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Item9_SCSS-Rate-Increase-06-13-22

Grover Beach City Council
June 13, 2022

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Item9_SCSS-Rate-Increase-06-13-22
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June 13, 2022
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Grover Beach City Council
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Agenda Item No. 9

CITY COUNCIL STAFF REPORT
TO: Honorable Mayor and City Council DATE: June 13, 2022 FROM: Matthew Bronson, City Manager
PREPARED BY: Deanne Purcell, Administrative Services Director SUBJECT: Proposed South County Sanitary Service Rate Increases

RECOMMENDATION
1) Conduct the Proposition 218 public hearing and determine the official number of written protests received on proposed rate increase and 2) if the number of valid protests is below 50% of the number of property owners or customers authorized to vote, adopt the Resolution approving the request by South County Sanitary Service for rate increases for solid waste collection and disposal services pursuant to the City’s Franchise Agreement effective June 15, 2022, January 1, 2023 and January 1, 2024.

BACKGROUND
South County Sanitary Service (SCSS) is a private company that has been providing solid waste collection and disposal services including recycling services under a Franchise Agreement with the City of Grover Beach beginning July 7, 2008 with a term of 15 years. This agreement was amended on June 20, 2016 to extend the term of the agreement by 20 years beginning the first day of operation of a new Kompogas organics processing facility.

The Franchise Agreement allows for a base rate adjustment every three (3) years and interim rate increases in the other two (2) years. In interim periods, the operator is limited to increases resulting from inflation, tipping fee adjustments, and franchise or regulatory fee increases. On October 20,2021, SCSS submitted a base year rate increase application to be effective January 1, 2022, with an initial rate increase request of 24.65%. However, due to the complexity, concerns with pending rates increases by the Integrated Waste Management Authority (IWMA) and subsequent reviews and information exchanges, a revised application was submitted on February 18, 2022. The February 18, 2022 rate application is attached to this report and in this latest application, SCSS is requesting a rate increase of 22.19%.

The two key differences between the initial and revised application:
• Greenwaste processing costs have been reclassified as “pass-through” costs: while costs may be recovered, no profit is allowed on them.
• IWMA fees have been excluded from the fee analysis. These are approved by a separate agency and will be charged separately on customer bills.

Key cost drivers, which account for almost 90% of the cost increases are shown on the following page:

Staff Report: Proposed SCSS Rate Increases Page 2
June 13, 2022
*
*In addition, there will be a 5.12% increase to recover revenue lost due to this rate increase being delayed from May 1, 2022 to June 15, 2022. This recovery component will expire January 1, 2023, so the temporary increase of 5.12% will be added to the 22.19% increase for a total increase of 27.32%, effective from June 15, 2022 to December 31, 2022.

In addition, commencing on January 1, 2023 and January 1, 2024, rates shall be increased based on the following:

1. Changes in the Consumer Price Index (CPI) for Bureau of Labor Statistics’ CPI for Urban Consumers based on All U.S. City Average, Bureau of Labor Statistics for the month of June 2022 for January 1, 2023 and June 2023 for January 1, 2024;

2. Changes in pass-through costs (primarily landfill tipping fees, which SCSS does not control: they are set by the County Board of Supervisors);

3. An adjustment to cover increased franchise fees.

These requested rate increases are similar to requested increases in Arroyo Grande, Pismo Beach, and Oceano. Pismo Beach has already approved these increases and Arroyo Grande will consider them on June 14. At the March 9, 2022, San Luis Obispo County Integrated Waste Management Authority (IWMA) Board Meeting, a 5.4% solid waste management fee was adopted to account for operational and capital cost increases due largely to the implementation of SB 1383.

The adopted fee will be effective on July 1, 2022. The City has authorized SCSS to bill this fee on-behalf of the IWMA.

Per the Franchise Agreement with SCSS, a rate review was carried out upon submission of the rate application in accordance with the “City of San Luis Obispo Rate Setting Process and Methodology Manual for Integrated Solid Waste Management Rates.” As the City has done in the past, Grover Beach joined with other South County entities in contracting with Mr. Bill Statler to provide an independent review of the rate adjustments that were set by SCSS. Mr. Statler is the former Finance Director for the City of San Luis Obispo and the author of the “City of San Luis Obispo Rate Setting Process and Methodology Manual for Integrated Solid Waste Management Rates” noted above. In his review shown in Attachment 3, Mr. Statler finds the rate adjustments for all three years justified and recommends their approval based on the following findings and will be available at the Council meeting to answer questions:
• Complete Application: With its revised application, SCSS has fully provided the supporting documentation required for rate requests under the Franchise Agreements in Arroyo Grande, Oceano, Pismo Beach and Grover Beach. The revised application (Attachment 3) has been correctly prepared.
2022 Cost Increase from 2020 Amount
% of
Total
Rate
Impact
Truck Depreciation 998,708 36% 8.05%
Food and green waste recycling via Materials
Recovery Facility (MRF) operations to comply with
Senate Bill (SB) 1383 956,783 35% 7.71%
Insurance (Health & Liability) 298,612 11% 2.41%
Gas & Oil 131,422 5% 1.06%
Total Key Drivers 2,385,525 87% 19.23%
Other Costs (Labor, ongoing maintenance, disposal
costs at the landfill and MRF, and other pass-through
costs) 367,275 13% 2.96%
Total 2,752,800 100% 22.19%
Staff Report: Proposed SCSS Rate Increases Page 3
June 13, 2022
• High Level of Service at a Reasonable Cost: SCSS provides a broad level of high-quality services to these four agencies—including garbage, recycling and green waste collection and disposal as well as hauler-provided "waste wheeler" containers for all three services— at very competitive rates compared with many other communities. In fact, even with the recommended rate increase, rates in the four South County agencies will be among the lowest of those surveyed.
• “Trigger Option”: As discussed in greater detail in the SCSS Solid Waste Rate Review (Attachment 3), the rate increase exceeds the cost-of-living threshold that “triggers” the option of terminating the Franchise Agreements within nine months after rate approval. • Need for Updated Rate-Setting Methodology: The rate-setting process is based on the City of San Luis Obispo’s Rate Setting Process and Methodology Manual for Integrated Solid Waste Management Rates (Rate Manual) adopted in 1994. With very minor modifications, this approach has been in place for almost 30 years. There were several issues that surfaced in the 2019 rate review that had not been encountered previously including corporate overhead, greenwaste and materials recovery facility (MRF) costs as well as rate structure concerns. As a result, Mr. Statler recommends updating the Rate Manual before the next Base Year review. Staff concurs with this recommendation and will work with other agencies on updating this Rate Manual.

The Proposition 218 notice was mailed on April 28, 2022, to all customers and owners of record of a property that receive service from SCSS for garbage, recycling and green waste collection and disposal, in compliance with the 45-day notification requirement. The City also put information about the proposed rate increase on the City’s website. Attachment 2 includes a copy of the notice which informed customers about the proposed rate increases, the June 13th public hearing and how to submit a protest. At the time of the agenda posting, 11 protests have been received out of 4,271 mailed to property owners and account holders. There are 4,311 residential customers and 447 commercial customers for a total of 4,758 accounts. The reason there were fewer notifications mailed was because some customers owned multiple properties, so the duplicate addresses were removed to prevent multiple notices going to the same address.

Any owner or customer of record that is required to pay the subject fees of a parcel subject to the proposed rates may submit a written protest against the proposed rate revisions. A written protest must contain the street address or Assessor’s Parcel Number (APN) for the parcel(s) with respect to which the protest is made. The protest must also be signed by the owner or customer who pays the fees. Protests may be mailed or hand-delivered to the City’s office. Protests may also be delivered to the City Clerk at the public hearing. To be valid, a signed written protest must be received by the City Clerk at or before the time of the protest hearing. At the end of the public hearing, the City Clerk will tally and report the qualifying written protests and the Council will then certify whether the written protests opposing the increases meet the 50% threshold required to constitute a majority protest. If a majority protest does not exist, the Council may approve the Resolution to adopt the proposed rates. If adopted, the initial rate increase would be effective on June 15, 2022. In addition, SCSS has also requested interim adjustments to be effective January 1, 2023 and January 1, 2024.

Staff Report: Proposed SCSS Rate Increases Page 4
June 13, 2022

FISCAL IMPACT
If approved, the proposed rate increase would apply to all residential and business accounts in Grover Beach. The table below shows a sample of some of the increases in monthly costs to SCSS residential customers in Grover Beach using the proposed rate increases that would become effective June 15, 2022.

PUBLIC NOTIFICATION
The agenda was posted in accordance with the Brown Act. A public hearing notice was published in New Times and posted accordingly in the locations for public notices. SCSS mailed Prop. 218 notices directly to all customers located in Grover Beach in April 2022.

Attachments

1. Resolution No. 22-_

2. Notice of Public Hearing Regarding Proposed Solid Waste Rate Increase including SCSS 2022 base year rate increases effective June 15, 2022 for the City of Grover Beach

3. SCSS Solid Waste Rate Review dated March 2022 and prepared by Bill C. Statler

4. Historical South County Sanitary Service Rate Changes Single Family
Residential -
Container
Size
Current
Monthly
Rate
Proposed
Rate
Adjustment
using May 1-

27.31%
New
Monthly
Rates
Effective
6-15-2022
32-gallon $ 17.65 $ 4.82 $ 22.47
64-gallon $ 23.85 $ 6.51 $ 30.36
96-gallon $ 30.03 $ 8.20 $ 38.23
RESOLUTION NO. 22-

A RESOLUTION OF THE CITY COUNCIL OF THE CITY OF GROVER

BEACH, CALIFORNIA, ADOPTING INTEGRATED SOLID WASTE RATES FOR JUNE 15, 2022, JANUARY 1, 2023, AND JANUARY 1, 2024 WHEREAS, South County Sanitary Service has submitted a rate increase application in accordance with the City's franchise agreements for solid waste, recycling, green waste, and organic waste services; and
WHEREAS, this application has been comprehensively reviewed in accordance with the City's rate-setting policies; and
WHEREAS, notices of the proposed and requested rate increase were sent to property owners and tenants and a Public Hearing was held on June 13, 2022 to consider public testimony regarding the proposed rate increase.

NOW, THEREFORE, BE IT RESOLVED BY THE CITY COUNCIL OF THE CITY OF GROVER BEACH:

1. The request for solid waste rates set forth in Exhibit A is approved and shall become effective on June 15, 2022.

2. The request for solid waste rates increases as follows on January 1, 2023 and January 1, 2024 is also approved and the rates will be an:
a. Increase, if any, in the Consumer Price Index (CPI) for Bureau of Labor Statistics’ CPI for Urban Consumers based on All U.S. City Average, Bureau of Labor Statistics for the month of June 2022 for January 1, 2023 and June 2023 for January 1, 2024; b. Increase, if any, in pass-through costs (primarily landfill tipping fees, which SCSS does not control: they are set by the County Board of Supervisors); c. Increase, if any, adjustment needed to cover increased franchise fees.

3. Due to the reasonableness of the requested rate increase, the City will not pursue the termination option set forth in Section 8.3 of the City's Franchise Agreement with South County Sanitary Service.

On motion by ___-, seconded by ____, and on the following roll call vote, to wit:

AYES:

NOES:

ABSENT:

ABSTAIN:

Attachment 1
Resolution No. 22-
the following Resolution was PASSED, APPROVED, and ADOPTED at the Regular Meeting of the City Council of the City of Grover Beach, California, June 13th, 2022. _________________________________

JEFF LEE, MAYOR
Attest:
______________________________
WENDI B. SIMS, CITY CLERK
**DRAFT**
Exhibit A SOUTH COUNTY SANITARY SERVICE

CITY OF GROVER BEACH
Service Description
Pickups Per
Week
Current
Monthly Rates
Effective
1/1/2021
Proposed
Rate
Adjustment
New Monthly
Rates Effective
06/15/2022
RESIDENTIAL:
32 Gallon Waste Wheeler 1 $17.65 $4.82 $22.46
64 Gallon Waste Wheeler 1 $23.85 $6.51 $30.36
96 Gallon Waste Wheeler 1 $30.03 $8.20 $38.23
TWO-64 Gallon Waste Wheelers 1 $36.24 $9.90 $46.13
ONE 64 & ONE 96 Gallon 1 $42.43 $11.59 $54.01
TWO-96 Gallon Waste Wheelers 1 $48.63 $13.28 $61.91

APARTMENTS, TRIPLEX, DUPLEX
Rates are the same as commercial rates (below).

COMMERCIAL DUMPSTERS - ALL AREAS:
1 yd dumpster 1 $82.39 $22.51 $104.90
1 yd dumpster 2 $122.52 $33.47 $155.99
1 yd dumpster 3 $166.90 $45.59 $212.49
1 yd dumpster 4 $211.28 $57.71 $268.99
1 yd dumpster 5 $249.28 $68.09 $317.37
1 yd dumpster 6 $297.91 $81.38 $379.29
1 yd dumpster 7 $363.84 $99.39 $463.23

1.5 yd dumpster 1 $95.08 $25.97 $121.05

1.5 yd dumpster 2 $150.01 $40.98 $190.99

1.5 yd dumpster 3 $211.28 $57.71 $268.99

1.5 yd dumpster 4 $274.67 $75.03 $349.70

1.5 yd dumpster 5 $335.92 $91.76 $427.68

1.5 yd dumpster 6 $399.30 $109.07 $508.37

1.5 yd dumpster 7 $485.80 $132.70 $618.50
2 yd dumpster 1 $107.75 $29.43 $137.18
2 yd dumpster 2 $177.46 $48.47 $225.93
2 yd dumpster 3 $259.85 $70.98 $330.83
2 yd dumpster 4 $342.26 $93.49 $435.75
2 yd dumpster 5 $418.29 $114.26 $532.55
2 yd dumpster 6 $500.70 $136.77 $637.47
2 yd dumpster 7 $612.25 $167.24 $779.49
3 yd dumpster 1 $128.88 $35.20 $164.08
3 yd dumpster 2 $247.20 $67.52 $314.72
3 yd dumpster 3 $342.26 $93.49 $435.75
3 yd dumpster 4 $445.77 $121.77 $567.54
3 yd dumpster 5 $530.30 $144.86 $675.16
3 yd dumpster 6 $629.58 $171.97 $801.55
3 yd dumpster 7 $801.78 $219.01 $1,020.79
RATE INCREASE EFFECTIVE JUNE 15, 2022
Residential customers must use the waste wheelers provided by the garbage company. This solid service fee for residential trash collections (container with black or gray lid) includes once a week pick-up of one greenwaste/organics container (green lid), and one recycling container (blue lid).

Exhibit A
4 yd dumpster 1 $166.90 $45.59 $212.49
4 yd dumpster 2 $283.08 $77.33 $360.41
4 yd dumpster 3 $405.63 $110.80 $516.43
4 yd dumpster 4 $530.30 $144.86 $675.16
4 yd dumpster 5 $652.84 $178.33 $831.17
4 yd dumpster 6 $777.47 $212.37 $989.84
4 yd dumpster 7 $992.32 $271.06 $1,263.38
6 yd dumpster 1 $250.36 $68.39 $318.75
6 yd dumpster 2 $424.61 $115.99 $540.60
6 yd dumpster 3 $608.44 $166.20 $774.64
6 yd dumpster 4 $795.46 $217.29 $1,012.75
6 yd dumpster 5 $979.28 $267.50 $1,246.78
6 yd dumpster 6 $1,166.21 $318.56 $1,484.77
6 yd dumpster 7 $1,488.50 $406.59 $1,895.09
8 yd dumpster 1 $333.81 $91.18 $424.99
8 yd dumpster 2 $566.17 $154.65 $720.83
8 yd dumpster 3 $811.26 $221.60 $1,032.86
8 yd dumpster 4 $1,060.62 $289.72 $1,350.34
8 yd dumpster 5 $1,305.68 $356.66 $1,662.34
8 yd dumpster 6 $1,554.95 $424.75 $1,979.70
8 yd dumpster 7 $1,984.64 $542.12 $2,526.76
The rates shown above include the monthly container rental fee and a semi-annual dumpster cleaning.

COMMERCIAL - OTHER CHARGES:

COMMERCIAL GARBAGE CANS - ALL AREAS:
32 Gallon Waste Wheeler 1 $23.24 $6.35 $29.59
64 Gallon Waste Wheeler 1 $42.26 $11.54 $53.80
96 Gallon Waste Wheeler 1 $52.83 $14.43 $67.26
Re-deliver bin to stopped acct $39.44 $10.77 $50.21
MISCELLANEOUS CHARGES - ALL CUSTOMERS:

Overstacked Garbage & extra bags
Minimum/unit each $5.51 $1.51 $7.02
Overstacked Greenwaste & extra
bags Minimum/unit each $2.76 $0.75 $3.51
Overstacked Blue Bin & extra bags
Minimum/unit each $2.77 $0.76 $3.53
In yard service (per can or
commodity) IN ADDITION TO
STANDARD GARBAGE RATES per month $13.75 $3.76 $17.51
Monthly charge for additional 32, 64 or
96-gallon green waste/organics
service per month $3.81 $1.04 $4.85
Monthly charge for additional 32, 64 or
96-gallon recycle service per month $1.56 $0.43 $1.99
Rates for all commercial customers include recycling or greenwaste/organics pickup once per week, included with the garbage service rate. Customers can choose from a 64 or 96 gallon blue commingled recycle waste wheeler or a 32 or 64 gallon organics waste wheeler included with the garbage service rate (96 gallon waste wheelers can only be used with green waste due to weight). If you need a bin for recycling there is a charge (see below).

If you need more frequent recycling, including organics/greenwaste service, it can be provided at a 50% discount from the garbage service rates for the specified level of service required.

Exhibit A Extended Vacation Service per month $12.83 $3.50 $16.33 Vacant Rate per month $12.83 $3.50 $16.33
Waste wheeler cleaning each time $20.52 $5.61 $26.13
Trip charge each time $13.76 $3.76 $17.52
Non-payment downsize service each time $13.76 $3.76 $17.52 Non-payment redeliver waste wheeler each time $33.07 $9.03 $42.10 Non-payment reconnect service each time $33.07 $9.03 $42.10 Small item pickup (TV, toilet) each $32.27 $8.81 $41.08 Appliance pickup-residential each $45.51 $12.43 $57.94
Lock Charge per month $7.66 $2.09 $9.75
City Clean Up each $11.97 $3.27 $15.24
Garbage extras on your scheduled
pickup day per yard $11.61 $3.17 $14.78
Garbage extras -NOT ON YOUR
SCHEDULED PICKUP DAY per yard $32.05 $8.75 $40.80
Commercial Waste Wheeler rent per month $4.26 $1.16 $5.42 Re-deliver bin on stopped acct each time $39.44 $10.77 $50.21 Compactors per yard $15.64 $4.27 $19.91
Sunday Service (in additional to
garbage service level) per month $68.86 $18.81 $87.67
Recycle bin rental per month $47.54 $12.99 $60.53
Stand by time per hour $66.00 $18.03 $84.03
Extra bin cleaning $61.55 $16.81 $78.36
Damage/Destruction of bins or waste
wheelers
Short Term Dumpsters:

Delivery & Pickup-Bin $39.44 $10.77 $50.21
Delivery & Pickup-Waste Wheeler $13.75 $3.76 $17.51
Rental Per Day $4.26 $1.16 $5.42
Empties Per Yard $32.05 $8.75 $40.80
Mattress:

Twin PER SET $17.91 $4.89 $22.80
Double PER SET $17.91 $4.89 $22.80
Queen PER SET $17.91 $4.89 $22.80
King PER SET $17.91 $4.89 $22.80
ADDITIONAL INFORMATION ALL CUSTOMERS:

Any additional recycling, including greenwaste/organic services are charged out at 50% of the garbage rate.

2. Polystyrene (Styrofoam, Plastic #6) is not collected for recycling and should be thrown away as trash. Please bag Styrofoam packing peanuts before placing in trash container.

1. Customers requesting Temporary Bins or Roll-off Box Service can call the office for current rates replacement/repair at market price

3. It is encouraged to bag your trash in the garbage container but do not bag your recyclables or green waste in their respective containers and keep it loose.

4. Recycling, Greenwaste/Organcis and Garbage containers should spaced 3 feet apart away from any obstacles (i.e mailboxes, cars, etc) before 6:00am on collection service day.

5. The fee schedule above only includes the Garbage Company rates and does not include IWMA fees, which are separately noted on the billings.

6. Cleaning fees will be billed on a time and materials basis

7. Late Fees are imposed for residential customers over 30 days delinquent. The fee is 1.5% per month of the outstanding charge, with a minimum fee of $5.00. No prior notice is required, as this late fee policy is stated at the bottom of every bill.

8. Customers can be responsible for contamination fees

CITY OF GROVER BEACH

NOTICE OF PUBLIC HEARINGS
NOTICE IS HEREBY GIVEN that the City Council of the City of Grover Beach will conduct Public Hearings at 6:00 p.m., or soon thereafter, on Monday, June 13, 2022 in City Hall, Council Chambers, 154 South Eighth Street, Grover Beach, CA to consider the following items:

SUBJECTS:

PROPOSED RATE ADJUSTMENT REQUEST FROM SOUTH COUNTY SANITARY SERVICE – Under the terms of the Franchise Agreement with South County Sanitary Service the City Council will consider a rate adjustment request from South County Sanitary Service for properties and customers receiving solid waste, recycling, and green waste services within the City. The Proposed Rate Increase is 22.19 percent for solid waste, recycling, and green waste/organics collection services. In addition, there will be a 5.12 percent increase to recover revenue lost due to this rate increase being delayed from May 1, 2022 to June 15, 2022. This recovery component will expire January 1, 2023. Several factors contributed to this rate increase including, but not limited to: increase costs associated with the purchase and operation of collection vehicles, fuel costs, labor costs, and increased costs associated with the organics digestor facility.

For example, residential customers would see the following increase:
32-gallon container from the current rate of $17.65 to $22.47 per month; 64-gallon container from the current rate of $23.85 to $30.36 per month; 96-gallon container from the current rate of $30.03 to $38.23 per month; Two 64-gallon containers from the current rate of $36.24 to $46.13 per month; One 64-gallon and one 96-gallon container from $42.43 to $54.01 per month; and Two 96-gallon containers from $48.63 to $61.91 per month.

Commercial customers would see the following increase:
32-gallon container from the current rate of $23.24 to $29.59 per month; 64-gallon container from the current rate of $42.26 to $53.80 per month; 96-gallon container from the current rate of $52.83 to $67.26 per month; Re-deliver bin to stopped account from the current rate $39.44 to $50.21 per month.

In addition, commencing on January 1, 2023, and January 1, 2024, South County Sanitary Services is proposing that all rates shall be increased based on the following:

1. Increase, if any, in the Consumer Price Index (CPI) for Bureau of Labor Statistics’ CPI for Urban Consumers based on All U.S. City Average, Bureau of Labor Statistics for the month of June 2022 for January 1, 2023, and June 2023 for January 1, 2024;

2. Changes in pass-through costs (primarily landfill tipping fees, which SCSS does not control: they are set by the County Board of Supervisors);

3. An adjustment to cover increased franchise fees.

At the March 9, 2022, San Luis Obispo County Integrated Waste Management Authority (IWMA) Board Meeting, a 5.4% solid waste management fee was adopted to account for operational and capital cost increases due largely to the implementation of SB 1383. SB 1383 is a recent state law passed with the goal of reducing methane. Methane is a potent greenhouse gas, with more than 80 time the warming power of carbon dioxide and is a major component of decomposing organic waste. Key components of SB 1383 include implementing organic waste collection programs (including food waste), monitoring organic carts for contamination, and reporting data.

Attachment 2
The IWMA is a Joint Powers Authority (JPA) formed to plan and implement regional solid waste and hazardous waste programs mandated by State law. The JPA between the City of San Luis Obispo and the IWMA can be made available by the City upon request or on the IWMA website at www.iwma.com.

A copy of the 2022 Base Year Rate Adjustment Application, which provides additional information on the proposed rate increases, is available at the City Clerk’s Office located at Grover Beach City Hall located at 154 South Eighth Street, Grover Beach.

Where You Come In:

Any member of the public may appear at the meeting and be heard on the item described in this notice or submit written comments to the City Clerk prior to the meeting by personal delivery or by mail to: City Clerk’s Office, 154 South Eighth Street, Grover Beach, CA 93433. If you require special accommodations to participate in the public hearing, please contact the City Clerk’s office at least 48 hours in advance of the meeting by calling (805) 473-4567.

For More Information:

If you have any questions or would like more information regarding the item described in this notice, please contact: City Manager Matthew Bronson by telephone at (805) 473-4567 or send an e-mail to [email protected]
The City Council may also discuss other hearings or items of business at this meeting. The complete meeting agenda and copy of the staff report on the above item will be available at the customer service counter at Grover Beach City Hall at least 72 hours in advance of the meeting. This information will also be posted on the City website at www.groverbeach.org. Live broadcasts of City Council meetings may be seen on cable television Channel 20, as well as over the Internet at www.groverbeach.org (click on the icon “Government Access Local Channel 20” and then “Channel 20”). City Council meetings are rebroadcast throughout the week.

If you challenge the nature of the proposed action in court, you may be limited to raising only those issues you or someone else raised at the Public Hearing(s) described in this notice, or in written correspondence delivered to the City at, or prior to, the Public Hearing.
________________________________
WENDI B. SIMS, CITY CLERK
Dated: Thursday, June 2, 2022
POSTED on Thursday, June 2, 2022
PUBLISH ONE TIME: (on Thurs., June 2, 2022) GROVER BEACH CITY HALL

NEW TIMES
South County Sanitary Service

SOLID WASTE RATE REVIEW
For the Communities of
Arroyo Grande
Grover Beach
Oceano
Pismo Beach
March 2022
Attachment 3
South County Sanitary Service
Solid Waste Rate Review
March 2022

TABLE OF CONTENTS
Report Purpose 1
Summary of Findings and Recommendations 1
Findings 2
Rate Recommendations 4
Rate Summary for Single Family Residential Customers 4
Background 4
Rate Review Workscope 6
Revenue and Rate-Setting Objectives 7
Financial Overview 7
Costs by Type 7
Revenues by Source 7
Service Accounts by Type 8
Rate-Setting Process 8
Base Year and Interim Year Reviews 8
Rate Increase History 9
Rate-Setting Methodology 10
Are the Costs Reasonable? 10
Detailed Cost Review 10
Trends in External Cost Drivers 14
Rates in Comparable Communities 14
What Is a Reasonable Return on These Costs? 16
Preparing the Rate Request Application 17
Proposed Rate Summary 17
Implementation 17
Rate Differences Between Communities 18
Cost Accounting Issues 18
Cost of Living Tigger Option 20
Coordination with Other Agencies 22
Summary 22

APPENDIX
A. Base Year Rate Request Application from South County Sanitary Service B. HZI Greenwaste Digester Cost Analysis
- 1 -
South County Sanitary Service

SOLID WASTE RATE REVIEW
For the Communities of Arroyo Grande, Grover Beach,
Oceano and Pismo Beach

REPORT PURPOSE
On October 20, 2021, South County Sanitary Service (SCSS) submitted a Base Year rate increase application to be effective January 1, 2022 to the Cities of Arroyo Grande, Grover Beach and Pismo Beach and the Oceano
Community Services District (CSD). However, due
to complexity, concerns with pending rate
increases by the Integrated Waste Management
Authority (IWMA) and significant subsequent
reviews and information exchanges, a revised
application was submitted on February 18, 2022.

The final application is the focus of this report in
reviewing the SCSS rate increase request in
accordance with adopted Franchise Agreement
provisions regarding rate increase applications and
to make rate recommendations to these four
agencies as appropriate.

SUMMARY OF FINDINGS AND

RECOMMENDATIONS
In its final application, SCSS is requesting a rate
increase of 22.19% in the cities of Cities of Arroyo Grande, Grover Beach and Pismo Beach; and 21.03% for the Oceano CSD (the difference is due to a 5% franchise fee rate in the Oceano CSD versus 10% in the other agencies). This compares with an initial rate request of 24.65% for three agencies (and 23.35% in the Oceano CSD). As discussed in greater detail below, all of the concerns that surfaced in the iterations and further analysis that followed in addressing issues with proposed costs for 2022 have been resolved.

There are two key differences between the initial and revised application:
124 Cerro Romauldo Avenue
San Luis Obispo, CA 93405
805.544.5838 ◼ Cell: 805.459.6326
[email protected]
www.bstatler.com
William C. Statler
Fiscal Policy ◼ Financial Planning ◼ Analysis ◼ Training ◼ Organizational Review .
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.
.

Joint Agency Review
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
provides recommendations for
each of them.

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• Greenwaste processing costs have been reclassified as “pass-through” costs: while costs may be recovered, no profit is allowed on them.
• IWMA fees have been excluded from the fee analysis. These are approved by a separate agency and will be charged separately on customer bills.

Key cost drivers in this review include the following, which account for almost 90% of the cost increases since 2020 (last audited financial statements):

Findings
• Complete Application. With its revised application, SCSS has fully provided the supporting documentation required for rate requests under the Franchise Agreements in Arroyo Grande, Oceano, Pismo Beach and Grover Beach. The revised application (Appendix A) has been correctly prepared.
• High Level of Service at a Reasonable Cost. SCSS provides a broad level of high-quality services to these four agencies—including garbage, recycling and green waste collection and disposal as well as hauler-provided “waste wheeler” containers for all three services—at very competitive rates compared with many other communities. In fact, even with the recommended rate increase, rates in these four agencies will be among the lowest of those surveyed. In short, South County communities have the best of both worlds: high quality services at a low cost (compared with other communities). • “Trigger Option.” As discussed in greater detail below, the rate increase exceeds the cost of living threshold that “triggers” the option of terminating the Franchise Agreements within nine months after rate approval.
• Need for Updated Rate-Setting Methodology. The rate-setting process is based on the City of San Luis Obispo’s Rate Setting Process and Methodology Manual for Integrated Solid Waste Management Rates (Rate Manual) adopted in 1994. In short, with very minor modifications, this approach has been in place for almost 30 years. Because of several complex issues that surfaced in the 2019 rate review that had not been encountered in the past in using this rate-setting methodology (most notably corporate overhead, greenwaste and materials recovery facility (MRF) costs as well as rate structure concerns), I recommended updating the Rate Manual before the next Base Year review. This has not occurred, and accordingly, this review is based on the current methodology. 2022 Cost Increase from 2020 Amount % of Total Rate Impact*
Depreciation 998,708 36% 8.05%
Greenwaste 956,783 35% 7.71%
Insurance 298,612 11% 2.41%
Gas and Oil 131,422 5% 1.06%
Total Key Drivers 2,385,525 87% 19.23%
Other Costs 367,275 13% 2.96%
Total $2,752,800 100% 22.19%
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However, the need for an update is even greater now: along with the 2019 concerns, new issues have surfaced in this review. As discussed in greater detail below, these include depreciation amortization period, interim rate reviews, cost allocation methodologies, accounting for disposal costs, timeframe for submitting and reviewing applications and trigger option.
• Delayed Rate Implementation. In the past, there has been no consideration of delayed rate implementation. However, the Rate Manual does provide for this if there is a delay of more than 120 days after application if it is “no fault of the franchise hauler.” Given the initial October 20, 2021 submittal date, this would indicate rate approval by March 1. However, there are three factors that mitigate this 120-day period:

1. When the 120-day period was set, the understanding at the time was that Proposition 218 45-day notice and protest requirements did not apply to approval of private company solid waste rates. However, since then
many agencies have determined that these
provisions are applicable to approval of
rates by companies like SCSS. This alone
conceptually adds 45 days to the review
process.

2. Review was delayed pending consideration
of rate increases by the IWMA and their
possible impact on SCSS rates. These new
rates were not adopted by the IWMA until
March 9, 2022. Moreover, it was
subsequently determined that since these
rates are set by the IWMA – and not the
franchising agencies – that they did not
affect agency rate-setting. (As noted above,
this resulted in a revised application from
SCSS on February 18, 2022).

3. While SCSS has been very responsive in following-up on requests for supporting data, the scope and complexity of the 2022 application has been significantly greater, and subsequently taken longer, than envisioned in the Rate Manual.

In accounting for these factors, I recommend that delayed rate implementation apply for any rates with a May 1, 2022 effective date. In short, while these delays were “no fault” of SCSS, they were not the fault of the agencies, either. That said, SCSS believes the delayed rate implementation start period should be March 1, 2022.

Where delayed rate implementation is applicable, the following temporary rate increases would be required depending on whether the delayed rate implementation start period is March 1 or May 1. (Note: The added rate increase goes up for each month of delay to be recovered while the amortization period is shortened.) Under either start date, rates would be reset in January 2023 to the “core rate” for the Interim Year adjustment.

About Proposition 218 Notices
Not all agencies prepare and issue
“Proposition 218” notices for private
sector solid waste rate increases.

However, for those that do, the notice
sets the maximum amount that rates
can be increased at the public
hearing: rates can be approved at
lesser amounts without re-noticing.

However, agencies cannot adopt
higher rates – even if they only apply
to a few customers – without another
45-day re-noticing. As such, it is
recommended that the notices reflect
the rates requested by SCSS.

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Temporary Delayed Implementation Rate Increase*
It should be noted that while the report recommends a May 1 start date for delayed rate implementation, a reasonable case could be made for an even later start date (such as June 1 or July 1) based on the mitigation factors discussed above.

Lastly, several of these review timeframe factors are not unique to the 2022 review. Accordingly, the application submittal and review schedule should be considered in the Rate Manual update.

Rate Recommendations
It is recommended that cities of Arroyo Grande, Grover Beach and Pismo Beach adopt rate increases of 22.19%; and 21.03% in the Oceano CSD.

As discussed below, this rate increase significantly exceeds the cost of living threshold that triggers the option of terminating the Franchise Agreements within nine months after rate approval. However, it is important to note that this “trigger” calculation does not limit the allowable rate increase that SCSS may request (or limit the amount that agencies may approve) under the methodology set forth in the Franchise Agreements.

Cost of Living “Trigger” Option. Along with establishing the rate review methodology, Section

8.3 of the Franchise Agreements provides that if the rate increase request compared with the rate in effect at the date of the agreement exceeds the cumulative cost of living increase from that same date, each agency has the option of terminating the agreement at any time within nine months following approval of the requested rate increase (assuming it was submitted in accordance with the rate-setting methodology).

This provision was subsequently amended in 2016 allowing for an added increase based on landfill rate increases (“weighted” for their proportion of total costs). It is important to note that other than a waiver for greenwaste cost increases in 2011, no other adjustments (including other pass-through costs) are allowed under the Franchise Agreements. As detailed later in this report, the calculated threshold limit is significantly less than the proposed rate increase.

Effective Date March 1 May 1 March 1 May 1
May 1 5.26% 0.00% 5.55% 0.00%
June 1 9.01% 2.63% 9.51% 3.17%
July 1 14.02% 7.01% 14.80% 7.40%
August 1 21.03% 12.62% 22.19% 13.32%
September 1 31.55% 21.03% 33.29% 22.19%
* Ends December 31, 2022
Start Period
Oceano CSD Other Agencies
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Rate Summary for Single Family Residential Customers
Table 1 summarizes the proposed
monthly rates for single family
residential (SFR) customers. As reflected
in this summary, given the significant
cost drivers facing SCSS, the increases
will be modest under the proposed rate
increase. 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 about $3.80 on
average for the four agencies.

BACKGROUND
On October 20, 2021, SCSS submitted a
Base Year rate increase to be effective
January 1, 2022. As noted above, due to
several complex issues, a revised
application was submitted on February
18, 2022. This application was prepared in accordance with the rate review process and methodology formally set forth in its Franchise Agreements with Arroyo Grande, Grover Beach, Oceano and Pismo Beach.

In establishing a rate-setting process and methodology, each of these Franchise Agreements specifically reference the City of San Luis Obispo’s Rate Setting Process and Methodology Manual for Integrated Solid Waste Management Rates. This comprehensive approach to rate reviews was adopted by San Luis Obispo in 1994 and establishes detailed procedures for requesting rate increases and the required supporting documentation to do so. It also sets cost accounting standards and allowable operating profit ratios.

As noted above, the financial information for Arroyo Grande, Grover Beach, Oceano and Pismo Beach is closely related. For this reason, these four agencies jointly contracted with William C.

Statler (who has extensive experience in evaluating rate requests in accordance with the adopted methodology) on October 6, 2022 to evaluate SCSS’s rate increase application.

This is the seventh Base Year analysis performed under this rate-setting methodology. The first was prepared in September 2001; second in August 2004; the third in August 2007; the fourth in December 2012; September 2015; and the last one in April 2019. As discussed below, several Interim Year rate reviews have prepared since then.

Table 1. Single Family Residential Rates
32 64 96
Current
Arroyo Grande $19.46 $25.29 $31.13
Grover Beach 17.65 23.85 30.03
Oceano 14.98 21.56 42.19
Pismo Beach 17.31 34.63 51.94
Proposed
Arroyo Grande 23.78 30.90 38.04
Grover Beach 21.57 29.14 36.69
Oceano 18.13 26.09 51.06
Pismo Beach 21.15 42.32 63.47
Increase: Proposed Rates
Arroyo Grande 4.32 5.61 6.91
Grover Beach 3.92 5.29 6.66
Oceano 3.15 4.53 8.87
Pismo Beach 3.84 7.69 11.53
Container Size (Gallons)
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Franchise Agreement Summary
Historically, each agency has had its
own approach to determining
service levels and adopted differing
Franchise Agreements accordingly.

While these became similar
beginning in 1999, in 2008 the
Cities of Arroyo Grande, Grover
Beach and Pismo Beach adopted renewed franchise agreements, followed by the Oceano Community Service District in Summer 2010, which are the same in all key provisions:
• Each agency contracts with SCSS for garbage, green/food waste and recycling; and SCSS provides the container (waste wheelers) for each service. • As noted above, each agency has adopted the same rate-setting methodology, including the option of terminating the agreement within nine months following approval of the requested rate increase if it exceeds the cost of living threshold. • Arroyo Grande, Grover Beach and Pismo Beach have adopted franchise fees of 10%; the Oceano CSD reduced its rate to 5% in February 2020.

Each of these agreements were similarly amended in 2016 to:
• Extend the term of the agreement for 20 years in recognizing the amortization of extensive investments in food and green waste processing.
• Revise the cost of living threshold “trigger” to include prorated landfill cost increases.

RATE REVIEW WORKSCOPE
This report addresses four basic questions:
• Should SCSS be granted a rate increase? And if so, how much? • How much does it cost to provide required service levels? • Are these costs reasonable?
• And if so, what is a reasonable level of return on these costs? The following documents were closely reviewed in answering these questions:
• Franchise Agreements and any Amendments for each agency • Independently audited financial statements for SCSS for 2019 and 2020. • City of San Luis Obispo’s Rate Setting Process and Methodology Manual for Integrated Solid Waste Management Rates (Rate Manual)
• SCSS rate increase application and supporting documentation • Follow-up interviews, correspondence and briefings with agency and SCSS staff • Rate surveys of Central Coast communities
Table 2. Franchise Agreement Effective Dates
Agency Agreement Amendments
Arroyo Grande June 10, 2008 March 22, 2016
July 26, 2016
Grover Beach July 7, 2008 June 20, 2016
Oceano July 14, 2010 July 29, 2016
Pismo Beach June 3, 2008 August 3, 2016
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REVENUE AND RATE SETTING OBJECTIVES
In considering SCSS’s rate increase request, it is important to note the revenue and rate setting objectives for solid waste services as set forth in the Franchise Agreements via the Rate Manual.

Revenues. These should be set at levels that:
• Are fair to customers and the hauler.
• Are justifiable and supportable.
• Ensure revenue adequacy.
• Provide for ongoing review and rate stability.
• Are clear and straightforward for the agency and hauler to administer.

Rate Structure. Almost any rate structure can meet the revenue principles outlined above and generate the same amount of total revenue. Moreover, almost all rate structures will result in similar costs for the average customer: what different rate structures tell us is how costs will be distributed among non-average customers. The following summarizes adopted rate structure principles for solid waste services:
• Promote source reduction, maximum diversion and recycling. • Provide equity and fairness within classes of customers (similar customers should be treated similarly).
• Be environmentally sound.
• Be easy for customers to understand.

FINANCIAL OVERVIEW
While detailed financial and service information is provided in the SCSS rate request application (Appendix A), the following summarizes costs, revenues and account information based its proposal for 2022 for all areas serviced by SCSS.

Costs by Type. Total proposed costs for
2022 (after deducting for non-allowable
and limited costs as discussed later in
this report) are 17.3 million. As
reflected in Table 3, five cost areas
accounted for 85% of total costs:
• Direct labor for collection: 23%
• Disposal: landfill, recycling and
greenwaste: 27%
• Vehicle operations and maintenance
(including depreciation): 19%
• Franchise fees: 8%
• Insurance: 8%
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Revenues by Source. Total revenues
(without proposed rate increases) are
$15.2 million. As reflected in Table 4,
58% of SCSS’s revenues come from
single-family residential (SFR)
accounts. Services to multi-family
residential and non-residential
customers account for 42% of their
revenues, with less than 1% from other
revenues.

This significant gap between revenues
and expenses (plus allowable profit)
drives the proposed rate increase.

Service Accounts by Type. While
single-family residences account for
58% of revenues, they represent 92% of
total accounts (Table 5).

This reflects the fact that per account,
multi-family and non-residential
customers generate more solid waste
than single-family residential customers
(and thus more revenue per account).

RATE-SETTING PROCESS
Under the Rate Manual, the rate-setting
process follows 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. As noted above, the last Base Year analysis for SCSS under this approach was prepared in April 2019.
• Two Interim Years. In both the second and third years, SCSS is eligible for Interim Year rate adjustments that address three key change factors: changes in the consumer price index (CPIU) for “controllable” operating costs; changes in “pass-through costs” (primarily landfill tipping fees, which SCSS does not control: they are set by the County Board of Supervisors); and an adjustment to cover increased franchise fees.

The first two adjustment factors are “weighted” by the proportionate share that these costs Solid Waste Rate Review
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represent of total costs (excluding franchise
fees). For example, in the current Base Year
analysis for recommended 2019 rates,
controllable costs account for about 75% of
total costs, with landfill disposal costs
accounting for about 25%.

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.

Rate Increase History
The following summarizes the SCSS rate review
history beginning with 2005 (last eighteen years)
based on the year of the application (which is
typically the implementation year).

Table 6. SFR Rate History: 2005 to 2022 (Last 18 Years)

1. From 2004 to 2011, the franchise fee rate in Pismo Beach was 6% compared with 10% in the other three agencies, and as such, its rate increase was slightly less. In July 2011, Pismo Beach adopted a Year Review Type
Arroyo
Grande
Grover
Beach Oceano
Pismo
Beach (1)
2005 Base Year 5.60% 5.60% 5.60% 5.30%
2006 Interim Year 3.09% 3.09% 3.09% 2.95%
2007 Interim Year 3.76% 3.76% 3.76% 3.60%
2008 Base Year 3.00% 3.00% 3.00% 2.90%
2009 Interim Year 0.00% 0.00% 0.00% 0.00%
2010 Interim Year (2) 0.00% 0.00% 0.00% 0.00%
2011 Interim Year 0.00% 0.00% 0.00% 0.00%
2012 Interim Year (2) 5.15% 5.15% 5.15% 5.15%
2013 Base Year 3.20% 3.20% 3.20% 3.20%
2014 Interim Year 2.05% 2.05% 2.05% 2.05%
2015 Interim Year 0.00% 0.00% 0.00% 0.00%
2016 Base Year 3.25% 3.25% 3.25% 3.25%
2017 Interim Year 1.10% 1.10% 1.10% 1.10%
2018 Interim Year 1.60% 1.60% 1.60% 1.60%
2019 Base Year 10.06% 10.06% 10.06% 10.06%
2020 Interim Year 1.70% 1.70% 1.70% 1.70%
2020 Franchise Fee Rdctn (3) -5.00%
2021 Interim Year 0.70% 0.70% 0.70% 0.70%
2022 Base Year (4) 22.19% 22.19% 21.03% 22.19%
Proposed Interim Year Rates
Consistent with past practice, SCSS
has proposed an interim year
approach that is slightly different from
the Rate Manual methodology. In the
interest of a more straightforward,
streamlined process, SCSS proposes
simply adjusting rates by changes in
the CPI-U in 2023 and 2024. As noted
in the past, the concept is consistent
with the Rate Manual approach, but is
simpler and allows for multi-year rate
setting. Accordingly, it is
recommended that four agencies
continue using this approach.

Given the that interim review
methodology set forth in the Rate
Manual has not been used for several
years, this is another area the update
should consider.

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10% franchise fee, bringing it in alignment with the other three agencies (as well as most other agencies in San Luis Obispo County). In implementing the 10% rate in 2011, Pismo Beach adopted an added 3.9% increase beyond the interim year rate increase of 5.15% requested by SCSS.

2. SCSS did not request a rate increase in 2010 (which would have been the “normal” cycle to do so), and accordingly, did not submit a Base Year rate application. However, SCSS did submit a rate request in 2011 using an Interim Year methodology. The reasonableness of using the resulting “hybrid” approach was discussed in detail in the 2011 Interim Year report, which concluded that this approach was reasonable given the circumstances.

3. In February 2020, the Oceano CSD reduced its franchise fee from 10% to 5%, reducing rates by 5%.

4. Proposed rate increase.

5. As noted above, this chart reflects SFR rate increases. SCSS began charging for commercial recycle containers. These rates were set at 50% of the garbage rates at that time.

Assuming the proposed rate increases are approved, this will result in an average annual rate increase of 3.6% over the last eighteen years. While there have been notable peaks in 2019 and 2022, largely due to regulatory and external market changes for recyclables, this reflects a high level of rate stability and price containment for SCSS customers.

RATE SETTING METHODOLOGY
Are the Costs Reasonable?
The first step in the rate review process is to determine if costs are reasonable. There are three analytical techniques that can be used in assessing this:
• Detailed review of costs and service responsibilities over time. • Evaluation of external cost factors, such as general increases in the cost of living (as measured by the consumer price index).
• Comparisons of rates with other communities.

Each of these was considered in preparing this report, summarized as follows.

Detailed Cost Review
In its rate application (Appendix A), SCSS provides detailed financial data for five years:
• Audited results for the two prior years (2019 and 2020). • Estimated results for 2021.
• Projected costs for the Base Year (2022).
• Estimated costs for the following year (2023).

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Additionally, for virtually all line items, SCSS provided supplemental detail upon request to support cost increases from 2020 to 2022.

Table 7 below provides actual costs for 2020 (most recent audit results) compared with requested and recommended cost projections for 2022. While there are significant cost increases in several categories, they are reasonable given the cost drivers facing SCSS.

The Short Story. The key drivers behind the proposed rate increases for 2022 can be summarized by four cost factors over the past two years:
• Truck depreciation.
• Food and green waste recycling.
• Insurance
• Gas and oil
All other cost increases including labor, ongoing maintenance, disposal costs at the landfill and MRF, account for less than 3% of the rate increase.

Table 7. Detail Cost Review: 2020 Compared with 2022
2020
Actual Amount Change
Direct Labor 3,614,140 3,922,681 308,541
Administrative Costs
Corporate Overhead 356,299 378,184 21,885
Office Salaries 768,706 835,736 67,030
Other Expenses -
Depreciation 535,997 1,534,705 998,708
Gas and Oil 821,425 952,847 131,422
Insurance
Medical 674,318 779,174 104,856
General Liability 388,530 582,286 193,756
Office Expense 229,923 268,409 38,486
Operating Supplies 83,727 77,820 (5,907)
Outside Services 270,687 211,251 (59,436)
Permits 67,486 97,290 29,804
Tires 127,834 151,673 23,839
Truck Repairs 642,080 606,106 (35,974)
Other Costs 323,681 353,209 29,528
Total Allowable Costs 8,904,833 10,751,371 1,846,538
Pass-Through Costs
Disposal Costs
Landfill 1,701,768 1,805,407 103,639
MRF 1,223,081 1,143,280 (79,801)
Greenwaste 824,872 1,781,655 956,783
Franchise Fees 1,629,121 1,454,123 (174,998)
Facility Rent, Related Party 170,111 181,814 11,703
Interest, Related Party 133,282 213,214 79,932
Transportation, Related Party 34,271 43,275 9,004
Total Pass-Through Costs 5,716,506 6,622,768 906,262
Total Costs $14,621,339 $17,374,139 $2,752,800
2022 Proposed
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These costs are organized by costs where SCSS is allowed a profit (“Allowable”) and those where it can recover the cost but not earn a profit on them (“Pass-Through”).

The following describes the basis for each for the significant changes.

Allowable Costs
• Direct Labor. This reflects a two-year increase of 8.5%, or about 4.2% per year. Given the tight labor market and current increases in CPI, this increase for retention and attraction is reasonable.
• Office Salaries. This also reflect annual increases of about 4% per year. Again, given the tight labor market and current increases in CPI, this increase for retention and attraction is reasonable.
• Depreciation. The 2019 Base Year report noted that as fully depreciated trucks were replaced, significant continuing higher
depreciation costs were expected in the future
due to two factors: annual depreciation costs
on fully depreciated trucks would go from
zero to about $60,000 each; and the cost basis
for new trucks would be significantly higher
than in the past. Given replacements during
2021 and those proposed in 2022, the
increased cost is reasonable. Combined with a
possible change in amortization schedule as
noted in the sidebar, planned replacements
should result in stabilized costs in the future.
• Gas and Oil. These costs are projected to increase by about 7.5% annually. Given the volatility (both up and down) of diesel and CNG costs (especially recent cost spikes), this is a reasonable assumption for 2022 costs.
• Insurance: Health Care and Liability. These costs are projected to increase significantly by about 12.5% annually (7.5% for health care and 22.5% for liability insurance). Given increases in health care costs and current liability insurance market, these are reasonable assumptions for 2022 costs.
• All Other Allowable Costs. While there are ups and downs in the other individual line items, in total these reflect modest annual increases of about 2%.

Pass-Through Costs
• Disposal Costs: Landfill. No rate increases are reflected in the rate application ($41.00 per ton). The modest two-year increase reflects increased tonnage.

Truck Amortization
The Rate Manual calls for
depreciating trucks over seven years.

While this made sense in 1994,
manufacturing improvements since
then have resulted in longer lives, with
ten years becoming the industry
standard. As noted above, this
change should be considered as part
of the Rate Manual update.

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• Disposal Costs: Recycling (Related Party). This cost category reflects a decrease in the tonnage rate from $96.00 to $84.59.
• Disposal Costs: Greenwaste. After depreciation, this is the largest cost increase from 2020.

These costs are incurred under an on-site agreement with HZI and reflect costs to build (via depreciation), operate and maintain the anaerobic digestion plant. The purpose of this plant is to process local food and greenwaste in meeting California regulation SB 1383. Key drivers include higher costs than initially projected for construction; ongoing operations and maintenance due to feedstock challenges; and local outbound material. The following further describes these challenges; and a cost summary is provided in Appendix B.

Construction and startup The construction of the anaerobic digester plan in San Luis Obispo was one of the first high solids digesters in the United States and the 99th overall renewable gas anaerobic plant built globally by HZI. The
construction of the anerobic digester in
California posed unique challenges but was
constructed safely and without any
environmental incidents. Given the “first-ofthe-kind” nature of the project in California, the actual cost to construct the anaerobic
digestion plant exceeded the original budget
originally set in 2014. The cost increases were
mainly driven by labor availability, prevailing
wage, civil and underground cost increases,
and equipment and material escalations.

Operation and maintenance. The anaerobic
digestion plant exceeds 95% availability
(uptime) to process waste while producing
renewable green electricity. To ensure the plant
is reliably available to process local community
waste, the operations and maintenance cost of the anaerobic digestion exceeds the original annual budget due to several factors:

1. The quantity of entrained inorganic material (such as sand and metal) entrained in the waste increases the wear and tear on the mechanical components of the plant, which inherently increases the number of staff required to operate and maintain the facility.

2. The lower than anticipated quantity of food was also increases the wear and tear on the equipment, which has mainly been driven need to continue to educate the community on organics recycling and the impacts of COVID on commercial businesses (most notably restaurants).

3. Plant labor costs have increased due to the requirements of processing the waste, maintaining the equipment, competitive labor market and inflationary costs in San Luis Obispo County and more broadly in California. Plant administrative costs such as insurance, legal and taxes continue to increase greater than was historically budgeted.

Local Benefits
It should be noted that that while
costs have increased, HZI and SCSS
believe there are substantial local
benefits to the greenwaste operation,
including:
• Powering over 600 homes with

6.2 million kWh per year of
renewable electricity.
• Diverting 72 million pounds of
organics from landfills per year
• Reducing greenhouse gas
emissions by 5,300 metric tons
per year.

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In summary, key operation and maintenance cost increases reflect continual sand removal; increased equipment replacement and maintenance; increased labor hours and rates; and management of backend compost.

Depreciation. Plant depreciation expenses reflect the higher construction costs discussed above in addressing waste profile challenges such as sand and low food waste content.

Lower Natural Gas Production (Revenue). Due to the amount of inorganic material (like sand) and the lower than anticipated food waste content, the overall natural gas production is lower than planned. This directly limits the amount of overall natural gas production potential of the digester and ultimately electricity sales.

In the past, greenwaste contract costs have been considered “allowable” costs. However, as disposal costs, they are more like landfill and recycling costs, which are treated as “passthrough” costs that can be recovered but profit is not allowed on them. Accordingly, this is considered a pass-through cost in this rate review. However, this another area that should be reviewed as part of the rate manual update.
• Franchise Fees. This reflects the removal of IWMA fees from the cost base. • Interest (Related Party). Interest is an allowable cost under the Rate Manual. In this case, interest costs are assessed internally by Waste Connections based on a methodology that takes into account its corporate costs of borrowing and financed assets. Accordingly, this is treated as a “pass-through” cost. SCSS’s auditors have previously provided a written opinion on the reasonableness of the cost methodology; and I have reviewed the calculations underlying the projected costs in accordance with this methodology. Given the increase in financed assets as reflected in depreciation costs, I believe the projected interest costs for 2022 are reasonable.

Trends in External Cost Drivers
The most common external “benchmark” for evaluating cost trends is the consumer price index.

Over the past two calendar years (2020 and 2021), the U.S. CPI-U increased by 8.5% (about

4.2% annually). Excluding the cost drivers discussed above, all other costs over the past two years increased by 4.1% (about 2% annually).

Rates in Comparable Communities
Lastly, reasonableness of rates (and underlying costs) can also be evaluated by comparing rates with comparable communities. However, survey results between “comparable” communities need to be carefully weighed because every community is different.

Nonetheless, surveys are useful assessment tools—but they are not perfect and they should not drive rate increases. Typical reasons why solid waste rates may be different include:
• Franchise fees and AB 939 fee surcharges
• Landfill costs (tipping fees)
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• Service levels (frequency, quality)
• Labor market
• Operator efficiency and effectiveness
• Voluntary versus mandatory service
• Direct services provided to the franchising agency at no cost, such as free trash container pick-up at city facilities, on streets and in parks
• Percentage of non-residential customers, and how costs and rates are allocated between customer types
• Revenue collection procedures: Does the hauler or the franchising agency bill for service? And what are the procedures for collecting delinquent accounts? • Services included in the base fee (recycling, green waste, containers, pick-up away from curb)
• Different rates structures
• Land use and density (lower densities will typically result in higher service costs) • Mix of residential and non-residential accounts
With these caveats, the following summarizes single family residential rates for other cities in the Central Coast area compared with the proposed rates for SCSS. As reflected below, even with the recommended or proposed rate increases, Arroyo Grande, Grover Beach, Oceano and Pismo Beach will have among the lowest rates of the agencies surveyed.

Table 8. Single Family Residential Rate Survey
Single Family Residential Monthly Trash Rates
30-40 60-70 90-101
Atascadero $28.55 $44.50 $55.77
Morro Bay 22.88 45.76 68.64
Paso Robles 30.90 51.12 57.25
San Luis Obispo* 22.51 45.03 67.56
Santa Maria na 30.69 34.81
San Miguel 28.23 44.48 61.06
Templeton 31.40 45.01 44.48
Proposed: South County Sanitation Service Area
Arroyo Grande 23.78 30.90 38.04
Grover Beach 21.57 29.14 36.69
Oceano CSD 18.13 26.09 51.06
Pismo Beach 21.15 42.32 63.47
* Proposed 2022 rates scheduled for review in April 2022 Container Size (Gallons)
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Summary: Are the costs reasonable? Based on the results of the three separate cost-review techniques—trend review, external factor analysis and rate comparisons—the proposed cost assumptions for 2022 are reasonable.

What Is a Reasonable Return on these Costs?
After assessing if costs are reasonable, the next step is to determine a reasonable rate of return on these costs. The rate-setting method formally adopted by Arroyo Grande, Grover Beach, Oceano and Pismo Beach in their Franchise Agreements with SCSS includes clear criteria for making this assessment. It begins by organizing costs into three main categories, which will be treated differently in determining a reasonable “operating profit ratio:” Allowable Costs (Operations and Maintenance): Reasonable Operating Profit Allowed • Direct collection labor • Fuel
• Vehicle maintenance and repairs • Depreciation
• Insurance • Billing and collection
Pass-Through Costs: Can be Recovered but No Profit Allowed • Disposal costs (landfill, recycling, greenwaste)
• Franchise fees
• Payments to affiliated companies (such as facility rent, interest and trucking charges) Excluded and Limited Costs: No Revenues Allowed
• Charitable and political contributions • Non-IRS approved profit-sharing plans • Entertainment • Fines and penalties
• Income taxes • Limits on corporate overhead
After organizing costs into these three categories, determining “operating profit ratios” and overall revenue requirements is straightforward:
• The target is an 8% operating profit ratio on “allowable costs.” • Pass-through costs may be fully recovered through rates but no profit is allowed on these costs.
• No revenues are allowed for any excluded or limited costs.

In the case of SCSS, about 60% of their costs are subject to the 8% operating profit ratio; and 40% are pass-through costs that may be fully recovered from rates but no profit is allowed. No recovery is allowed for excluded costs. The overall operating profit ratio after allowable and pass-through costs is 5%.

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Preparing the Rate Request Application
Detailed “spreadsheet” templates for preparing the rate request application—including assembling the required information and making the needed calculations—are provided in the Rate Manual. SCSS has prepared their rate increase application in accordance with these requirements (Appendix A); and the financial information provided in the application for 2019 and 2020 ties to its audited financial statements.

Proposed Rate Summary
The following summarizes the calculations that support the requested and recommended rate increases:

Table 9. Proposed Rate Increase Summary
As reflected in this summary, all the rate-setting factors are the same for all four agencies are the same except for the franchise fee adjustment (which reflects that higher franchise fees will be required with the rate increase): 5% for the Oceano CSD and 10% for the other three agencies.

Implementation
The following summarizes key implementation concepts in the adopted rate-setting model:
• The “8%” operating profit ratio is a target; in the interest of rate stability, adjustments are only made if the calculated operating profit ratio falls outside of 10% to 6%. • On the other hand, if past ratios have been stronger than this target, then the revenue base is re-set in the Base Year review.

Oceano Others
Allowable Costs 10,751,371 10,751,371
Allowable Profit (8% Operating Ratio) 934,901 934,901
Pass-Through Costs
Disposal
Landfill 1,805,407 1,805,407
MRF (Recycling) 1,143,280 1,143,280
Greenwaste 1,781,655 1,781,655
Franchise Fees 1,454,123 1,454,123
Related Party Costs 438,303 438,303
Total Pass-Through Costs 6,622,768 6,622,768
Allowed Revenue Requirements 18,309,041 18,309,041
Revenue without Rate Increase 15,260,678 15,260,678
Revenue Requirement: Shortfall (Surplus) 3,048,363 3,048,363 Rate Base Revenue 18,309,041 18,309,041
Percent Change in Revenue Requirement 19.98% 19.98%
Allowed Revenue Increase * 21.03% 22.19%
* Adjusted for 5% franchise fee in Oceano and 10% in others Solid Waste Rate Review
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• Special rate increases for extraordinary circumstances may be considered.

The result of this process is a proposed rate increase of 22.19% (21.03% in the Oceano CSD).

RATE DIFFERENCES BETWEEN COMMUNITIES
If costs for Arroyo Grande, Grover Beach, Oceano and Pismo Beach are so similar, why are the residential rates so different?
The short answer: history and different approaches to rate structure philosophies.

History
Until 1999, service levels under the Franchise Agreements with SCSS between these four agencies were significantly different. The rates in place at that time became the basis for subsequent rate reviews.

Rate Structure Principles
Most significantly, each agency has adopted different rate structure principles to recover similar costs. For example, Pismo Beach has adopted a rate structure for its residential customers that more closely reflects a “pay-as-you-throw” philosophy under which the “per gallon” costs for 32, 64 and 96 gallon containers are the same (for example, a 64-gallon container costs twice as much as a 32-gallon one.) This results in lower monthly costs for 32-gallon customers and relatively higher rates for 64 and 96-gallon customers.

On the other hand, Arroyo Grande has adopted rates that do not have as much difference between container sizes (but still offer an incentive for smaller containers over larger ones), recognizing collection economies of scale for larger versus smaller containers. In this case, 32- gallon containers in Arroyo Grande are more expensive than in Pismo Beach, but 64-gallon containers are less.

Both rate structures have their strong points: in the case of Pismo Beach, rates are more reflective of disposal costs, whereas in Arroyo Grande they are more reflective of collection costs. But the important point is that the revenue generating capability is the same even though the rates are different.

Multi-Family and Non-Residential Rates
Lastly, multi-family and non-residential rates (which account for about 40% of SCSS revenues) are similar in all four agencies: it is only in single family residential rates that there are significant differences between communities.

COST ACCOUNTING ISSUES
As noted above, SCSS’s financial operations for Arroyo Grande, Grover Beach, Oceano and Pismo Beach are closely related. Keeping costs and revenues segregated is further complicated Solid Waste Rate Review
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by the fact that SCSS is a subsidiary of Waste Connections US (which acquired the parent company in April 2002), which shares ownership with the following local companies:
• San Luis Garbage Company
• Mission Country Disposal
• Morro Bay Garbage Service
• Coastal Roll-Off Service
• Cold Canyon Land Fill
• Cold Canyon Processing Facility
Additionally, within the South County, SCSS’s service area includes:
• City of Arroyo Grande
• City of Grover Beach
• City of Pismo Beach
• Oceano Community Services District
• Nipomo Community Services District
• Avila Beach Community Services District
• Other unincorporated areas in the South County such as rural Arroyo Grande Cost Accounting System
Audited financial statements are prepared for each company within Waste Connections’ central coast operations by an independent certified public accountant; and SCSS’s auditors have consistently issued “clean opinions” on its financial operations. However, only direct labor hours for collection (and related compensation), liability insurance, franchise fees and revenues are directly accounted for each company (like SCSS); and then within each agency serviced by it. As summarized below for major cost categories, all other costs are allocated between companies based on apportionments using generally accepted accounting principles:

Table 10. Cost Allocation Bases
Allocation Basis Major Cost Categories
Customer counts • Region and division overhead
• Office salaries
• Office expense
• Legal and accounting
Direct labor hours • Truck depreciation
• Truck repairs and tires
• Mechanic labor
• Gas and oil
Tonnage Disposal costs
• Landfill
• MRF/recycling
• Greenwaste
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Revenue • Corporate overhead (adjusted for Rate Manual limitations) • Bad debt expense
• Other taxes
Containers • Container depreciation
• Container labor
• Container repairs
Gallons • Diesel fuel
These allocation bases seem reasonable. However, they are subject to periodic change as determined by Waste Connections. Since these apportionments are a key basis for rate setting, the bases of allocation for each cost category (including allocations of regional and district overhead and accounting for direct costs) should be established in an updated Rate Manual.

COST OF LIVING “TRIGGER OPTION”
As noted above, Section 8.3 of the Franchise Agreements provides that if the rate increase request compared with the rate in effect at the date of the agreement exceeds the cumulative cost of living increase from that same date, each agency has the option of terminating the agreement at any time within nine months following approval of the requested rate increase. While this provision does not directly limit rate increase requests by SCSS to an amount that may be less than that allowed under the rate-setting methodology, subjecting the Franchise Agreement to possible termination if the rate request is greater than the cost of living threshold provides a strong incentive for SCSS to do so, if possible.

Calculation of the Cost of Living Threshold
As recommended in the 2013 Interim Year rate review for consistency and clarity, the CPI-U rate increases used in calculating Interim Year increases and the “trigger” threshold are based on changes from June to June (given application submittal targets, this was the most recent date that would consistently be available).

Along with the adjustment for the “weighted” greenwaste rate increase in 2012 of 1.7% previously approved, the 2016 Franchise Agreement amendments provided for adjustments to the threshold “trigger” of landfill rate increases, weighted by the ratio of landfill costs to total costs (assumed at 25% based on recent trends).
• Table 11(a) provides the threshold calculation compared with actual rate increases and those recommended for 2022.
• Table 11(b) provides landfill rates since 2008.

As reflected in Table 11(a), the cumulative changes in the cost of living (with adjustments for greenwaste and landfill cost increases) is 34.87%. This compares with cumulative rate increases, including those recommended of 22.19% for 2022 (21.03% for Oceano CSD) of 61.76%. This would result in exceeding the “trigger” by 26.89%.

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Table 11(a). Trigger Threshold Calculation
Table 11(b). Landfill Rates Per Ton
Increase
Prorated
@
Year Actual Amount Percent 25%
2008 29.25 - 0.00% 0.00%
2009 29.25 - 0.00% 0.00%
2010 29.25 - 0.00% 0.00%
2011 34.25 5.00 17.09% 4.27%
2012 34.25 - 0.00% 0.00%
2013 34.25 - 0.00% 0.00%
2014 36.50 2.25 6.57% 1.64%
2015 38.75 2.25 6.16% 1.54%
2016 41.00 2.25 5.81% 1.45%
2017 41.00 - 0.00% 0.00%
2018 41.00 - 0.00% 0.00%
2019 41.00 - 0.00% 0.00%
2020 41.00 - 0.00% 0.00%
2021 41.00 - 0.00% 0.00%
2022 41.00 - 0.00% 0.00%
Note: Under long-term rate increases approved by the County, Cold Canyon Landfill was eligible for annual rate increases of $2.25 per ton from 2017 to 2022, with a resulting rate of $54.50 by 2022, However, it chose not to do so.

Rate Rate
June Index Amount Percent Greenwaste Landfill (1) Threshold Year Increase (2) 2009 215.693
2010 217.965 2.272 1.05% 4.27% 5.33% 2011 0.00%
2011 225.722 7.757 3.56% 1.70% 0.00% 5.26% 2012 5.15%
2012 229.478 3.756 1.66% 0.00% 1.66% 2013 3.20%
2013 233.504 4.026 1.75% 1.64% 3.40% 2014 2.05%
2014 238.343 4.839 2.07% 1.54% 3.61% 2015 0.00%
2015 238.638 0.295 0.12% 1.45% 1.58% 2016 3.25%
2016 241.018 2.380 1.00% 0.00% 1.00% 2017 1.10%
2017 244.955 3.937 1.61% 0.00% 1.61% 2018 1.61%
2018 251.989 7.034 2.79% 0.00% 2.79% 2019 10.06%
2019 256.143 4.154 1.62% 0.00% 1.62% 2020 1.70%
2020 257.797 1.654 0.64% 0.00% 0.64% 2021 0.70%
2021 271.696 13.899 5.12% 0.00% 5.12% 2022 22.19%
Cumulative Total 56.003 25.96% 1.70% 8.91% 34.87% 61.76% Requested Rate Increase Above Trigger Threshold 26.89%

1. Landfill rate increases prorated at 25% of total costs

2. Recommended rate for 2022, except for Oceano (21.03%) US CPI-U Increase Allowed Adjustments
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However, it is important to note that this “trigger” calculation does not limit the allowable rate increase that may be requested under the methodology set forth in the Franchise Agreements or approved by the agencies.

Accordingly, if the proposed rate increases are approved, I recommend that the agencies consider (as they did in as part of the 2019 Base Year review) adopting findings that they will not pursue the “trigger” option.

Rate Manual Update. The merit of continuing with the “trigger option” is another area that should be considered with the Rate Manual update.

COORDINATION WITH OTHER AGENCIES
SCSS has submitted similar rate requests to the three other agencies that regulate rates and services in the other South County areas that it serves: County of San Luis Obispo, Avila Beach Community Services District and the Nipomo Community Services District. These agencies are likely to act on the requested rate increases within the same time frame as the four agencies covered in this report.

Waste Connections (as San Luis Garbage Company) has also submitted a rate increase application to the City of San Luis Obispo of 17.75%, which is scheduled for Council review on April 19, 2022. As Mission County Disposal, it has also submitted initial rate applications for Los Osos and the north coastal areas of about 40%.

SUMMARY
Based on the rate-setting policies and procedures formally adopted by Arroyo Grande, Grover Beach, Oceano and Pismo Beach in their Franchise Agreements, this report concludes that:
• SCSS has submitted the required documentation required under its Franchise Agreements with the four agencies.
• This results in a recommended rate increase of 22.19% in the cities of Arroyo Grande, Grover Beach and Pismo Beach; and 21.03% in the Oceano CSD.

ATTACHMENTS
Appendix A: Base Year Rate Request Application from South County Sanitary Service Appendix B: HZI Greenwaste Digester Cost Analysis
Appendix A

BASE YEAR RATE REQUEST

APPLICATION

1. Base Year Application Summary
• City of Pismo Beach
• City of Arroyo Grande
• City of Grover Beach
• Oceano Community Services District

2. Supporting Schedules
• Financial Information: Cost and Revenue Requirements Summary • Revenue Offset Summary
• Cost Summary for Base Year
• Base Year Revenue Offset Summary
• Operating Information
• Rate Survey
South County Sanitary Service
2022 Base Year Rate Adjustment Application
Summary CITY OF PISMO BEACH
Requested Increase
Digester Expense 6.2%
Capital Purchases 5.9% Market Rate Wage Adjustment 5.6% Commingle Processing Fee 1.9% Other 2.6%

1. Rate Increase Requested 22.19%
Rate Schedule
Current Increased Adjustment New
Rate Schedule Rate Rate (a) Rate
Single Family Residential

2. Economy Service (1 - can curb) $17.31 $3.84 $21.15

4. Standard Service (2- can curb) $34.63 $7.69 $42.32

5. Premium Service (3 - can curb) $51.94 $11.53 $63.47
(a) Calculated rates are rounded up to the nearest $0.01.

6. Multiunit Residential and Non-residential Rate increases of 22.19% will be applied to all rates in each structure
with each rate rounded to the nearest $0.01
Certification
To the best of my knowledge, the data and information in this application is complete, accurate, and consistent with the instructions provided by the Rate Setting Manual.

Name: Jeff Clarin Title: District Manager
Signature: Date: 10/20/21
Revised 2/18/22
Fiscal Year: 1-1-2022 to 12-31-2022 Pg. 1 of 6
South County Sanitary Service
2022 Base Year Rate Adjustment Application
Summary CITY OF ARROYO GRANDE
Requested Increase
Digester Expense 6.2%
Capital Purchases 5.9% Market Rate Wage Adjustment 5.6% Commingle Processing Fee 1.9% Other 2.6%

1. Rate Increase Requested 22.19%
Rate Schedule
Current Increased Adjustment New
Rate Schedule Rate Rate (a) Rate
Single Family Residential

2. Economy Service (1 - can curb) $ 19.46 $4.32 $23.78

4. Standard Service (2- can curb) $ 25.29 $5.61 $30.90

5. Premium Service (3 - can curb) $ 31.13 $6.91 $38.04
(a) Calculated rates are rounded up to the nearest $0.01.

6. Multiunit Residential and Non-residential Rate increases of 22.19% will be applied to all rates in each structure
with each rate rounded to the nearest $0.01
Certification
To the best of my knowledge, the data and information in this application is complete, accurate, and consistent with the instructions provided by the Rate Setting Manual.

Name: Jeff Clarin Title: District Manager
Signature: Date: 10/20/21
Revised 2/18/22
Fiscal Year: 1-1-2022 to 12-31-2022 Pg. 1 of 6
South County Sanitary Service
2022 Base Year Rate Adjustment Application
Summary CITY OF GROVER BEACH
Requested Increase
Digester Expense 6.2%
Capital Purchases 5.9% Market Rate Wage Adjustment 5.6% Commingle Processing Fee 1.9% Other 2.6%

1. Rate Increase Requested 22.19%
Rate Schedule
Current Increased Adjustment New
Rate Schedule Rate Rate (a) Rate
Single Family Residential

2. Economy Service (1 - can curb) $ 17.65 $3.92 $21.57

4. Standard Service (2- can curb) $ 23.85 $5.29 $29.14

5. Premium Service (3 - can curb) $ 30.03 $6.66 $36.69
(a) Calculated rates are rounded up to the nearest $0.01.

6. Multiunit Residential and Non-residential Rate increases of 22.19% will be applied to all rates in each structure
with each rate rounded to the nearest $0.01
Certification
To the best of my knowledge, the data and information in this application is complete, accurate, and consistent with the instructions provided by the Rate Setting Manual.

Name: Jeff Clarin Title: District Manager
Signature: Date: 10/20/21
Revised 2/18/22
Fiscal Year: 1-1-2022 to 12-31-2022 Pg. 1 of 6
South County Sanitary Service
2022 Base Year Rate Adjustment Application
Summary OCEANO COMMUNITY SERVICE DISTRICT
Requested Increase
Digester Expense 6.2%
Capital Purchases 5.9% Market Rate Wage Adjustment 5.6% Commingle Processing Fee 1.9% Other 1.4%

1. Rate Increase Requested 21.03%
Rate Schedule
Current Increased Adjustment New
Rate Schedule Rate Rate (a) Rate
Single Family Residential

2. Economy Service (1 - can curb) $ 14.98 $3.15 $18.13

4. Standard Service (2- can curb) $ 21.56 $4.53 $26.09

5. Premium Service (3 - can curb) $ 42.19 $8.87 $51.06
(a) Calculated rates are rounded up to the nearest $0.01.

6. Multiunit Residential and Non-residential Rate increases of 21.03% will be applied to all rates in each structure
with each rate rounded to the nearest $0.01
Certification
To the best of my knowledge, the data and information in this application is complete, accurate, and consistent with the instructions provided by the Rate Setting Manual.

Name: Jeff Clarin Title: District Manager
Signature: Date: 10/20/21
Revised 2/18/22
Fiscal Year: 1-1-2022 to 12-31-2022 Pg. 1 of 6
South County Sanitary Service
2022 Base Year Rate Adjustment Application
Current
Financial Information Base Year
2019 2020 2021 2022 2023
(from Pg. 4)

6. Direct Labor $3,258,214 $3,614,140 $3,638,218 $3,922,681 $4,040,361

7. Corporate Overhead $350,343 $356,299 $359,149 $378,184 $389,529

8. Office Salaries $688,788 $768,706 $758,312 $835,736 $859,332

9. Other General and Admin Costs $4,482,056 $4,990,560 $5,899,433 $5,614,771 $7,809,122 10 Total Allowable Costs $8,779,401 $9,729,705 $10,655,112 $10,751,372 $13,098,345

11. Operating Ratio 97.3% 98.2% 103.6% 92.0% 92.0%

12. Allowable Operating Profit $245,196 $179,075 ($366,502) $934,902 $1,138,986

13. Tipping Fees $2,754,458 $2,924,849 $3,012,594 $4,730,341 $2,978,173

14. Franchise Fees $1,482,198 $1,629,121 $1,652,070 $1,454,123 $1,497,747

15. AB939 Fees $0 $0 $0 $0 $0

16. Payments to Affiliated Companies* $281,020 $337,664 $377,981 $438,302 $477,779

17. Total Pass Through Costs $4,517,676 $4,891,634 $5,042,645 $6,622,767 $4,953,699 * Affiliate Payments include interest, lease payments, and transportation

18. Revenue Requirement $13,542,273 $14,800,414 $15,331,255 $18,309,041 $19,191,030

19. Total Revenue Offsets $13,542,273 $14,800,414 $15,331,255 $15,260,678 $15,413,625 (from Page 3)

20. Net Shortfall (Surplus) $3,048,363

21. Total Residential and Non-residential Revenue without increase Oceano Nipomo in Base Year (pg.5, line 76) $15,260,678 $15,260,678 $15,260,678

22. Percent Change in Residential and Non-residential Revenue Requirement 19.98% 19.98% 19.14%

23. Franchise Fee Adjustment Factor (1 - 6 percent) 90.000% 95.000% 90.000%

22.19% 21.03% 21.27%
Limitation due to cumlative increases

24. Percent Change in Existing Rates 22.19% 21.03% 21.27% Fiscal Year: 1-1-2022 to 12-31-2022 Pg. 2 of 6
Section III-Pass Through Costs
Historical Projected
Section I-Allowable Costs
Section II-Allowable Operating Profit
Section III-Pass Through Costs
Section III-Pass Through Costs
South County Sanitary Service
2022 Base Year Rate Adjustment Application
Revenue Offset Summary
Current
Base Year
2019 2020 2021 2022 2023
Residential Revenue (without increase in Base Yr.)

28. Single Family Residential $7,924,043 $8,627,550 $8,780,617 $8,769,933 $8,857,632 Multiunit Residential Dumpster

29. Number of Accounts

30. Revenues

31. Less Allowance for Uncollectible Resi Accounts $0 $0 $0 $0 $0

32. Total Residential Revenue $7,924,043 $8,627,550 $8,780,617 $8,769,933 $8,857,632 Non-residential Revenue (without increase in Base Yr.)
Account Type
Non-residential Can

33. Number of Accounts 11 11 12

34. Revenues $5,513 $5,568 $5,624
Non-residential Wastewheeler

35. Number of Accounts 508 503 513

36. Revenues $544,220 $549,662 $555,159
Non-residential Dumpster

37. Number of Accounts 1,592 1,576 1,608

38. Revenues $5,613,237 $6,171,381 $5,983,795 $5,917,531 $5,976,706

39. Less: Allowance for Uncollectible Non-resid $0 $0 $0 $0 $0

40. Total Non-residential Revenue $5,613,237 $6,171,381 $6,533,528 $6,472,761 $6,537,488

45. Interest on Investments $0 $0 $0 $0 $0

46. Other Income $4,993 $1,483 $17,111 $17,984 $18,505

47. Total Revenue Offsets $13,542,273 $14,800,414 $15,331,255 $15,260,678 $15,413,625 Fiscal Year: 1-1-2022 to 12-31-2022 Pg. 3 of 6
Section VII - Revenue Offsets
Historical Projected
South County Sanitary Service
2022 Base Year Rate Adjustment Application
Cost Summary for Base Year
Description of Cost BASE YEAR
2019 2020 2021 2022 2023
Labor $3,020,612 $3,353,557 $3,377,752 $3,642,382 $3,751,654 Payroll Taxes $237,602 $260,583 $260,466 $280,299 $288,708

48. Total Direct Labor $3,258,214 $3,614,140 $3,638,218 $3,922,681 $4,040,361

49. Corporate Overhead $370,263 $387,844 $460,472 $484,877 $499,423 Less limitation (enter as negative) ($19,920) ($31,545) ($101,323) ($106,693) ($109,894) Total Corporate Overhead $350,343 $356,299 $359,149 $378,184 $389,529 Office Salaries $642,368 $722,755 $701,402 $773,471 $795,199 Payroll Taxes - Office $46,420 $45,951 $56,910 $62,265 $64,133

50. Total Office Salaries $688,788 $768,706 $758,312 $835,736 $859,332 Bad Debt $12,541 $12,182 $15,064 $15,064 $15,064
Allocated expenses $0 $0 $0 $0 $0
Bonds expense $6,877 $5,221 $5,153 $5,426 $5,589
Depreciation $406,756 $535,997 $1,129,264 $1,534,705 $1,827,206 Drive Cam fees $21,242 $19,353 $20,599 $21,690 $22,341
Dues and Subscriptions $20,483 $5,793 $19,974 $21,033 $21,664 Facilities $59,584 $43,035 $29,218 $30,766 $31,689
Gas and oil $914,400 $821,425 $947,541 $952,847 $980,712 Insurance $860,855 $1,062,848 $1,225,897 $1,361,460 $1,402,304 Laundry (Uniforms) $33,527 $29,461 $29,837 $31,418 $32,361 Legal and Accounting $43,392 $46,291 $51,310 $53,890 $55,428 Miscellaneous and Other $7,943 $5,614 $5,144 $5,416 $5,579 Office Expense $211,414 $229,923 $254,048 $268,409 $276,461 Operating Supplies $59,319 $83,727 $73,903 $77,820 $80,155 Other Taxes $37,649 $40,287 $39,285 $41,236 $42,399
Outside Services $1,128,991 $1,244,791 $1,231,253 $328,750 $2,120,266 Public Relations and Promotion $5,119 $8,013 $7,639 $7,654 $7,663 Postage $21,635 $8,711 $12,894 $13,578 $13,985
Permits $60,344 $67,486 $92,393 $97,290 $100,208
Relocation $18,530 $30,701 $22,040 $22,040 $22,040
Rent $3,000 $2,250 $11,023 $12,497 $12,872
Telephone $13,294 $36,444 $36,121 $38,035 $39,176
Tires $100,399 $127,834 $144,039 $151,673 $156,223
Travel $27,991 $8,712 $12,431 $13,091 $13,483
Truck Repairs $389,414 $492,848 $464,015 $488,608 $503,266 Utilities $17,357 $21,613 $19,349 $20,375 $20,986

51. Total Other Gen/Admin Costs $4,482,056 $4,990,560 $5,899,433 $5,614,771 $7,809,122

52. Total Tipping Fees $2,754,458 $2,924,849 $3,012,594 $4,730,341 $2,978,173

53. Total Franchise Fee $1,629,121 $1,652,070 $1,454,123 1,497,747.16 1,482,198.00

54. Total AB 939/Regulatory Fees $0 $0 $0 $0 $0

55. Total Lease Pmt to Affil Co.'s $142,332 $170,111 $172,663 $181,814 $187,268 55a. Interest Expense (to affiliate) $87,922 $133,282 $162,043 $213,214 $247,236 55b. Total Transportation to Affil Co.'s $50,766 $34,271 $43,275 $43,275 $43,275

56. Total Cost $13,297,077 $14,621,339 $15,697,757 $17,374,139 $18,052,043 Fiscal Year: 1-1-2022 to 12-31-2022 Pg. 4 of 6
South County Sanitary Service
2022 Base Year Rate Adjustment Application
Base Year Revenue Offset Summary For Information Purposes Only Description of Revenue Overall Franchise Refuse Collection Non-franchise Total Total Arroyo Pismo Grover Unincorporated Total
Residential Revenue
(without increase in Base Year)

57. Single Family Residential $8,769,933 $8,769,933 $1,826,861 $1,185,972 $1,173,008 $4,584,092 Multiunit Residential Dumpster

58. Number of Accounts 0 0

59. Revenues $0 $0

60. Less Allowance for Uncollectable $0 $0

61. Total Residential Revenue $8,769,933 $8,769,933 $1,826,861 $1,185,972 $1,173,008 $4,584,092 $0 Non-residential Revenue (without increase in Base Year) Account Type

0.34% 0.35% 33.05% 15.36% 0.00% 0.00%
Non-residential Can

62. Number of Accounts 11 11 5 1 4 2

63. Revenues $5,568 $5,568 $1,416 $280 $1,033 $2,840
Non-residential Wastewheeler 3.4% 0.0%

64. Number of Accounts 503 503 139 136 98 131

65. Revenues $549,662 $549,662 149,429 195,948 84,569 119,716 Non-residential Dumpster 96% 17% 38% 3%

66. Number of Accounts 1,576 1576 402 229 321 625 0

67. Revenues $5,917,531 $5,917,531 $1,577,642 $1,333,364 $828,238 $2,178,286

68. Less: Allowance for Uncollectible
Non-residential Accounts $0 $0

69. Total Non-residential Revenue $6,472,761 $6,472,761 $1,728,486 $1,529,592 $913,840 $2,300,842 $0

74. Interest on Investments $0 $0 $0 $0 $0 $0 $0

75. Other Income $17,984 $0 $0 $0 $0 $0 $17,984

76. Total Revenue Offsets $15,260,678 $15,242,694 $3,555,347 $2,715,564 $2,086,848 $6,884,935 $17,984 Fiscal Year: 1-1-2022 to 12-31-2022 Pg. 5 of 6
Section VII-Revenue Offsets
South County Sanitary Service
2022 Base Year Rate Adjustment Application
Operating Information
Percent Percent Percent Base Year Percent
2019 Change 2020 Change 2021 Change 2022 Change 2023
Residential
Accounts

77. Arroyo Grande 5,827 1.1% 5,890 0.6% 5,924 1.0% 5,983 1.0% 6,043 Grover Beach 4,216 0.4% 4,233 0.4% 4,249 1.0% 4,291 1.0% 4,334 Pismo Beach 3,816 0.1% 3,819 0.2% 3,828 1.0% 3,866 1.0% 3,905 Oceano CSD 1,863 0.4% 1,870 1.6% 1,899 1.0% 1,918 1.0% 1,937 Nipomo CSD 4,066 0.8% 4,097 0.9% 4,135 1.0% 4,176 1.0% 4,218 County 6,881 2.2% 7,034 1.4% 7,130 1.0% 7,201 1.0% 7,273 26,669 1.0% 26,943 0.8% 27,165 1.0% 27,437 1.0% 27,711

78. Routes-Garbage 7 26.5% 9 -13.9% 8 0.0% 8 0.0% 8

79. Routes-Recycling 6 26.5% 8 -13.9% 7 0.0% 7 0.0% 7

80. Direct Labor Hours 28,522 26.5% 36,082 -13.9% 31,059 0.0% 31,059 0.0% 31,059 Non-residential Garbage
Accounts

80. Arroyo Grande 490 0.2% 491 0.6% 494 1.0% 499 1.0% 504 Grover Beach 438 0.7% 441 0.5% 443 1.0% 447 1.0% 452
Pismo Beach 386 1.8% 393 -0.5% 391 1.0% 395 1.0% 399
Oceano CSD 190 0.5% 191 0.5% 192 1.0% 194 1.0% 196
Nipomo CSD 214 -2.3% 209 0.0% 209 1.0% 211 1.0% 213
County 508 -5.9% 478 2.5% 490 1.0% 495 1.0% 500
2,226 -1.0% 2,203 0.7% 2,219 1.0% 2,241 1.0% 2,264

81. Routes-garbage 8 26.5% 10 -13.9% 8 0.0% 8 0.0% 8
Routes-recycling 3 26.5% 4 -13.9% 4 0.0% 4 0.0% 4

82. Direct Labor Hours 22,871 26.5% 28,933 -13.9% 24,905 0.0% 24,905 0.0% 24,905 Recyclable Materials - All areas-Commingled Recycling (in tons) Accounts

83. Tons Collected 13,275 -4.0% 12,740 3.0% 13,123 3.0% 13,516 1.0% 13,651 Recyclable Materials - All areas-Greenwaste Recycling
Routes 5 26.5% 7 -13.9% 6 0.0% 6 0.0% 6
Tons Collected 13,631 -0.9% 13,511 3.0% 13,916 3.0% 14,334 1.0% 14,477 Direct Labor Hours 10,934 26.5% 13,833 -13.9% 11,907 0.0% 11,907 0.0% 11,907 Garbage Tons Collected 43,020 -3.5% 41,507 3.0% 42,752 3.0% 44,034 1.0% 44,475 Fiscal Year: 1-1-2022 to 12-31-2022 Pg. 6 of 6
Historical Current Projected
Section IX-Operating Data
Rate Comparisons for Garbage Service
Service Size
Pismo
Beach 1
South County
Urban 1
Arroyo
Grande 1 Atascadero Templeton San Miguel
Paso
Robles2
City of Santa
Maria 3,4
Santa Barbara
County (Northern)4 City of Santa Barbara
20 Gallon
35 Gallon $ 17.31 $ 25.60 $ 19.46 $ 28.55 $ 31.40 $ 28.33 $ 30.90 $ 25.84 $ 45.30 65 Gallon $ 34.63 $ 34.04 $ 25.29 $ 44.50 $ 45.01 $ 44.48 $ 51.12 30.69 $ 27.89 $ 56.15 95 Gallon $ 51.94 $ 47.46 $ 31.13 $ 55.77 $ 45.95 $ 61.06 $ 57.25 34.81 $ 29.86 $ 67.00 2 yard (1X WK) $ 120.91 $ 129.25 $ 122.10 $ 146.79 $ 129.54 $ 103.98 $ 168.68 166.72 $ 167.72 $ 248.79 Notes:
1 Scheduled increases in 1/1/2022
2 Paso Robles does 40 gallon cart pricing
3 65 gallon Scheduled to increase to $32.70 in 1/1/22 and $34.71 in 7/1/22, and 95 gallon Scheduled to increase to $38.07 in 1/1/22 and $41.34 in 7/1/22 4 Weekly Trash pick-up but every other week recycling and green waste pick-up.

HZI Cost Increase Summary Appendix B
Original
Cost Category Plan 2021 2022 Amount % Comment
Staffing and Administrative Cost
1,090$ 1,592$ 1,706$ 616$ 57%
Staff operation requirements increased from 3 to 6 team members due to feedstock profile, increased maintenance, equipment change out and operational demands. Additionally salary increases have been necessary to meet CA labor market demands. Administratively pollution insurance was added and audit and legal fees were increased to meet reporting requirements.

O&M Expense
495$ 1,747$ 1,439$ 944$ 191%
Increased cost due to CHP maintenance increases related to gas cycling, dosing feeder erosion, screw feeder premature erosion, shredder blade erosion and damage due to contamination, digestate pump rebuild frequency due to sand, premature wear and replacement of the decanter, and continued vacuum truck clean out of the sand build-up. Added +250K/year for management of backend products and front end peak loading; Capital Expense
1,487$ 1,945$ 1,946$ 459$ 31%
Added Capital cost includes Feed Bunker Wall extension, Speed Screen, Fat, Oils, and Grease system, and redundant pumps related to decreased food waste and sand issues in the CA environment Total Cost 3,072$ 5,284$ 5,091$ 2,019$ -
Total Service Fee 1,749$ 1,779$ 3,861$ 2,082$ 119%
Increase requested equates closely to cost increase seen since original plan of monthly service fees Change (1,323)$ (3,505)$ (1,230)$ 63$
Variance
18 Year Historical South County Sanitary Services Rate Changes Date Increase Comments
7/1/2004 5.30%
6/1/2005 2.95%
5/1/2006 3.60%
2007 0.00%
1/1/2008 2.90%
2009 0.00%
2010 0.00%
9/1/2011 9.05% City increases Franchise Fee from 6% to 10%.

Approved rate is
additional3.9% beyondthe 5.15% rate request.
2012 0.00%
2/1/2013 3.20%
7/1/2014 2.05%
1/1/2016 3.25% Includes additional 1.1% for Organics program, Franchise Agreement amendment: extendingthe contractby20 years,with the new Kompogas
organicsprocessingfacility and exclude tipping fee
increases, approved bytheCounty Board of
Supervisorsin 2014 for landfill improvements, in
calculation of SCSS rates
1/1/2017 1.10%
1/1/2018 1.60%
7/1/2019 10.06% Proposed 10.06% increase includes 1) 4.4% for increased vehicle costs, 2)(-3.92%) savings on net
result of improvements in the cost of operation,
3)3.1% Organics Program implemented by the
State and 4)6.48% cost to process recyclable
materials
1/1/2020 1.7%
1/1/2021 .70%
6/15/22 22.19% Proposed 22.19% increase includes 1) 8.05% for truck depreciation, 2) 7.71% for food and green
waste recycling to comply with SB 1383, 3) 2.41%
for health and liability insurance costs, 4) 1.06% for
gas and oil, 5) 2.96% for all other cost increases
including labor, ongoing maintenance, disposal
costs at the landfill, and other pass-through costs
Attachment 4

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