San Luis Obispo City Council
April 19, 2022

Section II. Rate Setting Process
In addition, for information purposes
only, the franchise hauler is requested to
segregate company total costs of providing
service to: (1) customers within City limits,
(2) customers in adjacent unincorporated
areas, and (3) California State University, San
Luis Obispo (Cal Poly). Suggested allocation
bases for any shared costs are presented in a
"standardized" Chart of Accounts (discussed
in task e of this section). Appendix A to
manual includes a form for the frartchise
hauler to report these allocations.

In the application, costs are further grouped
into the following major cost categories:

O Allowable Costs
Direct Labor
Corporate Overhead
Office Salaries
Other General and Administrative
Costs
O Pass Through Costs
Tipping Fees
Franchise Fees
AB 939 and Regulatory Fees
Lease Payments to Affiliated
Companies.

If one of the major cost categories in the
application changes at an unusual rate, then
the hauler ·should provide ~n explanation for
the change. An unusual change in cost is
any increase which is greater than the
change in the U.S. Consumer Price Index
(CPI) published by the Bureau of Labor
Statistics in their Monthly Labor Review.

Cost information for the current. year
and projected years must account for any
increases or decreases in number of customers
served, or tons of solid waste and recyclable
materials collected. Actual increases in cost
also must be included. For example, if labor
costs are expected to increase in the base year
due to current labor agreements, this additional
cost must be included. If these costs are not

included, the rate increase will not be sufficient
to compensate the franchise hauler for actual
costs and will result in a reduction of the
franchise hauler's actual profits.

Cost information provided in the
application is used to calculate the franchise
hauler's revenue requirement. This amount
is compared to anticipated revenues at
existing rates to calculate the rate adjustment.
b. Prepare Revenue Information
Similar to cost information, revenues are
reported for two historical years, current
calendar year, and two projected years (the
base year, and year after the base year).

Revenue is reported in five separate categories:

O Residential
O Non-residential
O Revenue from the processing facility
O Interest· on investments
O Other income.

Actual revenue for each category is reported
for the two historical years, estimated revenue
is reported in the current year, and projected
revenue is reported for both base year and
year after.

Residential and non-residential revenues
in the base year are projected without any
increases in rates. Residential and nonresidential revenue projections are prepared based on existing rates and number of
customers which the franchise hauler
anticipates serving in the base year.

Allowances for uncollectible residential
and non-residential accounts are identified in
the application. This provides for a more
accurate determination of the franchise
hauler's revenue in the base year, as a small
number of customers do not pay the
franchise hauler for service rendered.

Revenues from the processing facility are
reported as the sum of (1) scrap payments
for materials sold, (2) California refund value
City of San Luis Obispo

Section II. Rate Setting Process
and processing fees, and (3) fees received
from other cities. ·
Interest earned on investments, and other
income, must be identified separately in the
application. Supporting documentation
should be provided which indicates sources
of interest and other income.

Once all revenues have been reported
in the application, total revenue is calculated.

This total revenue is termed a "revenue
offset," because it is subtracted from the
revenue requirement calculated earlier in
task a to determine the franchise hauler's
net surplus/shortfall.

A net shortfall determines the amount of
a rate increase to be applied to residential
and non-residential rates. If there is a net
surplus, the franchise hauler should
determine if the operating ratio can be
reduced to eliminate the surplus (i.e., the
franchise hauler retains the surplus as
additional profit). If the operating ratio is
calculated at 90 percent, which provides the
franchise hauler with the maximum amount
of profit allowable under current policy, and
a surplus still exists, the City must determine
if rates will be lowered, and over what
period of time.

In addition, for information purposes
only, the franchise hauler is requested to
segregate company total revenue. Like cost
information, revenue should be segregated
into: (1) customers within City limits, (2)
customers in adjacent unincorporated areas,
and (3) California State University, San Luis
Obispo (Cal Poly).
c. Prepare Operating Information
During this task, non-financial operating
information is compiled by the franchise
hauler. Information to be provided for both
residential and non-residential customers
includes:

O Accounts served
O Routes
City of San Luts Obispo
O Tons collected
O Direct labor hours.

This information allows both the City and
franchise hauler to monitor changes in the
service characteristics, to estimate total
revenues at existing rates, and compare
these to changes in total cost and revenues.·
Operating information is provided on a form
in the Base Year Rate Adjustment
Application.
d. Survey Residential and NonResidential Solid Waste Rates and Charges in Similar Service Areas
The hauler conducts and reports results
of a survey of residential and non-residential
solid waste rates in communities similar in
size and location to the City of San Luis
Obispo. The purpose of the survey is to
benchmark rates proposed by the franchise
hauler against other cities to determine if the
rates are reasonable. The City and the
franchise hauler will agree on which cities
will be surveyed.

The survey includes over 25 questions
covering general information, residential
service, non-residential service, and tipping
fees. The purpose is to determine the
characteristics of each jurisdiction with which
to fairly compare rates. Sample survey forms
and instructions are provided in Section III of
this manual. The franchise hauler shall
prepare a summary report of the survey, to be
contained as part of the application.
e. Prepare and Submit Rate
Adjustment Application and
Supporting Documents
The completed Base Year Rate
Adjustment Application is submitted by the
franchise hauler to the City. The application
should include the following items:

O Management Representation Letter
The management representation letter
transmits the application to the City, and

Section II. Rate Setting Process
should provide a listing of included
documents. The letter should identify
the requested adjustment in rates and
include a discussion of specific issues
. which impact new rates (e.g., significant
increases in tipping fees). The letter
should state that:
• Management reviewed and accepts
responsibility for the rate application
• The application is based upon
management's judgment of the
most likely set of conditions
and course of action
• All significant relevant information
are made available
• Assumptions are reasonable
and are accurate.

O Base Year Rate Adjustment
Application
The franchise hauler should provide a
Base Year Rate Adjustment Application
including completed application forms
and supporting documentation.

Supporting documentation includes the
current rate schedules for residential and
non-residential customers.

O Supplemental Audited Financial
Information
For applications received after 1994, the
most current audited financial statements
for the franchise hauler should be
included, as well as other documentation
which support operating and financial
data provided in the application. Because
audited financial statements serve as base
documents for the application, statements
of revenues and expenses and other
reports contained in the application shall
be reconciled to the audited financial
statements to provide assurance that
all activities are accounted for.

O Chart of Accounts
Although not required, it is requested
that the franchise hauler submit a
"standardized" chart of accounts for

information purposes only. This chart
of accounts structures a framework for
cost accounting, provides a basis for
determining reasonableness, and
enhances year-to-year comparability.

The chart of accounts allows for
separate accounting of franchised and
non-franchised activities, and of direct
and indirect costs associated with the
franchise hauler's operations.

Appendix B to this manual contains a
sample chart of accounts, including:
account title, account type (asset,
liability, revenue, expense), type of
cost (direct or indirect), and suggested
allocation basis for indirect costs (e.g.,
tons collected, number of accounts).

The franchise hauler may find other
miscellaneous accounts may be
required. To maintain comparability,
the franchise hauler should indicate
any major changes to the chart of
accounts.

The hauler submits a completed Base
Year Rate Adjustment Application to the
City. The City then is allowed fifteen (15)
days to review the application for
completeness. The penalty to the
franchise hauler for an incomplete
application would be a loss of any
additional revenue which would have
been generated through a timely and
approved rate adjustment application.

Similarly, for missing any other deadlines
specified in the rate setting process (i.e.,
responding to City requests for additional
information or reviewing the City's draft
agenda report) the franchise hauler would
lose revenue due to later implementation
of rates. If the City fails to meet
established time frames for its
responsibilities (i.e., steps 2, 3, 5, 7, and
8), at no fault of the franchise hauler, the
City will include the value of revenue lost
due to the delay, as part of the pending
Base Year Rate Adjustment Application or
pending Interim. Year Rate Adjustment
Application.

City of San Luts Obispo

Section II. Rate Setting Process
Responsibility:

Timing:

Tasks:

City
Completed within fifteen (15) days
after the hauler submits the Base Year
Rate Adjustment Application
a. Verify Financial Data and Format
b. Verify Supporting Documems and
Schedules
c. Notify Franchise Hauler
Description of Tasks
Overview
During this step, the City ensures that
the application has been fully completed
by the franchise hauler and that the data
provided are consistent. During the 15-
day period, the City will obtain from the
franchise hauler any information
necessary to complete the application.
a. Verify Financial Data and
Format
City staff reviews the application to
determine if it is complete and ready for
analysis. Detailed analysis of the
application's contents occurs during step 3.

The City reviewer should determine the
following:

O Has the applicant included all
required forms?
O Are all forms complete?
a Are all financial calculations
mathematically correct?
O Has the applicant completed the
survey of other cities and
provided a survey summary?
City of San Luis Obispo
b. Verify Supporting Documents
and Schedules
Various documents may be included in
the application to support the rate adjustment.

The purpose of these supporting documents
should be clearly identified by the franchise
hauler.
c. Notify Franchise Hauler
If the application is complete the City
will notify the franchise hauler that it will
begin the process of evaluating and
analyzing the proposed rate adjustment. If
incomplete the City will attempt to obtain
from the franchise hauler additional required
information within the 15-day verification
period.

A revision of rates shall not be
authorized until the 1st day of the first
calendar month following a 105 day period
from the date that an application is verified
to be complete. As an example, if the
franchise hauler's application is deemed
complete on June 25th due to the fault of
the hauler (a 10 day delay), rates would be
effective November 1st instead of on
October 1st. The franchise hauler would
lose the incremental revenues that would
have been received from applying the new
rates during October.

Section II. Rate Setting Process
Responsibility:

Timing:

Tasks:

City
Completed within fifteen (15) days after
determining that the application package is
complete
a. Review Actual and Projected
Revenue Requirements
b. Review Actual and Projected Revenues
c. Review and Verify Operating Ratio
d. Determine Components of
Requested Adjustment in Rates
e. Review Performance Data
f Verify Survey of Rates in Similar
Service Areas
g. Request Additional Data and
Clarification, If Necessary
h. Document Staff Review and Prepare
Written Response
Description of Tasks
Overview
During this step, City staff evaluates the
entire rate adjustment application. This
review includes examining significant
changes in costs or operating performance
and evaluating explanations of these
changes provided by the franchise hauler.
a. Review Actual and Projected
Revenue Requirements
In this task, costs and operating profit of
the application are reviewed and analyzed
for reasonableness. Reconciliations of costs
to audited financial statements shall be
checked for consistency. Explanations are
sought for items significantly different than
would otherwise normally be expected.

Absolute and percentage changes in costs
for the five years identified on the application
should be calculated and reviewed.

Projections prepared from previous years in
prior Base Year Rate Adjustment Applications

are compared with actual results. Costs are
correlated with operating collection efficiency
statistics provided by the hauler.

Any unusual trends or variances should
be explained by the franchise hauler. An
unusual increase would be a change in cost
which is greater than the change in the U.S.

Consumer Price Index, published by the
Bureau of Labor Statistics in their Monthly
Labor Review, and which can not be
attributed to changes in the number of
customers serviced or tons of waste or
recyclable materials collected. If these
unusual changes are not adequately
explained in the application, the City should
request additional clarification from the
franchise hauler.
b. Review Actual and Projected
Revenues
Actual and projected revenues should
be reviewed in this task. · Current residential
and non-residential rates provided in the
City of San Luis Obispo Page 802 of 1208
Section II. Rate Setting Process
application are verified. Any changes in
the number of customers seivked should
be identified and explained by the franchise
hauler.

The application requires the franchise
hauler to report five years of non-residential
and residential revenues: (1) calendar year
two years ago (2) most recent calendar year,
(3) current year, (4) projected "base" year,
and (5) projected year after the "base" year.

For applications received after 1994, the City
should reconcile the first two years revenues
with audited financial statements. Revenues
for the current year are compared with
unaudited financial statements and
documentation supplied by the hauler.

Projected revenues for the fourth, or "base"
year, and fifth year are evaluated by the City
for reasonableness. All assumptions made
by the hauler in preparing these projections
are reviewed.

Residential and non-residential revenues
reported by the hauler should not include
any rate increases in the base year (year 4)
or year after (year 5). Rate schedules
submitted by the franchise hauler should be
consulted to determine average rate
increases. Account information included in
the application is reviewed to determine
changes in the number of accounts setved.

Allowances for residential and nonresidential uncollectible accounts also are reviewed. These figures should be deducted
from total residential and non-residential
revenue projections. These allowances may
be based on a fixed percentage of total
revenues or on actual experience.

Assumptions related to allowances for
residential and non-residential accounts
should be provided by the franchise hauler.

Revenues from the franchise hauler's
processing facility are provided in the
application. Revenues are equal to total
scrap sales, plus CRV and beverage container
processing fees received plus fees received
from other cities. Amounts identified in the
first and second years of the five years
City of San Luis Obispo
provided should reconcile with the two most
recent financial audits. Amounts identified in
the current (third) year, the base (fourth)
year, and final year (year 5) should be
documented by the franchise hauler. The
City will review these projections to ensure
they are consistent with trends in recycling
collection costs, scrap values, processing
costs, as well as estimated diversion rates
and tonnage.

Revenue from interest on investments,
and other income, is also reviewed by the
City. The City will verify that interest on
investments, and other income, is received
from investments and income related to the
franchise hauler's operation.
c. Review and Verify Operating
Ratio
The operating ratio must be between
90 percent and 94 percent, and is set at
92 percent in the initial base year. City staff
verifies that the operating ratio used in the
application is within this range. The
allowable operating profit also is
recalculated utilizing the operating ratio
stated in the application. If the operating
ratio does not fall within the range stated
above, or if there are any errors in
calculating allowable operating profit, these
deficiencies are noted.
d. Determine Components of
Requested Adjustment in Rates
The City evaluates all costs, revenues,
and operating profits provided in the
application to determine the components of
the requested adjustment in rates. This
would include determining the proportion
of the requested adjustment in rates which
is due to changes in each o.f the following:

O Costs
O Non-residential revenues
O Residential revenues

Section II. Rate Setting Process
O Revenues from the processing facility
O Interest on investments
O Operating profit (or loss).
e. Review Performance Data
City staff reviews and analyzes
performance data which are included in the
application (number of accounts, routes,
tons collected, direct labor hours).

Operating statistics are reviewed to explain
past historical trends and justify future
expenses. Both actual and percentage
increases are examined and any unusual
changes in performance are investigated to
determine their cause and effect on future
cost performance. An unusual change in
operating statistics is any increase
or decrease of more than the Consumer
Price Index (CPI) published by the Bureau
of Labor Statistics in their Monthly Labor
Review. As noted above, changes in
accounts served, number of routes, tons
collected, or direct labor hours generally
should correspond to changes in cost and
revenue.
f. Verify Survey of Rates in
Similar Service Areas
City staff shall review the survey of rates in
similar service areas to determine if the
surveys were completed according to the

survey format. This includes careful
evaluation of why rates might be different.

For example, tipping fees may be
significantly different, or non-residential
accounts may provide a large subsidy to
residential accounts.

Survey results should be benchmarked
against rates proposed by the franchise
hauler to determine if proposed rates are
reasonable. Survey results which are
significantly different from information
included in the franchise hauler's rate
adjustment application should be noted.
g. Request Additional Data and
Clarification, If Necessary
Throughout the analysis of the
application, City staff may request
clarification and/or additional data from the
franchise hauler to explain any unusual
changes in costs or operating performance.

This information is requested in a letter from
the City to the franchise hauler.
h. Document Staff Review and
Prepare Written Response
During this task, City staff documents the
review process. A memorandum is prepared
which lists the activities completed during
the review process and highlights any of the
key findings of the review.

City of San Luis Obispo

Section II. Rate Setting Process
Responsibility:

Ti.ming:

Tasks:

Franchise Hauler
Completed during the second week of
step 3.
a. Provide Additional Information
If Requested '
b. Prepare and Submit Response
Description of Tasks
Overview
During this step the franchise hauler
responds to requests for additional
information from the City.
a. Provide Additional Information,
If Requested
During the prior step 3, City staff
reviewed the application and may have
identified missing information, or changes in
the financial or operating data between the
City of San LuiS Obispo
five fiscal years which require clarification
or further explanation. The franchise hauler
should respond to the City's request for
additional information. Responses will very
depending on the specific requirements of
the City.
b. Prepare and Submit Response
The franchise hauler prepares written
responses to the City's request for additional
information. These responses are forwarded
to the City during this step.

Section II. Rate Setting Process
Responsibility:

Timing:

Tasks:

City
Completed fifteen (15) days after the review of
rate adjustment application and preparation of
responses (step 3) is complete
a. Prepare Draft Council Agenda
Report
Description of Tasks
Overview
A draft Council Agenda Report with
recommendations is prepared by City staff and
submitted to the franchise hauler for review.

The report will be reviewed by the franchise
hauler in step 6. Residents of the City will be
able to comment on the rate adjustment
process through a public hearing (step 8).
a. Prepare Draft Council Agenda Report
In this step, City staff prepares a draft
Council Agenda Report including
recommendations for a rate adjustment. The
draft report includes the following sections:

O Chief Administrative Officer
Recommendation
O Discussion of Rate Application
and Review
O Effect of Rate Adjustment on
Customers
O Potential Future Rate Adjustments
O Concurrences
O Attachments.

Each of these report topics is discussed
below:

O Chief Administrative Officer
Recommendation
This is one or two paragraphs
recommending the new integrated

solid waste management rates, This
may include a chart showing current
and proposed rates, and the
recommended rate adjustment.

O Discussion of Rate Application
and Review
This section of the report provides a
brief overview of the rate adjustment
process and discussion of significant
historical issues. This includes a review
of analysis work completed by City
staff. This section may include the
following sub-sections:

Review of Rate Adjustments, including a
discussion of rate adjustments during
each year since the last base year, and an
analysis of the significant components of
. the adjustment in rates (e.g., increased
tipping fees, changes in operating profit).

Analysis of Projected Costs, including a
discussion of any unusual increases in
costs which were discovered during
the review process.

Discussion of Seroice Issues, including
changes in frequency or type of
service. If significant service issues are
not involved with a rate adjustment,
this section would be omitted.

O Effect of Rate Adjustment
on Customers
City staff would prepare an analysis of
how the monthly bills for customer
City of San Luis Obispo

Section II. Rate Setting Process
classifications will change. This would
also include a comparison of existing
and recommended new rates.

O Potential Future Rate
Adjustments
A discussion would be presented on
possible future rate adjustments, given
City staff analysis of the recommended
rate adjustment and potential additional
costs which may need to be recovered
through the rate payers. This may
include a comparison of what future
rate increases may need to be if an
alternative rate adjustment is adopted
by City Council.

O Concurrences
This is a paragraph stating concurrences
by the Finance and Utilities
Departments for the recommended rate
adjustment.

City of San Luis Obispo
O Attachments
Attachments to the report could
include:
• City Council Resolution which
formally adopts new rates
• Revised rate schedule
• Historical rate adjustments
• Estimated tipping fees
• Estimated costs and revenues
• Alternative rate adjustments ·
• Other relevant supporting materials
provided by the franchise hauler or
prepared by City staff
• Comparison of residential and nonresidential rates with other cities.

After the draft report is complete, copies are
provided to the franchise hauler.

Section II. Rate Setting Process
Responsibility:

Timing:

Tasks:

Franchise Hauler
Completed within seven (7) days after the
City's completion of the draft council agenda
report (step 5)
a. Review Draft Council Agenda
Report with City Staff
b. Resolve Any Remaining Issues
c. Prepare Response to Draft
Council Agenda Report
Description of Tasks
Overview
The franchise hauler reviews the City's
draft of the Council Agenda Report. The
franchise hauler also may provide additional
information related to any issues identified
by the City.
a. Review Draft Council
Agenda Report with City Staff
Each section of the draft report should
be reviewed by the hauler to ensure the
following:

O Correct data are included
O City staff analysis is accurate and fair
O Rate adjustments are acceptable.
b. Resolve Any Remaining Issues
If any issues are identified during this
step, the franchise hauler works with City
staff to fully explore and resolve these
outstanding issues.

c. Prepare Response to
Draft Council Agenda Report
A written response to the draft report is
prepared, if the hauler deems it necessary.

The response may cover one or more of the
following topics:
0 · If data discrepancies exist in any of
the areas noted in the prior task, the
City should be notified of these
discrepancies
O If the analysis conducted by City
staff can be clarified or considered
differently, this information should
be provided to the City staff
O If the report is acceptable and no
clarification or comments can be
offered, this should be relayed to
City staff.

City of San Luis Obispo

Section II. Rate Setting Process
Responsibility:

Ti.ming:

Tasks:

City
Completed eight (8) days after receiving
hauler's comments on the draft agenda report
(step 6)
a. Incorporate Franchise Hauler's
Changes in Final Report
b. Prepare Final Council Agenda
Report
Description of Tasks
Overview
The City prepares the Final Council
Agenda Report, incorporating relevant
comments from the franchise hauler during
this step.
a. Incorporate Franchise Hauler's
Changes in Final Report
Any comments or issues raised during
the franchise hauler's review of the draft
report are addressed during this task. If
necessary, meetings are conducted with
representatives from the City and the
Ctty of San Luts Obispo
franchise hauler. Final solutions to
outstanding issues are included in the
Council Agenda Report.
b. Prepare Final Report and
Recommendations
After final comments from the franchise
hauler have been considered, the Final
Council Agenda Report package is prepared.

This includes the Council resolution to be
signed by appropriate City officials to adopt
new rates. A copy of the final report is
submitted to the franchise hauler.

Section II. Rate Setting Process
Responsibility:

Timing:

Tasks:

City
Completed thirty (30) days after Final Report
and Recommendations are complete
a. Distribute Report and Resolution
to Council Members
b. Post Notice of Public Hearing
c. Conduct Public Hearing
d. Obtain Council Approval
Description of Tasks
Overview
During this step, the final
recommendations are presented to the
City Council for review, comment, and
approval.
a. Distribute Report and
Resolution to Council Members
The Council Agenda Report is provided
to members of the City Council. The report
is included as an agenda item for Council
consideration at a regular Council meeting.
b. Post Notice of Public Hearing
City staff will prepare for a public hearing
on the proposed rate adjustment at the formal
Council meeting.

c. Conduct Public Hearing
Comments from City residents are made
during the Council meeting considering the
rate adjustment. Copies of the Council
Agenda Report should be made available at
the meeting.
d. Obtain Council Approval.

Council members consider the public
comments, and review the agenda report
and proposed rate adjustments. If Council
agrees with the recommendations of the
City staff, the report and rates are approved
and a resolution is adopted to implement
these rates. If Council does not agree with
the recommendations, the report is returned
to City staff for additional analysis.

City of San Luis Obispo Page 810 of 1208
Section II. Rate Setting Process
Responsibility:

Timing:

Tasks:

Franchise Hauler
Completed thirty (30) days after Council
approves application and resolution
a. Prepare Notification of Rate Adjustment
b. Implement Rate Adjustment
Description of Tasks
Overview
During this final step, the franchise
hauler implements new rates. Rates are
implemented on October 1 of each year,
unless no rate adjustment is requested or
the rate application is delayed.
a. Prepare Notification of
Rate Adjustment
After a formal resolution is adopted by
the Council approving the new rates, the
hauler notifies all customers of the rate
adjustment. This notification may be
City of San Luts Obispo
included with a regular billing or mailed
separately.
b. Implement Rate Adjustment
During this final task, new rates are
entered into the franchise hauler's billing
system and included in the billing cycle. If
the franchise hauler prepares billings once
every two or three months, and a rate
adjustment occurs during the middle of a
billing cycle, unbilled amounts in current
billing cycle due to the rate adjustment are
calculated and included in the next billing
cycle.

Section II. Rate Setting Process
B. Timing of Base Year
Rate Setting Process
A base year rate adjustment is
implemented on October 1 if no delays in
the process occur. The Base Year Rate
Adjustment Application must be submitted

to the City by June 1 in order to meet the
October 1 implementation date.

Exhibit Il-3 on the next page shows
the timeline for completion of the rate
adjustment process. Key milestones are
noted in the exhibit by circled letters.

City of San Luis Obispo Page 812 of 1208
EXHIBITil-3
Timing qf Base Year Rate Adjustment Process
Month -2 Month -1 I Month 1 Month 2 i Month 3 Month 4
Process
Activity

1. Preparation and Submission
of Rate Adjustment Application

2. Verification of the Completeness
of Rate Adjustment Application

3. Review of Rate Adjustment
Application and Preparation of
Responses

4. Response to Additional
Information Requests from City

5. Preparation of Draft Council
Agenda Report

6. Review of Draft Council
Agenda Report

7. Preparation of Final Council
Agenda Report

8. Presentation of Agenda Report
to City Council

9. Implementation
of the New Rates
Milestones
Franchise Hauler
Preparation
I 1sDay
I Review.

I i;·.>I
; ®
'
Step2
Step3
Step4
A. Rate Adjustment Application E. Public Hearing
Fonnal
City Review
Step6
Step@
: Implement
i
I
Step8 l
I
©CE)
Step9
@
B. Acceptance/Return Letter F. Resolution Adopting New Rates C. Draft Council Agenda Report G. New Rates Effective
D. Final Council Agenda Report

Section II. Rate Setting Process
C Interim Year Rate Setting
Process
Interim year rate adjustment requests
are accepted in the two years between base
years. The interim year process requires
less information and preparation time, while
still allowing fair and reasonable rate
adjustments.

During the two interim years, rates can
be adjusted annually through application of
a composite index. The index consists of:

O Historical changes in the U.S.

National Consumer Price Index
(CPI) published by the Bureau of
Labor Statistics in their Monthly
Labor Review
O Projected changes in tipping fees
O Projected changes in AB 939 and
regulatory fees
O Adjustment for the franchise fees
which change if revenues change.

In each interim year, the franchise hauler
is responsible for determining the actual
annual change in the CPI for the most recent
12-month period. The franchise hauler also
will be responsible for estimating and
documenting projected changes in tipping

fees, and AB 939 and regulatory fees in the
interim year for which a rate adjustment is
requested.

Even if the interim-year adjustment would
justify an increase in rates, the franchise hauler
is not required to apply for the increase. This
will help stabilize rate adjustments even when
small increases might be warranted.

Special mid-year rate adjustments are
allowed outside of the annual schedules of the
base year and interim year adjustments. These
adjustments are for extraordinary and
consequential cost increases which would
require across-the-board rate increases of
greater than five percent (5%). Both the City
and franchise hauler may initiate the special
mid-year rate adjustment process by contacting
the City Administrative Officer (CAO). For
special mid-year rate adjustments, the franchise
hauler will provide necessary information and
documentation so the CAO can make a
judgment as to the reasonableness of such a
rate adjustment. With CAO approval, a midyear rate adjustment can be made by the franchise hauler.

Exhibit 11-4, following this page,
provides an overview of the interim year rate
adjustment process. Following this exhibit is
a description of each step in the process.

City of San Luis Obispo

EXIDBITil-4
Interim Year Rate Adjustment Process

1. Preparation and Submission of Rate Adjustment Application Franchise Hauler a. Prepare an Interim Year Rate Adjustment Application
b. Submit Application to City Staff

2. Preparation of Draft Council Agenda Report City
a. Request Additional Data, and Clarification, If Necessary b. Prepare Draft Council Agenda Report

3. Review and Response to Draft Council Agenda Report Franchise Hauler a. Review Draft Council Agenda Report with City Staff
b. Prepare and Submit Response

4. Preparation of Final Council Agenda Report City
a. Incorporate the Franchise Hauler's Comments in Final Report b. Prepare Final Council Agenda Report

5. Presentation of Agenda Report to City Council . City a. Distribute Report to Council Members
b. Post Notice of Public Hearing
c. Conduct Public Hearing
d. Obtain Council Approval

6. Implementation of New Rates Franchise Hauler
a. Notify Customers
b. Implement Rate Adjustment

Section II. Rate Setting Process.

Responsibility:

Timing:

Tasks:

Franchise Hauler
Completed 120 days prior to the date new
rates become effective
a. Prepare an Interim Year Rate
Adjustment Application
b. Submit Application and Worksheet
to City Staff
Description of Tasks
Overview
During this first step, the franchise hauler
prepares the Interim Year Rate Adjustment
Application.
a. Prepare an Interim Year Rate
Adjustment Application
The Interim Year Rate Adjustment
Application requires information from the
most recent Base Year Rate Adjustment
Application.' The application is used to
calculate proposed new rates. Detailed
instructions on how to complete this
application are provided in Section IV of this
manual.

The application requires the franchise
hauler determine the annual change in the
U.S. National Consumer Price Index, as
published by the Bureau of Labor Statistics in

their Monthly Labor Review. The actual
annual change in this index during the twelve
months prior to the date the Interim Year
Rate Adjustment Application is used to adjust
controllable costs allowed in the prior base
year rate adjustment.

In the application, the franchise hauler is
also responsible for projecting changes in
two pass through costs:

O Tipping fees
O AB 939 and regulatory fees.

These projections are made for the interim
year for which new rates are being requested.
b. Submit Application to City Staff
The application is signed by an
appropriate representative of the franchise
hauler and sent to the City for review.

City of San Luis Obispo Page 816 of 1208
Section II. Rate Setting Process
Responsibility:

Timing:

Tasks:

Cicy
Completed fifteen (15) days after the Interim
Year Rate Adjustment Application is submitted
a. Request Additional Data, and
Clarification, If Necessary
b. Prepare Draft Council Agenda
Report
Description of Tasks
Overview
A draft Council Agenda Report with
recommendations is prepared by City staff
and submitted to the franchise hauler for
review. The report will be reviewed by the
franchise hauler in step 3. Residents of the
City will be able to comment ori the rate .
adjustment process through a public hearing
(step 5).
a. Request Additional Data, and
Clarification, If Necessary
If necessary, City staff requests
clarification and/or additional data from the
franchise hauler. The request is to clarify the
hauler's assumptions for projected changes
in tipping fees or regulatory costs, and to
indicate the expected adjustment in rates.
b. Prepare Draft Council Agenda
Report
City staff prepares a draft Council
Agenda Report with recommendations of
new rates for City Council consideration.

This report should be brief and include the
following sections:

O Chief Administrative Officer
Recommendation
This is one paragraph which recommends
the required rate adjustment.

City of San Luts Obispo
O Discussion of Application
and Review
This is a summary of the review
process and includes the
information for the proposed rates,
and the recommended rate
adjustment. The report might
include a discussion of any
significant increases in pass through
costs and an identification of the
change in CPI. This section also
may include a discussion of any
significant historical issues.

O Effects of Rate Adjustment on
Customers
This section includes an analysis of
the impact on monthly bills due to
the rate adjustment.

O Attachments
Attachments to the report would
include:
• City Council Resolution which
formally adopts new rates
• Revised rate schedule
• Rate adjustment worksheet.

After the draft agenda report has been
prepared, the document should be submitted
to the franchise hauler for comment and
review.

Section II. Rate Setting Process
Responsibility:

Timing:

Tasks:

Franchise Hauler
Completed twenty (20) days after
preparation of rate adjustment indices
a. Review Draft Council Agenda
Report with City Staff
b. Prepare and Submit Response
Description of Tasks
Overview
The franchise hauler reviews the draft
report to ensure that any analysis completed
by City staff are fair, reasonable, and
justified.
a. Review Draft Council Agenda Report
with City Staff
The franchise hauler reviews the draft
report to ensure the following:

O Correct data are included
O City staff analysis is accurate and fair.

b. Prepare and Submit
Response
A written response to the draft report is
prepared. The response may cover one or
more of the following topics:

O Data discrepancies in any of
the areas noted in the prior
task
O Clarification for the City or
alternative analysis of the
application
O Responses to the City's request
for additional information.

City of San Luis Obispo

Section II. Rate Setting Process
Responsibility:

Timing:

Tasks:

City
Completed twenty-five (25) days after review
and response to City analysis and calculations
a. Incorporate the Franchise Hauler's
Comments in Final Report
b. Prepare Final Council Agenda Report
Description of Tasks
Overview
The City prepares the final Council
Agenda Report incorporating comments from
the franchise hauler, as appropriate.
a. Incorporate the Franchise Hauler's
Comments in Final Report
Any comments or issues raised during
the franchise hauler's review of the draft
report are addressed during this task. If
necessary, meetings should be conducted
Ctty of San Luis Obispo
with representatives from the City and the
franchise hauler. Final solutions to
outstanding issues should be included in the
report.
b. Prepare Final Council Agenda Report
After final comments from the franchise
hauler have been considered, the final
Council Agenda Report is prepared. A copy
of the final report should be submitted to the
franchise hauler.

Section II. Rate Setting Process
Responsibility:

Ti.ming:

Tasks:

City
Completed thirty (30) days after preparation
of final agenda report
a. Distribute Report to Council
Members
b. Post Notice of Public Hear!ng
c. Conduct Public Hearing
d. Obtain Council Approval
Description of Tasks
Overview
The final Council Agenda Report is
submitted to City Council for review,
comment, and approval, during this step.
a. Distribute Report to Council Members
The Council Agenda Report is provided
to members of the City Council. The report
is included as an agenda item for Council
consideration at a regular Council meeting.
b. Post Notice of Public Hearing
City staff will prepare for a public hearing
on the proposed rate adjustment at the formal
Council meeting.

c. Conduct Public Hearing
Comments from City residents are m·ade
during the Council meeting considering the
rate adjustment. Copies of the Council
Agenda Report should be made available at
the meeting.
d. Obtain Council Approval
Council· members will review the report
and proposed rate adjustments. If Council
agrees with the recommendations of City
staff, the resolution attached to the report
should be approved. If Council does not
agree with the recommendations, the report
is returned to City staff for additional
analysis.

City of San Luis Obispo

Section II. Rate Setting Process
Responsibility:

Timing:

Tasks:

Franchise Hauler
Completed thirty (30) days after the Council
approves the application and resolution
a. Notify Customers
b. Implement Rate Adjustment
Description of Tasks
Overview
After new rates have been approved by
City Council, the final step in the process is
to implement the new rates.
a. Notify Customers
After a formal resolution _is adopted by
Council, a notification of a rate adjustment
should be made to all customers. This
notification may be included with a regular
billing or mailed separately.

City of San Luis Obispo
b. Implement Rate Adjustment
During this final task, the franchise
hauler enters new rates into their billing
system and includes the new rates on the
next appropriate customer invoice. If the
billing cycle is two months or more, and if
a rate adjustment occurs during the middle
of the billing cycle, unbilled amounts are
calculated and included in the next billing
cycle.

Section II. Rate Setting Process
D. Timing of Interim Year
Rate Setting Process
The application from the hauler for a
interim year rate adjustment should be
submitted to the City on June 1st, four
months prior to the implementation of the
rates. Interim year rate adjustments are
implemented October 1.

Exhibit 11-5, on the following page,
shows the timeline for completion of the
interim year rate adjustment process. Key
milestones are noted in the exhibit by circled
letters.

City of San Luis Obispo

EXIDBITil-5
Timing of Interim Year Rate Adjustment Process
Process
Activity

1. Preparation and Submission
of Rate Adjustment
Application

2. Preparation of Draft Council
Agenda Report

3. Review and Response to
Draft Council Agenda Report

4. Preparation of Final Report
and Recommendations

5. Presentation of Final Report and
Recommendations to City Council

6. Implementation
of the New Rates
Month -1 i Month 1 I Month 2 ! Month 3 Month 4
Franchise Hauler\
Preparation I Formal City Review
Step! i 10
I
_._SJep2
Milestones
Step3
Step4@
A. Application Submitted to City
B. Final Report and Recommendation
C. Public Hearing
D. Resolution Adopting New Rates
E. New Rates Effective
\
i
i
I Step5 i
!
Implement
©@l
I Step6
0

Section III
Base Year Rate Setting
Methodology

III. Base Year Rate Setting Methodology
This section provides detailed
instructions on how to complete the Base
Year Rate Adjustment Application. The
application will be prepared by the franchise
hauler and reviewed by the City once every
three years.

The application includes detailed
financial and operating information and is
used to determine base year costs and
revenues of the franchise hauler. As part of
the application, the franchise hauler also
conducts and summarizes results of a survey
of collection rates in similar cities.

Exhibit ID-1, following this page,
provides an overview of the steps and
related tasks which must be completed to
prepare the application form. Exhibit ID-2,
following Exhibit III-1, is a sample
application form as it might be completed by
the franchise hauler. Following this exhibit
are detailed descriptions of each step and
related tasks. Please note that data included
in these exhibits are provided for illustrative
purposes only and are not intended to reflect
actual operating or financial conditions of
the franchise hauler.

Information for five years is required
from the hauler. The information is intended ·
to show the relationship between the most
recently completed years (years 1 and 2), the
City of San Luis Obispo
current year (year 3), and projections for
the new base year (year 4) and year after
(year 5) .. On the application, these five years
are organized as five columns:

O Historical ( columns 1 and 2) -
includes audited financial information
for the franchise hauler's prior two
years.

O Current ( column 3) -
includes estimated financial
information for the full year in
which the application is submitted.

Data in this year includes year-todate performance plus estimated performance during the remaining
months of the current year.

O Projected (columns 4 and 5) -
provides estimated operations
during the base year (for which
new rates will be established), and
projected performance during the
year after the base year.

The relationship between these five
. columns for any given line item should be
consistent. Any substantial difference
between each of the five years should be
explained by the franchise hauler and
considered by the City during the review
process.

EXIDBIT ill-1
Preparation of the Base Year Rate Adjustment Application

1. Entry of Operating Costs
a. Enter Prior Two Years Audited Information
b. Enter Current Year Estimated Information
c. Enter Base Year Projected Information
d. Enter Future Year Projected Information
e. Enter Operating Information

2. Determination of Revenues Without Increase
a. Determine Residential Revenue
b. Determine Non-Residential Revenue
c. Determine Allowance for Uncollectible Accounts
d. Determine Revenues from Processing Facility
e. Calculate Total Revenue Offsets

3. Calculation of Allowable Operating Profit and Revenue Requirement a. Calculate Allowable Operating Profit
b. Determine Franchise Fee
c. Calculate Revenue Requirement

4. Calculation of Percent Change In Rates
a. Calculate Net Shortfall/Surplus
b. Calculate Percent Change In Rates

5. Preparation of Summary Form
a. Calculate New Rates
b. Sign and Submit the Application

6. Survey of Rates in Similar Areas
a. Complete Solid Waste Fee Survey
b. Summary of Survey

EXHIBITID-2

Sample Base Year.Rate Adjustment Application
City of San Luis Obispo
Base Year Rate Adjustment Application
Summary

1. Rate Increase Requested
Rate Schedule
Single Family Residential

2. Economy Service (collection)
Economy Service (orange bags)

3. Standard Service

4. Premium Service

5. Mu/tiunit Residential and Non-resident/al
Increased
Current Rate Rate
$2.00 $2.20
$1.00 $1.10

13.40 14.74

18.25 20.08
Adjustment
$0.00
$0.00

0.01 0.02

10.0%11
New
Rate
$ 2.20
$1.10

14.75 20.10
(a) Calculated rates are rounded up to the nearest SO.OS.

Rate increases of H 10.0% U will be applied
to all rates in each structure with each rate rounded up to the nearest S 1.00.

CertHlcatlon
To the best of my knowledge, the data and information in this application is complete, accurate, and consistent with the instructions provided by the City of San Luis Obispo.

Name: John Brown Title: Controller
Signature: Jofrn 'lJrown. Date: May 1, 19xx
Fiscal Year: Pg. 1 of6

EXHIBITID-2

Sample Base Year Rate Ad;ustment Application
City of San Luis Obispo
Base Year Rate Adjustment Application
Financial Information

6. 7.

8. 9.

10. Direct Labor
Corporate Overhead
Office Salaries
Other General and Administrative Costs
Total Allowable Costs

11. Operating Ratio

12. Allowable Operating Profit

13. 14.

15. 16.

17. Tipping Fees
Franchise Fees
AB 939 and Regulatory Fees
Lease Pavments to Affiliated Comnanies
Total Pass Through Costs

18. Revenue Requirement

19. Total Revenue Offsets (from Pg. 3)

20. Net Shortfall (Surplus)
Historical
1992 I 1993
Section I-Allowable Costs
s:1000000 I S: 1050000
108000 114000
245 000 255 000
1680000 1690000
$3 033 000 $3109 000
section II-Aliow.ble Operating Profit
$750000 $770000
170000 180 000
0 0
25000 25000
$945 000 ! $971SnM
Section_ IV-Revenue Requlrament.

U $4p93.000 I $41234poo
. Section V-NatShorlfall (sw,,tua)
Section VI-Pen:ent Change In Rates

21. Total Residential and Non-residential Revenue without increase

22. 23.

24. in Base Year (from Pg. 3, lines 32 + 40)
Percent Change in Residential and Non-residential Revenue Requirement Franchise Fee Adiustment Factor 11 - 6.0 oercentl
Percent Change In Existing Ratea
Fiscal Year:

Current Proiected
Base Year
1994 1995 II 1996
(from Pg. 4)
$1100000 S:1248600 $1260000
120000 126000 132 000
260 000 268.200 275 000
1 740000 1820200 1825000
$3 220 000 $3.463000 $3.492.000

92.0% 93.3%
301130 $250 000
$800000 ,tRM\000 $850 000
190000 200000 210 000
50000 ·-· 100000 100 000
25000 25000 25000 - C,1 ·---M $1 1R<; onn
$4.405,000 $4.929.130 $4.927.000
$393.370 ii
s:4175760 ·

9.4%
' 94.0%

10.0%

Sample Base Year Rate Adjustment Application
City of_ San Luis Obispo
Base Year Rate Adjustment Application
Revenue Offset Summary
Residential Revenue (without Increase in Base Yr.)
Current Projected Price per
Account Type

25. Economy Service
Rate/Month Months Accounts H P;ckaoe ij
$2.00 12 ~,980 10

26. Standard Service 13.40 12 6 200

27. Premium Service 18.25 12 660

28. Single Family Residential
Multiunit Residential Dumpster

29. Number ot' Accounts

30. Revenues

31. Less Allowance for Uncollectibfe Residential Accounts

32. Total Residential Revenue
Non-resident/at Revenue (without Increase in Base Yr.)
Account Type
Non-residential Can

33. ·•• Number of Accounts

34. Revenues
-Non-residential Waste Wheeler

35. Number of Accounts

36. Revenues
Non-residential Dumpster

37. Number of Accounts

38. Revenues

39. Less: Allowance for Uncollectibfe
Non-residential Accounts:

40. Total Non-residential Revenue
Processing Facility Revenues

41. Scrap Payments for all Materials Sold

42. Calttomia Redemption Value (CRV) and Processing Fees

43. Fees from Other Cities

44. Revenues from Proceaalng Facility

45. Interest on /nw,stmenta

46. Other Income

47. Total Revenue Offsets
Fiscal Year:

No.of
~
~
$1.100.000
490
640 000
$31.400
$1,708.600
490
120000
245
$160.000
1100
1 850 ooo I
S4016oo
$2.089.400
$105000
$110000
$30 000
$245000
$50.000
$0
S410931ooo
Current
1993 1994
$1,175.000 $1,300.000
500 510
650000 660 000
$34.500 $41.200 Ii
$1.790.500 $1.918.800
500 510
125 000 130 000
250 255
$170 000 $180.000
1125 1150
1870000 1 885000
$41,500 s18:800 u
$2.123.500 $2.146.200
$110 000 $115000
S120000 $130000
$40000 $45 000
$270000 S290 000
$501
000 s501
000 n
$0 $0
$4,234.000 $4.405.000
EXHIBITID-2

Proected
Base Year
1995
214560
996 960
144 540
$1.356.060
520
670000
S401eoo H
$1.985,460
520
135000
260
$190000
1175
1910000
HFoo tt
$2.190300
$120000
S140000
$50 000
~"110000
$5MOO U
$0
$4,535.760
1996
$1.450.000
$7
$2.107.000
530
145 000
265
$200.000
1 200
$1 950 000
$45,900
s2.249.100 Ii
$125 000
S150 000
$55 000
$330 000
s5o,ooo n
$0
S4i736.100

Sample Base Year Rate Adjustment Application
City of San Luis Obispo
Base Year Rate Adjustment Application
Cost Summary for Base Year
Description of Cost
Labor
Payroll Taxes

48. Total Direct Labor

49. Total Corporate Overhead
Office Salary
Payroll Taxes

50. Total Office Salaries
Computer Services
Depreciation on Building and Equipment
Depreciation on Truck and Containers
Dues and Subscriptions
Equipment Rental
Fines
Gas and Oil
Hauling
Interest Expense
Laundry
Legal and Accounting
Miscellaneous and Other
Non-Deductable
Office Expense
Operating Supplies
Other Insurance
Other Taxes
Outside Services
Parts
Public Relations and Promotion
Recycling
Rent
Telephone
Tires
Travel
Truck Insurance
Truck Repairs
Utilities

51. Total Other General and Administrative Coats

52. Total Tipping Fees

53. Total Franchise Fee

54. Total AB 939 and Regulatory Fees

55. Total Lease Paymenta to Affiliated Companies

56. Total Coat
Fiscal Year:

For Information Purposes Only
Total
1141l500
100100
$1248600.
s12.600 1 $8 820
138195 $16650 11 655
36105 4350 3045
$174 300 $21 000 $14 700
$ 30000 $ 23 572 .. $ 2 840 $ 1 988
60000 36727 4425 3 098 I.•,. .<6QQOO .. 36727 4425 3098 • ·.·. ··• ····s·ooo· 3984 480 336 .· .. :., ······a.:10·000 •. •8300 1000 700 ...... · 1000 830 100 70 ···329500 271410 32700 22 890
10000 8300 1 000 700 ·. 35000 29050 3500 2450
10000 7138 860 602
15000 12450 1 500 1 050
·saoo 2905 350 245 . · 5000 4150 500 350

40.300 32370 3900 2 730
330000 224 930 27100 18 970
. 530000 439 900 53000 37100
34000 28220 3400 2 380 . 24000 19920 2400 1 680
5000 4150 500 350
·99<ltV\·. 54697 6590 4 613

25.000 20750 2500 1 750
1· . · 18000 8300 1000 700 •.... · -•40000• 32785 3950 2765 . :· 3;000· 2490 300 210 . "4600 1495 180 125
.. 45000 34860 4200 2940
11000 3320 400 280
30000 15no 1900 1330
sr·520200 $1369500 $165000 !l:115 500
I -~i000 II !697,200 !84000 !58.800
I ···~1000·11 $200,000 1\1 iO
I s100;000 11 §831000 I $101000 ~,000
I· ~51000 ~ 12oi750 I 1:21500 £\750
i $4}!281000 II S3A291
53o $3891100 $2721370
EXHIBITID-2

Processing
Facilit
283 500
25100
$308 600
S 1 600
15750
15 750
200
0 0
2600
0 0
1 400
0 6300
0 1 300
59000
0 0
0 0
34000
0 8000
500
0 2 800
3000
7000
11 nnn
$170 2no
1° II
!g I
~1
~~
$537:000 U

Sample Base Year Rate Ad;ustment Application
City of San Luis Obispo
Base Year Rate Adjustment Application
Base Year Revenue Offset Summary
Residential Revenue (without Increase in Base Yr.)

57. Single Family Residential
Multiunit Residential Dumpster

58. Number of Accounts

59. Revenues

60. Less Allowance for Uncollectible Residential Accounts

61. Total Residential Revenue
Non-residential Revenue (without Increase in Base Yr.)
Account Type
Non-residential Ca(l

62. Number of Accounts

63. Revenues
Non-residential Waste Wheeler

64. Number of Accounts

65. Revenues
Non-residential Dumpster

66. Number of Accounts

67. Revenues

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

69. Total Non-residential Revenue
Processing Facility Revenues

70. Scrap Payments for all Materials Sold

71. CalHomia Redempfion Value (CRV) and Processing Fees

72. Fees from Other Cities

73. Revenues from Processing Faclllty

74. Interest on Investments

75. Other Income

76. Total Revenue Offsets
Fiscal Year:

For Information Purposes Only
Section Vll-Revenua-Offseb-.

Total Ci
i $1,356.0601 $1.152.651 I
520 380
$670000 $569 500
$40,6001 $34,5101
i $1,985,4601 $1,687.641 I
520 442
135000 $114 750
I · 11so;ooo: 2601 $1611:~I
1'175 999
1910000 $1,623,500
~i7ool ;~z ~~~I
1211so1aool s1 1
861i755j
~120000 so $140000 so
ssoooo so
$310000 $0
iso,oool $5010001
I< 11• !21
~1535i7601 $3,59913961
CSU
SLO
$122.0451
20 $60.300
$3.654 j
$178 6911
47 $12150
$17.,:1
$4.023 j
$1971127 !
so·
$0
$0
$0
S5o1oool
so!
$42518181
EXHIBITill-2

$81.3641 soij
120
$40.200
$2.436 ! so!I
$119.1281 so~
31 0
$8100 $0
$11,4~~, $~11
71 0
114 600
s21682 I soil
$13114181 soil
$0 $120 000
$0 $140.000
$0 $ 50,000
$0 $310 000
$501000 I soil
sol soij
$30015461 $310100011

Sample Base Year Rate Adjustment Application
City of San Luis Obispo
Base Year Rate Adjustment Application
Operating Information
II Histortcal II Current Prniected
Percent Percent Percent Base Year Percent
1992 Chanae 1993 Chanae 1994 Cha nae 1995 Chanae
· Sectlon .. lX • Operating.Data
Residential

77. Accounts 9,250 2.2% 9,450 2.1% 9,650 I 2.0% 9,840 1.6%

78. Routes 4 0.0% 4 0.0% 4 0.0% 4 0.0%

79. Tons Collected 11,350 1.8% 11,550 1.7% 11,750 2.1% 12,000 1.7%

80. Direct Labor Hours 15,700 0.6% 15,800 0.6% 15,900 0.6% 16,000 0.6% Non-residential

81. Accounts 1,835 2.2% 1,875 2.1% 1,915 I 2.1% 1,955 2.0%

82. Routes 4 0.0% 4 0.0% 4 0.0% 4 0.0%

83. Tons Collected 18,700 2.1% 19,100 2.1% 19,500 1.5% 19;800 2.0%

84. Direct Labor Hours 9,700 1.0% 9,800 1.0% 9.900 I 1.0% 10;000 1.0% Recyclable Materials

85. Fees from Other Cities $30,000 33.3% $40,000 12.5% $45,000 11.1% $50,0QO. 10.0%

86. Tons from Other Cities 750 20.0% 900 5.6% 950 5.3% 1;000 5.0%

87. Cost per Ton 40 10.0% 44 6.8%1 47 6.4% 50 4.0%
Fiscal Year:
'
'

EXHIBITID-2

1996
10,000
12,i

16.1 I
1,995
4 20,200
10,100
$55,000
1,050
52 Pg. 6 of 6

Section Ill. Base Year Rate Setting Methodology
Responsibility:

Timing:

Tasks:

Franchise Hauler
Prepared during step 1 of the
base year rate adjustment process
(refer to Section II-A)
a. Enter Prior Two Years Audited
Information
b. Enter Current Year Estimated
Information
c. Enter Base Year Projected Information
d. Enter Future Year Projected Information
e. Enter Operating Information
Description of Tasks
a. Enter Prior Two Years
Audited Information
Financial information from audited
financial statements is consolidated into
specific categories identified on page 2 of
the application. These categories include:

Line 6 Direct Labor
Line 7
Line 8
Line 9
Line 13
Line 14
Line 15
Line 16
Corporate Overhead
Office Salaries
Other General and
Administrative Costs
Tipping Fees
Franchise Fees
AB 939 and Regulatory Fees
Lease Payments to Affiliated
Companies.

The specific components of these cost
categories are described in Exhibit ill-3, on
the following page. Supplemental
documentation should be prepared by the
hauler which reconciles the franchise hauler's
financial audit to information provided in the
application. This documentation, along with
a copy of each audit, should be included in
the application package.

Ell ERNST & YOUNG
Total cost information for residential, nonresidential, and recycling services should be reported in this initial task and in tasks b, c,
and d below. Segregation of costs for
residential, non-residential, and recycling is not
required.

For informational purposes only, the
franchise hauler should further segregate
total costs into four areas:

O San Luis Obispo (within city limits)
O California State University at San
Luis Obispo (CSU SLO)
O Adjacent unincorporated areas
O Materials processing facility.

This segregation also is provided on page 4
of the application. Suggestions of factors to
allocate any indirect costs are summarized in
the "standardized" chart of accounts in
Appendix B of this manual.
b. Enter Current Year
Estimated Information
Current year costs are determined from
actual costs to-date and estimated costs that
will be incurred during the remainder of the
current year. Total costs for the current year

EXHIBITID-3
Definition of Financial Terms from
Base Year Rate Adjustment Application
!Llne'Number/Item··

6. Direct Labor

7. Corporate Overhead

8. Office Salaries

9. Other General and
Administrative Costs

10. Total Allowable Costs

11. Operating Ratio

12. Allowable Operating
Profit

13. Tipping Fees

14. Franchise Fees

15. AB 939 and Regulatory
Fees

16. Lease Payments to
Affiliated Companies

Definition···.

All costs associated with solid waste and recyclable materials collection, including wages, overtime, payroll taxes, health and welfare benefits, workers compensation, and pension benefits
Salaries paid to the franchise hauler's corporate officers. The amount of this item cannot exceed $120,000 per year in 1994 dollars (the $120,000 , will be adjusted annually by the Consumer Price Index as published by the Bureau of Labor Statistics in their Monthly Lahar Review).

Wages and related benefits paid to office and administrative staff, including wages, overtime, payroll taxes, health and welfare benefits. workers compensation, and pension benefits
All general and administrative costs with the exception of corporate overhead and office salaries. This item includes the following costs:
• Collection fees • Office rent
• Computer equipment and • Office supplies
services • Postage
• Depreciation • Professional fees
• Dues and subscriptions • Promotion
• Insurance • Office repair and maintenance
• Janitorial • Telephone
• Laundry and uniform • Travel
• Interest expense • Trucking
• Licenses • Utilities
• Medical expenses
Sum of direct labor, corporate overhead, office salaries, and other general and administrative costs
Determines allowable operating profit, and is the ratio of total allowable costs to total allowable revenue. The operating ratio must be between 90 and 94 percent. If the franchise hauler's actual operating ratio is outside this range, the operating ratio is to be set at 92 percent.

Established by the allowable operating ratio
Costs to dispose of solid waste at transfer stations, transformation facilities, or landfills
Payments to the City of 6.0 percent of gross revenues (revenues from residential and commercial billings only; excludes recyclable material sales)
Payments to the City of San Luis Obispo to meet AB 939 programs Lease payments for trucks, office space, and other operating facilities made to affiliated companies

Section Ill. Base Year Rate Setting Methodology
should be similar to the prior audited year,
after taking into account increases due to
inflation and changes in the number of
residential, non-residential, and recycling
customers served. Any significant changes
should be explained and documented. A
significant change includes any increase in
cost which is greater than the Consumer
Price Index as reported by the Bureau of
Labor in their Monthly Labor Review, or any
decrease in a cost item.
c. Enter Base Year Projected
· Information
Base year costs are projected by the
franchise hauler. These projected costs then
are used to calculate the net surplus/shortfall
in revenues and, subsequently, the percent
adjustment in rates. These projected costs
should be based on anticipated service levels
during the base year, and expenses which
will be incurred to provide these services.

Each cost element in the application should
be reviewed and any anticipated increase in
specific line items should be included in the
base year projection. For example, if
negotiated labor rates or workers
compensation a·re expected to change, or if
tipping fees are expected to change, these '
changes should be included in cost
projections for the base year.

The franchise fee for the base year (year
four of the application) is not estimated in
this task, but is estimated in step 3. Because
franchise fees are based on gross revenues
from residential and non-residential services,
the projected franchise fee in the base year is
calculated using revenue projections
developed in step 2.
d. Enter Future Year Projected
Information
Costs are projected for the year after the
base year. Although these costs will not be
used for any rate adjustments made by the
City, the projection provides the City
City of San Luis Obispo
information to use for evaluating future rates.

Projected costs should be based on
anticipated service levels and significant
changes in operating costs.
e. Enter Operating Information
Operating information requested in the
application provides an important indicator
of the franchise hauler's performance. If
costs are changing at an unusual rate,
operating data may provide some
explanation of these changes. For example,
cost increases could be attributed to the
increased level of service provided (i.e.,
accounts served). Five operating
characteristics are required in the application
for both residential and non-residential
customers:

O Accounts served
O Routes
O Tons of solid waste collected
O Direct labor hours
O Tons of recyclable materials received at
processing facility, and the fees charged
to process these materials.

Five years of operating data are
required in the application. Prior year data
are based on actual annual operating
results. Current year performance is based
on performance to-date plus estimated
performance for the remaining months of
the current year. Projected operating results
are the franchise hauler's best estimate of
service levels during the new base year and
the year after that.

Year-to-year percentage changes then
are determined for each of the four
operating characteristics above. Any
significant changes should be documented
and explained by the franchise hauler. A
significant change in an operating
characteristic is an increase or decrease of
more than two percent.

Section Ill. Base Year Rate Setting Methodology
Note that page 5 of the application
contains the total number of residential and
non-residential accounts serviced by the
franchise hauler in the new base year.

These totals should agree with the account
information used to calculate residential and
non-residential revenue (page 3 of the
application).

City of San Luis Obispo

Section Ill. Base Year Rate Setting Methodology
Responsibility:

Timing:

Tasks:

Franchise Hauler
Prepared during step 1 of the
base year rate adjustment process
(refer to section II-A)
a. Determine Residential Revenue
b. Determine Non-residential Revenue
c. Determine Allowance for Uncollectible
Accounts
d. Determine Revenues from
Processing Facility
e. Calculate Total Revenue Offsets
Description of Tasks
a. Detennine Residential Revenue
Single family residential revenues are
provided for all five years. For the base
year only, the hauler also provides
revenues, by service type, at existing rates.

The calculation of base year single family
residential revenues under the City's current
rate structure is documented on page 3 of
the application. The hauler provides the
projected number of accounts by service
type, and the existing monthly rate for each
service type. Total revenue for each service
type then is calculated as follows:

Multiplied by
Equals
Multiplied by
Equals
Rate per month
Twelve months
Rate per year
Projected average
number of single family
residential accounts
during year
Revenue by service type
For economy service an additional
amount is added for bag package purchases
as foJ!ows:

City of San Luis Obispo
Multiplied by
Equals
Rate per package of
bags
Number of packages
purchased
Revenue for packages
purchased
Revenue by service type then is entered
under the base year (fourth column of cells).

These values then are summed and entered
on line 28.

The number of accounts in each service
category may change throughout the year
(e.g., new customers, or customers which
switch to a different service). The average
number of accounts by service type is to be
used in these calculations. In addition, the
number of accounts identified for these
calculations must agree with operating data
provided on page 5 of the application.

The number of multiunit residential
customers and estimated revenues for each
of the five years are also provided by the
hauler on page 3. Finally, the franchise
hauler should provide sufficient information
to support any figures included in this
portion of the form.

Section Ill. Base Year Rate Setting Methodology
b. Determine Non-residential
Revenue
Non-residential revenue information is
entered on page 3 of the application. For
each service type (e.g., can, waste wheeler,
or dumpster) both the number of accounts
and annual revenues are reported.

Information for the first two years should
tie to supporting audited financial
information. Non-residential revenues for
the current year are based on actual
revenue to-date plus an estimate of the
revenue that will be received through the
end of the year. Non-residential revenue
in the current year should be comparable
to revenue in the prior two years, after
taking into account increases in rates and
service levels.

Projected non-residential revenue
information for the base year and year after
also are provided on page 3. The nonresidential rate structure and account summary assumed for each of these years
(by service type and frequency of pick-up)
should be documented separately by the
franchise hauler, and provided to the City.

Operating data provid_ed on page 5 of the
application should correspond to the
numbers of accounts provided on page 3.
c. Determine Allowance for
Uncollectible Accounts
The franchise hauler will likely not be
paid by all customers served. While this
amount is expected to be relatively small, it
must be accounted for in the calculation of
base year net revenues. These amounts are
reported on page 3 of the application
(allowance for uncollectible residential
accounts and allowance for uncollectible
non-residential accounts).

These amounts can be calculated based
on a formula, such as a percentage of
anticipated revenues, or based on actual
experience. All assumptions rela~ed to the

projection of uncollectible accounts must be
documented and included as a supplement
to the application.
d. Determine Revenues from
Processing Facility
If the franchise hauler owns and operates
a processing facility used to process
recyclable materials collected from City
residences and businesses, the revenues
from operating the processing facility shall ·
be an offset to the hauler's revenue
requirements for purposes of establishing
City residential and non-residential rates.

On page 3 of the application, the hauler
is to provide annual scrap payments received
for all materials sold, annual California
Redemption Value (CRY) and processing
fees received for beverage containers, and
fees from other cities. The result is added to
total revenue offsets on page 3.
e. Calculate Total Revenue Offsets
Total revenue offsets are determined as
follows:

Plus
Plus
Plus
Line 32 Total residential revenue
Line 40 Total non-residential
revenue
Line 44 Revenues from processing
facility
Line 45 Interest on investments
Plus
Line46 Other income
Equals Total revenue offsets
Total revenue offsets are entered on page 3,
line 47, and on page 2, line 19 of the
application.
ill ERNST & YOUNG

Section Ill. Base Year Rate Setting Methodology
Responsibility: . Franchise Hauler
Timing: Prepared during step 1 of the
base year rate adjustment process
(refer to Section II-A)
Tasks: a. Calculate Allowable Operating Profit
b. Determine Franchise Fee
c. Calculate Revenue Requirement
Description of Tasks
a. Calculate Allowable Operating
Profit
The operating ratio method is used to
establish allowable operating profit. The
operating ratio establishes revenue
requirements based on allowable costs.

The equation for the operating ratio is:

Allowable costs
Divided by Total operating revenues
Equals Operating ratio.

The operating ratio effectively determines the
profit allowed to the franchise hauler on its
allowable costs.

In the first base year, the operating ratio
will be 92 percent. In each succeeding base
year, the operating ratio will range from 90
to 94 percent, which will help stabilize rate
adjustments and afford the franchise hauler
an incentive to reduce costs. In any
succeeding base year, if the franchise hauler
earned an operating ratio outside this range,
then 92 percent would be reestablished.

The following operating costs are
included as operating costs in the allowable
operating profit calculation:
ill ERNST & YOUNG
O Direct labor
O Corporate overhead
O Office salaries
O Other general and administrative costs.

A definition of the components of these cost
categories is provided earlier in Exhibit m3.

The actual or projected operating ratio
and operating profit received by the franchise
hauler is entered on line 11 for each of the
five years. To calculate actual or projected
operating ratio, the hauler first determines
allowable revenues as total revenues minus
all pass through costs. Then, the hauler
divides allowable costs by allowable revenues
to determine the operating ratio.

To calculate the allowable operating
profit each year, the following equation is
utilized:

Divided by
Equals
Minus
Equals
Allowable costs
Operating ratio
Allowable revenues
Allowable costs
Allowable operating profit.

Section Ill. Base Vear Rate Setting Methodology
b. Determine Franchise Fee
The franchise fee is six percent (6%) of
gross residential and non-residential solid
waste collection revenue collected. Any
services which are provided by the franchise
hauler but which fall outside the City's
jurisdiction are not subject to the franchise fee
payment. An adjustment for these services
should be included in the franchise fee
calculation. Historical and projected franchise
fees should be entered on line 14 of the
application.

Note that the franchise fee attributed to
any requested adjustment in rates will be
accounted for separately in the franchise fee
adjustment factor. This adjustment factor is
computed in step 4. Therefore, annual
payments of franchise fees in the base year
are estimated based on revenues received at
existing monthly rates.

After total franchise fees are determined,
total annual· costs can be calculated. Lines
13 through 16 should be added and the

result entered on line 17, total pass through
costs. Any significant changes in total pass
through costs for the base year should be
explained and documented.
c. Calculate Revenue
Requirement
The revenue requirement establishes the
level of revenue needed to meet all
allowable costs, operating profit, and pass
through costs. This includes solid waste and
recyclable material collection costs, and
assumes a reasonable profit margin based on
the operating ratio calculation.

Total revenue requirements are
determined as the sum of:

O Allowable costs
O Allowable operating profit
O Pass through costs.

The revenue requirement is entered on
line 18 of the application.
f!J ERNST & YOUNG

Section Ill. Base Year Rate Setting Methodology
Responsibility:

Timing:

Tasks:

Franchise Hauler
Prepared during step 1 of the
base year rate adjustment process
(refer to Section II-A)
a. Calculate Net Surplus/Shortfall
b. Calculate Percent Change In Rates
Description of Tasks
a. Calculate Net Shortfall/Surplus
The net shortfall/surplus is determined
based on the following calculation:

Line 18 Revenue requirement
Less Line 19 Total revenue offsets
Equals Net shortfall/surplus.

The net shortfall/surplus is entered on line

20. This number is used to calculate the
required percent change in existing rates.
b. Calculate Percent Change in Rates
The percent change in rates is the
amount that residential and non-residential
rates must be adjusted in order to generate
revenues sufficient to meet total revenue
requirements.

The percent change in existing rates is
calculated as follows:

Line 20
Divided by
Line 21
City of San Luis Obispo
Net shortfall/surplus
Total residential and
non-residential revenues
without increase
(line 32 + line 40)
Equals Percent change in rates
without franchise fee
adjustment.

The percent change in rates is entered
on line 22 of the application.

In order to account for additional
franchise fees which must be paid on the
additional (or lower) revenue that will be
collected, an adjustment is made to the
rate increase. The franchise fee
adjustment is based on the following
equation:

Line22
Divided by
Line 23
Equals
Percent change in rates
without franchise fee
adjustment
Franchise fee
adjustment factor
(1 - franchise fee)
Percent change in
existing rates.

The percent change in existing rates is
entered on line 24 of the application.

Section Ill. Base Year Rate Setting Methodology
Responsibility:

Timing:

Tasks:

Franchise Hauler
Prepared during step 1 of the
base year rate adjustment process
(refer to Section II-A)·
a. Calculate New Rates
b. Sign and Submit the Application
Description of Tasks
a. Calculate New Rates
The rate adjustment identified on page
2, line 24 should be entered on page 1, line
1 of the Base Year Rate Adjustment
Application. Current monthly single family
residential rates for solid waste collection
should be entered in the first column of
lines 2-4. Adjusted rates then are calculated
by multiplying the current rate by one plus
the rate adjustment identified in line 1.

These adjusted rates are entered in the
second column of lines 2-4. In column
three of lines 2-4, the adjusted rates are
rounded up to the nearest five cent
increment. This simplifies record keeping
for the franchise hauler and should not
make a material difference to customers.

The adjustment required to reach the
nearest five cent increment should be
calculated and entered in the third column
of lines 2-4.

To determine new single family
residential rates, column two on lines 2-4

should be added to column three and the
result should be entered in column four.

This column provides the new single family
residential rate schedule.

Line 5 of page 1 identifies the rate
increase to be applied to multiunit residential
and non-residential rates. Multiunit
residential and non-residential rates should
be rounded up to the nearest $1.00. The
franchise hauler should provide supporting
documentation for the requested multiunit
residential and non-residential rates for the
base year.
b. Sign and Submit the Application
An authorized representative from the
franchise hauler should sign and date the
application. This signature provides a
certification of the franchise hauler that the
application is complete, accurate, and
consistent with the instructions provided in
this manual.

City of San Luis Obispo

Section Ill. Base Year Rate Setting Methodology
Responsibility:

Timing:

Tasks:

Franchise Hauler
Prepared during step 1 of the
base year rate adjustment process
(refer to Section II-A)
a. Complete Solid Waste Fee Survey
b. Summary of Survey
Description of Tasks
a. Complete Solid Waste Fee Survey
As a check of the reasonableness of
existing and new integrated solid waste
management rates, a survey of residential
and non-residential rates in similar
communities should be conducted during
each base year (once every three years).

This survey covers questions concerning
both residential and non-residential service.

Exhibit m-4, following this page, is a
sample survey form. The survey should be
conducted by telephone instead of by mail
in order to ensure complete responses to
each question. A minimum of six cities
should be contacted. The City and the
franchisee hauler will agree on which cities
will be surveyed.

While all questions in the survey provide
valuable comparative information, there are
several key questions including:

City of San Luis Obispo
O Monthly rates for all residential
service types
O Monthly rate for standard nonresidential services (i.e., one to six cubic yard bins picked up once per
week)
O Tipping fees charged the hauler
O Responsibility for billing customers.
b. Summary of Survey
After the survey has been conducted,
the results are summarized for comparison
with the franchise hauler's rate application.

This summary is included as an attachment
to the Base Year Rate Adjustment
Application, as described in Section II-A,
step 3. This information also is used. in the
evaluation of the franchise hauler's
application.

Sample Solid Waste Fee Suroey
City of San Luis Obispo
Solid Waste Fee Survey
l·sectionJ -~Introduction·

1. Name of City/County

2. Contact Person

3. Title of Contact Person
-

4. · ·Telephone Number

5. Date Contacted
I Sectionll-- Generallnformation I

6. Are residential curbside
collection and disposal
services provided by the
municipality or private
contractor?

7. Is a franchise for refuse
collection granted to the
hauler?
B. Is a franchise for recyclable
material collection granted to
the hauler?

9. Is there a franchise fee?
If so, how much is it?

10. What is the franchise
hauler's disposal cost per
ton?

11. Who bills customers?
i Section Ill - Residential Service

12.--Are residential rates
regulated?

13. What is the monthly charge
for residential service?

14. How many cans are picked
up at this charge?

15. What is the charge for
additional cans?
Fiscal Year:

EXIIlBIT m-4

...

Sample Solid Waste Fee Suroey
City of San Luis Obispo
Solid Waste Fee Survey
[ SectionJII -, Residential Service {continued)

16. Is there a separate charge for
yard waste collection?

17. Are there any City-wide
clean-up days provided at
no additional charge by
the hauler?

18. Does your community have
a curbside recycling
program?

19. Is there an additional
charge to residents for this
program, or is it included in
the monthly charge for
solid waste collection?
. 20. If separate, what is the
charge per month?
I Section V -- Non-residential Service

21. Are non-residential rates
regulated?

22. Provide the monthly fee for
the followin!;J services,
assuming pick-up is one
time per week:

23. 1 cubic yard

24. 1 1 /2 cubic yards

25. 2 cubic yards

26. 3 cubic yards

27. 6 cubic yards

28. Effective period of
ratesquoted:

Fiscal Year:

EXHIBITill-4

Page2of2

Section IV
Interim Year Rate
Setting Methodology

IV. Interim Year Rate Setting Methodology
The Interim Year Rate Adjustment
Application is completed by the franchise
hauler and is used to calculate the
adjustments in rates effective for the interim
year. The application documents changes in
tipping fees, and AB 939, and regulatory
charges.

The Interim Year Rate Adjustment
Application is used to calculate new
interim year rates. This document is
prepared by the franchise hauler. Interim
year rate adjustments are based on a
weighted average change in controllable
and pass through costs. Inflators for this
process include changes in the U.S.

National Consumer Price Index and
changes in pass through costs.

The application is a two-page form.

about the rate adjustment and the resulting
new rates. Page 2 includes detailed
City of San Luis Obispo
calculations required to determine the rate
adjustment. Steps 1 through 3 of the
methodology describe how to complete
page 2 of the application. Steps 4 and 5
describe how to complete page 1 of the
application.

Exhibit IV-1, following this page,
provides an overview of the steps and
related tasks which must be completed to
prepare the application form and calculate
new rates. Exhibit IV-2, following Exhibit
IV-1, is a sample of the two page application
as it might be prepared by the franchise
hauler. This exhibit includes references to
various steps which must be completed to
prepare the application. Following Exhibit
IV-2 is a detailed description of each step
and related tasks. Please note that the data
included in this sample exhibit are provided
for illustrative purposes only and are not
intended to reflect actual operating or
financial conditions.

Page IV-1

EXHIBIT IV-1
Preparation of the Interim Year Rate Adjustment Application · 1. Determination of Base Year Costs and Weighting
a. Identify Prior Base Year Controllable Costs
b. Identify Prior Base Year Pass Through Costs
c. Calculate Weightings

2. Calculation of Percent Changes in Controllable and
Pass Through Costs
a. Enter Controllable and Pass Through Cost Information b. Review Mathematical Accuracy

3. Calculation of Weighted Change in Rates
a. Calculate Weighted Change in Controliable Costs
b. Calculate Weighted Change in Pass Through Costs
c. Calculate Total Percent Change in Cost
d. Calculate Franchise Fee Adjustment
e. Calculate Percent Adjustment in Existing Rates

4. Preparation of the Summary Form
a. Enter Rate Adjustment
b. Calculate New Rates

5. Survey of Rates in Similar Areas
a. Complete.Solid Waste Fee Survey
b. Summary of Survey

6. Application Certification
a. Sign Application
b. Submit Application to City
Page IV-2 Page 852 of 1208
EXIDBIT IV-2
· Page 1 of 2
Sample Base Year Rate Adjustment Application
City of San Luis Obispo
Interim Year Rate Adjustment Application
Summary

1. Rate Increase Requested
Rate Schedule
Single Family Residential
Economy Service (collection)
Economy Service (orange bags)

3. Standard Service

4. Premium Service

5. Mu/liunit Residential and Non-residential
Requested Increase
Rate Schedule
Increased
Current Rate Rate
$2.00 $2.10
$ 1.00 $ 1.05

13.40 14.06

18.25 19.14
Adiustment
$0.00
$0.00

0.04 0.01
(a) Calculated rates are roundea up to the nearest $0.05.

4.9%
New
Rate
$2.10
$1.05

14.10 19.15
Rate increases of 4.9% ~ will be applied
to all rates in each structure with each rate rounded up to the nearest $1.00.

W~ Certification · ·
. .. .. . .. .. . . .
;I To the best of my knowledge, the data and information in this application is complete, accurate, and consistent with . . .•....... . .. : the instructions provided by the City of San Luis Obispo.

Name: John Brown Title: Controller
Signature: Jofm'Brown Date: May 1. 19xx
Fiscal Year: Pg. 7 ofZ
Page IV-3

EXHIBIT IV-2

Sample Interim Year Rate Adjustment Application
City of San Luis Obispo
Interim Year Rate Adjustment Application
Financial Information

6. 7.

8. 9.

10. 11.

12. Section I-Base Year Costs
Base Year Controllable Costs
Total Allowable Costs
Plus Allowable Operating Profit
Plus Lease Payments to Affiliated Companies
Equals Total Controllable Costs
Base Year Pass Through Costs
Tipping Fees
Plus AB 939 and Regulatory Fees
Equals Total Pass Through Costs

13. Base Year Revenue Requirements (Less Franchise Fee) Section II-Changes in Cost
Change in Controllable Cost

14. Historical Percentage Change in Consumer Price Index

15. 16.

17. 18.

19. 20.

21. Change in Pass Through Cost
Prior Year Tipping Fees
Plus: Prior Year AB 939 and Re ulato Fees
Equals: Total Prior Year Pass Through Costs
Projected Interim Year Tipping Fees
Plus: Projected Interim Year AB 939 and Re ulator Fees
Equals: Total Projected Interim Year Pass Through Costs Projecled Percentage Change in Pass Through Costs
Section Ill-Calculation of Percent Change in Rates
Weighted Change in Controllable Costs
$2,926,000
254,435
25,000
$3,205,435
$840,000
100,000
$940,000
$4145435

22. 23.

24. Controllable Costs as a Percent of Base Year Revenue Requirements Multiplied bv Percent chanae in CPI
Equals Weighted Percent Change in Controllable Costs
Weighted Change in Pass Through Costs

25. 26.

27. 28.

29. 30.

Multiplied bv
Equals
Total Change
Divided by
Equals
Fiscal Year:

Page IV-4
Pass Through Costs as a Percent of Base Yr. Revenue Requirements Percent Chanae in Pass Throuah Costs
Weighted Percent Change in Pass Through Costs
Total Percent Change in Cost
Adjustment for Franchise Fee (1 - 6.0 percent)
Percent Change in Existing Rates
II
II
n.3%H

22.7%U
10000%11
n.3%

4.0%

3.1%

22.7%

6.4%

1.5%

4.6%

94.0%

4.9% 11
Page2of2

Section IV. Interim Year Rate Setting Methodology
Responsibility:

Timing:

Tasks:

Franchise Hauler
Prepared during step 2 of the
interim year rate adjustment process
(refer to Section II-C)
a. Identify Prior Base Year
Controllable Costs
b. Identify Prior Base Year
Pass Through Costs
c. Calculate Weightings
Description of Tasks
a. Identify Prior Base Year
Controllable Costs
Controllable costs are those items which
can be reasonably managed by the franchise
hauler in order to minimize future rate
increases. Increases in these costs are adjusted
by the annual change in the U.S. National
Consumer Price Index· (CPI), as published by
the Bureau of Labor Statistics in their Monthly
Labor Review.

In order to streamline the interim year
process, controllable costs are changed based
on an annual change in the CPI, rather than
projected changes in each cost item. This
eliminates the need to conduct a detailed
review of the franchise hauler's financial and
operating statements.

The following table identifies the line items
in the base year application which must be
entered on the controllable cost portion of the
interim year application. The name of each
line item is the same in both applications.

Base Yt:ar
Application
Line Number

10. 12.

16. Interim Yt:ar
Application Name of
Lint: Numbt:r Lint: Item

6. Total Allowable Cost

7. Allowable Operating
Profit

8. i Lease Payments to
I Affiliated Companies
I
ill ERNST & YOUNG
The total of lines 6, 7, and 8 is entered on
line 9 of the application and is used to
calculate the weighted change in
controllable costs.
b. Identify Prior Base Year ·
Pass Through Costs
Pass through costs are those
expenses which the franchise hauler is
allowed to recover through rates but for
which no profit is allowed. These
include tipping fees, and AB 939 and
regulatory charges. Changes in these
cost categories do not necessarily match
changes in CPI. Therefore, changes in
pass through costs during an interim year
are based on the franchise hauler's
projection of total annual costs, not
projected changes in the CPI. Total costs
in the prior base year must be identified
in order to determine the weighting of
controllable costs and pass through costs
to total costs.

The following table identifies line
items from the prior base year
application which must be entered on
the interim year application. The
name of each line item is the same in
both forms.

PagelV-5

Section IV. Interim Vear Rate Setting Methodology
Base Year
Application
Line Number

13. 15.

Interim Year
Application Name of
Line Number Line Item

10. I Tipping Fees I

11. AB 939 and
Regulatory Fees
The amounts in lines 10 and 11 are
added and the total entered on line 12.
c. Calculate Weightings
Total controllable costs Cline 9) plus total
pass through costs (line 12) equals total base
year costs (excluding franchise fees). This
total is entered on line 13 of the application
(base year revenue requirement less
franchise fee).

A weighting for both controllable costs and
pass through costs is calculated as follows:

Page IV-6
Controllable Costs Weighting
Divided by
Equals
Line 9 Total controllable costs
Line 13 Base year revenue
requirement
Controllable costs as a
percentage of base year
revenue requirements.

This percentage figure is entered on line 9,
column 2, and line 22.

Pass Through Costs Weighting
· Divided by
Equals
Line 12 Total pass through costs
Line 13 Base year revenue
requirement
Pass through costs as a
percentage of base year
revenue requirements ..

This percentage figure is entered on line 12,
column 2, and line 25.

City of San Luis Obispo

Section IV. Interim Vear Rate Setting Methodology
Responsibility:

Ti.ming:

Tasks:

Franchise Hauler
Prepared during step 2 of the
interim year rate adjustment process
(refer to Section II-C)
a. Enter Controllable and Pass Through Cost
Information
b. Review Mathematical Accuracy
Description of Tasks
a. Enter Controllable and
Pass Through Cost Information
The historical Consumer Price Index
( CPI) percentage change in line 8 of the
application is entered on lines 14 and 23 of
the application. This percentage change in
historical CPI (the previous 12 months) is
used to determine the weighted average
change in controllable costs.

Figures on lines 1 through 6 of the
application (actual and projected pass
through costs) are entered on lines 15
though 20, respectively, of the application.

Any significant changes in these costs are
documented by the franchise hauler. A
significant change would be any increase
greater than the annual change in the CPI, or
a decrease of any amount. If a significant
s!J ERNST & YOUNG
change has not been adequately explained,
additional information is requested from the
franchise hauler.
b. Review Mathematical Accuracy
The mathematical accuracy of the
franchise hauler's calculations of total prior
year pass through costs (line 17), and total
projected interim year pass through cost Cline
20) are checked during this task. The percent
change in pass through costs should be
calculated as follows:
line 20 - line 17
line 17
After the percentage change in pass through
costs has been verified, this figure is entered
on line 21 of the application.

Page IV-7

Section IV. Interim Vear Rate Setting Methodology
Responsibility:

Timing:

Tasks:

Franchise Hauler
To be prepared during step 2 of the
interim year rate adjustment process
(refer to Section 11-C)
a. Calculate Weighted Change in
Controllable Costs
b. Calculate Weighted Change in Pass
Through Costs
c. Calculate Total Percent Change in Cost
d. Calculate Franchise Fee Adjustment
e. Calculate Percent Adjustment in Existing
Rates
Description of Tasks
a. Calculate Weighted Change in
Controllable Costs
Figures should have been entered on line
22 of the application (controllable costs as a
percent of base year revenue requirements),
and line 23 of the application (change in CPI,
based on calculations completed in previous
tasks). To obtain the weighted increase in
controllable costs, line 22 is multiplied by line
23 and the result entered on line 24.
b. Calculate Weighted Change in
Pass Through Costs
Line 25 (pass through costs as a percent
of base year revenue requirements) and line
26 (percent change in pass through costs)
should now have an entry based on
calculations completed in previous tasks. To
obtain the weighted change in pass through
costs, line 25 is multiplied by line 26 and the
result entered on line 27.
c. Calculate Total Percent Change in Cost
To calculate total percentage change in
costs, line 24 (weighted percent change in
controllable costs) is added to line 27
Page IV-8
( weighted percent change in pass through
costs), and the result entered on line 28
(total percent change in costs).
d. Calculate Franchise Fee
Adjustment
In order to account for changes in the
franchise fee resulting from a change in
rates. an· adjustment is made to the
percentage change in total costs which was
entered on line 28. The adjustment factor is
equal to one minus the franchise fee (l.00 -

0.06 = 0.94). This value should be entered
on line 29.
e. Calculate Percent Adjustment
in Existing Rates
The final task in this step is to calculate
the percent adjustment in existing rates. To
determine this adjustment, line 28 (total
percent change in costs) is divided by line 29
(adjustment for franchise fee), and the result
entered on line 30. The value on line 30
should be greater than the value on line 28.

The difference accounts for the increase in
· franchise fees.

City of San Luis Obispo

Section IV. Interim Year Rate Setting Methodology
Responsibility:

Timing:

Tasks:

Franchise Hauler
Prepared during step 2 of the
interim year rate adjustment process
(refer to Section II-C)
a. Enter Rate Adjustment
b. Calculate New Rates
Description of Tasks
a. Enter Rate Adjustment
The rate adjustment identified on line 30
should be entered on page 1, lines 1 and 5
of the application.
b. Calculate New Rates
Current rates for single family residences
are entered in the first column of lines 2
through 4 on page 1, by service type. The
adjusted rates then are calculated by
multiplying the current rate by one plus the
rate increase identified on line 1. The
adjusted rates are entered on the second
column of lines 2 through 4.

City of San Luis Obispo
The adjusted rates then are rounded up to
the nearest five cent increment. The adjustment
amount required to reach the nearest five cent
increment is calculated and entered on the third
column of lines 2 through 4.

To determine new rates, column two, lines
2 through 4, is added to column three and the
result is entered on column four. This column
provides the new schedule of single family
integrated solid waste management residential
rates.

To determine multiunit and non-residential
rate adjustments, the rate adjustment in line 5
is applied uniformly to all rates in each rate
structure. Rates are rounded up to the nearest
$0.05.

Page IV-9

Section IV. Interim Year Rate Setting Methodology
Responsibility:

Timing:

Tasks:

Franchise Hauler
Prepared during step 2 of the
interim year rate adjustment process
(refer to Section II-C)
a. Complete Solid Waste Fee Survey
b. Summary of Survey
Description of Tasks
a. Complete Solid Waste Fee Survey
As a check of the reasonableness of
existing and new integrated solid waste
management rates, a survey of residential
and non-residential rates in similar
communities should be conducted during
the interim year. This survey covers
questions concerning both residential and
non-residential service.

Exhibit m-4, on page III-20, is a
sample survey form. The survey should be
conducted by telephone instead of by mail in
order to ensure complete responses to each
question. A minimum of six cities should be
contacted. The City and the franchisee hauler
will agree on which cities will be surveyed.

While all questions in the survey provide
valuable comparative information, there are
several key questions including:

City of San Luis Obispo
O Monthly rates for all residential
service types
O Monthly rate for standard non- ,
residential services (i.e., one
to six cubic yard bins picked up
once per week)
O Tipping fees charged the hauler
O Responsibility for billing customers.
b. Summary of Survey
After the survey has been conducted,
the results are summarized for comparison
with the franchise hauler's rate application.

This summary is included as an attachment
to the Interim Year Rate Adjustment
Application. This information also is used
in the evaluation of the franchise hauler's
application.

PagelV-10

Section IV. Interim Year Rate Setting Methodology
Responsibility:

Timing:

Tasks:

Franchise Hauler
Prepared during step 2 of the
interim year rate adjustment process
(refer to Section II-C)
a. Sign Application
b. Submit Application to City
Description of Tasks
a. Sign Application
An authorized representative from the
franchise hauler should sign and date the
application. This signature provides
certification by the franchise hauler that
the application is complete, accurate, and
consistent with the instructions provided in
this manual.

Page IV-11
b. Submit Application to City
At this point the application should be
submitted, together with the Survey of Rates
in Similar Areas, to the City for review of the
rate adjustment.

City of San Luis Obispo

Appendix A
Blank Forms and
Worksheets

City of San Luis Obispo
Base Year Rate Adjustment Application
Summary

1. Rate Increase Requested
Rate Schedule
Single Family Residential

2. Economy Service (collection)
Economy Service (orange bags)

3. Standard Service

4. Premium Service

5. Multiunit Residential and Non-residential
· RequestecUncrease.

Current Rate
Increased
Rate Adjustment (a)
New
Rate
(a) Calculated rates are rounded up to the nearest $0.05.

Rate increases of l=======::::!lj will be applied
to all rates in each structure with each rate rounded up to the nearest $1.00.

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 City of San Luis Obispo.

Name: John Brown Title: Controller
Signature: John Brown Date: May 1, 19XX
Fiscal Year: Pg. 1 of6

City of San Luis Obispo
Base Year Rate Adjustment Application
Financial Information

6. 7.

8. 9.

10. Direct Labor
Corporate Overhead
Office Salaries
Other General and Administrative Costs
Total Allowable Costs

11. Operating Ratio

12. Allowable Operating Profit

13. Tipping Fees
Franchise Fees
AB 939 and Regulatory Fees
Historical
I
Sectlonl-Allowable·Coats··
Section II-Allowable Operating Profit
Section 111-Paaa Through Costa
. 14.

15. 16.

17. Lease Payments to Affiliated Comoanies
Total Pass Through Costs I I
Section IV-Revenue Requirement·

18. Revenue Requirement

19. Total Revenue Offsets (from Pg. 3)
Section V-Net Shortfall (Surplus)

20. Net Shortfall (Surplus)
Section VI-Percent Change Jn Rates·

21. Total Residential and Non-residential Revenue without increase in Base Year (Pg. 3, lines 32+40)

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

23. Franchise Fee Adiustment Factor (1 - 6.0 oercentl

24. Percent Change in Existing Rates
Fiscal Year:

Current I Projected I
Base Year
II
(from Pg. 4)
§
I 1§§

City of San Luis Obispo
Base Year Rate Adjustment Application
Revenue Offset Summary
Residential Revenue (without Increase In Base Yr.)
Current Projected Prtce per
Account Type

25. Economy Service

26. Standard Service

27. Premium Service l~~rf§D

28. Single Family Residential
Multiunlt Residential Dumpster

29. Number of Accounts

30. Revenues

31. Less Allowance for Uncollectible Residential Accounts

32. Total Residential Revenue
Non-residential Revenue (without Increase in Base Yr.)
Account Type
Non-residential Can

33. Number of Accounts

34. Revenues
Non-residential Waste Wheeler

35. Number of Accounts

36. Revenues
Non-residential Dumpster

37. Number of Accounts

38. Revenues

39. Less: Allowance for Uncollectible
Non-residential Accounts:

40. Total Non-residential Revenue
Processing Facility Revenues

41. Scrap Payments for all Materials Sold

42. California Redemption Value (CRV) and Processing Fees

43. Fees from Other Cities

44. Revenues from Processing Facility

45. Interest on Investments

46. Other Income

47. Total Revenue Offsets
Fiscal Year:

Current
No. of
II Packages /j

City of San Luis Obispo
Base Year Rate Adjustment Application
Cost and Revenue Summary for Base Year
Description of Cost
Labor
Payroll Taxes

48. Total Direct Labor

49. Total Corporate Overhead
Office Salary
Payroll Taxes

50. Total Office Salaries
Computer Services
Depreciation on Building and Equipment
Depreciation on Truck and Containers
Dues and Subscriptions
Equipment Rental
Fines
Gas and Oil
Hauling
Interest Expense
Laundry
Legal and Accounting
Miscellaneous and Other
Non-Deductable
Office Expense
Operating Supplies
Other Insurance
Other Taxes
Outside Services
Parts
Public Relations and Promotion
Recycling
Rent
Telephone
Tires
Travel
Truck Insurance
Truck Repairs
Utilities

51. Total Other General and Administrative Costs

52. Total Tipping Fees

53. Total Franchise Fee

54. Total AB 939 and Regulatory Fees

55. Total Lease Payments to Affiliated Companies

56. Total Cost
Fiscal Year:
.

I
I.

I
<
.

I .·
. ' ..

For Information Purposes Only
.·
.·
I
..
'
. ·· .
..
·i: ·'> .
...
,' ·.

Processing
Facilit

City of San Luis Obispo
Base Year Rate Adjustment Application
Base Year Revenue Offset Summary
Resident/al Revenue (without Increase In Base Yr.)

57. Single Family Residential
Muitiuntt Residential Dumpster

58. Number of Accounts

59. Revenues

60. Less Allowance for Uncollectible Residential Accounts

61. Total Residential Revenue
Non-resident/al Revenue (without Increase In Base Yr.)
Account Type
Non-residential Can

62. Number of Accounts

63. Revenues

64. 65.

Non-residential Waste Wheeler
Number of Accounts
Revenues
Non-residential Dumpster

66. Number of Accounts

67. Revenues

68. Less: Allowance for Uncoliectible
Non-residential Accounts:

69. Total Non-residential Revenue
Processing Fac//lty Revenues

70. Scrap Payments for all Materials Sold

71. California Redemption Value (CRV) and Processing Fees

72. Fees from Other Ctties

73. Revenues from Processing Facility

74. Interest on Investments

75. Other Income

76. Total Revenue Offsets
Fiscal Year:

Total
II
For Information Purposes Only
CSU Adjacent
SLO Uninco rated
Processing
Facili

City of San Luis Obispo
Base Year Rate Adjustment Application
Operating Information
Current
Percent Percent Base Year
Cha Ch
•·SectionlX-O~tinsrData.

Residential

77. Accounts
I : I I I I

78. Routes

79. Tons Collected

80. Direct Labor Hours
Non-residential

81. Accounts
I ! I I I I

82. Routes

83. Tons Collected

84. Direct Labor Hours
Reye/able Materials

85. Fees from Other Cities
I I
j
I
i
I

86. Tons from Other Cities

87. Cost per Ton
Fiscal Year: Pg. 6 of 6

City of San Luis Obispo
Interim Year Rate Adjustment Application
Summary

1. Rate Increase Requested
Rate Schedule
Single Family Residential

2. Economy Service (collection)
Economy Service (orange bags)

3. Standard Service

4. Premium Service

5. Multiunit Residential and Non-residential
Requested.Increase ..
··.Rate Schedule<;
Current Rate
Increased
Rate Adjustment (a)
New
Rate
(a) Calculated rates are rounded up to the nearest $0.05. ~
Rate increases of ========!.! will be applied
to all rates in each structure with each rate rounded up to the nearest $1.00.

CertHication .

To the best of my knowledge, the data and information in this application is complete, accurate, and consistent with the instructions provided by the City of San Luis Obispo.

Name: John Brown Title: Controller
Signature: John Brown Date: May 1, 19XX
Fiscal Year: Pg. 1 of2

City of San Luis Obispo
Interim Year Rate Adjustment Application
Financial Information
··Sectionl;..aase Year Costs
Base Year Controllable Costs

6. Total Allowable Costs

7. Plus Allowable Operating Profit

8. Plus Lease Payments to Affiliated Companies

9. Equals Total Controllable Costs lf

10. 11.

12. Base Year Pass Through Costs
Tipping Fees § Plus AB 939 and Regulatory Fees --------------------1 Equals Total Pass Through Costs ~ II

13. Base Year Revenue Requirements (Less Franchise Fee)

14. 15.

16. 17.

18. 19.

20. 21.

22. 23.

24. 25.

26.·

27. 28.

29. 30.

Section II-Changes in Cost
Change in Controllable Cost
Historical Percentage Change in Consumer Price Index
Change in Pass Through Cost
Prior Year Tipping Fees § _P_ru_s_:~~~~-P_ri_or_Y_e_a_r_A_B~93_9_a_n_d_R ___ eo~1u_la_t_o_,_~F_e_e_s~~~~~~~~~~--1 Equals: Total Prior Year Pass Through Costs
Projected Interim Year Tipping Fees § _P_ru_s_:~~~~-P_ro~1je_c_te_d~ln_te_r_im~Y_e_ar_A_B~9_39~a_nd~R_e~gul_at_o~ry_Fe_e_s~~~~~~----i Equals: Total Projected Interim Year Pass Through Costs Projected Percentage Change in Pass Through Costs
Section Ill-Calculation of Percent Change in Rates
Weighted Change in Controllable Costs
Controllable Costs as a Percent of Base Year Revenue Requirements § Mu/ti,::,lied by Percent chanqe in CPI E;quals Weighted Percent Change in Controllable Costs
Weighted Change in Pass Through Costs
Pass Through Costs as a Percent of Base Yr. Revenue Requirements § Percent Chanoe in Pass Throuoh Costs ____._____....__..__----'-'-"'-- Multi,::,lied bv __ Equals Weighted Percent Change in Pass Through Costs Total Change
Divided by II
Total Percent Change in Cost
Adjustment for Franchise Fee (1 - 6.0 percent)
Equals Percent Change in Existing Rates
Fiscal Year: Page2of2

City of San Luis Obispo
Solid Waste Fee Survey
I SectionJ· .... fntroduction

1. Name of City/County

2. Contact Person

3. Title of Contact Person

4. Telephone Number

5. Date Contacted
r Section If .:. General··••lnformation .. I

6. Are residential curbside
collection and disposal
services provided by the
municipality or private
contractor?

7. Is a franchise for refuse
collection granted to the
hauler?

8. Is a franchise for recyclable
material collection granted to
the hauler?

9. Is there a franchise fee?
If so, how much is it?

10. What is the franchise
hauler's disposal cost per
ton?

11. Who bills customers?
I Section Ill..;. ResidentiaLService I

12. Are residential rates
regulated?

13. What is the monthly charge
for residential service?

14. How many cans are picked
up at this charge?

15. What is the charge for
additional cans?
Fiscal Year: Page 1 of 2

City of San Luis Obispo
Solid Waste Fee Survey
I Section 111 H Residential Service ( continued)

16. Is there a separate charge for
yard waste collection?

17. Are there any City-wide
clean-up days provided at
no additional charge by
the hauler?

18. Does your community have
a curbside recycling
program?

19. Is there an additional
charge to residents for this
program, or is it included in
the monthly charge for
solid waste collection?

20. If separate, what is the
charge per month?
\ Sectio~ V -- Non-residential• Service

21. Are non-residential rates
regulated?

22. Provide the monthly fee for
the following services,
assuming pick-up is one
time per week:

23. 1 cubic yard

24. 1 1 /2 cubic yards

25. 2 cubic yards

26. 3 cubic yards

27. 6 cubic yards

28. Effective period of - ratesquoted:
\ Fiscal Year: Page2 of 2

Appendix B
Chart of Accounts

Appendix B. Sample Chart of Accounts
A chart of accounts is provided in
Exhibit A, following this page. This chart of
accounts provides a suggested framework for
the hauler to record financial transactions,
provides a basis for comparing annual rate
adjustment requests, and presents a suggested
basis for allocating indirect costs and
revenues of operation to different service
areas (e.g., customers within city limits,
adjacent unincorporated areas, Cal Poly, and
the recyclable materials processing facility).

City of San Luis Obispo
The chart identifies account name,
account type (asset, liability, revenue, or
expense), type of revenue or cost (direct or
indirect), and a suggested basis for allocating
indirect revenues and costs (e.g., tons
collected, number of accounts). The
franchise hauler may find other
miscellaneous accounts may be required.

To maintain comparability from year to year,
the franchise hauler should indicate any
major changes to the chart of accounts.

Page B-1

Accounts Receivable
Accumulated Depreciation
Buildings
Certificate of Deposit
Checking Account
Containers
Furniture, Fixtures and Equipment
Income Tax Receivable
Investments
Land
Money Market
Notes Receivable
Petty Cash
Prepaid Expenses
Prepaid Life Insurance
Savings Account
Stockholders-Advance
Tax Refund Receivable
Trucks and Automobiles
Accounts Payable
Accrued Liabilities
Capital Stock
Deferred Interest
Equipment Loans
Retained Earnings
A
L
Asset
Liability
R Revenue
E Expense
Page B-2
Sample Chart of Accounts
A
A
A
A
A
A
A
A
A
A
A
A
A
A
A
A
A
A
A
L
L
L
L
L
L
D = Direct revenue or cost
Indirect revenue or cost

EXIDBIT A

Dividend Income
Garbage Service
Interest Income
Other Income
Recycling Materials Sales
Sorting Line Revenue
Computer
Depreciation
Dues
Equipment Rental
Federal Income Taxes
Fines
Franchise Tax
Fuel
Interest Expense
Labor
Landfill
Laundry
Legal & Accounting
Meals and Entertainment
Miscellaneous and Other
Office Expenses
A = Asset
L Liability
R Revenue
E Expense
EXIIlBIT A

Sample Chart of Accounts
(continued)
R
R
R
R
R
R
E
E
E
E
E
E
E
E
E
E
E
E
E
E
E
E
D
-
D/1
D
D/1
D/I
D
D
D/I
D/I
I
D
D
D
D
D
I
D/1
D
I
I
Direct revenue or cost
Direct where possible, otherwise
number of accounts
None
Direct where possible, otherwise
number of accounts
Direct where possible, otherwise
number of accounts
None
None
Number of accounts
Direct where possible, otherwise
number of accounts
Number of accounts
Number of accounts
None
None
None
Number of accounts
None
None
Number of accounts
Direct where possible, otherwise
number of accounts
None
Number of accounts
Number of accounts
Indirect revenue or cost

Office Salary
Officers Salary
Operating Supplies
Other Insurance
Outside Services
Payroll Taxes
Payroll Taxes
Pr & Promotion
Profit Sharing
Recycling Expense
Rent
Repairs
State Income Taxes
Taxes & Licenses
Telephone
Travel
Truck Insurance
Truck Licenses
Utilities
A
L
R
Asset
Liability
Revenue
E Expense
Page B-4
EXIDBffA

Sample Chart of Accounts
E
E
E
E
E
E
E
E
E
E
E
E
E
E
E
E
E
E
E
D
(continued)
D/I Direct where possible, otherwise
number of aq::ounts
I Percent of operating wages
I Number of accounts
D/I Direct where possible, otherwise
number of accounts
I Number of accounts
D/I Direct where possible, otherwise
number of accounts
I Direct where possible, otherwise
number of accounts
I Number of accounts
D None
D None
I Trucks
D/I Direct where possible, otherwise
factored truck hours
I Number of accounts
D/I Direct where possible, otherwise
factored truck hours
I Number of accounts
D/I Direct where possible, otherwise
number of accounts
D/I Direct where possible, otherwise
factored truck hours
D None
I Number of accounts
Direct revenue or cost
Indirect revenue or cost

~ .·

FRANCHISE AGREEMENT

BETWEEN
THE CITY OF SAN LUIS OBISPO ·
AND.

SAN LUIS GARBAGE COMP ANY
For Collection, Diversion, and Disposal of Solid Waste
Within the City of San Luis Obispo
This Agreement is made and entered into as of the 20th day of August, 2010 in the State of California by and between the City of San Luis Obispo, a Charter Municipal Corporation of the State of California, (hereinafter the "City") and San Luis Garbage Company, Inc., a California corporation (hereafter referred to as the "Franchisee");

RECITALS
This Agreement is entered into with reference to the following facts and circumstances:

1. The Legislature of the State of California, by enactment of California Integrated Waste Management Act of 1989, Division 30 of the California Public Resources Code, commencing with Section 40000 (CIWMA), declares that it is within the public interest to authorize and require local agencies to make adequate provisions for solid waste handling within their jurisdictions. The law, AB 939 requires a 50 percent reduction in the amount of waste which is landfilled by 2000; and

2. The City has authority to grant a franchise for collection, diversion, and disposal of solid waste within the City of San Luis Obispo pursuant to City Charter Article X and Chapter 8.04 of the San Luis Obispo Municipal Code; and

3. The City Council has determined that solid waste, including discards from residential and nonresidential properties, must be regulated to protect public health, safety and welfare; to conserve landfill disposal capacity; and to develop and maintain effective resource management programs; and

4. The City Council has determined that all occupied developed properties in the City must participate in the City's solid waste collection and disposal service; and

5. The City Council has determined that an exclusive franchise granted to a private company is the most effective and efficient way to collect and remove solid waste within the City; and

6. The City Council has determined that the Franchisee can provide needed solid waste services; and

7. Franchisee is responsible for arranging for solid waste collection and disposal service, and an appropriate landfill destination for collected solid waste; and

8. Upon passage by the City Council, Ordinance 1551, pursuant to the authority granted by City Charter Article X and Chapter 8.04 of the San Luis Obispo Municipal Code; and

9. This Agreement has been developed by and is satisfactory to the parties.

Franchise Agreement - Solid Waste
NOW, THEREFORE, for and in consideration of the mutual promises herein contained, it is hereby agreed by and between the City and Franchisee as follows:
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Franchise Agreement - Solid Waste ·
ARTICLE 1. DEFINITIONS
For purposes of this Agreement, unless a different meaning is clearly required, the following terms shall have the following meanings:

1.1 "AB 939" means the California Integrated Waste Management Act of 1989, as it maybe amended from time to time.

1.2 "Affiliate" means all businesses (including corporations, limited and general partnerships, and sole proprietorships) which are directly or indirectly related to Franchisee by virtue of a common ownership interest or common management shall be deemed to be "Affiliated with" Franchisee and included within the term "Affiliate" as used herein. An Affiliate shall include a business in which Franchisee owns a direct or indirect ownership interest, a business which has a direct or indirect ownership interest in Franchisee and /or a business which is also owned, controlled or managed by any business or individual which has a direct or indirect ownership interest in Franchisee. For purposes of determining whether an indirect ownership exists, the constructive ownership provisions of Section 3 l 8(a) of the Internal Revenue Code of 1986, as in effect the date of this Agreement, Shall apply; provided, however, that (i) "ten percent (10%)" shall be substituted for "fifty percent (50%)" in Section 3 l 8(a)(2)(C) and in Section 318(a)(3)(C) thereof; and (ii) Section 318(a)(5)(C) shall be disregarded. For purposes of determining ownership under this paragraph and constructive or indirect· ownership under Section 3 l 8(a), ownership interest of less than ten percent (10%) shall be disregarded and percentage interests shall be determined on the basis of the percentage of voting interest or value which the ownership interest represents, whichever is greater.

1.3 "Agreement" means this agreement the between the City and Franchisee for arranging for the collection, diversion, and disposal of solid waste, and collection and any future amendments hereto.

1.4 "Arranger" means any person that arranges for the collection, diversion, transfer, burning, disposal or processing of any solid waste.

1.5 "Bulky Waste" means discarded, large household appliances, furniture, tires, carpets, mattresses, and.similar large items which require special handling due to their size, but can be collected without the assistance of special loading equipment (such as forklifts or cranes) and without violating vehicle load limits. It does not include abandoned automobiles.

1.6 "CERCLA" means the Comprehensive Environmental Response, Compensation and Liability Act, 42 U.S.C Section 9601, et seq.

1.7 "City" means the City of San Luis Obispo, a Charter municipal corporation, and all the territory lying within the municipal boundaries of the City as presently existing or as such boundaries may be modified during the term of this Agreement.

1.8 "Collect" or "Collection" means to take physical possession of, transport, and remove Solid Waste within and from the City.
3 Page 893 of 1208
Franchise Agreement - Solid Waste

1.9 "Commercial and Industrial Property" means property upon which business activity is conducted, including, but not limited to, retail sales, services, wholesale operations, manufacturing and industrial operations, but excluding businesses conducted upon residential properties which are permitted under applicable zoning regulations and are not the primary use of the property.

1.10 "Construction Debris" means used or discarded construction materials removed from a premises during the construction, repair or renovation of a structure.

1.11 "Container" means any bin, vessel, can or receptacle used for collecting and storing solid waste before removal.

1.12 "Demolition Debris" means used construction materials removed from a premises during the razing or renovation of a structure.

1.13 "Designated Collection Location" means the place where an authorized recycling agent or a solid waste collector has contracted with either the City or a private entity to collect solid waste.

1.14 "Disposal Site(s)" means any properly licensed and permitted solid waste facility or facilities arranged by Franchisee after consultation with City for the ultimate disposal of solid waste collected by Franchisee.

1.15 "Designated Processing Facility" means any properly licensed and permitted plant or site used for the purpose of sorting, cleansing, treating, reconstituting, processing and marketing recyclable materials, which has been arranged by Franchisee after consultation with City.

1.16 "Disposal" means the ultimate disposition of solid waste collected by Franchisee at a landfill in full regulatory compliance or other fully permitted disposal site.

1.17 "Facility" means any plant or site, owned or leased and maintained and/or operated or used by Franchisee for purposes of performing under this Agreement.

1.18 "Franchise" means the special right granted by the City of San Luis Obispo to operate a solid waste collection company providing such services within the City.

1.19 "Franchisee" means San Luis Garbage Company, a corporation organized and operating under the laws of the State of California, and its officers, directors, employees, agents, companies.

1.20 "Full Regulatory Compliance" means compliance with all applicable permits for a facility and with other applicable regulations such that the Franchisee will at all times maintain the ability to fully comply with its obligations under this Agreement.

1.21 "Green Waste" means tree trimmings, grass cuttings, dead plants, leaves, branches and dead 4

Franchise Agreement - Solid Waste
trees (no more than six (6) inches in diameter) and similar materials generated at the premises.

1.22 "Gross Revenues" means the sum of the cash receipts derived by Franchisee from customer billings for solid waste collection services and orange bag sales provided in the City.

1.23 "Hazardous Waste" is as defined in Article 2, Chapter 6.5, Section 25117 of the Health and Safety Code and Public Resource Code Section 40141. For the purposes of this Agreement, however, hazardous waste shall not include Household Hazardous Waste which maybe contained in solid waste.

1.24 "Household Hazardous Waste" means hazardous waste generated at residential premises.

1.25 "Interruption of Service" means (a) any period during which Franchisee's operations are diminished or discontinued by circumstances beyond its control, or (b) any period during which operations are diminished or discontinued as a result of any breach of the Agreement by Franchisee or ( c) any period after the City has terminated the franchise and until the City can reasonably acquire other suitable service and/or enter into a new franchise agreement.

1.26 ''Materials Recovery Facility" means a permitted Facility where solid wastes are sorted or separated for the purposes of recycling or reuse.

1.27 "Medical Waste" means biohazardous waste, sharp wastes, waste which is generated or produced as a result of the diagnosis, treatment or immunization of human beings or animals, in research pertaining thereto, or in the production or testing of biological products, pursuant to California Health and Safety Code, Section 25023.2.

1.28 "Multi-Family Dwelling Unit" means any premises, other than a single family dwelling unit, used for residential purposes, irrespective of whether residence therein is transient, temporary or permanent.

1.29 "Occupied" means when a person or persons has taken or is/are holding possession of a premises for temporary or permanent use. For the purpose of determining whether a premises was occupied during periods when solid waste collection service was available to such premises, the premises shall be presumed to have been so occupied unless evidence is presented that no gas, electric, telephone or water utility services were consumed on such premises during such periods or such other evidence is presented to the satisfaction of the City Manager.

1.30 "Owner" means the person or persons record title to the property constituting the premises to which solid waste collection service is to be provided under this Agreement or the person holding legal title to a facility used by Franchisee under this Agreement.

1.31 "Person" means any individual, firm, association, organization, partnership, corporation, business trust, joint venture, the United States, the State of California, the County of San Luis Obispo, local agencies and special purpose districts.
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1.32 "Premises" means any land, or building where solid waste is generated or accumulated.

1.33 "Recyclable Materials" means residential and non-residential by-products or discards of economic value which include, but are not limited to, aluminum, glass, paper, plastic, metal, and green or woody debris.

1.34 "Related Party Entity" means any affiliated entity which has financial transactions with the Franchisee.

1.35 "Residential Property" means property used for residenth1l purposes, irrespective of whether such dwelling units are rental units or are owner-occupied, and includes both single family and multi-family dwelling units.

1.36 "Rubbish" means all waste wood, wood products, printed materials, paper, paste.board, rages, straw, used and discarded clothing, packaging materials, ashes, floor sweepings, glass and other materials not included in the definition of Garbage, Hazardous Substance, or Recyclable Materials.

1.37 "Single Family Dwelling Unit" means each premises used for or designated as a single family residential dwelling, including each unit of a duplex or triplex in all cases in which there is separate or individual solid waste collection service.

1.38 "Solid Waste" means all putrescible and non-putrescible residential refuse, commercial solid waste, institutional solid waste, garbage, recyclable material, yard waste, and rubbish, and as otherwise defined in Public Resources Code 640191. Solid waste which is not required to be collected includes:
(a) Demolition and construction debris which are not offered by persons performing the work and which may be legally collected and disposed of by some alternate means; (b) Recyclable materials separated from solid waste by the waste generator and for which waste generator sells or is otherwise compensated by a collector in a manner resulting in a net payment to the Waste generator;
( c) Recyclable materials separated from solid waste by the waste generator and which the waste generator donates to a charitable organization such as the Boy Scouts; ( d) Materials removed by householders or occupants and transported by them to disposal facilities or recycling centers;
(e) Residential recyclable materials source separated by the waste generator for the purposes of scheduled collection with the recyclable materials collection Franchisee.

1.39 "Term" means the term of the Agreement, as provided for in Article 3. 6

Franchise Agreement - Solid Waste

1.40 "Waste Generator" means any person as defined by the Public Resources Code, whose act or process produced solid waste as defined in the Public Resources Code, or whose act first causes solid waste to become subject to regulation.
7 Page 897 of 1208
Franchise Agreement - Solid Waste
ARTICLE 2. REPRESENTATIONS AND WARRANTIES OF THE FRANCHISEE

2.1 Corporate Status
Franchisee is a corporation duly organized, validly existing and in good standing under the laws of the State of California. It is qualified to transact business in the State of California and has the corporate power to own its properties and to carry on its business as now owned and operated and as required by this Agreement.

2.2 Corporate Authorization
Franchisee has the authority to enter into and perform its obligations under this Agreement.

The Board of Directors of Franchisee (or shareholders if necessary) have taken all actions required by law, its articles of incorporation, its bylaws or otherwise to authorize the execution of this Agreement. The persons signing this Agreement on behalf of Franchisee have authority to do so.

2.3 Compliance with Laws and Regulations
Franchisee shall comply with all existing and future City, County, other local agencies, State, and Federal laws and regulations with particular note of Article X of the City Charter and Chapter 8.04 of the City Municipal Code.

2.4 Financial Representation
Franchisee represents that it has the financial ability to full perform its obligations as set forth in this Agreement.

2.5 Absence of Litigation
Franchisee represents that there are no suits or threatened suits which would impair the financial or legal ability of Franchisee to perform its obligations under this Agreement and that the entering into this Agreement by Franchisee will not in any was constitute a breach of any other agreement entered into by Franchisee with other parties, or constitute a violation of any law.
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Franchise Agreement - Solid Waste
ARTICLE 3. TERM OF AGREEMENT

3.1 Effective Date
The effective date of this Agreement shall be August 20, 2010 ("Effective Date").

3.2 Th!:!!!
The term of this Agreement shall be fifteen years, commencing at 12:01 a.m., August 20, 2010, and expiring at midnight, August 20, 2025, subject to extension as provided in paragraph 3.3 (Option to Extend).

The City Council may elect to renew this franchise at any time during the three year period prior to the end of the franchise.

3.3 Option to Extend
The City shall have the sole option to extend this Agreement up to 36 months in periods of at least twelve (12) months each. If City elects to exercise this option, it shall give written notice not later than ninety (90) days prior to the initial termination date, or, if one extension has been ex~rcised, ninety (90) days prior to the extended termination date. 3A Conditions to Effectiveness of Amendment
The obligation of City to permit this Agreement to become effective and to perform its undertakings provided for in this Agreement is subject to the satisfaction of each and all of the conditions set out below, each of which may be waived in whole or in part by the City, in its sole direction.
(1) Accuracy of Representations. The representations and warranties made by Franchisee in Article 2 of this Agreement are true and correct on and as of the effective date.
(2) Effectiveness of City Council Action. The City's Ordinance No. 1551, approving this Agreement, shall have become effective pursuant to California law on or prior to the effective date.
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Franchise Agreement • Solid Waste
ARTICLE 4. SCOPE OF AGREEMENT
. 4.1 Grant and Acceptance of Exclusive Franchise for Solid Waste Collection and Disposal Subject to paragraphs 3.4 (Conditions to Effectiveness of Agreement) and 4.2 (Limitations to Scope), this Agreement grants the Franchisee the exclusive right to arrange for the collection, processing, diversion and disposal of Solid Waste from residential and non-residential properties placed in the designated collection location for regular or scheduled collection in accordance with the City's Municipal Code and Ordinances, except where otherwise preclu9ed by law. Franchisee accepts the grant of the Franchise under the terms and conditions as set forth in this Agreement. Franchisee agrees to perform and be bound by each of the conditions proposed in the grant and by procedural ordinance and the requirements of Acceptance on file with the City Clerk's office (Article X of the City Charter, Section 1006, Duties of Grantee).

4.2 Limitations to Scope
This Agreement for the collection, processing, diversion and disposal of Solid Waste from residential and non-residential properties shall be exclusive except as to the following categories of solid waste, which the Franchisee may, but shall not be obligated to collect, transfer, process, divert or dispose of:

A. To the extent allowable by law, all residential recyclable materials whether

1. source separated by the waste generator for the purpose of placing for scheduled collection with the recycling collection franchisee, or

2. separated from solid waste by the waste generator and which the waste generator either donates to a charitable organization, or sells or is otherwise compensated by a collector in a manner resulting in a net payment to the waste generator; or

3. separated at any premises and transported by the owner or occupant of such premises (or by his or her full-time employees) to a processing facility.

B. All green waste material whether

1. . source separated by the waste generator for the purpose of placing for scheduled collection with the green waste collection franchisee, or

2. separated from solid waste by the waste generator and which the waste generator either donates to a charitable organization, or sells or is otherwise compensated by a collector in a manner resulting in a net payment to the waste generator; or

3. separated at any premises and transported by the owner or occupant of such premises (or by his or her full-time employees) to a processing facility.

4. Green waste removed from a premises by a gardening, landscaping, or tree trimming company as an incidental part of a total service offered by that company rather than as a hauling service;
C. Animal waste and remains from slaughterhouse or butcher shops; D. By-products of sewage treatment, including sludge, sludge ash, grit and screening; 10

Franchise Agreement· Solid Waste
E. Hazardous waste, liquid waste and medical waste.

Franchisee acknowledges and agrees that c_ity may permit other persons besides Franchisee to collect any or all types of the solid waste listed in paragraph 4.2 without seeking or obtaining approval of Franchisee under this Agreement.

This grant to Franchisee of an exclusive Franchise, right and privilege to collect, transfer, process, divert and dispose of Solid Waste shall be interpreted to be consistent with state and federal laws, now and during the term of this Franchise,· and the scope of this exclusive franchise shall be limited by current and developing state and federal laws with regard to solid waste handling, exclusive franchise, solid waste flow control, and related doctrines.

In the event that future interpretations of current law, enactment or developing legal trends limit the ability of the City to lawfully provide for the scope of Franchise services as specifically set forth herein, Franchisee agrees that the scope of the Franchise will be limited to those services which may be lawfully provided for under this Agreement. Further, the Franchisee agrees that the City shall not be responsible for any lost profits or damages claimed by the Franchisee to arise out of further limitations of the scope of the Agreement set forth herein. It shall be the responsibility of Franchisee to minimize the financial impact to other services being provided.

4.3 Administration of Franchise
The City Manager shall administer the City's solid waste franchise and the City's Utility Director shall supervise Franchisee's compliance with the Agreement's terms and conditions.

4.4 Serve Without Interruption .

Franchisee shall continue to collect and dispose of solid waste throughout the term of its franchise without interruption.

4.5 Permits and Licenses
Franchisee shall procure all permits and licenses, pay all charges and fees, and give all notices as necessary.

4.6 Preservation of City Property
Franchisee shall pay to the City, on demand, the cost of all repairs to public property made necessary by any .of the operations of Franchisee under this Agreement.

4. 7 Franchisee as Arranger
The City.and Franchisee mutually agree that the City's granting of this franchise shall not be construed as the City "arranging for" the collection and disposal of solid waste or recyclables within the meaning of CERCLA. The parties further mutually agree that the granting of the Franchise by City shall be· construed as an action whereby the Franchisee is granted, and accepts the rights, responsibilities, benefits and liabilities of collection and disposal of solid waste. Commencing on the effective date of this Agreement and, to the extent that Franchisee's performance under this Agreement requires the collection and disposal of solid 11

Franchise Agreement • Solid Waste
waste, and may be construed as "arranging for" collection and disposal of solid waste within the meaning of CERCLA, such actions shall be the sole responsibility of Franchisee and Franchisee expressly agrees to be solely responsible for all such actions.

4.8 Use of City Streets
Such grant of franchise shall give Franchisee the right and privilege to operate solid waste collection vehicles and equipment on such streets, public ways, rights-of-way, or easements of the City.

4.9 Annexation
The Franchisee shall automatically extend all services herein described to any area annexed to the City, except that the City may permit a firm franchised by the County of San Luis · Obispo before the annexation to continue serving the area for a period not to exceed five (5) years.

4.10 Ownership of Solid Waste
Once solid waste is placed in containers and properly presented for collection, ownership and the right to possession shall transfer directly from the waste generator to Franchisee by operation of this Agreement. Franchisee is hereby granted the right to retain, process, divert, dispose of, and otherwise use such solid waste, or any part thereof, in any lawful fashion or for any lawful purposed desired by franchisee.

Subject to this Agreement, Franchisee shall have the right to retain any benefit resulting from its right to retain, process, divert, dispose of, or use the solid waste which it collects. Arty cost savings resulting from decreased disposal shall off-set Franchisee's operating expenses in accordance with the "City of San Luis Obispo Rate Setting Process and Methodology Manual for Integrated Solid Waste Management Rates".

Solid waste, or any part thereof, which is disposed of at a disposal site or facility (whether landfill, transformation facility, transfer station, or materials recovery facility} shall become the property of the Owner or operator of the disposal site(s) or facility once deposited there by Franchisee.

The City may obtain ownership or possession of solid waste placed for collection upon written notice of its intent to do so. However, nothing in this Agreement shall he construed as giving rise to any inference that the City has such ownership or possession unless such written notice has been given to Franchisee. ·
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Franchise Agreement • Solid Waste
ARTICLE 5. DIRECT SERVICES

5.1 General
The work to be d~me by the Franchisee pursuant to this Agreement shall include the furnishing of all labor, supervision, equipment, materials, supplies, and all other items and tasks necessary to perform the services required.

It is mandatory that the work to be done by Franchisee pursuant to this Agreement shall be accomplished in a thorough and professional manner so that all occupied developed properties within the City are provided reliable, courteous, prompt and high-quality services for collection of solid waste. All collection activities shall be conducted in such a manner that public and private property will not be damaged. Franchisee shall replace containers and covers in designated collection locations and shall not place them in the street or on adjoining property.

The City reserves the right to revise its laws and regulations pertaining to solid waste collection and disposal in order to protect public health, safety and welfare. The Franchise Agreement is subject to any such future revisions of the City's laws and regulations, and Franchisee agrees to comply with any such changes in said laws and regulations as if incorporated into the Agreement.

5.2 Single Family Residential Solid Waste Collection Service For residential customers, Franchisee shall collect solid waste at the curbside at a minimum of once a week, Monday through Friday, except as specified below. The Franchisee will notify solid waste customers of holiday collection schedules.

Handicapped residents shall have the option of placing their containers near their dwelling, visible from the curb, and the Franchisee will collect their containers at this location and return container to same location. Franchisee will notify residents annually, beginning within thirty (30) days of execution of this Agreement, of this collection option. To be eligible for this collection option, residents must present proof of their physical incapacity to the Franchisee.

5.3 Other Solid Waste Collection Service

5.3.1 Multi-family Solid Waste Collection Service
Franchisee shall collect Solid Waste from all Multi-Family dwelling units within the City, using containers of a size and shape acceptable to Franchisee, not less than once per week.

The Franchisee and each customer shall agree on the designated collection location. Special consideration shall be given when determining the designated collection location for multifamily accounts to ensure that the flow of traffic is not impeded and that it does not result in aesthetic degradation of an area. The designated collection location, if disputed by customer or Franchisee, shall be determined by the City.

5.3.2 Commercial, Industrial and Institutional Solid Waste Collection Services Franchisee shall collect Solid Waste from all commercial, industrial and institutional properties within the City, using containers of a size and shape acceptable to Franchisee, not 13

Franchise Agreement - Solid Waste
less than once per week. To the extent allowable by law, Franchisee shall collect from all occupied commercial, industrial and institutional properties in the City recyclable materials, arranged for Collection by the Franchisee with the Waste Generator, that have been placed in recycling containers provided by the Franchisee and placed in the designated collection location for regular collection by Franchisee. To the extent allowable by law, nothing in this Agreement shall preclude any organization from collecting recyclable materials from commercial and/or industrial customers within the City.

The Franchisee and each customer shall agree on the designated collection location. Special consideration shall be given when determining the designated colleetion location for commercial and/or industrial accounts to ensure that the flow of traffic is not impeded and that it does not result in aesthetic degradation of an area. The designated collection location, if disputed by customer or Franchisee, shall be determined by the City.

Additionally, if in the City's opinion, the location of an existing collection location for particular multi-family dwelling unit or commercial, industrial or institutional property is inappropriate, the City may direct the customer or Franchisee to relocate the collection location. If a customer refuses to comply with said directive, Franchisee shall decline to collect solid waste from said mis-located containers.

5.4 Public Facilities Collection
When requested by the City, the Franchisee shall collect and dispose of all Solid Waste generated at premises owned and/or operated by the City. Franchisee shall make collections from City solid waste containers, not less than once per week, Monday through Friday or on Saturdays following non-working holidays. Collections shall be scheduled at a time mutually agreed upon by Franchisee and the Waste Generator.

Franchisee shall provide, at City's direction, additional solid waste collection and disposal and consulting services including:
(1) Collection of solid waste from all sidewalk litter containers; (2) Collection of solid waste from City-sponsored special events as specified by the City; (3) Collection of solid waste from containers in City parks as mutually agreed upon by the Franchisee and the City;
(4) Review of plans for land use or.property developments with regard to solid waste service issues; and
(5) Residual solid waste remaining from temporary household hazardous waste collection events.

5.5 Missed Pickups
Upon notification, Franchisee shall collect any missed pickup which had been properly and timely placed for collection within 24 hours of said notice.

5.6 Bulky Waste Collection
Franchisee shall make special collection arrangements with Waste Generators within seven (7) days after waste generators' written or verbal request for the collection of bulky waste for 14

Franchise Agreement - Solid Waste
a fee established by the City and updated by resolution when the City adjusts rates. Any single item is not to exceed 200 pounds.

5.7 Semi-Annual Clean-up Weeks
At least twice per year throughout the term of this Agreement, Franchisee shall provide, in addition to regularly scheduled service, two clean-up events pursuant to guidelines established by the Franchisee and approved by the City, for solid waste placed at the curb by single family dwelling units and at pre arranged locations for multi-family residential properties in addition to each customer's normal collection service. The dates for each event shall be proposed by Franchisee and approved by the City prior to September 1st of each year.

Franchisee shall record by class and weight (in tons) the solid waste, white goods, etc., collected during the clean-up events. Franchisee shall record the kinds and weights (in tons) of solid waste diverted during these clean-ups from the landfill through recycling, reuse, transformation or other means of diversion.

5.8 City Right to Request Changes

5.8.1 General
City may request Franchisee to perform additional services (including new diversion programs, billing services, etc.) or modify the manner in which it performs existing serVices.

Pilot programs and innovative services which may entail new Collection methods, different kinds of services and/or new requirements for Waste Generators are included among the kinds of changes which City may request. Franchisee shall present, within 30 days of a request to do so by City, a proposal to provide additional or expanded diversion services . pursuant to the terms of Section 5.8.2. Franchisee shall'be entitled to an adjustment in its compensation in accordance with Section 9.4, for providing such additional or modified services.

5.8.2 New Programs
Franchisee shall present, within 30 days of a request to do so by City, a proposal to provide additional or expanded services. The proposal shall contain a complete description of the following:
• Collection methodology to be employed (equipment, manpower, etc.) • Equipment to be utilized (vehicle number, types, capacity, age, etc.). • Labor requirements (number of employees by classification). • Type of Containers to be utilized.
• Provision for program publicity/education/marketing.
• A projection of the financial results 0f the program's operations for the remaining Term of the Agreement in a balance sheet and operating statement format including documentation of the key assumptions underlying the projections and the support for those assumptions.
• Materials processing facility to be utilized.

5.8.3 City's Right to Acquire Services
Franchisee acknowledges and agrees that City may permit other Persons besides Franchisee to provide additional services not otherwise contemplated under Section 5.8 (City's Right to . 15 Page 905 of 1208
Franchise Agreement- Solid Waste
Request Changes). If pursuant to Section 5.8.2 (New Programs), Franchisee and City cannot agree on terms and conditions of such services in ninety (90) days from the date when City first requests a proposal from franchisee to perform .such services, Franchisee acknowledges and agrees that City may permit Persons other than Franchisee to provide such services.

5.9 Report of Accumulation of Solid Waste; Unauthorized Dumping Franchisee shall direct its drivers to note the addresses of any premises at which they observe that solid waste is accumulating and is not being delivered for collection; and the address, or other location description, at which solid waste has been dumped in an unauthorized manner.

Franchisee shall report the address or description to the City within twenty-four (24) hours of such observation.

5.10 City Directed Removal of Solid Waste
Franchisee shall arrange for the removal of all accumulated solid waste and recyclables on any developed or vacant property in the City as directed by the City Utilities Director. The Franchisee shall make a good faith effort to recover the cost of disposal from the waste generator, and the costs of this effort, as well as the cost of disposal shall be chargeable to the waste generator. The Franchisee shall be entitled to include the costs incurred and not collected under this Section as an operating expense for purposes of rate setting.

5.11 Processing of Solid Waste
The City reserves the right, prior to disposal, to direct portions of the waste stream collected under this franchise, to a designated processing facility for separation and recycling of any recyclable materials contained therein. City shall provide Franchisee with reasonable prior written notice concerning any change of service location.

5.12 Designated Disposal Facility
Franchisee shall arrange with the operator of a disposal site situated outside the city limits for disposal of solid waste collected within the City. All solid waste collected within the City and not separated for recycling shall be delivered to the designated disposal site and disposed of according to the regulations of the designated disposal site.

Franchisee shall secure within 90 days of the effective date of this Agreement, sufficient disposal site capacity commitment including landfill disposal site capacity commitment, to adequately serve the reasonably anticipated solid waste disposal needs of the City and its customers during the term of this Agreement, including any extensions provided for herein.

City reserves the right to review said disposal capacity commitments. Prior to entering into any capacity commitment, Franchisee shall give prior written notice to the City concerning negotiations. The disposal site capacity commitment contract for the designated disposal facility shall be incorporated into this Agreement as Appendix I.

If Franchisee receives notice from the landfill operator or otherwise expects, during the term of this Agreement, to be prevented from delivering solid waste to the designated disposal site, Franchisee shall immediately notify in writing the City's Utilities Director, stating the reason(s) Franchisee is prevented, or expects to be prevented, from disposing of solid waste in the designated disposal facility. Franchisee shall in good faith expeditiously identify and 16

Franchise Agreement - Solid Waste
evaluate alternative disposal sites. An alternative designated disposal site or sites shall be arranged for and secured by Franchisee, after consultation with the City's Utilities Director.

Franchisee shall provide City with adequate written notice prior to contracting for any alternate disposal site. City reserves the right to direct the waste stream to other disposal site selected by Franchisee.

City in addition, reserves the right to direct the waste stream to any disposal facility or site.

Absent such direction by the City, nothing contained herein shall be construed to mean that the City has arranged for site selection or waste disposal.

Section 12.5, "Excuse From Performance", does not relieve Franchisee from the good faith .obligation to find and secure alternate disposal sites. Absent a Section 12.5 event, Franchisee shall be responsible for any increased costs, including transportation, with respect to the alternate disposal site,

5.13 Hazardous Waste Handling and Disposal
If the Franchisee determine~ that solid waste placed in any container for collection is a Hazardous Waste or Medical Waste, or other solid waste that may not be legally disposed of at the designated disposal site or presents a hazard to the Franchisee's employees, the Franchisee shall have the right to refuse to accept such solid waste. The Franchisee will contact the waste generator and request that the waste generator arrange for proper disposal.

If the Waste Generator cannot be reached immediately, the Franchisee shall, prior to leaving the premises, leave a tag at least two inches by six inches indicating the reason for refusing to collect the solid waste, in which case, a copy of the tag, along with the address of the premises (and the name of the waste generator, if known) shall be delivered to the City on the following business day.

If the Hazardous waste or medical waste or other unauthorized waste is collected before its presence is detected by Franchisee, and if the waste generator cannot be identified or fails to remove the solid waste after being requested to do so, the Franchisee shall arrange for its legal disposal. The Franchisee shall make a good faith effort to recover the cost of disposal of such waste from the waste generator, and the costs of this effort, as well as the cost of disposal shall be chargeable to the waste generator. Provided the failure to detect the hazardous waste, medical wastes or other unauthorized wastes prior to collection and/or their delivery to the designated disposal site is not due to the negligence of the Franchisee or its employees or due to failure of the Franchisee to have an adequate in place inspection program, the Franchisee shall be entitled to include the costs incurred under this paragraph as an operating expense for purposes of rate setting.
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Franchise Agreement - Solid Waste
ARTICLE 6. COLLECTION SERVICE STANDARDS

6.1 Operations

6.1.1 Schedules
To preserve peace and quiet, solid waste shall not be collected within two-hundred (200) feet of residential premises between 6:30 p.m. and 6:30 a.m. on any day, Monday through Friday.

When the regularly scheduled collection day falls on a holiday, collection shall take place on the following regularly scheduled collection day. Franchisee will promptly resolve any complaints of noise to the satisfaction of the City Manager or the City Manager's designee.

6.1.2 Vehicles
A. General. Franchisee shall keep a fleet of collection trucks sufficient in number and capacity to efficiently perform the work required in the Agreement in strict accordance with the terms of this Agreement. Franchisee shall provide a detailed description concerning the number and type of vehicles necessary for performance.

Franchisee shall have available on collection days sufficient back-up vehicles for each type of collection vehicle (i.e., rear loader, front loader, and roll-off) used to respond to complaints and emergencies. The fleet shall be maintained according to the requirements of Municipal Code 8.04.030.

B. Specifications. All vehicles used by Franchisee in providing solid waste collection services shall comply with all federal, state, and local requirements for such vehicles as they now exist or may be amended in the future; and be registered with the California Department of Motor Vehicles. All such vehicles shall have water-tight bodies designed to prevent leakage, spillage, or overflow. All such vehicles shall comply with U.S. Environmental Protection Agency noise emission regulations and other applicable noise control regulations.

C. Condition.
1) Franchisee shall maintain all of its properties, facilities, and equipment used in providing service under this Agreement in a safe, neat, clean and operable condition at all times.
2) Franchisee shall inspect each vehicle daily to ensure that all equipment is operating properly. Vehicles which are not operating properly and represent a safety hazard shall be taken out of service until they are repaired and do operate properly and safely. Franchisee shall perform all scheduled maintenance functions in accordance with the manufacturer's specifications and schedule. Franchisee shall keep accurate records of all vehicle maintenance, recorded according to date and mileage, and shall make such records available to City upon request.
3) Franchisee shall repair, or arrange for the repair of, all of its vehicles and equipment for which repairs are needed because of accident, breakdown or any other cause so as to maintain all equipment in a safe and operable condition. Franchisee shall maintain accurate records ofrepair, which shall 18

Franchise Agreement • Solid Waste
include the date/mileage, nature of repair and the signature of a maintenance supervisor that the repair has been properly performed.

D. Vehicle Identification. Each truck shall display in a prominent place a sign as required in Municipal Code 8.04.090.

E. Operation. Vehicles shall be operated in compliance with the California Vehicle Code, and all applicable safety and local ordinances. Franchisee shall not load vehicles in excess of the manufacturer's recommendations or limitations imposed by state or local vehicle weight restrictions.

6.1.3 Containers
A. Residential Solid Waste Containers. When requested, Franchisee shall supply each Single Family Dwelling Unit with a waste wheeler in size consistent with the City approved Solid Waste collection program. Franchisee shall supply each multi-family complex with the appropriate type of container to adequately service the needs of the complex per the solid waste handling location. Franchisee agrees to provide additional appropriate Containers, as required.

City and Franchisee acknowledge that from time to time, a customer may damage or destroy a Container. City and Franchisee also acknowledge that from time to time Containers may be stolen from the curb or damaged due to normal use. When notified of such occurrence, Franchisee shall replace the Container, at no charge to the customer pursuant to the guidelines established by the Franchisee and approved by the City. The container replacement guidelines are presented in Appendix II of this Agreement.

B. Non-Residential and Multi-Family Dwelling Unit Solid Waste Containers.

Franchisee shall furnish to all customers appropriate containers to collect solid waste at multi-family dwelling units, commercial and industrial properties, and other premises upon customer request. Containers with a capacity of one cubic yard or more shall be available in standard sizes. The kind, size and number of containers furnished to particular customers shall be as determined mutually by the customer and Franchisee. Containers which are front loading bins shall have lids. All containers with a capacity of one cubic yard or more shall meet applicable regulations for Solid Waste bin safety and shall be maintained in good repair with neatly and uniformly painted surfaces and shall prominently display the name and telephone number of Franchisee. Additionally, one cubic yard or more bins in public right-a-ways shall have reflectorized markings. Bins shall be clearly marked and identified as belonging to Franchisee. Franchisee shall not be obligated to provide customers with compactor units, but will be obligated to charge the rates set by the City for the collection of compacted solid waste.

Each customer shall be responsible for excess damage to any such containers not caused by Franchisee.
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Franchise Agreement - Solid Waste

6.1.4 Personnel
A. General. Franchisee shall furnish such qualified drivers, mechanical, supervisory, clerical, and other personnel as may be necessary to provide services required by this Agreement in a safe and efficient manner.

If Franchisee needs to provide additional personnel, Franchisee shall be responsible for all costs related to provision of such additional personnel. Franchisee may only reduce the number and type of personnel required with prior approval of City. If quality of service declines following such reduction in type and number of personnel, the City at its discretion, may require the Franchisee to increase the number and type of personnel utilized, at no additional cost to the City.

B. Identification. Franchisee shall ensure that while on duty each collection worker wears a clean uniform with conspicuous insignia displaying Franchisees company name and the worker's name or identification number.

C. Fees & Gratuities. Franchisee shall not, nor shall it permit any agent, employee, or subcontractors employed by it to request, solicit, demand, or accept, either directly or indirectly, any compensation or gratuity for any services performed under this Agreement, except as provided in Article 8 of this Agreement.

D. Training. All drivers shall be trained and qualified in the operation of vehicles they operate and must possess a valid license of the appropriate class, issued by the California Department of Motor Vehicles.

Franchisee shall provide adequate operations, health and safety training, and Hazardous Waste identification and handling training for all of its employees who use or operate equipment or who are otherwise directly involved in collection or other related operations.

E. Customer Courtesy. Franchisee shall train its employees in customer courtesy; shall prohibit the use of loud or profane language; and shall instruct collection crews to perform the work quietly. Franchisee shall use its best efforts to ensure that all employees present a neat appearance and conduct themselves in a courteous manner.

If any employee is found to be discourteous or not to be performing services in the manner required by this Agreement, Franchisee shall take all necessary corrective measures. If City has notified Franchisee of a complaint related to a discourteous or improper behavior, Franchisee will reassign the employee to duties not entailing contact with the public while Franchisee is pursuing its investigation and corrective action process.

6.2 Service Complaints
Franchisee shall maintain and provide copies of all written service complaints and summaries of all oral service .complaints and the Franchisee's response to those complaints for the term of one year and shall allow City officials to inspect these records during the required office staffing hours after the City has requested such inspection with reasonable notice. 20

Franchise Agreement - Solid Waste
If a disagreement arises between Franchisee and a customer, the customer may request an administrative hearing. The City's Utilities Director shall conduct an investigation, and give notice of that decision. The customer may elect to appeal this decision to the City Integrated Waste Management Appeals Committee made up of representatives from the Utilities Department, the Finance Department and the Administrative Office.

6.3 Periodic Performance Audit
The City shall have the right to periodically, not less than annually, request a performance audit or billing audit be completed by the Franchisee, the City or an independent third party; The City shall be entitled to select the type of consultant that it deems qualified to conduct said audits. The cost of such audits will be an allowable cost under the rate setting methodology unless there are findings pursuant to Section 12.8.

6.4 Performance Hearing
The City maintains the right to hold a public hearing at any time, not more than once each year, at which the Franchisee shall be present and shall participate, to review Franchisees services and performance. The purpose of the hearing shall be, in part, to provide for a discussion and review of technological, economic and regulatory changes and quality of service provided to date. The goal of the performance hearing is to strive for an everadvancing solid waste management system, and to ensure services are provided with adequate quality, efficiency and economy.

Sixty (60) days after receiving notice from City of a performance review hearing, Franchisee shall, at a minimum, submit a report to City indicating the following:
• Changes ~ecommended and/or new services to improve City's ability to meet the goals of AB 939 and to contain costs and minimize impacts on rates; and • Any specific plans for provision of changed or new services by Franchisee.

The reports required by this Agreement regarding customer complaints shall be used as one basis for review. Franchisee may submit other relevant performance information: and reports for consideration. City may request Franchisee submit specific information for the hearing.

In addition, any customer may submit comments or complaints during or before the hearing, either orally or in writing, and these shall be considered, Topics for discussion and review at the performance review hearing shall include, but shall not be limited to, quality and adequacy of services provided, feasibility of providing new services, application of new technologies, customer complaints, amendments to this Agreement, developments in the law, new initiatives for meeting or exceeding AB 939's goals, regulatory constraints and Franchisee performance. City and Franchisee may each select additional topics for discussion at any performance review hearing.

Not later than sixty (60) days after the conclusion of each performance review hearing, City may issue a report. As a result of the review, City may request Franchisee to provide expanded or new services. Franchisee shall present, within 30 days of a request to do so by 21

Franchise Agreement - Solid Waste
City, a proposal to provide additional or expanded diversion services. The proposal shall · contain a complete description of the following:
• Collection methodology to be employed (equipment, manpower, etc.) • Equipment to be utilized (vehicle number, types, capacity, age, etc.). • Labor requirements (number of employees by classification). · • Type of Containers to be utilized.
• Provision for program publicity/ed:ucation/marketing. • A projection of the financial results of the program's operations for the remaining Term of the Agreement in a balance sheet and operating statement format including documentation of the key assumptions underlying the projections and the support for those assumptions.
• Materials processing facility to be utilized.
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Franchise Agreement - Solid Waste
ARTICLE7. OTHER SERVICES: BILLING, REPORTING, RECORD-KEEPING AND

PUBLIC EDUCATION

7.1 Billing
By resolution of the City Council, the City shall establish rates for the services provided by the Franchisee. Franchisee shall bill and collect these rates. Franchisee billing fonnat and billing frequency shall be subject to approval of the City and Chy shall have the right to revise the billing fonnat to itemize certain charges.

The City may also direct Franchisee to insert mailers relating to Franchisee provided service with the billings at no additional cost to the City. The mailers must fit in standard envelopes and not increase the required postage. The City will provide not less than thirty (30) days notice to Franchisee prior to the mailing date of any proposed mailing to permit Franchisee to make appropriate arrangements for inclusion of City materials.

Franchisee shall maintain copies of said billings and receipts, each in chronological order, for a period of three (3) years after the date of service for inspection by the City, or for such longer term as the City directs. Franchisee may, at its option, maintain those records in computer form, on microfiche, or in any other manner, provided that the records cannot be altered, and can be preserved and retrieved for inspection and verification in a timely manner.

Franchisee shall, in addition, provide an adequate backup system for billing records, regardless of the form in which the records are maintained. Any such backup system shall be subject to approval by the City.

7.2 Owner Responsible for Payment
The owner of occupied developed property shall be responsible and liable for paying the solid waste collection and disposal fees for that property.
7 .3 Collection of Bills from Delinquent Solid Waste Customers.

Bills shall be considered delinquent if not paid within 30 days of the date due. Once each year, prior to a date established by the City, Franchisee may take actions pursuant to Chapter

8.04 of the Municipal Code to collect delinquent solid waste collection and disposal accounts.

7.4 Records
Franchisee shall maintain records required to conduct its operations, to support requests it may make to City, and to respond to requests of the City. Adequate record security shall be maintained to preserve records from events that can be reasonably anticipated such as a fire, theft and earthquake. Electronically maintained data and records shall be protected and an adequate backup system shall be provided for such data and records. The protection and backup systems shall be subject to approval by the City.

The following records shall be maintained for the City in form and detail satisfactory to the City, relating to:

Customer services and billing;
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Franchise Agreement - Solid Waste
• Weight of solid waste, especially as related to reducing and diverting solid waste.

Information is to be separated by kind of account (including multi-family dwelling units with residential);
• Special annual clean-up event results;
• Routes;
• Facilities, equipment and personnel used;
• Facilities and equipment operations, maintenance and repair; • Processing and disposal of solid waste;
• Complaints; and
• Missed pick-ups.

Franchisee shall maintain records of transfer, diversion and disposal of all solid waste collected in the city for the period of this Agreement and all extensions to this Agreement or successor Agreements. In the event Franchisee discontinues providing solid waste services to City, Franchisee shall provide all records of diversion and disposal of all solid waste collected within the City to City within thirty (30) days of discontinuing service. Records shall be in chronological order, and organized in a form readily and easily interpreted.

Records for other programs shall be tailored to specific needs. In general, they shall include:
• Plans, tasks·, and milestones; and,
• Accomplishments in terms such as dates, activities conducted, quantities of products used, produced or distributed, and numbers of participants and responses.

7.5 Waste Generation/CharacterizatiOn Studies
Franchisee acknowledges that the City must perform solid waste generation and disposal characterization studies periodically to comply with AB 939 requirements. Franchisee agrees to participate and cooperate with the City and its agents, at no cost to the City, to accomplish studies and data collection, and prepare reports, as needed, to determine weights and volumes of solid waste and characterize solid waste generated, diverted, disposed, transformed, or otherwise .handled or processed to satisfy AB 939 requirements.

7.6 Report Formats and Schedule
Records shall be maintained in forms and by methods that facilitate flexible use of data contained in them to structure reports, as needed. Reports are intended to compile recorded data into useful forms of information that can be used to, among other things:
• Determine and set rates, and evaluate the financial efficacy of operations; and • Evaluate past and expected progress towards achieving goals and objectives; and • Determine needs for adjustment to programs; and
• Evaluate customer service and complaints.

The City may at no cost to itself request that Franchisee provide such additional information in the reports set forth below as the City deems necessary or appropriate to meet its needs, including provision of AB 939 report information.

Franchisee may propose report formats that are responsive to the objectives and audiences for each report. The format of each report shall be subject to approval by the City. 24

Franchise Agreement • Solid Waste
Monthly reports shall be submitted within ten (10) calendar days after the end of the report month. Quarterly reports shall be submitted within fifteen (15) calendar days after the end of the quarter. Quarters end on November 30, February 28, May 31, and August 31.

All reports shall be submitted to:

Utilities Director
City of San Luis Obispo
879 Morro Street
San Luis Obispo, CA 93401

7. 7 Monthly Reports
The information listed shall be the minimum reported for each service:
• Solid Waste, collected, transferred, diverted and disposed of, by sector (commercial, industrial, residential) of waste generator--collected by Franchisee, in tons, by month. • Complaint summary, for month and cumulative for report year, as above.

Summarized by nature of complaints.
• Narrative summary of problems encountered and actions taken with recommendations for the City, as appropriate.
7 .8 Quarterly Report
Quarterly reports shall be quarterly summaries of the monthly information in addition to the following:
• Status report on applications for renewals of existing permits or any new permits which may be required to continue operations at the designated disposal site within existing permitted areas.
• Solid Waste, collected, diverted and disposed of, in tons, during the semi-annual residential clean-up weeks, if applicable.
• For each new program, provide activity related and narrative reports on goals and milestone and accomplishments. Describe problems encountered, actions taken and any recommendations to facilitate progress.
• Provide a summary assessment of the overall solid waste program from Franchisee's perspective relative to financial and physical status of program. The physical status is to relate to how well the program is operating for efficiency, economy and effectiveness relative to meeting all the goals and objectives of this Agreement.

Provide recommendations and plans to improve. Highlight significant accomplishments, problems and proposed solutions.

7.9 Annual Financial Audit
Franchisee shall submit to the City annual audited financial statements prepared at Franchisee's expense by an independent Certified Public Accountant not later than 180 days following the expiration of the Franchisee's fiscal year. Pursuant to the "Rate Setting Process and Methodology Manual for Integrated Solid Waste Management Rates", dated June 1994, at the time a rate application request is submitted to City, the financial forms contained in the rate application must be reconciled to the audited financial statements to 25

Franchise Agreement - Solid Waste
provide assurance that all of the company's activities are accounted for.

The annual report shall separate out information with respect to revenues and expenses in relation to performance of this Agreement, including detailed information concerning overhead claimed by Franchisee. Operations by Franchisee concerning activities not related to performance of this Agreement shall be maintained in a separate portion of the annual financial statement.

City shall have the right to inspect or review the payroll tax reports, specific documents or records required expressly or by inference pursuant to this Agreement, or any other similar records or reports of Franchisee that City shall deem, in its sole discretiori, necessary to evaluate annual reports, compensation applications provided for in this Agreement and Franchisee's performance provided for in this Agreement. The City retains the right to have an independent third party or agent of the City's choosing, such as a CPA, participate in the records inspection. The cost of such inspection or review will be an allowable cost under the rate setting methodology unless there are findings pursuant to Section 12.8.

The Franchisee shall provide to the City a copy of Cold Canyon Landfill's request for an increase in tipping fees no later than five (5) days following submittal of said request to the County of San Luis Obispo. Additionally, the Franchisee shall notify the City of the action taken by the Board of Supervisors regarding said request within five (5) days following said action, including letter to the Board of Supervisors and related executed resolution. The City retains the right to have an independent third party or agent of the City's choosing, such as a CPA, participate in the review. The cost of such inspection or review will be an allowable · cost under the rate setting methodology unless there are findings pursuant to Section 12. 8.

7.10 Maintenance of Accounting Records
Franchisee shall maintain accounting records in accordance with generally accepted standards and principles of accounting. In its accounting records, Franchisee shall discreetly maintain and clearly identify all items of revenue and expense pertaining to the City's franchised operations. Cost and revenue information for the City shall be segregated from other geographical areas served by Franchisee. Cost and revenue information for the City, in addition, shall be segregated from other business activities of the Franchisee. Separate detailed records shall be maintained by Franchisee with respect to all transactions with affiliated entities that affect the cost and revenue of Franchisee in providing the franchise collection services.

7.11 Right to Audit Records
In addition to other reporting requirements in this Agreement, the City may review, test and audit the books and records of the Franchisee or may engage a Certified Public Accountant for this purpose. The cost of such inspection or review will be an allowable cost under the rate setting methodology unless there are findings pursuant to Section 12.8.

7.12 Inspection by City
The designated representatives of the City shall have the right to observe and review Franchisee operations and enter Franchisee's premises for the purpose of such observation 26

Franchise Agreement • Solid Waste
and review at all reasonable hours with reasonable notice.

7.13 Office
Franchisee shall maintain an office with telephone within the City limits where customers may apply for service, pay bills, and register complaints. At a minimum, Franchisee shall staff this office from 8:00 a.m. to 5:00 p.m., Monday through Friday, except legal holidays observed by the City. A representative of Franchisee shall be available during office hours to communicate with the public in person and directly by telephone.

7.14. Customer Information
Franchisee shall prepare and keep current a flier acceptable to the City which summarizes solid waste regulations, all services provided by Franchisee, solid waste collection and disposal rates, telephone numbers, special collection events, collection schedules, complaint procedures, and other pertinent information. Franchisee shall have copies of this flier available at all times in Franchisee's office; shall distribute copies to all new customers; shall annually mail copies to all of its current customers; and shall mail updated copies to all customers as notifi~ation of changes in service or rates, prior to such changes.

7.15 Regulatory Reporting ·
Franchisee shall promptly provide the City copies of each adverse report from, and each regulatory action from local, state or federal regulatory agencies. In addition, Franchisee shall send copies to City of any reports that Franchisee submits to regulatory agencies with respect to performance of this Agreement.

Franchisee shall provide City promptly with copies of any notices and cm;respondence from other facilities, including disposal sites, utilized by Franchisee in performance of this Agreement, concerning any breach of agreement with such facility or violation of regulations, including delivery of unauthorized wastes. Franchisee shall direct such facilities to at all times simultaneously send copies of such notices and correspondence to City.

Franchisee shall promptly provide City with copies of any reports and correspondence concerning the status of permits with respect to Franchisee and such disposal sites and facilities referenced above.

7.16 Public Education
Franchisee acknowledges and agrees that education and public awareness are critical, key and essential elements of any efforts to achieve AB 939 requirements. Accordingly, Franchisee agrees to take direction from City to exploit opportunities to expand public and customer knowledge concerning needs and methods to reduce, reuse and recycle solid waste and to cooperate fully with City in this regard.

Franchisee shall maintain its own program of providing information relevant to billing and solid waste services, issues and needs with its bills. Franchisee shall also include in customer bills additional information, including information on recycling programs, as directed by the City. Franchisee shall bear all labor costs with respect to inserting public education materials with the billings. City shall bear any additional postage expense resulting from the City's 27

Franchise Agreement • Solid Waste
inserts and shall bear other expenses related to the inserts to the extent said expenses are clearly in excess of the Franchisee's normal billing costs. All public education materials shall be approved in advance by the City.

At the direction of the City, Franchisee shall participate in and promote AB 939 activities and other solid waste management techniques at community events and local activities. Such participation would nonnally include providing, without cost, educational and publicity information promoting the goals of the City's solid waste program.

7.17 Records Retention
Franchisee shall maintain the above records, reports and data set forth in this Article for such time as City may direct. Franchisee agrees to make all such records, reports and data . available for inspection by City or City's authorized representatives, upon reasonable notice by City.
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Franchise Agreement • Solid Waste ·
ARTICLES. PAYMENTS TO CITY

8.1 Franchise Fee Payments
In consideration of the exclusive franchise provided for in Article 4 of this Agreement, Franchisee shall pay the City ten percent (10%) of Franchisee's gross revenues for collection and disposal of solid waste within the City; provided, however, that such franchise fee shall not exceed the costs incurred by the City to deliver service to properties. Such franchise fee shall be a "pass-through" expense for purposes of rate review and setting. Each monthly remittance of fees to City shall be accompanied by a statement detailing gross revenues for the period covered from all operations conducted or permitted pursuant to this Agreement.

8.2 Schedule of Payment
Franchise fees described in Section 8.1 are due on the 15th day of each month for receipts from the previous month. The remittance will be accompanied by a report setting forth the basis, and calculations used for computing the amount due.

8.3 AB 939 Fee Amount
In consideration of the exclusive franchise provided for in Article 4 of the Agreement, Franchisee shall pay when directed by the City, a percentage of Franchisee's gross revenue for an AB 939 fee(i.e. the cost that the City incurs in managing and addressing AB 939 issues regarding diversion, recyclable materials, source reduction, etc.), on a monthly installment basis, based on cash receipts from customers provided residential and non-residential services. during the prior month. All AB 939 fees paid to the City shall be considered a pass through cost for purposes ofrate setting under Article 9. The monthly AB 939 fee is due on the 15th day of each month for receipts from the previous month.

8.4 Other Fees
The City shall reserve the right to set such other fees, as the City deems necessary. These fees will he treated as a pass-through expense. The amount, time and method of payment shall be similar to section 8.2.

8.5 Time and Method of Payment
If Franchisee is directed to pay an AB 939, Franchise Fee or "Other" Fee, it shall do so on or before the fifteenth (15th) day of each month during the Term. Franchisee shall remit to City a sum of money equal to the designated percentage of the gross revenue or a flat monthly fee as determined by the City. If any fees are not paid on or before the fifteenth (15th) day of any month, Franchisee shall pay to City a late payment penalty in an amount equal to one percent (1 %) of the amount owing for that month. Franchisee shall pay an additional late payment penalty of one percent (1 %) owing on any unpaid balance for each following thirty (30) day period the fee remains unpaid. Late payment penalty amounts shall not be included in any revenue requirement.

8.6 Review of Fee Payments
The City, or its agent, reserves the right to annually perform an independent review of fee payments to verify that fees are being paid in accordance with this Agreement. The cost of such inspection or review will be an allowable cost under the rate setting methodology unless 29

Franchise Agreement - Solid Waste
there are findings pursuant to Section 12.8.

8.7 Business License Tax
Franchisee shall pay each year the annual business license tax. 30

Franchise Agreement • Solid Waste
ARTICLE 9. SERVICE RATES AND REVIEW

9.1 General
Franchisee's compensation provided for in this Article shall be the full, entire and complete compensation due to Franchisee pursuant to this Agreement for all labor, equipment, materials and supplies, taxes, insurance, bonds, overhead, transfer and transport, processing, division, disposal, profit and all other things necessary to perform all the services required by this Agreement in the manner and at the times prescribed, Franchisee will not be entitled to any further rate adjustments as a result of customer delinquencies and other bad debt issues.

Franchisee does not look to the City for payment of any sums, except for solid waste collection services provided to the City and presented in Appendix III, under this Agreement in consideration of the right to charge and collect from customers for services rendered at rates fixed by the City from time-to-time. The City shall have the right to structure those rates as it deems appropriate so long as the revenues forecasted to be received by Franchisee from charging such rates can reasonably be expected to generate sufficient revenues to provide for Franchisee's compensation as calculated in accordance with the "City of San Luis Obispo Rate Setting Process and Methodology Manual for Integrated Solid Waste Management Rates".

9.2 Service Rates
Service rates are those established by Resolution adopted by City Council. Franchisee shall provide the services required by this Agreement and charge no more than the rates authorized by City Resolution.

9.3 Rate Review
Franchisee shall submit to the City an application for rate review annually, in accordance with the procedures described in the 11 City of San Luis Obispo Rate Setting Process and Methodology Manual for Integrated Solid Waste Management Rates," dated June 1994, except as that may be modified by the City from time to time. In addition to the procedures contained in the above referenced manual, Franchisee shall submit any and all data requested by and in the format prescribed by the City. In the event Franchisee shall fail to rrieet the schedule set forth in the above referenced manual, a revision of rates for the following year shall not be authorized until the 1st day of the first calendar month following a 120 day period from the date that the complete application is submitted and such revision shall contain no consideration for Franchisee's failure to submit the application in accordance with the schedule set forth in the above-referenced manual.

9.4 Special Interim Rate Review
The City or franchisee may request an extraordinary or consequential adjustment outside of the base year and interim year adjustment schedules, as set forth in the 11 City of San Luis Obispo Rate Setting Process and Methodology Manual for Integrated Solid Waste Management Rates," dated June 1994 .. To be extraordinary and consequential, cost changes must be significant enough to require a greater than five percent (5%) decrease or increase in monthly rates for basic residential service.
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9.5 Allowable Profit
When performing the procedure~ described in the "City of San Luis Obispo Rate Setting Process and Methodology Manual/or Integrated Solid Waste Management Rates," dated June 1994, the allowable profit on expenses shall be calculated using targeted operating ratio of ninety-three percent (93%), with a range of ninety-one percent (91 %) to ninety-five percent (95%), applied to Franchisee's reasonable and necessary allowable costs, as these costs are defined in the rate setting manual, incurred in the performance of its obligations under this Agreement.
9 .6 Publication of Rates
Franchisee shall provide written notice to subscribers of all rate changes, prior to implementation. If appropriate, this notice should include reasons and background for the rate change.
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Franchise Agreement - Solid Waste
ARTICLE 10. INDEMNITY, INSURANCE, AND PERFORMANCE BOND

10.1 Indemnification

10.1.1 General. Franchisee agrees to defend, indemnify, protect and hold the City and its Council members, agents, officers and employees harmless from.and against any and an· claims asserted or liability established for damages or injuries to any person or property, including, but not limited to, damages arising from or related to alleged or actual violations of Proposition 218 and/or its implementing legislation, injury to the Franchisee's employees, agents or officers to the extent arising from or connected with or are caused or claimed to be caused by the acts or omission of the Franchisee, and its agents, officers, directors or employees, in performing the services herein, and all expenses of investigating and defending against same; provided, however, that the Franchisee's duty to indemnify and hold harmless shall not include any claims or liability arising from the established sole negligence or willful misconduct of the City, its agents, officers or employees.

10.1.2 CERCLA. Franchisee agrees to defend and indemnify the City, Council members, officers, employees and agents for all actions of the Franchisee associated with the Franchisee's role as the arranger of solid waste service, or as a "potentially responsible party" within the meaning of CERCLA in performing solid waste service under any Federal, State or local laws, rules or regulations. The Franchisee shall further defend and indemnify City from any and all legal actions against City on the basis of the assertion that the City is an arranger of solid waste services as a result of this Agreement.

10.1.3 Integrated Waste Management Act. Franchisee agrees to defend and indemnify the City, Council members, officers, employees and agents for any fines or penalties imposed by the California Integrated Waste Management Board or its agents in the event and to the extent that Franchisee's delays in providing information or reports required pursuant to this Agreement prevent the City from submitting reports or attaining goals in a timely manner as required by the Integrated Waste Management Act.

10.2 Insurance
Franchisee shall procure and maintain for the duration of the franchise insurance against claims for injuries to persons or damages to property which may arise from or in connection with the performance of the services hereunder by the Franchisee, its agents, representatives, employees or subcontractors.

A. Minimum Scope of Insurance. Coverage shall be at least as broad as:
(1) Insurance Services Office Commercial General Liability coverage (occurrence form CG 0001).
(2) Insurance Services Office form number CA 0001 (Ed. 1/87) covering Automobile Liability, code I (any auto).
(3) Workers' Compensation insurance as required by the State of California and Employer's Liability insurance.
( 4) Pollution Legal Liability
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Franchise Agreement - Solid Waste
B. Minimum Limits of Insurance. Franchisee shall maintain limits no less than:
(1) Commercial or Comprehensive General Liability: Five Million Dollars ($5,000,000) combined single limit per occurrence for bodily injury, personal injury, and property damage. If Commercial General Liability or other form with a general aggregate limit is used, either the general aggregate limit shall apply separately to this Agreement or the general aggregate limit shall be twice the required occurrence limit.
(2) Automobile Liability: Five Million Dollars ($5,000,000) combined single limit per accident for bodily injury and property damage. (3) Workers' Compensation and Employers Liability: Workers' compensation limits as required by the Labor Code of the State of California and employers liability with limits of $1,000,000 per accident for bodily injury or disease. (4) Pollution Liabilities: One million Dollars ($1,000,000) each loss/Two Million Dollars ($2,000,000) annual aggregate all losses.

C. Deductibles and Self-Insured Retentions. Any deductibles or self-insured retentions must be declared to and approved by the City. At the option of the City, either: the insurer shall reduce or eliminate such deductibles or self-insured retentions as respects the City, Council members, its officers, officials, employees, and agents; or the Franchisee shall procure a bond guaranteeing payment of losses and related investigations, claim administration and defense expenses. Any insurance policies providing for self insured retentions shall further provide that legal costs and costs of investigation, including consultant fees, with respect to any claim or suit, shall apply · to the self insured retention amount.

D. Other Insurance Provisions. The general liability and automobile liability policies are to contain, or be endorsed to contain, the following provisions:
(1) The City, Council members, its officers, officials, employees, and agents are to be covered as insurers as respects: liability arising out of activities performed by or on behalf of the Franchisee; products and completed operations of the Franchisee; premises owned, occupied or used by the Franchisee; or automobiles owned, leased, hired or borrowed by the Franchisee. The coverage shall contain no special limitations on the scope of protection afforded to the City, its officers, officials, employees, or agents. (2) For any claims related to this project, the Franchisee's insurance coverage shall be primary insurance as respects the City, Council members, its officers, officials, employees, and agents. Any insurance or self-insurance maintained by the City, its officers, officials, employees, agents or volunteers shall be excess of the Franchisee's insurance and shall not contribute with it. 34

Franchise Agreement • Solid Waste
(3) Any failure to comply with reporting or other provisions of the policies including breaches of warranties shall not affect coverage provided to the City, Council members, its officers, officials, employees, or agents. (4) The Franchisee's insurance shall apply separately to each insured against whom claim is made or suit is brought except with respect to the limits of the insurer's liability.
(5) Each insurance policy required by this clause shall be endorsed to state that coverage shall not be suspended, voided, canceled by either party, reduced in coverage or in limits except after thirty (30) days' prior written notice by certified mail, return receipt required, has been given to the City. (6) The Automobile Liability Policy shall be endorsed to delete the Pollution exclusion and add the Motor Carrier Act endorsement (MCS-90), TL.1005, TL 1007 and/or other endorsements required by federal or state authorities. (7) Pollution, if on a Claims Made form:
a. The "Retro Date" must be shown, and must be before the date of the contract or the beginning contract work.
b. Insurance must be maintained and evidence of insurance must be provided for at least five (5) years after completion of the contract of work.
c. If coverage is canceled or non-renewed, and not replaced with another claims made policy form with a "Retro Date" prior to the contract effective date, the Franchisee must purchase "extended reporting" coverage for minimum of two years after completion of contract.

E. Acceptability of Insurers. Insurance is to be placed with insurers with a current A.M. Best's rating of no less than A:VII. Insurers selected by Franchisee shall be admitted to issue insurance in the State of California.

F. Verification of Coverage. Franchisee shall furnish the City with Certificates of insurance and with original endorsements effecting coverage required herein. The certificates and endorsements for each insurance policy are to be signed by a person authorized by that insurer to bind coverage on its behalf. The certificates and endorsements are to be on forms provided by or acceptable to the City and are to be received and approved by the City before performance under this Agreement commences. The City reserves the right to require complete certified copies of all required policies at any time, and Franchisee shall provide said copies upon request.

G. Subcontractors. Franchisee shall include all subcontractors as insurers under its policies or shall furnish separate certificates and endorsements for each subcontractor.

All coverages for subcontractors shall be subject to all of the requirements stated 35

Franchise Agreement - Solid Waste
herein ..

H. Occurrence Based Coverage. All policies secured by Franchisee shall be occurrence and not claims based unless City so Consents in writing.

10.3 Performance Bond
Simultaneously with the execution ofthis Agreement, Franchisee shall file with the City a bond, payable to City, securing Franchisee's faithful performance of its obligations under this Agreement. The principal sum of the bond shall be One Half Million Dollars ($500,000).

The bond shall be executed as surety by a corporation authorized to issue surety bonds in the State of California, with a financial condition and record of service satisfactory to City. The bond shall be in a form approved by the City. If such bond at any time ceases to be effective for any reasori, this shall be deemed a breach of this Agreement by Franchisee and the City shall be entitled to proceed as hereinafter provided.
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ARTICLE 11. CITY'S RIGHT TO PERFORM SERVICE

11.1 General
In the event that Franchisee, for any reason whatsoever, fails, refuses or is unable to Collect, transport or process any or all Solid waste materials which it is required by this Agreement to Collect and process, at the time and in the manner provided in this Agreement, for a period of more than seven (7) calendar days, and if, as a result thereof, Solid Waste should accumulate in the City to such an extent, in such a manner, or for such a time that the City Manager should find that such accumulation endangers or menaces the public health, safety or welfare, then City shall have the right, but not the obligation, upon twenty-four (24) hour prior written notice to Franchisee during the period of such emergency as determined by the City Manager, (1) to perform, or cause to be performed, Sl!Ch services itself with its own or other personnel without liability to Franchisee, and/or (2) to take possession of any or all of Franchisee's land, equipment and other property to Collect, transport or process any Solid Waste generated within the City which Franchisee would otherwise be obligated to Collect, transport, process or market pursuant to this Agreement. In the event the City takes possession of the Franchisee's equipment and other property, the City shall be entitled to have another Franchisee operate such equipment and property under City direction. Additionally, in the event the City takes possession of the Franchisee's equipment and other property, the City does not guarantee repair of existing problems with equipment and facilities.

Notice of Franchisee's failure, refusal or neglect to collect, transport or process Solid Waste may be given orally by telephone to Franchisee at its principal office and shall be effective immediately. Written confirmation of such oral notification shall be sent to Franchisee within twenty-four (24) hours of the oral notification.

Franchisee further agrees that in such event:
• It will take direction from City to effect the transfer of possession of property to City for City's use.
• It will, if City so requests, keep in good repair and condition all of such property, provide all motor vehicles with fuel, oil and other service, and provide such other service as may be necessary to maintain said property in operational condition. • City may immediately engage all or any personnel necessary or useful for the Collection, transportation and processing Solid Waste, including, if City so desires, employees previously or then employed by Franchisee, Franchisee further agrees, if City so requests, to furnish City the services of any or all management or office personnel employed by Franchisee whose services are necessary or useful for Solid Waste Collection, Transportation arid processing operations and for the billing and collection of fees for these services.

City agrees that it assumes complete responsibility for the proper and normal use of such equipment and facilities while in its possession.

If the interruption or discontinuance in service is caused by any of the reasons listed in Section 12.4 (Excuse From Performance), City shall pay-to Franchisee the reasonable rental 37

Franchise Agreement - Solid Waste
value of the equipment and facilities, possession of which is taken by City, for the period of City's possession, if any, which extends beyond the period of time for which Franchisee has rendered bills in advance of service.

Except as otherwise expressly provided in the previous paragraph, City's exercise of its rights under this Article I I (I) does not constitute a taking of private property for which compensation must be paid; (2) will not create any liability on the part of City to Franchisee; and (3) does not exempt Franchisee from the indemnity provisions of Article I 0, Indemnification, Insurance and Bond, which are meant to extend to circumstances arising under this Section, provided that Franchisee is not required to indemnify City against claims and damages arising from the sole negligence of City officers, employees and agents in the operation of Collection vehicles during the time City has taken possession of such vehicles.

11.2 Temporary Possession of Franchisee's Property
If the City suffers an interruption or discontinuance of service as described in Section I I. I (including interruptions and discontinuance due to events described in Section 12.4, Excuse from Performance), City may take possession of and use all of Franchisee's property described above until other suitable arrangements can be made for the provision of Solid Waste Services which may include the grant of a Contract to another company. The same notice requirements of Section 11.1 are applicable.

11.3 Billing and Compensation to City During City's Possession During such time that city is providing Solid Waste services, as above provided, Franchisee shall continue to bill and collect payment from all users of the above-mentioned services.

Franchisee further agrees that, in such event, it shall reimburse City for any and all costs and expenses incurred by City in taking over possession of the above-mentioned property for Solid Waste service in such manner and to an extent as would otherwise be required of Franchisee under the Terms of this Agreement. Such reimbursement shall be made from time to time after submission By City to Franchisee of each statement listing such costs and expenses, but in no event later than five (5) working days from and after each such submission. The City shall have the right, at its sole discretion, to take over billing and payment collection activities. The City shall then pay any net revenues to the Franchisee, after deducting all expenses, including City-incurred expenses.

11.4 City's Right to Relinquish Possession
It is further mutually agreed that City may at any time at its discretion relinquish possession of any or all of the above-mentioned property to Franchisee and thereupon demand that Franchisee resume the Solid Waste services as provided in this Agreement, whereupon Franchisee shall be bound to resume the same.

11.5 Duration of City's Possession
City's right pursuanfto this Article to retain temporary p:ossession of Franchisee's facilities and equipment, and to render Collection services, shall terminate when City determines that such services can be resumed by Franchisee, or when City no longer reasonably requires such facilities or equipment. In any case, City has no obligation to maintain possession of Franchisee's property and/or continue its use for any period of time and may at any time, in its 38

Franchise Agreement - Solid Waste
sole discretion, relinquish possession to Franchisee.
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Franchise Agreement - Solid Waste
ARTICLE 12. DEFAULT AND REMEDIES

12.1 Events of Default
All provisions of this Agreement to be performed by Franchisee are considered material.

Each of the following shall constitute an event of default.

A. Fraud or Deceit. If Franchisee practices, or attempts to practice, any fraud or deceit upon city.

B. Insolvency or Bankruptcy. If Franchisee becomes insolvent, unable, or unwilling to pay its debts when due, or upon listing of an order for relief in favor of Franchisee in a bankruptcy proceeding. The Franchisee is. also in default if there is an assignment of this contract for the benefit of its creditors.

C. Failure to Maintain Coverage. If Franchisee fails to provide or maintain in full force and effect the Workers' Compensation, liability, indemnification coverage or any insurance coverage or bond required under this Agreement.

D. Violations of Regulation. If Franchisee facilities fall out of full regulatory compliance or if Franchisee violates any orders or filings of any regulatory body having jurisdiction over Franchisee relative to this Agreement, provided that Franchisee may contest any such orders or filings by appropriate proceedings conducted in good faith, in which case no breach of the Agreement shall be deemed to have occurred.

E. Failure to Perform. If Franchisee ceases to provide Solid Waste services as required under this Agreement for a period of two (2) days or more, for any reason within the control of Franchisee.

F. Failure to Pay/Report. If Franchisee fails to make any timely payments, including liquidated damages and penalties, required under this Agreement and/or fails to provide City with required information, reports, and/or records in a timely manner as provided for in the Agreement.

G. Acts or Omissions. Any other act or omission by Franchisee which violates the terms, conditions, or requirements of this Agreement, the California Integrated Waste Management Act of 1989, as it may be amended from time to time, or any order, directive, rule, or regulation issued thereunder and which is not corrected or remedied within the time set in the written notice the violation or, if Franchisee cannot reasonably correct or remedy the breach within the time set forth in such notice, if Franchisee should fail to commence to correct or remedy such violation within the time set forth in such notice and diligently effect such correction or remedy thereafter.

H. False or Misleading Statements. Any representation or disclosure made to City by Franchisee in connection with or as an inducement to entering into this Agreement, or any future amendment to this Agreement, which proves to be false or misleading in any material respect as of the time such representation or disclosure is made, whether or not any such 40

Franchise Agreement - Solid Waste
representation or disclosure appears as part of this Agreement.

I. Attachment. There is a seizure of attachment of, or levy on, the operating equipment of Franchisee, including without limits its equipment, maintenance or office facilities, or any part thereof.

J. Suspension or Termination of Service. There is any termination or suspension of the transaction of business by Franchisee, including without limit, due to labor unrest including strike, work stoppage or slowdown, sickout, picketing, or other concerted job action lasting more than two (2) days.

Upon default by the Franchisee, the City Manager shall provide written notice to Franchise of the violation. The City Manager shall include in the notice, a demand that the Franchisee correct the violation within 10 days following the delivery of said notice. If the violation is not corrected within the 10 days, the City shall have the right to terminate the Agreement per the provisions provided in Section 12.2. For purposes of this Agreement and any notice required thereunder, the term "days" shall mean calendar days.

12.2 Right to Terminate Upon Default
Upon a default by Franchisee, City shall have the right to terminate this Agreement upon a ten (10) days notice if the public health or safety is threatened, or otherwise a thirty (30) days notice, but without the need for any hearing, suit or legal action. This right of termination is in addition to any other rights of City upon a failure of Franchisee to perform its obligations under this Agreement.

12.3 Possession of Property and Billing Records and Systems Upon Termination In the event of termination for default, the City shall have the right, subject to the obligations contained in Article 12 hereof, to take possession of any and all of Franchisee's land, equipment, and other property used or useful in the collection, diversion and/or disposal of solid waste and to conduct all activities concerning billing and .collection of fees for these services and to use such property. The City shall have the right to retain the possession of such property until other suitable arrangements can be made for the provision of solid waste collection services, which may include the award of an agreement or franchise to another waste hauling company. If the City retains possession thereof after the period of time for which Franchisee has already been paid by means of bills issued in advance of providing service for the class of service involved, Franchisee shall be entitled to the reasonable rental value of such property (which shall be offset against any damages due the City for the Franchisees default).

Franchisee shall provide the City immediate access to all of its business records and billing system related to its billing of accounts for services and shall take direction from the City regarding the billing of customers during the period between the City's termination of the Agreement for default until other suitable ·arrangements can be made for the billing of solid waste collection services. The provisions dfthis Section 12.3 shall survive the termination of this Agreement.
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Franchise Agreement - Solid Waste

12.4 City's Remedies Cumulative; Specific Performance
The City's right to terminate the Agreement under Section 12.1 and to take possession of the Franchisee's properties under Section 12.3 are not exclusive, and the City's termination of the Agreement shall not constitute an election of remedies. Instead, they shall be in addition to any and all other legal and equitable rights and remedies which the City may have.

By virtue of the nature of this Agreement, the urgency of timely, continuous and high quality service, the lead time required to effect alternative service, and the rights granted by the City to Franchisee, the remedy of damages for a breach hereof by Franchisee is inadequate and the City shall be entitled to injunctive relief and/or specific performance if it so desires.

12.5 Excuse from Performance
The parties shall be excused from performing their respective obligations hereunder in the event they are prevented from so performing by reason of floods, earthquakes, other "acts of God", war, civil insurrection, riots, acts of any govemment(includingjudicial action), and other similar catastrophic events which are beyond the control of and not the fault of the party claiming excuse from performance hereunder. Labor unrest, including but not limited to strike, work stoppage or slowdown, sick-out, picketing, or other concerted job action conducted by Franchisee's employees or directed at Franchisee or its selected facilities is not an excuse from performance and Franchisee shall be obligated to continue to provide service notwithstanding the occurrence of any or all such events.

The party claiming excuse from performance shall, within two (2) days after such party has notice of such cause, give the other party notice of the facts constituting such cause and asserting its claim to excuse under this Section.

The interruption or discontinuance of Franchisee's services caused by one or more of the events excused shall not constitute a default by Franchisee under this Agreement.

Notwithstanding the foregoing, however, if Franchisee is excused from performing its obligations hereunder for any of the causes listed in this Section for a period of seven (7) days or more, City shall have the right to review the circumstances under which the excuse from performance was granted. After such review, ifthe City determines the excuse from service is no longer valid, the City shall notify the Franchisee in writing to resume service within two (2) days from the receipt of such notification. If the Franchisee fails to resume service within the two (2) days, the City shall have the right to terminate this Agreement by giving ten (10) days notice, in which case the provisions relative to taking possession of Franchisee's land, equipment and other property and engaging Franchisee's personnel in Article 11, City's Right to Perform Services, and this Article 12 shall apply.

12.6 Liquidated Damages
City finds, and Franchisee agrees, that as of the time of the execution of this Agreement, it is impractical, if not impossible to reasonably ascertain the extent of damages which shall be incurred by City as a result of a breach by Franchisee of its obligations under this Agreement.

The factors relating to the impracticability of ascertaining damages include, but are not limited to, the fact that:
• substantial damage results to members of the public who are denied services or 42

Franchise Agreement - Solid Waste
denied quality or reliable service;
• such breaches cause inconvenience, anxiety, frustration, and deprivation of the benefits of the Agreement to individual members of the general public for whose benefit this Agreement exists, in subjective ways and in varying degrees of intensity which are incapable of measurement in precise monetary terms; • that services might be available at substantially lower costs than alternative services and the monetary loss resulting from denial of services or denial of quality or reliable services is impossible to calculate in precise monetary terms; and • the termination of this Agreement for such breaches, and other remedies are, at best, a means of future correCtion and not remedies which make the public whole for past breaches. However, substantial breaches may result in the termination of this Agreement as described in Section 12.1.

The parties further acknowledge that consistent, reliable solid waste collection service is of utmost importance to City and that City has considered and relied on Franchisee's representations as to its quality of service commitment in awarding the Franchise to it. The parties further recognize that if Franchisee fails to achieve the performance standards, or fail to submit required documents in a timely manner, City and its residents will suffer damages and that it is and will be impractical and extremely difficult to ascertain and determine the exact amount of damages which City will suffer. Therefore, without prejudice to City's right to treat such non-performance as an event of default under this Article 12, the parties agree that the following liquidated damage amounts represent a reasonable estimate of the ,amount of such damages considering all of the circumstances existing on the date of this Agreement, including the relationship ofthe sums to the range of harm to City that reasonably could be anticipated and the anticipation that proof of actual damages would be costly or inconvenient.

Franchisee agrees to pay (as liquidated damages and not as a penalty) the amounts set forth below:

Collection Reliability and Quality
• For each failure over five (5) annually to commence service to a new customer account within seven (7) days after order:
• For each failure over ten (10) annually to Collect Solid Waste, which as been properly set out for Collection, from
an established customer account on the scheduled Collection day:
• For each failure to Collect Solid Waste which have
been properly set out for Collection, from the same customer on $150.00
$150.00
two (2) consecutive scheduled pickup days: $150.00
• For each occurrence over five (5) annually of damage to private property: $250.00
• For each occurrence of discourteous behavior: $250.00 • For each failure over ten (10) annually to clean up Solid Waste spilled from Bins:
$150.00
• For each occurrence over five (5) annually of Collecting • Solid Waste during unauthorized hours: $250.00
• For each failure to respond to a customer complaint within 43

Franchise Agreement • Solid Waste
twenty-four (24) working hours: $100.00
• For each failure to prepare for or properly conduct twice annual clean-ups including advertising and press releases; $250.00
• For each failure to perform and submit billing reviews: $250.00 • For each occurrence over ten (10) annually of failure to properly return containers to avoid pedestrian or vehicular traffic impediments or to place cans upright with lid secured: $150.00
• For each occurrence of excessive noise above the limits specified in this Agreement: $250.00
Customer Responsiveness
• For each failure to respond to a customer complaint within sixteen (16) working hours: $100.00
• For each failure to process customer complaints to City: $500.00 • For each failure to carry out responsibilities for establishing service: $500.00 Timeliness of Submissions to City
REPORTS Any report shall be considered late until such time as a correct and complete report is received by City. For each calendar day a report is late, the daily assessment shall be:

Monthly Reports: For each infraction
Quarterly Reports For each infraction
Annual Reports: For each infraction
$100per day
$250 per day
$500 per day
Liquidated damages will only be assessed after Franchisee has been given the opportunity but failed to rectify the damages, as described in this Agreement (e.g., twenty-four (24) working hours to respond to a complaint). City may determine the occurrence of events giving rise to liquidated damages through the observation of its own emplOyees or representative or investigation of customer complaints.

Prior to assessing liquidated damages, City shall give Franchisee notice of its intention to do so. The notice will include-a brief description of the incident(s)/non-performance.

Franchisee may review (and make copies at its own expense) all information in the possession of City relating to incident(s)/non-performance. Franchisee may, within ten (10) days after receiving the notice, request a meeting with City. If a meeting is requested, it shall be held by the City Manager or his/her designee. Franchisee may present evidence in writing and through testimony of its employees and others relevant to the incident(s)/non performance. The City Manager or designee will provide Franchisee with a written explanation of his or her determination on each incident(s)/non-performance prior to authorizing the assessment of liquidated damages. The decision of the City Manager or designee shall be final.

C. Amount. The City Manager may assess liquidated damages for each calendar day or event, as appropriate, that Franchisee is determined to be liable in accordance with this Agreement.
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Franchise Agreement - Solid Waste
D. Timing of Payment. Franchisee shall pay any liquidated damages assessed by City within ten (I 0) days after they are assessed. If they are not paid within the ten (I 0) day period, City may proceed against the performance bond required by this Agreement or order the termination of this Agreement, or both pursuant to the terms of this Agreement.

12.7 Notice, Hearing and Appeal
Should the Franchisee contend that the City is in breach of the Agreement, Franchisee shall file a written request with the Utilities Director for a consultation regarding the allegations.

Such consultation shall be held within thirty calendar days of the receipt of Franchisee's request. Franchisee shall present its position and all relevant facts to the Utilities Director.

Franchisee shall be notified of the Utilities Director judgment within ten calendar days of the consultation.

If the Franchisee is not in agreement with the ruling issued by the Utilities Director, it shall have the right to appeal the decision to the City Manager. This appeal shall be made in writing to the City no later than fourteen days after the notification is mailed by Utilities Director of the judgment. The City Manager shall notify Franchisee of the time and date of the review of allegation within thirty calendar days of the request. Franchisee shall present its position and all relevant facts to the City Manager. Franchisee shall be notified in writing within fourteen calendar days of the City Manager's ruling. The decision of the City Manager can be appealed to City Council per Municipal Code Section 1.20.020.

12.8 Financial Material Errors, Omissions or Irregularities The City may review, test and audit the books and records of the Franchisee for the purpose of determining whether the Franchisee is complying with the terms of the Agreement. In the event that material errors or omissions or irregularities are identified, then the cost associated with the audit; test or review shall be paid by the Franchisee to the City. In the case of financial errors, materiality shall be deemed to be two percent (2%) or greater of the gross revenues of the Franchisee from activities performed under this agreement. Recovery of any overpayment will be negotiated on a case by case basis, either immediately or through the next rate setting evaluation.
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Franchise Agreement- Solid Waste
ARTICLE 13. ASSIGNMENT

13.1 Assignment
Except as provided in Article 11, "City's Right to Perform Service", neither party shall assign its rights nor delegate or otherwise transfer its obligations under this Agreement to any other person without the prior written consent of the other party. Any such assignment made without the consent of the other party shall be void and the attempted assignment shall constitute a material breach of this Agreement. The City may, however, assign its rights and delegate its obligations under this Agreement to a joint powers authority without the prior written consent of Franchisee.

For purposes of this section, "assignment" shall include, but not be limited to (1) a sale, exchange or other transfer to a third party of at lease fifty-one percent of Franchisee's assets dedicated to service under this Agreement; (2) a sale, exchange or other transfer to a third party, including other shareholders, of outstanding common stock of Franchisee which may result in a change of control of Franchisee;
(3) any dissolution, reorganization, consolidation, merger, recapitalization, stock issuance or re-issuance, voting trust, pooling agreement, escrow arrangement, liquidation or other transaction which Franchisee or any of its shareholders is a party which results in a change of ownership or control of Franchisee; and
(4) any assignment by operation; of law, including insolvency or bankruptcy, assignment for the benefit of creditors, writ of attachment for an execution being levied against this Agreement, appointment of a receiver taking possession of Franchisee's property, or transfer occurring in the probate proceeding; and
(5) any combination of the foregoing (whether or not in related or contemporaneous transactions, which has the effect of any such transfer or change of ownership, or change of control of Franchisee.

Franchisee acknowledges that this Agreement involves rendering a vital service to City residents and businesses, and that City has selected Franchisee to perform the services specified herein based on:

1. Franchisee's experience, skill and reputation for conducting its solid waste management operations in a safe, effective and responsible fashion, at all times in keeping with applicable environmental laws, regulations and best waste management practices, and

2. Franchisee's financial resources to maintain the required equipment and to support its indemnity obligations to City under this Agreement. City has relied on each of these factors, among others, in choosing Franchisee to perform the services to be rendered by Franchisee under this Agreement.
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Franchise Agreement - Solid Waste
If Franchisee requests Citys consideration of and consent to an assignment, City may deny or approve such request in its complete discretion. The City is concerned about the possibility that assignment could result in significant rate increases, as well as a change in the quality of service. Accordingly, the following standards have been set to ensure that assignment will result in continued quality service. In addition, the City reserves the right to solicit competitive bids for these services if the assignment results in a request by the assignee for rate increases that are higher than the inflationary index and do not reflect value changes in service standards. At a minimum, no request by Franchisee for consent to an assignment need be considered by City unless and until Franchisee has met the following requirements:

A. Franchisee shall undertake to pay City its reasonable expenses for attorney's fees and investigate the suitability of any proposed assignee, and to review and finalize any documentation required as a condition for approving any such assignment; B. Franchisee shall furnish City with audited financial statements of the proposed assignee's operations for the immediately preceding three (3) operating years; C. Franchisee shall furnish City with satisfactory proof:

1. that the proposed assignee has at least ten (10) years of solid waste management experience on a scale equal to or exceeding the scale of operations conducted by Franchisee under this Agreement;

2. that in the last five (5) years, the proposed assignee or affiliates has not suffered any significant citations or other censure from any federal, state or local agency having jurisdictions over its waste management operations due to any significant failure to comply with state, federal or local environmental laws and that the assignee has provided City with a 9omplete list of such citations and censures;

3. that the proposed assignee has at all times conducted its operations in an environmentally safe and conscientious fashion;

4. that the proposed assignee conducts its solid waste management practices in accordance with sound waste management practices in full compliance with all federal, state and local laws regulating the collection and disposal of solid waste, including hazardous wastes; and,

5. of any other information required by City to ensure the proposed assignee can fulfill the terms of this Agreement in a timely, safe and effective manner.

Under no circumstances shall the City be obliged to consider any proposed assignment by Franchisee, if Franchisee is in default at any time during the period of consideration.
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ARTICLE 14. OTHER AGREEMENTS OF THE PARTIES

14.1 Relationship of Parties
The parties intend that Franchisee shall perfonn the services required by this Agreement as an independent Franchisee engaged by the City and not as an officer or employee of the City nor as a partner of a joint venture with the City. No employee or agent of Franchise shall be nor shall be deemed to be an employee or agent of the City. Except as expressly provided herein, Franchisee shall have the exclusive control over the manner and means of conducting the solid waste collection and disposal services performed under this Agreement, and over all persons performing such services. Franchisee shall be solely responsible for the acts and omissions of its officers, directors, employees, subcontractors, and agents. Neither Franchisee nor its officers, employees, subcontractors and agents shall obtain any rights to retirement benefits, workers compensation benefits, or any other benefits which accrue to City employees by virtue of their employment with the City.

14.2 Governing Law
This Agreement shall be governed by, and construed and enforced in accordance with, the laws of the State of California.

14.3 Jurisdiction
Any lawsuits between the parties arising out of this Agreement shall be brought and concluded in the courts ofthe State of California, which shall have exclusive jurisdiction over such lawsuits.

With respect to venue, the parties agree that this Agreement is made in and will be performed in San Luis Obispo County.

14.4 Subcontracting
Except as approved in writing by the City, Franchisee shall not enter into an agreement to have another Person perform Franchisee's duties of this Agreement. Franchisee shall undertake to pay City its reasonable expenses for attorney's fees and investigation costs necessary to investigate the suitability of any proposed subcontractor, and to review and finalize any documentation required as a condition for approving any such subcontracting agreement.

14.5 Interests of Franchisee
Franchisee covenants that it presently has no interest, and shall not acquire any interest direct or indirect or otherwise, which would conflict in any manner or degree with the performance of the work hereunder. The Franchisee further covenants that, in the performance of this work, no subcontractor of any person having such an interest shall be employed. The Franchisee certifies that no one who has or will have any financial interest in performing this work is an officer or employee of the City.

14.6 Binding on Successors
The provisions of this Agreement shall insure to the benefit of and be binding on the successors and permitted assigns of the parties.

14.7 Transition of Next Franchise
48

Franchise Agreement - Solid Waste
At the point of transition to a new franchise, Franchisee will cooperate with the City and subsequent franchisee(s) to assist in an orderly transition which will include Franchisee providing route lists and billing information. Franchisee will not be obliged to sell collection vehicles, bins, and containers to the next franchise. The Franchisee, at its option, may enter into negotiations with the next franchisee to sell (in part or all) collection vehicles, bins and containers.

14.8 Parties in Interest
Nothing in this Agreement, whether express or implied, is intended to confer any rights on any persons other than the parties to it and their representatives, successors and permitted assigns.

14.9 Waiver
The waiver by either party of any breach or violation of any provision( s) of this Agreement shall not be deemed to be a waiver of any breach or violation of any other provision nor of any subsequent breach or violation of the same or any other provision. The subsequent acceptance by either party of any monies which become due hereunder shall not be deemed to -be a waiver of any pre-existing or concurrent breach or violation by the other party of any provision of this Agreement.

14.10 Condemnation
The City fully reserves whatever rights it may have to acquire Franchisee's property utilized in the performance of this Agreement, by negotiated purchase or failing that.1 through the exercise of the right of eminent domain.

14.11 City Free to Negotiate with Third Parties
The City may investigate, during the term and thereafter, all options for the collection, diversion, and disposal of solid waste after the expiration of the term. Without limiting the foregoing, the City may solicit proposals from Franchisee and from third parties for the provision of collection services, disposal services, recyclirig services, Solid waste collection and composting, and any combination thereof, and may negotiate and execute agreements for such services which will take effect upon the expiration or earlier termination under Section 11.1 of this Agreement.

14.12 Immigration Act of 1986
The Franchisee warrants on behalf of itself and all subcontractors engaged for the performance of this work that only persons authorized to work in the United States pursuant to the Immigration Reform and Control Act of 1986 and other applicable laws shall be employed in the performance of this work.

14.13 Non-Discrimination
In the performance of this work, the Franchisee agrees that it will not engage in, nor permit such subcontractors as it may employ, to engage in discrimination in employment of persons because of age, race, color, sex, national origin or ancestry, sexual orientation, physical disability, mental condition or religion of such persons.

14.14 Public and Employee Safety
Whenever the Franchisee's operations create a condition hazardous to the public or City employees, it shall, at its expense and without cost to the City, furnish, erect and maintain such fences, 49

Franchise Agreement • Solid Waste
temporary railings, barricades, lights, signs and other devices, and take such other protective measures as are necessary to prevent accidents or damage or injury to the public and employees.

14.15 Recycled Products
The City encourages the Franchisee's use of recycled products.

14.16 Notice
All notices, demands, requests, proposals, approvals, consent, and other communications which this Agreement requires, authorizes or contemplates, except as provided in Section 12. l, shall be in writing and shall either be personally delivered to a representative of the parties at the address below or be deposited in the United States mail, first class postage prepaid, addressed as follows:

Ifto City:

If to Franchisee:

Utilities Director
City of San Luis Obispo
879 Morro Street
San Luis Obispo, CA 93401
San Luis Garbage Company
2945 McMillan #136
San Luis Obispo, CA 93401
The address to which communications may be delivered may be changed from time to time by a notice given in accordance with this Section.

Notice shall be deemed given on the day it is personally delivered or, if mailed, three days from the date it is deposited in the mail.

14.17 Representatives of the Parties
References in this Agreement to the "City" shall mean the City Council and all actions to be taken by the City shall be taken by the City Council except as provided below. The City Council may delegate, in writing, authority to the City Manager, the Director of Utilities and/or to other City officials and may permit such officials, in tum, to delegate in writing some or all of such authority to subordinate officers. Franchisee may rely upon actions taken by such delegates if they are within the scope of the authority properly delegated to them.

Franchisee shall, by the effective date, designate in writing a responsible officer who shall serve as the representative of Franchisee in all matters related to the Agreement and shall inform the City in writing of such designation and of any limitations upon his or her authority to bind Franchisee. The City may rely upon action taken by such designated representative as actions of Franchisee unless they are outside the scope of the authority delegated to him/her by Franchisee as communicated to the City.

14.18 Entire Agreement
This Agreement represents the full and entire Agreement between the parties with respect to the 50

Franchise Agreement - Solid Waste
matters covered herein.

14.19 Section Headings
The article headings and section headings in this Agreement are for convenience and reference only and are not intended to be used in the construction of this Agreement nor to alter or affect any of its provisions.

14.20 References to Laws
All references in this Agreement to laws shall be understood to include such laws as they may be subsequently amended or recodified, unless otherwise specifically provided.

14.21 Interpretation
This Agreement shall be interpreted and construed reasonably and neither for nor against either party, regardless of the degree to which either party participated in its drafting.

14.22 Amendment
This Agreement may not be modified or amended in any respect except by another Agreement in writing signed by the parties.

14.23 Severability
If any non-material provision of this Agreement is for any reason deemed to be invalid and unenforceable, the invalidity or unenforceability of such provision shall not affect any of the remaining provisions of this Agreement which shall be enforced as if such invalid or unenforceable provision had not been contained herein.

14.24 Counterparts
This Agreement may be executed in counterparts each of which ~hall be considered an original.

14.25 Use of "Will"
The use of the word "will" shall be construed as interchangeable with the word "shall."

14.26 Surviving Provisions
Paragraphs 7.11, 7.16, 8.5, 10.2, and other provisions of this Agreement so providing, shall survive termination of this Agreement.

14.27 Investigation
Franchisee has relied on its own investigations in deciding to enter into this Agreement and has not reliyd upon any representations of the City, its Council members, officers, directors, employees or agents.
51

Franchise Agreement - Solid Waste
By: CITY OF SAN LUIS OBISPO
<D~~~ Mayor
ATTEST:
&:l«
City Clerk
52

AGREEMENT

BETWEEN

THE CITY OF SAN LUIS OBISPO
AND

SAN LUIS GARBAGE COMPANY
For Collection and Disposal of Residential Recyclable Materials Within the City of San Luis Obispo
This Agreement (Agreement) is made and entered into this 20th day of August, 2010, in the State of California by and between the City of San Luis Obispo, A Charter Municipal Corporation of the State of California, (City) and San Luis Garbage, a California corporation, (Contractor), for the Collection, processing and marketing of residential Recyclable Materials and the Performance of other services related to meeting the goals and requirements of the California Integrated Waste Management Act of 1989.

RECITALS
This Agreement is entered into with reference to the following facts and circumstances:

1. The Legislature of the State of California, by enactment of the California Integrated Waste Management Act of 1989 (AB 939) Division 30 of the California Public Resources Code, commencing with 40000, has declared that it is within the public interest to authorize and require local agencies to make adequate provisions for Recyclable Materials handling within their jurisdictions. AB 939 also requires a fifty percent (50%) reduction by the year 2000; and

2. The separate Collection, processing and marketing of Recyclable Materials for beneficial reuse or Recycling was selected in the City's Source Reduction and Recycling Element adopted June 1994, hereinafter referred to as the SRRE, as a means of meeting the 2000 State mandated diversion goals of AB 939; and

3. The City has entered into an exclusive franchise with San Luis Garbage Company of the Collection, transportation, processing, diversion and disposal of refuse from residential properties, Multi-Family Dwelling Units, institutional and commercial and industrial properties; and

4. The City has determined that an Agreement granted to a private company for the Collection, processing and marketing ofresidential Recyclable Materials is the most effective and efficient way to collect and divert residential Recyclable Materials within the City; and

5. The City declares its intention of maintaining reasonable rates and high quality service for the Collection, processing, and marketing of residential Recyclable Materials; and

6. The Contractor is responsible for arranging for residential Recyclable Materials Collection, processing and marketing services; and

Residential Recycling Services Agreement

7. The Contractor has submitted a proposal to the City dated November I, 1995, and the City has selected the Contractor on the competitive advantages of that proposal over other proposals received by the City; and,

8. This Franchise Agreement has been developed by and is satisfactory to the parties.

NOW, THEREFORE, for and in consideration of the mutual promises herein contained, it is hereby agreed by and between the City and Contractor as follows:
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Residential Recycling Services Agreement

ARTICLE I

DEFINITIONS

1.1 "AB 939 means the California Integrated Waste Management Act of 1989, as it may be amended from time to time.

1.2 "Affiliate" means all businesses (including corporations, limited and general partnerships and sole proprietorships) which are directly or indirectly related to Contractor by virtue of direct or indirect common ownership interest or common management shall be deemed to be "Affiliated with" Contractor and included within the term "Affiliates with" Contractor and included within the "Affiliates" as used herein. An Affiliate shall include a business in which Contractor owns a direct or indirect ownership interest, a business which has a direct or indirect ownership interest in Contractor and/ or a business which is also owned, controlled or managed by any business or individual whieh has a direct or indirect ownership interest exists, the constructive ownership provisions of Section 318(a) of the Internal Revenue Code of 1986, as in effect on the date of this Agreement, shall apply; provided, however, that (i) "ten percent (10%)" shall be substituted for "fifty percent (50%)" in Section 318(a)(2)(C) and in Section 318(a)(3)(C) thereof; and (ii) Section 318(a)(5)(C) shall be disregarded. For purposes of determining ownership under this paragraph and constructive or indirect ownership under Section 318(a), ownership interest ofless than ten percent (10%) shall be determined on the basis of the percentage of voting interest or value which the ownership interest represents, whichever is greater.

1.3 "Agreement" means this residential Recycling Agreement (dated August 20, 2010, including all exhibits and attachments, and any amendments thereto) between City and Contractor for Collection, processing and marketing ofresidential Recyclable Materials and other services related to meeting the diversion goals and requirements of AB 939.

1.4 "Billings" means any and all statements of charges for services rendered by Contractor pursuant to this Agreement.

1.5 "California Integrated Waste Management Act of 1989" means Public Resources Code, 40,000 et. seq.

1.6 "City" means the City of San Luis Obispo, a Charter Municipal Corporation, and all the territory lying within the municipal boundaries of the City as presently existing or as such boundaries may be modified during the term, acting through the City Council or the City Manager.

1.7 "Collect" or "Collection" means to take physical possession, transport, and remove Recyclable Materials within and from the City.
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Residential Recycling Services Agreement

1.8 "Commercially Generated Recyclable Materials" means Recyclable Materials generated at commercial and/or industrial property and separated by the Waste Generator for Collection and which are excluded from the scope of this Agreement as described in Article 4, Scope of Agreement.

1.9 "Container" means any bin, vessel, can or receptacle used for Collection and storing Recyclable Materials before removal.

1.10 "Contractor" means San Luis Garbage, a corporation organized and operating under the laws of the State of California, and its officers, directors, employees, agents, companies and subcontractors where applicable.

1.11 "Environmental Laws" means all federal and state statutes, county, local and City ordinances and regulations concerning public health, safety and the environment including, by way of example and not limitation, the comprehensive Environmental Response, Compensation and Liability Act of 1980, 42 USC 9601 et seq.; the Resource Conservation and Recovery Act, 42 USC 6902 et seq.; the Federal Clean Water Act, 33 USC 1251 et seq.; the Toxic Substances Control Act, 15 USC 1601 et seq.; the Occupational Safety and Health Act, 29 USC 651 et seq.; the California Hazardous Waste Control Act, California Health and Safety Code 25100 et seq.; the California Toxic Substances Account Act, California Health and Safety Code 25300 et seq.; the Safe Drinking Water and Toxic Enforcement Act, California Health and Safety Code 25249.5 et seq.; as currently in force or as hereafter amended, and all rules and regulations promulgated there under.

1.12 "Facility" means any plant or site, owned or leased and maintained and/or operated or used by Contractor for the purposes of performing the duties to fulfill this Agreement.

1.13 "Fiscal Year" means the period commencing January 1 and concluding December 31 for Contractor. For City it means the period commencing July 1 of one year and concluding June 30 of the subsequent year.

1.14 "Hazardous Waste" means any discarded material or mixture of materials, which is toxic, corrosive, flammable, radioactive or which, because of its quantity, concentration, physical, chemical or infectious characteristics may do harm to either humans, animals or the environment, or as defined in Article 2, Chapter 6.5 25117 of the Health and Safety Code and Public Resources Code 40141.

1.15 "Materials Recovery Facility" means a permitted Facility where Solid Waste or Recyclable Materials are sorted or separated for the purposes of Recycling or reuse. 4

Residential Recycling Services Agreement

1.16 "Multifamily Dwelling Unit" means any Premises, other than a Single Family Dwelling Unit, used for residential purposes, irrespective of whether residence therein is transient, temporary or permanent.

1.17 "Owner" means the person holding the legal title to the real property constituting the Premises to which solid waste collection service is to be provided under this Agreement.

1.18 "Person" means any individual, firm, association, organization, partnership, corporation, business trust, joint venture, the United States, the State of California, the County of San Luis Obispo, local agencies, cities and special purpose districts.

1.19 "Premises" means any land or building in the City where Solid Waste is generated or accumulated.

1.20 "Recyclable Materials" means residential by-products or discards of economic value set aside, handled, packaged or offered for Collection in a manner different from Solid Waste. Including, but not limited to, aluminum, newspaper, clear and colored glass, tin and bi-metal, High density Polyethylene (HDPE), Polyethylene Terephthalate (PET), cardboard, chipboard, and mixed paper.

1.21 "Recycling" means the process of separating for Collection, Collecting, treating and/or reconstituting Recyclable Materials which would otherwise be discarded without receiving compensation or returning them to the economy in _the form ofraw materials for new, reused, or reconstituted products. The Collection, transfer, transportation or disposal of Recyclable Materials not intended for, or capable of, reuse is not Recycling. Recycling does not include the use of Recyclable Materials for conversion to energy. ·

1.22 "Related Party Entity" means any Affiliate which has financial transactions with Contractor.

1.23 "Single Family Dwelling Unit" means each Premises used for or designated as a single family residential dwelling, including each unit of a duplex or triplex in all cases in which there is separate or individual Solid Waste Collection services.

1.24 "Solid Waste" means all putrescible and non-putrescible refuse, garbage, yard waste, construction and demolition debris, rubbish, and Recyclable Materials, and as otherwise defined in Public Resources Code 40191.

1.25 "Term" means the term of this Agreement, as provided for in Article 3. 5

Residential Recycling Services Agreement

1.26 "Transfer Station" includes those facilities used to receive solid wastes, temporarily store, · separate, convert, or otherwise process the materials in the solid wastes, or to transfer the solid wastes directly from smaller to larger vehicles for transport and those facilities used for transformations.

1.27 "Waste Generator" means any Person as defined by the Public Resources Code, whose act or process produces Solid Waste as defined in the Public Resources Code, or whose act first causes Solid Waste to become subject to regulation.
6

Residential Recycling Services Agreement
ARTICLE2

GRANT AND ACCEPTANCE OF AGREEMENT

2.1 Grant and Acceptance of Agreement
Subject of Section 3.4 (Conditions to the Effectiveness of Agreement), City hereby grants to Contractor an exclusive franchise to collect, process and market Recyclable Materials accumulating at Single Family and Multi-family dwelling units in the City that are offered for Collection to Contractor in accordance with this Agreement.

Contractor hereby accepts the Agreement on the terms and conditions set forth in this Agreement.

2.2 Effective Date
The effective date of this Agreement shall be August 20, 2010.

2.3 Term of Agreement
The term of this Agreement shall be fifteen (15) years commencing at 12:01 a.m., August 20, · 2010, and expiring at midnight August 20, 2025, subject to extension as provided in Section 2.4 (Option to Extend).

In the event of a change oflaw or technology which would render the Collection, processing and marketing services to be implemented under this Agreement obsolete, unnecessary, impractical, undesirable, or illegal, the City reserves the right to terminate this Agreement upon the giving of a six (6) month prior written notice of City's election to so terminate this Agreement. It is understood between Contractor and City that this Agreement is motivated by the passage of AB 939, and that subsequent legislation could make this Agreement unnecessary and/or adverse to the best interests of the City. In particular, City and Contractor acknowledge the possibility of future legislation changing the requirements of AB 939, and/or requiring a coordination of the collection of Solid Waste and Recyclable Materials.

2.4 Option to Extend
The City shall have the sole option to extend this Agreement up to 24 months in periods of a least twelve (12) months each. If City elects to exercise this option, it shall give written notice not later than one hundred eighty (180) days prior to the initial termination date, or, if one extension has been exercised, one hundred eighty (180) days prior to the extended termination date.

2.5 Conditions to Effectiveness of Agreement
7

Residential Recycling Services Agreement
The obligation of City to permit this Agreement to become effective and to perform its undertakings provided for in this Agreement is subject to the satisfaction of each and all of the conditions set out below, each of which may be waived in whole or in party by City.

A. Accuracy of Representations. The representations and warranties made by Contractor throughout this Agreement are accurate, true and correct on and as of the effective date of this Agreement.

B. Absence of Litigation. There is no litigation pending in any court challenging the award of this Agreement to Contractor or the execution of this Agreement or seeking to restrain or enjoin its performance.

C. Furnishing of Insurance and Bonds. Contractor has furnished evidence of the insurance and bonds required by Article 10, Indemnification, insurance and Bond.

D. Effectiveness of City Council Action. The City's Ordinance No. 1551, approving this Agreement, shall have become effective pursuant to California law on or prior to the effective date of this Agreement.
8

Residential Recycling Services Agreement
ARTICLE3

TERMS OF AGREEMENT

3.1 Contractor Status
Contractor is duly organized, validly existing and in good standing under the laws of the State of California and has the financial ability to perform its obligations set forth in this Agreement.

Additionally, the Contractor has no suits or threatened suits which would impair the financial ability of the Contractor to perform its obligations under this Agreement, and that the entering into this Agreement by Contractor will not in any way constitute a breach of any other agreements entered into by Contractor with other parties, or constitute a violation of any law.

3.2 Contractor Authorization
Contractor has the authority to enter into and perform its obligations under this Agreement.

The Board of Directors of Contractor (or the shareholders, if necessary) have taken all actions required by law, its articles of incorporation, its bylaws or otherwise to authorize the execution of this Agreement. The persons signing this Agreement on behalf of Contractor have the authority to do so.

3.3 Compliance with Laws and Regulations
Contractor shall comply with all existing and future City, county, state, and federal laws, including all Environmental Laws, with particular note of Article X of the City Charter and Chapter 8.04 of the Municipal Code.

3.4 Serve Without Interruption
Contractor shall Collect, process and market residential Recyclable Materials throughout the term of this Agreement without interruption except as described in Section 12.4.

3.5 Permits and Licenses
Contractor shall procure, and keep in full force and affect, all permits and licenses, pay all charges and fees, and give all notices as necessary.

3.6 Preservation of City Property
Contractor shall pay to the City, on demand, the cost of all repairs to public property made necessary by any of the operations of Contractor under this Agreement. 9

4.1 Scope of Agreement
Residential Recycling Services Agreement
ARTICLE 4

SCOPE OF AGREEMENT
Subject to Section 4.2 (Limitations to Scope), the Agreement granted to Contractor shall be exclusive for residential Recyclable Materials, except where otherwise precluded by law.

4.2 Limitations to Scope
The Agreement for the Collection, processing and marketing of Recyclable Materials granted to Contractor shall be exclusive except as to the following categories of Recyclable Materials listed in this Section. The granting of this Agreement shall not preclude the categories of Recyclable Materials listed below from being delivered to and Collected and transported by others provided that nothing in this Agreement is intended to or shall be construed to excuse any person from obtaining any authorization from City which is otherwise required by law:

A. Recyclable Materials separated from Solid Waste by the Waste Generator and for which Waste G~nerator sells or is otherwise compensated by a collector in a manner resulting in a net payment to the Waste Generator for such Recycling or related services.

B. Recyclable Materials donated to a charitable, environmental or other non-profit organization.

C. Recyclable Materials which are separated at any Premises and which are transported by the owner or occupant of such Premises (or by his/her full-time employee) to a Facility; D. Containers delivered for Recycling under the California Beverage Container Recycling Litter Reduction Act, 14500, et seq. California Public Resources Code; and, E. Recyclable Materials generated at non-residential premises are also excluded from this Agreement.

Contractor ackno\Yledges and agrees that City may permit other Persons beside Contractor to Collect any or all types of the Recyclable Materials listed in this Section 4.2, without seeking or obtaining approval of Contractor under this Agreement.

This Agreement to Collect, transport, process, and market Recyclable Materials shall be interpreted to be consistent with state and federallaws, now and during the term of the Agreement, and the scope of this Agreement shaU be limited by current and developing state and federal laws with regard to Recyclable Materials handling, Recyclable Materials flow control, and related doctrines. In the event that future interpretations of current law, enactment 10

Residential Recycling Services Agreement
or developing legal trends limit the ability of the City to lawfully provide for the scope of services as specifically set forth herein, Contractor agrees that the scope of the Agreement will be limited to those services and materials which may be lawfully provided for under this Agreement, and that the City shall not be responsible for any lost profits and/or damages claimed by the Contractor as a result of changes in law.

4.3 Administration of Agreement
The City Manager shall administer this Agreement and the City's Utilities Director shall supervise Contractor compliance with the Agreement terms and conditions.

4.4 Use of City Streets
Such grant of Agreement shall give Contractor the right and privilege to operate Recycling Collection vehicles and equipment on such streets, public ways, rights-of-way, or easements of the City.

4.5 Annexation
Contractor shall automatically extend all services herein described to any area annexed to the City, except that the City may permit a firm franchised by the County of San Luis Obispo before the annexation to continue service the area for a period not less than five (5) years.

4.6 City Right to Request Changes

4.6.1 General
City may request Contractor to perform additional services (including new diversion programs, billing services, etc.) or modify the manner in which it performs existing services. Pilot programs and innovative services which may entail new Collection methods, different kinds of services and/or new requirements for Waste Generators are included among the kinds of changes which City may request. Contractor shall present, within 30 days of a request to do so by City, a proposal to provide additional or expanded diversion services pursuant to the terms of Section 4.6.2. Contractor shall be entitled to an adjustment in its compensation in accordance with Section 8.8 (Extraordinary Adjustments), for providing such additional or modified services.

4.6.2 New Diversion Programs
Contractor shall present, within 30 days of a request to do so by City, a proposal. to provide additional or expanded diversion services. The proposal shall contain a complete description of the following:
• Collection methodology to be employed (equipment, manpower, etc.) • Equipment to be utilized (vehicle number, types, capacity, age, etc.). • Labor requirements (number of employees by classification). • Type of Containers to be utilized.
• Provision for program publicity/education/marketing.
11

Residential Recycling Services Agreement
• A projection of the financial results of the program's operations for the remaining Term of the Agreement in a balance sheet and operating statement format including documentation of the key assumptions underlying the projections and the support for those assumptions.
• Materials processing facility to be utilized.

4.6.3 City's Right to Acquire Services
Contractor acknowledges and agrees that City may permit other Persons besides Contractor to provide additional Recycling services not otherwise contemplated under Section 4.6 (City's Right to Request Changes). If pursuant to Section 4.6.2 (New Diversion Programs), Contractor and City cannot agree on terms and conditions of such services in ninety (90) days from the date when City first requests a proposal from Contractor to perform such services, Contractor ackllowledges and agrees that City may permit Persons other than Contractor to provide such services.

4.6.4 Implementing new Services
If I) Contractor is capable of performing or developing the ability to perform a requested service or modifying an existing service; 2) City has agreed to have Contractor provide such additional service in accordance with Contractor's proposal; and 3) an adjustment in Contractor's compensation has been requested but has not been agreed upon or implemented within 90 days, City may permit a third party to perform the request or modified existing service, and Contractor shall not be obligated, to perform such additional or modified service pursuant to the terms of Section 4.6.3.

4. 7 Ownership of Recyclable Materials
Once Recyclable Materials are placed in Containers and properly presented for Collection, ownership and the right to possession shall transfer directly from the Generator to Contractor by operation of this Agreement. Contractor is hereby granted the right to retain, recycle, process, reuse, and otherwise use such Recyclable Materials or any part thereof, in any lawful fashion or for any lawful purpose consistent with the hierarchy and goals of AB 939. Subject to the provisions of this Agreement, Contractor shall have the right to retain any benefit resulting from its right to retain, recycle, process or reuse the Recyclable Materials which it Collects.

Recyclable Materials or any part thereof, which are delivered to a Facility (processing Facility, transformation Facility, transfer station, or Material Recovery Facility) shall become the property of the owner or operator of the Facility(ies) once deposited there by Contractor. The City may obtain ownership or possession of Recyclable Materials placed for Collection upon written notice of its intent to do so, however, nothing in this Agreement shall be construed as giving rise to any inference that City has such ownership or possession unless such written notice has been given 'to Contractor.
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Residential Recycling Services Agreement

5.1 General
ARTICLE 5

DIRECT SERVICES
The work to be done by Contractor pursuant to this Agreement shall include the furnishing of all labor, supervision, equipment, materials, supplies, and all other items necessary to perfonn the services required as presented in the Contractor's proposal incorporated in this document as Exhibit A. The enumeration of, and specification ofrequirements for, particular items oflabor or equipment shall not relieve Contractor of the duty to. furnish all others, as may be required, whether enumerated or not.

The work to be done by Contractor pursuant to this Agreement shall be accomplished in a thorough and professional manner so that the residents within the City are provided reliable, courteous and high-quality Recycling Collection service at all times. The enumeration of, and specification of requirements for, particular aspects of service quality shall not relieve Contractor of the duty of accomplishing all other aspects in the manner provided in this Section, whether such aspects are enumerated elsewhere in the Agreement or not.

5.2 Recycling Services
Contractor shall Collect and remove all Recyclable Materials placed in or adjacent to Containers at the designated Collection locations for Single Family Dwelling Units and Multifamily Dwelling Units.

Recyclable Material Collection shall be a minimum of once each week on the same day of the week as Solid Waste Collection service. Contractor will notify Recycling customers of holiday Collection schedules. Should the Solid Waste collection day change, Contractor shall re-route Collections within sixty (60) days of the notification by the change in Solid Waste collection days to provide same day service.

5.3 Materials To Be Collected
Materials to be collected are to include but not limited to: newspaper, aluminum, tin and bimetal cans, clear and colored glass containers, High Density Polyethylene (HDPE), Polyethylene Terephthalate (PET), polystyrene, corrugated cardboard, and mixed paper (Including white and colored ledger paper, chipboard, junk mail, magazines and phone books).

5.4 Refusal to Provide Collection Services
Contractor may refuse to Collect Recyclable Materials and shall not be obligated to continue to provide Recycling Container(s) to any participant in the Recycling program who, after reasonable warning, fails to properly sort and set out Recyclable Materials. Contractor shall report monthly to City any warning notices issued.
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Residential Recycling Services Agreement

5.5 Marketing and Sale of Recyclable Materials
Contractor shall be responsible of the marketing and sale of all Recyclable Materials Collected pursuant to this Agreement. Revenues from the sales of these materials shall be applied to the cost of service under the Agreement to reduce Contractor's compensation. Contractor shall sell all Recyclable Materials Collected pursuant to this Agreement at not less than fair market value as described in Article 8, Contractor's Compensation and Rates.

5.6 Operations

5.6.1 Schedules
To preserve peace and quiet, no Recyclable Materials shall be Collected from or within twohundred (200) feet ofresidential Premises between 6:30 P.M. and 6:30 A.M. on any day and such Recyclable Materials shall be Collected, Monday through Friday on the same day as Solid Waste collection. When the regularly scheduled Collection day falls on a holiday, Collection shall take place on the following regularly scheduled collection day. In the event the Contractor misses the collection of set out recyclables, the Contractor shall collect the missed pickups with one (1) business day of notification.

5.6.2 Vehicles
A. General. Contractor shall provide a fleet of Collection vehicles sufficient in number and capacity to perform the work required by this Agreement and proposed in Exhibit "A" and in strict accordance with its terms. Contractor shall have available on Collection days sufficient back-up vehicles in order to respond to complaints and emergencies. The fleet shall be maintained according to the requirements of Municipal Code 8.04.030.

B. Specifications. All vehicles used by Contractor in providing Recyclable Materials Collection services under this Agreement shall comply with all federal, state, and local requirements for such vehicles as they now exist or may be amended in the future, and be registered with the California Department of Motor Vehicles. All such vehicles shall have water-tight bodies designed to prevent leakage, spillage or overflow. All such vehicles shall comply with U.S. Environmental Protection Agency noise emission regulations and other applicable noise control regulations.

C. Condition
1) Contractor shall maintain all of its properties, facilities, and equipment used in providing service under this Agreement in a safe, neat, clean and operable condition at all times.
2) Contractor shall inspect each vehicle daily to ensure that all equipment is operating properly. Vehicles which are not operating properly and represent a safety hazard shall 14

Residential Recycling Services Agreement
be taken out of service until they are repaired and do operate properly and safely ..

Contractor shall perform all scheduled maintenance functions in accordance with the manufacturer's specifications and schedule. ·Contractor shall keep accurate records of all vehicle maintenance, recorded according to date and mileage and shall make such records available to City upon request.
3) Contractor shall repair, or arrange for the repair of, all of its vehicles and equipment for which repairs are needed because of accident, breakdown or any other cause so as to maintain all equipment in a safe and operable condition. Contractor shall maintain accurate records of repair, which shall include the date/mileage, nature of repair and the signature of a maintenance supervisor that the repair has been properly performed. 4) Contractor shall arrange all vehicles and other equipment in safe and secure location(s) in accordance with all applicable zoning regulations.

D. Vehicle Identification. Each truck shall display in a prominent place a sign as required in Municipal Code section 8.04.090.

E. Operation. Vehicles shall be operated in compliance with the California Vehicle Code, and all applicable safety and local ordinances. Contractor shall not load vehicles in excess of the manufacturer's recommendations or limitations imposed by state or local weight restrictions on vehicles.

5.6.3 Recycling Containers
Contractor shall supply each Single Family Dwelling Unit with a container in size consistent with the City approved curbside recycling collection program. Contractor shall supply each multi-family complex with the appropriate type of container to adequately service the needs of the complex per the solid waste handling location.

Containers shall be identified for Recyclable Materials only. Contractor agrees to provide additional appropriate Containers, as required.

City and Contractor acknowledge that from time to time, a customer may damage or destroy a Container. City and Contractor also acknowledge that from time to time Containers may be stolen from the curb or damaged due to normal use. When notified of such occurrence, Contractor shall replace the Container, at no charge to the customer.

5.6.4 Litter Abatement
Contractor shall use due care to prevent Recyclable Materials from being spilled or scattered during the Collection or transportation process. If any Recyclable Materials are spilled during Collection, Contractor shall promptly clean up all spilled materials.

Each collection vehicle shall carry a broom and shovel at all times for this purpose. 15

Residential Recycling Services Agreement

5.6.5 Personnel
A. General. Contractor shall furnish as presented in Exhibit "A" such qualified drivers, mechanical, supervisory, clerical, and other personnel as may be necessary to provide services required by this Agreement in a safe and efficient manner.

B. Identification. Contractor shall ensure that while on duty each Collection worker wears a clean uniform which displays the Contractor's company name and the worker's name or identification number.

C. Fees & Gratuities. Contractor shall not, nor shall it permit any agent, employee, or subcontractors employed by it to request, solicit, demand, or accept, either directly or indirectly any compensation or gratuity for any services performed under this Agreement except as provided in Article 8 of this Agreement.

D. Training. All drivers shall be trained and qualified in the operation of vehicles they operate and must possess a valid license, of the appropriate class, issued by the California Department of Motor Vehicles.

Contractor shall provide adequate operations, health and safety training, and Hazardous Waste identification and handling training for all of its employees who use or operate equipment or who are otherwise directly involved in Collection or other related operations.

E. Customer Courtesy. Contractor shall train its employees in customer courtesy, shall prohibit the use of loud or profane language, and shall instruct Collection crews to perform the work quietly. Contractor shall use its best efforts to ensure that all employees present a neat appearance and conduct themselves in a courteous mariner. If any employee is found to be discourteous or not to be performing services in the manner required by this Agreement, Contractor shall take all necessary corrective measures. If City has notified Contractor of a complaint related to a discourteous or improper behavior, Contractor will reassign the employee to duties not entailing contact with the public while Contractor is pursuing its investigation and corrective action process.

5.7 Material Processing

5.7.1 Receipt of Solid Waste
Commencing August 6, 2010, the Contractor shall have in place or have made arrangements for a Materials Recovery Facility to receive and accept all deliveries of Recyclable Materials 16