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Home My WebLink About05-20-2014 PH3 Interim Yr Solid Waste Rate Adjustment ApplicationCity of San Luis Obispo, Council Agenda Report, Meeting Date, Item Number FROM: Carrie Mattingly, Utilities Director Prepared By: Ron Munds, Utilities Services Manager SUBJECT: SAN LUIS GARBAGE COMPANY INTERIM YEAR SOLID WASTE RATE ADJUSTMENT APPLICATION RECOMMENDATION Adopt a resolution increasing solid waste rates by 2.93% for interim year 2014 effective on June 1, 2014; provided there is not a majority protest against such increase. DISCUSSION Background Solid waste rates are reviewed under a three cycle comprised of a base year and two interim year rate applications. Interim year rate applications, such as this, are typically submitted by San Luis Garbage Company in the fall of each interim year with an effective date of January 1st of the following year. The application being considered at this time was delayed because of proposed landfill tipping fee increases associated with the Cold Canyon Landfill expansion project. Negotiations between the County of San Luis Obispo and the owner of the landfill, Waste Connections Inc., have been completed with the result being a framework for incremental $2.25 per ton increases over the next 9 years. This equates to about a 1% increase to the City’s solid waste rates each year over the term of the agreement. Solid Waste Rate Setting Methodology Overview An integral part of the solid waste, recycling, and green waste collection franchise agreements is the solid waste rate setting methodology. The procedures in the Rate Setting Process and Methodology Manual for Integrated Solid Waste Management Rates (Rate Setting Manual), adopted by Council in 1994, have ensured stable and competitive rates for the community. The Rate Setting Manual provides a process and schedule for rate application review and binds the contractor and the City to a method of determining revenue adequacy for the contractor while ensuring the community is receiving quality service at reasonable rates. Under the methodology, base year applications are prepared in year one of a three year cycle. Base year applications require a detailed submittal and review of past, current, and estimated future operating expenses. Less detailed interim year applications are required in years two and three of the cycle. Interim year applications are intended to adjust for the prior year’s consumer price index changes and changes to the landfill tipping fees (which are considered pass through costs). May 20, 2014 PH3 - 1 Solid Waste Interim Year Rate Application Page 2 The current three year rate setting cycle began with the submittal of the 2013 base year application. This application recommended a 3.4% rate increase which the Council approved on January 22, 2014. The application being presented to the City Council at this time is an interim year rate adjustment request. Key Factors in 2014 Interim Year Application 1. Cold Canyon Landfill Tipping Fee Increase Tipping fees at the landfill are approved by the County of San Luis Obispo’s Board of Supervisors. On May 6, 2014 the Board of Supervisors approved a $2.25 per ton tipping fee increase for commercial solid waste haulers at Cold Canyon Landfill. The tipping increase is for expenses associated with the approved landfill expansion. This equates to 1.1% of the 2.93% rate increase being requested by the garbage company. 2. Consumer Price Index The figure used to factor inflation into increases in solid waste rates is the Bureau of Labor Statistics’ Consumer Price Index for Urban Consumers based on the All U.S. City Average. A twelve month CPI is used to determine the weighted average change in controllable costs in the rate adjustment application being considered. The CPI used in the rate application is from the 2013 Bureau of Labor statistics. 3. Assembly Bill 939 Fee (AB 939 Fee)/Franchise Fee The City collects the AB 939 fee to offset the costs associated with waste reduction programs related to the state mandate to reduce the amount of solid waste disposed of in landfills and is a pass through cost in the rate application. The fee is adjusted by the CPI in the interim year rate applications and represents 0.04% of the requested rate increase. Also, the garbage company pays the General Fund a franchise fee like other utilities operating within the City. The franchise fee represents 0.18% of the requested rate increase. The franchise fee is based on a percentage of gross revenue. California Constitution Article XIII (Proposition 218) Although there is no explicit legal requirement to do so, City staff elected to follow Proposition 218 noticing and hearing requirements for the proposed solid waste rate increases to ensure the legal validity of those rates. Per the Proposition 218 notification requirements, notices were mailed at least 45 days in advance of the public hearing to both property owners and customers. The protest must be submitted in writing and received by the City Clerk before the close of the public hearing on May 20, 2014. The person signing the protest must either be the property owner or the customer of record. In the event that a protest is submitted by the owner and also by the tenant responsible for payment of the bill, one valid protest is counted for the parcel. Table 1 - Key Factors Landfill Tipping Fee Increase 1.10% CPI Adjustment 1.61% AB 939 Fee/Franchise Fee 0.22% Total 2.93% PH3 - 2 Solid Waste Interim Year Rate Application Page 3 If valid written protests are filed by a majority, the applicable proposed rate may not be imposed. As of May 8, 2014, a total of 6 written protests were received by the Office of the City Clerk. Of the 6 written protests received, 6 protests are valid. During the public hearing the City Clerk will be asked by the Mayor to make a statement indicating the number of protests received and indicate whether there are enough to prevent the rate increase. Summary The adoption of the 2014 solid waste rates as recommended will ensure the garbage company receives the necessary operating revenues, including profit, within the prescribed levels set by the City’s solid waste rate setting policies. Therefore, it is staff’s recommendation that the City Council adopt the rate increase requested by the garbage company. FISCAL IMPACT The proposed single family residential rates are as follows: Residential Solid Waste Services/Rates Service Level Current Service Rate Proposed Service Rate Mini-can (19 gallon) $8.16/month $8.40/month Economy (32 gallon waste wheeler) $13.04/month $13.42/month Standard (64 gallon waste wheeler) $26.09/month $26.84/month Premium (96 gallon waste wheeler) $39.09/month $50.26/month Commercial Solid Waste Services There are numerous alternatives for commercial solid waste services. These are identified in Exhibit A to Attachment 1. The rate increase will impact the cost of providing solid waste services to City facilities. A 2% solid waste rate increase was forecasted for fiscal year 2014- 2015. After analyzing all line item budgets for solid waste service, it was determined that the 2.93% will have a minimal fiscal impact therefore does not warrant adjustments to solid waste services line item budgets at this time. ALTERNATIVES The Rate Setting Manual provides a process and schedule for rate application review and binds the contractor and the City to a method of determining revenue adequacy for the contractor while ensuring the community is receiving quality service at reasonable rates. Since interim year PH3 - 3 Solid Waste Interim Year Rate Application Page 4 applications are to adjust rates for pass-through costs and increases in CPI, the Council could choose to not to approve the requested rate increase if it is believed that any of the factors identified are inaccurate or inflated. Based on staff’s evaluation of the Interim Year Rate Application, the information provided is accurate and reasonable. ATTACHMENTS 1. Resolution and Exhibit A - Rate Schedule for Integrated Solid Waste Activities 2. 2014 Interim Year Rate Adjustment Application T:\Council Agenda Reports\2014\2014-05-20\Interim Yr Solid Waste Rate Ap (Mattingly-Munds) PH3 - 4 PH3 - 5 PH3 - 6 PH3 - 7 PH3 - 8 PH3 - 9 PH3 - 10 PH3 - 11 PH3 - 12 PH3 - 13 PH3 - 14 PH3 - 15 PH3 - 16 PH3 - 17 Page intentionally left blank. PH3 - 18 Council Memorandum May 14, 2014 TO: City Council MAY 15 2014 AGENDA CORRESPONDENCE Date��OR Item# FROM: Carrie Mattingly, Utilities Director VIA: Katie Lichtig, City Manager SUBJECT: Agenda Item PH 3 — Interim Year So id Waste Rate Application Report There is a typographical error in the rate table on page PH3 -3 in the Fiscal Impact section of the report. In the column labeled "Proposed Service Rate" the proposed Premium rate should be $40.26 /month instead of $50.26 /month listed. All other rates in the report and attachments are correct. If you have any questions, please contact Ron Munds, Utilities Services Manager, at 781 -7258 or by email, rmunds @slocity.org. G;1Counc +I CornmonlptionSNCouncll Memos Laterim Yaar Sapd Waste RaleAcollcallon,docx