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Home My WebLink AboutStaff Report 340-06City of Palo Alto City Manager’s Repor TO:HONORABLE CITY COUNCIL FROM:CITY MANAGER DEPARTMENT: UTILITIES DATE:SEPTEMBER 11, 2006 CMR:340:06 SUBJECT:CITY MANAGER ACTION FOR THE CITY AS A SUBURBAN REPRESENTATIVE IN ITSWATER CONTRACT 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 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 his designee signed a letter on July 24, 2006 advising the San Francisco Public Utilities Commission (SFPUC) that the suburban representatives intend to review the calculations made to determine the costs allocated to the suburban customers for FY 2004-05. This was the third 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. Each year, the suburban representatives may choose to conduct a "suburban review" of the compliance audit. BAWSCA staff reviewed the FY 2004-05 compliance audit and recommended that the suburban representatives initiate a suburban review of the audit for the FY 2003-04 suburban revenue requirement. BAWSCA staff identified seven issues but expects that they can be dealt with without resorting to arbitration. POLICY IMPLICATIONS Signing the attached letter is consistent with Council authority delegated to the City Manager. If the issues raised cannot be resolved without going to arbitration, the Council will be asked to approve that action. CMR:340:06 Page 1 of 2 ATTACHMENT July 20, 2006 letter to Ms. Susan Leal, SFPUC General Manager,. from Arthur Rr Jensen~ ~-- BAWSCA General Manager re: Section 6.06 Suburban Review - FY 2004-05 PREPARED BY:Jane Ratchye,~enior Resource Planner DEPARTMENT HEAD: CITY MANAGER APPROVAL: CARL YEAT; ~A~tRISON Assistant City Manager Services CMR:340:06 Page 2 of 2 July 20, 2006 Bay Area Water Supply & Conservation Agency ATTACHMENT A Ms. Susan Leal, General Manager San Francisc Public Utilities Commission 1155 Market Street, 11th Floor San Francisco, CA 94103 Subject: Section 6.06 Suburban Review- FY 2004-05 Dear Susan: Pursuant to Section 6.06 of the 1984 Settlement Agreement and Master Water Sales Contract, the Suburban Representatives have the prerogative to conduct a "suburban review" provided the SFPUC is notified of this intent within three months of having received the auditor’s compliance audit report. The FY 2004- 05 report was received on May 5, 2006, hence, the deadline for initiating a suburban review is August 4, 2006. The Suburban Representatives have designated the staff of the Bay Area Water Supply and Conservation Agency to conduct a review of the portions of the compliance audit designated on the attached page. As provided in the Agreement, the scope of the suburban review may be expanded to include other portions of the compliance audit beyond those initially designated. In order that the review proceeds in a constructive and timely fashion, BAWSCA is authorized to act on behalf of the Suburban Representatives during the suburban review. John Ummel, Senior Administrative Analyst for BAWSCA, will oversee the review and will serve as liaison to the Suburban Representatives. In the past, .Bill Laws, Rate Administrator for the SFPUC, has worked with John Ummel in providing information to our inquiries. Unless you instruct otherwise, John will continue to work with Bill on items pertaining to this suburban review and other matters not expressly designated. If the SFPUC or compliance auditor wishes to contact us during the course of the suburban review, all such communications should be channeled through Mr. Ummel. Very truly yours, General Manager, BAWSCA 155 Bovet Road, Suite 302 ¯San Mateo, CA 94402 ¯ph 650 349 3000 ¯fx 650 349 8395 ¯wvvw.bawsca.org SUBURBAN REPRESENTATIVES 7 l/Oh Date City of Redwood City Date City of Hayward Date California Water Service Date City of Palo Alto Date Attachment CC:Scott MacDonald, AGM Business Services, SFPUC Bill Laws, Rate Administrator, SFPUC Ed Harrington, Controller Ray Mc Devitt, Attorney, Hanson-Bridgett Eugene Yano, Auditor, Yano and Associates Karen Cordeiro, Auditor, KPMG John Ummel, Senior Administrative Analyst, BAWSCA \\DELL1600\Users\jummel\My Documents\Main Files\SRR\Sec606CoverltFY04-05.doc SUBURBAN REPRESENTATIVES Alameda County Water District Date City of Redwood City Date City of Hayward Date California Water Service Date City of Palo Alto Date Attachment CC:Scott MacDonald, AGM Business Services, SFPUC Bill Laws, Rate Administrator, SFPUC Ed Harrington, Controller Ray Mc Devitt, Attorney, Hanson-Bridgett Eugene Yano, Auditor, Yano and Associates Karen Cordeiro, Auditor, KPMG John Ummel, Senior Administrative Analyst, BAWSCA \\DELL1600\Users\jummel\My Documents\Main Files\SRR\Sec606CoverltFY04-05.doc SUBURBAN REPRESENTATIVES Alameda County Water District Date City of Redwood City City of Hayward Date ,1,* Date California Water Service Date City of Palo Alto Date Attachment CC:Scott MacDonald, AGM Business Services, SFPUC Bill Laws, Rate Administrator, SFPUC Ed Harrington, Controller Ray Mc Devitt,,Attorney, Hanson-Bridgett Eugene Yano, Auditor, Yano and Associates Karen Cordeiro, Auditor, KPMG John Ummel, Senior Administrative Analyst, BAWSCA \\DELL1600\Users\jummel\My Documents\Main Files\SRR\Sec606CoverltFY04-05.doc SUBURBAN REPRESENTATIVES Alameda County Water District Date CitY of Redwood City Date City of Hayward Califo"~ni~’,~r S~rvice Date City of Palo Alto Date Attachment CC:Scott MacDonald, AGM Business Services, SFPUC Bill Laws, Rate Administrator, SFPUC Ed Harrington, Controller Ray Mc Devitt, Attorney, Hanson-Bddgett Eugene Yano, Auditor, Yano and Associates Karen Cordeiro, Auditor, KPMG John Ummel, Senior Administrative Analyst, BAWSCA \~)ELL1600\Users~jummel~My Documents\Main Files~SRR~Sec606CoverttFY04-05.doc SUBURBAN REPRESENTATIVES Alameda County Water District Date City of Redwood City Date City of Hayward Date California Water Service City ol!~Palo Alto Date Attachment CC:Scott MacDonald, AGM Business Services, SFPUC Bill Laws, Rate Administrator, SFPUC Ed Harrington, Controller Ray Mc Devitt, Attorney, Hanson-Bridgett Eugene Yano, Auditor, Yano and Associates Karen Cordeiro, Auditor, KPMG John Ummel, Senior Administrative Analyst, BAWSCA \~)ELL1600\Users~jummel~ly Documents\Main Fites~SRR~Sec606CovedtFY04-05.doc Attachment Portions of the FY 2004-05 Compliance Audit Initially Designated for Suburban Review 1. Project 166, Reservoir Discharge Improvements The SFPUC is expensing $566,421 for reservoir discharge work, classifying it as a source of supply expense. The suburban representatives request clarification as to the nature of the work and why it was expensed rather than capitalized. 2. Alameda Habitat Conservation Plan EIR/EIS The suburban representatives questioned the classification of certain expenses for the Alameda Habitat Conservation Plan (HCP) in FY 2003-04 under source of supply. This issue is still under review. EIR/EIS expenses for the Alameda HCP of $792k were expensed in FY04-05, also under source of supply. This treatment presents a similar issue. 3. Project 248, Sunol/Niles Dam Removal In FY04-05, the SFPUC expensed $1,174,053 for Project 248, Sunol/Niles Dam Removal. The suburban representatives request clarification regarding the following: a) The Commission awarded the contract for the removal of Sunol/Niles dam at its meeting of May 23, 2006. If that is correct, what is the nature of the expenses that occurred in 2004-05? b) In October 2002, the SFPUC received a grant of $1million from Proposition 13 funds for this project. Have the Suburban purchasers been credited (or will they be credited) their share of grant monies for Project 248? 4. Adjustment to Purification Costs In FY04-05, the SFPUC made an adjustment to the Purification category involving water quality expenses totaling $1,996,843 without providing any explanation or description. The suburban representatives request clarification as to the nature of these expense. 5. Clarification: External Affairs Expenses In FY 04-05, a reorganization involving the bureaus, specifically, the External Affairs bureau, caused changes in how SFPUC expenses were allocated compared to past practices. The suburban representatives request clarification as to the formation of the new External Affairs bureau, its purpose and the allocation of expenses to the operating enterprises. 6. Improvements at O’Shaughnessy Dam The SFPUC shows several entries on its fixed asset record (FAACS) totaling $6,421,610 for improvements at O’Shaughnessy dam but no project number is indicated here and the entries do not appear on the Transfer to Fixed Asset page. The suburban representatives request clarification as to the nature of the expenses that are being capitalized. 7. Program Management (PMO) Expenses The SFPUC expensed $3.4M and $1.5M for administrative project management expenses in Water and Hetch Hetchy respectively. The suburban representatives request clarification as to the make-up (tasks and associated expenses) of these project management activities. \kDELL1600\Users\jummelkMy DocumentskMain Files\SRR\Sec606IssuesFY0405.doc