On September 17, 2015, the City received a letter from SCSS (please see Attachment 2) requesting the following become effective January 1, 2016:

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1 STAFF REPORT TO: FROM: SUBJECT: HONORABLE MAYOR AND CITY COUNCIL ROBERT PERRAULT, CITY MANAGER REQUEST FROM SOUTH COUNTY SANITARY SERVICE FOR A PROPOSED SOLID WASTE ADJUSTMENT, EXTENSION OF THE FRANCHISE TERM, AND INITIATION OF ORGANIC DIVERSION PROGRAM BACKGROUND South County Sanitary Service (SCSS) has been providing solid waste collection and disposal services under an existing Franchise Agreement. In July 2008, the City Council authorized an amendment to the Franchise Agreement extending its life for an additional 15 years to end in The last review was conducted in May 2014 when the Council ratified a rate adjustment request in the amount of 2.05%. On September 17, 2015, the City received a letter from SCSS (please see Attachment 2) requesting the following become effective January 1, 2016: 1. Approval to begin an expanded organics diversion program that includes food waste; 2. Approval to extend the term of the existing Franchise Agreement, to support the expanded organics program; and 3. Approve an increase in the solid waste rates by 3.25% in order to cover new and existing programs; effective January 1, 2016 and additional adjustments effective January 1, 2017 and After an extensive review of the requests made by SCSS, staff recommends the City Council: approve the request to begin an expanded organics diversion program, effective January 1, 2016, provide direction for staff to further review with SCSS the request to amend and extend the current Franchise Agreement and, by Resolution, approve the rates as proposed for January 1, 2016, 2017, and DISCUSSION Expanded Organics Diversion Program Approximately, one third of the rate increase (1.1 % of the 3.25%) is due to the implementation of an Organics Diversion Program as mandated by California AB 1826, which requires local jurisdictions across the state to develop a recycling program to divert organic waste from landfills to an authorized composting facility. Organic waste means food waste, green waste, APPROVED FOR FORWARDING Please Review for the Possibility of a ~9.tential Conflict of Interest: IJl None Identified by Staff 0 Bright 0 Shoals 0 Nicolls O Lee 0 Shah CITY MANAGER Meeting Date: October 19, 2015 Agenda Item No. 3 _

2 Staff Report: Request from SCSS - Proposed Solid Waste Adjustment, Extension of Franchise Term, and Initiation of Organic Diversion Program October 19, 2015 Page 2 landscape and pruning waste, non-hazardous wood waste, and food-soiled paper waste that is mixed in with food waste With the closure of the green waste composting facility at Cold Canyon Landfill in late 2010, SCSS has been transporting green waste to Engle and Gray in Santa Maria for composting. Since 2010, there have been a number of new developments related to the management of organics: In 2011 AB341 was enacted, which raised the statewide diversion goal to 75%. In 2014 AB1826 and AB1594 was enacted. AB1826 established a mandatory organics management program which will require businesses to recycle all organics, including food waste. This requirement phases in with the first deadline being April 2016 for businesses that generate eight (8) cubic yards or more per week of organics. Cal Recycle and the State Water Resources Control Board both issued new compost regulations in August Governor Brown on April 29, 2015 set the goal of reducing greenhouse gas to 40% below 1990 levels by The Air Resources Board in a concept paper issued on May 7, 2015 set an initial goal of diverting 75% of organics from landfills by 2025 with the resulting need of 100 new or expanded composting facilities. At the May 13, 2015 San Luis Obispo County Integrated Waste Management Authority Board Meeting, Waste Connections (SCSS) unveiled its plan for the long-term management of all organic waste, including food waste. The plan would incorporate the entire Waste Connections service area from San Simeon to Nipomo and cover a 21-year period, beginning in 2016 through the end of The plan has two phases as described below: Interim Phase (January 2016 to mid-2017) - Beginning in January 2016, SCSS would expand the existing residential green waste collection program to include food waste. Each home would be provided a small kitchen pail to collect food waste. The food waste in the pail would then be dumped into the existing green waste collection wheeler. At the same time, SCSS would start the organics collection program to commercial customers. First priority would be to start with businesses that are required to divert organics by The organic waste collected from residential and commercial customers would be taken to the Cold Canyon Landfill and transferred into large semi-tractor trailers (transfer trucks). The transfer trucks would then take the organics to the Engle and Gay composting facility in Santa Maria. The composting facility is permitted to compost both yard waste and food waste. Recommended Action: Staff is recommending the City Council approve the request to initiate the first phase of the Expanded Organics Diversion Program. Permanent Phase (mid-2017 to the end of 2037) - Based on a request for Proposals, Waste Connections selected HZI to provide a Kompgas Anaerobic Digestion Plant. HZI is a world-wide leader in the production of energy from waste. The group has annual revenues of $3 billion, 8,000 employees, and 80 years of experience.

3 Staff Report: Request from SCSS - Proposed Solid Waste Adjustment, Extension of Franchise Term, and Initiation of Organic Diversion Program October 19, 2015 Page 3 The first Kompogas Anaerobic Digestion Plant was built in 1991 in Switzerland and is still in operation. Currently there are 75 plants operating throughout the world. Anaerobic digestion is different than composting in that the process of decomposition occurs in oxygen free environment. Unlike composting, this process produces energy in the form of biogas and minimizes the need for water. In addition, all activities are inside a vessel and I or building, thus minimizing odors, storm water runoff, and litter. The Kompogas facility would be located at Waste Connection's existing yard on Old Santa Fe Road in San Luis Obispo. This industrial site is ideally located in that it is in the center of the service area, is currently the location where Waste Connection's trucks start and end each day, and has an existing building that can be used for the organics receiving area. SCSS Waste Connection would enter into a long-term agreement with HZI, where HZI will build a Kompogas plant at the company's yard and Waste Connections would agree to deliver organics to the plant. In return, HZI would design, finance, build, own, and operate the plant. SCSS Waste Connections is seeking an extension of the Franchise Agreement in order to guarantee the delivery of organics to HZI over an extended period of time and to ensure HZI will have the ability to recover financing of the $12 Million dollar facility construction cost. Staff would agree the construction of the Kompogas facility would appear to be a long-term solution capable of addressing the regulatory requirements of reducing the contributions of organics, including food waste, to the landfill. However, the discussion of the extension of the Franchise Agreement should be a separate discussion in order to completely review the cost of the plant, its financing, and a franchise extension period. Recommended Action: Staff recommends the Council provide direction for staff to further review the SCSS request for Franchise Agreement extension. Rate Review Per the Franchise Agreement with SCSS, the rate review is established in accordance with the "City of San Luis Obispo Rate Setting Process and Methodology Manual for Integrated Solid Waste Management Rates" (Manual). The Franchise Agreement allows for base rate adjustment every three (3) years and interim rate increases in the other two (2) years. In interim periods, the operator is limited to increases resulting from inflation, tipping fee adjustments, and franchise or regulatory fee increases. During base rate years, the operator is able to request adjustment due to changes in other operational costs as set forth in the Manual. Recently SCSS was able to enter into a 20-year agreement for tipping fees at the Cold Canyon Landfill. Because of this, interim rate adjustment factors are all known, with the exception of inflation. The City has received a request to increase rates in the Base Year by 3.25% effective January 1, In addition, SCSS has also requested interim adjustments to be effective January 1, 2017 and Both years would include an increase per the Consumer Price Index and an increase of 0.79% in 2017 and an increase of 0.77% for Each customer was mailed a Notice of Public Hearing for this evening's scheduled Public Hearing. (Please see Attachment 3.) According to the notice, the Council will consider the rate adjustments for all customers. As an example, monthly residential rates are scheduled to increase January 1, 2016 in the following manner:

4 Staff Report: Request from SCSS - Proposed Solid Waste Adjustment, Extension of Franchise Term, and Initiation of Organic Diversion Program October 19, 2015 Page 4 ~ '' ntial: Services Description Current Monthly Rate Proposed Monthly Rate 32-aallon container $14.77 $ gallon container $19.97 $ aallon container $ $25.96 As the City has done in the past, Grover Beach joined with the other South County entities in contracting with Mr. Bill Statler to provide an independent review of the rate adjustments. Mr. Statler is the former Finance Director for the City of San Luis Obispo and is the author of the "Rate Setting Process and Methodology Manual" noted above. In his review, (please see Attachment 4) Mr. Statler finds the rate adjustments for all three years justified and recommends their approval. Within the Franchise Agreement, there is a provision that provides the Council with a "trigger option" and permits the Council the option of conducting a Request for Proposal process when the proposed adjustment for services exceeds the Consumer Price Index (CPI). As Mr. Statler notes in his review, while his calculations for the base year reflect the requested increase, it does exceed the CPI (1.5% versus 3.25%). The overall impact to the rate structure is relatively minor and not sufficient to warrant going through the Request for Proposal process. Mr. Statler will be available during the City Council meeting to discuss his review and recommendation in detail. ALTERNATIVES The Council has the following alternatives to consider: 1. The Council could choose to: 1) to by motion approve the initiation of the Expanded Organics Diversion Program, and 2) adopt the Resolution approving the request for rate increases for January 1, 2016, January 1, 2017, and January 1, 2018; 2. The Council could choose not to approve the Expanded Organics Diversion Program and not to approve the rate increases at this time; or 3. Provide staff with additional direction. RECOMMENDED ACTION It is recommended that the Council: 1) by motion approve the Expanded Organics Diversion Program; 2) adopt the Resolution approving the request for rate increases for January 1, 2016, 2017, and 2018; and 3) provide direction for staff to further review the SCSS request for Franchise Agreement extension. FISCAL IMPACT The Franchise Agreement with SCSS, Waste Connections provides for a 10% Franchise Fee based on gross revenues collected by SCSS within the City of Grover Beach. A modest increase in fee revenue to the General Fund can be expected as a result of the increase in rates.

5 Staff Report: Request from SCSS - Proposed Solid Waste Adjustment, Extension of Franchise Term, and Initiation of Organic Diversion Program October 19, 2015 Page 5 PUBLIC NOTIFICATION The agenda was posted in accordance with the Brown Act. A 1 /8 page legal ad was published in The Tribune on Friday, October 9, SCSS Waste Connections mailed notices directly to all customers located in Grover Beach in August Attachments 1. Resolution of the City Council approving an Integrated Solid Waste Rates for January 1,2016, 2017, and Letter from South County Sanitary Service Requesting Adjustments 3. Public Hearing Notices - 1) South County Sanitary Service and 2) City of Grover Beach 4. South County Sanitary Service Solid Rate Review 5. PowerPoint Presentation

6 Attachment 1 RESOLUTION N0.15-_ A RESOLUTION OF THE COUNCIL OF THE CITY OF GROVER BEACH, CALIFORNIA, APPROVING THE REQUEST FOR INTEGRATED SOLID WASTE RATES FOR JANUARY 1, 2016, 2017, AND 2018 WHEREAS, South County Sanitary Service has submitted a rate increase application in accordance with the City's franchise agreements for solid waste, recycling, green waste, and organic waste services; and WHEREAS, this application has been comprehensively reviewed in accordance with the City's rate-setting policies; and WHEREAS, notices of the proposed and requested rate increase were sent to property owners and tenants and a Public Hearing was held on October 19, 2015 to consider public testimony regarding the proposed rate increase. NOW, THEREFORE, BE IT RESOLVED by the Council of the City of Grover Beach as follows: 1. The request for solid waste rates set forth in Exhibit A is approved and shall become effective on January 1, The request for solid waste rates increases as follows on January 1, 2017 and January 1, 2018 is also approved and the rates will be an: a. Increase, if any, in the Consumer Price Index (CPI) for Bureau of Labor Statistics' Consumer Price Index for Urban Consumers based on the All U.S. City Average, Bureau of Labor Statistics for the month of June 2016 for January 1, 2017 and June 2017 for January 1, b. Increase of 0.79% for 2017 and 0.77% for 2018 for increase in the cost of landfill disposal. 3. Due to the reasonableness of the requested rate increase, the City will not pursue the termination option set forth in Section 8.3 of the City's Franchise Agreement with South County Sanitary Service. Upon motion of, seconded by, and on the following roll call vote: AYES: NOES: ABSENT: ABSTAIN: Council Members - Council Members - Council Members - Council Members -

7 Resolution No. 15-_ Page 2 the foregoing Resolution was PASSED, APPROVED, and ADOPTED this 19th day of October, ~ JOHN P. SH~~OR ATTEST: DONNA L. McMAHON, CITY CLERK APPROVED AS TO FORM: MARTIN D. KOCZANOWICZ, CITY ATTORNEY

8 Attachment 2 September 17, 2015 City of Arroyo Grande Avila Beach CSD City of Grover Beach Oceano CSD City of Pismo Beach 4388 Old Santa Fe Road, San Luis Obispo, CA, Subject South County Sanitary Service, 2016 Contract Amendments Dear South County Customers: Waste Connections your franchisee for integrated waste management services (operating as the South County Sanitary Service in the South County area), requests the following approvals from you to be effective on January 1, Approval to begin an expanded organics diversion program that includes food waste. 2. Approval to extend the term of the existing franchise agreements in order to support the expanded organics program. 3. Approval to Increase the solid waste rates by 3.25% in order to cover these new and existing programs. 4. Approval a contract amendment modifying the existing franchise agreements to allow a 3-year rate appllcatlon cycle (1 Base year plus 2 interim years) In place of an annual cycle. Expanded Organics Diversion Program With the closure of the green waste composting facility at Cold Canyon Landfill in late 2010, per its contract, South County Sanitary Service submitted two alternative methods for dealing with green waste processing to our customers. Our customers decided to send the green waste to Engel and Gray for composting. Since this decision was made there have bean several new developments related to the management of organics. In 2014 AB 1826 and AB 1594 were enacted. AB 1826 established a mandatory organics management program which will require businesses to recycle all organics including food waste. This requirement phases in with the first deadline being April 2016 for businesses that generate 8 cubic yards or more per week of organics. AB 1594 eliminates the diversion credit for using green waste as alternative daily cover. Cal Recycle and the State Water Resources Control Board are developing new more stringent compost regulations. The Intergovernmental Panel on Climate Change now estimates that the greenhouse gas potential of methane is 34 times greater than C02. Governor Brown on April 29, 2015 set the goal of reducing greenhouse gas to 40% below 1990 levels by The Air Resources Board in a concept paper Issued on May 7, 2015 set an initial goal of diverting 75 percent of organics from landfills by 2020 and diverting 90 percent of organics from landfills by 2025.

9 South County Customers September 17, 2015 At the May 13, 2015 San Luis Obispo County Integrated Waste Management Authority Board Meeting, Waste Connections presented our plan for the long term management of all organic waste, including food waste. The plan incorporates the entire Waste Connections service area from San Simeon to Nlpomo. The plan has two phases, an interim phase to about mid-2017 and a permanent phase that extends 20 years from the completion of the interim phase. Beginning in January 2016, South County Sanitary Service would expand the existing residential green waste collection program to include food waste. Each home would be provided with a small kitchen pail to collect food waste. The food waste In the pail would then be dumped into the existing green waste collection container. At the same time, we would start expanding the organics collection program to commercial customers. First priority would be to start with businesses that are required to divert organics by April The organic waste collected from residential and commercial customers would be taken the Engel and Gray composting facility in Santa Marla. This composting facility is permitted to compost both yard waste and food waste. Phase II is planned to begin In about mid Our long-term management solution for organics includes an anaerobic digestion plant the will produce renewable energy. Anaerobic digestion is different than composting In that the process of decomposition occurs in an oxygen free environment. Uni Ike composting, this process produces energy in the form of biogas and minimizes the need for water. In ad.dition all activities are Inside a vessel and/or building, thus minimizing odors, storm water runoff and litter. The anaerobic digestion plant would be designed, built and operated by HZl/Kompogas (a world-wide leader in this technology), under contract to Waste Connections. The Kompogas facility will be located at Waste Connection's existing yard on Old Santa Fe Road in San Luis Obispo. This industrial site is ideally located in that it is in the center of the se.rvice area, Is the location where the garbage trucks start and end each day and has an existing build Ing that can be used for the organics receiving area. Extend the term of the Franchise Agreements To implement the permanent phase of the organics management program, Waste Connections will enter Into a 1ong-term agreement with HZI, where HZI would design, finance, build, own arid operate a Kompogas plant for a fixed fee, subject only to cost of living Increases and adjustments for the sale price of electricity and/or compost/compost tea. In return Waste Connections will guarantee to deliver organics from its entire San Luis Obispo County service area for a 20 year period. This guarantee is necessary for HZI to obtain the financing to build a $12 million plus plant Thus the existing franchise agreement needs to be extended to cover the 20 year operating period of the Kompogas plant. The franchise extension Is conditioned on a Kompogas plant being built. Similarly, commitments would be needed from all the other cities in Waste Connection's service area. If the plant is not built, then the franchise agreements would not be extended and the Interim Phase of transporting organic waste to Santa Maria for processing would continue past mld In order to fulfill that promise to supply the organics, South County Sanitary Service is asking for an extension of its franchise agreement with our South County customers to parallel the term of Waste Connections agreement with HZI. The franchise extension is clearly needed to supply the residential and commercial organics throughout the term of the HZI agreement. Collecting commercial organics will require new trucks and containers to handle this very hard to handle waste. In addition, it is possible that new organic fractions in the solid waste stream could be added to the definition of organics by future legislation; therefore extension of solid waste franchise is necessary. Page 2ofS

10 South County Customers September 17, 2015 Solld Waste Rate Increase The proposed 3.25% increase in rates during this period breaks out as follows: % of the proposed rate Increase is based on increased costs for fuel, vehicles and increased labor costs % of the proposed rate increase is based on implementing the expanded organics diversion program developed to meet State mandates beginning in % of the proposed rate increase is a pass through of a landfill disposal rate Increase. 3-year rate application cycle In addition to the 2016 Base Year Solid Waste Rate increase, commencing on January 1, 2017 and January B, all the rates shall be increased based on the following: 1. Increase, if any, in the Consumer Price Index (CPI) for Bureau of Labor Statistics' Consumer Price Index for Urban Consumers based on the All U.S. City Average, Bureau of Labor Statistics for the month of June 2016 for January 1, 2017 and June 2017 for January 1, Increase of 0.79% for 2017 and 0. 77% for 2018 for increase in the cost of landfill disposal. 3. Increase, if any, In the Consumer Price Index (CPI) for Bureau of Labor Statistics' Consumer Price Index for Urban Consumers based on the All U.S. City Average, Bureau of Labor Statistics for Increase in AB939 fee cost. Sincerely, Patrick J. Fenton General Manager Waste Connections, Inc. Page3 of3

11 Attachment 3 CITY OF GROVER BEACH NOTICE OF PUBLIC HEARING REGARDING PROPOSED SOLID WASTE RATE INCREASE Dear Customers: This notice is intended to inform you that the Grover Beach City Council ("The City") will hold a public hearing regarding solid waste disposal rate increases (the "Proposed Rate Increase") proposed by South County Sanitary Service ("the Garbage Company") for properties and customers receiving solid waste services within the City. The Proposed Rate Increase will be considered by the Grover Beach City Council at the date, time and location specified below. NOTICE OF PUBLIC HEARING A Public Hearing for the Proposed Solid Waste Rate Increases within the City's boundary will be held on: Date: October 19, 2015 Time: 6:30 pm Place: Grover Beach Council Chambers, 154 S Eighth St, Grover Beach, CA At the Public Hearing the Grover Beach City Council will consider all public comment in support and in opposition of the Proposed Rate Increase. If approved, the Proposed Rate Increase would become effective January 1, REASON FOR THE PROPOSED RATE INCREASES The Proposed Rate Increases (amounting to an increase of approximately 3.25% for each category of service) are necessary for the Garbage Company to continue to provide safe, environmentally sound and reliable solid waste removal, transportation and disposal services to the citizens of Grover Beach. The increases requested by the Garbage Company are due to increasing operational costs. Several factors have contributed to these increased costs, including, but not limited to: the rising costs associated with the operation of a garbage company, increased costs associated with operation and fuel for vehicles, increased labor costs, increased landfill rates, and costs associated with the implementation of an Organics Program as mandated by California AB 1826, which requires local jurisdictions across the state to develop a recycling program to divert organic waste from landfills to an authorized composting facility. Organic waste means food waste, green waste, landscape and pruning waste, nonhazardous wood waste, and foodsoiled paper waste that is mixed in with food waste. BASIS UPON WHICH THE PROPOSED RATE INCREASE IS CALCULATED The Proposed Rate Increases ( 3.25% for each category of service are based on the following cost increases incurred by the Garbage Company: I. 1.34% of the Proposed Rate Increase is based on increased costs for fuel, for vehicles, ongoing maintenance, and increased labor costs. Page 1 of 6

12 % of the Proposed Rate Increases are based on a $2.25 per ton increase in the cost of landfill disposal % of the Proposed Rate Increases are based on the implementation of an Organics Program. In addition, commencing on January I, 2017 and January I 2018, all the rates shall be increased based on the following: I. Increase, if any, in the Consumer Price Index (CPI) for Bureau of Labor Statistics' Consumer Price Index for Urban Consumers based on the All U.S. City Average, Bureau of Labor Statistics for the month of June 2016 for Janumy I, 2017 and June 2017 for January I, Increase of 0.79% for 2017 and 0.77% for 2018 for increase in the cost of landfill disposal. 3. Increase, if any, in the Consumer Price Index (CPI) for Bureau of Labor Statistics' Consumer Price Index for Urban Consumers based on the All U.S. City Average, Bureau of Labor Statistics for increase in AB939 fee cost. The Base Year Adjustment Application, which provides additional information on the proposed rate increase, is available at City Hall, 154 S Eighth St, Grover Beach, CA PROPOSED RATE INCREASE AMOUNTS The following charts provide a summary of the current solid waste rates and proposed rate increases: SOUTH COUNTY SANITARY SERVICE RATE INCREASE EFFECTIVE JANUARY 1, 2016 CITY OF GROVER BEACH 32 Gallon Waste Wheeler 1 64 Gallon Waste Wheeler 1 96 Gallon Waste Wheeler TW0-64 Gallon Waste Wheelers ONE 64 & ONE 96 Gallon TW0-96 Gallon Waste Wheelers $ % $15.25 $ % $20.62 $ % $25.96 $ % $31.33 $ % $36.68 $ % $42.04 Page 2 of 6

13 Rates are the same as commercial rates!below\. ~iffllflit~iilj!!l~\~1~ 1 ~~1it;it1fr#:t~,,«i!~i~~~~~~#~~- 1 vd dumoster 1 $ % $ vd dumoster 2 $ % $ yd dumpster 3 $ % $ yd dumpster 4 $ % $ yd dumpster 5 $ % $ yd dumoster 6 $ % $ yd dumoster 7 $ % $ vd dumoster 1 $ % $ yd dumpster 2 $ % $ yd dumpster 3 $ % $ yd dumoster 4 $ % $ yd dumoster 5 $ % $ vd dumoster 6 $ % $ vd dumoster 7 $ % $ yd dumpster 1 $ % $ yd dumpster 2 $ % $ yd dumoster 3 $ % $ yd dumoster 4 $ % $ vd dumoster 5 $ % $ vd dumoster 6 $ % $ vd dumoster 7 $ % $ yd dumpster 1 $ % $ yd dumpster 2 $ % $ yd dumoster 3 $ % $ yd dumoster 4 $ % $ vd dumoster 5 $ % $ vd dumoster 6 $ % $ vd dumoster 7 $ % $ yd dumpster 1 $ % $ yd dumpster 2 $ % $ vd dumoster 3 $ % $ vd dumoster 4 $ % $ vd dumoster 5 $ % $ vd dumoster 6 $ % $ Page 3 of 6

14 4 d dum ster 7 $ % $ st er $ % $ ster 2 $ % $ st er 3 $ % $ ster 4 $ % $ ster 5 $ % $ ster 6 $ % $ ster 7 $1, % $1, $ % $ $ % $ $ % $ $ % $ $ % $ $1, % $1, $1, % $1, The rates shown above include the month! container rental fee and a semi-annual dum ster clean In The rates are the same for bins and garwoods, when volume is identical. Bins and garwoods are t es of containers used for rec clin 1 Can* $ % $ Cans' $ % $ Cans' $ % $ Cans' 2 $ % $ Cans' 1 $ % $54.81 Re-deliver bin to sto ed acct $ % $34.11 ' Maximum volume and wei Overstacked Garbage & extra ba s Minimum/unit each $ % $4.76 Overstacked Greenwaste & extra ba s Minimum/unit each $ % $5.50 Overstacked Blue Bin & extra ba s Minimum/unit each $ % $2.39 In yard service (per can or commodity) IN ADDITION TO STANDARD GARBAGE RATES er month $ % $11.89 Monthly charge for additional 32 or 96- allon reen waste service er month $ % $5.50 Paga 4 of 6

15 Monthly charge for additional 32, 64 or 96-aallon recvcle service oer month $ % $2.75 Extended Vacation Service per month $ % $11.09 Vacant Rate per month $ % $11.09 Waste wheeler cleanina each time $ % $17.74 Trip charqe each time $ % $11.89 Non-oayment downsize service each time $ % $11.89 Non-payment redeliver waste wheeler each time $ % $11.89 Non-payment reconnect service each time $ % $28.59 Small item pickup (TV, toilet) each $ % $27.90 Annliance oickuo-residential each $ % $39.34 Lock Charae oer month $ % $6.62 CitY Clean Un each $ % $10.00 Garbage extras on your scheduled pickup day per yard $ % $10.05 Garbage extras -NOT ON YOUR SCHEDULED PICKUP DAY per vard $ % $27.71 Commercial Waste Wheeler rent per month $ % $3.68 Re-deliver bin on stonned acct each time $ % $34.12 Comoactors oer ton $ % $44.25 Sunday Service (in additional to aarbaqe service levell per month $ % $59.54 Recvcle bin rental oer month $ % $6.62 Stand bv time oer hour $ % $58.23 Extra bin cleanina $ % $53.22 Damage/Destruction of bins or waste wheelers Short Term Dumosters: reolacemenvreoair at market price Deliverv & Pickuo-Bin $ % $34.11 Delivery & Pickup-Waste Wheeler $ % $11.89 Rental Per Day $ % $3.68 Empties Per Yard $ % $27.71 Mattress: Twin PER SET $ % $15.49 Double PER SET $ % $15.49 Queen PER SET $ % $15.49 Kina PER SET $ % $15.49 llfkbl 1~~~#lii~~' '.:, -' ~fif'f(-,f'!,:i:~rt;{.'if:;>r,ilj(~'?i.'-,_ "i '' _, _,,tz.,~i~tief,~:;_~'~"'"kt~-i_f'~~~~,}>>.<? 1" l," - ~ i&~-~~-- :~~P~i' i);1,~~:,;~ ~ ~ '- ~ -' - -<" -L.~, -~:~.'.ti~ --~1,'.' J:1.'M!&~ _QN;;~,J.})1$~.<\l. 1 J31~l" - ' SJ%J~t~~\%;~%,it~;~~t."' r l~'. "),;~.:~-1riW.~1f~-. l~~l~ F: -~,%:l:.!1lti.~n!s~tlnk{i\i~! Page 5 of 6

16 Late Fees are imposed for residential customers over 30 days delinquent and commercial customers over 30 days delinquent. The fee is 1.5% per month of the outstanding charge, with a minimum fee of $5.00. No rior notice is re uired, as this late fee olic is stated at the bottom of ever bill. Please rec cle its chea er and it hel s the Communit achieve its AB939 oal to reduce waste. FURTHER INFORMATION If you have questions about the Proposed Rate Increase, please call the offices of South County Sanitary Service at (805) Page 6 of 6

17 CITY OF GROVER BEACH NOTICE OF PUBLIC HEARINGS NOTICE IS HEREBY GIVEN that the City Council of the City of Grover Beach will conduct Public Hearings at 6:30 p.m., or soon thereafter, on Monday, October 19, 2015 in City Hall, Council Chambers, 154 South Eighth Street, Grover Beach, CA to consider the following items: SUBJECTS: 1. PROPOSED RATE ADJUSTMENT REQUEST FROM SOUTH COUNTY SANITARY SERVICE - Under the terms of the Franchise Agreement with South County Sanitary Service the City Council will consider a rate adjustment request from South County Sanitary Service due to increasing operational, landfill disposal costs, and costs associated with the implementation of a state-mandated Organics Program, which requires local jurisdictions to develop a recycling program to divert organic waste from landfills to an authorized composting facility. South County Sanitary Service is responsible for providing solid waste removal, recycling, and green waste services within the City of Grover Beach. If the City Council approves the request, residential, multi-unit residential and nonresidential rates within the City will increase approximately 3.25% for each category of service (effective January 1, 2016). For example, residential customers would see the following increase: 32-gallon container from the current rate of $14.77 to $15.25 per month; 64-gallon container from the current rate of $19.97 to $20.62 per month; 96-gallon container from the current rate of $25.14 to $25.96 per month; Two 64-gallon containers from the current rate of $30.34 to $31.33 per month; One 64-gallon and one 96-gallon container from $35.53 to $36.68 per month; and Two 96-gallon containers from $40.72 to $42.04 per month. In addition, commencing on January 1, 2017 and January 1, 2018, South County Sanitary Services is proposing that all rates shall be increased based on the following: 1. Increase, if any, in the Consumer Price Index (CPI) for Bureau of Labor Statistics' Consumer Price Index for Urban Consumers based on the All U.S. City Average, Bureau of Labor Statistics for the month of June 2016 for January 1, 2017, and June 2017 for January 1, Increase of 0. 79% for 2017 and 0. 77% for 2018 for increase in the cost of landfill disposal. 3. Increase, if any, in the Consumer Price Index (CPI) for Bureau of Labor Statistics' Consumer Price Index for Urban Consumers based on the All U.S. City Average, Bureau of Labor Statistics for increase in AB939 fee cost. 2. INTRODUCTION AND FIRST READING OF A PROPOSED ORDINANCE TO AMEND GROVER BEACH MUNICIPAL CODE ARTICLE X. CHAPTER 4, CHANGING THE WAGERING LIMITS TO A NO LIMIT GAME - The City Council will consider the request from Mr. David Stearns of Central Coast Casino to repeal the current maximum wagering limits of Five Hundred Dollars ($500) per wager and One Thousand Dollars ($1,000) on any single hand played within a licensed premises instituting a "no limit" provision. Applicant: David Stearns, Central Coast Casino. Location: 359 West Grand Avenue. Where You Come In: Any member of the public may appear at the meeting and be heard on the items described in this notice or submit written comments to the City Clerk prior to the meeting by personal delivery or by mail to: City Clerk's Office, 154 South Eighth Street, Grover Beach, CA If you require special accommodations to participate in the public hearing, please contact the City Clerk's office at least 48 hours in advance of the meeting by calling (805)

18 Notice: Public Hearings- October 19, 2015 Page 2 For More Information: If you have any questions or would like more information regarding Item No. 1 described in this notice, please contact City Manager Robert Perrault by telephone at (805) or send an to gbadmin@grover.org. Questions regarding Item No. 2 described in this notice should be directed to Police Chief John Peters by telephone at (805) or send an to jpeters@gbpd.org. The City Council may also discuss other hearings or items of business at this meeting. The complete meeting agenda and copies of the staff reports on the above listed items will be available at the customer service counter at Grover Beach City Hall, as well as posted on the City website at at least 72 hours in advance of the meeting. Live broadcasts of City Council meetings may be seen on cable television Channel 20, as well as over the Internet at (click on the icon "Government Access Local Channel 20" and then "Channel 20"). City Council meetings are rebroadcast throughout the week. If you challenge the nature of the proposed action in court, you may be limited to raising only those issues you or someone else raised at the Public Hearing(s) described in this notice, or in written correspondence delivered to the City at, or prior to, the Public Hearing (Govt. Code Sec 65009). ~U 1l1 Publish: 1x- Fri, October 9, 2015 (1/8 page display ad) Post: City Hall, Grover Beach Post Office, Train Station Bulletin Bd; Subject Property: Central Coast Casino, 359 W. Grand Ave.

19 Attachment 4 South County Sanitary Service SOLID WASTE RATE REVIEW For the Communities of Arroyo Grande Grover Beach Oceano Pismo Beach September 2015

20 South County Sanitary Service Solid Waste Rate Review September 2015 TABLE OF CONTENTS Report Purpose Overview of Findings Key Issues for 2016 Rate Review Rate Recommendations Cost of Living "Trigger" Option Rate Summary for Single Family Residential Customers Background Organic Waste Diversion Franchise Agreement Summary Rate Review Workscope Revenue and Rate-Setting Objectives Cost Accounting Issues Financial Overview Costs by Type Revenues by Source Service Accounts by Type Rate-Setting Process Base Year Review Two Interim Year Reviews Rate-Setting History Rate-Setting Methodology Are the Costs Reasonable? Detailed Cost Review Trends in External Cost Drivers Rates in Comparable Communities What Is a Reasonable Return on These Costs? Preparing the Rate Request Application Rate Request Summary Implementation Cost of Living Tigger Option Coordination with Other Agencies Summary IO APPENDIX Base Year Rate Request Application from South County Sanitary Service

21 124 Cerro Romauldo Avenue San Luis Obispo, CA Cell: South County Sanitary Service SOLID WASTE RATE REVIEW For the Communities of Arroyo Grande, Grover Beach, Oceana and Pismo Beach REPORT PURPOSE On July 30, 2015, South County Sanitary Service (SCSS) submitted a Base Year rate increase application to be effective January l, 2016 to the Cities of Arroyo Grande, Grover Beach and Pismo Beach and the Oceano Community Services District. Joint Agency Review The purpose of this report is to review this request in accordance with adopted Franchise Agreement provisions regarding rate increase applications and to make to make rate recommendations to these four agencies as appropriate. Unique Approach for 2017 and While generally consistent with the adopted rate-setting methodology, SCSS is requesting three-year rate approval in one action. The impact of implementing this approach, which means that Interim Year rate reviews by the governing bodies would no longer be needed, is evaluated as patt of this Base Year rate review. SCSS provides similar services to each of these agencies under formally approved franchise agreements that regulate rates and establish procedures for considering rate increases. Because the financial information for SCSS is closely related for these four agencies, this report jointly reviews rate requests and provides recommendations for each of them. OVERVIEW OF FINDINGS SCSS has fully provided the supporting documentation required for rate requests under the Franchise Agreements in Arroyo Grande, Oceano, Pismo Beach and Grover Beach. As discussed below, the comprehensive application has been correctly prepared with one very minor classification error, which does not affect the requested rate increase of3.25% in January The rate increase application is provided in the Appendix. - I -

22 Solid Waste Rate Review SCSS provides a broad level of high-quality services to these four agencies-including garbage, recycling and green waste collection and disposal as well as hauler-provided "waste wheeler" containers for all three services-at very competitive rates compared with many other communities. In fact, even with the proposed rate increase, rates in these four agencies will be among the lowest of those surveyed. In short, South County communities have the best of both worlds: high quality services at) a low cost (compared with other communities). SCSS has done a good job of managing costs and revenues, especially in light of cost pressures in key areas such labor, insurance, fuel, tipping fees and new organic waste diversion requirements. As discussed in greater detail below, this report includes three separate, independent evaluations of the SCSS rate increase application: Proposed rate increase of 3.25% for January 2016 compared with the approved ratesetting methodology. The requested 3.25% rate increase is slightly below the allowed rate increase of 3.67%. Accordingly, it is recommended that the four agencies approve the requested rate increase of 3.25%. Multi-year rate program proposed for 2017 and While slightly different from the Interim Year rate review methodology, the proposed approach yields very similar results. In the interest of a more straightforward, streamlined process that is consistent with the Interim Year rate-setting concepts set forth in the Franchise Agreements (as well as in the Proposition 218 notice provided to SCSS customers), it is recommended that the four agencies approve the proposed rate increase approach for 2017 and Calculation of the cost of living threshold that would "trigger" the option of terminating the Franchise Agreements within nine months after rate approval. I have reached a different conclusion from SCSS on the "trigger" amount. Under their calculations, the 3.25% requested rate increase is under the "trigger" amount. However, based on my calculations, a rate increase greater than 1.5% would trigger the termination option. Given the reasonableness of the proposed rate increase, I recommend that the four agencies approve the requested rate increase and make findings that they will not pursue the "trigger" option. Key Issues for the 2016 Rate Review. As outlined above, along with evaluating the requested rate increase for 2016 in accordance with the methodology set forth in the Franchise Agreements, there are two additional issues that complicate this rate review. SCSS has requested three-year rate approval in one action. This approach is generally consistent with the Interim Year rate review process in the Franchise Agreements; and SCSS's proposed methodology for doing so was appropriately included in the Proposition 218" rate notices. However, as discussed below, there are methodological concerns with the 2017 and 2018 proposed rate increase approach for these two years. About Proposition 218 Notices Proposition 218 notices set the maximum amount that rates can be increased at the public hearing: rates can be approved at lesser amounts without re-noticing. However, agencies cannot adopt higher rates - even if they only apply to a few customers - without another 45-day re-noticing

23 Solid Waste Rate Review As further discussed below, the proposed rate increase for January 1, 2016 is within the allowable amount under the rate methodology set forth in the Franchise Agreements. However, there are methodological concerns with how SCSS calculated the "trigger" option. That said, regardless of how these two issues are resolved, they do not directly affect SCSS's requested rate increase for January 1, 2016 of3.25%. Rate Recommendations January I, 2016 It is recommended that the governing bodies of each agency adopt SCSS's requested Base Year rate increase for 2016, which reflects a 3.25% across-the-board rate increase for all four agencies. As discussed in greater detail below, this is slightly less than the amount that would otherwise be allowed under the adopted rate-setting methodology (by 0.42%: an increase of3.67% would be allowed). This is due to SCSS's goal of remaining under the cost of living "trigger" option discussed below, under which the four agencies have the option of terminating the agreement at any time within nine months following approval of the requested rate increase if it exceeds the cumulative increase in the consumer price index from June However, in making the "trigger" calculation, SCSS excluded increases in tipping fees of0.96% in 2014 and the projected increase in tipping fees in 2016 of 0.81 %. In reviewing the Franchise Agreements and the rate increase analysis prepared in 2013 (for rate increases to be effective in 2014), these adjustments should probably not be made in calculating the "trigger" amount. The impact of this is discussed below. However, it is important to note that this "trigger" calculation does not limit the allowable rate increase that SCCS may request under the methodology set forth in the Franchise Agreements. January I, 2017 and January I, 2018 SCSS has proposed the following methodology for rate increases in January 2017 and January 2018: Increase, if any, in the Consumer Price Index for Bureau of Labor Statistics' Consumer Price Index for Urban Consumers (CPI-U) based on the All U.S. City Average, Bureau of Labor Statistics for the month of June 2016 for January 1, 2017 and June 2017 for January 1, Increase of 0.79% for 2017 and 0.77% for 2018 for increases in the cost of landfill disposal. As discussed below, the Franchise Agreements provide for Interim Year adjustments (years 2 and 3 after the Base Year review) using a methodology similar to that proposed by SCSS but there are differences that would most likely result in a very minor difference (perhaps lower, depending on the circumstances) from the Franchise Agreement methodology

24 Solid Waste Rate Review The Interim Year methodology in the Franchise Agreements provides for three key adjustment factors: changes in the CPI-U for "controllable" operating costs; changes in "pass-through costs" (primarily tipping fees), which SCSS does not control (they are set by the County Board of Supervisors); and an adjustment to cover increased franchise fees. The first two adjustment factors are "weighted" by the proportionate share that these costs represent of total costs (excluding franchise fees). For example, in the current Base Year analysis for 2016 rates, controllable costs account for 84% of total costs, with tipping fees accounting for 16%. Based on the Interim Year methodology, Table 1 provides an example of the allowable rate increase for January 2017 ifthe CPI-U increased from June 2015 to June 2016 by 2%. In this example, the tipping fee adjustment is the same as that proposed by SCSS; but the overall increase is slightly less than the one that would result from SCSS's proposed approach: 1:bl1Lt' a e. nenm ~ ear S amv.e I Controllable Cost Factors CPI-U Increase Percent of Total Costs Allowable Adiustment Tipping Fees Tipping Cost Increase Percent of Total Costs Allowable Adiustment Total Before Franchise Fee Adjustment ( 10%) Total Allowed Increase 2.00% 84.00% 1.68% 4.95% 16.00% 0.79% 2.47% 2.75% Interim Year Methodology: 2.75% SCSS Proposed Methodology: 2.79% The impact on rates would be very minor: 0.04%. The difference in the monthly rate for the average South County single family residential (SFR) customer with either 32 or 64-gallon container service is one-cent. In summary, while SCSS's proposed approach for years 2 and 3 is slightly different than the one set forth in the Franchise Agreements, the end result is likely to be very minor. Accordingly, in the interest of a more straightforward, streamlined process that is consistent with the Interim Year rate-setting concepts set forth in the Franchise Agreements (as well as the Proposition 218 notice provided to SCSS customers), it is recommended that the four agencies approve the proposed rate increase approach for 2017 and If a multi-year approach is adopted, subsequentlnterim Year reviews for 2017 and 2018 will not be required. That said, unless modified by the governing bodies, both the Interim Year and proposed methodologies would trigger the termination option in this example, since they would both exceed the remaining CPI-U threshold of2.0%. For that reason, ifthe governing bodies approve the 2017 and 2018 rate-setting approach, it is recommended that they make findings that they will not pursue the "trigger" option. Cost of Living "Trigger" Option Along with establishing the rate review methodology, Section 8.3 of the Franchise Agreements provides that if the rate increase request compared with the rate in effect at the date of the - 4 -

25 Solid Waste Rate Review agreement exceeds the cumulative cost of living increase from that same date, each agency has the option of terminating the agreement at any time within nine months following approval of the requested rate increase (assuming it was submitted in accordance with the rate-setting methodology). It is important to note that this provision does not directly limit rate increase requests by SCSS to an amount that may be less than that allowed under the rate-setting methodology. However, subjecting the Franchise Agreement to possible termination ifthe rate request is greater than the cost of living threshold provides a strong incentive for SCSS to do so. As discussed below, based on SCSS's calculation of the cost of living increase threshold, the maximum rate increase to avoid triggering the potential for termination is 3.25%. This is its requested rate, which is slightly less than the allowable rate increase of 3.67% under the ratesetting methodology set forth in the Franchise Agreements. However, as noted above, this is based on their excluding from the threshold increases in tipping fees of 0.96% in 2014 and the proposed increase for tipping fees in 2016 of 0.81 %. In reviewing the Franchise Agreements and the rate increase analysis prepared in 2013 (for rate increases to be effective in 2014), these adjustments should probably not be made in calculating the "trigger" amount. Accordingly, if these are not excluded, the rate increase to avoid triggering the termination option would be limited to 1.5%. However, it is important to note that this "trigger" calculation does not limit the allowable rate increase that SCCS may request under the methodology set forth in the Franchise Agreements. Accordingly, ifthe proposed rate increase of3.25% is approved, it is recommended that the four agencies make findings that they will not pursue the "trigger" option. Rate Summary for Single Family Residential Customers Table 2 summarizes the current and proposed rates for SFR customers. As reflected in this summary, the increases will be very modest. For example, for collection of a 32-gallon garbage container (the most common SFR service level) as well as separate waste wheelers for recycling and green waste, the proposed monthly rate will increase by 48 cents on average for the four agencies. BACKGROUND On July 30, 2015, SCSS submitted a Base Year rate increase to be effective January 1, Its rate request was prepared in accordance with the rate review process and methodology Table 2. Single Family Residential Rates Arroyo Grande Grover Beach Oceano Pismo Beach $ $ $ I Cul'rent : ' Arroyo Grande Grover Beach Oceano Pismo Beach [ Increase I Arroyo Grande Grover Beach Oceana Pismo Beach ' - 5 -

26 Solid Waste Rate Review formally set forth in its Franchise Agreements with Arroyo Grande, Grover Beach, Oceano and Pismo Beach. In establishing a rate-setting process and methodology, each of these Franchise Agreements specifically reference the City of San Luis Obispo's Rate Setting Process and Methodology Manual for Integrated Solid Waste Management Rates. This comprehensive approach to rate reviews was adopted by San Luis Obispo in 1994, and establishes detailed procedures for requesting rate increases and the required supporting documentation to do so. It also sets cost accounting standards and allowable operating profit ratios. As noted above, the financial information for Arroyo Grande, Grover Beach, Oceano and Pismo Beach is closely related. For this reason, these four agencies jointly contracted with William C. Statler (who has extensive experience in evaluating rate requests in accordance with the adopted methodology) in August 2015 to evaluate SCSS's rate increase application. This is the fifth Base Year analysis performed under this rate-setting methodology. The first was prepared in September 2001; second in August 2004; the third in August 2007; and the last one in December As discussed below, several Interim Year rate reviews have prepared since then, most recently in 2013 (for rates effective in 2014). Organic Waste Diversion. Along with its rate application, SCSS is also requesting a twentyyear extension of its Franchise Agreements. As described in their request (Appendix), this is to cover amortizing the costs of providing organic waste diversion as required under recent State legislation. While an in-depth review of this proposal is outside the scope of this report, extending the term of current Franchise Agreements in allowing an adequate timeframe to cover the long-term cost of this new requirement is reasonable. Franchise Agreement Summary Historically, each agency has had its own approach to determining service levels and adopted differing Franchise Agreements accordingly. While these became similar beginning in 1999, in Table 3. Franchise Agreement Effective Dates Arroyo Grande June 10, 2008 Grover Beach July 7, 2008 Oceana July 14, 2010 Pismo Beach June 3, the Cities of Arroyo Grande, Grover Beach and Pismo Beach adopted renewed franchise agreements, followed by the Oceano Community Service District in Summer 2010, which are the same in all key provisions: Each agency contracts with SCSS for garbage, green waste and recycling; and SCSS provides the container (waste wheelers) for each service. Each agreement is for 15 years. As noted above, each agency has adopted the same rate-setting methodology, including the option of terminating the agreement within nine months following approval of the requested rate increase if it exceeds the cost of living threshold. All agencies have adopted franchise fees of 10%

27 Solid Waste Rate Review RATE REVIEW WORKSCOPE This report addresses four basic questions: Should SCSS be granted a rate increase? And if so, how much? How much does it cost to provide required service levels? Are these costs reasonable? And if so, what is a reasonable level of return on these costs? The following documents were closely reviewed in answering these questions: Franchise Agreements and any Amendments for each agency Audited financial statements for SCSS for 2014 and 2013 City of San Luis Obispo's Rate Setting Process and Methodology Manual for Integrated Solid Waste Management Rates (Rate Manual) SCSS rate increase application and supporting documentation Follow-up interviews, correspondence and briefings with agency and SCSS staff Rate surveys of Central Coast communities REVENUE AND RATE SETTING OBJECTIVES In considering SCSS's rate increase request, it is important to note the revenue and rate setting objectives for solid waste services as set forth in the Franchise Agreements via the Rate Manual. Revenues. These should be set at levels that: Are fair to customers and the hauler. Are justifiable and supportable. Ensure revenue adequacy. Provide for ongoing review and rate stability. Are clear and straightforward for the agency and hauler to administer. Rate Structure. Almost any rate structure can meet the revenue principles outlined above and generate the same amount of total revenue. Moreover, almost all rate structures will result in similar costs for the average customer: what different rate structures tell us is how costs will be distributed among non-average customers. The following summarizes adopted rate structure principles for solid waste services: Promote source reduction, maximum diversion and recycling. Provide equity and fairness within classes of customers (similar customers should be treated similarly). Be environmentally sound. Be easy for customers to understand

28 Solid Waste Rate Review COST ACCOUNTING ISSUES Who's Paying What? As noted above, SCSS' s financial operations for Arroyo Grande, Grover Beach, Oceano and Pismo Beach are closely related. Keeping costs and revenues segregated is further complicated by the fact that SCSS, as a subsidiary of Waste Connections Incorporated (which acquired the parent company in April 2002), shares ownership with the following local companies: San Luis Garbage Company Mission Country Disposal Morro Bay Garbage Service Coastal Roll-Off Service Cold Canyon Land Fill Additionally, within the South County, SCSS's service area includes: City of Arroyo Grande City of Grover Beach City of Pismo Beach Oceano Community Services District Nipomo Community Services District Avila Beach Community Services District Other unincorporated areas in the South County such as Rural Arroyo Grande Cost Accounting System Between Companies. Separate "source" accounting systems are maintained for each company. Moreover, audited financial statements are prepared for each company by an independent certified public accountant; and SCSS's auditors have consistently issued "clean opinions" on its financial operations. In short, good systems are in place to ensure that the financial results reported for SCSS do not include costs and revenues related to other companies. Additionally, virtually all of the financial operations of SCSS and its affiliated companies are regulated by elected governing bodies such as cities, special districts and the County. Within the SCSS Service Area. Within the SCSS service area, a combination of direct and allocation methodologies are used in accounting for costs and revenues between communities. In general, revenues are directly accounted for each franchising agency, while costs are allocated using generally accepted accounting principles. Cost Accounting Findings. The accounting and financial reporting system used by SCSS is reasonable and consistent with generally accepted accounting principles and practices. It treats similar costs similarly (such as collection and disposal, where there are no significant differences in service levels and unit costs between the four agencies), while recognizing community differences (such as different franchise fee rates). Because the financial operations of SCSS are closely related for all of the communities it serves, there are significant advantages to performing concurrent reviews

29 Solid Waste Rate Review Area of Possible Concern. While the service characteristics and resulting per unit costs are very similar for Arroyo Grande, Grover Beach, Oceano and Pismo Beach, this is unlikely to be true for the other areas in South County serviced by SCSS. Because of their lower densities, collection costs are probably higher in these areas but these are not accounted for separately by scss. On the other hand, there are three mitigating factors that reduce this concern: Higher rates. Depending on service type, rates are up to 30% higher in these areas, recognizing the higher collection costs for similar services. In short, these rate differentials significantly mitigate "equity" and cost accounting concerns. Smaller percentage of accounts. The four agencies covered by this report account for about two-thirds of the accounts serviced by SCSS. Accordingly, while there may be "cost per account" differences in these other areas, they account for a smaller portion of SCSS operations. About 40% of revenues are from non-sfr accounts. 41 % of SCSS revenues come from multi-family and non-residential accounts, which have the same rate structure and similar service-versus-cost characteristics throughout the SCSS service area. If costs for Arroyo Grande, Grover Beach, Oceano and Pismo Beach are so similar, why are the residential rates so different? The short answer is: history and different approaches to rate structure philosophies. History Until 1999, service levels under the Franchise Agreements with SCSS between these four agencies were significantly different. The rates in place at that time became the basis for subsequent rate reviews. Rate Structure Principles Most significantly, each agency has adopted different rate structure principles to recover similar costs. For example, Pismo Beach has adopted a rate structure for its residential customers that more closely reflects a "pay-as-you-throw" philosophy under which the "per gallon" costs for 32, 64 and 96 gallon containers are the same (for example, a 64-gallon container costs twice as much as a 32-gallon one.) This results in lower monthly costs for 32-gallon customers and relatively higher rates for 64 and 96-gallon customers. On the other hand, Arroyo Grande has adopted rates that do not have as much difference between container sizes (but still offer an incentive for smaller containers over larger ones), recognizing collection economies of scale for larger versus smaller containers. In this case, 32- gallon containers in Arroyo Grande are more expensive than in Pismo Beach, but 64-gallon containers are less

30 Solid Waste Rate Review Both rate structures have their strong points: in the case of Pismo Beach, rates are more reflective of disposal costs, whereas in Arroyo Grande they are more reflective of collection costs. But the important point is that the revenue generating capability is the same even though the rates are different. Multi-Family aud Non-Residential Rates Lastly, multi-family and non-residential rates (which account for 41 % of SCSS revenues) are similar in all four agencies: it is only in single family residential rates that there are significant differences between communities. FINANCIAL OVERVIEW While detailed financial and service information is provided in the SCSS rate request application (Appendix), the following summarizes their actual costs, revenues and account information for 2014 (the last completed fiscal year for which there are audited financial statements) for all areas serviced by them. Costs by Type. Total expenses for 2014 (after deducting for non-allowable and limited costs as discussed later in this report) were $11.1 million. As reflected in Table 4, five cost areas accounted for 85% of total costs: Direct labor for collection: 26% Vehicle operations and maintenance (including depreciation): 19% Disposal (landfill, recycling and composting): 17% Franchise fees: 12% Insurance: 11 % Revenues by Source. Total revenues in 2014 were $11.5 million. As reflected in Table 5, 58% ofscss's revenues come from single-family residential (SFR) accounts. Services to multi-family residential and non-residential customers account for 41 % of their revenues, with a very small part (1 % ) from other revenues such as interest earnings. o Admin & Overhead 9% 111 Insurance 11% m Franchise Fees 12% m Other Accounts 41o/o Table4. Costs By Type: $11.1 Miiiion 1111 Disposal Costs 17% P Other Costs 6% 11 Vehtcfe Operations & Ma Int 19% Table 5. Revenues by Source: $11.5 Miiiion CJ Other Revenue 1% ID SFR Service fees

31 Solid Waste Rate Review Service Accounts by Type. While singlefamily residences account for 58% of revenues, they represent 92% of total accounts (Table 6). This reflects the fact that per account, multi-family and non-residential customers generate more solid waste than single-family residential customers (and thus more revenue per account). Table6. Accounts By Type: 27,420 o Other Acounts 8% m SFR Accounts 92% RATE-SETTING PROCESS Under the Rate Manual, the rate-setting process follows a three-year cycle: Base Year. The first year of the cycle-the Base Year-requires a comprehensive, detailed analysis of revenues, expenses and operating data. This information is evaluated in the context of agreed upon factors in the franchise agreements in determining fair and reasonable rates. As noted above, the last Base Year analysis for SCSS under this approach was prepared in December Two Interim Years. In both the second and third years, SCSS is eligible for Interim Year rate adjustments that address three key change factors: changes in the consumer price index for "controllable" operating costs; changes in "pass-through costs" (primarily tipping fees), which SCSS does not control (they are set by the County Board of Supervisors); and an adjustment to cover increased franchise fees. The first two adjustment factors are "weighted" by the proportionate share that these costs represent of total costs (excluding franchise fees). For example, in the current Base Year analysis for 2016 rates, controllable costs account for 84% of total costs, with tipping fees accounting for 16%. The rate review for the two Interim Years requires less information and preparation time than the Base Year review, while still providing fair and reasonable rate adjustments. Rate Increase History The following summarizes the SCSS rate review history since 2004 (last twelve years) based on the year of the application (rate increases took place the following year)

32 Solid Waste Rate Review Table 7. Review History: 2004 to 2015 (Last 12 Years) Arroyo Grover Pismo Year Review Type Grande Beach Oceana Beach (1) 2004 Base Year 5.60% 5.60% 5.60% 5.30% 2005 Interim Year 3.09% 3.09% 3.09% 2.95% 2006 Interim Year 3.76% 3.76% 3.76% 3.60% 2007 Base Year 3.00% 3.00% 3.00% 2.90% 2008 Interim Year 0.00% 0.00% 0.00% 0.00% 2009 Interim Year 0.00% 0.00% 0.00% 0.00% 2010 Interim Year 0.00% 0.00% 0.00% 0.00% 2011 Interim Year (2) 5.15% 5.15% 5.15% 5.15% 2012 Base Year 3.20% 3.20% 3.20% 3.20% 2013 Interim Year 2.05% 2.05% 2.05% 2.05% 2014 Interim Year 0.00% 0.00% 0.00% 0.00% 2015 Base Year (3) 3.25% 3.25% 3.25% 3.25% I. Fram 2004 to 2011, the franchise fee rate in Pismo Beach was 6% compared with 10% in the other three agencies, and as such, its rate increase was slightly less. In July 2011, Pismo Beach adopted a 10% franchise fee, bringing it in alignment with the other three agencies (as well as most other agencies in San Luis Obispo County). In implementing the 10% rate in 2011, Pismo Beach adopted an added 3.9% increase beyond the interim year rate increase of 5.15% requested by SCSS. 2. SCSS did not request a rate increase in 2010 (which would have been the "normal" cycle to do so), and accordingly, did not submit a Base Year rate application. However, SCSS did submit a rate request in 2011 using an Interim Year methodology. The reasonableness of using the resulting "hybrid" approach was discussed in detail in the 2011 lnterim Year report, which concluded that this approach was reasonable given the circumstances. 3. Proposed rate increase, to be effective January 1, Assuming the 2015 rate application is approved, this will result in an average annual rate increase of 2.4% over the last twelve years, which reflects a high level of rate stability and price containment for South County customers. RATE SETTING METHODOLOGY Are the Costs Reasonable? The first step in the rate review process is to determine if costs are reasonable. There are three analytical techniques that can be used in assessing this: Detailed review of costs and service responsibilities over time. Evaluation of external cost factors, such as general increases in the cost of living (as measured by the consumer price index). Comparisons of rates with other communities

33 Solid Waste Rate Review Each of these was considered in preparing this report, summarized as follows. Detailed Cost Review In its rate application, SCSS provides detailed financial data for five years: Audited results for the two prior years (2013 and 2014). Estimated results for the current year (2015, which is still in progress). Projected costs for the Base Year (2016). Estimated costs for the following year (2017). This allows for a detailed analysis of changes in key cost components such as labor, repairs, fuel, insurance and tipping fees. In this case, its submittal shows that overall SCSS has done a good job of containing costs. Excluding pass-through costs (like tipping fees and franchise fees, which SCSS does not control), very modest cost increases in "controllable" cost are projected: Table 8. Cost Trend Summary Actual Estimated Projected Percent Increase Direct Labor 2,939,714 2,997,051 3,118, % 4.1% Allowable Corporate Overhead 324, , , % 2.0% Office Salaries 680, , , % 2.0% Depreciation 698, , , % -29.5% Truck Repairs & Tires 449, , , % 2.0% Fuel& Oil 963, , , % -2.3% Insurance 1,216,855 1,263,114 1,288, % 2.0% Greenwaste/Organics Contract Services 378, , , % 66.1% Other Costs 546, , , % 7.4% Total Controllable Costs 8,197,165 7,994,930 8,297, % 3.8% Pass-Through Costs Tipping Fees 1,542,357 1,710,069 1,711, % 0.1% Franchise Fees 1,290,085 1,334,320 1,361, % 2.0% Other Pass-Through Costs 83,364 85,955 87, % 2.0% Total $11,112,971 $11,125,274 $11,457, % 3.0% As reflected above, there are two key areas of change: Decrease in depreciation. This is due to an aging fleet: as vehicles begin to remain in service after their useful lives, they become fully-depreciated and no further annual expenses are recorded. This lower cost is a good thing initially. However, these vehicles will need to be replaced at some point and higher depreciation costs will then be incurred. Increase in greenwaste recycling/organics diversion contract services. This reflects the added cost of the new organics diversion program. The key drivers behind the 3.25% rate increase request for 2016 can be summarized by three factors as follows:

34 Solid Waste Rate Review 0.81 % for the $2.25 per ton increase in the cost of landfill disposal. I. I 0% for implementation of the organics waste diversion program. 1.34% for all other cost increases such as vehicle fuel, ongoing maintenance and labor. Trends in External Cost Drivers The most common external "benchmark" for evaluating cost trends is the consumer price index. Over the past two years, the U.S. CPI-U increased by 2.2%. Controllable cost increases of 1.3% for 2015 and 2016 compare favorably with this CPI benchmark. Rates in Comparable Communities Lastly, reasonableness of rates (and underlying costs) can also be evaluated by comparing rates with comparable communities. However, survey results between "comparable" communities need to be carefully weighed, because every community is different. For example, even in the South County where service levels and costs are very similar, there are rate differences. In short, making a true "apples-to-apples" comparison is easier said than done. Nonetheless, surveys are useful assessment tools-but they are not perfect and they should not drive rate increases. Typical reasons why solid waste rates may be different include: Franchise fees and AB 939 fee surcharges Landfill costs (tipping fees) Service levels (frequency, quality) Labor market Operator efficiency and effectiveness Voluntary versus mandatory service Direct services provided to the franchising agency at no cost, such as free trash container pick-up at city facilities, on streets and in parks Percentage of non-residential customers, and how costs and rates are allocated between customer types Revenue collection procedures: Does the hauler or the franchising agency bill for service? And what are the procedures for collecting delinquent accounts? Services included in the base fee (recycling, green waste, containers, pick-up away from curb) Different rates structures Land use and density (lower densities will typically result in higher service costs) Mix of residential and non-residential accounts With these caveats, the following summarizes single family residential rates for other cities in the Central Coast area compared with the proposed rates for SCSS. As reflected below, even

35 Solid Waste Rate Review with the proposed rate increases, Arroyo Grande, Grover Beach, Oceano and Pismo Beach will have among the lowest rates among the agencies surveyed. Container Siz.e Gallons) Atascadero (1) $20.63 $36.15 $46.70 Morro Bay (1) Paso Robles (2) San Luis Obispo (2) Santa Maria (1) n/a San Miguel (1) Tern leton(l) Arroyo Grande Grover Beach Oceano Pismo Beach As of September Approved for January 2016 Summary: Are the costs reasonable? Based on the results of the three separate cost-review techniques-trend review, external factor review and rate comparisons-scss's costs are reasonable. What Is a Reasonable Return on these Costs? After assessing if costs are reasonable, the next step is to determine a reasonable rate of return on these costs. The rate-setting method formally adopted by Arroyo Grande, Grover Beach, Oceano and Pismo Beach in their Franchise Agreements with SCSS includes clear criteria for making this assessment. It begins by organizing costs into three main categories, which will be treated differently in determining a reasonable "operating profit ratio:" Controllable Costs (Operations and Maintenance) Direct collection labor Fuel Vehicle maintenance and repairs Depreciation Insurance Billing and collection Pass-Through Costs Tipping fees Franchise fees Payments to affiliated companies (such as leases and trucking charges)

36 Solid Waste Rate Review Excluded and Limited Costs Charitable and political contributions Non-IRS approved profit-sharing plans Entertainment Fines and penalties Income taxes Limits on corporate officer compensation After organizing costs into these three categories, determining "operating profit ratios" and overall revenue requirements is straightforward: The target is a 92% operating profit ratio on "controllable costs." Pass-through costs may be fully recovered through rates but no profit is allowed on these costs. No revenues are allowed for any excluded or limited costs. In the case of SCSS, 72% of their costs are "controllable costs" subject to the 92% operating profit ratio (or 8% of total allowable "rate base" revenues); and 28% are pass-through costs that may be fully recovered from rates but no profit is allowed. No recovery is allowed for excluded costs. Preparing the Rate Request Application Detailed "spreadsheet" templates for preparing the rate request application-including assembling the required information and making the needed calculations-are provided in the Rate Manual. SCSS has prepared their rate increase application in accordance with these requirements (Appendix); and the financial information provided in the application for 2013 and 2014 ties to its audited financial statements. This comprehensive application has been correctly prepared with one very minor classification error, which does not affect the allowable rate increase of3.67% (or the requested lower rate increase of 3.25% ). Under the Rate Manual, lease and trucking costs with related parties are eligible for "passthrough" recovery but are not eligible for operating profit recovery. The rate application classifies $49,059 for transportation costs paid to related parties in 2016 as eligible for the operating cost ratio. It should be classified as a pass-through cost (like lease payments to affiliated companies, which are correctly classified). This makes a very small difference in allowable profit ($4,266); and is so minor that it has no effect on the allowable rate increase of 3.67% or lower requested increase of 3.25%. Rate Request Summary The following summarizes the calculations that support an allowable rate increase of3.67%:

37 Solid Waste Rate Review 7: a bl e JO R a t e 1 ncrease S ummarv Allowable Costs (I) 8,248,549 Allowable Profit (92% Operating Ratio) 717,264 Pass-Through Costs Tipping Fees 1,711,603 Franchise Fees 1,361,006 Other Pass-Through Costs (1) 136,733 Allowed Revenue Requirements 12,175,155 Revenue without Rate Increase 11,789,890 Revenue Requirement: Shortfall (Surplus) $385,265 Percent Change in Revenue Requirement 3.30% Allowed Revenue Increase (2) 3.67% 1. Reflects Reclassification of Related Party Transportation Costs 2. Adjusted for 10 % Franchise Fee Implementation The following summarizes key implementation concepts in the adopted rate-setting model: The "92% operating profit ratio" is a target; in the interest of rate stability, adjustments are only made ifthe calculated operating profit ratio falls outside of90% to 94%. For the last completed year (2014) the ratio was 96.0%; and for 2016, without the proposed rate increase, the operating ratio would be 95.5%. Both of these are outside the 90% to 94% range and as such, a rate increase is warranted under the rate-setting methodology. There is no provision for retroactivity: requested rate increases are "prospective" for the year to come; there is no provision for looking back. This means that any past shortfalls from the target operating profit cannot be recaptured. On the other hand, if past ratios have been stronger than this target, then the revenue base is re-set in the Base Year review. As discussed above, detailed Base Year reviews are prepared every three years; Interim Year reviews to account for focused changes in the consumer price and tipping fees are prepared in the two "in-between" years. Special rate increases for extraordinary circumstances may be considered. This has never occurred in any of the agencies that use this rate-setting methodology. The result of this process is an allowed rate increase of3.67%. However, SCSS has requested a lower rate increase of 3.25%. COST OF LIVING "TRIGGER OPTION" As noted above, Section 8.3 of the Franchise Agreements provides that ifthe rate increase request compared with the rate in effect at the date of the agreement exceeds the cumulative cost

38 Solid Waste Rate Review of living increase from that same date, each agency has the option of terminating the agreement at any time within nine months following approval of the requested rate increase (assuming it was submitted in accordance with the rate-setting methodology). While this provision does not directly limit rate increase requests by SCSS to an amount that may be less than that allowed under the rate-setting methodology, subjecting the Franchise Agreement to possible termination ifthe rate request is greater than the cost of living threshold provides a strong incentive for SCSS to do so. As discussed previously, based on SCSS's calculation of the cost of living increase threshold, the maximum rate increase to avoid triggering the potential for termination is 3.25%. This is its requested rate, which is slightly less than the allowable rate increase of 3.67% under the ratesetting methodology set forth in the Franchise Agreements. However, this is based on their excluding from the threshold increases in tipping fees of 0.96% in 2014 and the proposed increase for tipping fees in 2016 of 0.81 %. In reviewing the Franchise Agreements and the rate increase analysis prepared in 2013 (for rate increases to be effective in 2014), these adjustments should not be made in calculating the "trigger" amount. Section 8.3 of the Franchise Agreements addresses these types of pass-through costs: When calculating the change in the rate, costs resulting from Article 7, Payments to City, Section 4. 5 City Request to Direct Changes, Section 5.10 Garbage and Recycling Service in Public Areas and new regulatory costs will not be included. However any increase resulting from an increase in the pass through costs associated with the processing and/or disposal of Garbage and Recyclable Material including greenwaste are included in the rate change calculation. Accordingly, if these are not excluded, the rate increase to avoid triggering the termination option would be limited to 1.5%. Calculation of the CPI Threshold As recommended in the 2013 Jnterim Year rate review for consistency and clarity, the CPI-U rate increases used in calculating Interim Year increases and the "trigger" threshold are based on changes from June to June (given application submittal targets, this was the most recent date that would consistently be available). The following summarizes the different approaches in calculating the threshold:

39 Solid Waste Rate Review Table 11. CPI-U Trigger Option CPI-U Increase SCSS Calculation Alternative Calculation June CPI-U Approved Subject to Approved Subject to to June Increase Increase Adiustment Threshold Increase Adjustment Threshold % 0.00% 0.00% 0.00% 0.00% % 5.15% -1.70% 3.45% 5.15% -1.70% 3.45% % 0.00% 0.00% 0.00% 0.00% % 3.20% 3.20% 3.20% 3.20% % 2.05% -0.96% 1.09% 2.05% 2.05% % 0.00% 0.00% 0.00% 0.00% 2016 ~t;jl_?{.f& W~~'\ti~j ~ 1 dilij,\itf1n1ia~~,<r, 3.25% -0.81% 2.44% 3.25% 3.25% Total 10.20% 13.65% -2.66% 10.18% 13.65% -1.70% 11.95% Note: Under either option, the adjustment of 1. 7%for contact greenwaste in 2011 is appropriate, since the agencies formally agreed to this prior to the rate application process. The following summarizes the variance from the "trigger" depending on the approach in calculating rate increases that are subject to the "trigger:" Table 12. Variance from "Trigger Option:" Favorable (Unfavorable) Requested Rate CPI-U Subject to Calculation Trigger Variance SCSS Proposed Calculation 10.20% 10.18% 0.02% Alternative* 10.20% 11.95% -1.75% * Under the Alternative calculation, the requested rate increase would need to be 1.5% or less to avoid the "Trigger Option." As reflected in Table 12, the requested rate increase is slightly below the "trigger" amount based on SCSS's approach to calculating the rate increases that are subject to the "trigger." However, if the Alternate calculation is used, the requested rate increase would need to be reduced to 1.5% to remain under the "trigger." There are several policy options in considering the "trigger" threshold: Agree with the exclusions made by SCSS in calculating rate increases subject to the "trigger." This would be conceptually similar to the l.7% exclusion agreed to 201 l. Use the "Alternative" calculation but make findings that the agencies will not pursue the "trigger" option if the requested rates are approved. This is the recommended approach: it allows approval of the current requested rates as reasonable but retains flexibility in future rate reviews by retaining the "Alternative" methodology as the basis for this and future rate increases

40 Solid Waste Rate Review Use the "Alternative" methodology and approve the requested rate increase but retain the right to potentially pursue contract termination over the next nine months. However, it is important to note that this "trigger" calculation does not limit the allowable rate increase that SCCS may request under the methodology set forth in the Franchise Agreements. Accordingly, as noted above, ifthe proposed rate increase of3.25% is approved, it is recommended that the four agencies make findings that they will not pursue the "trigger" option. COORDINATION WITH OTHER AGENCIES SCSS has submitted similar rate requests to the three other agencies that regulate rates and services in the other South County areas that they serve: the County of San Luis Obispo, Avila Beach Community Services District and the Nipomo Community Services District. These agencies are likely to act on the requested rate increases within the same time frame as the four agencies covered in this report. SUMMARY Based on the rate-setting policies and procedures formally adopted by Arroyo Grande, Grover Beach, Oceano and Pismo Beach in their Franchise Agreements, this report concludes that: SCSS has submitted the required documentation required under its Franchise Agreements with the four agencies. SCSS's costs are reasonable. Its rate application supports an increase of3.67% for 2016, which meets the "reasonable return" criteria set forth in the Franchise Agreements. Accordingly, this report recommends adoption of the 3.25% rate increase requested by SCSS, which is lower than this. The requested rate increase of 3.25% for 2016 is based on SCSS' s calculations of the rate increase available in avoiding the "trigger" that would allow the four agencies the option of early termination of their Franchise Agreements. Based on my calculations, the actual threshold is lower than this. SCSS has requested rate increases for 2017 and 2018 based on concepts that are very similar to the Interim Year rate increase methodology set forth in the Rate Manual. Given the very similar results, this report recommends adoption of the proposed rates for 2017 and This will mean that Interim Year reviews for 2017 and 2018 will not be required. If the governing bodies approve the requested rate increases, it is recommended that they also make findings that they will not pursue the "trigger" option. ATTACHMENT Appendix: Base Year Rate Request Application from South County Sanitary Service

41 Appendix BASE YEAR RATE REQUEST APPLICATION 1. Request Letter from South County Sanitary Service 2. Base Year Application Summary City of Pismo Beach City of Arroyo Grande City of Grover Beach Oceano Community Services District 3. Supporting Schedules Financial Information: Cost and Revenue Requirements Summary Revenue Offset Summary Cost Summary for Base Year Base Year Revenue Offset Summary Operating Information

42 Appendix 1 September 17, 2015 City of Arroyo Grande Avila Beach CSD City of Grover Beach Oceano CSD City of Pismo Beach 4388 Old Santa Fe Road, San Luis Obispo, CA, Subject: South County Sanitary Service, 2016 Contract Amendments Dear South County Customers: Waste Connections your franchisee for integrated waste management services (operating as the South County Sanitary Service in the South County area), requests the following approvals from you to be effective on January 1, Approval to begin an expanded organics diversion program that includes food waste. 2. Approval to extend the term of the existing franchise agreements in order to. support the expanded organics program. 3. Approval to Increase the solid waste rates by 3.25% in order to cover these new and existing programs. 4. Approval a contract amendment modifying the existing franchise agreements to allow a 3-year rate application cycle (1 Base year plus 2 interim years) In place of an annual cycle. Expanded Organics Diversion Program With the closure of the green waste composting facility at Cold Canyon Landfill in late 2010, per its contract, South County Sanitary Service submitted two alternative methods for dealing with green waste processing to our customers. Our customers decided to send the green waste to Engel and Gray for composting. Since this decision was made there have been several new developments related to the management of organics. In 2014 AB 1826 and AB 1594 were enacted. AB 1826 established a mandatory organics management program which will require businesses to recycle all organics including food waste. This requirement phases in with the first deadline being April 2016 for businesses that generate 8 cubic yards or more per week of organics. AB 1594 eliminates the diversion credit for using green waste as alternative daily cover. Cal Recycle and the State Water Resources Control Board are developing naw more stringent compost regulations. The Intergovernmental Panel on Climate Change now estimates that the greenhouse gas potential of methane is 34 times greater than C02. Governor Brown on April 29, 2015 set the goal of reducing greenhouse gas to 40% below 1990 levels by The Air Resources Board in a concept paper Issued on May 7, 2015 set an initial goal of diverting 75 percent of organics from landfills by 2020 and diverting 90 percent of organics from landfills by 2025.

43 South County Customers September 17, 2015 Appendix 1 At the May 13, 2015 San Luis Obispo County Integrated Waste Management Authority Board Meeting, Waste Connections presented our plan for the long term management of all organic waste, including food waste. The plan incorporates the entire Waste Connections service area from San Simeon to Nlpomo. The plan has two phases, an interim phase to about mid and a permanent phase that extends 20 years from the completion of the ~nterim phase. Beginning in January 2016, South County Sanitary Service would expand the existing residential green waste collection program to include food waste. Each home would be provided with!! small kitchen pail to collect food waste. The food waste In the pail would then be dumped into the existing green waste collectlon container. At the same time, we would start expanding the organics collection program to commercial customers. First priority would be to start with businesses that are required to divert organics by April The organic waste collected from residential and commercial customers would be taken the Engel and Gray composting facility in Santa Marla. This composting facility is permitted to compost both yard waste and food waste. Phase II is planned to begin In about mid Our long-term management solution for organics includes an anaerobic digestion plant the will produce renewable energy. Anaerobic digestion Is different than composting In that the process of decomposition occurs in an oxygen free environment. Unlike composting, this process produces energy in the form of biogas and minimizes the need for water. In ad.dltion all activities are Inside a vessel and/or building, thus minimizing odors, storm water runoff and litter. The anaerobic digestion plant would be designed, built and operated by HZl/Kompogas (a world-wide leader in this technology), under contract to Waste Connections. The Kompogas facility will be located at Waste Connection's existing yard on Old Santa Fe Road in San Luis Obispo. This industrial site is ideally located in that it is in the center of the service area, Is the location where the garbage trucks start and end each day and has an existing building that can be used for the organics receiving area. Extend the term of the Franchise.Agreements To implement the permanent phase of the organics management program, Waste Connections will enter Into a 1ong-term agreement with HZI, where HZI would design, finance, build, own arid operate a Kompogas plant for a fixed fee, subject only to cost of living Increases and adjustments for the sale price of electricity and/or compost/compost tea. In return Waste Connections will guarantee to deliver organics from its entire San Luis Obispo County service area for a 20 year period. This guarantee is necessary for HZI to obtain the financing to build a $12 million plus plant. Thus the existing franchise agreement needs to be extended to cover the 20 year operating period of the Kompogas plant. The franchise extension Is conditioned on a Kompogas plant being built. Similarly, commitments would be ne eded from all the other cities in Waste Connection's service area. If the plant is not built, then the franchise agreements would not be extended and the Interim Phase of transporting organic waste to Santa Maria for processing would continue past mld In order to fulfill that promise to supply the organics, South County Sanitary Service is asking for an extension of its franchise agreement with our South County customers to parallel the term of Waste Connections agreement with HZI. The franchise extension is clearly needed to supply the residential and commercial organics throughout the term of the HZI agreement. Collecting commercial organics will require new trucks and containers to handle this very hard to handle waste. In addition, it is possible that new organic fractions in the solid waste stream could be added to the definition of organics by future legislatlon; therefore extension of solid waste franchise is necessary. Page 2 of3

44 South County Customers September 17, 2015 Appendix 1 Solid Waste Rate Increase The proposed 3.25% increase In rates during this period breaks out as follows: % of the proposed rate Increase is based on increased costs for fuel, vehicles and increased labor costs % of the proposed rate increase is based on implementing the expanded organics diversion program developed to meet State mandates beginning in % of the proposed rate increase is a pass through of a landfill disposal rate Increase. 3-year rate application cycle In addition to the 2016 Base Year Solid Waste Rate increase, commencing on January 1, 2017 and January , all the rates shall be increased based on the following: 1. Increase, if any, in the Consumer Price Index (CPI) for Bureau of Labor Statistics' Consumer Price Index for Urban Consumers based on the All U.S. City Average, Bureau of Labor Statistics for the month of June 2016 for January 1, 2017 and June 2017 for January 1, Jn crease of 0.79% for 2017 and 0. 77% for 2018 for increase in the cost of landfill disposal. 3. Increase, if any, In the Consumer Price Index (CPI) for Bureau of Labor Statistics' Consumer Price Index for Urban Consumers based on the All U.S. City Average, Bureau of Labor Statistics for Increase in AB939 fee cost. Sincerely, Patrick J. Fenton General Manager Waste Connections, Inc. Pagel of3

45 Appendix 2 South County Sanitary Service 2016 Base Year Rate Adjustment Application Summary CITY OF PISMO BEACH Pl Land Ill I 1.34% 0.81% Organics 1.10% 1. Rate Increase Requested İ , 3.25% Rate Schedule Current Rate Increased Rate Adjustment (a) New Rate Single Family Residential 2. Economy Service (1 - can curb) 4. Standard Service (2- can curb) 5, Premium Service (3 - can curb) $14.50 $29.00 $43.50 $0.47 $0.94 $1.41 $14.97 $29.94 $44.91 (a) Calculated rates are rounded up to the nearest $ Multiunit Residential and Non-residential Rate increases of will be applied to all rates in each structure with each rate rounded to the nearest $0.01 To the best of my knowledge, the data and information in this application is complete, accurate, and consistent with the instructions provided by the Rate Setting Mimual. Name: Patrick Fenton Title: District Manager Signature: Date: 07/30/15 Fiscal Year: to Pg. 1 of6

46 South County Sanitary Service Appendix Base Year Rate Adjustment Application Summary CITY OF ARROYO GRANDE 1. Rate Increase Requested Pl 1.34% Landlill 0.81 % Organics 1.10% % Rate Schedule Current Rate Increased Rate Adjustment (a) New Rate Single Family Residential 2. Economy Service ( 1 - can curb) 4. Standard Service (2- can curb) 5. Premium Service (3 - can curb) $ $ $ $0.53 $0.69 $0.85 $16.83 $21.86 $26.92 (a) Calculated rates are rounded up to the nearest $ Multiunlt Resident/al and Non-residential Rate increases of will be applied to all rates in each structure with each rate rounded to the nearest $ %1 To the best of my knowledge, the data and information in this application is complete, accurate, and consistent with the instructions provided by the Rate Setting Manual. Name: Patrick Fenton Title: District Manager Signature: Date: 07/30/15 Fiscal Year: to Pg. 1 of6

47 South County Sanitary Service Appendix Base Year Rate Adjustment Application Summary CITY OF GROVER BEACH 1. Rate Increase Requested Pl 1.34% Landfill 0.81 % Organics 1.10% % Rate Schedule Current Rate Increased Rate Adjustment (a) New Rate Single Family Residential 2. Economy Service (1 - can curb) 4. Standard Service (2- can curb) 5. Premium Service (3 - can curb) $ $ $ $0.48 $0.65 $0.82 $15.25 $20.62 $25.96 (a) Calculated rates are rounded up to the nearest $ Multiunit Residential and Non-residential Rate increases of will be applied to all rates in each structure with each rate rounded lo the nearest $0.01 To the best of my knowledge, the data and information in this application is complete, accurate, and consistent with the instructions provided by the Rate Setting Manual. Name: Patrick Fenton Title: District Manager Signature: Date: 07/30/15 Fiscal Year: to Pg. 1 of6

48 Appendix 2 South County Sanitary Service 2016 Base Year Rate Adjustment Application Summary OCEANO COMMUNITY SERVICE DISTRICT Pl 1.34% Landfill 0.81 % 1. Rate Increase Requested Organics,......;1.;.;.l.;.;0;..'!1""'0 I 3.2s%I Cu1Tent Increased Adjustment New Rate Schedule Rate Rate (a) Rate Single Family Residential 2. Economy Service (1 - can curb) $ $0.43 $ Standard Service (2- can curb) $ $0.62 $ Premium Service (3 - can curb) $ $1.21 $38.39 (a) Calculated rates are rounded up to the nearest $ Multiunit Residential and Non-residential Rate increases of will be applied to all rates in each structure with each rate rounded to the nearest $0.01 To the best of my knowledge, the data <1ml informalion in this application is complete, accurate, and consistent with the instructions provided by the Rate Setting Manual. Name: Patrick Fenton Title: District Manager Signature: Date: 07/30/15 Fiscal Year: to Pg. 1 of6

49 Appendix 3 South County Sanitary Service Base Year 2016 Rate Adjustment Application Financial l11fort11atio11 Historical I 2013 I 2014 Current Base Year Projected I 2017 I (from Pg. 4) 6. Direct Labor 7. Corporate Overhead 8. Office Salaries 9. Other General and Admin Costs $2,804,158 $318,893 $514,066 $4,151,237 $2,939,714 $324,633 $680,438 $4,252,380 $2,997,051 $3,118,768 $3,181,144 $331,450 $338,079 $344,840 $642,308 $655,155 $668,258 $4,024,121 $4,185,606 $4,269,318 l 0 Total Allowable Costs $7,788,354 $8,197,164 $7,994,930 $8,297,608 $8,463, Operating Ratio 12. Allowable Operating Profit 93.2o/o $568, % $345, % 92,0o/o 92.0o/o $484,959 $721,531 $735, Tipping Fees $1,481,214 $1,542,357 $1,710,069 $1,711,603 $1,745, Franchise Fees $1,272,560 $1,290,085 $1,334,320 $1,361,006 $1,388, AB939 Fees $0 $0 $0 $0 $0 16. Lease Pmts to Affiliated Companies $50,575 $83,364 $85,955 $87,674 $89, Total Pass Through Costs $2,804,349 $2,915,806 $3,130,344 $3,160,283 - $3,223, Revenue Requirement $11,161,0821 $11,458,4371 $11,610,2341 $12,179,4221 $12, I 19. Total Revenue Offsets $11,161,082 I $11,458,437 I $11,610,234 I $11,789,890 I $12,290,960 I (from Page 3) 20. Net Shortfall (Surplus) $389, Total Residenlial and Non-residential Revenue without increase in Base Year (pg.5, line 76) 22. Percent Change in Residential and Non*residential Revenue Requirement 23. Franchise Fee Adjustment Factor (1 6 percent) Limitation due to cumlative increases 24. Percent Change in Existing Rates Nipomo $11,789,890 $11,789, % 3.3% % % 3.67o/o 3.60% 0.42% D.42% 3.25% 3.18% Fiscal Year: to Pg. 2 of 6

50 South County Sanitary Service Base Year 2016 Rate Adjustment Application Appendix 3 Revenue Offset Summary Historical I 2013 I 2014 Current Base Year Projected I 2011 I Residential Reve1ii'e (without increase in Base Yr.) 28. Single Fa1nily Residential Multiunit Residential Dmnpster 29. Number of Accounts 30. Revenues 31. Less Allowance for Uncollectible Resi Accounts 32. Total Residential Revenue Nou-residential Revenlle (without increase in Base Yr.) Account Type Non-residential Can 33. Number of Accounts 34. Revenues Non-residential Wastewheeler 35. Nu1nber of Accounts 36. Revenues Non-residential Dumpster 37. Nu1nber of Accounts 38. Revenues 39. Less: Allowance for Uncollectible Non-resid 40. Total Non-residential Revenue 45. futerest on Investments 46. Other Incon1e 47. Total Revenue Offsets Fiscal Year: to $6,568,201 I $6,754,381 I $6,568,201 I $6,754,381 I IO I IO I $4,544,805 $4,666,742 $0 I $0 I $4,544,805 I $4,666,742 I $29,2881 $23,837 I $18,7881 $13,4771 $11,161,0821 $11,458,437 I $6,903,215 I $6,972,308 I $7.268,631 I I I I I I I $6,903,215 I $6,972,308 I $1,268,631 I $1.21~ I $1.23~ I $1.2:: I $376 $193,471 $197,399 $205, $1,889 $4,496,809 $4,607,749 $4,803,578 $0 I $0 I $0 I $4,691,491 I $4,806,384 I $5,010,655 I $991 ($1,402)1 ($1,462)1 $15,3681 $12,600 I $13,136 I $11,610,234 I $11,789,890 I $12,290,960 I Pg.3of6

51 ~~~~~~~~~~~~~~~~~~~~~~~~~~...:..A~endix3 South County Sanitary Service Base Year 2016 Rate Adjustment Applicatio Cost Summary for Base Year Description of Cost ~... ~ Labor $2,601,180 $2,723,391 $2,775,882 $2,893,176 Payroll Taxes $202,978 $216,322 $221,169 $225, Total Direct Labor $2,804,158 $2,939,714 $2,997,051 $3,118, Corporate Overhead $503,012 $540,490 $563,745 $575,020 Less limitation (enter as negative) ($184,119) ($215,857) ($232,295) ($236,941) Total Corporate Overhead $318,893 $324,633 $331,450 $338,079 Office Salary $461,252 $630,822 $595,085 $606,986 Payroll Taxes $52,814 $49,617 $47,224 $48, Total Office Salaries $514,066 $680,438 $642,308 $655,155 Allocated expenses $0 $0 $0 $0 Bad Debt $16,395 ($3,309) ($1,907) ($1,945) Bond expense $7,524 $6,823 $6,624 $6,756 Computer services Depreciation on Bldg and Equip Depreciation on Trucks/Containers $871,346 $698,382 $452,894 $319,255 Drive Cam fees $27,694 $31,579 $31,800 $32,436 Dues and Subscriptions $4,688 $5,350 $4,898 $4,996 Gas and oil $955,955 $963,099 $938,455 $957,225 Interest Expense Laundry $18,762 $21,374 $20,010 $20,410 Legal and Accounting $37,934 $28,537 $33,371 $34,038 Miscellaneous and Other $8,989 $18,638 $18,789 $19,165 Moving expense $2,681 $3,920 $4,704 $4,798 Office Expense $152,167 $171,740 $174,814 $178,310 Operating Supplies $23,106 $38,353 $37,179 $37,922 Other insurance $514,427 $526,663 $537,186 $547,930 Other Insurance-medical $587,834 $690,192 $725,928 $740,447 Other Taxes $40,605 $33,782 $37,196 $37,940 Outside Services $336,171 $378,581 $365,352 $606,775 Postage $17,089 $9,160 $20,816 $10,816 Public Relations and Promotion $1,712 $1,391 $1,720 $1,754 Permits $74,170 $67,898 $66,350 $67,677 Rent $6,500 $3,000 $3,000 $3,060 Telephone $21,603 $22,764 $21,611 $22,044 Tires $118,130 $127,741 $114,668 $116,961 Transportation (related party) $37,365 $48,634 $48,097 $49,059 Travel $20,010 $11,575 $12,350 $12,597 Truck Repairs $225,916 $321,378 $323,199 $329,663 Utilities $22,462 $25,136 $25,016 $25, Total Other Gen/Admin Costs $4,151,237 $4,252,380 $4,024,121 $4,185, Total Tipping Fees $1,481,214 $1,542,357 $1,710,069 $1,711, Total Franchise Fee $1,272,560 $1,290,085 $1,334,320 $1,361, Total AB 939/Regulatory Fees $0 $0 $0 $0 55. Total Lease Pn1t to Affil Co. 's $50,575 $83,364 $85,955 $87, Total Cost,. fik>t ~"~- W~'$lit\'ffl~~~;)'i'M' _... ~O.~ \l'f!ji'l'-" 1 ~lfifi<9:f()1! Fiscal Year: to ' ', ~---'.i'~:w\~iflr;'~ ~:Z;. 2. :.: \""'''l o>' "" N>-:,_,,{;.u ~n\>'\l'i~ lt~ '. " '!W''" '? "'s't Pg, 4of6

52 Soolh County SonUory Senko Base Year 2016 Rate Adjustment Application Base Year Revenue Offset Summary For lnrormallon Purposes Only ~ ;;c:" - \ C,\1/.;;,,,;/,,,,.,_((:l-r:t.1 :t;, --~tu... ~_,,,;<;f,~i~-',~;-.,-.v.,i;' ':-';; :,;' - ---~{1";,>. Description or Revenue Onroll F\' D<hl!t Rtl\m C<>\l«ll n Non fr n<h~ Totol Tul I P~mo G< >t noted Tul>I '"'"" "'- Kt1idt"1fo/Kt><""' I"'',,,,"' l0<mu< VI l!o1< r,.,j " Sloil f milyre ideo i l!-; ~'S6Mi.3'13i I $ !9 I $901.'1'11 I $911,184 I J.l ll M"l<i'"i'R"id<"'iolO..mp>«r,. NumberofAowum Re' """ " lit;~t~t;r;~i s~i w l.e" Allow"<e for Un, ll «bl.,,,,.,..,,..,. " To!alRuldtn<l IRnenne 11~'1rifrE~ I $6,!!71~081 $1~~5891 $'101,'l'IJj $9Jl,1&4 I u,141,u1 I sol No -mmtllllol R'"'""' ("i1hou11"'""" i. /lo" Ytof) A<cooOI Type Appendix VulumeGrowthl'~ ;'i~' ';-/qih Hauling Revenue - Residenlial MSW 6,672, Hauling Revenue Resltfen11a1 MSW Extras 112, Hauling Revenue Residenllal MSW Adjus! --~.. ~~":'.: ~~>- CHECKER 69, Volume Growlh RI 6.972,30B Noo-rc<ideo<;olD.n., NumberofAc<OOJn" " R V<DU<I Non-mido01i&IW 11<v.ht<l<r Number of Aoro1rn" : fiwf~o.:;~:f6) " Re«nuei o«,~'1;'.1$111);399' $191.1'19 $50.()114 $&4,610 $ $4!,{)~8 " NDll-«~do"'!<IO..n']l t<r l'mllia~~\il $1.11~ I $11; I u~i $ "' "' " " '"' '" N mber of A«""'" -~V' '1.i1 "... "' "' "' "' R<Y<0"" ' l'm~. j, 49 S4.SJ9,111 $9~9.874 $~8S.780 $ l, $ '" l.e>s:allowaouforuocoll«<ible Non-r«id<n i l Accooon,,_~;f.-1 '!~;x\$0 w '" Tolal Non-ru!donll I Re><nuo 1Yn'.S4~'1 H1J8rn6 I s1om10fi I $670~7 I $1 00lf!91 I $191-6~64 I $ " lutmn on lnns!mtl>i! li 1 i".>;;rfil!~'.ti1lffil so I so I so I sol sol!s1aoi!i OU.trln< n,. " h>'mf.'u.iuifu-1 so I so I so I.wl sol $ " To!a1Rennoeorr.. i. I l'::jij,iite.j ~in';11 j11~ l -! 1 i ~~11!s hiti!~~ 1,>!.\!I 1:~U-~ 1~,H,11~! l?,;z~-i!&i1~i F/sca/ Year: to Pa.5of Hauling Revenue Commercial FEL Hauling Revenue Commercial FEL Exlras Haul Ing Revenue Commercial FEL Adjustm 4,496, ,355 6,136 4,691,491 4,738,406 46, Volume Growth CC 11,710,714 CHECKER

53 ~~~~~~~==..~~~~~~~~~~~~~~~~~~~~~~A~endix3 South County Sanitary Service Base Year 2016 Rate Adjustment Application Operating Information Historical I Percent I I Percent 2013 I Change I 2014 I Change Current Pro"ected I Percent Base Year Percent 2015 I Change 2016 Change 2017 Residential Accounts 77. Arroyo Grande 5, % 5, % Grover Beach 4, % 4, % Pismo Beach 3, % 3, % OceanoCSD 1, % 1, % NipomoCSD 3, % 3, % County 5, % 6, % 24, % 25, % 78. Routes-Garbage % % 79. Routes-Recycling 6 0.0% 6 0.0% 80. Direct Labor Hours 33, % 29, % Non-residential Garbage Accounts 80. Arroyo Grande % % Grover Beach % % Pismo Beach % % OceanoCSD % % NipomoCSD % % County o/o % 2, % 2, % 81. Routes-garbage 6 0.0% % Routes-recycling 2 0.0% 2 0.0% 82. Direct Labor Hours 16, % 16, % Recyclable Materials - All areas-co1n111ingled Recycling (in tons) Accounts 83. Tri-Cities 84. County Nipomo/Oceano CSD 8,046 2, , % 8, % 3, % 1, % 13, % -1.1% -1.1% -1.1% 5, % 5, % 5,832 4,138 l.0% 4, o/o 4,221 3, % 3,674 l.0% 3,711 1, % 1, o/o 1,796 3, % 3, % 4,034 6, % 6, % 6,342 25, % 25, % 25, % 6 0.0% % 6 0.0% 6 24, % 24, % 24, % % % 441 l.0% % 370 l.0% l.0% % % 215 l.0% l.0% % 475 2, % 2,166 l.0% 2, % 5 0.0% % 2 0.0% 2 14, % 14, % 14,560 8, % 8, % 8,996 3, % 3,275 l.0% 3,308 1, % 1, % 1,058 13,099 l.0% 13, % 13,362 Recyclable Materials All areas~greenwaste Recycling Routes Tons Collected Direct Labor Hours 4 12,114 10, % 4-1.8% 11, % 10, % -7.0% 0.0% 4 0.0% 4 0.0% 4 11, % 11, % 11,294 10, % 12, % 12,480 Garbage Tons Collected ~1 _40~,5~5_2_.l l._5_%~1 _4~1,_14_2_.l~_l_.2_%~1_4_1~,6_21~l 1_.0_3_.ol_4_2~,0-37~1--1-.o-'i{_.ol~4-2~,4-5~7 I Fiscal Year: to Pg. 6of6

54 City of Grover Beach South County Sanitary Service Rate Review?.~J~f: ; } \ti ;.ft ; u4 'fmmii\.p''t*@ f?w d@ii4 k9* k&i iji- %X,gi fr6%9 ti &f@@&' 8 k k-!!i%5i4iw 4%h&hk*#i 8 %? id@#i!&1-?i?b AfihW'!&M-.f&f&tA %' 8%%---«Vk '"'""W.iS.@% k'5"er"t;fe.;w, October 19, 2015

55 Report Purpose ~1?'i1?f~.rt&:m t-1s"w4"t'w)s±i2.%7?'5»w &4~ --.m' I =te " 'h?a"fi~"'51>~, t. i&&%, ; )la::~~:mib 'f",, ttrnw;;www*.&.fr!iiifili?*5"'&-:~~~',_:?~~2""""''" ). E.:-,11. Analyze rate request by SCSS for: City of Arroyo Grande City of Grover Beach Oceana Community Services District City of Pismo Beach Why jointly? Same services Same franchise agreements Same rate review methodologies Financial information closely related for each agency

56 Three Year Rate Review Cycle i.)-,;fi0% i_,q;;;;;; mii13~ ~?...,,.0.to4m4 -srn& &dilimj;;:,_;:m~"'"*4z&... w,m_,_1,.. 1H iit~lilir-l~~~, %Miiif "'":"'""~-~:Aili~..,..,~"s,~2>" :;,'$1'~J&Efu4;.~.1\:.,.~~~... ~-> f :(t;;ij!~~;~~~~~if'}~~ Base Year. The first year of the cycle - Base Year - requires comprehensive, detailed analysis of... _....,. revenues, expenses and operating data Last "base year" analysis completed in December 2012 This is a "base year" review Interim Years. In second and third years, SCSS is eligible for Interim Year rate adjustments that address three key change factors Consumer price index (CPI) for "controllable" operating costs "Pass-though costs" (primarily tipping fees) Adjustment for franchise fees

57 Independently evaluated 3 separate issues 3~21E..~~ii2l!i4&&. 4.\&J&.mfrow>:..._,,'%itfoi:WiZIM '\i~ki.% Efu>.- '5h.,,E.;i..~M3JiSi!ii.l! ~~~""\\l%&.,.~..:i:.':;;~" ' ~~1;";.,JiLbt.filtfYL4!'.'i'!::'iN'~t"'*""'-:;r;:lk~W...l"2't".'11 1 '" '~' ~~~.Jfill~~.2<%Ji.'ii""';~_;;g:,,,,,w-f'3t,,~1'i.,;.,.,,, Rate increase request for January 1, Multi-year rate increase for 2017 and ~ Cost of living threshold that triggers option for franchise agreement termination within nine months after rate increase. ;T,,;i::;;.'iz{'f\f:~:;iiJ&,~t

58 0 January 1, 2016 rate increase Tuiliit.Wr.1i# hr&5\.4 M'4fR%&.MPil A & "' m. p i 5 4ffiill "'l$ %QMSfa i':i#0'.:f~@i?&r""' '#A't> {<. "''hiiff#m*'5'& ~-$&@#&~;v%" ' "i3'9-"~' 'i\o.:;,,,..::;... " "'" "='~""1%~?fili:s -f~_,?.-, 0 f'f''!'!i' ~t'i~"tf~'-~ 7.,, ;-~,,_p:'>'~',;'~i',~t;{f'.~f3~~~~t~l;~j~. SCSS has provided the supporting documentation required under the City's franchise agreement. SCSS provides a comprehensive level of service -. curbside trash, recycling and green waste - at very competitive rates compared with similar communities. SCSS has done an excellent job of managing costs and revenues. Rate Recommendation. Approve SCSS request for 3.25o/o rate increase on January 1, 2016 (slightly less than allowed increase of 3.67% ).

59 8 Multi-year rate increase: next 2 i%!.offfi %ii 0.,..iiif±if'##."'" ;g;;z:gg:;;_ii.i i&!i%'. WW4 f... t&&ffei frii'h%s3ifi.\itk &i'&ft'?it ~+ty'&h '4 d&%&4d5'f' 3S\i%liWfa%,,_4#% '"'"""7F".'.W i '- W.t--, ;f'!6fw'-~~'"'~.?'ftj?dk' ""~~~~ ~s.f s Requested approach Annual increase (if any) in US CPl-U from June 2016 for January 1, 2017 and June 2017 for January 1, Increase of 0.79% for 2017 and 0.77% for 2018 for increases in the cost of landfill disposal.,, Very similar but slightly different from Interim.. Year rate-setting methodology.

60 Approach under franchise agreement 5? W$?'**"14&tiffe,,; ± _; M'~''*'i 14'HiIB :!! --4~if4,' ' ~.~ '.:"~ ~:1tit4i\,"ti.%':'l.~"'"";:~A:-;.;.,.:t;;;;w.,\~'""'*&~ 3 adjustment factors under Interim Year rate setting methodology Changes in the CPl-U for "controllable" operating costs Changes in "passth rough costs" (primarily tipping fees) Adjustment to cover increased franchise fees First two factors "weighted" by pro rata share of total costs (excluding franchise fees). Current Base Year analysis for 2016 Controllable costs account for 84 /o of total costs Tipping fees account for 16%

61 Interim Year Sample: 2% CPI-U Controllable Cost Factors CPI-U Increase Percent of Total Costs Allowable Adjustment,... "~I Tipping Fees TiR>ing Cost Increase Percent of Total Costs Allowable Adjustment TotalBefore Franchise Fee Acljustment (10%) Total Allowed Increase 2.00% 84.00% 1.68% 4.95% 16.00% 0.79% 2.47% 2.75o/o

62 Comparison with proposed approach Interim Year Proposed Approach 2.75o/o 2.79% 0.04o/o difference -1-cent rate difference for 32-gallon and 64-gallon customers

63 Multi-Year Rate Recommendation %.fw &4 4 9 hm " &M&&Afa'&?Sii:: &'25o/f'4@,,, %? t!.,,,,...4e"""q,.,. 4 fi'i"""""'"\f&iws\'i'/"'"ir"i 4tt%-t 'f$i& ~&'h&8f$""'.f$:: a,:.;w, ->f!-.. eo:.,.,,.>'k.. 3,, ' Approve proposed approach for 2017 and 2018 Very minor difference in results. More straightforward, streamlined process that's consistent with the Interim Year ratesetting concepts. If adopted, Interim Year rate reviews for 2017 and 2018 will not be required.

64 8 Trigger Option W...,...$b!'JlStiillkii'~;ili: Q...&Ll""";:;;;::;;;;:;;~m;;: fuiii_.,,_,di,_tqiabki&i 'i'wi'.s\~m.1,_%6r..;;;>"~i~'? 'im:t.i'~2'-2e;,,,,:,;,,. ;:&11o"t~'* J;;S#.;;r.,;t""".;)1.,::<,te, ~:;~::g:;>e.%~f.i'.t4,_1ij""k,~-:'.%<."'f~;_< \- If rate request exceeds cumulative cost of living increase from franchise agreement revision, City has the option.... of terminating agreement within 9 months Does not directly limit rate increase. But subjecting franchise agreement to possible termination if rate request greater than the cost of living threshold provides a strong incentive for SCSS to do so.

65 SCSS Calculation of Trigger ~,;,:w~,,_-<io.'\\i01*'~:t&'lb>~"i l!&"~~~ij_&:,~""'ii'm<~~~ Lfu~%Z.i'iiii'&h~..2 _i.'&' W~~&06/1&1~""'""* ""''.'.<;,im.~...t\~t#'."'"";:::t;;'iilii"~k.t:'.i&,,'\fu,""..s"'tth~.;<;:~4:8.:-."" :''~''"' -M.<':f"''~"" In their calculation, SCSS believes that. an increase of 3.25% avoids the "trigger.... option." But my calculation reduces the "trigger" L:: ;. i :: :;:C: ;i" /',; d:::s to 1. 5 %. Why the difference?

66 CPI Threshold Calculation """ %""' &..,,; ' j E fr"ffe "'?M@-%?@ j i 4;:.+gti@f *'*"""'M{{'i 0 - f@4 '- if."'@'d 3'.i44 ' -'&XiM-:..iry!izj;.ii 'iilf' 1.ti "4i@ t'.y@h?@,r,,::::;:.,,,y..,'d?\.c--}t:,,,-,,.,.9:4,.,,4;.:c.-.t-~' CPI-U Inc~ Approved SCSS Calculation Alternative Calculation June I CPI-U Rate I Subject to Subject to to June I Increase Increase Adjustment Threshold Adjustment ThreshoJd 2010 I 1.1% 0.000/o 0.00% 0.00% 2011 I 3.50% 5.15% -1.70% 3.45% -1.70% 3.45% 2012 I 1.70% 0.00% 0.00% 0.00% 2013 I 1.70% 3.20% 3.20% 3.20% : % 2.05% -0.96% 1.09% 2.05% -~; % 0.00% 0.00% 0.00% % -0.81% 2.44% 3.25% 13.65% -2.66% 10.18% -1.70% 11.95% -~-

67 Threshold Variance Summary i 42:'.&.. &Q'.Qj j g&+1&&&rn itm@mmt. Shffik$ ; ur Rji ±' &*".frifii?e4«...,.? # Mfi s:.<!ll!w!w4i; h%fu %ft.. fffi@'$\ iiiii#&fifi?w..flii -.a. a0f;;'t~;,-,;;:..;:;.-,,''"'y10::!@m;-nfi1ifi;:;-w &< Mf'i '* '-"*Ji'-"-~ ; CPI-U Requested Rate Subject to Calculation Trigger Variance SCSS Proposed Calculation 10.20% 10.18% 0.02% 10.20% 11.95% -1.75% * Under the Alternative calculation, the requested rate increase would need to be 1.5% or less to avoid the "Trigger Option."

68 Policy Options Agree with SCSS exclusions in calculating rate increases subject to the "trigger." Conceptually similar to the 1. 7% exclusion agreed to 2011.,,,.<ze:!,,,, 1 ;z%' Use "Alternative" calculation but make findings that 1'~t ~1.;c~,i;; 2 :r: City will not pursue the "trigger" option if the requested rates are approved., Use the "Alternative" methodology and approve the requested rate increase but retain the right to potentially pursue contract termination over the next nine months.

69 Recommendation 1 '"% Wfi't%.@## i -%f5' 3 -"f PAW$-.,;;: p; 4& f!!.\q$%ef.fyf&-.j? :,_.?3f t3& &f*"'i'.'y"i'-' $'4~'*h &i0"' c.;_,\ i{zji.-sr~w - WW *:---@ '-MA-$ '"'4~@% Mt%fa}:±o ~+mfflµ,,,ji@-~:"' 9'>'/ ""'' A"411i&H*'-"A -.\;' "-*'~ Option 2: Use "Alternative" calculation but make findings that City will not pursue the "trigger'' option if the requested rates are approved. Allows approval of the current requested rates as reasonable. But retains flexibility in future rate reviews by retaining the "Alternative" methodology as the basis for this and future rate increases.

70 Rate Application Review ;,- P& B H@!iiM 4 2)@ ti e &.9 %4.; p.;4-...gg;g\f@ <. % ifu!wb1 :: y h &N?ft f 4- ;f$1sm5%'&,t &*' %9@:@,,g. t;. %6*\iiiif.;,"""4 Per the adopted methodology in the City's Franchise Agreement with SCSS

71 Two Key Questions f2~ifu& %, OO::BEilic:;:;::;:;;::;; & ~~'<~.><'iu:j t'-~c fu SJiMS&\!l"'---4.f.~ilii*~~i& ffe..m.:.{.b;:/.s~ss,'%,~ ~Tu?,t»tl5o%:,;::'!%&.iK 5,q~.,,~,:s±"'tE->7"''~.'""' Should SCSS be granted a rate increase for January 1, 2016? >.- If so, how much? How much does it cost to provide required service levels? Are these costs reasonable? And if so, what is a reasonable level of return?

72 Are costs reasonable? ~ oii!f!k,,_;,,,fulfil~"fr-""'.:,w"""-~ brn 1'i'f"'t?M!l ; t&~i&i&t *b..lk>2 h::.4"~ - -4;~~*4"1"k~@_,. k..%z.&'~it ~ 'J'OiiiiiP, ft-.m '*'~;;;."\:,... ~-&%t.:'ko/" ~~~ xi:-;; "!l!">'::!:\'2':~-t:i'--<1. Looked at costs from three separate perspectives Detailed review of costs and changes by key cost components : Two-year cost increase of 1.3 /o in "controllable" costs (0.65% per year). Comparison of cost increases with CPI : Two-year CPI increase of 2.2% compared with 1.3% increase in costs Rates in comparable communities

73 Contamer Size (Gallons) Atascadero (1) $20.63 $36.15 $46.70 Morro Bay (1) Paso Robles (2) San Luis Obispo (2) I I Santa Maria (1) n/a San Miguel (1) Temoleton ( 1) Grover Beach I As of September Approved for January 2016

74 Key Cost Drivers 1ZIZi&LW '8 ~jg'.2fuii, ffi"" dj...,.u - lli1i1'.ziii.m'i#r?w + b SW ; MkiiL &ii'i:@ tkt:iil.~#4&-ih%!iisz.mwi.il&i!s"'..'li&&i& 5""' i&,,?1'i11'-*.s~...,_,,,fo;:fs _~::t:j'\.,~ %: $2.25 per ton increase in the cost of landfill disposal.. / ;...!' 1.10%: implementing organics waste 3,.,..,.. ~:1f ~~i.it;.;f i.. ~~*:2:{i~J. diversion program. 1.34o/o: all other cost increases such as i vehicle fuel, ongoing maintenance and labor.

75 What's a reasonable return on these costs? Allowable costs (operations and maintenance) Pass-through costs Tipping fees Franchise fees Related party lease and transportation costs Excluded costs Charitable and political contributions Entertainment Income taxes Non-I RS approved profit-sharing plans Fines and penalties Limits on officer compensation

76 Methodology kitiifb,,.,zj fi..'4/ '!\fil?hfk ft&#o:: ~@@$ *... -,. fol&& ;, #@i,\i@ \!Jf N#}"." \$ 1 'ii% &#4 4i&Af +# ", 4 ti,~ f ~g 'i.@f N if?# :":;:-_m:4g;;:@fe'i,(?..:c~~,.~-"*"~..,;;@~,,,.;sjf5 i tf-~o Target: 92% operating profit ratio on "allowable costs". Recovery but no profit on pass-through costs Tipping fees Franchise fees ~ No revenues for excluded costs No retroactivity: prospective only Implementation Detailed "base year" reviews every three years Interim reviews in the two in-between years based on CPI for operating costs; and "pass-through" on any tipping and franchise fees

77 Allowed Revenue Increase Allowable Costs (1) 8,248,549 IE""' Allowable Profrt (92% Operating Ratio) 717,264 Pass-Through Costs Tipping Fees I 1,711,603 Franchise Fees 1,361,006 Other Pass-Through Costs (1) 136,733 Allowed Revenue.Requirements 12,175,155 Revenue without Rate Increase I 11,789,890 '.I Revenue Requirement: Shortfall (Surplus) I $385,265 Percent Change in Revenue Requirement I 3.30% Allowed Revenue Increase (2) I 3.67% 1. Reflects Reclassification of Related Party Transportation Costs ii 2. Adjusted for 10 % Franchise Fee ' o;.:;.

78 Rate History ''"'"'""''h""'""*"'mllit&mh_,,_""''"" """'u_z z """"'I I I Grover 1 Year Review Type I Beach 2004 Base Year 5.60% 2005 Interim Year 3.09% 2006 Interim Year 3.76% 2007 Base Year 3.00% 2008 Interim Year 0.00% 2009 Interim Year 0.00% 2010 Interim Year 0.00% 2011 Interim Year 5.15% 2012 Base Year 3.20% 2013 Interim Year 2.05% 2014 Interim Year 0.00% 2015 Base Year 3.25% l-.2~ ~i-~z-. '.

79 Conclusion @#,'f!#j## ilib.,.fy.i-sf&tn*s 7" '5 X-# $&1W"" 'M *F%# 1 & &.\%"&%@-:0ii!if?4Ut&--Mt 4? $R';,,%PMViWK'Pf!Ni*"<"? fi r "0 """'*w;.. ;wj'u.'' 'iili/[~-o:~ =p<.:.>i.~..."...,.,....,,,, :11:s~tl{t;i 1 i0'.~f1:;;i.:.; Costs are reasonable Proposed rate increase meets "reasonable return" criteria Requested rate increase of 3.25o/o is slightly less than allowable increase of. 3.67o/o

80 Recommendation: 3.25% Rate Increase Q"'E'?i. 1 & 4d:?Zii&W84tW F.ii:n,;4t)W""tftf"' TE'" 'it:ii&?'i??'w&,ffe*p'tit Wif' ""'"-%«*M-i'Hffe).[ii<"@@%6?! f}%\3&?305&.,0 t%?%""'1 -@, -s!t'-4" <&>0-,vf-, ~,; ".A;v;{# J!c~ Single Family Residential Rates 32 Gallons $14.77 $15.25 $ Gallons ' ' "' 96 Gallons