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HomeMy WebLinkAboutBOARD MINUTES 12-16-93 255 MINUTES OF THE ADJOURNED REGULAR BOARD MEETING OF THE DISTRICT BOARD OF THE CENTRAL CONTRA COSTA SANITARY DISTRICT HELD ON DECEMBER 16, 1993 The District Board of the Central Contra Costa Sanitary District convened in adjourned regular session at its regular place of meeting, 5019 Imhoff Place, Martinez, County of Contra Costa, State of California, at 2:07 p.m. on December 16, 1993. President Rainey called the meeting to order and requested that the Secretary call roll. 1. ROLL CALL PRESENT: Members: Menesini, Dalton, Hockett, Clausen, Rainey ABSENT: Members: None 2. PUBLIC COMMENTS None a. 3. AWARDS AND COMMENDATIONS RESOLUTION COMMENDING DIRECTOR JOHN B. CLAUSEN FOR HIS SERVICE TO CENTRAL CONTRA COSTA SANITARY DISTRICT AS PRESIDENT OF THE BOARD OF DIRECTORS President Rainey thanked Member Clausen for the excellent job he has done the past year as President of the Board of Directors and stated that it is with a great deal of pleasure that she presented Resolution No. 93-135 to Member Clausen, A Resolution commending Director John B. Clausen for his service to the Central Contra Costa Sanitary District as President of the Board of Directors. Speaking on behalf of the staff, Mr. Roger J. Dolan, General Manager-Chief Engineer, stated that it has been a pleasure serving the Board for the past year. Much has been accomplished under Member Clausen's leadership especially when staff and budget cutbacks are considered. 4. CONSENT CALENDAR Following discussion of the ordinance relating to fees, charges, and rebate sewer lines, it was moved by Member Clausen and seconded by Member Hockett, that the Consent Calendar, consisting of Items a. through g., be approved as recommended, resolutions and ordinance adopted as appropriate, and recordings duly authorized. a. Resolution No. 93-136 accepting work and Offers of Dedication from Fostoria Associates Limited, Job 4955, Parcel 1, was adopted and recording was authorized. Motion unanimously approved on the following vote: AYES: Members: Clausen, Hockett, Menesini, Dalton, Rainey NOES: Members: None ABSENT: Members: None b. Grant of Easement was accepted from Pleasant Hill Properties at a cost of $5,357.00, DP 20131, Parcel 011, recording of said Grant of Easement was authorized, and Resolution No. 93-137 was adopted to that effect. Motion unanimously approved on the following vote: 12 16 93 256 AYES: Members: Clausen, Hockett, Menesini, Dalton, Rainey NOES: Members: None ABSENT: Members: None c. Grant of Temporary Easement was accepted from Eileen M. Parks at a cost of $500.00, DP 20131, Parcel 007-2, and Resolution No. 93-138 was adopted to that effect. Motion unanimously approved on the following vote: AYES: Members: Clausen, Hockett, Menesini, Dalton, Rainey NOES: Members: None ABSENT: Members: None d. The contract work for the construction of the Miscellaneous Trench Grouting Project, DP 4974, in Alamo, Danville, and Walnut Creek, was accepted and the filing of the Notice of Completion was authorized. Motion unanimously approved on the following vote: AYES: Members: Clausen, Hockett, Menesini, Dalton, Rainey NOES: Members: None ABSENT: Members: None e. The contract work for construction of the 1680/SR24 Sewer Relocations Project, Phase IVA, DP 4824, was accepted, and the filing of the Notice of Completion was authorized. Motion unanimously approved on the following vote: AYES: Members: Clausen, Hockett, Menesini, Dalton, Rainey NOES: Members: None ABSENT: Members: None f. The General Manager-Chief Engineer was authorized to execute an Agreement with Pacific Gas and Electric for the relocation of electrical facilities to accommodate the Pleasant Hill Relief Interceptor, DP 4879. Motion unanimously approved on the following vote: AYES: Members: Clausen, Hockett, Menesini, Dalton, Rainey NOES: Members: None ABSENT: Members: None AYES: g. Ordinance No. 189 amending District Code Titles 6 and 9 regarding fees, charges, and rebate sewer lines, was adopted to be effective February 16, 1994, 60 days following adoption of the ordinance. Motion unanimously approved on the following vote: Members: Clausen, Hockett, Menesini, Dalton, Rainey NOES: None Members: ABSENT: Members: None 12 16 93 257 It was noted for the record, that Member Menesini voted aye with regard to adoption of Ordinance No. 189 with the stipulation that he questions the item but recognizes that further study of alternatives for tracking connections and the timing of payment of fees will be done and the matter will be brought back to the Board for further consideration. a. 5. HEARINGS CONDUCT PUBLIC HEARINGS TO CONSIDER THE APPLICATIONS FOR REFUSE COLLECTION RATE INCREASES SUBMITTED BY VALLEY WASTE MANAGEMENT AND ORINDA-MORAGA DISPOSE-ALL EFFECTIVE JANUARY 1. 1994 This item was taken out of order at 3:00 p.m., the time scheduled for the public hearings. 6. CALL FOR REQUESTS TO CONSIDER ITEMS OUT OF ORDER Item 5., Hearings, was taken out of order later in the agenda. 7. ADMINISTRATIVE a. ESTABLISH A SPECIFIC DOLLAR LIMIT FOR PROFESSIONAL CONSULTING SERVICE AGREEMENTS FUNDED FROM THE O&M BUDGET AND RECEIVE AN INFORMATIONAL COpy OF P-015 FOR INCLUSION INTO THE PURCHASING AND MATERIALS MANUAL Following explanation by Mr. Dolan, General Manager-Chief Engineer, it was agreed that $25,000 is a reasonable limit for professional consulting service agreements funded from the Operations and Maintenance Budget. It was moved by Member Menesini and seconded by Member Dalton, that the requirement to obtain Board approval for O&M Professional Consulting Service Agreements above $25,000 be adopted, and that Procedure No. P-015 be received for inclusion into the - Purchasing and Materials Manual. There being no objection, the motion was unanimously approved. a. 8. TREATMENT PLANT AUTHORIZE GENERAL MANAGER-CHIEF ENGINEER TO EXECUTE A PROFESSIONAL CONSULTING SERVICES AGREEMENT WITH MONTGOMERY WATSON FOR ASSISTANCE WITH RESIDUALS MANAGEMENT Mr. Dolan, General Manager-Chief Engineer, stated that Mr. Ramesh Babu, of Montgomery Watson, has done similar work for the District in the past on a professional consulting services agreement funded through the O&M Budget. Finding a recycling option for disposal of the District's residuals is a priority and approval of this professional consulting services agreement for residual disposal/recycling is requested. Following discussion, it was moved by Member Clausen and seconded by Member Hockett, that the General Manager-Chief Engineer be authorized to execute a professional consulting services agreement in an amount not to exceed $25,000 with Montgomery Watson for professional services for residual disposal/recycling. There being no objection, the motion was unanimously approved. a. 9. CORRESPONDENCE NOTE RECEIPT OF LETTER DATED NOVEMBER 29.1993 FROM MS. GRETCHEN MARIOTTI. CHAIR OF THE CONTRA COSTA SOLID WASTE AUTHORITY. REQUESTING RATIFICATION OF CONTRA COSTA SOLID WASTE AUTHORITY JOINT POWERS AGREEMENT AMENDMENTS IN THE AREAS OF 1) PROVISIONS FOR ESTABLISHING A VOTING QUORUM: 2) AN EXPANDED FINANCIAL PROCEDURE SECTION TO BRING THE AGREEMENT INTO COMPLIANCE WITH CURRENT STATE LAW: AND 3) MODIFICATIONS NEEDED TO CORRECT MINOR ERRORS AND TO PROVIDE FOR INTERNAL CONSISTENCY AMONG ALL SECTIONS OF THE AGREEMENT AND ADOPTION OF A RESOLUTION TO THAT EFFECT 12 16 93 258 President Rainey, the District's representative on the Contra Costa Solid Waste Authority (CCSWA), stated that clean up language to the CCSWA Joint Powers Agreement is proposed. The primary purpose is to establish and clarify voting quorum requirements. Member Menesini stated that this issue is not clear to him and suggested that a work session be held on this subject. Member Menesini stated that in his opinion the costs of the CCSWA have exceeded the benefits. President Rainey stated that she and Mr. Paul Morsen, Deputy General Manager, would be happy to meet with Member Menesini on this subject. Member Menesini agreed. It was moved by Member Clausen and seconded by Member Dalton, that Resolution No. 93-139 be adopted, ratifying amendments to the CCSWA Joint Powers Agreement in the areas of provisions for establishing a voting quorum, an expanded financial procedure section to bring the agreement into compliance with current State law, and modifications needed to correct minor errors and to provide for internal consistency among all sections of the agreement. Motion approved on the following roll call vote: AYES: Members: Clausen, Dalton, Hockett, Rainey NOES: Members: None ABSENT: Members: None ABSTAIN: Members: Menesini b. RECEIVE REQUEST DATED DECEMBER 9. 1993 FROM MS. AVON WILSON. EXECUTIVE DIRECTOR OF THE CONTRA COSTA SOLID WASTE AUTHORITY. FOR INPUT REGARDING REGIONAL COORDINATING COUNCIL President Rainey stated that Ms. Avon Wilson, Executive Director of the Contra Costa Solid Waste Authority (CCSWA), is alerting the Board to the fact that the Central Contra Costa Solid Waste Authority (CCCSWA) will conduct a workshop on staffing options for the Regional Coordinating Council. President Rainey stated that a deadline of March 31, 1994 has been established. At that time, CCSWA will either cease to exist or go into a modified existence. If it continues to exist, it must have a work program and the work program will influence the selection of a staffing option. Member Menesini expressed concern that components of a suggested work program are already being done by other agencies. Member Menesini stated that CCSWA should cease to exist if it is not doing anything. Following discussion, it was agreed that this item be calendared for further discussion in January 1994. c. NOTE RECEIPT OF LETTER DATED DECEMBER 2. 1993 FROM UNITED STATES CONGRESSMAN DAN HAMBURG THANKING THE DISTRICT FOR CONTACTING HIM REGARDING THE SAN FRANCISCO BAY-DELTA ESTUARY RESTORATION ACT OF 1993 Receipt of the December 2, 1993 letter from United States Congressman Dan Hamburg thanking the District for contacting him regarding the San Francisco Bay-Delta Estuary Restoration Act of 1993, was noted. 10. APPROVAL OF MINUTES a. MINUTES OF DECEMBER 2. 1993 It was moved by Member Hockett and seconded by Member Clausen, that the minutes of December 2, 1993 be approved as presented. There being no objection, the motion was unanimously approved. 12 16 93 259 11. APPROVAL OF EXPENDITURES a. EXPENDITURE LIST DATED DECEMBER 16. 1993 Member Menesini, member of the Budget and Finance Committee, stated that he and Member Hockett reviewed the expenditures. Questions are being investigated by staff. With that understanding, it was moved by Member Menesini and seconded by Member Hockett, that the Expenditure List dated December 16, 1993, including Self-Insurance Check Nos. 100768-100775, Running Expense Check Nos. 78710-79483, and Sewer Construction Check Nos. 13463-13604, be approved as recommended. There being no objection, the motion was unanimously approved. 12. BUDGET AND FINANCE RECEIVE NOVEMBER 1993 FINANCIAL STATEMENTS a. Ms. Deborah Ratcliff, Controller, reviewed the results of operations and maintenance expenses for the month of November 1993, noting that expenditures were $217,000 less than budget representing a 9.6 percent favorable variance. For the five months ended November 30, 1993, expenditures were $1.7 million less than budget representing a 15 percent favorable variance. For the five months ended November 30, 1993, revenues were $200,000 greater than budget representing an 8.6 percent favorable variance. Ms. Ratcliff reported that the District's temporary investments were held in Treasury bills and Treasury notes and the District's Local Agency Investment Fund (LAIF) account with interest rates ranging from 3.7 percent to 5.8 percent. The latest interest rate as of April 1993 was 3.8 percent. The average yield for the District's LAIF account was 4.4 percent. President Rainey declared that the November 1993 Financial Statements were duly received. 13. EMERGENCY SITUATIONS REQUIRING BOARD ACTION None 14. REPORTS a. GENERAL MANAGER-CHIEF ENGINEER 1 ) Mr. Dolan, General Manager-Chief Engineer, announced that the California Integrated Waste Management Board has just approved the Source Reduction and Recycling Elements (SRREs) and the Household Hazardous Waste Elements (HHWEs) for Orinda, Moraga, Danville, and Lafayette. Mr. Paul Morsen, Deputy General Manager, stated that the Contra Costa County Integrated Waste Management Plan, which includes the SRREs and HHWEs for Orinda, Moraga, Danville, and Lafayette, was the first plan to receive state approval. President Rainey expressed the Board's appreciation to Ms. Elaine Jacobs, Assistant Engineer (Solid Waste), for her efforts in this regard. Member Menesini requested that Ms. Jacobs provide a report at the next meeting. b. COUNSEL FOR THE DISTRICT None c. SECRETARY OF THE DISTRICT None d. BOARD MEMBERS 1 ) Member Clausen reported on the December 6, 1993 meeting of the Central Contra Costa Solid Waste Authority at which Mr. Bob Hilton, of Hilton Farnkopf & Hobson, made a presentation on the firm's study of Solid Waste 16 93 12 260 and Recycling Service Options - Post 1996. Mr. Bob Hilton addressed the Board briefly describing the work the firm did for the Central Contra Costa Solid Waste Authority relative to solid waste franchising options post 1996. Mr. Hilton stated that the report is still in draft form. It is proposed that information be gathered through the Request for Proposals process that will allow each city and town to make a decision concerning future solid waste and recycling service options. 2) President Rainey requested that Board Members maintain their current committee assignments until the first meeting in January at which time she will make the committee assignments for 1994. At 2:58 p.m., President Rainey declared a recess, reconvening at the hour of 3:04 p.m. with all parties present as previously designated. At this time, President Rainey returned to Item 5., Hearings. 5. HEARINGS a, CONDUCT PUBLIC HEARINGS TO CONSIDER THE APPLICATIONS FOR REFUSE COLLECTION RATE INCREASES SUBMITTED BY VALLEY WASTE MANAGEMENT AND ORINDA-MORAGA DISPOSE-ALL EFFECTIVE JANUARY 1. 1994 President Rainey stated that the purpose of the public hearings is to receive public comments regarding the applications for adjustments in refuse collection rates submitted by Valley Waste Management and Orinda-Moraga Dispose-All, and to establish refuse collection rates effective January 1, 1 994. Each of the rate applications will be the subject of a separate public hearing. Mr. Dolan, General Manager-Chief Engineer, introduced Mr. Paul Morsen, Deputy General Manager, who described the refuse collection and disposal process and costs from 1984 through 1993. The process has become more complex and costs have escalated from 1984 when the total one-can residential rate was $8.50 to 1993 when the total one-can residential rate is $18.85. Mr. Morsen summarized extraordinary increases in garbage costs as follows: 1 ) Landfill disposal-related costs for environmental controls, royalties/finder fees, allowed profit, and transfer costs; 2) Waste diversion-related costs for recycling, green waste, household hazardous waste, and backyard composting; 3) State-mandated costs for preparation of household hazardous waste and source reduction and recycling plans, and payment of state fees; 4) Local fees including Contra Costa County and Central Contra Costa Sanitary District fees. Mr. Morsen stated that possible solutions to increasing garbage costs include bidding the franchises in 1996, identifying lower cost disposal alternatives, and seeking legislative changes to relax state-mandated recycling and source reduction program goals. Mr. Dolan introduced Mr. Bob Hilton, of Hilton Farnkopf & Hobson (HFH). Mr. Hilton stated that Valley Waste Management (VWM) and Orinda-Moraga Dispose-All (OMD) submitted requests for rate adjustments, one for an increase and one for a decrease in rates. The collectors are responsible for making the projections and for the supporting documentation for those projections. Mr. Hilton stated that HFH was hired to review the rate applications and to ensure their reasonableness. HFH followed procedures set by the District in the past. During the reviews, issues were raised and discussions took place with the collectors. A public workshop was held at the last Board Meeting and the collectors had an opportunity to speak at that time. Comments made and information presented after the workshop have been reviewed. Mr. Hilton provided a comparison of current refuse collection rates in neighboring jurisdictions noting that rates vary for a number of reasons, the primary reasons being lower costs of disposal, the makeup of the communities, and the services provided. Mr. 12 16 93 261 Hilton reviewed the issues common to both the VWM and OMD rate applications; namely, revenue shortfall, labor contract negotiations, disposal expense, closure and post-closure cost assessment, revenue and expense balancing account, and revision to profit calculation. Mr. Hilton stated that both collectors failed to achieve the level of revenues projected in the last rate review process. This is one of the major factors affecting the rates. Last year, the revenue shortfall in the VWM Lafayette service area was $368,000, $576,000 in the VWM non-Lafayette service area, and $47,000 in the OMD service area. Revenues were less than anticipated because of recycling efforts and because the volume of waste decreased as a result of a decrease in business resulting in disposal of less waste. Mr. Hilton stated that one of the factors that is unknown at this time is labor costs. Labor expense is approximately 25 percent of the total expense. Current labor agreements expire December 31, 1993 and negotiations have not yet been concluded. HFH looked at recent adjustments in labor contracts and recent settlements around the Bay Area and made an estimate for purposes of the rate analyses. Based on that review, an estimate of 2 percent for wages and 5 percent for benefits for both collectors was used. Should the actual results of negotiations materially differ, the Board should consider adjusting the recommended rates. Mr. Hilton stated that another unknown factor that may change during the year is disposal expense. Disposal expense is approximately 30 percent of the total operating expense. VWM disposes of waste at the Acme Transfer Station at a cost of $76 per ton. HFH assumed that for rate analysis purposes the current rate of $76 per ton will be maintained, even though the County will evaluate this rate in January 1994. OMD disposes of waste at the West Contra Costa Landfill at a cost of $63 per ton. That figure has been assumed in the rate analysis. The collectors have not requested, and HFH is not recommending, an adjustment to these rates. Should a significant adjustment be implemented, the Board can consider adjusting the recommended rates upward or downward. With regard to the Acme Landfill closure and post-closure cost assessment, the County program to assess costs has not been implemented. A lawsuit was filed by Acme in 1991 against the refuse collectors and others to close the hazardous waste section of the landfill. Legal expenses related to the lawsuit in the amount of $460,000 for VWM and $208,000 for OMD are included in the rate applications. Valley Disposal Service, Inc. and Mrs. Francise Fiorentino have requested a total of $270,000 for legal expenses related to the Acme lawsuit. Mr. Hilton stated that the revenue and expense balancing account was implemented in 1 991. The difference between the actual and forecasted net operating income is carried forward in setting the following year's rates, and final adjustment is made to the balancing account based on audited financial statements in the year following. Significant revenue shortfalls in 1993 have produced large deficits in the balancing account for VWM. Mr. Hilton stated that an issue has been raised regarding the interest rate used to compute interest on the balancing account. An interest rate of 3.5 percent, which reflects current short-term borrowing costs and is consistent with the short-term nature of the annual balancing account, was used last year and in the rate analyses. VWM has suggested that the more appropriate interest rate would be 6.36 percent for 1993 and 5.82 percent for 1994 based on the Ten-Year High Quality Corporate Bond Rate. Mr. Hilton stated that both collectors have requested that the rates be calculated using a 93 percent Operating Ratio. This is different than the methodology used by the District. Mr. Hilton described the historical profits of the companies using both the Operating Ratio methodology and the Residential Customer Equivalent Units methodology. Mr. Hilton stated that neither collector has been harmed in any way by the District's methodology. Mr. Hilton proceeded to review of the OMD rate application. Last year, OMD received a 23.36 percent increase in part to cover their current operating costs and to make up for an amount in the balancing account due the collector. This year, OMD has requested a 4.2 percent decrease in rates. Based on their analysis, HFH recommends a 10.73 percent decrease in rates resulting mainly from adjustment to the profit calculation and updating of balancing account projections. Mr. Hilton reviewed the unique issues relating to the OMD rate application, including affiliated entities' transactions, implementation of a yard waste program in 1994, and implementation of a mini-can rate. 12 16 93 ..-.---.---..--.--.. -----....--.-.-.--.- -.-.--...... -. --. .-------.--.--. '--.---'-.'.'-.'-.. .. 262 ... Mr. Hilton stated that OMD complied with the rules implemented last year with regard to affiliated entities' transactions which involve a related party. Those transactions included equipment and corporation yard leases, a consulting agreement, and notes payable. Expenses related to these transactions were appropriately not included in the rate application. However, one adjustment was made to an increase in compensation to an officer/owner that was disproportionate to last year. After discussions with the collector, it was determined that no changes in duties had occurred and the adjustment was disallowed. Mr. Hilton stated that OMD has developed several alternatives for implementation of a yard waste program finally agreeing to try to site two yard waste drop-off centers, one in Moraga and one in Orinda, at a cost of $54,000 per year. Since it is unlikely that the Orinda site will be located, the net impact on the rates without the Orinda site is only about $2,000. Mr. Hilton stated that OMD has proposed a 20-gallon mini.can rate of $16.00, a 38 percent reduction from a single 32-gallon can rate. The collector assumed that 40 percent of the one-can customers will subscribe to the mini-can service. The collector projects an increase of $2.65 per can to other customers will be required. Mr. Hilton stated that implementation of the mini-can rate was not factored into the analysis. However, for the Board's information, the City of Walnut Creek currently has 6 percent of all residential customers subscribing to mini-can service. Assuming Walnut Creek's experience and a mini-can rate discounted 10 percent from the 32-gallon single can rate, other rates would decrease approximately 0.12 percent less than recommended. Mr. Hilton summarized the HFH recommendations with regard to the OMD rate application as follows: 1 ) With regard to labor contract negotiations, use the 1994 wage and benefit increase of 2 percent and 5 percent respectively, as opposed to OMD's projection of 7 percent; if actual significantly differs, adjust as necessary. 2) No adjustment has been made to the projected 1994 disposal rate of $62.77 per ton. Adjust as necessary if the rate changes significantly. 3) With regard to yard waste drop-off, assume that the Orinda site is unlikely to be located and allow a net cost of $2,000, the projected cost excluding the Orinda site. . 4) Disallow the increase to officer/owner compensation. 5) Retain the present Residential Customer Equivalent Units profit calculation methodology, denying the request to return to the Operating Ratio methodology. 6) Determine whether the quality of service modification factor of 1.00 is appropriate. 7) Determine whether the cost of service modification factor of 1.00 is appropriate. 8) Consider the recommended rate decrease of 10.73 percent. Mr. Hilton review the computation of allowable profit, the rate adjustment calculation, and the impact on residential collection rates for the Orinda and Moraga service areas. At 4:30 p.m., President Rainey opened the public hearing to receive public comments regarding the application for adjustment in refuse collection rates submitted by Orinda- Moraga Dispose-All. President Rainey noted that the following correspondence was received and considered by the Board: 12 1 ) Letter dated December 10, 1993 from Mr. Paul A. Stewart, Executive Director of Rental Housing Association, concurring with the recommended 10.73 percent decrease in rates. 16 93 ---_..- .--.---------.-.-.--....------. ... .-.-------.-----..---.....-..-....--.---.---.----..-.-----.........-----------.. 263 2) Letter dated December 10, 1993 from Ms. Frances L. Fleurbaaij, Moraga, expressing dissatisfaction with collection service and the company's response. 3) Letter from Ms. Janice Soubielle, Orinda, protesting high rates. 4) Letter dated December 5, 1993 from Ms. Ruth Dixon, Orinda, protesting high rates and expressing concern about the fairness of a separate yard waste program. 5) Letter dated November 17, 1993 from Mr. and Mrs. Bruce Howard, Orinda, requesting a rate reduction for those who recycle. 6) Letter dated November 1 1, 1993 from Mr. Richard A. Nishkian, Orinda, supporting flat rates and separate yard waste collection, and opposing high landfill disposal costs. Mr. Doug Lomow, President of Orinda-Moraga Dispose-All, addressed the Board expressing the following concerns: 1) In spite of the rate increase last year, revenues are off by $400,000; 2) The franchise is not enforced with regard to drop box service; and 3) Customers are retreating to a lower level of service and dumping behind shopping centers. Mr. Lomow stated that the bottom line is that there is a revenue shortfall and the rates are too high, but the company now has a fairly consistent revenue pattern. Anticipating the revenue shortfall in 1993, OMD made a difficult decision to address the issue by cutting staff and directing the trash to West Contra Costa Landfill, reducing expenses even below what had been allowed in the previous year and taking on added risk. Mr. Lomow expressed dismay that for that extra effort instead of approving the 4.2 percent decrease requested, staff has recommended that the rates be reduced by 10.73 percent. Mr. Lomow stated that he is incredibly disappointed. Mr. Lomow requested that the Board return to the Bay Area standard, a 93 percent Operating Ratio method for calculating profit, in order to keep the company viable. Mr. Paul Stewart, Executive Director of Rental Housing Association (RHA), addressed the Board, stating that RHA represents over 15,000 residential units in Contra Costa County and is concerned with any rate increase or decrease on residential income property. RHA's concerns were noted in the December 10, 1993 letter distributed to the Board. RHA concurs with the findings and recommendations of HFH with regard to OMD. With respect to VWM, RHA cannot support the HFH findings and recommendations, but instead recommends that an 8.95 percent increase be granted for the non-Lafayette VWM area and that a 2.8 percent increase be granted for the Lafayette VWM area. Mr. Stewart stated that these recommendations are based on the premise that people should not be penalized for doing a good job of recycling. There being no further comments, President Rainey closed the public hearing at the hour of 4:49 p.m. and returned the matter to the Board for deliberation. Discussion followed concerning savings resulting from going to West Contra Costa Landfill and the use of the cost of service modification factor to reflect those savings. At 4:55 p.m., President Rainey declared a recess reconvening at the hour of 5:01 p.m. with all parties present as previously designated. At this time, Mr. Hilton proceeded to the HFH analysis of the VWM rate application. Mr. Hilton stated that VWM has requested a 12.19 percent increase in the Lafayette service area and a 16.50 percent increase in the non-Lafayette service area. Mr. Hilton stated that based on the HFH analysis, it is recommended that an increase of 12.25 percent be considered for the Lafayette service area and that an increase of 14.59 percent be considered for the non-Lafayette service area. These adjustments are due primarily to the profit methodology requested by the collector and to the balancing account amount due to VWM. Mr. Hilton stated that VWM has requested compensation for intercompany charges in the amount of $150,000. This is the same amount as was awarded by the Board last year and the amount that is included in the recommended rates. VWM has supplied information relating to the savings resulting from the affiliation to the parent company. 12 16 93 264 Mr. Hilton stated that last year the yard waste processing costs were projected at $9.90 per ton, the processing cost at the Waste Fibre Recovery facility. The facility was unable to accept all the yard waste from the VWM service area and some was processed at the higher rate of $38 per ton. Mr. Hilton stated that one of the issues VWM raised in its rate application was the concern that commercial rates were getting so high they are negatively impacting commercial customer subscription levels. If residential revenues are increased to the amount necessary to fund expenses and profit related to residential customers, an additional increase of 5.75 percent would be required in the Lafayette service area and an additional increase of 12.41 percent would be required in the non-Lafayette service area. The HFH review found that the shortfall amount is approximately 18 percent in the Lafayette service area and approximately 27 percent in the non-Lafayette service area. This falls in the range of other Bay Area jurisdictions, where shortfalls range from 0 to 44 percent. Mr. Hilton reviewed the HFH recommendations based on the analysis of the VWM rate application as follows: 1 ) With regard to labor contract negotiations, accept VWM's projected increase to wages and benefits of 2 per cent and 5 percent respectively; if actual significantly differs, adjust as necessary. 2) With regard to disposal expense, calculate rates based on the current rate of $76 per ton; adjust as necessary if the rate changes significantly in 1994. 3) Retain the present Residential Customer Equivalent Units profit calculation methodology, denying the request to return to the Operating Ratio methodology. 4) Determine whether the quality of service modification factor of 1.0 is appropriate. . 5) Determine whether the cost of service modification factor of 1.0 is appropriate. 6) Consider the recommended rate increases of 14.59 percent for the non- Lafayette service area and 12.25 percent for the Lafayette service area. Mr. Hilton reviewed the computation of allowable profit, the rate adjustment calculation and the impact on residential collection rates for the Lafayette service area and the non- Lafayette service area. Mr. Paul Morsen, Deputy General Manager, stated that he attended the Danville Town Council meeting at which the VWM rate application was discussed. Mr. Morsen stated that the Town Council had three issues they wished conveyed to the Board. 3) 1 ) The overall increases in solid waste costs are cause for great concern. 2) With continued rate increases like the one proposed this year, people may not be as willing to make the extra effort on recycling and the state- mandated goals may not be achieved. The District should not direct the waste stream to the Acme/Keller Canyon system but instead should continue to look for other disposal alternatives. At 5: 14 p.m., President Rainey opened the public hearing to receive public comments regarding the application for adjustment in refuse collection rates submitted by VWM. President Rainey noted that the following correspondence was received and considered by the Board: 12 1 ) Letter dated December 14, 1993 from Mr. Ivor Samson, City of Lafayette Councilmember, commenting on the rate-setting methodology and recommending that customers be charged for services received. 16 93 10) 11 ) 265 2) Letter dated December 6, 1993 from Ms. Lynn Price, Lafayette, opposing a rate increase. 3) Letter dated December 3, 1993 from Ms. Miriam Pecherer, Lafayette, opposing a rate increase and questioning why Lafayette's rates are higher than Orinda and Moraga. 4) Letter dated November 29, 1993 from Ms. Laurie Aars, Lafayette, opposing a rate increase and suggesting cost-cutting measures. 5) Letter dated November 17, 1993 from Mr. Robert N. Dorsett, Lafayette, opposing a rate increase. 6) Letter dated November 16, 1993 from Mr. Daniel A. Yiannikos, Lafayette, opposing a rate increase, and expressing dissatisfaction with the previous underbilling for difficult-to-access areas and failure to provide notice of schedule changes. 7) Letter dated December 10, 1993 from Mr. Paul A. Stewart, Executive Director of Rental Housing Association, recommending that an 8.95 percent increase be granted for the non-Lafayette VWM service area and a 2.8 percent increase for the Lafayette service area rather than the rates recommended in the HFH analysis. 8) Letter received December 7, 1993 from Ms. Evelyne Karim, Walnut Creek, opposing a rate increase, and indicating that she recycles and composts and thus produces little garbage. 9) Letter dated December 7, 1993 from Ms. Mary Givens, Alamo, opposing a rate increase. Letter dated December 6, 1993 from Mr. Harold L. Fates, Jr., Alamo, opposing a rate increase and suggesting changes to the rate-setting process. Letter dated December 5, 1993 from Ms. Elizabeth Leite, Walnut Creek, opposing a rate increase and extra services not used, and requesting a minimum standard of services for those who generate little waste. 12) Letter dated December 2, 1993 from Ms. Debra Magliano, Danville, opposing a rate increase and asking for collection of a wider variety of items in the curbside recycling program. 13) Letter dated November 28, 1993 from Mr. Matthew J. Stamey, Danville, opposing a rate increase. 14) Letter dated November 19, 1993 from Mr. and Mrs. Robert F. Burns, Alamo, opposing a rate increase and suggesting that economic as well as environmental incentives be used when asking customers to comply with increasing regulations. 15) Letter dated November 15, 1993 from Mr. Jack Springer, Walnut Creek, opposing a rate increase. 16) Letter dated November 14, 1993 from Mr. Jim Pirkle, Alamo, opposing a rate increase. Mr. Ron Proto, General Manager of Valley Waste Management, distributed a handout and addressed the Board concerning comparable single can rates, balance account interest, profit, and shared savings. Mr. Proto agreed with Mr. Hilton that comparable rates should not be used for making rate decisions because many major factors can distort the rates. In addition to the disparity in disposal costs, factors such as labor, level of recycling, number of cleanups, franchise fees, and rate subsidies, must also be considered. The value received for the dollar must be considered in addition to cost. 12 16 93 266 With regard to the issue of interest on the balancing account, Mr. Proto stated that the Board approved the use of the High Quality Corporate Bond Index last year as indicated in the May 8, 1992 letter from the District. Mr. Proto stated that there are four issues relating to profit: 1)" gross profit", 2) Residential Customer Equivalent Unit calculation, 3) Operating Ratio, and 4) shared savings. Mr. Proto stated that there is no basis for including the capital use charge (interest expense) in the gross profit. This is not in accordance with Generally Accepted Accounting Principles. Mr. Proto stated that there are several deficiencies and/or conflicts inherent in the formula for calculation of the Residential Customer Equivalent Units (RCEU). RCEU does not distinguish different levels or types of service, does not reward for implementing residential recycling programs, penalizes for implementing "free" commercial recycling programs, and attempts to correlate residential and commercial revenue. Mr. Proto suggested that the District return to the Operating Ratio method of calculating profit. The Operating Ratio method is an acceptable method of calculating rate regulated profit for waste management companies. Mr. Proto requested that a 93 percent modified Operating Ratio be granted. Mr. Proto stated that due to an oversight in preparing the rate application, VWM failed to include shared program cost savings achieved in disposal costs for the yard waste program. Mr. Proto suggested that the cost of service and quality of service modification factors could be adjusted to compensate for this savings. In summary, Mr. Proto stated that the single can service rates in other jurisdictions are not comparable, the High Quality Corporate Bond Index should be used for the balancing account interest, and the RCEU method of calculating profit is an anomaly. Mr. Proto recommended that the use of RCEU method for calculating profits be discontinued, that a 93 percent modified Operating ratio be approved, and that 50/50 shared cost savings from yard waste programs be approved. Mr. Proto urged the Board to consider the value received and reward the collectors for doing a good job. Mr. Marshall Grodin, addressed the Board on behalf of Ms. Francise Fiorentino and their former company, Valley Disposal Service, Inc. (VDS). Mr. Grodin stated that his interest in this matter is that the Acme litigation defense costs for Ms. Fiorentino and VDS be recouped and set aside for consideration to be reimbursed. Almost two years ago, a claim for reimbursement of these legal costs was made in accordance with the Government Code. That claim was denied by the Board. Mr. Grodin státed that about eight months ago, his attorney discussed the issue of recovering ongoing and future defense costs with District Counsel. As time went on, Mr. Grodin stated that he realized that VWM and OMD were successful in getting those costs set aside and VDS and Ms. Fiorentino decided to pursue it as well. Mr. Grodin requested that both past and projected costs be recovered. Those costs are not included in the staff recommendation on this matter. While the staff position recognizes the costs, there is no recommendation that they be included in this rate adjustment for VWM and OMD or the decision to be made in February 1994. Mr. Grodin requested that the costs be included now and that recovery begin in January 1994 so there will be funds to draw on if the Board so determines in February 1 994. Member Clausen asked if demands had been made on behalf of Ms. Fiorentino and VDS of the insurance companies to provide defense. Mr. Grodin stated that they had. Suit has been filed against the insurance to recover legal costs. Mr. Kenton L. Aim, Counsel for the District, stated that one of the issues discussed previously was tendering on behalf of the District as an additional insured. Mr. Brian Bunger, attorney for VDS and Mrs. Fiorentino, stated that all of the insurance companies have been notified on behalf of VDS and Ms. Fiorentino going back two years. Suit has now been filed on Fireman's Fund. All of the carriers have not yet been noticed on the District's behalf. There being no further comments, President Rainey closed the public hearing at the hour of 5:56 p.m. Mr. Hilton stated that Messrs. Proto and Lomow commented on the methodology used to calculate profit. To say that the District is the only jurisdiction where Operating Ratio is not used is incorrect. San Francisco, Marin, and Gilroy are among those that use 12 16 93 267 methods other than Operating Ratio for calculating profit. Mr. Dolan described the basis for the pre-tax, pre-interest profit calculation which is based on the Public Utilities Commission rate regulation method for natural monopolies that have vast capital facilities and low operating costs. Mr. Dolan stated that the pre-tax, pre-interest Operating Ratio has the flaw of rewarding increasing expenses. With regard to shared savings, Mr. Hilton stated that programs are identified for shared savings in advance as opposed to something that good management would dictate in any case. The Board must evaluate whether savings resulting from the yard waste program and efforts to find less expensive places for processing are extraordinary or something that management would be expected to do. The issue of profits for residential and commercial operations and the drawbacks of various alternatives were discussed. Mr. Dolan stated that the test is that after three years with implementation of recycling and yard waste programs, the collectors are still making a profit and remaining competitive. Discussion followed concerning implementation of programs to achieve state-mandated recycling and source reduction goals. Member Menesini stated that the Board must set a rate that is fair and equitable. Both collectors have done a good job in terms of service. At this time, President Rainey directed the Board's attention to the decision points relating to the Valley Waste Management rate application.' Following discussion of options for collection of legal expense related to the Acme lawsuit for Valley Disposal Service, Inc. and Mrs. Fiorentino, it was moved by Member Menesini and seconded by Member Clausen, that continued collection and impound of legal expense related to the Acme lawsuit be authorized as recommended in the HFH analysis, delaying decision on disbursement until February 1994 and that no additional amount be collected above the amount recommended in the rate analyses. There being no objection, the motion was unanimously approved. It was moved by Member Menesini and seconded by Member Dalton, that the present Residential Customer Equivalent Units profit calculation methodology be retained and that the request for return to the Operating Ratio methodology be denied. There being no objection, the motion was unanimously approved. It was moved by Member Dalton that the cost of service and the quality of service modification factors for Valley Waste Management each be set at 1.00. Member Menesini stated that even though it is repugnant to raise rates, the efforts made by both companies have exhibited extra effort and they deserve recognition for the quality service they have provided. Member Clausen agreed. The above motion to set the cost of service and quality of service modification factors for Valley Waste Management at 1.00 died for lack of a second. Discussion followed concerning savings resulting from the Valley Waste Management yard waste program. Member Menesini stated that Orinda-Moraga Dispose-All has made a demonstrable effort. It was moved by Member Menesini that the qualification of service modification factor be set at 1.05 for Orinda-Moraga Dispose-All. Following discussion, Member Menesini withdrew the above motion. Discussion returned to the cost of service and quality of service modification factors relating to Valley Waste Management. It was moved by Member Clausen and seconded by Member Dalton, that the cost of service modification factor for Valley Waste Management be set at 1.10 for both the Lafayette and non-Lafayette service areas. Following discussion, the motion was unanimously approved. Member Menesini stated that it would be appropriate to give some recognition in the area of service. 12 16 93 268 Mr. Hilton stated that processing costs for the yard waste program are usually less than landfill disposal costs but other operating costs for trucks and related items increase because additional vehicles are required, thus offsetting savings. Identifying the lowest cost processing is considered by many to be a management function and just good business. Mr. Hilton stated that he has no additional information that would allow him to give the Board an independent opinion on the quality of service. It was moved by Member Menesini and seconded by Member Dalton, that the quality of service modification factor for the Valley Waste Management Lafayette and non-Lafayette service areas be set at 1.05. The motion was approved with President Rainey voting no. President Rainey stated that a total of 1.10 is sufficient recognition for the efforts made by Valley Waste Management both with regard to cost savings and quality of service, and for that reason she voted no to the above motion. President Rainey expressed the hope that in January 1994, new rate-setting methodologies could be explored. Following discussion, it was moved by Member Menesini and seconded by Member Hockett, that because of the short-term nature of the balancing account, the use of the short-term financing rate, 3.5 percent, be authorized as the interest rate on the balancing account and that the request for the Ten-Year High Quality Corporate Bond Rate of 5.82 percent be denied. There being no objection, the motion was unanimously approved. Member Menesini stated that it is very difficult to digest the amount of information presented over such a short period of time. Member Menesini suggested that in the future, the rate-setting process be started and the input of the collectors be enlisted earlier. At this time, President Rainey proceeded to the decision points relating to the Orinda- Moraga Dispose-All rate application. It was moved by Member Hockett and seconded by Member Clausen, that the present Residential Customer Equivalent Units profit calculation methodology be retained and that the request for return to the Operating Ratio methodology be denied. There being no objection, the motion was unanimously approved.. . It was moved by Member Menesini and seconded by Member Clausen, that the quality of service modification factor be set at 1 .05 for Orinda-Moraga Dispose-All. There being no objection, the motion was unanimously approved. Following discussion of OM D's efforts to identify a lower cost disposal option, it was moved by Member Clausen and seconded by Member Hockett, that the cost of service modification factor be set at 1.05 for Orinda-Moraga Dispose-All. There being no objection, the motion was unanimously approved. It was moved by Member Clausen and seconded by Member Dalton, that because of the short-term nature of the balancing account, the use of the short-term financing rate, 3.5 percent, be authorized as the interest rate on the balancing account and that the request for the Ten-Year High Quality Corporate Bond Rate of 5.82 percent be denied. There being no objection, the motion was unanimously approved. Receipt was noted of the letter from Orinda-Moraga Dispose-All handed to the Board by Mr. Lomow following the public hearing. In the letter, Mr. Lomow indicates that Orinda- Moraga Dispose-All will be directing waste to the Acme/Keller Canyon disposal system on or before January 1, 1994, and requesting that the Board set rates reflecting this increased disposal cost. Following discussion, it was the consensus of the Board that the rate calculation for Orinda-Moraga Dispose-All be adjusted to reflect the $76/ton Acme/Keller Canyon disposal cost. Mr. Hilton stated that the recommended rate decrease will be reduced by 4.89 percent. At 7:23 p.m., President Rainey declared a recess, reconvening at the hour of 7:27 p.m. with all parties present as previously designated with the exception of Members Menesini and Dalton who had left the meeting. At this time, President Rainey reverted to the order of the agenda. 12 16 93 269 14. REPORTS d. BOARD MEMBERS 3) AB 1335, relating to initiation of organizational changes of special districts, was discussed briefly. It was moved by Member Hockett and seconded by Member Clausen, that staff be directed to draft a resolution for the Board's consideration at the next meeting, initiating proceedings for representation of special districts on the Local Agency Formation Commission of Contra Costa County and for the adoption of rules and regulations. There being no objection, the motion was approved with Members Menesini and Dalton being absent. 15. ANNOUNCEMENTS None 16. CLOSED SESSION None 17. ACTIONS RESULTING FROM DISCUSSIONS IN CLOSED SESSION None 18. ADJOURNMENT There being no further business to come before the Board, President Rainey adjourned the meeting at the hour of 7:33 p.m. President of the Board of Directo , Central Contra Costa Sanitary District, County of Contra Costa, State of California COUNTERSIGNED: /\ß.-L-t f' A I / s~. e. ry of the Central C tra Cõsta Sanitary District, County of Contra Costa, State of California 12 16 93