HomeMy WebLinkAboutStaff Report 101-08City of Palo Alto
City Manager’s Report
TO:HONORABLE CITY COUNCIL
FROM:CITY MANAGER DEPARTMENT: UTILITIES
DATE:JANUARY 14, 2008 CMR:101:08
SUBJECT:JULY-SEPTEMBER 2007 REPORT ON PROGRESS OF NEGOTIATIONS
FOR A NEW WATER AGREEMENT BETWEEN SAN FRANCISCO AND
BAWSCA AGENCIES
This is an informational report and no Council action is required. The attached report describes
unsatisfactory progress on the contract negotiations. Although no action is requested at this time,
staff is closely monitoring the situation and Council involvement may be requested in the future.
BACKGROUND
On September ! 1, 2006, Council authorized the Bay Area Water Supply and Conservation
Agency (BAWSCA) to negotiate on behalf of the City for a water services a~eement with the
City and County of San Francisco[CMR:341:06]. BAWSCA prepares quarterly reports on the
progress of the negotiations. The third such report, produced on December 6, 2007, is attached.
ATTACHMENT
July-September 2007 Report on ProFess of Negotiations for a New Water Agreement between
the City and County of San Francisco and BAWSCA agencies
PREPARED BY:
DEPARTMENT HEAD:
CITY MANAGER APPROVAL:
JANE RATCHYE
Assistant Director, Resource Management, Utilities
VAL ONG~.\~ ~ T> ....Director o~ Utilities
EMILY ~tARRISON
Assistant City Manager
CMR: 101:08 Page 1 of 1
Report on Progress of Negotiations
for a New Water Agreement between
the City and Count), of San Francisco and BAWSCA Agencies
July - September 2007
This is the third proFess report on the negotiations with San Francisco, covering the period from
July through September 2007. It also addresses a number of"issue papers" on a variety of topics
related to the new aFeement that San Francisco delivered in October and November. As I
mentioned at the November 15 BAWSCA Board of Directors meeting, I’ve delayed distribution
of the third quarterly report in order to include some discussion of these recent materials.
My Overall Assessment: A New Approach Is Necessary
After 11 months of negotiation there are no results of mutually aFeed draft contractual content
and no substantive profess toward achieving the three goals and 11 objectives defined by
BAWSCA’s member agencies. Based on the facts listed below, your negotiating team has
concluded that there is a basis for Feat concern about completing a satisfactory aFeement by the
deadline of June 30, 2009.
The current state of affairs is unsatisfactory. Consequently, I believe that a new approach to our
negotiations is required. For many years I have had a cooperative, respectful, and productive
relationship with San Francisco’s negotiator, Mr. Carlin. He and I have discussed my concern
that profess is too slow and he is aware that I wish to discuss the lack ofprog-ress with others in
San Francisco to see if that will get our negotiations on a more productive, accelerated track.
Facts about the Lack of Results
1.Ageement has not been reached on draft language for a single provision of a nexv ageement.
2.BAWSCA provided its members’ 3 goals and 11 objectives for a new a~eement to San
Francisco in October 2006. San Francisco provided its five objectives for a new aFeement a
year later in October 2007.
3.BAWSCA has given San Francisco’s negotiating team documents addressing eight of
BAWSCA members’ 11 objectives, in several cases accompanied by draft contractual
language. To date, San Francisco has rejected three of these proposals, promised to provide
written responses to two others in December, and is discussing the remaining tt~ree.
4.To date, San Francisco negotiators have put forth proposals that would likely increase
payments to San Francisco.
5. San Francisco negotiators have conmaitted to completion of a new ageement by the deadline
of June 30, 200, but the time requirements defined by them to conduct the intertwined review
and approval process with the SFPUC staff and the Cormnission appears to jeopardize that
conmaitment.
6.San Francisco’s negotiating team has indicated that San Francisco may be willing to extend
the existing contractual provisions if more time is needed to complete the ageement. At
other times San Francisco’s negotiators have stated that San Francisco is prepared to make
unilateral decisions if a~eement is not reached by June 30, 2009.
Little Progress on Members’ Obiectives
Since the be~nning of the calendar year BAWSCA has presented to the San Francisco
negotiating team written proposals addressing eight of the 11 objectives articulated by
BAWSCA’s members. The three proposals San Francisco has rejected are: 1) operate the Hetch
Hetchy System for water first; 2) deliver water that meets drinking water standards; and 3)
provide prompt notice of potential SDWA violations and significant changes in water
quality/chemistry. San Francisco has promised to provide written responses to two other
proposals in December. Three other proposals are under discussion, some in smaller "working
groups" that we have set up to deal with technical financial issues.
In addition, we have not submitted a written proposal on one of the three remaining issues
(specifically asking San Francisco for a commitment to complete the WSIP on time and on
budget) because it was rejected by San Francisco outright at the be~nning of negotiations.
San Francisco’s Five Objectives for a New Water A~reement
In October 2007 San Francisco provided its five objectives for the new agreement:
1.The new agreement must simplify the rate-setting process and include enhancements such as
Construction Work in Pro~ess, and capping service lives to give San Francisco greater
flexibility to address cash flow fluctuations that are anticipated as result of the Water System
Improvement Program and future capital progams.
2.The new agreement must provide San Francisco with an adequate rate of return to
compensate San Francisco for its investment, ownership and operation of the reNonal water
system. This rate of return must reflect the inherent risk San Francisco incurs in selwing
customers outside its corporate boundary.
3.The new ageement must incorporate aggessive and feasible water use efficiency goals to
extend the life of project facilities and reduce maintenance costs, delay the need to develop
new water sources and advance envirom-nental and resource stewardship objectives.
4. The reNon must diversify its water supply portfolio to increase system reliability during
droughts and due to regulatory requirements.
5.Growth pays for Growth: those agencies that expect to increase water purchases must pay for
the necessary capacity and development of new water supply.
San Francisco "Issue Papers" -- More Money. But No Commitments To Serve
Since the end of September we have received eight "issue papers" from San Francisco. Of these,
four relate to additional costs San Francisco wants to recover, allocating a greater percentage of
overhead costs to customers outside San Francisco, accelerating the flow of revenue to San
Francisco and increasing the rate of return San Francisco receives on capital investments. These
issue papers are being analyzed and a working group has been meeting to understand and
quantify the various proposals. These proposals, if implemented, would increase the amount of
money wholesale customers must pay San Francisco, when compared to the existing Master
Contract.
2
The other four issue papers address what wholesale water customers would, or would not,
receive in return for their water payments.
One paper asserts that existing state and federal regulations do not require San Francisco to
deliver water to its wholesale customers that meets drinking water standards, and states that the
burden of ensuring the quality of the water it delivers should be borne by the wholesale
customers themselves.
A second paper rejects BAWSCA members’ request that San Francisco commit to giving water
supply a higher operational priority than hydropower revenue production.
A third issue paper on water use efficiency proposes that San Francisco assume the role of
reviewing and approving water conservation plans of each of the wholesale customers, that water
conservation programs be funded through rate mechanisms controlled by San Francisco and that
funds be distributed by San Francisco without approval by, or accountability to, the water
customers outside San Francisco.
The above three positions are obviously unacceptable.
San Francisco’s fourth issue paper is a thoughtful discussion of wheeling water from outside the
regional water system and is being evaluated.
Next Steps
A meeting has been scheduled for early December to review the negotiations (as well as a recent
proposal by SFPUC related to water supply) in detail with the appointed representatives from
each BAWSCA member agency.
The next quarterly report will be issued early in Janua~T, at vv-hich time we expect that another
"all hands" meeting will be needed. In between those meetings, I have requested a meeting with
SFPUC General Manager Susan Leal to discuss a new direction for our negotiations.
Arthur Jensen
Chief Executive Officer and General Manager
Bay Area Water Supply and Conservation Agency