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HomeMy WebLinkAboutStaff Report 120-08City of Palo Alto City Manager’s Report TO:HONORABLE CITY COUNCIL FROM:CITY MANAGER DEPARTMENT: UTILITIES DATE:FEBRUARY 4, 2008 CMR: 120:08 SUBJECT:REPORT OF CITY MANAGER ACTION FOR THE CITY AS A SUBURBAN REPRESENTATIVE IN ITS WATERCONTRACT WITH SAN FRANCISCO 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 Pato 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 his designee signed a Memorandum of Agreement on November 29, 2007 with the San Francisco Public Utilities Commission (SFPUC) describing how the annual audit of the calculation of the Suburban Revenue Requirement for FY 2006-07 shall be conducted. This was the fifth time that the City Manager has acted under this authority. The Suburban Revenue Requirement is the amount the contract allows San Francisco 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 contract requires that a "compliance audit" be performed on San Francisco’s calculation of the Suburban Revenue Requirement each fiscal year. POLICY IMPLICATIONS The attached letter was executed in accordance with Council authority delegated to the City Manager. If the issues raised by the audit cannot be resolved without going to arbitration, the Council will be asked to approve that action. CMR: 120:08 Page 1 of 2 ATTACHMENT Memorandum of Understanding Fiscal Year 2006-07 Revenue Requirement Compliance Audit PREPARED BY:JANE RATCHYE Utilities Assistant Director, Resource Management DEPARTMENT HEAD: VAL~’~O.@FONG Director of Utilities CITY MANAGER APPROVAL: EMILY(~:[XRiRIgON Assistant City. Manager CMR: 120:08 Page 2 of 2 MEMORANDUM OF UNDERSTANDING FISCAL YEAR 2006-07 REVENUE REQUIREMENT COMPLIANCE AUDIT THIS MEMORANDUM OF UNDERSTANDING is made as of this ,:~"~- day of --~,.~,.:~.~J~.-~ 2007, by and between the SAN FRANCISCO PUBLIC UTILITIES GOMMISSION ("SFPUC") and the SUBURBAN REPRESENTATIVES. RECITALS The City and County of San Francisco, through the SFPUC, entered into a Settlement Agreement and Master Water Sales Contract ("Contract") with 30 Suburban Purchasers in 1984. 2.The Contract requires a "compliance audit" be conducted of the SFPUC’s calculation of the Suburban Revenue Requirement for each fiscal year. The SFPUC and Suburban Representatives modified cer[ain procedures for the FY 1995-96 compliance audit and continued such procedures for FY 1996-97, FY 1997-98, FY 1998-99, FY 1999-00, FY 2000-01, FY 2001-02, FY 2002-03, FY 2003-04, FY 2004-05 and FY 2005- 06. 4. The SFPUC and Suburban Representatives now desire to make certain revisions to the current M©U, effective with the compliance audit of FY 2006-07. NOW, THEREFORE, THE PARTIES AGREE AS FOLLOWS: 1.For the compliance audit of the Suburban Revenue Requirement for FY 2006-07, the SFPUC and Suburban Representatives agree that the compliance auditor shall conduct the audit to achieve a two percent (2%) precision level and a ninety-five percent (95%) confidence level, using probability proportional to size statistical sampling with a sample size of 320 items, based on the assumption of one error. For purposes of testing personnel costs, the auditor shall select a judgmental sample of 30 payroll items. These items shall be tested for errors as defined in Section 2 below. If the sample error exceeds 2% of the gross sample value, the auditor shall select additional personnel transactions in accordance with the statistical sampling methodology used to test non-labor transactions. 2.For purposes of the compliance audit, an error exists if any one of the following conditions is met and the result of the specific error, when projected to the population, exceeds an adjustment of $1,000 or more: There is a lack of sufficient supporting documentation; The amount recorded is incorrect, based on supporting documentation; There was an incorrect classification of expenseslcharges in accordance with the Contract; and There was an out-of-period transaction except 1) a transaction that occurred in FY 2005-06 or an earlier year but was recorded in FY 2006-07 or 2) a transaction recorded in FY 2006-07, but the expense will be fully realized within twelve calendar months of when it is recorded, tf a portion of the expense would not be realized within twelve calendar months of when it is recorded, only the portion that occurs after twelve calendar months shall be consider an error. 3.Prior to or concurrent with commencement the audit, the auditor will meet with SFPUC staff and Bay Area Water Supply and Conservation Association (BAWSCA) staff for the purpose of reviewing the audit work plan, schedule and staffing. The subject of this meeting shall include, but is not limited to, a discussion of any proposed changes in audit standards and/or procedures from the prior year, identification of key project milestones, progress reports, and the responsibilities of staff assigned to the audit. 4.The auditor will apprise SFPUC staff and BAWSCA if the 2% precision and 95% confidence levels cannot be achieved and the reasons for such inability. The auditor will quantify the actual precision and confidence levels achieved in the audit and include that information in its report. 5.The SFPUC and the Suburban Representatives agree that the past practice of SFWD and BAWSCA seeking agreement on water consumption data used in calculating each year’s Suburban Revenue Requirement and memorializing that agreement by having "J-Tables" initialed by a representative of SFWD and BAWSCA is consistent with Section 6.04(d)(2) of the 2 Contract and should be continued. To that end; Suburban Representatives and SFPUC agree that the compliance auditor should use water consumption data and percentages contained in the J-Tables for the year being tested if and when such Tables are initialed by the SFPUC General Manager and by ~,v ~,~.,~ s General lWan,~g~r. 6.The SFPUC will deliver a copy of this MOU to the auditor and notify the auditor that the procedures to be used during the audit shall conform to the contents of this MOU. 7.Nothing in this MOU is intended to diminish the auditor’s responsibility to employ the procedures it would otherwise use to satisfactorily complete the compliance audit, including additional sampling; nor preclude the auditor from performing additional analyses for purposes of determining whether certain expenses have been fairly allocated per the provisions of the Contract; and to perform the compliance audit and report its findings and conclusions; exercising the same professional care it would use in conducting an audit. SAN ,FI?u~,NCISCO PUBLIC UTILITIES COMMISSION ALAMEDA COUNTY WATER DISTRICT CALIFORNIA WATER SERVICE COMPANY BY:Date CITY OF DALY CITY BY:Date CITY OF PALO ALTO BY:Date CITY OF REDWOOD CITY BY:Date 3 Contract and should be continued. To that end; Suburban Representatives and SFPUC agree that the compliance auditor should use water consumption data and percentages contained in the J-Tables for the year being tested if and when such Tables are initialed by the SFPUC General Manager and by BAWSCA’s General Manager. 6.The SFPUC will deliver a copy of this MOU to the auditor and notify the auditor that the procedures to be used during the audit shall conform to the contents of this MOU. 7.Nothing in this MOU is intended to diminish the auditor’s responsibility to employ the procedures it would otherwise use to satisfactorily complete the compliance audit, including additional sampling; nor preclude the auditor from performing additional analyses for purposes of determining whether certain expenses have been fairly allocated per the provisions of the Contract; and to perform the compliance audit and report its findings and conclusions; exercising the same professional care it would use in conducting an audit. SAN FRANCISCO PUBLIC UTILITIES COMMISSION BY:Date ALAMEDA COUNTY WATER DISTRICT BY:Date CALIFORNIA WATEP~ SERVICE COMPANY BY CITY OF DALY CITY BY:Date CITY OF PALQ ALTO BY:Date CITY OF REDWOOD CITY BY:Date Contract and should be continued. To that end, Suburban Representatives and SFPUC agree that the compliance auditor should use water consumption data and percentages contained in the J-Tables for the year being tested if and when such Tables are initialed by the SFPUC General Manager and by BAWSCA’s General Manager. 6.The SFPUC will deliver a copy of this MOU to the auditor and notify the auditor that the procedures to be used during the audit shall conform to the contents of this MOU. 7.Nothing in this MOU is intended to diminish the auditor’s responsibility to employ the procedures it would otherwise use to satisfactorily complete the compliance audit, including additional sampling; nor preclude the auditor from performing additional analyses for purposes of determining whether certain expenses have been fairly allocated per the provisions of the Contract; and to perform the compliance audit and report its findings and conclusions; exercising the same professional care it would use in conducting an audit. SAN FRANCISCO PUBLIC UTILITIES COMMISSION BY:Date ALAMEDA COUNTY WATER DISTRICT BY:Date CALIFORNIA WATER SERVICE COMPANY BY:Date CITY OF HAYWAR~ BY:Date CITY QF PALQ ALTO BY:Date CITY OF REDWOOD CITY BY:Date Contract and should be continued. To that end, Suburban Representatives and SFPUC agree that the compliance auditor should use water consumption data and percentages contained in the J-Tables for the year being tested if and when such Tables are initialed by the SFPUC General Manager and by BAWSCA’s General Manager. 6.The SFPUC will deliver a copy of this MOU to the auditor and notify the auditor that the procedures to be used during the audit shall conform to the contents of this MOU. 7.Nothing in this MOU is intended to diminish the auditor’s responsibility to employ the procedures it would othe~,ise use to satisfactorily complete the compliance audit, including additional sampling; nor preclude the auditor from performing additional analyses for purposes of determining whether certain expenses have been fairly allocated per the provisions of the Contract; and to perform the compliance audit and report its findings and conclusions; exercising the same professional care it would use in conducting an audit. SAN FRANCISCO PUBLIC UTILITIES COMMISSION BY:Date ALAMEDA COUNTY WATER DISTRICT BY:Date CALIFORNIA WATER SERVICE COMPANY BY:Date CITY OF HAYWARD BY:Date CITY O~ P:~LO ALTO BY: "-<.i !ic’:""’~-’~ ~,Bate CITY OF REDWOOD CITY BY:Date 3 Contract and should be continued. To that end, Suburban Representatives and SFPUC agree that the compliance auditor should use water consumption data and percentages contained in the J-Tables for the year being tested if and when such Tables are initialed by the SFPUC General Manager and by BAWSCA’s General Manager. 6.The SFPUC will deliver a copy of this MOU to the auditor and notify the auditor that the procedures to be used during the audit shall conform to the contents of this MOU. 7,Nothing in this MOU is intended to diminish the auditor’s responsibility to employ the procedures it would otherwise use to satisfactorily complete the compliance audit, including additional sampling; nor preclude the auditor from performing additional analyses for purposes of determining whether certain expenses have been fairly allocated per the provisions of the Contract; and to perform the compliance audit and report its findings and conclusions; exercising the same professional care it would use in conducting an audit. SAN FRANCISCO PUBLIC UTILITIES COMMISSION BY:Date ALAMEDA COUNTY WATER DISTRICT BY:Date CALIFORNIA WATER SERVICE COMPANY BY:Date CITY OF HAYWARD BY:Date CITY QF PALO ALTO BY:Date CITY OF REDWOOD CITY BY: :g :,~: .~,~::~...,:t:~.~, Date