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HomeMy WebLinkAboutMINUTES - 08111992 - H.9 ............. � Contra TO: BOARD OF SUPERVISORS - �. ` mss. ' .;.,�,,,� Cost�a},� FROM: Sara M. Hoffman a .. _ ���� County Senior Deputy County Administrator °°sra'covi� DATE: August 11, 1992 SUBJECT: Rates for Keller Canyon Landfill SPECIFIC REQUEST(S) OR RECOMMENDATION(S) & BACKGROUND AND JUSTIFICATION RECOMMENDATIONS 1. CONSIDER testimony and letters received from the cities and franchising agencies on the Keller Canyon Landfill rate proposal. 2. ACKNOWLEDGE that the rate set for the Keller Canyon Landfill legally cannot be confiscatory, but should be fair to both the ratepayer and the company. 3. ACKNOWLEDGE the testimony of Browning Ferris Industries on the acceptability of the recommended rate for the Keller Canyon Landfill. 4. ACCEPT the analysis and recommendations of the County's consultant, Deloitte &Touche, on the Keller Canyon Landfill rate proposal. 5. DIRECT County Counsel to prepare the necessary amendments to the Keller Canyon Landfill Franchise Agreement to implement the recommended rate effective August 5, 1992, including, but not limited to: • base rate of $38.48 and gate rate of $49.08; • requirement for a complete audit to verify all site acquisition and development costs within 6 months and adjustment of the initial gate rate as appropriate; a automatic sunset of the site acquisition and site development components of the rate 25 years from their effective date. 6. AUTHORIZE the Chair, Board of Supervisors,to execute the Keller Canyon Landfill Franchise Agreement Amendments. CONTINUED ON ATTACHMENT: YES SIGNATURE: _RECOMMENDATION OF COUNTY ADMINISTRATOR _OtOWMENDATION OF BOARD COMMITTEE APPROVE OTHER SIGNATURE(S): ACTION OF BOARD ON August I 1 , 19 9 2 APPROVED AS RECOMMENDED X_OTHERX See attached Addendum A for Board of Supervisors approvals and votes . VOTE OF SUPERVISORS I HEREBY CERTIFY THAT THIS IS A _UNANIMOUS(ABSENT ) see Addendum A TRUE AND CORRECT COPY OF AN AYES: NOES: ACTION TAKEN AND ENTERED ON THE ABSENT: ABSTAIN: MINUTES OF THE BOARD OF SUPERVISORS ON THE DATE SHOWN. ATTESTEDs t 1992 PHIL B&CHELOR,CLERKdF THE BOARD OF SUPERVISORS Contact: Sara Hoffman,646-1390 COUNTY DMINISTRATOR cc:CAO In h27:k11rrate.bw BY s DEPUTY BACKGROUND: On July 28, 1992, the Board of Supervisors heard testimony on the Keller Canyon Landfill rates. During the hearing, it was brought up that the 2.6% risk premium could be reduced if there was commitment of waste to the landfill. Staff was directed to prepare a letter to all cities and franchising agencies asking whether or not they would commit waste to the landfill or, should the Board of Supervisors disallow the risk premium without a commitment of waste, if the cities would indemnify the County against any legal action. Responses were received from Central Contra Costa Sanitary District, the City of Brentwood, the City of Clayton, the City of Martinez, the City of Pleasant Hili, the City of Orinda, the City of Walnut Creek and the City of Pittsburg. The City of Orinda indicated that it could not respond due to planned vacation of the City Council. The City of Pittsburg stated it did not control wastestream. The other cities and Central Sanitary District declined to take action to reduce the volume risk of the landfill, which would allow the Board of Supervisors to reduce the risk premium of the landfill. Similarly, all declined to consider indemnification of the County if the County disallowed the 2.6% risk premium absent a wastestream commitment. As requested by the Board of Supervisors, Deloitte & Touche has performed a sensitivity analysis of various levels of risk premium on the base rate. Excluding BFI's Payment of Variable Royalty Targeted Risk Return on Base Difference From Premium Equity 1 Rate D&T Recomm 0.0% 16.8% $35.53 $2.95 1.0% 17.8% $36.62 $1.87 1.5% 18.3% $37.21 $1.27 2.0% 18.8% $37.79 $0.70 Recommended - 2.6% 19.4% $38.48 $0.00 1. Ignores the impact upon BFI's return on equity of its commitment to pay the 14% variable. royalty. Including BFI's Payment of Variable Royalty Implied Risk Base Return on Premium Rate Equity 2 0.0% $35.53 11.7% 1.0% $36.62 12.6% 1.5% $37.21 13.1% 2.0% $37.79 13.5% Recommended 2.6% $38.48 14.1% 2. Includes the impact upon BFI's return on equiry of its commitment to pay the 140%variable. Deloitte &Touche has performed a detailed analysis of the Keller Canyon Landfill Rate Proposal, including cash flow analyses and valuation studies of acquisition costs. In staff's opinion, Deloitte &Touche's recommendation gives the County a legally defensible rate that meets our legal obligation to establish a rate which is not confiscatory to the company, but is fair to both the ratepayer and the company. An article in the Contra Costa Times on Sunday, August 9, 1992 noted that disposal rates are in the "low twenties" per ton in Sacramento County and 116.27" per ton in San Jose. Obviously,, these rates are much lower than proposed for Contra Costa County. However, it should be remembered that Keller Canyon Landfill was built as a Class II landfill with a double liner system. Many of the other, older landfills were built without this level of environmental protection. In fact, San Jose's landfill has been reported to be leaking into the groundwater. Another factor affecting cost is age. A house built today costs more than the house built and purchased 10 or 20 years ago. The same is true for landfills. Contra Costa will realize lower real costs for the landfill over time (site development and site acquisition portions of the rate remain the same for 25 years). Contra Costa needs its own disposal capacity. Interim export capacity was not easily obtained. The Board may recall that the City of San Jose rejected Contra Costa's request for interim disposal capacity. Both Solano County and Alameda County, while permitting export„ imposed numerous restrictions and mitigation fees. the Solano Agreement was for three years only. The Alameda Agreement was renegotiated beyond the initial 2 years but only for 6 months (unless landfill litigation is resolved). The cost of export was also high. A may 5, 1992 report to the Board of Supervisors showed that export to Alameda County would cost$50.14/ton (including new mitigation fees and other Alameda County charges and assuming historic tonnage levels). This compares to a proposed $49.08/ton for Keller Canyon Landfill. ADDENDUM A On July 28, 1992, the Board of Supervisors continued to this date the consideration of the rates for the Keller Canyon Landfill. Sara Hoffman, Senior Deputy Administrator, commented on the letter that had been sent to the cities and the franchising agencies requesting a commitment of the wastestream and indemnification from a lawsuit if the recommended risk premium was not adopted. She advised that none of the cities had accepted the County' s request to consider commitment of the wastestream and they did not feel that they wanted to indemnify the County in case of legal action. Ms. Hoffman advised that there were still more details to be worked out concerning the franchise agreement amendments necessary to execute the new rate and that the staff recommendation was that the Board adopt the recommended rate on an interim basis pending development of a franchise agreement to be considered by the Board on October 6 , 1992 and authorize the Chairman of the Board to execute an interim franchise agreement. Gary Brayton, Deloitte & Touche, spoke on the sensitivity analysis on the risk premium and advised that the suggested 2. 6e risk premium is an appropriate risk premium to be included in the rate of $38.48 per ton. Supervisor Powers commented on the difference in rates between unregulated landfills and the regulated landfill in the County and he suggested that perhaps the Board should look at regulating Acme Fill and Richmond Sanitary Landfill as well to save the rate payers money. Supervisor McPeak concurred that there is merit to looking at regulating the existing landfills, and she commented on the issues that the Board had reached concurrence on including the length of the amortization period at 25 years, that the variable royalty would not be taken into account in fixing the rates, the inclusion of a fixed royalty, the inclusion of the fixed costs for the acquisition and site development per ton of the rates, and the the operating ratio being 90 percent. She commented on the last unresolved issue of the risk premium. Supervisor Torlakson expressed concurrence with Supervisor McPeak' s summary and he expressed support for a risk premium in the one percent range. Supervisor Schroder requested that the consultant advise the Board on the justification for the 2. 6 percent recommendation. Gary Brayton, Deloitte & Touche, spoke on the appropriateness of the recommended 2. 6 percent risk premium. Supervisor Schroder moved approval of recommendations one through six. Supervisor Fanden seconded the motion. Supervisor McPeak requested clarification on the trust fund for close and post closure. Ms. Hoffman responded that the intent would be to provide in the franchise agreement amendment for trust funds for both closure and post closure and that while Browning Ferris Industries has a irrevocable letter of credit for closure that the trust fund would be substituted for that letter of credit. Supervisor McPeak requested clarification if the motion would include that the rate is conditioned upon the deposit of the . 29 cents per ton of the rate for closure and post-closure into a trust fund. O Supervisor Fanden concurred. Supervisor Powers requested the inclusion of an item 7 for approval that the Board look at the feasibility of regulating the other landfills in the County including Richmond and Acme Landfill site. Supervisor Schroder concurred with the request. Supervisor Powers indicated support for the amended motion. Supervisor Torlakson suggested an amendment to the motion to reduce the risk premium of 2.6 percent to 1 percent. Supervisor McPeak seconded the substitute motion. The vote on the substitute motion was as follows: AYES: Supervisors Torlakson and McPeak NOES: Supervisors Powers, Fanden and Schroder ABSENT: None ABSTAIN: None The vote on the main motion was as follows: AYES: Supervisors Powers, Fanden and Schroder NOES: Supervisors Torlakson and McPeak ABSENT: None ABSTAIN: None IT IS BY THE BOARD ORDERED that recommendations 1, 2, 3, 4, 5 adopting the rate on an interim basis from August 11, 1992 to and including October 6 , 1992, and further directing staff to work with BFI representatives to prepare the franchise agreement amendment in accordance with the board' s actions for consideration by the Board on October 6, 1992; 6, authorizing the Chair to execute an interim Franchise Agreement amendment; and the additional recommendation 7, requesting staff to review the feasibility of regulating the other landfills in the County including the Richmond Sanitary and Acme landfills, are APPROVED;