HomeMy WebLinkAboutStaff Report 100-10TO:
FROM:
DATE:
REPORT TYPE:
SUBJECT:
HONORABLE CITY COUNCIL
CITY MANAGER
JANUARY 11, 2010
INFORMATIONAL
DEPARTMENT: UTILITIES
CMR: 100:10
Report of City Manager Action Pursuant to the City's Water
Contract with San Francisco on the Initiation of a Review of the Fiscal
Year 2007-08 Audit of the 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 Memorandum of
Understanding on November 21, 2008 with the San Francisco Public Utilities Commission
(SFPUC) describing how the annual audit of the calculation of the Suburban Revenue
Requirement for FY 2007-08 shall be conducted. That action was reported to the Council on
February 2, 2009 [CMR 105:09]. The City Manager exercised that authority again when he
signed a letter on October 13, 2009 advising the SFPUC that the suburban representatives intend
to review the calculations made to determine the costs allocated to the suburban customers for
FY 2007-08.
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 City of Palo Alto is one of the
five Suburban Representatives of the BAWSCA member agencies for the Contract
administration. 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 2007-08 compliance audit and recommended that the Suburban
Representatives initiate a review of the audit for the FY 2007-08 Suburban Revenue
Requirement. BAWSCA staff identified ten issues but expect that they can be dealt with without
CMR: 100:10 Page 1 of 2
resorting to arbitration. The ten issues are described in the attachment and include the
disposition of grants for several capital projects and upgrades, classification of legal fees for a
lawsuit, and the classification of expenses for several projects and programs.
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.
ATTACHMENT
A. October 15, 2009 letter to Todd Rydstrom, SFPUC Assistant General Manager, from John
Ummel, BAWSCA Senior Administrative Analyst re: FY 2007-08 Suburban Revenue
Requirement; Section 6.06
PREPARED BY:
DEPARTMENT HEAD:
CITY MANAGER APPROVAL:
JANE RATCHYE
Utilities Assistant Dir ctor, Resource Management
VALERIE h . ' G
Director of Utilities
CMR: 100:10 Page 2 of 2
ATTACHMENT A
Bay Area Water Supply & Conservation Agency
October 15, 2009
Mr. Todd Rydstrom, Assistant General Manager
San Francisco Public Utilities Commission
1155 Market Street, 11th Floor
San Francisco, CA 94103
Subject: FY 2007-08 Suburban Revenue Requirement; Section 6.06
Dear Todd:
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" of the FY07-08 compliance audit provided the SFPUC is notified of this intent
within three months of having received the auditor's compliance audit report. The report
was received in the BAWSCA offices on July 15, 2009; hence, the deadline for initiating
a suburban review is on or about October 15, 2009.
The Suburban Representatives have designated the staff of the Bay Area Water Supply
and Conservation Agency to conduct this review. Portions of the compliance audit
designated for review are listed on the attached page though the scope of the review may
be expanded - as provided in the Agreement - to include other portions 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. I will oversee the review
and serve as liaison to the Suburban Representatives. In the past, Bill Laws, Senior Rate
Administrator for the SFPUC, has worked with me in providing information to our
inquiries. Unless you instruct otherwise, I 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 me.
Very truly yours,
�hn Ummel
Senior Administrative Analyst
155 Bovet Road, Suite 302, • San Mateo, CA 94402 • ph 650 349 3000 • fx 650349 8395 • www.bawsca.org
SUBURBAN REPRESENTATIVES
Jot t3Ja1
Alameda County Water District Date
City of Palo Alto Date
City of Redwood City Date
California Water Service Date
City of Hayward
Attachment
cc:
Art Jensen, BAWSCA GM/CEO
Ray McDevitt, Hanson-Bridgett
Ed Harrington, SFPUC GM
Bill Laws, Senior Rate Administrator — SFPUC
Eugene Yano, Auditor, Yano and Associates
Date
SUBURBAN REPRESENTATIVES
Alameda County Water District Date
City of Redwood City
Date
Date
California Water Service Date
City of Hayward
Attachment
cc:
Art Jensen, BAWSCA GM/CEO
Ray McDevitt, Hanson-Bridgett
Ed Harrington, SFPUC GM
Bill Laws, Senior Rate Administrator — SFPUC
Eugene Yano, Auditor, Yano and Associates
Date
SUBURBAN REPRESENTATIVES
Alameda County Water District Date
City of Palo Alto Date
/ o//3/0?
Cit Redwoo Date
California Water Service Date
City of Hayward
Attachment
cc:
Art Jensen, BAWSCA GM/CEO
Ray McDevitt, Hanson-Bridgett
Ed Harrington, SFPUC GM
Bill Laws, Senior Rate Administrator — SFPUC
Eugene Yano, Auditor, Yano and Associates
Date
SUBURBAN REPRESENTATIVES
Alameda County Water District Date
City of Palo Alto Date
City of Redwood City Date
California Water Service
City of Hayward
Attachment
cc:
Art Jensen, BAWSCA GM/CEO
Ray McDevitt, Hanson-Bridgett
Ed Harrington, SFPUC GM
Bill Laws, Senior Rate Administrator — SFPUC
Eugene Yano, Auditor, Yano and Associates
10fi 3/o'
Date
Date
SUBURBAN REPRESENTATIVES
Alameda County Water District Date
City of Palo Alto Date
City of Redwood City Date
California Water Service Date
City of Hayward
Attachment
cc:
Art Jensen, BAWSCA GM/CEO
Ray McDevitt, Hanson-Bridgett
Ed Harrington, SFPUC GM
Bill Laws, Senior Rate Administrator — SFPUC
Eugene Yano, Auditor, Yano and Associates
eit,-/,I31 ?—o
Date
Portions of the FY 2007-08 Compliance Audit
Initially Designated for Suburban Review
1. FEMA Grant/Credit for Upgrades at Millbrae HQ (Project 210)
The FY07-08 fixed asset report shows this project being capitalized and added to rate
base in the amount of $2.6M. A FEMA grant of $660,000 was received and a credit for
the wholesale customers' share of the grant of $461,670 was applied to the balancing
account ending June 30, 2008. Please provide the calculation for the credit.
2. Proper Classification of Legal Fees Associated with SCADA Lawsuit
The SFPUC expensed $3.4M in legal fees associated with the SCADA lawsuit and
allocated these costs between wholesale and retail customers based on the original
allocation methodology at the time the asset was placed into rate base. While this
allocation isn't unreasonable, the 1984 contract, Section 8.03 (d), actually stipulates that
attorney fees such as these should be treated as an administrative and general expense.
3. Grant to Remove Sunol/Niles Dam (Project 248)
In October 2002, the SFPUC received word from the SWRCB that it would be awarded a
$1M Prop 13 grant for the removal of SunollNiles Dam. Approximately $2.1M in partial
project costs was expensed in FY 07-08. Were the wholesale customers credited their
share of the grant?
4. Grant for SFPUC/EBMUD/Hayward Intertie
The SFPUC added to rate base approximately $9M for its share of the EBMUD/Intertie
project. This project received a Prop 50 grant. Did the SFPUC share in the grant and, if
so, was the addition to rate base net of the grant received, i.e., were the wholesale
customers credited their share?
5. Grant for Pilarcitos Integrated Management Plan
The FY07-08 budget documents state that the SFPUC received a state grant in 2006 for
the Pilarcitos Integrated Management Plan. The SFPUC expensed $242k for this plan in
FY 2007-08. Did the SFPUC receive a grant, how much, and were the wholesale
customers credited their share?
6. Classification of Earthen Wall at Early Intake
In FY06-07, the SFPUC identified $1.12M being placed into rate base for an earthen wall
at Early Intake dam. At the time, BAWSCA noted that the classification of "water" was
incorrect; should be "joint". The SFPUC concurred. In looking at the fixed asset listing
for FY 07-08, however, it appears the classification was never corrected, that is, the asset
still shows up under "water". This implies that the depreciation and return components
were incorrectly calculated.
7. Classification of Certain Expenses within Natural Resources
The FY07-08 and FY 06-07 professional services budget within Natural Resources
contained money for the following contracts:
$20k - Monterey Canyon Research Vessel; monitoring for the Oceanside Waste Water
Pollution Control Plant
$30k — Susan McCormick; marine benthic sample sorting for the Oceanside Waste Water
Pollution Control Plant
$50k — As needed consulting services including "review . . . NDPDS permit for renewal
of waste water facilities
These contracts all appear related to the Wastewater enterprise. What actual charges, if
any, were allocated to the water enterprise and ultimately to the wholesale customers?
8. Classification of Lake Merced Management Plan
In FY 07-08, the SFPUC expensed $56,358 for the above plan and classified it as a joint
source of supply expense. Isn't the correct classification in -city? Please identify
expenses -to- date for this plan and whether such costs have been misclassified for FY 05-
06 and FY 06-07 as well.
9. Clarification of Expenses Related to "Sustainable Agri"
In FY 07-08, the SFPUC expensed $65,000 for "Sustainable Agri Ed/Nat Rec/ACP".
The expense has been classified under joint source of supply. Please identify the purpose
of this expense. What is the nexus to source of supply?
10. Grant for Polhcmus Creek Restoration (Project 202/257)
In FY 07-08, the SFPUC expensed approximately $2.8M in costs related to the Polhemus
Creek Restoration. Please confirm whether the SFPUC received a grant for work related
to this project. If a grant was received, were the wholesale customers credited their fair
share?
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