HomeMy WebLinkAboutI-6 Staff Report - Approve MolsonCoors Water Rate Adjustment and Assignment AgreementMolson Coors Rate Adjustment
July 20, 2020
Page 1
UB CONSENT ITEM
I-6
TO: HONORABLE CHAIRPERSON AND MEMBERS OF THE UTILITY BOARD
FROM: MANNY ROBLEDO, DIRECTOR OF UTILITIES
DATE: JULY 20, 2020
SUBJECT: MOLSON COORS USA LLC WATER RATE ADJUSTMENT, EFFECTIVE
AUGUST 1, 2020, AND CONSENT FOR ASSIGNEMENT TO IRWINDALE
BREW YARD LLC
SUMMARY:
The City has an agreement with Molson Coors USA LLC (“Molson”) to supply water
(“Agreement”) to the Molson Coors brewery in the City of Irwindale (“Brewery”). Pursuant to
the agreement, rates are to be adjusted every two years based on an agreed to formula and
incorporation of certain specified cost components. The recommended action seeks authorization
by resolution to implement rate changes pursuant to the Agreement effective August 1, 2020.
Also, Molson is in the process of selling the facility to Irwindale Brew Yard LLC (“Brew Yard”)
that has plans to continue operations and brew Pabst Blue Ribbon Beer at the facility starting in
November 2020. As such, the second action hereunder authorizes the assignment of the
Agreement to Brew Yard, which is in the interest of the City to continue operations at the
Brewery, including the associated jobs.
RECOMMENDATION:
Staff recommends that the Utility Board take the following action:
1) Adopt Resolution No. 2020-UB-03 adjusting water rates for Molson Coors USA,
LLC, effective August 1, 2020; and
2) Authorize the assignment of the Molson Coors USA LLC Amended and
Restated Water Supply Agreement dated February 23, 2009 to Irwindale Brew
Molson Coors Rate Adjustment
July 20, 2020
Page 2
Yard LLC, in a form acceptable to the City Attorney; and
3) Authorize the City Manager to execute the assignment agreement.
DISCUSSION:
On February 23, 2009, the City of Azusa entered into a restated water supply agreement with
MillerCoors USA LLC (“Miller”), which set rates for water services provided to the MillerCoors
brewery located in the City of Irwindale. On April 1, 2020, Miller changed its name from
MillerCoors USA LLC to Molson Coors USA LLC. Pursuant to the agreement, rates are to be
adjusted every two years after May 1, 2010, and are to be calculated based on a cost-based
formula set forth in the agreement. The rate adjustment methodology used for Molson parallels
the cost of service process that the City uses to determine its water rates for all customers.
The rate calculation methodology specified in the agreement takes both the fixable cost
components of Azusa Light & Water’s forecasted net revenue requirement and allocates those
costs in proportion to Molson Coors expected water usage and meter capacity as compared to the
rest of the water system. Fiscal Year (“FY”) 2020-21 forecasts are being considered for Molson
upcoming rate adjustment date of August 1, 2020.
The water utility’s forecasted net revenue requirement subject to rate adjustment calculations for
the FY 2020-21 is about $26.7 million. Fixed costs are recovered through meter charges, and
variable costs are recovered through commodity charges. For rate design purposes, 40% of the
budget is assigned to the fixed cost/meter charge rate component ($10.7 million) and 60% is
assigned to the variable cost/commodity charge rate component ($16.0 million). Molson Coors
portion of the fixed costs has been determined to be 0.3321%, and Molson Coors estimated share
of the commodity charges is 2.87%.
Based on the above information, Staff recommends approval of the following rates for Molson
be implemented August 1, 2020:
PROPOSED RATE CHANGE FOR MOLSON COORS BREWERY
EFFECTIVE AUGUST 1, 2020
Service Current Rate Proposed Rate % Increase
Flat Monthly Meter Charge $2,539.41 $2,949.63 16.2%
Volumetric Charge per CCF $2.02 $2.20 9.1%
Rates are to be effective for a period of two years according to the agreement, at which time City
Staff will again review pertinent information and formulate an update of the contract water rates.
FISCAL IMPACT:
Molson Coors Rate Adjustment
July 20, 2020
Page 3
The August 1, 2020 rate adjustment for Molson is expected to increase water revenues by about
$43,384.22 assuming the Brewery consumption pattern remains at the same level of
approximately 208,361 CCF annually after the assumption by Brew Yard.
Prepared by: Reviewed and Approved:
Danny Smith Manny Robledo
Utilities Administration & Finance Manager Director of Utilities
Reviewed and Approved:
Sergio Gonzalez
City Manager
Attachments:
1. Resolution 2020-UB-03 Adjusting Water Rates for Molson Coors USA LLC
2. MolsonCoors Rate Calculation Model
3.MillerCoors Amended and Restated Water Supply Agreement
4. MillerCoors Term Extension to 2023
5. Miller to Molson Name Change
1
RESOLUTION NO. 2020-UB-03
A RESOLUTION OF THE UTILITY BOARD/CITY COUNCIL OF THE
CITY OF AZUSA CALIFORNIA ADJUSTING CONTRACT WATER
RATES FOR MOLSON COORS USA LLC.
WHEREAS, the City of Azusa and MillerCoors LLC, entered into a restated water
supply agreement (hereinafter, “Agreement”) on February 23, 2009; and
WHEREAS, MillerCoors LLC changed their name to Molson Coors USA LLC on April
1, 2020.
WHEREAS, the Agreement obligates the City’s water utility to supply water to Molson
Coors facility in Irwindale, California; and
WHEREAS, Section 6 of the Agreement permits the City of Azusa to adjust rates every
two years effective May 1, 2010, in accordance with the methodology outlined in Exhibit D of
Agreement; and
WHEREAS, Azusa Light & Water staff have calculated the water rate adjustment for
Molson Coors effective August 1, 2020, consistent with the Agreement methodology; and
WHEREAS, “Exhibit A” of this resolution sets forth the new meter and commodity
charges for Molson Coors; and
WHEREAS, the rates included in “Exhibit A” are to remain in effect for a period of two
years according to the Agreement between parties;
NOW, THEREFORE, BE IT RESOLVED that the Utility Board/City Council of the
City of Azusa does hereby finds, determines and declares as follows:
SECTION 1. The water rates attached hereto as “Exhibit A” and made a part hereof, are
adopted and shall be effective August 1, 2020; and
SECTION 2. Azusa Light & Water is hereby directed to bill Molson Coors the rates
included in “Exhibit A” for water utility billings rendered on and after August 1, 2020.
PASSED, APPROVED and ADOPTED this 20th day of July, 2020.
___________________________________
Robert Gonzales
Mayor
Attachment 1
2
ATTEST:
___________________________________
Jeffrey Lawrence Cornejo, Jr.
City Clerk
STATE OF CALIFORNIA )
COUNTY OF LOS ANGELES ) ss.
CITY OF AZUSA )
I HEREBY CERTIFY that the foregoing Resolution No. 2020-UB-03 was duly adopted
by the Utility Board/City Council of the City of Azusa at a regular meeting thereof, held on the
20th day of July, 2020, by the following vote of Council:
AYES: COUNCILMEMBERS:
NOES: COUNCILMEMBERS:
ABSENT: COUNCILMEMBERS:
___________________________________
Jeffrey Lawrence Cornejo, Jr.
City Clerk
APPROVED AS TO FORM:
___________________________________
Best Best & Krieger, LLP
City Attorney
3
EXHIBIT A
The following water rates shall be effective for all water supply services rendered to Molson
Coors on and after August 1, 2020:
Meter Service Charge
Monthly Meter Service Charge for Molson’s 12 inch water meter: $2,949.63
Commodity Service Charge
Per CCF Commodity Charge: $2.20
Service Current Rate Proposed Rate % Change
Budgeted
Expenditures
Moly Meter Charge $2,539.41 $2,949.63 16.2%Expenditures FY 2020-21
Per CCF Charge $2.02 $2.20 9.1%Production 8,944,691$
Water Rights Lease Cost (8%)1,929,160
@ 208361 CCF Meter Charge Commodity Charge Total Cost Transmission and Distribution 3,236,554
Current Annual Cost $30,472.92 $420,889.22 $451,362.14 Customer Accounting and Sales 5,872,550
Proposed Annual Cost $35,395.62 $459,350.74 $494,746.36 Uncollectible Accounts 36,000
Change in Annual Cost $4,922.70 $38,461.52 $43,384.22 Administrative and Engineering 952,319
Interest Expense - COP/New LTD (a)1,942,890
Principal - COP/New LTD (a)2,210,000
Franchise Fee (2% of Retail Sales)493,102
Fixed 40.0% $ 10,659,595 Subtotal – Expenditures 25,617,267$
Variable 60.0% $ 15,989,392 Capital Projects (b)4,766,168$
Net Revenue Requirement 100.0% $ 26,648,987 Non-Rate Revenue
Fees Revenue (c)
Other Revenue (3,234,448)
Interest Income (d)nterest income transferred to th (500,000)
Meter Size Potable Meters
(a)
Capacity Factor
(b)
Total Capacity
Units Subtotal Non-Rate Revenue (3,734,448)$
[a][b][c]=[a]*[b]Net Revenue Requirement (e)26,648,987$
5/8"343 1.00 343
3/4"18,274 1.00 18,274 (a)Based on Debt Service Schedules.
1"3,047 1.67 5,088 (b)Cash funded Capital Improvement Projects to maintain system.
1 1/2"297 3.33 989 (c)Miscellaneous revenues that offset retail rates.
2"1019 5.33 5,431 (d)Interest income typically transferred to the General Fund.
3"149 10.67 1,590 (e)Amount to recover from retail rates.
4"183 16.67 3,051
6"183 33.33 6,099
8"125 53.33 6,666
10"38 140.00 5,320 Molson Coors, ccf (a)208,361
12"2 176.67 353 Total Sales, ccf (b)7,252,771
Total 23,660 --53,205 Molson Coors Share of Commodity
Charge:2.87%
Molson Coors % of Fixed Charges (=177.67/53,205)0.3321%(b)Projected total sales based on actual FY 2019-20 usage through June 2020,
per ALW billing system.
PROPOSED RATE CHANGE FOR MOLSON COORS BREWERY Financial Information
EFFECTIVE AUGUST 1, 2020 Water Enterprise Fund- Draft Financials
Fixed and Variable Costs
Total Meters and Capacity of Azusa Water System
Consumption in CCFs
FY 2020-21 Projected Sales & Usage
(a) Source of Data: Azusa Light & Water billing system, 6/10/2020.(a)Projected Molson Coors sales based on actual FY 2019-20 usage through
June 2020, per ALW billing system.(b) Hydraulic factors which are multiplied by number of meters to calculate capacity.
Attachment 2
Attachment 3
Attachment 4
Delaware
The First State
Page 1
6539622 8100 Authentication: 202694438
SR# 20202518621 Date: 04-01-20
You may verify this certificate online at corp.delaware.gov/authver.shtml
I, JEFFREY W. BULLOCK, SECRETARY OF STATE OF THE STATE OF
DELAWARE, DO HEREBY CERTIFY THE ATTACHED IS A TRUE AND CORRECT
COPY OF THE CERTIFICATE OF AMENDMENT OF “MILLERCOORS USA LLC”,
CHANGING ITS NAME FROM "MILLERCOORS USA LLC" TO "MOLSON COORS
USA LLC", FILED IN THIS OFFICE ON THE SEVENTEENTH DAY OF MARCH,
A.D. 2020, AT 12:49 O`CLOCK P.M.
AND I DO HEREBY FURTHER CERTIFY THAT THE EFFECTIVE DATE OF
THE AFORESAID CERTIFICATE OF AMENDMENT IS THE FIRST DAY OF
APRIL, A.D. 2020 AT 12:01 O'CLOCK A.M.
Attachment 5