Q&A: How rates are set for Cando

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Recent discussions on social media outlets such as NextDoor have shown many residents and property owners do not know how rates and service levels are determined for solid waste handlers such as Cando Recycling & Disposal, the local service provider. Where knowledge is lacking, misinformation can sneak in. Following is an overview of the tariff process, courtesy of the Washington Utilities and Transportation Commission:

How does the WUTC determine tariffs for solid waste service providers?

Generally, a company proposes the rates it wishes to charge by filing a tariff revision with the commission. Commission staff review the company’s books and records (similar to a financial audit) to determine the actual cost of providing the service, and the amount of revenue the company is receiving, and should receive. Staff creates a memorandum which contains a recommendation for the commissioners for each filing. The commissioners decide whether to allow the revised tariff rates as proposed (often these are adjusted by the company based on staff’s review) or to take some other action.

How does the commission determine that rates are fair and reasonable?

In a review, we use the principle of cost-plus return to determine the required revenue a company is entitled to receive, and rates are set through a price-out. Rates must be fair, just, reasonable, and sufficient. Each customer pays the same rate for the same type of service; the costs have been supported by the company’s books; the costs are what is required to provide the service and the rates will generate enough revenue to cover the company’s costs plus a reasonable return on investment. 

Staff uses a linear regression model, known as the Lurito Gallagher (LG) model, which accepts various inputs and generates the desirable revenue requirement. The profit margin, or technically the return on investment, varies by company according to the level of investment, debt to equity ratio, and asset turnover ratios, as well as the various state and local taxes. Rates are set based on both fixed and variable costs of service. 

How are service requirements set?

The company can only provide service and charge rates as outlined in its tariff. If a company offers every-other-week pick up service, then it must actually provide the service under the assumption that all customers are entitled to put full containers out for collection on their respective pick up day.

The company has no way of knowing which customers will put out containers, and which customers may put out extras for pick up on any given pick up day. Therefore, the company must plan to run the full routes every time.

This concept applies to all garbage collection statewide – without it, companies would never know the variable costs and rates would not be sustainable, or conversely could be excessive.

Additionally, since property owners in Point Roberts pay for minimum service through the county (and as required by county ordinances), the company must provide the already paid for service.

Isn’t Point Roberts unique in that its population drastically increases during the summer?

Seasonality is not unique to Point Roberts. For example, Lake Chelan and the Long Beach Peninsula areas also have significant seasonality.

How many solid waste companies does the WUTC regulate?

Approximately 56 separate operations ranging in size from local companies like Freedom 2000 to national corporations like Waste Management, Waste Connections, and Republic Services.

 

How many tariff revisions does the UTC review in a year?

Typically, we receive over 100 tariff revisions in a calendar year. Not all filings are general rate increases, but all require a recommendation to the commission.

How many staff work for the solid waste division?

We have five full time staff in our Regulatory Services Division that work on filings for water companies, solid waste, commercial ferries, auto transportation providers, low level radioactive waste disposal, petroleum pipeline transportation, and most recently marine pilots on the Puget Sound.

Staff typically do two to three general rate cases in a year, and often there is more than one staff member assigned to a case, based on complexity. 

Does the WUTC ever audit solid waste company financial statements?

Yes, financial statements (income statements and balance sheets) are required to be submitted with a general rate increase filing. Staff applies generally accepted auditing principles to audit the company’s general ledger accounts, sometimes in person. We audit the general ledger against the financial statements as any CPA firm would do.

What sort of information would spark an audit?

Typically, it is up to the company to initiate a rate change-they are the ones that know best when costs have increased. But in some cases, such as the changes implemented by Whatcom County, staff works with the company to initiate a filing.

Ultimately staff has the authority to bring a complaint against rates to the commission, but we normally resolve issues without formal adjudicative proceedings.

Anything else our readers should know?

Recycling is treated similarly but separately from garbage. The same cost principles apply as the services are very similar, but costs are separated and allocated so that each service has its own rates based the costs of that service. 

For those wishing to know more Cando Recycling, go to bit.ly/3nEMO2H

The staff memo and all related documents can be found in Docket TG-180782. After the search results, click on the icon that looks like a piece of paper, and then select the Documents tab.

Please note that your browser may prompt you to download the memo instead of opening it in a new tab.

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