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HomeMy WebLinkAboutMINUTES - 04242007 - D.2 TO: BOARD OF SUPERVISORS Contra FROM: Dennis M. Barry, AICP a.-"`..,,,,,,p `s Costa Community Development Director ar 40 Y\" oSrA co`ury't'; G ~' County DATE: April 24, 2007 SUBJECT: RATE INCREASE FOR SOLID WASTE COLLECTION IN THE UNINCORPORATED AREAS SERVED BY ALLIED WASTE SERVICES (PREVIOUSLY KNOWN AS PLEASANT HILL BAYSHORE DISPOSAL, INC.) UNDER THE COUNTY FRANCHISE AGREEMENT SPECIFIC REQUEST(S) OR RECOMMENDATION(S) & BACKGROUND AND JUSTIFICATION RECOMMENDATIONS 1. ACCEPT report from NewPoint Group dated April 4, 2007 regarding their review of the Interim Year Rate Application submitted by Allied Waste Services. (EXHIBIT A). 2. APPROVE a solid waste collection rate increase of 5.5% for customers in the unincorporated areas served by Allied Waste Services 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 Pleasant Hill Bayshore Disposal, Inc. (now known as Allied Waste Services) for service to the following unincorporated areas: Alhambra Valley Concord, unincorporated Bay Point (portion) Morgan Territory Canyon Pacheco Clyde Pleasant Hill, unincorporated Allied's Service Area under the County Franchise includes portions of Supervisorial Districts II, III, IV and V. The County entered into an agreement with NewPoint Group to review the Interim Year Rate Change Application submitted by Allied. NewPoint Group conducted their review consistent with the applicable provisions of the rate setting manual approved by the County for use in the Allied Service Area. The result of NewPoint Group's review is contained in their letter dated April 4, 2007 which is attached as EXHIBIT A. CONTINUED ON ATTACHMENT: X YES SIGNATURE- RECOMMENDATION OF COUNTY ADMINISTRATOR RECOMMENDATION OF BOARD COPdMITTEE APPROVE OTHER SIGNATURE (S): ACTION OF BOARD ON APPROVED AS RECOMMENDED .,X OTHER_ VOTE OF SUPERVISORS I HEREBY CERTIFY THAT THIS IS A TRUE )(UNANIMOUS (ABSENT /21Y14, AND CORRECT COPY OF AN ACTION TAKEN AYES: NOES: AND ENTERED ON THE MINUTES OF THE BOARD ABSENT: ABSTAIN: OF SUPERVISORS ON THE DATE SHOWN. Contact: Deidra Dingman (925/335-1224) ATTESTED cc: Community Development Department (CDD) JOAN CULLEN, CLERK OF THE County Counsel BOARD OF SUPERVISORS AND Allied Waste Services (via CDD) OUNTY ADMINISTRATOR BY , DEPUTY G:\Conservation\Bryn\Franchise\Franchise-BS\PHBD\Rates\BO-Allied Interim Year Rates_2007.doc Changes in Solid Waste Collection Rates Charged by Allied Waste Services April 24, 2007 Page 2 BACKGROUND/REASONS FOR RECOMMENDATIONS (continued) Interim year rate changes are calculated based on a weighted increase in controlled and uncontrolled costs. The recommended 5.5% increase of the solid waste collection rate was calculated based on the 3.2% increase in controlled and uncontrolled costs and an additional one-time rate adjustment to account for the delayed implementation/effective date. Controlled & Uncontrolled Costs (based on CPI adiustment) - 3.2% Controlled costs include all costs other than tipping fees and associated regulatory charges. Uncontrolled costs refer to tipping fees and associated regulatory charges. Uncontrolled costs are expected to remain unchanged, however controlled costs were adjusted based on the change in the Consumer Price Index (CPI). One-time Adiustment-2.3% An additional one-time adjustment is recommended based on the "guiding policy" in the Rate Manual. This policy allows for one-time adjustments to be applied if one of the parties does not meet the timeline specified in the manual. Allied submitted a rate application to the County in September 2006 as required in the manual. Prior to the submittal of the interim year rate application, Allied submitted a proposal to automate services in the County area. In an attempt to avoid proposing two separate rate changes for the same customers within a short period of time, staff contracted with NewPoint Group to conduct concurrent review of the Interim Year Rate Application and automation proposal. As NewPoint Group started their analysis for both the Interim Year Rate Application and automation proposal, it was determined that a more lengthy, detailed review would be necessary to evaluate the automation proposal. Based on this determination, Allied requested and County staff agreed to proceed with the review of the Interim Year Rate Adjustment and consider the automation proposal separately in conjunction with Base Year Rate setting process later this year. The delay in implementation of the Interim Rate increase was due to the more in depth analysis needed for the automation proposal and, therefore, an adjustment is permissible. This 2.3% adjustment allows for the hauler to recover revenues that would have resulted from a January 1, 2007 implementation date of new rates rather than the proposed June 1, 2007 effective date. The below table summarizes the existing and recommended residential solid waste collection rates and highlights both the CPI increase as well as the additional one-time adjustment. Monthly • • Waste Collection ' CR with 2.3% CR with Existing CR 3.2% CPI 3.2% One-time 5.5% Total Rate Size Adjustment Increase Adiustment Increase Increase 20-gal can $ 17.20 $0.55 $17.75 $0.40 $ 18.15 $ 0.95 32-gal can $ 18.40 $0.60 $19.00 $0.40 $ 19.40 $ 1.00 64-gal cart $ 22.45 $0.70 $23.15 $0.55 $ 23.70 $ 1.25 95-gal cart $ 25.25 $0.80 $26.05 $0.60 $ 26.65 $ 1.40 * Rates are rounded to the nearest$0.05 increment in accordance with the manual. The recommended 5.5% increase would also apply to commercial and light-industrial customers served by Allied under the County's Franchise Agreement. ATTACHMENTS Exhibit A-Letter from NewPoint Group dated April 4, 2007 G:\Conservation\Bryn\Franchise\Franchise-BS\PHBD\Rates\BO-Allied Interim Year Rates_2007.doc EXHIBIT A McanageMent Consultants April 4, 2007 Ms. Deidra Dingman Community Development Department Contra Costa County 651 Pine Street 4th Floor,North Wing Martinez, California 94553-0095 Subject: 2007 Interim Rate Review of Unincorporated Contra Costa County Areas Served by Allied Waste Service,Inc. Dear Ms Dingman: This letter report represents results of NewPoint Group's evaluation of Allied Waste Service, Inc.'s (Allied) 2007 Interim Year Rate Change Application(Application). In accordance with the County's 1998 Rate Setting Process and Methodology Manual for Residential Solid Waste Charges, as applied to Browning-Ferris Industries, Inc. —Pleasant Hill Bayshore Disposal, Inc. (Manual),Allied submitted its Application to initiate the interim year review process on September 1,2006. To complete our review,we principally followed Step 2 in Section IV of the Manual. This letter is organized into four sections as follows: A. Summary B. Background C. Analysis of the Interim Year Application D. Recommendations. There are also three (3) attachments to this letter. A. Summary Based on our analysis of the Application,we recommend a rate increase of 5.5 percent to take effect on June 1, 2007. This 5.5 percent increase is comprised of a 3.2 percent CPI-based increase, and 2.3 percent as an increase (to account for a June 1 rather than a January 1 effective date). Changes to the most common residential rates in the County rate structure are shown on page I of the Interim Year Rate Change Worksheet(Worksheet) included as Attachment 1. The recommended rate increase of 5.5 percent is also applicable to the commercial and light industrial customer rates. # 2555.Tt?rd Street,Suite 215,Sacramento,California 45�18 + Phona:(916)4.42-0508 + Fax:(916)442-0714` NewPcP nt Grow Management Consultonts Ms. Deidra Dingman April 4,2007 Page 2 B. Background In 1998,the County adopted the Manual. The Manual reflects the County's desire to use the operating ratio method for establishing allowable profit levels in base years. The Manual identifies guidelines for allowable,pass-through,and non-allowable costs. Every four years, during base years, the hauler submits financial statements and a Base Year Rate Application. These documents are reviewed to determine whether a rate change is necessary. Interim years follow a more streamlined process. Interim years occur during each of the three years between base years when the hauler submits an Interim Year Rate Application. The interim year process distinguishes between controlled costs and uncontrolled costs. Controlled costs include all costs other than tipping fees (both tipping fees with profit allowed and tipping fees treated as a pass through cost). In interim years, controlled costs are adjusted based on the change in the San Francisco-Oakland-San Jose Consumer Price Index(CPI),All Items, for All Urban Consumers. The CPI is published by the U.S. Department of Labor,Bureau of Labor Statistics. Changes in uncontrolled costs in an interim year are projected by the hauler in the Interim Year Rate Change Application. Since the Manual's adoption in 1998,the County has conducted two base year rate reviews . in 1998 and 2002, and four interim rate reviews in 2001,2004, 2005, and 2006. Rate changes since 1998 were as follows: ■ 1998: +$1.51 per month,or 2.5 to 14.5 percent ■ 2001: +3.3 percent ■ 2003: -5.2 percent(resulting from the 2002 review) ■ 2004: +2.6 percent ■ 2005: + 1.7 percent ■ 2006: +3.3 percent. Following the three interim years (2004, 2005, and 2006),2007 should have been a base year(i.e., for rates to be set in 2007). However, Allied changed the timing of its comprehensive regional audit to 2006. The base year review in 2007 would then have required a special County-only year 2005 audit. The County agreed to move the base year to 2008 (i.e.,to have the base year process begin in late 2007)to minimize audit costs to the County ratepayers. The County received Allied's Application on September 1, 2006. A copy of the Application is included as Attachment 2. NewMint roup" Manager6ent Consu=tents Ms. Deidra Dingman April 4, 2007 Page 3 C. Analysis of the Interim Year Application There are two components of the recommended 5.5 percent rate increase: (1)the CPI-based rate increase following the process described in the Manual (3.2 percent), and(2) an additional one-time rate increase to account for a June 1 implementation date,rather than a January 1 implementation date (2.3 percent). CPI-based Rate Increase (3.2 percent) To calculate the CPI-based rate adjustment,the County is required to complete the Worksheet(Attachment 1). The rate increase based on completion of the Worksheet is 3.2 percent, as shown on page I of the Worksheet. We used August—to—August CPI data to be consistent with previous interim years. Between August 2005 and August 2006,the CPI increased from 203.0 to 210.7,or by 3.8 percent(see Attachment 3). Thus we used a 3.8 percent increase in controlled costs. In the Application,Allied projects tipping fees will remain constant between 2006 and 2007, and hence we have used a zero(0)percent increase in; uncontrolled costs. Historical trends for the change in August CPI are shown in Table 1,below. The last nine years has been a period of relatively low inflation. For the nine-year period, since the Manual's implementation(i.e., 1998 to 2006),the change in the August CPI ranged from 1.2 to 5.1 percent, and averaged 3.0 percent. Table i Change in Consumer Price Index San-Francisco-Oakland-San Jose(All Items, CPI-U) 1998 to 2006 (August to August Period) Year Percent,Change in Index 1998 3.3 1999 4.1 2000 4.7 2001 5.1 2002 1.3 2003 1.4 2004 1.2 2005 2.2 2006 3.8 Average—9 years 3.0 NewMnt Group,' Mandgemen3 Consugtonts Ms. Deidra Dingman April 4, 2007 Page 4 Rate setting is prospective. Rates are set in advance of the year they are ultimately charged. There are two components of the projected change in controlled costs: (1)the actual change in CPI for the preceding 12 months, and(2) an adjustment to take into account the different between the actual and adjusted projected change in CPI for the previous interim year. In the prior interim year(2006),the adjusted change in controlled costs was 3.2 percent. The actual change in CPI was 3.8 percent. The resulting adjusted projected change in CPI for 2007 is 4.4 percent. Line 27 in Attachment 2 shows the percent increase in existing rates based upon the 4.4 percent increase in controlled costs and zero(0)percent change in uncontrolled costs. The resulting percent rate increase is 3.2 percent. Additional One-Time Rate Increase to Account for June 1 Implementation (2.3 percent) Allied submitted the Application on September 1, 2006. At the time Allied submitted the Application,Allied also proposed a new plan to transition County services to automated collection, a change that requires new trucks, some new wheeled carts, and a new tiered'rate structure. Automation planning requires a more extensive review of revenues and costs before and after implementation. After spending time conducting several meetings with company management,preparing data requests,assessing initial supporting documentation, and addressing the timing required for the company to prepare internal financial statements,the County determined that it would consider the automation plan separately from the interim year rate review. The County then asked us to prepare this report. The County will continue to evaluate Allied's automation proposal this year. The Manual has as a guiding policy(on page I-7) "Allow no retroactive rate increases" except if one of the parties does not meet the timeline specified in the Manual. The delay in implementing the rate increase meets the conditions under which such a rate increase is permissible. This additional one-time rate adjustment is calculated so that the hauler collects the equivalent revenues as if the interim rate increase implemented January 1. With a June 1, 2007 implementation date,there would be seven(7)months at the new rate and five (5) months at the 2006 rate. The 7 month equivalent of a 3.2 percent increase is a 5.5 percent increase [3.2 x(12 -7)]. Table 2, on the next page, shows the impact of both the CPI-based and the additional one- time rate increase on the County rate structure. NewPolnt Group' Managem.ent Consultants Ms. Deidra Dingman April 4, 2007 Page 5 Table 2 Impact of CPI-Based and Additional One-Time Increase on County Rate Structure Rate with Increase in Additional Rate with 5.5 Total Current Current 3.2 Percent One-Time Percent Total Rate Rate Rate CPI-Based Increase Increase(e) Increase Increase 20-Gallon Can $ 17.20 $ 0.55 $ 17.75 $ 0.40 $ 18.15 $ 0.95 32-Gallon Can 18.40 0.60 19.00 0.40 19.40 1.00 64-Gallon Cart 22.45 0.70 23.15 0.55 23.70 1.25 96-Gallon Cart 25.25 0.80 26.05 0.60 26.65 1.40 (a)Rates are rounded to the nearest$0.05.increment in accordance with the Manual requirement. The additional, one-time 2.3 percent rate increase should be removed from all the rates as of January 1, 2008. For residential customers,this amounts to a$0.40 to $0.60 per customer,per month,rate decrease as of January 1,2008. This rate decrease, or effective credit,would be offset by any rate change resulting from the 2008 base year review. D. Recommendations Based on our evaluation of the Application,we recommend a rate increase of 5.5 percent to take effect on June 1, 2007. New residential rates, for typical County services,under our recommendation would be as follows:. ■ 20-gallon can: $18.15,per customer,per month ■ 32-gallon can: $19.40,per customer,per month .■ 64-gallon can: $23.70,per customer,per month ■ 96-gallon can: $26.65,per customer,per month. Rates are rounded to the nearest $0.05 increment in accordance with the Manual requirement. NewP©Int Group` Monagement Consuttents Ms. Deidra Dingman April 4, 2007 Page 6 Should you have any questions regarding this interim year rate review process, or any of the contents of this letter,please do not hesitate to contact me at(510) 338-0104. Sincerely yours, NewPoint Groupo Inc. Erik Nylund Principal Attachment I Interim Year Rate Change Worksheet Contra Costa County Interim Year Rate Change Worksheet Summary for a June 9 implementation Rate Change 1. Percent Change in Residential Rates 3.2% Rate Schedule rcre ased Current Rate Schedule a) Rate Rate Adjustment New Rate 2. 1-20 Gallon Can Service $ 17.20 $ 17.75 $ 3. 1-32 Gallon Can Service $ 18.40 $ 18.99 $ 0.01 4. 1-64 Gallon Cart Service $ 22.45 $ 23.17 $ 0.02 5. 1-96 Gallon Cart Service $ 25.25 $ 26.06 $ 0.01 For a June 1 implementation Retroactive Rate 5.50% Current Rate Schedule a) Rate Rate Adjustment New Rate 1-20 Gallon Can Service ' $ 17.20 $ 18.15 1-32 Gallon Can Service $ 18.40 $ 19.41 $ 0.01y 1-64 Gallon Cart Service $ 22.45 $ 23.68 $ 0.02 1-96 Gallon Cart Service $ 25.25 $ 26.64 $ 0.01 r$i 26.6IV Year: 2007 Page 1 of 2 Contra Costa County Interim Year Rate Change Worksheet Financial Information Section 1--Base Year Costs Base Year Controlled Costs b) 1. Total Allowable Costs 2. Plus: Allowable Operating Profit 3. Minus: Tipping Fees Profit Allowed 4. Equals: Total Controlled Costs L J Base Year Uncontrolled Costs b) 5. Tipping Fees(Profit Allowed) 6. Plus: Tipping Fees((Pass Through) 7. Equal., Total Uncontrolled Costs ^M 8. Base Year Revenue Requirement(Less Franchise Fee) BOO d° Section 11--Changes in Costs Change In Controlled Costs - - 9. Projected Change in Consumer Price Index 11 3.8% 10. Adjustment Factor from Prior Interim Year 0.6% 11. Adjusted Projected Change in Consumer Price Index Change in Uncontrolled Costs 12. Prior Year Tipping Fees Per Ton $ 57.08 13. Plus: Prior Year Regulatory Fees Per Ton $ 14. Equals: Total Prior Year Uncontrolled Costs Per Ton �aisl),8 15. Projected Interim Year Tipping Fees Per Ton $ 57 08 16. Plus: Projected Interim Year Regulatory Fees Per Ton $ 17. Equals: Total Projected Interim Year Uncontrolled Costs Per Ton 18. Projected Change In Uncontrolled Costs Section 111-Calculation of Percent Change in Rates Weighted Change in Controlled Costs 19. - Controlled Costs as%of Base Yr.Revenue Requirement 69.2* 20. Multiplied by: Adjusted Projected Change in Consumer Price Index 4.4% 21. Equals., Weighted Change in Controlled Costs Weighted Change In Uncontrolled Costs 22. Uncontrolled Costs as%of Base Yr.Revenue Requirement 30.9 23. Multiplied by: Projected Change in Uncontrolled Costs 0.0% 24. Equals: Weighted Change in Uncontrolled Costs i{1 Total Change 25 Total Percent Change in Costs 26. Divided by., Adjustment for Franchise Fee 1-5.0%) 9 5.0 c 27. Equals: Percent Change in Existing Rates Year: 2007 Page 2 of 2 b)Actual numbers are not shown to protect the haulers confidentiality. 1 Attachment 2 Interim Year Rate Change Application f. AuLwa 30,2006 Nis.f idratVingmain Solid xkaWl and ReFyclartg Managger 61I Pro€f, trect,4`''Floor,N Win" Mortinuzn CA 94553- R.E:, Internal yearRatz Changc 11a}lication for Solid Warslte,�,:aSlcct a>ta and Rt�cycling Services Isar t�eidi�a En lossd pic ase ti€aid our cvistd l aterim Year Rae C Can .; p licca€icon; Masw,g`av 'me'&CA1iisy64bave any€uestions. M. direct line a:;f?1`R,58.2l. �i`aaa;erel�y, Tim A(gofi GENERAL NIIANAGr--k r � ate, Contra Costa County {nWrirn Year Rate Cttand6 Ap'+fi aflon Change iri 3 ncontrolled Costs: t, Prior Yeast 11ppinj Fees per Tori ?{38 2 plus Pricer Year EZ ulatory Fees per Ton , Egvals, Total Prior Year.Uncontrolled Costs per Tors 4. Projected Interim Year Tipping Fees per Tan 5.. Plus':: Pro ktad Interim Year Regu1si& Fees per Ton 'Equals: Total Interim Year Uncontrolled Casts tier Top.: 7,gft: 7. Projected Change las Uncontrolled Costs bio To the best of my knosM0the data and information in this application is c6mplete,accurate,and' onslsts nt With the instructions prWdep by Contra Cests`County., Name, Tim Ar`' rad � Title:- G6neral Manager Signature' Cate: Sd3t��2t}(>6 Year: Rate Y ar 2006 Pace'I of 1 Attachment 3 U.S. Bureau of Labor Statistics Consumer Price Index, All Items (CPI-U) San Francisco-Oakland-San Jose Area Series Id: CUURA422SAO,CUUSA422SA0 Not Seasonally Adjusted Area: San Francisco-Oakland-San Jose,CA Item: All items Base Period: 1982-84=100 145.1 145.5 145.7 146.8 146.9 146.1 146.1 146.2 146.5 147.0 147.2 147.0 146.3 146.0 146.7 '147.5 147.4 148.2 148.0 148.3 148.1 148.9 149.4 149.4 149.4 149.8 149.4 148.7 147.9 149.4 150.3 150.5 151.1 151.5 151.3 151.7 151.5 151.5 152.3 152.6 152.4 152.1 151.6 151.1 152.1 152.9 153.2 152.9 153.9 155.1 155.2 155.9 155.6 156.3 156.9 156.9 156.0 155.1 153.9 156.3 157.0 1529 159.2 159.6 159.8 160.0 160.6 161.2 161.6 162.5 162.6 162.6 160.4 158.9 161.9 1 163.2 164.6 165.5 166.6 167.2 167.4 165.5 164.2 166.9 169.4 172.2 171.8 173.5 175.2 174.5 172.5 170.8 174.2 U44 176.5 178.7 179.1 181.7 183.4 184.1 180.2 177.7 182.6 1187.9 189.1 190.9 191.0 191.7 190.6 189.9 188.7 191.1 41 191.3 193.0 193.2 193.5 194.3 193.2 193.0 192.3 193.7 197.7 197.3 196.3 196.3 196.3 195.3 196.4 196.8 196.1 198.1 198.3 199.0 198.7 200.3 199.5 198.8 198.2 199.5 201.2 202.5 201.2 203.0 205.9 203.4 202.7 201.5 2039. 204z; 207.1 208.9 209.1 210.7 211.0 210.4 209.2 207.9 210.6 v