HomeMy WebLinkAbout04/02/2002, B4 - ASSIGNMENT OF THE SOLID WASTE, RESIDENTIAL CURBSIDE RECYCLING AND GREEN WASTE COLLECTION FRANCHISES i
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A ril 2, 2002
acEn6A Repopt 1� .� g
C I T Y O F SAN LUIS OBISPO
FROM: John Moss, Utilities Directo
Prepared By: Ron Munds,Utilities Cone at Coordinator
SUBJECT: ASSIGNMENT OF THE SOLID WASTE, RESIDENTIAL CURBSIDE
RECYCLING AND GREEN WASTE COLLECTION FRANCHISES TO
WASTE CONNECTIONS, INC.
CAO RECOMMENDATION
Adopt a resolution to assign the Solid Waste, Residential Curbside Recycling and Green Waste
Franchise Agreements to Waste Connections, Inc..
DISCUSSION
Background
On January 16, 2002, the City received written notification from San Luis Garbage Company
(SLG) requesting that the City approve the assignment of the refuse, recycling and green waste .
collection contracts to Waste Connections, Inc. (WCI). According to information obtained by
staff, WCI was founded in 1997 by a group of industry professionals with over 50 years of
industry experience through the purchase of five operations in Washington and Idaho from
Browning-Ferns Industries. The company expanded into the California market with the addition
of Madera Disposal Systems in early 1998. As of December 31, 2001, WCI serves more than
700,000 commercial, industrial and residential customers in fifteen states. WCI became a
publicly owned company in May of 1998 and is traded on the NASDAQ exchange under the
symbol WCNX.
The City's franchise agreement stipulates that the City must approve an assignment and that the
franchisee must pay for any reasonableexpenses to investigate any proposed assignee. Since the
sale of SLG and its affiliated companies has regional implications, the San Luis Obispo County
Integrated Waste Management Authority(IWMA) agreed to assist in the review process.
In order to streamline the assessment, the City has acted as the lead agency for the region (with
IWMA assistance) in the evaluation of WCI. Because of the complexity of the investigation to
evaluate WCI operational experience and fiscal stability as stipulated in the franchise agreement,
the IWMA recommended hiring Hilary Theisen Consulting to assist in the assessment. As stated
previously, SLG was responsible for any cost incurred in hiring the consultant.
Council Agenda Report—SLG Franchise Assignment
Page 2.
Franchise Assignment Criteria
The City's franchise agreements set minimum requirements that must be met in order for the City
to consider the assignment of the contracts. The requirements and the consultant's (Hilary
Theisen) scope of work in evaluating WCI ability to satisfy the condition are as follows:
1. Financial Stability. Review the audited financial statements of WCI operations for the
immediately preceding three operating years, and provide an opinion regarding Waste
Connections financial stability.
2. Management Experience. Based on a review of WCI solid waste management
experience and the solid waste experience of the key personnel, provide an opinion
regarding WCI having 10 years of experience on a scale equal to or exceeding the scale of
operations conducted by the existing franchise.
3. Significant citations or other censure. Provide an opinion regarding WCI having
suffered in the last five years any significant citations or other censure for any federal,
state or local agency having jurisdiction over its waste management operation due to any
significant failure to comply with state, federal or local environmental laws, and that WCI
.has provided a complete list of such citations and censures.
4. Operations. Provide an opinion regarding WCI ability to at all times conduct its
operations in an environmentally safe and conscientious fashion.
5. Solid waste.. management practices. Provide an opinion regarding WCI ability to
conduct its solid waste management practices in accordance with sound waste
management practices in full compliance with all federal, state and local laws regulating
the collection and disposal of solid waste, including hazardous waste.
6. Agreement. Provide an opinion regarding WCI ability to fulfill the terms of the
franchise agreement in a timely, safe and effective manner.
The charge given to the consultant was to investigate these points and render a professional
opinion regarding WCI ability to perform in each area. Attachment 2 is the report issued from
the consultant which contains the results of the investigation. Overall, the consultant provided a
favorable opinion of WCI ability to satisfy the franchise assignment criteria.
The following is a summary of the consultant's opinions based on the information reviewed in
regards to the previously listed assignment criteria. This information is also found in the
Executive Summary of the report.
1. Opinion -Financial Stability
The Current Ratio, Long Term Debt/Equity Ratio, Return on Assets, Return on Equity and
the information published by Multex Investor (www.multexinvestor.com) for the
Council Agenda Report.. SLG Franchise Assignment
Page 3
immediately preceding three operating years indicated'for WCI and the average for the Waste
Management Services Industry as a whole do not disclose any indication of financial
instability.
Assuming that WCI management effectiveness continues, there is no reason to conclude that
WCI is not now financially stable and would not continue to be stable with the passage of
time.
2. Opinion -Management Experience
WCI has the management experience necessary to perform the services defined in the City
franchise agreements. A management support structure is in place that is suitable to
providing the level of service in the franchise agreements.
3. Opinion—Significant Citations or Other Censure
The record of environmental citations and other censures does not indicate any significant
problems at WCI landfills and transfer stations. The absence of any record of default events
or assessment of liquidated damages under collection franchiseagreements indicates there are
no significant citations or censures in collection operations.
4. Opinion-Operations
Assuming that WCI continues to implement a corporate culture of conducting operations in
an environmentally sound and conscientious fashion, the assignment will result in
environmentally sound and conscientious operations. The Safety Manual is comprehensive
in content and conforms to industry standards for training and measuring performance of
operations staff.
5. Opinion—Solid Waste Management Practices
Assuming WCI continues a commitment to sound waste management practices by allowing
the managers of subsidiaries to continue practices used in the community for many years
before acquisition, the assignment will result in sound practices. Also, many members of
WCI senior management had the opportunity to develop sound practices during years of
previous employment with other large waste management companies.
6. Opinion Ability to Fulfill Terms of the Agreement
Based on the data and statements provided by WCI and the previous opinions, WCI has the
ability to fulfill the terms of the franchise agreement in a timely, safe and effective manner.
f
Council Agenda Report—SLG Franchise Assignment
Page 4
Overview of the Evaluation Process
In order to facilitate a regional approach and involvement from the other jurisdictions in the
assignment process, the following is a summary of activities that took place:
■ Kick-off meeting with all jurisdictions invited to explain the assignment process and give
them an opportunity for input.
■ Formation of a technical work group and a financial work group made up of staff from
participating jurisdictions.to review information provided by WCI and other sources.
■ Consultant selected and given the direction to evaluate WCI based on the criteria
previously discussed.
■ Draft report issued and reviewed by work groups.
■ Revised final draft of the report released..
■ Work group meeting held with the consultant to answer questions or clarify points in the
report.
■ Work group met with WCI to interview management representatives from the company.
■ Wrap-up meeting held with participating jurisdictions to discuss final direction and
consensus on the issue of assigning contracts to WCI.
CONCURRENCES
The IWMA and all the other participating jurisdictions concur with the recommendation at the
staff level and will be recommending assignment of their respective franchise agreements to WCI
to their Boards or Councils. The other participating jurisdictions are the County of San Luis
Obispo, the City of Pismo Beach, the City of Morro Bay, the Los Osos CSD, the Oceano CSD,
the Nipomo CSD, Cayucos Sanitation District and the Cambria CSD.
FISCAL IMPACT
There is no direct fiscal impact associated with the recommended action. As stated in the report,
all reasonable expenses related to the assignment process are the responsibility of San Luis
Garbage Company and have been billed accordingly. Additionally, the franchise agreement
states, "the City reserves the right to solicit competitive bids for these (solid wastes) services if
the assignment results in a request by the assignee for rate increases that are higher than the
inflationary index and do not reflect value changes in service standards". This essentially means
that should WCI request an increase in rates that staff feels is solely the result of the assignment
or WCI's controllable operating decisions, the City has the option to consider opening the
franchise to a competitive bidding process prior to the expiration of the assigned franchise
1
I
Council Agenda Report—SLG Franchise Assignment
page 5
agreement. All requested rate increases will continue to be processed in accordance with the
City's solid waste rate setting manual which clearly defines what costs are allowable in the rate
setting process.
ATTACHMENTS
Attachment 1- Resolution
Attachment 2- Evaluation and Opinion Regarding Assignment of Franchises to Waste
Connection, Inc. - Executive Summary
Council Reading File
Full Report -Evaluation and Opinion Regarding Assignment
of Franchises:..to Waste Connection, Inc.
5
1
Attachment 1
RESOLUTION NO. (2002 Series)
A RESOLUTION OF THE COUNCIL OF THE CITY OF SAN LUIS OBISPO
AUTHORIZING THE ASSIGNMENT OF THE SOLID WASTE, RESIDENTIAL CURBSIDE
RECYCLING AND GREEN WASTE COLLECTION FRANCHISE AGREEMENTS TO
WASTE CONNECTION, INC.
WHEREAS, the public health and safety demand the orderly and periodic collection and
disposal of solid waste from properties within the City of San Luis Obispo(City); and
WHEREAS, San Luis Garbage Company (SLG) is the holder of three exclusive franchise
agreements to provide solid waste (Ordinance no. 1319), residential curbside recycling (Ordinance
no. 1396) and green waste collection (Ordinance no. 1396), transportation and disposal services to
the City(hereinafter referenced as Franchise Agreements); and
WHEREAS,by a letter dated January 16,2002, SLG notified the City that SLG had
entered into a purchase agreement with Waste Connections, Inc. (WCI)to transfer all of its
operations upon consummation of the transaction to WCI; and
WHEREAS, the transaction constitutes an assignment within the meaning of Article 13 of
the Franchise Agreements; and
WHEREAS, Article 13 of the Franchise Agreements with SLG requires the prior written
consent of the City to allow SLG to assign the Franchise Agreements to WCI;and
WHEREAS, SLG and WCI have requested the Cityto consent to the assignment; and
WHERAS, WCI deposited the sum of$15,000 with the City pursuant to 13.1 (2)(A) of the
Franchise Agreements to pay for a City consultant to review its business operations; and
WHEREAS,the City hired Hilary Theisen Consulting to review WCI's operational
experience and financial stability and concluded that WCI has ability to satisfy the franchise
assignment criteria; and
WHEREAS, SLG and WCI have fulfilled the all the requirements of Article 13 regarding
the assignment of the Franchise Agreements.
BE IT RESOLVED by the Council of the City of San Luis Obispo that the City consents
to the assignment of the Solid Waste, Residential Curbside Recycling and Green Waste
Franchise Agreements from SLG to WCI subject to the following conditions:
1. Assignee shall agree to be bound by each and all requirements of Article X, Sections
1001 through 1007 of the San Luis Obispo City Charter.
2. Upon the consummation of the transaction between SLG and WCI, WCI accepts the
franchise obligations contained in the Solid Waste (Ordinance no. 1319), Residential
r��
i
Resolution No. (2002 Series) Attachment 1
Page 2
Curbside Recycling (Ordinance no. 1396) and Green Waste Franchise Agreements
(Ordinance no. 1396).
3. The assignment herein shall not become effective until WCI accepts in writing the
conditions of this resolution and the franchise obligations contained in the Franchise
Agreements. Such acceptance shall be filed with the City Clerk within thirty (30) days
after the date of the approval of this resolution consenting to the assignment of the
Franchise Agreements.
Upon motion of seconded by
and on the following roll call vote:
AYES-
NOES:
YES-NOES:
ABSENT:
the foregoing resolution was adopted this day of , 2002.
Mayor Allen Settle
ATTEST:
Lee Price, City Clerk
APPROVED AS TO FORM:
WG.7ylrgen, ty Attorney
Attachment '?
Page 1
Hilary Theisen, P.E.
Consultant
2451 Pahnira Place
San Ramon, CA 94583
February 22,2002
Mr.Ron Munds
Utilities Conservation Coordinator
City of San Luis Obispo
879 Morro Street
San Luis Obispo, CA 93401
Subject: Report of Evaluation and Opinion Regarding Assignment of Franchises to
Waste Connections,Inc
Dear Mr.Munds:
This letter report,is submitted as the final report of work done under the
Personal/Professional Services Contract dated January 22,2002. The evaluation and
rendering of a professional opinion in regards to.the assignment of the solid waste
contracts to Waste Connections Inc. is provided in the following sections of this letter
report.
Executive Summary/Opinions
1.0 Introduction and Scope of Work
2.0 Existing Franchises and City Solid Waste System Characteristics
3.0 Characteristics of Waste Connections
4.0 Financial Stability
5.0 Management Experience
6.0 Significant Citations or Other Censure
7.0 Operations Conducted in an Environmentally Safe and Conscientious Fashion
8.0 Solid Waste Management Practices(soundness and compliance with all
regulatory laws,including hazardous waste
Appendix A City of San Luis Obispo Solid Waste System Characteristics
Appendix B Characteristics of Waste Connections,Inc
Appendix C Waste Connections Senior Management Resumes
The work was done under my direction and with the assistance of a subcontractor, Bill
Davis,P.E. I appreciate the opportunity to provide professional services to the City.
Sincerely,
Hilary Theisen
Attachment 2
Page 2
Executive Summary/Opinions
Waste Connections, Inc. (WC)appears to satisfy the assignment requirements contained
in the City of San Luis Obispo Franchise Agreements and other similar franchise
ams with other jurisdictions. This opinion is based on information provided by
the local garbage companies(San Luis Garbage Company,Morro Bay Garbage,Mission
Country Disposal and South County Sanitary Services,collectively referred to as the
Companies), Waste Connections,Inc.and independent research.
Opinion—Financial Stability
Referring to Appendix B tables and figures,the Current Ratio,Long Term
Debt/Equity Ratio,Return on Assets, Return on Equity and the information
.published by Multex Investor(wwwmultexinvestor.corn)for the periods
indicated for WC and the average for the Waste Management Services Industry as
a whale do not disclose any indication of financial instabffity.
Assuming that WC management effectiveness continues,there is no reason to
conclude that WC is not now financially stable and would not continue to be
stable with the passage of time.
Oainion—Management Experience
WC has the management experience necessary to perform the services defined in .
the City of San Luis Obispo Franchise Agreements. A management support
structure is in place tbat.is suitable to providing the level of service in the
franchise agreements.
QRkkn—Significant Citations or Other Censure
The record of environmental citations and other censures does not indicate any
significant problems at WC landfills and transfer stations. The absence of any
record of default events or assessment of liquidated damages under collection
fianchise.agreements indicates there are no significant citations or censures in
collection operations.
Opinion—Operations
Assuming that WC continues to implement a corporate culture of conducting
operations in an environmentally sound and conscientious fashion, the assignment
will result in environmentally sound and conscientious operations. The Safety
Manual is comprehensive in content and conforms to industry standards for
training and measuring performance of operations staff
ES-1
� -9
Attachment 2
Page 3'
Opinion—Solid Waste Management Practices
Assuming WC continues a commitment to sound waste management practices by
allowing the managers of subsidiaries to continue practices used in the
community for many years before acquisition,the assignment will result in sound
practices. Also,many members of WC senior management had the opportunity to
develop sound practices during years ofpmwus employment with other large
waste management companies.
Qpinion—Abfiity to Fulfill the A nt
Based on the data and statements provided by WC and the previous opinions,WC
has the ability to fulfill the terms of the City of San Luis Obispo Franchise
Agreements in a timely,safe and effective manner.
The opinions given here are based on data and statements provided by the Companies and
WC. Hilary Theisen has no way to accurately predict future conditions which would
affect the opinions. In reaching the opinions, assumptions have been made based on the
information provided There is no assurance that these assumptions will accurately
reflect the results of future operations or financial consequences.
ES-2
Y
t22
AGENDA
DAr6ITEM#.
MEMORANDUM
Utilities Department
To: City Council CSIUNCIL ❑ CDD_ NR
� ❑-FIN�DIR
Via: Ken Hampian, CAO
FA0 0 FIREICHIEF
RNEY U PW DIR
LERKrORIa M POLICE CHF
From: John Moss, Utilities Directo �1. T�i AO 8:tF=OR
Date: April 1, 2002
Subject: Modifications to the Resolution to Assign the Solid Waste Franchise.
Agreements to Waste Connections, Inc.
Subsequent to submitting the staff report and resolution regarding the assignment of the
solid waste franchise agreements to Waste Connections Inc. (WCI),the County released a
draft list of conditions that their staff are considering to include in the County's
assignment resolution. After reviewing the list,the City's Attorney Office and Utilities
staff is recommending that five additional conditions from County's list be added to the
City's resolution to ensure a seamless transition in ownership upon assignment of the
franchise agreements. The assignment resolution remains the same except with the
addition of conditions four through eight, as highlighted in the attached amended
resolution.
Additionally, the County hired a consultant to perform a background search of WCI
above and beyond what the City's consultant carried out. This report and response from
WCI was also released after the submission date of the staff report and resolution. Upon
review of all the information submitted, the County Counsel and the City's Attorney's
Office has determined that WCI meets the criteria for no significant citations or other
censure as stipulated in the Franchise Agreement.
RECEIVED
A�;; 0 P 20IF!2
SLO CITY COUNCIL
Attachment 1
RESOLUTION NO. (2002 Series)
A RESOLUTION OF THE COUNCIL OF THE CITY OF SAN LUIS OBISPO
AUTHORIZING THE ASSIGNMENT OF THE SOLID WASTE, RESIDENTIAL CURBSIDE
RECYCLING AND GREEN WASTE COLLECTION FRANCHISE AGREEMENTS TO
WASTE CONNECTION, INC.
WHEREAS, the public health and safety demand the orderly and periodic collection and
disposal of solid waste from properties within the City of San Luis Obispo (City); and
WHEREAS, San Luis Garbage Company (SLG) is the holder of three exclusive franchise
agreements to provide solid waste (Ordinance no. 1319), residential curbside recycling (Ordinance
no. 1396) and green waste collection (Ordinance no. 1396), transportation and disposal services to
the City(hereinafter referenced as Franchise Agreements); and
WHEREAS,by a letter dated January 16,2002, SLG notified the City that SLG had
entered into a purchase agreement with Waste Connections, Inc. (WCI)to transfer all of its
operations upon consummation of the transaction to WCI; and
WHEREAS, the transaction constitutes an assignment within the meaning of Article 13 of
the Franchise Agreements; and
WHEREAS,Article 13 of the Franchise Agreements with SLG requires the prior written
consent of the City to allow SLG to assign the Franchise Agreements to WCI; and
WHEREAS, SLG and WCI have requested the City to consent to the assignment; and
WHERAS.WCI deposited the sum of$15,000 with the City pursuant to 13.1 (2)(A)of the
Franchise Agreements to pay for a City consultant to review its business operations; and
WHEREAS,the City hired Hilary Theisen Consulting to review WCI's operational
experience and financial stability and concluded that WCI has ability to satisfy the franchise
assignment criteria; and
WHEREAS, SLG and WCI have fulfilled the all the requirements of Article 13 regarding
the assignment of the Franchise Agreements.
BE IT RESOLVED by the Council of the City of San Luis Obispo that the City consents
to the assignment of the Solid Waste, Residential Curbside Recycling and Green Waste
Franchise Agreements from SLG to WCI subject-to the following conditions:
1. Assignee shall agree to be bound by each and all requirements of Article X, Sections
1001 through 1007 of the San Luis Obispo City Charter.
2. Upon the consummation of the transaction between SLG and WCI, WCI accepts the
franchise obligations contained in the Solid Waste (Ordinance no. 1319), Residential
Resolution No. (2002 Series) Attachment 1
Page 2
Curbside Recycling (Ordinance no. 1396) and Green Waste Franchise Agreements
(Ordinance no. 1396).
3. The assignment herein shall not become effective until WCI accepts in writing the
conditions of this resolution and the franchise obligationscontained in the Franchise
Agreements. Such acceptance shall be filed with the City Clerk within thirty (30) days
after the date of the approval of this resolution consenting to the assignment of the
Franchise Agreements.
L4. WCI acknowledges and agrees that the consent to the assignment is made in reliance
U the representations, documents and information provided.by WCI in connection
with the assignment, all of which are incorporated into Franchise Agreement by
reference�—
5. WCI agrees to defend, indemnify and hold the City harmless against any loss, claim;
damage, liability or expense arising out of this assignment and/or incurred as a result of
any representation or warranty made by WCI to the City in connection with the
I which proves to be untrue or inaccurate in any material respect�J
b At least five (5) business days prior to the consummation of the assignment, WCI shah
provide to the City certifications of insurance on all policies required by the Franchise.
Agreementf�
L7. At least five (5) business.days prior to consummation of the. assignment, WCI shah
execute a performance bond that meets or exceeds all of the requirements in.Article 10 of
the Franchise Agreement.
8.. At least five (5) business days prior to consummation of the of the assignment, WCI shall
provide to the City evidence that all necessary permits and licenses have been obtained to
perform the obligations contained in the Franchise Agreement
Upon motion of , seconded by ,
and on the following roll call vote:
AYES:
NOES:
ABSENT:
Resolution No. (2002 Series) Attachment 1
Page 3
the foregoing resolution was adopted this day of , 2002.
Mayor Allen Settle
ATTEST:
Lee Price, City Clerk
APPROVED AS TO FORM:
Jeffrey G. Jorgensen, City Attorney