HomeMy WebLinkAbout1992-07-21; City Council; 11804; REFUSE RATE INDEX STUDY REPORT AND RECOMMENDATIONSa
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provided that the City and CWM would share the cost of an independent consultant
study to develop a mutually acceptable refuse rate index process which would be used
to establish appropriate refuse and recycling collection rates.
Staff prepared a RFP which was sent to eight qualified firms. Responses were received
from two firms: Hilton Farnkopf & Hobson (HF&P) and Camp Dresser and McKee.
U/M and CWM staff evaluated the proposals and selected HF&H, and entered into a
contract on January 30, 1992.
WF&H conducted the rate index study during the period February through April.
During the Study, they reviewed, in detail, CWM’s operational methods and financial
status over the past five years and presented several alternative methods for evaluating
rate requests.
Among the different methods of evaluating rate increase requests are:
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o The Rate Comparison method, or simply surveying other jurisdictions’
rates and comparing them to one’s own. However, this method does not
adequately address differences in service level or differences in
geographics, such as hilly terrain.
The Public Utility approach establishes rates based on the actual cost of
providing service, and allowing for a reasonable level of profitability to
the company. For example, if the cost of operations is $10.00 per
residential customer, and the agreed upon operating ratio is 90%, the rate
shall be $11.11 ($10.00/.90). This example is for illustration purposes
only, and bears no relation to CWM’s actual operating costs. This method
of setting rates verifies that the level of profitability is reasonable, but
does not provide an incentive for efficiency in the long run, and can be
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quite costly if done on an annual basis.
The Indexed Rate method evaluates rates based on changes in designated
indices, such as the CPI or specific operating costs. Rate review requests
could be considered and granted based on documented cost increases in
specific categories, such as wages and benefits and disposal fees.
However, if the base rate is not equitable, then annually adjusting this
base rate may continue or increase the inequity.
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The completed Study is attached as Exhibit 2. HF&N has recommended that the City
use a methodology which is a combination of the Public Utility and Indexed Rate
approach. This entails establishing a base rate utilizing the Public Utility approach, and
modifying the rate each year thereafter utilizing an Indexed Rate approach. The rate
would be reviewed and modified, if necessary, every third year utilizing the Public
Utility approach.
The recommended approach effectively addresses any inequities in the current rate, yet
provides incentive to the hauler to maximize efficiencies. Also, the indexed rate method
is considerably less expensive to administer than the Public Utility approach. Utilizing
the Public Utility approach every third year assures that the rate is still reasonable.
To implement this methodology, a thorough analysis of the current refuse collection
rates is necessary because preliminary study indicates that CWM has been operating its
Carlsbad operations at a before tax loss. While this may be beneficial to the ratepayers
in the short run, it is probably detrimental in the long run and could affect quality of
performance and drive the company out of business. Thus, staff believes an extensive
analysis to determine an appropriate rate is most equitable to all parties.
FISCAL IMPACT:
The original Refuse Rate Index Study Agreement with Hilton Farnkopf & Hobson was
for a total amount of $15,000. Supplemental Agreement No. 1 increased the cost by
$4,500 and provided for additional work and meetings with staff and the presentation
to City Council. The City and CWM have equally shared this cost. Supplemental
Agreement No. 2 which increases the total amount of the contract to $44,000 is
attachLd as Exhibit 3. CWM has agreed to equally share the cost of this work. Thus,
an additional expenditure of $12,250 from the Solid Waste Enterprise fund will be
required. Funds are available in account 520-820-641 0-2479.
EXHIBITS:
1. Resolution No. .ig, - 2-3 y , including Ex. "A" Supplemental Agreement No. 2
2. Consultant Report: City of Carlsbad Rate Index System
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RESOLUTION NO. 92 - 23 4
A RESOLUTION OF THE CITY COUNCIL OF THE CITY OF
CARLSBAD, CALIFORNIA AUTHORIZING EXECUTION OF
SUPPLEMENTAL, AGREEMENT NO. 2 TO THE REFUSE
RATE INDEX STUDY AGREEMENT WITH HILTON
FARNKOPF & HOBSON
WHEREAS, the CITY COUNCIL of the CITY OF CARLSBAD, CALIFORNIA,
approved a Refuse and Recyclables Collection Contract on August 6, 1991; and
WHEREAS, said contract provided for obtaining the services of a
consultant to conduct a refuse rate index study; and
WHEREAS, the firm of Hilton Farnkopf & Hobson was selected to perform
this study; and
WHEREAS, the results of this study indicate that public utility rate review
is in the best interest of all parties; and
WHEREAS, Hilton Famkopf & Hobson is qualified to perform the necessary
work; and
WHEREAS, a supplemental scope of work has been negotiated and agreed I 19
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,I to between the parties hereto;
NOW, THEREFORE, BE IT RESOLVED, by the City Council of the City of
Carlsbad as follows:
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The above recitations are true and correct.
That Supplemental Agreement No. 2 to the Agreement for a Refuse
Rate Index Study between the City of Carlsbad and Hilton Famkopf
& Hobson attached hereto as Exhibit A is hereby approved.
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3. That the City Manager is hereby authorized to execute sai
Supplemental Agreement No. 2 on behalf of the City.
PASSED, APPROVED AND ADOPTED by the City Council of the City c
Carlsbad at its regular meeting held on the 21st day of JULY , 1992, b
the following vote, to wit:
AYES: Council Members Lewis, Kulchin, Nygaard
NOES: None
ABSENT: Council Members Larson,
ATTEST:
ALETHA L. RAUTENKRANZ, City Clerd
(SEAL)
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SUPPLEMENTAL AGREEMENT NO. 2
FOR CONSULTANT SERVICES
This supplement to the agreement with Hilton Farnkopf & Hobson, dated January 30,
1992, and updated June 15, 1992, amends Sections 1 and 4 to read as follows:
1. CONSULTANT'S OBLIGATIONS
The Consultant shall provide the services required to complete the Project in
accordance with the attached Scope of Work, the "Proposal" submitted by the Consultant
dated October 10, 1991, and updated November 15, 1991, and the letters dated May 22,
1992 and June 16, 1992.
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4.
The total shall not exceed the fee payable according to Paragraph 6, "Payment of
Fees," and shall be $44,000, of which the City's portion is not to exceed $22,000. Costs
will be divided equaIIy between the City and Coast Waste Management, Inc. No other
compensation for services will be allowed except those items covered by supplemental
agreements per Paragraph 8, "Changes in Work".
FEES TO BE PAID TO CONSULTANT
IN WITNESS THEREOF, we have hereunto set our hands and seals as of this 23rd day
. of JULY J 1992.
HILTON FARNKOPF & HOBSON CITY OF CARLSBAD
By:
Managing Partner
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HILTON FARNKOPF & HOBSON
Advlsory Services to Muniapal Management -
June 16,1992
Mr. Ralph W. Anderson Director, Utilities and Maintenance City of Carlsbad 2075 Las Palmas Drive
Carlsbad, CA 92009- 15 19
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PROPWrnR SECOND SUPPL;ERIENTALAGREEMENT FOR CONSULTANT' SERVICES
Dear Mr. Anderson:
In accordance with your request, Hilton Farnkopf & Hobson (HF&H) is pleased to submit this proposal for a second supplement to our agreement with the City of Carlsbad (City). This supplement will allow us to implement the Rate Index System by conducting a review of Coast Waste Management's (Company) rate application.
This supplement will modify our existing scope of work by adding the following three tasks:
1. Review of the Company's rate application for mathematical accuracy, logical consistency and reasonableness. Our review will be based on the
Company's historical financial statements and support for its projected financial results of operations as well as our knowledge of the solid waste industry that we have gained from numerous similar engagements state-wide.
2. Based on any adjustments we find during the course of our review, we
revise the Company's projection and recalculate any necessary adjustment to refuse collection and disposal rates.
3. Prepare and present our report documenting our conclusion from the
review of the Company's application and our recommendations to the City Council.
The result of our review will be a refuse and collection rate that can, in future years, be simply adjusted through application of the Rate Index System previously developed as part of our engagement with the City.
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%Z-& e HILTON FARNKOPF & HOBSON - e -
June 16,1992
Mr. Ralph W. Anderson
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To compensate HF&H for these services and related out-of-pocket expenses, we request that the compensation section of the Agreement be increased from
$19,500 to $44,000.
Additionally, to provide suf'ficient time for the performance of these tasks, we propose to amend the schedule by adding ten (10) weeks from the receipt of a notice to proceed.
The other unaffected terms and conditions of our Agreement will remain in force.
If you have any questions regarding this matter, please call me at 510/713-3270.
Very truly yours,
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+/e- obert D. Hilton, CMC
Managing Partner
cc: Mr. Conrad B. Pawleski, General Manager Coast Waste Management
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July 24, 1992
Mr. Robert D. Hilton Hilton Farnkopf & Hobson
39350 Civic Center Drive, Suite 100
r Fremont, CA 94538-2331
RE: Supplemental Agreement No. 2 for Preparation of the 1992-93
Base Refuse Collection Rate
The Carlsbad City Council, at its meeting of July 21, 1992,
adopted Resolution No. 92-234, approving the Supplemental Agreement
No. 2 to assist staff with the preparation of the 1992-93 Base
Refuse Collection Rate.
Enclosed is a copy of Resolution No. 92-234 and a fully executed copy of Supplemental Agreement No. 2 for your files. &a%;, Assist y Clerk CMC
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Enclosures
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1200 Carlsbad Village Drive - Carlsbad, California 92008-1 989 - (61 9) 434-2808