HomeMy WebLinkAboutStaff Report 1430City of Palo Alto (ID # 1430)
City Council Informational Report
Report Type: Informational Report Meeting Date: 3/21/2011
March 21, 2011 Page 1 of 3
(ID # 1430)
Title: City Manager Action on Water Contract
Subject: Report of City Manager Action Pursuant to the City’s Water Contract
with San Francisco on the Conduct and Final Settlement Agreement of the Bay
Area Water Supply and Conservation Agency’s Fiscal Year 2007-08 Audit of the
Suburban Revenue Requirement
From:City Manager
Lead Department: Utilities
Recommendation
This report is for the Council’s information only. No action is required.
Executive Summary
The annual audit of the proper amount the San Francisco Public Utilities Commission (SFPUC) is
allowed to charge its wholesale water customers in fiscal year (FY) 2008 has been concluded,
and all issues have been satisfactorily resolved. Credits in the amount of $2,417,002 will be
posted to the balancing account in favor of the SFPUC’s wholesale customers and used to offset
future wholesale rate adjustments.
Background
On December 12, 2005, the Council delegated to the City Manager the authority to execute
certain documents for the City of Palo Alto (City) 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 the delegated authority. On January 10, 2010, the City
Manager exercised that authority when he signed the Agreement Memorializing Settlement
Concerning Changes to the Suburban Revenue Requirement for FY 2007-08 between the City
and County of San Francisco and the Suburban Representatives.
The Suburban Revenue Requirement is the amount the Contract allows San Francisco to collect
from the Suburban Purchasers, which is 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 is one of the five
Suburban Representatives of the BAWSCA member agencies for Contract administration. The
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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 including 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.
The City Manager exercised his authority when he signed a Memorandum of Understanding on
November 21, 2008 with the 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 also exercised that
authority 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. That action was reported to the Council on January 11,
2010 [CMR 100:10].
Discussion
The Settlement Agreement resolves all issues for FY 2008. The issues are described in the
attached agreement and include an overstatement of the return on the Water Enterprise rate
base, an error of including grant-funded assets in the rate base and grant-funded operating
expenses in the Suburban Revenue Requirement, misclassification of certain expenses related
to the long-range planning for Hetch Hetchy, and various miscellaneous adjustments. The total
adjustment to the Suburban Purchasers’ balancing account is $2,417,002, which will be applied
to the beginning balance of the FY 2010 balancing account.
Resource Impact
The application of 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 $2,417,002. For comparison, the FY 2009 Suburban Revenue Requirement
(most recent audited calculation of the Suburban Revenue Requirement) was about $118.7
million. Palo Alto’s share depends on the share of total BAWSCA water purchases. In FY 2009,
Palo Alto’s share was about 7 percent.
Policy Implications
The attached Final Settlement Agreement was executed in accordance with Council authority
delegated to the City Manager. The Final Settlement Agreement resolves all issues between
San Francisco and the BAWSCA agencies with respect to the calculation of the Suburban
Revenue Requirement for FY 2008.
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(ID # 1430)
Attachments:
·Attachment A: Agreement Memorializing Settlement Concerning Changes to the Suburban
Revenue Requirement for FY 2007-08 (PDF)
Prepared By:Jane Ratchye, Assistant Director
Department Head:Valerie Fong, Director
City Manager Approval: James Keene, City Manager