Loading...
HomeMy WebLinkAboutItem 8.3 GarbageRateIncrease . ,. CITY OF DUBLIN AGENDA STATEMENT CITY COUNCIL MEETING DATE: January 23,1995 SUBJECT: PRELIMINARY REPORT ON GARBAGE RATE INCREASE f)l~ 0 _REQUESTED BY WASTE MANAGEMENT OF ALAMEDA COUNTY ~ (Prepared by: Paul S. Rankin, Assistant City Manager) EXHIBITS ATTACHED: 1./ Selected Pages From Joint Refuse Rate Review Committee (JRRRC) of Alameda County - Final Recommendations dated December 7, 1994 2. / Summary of 1995 Projected Revenue Deficiency By Line Item 3. / Executive Summaries of Report Prepared By Consultants Representing Waste Management of Alameda County Regarding Operating Ratio Recommendations 4. Letter dated December 5, 1994 requesting adjustment to the Curbside Recycling Program Rates. RECOMMENDAl7jjY'ION: Receive Staff Report and direct Staff to prepare documents necessary for a Public Hearing on February 13, 1995, to consider adjustments to the Solid . Waste Collection Rate Schedules. FINANCIAL STATEMENT: Impact on rates will vary depending on the type of service (i.e. residential, commercial, drop box) and the size of container and frequency of service. The JRRRC recommendation is based upon an independent Consultant review. The recommendation is to is to provide an additional revenue totaling $417,800 in 1995. This is projected to increase total revenues collected from Dublin ratepayers from $2,336,200 in 1994 to $2,754,100 in 1995. A 17.9% increase in total revenues. DESCRIPTION: At the City Council meeting of October 10, 1994 the City formally referred the 1995 Rate Adjustment request from Waste Management of Alameda County (WMAC) to the Joint Refuse Rate Review Committee (JRRRC). This Committee has Staff representatives from several Alameda County Agencies serviced by WMAC. The agencies jointly retain a Consultant to review the rate application and to develop recommendations. The 1995 Rate Application represents the first review conducted for the JRRRC by Deloitte Touche Tohmatsu International (D&T). The Executive Summary and Recommendation sections of the report are attached as EXHIBIT 1. The process used by WMAC in presenting rate requests is to project 1994 revenue and expenses and then project expense requirements for the following two years. Given that the City of Dublin Agreement with WMAC expires in March of 1996 this report focuses on the 1995 results. A two year rate adjustment is not recommended at this time. The Report identifies the projected Revenue Deficiency based upon the recommended allowable costs for 1995. The Garbage Company currently operates in the City of Dublin pursuant to a franchise agreement adopted in 1986. In the Franchise Agreement Section 3.1 "Service Rates" states: " ...The Collection rates shall be no less than the Company's fully allocated costs of providing the collection and disposal services and facilities required by this agreement, plus a reasonable return on investment." Therefore, the JRRRC review considers the allocation and appropriateness of allocated costs as well as a recommendation on the appropriate return on investment (profit). The City Council must approve all rate adjustments. AMOUNT OF ADDITIONAL REVENUE REQUIRED IN 1995 ~ "Revenue Deficiency" The projected 1994 Revenue was estimated to be $2,336,200. The initial Company Rate Application requested an additional $441,300 in annual revenue from Dublin operations above the estimated ---------------------------------------------------------------------- COPIES TO: CITY CLERK FILE ~~ ITEM NO. 8.' . . revenues for 1994. Due to landfill taxes imposed by Alameda County after the submittal of the Company Rate Application, this revenue deficit was increased by the Company to $458,600. Based upon the review by the Consultants (D&T) and the JRRRC recommendation for allowed profit, the amount of increased revenues requested by the Company were reduced. The report calculated that the City of Dublin ratepayers would need to generate an additional $417,800 in revenue in 1995. This amount is referred to as the Revenue Deficiency. This remains a considerable increase as it represents a 17.9% increase in total company revenues from the City of Dublin operations. It should be stated that the percentage increase in revenue required is going to vary among the agencies serviced by WMAC. Factors contributing to these differences include: . Some agencies had revenue bases which in the past did not generate their fully allocated costs. These agencies owe the company for their past deficits. . The size of the operation will impact the percentage of additional revenue required. For example the estimated 1995 Revenue Requirement for the City of Oakland are projected to be $53,104,500, while the estimated Revenue Requirement for the City of Dublin are projected to only be $2,754,100. . Some jurisdictions are serviced through the Davis Street Transfer Station, while the City of Dublin is a direct haul to the Altamont Landfill. Exhibit 2 summarizes the total $417,800 Revenue Deficiency by line item. A more detailed explanation of the most significant factors is presented in the following section. The explanation focuses on those areas which account for more than 5% of the Revenue Deficiency. In some cases the minor increases not discussed are offset by savings on other line items. KEY FACTORS AFFECTING WMAC REQUEST FOR INCREASED REVENUES Chan~e In Profit Calculation Methodology Approximately 60% of the increased revenue is attributable to a change in the methodology used to calculate the Company's return on investment (profit). In the past several years the Company has expressed at JRRRC meetings that they did not believe that the Committee was utilizing the correct methodology to account for the Company profit. The Company made a major effort to present additional information to the Committee with their 1995 Rate Application. The Company presented reports prepared by Arthur Anderson and the consulting firm of Barakat & Chamberlin in order to provide a basis for further discussions over the methodology used.(EXHIBIT 3) . In 1994, the JRRRC implemented a methodology which provided the Company with profit based upon a ratio of pre~tax operating expenses (i.e. if a ratio of 90% were used and the company had pre~tax expenses of $100 million, the allowed profit would equal $10 million). The allowed ratio included in the 1994 rates was adopted by the City Council at 93.25%. This was estimated by the Consultants to be equivalent to a 4.3% after tax profit. In the 1995 Rate Application, the Company requested that the profit levels granted for its Landfill operations be treated differently than profit levels granted for the Collection operations. Among the reasons cited by the Company were the following: Landfill Operations require significant capital assets, whereas Collection relies more intensely on labor; the two types of operations have different risk factors for the operator; and the Company has made significant capital expansions to operate the Altamont Landfill. The Executive Summary of their presentation is attached as EXHIBIT 3. Companywide Landfill Profit Calculation As shown on pages 16~18 of the JRRRC Report (EXHIBIT 1) the Company requested profit calculated at an operating ratio of 71.5%. The Company proposed that regulatory fee as well as interest would be treated as pass through cost. The JRRRC Recommendation is to apply the "Weighted Average Cost of Capital" to the landfill asset base. The end result of this process was to reduce the total Landfill Profit requested Companywide by approximately $1.5 million. The revised methodology was derived by the Consultants to address the Company's concern that the intensive capital investment required to operate a landfill was not recognized. A major change of the revised methodology recommended by the JRRRC, is . . that interest expense for the landfill is not allowed as a separate line item. The Company's Landfill Profit is calculated to be adequate to offset this expense. Companywide Calculation of Collection Profit The Company requested that the Collection Profit be based upon a 86.7% pre-tax and pre-interest operating ratio. Based upon the Consultant's review of other jurisdictions the JRRRC recommended that the Operating Ratio be established at 89% for collection operations. This resulted in a reduction to the Companywide collection revenue of $1.1 million for 1995. Financial Impact of Revised Profit Methodology on Dublin Revenue Requirement As mentioned earlier the 'change in profit calculation methodology accounts for the majority of the increased revenue requested by the Company. The following summarizes the differences between what the Company requested in their original application with the recommendation made by D&T and the JRRRC. CITY OF DUBLIN AS SUBMITTED BY WMAC D&T REPORT RECOMMENDATION PROJECTED REVENUE DEFICIENCY $ 441,300 $ 417,800 DISPOSAL PROFIT $ 135,700 $ 205,100 DISPOSAL INTEREST EXPENSE $ 60.300 ($ 39.600) NET DISPOSAL $ 196,000 $ 165,500 COLLECTION PROFIT $ 105,900 $ 87.100 GRAND TOTAL Interest/Profit $ 301,900 $252,600 The Committee recommendation reduces the Company's profit request by 19.5%. It is Starrs understanding that several of the JRRRC member agencies have accepted the D&T methodology in the calculation of their 1995 rates. Collection Labor Costs Labor costs including salaries and benefits account for approximately 12.7% of the identified Revenue deficiency. This is projected to add an additional $53,200 in operational costs for 1995. WMAC Staff have indicated that the Company projections include 3% wage growth and approximately 10% increase in health, welfare and pension obligations. The actual change in labor related expenses from Projected 1994 to Estimated 1995 is approximately 6.6%. (1994 -$806,600 vs. 1995-$859,800) Disposal Costs The cost of disposal exclusive of profit is determined to account for approximately $39,900 of the total revenue deficiency. Among the elements affecting this line item were surcharges levied by Alameda County. The County imposed a $0.075 per ton fee for the conditional use permit associated with the landfill. In addition, the County imposed a $0.95 per ton business license tax. These types of increases are considered pass through costs and are not directly controllable by the Company. The Company has also experienced increases in the cost calculated to cover ClosurelPost Closure expenses. The 1995 expense estimate assumes that the amount required will increase from $1.66 per ton to $2.68 per ton. In the event that the Company is successful in achieving additional import of wastes from other jurisdictions the cost associated with landfill operations may decrease in the future. Projected Impact of Changes In Service Levels Revenues from operations are being negatively impacted in 1994 by changes in service levels. The Consultant Report refers to this as "Service Migration." The Company continues to incur its fixed costs . . despite the incremental loss of revenue caused by customers selecting smaller containers and/or service on a less frequent basis. The Company projects that this accounts for $36,300 of the total Revenue Deficiency for the Dublin operations. UNRESOLVED CLOSURE POST CLOSURE (CPC) COSTS In 1992, the JRRRC undertook an in depth Study of requests by the Company to be reimbursed for Closure and Post Closure Costs associated with the Altamont Landfill. In accordance with several legislative acts the Company is required to close the landfill according to very specific plans. These are intended to assure that environmental compliance is met and it has added significantly to the landfill costs. For example, the Company has constructed the equivalent of a water treatment plant which can eventually process up to 75,000 gallons per day. This is necessary to keep liquids from leaching into the groundwater. The post closure aspect refers to the obligation the Company has to monitor and maintain the landfill for 30 years after its closure. Although the site closure is several years away the Company must have in place a financial plan to recover these costs. The outcome of the 1992 study was an interim agreement between the City and the Company. Because the discussions involve costs associated with waste placed at the landfill between 1980 and 1992 there are numerous legal and policy issues which must be addressed. The Agreement assumed that the Company and the JRRRC would negotiate a Master Agreement which could be considered by the City Council. In conjunction with the 1994 rate application an extension of the Agreement was granted to March of 1994. At this time the issues continue to be unresolved and it appears that an additional extension will be required. BALANCING ACCOUNT In the past the Company has performed its operations with a "Balancing Account." The concept was a means to control any differences from the projections. If expenses were higher than anticipated the ratepayers would owe an additional amount to the Company. If the opposite has occurred and revenues exceeded expenses, the excess monies are held in the Balancing Account for the benefit of the ratepayers. In the case of the City of Dublin, the City Council has sought in prior years to establish rates at a level which would allow the Company to recover its expenses. The City's share of the Balancing Account is estimated to total $267,000. This represents funds contributed by Dublin ratepayers in excess of the allowed cost of services. Due to the fact that a potential liability exists for historical CPC costs, Staff has been cautious in recommending the application of the Balancing Account to offset current operations. The application of the Balancing Account as a subsidy for current operations would also increase revenue requirements in future years. Given the significant amount of the 1995 revenue deficiency, Staff will be reviewing the options available and present them as part of the Public Hearing on the Rate Adjustment. RECYCLING RATE ADJUSTMENT The City currently receives all recycling services under separate agreements. These agreements allow the Company to request annual adjustments based upon the change in the Consumer Price Index(CPI). The current cost of the Single Family Recycling Program is $1.37 per household per month. Under the terms of the Agreement this would increase to $1.40 per household per month due to the annual change in the CPl. This request is contained in EXHIBIT 4. . The source of funding for the current Residential Recycling Program comes from two sources as shown below: 1994 Curbside Recycling Service Increment Paid As Part of Basic Garbage Service On Property Tax $ 0.85 City Measure D Subsidy JL..5.2. TOTAL MONTHLY CHARGE $ 1.37 Based upon the adopted 1994/95 Budget the City would be able to pay the entire 1995 rate adjustment with Measure D funds. These funds are collected by the Alameda County Recycling Board and they must be used for Recycling related services and programs. Since the curbside recycling program is paid for directly by the City this approach will not impact the amounts paid directly by the customer. RECOMMENDATION Staff recommends that the City Council receive this report and direct Staff to prepare the necessary documents to consider a rate adjustment at a Public Hearing scheduled for February 13, 1995. Staff will need to prepare schedules allocating the Projected 1995 Revenue Deficiency among the various classes of service (Residential, Commercial, and Drop Box). !. . . ------...----...... Deloitte & Touche llP ~ Deloitte Touche Tohrnatsu International The Joint Refuse Rate Review C0l111nittee (JRRRC) of Ala11'zeda County Final Recommendations December 7, 1994 SELECTED P AGES ONLY 11:-" ~. pOnIed OIl Hr.:";::led Paper EXHIBIT 1 ... 'M JRRRC of Alameda County . The Joint Refuse Rate Review Immittee GRRRC) of Alameda County Agenda I. Executive Summary II. Background III, Objectives IV. Scope of Review V. Summary of Rate Application VI. Rate Recommendations hy Deloitte & Touche UP VII. Proposed Profit Methodology VIII. Balancing Account IX. Rate Summary X. 1996 Rate Implementation Deloitte & Touche LLP u~~ Q -. -- ...--.... ~ ... -- .-.- -.. ... -.. .... -- -- .... .... .... -- ExeCZltive Summary JRRRC of Alameda COllnty Deloitte &. Touche LLP was engaged by the Joint Refuse Rate Review Committee ORRRC) of Alameda County in July 1994 to assist in the review of Waste Management of Alameda County's (WMAC) 1995/1996 Rate Applications The principle objective of the review was to recommend rates for WMAC's collection and disposal operations that are fair and equitable to both member jurisdictions and WMAC. In support of these objectives we: .... Evaluated WMAC's profit request .... Evaluated WMAC's expense projection and capital requirements .... Analyzed revenue and service level projections .... Evaluated the allocation methodology and revenue requirements to insure they reflected the unique circumstances of each jurisdiction .... Verified Balancing Account projections .... Analyzed franchised and non-franchised expense allocation and operation activity Deloitte & Touche llP ~ Si'n~3!.~m Executive Summary .. '. ]RRRC of Alameda County . . WMAC's 1995/1996 Rate Application contains several changes from previously submitted rate applications. The most significant changes were: .... Elimination of the Balancing Account and payback of current balances at 15.5% interest .... Incorporation of closure/post-closure costs (ePC) ... Inclusion of a new methodology for the calculation of profit for landfill and collection operations ... Increase in the interest rate charged to membeI jurisdictions .... The inclusion of capital investments and corresponding revenues to support a MRF facility at Davis Street These changes have the effect of significantly increasing the total profit and interest returns to WMAC SFU.')!.pm Deloitte & Touche UP o ... -. ~-_.- - - ---...- --- - - - - - -.. -.. - -.. -.. ExeClltive S1ll1l1nmy ]RRRC of Alameda County Based on our review of WMAC's 1995/1996 Rate Application we have made the following recommendations SF9i..Bh/f'! 1) Reduce landfill profit and interest request 20% for 1995 and 10% for 1996 based on a return on capital methodology . Reduce collections profit and interest request by 19% for 1995 and 26% for 1996 based on a survey of Northern California jurisdictions Allow management and S&.D fees as historically calculated by WMAC Elimination of costs and revenues for the proposed MRF Adjustment of the proposed vehicle fuel cost escalator to 3% No adjustment in operating ratio based on performance standards Payback of the current Balancing Account within three years at an interest rate of 5.76% in the first year, and 9.5% the remaining two years, unless longer terms are mutually agreed to by the Company and individual jurisdictions Allowance for increases in landfill fees levied throughout the County of Alameda 2) 3) 4) 5) 6) 7) 8) Deloitte & Touche UP o ~ ~. ; ,".. " - - .. . .. - ]RRRC of Alameda County .. - - .. - . - - - -.. - - .. .... Exeattive Summary Based on our recommendations rate, increases for 1995 and 1996 are compared below: T "aLE 1 1995 Summary of Projected Rate Increases Alameda Alb3n)' Emer).....lIle 03kl3nd PIedmont Castro Valley HiI.~"""'.ard Oro t0li'13 Dublin W~iAC Request 16.0% 9.0% 11_5% 17.5% (5_S%) 9.5% 11.9% (6.5%) 19.0% \\>I.\C Requ<3t wI Balancing A("count Rf:Payment 19.2% 23.4% NtA 33.5% 4.1% 13]% 15.0% NIA Nt" O&T Rec.ommendation 10.~% 4.4% '.7% 14.3f~i, (7.0%) 5.7% 9.9% (5.6%) 17.9% D&T Recommendation 'WI Balanc-ing Account Repayment 8_3% 14.4% (0.7%) 23.7% 1.6% 5.7% 1l.0% (2H%) 6.5% 1996 Summary of Projected Rate Increases ,;13 med3 Alb3n)' Emeryville 03k1and PIedmont Castro V311e)' H.)~"""'ard Orc Lorna Dublin ,~c Reque" 3.0% 3.5% 2_0% 3.S% 3.0% 4_S% 4.0%. 4_5% 2.S% W,l;C Requ." wI Balancing Account Reparm~nt D&T Rec-ommendation D&1 Recommendation wI Balancing Account Repayment 4.5% 2.0% 10.3% 2.0% 1.7% 3.6% 3.3% 30.5% 13.4% H% 1_8% !;fA 1.7% 1.9% 4_0% 3.6~ Nt" NI" 2.5% 2_1% 1.8% 2.2% 1.8% 3.6% 3.3% 3.8% 2.4% Note (1): Assumes Balancing Account paid back Over 3 r~ars :-;ot~ (2); Incr~ases Cor jurisdictions with positive Balancing Accounts "'~~ not calculated by WMAC ~ote (3): D&T rate incre3se c;;Itc:ulatJon Is based on te\~ed Bal3.ndng AccO\lnt projectIons $f9q31.pm Deloitte & Touche LLP Q . ., . ~ . ]RRRC of Alameda County $~94...lJIl.pm . The] oint Refuse Rate Review Committee GRRRC) of Alameda County I. II. Ill. IV. V. Agenda VI. Executive Summary Background Objectives Scope of Review Summary of Rate Application Rate Recommendations by Deloitte & Touche LLP Proposed Profit 1\.-1ethodology Balancing Account Rate SlllnnulfY 1996 Rate Implementation VII. VIII. IX, X, Deloitte & Touche UP Q . . JRRRC of Alameda County . . Rate Recommendations . , Deloitte &: Touche's draft recommendations include the adjustment of WMAC revenues and costs in the following areas: 1. Landfill Operating Ratio/Profit Request 2. Collection Operating Ratio/Profit Request 3. Interest Expense on Altamont Landfill Operations 4. Interest Expense on Collection Operations 5. Depreciation on proposed Material Recovery Facility (MRF) 6. Proposed MRF Costs and Revenues 7. Vehicle Fuel Cost Escalator (1996) 8. Balancing Account 9. Health and Welfare Costs 10. Altamont Surcharges 11. Additional Allocations 12. Management Fees (no adjustment) 13. Performance Measures (no adjustment) 15 Deloitte & Touche UP o 5F9....H6~1'tl jRRRC of Alameda County Rate Recommendations Recommended Adjustments 1. Landfill Operating Ratio/Profit Request W1vfAC Application: WMAC has requested a 71.5% O.R, for Altamont Landfill operating costs. State &: Locally Mandated Landfill Fees and Interest would be treated as pass- through costs. WMAC based this request on: .... A comparison with Keller Canyon Landfill, assuming a similar risk profile. .... The elimination of the Balancing Account in future Rate Applications. ... The large capital investment at Altamont Landfill to meet Subtitle D regulations. .... WMAC believes that the previously allowed O.R. of 91.6% is not fair and equitable. 16. Deloitte & Touche LLP o Sf'i4,P.tt'ri 1.-. /-- ~ 1-, ]RRRC of Alam.unty Recommended Adjustments D&.T Recommendation: Rationale for Recommendations: 5FI'4.n!.rlft ]RRRC of Alameda County ,-- , .__on. r:-:- r ~ i -=-::: r- r::-:: . Rate Recommendations Apply the industry average Weighted Average Cost of Capital (WACC) (18.6% before tax) to the landfill's net asset base. .... Interest coverage is included in WACC return. .... CPC costs and State and Locally mandated fees are treated as pass-through expenses. Keller Canyon is a single operation and the unique circumstances around Keller Canyon do not allow direct comparison to the Altamont Landfill The risk profile at Altamont Landfill is substantially less than that at Keller Canyon Landfill, and therefore does not justify the same returns and risk premium: ... Operating ratio is inappropriate to regulate an asset intensive operation. Keller Canyon was not intended to be regulated on an overall operating ratio basis. .... No permitting risk today at Altamont for JRRRC volume, .... Volume risk at Altamont is lower than Keller Canyon. _ Franchise life at Altamont extends 8 years versus 25 years at Keller Canyon - Only 1 to 2 year volume risk .... Profitability should be tied to Altamont's asset base, not Keller Canyon's. 17 Deloitte & Touche LLP o Rate Recommendations Recommended Adjustments (continued) .... Little or no quantitative or qualitative evaluation of risk provided for the comparison to Altamont ... Information used in WMAC's evaluation of Keller Canyon was unregulated and unapproved by Keller regulators ... Arthur Andersen's evaluation is insufficient to determine the WACC appropriate to the Altamont landfill .... Our WACC approach is conceptually similar to the approach used to regulate Keller Canyon As a basis for return, industry average return is more appropriate than WMX's The Company never responded to questions on risk analysis specific to WMAC's operations so we had no basis for an adjustment Rate Request Impact: 1995 - 1996 - $1.5 million (including interest effect) reduction in revenue $770,000 (including interest effect) reduction in revenue For further discussion of our analysis and methodology refer to Ole Landfill Profit Methodology ~F<loI n~ ~'ll IS Deloitte & Touche LLP ~ jRRRC of Alameda County Rate Recommendations Recommended esrmen ts 2. Collection Operating Ratio Profit Request . WMAC Application: WMAC has requested an pretax 880,1) O.R. for collection operations (pre- interest and tax O.R, of 86.7%). Interest expense franchise fees, disposal cost and surcharges would be treated as a pass through expense. WMAC based this request on: .... A comparison with other jurisdictions in Northern California. .... The elimination of the Balancing Account in future rate years. 19 Deloitte & Touche LLP o $F94.'~Il:.pm jRRRC of Alameda County Recommended Adjustments D&.T Recommendation: Rate Recommendations Rationale for Recommendation: An 89% pre-interest, pre-tax O.R. for collection operations .... Interest tax expense would be paid by WMAC from the profit allowance. Based on a survey of comparable Northern California jurisdictions (as well as industry practice and local considerations) an 89% pre-tax, pre-interest O.R. provides a fair and equitable profit for WMAC T.~nl.E 6 I Jurisdiction Operating Operating Ralio EnT Rntio EBIT City of EI Cerrito 86.S% 86.1% Cily of Richmond 87.6% 86.S% South Valley D&:R 89_8% 88.0% Vacavllle 90.5% 90.5% City of San Francisco Sunset Scavenger 91_0% 90.4% City of Vallejo 94.0% 86.1% Pleasant Hill 83.9% 83.8% San Pablo 87.4% 86.1% Galt 83.4% 81.6% Lodi 87.8% 78.9% I r Weighted Avcrage 90.4% 88_8% I WMAC Request 88.0% 86.7% ... The JRRRC should implement performance standards to reward cost reductions to WMAC in conjunction with future rate reviews. "0 Deloitte & Touche LLP Q SF'l4.D&.pm .....-. . JRRRC of Alameda County Recommended,ustments . '. , ~ I . -,". Rate Request Impact: 1995 - $1.1 million reduction in allowed expense (including interest effect) $1.7 million reduction in allowed expense (including interest effect) 1996 ~ For further discussion of our analysis and methodology refer to the Collection Profit Methodology section 21 5r'J4.~'!.pm Deloitte & Touche UP o JRRRC of Alameda County Rate Recommendations 3. Interest Expense on Altamont Landfill Operations W1vfAC Application: WMAC has requested that a 9.5% Interest Rate be applied to all funding requirements for WMAC's operations. WMAC based this request on: .... The current rate is too low and should be increased to competitive market rates. .... The 9.5% Interest Rate is based on an average lease rate with collateralized borrowing. 22 $r'J4.H,!;.pm Deloitte & Touche UP o ]RRRC of Alameda County Rate Recommendations . . . . D&T Recommendation: Interest coverage is included in WMAC return on the landfill operation. Rationale for Recommendation: ... The recommended profit methodology (18.6% WACC on assets) is sufficient to cover WMAC's interest and tax payments, and still provide an adequate profit allowance. ... WMAC/WMX's internal financing is extremely complex; the Company could not adequately support their financial projections: _ Interest did not incorporate the impact of a rate increase, _ Interest expenses needed to be revised through the review process. .... Does not require WMAC to support an interest rate of 9.5% when Company's overall cost of debt is 6.4%. .... Simplifies the Rate Review process. Rate Request Impact: 1995 - 1996 - $3.0 MM reduction in allowed expenses $3.0 MM reduction in allowed expenses 2J Deloitte & Touche LLP o SF9~.B8.pm !_. ]RRRC of Alameda County Rate Recommendations Recommended Adjustments 4. Interest Expense on Collection Operations WMAC Application: WMAC has requested that a 9.5% Interest Rate be applied to all funds in the Advance Account. WMAC based this request: .... The current rate is too low and should be increased to competitive market rates. .... The 9.5% Interest Rate is based on an average lease rate with collateralized borrowing. 1~ Deloitte & Touche LLP Q ~"'.JJI!I,jlf!\ .' / jRRRC of Alameda County c.' :,... . ." .. \.. Recommen~e.ustments D&T Recommendation: Rationale for Recommendation: Rate Request Impact: SF 94.B'.;m jRRRC of Alameda County lI.ate lI.eI.U"Uflr;;Il""LlUIl~ . Interest coverage is included in the Deloitte & Touche LLP recommended O.R. .... The recommended profit methodology (89% O.R. pre-interest, pre-tax) is sufficient to cover WMAC's interest and tax payments and still provide an adequate profit allowance. ~ WMAC/WMX's internal financing is extremely complex; the Company could not adequate support their internal financing system: _ Interest did not incorporate the impact of a rate increase .... Does not require WMAC to support an interest rate of 9.5% when Company's overall cost of debt is 6.4%. .... Simplifies the Rate Review process. .... The WMAC!WMX internal financing mechanism is a non- n;gulatory issue and should not be covered in rates. 1995 1996 $660,000 reduction in allowed expense $ L 1 million reduction in allowed expense Deloitte & Touche LLP o 23 Rate Recommendations Recommended Adjustments 5. Depreciation on Proposed Material Recovery Facility (MRF) WMAC Application: $fW.;J;J!pm WMAC included depreciation expense in 1995 on the proposed MRF. WMAC based this request on: .... Intention was to include the depreciation expense in 1996, not 1995. =5 Deloitte & Touche UP o JRRRC of Alameda County .I\.",U:; .l\C:l-VII""~~'j:I,if.KI-"VI"'" . . ~. .~ Recommende.ustments . D&:T Recommendation: Remove depreciation expense associated with the proposed MRF from the 1995 Rate Application. Rational for Recommendation: .... The depreciation expense was inadvertently included jn the 1995 Rate Application. Rate Request Impact: 1995 - 1996- S125,OOO reduction in allowed expenses No rate impact assuming disallowance at the present time l7 Deloitte & Touche UP Q $F~4.DI.pm JRRRC of Alameda County Rate Recommendations Recommended Adjustments 6. Proposed MRF Costs and Revenues WMAC Application: WMAC has proposed the construction of a MRF at the Davis Street Facility. The MRF would cost an estimated $2.5 million and be in service in 1996. WMAC based this request on: .... The MRF would assist the JRRRC in meeting the requirements of AB 939 mandatory recycling goals. .... Current facility does not meet WMAC's health and safety goals. .... Work is affected by inclement weather. ... Note: WMAC did not fully include the projected expenses for the MRF in the 1996 Rate Application. ~8 Deloitte & Touche UP o SF'M.H8.pl"'l , ' <<~~ ,...'~ :.;': {,':I JRRRC of Alameda County Rate Recommendations Recommende!ustments · D&T Recommendation: Disallow current expense projections for this year's rate application. Rationale for Recommendation: Rate Request Impact: ~F\l4.)]!.pm ]RRRC of Alameda County Perform a cost and benefits analysis of the proposed MRF to evaluate the appropriateness of WMAC's/JRRRC's proposed investment. ... The MRF facility, as proposed, will add an additional expense, net of landfill reductions of 5800,000 in 1996. _ WMAC estimates the MRF program will result in the diversion of 69,000 tons/year from Altamont. _ Based on WMAC projections of 450 tons/day, the MRF has an estimated capacity 117,000 to 140,000 tons/year. .... WMAC has projected 52.5 million in capital expenditures and 52.5 million in annual operating costs to support the MRF. .... The Rate Application does not contain $260,000 in expenses required to support the MRF. These expenses would represent an increase above the current Rate Application. Dependent on outcome of proposed cost and benefits analysis. 1995 ~ 1996 - No rate impact 5520,000 reduction in allowed expenses Deloitte & Touche LLP {.\ 29 Rate Recommendatio/1s Reco1llmended Adjustments 7. Vehicle Fuel Cost Escalator (1996) WMAC Application: Sf'\l~HHIft WMAC has requested a 15% increase associated with the price of fuel in its 1995 Rate Request. WMAC based this request on: .... The volatility of fuel prices, and the lack of a Balancing Account, necessitates that WMAC take a conservative approach to estimating this cost. 30 Deloitte & Touche LLP o . .. ]RRRC of Alameda County . Recommended Adjustments D&T Recommendation: Rationale for Recommendation: SF9'l.JJ8.f'TTl jRRRC of Alameda County Recommended Adjustments Rate Request Impact: SF9~.D&...m Rate Recommendations . Use 3.0% as the inflator for costs. Proposed refuse collection methodology provides return to compensate for fuel price risk. ... This is consistent with the general expense inflator used by WMAC in its rate application. ... .... The use of a 3% inflator has been accepted by WMAC (November 15, 1994 letter). .... The 3% inflator is consistent with a survey of projected inflators for 1996 (Table 7). TABLE 7 Inflation Projection (1994-1996) Updated July 8, 1994 profected 19116 UCLA Business Foree"t for California 2.80 Value line Investment Survey 3.40 Fortune 3-30 Yea: A"''''ge 3.17 31 Deloitte & Touche UP o Rate Recommendations .... The inflator is not out of line with other proxies for fuel cost increase projections. 1.7% projected annual growth 1992-2010 published by the Department of Energy 4.67% projected increase for 1996 national average for industrial! retail prices published by the Wharton Econometrics Forecasting Associates 1995 ~ 1996 ~ No rate impact S240,000 reduction in allowed expenses 3~ Deloitte & Touche UP Q JRRRC of Alameda County j{Qre 1<eCOmmemIULlUfl~ - " Recommendeaustments 8, Interest Rate on Balancing Account . WMAC Application: WMAC has requested a 15.5% interest rate be applied to the outstanding funds in the Balancing Account. WMAC based this request on: .... WMX's WACC is 15.5% and WMAC expects this type of return on the Balancing Account. .... The Balancing Account is not an asset which is included in the operating ratio calculation. .... Risk associated with the Balancing Account not being paid off. J3 Deloitte & Touche UP Q $F94..Hl..j:'17I JRRRC of Alameda County Rate Recommendations RecOl1lmended Adjustments D&T Recommendation: The jurisdictions should commit to repayment of the Balancing Account within 3 years unless the jurisdictions and WMAC can agree to a longer repayment period. The interest rate for 1995 should be set at the historical rate of 5.76%. For years 2 and 3 the interest rate should be set at the prime rate + 1 % (9.5% as of 12/1/94). Rational for Recommendation: .... In its 1994 rate application the company accepted the 5,76% rate for Balancing Account and accmals made in the 1994 fiscal year. Since the Balancing Account's historical rate setting method moved repayment of account balances into the next fiscal year, an increase in rates for 1995 has the effect of charging the jurisdictions a rate higher than that requested and agreed to for 1994 balances and accruals, The 5.76% interest rate is consistent with WMAC's request for the treatment of 1994 balances and accruals. .... 15.5% interest represents a change in past practice. .... Prime rate plus 1% is appropriate for the risk associated with payment of Balancing Account. .... The 15.5% WACC is a greater return than that allowed on WMAC's initial investment (e.g., 91.6% O.R.). Deloitte & Touche UP N 0 SFH.HS.rrJ'l ..... JRRRC of Alameda County ., . Recommended Adjustments Rational for ~ Recommendation: Rate Request Impact: SF'O}'8.pm jRRRC of Alameda County Rate Recommendations . The 15.5% WACC is excessive in comparison to the original intent of the interest to be applied to the Balancing Account. .... JRRRC Members have acknowledged and accepted their share of Balancing Account and are planning payment terms in the current Rate Application. .... If jurisdictions would like repayment periods longer than 3 years, WMAC must agree to it. Dependent on the time period over which the Balancing Account is paid off. 35 L Deloitte & Touche LLP o Rate Recommelldatiolls Recommended Adjustments 9. Health and Welfare Expenses D&T Recommendation: Rationale for Recommendation: Rate Request Impact: !>F94.JJ!.pm Increase employee health and welfare costs by 5241,000 .... In reviewing health and welfare expenses, WMAC discovered an omission of expenses in the amount of 5241,000. ~ These expenses are a reasonable cost of business for WMAC. 1995 - 5241,000 1996 - No impact )6 Deloitte & Touche LLP Q .' ]RRRC of Alameda County Recommende.jUstments 10. Altamont Landfill Surcharge , )".._1.-: D&T Recommendation: Rationale for Recommendation: Rate Recommendations . Increase pass-through fees at the Altamont landfill for cost increases associated with increase surcharges levied by Alameda County, .... Alameda County has imposed a $O.075/ton fee for conditional use permitting at the Altamont landfill. .... Alameda County has imposed a $O.95/ton business license fee at the Altamont landfill. Rate Request Impact: 1995 - S520,OOO in allowed expenses 1996 - S520,OOO in allowed expenses St'~."lI r'" JRRRC of Alameda County Recommended Adjustments 11, Additional Allocations D&T Recommendation: Rationale for Recommendation: 5F'OJRtM 37 Deloitte & Touche UP 0, Rate Recol/ll1lendatiollS Allocate an expense pool between members of the JRRRC to compensate for differences in interest returns to WMAC arising from differences in historical levels of rate funding. Individual jurisdictions have unique histories of rate adoption; this has led to significant variances in the interest expenses charged to individual cities, The operating ratio on an EBIT basis treats interest returns to the Company as a function of expenses and does not reflect the short term variances jurisdictions presently face. By allocating a pool of expenses between jurisdictions over the next several periods, variances in those short term charges can be corrected. As jurisdictions move away from the previous rate setting methodology, these variances in interest returns will diminish, and the allocations will not need to be considered. 38 Deloitte & Touche LLP Q ]RRRC of Alameda County ....i; -- Recommended.,stments 11. Additional Allocations Rate Request Impact: SfH,Jl..i"M ]RRRC of Alameda County Recommended Adjustments 12. Management Fees WNfAC Application: SF <jI4jH.pm 1<are 1<ecommenaauun:. . The allocation was made based on current advance account and cashflow projections provided by WMAC, and is consistent with their current method of interest cost calculation. This charge represents no additional expense allowed to WMAC, only an allocation between jurisdictions. Varies by jurisdiction - refer to Collect Interest Net of Allocation Expense line in Appendices 3 and 4. 39 Deloitte & Touche UP 1.\ I' . Rate Recommendations WMAC has requested a 2% of Management/S&D Fee to cover corporate support and administrative services. WMAC based this request on: .... Consistent with prior Rate Applications in Alameda County. to- A 1989 study by Arthur Anderson &. Company allocating an equitable portion of corporate expenses to Oakland Scavenger Company (WMAC's predecessor). 40 Deloitte & Touche LLP 1.\ . ".;. ... ]RRRC of Alameda County . .'.,- Recommended Adjustments D&T Recommendation: Rationale for Recommendation: Rate Request Impact: :SF 'lI4_'~!.rlft ]RRRC of Alameda County Reco7llmended Adjustments 13. Performance Measures WMAC Application: SF 'M.H8rl"l Rate Recommendations . Allow 2% management and S&D fees .... Based on a review of a new study by Arthur Andersen based on 1993 actuals, the expense projections appear reasonable. 1995 - No effect 1996 - No effect 41 Deloitte & Touche LLP o Rate Recommendatiolls WMAC did not provide information to Deloitte & Touche LLP regarding the Performance Standards that were "proposed/adopted" in 1993 or 1994. \VMAC based this request on: ... ~fAC contends that "they never received any indication that these standards were ever adopted", therefore, WMAC chose not to respond to a request to provide data and documentation supporting their efforts to achieve these standards. 4; Deloitte & Touche LLP o r.- r- ]RRRC of Alamed.nty . Rate Recommendations Recommended Adjustments D&T Recommendation: Rationale for Rate Request Impact: st=,4,mf!1TI Do not adjust operating ratio based on the company's performance at this time. The final policy decision on profit adjustment should be made by jurisdictions. .... The JRRRC subcommittee on Performance Standards recommends no adjustment at this time. .... Develop revised performance standards. - Better linkage to key business issues (cost control, volume reductions, AB939 compliance) - Create incentive based standards, rather than punitive 1995 ~ 1996 - No effect No effect H Deloitte & Touche LLP o . . COMPARISON OF WMAC PROJECTED 1995 REVENUE DEFICIENCY BY LINE ITEM FOR DUBLIN. OPERATIONS Dublin COll1parison of Total Projected Rate Increases for 1995 (000) WMAC Rate Application Recommendations As a % of % Contribulion Total Costs To Rate Increase Dublin Projected Revenue Deficiency Sources of cost and profit Changes Disposal profit Collection profit Interest expense-disposal only Labor related -collection Disposal costs wlo interest, profit Service migration-1994 Franchise fees Olher operating expense General and administrative' Office expense Trucking expense Other income OUler equipment Service migration-1995 Collection Interest net of Allocation Total 441.3 135.7 105.9 60.3 44.2 37.7 36.3 21.6 13.4 9.8 7.1 5.3 (0.0) (4.3) (5.8) (26.1) 441.3 417.8 30.7% 24.0% 13.7% 10.0% 8.5% 8.2% 4.9% 3.0% 2.2% 1.6% 1.2% (0.0%) (1.0%) (1.3%) (5.9%) 100.0% 5.8% 4.5% 2.6% 1.9% 1.6% 1.6% 0.9% 0.6% 0.4% 0.3% 0.2% (0.0%) (0.2%) (0.2%) (1.1 %) 18.9% 205.1 87.1 (39.6) 53.2 39.9 36.3 19.5 13.4 9.8 7.1 5.3 (0.0) (4.3) (5.8) (9.4) 417.8 49.1 % 20.8% (9.5%) 12.7% 9.5% 8.7% 4.7% 3.2% 2.4% 1.7% 1.3% (0.0%) (1.0%) (1.4%) (2.2%) 100.0% 8.8% 3.7% (1.7%) 2.3% 1.7% 1.6% 0.8% 0.6% 0.4% 0.3% 0.2% (0.0%) (0.2%) (0.2%) (0.4%) 17.9% EXHIBIT 2 . . , BARAKAT(0CHAMBERLIN -Position Paper- WASTE MANAGEMENT OF ALAMEDA COUNTY OIJERATING RATIO RECOMMENDATIONS Prepared by: Paul Eisenhardt, Cindy Kline, Derek Hansel BARAKAT & CHAMBERLIN, INC.. August 3, 1994 EXECUTIVE SUMMARY ONLY p9<<l2lI'1IpooilicallllJ EXHIBIT 3 . . WASTE MANAGEMENT OF ALAMEDA COUNTY OPERATING RATIO RECOM1\1ENDATIONS EXECUTIVE SUM1\1ARY Purpose of this Paper In preparing for its 1995 rate application to the Joint Refuse Rate Review Committee (JRRRC), Waste Management of Alameda County (WMAC) requested that Barakat & Chamberlin, Inc. review the history of rate setting by the JRRRC and make recommendations as to appropriate operating ratios which might be used to establish WMAC profitability in the future. The purpose of this paper is to describe the recent history of rate setting by the JRRRC, and to present our opinions with respect to operating ratios which are fair and appropriate for use in regulating WMAC. History of Rate Setting Until 1992, the profit received by WMAC for its operations in the JRRRC jurisdictions was based upon a negotiated after-tax return on equity. In late 1991, the JRRRC determined it would establish a range of potential profitability for WMAC and then set WMAC's allowed profitability within that range based upon its "performance" against a set of previously undefined standards. For 1992, the JRRRC set the range of return on equity at 10% to 16%. Based on its evaluation of WMAC's performance, the JRRRC set the allowed return at 10%. For 1993, the JRRRC determined the appropriate range of return on equity was 7 % to 13 %. The JRRRC determined WMAC had improved its performance and therefore allowed WMAC a return more toward the middle of the range (9.5%), though the fact the range had been lowered had the effect of reducing WMAC's profitability. For the 1994 rate application, "the Committee accepted [Hilton Farnkopf & Hobson's] recommendation to change the basis upon which the allowed profit is calculated from a return on equity to a pre-tax operating ratio." (Hilton Farnkopf & Hobson, 1994 Rate Review of Oakland Scavenger Company, p. 4) The stated purpose of this was twofold: . To allow greater comparability to the returns allowed by other regulating entities; and . To avoid several issues associated with the calculation of the allowed profit on . a return on equity basis, including the escalating equity balance . . For 1994, "the [JRRRC] determined that, based on the use of a balancing account, which guarantees the allowed profit, and the Committee's assessment of WMAC'.s performance during the past year, WMAC be allowed a pre-tax operating ratio of 91.6% on expenses net of revenue based fees, which is equivalent to a 93.25% pre- tax operating ratio on all expenses......." (Hilton Farnkopf & Hobson, 1994 Rate Review, pg.5). WMAC has protested the way in which the change from a return on equity approach to an operating ratio approach has been implemented, and has requested that Barakat & Chamberlin inc1ud~ in this paper its recommendation as to appropriate operating ratios which could be used for establishing future WMAC profitability. Approach While we recognize the. use of an operating ratio is a common methodology for rate setting in the waste collection business, we also believe the use of operating ratios should be treated carefully, particularly when the regulated business has different operations. We believe there are fundamental differences between the waste collection and transfer operations and the disposal operations at Altamont Landfill which justify very different returns for. these businesses: In setting rates and in choosing an operating ratio for 1994, we do not feel the JRRRC appropriately accounted for the different nature of these operations. Reasons for using separate operating ratios for the collection/transfer operations and the disposal operations include: . Differences in asset intensity and labor intensity between collection/transfer operations and disposal operations . Differences in risks between types of operations . Significant capital expansions at Altamont Landfill . Greater ability to compare profitability to other regulated solid waste operations -- Le., industry practice Key Issues There are key issues which need to be considered in developing appropriate operating ratios for the WMAC operations. These include: . WMAC history of capital expenditures (particularly at Altamont Landfill) 11 . . . Relationship of equity growth to capital requirements . Balancing Account treatment (complete elimination or use for uncontrollable circumstances) . Risk allocation between JRRRC members and WMAC The JRRRC and its members should be prepared to acknowledge that elimination of the balancing account, as proposed in the JRRRC's June 6, 1994 letter to WMAC, will shift significant cost management risk to WMAC. Any such change in risk allocation should be accompanied by a correspOnding increase in financial return to WMAC. It should also be recognized that the operating ratios presented inherently assume that appropriate interest rates are being charged and earned by WMAC. The current interest of 5.76% is too low by any comparative measure of market interest rates. The rate should be increased to 9.5 % for all interest rates except for the balancing account where the usage of a weighted average cost of capital is the appropriate rate as discussed in this position paper. Landfill Operating Ratio Based upon our analysis of the regulatory practices used by other communities in California and our knowledge of the solid waste industry, we believe an operating ratio of 71.5% would be appropriate for establishing WMAC landfill profitability. This ratio would be based on treating interest and regulatory expenses (as well as state and locally mandated fees) as pass-through expenses, Le., recovered in rates but not eligible for determining profit. We believe this ratio is consistent with the profitability allowed at the Keller Canyon Landfill, which is comparable to the Altamont Landfill in its size and in its modem environmental compliance, and is supported by the profitability allowed to regulated private operators of publicly owned landfills. We also believe the exclusion of interest, state and locally ~andated fees, and revenue based fees for the purposes of profit calculation enhance the comparability of WMAC's proposal with the JRRRC recommendation and make this proposal supportable by industry standards, consistent with other recommendations by Deloitte & Touche, and consistent with providing a fair return to WMAC. iii . . Collection Operating Ratio We believe an operating ratio of 88% is appropriate for the collection and transfer operations of Waste Management of Alameda County. Consistent with the emerging industry trend, the operating ratio which we recommend is based on a pass-through of disposal costs (no additional profit other than that received directly for landfill operations), and revenue based fees and surcharges. Our recommendation of 88 % is based on the operating ratios allowed by other communities in the greater Bay Area, and the treatment of disposal costs which we are recommending. We do not believe the intercompany relationship of the landfill and collection/transfer operations should automatically prevent WMAC from earning a profit on disposal costs. However, for this particular case, we believe an 88% operating ratio for collection/transfer operations combined with the 71.5% operating ratio on landfill operations provides for a reasonable composite return. Perfonllance Evaluation Criteria We recognize the JRRRC's interest in using allowed profitability as a way to reward or penalize WMAC performance. We believe for a fair process to be established and then utilized, WMAC and the JRRRC must agree to a set of standards and the method for evaluating WMAC's performance, as well as the relationship of that performance to profitability, prior to the beginning of the evaluated year in question. For the process to be run otherwise has the effect of ex post facto rule making which is inherently unfair. IV . . The Market Required Return on Equity and Weighted Averag'e Cost 'of Capital: , Waste Management of Alameda County. Prepared for Waste Management of Alameda County . Arthur Andersen Economic Consulting , August, 1994 ..--~., ,......................, . . I. EXECUTIVE SUMMARY Arthur Andersen Economic Consulting (AAEC) was asked by Waste Management of Alameda County (WMAC) to estimate a fair rate of return in setting rates for WMAC. The overriding principle of economic regulation is .that the regulated entity should receive reimbursement for the costs it reasonably incurred providing its services, including taxes and depreciation, plus a fair return on the capital invested to provide the services. The principle of a regulatory bargain or compact in regulatory economics refers to the obligation of regulators to balance the interests of both utility ratepayers and investors in their ratemaking decisions. A utility is given the opportunity to provide service without competition and, while not assured of recovering its costs or earning a fair rate of return, it should have the opportunity to do so. In exchange for the lack of 'competition provided by its exclusive franchise, the company foregoes the opportunity to earn high returns and must ensure that rates are reasonable and service reliable. While companies such as WMAC, enjoy varying degrees of protection from competition in the provision of waste hauling and disposal services in some areas (granted through franchise or contract), they must compete with all other companies in the open markets for the factors of production - labor, materials and capital. Since regulated entities compete in th~ securities markets with other issuers, they must pay the market rate of interest on debt capital and the market return on equity capital in order to be able to attract financing. Market Return on Equity The market return on equity capital for a pUblicly traded company can be estimated using approaches that have been well developed in the finance literature and that have been extensively applied in rate setting cases of. economically regulated compani~s. If WMAC were an indepengent company with publicly traded securities, data on the trading of its securities would provide a benchmark by which to calculate its cost of capital. Since shares of WMAC are not traded, this 'data does not exist. We can, however, use market data of its parent, WMX. It is standard regulatory policy to use the cost of capital of the parent when the parent and subsidiary face similar risks. .- .-- -. ..~._. -- .- ..--- -. . . 2 We have used the Capital Asset Pricing Model (CAPM) to estimate the cost of equity capital, and the Discount Cash Flow (DCF) or Dividend Growth Model to verify the results of the CAPM analysis. The CAPM model expresses the required rate of return for a firm in terms of a risk-free rate plus a premium for risk. The DCF model provides a useful check on the CAPM cost of capital estimate. The DCF model is based on the observation that a share of a company's stock should be worth the present value of the company's future stream of dividends discounted at its market-required return on equity. The advantages of the DCF model are its intuitive appeal and the fact that parameters required to estimate the market-required return are available. The disadvantages of the model are the assumption of a constant growth rate and the tendency of the DCF model to underestimate the required rate of return when firms have valuable growth opportunities. Weighted Average Cost of Capital We estimated the weighted-average cost of capital for WMAC, taking into account the current capital structure of the company and the market-required equity return derived from the CAPM analysis. Conclusions Based on our analysis, we find that the cost of equity capital for WMX Technologies (WMX) is the appropriate benchmark to use to estimate the cost of equity capital for WMAC; that the cost of equity capital for WMAC is approximately 17.3 percent today; and that the weighted average cost of capital for WMAC, inclusive of tax effects, is 15.5 percent today. This weighted-average cost of capital of 15.5 percent is the appropriate cost to use in setting rates through 1995 - a fair rate of return. ARTHUR ANDERSEN & Co., SC Arthur Auderseu EcOUOlUic COllSult.i.ug . ' Livermore Dublin Disposal 6175 South Front Road Livermore, California 94550 510/447.1300 FAX 510/447.7144 . ta 'eI A Waste Management Company , December 5, 1994 RG.C~lVED I. ...(; U 1994 CITY Of DUBLIN ., Paul Rankin ~Assistant city Manager city of Dublin P.O. Box 2340 DUblin, CA 94568 Dear Paul: Per our recycling agreement with the city of Dublin, under Section VI for single-family, curbside recycling, we may request an annual adjustment to our recycling fee based on the Consumer Price Index. I apologize for not sending this sooner. Based on the September, 1994, consu~kr Price Index, the index rose 2% for the previous twelve. months. This would increase the reCYCling fee by three'cents per month. with the city of Dublin's approval, we would like to increase the recycling fee to $1.40 on January 1, 1995. Please review the attached table and call me if you have any questions. ',' Sincerely, ~~ D.an @6rges Division President and General Manager DB/wr , .'attachment @ . . f' " ~ i 1: ~f iH , i . . A division of Waste Management of Alameda County -EXHIBIT 4