22-097 Service Order #8 dated 9-14-23 HF&H Cost Based Rate Adjustment - 2024-205 CITY OF CUPERTINO
MASTER AGREEMENT CONSULTANT SERVICES
SERVICE ORDER NO.
MASTER AGREEMENT #:MA Date:
Maximum Compensation:
Consultant:Firm Name:
Address:
Contact: Ph:
Project Name:
Description: (simple project description if appropriate)
Attachment A: Includes Description of Project, Scope of Service, Schedule of Performance
and Compensation
City Project Management
Managing Department: Public Works Project Manager:
Fiscal/Budget :
SO Acc't #:PO #:
Project #:Date:
Approvals:
Date:
Date:
Appropriation Certification: I hereby certify that an unexpended appropriation is available in the above
fund for the above contract as estimated and that fund are available as of this date of signature
City Finance:Date:
Encumbrance this Service Order:
MA End Date:
Consultant:
Department Head:
Management Analyst
Master Agreement Maximum Compensation:
Master Agreement Unencumbered Balance:
Total Previously Encumbered to Date:
City of Cupertino Master Agreement Service Order - Page 1 of 1
22-097 7/26/2022
$350,000 August 31,2025
HF&H Consultant, LLC
201 N. Civic Drive, Suite 230 Walnut Creek, CA 94596
Peter Deibler (925) 977-6968
4 Solid Waste Consulting
4
Ursula Syrova
$350,000.00
$140,675.00
$85,085.00
$124,240.00
520-81-801 750-174
n/a
tbd
9/14/2023
8
Sep 14, 2023
Sep 14, 2023
Sep 14, 2023
Service Order 8 – RY 4 Cost Based Rate Adjustment
September 12, 2023
HF&H Consultants, LLC 1
SERVICE ORDER 8 – RY 4 COST BASED RATE ADJUSTMENT
Service Order 8 completes HF&H’s review of Recology’s Rate Year 4 (RY4) cost-based rate adjustment
application. The initial work of reviewing the application was conducted under Service Order 3. Dave
Hilton and Danielle Derby will be lead staff in conducting key tasks to include: 1) completing the initial
work, as needed, 2) determining allowable cost and expenses, 3) reviewing projected revenues, 4)
determining the revenue requirement, 5) communicating findings, and 6) managing the engagement.
Scope of Work
Task 1 Complete Project Initiation. HF&H reviewed the Rate Year Four Rate Application (Application) from
Recology for compliance with the requirements of the franchise agreement (Exhibit E2). HF&H will
complete review of the mathematical accuracy and logical consistency of the Application to determine
that the Application is mathematically correct (e.g., that the rows and columns of numbers add down and
across as intended) and that the stated assumptions and appropriate indices were, in fact, used in the
calculations. HF&H staff will complete verification, now underway, that the Application is internally
consistent and that summary schedules agree to the supporting schedules and worksheets. HF&H will
notify Recology and the City of any areas of non-compliance and request additional information necessary.
Task 2 Cost and Expense Determination. The revenue requirement is comprised of three components: 1)
Recology’s allowable compensation, calculated based on the procedures described in the franchise
agreement; 2) Recology’s allowable costs for disposal and material handling; and, 3) City fees (e.g., Solid
Waste Fund Operation Fees). HF&H proposes to review the Recology’s Application by performing the
following subtasks.
Subtask 2a: Request for Information
Prepare an initial request for documents and information (RFI) that are necessary for conducting our
review. The initial RFI shall, at a minimum, include a request for the following:
• Current operational statistics (e.g., route sheet, headcount) as needed.
• Support (e.g., scale system report by customer) documenting the tonnage collected from the City
service area that is being transferred or direct hauled.
• Support for miscellaneous service and recycling revenue for the most recent twelve months.
• Support documentation for any changes to per ton disposal fees or per ton governmental fees (e.g.,
LEA) used in calculations.
Upon receipt of the requested information, we will review the information for completeness and accuracy
and request additional information, if necessary.
Subtask 2b: Review of Cost Projections
HF&H will review the following cost categories to ensure only allowable and justifiable forecasted costs
are included in the Application:
• Labor-related costs
• Vehicle-related costs (excluding fuel)
Service Order 8 – RY 4 Cost Based Rate Adjustment
September 12, 2023
HF&H Consultants, LLC 2
• Fuel costs
• Other costs
• Depreciation costs
• Allocated costs
• Disposal costs
• C&D materials processing costs
• Recyclable materials processing costs
• Organic materials processing costs
Additionally, HF&H will review Recology’s projections for each of these cost categories to verify all costs
have been projected by their proper index described in Exhibit E2 of the franchise agreement. HF&H will
verify these costs are reasonable to provide services required by the agreement and are reasonable
compared to industry standards and Recology’s proposal. HF&H will also incorporate the limitations of
the 5% operations cap as further detailed in Exhibit E2.
Subtask 2c: Additional Analysis for Adjustments in RY 4
In finalizing the franchise agreement in late 2020, the City, Recology, and HF&H jointly modeled the Rate
Year 1-3 rates and projected revenue requirement. Two significant cost areas were budgeted for Rate
Years 1 – 3: processing of multi-family and commercial solid waste and a waste characterization. While
one, or both, of these expenditures may be incurred in the future, they did not occur during Rate Years 1
– 3.
HF&H will review the model used to project Rate Years 1 – 3, and identify the costs included in the model
that were not incurred during these years. Then HF&H will discuss with the City the options to account for
these costs in the RY 4 adjustment. Some of these options include using the additional funds to offset the
RY 4 rate increase (similar to a rate smoothing reserve), add it to reserves, or reduce the City payment to
Recology, or some combination of the three. Our budget for this subtask assumes up to twenty hours of
time to use the existing model to run scenarios regarding future rate options. Prior to doing so, HF&H will
discuss the possible running of any scenarios with the City.
Additionally, HF&H will perform a high level analysis on other costs from the model that the City may
consider reviewing in addition to the processing of solid waste and the waste characterization. HF&H will
summarize our findings or recommendations to the City to consider as part of the RY 4 review.
Limitations
HF&H’s review is different in scope than an audit of financial statements; such audits are performed by
the independent certified public accountants retained by ACI.
Task 3 Review Projected Revenues. HF&H will review the revenue generated from customer billings in
order to assess the reasonableness and accuracy of the projected gross rate revenues as reported by
Recology. In order to complete that review, HF&H will: 1) review the current customer subscription data
received from Recology times the current rates in order to calculate the actual revenues received and 2)
review miscellaneous services and recycling revenue from the most recent twelve month period.
Task 4 Determine Revenue Requirement. HF&H will determine Recology’s revenue requirement. This
includes comparing projected revenues (reviewed in Task 3) with the revenue requirements (calculated
in Task 2) to calculate the overall rate adjustment factor necessary. HF&H will meet once with Recology
Service Order 8 – RY 4 Cost Based Rate Adjustment
September 12, 2023
HF&H Consultants, LLC 3
to review our preliminary findings and receive their comments and any additional information supporting
their Application. If appropriate, HF&H may adjust our preliminary calculations.
At this time, HF&H will present the final adjusted calculations to the City for discussion of how best to
allocate rate increases to customer classes and whether it will be desirable to continue use of reserves to
smooth rates. HF&H will also discuss with the City whether there is interest in establishing a Vehicle Street
Maintenance Fee (based on the HF&H study from 2020).
Task 5 Communication of Findings. HF&H will summarize the findings of our review of Recology’s
Application and our position on any outstanding matters in a draft report to the City and Recology.
Following submittal of the draft, HF&H will consider comments from the City and Recology adjust the
report as applicable. HF&H will present one final report addressing the overall results of the review.
If requested, HF&H will assist the City in the presentation of the rate review to the City Council. HF&H will
prepare a draft presentation that either HF&H or City staff can present. HF&H will review and provide
comments to the City staff on a draft staff report. HF&H will attend and, if requested, present to the
Council at up to three Council Meetings.
Limitations
This report is limited to the process described in Exhibit E2 to the franchise agreements and the impacts
of additional adjustments (as described in Task 2c) and will not include any additional issues that the
parties may wish to negotiate or resolve through this process that are not already noted in this proposal.
Task 6 Engagement Management. Throughout the engagement, HF&H will perform engagement
management activities such as:
• Preparing and reviewing detailed work papers that provide a record of documents that we
reviewed as part of our analysis; and, documenting our calculations, supporting how we arrived at
our findings and our conclusions;
• Responding to City staff and Recology inquiries and other miscellaneous activities; and,
• Adjusting and communicating changes, if any, to the scope of work and schedule as necessary and
appropriate.
Fee Estimate
HF&H proposes to perform this work consistent with the billing arrangements and rates included in our
master services agreement with the City. We estimate that the fees required to perform this scope of
work will not exceed $85,085. Our estimate of the hours by staff role and task are presented below. Note
that we assume that HF&H presence at meetings will be virtual.
HF&H respectfully reserves the right to reallocate budget among staff and tasks within this total not-to-
exceed amount to accommodate issues that arise during the performance of work, which always varies
somewhat from the preliminary estimates.
Service Order 8 – RY 4 Cost Based Rate Adjustment
September 12, 2023
HF&H Consultants, LLC 4
Schedule
HF&H assumes that the above tasks will occur during August through approximately November.
Task #Task Description Pr
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Total Estimated
$325 $305 $215 $170 $150 $125 Hours Fees
1 Project Initiation 2 8 2 0 2 0 14 $3,820
2 Cost and Expense Determination 8 20 75 0 100 0 203 $39,825
3 Review Projected Revenues 4 6 12 0 20 0 42 $8,710
4 Determine Revenue Requirement 4 4 8 0 12 0 28 $6,040
5 Communication of Findings 4 18 30 0 50 12 114 $22,240
6 Engagement Management 2 4 12 0 0 0 18 $4,450
Subtotal 24 60 139 0 184 12 419 $85,085
Out-of-Pocket Expenses $0
Total Budget $85,085
HF&H Service Order 8 Cost Based Rate
Adjustment
Final Audit Report 2023-09-14
Created:2023-09-14
By:Julia Kinst (juliak@cupertino.org)
Status:Signed
Transaction ID:CBJCHBCAABAAVi0DCohjcuDyt3uEImsyeFJK3EEBzz7D
"HF&H Service Order 8 Cost Based Rate Adjustment" History
Document created by Julia Kinst (juliak@cupertino.org)
2023-09-14 - 6:21:21 PM GMT- IP address: 216.198.111.214
Document emailed to rchilton@hfh-consultants.com for signature
2023-09-14 - 6:22:14 PM GMT
Email viewed by rchilton@hfh-consultants.com
2023-09-14 - 6:26:08 PM GMT- IP address: 104.28.124.96
Signer rchilton@hfh-consultants.com entered name at signing as Rob Hilton
2023-09-14 - 6:26:36 PM GMT- IP address: 107.127.14.83
Document e-signed by Rob Hilton (rchilton@hfh-consultants.com)
Signature Date: 2023-09-14 - 6:26:38 PM GMT - Time Source: server- IP address: 107.127.14.83
Document emailed to Chad Mosley (chadm@cupertino.org) for signature
2023-09-14 - 6:26:40 PM GMT
Email viewed by Chad Mosley (chadm@cupertino.org)
2023-09-14 - 8:17:52 PM GMT- IP address: 104.47.73.254
Document e-signed by Chad Mosley (chadm@cupertino.org)
Signature Date: 2023-09-14 - 8:18:10 PM GMT - Time Source: server- IP address: 64.165.34.3
Document emailed to Julia Kinst (juliak@cupertino.org) for signature
2023-09-14 - 8:18:11 PM GMT
Document e-signed by Julia Kinst (juliak@cupertino.org)
Signature Date: 2023-09-14 - 8:45:35 PM GMT - Time Source: server- IP address: 216.198.111.214
Agreement completed.
2023-09-14 - 8:45:35 PM GMT