MEETING SUMMARY

RATE REVIEW COMMITTEE

Metro Regional Center – Room 370

April 12, 2005

Present:

Members  Metro  Guests

Michelle Poyourow  Councilor Rod Park, Chair  Eric Merrill, Waste Connections

Matt Korot  Mike Hoglund, Director, Solid Waste & Recycling  Dean Kampfer, Waste Mgmt

Ray Phelps  Tom Chaimov, Solid Waste & Recycling  Easton Cross, Allied Waste

Mike Leichner  Maria Roberts, Solid Waste & Recycling  Ralph Gilbert, ECR

Mike Miller  Karen Feher, Finance & Admin. Services  David White, ORRA

 Steve Kraten, Solid Waste & Recycling  

 Gina Cubbon, Administrative Secretary, SW&R  

Members Absent:

Paul Matthews

Councilor Rod Park opened the meeting, noting that Doug Anderson and Paul Matthews were unable to attend. He said he hoped things could wrap up tonight, but if not, another meeting would be scheduled.

Minutes for the March 15 meeting had been sent with the agenda packets, Councilor Park said. He asked for any changes or additions; none being voiced, the Councilor said they would be adopted as submitted. Moving on to the minutes of March 29, again no changes were made and the minutes were adopted as submitted. The minutes from April 5 were not ready for submittal.

“There was a lot of discussion last week about the ‘third fee,’ the design of it, the issues behind it, a lot of things were laid out,” the Councilor reviewed. He directed the Committee’s attention to an Issue Paper handout (attached), “Policies Affecting Costs, and the Allocation Question,” and explained that this document contained four policies he wanted the group to look over and discuss.

“I like the way Doug starts [the issue paper],” Councilor Park commented. “Any cost of services depends on the level of service provided. That’s the economist in Doug coming out,” he smiled. The paper goes on to state, Councilor Park explained, that it is Metro’s policy to give public customers convenient access to disposal service, so Metro transfer stations are open longer hours than private facilities. “That being the concept, there are certain things that a public facility does that perhaps a private [facility] wouldn’t.” The questions, then, are where do those costs lie, and where should they be allocated?

Policy I. Incidence of Regulatory Costs

“In discussion I’ve heard – and I don’t think there’s disagreement on this – the private sector does create a regulatory structure that needs to be paid for in some fashion,” the Councilor began. However, the number of inspections at various facilities came into question at the last meeting, he said. Staff conducted further research on the subject; Councilor Park gave the floor to SW&R’s Tom Chaimov to explain the results.

Mr. Chaimov passed around a handout (attached), “Inspection Activities: Analysis of Effort.” After having extensive discussions with Regulatory Affairs staff, he said, “It turns out that the $482,000 [budgeted], is a pretty good approximate for the amount of effort spent on inspection-related activities.” As requested by the Committee, the handout showed the inspection effort at different kinds of facilities, he explained. Inspectors with whom Mr. Chaimov spoke told him that it wouldn’t be very helpful to try and categorize facilities. It’s better, they suggested, to classify inspections as either routine (which account for roughly 60% of inspections), or non-routine. Staff can never be sure what facilities – nor what types of facilities – will require non-routine inspections.

Noting that it appears it’s no more expensive overall to inspect one type of facility over another, Michelle Poyourow asked, “Does that mean we can use the number of planned inspections as a proxy for the cost of regulating that type of facility?” It’s possible, Mr. Chaimov replied, though the number of inspections at different types of facilities varies from year to year. “I would expect,” he said, “...that you’d want your choice of allocation to be roughly constant year by year,” rather than having to change it annually.

Are a certain number of non-routine inspections planned? There are some set aside, Mr. Chaimov said, but beyond that, some routine inspections are supplanted by non-routine when necessary. “There’s only so much inspection time,” Regulatory Affairs’ Steve Kraten explained, “...so if one facility needs a lot of attention, then others get less.”

Councilor Park asked Mr. Chaimov to explain why some facilities are exempt from fees and taxes. “Facilities that are exempt from fees and taxes are primarily exempt because these are facilities that accept source-separated, recyclable materials. Metro’s policy has been, through the years, to not tax recyclables...yard debris facilities, tire processors, roofing processors, and the front-door exemption for MRFs and local transfer stations.”

Whether conducting one or many inspections, Councilor Park commented, there are certain fixed costs. Therefore, he said, the question is how to allocate them. WRI’s Ray Phelps referred the group to the Issue Paper, Policy I: “It seems to me that half of the routine inspections and half of the non-routine activity more than likely is the result of a policy decision on the part of the Council, resulting in a desire to maintain a level of performance to the regulatory process.” Using a cost-of-service, then, roughly half should stay in the Regional System Fee, he suggested. “Of the $482,000, $240,000 of that is a regional expense based on the policy of the Council not to charge fees to the yard debris and tire folks, and all that. I’m not questioning the policy, just directing the costs based on that rationale.” He said it would be “outside the third bucket [fee].”

From the audience, Waste Connections’ Eric Merrill disagreed, saying “While it may not be fair to individual private facilities, I think that this is really an issue of costs that should be borne by the private facilities. Metro Council will make all sorts of policy decisions,” and if every one is deemed a regional benefit, Mr. Merrill felt that it could lead to a distortion of costs across the board. Ms. Poyourow added that “The decision to inspect at all is a policy decision.”

The group briefly discussed how to proceed – look at all four policies, or take them one by one. They decided to plough through one by one.

Ms. Poyourow proposed a flat fee for inspections, $482,000 divided by the number of regulated facilities. Would that work for all facilities, Councilor Park queried. “Does a yard debris facility have the wherewithal to pay that type of fee?” he asked. Mr. Chaimov ran some figures; a flat fee would come to $14,600 – figuring 33 regulated facilities, including non-system licensees.

Mike Miller (Gresham Sanitary) commented, “You’re talking about a fee that only affects those who are inspected. The only folks that are inspected are private facilities. If you want to do cost-of-service, why would it be too hard to just charge a per-ton fee in the front door to cover those costs, regardless of facility?” Some adjustments / assumptions would need to be made in the case of facilities taking source-separated material such as yard debris, Mr. Chaimov said, because some of them measure by the yard rather than the ton. Councilor Park anticipated that if the Committee recommends that currently exempt facilities be charged, there will likely be opposition at the public hearings. “Right now,” he explained, “[exempt facilities] are paying it invisibly, through the Regional System Fee. Certainly it’s going to be different if you send them an invoice for $14,000.”

Mr. Miller wondered aloud whether it’s better to know explicitly that you’re paying a fee, or pay it “invisibly.” It’s ultimately a policy decision – that all users pay a share, or that some facilities get subsidized. Either decision is fine, he concluded.

The question comes down to how far down does the Committee want to apply cost-of-service, said Councilor Park, before it becomes a case of “spending dollars to find pennies.” An inspection program is both a benefit to private facilities and a public good. “There’s a difference between cost-of service versus pay-to-play, he continued. “I want to make sure we’re not going from cost-of-service to pay-to-play, unknowingly.” For instance, if a bill is presented every time an inspection is done, there’s a danger the perception could be ‘Oh, here comes that inspector again, wanting money.’

After further discussion, Ms. Poyourow suggested dividing the cost associated with those facilities that are exempt from fees and taxes in half, assigning half to the Regional System Fee, and the other half to the third fee. The group talked at length about this idea. Mr. Leichner said that as a policy, Metro has wanted exempt facilities to pay less in order to encourage recycling. “I guess the whole discussion is,” he said, “...what is a fair policy on how much that split is? I don’t know if I’m comfortable throwing a percentage out there, because it’s policy.” Mr. Phelps asserted that the license and application fees are too low, and some cost could be recovered through those.

Councilor Park asked the City of Gresham’s Matt Korot how the City handles allocations between public good and true cost. Mr. Korot replied that people pay an average cost, “...which includes broad-system benefit things like recycling. You do stop at a certain point, because otherwise you get customer-by-customer rates.” So where is a good spot to split that percentage, knowing that the true cost changes year-to-year, Councilor Park wondered.

Mr. Phelps said that there’s always a cost to do business, yet current policy seems to give some types of processors a “free ride.” Ms. Poyourow suggested then that if a “100% discount” is to be given to these facilities, it should be picked up completely in the Regional System Fee. However, Mr. Chaimov mentioned that “It is in the local transfer stations’ and MRFs’ best interests to have Metro out there inspecting source-separated, fee-exempt facilities to make sure they’re not dipping into [other facilities’] line of business.” Ms. Poyourow nodded in understanding.

“I forgot,” Mr. Phelps quipped. “You’re from the government. You’re trying to help me, right?”

If a choice had to be made between putting the cost into the disposal fee or Regional System Fee, Mr. Miller would rather have it in the Regional System Fee. “Then it does, in fact, reach the whole region,” he said.

Taking into consideration the full discussion, Ms. Poyourow said that her proposal had softened after Mr. Chaimov’s point. Mr. Phelps disagreed strongly, not wanting private facilities to have to subsidize exempt facilities when Metro also has transfer stations. Councilor Park said “Even though Metro has two transfer stations, the only part we’re talking about is how does it affect private sector competing against private sector.” Conversation became more animated, and Councilor Park suggested the group consider moving half of the allocation into the Regional System Fee so that Council has a starting point for a debate similar to this Committee’s.

Audience member Ralph Gilbert, of East County Recycling, took exception to the idea that inspections wouldn’t be needed if there weren’t private sector facilities. “From my experience,” he commented, “I think Metro could stand a few inspections at their transfer stations.... Maybe there should be a little outside oversight in the Solid Waste Department.” Councilor Park wondered aloud how that could even be structured. Mr. Gilbert went on to assert that Metro does compete with private facilities.

With no comment from Committee members forthcoming, Councilor Park resumed discussion of moving half of the inspection cost into the Regional System Fee. Mr. Leichner agreed, saying it’s a good starting point and can be honed each year as necessary.

Mr. Merrill asked the rationale behind splitting the Regulatory Affairs cost last year, as had been recommended by the Committee. “Has your solution already been implemented,” he asked, “...and we’re splitting the baby a second time?” Mr. Chaimov said that some of the split covered Metro Code amendments, new facility application evaluations – things that are infrequent but take a lot of time and effort. It wasn’t a random split, Mr. Miller verified, some activities were identified that are applicable to the private facilities and obviously belonged in the Regional System Fee. Yes, Mr. Chaimov said, “On average, most years about half of staff efforts... we didn’t go as far as tracking staff hours, it was a professional judgment on the part of Regulatory Affairs... Some years, it might be 60/40, but half and half is pretty close.”

After yet more discussion, Ms. Poyourow offered a suggestion to make the split 75% to the Regional System Fee. Such a split would roughly correlate to the inspection numbers. “Exempt facilities are about three-quarters of the inspections; the non-exempt are one-quarter,” she explained. It would likely need to be re-figured yearly, as inspections vary. This sparked fresh debate.

“I’ll put on my economist hat,” Mr. Chaimov mused, “Would Metro not be experiencing moral hazard then, in wanting to push more inspections out on to fee-paying by the facilities, thus recover more money from those private facilities?” Mr. Phelps felt Metro might instead discover that they might not do as much inspecting.

Councilor Park said his concern would be that rather than an inspector being perceived as a benefit to the system, it could become a case of “...there’s that darned inspector again, trying to make a little bit more money. I don’t want to see him.” It happens in nursery inspections, restaurants, etc., he said. He prefers to keep the level of cost break-downs higher to help avoid that. If it led to fewer and fewer inspections, the Councilor added, it could be to the detriment of the system.

Eventually, a formal motion was made by Ms. Poyourow (seconded by Mr. Phelps to put 75% into the Regional System Fee, 25% to the third fee to be paid by private transfer stations, dry waste facilities, and non-system licensees, on a per-ton basis. Working out rough figures, the motion would imply a third fee of about $0.21 per ton, Mr. Chaimov said.

Mr. Gilbert argued that it comes off the processors’ bottom line. The system fee would be unbalanced, he said. “Well,” Councilor Park clarified, “...it was unbalanced last time to the tune of about $500,000. This [motion] is $375,000 less than last year.”

The Committee members present voted unanimously in favor of the motion, and after some further general discussion, moved on.

Policy II. Sustainability Leadership

Introducing this piece of the issue paper, Councilor Park explained that when the new transfer station operations contract was put out to bid, Council added a request that 15% of the power used by Metro transfer stations be “green” – purchased from wind generation, in recognition of this emerging industry. “Another policy choice the Council made was to go to low sulphur fuel, though it wasn’t required at this date, we’re using low sulphur fuel at the transfer stations. So the question is,” Councilor Park posed, “...is that a regional benefit, therefore borne by all, or is that in the third fee, in the Metro side, in the disposal costs...?”

Mr. Miller said that while it’s a policy decision on the part of Metro, “...there could be a residual benefit to the private side. Low sulphur fuel, you’re bringing more fuel in so there’s more chance that other people can participate... There are some things that could be for the greater good at some point. If I was to say who should bear that cost, it’d be everybody in the system, because you’re making decisions for the whole region.”

Mr. Korot agreed with Mr. Miller, and added, “If Ray or Mike introduced these measures at their facilities, would we integrate those into the Regional System Fee? You could argue that some of the same benefits to the region are there.” Councilor Park said he’s unsure how it could be calculated. Metro’s contract with BFI has calculations for Metro transfer stations, but without figures from other facilities, the Councilor wasn’t sure how it might be accomplished.

“I think we would, in fact be receiving the compensation,” Mr. Phelps said, “...because we would be mirroring Metro’s rate. So, arguably, it’s being recovered.”

After a short discussion, the Committee members agreed that this should be in the Regional System Fee.

Policy III. Public Customer Access to Disposal Services

“This is one that came up last time,” Councilor Park reminded the group, “...Metro has made it a policy choice to operate long hours, longer than you’d typically do if you were a private entity.” He asked Waste Management’s Dean Kampfer what the hours are for his Forest Grove facility. Mr. Kampfer answerer 8 a.m. – 5 p.m., Monday through Saturday. (Metro facilities are open seven days a week, about three hours a day longer.) There was brief discussion about automated services for commercial customers.

“The real impact is the public,” Mr. Miller said. “Metro has to serve the public, and if they didn’t serve the public, and you had to serve them at your facilities, then you’d have an impact, too.”

“We wouldn’t mind, if they’d let us do it,” Mr. Phelps observed.

“That’s a question I don’t think we should brooch here,” Mr. Miller responded. “...I think what [Councilor Park] is saying is – is that a cost that’s a regional benefit? I think it is, because if it went away, there’d certainly be an impact on everybody.”

In response to a question from Mr. Leichner regarding actual costs for having the stations open longer hours and more days, Councilor Park said that when making policy such as this, Council looks first at whether it’s good policy or bad policy, then at mitigating factors, including cost.

Mr. Phelps stated that in this case, Metro is wearing both the operator’s and regulator’s “hat.” Councilor Park nodded. Mr. Phelps continued, “You decided as an operation that your customers have access for more hours, more days. As regulators, you’re not allowing the environment to be such that I can offer the same services to my customers. So as a result of that, I don’t know why my customers should be expected to subsidize your customers when, through a regulatory process, my customers can’t get the service that your customers get.”

Mr. Hoglund asked Mr. Phelps if his franchise doesn’t allow him to take self-hauled waste from the public, or if the problem is the tonnage cap. Mr. Phelps replied that it’s the cap. Mr. Hoglund clarified that theoretically – because of the franchise agreement – WRI could take self-haul. Mr. Phelps said no, because the cap is too low. Mr. Leichner commented that still, even without caps, WRI’s franchise wouldn’t allow for self-haul. Mr. Phelps said he believes his franchise does allow it, but that he’ll double-check.

Nevertheless, Councilor Park forged ahead, the Committee is being asked to look at the current situation. “Metro has made the policy decision to operate these extra hours... The fact is we still get people coming in earlier in the morning, or later at night, to drop off a couch or whatever so it doesn’t end up out on the highway.” Mr. Phelps argued that it’s not a policy, it’s an operational decision. Councilor Park disagreed; Ms. Poyourow understood Mr. Phelps complaint, but also agreed that it does stem from a policy decision.

Oregon Refuse & Recycling Association representative Dave White jumped into the fray, asking how much putrescible waste is self-hauled. His point was that if the public primarily brings in dry waste, such as couches and trailers of discarded items, that wouldn’t apply towards the tonnage caps. Mr. Chaimov replied that a lot of the self-haul is, indeed, dry waste. Mr. Hoglund noted, however, that Metro facilities get a wide mix of self-haulers. “There are people who don’t have curbside service, and they’ll come in with a big load of wet waste. It’s a relatively small number of people. Then there are people cleaning out a shed or a garage, mostly dry waste.” Sometimes within those dry clean-outs are a couple of bags of wet waste, however. Most of the public doesn’t realize there’s a difference, so they’ll throw it all together.

Councilor Park pointed out that Metro’s hazardous waste facilities are part of the policy, as well. They stay open most of the same hours as the transfer stations. “So there’s another piece that we take that others don’t,” he reminded the group.

“If an operation matched your hours, would they get the same consideration?” Mr. Gilbert asked. While agreeing it’s a good discussion question, Councilor Park reiterated that the question deals strictly with the current situation, not “what ifs.” Discussion is centered on cost-of-service and the third fee. “The pieces being brought up,” he noted, “...are more appropriate to SWAC, because then you could bring them to next year’s Rate Review, and say we made a policy choice to do this, and this is the effect.” Mr. Gilbert pointed out that his facility is currently open on weekends, like Metro.

“I find it interesting,” Councilor Park commented, “...there are certain parts of Metro’s system costs that local transfer stations want to mirror, but the question comes down to – what about the income side, or other pieces? Does anybody want to mirror those? In this menu, it’s a combination meal...combo plate one, two, [etc.]... It’d be a good discussion at SWAC.” Mr. Gilbert said, “Back in aught-six, they suggested that we do this, that’s why I bring it up. They [inaudible]...after hours and be open Sundays and match their hours, or come close to it, then they took away our ability to own a hauling system.”

Back to the subject at-hand, Mr. Leichner commented that while the extra hours policy is a public benefit, he’s not comfortable with all of it being borne by payers of the RSF. “There are some policy decisions in there that Ray [Phelps] touched on – the regulator and participant hat – I think that muddies it a little bit as to what’s fair, what’s acceptable.”

Councilor Park asked Mr. Leichner to what policy decisions he was referring, other than the tonnage caps? “With our franchise,” Mr. Leichner explained, “...we’re not allowed to take the public’s general putrescible waste. We can be open Saturday and Sunday, but who’s going to bring in.... it wouldn’t do any good to be open, because there’s not going to be anybody coming in.” But most of the waste coming to Metro stations is dry, Councilor Park reiterated.

The group discussed the situation further. Ms. Poyourow commented, “I’ve been thinking a lot about the what-ifs... First of all, I guess the bad part of the customer base is that there’s not very much money to be made there. So I can’t imagine the private facilities would want that part of the customer base. But if we start thinking of Metro as the regulator, as the policy maker, not as a disposal operator, just as a policy maker – has decided that somebody in the region should be open late and should be open on weekends to spare everybody the cost of having a couch on the road. That’s a policy decision.” She went on to say that Metro could tell everyone that they’re required to stay open the longer hours. “Then everybody would be working under the same set of standards, and it would just become more expensive to deal with garbage. Or Metro could subcontract, and could pick one facility in the center of [the Region] and say ‘you stay open on the weekend and later hours...” and pay them the incremental costs for staying open.

“The third option,” Ms. Poyourow concluded the thought, “...because Metro has its own disposal facilities, is that it points at itself, and says ‘you – you stay open on the weekends and late in the evening, and we’re going to pay you the incremental costs. I don’t think of it as very different from just pointing at a private facility and subcontract with them to do this specific job. It’s just that their policy persona and their operator persona are muddied, but they’re basically subcontracting with themselves to do this policy function. Thinking about it like that, to me it becomes clear that that cost should be collected in the Regional System Fee.” Still, she can see how it’s somewhat unclear.

Mr. Miller added that if Metro had to make the same decision as a business decision, they wouldn’t, because it doesn’t make enough money to be a smart business decision. “They would narrow down the hours and raise the tonnage per hour as much as they could, but they’re not. They’re making a policy decision that all the citizen in the Region need to have access to a facility to get rid of their stuff. So they’re operating at a higher cost to meet that need.”

Conversation continued, with Mr. Merrill (whose facility is located in Clark County, Washington) saying that weekends are fairly high volume days there, primarily with public customers. Their highest tonnage days, he said, are Saturday, Sunday, and Tuesday. Mr. White asked what’s the benefit to most citizens – who do have curbside service and don’t self-haul. “It seems to me the people who decide to give a load to your facility on Saturday and decide not to subscribe to a service are the ones who benefit.”

However, the Councilor countered, “The same argument applies if you believe in organics and you don’t buy any household chemicals or paint, and the same thing applies: Even though the facility is set up and the cost is embedded in your garbage bill, you’re still paying it. So my point is, going back to cost-of-services, how far down the line do you go before you start breaking [the costs] out too thin.” He added that while this is a good discussion and points out both sides of the issue, the reality is that because of public policy, Metro is going to operate the longer hours. Mr. White did concede that he doesn’t know of a system that collects household hazardous waste, but other than that, feels that users should be the ones who pay.

Councilor Park said it’s really no different than someone saying that they never call the police, so they shouldn’t have to pay for them, or the fire department, etc. It’s a public good policy.

Mr. Korot reasoned that, “This is the policy we have in place. Based on the policy, the allocation method to me seems it should be in the Regional System Fee, but we have some major caveats that add to the list that I think must be 100 long of policy implications from these decisions that we ought to consider. But given what’s on the table, I’d say move forward, put it in the RSF.” He so moved, and Ms. Poyourow seconded.

To clarify what costs are being considered, Mr. Chaimov explained that the motion pertains not just to scalehouse costs, but also to contract costs to the station operator for their extra staffing, etc., for the policy decision of longer hours. “It’s for the increase of variable costs for BFI in terms of extra spotters, or higher required staffing of our contract operator because we serve the public... We’re not operating for maximum efficiency, we’re operating to serve the customer.”

After some general discussion from the audience, Mr. Miller reiterated that Metro made a policy decision, “...so it’s a regional fee. It’s for the regional good. You made that decision. We’re the electorate – if we don’t like it, we can do something else about it. It’s a policy decision.” Councilor Park agreed, adding that the policy has already been in place for several years. “If you want to go to SWAC, if you want to change the policy,” Mr. Miller added, “...and Metro makes a decision to have different hours, fine. That’s going to change that number. Or if you want to raise the transaction fee to bring in more revenue and offset that cost, great. You have a lot of different options you can do to raise more money or lessen costs. But as it stands right now, the policy decision is that you’re going to be open these hours, and it’s a regional cost.”

Councilor Park called for a vote, noting that another meeting will need to be scheduled to discuss how to phase out debt structure.

Policy III passed, including scalehouse and all associated costs , with a vote of 4 yes, 1 no. Councilor Park (who Chairs the Committee) did not participate in the vote.

The meeting adjourned at 7:52 p.m.

Next meeting: Wednesday, April 20, 2005

NOTE EARLY TIME! 5:30 p.m. Room 370A

gbc

Attachment

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Inspection Activities: Analysis of Effort

At the request of the RRC, Metro’s Regulatory Affairs Division staff examined records from solid waste facility site inspections in order to summarize the proportion of effort expended on various inspection-related activities. Staff considered drive time, time on site, report writing, and follow-up. Table 1 below summarizes the proportion of inspection-related efforts spent on various activities, and the attachments reflect a variety of possible dollar allocations based on the proportions in Table 1.

Notes:

* Focus of effort may change each year.

** Use of Inspection staff for material recovery sampling for waste reduction studies is temporary and not typically considered a routine inspection activity.

*** Non-routine activities occur infrequently relative to the total number of sites visited and without regard to facility type or class, but typically take a great deal more effort to resolve than do routine inspections.

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Rate Review Committee

Meeting 6—April 12, 2005

Issue Paper

Policies Affecting Costs, and the Allocation Question

Any “cost of service” depends on the level of service provided. In the provision of public goods, the level-of-service is determined in part by policy choices. For example, Metro has a policy to ensure that public customers have convenient access to disposal services. This means that Metro stays open longer hours than would be the case if profit or cost minimization were the primary determining factor.

In such cases, when more than one policy drives a cost, then the costs-of-service should be allocatedⁱ to the appropriate customer classes according to usage or benefit. Continuing the hours-of-operation example: certain hours are necessary for the business operation. These costs should be allocated to the disposal charge so only the users pay. However, a case can be made that the extra hours provide a regional benefit; and therefore, the cost of these additional hours should be shared more broadly by allocating them to the system fee.

This issue paper identifies four policy areas where a full cost-of-service rate philosophy leads to allocating costs across more than one rate. There may be other similar areas that the committee may wish to identify.

Policy 1. Incidence of Regulatory Costs

Last year, the committee agreed that Metro incurs certain costs solely as a result of private facilities, and that the recovery of these costs should fall on the regulated community.

However, some classes of facilities are regulated specifically to meet a widely-shared public interest, and the cost of regulating these facility classes may therefore be allocated to the system fee. Two examples are yard debris facilitiesⁱⁱ and out-of-district landfills.ⁱⁱⁱ In both these cases, Metro’s regulatory effort has broad system benefits.

Question

Should private facilities alone bear the cost of licensing, inspections and audits, and regulatory enforcement, or should this cost be shared among the broader regional beneficiaries?

Policy 2. Sustainability Leadership

Metro’s new operating contract includes certain “sustainability measures” that cost more than their conventional counterparts by about $115,000 per year.^iv With these purchases, Metro helps to boost the economic development of sustainable alternatives to help make them more widely available—a regional benefit.

Question

Should Metro’s customers alone bear the additional costs of sustainable purchasing, or should these costs be borne by the broader set of regional beneficiaries?

Policy 3. Public Customer Access to Disposal Services

Metro has made a policy choice to stay open long hours at the transfer stations to ensure convenient access for the public.^v These long hours are a major driver of the scalehouse costs. The operations contract also includes consideration for the higher cost of handling public loads. Metro’s “always open” choice was made explicitly to benefit the region.

Question

Should Metro’s customers alone bear the additional cost of operations and the extra hours held open for the public, or should this cost be shared?

Policy 4. Rate Predictability: Managing the Impact of the Debt Service on Rates

Depending on where the $2.345 annual debt service payment is allocated, its impact on the Metro tip fee ranges from $1.80 (all allocated to the system fee), to $4.15 per ton (all allocated to the disposal charge). The last bond payment is July 1, 2009. Therefore, beginning FY 2009-10, the debt service disappears as a revenue requirement on the rates. Historically, the Rate Review Committee has advised that Metro manage predictable cost swings such as the end of debt service payments, in the interest of maintaining predictable rate paths over time.

Given these considerations, there are at least two options for managing the effect of the debt service on rates between FY 2005-06 and FY 2009-09:

Option A. (developed by staff)

Begin to use reserves as a source-of-funds for debt service payments.

•  Fund balances are sufficient to consider paying some debt service from reserves.

•  Funding debt from reserves (noncurrent revenue) is allowed under the bond covenants.

•  How it would work. Approximately $469,000 could be used to offset the debt service payment in FY 2005-06, with the allocation from reserves increasing by a like amount each year until the entire debt service is paid from reserves in the final year.

Option B. (developed by RRC member Matthews)

Shift allocations of debt service from low-tonnage rate components such as the disposal charge, into high-tonnage rate components such as the system fee.

•  Under a full cost-of-service allocation, approximately $985,000 of the debt service would be allocated to the disposal charge. Approximately half of that amount, $492,500, is currently allocated to the disposal charge.

•  How it would work. Approximately $98,500 of the debt service allocation could be shifted from the disposal charge to the system fee in FY 2005-06, with the allocation shift increasing by a like amount each year until the entire debt service is paid from the system fee in the final year. At that time, elimination of the debt service from rates would have the smallest impact on rates.

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Notes to the Text