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HomeMy WebLinkAbout06/21/1994, 5 - INTEGRATED SOLID WASTE MANAGEMENT RATE SETTING MANUAL II MEETING DATE: IIIh�I�1IIIIIIIIIIIIIIIIaIIVIII CIty Of San LUIS OBISPO June 21 1994 COUNCIL AGENDA REPORT ITEM NUMBER: FROM: John Moss, Director of Utilitie Prepared by: Sue Baasch, Ad mstrative Analystll SUBJECT: INTEGRATED SOLID WASTE MANAGEMENT RATE SETTING MANUAL CAO RECOMMENDATION By motion, approve the Rate Setting Process and Methodology Manual for Integrated Solid Waste Management Rates and authorize its use immediately, beginning with the 1994 solid waste rate application request. DISCUSSION ' i On April 11, 1994, the rate objectives and revenue adequacy policies reflected in the City of San Luis Obispo - Rate Setting Process and Methodology Manual for Integrated Waste Management Rates ("manual") were presented to the Council in a study session. This report recommends that Council approve and adopt this manual, and use it in evaluating the anticipated 1994 solid waste rate application from the City's franchise hauler, San Luis Garbage Company. Under this process, the franchise hauler will submit a rate application request for staff review each year by June 1st. Following at least one public hearing, any changes in rates would be adopted by the end of August, to be implemented on October 1. The entire process from application submittal to rate implementation should typically take 120 days. The manual establishes revenue adequacy requirements and rate review procedures based on this community's solid waste activities and goals. It does not, however, restrict the City's future ability to modify how these collection and recycling services are provided. The manual was developed because the current system of rate review was no longer adequate given the significant legal and programmatic changes affecting solid waste systems. The adoption of this manual binds both San Luis Garbage Company and the City to a method of determining revenue adequacy and a process and schedule for rate application review. While this ensures rate payers that rate reviews are consistent and based on annual audited financial statements, it also obligates the City to approve rates that are consistent with this process and method. A related solid waste franchise agreement is nearing completion and will be brought to Council for approval and execution within the next few weeks. As discussed at the study session, ►►►��►�►i�lllllllllll {{VIII city of San tins OBISp0 dMarne COUNCIL AGENDA REPORT Integrated Solid Waste Rate Setting Manual Page 2 recommendations for any rate structure and related collection system changes will be analyzed and brought to Council as a separate issue sometime within the next 12 months. KEY PROVISIONS: Rate Setting Process and Methodology Manual for Integrated Waste Management Rates The rate setting process set forth in this manual was developed with input from both the City and the existing refuse hauler. The manual incorporates current ordinances and existing operating conditions in the City. It provides a formal structure for preparing and approving adjustments to the integrated solid waste management rates. Specifically, the manual establishes rate adjustment objectives, information requirements, responsibilities, reporting formats and procedures for reviewing and adopting rate adjustments. Application forms are also provided. As described in the study session, the key provisions shaped by the solid waste management rate objectives are as follows: ■ Integrated solid waste management rates must be fair to City residents and provide adequate revenue to the hauler to fully meet reasonable costs of services. To accomplish this goal, rates must be justifiable and supportable, ensure revenue adequacy to meet costs of service, provide for ongoing review and rate stability, and be easy to administer. (The term "integrated" refers to the ability to pay all costs associated with refuse collection, landfilling and recycling through a single rate.) ■ The rate structure must provide rates that are understandable and consistent with solid waste reduction and recycling objectives. To accomplish this goal, the rate structure should promote source reduction, maximum diversion. and recycling, be environmentally sound, provide equity and fairness between and within customer classes, and be easy to understand. ■ Residential and commercial rates are regulated. Both residential and commercial integrated solid waste management rates are regulated by the City. As a result, rates will represent recovery of allowable costs, allowable profit, and specified pass through costs. ■ Profit is based on an operating ratio of 92 percent. The operating ratio effectively determines profit to the franchise hauler based on allowable costs. The allowable profit to the hauler is based on a targeted operating ratio of 92 percent, with an allowable range of between 90 and 94 percent. In the first base year, the operating ratio will be set at 92 d1�� ►�1�11����nil� city of San LUIS OBISp0 COUNCIL AGENDA.REPORT Integrated Solid Waste Rate Setting Manual Page 3 percent. In subsequent years, if the operating ratio falls within the allowable range, no adjustment will be made. If outside the range, then the operating ratio will be set to 92 percent. ■ Tipping fees, AB 939 fees, and regulatory charges are pass through costs. These costs can be recovered through the collection rates, but the hauler is not allowed a profit on these costs. ■ Income taxes, charitable and political contributions, entertainment and profit-sharing payments not related to an IRS-approved pension program are examples of non- allowable costs and cannot be included in the revenue requirement. ■ Corporate over head is capped. Corporate overhead are salaries paid to the franchise hauler's corporate officers. For purposes of rate setting, this allowable cost may not exceed $120,000 in aggregate in 1994 dollars. This does not limit what total officer salaries can be, only what costs can be recovered through collection rates. ■ Base year applications are submitted every three years. A formal base year rate setting application and review is conducted once every three years. The hauler begins-this process by submitting a "Base Year Rate Adjustment Application", with supporting detailed financial and operating information, and a survey of rates in similar jurisdictions. The City evaluates the application, including a comprehensive review of costs and revenues projected by the hauler. City staff prepares a recommendation for Council, in accordance with the adopted guidelines. A public hearing is held on any rate adjustment. From the time an application is submitted, the process is scheduled to take 120 days, with base year rate adjustments to •be effective October 1. ■ Interim year applications are submitted each year between base years. The franchise hauler may submit an "Interim Year Rate Adjustment Application" for a rate adjustment for the two years between base years. The scope for the interim year application is more limited than in the base year. Rate adjustments are based on a weighted average change in controllable costs (e.g., wages, equipment) and pass through costs (e.g., tipping fees). 1n the application, the franchise hauler must identify two indices of cost changes: (1) the U.S. National Consumer Price Index, and (2) changes in pass through costs (primarily tipping fees). City staff reviews the proposed rate adjustment based on this composite index, and prepares a recommendation. Any rate adjustments must be approved by City Council. Interim year rate adjustments are effective October 1. 1111 lll1$1101flj city of San-Luis osispo COUNCIL AGENDA REPORT Integrated Solid Waste Rate Setting Manual Page 4 ■ Audited financial statements are required. After 1994, audited financial statements must be submitted by the hauler with rate applications. These statements serve to support and reconcile cost and revenue figures presented in the applications. ■ Costs and revenues associated with a process facility shall be segregated from the franchise hauler's total costs. Integrated solid waste management rates are based on costs of providing collection and transportation of solid waste and recyclable materials, and costs of disposal of solid waste. The hauler shall segregate costs and revenues related to a processing facility from total company costs and revenues. Net revenues from the facility (after deducting costs) will be an offset (i.e., reduction) in revenue requirements for purposes of setting rates. ■ Costs and revenues associated with customers inside and outside the city will be segregated in the application forms. For purposes of rate-setting, the total costs and total revenues will be used to calculate future revenue requirements. ■ Retroactive rate increase. There will be no allowance for a retroactive increase in rates. ■ The franchise hauler will be allowed to share in costs savings due to improvements implemented by the hauler. If the franchise hauler improves the efficiency of its operations, the hauler is allowed to initially share the benefits of these cost reduction efforts with the customers. The rate setting manual provides an example of how such a costs savings program might work. As the Council agreed at its April study session, rate structure issues will be addressed at a future date separately from the rate setting process. Accordingly, current single family residential (i.e., economy, standard, and premium), multi-unit residential and non-commercial rate structures are retained as the basis for rate adjustment applications and procedures in this manual. This means that any rate increases granted to the hauler as part of the upcoming rate review will be "across the board" using the existing rate structure. In the future, the rate adjustment applications and procedures presented in the manual may need to be revised so they are consistent with any new rate structures adopted. Such change will not affect the scope, requirements, or timing of the rate setting process. 3. ►►�►� ��IIIII�p �JUIU city of San tins osIspo COUNCIL AGENDA REPORT Integrated Solid Waste Rate Setting Manual Page 5 CONCURRENCES This manual has been developed jointly with the Finance Department and the franchise hauler. The consultant's representative conducted a training session on May 18th with City staff and the franchise hauler on the manual. FISCAL E%1 PACT Adoption of this manual sets the procedure for the City to accept a base year rate application from the franchisee. Prior to beginning the study that has resulted in this manual, the franchisee indicated their intent to file a significant rate increase request. Adoption of this manual and procedures will ensure that rates are justified in accordance with current standards and should serve to control and stabilize rates. SUMMARY This manual represents completion of one of the two major tasks in the solid waste's consultant's scope of work. The intent in beginning this study with the consultant was to analyze the City's current solid waste practices and goals and to formally adopt a rate-setting process and franchise agreement that reflected these goals. The recommended manual was developed jointly with the help of the consultant, San Luis Garbage Company, and a staff committee, the City Finance Director, Utilities Director, Public Works Analyst, Solid Waste Coordinator and Utilities Analyst. The eight solid waste rate objectives presented to Council on April 11, 1994 have been integrated into this manual. The manual details a rate-setting process that is flexible and fair. It allows for future programs and analyzing the potential financial impacts of such programs. It is a process that ensures that rates are fair both to customers and to the franchise hauler. As this process supersedes some of the language in the Municipal Code, staff will be returning with recommendations for updating the Municipal Code, possibly at the same time the franchise agreement is brought to Council. Upon Council's approval of this manual, staff will be ready to accept and review San Luis Obispo Garbage Company's 1994 rate application. A recommendation regarding this rate application should be coming back to Council for consideration and public hearing by August 31, 1994. �'d ►� ►i ��llll@�p��ui���ll city of san Luis osIspo Efti-Rd COUNCIL AGENDA REPORT Integrated Solid Waste Rate Setting Manual Page 6 ATTACBAIENT The Rate Setting Process and Methodology Manual for Integrated Solid Waste Management Rates is provided to each Councilmember. A public copy is available in the City Clerk's office. J ��o srlEnlvsr *YouNc r 555 Capilol Mall l Phorre: 916149 llt)O Fax: 916 113 (\771Suite 650 Sacranrenlo, California 9581 4 April19, 1,994 Ms. Sue Baasch Administrative Analyst Ciry of San Luis Obispo 955 Morro Street San Luis Obispo, CA 93407 Rate Setting Process and Methodology Manual for Integrated Solid Waste Management Rates Dear Ms. Baasch: Ernst & Young is pleased to present the draft Rate Setting Process and Metbodologjt Manual for Integrated Solid 'Vaste Management Rates. During the past two months, Ernst & Young worked closely with the City and its refuse hauler to develop solid waste management objectives, as wbll as a ne$/ rate setting process and methodology. At the April 'J.1., 1.994 Ciry Council meeting, the Council approved the solid waste management objectives. The draft manual identifies these objectives and provides the framework and detailed instructions for determining adjustments to residential and commercial rates. Recommendations for proposed single family residential and commercial rate structures also are provided in this lener. Positive and negative impacts to the City and the refuse hauler of these proposed structures are briefly described. City staff plans to conduct a detailed analysis of alternative rate structures over the next year. Suggested steps for implementing recommended rate structures also are provided. On April 7, '1,994, we submitted a draft of a new franchise agreement. This franchise agreement describes specific rights and responsibilities of the City and franchise hauler regarding the collection, transport, and disposal of both solid waste and recyclable materials from residences and business located in the City. Under the agreement the hauler is granted an exclusive franchise for residential and commercial solid waste collection services. The agreement also authorizes the franchise hauler to collect recyclable materials, but does not grant an exclusive franchise to do so. The performance and rate review process described in Article 8b of the franchise agreement requires that the hauler submit an application in accordance with the Rate Setting Process and Metbodology Manual for Integrated Solid \Vaste Management Rates. Ell EnNsr *YouNc Ms. Sue Baasch Page 2 April L9, 7994 tr a tr tr The remainder of this lener is organized as followsr Rate Setting Process and Metbodologjt Manual for Integrated Solid Waste Management Rates I Proposed Residential Rate Stntcture Proposed Commercial and Multi-Unit Residential Rate Structure Implementing Proposed Residential and Commercial Systems. L. Rate Setting Process and Methodology Manual for Integrated Solid'Waste Management Rates The Rate Setting Process and Methodologlt Manual for Integrated Solid \ttaste Management Rates was developed with input from both the City and existing refuse hauler, San Luis Garbage Company. The manual incorporates current ordinances and existing operating conditions in the Ciry. It provides a formal structure for preparing and approving adjustments to integrated solid waste management rates. Specifically, the manual establishes rate adjustment objectives, information requirements, responsibilities, reporting formats, and procedures for reviewing and adopting rate adjustments. Application forms also are provided. Key recommendations regarding solid waste management objectives, rate setting, and rate structure are as follows: tr Integrated solid waste management rates must be fair to City residents and provide adequate revenue to the hauler. To accomplish this goal, rates must be justifiable and supportable, ensure revenue adequacy to meet costs of service, provide for ongoing review and rate stability, and be easy to administer. tr The rate structure must provide rates that are understandable and consistent with solid waste reduction and rerycling objectives. To accomplish this goal, the rate structure should promote source reduction, maximum diversion and recycling, be environmentally sound, provide equlty and fairness berween and within customer classes and be easy to understand. I Residential and cornrnercial rates are regulated. Both residential and commercial integrated solid waste management rates are regulated by the City. As a result, rates will represent recovery of allowable costs, allowable profit, and specified pass through costs. ill Fnrusr *YouNc page 3 April19,1994 o Ms. Sue Baasch tr Profit is based on an operating ratio of t2 percent. The operating ratio effectively determines profit to the franchise hauler based on allowable costs. The allowable profit to the hauler is based on a targeted operating ratio of p2 percent, with an allowable range of between 90 and 94 percent. In the first base year, the operating ratio will be set at 92 percent. In subsequent base years, if the operating ratio falls within the allowable range, no adjustment will be made. If outside the range, then the operating ratio will be set to p2 percent. Tipping fees, AB 939 fees, and regulatory charges are pass through costs. These costs can be recovered through the collection rates, but the hauler is not allowed a profit on these costs. Corporate overhead is capped. Corporate overhead are salaries paid to the franchise hauler's corporate officers. For purposes of rate setting, this allowable cost may not exceed $120,000 in1994 dollars. This does not limit what total officer salaries can be, only what costs can be recovered through collection rates. Base year applications are subrni6s4 every three years. A formal base year rate setting application and review is conducted once every three years. The hauler begins this process by submitting a Base Year Rate Adjustment Application, with supporting detailed financial and operating information, and a survey of rates in similar jurisdictions. The Ciry evaluates the application, including a comprehensive review of costs and revenues projected by the hauler. City staff then prepares a Council Agenda Report and assists in conducting a public hearing. Finally, ^ny rate adjustment must be approved by Ciry Council. From the time an application is submitted, the process is scheduled to take 120 days, with base year rate adjustments effective October L. Interim year applications are subrnitted in each year between base years. The franchise hauler will submit an Interim Year Rate Adjustment Application for a rate adjustment for the two years berween base years. The scope for the interim year application is more limited than in the base year. Rate adjustments are based on a weighted average change in controllable costs (e.g., wages, equipment) and pass through costs (e.g., tipping fees). In the application, the franchise hauler must identi$/ rwo indices of cost changes: (1) the U.S. National Consumer Price Index, and (2) changes in pass through costs (primarily tipping fees). Ciry staff calculates the proposed rate adjustment based on a composite index, and prepares a Council Agenda Report. Any rate adjustments must be approved by City Council. Interim year rate adjustments are effective October L. o tr tr Ms. Sue Baasch Page 4 April1,9,1994 E Audited financial statements are required. After 7994, audited financial statements must be submitted by the hauler with rate applications. These statements serve to support and reconcilg cost and revenue figures presented in the applications. O Costs and revenues associated with a processing facility shall be segregated from the franchise hauler's total costs. Integrated solid waste management rates are based on costs of providing collection and transportation of solid waste and reryclable materials, costs of disposal of solid waste, and costs of this processing facility. The hauler shall segregate costs and revenues related to a processing facility from total company costs and revenues. Revenues from the facility will be an offset (i.e., reduction) in revenue requirements for purposes of setting rates. tr The franctrise hauler will be allowed to share in cost savings due to irnprovements implemented by the hauler. If the franchise hauler improves the efficienry of its operations, the hauler is allowed to initially share the benefits of these cost reduction efforts with the customers. The rate setting manual provides an example of how such a cost savings program might work. Current single family residential (i.e., economy, standard, and premium), multiunit residential, and commercial rate stmctures form the basis for rate adjustment applications and procedures in this manual. The City should note that in the future, the rate adjustment applications and procedures presented in the manual need to be revised so they are consistent with any new rate strucrures adopted. Such change does not effect the scope, requirements, or timing of the rate setting process. 2. Proposed Residential Rate Structure Residential customers now may choose from one of three collection services: (1) economy service, which allows the customer to place refuse in orange bags purchased from the hauler or City, (2) standard service, which is a 90 gallon waste wheeler, and (3) premium service, which allows the customer to use up to six (6) equivalent 30 gallon containers. In our March 2'1,, 1994,letter to the Cicy, we discuss the characteristics and pricing issues of providing these three services. After discussions with the City and hauler, and a review of current trends in the pricing of integrated solid waste management services, v/e recommend a change to the existing residential collection services and the corresponding rate structure required to recover costs of providing solid waste and recyclable material collection. Ell EnNsr *Younc Ms. Sue Baasch page 5 April19,1994 It is recommended that the City adopt a uvariable can system" requiring all residential customers to select either a 30,60, or 90 gallon waste wheeler container. The hauler distributes waste wheelers to customers and provides collectiorr services once a week. Existing economy (orange bag) and premium (cans) services are eliminated. No cans, bags, boxes, or other containers are collected. Current standard service customers may retain their existing 90 gallon waste wheeler or may trade for a smaller \il/aste wheeler. The monthly rate charged for each service is determined by the City, based on a formal application by the hauler. Customers using larger waste wheelers pay a higher monthly rate than those using smaller waste wheelers. Low income customers would be provided a rate which should be established at a ten percent (1,0Vo) discount of the rate for the service chosen. The Ciry would annually identify the customers which qualify for the low income discount. It is critical for the City and franchise hauler to develop rates which do not significantly impact existing customers bills, but which also provide adequate revenues to meet costs of the hauler to provide solid waste and recycling services. The City, working with the hauler, should perform a comprehensive analysis of proposed rates under a new rate structure. Assuming that total residential revenue requirements are known, this analysis could include the following activities: Step 1 Estimate the number of customers subscribing to each new service type. This estimate might be based on current customer account data and forecasts of growth in number of households. This involves estimating what proportion of existing economy, standard, and premium service customers will chose each of the three new container sizes. Step 2 Estimate generatlon of solid waste and recycling tonnage. This step would involve forecasts of the tonnage of waste generated by single family residential customers, and the tonnage of recyclable materials set out by residents. Tonnage estimates might be based on simple trend analysis or forecasting equations, and account for variables including . population, age distribution, and strength of recycling alternatives. The results are used to determine demand by collection service (30, 60, or 90 gallon waste wheelers), and also for potentially allocating costs and determining rates for each service type. Step 3 Perform cost allocation. The City and hauler would analyzehow revenue requirements will be distributed between and within each of the three proposed single family residential customer service classes. An alternative is to provide a fixed increment in the monthly rate charged for each residential service class, and ensure that total revenues collected meet total residential revenue requirements. Ell EnNsr *YouNc Ms. Sue Baasch Page 6 April1,9, 1994 Step 4 Finalize rate design and calculate rates. In this step, the City and hauler would detetmine the rate structure which meets the altemative services provided (e.g., 30, 60, and 90 gallon waste wheelers) and the monthly rate for each rate class which ensures sufficient revenues are generated. Relationships between the three rates will be established that are equitable within service levels and provide consistent source reduction and diversion incentives. It is likely that rates established for each service level may be different from estimated costs of providing that service (i.e., there may be some subsidy of one service level by another). The City has suggested that although there may be subsidies within the rate structure on the basis of cost to provide service, what may be more important in determining rates is the volume of solid waste generated by a particular class of customers. For example, the costs to service 30 gallon containers may be similar to 90 gallon customers if there is a large fixed cost component in both. However, because 30 gallon customers generate much less waste and place a smaller impact on available landfill resources, then monthly rates for 30 gallon customers should be proportionately lower. It is recommended that the City adopt rates for the new three-tiered rate structure which provide a consrant rate per 30-gallon equivalent. This type of rate structure is commonly used in other California jurisdictions with variable can rates.l To present an example, it is assumed that the hauler's total annual required residential revenues are $L,200,000, and that there are 8,800 single family residential customers (approximately the size of San Luis Garbage Co.). As shown in Table 1, monthly rates of $7.00 (30 gallon), $14.00 (50 gallon), and $21.00 (90 gallon) would provide adequate revenue under a conservative customer mix (i.e., 50 percent are 30 gallon customers, L0 percent are60 gallon customers, and 30 percent aregO gallon customers). The price is $7.00 per month for each 30 gallons of q'aste wheeler capaciry. These rates are only an example and do not represent actual rates under the proposed new rate structure. Table I Example Monthly Rates Under Proposed Single Family Residential System Service Number of Customers Monthly Rate Annual BillingsMtx 30-gallon 60-gallon 90-gallon 5,?30 880 .2,640 9,900 60o/o L0o/o \U/o lWo $z.oo 14.00 21.OO $443,520 L47,840 665,280 $t,256,640 1 In a sunrey performed by Emst & Young h L993 of eight California cities with variable can sysrems, six jurisdictions (75 percent) used a system with a constant monthly charge per equivalent container size. EJI EnNsr aYouxc Ms. Sue Baasch Page 7 April79,1994 To comply with the Ciry's objective to encourage source reduction and diversion, it is recommended that the rate for additional waste wheelers used by a customer be equal to the rate for a single waste wheeler. In the example above, a customer requiring tvro 60 gallon q/aste wheelers would be charged $28.00 per month ($14.00 + $14.00). The proposed single family residential rate structure offers a number of benefits to both the Ciry and hauler. For the Ciry, the proposed single family residential rate structure would: D Offer flexibility in pricing incremental waste wheeler service levels. As an example, over time the City could chose to provide greater incentive for customers to use 30 gallon waste wheelers by establishing a significantly lower rate than for 50 or 90 gallon users. The City needs to be cautious of the response of customers to a rate structure which provides such incentives. The franchise hauler's cost structure would likely not change significantly as more customers shift to the 30 gallon service, but revenues may be reduced dramatically. tr Promote source reduction, diversion, and rerycling and, as a result, be consistent with Assembly Bill 939 (AB 939) objectives and the Ciry's Source Reduction and Recycling Element (SRRE). In other jurisdictions, variable can systems have proven to be an effective recycling incentive, and have reduced tonnage disposed.2 The Ciry should be aware that as more customers set out recyclable materials for collection, costs of the hauler may actually increase. Due to higher collection, handling, transportation, and processing costs, costs of curbside and commercial recycling may be greater than costs of solid waste collection and disposal. As the percentage of total materials collected shifts from solid waste to recyclable materials, the hauler's total costs could increase. n Increase equity and fairness between and within customer classes. Payments under the new structure may relieve customers who dispose of smaller volumes of solid waste of the burden of subsidizing solid waste collection services of customers who generate larger volumes of waste. 2 Fo, example, since Seattle's introduction of variable can rates in 1981, Seattle residential customers have reduced the average number of cans subscribed from 3.5 down to iust over one can. Also, the recycling percentage in terms of acrual tons of waste diverted was over 24 percent before introduction of any City-sponsored recycling prograrns. (Source: U.S. Environmental Protection Agency and Ciry of Seattle Solid Vaste Utility, June 1990) =-JI EnNsr *YouNc Page 8 April1,9, 1.994Ms. Sue Baasch O Reduce existing environmental concems. Impacts to the landfill are reduced by eliminating disposable containers (orange plastic bags now used for the Ciry's economy service). Furthermore, with an automated collection system, more customers can be served per route and vehicle, resulting in improved air qualicy due to less emissions from collection vehicles. tr Provide the following benefits: . Reduced disposal costs due to reduced generation . Extended capacity of existing landfills . Improved utilization of curbside collection and commercial recycling program. For the franchise hauler, the proposed single family residential rate structure would: tr Be consistent with the hauler's transition toward automating solid waste collection activities. The hauler currently performs automated services in other jurisdictions, and has indicated plans to purchase automated San Luis Garbage Company trucks to replace existing trucks which have reached their useful life. If Reduce workers compensation costs. These costs are high due to potential injury claims, due in pan to picking up odd-size and overweight cans and orange bags. Waste wheelers reduce injury because they can either be wheeled to the back of a truck and automatically lifted (semi- automated), or lifted directly from the curb by a mechanical arm (automated). tr Reduce labor costs. The hauler has indicated that with automation existing routes requiring two employees could instead be performed with one driver, and that up to 60 percent more residential accounts could be served by the single driver. O Increase effectiveness of enforcement. The hauler has relied on an honor system for enforcement of existing premium service customers. Ensuring that customers pay for the services actually provided is greatly simplified because all customers are using only waste wheelers. The collectors would be aware that any waste outside the waste wheeler was not paid for. Over time, no cans, bags, boxes, or other containers are collected. -=!l EnNsr *YouNc Ms. Sue Baasch page 9 April1,9,1,994 Potential negative impacts of the proposed new collection services and rate structure for the Ciry include: tr Resistance from customers who are used to existing services arld are unwilling to change behavior. A premium customer using cans may react unfavorably to having to use waste wheelers only. Premium customers owning their own cans would have to replace cans by renting waste wheelers. This resistance may be eliminated through public education about the benefits of variable waste wheeler service, and by providing advance leadtime to allow customers to transition to the new system. A Risk of illegal dumping of waste. Customers may resort to illegal dumping in order to avoid moving to more expensive service categories (i.e., to Iarger waste wheelers). This risk may be alleviated through convenient recycling altematives, public relations, and education. For the hauler, negative impacts may include: tr Risk of uncenain revenues. Accurate revenue projections depend on accurate service level projections made by the hauler, which may be difficult to perform. There is potential for the hauler to incorectly estimate revenue under the new system as a result of incorrect assumptions of subscriber behavior. For example, the hauler may project that a large percentage of the existing 633 premium service customers (I99, will choose 90 gallon waste wheeler service under the new system. If, instead a significant number of these premium service subscribers chose 30 or 60 gallon waste wheeler service, the hauler's revenues will be less than projected. A method of reducing this uncertainty would be to allow a phase-in period during which valid revenue shortfalls are recovered by allowing an adjustment in rates by the City's Chief Administrative Officer. This mechanism is already allowed for in the rate setting manual in the case of extraordinary and consequential cost increases that occur mid-year. The risk of uncertain revenues should decrease over time as the new system is fully implemented. After the existing system is fully replaced with the proposed rate structure and services, the hauler should be able to more accurately project subscription levels and revenues. =JI EnNsr aYouNc Ms. Sue Baasch Page L0 April79,1.994 tr Costs to implement new residential collection services and a new rate structure. These include: . Changes to a newly adopted franchise agreement and ihe rate setting manual . Public information, outreach, and public relations programs . Billing system changes (to track each customer's selected subscription level) . Redesign of new routes which take advantage of more efficient automated waste wheeler service o Automated collection vehicles to replace existing rear loading packer trucks. 3. Proposed Commercial and Multi-Unit Residential Rate Structure The proposed new commercial and multi-unit residential rate structure also is volume-based. It is recommended that customers be charged a fixed rate for each cubic yard of solid waste service provided. The proposed rate structure is independent of collection frequency and is simply a function of quantity generated. For example, if the monthly rate for each cubic yard of service is $8, a customer requiring a three cubic yard dumpster picked up two times per week (6 cubic yards weekly) would be charged $192 per month (24 cubic yards per month x $8 per cubic yard). The positive impacts of such a system include: tr Provide price signals to customers to reduce or divert the solid waste generated. The current rate structure charges a lower amount per cubic yard f more solid waste is generated. Currently, a generator who chooses a two cubic yard dumpster picked up once per week is charged $53.00 per month, or $6.63 per cubic yard ($53 per month divided by 8 cubic yards per month). A generator who chooses a three cubic yard dumpster picked up once per week is charged $65.00 per monrh, or $5.42 per cubic yard. r$fith a declining per unit rate structure, there is no direct financial incentive to generate less waste. The "steeper" the extra charge is for additional waste, the greater the incentive to reduce or recycle. The recommended new rate structure would no longer be declining, but would be a flat (or constant) rate per cubic yard. This change increases the financial incentive for customers not to move up to a larget dumpster or more frequent collections. --JI EnNsr aYouNc Ms. Sue Baasch Page 11. April19,1,994 tr Promote source reduction, diversion, and recycling. As a result, the rate structure is consistent wirh Assembly Bill 939 (AB 93D objectives and the Ciry's Source Reduction and Recycling Element (SRRE). t tr Increase equiry and fairness between and within customer classes. Cenerators which place increasing demands on the solid waste system would pay an increasing burden of solid waste collection and disposal costs. O Be easier to understand and implement. The new rate structure will replace the existing residential multi-unit and commercial rate matrix. Customers should more easily understand commercial rates and the hauler will be able to easily convey rates to customers. The billing for services is simplified because of the constant rate per cubic yard. The hauler would still track each customer's size of container and number of weekly pick- ups, as it does now under the current system. Potential negative impacts include: tr Risk of uncertain revenues. Similar to changes to the proposed new single family residential structure, this new structure requires that the hauler estimate subscription levels (by size of dumpster and frequency of collection) and revenues from the new structure. The hauler must project how customers may respond to the new structure, and estimate the proportion of customers potentially reducing the size of dumpster or frequency of collection. tr More frequent bin collections being requested by customers. Customers may chose smaller dumpsters picked up more frequently, although at the same rate they could chose a larger dumpster picked up less frequently. This behavior results in higher costs to the hauler (more vehicle trips) for picking up waste more often. However, the hauler has indicated that this behavior rarely occurs. Also, the proposed nes/ rate structure would actually build in incentives for the hauler to recommend that customers use larger dumpster sizes picked up less frequently for the same volume of waste. It is recommended that the City adopt a rate structure for the current commercial can and commercial waste wheeler service which is a equivalent to the proposed 30, 60 and 90 gallon single family residential rate structure. Also, as noted above, it is recommended that multiunit residential customers using dumpsters should be charged a flat per cubic yard rate. However, the flat rate may be different than the commercial dumpster flat rate due to cost of service differences. EtJ Enrusr *YouNc Page 72 April19,1,994Ms. Sue Baasch 4. Phasing Proposed Residential and Cornrnercial Systems The proposed residential and commercial automated service and rate structures will take --. thr., one year to implement. The hauler must purch"r! .r.* trucks and waste wheelers to take full advantage of an automated collection system. These new trucks may be purchased to replace existing vehicles after the full depreciated costs of existing vehicles are fully recovered. The hauler also must modify its billing system, conduct pilot studies of the automated vehicles and containers, and design and distribute educational materials. In addition, collection routes must be reconstructed to take advantage of automated collection, and the labor force must be realigned. The specific details concerning implementation efforts and timing will be developed by the City and hauler. Below is a list of general phases leading to implementation. tr Phase 1 - Develop and adopt new rate structure and new rates. City staff recently obtained City council approval to develop, perform a detailed analysis, and test alternative new rate structure and resulting rates. A Phase 2 - Upgrade existing truck fleet. In this phase the franchise hauler purchases automated trucks. This phase will likely take the most elapsed time because older rear loading vehicles are replaced with automated vehicles. At some point, remaining rear loading trucks which have not been fully depreciated should be sold and expensed. The City needs to determine a policy on how to treat costs of replacing trucks which have not been fully depreciated nor reached their useful life. tl Phase 3 - Revise collection routes and use of labor force. During this phase the hauler will need to revise routing of collection vehicles and redirect the existing workforce under the new route design. A reduction in collection laborers needed will likely occur. The hauler may chose to meet this labor reduction through attrition or shifting of responsibilities tr Phase 4 - Implement adrninistrative changes to system. In this phase the hauler modifies and tests new billing requirements, upgrades computer systems, and distributes educational materials. The City will revise existing ordinances, refine rate setting procedures and rates, and update the rate setting process and methodology manual. O Phase 5 - Conduct pilot study. During this phase the hauler conducts a pilot test of the new collection vehicle(s) and containers. The hauler evaluates results of is pilot study and revises and modifies routes to expand the pilot study. EtlFnrusr aYouNc Ms. Sue Baasch Page 13 April 19, 1994 tr tr Phase 6 - Purchase and distribute new waste wheelers. The hauler completes purchase of waste wheelers and, based on subscription rates, distributes them to customers. t Phase 7 - Implement new system. The franchise hauler operates city-wide under the new system. During the initial year of city-wide implementation, the hauler should periodically evaluate system impacts, make staff available to talk about the new system, and enforce compliance through education rather than fines or penalties. ** This letter plesents a sufirmary of objectives and contents of the draft Rate Setting Pr"ocess and Metbodologjt Manual for Integrated Solid 'Waste Mantagemeixt Ra.tes together with recommendations for the proposed residential and cornrnercial rate structures. 'We would appreciate your review and comments concerning the draft rnanual and recommendations. If you have any questions, please contact either Mr. Edward Kaempf or Mr. Erik Nylund in Sacramento at (915) 449-3400. Very truly yours, Edward R. Enclosure --] I I "t il 't rl 1 I I .t I J .l ) ctyo[san luls oBtspo Rate Setting Process and Methodology Manualfor Integrated Solid Waste Management Rates April 1994 I I 1 1 l I I I I 1 I i l j Ij i I I l l l I i l, l Rate Setting Process and M etb o dologjt M anual for fntegrate d Sol:id Waste Management Rates f 1 I Preparedfor City of San Luis Obispo San Luis Garbage Company Prepared bjt EflEnlvsr&YouNG 555 Capitol Mall, Suite 550 Sacramento, California 95874 April 1994 I I IJ Printed on Recycled Paper I l Rate Setting Process and Methodology Manual for Integrated Solid Waste Management Rates Table of Contents Section I: Rate Setting Oaeruieut A. Introduction B. Rate Setting Objectives C. Rate Structure Objectives D. Other Key Objectives E. Rate Adjustment Appli.",ion Process F. Allowable and Pass Through Costs G. Using the Manual Page I-1 I-1 I-L I-2 r_3 L5 r5 r-7 Section II: Rate Setting Process A. Base Year Rate Setting Process 1. Preparation and Submission of Rate Adjustment Application 2. Verification of Completeness of Rate Adjustment Application 3. Review of Rate Adjustment Application and Preparation of Responses 4. Response to Additional Information Requests from City 5. Preparation of Draft Council Agenda Report 6. Review of Draft Council Agenda Report 7. Preparation of Final Council Agenda Report B. Presentation of Agenda Report to City Council 9. Implementation of New Rates B. Timing of Base Year Rate Setting Process C. Interim Year Rate Setting Process 1. Preparation and Submission of Rate Adjustment Application 2. Preparation of Draft Council Agenda Report 3. Review and Response to Draft Council Agenda Report 4. Preparation of Final Council Agenda Report 5. Presentation of Agenda Report to City Council 6. Implementation of New Rates II-1 II-]. II-5 II-9 II-1.0 II-13 rr-1.4 r-16 rr-17 II-18 II-19 II-24 II-25 II-26 II-27 rr-29 IT-29 II-20 il-22 II-30 \ D. Timing of Interim Year Rate Setting Process Page i ble of Contents (cont.) Section III: Base Year Rate Setting Metbod,ology L. Entry of Operating Costs 2. Determination of Revenues without Rate Increase 3. Calculation of Allowable Operating Profit and Revenue Requirement 4. Calculation of Percent Change In Rates 5. Preparation of Summary Form 6. Survey of Rates in Similar Areas Section IV: Interim Year Rate Setting Metbod,ol.ogjt 1. Determination of Base Year Costs and'Weightings 2. Calculation of Percent Changes in Controllable and Pass Through Costs 3. Calculation of 'STeighted Change in Rates 4. Preparation of the Summary Form 5. Application Certification Appendix Page ru-1 nr-9 rrr-13 u-15 III-17 III-18 III-19 IV-1 IV-5 rv-7 IV-8 IV-9 IV-10 A-1 B-1 Appendix A Appendix B Blank Forms and Vorksheets Chart of Accounts Page ii tuhibits I ) I Bxhibit Page r_9 IT-2 W4 rr-21. I-23 II-31 TIT-2 III-3 uI-1,0 III-20 rv-2 IV-3 I I I-L II-1 TI-2 II-3 W4 il-5 m-.1 III-2 III-3 TII-4 IV-1 rv-2 Organization of Each Step Base Year Rate Setting Process Base Year Rate Setting Process Diagram Timing of Base Year Rate Adjustment Process Interim Year Rate Adjustment Process Timing of Interim Year Rate Adjustment Process Preparation of the Base Year Rate Adjustment Application Sample Base Year Rate Adjustment Application Definition of Financial Terms from Base Year Rate Adjustment Application Sample Solid tiflaste Fee Survey Preparation of the Interim Year Rate Adjustment Application Sample Interim Year Rate Adjustment Application I II I I.l I ..J I iJ _l Page iii .l Section I Rate Setting Overview I. Rate Setting Oueruiew This section of the manual provides an overview of the rate setting process. This section is organized as follows: A. Introduction B. Rate Setting Objectioes C Rate Structure Objectiaes D. Otber Key Objecttues E. Ra.te Adjustmeflt Application Process F. Allautabl.e and Pass Througlt Costs G. Uslng the Manual A. Introd.uction This manual provides a step-by-step guide for the City of San Luis Obispo (Ciry; and its franchise hauler to prepare and approve adjustments to integrated solid waste management rates. The manual establishes rate adjustment policies, provides application forms, specifies repor-ting formats, identifies required supporting documentation, and describes procedures to be followed in requesting, reviewing, and adopting rate adjustments. Cost and revenue information is required for all services provided by the franchise hauler. This manual provides a formal structure for establishing integrated solid waste management rates and has been developed with input and direction from both the City and current franchise hauler. It incorporates current ordinances and existing operating conditions in the City. As both the City and franchise hauler gain experience using the rate setting methodology described in the manual, the process should be updated, revised, and improved. This manual is organized into four sections: Section I: Rate Sefting Oaeroieu: This section provides an introduction to the manual and discusses the objectives followed in establishing the rate setting processes. Section II: Ra.te Seuing Process: A detailed discussion of the rate setting process is presented in this section. This discussion focuses on responsibilities of participants in the process, activities to be performed, and the timing of these activities. Sectlon III: Base Year Rate Setting Metbodologjt: This section provides detailed instructions on how to complete the forms used to establish new rates for each base year. Section IV: Interim Year Rate Setting Metbod.ologjt: In this section, detailed instructions are provided for completing forms used to establish new rates for each interim year. B. Rate Setting Objecttueis The primary goal of the rate setting process and methodology is to determine integrated solid waste management rates which are fair to San Luis Obispo residents and which provide adequate revenue to the hauler. Four rate setting objectives were considered in developing the rate setting approach: D Rates requested by the franchise hauler must be iustiffable and supportable. A formal request to adjust rates submitted by the franchise hauler should be based on formally adopted guidelines for expenses and profit, and provide the basis for all rate adjustments. The requested rates City of San Luis Obispo Page l-1 Section l. Rate Setting Overview should include only allowable and pass through costs, and provide accountability for all expenditures. tl The proc€ss should ensufe revenue adequacy to fully meet reasonable costs of senrice. Estimated costs of service and resulting integrated solid waste management rates should be reasonable. Granting a franchise for solid waste collection recognizes the private sector's ability to provide quality service at a reasonable cost. Further, the City acknowledges that maintenance of good 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 rates for solid waste service should be comparable to those charged in other cities for providing similar services. tr The rate setting process should provide for ongoing review and rate stability. A formal and thorough Ciry review of financial and operating data will set an expectation for both City staff and hauler, ultimately to protect the rate payer. The process should be designed to prevent large, unexpected fluctuations in rates anticipated from funding a broadening scope of integrated waste management services. tr The process should be easy to administer, while 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 City or the franchise hauler to implement. C Rate Structure Objectiaes The primary goal of the rate structure is to provide San Luis Obispo residents with fair rates that are understandable and consistent with solid waste reduction and rerycling objectives. Four objectives were utilized in developing the City's rate structure: tr Pfomote source reduction, maximum diversion, and recycling. Reducing the volume of landfilled waste was established as a Ciry prioriry in 1990 with the adoption of volume-based residential rates. The California Integrated'u7aste Management Act, Assembly Bill939 (AB 939, Chapter L095, . 1989) prioritized diversion of solid waste through source reduction, reuse, and recycling. Rate structure design should be consistent with AB 939 goals and provide residents incentives to reduce solid waste generation while maximizing recycling. In response to AB 939, the City's Source Reduction and Recycling Element (SRRE) establishes policies to promote source reduction, maximum diversion, and recycling. Rate structures and collection systems should work together to meet SRRE objectives. Rate structures that encourage maximum diversion generally are uniform or have increasing rates for increasing volumes of waste generated. In combination with volume-based rates, collection systems with a flexible "increment" of service create incentives to reduce and recycle. tr Provide equity and fairness within classes of customers. The rate structure should be constructed so no customer class is given preferential rates, either befween classes or within the same class of customers. However, low income residents may be provided a discount on their rates. Determination of equity includes the relative demand (i.e., tonnage of solid waste generated) which customers place on the solid waste system. tr Be environmentally sound. Environmental concerns associated with collection systems include the added amount of waste created by use of orange bags and air quality impacts Page l-2 City of San Luts OHspo Section l. Rate Settino Overvlew from transportation of waste, recyclable materials, and yard debris. 'ttrTorking towards environmental soundness means phasing out the use of disposable containers (orange bags). Air quality impacts can be addressed through financial incentives to reduce frequency of pickups and to increase efficiencies of collection to allow for a large number of accounts per route. tr Be easy to understand. Both residential and non-residential customers should be able to understand the rate structure. D. Otber Key Objectiaes The following are other key objectives considered in developing the processes and detailed methodologies described in this manual: tr Regulation of residential and non- residential integrated solid waste management rates. Both residential and non-residential integrated solid waste management rates are regulated by the Ciry, and will represent recovery of allowable costs incurred by the franchise hauler. These allowable costs include collection/disposal of residential and non-residen tial garbage, curbside collection of residential recyclable materials, and collection of non- residential reryclables. Costs incurred by the franchise hauler must be adequately documented in a formal request for a rate adjustment, and the rate request must be supported by company financial statements. The first formal request for a rate adjustment (which may be submitted during 7994) will not require audited financial statements, but all future base year rate requests will. tr Profit. A profit to the hauler is allowed in the rate base, and is based on a targeted operating ratio of !2 percent on allowable costs, with a range of between 90 and )4 percent. In the base year, if rates would remain unchanged at an operating ratio within the range of 90 to !4 percent, and the company actually rcalized an operating ratio within this range, then that same operating ratio resulting in no rate change will be used, and no rate change will occur. Otherwise, a )2 percent operating ratio will be used for the base year calculation. The operating ratio effectively determines the profit allowed to the franchise hauler on allowable costs. Total revenue requirements then are determined as the sum of: (1) allowable costs, (2) allowable profit, and (3) pass through costs (for which the franchise hauler gets no profit). In the first base year, the operating ratio will be p2 percent. In each succeeding base year (once every three years), the operating ratio would range from 90 to )4 percent, which will help stabilize rate adjustments and afford the company an incentive to reduce costs. In any succeeding base year, if the company eamed an operating ratio outside this range, then 92 percent would be reestablished. tr Retroactive rate increase. There will be no allowance for a retroactive increase in rates. D Perforrnance audits. Vhile rates for residential and non-residential services are evaluated in detail during each base year (every three years), the rate review focuses on actual costs and does not address opportunities for the franchise hauler to improve general operational efficiency. If actions can be taken to improve the franchise hauler's efficiency, this could result in lower total costs, and correspondingly, lower rates for customers. In order to address this issue, performance audits of the franchise hauler could be conducted at regular intervals, such as once every three years. The timing of these audits could Clty of San Luis OMspo Page l-3 Section l. Rate SettinE Overvlew be independent of the rate adjustment process described in this manual. A two-phase approach may be appropriate for these audits. An overall diagnostic review would be conducted in Phase I, and more detailed and focused work in selected areas would be conducted in Phase II, based on the Phase I findings. tr Cost savings progfarns. The franchise hauler will be allowed to share in cost savings due to improvements 'implemented by the hauler. This savings program provides an incentive to the franchise hauler to reduce costs. Under the rate setting process described in this manual, if the franchise hauler is able to reduce costs, the benefits of these cost reduction efforts are passed . on to the rate payers in the next base year. There may be no direct incentive for the franchise hauler to identi$' and implement cost savings activities. The purpose of a formal program is to allow the franchise hauler to receive some of these benefits while also lowering the rates for customers. The amount of cost savings would be identified initially during development of a proposed new program and then would be monitored during implementation of the new program. Savings would be shared by the franchise hauler and the rate payers, based on pre-determined splits. For example, during the first year of a new program, the franchise hauler may receive 75 percent of the savings and the rate payers would receive 25 percent. In year two, the franchise hauler would receive 50 percent of the benefit and the rate payer would received 50 percent. In year three, the franchise hauler would receive 25 percent of the cost savings. In the fourth year, all savings would be passed through to City customers. Examples of cost savings programs include investing in new equipment, redesigning collection routes, automating administrative functions, or streamlining administrative processes. These opportunities for cost savings might be identified by the franchise hauler or through performance audits reviewed by the City. Monitoring actual savings achieved is the most difficult task in developing a cost savings program. Cost, and in some cases, operating data must be identified and carefully reviewed. \fithout careful monitoring, the program may be abused. Adjusting rates to reflect the savings also is difficult because rate adjustments for each interim year ^te determined by a change in the consumer price index instead of by an examination of base year costs. The hauler may, in fact, lower costs of operation through a cost savings program, though the rates would not automatically be lowered. Cost savings can not be included simply by reflecting the savings as a reduction in total cost. New polices and procedures would have to be established to allow for cost savings adiustments under the methodology presented in this manual. These policies must address a number of issues including: the time period for sharing costs, the split of the savings, the form in which cost reduction proposals must be prepared, the process for monitoring actual cost savings, and incorporation of the concept in the current methodology. Page l-4 Clty of San Luls Obtspo Section l. Rate Settinq Overview E. Rate Ad.just nent Application Process A Base Year Rate Adjustment Application from the franchise hauler is required once every three years. This process requires detailed financial and operating information which is carefully reviewed and analyzed by the City. These detailed reviews are referred to as "base" years in the methodology. \fith the Base Year Rate Adjustment Application the hauler submits annual audited financial statements (except for the initial base year application after this manual is adopted). These statements will serve as the base document of the application. Financial forms contained in the application should be reconciled to the auditJfinancial statements to provide assurance that all of the company's activities are accounted for. At the time a Base Year Rate Adjustment Applicationis submitted, the franchise hauler also shall provide the City with a survey of rates and services provided in at least six other municipalities of comparable size and service. The format for this survey is contained in Appendix A of this manual. In each of the "interim" two years, rate adjustments will be based on the annual percentage change in a composite index of the following three items: tr Annual change in the most recent actual, not forecasted, U.S. Consumer Price Index published by the Bureau of Labor Statistics in their Montbly Labor Reuiew, applied to specified costs of the franchise hauler (such as wages, salaries, payroll taxes, rent, and general and administration costs) tr Change in costs for tipping fees, and AB 939 and regulatory fees estimated to occur in the next interim year tr An adjustment for the franchise fee, which is based on a percentage of total revenues generated from resi/ential and non-residential integrated solid waste collection service. The franchise hauler will be required to submit an Interim Year Rate Adjustment Application for a rate increase between base years. The scope of each interim year application would be more limited than a base year request. Although a formal application would be required each year, the company would have the option to not increase rates, though an interim year adjustment might allow it to do so. The City or franchise hauler may request an extraordinary or consequential adjustment outside of the base year and interim year adjustment schedules. The franchise hauler requesting an extraordinary or consequential cost increase should demonstrate, to the satisfaction of the Ciry Administrative Officer, that it has incurred extraordina ry and consequential cost increases. To be extraordinarv or . r , consequential, cost W?t m,rst b"ffi'e'E enough to require a greater than five percent (5%o) decrease or increase in monthly rates. F. Allouable and Pass Througlt Cosfs For purposes of computing required revenue to be obtained from rate payers, it is necessary to determine which of the franchise hauler's costs are allowable, non- allowable, and pass through. Profit is allowed to the franchise hauler for allowable costs. Non-allowable costs cannot be recovered through the rate base. Pass through costs do not e rn a profit, but can be recovered through the rate base. Allowable Costs The hauler is allowed to earn a profit on certain costs. These allowable costs include direct labor, corporate overhead, office salaries, and other general and administrative costs. These allowable costs are defined in Table 1, on the following page. \ Citlt of San Luts Obtspo Page l-5 Sectlon l. Rate Settinq Overview Table 1 Allowable Costs Cost Description Direct Labor All coss associated with solid waste and reryclable materials collection, including wages, overtime, payroll taxes, health and welfare benefits, workers compensation, and pension benefits, Corporate Overhead Salaries paid to the franchise hauler's corporate officers. The amount of this item cannot exceed $120,000 per year (in 7994 dollars). Office Salaries Vages and related benefits paid to office and administrative stafl including wages, overtime, payroll taxes, health and welfare benefits, workers compensation, and pension benefits. Other General and Administrative Costs All general and administrative costs with the exception of corporate overhead and office salaries. This item includes the following costs: . Collection fees o Computer equipment and services . Depreciation . Dues and subscriptions . Insufance o Janitorial . Laundry and uniform . Interest expense o Licenses . Medical expenses Office rent Office supplies Postage Professional fees Promotion Office repair and maintenance Telephone Travel rrucKng Utilities a a a a a A few costs of providing collection service need to be clarified because of special treatment for purposes of rate reiti.tg. These are discussed below. tr Interest Expense. Interest expense is included as an allowable cost on which profit is allowed.l tr Lease Payments. Lease payments to non-affiliated companies are an allowable expense. These payments may implicitly contain interest. Interest expense is allowed in the operating profit calculation, which differs from the practice in some municipalities. Interest expense is a relatively small portion of the current franchise hauler's total costs. If interest becomes a significant factor in the franchise hauler's cost structure, the City may wish to reconsider the treatment of this cost component. Lease payments to affiliated companies are a pass through cost. D Depreciation. The following depreciation methods and useful lives are to be used for amonizing capital costs for rate setting purposes: Table 2 Depreciation Methods Capital Item Type(a) Years Office Equipment Vehicles and Equipment Buildings and Leasehold Improvements SL SL SL 5 years 7 years 25 years (a) sr = straight line depreciation Page l-6 Clty of San Luls Obtspo i Section l. Rate Settinq Overview I tr Recycling. Costs of providing residential curbside recycling and non-residential rerycling services provided to the City by the franchise hauler will be an allowable cost. Therefore, the integrated solid waste management rates charged to customers would include recovery of allowable costs of providing recycling services, and a profit is allowed on these costs. Non-Allowable Costs The following costs are not allowable and as a result will not be passed on to the rate payers: tr Charitable and political contributions tr Entertainment O Income taxes tr Profit sharing payments not related to an IRS approved pension program. Pass Tbrough Costs The following pass through cosrs do not earn a profit, but are included in determining total revenue requirements to establish integrated solid waste management rates: tr Tipping Fees. If the franchise hauler utilizes a disposal faciliry which is owned by an affiliated company, the tipping fee charged by the disposal facility to the franchise hauler must be the same as the rate charged to other non-affiliated haulers for the same service. Tipping fees are defined to include both transfer station, transformhtion faciliry, and landfill charges. In each interim year, tipping fees are not automatically adjusted by the CPI, as is proposed for all controllable costs, Rather, a projection is made of what tipping fees would be in the new interim year. Then, a comparison is made with tipping fees in the previous year. The resulting percent change in tipping fees would be weighted by their share of total base year revenue requirements, in determining the composite index used in each interim year. tr Franchise fee. The franchise fee is 6.0 percent of the hauler's gross residential and non-residential revenues, excluding revenues from the sale of recyclable materials and California refund value (CRV). This fee is a pass through cost (no profit is allowed). tr Costs to implement State mandated source reduction and household hazardous waste prograrns. The City plans to adopt the Source Reduction and Recycling Element (SRRE) and Housebold Hazardous'lVaste Element (HHIY/E) as required by AB !lP. These elements contain a number of recommended programs whose costs are projected to be funded in part by integrated solid waste management rates. If the City implements a surcharge on the monthly charge for waste management services, this surcharge will be considered pass through cost for the purposes of rate setting. The franchise hauler will not be allowed a profit on these AB 939 surcharges. tr Trucking Charges. Trucking charges from companies affiliated with the franchise hauler are a pass through cost, and no profit is allowed to the franchise hauler. This is based on the assumption that profits already are included in the trucking charges paid by the franchise hauler. I Cltlt of San Luis Obtspo Page l-7 Section l. Rate Setting Overylgw G. Uslngtbe Manual Each section of the manual has been divided into a number of subsections. A subsection begins with a discussion related to a major topic. Many subsections of this manual include a series of "steps" which must be completed during the rate setting process. Each step begins at the top of a page and is prominently marked for easy reference. The organization of each step is worksheets and forms which are used to complete selected steps of the process: tr Base year rate adiustment application tr Interim ye r tate adjustment application tr Interim year rate adjustment worksheet tr Solid waste fee survey. Appendix B is a copy of a "standardized" chart of accounts which contains a proposed basis for allocating indirect costs of the hauler. Page h8 Ctty of San Luts Oblspo EXHIBIT I.1 Organization of Each Step - Manual Organization- I. Section A. Subsection 1. Step a. Task Completed 120 days prior to the date rates become effective a. Prepare Cost Information b. Prepare Revenue Information c. Prepare Operating Information d. Survey Residential and Non-residential Solid Waste Rates and Charges in Similar Service Areas e. Prepare and Submit Rate Adiustment Application and Supporting Documents Tasks: Franchise HaulerResponslbtltty: Timing: Base Year Step I Process or Actiuity Were Tbis Step Occuts Step Number Title Step Section Number and Narne Party Responsiblefor tbe Step tbe Step Sbould Be Completed l"'. Tasks Required to Complete tbe Stq I I I Detailed Descriptions of tbe Actions Required in Eacb Task Overvlew During this step, the franchise hauler prepares the Base Year Rate AdJustntent Application. Included with the completed application are required forms, related supporting documents, and a survey of other cities. Instructions for preparing application forms are available in Section III of this manual. Blank forms are provided in Appendlx A of this manual. Information provided by the franchise hauler is for five years: Q calendar year rwo years prior to current year (year one) fl Lastest completed calendar year prior to current year (year rwo) E Current calendar year (year three) Q Projected base calendar year Description of Tasks scrap sold, a. Prcpare Cost Informatlon Cost information from the franchise hauler is provided in the Base Year Rate Adjustlnent Appltcation. Cost information is reported for two historical years, the current year, the two projected years (the base year, and year after the base year). Information reported in each line item is the total cost for solid waste and recyclable materials collection for residential and non-residential customers. A segregation of costs by residential, non-residential, and recycling is not required. Integrated solid waste management rates are to be based on costs of providing collection and transportation of solid waste and recyclables, and costs of disposing of solid wastes. Revenues from the processing facility will be treated as a revenue offset for purposes of setting rates. Revenues from the processing facility are determined by adding payments received from all materialsfour) California Refund Page l-9 Section II Rate Setting Process r- I I i T It (",,( t I I L Section IL Rate Setting Process The City of San Luis Obispo rate setting process follows a three year cycle. In the first year of the rycle, the franchise hauler is required to submit a Base Year Rate Adjustment Application. In both rhe second and third years, the franchise hauler is allowed to submit an Interim Year Rate Adjustment Application. The cycle repeats itself in year four. This section describes the detailed processes and steps involved from the franchise hauler completing a base year or interim year application through to the City's approval of new rates. This section is organized into four subsections: A. Base Year Rate Setting Process B. Timing of Base Year Rate Setting Process C. Interim Year Rate Setting Process D. Timing of InterimYear Rate Setting Process. Topics covered in this section of the manual include: tr Who is responsible for the various steps in each process D What tasks must be completed within each step tr When each step should be performed. Information about how to complete worksheets and forms for Base Year Rate Adjustment Application and Interim Year Rate Adjustment Application are provided in Sections III and IV of this manual, respectively. A- Base Year Rate Setting Process The base ye r rate setting process requires the franchise hauler to submit to the City a Base Year Rate Adjttstment Application every three years, beginning in L994. In this application, the franchise hauler completes a number of forms, provides supporting financial and operational information, and includes results of a survey of rates in other cities. After reviewing the application, the City evaluates whether proposed rate adjustments will be fair to both residents of the City 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 Rate Adjustment Application. Information required in the rate setting process which is considered confidential by the franchise hauler will not be disclosed ^t any public meetings (i.e., City Council meetings). This would include employee compensation information. The existing franchise agreement requires Base Year Rate Adjustment Applications be submitted by the franchise hauler at least 120 days in advance of when the proposed base ye r rate adjustment would take place. The City has up to L5 days to verify the application is complete. After the City verifies that the hauler's application is complete, the process is scheduled to take L05 days until rates are implemented. New rates are to become effective on October 1 of each year. Exhibit [-1, following this page, provides an overview of the base year rate setting process. Elxhibit II-2, following Exhibit II-1, is a diagram showing participants involved and documents provided during the base year process. Following this exhibit is a description of each step in the process. The timing of the base year rate setting process is described in Section II-B of this manual. Ctty of San luls Obtspo Page lhl EJilIIBIT tr.l PAGE 1 OF 2 Base Year Rate Setting Process 1. Preparation and Submission of Rate Adiustrnent Application a. Prepare Cost Information b. Prepare Revenue Information c. Prepare Operating Information d. Survey Residential and Commercial Solid Waste Rates and Charges in Similar Service Areas e. Prepare and Submit Rate Adjustment Application and Supporting Documents 2. Verification of Completeness of Rate Adiustment Appllcation a. Verify Financial Data and Format b. Verify Supporting Documents and Schedules c. Notify Franchise Hauler 3. Review of Rate AdiustmentApplicatlon and Preparatlon of Responses a. Review Actual and Projected Revenue Requirements b. Review Actual and Projected Revenues c. Review and Verify Operating Ratio d. Determine Components of Requested Adjustment in Rates e. Review Performance Data f. Verify Survey of Rates in Similar Service Areas g. Request Additional Data and Clarification, If Necessary h. Document Staff Review and Prepare r0flritten Response 4. Response to Additional Information Requests from City ^. Provide Additional Information, If Requested b. Prepare and Submit Response Franchise Hauler City City Franchise Hauler Page ll-2 I I EXIIIBIT II.1 PAGE 2 OF 2 Base Year Rate Setting Process (continued) 5. Preparation of Drzft C,ouncil Agenda Report a. Prepare Draft Council Agenda ReportI ) City I l J 6. Review of Drzft Council Agenda Report a, Review Draft Council Agenda Report with City Staff b. Resolve Any Remaining Issues c. Prepare Response to Draft Council Agenda Report 7. Preparation of Final CouncilAgenda Report a. Incorporate Franchise Hauler's Changes in Final Report b. Prepare Final Report and Recommendations 8. Presentation of Agenda Report to City Council ^. Distribute Report and Resolution to Council Members b. Post Notice of Public Hearing c. Conduct Public Hearing d. Obtain Council Approval 9. rtnplementation of New Rates a. Prepare Notification of Rate Adiustment b. Implement Rate Adjustment Franchise Hauler Cify City Franchise Hauler I l "l -Jj Page ll-3 E)CIIBIT II-2 Base Year Rate Setting Process Diagram Process DocumentParticipant Preparation and Submission of Rate Adjustrnent of Rate Adjustment of of Review of Rate Adjustment Application and from Response to Additional Information Requests Preparation of Draft Council Agenda Review of Draft Council Agenda Franchise Hauler . Rate Application . Audited Financial Statements . Supporting Financial Infomation . Summary Survey of Other Cities City . Letter to Franchise Hauler City . Letter to Franchise Hauler . Workpapers Franchise Hauler . Additional Documents, If Necessary City . Draft Council Agenda Report . Supporting Documentation Franchise Hauler . Response Letter to Draft Council Agenda Report City . Final Council Agenda Report City . Notice of Public Hearing . Approved Resolution Franchise Hauler Implementation of New Rates . Notification to Customer . Rate Schedule Preparation of ' Final Council Agenda to Council Presentation of Agenda Report Page ll-4 Section ll. Rate Setting Process Franchise Hauler Completed L20 days prior to the date rates become effective a. Prepare Cost Information b. Prepare Revenue Information c. Prepare Operating Information d. Survey Residential and Non-residential Solid'$7aste Rates and Charges in Similar Service Areas e. Prepare and Submit Rate Adjustment Application and Supporting Documents Tasks: Responsibility: Timing: Bctse Year St ep I Description of Tasks Overview During this step, the franchise hauler prepares the Base Year Rate Adjustment Application Included with the completed application are required forms, related supporting documents, and a survey of other cities. Instructions for preparing application forms are available in Section III of this manual. Blank forms are provided in Appendix A of this manual. Information is provided by the franchise hauler for five years: tl Calendar year two years prior to current year (year one) tr Latest completed calendar year prior to current year (year rwo) tr Current calendar year (year three) tr Projected base calendar year (year four) tr Projected calendar year after base year (year five). a. Prepare Cost Information Cost information from the franchise hauler is provided in the Base Year Rate Adjustment Application Cost information is reported for two historical years, the current year, and two projected years (the base year, and year after the base year). Information reported in each line item is the total cost for solid waste and recyclable materials collection for residential and non-residential customers. A segregation of costs by residential, non-residential, and recycling is not required. Integrated solid waste management rates are to be based on costs of providing collection and transportation of solid waste and recyclables, costs of disposing of solid waste, and costs of the processing facility. Revenues from the processing facility will be treated as a revenue offset for purposes of setting rates.SRevenues from the processing facility are determined by adding scrap payments received from all materials sold, California Refund Value (CRV) and beverage container rerycling processing fees, and fees from other cities. ft,c, l'hy a,ll be $r purpose< .\ hsts trom thv pro *rrolrd d5 a c6! of *tlma raie s . J ae65tn3 lf{e+ City of San Luls OWspo Page ll-5 Section ll. Rate Setting Process In addition, for information purposes only, the franchise hauler is requested to segregate company total costs of providing service to: (1) customers within City limit6, (2) customers in adjacent unincorporated ateas, and (3) California State University, San Luis Obispo (Cal Poly). Suggested allocation bases for any shared costs are presented in a "standardized" Chart of Accounts (discussed in task e of this section). Appendix A to manual includes a form for the franchise hauler to report these allocations. In the application, costs are further grouped into the following major cost categories: tr Allowable Costs - Direct Labor - Corporate Overhead - Office Salaries - Other General and Administrative Costs O Pass Througb Costs - Tipping Fees - Franchise Fees - AB 939 and Regulatory Fees - Lease Payments to Affiliated Companies. If one of the major cost categories in the application changes at an unusual rate, then the hauler should provide an explanation for the change. An unusual change in cost is any increase which is greater than the change in the U.S. Consumer Price Index (CPI) published by the Bureau of Labor Statistics in their Montbly Labor Reuieu. Cost information for the current year and projected years must account for any increases or decreases in number of customers served, or tons of solid waste and recyclable materials collected. Actual increases in cost also must be included. For example, if labor costs are expected to increase in the base year due to current labor agreements, this additional cost must be included. If these costs are not included, the rate increase will not be sufficient to compensate the franchise hauler for actual costs and will result in a reduction of the franchise hauler's actual profits. Cost information provided in the application is used to calculate the franchise hauler's revenue requirement. This amount is compared to anticipated revenues at existing rates to calculate the rate adustment. b. Prepare Revenue Information Similar to cost information, revenues are reported for two historical years, current calendar year, and two projected years (the base year, and year after the base year). Revenue is reported in five separate categories: tr Residential tr Non-residential tr Revenue from the processing facility tr Interest on investments tr Other income. Actual revenue for each category is reported for the two historical years, estimated revenue is reported in the current year, and projected revenue is reported for both base year and year after. Residential and non-residential revenues in the base year are projected witbout any increases in rates. Residential and non- residential revenue projections are prepared based on existing rates and number of customers which the franchise hauler anticipates serving in the base year. Allowances for uncollectible residential and non-residential accounts are identified in the application. This provides for a more accurate determination of the franchise hauler's revenue in the base year, as a small number of customers do not pay the franchise hauler for service rendered. Revenues from the processing facility are reported as the sum of (1) scrap payments for materials sold, (2) California refund value Page ll-6 Clty of San Luts Obispo Seciion ll. Rate Process and processing fees, and (3) fees received from other cities. Interest earned on investments, and other income, must be identified separately in the application. Supporting documentation should be provided which indicates sources of interest and other income. Once all revenues have been reported in the application, total revenue is calculated. This total revenue is termed a "revenue offset," because it is subtracted from the revenue requirement calculated earlier in task a to determine the franchise hauler's net surplus/shortfall. A net shortfall determines the amount of a rate increase to be applied to residential and non-residential rates. If there is a net surplus, the franchise hauler should determine if the operating ratio can be reduced to eliminate the surplus (i.e., the franchise hauler retains the surplus as additional profit). If the operaring ratio is calculated at 90 percent, which provides the franchise hauler with the maximum amount of profit allowable under current policy, and a surplus still exists, the City must determine if rates will be lowered, and over what period of time. In addition, for information purposes only, the franchise hauler is requested to segregate company total revenue. Like cost information, revenue should be segregated into: (1) customers within City limits, (2) customers in adjacent unincorporated areas, and (3) California State University, San Luis Obispo (Cal Poly). c. Prepare Operating Inforrrration During this task, non-financial operating information is compiled by the franchise hauler. Information to be provided for both residential and non-residential customers includes; O Accounts served tr Routes tr Tons collected El Direct labor hours. This information allows both the City and franchise hauler to monitor changes in the service characteristics, to estimate total revenues at existing rates, and compare these to changes in total cost and revenues. Operating information is provided on a form in the Base Year Rate Adju.stment Application. d. Surey Residential and Non- Residential Solid Waste Rates and Charges in Similar Service Areas The hauler conducts and reports results of a survey of residential and non-residential solid waste rates in communities similar in size and location to the City of San Luis Obispo. The purpose of the survey is to benchmark rates proposed by the franchise hauler against other cities to determine if the rates are reasonable. The City and the franchise hauler will agree on which cities will be surveyed. The survey includes over 25 questions covering general information, residential service, non-residential service, and tipping fees. The purpose is to determine the characteristics of each jurisdiction with which to fairly compare rates. Sample survey forms and instructions are provided in Section III of this manual. The franchise hauler shall prepare a summary report of the survey, to be contained as part of the application. e. Prepare and Submit Rate Adiustment Application and Supporting Documents The completed Base Year Rate Adjustment Applicatioz is submitted by the franchise hauler to the City. The application should include the following items: tr Management Representation ktter The management representation letter transmits the application to the Cify, and Ctty of San luts Oblspo Page ll-7 .$gqtion !!. Ba'!e Setting Process should provide a listing of included documents. The letter should identify the requested adjustment in rates and include a discussion of specific issues which impact new rates (e.g., significant increases in tipping fees). The letter should state that: r Management reviewed and accepts responsibility for the rate application . The application is b4sed upon management's judgment of the most likely set of conditions and course of action . All significant relevant information are made available o Assumptions are reasonable and are accurate. tr Base Year Rate Adiustment Application The franchise hauler should provide a Base Year Rate Adjustment Application including completed application forms and supporting documentation. Supporting documentation includes the current rate schedules for residential and non-residential customers. tr Supplemental Audited Financial Information For applications received after 1994, the most current audited financial statements for the franchise hauler 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. tr Chart of Accounts Although not required, it is requested that the franchise hauler submit a "standardized" chart of accounts for information purposes only. This chart of accounts structures a framework for cost accounting, provides a basis for determining reasonableness, and enhances year-to-year comparability. The chart of accounts allows for separate accounting of franchised and non-franchised activities, and of direct and indirect costs associated with the franchise hauler's operations. Appendix B to this manual contains a sample chart of accounts, including: account title, account type (asset, liability, revenue, expense), type of cost (direct or indirect), and suggested allocation basis for indirect costs (e.g., tons collected, number of accounts). The franchise hauler may find other miscellaneous accounts may be required. To maintain comparability, the franchise hauler shciuld indicate any major changes to the chart of accounts. The hauler submits a completed Base Year Rate Adjustment Application to the City. The Ciry then is allowed fifteen (15) days to review the application for completeness. The penalty to the franchise hauler for an incomplete application would be a loss of any additional revenue which would have been generated through a timely and approved rate adjustment application. Similarly, for missing any other deadlines specified in the rate setting process (i.e., responding to City requests for additional information or reviewing the City's draft agenda report) the franchise hauler would lose revenue due to later implementation of rates. If the City fails to meet established time frames for its responsibilities (i.e., steps 2, 3,5,7, and 8), at no fault of the franchise hauler, the City will include the value of revenue lost due to the delay, as part of the pending Base Year Rate Adjustment Application or pending Interim Year Rate Adjustment Application. Page ll-8 City of San Luis OblEo Section ll. Rate Setting Process City Completed within fifteen (15) days after the hauler submits rhe Base Year Rate Adjustment Applic ation ^. Veri$r Financial Data and Format b. VeriSr Supporting Documents and Schedules c. Notify Franchise Hauler Tasks: Responsibility: Timing: Bctse Year St ep 2 Description of Tasks Overview During this step, the City ensures that the application has been fully completed by the franchise hauler and that the data provided are consistent. During the 15- day period, the City will obtain from the franchise hauler any information necessary to complete the application. a. Verify Financial Dataand. Format City staff reviews the application ro determine if it is complete and ready for analysis. Detailed analysis of the application's contents occurs during step 3. The Ciry reviewer should determine the following: tr Has the applicant included all required forms? tr Are all forms complete? tr Are all financial calculations mathematically correct? tr Has the applicant completed the survey of other cities and provided a survey summary? b. Verify Supporting Documents and Schedules Various documents may be included in the application to support the rate adjustment The purpose of these supporting documents should be clearly identified by the franchise hauler. c. Notify Franchise Hauler If the application is complete the Ciry will notify the franchise hauler that it will begin the process of evaluating and analyzing the proposed rate adjustment. If incomplete the City will attempt to obtain from the franchise hauler additional required information within the 15-day verification period. A revision of rates shall not be authorized until the 1st day of the first calendar month following a 105 day period from the date that an application is verified to be complete. As an example, if the franchise hauler's application is deemed complete on June 25th due to the fault of the hauler (a 10 day delay), rates would be effective November l-st instead of on October 1st. The franchise hauler would lose the incremental revenues that would have been received from applying the new rates during October. Ctty of San Luis Oblspo Page ll-9 Section ll. Rate Settinq Process City Completed within fifteen (15) days after determining that the application package is complete a. Review Actual and Projected Revenue Requirements b. Review Actual and Projected Revenues c. Review and Verify Operating Ratio d. Determine Components of Requested Adjustment in Rates e. Review Performance Data f Verify Survey of Rates in Similar Service Areas g. Request Additional Data and Clarification, If Necessary h. Document Staff Review and Prepare lVritten Response Tasks: Responsibility: Tining: Base Year St ep 3 Description of Tasks Overwiew During this step, Ciry staff evaluates the entire rate adjustment 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 Proiected Revenue Requirements In this task, costs and operating profit of the application are reviewed and analyzed for reasonableness. Reconciliations of costs to audited financial statements shall be checked for consistenry. Explanations are sought 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 Adjustment Applications are compared with actual results. Costs are correlated with operating collection efficiency statistics provided by the hauler. Any unusual trends or variances should be explained by the franchise hauler. An unusual increase would be a change in cost which is greater than the change in the U.S. Consumer Price Index, published by the Bureau of Labor Statistics in their Montbly Labor Reuieta, 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 City should request additional clarification from the franchise hauler. b. Review Acnral and Projected Revenues Actual and projected revenues should be reviewed in this task. Current residential and non-residential rates provided in the Page ll-10 Clty of San Luts Obtspo Section ll. Rate Settinq Process 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 non-residential and residential revenues: (1) calendar year two years ago (2) most recent calendar year, (3) current year, (4) projected "base" year, and (5) projected year after the "base" year. For applications received after 1994, the City should reconcile the first two years revenues with audited financial statements. Revenues for the current year are compared with unaudited financial statements and documentation supplied by the hauler. Projected revenues for the fourth, or "base" year, and fifth year are evaluated by the City for reasonableness. All assumptions made by the hauler in preparing these projections are reviewed. Residential and non-residential revenues reported by the hauler should nol include any rate increases in the base year (year 4) or year after (year 5). Rate schedules submitted by the franchise hauler should be consulted to determine average rale increases. Account information included in the application is reviewed to determine changes in the number of accounts served. Allowances for residential and non- residential uncollectible accounts also are reviewed. These figures should be deducted from total residential and non-residential revenue projections. These allowances may be based on a fixed percentage of total revenues or on actual experience. Assumptions related to allowances for residential and non-residential accounts should be provided by the franchise hauler. Revenues from the franchise hauler's processing faciliry are provided in the application. Revenues are equal to total scrap sales, plus CRV and beverage container processing fees received plus fees received from other cities. Amounts identified in the first and second years of the five years provided should reconcile with the two most recent financial audits. Amounts identified in the current (thirO year, the base (fourth) year, and final year (year 5) should be documented by the franchise hauler. The Ciry 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. Revenue from interest on investments, and other income, is also reviewed by the City. The City will verify that interest on investments, and other income, is received from investments and income related to the franchise hauler's operation. c. Review and Veriff Operating Ratio The operating ratio must be between 90 percent and94 percent, and is set at )2 percent in the initial base year. City staff verifies that the operating ratio used in the application is within this range. The allowable operating profit also is recalculated utilizing the operating ratio stated in the application. If the operating ratio does not fall within the range stated above, or if there are any errors in calculating allowable operating profit, these deficiencies are noted. d. Determine Components of Requested Adiustment in Rates The City 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: tr Costs tr Non-residential revenues tl Residentialrevenues Ctty of San Luls Obtspo Page ll-11 Sectlon ll. Rate Setting Process O Revenues from the processing facility O Interest on investments tr Operating profit (or loss). e. Review PerformanceData City staff reviews and analyzes performance data which are included in the application (number of accounts, routes, tons collected, direct labor hours). Operating statistics are reviewed to explain past historical trends and justiSr 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 Montbly labor Reuiew. As noted above, changes in accounts served, number of routes, tons collected, or direct labor hours generally should correspond to changes in cost and revenue. f. Veriff Surwey of Rates in Sirnilar Service Areas Ciry staff shall review the survey of rates in similar service areas to determine if the surveys were completed according to the survey format. This includes careful evaluation of why rates might be different. For example, tipping fees may be significantly different, or non-residential accounts may provide a large subsidy to residential accounts. Survey results should be benchmarked against rates proposed by the franchise hauler to determine if proposed rates are reasonable. Survey results which are significantly different from information included in the franchise hauler's rate adiustment application should be noted. g. RequestAdditional Data and Clarifi cation, If Necessary Throughout the analysis of the application, City staff may request clarification and/or additional data from the franchise hauler to explain any unusual changes in costs or operating performance. This information is requested in a letter from the Ciry to the franchise hauler. h. Document Staff Review and Prepare Written Response During this task, City staff documents the review process. A memorandum is prepared which lists the activities completed during the review process and highlights any of the key findings of the review. Page ll-12 Cilt of San Luls Obispo Section ll. Rate Settinq Process Franchise Hauler Completed during the second week of step 3. a. Provide Additional Information, If Requested b. Prepare and Submit Response Tasks Responsibility: Tining: Bctse Year St ep 4 Description of Tasks Overview During this step the franchise hauler responds to requests for additional information from the City. a. Provide Additional Information, If Requested During the prior step 3, Ciry staff reviewed the application and 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 City's request for additional information. Responses will very depending on the specific requirements of the City. b. Prepare and Submit Response The franchise hauler prepares written responses to the City's request for additional information. These responses are forwarded to the City during this step. Ctty of San Luls Obispo Page ll-13 Section ll. Rate Settino Process Ciry Completed fifteen (15) days after the review of rate adjustment application and preparation of responses (step 3) is complete Tasks Responsibility: Timing: a. Prepare Draft Council Agenda Report Base Year St ep 5 Description of Tasks Ovenriew A draft Council Agenda Report with recommendations is prepared by City staff and submitted to the franchise hauler for review. The report will be reviewed by the franchise hauler in step 6. Residents of the City will be able to comment on the rate adiustment process through a public hearing (step 8). a. Prepare Draft Council Agenda Report In this step, City staff prepares a draft Council Agenda Report including recommendations for a rate adjustment. The draft report includes the following sections: tr Chief Administrative Officer Recommendation tr Discussion of Rate Application and Review O Effect of Rate Adjustment on Customers E Potential Future Rate Adjustments tr Concurrences tr Attachments. Each of these report topics is discussed below: tr Chief Administrative Officer Recommendation This is one or two paragraphs recommending the new integrated solid waste management rates. This may include a chart showing current and proposed rates, and the recommended rate adjustment. tr Discussion of Rate Application and Review This section of the report provides a brief overview of the rate adjustment process and discussion of significant historical issues. This includes a review of analysis work completed by City staff. This section may include the following sub-sections: Reuieu of Rate Adjustrnents, including a discussion of rate adjustments during each year since the last base year, and an analysis of the significant components of the adjustment in rates (e.g., increased tipping fees, changes in operating profit). Analysis of Projected Cosfs, including a discussion of any unusual increases in costs which were discovered during the review process. Discussion of Seruice Issues, including changes in frequenry or type of service. If significant service issues are not involved with a rate adjustment, this section would be omitted. tr Effect of Rate Adiustment on Customers City staff would prepare an analysis of how the monthly bills for customer Page ll-14 Clty of San Luts Obtspo Section ll. Rate Process classifications will change. This would also include a comparison of existing and recommended new rates. tr Potential Future Rate Adiustments A discussion would be presented on possible future rate adjustments, given City staff analysis of the recommended rate adjustment and potential additional costs which may need to be recovered through the rate payers. This may include a comparison of what furure rate increases may need to be if an alternative rate adjustment is adopted by City Council. tr Concurrences This is a paragraph stating concurrences by the Finance and Utilities Departments for the recommended rate adjustment. tr Attachnents Attachments to the report could include: . Clty Council Resolution which formally adopts new rates . Revised rate schedule . Historical rate adjustments o Estimated tipping fees . Estimated costs and revenues . Alternative rate adjustments . Other relevant supporting materials provided by the franchise hauler or prepared by City staff . Comparison of residential and non- residential rates with other cities. After the draft report is complete, copies are provided to the franchise hauler. City of San Luts OWspo Page ll-15 Section ll. Rate Setting Process Franchise Hauler Completed within seven (7) days after the City's completion of the draft council agenda report (step 5) ^. Review Draft Council Agenda Report with City Staff b. Resolve Any Remaining Issues c. Prepare Response to Draft Council Agenda Report Tasks Responsibility: Timing: Base Year St ep 6 Description of Tasks Overview The franchise hauler reviews the City's draft of the Council Agenda Report. The franchise hauler also may provide additional information related to any issues identified by the Ciry. a. Review Draft Council Agenda Reportwith City Staff Each section of the draft report should be reviewed by the hauler to ensure the following: tr Correct data are included O City staff analysis is accurare and fair tr Rate adjustments are acceptable. b. Resolve Any Remaining Issues If any issues are identified during this step, the franchise hauler works with Ciry staff to fully explore and resolve these outstanding issues. c. Prepare Response to Draft Council Agenda Report A written response to the draft report is prepared, if the hauler deems it necessary. The response may cover one or more of the following topics: E If data discrepancies exist in any of the areas noted in the prior task, the City should be notified of these discrepancies tr If the analysis conducted by City staff can be clarified or considered differently, this information should be provided to the City staff tr If the report is acceptable and no clarification or corrunents can be offered, this should be relayed to City staff. Page ll-16 Ctty of San Luls Obipo I Section ll. Rate SettlnE Process Cify Completed eight (8) days after receiving hauler's comments on the draft agenda report (step 5) a. Incorporate Franchise Hauler's Changes in Final Report b. Prepare Final Council Agenda Report Tasks Responslbility: Timing: Base Year St ep 7 Description of Tasks Ovenriew The Ciry prepares the Final Council Agenda Report, incorporating relevant comments from the franchise hauler during this step. a. Incorporate Franchise Hauler's Changes 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 are conducted with representatives from the City and the franchise hauler. Final solutions to outstanding issues are included in the Council Agenda Report. b. Prepare Final Report and Recornmendations After final comments from the franchise hauler have been considered, the Final Council Agenda Report package is prepared. This includes the Council resolution to be signed by appropriate City officials to adopt new rates. A copy of the final report is submitted to the franchise hauler. City of San Luls Oblspo Page ll-17 Section ll. Rate Settlng Process City Completed thi.ty (lO) days after Final Report and Recommendations are complete ^. Distribute Report and Resolution to Council Members b. Post Notice of Public Hearing c. Conduct Public Hearing d. Obtain Council Approval Tasks: Responsibility: Timing: Bqse Year St ep I Description of Tasks Ovenriew During this step, the final recommendations are presented to the Cify Council for review, comment, and approval. a. Distribute Report and Resolution to Council Members The Council Agenda Report is provided to members of the City Council. The report is included as an agenda item for Council consideration at a regular Council meeting. b. Post Notice of Public Hearing City staff will prepare for a public hearing on the proposed rate adjustment at the formal Council meeting. c. Conduct Public Hearing Comments from City residents are made during the Council meeting considering the rate adjustment. Copies of the Council Agenda Report should be made available at the meeting. d. Obtain Council Approval Council members consider the public comments, and review the agenda report and proposed rate adjustments. If Council agrees with the recommendations of the City staff, the report and rates are approved and a resolution is adopted to implement these rates. If Council does not agree with the recommendations, the report is returned to City. staff for additional analysis. Page ll-18 Clty of San Luts Obtspo ') Section ll. Rate Setting Process Franchise Hauler Completed thirry (30) days after Council approves application and resolution a. Prepare Notification of Rate Adjustment b. Implement Rate Adjustment Tasks Responslbillty: Timing: Base Yectt" St ep 9 Description of Tasks Ovenriew During this final step, the franchise hauler implements new rates. Rates are implemented on October 1. of each year, unless no rate adiustment is requested or the rate application is delayed. a. Prepare Notification of Rate Adjustment After a formal resolution is adopted by the Council approving the new rates, the hauler notifies all customers of the rate adjustment. This notification may be included with a regular billing or mailed separately. b. Implement Rate Adiustment During this final task, 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 adjustment occurs during the middle of a billing rycle, unbilled amounts in current billing cycle due to the rate adiustment are calculated and included in the next billing cycle. Ctty of San Luis OHspo Page ll-19 Section ll. Rate Settlng Plocess B. TtmlngofBaseYear Rate Settlng Process A base year rate adjustment is implemented on October L if no delays in the process occur. The Base Year Rate Adjustment Appkcation must be submitted to the City byJune L in order to meet the October 1 implementation' date. Exhlbtt II-3 on the nort page shows the timeline for completion of the rate adjustment process. Key pilestones are noted in the exhibit by circled letters. Page ll-20 &A of Sqn luls Obtgo EXHIBIT II.3 Timinp of Base Year Rate Adirctment Process Process Activity Month -2 | uonth -t Month 1 Month 2 Month 3 Month 4 Francblse Hauler Preparatlon 15tuy Redeu Formal Clty Reuleu)Ifirplenent 1. Preparation and Submission of Rate Adiustrnent Application 2. Verification of the Completeness of Rate Adiustment Application 3. Review of Rate Adiustment Application and Preparation of Responses 4. Response to Additional Information Requests from City !. Pr€paration of Draft Council Agenda Report 6. Review of Draft Council Agenda Report 7. Preparation of Final Council Agenda Report 8. Presentation ofAgenda Report to Cily Council 9. Implementation of the New Rates o ,li;ili:iilai:14:3,?4ti!!lii*ffi @ ;'lliil,illffi l:.1il1.i':l W,n 111;,,1i' 1' illt@5 ^f:i.r.i ,r, -'.( c ) iil"i'l'::ji S,lll,i#;6 ai:t.,'stffi,,7^ ,,,,+l ,I n) Mllcstoncs A. Rate Adjustment Application B. Acceptance/Return Letter C. Draft Council Agenda Report D. Final Council Agenda Report E. Public Hearing F. Resolution Adopting New Rates G. New Rates Effective Page lh21 C fnterimYea.r Ra.te Settlng Process Interim year tate adjustment requests are accepted in the two years between base years. The interim year process requires less information and preparation time, while still allowing fair and reasonable rate adjustments. During the two interim years, rates can be adjusted annually through application of a composite index. The index consists of: tr Historical changes in the U.S. National Consumer Price Index (CPI) published by the Bureau of Labor Statistics in their Montbly Labor Reuieu tr Projected changes in tipping fees D Projected changes in AB 939 and regulatory fees tr 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 estimating and documenting projected changes in tipping Process fees, and AB 939 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 mid-year rate adjustments are allowed outside of the annual schedules of the base year and interim year adjustments. These adjustments are for extraordinary and consequential cost increases which would require across-the-board rate increases of greater than five percent (5%o). Both the City and franchise hauler may initiate the special mid-year rate adjustment process by contacting the City Administrative Officer (CAO). For special mid-year rate adjustments, the franchise hauler will provide necessary information and documentation so the CAO can make a judgrnent as to the reasonableness of such a rate adjustment. With CAO approval, a mid- year rate adjustment can be rnade by the franchise hauler. Exhibit II-4, following this page, provides an overview of the interim year rate adjustment process. Following this exhibit is a description of each step in the process. Rate Page ll-22 Ctty of San Luts Oblspo ,.} EXHIBIT tr.4 I i Interim Year Rate Adiustment Process 1. Preparation and Ssfornission of Rate AdiustmentApplication a. Prepare an Interim Year Rate Adjustment Application b. Submit Application to City Staff 2. Preparation of Draft C,ouncil Agenda Report ^. Request Additional Data, and Clarification, If Necessary b. Prepare Draft Council Agenda Report 3. Review and Response to Draft Council Agenda Report a. Review Draft Council Agenda Report with City Staff b. Prepare and Submit Response 4. Preparation of Final CouncilAgenda Report a. Incorporate the Franchise Hauler's Comments in Final Report b. Prepare Final Council Agenda Report 5. Presentation of Agenda Report to City C.ouncil a. Distribute Report to Council Members b. Post Notice of Public Hearing c. Conduct Public Hearing d. Obtain Council Approval 6. Implementation of New Rates a. Notify Customers b. Implement Rate Adjustment Franchise Hauler City Franchise Hauler Cify City Franchise Hauler l J Page ll-23 iectlon ll. Rate SettinE Process Franchise Hauler Completed L20 days prior to the date new rates become effective a. Prepare an Interim Year Rate Adjustment Application b. Submit Application and \forksheet to City Staff Tasks: Responsibillty: Timing: Interinr Yeqr St ep I Description of Tasks Overview During this first step, the franchise hauler prepares the Interim Year Rate Adjustment Application. a. Prepare an Interim Year Rate Adjustment Application The Interim Year Rate Adjustment Application requires information from the most recent Base Year Rate Adjustment Application The application is used to calculate proposed new rates. Detailed instructions on how to complete this application are provided in Section IV of this manual. The application requires the franchise hauler determine the annual change in the U.S. National Consumer Price Index, as published by the Bureau of Labor Statistics in their Montbly Labor Reuiew. The actual annual change in this index during the tvrelve months prior to the date the Interim Year Rate Adjustment Apptication is used to adjust controllable costs allowed in the prior base year rate adjustment. In the application, the franchise hauler is also responsible for projecting changes in two pass through costs: tr Tipping fees tr AB 939 and regulatory fees. These projections are made for the interim year for which new rates are being requested. b. Submit Application to City Staff The application is signed by an appropriate representative of the franchise hauler and sent to the City for review. Page ll-24 Clty of San Luis Obipo Section ll. Rate Settino Process Crty Completed fifteen (15) days after the Interim Year Rate Adjustment Application is submitted ^. Request Additional Data, and Clarification, If Necessary b. Prepare Draft Council Agenda Report Tasks Responslbility: Timing: Interim Year St ep 2 Description of Tasks Overview A draft Council Agenda Report with recommendations is prepared by City staff and submitted to the franchise hauler for review. The report will be reviewed by the franchise hauler in step 3. Residents of the City will be able to comment on the rate adjustment process through a public hearing (step 5). a. Request Additional Data, and Clarifi cation, If Necessary If necessary, City staff requests clarification and/or additional data from the franchise hauler. The request is ro clarify the hauler's assumptions for projected changes in tipping fees or regulatory costs, and to indicate the expected adjustment in rates. b. Prepare Draft Council Agenda Report Ciry staff prepares a draft Council Agenda Report with recommendations of new rates for City Council consideration. This report should be brief and include the following sections: tr Chief Administrative Officer Recommendation This is one paragraph which recommends the required rate adiustment. tr Discussion of Application and Review This is a summary of the review process and includes the information for the proposed rates, and the recommended rate adjustment. The report might include a discussion of any significant increases in pass through costs and an identification of the change in CPL This section also may include a discussion of any significant historical issues. tr Effects of Rate Adiustment on Customers This section includes an analysis of the impact on monthly bills due to the rate adjustment. tr Attachments Attachments to the report would include: . City Council Resolution which formally adopts new rates . Revised rate schedule . Rate adjustment worksheet. After the draft agenda report has been prepared, the document should be submitted to the franchise hauler for comment and review. City of San Luls Obtspo Page ll-25 Section ll. Rate SettinE Process Franchise Hauler Completed twenty (20) days after preparation of rate adjustment indices a. Review Draft Council Agenda Report with City Staff b. Prepare and Submit Response Tasks: Responsibility: Timing: Interint Yeor St ep 3 Description of Tasks Ovenriew The franchise hauler reviews the draft report to ensure that any analysis completed by City staff are fair, reasonable, and justified. a. Review Draft CouncilAgenda Report with City Staff The franchise hauler reviews the draft report to ensure the following: tr Correct data are included tr Ciry staff analysis is accurate and fair. b. Prepare and Submit Response A written response to the draft report is prepared. The response may cover one or more of the following topics: tr Data discrepancies in any of the areas noted in the prior task tr Clarification for the City or alternative analysis of the application tr Responses to the City's request for additional information. Page ll-26 Ctty of San luts Oblspo I Section ll. Rate Process City Completed twenty-five (25) days after review and response to City analysis and calculations a. Incorporate the Franchise Hauler's Comments in Final Report b. Prepare Final Council Agenda Report Tasks: Responsibility: Timing: Ittterim Year St ep 4 Description of Tasks Ovenriew The City prepares the final Council Agenda 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 City and the franchise hauler. Final solutions to outstanding issues should be included in the report. b. Prepare Final Council Agenda Report After final comments from the franchise hauler have been considered, the final Council Agenda Report is prepared. A copy of the final report should be submitted to the franchise hauler. l City of San Luts Obtspo Pagell-27 Section ll. Bate SettlnlProcess City Completed thkty (30) days after preparation of final agenda report a. Distribute Report to Council Members b. Post Notice of Public Hearing c. Conduct Public Hearing d. Obtain Council Approval Tasks: Responsibility: Timing: Buse Yeqr St ep 5 Description of Tasks Overwiew The final Council Agenda Report is submitted to City Council for review, comment, and approval, during this step. a. Distribute Report to Council Members The Council Agenda Report is provided to members of the City Council. The report is included as an agenda item for Council consideration at a regular Council meeting. b. Post Notice of Public Hearing City staff will prepare for a public hearing on the proposed rate adjustment at the formal Council meeting. c. Conduct Public Hearing Comments from City residents are made during the Council meeting considering the rate adjustment. Copies of the Council Agenda Report should be made available at the meeting. d. Obtain CouncilApproval Council members will review the report and proposed rate adiustments. If Council agrees with the recommendations of City staff, the resolution attached to the report should be approved. If Council does not agree with the recommendations, the report is returned to City staff for additional analysis. Page ll-28 Ctty of San Luis ObiEo Section ll. Rate Settino Process I I l I Franchise Hauler Completed thirty (30) days after the Council approves the application and resolution Tasks: Responsibllity: Timing: a. Notify Customers b. Implement Rate Adjustment Irrterint Year St ep 6 Description of Tasks Ovenriew After new rates have been approved by Ciry Council, the final step in the process is to implement the new rates. a. Notify Customers After a formal resolution is adopted by Council, a notification of a rate adjustment should be made to all customers. This notification may be included with a regular billing or mailed separately. b. rrnplement Rate Adiustrrent During this final task, the franchise hauler enters new rates into their billing system and includes the new rates on the next appropriate customer invoice. If the billing cycle is rwo months or more, and if ^ rate adjustment occurs during the middle of the billing cycle, unbilled amounts are calculated and included in the next billing cycle. City of San Luis OHspo Page ll-29 Section il.Rate Settino Process D. Ttmtng of Interlm Year Rate Seltlng Process The application from the hauler for a interim ye r rate adjustment should be submitted to the City on June 1st, four months prior to the implementation of the rates. Interim year rate adjustments are implemented October 1.. Exhibit II-5, on the following page, shows the timeline for completion of the interim year rate adjustment process. Key milestones are noted in the exhibit by circled letters. Page ll-30 Ctty of San Luis Obtspo l I -\ EXIIIBIT II-5 Timinp of Interim Year Rate Adiustment Process I j _l Process Activity Month -1 Month I Month 2 Month 3 Month 4 Frurrcbbe Haulet PreMrutton Formal Ctty Retiew Implenplrt 1.. Preparation and Submission of Rate Adiustment Application 2. Preparation of Draft Council Agenda Report 3. Review and Response to Draft Council Agenda Report 4. Preparation of Final Report and Recommendations 5. Presenhtion of Final Report and Recommendations to City Council 6. Implementation of the New Rates : :: :i :i: :rr il: r::,ii:,i,ii :i: ::: i:l ,:. ::.:':r .il:rr ii:r: r::i: ::: i;:.riJSr.@1 ...'!':,, ::: ::::ai:Jlit::::t::irai:::t!::::trr11 i.iir'.i,itirii:i-,li 'j::ft&ifr:t: jr,rist&bl#i. ::li:li:iliiritil!:ti!.::i.]+:i ':r '! !1,,::'..:::!::!!: ,,,*4,{,Ol Mllcstones A. Application Submitted to City B. Final Report and Recommendation C. Public Hearing D. Resolution Adopting New Rates E. New Rates Effective Page ll-31 n a Section III Base Year Rate Setting Methodology ) l L III. Base Year Rate Setti ng Methodologj,, This section provides detailed instructions on how to complete the Base Year Rate Ad.justment Application. The application will be prepared by the franchise hauler and reviewed by the City once every three years. The application includes detailed financial and operating information and is used to determine base year costs and revenues of the franchise hauler. As part of the application, the franchise hauler also conducts and summarizes results of a survey of collection rates in similar cities. Exhibit [I-1, following this page, provides an overview of the steps and related tasks which musr be completed to prepare the application form. Exhibit m-2, following Exhibit III-1, is a sample application form as it might be completed by the franchise hauler. Following this exhibit are detailed descriptions of each step and related tasks. Please note that data included in tbese exbibits are prouidedfor illustratiue purposes only and are not intended to reflect actual operating orfinancial conditions of tbe francbise bauler. Information for five years is required from the hauler. The information is intended to show the relationship between the most recently completed years (years 1 and 2), the curent year (year 3), and projections for the new base year (year 4) and year after (year 5). On the application, these five years are organized as five columns: tr Historical (columns I and 2) - includes audited financial information for the franchise hauler's prior two years. tr Current (column 3)- includes estimated financial information for the full year in which the application is submitted. Data in this year includes year-to- date performance plus estimated performance during the remaining months of the current year. tl Projected (columns 4 and 5) - provides estimated operations during the base year (for which new rates will be established), and proiected performance during the year after the base year. The relationship between these five columns for any given line item should be consistent. Any substantial difference berween each of the five years should be explained by the franchise hauler and considered by the City during the review process. ij City of San Luis Obtspo Page lll-1 EI(IIIBIT ltr.1 Preparation of tbe Base Year Rate Adjustment Application 1 Entry of Operating Costs a. Enter Prior Two Years Audited Information b. Enter Current Year Estimated Information c. Enter Base Year Projected Information d. Enter Future Year Projected Information e. Enter Operating Information Determination of Revenues Without Increase a. Determine Residential Revenue b. Determine Non-Residential Revenue c. Determine Allowance for Uncollectible Accounts d. Determine Revenues from Processing Faciliry e. Calculate Total Revenue Offsets Calculation of Allowable Operating Profit and Revenue Requirement a. Calculate Allowable Operating Profit b. Determine Franchise Fee c. Calculate Revenue Requirement Calculation of Percent Change In Rates ^. Calculate Net Shortfall/Surplus b. Calculate Percent Change In Rates Preparation of Sumrnary Form a. Calculate New Rates b. Sign and Submit the Application Suruey of Rates in SimilarAreas a. Complete Solid lVaste Fee Survey b. Summary of Survey 3. .> 4. 5. 6. Page lll-2 E>(HIBIT IfI-z Page 1 of6 Sample Base Year Rate Adi ustment APDlic ation City ol San tuis Obispo Base Year Rate Adjustment Application Summary Baquaated lncratlt r. Rate lncrease Requested eatA q^ha.l' 'la :Etloschadut : :, ,.: : lncreased Clrrrant Rrte New RateP.te A.li' Slngle Family Fesidentlat 2. Economy Service (collection) Economy Seruice (orange bags) 3. Standard Seruice 4. Premium Seruice 5. Multiunil Residentiel and Non+esldantial $ 2.OO s 2.20 $0.00 $ 2.20 s 1.OO sr to $0.00 $ 1.10 13.40 1/!7,4 o.o1 14-75 't8.25 20 0a 0.02 20.t0 (a) Calculated rates are rcund€d up to ths nearesl $0.05, Rate increases of 10.oo/"will be applied to all rates in each structure with each rate rounded up to the nearest $'l .00- STEP Cenficrtim To the best of my knowledge, the data and information in this application is complete, accurate, and consistent with the instructions provided by the City of San Luis Obispo. Name: Signature: John Brown lofnBroutn Title: Date: Controllet May 1, 19xx Pa.lof6Fiscal Year: Page lll-3 EXHIBIT III-2 Page2 of 6 SamDle Base Year Rate Adiustment ADDlication City ol San Luis Obispo Base Year Rate Adjustment Application Financial lnformation Hisloridl Cumnt Poiected 't9s2 tooq 1qq Beae V6r tm5 1 oqfi (kom Pg.4) S€ctlon FAuounblr Cost 6. Direct Labor Z Corporate Overhead8. Oftice Salaries o t0. Tolsl Allowable CoslgI SocdonlFAlb*ablco!€tadngPtotll, .: tt. Operating Ratio t2. Allowable Opsrallng Prolll qA 30l^cE 40/^96 40/-92.O%ll s3.30/" cl r4 nm Qt 6n mn s12n om *anr t3n ll s25{)0(x) t3. Tipping Fees t4. Franchise Fees t5. AB 939 and Regulatory Fees 16. 17. folal Pass Through Costs S*don lv-Rsru Roqulmart t8. RevsnueRoquirement t9. Tolel Royanue Ofts€ts (from Pg.3) 6ocdo{r V-t{at Shorttdl (SlEplu!) zo. Net Shortfall (Surplus)I ssss.ezo ll 8€c{on V}.Petcon! Chrngo h n !E! 21. Tolal Residential and Non-residential Revenue without increase in Base Year (from Pg. 3, lines 32 + 40) 22. Percenl Change in Residential and Non-residential Revenue Requirement 24. Perceni Change ln Exlstlng Reteg Fiscal Year: CilN fTtO *Aqn nnns750 000 s770.ooo s8m.om 17{) noo I AO OfXl 'tco ooo 20{).{xx)210.OOO tnn frxl 1 nn nonoo50_000 2q n{)0 25 ono 25 (y)O 25 (xX)25.rno co76 mn *1 nAq mn 3t { A< lton $t 1A5 rnn$945.000 *4 1?5 760 I ict^ c4,oq( 1O-Oo/" Page 2 ol 6 4 Page lll-4 DGIIBIT trI-2 Page 3 of6 Sample Base Year Rate Adiustment Application Ciiy ol San Luis Obispo Base Year Rate Adjustment Application Revenue Offset Summary Resldentlal Eevanue (wlthout lncrcase in Base W.) Currsnt Hist6dnrl 1 00,1qql lqqa Bege Ysr I qq5 lAaA 4go sil)5lo 52(}53s s6!n flln gAsn nrr)smo mn 3A7n fifn sTmnm PrcJ€cled Pri6 p€r No. ot Account Typ€ 25 Economy Serulce 26 Standard Service 2Z Premium Seruice 28. Single Family Residential Multiunit Residential Dumpster 29, Number ot Accounts 30. Revenues 3t. Less Allowance ,or Uncolleclible Residential Accounts 32. folal Residentlal Revenue Packaos Packao€srffil @12 12 12 2 STEP Non-r.sidential Revenuc (wlthout lncredse ln Basa Yt.) Ac@unt Typs Non-residential Can Number ol Accounts Revenues 4qo sfn sto sil 530 qt2n 0t).}st2cm st?n mn ttni nfvl qtrs nm zAa 2s0 255 260 245 st60 fno sl70 orx)stao 0()0 3tg) ofi)$200 rxlo t im 1 1r4 1 tqo t t?t 1tm (1 Aqn nm ct a7n mn $ t .885 000 3t otn mn sl oso mo 34. Non{esidential Waste Wheeler 35. Numberol Accounts 36. Revenues Non-residential Oumpster 37. Number ol Accounts 38. Revenues 39. Less: Allowance lor Uncollectible Non-residential Accounts: 40. folal Non-residential Revenus 41. 42. 4!t. 44. Ptocessing Facility Revenueg Scrap Payments lor all Materials Sold Calitomia Redemption Value (CRV) and Processing Fees Fees lrom Other Cities Revenues lrom Proceseing Facllhy slos mo sl 10 orx)st l5 (x)o 3t20.rxxl s125 rno sr to rno $120 orx)st3n 0{)0 Iran onn *1qn mn R?n mn $40.000 $4s.oo0 s50nm s55 (x)o q2d6 ff)o *27n fnn (rqn nm it:lin mn *q?n nm 45. lntercst on lnvesmenta 46. Otherlncome 47. folal Revenue Ottaetg FiscalYear: page Sot6 Page lll-5 EXIIIBIT Itr.2 Page 4of 6 Sample Base Year Rate Adiustment Application City ol San Luis Obispo Base Year Rate Adjustment Application Cost Summary for Base Year For lnformation Purposes Only ., ,.: ,, I , s€ctbllulHGaYqrcgf:Allocat6t :, : Descilption ot Cost T^ttl Citv L5Ustn Aclacent I lhihF^r^^rrta.l Processrng Fr.ilitv Labor Payroll Taxes 48. Total Dircct Labor 3t.t4a.soo,ll $7r7 950 $86 500 s60.550 $283.500 lrin 1m'll d, )4n 7 6rX)5 25f)25 tOO si24A.6m il $7AO200 $c4 000 s65.800 s308.6rn 49. Tolal Corporale Overhead Office Salary Payroll Taxes 50. Tolal Oltice Salaries 3?!0 00o:U S13R rqF $t6 A50 sl 1 A55 ss2 500 ta ,n{)l g 3A tNR I eEn 3M4 (7m 32892il' ll $r74 3(}0 $2t ooo $14 7rX)$5R 200 Computer Services Depreciation on Building and Equipment Depreciation on Truck and Containers Dues and Subscriptions Equipment Rental Fines Gas and Oil Hauling lnterest Expense Laundry Legal and Accounting Miscellaneous and Other Non-Oeductable Office Expense Operating Supplies Other lnsurance Other Taxes Outside Services Parts Public Relations and Promotion Recycling Rent Telephone Tires Travel Truck lnsurance Truck Repairs S lorx'r{r * ,aF'72 $ 2Adn S 'qRR R I Aflo .ffm ae 79a A A'E ? non t4 74n ' ,corfxI1 a6 727 a 425 3 og8 l5 750 : : :: ::*llill:?OM ffn 334 tnn . 1d.ooo 8.3m I OOI 700 oI :l nm..430 1l}0 70 o em.am 271 410 32 700 22.ASO 2.600 lo {xx}R3m I O(X)'7f}r)o at.m 2S.050 3.500 t aqn n ld (}0(l 7 l3A a60 6(12 1 doo ts.fin 12.450 1.500 1.050 0 o 8rn 2 qns 350 24F 6 3aX) qffi 4 t4n 500 q6n n ao.3txt 32 47.r 3 qoD 2 73(}t 3fx) 3an fifio 2ta aa )a 1it 1R q7n 4q mn 530.OOO 439 900 s3 (x)o 37.tOO o 3r frro 'A D'6 i lrn 2 3An o 24-OO0 19.920 2.4ffi 1.640 ,o E ataYt ! 160 40n 350 o ooffi il Aq7 A 4An d A1?a4 mo 25.froo 20 75,O 2 5(n I 750 o tn frln t3m 10m 7n'l ROm .tO.dX]32.7a5 3.950 2.744 500 :lofio 2 ,,9,r]3()0 21r}o lem .495 tao 125 2.800 a6 nfxl 34 A6n 4 2rrl 20 3 004) ttm ? l2n 400 2AO 7.OOO 3{) floo 1a 770 1qm I 330 It rx)o 3.t.820.2m 3t 36s 500 sl65 orx)st t5 s{to st70 2(y) Utilities 5t. Tolel Other General and Adminlatratlye Cosls 52. Total Tlpping Fees &?. Tolal F anchlso Fac 54. Tolal AB 9:19 and Rcgulatory FGcs 55. Total Lease Prymenls to Afliliated Companles 56. Total Cosl Fiscal Year:Page 4 ol 6 Page lll-6 EXHIBIT trI-2 Page 5 of6 Sample Base Year Rate Adi us tm ent ADD lic ation City ol San Luis Obispo Base Year Rate Adjustment Application Base Year Revenue Oftsbt Summary For lnformation Purposes Only . .., SddonylHaasqrgrL.ta rt. , , ::,..:. , cih, csustn Adjac€nt PrcNing FAcilitu nesidential Revenue (without lncrcasa in Base Yr.) 5Z Singlo Family Residential Multiunit Residential Dumpsler 58. Number of Accounts 59. Revenues 60. Less Allowance lor Uncollectible Residenlial Accounts 6t. Tolal Residential Revenue Non-resiclentlal Reyenue (wlthoul lncratse ln Bas6 Yr.) A@ount Type 63. 62. Non-residenlial Waste Wheeler 64. Number ol Accounts65. Revenues Non-residential Dumpster 66. Number of Accounts 67. Flevenues 68. Non-residential Can Number of Accounts Revenues 'l rltsl g0g t06 71 n t orn {]rV|l st -523 50o *171 qno sl 14.600 so Less: Allowance lor Uncollectible Non-residenlial Accounts: 69. Tolal Non-residentiel Revenue Prccessing Fscllity Revenuea 70. Scrap Payments lor all Materials Sold 71. Calilomia Redemption Value (CRV) and processing Fees72. Fees lrom Other Cities 73. Revenuss trom Processlng Fscllity 3't20.fix] I $o $o $o st20 mn gt!,o.oaxl I $n $0 $o s140.0O0 330.flx1 I so $o sn sso ltoro.oo0l so $o so s3l n fion 74. lnterest on lnyeatmenta 75. Other lncome 26. Tolal Revenue Otlseta Fiscal Year: pade sot6 Page lll-7 E)CIIBIT In.2 Page 6 of6 Sample Base Year Rate Adiustment ADDlication City ot San Luis Obispo Base Year Rate Adjustment Application Operating lnformation Hisloricel Cu16nt I 902 P€m€nt (:hend6 I CO3 Por@nl Chanoe 19c4 P€rc6nt Chande Baae Yeat 1095 Psr€nt tooa . Sectlon tx..Op€rating Ddr nesldcntlal Z/. Accounls 28. Routes 29. Tons Collected 80. Dirst Labor Hou6 9,250 2.20/"9,450 2.1"/a 9,650 2.O"h l.ttv.lo,(ruo 4 o.ooh 4 o.oo/"4 o.o/", ,,4 0.0%4 1 1,350 1.4"/"11,550 1 1,750 2.',t70 lZ,(xX'1.7%12,200 't5.700 o.60/"'t5.800 o.6./"15.900 o.60/"t8.000 0.60/.t6.100 Non-residential 81. Accounts 82. Roules 83. Tons Collected 84. Oirect Labor Hours necyctablc Materials 85. Fees fiom Other Cilies 86. Tons lrom Other Cilies 8Z CostperTon $30.000 33.3%$40.000 12.5%$45.000 11.'lo/"35f} (rlr'l I O Ool"$55 000 750 20.gyo 900 5.60/"950 5.3y"1.0@ 5.0%1,050 40 10.00/.44 6.8Y"47 6.40/"50 4.0/"52 Fiscal Year: gs 1.995I,435 2.ZYo I,475 2.1.h 1,9t5 Z.lYo 2,U-/o 0.00/.440.0v"4 0.oy"4 0.o%il 20.200r8,700 2.1"h 19,100 2.1%19,500 1.50h 2.Oo/" 9.700 1.O%9.800 1.Oo/"9.900 1.OV"0{x}1.0%10.100 Pg,6of6 Page lll-8 (Base Rate Description of Tasks a. Enter Prior T\vo Years Audited Information Financial information from audited financial statements is consolidated into specific categories identified on page 2 of the application. These categories include: Line 6 Direct Labor Line 7 Corporate Overhead Line 8 Office Salaries Line 9 Other General and Administrative Costs Line 13 Tipping Fees Line 14 Franchise Fees Line 15 AB 939 and Regulatory Fees Line 16 Lease Payments to Affiliated Companies. The specific components of these cost categories are described in Exhibit m-3, on the following page. Supplemental documentation should be prepared by the hauler which reconciles the franchise hauler's financial audit to information prowided in the application. This documentation, along with a copy of each audit, should be included in the application package. Total cost information for residential, non- residential, and recycling services should be reported in this initial task, and in tasks b, c, and d below. Segregation of costs for residential, non-residential, and recycling is not required. For informational purposes only, the franchise hauler should further segregate total costs into four areas: tr San Luis Obispo (within city limits) tr California State Universiry at San Luis ObisPo (CSU SLO) tr Adjacent unincorPorated areas tr Materials Processing facilitY' This segregation also is provided on page 4 of the application. Suggestions of factors to allocate any indirect costs are summarized in the "standardized" chart of accounts in Appendix B of this manual' b. Enter CurrentYear Estirnated Information Current year costs are determined from actual costs to-date and estimated costs that will be incurred during the remainder of the current year. Total coss for the current year Franchise Hauler Prepared during steP 1' of the base year rate adiustment Process (refer to Section II-A) ^. Enter Prior Two Years Audited Information b. Enter Current Year Estimated Information c. Enter Base Year Projected Information d. Enter Future Year Projected Information e. Enter OPerating Information Tasks ResponslbilitY: Timing: Buse Ycot" St ep I EllEnNsr*YouNc Page lll-9 E)AIIBIT Iu.3 Defi Terms fromnition of Financial Base Year Rate Adiustment APPlication 6. Direct Labor All costs associated with solid waste and recyclable materials collection,including wages; overtime,payroll taxes, health and welfare benefits,workers compensation,and pension benefits 7. Corporate Overhead Salaries paid to the franchise hauler's corporate officers. The amount ofthis item cannot exceed $1.2O,O0o per year in1.994 dollars (the $r 20,000will be adjusted annually by the Consumer Price Index as published bythe Bureau of Labor Staristics in their Montbly Labor Reuieu.D. 8. Office Salaries !flages and related benefits paid to office and administrative staff,including wages,oveftime,payroll taxes, health and welfare benefits,workers compensadon,and pension benefits 9. Other General and Administrative Cosrs 16. Lease Payments to affiliated Companies All general and administrative overhead and office salaries. . Collection fees. Computer equipment and services . Depreciation . Dues and subscriptions. Insurance . Janitorial. Laundry and uniform. Interest expense. Licenses . Medical expenses costs with the exception of corporate This item includes the following .ort,. Office rent a a a o a a a a a Office supplies Postage Professional fees Promotion Office repair and maintenance Telephone Travel Trucking Uriliries 10. Toral Allowable Cosrs Sum of direct labor, corporate oveihead, office salaries, and othergeneral and administrative costs 11. Operating Ratio 12. Allowable Operatrng Profit Established by the allowable operaring rario 13. Tipping Fees Costs to dispose of solid faciliries, or landfills v/aste at transfer stations, transformation 14. Franchise Fee.s Payments to the Ciry of 6.0 residential and commercial sales) percent of gross revenues (revenues frombillings only; excludes recyclable -u,.ri"J 15. AB 939 and Regulatory Fees Pa yrnents to the Ciry of San Luis Obispo to meet AB g39 programs Lease made Page ltt-l0 paymen$ for trucks, office space, and other operating facilitiesto affiliated companies S. -,bn lll. Base Year Rate Settino Methodoloorr should be similar to the prior audited year, after taking into account increases due to inflation and changes in the number of residential, non-residential, and recycling customers served. Any significant changes should be explained and documented. A significant change includes any increase in cost which is greater than the Consumer Price Index as reported by the Bureau of Labor in their Montbly Labor Reuiew, or any decrease in a cost item. c. Enter Base Year Projected Information Base year costs are projected by the franchise hauler. These projected costs then are used to calculate the net surplus/shortfall in revenues and, subsequently, the percent adjustment in rates. These projected costs should be based on anticipated service levels during the base year, and expenses which will be incurred to provide these services. Each cost element in the application should be reviewed and any anticipated increase in specific line items should be included in the base year projection. For example, if negotiated labor rates or workers compensation are expected to change, or if tipping fees are expected to change, these changes should be included in cost projections for the base year. The franchise fee for the base year (year four of the application) is not estimated in this task, but is estimated in step 3. Because franchise fees are based on gross revenues from residential and non-residential services, the projected franchise fee in the base year is calculated using revenue projections developed in step 2. d. Enter Future Year Projected Information Costs are projected for the year after the base year. Although these costs will not be used for any rate adjustments made by the Ciry, the projection provides the Ciry information to use for evaluating future rates Projected costs should be based on anticipated service levels and significant changes in operating costs. e. Enter Operating Information 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). Five operating characteristics are required in the application for both residential and non-residential customers: tr Accounts served tr Routes tr Tons of solid waste collected D Direct labor hours tr Tons of recyclable materials received at processing facility, and the fees charged to process these materials. Five years of operating data are required in the application. Prior year data are based on actual annual operating results. Current year peiformance is based on performance to-date plus estimated performance for the remaining months of the current year. Projected operating results are the franchise hauler's best estimate of service levels during the new base year and the year after that. Year-to-year percentage changes then are determined for each of the four operating characteristics above. Any significant changes should be documented and explained by the franchise hauler. A significant change in an operating characteristic is an increase or decrease of more than two percent. Ctty of San Luts OHspo Page lll-11 Se ,.rn lll. Base Year Rate Settlno Methodoloov Note that page 5 of the application contains the total number of residential and non-residential accounts serviced by the franchise hauler ih the new base year. These totals should agree with the account information used to calculate residential and non-residential revenue (page 3 of the application) Page llhl2 Ctty of San Luis Owspo S- -roo lll. Base Year Rate Settino Methodoloqv Franchise Hauler Prepared during step 1 of the base year rate adjustment process (refer to section II-A) a. Determine Residential Revenue b. Determine Non-residential Revenue c. Determine Allowance for Uncollectible Accounts d. Determine Revenues from Processing Facility e. Calculate Total Revenue Offsets Tasks Responsibility: Timing: Bctsc YcarStep 2 a. Determine Residential Revenue Single family residential revenues are provided for all five years. For the base year only, the hauler also provides revenues; by service type, at existing rates. The calculation of base year single family residential revenues under the Ciry's current rate structure is documented on page 3 of the application. The hauler provides the projected number of accounts by service type, and the existing monthly rate for each service rype. Total revenue for each service rype then is calculated as follows: Multiplied by Rate per month Twelve months Rate per year Projected average number of single family residential accounts during year Equals Revenue by service type For economy service an additional amount is added for bag package purchases as follows: Description of Tasks Multiplied by Rate per package of bags Number of packages purchased Equals Revenue for packages purchased Revenue by service type then is entered under the base year (fourth column of cells). These values then are summed and entered on line 28. The number of accounts in each service category may change throughout the year (e.g., new customers, or customers which switch to a different service). The auerage number of accounts by service type is to be used in these calculations. In addition, the number of accounts identified for these calculations must agree with operating data provided on page 5 of the application. The number of multiunit residential customers and estimated revenues for each of the five years are also provided by the hauler on page 3. Finally, the franchise hauler should provide sufficient information to support any figures included in this portion of the form. Equals Multiplied by City of San Luis Obispo Page lll-13 Sc .on lll. Base Year Rate Settinq Methodoloqv. b. DetermineNon-residential Revenue Non-residential revenue information is entered on page 3 of the application. For each service type (e.g., can, waste wheeler, or dumpster) both the number of accounts and annual revenues are reported. Information for the first two years should tie to supporting audited financial information. Non-residential revenues for the current ye r are based on actual revenue to-date plus an estimate of the revenue that will be received through the end of the year. Non-residential revenue in the current year should be comparable to revenue in the prior two years, after taking into account increases in rates and service Ievels. Projected non-residential revenue information for the base year and year after also are provided on page 3. The non- residential rate structure and account summary assumed for each of these years (by service type and frequency of pick-up) should be documented separately by the franchise hauler, and provided to the City. Operating data provided on page 5 of the application should correspond to the numbers of accounts provided on page l. c. Determine Allowance for Uncollectible Accounts The franchise hauler will likely 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 on page 3 of the application (allowance for uncollectible residential accounts and allowance for uncollectible non-residential accounts). These amounts can be calculated based on a formula, such as a percentage of anticipated revenues, or based on actual experience. All assumptions relaped to the projection of uncollectible accounts must be documented and included as a supplement to the application. d. Determine Revenues from Processing Facility If the franchise hauler owns and operates a processing facility used to process recyclable materials collected from City residences and businesses, the revenueb from operating the processing facility shall be an offset to the hauler's revenue requirements for purposes of establishing City residential and non-residential rates. On page 3 of the application, the hauler is to provide annual scrap payments received for all materials sold, annual California Redemption Value (CRV) and processing fees received for beverage containers, and fees from other cities. The result is added to total revenue offsets on page 3. e. Calculate Total Revenue Offsets Total revenue offsets are determined as follows: Line 32 Total residential revenue Plus Line 4O Total non-residential revenue Plus Line 44 Revenues from processing faciliry Plus Line 45 lnterest on investments Plus Line 46 Other income Equals Total revenue offsets Total revenue offsets are entered on page 3, line 47, and on page 2,line 19 of the application. Page lll-14 '=!l EnNsr*YouNc S .on lll. Base Year Settino Methodoloql Franchise Hauler Prepared during step 1 of the base year rate adjustment process (refer to Section II-A) ^. Calculate Allowable Operating Profit b. Determine Franchise Fee c. Calculate Revenue Requirement Tasks Responsibility: Timing: Base Ye&r St ep 3 Description of Tasks a. Calculate Allowable Operating Profit The operating ratio method is used to establish allowable operating profit. The operating ratio establishes revenue requirements based on allowable costs. The equation for the operating ratio is: Divided by Allowable costs Total operating revenues Equals Operating ratio The operating ratio effectively determines the profit allowed to the franchise hauler on its allowable costs. In the first base year, the operating ratio will be p2 percent. In each succeeding base year, the operating ratio will range from 90 to !4 percent, which will help stabilize rate adjustments and afford the franchise hauler an incentive to reduce costs. In any succeeding base year, if the franchise hauler earned an.operating ratio outside this range, then 92 percent would be reestablished. The following operating costs are included as operating costs in the allowable operating profit calculation: tl Direct labor tr Corporate overhead tr Office salaries tr Other general and administrative costs. A definition of the components of these cost categories is provided earlier in Exhibit III- 3. The actual or projected operating ratio and operating profit received by the franchise hauler is entered on line l.L for each of the five years. To calculate actual or projected operating ratio, the hauler first determines allowable revenues as total revenues minus all pass through costs. Then, the hauler divides allowable costs by allowable revenues to determine the operating ratio. To calculate the allowable operating profit each year, the following equarion is utilized: Allowable costs Divided by ratio Equals Minus Allowable revenues Allowable costs Allowable operating profit. -=Jl EnNsraYouNc Equals Page lll-15 Sr .rn lll. Base Year Rate Settino Methodoloqv b. Determine Franchise Fee The franchise fee is six percent (6%o) of gross residential and non-residential solid waste collection revenue collected. Any services which are provided by the franchise hauler but which fall outside the Ciry's jurisdiction are not subject to the franchise fee payment. An adjustment for these services should be included in the franchise fee calculation. Flistorical and projected franchise fees should be entered on line 14 of the application. Note that the franchise fee attributed to any requested adjustment in rates will be accounted for separately in the franchise fee adjustment factor. This adjustment factor is computed in step 4. Therefore, annual payments of franchise fees in the base year are estimated based on revenues received at existing monthly rates. After total franchise fees are determined, total annual costs can be calculated. Lines 13 through 16 should be added and the result entered on line 17 , total pass through costs. Any significant changes in total pass through costs for the base year should be explained and documented. c. Calculate Revenue Requirement The revenue requirement establishes the level of revenue needed to meet all allowable costs, operating profit, and pass through costs. This includes solid waste and recyclable material collection costs, and assumes a reasonable profit margin based on the operating ratio calculation. Total revenue requirements are determined as the sum of: tr Allowable costs tr Allowable operating profit tr Pass through costs. The revenue requirement is entered on line 18 of the application. Page lll-16 --Jl EnNsr*YouNc ! ,on lll. Base Year Rate Settinq Methodologr Franchise Hauler Prepared during step L of the base year rate adjustment process (refer to Section II-A) a. Calculate Net Surplus/Shortfall b. Calculate Percent Change In Rates Tasks: Responsibility: rrrrrrng: Bsse Year St ep 4 Description of Tasks a. Calculate Net ShortfalVsurplus The net shortfall/surplus is determined based on the following calculation: Line 18 Revenue requirement Less Line 19 Total revenue offsets Equals Net shortfall/surplus The net shortfall/surplus is enrered on line 20. This number is used to calculate the required percent change in existing rates. b. Calculate Percent Change in Rates The percent change in rates is the amount that residential and non-residential rates must be adjusted in order to generate revenues sufficient to meet total revenue requirements. The percent change in existing rates is calculated as follows: Equals Percent change in rates without franchise fee adjustment. The percent change in rates is entered on line 22 of the application. In order to account for additional franchise fees which must be paid on the additional (or lower) revenue that will be collected, an adjustment is made to the rate increase. The franchise fee adjustment is based on the following equation: Line 22 Percent change in rates without franchise fee adjustment Divided by Line 23 Franchise fee adjustment factor (1 - franchise fee) Equals Percent change in existing rates. The percent change in existing rates is entered on line 24 of the application. Line 20 Divided by Line 21 Net shortfall/surplus Total residential and non-residential revenues without increase (line 32 + line 40) City of San Luis Obispo Page llhl7 Sr. rn lll. Base Year Rate Setting Methodoloqy Franchise Hauler Prepared during step 1. of the base year rate adjustment process (refer to Section II-A) a. Calculate New Rates b. Sign and Submit the Application Tasks Responsibility: Timing: Bas e Ye ar .St ep 5 Description of Tasks a. Calculate New Rates The rate adjustment identified on page 2,|ine 24 should be entered on page 1, line 1 of the Base Year Rate Adjustrnerxt Application Current monthly single family residential rates for solid waste collection should be entered in the first column of lines 2-4. Adjusted rates then are calculated by multiplying the current rate by one plus the rate adjustment identified in line 1. These adjusted rates are entered in the second column of lines 2-4. In column three of lines 2-4, the adjusted rates are rounded up to the nearest five cent increment. 1'his sin-rplifies record keeping for the franchise hauler ar-rd shor.rld not make a material difference to customers. The adjustment required to reach the nearest five cent increment should be calculated and entered in the third column of lines 2-4. To determine new single family residential rates, column rwo on lines 2-4 should be added to column three and the result should be entered in column four. This column provides the new single family residential rate schedule. Line 5 of page L identifies the rate increase to be applied to multiunit residential and non-residential rates. Multiunit residential and non-residential rates should be rounded up to the nearest $1.00. The franchise hauler should provide supporting documentation for the requested multiunit residential and non-residential rates for the base year. b. Sign and Submit the Application 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. Page lll-18 Ctty of San luis Oblspo cn lll. Base Year Rate Setting Methodologt Franchise Hauler Prepared during step 1. of the base year rate adjustment process (refer to Section II-A) a. Complete Solid \7aste Fee Survey b. Summary of Survey Tasks: Responsibility: Timing: Bsse Year St ep 6 Description of Tasks a. Complete Solid Waste Fee Survey As a check of the reasonableness of existing and new integrated solid waste management rates, a survey of residential and non-residential rates in similar communities should be conducted durino each base year (once every three years). This survey covers questions concerning both residential and non-residential service. Exhibit [I-4, following this page, is a sample survey form. The survey should be conducted by telephone instead of by mail in order to ensure complete responses to each question. A minimum of six cities should be contacted. The Ciry and the franchisee hauler will agree on which cities will be surveyed. Vhile all questions in the survey provide valuable comparative information, there are several key questions including: tr Monthly rates for all residential service types tr Monthly rate for standard non- residential services (i.e., one to six cubic yard bins picked up once per week) tr Tipping fees charged the hauler tr Responsibility for billing customers. b. Summary of Suney After the survey has been conducted, the results are summarized for comparison with the franchise hauler's rate application. This summary is included as an attachment to the Base Year Rate Adjustment Application, as described in Section II-A, step 3. This information also is used in the evaluation of the franchise hauler's application. II Ctty of San Luis Obispo Page llFl9 HAIIBIT M-4 Page 1 of2 Sample Solid Waste Fee Suruey City of San Luis Obispo Solid Waste Fee Survey Section I - lntroduction 1. Name ot City/County 2. Contact Person 3. Title ot Contact Person 4. Telephone Number 5. Date Contacted 6.Are residential curbside collection and disposal services provided by the municipality or private contractor? 7. ls a franchise for refuse collection granted to the hauler? 8. ls a franchise lor recyclable material collection granted to the hauler? 9. ls there a franchise fee? lf so, how much is it? t0. What is the franchise haulefs disposal cost per ton? t t. Who bills customers? Section lll - Residential Service 12. Are residential rates regulated? /3. What is the monthly charge for residential service? 14. How many cans are picked up at this charge? t5. What is the charge for additional cans? 6 / N{ ANV- " q '.Y" \7 Fiscal Year:Page 1 of2 Page lll-20 EXHIBIT III.4 Page2 of 2 Sample Solid'Waste Fee Suruey City ol San Luis Obispo Solid Waste Fee Survey 16. ls there a separate charge for yard waste collection? 17. Are there any City-wide clean-up days provided at no additional charge by the hauler? 18. Does your community have a curbside recycling program? t9. ls there an additional charge to residents for this program, or is it included in the monthly charge for solid waste collection? 20. lf separate, what is the charge per month? 21 . Are non-residential rates regulated? 22. Ptovide the monthly fee for the following services, assuming pick-up is one time per week: 23. 1 cubic yard 24. 11/2 cubicyards 25. 2 cubic yards 26. 3 cubic yards 22. 6 cubic yards 28. Etleclive period of ratesquoted: Section lll..Residential ^6,Section V -- Non-residential Service ^^.\ "RilV AJ, Fiscal Year:Page 2 of 2 Page lll-21 -a Section IV Interim Year Rate Setting Methodology I j I') IV. Interim Year Rate Setting MethodologJ/ The Interim Year Rare Adjustment Application is completed by rhe franchise hauler and is used to calculate the adjustments in rates effective for the interim year. The application documents changes in tipping fees, and AB 939, and regulatory charges. The Interim Year Rate Adjustment Application is used to calculate new interim year rates. This docurnent is prepared by the franchise hauler. Interim year rate adjustments are based on a weighted average change in controllable and pass through costs. Inflators for this process inciude changes in the U.S. National Consumer Price Index and changes in pass through costs. The application is a two-page form. Page 1 provides summary information about the rate adjustment and the resulting new rates. Page 2 includes detailed calculations required to determine the rate adjusrment. Steps 1 through 3 of the methodology describe how to complete page 2 of the application. Steps 4 and 5 describe how to complete page 1 of the application. bftibit fV-l, following this p ge, provides an civerview of the steps and related tasks which must be completed to prepare the application form and calculate new rares. Exhibit fV-2, following Exhibit IV-1, is a sample of the two page application as it might be prepared by the franchise hauler, This exhibit includes references to various steps which must be completed to prepare the application. Following Exhibit IV-2 is a detailed description of each step and related tasks. Please note tbat tbe data included in this sanxple exbibit are prouided for illustratiue putposes only and are not intended to reflect actual operating or financial conditions. i !City of San Luis Obtspo Page lV-l EXIIIBIT IV-l Preparation of the Interim Year Rate Adiustment Application 3 1. ) Determination of Base Year Costs and Weighting a. Identify Prior Base Year Controllable Costs b. Identify Prior Base Year Pass Through Costs c. Calculate Veightings Calculation of Percent Changes in Controllable and Pass Through Costs ^. Enter Controllable and Pass Through Cost Information b. Review Mathematical Accuracy Calculation of Weighted Change in Rates a. Calculate'Weighted Change in Controllable Costs b. Calculate'$Teighted Change in Pass Through Costs c. Caiculate Total Percent Change in Cost d. Calculate Franchise Fee Adjustment ' e. Calculate Percent Adjustment in Existing Rates Preparation of the Summary Forrn a. Enter Rate Adjustment b. Calculate New Rates Application Certification a. Sign Application b. Submit Application to Ciry 4. Page lV-2 EICIIBIT IV.2 Page 1 of2 Sample Base Year Rate A di ustm ent Applic ation at City ol San Luis Obispo Interim Year Rate Adjustment Application Summary Requested lncr€rsg r. Rate lncrease Requested 4.9'/o Rate ) Rete Crrrrcht Retp lncreased Rate Adiustment New Rate Single Family Residentiat 2. Economy Seruice (collection) Economy Seruice (orange bags) 3. Slandard Service 4. Premium Service $ 2.O0 $2to $0.o0 3 2.10 $ 1.O0 sloS $0.00 s1.(F 't3.40 't4 06 0.()4 14-10 18.2s 19 14 0.01 lg-t5 (a) Calculated ntes are rounded up to the nearest $0.0S. 5. Multiunit Residential and Non-residentiat Rate increases of 4.56/"will be applied to all rates in each structure with each rate rounded up to ihp hFrrFct ( 1 .o0. Cerlitication To the best of my knowledge, the data and information in this application is complete, accurate, and consistent with the instructions provided by the City of San Luis Obispo. Name: John Brown Title: Controller Signature: JofuEnrun Date: May i, igxx Page lV-3 EJCIIBIT IV.2 Page2 ofZ Sample Interim Year Rate Adiustment APPlication City of San Luis Obispo lnterim Year Rate Adjustment Application Financial lnformation S€ctlon F-Baco Ys.r Costs 6. 7. 8. 9. Base Year Controllable Costs Total Allowable Costs Plus Allowable Operating Profit Plus Lease to Affiliatod Companies Equals Total Controllable Costs 10. 11. 12. Base Ysar Pasa Through Costc Tipping Fees Plus AB 939 and Fees Equals Total Pass Through Costs 13. Base Year Revenue Requiremenls (Less Franchise Fee) 14. Sectlon lrchanges ln Cost Change in Controllable Cost Historical Percentage Change in Consumer Price lndex 4.Oo/" 15. 16. 17. Change in Pass Through Cost Prior Year Tipping Fees Plus:AB 939 and Fees Equals: Total Prior Y6ar Pass Through Costs 18. 19. 20. 21. Plus: Projected lnterim Year Tipping Fees Projected lnterim Year AB 939 and Regulatory Fees l[ $.8-s!.qo-q-i;1 rzo,ooo ll Equals:Totat Projected tnter,im Year p@f $1 poopoo ll Projected Percentage Change in Pass Through Costs 6.4"/. 22. 24. 25. 26. 27. 28. 29. 30. Sectlon lll-Calculation of P6rcent Change ln Rates Weighted Change in Controllable Costs Controllable Costs as a Percent of Base Year Revenue Requirements Multiplied by Percent change in CPI ll tz sv"llF---- 40%ll Equals Weighted Percent Change in Controllable Costs Weighted Change in Pass Through Costs Pass Through Costs as a Percent ol Base Yr. Bevenue Requirements ll s.r%Jl Percent in Pass Costs Equals . Total Change rcenl Total Percent Change in Cost Divided for Franchise F€e ( l - 6.0 percent) Equals Percent Change in Existing Rates Fiscal Year: 25,000 $840.OOO 100,000 $940.000 22.70/" 6 ao/^ 1.5v" 4.60/" 94 00/^ Page 2 of 2 Page lV-4 Se. ,n lV. Interim Year Rate Setting MethodoloE, Franchise Hauler Prepared during step 2 of the interim ye r rate adjustment process (refer to Section II-C) ^. Identify Prior Base Year Controllable Costs b. Identi$r Prior Base Year Pass Through Costs c. Calculate\Teightings Tasks Responsibility: Timing:ApPlicatiott St ep I Description of Tasks a. 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. Increases in these costs are adjusted by the annual change in the U.S. National Consumer Price Index (CPI), as published by the Bureau of Labor Statistics in their Montbly Labr,,r Reuieu.t. In order to streamline the interim year process, controllable costs are changed based on an annual change in the CPI, rather than projected changes in each cost item. This eliminates the need to conduct a detailed review of the franchise hauler's financial and operating staten]ents. The following table identifies the line items in the base year application which must be entered on the controllable cost portion of the interim year application. The name of each line item is the same in both applications. Base Year Application Line Number The total of lines 6,7, and 8 is entered on line 9 of the application and is used to calculate the weighted change in controllable costs. b. Identify Prior Base Year Pass Through Costs Pass through costs are those expenses which the franchise hauler is allowed to recover through rates but for which no profit is allowed. These include tipping fees, and AB 939 and regulatory charges. Changes in these cost categories do not necessarily match changes in CPI. Therefore, changes in pass through costs during an interim year are based on the franchise hauler's projection of total annual costs, not projected changes in the CPL Total costs in the prior base year must be identified in order to determine the weighting of controllable costs and pass through costs to total costs. The following table identifies line items from the prior base year application which must be entered on the interim year application. The name of each line item is the same in both forms. 10 t2 t6 lnterim Year Application Line Number il. Name of Line Item Total Allowabie Cost Allowable Operating Profit Lease Payments to Affiliated Companies 6. 7 Ell EnNsraYouNc Page lV-5 Ser .t lV. lnlerim Year Rate Settinq Methodoloqr Base Year Application Line Number Interim Year Application Line Number Name of Line Item 13.Tipping Fees L5 11 AB 939 and Regulatory Fees The amounts in lines 10'and 11 are added and the total entered on line 12 c. CalculateWeightings Total controllable costs (line 9) plus total pass through costs (line L2) equals total base year costs (excluding franchise fees). This total is entered on line 13 of the application (base year revenue requirement less franchise fee). A weighting for both controllable costs and pass through costs is calculated as follows' Controllable Costs Wetgbttng Line 9 Total controllable costs . Divided by Iine 13 Base year revenue requirement Equals Controllable costs as a percentage of base year revenue requirements. This percentage figure is entered on line 9, column 2, andline 22. Pass Tbrougle Costs Weigbting Line 12 Total pass through costs Divided by Line 13 Base year revenue requirement Equals Pass through costs as a percentage of base year revenue requirements. This percentage figure is entered on line 12, column 2, andline 25. Page lV-6 Clty of San Luts Obtspo Se. ;h lV. lnterim Year Rate Settino Meihodoloo. Franchise Hauler Prepared during step 2 of the interim year rate adjustment process (refer to Section II-C) a. Enter Controllable and Pass Through Cost Information b. Review Mathematical Accuracy Tasks Responsibility: Tirning:Applicatiotr St ep 2 Description of Tasks a. Enter Controllable and Pass Through Cost Information The historical Consumer Price Index (CPI) percentage change in line 8 of the application is entered on lines 14 and 23 of the application. This percenrage change in historical CPI (the previous 12 months) is used to determine the weighted average change in controllable costs. Figures on lines 1 through 6 of the application (actual and projected pass through costs) are entered on lines 15 though 20, respectively, of the application. Any significant changes in these costs are documented by the franchise hauler. A significant change would be any increase greater than the annual 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. b. Review Mathematical Accuracy The mathematical accuracy of the franchise hauler's calculations of total prior year pass through costs (line 17), and total projected interim year pass through cost (line 20) are checked during this task. The percent change in pass through costs should be calculated as follows: line 20 - line 17 line L7 After the percentage change in pass through costs has been verified, this figure is entered on line 21 of the application. -=Jl EnNsr*YouNc Page lV-7 Sec -n lV. lnterim Year Rate Settinq Methodologr Rates ::, .: Franchise Hauler To be prepared during step 2 of the interim ye r rate adjustment process (refer to Section II-C) a. Calculate \Teighted Change in Controllable Costs b. Calculate Weighted Change in Pass Through Costs c. Calculate Total Percent Change in Cost d. Calculate Franchise Fee Adjustment e. Calculate Percent Adjustment in Existing Rates Tasks: Responsibility: Timing:ADltlicatiort St ep 3 Description of Tasks a. Calculate Weighted Change in Controllable Costs Figures should have been entered on line 22 of rhe application (controllable costs as a percent of base year revenue requirements), and line 23 of the application (change in CPI, based on calculations completed in previous tasks). To obtain the weighted increase in controllable costs, line 22 is multiplied by line 23 and the result entered online 24. b. Calculate Weighted Change in Pass Through Costs Line 25 (pass through costs as a percent of base year revenue requirements) and line 26 (percent change in pass through costs) should now have an entry based on calculations completed in previous tasks. To obtain the weighted change in pass through cosrs, line 25 is multiplied by line 26 and rhe result entered on line 27. c. Calculate Total Percent Change in Cost To calculate total percentage change in costs, line 24 (weighted percent change in controllable costs) is added to Line 27 (weighted percent change in pass through costs), and the result entered on line 28 (total percent change in costs). d. Calculate Franchise Fee Adiustment In order to account for changes in the franchise fee resulting from a change in rates, an adjustment is made to the percentage change in total costs which was entered on line 28. The adjustment factor is equal to one minus the franchise fee (1.00 - 0.06 = 0.94). This value should be entered on line 29. €. Calculate Percent Adjustment in Existing Rates The final task in this step is to calculate the percent adjustment in existing rates; To determine this adjustment, line 28 (total percent change in costs) is divided by line 29 (adjustment for franchise fee), and the result entered on line 30. The value on line 30 should be greater than the value on line 28. The difference accounts for the increase in franchise fees. Page lV-8 City of San Luis Obispo Se ,h lV. lnterim Year Rate Settino Methodotog. Franchise Hauler Prepared during step 2 of the interim ye r rate adjustment process (refer to Section II-C) Tasks: Responsibility: Timing: a. Enter Rate Adjustment b. Calculate New Rates Applicatiotr St ep 4 Description of Tasks ^. Enter Rate Adiustment The rate adjustment identified on line 30 should be entered on page L, lines 1 and 5 of the application. b. Calculate New Rates Current rates for single family residences are entered in the first column of lines 2 through 4 on page 1, by service type. The adjusted rates then are calculated by multiplying the current rare by one plus the rate increzise identified on line L. The adjusted rates are entered on the second column of lines 2 through 4. The adjusted rates then are rounded up 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 4. To determine new rates, colurnn two, lines 2 through 4, is added to column three and the result is entered on column four. This column provides the new schedule of single family integrated solid waste management residential rates. To determine multiunit and non-residential rate adjustments, the rate adjustment in line 5 is applied riniformly to all rates in each rare structure. Rates are rounded up to the nearest $0.05. City of San Luis Obispo Page lV-9 Se, n lV. lnterim Year Rate Setting Methodolog, Franchise Hauler Prepared during step 1 of the base year rate adjustment process (refer to Section II-C) Tasks Responsibility: Timing: a. Sign Application b. Submit Application to City Alrlrlicatiott .St ep 5 Description of Tasks a. Sign Application An authorized representative from 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. b. SubmitApplication to City At this point, the application should be submitted to the Ciry for review of the rate adjustment Page lV-10 City of San Luis Obtspo n a Appendix A Blank Forms and Worksheets I) l City of San Luis Obispo Base Year Rate Adjustment Application Summary Bequestedlncrsasa ; r. Rate lncrease Requested Rale Scheduls Rate Schedule Current Rate lncreased Rate Adiustment (a) New Rate Single Family Residential 2. Economy Service (collection) Economy Service (orange bags) 3. Standard Service 4. Premium Service 5. Multiunit Residential and Non-residential (a) Calculated rates are rounded up to the nearest $0.05. Rate increases of will be applied to all rates in each structure with each rate rounded up to the nearest $1.00. Certilication To the best ol my knowledge, the data and inlormation in this application is complete, accurale, and consistent with the instructions provided by the City of San Luis Obispo. Name: John Brown Title: Controller Signature: John Brown Date: May 1,19XX Fiscal Year:Pg.1of6 City of San Luis Obispo Base Year Rate Adjustment Application Financial lnformation Historical Current Projected Base Year (kom Pg.4) Sec{on l-Allowablr Co6tg 6. Direct Labor Z. Corporate Overhead 8. Office Salaries 9. Other General and Administrative Costs /0. Total Allowable Costs Sectlon ll- Allowable Opetating Protlt //. Operating Ratio /2. Allowable Operating Profit Section lll-Paes Through Gosts /3. Tipping Fees 14. Franchise Fees 15. AB 939 and Regulatory Fees 16.Affiliated 17. Tolal Pass Through Costs Sectlon lv-Revenue Requlrement 18. RevenueRequirement 19. Total Revenue Offsets (from Pg.3) Ssction V-Nst Shortfall (Swplus) 20. Net Shortfall (Surplus) Section Vl-Percent Chango ln Ratos 21. fo|al Residential and Non-residential Revenue without increase in Base Year (Pg. 3, lines 32+40) 22. Percent Change in Residential and Non-residential Revenue Requirement 23.ranchise Fee ustment Factor 1-6.0 24. Percenl Change in Existing Rates Fiscal Year:Page 2ot6 City ol San Luis Obispo Base Year Rate Adjustment Application Revenue Offset Summary Hi.lorical ()rrrranl Proisctsd Base Year Residenthl nevenue (wlthout lncrcase in Base YL) Current Projecled Pric€ per No. ot Accounl Type 25, EconomySeMce ?6. Standard SeMce 27. Premium Service Packaog PackaoesEl t-:.1Months 12 12 '12 28. Single Family Residential Multiunit Residential Dumpster 29. Number of Accounls 30. Revenues 37. Less Allowance for Uncollectible Residenlial Accounts 32. Tolal Residential Fevenue Non-residential Revenue (wlthout lncreese ln Sese Yr,) Account Type Non-residential Can 33. Number of Accounls 34. Revenues Non-residential Waste Wheeler 35- Number of Accounts 36. Bevenues Non-residenlial Dumpsler Number of Accounts Revenues 39. 38. Less: Allowance tor Uncolleclible Non-residenlial Accounls: 40. Tolal Non-residenlial Revenue 41. 43. 44. P rc cess I ng Fe c I I ity Bevenues Scrap Payments for all Malerials Sold Califomia Redemplion Value (CRV) and Processing Fees Fees from Other Cities Revenues from Processing Facility 45. Inteteat on lnvestments 46. Othet lncome 47- Tolal Revenue Oflsets Fiscal Year:Page Sofo City of San Luis Obispo Base Year Rate Adjustment Application Cost and Revenue Summary for Base Year For lntormation Purposes Only Section Vlll-Basa Year Coil Allocrffo'l Description of Cost Labor Payroll Taxes 48. Tolal Direct Labor 49. Total Corporate Overhead Office Salary Payroll Taxes 50. Total Office Salaries Computer Services Depreciation on Building and Equipment Depreciation on Truck and Containers Dues and Subscriptions Equipment Rental Fines Gas and Oil Hauling lnterest Expense Laundry Legal and Accounting Miscellaneous and Other Non-Deductable Office Expense Operating Supplies Other lnsurance Other Taxes Outside Services Parts Public Relations and Promotion Recycling Rent Telephone Tire s Travel Truck lnsurance Truck Repairs U tilities 5t. Total Other General and Administrative Costs 52, Total Tipping Fees 53. Total Franchise Fee 54. Tolal AB 939 and Regulatory Fees 55. Total Lease Payments to Afliliated Companies 56. Total Cost il Total Citv cs.J sLo ntn Fiscal Year:Pase 4ol6 City ol San Luis Obispo Base Year Rate Adjustment Application Base Year Revenue Offset Summary For lnformation Purposes Only Secdofl Vlt-Rawilr. Otffi Total Cltv csu sLo Adjaenl llnincomoralavl Procossing Fa.ilitu Resldentlal nevenue (wlthout lncraase In Base Yt.) 52. Single Family Besidenlial Multiunit Residential Dumpst6r 58. Numberol Accounts 59. Revenues 60. Less Allowance lor Uncollectible Residenlial Accounts 6t. Tolal Resldenllal Revenue Non-rcslclential Revenue (wlthout lncrease In Base Yr.) Account Type Non-residential Can 62. Number ot Accounts 63. Revenues Non-residential Waste Wheeler 64. Numberol Accounts 65. Revenues Non-residential Dumpster 66. Numberol Accounls 67. Revenues 68. il Less: Allowance lor Uncollectible Non-residential Accounts: 69. Tolal Non-residential Revenue 70. 71. 72. Ptocess Ing Fac ll lty Revenues Scrap Payments for all Materials Sold Calitomia Redemption Value (CRV) and Processing Fees Fees from Olher Cities Revenues from Processhg Faclllty 74. lnterest on tnvestmenls 75. Othet lncome 26. Total Revenue Oflsels Fiscal Year:Pag6 5 016 City of San Luis Obispo Base Year Rate Adjustment Application Operating lnformation Hislorical Current Proiected Percent Chanoe Percent Chanoe Percent Chanoe Base Year Percent Chanoe nesidential ZZ. Accounts 78. Routes 29. Tons Collected 80. Direct Labor Hours Non-residential 8/. Accounts 82. Routes 83. Tons Collected 84. Diecl Labor Hours Reyclable Materials 85. Fees from Other Cilies 86. Tons from Other Cities 82. Cost per Ton Fiscal Year:Pg.6ofo -1 I City of San Luis Obispo lnterim Year Rate Adjustment Application Summary r. Rate lncrease Requested Rate Schedule Current Rate lncreased Rate Adiustment (a) New Rate -\ I Sl n g I e Fa mi ly Resl dential 2. Economy Service (collection) Economy Service (orange bags) .3. Standard Service 4. Premium Service 5. Multiunit Residentihl and Non.residential (a) Calculated rates are rounded up to the nearest $0.05. Rate increases ol will be applied io all rates in each slruclure with each rate roundod up to th6 nearest $1.00. 1 l 1 J l I To the best of my knowledge, the data and inlormation in this application is complete, accurate, and consistent with the instructions provided by the Cily of San Luis Obispo. Name: John Brown Titlo: Controller Signature: John BrOwn Date: May 1 , 19XX Pg. I of2 l I J City of San Luis Obispo lnterim Year Rate Adjustment Application Financial lnformation 6. 7. 8. 9. Base Year Controllable Costs fotal Allowable Costs Plus Allowable Operating Profit Plus 10. 11. 12. Lease to Afliliated Equals Total Controllable Costs Base Year Pass Through Gosts fipping Fees Plus AB 939 and Regulatory Fees Equals Total Pass Through Costs 13. Base Year Revenue Requirements (Less Franchise Fee) Section ll-€hanges in Cost: 14. Change in Gontrollable Gost Historical Percentage Change in Consumer Price lndex Change in Pass Through Cost Prior Year Tipping Fees PIus:Prior Year AB 939 and Fees Equals:Total Prior Year Pass Through Costs Projected lnterim Year Tipping Fees Plus:lnterim Year AB 939 and 15. 16. 17. 18. 19. 20. 21 Fees Equals:Total Projected lnterim Year Pass Through Costs Projected Percentage Change in Pass Through Costs 22. 23. 24. 25. 26. 27. 28. 29. 30. Sectlon lll-Galculation ol Percent Change ln Rates Weighted Change in Controllable Costs Controllable Costs as a Percent of Base Year Revenue Requirements Percent ch in CPI Equals Weighted Percent Change in Controllable Costs Weighted Change in Pass Through Gosts Pass Through Costs as a Percent of Base Yr. Revenue Requirements Percent in Pass Equals Total Change Weighted Percent Change in Pass Through Costs Total Percent Change in Cost Divided by Adjustment for Franchise Fee 1-6.0 Equals Percent Change in Existing Rates Fiscal Year:Page 2 of 2 Cig of San Luis Obispo Solid Waste Fee Survey 6. 1. Name of City/County 2. Contact Person 3. titte of Contact Person 4. Telephone Number 5. Date Contacted Are residential curbside collection and disposal services provided by the municipality or private contractor? 7. ls a franchise for refuse collection granted to the hauler? 8. ls a franchise lor recyclable material collection granted to the hauler? 9. ls there a franchise fee? lf so, how much is it? 1O. What is the franchise hauler's disposal cost per ton? 1/. Who bills customers? Section lll - Flesidential Service 12. Are residential rates regulated? 13. What is the monthly charge for residential service? 14. How many cans are picked up at this charge? /5. What is the charge for additionalcans? FiscalYear:Page 1 of2 City of San Luis Obispo Solid Waste Fee Survey Section lll - Residential 16. ls there a separate charge for yard waste collection? 17. Are there any City-wide clean-up days provided at no additional charge by the hauler? 19. ls there an additional charge to residents for this program, or is it included in the monthly charge for solid waste collection? 20. lt separate, what is the charge per month? Section V -- Non-residential Service 21. Are non-residential rates regulated? 22. Provide the monthly fee for the following seruices, assuming pick-up is one time per week: 23. 1 cubic yard 24. 1 1/2 cubic yards 25. 2 cubic yards 26. 3 cubic yards 22, 6 cubic yards 28. Et'feclive period of ratesquoted: 18. Does your community have a curbside recycling program? ' FiscalYear:Page 2 of 2 I I I I I I :l 'l r-l ii rl J J J J J l J J J a a Appendix B Chart of Accounts )) I I ,J I I l I Appendix B. Sample Chart of Accounts A chart of accounts is provided in Exhlbttd following this page. This chart of accounts provides a suggested framework for the hauler to record financial transactions, provides a basis for comparing annual rate adjustment requests, and presents a suggested basis for allocating indirect costs and revenues of operation to different service areas (e.g., customers within city limits, adjacent unincorporated areas, Cal Poly, and the recyclable materials processing faciliry). The chart identifies account name, account type (asset, liability, revenue, or expense), type of revenue or cost (direct or indirect), and a suggested basis for allocating indirect revenues and costs (e.g., tons collected, number of accounts). The franchise hauler may find other miscellaneous accounts may be r€quired. To maintain comparability from year to year, the franchise hauler should indicate any major changes to the chart of accounts. J l Ctty of San Luts Oblspo Page B-1 EXIIIBITA PaSe 1 of3 Sample Chan of Accounts Accounts Receivable Accumulated Depreciation Buildings Certificate of Deposit Checking Account Containers Fumiture, Fixhrres and Equipment Income Tax Receivable Investrnents Land Money Market Notes Receivable Petcy Cash Prepaid Expenses Prepaid Life Insurance Savings Account Stockholders-Advance Tax Refund Receivable Trucks and Automobiles Accounts Payable Accrued Liabilities Capital Stock Deferred Interest Equipment Loans Retained Eamings A A A A A A A A A A A A A A A A A A A L L L t t L A= L= R= E= Asset Liability Revenue E4pense D = Direct revenue or cost I = Indirect revenue or cost Page B-2 EKIIIBIT A Page2 of J Sample Cbart of Accounts (continu,ed) DMdend Income Garbage Service Interest Income Other Income Recycling Materials Sales Sorting Line Revenue Computer Deprecialion Dues Equipment Rental Federal Income Taxes Fines Franchise Tax Fuel lnterest Expense Labor Landfill Laundry Legal & Accounting Meals and Entertainment Miscellaneous and Other Office Expenses I R R R R R R E E D/I Direct where possible, otherwise number of accounts None Direct where possible, otherwise number of accounts Direct where possible, otherwise number of accounts None None Number of accounts Direct where possible, otherwise number of accounts Number of accounts Number of accounts None None None Number of accounts None None Number of accounls Direct where possible, otherwise number of accounts None Number of accounts Number of accounts D/I D D D/r D D/I DA I I E E E E E E E E E E E I D D D D D D/I D I I E E E A L R E Asset ,Liability Revenue Expense D = Direct revenue or cost I = Indirect revenue or cost Page B-3 EXIIIBIT A Fage 3 of3 Sample Chart of Accounts (continued) Office Salary Officers Salary Operating Supplies Other Insurance Outside Services Payroll Taxes Payroll Taxes Pr & Promotion Profit Sharing Rerycling Expense Rent Repairs State Income Taxes Taxes & Licenses Telephone Travel Truck Insurance Truck Licenses Urilities E DA I D/I I D/I Direct where possible, otherwise number of accounts Percent of operating wages Number of accounts Direct where possible, otherwise number of accounts Number of accounts Direct where possible, otherwise number of accounts Direct where possible, otherwise number of accounts Number of accounts None None Trucks Direct where possible, otherwise factored truck hours Number of accounts Direct where possible, otherwise factored truck hours Number of accounts Direct where possible, otherwise number of accounts Direct where possible, otherwise factored Euck hours None Number of accounts E E E I E E E I E E E E E D D I I I D/I E E E E E D/T D/t D Dfi E E I A L R E Asset Liability Revenue Expense D = Direct revenue or cost I = Indirect revenue or cost Page B-4