HomeMy WebLinkAboutMINUTES - 11241992 - H.2 a
TO: BOARD OF SUPERVISORS --
Contra
FROM: Sara Hoffman ;K �,^,��a
Senior Deputy County Administrator a•. ,�. WJl
Courcy
DATE: November 24, 1992 a
SUBJECT: Acme Interim Transfer Station Rates
SPECIFIC REQUEST(S) OR RECOMMENDATION(S) & BACKGROUND AND JUSTIFICATION
RECOMMENDATION(S):
1. ACCEPT the analysis of the Acme Interim Transfer Station FY 1992-93 Rate Application as presented
by Deloitte & Touche.
2. ADOPT a rate of $75.97/ton at the Acme Interim Transfer Station, effective November 1, 1992.
3. DIRECT staff to discuss the concerns regarding Acme Landfill closure/post-closure funding expressed
in the November 13, 1992 letter from Central Contra Costa Sanitary District with District staff and to
report back to the Board.
4. DIRECT staff to report back on the BFI haul contract disallowed in the $75.97/ton rate, provided that
Acme submits sufficient documentation to staff by December 31, 1992.
5. DIRECT staff to closely monitor the status of the Interim Transfer Station, including construction progress
on the permanent transfer station, tonnage received at the interim transfer station and other related
issues and report to the Board as warranted.
BACKGROUND/REASON(S) FOR RECOMMENDATIONS:
On October 7, 1992, Acme Fill submitted its FY 92-93 rate application for the Acme Interim Transfer Station.
Acme requested a rate of $90.26/ton including $5.92 for closure and post-closure maintenance for the Acme
Landfill.
The County's consultants, Deloitte & Touche, have prepared an analysis of the rate application. They are
recommending a rate of $75.97/ton effective November 1, 1992. This recommendation does not take a position
on the $5.92/ton requested by Acme for closure/post-closure. In considering Deloitte & Touche's report, the
Board should be aware of certain underlying assumptions and issues:
CONTINUED ON ATTACHMENT: _YES SIGNATURE: C�
RECOMMENDATION OF COUNTY ADMINISTRATOR_RECOMMENDATION OF BOARD COMMI
7t
APPROVE OTHER
SIGNATURE(S): L
ACTION OF BOARD ON t%►+�-tf a`0�1 hPROVED AS RECOMMENDED OTHER
See Addendum attached for Board Action.
VOTE OF SUPERVISORS
I HEREBY CERTIFY THAT THIS IS A
_UNANIMOUS(ABSENT ) TRUE AND CORRECT COPY OF AND
AYES: z m 4'� NOES: _-Jr-F 1Z- ACTION TAKEN AND ENTERED
ABSTAIN: ON MINUTES OF THE BOARD OF
SUPERVISORS ON THE
DATE SHOWN.
Contact: Sara Hoffman,646-1390
ATTESTED �4, r y9�-
PHIL BATCHELOR CLERK OF
THE BOARD OF SUPERVISORS
AND COUNTY ADMINISTRATOR
cc: CAO
Acme Fill {{
County Counsel BY DEPUTY
Community Development Dept i
Closure/Post-Closure
According to Acme's attorney, Acme's request for $5.92/ton is based on the original $41.5 million
closure/post-closure estimate and the ten (10) year payment plan discussed by the County, Cities and
Acme. However, this plan was never finalized for various reasons, including lack of Acme agreement on
beneficial use provisions.
Currently, the County is involved in a lawsuit brought by Acme concerning closure and post-closure funding.
Consequently, the Board may wish not to act on this matter at this time, outside the context of this litigation.
In addition, the Board has received communication from the Central Contra Costa Sanitary District board
requesting disapproval of the $5.92/ton at this time, but also indicating that appropriate rate setting
mechanisms and trust documents should be established in conjunction with any closure/post-closure rate
component. Staff would like to meet with District staff to discuss the District's concerns.
Life of the Interim Transfer Station
When the interim transfer station first opened, it was anticipated that it would close in 1992. Consequently,
all capital expenses were amortized through December 1992. At this time, it is anticipated the transfer
station will be operating until December 1993. The recommended rate assumes this longer amortization
period for recovery of capital expenses and other fixed costs.
ITS Tonnage
Acme's rate application assumed yearly tonnage of approximately 325,000 tons. At the same time, Acme
Landfill had begun to receive substantial amounts of waste. The landfill is no longer receiving that waste,
consequently, the recommended rate assumes all tonnage, except historic nominal amounts, will be
transferred through the transfer station (approximately 450,000 tons).
Transfer Haul Costs
Following the opening of the Keller Canyon Landfill, BFI decreased its contract for transfer hauling. This
permitted a substantial reduction in that component of the rate. At issue is an October 1, 1991 upward
adjustment of the 5Fi rate. Insufficient documentation was available to the County's consultant to justify
inclusion of the increased portion in the recommended rate. Rather than delay the adoption of the new
lower ITS rate, staff is recommending that the Board allow Acme to submit supporting data for review within
one month of the Board's action.
Need for Further Rate Adjustments
The stability of the interim transfer station rate is predicated on the continued validity of the assumptions
upon which it is based. These may change over time. For example, some cities are apparently discussing
the possibility of bypassing the transfer station and exporting waste to other counties. This issue is
complicated by recent Supreme Court decisions and new laws which could be construed to change the rights
and obligations of exporting and importing counties. Consequently, staff believes it is very important to
closely monitor the interim transfer station. Staff is prepared to report back to the Board for their
consideration of issues that may arise and could affect transfer station rates.
2
ADDENDUM TO ITEM H.2 NOVEMBER 24, 1992
Sara Hoffman of the County Administrator' s staff reviewed
the background and recommendations before the Board.
Eric Gilbert of Deloitte & Touche reviewed the report
prepared by his firm and reviewed the recommendations .
Chair McPeak declared the hearing open. The following
appeared and addressed the Board:
Tom Bruen, Attorney for Acme, who filed a letter on behalf
of Acme Fill Corporation in response to the adjustments proposed
by Deloitte & Touche to the Acme Fill Interim Transfer Station
rate application.
Phyllis Roff, 2893 San Carlos Drive, Walnut Creek.
Frank Aiello, 2247 Mt. Whitney Drive, Pittsburg,
representing Citizens United.
Barbara Woodburn, 621 Brackman Lane, Martinez, representing
the City of Martinez .
Dorothy Sakazaki, 737 Central Avenue, Martinez, speaking for
herself and for the Mt. View Sanitary District .
There being no other speakers, the Chair declared the
hearing closed.
Following extensive discussion by Board members, IT IS BY
THE BOARD ORDERED that the recommendations of staff are APPROVED.
IT IS FURTHER ORDERED that staff is requested to report back
in 60 days on the progress of the permanent transfer station.
IT IS FURTHER ORDERED that staff is to meet with the host
community of Vine Hill and the City of Martinez, addressing
mitigation, and return to the Board with a report .
Central Contra Costa Sanitary District
Fil r-V M.M.i a Q FTZ
RECEIVED ROGER J DOUV
Generol Afanwr
ChiefErip.neer
KE.\T0_\-L..4LA1
Counsel for the District
November 13, 19.92 F,,NOV 16 1992 ('101938-1430
JO)*CE E.Ml J RPM-
CLERK
Secyelar-
CLERK 8 ERVI ORS v of the District
CONTRA COSTA CO.
Sunne W. McPeak, Chairperson
Board of Supervisors
County of Contra Costa
651 Pine Street, Room 106
Martinez, CA 94553
NOVEMBER 17, 1992 HEARING RATE SETTING FOR ACME INTERIM TRANSFER
STATION
Dear Board Chairperson and Supervisors:
The Central Contra Costa Sanitary District staff has been informed that the Board of
Supervisors will be considering a rate increase request for the Acme Interim Transfer
Station on November 17, 1992. The District Board has recently discussed several of the
issues involved in your rate-setting process and has directed staff to forward a letter to
you on behalf of the Distri&t.
The purpose of this letter is to communicate our Board's position :that the $5.92
requested increment for funding of Acme landfill closure and post-closure should be
rejected at this time. First, we would like to take this opportunity to commend the Board
with regard to its actions in resisting the pass-through of similar closure and post-closure
costs over the last several years, and we endorse your staff's current position on this
issue which we understand to be one of continuing to resist the pass-through.
Our Board takes the position that the closure costs, which are sought to be funded
through this tipping fee increment, are a liability of Acme for activities it undertook at the
landfill, an unregulated, for-profit enterprise; and therefore, the County has no legal
responsibility to provide for funding of that liability as an operational cost of a separate
regulated operation, the Interim Transfer Station. Further, our Board believes that given
the pendency of the Acme Superfund lawsuit, it would be unwise to provide for a pass-
through of closure costs through the current rate structure.
Notwithstanding our Board's position that closure costs should not be included in the
rates, the District strongly contends that, if.any closure funds are to be collected through
the regulated rates,those funds should be segregated and deposited into a trust account,
Re-clod Party HOB
Sunne McPeak
Page 2
November 13, 1992
with such trust account being specifically set up to insure that the accumulated funds will
be used for the direct benefit of the solid waste ratepayers. That is, the rate setting
mechanism and associated trust documents should clearly reflect that the sums collected
will be allocated to the liability, if any, of the municipal solid waste defendants whose
ratepayers are ultimately paying for the increased tipping fee. Absent these protections,
the potential exists that any sums collected will be allocated by the Court as a
contribution from Acme rather than a contribution from the municipal solid waste
defendants and ratepayers.
This letter should not be taken as agreement on the part of the Central Contra Costa
Sanitary District Board with regard to the remaining fee structure at the Acme Interim
Transfer Station and/or Keller Canyon. However, the District has addressed those issues
in prior correspondence to the Board and, therefore, will not reiterate its concerns at this
time.
Sincerely,
1• I
x F#bgerJ Dolan
1 General Manager-Chief Engineer
cc: Board of Directors
ADS/Morse n#3/McPeek.ltr
Deloitte &
Touche Management Consulting
/\ 50 Fremont Street Telephone:(415)247-4000
San Francisco,California 94105-2230 Facsimile:(415)247-4717
November 18, 1992
Ms. Sara M. Hoffman
Senior Deputy Administrator
County Administrator's Office
651 Pine Street
4th Floor—North Wing
Martinez,California 94553
Dear Sara:
We have completed our review of the Acme Interim Transfer Station 1992-93 rate
application. Our work has included:
• Review and, where appropriate, adjustment of projected cost
elements
• Recalculation of the rate to reflect new assumptions about waste
volumes transferred during the 1993 fiscal year
• Review of and adjustments to the actual cost reimbursement
necessary to provide a 93.4% operating ratio on costs.incurred by
Acme through May 31, 1992
• Identification of issues likely to affect the Interim Transfer Station
thorough the remainder of its life and recommendations to address
those issues
Background
Our review is based on information provided in the rate application, in Acme's
audited financial statements and a significant amount of additional data collected
from Acme's accountants during the review process.
DeloitteTouche
Tohmatsu
International
Ms. Sara M. Hoffman
November 18, 199'2
Page 2
The regulatory rate setting system for the Acme interim transfer was developed
to address specific concerns such as the short life of the facility and uncertainties
in volumes,operating expenses and disposal costs. Consequently, the regulatory
system allows for actual cost reimbursement for allowable expenses to the
operator. If actual costs or tonnage vary from projections, an adjustment to costs
is made in the subsequent year. A lower-than-normal profit(93.4% operating
ratio) is provided to the operator to account for this protection against cost
variances.
This year's rate application review introduces a new challenge to the regulatory
process. As the Interim Transfer Station approaches the end of its life, the need
to revisit prior years' actual costs adjustments to do a "final accounting" grows
more critical. The actual cost reimbursement recommended here reflects this
detailed accounting and,based on projected tonnage,is intended to provide
Acme an Interim Transfer Station Rate that complies with rate setting policy as
established by the Contra Costa County Board of Supervisors.
Recommendation
Acme's rate application dated October 7, 1992 requested an interim transfer
station rate of$90.26 per ton. The requested Acme rate includes a $5.92 per ton
assessment for costs of closure and post-closure of the Acme landfill. As a result
of our review, we recommend approval of an Interim Transfer Station rate of
$75.97 per ton, a$1.10 per ton decrease from the current rate. Deloitte&Touche
has not taken a position on, nor analyzed the closure and post-closure
component of Acme's rate request. Therefore,we have removed the closure and
post-closure rate component in our review of this application.
Our recommended rate of$75.97 per ton is composed of$22.86 per ton for
operating and administrative costs plus allowed profit,$3.8.01 per ton for tipping
fees and$15.10 per ton for various regulatory costs and for reimbursement of
actual historical costs. Our recommended rate is also based on the assumption
that the Interim Transfer Station remains in operation through December 1993.
Should the Board adopt a rate consistent with this assumption, and the
permanent transfer station open in May, there would remain$1,379,110 in actual
cost reimbursement and $323,086 in amortization of invested capital and
associated profit (a total of$1,702,196) still owed Acme which would have to be
collected through some means, such as through the Permanent Transfer Station
rate. Our recommendation also assumes that the rate is adopted retroactive to
November 1, 1992.
Should the Board wish to establish a rate which would collect this amount over
the shorter period through May 1993, the required Interim Transfer Station Rate
would be$82.56 per ton until May 31, 1993 at which time the rate should be
reduced to $69.73 per ton($82.56 per ton less$1.97 per ton for amortization of
Ms. Sara M. Hoffman
November 18, 1992
Page 3
invested capital and associated-profit less$10.86 per ton for actual cost
reimbursement.)
Our recommended rate is based:on six adjustments to Acme's rate application
submitted October 7, 1992:
Per Ton Amount
Rate Requested by'Acme: $90.26
Adjustments:
1. The BFI transfer haul.rate increase effective October 1, ($6.12)
1991 was disallowed for the period October 1, 1991 to May
31, 1992 and other adjustments provided by Acme's
accountants to tie actual cost reimbursements to audited
financial statements were incorporated into the requested
actual cost adjustment. Also, the period of recovery for
actual cost reimbursement was extended through December
1993,all of which reduced the required rate component by
$6.12 per ton.
2. $5.92 per ton for closure and post-closure of the Acme ($5.92)
landfill included in the original rate application was
excluded from the rate recommended here.
3. All tonnage (above historical landfilled amounts) through ($1.87)
the Acme gate was assumed to be transferred via the ITS
rather than landfilled at Acme. The operating cost, tipping
fee, mitigation fee,profit and revenue effects of this new
assumption combined to reduce the rate by$1.87 per ton.
4. The amortization of remaining invested capital balances ($0.73)
was adjusted to extend through December 1993,which
lowered the rate by$0.73 per ton (including associated
profit).
5. Additional LEA fees ($0.10/ton)and a new City/County $0.51
Household Hazardous Waste Fee($0.41/ton) were added
6. The higher BFI rate effective in June and July 1992 was ($0.16)
disallowed,lowering the rate by$0.16 per ton (including
associated profit.)
Recommended Rate: $75.97
Ms. Sara M. Hoffman
November 18, 1992
Page 4
The adjustments summarized above are detailed in tables appended to this letter.
For comparison, the net effect of all rate adjustments is shown in the following
table:
October 1992
Acme Application: After Adjustments:
Cost per Cost per
Next Year Ton Next Year Ton
Projected 323,000 Projected 444,640
TOTAL DIRECT LABOR $517,946 $1.60 $720,659 $1.62
TOTAL EQUIPMENT $224,384 $0.69 $250,352 $0.56
TOTAL VARIABLE OPERATING COSTS $4,716,828 $14.60 $5,773,011 $12.98
TOTAL ADMINISTRATIVE COSTS $910,555 $2.82 $1,136,721 $2.56
AMORTIZATION OF INVESTED CAPITAL $819,068 $2.54 $517,306 $1.16
$7,188,781 $22.26 $8,398,049 $18.89
OPERATING RATIO ALLOWANCE 93.4% $1,349,863 $4.18 $1,787,646 $4.02
ADJUSTMENTS:
ACTUAL COST ADJUSTMENT $2,713,416 $11.11 $2,551,760 $4.99
SW PLANNING AND ENFORCEMENT FEES $785,842 $2.43 $1,237,642 $2.78
TIPPING FEES $11,913,825 $36.88 $16,899,849 $38.01
PASS-THROUGH MITIGATION FEES $2,437,254 $7.55 $3,258,324 $7.33
CLOSURE/POST-CLOSURE $1,912,160 $5.92
SALVAGE REVENUES ($21,600) ($0.07) ($21,600) ($0.05)
GROSS INTERIM TRANSFER STATION RATE $28,279,541 $9026 $34,111,670 $75.97
Issues
Several rate-setting issues require attention from the County:
Amortization of Invested Capital and Actual Cost Adjustment. As stated
earlier in this recommendation,Acme's original application assumed a recovery
period for remaining capital balances and for actual cost adjustment that extends
through May 1993. In an effort to keep rates as low as possible,we have
recommended extension of those periods through December 1993. Should the
Board elect to adopt our recommended rate, and should the Interim Transfer
Station cease to operate prior to December 31, 1993,Acme will be left with an
Ms. Sara M. Hoffman
November 18, 1992
Page 5
uncollected balance that will have to be collected by other means. For example,
should the ITS close on May 31, 1993 with the rate recommended here in place,
approximately,$1,702,196 will remain to be collected. If the Board elects to adopt
a rate which would collect the required amounts by May 31, 1993, the necessary
ITS-rate would be$82.56 per ton now (and retroactive to November 1, 1992)
dropping to$69.73 per ton on June 1, 1993.
BFI Contract. Acme's contract with BFI to provide transfer haul services has
undergone several changes since their last rate application review. On October 1,
1991,rates were increased 8.5%,however Acme did not provide detailed support
for this cost increase during the rate review process. Since, in a prior .
recommendation to the Board, we recommended acceptance of the proposed BFI
contract only under the condition that rates not increase for the life of the Interim
Transfer Station unless all transfer costs were supported with detailed cost
information, we have recommended disallowance of Acme's request for
reimbursement of the incremental costs. Should Acme wish to supply detailed
supporting information, we recommend that submission of such information be
required within one month and that a full review of Acme's submission take
place subsequently.
On August 1, 1992,in response to the opening of Keller Canyon landfill, BFI's
contract rates were decreased by 12.8% and restructured to give benefits to Acme
for larger loads. ,Deloitte&Touche was provided information during the course
of this rate review to support the adequacy of that rate decrease. Our conclusion
is that the rate decrease effective August 1, 1992 is appropriate for the changed
nature of BFI's operations.
Future Rate Adjustments. Tonnage through the Interim Transfer Station must
be monitored carefully over the next six months to ensure that the projections
reflected in this rate application prove accurate. A rate application and
subsequent review should be conducted in May 1993 only if either Acme or the
County feel that such action is necessary to ensure that Acme receives a return
consistent with rate setting policy for the 1993-94 fiscal year.
Conclusion
We recommend that an Interim Transfer Station rate of$75.97 per ton be
approved retroactive to November 1, 1992. This recommendation assumes that,
should the Interim Transfer Station cease to operate prior to December.31, 1993,
the Board will implement a collection mechanism to recover actual cost
adjustment and amortization of invested capital balances outstanding at that
time.
Ms. Sara M. Hoffman
November 18, 1992
Page 6
Alternatively,we recommend that an Interim Transfer Station rate of$82.56 per
ton be approved retroactive to November 1, 1992. This recommendation
assumes that,should the Interim Transfer Station operate beyond May 31, 1993,
the rate would drop to$69.73 per ton beginning June 1, 1993.
Yours truly,
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A PROFESSIONAL CORPORATION
1990 NORTH CALIFORNIA BOULEVARD A I/�/�/�SUITE 60B 4 1,9992WALNUT CREEK,CALIFORNIA 94596
(510)295-313FA%(510)295-3132 OF SUPERVISORS
COSTA CO.
November 23 , 1992
Sunne Wright McPeak, Chair and
Members of the Board of Supervisors
Contra Costa County
Martinez, California 94553
Dear Chairperson McPeak and
Members of the Board of Supervisors:
This letter is written on behalf of Acme Fill Corporation in
response to the adjustments proposed by Deloitte Touche to the Acme
Fill Interim Transfer Station ("ITS") rate application.
1. Closure/Post Closure Funding.
By way of background, it should be noted that although the
County's original use permit for the ITS did not allow for County
control of the ITS 's rates, the County requested that Acme
voluntarily submit itself to rate review and that Acme agree to an
amendment to the ITS use permit allowing for County control of the
ITS 's rates. In exchange, the County committed to full cost
reimbursement for the ITS plus a reasonable profit, and to develop
a mechanism for the funding of Acme's closure (as used below, the
term "closure" includes "post closure" unless otherwise indicated)
which would also reduce the impact on rate payers of having to
raise closure funds over a compressed time period (which was the
then-estimated 3 year life span of the ITS) .
In consultation with cities and sanitary districts, the Board
commissioned Deloitte Touche to study various means of raising the
required closure and post closure funds. Deloitte Touche, with the
assistance of Brown and Caldwell, prepared several reports, which
concluded that: (a) the estimated amount of closure and post
closure costs for Acme was reasonable; (b) that Acme had acted
prudently in attempting to raise and set aside funds for closure
and post closure; (c) that Acme over the preceding ten year study
period had not earned excessive profits, but in fact had earned
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returns below industry norms; and (d) that the rate impact of
closure funding could be significantly reduced by raising such
funds over a ten year period.
Subsequently, in consultation with several cities and the
Central Sanitary District, Deloitte Touche prepared a schedule
setting forth the share that it recommended each city and sanitary
district should pay for the closure of all three Acme landfill
parcels. Deloitte also recommended that Acme be required to
collect approximately $8 million from the generators of hazardous
waste disposed of in the North parcel.
The Board of Supervisors adopted several resolutions in the
Fall of 1989:
(a) That the County would guarantee Acme full cost
reimbursement for the capital and operating expenditures of
the ITS;
(b) That the ITS would receive a guaranteed profit based on
an operating ratio of 93 .4% (reasoning that a higher profit
margin would be appropriate if there had been no reimbursement
guarantee) ;
(c) Approving the Deloitte Touche recommendation of a ten
year funding program for Acme's closure (which resulted in an
average per ton charge of $5. 92) ;
(d) Providing that all public (i.e. , non-franchised) users
of the ITS should pay a surcharge of $8. 63 per ton based on
the Deloitte Touche study.
These policies established by the Board at the outset of ITS
operations have largely been honored more in the breach than the
observance.
The Board has declined, despite repeated requests by Acme, to
allow the ITS to collect any money from franchised users of the ITS
to fund closure and post closure of the three Acme parcels, even
though the ITS continues to collect closure funds from public users
of the ITS. In recognition of Acme's critical need to raise
closure funds, County staff in its last rate review report to the
Board recommended the inclusion of a closure/post closure component
in the ITS rate, but this recommendation was rejected by the Board.
Acme has again requested that the Board allow Acme to
surcharge all waste coming through the ITS $5.92 a ton to fund
closure and post closure. Acme has no objection to this Board
requiring that Acme establish a segregated account to retain these
funds.
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2 . Extension Of Period To Make Up Past ITS Operating
Deficits.
The County has consistently put Acme in a "catch up" position
with respect to recovering its costs of operation and earning a
reasonable profit. Despite the County promise that Acme would
received guaranteed cost recovery and a reasonable profit, the ITS
has consistently lost money under County rate controls. At every
rate review hearing, rates have been set using optimistic
assumptions which have repeatedly created operating deficits which
have been carried forward into later rate reviews as an additional
cost to be made up. The current deficit, which the Deloitte Touche
calls "Actual Cost Adjustment" is, by their calculation,
$2, 551,760. By Acme's calculation, it is $2,713 , 416.
This "deficit spending" approach merely increases the pressure
on the County to disallow reasonable costs of operation to avoid
even larger rate increases to make up for the past deficits.
The current recommendation before this Board carries forward
with this unfortunate tradition. Among the most questionable
optimistic assumptions incorporated into the current rate review
report is the assumption (1) that the ITS will remain in service
through December 31, 1993 (whereas the Permanent Transfer Station
is scheduled to be in operation by the Fall of 1993) ; and (2) that
the ITS will receive 444, 640 tons during the upcoming year (whereas
in recent months substantial solid waste tonnage is bypassing the
ITS and several jurisdictions are publicly discussing plans to
attempt direct export of waste out of county. ) If either of these
assumptions proves incorrect, it will leave the County with the
unpalatable choice of sharply increasing rates to make up a larger
deficit or leaving Acme with a large "guaranteed" loss.
To avoid an even larger potential deficit, Acme submits that
this Board should adopt the alternate recommendation of Deloitte
Touche to amortize Acme's deficit over a six month period as
described at the top of page 5 of the Deloitte report.
3 . Extension of Amortization Period for Acme's Capital
Investment in ITS.
As noted in section 2, Deloitte's recommendation is based on
the premise that the ITS will remain in operation through December
31, 1993 . However, because the Acme PTS is expected to begin
operations in the Fall of 1993 , the assumption that the ITS has all
of 1993 to pay off the ITS capital investment may well prove to be
wrong, leaving Acme with significant unrecovered capital costs.
There is no mechanism suggested by the Deloitte study to make up
any shortfall at the end of ITS operations. We suggest that either
a six month amortization period be adopted (which ends in May,
1993) or that the County guarantee recovery of any unamortized ITS
revenues through another appropriate mechanism acceptable to Acme.
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4 . Disallowance Of The October 1, 1991 BFI Hauling Contract
Rate.
Acme has provided Deloitte Touche with BFI hauling cost
information for periods before and after BFI 's August 1992 hauling
contract rate decrease. The purpose of this information was to
justify the current BFI hauling contract rate as well as support
BFI 's October 1, 1991 haul contract increase. Deloitte Touche
advised Acme at a meeting on November 16th that it regarded the
information submitted to be insufficiently detailed to justify the
October 1, 1991 increase, but adequate to justify the August 1992
contract rate decrease.
Acme will provide additional information to Deloitte as
requested, however, the question is whether, with an operating
deficit already on the books which needs to be made up, it makes
sense to reduce Acme's ITS rates pending further study by Deloitte
Touche regarding these ten months of BFI 's hauling contract
charges. Assuming Deloitte finds the additional information
sufficient to justify these charges, this approach simply increases
the amount of the deficit which would need to be recaptured in the
short time available.
5. Surcharge on Additional Waste Landfilled at Acme from
June through September 1992.
Deloitte Touche proposes that Acme should be penalized in the
amount of $1. 88 per ton (which multiplied by the 444, 640 tons
assumed to be received at the ITS during 1993 would amount to a
total penalty of $831,476. ) for landfilling the additional waste
received at Acme with the closure of the GBF landfill from June
through September, 1992 . When GBF landfill closed, additional
waste was received at Acme which represented greater volumes than
had previously been received at the ITS. The ITS rates had been
previously set assuming this additional waste would not be received
at the ITS. Therefore, landfilling this additional waste from June
to September did nothing to contradict previous rate setting
assumptions and there is no basis for the proposed penalty.
Furthermore, the proposed penalty is another form of indirect
rate control over Acme landfill-- a practice which Deloitte Touche
had begun in prior rate reviews by deciding which costs were
allocable to Acme landfill operations versus the ITS, and which has
now been continued by "docking" Acme for landfilling waste rather
than sending it through the ITS.
It is no wonder that under rate controls, Acme has
consistently lost money on all operations despite the promises of
guaranteed cost reimbursement and a reasonable profit. The
following numbers, taken from Acme's audited financial statement
submitted to Deloitte Touche and County staff as part of Acme's
rate application, speak volumes regarding the effects of the
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r •
County's rate control practices:
1992 1991
Net Acme Corp. Loss (773, 899) (781, 184)
Retained Earn'gs (419,930) 482, 854
Sharehold'rs Equity (1, 135,429) (361, 530)
Given that Acme has suffered substantial losses on its overall
operations (i.e. , ITS operations and landfill activities) during
the last fiscal year and in the prior fiscal year, what
justification exists for penalizing Acme for landfilling waste
volumes not even included in the prior rate review assumptions?
The effect of rate controls on Acme's ability to fund closure
and to make a profit demonstrate that Acme, since the commencement
of rate controls, has not been a "private enterprise" in any normal
sense of the phrase. Private enterprise is able to set its own
prices without government controls, and it is not compelled to
engage in a business in which it suffers repeated losses. Without
rate controls, Acme would by now have largely completed the funding
of its closure, and Acme would have received a reasonable return
on its ITS operation. Under rate controls, Acme has thus far been
prevented from earning any profit and from raising money to pay for
its legal obligations.
6. Assumption That ITS Will Receive 444,460 Tons During The
Next Twelve Months.
As noted in section 2, this assumption is unrealistic. Within
the last few months, substantial amounts of solid waste are
currently being "exported" to neighboring Solano County and are
bypassing the Acme ITS. We submit that it is unrealistic to assume
that wastehauling through the ITS during the next twelve months
will increase over prior annual levels.
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7. Summary.
For the reasons stated above, we urge this Board to:
1. Approve a closure funding surcharge of $5.92 a ton;
2. Set rates on the assumption that the ITS will cease
operations in May 1993, or alternatively adopt a
mechanism, acceptable to Acme, to guarantee the recovery
of any operating deficit and capital recapture shortfalls
by December 31, 1993 ;
3. Reject the proposed penalty on waste landfilled at
Acme;
4 . Adopt a more realistic assumption regarding future
waste volumes through the ITS.
Respectfully submitted,
Thomas M. Bruen
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