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Home My WebLink AboutStaff Report 230-09TO: HONORABLE CITY COUNCIL FROM: CITY MANAGER DEPARTMENT: UTILITIES DATE: MAY 18, 2009 CMR: 230:09 REPORT TYPE: INFORMATIONAL SUBJECT: Report of City Manager Action Pursuant to the City's Water Contract with San Francisco on a Tolling Agreement Extending the Date for a Demand for Arbitration of the Fiscal Year 2005-06 Suburban Revenue Requirement This report is for the Council's information only. No action is required. DISCUSSION On December 12, 2005, the Council delegated to the City Manager the authority to execute certain documents for the City of Palo Alto under the Settlement Agreement and Master Water Sales Contract (Contract) with San Francisco when the City acts as a Suburban Representative [CMR 434:05]. The City Manager exercised that authority when he signed a tolling agreement on April 2, 2009, between the City and County of San Francisco and the Suburban Representatives extending the date for serving a Demand for Arbitration of the Suburban Revenue Requirement for Fiscal Year (FY) 2006 until March 1,2010. The Suburban Revenue Requirement is the amount the Contract allows the San Francisco Public Utilities Commission (SFPUC) to collect from the Suburban Purchasers, the group of agencies that purchase water wholesale from the San Francisco regional water system. These same agencies comprise the membership of the Bay Area Water Supply and Conservation Agency (BAWSCA). The City of Palo Alto is one of the five Suburban Representatives of the BAWSCA member agencies for the Contract administration. The Contract allows a specific period of time for a party to the agreement to serve a Demand for Arbitration for each fiscal year on the calculation of the Suburban Revenue Requirement. In order to modify the calculation for FY 2006, a Demand for Arbitration must have been served by April 18, 2009. On March 20, 2009, the SFPUC notified BAWSCA of an error in the calculation of the Suburban Revenue Requirement for FY 2006 and FY 2007 related to the accounting of expenses for the retiree health subsidy. In order to evaluate the error asserted by the SFPUC, more time than the short time between notifying BA WSCA of the error and the deadline to modify the FY 2006 CMR: 230:09 Page 1 of2 Suburban Revenue Requirement is needed. Therefore, a tolling agreement was developed to allow sufficient time to evaluate the SFPUC's claim. In a letter to the BA WSCA General Manager from the SFPUC Assistant General Manager (Attachment A), the issue is described. SFPUC asserts that an accounting error resulted in not charging the Suburban Purchasers for an expense for the retiree health subsidy. The letter claims that, if the error were corrected, the Suburban Purchasers would owe $1.2 million for FY 2006 and $1.5 million for FY 2007 plus interest for a total of approximately $2.89 million, which is requested to be posted to the Balancing Account as of June 30, 2008. In a letter to the San Francisco Deputy City Attorney from BAWSCA's counsel (Attachment B), the tolling agreement is proposed to allow adequate time for both parties to evaluate the claim and any other issues that may arise. The tolling agreement (Attachment C) extends the date by which San Francisco or the Suburban Purchasers may serve a Demand for Arbitration for FY 2006 until March 1,2010. RESOURCE IMPACT If the SF PUC claim is valid and agreed to by the Suburban Purchasers, Palo Alto's share of the $2.89 million is approximately $225,000. The SFPUC would recover these costs by incorporating them into the Suburban Revenue Requirement and passing the costs through the wholesale water rates paid by the BA WSCA agencies, including Palo Alto. POLICY IMPLICATIONS The attached Tolling Agreement was executed in accordance with Council authority delegated to the City Manager. If the issues raised by the evaluation of the claim cannot be resolved without going to arbitration, the Council will be asked to approve that action. ATTACHMENTS A. March 20, 2009 letter to Arthur Jensen, BAWSCA General Manager, from Todd Rydstrom, SFPUC Assistant General Manager, re: Suburban Revenue Requirements for FY 2005-06 and FY 2006-07 B. March 25,2009 letter to Joshua Milstein, San Francisco Deputy City Attorney, from Ray McDevitt, attorney for BA WSCA with Hanson Bridgett, re: Suburban Revenue Requirements for FY 2005-06 and FY 2006-07 C. Water Contract (FY 2005-06) Tolling Agreement PREPARED BY: JANE RATCHYE ~ DEPARTMENT HEAD: Utilities Assistant Director, Resource Management ~F Director of Utilities CITY MANAGER APPROVAL: CMR: 230:09 Page 2 of2 GAVIN NEWSOM MAYOR ANN MOLLER CAEN PRESIDENT F.X. CROWLEY VICE PRESIDENT FRANCESCA VIETOR COMMISSIONER JULIET ELLIS COMMISSIONER ED HARRINGTON GENERAL MANAGER ATTACHMENT A SAN FRANCISCO PUBLIC UTILITIES COMMISSION 1155 Market St, 11th Floor. San Francisco, CA 94103· TeL (415) 554-3155 • Fax (415) 554-3161 • TTY (415) 554.3488 March 20, 2009 Mr. Arthur Jensen General Manager Bay Area Water Supply and Conservation Agency 155 Bovet Road, Suite 302 San Mateo, CA 94402 Re: Suburban Revenue Requirements for FY 2005-06 and FY 2006-07 Dear Mr. Jensen, It has come to our attention that the retiree health subsidy paid by the Water Enterprise was charged incorrectly as a City-only expense for fiscal years 2003-04 through 2006-07. The error affected the calculation of the suburban revenue requirements in those years. However, only FY 2005-06 and FY 2006-07 remain open with respect to changes to the Balancing Account. We calculate as a result of these errors that the suburban revenue requirements were understated by $1,217,179 in FY 2005-06 and by $1,490,092 in FY 2006-07. We propose that an adjustment of$2,889,614 including interest, in favor of the City, be posted to the Balancing Account as of June 30,2008. Enclosed are copies of the corrected suburban revenue requirement calculations and other supporting schedules. The issue has been appropriately reflected in the FY 2007-08 calculation, following discussions with the external auditor. Background The retiree health subsidy expense is an allowable joint expense under the Master Water Sales Contract. The retiree health subsidy reflects the current year's required cash payment for current costs. This contrasts to the accounting and financial reporting provisions of GASB 45 Other Postemployment Benefits (OPEB), which because of recent changes in accounting standards, now appears on the SFPUC financial statements as a long-term liability and is excluded from the suburban revenue requirement calculation until actual cash payments are required. Prior to FY 1998-99, the retiree health subsidy was included in General Administration and allocated between retail and suburban resale customers using the composite allocation factor. After a reorganization in 1998 which eliminated the Administrative Division, retiree health subsidy was split 61/39 between the City Distribution Division and the Water Supply & Treatment Division. The Water Supply & Treatment Division portion was shown as joint Transmission & Distribution (T &0) expense and allocated between retail and suburban resale customers on base use. [n FY 2002-03, the Water Supply & Treatment Division portion was shown as joint Administrative & General (A&G) expense and allocated between retail and suburban resale customers using the composite allocation factor. Since FY 2003-04, the en6re retiree health subsidy was erroneously shown as a City-only T &0 expense and allocated only to retail customers. During the pelformance of this year's compliance audit, we realized that the retiree health subsidy was not being appropriately allocated between retail and suburban resale service. We discussed the issue with our external auditor and assessed the merits of splitting the subsidy between City-only T &D expense and joint T &0 expense versus moving the expense "below the line" and treating it as a joint A&G expense. We concluded that an accurate basis for apportioning the subsidy between City-only and joint categories cannol be easily determined since retirees may work in multiple divisions and departments over their eareers. Consequently, we concluded treating retiree health subsidy as an A&G expense was the more reasonable basis for apportioning this cost. The external auditor has concurred with this assessment. Proposed Resolution In the past we have been able to resolve issues like this without invoking the arbitration provision provided in the contract. We hope this issue can be resolved in the same manner. If the City's previously stated proposal is acceptable to the suburban resale customers, we request that you indicate so by coullter signing this letter on the line shown below and returning a copy of it to us before April 8, 2009. Preliminary discussions have been held with Mr. Ummel. If you believe more information is required before you can make that decision, SFPUC staff is available to meet with BA WSCA staff to review the issue and discuss the basis of our analysis. Because the expiration of the limitations period deadline (April 18, 2009) is rapidly approaching, any review and discussion must be completed within the next week or two absent a tolling agreement extending the deadline. Please contact me if you have any questions or request a meeting with SFPUC staff. // Todd):':. Aj;{tant I Enclosures cc: Suburban Representatives (w/encl) Joshua D. Milstein, Deputy City Attorney (w/encl) Accepted on behalf of the Suburban Resale Customers: Arthur R. Jensen General Manager & CEO BA WSCA . :iM 1Ml ..•. A..M •... U.k. 1.IUI1'll SCHEDULE A SUBURBAN BALANCING ACCOUNT IMPACT RESULTING FROM THE RECAPTURE OF RETIREE HEALTH SUBSIDY MISALLOCATION Underpayment (See following sheets) Interest in FY 2004-05 Interest in FY 2005-06 Interest in FY 2006-07 Interest in FY 2007-08 Total Interest Rate on Balancing Account FY 2003-04 FY 2004-05 FY 2005-06 FY 2006-07 Total Credit $ (875,407) $ (1,116,893) $ (1,217,179) $ (1,490,092) $ (4,699,571) 2,277%, $ (19,933) $ (19,933) 4.153% $ (37,183) $ (46,385) $ (83,568) 5,189% $ (48,389) $ (60,362) $ (63,159) $ (171,91 4.302% $ (42,199) $ (52,641) $ (55,080) $ (64,104) $ (214.024) ($1,023,111) ($1,276,281) $ (1,335,418) $ (1,554,196) $ (5,189,006) Requested Balancing Account Adjustment as of June 30, 2008 for FY 2005-06 and FY 2006-07 [$(2~9;6l4)1 Note: 1) FY 2003-04 and FY 2004-05 are outside of the Limitations Period. Schedule B Summary of Certain Health Care Costs SlO 01561 Retiree Health Subsidy SIO 01551 Health Service Administration Cost 471303 471301 471308 470000 477402 471303 471301 471308 470000 477402 T&D City T&D City Maint. Other Suburban General T&D City T&D City Maint Other Suburban General Operations Ops/Gaterm T&D Administration Administration Total Operations Ops/Gaterm T&D Administration Admin istration Total 2008 2,713,959 2,713,959 2007 2,502,660 2,502,660 2006 2,173,238 2,173,238 2005 1,989,865 1,989,865 2004 1,722,476 1,722,476 43,086 43,086 86,172 2003 871,472 558,189 1,429,661 43,277 43,277 86,554 2002 551,224 352,422 903,646 44,321 44,321 88,642 2001 352,402 225,306 577,708 42,430 42,430 84,860 2000 260,884 166,795 427,679 73,571 47,037 120,608 1999 285,410 212,729 136,007 634,146 86,696 86,696 1998 602,129 602,129 58,156 58,156 1997 504,543 504,543 62,051 62,051 1996 476,613 476,613 4.934 4,934 Classification T&D -City T&D -City T&D -Joint A&G -Joint A&G -Joint T&D -City T&D -City T&D Joint A&G -Joint A&G -Joint AG Current OPEB.xls 3/20/2009 SCHEDULE C-2 CALCULATION OF DIFFERENCE IN SUBURBAN REVENUE REQUIREMENT FY 2003-04 SAN FRANCISCO WATER DEPARTMENT CALCULATION OF THE SUBURBAN REVENUE REQUIREMENT FISCAL YEAR 2003-04 FINAL CALCULATION EXPENSE CATEGORY REFERENCE TOTAL SFWD OPERATING AND MAINTENANCE EXPENSE: SOURCE OF SUPPLY 4.03(a) $7,573,690 PUMPING 4.03(b) 5,819,954 PURIFICATION 4.04(c) 26,459,242 TRANSMISSION & DISTRIBUTION 4.03(d) 46,643,682 CUSTOMER ACCOUNTS 4.03(e) 8,669,906 TOTAL O&M 95,166,474 O&M PERCENTAGE OF TOTAL SFWD 100.00% ADMINISTRATIVE AND GENERAL EXPENSES: DEEMED CITY OVERHEAD CHARGE 4.04(a) 1,120,154 SF PUBLIC UTILITIES COMMISSION 4,04(b) 16,184,860 OTHERA&G 4.04(c) 20,563,555 CLAIMS OVER LIMITATION 4.04(c) 625,282 CONTRACT ADMINISTRATION EXPENSES 4.04(c) 209,939 COMPLIANCE AUDIT 6,03(b) 179,730 PMOCOST 5,378,101 PROPERTY TAXES (OUTSIDE CITY ONLY) 4.05 1,292,810 RETURN ON SFWD RATE BASE 4.06 SFWD DEPRECIATION 4.07 SUBURBAN HETCH HETCHY ASSESSMENT 4.08 SUBURBAN REVENUE REQUIREMENT FY 2003-04 FINAL CALCULATION SAN FRANCISCO WATER DEPARTMENT CALCULATION OFTHE SUBURBAN REVENUE REQUIREMENT DIRECT DIRECT JOINT JOINT EXPENSE CITY SUBURBAN ALLOCATION FACTOR $420 $0 $7,573,270 ANNUAL USAGE 5,097,435 0 722,519 ANNUAL USAGE 0 0 26,459,242 ANNUAL USAGE 31,240,878 863 15,401,941 ANNUAL USAGE 8,496,508 173,398 0 2% OF TOTAL 44,835,241 174,261 50,156,972 0 0 1,120,154 COMPOSITE O&M 464,263 0 15,720,597 COMPOSITE O&M 9,498,516 0 11,065,039 COMPOSITE O&M 625,282 0 0 0% 0 0 209,939 50% 0 0 179,730 50% 0 0 5,378,101 39.65% 0 0 1,292,810 ANNUAL USAGE FROM: WORKSHEET A-3 FROM: WORKSHEET A-3 FROM: SCHEDULE B FISCAL YEAR 2003-04 FINAL CALCULATION WITH CORRECTION OF RETIREE HEALTH SUBSIDY $1,722,476 Recasted from T&D -City to A&G-Joint /i EXPENSE CATEGORY REFERENCE TOTAL SFWD DIRECT DIRECT ~JOI ~T JOINT EXPENSE CITY SUBURBAN ALLOCATION FACTOR OPERATING AND MAINTENANCE EXPENSE: SOURCE OF SUPPLY 4.03(a) $7,573,690 ~/~ $7,57 ,270 ANNUAL USAGE PUMPING 4.03(b) 5,819,954 5,097,435 0 72 ,519 ANNUAL USAGE PURIFICATION 4,04(c) 26,459,242 o 0 26,45~ 242 ANNUAL USAGE TRANSMISSION & DISTRIBUTION 4.03(d) 44,921,206 (?9,518,40 863 15,401 941 ANNUAL USAGE CUSTOMER ACCOUNTS 4.03(e) 8,669,906 8,496,508 173,398 0 2% OF TOTAL TOTALO&M 93,443,998 43,112,765 174,261 50,156 ,72 O&M PERCENTAGE OF TOTAL SFWD 100.00% ADMINISTRATIVE AND GENERAL EXPENSES: DEEMED CITY OVERHEAD CHARGE 404(a) 1,120,154 0 0 1,120,1~4 COMPOSITE O&M SF PUBLIC UTILITIES COMMISSION 4.04(b) 16,184,860 464,263 0 15,~ COMPOSITE O&M OTHERA&G 4.04(c) 22,286,031 9,498,516 0 ~787,51~COMPOSITE O&M CLAIMS OVER LIMITATION 4.04(c) 625,282 625,282 0 -0 0% CONTRACT ADMINISTRATION EXPENSES 4.04(c) 209,939 0 0 209,939 50% COMPLIANCE AUDIT 6.03(b) 179,730 0 0 179,730 50% PMOCOST 5,378,101 0 0 5,378,101 40.46% PROPERTY TAXES (OUTSIDE CITY ONLY) 4.05 1,292,810 0 0 1,292,810 ANNUAL USAGE RETURN ON SFWD RATE BASE 4.06 FROM: WORKSHEET A-3 SFWD DEPRECIATION 4.07 FROM' WORKSHEET A-3 SUBURBAN HETCH HETCHY ASSESSMENT 4.08 FROM: SCHEDULE B SUBURBAN REVENUE REOUIREMENT FY 2003-04 FINAL CALCULATION I DIFFERENCE IN SUBURBAN REVENUE REQUIREMENT SCHEDULE A SUBURBAN TOTAL $5,178,602 494,058 18,092,830 10,532,710 173,398 34,471,599 36.22% 405,747 5,694,380 4,008,025 0 104,970 89,865 2,132,561 884,023 15,655,821 12,417,070 16,940,790 $92,804,851 I SCHEDULE A SUBURBAN TOTAL $5,178,602 494,058 18,092,830 10,532,710 173,398 34,471,599 36.89% 413,226 5,799,346 4,717,329 0 104,970 89,865 2,175,891 884,023 15,666,148 12,417,070 16,940,790 $93,680,257 I ($875,407H SCHEDULE C-2 CALCULATION OF DIFFERENCE IN SUBURBAN REVENUE REQUIREMENT FY 2004-05 SAN FRANCISCO WATER DEPARTMENT CALCULATION OF THE SUBURBAN REVENUE REQUIREMENT FISCAL YEAR 2004-05 FINAL CALCULATION EXPENSE CATEGORY REFERENCE TOTAL SFWD OPERATING AND MAINTENANCE EXPENSE: SOURCE OF SUPPLY 4.03(a) $11,369,813 PUMPING 4.03(b) 5,361,372 PURIFICATION 4.04(c) 27,281,590 TRANSMISSION & DISTRIBUTION 4.03(d) 34,459,935 CUSTOMER ACCOUNTS 4.03(e) 8,995,444 TOTAL O&M 87,468,154 O&M PERCENTAGE OF TOTAL SFWD 100.00% ADMINISTRATIVE AND GENERAL EXPENSES: DEEMED CITY OVERHEAD CHARGE 4.04(a) 1,151,398 SF PUBLIC UTILITIES COMMISSION 4.04(b) 17,822,408 OTHER A&G 4.04(c) 17,869,526 CLAIMS OVER LIMITATION 4.04(c) a CONTRACT ADMINISTRATION EXPENSES 4.04(c) 214,945 COMPLIANCE AUDIT 6.03(b) 179.730 PMOCOST 3,762,021 PROPERTY TAXES (OUTSIDE CITY ONLY) 4.05 1,326.796 RETURN ON SFWD RATE BASE 4.06 SFWD DEPRECIATION 4.07 SUBURBAN HETCH HETCHY ASSESSMENT 4.08 DIRECT DIRECT JOINT JOINT EXPENSE CITY SUBURBAN ALLOCATION FACTOR $0 $0 $11,369.813 ANNUAL USAGE 4,203,426 0 1,157.946 ANNUAL USAGE 0 a 27,281,590 ANNUAL USAGE 24,125,229 505 10,334,201 ANNUAL USAGE 8,815,535 179,909 a 2% OF TOTAL 37,144,190 180,414 50,143,550 0 a 1,151,398 COMPOSITE O&M 718,864 a 17,103.544 COMPOSITE O&M 5,067,393 a 12,802,132 COMPOSITE O&M a a a 0% 0 0 214,945 50% a a 179,730 50% a a 3,762,021 42.58% a a 1,326,796 ANNUAL USAGE FROM: WORKSHEET A-3 FROM: WORKSHEET A-3 FROM: SCHEDULE B SUBURBAN REVENUE REQUIREMENT FY 2004-05 PRELIMINARY FINAL CALCULATION SAN FRANCISCO WATER DEPARTMENT CALCULATION OF THE SUBURBAN REVENUE REQUIREMENT FISCAL YEAR 2004-05 FINAL CALCULATION WITH CORRECTION OF RETIREE HEALTH SUBSID $1,989,865 Recasted ,;;om T&D -City to A&G-Joint EXPENSE CATEGORY REFERENCE TOTAL SFWD DIRECT DIRECT,~JOI ~T JOINT EXPENSE CITY SUBURBAN ALLOCATION FACTOR OPERATING AND MAINTENANCE EXPENSE: SOURCE OF SUPPLY 4.03(a) $11,369,813 ~/~ $11,36 ,813 ANNUAL USAGE PUMPING 4.03(b) 5,361,372 4,203,426 a 1,15 ,946 ANNUAL USAGE PURIFICATION 4.04(c) 27,281,590 a a 27,281 590 ANNUAL USAGE TRANSMISSION & DISTRIBUTION 4.03(d) 32,470,070 ~,135,3~ 505 10,334 201 ANNUAL USAGE CUSTOMER ACCOUNTS 4.03(e) 8,995,444 8;Bi'b,535 179,909 0 2% OF TOTAL TOTALO&M 85,478,289 35,154,325 180,414 50,143 , 50 O&M PERCENTAGE OF TOTAL SFWD 100.00% ADMINISTRATIVE AND GENERAL EXPENSES: DEEMED CITY OVERHEAD CHARGE 4.04(a) 1,151,398 a a 1,151,iIl8 COMPOSITEO&M SF PUBLIC UTILITIES COMMISSION 4.04(b) 17,822,408 718,864 0 <ii10f$ COMPOSITEO&M OTHER A&G 4.04(c) 19,859,391 5,067,393 0 4,791,99 COMPOSITE O&M CLAIMS OVER LIMITATION 4.04(c) a a a o 0% CONTRACT ADMINISTRATION EXPENSES 4.04(c) 214,945 a 0 214,945 50% COMPLIANCE AUDIT 6.03(b) 179,730 0 a 179,730 50% PMOCOST 3,762,021 0 a 3,762,021 43.68% PROPERTY TAXES (OUTSIDE CITY ONLY) 4.05 1,326,796 a a 1,326,796 ANNUAL USAGE RETURN ON SFWD RATE BASE 4.06 FROM: WORKSHEET A-3 SFWD DEPRECIATION 4.07 FROM: WORKSHEET A-3 SUBURBAN HETCH HETCHY ASSESSMENT 4.08 FROM' SCHEDULE B SUBURBAN REVENUE REQUIREMENT FY 2004-05 PRELIMINARY FINAL CALCULATION I DIFFERENCE IN SUBUR8AN REVENUE REQUIREMENT SCHEDULE A SUBURBAN TOTAL $7,575,706 771,539 18,177,723 6,886,183 179,909 33,591,060 38,40% 442,137 6,567,761 4,916,019 a 107,473 89,865 1,601,747 884,044 17,028,907 15,085,817 19,615,207 $99,930.037 I SCHEDULE A SUBURBAN TOTAL $7,575,706 771,539 18,177,723 6,886,183 179,909 33,591,060 39.30% 452,499 6,721,693 5,813,255 a 107,473 89,865 1,643,420 884,044 17,042,597 15,085,817 19,615,207 $101,046,930 I ($1,116,893)/ SCHEDULE C·l CALCULATION OF DIFFERENCE IN SUBURBAN REVENUE REQUIREMENT FY 200!H)6 SAN FRANCISCO WATER DEPARTMENT CALCULATION OF THE SUBURBAN REVENUE REQUIREMENT 'FISCAL YEAR 2005·06 FINAL CALCULATION EXPENSE CATEGORY REFERENCE TOTAL SFWD OPERATING AND MAINTENANCE EXPENSE: SOURCE OF SUPPLY 4,03(a) $11.047,048 PUMPING 4.03(0) 4,581,917 PURIFICATION 4.04(c) 27,976,827 TRANSMISSION & DISTRIBUTION 4.03{d) 34,768,194 CUSTOMER ACCOUNTS 4.03(e) 10,685,080 TOTALO&M 89,059,066 O&M PERCENTAGE OF TOTAL SFWD 100,00% ADMINISTRATIVE AND GENERAL EXPENSES: DEEMED CITY OVERHEAD CHARGE 4,04{a) 1,164,127 SF PUBLIC UTILITIES COMMISSION 4,04(b) 16,722,915 OTHERA&G 4,04(c) 24,698,399 CLAIMS OVER LIMITATION 4,04(c) 0 CONTRACT ADMINISTRATION EXPENSES 4,04(c) 220,113 COMPLIANCE AUDIT 6.03(b) 179,730 PMOCOST 179,833 PROPERTY TAXES (OUTSI DE CITY ONLY) 4.05 1,342,376 RETURN ON SFWD RATE BASE 4.06 SFWD DEPRECIATION 4,07 SUBURBAN HETCH HETCHY ASSESSMENT 4.08 SUBURBAN REVENUE REQUIREMENT FY 2005-06 FINAL CALCULATION SAN FRANCISCO WATER DEPARTMENT CALCULATION OF THE SUBURBAN REVENUE REQUIREMENT DIRECT CITY $0 4,152,966 0 22,259,034 10,471,378 36,883,378 0 359,390 8,303.990 0 0 0 0 0 SCHEDULE A DIRECT JOINT JOINT EXPENSE SUBURBAN TOTAL SUBURBAN AlLOCATION FACTOR $0 $11,047,048 ANNUAL USAGE $7,370,590 0 428,951 ANNUAL USAGE 286,196 0 27,976,827 ANNUAL USAGE 18,666,139 0 12,509,160 ANNUAL USAGE 8,346,112 213,702 0 2% OF TOTAL 213.702 213,702 51,961,986 34,882,739 39,17% 0 1.164,127 COMPOSITE OaM 455,989 0 16.363.525 COMPOSITE oaM 6,409,593 0 16.394.409 COMPOSITE O&M 6,421,690 0 0 0% 0 0 220,113 50% 110,057 0 179,730 50% 89,865 0 179,833 44.24% 79,550 0 1,342,376 ANNUAL USAGE 895,634 FROM: WORKSHEET A-3 16,672,743 FROM: WORKSHEET A·3 15,571.439 FROM: SCHEDULE B 2(),132,870 SCHEDULE A FISCAL YEAR 2005·06 FINAL CALCULATION WITH CORRECTION OF RETIREE HEALTH SUBSIDY $2,173,238 Recaste'Fm T&D ·City to A&G·Joint EXPENSE CATEGORY OPERATING AND MAINTENANCE EXPENSE: SOURCE OF SUPPLY PUMPING PURIFICATION TRANSMISSION a DISTRIBUTION CUSTOMER ACCOUNTS TOTALO&M OaM PERCENTAGE OF TOTAL SFWD ADMINISTRATIVE AND GENERAL EXPENSES: DEEMED CITY OVERHEAD CHARGE SF PUBLIC UTILITIES COMMISSION OTHERA&G CLAIMS OVER LIMITATION CONTRACT ADMINISTRATION EXPENSES COMPLIANCE AUDIT PMOCOST PROPERTY TAXES (OUTSIDE CITY ONLY) RETURN ON SFWD RATE BASE SFWD DEPRECIATION SUBURBAN HETCH HETCHY ASSESSMENT REFERENCE TOTAL SFWD 4.03(a) 4.03(b) 4.04(c) 4.03(d) 4.03(e) 4.04(a) 4,04(b) 4.04(c) 4.04(C) 4,04(c) 6.03(b) 4.05 4.06 4.07 408 $11,047,048 4,581,917 27,976,827 32,594,956 10,685,080 86,885,828 100.00% 1.164,127 16,722,915 26.871,637 o 22(),113 179,730 179,833 1,342,378 SUBURBAN REVENUE REQUIREMENT FY 2005·06 FINAL CALCULATION DIFFERENCE IN SUBURBAN REVENUE REQUIREMENT DIRECT CITY DIRECT / JO NT JOINT EXPENSE SUBURB~ ALLOCATION FACTOR / 4,'52,9:/ ~ o 0 ~ 0 27,97 ,827 ANNUAL USAGE 12,50 160 ANNUAL USAGE o 2%OFTOTAL $11'04~048 ANNUAl USAGE 42 ,951 ANNUAL USAGE ~ 213,702 34,710,140 o 359,390 8,303,990 o o o o o 213,702 o o o o o o o o 51,961, 6 1,164, \ 7 COMPOSITE OaM .~ COMPOSITE OaM ~COMPOSITE O&M o 0<'/0 220,113 50% 179,730 50% 179,833 45.50% 1,342,378 ANNUAL USAGE FROM: WORKSHEET A·3 FROM: WORKSHEET A·3 FROM: SCHEDULE B SUBURBAN TOTAL $7,370,590 286,196 18,666,139 8,346,112 213,702 34,882,739 40.15% 467,397 6,569,955 7,454,910 o 110,057 89,865 81.819 895,634 16,682,663 15,671.439 20,132,870 L $103.039,348 I ($1,217,179H SCHEDULE C-2 CALCULATION OF DIFFERENCE IN SUBURBAN REVENUE REQUIREMENT FY 2006·07 SAN FRANCISCO WATER DEPARTMENT CALCULATION OF THE SUBURBAN REVENUE REQUIREMENT FISCAL YEAR 2006-07 FINAL CALCULATION EXPENSE CATEGORY REFERENCE TOTAL SFWD OPERATING AND MAINTENANCE EXPENSE: SOURCE OF SUPPLY 4.03(a) $14.833,834 PUMPING 4.03(b) 4,695,239 PURIFICATION 4.04(c) 28,041,145 TRANSMISSION & DISTRIBUTION 4.03(d) 36,207.266 CUSTOMER ACCOUNTS 4.03(e) 10,569,097 TOTALO&M 94,346,581 O&M PERCENTAGE OF TOTAL SFWD 100.00% ADMINISTRATIVE AND GENERAL EXPENSES: DEEMED CITY OVERHEAD CHARGE 4.04(a) 1.209,836 SF PUBLIC UTILITIES COMMISSION 4.04(b) 18,752,161 OTHERA&G 4.04(c) 22,800.018 CLAIMS OVER LIMITATION 4.04(c) 0 CONTRACT ADMINISTRATION EXPENSES 4.04(c) 248.704 COMPLIANCE AUDIT B.03(b) 179.730 PMQCOST 0 PROPERTY TAXES (OUTSIDE CITY ONLY) 4.05 1,375,611 RETURN ON SFWD RATE BASE 4.06 SFWD DEPRECIATION 4.07 SUBURBAN HETCH HETCHY ASSESSMENT 4.08 SUBURBAN REVENUE REQUIREMENT FY 2006·07 FINAL CALCULATION (ROUNDED) SAN FRANCISCO WATER DEPARTMENT CALCULATION OF THE SUBURBAN REVENUE REQUIREMENT DIRECT DIRECT JOINT JOINT EXPENSE CITY SUBURBAN ALLOCATION FACTOR $1,444.899 $0 $13,388,935 ANNUAL USAGE 4,248,026 0 447,213 ANNUAL USAGE 0 0 28,041,145 ANNUAL USAGE 23,378,249 0 12,629,017 ANNUAL USAGE 10,357,715 211,382 ° 2% OF TOTAL 39,428.889 211,382 54,706,310 0 0 1,209.836 COMPOSITE O&M 550,969 0 18,201,192 COMPOSITE O&M 3,669,618 0 19,130,401 COMPOSITE O&M 0 0 0 0% 0 0 248,704 50% 0 0 179,730 50% 0 0 0 44.86% 0 0 1,375,611 ANNUAL USAGE FROM: WORKSHEET A·3 FROM: WORKSHEET A-3 FROM: SCHEDULE B I FISCAL YEAR 2006-07 FINAL CALCULATION WITH CORRECTION OF RETIREE HEALTH SUBSIDY $2,502,660 Recasted~om T&D ·Cily to A&G-Joint EXPENSE CATEGORY REFERENCE TOTAL SFWD DIRECT DIREC~~JOI~T JOINT EXPENSE CITY SUBURBAN ALLOCATION FACTOR OPERATING AND MAINTENANCE EXPENSE: SOURCE OF SUPPLY 4.03(a) $14,833,834 ,,~~ / ~ $13,38 ,935 ANNUAL USAGE PUMPING 4.03(b) 4,695,239 4,248,026 0 44 ,213 ANNUAL USAGE PURIFICATION 4.04(c) 28,041,145 o 0 28,041 145 ANNUAL USAGE TRANSMISSION & DISTRIBUTION 4.03(d) 33,704,606 C20,875,58iD" 0 12,829 017 ANNUAL USAGE CUSTOMER ACCOUNTS 4.03(e) 10,569,097 10-:357,715 211.382 0 2% OF TOTAL TOTALO&M 91.843,921 36,926,229 211,382 54,706 , 10 O&M PERCENTAGE OF TOTAL SFWD 100.00% ADMINISTRATIVE AND GENERAL EXPENSES: DEEMED CITY OVERHEAD CHARGE 4.04(a) 1,209,836 0 0 1,209,1\36 COMPOSITE O&M SF PUBLIC UTILITIES COMMISSION 4,04(b) 18,752,161 550,969 0 1~1 I!? COMPOSITE O&M OTHERA&G 4.04(c) 25,302,678 3,669,618 0 <[1 ,633,O~COMPOSITE O&M CLAIMS OVER LIMITATION 4.04(c) ° 0 0 -00% CONTRACT ADMINISTRATION EXPENSES 4.04(c) 248,704 0 0 248,704 50% COMPLIANCE AUDIT 6.03(b) 179,730 0 0 179,730 50% PMOCOST 0 0 0 0 46.24% PROPERTY TAXES (OUTSIDE CITY ONLY) 4.05 1,375,611 0 0 1,375,611 ANNUAL USAGE RETURN ON SFWD RATE BASE 406 FROM: WORKSHEET A·3 SFWD DEPRECIATION 4.07 FROM: WORKSHEET A·3 SUBURBAN HETGH HETCHY ASSESSMENT 4.08 FROM: SCHEDULE B SUBURBAN REVENUE REQUIREMENT FY 2006-07 FINAL CALCULATION (ROUNDED) I DIFFERENCE IN SUBURBAN REVENUE REQUIREMENT SCHEDULE A SUBURBAN TOTAL $9,198,198 307,235 19,264,267 8,813,535 211.382 37,794,617 40.06% 484,660 7,291,398 7,663,638 0 124,352 89,865 0 945,045 17,142,634 16,466,999 22,900,264 $110,903,472 I SCHEDULE A SUBURBAN TOTAL $9,198,198 307,235 19,264,267 8,813.535 211,382 37,794,617 41.15% 497,848 7,489,791 8,902,004 0 124,352 89,865 0 945,045 17,182,779 16,466,999 22,900,264 $112,393.564 I ($1,490.092>1 RAY E. MCDEVITT PARTNER DIRECT DIAL 415 995 5010 DIRECT FAX 415 995 3509 E-MAil rmcdevitt@hansonbridgett.com March 25, 2009 Joshua D. Milstein, Esq. Deputy City Attorney City and County of San Francisco 1390 Market Street, Suite 418 San Francisco, CA 94102 ATT ACHMENT B @ HansonBridgett Subject: Suburban Revenue Requirement for FY 2005-06 and FY 2006-07 Dear Josh: Last week. Todd Rydstrom sent a letter to Art Jensen requesting that he agree, on behalf of the Wholesale Customers. to modifications to the Suburban Revenue Requirement for FY 2005-06 and FY 2006-07. The request relates to what Todd described as an error in the SFPUC accounting treatment of retiree health costs. The error assertedly understated the Suburban Revenue Requirement by approximately $1.2 million in FY 2005-06 and $1.5 million in 2006-07. The letter suggested that the SFPUC error be corrected, with interest, by making an adjustment, in the SFPUC's favor, to the Balancing Account as of June 30, 2008 of approximately $2.9 million. The contract deadline for serving a Demand for Arbitration for FY 2005-06 is less than a month away. The parties have quite a bit to do during that time besides discuss this accounting error. For that reason, Art Jensen has directed me to prepare a Tolling Agreement that would extend the deadline for initiating arbitration for FY 2005-06 until March of next year, which is shortly before the corresponding deadline for FY 2006-07. That will allow the SFPUC accounting error issue to be addressed for both years, as well as permitting issues that may be raised by BAWSCA agencies for these two years to be consolidated with them. I have prepared and attach for your review a Tolling Agreement which will accomplish this. It's modeled on one that was signed a few years ago. If it is acceptable in form, please present it to Ed Harrington for signature. I'd like to have the Tolling Agreement, signed on behalf of the SFPUC, at the meeting next Tuesday. That should give us sufficient time to obtain approvals from the five Suburban Representative agencies. Thank you. If you have any questions, Josh, please let me know. Sincerely, ~tt REM:ld Attachment cc: Art Jensen John Ummel Suburban Representatives Hanson Bridgett LLP 425 Market Street. 26th Floor, San Francisco, CA 94105 hansonbridgett.com ATTACHMENT C TOLLING AGREEMENT THIS AGREEMEN1,' is made as of the 10th day of April, 2009, between the City and County of San Francisco ("City"), acting by and through its Public Utilities Commission ("SFPUC") and the Alam~da County Water District, the California Water Service Company, Inc., the City of Hayward, the City of Palo Alto, and the City of Redwood City (collectively, "Suburban Representatives"). WHEREAS, in 1984 the City entered into a Settlement Agreement and Master Water Sales Contract ("Settlement Agreement") with Suburban Purchasers in Alameda, San Mateo and Santa Clara Counties; and WHEREAS, under the Settlement Agreement, the Suburban Purchasers (which are listed on Exhibit A, attached) are to select five Suburban Representatives to act on their behalf in certain respects as regards administration and implementation of the Settlement Agreement; and WHEREAS, the five Suburban Representatives named above have been selected by the Suburban Purchasers to serve in that capacity for Fiscal Year 2008-09 and, thus, have the authority and duties granted to them under the Settlement Agreement; and .WHEREAS, a dispute exists between the City and the Suburban Purchasers as to the proper amount of the Suburban Revenue Requirement for Fiscal Year 2005-06, and the amount properly posted to the Balancing Account for Fiscal Year 2005-06; and WHEREAS, under the Settlement Agreement the amount posted to the Balancing Account for Fiscal Year 2005-06 cannot be modified byan arbitrator unless a Demand for Arbitration is served on or before April 18,2009, unless the City and the Suburban Representatives otherwise agree under Section 8.02(d) of the Settlement Agreement; and WHEREAS, it is desirable for further factual investigations and discussions to take place, in an effort to resolve the dispute through agreement rather than through arbitration. 1 1869416.1 NOW, THEREFORE, the parties agree as follows: 1. The date by which the City or one or more Suburban Purchasers may serve a Demand for Arbitration for Fiscal Year 2005-06 is extended to March 1,2010. 2. The parties agree to exchange information relevant to ilieissues, meet at mutually convenient times and places, and discuss the issues in dispute. 3. This agreement may be executed in counterparts. IN WITNESS WHEREOF, this Agreement is entered into by the parties by their respective duly authorized officers, the Suburban Representatives acting on their own behalf and on behalf of the Suburban Purchasers. CITY AND COUNTY OF SAN FRANCISCO ACTING BY AND THROUGH ITS PUB C UTILITIES COMMISSION . Date: ld -l]. ' 2009 Edward Harrington, G eral Manager Authorized by Commission Resolution NC1. --- APPROVED AS TO FORM: Dennis 1. Herrera, City Attorney BY:~~ eputy CIty Attorney 2 1869416.1 ALAMEDA COUNTY WATER DISTRICT BY:D~A Date: Afri.1 2-,2009 CALIFORNIA WA ERSERVICECOMPANY By,~·~ __ ~~~~~~ ________ _ Date: ¢~ 7 . ,2009 CITY OF HAYWARD Date:fr\l-r vk ~ f ,2009 CITY OF PALO ALTO By: _____ ~~f-!!-~'-A----I:A.~_-Date: . tqr;J 1 r· , 2009 BY:---'ccfl~. ·~B~JT~)_· -,2009 3 1869416.1 SUBURBAN PURCHASERS San Mateo County . Brisbane BurlIngame California Water Service Company (South San Francisco', San Carlos, San Mateo, Atherton, Menlo Park, Woodside) Coastside County Water District (Half Moon Bay) Daly City East Palo Alto Estero Municipal Improvement District (Foster City) Guadalupe Valley Municipal Improvement District (Brisbane) Hillsborough Menlo Park Mid-Peninsula Water District (Belmont) Millbrae North Coast County Water District (Pacifica) Redwood City San Bruno Skyline County Water District Westborough Water District (South San Francisco) Santa Clara County Milpitas Mountain View Palo Alto Purissima: Hills Water District (Los Altos Hills) San Jose (northern portion) Santa Clara (northern portion) Stanford University Sunnyvale Alameda County Alameda County Water District (Fremont, Newark, Union City) Hayward EXHIBIT A 1869416.1