HomeMy WebLinkAboutMINUTES - 12082015 - D.7RECOMMENDATION(S):
1. ACCEPT report from consultant Crowe Horwath LLP, dated November 20, 2015, on its review of the Base Year
Rate Application submitted by Allied Waste Systems, Inc. (Allied), attached as Exhibit A.
2. APPROVE phased implementation of a 28.8% solid waste collection rate increase, with a 15% rate increase
effective January 15, 2016, a 12% rate increase effective January 15, 2017, and deferring whether to implement the
remaining 1.8% rate increase until the 2020 Base Year Rate Review.
3. ACKNOWLEDGE that implementing weekly residential recycling collection would require an additional 5.9%
rate increase (for a total rate increase of 34.7%), and DECLINE to approve this additional rate increase at this time.
FISCAL IMPACT:
No impact to the County General Fund. The costs for County staff time spent administering the Franchise Agreement
(rate review) and any related consulting services are covered by solid waste/recycling collection franchise fees.
APPROVE OTHER
RECOMMENDATION OF CNTY ADMINISTRATOR RECOMMENDATION OF BOARD COMMITTEE
Action of Board On: 12/08/2015 APPROVED AS RECOMMENDED OTHER
Clerks Notes:
VOTE OF SUPERVISORS
AYE:John Gioia, District I Supervisor
Candace Andersen, District II
Supervisor
Mary N. Piepho, District III
Supervisor
Karen Mitchoff, District IV
Supervisor
Federal D. Glover, District V
Supervisor
Contact: David Brockbank (925)
674-7794
I hereby certify that this is a true and correct copy of an action taken and entered on the minutes of the
Board of Supervisors on the date shown.
ATTESTED: December 8, 2015
David Twa, County Administrator and Clerk of the Board of Supervisors
By: June McHuen, Deputy
cc:
D.7
To:Board of Supervisors
From:John Kopchik, Director, Conservation & Development Department
Date:December 8, 2015
Contra
Costa
County
Subject:Rate Changes for Solid Waste Collection in the Unincorporated Areas Served by Allied Waste Systems, Inc. Under
the County Franchise Agreement
BACKGROUND:
In May of 1995, the County entered into a Franchise Agreement with Allied’s predecessor company, Pleasant Hill Bayshore
Disposal, Inc. On July 21, 2015, the County approved the first Amendment to the County/Allied Franchise Agreement that:
(a) extended the term of the Agreement for 10 years; (b) increased the franchise fee 2%, from 5% to 7%; (c) established the
existing maximum collection rates; (d) expanded Allied’s Franchise service area to include a pocket of unincorporated area in
the vicinity of Cummings Skyway; and (e) required Allied to provide new and expanded services.
The Franchise Agreement grants Allied the exclusive privilege and duty to collect solid waste, recyclables and organics
routinely generated by residential and commercial customers within the designated Allied service area (also known as the
“Franchise Area”). The Allied Franchise Area covers the following ten (10) unincorporated areas:
1. Alhambra Valley (portion) – District I & V
2. Canyon – District II
3. Antioch, Unincorporated – District III
4. Morgan Territory / Marsh Creek – District III
5. Concord, Unincorporated (portion) – District IV
6. Clayton, Unincorporated – District IV
7. Pleasant Hill, Unincorporated – District IV
8. Pacheco / Vine Hill / Martinez, Unincorporated – District V
9. Bay Point (eastern portion) / Clyde – District V
10. Cummings Skyway (portion) – District V
The County establishes and regulates Collection Rates that Allied is allowed to charge for residential and commercial
collection services provided in their Franchise Area. These rates are established in accordance with the adopted rate setting
methodology set forth in the “Rate Setting Process and Methodology Manual for Solid Waste Charges as Applied to Allied
Waste Systems, Inc., a division of Republic Services, Inc.” (Rate Manual). The Rate Manual establishes a process with the
following components:
Every four (4) years: Base Year rate reviews. Such reviews rely upon data submitted in detailed rate applications and
accompanying audited financial statements; and
a.
Intervening years between Base Years (Interim Years): The Franchisee may request no change or a change based on
one of the following options. One, a rate change which does not exceed the annual change in Consumer Price Index
(CPI) (no Board approval required). Or two, Interim Year rate changes calculated based on a weighted increase in
controlled and uncontrolled costs, including tipping fees, regulatory charges and change in CPI (Board approval
required). The hauler is not required to submit audited financial data with the interim year rate application. Therefore,
the Interim Year Rate Review is less rigorous than that carried out in a Base Year.
b.
The Rate Manual provides for recovery of the reasonable costs that Allied will incur in performing services under the
Franchise Agreement plus allowable profit. Special extraordinary cost increases are also taken into account.
History of Solid Waste Collection Rate Adjustments Since the Prior Base Year
There have been various rate adjustments in the Allied Franchise Area since 1998 when the County adopted Allied’s Rate
Manual. However, Allied’s rates for residential customers have not changed since 2009, when the Board approved a variable
rate structure intended to serve as a financial incentive for residential customers to downsize their garbage carts to further
reduce waste disposal. The variable can rate structure proved to be quite effective in encouraging residents to switch to smaller
garbage carts. The amount of customers using the largest trash carts (96-gallon) has gone down by roughly 68% and the
amount of customers using the smallest cart (20-gallon) has increased by just over 400%.
Since the last Board-approved rate change in 2009, the Consumer Price Index (CPI) for the San Francisco-Oakland-San Jose
area has increased approximately 17%, or an average of 2.8% per year. Rates for residential customers were not affected and
remained flat. For commercial/light industrial customers, there has been only one rate change related to CPI, a 0.95% increase
in 2011.
The most recent rate review took place in 2011 for the 2012 Base Year. Below is a brief summary of that review and
subsequent allowable rate adjustments:
2012: Base Year Rate Review – In the 2012 Base Year Rate Application, Allied requested a 2.03% rate increase. The County
hired a consulting firm, R3 Consulting Group (R3), to conduct the 2012 Base Year Rate Review. R3’s report dated April 3,
2012 identified annual cost savings expected as a result of service efficiencies achieved by Allied. The total amount of cost
savings potentially warranted a rate reduction of 10.2%. Rates charged to customers remained stable, offering a 10.2% rate
reduction credit as a result of the 2012 rate review. This rate reduction credit offset subsequent CPI adjustments that would
have been applied in 2013, 2014, and 2015. The rate reduction credit also yielded funding between 2012 – 2015, which is
considered Rate Setting Methodology (RSM) Revenue. Exhibit F of the First Amendment requires that this revenue be
applied to help offset allowable costs for fees or enhanced services in the Allied Franchise Area.
2013: Interim Year Rate – Annual CPI adjustment of 2.80% was credited to Allied. Instead of adjusting rates based on CPI, a
portion of the 10.2% rate reduction credit identified in 2012 was used to offset the 2.8% CPI increase, resulting in the credit
being reduced from 10.2% to 7.4% and collection rates were unchanged.
2014: Interim Year Rate – Annual CPI adjustment of 2.03% was credited to Allied. The rate reduction credit of 7.4%
remaining from 2013 was used to offset the CPI increase, which further reduced the credit from 7.4% to 5.38% and collection
rates were unchanged.
2015: Interim Year Rate – Annual CPI increase adjustment of 2.96% was credited to Allied. The remaining 5.38% rate
reduction credit available from 2014 was applied to offset the CPI increase, which further reduced the credit from 5.38% to
2.42% and collection rates were unchanged.
In addition to offsetting the annual CPI adjustments, any remaining rate adjustment credit available each year between 2012
and 2015 yielded additional Rate Setting Methodology (RSM) Revenue. The total amount of RSM Revenue mutually agreed
to have been accrued between 2012 and 2015 was $523,941. As discussed in more detail below, a portion of this amount was
used to fund the cost of new and enhanced services between August 1 and December 31, 2015 and the remainder is available
to be applied to help offset service costs during 2016 Base year Rate setting (see the “Recommended 2016 Base Year Rate
Adjustment (OPTION 1)” section below for further information).
Crowe Horwath Review of Allied’s Base Year Rate Application
On July 10, 2015, Allied submitted a Base Year Rate application to increase solid waste collection rates. Allied requested a
total 33.5% rate increase. To determine a Base Year Rate change for calendar year 2016, the County requested technical
assistance from Crowe Horwath (consultant) to review the Base Year Rate Application submitted by Allied consistent with the
County’s Rate Manual. The result of Crowe Horwath’s review is contained in their report dated November 20, 2015, which is
attached as Exhibit A.
The Base Year Rate setting process requires that a detailed rate change application be submitted by Allied along with an
audited financial statement and supplemental financial and operational information. Using the detailed financial data provided,
Crowe Horwath reviewed the following major cost categories to determine the appropriate rate adjustment:
Direct Labor Costs
Tipping Fees
Corporate and Local General and Administrative Costs
Household Hazardous Waste Program Costs
Trucking and Equipment
Allowable Profit
County’s Franchise Fee
BASE YEAR RATE APPLICATION ADJUSTMENTS: Allied’s Base Year Rate Application proposes a rate increase of
33.5% based on projected costs for existing services, changing to weekly residential recycling as well as most, but not all, of
the service enhancements approved by the Board in July 2015 (see listing below in the “NEW AND ENHANCED
SERVICES” section). Crowe Horwath reviewed the Rate Application submitted by Allied for consistency with the Rate
Manual, County policies, and waste management industry practices. Their analysis did a comparison on year-to-year changes
in revenues and costs for reasonableness and solicited explanations from Allied for material changes. This included the
examination of actual data for 2014, estimated data for 2015, and projected data for 2016.
Crowe Horwath's review of Allied’s Rate Application led to recommended adjustments to various cost categories which
included eliminating unallowable costs and adding allowable costs for programs/services that were not accounted for in the
original 2016 Base Year Rate Application. Commercial food waste collection service and household hazardous waste (HHW)
program costs were not included in the Rate Application, but weekly residential recycling was included. The cost of these
enhanced services combined with Crowe Horwath’s other recommend cost adjustments, resulted in a net increase of $28,308
in annual costs. This equates to an additional 1.2% increase for the Base Year. Consequently, Crowe Horwath is
in annual costs. This equates to an additional 1.2% increase for the Base Year. Consequently, Crowe Horwath is
recommending a 34.7% increase, including weekly residential recycling (1.2% more than requested by Allied).
NEW AND ENHANCED SERVICES: The following eleven (11) new and enhanced services listed below were approved by
the Board in July of this year in conjunction the First Amendment to the County / Allied Franchise Agreement:
1) six additional community clean-up boxes per year,
2) residential household battery, compact fluorescent lights (CFL) and plastic bag recycling,
3) on-call bulky household item collection twice per year,
4) increase in franchise fee paid by Allied to the County,
5) support for mandatory commercial recycling program,
6) on-call debris box service for County abatement projects ,
7) on-call removal of illegal dumping from the right-of-way,
8) compost organics collected from residential and commercial customers rather than using as alternative daily cover
(ADC),
9) commercial food waste collection,
10) recycling coordinator support (20% of a position), and
11) elimination of the separate commercial recycling charge.
When the Board reviewed and approved the First Amendment to the Allied/County Franchise Agreement in July 2015,
the Board deferred approval of changing residential recycling from every other week to weekly, pending the results of
this Base Year rate review. Pursuant to the Board's direction, optional weekly residential recycling service rate
adjustment is being provided for consideration in conjunction with the 2016 Base Year Rate adjustment (see “Changing
to Weekly Recycling (OPTION 2 – NOT RECOMMENDED)” section below for further details).
A number of the approved service enhancements have since been implemented, in advance of approving a rate change
adequate to offset the cost of the added services. Some of the previously mentioned RSM Revenue ($88,559.72 ) is
being used to offset projected costs for new and enhanced services pursuant to the Board’s approval of the First
Amendment in July 2015. The remaining balance of RSM Revenue is to be applied to offset service costs during this
Base Year Rate setting as further discussed in the “Recommended 2016 Base Year Rate Adjustment (OPTION 1)”
section of this report.
BASE YEAR RATES – OPTION 1 AND 2: Crowe Horwath’s report recommended two options for the County to
consider in making any rate adjustments for the 2016 Base Year. The proposed Option 1 rate adjustment of 28.8%
includes projected costs for all eleven of the Board approved new and enhanced services. The proposed Option 2 rate
adjustment of 34.7% includes projected costs for all eleven of the above-noted enhancements (in other words all of
Option 1) as well as the added costs for weekly residential recycling collection (adds 5.9%) which has not been
approved by the Board.
There are multiple factors contributing to the changes in projected costs and revenue which drive the recommended rate
adjustment. Some of these are routine factors associated with existing services (e.g. increased wages and benefits based
on labor agreements and CPI adjustments to various other categories of operational costs, including trucking and
equipment, depreciation and disposal). Most of the recommended rate increase is due to factors associated with the cost
of implementing new and enhanced services. Additionally, the recommended rate increase addresses the revenue
decrease resulting from residential customers switching to smaller cart sizes and the decrease in revenue expected to
result from the elimination of the separate commercial recycling charge.
While the proposed rate changes are relatively large, the existing rates are far lower than those in neighboring cities as
well as the other unincorporated Franchise Areas. Allied’s residential customers have not had a rate increase since 2009.
The 2016 Base Year Rates proposed as Option 1 (28.8% increase) and Option 2 (34.7% increase) fall substantially
below the average rates charged to residential customers in other incorporated and unincorporated franchise areas
surveyed within the County. If Option 1 rates were enacted (staff is actually recommending phased implementation),
despite a 28.8% rate increase, customers in the Allied/County Franchise Area would still pay the lowest rates. Option 1
rates are between 27% and 40% less than the average residential rates in the incorporated and unincorporated franchise
areas surveyed (see Tables 4 and 5 at the end of this report for residential rate comparison of the unincorporated
franchise areas and neighboring jurisdictions surveyed) and 24% to 31% less than the average commercial rates for
comparable service levels in the incorporated and unincorporated franchise areas surveyed (see Table C-2 of
Attachment C to Exhibit A for the comparison of all surveyed commercial rates).
2016 Base Year Rate Adjustment (OPTION 1)
Crowe Horwath’s recommended Option 1 rate increase of 28.8% corresponds with monthly increases between $3.50
and $8.87 per month for residential customers as shown in Table 1 below. Table 1 reflects the existing monthly
residential rates and the proposed Option 1 - Base Year Rate increases for 2016 (no recommended change to the
existing every other week (biweekly) schedule for residential recycling collection).
Table 1: Total Option 1 Base Year Rate Increase with Existing Biweekly Recycling Collection
Cart Size
TOTAL BASE YEAR RATE ADJUSTMENT – OPTION 1
Existing Monthly
Rates (2015)
Base Year Rate Increase
(28.8%)
Option 1
Base Rate for 2016
20 gallon $12.15 $3.50 $15.65
32 gallon $15.90*$4.59 $20.49
64 gallon $23.70*$6.84 $30.54
96 gallon $30.75*$8.87 $39.62
* Existing monthly rates for Canyon customers: 32-Gallon = $19.40, 64-Gallon = $22.57, 96-Gallon = $25.75.
RECOMMENDED PHASED IMPLEMENTATION OF OPTION 1 BASE YEAR RATES: In addition to the
adjustments recommended in the report, staff recommends that the Board approve phased implementation of the
recommended Option 1 Base Year Rate adjustment. Phasing implementation of this significant rate increase will ease
the impact on rate payers by avoiding the rate spike that would result from passing through the entire increase in 2016.
Staff is recommending that most of the Base Year Rate adjustment be passed through to customers over two years,
involving an initial Base Year Rate adjustment of 15% that could take effect on January 15, 2016 and an additional
Base Year Rate adjustment of 12% on January 15, 2017 (see Table 2 below for impact of annual adjustments on
monthly residential rates for each service level). In addition to the recommended Base Year Rate adjustment in 2017,
Allied is entitled to request an Interim Year or CPI-adjustment for 2017 in which case the combined increase could take
effect in January 2017.
As noted above, Allied has been collecting Rate Setting Methodology (RSM) Revenue since 2012 which is to be
factored in when setting 2016 Base Year Rates to offset service costs that would otherwise have to be paid for by rate
payers. RSM Revenue is recommended to be used to offset the revenue shortfall resulting from phased implementation
of the Base Year Rate increase. As of the end of December 2015, it is anticipated there will be $435,341.28 in Rate
Setting Methodology Revenue. Additionally, the recommended Base Year Rate adjustment provides for an additional
one-time “service credit” of $18,250 to account for the avoided operating costs associated with the delayed
implementation of the Commercial Food Waste program that will start on April 1, 2016. The phased implementation of
the Base Year Rate increase being recommended by staff was determined based on the amount of revenue/cost savings
available to offset rate adjustments during this Base Year Rate cycle. Staff recommends phased implementation of
Option 1 rate increase, as reflected in Table 2. This phased approach would apply remaining RSM Revenue as follows:
$ 325,543.10 to offset the annual deferral of the 13.8% increase in rates for 2016; and
$ 127,386.43 to offset the remaining 1.8% of the Base Year Rate increase for calendar years 2017 through 2019
($42,462.14 per year).
Table 2 shows the existing monthly residential rates and the phased implementation of rate increases that staff is
recommending be passed through to customers.
Table 2: Phased Implementation of Option 1 Base Year Rate Increase
using RSM Revenue to partially offset the base year adjustment in 2016-2019** (RECOMMENDED)
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STAFF RECOMMENDED
PHASED PASS-THROUGH OF BASE YEAR RATE ADJUSTMENT –
OPTION 1
Existing
Monthly
Rates
(2015)
Recommended
Base Year
Rate Increase
(15% in 2016)
Recommended
Monthly Rate
for 2016
Recommended
Base Year Rate
Increase
(12% in
2017)***
Recommended
Monthly Rate
for 2017***
20 gallon $12.15 $1.82 $13.97 $1.46 $15.43
32 gallon $15.90*$2.39 $18.29 $1.91 $20.19
64 gallon $23.70*$3.56 $27.26 $2.84 $30.10
96 gallon $30.75*$4.61 $35.36 $3.69 $39.05
* Existing monthly rates for Canyon customers: 32-Gallon = $19.40, 64-Gallon = $22.57, 96-Gallon = $25.75.
* Existing monthly rates for Canyon customers: 32-Gallon = $19.40, 64-Gallon = $22.57, 96-Gallon = $25.75.
** Staff recommended phased implementation and partial offset of the recommended Option 1 Base Year Rates is based on the amount of revenue/cost savings available.In addition to the RSM
Revenue balance of $435,341.28 identified in the First Amendment to the County/Allied Franchise, the recommended Base Year Rates provide for an additional one-time “service credit” of $18,250 for
the avoided operating costs associated with the delayed implementation of the Commercial Food Waste program that will start on April 1, 2016. Deferral of 13.8% increase in 2016 to facilitate phasing
in of Base Rate would utilize $325,543.10 of the RSMR. Deferral of remaining 1.8% Base Rate increase in 2017 - 2019 would utilize $42,462.145 of RSMR per year (totaling $ 127,386.43).
***In addition to the 12% phased base year rate increase proposed to take effect in 2017, Allied is entitled to request approval of an annual Interim Year/CPI Rate adjustment.
Changing to Weekly Recycling (OPTION 2 – NOT RECOMMENDED)
Staff recommends that the Board defer consideration of increased recycling collection frequency for residential
collection to avoid imposing an even larger rate increase. Based on the findings of Crowe Horwath’s review of the Base
Year Rate Application and the associated rate option to change from every other week (biweekly) to weekly recycling
collection for residential customers (Option 2), staff recommends that recycling collection remain on a biweekly
schedule. Even though these customers have not had a collection rate increase in six years, imposing the full 34.7%
Option 2 rate increase needed in order to move forward with changing to weekly recycling collection in 2016 may pose
an unnecessary and potentially avoidable hardship.
Staff recommends that the Board defer approving this change until sometime in the future (ideally not simultaneously
with another substantial rate change). Staff also suggests that the Board consider implementing weekly organics
collection in the future, prior to recycling, in order to maximize the potential diversion opportunity for residential food
waste. One of the new services established in the Amended Franchise Agreement ensures that all organics collected
from residential and commercial customers will be composted. Residential food waste cannot be combined with other
green waste in areas where organics are only being collected on a biweekly basis for health and safety reasons.
Therefore, it may be preferable to increase organics collection from biweekly to weekly rather than or at least in
advance of increasing frequency of recycling collection as this would allow co-mingling of food waste with green waste
for composting. Customer survey data suggests there is not a high demand for weekly collection of recycling or organics
in the Allied Franchise Area. Staff can return to the Board in the future if/when there is more customer demand or some
other compelling reason to consider changing to weekly collection.
Table 3 reflects the existing monthly residential rates and the Option 2 rate increase which is not recommended.
Table 3: Total Option 2 Base Year Rate Increase with Weekly Recycling Collection (Not Recommended)
* Existing monthly rates for Canyon customers: 32-Gallon = $19.40, 64-Gallon = $22.57, 96-Gallon = $25.75
Table 4: Residential Rate Comparison with other Unincorporated Franchise Areas (Per Customer, Per Month)
Franchise Area 20 Gallon 32 Gallon 64 Gallon 96 Gallon
1. Alamo & Uninc Central CCC (CCCSWA)$ 20.33 $ 23.09 $ 43.96 $ 65.65
2. Crockett Garbage – West CCC (County)$ 22.44 $ 26.61 $ 46.66 $ 56.70
3. Garaventa Enterprises – East CCC (County)$ 27.61 $ 34.46 $ 39.97 $ 47.55
4. Richmond Sanitary – West CCC (County)$ 25.50 $ 31.01 $ 59.42 $ 88.50
Average $ 23.97 $ 28.79 $ 47.50 $ 64.60
2016 County/Allied Rates
(Option 1 - 28.8% increase)$ 15.65 $ 20.49 $ 30.54 $ 39.62
Difference -35%-29%-36%-39%
CCCSWA = Central Contra Costa Solid Waste Authority
Cart Size
BASE YEAR RATE ADJUSTMENT – OPTION 2
Existing
Monthly
Rates
(2015)
Option 1
Base Rate Increase
for 2016
(28.8%)
Additional
Rate Increase for
Weekly Recycling
(5.9%)
Option 2
Base Rate for
2016
(34.7% increase)
20 gallon $12.15 $3.50 $0.72 $16.37
32 gallon $15.90*$4.59 $0.93 $21.42
64 gallon $23.70*$6.84 $1.39 $31.93
96 gallon $30.75*$8.87 $1.80 $41.42
Table 5: Residential Rate Comparison with Neighboring Jurisdictions (Per Customer, Per Month)
Jurisdiction 20 Gallon 32 Gallon 64 Gallon 96 Gallon
1. Antioch $ 23.49 $ 27.59 $ 44.54 $ 52.31
2. Clayton $ 24.38 $ 27.24 $ 50.88 $ 57.66
3. Concord N/A $ 28.45 $ 38.40 $ 47.05
4. Danville (CCCSWA)N/A $ 25.81 $ 43.90 $ 65.16
5. Lafayette (CCCSWA)$ 26.43 $ 30.20 $ 56.99 $ 85.47
6. Martinez $ 19.35 $ 27.73 $ 30.91 $ 64.95
7. Moraga (CCCSWA)$ 25.38 $ 29.30 $ 58.59 $ 87.89
8. Orinda (CCCSWA)$ 31.01 $ 35.75 $ 67.30 $100.67
9. Pleasant Hill $ 20.86 $ 24.14 $ 32.94 $ 49.39
10. Walnut Creek (CCCSWA)$ 18.28 $ 21.57 $ 40.73 $ 60.84
Average $ 23.65 $ 27.78 $ 46.52 $ 67.14
2016 County/Allied Rates
(Option 1 - 28.8% increase)$ 15.65 $ 20.49 $ 30.54 $ 39.62
Difference -34%-26%-34%-41%
CONSEQUENCE OF NEGATIVE ACTION:
The County/Allied Franchise Agreement obligates the County to:
set rates in a manner consistent with the approved Rate Manual,
consider fairness to both Allied Waste and the Customers when setting rates, and
set rates adequate to cover Allied's reasonable projected costs and allowable profit.
If a rate increase is not approved, Allied will not have a means to collect an adequate amount of revenue from the customers in
the County Franchise Area to cover the company's costs for providing services to said customers.
ATTACHMENTS
Exhibit A: Final Report - Review of 2016 Allied Waste Systems Rate Application
Crowe Horwath LLP
Independent Member Crowe Horwath International
575 Market Street, Suite 3300
San Francisco, California 94105-5829
Tel 415.576.1100
Fax 415.576.1110
www.crowehorwath.com
November 20, 2015
Ms. Deidra Dingman
Conservation Programs Manager
Contra Costa County
Department of Conservation and Community Development
30 Muir Road
Martinez, California 94553-4601
Subject: Final Report - Review of 2016 Allied Waste Systems, Inc. Rate Application
Dear Ms. Dingman:
This letter report represents results of Crowe Horwath LLP’s (Crowe) review of the 2016 rate application
submitted by Allied Waste Systems, Inc. (AWS) to Contra Costa County (County). AWS (a subsidiary of
Republic Services, Inc.) provides refuse and recycling collection services in unincorporated Central
Contra Costa County.
This letter report is organized into eight (8) sections as follows:
A. Summary
B. Project Background
C. Goals and Objectives of Rate Review
D. Scope of Rate Review
E. History of Collection Rates
F. 2016 Base Year Rate Application
G. Review of 2016 Base Year Rate Application
H. Comparison of Rates and Services to Other Neighboring Jurisdictions.
There are five (5) attachments to this report, as follows:
A. Rate Application and Audited Financial Statements
B. Adjusted Base Year Rate Model
C. Comparative Rate Survey
D. Costs for Shift to Weekly Curbside Recycling Services
E. Costs for Mandatory Commercial Recycling Program.
A. Summary
This rate review includes two options we will address in this report:
(1) Option 1 – Assumes New/Enhanced Service Levels and an Increase in County Franchise Fees from
5% to 7% of Gross Revenues1
(2) Option 2 – Expands Option 1 to Include a Shift from Bi-Weekly to Weekly Curbside Recycling
Collection.
1 Note that Option 1 incorporated all of the new services already approved by the County Board of Supervisors in conjunction with the First
Amendment to the Franchise Agreement.
Ms. Deidra Dingman, Conservation Programs Manager Page 2
November 20, 2015
In its Application, AWS requested a rate increase of 33.5 percent for 2016 for Options 1 and 2 combined.
Table 1 below shows our recommended rate increase for Option 1 which would provide AWS the target profit
level allowed by the Rate Manual. Table 2 shows the recommended rate increase for Option 2. Under Option
1 at current service levels, our recommended residential rates would increase by 28.8 percent, or between
$3.50 and $8.87 per customer, per month, depending on the residential service level. With the addition of the
new Option 2 program, recommended residential rates would increase by 34.7 percent, or between $4.22 and
$10.67 per customer, per month, depending on the residential service level.
Table 1
Unincorporated Contra Costa County
Option 1 – Various Expanded Services and Increase to 7% Franchise Fee
Potential Residential Collection Rates, Per Customer, per Month
(January 1, 2016)
Recommended Rate Increase with Current Service Levels
and 7% Franchise Fee (+28.8%)
Service Level 2015 Collection
Rate Rate Increase 2016 Collection Rate
20 Gallon $12.15 $3.50 $15.65
32 Gallon $15.90 $4.59 $20.49
64 Gallon $23.70 $6.84 $30.54
96 Gallon $30.75 $8.87 $39.62
Table 2
Unincorporated Contra Costa County
Option 2 – Represents Option 1 Plus Shift from Bi-Weekly to Weekly Recycling
Residential Collection Rates, Per Customer, per Month
(January 1, 2016)
Recommended Rate Increase with New Services and 7% Franchise Fee (+34.7%)
Service Level 2015 Collection
Rate Rate Increase 2016 Collection Rate
20 Gallon $12.15 $4.22 $16.37
32 Gallon $15.90 $5.52 $21.42
64 Gallon $23.70 $8.23 $31.93
96 Gallon $30.75 $10.67 $41.42
B. Project Background
AWS operates under an exclusive franchise with the County to collect, and remove for disposal and
recycling, residential, commercial, and light industrial solid waste, recyclable materials, and green waste
(organics). On August 1, 1995, the County signed a twenty (20) year franchise agreement with Pleasant
Hill Bayshore Disposal (PHBD), a predecessor company to AWS. The County then approved an
assignment of this franchise agreement from PHBD to Allied Waste Industries, Inc. (now a Republic
Services company) on February 2, 1999.
On July 21, 2015, the County approved the First Amendment to the Franchise Agreement which
extended the franchise term another ten (10) years through July 31, 2025. For purposes of this 2016 Rate
Application, the County requested AWS to include the following nine (9) new and/or enhanced services,
which were agreed to as part of the First Amendment, within the 2016 Rate Application:
Ms. Deidra Dingman, Conservation Programs Manager Page 3
November 20, 2015
Option 1
1) Increase the franchise fee paid by AWS to the County from 5 percent to 7 percent of gross
revenues
2) Implement the mandatory commercial recycling program with (a) outreach and education related
to mandatory commercial recycling (effective August 1, 2015) and (b) a commercial recycling
notification. Provide assistance and support to maximize commercial diversion programs,
including but not limited to performing commercial waste assessments (effective September 1,
2015)
3) Eliminate the separate commercial recycling charge
4) Commercial organics (foodwaste) collection
5) Compost residential and commercial collected greenwaste rather than use for ADC
6) Residential bulky household item collection (2 per year, per resident)
7) Residential household battery, compact fluorescents (CFL), and plastic bag recycling (effective
September 1, 2015)
8) Provide 20% of a recycling coordinator’s position
9) Right of way and abatement projects (on-call bin/box service for specific County abatement
projects)
10) Increase community clean-up boxes (6 additional for a total of 16, 20-yard debris boxes)
Option 2
11) Residential weekly non-organics recycling (shift from bi-weekly to weekly recycling) (effective
January 1, 2016)2
The AWS franchise includes the following ten (10) service areas in unincorporated Contra Costa County
(Exhibit 1 on the following page shows locations of these service areas):
1. Alhambra Valley (portion)
2. Bay Point (Eastern, portion)
3. Canyon
4. Clayton
5. Clyde/Concord (unincorporated areas)
6. Morgan Territory
7. Martinez (unincorporated)/Pacheco/Vine Hill
8. Pleasant Hill (unincorporated areas)
9. Antioch (unincorporated areas)
10. Cummings Skyway (portion).
2 Unless another date is approved by the Director or his designee.
Ms. Deidra Dingman, Conservation Programs Manager Page 4
November 20, 2015
Exhibit 1
Unincorporated Contra Costa County
Map of Allied Waste Systems Service Areas
AWS consolidates refuse collected from unincorporated County areas at the Contra Costa Transfer &
Recovery Station in Martinez, California and transports refuse to Keller Canyon Landfill (located in
unincorporated Contra Costa County) for disposal. Recyclables are transported to, and processed by a
non-related party, at the Pacific Rim Recycling facility in Benicia California.
AWS also provides curbside recycling service services to unincorporated County areas. AWS accepts the
following recyclable material types:
Aluminum (cans, foil, and trays)
Aerosol cans
Cardboard
Compact fluorescents (CFLs) in sealed zip lock bags)
Glass bottles, jars, beverage and food containers
Household batteries (in zip lock bags)
Mixed paper (books, catalogs, cereal and shoe boxes, chipboard, copy paper, computer paper,
junk mail/envelopes, white/colored paper, magazines, paper bags, and telephone books)
Newspaper
Office paper
Organics
Paint cans
Plastic bags
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November 20, 2015
Plastic bottles (types #1 through #7), soda and water bottles, milk and juice jugs and bottles
Scrap metal
Scrap plastics
Steel and tin food and beverage cans.
Residential customers commingle all of their recyclable materials into one 64-gallon or 96-gallon cart.
AWS currently collects residential curbside recyclables bi-weekly. AWS takes recyclable materials to the
Pacific Rim facility where they are separated on a Materials Recovery Facility (MRF) sort line.
C. Goals and Objectives of Rate Review
The Manual specifies that the primary goal of the rate setting process and methodology is to determine
fair and equitable residential refuse collection charges that provide a reasonable profit level to AWS.
Fairness is demonstrated through a rigorous review of AWS’s actual revenues and expenses. Residential
charges also must be justifiable and supportable.
Rate setting is prospective. The County sets rates in advance of when actual results occur. The County
must therefore base rates on careful projections.
To set rates, the County reviews trends in prior, current, and projected revenues, costs, and profits. The
County sets rates that are intended to cover AWS’s costs of operations and allow a reasonable profit.
The County uses the operating ratio (OR) method to project the profit level allowed to AWS in a base
year. The actual OR level received by AWS in a base year, and in subsequent interim years, is not
however, guaranteed.
D. Scope of Rate Review
The County based the scope of work for this review on the requirements in the Manual. The base year
process has eleven (11) steps, seven (7) of which are the County’s responsibility. AWS is responsible for
the other four (4) steps.
Crowe, as the Consultant, provided assistance to the “County” for six steps in the rate review process (#2,
#3, #5, #6, #9, and #10). We carefully reviewed and analyzed the 2016 rate application. We conducted
our review in accordance with procedures described in the Manual. We completed the following activities
during our review:
Verified the application was complete3
Determined data presented in the application were mathematically correct and consistent
Reviewed the reconciliation of calendar year 2014 financial information provided in the application
to the 2014 financial audit
Compared actual 2014 results with estimated 2015 and projected 2016 financial results
Analyzed significant historical fluctuations in major cost categories
Examined the relationships between financial and operating information for reasonableness
Reviewed AWS franchise fees payments to the County
Presented a survey of rates in other similar neighboring communities.
Crowe submitted a formal data request to AWS on August 27, 2015. Crowe received AWS responses on
September 18, 2015. Crowe met with AWS management on October 16, 2015, to ask remaining follow-up
questions, and provide AWS with an opportunity to provide additional context regarding the rate application.
3 We summited a letter of completeness to AWS on August 5, 2015.
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November 20, 2015
E. History of Collection Rates
Rate changes, since the County adopted the Manual in 1998, increased on a compounded basis by
between 0.79 and 1.5 percent per year over the seventeen years since 1998, and are shown in Table 3.
Table 3
Unincorporated Contra Costa County
Historical Allied Waste Service Residential Refuse Collection Rate Changes
(1998 to 2015)
Year Percent Change in Rate
1998 + 2.5 to 14.5 percent depending on the service level (base year)
2001 + 3.3 percent (interim year)
2003 - 5.0 percent (base year)
2004 + 2.6 percent (interim year)
2005 +1.7 percent (interim year)
2006 + 3.3 percent (interim year)
2007 +5.5 percent (interim year)
2008 0.0 percent (base year)
2009 New variable rate structure (interim year)
2010 to 2015 No rate changes
The County conducted the last base year rate review of AWS in 2012. In its 2012 rate application, AWS
requested a 2.03 percent rate increase. Results of this rate review conducted by R3 Consulting Group,
recommended a rate decrease of 10.20 percent. This report was dated April 3, 2012. The County did not
implement a rate reduction at that time and rates remained stable. The rate surplus resulting from the
2012 rate review provided a “credit” to offset subsequent interim year rate increases allowed by the Rate
Manual, and generated a source of funding to help offset other new program costs.
AWS residential rates have not changed since 2009 (commercial rates increased by 0.95 percent in 2011).
The consumer price index for the San Francisco-Oakland-San Jose area has increased by approximately 17
percent since 2009 and has increased by approximately 13 percent since 2011.
F. 2016 Base Year Rate Application
The County received AWS’s Base Year Rate Change Application (Application) on July 10, 2015. A copy
of the Application is provided in Attachment A, at the end of this report. AWS used year-to-date
information (i.e., first quarter) to estimate 2015 financial results. Year 2016 results are entirely projected in
the Application.
AWS requested a 33.53 percent rate increase effective January 1, 2016 (for combined Options 1 and 2).
This request corresponds to a $5.33 per customer, per month, increase in the 32 gallon rate, the most
common County service level.
Our review did not represent a financial audit of AWS. Hood & Strong LLP completed a 2014 financial
audit of all AWS operations, including the County (under the name Republic Services of Contra Costa
County, provided in Attachment A). For purposes of preparing the 2014 cost data for the Application,
AWS allocated unincorporated County costs from total audited AWS costs.
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November 20, 2015
G. Review of 2016 Base Year Rate Application
This section details findings from Crowe’s review of AWS’s 2016 Application. We identified the impact of
each finding in terms of a dollar value increase or a decrease in the 2016 “revenue requirement” identified
in the Application. The revenue requirement is the amount of revenue that AWS needs to collect, through
rates charged to customers, to cover costs of providing the service plus a reasonable financial return.
Increasing the revenue requirement will result in an increase in rates, and decreasing the revenue
requirement will result in a decrease in rates.
Crowe reviewed the Application for consistency with the Manual, County policies, and waste
management industry practices. In our review of AWS financial results, we compared year-to-year changes
in revenues and costs for reasonableness and solicited explanations from AWS for material changes. We
examined actual results from 2014, estimated results for 2015, and projected results for 2016. Our adjusted
rate model is provided in Exhibit B-1, of Attachment B.
1. AWS Financial and Operating Results Since the 2012 Base Year
In Table 4, we compare County approved rate changes with changes in residential revenues and residential
accounts. Residential revenues decreased 3.6 percent between 2012 and 2014. The decrease is mainly
due to customer downsizing of containers (waste volumes declined 2.3 percent during this time). Offsetting
this downsizing effect, the number of residential accounts increased 4.2 percent between 2012 and 2014.
Table 4
Unincorporated Contra Costa County
Comparison of Residential Rate Increases with Changes in
Residential Revenues and Accounts (2012 to 2014)
Year Rate Increases Change in Residential
Accounts
Change in AWS Residential
Collection Revenues
2012 to 2014 0.0% 4.2% -3.6%
In Table 5, we compare County approved commercial and light industrial rate changes with changes in
commercial and light industrial service revenues and tons. From the time series, we find that there was no
change to rates between 2012 and 2014, while commercial and light industrial tonnage increased by 6.4
percent.
Even with this increase in commercial tons, total commercial revenues declined by 0.6 percent. The
increase in tonnage came from the light industrial (debris box) activity which also experienced an
increase in revenues. Offsetting this industrial sector revenue increase were material reductions in
commercial bin service revenues caused by customers downsizing their service levels.
Table 5
Unincorporated Contra Costa County
Comparison of Commercial and Light Industrial Rate Increases with Changes in
Commercial and Light Industrial Waste Revenues and Tonnage (2012 to 2014)
Year Rate Increases Change in Commercial
and Light Industrial Tons
Change in AWS Commercial
and Light Industrial
Collection Revenues
2012 to 2014 0.0% 6.4% -0.6%
For the above comparison, in addition to rate changes, we used the number of accounts as a proxy for
changes to residential revenues while we used tonnage as a proxy for changes to commercial revenues.
Tonnage is often more applicable for the commercial sectors as businesses are more inclined, than the
residential sector, to adjust their service level based on tonnage changes. However, we found that as
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November 20, 2015
residential accounts increased, residential tonnage decreased indicating residential customers reduced
their service levels between 2012 and 2014.
Between 2012 and 2014, total AWS unincorporated County revenues decreased while costs increased, as
shown in Table 6. AWS costs increased 0.8 percent, while AWS revenues decreased 1.23 percent.
During this same 2012 to 2014 period, AWS’s actual operating ratio ranged from 93 to 97 percent.4
Table 6
Unincorporated Contra Costa County
Change in AWS Revenues and Costs
(2012 to 2014)
Description Percent Change
Revenues -1.23%
Costs 0.8%
2. Method for Allocating AWS Costs to County Areas
AWS directly assigned revenue to each unincorporated County area. AWS’s billing system coded
revenue by the jurisdiction in which the customer lives. Typically customers are billed in advance of
services provided. AWS recognized revenue in the month earned.
Table 7 below, shows methods used by AWS to allocate consolidated AWS costs to unincorporated
County areas. AWS allocated nearly all consolidated costs to unincorporated County areas using tonnage.
Table 7
Unincorporated Contra Costa County
Methodology Used by AWS to Allocate Consolidated AWS Costs to the County
Cost Allocation Method
Direct Expenses
Direct labor Labor Hours
Disposal Fees Direct
Franchise Fees Direct
Indirect Expenses
Corporate Overhead Tonnage (by sector)
Depreciation Tonnage (by sector)
General and Administrative Tonnage (by sector)
Interest Expense Tonnage (by sector)
Other Operating Expense Tonnage (by sector)
Professional Fees Tonnage (by sector)
Supervisory Tonnage (by sector)
AWS determined tonnage for each service area using a combination of three internal reports (1) Daily
Disposal Reports, (2) Route Analysis Report, and (3) Service History Report. AWS runs each report
monthly to allocate costs by route and jurisdiction: the number of lifts, the number of operating hours and
the number of tons. Daily Disposal Reports identify the total tonnage for each route delivered to the
4 The County’s target operating ratio during base years is 90 percent. A larger operating ratio represents a smaller than expected return.
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November 20, 2015
transfer station per month. The Route Analysis Report identifies monthly operating hours by route. The
Service History Report tacks the number of monthly lifts per customer for each route. AWS allocates
costs using two different methods with data from the three internal reports:
Method one, used to allocate total direct labor costs, takes total monthly operating hours by route
and allocates hours to specific jurisdictions based on the percentage of lifts per route. The
percentage of operating hours for each jurisdiction is then applied to the corresponding month’s
costs.
Method two, used to allocate total corporate & local general & administrative and total trucking
and equipment costs, uses disposal volumes to allocate costs. The allocation is based on the
yards per lift from each route using data from specific jurisdictions.
The tonnage allocation method is acceptable to allocate AWS costs to unincorporated County areas as
the method is consistent with waste management industry practice. Pooled costs that AWS allocated to
each jurisdiction, using tonnage, also generally do not vary between jurisdictions.
As shown in Table 8, we examined total unincorporated County financial results against a basic operating
metric of tonnage to determine reasonableness. How total unincorporated County figures compared with
an operating metric such as tonnage was more relevant than area specific costs and revenues because
rates are set based upon AWS’s revenue requirement for total unincorporated County operations. We
found these comparisons to be relatively consistent between financial results and tonnage.
Table 8
Comparison of County’s Revenues and Expenses with Tonnage
(Calendar Year 2014)
Description County
Audited
AWSCCC
Financial
Percent
of Total
Total Revenues $2,421,576 $71,955,129 3.4%
Direct Labor $542,436 $13,392,766 4.1%
Tipping Fees $434,388 $14,196,051 3.1%
Trucking and Equipment $312,087 $8,672,017 3.6%
Total Costs $2,359,065 $58,606,388 4.0%
Total Tonnage 9,032.7 250,908 3.6%
AWS has transactions with related parties. These transactions required careful scrutiny and are identified
in Table 9.
Table 9
Allied Waste Services
Related Party Transactions
Cost Element Related Party
Transfer Contra Costa Transfer and Recovery
Landfill disposal Keller Canyon Landfill
3. Review of AWS Revenues, Costs, and Profits for Option 1
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November 20, 2015
In addition to reviewing the Application for changes in revenues, costs, and profits of existing ongoing
AWS operations, we verified that reasonableness of the costs associated with the list of new programs
and services described in the "Services Provided to the County" section below.
This section describes our review of each revenue, cost, and profit category. We identify various
adjustments to the Application. The revenue requirement is equal to the sum of the following:
Total allowable costs
Allowable operating profits
Total pass through costs.
AWS’s requested County revenue requirement (Option 1 and 2), as submitted in the Application, is
$3,175,340. This figure is shown on line 30 of the Application in Attachment A.
i. Revenues
Residential Revenues
AWS projected no change in residential revenues between 2015 and 2016. AWS indicated in its
Application that residential accounts decreased a modest 0.4 percent in 2015. AWS expects residential
accounts to remain at 2015 levels in 2016.
We obtained AWS’s most current projection of residential revenue data and accepted this data for the
2016 projection. With this most recent residential revenue data we increased residential revenues (after
bad debt) by $6,852 from $853,596 in the Application to $860,483 (before the adjustment for bad debt).
Net Impact:
[Decrease in the 2016 revenue requirement of $6,852]
Commercial and Light Industrial Revenues
AWS projected no change in commercial and light industrial revenues between 2015 and 2016.
Commercial and light industrial revenues dipped in 2014, but in general have been relatively stable since
2012.
We annualized year to date commercial and light industrial revenues (using data through August 2015,
prior to the removal of the charges for commercial recycling collection revenues) based on data provided
by the company and data reconciled to revenue data reported to the County. This resulted in annualized
commercial and light industrial revenues of $1,625,164.
We then adjusted this figure by the removing the projected loss in commercial recycling collection
revenues for 2016. The commercial recycling collection revenue data was obtained from the company for
the January to August 2015 period. Based on data provided by the company, the estimated annualized
loss in commercial recycling revenues in 2016 is $86,372. This resulted in projected 2016 commercial
and light industrial collection revenues (before bad debt) of $1,538,792 ($1,625,164 less $86,372).
Net Impact:
[Decrease in the 2016 revenue requirement of $21,418]
ii. Costs
Escalation Factor
Because 2016 is a projection year, we assumed certain AWS costs would increase at a rate equal to the
most recent change in the Consumer Price Index for the San Francisco-Oakland-San Jose area (all
items, all urban consumers). We historically have used the CPI change from August to August for
purposes of determining interim year adjustments and projecting costs. The August 2014 to August 2015
this CPI increased 2.59 percent (259.917 – 253.354)/253.354).
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November 20, 2015
Where inflation was used, we adjusted the Application to reflect this 2.59 percent CPI compared to the
2.50 percent CPI used by AWS in its Application. Consistent with how we treat interim year rate
adjustments (i.e., those between base years) in the Manual, we recommended that the County use this
2.59 percent escalation factor to project AWS inflationary expenses for 2016.
Direct Labor
AWS projected labor costs to increase 4.0 percent for both 2015 and 2016. The increase is based on
anticipated costs associated with a new union agreement, currently under negotiation. The projected 4.0
percent increase in labor costs for 2016 is consistent with previous 2015 increases to hourly wages and
benefits (including health and welfare and pension). Based on our experience with recent local area union
labor agreements, an annual estimate for increases in wages and benefits of 4.0 percent is reasonable.
Net Impact:
[No change to the 2016 revenue requirement]
Tipping Fees (Profit Allowed)
Tipping fees charged to County ratepayers reflect costs of operating the Contra Costa Solid Waste
Transfer Station and Recovery (CCTR) and the costs of the Keller Canyon Landfill. The rate charged to
AWS franchised customers at this facility is $86.85 per ton in 2016.
Tipping fees are allowed with profit up to $43.08 per ton. Amounts above $43.08 per ton are treated as a
pass-through expense. The Manual specifies a cap on tipping fees allowed with profit at $43.08 per ton.
Tipping fees in excess of $43.08 per ton are treated as a pass through expense.
We determined that the tonnage for 2015 included in this calculation equaled 10,532. This tonnage was
inclusive of 9,033 tons of refuse (shown as waste tonnage on the Application) and 1,500 tons of
greenwaste. This tonnage was based on annualizing six months of year to date 2015 tonnage data.
There is a projected increase in refuse tonnage by approximately 434 tons (5 percent) from 2014 which is
equally spread across all of the sectors (residential, commercial, and industrial).
Tipping fees projected in the Application for 2016 were $891,824. Of this total, the Application specifies
$453,726 of these fees as an allowable expense with profit and $438,098 as a pass through expense. We
recommend that the County use this $891,824 in tipping fees for 2016.
Net Impact:
[No change to 2016 revenue requirement]
Corporate and Local General and Administrative Costs
The Manual specifies a cap on corporate and local general and administrative costs equal to 13.2 percent of
the total revenue requirement. Projected 2016 corporate and local general and administrative costs of
$291,299 are approximately 10 percent of the revenue requirement and within the cap guideline. We allowed a
2.59 percent increase in this category for 2016 compared to the 2.5 percent in the Application, resulting in an
increase of $239 in the revenue requirement.
Net Impact:
[Increase in the 2016 revenue requirement of $239]
Trucking and Equipment Costs
AWS projected an increase in trucking and equipment costs of 2.5 percent based on their estimate of for
inflation. Projected trucking and equipment costs are reasonable and consistent with the prior costs for this
category. We adjusted this cost for the 2.59 percent inflation escalation, resulting in an increase of $289 in the
revenue requirement.
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November 20, 2015
Net Impact:
[Increase in the 2016 revenue requirement of $289]
Depreciation and Other Operating Costs
Consistent with the waste management industry, we recommend that the County disallow amortization of
franchise purchases. The operating ratio is designed to provide a return to the hauler sufficient to
compensate AWS for its investment in the business. We reduced the revenue requirement by the
estimated amount of amortization for 2016 of $15,576 based on the historical average level of
amortization included in AWS costs. Additionally, we allowed the 2.59 percent versus 2.50 percent
inflationary adjustment.
Net Impact:
[Decrease in the 2016 revenue requirement of $15,319]
Services Provided to County
AWS included the costs to implement the mandatory commercial recycling program. AWS included costs,
consistent with agreed upon figures in Exhibit F of the Franchise Agreement, supporting the addition of a
mandatory commercial recycling program in conjunction with Assembly Bill 341 (see Attachment E,
including a portion of a Recycling Coordinator position). This program was phased in September 1, 2015.
We reviewed and verified that these costs are fully reflected in the individual cost categories within the
2016 projection.
AWS included the following new/enhanced services in the Services Provided to County line item for the
projection year 2016:
County On-call illegal dumping removal from Right-of Way (ROW) and On-Call Abatement
Project Debris Removal: We included an annual cost capped at $13,000 for these County
requested services
Compost Source Separated Organics rather than use as ADC: Minor incremental increase in
labor and vehicle costs based on additional miles traveled to West County facility rather than
Keller Canyon
Commercial Organics/Food Waste Collection: Projected increase in costs of $73,622 for the
program. The program has an assumed start date of April 1 in order to ensure shared
truck/equipment cost with City of Martinez and incorporate the incremental cost increase
allocated to the County franchise area. There was no cost for this program included in the
Application.
Provide two on call bulky household items pickups per customer, at no charge
Provide 16, 20-yard debris boxes for the community clean-up program
Provide curbside collection of household batteries, plastic bags, and compact fluorescent bulbs.
We made an adjustment to the Application to reduce the combination of County ROW/on-call abatement costs
to a maximum annual amount of $13,000 and add a cost to account for AWS funding County HHW operations.
The average HHW program cost for 2013 and 2014 was $6,625. Table 10 summarizes the new costs
included for each program for 2016.
Net Impact:
[Increase to the 2016 revenue requirement of $75,188]
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November 20, 2015
Franchise Fees
The County franchise agreement with AWS specifies that the County can establish an amount equal to “a
percentage of Contractor’s [AWS’s] Gross Annual Revenues” with the “amount, time and frequency of
payment of such fees established by the County.”
The franchise fee paid by AWS to the County is currently equal to five (5) percent of gross revenues. The
County is considering a franchise fee of seven (7) percent of gross revenues. Gross revenues include all
residential, commercial, and light industrial refuse and recycling revenue. Franchise fees are a pass
through expense which do not earn profit.
A summary of historical franchise fee payments made by AWS to the County is provided in Table 11. Amounts
included in AWS’s Application, AWS detailed records, and in County records are very similar and the
differences are considered immaterial and likely due to accounting versus payment timing differences.
AWS included a franchise fee of seven (7) percent for the 2016 projection. We made adjustments to the
franchise fee based on the other findings noted above that modified the revenue requirement.
Net Impact:
[Increase in the 2016 revenue requirement of $5,051]
Table 10
Allied Waste Services
Costs of New/Enhanced Services
(Projection Year 2016)
Description In Original Application
Allowed Increase in
Allowable Costs
County On-call illegal dumping removal from
Right-of Way (ROW) and On-Call Abatement
$20,000 $13,000
Compost source separated organics (rather than
use as ADC)
0 1,9415
Commercial Organics/Food Waste Collection 0 73,622
Provide two on call bulky household items
pickups per customer, at no charge
5,000 5,000
Provide a total of 16, 20-yard debris boxes for
the community clean-up program (an additional
10 boxes)
3,500 3,500
Provide curbside collection of household
batteries and compact fluorescent bulbs
12,000 12,000
Subtotal $40,500 $109,063
HHW Program Costs (Paid to County) 0 $6,625
Total $40,500 $115,688
Adjustment $75,188
5 There is an additional amount of $7,765 which has been included in direct labor costs.
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November 20, 2015
Table 11
Allied Waste Systems
Comparison of Franchise Fees Paid to County
(2013, 2014 and 2015)
Year Application AWS Payment
Records County Reports
2013 $ $120,559 $120,559
2014 $128,736 $120,364 $120,355
2015 (Through
Sept)
N/A $102,291 $99,026
iii. Profits
Total allowable costs for the projection year 2016 are $2,201,272. The Manual specifies that should the
operating ratio for the base year fall between 88 percent and 92 percent, rates would remain unchanged in
the base year.
Table 12 shows the operating ratio calculation for 2016. Without any changes to rates, the company would
receive an operating ratio of 125.3 percent. In accordance with the Manual, because this operating ratio falls
outside the 88 to 92 percent range, rates are reset for a 90 percent operating ratio.6
The operating ratio calculation is as follows:
Operating Ratio (OR) =
Total Allowable Costs
Total Allowable Costs + Allowable Operating Profit
The OR calculation is shown in Table 13, following Table 12. We calculate allowable profit of $244,586,
at the allowable 90 percent operating ratio.
Net Impact:
[Increase to the 2016 revenue requirement of $6,711]
Table 12
Allied Waste Services
Calculation of Actual Operating Ratio
(Projection Year 2016)
Description Amount
Total Revenues (line 21) $ 2,412,524
Less Total Allowable Costs (line 7) (2,201,272)
Less Franchise Fees (line 23) (217,072)
Less Pass-Through Costs (line 11) (438,098)
Equals Profits (Loss) (with adjustments and no rebasing) ($443,918)
Operating Ratio (with adjustments and no rebasing) $2,201,272 / ($2,201,272 –
$443,918) = 125.3%
6 Source: Rate Setting Manual, page I-14.
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November 20, 2015
Table 13
Allowable Profit Calculation
(Projection Year 2016)
Description Amount
(Total Allowable Costs / Operating Ratio)
– Total Allowable Costs
= Allowable Operating Profit
($2,201,272/90 percent) - $2,201,272
= $244,586
With the company’s profit level rebased to 90 percent, we recommend a rate increase of 28.8 percent for
Option 1. This is shown in the Crowe Adjusted 2016 column of Exhibit B-1 in Attachment B.
4. Review of Additional AWS Revenues, Costs, and Profits for Option 2
Evaluation of Proposed New Service Changes
We verified that reasonableness of the costs of the following new program below:
Shift from bi-weekly to weekly curbside recycling services – Currently, unincorporated County
residential customers receive bi-weekly curbside recycling services. AWS submitted information
supporting the impact of shifting to a weekly curbside recycling program. The increase in the
revenue requirement from this program is $140,056 per year. Further details are provided in
Attachment D.
Net Impact:
[No change to the 2016 revenue requirement]
With the company’s profit level rebased to 90 percent, we recommend a rate increase of 34.7 percent for Option
2. This is shown in the Crowe Adjusted w/Weekly Program 2016 column of Exhibit B-1 in Attachment B.
5. Components of Residential Rates
There are a number of cost components which are included in residential rates. Using the 32-gallon residential
cart rate as an example, the pie chart in Figure 1 shows the major components of the projected 2016 rates,
and the relative costs of each component. Line item references are made to the Application. Table 14
shows that the components of the single can rate have remained relatively stable over time since 1998.
Cost categories are described below:
Direct Labor includes compensation of the waste removal staff, including regular time, overtime,
payroll taxes, and associated benefits. This category corresponds to Direct Labor (Line 1) of the
Application.
Tipping Fees include all charges for the disposal of solid waste at a landfill or transfer station,
which are currently set at $86.85 per ton. A cap on the allowable expense portion of tipping fees
is set at $43.08 per ton. The remaining fees between $43.08 and $86.85 per ton treated as are a
pass-through expense. These tipping fees also include transportation costs from the transfer
station to the landfill. This category corresponds to Tipping Fees with Profit (Line 2) and Tipping
Fees (Pass-Through) (Line 11) of the Application.
Corporate and Local General and Administrative Costs include accounting, office space
rental, utilities, office supplies, legal services, insurance, postage, etc. for AWS. These costs are
identified as Corporate and Local General and Administrative Costs (Line 3), Services Provided
to County (Line 6), and County Administrative Fees (Line 10) of the Application.
Trucking and Equipment includes depreciation and leases of trucks, fuel expense, licenses,
parts, tires, and associated repair and maintenance expenses. These costs are identified as
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November 20, 2015
Trucking and Equipment (Line 4) and Depreciation and Other Operating Costs (Line 5) of the
Application.
Profit is any revenue which exceeds expenses (total allowable costs plus total pass-through
costs). The operating ratio method is used to determine allowable profit, as discussed in the
profit analysis section of this report. Profit is shown in Line 9 of the Application.
County’s Franchise Fee is 7.0 percent of total residential/curbside recycling, commercial, and
light industrial revenues. Franchise fees are shown in Line 23 of the Application.
Figure 1
Components of Rate
(Projection Year 2016)
Table 14
Components of Single Can Rate Over Time
(1998 to 2016)
Description 1998 2002 2008 2012 2016
Tipping Fees 31% 29% 30% 23% 28%
Direct Labor 21% 24% 21% 23% 21%
Trucking and Equipment 21% 21% 24% 23% 23%
Corporate and Local G&A 13% 12% 11% 12% 13%
Profit 9% 9% 9% 14% 8%
Franchise Fees 5% 5% 5% 5% 7%
Tipping Fees
28%
Direct Labor
21%Trucking and
Equipment
23%
Corp and Local G&A
13%
Profit
8%Franchise
Fees
7%
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H. Comparison of Rates and Services to Other Neighboring Jurisdictions
Recommended 2016 Allied/Unincorporated County rates for Option 1 were compared with survey data
from other County franchise areas and a sample of neighboring jurisdictions. Results of the survey are
summarized in Attachment C. Tables C-1 through C-3 show how recommended 2016 Allied/County
Option 1 rates compare to the average of the other incorporated and unincorporated areas surveyed.
In Table C-1, we compare the Allied/Unincorporated County residential rates with averages of the other
franchise areas surveyed. Compared to the other franchise areas, proposed 2016 Allied/County
residential rates for Option 1 were significantly below the average for all service levels. The proposed
rates are between 29 percent and 39 percent below the average of other unincorporated franchise areas,
and between 26 percent and 41 percent below the average of the incorporated areas surveyed.
For the commercial (bin) sector, as shown in Table C-2, County rates under Option 1 also were significantly
below the average rates in other franchise areas. Rates ranged from 14 percent to 31 percent below the
average of other unincorporated franchise areas surveyed, and between 28 percent and 31 percent below
the average of the incorporated areas surveyed.
For the 20 cubic yard industrial (debris box) rate, as shown in Table C-3, County rates under Option 1 were
28 percent below the average of surveyed jurisdictions. This comparison is based on a representative two
(2) ton load.
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Attachment A: Rate Application and Audited Financial Statements
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Attachment A includes the 2016 Base Year Rate Change Application (Application) submitted by AWS to
the County July 10, 2015. In the Application, AWS proposed to increase unincorporated County collection
rates by 33.53 percent on January 1, 2016. The Application included the following forms:
Financial information
Cost summary for year 2014
Revenue summary
Single family residential revenues summary (including current rates and accounts)
Operating information
Rate change requested (including current and proposed rates).
Information provided in the Application was for the following five (5) years:
Actual prior years, 2012 to 2014 (including audited 2014 results)
Current year estimated, 2015
Base year projected, 2016.
Attachment A also includes the 2014 audited financial statements submitted by AWS (now referred to as
Republic Services of Contra Costa County) on July 1, 2015 to the County. Hood and Strong LLP, a
certified public accountant, prepared the audited financial statements. The audit opinion is unqualified. In
Table A-1, below, we reconcile the difference in total AWS costs in the 2014 audit, with total AWS costs
shown on page 2 of 6 of the Application.
Table A-1
Allied Waste Systems (Republic Services of Contra Costa County)
Reconciliation of Total AWS Costs on Audited Financial Statement to Rate Application
(Calendar Year 2014)
Description Amount
Audited AWS financial statement costs (consolidated for all operations) $58,606,372
Plus difference due to rounding 16
Equals total AWS costs in Application (row 42, page 2 of 6) $58,606,388
Additionally, Hood & Strong provided a supplemental schedule of operations (page 17 of the audit) that
includes financial information for unincorporated Contra Costa County alone. This was in addition to the
consolidated audited financial statements for AWS. We reconciled this data to the Application in Table A-
2 on the following page.
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November 20, 2015
Table A-2
Allied Waste Systems (Republic Services of Contra Costa County)
Reconciliation of AWS Unincorporated County Costs
(Provided in Supplemental Schedule Included with Audited Financial Statement)
To Costs in Rate Application
(Calendar Year 2014)
Description Amount
Operating costs included in supplemental schedule to audited financial statements (unincorporated County operations only)
$2,357,844
Plus difference due to rounding 1,221
Equals total AWS unincorporated County costs in Application (row 42, page 2 of 6)
$2,359,065
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Attachment B: Adjusted Rate Model
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Exhibit B-1, on the next page, of this appendix provides the adjusted base year rate model based on
Crowe adjustments. The model reflects the following general adjustments (for Option 1):
Revenues
Minor increase to residential revenues
Moderate increase to commercial and industrial revenues
Allowable Costs/Profits
No adjustment to direct labor
No adjustment to tipping fees (w/profit)
Minor increase to general and administrative costs
Minor increase to trucking and equipment costs
Moderate decrease to depreciation and other operating costs
Major increase to costs of services provided to the County (primarily to account for new
commercial (foodwaste) program
Minor reduction to operating profit
Pass Through Costs
No adjustment to tipping fees (pass through)
Minor increase in franchise fees.
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Exhibit B-1
Schedule of Rate Review Findings
(Projection Year 2016)
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Attachment C: Comparative Rate Survey
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Tables C-1 through C-3 that follow include results of a survey of comparative residential, commercial, and
industrial rates. We provide comparisons between Allied’s County rates and the rates charged to
customers served in other neighboring unincorporated and incorporated franchise areas:
Incorporated areas
Antioch
Clayton
Concord
Danville (served through Central Contra Costa Solid Waste Authority, or CCCSWA)
Lafayette (CCCSWA)
Martinez
Moraga (CCCSWA)
Orinda (CCCSWA)
Pleasant Hill
Walnut Creek (CCCSWA)
Unincorporated County areas
Alamo & Unincorporated Central CCC (CCCSWA)
Crockett Garbage served areas – West CCC (County)
Garaventa Enterprises served areas –East CCC (County)
Richmond Sanitary Service served areas – West CCC (County).
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Table C-1
Comparison of 2015 Unincorporated Contra Costa County
Residential Rates with Neighboring Jurisdictions (Per Customer, Per Month)
Residential Rates
Jurisdiction 20 Gallon 32 Gallon 64 Gallon 96 Gallon
1. Antioch $ 23.49 $ 27.59 $ 44.54 $ 52.31
2. Clayton 24.38 27.24 50.88 57.66
3. Concord N/A 28.45 38.40 47.05
4. Danville (CCSWA) N/A 25.81 43.90 65.16
5. Lafayette (CCSWA) 26.43 30.20 56.99 85.47
6. Martinez 19.35 27.73 30.91 64.95
7. Moraga (CCSWA) 25.38 29.30 58.59 87.89
8. Orinda (CCSWA) 31.01 35.75 67.30 100.67
9. Pleasant Hill 20.86 24.14 32.94 49.39
10. Walnut Creek (CCSWA) 18.28 21.57 40.73 60.84
Average $ 23.65 $ 27.78 $ 46.52 $ 67.14
2015 County rates (Option 1) 15.65 20.49 30.54 39.62
Difference -34% -26% -34% -41%
Unincorporated County Areas
1. Alamo & Uninc Central CCC (CCCSWA) $ 20.33 $ 23.09 $ 43.96 $ 65.65
2. Crockett Garbage – West CCC (County) 22.44 26.61 46.66 56.70
3. Garaventa Enterprises –East CCC (County) 27.61 34.46 39.97 47.55
4. Richmond Sanitary – West CCC (County) 25.50 31.01 59.42 88.50
Average $ 23.97 $ 28.79 $ 47.50 $ 64.60
2015 County rates (Option 1) 15.65 20.49 30.54 39.62
Difference -35%-29% -36% -39%
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Table C-2
Comparison of 2015 Unincorporated Contra Costa County
Commercial Rates with Neighboring Jurisdictions (Per Customer, Per Month)
1 Time per Week 2 Times per Week
Jurisdiction 2 cu. yd. 3 cu. yd. 2 cu. yd. 3 cu. yd.
1. Antioch $ 253.21 $ 380.98 $ 506.42 $ 761.96
2. Clayton 229.98 310.59 459.88 621.17
3. Concord 363.80 486.15 764.00 1,020.90
4. Danville (CCSWA) 291.73 437.61 583.51 875.23
5. Lafayette (CCSWA) 368.84 544.99 737.68 1,089.98
6. Martinez 248.38 310.40 423.47 496.44
7. Moraga (CCSWA) 339.82 509.75 679.65 1,019.50
8. Orinda (CCSWA) 415.98 623.97 831.95 1,247.93
9. Pleasant Hill 203.27 304.52 405.99 609.19
10. Walnut Creek (CCSWA) 211.37 346.14 461.51 692.26
Average $ 292.64 $ 425.51 $ 585.41 $ 843.46
2015 County rates (Option 1) $ 210.80 $ 296.15 $ 421.64 $ 592.35
Difference -28% -31% -31% -30%
Unincorporated County Areas
1. Alamo & Uninc Central CCC (CCCSWA) $ 277.65 $ 416.45 $ 555.28 $ 832.92
2. Crockett Garbage – West CCC (County) 162.74 N/A 245.88 N/A
3. Garaventa Enterprises –East CCC (County) 300.44 419.73 545.65 784.23
4. Richmond Sanitary – West CCC (County) 334.71 457.34 612.02 850.36
Average $ 268.89 $ 431.17 $ 489.71 $ 822.50
2015 County rates (Option 1) $ 210.80 $ 296.15 $ 421.64 $ 592.35
Difference -22% -31% -14% -28%
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Table C-3
Comparison of 2015 Unincorporated Contra Costa County
Industrial Rates with Neighboring Jurisdictions
(Per Pull, 2 Tons of Material)
Jurisdiction 20 yard
1. Antioch $563.20
2. Clayton 470.28
3. Concord 508.00
4. Danville (CCSWA) 690.69
5. Lafayette (CCSWA) 737.30
6. Martinez 455.47
7. Moraga (CCSWA) 762.27
8. Orinda (CCSWA) 805.78
9. Pleasant Hill 389.18
10. Uninc. Co (CCCSWA) 664.21
11. Walnut Creek (CCSWA) 858.74
Average $627.74
2015 County rates (Option 1) $450.04
Difference -28%
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Attachment D:
Costs for Shift to Weekly Curbside Recycling Services
(Agreed to in 2014 as Part of Franchise Extension)
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Attachment E:
Costs for Mandatory Commercial Recycling Program
(Agreed to in 2014 as Part of Franchise Extension)
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