Laserfiche WebLink
Page | 5 SBWMA Recology Negotiations FAX Report 4/20/17 <br /> <br />Prior to the negotiation process, the SBWMA performed two studies to provide important cost and rate <br />background for the negotiation process: <br />1. A Solid Waste Rate Comparison by Jurisdiction Study to quantify the SBWMA’s rates for <br />garbage, recycling and organics collection compared to the rates that are charged by over 60 other <br />Bay Area cities. The study showed that the SBWMA is currently below the average cost customers <br />are charged for a 32-gallon can each month for surveyed Bay Area cities. <br /> <br />2. A Recology Operations Collection Cost Review to assess the “reasonableness” of Recology’s <br />cost proposal. The cost review analyzed all aspects of Recology’s operations and compared this <br />against industry norms. The review by the two consultants concluded that Recology’s total annual <br />cost of operations were “reasonable” and varied by only 5.5% from the consultant’s model and were <br />within the norms of the solid waste industry. <br />Term, Compensation, and Rate Setting Methodology <br />Term: Recology has proposed the option of a 10 -year or a 15-year term for the new Agreement.After <br />considering the financial benefits of spreading the depreciation cost of a new collection fleet, the FAX <br />committee is recommending 15-year term. At the end of the current contract, Recology’s $36.3 million <br />collection fleet will be fully depreciated, however, the company has indicated that it can continue to use the <br />vehicles for 2-3 additional years. By agreeing to a 15-year term, and combining the use of the current and <br />new vehicles for a longer term, the member agencies will benefit from a reduction in depreciation and interest <br />expense (approximately $1.7 million per year, or 3.4% of the total projected cost). <br />Compensation: The FAX committee is recommending an agreement with a 2021 Base Contractor’s <br />Compensation of $65,303,616 which assumes a 15-year term and the inclusion of depreciation expense for <br />the replacement collection vehicles in rate year 2020 of the Current Agreement. This amount will be adjusted <br />for the change in the cost of fuel and customer subscription levels. <br />Based on these assumptions and subject to the adjustments described above, the Base Contractor’s <br />Compensation would increase approximately 2.4% from 2019 to 2020 (instead of a 7% reduction that would <br />have occurred as depreciation payments ended), and increase approximately 10.2% from 2020 to 2021. The <br />actual increase will depend on several future adjustments. For example: <br /> The actual 2019 and 2020 Base Contractor’s Compensation determined in accordance with the <br />existing Agreement are subject to future changes. Recology forecasted this amount based on <br />historical increases from 2013 to 2017 and arrived at an 8.2% increase. Because that period <br />included an extraordinary “true up” of Base Contractor’s Compensation to actual cost in 2013, it is <br />not included in the calculation of the 10.2% increase described above. <br /> Adjustments to the 2021 Base Contractors Compensation as described above. A $1 per gallon <br />increase to the price of fuel results in a $987,000 (1.5%) increase to Base Contractor’s <br />Compensation. A 2% per year increase in customer subscriptions to all lines of business results in <br />a $1,023,000 (1.6%) increase to Base Contractor’s Compensation. <br />7.A - Page 15