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HomeMy WebLinkAboutBOARD MINUTES 07-06-88 101 MINUTES OF THE ADJOURNED REGULAR BOARD MEETING OF THE DISTRICT BOARD OF THE CENTRAL CONTRA COSTA SANITARY DISTRICT HELD ON JULY 6, 1988 The District Board of the Central Contra Costa Sanitary District convened in an adjourned regular meeting at its regular place of meeting, 5019 Imhoff Place, Martinez, County of Contra Costa, State of California, at 7:00 p.m. on July 6, 1988. President Rainey called the meeting to order, and requested that the Secretary call roll. I. ROLL CALL PRESENT: Members: Boneysteele, Dalton, Clausen, Rainey ABSENT: Members: Carlson Member Carlson had previously indicated that he would be unable to attend this meeting and requested that he be excused. II. PUBLIC COMMENTS None III. HEARINGS 1. CONDUCT PUBLIC HEARINGS TO CONSIDER THE APPLICATIONS FOR REFUSE COLLECTION RATE INCREASES SUBMITTED BY VALLEY WASTE MANAGEMENT;" ORINDA-MORAGA DISPOSAL SERVICE, INC., AND PLEASANT HILL BAY' SHORE " ' DISPOSAL President Rainey stated that three separate public hearings will be conducted to consider the individual applications for refuse collection rate increases by Valley Waste Management, Orinda-Moraga Disposal Service, Inc., and Pleasant Hill Bay Shore Disposal. 1a.. PUBLIC HEARING TO CONSIDER THE APPLICATION FOR REFUSE COLLECTION RATE INCREASE BY VALLEY WASTE MANAGEMENT' . Mr. Roger J. Dolan, General Manager-Chief Engineer, introduced Mr. Walter N. Funasaki, Finance Officer, who presented an overview of the staff analysis. Valley Waste Management has submitted an application for a 55.02 percent increase in all collection rates effective July 1, 1988. The requested increase is based primarily on the use of a higher landfill disposal fee than allowed by the Board; significant intercompany charges resulting from the sale of Valley Disposal Service, Inc., to SAWDCO, a subsidiary of Waste Management, Inc.; and the use of a 90 percent operating ratio for calculation of the rate, instead of the 95 percent operating ratio customarily used by the District. Mr Funasaki briefly summarized each of these issues, highlighting the information contained in the staff analysis. With regard to the intercompany charges resulting from the sale of Valley Disposal Service, Mr. Funasaki recommended that the District participate with the Alameda County JEPA in the review by Price Waterhouse of the cost basis of these charges. , Mr. Funasaki stated that for the 1987-1988 rate-setting period, Valley Waste Management will real ize a 92.6 percent operating ratio rather than 95 percent based on a $3.69 disposal fee and after rate-setting adjustments. Revenues are projected to exceed last year's forecasted revenues by $241,000 due primaril y to increased customers resulting from population growth. A growth factor has not been included in the staff analysis for the 1988-1989 rate-setting period. At the request of Member Boneysteele, Mr. Funasaki elaborated on the Return on Equity and Operating Ratio methods of calculating rates. Mr. James L. Hazard, Counsel for the District, requested that copies of the Legislative Findings for Setting of Garbage Collection Rates in 1987 for Orinda-Moraga Disposal, Valley Disposal and Pleasant Hill Bay 0:7:< 06, ,; 88':':: 102 Shore Disposal, the November 30, 1987 letter from Waste Management of North America, Inc. to Mr. Paul Morsen concerning consent to assignment of the Valley Disposal Service, Inc. franchise agreement, Attachment II Instructions/Responses on May 1,1986 Franchise Agreement Provisions, and the 1988 staff analyses for setting of garbage collection rates for Orinda-Moraga Disposal, Valley Waste Management, and Pleasent Hill Bay Shore Disposal, be made part of the administrative record. Mr. Hazard requested that the 1987 Price Waterhouse Study of Acme Fill and the assignment documents be made a part of the administrative record as well. President Rainey opened the public hearing at the hour of 7:40 p.m. Receipt of correspondence from the Town of Danvill e and the City of Lafayette was acknowledged and by reference incorporated in the minutes. Mr. Richard Holmes, Councilmember from the City of Lafayette, read the letter from the Lafayette City Council for the record. Mr. Holmes commended the Board on the Price Waterhouse analysis done in 1987 and on the District staff analysis done by Mr. Funasaki and staff members. Mr. Holmes expressed a need for a professional analysis comparing the cost of functions and services provided in the past by Valley Disposal with the cost for Valley Waste Management to provide them. Mr. Holmes expressed opposition to charging customers for goodwill in an acquistion. In closing, Mr. Holmes urged the Board to keep working toward solving the problem of a new landfill site. The Councils of both Orinda and Lafayette have adopted resolutions urging that at least 51 percent of any new landfill site be owned by a public entity. President Rainey thanked Mr. Holmes for his comments and for the consideration that the Lafayette City Council gave this matter. Mr. John Garrity, of Waste Management of North America, addressed the Board urging consideration of the letters from the City of Lafayette and the Town of Danville recommending pass through of the $5.84 disposal fee. In addition, Mr. Garrity requested that the Board consider reimbursement of disposal costs charged in excess of the $3.69 allowed by the Board during the 1987-1988 rate-setting period. Mr. Garrity stated that Valley Waste Management is incurring a substantial loss in providing services to the ratepayers. Mr. Garrity discussed the accounting allocation of interest expense, goodwill, and the net tangible asset fee. Mr. Garrity stated that last year in the solid waste industry, operating ratios ranged from 84 percent to 97 percent. Valley Waste Management requests an operating ratio at the mid-point, 90 percent. In response to a question from Member Clausen, Mr. Garrity stated that Alameda County has been' petitioned to accept all of the refuse at Altamont site when Acme Fill closes. A site redefinition has been submitted showing that Altamont will have 150 years capacity rather than the 50 years that is required by the Alameda County Solid Waste Management Plan. In addition, developement of the Marsh Canyon site is being pursued. Alameda County would be given reciprocity there. Other landfills, in addition to Altamont, are being investigated as well. In response to a question from Member Boneysteele, Mr. Garrity reviewed his educational and professional background. It was moved by Member Clausen that the public hearing be closed. Following a brief discussion, Member Clausen withdrew his motion. Mr. Funasaki provided clarification of the amortization of goodwill issue and the 1987 Price Waterhouse review of the proposed Acme Fill tipping fees based on projections for Acme Fill closure. In response to questions by the Board, Mr. Funasaki stated that SAWDCO was aware of the Board's position with regard to the tipping fee issue at the time they purchased Valley Disposal. There being no further comments, it was moved by Member Clausen and seconded by Member Dalton, that the public hearing to consider the refuse collection rate increase submitted by Valley Waste Management be closed at the hour of 8:47 p.m. There being no objection, the motion was approved with Member Carlson being absent. O'~';";:::'()6..."'.".~Ð. ~.; <;:1"'... ". ~..OQ~.' 103 It was moved by Member Clausen and seconded by Member Dalton, that determination of the refuse collection rates for Valley Waste Management be held until the public hearings to consider the applications for refuse collection rate increases submitted by Orinda-Moraga Disposal Service, Inc. and Pleasant Hill Bay Shore Disposal have been concluded. ,There being no objection, the motion was approved with Member Carlson being absent. At 8:50 p.m., President Rainey declared a recess, reconvening at the hour of 8:56 p.m., with all parties present as previously designated. PUBLIC HEARING TO CONSIDER THE APPLICATION FOR REFUSE COLLECTION RATE INCREASES BY PLEASANT HILL BAY SHORE DISPOSAL lb. Mr. Walter Funasaki, Finance Officer, stated that Pleasant Hill Bay Shore Disposal has submitted an application for a 37.4 percent increase in residential and commercial rates, an 8.3 percent increase in mobile home rates, and varying significant percentage increases in bins and drop 'box rates using a 90 percent operating ratio effective July 1, 1988. The requested increases are based primarily on higher landfill disposal fees than allowed by the Board, overstatement of drop box revenues in last year's rate application, and the use of a 90 percent operating ratio for calculation of the rates instead of the 95 percent operating ratio normally used by the District. Mr. Funasaki briefly summarized these issues as set forth in greater detail in the staff, analysis. Mr. Funasaki stated that Pleasant Hill Bay Shore Disposal owns 26.9 percent of Acme Fill Corporation. Under the terms of the franchise agreement with the District, Acme Fill is thereby an affiliated entity. Acme Fill has refused to voluntarily allow the District access to those cost projections which would permit determining whether the disposal fee is reasonable. However, Acme Fill did permit review last year. Price Waterhouse recommended last year that a subsequent review be done this year using more current information on closure costs. To date, the requested information has not been provided by Pleaseant Hill Bay Shore Disposal. Mr. Funasaki stated that the overstatement of drop box revenues of $25,000 in last year's application was a result of including revenues from an unregulated industrial waste hauling account. This would result in a more significant percentage increase to be calculated for this year. The staff analysis was prepared based on a 95 percent operating ratio.' No return on equity calculation was made because Pleasant Hill Bay Shore Disposal is a sole proprietorship and owners' equity is not available to the District. Pleasant Hill Bay Shore realized a 106 percent operating ratio last year instead of the 95 percent operating ratio used in rate-setting, based on a $3.69 disposal fee and after rate-setting adjustments. This was primarily due to the drop box revenue overstatement and higher than expected operating expenses. President Rainey opened the public hearing at the hour of 9:08 p.m. It was noted for the record that no correspondence was received concerning the refuse collection rate increase application submitted by Pleasant Hill Bay Shore Disposal. Mr. Ken Little, attorney representing Pleasant Hill Bay Shore Disposal, stated that the firm of Arthur Andersen & Co. was retained to review the appl ication of Pleasant Hill Bay Shore Disposal and the District staff analysis. Mr. Greg Conlon, partner in the San Francisco office of Arthur Andersen & Co., addressed the Board. Mr Conlon reviewed his educational and professional background. Mr. Conlon stated that a detailed review of the Pleasant Hill Bay Shore Disposal filing and the staff report was conducted. Mr. Conlon stated his opinion that a 95 percent operating ratio is not sufficient for Pleasant Hill Bay Shore Disposal and would maintain them in an operating loss. Mr. Conlon stated that two adjustments made by District staff, exclusion of disposal fees and exclusion of legal expenses, should be included. The disposal fees are competitive; Pleasant Hill Bay Shore Disposal holds a minority ownership in Acme Fill, not a majority; and other disposal alternatives would O,~,~,,:, Oe"'~~;'8'8':'i' :,~""..,U"""" "~.f 104 result in additional costs. Mr. Conlon stated that the legal expenses are for appearances before this Board and are fair and reasonable. Mr. Conlon suggested that the Board establish rates for Pleasant Hill Bay Shore Disposal ,based on a 90 percent operating ratio, including pass through of a $5.84 disposal fee and legal expenses. The effective date of the requested rate increàse was discussed. Mr. Conlon stated that he had not aud ited Pl easant Hill Bay Shore Di sposa 1 's books, nor the books of Acme Fi 11. Mr. Ken Little addressed the Board, requesting pass through of the $5.84 disposal fee charged by Acme Fill. Mr. Little stated that the fee is actually being paid. It is a fair and reasonable fee and represents an industry standard. Mr. Little stated that during the franchise negotiations, there was no discussion that the affiliation clause would apply to Acme Fill. Mr. Little stated that Pleasant Hill Bay Shore is not an affil iate of Acme Fill. It is factually and legally impossible for Pleasant Hill Bay Shore Disposal to obtain records information requested by this District from Acme Fill. Mr. Little referenced a letter dated May 18, 1988 from Little & Saputo to Paul Morsen, two letters dated June 30, 1988 from Gordon, DeFraga, Watrous & Pezzaglia to Ken D. Little, page 3 and 4 of a letter dated June 8, 1988 from Little & Saputo to Walter Funasaki including two attachments, and. a letter dated June 23, 1988 from Little & Saputo to Susan McNulty Rainey. Mr. Little submitted copies of these documents and requested that they be made part of the administrative record. Mr. Little stated that the closure plan for the south and east parcels at Acme Fill has been prepared by Hard1ng and Lawson and is a matter of public record. Much of the information requested by the District is included in the closure plan. Mr. Little stated that the interest expense and franchise fees are costs of doing business and should be allowed as expens~s.. In closing, Mr. Little stated that fees at Acme Fill may go up in the future because of recent changes in the 1 aw. Mr. L ittl e suggested that some mechan i sm be considered for pass through of those fees. The transfer station vans, the size of the Acme transfer station, and the lawsuit filed by the parties of Acme Fill were discussed briefly. In response to an inquiry by Member Clausen, Mr. Little stated that the collectors. are looking at both short-term and long-term issues relating to Acme Fill closure. All options are being explored. Orinda-Moraga Disposal Service just began taking packer truck waste to the Richmond landfill; but debris box and commercial waste is still going to Acme Fill. . There being no further comments from Mr. Little, President Rainey requested further staff comments. Mr. Funasaki stated that operating statements for the fiscal years ending June 30, 1988 and 1989 indicating losses for ~easant Hill Bay Shore Disposal disregard all rate-setting adjustments. There are valid and appropriate rate-setting adjustments that may produce losses such as excessive salaries paid to management, Workers' Compensation return premiums recieved, and goodwill amortization, but which may for rate-setting purposes provide adequate levels of profits. Mr. Funasaki stated that an adjustement was made to bring legal fees to the same level as in the prior year. Legal and accounting expenses cl aimed in the appl ication represented 10 percent of revenues. It is necessary to approve reasonable expenses. Mr. Little stated that with respect to legal fees, there are economies of scale. The costs are the same to attend District Board meetings whether you are a large company or a small one. There being no further comments, it was moved by Member Clausen and seconded by Member Dalton, that the public hearing to consider the refuse collection rate increases submitted by Pleasant .Hill Bay Shore Disposal be closed at the hour of 10:21 p.m. There being no objection, the motion was approved with Member Carlson being absent. ~"o' ~:,' ,.>'0'" 1'8"; :; . S"8"" .. . .r- " .,~., "., ¡',.' ." " ,f" ,¡. ". ~ '. 105 PUBLIC HEARING TO CONSIDER THE APPLICATION FOR THE REFUSE COLLECTION RATE INCREASES BY ORINDA-MORAGA DISPOSAL SERVICE, INC. 1c. Mr. Walter Funasaki, Finance Officer, stated that Orinda-Moraga Disposal Service, Inc. has submitted an application for a 39.65 percent increase in drop box rates and a 22.76 percent increase in residential, commercial, and apartment rates using a 90 percent operating ratio effective July 1, 1988. The requested increases are a result of higher disposal fees than allowed by the Board and the use of a 90 percent operating ratio instead of the 95 percent operating ratio customarily used by the District. Mr. Funasaki briefly reviewed each of these issues. Mr. Funasaki stated that Orinda-Moraga Disposal owns 11.5 percent of Acme Fill and under the terms of the franchise agreement is an affiliated entity. Acme Fill did not produce the records requested by the District to determine whether the disposal fee is reasonable nor did Orinda-Moraga Disposal produce those documents when requested. Orinda-Moraga Disposal realized a 96.7 percent operating ratio last year instead of 95 percent based on a $3.69 disposal fee and after rate-setting adjustments. This was primarily due to lower than forecasted commercial revenues and higher than forecasted legal and accounting expenses. A senior citizens discount was authorized last year on a test basis. A report of this program will be provided to the Board at the July 21, 1988 Board meeting. Mr. George Navone absorbed the discount last year. In the coming year, it will be provided for in the rates. President Rainey opened the public hearing at the hour of 10:33 p.m. Receipt of correspondence from the Town of Moraga and the City of Orinda was acknowledged and by reference incorporated in the minutes. Mr. Ken Little, attorney representing Orinda-Moraga Disposal Service, Inc., addressed the Board indicating that' all discussion presented previously during the public hearing to consider rates for Pleasant Hill Bay Shore Disposal should be incorporated in this public heari ng. Mr. L ittl e stated that the rates were calcul ated across the board using a 90 percent operating ratio. Mr. Little requested that the Board pass through the full $5.84 tipping fee. Orinda-Moraga Disposal is now using Richmond landfill rather than Acme Fill. The tipping fee is essentially the same, as are the hauling costs. Interest expense and franchise fees are costs of doing business and should be included for rate-setting purposes. The collector is suffering a loss on drop box revenues. Mr. Little urged the Board to use the 90 percent operating ratio used in the rate application and to pass through the full $5.84 tipping fee. In response to questions from the Board, Mr. L ittl e stated that Orinda-Moraga Disposal is taking waste to Richmond landfill based on an oral agreement. As far as the collector is aware, this agreement will last as long as Richmond landfill is in operation. Currently, compactor trucks only are going to Richmond landfill. The rest of the waste is going to Acme Fill. The tipping fee at Richmond landfill is 13 cents less than the tipping fee at Acme Fill. There being no further comments, it was moved by Member Clausen and seconded by Member Dalton, that the public hearing to consider the refuse collection rate increases submitted by Orihda-Moraga Disposal Service, Inc. be closed at the hour of 10:46 p.m. There being no objection, the motion was approved with Member Carlson being absent. At 10:46 p.m., President Rainey declared a recess, reconvening at the hour of 10:53 p.m. with all parties present as previously designated. Mr. Hazard, Counsel for the District, requested an opportunity to address the Board in closed session because of significant exposure to litigation. 0,7, 0:6' 8~. . .,:, ,,-' ','-;: .8~ 106 VI. CLOSED SESSION 1. SIGNIFICANT EXPOSURE TO LITIGATION Pursuant to Government Code Section 54956. 9(b), a point has been reached where in the opinion of the Board of Directors of the Central Contra Costa Sanitary Di strict on the advice of its Counsel, based on exi sti ng facts and ci rcumstances, there i s a significant exposure to 11tig~tion against the District. At 10:58 p.m., President Rainey declared the closed session to discuss 1 itigation pursuant to Government Code Section 54956.9(b). At 11:11 p.m., President Rainey concluded the closed session and reconvened the meeting into open session. VII. ACTIONS RESULTING FROM DISCUSSIONS INCLOSED SESSION None At this time, President Rainey returned to Item III., Hearings. III. HEARINGS 1. CONDUCT PUBLIC HEARINGS TO CONSIDER THE APPLICATIONS FOR REFUSE COLLECTION RATE INCREASES SUBMITTED BY VALLEY WASTE MANAGEMENT, ORINDA-MORAGA DISPOSAL SERVICE, INC., AND PLEASANT HILL BAY SHORE DISPOSAL ' President Rainey provided direction to the staff for the calculation of rates for further consideration by the Board. President Rainey lead a discussion to determine the consensus of the Board on the various factors on which testimony had been presented. The Board returned to consideration of the appl ication for refuse collection rate increases submitted by Valley Waste Management. Following del iberation, President Rainey stated the consensus of the Board that the pass through of the $5.84 tipping fee imposed by Acme Fill Corporation be allowed, that recovery of the differential between the $5.84 disposal fee incurred and the $3.69 disposal fee allowed in last year's rate-setting be disallowed, and that intercompany charges and amortization of goodwill be disallowed. Following further deliberation, no consensus was reached with regard to the operating rat~o percentage to be used. President Rainey requested that calcul ations be prepared for consideration at the July 7, 1988 Board meeting, based on both a 95 percent operating ratio and a 94 percent operating ratio in~uding pass through of a $5.84 tipping fee, excluding recovery of last year's tipping fee differential, and excluding pass through of intercompany charges and amortization of goodwill. Mr. Funasaki indicated that he would provide the calculations. . The Board considered establ ishment of refuse collection rates for Pleasant Hill Bay Shore Disposal. Following deliberation, President Rainey stated the consensus of the Board that the pass through of a $5.84 tipping fee be allowed, that the adjustment to legal fees recommended by staff be allowed, and that recovery of last' year's tipping fee differential be disallowed. No consensus was reached with regard to the ope rat i ng rat i 0 percentage to be used. Pres i dent Ra i ney requested that calculations be prepared for consideration at the July 7, 1988 Board meeting, based on both a 95 percent operating ratio and a 94 percent operating ratio including pass through of a $5.84 tipping fee and the adjustment to legal expenses proposed by staff and excluding recovery of last year's tipping fee differential. Mr. Funasaki stated that he would provide the calculations. The Board turned to consideration of refuse collection rates for Orinda-Moraga Disposal Service, Inc. President Rainey commended Orinda-Moraga Disposal for reaching agreement to take waste to the West Contra Costa Sanitary Landfill. Following del iberation, it was the understanding of the Board that actual tipping fees currently being paid to West Contra Costa Sanitary Landfill and Acme Fill were approximately the same and that the actual tipping fees should be passed through. Following further del iberation, it was the consensus of the Board that O;Z.\O~6':¡,. 9'8; 107 recovery of last year's tipping fee differential be disallowed. No consensus was reached with regard to the operating ratio percentage to be used. President Rainey requested that calcualtions be prepared for consideration at the July 7, 1988 Board meeting, based on both a 95 percent operating ratio and a 94 percent operating ratio, including pass through of actual tipping fees currently being paid to West Contra Costa Sanitary Landfill and Acme Fill and disallowing recovery of last year's tipping fee differential. President Rainey indicated that establishment of refuse collection rates for Valley Waste Management, Orinda-Moraga Disposal Service, Inc., and Pleasant Hill Bay Shore Disposal will be considered further at the regular Board meeting scheduled. for 3:00 p.m. tomorrow, July 7, 1988. IV. EMERGENCY SITUATIONS REQUIRING BOARD ACTION None V. ANNOUNCEMENTS None VI. CLOSED SESSION This item was taken out of order earlier in the agenda. VII. ACTIONS RESULTING FROM DISCUSSIONS IN CLOSED SESSION None VIII. ADJOURNMENT There being no further business to come before the Board, President Rainey adjourned the meeting at the hour of 12:05 a.m. ... resident of the Board of Director Central Contra Costa Sanitary Dis ict, County of Contra Costa, State of California COUNTERSIGNED: ;" 1 (\ i 'id. ... .'"(.,.~fc.l LL. III'-!/. ~lt(",'- Secretary of the Central Contra Costa Sanitary District, County of Contra Costa, State of California 07.~: 96.'~8 .)