Title
Public Hearing to Consider Adoption of Resolution Establishing Integrated Waste Collection Ceiling Rates and Service Fees for Alameda County Industries, Inc. for Rate Period 18 (July 2019 to June 2020). (Public Works 0274)
Body
To: Honorable Mayor and Members of the City Council
EXECUTIVE SUMMARY
In 2002, the City of Alameda (City) entered into a Franchise Agreement (Agreement) with Alameda County Industries (ACI). Under the Agreement, ACI is responsible for managing and paying all costs and fees associated with the collection, processing, and disposal of integrated waste, and directly billing all residential and commercial customers for these services. The Alameda Municipal Code (AMC) specifies that the ceiling rates be set by the City Council at a public hearing.
Ceiling rates for the collection and processing of integrated waste are established to generate sufficient revenue to recover ACI's costs in its entirety, including fees paid to Waste Management at its transfer station. Consistent with the Agreement, ACI has submitted the required rate application, which has been reviewed, adjusted, and finalized to recommend the rates for Rate Period 18 (July 1, 2019 to June 30, 2020). The application resulted in an across-the-board 7.31% increase. Staff is recommending a 4.21% increase in rates, with the remaining 3.1% covered by one-time contributions.
BACKGROUND
On July 2, 2002, the City entered into an Agreement with ACI for the curbside collection of solid waste, the collection and processing of recyclable materials, and the collection of organic materials, collectively referred to as integrated waste. In April 2009, the term of the Agreement was extended to 2022. ACI is responsible for managing and paying all costs and fees associated with the collection, processing, and disposal of integrated waste, and directly billing all residential and commercial customers for these services.
Through a separate agreement, the City contracts with Waste Management for the transferring and landfilling of the solid waste portion of the integrated waste stream.
The AMC specifies that the ceiling rates for the collection and processing of integrated waste be set by the City Council at a public hearing. Ceiling rates are established to generate sufficient revenue to recover ACI's costs in its entirety, including fees paid to Waste Management at its transfer station.
The Agreement with ACI specifies two types of annual rate reviews: an index-based and a cost-based adjustment. An index-based adjustment requires the ceiling rates to be adjusted by three specific Consumer Price Index categories. Every third year a cost-based adjustment is performed, which includes a detailed review of ACI's forecasted costs, profit, and pass-through fees.
July 1, 2019 through June 30, 2020, is a cost-based adjustment year (Rate Period 18). The City contracted with Hilton Farnkopf & Hobson Consultants, LLC (HF&H) to provide a comprehensive analysis of the application prepared in accordance with the methodology prescribed in ACI’s franchise agreement with the City. As indicated in its report (Exhibit 1), HF&H has adjusted ACl's Rate Period 18 application.
Following the comprehensive analysis and adjustments to the rate application, this year's rate adjustment is an across-the-board 7.31% increase. This increase is comprised of the base adjustment of 4.21% plus an incremental growth adjustment of 3.1%. The base adjustment covers the costs typically adjusted by indexes in the index-adjustment year, and the incremental growth adjustment covers additional costs as permitted by the Agreement.
DISCUSSION
Following no increase to rates in Rate Period 15 (July 1, 2016 through June 30, 2017), a 2.38% increase in Rate Period 16 (July 1, 2017 - June 30, 2018), and a 1.68% increase in Rate Period 17 (July 1, 2018 - June 30, 2019), staff is proposing a 4.21% rate increase in Rate Period 18 (July 1, 2019 - June 30, 2020) (Exhibit 2).
City staff, HF&H, and ACI collectively met and discussed reducing the required increase of 7.31% to be in line with the Rate Application’s base adjustment of 4.21%, consistent with the October 2018 All Urban Consumer Price Index (CPI) of 4.36%. It is proposed that the remaining 3.1% be covered by one-time contributions as follows: $189,050 be covered by a one-time operating expense credit from ACI, $189,050 from the use of City’s rate stabilization fund balance, and use of $189,050 from the balancing account.
The staff recommendation recognizes that these one-time contributions temporarily lower the rates. Given that the rate increase is derived from the requirements stated in the Agreement that apply to future years, rate applications may be similar in the remaining two years of the Agreement.
With the proposed 4.21% increase, the monthly residential rates in Alameda will be:
|
Cart Size (gal) |
Existing Rate |
Proposed Rate |
Differential |
|
20 |
$31.91 |
$33.25 |
$1.34 |
|
32 |
$40.27 |
$41.97 |
$1.70 |
|
64 |
$66.16 |
$68.95 |
$2.79 |
|
96 |
$92.41 |
$96.30 |
$3.89 |
The vast majority of Alameda subscribe to a 20- or 32-gallon container. For these ratepayers, this amounts to an increase of $1.34 and $1.70, respectively, per month. Next year will be an index-based adjustment (Rate Period 19 - from July 1, 2020 through June 30, 2021). As prescribed by the Agreement, an indexed-based rate adjustment is calculated by applying cost-of-living indices, a labor index from the Teamsters Local 70 collective bargaining agreement, and adjusting pass-through costs (e.g., disposal fees).
Ceiling rates are set to sufficiently compensate ACI for its cost to provide the required services. When ACI receives more or less revenue than projected in the rate increase, the franchise agreement includes a revenue reconciliation provision. This provision carries over any shortfall or surplus into the next year in what is termed a balancing account.
For many years, Alameda’s balancing account has been negative and grew to as much as -$1,437,663 in 2014. The negative balancing account resulted from an array of factors such as deferred rate increases, past economic challenges, and ratepayers’ downsizing garbage subscriptions due to increased recycling and composting. However, this is the third year when the balancing account has turned positive (+$2,197,241). This largely reflects the benefits of a growing economy, and payment of the City’s share of commodity (recyclables) revenues through the end of Rate Period 16 (ending June 30, 2018). The $2,197,241 does not reflect activity in the current period (Rate Period 17), including Council’s approval to spend $300,000 for the first year of the Zero Waste Plan Update technical assistance or the balance accounting from Rate Period 17. As discussed in Rate Period 16, staff may consider seeking Council approval to utilize the balancing account to defray increased costs such as continued implementation of the Zero Waste Implementation Plan Update.
ALTERNATIVES
Under the requirements of the Agreement, the City Council must set rates to compensate ACI for its costs as determined by the rate application. The City Council may elect to proceed with ACI’s full proposed rate increase, resulting in the 7.31% increase. Or, instead Council could direct staff to further reduce or modify the recommended 4.21% increase by exploring additional one-time funding contributions.
FINANCIAL IMPACT
The City Council's adoption of ceiling rates impacts the City's ratepayers. Included in the adopted ceiling rates are City fees, including a 10% franchise fee (based on ACI’s gross receipts). These fees are expected to raise an additional $180,000, which will be contributed to the City's General Fund (Fund 001), Solid Waste Surcharge Fund (Fund 270), and Waste Reduction Surcharge Fund (Fund 274). These increased fees have been incorporated into the Fiscal Years 2019-21 Budget proposal.
MUNICIPAL CODE/POLICY DOCUMENT CROSS REFERENCE
AMC Section 21-20.4(a) requires the City Council to hold a public hearing before establishing ceiling rates and fees for the collection, processing, and disposal of the City's integrated waste. This franchise agreement with ACI is an important factor in the City accomplishing its goals under the Local Action Plan for Climate Protection, adopted in 2008, and the Zero Waste Implementation Plan Update, adopted in 2018.
ENVIRONMENTAL REVIEW
This project is statutorily exempt under California Environmental Quality Act Guidelines Section 15273 (a)(1) Rates, Tolls, Fares and Charges - meeting of operating expenses.
CLIMATE IMPACTS
Municipal Integrated Waste collection services provided under the Agreement with ACI are an important factor in the City accomplishing its goals under the Local Action Plan for Climate Protection, adopted in 2008, and the Zero Waste Implementation Plan Update, adopted in 2018. Namely, through recycling and composting services and the management of waste materials, materials are diverted from the landfill, and as of 2013 ACI has 100% transitioned to alternative fuel collection vehicles. Through management of the materials under this Franchise Agreement, Alameda continues to modify its integrated waste management to be compliant with regulatory changes (e.g. SB 1383/Short-Lived Climate Pollutants: Organic Waste Methane Emissions Reductions).
RECOMMENDATION
Hold a public hearing to consider adoption of a resolution establishing integrated waste collection ceiling rates and service fees for Alameda County Industries for Rate Period 18 (July 2019 to June 2020).
CITY MANAGER RECOMMENDATION
The City Manager recommends that the City Council adopt the resolution establishing the rates for Alameda County Industries.
Respectfully submitted,
Liam Garland, Public Works Director
By,
Liz Acord, Public Works Coordinator
Financial Impact section reviewed,
Elena Adair, Finance Director
Exhibits:
1. HF&H Consultants, LLC Report
2. Ceiling Rate and Services Tables
cc: Eric Levitt, City Manager