HomeMy WebLinkAbout1993-07-13 - AGENDA REPORTS - AGMT SC REFUSE REMOVAL (2)UNFINISHED BUSINESS
DATE:
July 13, 1993
AGENDA REPORT
City Manager Apprc
Item to be presented
Jeff Kolin, Dep ty
V61t—
Manager
SUBJECT: AGREEMENT BETWEEN THE CITY OF SANTA CLARITA,
ATLAS REFUSE REMOVAL COMPANY, BLUE BARREL
DISPOSAL COMPANY AND SANTA CLARITA DISPOSAL
COMPANY FOR THE COLLECTION, TRANSPORTATION,
RECYCLING, COMPOSTING AND DISPOSAL OF COMMERCIAL
SOLID WASTE
DEPARTMENT: Public Works
BACKGROUND
AB 939
Pursuant to the California Integrated Waste Management Act of 1989 (AB 939) the City of
Santa Clarita is required by law to divert its municipal solid waste (MSW) from landfills by
25 % by the year 1995 and 50% by the year 2000. The law also authorizes the City to make
adequate provisions of MSW handling to achieve the state mandate. In 1990, it was
estimated that the City disposed approximately 185,000 tons of trash annually in landfills.
Since the implementation of the city-wide residential recycling program, the City has
achieved a diversion of nearly 10,000 tons (5 %) per -year of recyclables from landfills. It is
estimated that another 56,700 tons (17%) of the City's waste stream can be diverted through
a city-wide commercial recycling program by the year 2000.
Commercial/Industrial Solid Waste
Accordingly, at the regular City Council Meeting of October 13, 1992 Council requested.that
the City's Integrated Solid Waste Management Committee (ISWMC) evaluate options for the
collection of commercial waste and recyclables within the City to achieve the mandates of
AB 939. The committee elected to evaluate the options based on public participation forums
and surveys.
On January 26, 1993, Staff presented to -the City Council recommendations to establish a
permit structure incorporating the ISWMC's recommendations (Attachment A) for the
collection of regularly scheduled commercial sector solid waste and recyclables and directed
Staff to notify all regularly scheduled commercial route haulers of the City's intent to
implement a modified exclusive permit agreement. Staff initiated negotiations with haulers in
March of this year.
f:\6ome\agendaskommperm.agn Adopted:7- 53 Agenda (tern:
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Agenda Report
Page Two
On June 22, 1993, Staff presented to the City Council a progress report on the Commercial
Waste and Recycling Collection Agreement negotiations. At that time, Staff recommended
that the term of the agreement be extended to 7 years instead of the 5 year term outlined by
the ISWMC. The City Council directed Staff to continue negotiations and return to City
Council for final adoption on July 13, 1993.
COMMERCIAL RATE STUDY
Staff issued a Request for Proposal and Qualifications (RFP/RFQ) to conduct a rate analysis
on the City's existing commercial solid waste collection service. The City contracted with
Hilton Farnkopf and Hobson (HF&H) to perform the rate study. The scope of the
commercial rate study included: identification of alternative rate systems; estimates on the
combined profitability of commercial solid waste collection operations for Atlas Refuse
Removal Company, Blue Barrel Disposal Company and Santa Clarita Disposal Company for
a period of 12 months; and recommendations on a specific rate band system and an annual
rate adjustment index procedure.
Estimates of Profitability
Based on the information submitted by the three companies to HF&H, the companies appear
to have incurred a combined financial loss during the past year. The proposed rate band
structure is designed to allow the three companies to continue to compete and to maintain the
ability to earn a projected profit between 0-19%.
Rate Band
HF&H developed rate bands based on existing operational and disposal costs while
maintaining price competition among the three companies, minimizing rate increases for
customers and accommodating a.wide range of service levels and characteristics. The rate
bands for service levels with respect to bin size and frequency of pick up are shown in
Attachment B. With the implementation of the rate band, approximately 20% of all
commercial accounts may experience rate increases, and approximately 4% of all accounts
may incur rate decreases.
Annual Rate Adjustment Index
HF&H recommends that the rate bands be adjusted annually to compensate for changes in
landfill tipping fees. At the same time the landfill fee adjustments are made, an adjustment
should also be made for the service component as measured by the change in the Producer
Price Index for Finished Goods, Capital Equipment, Non -Manufacturing Industries. HF&H
has provided the City with a weighting formula to calculate future annual adjustment index.
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Agenda Report
Page Three
FINAL NEGOTIATED PROVISIONS
Staff and haulers concluded negotiations on July 1, 1993. The following terns were
mutually agreed upon.
• A 7 -year fixed term with a 3 -year evergreen agreement extension.
• A franchise fee payable to the City equal to 10% of the haulers' gross revenues to
offset the City's costs to implement source reduction, recycling and composting
programs for the City's commercial sector solid waste stream. Fees will be collected
commencing August 1, 1993.
• A 10% cap on any increase in rates beyond the pass-through of franchise fees and
granting costs.
• A recyclable collection charge equal to 70% of the maximum rate of collection for
commercial solid waste in all service levels.
• A customized recycling and waste survey for all businesses from each haulers'
Certified Recycling Coordinator.
• A built-in cost incentive for businesses to recycle.
• A joint residential and commercial performance bond which will reduce the haulers'
overhead costs.
The Draft Commercial Waste and Recycling Agreement is included as Attachment C.
PUBLIC PARTICIPATION
In November 1992 Staff held public participation and informational meetings on the City's
Commercial Sector Solid Waste and Recycling Collection Options. In June 1993 Staff held a
final public meeting on the Draft Agreement. Invitations for both public meetings were
extended to all businesses within the city. Additionally, Staff made presentations to the
Valencia Industrial Association (VIA), Santa Clarita Valley Chamber of Commerce, and
Canyon Country Chamber of Commerce.
fAhome\agendaskommperm. agn
Agenda Report
Page Four
ENVIRONMENTAL IMPACT REPORT
An Application for a Negative Declaration for the Environmental Impact Report for the
City's commercial solid waste and recycling collection has been filed with the State and
County (Attachment Q.
RECOMMENDATION
Adopt Resolution 93-83 Granting Modified Exclusive Commercial Solid Waste permits
within city limits to Atlas Refuse Removal Company, Blue Barrel Disposal Company and
Santa Clarita Disposal Company; and adopt Resolution 93-105 establishing a service level
rate band schedule for the collection; transportation, recycling, composting and disposal of
commercial solid waste.
ATTACHMENTS
A. ISWMC Recommendations
B. Commercial Rate Study
C. Agreement Between the City of Santa Clarita, Atlas Refuse Removal Company, Blue
Barrel Disposal Company and Santa Clarita Disposal Company for the Collection,
Transportation, Recycling, Composting and Disposal of Commercial Solid Waste
D. Negative Declaration
f:\home\agendas\commperm.agn
RESOLUTION NO. 93-83
A RESOLUTION OF THE CITY COUNCIL OF THE CITY OF SANTA CLARITA
GRANTING MODIFIED EXCLUSIVE COMMERCIAL SOLID WASTE PERMITS
WITHIN CITY LIMITS TO ATLAS REFUSE REMOVAL,
BLUE BARREL DISPOSAL AND SANTA CLARITA DISPOSAL.
WHEREAS, the Legislature of the State of California, by enactment of the California
Integrated Waste Management Act of 1989 (AB 939"), has declared that it is within the
public interest to authorize and require local agencies to make adequate provisions for solid
waste handling within their jurisdictions; and
WHEREAS, AB 939 authorizes and requires local agencies to make adequate
provisions for solid waste handling, within their jurisdictions; and
WHEREAS, City is obligated to protect the public health and safety of the residents
of the City of Santa Clarita by taking steps to enable solid waste haulers and recyclers to
make arrangements for the collection of solid wastes in a manner consistent with the
protection of public health and safety; and
NOW THEREFORE, BE IT RESOLVED, by the City Council of the City of Santa
Clarita as follows:
Section 1. The City Council of the City of Santa Clarita hereby finds, determines,
and declares that the public convenience and necessity are served by the award of modified
exclusive commercial solid waste permits to ATLAS DISPOSAL COMPANY, BLUE
BARREL DISPOSAL COMPANY and SANTA CLARITA DISPOSAL COMPANY to
arrange with businesses and other entities in the City of Santa Clarita for the collection,
recycling, composting and safe transport and disposal of recyclables, green wastes and
commercial solid wastes.
Section 2. The permit agreements by which, on
the City granted modified exclusive permits for ATLAS DISPOSAL, BLUE BARREL
DISPOSAL AND SANTA CLARITA DISPOSAL are hereby rated, confirmed and
approved and are attached hereto and are hereby incorporated into this resolution by
reference as if fully and accurately included herein.
fAhome\agendaskommperm.agn
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Section 3. All prior resolutions and parts of resolutions in conflict with this
resolution are hereby rescinded.
PASSED, APPROVED AND ADOPTED this day of ,
1993.
MAYOR.
ATTEST:
CITY CLERK
STATE OF CALIFORNIA )
COUNTY OF LOS ANGELES ) ss.
CITY OF SANTA CLARITA )
I, Donna M. Grindey, City Clerk, hereby certify that the foregoing Resolution was
duly adopted by the City Council of the City of Santa Clarita at a regular meeting thereof,
held on the. day of , 1993 by the following vote of the Council:
AYES: COUNCILMEMBERS:
NOES: COUNCILMEMBERS:
• J� ut'.�ul:
fAhome\agendas\commperm.agn
CITY CLERK
RESOLUTION NO. 93-105
A RESOLUTION OF THE CITY OF SANTA CLARITA, CALIFORNIA
ESTABLISHING A SERVICE LEVEL RATE BAND
SCHEDULE FOR THE COLLECTION, TRANSPORTATION, RECYCLING
COMPOSTING AND DISPOSAL OF COMMERCIAL SOLID WASTE
WHEREAS, The City of Santa Clarita has adopted Resolution No. 93-83 relating to
the granting of modified exclusive commercial solid waste permits for the collection,
transportation, recycling, composting and disposal of commercial solid waste within the City
limits; and
WHEREAS, the City Council has entered into an agreement with Santa Clarita
Disposal Company, Blue Barrel Disposal Company and Atlas Refuse Removal Company to
collect, transport, recycle, compost and dispose of commercial solid waste, compostable
materials and recyclables from all commercial businesses in the City of Santa Clarita; and
WHEREAS, from time to time the landfill _tipping fees fluctuate and the permitted
haulers should be compensated for those increases over which they have no control; and
WHEREAS, Resolution No. 93-83 authorized to impose fees necessary for collection
services of commercial solid waste, compostable materials and recyclables to all Santa Clarita
businesses; and
NOW, THEREFORE, the City Council of Santa Clarita does hereby resolve,
determine, and order as follows:
Section 1. The attached Exhibit B (Rate Band Schedule) is the service level rate
band schedule for the collection, transportation, recycling, composting and disposal of
commercial solid waste.
Section 2. The effective date of this Resolution shall take effect upon the effective
date of the Permit Agreement for the Collection, Transportation, Recycling, Composting and
Disposal of Commercial Solid Waste.
PASSED, APPROVED AND ADOPTED this day of ,
1993.
MAYOR
ATTEST:
CITY CLERK
fAhome\agendas\commperm. aga
STATE OF CALIFORNIA )
COUNTY OF LOS ANGELES ) ss.
CITY OF SANTA CLARITA )
I, Donna M. Grindey, City Clerk, hereby certify that the foregoing Resolution was
duly adopted by the City Council of the City of Santa Clarita at a regular meeting thereof,
held on the day of , 1993 by the following vote of the Council:
AYES: COUNCILMEMBERS:
NOES: COUNCILMEBIBERS:
ABSENT: COUNCILMEMBERS:
CITY CLERK
fAhome\agendas\commperm.agn
ATTACHMENT A
ISWMC RECOMMENDATIONS
Conditions of the permit would include:
• 5 -year term of permit with annual performance of review
• Permit fees based on permittees gross revenues or line item fee for AB 939. assessed
to all accounts
• Annual percentage base and cap for rate adjustments, based on a City rate review
analysis
• Annual City rate analysis
• Unannounced periodic waste audits on permittees by City staff
• Permittee will be required to employ a qualified recycling coordinator with basic
knowledge of recycling markets and design
• Permit to contain specific default provisions
• Permittee to establish a volume based rate structure for recyclables and trash approved
by the City
• Permittee to conduct waste audit and design site specific recycling plans for each
client
• Develop and implement commercial sector education programs
• Annual AB 939 diversion and disposal reports
• Permittee to develop a Co-op for common recyclable commodities ie: paper and
cardboard
• Permittee to maintain performance/cash bonds
• Permittee to maintain maximum insurance coverage
• Permit will be transferable
Mhomelagendaskommperm.agn
City of Santa Clarity
July8,1993
PROPOSED COMMERCIAL REFUSE RATE BANDS INCLUDING
10% FRANCMSE FEE AND ADMINISTRATIVE EXPENSES*
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Hilton Farnkopf & Hobson ,��■
1ST Yard.. ,, : 2- Yard;
Minimum Maximum Minimum Maximum
x_- A.:3 -;•Yard; _::.:
Minimum Maximum
4- Yard
Minimum Maximum
1
$36.60
$7352
$42.70
$79.17
$48.81
$90.48
$5491
$101.79
2
$79A5
$107.49
$90.80
$119.43
$102.15
$130.29
$11350
$141.15
3
$21350
$140.06
$13053
$157.44
$147.55
$17372
$16458
$190.01
4
$14755
$172.64
$1705
$195.44
$19295
$217.15
$215.65
$238.87
5
$181.60
$205.21
$209.98
$233.44
$238.35
$26058
$266.73
$287.73
6
$215.65
$237.78
$249.70
$271.44
$283.75
$304.01
$317.80
$33659
7
$249.70
$271.44
$289.43
$309.44
$329.15
$347.44
$368.88
$385A4
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Hilton Farnkopf & Hobson ,��■
CITY OF SANTA CLARITA
Commercial Rate Study
Presented to the City Council
July 13, 1993
AGENDA
1. Executive Overview
2. Customer Distribution by Rate Range
(One 3 -Cubic Yard Bin Serviced Once Per Week)
3. Comparison of Profitability at Current & Proposed Rates
4. Customers Inside & Outside Proposed Rate Bands
5. Customers Subject to Rate Increases at Minimum Rates
Hilton Farnkopf & Hobson i0
City of Santa Clarita
July 13,1993
EXECUTIVE OVERVIEW
❑ Commercial solid waste collection and recycling services are not currently regulated..
❑ The City Council approved a. recommendation by the City's ISWMC to:
• implement a permit system based on price competition within rate bands; and,
• negotiate non-exclusive contracts with the existing commercial service providers.
1. Briefly discuss alternative rate systems with City staff .
2. Estimate the profitability of commercial solid waste collection operations.
3. Estimate the financial impact of the proposed rate bands on the ratepayers and the
haulers.
4. Develop a rate adjustment index.
Hilton Farnkopf & Hobson My
1a
City of Santa Clarita
July 13,1993
EXECUTIVE OVERVIEW (continued)
1. Minimize the number of customers with existing rates outside the proposed rate
bands.
2. Provide the haulers with an opportunity to earn a reasonable profit.
3. Protect the ratepayers from unreasonable service price increases.
4. Allow sufficient room in the rate bands to accommodate customers with different
service characteristics.
5. Establish a relationship between the number of containers and frequency of service
that results in less frequent service and, therefore, lower overall costs.
Hilton Farnkopf & Hobson
Ib �`
M M M M M M M i M M M M M M M M M M M
City of Santa Clarita
July 13,1993
EXECUTIVE OVERVIEW (continued)
1. Efficiency and waste diversion may be improved by alternative service
arrangements.
2. The rate band system needs to balance the City's conflicting rate setting goals.
3. Based on the proposed rates, the Companies would break-even at the minimum
rates and earn profits equal to 19%. of revenue at the maximum rates.
4. Of the .1,125 commercial accounts reported, 223 would experience rate increases,
and 48 would experience rate decreases at the proposed rates.
5. Of the 223 customers subject to rate increases at minimum rates, 131 customers
would receive rate increases of more than 20%.
6. Implementation of the franchise and administrative fees may increase the rates of
most customers by approximately 13%.
Hilton Farnkopf & Hobson dm
1C
City of Santa Clarita
July 13,1993
EXECUTIVE OVERVIEW (continued)
1. Require the residential franchise holder to provide service to commercial customers,
in instances where no company will voluntarily provide service within the approved
rate bands.
2. Limit annual rate increases for customers with existing rates below the minimum
rates.
3. Do not set a minimum commercial recycling rate, and set the maximum commercial
recycling rate as a percentage of the maximum refuse rate.
4. Adjust the rate bands for changes in service cost and disposal.
5. Conduct a periodic rate review to ensure that competition is working to maintain
reasonable rates, and that franchise fees are being accurately paid.
Hilton Farnkopf & Hobson lil��SI�
ids
City of Santa Clarita
July 13,1993
COMMERCIAL CUSTOMER DISTRIBUTION BY RATE RANGE*
One 3 -Cubic Yard Bin Serviced Once Per Week
Existing Rate Range: $20.00 to $130.00
Proposed Rate. Band: $43.00 to $80.00
* Before implementation of franchise and administrative fees.
Hilton Farnkopf & Hobson l �_ i
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Reported.•Cumulative
ofCustomers -within Rate Range %of Customers
Under $43
7
1.7%
1.7%
wqnn4%
e"fi
4 1
k t
$
a t
4.
i
¢ 80'50/,937/
a Y.
R
- -
#.
9b:9 / p
a; e.
ro
4°°S�i's��a�..,a<s= dArFcw#x X ��ik
�o +-L=
=.S w.cvm+. __�'•E ,$".,.nom
g amai#v�£'>#�^ .'' <_..,. p�2
n_. .......�.n nY.rvx.3mA
r.
$81-$90 .
10
2.4%
99.3%
Over $90
3
0.7%
100.0%
TOTAL
415
100.0%
* Before implementation of franchise and administrative fees.
Hilton Farnkopf & Hobson l �_ i
2 =m
City of Santa Clarita
July 13,1993
COMPARISON OF PROFITABILITY AT CURRENT & PROPOSED RATES`
Commercial Service Inside Santa Clarita
At Rates In
Financial May 1993
Statistic§ ry p+ A
gq Aniountlx
Effect i At Proposed Minimum : At Proposed Maximum
Rates (a)
'B S 7 i— 7 4 & 4a Ru.4..• $ aa;"% Rates
'%p�Change Auioun.t����g%4Chagge �Amonnt % Changea-
Revenue
$1,890,000
$2,154,000 (b)
14%
$2,286,000
21%
$2,843,000 50%
Expenses
$2,296,000 (c)
$2,296,000
0%
$2,296,000
0%
$2,296,000 0%
Profit
($406,000)
($142,000)
N/A
($10,000)
N/A
$547,000 NIA
Profit as a Percent
-21%
-7%
N/A
-0%
N/A
19% N/A
of Revenue
* Before implementation of franchise and administrative fees.
(a) Assuming all customers are charged the proposed minimum rates, including the 59 large volume customers that are not subject
to the minimum rates.
(b) Projected annual revenue based on reported rates in effect during May 1993.
(c) Excludes political and charitable contributions, goodwill, non -compete agreements, and acquisition interest expense. Compen-
sation over $125,000 per year for proprietors managing their own business has been re-classified as profit.
Hilton Farnkopf & Hobsonlm�
3 —��
City of Santa Clarita
July 13,1993
CUSTOMERS INSIDE AND OUTSIDE PROPOSED RATE BANDS*
Customer Category
Number of Customers
Percent of Customers 1
Customers Below Proposed Minimum Rates
223 (b)
20%
Subject to Rate Increases
Customers Above Proposed Maximum Rates
48
4%
Subject to Rate Decreases
Customers with Unusual Services (a)
68
6%
Customers with No Change
786
70%
TOTAL
1,125
100%
* Before implementation of proposed franchise fee.
(a) Includes 13 customers with odd container sizes, 6 with bi-weekly pickup, 35 with shared containers, 9 with
. temporary or recycling bins, and 5 with mixed services whom detail was unavailable.
(b) Includes 48 large volume customers.
0
Hilton Farnkopf & Hobsonlft�
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City of Santa Clarita
July 13,1993
CUSTOMERS SUBJECT TO RATE INCREASES AT MINIMUM RATES*
I Percent Increase at
Proposed Rates
Statistic I g
9 Y°s j3(+k K9d i"a Rt $:kb ^AeAg
�0%or less1°lo too 20%
((a a�<e*w�wg '� s.a �a m,y a a a¢ta.
G" & P��e 4 " Q -1 } 4 2 4§ & t
21%a to�30%%0 50rJo *Over 50°0 �� �TflTAI9a�
a «�' • tx tx Aa�a.c3wadgp
,9aro u.1. -. SRR%i- � ga++. A.24�r+s-sada 4a.a&rFwm. .vws Aw.ess..aa».aurwa2s
Number of Customers
50
42
37
28
66
223
with Rate Increases
at Minimum Rates (a)
% of All Customers (b)
4%
4%
3%
3%
6%
20%
* Before implementation of franchise and administrative fees.
(a) Includes large volume customers with 45 or more yards of weekly bin capacity.
(b) Based on 1,125 total commercial accounts.
Hilton Farnkopf & Hobson �_ _
CITY OF SANTA CLARITA
Commercial Rate Study
Final Report
July 7, 1993
Hilton Farnkopf & Hobson
3990 Westerly Place, #195
Newport Beach, CA 92660-2311
714/251-8628
This report is printed on recycled paper
and copied on two sides to reduce waste
HILTON FARNKOPF & HOB SON
P
' HILTON FARNKOPF & HOBSON
Advisory Services to
=E� Municipal Management
1
1
1
J
1
1
1
1
1
1
3990 Westerly Place, Suite 195
Newport Beach, California 92660.2311
Telephone: 714/251-8628
Fax: 714/251-9741
July 7, 1993
Mr. Jeff Kohn
Director of Public Works
City of Santa Clarita
25663 Avenue Stanford
Santa Clarita, California 91355
Commercial Rate Study
Final Report
Dear Mr. Kohn:
Fremont
Newport Beach
We have completed our Commercial Rate Study of solid waste collection and
recycling operations within the City of Santa Clarita (City). The enclosed draft
report contains the project background, objectives, approach, findings,
recommendations, and related exhibits.
Proposed Rate System
City staff and the Companies have negotiated rate bands based on the Council's
direction to implement a competitive permit system that allows for price
competition among the three permitted Companies. The proposed bands, which are
shown in Attachment A to this cover letter, accommodate customers with different
service characteristics and underlying cost differences. Competition may fail to
prevent the Companies from charging rates at the top of the rate band for all
customers. If this occurred, customers would experience significant rate increases
and the Companies' profits would become unreasonably high. Therefore,.the City
should conduct periodic random rate reviews to ensure that competition is working
to maintain reasonable rates.
Customers Outside Rate Sands
Currently the Companies charge a wide range of rates for the same service levels.
For example, the Companies charge from $20 to $130 per month for a three -cubic
yard bin serviced once per week. In order that the rate bands allow competition, as
well as an opportunity for the Companies to earn a profit, they need to be
narrower. However, narrowing the rate bands results in increasing the rates paid
by some customers Under the proposed rate bands, before implementation of the
franchise and administrative fees, 223 of the City's 1,125 commercial customers
(20%) will have their rates increased to the minimum rates in the rate band. (This
,.cycled ti paper
I
1
HILTON FARNKOPF & HOBSON
Mr. Jeff Kolin
July 7, 1993
Page 2
includes 48 of the 59 large volume customers with 45 or more yards of weekly bin
capacity.) Of these 223 customers, 131 would receive rate increases of more than
20%, in addition to rate increases for the City's administrative and franchise fees.
These customers may be dissatisfied with the rate increases and appeal the
increase to the City Council. As a result, we recommend that the Council limit the
annual rate increases for customers whose existing rates are below the proposed
minimum rates to 15%.
Rate Adjustment for Franchise and Administrative Fees
The proposed rate bands are based on historical rates, and the Companies'
financial results of operations prior to implementation of the City's proposed
franchise fee and administrative fee. As shown in Exhibit 11, the franchise fee and
the administrative fee would increase the proposed rate bands by 11.1% and
approximately 2% respectively. The rate exhibits in the body of this report reflect
rates without the proposed franchise and administrative fees since these fees were
determined after our rate analysis was performed. In order to assist the City with
the rate ordinance, we have recalculated the proposed rate bands including the
franchise and administrative fees as an attachment to this cover letter.
' Potential for Significant Rate Increases
' Based on the information submitted by the Companies they appear to have
incurred a combined financial loss for commercial operations equal to 21% of
revenues. Since the City's proposed franchise fee and administrative fee would add
' approximately 13% to their cost, a 34% revenue increase would be necessary for the
Companies to "break-even".
' Recycling Rates
City staff and the Companies have negotiated a maximum recycling rate equal to
' 70% of the maximum refuse rate. We have calculated the resulting maximum
recycling rates as shown in Attachment B to this cover letter. There is no proposed
minimum recycling rate.
' Roll -Off Box and Residential Service
' At the start of this study, the City was considering including roll -off box services in
the new contracts. City staff has decided to postpone a decision on roll -off services.
Therefore, in order to preserve competitive price information, we have not included
' such information in our report.
' recycled CJ paper
' l HILTON FARNKOPF & HOBSON
' Mr. Jeff Kolin
July 7, 1993
' Page 3
' We also briefly reviewed residential costs in the process of reviewing the allocation
of company overhead to various types of business, and have reported our findings
in Exhibit 13.
We are pleased to have had this opportunity to assist the City of Santa Clarita. If
you have any questions please call me at 510/713-3270 or Laith Ezzet at
714/251-8628.
Very truly yours,
-G. j o, -v
Robert D. Hilton, CMC
Managing.Partner
' Attachment A: Proposed Commercial Refuse Rate Bands Including 10% Franchise
Fee and Administrative Expenses
' Attachment B: Proposed Maximum Commercial Recycling Rates
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' recycled (J Oaper
City of Santa Clarita
July 7;1993 ATTACHMENT A
PROPOSED COMMERCIAL REFUSE RATE BANDS INCLUDING
10% FRANCHISE FEE AND ADMINISTRATIVE EXPENSES*
* Proposed by City staff. Rates have been increased by 11.1% to pass through franchise fees as shown in Exhibit
11. Minimum rates have been increased by an additional 2.4%, and maximum rates by 2.0%, to pass through
administrative expenses.
Hilton Farnkopf & Hobson
7 =cam
Yard &Pd: as s
v
Minimum
Maximum Minimum
Maximum
Minimum
I Maximum
Minimum
Maximum
1
$36.60
$73.52 $42.70
$79.17
$48.81
$90.48
$54.91
$101.79
2
$79.45
$107.49 $90.80
$119.43
$102.15
$130.29
$113.50
$141.15
3
$113.50
$140.06 $130.53
$157.44
$147.55
$173.72
$164.58
$190.01
4
$147.55
$172.64 $170.25
$195.44
$192.95
$217.15
$215.65
$238.87
5
$181.60
$205.21 $209.98
$233.44
$238.35
$260.58
$266.73
$287.73
6
$215.65
$237.78 $249.70
$271.44
$283.75
$304.01
$317.80
$336.59
7
$249.70
$271.44 $289.43
$309.44
$329.15
$347.44
$368.88
$385.44
* Proposed by City staff. Rates have been increased by 11.1% to pass through franchise fees as shown in Exhibit
11. Minimum rates have been increased by an additional 2.4%, and maximum rates by 2.0%, to pass through
administrative expenses.
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July 7,1993 ATTACHMENT B
PROPOSED MAXIMUM COMMERCIAL RECYCLING RATES*
own, BIN SIZE
1
$51.46
$55.42
$63.34
$71.25
2
$75.24
$83.60
$91.20
$98.80
3
$98.04
$110.20
$121.61
$133.01
4
$120.85
$136.81
$152.01
$167.21
5
$143.65
$163.41
$182.41
$201.41
6
$166.45
$190.01
$212.81
$235.61
7
$190.01
$216.61
$243.21
$269.81
Based on 70% of proposed maximum refuse rates
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CITY OF SANTA CLARITA
1
Commercial Rate Study
'
Final Report
'
TABLE OF CONTENTS
Page
'
Project Overview
1-2
'
Findings
3-5
Recommendations
6-8
Exhibits
9-28
Appendix 1: Alternative Service Arrangements
Hilton Farnkopf & Hobson
CITY OF SANTA CLARITA
Commercial Rate Study
Final Report
LIST OF EXHIBITS
Exhibit #
Page #
Section I: Rate Band Analysis
1.
Proposed Commercial Rate Bands
9
2.
Comparison of Profitability at Current & Proposed Rates
10
3.
Summary of Customers Inside and Outside Proposed Rate Bands
it
4.
Customers Subject to Rate Increases at Minimum Rates
12
5.
Proposed Commercial Rate Bands: Common Service Levels
13
6.
Commercial Customer Distribution by Rate Range: 3 -Yard Bin
14
Once/Week
7.
Commercial Customer Distribution by Rate Range: 3 -Yard Bin
15
Twice/Week
8.
Commercial Customer Distribution by Rate Range: 3 -Yard Bin
16
Three Times/Week
9.
Commercial Customer Distribution by Rate Range: 1.5 -Yard Bin
17
Once/Week
10.
Benchmarks for Commercial Recycling Rates
18
11.
Required Rate Increase to Pass Through Franchise &
19
Administrative Fees
12.
Proposed Rate Adjustment Index
20
Section II: Financial Summary
13.
Comparison of Profitability of Refuse Collection Operations in
21
Santa Clarita with Other Jurisdictions
14.
Estimated Annual Revenue by Hauler
22
15.
Annual Revenues of Current & Proposed Franchise Services
23
16.
Annual Tons Disposed
24
Section III: Customer Distributions by Service Level
17.
Most Common Commercial Service Levels
25
18.
Frequency of Service
26
19.
Distribution of Containers
27
20.
Number of Customers by Container Size
28
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PROJECT OVERVIEW
' BACKGROUND
' Residential solid waste collection and recycling services are provided by three
companies, Atlas Refuse Removal Company, Blue Barrel Disposal Company, and Santa
Clarita Disposal Company (Companies). The City of Santa Clarita (City) awarded
' these Companies exclusive residential franchises effective April, 1991.
The City has not regulated commercial solid waste collection and recycling services,
and currently the Companies compete for customers. City staff and the residential
franchise holders believe that the same three residential service providers are the
primary providers of commercial services. Waste Management provided commercial
services, but Santa Clarita Disposal purchased Waste Management's route in
' February, 1993.
In order to meet the waste diversion requirements of AB 939, the City believes it is
' necessary to modify its arrangements for commercial solid.waste collection and
recycling service. In January 1993, the City Council approved a recommendation by
the City's Integrated Solid Waste Management Committee (ISWMC) to implement a
commercial permit system with non-exclusive service areas. The permittees would be
limited to existing commercial service providers that apply for permits, and the
Companies would compete on the basis of price within a "rate band" consisting of a
' minimum and maximum rate for each major category of service.
STUDY SCOPE & OBJECTIVES
' Hilton Farnkopf & Hobson (HF&H) was engaged by the City in April, 1993 to conduct
a commercial rate study. The study had the following four objectives:
' 1) Briefly identify and discuss with City staff alternative rate systems;
' 2) Estimate the profitability of the combined commercial solid waste collection
operations for Atlas, Blue Barrel, and.Santa Clarita Disposal for the 12 months
ending -March 31, 1993;
' 3) Estimate the financial impact of the proposed rate system on the ratepayers and
the Companies; and,
4) Develop a rate adjustment index.
PROJECT ACTIVITIES
tHF&H performed the following tasks:
• Developed micro -computer based data collection forms for the Companies to submit
' their financial information;
• Received and reviewed the financial information submitted by Atlas, Blue Barrel,
' and Santa Clarita Disposal;
Hilton Farnkopf & Hobson
City of Santa Clarita '
July 7, 1993
• Conducted limited on-site reviews at each company to understand how the financial
information was developed; '
• Made adjustments to the submitted data based on our site reviews;
• Combined and tabulated aggregated information for all three Companies; ,
• Analyzed and recommended rate bands based on direction from City staff;
• Developed policy recommendations for the rate system; '
• Reviewed our preliminary results and policy recommendations with City staff on '
June 10, 1993;
• Developed our draft report and reviewed it with City staff and the Companies on
June 24, 1993; and, '
• Developed our final report.
LIMITATIONS
We were requested to perform this study very quickly in order for the City to '
implement the new commercial permit system as quickly as possible. Therefore, the
amount of time to perform on-site reviews was limited to one day each at Atlas and
Blue Barrel, and two days at Santa Clarita Disposal. This limited amount of time only '
allowed for a brief review of the methods used by the Companies to develop their
financial information. It did not allow for detailed testing and analysis which would be
performed during a review of the Companies' financial results of operations. '
The Companies in many instances did not account for all revenues and expenses from
operations inside the City, particularly for commercial and roll -off operations. ,
Therefore, the Companies had to make assumptions and allocate costs in order to
develop the financial information reported in this study.
The Companies did not have audited financial statements or tax returns available for '
the reporting period, and our work did not constitute an audit in accordance with
Generally Accepted Auditing Standards. Therefore, while we are confident in the '
accuracy of our own tabulations of the aggregated data, we do not express an opinion
as to accuracy of the information submitted by the Companies. The actual results of
operations for the 12 months ending March 31, 1993, and the submitted rate
information, may be different than reported and this difference may be material. ,
The proposed rates were negotiated between City staff and the Companies. HF&H
estimated the financial impact of these rates on the ratepayers and the Companies, '
based on information provided by the Companies. Therefore, we do not express an .
opinion as to the reasonableness of the proposed rate structure or specific rates.
Hilton Farnkopf & Hobson
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July 7, 1993
t KEY FINDINGS
' 1. Operating efficiency and waste diversion may be improved by alternative
service arrangements.
We believe that the City would be more likely to promote service efficiency and waste
diversion within the commercial solid waste collection and recycling system by either:
' • Awarding an exclusive commercial recycling contract by competitive bid to one or
more qualified recyclers, and leaving the commercial refuse collection system open
to competition; or,
1 . Negotiating contracts for exclusive commercial service with the existing residential
franchise holders for customers within their service areas.
We discussed these alternatives with the Companies and City staff, and have been
directed to proceed with the development of a rate band for a competitive permit
system. A copy of the discussion documents related to alternative service
arrangements is included in Appendix 1.
' 2.The rate band system needs to balance the City's conflicting rate setting
goals.
' We have discussed with City staff rate setting goals that the City would like to
incorporate in development of the proposed rate bands. Unfortunately; these goals
often conflict. Five important goals include the following:
• Establishing a relationship between the number of containers and frequency of
service that results in less frequent service and, therefore, lower overall costs;
' • Protecting the ratepayers from excessive service charges by establishing a maxi-
mum rate;
' • Minimizing the number of customers with existing rates outside the proposed rate
bands;
' • Providing the Companies with an opportunity to earn a reasonable profit and pro
tecting them against predatory pricing practices by establishing a minimum rate;
and,
' Allowing sufficient width in the rate band (the difference between the maximum
and minimum rates) to accommodate customers with different service cost
' characteristics receiving the same service level.
As an example of these conflicting goals, consider that to protect ratepayers from
' excessive service charges, the rate band needs to have a "lower" maximum rate that
would prevent the Companies from charging high rates and earning excessive profits.
However, if the maximum rate is lowered, then some high cost customers with unique
Hilton Farnkopf & Hobson tft�
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July 7, 1993
characteristics may not receive service voluntarily by the Companies,.since the cost of
service would exceed the maximum rate. Therefore, judgment is required to set the
maximum rate in a manner that best balances these two conflicting goals.
Should the City Council determine that one or two of these goals outweighs all of the
others, then it may be necessary to reset the rate bands. For example, if the City
Council determines that it is unacceptable to set minimum rates that require rate
increases for 15% of the commercial customers, then the rate bands would need to be
modified.
The recommended rate bands are shown in Exhibit 1. A summary of the number of
customers inside and outside the proposed rate bands is shown in Exhibit 3, and a
summary of the rate increases for customers with existing rates below the proposed
minimum rates is shown in Exhibit 4.
3. Based on the proposed rate bands, the Companies would break-even at the
minimum rates and earn profits equal to 19% of revenue at the maximum
rates.
Based on information submitted by the Companies, they appear to have incurred a
financial loss, equal to 21% of revenue, for the 12 months ending March 31, 1993 as
shown in Exhibit 12. Therefore, commercial revenue should increase approximately
21% for the three Companies to "break-even," assuming no change in operating
efficiency or costs.
As shown in Exhibit 2, the Companies have'the opportunity to earn a reasonable profit
within the proposed rate bands. (Based on a range of industry benchmarks of 5% to
10% as shown in Exhibit 13.) However, if all customers were charged the maximum
rates, and the Companies earned profits equal to 19% of revenue, then the ratepayers
would be paying unreasonable rates.
4. Of the 1,125 commercial accounts reported, 223 would experience rate
increases, and 48 would experience rate decreases resulting from the pro-
posed rate bands.
As shown in Exhibit 3, 223 customers (20%) of the 1,125 commercial customers would
experience rate increases, since their existing rates are below the proposed minimum
rates. These customers tend to be larger customers with high levels of service. 48
customers (4%) would experience rate decreases under the proposed rate bands.
5. Of the 223 customers subject to rate increases at minimum rates, 131
customers would receive rate increases of more than 20%.
As shown in Exhibit 4, 131 customers would receive rate increases of more than 20%,
representing 12% of all commercial customers. Additionally, 66 customers (6% of total
customers) would receive rate increases of more than 50%. These customers are likely
to be dissatisfied with the new rate system, and may appeal to the City Council.
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' Some of these customers may have unique service characteristics that allow them to re-
ceive low cost service, while others may have negotiated excellent prices with the
service providers. To prevent the rate increases for these customers the City Council
could enlarge the width of the rate bands, in which case the bands become less
t meaningful. To deal with unanticipated situations, the City Council may want to allow
the Director of Public Works to approve exemptions from the minimum rates for
customers with unique service characteristics.
' 6. Implementation of a 10% franchise fee may increase the rates of nearly all
customers by approximately 11.1%.
' Since the proposed franchise fee is to be assessed against gross receipts, the Companies
may attempt to increase their rates by approximately 11.1% to pass through this
additional cost to their customers, as shown in Exhibit 11. (This is in addition to other
' increases resulting from the proposed minimum rates, or changes in pricing decisions
by the Companies in response to reduced competition or the reduced threat of competi-
tion under the new system.) However, the competitive environment caused by the per-
mit system, and the fact that some customers may already be paying rates higher than
those necessary to generate a reasonable profit, may mitigate against some of this in-
creased cost being passed through to some customers.
7. Implementation of the proposed administrative fee will increase minimum
rates by 2.4% and maximum rates by 2.0%.
' Exhibit 11 shows the calculation of the administrative fee. This fee represents
payment from the Companies to the City to recover the City's out-of-pocket costs of
implementing and administering the franchise. Based on the City's cost estimate of
$50,000, the proposed minimum and maximum rates would be increased by 2.4% and
2.0% respectively. This one-time adjustment would allow the Companies to recover
and remit $50,000 annually to the City.
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July 7,1993
RECOMMENDATIONS
1. Require the residential franchise holder to provide service to commercial
customers, in instances where no company will voluntarily provide service
within the approved rate bands.
As shown in Exhibit 3, 48 commercial customers have rates above the proposed
maximum rates. Some of these customers may have certain characteristics that
increase service costs. Therefore, there may be instances where no company would
voluntarily provide service to these customers. We recommend that the Companies'
contracts require them to provide service at a rate no higher than the approved
maximum rate to any commercial customer within the geographic limits of their
residential franchise territory that requests service.
2. Do not set a minimum rate for large volume customers with 45 or more
cubic yards of weekly bin capacity.
There are 59 customers with 45 or more yards of weekly bin capacity. These customers
often have monthly refuse bills of over $500 ($6,000 per year). The service
characteristics and underlying costs may vary significantly among these customers. As
shown in Exhibit 4, 48 large volume customers would receive rate increases at the
proposed minimum rates, some in excess of 100%. Therefore, we recommend that any
customer with 45 or more cubic yards of weekly bin capacity be exempt from the
minimum rates so that services for these customers may be competitively priced.
3. Limit annual rate increases for customers with existing rates below the
minimum rate to 15% per year.
As discussed in Finding #5, 131 customers will be subject to rate increases of 20% or
more. at the proposed minimum rates. In order to minimize customer resistance to the
new program, the City should limit the annual rate increase to 15% per year by the
current service provider to customers with existing rates below the minimum rates
until the customer's rate is at or above the minimum rates. This clause will need to be
included in the new contracts with the Companies.
4. Do not set a minimum recycling rate, and set the maximum commercial
recycling rate at 60% of the maximum refuse rate.
Because commercial recycling services are not yet provided on a large scale to Santa
Clarita customers, we did not have actual commercial recycling cost data from the
Companies. Therefore, we relied on comparative benchmarks to approximate the
relative cost of commercial refuse and recycling service. While we believe this is a rea-
sonable approach, the results reflect many assumptions and the actual costs of recy-
cling services may be materially different.
The Companies were able to provide historical recycling costs for residential routes, as
shown in Exhibit 10. Based on the information in this exhibit, a residential recycling
route costs 42% less than a residential refuse route. Or, conversely, a residential
recycling route costs 58% of the cost of a refuse route (100% - 42%).
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Exhibit 10 also shows the breakdown the various cost components of a commercial
refuse route. The disposal fee component represents 39% of the cost of a commercial
refuse route. Presumably there would be no disposal component for a commercial
recycling route. Therefore, assuming that the other costs of providing commercial
recycling service were the same as providing commercial refuse collection service, the
recycling route would save 39% in disposal fees. Or, conversely, the commercial
recycling route would cost 61% of the cost of the commercial refuse route (100% - 39%).
While this analysis does not assume any revenues from recovered materials, such
revenues may be offset by additional processing costs.
Using these two approaches, the estimated cost of a recycling route is 58% to 61% of a
refuse route. Therefore, we recommend setting the maximum recycling rate at 60% of
the maximum refuse rate. Since the value of material revenues will vary significantly
by customer depending on the type and quality of materials, it is not possible to set a
meaningful minimum recycling rate. Therefore, we recommend that no minimum
recycling rate be set.
5. Conduct a periodic rate review to ensure that competition is working to
maintain reasonable rates, and that franchise fees are being accurately
paid.
The City is relying on effective competition to maintain the overall reasonableness of
the rates charged by the three Companies. There is no guarantee that effective price
competition will occur, however, particularly since the threat of new outside
competition has been eliminated, and since Waste Management's route has been
purchased by Santa Clarita Disposal. Additionally, rates have recently started to
increase. As shown in Exhibit 2, the rates in effect as of May 1993 are approximately
13% higher than the average rates for the 12 months ending March 31, 1993.
Therefore, we recommend that the City conduct an annual rate review of at least one
company (selected at random) to confirm the reasonableness of rates charged and
proper payment of franchise fees. Such a review should be more comprehensive than
the limited review performed during this study.
6. Adjust the rate bands annually for changes in service cost and disposal.
Exhibit 12 presents the proposed weightings for the recommended rate adjustment
indices. There are four indices, one for each bin size. The reason there are separate
indices for each bin size is that the disposal portion of the rate represents a larger
percentage of the total rate for the larger bin sizes.
' We recommend that the rate bands be adjusted each time there is a change in the
disposal cost at the landfill, since landfill fee increases have historically been the
primary source of rate increases. At the same time the landfill fee adjustment is made,
an adjustment could also be made for the service component as measured by the
change in the Producer Price Index for Finished Goods, Capital Equipment, Non -
Manufacturing Industries.
' In other jurisdictions with a single rate rather than a rate band, we have developed
more complex formulas that include separate price indices for fuel, labor, insurance,
' equipment, and other cost factors. However, since the City is implementing a rate
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July 7,1993
band, and very few customers are expected to be charged the absolute minimum or
maximum rates, we believe the value of using a more complex formula may be
outweighed by the benefits of a simpler calculation.
The weightings of the formula would change each time the formula is used to reflect
the relative differences in price index changes. An example calculation with price
index data for the four cubic yard bin is shown below:
Therefore, in this example, the minimum and maximum rates for the four cubic yard
bin would be increased by 4.5%.
In order to calculate the new weights for the next adjustment, treat the Index Weights
as whole numbers instead of percentages, multiply by (1 + Index Change), and
recalculate the relative percentages as follows:
Old IndexNew Index Weights Equal
Weight Index Change Revised Index % of Revised Index Total
32.6 x 1: 36.1 34.5%
6515'
100.0 104.5 100.0%
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32.6%
$28.89/ton
$32.00/ton
10.8% 3.5%
PPI
67.4%
131.0
133.0
1.5% 1.00/0
TOTAL
100.0% .
4.5%
* Note: the Weighted Change equals the Index Weight multiplied by the Index Change.
Therefore, in this example, the minimum and maximum rates for the four cubic yard
bin would be increased by 4.5%.
In order to calculate the new weights for the next adjustment, treat the Index Weights
as whole numbers instead of percentages, multiply by (1 + Index Change), and
recalculate the relative percentages as follows:
Old IndexNew Index Weights Equal
Weight Index Change Revised Index % of Revised Index Total
32.6 x 1: 36.1 34.5%
6515'
100.0 104.5 100.0%
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CITY OF SANTA CLARITA
Commercial Rate Study
LIST OF EXHIBITS
Exhibit #
Page #
Section I: Rate Band Analysis
1.
Proposed Commercial Rate Bands
9
2.
Comparison of Profitability at Current & Proposed Rates
10
3.
Summary of Customers Inside and Outside Proposed Rate Bands
11
4.
Customers Subject to Rate Increases at Minimum Rates
12
5.
Proposed Commercial Rate Bands: Common Service Levels
13
6.
Commercial Customer Distribution by Rate Range: 3 -Yard Bin Once/Week
14
7.
Commercial Customer Distribution by Rate Range: 3 -Yard Bin Twice/Week
15
8.
Commercial Customer Distribution by Rate Range: 3 -Yard Bin Three Times/Week
16
9.
Commercial Customer Distribution by Rate Range: 1.5 -Yard Bin Once/Week
17
10.
Benchmarks for Commercial Recycling Rates
18
11.
Required Rate Increase to Pass Through Franchise & Administrative Fees
19
12.
Proposed Rate Adjustment Index
20
Section II: Financial Summary
13.
Comparison of Profitability of Refuse Collection Operations in Santa Clarita with Other
21
Jurisdictions
14.
Estimated Annual Revenue by Hauler
22
15.
Annual Revenues of Current & Proposed Franchise Services
23
16.
Annual Tons Disposed
24
Section III: Customer Distributions by Service Level
17.
Most Common Commercial Service Levels
25
18.
Frequency of Service
26
19.
Distribution of Containers
27
20.
Number of Customers by Container Size
28
Hilton Farnkopf & Hobson
SECTION I
Rate Band Analysis
Hilton Farnkopf & Hobson
City of Santa Clarita
July 7, 1993 Exhibit 1
PROPOSED COMMERCIAL RATE BANDS`
BIN SIZE
Pickups A
� � gas ����4� '��3�=yard e�s4;Yard�
����
P. Week
Minimum
Maximum
Minimum
Maximum
Minimum
Maximum Minimum
Maximum
1
$32.25
$65.00
$37.63
$70.00
$43.00
$80.00 $48.38
$90.00
2
$70.00
$95.04
$80.00
$105.60
$90.00
$115.20 $100.00
$124.80
3
$100.00
$123.84
$115.00
$139.20
$130.00
$153.60 $145.00
$168.00
4
$130.00
$152.64
$150.00
$172.80
$170.00
$192.00 $190.00
$211.20
5
$160.00
$181.44
$185.00
$206.40
$210.00
$230.40 $235.00
$254.40
6
$190.00
$210.24
$220.00
$240.00
$250.00
$268.80 $280.00
$297.60
7
$220.00
$240.00
$255.00
$273.60
$290.00
$307.20 $325.00
$340.80
* Proposed by City staff before implementation of proposed franchise fee
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July 7,1993 Exhibit 2
COMPARISON OF PROFITABILITY AT CURRENT & PROPOSED RATES`
Commercial Service Inside Santa Clarita
* Before implementation of franchise and administrative fees.
(a) Assuming all customers are charged the proposed minimum rates, including the 59 large volume customers that are not subject
to the minimum rates.
(b) Projected annual revenue based on reported rates in effect during May 1993.
(c) Excludes political and charitable contributions, goodwill, non -compete agreements, and acquisition interest expense. Compen-
sation over $125,000 per year for proprietors managing their own business has been re-classified as profit.
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Rates In
Effect At
Financial
May 1993
Rates
(a) Rates
Amounf
,�% Chane
Amount
%Change`
Amount
% Changea�
statistic
;
Revenue
$1,890,000
$2,154,000(b)
14%
$2,286,000
21%
$2,843,000
50%
Expenses
$2,296,000 (c)
$2,296,000
0%
2 296,000
0%
$2,296,000
0%
Profit
($406,000)
($142,000)
N/A
($10,000)
N/A
$547,000
N/A
Profit as a Percent
-21%
-7%
N/A
-0%
N/A
19%
N/A
of Revenue
* Before implementation of franchise and administrative fees.
(a) Assuming all customers are charged the proposed minimum rates, including the 59 large volume customers that are not subject
to the minimum rates.
(b) Projected annual revenue based on reported rates in effect during May 1993.
(c) Excludes political and charitable contributions, goodwill, non -compete agreements, and acquisition interest expense. Compen-
sation over $125,000 per year for proprietors managing their own business has been re-classified as profit.
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July 7,1993 Exhibit 3
SUMMARY OF CUSTOMERS INSIDE AND OUTSIDE PROPOSED RATE BANDS*
Customer Category
Number of Customers
Percent of Customers
Customers Below Proposed Minimum Rates
223 (b)
20%
Subject to Rate Increases
Customers Above Proposed Maximum Rates
48
4%
Subject to Rate Decreases
Customers with Unusual Services (a)
68
6%
Customers with No Change
786
70%
TOTAL
1,125
100%
* Before implementation of proposed franchise fee.
(a) Includes 13 customers with odd container sizes, 6 with bi-weekly pickup, 35 with shared containers, 9 with
temporary or recycling bins, and 5 with mixed services whom detail was unavailable.
(b) Includes 48 large volume customers.
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July 7, 1993 Exhibit 4
CUSTOMERS SUBJECT TO RATE INCREASES AT MINIMUM RATES"
PercentII
Proposed„
Statistic
10%{or,less 11 %a to 0% 21.°01 030% Bl%,to'SO s*OverS(i°
eb••r. +F�35e — >'4 CixY£4e�5$2('9 �.{.4aR fin. 4.cer�SSTz Qe S
"TOTAL
.^•{ fxrmse
Number of Customers
50
42
37
28
66
223
with Rate Increases
at Minimum Rates (a)
% of Customers with
22.4%
18.8%
16.6%
12.6%
29.6%
100.0%
Rate Increases at
Minimum Rates (b)
% of All Customers (c)
4.4%
3.7%
3.3%
2.5%
5.9%
19.8%
Number of Large
3
8
13
5
19
48
Volume Customers
Included Above
* Before implementation of franchise and administrative fees.
(a) Includes large volume customers with 45 or more yards of weekly bin capacity.
(b) Total of individual components may not sum to 100% due to rounding.
(c) Based on 1,125 total commercial accounts.
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City of Santa Clarita
July 7,1993 Exhibit 5
PROPOSED COMMERCIAL RATE BANDS*
Common Service Levels
* Before implementation of franchise and administrative fees.
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OutsideCustomers the
Reported
Number and Pickups
Commercial
Proposed Proposed Via! Rafe�t�i��Ratet�`°
Size of
ye=sDereases
. a,t�mr a=:
Number %°f
Number
Number % Number % °
all customers
One 3 -yard
1
415
36.9%
$43.00
$80.00
395 95.2%
7
1.7%
13
3.1%
One 3 -yard
2
158
14.0%
$90.00
$115.20
141 89.2%
11
7.0%
6
3.8%
One 3 -yard
3
70
6.2%
$130.00
$153.60
44 62.9%
24
34.3%
2
2.9%
One 1.5 -yard
1
84
7.5%
$32.25
$65.00
82 97.6%
1
1.2%
1
1.2%
TOTAL
727
64.6%
662 91.1%
43
5.9%
22
3.0%
* Before implementation of franchise and administrative fees.
Hilton Farnkopf & Hobsoni��
13 —� c
City of Santa Clarita
July 7,1993 Exhibit 6
COMMERCIAL CUSTOMER DISTRIBUTION BY RATE RANGE*
One 3 -Cubic Yard Bin Serviced Once Per Week
Existing Rate Range: $20.00 to $130.00
Proposed Rate Band: $43.00 to $80.00
* Before implementation of franchise and administrative fees.
Hilton Farnkopf & Hobson A MI
14
M
Reported Number % of Customers Cumulative
-of Customers within Rate Range % of Customers
Under $43
7
1.7%
1.7%
.... ... ......
t .....
M
1z"
-;Jr
0
05%
wu
4" W
'3
A
$81-$90
10
2.4%
99.3%
Over $90
3
0.7%
100.0%
TOTAL
415
100.0%
* Before implementation of franchise and administrative fees.
Hilton Farnkopf & Hobson A MI
14
M
City of Santa Clarita
July 7,1993 Exhibit 7
COMMERCIAL CUSTOMER DISTRIBUTION BY RATE RANGE=S
One 3 -Cubic Yard Bin Serviced Twice Per Week
Existing Rate Range: $70.00 to $170.00
Proposed Rate Band: $90.00 to $115.20
ReportedCustomers
of Customers within Rate Range % of Customers
$70-$86
6
3.8%
3.8%
$81-$89
5
3.2%
7.0%
x' fin' r -E
r z 3xa
rqf -.
a a t asp .up e"�
a
6
z�fr?M
m n 's
��Mns�8nza*dSr b�q�,�
m + d r
{3d � � °se w a }� E
4 a y
�i a a $04�0ffi ann
a n
X949/0 Snit S
W +$10�10Si"
En a i
4 4 Yie
,. �1z7 e:
inp
A 0.YW 'r l
yea
4 F P
V8 6 8 E ? C
zp a spg a��eik
t ' FN®d� E ff
CX�k
4Wrb
Md2
�Y®a
�l $111"$115
2 t
13 /.....�
o06
b t
2�Io
$116 - $130
5
3.2%
99.4%
Over $130
1
0.6%
100.0%
TOTAL
158
100%
* Before implementation of franchise and administrative fees.
Hilton Farnkopf & Hobson l! i I+�� i I �
z
15
City of Santa Clarita
July 7,1993 ;exhibit 8
COMMERCIAL CUSTOMER DISTRIBUTION BY RATE RANGE*
One 3 -Cubic Yard Bin Serviced Three Times Per Week
Existing Rate Range: $30.00 to $160.00
Proposed Rate Band: $130.00 to $153.60
* Before implementation of franchise and administrative fees.
Hilton Farnkopf & Hobson,
16 ��
Reported
of Customers within Rate Range % of Customers
$30
1
1.4%
1.4%
$84-$99
6
8.6%
10.0%
$100-$110
4
5.7%
15.7%
$111-$120
7
10.0%
25.7%
$121-$129
6
8.6%
34.3%
82 Y1°!o t p
Y 6 4
P
1
p D 4 YIX
8g I �
p
�yiL E d �M�p9 � xy � Ly fit%
E�s
8 9t. 6 A
ii A
k g pi
C a k4tt y"x& �Q re"�i�a
9Sd9 °^ `¢rk
'a4 a i i +a. E at
x.o
a a�
tthy�
:�10 '
ka
Io
a a o om
�o
a�14°t3
_'tip a
A971
�v
Over $154
2
2.9%
100.0%
TOTAL
70
100.0%
* Before implementation of franchise and administrative fees.
Hilton Farnkopf & Hobson,
16 ��
City of Santa Clarita
July 7,1993 Exhibit 9
COMMERCIAL CUSTOMER DISTRIBUTION BY RATE RANGE*
One 1.5 -Cubic Yard Bin Serviced Once Per Week
Existing Rate Range: $25.00 to $75.00
Proposed Range Band. $32.25 to $65.00
Reported.•Customers
Rate Range of Customers within Rate Range % of Customers
$25
1
1.2%
1.2%
iia' al�l� �5d° �r
<
Y
8
p ke
$ /o
Over $65
1
1.2%
100%
TOTAL
84
100%
* Before implementation of franchise and administrative fees.
Hilton Farnkopf & Hobson a�
—«
17 g
City of Santa Clarita
July 7,1993 Exhibit 10
BENCHMARKS FOR COMMERCIAL RECYCLING RATES
Reported Costs Per Route Day
Cost Category
Residential ,. Refuse
1T{efuse; Collectian � mRecyclmgl �° qo Ditiererice E �p7teCostPer
1sC°ost/12orite Dhy CosiPR Ul)a �,�* q,gltou�e D y .m
°fo ofTotaUCosti
,Per Routh Day
Route Costs
$533.83
$597.00
$592.38
45%
Disposal Fees
$383.79
$0.00
$508.23=`
? 73
Overhead & Other Costs
$386.27
$272.37
$205.71
16010
Subtotal:
$1,303.89
$869.373%`;=
$1,306.32
100%
Material Revenues
$0.00
($108.52)
0.00
0%
TOTAL NET COSTS
$1,303.89
$760.85
42% : a `A
$1,306.32
100%
* Single Family and Multi -Family Combined
Hilton Farnkopf & Hobsonla�
18
M M M M M M M M M M s M M IIIb M M= M
City of Santa Clarita
July 7,1993 Exhibit ll
REQUIRED RATE INCREASE TO PASS THROUGH FRANCHISE
& ADMINISTRATIVE FEES
(a) Based on rates in effect as of May 1993. Actual revenues will not change the percent increase in rates required to
pass-through the franchise fee.
(b) Estimate provided by City staff.
(c) Costs are increased by approximately 11.1% to pass through a 10% franchise fee.
(d) See Exhibit 2.
Hilton Farnkopf & Hobson
19
Franchise Fee Calculation
A.
Annual Revenue at Current Rates (a)
$2,154,000
B.
Factor to Gross Up for 10% Franchise Fee _
— 90%
C.
Gross Annual Revenue Including Franchise Fees
= $27393,333
D.
Franchise Fee Percentage
x 10%
E.
Annual Franchise Fee Revenue Paid to City
= $239,333
F.
Required Increase in Current Rates to Pass Through Franchise Fee (E=A)
Administrative Fee Calculation
G.
Administrative Costs (b)
$50,000
H.
Administrative Costs to be Recovered After Gross -Up for 10% Franchise Fee (c)
$55,556
I.
Annual Revenue at Proposed Minimum Rates (d)
$222862000
J.
Increase in Proposed Minimum Rates (H=I)
y,�.
K.
Annual Revenue at Proposed Maximum Rates (d)
$2,8432000
L.
Increase in Proposed Maximum Rates (H=K)
W Q
2 D/ _ .K,�x
(a) Based on rates in effect as of May 1993. Actual revenues will not change the percent increase in rates required to
pass-through the franchise fee.
(b) Estimate provided by City staff.
(c) Costs are increased by approximately 11.1% to pass through a 10% franchise fee.
(d) See Exhibit 2.
Hilton Farnkopf & Hobson
19
City of Santa Clarita
July 7,1993 Exhibit 12
PROPOSED RATE ADJUSTMENT INDEX
Cost
Category1
IndexBy Bin Size
a x y a ar: ska=
r
Yards s' �2=Yard t 3 Yard�� s`4 3�ar$
a.r
Disposal (a)
Change in Landfill Fees
17.4%
20.9%
27.5%
32.6%
Service
Producer Price Index,
82.6%
79.1%
72.5%
67.4%
Finished Goods, Capital
Equipment, Non -Manu-
facturing Industries
TOTAL
100.0%
100.0%
100.0%
100.0%
(a) Based on a tipping fee of $28.89 per ton and an average weight of 90 pounds per yard of bin capacity reported by
the haulers. Estimated percentages based on mid -point of proposed rate band for once per week service.
O
Hilton Farnkopf & Hobson!
20
SECTION II
Financial Summary
Hilton Farnkopf & Hobson
M M M M M M M M M M M M M M M e M M M
City of Santa Clarita
July 7,1993 Exhibit 13
COMPARISON OF PROFITABILITY OF REFUSE COLLECTION OPERATIONS IN
SANTA CLARITA WITH OTHER JURISDICTIONS
(a) Based on 12 California jurisdictions reviewed by HF&H and other consultants.
(b) Source: Robert Morris Associates, Annual Statement Studies, 1991, Standard Industry
Code 4953, Refuse Systems. Average for all companies = 7%.
(c) 1991 pre-tax profit for selected major waste services firms listed on U.S. stock exchanges.
These firm's businesses include refuse collection and other solid waste services and some
non -related services.
(d) Combined results for 12 months ending 3/31/93 for Atlas, Blue Barrel, and Santa Clarita
Disposal. Individual companies may have earned more or less than this amount.
(e) Includes single family and multi -family refuse collection and recycling service.
Hilton Farnkopf & Hobson iAJ W
-ate
21
Range of Pre -Tax Profits
California Regulated Jurisdictions (a)
Privately Held Companies (b)
Publicly Traded Companies (c)
5 to 10%
6 to 8%
-5% to 15%
Santa Clarita Haulers (d):
• Residential (e)
• Commercial
6.4%
-21%
(a) Based on 12 California jurisdictions reviewed by HF&H and other consultants.
(b) Source: Robert Morris Associates, Annual Statement Studies, 1991, Standard Industry
Code 4953, Refuse Systems. Average for all companies = 7%.
(c) 1991 pre-tax profit for selected major waste services firms listed on U.S. stock exchanges.
These firm's businesses include refuse collection and other solid waste services and some
non -related services.
(d) Combined results for 12 months ending 3/31/93 for Atlas, Blue Barrel, and Santa Clarita
Disposal. Individual companies may have earned more or less than this amount.
(e) Includes single family and multi -family refuse collection and recycling service.
Hilton Farnkopf & Hobson iAJ W
-ate
21
City of Santa Clarita
July 7,1993 Exhibit 14
ESTIMATED ANNUAL COMMERCIAL REVENUE BY HAULER
For the 12 Months Ending March 31, 1993
Franchise Hauler I �41111011111
Atlas Transport
$210,000
11%
Blue Barrel (Western Waste)
$1,113,000
59%
Santa Clarita Disposal
$567,000
30%
TOTAL
$1,890,000
100%
Hilton Farnkopf & Hobson A
22�
City of Santa Clarita
July 7,1993 Exhibit 15
ANNUAL REVENUES OF CURRENT & PROPOSED FRANCHISE SERVICES
For the 12 Months Ending March 31, 1993
,• of Service Annual Revenues P ercent of Total
Residential
$7,703,000
80%
Commercial (a)
$1,890,000
20%
TOTAL
$9,593,000
100%
(a) Commercial front-end loader service. Does not include revenues from haulers other than
Atlas, Blue Barrel, and Santa Clarita Disposal providing these services within the City limits
Hilton Farnkopf & Hobson
-c e
23
City of Santa Clarita
July 7,1993 Exhibit 16
ANNUAL TONS DISPOSED
For the 12 Months Ending March 31, 1993
Type 1 iPOcent of .
Residential:
• Single Family
45J00
42%
• Multi -Family
18,200
17%
Subtotal Residential
63,900
59%
Commercial Bin Service (a)
31,300
29%
Roll -Off (a) (b)
13,300
12%
TOTAL
108,500
100%
(a) Does not include tonnage from non -franchise haulers providing these services within the
City limits
(b) Permanent and temporary roll -off accounts.
Hilton Farnkopf & Hobson,
24 �` W
_
SECTION III
Customer Distributions by. Service Level
Hilton Farnkopf & Hobson iA
City of Santa Clarita
July 7,1993 Exhibit 17
MOST COMMON COMMERCIAL SERVICE LEVELS
Based on Rates for May 1993
(a) Calculated based on total service revenue divided by the number of customers.]
Hilton Farnkopf & Hobson!lil�i
25 G
of
Bins
Pick -Ups Customers Actual
Per y oir
Week I:P.$ L , � Y J�4A" `0^b�.$ qb p @S4ti� Y 4 A
A16mber„m� % of Cuts�omers' �a�m�mum a
.. fi m ror .
1993Number
Rates as of May
C¢4 6d ^ikO�Rb X+s
tiYQ§15�
�Maximum� A��rhge�(a�a
1.
3 - Yards
1
1
415
36.9%
$20.00
$130.00
$66.84
2.
3 - Yards
1
2
158
14.0%
$70.00
$170.00
$105.14
3.
1.5 - Yards
1
1
84
7.5%
$25.00
$75.00
$57.50
4.
3 - Yards
1
3
70
6.2%
$30.00
$160.00
$129.00
5.
3 - Yards
2
3
40
3.6%
$125.00
$300.00
$242.18
6.
3 - Yards
2
2
37
3.3%
$77.00
$250.00
$182.43
7.
3 - Yards
2
1
20
1.8%
$65.00
$220.00
$121.30
8.
3 - Yards
2
5
17
1.5%
$145.00
$495.00
$383.86
9.
3 - Yards
1
5
17
1.5%
$72.00
$250.00
$190.29
10.
3 - Yards
1
4
16
1.4%
$120.00
$275.00
$181.50
11.
All Others
251
22.3%
N/A
N/A
N/A
TOTAL
N/A
N/A
1,125
100%
N/A
N/A
N/A
(a) Calculated based on total service revenue divided by the number of customers.]
Hilton Farnkopf & Hobson!lil�i
25 G
City of Santa Clarita
July 7,1993 Exhibit 18
FREQUENCY OF SERVICE
Number of Pick -Ups
,. r Week
One
584
51.9%
Two
233
20.7%
Three
155
13.8%
Four
40
3.6%
Five
44
3.9%
Six
48
4.3%
Seven
6
0.5%
Other (a)
15
1.3%
TOTAL
1,125
100.0% (b)
(a) Customers with temporary or recycling bins, irregular pickups, or containers serviced less
frequently than once per week.
(b) Total may not add up to 100% due to rounding.
Hilton Farnkopf & Hobson MSM
=tee
26
City of Santa Clarita
July 7, 1993 Exhibit 19
DISTRIBUTION OF CONTAINERS
Number of Containers
1
856
76.1%
2
148
13.2%
3
50
4.4%
4
23
2.0%
5
15
1.3%
6 or more
25
2.2%
Special (a)
8
0.7%
TOTAL
1,125
100.0% (b)
(a) Customers for whom the number of containers was not provided.
(b) Total may not add up to 100% due to rounding.
Hilton Farnkopf & Hobson AMY
�
27
City of Santa Clarita
July 7,1993 Exhibit 20
NUMBER OF CUSTOMERS BY CONTAINER SIZE
c
I
Percent of Customers
Waste Wheelers
9
0.8%
1.5 -Cubic Yards
98
8.7%
2 -Cubic Yards
10
0.9%
3 -Cubic Yards
972
86.4%
3.5 -Cubic Yards
2
0.2%
4 -Cubic Yards
24
2.1%
5 -Cubic Yards
1
0.1%
6 -Cubic Yards
1
0.1%
Other (a)
8
0.7%
TOTAL
19125
100.0%
(a) Customers for whom container size detail was not provided.
Hilton Farnkopf & Hobson
28�
APPENDIX I
Alternative Service Arrangements
Hilton Farnkopf & Hobson
City of Santa Clarita April21,1993 �
ALTERNATIVE COMMERCIAL SERVICE ARRANGEMENTS
Exclusive service areas.
Competitive permit system.
Exclusive service areas.
Competitive permit system.
Exclusive contract awarded
by competitive bid.
Exclusive contract awarded
by competitive bid.
Exclusive service areas.
Competitive permit system.
Notes
Hilton Farnkopf & HobsonI(M �
CITY OF SANTA CLARITA
CommercialRate System Study
April 20,1993
AGENDA
1. Advantages and Disadvantages of
Alternative Rate Systems
2. Observations
3. Alternative Rate Band Strategies
Hilton Farnkopf & Hobson
City of Santa Clarita Commercial Rate System Study
April 20,1993
ADVANTAGES & DISADVANTAGES OF ALTERNATIVE RATE SYSTEMS
* By service level
Hilton Farnkopf & Hobson,
Primary Advantages Primary Disadvantages
Rate System
No Rate Regulation
❑ Easy to administer.
❑ No rate protection for ratepayers if competi-
dj I t q v
eason-
tion does not succeed in maintaining reason-
I+ ��^ �iT'8 +
7,
TR --+:;�''
able rates.
tiMaximumRate*
C)Provides protection against unlimited rate in
CI Maximum rates are usually high enough that
creases.
profits would be excessive if competition fails
to maintain reasonable rates.
❑ Requires annual rate adjustment.
s
❑ If the maximum rate is too low, some custom-
l�3�,�
ers may not receive service.
at B d* , ,
❑ Maximum rate provides protection against
❑ Minimum rate limits price competition.
s "AimuintandMaximum
unlimited rate increases.
❑ Maximum rates are usually high enough that
❑ Minimum rate reduces risk of competitors at-
profits would be excessive if competition fails
TL
tempting to drive another out of business by
to maintain reasonable rates.
charging rates below actual operating costs.
❑ Requires annual rate adjustment.
❑ If the maximum rate is too low, some custom-
ers may not receive service.
Specific Rates '
❑ Reduces to a minimum the risk of excessive
❑ Less flexibility in pricing for unique character-
: and Exclusive
profits.
istics of individual customers, although this
,S'ervicej,
❑ May lower service costs and rates due to in-
may be mitigated by a well-designed rate
creased productivity.
schedule with service options.
��'` " °:
❑ Reduces noise, congestion, and pollution from
❑ City and haulers must agree on a rate of re-
`
having multiple trucks service the same area.
turn or profit.
xtl❑
Increased contract management costs.
❑ No customer "choice"among service providers.
* By service level
Hilton Farnkopf & Hobson,
City of Santa Clarita Commercial Rate System Study
April 20,1993
OBSERVATIONS
Hilton Farnkopf & Hobson lm`�
2
City of Santa Clarita
April 20;1993 Commercial Rate System Study
ALTERNATIVE RATE BAND SETTING STRATEGIES
❑ Rates would be set based on historical
rates. Some maximum rates may be
modified if there are only a limited
number of customers paying a particu-
lar rate or if.the rates appear
excessive.
❑ This system may involve setting lower
rates and mandatory collection of
source separated recyclables, and set-
ting relative rates that reflect the actu
al cost of service to encourage efficient
service levels.
❑ Restructuring the rates may involve
changes in service levels and profits.
Hilton Farnkopf & Hobson
3 T
CITY OF SANTA CLARITA
Commercial Rate Study
Final Report
July 7, 1993
Hilton Farnkopf & Hobson
3990 Westerly Place, #195
Newport Beach, CA 92660-2311
7141251-8628
This report is printed on recycled paper
and copied on two sides to reduce waste
HILTON FARNKOPF & HOBSON
1
LI
I
HILTON FARNKOPF & HOBSON
Advisory Services to
=E`E Municipal Management
3990 Westerly Place, Suite 195
Newport Beach, California 92660-2311
Telephone: 714/251.8628
Fax: 714/251.9741
July 7, 1993
Mr. Jeff Kolin
Director of Public Works
City of Santa Clarita
25663 Avenue Stanford
Santa Clarita, California 91355
Commercial Rate Study
Final Report
Dear Mr. Kolin:
Fremont
Newport Beach
We have completed our Commercial Rate Study of solid waste collection and
recycling operations within the City of Santa Clarita (City). The enclosed draft
report contains the project background, objectives, approach, findings,
recommendations, and related exhibits.
Proposed Rate System
City staff and the Companies have negotiated rate bands based on the Council's
direction to implement a competitive permit system that allows for price
competition among the three permitted Companies. The proposed bands, which are
shown in Attachment A to this cover letter, accommodate customers with different
service characteristics and underlying cost differences. Competition may fail to
prevent the Companies from charging rates at the top of the rate band for all
customers. If this occurred, customers would experience significant rate increases
and the Companies' profits would become unreasonably high. Therefore, the City
should conduct periodic random rate reviews to ensure that competition is working
to maintain reasonable rates.
Customers Outside Rate Bands
Currently the Companies charge a wide range of rates for the same service levels.
For example, the Companies charge from $20 to $130 per month for a three -cubic
yard bin serviced once per week. In order that the rate bands allow competition, as
well as an opportunity for the Companies to earn a profit, they need to be
narrower. However, narrowing the rate bands results in increasing the rates paid
by some customers Under the proposed rate bands, before implementation of the
franchise and administrative fees, 223 of the City's 1,125 commercial customers
(20%) will have their rates increased to the minimum rates in the rate band. (This
¢c,tleE CJ paver
HILTON FABNKOPF&HOBSON
' Mr. Jeff Kolin
July 7, 1993
' Page 2
' includes 48 of the 59 large volume. customers with 45 or more yards of weekly bin
capacity.) Of these 223 customers, 131 would receive rate increases of more than
20%, in addition to rate increases for the City's administrative and franchise fees.
' These customers may be dissatisfied with the rate increases and appeal the
increase to the City Council. As a result, we recommend that the Council limit the
annual rate increases for customers whose existing rates are below the proposed
minimum rates to 15%.
Rate Adjustment for Franchise and Administrative Fees
The proposed rate bands are based on historical rates, and the Companies'
financial results of operations prior to implementation of the City's proposed
franchise fee and administrative fee. As shown in Exhibit 11, the franchise fee and
the administrative fee would.increase the proposed rate bands by 11.1% and
approximately 2% respectively. The rate exhibits in the body of this report reflect
rates without the proposed franchise and administrative fees since these fees were
' determined after our rate analysis was performed. In order to assist the City with
the rate ordinance, we have recalculated the proposed rate bands including the
franchise and administrative fees as an attachment to this cover letter.
' Potential for Significant Rate Increases
' Based on the information submitted by the Companies they appear to have
incurred a combined financial loss for commercial operations equal to 21% of
revenues. Since the City's proposed franchise fee and administrative fee would add
' approximately 13% to their cost, a 34% revenue increase would be necessary for the
Companies to "break-even".
' Recycling Rates
City staff and the Companies have negotiated a maximum recycling rate equal to
' 70% of the maximum refuse rate. We have calculated the resulting maximum
recycling rates as shown in Attachment B to this cover letter. There is no proposed
minimum recycling rate.
' Roll -Off Bog and Residential Service
At the start of this study, the City was considering including roll -off box services in
' the new contracts. City staff has decided to postpone a decision on roll -off services.
Therefore, in order to preserve competitive price information, we have not included
such information in our report.
HILTON FARNKOPF 6iHOBSON
' Mr. Jeff Kolin
July 7, 1993
' Page 3
We also briefly reviewed residential costs in the process of reviewing the allocation
of company overhead to various types of business, and have reported our findings
in Exhibit 13.
' We are pleased to have had this opportunity to assist the City of Santa Clarita. If
you have any questions please call me at 510/713-3270 or Laith Ezzet at
714/251-8628.
' Very truly yours,,)
Robert D. Hilton, CMC
Managing Partner
' Attachment A: Proposed Commercial Refuse Rate Bands Including 10% Franchise
Fee and Administrative Expenses
' Attachment B: Proposed Maximum Commercial Recycling Rates
I
II
I
J
I
' recvciea Ci vaver
City of Santa Clarita
July 7,1993 ATTACHMENT A
PROPOSED COMMERCIAL REFUSE RATE BANDS INCLUDING
10% FRANCHISE FEE AND ADMINISTRATIVE EXPENSES*
^°@Y3@4F�. ad 1F�`RtS$Abt'g,£
i pP $ia 6 d'i A�-Y,
.`oral mt5 S�a�dg a : k� 2 =Pard .sF r, ek£° 3 I'ar"'d4 hardy r„
..,
Minimum
Maximum
Minimum
Maximum Minimum
I Maximum
Minimum IMaximum
1
$36.60
$73.52
$42.70
$79.17 $48.81
$90.48
$54.91
$101.79
2
$79.45:)
107.49
$90.80
119.43 $102.15
$130.29
$1 13.50
$141.15
3
$140.06
$130.53
$157.44 $147.55
$173.72
$164.58
$190.01
4
$147.55
$172.64
$170.25
$195.44 $192.95
$217.15
$215.65
$238.87
5
$181.60
$205.21
$209.98
$233.44 $238.35
$260.58
$266.73
$287.73
6
$215.65
$237.78
$249.70
$271.44 $283.75
$304.01
$317.80
$336.59
7
$249.70
$271.44
$289.43
$309.44 $329.15
$347.44
$368.88
$385.44
* Proposed by City staff. Rates have been increased by 11.1% to pass through franchise fees as shown in Exhibit
11. Minimum rates have been increased by an additional 2.4%, and maximum rates by 2.0%, to pass through
administrative expenses.
Hilton Farnkopf & Hobson 1ft�
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City of Santa Clarita
July 7,1993 ATTACHM>✓NT B
PROPOSED MAXIMUM COMMERCIAL RECYCLING RATES*
imYar1 f R 2=¢Yard " _� ° '° a3 I'ar`d:� �4,� I'Srd , z �� o<
1
$51.46
$55.42
$63.34
$71.25
2
$75.24
$83.60
$91.20
$98.80
3
$98.04
$110.20
$121.61
$133.01
4
$120.85
$136.81
$152.01
$167.21
5
$143.65
$163.41
$182.41
$201.41
6
$166.45
$190.01
$212.81
$235.61
7
$190.01
$216.61
$243.21
$269.81
* Based on 70% of proposed maximum refuse rates
Hilton Farnkopf & Hobson10�
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CITY OF SANTA CLARITA
Commercial Rate Study
'
Final Report
'
TABLE OF CONTENTS
'
Payee
'
Project Overview
1-2
Findings
3-5
'
Recommendations
6-8
Exhibits
9-28
tAppendix
1: Alternative Service Arrangements
1
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Hilton Farnkopf & Hobson
CITY OF SANTA CLARITA
Commercial Rate Study
Final Report
LIST OF EXHIBITS
Exhibit #
Page #
Section I: Rate Band Analysis
1.
Proposed Commercial Rate Bands
9
2.
Comparison of Profitability at Current & Proposed Rates
10
3.
Summary of Customers Inside and Outside Proposed Rate Bands
11
4.
Customers Subject to Rate Increases at Minimum Rates
12
5.
Proposed Commercial Rate Bands: Common Service Levels
13
6.
Commercial Customer Distribution by Rate Range: 3 -Yard Bin
14
Once/Week
7.
Commercial Customer Distribution by Rate Range: 3 -Yard Bin
15
Twice/Week
8.
Commercial Customer Distribution by Rate Range: 3 -Yard Bin
16
Three Times/Week
9.
Commercial Customer Distribution by Rate Range: 1.5 -Yard Bin
17
Once/Week
10.
Benchmarks for Commercial Recycling Rates
18
11.
Required Rate Increase to Pass Through Franchise &
19
Administrative Fees
12.
Proposed Rate Adjustment Index
20
Section II: Financial Summary
13.
Comparison of Profitability of Refuse Collection Operations in
21
Santa Clarita withOtherjurisdictions
14.
Estimated Annual Revenue by Hauler
22
15.
Annual Revenues of Current & Proposed Franchise Services
23
16.
Annual Tons Disposed
24
Section III: Customer Distributions by Service Level
17.
Most Common Commercial Service Levels
25
1s.
Frequency of Service
26
19.
Distribution of Containers
27
20.
Number of Customers by Container Size
28
Hilton Farnkopf & Hobson
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July 7, 1993
PROJECT OVERVIEW
BACKGROUND
Residential solid waste collection and recycling services are provided by three
companies, Atlas Refuse Removal Company, Blue Barrel Disposal Company, and Santa
Clarita Disposal Company (Companies). The City of Santa Clarita (City) awarded
these Companies exclusive residential franchises effective April, 1991.
The City has not regulated commercial solid waste collection and recycling services,
and currently the Companies compete for customers. City staff and the residential
franchise holders believe that the same three residential service providers are the
primary providers of commercial services. Waste Management provided commercial
services, but Santa Clarita Disposal purchased Waste Management's route in
February, 1993.
In order to meet the waste diversion requirements of AB 939, the City believes it is
necessary to modify its arrangements for commercial solid waste collection and
recycling service. In January 1993, the City Council approved a recommendation by
the City's Integrated Solid Waste Management Committee (ISWMC) to implement a
commercial permit system with non-exclusive service areas. The permittees would be
limited to existing commercial service providers that apply for permits, and the
Companies would compete on the basis of price within a "rate band" consisting of a
minimum and maximum rate for each major category of service.
STUDY SCOPE & OBJECTIVES
' Hilton Farnkopf & Hobson (HF&H) was engaged by the City in April, 1993 to conduct
a commercial rate study. The study had the following four objectives:
1) Briefly identify and discuss with City staff alternative rate systems;
' 2) Estimate the profitability of the combined commercial solid waste collection
operations for Atlas, Blue Barrel, and Santa Clarita Disposal for the 12 months
ending March 31, 1993;
' 3) Estimate the financial impact of the proposed rate system on the ratepayers and
the Companies; and,
4) Develop a rate adjustment index.
PROJECT ACTIVITIES
' HF&H performed the following tasks:
• Developed micro -computer based data collection forms for the Companies to submit
' their financial information;
• Received and reviewed the financial information submitted by Atlas, Blue Barrel,
' and Santa Clarita Disposal;
Hilton Farnkopf & Hobsonla�'
City of Santa Clarita
July 7, 1993
• Conducted limited on-site reviews at each company to understand how the financial
information was developed;
• Made adjustments to the submitted data based on our site reviews;
• Combined and tabulated aggregated information for all three Companies;
• Analyzed and recommended rate bands based on. direction from City staff;
• Developed policy recommendations for the rate system;
• Reviewed our preliminary results and policy recommendations with City staff on
June 10, 1993;
• Developed our draft report and reviewed it with City staff and the Companies on
June 24, 1993; and,
• Developed our final report.
LIMITATIONS
We were requested to perform this study very quickly in order for the City to
implement the new commercial permit system as quickly as possible. Therefore, the
amount of time to perform on-site reviews was limited to one day each at Atlas and
Blue Barrel, and two days at Santa Clarita Disposal. This limited amount of time only
allowed for a brief review of the methods used by the Companies to develop their
financial information. It did not allow for detailed testing and analysis which would be
performed during a review of the Companies' financial results of operations.
The Companies in many instances, did not account for all revenues and expenses from
operations inside the City, particularly for commercial and roll -off operations.
Therefore, the Companies had to make assumptions and allocate costs in order to
develop the financial information reported in this study.
The Companies did not have audited financial statements or tax returns available for
the reporting period, and our work did not constitute an audit in accordance with
Generally Accepted Auditing Standards. Therefore, while we are confident in the
accuracy of our own tabulations of the aggregated data, we do not express an opinion
as to accuracy of the information submitted by the Companies. The actual results of
operations for the 12 months ending March 31, 1993, and the submitted rate
information, may be different than reported and this difference may be material.
The proposed rates were negotiated between City staff and the Companies. HF&H
estimated the financial impact of these rates on the ratepayers and the Companies,
based on information provided by the Companies. Therefore, we do not express an
opinion as to the reasonableness of the proposed rate structure or specific rates.
Hilton Farnkopf & Hobson
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July 7, 1993
KEY FINDINGS
1. Operating efficiency and waste diversion may be improved by alternative
service arrangemdnts.
' We believe that the City would be more likely to promote service efficiency and waste
diversion within the commercial solid waste collection and recycling system by either:
' • Awarding an exclusive commercial recycling contract by competitive bid to one or
more qualified recyclers, and leaving the commercial refuse collection system open
to competition; or,
• Negotiating contracts for exclusive commercial service with the existing residential
franchise holders for customers within their service areas.
' We discussed these alternatives with the Companies and City staff, and have been
directed to proceed with the development of a rate band for a competitive permit
system. A copy of the discussion documents related to alternative service
arrangements is included in Appendix 1.
2. The rate band system needs to balance the City's conflicting rate setting
goals.
We have discussed with City staff rate setting goals that the City would like to
incorporate in development of the proposed rate bands. Unfortunately, these goals
often conflict. Five important goals include the following:
• Establishing a relationship between the number of containers and frequency of
service that results in less frequent service and, therefore, lower overall costs;
' • Protecting the ratepayers from excessive service charges by establishing a maxi-
mum rate;
t• Minimizing the number of customers with existing rates outside the proposed rate
bands;
' • Providing the Companies with an opportunity to earn a reasonable profit and pro-
tecting them against predatory pricing practices by establishing a minimum rate;
and,
' • Allowing sufficient width in the rate band (the difference between the maximum
and minimum rates) to accommodate customers with different service cost
' characteristics receiving the same service level.
As an example of these conflicting goals, consider that to protect ratepayers from
excessive service charges, the rate band needs to have a "lower" maximum rate that
would prevent the Companies from charging high rates and earning excessive profits.
However, if the maximum rate is lowered, then some high cost customers with unique
' Hilton Farnkopf & Hobson!1il+��i
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City of Santa Clarita
July 7, 1993
characteristics may not receive service voluntarily by the Companies, since the cost of
service would exceed the maximum rate. Therefore, judgment is required to set the
maximum rate in a manner that best balances these two conflicting goals.
Should the City Council determine that one or two of these goals outweighs all of the
others, then it may be necessary to reset the rate bands. For example, if the City
Council determines that it is unacceptable to set minimum rates that require rate
increases for 15% of the commercial customers, then the rate bands would need to be
modified.
The recommended rate bands are shown in Exhibit 1. A summary of the number of
customers inside and outside the proposed rate bands is shown in Exhibit 3, and a
summary of the rate increases for customers with existing rates below the proposed
minimum rates is shown in Exhibit 4.
3. Based on the proposed rate bands, the Companies would break-even at the
minimum rates and earn profits equal to 19% of revenue at the maximum
rates.
Based on information submitted by the Companies, they appear to have incurred a
financial loss, equal to 21% of revenue, for the 12 months ending March 31, 1993 as
shown in Exhibit 12. Therefore, commercial revenue should increase approximately
21% for the three Companies to "break-even," assuming no change in operating
efficiency or costs.
As shown in Exhibit 21 the Companies have the opportunity to earn a reasonable profit
within the proposed rate bands.: (Based on a range of industry benchmarks of 5% to
10% as shown in Exhibit 13.) However, if all customers were charged the maximum
rates, and the Companies earned profits equal to 19% of revenue, then the ratepayers
would be paying unreasonable rates.
4. Of the 1,125 commercial accounts reported, 223 would experience rate
increases, and 48 would experience rate decreases resulting from the pro-
posed rate bands.
As shown in Exhibit 3, 223 customers (20%) of the 1,125 commercial customers would
experience rate increases, since their existing rates are below the proposed minimum
rates. These customers tend to be larger customers with high levels of service. 48
customers (4%) would experience rate decreases under the proposed rate bands.
5. Of the 223 customers subject to rate increases at minimum rates, 131
customers would receive rate increases of more than 20%.
As shown in Exhibit 4, 131 customers would receive rate increases of more than 20%,
representing 12% of all commercial customers. Additionally, 66 customers (6% of total
customers) would receive rate increases of more than 50%. These customers are likely
to be dissatisfied with the new rate system, and may appeal to the City Council.
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July 7, 1993
' Some of these customers may have unique service characteristics that allow them to re-
ceive low cost service, while others may have negotiated excellent prices with the
service providers. To prevent the rate increases for these customers the City Council
could enlarge the width of the rate bands, in which case the bands become less
meaningful. To deal with unanticipated situations, the City Council may want to allow
' the Director of Public Works to approve exemptions from the minimum rates for
customers with unique service characteristics.
' 6. Implementation of a 10% franchise fee may increase the rates of nearly all
customers by approximately 11.1%.
Since the proposed franchise fee is to be assessed against gross receipts, the Companies
may attempt to increase their rates by approximately 11.1% to pass through this
additional cost to their customers, as shown in Exhibit 11. (This is in addition to other
' increases resulting from the proposed minimum rates, or changes in pricing decisions
by the Companies in response to reduced competition or the reduced threat of competi-
tion under the new system.) However, the competitive environment caused by the per-
mit system, and the fact that some customers may already be paying rates higher than
those necessary to generate a reasonable profit, may mitigate against some of this in-
creased cost being passed through to some customers.
' 7. Implementation of the proposed administrative.fee will increase minimum
rates by 2.4% and maximum rates by 2.0%.
' Exhibit 11 shows the calculation of the administrative fee. This fee represents
payment from the Companies to the City to recover the City's out-of-pocket costs of
' implementing and administering the franchise. Based on the City's cost estimate of
$50,000, the proposed minimum and maximum rates would be increased by 2.4% and
2.0% respectively. This one-time adjustment would allow the Companies to recover
' and remit $50,000 annually to the City.
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Hilton Farnkopf & Hobson IM�
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City of Santa Clarita
July 7, 1993 '
RECOAUVIENDATIONS
1. Require the residential franchise holder to provide service to commercial
'
customers, in instances where no company will voluntarily provide service
within the approved rate bands.
t
As shown in Exhibit 3, 48 commercial customers have rates above the proposed
maximum rates. Some of these customers may have certain characteristics that
increase service costs. Therefore, there may be instances where no company would
'
voluntarily provide service to these customers. We recommend that the Companies'
contracts require them to provide service at a rate no higher than the approved
maximum rate to any commercial customer within the geographic limits of their
'
residential franchise territory that requests service.
2. Do not set a minimum rate for large volume customers with 45 or more
'
cubic yards of weekly bin capacity.
There are 59 customers with 45 or more yards of weekly bin capacity. These customers
'
often have monthly refuse bills of over $500 ($6,000 per year). The service
characteristics and underlying costs may vary significantly among these customers. As
shown in Exhibit 4, 48 large volume customers would receive rate increases at the
'
proposed minimum rates, some in excess of 100%. Therefore, we recommend that any
customer with 45 or more cubic yards of weekly bin capacity be exempt from the
minimum rates so that services for these customers may be competitively priced.
'
3. Limit annual rate increases for customers with existing rates below the
minimum rate to 15% per year.
'
As discussed in Finding #5, 131 customers will be subject to rate increases of 20% or
more at the proposed minimum rates. In order to minimize customer resistance to the
new program, the City should limit the annual rate increase to 15% per year by the
'
current service provider to customers with existing rates below the minimum rates
until the customer's rate is at or above the minimum rates. This clause will need to be
included in the new contracts with the Companies.
'
4. Do not set a minimum recycling rate, and set the maximum commercial
recycling rate at 60% of the maximum refuse rate.
'
Because commercial recycling services are not yet provided on a large scale to Santa
Clarita customers, we did not have actual commercial recycling cost data from the
Companies. Therefore, we relied on comparative benchmarks to approximate the
'
relative cost of commercial refuse and recycling service. While we believe this is a rea-
sonable approach, the results reflect many assumptions and the actual costs of recy-
cling services may be materially different.
The .Companies were able to provide historical recycling costs for residential routes, as
shown in Exhibit 10. Based on the information in this exhibit, a residential recycling '
route costs 42% less than a residential refuse route. Or, conversely, a residential
recycling route costs 58% of the cost of a refuse route (100% - 42%).
Hilton Farnkopf & Hobson (
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July 7,1993
Exhibit 10 also shows the breakdown the various cost components of a commercial
refuse route. The disposal fee component represents 39% of the cost of a commercial
refuse route. Presumably there would be no disposal component for a commercial
recycling route. Therefore, assuming that the other costs of providing commercial
recycling service were the same as providing commercial refuse collection service, the
recycling route would save 39% in disposal fees. Or, conversely, the commercial
recycling route would cost 61% of the cost of the commercial refuse route (100% - 39%).
While this analysis does not assume any revenues from recovered materials, such
revenues may be offset by additional processing costs.
Using these two approaches, the estimated cost of a recycling route is 58% to 61% of a
refuse route. Therefore, we recommend setting the maximum recycling rate at 60% of
the maximum refuse rate. Since the value of material revenues will vary significantly
by customer depending on the type and quality of materials, it is not possible to set a
meaningful minimum recycling rate: Therefore, we recommend that no minimum
recycling rate be set.
5. Conduct a periodic rate review to ensure that competition is working to
maintain reasonable rates, and that franchise fees are being accurately
paid.
The City is relying on effective competition to maintain the overall reasonableness of
the rates charged by the three Companies. There is no guarantee that effective price
competition will occur, however, particularly since the threat of new outside
competition has been eliminated, and since Waste Management's route has been
purchased by Santa Clarita Disposal. Additionally; rates have recently started to
increase. As shown in Exhibit 2, the rates in effect as of May 1993 are approximately
13% higher than the average rates for the 12 months ending March 31, 1993.
Therefore, we recommend that the City conduct an annual rate review of at least one
company (selected at random) to confirm the reasonableness of rates charged and
proper payment of franchise fees. Such a review should be more comprehensive than
the limited review performed during this study.
6. Adjust the rate bands annually for changes in service cost and disposal.
Exhibit 12 presents the proposed weightings for the recommended rate adjustment
indices. There are four indices, one for each bin size. The reason there are separate
indices for each bin size is that the disposal portion of the rate represents a larger
percentage of the total rate for the larger bin sizes.
We recommend that the rate bands be adjusted each time there is a change in the
disposal cost at the landfill, since landfill fee increases have historically been the
primary source of rate increases. At the same time the landfill fee adjustment is made,
' an adjustment could also be made for the service component as. measured by the
change in the Producer Price Index for Finished Goods, Capital Equipment, Non -
Manufacturing Industries.
' In other jurisdictions with a single rate rather than a rate band, we have developed
more complex formulas that include separate price indices for fuel, labor, insurance,
' equipment, and other cost factors. However, since the City is implementing a rate
Hilton Farnkopf & Hobson
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City of Santa Clarita
July 7, 1993
band, and very few customers are expected to be charged the absolute minimum or
maximum rates, we believe the value of using a more complex formula may be
outweighed by the benefits of a simpler calculation.
The weightings of the formula would change each time the formula is used to reflect
the relative differences in price index changes. An example calculation with price
index data for the four cubic yard bin is shown below:
RM
Disposal
32.6%
$28.89/ton
$32.00/ton
10.8% 3.5%
PPI
67.4%
131.0
133.0
1.5% 1.00/0
TOTAL
100.0%
4.5%
* Note: the Weighted Change equals the Index Weight multiplied by the Index Change.
Therefore, in this example, the minimum and maximum rates for the four cubic yard
bin would be increased by 4.5%.
In order to calculate the new weights for the next adjustment, treat the Index Weights
as whole numbers instead of percentages, multiply by (1 + Index Change), and
recalculate the relative percentages as follows:
Old In New Index Weights Equal
Weight Index Change Revised Index % of Revised Index Total
32.6 x 1:
67.4 x 1.015.:
100 .0 104.5 100.0%
Hilton Farnkopf & Hobson lily_
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CITY OF SANTA CLARITA
Commercial Rate Study
LIST OF EXHIBITS
Exhibit #
Page #
Section I: Rate Band Analysis
1.
Proposed Commercial Rate Bands
9
2.
Comparison of Profitability at Current & Proposed Rates
10
3.
Summary of Customers Inside and Outside Proposed Rate Bands
11
4.
Customers Subject to Rate Increases at Minimum Rates
12
5.
Proposed Commercial Rate Bands:. Common Service Levels
13
6.
Commercial Customer Distribution by Rate Range: 3 -Yard Bin Once/Week
14
7.
Commercial Customer Distribution by Rate Range: 3 -Yard Bin Twice/Week
15
8.
Commercial Customer Distribution by Rate Range: 3 -Yard Bin Three Times/Week
16
9.
Commercial Customer Distribution by Rate Range: 1.5 -Yard Bin Once/Week
17
10.
Benchmarks for Commercial Recycling Rates
18
11.
Required Rate Increase to Pass Through Franchise & Administrative Fees
19
12.
Proposed Rate Adjustment Index
20
Section II: Financial Summary
13.
Comparison of Profitability of Refuse Collection Operations in Santa Clarita with Other
21
Jurisdictions
14.
Estimated Annual Revenue by Hauler
22
15.
Annual Revenues of Current & Proposed Franchise Services
23
16.
Annual Tons Disposed
24
Section III• Customer Distributions by Service Level
17.
Most Common Commercial Service Levels
25
18.
Frequency of Service
26
19.
Distribution of Containers
27
20.
Number of Customers by Container Size
28
Hilton Farnkopf & Hobson i
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SECTION I
Rate Band Analysis
Hilton Farnkopf & Hobson
City of Santa Clarita
July 7,1993 Exhibit 1
PROPOSED COMMERCIAL RATE BANDS*
BIN SIZE
Pickups9 RQ @'. P 8 Y Ck 9* P flQ6 bl@
Per Week s 15� Yard . i 2-3I'ard �:.E b ,P 4Yrd , A
Minimum
Maximum
Minimum
Maximum
Minimum Maximum
Minimum
Maximum
1
$32.25
$65.00
$37.63
$70.00
$43.00 $80.00
$48.38
$90.00
2
$70.00
$95.04
$80.00
$105.60
$90.00 $115.20
$100.00
$124.80
3
$100.00
$123.84
$115.00
$139.20.
$130.00 $153.60
$145.00
$168.00
4
$130.00
$152.64
$150.00
$172.80
$170.00 $192.00
$190.00
$211.20
5
$160.00
$181.44
$185.00
$206.40
$210.00 $230.40
$235.00
$254.40
6
$190.00
$210.24
$220.00
$240.00
$250.00 $268.80
$280.00
$297.60
7
$220.00
$240.00
$255.00
$273.60
$290.00 $307.20
$325.00
$340.80
* Proposed by City staff before implementation of proposed franchise fee
Hilton Farnkopf & Hobson, a�
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July 7,1993 Exhibit 2
COMPARISON OF PROFITABILITY AT CURRENT & PROPOSED RATES`
Commercial Service Inside Santa Clarita
,.At
Financial
Statistic
Rates In Effect At ProposedProposed Maximum
May 1993 Rates (a)- Rates
Qimount ° Change Amount " Cl}ange Amount %Change
.�b , N a#X. i Ms.44Xp4 V
Revenue
$1,890,000
$2,154,000(b)
14%
$2,286,000
21%
$2,843,000
50%
Expenses
$2,296,000 (c)
$1296,000
0%
$2,296,000
0%
$2,296,000
0%
Profit
($406,000)
($142,000)
N/A
($10,000)
N/A
$547,000
N/A
Profit as a Percent
-21%
-7%
N/A
-0%
N/A
19%
N/A
of Revenue
* Before implementation of franchise and administrative fees.
(a) Assuming all customers are charged the proposed minimum rates, including the 59 large volume customers that are not subject
to the minimum rates.
(b) Projected annual revenue based on reported rates in effect during May 1993.
(c) Excludes political and charitable contributions, goodwill, non -compete agreements, and acquisition interest expense. Compen-
sation over $125,000 per year for proprietors managing their own business has been re-classified as profit.
Hilton Farnkopf & Hobson,
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City of Santa Clarita
July 7,1993 Exhibit 3
SUMMARY OF CUSTOMERS INSIDE AND OUTSIDE PROPOSED RATE BANDS*
Customer Category
Number of Customers,
Percent of Customers
Customers Below Proposed Minimum Rates
223 (b)
20%
Subject to Rate Increases
Customers Above Proposed Maximum Rates
48
4%
Subject to Rate Decreases
Customers with Unusual Services (a)
68
6%
Customers with No Change
786
70%
TOTAL
1,125
100%
Before implementation of proposed franchise fee.
(a) Includes 13 customers with odd container sizes, 6 with bi-weekly pickup, 35 with shared containers, 9 with
temporary or recycling bins, and 5.with mixed services whom detail was unavailable.
(b) Includes 48 large volume customers.
Hilton Farnkopf & Hobson
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July 7,1993 Exhibit 4
CUSTOMERS SUBJECT TO RATE INCREASES AT MINIMUM RATES`
Percent„o
a
tl0oor20%-,2i lns's^' 11 %a to %to30% 31 lOtAL�q
T4°v ,R .a •e4 aa,a.a b.. i'�r. as oma.; o-.„.tt .kl reY_ _ ya+.+aaS gS
Number of Customers
50
42
37
28
66
223
with Rate Increases
at Minimum Rates (a)
% of Customers with
22.4%
18.8%
16.6%
12.6%
29.6%
100.0%
Rate Increases at
Minimum Rates (b)
% of All Customers (e)
4.4%
3.7%
3.3%
2.5%
5.9%
19.8%
Number of Large
3
8
13
5
19
48
Volume Customers
Included Above
* Before implementation of franchise and administrative fees.
(a) Includes large volume customers with 45 or more yards of weekly bin capacity.
(b) Total of individual components may not sum to 100% due to rounding.
(c) Based on 1,125 total commercial accounts.
Hilton Farnkopf & Hobson
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City of Santa Clarita
July 7,1993 Exhibit 5
PROPOSED COMMERCIAL RATE BANDS*
Common Service Levels
* Before implementation of franchise and administrative fees.
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ReportedCustomers Outside the
Number and Pickups
Commercial Proposed I' 1 —6 Rate �'k, � pm ",
�
Size of •Customers,$
', d dDecreases
,�f,klnc�eases��
Number %°f Number % Number % Number
all customers
One 3 -yard
1
415
36.9%
$43.00
$80.00
395 95.2%
7
1.7%
13
3.1%
One 3 -yard
2
158
14.0%
$90.00
$115.20
141 89.2%
11
7.0%
6
3.8%
One 3 -yard
3
70
6.2%
$130.00
$153.60
44 62.9%
24
34.3%
2
2.9%
One 1.5 -yard
1
84
7.5%
$32.25
$65.00
82 97.6%
1
1.2%
1
1.2%
TOTAL
727
64.6%
662 91.1%
43
5.9%
22
3.0%
* Before implementation of franchise and administrative fees.
Hilton Farnkopf & Hobson 'A
13
City of Santa Clarita
July 7,1993 Exhibit 6
COMMERCIAL CUSTOMER DISTRIBUTION BY RATE RANGE*
One 3 -Cubic Yard Bin Serviced Once Per Week
Existing Rate Range: $20.00 to $130.00
Proposed Rate Band: $43.00 to $80.00
Before implementation of franchise and administrative fees.
Hilton Farnkopf &HobsonIM
�
14
Reported Number % of Customers
Customersof ,
Under $43
7
1.7%
1.7%
°care °a 6 a �Y t a
a$43
s�
�?
p A x J F
z'• 9
n
s 9 'd sPi 8, R d y s
F 6
y
�.®
®R`S b A 4 J� b 9 NM1 k
b� 5 ii h5 p g,
d �� k `4' s i F A.& 1 �
e &iR� kb� R^'p R6 K
S fY R •"1 ti � z
2 a4 $, &
,34
q ds
Y h
bre
1% Am Si�R'8���x
tlrb p
°,
334
,bn80 o
X937
M
pD k E D' d S�
,hYt
d
q @ pp
b�
�$71�,OQ ids �8
_m
1� P q
k aA
r�
d a '`3 101 3 a
p
9a "a, 4 �9�9�/Oas 4w.msr
a"'i
1 SY 1`w.2g
4 # 'd R` ik �S�d bry
SYC Ka N Yyg
a.g>cA�Ci E...,�as,.2�er ta2m�...,�Ex
8 & .roa iM4rvW
�`�t .nr a.•a�..o.,+.�-u..,,vee
$81-$90
10
2.4%
99.3%
Over $90
3
0.7°/0
100.0%
TOTAL
415
100.0%
Before implementation of franchise and administrative fees.
Hilton Farnkopf &HobsonIM
�
14
City of Santa Clarita
July 7+ 1993 Exhibit 7
COMMERCIAL CUSTOMER DISTRIBUTION BY RATE RANGE*
One 3 -Cubic Yard Bin Serviced Twice Per Week
Existing Rate Range: $70.00 to $170.00
Proposed Rate Band: $90.00 to $115.20
* Before implementation of franchise and administrative fees.
Hilton Farnkopf & Hobson
15 �� E
Reported,.Customers
Customersof Customers within Rate Range % of
$70-$80
6
3.8%
3.8%
$81-$89
5
3.2%
7.0%
xo %'Y aY
py
3 d w
Yk F -i -tX -W
gg
f..5
$90 $100y
@a ! ♦
72n)P
>
t
%
f�
d P �c
6.
°W i4Kp1�i y A�¢dtF Rd} "i'f6+'
R
p
SW '-Ad
atl
dd� K+634"�p S9
�`
S
{ #k
8
d
_ E did
i
x$101 $110
*K
{
ij
"� `
'
d 1.3°�°„ ,t" i
ai
,:.., ..t , .dA, .
��s ._„
,.M.�
$116-$130
5
3.2%
99.4%
Over $130
1
0.6%
100.0%
TOTAL
158
100%
* Before implementation of franchise and administrative fees.
Hilton Farnkopf & Hobson
15 �� E
City of Santa Clarita
July 7,1993 Exhibit 8
COMMERCIAL CUSTOMER DISTRIBUTION BY RATE RANGE'S
One 3 -Cubic Yard Bin Serviced Three Times Per Week
Existing Rate Range: $30.00 to $160.00
Proposed Rate Band: $130.00 to $153.60
* Before implementation of franchise and administrative fees.
Hilton Farnkopf & Hobson l ft�
16
M
Reported Number % of Customers Cumulative
of Customers within Rate Range O/o of Customers
$30
1
1.4%
1.4%
$84—$99
6
8.6%
10.0%
$100—$110
4
5.7%
15.7%
$111—$120
7
10.0%
25.7%
$121—$129
6
8.6%
34.3%
140 «
m *�s y34 a i'» ;`
=KK486°I� L�d,L ��
',829°6
4^£j
44 b k _ i b Rd
L
A EG
rc F y
k ^AMU. ¢&L tR',p Wa G EP t KK
X
Y (
ttl kP�� sa p 24k' a EU k
VVx
F
i ds 1'Y§ 9" at
R 6 9 .i CA
�X
RR a KK tl� p zt v
b G §
fit-
4 5...6
e5k
10
4 ULA
143%971/LtiL
6✓
Over $154
2
2.9%
100.0%
TOTAL
70
100.0%
* Before implementation of franchise and administrative fees.
Hilton Farnkopf & Hobson l ft�
16
M
City of Santa Clarita
July 7,1993 Exhibit 9
COMMERCIAL CUSTOMER DISTRIBUTION BY RATE RANGE*
One 1.5 -Cubic Yard Bin Serviced Once Per Week
Existing Rate Range: $25.00 to $75.00
Proposed Range Band. $32.25 to $65.00
ReportedCustomers
of Customers within Rate Range % of Customers
$25
1
1.2%
1.2%
s a s Px e asP{S-
ie
�� r .
3 V a ',„, w Y n f
x
a" r �s`.
` Ste,
Pd p6
♦p p$ 5 4 Y
yah
#y M e
R ro}1"ae N 4
g Ta .E .
%.
Over $65
1
1.2%
100%
TOTAL
84
100%
* Before implementation of franchise and administrative fees.
Hilton Farnkopf & Hobsonla�
%W17 c
City of Santa Clarita
July 7,1993 Exhibit 10
BENCHMARKS FOR COMMERCIAL RECYCLING RATES
Reported Costs Per Route Day
Residential Inside the City*
Cost Category
�R�fuse&Collection a s l2ecclinR `"
a n %, b�fference
Cost/ ioute Day a Cos#7Itoute Days n d „ ;;sig a
Commercial Refuse Collection
t=g Cost Pei A %a of otalgCost®
to Route ay, b�m a Per RotYte Day
Route Costs
$533.83
$597.00
$592.38
45%
Disposal Fees
$383.79
$0.00
$508.2339°lo
a a=
Overhead & Other Costs
$386.27
$272.37
$205.71
16%
Subtotal:
$1,303.89
$869.37
=33%" w ° °k
$1,306.32
100%
Material Revenues
$0.00
108.52
0.00
0%
TOTAL NET COSTS
$1,303.89
$760.85
il!
$1,306.32
100%
* Single Family and Multi -Family Combined
Hilton Farnkopf & Hobson
18�
M M M
City of Santa Clarita
July 7,1993
REQUIRED RATE INCREASE TO PASS THROUGH FRANCHISE
& ADMINISTRATIVE FEES
Exhibit 11
A. Annual Revenue at Current Rates (a) $2,154,000
B. Factor to Gross Up for 10% Franchise Fee — 90%
C. Gross Annual Revenue Including Franchise Fees = $2,3931333
D. Franchise Fee Percentage x 10%
E. Annual Franchise Fee Revenue Paid to City = $239,333
F. Required Increase in Current Rates to Pass Through Franchise Fee (E-A) "i1� a� IN
G. Administrative Costs (b) $50,000
H. Administrative Costs.to be Recovered After Gross -Up for 10% Franchise Fee (c) $55,556
I. Annual Revenue at Proposed Minimum Rates (d) $2,286,000
J. Increase in Proposed Minimum Rates (H —J) 2ajo
K. Annual Revenue at Proposed Maximum Rates (d) $2,843,000
L. Increase in Proposed Maximum Rates (H —.-K)
(a) Based on rates in effect as of May 1993. Actual revenues will not change the percent increase in rates required to
pass-through the franchise fee.
(b) Estimate provided by City staff. -
(c) Costs are increased by approximately 11.1% to pass through a 10% franchise fee.
(d) See Exhibit 2.
Hilton Farnkopf & Hobson Jam
19 w
City of Santa Clarita
July 7,1993 Exhibit 12
PROPOSED RATE ADJUSTMENT INDEX
Cost Index By Bin gi
Category $
"E' 15�gI'ard .y� Z Yard, t °p
pdx ID'¢i rtl£u0i e�l"te.a4tl ki#r.d f! 6#i@{ew i"d'%8'4,g 11 M§•6@rh"
Disposal (a)
Change in Landfill Fees
17.4%
20.9%
27.5%
32.6%
Service
Producer Price Index,
82.6%
79.1%
72.5%
67.4%
Finished Goods, Capital
Equipment, Non -Manu-
facturing Industries
TOTAL
100.0%
100.0%
100.0%
100.0%
(a) Based on a tipping fee of $28.89 per ton and an average weight of 90 pounds per yard of bin capacity reported by
the haulers. Estimated percentages based on mid -point of proposed rate band for once per week service.
Hilton Farnkopf & Hobson M
�
20
SECTION II
Financial Summary
Hilton Farnkopf & Hobson
City of Santa Clarita
July 7,1993 Exhihit 13
COMPARISON OF PROFITABILITY OF REFUSE COLLECTION OPERATIONS IN
SANTA CLARITA WITH OTHER JURISDICTIONS
I
IN .
Range of Pre -Tax Profits
California Regulated.Jurisdictions (a)
Privately Held Companies (b)
Publicly Traded Companies (c)
5 to 10%
6 to 8%
-5% to 15%
Santa Clarita Haulers (d):
• Residential (e)
• Commercial
6.4%
-21%
(a) Based on 12 California jurisdictions reviewed by HF&H and other consultants.
(b) Source: Robert Morris Associates, Annual Statement Studies, 1991, Standard Industry
Code 4953, Refuse Systems. Average for all companies = 7%.
(c) 1991 pre-tax profit for selected major waste services firms listed on U.S. stock exchanges.
These firm's businesses include refuse collection and other solid waste services and some
non -related services.
(d) Combined results for 12 months ending 3/31/93 for Atlas, Blue Barrel, and Santa Clarita
Disposal. Individual companies may have earned more or less than this amount.
(e) Includes single family and multi -family refuse collection and recycling service.
Hilton Farnkopf & Hobson
�C C
21
City of Santa Clarita
July 7,1993 Exhibit 14
ESTIMATED ANNUAL COMMERCIAL REVENUE BY HAULER
For the 12 Months Ending March 31, 1993
m
Hilton Farnkopf & Hobson f_ �
-c
22
Atlas Transport
$210,000
11%
Blue Barrel (Western Waste)
$1,113,000
59%
Santa Clarita Disposal
$567,000
30%
TOTAL
$1,890,000
100%-
m
Hilton Farnkopf & Hobson f_ �
-c
22
City of Santa Clarita
July 7,1993 Exhibit 15
ANNUAL REVENUES OF CURRENT & PROPOSED FRANCHISE SERVICES
For the 12 Months Ending March 31, 1993
pe of Service Annual Revenues Percent of Total
Residential
$79703,000
80%
Commercial (a)
$1,890,000
20%
TOTAL
$9,593,000
100%
(a) Commercial front-end loader service. Does not include revenues from haulers other than
Atlas, Blue Barrel,. and Santa Clarita Disposal providing these services within the City limits
Hilton Farnkopf & Hobson (M�
�� e
23
City of Santa Clarita
July 7, 1993 Exhibit 16
ANNUAL TONS DISPOSED
For the 12 Months Ending March 31, 1993
Type of Service IF.TiTiTTI11 9=Total
Residential:
• Single Family
45,700
42%
• Multi -Family
18.200
17%
Subtotal Residential
63,900
59%
Commercial Bin Service (a)
319300
29%
Roll -Off (a) (b)
13,300
12%
TOTAL
108,500
100%
(a) Does not include tonnage from non -franchise haulers providing these services within the
City limits
(b) Permanent and temporary roll -off accounts.
Hilton Farnkopf & Hobson IA_ �
24 ��
SECTION III
Customer Distributions by Service Level
Hilton Parnkopf & Hobson
City of Santa Clarita
July 7,1993 Exhibit 17
MOST COMMON COMMERCIAL SERVICE LEVELS
Based on Rates for May 1993
(a) Calculated based on total service revenue divided by the number of customers.
Hilton Farnkopf & Hobsoni�
=a
25
of
Bins
'
Per
Weeklumbere %yoCystomersM►mmum1VTax�mum
99
A"ver°a)gca�a
1.
3 - Yards
1
1
415
36.9%
$20.00
$130.00
$66.84
2.
3 - Yards
1
2
158
14.0%
$70.00
$170.00
$105.14
3.
1.5 - Yards
1
1
84
7.5%
$25.00
$75.00
$57.50
4.
3 - Yards
1
3
70
6.2%
$30.00
$160.00
$129.00
5.
3 - Yards
2
3
40
3.6%
$125.00
$300.00
$242.18
6.
3 - Yards
2
2
37
3.3%
$77.00
$250.00
$182.43
7.
3 - Yards
2
1
20
1.8%
$65.00
$220.00
$121.30
8.
3 - Yards
2
5
17
1.5%
$145.00
$495.00
$383.86
9.
3 - Yards
1
5
17
1.5%
$72.00
$250.00
$190.29
10.
3 - Yards
1
4
16
1.4%
$120.00
$275.00
$181.50
11.
All Others
251
22.3%
N/A
N/A
N/A
TOTAL
N/A
NIA
1,125
100%
N/A
N/A
N/A
(a) Calculated based on total service revenue divided by the number of customers.
Hilton Farnkopf & Hobsoni�
=a
25
City of Santa Clarita
July 7,1993 Exhibit 18
FREQUENCY OF SERVICE
Number of Pick -Ups
Per Week
One
584
51.9%
Two
233
20.7%
Three
155
13.8%
Four
40
3.6%
Five
44
3.9%
Six
48
4.3%
Seven
6
0.5%
Other (a)
15
1.3%
TOTAL
1,125
100.0% (b)
(a) Customers with temporary or recycling bins, irregular pickups, or containers serviced less
frequently than once per week.
(b) Total may not add up to 100% due to rounding.
Hilton Farnkopf & Hobson
-e
26
City of Santa Clarita
July 7,1993 Exhibit 19
DISTRIBUTION OF CONTAINERS
(a) Customers for whom the number of containers was not provided.
(b) Total may not add up to 100% due to rounding.
Hilton Farnkopf & Hobsonl ft�
27 �c
1
856
76.1%
2
148
13.2%
3
50
4.4%
4
23
2.0%
5
15
1.3%
6 or more
25
2.2%
Special (a)
8
0.7%
TOTAL
1,125
100.0% (b)
(a) Customers for whom the number of containers was not provided.
(b) Total may not add up to 100% due to rounding.
Hilton Farnkopf & Hobsonl ft�
27 �c
City of Santa Clarita
July 7,1993 Exhibit 20
NUMBER OF CUSTOMERS BY CONTAINER SIZE
(a) Customers for whom container size detail was not provided.
Hilton Farnkopf & Hobsonll%�
28�
Percent of Customers
Number of Customers
Waste Wheelers
9
0.8%
1.5 -Cubic Yards
98
8.7%
2 -Cubic Yards
10
0.9%
3 -Cubic Yards
972
86.4%
3.5 -Cubic Yards
2
0.2%
4 -Cubic Yards
24
2.1%
5 -Cubic Yards
1
0.1%
6 -Cubic Yards
1
0.1%
Other (a)
8
0.7%
TOTAL
1,125
100.0%
(a) Customers for whom container size detail was not provided.
Hilton Farnkopf & Hobsonll%�
28�
M M M M M s� M M M M M M M M M M M M
APPENDIX I
Alternative Service Arrangements
Hilton Farnkopf & Hobson
City of Santa Clarita April21,1993
ALTERNATIVE COMMERCIAL SERVICE ARRANGEMENTS
Exclusive service areas.
Competitive permit system.
Exclusive service areas.
Competitive permit system.
Exclusive contract awarded
by competitive bid.
Exclusive contract awarded
by competitive bid.
Exclusive service areas.
Competitive permit system.
Hilton Farnkopf & Hobson
-ca
CITY OF SANTA CLARITA
Commercial Rate System Study
April 20,1993
AGENDA
1. Advantages and Disadvantages of
Alternative Rate Systems
2. Observations
3. Alternative Rate Band Strategies
Hilton Farnkopf & Hobson
1
City of Santa Clarita Commercial Rate System Study
Apri120,1993
ADVANTAGES A DISADVANTAGES OF ALTERNATIVE RATE SYSTEMS
*. By service level
Hilton Farnkopf & Hobson
1 —��
Primary Disadvantages
Rate System
Primary Advantages
Rath Regulation _❑
Easyto administer.
om eti-
❑ No rate protection for ratepayers if competi-
,hfo
tion does not succeed in maintaining reason-
tion
able rates.
::MaximumRate* "
ElProvides protection against unlimited rate in-
❑ Maximum rates are usually high enough that
creases.
profits would be excessive if competition fails
to maintain reasonable rates.
❑ Requires annual rate adjustment.
5 LL
❑ If the maximum rate is too low, some custom-
ers may not receive service.
Rate Band*
❑ Maximum rate provides protection against
❑ Minimum rate limits price competition.
,
(Minimum anklWaximumr
unlimited rate increases.
C) Maximum rates are usually high enough that
Rates)':'n
❑ Minimum rate reduces risk of competitors at-
profits would be excessive if competition fails
"
tempting to drive another out of business by
to maintain reasonable rates.
charging rates below actual operating costs.
❑ Requires annual rate adjustment.
❑ If the maximum rate is too low, some custom-
ers may not receive service.
Spec firt, w
ific Rates 4 �uFr �,i� " �F-
❑ Reduces to a minimum the risk of excessive
IJ Less flexibility in pricing for unique character -
and°Exclusive Service ; "
profits.
istics of individual customers, although this
Areas `:
❑ May lower service costs and rates due to in
may be mitigated by a well-designed rate
creased productivity.
schedule with service options.
❑ Reduces noise, congestion, and pollution from
❑ City and haulers must agree on a rate of re -
having multiple trucks service the same area.
turn or profit.
❑Increased contract management costs.
0 No customer "choice" among service providers.
*. By service level
Hilton Farnkopf & Hobson
1 —��
City of Santa Clarita Commercial Rate System Study
Apri120,1993
OBSERVATIONS
Hilton Farnkopf & Hobsonlfflb�
2 �t
City of Santa Clarita Commercial Rate System Study
Apri120,1993
ALTERNATIVE RATE BAND SETTING STRATEGIES
Hilton Farnkopf & Hobsonla�
=Iw
3
Rate Setting Alternative
Discussion
Alternative i _ _
❑ Rates would be set based on historical
Seurat bandkbaseud onmim
rates. Some maximum rates may be,
_existing
(with
if there are only a limited
mum and maximum rates minor
�modiffcations)`m a��_ ^
modified
number of customers paying a particu-
lar rate or if the rates appear
excessive.
i S +� ( m' � `tt•�` (Iikt n i 3
i�= w
�t
i cF
lower
Alternative 2 , d �I
❑ This system may involve setting
k4
�fRestructure thexaie band to provide
rates and mandatory collection of
incentives for recycling and other pre
source separated recyclables, and set-
ferred service levels ++`'
ting relative rates that reflect the actu-
al cost of service to encourage efficient
levels.
service
❑ Restructuring the rates may involve
changes in service levels and profits.
A {r 1
Hilton Farnkopf & Hobsonla�
=Iw
3