Use the Operating Ratio Method to Determine Profit Sample Clauses

Use the Operating Ratio Method to Determine Profit. The County will use the operating ratio (OR) method to establish revenue requirements for setting rates. The operating ratio establishes revenue requirements based on allowable expenses and is defined as follows: Operating = Allowable expenses ratio Allowable expenses + Profit The operating ratio effectively determines the profit allowed to the franchise hauler on operating costs. Total revenue requirements then are determined as the sum of: (1) allowable operating costs, (2) allowable profit, and (3) pass-through costs (for which the franchise hauler receives no profit). In the first base year, the OR will be set at 90 percent. In each succeeding base year (once every four years), the operating ratio will range from 87 to 92 percent, which will help stabilize rate changes and afford the franchise hauler an incentive to reduce costs. In any succeeding base year, if the franchise hauler earns an operating ratio outside this 87 to 92 percent range, then 90 percent is reestablished. This operating ratio range also will prevent automatic rate changes for smaller changes in revenues, expenses, and material volumes.