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06 - CRT & CR&R Agreements Protecting our community's health and the environment by providing solid waste and sewer collection services. www.cmsdca.gov Costa Mesa Sanitary District ….an Independent Special District Memorandum T o: Operations Committee From: Scott Carroll , General Manager Date: December 11 , 2012 Subject: CRT & CR&R Agreements Summary On November 13, 2012, the Operations Committee directed staff to report on the District’s agreement with CR Transfer (CRT) to determine if the agreement is consistent with the Distr ict’s agreement with CR&R and to determine if the agreements have any conflict with the District’s operations code pertaining to recycling revenue. The following are staff findings. Staff Recommendation That the Operations Co mmittee directs staff to apply Section 8.02.040 to annual solid waste rate reviews. Analysis During the November 13 th Operations Committee meeting, Mr. Dean Ruffridge, of CR&R Environmental Services, indicated to the committee that the CRT and CR&R agreements were combined at the request of District Counsel. After reviewing the CR&R agreement staff concludes that Mr . Ruffridge is correct. Below is a recital from the CR&R agreement found on Pages 2 and 3 of said a greement. “WHEREAS, DISTRICT and CONTRACTOR (CR&R) recognize that changes of circumstances make it necessary that the terms of the prior agreements and am endments to those agreements between DISTRICT and CMD (Costa Mesa Disposal) and CRT be consolidated and updated in recognition of the consolidation of CMD and CRT, under ownership and control of CONTRACTOR, and Operations Committee December 11 , 201 2 Page 2 of 4 WHEREAS, DISTRICT and CONTRACTOR also recog nize that consolidation of prior agreements and amendments thereto is necessary to more accurately express the rights and responsibilities of the parties, with particular reference to the conversion of CONTRACTOR’s trash collection method to the fully auto mated method.” Staff concludes that the CR&R agreement supersedes the CRT agreement and the CRT Agreement is no longer valid. However, after evaluating the CRT agreement staff has learned the reasons for some of the common provisions found in the CR&R ag reement. For instance, why did the District require CR&R to divert 50% of refuse from the landfill? The last agreement the District entered with CRT was on July 1, 2002 and Costa Mesa Disposal (CMD) was still providing manual collection services for the District. The historic AB 939 regulation required cities and counties in California to divert 50% of refuse from the landfill by the year 2000. Even though this law did not apply to special districts, the District wanted to assist the City of Costa Mesa in compliance with the new law and therefore required CRT to assist the District in continuing to meet this legislative mandate. After CR&R acquired CMD and both CRT and CMD agreements were combined with CR&R’s agreement, the 50% diversion requirement was passed through to the existing agreement. In addition, the CRT agreement states that CRT shall have the exclusive right to market all recycled material reclaimed from solid waste generated by the District and they shall be entitled to any and all income derived from said marketing over which the District shall have no claim (Section 9). This language was simply transferred to the CR&R agreement (Section 28). There has been discussion among Board members that Section 28 of the CR&R agreement conflicts wi th District Operations Code Section 8.02.040, which states the following: “Recycling Revenue. District franchisee shall make available to District its audited financial statement on an annual basis showing all revenue derived from recycled materials from District. Such statement shall include internal trail reports supporting those financial statements. Such financial statements shall not become public record and District will use its best efforts to protect such information from being available to comp etitors. Recycling revenue will be considered in setting rates and in achieving rate stabilization.” The part of this section that is creating the most discussion is the last sentence, “Recycling revenue will be considered in setting rates and in achievi ng rate stabilization.” In the solid waste industry, recycling revenues are used to offset the costs for providing recycling collection and processing services. It is the reason why scavenging is prohibited in all communities and it’s one reason why resi dents are encouraged to recycle more. It’s also the reason why I opposed CalRecycle’s plan to reform the beverage container program under AB 341 because CalRecycle is trying to promote consumers returning their ready -to -drink beverage containers to buy -ba ck - Operations Committee December 11 , 201 2 Page 3 of 4 centers instead of curbside bins. I believe these containers have value in the recycling market so by having them redeemed at buy back centers instead of being processed by franchise haulers from the curbside program s could mean loss revenues. Sect ion 8.02.040 was adopted when the entire Operations Code was approved and adopted by the Board of Directors on January 14, 1999 (Ordinance 30). As mentioned earlier, the last agreement the District entered with CRT was on July 1, 2002 and Costa Mesa Dispo sal (CMD) was still providing manual collection services for the District. I assumed Section 8.02.040 was adopted because prior to July 1, 2002 (CRT Agreement), CMD was receiving the recycling revenues and these revenues were used to negotiate rate settin g and achieving rate stabilization. However, the District first entered into an agreement with CRT on July 21, 1989, nearly ten years before the Operations Code was adopted. In the 1989 agreement CRT had the exclusive right to market all recycled materia l reclaimed from solid waste generated by the District and they shall be entitled to any and all income derived from said marketing over which the District shall have no claim. I am assuming prior to Section 8.02.040 was adopted it was past pr actice betwe en the District, CMD and CRT to consider recycling revenues for setting rates and achieving rate stabilization , but I have no documents or evidence to substantiate my assumption. From 2006 to 2012 the solid waste rate has been stabilized (on July 1, 2012, the Board approved a rate decrease) and it’s safe to assume the recycling revenues probably played a role to the rate stabilization. I believe that Section 8.02.040 of the District’s Operations Code is consistent with current solid waste industry practic es and recommend this section of the code is applied during annual rate reviews. Strategic Plan Element & Goal This item complies wi t h the objective and strategy of Strategic Element 2 .0, Solid Waste and Strategic Element 5.0, Administrative Management , which states the following: 2.0 Solid Waste Objective: Our objective is to manage the collection and recycling of residential trash in the most economical and environmentally friendly way. Strategy: We will do this by looking for ways to improve effi ciencies, achieve high customer satisfaction, and considering prudent new recycling methods. 5.0 Administrative Management Operations Committee December 11 , 201 2 Page 4 of 4 Objective: To create, maintain and implement policies and procedures to ensure sound management of the District. Strategy: We wil l conduct periodic reviews, refine and implement policies and procedures, and assure the General Manager has the direction and tools necessary for successful District operations. Legal Review Not applicable Financial Review There is no financial impac t to the District. Public Notice Process Copies of this report are on file and will be included with the entire agenda packet for the December 11 , 2012 Operations Committee meeting at District Headquarters and on District’s website. Alternative Actions 1. Do n ot a pprove staff’s recommendation and refer the matter back to staff for more information.