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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 1 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 City of Arroyo Grande June 14, 2022 2 Rate Recommendation City of Arroyo Grande June 14, 2022 3 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. City of Arroyo Grande June 14, 2022 4 Single Family Residential Rates City of Arroyo Grande June 14, 2022 5 Key Drivers City of Arroyo Grande June 14, 2022 6 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. City of Arroyo Grande June 14, 2022 7 Temporary Delayed Implementation Rate Increase Temporary delayed rate increase: 5.12% Ends December 31, 2022 City of Arroyo Grande June 14, 2022 8 Rate Application Review City of Arroyo Grande June 14, 2022 9 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 City of Arroyo Grande June 14, 2022 10 Proposed Interim Year As in 2015 and 2019, SCSS proposes straightforward CPI increase for 2023 and 2024. City of Arroyo Grande June 14, 2022 11 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? City of Arroyo Grande June 14, 2022 12 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 City of Arroyo Grande June 14, 2022 13 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 City of Arroyo Grande June 14, 2022 14 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%. City of Arroyo Grande June 14, 2022 15 SFR Rates Comparison City of Arroyo Grande June 14, 2022 16 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 City of Arroyo Grande June 14, 2022 17 Allowed Revenue Increase City of Arroyo Grande June 14, 2022 18 Conclusion Costs are reasonable. Proposed rate increase meets “reasonable return” criteria. City of Arroyo Grande June 14, 2022 19 Questions? City of Arroyo Grande June 14, 2022 20 KEN