Agenda

Return

D.4

To:	Board of Supervisors
From:	John Kopchik, Director, Conservation & Development Department
Date:	November 19, 2019

Contra

Costa

County

Subject:

Solid Waste Collection Rates in the Unincorporated West County Areas Served by Richmond Sanitary Service Under the County's Franchise Agreement

APPROVE	OTHER
RECOMMENDATION OF CNTY ADMINISTRATOR	RECOMMENDATION OF BOARD COMMITTEE

Action of Board On: 11/19/2019

APPROVED AS RECOMMENDED

OTHER

Clerks Notes:

VOTE OF SUPERVISORS

AYE:

John Gioia, District I Supervisor
Candace Andersen, District II Supervisor
Diane Burgis, District III Supervisor
Karen Mitchoff, District IV Supervisor
Federal D. Glover, District V Supervisor

Contact:

Deidra Dingman, (925) 674-7825

I hereby certify that this is a true and correct copy of an action taken and entered on the minutes of the Board of Supervisors on the date shown.
ATTESTED: November 19, 2019
David Twa,

BY:	, Deputy

RECOMMENDATION(S):

ACCEPT report from Crowe Horwath LLP dated November 7, 2019 regarding review of the Base Year Rate Application submitted by Richmond Sanitary Service (RSS), attached as Exhibit A.

APPROVE an increase in the maximum solid waste collection rates in the amount of 4.63% for residential customers in the unincorporated County area served by RSS under the County’s Franchise Agreement, effective January 1, 2020.

FISCAL IMPACT:

No impact to the County General Fund. The costs for County staff time spent administering the Franchise Agreement and any related consulting services are covered by solid waste/recycling collection franchise fees.

BACKGROUND:

In October 1993, the County entered into a Franchise Agreement with Richmond Sanitary Service (RSS), which was subsequently amended in 1994 and 2013. The Franchise Agreement grants RSS the exclusive privilege and duty to collect solid waste, recyclables and organics routinely generated by residential and commercial customers within the designated RSS service area (also known as the “Franchise Area”). The RSS Franchise Area covers the following eight (8) unincorporated communities, which are all located in

Supervisorial District I, with the exception of Alhambra Valley located in District V:

1. Alhambra Valley (western portion)
2. Bayview
3. East Richmond Heights
4. El Sobrante
5. Montalvin Manor
6. North Richmond
7. Rollingwood
8. Tara Hills

The County establishes and regulates Collection Rates that RSS is allowed to charge for residential collection services provided in their Franchise Area. These rates are established in accordance with the adopted rate setting methodology set forth in the “Rate Setting Process and Methodology Manual for Solid Waste Charges As Applied to Richmond Sanitary Service a division of Republic Services, Inc.” (Rate Setting Methodology Manual). The County adopted methodology details rate setting process involving: (a) Base Year rate reviews that occur every four (4) years based on data submitted in detailed rate applications and accompanying audited financial statements; (b) Annual Interim Year rate adjustments calculated based on a weighted increase in controlled and uncontrolled costs and Consumer Price Index (CPI) adjustments, alternatively in the intervening years between audited rate applications the Franchise allows adjustments which do not exceed the change in CPI without approval from the County Board of Supervisors (Interim Years); and (c) provides for the recovery of the reasonable costs incurred by RSS in performing services under the Franchise Agreement as well as allowable profit.

Unlike the other County Franchise Agreements, the total monthly rate charged to ratepayers is comprised of both a Collection and Post-Collection Rate. The County only approves the Collection Rate charged to residential customers in the RSS service area.

HISTORY OF SOLID WASTE COLLECTION RATE ADJUSTMENTS SINCE THE PRIOR BASE YEAR

Below is a brief summary of the rate adjustments approved by the County over the past four (4) years in the RSS Franchise Area:

2016: Base Year Rate Change – Rate increase of 2.19% was approved but not passed through to customers. Rate stabilization funding was used to offset the deferred 2.19% increase through 2019, so rates charged to customers in 2016 remained stable.

2017: Interim Year Rate Change – Annual CPI adjustment of 3.05%, however the increase was not passed through to ratepayers in 2017. Rate Stabilization funding was used to offset the deferred CPI increase in 2017.

2018: Interim Year Rate Change – Annual CPI adjustment of 3%, however rates were increased by 5% in order to pass through a portion of the deferred 2017 CPI increase. Rate Stabilization funding was used to offset the remainder of the 2017 CPI increase (approximately 1.05%) through 2019.

2019: Interim Year Rate Change – Annual CPI adjustment of 4.27% was passed through to ratepayers.



2020 BASE YEAR RATE REVIEW – RICHMOND SANITARY SERVICE (RSS) COLLECTION RATES

To determine a Base Year Rate change for calendar year 2020, the County requested technical assistance from Crowe Horwath (consultant) to review the Base Year Rate Application submitted by RSS. The result of Crowe Horwath’s review is contained in their report dated November 7, 2019, which is attached as Exhibit A. Crowe Horwath conducted their review consistent with the County’s Rate Setting Manual for use in the service area and the recommendations resulting from the detailed review are contained in the attached report.

The Base Year Rate setting process requires that a detailed rate change application be submitted by the Contractor along with an audited financial statement and supplemental financial and operational information. Using the detailed financial data provided, Crowe Horwath reviews several cost categories to determine the appropriate rate adjustment. The major cost categories include:

1. Direct Labor Costs
2. Corporate and Local General and Administrative Costs
3. Trucking and Equipment
4. Allowable Profit
5. County Franchise Fee

The Rate Change Application submitted by RSS proposes a rate increase of 9.33%, which corresponds with a monthly increase of $2.36 in the residential Collection Rate for the 35 gallon cart, the most common service level in this Franchise area. Crowe Horwath reviewed the Application submitted by RSS for consistency with the Manual, County policies, and waste management industry practices. Their analysis did a comparison on year-to-year changes in revenues and costs for reasonableness and solicited explanations from RSS for material changes. This included the examination of actual data results for 2018, estimated results for 2019, and projected results for 2020. Using this methodology, Crowe Horwath’s 2020 Base Year rate review analysis concluded that adjustments are warranted for various cost categories, as summarized in the attached report.

RECOMMENDED RATE ADJUSTMENTS FOR 2020

The attached Final Report (Exhibit A) recommends that residential rates be increased by 4.63%, which is 4.7% less than was originally requested by RSS. This increase corresponds with a monthly increase of $1.17 in the most common (35-gallon cart) Collection Rate. Actual resulting monthly increases as well as the new increased monthly Collection Rates for all residential cart sizes in 2020 are shown in Table 1 of Exhibit B.

Collection Rates are intended to be set on the same annual schedule as the Post-Collection Rate adjustments which take effect on January 1st in order to avoid having the rates billed to customers change more than once per year.

The RecycleMore Board of Directors has not yet approved the Post-Collection Rates that will go into effect on January 1, 2020. The RecycleMore Board is scheduled to consider approving a 7.4% Post-Collection Rate increase at their November 14, 2019 meeting. The proposed 7.4% Post-Collection Rate increase for the most common service level (35-gallon cart) equates to $0.70 per month. The proposed monthly increases as well as the corresponding new monthly 2020 Post-Collection Rates for all residential cart sizes are shown in Table 2 of Exhibit B.

When combining the proposed 2020 Post-Collection Rate increase (not yet approved by RecycleMore), with this recommended 4.63% increase to the Collection Rate (subject to approval by the County), the total monthly residential rate will increase by 5.4% for all cart sizes except the smallest 20-gallon cart which will increase by 5.2%. The combined Total Monthly Rate increase for the most common residential service level (35-gallon cart) equates to $1.87 per month. Total combined monthly increases and the corresponding new Total Monthly Rates for all residential cart sizes are shown in Table 3 of Exhibit B.

CONSEQUENCE OF NEGATIVE ACTION:

If the recommendations are not approved by the Board of Supervisors, the maximum residential Collection Rates would remain unchanged. According to the terms of the County’s Franchise Agreement, RSS is potentially entitled to annual rate adjustments. The County is obligated to set rates in a manner consistent with the Rate Setting Methodology Manual pursuant to the terms of the Franchise Agreement with Richmond Sanitary Service. The Rate Setting Methodology Manual provides the basis for determining what rate adjustments are warranted to generate adequate ratepayer revenue to cover RSS’ reasonable costs and allowable profit.