CC 2022-06-14_09a SCSS Rate Request_PP Presentation1
City of
Arroyo Grande
South County Sanitary Service
Rate Review
June 14, 2022
City of Arroyo Grande
June 14, 2022
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Report Purpose
Analyze rate request by SCSS for:
City of Arroyo Grande
City of Grover Beach
Oceano Community Services District
City of Pismo Beach
Why jointly?
Same services
Same franchise agreements
Same rate review methodologies
Financial information closely related for each agency
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Rate Recommendation
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June 14, 2022
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Key Changes
Greenwaste processing costs reclassified as “pass-through” costs
Costs may be recovered but no profit is allowed on them.
IWMA fees excluded from fee analysis.
Approved by separate agency and will be charged separately on customer bills.
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June 14, 2022
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Single Family Residential Rates
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Key Drivers
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Findings
Complete application.
Initially submitted October 20, 2021
Revised February 18, 2022
Comprehensive level of service – curbside trash, recycling and green waste – at very competitive rates compared with similar communities.
Trigger option.
Need for updated rate-setting methodology.
Temporary delayed rate increase.
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Temporary Delayed
Implementation Rate Increase
Temporary delayed rate increase: 5.12%
Ends December 31, 2022
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Rate Application Review
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Three Year Rate Review Cycle
Base Year. The first year of the cycle - Base Year - requires comprehensive, detailed analysis of revenues, expenses and operating data
Last “base year” analysis completed in April 2019
This is a “base year” review
Interim Years. In second and third years, SCSS is eligible for Interim Year rate adjustments that address three key change factors
Consumer price index (CPI) for “controllable” operating costs
“Pass-though costs” (primarily tipping fees)
Adjustment for franchise fees
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June 14, 2022
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Proposed Interim Year
As in 2015 and 2019, SCSS proposes straightforward CPI increase for 2023 and 2024.
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Base Year: Two Key Questions
Should SCSS be granted a rate increase for 2022?
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?
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Are costs reasonable?
Looked at costs from three separate perspectives
Detailed review of costs and changes by key cost components from 2020 to 2022
Comparison of cost increases with CPI
Rates in comparable communities
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Detail Review of Key Factors
Allowable Costs
Direct labor
Office salaries
Depreciation
Gas and oil
Insurance
Pass-Through
Disposal
Landfill
MRF/recycling
Food/greenwaste
Franchise fees
Interest
Account for 98% of rate increase
Everything else up about 2% annually
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Cost of Living Index
U.S. CPI-U increased by 8.5% over the past two years.
Excluding detailed review of cost drivers, SCSS costs increase by 4.1%.
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SFR Rates Comparison
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What’s a reasonable return on these costs?
Allowable costs (operations and maintenance)
8% operating profit ratio
Pass-through costs
Disposal fees
Franchise fees
Related party lease and transportation costs
Excluded costs
Charitable and political contributions
Entertainment
Income taxes
Non-IRS approved profit-sharing plans
Fines and penalties
Limits on officer compensation
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Allowed Revenue Increase
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Conclusion
Costs are reasonable.
Proposed rate increase meets “reasonable return” criteria.
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Questions?
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KEN