Loading...
HomeMy WebLinkAboutStaff Report 283-10TO: HONORABLE CITY COUNCIL FROM: CITY MANAGER DEPARTMENT: UTILITIES DATE: JULY 12, 2010 CMR: 283:10 REPORT TYPE: INFORMATIONAL SUBJECT: Report of City Manager Action Pursuant to the City's Water Contract with San Francisco on tbe Conduct and Final Settlement Agreement ofthe Bay Area Water Supply and Conservation Agency's Fiscal Year 2005-06 and Fiscal Year 2006-07 Audit of tbe 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 when the City acts as a Suburban Representative under the Settlement Agreement and Master Water Sales Contract (Contract) with San Francisco [CMR 434:05]. The delegation required staff to report to the Council whenever the City Manager acted under thc delegated authority. On May 20, 2010, the City Manager exercised that authority again when he signed the Final Settlement Agreement between the City and County of San Francisco and the Suburban Representatives on the Suburban Revenue Requirement for FY 2005-06 and FY2006-07. The Suburban Revenue Requirement is the amount the Contraet 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 BA WSCA member agencies for the Contract administration. The Contract requires that a "eompliance 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. 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. CMR: 283:10 Page 1 of3 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 deadJine to modify the FY 2006 Suburban Revenue Requirement was needed. Therefore, a tolling agreement (an agreement by which the parties agree to extend the statutory limitation period to allow for dispute resolution without litigation) was developed to allow sufficient time to evaluate the SFPUC's claim. The City Manager signed that tolling agreement on April 2, 2009 [CMR: 230:09]. The tolling agreement extended the amount of time to settle issues going back to FY 2006 and 2007, but it expired March 1, 2010. During BAWSCA's auditor's review of the FY 2009 Suburban Revenue Requirement, two additional errors were discovered that could have ramifications for FY 2006 and 2007. In order to allow sufficient time to check into these issues, a revised tolling agreement was necessary to extend the deadline to June 1,2010 to resolve these two errors. In addition, a settlement agreement was signed that credits the wholesale customers for errors already resolved at that time, but also provides that should these two most recent errors result in further necessary adjustments, the parties are not precluded from making any necessary credits. The City Manager signed that sccond tolling agreement and the settlement agreement on February 24, 2010 [CMR: 177:10]. The Final Settlement Agreement resolves the two final issues for FY 2006 and FY 2007. The first issue relates to Hetch Hetchy expcnses, which were incorrectly classified by San Francisco. For this issue, the Final Settlement Agreement stipulates that the $1.6 million overcharged by San Francisco will be credited to the Suburban Purehasers' balancing account. The second issue was that bond expenses were miscalculated so that the return on rate base included in the Suburban Revenue Requirement was overstated by $484,000. For this issue, the Final Settlement Agreement states that this amount vliill be returned to the Suburban Purchasers' balancing account. Therefore, the total adjustment to the Suburban Purchasers' balancing account is $2,661,010, which is the surn of the adjustments for the two final issues described above and the $355,862 adjustment from the settlement agreement executed in February 2010. RESOURCE IMPACT The credit to the Suburban Purchasers' balancing account means that amount collected by San Francisco from all Suburban Purchasers, including Palo Alto, will be lower by a one-time amount of $2,661,010. For comparison, the FY 2008 Suburban Revenue Requirement (most reccnt audited calculation of the Suburban Revenue Requirement) was about $118.7 million. Palo Alto's share depends on the share of total BA WSCA water purchases. In FY 2008, Palo Alto's share was about 7 percent. POLICY IMPLICATIONS The attached Final Settlement Agreement was executed in accordauce with Council authority delegated to the City Manager. The Final Settlement Agreement resolves all issues between San Francisco and the BA WSCA agencies with respect to the calculation of the Suburban Revenue Requirement for FY 2006 aud FY 2007. CMR: 283:\0 Page 2 of3 ATTACHMENT A. Final Settlement Agreement between the City and County of San Francisco and the Suburban Representatives: Suburban Revenue Requirement for FY 2005-06 and FY 2006-07 PREPARED BY: DEPARTMENT HEAD: CITY MANAGER APPROVAL: CMR: 283:10 JANE RATCHYE Utilities Assistant Director, Resource Management. VALEruO:F Director 0 Utilities Page 3 of3 " ATTACHMENT A FINAL SETTLEMENT AGREEMENT MPRBAN REVENUE REQUIREMENT FOR EX 2005-06 AND FY 2006-07 THIS AGREEMENT is made as of.the 31st day of May, 2010, between the City and County of San FranciscQ ("City"), acting by and through its Public Utilities Commission ("SFPUC") and the Alameda County Water District, the California Water Service Company, Inc., the aty of Hayward, the. City of Palo Alto, and the City of Redwood City (collectively, "Suburban Representatives"), WHEREAS. in 1984 the Cityentered into a Settlement Agreement and Master Water Sales Contract ("1984 Contract") with Suburban Pl\rchasers in Alameda, San Mateo and Santa Clara Counties; and WHEREAS, under the 1984 Contract, the Suburban Purchasers (which are listed on Attachment A) are to select five Suburban Representatives to acton 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 and have the authority and duties granted to them under the Settlement Agreement; and WHEREAS. a dispute arose between the City and the Suburban Purchasers as to the proper amount of the Suburban Revenue Requirement for Fiscal Year 2005-06 and 2006-07. and the amount properly posted to the Balancing Account for Fiscal Year 2005-06 and 2006-07; and WHEREAS. the parties previously entered into a Settlement Agreement dated as of February 26. 2010, which resolved all of the disputed matters with the exception of the following two issues: 2351137,1 A. Expenses in SFPUC index code 32900 may have been misclas~ified as joint . expenses instead of as Hetch Hetchy power-only expenses, 1 OS191Ofwal -J ] 1 j B. 2006A bond expenses pertaining to the cost of wholesale. debt may have been miscalculated or misclassified As'to those two issues only. the parties agreed that further factual investigation and discussion would be needed to resolve the dispute through agreement rather than through arbitration; and WHEREAS, to allow for necessary investigation and discussion to take place, the parties entered into a Tolling Agreement dated as of March 1, 2010, extending the time within which a demand for arbitration could be filed regarding the two issues described above until June 1; 2010; and WtffiREAS, further investigations and discussion have occurred between the staff of the SFPUC and the staff of the Bay Area Water Supply and Conservaqon Agency, as a result of which the parties are satisfied to resolve the remaining disputes as to both fiscal years on the terms set forth in this Final Settlement Agreement. NOW, THEREFORE, the parties agree as follows: L Misclassification of Helch Hetchv Expenses. In FY 2005-06, $2,575,453 of long range; planning expenses in Account 329000 were incorrectly ctassified as "joint," rather than as "power." In FY 2006-07, $1,993,554 of expenses in this account were similarly misclassified. As a result, the Suburban Revenue Requirement was overstated by $896,972 in FY 2005-06 and by $718,267 in FY 2006-07. The distribution of these overstatements among operating expenses, SFPUC charges, deemed City overhead, and return on the working capital component of rate base for each year is shown on Attachment B. 2. Overstatement of Return on SFWD Rate Base. In FY 2005-06, the return on SFWD rate base included in the Suburban Revenue Requirement was overstated by $171.295. In FY 2006·07, this component of the Suburban Revenue Requirement was overstated by $312,718. The calculation of the correction of these overstatements for each year is shown on Attachment C. 3. Sururnw.:y. The lldjustments described above will be effec~d by a credit to the balancing account as of June 30, 2009 in favor of the Suburban Purchasers in the amount of $2,661,010, which also includes the total adjustments agreed to in section 4 of the February 26, 235 1137.l. 2 051910 final " J 1 2010 settlement agreement Attaclunent D provides a detailed tabulation. 4. Fiscal Years 2005-06 and 2006-07 Now Closed. Neither the SFPUC nor any Suburban Purchaser may challenge the SFPUC's calculation of the Suburban Revenue Requirement for FY 2005-06 or FY 2006-07, as adjusted in accordance with the February 25, 2010 Settlement Agreement and this Final Settlement Agreement. The Suburban Representatives may seek injunctive relief if necessary to require the SFPUC to make the adjustment to the balancing account required by this Agreement. 5. Complete Agreement. This Agreement represents the complete agreement among the parties with respect to these two fiscal years. Attachments A. B, C and Dare incorporated herein by this reference. 6. . Counterparts. This agreement may be executed in counterpiuts. 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 BLIC UTiLITlES COWvIISSION Date: 6/ ,)..J:; ,2010 BY:-7"'~~~~~~-:----_ Edward Harringt , General Manager AFPROYED AS TO FORM: Dennis J. Herrera, City Attorney BY~~~' eputy City Attorney 2351137.1 3 0519[0 fIn.l " ALAMEDA COUNTY WATER DISTRICT Date; M"eJ 1..1 ,2010 CALIFORNIA WATERSERVlCECOMPANY By: ~ila • 2010 CITY OF HAYWARD BY:';?~ Date; Jd} ,20l() CITY OF PALO ALTO ,2010 CITY OF REDWOOD CITY 1 ; " i San Mateo County Brisbane Burlingame ATTACHMENT A SUBURBAN PURCHASERS California Water Service Company (South San Francisco, San Carlos, San Mateo, Atherton, Menlo Park, Woodside, Skyline) Coastside County Water District (HalfMoon Bay) Daly City East Palo Alto Estero Municipal Improvement District (Foster City) Guadalupe Valley Municipal Improvement District (Brisbane) . Hillsborough Menlo Park Mid-Peninsnla Water District (Belmont) Millbrae North Coast County Water District (pacifica) Redwood City San Bruno . Westborough Water District (South San Francisco) Santa Clara County Milpitas Mountain View Palo Alto Purissima HilisWater District (Los Altos Hills) San Jose (northern portion) Santa Clara (northern portion) Stanford University Suunyvale Alameda County Alameda County Water District (Fremont, Newark, Union City) Hayward . 2351131.1 , , . AlTACHMENT B Long Range Planning Adjustment -329000 FY 05-06 FY 08-07 Total 329000 Expenditures 2,575,453 2,650,854 less CAP6S already classified as power 657,310 i Amount, to adjust 1,993,544 ~ l oti1er Operating Power Specific 2,575,453 1,993,544 Joint 12,575,4531 (1,993,544) Water Related 11,158,954) (897,095) Allocation Factor 66.41% 68.24% Suburban Total {769,6611 (612,177) % SFPUC Class A Charges -2.66% -1,93% % SFPUC Class B Charges -1.08% -0.95% SFPUC Commission Class A Charges (135,5341 (115,481) class B Coa rges (24,511) (15,484) Suburban Total (106,286) (89,370) Deemed City Overhead Charge Overhead 112,902) (9,729) Suburban Total (8,568) (6,639) Return on Rate Base . Suburban-Related Working Capital (147,419) (118,031) . Rate of Return 8.45% 8.54% Return on HHWPD Rate Base (12,457) (10,080) Total 329000 Adjustment (896,972) (718,267) . ~ ATIACHMENT C Overall Rate of Return Adjustment -200EiA Bonds r Water Bonds Workpaper Changes FY05-06 FY06-07 Schedule A-l Changes -TOTAL SFWD WHOLESALE DEBT: .J i. At June 30 Prior Year 6,296,906 ! At June 30 Current Year 6,246,125 15,285,232 AVERAGE 3,123,062 10,791,069 SFWD WHOLESALE DEBT INTEREST EXPENSE 43,612 512,179. COST OF SFWD WHOLESALE DEBT . -0.0400% 0.0064% Schedule A-2 Changes AVERAGE SFWD WHOLESALE DEBT (FROM A-i) ·3,123,062 10,791,069 AVERAGE SFWD WHOLESALE EQUITY (3,123,062) (10,791,069) SFWD WHOLESALE DEBT PERCENTAGE 0.77% 2.65% SFWD WHOLESALE EQUITY PERCENTAGE -0.77% -2.65% Average SFWD Wholesale Debt 3,123,062 10,791,069 SFWD wholesale Debtclnterest Expense 43,612 512,179 Cost of SFWD Wholesale Debt -0.04% .0.00% Return on SFWD Wholesale Equity -0.07% -0.23% , Cost of SFWD Wholesale Debt 0.01% 0.12% Rate of Return -0.06% -0.11% Schedule A-3 Changes Rate Base 285A92,169 284,289,125 Return on SFWD Rate Base (171,295) (312,718) 1 i , , , 1 j .J -, .J 1 , ATTACHMENT D SUmmary of Adjustments to Balancing Account June 30, 2009 Long Range Planning Rate of Return FY 05-06 Adjustments (896,972) (171,295) FY 06·07 Adjustment (718;267) 1312,718) Total Adjustments (1,615,239) (484,013) FY 06-07 Interest at 5.188% (46,535) (8,887) FY 07-08 Interest at 4.302% (71,490~ (21,205) FY 08-09 Interest at 2.571% (44,562) (13,218) Total Interest (162,587) (43,309) Grand Total (1,777,8261 (527,322) ,- Agreement of 2/26/2010 (332,632) {332,632J (14,310J 18,920) (23,230) (355,862) Total (1,068,267) (1,363,617) (2,431,884) (55,422) (107,OO4J \66,700J (229,125) (2,661,010)