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HomeMy WebLinkAboutMINUTES - 06172003 - SD.2 � 4*0) TO: BOARD OF SUPERVISORS ,f"� �� Contra FROM: DENNIS M. BARRY, AICP Costa COMMUNITY DEVELOPMENT DIRECTOR A` County DATE: June 17, 2003 SUBJECT: PROPOSED INCREASE OF SOLID WASTE COLLECTION RATES FOR THE UNINCORPORATED AREA OF CONTRA COSTA SERVED UNDER THE COUNTY'S COLLECTION FRANCHISE WITH RICHMOND SANITARY SERVICE RSS SPECIFIC REQUEST{S} OR RECOMMENDATION{S} & BACKGROUND AND JUSTIFICATION RECOMMENDATIONS 1} ACCEPT the"Rate Setting Process and Methodology Manual for Solid Waste Charges as applied to Richmond Sanitary Service" prepared by the County's Consultant, NewPoint Group. 2) ADOPT solid waste collection rate increase of 4.15%, effective August 1, 2003, for unincorporated customers served by Richmond Sanitary Service under the County's Franchise Agreement. FISCAL IMPACT No Impact to the County General Fund. BACKGROUND/REASONS FOR RECOMMENDATIONS The County has a solid waste collection franchise agreement with RSS for service to unincorporated West Contra Costa communities{with the exception of Kensington, Rodeo and Crockett} which will hereinafter be referred to as County's RSS Service Area. The County's RSS Service Area includes portions of Supervisorial Districts I and II. CONTINUED ON ATTACHMENT: X YES SIGNATURE A . `"RECOMMENDATION OF COUNTY ADMINISTRATOR RECOMMENDATION OF BOARD C MITTEE yy-APPROVE OTHER SIGNATURE (S) ACTION OF BPAR,15 ON ,m 17, W03 APPROVED AS RECOMMENDED y OTHER C.anmm to , 2003, nearing to consider accepting the "Rate Setting Process and. Method- ology Dual for Solid Waste Charges as applied to Richmond Sanitary Service" report prepared by New Point Group, a cons;altant, and adopting solid waste collection rate charges, effective August 1, 2003, for unincorporated customers served by Richmond Sanitary Service under the County's Franchise Agreement; and Directed Cbmumi.ty Development Department to send out letter to West Contra Costa Integrated Waste Management Authority. VOTE OF SUPERVISORS I HEREBY CERTIFY THAT THIS IS A TRUE X UNANIMOUS (ABSENTNM AND CORRECT COPY OF AN ACTION TAKEN AYES: NOES: ANC} ENTERED ON THE MINUTES OF THE ABSENT: ABSTAIN: BOARD OF SUPERVISORS ON THE DATE DISMCT III VA SHOWN. Contact: Deidra Dingman {925} 335-1224 ATTESTED XM 17, 2003 cc: County Counsel's office, Lillian Fujii JOHN SWEETEN, CLERK OF Richmond unitary Service (via CDD) THE BOARD OF SUPERVISORS West CC Integrated Waste Mgmt Authority(via CDD) AND C 'UN7Y ADMINISTRATOR -Z-;.4" n .t r ��, BYX° ttff� , DEPUTY GAConservaton\Deidra\6-17-03 bo.doc Changes in Solid Waste Collection Rates Charged by RSS June 17, 2003 Page 2 of 3 BACKGROUNDIREASONS FOR RECOMMENDATIONS (cont'd) In 2002,the County entered into an agreement with NewPoint Group to(1)develop a rate setting manual to be used to conduct rate reviews specifically for the County's RSS Service Area, and (2)assist with rate review of proposed collection rates for the County's RSS Service Area. The rate review process was prolonged due to changes in staff and accounting systems following Republic Services' acquisition of RSS. The rate setting manual prepared by NewPoint Group is entitled "Rate Setting Process and Methodology Manual for Solid Waste Charges as applied to Richmond Sanitary Service" and is attached as Exhibit B. The result of the rate review is contained in the document entitled"Review of Richmond Sanitary Service Solid Waste Rate Application" which is attached as Exhibit C. Existing Rates There are two components which together comprise the actual monthly rate charged to customers in the County's RSS Service Area. The first component is the collection rate,which is set by the County subject to our rate review process. The collection rate component(hereinafter referred to as Collection Rate) has not increased for the County's RSS Service Area since January 1, 2001. The second component is the Integrated Resource Recovery Facility (IRRF) rate (hereinafter referred to as IRRF Rate), which is set by the West Contra Costa Integrated Waste Management Authority(WCC€WMA)and not subject to the approval of the County. The IRRF Rate includes the transfer and disposal costs and this Rate is changed each year by the WCCIWMA. The IRRF rate component is passed onto all customers served by RSS. Currently the following rates are being charged to residential customers in the County's RSS Service Area: EXISTING RATES Can Size IRRF Rate Collection Rate Total Monthly Rate Char ed to Customers 20 gallon $ 3.69 $ 16.21 $ 19.90 35 gallon $ 5.90 $ 16.79 $ 22.69 65 gallon $ 11.80 $ 32.63 $ 44.43 95 gallon $ 17.70 $ 48.48 $ 66.18 Puposed Change to the Collection Rate The recommended 4.15% increase of the Collection Rate can be attributed to two types of costs: Operational Costs (3.4% increase) This 3.4% increase was determined based on NewPoint Group's review of the information contained in the Rate Application submitted by RSS. This increase relates directly to collection operation costs, including increased labor costs associated with health &welfare and pensions and an overall inflationary increase on other operational costs. Franchise Fees (0.75% increase) NewPoint Group evaluated whether the County was actually receiving the appropriate franchise fees (5% of gross annual revenue)as a part of the rate review process. As a result of this effort, it has been determined that the County was not receiving franchise fees equal to 5% but rather 2.9%. To increase the franchise fees to the full 5%, the Collection Rate would have to be increased by 2.35%. However, as discussed above the IRRF Rate (which is not controlled by the County) is a portion of RSS's gross annual revenue and this Rate includes other regulatory fees paid to the WCCIWMA and other agencies. Rather than assessing franchise fees on that portion of the revenue derived from the IRRF Rate, staff recommends that the County require RSS to pay 5% of non-IRRF Rate revenue which would only require a 0.75% increase in the Collection Rate. The effects on the monthly rate for the three different franchise fee scenarios considered are summarized in Exhibit A. Changes in Solid'Taste Collection Rates Charged by RSS June 17, 2003 Page 3 of 3 The below table summarizes the per-can costs of the recommended increase of the Collection Rate. COLLECTIN RATE it I Can Size Existing CR 4.15% Increase of CR Recommended CR 20 gallon $ 15.21 $ 0.59 $ 16.90 35 gallon $ 15.79 $ 0.71 $ 17.50 55 gallon $ 32.63 $ 1.34 $ 33.97 95 anon $ 48.43 $ 1.99 $ 50.47 The below table summarizes the change in monthly residential chanes if the recommended 4.15% increase of the Collection Rate was approved. TOTAL M 1ED MONTHLY RATE Can Size Approved IRRF Rate Recommended Collection New Monthly Rate ` j (effective 711/20013) Rate (effective 8/1/2003) (effective 8/1/2003) 20 gallon $ 4.05 $ 16.90 $ 20.95 35 gallon $ 6.50 $ 17.50 $ 24.00 55 gallon $ 12.98 $ 33.97 $ 46.95 95 ganon $ 19.48 $ 50.47 J $ 69.95 * See discussion below regarding the IRRF Rate, IRRF Fate Chance RSS has not increased the monthly rate to reflect the WCCIWMA approved increase of the IRRF Rate, which was to be effective on January 1, 2003. The below table identifies the increase in the IRRF Rate approved by the WCCIWMA. IRRF RATE (IR) Can Size IR included in IR Increase that should have Total IR set by the Current been added to Monthly Rate WCCIWMA Month! Rate (effective 1/1/20013) (effective 1/1/2003) 20 gallon $ 3.69 $ 0.18 $ 3.87 35 gallon $ 5.90 $ 0.30 $ 6.20 65 gallon $ 11.80 $ 0.59 $ 12.39 95 gallon $ 17.70 $ 0.89 1 $ 18.59 Because RSS did not increase the monthly rate, effective January 1, 2003, to reflect the increased IRRF Rate approved by the WCCIWMA, RSS has been directed to double the increase charged to customers in the County's RSS Service Area for the period of July 1, 2003 through December 31, 2003. The below table identifies the increase in the I RRF Rate that RSS must pass on the customers in the County's RSS Service Area for the remainder of 2003: IRRF RATE (IR) Can Size i IR Increase IR Increase for County Area Total IR (not implemented) (effective 7/1 -12/31/20}0}3) (effective 7/1 -12/31/20}03) 20 allon $ 0.18 $ 0.36 $ 4.05 35 gallon $ 0.30 $ 0.60 $ 6.50 65 gallon $ 0.59 $ 1.18 $ 12.98 95 ganon $ 0.89 $ 1.78 $ 19.48 ATTACHMENTS Exhibit A Table of Franchise Fee Options Exhibit B - "Rate Setting Process and Methodology Manual for Solid Waste Charges as applied to Richmond Sanitary Service„ Exhibit C-"Review of Richmond Sanitary Service Solid Waste Rate Application" GACONSERVATION1DEIDRX6-17-03 BODOC EXHIBIT A Effect of Franchise Fee Options on Residential Rates for County's RSS Service Area No Mange to Franchise Fete-Uollection Rate Increase of 3.4% IRRF Current Proposed Surcharge Adj to Effective Collection Service (7/1/2003 - New Total Nearest Change in Container Size Rate Rate 12/31/2003) Rate $.05 Collection Rate 1, 20-Callon $ 16.21 $ 16.76 $ 4.05 $ 20.81 $ 20.80 $ 0.54 1, 35-Callon $ 16.79 $ 17.36 $ 6.50 $ 23.86 $ 23.85 $ 0.56 1, 65-Gallon $ 32.63 $ 33.74 $ 12.98 $ 46.72 $ 46.70 $ 1.09 1, 95-Gallon $ 48.48 $ 50.13 $ 19.48 $ 69.61 $ 69.60 $ 1.64 Increase Franchise Fee to 5%of Non-IRRF Revenue -Collection Rate Increase of 4.16% Current New Adj to Effective Service Service IRRF New Total Nearest Change in Container Size Rate Rate Surcharge Rate $.05 Service Rate 1, 20-Gallon $ 16.21 $ 16.88 $ 4.05 $ 20.93 $ 20.95 $ 0.69 1, 35-Callon $ 16.79 $ 17.49 $ 6.50 $ 23.99 $ 24.00 $ 0.71 1, 65-Gallon $ 32.63 $ 33.98 1 $ 12.98 1 $ 46.96 $ 46.95 $ 1.34 1, 95-Gallon $ 48.48 1 $ 50.49 $ 19.48 1 $ 69.97 1 $ 69.K1 $ 1.99 Increase Franchise Fee to 6%of Gross Revenue -Collection Rate increase of 5.75% Current New Adj to Effective Service Service IRRF New Total Nearest Change in Container Size Rate Rate Surcharge Rate $.05 Service Rate 1, 20-Gallon $ 16.21 $ 17.14 $ 4.05 $ 21.19 $ 21.20 $ 0.94 1, 35-Gallon $ 16.79 $ 17.76 $ 6.50 $ 24.26 $ 24.25 $ 0.96 1, 65-Gallon $ 32.63 $ 34.51 $ 12.98 $ 47.49 $ 47.50 $ 1.89 1, 95-Gallon $ 48.48 $ 51.27 $ 19.48 $ 70.75 $ 70.75 $ 2.79 Rate Setting Process and Methodology Manual Are ff for Solid Waste Lear es r t.Y Prepared for Centra Crista County- Richmond ountyRichmond Sanitary Service, a division of Republic Services, Inc. Prepared by NewPoTnt Group® Management Consultants 2555 Third Street, Suite 215 Sacramento, California 95818 (916) 442-0508 January 2003 a G -' to ! SECTION I Rate . Setting uvervie. C V"l-, 5. { This introduction chapter provides an overview of the rate setting process and details significant guiding policies which are used throughout the manual. The process for how rates are changed is described. Also included is a description of how the refuse collection hauler's casts are treated for rate setting purposes. This chapter reviews how to use the manual and identifies future enhancements that could be considered as Contra Costa County and the hauler gain experience with the process. The chapter includes the following five (5) sections: A. Introduction to the Manual B. Goals ofRate Setting Process C. .Policies Guiding Pate Setting Manaal U. hate Chan Application .Process E. .Allowable and.Pass Through Costs. AIntroduction -to the Manual This fnanual provides a guide for the Contra Costa County (County) and one of - its franchise haulers, Richmond Sanitary Services, a division of Republic Services, Inc. (RSS), to use in preparing and approving changes to solid waste collection charges. The manual provides a formal structure for establishing solid waste charges. In accordance with the. October 10, 1995 franchise agreement between the County and RSS (Appendix A), County rate setting has been guided by the 1990 Barakat & Chamberlain (B&C) Solid Waste Collection .Rate Application and Review Procedural Guide. The County also, approved a subsequent "reasonable adaptation" of the B&C methodology documented in the October 24, 1997 report titled, "Review of Unincorporated West Contra Cosh County Solid Waste Collection Rate Setting Metbodology." The manual is based on the current franchise agreement with RSS and existing RSS operating conditions in the County. The manual establishes rate change policies, provides application forms, specifies reporting formats,identifies required supporting documentation, and describes procedures for requesting, reviewing, and adopting rate changes. Cost and revenue information is required for all residential,commercial, and industrial services. Unincorporated County areas that are the subject of this work primarily include the areas of Bast Richmond- Heights, El Sobrante, Montalvin Manor, North Richmond, Rollingwood, and `Para Hills. There are a total of over 10,000 residential customers in these areas. Exhibit I-1, on the following page.,provides a map of these services areas. I R a t e S e t t i n g O v e r v i e ver EXHIBIT I-I West Contra Costa County Service Areas � 4• rn N&ra '�rrt4'1•.?r r� n ti.' y 11 R Y {�,�a,� 3+,4t,�` : ,A`y'y �`Y ��§ e '�' 3rt Y •'� �'''#�.a;age F ' +F'u" •c s'CF'g�r'uky'*+.t '4y`^`{ f t � w na�+5 �¢" k'4'Mn3 trti4 �rStl n r.ti w Mast�t fiffi ECtreYotb RSS County service areas. 0 I . , R a t e S e t t i n g O v e r v r e w i This manual is organized into three chapters as follows: I. Rate Setting Overview This chapter provides an introduction to the manual and discusses the policies followed in establishing the rate setting process. II. Base Year Rate Setting Process A detailed discussion of the base year rate setting process is provided in this chapter. This discussion focuses on responsibilities of participants in the process, describes activities performed, and identifies the timing of these activities. M.Interim Year Rate Setting Process A detailed discussion of the interim year rate setting process is provided in this chapter. This discussion focuses on responsibilities of participants in the process, describes activities performed, and identifies the timing of these activities. The manual also contains the following four appendices: A. Franchise Agreement B. Letter of 2003 Rate Setting Recommendations C. dank Forms and Worksheets D. Sample Completed Applications and Worksheets. Goals of Rate Setting Process The primary goal of the rate setting process and methodology is to determine solid waste collection charges which are fair and equitable to County residents, and which provide a reasonable profit to the franchise hauler. A total of seven (7) key rate setting process goals are summarized in Exhibit I-2, on the following page, and described in detail below: 1. The County and hauler should start with a strong and committed partnership. The franchise agreement between the County and KSS is expected to extend another eleven years through October 11,2013. The County and hauler should view this franchise as a long-term business partnership where both parties commit to use the formal rate setting methodology, and plan continuous communication on rate setting throughout the franchise term. 2. The charges requested by the franchise hauler must be justifiable and supportable. A formal request to change charges, submitted by a franchise hauler,should be based on adopted guidelines for expenses and profits which include only allowable and necessary costs. In determining rates,the County shall consider both the need for fairness to the ratepayer and the need for the hauler to be compensated fairly and consistently with the methodology. R a t o S e t t i n g O v e r v i e w EXHIBIT" 1-2 County/Hauler Solid Waste Rate Setting Philosophy i # 1. Start with a Strong,Committed Partnership Between the aj County and Hauer � r. 7. Micro-managing the J2. tax##ize a Formal.Systematic and 0. Hauler's Operations is ;"°+ Documented Rate Setting Process! Counter-Productive and ;; and Methodology for Justifiable Resource Intensive ; # and Supportable Charges f i ## # Mfr + ' x 3 Ensure Revenue , 6 identify Performance . Adequacy � Incentives for the Hdu#er to rf sr, t�Meet Reasonable # Maintain Competitiveness T Fair and Equitab and Quality Services Refuse CollectionargesTMp Casts-of-Service ' I f g� � 4. Provide a Process Which F S. Make Process Easy to Explain and Administer Ensures Ongoing Rate Review and Charge Stability' i x F i nr.xsa rssemavmawcax.�u:.�•aw 1 R a t e S e t t i n g O v e r v i e w 3. The process should ensure that revenues are adequate to fully meet reasonable costs-of-service. Estimated costs of service, and resulting solid waste management charges, should be reasonable. Granting a franchise for solid waste collection implicitly recognizes the private sector's ability to provide quality services at reasonable costs. Further, the County acknowledges that maintenance of quality service is related to providing adequate compensation and financial incentives for continued good performance. Revenues generated should be adequate to fully meet reasonable costs-of-service. The resulting monthly charges for solid waste service should be approximately comparable to those charged in other jurisdictions providing similar services with similar cost and rate structures, assuming some efficiency of operations in these other jurisdictions. 4. The rate setting process should provide mechanisms for ongoing rate review and long-term charge stability. A periodic formal and thorough County review of financial and operating data will set an expectation for the hauler and ultimately will protect the ratepayer. The process should E be designed to prevent large, unexpected fluctuations in charges due to changes in costs or from the need to fund a broadening scope of waste management services. 5. The process should be easy to administer, while still ensuring that any rate request is justifiable and reasonable. The process should be easy to explain and not place an undue cost on either the County or the franchise hauler to implement. Rate changes ultimately should be easily explained and defensible to ratepayers. 6. The County and RSS should strive to maximize opportunities to improve performance and service quality while maintaining cost competitiveness in the marketplace. In a "cost-plus-profit" relationship such as exists between the County and hauler, there can be no incentive for the hauler to decrease costs because increases in allowable costs actually result in increases in allowable operating profit levels. However, cost increases cause rates to rise above market levels, and penalize ratepayers. Ideally, the County and hauler should set rates in a base year, and the hauler should attempt to reduce its costs in subsequent interim years. The County and RSS have mutually agreed to use the Base Case Operating Ratio Methodology described in Section E of this Chapter. 7. The County should not micro-manage the hauler's operation. A policy to micromanage RSS operations is counterproductive,requiring additional administration, which ultimately increases costs to the ratepayer. This methodology requires base year rate reviews every four years, and optional interim year adjustments. These reviews should be sufficient to efficiently manage RSS. Overuse of time-and-motion studies, performance audits, and other efficiency and effectiveness studies requires additional administration time, and costs, for both the County and the hauler. This rate setting process implicitly assumes the hauler is already the expert in running its own business. t R a t e S e t t i n g O v e r v i e w C. Policies Guiding date Setting Manual A total of five (5) guiding policies were considered in developing the processes and methodologies described in this manual. These policies and their impacts are identified in Exhibit I-3, on the following page. The remainder of this section describes each of these policies. 1. Allow no retroactive rate increases. There will be no allowance for a retroactive increase in rates after approval of this manual, except by special agreement, or by party default., Retroactive reimbursements can move rates out of alignment with actual costs of providing service. This process and methodology codifies strict rate review timelines and responsibilities. If the County and hauler adhere to these timelines for submission and rate change approval, and no party defaults on these timelines, all future rates should be established such that there is no need for retroactive rate increases, 2. Allow no balancing accounts. This rate setting process is based on projecting results during base years. Thus, actual base year results likely will differ from base year projections. In some regulatory environments, these differences are "balanced" in subsequent years by using a balancing account.. Balancing accounts are occasionally used in the waste industry as an accounting-based approach to true up a previous year's projections to actual financial results. A balancing account can then be used to address differences between actual and projected results. A balancing account requires substantial administration, reporting, and control measures which determine how funds in the account are invested and managed. When a balancing account is established,terms and conditions related to these accounts are clearly documented as part of a rate setting process and methodology manual. Also,terms and conditions are specifically incorporated by reference into contractual agreements between the respective parties. Balancing accounts are not commonly utilized. The problem with balancing accounts is that by fiur.ding surpluses and deficits using rate revenues, rates charged to customers ultimately do not reflect the true cost ofproviding service to customers because they include retroactive components. Over time,current ratepayers can end up ultimately subsidizing, or benefiting from, prior generations of ratepayers. For example,if rates are raised to pay off balancing account, then current ratepayers bear the responsibility of what previous ratepayers should have paid for initially. Municipal finance principles generally require a strong nexus between (1) cost- of-service and benefits and (2) cost-of-service and rates. Use of a balancing account generally breaks down this nexus and results in rate inequalities. A balancing account also frequently is less useful when a long-term franchise exists. With a long-term business partnership there is less need to recover variances between actual and projected results on a year-to-year basis. These variances can often be absorbed over the course of long term franchise,such as is the case between the County and PSS. Balancing accounts are not designed for accounting for differences between "rates asked for" and "rates received." They also are not designed for accounting for differences between"rates received"and"a fair rate of return." Balancing accounts, by their very nature,result in retroactive rates,which do not reflect cost-of-service based rates. c { 1 R a t e S e t t i n g Q v e r Y i e w E.XE1I13IT I-3 County/Hauler Solid Waste Rate Setting Policies r I ka 9 ai�et7K ti t4Tt � AllL�W CiCt 1 @t#Cte�ciY£' rate ti kCiSi'S x`z rt� 7 '. .. '. ' u�' i**,�i y.Fl����l��3�a�n�.{� �rt�,� i is Fr ,� a are ✓` w no balancing accounts s reset r env y and are " 2. A!(o a �r. F aX�� •w�'i�y�t R �+�.r�a�.�t� �4 a s.. a ks 3 Fund divecsic�n � ro rams E hair sbc�ti d prt�vi � hse 4. Protide.Cuntcart, drop box, e tcrth3un and bin service J i sts 'Y+'#nr;.,�*,haw:, t�,,. y'RTx e,., ^.7+..".`.^wz.s� •!'".kfi;'..,o-'�.yrt:. w�.$^. S. lndirct regulate alited A tied,prty�transir�r�s r�abated n anus are ccnsisnt companies e . .. ,^ .: �u'o'4v. s�.t`" T....,.x*Sa'+'x��.' "�vC,.Ss- r"y.a ^u.,r y"}s, a„ w'.T�:4<.�:r,•� S l R a t o S e t t i n g O v e r v i e ver 3. Fund costs to implement State mandated source reduction and household hazardous waste programs. The County has adapted the Source Reduction and .Recycling Element (ERRE) and Household Hazardous Waste .Element(F.IWE)as required by the Integrated Waste Management Act of 1989 (AB 339). These elements contain a number of recommended programs whose costs are projected to be funded by solid waste collection charges. The franchise hauler will work closely with the County to meet diversion goals mandated by the California Integrated Waste Management Beard (CIWMB). The franchise hauler and County shall agree on specific programs and activities to show a good faith effort to meet CIWMB diversion goals. 4. Provide the County cart, drop box, and bin service. The franchise hauler shall provide solid waste collection, disposal, and recycling services at County facilities at no charge to the County. Costs associated with the franchise hauler providing these services are allowable costs for rate setting. These services are specified in the item #19 on page 12 of the .Franchise Agreement provided in Appendix:A. 5. Indirectly regulate affiliated companies. Transactions between R.SS and affiliates, or related parties, should be examined for reasonableness. These. "related party transactions" have potential for mistreatment in rate setting. For example, if a cost of a related party already includes a profit component, and that cost is allowed for rate setting with a profit, a double-counting of profit can occur. For each related party transaction,the hauler should disclose. the nature of the relationship and whether the transaction is a market-based transaction. The hauler should be prepared to provide documentation to support the reasonableness of these transactions. D. sate Change Application Process A Base Year Rate Change Application from the franchise hauler is required once every four}rears as shown in Exhibit I-4, on the following page. This process requires detailed financial and operating information which is carefully reviewed and analyzed by the County. These detailed reviews are referred to as "base" years in the methodology. With the Base Year Rate Change Application, the hauler submits annual audited financial statements for the previous year (except for the initial base year application after this manual is adopted). These statements serve as the base documents of the application. Financial forms contained in the application should be reconciled to the audited financial statements to provide assurance that all of the company's activities are accounted for. At the time a ..Rase Year Rate Change .Application is submitted, the County shall survey rates and services provided of other neighboring jurisdictions of comparable size and service. The survey will be used for information and comparison purposes only and .not as a basis for determining rates. In each of the "interim" three years, rate adjustments will be based on the annual percentage change in the following three items: R a t e S e t t i n g O v e r v i e w EXHIBIT I-4 I Timing and Financial Statement Requirements of the Contra Costa County mate Setting Process `TItV�It'+i.V ,'Wl Base Y � cry 4 Years ear v —=� 7[r�tcrfaE�� i . Mate" a$mcess': to 8'1Yiursthg ` r 1 . Interirti Interrrri Interirrt in Yr ` Year 2 l'ea"r. 3 Year 1. Mt se 1 2002 2003 '2004 2005 2006 2007 2008;.< Beginning vfYear ()anury ) FINANCIAL STATEMENT REQUIREMENTS, Base Year 2002 2003 2004 2005 206 2007 011 . 200 200s 2009 z00 2011 i. ; I R a t e S e t t i n g O v e r v i e yr Annual change in the most recent actual, not forecasted, Consumer Price Index (CPI) for all Urban Consumers for the San Francisco-Oakland-San Jose area published by the Bureau of Labor Statistics in their Monthly Labor Review. This CPI is applied to controllable costs of the franchise hauler, or those costs other than tipping fees and regulatory fees. ❑ Change in costs for tipping fees and regulatory fees estimated to occur in the next interim year ❑ An adjustment for the franchise fee, which is based on a percentage of gross annual revenues generated from solid waste collection service. The franchise hauler has the option to submit an Interim Year Rate Change .Application for a rate increase between base years. The scope of each interim year application is much more limited than a base year request. A formal application is required each year the company requests an Interim Year Rate Change. The hauler can adjust rates following the County's interim year rate review of its application, but is not obligated to do so. The hauler is encouraged not to raise rates in interim years except for extraordinary changes in their costs. The County or franchise hauler may request an extraordinary, or consequential, adjustment outside of the base year and interim year adjustment schedules. For example, an extraordinary adjustment might result from a change in service or additional program requested by the County. The franchise hauler requesting an extraordinary or consequential cost change shall demonstrate, to the satisfaction of the County, that it has incurred extraordinary and consequential cost changes. Extraordinary cost increases for a specific line item cost will be considered only under a case when the hauler can demonstrate that the increase exceeds two (2) times the most-recent annual change in the actual Consumer Price Index for all Urban Consumers, for the San Francisco-Oalland-San Jose area. The County may request an interim year rate change when there are extraordinary changes, either up or down, in tipping fees charged to the hauler. For example, if there is a large drop in tipping fees paid by the hauler, the County can request a rate decrease in an interim year. E. Allowable and Pass Through Casts Rates are established for each base year based on the hauler's projected revenue requirement. The revenue requirement is defined as the sure of the following: ❑ .Allowable costs . © Allowable operating profits C] Pass through costs. For purposes of computing the revenue requirement, it is necessary to determine which of the franchise hauler's costs are (1) allowable costs, (2) pass through costs, and. (3) non-allowable costs. I R a t e S e t t i n g O v e r v i e w When a cost is said to be "allowable," that cast, plus a profit component associated with that cost is included in rates charged to the ratepayers. Allowable costs are often those costs that are integral to the hauler's operation and/or are associated with actual activity performed by the hauler. Pass through casts are costs which also are included in rates charged to customers, however these casts do not have an associated profit component. Pass through costs are generally transactional in nature and often are thought of as costs not associated with any significant effort performed by the hauler. Non-allowable costs are not allowed in rates charged to ratepayers. These costs are disallowed because (1) they may not be associated with the core business, (2) they may be included implicitly in the profit level allowed by the County (e.g., interest), or (3) they may unnecessarily complicate rate regulation (e.g., income taxes). Allowable Costs The hauler is allowed to earn a profit on certain costs. Allowable costs categories include direct labor, corporate and local general and administrative casts, depreciation, and services to the County. These allowable costs are defined in Exhibit 1-5, on the next page. The following costs of providing collection service are clarified because of their special treatment for rate setting. O General and administrative costs—Corporate and local general and administrative (C8rA) are allowed up to a capped limit set by the County. G&A costs for six publicly-traded hauling companies in 2001,on a weighted average basis,were 10.8 percent of total sales. A time series data of the parent company of RSS, Republic Waste Systems, provided below in 'fable 1-1 shows that Republic G&A casts averaged 10.0 percent of total sales over the five-year period from 1997 to 2001. Table I-1 General and. Administrative Costs as a Percentage of Total Sales Republic Waste Systems (1997 to 2001) Year C&A/Total Sales 1997 10.4% 1998 9.9% 1999 10.0% 2000 9.21 2001 10.51 Five-Year Weighted Average 10.0% Thus, the hauler is allowed a general and administrative cost cap of 10.8 percent of total sales. Based on the prior five years of Republic data, we expect that RSS will be able to beep its C&A casts at or below this level. I . R a t e S e t t i n g v + r v e w EXHIBIT I-5 Definition of Financial Terms . .. .,. x s. v 4§, f ° u: ` fix " :"+�Z`I M,"'S,: 7 a4�m's �E y� r '"`+�, '� �.r y, §ter "yr1 ,p� �«'. ,4 p, jr n� w:' ,'�`„u I of p4 1,W ' Get, f, „"k Yrs r hit t 'S m1�* S+� t,Y. ` 1 a:•r k� t ' 'A .v e t y`” M1. 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L"Y M1 f�r•w r ws t S y d Ca iC(' a z ., E�',u�vC - 4 ,vd Aga fl.L ^rC.-. +i� .� , r ., 1 Sr' r t :a�` r'ru _y x ,p �5 � r �; x a. v �"'{g .t?' ,:4.. ..< �i 4 •ir�nmm'uw a�sw�a�srra estceeraa sa�a.•se- iI R a t e S e t t li n g O v e r v i e w General and administrative costs often can include costs which may be misstated in rate setting such as: (1)accounting and tax planning expenses, } (2) legal coasts, (3) management fees, (4) officer's salaries, and (5) contributions and donations. The County should continue to examine these line item costs during future base years. In future base years, the County and RSS shall review the cap on G&A to assure that this cap reflects current industry averages. Li Recycling---coasts of providing residential curbside recycling and nonresidential recycling services provided to the County by the franchise hauler would be an allowable cast. Therefore,solid waste management rates charged to customers include recovery of allowable coasts of providing recycling services, and a profit is allowed on these costs. 0 Costs to implement State-mandated source reduction and household hazardous waste programs—the County has adopted the Source Reduction and Recycling Element (SR.RE) and Household Hazardous Waste Element (HH4VE) as required by AB 939. These elements contain a number of recommended programs c0hose costs are paid for by the hauler and funded by solid waste management rates. The franchise hauler will be allowed a profit on these AB 939 surcharges. 0 Depreciation-the following Table I-2 depreciation methods and useful lives are recommended for amortizing future capital costs for rate setting pin-poses: Table 1-Z Depreciation Methods Capital Item Type(a) Years Office Equipment SL 5 Carts SL 5 Vehicles and Equipment SL .8 Buildings and Leasehold SL 20 Improvements SL = straight line depreciation Current methods used to depreciate capital items, which were in use prior, to rate regulation, are allowed to continue. Useful lives in Table I-2 are for new capital purchases (i.e., those made during and after .2003). Allowable Operating Profits Z1 Provide allowable profit—based on current industry norms, we recommend the County adopt one of the following two operating ratio (OR) methodologies,noted as Options A and B below. The operating ratio determines the profit allowed to the franchise hauler on operating costs. The operating ratio is frequently used in the waste management industry as a basis for determining profit. The operating ratio (OR) is based on the following formula: Allowable Expenses OR– Allowable Expenses + Profit R a t e S e t t i n g O v e r v i e w The operating ratio is the most commonly used method for refuse rate regulation. Option A- Base Case Operating Ratio Method In this methodology the OR would range from 88 to 92 percent, with a target of 90 percent(on an earnings before interest on tax basis,or EBIT). In the first base year, the operating ratio would be set at 90 percent(EBIT). In each succeeding base year (once every four years), the operating ratio could range from 88 to 92 percent (EBIT) without a rate change, which would help stabilize rate changes and afford the hauler an incentive to reduce costs. In any succeeding base year,if the company earned an operating ratio outside this 88 to 92 percent range,then in that base year rates would be reset to a 90 percent operating ratio (EBIT). This OR methodology would allow the hauler some incentive to operate more efficiently because the hauler could reduce the first year OR from 90 percent to 88 percent by the next base year and not incur a rate decrease at that time. However,there is less incentive for the hauler to continue efficiency gains beyond an 88 percent OR because the OR would be reset to 90 percent during the next base year. Alternatively,the hauler would not bear significant risk that its,profit level would decrease beyond a 92 percent OR because during base years the OR would be reset to 90 percent. Brom a ratepayer perspective this method brackets the OR in a range so that the hauler would not receive excessive profits over the course of a long-term contract. Likewise, the method offers rate stability because should the OR fall inside the 88 to 92 percent range during a base year, there would be no rate change. During the three years between each base year the hauler would be entitled to submit an application to the County for an interim year rate change on all residential,commercial,and industrial services. This rate change would equal a Consumer Price Index (CPI) increase on the hauler's controllable costs (all costs other than tipping fees and regulatory fees) and.any projected change in uncontrollable costs (tipping fees and regulatory'fees). Assuming that the County and hauler have a remaining 10-year franchise (through 2018), there would be a total of potentially eight years for interim year rate changes. Option B- Incentive/Risk-Based Operating Ratio Methodology Traditional OR approaches can provide the hauler with less incentive to operate efficiently because as the hauler reduces its costs by becoming more efficient, the hauler's profit also declines because the OR is applied to its allowable costs (allowable costs divided by the OR equals allowable profits). In other words as allowable costs decrease, so do allowable profits. Our incentive./ risk-based operating ratio methodology balances the ability of the hauler to benefit from efficiencies through increased profits with the risk that the hauler's profitability could decrease far below the 90 percent OR industry standard. This option was not selected by the County and hauler at this early stage in the process, but could be initiated in future base years should both parties agree to this option. E ( R a t o S e t t i n g Q v e r v i e wr The proposed incentive/risk-based operating ratio methodology uses the first year baseline 90 percent OR(as in the base case methodology). However, this method provides the hauler with an incentive to operate more efficiently than in the base case by allowing the OR to drop to 85 percent without a rate adjustment in base years. Should the OR.fall. below 85 percent in a given base year, the OR,would be reestablished at 87 percent fbr that year. As a benefit to the ratepayer and to facilitate rate, stability, should the OR increase in a given base year beyond the first year 90 percent OR, it will not be lowered back to a baseline level (e.g., 90 percent) as required with the base case OR methodology. Thus, though the hauler has some control over its profitability it also entirely bares the risk for poor financial/operational performance. This risk-sharing OR.methodology also results in greater rate stability during base years because the only potential rate change that could occur would be a rate reduction should. the OR decrease below 85 percent. This methodology is illustrated in Exhibit I-6, on the following page. As in the base case, during the three years between each base year the hauler would be entitled to submit an application to the. County for an interim year rate change on residential, commercial, and industrial services. This rate change would equal a Consumer Price Index (CPI) increase on the hauler's controllable costs (all costs other than tipping fees and regulatory fees) and any projected change in uncontrollable casts(tipping fees and regulatory fees). However as shown in Exhibit 1-6, the amount of the CPT on controllable costs would vary based on a sliding scale in years 5 and 6 (repeating in years 9 and 10) depending upon the OR level that occurred in the base year 4 (repeating in year 8). As an example,in year 5 if the OR equals 85 percent,the hauler would receive 50 percent of the CPI on its controllable costs in year 5, 75 percent of the CPI on its controllable costs in year 6, returning to 100 percent of its controllable costs in year 7. This sliding scale is designed to control the level of profit such that it does not fall below an 85 percent OK The Incentive/Risk-Based Operating Ratio Methodology benefits the County ratepayers by allowing four lower interim year CPI increases than does the base case operating ratio methodology. The Incentive/Risk-Based Operating Ratio .Methodology also benefits County ratepayers by never allowing a rate increase in base years four and eight. Our recommended first year target operating ratio of 90 percent for-either option is supported by recently available information for publicly-traded companies and privately-held companies. We reviewed financial information for the following 18 publicly-held companies between 1993 and 2001: 1. Allied Waste Industries 10. Superior Services,, Inc. 2. American Waste Services 11. United Waste Systems 3. Browning-Perris Industries 12. USA.-Waste Services 4. Casella Waste Systems, Inc. 13. Waste G6nnections, Inc. 5. Laidlaw 14. Waste Industries, Inc. 6. .Mid-American Waste Systems 15. Waste Management, Inc. 7. Philip Environmental 16. Waste Management International 8. Republic Services, Inc. 17. Western Waste Industries 9. 5anifill 18. Waste. Management Technologies. 6 R a t S t t i n g 0 v e r v 6 e w EXHIBIT 1-6 6 a t 4 uj4 i aU� s�; �n— "BA 16 C L Gt r�5} : p � ? 011 TIM Jy A ulY V COpa S M, y F b - ; go SIts PT 41 00' TS X R% y�pTYsw0a1G. A'C f R a t e S e t t i n g O v e r v i e w Table 1-3, below, shows weighted average and median operating ratios on an EBIT (earnings before interest and tax) basis between 1993 and 2001. The data for this period indicates that the weighted average OR has ranged - from.84 percent in 1994,to 95 percent in bath 1997 and 1998. The median operating ratio ranged from 85 to 90 over the nine-year period. The weighted average OR for the nine-year period was 89 percent, while the median OR was 88 percent. Table I-3 Publicly-Feld Waste Management Companies Weighted Average and Median. Operating Ratios (1993 to 20011, Weighted Average :Median Number of {operating Operating Year(s) Companies Ratio Ratio 1993 9 88% 86% 1994 15 84% 89% 1995 14 - 86% 85% 1996 11 91% 90% 1997 6 95% 86% 1998 8 95% 89% 1999 6 93% 87% 2400 6 869 83% 2001 6 86% 88% 1993 to 2001b 18 89°I 88% "On an earnings before interest and tax basis (FBIT) bRepresents a total of 82 data. points Due to the recent significant acquisition and merger activity in the waste management industry,some ofthese companies.are now part of other companies. For example,American,Philip,and Sanifill were acquired,by USA Waste Services. USA Waste Services subsequently.merged with Waste Management. Lilcewise, Laidlaw and .BFI were was acquired by Allied Waste Industries. We believe that the historic data for these companies represents the best available information for publicly-held companies. We also reviewed data published by Robert Morris 8c Associates(RMA). RMA publishes its "Annual Statement Studies" for an array of industries,including privately-held waste management companies. RMA data is for companies doing business as refuse systems (SIC Code 4953). These are systems "primarily engaged in the collection and disposal of refuse by processing or destruction or in the operation of incinerators,waste treatment plants,landfills, or other sites for disposal of such materials." This data "does not include companiesprimarily engaged in collecting and transporting refuse without disposal." As shown in Table 1-4,on the following page,the operating ratio, on an ERIT basis, of over 244 companies surveyed in each of the five years from 1993 to 2000,ranged from 90.2 to 93.1 percent. # R a t e S e t t i n g O v e r Y i e w Table 1-4 Robert Morris & Associates Operating Ratios (1993 to 2000) Number of Year Companies Operating Ratio 1993 313 92.7% 1994 300 90.7% 1995 325 90.2% 1996 3014 90.7% 1997 271 91.1% 1998 273 91.91 1999 .244 92.6% 2000 247 93.1% a For SIC Code 4953,Refuse Systems,on an earnings before interest and tax basis (EBIT), Profit methods other than the operating ratio often are harder to determine, or don't compensate the hauler sufficiently. For example, a return on assets profit methodology might encourage a hauler to overinvest in assets, or alternatively, over time might cause a hauler's profits to decrease as book assets are depreciated. A return on equity calculation may be problematic as limited comparable benchmark data exists, determining equity contributions is difficult, and returns can be insufficient for less capitalized companies. There is no contractual" obligation by the County to provide.the hauler with a fair rate of return through this review process. Rather, the County reviews revenues, costs, and profits as a basis for recommended changes to residential refuse collection charges. Charges should be sufficient to cover costs of operations and allow a reasonable profit to the hauler. However, this profit level is not guaranteed. .Pass Through Costs The following pass through costs do not earn a profit, but are included in determining total revenue requirements to establish solid waste management charges. 0 IRRF Costs—The franchise hauler is allowed to pass through the costs of the Integrated Resource Recovery Facility (IR ,F) up to a set amount per ton. At the time of this rate manual's development, the IRRF rates are set by the Authority at$88.53 per ton, already including a regulated profit level. The IRRF rate already allows the parent company of the franchise hauler to make a reasonable profit on its disposal costs. The fianchise hauler must conduct certain activities related to disposal such as seeping records and making intercompany payments to the disposal facility. However, these are transactional in nature. Further,as tipping fees increase the franchise hauler's workload does not change. I R a t e S e t t i n g O v e r yr i e w C1 Franchise fees—franchise fees paid to the County by RSS are set equal to five (5)percent of gross residential and commercial refuse and recycling revenues. These fees help provide funding for administering the Franchise f- Agreement and damage to roads, curbs, sidewalks, and ether parts of the County's infrastructure. These fees are paid to the County in return for providing an exclusive franchise to the hauler. No Allowable Costs The following costs are not allowable for rate setting, and as a result will not be passed on to the ratepayers: U Amortization of franchise purchases---consistent with the waste management industry, amortization of franchise purchases are disallowed because the operating ratio is designed to provide a return to RSS sufficient to compensate for its investment in the business. U PGlit-ical contributions—costs associated with attempting to influence the outcomes of any federal,state,or local election, referendum,initiative, or similar procedure,through in-bind or cash contributions,endorsements, publicity, or similar activities. ® Charitable donations—costs associated with contributions to charitable organizations or causes, as these costs are not intrinsically required for the hauler's business. Donations may include those to local sports teams,clubs, non-profit entities, or other charitable organizations. C1 Fines and penalties—costs associated with violations of, or failure of, the hauler to comply with federal, state, local, or foreign laws and regulations. This category of non-allowable costs also can include costs in connection with alteration or destruction of records, or other false or improper charging or recording of costs. 0 Income taxes—the operating ratio is typically provided on a pre-tart basis. To allow income tax expense would unnecessarily add complexity to the rate review process. U Interest expenses—consistent with the waste management industry, the operating ratio is typically used on a before interest and tax basis. The operating ratio allowed is intended to provide the hauler with sufficient returns to pay its debt and equity holders. Disallowing interest expense eliminates artificial incentives for the hauler to finance its operations using either debt or equity financing. In other words, a company's financing decisions are independent of the amount of profit earned. Further, in cases where the operating ratio used is on an after interest basis, the operating ratio often is adjusted upward (i.e., the hauler earns less profit) to account for interest as an allowable expense. a I R a t e S e t t e r v e w to eW" r SECTION 11 Base Y .......... - qn Rate ' tting Proc Y ;, i 1�9' Contra Crista County rate setting follows a four-year cycle. In the first year of the cycle, the franchise hauler is required to submit a .base Year.Rate Change Application. In the second through fourth years, the franchise hauler is allowed to submit an Interim Year .Rate Change.Application. The cycle repeats itself in year five. This section describes the detailed processes and.steps involved, from the franchise hauler completing a base year application through to the County's approval of new rates. Topics covered in this section of the manual include: d Who is responsible for the various steps in each process U V&—at tasks must be completed within each step C3 When each task should be performed 3 How to complete various worksheets and. forms. This chapter is organized into three subsections: A. Overview of the .Base Year .lute Setting Process B. Taming of the Base Year Rate Setting-.Process C. Steps of the Base Year .Rate Setting Process. A., Overview of the Base Year late Setting Process The base year rate setting process requires the franchise hauler to submit to the County a Base Year Rate Change Application every four.years, beginning in 2002,for rates to be set for 2003. In this application, the franchise hauler completes a number of forms, and provides supporting financial and operational information. Unlike the _ Interim Year.Rate Change.Application which is optional, the .Base Year.Rate Change Application is mandatory regardless of whether it will result in a rate change. Exhibit II-1, on the following page, overviews the base year rate setting process. For each of the seven (7) steps, participant responsibilities, tasks, and associated outcomes (i.e., documents or deliverables) are identified for each step. After reviewing the application, the County evaluates whether proposed rate changes will be fair to bath residents of the County and the franchise hauler. Fairness is demonstrated through.an analysis of the franchise hauler's actual and projected revenues and expenses included in the Base Year hate Change.Application. Information required in the rate setting process which is considered confidential by the franchise hauler will not be disclosed at any public meeting. The hauler should make the County aware of such confidential information. !i Base Year Rate Setting Process EXHIBIT II-I Base Year Rate Setting Process Overview -81 'k17MINN ,Franchise �Haulerbaerim "?i. '.`k5 ei� t;aifi�€mss Cr $rL' tj� �TCF�I1. t10�1r x at i ffi° x e { Snj,�111$17[Id� #1fQrIn310ft sYl ax ul e t f, Sd© pera,In g Ca Culate PJt, r�rp�U's/�hortfaf�and � , � � yP^etcen+ty�Change i�yfij�.ea�ttes a 7.41 up afe a Prepare and SubmlRate ChaneprisCatlsn nkx ` County a uteri Hnanrial G'a wand Forfnat +• #roti cation Letter to b Uect�Supprttn Dr�i umnts and Sehedules Franchise Hauler;, � Noti�+the�r�nchlsi�:Ftasller. �' z � ` w - 4 1 5'Y'4t1 y County a Review As:tlal and Projected` • WorJ�papers revenue quiremeits Correspondence with the` n Rr `e ted'Revenues Franchise Hauier b. Reuiew Ac3sal a d,,a.of C 'ReviewanaVe�tfj�i)peratang,Ratio d. Determlri Com,{5onenfis'pf.Etequestet Change in Rates e RevW PerformanCe Data f Reust Addiflt�iaal Data and Clartfiflon„ it if. 1:CeS x x , W g DOCUment 5 RevteW" ai', County a Sun ey Residential and Commercial%lid Waste +. 5uminary of Survey of Rates and Ghargesrinlifar Servic ,Areas r}ther, unsdiCtinns I e u tS ii S 6." Summariie:SutYcy,. C. .prepare and Submit Summary to the Franchtse Hauler County •: gaff Report i ty a Prepare Draft Report �' Suppo,`�ting Documentafion b. Provide franchise l,:L 4V er With Co of p "s Final Report nd Revi .Comments; p'raft Re tirt a p C. Prepare Fina(Repot County a .Distribute Final Rejio an Nottc of Board Review Suramary,fo Saar of 5, 'o * Approued Resolution „f7btain Board a Supervisors Approval M Franchise a. Prepare Notificatirsn of Rate Change. Notification to Customer Hauler b., linplement Rate Change Rate Schedule. t !I . Base Year Rate Setting Process B. Timing of the Base Year Rate Setting Process The timing of the base year rate setting process is shown in Exhibit I1-2, below. Certain key points are noted in the exhibit by circled letters. The rate change process j should begin eight months prior to the beginning of the new calendar year. The franchise hauler should begin preparing the application during the prior May, I _ with the document submitted to the County on July I. The application is submitted by the franchise hauler at least six (6) months in advance of when the proposed base year rate change would take place can January I of that base year. The County has up to thirty (30) days to verify the application is complete. After the County verifies that the hauler's application is complete, the process is scheduled to take five (5) months until rates are implemented. New rates are to become effective on January I of each base year. EXHIBIT II-2 Timing of Base Year Rate Change Process 1. Preparation and Submission of Rate h Change Application 2. 'Verification of Completeness of Rate Change Application 3. Review of Rate Change Application and Preparation of Responses 4. Survey of Rates in Similar Service Areas S. Preparation of Draft Report and Final Report 6. Presentation of Final Report to the Board of Supervisors 7. Implementation of New Rates,If Applicable A. Submit Rate Change Application to County E FinalReport E. Notification better G. Application Approved C. Additional Information from Hauler H. Customer Notification D. Survey of Cather Jurisdictions I. New Rates Implemented on Jan. 1 E. Draft Report Base Year Rate Setting Process C. Steps of the Base Year Rate Setting Process The remainder of this chapter describes each of the seven steps of the base year rate setting process. Each step includes an overview of the step and a detailed description of the tasks required to complete the step. I IIMIIII ..................................... .................................................. j 11 Base Year Rate Setting Process Preparation and Submission of Rate Change Application Responsibility: Franchise Hauler 1 Timing: Completed six months prior to the date new rates became effective Tasks: a. Prepare Cost Information b. Prepare Revenue Information C. Prepare Operating Information d. Calculate Allowable Operating Profits e. determine Franchise Fee f. Calculate Revenue Requirement g. Calculate Net Surplus/Shortfall and Percent Change in Rates h. Calculate New Rates i. Prepare and Submit Rate Change Application Overview During this step,the fianchise hauler prepares the Haase Year Rate Change Application. This form includes detailed financial and operating information and is used to determine the actual casts and revenues of the franchise hauler. Blank copies of the Base Year Rate Change Application are provided in Appendix B. Exhibit C=I, in Appendix C, is a sample application as it might be completed by the franchise hauler. -Data included _in Exhibit C-1 are provided for illustrative purposes only and are not intended to reflect actual operating or financial conditions of the franchise hauler. Several lines in the application contain five columns. These columns are intended to show the relationship between the three most recently completed years, the current year, and projections for the new"base"year. These columns are organized as follows: © Columns One through Three include information for the franchise hauler's three prier fiscal years. These are the most recent years that actual financial information is available and that actual costs and revenues can be verified.. C'.l Column. Four is for estimating performance during the current fiscal year. The "current year" is the franchise hauler's fiscal year prior to the new base year. The base year rate change application is prepared during the course of the current year. Data in this column should include year- to-date performance plus estimated performance during the remaining months of the current fiscal. year. Ci Column Five is used to report projected performance during the new base year. This information is entirely a projection and is utilized to determine any rate changes. Projected information should be developed by estimating anticipated service levels daring;the base year,and determining the revenues and expenses which will be incurred to provide these services. Each cost element in the application should be reviewed and any anticipated change in specific line.items should be included in the base year projection. For example,if negotiated labor rates are scheduled to change,or if tipping fees are expected to change,these changes should be included in projections for the base year. ii Base Year Rate Setting Process The relationship between these five columns for any given line item should be consistent. Any substantial difference between each of the five years should be explained by the franchise hauler and considered by the County during the review process. A copy of audited financial statements for the previous year should be obtained. Financial information from the audit is consolidated into specific categories identified in the application. All financial information shall be in accordance with generally accepted accounting principles. Supplemental documentation should be prepared which reconciles the financial audit for the most recently completed year to information provided in the application. This documentation should be included in the application package. a. Prepare Cast Information Cost information from the franchise hauler is provided in the .Base Year Rate Change Application. Cost information is reported for the three most recently completed years, the current year, and the new base year. Information reported in each line item is the total cost for residential, commercial, and industrial waste and recycling services. Segregation of costs by residential, commercial, and industrial services is not required. E Cost information which is reported includes: 0 Allowable Costs Line 1 Direct Labor . Line 2 Corporate and Local General and Administrative Costs Line 3 Depreciation and Other Operating Costs Line 4- Services .provided to County 13 Pass Through Costs Line 8 Trucking and Equipment Line 9 IFJU Fees Line 21 Residential, Commercial, and Light Industrial Franchise Fees. Specific components of these cost categories are described in Exhibit I-5 in Chapter 1. By aggregating costs into these line items, the County and hauler can focus on major changes without becoming distracted by large changes in insignificant cost components. For example, if office equipment maintenance doubled. from $10,000 in the current year to $20,000 in the base year (i.e., a 100 percent increase), this might only cause Corporate and Local General and Administrative Costs to increase by one percent, resulting in little impact on the overall rate. Minor components of Corporate and Local General and Administrative Costs may decrease between the current year and the base year, while others may increase. If one of the major cost line items in the application changes at an unusual rate, then the hauler should be able to explain the change. An unusual change in cost is any increase which is greater than the change in the San Francisco-0akland- San Jose Consumer Price Index, or any decrease. The Consumer Price Index used in a s e Year Rate Setting Process the analysis should be based on the most current actual information for the San Francisco-Oakland-San Jose Metropolitan Area. This information is available from the United States Department of Labor, Bureau of Labor Statistics. Cost information for the current year and base year must account for any increases or decreases in the number of customers served, or tons of waste and recyclable material, collected. Actual increases in costs also must be included. For example, if labor costs will increase in the base year as a result of existing labor agreement terms, this additional cost should be included. Cost information provided in the application is used with operating profit to calculate the franchise haul er's revenue requirement. The revenue requirement is equal to the sum of the following three categories: 0 Allowable costs 13 Allowable operating profits 3 Pass-through costs. This revenue requirement is compared to anticipated revenues. b. Prepare Revenue Information Revenue information is provided in this task. Similar to cost information, revenues are reported for the three most recently completed years,the current year,and the projected base year. Re-venue is reported in three separate categories: 0 Residential 0 Commercial and industrial Recycled material sales. Revenue in the base year is projected without any changes in rates. Revenue projections are prepared based on the existing rates and number of customers that the franchise hauler anticipates serving in the base year. I Determine Residential Revenue To calculate projected residential revenue for the base year, enter the current monthly rates by service type in the first column of cells on page 5 of T Then enter the projected number of accounts by service type in the second column of cells on page 5 of 7. Total revenue for each service type is calculated based on the following: Calculation of Projected Base Year Single Family Residential Revenue Current rate per month Multiplied by Twelve months Equals Rate per year Multiplied by Projected residential accounts Equals Revenue by service type # . Base Year Rate Setting Process Revenue by service type then is entered in the third column of cells on page 5 of 7. These values then are added together and entered and totaled in line 56. Single family residential revenue should reflect all revenue generated for providing curbside collection services of refuse, recyclables, and yardwaste. The number of accounts in each service category may change throughout the year. For example, some customers may request one size can service part of the year and a different sized can during the remainder of the year. The average number of accounts by service type should be used in these single family residential revenue calculations. In addition, the number of accounts identified for these single family residential revenue calculations must agree with operating data provided in Section XI (page 6) of the application. This single family base year residential revenue amount should reconcile with line 39, column 5 on page 4 of 7. Single family and multi-family residential revenue figures should be completed for all five years in lines 39 through 44 on page 4 of 7. 2. Determine Commercial and Industrial Revenue Commercial and industrial revenue information is entered in lines 45 through 5 3 of page 4 of 7 of the application. In the first three columns, actual revenue generated by commercial and industrial accounts during the prior three years is reported. The third year amount must reconcile with the financial audit for that same year. Commercial and industrial revenue for the current year is based on actual revenue to-date plus an estimate of the revenue that will be received through the end of the fiscal year. Commercial and industrial revenue in the current year should be comparable to revenue in the prior year, after taking into account changes in rates and service levels. Projected commercial and industrial revenue for the new base year is entered in the fifth column. This amount,net of any projected uncollectible accounts, is based on the estimated annual revenue received during the current fiscal year plus any additional revenue generated from additional accounts. Operating data provided in. Section XI (page 5) of the application should support any service level changes. In order to analyze changes in commercial rates, rate information must be provided for specific commercial services in Section XII of the application. These commercial services are. Bin and Box Service O 2 Yard Bin—once per week U 3 Yard Pin—once.per week 0 Debris Box---per pickup. In the columns of lines 71 through 73,the franchise hauler enters the rate for these services for the prior three years, the current year, and the base year, respectively. Percentage changes then are entered in columns 2,4, 6 and 8. This information provides an indication of the overall changes in commercial rates. ll . Base Year late Setting Pirocess 3. Determine Allowance for Uncollectible Accounts The franchise hauler likely will not be paid by all customers served. While this amount is expected to be relatively small, it must be accounted for in the calculation of base year net revenues. These amounts are reported in two places for each service type: on lines 13 and 43 for the allowance for uncollectible residential accounts, and lines 16 and 52 for the allowance for uncollectible commercial and industrial accounts. These amounts can be calculated based on a formula, such as one percent of anticipated revenues, or based on actual experience. All assumptions related to the projection of uncollectible accounts must be documented and included as a supplement to the application. 4. Determine Revenue from Recycled Material Sales In addition to revenue generated through residential, commercial,' and industrial services, some additional revenue is generated by selling recyclable materials collected through the curbside recycling program. The amount of recycling revenue generated through the sale of these materials is dependent upon the quantity of.material collected and the market price for these materials. Both of these factors are outside direct control of the franchise hauler. Therefore,revenues generated by recycled material sales are not subject to an across-the-board rate change. Revenue generated from charging residential customers for curbside recycling services should not be included here, but should be included as part of residential revenue (#1 above). In the first three eolunu-is of lines 18 and. 54, actual revenues received during the.most recently completed fiscal years are reported. In the fourth column of lines 18 and 54, estimated revenues for the current year are reported. For the base year, revenue from recycled material sales is determined by projecting scrap prices for recycled materials and the anticipated quantity of materials sold. The projected scrap prices are multiplied by the projected volume of materials to be sold to determine projected scrap revenue. This projected revenue is reported in the fifth column of lines 18 and 54 of the application.. S. Calculate Total Revenue Calculation of Total .Revenue Line 14 Total residential revenue .Plus Line 17 Total commercial and industrial revenue .Illus .kine 18 Recycled material sales Equals Total revenue Total revenue is entered on lines 19 and 55. # . Sase Yea r Rate Setting Process C. Prepare Operating information During this task, non-financial operating information is compiled by the franchise hauler. Operating information requested in the application, provides an important indicator of the franchise hauler's performance. If costs are changing at an unusual rate, operating data may provide some explanation of these changes. For example, cost increases could be attributed to the increased level of service provided (i.e., accounts served). Information to be provided independently for residential, commercial, and industrial sectors includes: Ci Number of accounts Quantity of waste tonnage collected ❑ Quantity of recyclable tonnage collected Q County bins provided E3 County drop boxes provided. Similar to cost data, the first three years are "historical", the fourth year is the "current" year, and the fifth year is the "base" year. Historical data are based on actual annual operating statistics during the last three complete fiscal years and reflect the same year used in the financial sections of the application. Current year performance is based on performance to-date plus estimated performance for the remaining months of the current year. Projected base year data represents the franchise hauler's best estimate of service levels during the new base year. "rear-to-year percentage changes then are determined for each set of operating metrics. The franchise hauler should be able to explain any significant changes. A significant change in an operating characteristic is an increase or decrease of more than two percent. This information allows both the County and the franchise hauler to monitor changes in the service characteristics,to estimate total revenues at existing rates,and to compare these to changes in total costs. The hauler should identify to the County any operating information submitted as past of the application that it considers confidential. d. Calculate Allowable Operating Profits For the three historical years of actual data, the hauler will calculate the actual operating ratio based on the formula below: Method For Calculating Actual Operating Ratio on Allowable Costs Step 1 Total operating revenues (Line 19) Minus Total operating costs (Line 6 + 10 + 21) Equals Operating profit (Line 8) Step 2 Operating ratio on allowable costs (Line 7) Equals Total allowable costs (Line 6) Divided by 'Total allowable costs (Line 6) Plus Operating profit (Line 8) 11 . Base Year late Setting Process These actual operating ratios on allowable casts will reveal how well past base year projections corresponded to actual results. Sirrs.ilarly, the formula estimated above is used to calculate the operating ratio for the current year (column 4). The actual operating profit received by the franchise hauler in the three most recently completed fiscal years is entered on line 8, columns 1 through 3. The estimated operating profit for the current fiscal year is entered on line 1, column 4, also using the above formula. To calculate the allowable operating profit in the base year, the equation below is utilized: .Method For Calculating Allowable Operating Profit in Base.Year Total allowable costs (Line 6) Divided by Maximum operating ratio (88 percent) Equals Allowable operating revenues Minus Total allowable costs (Line 6) Equals Allowable operating profit (Line 8) The allowable operating profit is entered on line 8, column 5 of the application. In the first base year, the operating ratio will be 90 percent. In each succeeding base year, the operating ratio will be allowed to fall to 88 percent without a rate decrease, which will help stabilize rate changes and afford the franchise hauler an incentive to reduce costs. In any succeeding base year, if the franchise hauler is projected to earn an operating ratio below 88 percent, then the hauler's OR.will be reset to 90 percent. If the operating ratios is calculated below 88 percent, which provides the franchise hauler with the maximum amount of profit allowable under current policy, and a surplus still exists, the County must determine if rates will be lowered, and over what period of time. e. Determine Franchise Fee The current franchise fees paid to the County is set equal to 5 percent of gross residential, commercial, and industrial revenues. The calculation of the franchise fee . is not a straightforward exercise because as revenue is increased(e.g.,via a rate change), so does the amount of franchise fees increase because franchise fees are based on a percent of gross revenues. To calculate the franchise fee for the base year requires salving for two simultaneous equations with one unknown value, the franchise fee, which is identified as X. The equations are summarized in the bottom left corner of Page 1 of 7 of the Base Year Rate Change Application and are as follows: 1. Revenue Requirement'x 0.05 — X 2. Revenue Requirement = Line 11 + X, or in more detail [Total Allowable Costs (Line 6) plus Allowable Operating Profit (Line 8) plus Total Pass Through Costs (without Franchise Fees) (Line 10)] + X. li . Base Year Rate Setting Process By substituting equation 2 into equation 1, the calculation is simplified to: (Line 11 + X) x 0.05 = X, or (Line 11 x 0.05) = 0.95X, or X - (Line I I x 0.05) . 0.95 Projected franchise fees, X, should be entered on line 21 of the application, Any significant changes in total pass through costs should be explained and documented. f. Calculate Revenue Requirement The revenue requirement establishes the level of revenue needed to meet all allowable costs and operating profit. This includes residential, commercial, and industrial waste and recycling costs, and assumes a reasonable profit margin based on the operating ratio calculation. Total revenue requirements are determined as the sum of: Q Allowable costs (Line 6) • Allowable operating profits (Line 8) D Pass through costs (Line 10 +21)* The revenue requirement is entered on line 28 of the application. 9. Calculate Net Surplus/Shortfall and Percent Change in Rates The net surplus/shortfall,prior to the franchise fee, is first determined based on the following calculation: Surplus/Shortfall Prior to Franchise Fee Line 11 Revenue requirement (without franchise fee) [equal to total allowable costs (Line 5) plus allowable operating profits (Line 7) plus total pass through costs without franchise fees(Line 10) .Less Line 19 Total revenues .equals Line 20 Net surplus/shortfall, without franchise fee (ext the franchise fee calculated in Line 21 is added to the surplus/shortfall in Line 20 to get the total net surplus/shortfall (Line 22). If shortfall exists (i.e.,line 22 is positive) or the percentage in line 22 is zero, there will not be a change in rates. If a surplus exists then the amount in line 22 will be negative and rates will need to be decreased. The projected amount of revenue generated during the base year from the sale of recycled materials was calculated in Step 4; therefore, any increase or decrease in revenue required must come from an increase or decrease in residential, commercial, and industrial rates. j H . Base Year Rate Setting Process If applicable,the percent increase or decrease in existing rates is calculated as follows: Percent IncreaselDecrease in Existing Rates Line 22 Net surplus/{shortfall} .Divided by Line 23 Total residential, commercial, and industrial revenue without change Equals Percent increase/decrease in rates. f The percent increase or decrease in rates is entered on fine 24 of the application. h. Calculate New Rates If applicable, the rate increase or decrease identified on page 1, line 24 should be enured on page 7, line 75 of the Base Year Rate Change Application. Current residential rates for solid waste collection should, be entered on page 7 of 7. The adjusted rates then are calculated by multiplying the current rate by one plus the rate decrease identified in line 1. The adjusted rates are rounded up or down to the nearest five cent increment. This simplifies record keeping for the franchise hauler and should not make a material difference to customers. The adjustment required to reach the nearest fire cent increment should be calculated and entered in the third column. To determine new residential rates,column two should be added to column three and the result should be entered in column four. This column provides the new rate schedule. Current and revised commercial rate schedules should be provided by the hauler as an attachment to the application. These rates should also be rounded to the nearest five cent increment. i. Prepare and Submit Rate Change Application The completed .Base Year Rate Change Application is submitted by the franchise hauler to the County. The application should include the following items: U Management Representation Letter The management representation letter transmits the application to the County,and should provide a list of included documents. The letter should identify the requested adjustment in rates and include a discussion of specific issues which impact new rates. The letter should state that. s Management reviewed and accepts responsibility for the rate application * The application is based upon management's judgment of the most likely set of conditions and course of action. t All significant relevant information are made available Assumptions are reasonable and are accurate. 14 Base Year Rate Setting Process An authorized representative from the franchise .hauler should sign and date the application. This signature provides a certification of the franchise hauler that the application is complete, accurate, and consistent with the instructions provided in this manual. U Base Year Rate Change Application The franchise hauler should provide a.base Year Rate Change Application, including completed application farms and supporting documentation. Supporting documentation includes the current rate schedules for residential, commercial, and industrial customers. © Supplemental ,Audited Financial Information For applications received after 2003, audited financial statements for the .most recently completed fiscal year should be included, as well as other documentation which support operating and financial data provided in the application. Because audited financial statements serve as base documents for the application, statements of revenues and expenses and other reports contained in the application shall be reconciled to the audited financial statements to provide assurance that all activities are accounted for. Once the application materials have been prepared, the franchise hauler submits one reproducible hard copy and one disk copy formatted to the County's specifications. They are submitted to the County. The thirty (30)day review for completeness will begin upon receipt of the application. a, It . Base Year late S etti ng Process Verification of Completeness of Rate ChangeApplication Responsibility. County Timing. Completed within thirty (30) days after the rate change application is submitted Tasks: a. Verify Financial Data and Format b. Verify Supporting Documents and Schedules c. Notify Franchise Hauler Overview During this step,the County ensures that the application has been fully completed by the franchise hauler and that the data provided are consistent. During the 30-day period., the County will obtain from the franchise hauler any information necessary to complete the application. a. Verify Financial Data and Format County staff reviews the application package to determine if it is complete and ready for analysis. Detailed analysis of the contents of the application occurs during Step 3. The County reviewer should determine the following: • Has the applicant included all required forms? • Are all forms complete? El Are audited financial statements included? © Are all financial calculations mathematically correct? b. Verify Supporting [documents and Schedules Various documents may be included in the application package to support the rate change. The purpose of these supporting documents should be clearly identified by the franchise hauler. C. Notify Franchise Hauler If the application is complete the County will notify the franchise hauler that it will begin the process of evaluating the application. If incomplete,the County will attempt to obtain from the hauler additional required information within the 30-day verification period. A revision of rates shall not be authorized until the 1st day of the first calendar month following a five (5) month period from the date that an application is verified to be complete. If . base Year Rate Sett i n g P r o c e s s Review of Rate Change Application and-Preparation of Responses Responsibility: County Timing: Completed within one and one half month after "�✓✓ determining that the application package is complete Tasks: as Review Actual and Projected Revenue Requirements b. Review Actual and Projected Revenues c. Review and Verify Operating Ratio d. Determine Components of Requested Change in Rates e. Review Performance Data f. Request Additional Data and Clarification, if Necessary WITUR g. Document Staff Review Overview During this step, County staff evaluates the entire rate change application. This review includes examining significant changes in costs or operating performance and evaluating explanations of these changes provided by the franchise hauler. a. Review Actual and Projected Revenue Requirements In this task, costs and operating profit are reviewed and analyzed for reasonableness. Reconciliations of costs to audited financial statements shall be checked for consistency. Explanations are sought from the hauler for items significantly different than would otherwise normally be expected. Absolute and percentage changes in costs for the five years identified on the application should be calculated and reviewed. Projections prepared from previous years in prior Base Year Rate Chande Applications are compared with actual results. Costs are correlated with operating collection efficiency statistics provided by the hauler. Any unusual trends or variances in aggregate areas should be explained by the franchise hauler. An unusual increase would be a change in cost which is greater than the change in the San Francisco-Oakland-San fuse Consumer Price index, published by the Bureau of Labor Statistics, and which can not be attributed to changes in the number of customers serviced or tons of waste or recyclable materials collected. If these unusual changes are not adequately explained in the application, the County should request additional clarification from the franchise hauler. The County should review the allocation methodology used by the hauler to obtain County costs, if applicable. At a minimum,the County should check that allocations used to assign costs to County customers are reasonably consistent with other operating metrics such as average number of accounts and tons collected. It Base Year Rate Setting Process b. Review Actual and Projected Revenues The County should review actual and projected revenues in this task. Current rates provided in the application are verified. Any changes in the number of customers serviced should be identified and explained by the franchise hauler. The application requires the franchise hauler to report five years of residential and commercial and industrial revenues: (1) calendar year three years .ago (2) calendar year two years ago, (3) most recent calendar year, (4) current year, and (5) projected "base" year. For applications received after 2003, the County should reconcile the most recent year revenues with audited financial statements. Revenues for the current year are compared with year-to-date unaudited financial statements and documentation supplied: by the hauler. Projected revenues for the fifth, or "base" year, are evaluated by the County for reasonableness. All assumptions made by the hauler in preparing these projections are reviewed. Revenues reported by the hauler should not include any rate changes in the base year (year 5). Account information included in the application is reviewed to determine changes in the number of accounts served. Allowances for uncollectible accounts also are reviewed. These figures should be deducted from total revenue projections. These allowances may be based on a fixed percentage of total revenues or on actual experience. Assumptions related to allowances for uncollectible accounts should be reviewed with the hauler. Revenue from recyclable material sales is provided in the application. Amounts identified in the third year of the five years ,provided should reconcile with the financial audit. Amounts identified in the current (fourth) year, and the base (fifth) year should be documented by the hauler. The County will review these projections to ensure they are consistent with trends in recycling collection costs, scrap values, processing costs, as well as estimated diversion rates and tonnage. C. Review and Verifyy Operating Ratios The operating ratio must be determined for the base year. The County should calculate the projected CSR for the base year using the first formula provided in section d. of Step l in this chapter (i.e., titled Method for Calculating Actual Operating Ratio on Allowable Casts). If this OR is below 88 percent or above 92 percent, then the OR should be reset to 90 percent. If there are any errors by the hauler in calculating the OK or allowable operating profits, these deficiencies are noted. If within the 88 to 92 percent range, then no change is necessary. d. Determine Components of requested Change in Rates The County evaluates all costs, revenues, and operating profits provided in the application to determine the components of the requested adjustment in rates. This would include determining the proportion of the requested adjustment in rates which is due to changes in each of the following: 3 Costs C3 Residential revenues © Commercial revenues 11 . Base Year Rafe Setting Process CE Industrial revenues © Revenues from the recyclable sales El Operating profit (or lass). e. Review Performance Data County staff reviews and analyzes performance data, which are included in the application (number of accounts and tons collected). Operating statistics are reviewed to explain past historical trends and justify future expenses. Both actual and percentage increases are examined and any unusual changes in performance are investigated to determine their cause and effect on future cost performance. An unusual change in operating statistics is any increase or decrease of more than the Consumer Price Index (CPI) published by the Bureau of Labor Statistics in their Monthly Labor Review. Changes in accounts served, number of routes, tons collected, or direct labor hours generally should correspond to changes in cost and revenue. In accordance with the Franchise Agreement, all operating statistics,which affect the competitive position of the hauler, should be treated as confidential. f. Request Additional Data and Clarification, if Necessary Throughout the analysis of the application, County staff may request clarification and/or additional data from the franchise hauler to explain any unusual changes in costs or operating performance. County staff may have identified missing information, or changes in the financial or operating data between the five fiscal years which require clarification or further explanation. The franchise hauler should respond to the County's.request for additional information within two weeks, Responses will vary depending on the specific requirements of the County. g. Document Staff Review During this task, County staff prepares workpaper documentation of the review of the Base Year Application. ll . Ease Year Rate Setting Process Survey of Rates in Similar .service Areas Responsibility: County i Timing: Conducted concurrently with the application review (Step 3) Tasks: a. Survey Residential and Commercial Solid baste Rates and Charges in Similar Service.Areas b. Summarize Survey Results c. Prepare and Submit Summary to the Franchise- Hauler Overview The County conducts a survey of solid waste rates in communities similar in size and location to the County. The purpose of this survey is for comparison purposes to benchmark the rates proposed by the hauler to determine if the rates are reasonable. The survey should cover the following topics: ® Residential service 0 Commercial service U. Industrial. service 0 Tipping fees El Profit methodologies. The survey is not meant to be used as a basis for determining new rates. a. Survey Residential and Commercial Solid Waste Rues and Charges in Similar Service Areas In this task, the survey of rates in other areas, which are similar to the County, is conducted. In order to avoid mailing and response delays, the survey is conducted by telephone. A minimum of six other jurisdictions should be surveyed. jurisdictions selected should be located in Northern California and have operating environments which are similar to the County. While all questions in the survey provide valuable comparative information, there are several key questions including: El Monthly rates for a range of residential services 0 Monthly rate for standard commercial and industrial services 0 Tipping fees for transfer station and disposal services U Operating ratios. a 11 , Base Year Rate Setting Process b. Summarize Survey Results After the survey has been conducted, the results are tabulated and compared. .Dates proposed in the rate change application should be compared to rates in other jurisdictions. If the rates proposed in the application are significantly higher than in other jurisdictions, then County staff should request the franchise hauler's assistance in explaining the differences. C. Prepare and Submit Summary to the Franchise Hauler The County then prepares a summary report, which makes conclusions about how rates and services provided by the current franchise hauler comparewith those in other jurisdictions. The summary report should overview other jurisdiction's general solid waste practices and rate setting approaches. The report also should document residential refuse, recycling, greenwaste, commercial, and industrial refuse collection services and rates. It should include the following information: G Number of agencies surveyed D Average tipping fee per ton 0 Average and median monthly charges for comparable residential can services n Average and median charges for comparable commercial services. 0 Average and median charges for comparable industrial services. The report should compare the proposed County rates with weighted averages and median results from the survey. The report should summarize in a matrix format all results of the survey listed by agency surveyed. A copy of the survey summary is provided to the franchise hauler. The County may require an explanation and/or clarification from the franchise hauler about how the proposed rates compare to rates in the survey. This summary is included as an attachment to the Final Report. This information also is used for comparison purposes in the evaluation of the franchise hauler's application. !! . Base Year Rate Setting Process Preparation of Draft Report and Fina ' Report t ` Responsibility: County Timing: Completed approximately three and one half months after determining the application package is complete i- kTasks: a. Prepare Draft deport b. Provide Franchise Hauler with Copy of Draft Report and Receive Comments s c. Prepare Final Report Overview A draft report with recommendations from County staff is prepared and submitted to the franchise hauler for review. The draft report will be reviewed by the franchise hauler. The franchise hauler will have an opportunity to provide written comments regarding the draft report. The County will address these comments and prepare a final report. a. Prepare Craft Report In this step, County staff prepares a draft report including recommendations for a rate change. The draft report includes the following sections: Q Executive Summary This'is a one or two-page summary of the review process and may include a chart showing current and proposed rates,and the recommended rate change. 3 Introduction and Background The section identifies any proposed changes in services provided by the hauler. The section also identifies the review goals, objectives, scope, and other relevant background information. This section of the report may provide a brief overview of the rate change process and discussion of significant historical rate issues. If applicable, this report will document the rate change proposed by the County. Z1 Analysis and Discussion of Rate Change Application This section of the report will .include a review of the analysis work completed by County staff. This section might include the following sub-sections: Review of Rate Changes, including a discussion of interim year or extraordinary rate changes during each year since the last base year, the relationship of these changes to changes in the Consumer Price Index, and an analysis of the significant components of the change in rates (e.g., changes in tipping fees or changes in operating profit). If . Base Year Rate Setting Process Analysis of Projected Costs, including a discussion of any unusual changes in casts which were discovered and unresolved during the review process. Discussion of Service Issues, including changes in frequency or type of service. If significant service issues are not involved with a rate change, this section would be omitted. • Recommendations County staff would present its recommendations regarding specific changes in rates in this section of the document. ® Appendices Appendices to the report would include: • Rate change application • Revised rate schedule • Audited financial statements of the franchise hauler • Other relevant supporting materials provided by the franchise hauler • Results of the rate survey. la. Provide Franchise Hauler with Copy of Draft Report and Receive Comments During this task, the franchise hauler will review the draft report. Each section of the report should be reviewed to ensure that correct data are included, the County staff analysis is consistent with the methodology, and if applicable the proposed rate change was determined accurately.- If any issues are identified during this step, the franchise hauler works with County staff to fudly explore and resolve these outstanding issues. A written response to the draft report is then prepared. The response may cover one or more of the following topics: D If data discrepancies exist in any of the areas noted in the prior task, the County should be notified of these discrepancies. El If the analysis conducted by County staff can be clarified or considered differently, this information should be provided to the County staff. Q If the report is acceptable.and no clarification or comments can be offered, this should be relayed to County staff. If no written response is received by the County within two weeks of delivering the County's Draft Report, then the County will assume that the hauler has no issues with the report. C. Prepare Final Report Any additional or outstanding comments or issues raised during the franchise hauler's review of the draft report are addressed during this task. If necessary, meetings are conducted with representatives from the County and the franchise hauler. Final solutions to outstanding issues are included in the report. After final comments from the franchise hauler have been considered, the Final Report package is prepared. A copy of the Final Report is submitted to the franchise hauler. 11 Base Year Rate Setting Process Presentation of Final Report - to the Board of Supervisors Responsibility: County Timing. Completed three weeks prior to the expected implementation of new rates Tasks: a. Distribute Final Deport and Summary to r Board of Supervisors b. Obtain Board of Supervisor Approval Overview During this step, the Final Report is presented to the Board of Supervisors for review, comment, and approval. a. Distribute Report and Summary to Board of Supervisors In this task., the Final Report is provided to the Board of Supervisors. The report is included as an agenda item for Board consideration at a regular Board meeting. The rate change may be placed on either the regular, or consent calendar. The County Clerk should be notified four weeps prior to the meeting at which the rate change will be considered and reports should be provided two weeks prior to the meeting. b. Obtain Board of Supervisor Approval Board members review the report and proposed rate changes. If the Board agrees with the recommendations of the County staff, the report and rates are approved. If the Board does not agree with the recommendations, the report is returned to County staff for additional analysis. If the report and rates are not approved, the Board should specifically identify deficiencies. 11 Base Year Rate Setting P r o c e s s Implementation of New Rates, IfApplicabl Responsibility: Franchise Hauler Timing: Conducted following Board of Supervisor approval of the new rates Tasks: a. Prepare Notification of Rate Change b. Implement Rate Change Overview During this final step, the franchise hauler implements new rates, if applicable. a. Prepare Notification of Rate Charge Once the report is approved, a notification of a rate change is mailed by the franchise hauler to all customers. This notification may be included with a regular billing or may be mailed separately. The notification must be performed at least 30 days prior to the effective date of the rate change. The franchise hauler should provide a copy or facsimile of the notice to the County at the time of customer notification. la, Implement Rate Change .During this final task, the new rates are entered into the franchise hauler's billing system and included in the billing cycle. If the franchise hauler prepares billings once every two or three months, and a rate change occurs during the middle of a billing cycle, overbilled or u.nderbilled amounts in the current billing cycle due to the rate change are calculated and accounted for in the next billing cycle. Section III Interim Year late Setting Process i � t Interim Yearf , d'e � Ykts�S'sw� $'i i4 t?err ttin&r � y{ 4d Rate * ... : es Interim year rate adjustment requests are accepted in the three ears between base years. The interim year process requires less information and preparation time, while still allowing fair and reasonable rate adjustments. During interim years, rates can be adjusted annually through application of a composite index. The index consists of- C] fC] Historical changes in the Consumer Price Index (CPI) for the San Francisco-Oakland-San Jose published by the Bureau of Labor Statistics applied to controllable costs 13 Projected changes in uncontrollable casts (IRRF fees and regulatory fees) U Adjustment for the franchise fees which change if revenues change. In each interim year, the franchise hauler is responsible for determining the actual annual change in the CPI for the most recent 12-month period. The franchise hauler also will be responsible for identifying annual changes in IRRF fees and regulatory fees in the interim year for which a rate adjustment is requested. Even if the interim-year adjustment would justify an increase in rates, the franchise hauler is not required to apply for the increase. This will help stabilize rate adjustments even when small increases might be warranted. Special extraordinary adjustments are allowed outside of the annual schedules of the base year and interim year adjustments. Both the County and franchise hauler may initiate the extraordinary rate adjustment process. For these adjustments, the franchise hauler will provide necessary information and documentation so the County can make a judgment as to the reasonableness of such a rate adjustment. With Board of Supervisors approval, an extraordinary adjustment can be made by the franchise hauler. This extraordinary adjustment will only be allowed under the case where the hauler can demonstrate that a*change in one of the cost line items specified in the Base Year Rate Change Application will exceed two (2) times the most recent annual change in the Consumer Price Index for the San Francisco-Oakland-San Vose published by the Bureau of Labor Statistics. In the case where an interim year rate change occurs, the County has the right to request an interim year rate change application in the year following that interim year rate change (for all interim years prior to the next base year). This provision is necessary because interim year rate changes involve a "truing up" of the prior year's projected CPI to the actual CPI. This provision assures that the County can account for situations where a franchise hauler might not submit an interim year rate application because the.result would lead to a rate decrease. In situations where an interim year rate change does result in a rate decrease, the County and hauler should .............. work together to determine the timing and amount of the rate decrease. It may make sense for the County to account for such a rate decrease in the next base year to avoid frequent fluctuations in rates. Exhibit III-1, following this page, provides an overview of the interim year rate adjustment process. Exhibit 111-2 following Exhibit III-1 shows the timing of the interim year process. The rate change process should begin four months prior to the beginning of the new calendar year and the rate change application should be submitted to the County a minimum of three months prior to the implementation of the rates. For rate changes effective January 1, the application should be submitted to the County by the previous August 31st. Certain key products are noted in the exhibit by circled letters. Following these exhibits is a description of each step in the interim year process. ................ .......... _. __ III. Interim Year Rate Setting Process EXHIBIT III-I. Interim Year Rate Change Process Overview E- Franchise Hauler r' har� tit u l pr k r 3 h4 if{ '�r i �wy t sUS . ,a�;Ya d`M kn �MtA,§",f 51 �' �.�, ��,7;j}Adah r1"� asrlr`^1Py* Wr r . { ' �..m niy ay� t S�' 'kc aewx ��trtk ;r f2 l �q L e ���� p '+,I '�" a v' rs xf E y`�`5'^�'dk i'dx e4 I. County tc3ent#��c+ r fEu St `• tnt Y, safe imp # ... a.M � i��tate Chat��e � �� �, � r ClSan�� prk H6,t w 1 cs r t and G} � Nt&Rated i Md t'Qtl 1 6 £ttt+ Tt s p ueA Ad 'd CEa"d�tca��titt, and�nfa�ttsaf►�n ft r++r rS d a z �� ^rt ,f^ u ZV FranchiseRebriva5 #[�fi $faG1}�t tlt7h3 aC7G{�1f1��15t3 a if wtYt{E't1 S�tSRS kfi t v Hauler Ppere anti Ef~sponse= t3raft}2port 4 Z �a 4 \� i L t h X K 7� f t t� r'•,�L f { ti l J r r s71Y ,:V:; e� t Sys x. `dry a t Yi County a Irrcorpor, thetrse Healer's t Flna�}nepprt a f'yds%Frrr�ft�(r�L$4�1u{trY�q���yB�C9rt Mi f i '' ^5 t6J .Ra . � A r County a 13tsts�buf �l"rr al ep�srf tc>13ciar P. rrp!�ry gory a N rttce to E card .j t7btarn Bb rt of SszEierYts r Approval 0', 'ApPrxr�+e Resplr�tr©n iA. tis F t w6 ,r-�.�`f Franchise a l�loft +Cfistttl5rs s ,NcstrFrcat[on to Customer Hauler ?Rte cl b mof6nmt Raft Cherie S du[e e F ,l y r, L tM Y wl t M. Interim Year Rate Setting Process BXHIBrr III-2 Timing of Interim Year Rate Change Process 71. Preparation and Submission of Rate Change Application 2. Preparation of Interim Year Rate Change Worksheet and Draft Report 3. Review and Response to County Analysis and Calculations 4. Preparation of Final Report S. Presentation of Final Report to the Board of Supervisors C 6. Implementation of New Rates, A. Submit Rate Change Application to County B. Final Report C. Application Approved D. Customer Notification E. New bates Implemented on January l 0 f Ill. InterimYear Rate Setting Process Preparation and Submission of Rate Change Application. e Responsibility: Franchise Hainer Timing: Completed four months prier to the implementation of the new rates Tasks: a. Prepare an Interim Year Rate Change Application b. Submit Application to County eu �1ilya Overview During this first step, the franchise hauler prepares the Interim Year .Rate Change Application. Exhibit C-2, in Appendix C, is a sample application as it might be prepared by the franchise hauler. Please note that dataa included in these forms are provided for illustrative purposes only and are not intended to reflect actual operating or financial conditions. Blank Forms are provided in Appendix B. a, Prepare an Interim Year Rate Change Application 1, Report Changes in Uncontrollable Costs The first task is to provide prior year IRRF fees. These items are to be reported in terms of cost per ton to eliminate any changes which are due to increases or decreases in tons of solid waste removed by the franchise hauler. Prior year IRRF fees per ton should be entered on line 1. Prior year regulatory fees per ton should be entered on line 2. The values entered on lines 1 and 2 should then be added and entered on line 3. The franchise hauler identified what IRRF fees and regulatory fees will be for the next interim year. Projected interim year IRRF fees per ton are entered on line 4, and projected interim year regulatory fees per ton are entered on line 5. The values entered on lines 4 and 5 then are added and entered on line 6. The percent change in uncontrollable costs is determined as follows: line 6 - line 3 line 3 The product of this equation, rounded to the nearest one decimal place, is entered on line 7. Ill. interim Year Rate Setting process 2. Explain Changes in Uncontrollable Casts Any changes in either IRRF fees or regulatory fees should be fully explained in this task. For example,if a landfill closes and the franchise hauler begins using a new landfill with, higher IRRF fees, this information should be documented. Documents which support or further explain any change in costs are provided, as appropriate. This might include formal announcements of IRRF fee increases provided by the landfill operator, or descriptions of new regulatory fees which will be paid directly by the franchise hauler. 3. Certify Application An authorized representative fiom the franchise hauler should sign and date the application. This signature provides certification by the franchise hauler that the application is complete, accurate, and consistent with the instructions provided in this manual. At this point, the application should be complete. The application is submitted to the County for review and calculation of the rate change, as described in the following subsection. b. Submit Application to County The completed application is sent to the County for review and calculation of new rates. The franchise hauler's application does not include any new rates, these are determined by the County during Step 2. e Ill, Interim Year Rate Setting Process Preparation of lnt rim .Year Rate �:'han e Worksheet and Draft Report Responsibility: County Timing. Completed within three weeks of receiving a completed Interim Year Rate Change Application Tasks. a. Identify Consumer Price Index b. Complete interim Year Rate Change Worksheet ms' eand Determine New Rates c. Request Additional Data and Clarification, if Necessary d. Prepare Draft Report e r►>; ,� Overview The Interim Year hate Change Worksheet is used to calculate new interim year rates. This document is prepared by the County after the franchise hauler has sub- mitted an Interim Year .Rate Change Application. Interim year rate changes are based on a weighted increase in controlled and uncontrolled costs. Inflators for this process include changes in the San Francisco-Oakland-San Jose Consumer Price In- dex (described in Step 2) and changes in uncontrolled costs (documented by the franchise hauler in the Interim Year Rate Change Application). Exhibit C-3, in .Appendix C, is a sample of the two-page worksheet as it might be prepared by County staff. a. Identify Consumer Price Index The annual change in the San. Francisco-Oakland-San Jose Metropolitan Area Con- sumer Price Index (CPI) provides the single largest factor for determining new rates during interim years. The actual change in this index during the twelve months prior to the date the Interim Year Rate Change .Application is submitted to the County is used for the actual change in the methodology. Because a projected change in the CPI is not produced for the San Francisco-Oakland-San Jose Metropolitan.Area by a public agency, the actual change in CPI for the prior twelve months also is used as the projected CPI for the interim year. This information is available from the United States Department of Labor, Bureau of Labor Statistics, in San Francisco, California. Ill. Interim Year Rate Setting Process be Complete Interim Year Rate Change Worksheet and Determine New Rates County staff prepares the Interim Year Rate Change Worksheet and calculates new rates during this task. This worksheet requires information from the most recent Base Year Application and the current Interim Year Application. This worksheet also requires the San Francisco-Oakland-San Jose Metropolitan Area Consumer Price Index information collected in task a. The worksheet is used to calculate the new rates. 1. Identify Prior Base Year Controllable Costs Controllable costs are those items which can be reasonably managed by the franchise hauler in order to minimize future rate increases. Changes in these costs should approximate the change in the San Francisco-0akland- San Jose Metropolitan Area Consumer Price Index. In order to streamline the base year process,controllable costs are adjusted based on an annual change in the CPI instead of projected changes in each cost item. This eliminates the need to conduct a detailed review of the franchise hauler's audited financial statements. IRRRF fees are included in total operating costs (line 1); however, they are uncontrollable costs. Because of this, IRRF fees must be deducted to determine total controllable costs in the base year(line I plus line 2 minus line 3). This total then is entered on lime 4 of the worksheet and is used to calculate the weighted change in controllable costs. -2. Identify Prior Base Year Uncontrollable Costs - Uncontrollable costs are those items over which the franchise hauler has little or no control. These include IRRF fees and associated regulatory fees. Because changes in these cost categories do not occur at predictable intervals and amounts, adjustments to uncontrollable costs during an interim year are based on the franchise hauler's projections, not projected changes in the CPI: Total uncontrollable costs in the prior base year must be calculated to determine the weighting of controllable costs to uncontrollable costs. The following table identifies the line items in the prior base year which must be entered on the interim year worksheet in the uncontrollable costs sub-section. The name of each line item is the same in both forms. Base Year Interim Year Application Worksheet Name of Ire Number Line Number Line Item N/Aa 3. IPd F Fees (Profit Allowed) 9. S. IKU Fees (Pass Through) a .Not applicable because all IRRF Fees are a pass-through cost III. Interim Year Rate Setting Process 3. Calculate Weightings Total controllable costs (line 4) plus total uncontrollable casts (line b) equals the total base year revenue requirements (excluding franchise fees). This total is.entered on'line 7 of the worksheet (base year revenue requirement less franchise fee). A weighting for both controllable casts and uncontrollable costs is calculated as follows: Controllable Costs; Line 4 Total controllable costs Divided by Line 7 Base year revenue requirement (less franchise fee) Equals Controllable costs as a percentage of base year revenue requirement. This percentage figure is entered on line 4, column 2, and line 18. Uncontrollable,Costs: Line 6 Total uncontrollable costs Divided by Line 7 Baseyear revenue requirement Equals Uncontrollable costs as a percentage of base year revenue requirement. This percentage figure is entered,on line 6, column 2, and line 21. 4. Determine Consumer Price Index Adjustment Factor Because interim year rates are partially determined based on projected changes in the San Francisco-Oakland-San Jose Metropolitan Area Consumer Price Index, corrections are required during the second and third interim years to reflect the difference between actual and projected changes in the index. Actual changes in the'CPI for the San Francisco- Oakland-San Jose Metropolitan Area are available from the United State Department of Labor, Bureau of Labor Statistics, in San Francisco. This adjustment is not required for the first interim year rate change following a brise year. If this is the first rate change following a base year, enter a zero on line 9. The adjustment factor is determined based on the following formula. Actual change in the CPI during the previous interim.year Minus Adjusted,projected change in the CPI from the prior year Interim Year Rate Change Worksheet (line 10 on page. 2 of prior application) Equals Adjustment factor This adjustment is entered on line 9 of the worksheet. wmmwun+as � !6 t Ill. Interim Year state Setting Process Two examples of this calculation are provided below: Example 1: Actual change in CPI is higher than the prior,year's projected change in CPI. If the prior year's projected CPI change was 4.5 percent but the actual change was 5.0 percent, then the adjustment factor for interim year two would be 0.5 percIent: Actual change in CPI 5.0% Minus Prior year adjusted CPI 4.5 Equals Adjustment factor +0.5% Example 2. Actual change in CPZ is lower than the prior ,ycar's projected change in CPI. If the prior year's adjusted projected CPI was 5.5 percent, but the actual change in the CPI was 5,0 percent, then the adjustment factor for year two would be -0.5 percent. Actual change in CPI 5.0% Minus Prior year adjusted CPI 5.5 Equals Adjustment factor -0.5% S. Calculate Adjusted Projected Change in Consumer Price Index The adjusted change in CPI then is calculated by adding the figures on line 3 and line 9. This adjusted projection of the change in CPI then is entered on line 10 and line 19 of the worksheet. 6. Enter Uncontrollable Cost Information from Application The figures on lines I through 6 of the application (actual and projected uncontrollable costs) are entered on lines 11 though 16, respectively, of the worksheet. Any significant changes in these costs are documented by the franchise hauler. A significant change would be any increase greater than the change in the CPI, or a decrease of any amount. If a significant change has not been adequately explained, additional information is requested from the franchise hauler. 7 Review Mathematical Accuracy The mathematical accuracy of the franchise hauler's totals for Total Prior Year Uncontrollable Costs (line 13), and Total Projected Interim Year Uncontrollable Costs (line 16) are checked during this task. The percent change in uncontrollable costs should be calculated as follows: line 16 - line 13 line 13 After the percentage change in uncontrollable costs has been verified, this figure is entered on lines 17 and 22 of the worksheet. j Ill, Interim Year Rate Setting Process 8. Calculate Weighted Change in Controllable Costs Figures should have been entered on line 18,controllable costs as a percent of base year revenue requirements, and line 19, the adjusted projected j change in CPI; based on calculations completed in previous tasks. To obtain the weighted change in controllable costs, line 18 is multiplied by line 19 and the result entered on line 20. L 9. Calculate Weighted Change in Uncontrollable Costs Line 21,uncontrollable costs as a percent of base year revenue requirements, and,line 22,projected change in uncontrollable costs,should now have an entry based on calculations completed in previous tasks. To obtain the weighted change in uncontrollable costs, line 21 is multiplied by line 22 and the result entered on line 23. 10.Calculate Total Change in Costs To calculate the total percentage change in costs, line 20, the weighted change in controllable costs, is added to line 23, the weighted change in uncontrollable costs, and the result entered on line 24,total change in costs. 11 . Calculate Franchise Fee Adjustment In order to account for changes in the franchise fee resulting from an change in rates, an adjustment is made to the percentage change in total costs which was entered on line 24. The adjustment factor is equal to one minus the franchise fee (1.00 -0.05 m 0.95). This value should be entered on line 25. 12. Calculate Percent Change in Existing States The final task in this step is to calculate the percent change in existing rates. To determine this change, line 24 (total percent change in costs) is divided by line 25 (franchise fee adjustment), and the result is entered on line 26. The value on line 26 should be greater than the value on line 24. The difference accounts for the change in franchise fees. 13. Enter Rate Change The rate change identified in line 26 should be entered on Page 1, line 1 of the worksheet. 14.Calculate New Rates Current rates for solid waste collection are entered on page 1. The new rates then are calculated by multiplying the current rate by one plus the -rate change identified on line 1. The new rates then are rounded up or down to the nearest five cent increment. The adjustment amount required to reach the nearest five cent increment is calculated and entered on the third column of lines 2 through 6. To determine new rates, column two,lines 2 through 6,is added to column three and the result is entered on column four. This column provides the new schedule of rates. M. Interim Year Rate Setting Process C. Request Additional Data, and Clarification, if Necessary If necessary, County staff should request clarification and/or additional data from the franchise hauler. The request is to clarify the franchise hauler's assumptions for changes in IR.RF fees/regulatory fees and to indicate the expected change in rates. d. Prepare Graft Report County staff prepares a high level draft report with recommendations of new rates for Board of Supervisor consideration. .This report should be brief and include the following sections: El Executive Summary This is a summary of the review process and includes a chart showing current and proposed rates, and the recommended rate change. EMI Background This section of the report provides a brief overview of the rate change process and discussion of any significant historical issues. Z) Analysis and Discussion of Issues This section includes a review of the analysis work completed by County staff. This section also includes a discussion of any significant changes in uncontrollable costs and an identification of the change in CPI assumed by the County. D Recommendation County staff presents its recommendation regarding any change in rates in this section. CI Attachments Attachments to the report would include: * Rate change application + Revised rate schedule s Rate change worksheet. After the draft report and recommendations have been prepared,the document should be submitted to the franchise hauler for comment and review. Ill. Interim Year Rate Setting Process Review and Response to - 'ounf Analysis andCalculations Responsibility: Franchise Hauler Timing: Completed within three weeks of receiving the completed interim year draft report from the County Tasks: a. Review County Staff Calculations eat' and Analysis b. Prepare and Submit Response Overview The franchise hauler reviews the draft report to ensure that any calculations and analysis completed by County staff are fair, reasonable, and justified. a. Review County Staff Calculations and Analysis The franchise hauler reviews the draft report to ensure the fallowing: Q Correct data are included Q County staff analysis is accurate and fair Q Rate changes are reasonable and acceptable. b. Prepare and Submit Response A written response to the draft report is prepared. The response may cover one or more of the fallowing topics: Q Data discrepancies in any of the areas noted in the prior task Q Clarification for the County or alternative analysis of the application Q Responses to the County's request for additional information. Ill. Interim Year Rate Setting Process Preparation of Final Report Responsibility: County Timing: Conducted within two weeks of receiving comments from the franchise hauler Tasks: a. Incorporate the Franchise Hauler's Comments in Final Report e�w b. Prepare Final Report Overview The County prepares the Final Report incorporating comments from the franchise hauler, as appropriate. a. Incorporate the Franchise Hauler's Comments in Final Report Any comments or issues raised during the franchise hauler's review of the draft report are addressed during this task. If necessary, meetings should be conducted with representatives from the County and the franchise hauler. Final solutions to outstanding issues should be included in the report. b Prepare Final Report After final comments from the franchise hauler have been considered, the Final Report is prepared. A copy of the Final Report should be submitted to the franchise hauler. _ _ __ _ _ _ _ III, Interim Year Rate Setting Process Presentation of Final Report to the Board of Supervisors Responsibility: County Timing: Completed within ninety days of receiving a completed Interim Year Rate Change Application Tasks: a. Distribute Final Report to Board ear of Supervisors b. Obtain Board of Supervisor Approval Overview In this step, the Final Report is submitted to the .Board of Supervisors for review, comment, and approval. a. Distribute Final Depart to Board of Supervisors The Final Report is included as an agenda item for Board consideration at a regular Beard of Supervisors meeting. This item may be placed on either the regular or consent calendar. Copies of the report are provided to the County Clerk for distribu- tion with other agenda materials. The County Clerk should be notified four weeks prior to the meeting at which the rate change will be considered and reports will be provided two weeks prior to the meeting. b. Obtain ward of Supervisor Approval If the Board agrees with the recommendations of County staff, the report and rates should be approved. If the Board does not agree with the recommendations, the report is returned to County staff for additional analysis. If the report and rates are not approved, the Council should be asked to specifically identify deficiencies. EXHIBIT C ------------------ x Review of Richmond Sanitary Service Solid waste Rate Application � yes y June 5, 2003 NewPbint Group,, iv anagarnant Consultants Review of Richmond Sanitary Service Solid Waste Rate Application Final Draft Report June 5, 2003 Table of Contents Table of Contents Executive Summary..............................................................................................ES-1 I. Introduction and Background A. Background of Review........................................................................................I-1 B. Goals and Objectives of Review..........................................................................1-3 C. Scope of Review..................................................................................................I-4 II. Rate Setting Process A. Base Year Process.............................................................................................. II-2 B. 2003 Base Year Rate Application......................................................................11-2 C. Interim Year Process......................................................................................... I1-2 III.Review of Rate Change Application for 2003 A. Review of Revenues, Costs, and Profits...........................................................I11-1 B. Components of Single Can Rate......................................................................I1I-7 IV. Recommended hate Change A. Recommended Residential Rate Change......................................................... IV-1 B. Why Rates are Increasing? ...............................................................................IV-1 C. Implementation of Rate Change......................................................................IV-2 D. Comparison of Rates and Services to Other jurisdictions .............................. IV-3 E. Other Recommendations.................................................................................IV-6 Appendix A- RSS Rate Application .......................................................................A-1 Appendix B- Consumer Price Index......................................................................B-1 Appendix C- Franchise Fee Analysis .....................................................................0-1. Appendix I.1--Adjusted Base Year Model............................................................... D-1 Appendix E - Survey of Other jurisdictions ..........................................................E-1 TOC-1 `t Executive Summary Executive Summary Executive Summary In its 2003 Base Year Rate Change County. With these adjustments, as shown Application.(Application), Richmond Sanitary in Table ES-1 below, unincorporated Service (RSS)requested an increase in solid County service rates would increase to waste collection rates of 5.05 percent. RSS between $1.6.76 per customer, per month, submitted this Application for rates to go into to $50.13 per customer, per month, effect in the rate year 2003. Based on the depending upon the rate category. timing of. (1)the original draft rate application submission (in mid-October 2002 where the Table ES-1 County typically requests that applications be Option A submitted in late June for rates to go into effect Unincorporated County Residential Rates in January of the following year), (2) with 3.40 Percent Rate Increase' subsequent data requests/submissions, (3) simultaneous development of an agreed upon 1,20-gallon $161.21 $16,76 rate setting methodology, and (4) other 1,3.5-gallon 16.79 1736 unforeseen delays, this rate setting process was 1., 65-gallon 32.63 33.74 completed in mid-2003. 1, 95-gallon 48.48 5003 Contra Costa.County(County) engaged NewPoint Group, Inc. (Consultant)to review Option B represents the same adjustments the Application. This report presents results to the original Application as in Option A, of the review. The review was performed but with franchise fee payments made to the consistent with the County's 2003 Rate County increased to reflect payment on gross Setting Process and Methodology Manual for revenues for non-IRRF related business. Solid haste Charges (Manual). The review With these adjustments, franchise fees would focused on calendar year 2001 actual increase from $114,504 to $144,052 per information, 2002 estimated information year. Adjusted County rates under Option B (based on the first quarter of actual data), and are shown in Table ES-2 below. 2003 projected information. Based on adjustments made to the Application, NewPoint Group recommends a 3.40 percent rate increase. This rate increase reflects the miscellaneous t,ec+rPoint Group reductions totaling 563,762 based on a review of revenues, allowable costs, and profits. This option, Option A, does not assume any changes to existing franchise fees paid by RSS to the Does not include IRRF rate. ES-t. Review of RSS Solid Waste Rate Application Table ES-2 Table ES-3 Option B Option C Unincorporated County Residential Rates Unincorporated County Residential Rates With 4.15 Percent Rate Increase" with 5.75 Percent Rate Increase-' (Includes Franchise Fee Pain on Gross Non-IRRF Revenues) (Includes 2.1 Percent Increase to Raise Franchise Pee to 5 Percent) 0110AMAM JIM -- 1,20-gallon $16.21 $16.88 1, 20-gallon $16.21 $17.14 1,35-gallon 16.79 1.7.49 g 1,tis-gallon 32.63 33.913 1, 35-gallon 16.79 17.76 1, 95-gallon 48.48 50.49 1, C,5-gallon 32.63 34.51 1, 95-gallon 48.48 51.27 Option C represents the same In summary Table ES-4 shows the three adjustments to the original Application as in options for the County to consider. Also Option A, but with franchise fee payments shown in Table ES-4, for comparison made to the County increased to equal 5.0 purposes, are the effective original amounts percent of gross total revenues. At current requested by RSS in the Application. levels, franchise fees equal approximately 2.9 percent of gross total revenues. With these adjustments, unincorporated County rates would 'Increase to the rates shown in Table ES-3 below. Table ES-4 Summary of Rate Increase Options Unincorporated County RSS-Served Areas 1"(fecovekmottiii Modified with NevvPoint 0- 06611 A-No Change to franchise Fee 4.29% 3.40°!a B- Increase in Franchise Fee to 5% 5.0510 4.15% of Gross Non-IRRF Revenues C- Increase in Franchise Fee to 5% 6.68% 5.75% iV>0 of Gross Revenues 2 Does not include IRRF rate. 3 Does not include IRRF rate. ES-2 Executive Summary Exhibit ES-1 provides a summary of .Additionally,three ether scenarios total County residential rates (including identified as Options A', Option B', and both service rate and IRRF rate) for the three Option C'are provided in Exhibit ES-1 options discussed in this section. These are based on the assumption that RSS will noted Option A, Option B, and Option C, implement the IRRF surcharge on July I of and reflect the allowed January 1, 2003 this year. Because the IRRF surcharge was increase in the IRRF surcharge. Rates have effective January 1, 2003, and there been adjusted to the nearest$0.05 essentially has been a 6-month delay in its increment to ease in administration and implementation, the change in the consistent with the Manual requirements. surcharge from 2002 has been doubled to recover the revenue that was not collected between January 1 and June 30. The surcharge is thus noted as a "2X" surcharge for these three options. ES-3 Review of RSS Solid Waste state Application Exhibit ES-1 Contra Costa County Rate Adjustment options for RSS-Served Areas l NIM, 1 = �,ate .q 1 $20.63 $20.65 $0.57 20-Gallon $16 21 $16 7G $3.87 6 fl.5 1,35-Gallon 16.79 17.36 6.20 23.56 23.55 1.53 1,65-Gallon 32.63 33,74 12.39 46,13 46.15 1.63 1,95-Gallon 48.48 50.13 18.59 68.72 68.70 Atter 1.20-Gallon $16.21 $16.88 $3.87 $2075 $20.75 $0.67 1,35-Gallon 16.79 17.49 6.20 23.69 23.70 0.71 1,65-Gallon 32.63 33.98 12.39 46.37 46.35 1.33 1,95-Gallon 48.48 50.49 18.59 0,08 69,10 2.03 1,20-Gallon $16.21 $17.14 x$3.87 $21.01 $21.00 $0.92 1,35-Gallon 16.79 17.76 6.20 23.96 23.95 0.96 L 65-Gallon 32.63 3451 12.39 46.90 46.90 1.88 1,95-Gallon 48.48 51.27 18,59 69.86 69.84 2.77 New IRKl4 NOW,10141, She + u�lncfarge, �1t lar lY . ate Rai x.05 Sc t 1,20-Gallon $1.6.21 $16.76 $4.05 $20.81 $20.811 $0.54 1,35-Galton 16.79 17.36 6.50 23.86 23.85 0.56 1,65-Gallon 32.63 33.74 12.98 46.72 46.70 1.09 1,95-Gallon 48.48 50.13 1.9.48 69,61 69.60 1.64 IN 11 q+ r: tt l1+ato 1 - Ec a Ritidti � t . 1,20-Gallon $16.21 $16.88 $4.05 $20.93 $20.95 $0.69 1,35-Gallon 16.79 17.49 6.50 23.99 24.00 0.71 1,65-Gallon 32.63 33.98 12.98 46.96 46.95 1.34 1,95-Gallon 48.48 50.49 19.48 69.97 69.95 1'99 axrct I"+lew Iti 0t Nest Site envie "Sill CO �r it U atete 1,20-Callon $16.2I $17.14 $4.05 $21.19 $21.20 $0.94 50 24.26 24.25 0.96 17.76 6. 1,35-Gallon 16.79 , 47.49 47.50 1.89 1,65-Gallon 32.63 34.51 12.48 2.79 1.,95-Gallon 48.48 51.27 19.48 7{1,75 70.75 ES-4 I4 Introduction and Background I. Introduction and Background introduction and Background Contra Costa County(County) 12, 1993, and ending October 11, 2013, contracted with NewPoint Group, Inc., to with an option for RSS to extend the help conduct this 2003 rate review of one of franchise an additional ten years if the its municipal solid waste collection haulers, Board finds RSS's performance satisfactory. Richmond Sanitary Service (RSS). RSS is The County has jurisdiction to regulate awned by Republic Services Inc., a publicly- collection, removal, and disposal of all solid traded waste hauling company. This report waste, and the recycling of all material. represents results of the first base year rate review of RSS. The County engaged NewPoint Group, Inc. (Consultant)to conduct this rate review The review was performed consistent and to develop the County's Manual. with guidelines provided in the County's new 2003 Rate Setting Process and RSS provides service to the following six Methodology Manual for Residential Solid (6) communities located within Waste Charges as applied to Richmond unincorporated Contra Costa County: Sanitary Service, a division of Republic 1. East Richmond Heights Services, Inc. (Manual). The Manual 2. El Sobrante principally establishes a process for 3. Montalvin Manor submitting rate applications for rate changes 4. North Richmond and for reviewing rate change applications. 5. Rollingwood The remainder of this introductory section is 6. Tara Hills. organized as follows: RSS also serves a number of neighboring A. Background of Review communities and cities in West Contra B. Goats and ONectives of Review Costa County. These include: C. Scope of Review. ■ Crockett/Porta Costa A. Background of Review ■ Rodeo RSS has an exclusive franchise with the a City of Hercules County to collect, and remove for disposal ■ City of Pinole and recycling, all residential and ■ City of Richmond commercial, and light industrial solid waste, including recyclable materials. RSS has a ■ City of San Pablo. twenty-year franchise with the County, Mbit I-1, on the following page, is a map beginning with an effective date of October that identifies the six County service areas. �-1 I. Introduction and Background `fable I-1 summarizes the service rates for All waste collected from unincorporated the six County areas as of 2002. County areas is currently disposed of at the West Contra Costa Sanitary Landfill Table I-1 (WCCSL). The Regional Water(duality 2002 Unincorporated County Control Board has ordered that the WCCSL Monthly Residential Service Rates close by January 31, 2005. After that point, waste will be transferred by long-haul 20-Galion $19.90 trailers to Potrero Hills Landfill in Solana 35-Gallon $22.69 County, a facility owned by Republic 65-Gallon $44.43 Services, Inc. for five years (as determined 95-Gallon $66.18 by the West Contra Costa Integrated Waste Management Authority jWCCIWMA]). Curbside recycling services are provided to all six areas. Materials collected through B.Goals and Objectives of Review the curbside program include: The Manual specifies that the primary ■ Aluminum goal of the rate setting process and ■ Glass methodology is to determine fair and equitable residential refuse collection charges ■ #1 and#2 Plastic that provide a reasonable profit level to RSS. ■ Cardboard Fairness is demonstrated through a rigorous ■ Mixed raper(chipboard, review of RSS's actual revenues and expenses. white/colored paper, magazines, etc.) Residential rate charges also must be ■ Newspaper justifiable and reasonable. • Tin. There is an obligation by the County to provide the hauler with an operating ratio Customers place all recyclable materials through this review process. 'I'he County commingled into one 54-gallon cart. These reviews revenues, costs, and profits as a materials are taken to the Integrated basis for recommended changes to refuse Resource Recovery Facility(IRRF), a collection charges. Charges should be recyclables processing facility(also known sufficient to cover costs of operations and as a materials recoveryfacility with a sort allow a reasonable profit to the hauler. line), where they are separated. This IRRF is However, the actual operating ratio level owned by Republic Services, Inc. received by the hauler is not guaranteed. In mid-20100, at the request of the County, RSS initiated a greenwaste program. Currently, greenwaste is collected biweekly in a 64-gallon container. 1-3 a s �z„*z� v ;�� f R 11. Rate Setting Process H. Rate Suing Process In October of 1993, the County signed a I he Manual establishes rate change franchise agreement with RSS for service to policies, provides application forms, unincorporated County areas. At that time, specifies reporting formats, and identifies the County had 90 days to establish its own required supporting documentation. rate setting methodology, or accept a Procedures for requesting, reviewing, and reasonably adapted version of a methodology adopting rate changes also are specified. developed in 1990 by Barakat& Chamberlain for the City of Richmond. On October 24, The process is set up to: (1) encourage long-ter 1997,NewPoint Group provided the County long-termrate stability and mitigation of with recommendations for reasonable rate impacts to ratepayers, and (2) provide adaptations to the Barakat& Chamberlain an incentive to the hauler to improve methodology. The County Board adopted operations performance so as to increase these adaptations on December 16, 1997. profitability. Thus, annual CPI-based rate increases while allowed, are not encouraged In an effort to replace and update the using this process. Also, there is no formal, current rate setting process and or conceptual, balancing account whereby methodology, the County completed the projected revenues and costs are "balanced" 2003 Rate Setting Process and Methodology with actual revenues and costs. Finally, Manual (Manual) concurrently with this from 2003 onward there will be no 2003 base year rate application. The retroactive rate adjustments except under Manual was completed with assistance from condition of a party's default in the rate NewPoint Group, and with input from RSS. setting process. Included in the.Manual is a formal Two rate change processes exist: the structure for establishing refuse collection base year process and interim year process. charges. The County has elected to focus the Each of these processes is described below. Manual on residential garbage and curbside `I:his section also summarizes how the first collection of recyclable materials, and not base year rate application was assembled. focus its rate regulation on commercial The remainder of this section is organized charges. Residential charges represent as follows: recovery of allowable costs and a reasonable A. Buse Year Process profit to the hauler for providing refuse and B. 2003 Base Year Rate Application curbside recycling collection services. C. Interim Year Process. II-1. Review of Solid Waste Rate Application A. Base Year Process In this base year rate review for 2003, Base year rates are established every four due to mid-year ownership and accounting years, beginning with this first base year, 2003. changes, the County did not require that The base year process requires the hauler to RSS prepare a financial audit for the County submit a detailed rate change application with areas specifically. In the Application, RSS the most current financial audit and other provided a reconciliation of its consolidated supporting financial and operating data. audited financial statements to financial information provided in the Cost Summary This rate application is carefully reviewed portion of the Application (page 2 of 7). In and analyzed in accordance with formal future base years, the County will require step-by-step procedures specified in the RSS to submit audited County financial Manual. In the base year, residential, statements for the most recently completed commercial, light industrial, and curbside operating year. recycling costs are combined. However, residential and commercial and light The 2003 Application was carefully industrial revenues are reported separately. reviewed and analyzed by the Consultant. The review was conducted in accordance with formal procedures specified in the Manual.B. 2003 Base Year Rate Application 'Die County received RSS's preliminary C. interim Year Process draft Base Year Rate Change Application in October of 2002. This draft application In each of the interim three years served as a starting point for discussions on between base years, rate changes follow a the agreed-upon rate setting methodology streamlined process. Interim year rate changes are based on the annual percentage and allowable cost treatment. Based on discussion with NewPoint Group and the change in a composite index of the County regarding agreed upon rate setting following three items: practices as well as new information made a Change in the most recent actual, not available to RSS regarding its 2003 labor forecasted, Sail Francisco-Oakland- contracts, 2003 year to date tonnage, and San.Jose Metropolitan Consumer new CPI data, RSS submitted a final, revised Price Index, applied to specific costs of Application to the County in May 2003 the franchise hauler(such as wages, (Application). A copy of this final salaries, payroll taxes, rent, and Application is provided in Appendix A and general and administrative costs) is the subject of the County's review. Year- ■ Change in IRRF fees, and regulatory to-date information (i.e., first quarter)was costs, estimated to occur in the next used as a basis for the estimated 2002 interim year financial results. Year 2003 results are projected in the Application. v An adjustment for the franchise fee, which is based on a percentage of total revenues generated. AI-2 I1. Rate Setting Process An unincorporated County rate setting In January of 2000, 35-gallon can rates timeline since 1997 is shown in Exhibit II-1, were increased by$1.00 per customer, per below. In December of 1998, 35-gallon can month, to account for the addition of a new rates were increased by$0.94 per customer, greenwaste program and mixed paper per month,to account for the cessation of a recycling program. payment to RSS that was being made outside the ratebase from a County reserve fund. Other year-to-year changes to County rates in 2000 and 2001.were for changes in the Consumer Price Index(CPI). For example, on January 1, 2001 RSS rates were increased by 4.7 percent to account for the CPI. RxMbit H-1 Unincorporated Contra Costa County Rate Setting Timeline 9 30 § s---'�Total Rate � ♦----�---0 C;oEl xtiwn Semic.es Forte. 25 $2 .69 $2 .61 $21.41 $21.57 $22.99 20 $20.93 �3 h $1ti.79 WD € � $13.94 x 10 j R W C1 CYi w w° M; r ate? 4 eM W rN Frill<>f County New mixed paper alld rtlt;erVe bind pay'a ru irecrrevaste pmgrarn lrlcrease ($t1.9<d;'rru7. #rscrtats<)l ($Loo/nlr).hrcrease)h a With approved increase to IRRF of$0.30 per customer,per month,on January 1,2003. b Applicable for collection services rate(i.e.,not for IRRF) 11-?i Review of Solid Waste Rate Application During the period from 1997 to 2003, the As shown in Exhibit B-1, during the six- collection service rate for the 35-gallon year period from December 1996 to December container increased from $13.94 per 2002, the percent change in the CPI was nearly customer, per month, to $16.79 per customer, 24 percent. 'Thus, Exhibit B-2 reveals that on a per month, a $2.85 per customer, per month CPI-adjusted basis the December 1996 increase. Of this amount, $1.94 per collection service rate increased from $13.94 customer, per month, was attributable to the per customer, per month to $17.26 per end of the County reserve fund payment customer, per month. Additionally, the actual ($0.94 per customer, per month) and the new program adjusted 35-gallon rate of$1.4.85 per greenwaste and mixed paper recycling customer, per month, is 14 percent below the programs ($1.00 per customer, per month). CPI-adjusted rate of$17.26 per customer, per month. In conclusion, during this six-year The remaining$0.91 per customer per period since the inception of the County's rate month rate increase {i.e., $2,85 minus setting process {with 1996 NewPoint Croup $1..94} was attributable to CPI increases. adjustments}, the processes keeping collection "Thus on a program adjusted basis, the service rates down to a reasonable level. Again collection service rate increased from $13.94 all of these figures are for the collection service per customer per month to $14.85 per rate and do not include the portion of the rate customer per month during the six-year associated with the 1RRI�which.is separately period (see Exhibit B-2}. regulated by the WCCIWMA. 11-4 ........................................................................................................................................................................................................................................................................................................................ IReview of Rate Change III, Review of Rate Change Application for 2003 III. Review of Rate Change Application for 2003 This chapter details findings from NewPoint In our review of RSS financial results,we Group's review of RSS's 2003 Base Year Rate compared year-to-year changes in revenues Change Application(Application). We and costs for reasonableness and solicited identify the impact of each finding in terms of explanations from RSS for material changes. a dollar value increase or a decrease in the We examined actual results from.2001, "revenue requirement" identified in the estimated results for 2002, and projected Application. The revenue requirement is the results for 2003. The remainder of this amount of revenue that RSS needs to collect, chapter is organized as follows: through rates charged to customers, in order to A. Review of Revenues, Costs, and Profits cover the casts of providing the service plus a B. Components of Single Can Rate. reasonable financial return. Thus, increasing the revenue requirement results in an increase A. Review of Revenues, in rates, and decreasing the revenue Costs, and Profits requirement results in a decrease in rates. This section.describes NewPoint Group A copy of the Application is provided in adjustments to the base year rate change Appendix A. NewPoint Group reviewed the application. Adjustments are expressed based Application for consistency with the Manual, on their net impact (i.e., including both cast County policies,and with waste management impact and profit impact)to RSS`s "revenue industry practices. In the Application, RSS requirement." The revenue requirement is requested an increase in rates of 5.05 percent. equal to the sura of the following: This review focused on the costs of RSS ■ Total allowable costs not related to the IRRF. The West Contra ■ Allowable operating profits Costa Integrated Waste Management a Total pass through costs. Authority(Authority) separately regulates the IRRF portion of the rate. For 2003, the A breakdown of the revenue requirement Authority approved an increase of$0.30 to is provided in lines 27 through 30 of the `i6.20 per customer,per month, effective on rate change application in Appendix A. January I., 2003. RSS elected, and the County has agreed, to wait for the outcome A summary of the impact of NewPoint of this rate review prior to implementing the Croup's findings is provided in Exhibit III-1, IRRF related rate changer in an effort to on the following page. Findings are shown as adjustments to the revenue requirement in minimize the number of year 2003 rate 2003. As shown in Exhibit III-1 the 2003 changes to just one. As a result, RSS will revenue requirement for Option A is $63,762 need to bill County customers to account for the approximately six-month delay in lower as a result of NewPoint Group adjustments to RSS revenues, costs, and profits. implementation of the IRRF charge. 111-1 Review of RSS Solid Waste hate Application Exhibit 3-1 Schedule of NewPoint Group Findings (option A) MINE Revenue 1 $(1.1,312) $0 $(11.,312) Residential Revenue (1,263) 0 {I,263} 2 Commercial Revenue Su Allowable Costs 0 0 0 3 Direct Labor 0 0 0 4 IRRF fees(Profit Allowed) 5 Corporate and Local General and Administrative Costs {1,7375 {1938 (1`9283 6 Depreciation and Other Operating Costs 8 Trucking and Equipment (790} {87} (877) 7 Services Provided to County 39 4 43 $(1� 7) Pass Through Costs without Franchise Fees 19,0891 4 IRRF Pees $(19,089} 0 $( subtotal ( 089 $ > x a Franchise Fees 9 Residential/Commercial jl,ight Industrial Franchise I-Ws $(29,689) 0 $(29,689) cz%09 _._. _ e � k t The remainder of this section details each received from RSS after the submittal. We of our nine (9) findings. This section is used current number of accounts data for organized into the major categories of each rate category, adjusted for inflation, and current rates without the $0.30 per revenue and costs. customer, per month, rate change approved by the WCCIWM. The resulting projection Revenues for 2003 Residential Revenue was increased Finding#1 by $11,31.2 to $2,979,724. Residential Revenue In the Application, RSS projected an �l+et Itlnp� Cti increase in Residential Revenue of 2.1 (Rediidiorx irz 2t 3"' et tt r i t percent between 2002 and 20033 to of$11.,312) $2,968,412. We adjusted the 2003 projection based on additional information 111-2 III. Review of Rate Change Application for 2003 Finding #2 Finding#3 Commercial/bight Industrial Revenue Direct Labor In the Application, RSS projected an Labor costs are estimated to decrease in increase in Commercial/Light Industrial the Application by 2.6 percent between Revenue by 2.1 percent between 2002 and 2001 and 2002 and increase by 6.3 percent 2003 to $921,848. We adjusted this increase between 2002 and 2003. Overall labor to reflect 2.2 percent, consistent with the costs as a percentage of the total costs projected change in the CPI for 2003. The appear higher than in other similar resulting Commercial/Light Industrial revenue franchises at approximately 33 percent of was increased by$1,263 to$923,111. the total costs. a 3 In our review in 1996, we noted that RSS had included expenses for employee profit sharing and partner's profit sharing equaling $224,734. We believe that with the transfer Expenses to Republic ownership these expenses are not longer part of the actual benefits. Escalation Factor Offsetting this factor are the recent projected Because 2003 is a projection year,we increases.in workman's compensation costs. assume that certain RSS costs will increase at levels consistent with the most recent change On October 21, 2002, the California in the Consumer Price Index for the San Insurance Commissioner approved a 10.5 Francisco-Oakland-San Jose area (All items, all percent increase in pure premium rates urban consumers). We are using the change in (applicable to policies with anniversary the CPI for the period of April 2002 to April rating dates in 2003). This was prior to 2003 as the projected change in the CPI for RSS's submittal of its Application. 2003. This change is CPI is equal to 2.2 A recent article from the San Jose percent(197.3 - 193.0)/193.0). Mercury News titled "Soaring insurance Consistent with how we treat interim costs hitting California business owners," year rate adjustments (i.e., those between dated October 19, 2002, specified that base years) in the Manual, we recommend "countless California business owners large that the County use this 2.2 percent and small are reeling from increases that escalation factor to project inflationary routinely top 100 percent in worker's expenses for 2003, compensation costs. Insurers...must increase prices after a multi-year strategy of underpricing to win market share blew up in their faces. The stock market,which they'd been hoping to tap to help offset their insurance losses, tanked, and medical costs soared thanks to inflation and fraud." 111-3 Review of RSS Solid Waste Rate Application Additionally, RSS has included a Our recommendation is to allow an significant increase for the projection year inflationary adjustment of 2.2 percent and 20703 based on large increases in health and reclassify the entire amount of 2€103 IRRF welfare benefits and pension costs. We fees, or$1,202,998 as a pass-through recommend that the County allow current expense (without profit), as profit is already Direct Labor costs in the projection, but included in the IRRF rate, To do otherwise consider a detailed study of line item labor would result in a double counting of profit costs in the next base year. on IRRF fees. For consistency, and because this was the first application,we advised RSS to include this total as a pass-through cost Pa t the reetjxi7t}' in the Application, Finding #4 The IRRF fee (pass through) amount was IRRF Fees (Profit Allowed and Pass Through) determined by projecting a total of four months of tonnage data and using current IRRF fees (with profit) are shown to IRRF tipping fee rates. Rather than rely on a increase between 2001 and 2002 by a total short interval of tannage data,we have of 6,8 percent to $720,759. The increase in adjusted the IRRF fee (pass through) to IRRF fees is a.result of an increase in the allow an inflationary increase of 2.2 percent. approved IRRF rate from $81.26 per ton to This slightly decreases the IRRF fee (pass $88.53 per ton (for residential and through) by$1.9,089. commercial sectors). This corresponds to an increase in the 35-gallon rate from $5.90 to $6.20 per customer per month for 2003, The WCCIWMA approved this$6.20 per Of, i% 0891 customer, per month, rate. Rased on our review of the IRRF rate, we Finding#5 note that it already includes within the rate Corporate and Local General an 11.0 percent return on operating and Administrative Costs expenses to the operator of the IRRF. Also We first adjusted the projection year included in the IRRF rate are two additional 2003 G&A costs to reflect a.2.2 percent. components to compensate the owner of increase from 207012 rather than a 2.1 percent the facility for the initial equity increase assumed by RSS in the Application.' contributions and working capital With this adjustment for 2003, Corporate contributions to the IRRF. and Local G&A costs are approximately 10 percent of the total revenue requirement (i.e., allowable costs plus profit plus franchise fees). We adjusted insurance also to increase 2.2 percent. 111-4 III. Review of Rate Change Application for 2003 To determine whether this Ievel of Finding#G Corporate and Local General and Depreciation and Other Operating Costs Administrative costs is reasonable,we first reviewed G&A costs as a percent of total In the Application, RSS projected an revenue for RSS parent company, Republic increase in Depreciation and Other Operating Costs of 2.1 percent between Systems, Inc., for the five-year period from 197 to 2001. During this period, Republic 20©2 and 2003' We allowed an increase of G&A expenses actually ironically averaged 2.2 percent, consistent with the projected change in the CPI for 2(303. 1.0.0 percent of total revenue, which reinforces that the level of G&A reflected in the adjusted Application is appropriate. � � � €, spa x In a more comprehensive analysis of � � 18 past and current publicly traded waste _ � �.< . : . management companies over a nine year Finding#7 period (representing 82 different data Services Provided to County points), G&A averaged 12.2 percent of In the Application, RSS projected an total revenues. increase in Services Provided to County of We recommend that a cap on future G&A 2.1 percent between 2002 and 2003. We costs be set equal to a maximum of 12.2 allowed an increase of 2.2 percent, percent of total revenue for RSS in the consistent with the projected change in the future. This cap reflects a level that is more CPI for 2003. than equal to the level of G&A of its corporate entity, Republic, and is reflective, 4 of the extensive survey data_ �¢�y�� �� "'A#. � ♦ �:T+F�� ill# P05 f t� I We recommend that in future base years, the County continue to review more current data for similar waste management companies to determine if this G&A cap continues to be reasonable. o � �� " - : Review of RSS Solid Waste Rate Application;} Finding#8 intended to cover the franchise fee. In 1999 Truddng and Equipment the amount was increased to $9,542 per We allowed an increase of 2.2 percent, month to cover the commercial portion of consistent with the projected change in the the franchise. CPI for 2003. This would result in a The origin of the$7,542 monthly franchise reduction in the revenue requirement of fee amount is documented in a letter. from RSS $877 (($604,983-$604,193)/0.9). on November 16, 1995 that indicated that a It is our assumption that trucking and five percent franchise fee corresponded to a equipment costs do not include a separate $0.75 per can, per month, increase in the profit component. Thus,we have advised residential rate. In the same letter, RSS RSS in its Application to classify trucking suggested that there were 10,050 cans per and equipment costs as an allowable month collected. Thus the amount put into expense with profit. The adjusted amount the rate at that time of$7,542 corresponds that has been reclassified is $604,193. closely with 10,050 cans per month multiplied by 0.75 per customer,per month (or$7,538). ► + In NewPoint Group's October 24, 1997 quar report,we recommended that the County review cf7 =1 �f its franchise fee terms to assure that franchise fees were collected on gross residential and Finding#9 commercial revenues. In response to this Franchise Fees recommendation,the County approved a five The franchise agreement between RSS percent franchise fee for commercial waste and the County specifies that the County service on December 9, 1997. This can establish an amount equal to "a recommendation was implemented in the percentage of its [RSS's] gross annual beginning of 1999, at which time the monthly revenues generated from the performance of RSS franchise fee payment was increased from such waste collection services under this $7,542 to $9,542. This is where the current Agreement.,"with the "percentage, time, and remittance level stands. At no point throughout frequency of payment to be established by this period from 1.996 to 2002 were rates and the Countv." In December 1995, the associated amounts remitted to the County County Board of Supervisors set the adjusted to reflect changes in revenues generated franchise fee at five (5)percent for the RSS by RSS. Instead as shown in Exhibit C-1, the fee service area. remained fixed during the period. 'Phis rate review has shown that this current franchise fee A schedule of franchise fee payments level is not equal to five percent of gross annual made by RSS to the County is provided in revenues, but rather is equal to approximately Appendix C. In 1996, RSS began to remit a 2.9 percent of gross annual revenues (prior to fixed amount to the County set equal to any adjustments resulting from this review), $7,.542 per month. This amount was 111-6 III, Review of gate Change Application for 20103 Currently, the total amount paid to the B. Components of Single Can Rate County is equal to $114,504 per year There are a dumber of cast components ($9,542 per month x 12 months). Based on which are included in rates for residential and total revenues for the projection year 2003 commercial service. Using the single can rate of$3,890,260,the $114,504 amount is 2.9 as an example,the pie chart in Exhibit.III-2, percent of total revenues. on the following page, shows the major The County had discussed the possibility components of the projected 2003 rates, and of increasing the franchise fee to reflect a the relative costs of each component. Line five percent amount paid on grass non-IRRF item references are made to the Application. revenues. This assumption was reflected in Categories of costs are described below: the Application. Direct Labor includes compensation of Should the County elect to maintain the waste removal staff, including regular franchise fees at their current levels of time, overtime,payroll taxes, and associated $114,504 per year,there would be a reduction benefits. This category corresponds to in the revenue requirement of$29,689. Direct Labor(Line 1) of the Application. Should the County wish to collect franchise IRRF Fees include all charges for the fees on gross non-IRRF revenues, there would disposal of solid waste at a landfill or be a slight reduction in the franchise fee of transfer station. IRRF fees are currently $141 to reflect the other adjustments to the set at$88.53 per ton. IRRF fees are Application noted in Findings#148. This treated as a pass-through expense. This option is referred to as Option B. category corresponds to IRFF Fees (Line 9) in the Application. In order for RSS to remit the County an Corporate and Local General and amount equal to five percent of gross revenues, Administrative Costs and County franchise fees would have to be increased by Services include accounting, office $62,170 in the projection year 2003. This space rental, utilities, office supplies, increase is left to the County's discretion and is legal services, insurance, postage, etc. for identified as Option C in the next chapter. RSS. These costs are identified as Corporate and Local General and Administrative Costs (Lane 2), and � t Services Provided to County(Line 5). Trucking and Equipment includes Wdepreciation and leases of trucks, fuel 1 � to t * 'U6t expense, licenses, parts, tires, and C associated repair and maintenance 1 � �ttrt expenses. 'I hese rusts are identified as = Zr 'Trucking and Equipment (Line 4) and 13.1.7 Review of RSS Solid Waste Rate Application Depreciation and Other Operating Exhibit III-2 Costs (Line 3) of the Application. Components of the Single Can Rate (option A) Profit is any revenue which exceeds expenses (total allowable costs plus total r'ra,chise Fees 3% 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 currently 2.9 percent of total residential;' curbside recycling, commercial, and light industrial revenues. Use of Corporate and these funds includes development of Count oaaice CnntyScr€rices 1,711/9 programs and compliance with State waste reduction requirements. Franchise fees are shown in Line 21 of the Application. Exhibit III-3, on the following page, shows a comparison between the 35-gallon rate and the CPI-adjusted collection service rate (without IRRF component of rate and without program changes) for the period of 1997 to the present. Based on the rate adjustments approved during this period, average County rates are actually$2.41 per customer, per Month, lower than the $17.26 per customer, per month, CPI-adjusted collection service rate for 2002. The change in the County's residential collection rate has remained below the CPI-adjusted rate since 1997. tit-ti iii. Review of Rate Change Application for 2003 Exhibit III-3 Comparison of Average 35-Callon Rate (w/o program changes) with CPI-Adjusted Average 35-Gallon and County Services Ratea (1996-2002) 113.00 17.0 s-—- 'CM-Adjusted $17.03 16,{00 s' 15.00 E 1 $1 96 $1410 14.00 .53 HA $1194 13.00 qq to B� cmC1 • O to a Roes not include iRRF portion of rate. Does not include$0.94 per customer,per month,roll back in 1998,and $1.00 per customer,per month increase for greenwaste and mixed paper recycling programs 111-9 �4 IV. Recommended Rate Change IV. Recommended Rate Change IV. Recommended Rate Change In the previous chapter, findings from A. Recommended. Residential the review of RSS's 2003 Application are Rate Change detailed. Findings in total for Option A As summarized in the adjusted base year decreased the 20033 revenue requirement by model (Exhibit D-1), the total projected $63,762 resulting in a 3.401 percent revenue requirement for this.first base year recommended rate increase. In this chapter 2003 is $4,035,404. However, total projected we provide our recommendations for a rate 2003 residential, commercial, light industrial change. The revenue requirement from the and recycling revenues are $3,902,835. previous chapter is now translated into the real impact on rates. Based on the projected revenue requirement and revenues, and assuming no changes in We describe three rate increase options rates, RSS will operate with a total shortfall in for the County to consider. The first 2003 of$131,767. From a revenue option, Option A, is the 3.40 percent rate requirement perspective, all residential, and increase. The second option, Option B, is commercial and light industrial rates would a 4.15 percent increase,which includes a need to be increased by 3.40 percent provision for increasing franchise fees 1$132,569/$3,903,637 ($2,979,724 + paid to the County to reflect payment on $9.23,111)]to make RSS whole in calendar the gross non-IRRF revenues, while year 2003 at a 90 percent operating ratio. Options C, a 5.75 percent increase, reflects payment on total gross revenues. B. Why Rates are Increasing? We also compare proposed new Between December 31, 1996 and unincorporated County rates with those December 31, 2002, the annual percentage charged in seven other similar jurisdictions. change in the Consumer Price Index, San This section is organized as fellows: Francisco-Oakland-San lose region (CPI) A. Recommended Residential Rate Change increased an average compound rate of 3.63 B. Why Rates are Increasing? percent per year, as shown in Table B-1 of C. Implementation ofRate Change Appendix R. In total, the percent change D. Comparison of Rates and Sendces to in the CPI from December 31, 1996 to Other jurisdictions. December 31, 2002 was 23.9 percent. Based on the CPI data above, a theoretical argument could be made that.RSS is possibly entitled to a rate increase of up to approximately 19.2 percent. This figure is equal to 23.9 percent increase in the CPI less the 4.7 percent interim rate change in January 2001. IV-t. Review of RSS Solid Waste Rate Application C. Implementation of Rate Change Table M-1 After rate setting adjustments, we Option A recommend that the County increase Unincorporated County Residential Service Rates with 3.40 Percent Rate Increase unincorporated County rates by 3.40 MI percent. Based on the County's desire to MEMMM determine the rate impact of a larger 1, 20-gation $16.21 $16.76 franchise fee, we have provided two 1, 35-gallon 16.79 17.36 additional options for the County to 1, 65-gallon 32.63 33.74 consider. This section describes one option 1,95-gallon 48.48 50.13 (Option A) for the rate increase without a change to the franchise fee and two options (Options I3 and C} for a rate increase with an �' Option $ �' '�'�� Increase with an increase in the franchise fee. The remainder Increase in Franchise Fee to of this section is organized as follows: Include Five Percent Payment on Cross non-IRRF Revenues 1. Option A -- Rate Increase (No Change to Franchise Fee) Appendix D, Exhibit D-2, includes 2. Option B - Rate Increase with an Increase NewPoint Group's adjusted rate model that in Franchise Fee to.Include Five Percent incorporates all of the adjustments identified .Payncent on Gross non-IRRF Revenues in Chapter III and also includes an. 3. Option C-- Rate Increase with an adjustment so that franchise fee payments Increase in Franchise Fee to Five Percent. made to the County equal 5.0 percent of gross non-IRRF revenues. In other words, RSS 2. Option A -- Rate Increase would pay the County 5.0 percent on total (No Change to Franchise Fee) gross revenues less the costs associated with the IRRF. Under this option, service rates are Appendix D, Exhibit D-1, includes shown in Table IV-2 below. NewPoint Group's adjusted rate model that incorporates all of the adjustments Table identified in Chapter III. Note again that Option B B Unincorporated County Residential Service these rates are for Option A where there is Rates With 4.15 Percent Rate Increase' no change to the torrent level of franchise (Includes Franchise Fee Paid on gross Non-IRRF Revenues) fee payments made to the County. With If" am these adjustments, unincorporated County Mnfflffl&j� service rates would increase to the rates 1, 20-gallon $16.21 $16.88 shown in Table IV-1 below. 1, 35-gallon 16.79 1.7.49 1, 65-,gallon 32.63 33.98 1, 95-gallon 48.48 50.49 Does not include IRRF rate. Does not include IRRF rate. IV-2 IV. Recommended Rate Change 3. Option C — Rate Increase with Exhibit IV-1 provides a summary of total an Increase in Franchise Fee to County residential rates (including both Five Pert service rate and IRRF rate)for the three options discussed in this section. These are Appendix I7, Exhibit D-3, includes noted Option.A, Option'B, and Option C, NewPoint Group's adjusted rate model that and reflect the allowed January 1, 2003 incorporates all of the adjustments increase in the IRRF surcharge. Rates have identified in Chapter Ill and also includes been adjusted to the nearest$0.05 an adjustment so that franchise fee increment to ease in administration and payments made to the County equal 5,0 consistent with the Manual requirements. percent of gross total revenues. With these adjustments and the 5.0 percent franchise Additionally, three other scenarios fee, unincorporated County service rates identified as Options A', Option B', and would increase to the rates shown in Table Option C'are provided in Exhibit IV-2 IV-3 below. based on the assumption that RSS will implement the IRRF surcharge on July 1 of Table IV-3 this year. Because the IRRF surcharge was Option C effective January 1, 2003, and there Unincorporated County Residential Rates essentially has been a 6-month delay in its with 5.75 Percent Rate Increase' implementation, the change in the (includes.2.1 Percent Increase to surcharge from 2002 has been doubled to Raise Franchise Fee to 5 Percent) g Rate Rate, Prior New Rate Aftcr recover the revenue that was not collected Category to lncreil$cl Rate Increase between January 1 and June 30. The 1, 20-gallon $16.21 $17.14 surcharge is thus noted as a "2X" surcharge 1,35-gallon 16.79 17.76 for these three options. 1, 65-gallon 32.63 34.51 1, 95-gallon 48.48 51.27 D. Comparison of Rates and Services to Other Jurisdictions summary"Table IV'-4 provides the three options of the County to consider. Unincorporated County rates were Also included is the original requested compared with survey data from eight other amount by RSS in the Application for jurisdictions. Results of the survey are comparisonpurposes. summarized in Appendix E. Exhibit is-1 shows residential and commercial rates for each of the eight areas surveyed. Exhibit E-2 compares rates of the unincorporated County area with rates of other West Contra Costa County jurisdictions serviced by RSS. 3 floes not include IRRF rate. IV-3 Review of RSS Solid Waste Rate Application Exhibit IV-1 Contra Costa County Rate Adjustment Options for RSS-Served Areas 1,20 Gallon $16 21 $16.76 $3.87 $20.63 $20.65 $0.57 1,35-Gallon 16.79 17.36 6.20 23,56 23.55 0.56 1,65-Callon 32.63 33.74 12.39 46.13 46.15 1,13 1,95-Gallon 48.48 50.13 18.59 68.72 68.70 1.63 uei lew ft 7urcbaz ., 1,20-G 111on $16.21 $I6.88 $3.87 $20.75 $20.75 $0.67 1,35-Callon 16.79 17.49 6.20 23.69 23.70 0.71 I.,65-Gallon. 32.63 33.98 12.39 46.37 46.35 1.33 1,95-Callon 48.48 50.49 18.59 69.08 69.1.0 2.03 5", t 1,20-Callon $16.21....... $17.14 $3.87 $21.01 $21.00 $0.92 1,35-Gallon 16.79 17.76 6.20 23.96 23.95 0.96 1,65-Callon 32.63 34.51 12.39 46.90 46.90 1.88 1,95-Callon 48.48 51.27 18.59 69.86 69.84 2.77 1,20-Callon $16.21$16.76 $4.05 $20.81 $20.80 $0.54 1,35-Gallon 16.79 17.36 6.50 23.86 23.85 0,56 1,65-Callon 32.63 33.74 12,98 46.72 46.70 1.09 1,95-Gallon 48.48 50.13 19.48 69.61 69.60 1.64 i,20 Galion $16.21 $16.88 $4.05 $20.93 $20.95 $0.69 1,35-Gallon 16.79 17.49 6.50 23.99 24.00 0.71 1,65-Gallon 32.63 33.98 12.98 46.96 46.95 1.34 1,95-Gallon 48.48 50.49 19.48 69.97 69.95 1.99 NtW TO" 1,20-Callon $16.21 $17.14 $4.05 $21..19 $21.20 $0.94 I,35-Gallon 16,79 17.76 6.50 24.26 24.25 0.96 1,65-Gallon 32.63 34.51 12.98 47.49 47.50 1.89 1,95-Gallon 48.48 51.27 19.48 70.75 70.75 2.79 W-4 IV. Recommended Rate Change In Exhibit E-1, current Unincorporated In examining County residential rates County residential rates are compared with against four other RSS-served areas that are those of seven other jurisdictions in West combined with the County for cost Contra Costa County. Dates for the most purposes, residential rates are between 7 common 35-gallon container are and 14 percent more than these four areas. approximately 1.2 percent above the average Again, many of the same arguments in the of these other areas. Other residential rates discussion of the comparison in Exhibit E-1 are between 26 and 37 percent more than hold true for this comparison. the average, part of this difference can be While commercial rates are considerably explained by the higher cost IRRF facility higher than the seven comparable that is used by the County and not by all of jurisdictions in Exhibit E-1,particularly for the other seven jurisdictions served, the larger bins (i.e., up to 92 percent), in Additionally, the County service areas are contrast to other RSS-served areas (Exhibit spread out in a harder to serve area and thus E-2),these rates are 7 and 8 percent below the costs to service may be higher than some the average. For the comparison to the of the other areas. Finally, these other seven other jurisdictions (in Exhibit E-1), comparable jurisdictions may have a greater rates for the most common 1 and 2-yard bin commercial base that can serve to cross service are between 40 and 56 percent above subsidize residential rates. The County the average. Our conclusion is that due to areas do not include very much commercial the relatively small number of commercial business, representing only about 24 accounts in the unincorporated County, percent of projected 2003 revenues. there are not economies of scale for services of these customers that are present in the other jurisdictions. For areas like Kensington and El Cerrito, commercial rates are much more closely aligned with the County's commercial rates. 'fable IV-4 Summary of Rate Increase Options Unincorporated County RSS-Served Areas option Effective Amount N'todified with'Newl"oh-It A-No Change to Franchise Fee 4.29% 3.40% B- Increase in Franchise Fee to 5%of 5.05% 4.15% Gross Non-IRRF Revenues C-Increase in Franchise Fee to 6.68% 5.75% 5%of Gross Revenues IV-5 Review of RSS Solid Waste state Application E. Other Recommendations Currently, the WCCIWMA is assessing options for addressing waste handling and Recommendationdisposal at the time of the WCCSL's closure. Currently, RSS collects refuse and Among these options are to use the IRRF for disposes of it at the West Contra Costa transfer, however based on, among other Sanitary Landfill (WCCSL). The projected things, size limitations,the IRRF,without dates for closure of the WCCCL range from being expanded as originally permitted, 10%2003 to 9(2006 depending on receiving does not appear ideally suited to serve its approvals for a height increase at the landfill original intended purpose. Other options and other related actions. At that time waste include building a new transfer station at will then need to be hauled to a new landfill the site of the WCCSL or a new transfer for disposal. station at a different location. Still another option is to expand the existing IRRF facility When the IRRF facility was designed and to accommodate both transfer station and permitted in the early to mid 1990s, it was MRF activities. RSS has proposed to build a intended to act as both a transfer station new transfer station at the WCCSL to serve and a MRF. The WCCSL was expected to self-haul, non-West County franchised close shortly after its construction. waste, and.potentially other areas. However, because the WCCSL has remained open., RSS has taken waste directly to the In any case, at the time of closure of the WCCSL and has not needed to use the IRRF WCCCL, County ratepayers likely will be hit for its original purpose as a transfer station. by several new large dollar capital The IRRF has primarily served as a expenditures, including the purchase of recyclables processing facility since it transfer trailer trucks to transfer waste to a opened in the mid-I990s. different landfill (e.g., Potrero Hills in Solano County) and the associated costs of The County entered into an agreement developing transfer station capabilities. This with the WCCIWMA in May of 1993 will increase an already costly IRRF fee for (WCCIWMA/County Contract) that requires disposal and recycling. it to direct its waste to a facility designated by the WCCIWMA. This agreement extends years WCCIWMA has directed that for five as fang as there is an obligation awed to the years after the'ti+V{UCSI.,closes,waste be transported bank for the bonds used to build the IRtransported to the Potrero I Iil.ls Landfall in facility(expected to cease in 2014). Solano County for disposal. Therefore, if the WCCSL closes in 2006, waste would be directed to Potrero Hills Landfill until 2011. After the five years has passed, the WCCIWMA would again request bids from various landfills including in-County landfills as required under the WCCIWMA/County Contract. IV-6 IV. Recommended hate Change We recommend that the County request Recommendation #3 that the WCCIWMA conduct a thorough and detailed review all of the costs of the RSS has expressed a concern regarding IRRF,transfer station., and Landfill disposal the recent suspension of the County's under existing conditions and with the automatic lien process for recovery of proposed operational changes prior to uncollected accounts. We recommend that making a decision regarding where to direct RSS be allowed to submit evidence of any franchised waste. This review should material reductions in revenue resulting examine the: from an increase in uncollected accounts for consideration by the County. This evidence • Cost impacts of new transfer trailers should include supporting schedules • Cost impacts of additional laborers showing both revenues, and uncollected • Cost impacts of transfer station accounts,prior to, and after,the lien process capital expenditures was in place. In evaluating such a request, the County should factor any reductions in • Landfill tipping fee amounts costs (from RSS no longer having to ■ IRRF costs and profitability administer Liens). The County also may • IRRF diversion levels. want to review standards for the percent of uncollected accounts in other County areas Recommendation #2 (who have never had the benefit of the lien process). Should the County determine that If at any time the IRRF rates are no longer a material reduction in revenues has regulated by the WCCIWMA,the County occurred that is directly associated with the should specify that the Rate Setting Process suspension of the lien process, then the and Methodology Manual for Solid Waste County should allow RSS to increase its Charges, currently applied to regulate just RSS rates to recover this lost revenue. We collection services,will apply to all of the costs recommend that the timing of such a of RSS. In other words, this methodology justification be submitted only in should be used to regulate all of the costs of conjunction with interim year rate RSS County services, if at any point the IRRF applications and not during other times of rate is not regulated by the WCCIWMA or the the year. County no longer uses the IRRF. IV-7 * * ± d± \2±2 Appendix A RSS Rate Application Appendix A RSS Rate Application Appendix A includes the 2003 base Year Information provided in this application. Rate Change Application submitted by RSS. is for the following three (3)years: In its Application, RSS proposes to increase • prier Year- 2001 collection rates by 5.05 percent. The rate application includes the following forms: • Current Year-Estimated- 2002 • Financial information ■ Base Year Projected- 2003_ • Cost summary for Year 2001 • Revenue summary • Rate structure • Operating information • Current rates. A-1. Contra Costa County Base Year Fate Change Application Financial Information Actual Estimated Projected Historical Years 1-Current-Y-ear Base Year Years Year Year Year Years Enter Actual Year in this Row 1999 2000 2001 2002 2003 1. Direct Labor $ 1,330,814' 1,296,864 1,377,879 2. Tipping Fees(Profit Al#awed) 675,092 720,759 -__ - 3. Corporate and Local C,eneral and Administrative Costs �_. 4. Depreciation and Other Operating Costs 444 733 387,131 397,379 8#,999 54,988 56122 new Trucking and Equipment 604,983 5. Services Provided to Count y27,862 28,745 29,338 6. Total Allowable Casts(Lines 1+2+3+4+5) $ $ 2,660,520 2,4$8,497 2,465,701 7. Operating Ratio #D1V/01 #DIV101 _108.6% 93.3° 90.00°I° 6. Allowable Operating Profit[(Une 6+0.9)-Line 6)j $ - -- - $ 206,656 - 5179,735 -- $273,967 9. County Administrative Fee - 10. Trucking and Equipment - - - 606,242 - 591,187 11. T§pIn9 Fees jPassThrou h - 416,824 437,686 1,202,998 12. Total Pass Through Costs(without Franchise Fees)(Lines 9+10+11) 1,022,066 1,028,852 1,202,998 13. Total Allowable Costs(Line 6)plus Allowable Operating Profit(Line 8)plus Total Pass Through Costs(without Franchise Fees)(Line 12) $ $3,375,830 3,697,144 $ 3,942,666 14. Residential Revenue $ _ 2_,995,389 15. Less Allowance for Uncollectible Residential Accounts 28,977 16. Total Residential Revenue(without Rate Change in Base Year) is $ $ 2.908,428 $ 2,968,412 17. Commercial and Light Industrial Revertue �$ 921 18, Less Allowance for Uncollectible Commercial and Light Industrial Accounts 19. Total Commercial/Light industrial Revenue(without Rate Change in Base Year) $ $ $ $ 903,220 20, Recycled Material Sales $ 21. Total Revenue(Lines 16+19+20) Hs521,44# $ 3,811.648 3,890,260 22. Net Shortfall(Surplus)without Franchise Fees(Line 13-Line 21) 406 23. Residential/Commercial/Light Industrial Franchise Fees(see calculation below) $ $ $ 145,511 '$ 114,504 144,183 24. Net Shortfall(Surplus)with Franchise Fees(Lines 22+23) #96,599 25. Total Residential/Commercial/Light industrial Revenue Prior to Rate Change(Lines 16+19) $ 3,890,Z60 26. Percent Change in Existing Residential/Commerclai/Light Industrial Rates(Line 24+Line 25) SAS. Franchise fees are set by the County at 5 percent of tha revenue requirement 27. Totat Allowabta Costs(Line 6} $ 2,465,704 Solve for two equations with one unknown,and'identify franchise fees as X => 28- Allowable Operating Profits(Line 8) 273,967 Equation 1) Revenue Requirement x 0.05-X 29. Total Pass Through Casts with Franchise Fees Lines 12+23 t,347,191 Equation 2) Revenue Requirement=Line 13+X, 30, 2003 Revenue Requirement(Lines 27+28+29) $ 4,086,862 Substitute equation 2)into equation 1)and solve for X => $ 144,193 Year: 2002 Page 1 of 6 Contra Costa County Base Year Rate Change Application Cost Summery for Year 20 T�1 Audited 1EC_1P.:01.t RSS Allocation Description of Cost Coun Financial Base s Labor-Regular 1,011,345 6, 2, 7,9N,088 Route Alloc Labor-Overtime _ $ _ Route Allot Benefits - 240,fi09 - 1539,738 $ 1,?84,347 Route Alloc - Payroll Taxes 78,860 _ 504,654 $ - 583,514 Route A#oc 31. Total Direct Labor ou e X10c 32. Total Tipping Fees(Profit Allowed) 6 5,55-20 1 9,137,46; un c Accounting $ 46,044 $ 348,063 $ 394,107 ' County Alloc Collection fees --85 _ 840 __725 County Alloc Computer Services --24,405 --181,464 -- 245,469 County Al#oc Dues and Subscriptions 1,400 10,579 11,979: County Alloc Insurance 97,608 _ 737,853 835,481 County Alloc Laundry and uniforms 8,785 - 66,408 -- 75,193 County Alloc Legal 11,094 57,119 68,213: County Alloc Management Fees/Corporate Overhead 70,900 562,705 633,605 County A#loc Miscellaneous and Other 29,935 226,289 256,224 County ANoc Office Expense 26,346 _ 199181 225,507 . County A{Eoc - _ u Office repair and maintenance - County Alloc Outside Services 5,268 39,826 45,094 County Atloc _ Postage 19,275 145,702 164,977 _County Alloc Professional Services __25,720 __194,425 220,145 County Alloc Public Relations and Promotion _31,129 235,318 266,447 County Alloc Regulatory Fees 4,120 -- 31,148 35,268 CountyA#lac Taxes and Licenses 2,052 15,514 17,566 CountyAlloc Telephone Tele -- _ P 16,866 127,492 -� 144,358 County Alloc- Travel 17,142 129,278 --146,380 _County Alloc Utilities 6,998 52,896 59,8941 Coun Alloc 33. Total Corporate and Local General and Administrative Costs Depreciation-Buildings $ _ ^1,111_ $_ _8,3_9_5 $ 9,506 CauntyAl#oc- Depreciation-Office Furniture and Equipment 6,497 ry 46.092 - 52,189 County Alloc Depredation-Vehicles 22 169 19i County AEloc [Depreciation-Containers 422 3,186 3,64 8 County Ailoc --_,_ .____: Depreciation-Equipment 899 6,795 _ ?,694Count- y-Alloc Other Operating Costs 73,449 -. 5_55,221 -_- 628.670. Coun Ailoc 34. Total Depreciation and Other Operating Costs sun 35. Total Services Provided to County 36. Total Allowable Costs(Lines 31+32+33+34+35) 2,5 ,518,648, 37. Total County Administration Fee Equipment Rental $ --429,536 $ 2,748,754 $ 3,178,290-Route Alloc - -_- - Gas and Oil 39,959_, 255,714 295,673 Route ANao -� Insurance 11,626 8?,881 -99,547 _ _ Route A##oc _ Parts 43,820 280.418 324,238 Route Alioc Repair and Maintenance _ 38,--_ 246,475 2841529 Route A#too Tires 24,482 -- 131,073 - 151,555. Route Alloc Other 21,365 136,722 - 158,0871 -RouteAlloc 38. Total Trucking and Equipment 0 ,2 1 ,8 4,491,879 39. Total Tipping Fees(Pass Through) oun !y Alloc 40. Total Residential/Commercial/Light Industrial Franchise Fees ,51 5 7 ,i trect 41. Total Pass Through Costs(Litres 37+38+39+40) 6 ,5 3 ,4 0;9 7 42. Total Costs(Lines 3+6+41) 72 ,025,491,84 Year: 2002 Page 2 of 6 Contra Costa County Base Year Rate Change Application Cost Summary for Year 211(11-2nti3 Unincorporated Est#mated Projected County Current Year Bass Year ANocafior, Description of Cost 2001 2002 2003 Bas s Labor-Regular $ 1,01,111,3454 0 9 ,91 outs fon Labor-Overtime Rou#e Alloo Bow _ 240,809 278,108 353,637 Route A##oc - -- Payroll Taxes 78,860 73,326 73,326 Route Alioc 31. Total Direct tabor 1, , 14 1, 1, 8 oun oc 32. TotalTippling Fees(profit Allowed) 11 :�:11!76,092ff213,7 9 W I nu- !X Alloc Accounting $ 46,044 $ 50.000 $ _ 51,031 -CountyAlbc _ Collection fees 85 County Alloc Computer Services 24,005 11,017 11.244 County Alloc Buss and Subscriptions 1,400 90 92 County Alloa Insurance 97,608 64,035 67,620 County Alcoa Laundry and uniforms 8,785 _ 8,225 -_ - 8,395 County Alloc Legal 11,094 11,970 12,217 County Alloc- Management Fees/Corporate Overhead 70,900 101,781 -103,881_ County Alloo Miscellaneous and Other 29,935 19,048 19,439 County Afloc Offrcs Expense 26,346 25,328 25,861 County A#loa Office repair and maintenance 1,741 1,777 County Allon Outside Services 5,268 7,300 7,451 CountyAlloc Postage 19,275 11,215 11,445 CountyAfloa -_ Professional Services 25,720 12,240 12,493 Coun#y ABoc pub#la Relations and Promotion 31,129 15,023 15,333 County A1ioc Regulatory Fees 4,120_ 5,171 6,Z77 County Altoo - TaxesandLicenses - 2,052 1,4141,443 --CountyAl#oc Telephone - -16,866 - - 20,826 _ 21,255 -County A#toc - Travel 17,102 7,739 7,899 CnuntyARoe Utilities 6,998 12,969 13,236 County Alloc 33. Total Corporate and Local General and Administrative Costs 444,732 387,130 397,3 9 Depreciation-Buildings $ 1,111 $_ $ County Ai#oo Depreciation-Office Furniture and Equipment 6,097 6,097 6,223 County Alloc Depreciation-Vehicles 22 Cnunty AlEoa _._ - - - -_- _._.- Depreciation-Containers 422 County Altoc Depreciation-Equipment 899 329 338 County A#1 73oa Other Operating Costs l ,449 .--_ 49,583 Count Alton 34. Total Depreciation and Other Operating Costs 8 ,0 54, 8 1 35, Total Services Provided to County NNE 29, 8 sect 38. Total Allowable Costs(Lin"31+32+33+34+35) 560,6204 86 1, 0, 18 37. Total County Administration Fee Equipment Rental $ 429,536 $ 419,048 $ 427,691 Route Alloc Gas and Oil 39,959 24,148 24,646 Route Alioc Insurance 11,826 45,358 47,898 Routs A#loa P 43,820 51,822 52 891 Route ARM Repair and Maintenance 38,453 14,687 14,989 Route Alloc Tires 20,482 29,932 30,549 Route Alloc Other 21,385 6,211 6,339 Route Alloc 38. Total Truc#sing and Equipment 16 ,24 59..186 804. 83 39. Total lipping Fees(Pass Through) 4 ,8 454,!391111, 98 40. Total Residentiai/Commarcial/Light Industrial Franchise Fees 1 11 , 114, Drrent 41. Total Pass Through Costs(Lines 3"7+38+39+40) 1,16 ,578 1,170,681 1,922,48511 42. Total Costs(Lines 36+41) 3, 2 , $ 3,6.59,1673. 0 Year 2002 Page 2.1 of 6 Contra Costa County Ease Year Rete Change Application Revenue Summary Actual —i_ Estimated �l_ ad Historical Years Current Year Year 1 Year 2 Year 3 Year 4 1? Enter Actual Year in this Row 1999 200D 2001 20D21D3 Single Family fteslden#IaI ServFee 43, Single Family Residential Revenue(Base Year From Page 4 of 8) $ $ $ $ 2,704,854. Multiunit Residential Service 44. Number of Accounts 45. Multiunit Residential Revenues $ $ $ $ 230,007 234.760: 46. Residential Revenue(w/o Allowance for Uncollectible Accounts)(Lines 43+45) $ $ $ $ 2,934,881 $ 2,995,31 47. Allowance for Uncollectible Residential Accounts $ $ $ $ 28,432 $ L077 48, Total Residential Revenue(Line 46-Una 47) $ $ $ $ 2,908,428 $ 2 988,412 Commercial and Light industrial Can Service 44. Number of Accounts 50. Commercial and Light Industria£Can Revenues $ $ $ $ $ Commercial and Light Industrial Bin Service 51. Number of Accounts 52. Commercial and Light Industrial Bin Revenues $ $ $ $ $ Commercial and Light industrial Drop Box Service 53, Number of Accounts µ.. 54, Commercial and Light Industrial prop Box Revenues $ 55. Commercial and Light Industrial Revenue(w/o Allowance for Uncollectible Accounts)(Lines 50+52+54) $ $ $ $ 918.373.$ 537 314' 56. Allowance for UncotlectiNe,Commercial and Light Industrial Accounts $ $ $ $ 15,154 $ 1$,466 57. Total Commercial and Light Industrial Revenue(Line 55-Line 58) $ $ $ $ 903,220 $8. Recycled Material Sales $ $ $ $ i$ 59. Total Revenue(Lines48+57+58) $ $ =521,441 $ 3,811,848 $ 3.$90,260! Year. 2002 Page 3 of 8 Contra Costa County Base Year Rate Change Application Single Family Residential Summary - 1�w f?ra'ectf�Ad_ Bash Year 2003. Single Family Residential revenue(without Rate Change In Base Year) Current _-_Projected- Rate/Month Accounts Teiiat _ 35 gallon container $ 22.32 —77 65 gallon container 4_3.6_9 — 35 gallon container 65.07 - - — - 20 gallon Mini-can 19.67 - 60. Total Bass Year Single Family Residential $ a/ Page 4 of 6 ear- 2UO2 Contra Zas#a County Base Year late Change Application Operating Information Historical Currant Year Base Year Historical Percent HistoricalAudited PaioantEstimated , Petr a Pfd lrmetion Information tntormation Information ` Information Year 1 Yr:.1;b'- Year 2 Yi:2�"� ; Year 3 Yr.116-4 4 Yew 4 Yr.'4in 5 : Year 5 Enter Actual Year }995 �DOO 2441 2402 2003 it Accounts 61. Residential 4 #DIV10I 0 #C3Nltl{ 0 #CtlVIO# 0 #blVl4f` - 62. Commercial _ 4 #DIVf4!' �- #I)#V14f: #DIV/01'. 63. Light Industrial 0 NIA NIA NIA - NA 64, Total Accounts #DlVfO#' #DlVIOi #DIVI4!', #t311r101 Waste Tonnage 65. Residential -. . #DIVifl! - #DIVIOi #CtlV10# #DIV/O#;. _T --.— _—. 66. Commercial 0 # IVIS? _ 0 #btVf4l:_ _0 #�l#uCt�� V 0 #blult3 67. Light Industria! 4 WA 0 NfA 0 N!A 0 WA - 68. Total Tons #£)EVfO#s MWOI. #C3I IOi tVltJfi Recyclable Tonnage 7t3. Commercial —— - �#DIVIO# —— p ��—.�_. _—�_.�_,... 69. Residential _ #DiVI4! t;?D 1f1O1 #C3IVIOI 0 #DI�/0I' L 71. Light Industrial - NIA 0 . NIA 0 1 NIA 4 NIA 0 72. Total Tons #lJNffJ! #IOIVItII a DIV101 #Dl1JfOl County Services 73 County Bins - #DIVI011 #bIVJfl!' #DlVIl3t" IMIVfof 74. County Drop Boxes #DIVI4# #IDIVIO#, 75. 3 Yd.Bin-1X per week $ #DIVA)?' $ #DFVi0l. $ - ILD!V1011 $ 76. 2 Yd.Bin-#X par week $ - ##DlV/4I! 77 20 Yd.Box- rick up NIA NIA NIA NIA ! N N A NIA, N/A NIA NIA Year: 2002 Page 5 of 6 Contra Costa County Base Year Fate Change Application Unincorporated Area: All Areas 7s. Rate Change Requested S.QSY Abbreviated Increased New Rate Schedule Current Rate Rate Adjustments t' Rate 35gailonooniainer $ 2230 $ —__23_49 $ $ 23.43 65 gallon container 43.89 45.50 45.90 95 gallon tDntainer 65.D7 68.35 68.36 2DgaionMinicar 19.67 20.88 20.86 (a)Calculated rates are rounded up to the nearest$0.05. �r r 79. Multiunit Residential Rate increases of 11 SASY :will be applied to all rates in each structure with each rate rounded up or down to the nearest$0.05. To the best of my knowiedge,the data and Information in this application is complete,accurate,and consistent with the instructions provided by Contra Costa County. Name: John Smith Title: President Signature: John smith Date: June 30,2002 Year: 2002 Page 6 of 6 Appendix B Consumer Price Index Appendix Consumer price Index Appendix B identifies the historical. As indicated in Exhibit B-2,the six-year Consumer Price Index(CPI) from the end of period was a time of moderate inflation, 1996 to the end of 2002. The CPI used for averaging a compounded rate of change comparative purposes in this report is the equal to 3.63 percent between December 31, San-Francisco-Oakiand-San Jose CPI -All 1996 and December 31, 2002. The total Items published by the U.S. Department of change in the CPI from December 31, 1996 Labor, Bureau of Labor Statistics. to December 31, 2002 was 23.85 percent. As an estimate for 2003,we use the prior year 2002 percent change, or 1.4 percent. In accordance with the Manual,the CPI is used as a basis to evaluate projections in costs reported by RSS. B-1 Review of RSS Solid Waste Date Application Exhibit B-1 Consumer Price index-All Urban Consumers/All Items Published by the U.S. Department of Labor, Bureau of Labor Statistics (1997 to 2003) p + tN P, yr f 7- Consumer Price Index San Francisco- 156.0 162.6 167.4 174.5 184.1 1906 1912 1973 4.2% 3.0% 4.2% 5.5% 3.5% 1.4% 2.20/0 Oakland San Jose(CPI-U) Average Annual Percent Change in CPl-End 1996 through End 2002 3.64% Compounded Annual Percent Change from Dec. 1996 to Dec.2002 3.63% Tota€Percent Change Dec. 1996 to Dec,2002 23.85% Exhibit B-2 Richmond Sanitary Service Change in 3 -Gallon Residential Collection Service Pate Compared with CPI-Adjusted hate (1997 to 2003) lere0 35-Gallon Collection Service Rate c $13.94 $14.88 $14.88 $15.88 $16.04 $16.79 $16.79 35-Gallon Collection Service Rate 13.94 1.3.94 13.94 13.94 14.10 14.85 14.85 w/o Program Changes San Francisco-Oakland-San lose(CPI-t1) 156.00 162.60 167.40 174.50 184.10 190.60 193.20 CI'I-Adjusted December 1996 13.94 1.4.53 14.96 15.59 16.45 17.03 17.26 35-Callon Collection Service hate Percent Difference Between 35-Callon Collection Service Rate w/o Program -14% Changes and CPI-Adjusted 35-Callon Collection Service Rate Notes: Figures shown for 2003 do not include any adjustments for the collection service rate. a the rate change was for the roll-back of a$0.94 per customer,per month,County-handed portion of the rate, b The rate change of$1.00 per customer,per month,was for a new household greenwaste program and mixed paper recycling;program. c Does not include the.IRRF portion of the rate which is regulated by the West Contra Costa Integrated Waste ,Management Authority. �-2! Appendix C Franchise Fee Analysis Appendix C Franchise Fee Analysis Exhibit C-1 Richmond Sanitary Service Franchise Pees Paid.to Centra Costa County (1996 to 2003) lut Jan $7,542 $7,542 $7,542 $9,542 $9,542 $9,542 $9,542 Feb 7,542 7,542 7,542 9,542 9,542 9,542 9,542 March 7,542 7,542 7,542 9,542 9,542 9,542 9,542 April 7,542 7,542 7,542 9,542 9,542 9,542 9,542 May 7,542 7,542 7,542 9,542 9,542 9,542 9,542 June 7,542 7,542 7,542 9,542 9,542 9,542 9,542 July 7,542 7,542 7,542 9,542 9,542 9,542 9,542 August 7,542 7,542 7,542 9,542 9,542 9,542 9,542 Sept 7,542 7,542 7,542 9,542 9,542 9,542 9,542 Oct 7,542. 7,542 7,542 9,542 9,542 9,542 9,542 Nov 7,542 7,542 17,542 9,542 9,542 9,542 9,542 Dec 7,542 7,542 0 9,542 9,542 9,542 9,542 Rate Application Audited $145,511 12ate Application Estimated $114,504 Analysis Number of Customers $10,050 Monthly Fee at$0.75 per Customer $7,538 (teat paid on other revenue) C:-1 Review of RSS Solid Waste Rate Application C-2 Appendix D Adjusted Base Year Model Adjusted Base Year Model Exhibit D-1 of this appendix provides Pass Through Costs the adjusted base year rate model under ■ IRRF fees at 2.2 percent inflation Option A with a 3.401 percent rate increase. rate shown The model is the first sheet of the base year ■ Franchise fee set equal to prior year fee. application and shows the 2001, 2002, and 20013 financial information. Year 2003 The resulting residential rate increase is incorporates all of the adjustments noted in 3.40 percent,based on a net shortfall of Section III of this report including: $132,569. This figure is determined by dividing$132,569 by projected 2003 Revenue residential revenue (before a rate adjustment) u Residential revenue increase of$3,902,835 ($2,979,724+$923,111). • Commercial revenue increase. Exhibit D-2 provides the adjusted base year rate model under Option B with a 2.84 Allowable Coats percent rate increase. This increase reflects a r No adjustment to direct labor net shortfall of$162,117. The difference in the shortfall for Option fl over Caption A is ■ Corporate and local general and an increase in franchise fees of$29,548 administrative costs allowed at 2.2 from$114,5074 to $144,052 per year. This percent inflation rate increase reflects franchise fees set at five • Depreciation and other operating costs percent of gross revenues not including the allowed at 2.2 percent inflation rate IRRF portion of the rate (equal to ■ Services provided to County allowed at $4,064,952 less$1,383,909). 2.2 percent inflation rate Exhibit D-3 provides the adjusted base ■ Trucking and equipment allowed at 2.2 year rate model under Option C with a 5.75 percent inflation rate, and allowed with percent rate increase. This increase reflects a profit(versus as a passthrough cost). net shortfall of$224,428. The difference in the shortfall for Option C over Option A is an increase in franchise fees of$91,859 from $114,504 to $206,363. This increase reflects franchise fees set at five percent of the total gross revenues (including the IRRF portion of the rate). D-1 Review of RS Solid Waste Plate Application Exhibit D-1 Option A Canna costa County Base Year Rate Chane Application Financial Information _ Actual Estimated_ Pro ted Hlatoncal Years Current Year Base Year YearsYear2 Year3 Year4 Years Enter Actual Year in this Raw 1993 2000 2001 2002 2093 1, Direct Labor $ $ $ 9,330,814 $ 1.296,864 $ 1,377,879 2. Corporate and Local General and Administrative Costs 444,732 �387,130 395 648 3. Depreciation and Other Operating Costs 82,000 54,988 66,897 4. Trucking and Equipment 605,241 591.485 504,193 51 Services Provided to Coun 27,882 28 745 29 377 6. Total ANawabie Casts(Lines 1+2+3+4) $ $ 2,490 S69 $ 2 358 913 $ 2,463,292 7. Operating Ratio iG8.3% 92.4°l0 90.00% 6 Operating Profits(Allowable Profits in Base Year:(Line 5+0.9)-Line 5)1 $ S 205,655 $ 17g807 $273-899 9. IRRF Fara Pass Through) - 1 091;916 1,168,424 1,183,909 70. Total Pass Through Costs(without Franchise Fees)(Lines 8+9) 1,091, 96 1,158 424 1,183,909 If. Total Allowable Costs(Line 5)plus Operating Profits(Line 7)plus Total Pass Through Costs(without Franchise Fees)(Line 10) $ 3,375,930 $ 3,597144 $ 3,920,900 IN 1111 12. Residential Revenues $ 3.006,701 13. Less Allowance for Uncollectible Residential Accounts 26,977 14. Total Residential Revenues(without Rate Change in Base Year} is $ $ $ 2,308.429 2,979,724 15. Cornmorciat and Light Industrial Revenues $ 938,577 16. Less Allowance for Uncoliecttble Commercial and Light Industrial Accounts 15,466 17. Total CommerciailLight Industrial Revenues(without Rate Change in Base Year) - 903 219 $ 323,111 18, Recycled Material Sales $ 19, Total Revenues(Lines 14+17+18) $ $ 3,521,441 $ 3,811,845 $ 3,902,835 20. Net Shortfall(Surplus)without Franchise Fees(Line 91-tine 19) 1 =6 21. ResidentiatfCommerciailLight Industrial Franchise Fees(see calculation below) $ $ $ 145.511 $ 114,504 $ 114,504 22. Net Shortfall(Surplus)with Franchise Fees(Lines 20+21) $ 132.5E 23. Total ResidentialiCommerclatfUght Industrial Revenues Prior to Rate Change(Lines 14+17) $ 3,902,835 24. Percent Change in existing ResidentiailCommarcial/Light Industrial Rates(Line 22+Line 23) 25. Total Allowable Costs(Line 5) $ 2,463,292 26. Allowable Operating Profits(Line 7) 273,859 27, Total Pass Through Costs with Franchise Fees Lines 10+21)_ 1,298,413 28. 2003 Revenue Requirement(Lines 25+26+27) $ 4,035,404 t Year. 2003 page 1 of 7 D-2 Appendix U Adjusted Base Year Model Exhibit D-2 Option B Contra Costa County Base Year Rete Change Application Financial information Actual Eattmated _Proected Mlstortcal Years Curran!Year Base Year Year _Year2 Year Year Year Enter Actual Year In this Row 1999 2000 2001 2002 2403 1. Direct Labor $ $ $_1,33081± $ 1,296.864 $ 1,377,879 2. Corporate and Local General and Administrative Costs i._ 444,732 387,130 395,846 3. Depreciation and Other Operating Costs _62j(300 54,966 58.197 4. Trucking and Equipment - 1i05,24i 591,168 604,193 5. Servhoes provided to County 27 862 28,745 29,377 6. 'Dotal Allowable Costa(Lines 1+2+3+4) $ $ 2 400 669 S 2,358,9131.t 2,463,292 7. Operating Ratio 106.3 92.4 90.00 8. Operating Profits[Allowable Profits in Bass Year.(Line 5+0.9)-Line 5)j $ $ 206 855 $ 179,807 $273,699 3. 1=Fsas Pass Thio 1 091916 1 158 424 1 183 909 Pass Through Casts(wtitwttt Franchise Fees)(Lines S+9j f 091 918 1 1 S8 424 f0. Total 1 183 909 11. Total Allowable Costs(Lima 5)plus Operating Profits(Line 7)plus Total Pass Through Costs(otidmut Franchise Fees)(Lina 10) 3 975 930 11$ 3,697144'11 3 920 900 12. Residential Revenues $ 3,006,701 13. Less Allowance for Llncailectibie Residential Accounts 26,977 14. Total Residential Revenues(vAthout Rate Change in Base Year) $ $ 2,908 429 $ 2,979 724 15. Commercial and Light Industrial Revenues $ 938577 16. Less Allowance for ttncotiscubha Commercial and Light Industrial Accounts i 5,488 fT. Total CommerclailWghi ktdztsttha!Revenues(wfthout Rata Change in Base year) $ $ �$ 903 $ 923 111 18. Recycled Material Salsa is 19. Total Revenues(Limes 14+17+18) $ $ 3 521 441 3 811648 $ 3 902,635 20. Not Shortfall(Surplus)without Franchise Fees(Line 11-Line 19) 1 2f. ReaidentlailCommerciailUght Industrial Franchise Fees(ass calculation below) $ 145 11 11A 504 $ 144052 22 Not Shortfall(Surplus)with Franchise Fees(Lines 20+21) $ 162 i 17 23. Total ResidentieUCommerciallUght Industrial Revenues Prior to Rate Change(Lines 14+17) 3,902 635 24. Percent Change in EbaUng ReaidemlauCommaroiailLight Industrial Rates(Line 22+Line 23) 4-t 25. Total Allowable Casts(Line 5) $ 2,463 292 26, AilowaWa Operating Profits(Line 7) 273699 27, Total Pass Through Costs with Franchise Foss Ltnos 10+21 1,327 961 28. 2003 Revenue Requirement(Linea 25+26+27) $ 4,064,952 Year: 2003 Page i of 7 D-3 Review of RSS Solid Waste Rate Application Exhibit D-3 Option C Contra Costa County Base Year Rate Change Application Financial Information Actual u_ Estimated Projected Historical Years Current Year Base Year Year 1 Year 2 Year 3 Year 4 Year 5 Enter Actual Year in this Row #999 2000 2401 2002 2003 i. Direct Labor $ $ $ 1,330,814 $ 1,296,884 S 1,377,879 2. Corporate and Local General and Administrative Costs 444,732 _387,130 395,648 3. Depreciation and Other Operating Costs W. 8200 ~. 54,988 56,197 4, Trucking and Equipment _� 605,241 591,186 604,193 5, Services Provided to Cour 27,892 28,745 29,377 6. Total Allowable Costs(Lines#+2+3+4) $ $ $ 2 490 669 $ &358,913 913 $ 2 483 252 7. Operating Ratio 108.3 92.4% 90:00% 8. Operating Profits tAllowabte Profits in Base Year.(Line 5+0.9)-Line 5)j $ $ 208,$55 $ #79,807 $273;899 9. tRRF Fees PassThrou h i 09S 91$ I,158,424 #183909 10. Total Pa"rwough Cnsts(wfthout Franctuse FOar){Unas 8+9) 1,091 9t8' i#58,424 1.183 809 11, Total Allowable Costs(Line 5)plus Operating Profits(Line 7)plus Total Pass Through Costs(without Franchise Fees)(Line 10) $ $ 3 37$,9303697 944 $ 3,920,900 MM 12. Residential Revenues $ 3,008,741 13. Less Allowance for L.incoliectible Residential Accounts 25,977 14. Total Residential Revenues(without Rate Change in Base Year) is $ 2;908 A29 $ 2,9 9,724 15. Commercial and Light Industrial Revenues $ 938;577 16. Less Allowance for Uncollectible Commercial and Light industrial Accounts 16,468 17. Total CommardatfUght industrial Revenues(without Rate Change in Base Year) $ $ $ 90321$. $ 923,111 18, Recycled Materiel Sales $ 19. Total Revenues(Lines 14+17+18) $ 3 521441 3 815,648 $ 3 902 835 20. Net Shortfall(Surplus)without Franchise Fees(Line 11-Line 19) _a,065 21. ResidentlatfCommerciallLight Industrial Franchiss Fees(see calculation below) $ $ 145,511 S 114;504 $ 208 383 22. Net Shortfall(Surplus)with Franchise Fees(Lines 20+21) $ 224 428 23. Total ResidentialtCommarciailLight Industria?Revenues Prior to Rate Change(Lines 14+17) 99 3,902 835 24, Percent Change in Existing ResidentiaMommerctallLight industrial Rates(Line 22^Line 23) 5.75 25. Total Allowable Costs(Etna 5) $ 2.463,292 26. Allowable Operating Profits(Line 7) 273,899 27. Total Pass Throwh Costs twith Franchise Fees Lines 10+211,390 272 28. 2403 Revenue Raquiremont(Lines 25+26+27) $ 4,127,283 War 2003 >#age 9 of 7 D-4 Appendix E Survey of Other jurisdictions Appendix E Survey of titer J»risd ciLions Appendix E includes a survey of other Exhibit E-1 provides a comparison of jurisdictions. A total of seven (7)other County residential rates provided by RSS jurisdictions were surveyed including: with averages from these seven comparable r Albany jurisdictions. Exhibit E-1 also compares ■ Berkeley County commercial rates provided by RSS with averages of these jurisdictions. ■ Crockett Exhibit• E-2 includes a comparison of El Cerrito County residential and commercial rates • Oakland with the following four other jurisdictions ■ Kensington that RSS currently serves, and whose costs are ■ Rodeo. included in the total costs which ultimately are allocated to unincorporated County: • Hercules • Pinole • Richmond • San Pablo. E-1. Review of RSS Solid Waste Rate Application Exhibit E-1 Residential Refuse, Recycling, and Green Waste Collection Rates of Other RSS-Served Jurisdictions in West Contra Costa County Richmond Sanitary Service (Ianuary2003) n YhCr1 p[ib Ryi 1,20-gallon container 1 <411 A� � 1 �k96„ t7 $1 7 $15.54 $20.37 31°10 1,35-gallon container, ,,::, 18 . 1- # ;:"" '27 47 20.79 23.22 12% i.65-gallon container,: fjA .� h " = 4t1.f 7 18 GI "`: 36.19 45.48 26% 1,95 gallon container 4 3 1 I�IfA 49.58 67.74 37% Commercial Collection Rates of Other Comparable Jurisdictions to West Contra Costa County Richmond Sanitary Service ()anuary 2003) I pickup per week 1 cubic yard Wa-i ""$85.44 e'410 $2 $12&91 $3$AOr; $98.63 $154,35 561/0 z 2 cubic yards 2`66.6': 1601$6 N/A 115,80 2559' 11I 176.44 253.00 43% 3 cubic yards 49.5 : 235: 8 � N33A =k`1/d1 2T6,.64 hiJA $ifi"5 `'; 197.51 345.75 75% �� . 6 cubic yards 499. ' A. A N ,: t�? c, �& Trr k'" 14 5tk" 318.97 611.10 92% 2 pickups per week I cubic yard $ &. 4, $163;19 1 (1A , :$161,36 ti44,4 718'.79' :5 3 96:,-v$77 00,,, $185.76 $271.20 46% 2 cubic yards N/A 2 ,2A' 4M u"6.6,7: 0z. �. 119 Llk3 330.47 462.70 4011/b 3 cubic yards 9J,9 . ".468.12 N/A l�if f 52210=" i 1031 Q " 3$3,74 643.00 68% 6 cubic yards 5Mv,84 .;`-ti f9 N/A �'. �t,$3 � 287 t2i3" 618.42 1,161.60 88% Per pyill-loose 20 yard debris box 442.44 45 .00 :" ;369.013 2$11.9 ' �451.64 396.40 436.00 10%0 30 yard debris box .537.19; 67 e4 # :Q#, 4203 i i 748k23 t3 _ 586.56 x77.(70 -201. J� '' 40 yard debris box 1V jA N/A ". 6,24.00X25.00"":'" N/A1�p�A. 1`1�7i.. 574.50 680.00 18% E-2 _.._... Appendix E Survey of Other jurisdictions Exhibit E-2 Residential Refuse, Recycling, and Green Waste Collection Rates of other RSS-Served jurisdictions in West Contra Costa County Richmond Sanitary Service (January.2003) ' $]8.94 $20.3'1 730 1,20-gallon containefIRE,K �, 1,35-gallon container 21.52 23.22 8% 1,65-gallon container 40.40 45.48 130/0 g� 59.28 (17.74 14%1,95-gallon container + � '` °' x. Commercial Collection Rates of Other RSS-Served jurisdictions in West Contra Costa County Richmond Sanitary Service (January 2003) t pickup per week ; m r fi 1 cubicyarci t ' $165.45 $154.35 T�0 2 cubic yards � ,. 273.98 253.00 8% 3 cubic yards ��� * + z., 376.00 345.75 -8% r 667.25 611.10 -8% 6cubic yards 165.45 15435 70fo 2 pickups week ` 1 cubic yard ��� ° � �� $290.45 $271.20 7% 2 cubic yards t 'Q ? 501.38 462.70 80fo 3 cubic yards `ffi*&a 699.95 643.00 -8% 6 cubic yards 1,269.15 1,161,60 80/a Per putt-loose E 14 yard debris box 381.00 381.00 0% 20 yard debris box 4t � ,`t 436.00 436.00 0°/u 30 yard debris box z ��+� 577.00 577.00 0°0% 40 yard debris box I, r l 680.00 680.00 0/o E-3 Dennis M.Barry,AICP Community Contra CtfrnrrEuni#y Development Director Development Costa Department un y County Administration Building 651 Pine Strut i 4th Floor,North wing Martinez,California 94553-0095 Phone.. (925) 335-1224 June 17, 20103 Steve Devine, Executive Director WCCIWMA One Alvarado Square San Pablo, CA 94806 SUBJECT: RS RATE REVIEW Dear Mr. Devine: As you are aware a rate review has recently been completed for the areas served by Richmond Sanitary Service(RSS) under the County's Franchise Agreement. NewPoint Crow conducted this rate review on behalf of the County. This letter is beim seat to implement one of NewPoint Croup's recommendations contained in their rate review report. The purpose of this recommendation is to address certain factors that lay beyond the control of the County Board of Supervisors but have significant impact on the rate charged to RSS customers served under the County's Franchise Agreement. We hereby request that the West Contra Costa integrated Waste Management Authority (WCCIWMA) conduct a thorough and detailed review of all of the costs associated with transfer and disposal under existing conditions and with the proposed operational changes prior to making a decision regarding where to direct franchised waste. This review should examine the: • Cost impacts of new transfer trailers • Cost impacts of additional laborers • Cost impacts of transfer station capital expenditures • Landfill tipping fee amounts • integrated Resource Recovery Facility(IRRF)casts and profitability • Diversion levels We understand that the WCCIMWA is still awaiting financial details from Republic Services, Inc. regarding the projected costs associated with utilization of a new proposed transfer statim on the landfill property. Some of the above factors will not be known to the WCCIWMA until Republic Services, Inc. submits the requested financial details. Office Hours Monday-Friday:8:00 a.m.-5:00 p.m. office is closed the 1 st,3rd&5th Fridays of each month Mr. Steve Devine,WCCIWMA Executive Director ,lune 17, 2003 Page 2 It is likely that some of the above factors have already been examined by the WCCIWMA during the course of your review of existing IRRI" rates and your ongoing consideration of future waste handling options. Thank you for your consideration regarding this matter. If you have any questions please feel free to contact me at(925)335-1224. Sincerely, 4I Deldra Cingma Solid Waste Program Manager R:FRANCHISE N RATESXRSS RATE-WCCIWMA LETTERDOC