CITY COUNCIL: Resolution Approving Pass-Through Disposal Rate Increase of 0.78% & Annual Cost-of-Living Adjustment of 2.58% for a Total Increase of 3.36%

Meeting Date: February 7, 2012
Prepared by: Molly Laughlin

City Council
Agenda Item Summary

Name: Consideration of a Resolution approving a pass-through disposal rate increase of 0.78% (as approved by the Monterey Regional Waste Management District) and an annual cost-of-living adjustment of 2.58% for a total increase of 3.36%.

Description: Waste Management (WM), Inc. is the City's trash and recycle collector. It has an exclusive Franchise Agreement with the City. The agreement provides for an annual rate adjustment, based on changes in disposal rates and inflation.

WM notified the City of the proposed fee increase on November 18, 2011. This notice conforms with the exclusive Franchise Agreement requiring WM to notify the City at least 60 days in advance. The total adjustment is comprised of a pass-through disposal rate increase of0.78% and cost-of-living adjustment of2.58%. The rates were not adjusted in 2011.

Overall Cost:
City Funds: N/A
Grant Funds: N/ A

Staff Recommendation: Approve requested 0.78% fee adjustment and the 2.58% cost-of-living adjustment.

Important Considerations: The WM request conforms to Section 6, Collection Rates, as written in the City's exclusive Franchise Agreement.

Decision Record: At its March 2, 2010, meeting Council approved a pass-through fee adjustment of 0.54% and a cost-of-living increase of2.48% (Resolution 2010-20). This Resolution was subsequently rescinded on April6, 2010 and only the 0.54% pass-through fee adjustment was approved (Resolution 2010-33). Prior to that, Council approved a Waste Management fee increase of 11.7% in April2008 and 5.93% increase in January 2006.

Reviewed by:
-
Jason Stilwell, City Administrator Date

CITY OF CARMEL-BY-THE-SEA
STAFF REPORT
TO: MAYOR McCLOUD AND COUNCIL MEMBERS
FROM: JASON STILWELL, CITY ADMINISTRATOR
DATE: FEBRUARY 7, 2012
SUBJECT: CONSIDERATION OF A RESOLUTION APPROVING A PASS-THROUGH DISPOSAL RATE OF 0.78% (AS APPROVED BY THE MONTEREY WASTE MANAGEMENT DISTRICT) AND AN ANNUAL COST-OF-LIVING ADJUSTMENT OF 2.58% FOR A TOTAL OF 3.36%

RECOMMENDED MOTION
Adopt the Resolution approving the rate adjustment.

BACKGROUND
USA Waste of California, Inc. doing business as Carmel Marina Corporation, also known
as Waste Management, performs trash and recycling collection in the City of Carmel-bythe-
Sea through an exclusive franchise agreement. Per the terms of the agreement, Waste
Management submitted a letter dated November 18, 2011, requesting a collection fee
adjustment increase of 3.36% effective January 1, 2012. That letter is attached.
There are two components of the requested rate increase. One is the pass-through rate
increase of 0.78% as a result of a disposal rate increase from $46.25 to $47.00 effective
January 1, 2011 and from $47.00 to $48.25 per ton effective January 1, 2012. This is in
accordance with section 6.d. of the Amended Exclusive Franchise Agreement. This
section provides that the “Collector shall receive periodic pass-through rate adjustments
to cover the increased cost of dump fees at the Monterey Regional Waste Management
District site…” The notice requirements specified by the agreement have been met for
both portions of the rate increase request.
The second component of the rate increase request is a cost-of-living adjustment
(COLA). This adjustment is based on three-quarters of the percentage increase in the
Consumer Price Index (CPI) for the San Francisco-Oakland Bay Area (All Items, All
Urban Consumers), “less the percentage of operating expenses attributable to dump fees
paid at the disposal site…” Using this formula, the CPI adjustment applying 75% of the
COLA increase is 2.58%. A letter from attorney John Lynn Smith, representing Waste
Management, is attached. It argues the City is obligated under the agreement to approve
this rate adjustment.
STAFF REVIEW
Staff recommends that the City Council approve the 3.36% total rate increase per the
terms of the franchise agreement.
FISCAL IMPACT
The City can expect franchise fee revenue to increase by approximately $5,000 annually
as the source of fee revenue is formulaic based on the gross income of the franchisee.
34
CITY OF CARMEL-BY-THE-SEA
CITY COUNCIL
RESOLUTION 2012-
A RESOLUTION OF THE CITY COUNCIL OF THE CITY OF
CARMEL-BY-THE-SEA APPROVING AN ANNUAL PASS-THROUGH RATE
INCREASE OF 0.78% FOR WASTE MANAGEMENT SERVICES AND
A 2.58% COST-OF-LIVING ADJUSTMENT FOR
A TOTAL INCREASE OF 3.36%
WHEREAS, Waste Management is the City’s trash and recyclable goods
collector; and
WHEREAS, the Monterey Regional Waste Management District increased the
disposal fees to take effect on January 1, 2012; and
WHEREAS, Waste Management is requesting a 2.58% cost-of-living adjustment
in addition to the requested 0.78% pass-through disposal cost; and
WHEREAS, Waste Management submitted a formal written request 60 days prior
to the effective date as required in its exclusive Franchise Agreement.
NOW, THEREFORE, BE IT RESOLVED THAT THE CITY COUNCIL OF
THE CITY OF CARMEL-BY-THE-SEA DOES:
1. Approve a rate adjustment of 0.78% for residential and commercial customers
to cover cost increases to disposal fees, as set by the Monterey Regional
Waste Management District.
2. Approve a cost-of-living adjustment increase of 2.58% for 2012.
3. Authorize the effective date of January 1, 2012 for the above annual rate
adjustment.
PASSED AND ADOPTED BY THE CITY COUNCIL OF THE CITY OF
CARMEL-BY-THE-SEA this 7th day of February 2012, by the following roll call vote:
AYES: COUNCIL MEMBERS:
NOES: COUNCIL MEMBERS:
ABSENT: COUNCIL MEMBERS:
SIGNED:
ATTEST: _______________________
SUE McCLOUD, MAYOR
_____________________
Heidi Burch, City Clerk
35
36
. WAS1' ............ MIINT
November 18, 2011
Carmel-By-The Sea
Jason Stilwell, City Administrator
P.O.BoxCC
Carmel-by-the-Sea, CA 93921
Re: 2011 and 2012 Collection Rate Adjustment
Dear Mr. Stilwell:
WASTI! MANAGI!MINT
11240 Commercial Parkway
Castroville, CA 95012-3206
In accordance with Section 6 ofthe agreement between USA Waste of California, Inc. dba
Carmel Marina Corporation and the City of Carmel-By-The-Sea, we calculated a collection rate
adjustment increase of0.86%, effective January 1, 2011. The total adjustment is comprised of a
pass-through disposal rate increase and an annual cost-of-living adjustment. City Council heard
the item twice and deferred the adjustment pending clarification on rate adjustment process.
That has been provided, and a copy is enclosed for your records.
Due to the delay, the next disposal rate increase is nearly here without resolution of the prior
year's increase. As the tipping fee increase effective January 1, 2012 was finalized by Monterey
Regional Waste Management District today, November 18,2011, we have updated the
adjustment increase for collection rates. The 2012 adjustment is 2.47%, also comprised of passthrough
disposal rate increase and an annual cost-of-living adjustment.
Therefore, the total increase adjustment calculated for collection rates is 3.36% effective January
1, 2012. All calculations are enclosed for your review.
Your prompt attention to this is greatly appreciated. Please feel free to call me should you have
questions.
Sincerely

Michael LaRussa
Contract Compliance Manager
Office: (831) 796-2256 Cell: (831) 535-9325
Enclosures: 2011 and 2012 Rate Adjustment Calculations
Letter dated August 15, 2011



John Lynn Smith
Direct Phone: +1 415 659 4863
Email: jlsmith@reedsmith.com
August 15, 2011
By Express Mail
John Goss
Interim City Administrator
Carmel-By-The-Sea
P.O. BoxCC
Carmel, CA 93921
Carmel Marina Corporation - 2011 Rate Adjustment Request
Dear Mr. Goss:
Reed Smith LLP
1 01 Second Street
Suite 1800
San Francisco, CA 94105-3659
+1 415 543 8700
Fax +1 415 391 8269
reedsmith.com
This letter responds to your letter dated July 5, 2011 regarding Carmel Marina Corporation's ("CMC")
requested 2011 rate adjustment.
While the City of Carmel-By-The-Sea ("City") can exercise its discretion to grant CMC the requested
rate increase, it must abide by the terms of the Amended Exclusive Franchise Agreement ("Agreement")
in doing so and cannot, by law, exercise such discretion in an arbitrary and capricious manner by
continuously denying CMC the opportunity to recoup its costs and receive a reasonable return. Denying
CMC of such an opportunity squarely contradicts the original intent of the City and CMC in entering
into the Agreement, as well as established law, including a California Supreme Court opinion, which
states that:
A utility's rates are essentially the sum of two distinct components: its
operating expenses and its return on invested capital. The basic principle
[of ratemaking] is to establish a rate which will permit the utility to
rec·over its costs and expenses plus a reasonable return on the value of the
property devoted to public use ... the "return"- i.e., the profit- of the
utility is calculated solely on the rate base- i.e., the capital contributed by
its investors.
So. Cal. Edison Co. v. P. UC. (1978) 20 Cal. 3d 813, 818-9.
The City's denial of CMC' s requested rate adjustment, and rescission of previously approved rate
increases, has left CMC without a cost-of-living rate increase for the past three years. The City's actions
require CMC to provide the same quality and level of services while costs continue to rise and rates
remain the same. Under those circumstances, CMC will not be able to recoup its costs and receive a
reasonable return, as required by law and consistent with the intent of the Agreement. Accordingly, the
City must reconsider the denial of the cost-of-living portion of CMC's rate adjustment request and
adjust rates appropriately.
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