STAFF REPORT RATE ADJUSTMENT REQUEST FROM SOUTH COUNTY SANITARY SERVICE

Transcription

1 STAFF REPORT TO: FROM: SUBJECT: HONORABLE MAYOR AND CITY COUNCIL ROBERT PERRAULT, CITY MANAGER RATE ADJUSTMENT REQUEST FROM SOUTH COUNTY SANITARY SERVICE BACKGROUND South County Sanitary Service, Inc., (also known as Waste Connection Inc.) has been providing solid waste collection and disposal services, including recycling services, under an existing franchise agreement. In October of 2007 South County Sanitary Service (SCSS) received authorization for its last rate increase and instituted a 3% rate hike. In July of 2008, the franchise agreement was amended to extend its life for an additional 15 years. In April of 2011, SCSS submitted a rate adjustment request that, if approved, would allow SCSS to increase the rates by up to 5.15%. The rate adjustment request has been reviewed by staff and independently reviewed by Mr. Bill Statler, former Finance Director for the City of San Luis Obispo. Based on this review, staff has found the rate adjustment request is supportable and is recommending the Council conduct a public hearing and then adopt the Resolution (Attachment 1) approving the requested adjustment in the rates. DISCUSSION As noted SCSS has not submitted a rate adjustment request in four years. In April 2011 Tom Martin, General Manager for SCSS, requested an authorization for a rate adjustment. (Please see Attachment 2.) At the same time Mr. Martin submitted similar requests to the Cities of Arroyo Grande and Pismo Beach, and the Oceano Community Services District. As in the past, the managers of the four organizations agreed to retain Mr. Bill Statler, former Finance Director for the City of San Luis ObiSpo, to conduct an independent review of the rate requests. Costs associated with the rate review are borne by SCSS. Mr. Statler's report is attached. (Please see Attachment 3.) Normally, rate reviews are performed on a regular basis. There are two types of review: a "Base Review" and an "Interim Review". A Base Review is provided for every third year and tends to be more comprehensive and detailed. The Interim Review bases adjustments on changes in the Consumer Price Index (CPI) as applied to controllable costs, pass through costs such as tipping fees, and an adjustment required to maintain the franchise fee of 10%. APPROVED FOR FORWARDING m ROBERTPERRAU~L=T CITY MANAGER Meeting Date: August Please Review for the Possibility of a Potential Conflict of Interest: ~None Identified by Staff 0 Bright Shoals 0 Molnar o Nicolls 0 Peterson Agenda Item No. -L

2 Staff Report: Rate Request from South County Sanitary Service August 15, 2011 Page 2 SCSS has submitted all of the materials required to complete an Interim Review. The use of the Interim Review alternative is considered to be appropriate in that there has been no request for an adjustment in 4 years and the increase associated with Controllable Costs is based on a CPI increase of 1.1 % which, as noted in the attached report from Mr. Statler, is considered to be very modest. Finally, no Base Report was done last year since no rate adjustment was requested. Controllable Costs - Rates attributable to controllable costs are allowed to increase by changes in the U.S. Consumer Price Index for all urban consumers (CPI-U). The CPI increased by 1.1 % from November 2010 to November Based on controllable costs representing 84% of controllable and pass through costs, a rate of 0.93% is allowed for increased operating and maintenance costs. Pass through Costs: Tipping Fees - Pass through costs have increased. On June 7, 2011, the County approved an increase in tipping fees at the Cold Canyon Landfill of $5.00 per ton (from $29.25 per ton to $34.25 per ton). Additionally, curbside green waste is now being taken to the Engel and Gray facility located in Santa Maria for processing at a cost of $30.00 per ton, compared with the prior rate of $18.00 per ton charged at the Cold Canyon facility when processing was permitted there. A rate adjustment of 3.71 % based on pass through costs, tipping fees are recommended. Franchise Fee - The final adjustment is related to ensuring that the City's franchise fee is maintained at 10% of the gross revenues and is also acknowledged as a pass through. The percentage increase attributable to maintaining the City's franchise fee is.49% In the event the Council approves the recommended rate adjustments, rates could be increased by 5.15% in all categories. Specifically, single family residential rates would be subject to an increase as follows: (SCSS projects that the rates would be effective October 1, 2011.) 1. One Can Service 2. Two Can Service 3. Three Can Service Current Rate $13.33 $18.03 $22.71 I ncreased Rate $14.02 $18.90 $23.88 Adjusted Amount $.69 $.93 $1.17 ALTERNATIVES The City Council has the following alternatives to consider: 1. The Council could adopt the Resolution authorizing SCSS to institute the rate adjustment; 2. The Council decide not to adopt the rate adjustment at this time; or 3. The Council could provide staff with a.dditional direction. RECOMMENDED ACTION It is recommended that the Council adopt the Resolution amending the Master Fee Resolution authorizing South County Sanitary Service to institute the rate increase as requested.

3 Staff Report: Rate Request from South County Sanitary Service August 15, 2011 Page 3 FISCAL IMPACT The General Fund could expect to receive approximately $7,500 in additional franchise fee revenue as a result of the rate adjustment. PUBLIC NOTIFICATION The agenda was posted in accordance with the Brown Act. ATTACHEMENTS 1. Draft Resolution amending the Master Fee Schedule regarding authorized rate adjustments 2. Request from South County Sanitary Service 3. Review of South County Sanitary Service Interim -Year Rate Request, authored by Mr. Bill Statler

4 Attachment 1 RESOLUTION NO. 11- A RESOLUTION OF THE CITY COUNCIL OF THE CITY OF GROVER BEACH AMENDING THE MASTER FEE SCHEDULE FOR RATE INCREASE FOR COLLECTION OF TRASH AND RECYCLING MATERIALS BY SOUTH COUNTY SANITARY SERVICE WHEREAS, the City Council of the City of Grover Beach has created a Master Fee Schedule by adopting Resolution No ; and WHEREAS, on August 15, 2011, the City Council conducted a Public Hearing, considered testimony, and approved recommendations regarding adjustments to the Master Fee Schedule for rate increase for collection of trash and recycling materials by South County Sanitary Service. NOW, THEREFORE, BE IT RESOLVED, BY THE CITY COUNCIL OF THE CITY OF GROVER BEACH: THAT the Master Fee Schedule be amended as set forth in Exhibit "An attached to this resolution; and THAT the fees listed in Exhibit "An of this Resolution shall become effective on September 1, On motion by Council Member, seconded by Council Member and on the following roll-call vote, to wit: AYES: NOES: ABSENT: ABSTAIN: Council Members - Council Members - Council Members - Council Members - JOHN P. S'tL~MAYOR the foregoing Resolution was PASSED, APPROVED and ADOPTED at the Regular Meeting of the City Council of the City of Grover Beach, California, this 15 h day of August, 2011., ATTEST: DONNA L. McMAHON, CITY CLERK

5 CITY OF GROVER BEACH MASTER FEE SCHEDULE Exhibit A COMMUNITY DEVELOPMENT DEPARTMENT Effective October 1, 2011 Number of COMMERCIAL GARBAGE CANS (PER MONTH) Cans COLLECTIONS PER WEEK $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ Maximum volume and weight per garbage can: 33 gallons and 80 pounds Extra bags or cans above service level: $ 4.38 Each Commercial waste wheeler rent: $ 3.38 Per Month l:ilze OT Container (Cubic COMMERCIAL DUMPSTER CONTAINER (PER MONTH) r.nll PER fyt:t:" ~ 5 f ; ::!fi ~ ;'27, ;' The rates shown above include the monthly container rental fee and are the same for bins when volume is identical. IN YARD SERVICE (In addition to residential garbage service level per month) $ UNSCHEDULED EXTRA COLLECTIONS FOR COMMERCIAL CUSTOMERS PER YARD $ 9.23 COMMERCIAL CUSTOMERS MAY REQUEST A 96 GALLON GREENWASTE CAN PICKED UP ONCEIWEEK $ 3.38 Each COMPACTORS PER YARD $12.43 over 7,000 landfill tonnage rates Revised: 8/5/2011 Page 15

6 CITY OF GROVER BEACH MASTER FEE SCHEDULE Exhibit A COMMUNITY DEVELOPMENT DEPARTMENT SINGLE FAMILY AND MULTI-UNIT RESIDENTIAL (4 units or less) VOLUME BASED RATES WASTE WHEELERS FOR GREENWASTE AND GARBAGE one can 32 galion Waste Wheeler $ two can 64 galion Waste Wheeler $ three can 96 galion Waste Wheeler $ four can two-64!lalion Waste Wheelers $ five can one 64 + one 96 galion Waste Wheelers $ six can two 96 galion Waste Wheelers $ GARBAGE EXTRAS PER GAB/CAN $4.16 EACH Extended vacation (less (18.8% disposal) $10.83 per month INCLUDES Per Month Per Month Per Month Per Month Per Month Per Month Short Term Bins Delivery (each) TakeAway Rental (per day) Empties (per yard) $ No Charge $ 2.31 $ Mattresses Twin (each) Double (each) Queen (each) King (each $ $ $ $ Overstacked Garbage & extra bags Minimum/Unit Overstacked Greenwaste & extra bags Minimum/Unit Overstacked Blue Bin & extra bags Minimum/Unit $ Sunday Service (In addition to garbage service level) $ Ali commercial and residential accounts are subject to a $5.00 per month late fee or 18% per annum interest whichever is greater. Revised: 8/5/2011 Page 16

7 South County Sanitary Service Attachment West Grand Avenue Grover Beach, CA CITYOFGROVERBEACH APR -4 Z011 City of Grover Beach Bob Perrault 154 S 8 th Street Grover Beach, CA RECEIVED Re: 2011 Interim year rate increase request Enclosed please find the 2011 interim year rate increase request. annual cola greenwaste to Santa Maria garbage tipping fee increase 1.03% 1.70% 2.42% 5.15% This increase involves trucking the curbside greenwaste to Santa Maria to be turned into compost at the Engel & Gray facility for $30/ton. I would be more than happy to meet with council for a study session if that is what they want. The annual cola percentage is based on the November 2010 Bureau of Labor all city average for inflation. The greenwaste percentage is based on the cost of taking it to Santa Maria. The landfill increase is based on a $5 per ton increase eff«;lctive Contractors tipping fees were raised $10/ton and will go up another $5/ton in July Call me with questions l~ Tom Martin, General Manager

8 South County Sanitary Service CITY OF GROVER BEACH Interim Year Rate Adjustment Application 1. Rate Increase Requested 5.15%11 Rate Schedule Single Family Residential 2. One Can Service 3. Two Can Service 4. Three Can Service Current Increased Adjustment Rate Rate (a) $13.33 $14.02 $18.03 $18.96 $22.71 $23.88 New Rate $14.02 $18.96 $ Multiunit Residential and Non-residpntial Rate increases of will be applied to an rates in each structure with each rate rounded up to the nearest $0.01 To the best of my knowledge, the dat.a and information in this appjication is complete, accurate, and consistent with the instructions provided by the City of Gl'over Beach. Name: TOM MARTIN Title: General Manager Signature: Date: 03/31111 Fiscal Year: to Pg. 10f2

9 South COlUlty Sanitary Service Interim Year Rate Adjustment Application Financial Information Base Year Controllable Costs Total Allowable Costs Plus Allowable Operating Profit Plus Lease Payments to Affiliated Companies Equals Total Controllable costs $7,255,860 $630,944 $0 $7,886,804 I 84.3% Base Year Pass Through Costs Tipping Fees Plus AB 939 and Regulatory Fees Equals Total Pass Through Costs $1,468,567 H $0 $1,468,567 I 15.7%H 13. Base Year Revenue Requirements (less Franchise Fee) I 1!.1===$=9,3=5;,;5..,3=7.;ldlbl =====l=o=oo;,;yoo!l mj.hh@nj.mu~t~~i))1)!t1p.ir.4i.~:m:t.ii~~~oghmmuj.hhhlmhinm Change in Controllable Cost Historical Percentage Change in Consumer Price Index Change In Pass Through Cost Projected Base Year 2010 Tipping Fees Plus Projected Year 2010 AB939 Fees Equals Total Base Year Pass Through Costs $1,468,5671 $0 $1,468, Equals Projected Interim Year 2011 Tipping Fees Projected Interim Year 20 AB939 Fees Total Projected Interim Year Pass Through costs $1,815,260 I $1,815,2!~ I 21. Projected Percentage Change in Pass Through Costs 23.61% H!iml~iW\i ijlni~'%l!m!~11\!w!!t;rjim lu1!l}jiwg!ii!\tim!dnmfim Weighted Change In Controllable Costs Controllable Costs as a Percent of Base Year Revenue Requirement Multiplie. Percent change in CPI Equals Weighted Percent Change in Controllable Costs Weighted Change In Pass Through Costs Pass Through Costs as a Percent of Base Yr Revenue Requirements Multiplie. Percent Change in Pass Through Costs Equals Weighted Percent Change in Pass Through Costs 84.3% l.l% 0.93% 15.7% 23.61% 3.71% Total Change 28. Total Percent Change in Cost (Line 24+ Line 27+ Line 28) 29. Divided, Adjustment for Franchise Fee ( percent) 30. Equals Percent change in Existing Rates 4.63% 90.0% I 5.15%H Fiscal Year: to Page 20f2

10 10% franchise 6% franchise compost it compost it cola 1.03% 0.99% greenwaste 1.70% 1.62% landfill 2.42% 2.32% 5.15% 4.93%

11 SOUTH COUNTY SANITARY,"'" through 10f31/10 -annualized 2010 base year 2010 base year 2010 base year 2011 INTERIM 2011 INTERIM 2011 INTERIM DELTA - per ton to""..,ton t~, per ton t~, per ton Garbage $ ,004 $ 1,023,857 $ ,793 $ 1,222, ,793 1,193, ,793 1,397,160 AppHances, mattresses, etc $ ,000 Blue bin-mrf , ,900 $ ,256 S 1, ~7457 $ 1198,195 56,280 $ ,256 $ 56,280 $ ,256 $ Greenwaste-composted $ , ,121 $ ,340 $ 150, , ,092 $ Greenwaste-Engel & Gray $ ,982 $ ,132 $ 33, , ,820 Greenwaste-ADC $ , $ ,422 $ 70~ ,160 $ 203,965 11,894 _$ 254,320 11, ,894! S 142,728 Total Disposal "$ 1,272,977 $ 1,538,056 1,468,567 1,815,260 actual per ton tons 2009 Garbage $ ,014 $ 1,228,916 Appliances, mattresses, etc $ 1, Blue bin-mrf ,852 _$_ 54,260 Greenwaste-composted $ 18,00 11, ,464 Greenwaste-ADC $ ~464 Total Disposal S 1,487,145 actual per ton to"" 2008 Garbage $ ,793 $ 1,280,936 Appliances, mattresses, etc $ Blue bin-mrf ,155, Greenwaste-composted $ ,809 $ 194,566 Greenwaste-ADC $ ~566 Total Disposal "$ f

12 South Counly Sanitary Service BASE YEAR 2010 RATE ADJUSTMENT APPLICATION Financial [uforma.fion I Historical Current Projected I Base Year I (from Pg. 4) I I 6. Direct Labor $2,800,212 $2,809,912 $2,601,938 $2,668,022 $2,694, Corporate Overhead $274,224 $284,645 $296,116 $299,373 $302, Office Salaries $605,803 $629,644 $621,464 $615,816 $621, Other General and Admin Costs $3,292,723 $3,575,555 $3,654,656 $3,672,649 $3,749, Total Allowable Costs $6,972,962 $7,299,756 $7,174,174 $7,255,860 $7,368, Operating Ratio 12. Allowable Operating Profit 92.9% 94.1'Y< $529,741 $459, 'Y< 92.0'Y< 93.0'Y< $483,314 $630,944 $554, Tipping Fees Franchise Fees AB939 Fees Lease Pmts to Affiliated Companie $1,595,602 $1,543,756 $932,056 $1,126,632 $0 $0 $0 $0 $1,487,145 $1,468,567 $1,483,253 $1,080,549 $1,017,387 $1,037,735 $0 $0 $0 $0 $0 17. Total Pass Through Costs $2,527,658 $2,670,388 $2,567,694 $2,485,954 $2,520, Revenue Requirement $10,030,361 I $10,429,31911 $10,225,18211 $10,372,75811 $10,444, Total Revenue Offsets $10,030,361 I $10,429,31911 $10,225,18211 $10,226,83511 $10,388, Net Shortfall (Surplus) $145, Total Residential and Non-residential Revenue without increase in.base Year (pg.5,1ine 76) 22. Percent Change in Residential and Non-residential Revenue Requirement 23. Franchise Fee Adjushnent Factor (I - 6 percent) 24. Percent Change in Existing Rates $10,100,293 $10,100, % 1.4% % % 1.60% 1.49% $10,100, % % 1.51% Fiscal Year: to Pg.20(6

13 Attachment Cerro Romauldo Avenue San Luis Obispo, CA Cell: bstatler@pacbell.net June 15,2011 REVIEW OF SOUTH COUNTY SANITARY SERVICES INTERIM-YEAR RATE REQUEST Cities of Arroyo Grande, Grover Beach, Pismo Beach and Oceano Community Services District REPORT PURPOSE The purpose of this report is to review the rate increases recently requested by South County Sanitary Service (SCSS) for the Cities of Arroyo Grande, Grover Beach, Pismo Beach and the Oceano Community Services District, and to make recommendations to these four agencies as appropriate. 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 recommendations for each ofthem. Benefits of the Joint Approach. There are significant "economies of scale" with a joint review, including: analysis ofscss financial operations; review of the rate application; follow-up as needed with their General Manager; and report preparation. In short, while each of the four agencies has unique franchise terms, the underlying financial information is the same for all ofthem. OVERVIEW OF FINDINGS The last SCSS rate review was four years ago, when an across-the-board rate increase of 3.0% was approved in 2007 for Arroyo Grande, Grover Beach, and Oceano; and 2.9% in Pismo Beach. (The minor difference in rate adjustments is due to the 6% franchise rate in Pismo Beach compared with 10% in the other three communities). SCSS has fully provided the supporting documentation required for "interim-year" rate requests under the franchise agreements in Arroyo Grande, Pismo Beach and Oceano; and recommended in Grover Beach. SCSS's rate increase application for each agency is provided in the Appendix.

14 SCSS Interim-Year Rate Request Review Page 2 As discussed below, SCSS' s "interim year" rate request represents a "hybrid approach," since SCSS did not request a rate increase in 2010, and accordingly, did not submit a "base year" rate application. On the other hand, given the four years that have lapsed since SCSS's last rate review, the underlying rate increase of 1.1 % for "controllable costs" (as defined in the franchise agreements) is very modest. Rate Recommendation It is recommended that the governing bodies of these four agencies adopt SCSS's requested "interim-year" rates for As supported by their rate request documentation and the adopted rate-setting methodology, this results in a 5.15% acrossthe-board rate increase for the communities of Arroyo Grande, Grover Beach and Oceano; and 4.93% in Pismo Beach if it retains the current 6% franchise fee. If Pismo Beach decides to increase its franchise fee to 10% like the other three agencies, then the 5.15% rate increase would apply and a separate rate increase of3.9% would be required to set the franchise fee at 10%. Rate Summary for Residential Customers Table 1 summarizes the current and proposed rates for single-family residential (SFR) customers. As reflected in this summary, the increases would 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 67 cents on average for the four agencies. If Pismo Beach raises its Oceano franchise rate to 10%, the monthly rate Pismo Beach Franchise 6% increase there would still be a modest $1.14. Grover Beach Oceano Pismo Beach Franchise 6% Franchise 10% BACKGROUND On April I, 2011, SCSS submitted an "interim year" rate increase request to the Cities of Arroyo Grande, Grover Beach, Pismo Beach and the Oceano Community Services District. Under the agreed-upon rate review methodology, SCSS would typically have submitted a "base year" rate application in This did not occur: given the state of the economy, SCSS chose to not submit a rate request for 2010; and accordingly, they did not submit a "base year" rate application and related documentation. The 2011 application is based on the "interim year" rate setting methodology rather the much more comprehensive "base year" one. The following is a

15 SCSS Interim Year Rate Request Review Page 3 brief summary of the differences between the two rate setting methodologies, which follow 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. The last "base year" analysis for SCSS under this approach was completed in August Interim Years. In both the second and third years of the three year cycle, SCSS is eligible for Interim Year rate adjustments that address two key change factors: changes in the consumer price index for "controllable" operating costs; and changes in "pass though costs" (primarily tipping fees), which SCSS does not control (they are set by the County Board of Supervisors). These adjustment factors are "weighted" by the proportionate share that these costs represent of total costs. 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. Does the "interim year" approach/or 2011 make sense? The rate review for 2011 has taken the less comprehensive "interim year" approach as proposed by SCSS. While this is not as comprehensive as a "base year" analysis, the use of the interim rate review approach results in a reasonable outcome in evaluating the appropriateness ofthe SCSS rate request. As noted above, given that SCSS has not requested a rate increase in four years, the 1.1 % rate increase for "controllable costs" is very modest. On the other hand, using the more comprehensive approach would take longer, cost more and is unlikely to have significantly different results. (In fact, a preliminary assessment indicates that the more comprehensive approach could result in higher rates.) RATE REVIEW METHODOLOGY Under the adopted franchise agreements, there are three major cost categories for revenue recovery through rates:. Allowable Costs (Operations and Maintenance). The target is an operating profit ratio of 8% on "allowable costs," which include direct collection labor, fuel, vehicle maintenance and repairs, depreciation, insurance and billing and collection. Allowable costs plus the allowable operating profit equal "controllable costs." Pass-Through Costs. Pass through costs such as tipping (landfill) and franchise fees may be fully recovered through rates, but no profit is allowed on them. Excluded and Limited Costs. No revenue recovery through rates are allowed for any excluded costs, which include charitable and political contributions; non IRS approved profit sharing plans; entertainment, fines and penalties; and income taxes. Additionally, there are limits on officer compensation.

16 SCSS Interim-Year Rate Request Review Page 4 In the case of SCSS, 84% of their costs are "controllable costs" subject to the 8% operating profit ratio; and 16% are pass-through costs that may be recovered through rates but no profit is allowed on them. (No recovery is allowed at all for excluded costs.) 2011 Interim Year Reqnest In evaluating the SCSS 2011 rate request, the following submittals and documents were reviewed in determining compliance with the Interim Year rate adjustment provisions of the franchise agreements. Current franchise agreements between SCSS and the Cities of Arroyo Grande, Grover Beach, Pismo Beach and the Oceano Community Services District. Prior base year and interim year rate reviews. Audited financial statements for 2010 and The correct process, forms and calculations were used in preparing request in accordance with the Rate Setting Process and Methodology Manual for Integrated Solid Waste Management Rates referenced in the franchise agreement as the basis for adjusting rates. Consumer price index data was correctly gathered and "weighted" in accordance with the franchise agreements. Adjustments to projected tipping fee costs were adequately documented and "weighted" in accordance with the franchise agreements. Adjustments to account for franchise fees, at either at the 6% or 10% level, were correctly calculated. For Pismo Beach, the supporting documentation provided by SCSS was analyzed on the rate impact and added revenues of increasing the franchise fee from 6% to 10%. "Hybrid Approach." Normally, "base year" information for an interim-year rate request would be taken from the prior base year rate increase application in determining the relative weighting of controllable versus tipping fee costs. However, as noted above, SCSS did not request a base year rate increase in 2010 (and in fact, has not requested any rate increases since 2007), and accordingly, did not submit a base year application. For this reason, in preparing the 2011 interim year rate request, SCSS used the information for 2010 that it would have used had it filed a 2010 base year rate application. On the other hand, an independent audit for 2010 by certified public accountants (Caliber Audit and Attest, LLP) based on actual results has since completed. As reflected in Table 2 below, for the purpose of the interim year review, either set of numbers produces the same result in allocating costs between controllable and tipping fee costs.

17 SCSS Interim-Year Rate Request Review Page 5 8% of Controllable Costs However, if SCSS submits an interim-year request in 2012, it recommended that it use the audited results for 20 I 0 rather than the pro forma for the 20 I 0 base-year application that it did not submit. (To return to the normal three-year review cycle, SCSS should submit a base year application in 2013.) Rate Calculation Summary There are three main drivers for interim year rate increases: Controllable Costs. Rates attributable to controllable costs are allowed to increase by changes in the V.S. consumer price index for all urban consumers (Cpr-V). This increased by 1.1 % from November 2010 to November 20. Based on these representing 84% of controllable and tipping fee costs, a rate adjustment of 0.93% is allowed for increased operating and maintenance costs. As noted above, there have been no rate increases to cover increases in "controllable costs" since Pass-Through Costs: Tipping Fees. On June 7, 2011, the County approved an increase in tipping fees at the Cold Canyon Landfill of$5 per ton (from $29.25 per ton to $34.25). The last tipping increase prior to that one occurred almost five years ago in October Additionally, curbside green waste will now be taken to the Engel & Gray facility for composting at a cost of$30.00 per ton, compared with the prior rate at the Cold Canyon facility of$18.00 per ton. Based on tipping fees accounting for 16% of allowable and pass-through costs, a rate adjustment of3.71 % is allowed for tipping fee cost increases. Pass-Through Costs: Franchise Fees. The final adjustment in the rate-setting model is to account for pass-through franchise fees. At a 10% franchise fee rate, this results in an overall allowable rate increase of5.15%. At a 6% rate, this results in a slightly lower overall allowable rate increase of 4.93%. Consideration of Franchise Rate Increase in Pismo Beach The City of Pismo Beach is currently considering increasing its franchise fee from 6% of revenues (plus a flat fee of$i,500 per month) to 10% of revenues (without the added flat fee). This change would make Pismo Beach's franchise fee consistent with all of the other communities in the South County. Making this change would result in an annual increase in franchise fees revenues of about $68,000 (from $110,000 to $ ); and

18 SCSS Interim-Year Rate Request Review Page 6 would require a separate increase of3.9%. Additionally, rather than an interim year rate increase of 4.93%, the increase would be 5.15% like the other south county agencies. SUMMARY Based on the rate-setting policies and procedures formally adopted by Arroyo Grande, Oceano and Pismo Beach in their franchise agreements (and conceptually approved by Grover Beach), this report concludes that: The SCSS request for an interim-year rate increase of 5.15% for the three agencies with a 10% franchise fee rate and 4.93% for the City of Pismo Beach if it retains its franchise fee at 6% has been correctly calculated in accordance with each agency's franchise agreement. If the City of Pismo Beach decides to increase its franchise fee to 10% like the other three agencies, then the 5.15% rate increase would apply and a separate rate increase of3.9% would be required. lit.. lit lit

19 APPENDIX 2011 Interim Year Rate Application 10% Franchise Fee City of Arroyo Grande City of Grover Beach Oceano Community Services District 6% Franchise Fee City of Pismo Beach

20 South County Sanitmy Service CITY OF ARROYO GRANDE Interim Year Rate Adjustment Application I. Ratc Increasc Requested 5.15%11 Rate Schedule Current Rate Increased Rate Adjustment (a) New Rate Single Family Residential 2. One Can Service 3. Two Can Service 4. Three Can Service $14.71 $19.13 $23.55 $15.47 $20.11 $24.76 $15.47 $20.11 $ Multiunit Residential and Non residential Rate increases of will be applied to all rates in each st11lcture with each rate rounded up to the nearest $0.0 I 5.15%11 To the best of my knowledge, the dala and infonnalion in Ihis application is complete, aecumte, and consistent with the instructions provided by the City of AlToyo Grande. Name: TOM MARTIN Title: General Manager Signature: Dale: 06/07/11 Fiscal Year: to Pg. 10f2

21 SmIth County Sanitary Service CITY OF GROVER BEACH Interim Year Rate Adjustment Application I. Rate Increase Requested 5.15",1011 Rate Schedule Current Rate Increased Adjustment Rate <al New Rate Single Family Residential 2. One Can Service 3. Two Can Service 4. Three Can Service $13.33 $18.03 $22.71 $14.02 $18.96 $23.88 $14.02 $18.96 $ Multiunit Residential and Non-residential Rate increases of will be applied to all rates in each structure with each rate rounded up 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 City of Grover Beach. Name: TOM MARTIN Title: General Manager Signature: Date: 06107/11 Fiscal Year: to Pg. 10(2

22 South County Sanitary Service OCEANOCSD Interim Year Rate Adjustment Application I. Rate Increase Requested 5.15%11 Rate Schedule Current Rate Increased Rate Adjustment (al New Rate Single Family Residential 2. One Can Service 3. Two Can Service 4. Three Can Service $11.93 $17.16 $33.57 $12.54 $18.04 $35.30 $12.54 $18.04 $ Multiunit Residential and Non-residential Rate increases of 5.15%11 will be applied to all rates in each structure with each rate rounded up to the nearest $0.01 To the best of my knowledge, the data and information in this application is complete, accurate, and consistent with tbe instructions provided by the Oceano Community Service District. Name: TOM MARTIN Title: General Manager Signature: Date: 06/07/11 Fiscal Year: to Pg.10'2

23 South County Siluitmy Service Interim Year Rate Adjustment Application Financiallnformafion Base Yeal'Controllable Costs Total Allowable Costs $7,255,860 Plus Allowable Operating Profit $ Plus Lease Payments to Affiliated Companies $0 Equals Total Controllable costs $7886, % Base Year Pass Through Costs Tipping Fees I $1,468,567 1 Plus AB 939 and Regulatory Fees $0 Equals Total Pass Through Costs $1,468,567 I 15.7%U 13. Base Year Revenue Requirements (less Franchise Fee) $9,355, % =~;!~~lt~~I~~,le~,tJb:,t~-ii~liliijgf~u:fltC:91(~il~llf~ul~i;im~n~!3RIDI~~~~~~H~ Change in Conh'ollable Cost Historical Percentage Change in Consumer Price Index Change in Pass Tlu'ough Cost Projected Base Year 2010 Tipping Fees Plus Projected Year 2010 AB939 Fees Equals Total Base Year Pass Through Costs $1,468,567 $0 $1468, Equals Projected Interim Year 2011 Tipping Fees Projected Interim Year 2011 AB939 Fees Total Projected Interim Year Pass Through costs $1, $0 $1,815, Projected Percentage Change in Pass Through Costs 23.61% ~1!;~~J1:~Jl!fi!lmlll!l!t~~!rtJit1ll:l!I;f,ttl!ll!(f!t({olgfillJtl~}jiIU~I!1i!tll~: Weighted Change in Controllable Costs Controllable Costs as a Percent of Base Year Revenue Requirements Multiplie Percent change in CPI Equals Weighted Percent Change in Controllable Cosls 84.3% 1.l'X 0,93% Weighted Change in Pass Through Costs Pass Through Costs as a Percent of Base Yr Revenue Requirements Multiplie Percent Change ill Pass Through Costs Equals Weighted Percent Change in Pass Through Costs 15.7% 23.61'X 3,71% Total Change Total Percent Change in Cost (Line 24+ Line 27+ Line 28) Divided ladjustment for Franchise Fee ( percent Equals Percent change in Existing Rates 4.63% 90.0% 5.15%1 Fiscal Year: fo Page2of2

24 South County SanitalY Selvice CITY OF PISMO BEACH Interim Year Rate Adjustment Application I. Rate Increase Requested 4.93%11 Rate Schedule' Current Rate Increased Rate Adjustment <al New Rate Single Family Residential 2. One Can Service 3. Two Can Service 4. Three Can Service $12.63 $25.26 $37.89 $13.25 $26.51 $39.76 ($0.01 ($0.01 $13.25 $26.50 $ Multiunit Residential and Non-residential Rate increases of will be applied to all \"lites in each stmcture with each rate rounded up to the ncarcst $ %11 To the best of my knowledge, the data and infollllation in this application is complete, accurate, and consistent with the instl11ctions provided by the City of Pismo Beach. Name: TOM MARTIN Title: General Manager Signature: Date: 06/07/11 Fiscal Year: to Pg. 10f2

25 South County Sanitary Service Financial Information Interim Year Rate Adjustment Application llase Year Controllable Costs Total Allowable Costs Plus Allowable Operating Profit Plus Lease Payments to Affiliated Companies Equals Total Controllable costs $7, $630,944 $0 $7,886,804 I 84.3% Base Yeal" Pass Through Costs Tipping Fees Plils AB.939 and Regulatory Fees Equals Total Pass Through Costs $1,468,5671 $1,468,5!~ 15.7%1 13. Base Year Revenue Requirements (less :Franchise Fee) $9,355, %11 14.!~~!ID:lt'll!~illS]~li:[1)lnt~Jjp:a1l~QUY~ml1!;;m![~t;~ml~!lim~~i~~i@!i~m Change in Controllable Cost Historical Percentage Change in Consumer Price Index Change in Pass Through Cost Projected Base Year 2010 Tipping Fees Plus Pl'Ojected Year 2010 AB939 Fees Equals Total Base Year Pass Through Costs $ $0 1, Projected Interim Year 2011 Tipping Fees Proiected Interim Year 2011 AB939 Fees Equals Total Projected Interim Year Pass Through costs $1,815,260 I $0 $1,815, Projected Percentage Change in Pass Through Costs 23.61% !!18!1!1 ~4!!Qlllml\1lilll~!:'!QIll~gil';'~fGll1!!~!!Hilllm!il!lIl:ll!iI1!Ii!lil' f Weighted Change in Controllable Costs Controllable Costs as a Percent of Base Year Revenue Requirement Multiplie Percent citan}!;e in CPI Equals Weighted Percent Change in Controllable Costs 84.3% 1.1% 0.93% Weighted Change in Pass Through Costs Pass Through Costs as a Percent of Base VI' Revenue Requirements Multiplie Percent Change in Pass Through Costs Equals Weighted Percent Change in Pass Through Costs 15.7% 23.61% 3.71% Total Change Total Percent Change in Cost (Line 24+ Line 27+ Line 28) DiVided I Adjustment for Franchise Fee (I percent) Equals Pel'cent change in Existing Rates 4.63% 94.0% 4.93%1 Fiscal Year: to Page 2 of2