City Council Agenda Report
Meeting Date: October 3, 2023
From: Todd Dusenberry, General Manager of Public Utilities Department: Public Utilities
Submitted by: Adriana Ramos, Administrative Analyst
Subject
rPlanet Earth Los Angeles, LLC - Request to Consider Items Regarding Added Facilities for Electric Service and Electric Consumption Hurdle Escrow Funds Recommendation
A. Find the action is categorically exempt from California Environmental Quality Act (CEQA) review, in accordance with CEQA Guidelines section 15060(c)(3), because it constitutes government fiscal activities that do not involve any commitment to any specific project that may result in a potentially significant physical impact on the environment and organizational or administrative activities of a public agency that will not result in direct or indirect physical changes in the environment. Moreover, adoption of the Resolution does not qualify as a "project" because it does not have the potential to result in either a direct, or reasonably foreseeable indirect, physical change in the environment, in accordance with CEQA Guidelines section 15378(a); B. Authorize the proposed request for Disbursement No. 3 to the existing Added Facilities Agreement with rPlanet Earth Los Angeles, LLC, in substantially the same form as submitted, for electric service delivery in the amount of $416,610.27; and C. Adopt Resolution No. 2023-22 amending the Escrow Agreement, agreement regarding Assignment and Assumption of Purchase and Sale Agreement, and Added Facilities Agreement to release remaining escrow funds for Added Facilities, in the estimated amount of $813,915.40 plus accrued interest, and to waive the final electric consumption hurdle of eight (8) megawatts (MW) and release the final deposit of $441,613.98 plus accrued interest from the Consumption Hurdle Escrow Account.
Background
rPlanet Earth (rPlanet) is a manufacturer of plastic goods from recycled materials. It has built a 302,000 square foot one-of-a-kind plastic recycling and manufacturing plant located at 5300 South Boyle Avenue in Vernon (formerly 3200 Fruitland Avenue in Vernon). rPlanet has become an industry leader in the production of low carbon footprint and recycled polyethylene terephthalate-based packaging.
Electric Consumption Hurdles and Escrow Funds
On August 18, 2015, City Council adopted Resolution No. 2015-57, approving a transaction with Fruitland Owner, LLC (COX) regarding an Assignment and Assumption of Purchase and Sale Agreement (Agreement) for property located at 5300 South Boyle Avenue in Vernon (formerly 3200 Fruitland Avenue in Vernon). After two previous amendments related to the terms and conditions of the property sale, on January 19, 2016, City Council adopted Resolution No. 2016- 04, authorizing the execution of a third amendment to the Assignment and Assumption of Purchase and Sale Agreement by and between the City and COX.
In accordance with Section 8 of the Agreement and as reiterated in Section B of the Escrow Agreement dated February 2, 2016, rPlanet was expected to utilize at the Property an average minimum, for a trailing 12-month period, of (a) 3.3 megawatts of electrical power on or before January 1, 2019, (b) 4.8 megawatts of electrical power on or before January 1, 2021, and (c) 8 megawatts of electrical power on or before January 1, 2023 (each (a) through (c) being a “Consumption Hurdle”).
On November 17, 2020, City Council authorized the City Administrator to approve rPlanet’s request to adjust the established Electric Consumption Hurdle date from January 1, 2021 to January 1, 2022, due to challenges and delays caused by the global pandemic. The proposed extension was granted to allow rPlanet time to recover and re-strategize to meet the second Consumption Hurdle.
On January 27, 2022, rPlanet made two additional requests regarding the electric Consumption Hurdles:
• The first request asked that the City consider that rPlanet achieved the January 2022 Consumption Hurdle target. For the 12-month period associated with the January 2022 Consumption Hurdle, rPlanet averaged 4.74 MW (.06 less than the target of 4.8 MW). rPlanet started 2021 with a consumption average of 4 MW but ended the 12-month period with a consumption of 5.36 MW.
• The second request asked that the third electrical consumption hurdle of 8 MW be waived; or, that a date no longer be associated with the hurdle, so that upon attainment of the targeted 8 MW the City releases the final deposit of $416,667. rPlanet stated that it had experienced a delay in the commencement of a project that would double their production volume and electricity consumption. rPlanet believed that once the project was completed it would exceed 8 MW of electric consumption.
On April 19, 2022, City Council approved and authorized the City Administrator to grant the request from rPlanet to consider that the second Consumption Hurdle target had been achieved and approved a waiver of the third hurdle target of 8 megawatts (MW) such that the final deposit of $416,667 would be released once the third electrical consumption hurdle of 8MW is met.
Since late 2022, there have been subsequent discussions and meetings with rPlanet regarding the company’s ongoing timing challenges with planned expansion and growth at its Vernon production facility. Both City staff and rPlanet recognize that, although the parties believe rPlanet’s load will continue to grow, the original timeframes for the electric consumption hurdles are no longer realistic given rPlanet’s current operations and setbacks due to the pandemic.
Based on these discussions, staff recommends that the City waive the final consumption hurdle of 8 MW and authorize the release of remaining funds from the Consumption Hurdle Escrow Account, currently estimated at $441,613.98 plus accrued interest. The initial deposit of $1,250,000.00 was delivered to the Escrow Agent to meet the Consumption Hurdle requirement. rPlanet has requested release of these funds to provide working capital so that it can continue to invest in and ultimately expand its Vernon operations.
Added Facilities Agreement and Escrow Funds
Due to rPlanet’s estimated power demand, on January 19, 2016, City Council adopted Resolution No. 2016-04 approving an Added Facilities Agreement (AFA) with rPlanet. The AFA covers additional equipment and services needed to serve rPlanet’s electrical needs, pursuant to the requirements outlined in the Electric Service Rate No. 2.
Under the AFA, the parties agreed that the City shall provide design, engineering, procurement, construction, installation, ownership, and maintenance of the electric facilities as fully described in Exhibit A of the AFA (the cost of which shall be paid solely by rPlanet). rPlanet delivered $2,300,000 for deposit to an escrow account established by the City and rPlanet to cover costs incurred with the Added Facilities Installation. Commonwealth Land Title Company is the escrow agent mutually agreed upon to whom rPlanet delivered the necessary funds.
The Added Facilities Installations for the rPlanet Earth plant consisted of two phases. The total Added Facilities Installation Cost for Phase 1 was estimated at $800,000 and $350,000 was estimated for line extension and related services to accommodate Phase 1 electric services. On July 17, 2018, City Council approved the request for Disbursement No. 1 in the amount of $723,155.58 for a portion of Phase 1 services. On December 4, 2018, City Council approved the request for Disbursement No. 2 in the amount of $391,610.93 for a portion of Phase 1 construction. Phase 2 electric services were estimated at $450,000. All required Additional Facilities Installations have been completed at the rPlanet Earth plant related to Phases 1 and 2.
Staff recommends approval to submit Request for Disbursement No. 3 to the Escrow Agent in the amount of $416,610.27. Once this disbursement is made to the City, the remaining estimated balance in the Added Facilities Agreement Escrow Account is $813,915.40, not including accrued interest.
Because rPlanet has no immediate plans or timeframes for future added facilities, staff also recommends that City Council authorize the release of the remaining balance in rPlanet’s Added Facilities Agreement Escrow Account. rPlanet has requested release of these funds and staff believes it is equitable to do so rather than hold the remaining funds in escrow on an indefinite basis. Any future work requested by rPlanet would be paid for by rPlanet and adhere to VPU’s operating and payment procedures regarding any required engineering, procurement, construction, and installation of electric facilities.
The Request for Disbursement No. 3 and proposed resolution have been reviewed and approved as to form by the City Attorney’s Office. If approved, the City will request a release of remaining escrow funds through correspondence to the Escrow Agent.
Fiscal Impact
There is no VPU fiscal impact associated with the proposed actions as the funds are currently held in escrow accounts and there is no financial impact on utility revenues and operating & maintenance expenses or capital expenditures.
Attachments
1. Resolution No. 2023-22
2. Resolution No. 2015-57
3. Resolution No. 2016-04