind the proposed 10.06%
rate increase for 2019 can be summarized as follows:
4.5% for recycling via Materials Recovery Facility (MRF) Operations
2.2% for truck depreciation
1.6% for investments in food and green waste recycling
1.8% for all other cost increase including labor, vehicle fuel, ongoing maintenance
and other pass-through costs
In addition, SCSS proposes to include the next two interim rate adjustments in their
request at this time, with the maximum increase based on any increase in the Consumer
Price Index (CPI) for both operational costs and regulatory fees, and an increase of 0.85%
(for January 2020) and 0.82% (for January 2021) for the increases in the cost of landfill
disposal. Subsequent to the publishing of the Proposition 218 notice, it was discovered
that the increases for the cost of landfill disposal should be no more than 0.79% (for
January 2020) and 0.77% for (January 2021). Since these amounts are less than the
amounts in the Proposition 218 notice, there is no requirement to prepare a revised notice
and it is recommended that the City Council move forward with approving the revised
rates.
The Franchise Agreement also contains language that provides that if the rate increase
request compared with the rate in effect at the date of the Franchise Agreement exceeds
the cumulative cost of living increase from that same date, the City has the option of
terminating the Franchise Agreement at any time within nine months following approval
of the requested rate increase. The “trigger” calculation does not limit the amount of
increase that SCSS can request, it simply incentivizes them to keep their requested
increases below the cumulative increase in CPI if they wish to avoid the City opting to
terminate the Franchise Agreement. As detailed in the Rate Review, the calculated
threshold limit for an increase that would avoid triggering this option is 3.32% meaning
the requested rate increase is 6.74% above the trigger.
Item 9.a. - Page 2
CITY COUNCIL
INTEGRATED SOLID WASTE RATE INCREASE
JUNE 25, 2019
PAGE 3
In compliance with Proposition 218, a notice of the proposed rate increase was 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 6,314 accounts. Therefore, 3,158 would
represent a majority. At the time the report was prepared, there were 11 valid protest
letters received.
Based on a detailed review of costs as presented in Attachment 1, which concludes costs
are reasonable and that rates have been calculated in accordance with the Rate Manual,
combined with the fact that solid waste rates for Arroyo Grande are among the lowest in
the Central Coast area for single family residential services, during this fee increase
period only, staff recommends that the City not pursue the termination (“trigger”) option
set forth in Section 8.3 of the City’s Franchise Agreement with SCSS. This
recommendation is included in the attached Resolution.
ALTERNATIVES:
The following alternatives are provided for City Council consideration:
1. Adopt a Resolution approving the proposed rates;
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 rate setting
methodology. The 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 cost.
DISADVANTAGES:
While staff believes the fee increase request is reasonable and complies with the terms
of the existing rate setting methodology, 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 mailed 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. In addition, a Notice of
Public Hearing was published in The Tribune on June 14, 2019.
Item 9.a. - Page 3
CITY COUNCIL
INTEGRATED SOLID WASTE RATE INCREASE
JUNE 25, 2019
PAGE 4
The Agenda was posted in front of City Hall on Thursday, June 20, 2019. The Agenda
and report were posted on the City’s website on Friday, June 21, 2019.
ATTACHMENTS:
1. Solid Waste Rate Review
2. Proposition 218 Public Notice (residential)
3. Proposition 218 Public Notice (commercial)
Item 9.a. - Page 4
RESOLUTION NO.
A RESOLUTION OF THE CITY COUNCIL OF THE CITY OF
ARROYO GRANDE ESTABLISHING INTEGRATED SOLID
WASTE COLLECTION SERVICE RATES FOR JULY 1, 2019,
JANUARY 1, 2020 AND JANUARY 1, 2021
WHEREAS, the City of Arroyo Grande (“City”) establishes rates and charges for solid
waste, recycling and green waste collection services, pursuant to Public Resources Code
Section 40059 (a) and Arroyo Grande Municipal Code §§ 8.32.100 and 8.32.210; and
WHEREAS, the City and South County Sanitary Service, Inc. (“SCSS”) entered into a
Franchise Agreement for collection, diversion and disposal of solid waste, dated
November 12, 1997 (“Prior Solid Waste Agreement”); and
WHEREAS, the City and SCSS entered into a subsequent amendment, modifying certain
provisions of the Prior Solid Waste Agreement, dated March 23, 1999, requiring
collection, diversion and disposal of green waste; and
WHEREAS, the City and SCSS also entered into a Recycling Services Franchise
Agreement, dated August 24, 1999; and
WHEREAS, the City and SCSS further entered into an Amended and Restated Solid
Waste Collection Franchise Agreement, dated June 10, 2008, which amended and
restated the Prior Solid Waste Agreement and incorporated, amended and restated the
Prior Recycling Agreement; and
WHEREAS, the City and SCSS also entered into a First Amendment to the Amended
and Restated Solid Waste Collection Agreement, dated March 22, 2016, which excluded
tipping fee increases for landfill improvements, when calculating whether the SCSS rates
charged to customers are greater than the cumulative cost of living increase; and
WHEREAS, the City and SCSS also entered into a Second Amendment to the Amended
and Restated Solid Waste Collection Agreement, dated July 26, 2016, which amended
the franchise agreement to extend the contract by 20 years, beginning with the first day
of the operation of a new Kompogas organic processing facility; and
WHEREAS, SCSS has submitted a rate increase application (the “application”) in
accordance with the Amended and Restated Solid Waste Collection Franchise
Agreement; and
WHEREAS, the application has been comprehensively reviewed in accordance with the
City’s rate-setting policies; and
WHEREAS, 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, giving the
Item 9.a. - Page 5
RESOLUTION NO.
PAGE 2
City the option of terminating the SCSS Franchise Agreement at any time within nine
months following approval of the requested rate increase ("the trigger option"); and
WHEREAS, based on a detailed review of costs, which concludes costs are reasonable
and that rates have been calculated in accordance with the Rate Manual, combined with
the fact that rates for Arroyo Grande are among the lowest in the Central Coast area for
single family residential services, during this fee increase period only, and in this unique
circumstance, the City will not pursue the "trigger" option per Section 8. 3 of the City' s
Franchise Agreement with South County Sanitary Services.
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 June 25, 2019 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:
1. The above recitals are true and correct and incorporated herein by their
reference.
2. 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 July 1,
2019.
3. Solid waste rates shall increase as follows on January 1, 2020 and January 1,
2021:
a. Increase, if any, in the Consumer Price Index (CPI) for Bureau of
Labor Statistics’ Consumer Price Index for Urban Consumers based
on the All U.S. City Average, Bureau of Labor Statistics for the month
of June 2019 for January 1, 2020 and June 2020 for January 1, 2021.
b. Increase of 0.79% for 2020 and 0.77% for 2021 for increase in the
cost of landfill disposal.
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 25th day of June, 2019.
Item 9.a. - Page 6
RESOLUTION NO.
PAGE 3
CAREN RAY RUSSOM, MAYOR
ATTEST:
______
JESSICA MATSON, DEPUTY CITY CLERK
APPROVED AS TO CONTENT:
___
JAMES A. BERGMAN, CITY MANAGER
APPROVED AS TO FORM:
HEATHER WHITHAM, CITY ATTORNEY
Item 9.a. - Page 7
Exhibit A
SOUTH COUNTY SANITARY SERVICE
RATE INCREASE EFFECTIVE JULY 1, 2019
CITY OF ARROYO GRANDE
Service Description
Pickups Per
Week
Current
Monthly Rate
Effective
1/1/2019
Proposed
Rate
Adjustment %
Proposed
Monthly Rate
Effective
7/1/2019
RESIDENTIAL:
32 Gallon Waste Wheeler 1 $17.26 10.06% $19.00
64 Gallon Waste Wheeler 1 $22.44 10.06% $24.69
96 Gallon Waste Wheeler 1 $27.63 10.06% $30.40
TWO‐64 Gallon Waste Wheelers 1 $32.81 10.06% $36.11
ONE 64 & ONE 96 Gallon 1 $38.01 10.06% $41.83
TWO‐96 Gallon Waste Wheelers 1 $43.18 10.06% $47.52
Residential customers must use the waste wheelers provided by the garbage company.
MISCELLANEOUS CHARGES ‐ ALL CUSTOMERS:
Overstacked Garbage & extra bags
Minimum/unit each $4.89 10.06% $5.38
Overstacked Greenwaste & extra
bags Minimum/unit each $2.45 10.06% $2.70
Overstacked Blue Bin & extra bags
Minimum/unit each $1.37 10.06% $1.51
In yard service (per can or
commodity) IN ADDITION TO
STANDARD GARBAGE RATES per month $12.21 10.06% $13.43
Monthly charge for additional 96‐
gallon green waste service per month $3.37 10.06% $3.71
Extended Vacation Service per month $14.01 10.06% $15.41
Vacant Rate per month $14.01 10.06% $15.41
Waste wheeler cleaning each time $18.21 10.06% $20.04
Trip charge each time $29.34 10.06% $32.29
Item 9.a. - Page 8
Exhibit A
Non‐payment downsize service each time $29.34 10.06% $32.29
Non‐payment redeliver waste
wheeler each time $29.34 10.06% $32.29
Non‐payment reconnect service each time $29.34 10.06% $32.29
Small item pickup (TV, toilet) each $28.63 10.06% $31.51
Appliance pickup‐residential each $40.37 10.06% $44.43
Garbage extras on your scheduled
pickup day per yard $10.31 10.06% $11.35
Garbage extras ‐NOT ON YOUR
SCHEDULED PICKUP DAY per yard $27.72 10.06% $30.51
Re‐deliver bin on stopped acct each time $35.00 10.06% $38.52
Recycle bin rental per month $6.80 10.06% $7.48
Stand by time per hour $58.80 10.06% $64.72
Tax Lien Cert. Mail Fee $3.87 10.06% $4.26
City Clean Up $10.00 10.06% $11.01
Extra bin cleaning $54.61 10.06% $60.10
Damage/Destruction of bins or
waste wheelers by quote only
Larger than residential appliance or
glass, glass doors, or plate glass by quote only
Short Term Dumpsters:
Delivery & Pickup‐Bin $35.01 10.06% $38.53
Delivery & Pickup‐Waste Wheeler $12.20 10.06% $13.43
Rental Per Day $2.59 10.06% $2.85
Empties Per Yard $27.72 10.06% $30.51
Mattress:
Twin Each $15.89 10.06% $17.49
Item 9.a. - Page 9
Exhibit A
Double Each $15.89 10.06% $17.49
Queen Each $15.89 10.06% $17.49
King Each $15.89 10.06% $17.49
ADDITIONAL INFORMATION ALL CUSTOMERS:
Late Fees are imposed for residential customers over 30 days delinquent and commercial customers over
30 days delinquent. The fee is 1.5% per month of the outstanding charge, with a minimum fee of $5.00.
No prior notice is required, as this late fee policy is stated at the bottom of every bill.
Any additional recycling services are charged out at 50% of the garbage rate.
Item 9.a. - Page 10
Exhibit A
SOUTH COUNTY SANITARY SERVICE
RATE INCREASE EFFECTIVE JULY 1, 2019
CITY OF ARROYO
GRANDE
Service Description Pickups Per Week
Current
Monthly Rate
Effective
1/1/2019
Proposed Rate
Adjustment %
Proposed
Monthly Rate
Effective
7/1/2019
APARTMENTS, TRIPLEX, DUPLEX
Rates are the same as commercial rates (below).
COMMERCIAL DUMPSTERS ‐ ALL AREAS:
1 yd dumpster 1 $85.28 10.06% $93.86
1 yd dumpster 2 $124.42 10.06% $136.94
1 yd dumpster 3 $163.60 10.06% $180.06
1 yd dumpster 4 $209.67 10.06% $230.76
1 yd dumpster 5 $246.50 10.06% $271.30
1 yd dumpster 6 $292.60 10.06% $322.04
1 yd dumpster 7 $355.64 10.06% $391.42
1.5 yd dumpster 1 $96.79 10.06% $106.53
1.5 yd dumpster 2 $149.77 10.06% $164.84
1.5 yd dumpster 3 $212.00 10.06% $233.33
1.5 yd dumpster 4 $276.48 10.06% $304.29
1.5 yd dumpster 5 $336.41 10.06% $370.25
1.5 yd dumpster 6 $380.18 10.06% $418.43
1.5 yd dumpster 7 $445.17 10.06% $489.95
Item 9.a. - Page 11
Exhibit A
2 yd dumpster 1 $108.32 10.06% $119.22
2 yd dumpster 2 $182.02 10.06% $200.33
2 yd dumpster 3 $258.08 10.06% $284.04
2 yd dumpster 4 $340.99 10.06% $375.29
2 yd dumpster 5 $421.64 10.06% $464.06
2 yd dumpster 6 $472.34 10.06% $519.86
2 yd dumpster 7 $549.19 10.06% $604.44
3 yd dumpster 1 $129.01 10.06% $141.99
3 yd dumpster 2 $244.23 10.06% $268.80
3 yd dumpster 3 $340.99 10.06% $375.29
3 yd dumpster 4 $444.66 10.06% $489.39
3 yd dumpster 5 $527.62 10.06% $580.70
3 yd dumpster 6 $629.00 10.06% $692.28
3 yd dumpster 7 $803.38 10.06% $884.20
4 yd dumpster 1 $161.30 10.06% $177.53
4 yd dumpster 2 $285.69 10.06% $314.43
4 yd dumpster 3 $410.11 10.06% $451.37
4 yd dumpster 4 $527.62 10.06% $580.70
4 yd dumpster 5 $652.04 10.06% $717.64
4 yd dumpster 6 $774.17 10.06% $852.05
4 yd dumpster 7 $985.92 10.06% $1,085.10
6 yd dumpster 1 $241.95 10.06% $266.29
6 yd dumpster 2 $428.56 10.06% $471.67
6 yd dumpster 3 $615.15 10.06% $677.03
Item 9.a. - Page 12
Exhibit A
6 yd dumpster 4 $791.45 10.06% $871.07
6 yd dumpster 5 $978.06 10.06% $1,076.45
6 yd dumpster 6 $1,161.27 10.06% $1,278.09
6 yd dumpster 7 $1,478.88 10.06% $1,627.66
8 yd dumpster 1 $322.59 10.06% $355.04
8 yd dumpster 2 $571.40 10.06% $628.88
8 yd dumpster 3 $820.20 10.06% $902.71
8 yd dumpster 4 $1,055.26 10.06% $1,161.42
8 yd dumpster 5 $1,304.10 10.06% $1,435.29
8 yd dumpster 6 $1,548.35 10.06% $1,704.12
8 yd dumpster 7 $1,971.86 10.06% $2,170.23
All commercial customers are eligible for one standard 96‐gallon recycling and one 64‐gallon food
waste cart serviced one time a week with no additional service charge
Any additional recycling services are charged out at 50% of the garbage rate.
COMMERCIAL GARBAGE CANS ‐ ALL AREAS:
32 Gallon 1 $20.73 10.06% $22.82
32 Gallon 2 $43.78 10.06% $48.18
32 Gallon 3 $50.70 10.06% $55.80
32 Gallon 4 $64.50 10.06% $70.98
64 Gallon 1 $43.78 10.06% $48.18
64 Gallon 2 $58.17 10.06% $64.02
64 Gallon 7 $173.82 10.06% $191.31
96 Gallon 1 $50.70 10.06% $55.80
96 Gallon 2 $85.28 10.06% $93.86
96 Gallon 3 $107.37 10.06% $118.17
Item 9.a. - Page 13
Exhibit A
96 Gallon 4 $129.71 10.06% $142.76
96 Gallon 5 $146.07 10.06% $160.76
96 Gallon 7 $199.27 10.06% $219.32
96 and 32 Gallon 1 $64.50 10.06% $70.99
96 and 32 Gallon 7 $248.56 10.06% $273.57
MISCELLANEOUS CHARGES ‐ ALL COMMERCIAL CUSTOMERS:
Overstacked Garbage &
extra bags Minimum/unit each $4.89 10.06% $5.38
Overstacked Greenwaste
& extra bags
Minimum/unit each $2.45 10.06% $2.70
Overstacked Blue Bin &
extra bags Minimum/unit each $2.58 10.06% $2.84
In yard service (per can or
commodity) IN ADDITION
TO STANDARD GARBAGE
RATES per month $12.20 10.06% $13.43
Vacant Rate per month $14.01 10.06% $15.42
Waste wheeler cleaning each time $18.21 10.06% $20.04
Trip charge each time $12.20 10.06% $13.43
Non‐payment downsize
service each time $12.20 10.06% $13.43
Non‐payment redeliver
waste wheeler each time $12.20 10.06% $13.43
Non‐payment reconnect
service each time $29.34 10.06% $32.29
Small item pickup (TV,
toilet) each $28.63 10.06% $31.51
Appliance pickup‐
residential each $40.37 10.06% $44.43
Item 9.a. - Page 14
Exhibit A
Lock Charge $6.80 10.06% $7.48
Garbage extras on your
scheduled pickup day per yard $10.31 10.06% $11.35
Garbage extras ‐NOT ON
YOUR SCHEDULED
PICKUP DAY per yard $27.72 10.06% $30.51
Commercial Waste
Wheeler rent per month $3.78 10.06% $4.16
Re‐deliver bin on stopped
acct each time $35.00 10.06% $38.52
Large Compactor (> 4
yards) per yard $14.99 10.06% $16.50
Small Compactors (4
yards & below)
assume 3 to 1
compaction
3 times the
garbage rate
Sunday Service (in
additional to garbage
service level) per month $61.10 10.06% $67.25
Recycle bin rental per month $6.80 10.06% $7.48
Stand by time per hour $58.80 10.06% $64.72
Extra bin cleaning $54.61 10.06% $60.10
Damage/Destruction of
bins or waste wheelers by quote only
Short Term Dumpsters:
Delivery & Pickup‐Bin $35.01 10.06% $38.53
Delivery & Pickup‐Waste
Wheeler $12.20 10.06% $13.43
Rental Per Day $2.59 10.06% $2.85
Empties Per Yard $27.72 10.06% $30.51
Item 9.a. - Page 15
Exhibit A
Mattress:
Twin Each $15.89 10.06% $17.49
Double Each $15.89 10.06% $17.49
Queen Each $15.89 10.06% $17.49
King Each $15.89 10.06% $17.49
ADDITIONAL INFORMATION ALL CUSTOMERS:
Late Fees are imposed for residential customers over 30 days delinquent and commercial customers
over 30 days delinquent. The fee is 1.5% per month of the outstanding charge, with a minimum fee
of $5.00. No prior notice is required, as this late fee policy is stated at the bottom of every bill.
Any additional recycling services are charged out at 50% of the garbage rate.
Item 9.a. - Page 16
South County Sanitary Service
SOLID WASTE RATE REVIEW
For the Communities of
Arroyo Grande
Grover Beach
Oceano
Pismo Beach
April 2019
ATTACHMENT 1
Item 9.a. - Page 17
Fiscal Policy ■ Financial Planning ■ Analysis ■ Training ■ Organizational Review
South County Sanitary Service
Solid Waste Rate Review
April 2019
TABLE OF CONTENTS
Report Purpose 1
Summary of Findings and Recommendations 1
Findings 2
Rate Recommendations 3
Rate Summary for Single Family Residential Customers 4
Background 4
Rate Review Workscope 5
Revenue and Rate-Setting Objectives 6
Cost Accounting Issues 6
Financial Overview 8
Costs by Type 9
Revenues by Source 9
Service Accounts by Type 9
Rate-Setting Process 10
Base Year and Interim Year Reviews 10
Rate Increase History 10
Rate-Setting Methodology 11
Are the Costs Reasonable? 11
Detailed Cost Review 12
Trends in External Cost Drivers 18
Rates in Comparable Communities 18
What Is a Reasonable Return o n These Costs? 19
Preparing the Rate Request Application 20
Rate Request Summary 20
Implementation 21
Cost of Living Tigger Option 21
Coordination with Other Agencies 23
Summary 23
APPENDIX
A. Base Year Rate Request Application from South County Sanitary Service
B. Boston Group Outlook on Recycling Costs
C. Cold Canyon Processing Facility Background
Item 9.a. - Page 18
- 1 -
South County Sanitary Service
SOLID WASTE RATE REVIEW
For the Communities of Arroyo Grande, Grover Beach,
Oceano and Pismo Beach
REPORT PURPOSE
On September 25, 2018, South County Sanitary Service (SCSS) submitted a Base Year
rate increase application to be effective January 1, 2019 to the Cities of Arroyo Grande,
Grover Beach and Pismo Beach and the Oceano
Community Services District (CSD). However,
due to the complexity and concerns with the rate
application, four supplemental applications were
submitted, with the most recent one received on
March 28, 2019.
The last application is the focus of this report in
reviewing the SCSS rate increase request in
accordance with adopted Franchise Agreement
provisions regarding rate increase applications and
to make rate recommendations to these four
agencies as appropriate.
SUMMARY OF FINDINGS AND
RECOMMENDATIONS
In its latest application, SCSS is requesting a rate
increase of 10.06%. This compares with its initial
request of 13.36% in September 2018. As discussed in greater detail below, all of the
concerns that surfaced in the iterations and further analysis that followed in addressing
issues with proposed costs for 2019 have been resolved. However, the following
highlights a key cost driver in this review:
124 Cerro Romauldo Avenue
San Luis Obispo, CA 93405
805.544.5838 ◼ Cell: 805.459.6326
bstatler@pacbell.net
www.bstatler.com
William C. Statler
Fiscal Policy ◼ Financial Planning ◼ Analysis ◼ Training ◼ Organizational Review
. . . . . . . . .
Joint Agency Review
SCSS provides similar
services to each of these
agencies under formally
approved franchise
agreements that regulate rates
and establish procedures for
considering rate increases.
Because the financial
information for SCSS is
closely related for these four
agencies, this report jointly
reviews rate requests and
provides recommendations for
each of them.
Item 9.a. - Page 19
Solid Waste Rate Review
- 2 -
Materials recovery facility (MRF) costs for “single stream” recycling (one container for all
recyclables that must be sorted at a MRF) have increased from $7.80 in 2017 per ton to $67.50
per ton for 2019, an increase of 765%. This results in cost increases of $760,000 from 2017 and
accounts for about half of the requested 10.06% rate increase.
It is clear from market realities (higher costs to produce higher-quality recyclables and lower
prices for the resulting product from MRF operations) and the supporting data provided by
SCSS, that cost increases in this area are warranted. While the increase is significant, it is
acceptable given market conditions and the higher cost of other alternatives.
It should be noted that SCSS requested a rate restructuring in their initial application in order to
send “better cues” to residential customers about correctly sizing trash containers, since many
customers are placing trash in their recycling (blue containers). However, due to other complex
cost issues associated with its rate application, SCSS has rescinded this request .
Findings
• Complete Application. With its latest application, SCSS has fully provided the supporting
documentation required for rate requests under the Franchise Agreements in Arroyo Grande,
Oceano, Pismo Beach and Grover Beach. The revised application (Appendix A) has been
correctly prepared and requests an across-the-board rate increase of 10.06%.
• High Level of Service at a Reasonable Cost. SCSS provides a broad level of high-quality
services to these four agencies—including garbage, recycling and green waste collection and
disposal as well as hauler-provided “waste wheeler” containers for all three services—at very
competitive rates compared with many other communities. In fact, even with the
recommended rate increase of 10.06%, rates in these four agencies will be among the lowest
of those surveyed. In short, South County communities have the best of both worlds: high
quality services at a low cost (compared with other communities).
• “Trigger Option.” As discussed in greater detail below, the rate increase exceeds the cost of
living threshold that “triggers” the option of terminating the Franchise Agreements within
nine months after rate approval.
• Need for Updated Rate-Setting Methodology. Several complex issues have surfaced in this
review (most notably corporate overhead, greenwaste and MRF costs as well as rate structure
concerns) that have not been encountered in the past in using the rate-setting methodology,
which is based on the City of San Luis Obispo’s Rate Setting Process and Methodology
Manual for Integrated Solid Waste Management Rates (Rate Manual) adopted in 1994. In
short, with very minor modifications, this approach has been in place for 25 years.
Accordingly, given the passage of time and the emergence of issues not envisioned in 1994,
it is timely to update this methodology.
Undertaking this work is supported by Waste Connections (the parent company of SCSS) as
well as by the staff of all agencies serviced by SCSS (which includes the County, Avila CSD
and Nipomo CSD as well as the City of San Luis Obispo ). Waste Connections has
conceptually agreed to fund half of this cost; if the remaining cost is shared by the central
Item 9.a. - Page 20
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coast agencies serviced by Waste Connections, the consultant service cost for each agency
should be very modest. There are several highly-respected consultant firms that could assist
with this update, such as:
HF&H Consultants
http://hfh-consultants.com
NBS
https://www.nbsgov.com
R3 Consulting Group
https://r3cgi.com
FCS Group
http://fcsgroup.com
MSW Consultants
https://MSW-Consultants.com
Bell & Associates
Chris@bellassociatesinc.com
If the governing bodies are interested in pursuing an update, the next steps include
developing a funding strategy; preparing and issuing a request for proposals (RFP); and
selecting the vendor.
Rate Recommendations
It is recommended that the governing bodies of
each agency adopt an across-the-board rate
increase of 10.06%.
As discussed below, this rate increase exceed s the
cost of living threshold that triggers the option of
terminating the Franchise Agreements within nine
months after rate approval. However, it is
important to note that this “trigger” calculation
does not limit the allowable rate increase that
SCSS may request under the methodology set
forth in the Franchise Agreements.
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 fro m 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). This
provision was subsequently amended in 2016 allowing for an added increase based on landfill
rate increases (“weighted” for their proportion of total costs). It is important to note that other
than a waiver for greenwaste cost increases in 2011, no other adjustments (including other pass-
through costs) are allowed under the Franchise Agreements. As detailed later in this report, the
calculated threshold limit for an increase that would avoid triggering this option is 3.32% (in
short, the requested rate increase is 6.74% above the trigger).
It is important to note that the “trigger option” does not directly limit rate increase requests by
SCSS to an amount that may be less than that allowed under the rate-setting methodology.
About Proposition 218 Notices
Not all agencies prepare and issue
“Proposition 218” notices for private
sector solid waste rate increases.
However, for those that do, the notice
sets the maximum amount that rates
can be increased at the public
hearing: rates can be approved at
lesser amounts without re-noticing.
However, agencies cannot adopt
higher rates – even if they only apply
to a few customers – without another
45-day re-noticing. As such, it is
recommended that the notices reflect
the rates requested by SCSS.
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However, subjecting the Franchise Agreement to possible termination if the rate request is
greater than the cost of living threshold provides an incentive for SCSS to do so if possible.
Rate Summary for Single Family Residential Customers
Table 1 summarizes the requested rates
for single family residential (SFR)
customers. As reflected in this
summary, given the significant cost
drivers facing SCSS, the increases will
be modest under the proposed rate
increase. 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 about $1.57 on
average for the four agencies.
BACKGROUND
On September 25, 2018, SCSS
submitted a Base Year rate increase to
be effective January 1, 2019. As noted
above, due to the complexity and
concerns with the rate application, four supplemental applications were submitted, with the most
recent one received on March 28, 2019. This application was prepared in accordance with the
rate review process and methodology formally set forth in its Franchise Agreements with Arroyo
Grande, Grover Beach, Oceano and Pismo Beach.
In establishing a rate-setting process and methodology, each of these Franchise Agreements
specifically reference the City of San Luis O bispo’s Rate Setting Process and Methodology
Manual for Integrated Solid Waste Management Rates. 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 reaso n, these four agencies jointly contracted with William C.
Statler (who has extensive experience in evaluating rate requests in accordance with the adopted
methodology) on October 31, 2019 to evaluate SCSS’s rate increase application.
This is the sixth Base Year analysis performed under this rate-setting methodology. The first
was prepared in September 2001; second in August 2004; the third in August 2007; the fourth in
December 2012; and the last one in September 2015. As discussed below, several Interim Year
rate reviews have prepared since then.
Table 1. Single Family Residential Rates
32 64 96
Current
Arroyo Grande $17.26 $22.44 $27.63
Grover Beach 15.65 21.16 26.64
Oceano 14.00 20.13 39.40
Pismo Beach 15.36 30.73 46.09
Requested
Arroyo Grande 19.00 24.70 30.41
Grover Beach 17.22 23.29 29.32
Oceano 15.41 22.16 43.36
Pismo Beach 16.91 33.82 50.73
Increase: Requested Rates
Arroyo Grande 1.74 2.26 2.78
Grover Beach 1.57 2.13 2.68
Oceano 1.41 2.03 3.96
Pismo Beach 1.55 3.09 4.64
Container Size (Gallons)
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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 agreement s, followed by the Oceano
Community Service District in Summer 2010, which are the same in all key provisions:
• Each agency contracts with SCSS for garbage, green/food waste and recycling; and SCSS
provides the container (waste wheelers) for each service.
• 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 10%.
Each of these agreements were similarly amended in 2016 to:
• Extend the term of the agreement for 20 years in recognizing the amortization of extensive
investments in food and green waste processing.
• Revise the cost of living threshold “trigger” to include prorated landfill cost increases.
RATE REVIEW WORKSCOPE
This report addresses four basic questions:
• Should SCSS be granted a rate increase? And if so, how much?
• How much does it cost to provide required service levels?
• Are these costs reasonable?
• And if so, what is a reasonable level of return on these costs?
The following documents were closely reviewed in answering these questions:
• Franchise Agreements and any Amendments for each agency
• Audited financial statements for SCSS for 2016 and 2017
• City of San Luis Obispo’s Rate Setting Process and Methodology Manual for Integrated
Solid Waste Management Rates (Rate Manual)
• SCSS rate increase application and supporting documentation
• Follow-up interviews, correspondence and briefings with agency and SCSS staff
• Rate surveys of Central Coast communities
Table 2. Franchise Agreement Effective Dates
Agency Agreement Amendments
Arroyo Grande June 10, 2008
March 22, 2016
July 26, 2016
Grover Beach July 7, 2008 June 20, 2016
Oceano July 14, 2010 July 29, 2016
Pismo Beach June 3, 2008 August 3, 2016
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REVENUE AND RATE SETTING OBJECTIVES
In considering SCSS’s rate increase request, it is important to note the revenue and rate setting
objectives for solid waste services as set forth in the Franchise Agreements via the Rate Manual.
Revenues. These should be set at levels that:
• Are fair to customers and the hauler.
• Are justifiable and supportable.
• Ensure revenue adequacy.
• Provide for ongoing review and rate stability.
• Are clear and straightforward for the agency and hauler to administer.
Rate Structure. Almost any rate structure can meet the revenue principles outlined above and
generate the same amount of total revenue. Moreover, almost all rate structures will result in
similar costs for the average customer: what different rate structures tell us is how costs will be
distributed among non-average customers. The following summarizes adopted rate structure
principles for solid waste services:
• Promote source reduction, maximum diversion and recycling.
• Provide equity and fairness within classes of customers (similar customers should be treated
similarly).
• Be environmentally sound.
• Be easy for customers to understand.
COST ACCOUNTING ISSUES
Who’s Paying What?
As noted above, SCSS’s financial operations for Arroyo Grande, Grover Beach, Oceano and
Pismo Beach are closely related. Keeping costs and revenues segregated is further complicated
by the fact that SCSS, as a subsidiary of Waste Connections Incorporated (which acquired the
parent company in April 2002), shares ownership with the following local companies:
• San Luis Garbage Company
• Mission Country Disposal
• Morro Bay Garbage Service
• Coastal Roll-Off Service
• Cold Canyon Land Fill
• Cold Canyon Processing Facility
Additionally, within the South County, SCSS’s service area includes:
• City of Arroyo Grande
• City of Grover Beach
• City of Pismo Beach
• Oceano Community Services District
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• Nipomo Community Services District
• Avila Beach Community Services District
• Other unincorporated areas in the South County such as Rural Arroyo Grande
Cost Accounting System
Between Companies. Separate “source” accounting systems are maintained for each company.
Moreover, audited financial statements are prepared for each company b y an independent
certified public accountant; and SCSS’s auditors have consistently issued “clean opinions” on its
financial operations. In short, appropriate systems appear to be in place to ensure that the
financial results reported for SCSS do not include costs and revenues related to other companies.
Additionally, virtually all of the financial operations of SCSS and its affiliated companies are
regulated by elected governing bodies such as cities, special districts and the County.
Within the SCSS Service Area. Within the SCSS service area, a combination of direct and
allocation methodologies are used in accounting for costs and revenues between communities.
In general, revenues are directly accounted for each franchising agency, while costs are allocated
using generally accepted accounting principles.
Cost Accounting Findings. The accounting and financial reporting system used by SCSS is
reasonable and consistent with generally accepted accounting principles and practices. It treats
similar costs similarly (such as collection and disposal, where there are no significant differences
in service levels and unit costs between the four agencies), while recognizing community
differences (such as different franchise fee rates). Because the financial ope rations of SCSS are
closely related for all of the communities it serves, there are significant a dvantages to performing
concurrent reviews.
Area of Possible Concern. While the service characteristics and resulting per unit costs are very
similar for Arroyo Grande, Grover Beach, Oceano and Pismo Beach, this is unlikely to be true
for the more rural areas in the South County serviced by SCSS. Because of their lower densities,
collection costs are probably higher in these areas but these are not accounted for separately by
SCSS.
On the other hand, there are t hree mitigating factors that reduce this concern:
• Higher rates. Depending on service type, rates are up to 30% higher in these areas,
recognizing the higher collection costs for similar services. In short, these rate differentials
significantly mitigate “equity” and cost accounting concerns.
• Smaller percentage of accounts. The four agencies covered by this report account for about
two-thirds of the accounts serviced by SCSS. Accordingly, while there may be “cost per
account” differences in these other areas, they account for a smaller portion of SCSS
operations.
• About 40% of revenues are from non-SFR accounts. 41% of SCSS revenues come from
multi-family and non-residential accounts, which have the same rate structure and similar
service-versus-cost characteristics throughout the SCSS service area.
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If costs for Arroyo Grande, Grover Beach, Oceano and Pismo Beach are so similar, why are
the residential rates so different?
The short answer is: history and different approaches to rate structure philosophies.
History
Until 1999, service levels under the Franchise Agreements with SCSS between these four
agencies were significantly different. The rates in place at that time became the basis for
subsequent rate reviews.
Rate Structure Principles
Most significantly, each agency has adopted different rate structure principles to recover similar
costs. For example, Pismo Beach has adopted a rat e structure for its residential customers that
more closely reflects a “pay-as-you-throw” philosophy under which the “per gallon” costs for 32,
64 and 96 gallon containers are the same (for example, a 64 -gallon container costs twice as much
as a 32-gallon one.) This results in lower monthly costs for 32-gallon customers and relatively
higher rates for 64 and 96-gallon customers.
On the other hand, Arroyo Grande has adopted rates that do not have as much difference
between container sizes (but still offer an incentive for smaller containers over larger ones),
recognizing collection economies of scale for larger versus smaller containers. In this case, 32 -
gallon containers in Arroyo Grande are more expensive than in Pismo Beach, but 64 -gallon
containers are less.
Both rate structures have their strong points: in the case of Pismo Beach, rates are more
reflective of disposal costs, whereas in Arroyo Grande they are more reflective of collection
costs. But the important point is that the revenue generating capability is the same even though
the rates are different.
Multi-Family and Non-Residential Rates
Lastly, multi-family and non-residential rates (which account for 41% of SCSS revenues) are
similar in all four agencies: it is only in single family residential rates that there are significant
differences between communities.
FINANCIAL OVERVIEW
While detailed financial and service information is provided in the SCSS rate request application
(Appendix A), the following summarizes their actual costs, revenues and account information for
2017 (the last completed fiscal year for which there are audited financial statements) for all areas
serviced by them.
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Costs by Type. Total expenses for 2017
(after deducting for non-allowable and
limited costs as discussed later in this
report) were $11.7 million. As reflected in
Table 3, five cost areas accounted for 84%
of total costs:
• Direct labor for collection: 27%
• Disposal and recycling: 20%
• Vehicle operations and maintenance
(including depreciation): 15%
• Franchise fees: 12%
• Insurance: 10%
Revenues by Source. Total revenues in
2017 were $12.5 million. As reflected
in Table 4, 59% of SCSS’s revenues
come from single-family residential
(SFR) accounts.
Services to multi-family residential and
non-residential customers account for
41% of their revenues, with less than
1% from other revenues.
Service Accounts by Type. While
single-family residences account for
59% of revenues, they represent 92% of
total accounts (Table 5).
This reflects the fact that per account,
multi-family and non-residential
customers generate more solid waste
than single-family residential customers
(and thus more revenue per account).
Item 9.a. - Page 27
Table 3. Costs By Type : $11 .7 Million
D Admin &
Overhead
8%
■ Insurance
10%
■ Franchise
Fees
12%
□ Other Costs
8 %
■ Veh icle
Operations &
Maint
15%
Table 4. Revenues by Source: $12.5 Million
■ Other
Accounts
41 o/o
■ SFR Service
Fees
59 %
Table 5. Accounts By Type: 28,350
■ SFR
Accounts
92%
Solid Waste Rate Review
- 10 -
RATE-SETTING PROCESS
Under the Rate Manual, the rate-setting process follows a three-year cycle:
• Base Year. The first year of the cycle—the Base Year—requires a comprehensive, detailed
analysis of revenues, expenses and operating data. This information is evaluated in the
context of agreed upon factors in the franchise agreements in determining fair and reasonable
rates. As noted above, the last Base Year analysis for SCSS under this approach was
prepared in September 2015.
• Two Interim Years. In both the second and third years, SCSS is eligible for Interim Year
rate adjustments that address t hree key change factors: changes in the consumer price index
for “controllable” operating costs; changes in “pass-through costs” (primarily landfill tipping
fees, which SCSS does not control: they are set by the County Board of Supervisors); and an
adjustment to cover increased franchise fees.
The first two adjustment factors are “weighted” by the proportionate share that these costs
represent of total costs (excluding franchise fees). For example, in the current Base Year
analysis for recommended 2019 rates, controllable costs account for 84% of total costs, with
landfill disposal costs accounting for 16%.
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 Increase History
The following summarizes the SCSS rate review history since 2004 (last twelve years) based on
the year of the application (rate increases took place the following year).
Item 9.a. - Page 28
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1. From 2004 to 2011, 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 in 2011, Pismo Beach adopted
an added 3.9% increase beyond the interim year rate increase of 5.15% 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.
Assuming the proposed rate increase of 10.06% for 2019 is approved, this will result in an average
annual rate increase of 2.75% over the last fifteen years, which reflects a high level of rate stability
and price containment for SCSS customers.
RATE SETTING METHODOLOGY
Are the Costs Reasonable?
The first step in the rate review process is to determine if costs are reasonable. There are three
analytical techniques that can be used in assessing this:
Table 6. Review History: 2005 to 2019 (Last 15 Years)
Year Review Type
Arroyo
Grande
Grover
Beach Oceano
Pismo
Beach (1)
2005 Base Year 5.60%5.60%5.60%5.30%
2006 Interim Year 3.09%3.09%3.09%2.95%
2007 Interim Year 3.76%3.76%3.76%3.60%
2008 Base Year 3.00%3.00%3.00%2.90%
2009 Interim Year 0.00%0.00%0.00%0.00%
2010 Interim Year (2) 0.00%0.00%0.00%0.00%
2011 Interim Year 0.00%0.00%0.00%0.00%
2012 Interim Year (2) 5.15%5.15%5.15%5.15%
2013 Base Year 3.20%3.20%3.20%3.20%
2014 Interim Year 2.05%2.05%2.05%2.05%
2015 Interim Year 0.00%0.00%0.00%0.00%
2016 Base Year 3.25%3.25%3.25%3.25%
2017 Interim Year 1.10%1.10%1.10%1.10%
2018 Interim Year 1.60%1.60%1.60%1.60%
2019 Base Year (3) 10.06%10.06%10.06%10.06%
Item 9.a. - Page 29
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• Detailed review of costs and service responsibilities over time.
• Evaluation of external cost factors, such as general increases in the cost of living (as
measured by the consumer price index).
• Comparisons of rates with other communities.
Each of these was considered in preparing this report, summarized as follows.
Detailed Cost Review
In its rate application (Appendix A), SCSS provides detailed financial data for five years:
• Audited results for the two prior years (2016 and 2017).
• Estimated results for the current year (2018, which is still in progress).
• Projected costs for the Base Year (2019).
• Estimated costs for the following year (2020).
Additionally, for virtually all line items, SCSS provided supplemental detail upon request to
support cost increases from 2017 to 2019.
Table 7 below provides actual costs for 2017 (most recent audit results) compared with requested
and recommended cost projections for 2019.
While there are significant cost increases in several categories, they are reasonable given the cost
drivers facing SCSS; and in the case of MRF costs, this is an acceptable increase due to higher
processing costs and lower revenues combined with the lack of other viable alternatives.
The Short Story. The key drivers behind the proposed 10.06% rate increase for 2019 can be
summarized by three cost factors over the past two years:
• 4.5% for recycling via MRF operations.
• 2.2% for truck depreciation.
• 1.6% for investments in food and green waste recycling.
• 1.8% for all other cost increases including labor, vehicle fuel, ongoing maintenance, labor
and other pass-through costs.
Item 9.a. - Page 30
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The following describes the basis for each for the significant changes.
Allowable Costs
• Direct Labor. This reflects a two-year increase of 10.7%, or about 5.2% per year. SCSS says
this increase is due to cost of living increases of about 2% per year plus an across the board
increase of 5% for retention and attraction. Given the tight labor market, this increase is
reasonable.
• Administrative Costs. This is a combination of corporate overhead (which is limited to
increases in the consumer price index) and office salaries. SCSS’s initial application and
2017 audit reassigned costs between corporate overhead and office salaries. While there may
be merit in its revised approach, this is a change from its past practice that was not discussed
with staff beforehand. In response to this concern, SCSS revised their application. As such,
the best “apples to apples” comparison is to combine the two categories, which results in an
overall reduction of $356,000 in administrative expenses from 2007. This virtually offsets
all of the increases in direct labor.
Table 7. Detailed Cost Review: 2017 vs 2019
2017
Actual Amount Change
Direct Labor $3,150,539 $3,489,134 $338,595
Adminstrative Costs *1,105,077 748,245 (356,832)
Other Expenses
Depreciation: Bldgs & Equipment 16,598 27,275 10,677
Depreciation: Trucks & Containers 229,543 596,497 366,954
Gas and Oil 880,285 965,300 85,015
Insurance: Health Care 638,285 704,092 65,807
Insurance: Liability and Other 557,688 376,836 (180,852)
Outside Services: Food/Greenwaste 441,100 706,984 265,884
Outside Services: Truck Repairs 31,669 119,696 88,027
Truck Repairs 436,531 525,345 88,814
All Other Costs 744,216 754,773 10,557
Total Allowable Costs 8,231,531 9,014,177 782,646
Pass-Through Costs
Tipping Fees: Landfill 1,794,208 1,821,241 27,033
Tipping Fees: MRF (Related Party) 92,054 852,390 760,336
Franchise Fees 1,357,533 1,385,290 27,757
Interest, Related Party 62,222 107,902 45,680
Transportation, Related Party 54,347 50,389 (3,958)
Facility Rent, Related Party 91,703 150,860 59,157
Total Pass-Through Costs 3,452,067 4,368,072 916,005
Total Costs 11,683,598 13,382,249 1,698,651
* Corporate overhead and office salaries
2019 Requested
Item 9.a. - Page 31
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• Depreciation: Buildings and Equipment. This increase results from the SCSS share (31%)
of yard repaving costs of $482,000 in 2018, amortized over twenty-five years, offset by other
reductions.
• Depreciation: Trucks and Containers. In the 2015 Base Year report, I noted there was a
significant decrease in depreciation costs due to an aging fleet: as vehicles begin to remain in
service after their useful lives, they become fully-depreciated and no further annual expenses
are recorded. This lower cost is a good thing initially. However, I noted that these vehicles
will need to be replaced at some point and higher depreciation costs will then be incurred.
This is reflected in projected costs for 2019, which reflects the replacement of six trucks at a
cost of about $432,000 per vehicle. In assessing the reasonableness of this co st, SCSS
provided the invoice for its most recent purchase. Additionally, recent costs for similar
vehicles by other agencies were also reviewed. Based on this review, the proposed cost base
is reasonable. Amortized over seven years as set forth in the Rate Manual, this results in
added depreciation costs of $370,000, which fully accounts for the increase from 2017 of
$367,000.
It should be noted that with these additions, the overall fleet age will decrease from 12.8
years to 11.2 years, a reduction of about 10% with these replacements, compared with the
Rate Manual target of seven years. According, when these remaining vehicles that have
exceed their useful lives are replaced, additional increases in depreciation costs in future
Base Year rate applications are likely.
• Gas and Oil. These costs are projected to increase by about 4.5% annually. Given the
volatility (both up and down) of diesel and CNG costs, this is a reasonable assumption for
2019 costs.
• Insurance: Health Care. These costs are projected to increase from 2017 by about 5%
annually. Given increases in health care costs, this is a reasonable assumption for 2019 costs.
• Insurance: Liability and Other. Projected costs have decreased significantly from 2017,
which reflects favorably on SCSS’s risk management efforts.
• Outside Services: Food and Greenwaste. These cost increases are driven by the 20-year
investment in new equipment (on-site Digester) for food and green waste. This increased cost
was envisioned in the 2016 Franchise Agreement amendments, where the term was
correspondingly extended for 20 years.
The proposed rate is $51.44 per
ton, an increase from $36.97 per
ton in 2017. This increase is
consistent with estimates
discussed at the time. However,
as reflected in Table 8, the key
issue is allocating excess
capacity. Currently about 25,000
Table 8. Food and Greenwaste: All Customers
Current Agency Use (Delivered Tons) 25,000
Reserve for Cold Canyon 3,000
Total 28,000
Capacity 34,000
Excess (Reserve) Capacity
Tons 6,000
Percent 24.0%
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tons are delivered to the Digester from all of Waste Connections’ central coast customers;
and another 3,000 tons have been reserved by Waste Connections for diversion from the
landfill (plans to do so are in progress). However, the Digester is capable of processing
34,000 tons, an excess capacity of 6,000 tons (24%). It makes sense to reserve a reasonable
capacity for the future: the question is: how much?
For rate-setting purposes, SCSS is proposing to share this capacity 67%/33%. This reserves
about 18% growth for central coast agencies, allowing for about 1% growth over the 20-year
franchise term. I concur that this is a reasonable basis for projecting this cost for 2019. This
results in the following cost increase (roughly equal to the costs presented in Table 7):
It should be noted that an alternative of a “50/50” split of the excess capacity would reduce
the cost allocated to SCSS by about $36,000, for a lower increase of 9.72% versus the
requested increase of 10.06% (difference of 0.34%). This would have a very minor impact on
single family residential rates (about 5 cents per month for 32 -gallon customers).
Accordingly, reserving a larger capacity for future growth makes sense. That said,
addressing the allocation of the Digester capacity is another area that would benefit from an
update to the Rate Manual.
• Truck Repairs: Outside Services and In-House. As summarized below, the rate
application requests an increase of $353,682 (75.5%) in this cost category:
While significant, the proposed costs reflect a decrease from their initial application of
$821,882. Based on follow-up requests for more information and added review by SCSS of
current trends, they have reduced the proposed amount by $176,841. On one hand, this is
disconcerting, since the average age of the fleet is going down by 10%, and as such, a modest
decrease might otherwise be expected. However, SCSS’s explanation for this increase is that
it reflects a more proactive approach to vehicle maintenance, which it believes is necessary in
meeting safety concerns. Along with other efforts, this focus on safety appears to be
working, as reflect ed by the significant reduction in insurance costs.
• All Other Allowable Costs. While there are ups and downs in individual line items, in total
these reflect modest annual increases of less than 1%.
Table 9. Increased Food and Greenwaste Costs
2017 2019 Increase
Tonnage 11,931 13,727 1,796
Cost per ton 36.97 51.44 14.47
Annual Cost $441,089 $706,097 265,008
Table 10. Truck Repairs
Actual Requested
2017 2019 Amount Percent
Outside Services 31,669 119,696 88,027 278.0%
In-House 436,531 525,345 88,814 20.3%
Total $468,200 $645,041 $176,841 37.8%
Increase
Item 9.a. - Page 33
I I I I
Solid Waste Rate Review
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Pass-Through Costs
• Tipping Fees: Landfill. No rate increases are reflected in the rate application. The modest
two-year increase of 1.5% reflects increased tonnage.
• Tipping Fees: MRF (Related Party). This cost category reflects a significant cost increase
from 2017. As summarized below, this is driven by a rate increase from $7.80 per ton to
$67.50 per ton by a separate company that is controlled by Waste Connections (Cold Canyon
Processing Facility):
Note: The net costs for 2017 in Table 7 reflect other offsetting costs of about $7,000.
Waste Connections believes that its MRF rates are not subject to regulatory review and that
its basis for setting these rates is proprietary and not subject to disclosure under the Franchise
Agreements. That said, SCSS offers the following explanation for this cost increase:
Competitive Rates. The following information was provided by SCSS is comparing their
proposed rate with other communities:
Table 12. MRF Rates Survey
In short, SCSS believes its pricing is far lower than that otherwise available to South County
communities; and even if loading and transportation costs are excluded, Waste Connections’
MRF costs are very competitive.
In reviewing these costs, it is important to note that while SCSS is responsible under the
Franchise Agreements for separately collecting co -mingled recyclables and delivering them
to a recycling facility that will accept them for processing, it is not required to operate such a
Table 11. Recycling: MRF Operations
Actual Requested
2017 2019 Amount Percent
Tonnage 12,773 12,628 (145) -1.1%
Cost per ton 7.80 67.50 59.70 765.4%
Annual Cost $99,629 $852,390 $752,761 755.6%
Increase
Distance Reload Transport Revenue All-In
Facility Location (Miles)Processing (If SLO)from SLO Sharing Cost
Cold Canyon Processing Facility San Luis Obispo 0 $67.50 $0.00 $0.00 No $67.50
Monterey Regional Waste Facility (1)Monterey 144 50.00 10.00 45.00 No 105.00
Burrtec (2)West Valley 215 57.50 10.00 45.00 No 112.50
Mid Valley Disposal Fresno 140 67.50 10.00 40.00 No 117.50
Gold Coast Recycling Ventura 162 77.44 10.00 40.00 No 127.44
Mid-State (3)Templeton 23 78.00 10.00 25.00 No 113.00
Tajiguas Landfill Santa Barbara 112 160.00 10.00 30.00 No 200.00
Recology Pier 96 (Bay Area)214 190.00 10.00 45.00 Unknown 245.00
1. Expected rate in 90 days.
2. Eliminated revenue share
3. Unable to handle SLO County volume
Per Ton Pricing
Item 9.a. - Page 34
Solid Waste Rate Review
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facility. As such, the $67.50 rate, while a significate increase, is more cost-effective for
SCSS than other alternatives.
Given increased costs and lower market prices, the increased rate for 2019 reflects the
same operating margin as 2017. Subject to several key caveats, this may be true.
1. It is clear that market realities have significantly impacted the net cost of recycling. As
discussed by the President of the Boston Group in Appendix B, this is largely due to the
collapse of markets in China, which affects both costs and revenues: the quality of the
recycled product needs to be higher (resulting in higher costs); and the price of recycled
products is significantly lower.
2. It reasonable for operating margins for recycling to be higher than they are for collection
services like those provided under the Franchise Agreements. As discussed below under
Rate-Setting Methodology, SCSS is allowed an operating profit margin of 8% for “non-
pass through costs.” In essence, this recognizes that while there are risks in effectively
managing costs, there are minimal revenue risks, since rates are guaranteed and service is
required. However, with recycling costs, revenues are highly volatile depending on the
market. Thus, there is both cost and revenue risk.
A complex econometric model developed the firm of Sound Resource Economics
(located in Tacoma Washington: Neal Johnson, PhD, Principal) indicates that 16% is an
appropriate operating profit margin for utilities where costs and revenues are at risk.
Setting aside the math and assumptions behind this conclusion, it intuitively makes sense
that operating margins should be higher where both costs and revenues are at risk, versus
where just costs are. Placed in context for SCSS collection services, which have an 8%
operating margin for cost risks, an added margin for revenue risks (especially in a volatile
market) makes sense.
3. Based on a non-disclosure agreement, SCSS shared with me very high-level data
showing that based on projected higher costs and lower revenues from 2017, that the
operating margin between 2017 and 2019 remained the same.
4. While I was not provided with the underlying detail for the high-level cost and revenue
data provided to me, I can conclude that based on market forces that are driving higher
costs and lower revenues, and a reasonable operating margin in excess of 8%, that a
significant increase in recycling costs is reasonable. The question is: how much?
Answering this question clearly is made difficult by the fact that the Rate Manual did not
foresee this situation (in fact, it thought there would be net revenues offsetting rate
requirements). More appropriately addressing this cost issue is key factor in my
recommendation to update the Rate Manual.
That said, given the higher costs and lower revenues undoubted ly faced by the MRF
combined with the lack of more cost -effective options, the proposed rate of $67.50 is
acceptable.
Item 9.a. - Page 35
Solid Waste Rate Review
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Provided in Appendix C is addition information from Waste Connections about its MRF
operations.
• Franchise Fees. This reflects a modest two -year increase of 2% based on customer growth.
• Interest (Related Party). Interest is an allowable cost under the Rate Manual. In this case,
interest costs are assessed internally by Waste Connections based on a methodo logy that
takes into account its corporate costs of borrowing and financed assets. Accordingly, this is
treated as a “pass-through” cost. SCSS’s auditors have provided a written opinion on the
reasonableness of the methodology; and I have reviewed the calculations underlying the
projected costs in accordance with this methodology. Based on this, I believe the projected
interest costs for 2019 are reasonable.
• Transportation (Related Party). These costs have decreased modestly.
• Facility Rent (Related Party). This increase is based on an updated assessment of the
market value of SCSS’s share of the yard and office facilities. Based on reviewing a recent
independent market value assessment and Waste Connections methodology for allocating
SCSS’s share of these costs, I believe that the cost increase is reasonable.
Trends in External Cost Drivers
The most common external “benchmark” for evaluating cost trends is the consumer price index.
Over the past two years, the U.S. CPI-U increased by 4.4%. Excluding the cost drivers discussed
above, all other costs increased by 1.4%.
Rates in Comparable Communities
Lastly, reasonableness of rates (and underlying costs) can also be evaluated by comparing rates
with comparable communities. However, survey results between “comparable” communities
need to be carefully weighed, because every community is different. For example, even in the
South County where service levels and costs are very similar, there are rate differences. In short,
making a true “apples-to-apples” comparison is easier said than done.
Nonetheless, surveys are useful assessment tools —but they are not perfect and they should not
drive rate increases. Typical reasons why solid waste rates may be different include:
• Franchise fees and AB 939 fee surcharges
• Landfill costs (tipping fees)
• Service levels (frequency, quality)
• Labor market
• Operator efficiency and effectiveness
• Voluntary versus mandatory service
Item 9.a. - Page 36
Solid Waste Rate Review
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• Direct services provided to the franchising agency at no cost, such as free trash container
pick-up at city facilities, on streets and in parks
• Percentage of non-residential customers, and how costs and rates are allocated between
customer types
• Revenue collection procedures: Does the hauler or the franchising agency bill for service?
And what are the procedures for collecting delinquent accounts?
• Services included in the base fee (recycling, green waste, containers, pick -up away from
curb)
• Different rates structures
• Land use and density (lower densities will typicall y result in higher service costs)
• Mix of residential and non-residential accounts
With these caveats, the following summarizes single family residential rates for other cities in
the Central Coast area compared with the proposed rates for SCSS. As reflected below, even
with the recommended or proposed rate increases, Arroyo Grande, Grover Beach, Oceano and
Pismo Beach will have among the lowest rates of the agencies surveyed.
Summary: Are the costs reasonable? Based on the results of the three separate cost-review
techniques—trend review, external factor review and rate comparisons—the proposed cost
assumptions for 2019 are reasonable.
What Is a Reasonable Return on these Costs?
After assessing if costs are reasonable, the next step is to determine a reasonable rate of return on
these costs. The rate-setting method formally adopted by Arroyo Grande, Grover Beach, Oceano
Table 13. Single-Family Residential Rate Survey
Single Family Residential Monthly Trash Rates
30-40 60-70 90-101
Atascadero $26.49 $41.56 $52.18
Morro Bay 17.91 35.81 53.72
Paso Robles 32.33 42.41 46.81
San Luis Obispo*14.49 28.99 43.48
Santa Maria na 30.69 34.81
San Miguel 28.23 44.48 61.06
Templeton 28.72 41.15 45.67
Requested: South County Sanitation Service Area
Arroyo Grande 19.00 24.70 30.41
Grover Beach 17.22 23.29 29.32
Oceano 15.41 22.16 43.36
Pismo Beach 16.91 33.82 50.73
* Currently under review
Container Size (Gallons)
Item 9.a. - Page 37
Solid Waste Rate Review
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and Pismo Beach in their Franchise Agreements with SCSS includes clear criteria for making
this assessment. It begins by organizing costs into three main categories, which will be treated
differently in determining a reasonable “operating profit ratio:”
Allowable Costs (Operations and Maintenance)
• Direct collection labor • Fuel
• Vehicle maintenance and repairs • Depreciation
• Insurance • Billing and collection
Pass-Through Costs
• Tipping fees
• Franchise fees
• Payments to affiliated companies (such as facility rent, interest and trucking charges)
Excluded and Limited Costs
• Charitable and political contributions • Non-IRS approved profit-sharing plans
• Entertainment • Fines and penalties
• Income taxes • Limits on corporate overhead
After organizing costs into these three categories, determining “operating profit ratios” and
overall revenue requirements is straightforward:
• The target is an 8% operating profit ratio on “allowable costs.”
• Pass-through costs may be fully recovered through rates but no profit is allowed on these
costs.
• No revenues are allowed for any excluded or limited costs.
In the case of SCSS, about 70% of their costs are subject to the 8% operating profit ratio; and
30% are pass-through costs that may be fully recovered from rates but no profit is allowed. No
recovery is allowed for excluded costs.
Preparing the Rate Request Application
Detailed “spreadsheet” templates for preparing the rate request application—including
assembling the required information and making the needed calculations—are provided in the
Rate Manual. SCSS has prepared their rate increase application in accordance with these
requirements (Appendix A); and the financial information provided in the application for 2016
and 2017 ties to its audited financial statements.
Rate Request Summary
The following summarizes the calculations that support the requested and recommended rate
increases:
Item 9.a. - Page 38
Solid Waste Rate Review
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Implementation
The following summarizes key implementation concepts in the adopted rate-setting model:
• The “8%” operating profit ratio is a target; in the interest of rate stability, adjustments are
only made if the calculated operating profit ratio falls outside of 10% to 6%.
• There is no provision for retroactivity: requested rate increases are “prospective” for the year
to come; there is no provision for looking back. This means that any past shortfalls from the
target operating profit cannot be recaptured.
• On the other hand, if past ratios have been stronger than this target, then the revenue base is
re-set in the Base Year review.
• As discussed above, detailed Base Year reviews are prepared every three years; Interim Year
reviews to account for focused changes in the consumer price and tipping fees are prepared
in the two “in-between” years.
• Special rate increases for extraordinary circumstances may be considered. This has never
occurred in any of the agencies that use this rate-setting methodology.
The result of this process is a proposed rate increase of 10.06%.
COST OF LIVING “TRIGGER OPTION”
As noted above, 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
Table 15. Rate Increase Summary
Requested
Allowable Costs 9,014,178
Allowable Profit (8% Operating Ratio)783,841
Pass-Through Costs
Tipping Fees: Landfill 1,821,241
Tippping Fees: MRF 852,390
Franchise Fees 1,385,290
Related Party Costs 309,151
Total Pass-Through Costs 4,368,072
Allowed Revenue Requirements 14,166,091
Revenue without Rate Increase 12,991,486
Revenue Requirement: Shortfall (Surplus) 1,174,605
Rate Base Revenue 12,973,924
Percent Change in Revenue Requirement 9.05%
Allowed Revenue Increase *10.06%
* Adjusted for 10% Franchise Fee
Item 9.a. - Page 39
Solid Waste Rate Review
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at any time within nine months following approval of the requested rate increase . 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, if possible.
Calculation of the Costs of Living Threshold
As recommended in the 2013 Interim Year rate review for consistency and clarity, the CPI -U rate
increases used in calculating Interim Year increases and the “trigger” threshold are based on
changes from June to June (given application submittal targets, this was the most recent date that
would consistently be available).
Along with the adjustment for the “weighted” greenwaste rate increase in 2012 of 1.7%
previously approved, the 2016 Franchise Agreement amendments provided for adjustments to
the threshold “trigger” of la ndfill rate increases, weighted by the ratio of landfill costs to total
costs (assumed at 16% based on long-term trends).
Table 16(a) provides the threshold calculation compared with actual rate increases and those
recommended for 2019; and Table 16(b) provides landfill rates since 2008.
As reflected in Table 16(a), the cumulative changes in the cost of living (with adjustments for
greenwaste and landfill cost increases) is 22.53%. This compares with cumulative rate increases,
including those recommend ed of 10.06% for 2019, of 29.27%. This would result in exceeding
the “trigger” by 6.74%. Correspondingly, the rate increase would be limited to 3.32% to remain
under the “trigger.”
Table 16(a). Trigger Threshold Calculation
Rate Rate
June Index Amount Percent Greenwaste Landfill (1)Threshold Year (2)Increase *
2009 215.693
2010 217.965 2.272 1.05%2.74%3.79%2011 0.00%
2011 225.722 7.757 3.56%1.70%0.00%5.26%2012 5.15%
2012 229.478 3.756 1.66%0.00%1.66%2013 3.20%
2013 233.504 4.026 1.75%1.05%2.81%2014 2.05%
2014 238.343 4.839 2.07%0.99%3.06%2015 0.00%
2015 238.638 0.295 0.12%0.93%1.05%2016 3.25%
2016 241.018 2.380 1.00%0.00%1.00%2017 1.10%
2017 244.955 3.937 1.61%0.00%1.61%2018 1.61%
2018 251.989 7.034 2.79%0.00%2.79%2019 10.06%
Cumulative Total 36.296 16.83%1.70%5.70%22.53%29.27%
1. Landfill rate increases prorated at 16% of total costs
2. Recommended rate for 2019
Above Trigger Threshold: Requested Rate Increase 6.74%
Available Rate Increase to Avoid Trigger 3.32%
US CPI-U Increase Allowed Adjustments
Item 9.a. - Page 40
Solid Waste Rate Review
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Note: Under long-term rate increases approved by the County, Cold Canyon Landfill was eligible for annual rate
increases of $2.25 per ton in 2017, 2018 and 2019, with a resulting rate of $47.75 by 2019, However, it chose not to
do so.
However, it is important to note that this “trigger” calculation does not limit the allowable rate
increase that may be requested under the methodology set forth in the Franchise Agreements.
Accordingly, the agencies may want to consider (as they did in as part of the 2016 Base Year
review and Interim Year increases for 2017 and 2018), if the recommended or requested rate
increases are approved, making findings that they will not pursue the “trigger” option.
COORDINATION WITH OTHER AGENCIES
SCSS has submitted similar rate requests to the t hree other agencies that regulate rates and
services in the other South County areas that it serves: County of San Luis Obispo , Avila Beach
Community Services District and the Nipomo Community Services District . These agencies are
likely to act on the requested rate increases within the same time frame as the four agencies
covered in this report .
Waste Connections (as San Luis Garbage Company) has also submitted a rate increase
application to the City of San Luis Obispo, which has also undergone several amendments.
Based on similar rate increase drivers as those provided for SCSS, t he most recent version
requests an increase of 13.72%.
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:
Table 16(b). Landfill Rates Per Ton
Prorated @
Year Actual Amount Percent 16%
2008 29.25 - 0.00% 0.00%
2009 29.25 - 0.00% 0.00%
2010 29.25 - 0.00% 0.00%
2011 34.25 5.00 17.09% 2.74%
2012 34.25 - 0.00% 0.00%
2013 34.25 - 0.00% 0.00%
2014 36.50 2.25 6.57% 1.05%
2015 38.75 2.25 6.16% 0.99%
2016 41.00 2.25 5.81% 0.93%
2017 41.00 - 0.00% 0.00%
2018 41.00 - 0.00% 0.00%
2019 41.00 - 0.00% 0.00%
Increase
Item 9.a. - Page 41
Solid Waste Rate Review
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• SCSS has submitted the required documentation required under its Franchise Agreements
with the four agencies.
• This results in a recommended rate increase of 10.06%.
ATTACHMENTS
Appendix A: Base Year Rate Request Application from South County Sanitary Service
Appendix B: Boston Group Outlook on Recycling Costs
Appendix C: Cold Canyon Processing Facility Background
Item 9.a. - Page 42
Appendix A
BASE YEAR RATE REQUEST
APPLICATION
1. Base Year Application Summary
• City of Pismo Beach
• City of Arroyo Grande
• City of Grover Beach
• Oceano Community Services District
2. Supporting Schedules
• Financial Information: Cost and Revenue Requirements Summary
• Revenue Offset Summary
• Cost Summary for Base Year
• Base Year Revenue Offset Summary
• Operating Information
Item 9.a. - Page 43
South County Sanitary Service
2019 Base Year Rate Adjustment Application-4th Amended
Summary CITY OF ARROYO GRANDE
Requested Increase
Recycle Processing 6.5%CNG Trucks/Infrastructure 4.40%
Organics 3.1%
Other -3.9%
1. Rate Increase Requested 10.06%
Rate Schedule
Current Increased Adjustment New
Rate Schedule Rate Rate (a)Rate
Single Family Residential
2. Economy Service (1 - can curb)17.26$ $1.74 $19.00
4. Standard Service (2- can curb)22.44$ $2.26 $24.70
5. Premium Service (3 - can curb)27.63$ $2.78 $30.41
(a) Calculated rates are rounded up to the nearest $0.01.
6.Multiunit Residential and Non-residential Rate increases of 10.06%
will be applied to all rates in each structure
with each rate rounded to the nearest $0.01
Certification
To the best of my knowledge, the data and information in this application is complete, accurate, and consistent with the instructions
provided by the Rate Setting Manual.
Name:Jeff Smith Title:District Manager
Signature:Date:03/18/19
Fiscal Year: 1-1-2019 to 12-31-2019
Appendix A.1
Item 9.a. - Page 44
South County Sanitary Service
2019 Base Year Rate Adjustment Application-4th Amended
Summary CITY OF GROVER BEACH
Requested Increase
Recycle Processing 6.5%CNG Trucks/Infrastructure 4.40%
Organics 3.1%
Other -3.9%
1. Rate Increase Requested 10.06%
Rate Schedule
Current Increased Adjustment New
Rate Schedule Rate Rate (a)Rate
Single Family Residential
2. Economy Service (1 - can curb)15.65$ $1.57 $17.22
4. Standard Service (2- can curb)21.16$ $2.13 $23.29
5. Premium Service (3 - can curb)26.64$ $2.68 $29.32
(a) Calculated rates are rounded up to the nearest $0.01.
6.Multiunit Residential and Non-residential Rate increases of 10.06%
will be applied to all rates in each structure
with each rate rounded to the nearest $0.01
Certification
To the best of my knowledge, the data and information in this application is complete, accurate, and consistent with the instructions
provided by the Rate Setting Manual.
Name:Jeff Smith Title:District Manager
Signature:Date:03/18/19
Fiscal Year: 1-1-2019 to 12-31-2019
Appendix A.1
Item 9.a. - Page 45
South County Sanitary Service
2019 Base Year Rate Adjustment Application-4th Amended
Summary OCEANO COMMUNITY SERVICE DISTRICT
Requested Increase
Recycle Processing 6.5%CNG Trucks/Infrastructure 4.40%
Organics 3.1%
Other -3.9%
1. Rate Increase Requested 10.06%
Rate Schedule
Current Increased Adjustment New
Rate Schedule Rate Rate (a)Rate
Single Family Residential
2. Economy Service (1 - can curb)14.00$ $1.41 $15.41
4. Standard Service (2- can curb)20.13$ $2.03 $22.16
5. Premium Service (3 - can curb)39.40$ $3.96 $43.36
(a) Calculated rates are rounded up to the nearest $0.01.
6.Multiunit Residential and Non-residential Rate increases of 10.06%
will be applied to all rates in each structure
with each rate rounded to the nearest $0.01
Certification
To the best of my knowledge, the data and information in this application is complete, accurate, and consistent with the instructions
provided by the Rate Setting Manual.
Name:Jeff Smith Title:District Manager
Signature:Date:03/18/19
Fiscal Year: 1-1-2019 to 12-31-2019
Appendix A.1
Item 9.a. - Page 46
South County Sanitary Service
2019 Base Year Rate Adjustment Application-4th Amended
Summary CITY OF PISMO BEACH
Requested Increase
Recycle Processing 6.5%CNG Trucks/Infrastructure 4.40%
Organics 3.1%
Other -3.9%
1. Rate Increase Requested 10.06%
Rate Schedule
Current Increased Adjustment New
Rate Schedule Rate Rate (a)Rate
Single Family Residential
2. Economy Service (1 - can curb)$15.36 $1.55 $16.91
4. Standard Service (2- can curb)$30.73 $3.09 $33.82
5. Premium Service (3 - can curb)$46.09 $4.64 $50.73
(a) Calculated rates are rounded up to the nearest $0.01.
6.Multiunit Residential and Non-residential Rate increases of 10.06%
will be applied to all rates in each structure
with each rate rounded to the nearest $0.01
Certification
To the best of my knowledge, the data and information in this application is complete, accurate, and consistent with the instructions
provided by the Rate Setting Manual.
Name:Jeff Smith Title:District Manager
Signature:Date:03/18/19
Fiscal Year: 1-1-2019 to 12-31-2019
Appendix A.1
Item 9.a. - Page 47
South County Sanitary Service
2019 Base Year Rate Adjustment Application
Current
Financial Information Base Year
2016 2017 2018 2019 2020
(from Pg. 4)
6. Direct Labor $3,083,345 $3,150,539 $3,385,970 $3,489,134 $3,593,808
7. Corporate Overhead $332,113 $153,045 $340,461 $350,334 $363,647
8. Office Salaries $478,072 $901,055 $386,322 $397,911 $409,849
9. Other General and Admin Costs $3,820,842 $4,026,894 $4,098,450 $4,776,799 $4,958,317
10 Total Allowable Costs $7,714,372 $8,231,533 $8,211,202 $9,014,178 $9,325,620
11. Operating Ratio 87.3%91.1%96.1%92.0%92.0%
12.Allowable Operating Profit $1,126,283 $803,795 $336,505 $783,841 $810,924
13. Tipping Fees $1,891,183 $1,886,262 $2,680,988 $2,673,630 $2,673,630
14. Franchise Fees $1,318,502 $1,357,533 $1,368,864 $1,385,290 $1,401,894
15. AB939 Fees $0 $0 $0 $0 $0
16. Payments to Affiliated Companies*$137,595 $208,272 $243,980 $309,151 $320,899
17. Total Pass Through Costs $3,347,280 $3,452,067 $4,293,832 $4,368,072 $4,396,423
* Affiliate Payments include interest, lease payments, and transportation
18. Revenue Requirement $12,187,936 $12,487,395 $12,841,539 $14,166,091 $14,532,967
19. Total Revenue Offsets $12,187,936 $12,487,395 $12,841,539 $12,991,486 $13,147,193
(from Page 3)
20. Net Shortfall (Surplus)$1,174,605
21. Total Residential and Non-residential Revenue without increase Nipomo
in Base Year (pg.5, line 76)$12,973,924 $12,973,924 $12,973,924
22. Percent Change in Residential and Non-residential Revenue Requirement 9.05%9.1%8.2%
23. Franchise Fee Adjustment Factor (1 - 6 percent)90.000%94.000%92.700%
10.06%9.63%8.89%
Limitation due to cumlative increases
24. Percent Change in Existing Rates 10.06%9.63%8.89%
Fiscal Year: 1-1-2019 to 12-31-2019 Pg. 2 of 6
Section III-Pass Through Costs
Section III-Pass Through Costs
Historical Projected
Section I-Allowable Costs
Section II-Allowable Operating Profit
Section III-Pass Through Costs
Appendix A.2
4th Amendment Item 9.a. - Page 48
South County Sanitary Service
2019 Base Year Rate Adjustment Application
Revenue Offset Summary
Current
Base Year
2016 2017 2018 2019 2020
Residential Revenue (without increase in Base Yr.)
28. Single Family Residential $7,163,810 $7,341,537 $7,541,246 $7,631,741 $7,723,322
Multiunit Residential Dumpster
29. Number of Accounts
30. Revenues
31. Less Allowance for Uncollectible Resi Accounts $0 $0 $0 $0 $0
32.Total Residential Revenue $7,163,810 $7,341,537 $7,541,246 $7,631,741 $7,723,322
Non-residential Revenue (without increase in Base Yr.)
Account Type
Non-residential Can
33. Number of Accounts 8 8 8 8 8
34. Revenues $4,535 $4,589 $4,644
Non-residential Wastewheeler
35. Number of Accounts 392 425 460 466 471
36. Revenues $477,469 $483,199 $488,997
Non-residential Dumpster
37. Number of Accounts 1,738 1,684 1,629 1,649 1,668
38. Revenues $5,004,136 $5,133,957 $4,796,508 $4,854,067 $4,912,315
39. Less: Allowance for Uncollectible Non-resid $0 $0 $0 $0 $0
40.Total Non-residential Revenue $5,004,136 $5,133,957 $5,278,512 $5,341,854 $5,405,956
45.Interest on Investments $6,104 $0 $0 $2,035 $2,059
46.Other Income $13,885 $11,901 $21,780 $15,856 $15,856
47.Total Revenue Offsets $12,187,936 $12,487,395 $12,841,539 $12,991,486 $13,147,193
Fiscal Year: 1-1-2019 to 12-31-2019 Pg. 3 of 6
Section VII - Revenue Offsets
Historical Projected
Appendix A.2
4th Amendment Item 9.a. - Page 49
South County Sanitary Service
2019 Base Year Rate Adjustment Application
Cost Summary for Base Year
Description of Cost BASE YEAR
2016 2017 2018 2019
Labor $2,849,547 $2,906,100 $3,127,283 $3,219,834
Payroll Taxes $233,798 $244,439 $258,686 $269,300
48.Total Direct Labor $3,083,345 $3,150,539 $3,385,970 $3,489,134
49. Corporate Overhead $332,113 $153,045 $436,899 $453,501
Less limitation (enter as negative)($96,438)($103,167)
Total Corporate Overhead $332,113 $153,045 $340,461 $350,334
Office Salary $442,804 $864,061 $350,384 $360,895
Payroll Taxes $35,268 $36,995 $35,938 $37,016
50.Total Office Salaries $478,072 $901,055 $386,322 $397,911
Bad Debt $2,448 $4,271 $11,283 $4,300
Allocated expenses $0 $0 $0 $0
Bond expense $6,482 $5,325 $5,325 $5,527
Depreciation on Bldg and Equip $0 $16,598 $6,297 $27,275
Depreciation on Trucks/Containers $274,514 $229,543 $304,867 $596,497
Drive Cam fees $28,997 $28,680 $22,949 $23,821
Dues and Subscriptions $6,738 $8,196 $6,221 $6,457
Facilities $0 $50,977 $0 $0
Gas and oil $796,069 $880,285 $969,634 $965,300
Laundry (Uniforms)$21,452 $24,462 $26,679 $27,693
Legal and Accounting $29,459 $30,952 $31,145 $37,328
Miscellaneous and Other $16,522 $8,372 $8,433 $8,753
Office Expense $206,325 $242,249 $275,612 $286,086
Operating Supplies $39,671 $39,710 $40,674 $42,219
Other insurance - Medical $1,238,436 $1,195,973 $1,041,356 $1,080,928
Other Taxes $35,985 $35,080 $34,854 $36,179
Outside Services $431,794 $518,013 $541,595 $867,435
Public Relations and Promotion $1,578 $1,699 $1 $1
Postage $6,574 $2,005 $2,047 $4,125
Permits $63,007 $60,347 $60,101 $62,385
Relocation $22,576 $3,186 $9,302 $9,656
Rent $3,000 $3,000 $0 $0
Telephone $20,909 $20,182 $13,956 $14,486
Tires $146,896 $139,628 $87,488 $88,145
Travel $26,944 $13,991 $27,278 $28,315
Truck Repairs $365,282 $436,531 $543,855 $525,345
Utilities $29,184 $27,637 $27,497 $28,542
51.Total Other Gen/Admin Costs $3,820,842 $4,026,894 $4,098,450 $4,776,799
52.Total Tipping Fees $1,891,183 $1,886,262 $2,680,988 $2,673,630
53.Total Franchise Fee 1,318,501.56 $1,357,533 1,368,863.98 1,385,290
54.Total AB 939/Regulatory Fees $0 $0 $0 $0
55.Total Lease Pmt to Affil Co.'s $89,051 $91,703 $145,337 $150,860
55a.Interest Expense (to affiliate)$0 $62,222 $50,099 $107,902
55b.Transportation costs (to affiliate)$48,544 $54,347 $48,545 $50,389
56.Total Cost $11,013,108 $11,567,031 $12,406,390 $13,223,958
Fiscal Year: 1-1-2019 to 12-31-2019 Pg. 4 of 6
Appendix A.2
4th Amendment Item 9.a. - Page 50
South County Sanitary Service
2019 Base Year Rate Adjustment Application
Base Year Revenue Offset Summary For Information Purposes Only
Description of Revenue Overall Franchise Refuse Collection Non-franchise
Total Total Arroyo Pismo Grover Unincorporated Total
Residential Revenue
(without increase in Base Year)
57. Single Family Residential $7,631,741 $7,631,741 $1,293,703 $852,859 $868,551 $4,616,628
Multiunit Residential Dumpster
58. Number of Accounts 0 0
59. Revenues $0 $0
60. Less Allowance for Uncollectable $0 $0
61.Total Residential Revenue $7,631,741 $7,631,741 $1,293,703 $852,859 $868,551 $4,616,628 $0
Non-residential Revenue (without increase in Base Year)
Account Type
0.34% 0.35%33.05% 15.36%0.00%0.00%
Non-residential Can
62. Number of Accounts 8 8 2 4 0 2
63. Revenues $4,589 $4,589 $503 $1,468 $0 $2,617
Non-residential Wastewheeler 3.4%0.0%
64. Number of Accounts 466 466 131 132 95 108
65. Revenues $483,199 $483,199 134,345.31 180,384.79 64,852.36 103,616.13
Non-residential Dumpster 96%17%38%3%
66. Number of Accounts 1,649 1643 352 236 327 728 6
67. Revenues $4,854,067 $4,777,761 $1,059,880 $1,004,808 $688,810 $2,024,263 $76,305
68. Less: Allowance for Uncollectible
Non-residential Accounts $0 $0
69.Total Non-residential Revenue $5,341,854 $5,265,549 $1,194,729 $1,186,661 $753,662 $2,130,497 $76,305
74.Interest on Investments $0 $0 $0 $0 $0 $0 $0
75.Other Income $328 $0 $0 $0 $0 $0 $328
76.Total Revenue Offsets $12,973,924 $12,897,290 $2,488,432 $2,039,520 $1,622,213 $6,747,125 $76,634
Fiscal Year: 1-1-2019 to 12-31-2019 Pg. 5 of 6
Section VII-Revenue Offsets
Appendix A.2
4th Amendment Item 9.a. - Page 51
I I I I I
I I I I I I
South County Sanitary Service
2019 Base Year Rate Adjustment Application
Operating Information
Percent Percent Percent Base Year Percent
2016 Change 2017 Change 2018 Change 2019 Change 2020
Residential
Accounts
77. Arroyo Grande 5,742 0.5% 5,769 1.1% 5,833 1.0% 5,891 1.0% 5,950
Grover Beach 4,198 0.3% 4,211 0.7% 4,239 1.0% 4,281 1.0% 4,324
Pismo Beach 3,748 0.5% 3,768 -0.2% 3,762 1.0% 3,800 1.0% 3,838
Oceano CSD 1,838 0.1% 1,840 -0.3% 1,834 1.0% 1,852 1.0% 1,871
Nipomo CSD 4,001 0.8% 4,035 0.9% 4,070 1.0% 4,111 1.0% 4,152
County 6,436 1.8% 6,551 1.4% 6,643 1.0% 6,709 1.0% 6,777
25,963 0.8% 26,174 0.8% 26,381 1.0% 26,645 1.0% 26,911
78. Routes-Garbage 7 0.0% 7 0.0% 7 0.0% 7 0.0% 7
79. Routes-Recycling 7 0.0% 7 0.0% 7 0.0% 7 0.0% 7
80. Direct Labor Hours 32,722 0.0% 32,722 0.0% 32,722 0.0% 32,722 0.0% 32,722
Non-residential Garbage
Accounts
80. Arroyo Grande 486 -1.0% 481 -0.4% 479 1.0% 484 1.0% 489
Grover Beach 442 -2.0% 433 -3.7% 417 1.0% 421 1.0% 425
Pismo Beach 380 -1.1% 376 -2.4% 367 1.0% 371 1.0% 374
Oceano CSD 190 0.5% 191 -12.0% 168 1.0% 170 1.0% 171
Nipomo CSD 211 -0.9% 209 -16.3% 175 1.0% 177 1.0% 179
County 475 2.3% 486 6.8% 519 1.0% 524 1.0% 529
2,184 -0.4% 2,176 -2.3% 2,125 1.0% 2,146 1.0% 2,168
81. Routes-garbage 5 0.0% 5 0.0% 5 0.0% 5 0.0% 5
Routes-recycling 3 0.0% 3 0.0% 3 0.0% 3 0.0% 3
82. Direct Labor Hours 22,334 0.0% 22,334 0.0% 22,334 0.0% 22,334 0.0% 22,334
Recyclable Materials - All areas-Commingled Recycling (in tons)
Accounts
83. Tri-Cities 8,965 -3.1% 8,686 -1.1% 8,587 0.0% 8,587 0.0% 8,587
Nipomo/Oceano CSD 3,296 -3.1% 3,193 -1.1% 3,157 0.0% 3,157 0.0% 3,157
84. County 1,055 -3.1% 1,022 -1.1% 1,010 0.0% 1,010 0.0% 1,010
13,316 -3.1% 12,901 -1.1% 12,754 0.0% 12,754 0.0% 12,754
Recyclable Materials - All areas-Greenwaste Recycling
Routes 5 0.0% 5 0.0% 5 0.0% 5 0.0% 5
Tons Collected 11,294 5.6% 11,931 5.3% 12,567 1.0% 12,693 1.0% 12,820
Direct Labor Hours 7,271 0.0% 7,271 0.0% 7,271 0.0% 7,271 0.0% 7,271
Garbage Tons Collected 40,552 1.5% 41,142 1.2% 41,621 1.0% 42,037 1.0% 42,457
Fiscal Year: 1-1-2019 to 12-31-2019 Pg. 6 of 6
Historical Current Projected
Section IX-Operating Data
Appendix A.2
4th Amendment Item 9.a. - Page 52
I I I I I I I I I I
I I I I I I I I I I
GLOBAL OUT LOOK
CHINA NOT IN THE FUTURE
It seems odd that in the middle of the Amazon craze we are looking at a decrease in the demand of
waste paper from China. In fact, it’s hard to understand why China is not on board with the recent
growth of the packaging sector. International Paper, Georgia Pacific etc. are having record years.
This is a complex issue. First, we have to look at the government which is the polar opposi te of the
United States. I know this sounds simple but it really is not. We are a free capitalistic republic and China
is, well a Communist country. We continue to say, this just does not make sense, and it truly does not.
Communist Countries do not look for sense but control. This control is in the form of new regulations
that come down from the leaders without understanding the economic impact to their own country.
What is truly amazing is all the paper mills in China feel the same way but if they w ere to say anything
against the Chinese Government they would literally be thrown in jail or removed from their position.
China is really not about a “Team approach”.
Here is a little history on how we all got to 2018 and the new laws and regulations currently being
enforced by the Chinese Government. 20 years ago, China began building infrastructure, buildings and
equipment to help propel them to an industrial power. Included in this was papermills, to be able to
make packaging for all the products that were going to be produced in China. Previous to 2000, very
little waste paper was consumed in China. Other countries such as European countries, Taiwan, Korea,
Indonesia and Japan were the largest consumers. Interestingly enough the quality standards in these
countries was very high. You either needed to make this quality or you would not be able to sell your
product to these mills. This was also indeed the practice in the USA. Part of this was because the
technology of cleaning equipment was very expensive and cost prohibitive. It was actually more cost
effective to pay more for cleaner paper than to pay less for lesser quality paper.
In the 1990’s sorting lines were being built to help separate office paper produced from large office
buildings to help the growing demand of pulp substitutes. Sorted white ledger and sorted office paper
arrived as a very good alternative to expensive pulp. The unfortunate remaining product of this process
was mixed paper, such as groundwood grades, file folders, OCC and other unbleachables. Concurrently,
China was building state of the art paper mills. They were looking for low cost fiber to make their
products. That low cost contaminated mixed paper combined with OCC was a viable raw material for
them and they started purchasing machines that could clean this fiber from contamination and make
paper. Still USA mills were not going to entertain this because they new it was not sustainable with
costs.
By 2000 China had begun its journey as the largest mixed paper consumer in the world. Growing Chinese
mill groups were able to convince all of the major waste haulers in the United States that they could
make paper out of this mixed paper. Even lowering the grade and consolidating it as single stream in
their recycling programs. When the waste haulers figured out the money they could save by using one
truck instead of multiple trucks, sorting lines started being purchased. These sorting technologies came
from the basics of mining equipment to efficiently separate grades of paper, OCC, news and mixed
paper. However, this material would be comingled with glass, plastic, tin, aluminum cans, plastic bags,
Appendix B
Item 9.a. - Page 53
dog poop, kitty litter and garbage. That’s right garbage, if you’re garbage can overflowed, toss it in the
recycling bin who will say anything there is no quality control. (wishful recycling) In fact, the City of Los
Angeles in the late 1990’s had residual garbage at 40% from their single stream. However, China kept
buying this material. You would see quality claims on a consistent basis but you knew this was part of
the business and you paid the claim and moved on.
During this industrial boom China was recognizing that there was a cost to all of this growth to China’s
Environment. In 2012, President Jinping Xi was elected by the Communist party and started to enforce
new reforms and initiatives including new Environmental policies. The first which was made very public
was the computer recycling business in many documentaries.
In 2014, Green Fence policy was put into place after China realized that the wastepaper stream
developed was a majorly flawed system. Mixed paper and curbside news were containing
approximately 5 to 10 percent prohibitive and the yield from this grade is approximately 70 percent.
Simple math tells us if China is importing 6 million tons of mixed paper they are also importing 1.8
million tons of material that will go to the landfill. Part of this however is the papermaking process, but
with lower grades you get lower yield. As mentioned earlier, the US papermills were very aware this
was going to happen this is why we don’t buy much mixed paper domestically.
This new influx of landfill bound material caused China’s government to have a knee jerk reaction.
China decided to hold strict inspections and they started rejecting material and sending shipments back
to their origin. Green fence policy was created to get control of the waste that was being shipped. Since
2014, China noticed that mills were still disposing the same amount of waste and instead of telling the
government that this is part of the paper making process the mills kept quite as new regulations became
stricter. Once again, in a communist country you don’t have the freedom to find a reasonable solution,
you just hit the brakes.
In 2017, China flat out made a decision to no longer accept recycled plastic in any form. Before this,
they were the largest consumer of HDPE, PET, plastic bags and a grade called MRF film. Once again
China developed this market by accepting low quality plastic that in some cases like MRF film was filled
with terrible contamination. Previous to this there was no market for MRF grade. So instead of coming
to a reasonable standard, the Chinese government just banned plastic all together and all the factories
that were recycling plastic just went under.
Currently we are watching the same scenario play out with metals. It could be partially related to the
trade talks but we are unsure. We do know that China has said it will ban importing metals by the end
of 2018.
So where does this leave waste paper. Currently as of January 1st 2018 mixed paper is banned from
China. That is 6 million tons of paper. Who will buy this, for now it is limited, India is a far second to
China and everyone is running to shove 6 million tons into a market that will consume 1 million tons.
The next question is what has happened to our waste stream at our homes in just 10 years. There is a
simple answer, look at your recycling bin at your house. You have lots of OCC, lots of junk mail with little
to no newsprint. The newsprint market is limited and there are only a couple of mills in the world now
that produce recycled newsprint. This leaves only a couple of answers for diversion from the landfill for
Appendix B
Item 9.a. - Page 54
mixed paper, use it for fuel for a waste to energy plant or anaerobic digesting. Both of these options
are the same, they will cost landfill rates if not higher.
Under the current China Leadership, they want to move away from importing paper and have an
initiative to be self sufficient by 2020. It is hard for us to believe this is possible with billions of dollars of
investments in paper mills. If China follows what they are currently doing with computers, plastic and
metal recycling then, they can do this with wastepaper as well. Our belief at the Boston Group is that
the market for grades like OCC and office paper will continue to be in demand globally. Mixed paper by
pure recycled stream at the house hold will continue to be an item that will be in to much supply for the
demand. As mentioned earlier, it will have to be used in other manners that will divert it from the land
fill but will be costly. It is also important to note that garbage at the curbside is not sorted but mixed
paper that is destine for more expensive tip fees will be sorted.
The conclusion of our cost of recycling is no longer a shared profit but pure cost. Adding labor to sort
mixed paper is at a minimum doubling you’re costs. In California, my estimate at profitable recycling
and diversion will be $75 per ton charge at the door of recycling facilities.
I am more than welcome to always talk about different markets and how they will change in the future.
Always feel free to call me.
Regards,
Kevin Kodzis
President
The Boston Group Inc.
Appendix B
Item 9.a. - Page 55
Appendix C
Item 9.a. - Page 56
COLD CANYON PROCESSING FACILITY
March 19, 2019
Aaron Floyd
Deputy Public Works Director
City of San Luis Obispo
Public Utilities
879 Morro Street,
San Luis Obispo, CA 93401
Subject: MRF Recycling Background
Dear Mr, Floyd,
A Waste Connectiom Company
It is my pleasure to continue with the partnership created many years ago between the City of San Luis
Obispo, San Luis Garbage Company and the Cold Canyon Processing Facility,
As the local service provider, the Cold Canyon Processing Facility has always tried to stay a few steps
ahead of the trends affecting the processing of recyclables. Global commodity markets are volatile. As
of 2012, we stopped sending material to China as we began to see that with China, there was too much
unpredictability in the market. We also started seeing price manipulation that was actually hurting the
local market. We knew then that, as a local service provider, we needed to manage volatility and build
stronger relationships within our own community. We started building those relationships with our
local partners like George Kardashian at San Miguel Garbage and Faron Bento in Cayucos. We did this
by securing reasonably priced transportation when and where we needed it for our local community, as
we are approximately five hours from any port or mill. These moves allowed us to keep recycling costs
as low as possible for our customers.
We also continued to build relationships along the West Coast with mills and manufacturers that use our
recyclable materials. We moved materials within California as much as possible with an eye on cost
predictability and control. Mixed paper is approximately 30% of our recycle stream, so we had to find a
way to recycle this material type. While others in the County were disposing of mixed paper in landfills,
we continued to maintain relationships in-places such as Malaysia, Vietnam and South Korea, which
allowed us to continue processing mixed paper, although often at a significant loss.
In late 2013 and early 2014, China rolled out a program called the "Green Fence," through which China
began restricting the recycling materials the country was willing to accept. Luckily, our relationships
with our other partners were well established by this point, minimizing the initial impact of this
------------------~~~~rI------------------
p_o_ Box 1268, San Luis Obispo, CA 93406 • Tel (805) 543-0280 • Fax (805) 543-8772
Appendix C
Item 9.a. - Page 57
program. Then in 2017, China instituted what amounted to a ban on foreign recyclables. Called the
"National Sword" campaign, this action created a new norm-going forward, China would only accept
materials with no more than 0.5% of what the Chinese now deemed 'trash.' In 2018, China banned 24
materials from being imported at all.
These changes meant that a typical MRF in the U.S., like the Cold Canyon Processing Facility, had to alter
its operations drastically. The first step was to slow the line down from processing 20 to 22 tons of
materials per hour, to 12 to 14 tons per hour. This has greatly increased costs at our facility by requiring
the doubling of our workforce and increasing overtime by over 100% in order to process the materials.
Since the inception of the "National Sword" campaign, commodity values have continued to drop. In
the past three months, we have seen another 60% decrease in commodity values. Many markets have
completely shut down and no longer accept recyclable materials. However, we have still been able to
move all materials types to our end market processors because of our trusted relationships and ability
to navigate challenging market conditions.
As the local service provider, we chose to do the right thing, at the right time, for the right reason.
During the beginning of this crisis in 2017 and 2018, many other processors began disposing of
recyclable materials in landfills because they couldn't sell them, didn't want to pay for acceptable
disposal, or couldn't create a product that anyone could take even at cost. The Cold Canyon Processing
Facility is one of the few MRFs in the region that chose to continue to process materials even if it cost us
more money through additional processing costs, increased transportation fees, and final destination
fees.
Between the additional headcount to process the materials correctly and produce a product that is
marketable, coupled with a decrease in the overall average commodity price of 35% to 65% depending
on the material type, we have no choice but to increase our per-ton processing fee. The per-ton
processing fee increase allows us to continue operations as the lowest cost service provider to our
customers, and it is our intent to continue to operate in a manner that will allow us to be the lowest cost
service provider going forward.
You have our commitment that we will continue to work to find the best value for the materials
generated. We will continue to focus on outreach and education to eliminate non-recyclable materials
from our recycle stream. We will look for opportunities to update our equipment to meet future
recycling needs as California marches on toward a 75% diversion goal.
For the reasons outlined above, and as we've discussed with you over the past several months, the
purpose of this notice is to inform you that the Cold Canyon Processing Facility will be increasing its per-
ton recyclable materials processing fee it charges San Luis Garbage Company for the City's recyclable
materials from $7 .80 to $67.50, effective June 1, 2019.
Appendix C
Item 9.a. - Page 58
For your reference, I have included below links to a couple of articles that may further help the City
understand how the recycling market has changed.
https://www.npr.org/sections/goatsandsoda/2019/03/13/702501726/where-will-your-plastic-trash-go-
now-that-china-doesnt-want-it
https://www.theatlantic.com/technology/archive/2019/03/china-has-stopped-accepting-our-
trash/584131/
We thank you for your long-term partnership and look forward to many more years of working together
toward common goals with regard to recycling.
Dis ct Manager
Cold Canyon Processing Facility
a Waste Connections company
cc: Mychal Beerman, Peter Cron, Ron Munds, Bill Statler, Jeff Smith, Sue VanDelinder
-----__ ,,_, _________ , _____________ _
Notice of Public Hearing Regarding
Proposed Solid Waste Rate Increase
Property Owners and Tenants - Customers:
This notice is intended to inform you that the City of Arroyo Grande (the “City”) will hold a public hearing
regarding rate increases (the “Proposed Rate Increase”) proposed by South County Sanitary Service (the
“Garbage Company”) for properties and customers receiving solid waste, recycling, and green waste services
within the City. The Proposed Rate Increase will be considered by the 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:
•The Date, Time, and Place of the Public Hearing;
•The Reason for the Proposed Rate Increase; and
•The Basis for the Proposed Rate Increase; and
•The Majority Protest Procedures.
NOTICE OF PUBLIC HEARING
The Public Hearing for the Proposed Rate Increase within the City limits will be held on:
Date: June 25, 2019 Time: 6:00 pm
Place: Arroyo Grande City Council Chambers, 215 East Branch St. Arroyo Grande, CA
At the Public Hearing, the City Council will consider all public comment in support of and in opposition to
the Proposed Rate Increase and whether or not a Majority Protest exists pursuant to the California
Constitution (as described below). If approved, the Proposed Rate Increase would become effective on July
1, 2019.
Reason for the Proposed Rate Increase
The Proposed Rate Increase (amounting to an increase of 10.06 percent for solid waste, recycling, and green
waste services) is necessary for the Garbage Company to continue to provide safe, environmentally sound,
and reliable solid waste, recycling, and green waste collection, transportation and disposal or processing
services to the citizens of the City. Several factors have contributed to these increased costs, including, but not
limited to: the rising costs associated with the processing of recycling material, increased costs associated with
purchase, operation and fuel for vehicles, increased labor costs, and costs associated with the implementation
of an Organics Program mandated by California Assembly Bill 1826 (AB 1826). AB 1826 requires local
jurisdictions to develop a program to divert organic waste from landfills to an authorized composting facility.
Organic waste is food waste, green waste, landscape and pruning waste, and nonhazardous wood waste.
Basis of the Proposed Rate Increase
The total Proposed Rate Increase of 10.06 percent is based on the following cost increases incurred by the
Garbage Company:
ATTACHMENT 2
Item 9.a. - Page 59
1. 4.4 percent of the Proposed Rate Increase is based on increased vehicle costs that include
costs for new equipment, maintenance of vehicle fleets to stay current with the California
Air Resources Board rules and regulations, fuel, and increased labor costs.
2. -3.92 percent of the Proposed Rate is savings based on the net result of improvements in
the cost of operations.
3. 3.1 percent of the Proposed Rate Increase is based on the implementation of an Organics
Program mandated by the State of California.
4. 6.48 percent of the Proposed Rate Increase is related to the cost to process recyclable
materials.
In addition, commencing on January 1, 2020 and January 1, 2021, rates shall be increased based on the
following:
1. Increases, if any, in the Consumer Price Index (CPI) for Bureau of Labor Statistics’ Consumer
Price Index for Urban Consumers based on the All U.S. City Average, Bureau of Labor
Statistics for the month of June 2019 for January 1, 2020 and June 2020 for January 1, 2021.
2. Increases of 0.85 percent on January 1, 2020 and 0.82 percent for January 1, 2021 for
increases in the cost of landfill disposal.
Copies of the 2019 Base Year Rate Adjustment Application and Solid Waste Rate Review, which provide
additional information on the proposed rate increases, are available at the City Clerk’s office located at 300
East Branch Street, Arroyo Grande, California.
How Do I Protest the Proposed Rate Increase?
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, recycling, and green waste services 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
services;
or
A tenant(s) whose name appears on the Garbage Company’s records as the customer of record for
the corresponding parcel receiving solid waste, recycling, and green waste services within the City
limits (tenant-customer).
A valid written protest must contain a statement that you protest the Proposed Rate Increase, the address or
Assessor’s Parcel Number (APN) of the parcel or parcels which receive solid waste, recycling, and green waste
services, and a signature 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 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. Verbal protests will not be counted in determining the existence of a
majority protest. 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.a. - Page 60
Written protests regarding the solid waste rate increase may be mailed to:
City of Arroyo Grande
Attn: City Clerk
300 East Branch Street
Arroyo Grande, CA 93420
Written protests may also be personally delivered to the City Clerk located at 300 East Branch Street, Arroyo
Grande, California.
If valid written protests are presented by a majority of owners and/or tenants-customers of parcels receiving
solid waste, recycling, and green waste services within the City limits, then the City will not adjust/increase the
rates for the services.
Item 9.a. - Page 61
SOUTH COUNTY SANITARY SERVICE
RATE INCREASE EFFECTIVE JULY 1, 2019
CITY OF ARROYO GRANDE
Service Description
Pickups Per
Week
Current
Monthly Rate
Effective
1/1/2019
Proposed
Rate
Adjustment %
Proposed
Monthly Rate
Effective
7/1/2019
RESIDENTIAL:
32 Gallon Waste Wheeler 1 $17.26 10.06% $19.00
64 Gallon Waste Wheeler 1 $22.44 10.06% $24.69
96 Gallon Waste Wheeler 1 $27.63 10.06% $30.40
TWO-64 Gallon Waste Wheelers 1 $32.81 10.06% $36.11
ONE 64 & ONE 96 Gallon 1 $38.01 10.06% $41.83
TWO-96 Gallon Waste Wheelers 1 $43.18 10.06% $47.52
Residential customers must use the waste wheelers provided by the garbage company.
MISCELLANEOUS CHARGES - ALL
CUSTOMERS:
Overstacked Garbage & extra bags
Minimum/unit each $4.89 10.06% $5.38
Overstacked Greenwaste & extra
bags Minimum/unit each $2.45 10.06% $2.70
Overstacked Blue Bin & extra bags
Minimum/unit each $1.37 10.06% $1.51
In yard service (per can or
commodity) IN ADDITION TO
STANDARD GARBAGE RATES per month $12.21 10.06% $13.43
Monthly charge for additional 96-
gallon green waste service per month $3.37 10.06% $3.71
Extended Vacation Service per month $14.01 10.06% $15.41
Vacant Rate per month $14.01 10.06% $15.41
Waste wheeler cleaning each time $18.21 10.06% $20.04
Trip charge each time $29.34 10.06% $32.29
Non-payment downsize service each time $29.34 10.06% $32.29
Non-payment redeliver waste
wheeler each time $29.34 10.06% $32.29
Non-payment reconnect service each time $29.34 10.06% $32.29
Small item pickup (TV, toilet) each $28.63 10.06% $31.51
Appliance pickup-residential each $40.37 10.06% $44.43
Garbage extras on your scheduled
pickup day per yard $10.31 10.06% $11.35
Garbage extras -NOT ON YOUR
SCHEDULED PICKUP DAY per yard $27.72 10.06% $30.51
Re-deliver bin on stopped acct each time $35.00 10.06% $38.52
Recycle bin rental per month $6.80 10.06% $7.48
Stand by time per hour $58.80 10.06% $64.72
Item 9.a. - Page 62
Tax Lien Cert. Mail Fee $3.87 10.06% $4.26
City Clean Up $10.00 10.06% $11.01
Extra bin cleaning $54.61 10.06% $60.10
Damage/Destruction of bins or
waste wheelers by quote only
Larger than residential appliance or
glass, glass doors, or plate glass by quote only
Short Term Dumpsters:
Delivery & Pickup-Bin $35.01 10.06% $38.53
Delivery & Pickup-Waste Wheeler $12.20 10.06% $13.43
Rental Per Day $2.59 10.06% $2.85
Empties Per Yard $27.72 10.06% $30.51
Mattress:
Twin Each $15.89 10.06% $17.49
Double Each $15.89 10.06% $17.49
Queen Each $15.89 10.06% $17.49
King Each $15.89 10.06% $17.49
ADDITIONAL INFORMATION ALL CUSTOMERS:
Late Fees are imposed for residential customers over 30 days delinquent and commercial customers over
30 days delinquent. The fee is 1.5% per month of the outstanding charge, with a minimum fee of $5.00.
No prior notice is required, as this late fee policy is stated at the bottom of every bill.
Any additional recycling services are charged out at 50% of the garbage rate.
Item 9.a. - Page 63
Notice of Public Hearing Regarding
Proposed Solid Waste Rate Increase
Property Owners and Tenants - Customers:
This notice is intended to inform you that the City of Arroyo Grande (the “City”) will hold a public hearing
regarding rate increases (the “Proposed Rate Increase”) proposed by South County Sanitary Service (the
“Garbage Company”) for properties and customers receiving solid waste, recycling, and green waste services
within the City. The Proposed Rate Increase will be considered by the 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:
•The Date, Time, and Place of the Public Hearing;
•The Reason for the Proposed Rate Increase; and
•The Basis for the Proposed Rate Increase; and
•The Majority Protest Procedures.
NOTICE OF PUBLIC HEARING
The Public Hearing for the Proposed Rate Increase within the City limits will be held on:
Date: June 25, 2019 Time: 6:00 pm
Place: Arroyo Grande City Council Chambers, 215 East Branch St. Arroyo Grande, CA
At the Public Hearing, the City Council will consider all public comment in support of and in opposition to
the Proposed Rate Increase and whether or not a Majority Protest exists pursuant to the California
Constitution (as described below). If approved, the Proposed Rate Increase would become effective on July
1, 2019.
Reason for the Proposed Rate Increase
The Proposed Rate Increase (amounting to an increase of 10.06 percent for solid waste, recycling, and green
waste services) is necessary for the Garbage Company to continue to provide safe, environmentally sound,
and reliable solid waste, recycling, and green waste collection, transportation and disposal or processing
services to the citizens of the City. Several factors have contributed to these increased costs, including, but not
limited to: the rising costs associated with the processing of recycling material, increased costs associated with
purchase, operation and fuel for vehicles, increased labor costs, and costs associated with the implementation
of an Organics Program mandated by California Assembly Bill 1826 (AB 1826). AB 1826 requires local
jurisdictions to develop a program to divert organic waste from landfills to an authorized composting facility.
Organic waste is food waste, green waste, landscape and pruning waste, and nonhazardous wood waste.
ATTACHMENT 3
Item 9.a. - Page 64
Basis of the Proposed Rate Increase
The total Proposed Rate Increase of 10.06 percent is based on the following cost increases incurred by the
Garbage Company:
1. 4.4 percent of the Proposed Rate Increase is based on increased vehicle costs that include
costs for new equipment, maintenance of vehicle fleets to stay current with the California
Air Resources Board rules and regulations, fuel, and increased labor costs.
2. -3.92 percent of the Proposed Rate is savings based on the net result of improvements in
the cost of operations.
3. 3.1 percent of the Proposed Rate Increase is based on the implementation of an Organics
Program mandated by the State of California.
4. 6.48 percent of the Proposed Rate Increase is related to the cost to process recyclable
materials.
In addition, commencing on January 1, 2020 and January 1, 2021, rates shall be increased based on the
following:
1. Increases, if any, in the Consumer Price Index (CPI) for Bureau of Labor Statistics’ Consumer
Price Index for Urban Consumers based on the All U.S. City Average, Bureau of Labor
Statistics for the month of June 2019 for January 1, 2020 and June 2020 for January 1, 2021.
2. Increases of 0.85 percent on January 1, 2020 and 0.82 percent for January 1, 2021 for
increases in the cost of landfill disposal.
Copies of the 2019 Base Year Rate Adjustment Application and Solid Waste Rate Review, which provide
additional information on the proposed rate increases, are available at the City Clerk’s office located at 300
East Branch St., Arroyo Grande, California.
How Do I Protest the Proposed Rate Increase?
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, recycling, and green waste services 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
services;
or
A tenant(s) whose name appears on the Garbage Company’s records as the customer of record for
the corresponding parcel receiving solid waste, recycling, and green waste services within the City
limits (tenant-customer).
A valid written protest must contain a statement that you protest the Proposed Rate Increase, the address or
Assessor’s Parcel Number (APN) of the parcel or parcels which receive solid waste, recycling, and green waste
services, and a signature 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 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. Verbal protests will not be counted in determining the existence of a
majority protest. 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.a. - Page 65
Written protests regarding the solid waste rate increase may be mailed to:
City of Arroyo Grande
Attn: City Clerk
300 East Branch Street
Arroyo Grande, CA 93420
Written protests may also be personally delivered to the City Clerk located at 300 East Branch Street, Arroyo
Grande, California.
If valid written protests are presented by a majority of owners and/or tenants-customers of parcels receiving
solid waste, recycling, and green waste services within the City limits, then the City will not adjust/increase the
rates for the services.
Item 9.a. - Page 66
SOUTH COUNTY SANITARY SERVICE
RATE INCREASE EFFECTIVE JULY 1, 2019
CITY OF ARROYO GRANDE
Service Description Pickups Per Week
Current Monthly
Rate Effective
1/1/2019
Proposed Rate
Adjustment %
Proposed
Monthly Rate
Effective
7/1/2019
APARTMENTS, TRIPLEX, DUPLEX
Rates are the same as commercial rates (below).
COMMERCIAL DUMPSTERS - ALL AREAS:
1 yd dumpster 1 $85.28 10.06% $93.86
1 yd dumpster 2 $124.42 10.06% $136.94
1 yd dumpster 3 $163.60 10.06% $180.06
1 yd dumpster 4 $209.67 10.06% $230.76
1 yd dumpster 5 $246.50 10.06% $271.30
1 yd dumpster 6 $292.60 10.06% $322.04
1 yd dumpster 7 $355.64 10.06% $391.42
1.5 yd dumpster 1 $96.79 10.06% $106.53
1.5 yd dumpster 2 $149.77 10.06% $164.84
1.5 yd dumpster 3 $212.00 10.06% $233.33
1.5 yd dumpster 4 $276.48 10.06% $304.29
1.5 yd dumpster 5 $336.41 10.06% $370.25
1.5 yd dumpster 6 $380.18 10.06% $418.43
1.5 yd dumpster 7 $445.17 10.06% $489.95
2 yd dumpster 1 $108.32 10.06% $119.22
2 yd dumpster 2 $182.02 10.06% $200.33
2 yd dumpster 3 $258.08 10.06% $284.04
2 yd dumpster 4 $340.99 10.06% $375.29
2 yd dumpster 5 $421.64 10.06% $464.06
2 yd dumpster 6 $472.34 10.06% $519.86
2 yd dumpster 7 $549.19 10.06% $604.44
3 yd dumpster 1 $129.01 10.06% $141.99
3 yd dumpster 2 $244.23 10.06% $268.80
3 yd dumpster 3 $340.99 10.06% $375.29
3 yd dumpster 4 $444.66 10.06% $489.39
3 yd dumpster 5 $527.62 10.06% $580.70
3 yd dumpster 6 $629.00 10.06% $692.28
3 yd dumpster 7 $803.38 10.06% $884.20
Item 9.a. - Page 67
4 yd dumpster 1 $161.30 10.06% $177.53
4 yd dumpster 2 $285.69 10.06% $314.43
4 yd dumpster 3 $410.11 10.06% $451.37
4 yd dumpster 4 $527.62 10.06% $580.70
4 yd dumpster 5 $652.04 10.06% $717.64
4 yd dumpster 6 $774.17 10.06% $852.05
4 yd dumpster 7 $985.92 10.06% $1,085.10
6 yd dumpster 1 $241.95 10.06% $266.29
6 yd dumpster 2 $428.56 10.06% $471.67
6 yd dumpster 3 $615.15 10.06% $677.03
6 yd dumpster 4 $791.45 10.06% $871.07
6 yd dumpster 5 $978.06 10.06% $1,076.45
6 yd dumpster 6 $1,161.27 10.06% $1,278.09
6 yd dumpster 7 $1,478.88 10.06% $1,627.66
8 yd dumpster 1 $322.59 10.06% $355.04
8 yd dumpster 2 $571.40 10.06% $628.88
8 yd dumpster 3 $820.20 10.06% $902.71
8 yd dumpster 4 $1,055.26 10.06% $1,161.42
8 yd dumpster 5 $1,304.10 10.06% $1,435.29
8 yd dumpster 6 $1,548.35 10.06% $1,704.12
8 yd dumpster 7 $1,971.86 10.06% $2,170.23
All commercial customers are eligible for one standard 96-gallon recycling and one 64-gallon food waste cart serviced one
time a week with no additional service charge
Any additional recycling services are charged out at 50% of the garbage rate.
COMMERCIAL GARBAGE CANS - ALL AREAS:
32 Gallon 1 $20.73 10.06% $22.82
32 Gallon 2 $43.78 10.06% $48.18
32 Gallon 3 $50.70 10.06% $55.80
32 Gallon 4 $64.50 10.06% $70.98
64 Gallon 1 $43.78 10.06% $48.18
64 Gallon 2 $58.17 10.06% $64.02
64 Gallon 7 $173.82 10.06% $191.31
96 Gallon 1 $50.70 10.06% $55.80
96 Gallon 2 $85.28 10.06% $93.86
96 Gallon 3 $107.37 10.06% $118.17
96 Gallon 4 $129.71 10.06% $142.76
96 Gallon 5 $146.07 10.06% $160.76
96 Gallon 7 $199.27 10.06% $219.32
96 and 32 Gallon 1 $64.50 10.06% $70.99
96 and 32 Gallon 7 $248.56 10.06% $273.57
Item 9.a. - Page 68
MISCELLANEOUS CHARGES - ALL COMMERCIAL CUSTOMERS:
Overstacked Garbage & extra
bags Minimum/unit each $4.89 10.06% $5.38
Overstacked Greenwaste &
extra bags Minimum/unit each $2.45 10.06% $2.70
Overstacked Blue Bin & extra
bags Minimum/unit each $2.58 10.06% $2.84
In yard service (per can or
commodity) IN ADDITION TO
STANDARD GARBAGE RATES per month $12.20 10.06% $13.43
Vacant Rate per month $14.01 10.06% $15.42
Waste wheeler cleaning each time $18.21 10.06% $20.04
Trip charge each time $12.20 10.06% $13.43
Non-payment downsize service each time $12.20 10.06% $13.43
Non-payment redeliver waste
wheeler each time $12.20 10.06% $13.43
Non-payment reconnect service each time $29.34 10.06% $32.29
Small item pickup (TV, toilet) each $28.63 10.06% $31.51
Appliance pickup-residential each $40.37 10.06% $44.43
Lock Charge $6.80 10.06% $7.48
Garbage extras on your
scheduled pickup day per yard $10.31 10.06% $11.35
Garbage extras -NOT ON YOUR
SCHEDULED PICKUP DAY per yard $27.72 10.06% $30.51
Commercial Waste Wheeler rent per month $3.78 10.06% $4.16
Re-deliver bin on stopped acct each time $35.00 10.06% $38.52
Large Compactor (> 4 yards) per yard $14.99 10.06% $16.50
Small Compactors (4 yards &
below)
assume 3 to 1
compaction
3 times the garbage
rate
Sunday Service (in additional to
garbage service level) per month $61.10 10.06% $67.25
Recycle bin rental per month $6.80 10.06% $7.48
Stand by time per hour $58.80 10.06% $64.72
Extra bin cleaning $54.61 10.06% $60.10
Damage/Destruction of bins or
waste wheelers by quote only
Short Term Dumpsters:
Delivery & Pickup-Bin $35.01 10.06% $38.53
Delivery & Pickup-Waste
Wheeler $12.20 10.06% $13.43
Rental Per Day $2.59 10.06% $2.85
Empties Per Yard $27.72 10.06% $30.51
Item 9.a. - Page 69
Mattress:
Twin Each $15.89 10.06% $17.49
Double Each $15.89 10.06% $17.49
Queen Each $15.89 10.06% $17.49
King Each $15.89 10.06% $17.49
ADDITIONAL INFORMATION ALL CUSTOMERS:
Late Fees are imposed for residential customers over 30 days delinquent and commercial customers over 30 days
delinquent. The fee is 1.5% per month of the outstanding charge, with a minimum fee of $5.00. No prior notice is required,
as this late fee policy is stated at the bottom of every bill.
Any additional recycling services are charged out at 50% of the garbage rate.
Item 9.a. - Page 70