EXHIBIT E: RATE ADJUSTMENT METHODOLOGY
EXHIBIT E RATE ADJUSTMENT METHODOLOGY
July 1, 2021 Page E-1 Franchise Agreement, Exhibit E
1. General Subject to the terms herein, the City shall adjust all Rates on an annual basis. Contractor shall submit itsapplication for a Rate adjustment to the City Contract Manager on or before April 1 of each Rate Periodwhere Rates shall be adjusted using the indexbased methodology described in Exhibit E1. Contractorshall submit its application on or before February 1 for anyRate Period where Rates shall be adjustedusing the costbased methodology described in Exhibit E2.ContractorsRate application shall documentall calculations and include all supporting schedules, documentation of perTon charges for ApprovedFacilities, documentation of changes in governmental fees at Approved Facilities (if applicable), and anyother documentation or evidence determined by the City Contract Manager to be reasonably necessaryto ensure that the calculation of Rate adjustments has been performed in strict conformance to therequirements of this Exhibit E.The City Contract Manager shall make a good faith effort to approve Rates by June 1 of each year, andsuch Rates shall be effective on each subsequent July 1. If Rates are not effective by July 1 due to a delaycaused solely by City, City shall allow Contractor to retroactively bill Customers for the amount of the Rateincrease for any period of said delay that is solely caused by City (subject to theCitysapproval of how theretroactive adjustment is billed) or the City may compensate the Contractor for lost Gross Rate Revenues.In the case of a delayed Rate adjustment, the Contractor may bill the Customer during the next billingcycle to recoup the deferred Rate increase. If Rates are not effective by July 1 as a result ofContractorsdelay in submitting the Rate application in a complete and accurate form, then prior Rates remain in effectuntil such adjustment is made and Contractor shall not be entitled to a retroactive adjustment for lostGross Rate Revenues.2. Definitions Certain terms which are specific to this Exhibit (including Exhibits E1 and E2) are defined below:A.Annual Percentage Changemeans the annual percentage change in any of the indices definedabove calculated as described in the following paragraph.The Annual Percentage Change for a cost index shall be calculated as the Average Index Value forthe most recently available 12month period of the thencurrent Rate Period minus the AverageIndex Value for the corresponding 12month period of the mostrecently completed Rate Periodand the result of which shall be divided by the Average Index Value for the same 12month periodof the most recently completed Rate Period.For example, if the Contractor is calculating the Total Calculated Costs in January 2023 to beeffective for Rate Period Three (July 2023 through June 2024), the Annual Percentage Change forthe CPIU would be calculated as follows:[ (Average CPIU for January 2022 through December 2022) minus(Average CPIU for January 2021 through
EXHIBIT E RATE ADJUSTMENT METHODOLOGY
July 1, 2021 Page E-2 Franchise Agreement, Exhibit E
December 2021) ] divided by (Average CPIU for January 2021 throughDecember 2021)The calculated Annual Percentage Change shall be carried to three places to the right of thedecimal and rounded to the nearest thousandths.B.Average Index Valuemeans the sum of the monthly index values during the most recentlyavailable 12month period divided by 12 (in the case of indices published monthly) or the sum ofthe bimonthly index values divided by 6 (in the case of indices published bimonthly).C.CPIUmeans the Consumer Price Index, All Urban Consumers, all items, not seasonally adjustedSan FranciscoOaklandSan Jose Metropolitan Area compiled and published by the U.S. Departmentof Labor, Bureau of Labor Statistics.D.Disposal Costmeans the cost of Disposing of Solid Waste at the Designated Disposal Facility.E.Fuel Indexmeans the pertherm price for Core Natural Gas Service for Compression on customerspremises, Schedule GNGV1, compiled and published by the Pacific Gas and Electric CompanyAnalysis and Rate Department and reported monthly in itsGas RateFinderpublication(http://www.pge.com/tariffs/GRF.SHTML). The January 2018 Fuel Index is $0.70874 per therm,which reflects the sum of the customer charge, procurement charge, transportation charge, andpublic purpose program (PPP) charge for natural gas service for compression oncustomerspremises as reported by Pacific Gas and Electric Company.F.GrossRateRevenuesmeans total Customer billings by the Contractor for the provision of servicespursuant to this Agreement, without any deductions.G.Motor Vehicle Maintenance and Repair IndexorMVImeans the Consumer Price Index, AllUrban Consumers, Motor Vehicle Maintenance and Repair, not seasonally adjusted U.S. cityaverage, compiled and published by the U.S. Department of Labor, Bureau of Labor Statistics.H.Total Calculated Costsmeans the total amount to be used as a basis for determining the RateAdjustment Factor. The Total Calculated Costs do not reflect or in any way guarantee the GrossRate Revenues that are to be generated by Rates or retained by the Contractor. Note that fordetermining Rates for Rate Period Two, the total Proposed costs for Rate Period One (July 1, 2021to June 30, 2022) shall be used for the calculations.
EXHIBIT E RATE ADJUSTMENT METHODOLOGY
July 1, 2021 Page E-3 Franchise Agreement, Exhibit E
Table 1 provides additional information about the four indices defined above.TABLE 1* * All indices published by the U.S. Bureau of Labor Statistics with the exception of the Fuel Index, which ispublished by Pacific Gas and Electric Company Analysis and Rate Department.3. Cost of Rate Adjustment process The City may incur costs, including consulting and legal fees, when determining adjustments to the Ratesin accordance with this Exhibit and may require the Contractor to pay for such costs within sixty (60)calendar days of receipt of theCitysinvoice for such costs. The Contractor may recover such coststhrough the Rates by treating the costs as an allowable cost of business, not subject to profit markup.Regardless ofContractorspayment of costs associated with said review, the City shall retain full andunimpeded discretion in selection of its agents to ensure, at a minimum, that no conflict of interest arisesin the review ofContractorsrequest. The City retains the right to select its agents on the basis of theirqualifications and experience and without regard to cost.4. Profit Table 2 summarizes the allowed operating ratio used to determine theContractorsprofit, as describedin Exhibit E1, Section 2.B and Exhibit E2, Section 2.B.
CPIUFuel IndexMotor VehicleMaintenance andRepairDescription Consumer PriceIndexAll UrbanConsumersCore Natural Gas forCompression atCustomersPremisesfor Motor VehiclesConsumer PriceIndexAll UrbanConsumers, MotorVehicleMaintenance andRepairSeries ID CUURS49BSA0 GNGV1 CUUR0000SETDAdjusted Not seasonallyadjustedN/A Not seasonallyadjustedArea San FranciscoOaklandHaywardN/A U.S. City averageItem All items N/A Motor vehiclemaintenance andrepairBasePeriod198284=100 N/A 198284=100Periodicity Bimonthly Monthly Monthly
EXHIBIT E RATE ADJUSTMENT METHODOLOGY
July 1, 2021 Page E-4 Franchise Agreement, Exhibit E
TABLE 2Rate PeriodOperating RatioRate Period 1 79.00%Rate Period 2 78.50%Rate Period 3 78.00%Rate Period 4 and anysubsequent Rate Periodsunder this Agreement77.70% EXHIBIT E1: MULTI-INDEX RATE ADJUSTMENT METHODOLOGY
EXHIBIT E1 INDEX-BASED RATE ADJUSTMENT METHODOLOGY
July 1, 2021 Page E1-1 Franchise Agreement, Exhibit E1
1. General The purpose of this attachment is to describe and illustrate the method by which the City will calculate theannual adjustment to Rates to reflect changes in various cost indices and changes to Processing and DisposalCosts based on Tonnages of materials Collected and changes in tipping fees. This indexbased adjustmentprocess shall be used to determine Rates for Rate Periods Two, Three, Five, Six, Seven, Nine, Ten, andEleven. If the Term is extended, subsequent Rate Periods shall be adjusted pursuant to Section 8.2.C.The indexbased adjustment involves application of indices to various costs that comprise the TotalProposed Annual Costs for Rate Period One (and to Total Calculated Costs for future Rate Periods) todetermine the Total Calculated Costs for the coming Rate Period. In addition, Processing and Disposal costsshall be adjusted to reflect actual Tonnage Collected during the mostrecently completed Rate Period.The difference (measured as a percentage) between the Total Calculated Costs for the coming Rate Periodand the Total Calculated Costs for the thencurrent Rate Period is the Rate Adjustment Factor. The RateAdjustment Factor is applied to the current Rates to determine the Rates for the coming Rate Period.The Rate Adjustment Factor calculated pursuant to this Exhibit E1 may not exceed five percent (5%). In theevent that the calculation results in a calculated increase exceeding five percent (5%), the calculated dollaramount exceeding five percent (5%) shall be reflected as anOther Adjustmentin the next scheduled Rateadjustment(rollover). The City shall not berequired to compensate Contractor for any cumulativerolledoveramounts remaining at the end of the Agreement Term.In the event that the indexbased adjustment as calculated by this Exhibit E1 results in a negative RateAdjustment Factor, the City reserves the right torollunderthe Rate reduction, such that there is no Rateadjustment in the Rate Period for which the negative Rate Adjustment Factor was calculated, but thecalculated Rate reduction may be deferred to the following Rate Period, as a credit against future Rateincreases.2. Adjustment of Total Calculated Costs The cost categories of the main components of Total Calculated Costs are presented in detail in Exhibit G1.Adjustments to these components to calculate costs for the coming Rate Period shall be calculated asfollows:
EXHIBIT E1 INDEX-BASED RATE ADJUSTMENT METHODOLOGY
July 1, 2021 Page E1-2 Franchise Agreement, Exhibit E1
A. Total Annual Cost of Operations1.LaborRelated Costs.The LaborRelated Costs component of the Total Calculated Costs shallbe calculated, as described in this Section, to reflect the adjustment of wages and benefitsunder the collective bargaining agreement for represented employees of Contractorperforming services under this Agreement.The collective bargaining agreement requires adjustment of three factors: 1) hourly wage rate;2) pension hourly rate; and, 3) health and welfare monthly rate. The Annual Percentage Changeshall be determined for each of those factors using the procedures described in the collectivebargaining agreement, using the most recentlyavailable twelve month Annual PercentageChange in the indices referenced in that bargaining agreement. The Parties acknowledge thatthe timing of available inflationary index data is such that this calculation will be based on adifferent calculation period than the actual changes in the bargaining agreement and agree thatthese differences are acceptable for the purposes of these calculations.The LaborRelated Costs presented inContractorsProposal include detailed cost subcategories which are impacted by the three adjustment factors in the collective bargainingagreement. The table below defines which adjustment factor will be applied to each cost subcategory.Cost SubCategory Adjustment FactorRegular Wages Hourly Wage RateOvertime Wages Hourly Wage RateHoliday Wages Hourly Wage RateVacation Wages Hourly Wage RateSick Leave Wages Hourly Wage RateWorkers Compensation Insurance Premiums Hourly Wage RateWorkers Compensation Claims Not AdjustedHealth & Welfare Health & Welfare Monthly RatePension / Retirement Benefits Pension Hourly RatePayroll Taxes Hourly Wage RateOther Not AdjustedFor each subcategory, the value for the thencurrent Rate Period is multiplied by one plus theAnnual Percentage Change in the associated adjustment factor. The resultant dollar value of allsubcategories shall be added together to determine the calculated LaborRelated Costs,provided that the calculated LaborRelated Costs shall not be less than Minimum AllowableLaborRelated Costs, nor greater than the Maximum Allowable LaborRelated Costs.For purposes of this Section, the Minimum Allowable LaborRelated Costs shall be prepared bymultiplying the LaborRelated Costs component of the Total Calculated Costs for the thencurrent Rate Period by one hundred two and seven tenths percent (102.7%). For purposes ofthis Section, the Maximum Allowable LaborRelated Costs shall be prepared by multiplying the EXHIBIT E1 INDEX-BASED RATE ADJUSTMENT METHODOLOGY
July 1, 2021 Page E1-3 Franchise Agreement, Exhibit E1
LaborRelated Costs component of the Total Calculated Costs for the thencurrent Rate Periodby one hundred twelve percent (112.0%).2.VehicleRelated Costs (excluding Fuel). The VehicleRelated Costs component of TotalCalculated Costs for the thencurrent Rate Period is multiplied by one plus the AnnualPercentage Change in the Motor Vehicle Maintenance and Repair Index.3.Fuel Costs. The Fuel Cost component of Total Calculated Costs for the thencurrent Rate Periodis multiplied by one plus the Annual Percentage Change in the Fuel Index.4.Other Costs. The Other Costs component of the Total Calculated Costs for the thencurrentRate Period is multiplied by one plus the Annual Percentage Change in the CPIU.5.Direct Depreciation. Direct Depreciation is $1,809,092 per year for Rate Periods Two throughTwelve and is not annually adjusted. This adjusted depreciation amount shall remain fixed forRate Periods Two through Twelve. If the Agreement is extended beyond Rate Period Twelve,direct depreciation shall be zero in any subsequent Rate Periods unless Parties mutually agreeto a different amount.6.Allocated Costs (Labor, Vehicle, Fuel, and Other Costs). Except as provided in A.1. above, theAllocated Costs (Labor, Vehicle, Fuel, and Other Costs) component for the thencurrent RatePeriod is multiplied by one plus the Annual Percentage Change in the CPIU.7.Allocated Depreciation and StartUp Costs. The Allocated Depreciation and StartUp Costsshall be $20,015 per year for Rate Period Two through Twelve, and are not annually adjusted.These costs shallbe zero for all subsequent Rate Periods unless Parties mutually agree to adifferent amount.8. Total Annual Cost of Operations. The Total Annual Cost of Operations for the coming RatePeriod equals the sum of the costs calculated in subsections (1) through (7) above.B. ProfitProfit for the coming Rate Period shall be calculated by dividing the Total Annual Cost of Operations for thecoming Rate Period (the value calculated in Section 2.A.8 above) by the applicable operating ratio andsubtracting from the result the Total Annual Cost of Operations for the coming year.Profit =Total Annual Cost of Operations___for Coming Rate Period___Operating RatioTotal Annual Cost of Operationsfor Coming Rate PeriodC. Costs Excluded from the Calculation of Profit1.Recyclable Materials Processing Costs.The Recyclable Materials Processing Costs shall becalculated in the manner described in Exhibit E3.
EXHIBIT E1 INDEX-BASED RATE ADJUSTMENT METHODOLOGY
July 1, 2021 Page E1-4 Franchise Agreement, Exhibit E1
2.Organic Materials Processing Costs. The Organic Materials Processing Costs shall be calculatedas follows:Organic Materials Processing Costs = PerTon Organic Materials Processing fee at the ApprovedOrganic Materials Processing Facility for the coming Rate Period x (Total Tons of OrganicMaterials Collected for the mostrecently completed 12month period).3.Reusable Materials Processing Costs.The Reusable Materials Processing Cost shall becalculated as follows:Reusable Materials Processing Cost = [(PerTon Reusable Materials Processing Cost for thethencurrent Rate PeriodAll regulatory fees identified inContractorsProposal and includedin the thencurrent perTon cost) x (1 + Annual Percentage Change in the CPIU) + (ThencurrentperTon regulatory fees)] x (Total Tons of Reusable Materials Collected for the mostrecentlycompleted 12month period).4.Disposal Costs. The Disposal Costs shall be calculated as follows:Disposal Costs = PerTon Disposal fee at the Designated Disposal Facility (to be specified by theCity) for the coming Rate Period x (Total Tons of Solid Waste Collected for the mostrecentlycompleted 12month period).5.Interest Expense. The Interest Expense amount is $381,504 in Rate Period Two through Twelve,is not annually adjusted, and shall be zero in any subsequent Rate Period unless Partiesmutually agree to a different amount.6.Direct Lease Costs. The Direct Lease Costs amount is $0 in Rate Period Two through Twelve, isnot annually adjusted, and shall be zero in any subsequent Rate Period unless Parties mutuallyagree to a different amount.7.Allocated Lease Costs. The Allocated Lease Costs amount is $0 for Rate Period Two throughTwelve (including interest costs for Allocated General and Administrative of $0, AllocatedVehicle Maintenance costs of $0, and Allocated Container Maintenance of $0) is not annuallyadjusted and shall remain unadjusted in any subsequent Rate Period unless Parties mutuallyagree to a different amount.8.Total Costs Excluded from the Calculation of Profit. Total Costs Excluded from the Calculationof Profit for the coming Rate Period are the sum of the amounts in subsections (1) through (7)above.D. Total Calculated Costs before City ReimbursementsThe Total Calculated Costs before City Reimbursements shall be the sum of the Total Annual Cost ofOperations, Profit, and Costs Excluded from the Calculation of Profit for the coming Rate Period.
EXHIBIT E1 INDEX-BASED RATE ADJUSTMENT METHODOLOGY
July 1, 2021 Page E1-5 Franchise Agreement, Exhibit E1
E. City Reimbursements1.Waste Management Recycling and Program Fee (AB 939/SB 1383).The AB 939/SB 1383payment for the coming Rate Period shall equal the total AB 939/SB 1383 Fee paid to the Cityin the mostrecently completed 12month period multiplied by 1 plus the Annual PercentageChange in the CPIU, or as otherwise directed by the City.2.Infrastructure Impacts Mitigation Fee.The Infrastructure Impacts Mitigation Fee for thecoming Rate Period shall equal the total Infrastructure Impacts Mitigation Fee paid to the Cityin the mostrecently completed 12month period multiplied by 1 plus the Annual PercentageChange in the CPIU, or as otherwise directed by the City.3.Doolittle Landfill Maintenance Fee.The Doolittle Landfill Maintenance Fee for the coming RatePeriod shall equal the total Doolittle Landfill Maintenance Fee paid to the City in the mostrecently completed 12month period multiplied by 1 plus the Annual Percentage Change in theCPIU, or as otherwise directed by the City.4.City Parks Fee.The City Parks Fee for the coming Rate Period shall equal the total City ParksFee paid to the City in the mostrecently completed 12month period multiplied by 1 plus theAnnual Percentage Change in the CPIU, or as otherwise directed by the City.5.Rate Application Review Costs.An amount determined by the City to reimburse the Contractorfor payment of theCityscosts, including consulting and legal fees associated withdetermination of Rates under this Exhibit. Such Rate application review costs may or may notbe onetime costs and shall be included in subsequent Rate Periods if it is not a onetime cost.6.Total City Reimbursements.The Total City Reimbursements for the coming Rate Period shallequal costs calculated in subsection (1) through (5) above; provided, however, that anyadjustment in any such fee, whether pursuant to the relevant index or as the result of thedecision of City, shall be an allowable cost of business, excluded from the calculation of profit,and reflected in the Total City Reimbursements.F. Other AdjustmentsFrom time to time during the Term of the Agreement, it may be necessary to make other adjustments tothe compensation calculations. For example, if the City elects to rollunder a negative Rate adjustment toa future year, the dollar value of that negative adjustment shall be reflected as an adjustment. In such case,the adjustment would be a reduction to the Total Calculated Costs.G. Total Calculated CostsThe Total Calculated Costs for the coming Rate Period shall equal the sum of the Total Annual Cost ofOperations, Profit, Total Costs Excluded from the Calculation of Profit, Total City Reimbursements, andOther Adjustments (if applicable), for the coming Rate Period.
EXHIBIT E1 INDEX-BASED RATE ADJUSTMENT METHODOLOGY
July 1, 2021 Page E1-6 Franchise Agreement, Exhibit E1
3. Rate Adjustment Factor The Rate Adjustment Factor shall equal the Total Calculated Costs for the coming Rate Period divided bythe Total Calculated Costs for the thencurrent Rate Period, which shall be rounded to the nearestthousandth. Note that when determining the Rate Adjustment Factor for Rate Period Two, the RateAdjustment Factor shall equal the Total Calculated Costs for Rate Period Two divided by the Total ProposedCosts of $25,682,637 for Rate Period One.4. Adjustment of Rates Each thencurrent Rate shall be multiplied by the Rate Adjustment Factor to calculate the effective Rate forthe coming Rate Period. The adjustment to each Rate shall be rounded to the nearest cent.5. Examples The following examples illustrates the indexbased adjustment method for determining Rates for RatePeriod Three. The dollar amounts shown are hypothetical amounts for Total Calculated Costs for RatePeriod Two (July 1, 2022 through June 30, 2023) and the adjustment factors are based on assumed changesin the various indices between the Average Index Values for the twelve (12) months ending December 2021and for the twelve (12) months ending December 2020. Example A depicts a standard indexbasedadjustment, wherein the calculated Total Annual Cost of Operations increased greater than zero percent(0%) and less than five percent (5%) over the prior Rate Period. Example B depicts an indexbasedadjustment wherein the calculated Total Annual Cost of Operations resulted in a decrease from the priorRate Period.A. EXAMPLE A1. Assumptions for Example Adjustment toContractorsCompensation:a. MostRecently Completed Rate Period = Rate Period One (July 1, 2021 through June 30,2022)b. Thencurrent Rate Period = Rate Period Two (July 1, 2022 through June 30, 2023)c. Coming Rate Period = Rate Period Three (July 1, 2023 through June 30, 2024)d. Recyclable Materials Processing Costs per Ton for the coming Rate Period, as calculated inExhibit E3 = $135.00 per Tone. Residential Organic Materials Processing Costs per Ton for the coming Rate Period =$136.50 per Tonf. Commercial Organic Materials Processing Costs per Ton for the coming Rate Period =$153.10 per Ton EXHIBIT E1 INDEX-BASED RATE ADJUSTMENT METHODOLOGY
July 1, 2021 Page E1-7 Franchise Agreement, Exhibit E1
g. Reusable Materials Processing Costs (including Regulatory Fees) per Ton for the thencurrent Rate Period = $162.00 per Tonh. Reusable Materials Processing Regulatory Fees per ton for the thencurrent and comingRate Period = $2.00 per Toni. Disposal cost for the coming Rate Period = $96.50 per Tonj. Annual Percentage Change in the Hourly Wage Rate Adjustment Factor = 0.040k. Hourly Wage Rate Adjustment Factor Floor = 0.027l. Annual Percentage Change in the Health & Welfare Monthly Rate Adjustment Factor =0.040m. Annual Percentage Change in the Pension Hourly Rate Adjustment Factor* = 0.030n. Pension Hourly Rate Adjustment Factor Floor = 0.034o. Annual Percentage Change in the CPIU = 0.040p. Annual Percentage Change in the Motor Vehicle Maintenance and Repair Index = 0.031q. Annual Percentage Change in the Fuel Index = 0.075r. Tonnages for the mostrecently completed 12month period:Recyclable Materials11,400 TonsResidential Organic Materials9,700 TonsCommercial Organic Materials2,400 TonsSolid Waste27,000 TonsBulky Items and Reusable Materials1,900 TonsNote: All values presented in the following table are hypothetical and used for illustrative purposes only.*The Annual Percentage Change in the Pension Hourly Rate Adjustment Factor is a different 12monthperiod than the Hourly Wage Rate and the Health &Welfare Monthly Rate Adjustment Factors.
EXHIBIT E1 INDEX-BASED RATE ADJUSTMENT METHODOLOGY
July 1, 2021 Page E1-8 Franchise Agreement, Exhibit E1
TABLE 1: Example A Calculation of Total Calculated Costs for Rate Period ThreeRate PeriodTwoAdjustmentIndex Adjustment FactorRate PeriodThreeProcessing Tip Fee Adjustment (per Ton)Recyclable Materials Processing Tip Fee 132.00$ CPIU Refer to Exhibit E3 135.00$Residential Organic Materials Processing Tip Fee 135.00$ N/A N/A 136.50$Commercial Organic Material Processing Tip Fee 152.00$ N/A N/A 153.10$Reusable Materials Processing Tip Fee 162.00$ CPIU (1 + 0.040) + Reg Fees 170.48$Solid Waste Disposal Tip Fee 96.00$ N/A N/A 96.50$Annual Cost of OperationsLaborrelated Costs 7,250,000$ Per CBA Per CBA 7,530,500$Vehiclerelated Costs (excluding fuel) 800,000$ MVI 1 + 0.031 824,800$Fuel Costs 400,000$ FUEL 1 + 0.075 430,000$Other Costs 815,000$ CPIU 1 + 0.040 847,600$Direct Depreciation 1,775,000$ N.A. N.A. 1,775,000$Allowed Costs (Labor, Vehicle, Fuel, and Other Costs)* 3,100,000$ CPIU 1 + 0.040 3,224,000$Allocated Costs (Depreciation and StartUp) 22,000$ N.A. N.A. 22,000$Total Annual Cost of Operations 14,162,000$ 14,653,900$Profit (assuming operating ratio of 0.77) 4,230,208$ 4,377,139$Pass Through CostsRecyclable Materials Processing Costs 1,500,000$ Tip Fee x Tons 11,400 x $139.28 1,539,000$Residential Organic Materials Processing Costs 1,300,000$ Tip Fee x Tons 9,700 x $136.50 1,324,050$Commercial Organic Materials Processing Costs 360,000$ Tip Fee x Tons 2,400 x $153.10 367,440$Reusable Materials Processing Costs 305,000$ Tip Fee x Tons 1,900 x $170.48 323,912$Solid Waste Disposal Costs 2,500,000$ Tip Fee x Tons 27,000 x $96.50 2,605,500$Interest Expense 380,000$ N.A. N.A. 380,000$Direct Lease Costs$ N.A. N.A.$Allocated Lease Costs$N.A. N.A.$Total PassThrough Costs 6,345,000$ 6,539,902$Total Calculated Costs before City Fees 24,737,208$ 25,570,941$City Fees/PaymentsWaste Management Recycling and Program Fee 474,596$ CPIU** 1 + 0.040 493,580$Infrastructure Impacts Mitigation Fee 910,931$ CPIU** 1 + 0.040 947,368$Doolittle Landfill Maintenance Fee 237,297$ CPIU** 1 + 0.040 246,789$City Parks Fee 71,879$ CPIU** 1 + 0.040 74,754$Rate Application Review Costs$ N.A. N.A.$Total City Fees/Payments 1,694,702$ 1,762,490$Other Adjustments (as needed from time to time) N.A N.A. N.A. N.ATotal Calculated Costs 26,431,910$ 27,333,431$*Fuel costs included in allocated costs shall be adjusted using the CPIU not Fuel Index.** City Reimbursements shall either be increased by the Annual Percentage Change in the CPIU, or as otherwise directed by the EXHIBIT E1 INDEX-BASED RATE ADJUSTMENT METHODOLOGY
July 1, 2021 Page E1-9 Franchise Agreement, Exhibit E1
2. Example Calculation of the Rate Adjustment Factor and Adjusted Rate for Rate Period Threea. Rate Adjustment Factor = $27,333,431/$26,431,910 = 1.034b. 20gallon SingleFamily Rate for Rate Period Three = $22.62 x 1.034 = $23.39, which shallbe effective July 1, 2023.B. EXAMPLE B1. Assumptions for Example Adjustment toContractorsCompensation:a. MostRecently Completed Rate Period = Rate Period One (July 1, 2021 through June 30,2022)b. Thencurrent Rate Period = Rate Period Two (July 1, 2022 through June 30, 2023)c. Coming Rate Period = Rate Period Three (July 1, 2023 through June 30, 2024)d. Recyclable Materials Processing Costs per Ton for the coming Rate Period, as calculated inExhibit E3 = $130.00 per Tone. Residential Organic Materials Processing Costs per Ton for the coming Rate Period =$135.40 per Tonf. Commercial Organic Materials Processing Costs per Ton for the coming Rate Period =$152.40 per Tong. Reusable Materials Processing Costs (including Regulatory Fees) per Ton for the thencurrent Rate Period = $162.00 per Tonh. Reusable Materials Processing Regulatory Fees per ton for the thencurrent and comingRate Period = $2.00 per Toni. Disposal cost for the coming Rate Period = $96.00 per Tonj. Annual Percentage Change in the Hourly Wage Rate Adjustment Factor =0.040k. Hourly Wage Rate Adjustment Factor Floor = 0.027l. Annual Percentage Change in the Health & Welfare Monthly Rate Adjustment Factor =0.040m. Annual Percentage Change in the Pension Hourly Rate Adjustment Factor* =0.015n. Pension Hourly Rate Adjustment Factor Floor = 0.034o. Annual Percentage Change in the CPIU =0.040p. Annual Percentage Change in the Motor Vehicle Maintenance and Repair Index =0.031q. Annual Percentage Change in the Fuel Index =0.075r. Tonnages for the mostrecently completed 12month period:Recyclable Materials11,400 TonsResidential Organic Materials9,700 Tons EXHIBIT E1 INDEX-BASED RATE ADJUSTMENT METHODOLOGY
July 1, 2021 Page E1-10 Franchise Agreement, Exhibit E1 Commercial Organic Materials2,400 TonsSolid Waste27,000 TonsBulky Items and Reusable Materials1,900 TonsNote: All values presented in the following table are hypothetical and used for illustrative purposes only.*The Annual Percentage Change in the Pension Hourly Rate Adjustment Factor is a different 12monthperiod than the Hourly Wage Rate and the Health &Welfare Monthly Rate Adjustment Factors.
EXHIBIT E1 INDEX-BASED RATE ADJUSTMENT METHODOLOGY
July 1, 2021 Page E1-11 Franchise Agreement, Exhibit E1 TABLE 2Example B Calculation of Total Calculated Costs for Rate Period ThreeRate PeriodTwoAdjustmentIndex Adjustment FactorRate PeriodThreeProcessing Tip Fee Adjustment (per Ton)Recyclable Materials Processing Tip Fee 132.00$ CPIU Refer to Exhibit E3 130.00$Residential Organic Materials Processing Tip Fee 135.00$ N/A N/A 135.40$Commercial Organic Material Processing Tip Fee 152.00$ N/A N/A 152.40$Reusable Materials Processing Tip Fee 162.00$ CPIU (1 +0.040) + Reg Fees 157.52$Solid Waste Disposal Tip Fee 96.00$ N/A N/A 96.00$Annual Cost of OperationsLaborrelated Costs 7,250,000$ Per CBA Per CBA 7,445,750$Vehiclerelated Costs (excluding fuel) 800,000$ MVI 1 +0.031 775,200$Fuel Costs 400,000$ FUEL 1 +0.075 370,000$Other Costs 815,000$ CPIU 1 +0.040 782,400$Direct Depreciation 1,775,000$ N.A. N.A. 1,775,000$Allowed Costs (Labor, Vehicle, Fuel, and Other Costs)* 3,100,000$ CPIU 1 +0.040 2,976,000$Allocated Costs (Depreciation and StartUp) 22,000$ N.A. N.A. 22,000$Total Annual Cost of Operations 14,162,000$ 14,146,350$Profit (assuming operating ratio of 0.77) 4,230,208$ 4,225,533$Pass Through CostsRecyclable Materials Processing Costs 1,500,000$ Tip Fee x Tons 11,400 x $130.00 1,482,000$Residential Organic Materials Processing Costs 1,300,000$ Tip Fee x Tons 9,700 x $135.40 1,313,380$Commercial Organic Materials Processing Costs 360,000$ Tip Fee x Tons 2,400 x $152.40 365,760$Reusable Materials Processing Costs 305,000$ Tip Fee x Tons 1,900 x $157.52 299,288$Solid Waste Disposal Costs 2,500,000$ Tip Fee x Tons 27,000 x $96.00 2,592,000$Interest Expense 380,000$ N.A. N.A. 380,000$Direct Lease Costs$ N.A. N.A.$Allocated Lease Costs$N.A. N.A.$Total PassThrough Costs 6,345,000$ 6,432,428$Total Calculated Costs before City Fees 24,737,208$ 24,804,311$City Fees/PaymentsWaste Management Recycling and Program Fee 474,596$ CPIU** 1 +0.040 455,612$Infrastructure Impacts Mitigation Fee 910,931$ CPIU** 1 +0.040 874,494$Doolittle Landfill Maintenance Fee 237,297$ CPIU** 1 +0.040 227,805$City Parks Fee 71,879$ CPIU** 1 +0.040 69,003$Rate Application Review Costs$ N.A. N.A.$Total City Fees/Payments 1,694,702$ 1,626,914$Other Adjustments (as needed from time to time) N.A N.A. N.A. N.ATotal Calculated Costs 26,431,910$ 26,431,225$*Fuel costs included in allocated costs shall be adjusted using the CPIU not Fuel Index.** City Reimbursements shall either be increased by the Annual Percentage Change in the CPIU, or as otherwise directed by the City.
EXHIBIT E1 INDEX-BASED RATE ADJUSTMENT METHODOLOGY
July 1, 2021 Page E1-12 Franchise Agreement, Exhibit E1
2. Example Calculation of the Rate Adjustment Factor and Adjusted Rate for Rate Period Threea. Total Calculated Costs = $26,431,225 < $26,431,910; Adjusted Total Calculated Costs =$26,431,910 (Total Calculated Costs from prior Rate Period)b. Rate Adjustment Factor = $26,431,910/ $26,431,910= 1.00c. 20gallon SingleFamily Rate for Rate Period Three = $22.62 x 1.00= $22.62, which shall beeffective July 1, 2023 (i.e., NO RATE ADJUSTMENT).d. Subsequent Rate Period Adjustment. $26,431,910$26,431,225 = $685 cost savings to beapplied as anOther Adjustmentin the subsequent Rate Period adjustment calculationsas an offset toContractorsTotal Calculated Costs.6. Other If an index described in Section 2 is discontinued, the successor index with which it is replaced shall be usedfor subsequent calculations. If no successor index is identified by the Bureau of Labor Statistics or PacificGas & Electric (if applicable), the index published by the organization which is most comparable shall beused.
EXHIBIT E2: COST-BASED RATE ADJUSTMENT METHODOLOGY
EXHIBIT E2 COST-BASED RATE ADJUSTMENT METHODOLOGY
July 1, 2021 Page E2-1 Franchise Agreement, Exhibit E2
1. General The City and Contractor shall use the costbased Rate adjustment method described in this Exhibit todetermine Rates for Rate Periods Four, Eight, and, Twelve. and if the Contractor requests an extraordinaryRate adjustment in accordance with Agreement Section 8.3. If the Term is extended, subsequent RatePeriods shall be adjusted pursuant to Section 8.2.C. The costbased adjustment involves review of theContractorsactual cost of operations and operational statistics (staffing levels, Routes, Route hours,Customers, and their Service Levels, etc.) to determine the Actual Allowable Total Annual Cost ofOperations for the mostrecently completed Rate Period and to forecast the TotalContractorsCompensation for the coming Rate Period. The difference (measured as a percentage) between the TotalContractorsCompensation for the coming Rate Period and the Projected Gross Rate Revenues (which iscalculated based on mostrecent Customer subscription levels at thencurrent Rates) is theRateAdjustment Factor.The Rate Adjustment Factor is applied to the thencurrent Rates to determine theRates for the coming Rate Period.The intent of performing the costbased adjustment is to examine the actual impact of changes in inflationor deflation, the number of Customers, and the Service Level of Customers.In the event that the costbased adjustment calculated in accordance with this Exhibit E2 results in anegative Rate Adjustment Factor, the City reserves the right torollunderthe Rate reduction, such thatthere is no Rate adjustment in the Rate Period for which the negative Rate Adjustment Factor wascalculated, but the calculated Rate reduction may be deferred to the following Rate Period, as a creditagainst future Rate increases.A.ContractorsRate ApplicationContractorsRate application for any Rate Period where Rates shall be adjusted using the costbasedmethodology described in this Exhibit E2 shall include the information described in this Section 1.A. Withthe exception of the information identified in Subsections 1, and 2 below, all other items listed may berequested by the City Contract Manager at any time during the Term of the Agreement and Contractorshall comply with that request in a timely fashion.1. Financial Statements.Within one hundred twenty (120) calendar days after the close of theContractorsfiscal year (June 30), Contractor shall deliver to the City one (1) hard copy of thereviewed (or audited) consolidated financial statements of Contractor for the preceding fiscalyear. Financial statements shall include a supplemental combining schedule showingContractor's results of operations, including the specific revenues and expenses in connectionwith the operations provided for in this Agreement separate from others included in suchfinancial statements. The financial statements and footnotes shall be prepared in accordancewith Generally Accepted Accounting Principles (GAAP) consistently applied and fairlyreflecting the results of operationandContractorsfinancial condition. Annual financialstatements shall be reviewed (or audited), in accordance with Generally Accepted AuditingStandards (GAAS) by a Certified Public Accountant (CPA) licensed (in good standing) to EXHIBIT E2 COST-BASED RATE ADJUSTMENT METHODOLOGY
July 1, 2021 Page E2-2 Franchise Agreement, Exhibit E2
practice public accounting in the State as determined by the State Department of ConsumerAffairs Board of Accountancy, and that theCPAsopinion on Contractor's annual financialstatements shall be unqualified, and shall contain theCPAsconclusions regarding theContractorsaccounting policies and procedures, internal controls, and operating policies. TheCPA shall perform an evaluation and, if necessary, shall cite recommendations forimprovement.2. Financial Statement Reconciliation.Contractor shall provide a schedule which clearly andaccurately ties the amounts shown inContractorsRate application toContractorsfinancialstatements. Such schedule shall include any and all allocation factors and methodologies usedto report cost and operating information for services provided to the City under thisAgreement separately from Contractor obligations related to other public or private entities.Such statement of reconciliation shall include:a. General explanation of the various allocation methodologies used for each Rateapplication line item.b. Specific examples of each type of allocation used showing how an entry is reported inthe general ledger and ties to the Rate application.c. Statement indicating whether there have been any changes in allocation methods usedsince the last Rate application. If any allocation methods have changed clearly identifythose changes.3. Operational Information.a. Routes by Line of Business:i. Number of Routes per day.ii. Types of vehicles.iii. Crew size per Route.iv. Number of full time equivalent (FTE) Routes.v. Number of accounts and cubic yards scheduled per Route.vi. Total Route hours per Line of Business per year.vii. Average cost per Route.b. Personnel:i. Organizational chart.ii. Job classifications and number of employees (e.g., administrative, Customerservice representatives, drivers, supervisors, educational staff).iii. Wages by job classification.iv. Number of FTE positions for each job classification.v. Number of hours per job classification per year.c. Productivity Statistics:i. Average Number of accounts per Route per day by Line of Business.ii. Average number of setouts per Route per day by Line of Business.iii. Average Tons per Route per day by vehicle type (i.e., sideloader, frontloader, rolloff).iv. Average cubic yards of Collection scheduled per Route.
EXHIBIT E2 COST-BASED RATE ADJUSTMENT METHODOLOGY
July 1, 2021 Page E2-3 Franchise Agreement, Exhibit E2
d. Vehicles:i. List of Collection vehicles including year purchased and mileage.ii. Average age of mobile equipment with oldest and newest.e. Operational Changes:i. Number of Routes.ii. Staffing.iii. Supervision.iv. Collection services.4. Variance Analysis.Provide the following variance analysis for each Line of Business. For anyvariances greater than five percent (5%) annually, Contractor shall provide sufficient rationaleto support variance:a. Variance analysis comparing current Rate Period to each of the prior Rate Periods ofAgreement.b. Variance analysis comparing current Rate Period to each of the future projected RatePeriods.5. Projections. Provide the following projection data:a. Provide support for the basis for projected Gross Receipts and line item expenses, clearlyindicate the supporting calculations and assumptions.b. Provide support for the mostrecent twelve (12) months of Tonnage data for Rate Periodending June. Clearly indicate the supporting calculations and assumptions.2. Forecasting Total Contractor’s Compensation The TotalContractorsCompensation for the coming Rate Period shall be forecasted in the mannerdescribed in this Section.A. Forecasting Total Annual Cost of Operations1. Determine Actual Allowable Total Annual Cost of Operations.Contractor's financialstatements, books, and records shall be reviewed to determine Contractor'sActualAllowable Total Annual Cost ofOperationsfor the mostrecently completed Rate Period toperform all the services in the manner required by this Agreement for each of the followingcost categories:a. Actual laborrelated costsb. Actual vehiclerelated costs (excluding fuel and depreciation)c. Actual fuel costsd. Actual other costs (as defined on Form 6E of Exhibit G1)e. Direct depreciation costs (in the amount specified in Exhibit E1) EXHIBIT E2 COST-BASED RATE ADJUSTMENT METHODOLOGY
July 1, 2021 Page E2-4 Franchise Agreement, Exhibit E2
f. Actual allocated costs (labor, vehicle, general and administrative, and other costs)g. Actual allocated costs (depreciation and startup) (in the amount stated in Exhibit E1)2. NonAllowable Costs.The following list of nonallowable costs shall be deducted from theContractorsactual costs when determining the Actual Allowable Total Annual Cost ofOperations.a. Labor, equipment, fuel, and startup costs for personnel, vehicles, and facilities that arenot specified in the proposal forms contained in Exhibit G1 and/or which cannot bedemonstrated to have been incurred as part of the performance of services under thisAgreement, including, without limitation, as the result of growth in the number ofcustomers and/or the levels and/or types of services provided.b. Payments to directors and/or owners of Contractor unless the amount paid is reasonablecompensation for services actually rendered. Reasonableness shall be determined basedon available market pricing for similar services and shall be in the reasonable discretionof the City.c. Travel expenses and entertainment (above five thousand dollars ($5,000) annually intotal) expenses, unless authorized in advance by the City.d. Payments to repair damage to public or private property for which Contractor is legallyliable.e. Fines or penalties of any nature.f. Liquidated Damages assessed under this Agreement.g. Federal or State income taxes.h. Cash donations or value of inkind services provided to charitable, political, youth, civic,or other community organizations unless such donation has been previously approvedin writing as an allowable expense by the City Contract Manager.i. Depreciation or interest expense for Collection vehicles, Containers, other equipment,offices and other facilities if such items are leased as specified in Exhibit G2.j. Attorney's fees and other expenses incurred by Contractor in any court proceeding inwhich the City and Contractor are adverse Parties.k. Attorney's fees and other expenses incurred by Contractor arising from any act oromission in violation of this Agreement.l. Attorneys' fees and other expenses incurred by Contractor in any court proceeding inwhich Contractor's own negligence, violation of law or regulation, or wrong doing are inissue and occasion, in whole or in part, the attorneys' fees and expenses claimed; andattorneys' fees and expenses incurred by Contractor in a court proceeding in which thelegal theory or statute providing a basis of liability against Contractor also provides forseparate potential liability for the City derived from the action of its citizens or Ratepayers (such as in a CERCLA lawsuit) unless the Contractor is found not liable in suchclaims and such claims arise from acts or occurrences within the Term of the Agreement.
EXHIBIT E2 COST-BASED RATE ADJUSTMENT METHODOLOGY
July 1, 2021 Page E2-5 Franchise Agreement, Exhibit E2
m. Payments to RelatedParty Entities for products or services, in excess of the market valuefor those products or services, provided that the City may use information available to itto verify market pricing for similar products and services.n. Goodwill.o. Unreasonable profitsharing distributions.p. Replacement costs for Containers that need to be replaced because the useful life ofsuch Container was less than the Term.q. Administrative costs greater than the administrative costs presented inContractorsProposal (Exhibit G) adjusted annually by one plus the Annual Percentage Change in theCPIU.r. Bad debt writeoffs in excess of two percent (2%) of annual Rate revenues.3. Forecast Total Annual Cost of Operations.Forecasted Total Annual Cost of Operations forthe coming Rate Period shall be calculated based on Actual Allowed Total Cost of Operationsfor the mostrecently completed Rate Period determined in accordance with Sections 2.A.1and 2.A.2 above. The forecasts shall be performed in the following manner:a. Forecasted laborrelated costsshall be calculated in the manner described in Section2.A.1 of Exhibit E1.b. Forecasted vehiclerelated costs(excluding fuel and depreciation costs) shall becalculated for the coming Rate Period by (i) multiplying the allowed vehiclerelated costs,both direct and allocated, for the mostrecently completed Rate Period by one plus theAnnual Percentage Change in the Motor Vehicle Maintenance and Repair Index, and (ii)multiplying the result of step one once more by one plus the Annual Percentage Changein the Motor Vehicle Maintenance and Repair Index.c. Forecasted fuel costsshall be calculated for the coming Rate Period by (i) multiplyingthe allowed fuel costs, both direct and allocated, for the mostrecently completed RatePeriod by one plus the Annual Percentage Change in the Fuel Index, and (ii) multiplyingthe result of step one once more by one plus the Annual Percentage Change in the FuelIndex.d. Forecasted other costsshall be calculated for the coming Rate Period by (i) multiplyingthe allowed otherrelated costs, both direct and allocated, for the mostrecentlycompleted Rate Period by one plus the Annual Percentage Change in CPIU, and (ii)multiplying the result of step one once more by one plus the Annual Percentage Changein the CPIU.e. Forecasted direct depreciation expenseshall be the amount specified in in Section 2.A.5of Exhibit E1. Direct depreciation expense is a fixed cost and is not subject to inflation.f. Forecasted allocated laborrelated, vehiclerelated, general and administrative, andother costsshall be calculated for the coming Rate Period by (i) multiplying the allowedotherrelated costs for mostrecently completed Rate Period by one plus the AnnualPercentage Change in CPIU, and (ii) multiplying the result of step one once more by one EXHIBIT E2 COST-BASED RATE ADJUSTMENT METHODOLOGY
July 1, 2021 Page E2-6 Franchise Agreement, Exhibit E2
plus the Annual Percentage Change in CPIU (except in each case as provided in 3.a.above).g. Forecasted allocated depreciation and startup expenseshall be the amount specifiedin Section 2.A.7 of Exhibit E1.h. Forecasted Total Annual Cost of Operationsfor the coming Rate Period shall equal thesum of the following costs, which shall have been calculated in accordance with theprocedures in this Exhibit E2:i. Forecasted laborrelated costsii. Forecasted vehiclerelated costs (excluding fuel and depreciation costs)iii. Forecasted fuel costsiv. Forecasted other costsv. Forecasted direct depreciation expensevi. Forecasted allocated laborrelated, vehiclerelated, general and administrative,and other costsvii. Forecasted allocated costs for depreciation and startupB. Forecast ProfitContractor shall be entitled to Profit on Forecasted Total Annual Cost of Operations. Profit shall becalculated using an operating ratio as described in Exhibit E1, Section 4. Profit shall be calculated usingthe following formula:Profit = (Forecasted Total Annual Cost of Operations / Operating Ratio)Forecasted Total AnnualCost of OperationsFor example:1. Assuming an operating ratio of 92%2. Assuming a Forecasted Total Annual Cost of Operations of $1,000,0003. Profit = ($1,000,000 / 0.92)$1,000,000 = $86,956.52C. Forecast Costs Excluded from the Calculation of ProfitCosts Excluded from the Calculation of Profit for the coming Rate Period shall be forecasted in thefollowing manner:1. Forecasted Recyclable Materials Processing Costsshall be calculated in the mannerdescribed in Section 2.C.1 of Exhibit E1.2. Forecasted Organic Materials Processing Costsshall be calculated in the manner describedin Section 2.C.2 of Exhibit E1.3. Forecasted Reusable Materials Processing Costsshall be calculated in the manner describedin Section 2.C.3 of Exhibit E1.4. Forecasted Disposal Costsshall be calculated in the manner described in Section 2.C.4 ofExhibit E1.
EXHIBIT E2 COST-BASED RATE ADJUSTMENT METHODOLOGY
July 1, 2021 Page E2-7 Franchise Agreement, Exhibit E2
5. Forecasted Interest Expense.Interest Expense shall be calculated in the manner describedin Section 2.C.5 of Exhibit E1.6. Forecasted Direct Lease Costs.Direct Lease Costs shall be calculated in the manner describedin Section 2.C.6 of Exhibit E1.7. Forecasted Allocated Lease Costs.Allocated Lease Costs shall be calculated in the mannerdescribed in Section 2.C.7 of Exhibit E1.D. Forecast City ReimbursementsCity Reimbursements shall be calculated in the manner described in Section 2.E of Exhibit E1.3. Projected Gross Rate Revenue Projected Gross Rate Revenue at thencurrent Rates shall reflect projected annual Gross Rate Revenuesfrom all Customers based on thencurrent Rates and thencurrent Customer Service Levels, inclusive of allRates and special charges authorized under this Agreement. For the purposes of determining CustomerService Levels for oncall services (e.g., DropBox service provided less than weekly, Bin rentals, etc.) andspecial charges (e.g., Push Charges, lock/unlock charges), the prior twelve (12) months of billing activityfor such services and special charges shall be used.4. Rate Adjustment Factor The Rate Adjustment Factor shall equal the Forecasted Total Calculated Costs for the coming Rate Perioddivided by the Projected Gross Rate Revenues calculated in accordance with Section 2 of this Exhibit E2.The Rate Adjustment Factor shall be rounded to the nearest thousandth.5. Adjustment of Rates Each thencurrent Rate shall be multiplied by the Rate Adjustment Factor to calculate the effective Ratefor the coming Rate Period.
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The purpose of this Exhibit E3 is to describe and illustrate the method by which the City will calculate theannual adjustment to Recyclable Materials Processing Costs under Exhibit E1, Section 2.C.1 and ExhibitE2, Section 2.C.1. The intent of the Parties is to limit the adjustment of Processing costs to inflationaryindices, but allow adjustment of both the value of Recyclable commodities and Disposal based on theactual operating results of the Approved Recyclable Materials Processing Facility.The cost categories of the main components of Recyclable Materials Processing Costs are presented indetail in Section 3 below. Adjustments to these components to calculate costs for the coming Rate Periodshall be calculated as follows:A. Total Annual Cost of Operations1. LaborRelated Costs.The LaborRelated Costs component of the Recyclable MaterialsProcessing Costs for the thencurrent Rate Period is multiplied by one plus the AnnualPercentage Change in the CPIU.2. Repairs and Maintenance.The Repairs and Maintenance Costs component of the RecyclableMaterials Processing Costs for the thencurrent Rate Period is multiplied by one plus theAnnual Percentage Change in the CPIU.3. Transportation.The Transportation Costs component of the Recyclable Materials ProcessingCosts for the thencurrent Rate Period is multiplied by one plus the Annual Percentage Changein the CPIU.4. General and Administrative.The General and Administrative Costs component of theRecyclable Materials Processing Costs for the thencurrent Rate Period is multiplied by oneplus the Annual Percentage Change in the CPIU.5. Other Operational.The Other Operational Costs component of the Recyclable MaterialsProcessing Costs for the thencurrent Rate Period is multiplied by one plus the AnnualPercentage Change in the CPIU.6. Depreciation.The Depreciation Costs component of the Recyclable Materials ProcessingCosts is one million eight hundred and eightynine thousand nine hundred seventyone dollarsand sixtythree cents ($1,889,971.63) per year for all Rate Periods and is not adjusted.7. Interest.The Interest Costs component of the Recyclable Materials Processing Costs is onehundred twentyone thousand, one hundred and seventeen dollars and forty cents($121,117.40) per year for all Rate Periods and is not adjusted.8. Total Annual Cost of Operations Before Profit.The Total Annual Cost of Operations BeforeProfit equals the sum of the costs calculated in subsections (1) through (7) above.
9. Profit.Contractorsprofit on Total Annual Cost of Operations Before Profit shall be calculatedusing an operating ratio of ninetyfive percent (95%) on the Total Annual Cost of OperationsBefore Profit calculated in Section 2.A.8 above.10. Total Annual Cost of Operations.The Total Annual Cost of Operations for the coming RatePeriod equals the sum of Total Annual Cost of Operations Before Profit, plus profit.11. Base Tons Processed.The Base Tons Processed shall be the proposed Recyclable MaterialTons by Contractor in Rate Period 1, or the Base Tons Processed from the most recentlycompleted costbased Rate adjustment.12. Total Annual Cost of Operations Component. The Total Annual Cost of OperationsComponent of the Recyclable Materials Processing Costs for the coming Rate Period equalsthe Total Annual Cost of Operations divided by the Base Tons Processed.If prior year actual Processed Tons at the Approved Recyclable Materials Processing Facilityincrease or decrease by at least ten percent (10%) compared to the prior RatePeriodsTonsProcessed, the Total Annual Cost of Operations shall be the sum of: 1) the actual costs for thecomponent in Sections 2.A.1 through 2.A.5; and, 2) the fixed annual Depreciation and Interestin Sections 2.A.6 and 2.A.7, respectively, divided by the actual total Tons Processed for therecent twelve (2) months, from all sources. The actual total Tons Processed shall be the nextRatePeriodsBase Tons Processed.B. Residue Disposal Cost.1.Residue Disposal Cost.The Residue Disposal Costs shall equal the total actual cost of Disposalfor any and all Residue which cannot be marketed by Contractor. The perTon cost of Disposalfor the purposes of this Exhibit E3 may not exceed the Disposal tip fee at the DesignatedDisposal Facility. Contractor shall engage a third party to design and perform a Residuecharacterization of the Recyclable Materials Processed at the Approved Recyclable MaterialsProcessing Facility a minimum of one time per calendar year. Contractor shall propose a studymethodology that must include separately Processing at least thirty (30) Tons of RecyclableMaterials, stratified across no fewer than three distinct days of service, from the City at theApproved Recyclable Materials Processing Facility under normal operating conditions for thefacility (i.e., staffing levels, belt speed, burden depth, etc.). The methodology must beapproved by the City Contract Manager in writing prior to Contractor conducting such a study.The results of that study shall be used to determine the allowable level of Residue Disposalcredit allocated to the City for the upcoming Rate Period by multiplying the change inpercentage of Residue found during the Residue characterization described above by the totalrecyclable materials Tons Collected and then multiplied by the perTon cost of Disposal. TheCity shall be notified at least thirty (30) days in advance of each annual study and Contractorshall invite the City Contract Manager to observe all aspects of the study.2.Net Residue Disposal Cost Component. The Net Residue Disposal Cost Component of theRecyclable Materials Processing Costs for the coming Rate Period equals the perTon ResidueDisposal Cost, less the perTon Residue Disposal Credit to the City.
C. Recyclable Commodity Value.1.Recyclable Commodity Value.The Recyclable Commodity Value shall equal the net of totalgross revenues for the sale of marketable materials less the cost paid to buyers for marketablematerials by the Approved Recyclable Materials Processing Facility as a result of marketingProcessed Recyclable Materials.2.Profit.Contractorsprofit on the Recyclable Commodity Value shall equal five percent (5%) ofthe total Recyclable Commodity Value.3.Recyclable Commodity Value Component.The Recyclable Commodity Value Component ofthe Recyclable Materials Processing Costs for the coming Rate Period equals the RecyclableCommodity Value less profit, divided by the total Tons Processed, from all sources, at theApproved Recyclable Materials Processing Facility.D. Net PerTon Recyclable Materials Processing Costs.The PerTon Recyclable Materials ProcessingCosts shall be the sum of the perTon Total Annual Cost of Operations Component (calculated inSection 2.A.12), the Net PerTon Residue Disposal Component (calculated in Section 2.B.2), and theperTon Recyclable Commodity Value Component (calculated in Section 2.C.3).E. Recyclable Materials Processing Costs.The total Recyclable Materials Processing Costs to be usedunder Exhibit E1, Section 2.C. shall equal the PerTon Recyclable Materials Processing Costs(calculated in Section 2.D), multiplied by the Tons of Recyclable Materials Collected by Contractorduring the mostrecently completed twelve (12) month period in the City.The table below presentsContractorsproposed Rate Period 1 cost components for the ApprovedRecyclable Materials Processing Facility. These values shall form the baseline for calculating alladjustments under this Exhibit E3.Cost ComponentRate Period 1ValueANNUAL COST OF OPERATIONSLaborRelated$6,277,569Repairs and Maintenance$761,084Transportation$1,256,849General and Administrative$1,830,869Other Operational$204,835Depreciation$1,889,971Interest$121,117TOTAL ANNUAL COST OF OPERATIONS$12,342,294Net Residue Disposal Cost$1,558,93295% of Recyclable Commodity Value($5,065,670)Profit$916,209Recyclable Materials Processing Costs$9,485,150 Base Tons Processed72,264Per Ton Recyclable Materials Processing Cost$131.26The following examples illustrate the indexbased and costbased adjustment method for determiningRecyclable Materials Processing Costs for Rate Period Three. The dollar amounts shown are hypotheticalamounts for Rate Period Two (July 1, 2022 through June 30, 2023) and the adjustment factors are basedon assumed changes in the various indices between the Average Index Values for the twelve (12) monthsending December 2021 and for the twelve (12) months ending December 2020. Example A depicts astandard indexbased or costbased adjustment, wherein the change in Tons is below the fifteen percent(15%) threshold. Example B depicts a costbased adjustment wherein the change in Tons is above thefifteen percent (15%) threshold.A. EXAMPLE A1. Assumptions for Example Recyclable Materials Processing Cost Calculation:a. Thencurrent Rate Period = Rate Period Two (July 1, 2022 through June 30, 2023)b. Coming Rate Period = Rate Period Three (July 1,2023 through June 30, 2024)c. Recyclable Materials Processing Costs per Ton for thencurrent Rate Period= $130.53 perTond. Net Residue Disposal Costs for the coming Rate Period = $1,582,316e. Annual Percentage Change in the CPIU = 0.020f. Proposed Base Tons Processed = 72,317 tonsg. Actual Recyclable Material Tonnage for January 1, 2021 through December 31, 2022 =72,500 tonsh. Recyclable Material Tonnage for the mostrecently completed 12month period= 73,950tonsi. Residue Study Results for City of Alameda = 7.8%j. Recyclable Commodity Value for the most recently completed 12month period =$5,492,253.Note: All values presented in the following table are hypothetical and used for illustrative purposes only.
TABLE 1Example A Calculation of Recyclable Materials Processing Costs for Rate Period ThreeTonnage Change Under the 15% ThresholdRY2 RY3Effective July 1, 2022 Effective July 1, 2023 RY3 example shown is for illustrative purposes only
Factorp y g g
TABLE 2Example A Calculation of Recyclable Materials Processing Costs for Rate Period ThreeResidue Disposal Credit Component Calculation TABLE 3Example A Calculation of Recyclable Materials Processing Costs for Rate Period ThreeResidue Disposal Component Calculation RY 3
RY3
B. EXAMPLE B1. Assumptions for Example Recyclable Materials Processing Cost Calculation:a. Thencurrent Rate Period = Rate Period Two (July 1, 2022 through June 30, 2023)b. Coming Rate Period = Rate Period Three (July 1, 2023 through June 30, 2024)c. Recyclable Materials Processing Costs per Ton for thencurrent Rate Period= $130.53 perTond. Net Residue Disposal Costs for the coming Rate Period = $1,839,540f. Proposed Base Tons Processed = 72,317 tonsg. Actual Recyclable Material Tonnage for January 1, 2021 through December 31, 2022 =72,500 tonsh. Recyclable Material Tonnage for the mostrecently completed 12month period= 84,100tonsi. Residue Study Results for City of Alameda = 7.8%j. Recyclable Commodity Value for the most recently completed 12month period =$6,398,742.Note: All values presented in the following table are hypothetical and used for illustrative purposes only.
TABLE 4Example A Calculation of Recyclable Materials Processing Costs for Rate Period ThreeTonnage Change Over the 15% Threshold TABLE 5Example B Calculation of Recyclable Materials Processing Costs for Rate Period ThreeResidue Disposal Component Calculation RY2 RY3Effective July 1, 2022 Effective July 1, 2023
RY3 example shown is for illustrative purposes only
Factor
TABLE 6Example A Calculation of Recyclable Materials Processing Costs for Rate Period ThreeResidue Disposal Component Calculation RY 3
RY3
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