AgdaPkt 2005-12-19 - Laserfiche WebLink

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�/ RE P R T To the Honorable Mayor and Gity Council From the City Manager December 19, 2005 Subject Solid Waste Collections Rate Increase Recommendation It is recommended that the City Council approve an 8.1 % rate increase effective February 20, 2006. For typical residential customers who have one 32-gallon container picked up once a week, the increase will amount to $1.27 per month. Background Each year the franchised solid waste collection agent, Allied Waste Service (formerly BFI), submits a rate request application to the South Bayside Waste Management Authority (SBWMA) of which Redwood City is a member. The SBWMA is a joint powers authority consisting of 12 public agencies which comprise the contiguous Allied Waste Service service area from Burlingame to East Palo Alto and which acts as a collective bargaining agent on behalf of inember jurisdictions. The SBWMA engages a consultant, Hilton Farnkopf and Hobson (HF&H), to review the rate application for compliance with the rate- setting methodology contained in the franchise agreement. Allied's profit is calculated on the operating ratio method using a factor of 91 %. Under this arrangement, Allied is entitled to 9 cents profit for each 91 cents of operating expenses. Allied also incurs other costs, known as "pass-through costs," upon which Allied is not entitled to earn a profit. The most significant pass-through costs are the costs of disposing solid waste. Since Allied owns the landfill and earns a profit from the landfill operations, Allied is not allowed to earn a profit on these costs as doing so would allow Allied to earn profits upon profits. Consistent with past practice and the franchise agreement between Allied Waste Services and the City, Allied submitted their rate application in August 2005. HF&H reviewed this rate application and after making a number of adjustments, that were agreed to by Allied, recommends that the City adjust Allied's collection rates as follows: 1.80% to eliminate the projected accumulated deficit in the balancing account as of December 31, 2005' 8.10% to bring 2006 revenues into balance with Allied's projected expenses and profits. 9.90% Total required rate increase � The balancing account is an account maintained by Allied, pursuant to the solid waste colfection franchise agreement that represents the cumulative difference since Allied's actual revenues and their revenue requirement. In years where Allied collects more revenue than they are entitled to a surplus is generated. The converse holds true in years where Allied generates less revenue than they are entitled to.