CC 2016-03-22_09c Amendment_Solid Waste Franchise Agreement MEMORANDUM
TO: CITY COUNCIL
FROM: DEBBIE MALICOAT, DIRECTOR OF ADMINISTRATIVE SERVICES
SUBJECT: CONSIDERATION OF FIRST AMENDMENT TO AMENDED AND
RESTATED SOLID WASTE COLLECTION FRANCHISE AGREEMENT
DATE: MARCH 22, 2016
RECOMMENDATION:
It is recommended the City Council approve the First Amendment to the City’s Franchise
Agreement for solid waste collection.
IMPACT ON FINANCIAL AND PERSONNEL RESOURCES:
There is no significant impact on financial or personnel resources related to the
proposed action. There will be minor staff time involved in processing the amendment.
BACKGROUND:
The City has had a Franchise Agreement (Agreement) with South County Sanitary
Service (SCSS), a subsidiary of Waste Connections, for collection, diversion and
disposal of solid waste since 1997. The Agreement was most recently amended on
June 10, 2008, which extended the Agreement for a 15-year period.
In November 2012, the San Luis Obispo County Board of Supervisors approved a
conditional use permit for the expansion of Cold Canyon Landfill. Cold Canyon
estimates the cost for the first two phases of the expansion to be $8.3 million. The
County also entered into an agreement with the landfill to approve tipping fee increases
over a nine year period that would allow the landfill to recover the costs for the first two
phases of the expansion. This was done in an effort to provide predictable and
“smoothed” increases to customers while recognizing that the actual expenses paid by
the landfill for the expansion will not occur evenly or “smoothly” over the next several
years. This was memorialized with the County in a “Rate Setting Agreement” that will
result in an increase to tipping fees of $2.25 per ton each year for nine years.
ANALYSIS OF ISSUES:
The City’s Agreement with SCSS provides for the rates that can be charged to
customers for collection services and a methodology for increasing rates. The
Agreement includes provisions for costs that can be passed on to customers, some of
which may include a defined profit margin for SCSS, as well as costs that are not
allowed to be recovered through collection rates.
Item 9.c. - Page 1
CITY COUNCIL
AMENDMENT TO THE SOLID WASTE COLLECTION FRANCHISE AGREEMENT
MARCH 22, 2016
PAGE 2
The current Agreement also includes language that would allow the City Council to
terminate the Agreement if rates were to increase to the point where they exceed the
cumulative change in the cost of living. If the rate increases exceed the cumulative
increase in the consumer price index (CPI), this could “trigger” the City Council to
exercise the option to terminate the Agreement. This is intended to incentivize SCSS to
keep rate increases at or below the changes in the CPI, thereby providing some
assurance that rates remain competitive and reasonable.
As discussed at the October 13, 2015 City Council meeting, if the City Council does not
exclude the increase in tipping fees associated with the landfill expansion, the proposed
3.25% rate increase will trigger the City’s ability to terminate the Agreement.
The First Amendment (Amendment) does not change the language in the Agreement
that would allow the City Council to pursue termination of the Agreement should future
rate increases exceed cumulative CPI; it simply recognizes that the increase in tipping
fees due to the current landfill expansion will not be included in the calculation to
determine if the rates have exceeded CPI increases. In addition, the Amendment
provides the City Council with the ability to deny any increase in tipping fees that
exceeds 1.5% (essentially the $2.25 per ton) in accordance with the County’s Rate
Setting Agreement.
A public hearing on the proposed 3.25% rate increase will occur on March 22, 2016,
after this item has been acted upon by the City Council.
ALTERNATIVES:
The following alternatives are provided for City Council consideration:
1. Approve the proposed amendment;
2. Do not approve the proposed amendment; or
3. Provide direction to staff.
ADVANTAGES:
Approval of the Amendment will define and provide clarity that the inclusion of the
additional costs attributed to the landfill expansion set forth in the Rate Setting
Agreement will not trigger the optional termination provision, without diminishing the
City’s ability to terminate the Agreement if rates contained in the Rate Setting
Agreement exceed 1.5% or the rates not included in the Rate Setting Agreement
exceed the cumulative increase in CPI.
DISADVANTAGES:
The costs for the landfill expansion recognized in the Rate Setting Agreement will be
passed on to the solid waste collection customers.
Item 9.c. - Page 2
CITY COUNCIL
AMENDMENT TO THE SOLID WASTE COLLECTION FRANCHISE AGREEMENT
MARCH 22, 2016
PAGE 3
ENVIRONMENTAL REVIEW:
No environmental review is required for this item.
PUBLIC NOTIFICATION AND COMMENTS:
The Agenda was posted in front of City Hall on Thursday, March 17, 2016. The Agenda
and report were posted on the City’s website on Friday, March 18, 2016.
Item 9.c. - Page 3
FIRST AMENDMENT TO
AMENDED AND RESTATED
SOLID WASTE COLLECTION FRANCHISE AGREEMENT
THIS FIRST AMENDMENT TO AMENDED AND RESTATED SOLID WASTE
COLLECTION FRANCHISE AGREEMENT (this "Amendment") is made and entered into this
_ day of 2016, in the State of California, and shall modify that certain Amended and
Restated Solid Waste Collection Franchise Agreement, dated June 10, 2008 (the "Agreement"),
by and between the CITY OF ARROYO GRANDE, a political subdivision of the State of
California ("City") and SOUTH COUNTY SANITARY SERVICE, INC., a California
corporation ("Contractor"). City and Contractor may be collectively referred to herein as the
"Parties" and individually as a "Party", unless specifically identified otherwise.
RECITALS
WHEREAS, Cold Canyon Land Fill, Inc. ("Cold Canyon") operates the Cold Canyon
Landfill in San Luis Obispo County ("Landfill");
WHEREAS, Contractor utilizes the Landfill for, among other things, the disposal of solid
waste collected under the Agreement;
WHEREAS, on November 20, 2012, the San Luis Obispo County (the "County") Board
of Supervisors approved a conditional use permit for the expansion of the Landfill (Permit No.
DRC2005-00170);
WHEREAS, the County and Cold Canyon entered into a Rate Setting Agreement
whereby the County will approve certain annual increases to the tipping fee charged by Cold
Canyon to certain affiliates of Contractor for disposal of solid waste collected under the franchise
agreements between the County and those affiliate over a nine (9) year period to allow Cold
Canyon to recover the costs of the first two (2) phases of the expansion under the terms and
conditions specified therein (the "Rate Setting Agreement");
WHEREAS, the Agreement permits City to terminate the Agreement if Contractor
requests a rate increase that, if granted, would result in a rate increase that exceeds the
cumulative cost of living increases, when compared to the rate as of the effective date of the
Agreement;
WHEREAS, the Agreement provides that any increase in Contractor costs resulting from
an increase in the pass-through costs associated with the disposal of solid waste shall be included
when comparing the resulting rate increase to the cumulative cost of living increases, with
limited exception, not including tipping fees;
WHEREAS, City and Contractor desire to amend the Agreement to exclude tipping fees
charged by Cold Canyon and incurred by Contractor from the rate change calculation described
above provided that said fees are expressly approved in or in accordance with the Rate Setting
Agreement; and
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WHEREAS, City and Contractor desire to further amend the Agreement to permit City's
City Council to cap any one time annual corresponding collection rate increase attributable to the
tipping fee increases approved in the Rate Setting Agreement at 1.5%, as further described
below.
AGREEMENT
NOW, THEREFORE, FOR GOOD AND VALUABLE CONSIDERATION, THE
RECEIPT AND SUFFICIENCY OF WHICH ARE HEREBY ACKNOWLEDGED, THE
PARTIES AGREE TO AMEND THE AGREEMENT, AS FOLLOWS:
1. Amendment to Article 1 (Definitions). Article 1 of the Agreement is hereby
amended to add the following definition:
"New Regulatory Costs" means any new or increased operating costs
and/or expenses incurred by Contractor in connection with: (i) new taxes,
licensing fees, surcharges or other government-imposed charges; (ii) increases in
existing taxes, licensing fees, surcharges or other government-imposed charges;
(iii) the adoption of new laws (including, without limitation, Environmental
Laws), rules, regulations or permit conditions; including, without limitation, new
recycling, composting or other waste diversion programs); or (iv) changes in
existing laws (including, without limitation, Environmental Laws), rules,
regulations or permit conditions; including, without limitation, changes to existing
recycling, composting or other waste diversion programs).
2. Amendment and Restatement of Third Paragraph of Section 8.3. The third
paragraph of Section 8.3 of the Agreement is hereby amended and restated in its entirety and
shall hereafter be and read as follows:
"When calculating the change in rate described in the first paragraph of
Section 8.3, costs resulting from Article 7 (Payments to City), Section 4.5 (City
Request to Direct Changes), Section 5.10 (Garbage and Recycling Service in
Public Areas), New Regulatory Costs and the per ton tipping fee charged by Cold
Canyon Land Fill, Inc. to Contractor for delivery of solid waste collected under
this Agreement to the Cold Canyon Landfill that has been approved in or in
accordance with that certain Rate Setting Agreement with Cold Canyon Landfill,
dated May 13, 2014 (the "Rate Setting Agreement"), by and between the County
of San Luis Obispo, a political subdivision of the State of California ("County"),
and Cold Canyon Land Fill, Inc. ("Cold Canyon"), a California corporation, will
not be included. However, except for the foregoing, any other increase resulting
from an increase in the pass-through costs associated with the processing and/or
disposal of Solid Waste and Recyclable Materials including Green Waste shall be
included in the rate change calculation, unless a disposal or processing facility has
been designated by City."
3. New Section 8.8. Article 8 of the Agreement is hereby amended to add the
following new Section8.8:
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Item 9.c. - Page 5
"8.8 Rate Setting Agreement; Tipping Fee Increases. The parties
hereto agree that this Agreement (including all of this Article 8) is subject to and
governed by the Rate Setting Agreement. The terms and conditions of the Rate
Setting Agreement are hereby incorporated into this Agreement by reference. If
during the performance term of this Agreement, County approves an adjustment
in the tipping fee at a solid waste disposal facility that Contractor uses, collection
rates for residential and commercial customers shall be adjusted correspondingly
by City's City Council. Notwithstanding the foregoing, for tipping fee increases
under the Rate Setting Agreement effective on or after January 1, 2015, City's
City Council shall have the discretion to deny any portion of any one time annual
corresponding collection rate increase that would be greater than 1.5% and that is
attributable to the tipping fees approved in accordance with the Rate Setting
Agreement. The 1.5% threshold shall be measured against the quotient obtained
by dividing the product of (a) (i) the tipping fee increase per ton under the Rate
Setting Agreement and (ii) the number of tons collected by the Contractor during
the immediately preceding calendar year, by (b) the Contractor's total annual
gross revenues for the immediately preceding calendar year, and then dividing
that quotient by one minus the franchise fee percentage. City's City Council
intends to make a reasonable effort to adjust Contractor's collection rates at the
same time as the solid waste disposal facility rate."
4. Counterparts. This Amendment may be executed in one or more facsimile or
original counterparts, each of which shall be deemed an original and both of which together shall
constitute one and the same instrument.
5. Ratification. All terms and provisions of the Agreement not amended hereby,
either expressly or by necessary implication, shall remain in full force and effect. From and after
the date of this Amendment, all references to the term "Agreement" in this Amendment and in
the original Agreement shall include the terms contained in this Amendment.
6. Conflicting Provisions. In the event of any conflict between the original terms of
the Agreement and this Amendment, the terms of this Amendment shall prevail.
7. Authorization. Each Party executing this Amendment represents and warrants
that it is duly authorized to cause this Amendment to be executed and delivered.
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IN WITNESS WHEREOF, City and Contractor have executed this First Amendment to
Amended and Restated Solid Waste Collection Franchise Agreement on the day and year first
hereinabove set forth.
CITY:
CITY OF ARROYO GRANDE
By:
Name: Jim Hill
Title: Mayor
Attest:
By:
Name: Kelly Wetmore
Title: City Clerk
Approved as to Content:
By:
Name: Dianne Thompson
Title: City Manager
Approved as to Form:
By:
Name: Heather K. Whitham
Title: City Attorney
{ 00067938.DOCX.}
CONTRACTOR:
SOUTH COUNTY SANITARY SERVICE,
INC.
By:
Name:
Title:
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