This report was researched and produced by the Northwest Economic Research Center (NERC) with support from Rogue Disposal & Recycling.
Integrated solid waste management -- Oregon, Refuse and refuse disposal -- Oregon, Urban sanitation -- Finance, Consumer price indexes
As regulated franchises, waste management services are required to have all rate adjustments approved by local governing bodies. This typically involves supporting the requested adjustment with financial and operational data. The cost-intensive nature of this process limits its frequency. Many jurisdictions conduct a formal review every five years, with interim rates set using a proxy for marginal cost changes, typically an index such as the Consumer Price Index (CPI)1. Rogue Disposal & Recycling (RDR) is governed in such a way in several of the jurisdictions it serves. The central reason for this report is that the CPI has not proven to be a reliable predictor of changes in expenses, often leading to significant required adjustments during the formal review period. With this in mind, RDR contracted the Northwest Economic Research Center (NERC) to construct an index that reflects the changes in RDR’s expenses more accurately and reliably than the CPI.
In constructing this index, NERC took into account that the index must have a strong theoretical foundation, while maintaining the ease of implementation associated with the CPI. Accordingly, NERC constructed an index by weighting RDR’s four major expense categories – vehicle replacement, equipment rentals, employee wages, and all other spending - and matching them to government published statistics to develop the Simple Refuse Rate Index (SRRI).
NERC recommends a four-step process for using this index that accounts for the net cost of recycling. Since the net cost of recycling is a major reason for a large portion of the historical discrepancy between RDR’s observed expenses and the CPI, it must be accounted for in years between the 5-year rate reviews. Figure 1 shows how much RDR’s expenses changed, versus how much the CPI and SRRI predicted they would change, over a given year. Over the past decade, the rate increases determined by the SRRI (while accounting for the net-cost of recycling) outperform the CPI-determined rate adjustments, especially in the last three years.
© 2017 Northwest Economic Research Center
Hulseman, Peter; Willingham, Emma; Whitehead, Peter; and Northwest Economic Research Center, "Rogue Disposal & Recycling Simplified Refuse Rate Index: Technical Report" (2017). Northwest Economic Research Center Publications and Reports. 48.