Full Cost Accounting and Solid Waste Rate Structuring · September 28, 2016 | 8:30 AM New Mexico...

September 28, 2016 | 8:30 AM

New Mexico Solid Waste & Recycling Conference

Full Cost Accounting and Solid Waste Rate Structuring

Presenter:

Mr. David S. Yanke

NEWGEN STRATEGIES AND SOLUTIONS, LLC

Workshop Agenda

A. Background

B. Full Cost Accounting methodology

C. Detailed example

D. Summary

E. Questions and answers

2

A. Background


NewGen Strategies & Solutions, LLC

• NewGen is a management consulting firm specializing in providing economic, strategic, stakeholder, and sustainability services

• 37 person firm with offices in Austin, Dallas, Denver, and Nashville

Solid WasteWater/

Wastewater

Energy Gas

4


Full Cost Accounting History

5


Full Cost Accounting History (cont’d)

6


Full Cost Accounting History (cont’d)

7


Goals of this Workshop

Aid cities, counties, etc. in identifying all

solid waste costs

Help to establish solid waste rates

Assist in their solid waste

planning

8

B. Full Cost Accounting Methodology


Full Cost Accounting Defined

• Modified cash basis versus Accrual basis

• Accrual basis may result in a potential cash

shortfall

• Cities budget and operate on a cash basis

• Investment community’s familiarity with cash

basis

10


Modified Cash Basis

• Salaries, wages, and

benefits

• O&M costs

• Predevelopment costs

• Closure/Post-Closure

care costs

• Principal payments

• Interest expense

• Cash capital outlays

Accrual Basis

• Salaries, wages, and

benefits

• O&M costs

• Predevelopment costs

• Closure/Post-Closure

care costs

• Depreciation expense

• Interest expense

Comparison

11


Cost Components – Terminology

• Direct Costs– Salaries, wages, and benefits

– Debt service

– Annual cash capital outlays

– General O&M

– Equipment O&M

– Predevelopment costs

– Closure/post-closure care costs

– Contract services

– Utilities

– Professional services

12


Cost Components – Terminology (cont’d)

• Indirect Costs

– Administration/City Manager

– Purchasing department

– Finance department

– HR department

– City Council

– Legal department

– City engineer

– Management information systems

– General insurance

13


Full Cost Accounting Process Flow Chart

Identify MSW Direct Costs

Identify MSW Indirect Costs

Identify Cost Per Program

Identify Cost Per Customer Class

Calculate Rates

14


Step 1: Identify MSW Direct Costs

Direct Costs (abbreviated list)

1. Salaries, Wages & Benefits

2. Vehicle Capital Costs

3. Annual Vehicle Expenses

15

Employee Salary Benefits Percentage of ProgramAmount to Program

Mandy Sines $40,000 $10,00075% MSW Collection25% Recycling Collection

$37,500$12,500

Robert Recycler $50,000 $10,00050% MSW Collection50% Recycling Collection

$30,000$30,000








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VehicleVehiclePrice

Amortized Life

Amortized Cost

Percentage of Use in Program

Annual Cost by Program

Front-Load $350,000 10 $35,00075% MSW Collection25% Recycling Collection

$26,250$8,750

Side-Load $300,000 7 $42,85775% MSW Collection25% Recycling Collection

$32,143$10,714

Rear-Load $175,000 7 $25,000 100% Recycling Collection $25,000








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Vehicle ID

FuelRepair Labor

SuppliesTotal Annual Cost

Percentage of Use in Program

Total Annual Cost by Program

SW185 $15,00075% MSW Collection25% Recycling Collection

REC102 $20,00075% MSW Collection25% Recycling Collection

SW190 $17,000 100% Recycling Collection



Cost Components

• Indirect cost allocation methodologies

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Internal Assessment

EmployeeBased

Other


Step 2: Identify MSW Indirect Costs

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Indirect Costs (abbreviated list)

1. Administration/City Manager

2. Purchasing Department

3. Finance Department

2

DepartmentDept.Budget

% Attributable to MSW Dept.

$ Attributable to MSW Dept.

Purchasing $500,000 25% $125,000

Finance $700,000 30% $210,000

TOTAL $335,000

Internal Assessment Method

Part 1

* Oftentimes indirect cost allocation to Environmental Services Department is already done!



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2

MSW Program% of TotalMSW Direct Costs

Total fromPart 1 Table

Indirect Cost to Program (% of Total MSW x Total from Part 1)

MSW Collection 50% $335,000 $167,500

Disposal 25% $335,000 $83,750

Recycling Collection 15% $335,000 $50,250

Yard Waste 10% $335,000 $33,500

100% $335,000

Internal Assessment Method

Part 2



21


2

DepartmentDepartment Budget

Purchasing $500,000

Finance $700,000

Total $1,200,000

Employee Based Method

Part 2

MSW Employees 100

Total Municipal Employees 500

Ratio (MSW:Total) .20

Amount Allocated to MSW $240,000

Part 1



22


2

Employee Based Method

Part 3

MSW ProgramSW Employeesby Program

% of TotalMSW Employees

$ Amountfrom Part 2

Indirect Cost to Program (% of Total MSW x Total from Part 1)

MSW Collection 40 40% $240,000 $96,000

Disposal 25 25% $240,000 $60,000

Recycling Collection 32 32% $240,000 $76,800

Yard Waste 3 3% $240,000 $7,200

100 100% $240,000


Direct costs

• Directly assigned whenever

possible (example: salaries,

debt issues, etc.); or

• Allocated based on

professional judgement or

estimate by City Staff

(example: public education

program); or

• Allocate based on composite

of “directly assigned” costs

Indirect costs

• Allocated based on

composite of “directly

assigned costs”

Allocation of Costs by Program

23


Step 3. Identify Cost Per Program

Collection Disposal Recycling Yard Waste

Direct Costs

Salaries, Wages & Benefits

Vehicle Capital Costs

Annual Vehicle Costs

Total Direct Costs

Total Indirect Costs(Employee Based or Internal Assessment)

Other Revenue

Interest Income

Sale of Recyclables

Total Other Revenue

(Total Direct Costs + Total Indirect Costs – Total Other Revenue)

TOTAL FULL COST

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Identify Cost Per Program


Allocation of Program Costs by Customer

Class

• This step is not necessary for all cities

• Typically two customer classes

• Same allocation methodology used

– Directly assign; or

– Allocate based on professional judgement; or

– Allocate based on composite

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Residential

Commercial

Customer Classes


Step 4. Identify Cost Per Customer Class

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Identify Cost Per Customer Class

Program Cost Residential Commercial Other

Direct Costs

Salaries, Wages & Benefits

Annual Vehicle Expense

Vehicle Capital Costs

Total Direct Costs

Total Indirect Costs(Employee Based or Internal Assessment)

Other Revenue

Interest Income

Sale of Recyclables

Total Other Revenue

(Total Direct Costs + Total Indirect Costs – Total Other Revenue)

TOTAL FULL COST


Development of User Fees

• Determine billing units

• Calculate rates for each program

• Implement rates which are cost of service based

27

Per Household Per TonPer Container(residential or commercial)


Step 5. Calculate Rates

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Calculate Rates

Program RatesMSW

CollectionDisposal

RecyclingCollection

Yard Waste

Total

Total Full Cost

Billing Units (households, dumpster “lifts”, tons, etc.)

Cost per Billing Unit

C. Example


Overview

• City in Texas

• Population of

approximately

40,000

• ~$4.7 million

revenue requirement

• Various solid waste

services

TransferStation

Commercial

Residential

30


Solid Waste Services Offered

Residential

• Refuse collection (weekly collection via side-load trucks)

• Curbside recycling (included in monthly fee)

• Heavy trash/Large waste collection (on-call service)

• Yard waste (2-3 times per month)

Commercial

• Front load dumpster (2, 4, 6, 8 CY – up to five days per week)

• Roll-off (20, 30, or 40 CY – up to five days per week)

Transfer Station (7:30 am – 5:00 pm, Mon-Sat)

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Project Approach

1. Methodology overview

2. Development of the “Test Year”

3. Allocation of costs to service categories (programs)

4. Allocation to customer classes

5. Determination of billing units

6. Calculation of the cost of service

7. Current rate recovery

8. Proposed rates for consideration

9. Projected revenue with rate increases

10. Policy issues and recommendations

32


1. Methodology Overview

• Development of the “Test Year”

– Total revenue the utility will need to recover to fund all

expenses associated with the provision of services.

• Development of revenue requirement forecast

– Revenue requirement adjusted to project changes in

costs due to inflation, salary increases, new

equipment, etc.

33


1. Methodology Overview (cont’d)

• Allocation of costs to service categories

– Represent the primary solid waste services provided

by the city

• Allocation to customer classes

– Grouped based on the customer classes that will

recover each category’s costs. (residential refuse and

recycling, commercial front load, etc.)

34


1. Methodology Overview (cont’d)

• Determination of billing units

– Example: cart rate charged by customer

• Calculation of the cost of service

– Distribute costs for each customer class utilizing the

appropriate billing units

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2. Development of the Test Year

• Selection of the test year

– Compare budget to prior FY financials

– Must reflect expenses that occur regularly

• Make adjustments to achieve a normalized test year

36


2. Development of the Test Year

• Develop the revenue requirement forecast

– Inflationary assumptions used to develop the forecast

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3. Allocation of Costs to Service Categories

• Critical step in determining adequate rates to

reflect the cost of providing service

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Residential Refuse

• Solid Waste

• Yard Waste

• Heavy Trash

Commercial Refuse

• Front Load Dumpster

• Roll-Off

• Non-Profit

Recycling Collection

• Residential Curbside

• Recycling Drop-off Center

Transfer Station

• Transfer Station

• Brush

• Disposal

• Administration


3. Allocation of Costs to Service Categories

39

• Allocations to “Commercial Collection”


Summary – by Category

40


4. Allocation to Customer Classes

• Allocate service category costs to each

customer class

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5. Determination of Billing Units

• Determine cost of service by dividing the cost of

service by the appropriate billing units

• Cart billing units

– Flat monthly fee for each cart account

– Zero percent growth for conservative analysis

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• Commercial Front Load (3 components)

– Frequency of collection

– Volume of disposal capacity

– Number of containers

46



• Commercial Roll-Off Collection

– Conservative analysis (zero percent growth)

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6. Calculation of the Cost of Service

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6. Calculation of the Cost of Service –

Example Calculation

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In FY 2015, a six-cubic yard container collected

three times per week (13 collections per month)

would result in the following monthly rate:

$25.08 + $7.53 × 13 + $2.57 × 6 × 13 = $323.43

Container Fee

Cost Per Collection

Cost Per CYMonthly Charge


7. Current Rate Recovery

• Forecasts projected revenue recovered using

current rates

52


8. Proposed Rates for Consideration

• Consultant expertise guides the proposed rates

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9. Projected Revenue with Rate Increases

• Revenue projection assumes the proposed rates

are effective at the beginning of each fiscal year

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D. Summary


Summary

• Full cost accounting is a systematic method for

identifying, summing, and reporting costs

incurred in providing services

• Can use to determine the true costs of MSW

management

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E. Questions and Answers

Mr. David S. Yanke

[email protected]

Direct: (512) 649-1254

Cell: (512) 773-5494

3420 Executive Center Drive

Suite 165

Austin, TX 78731

Phone: (512) 479-7900

Fax: (512) 479-7905

mailto:[email protected]

Full Cost Accounting and Solid Waste Rate Structuring · September 28, 2016 | 8:30 AM New Mexico...

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Transcript of Full Cost Accounting and Solid Waste Rate Structuring · September 28, 2016 | 8:30 AM New Mexico...