Item 14A - Metro Sewer Bills for FY 1995TO: Honorable M~r and Members of the City Counc~
IN]T]ATED BY: John D. F~tch, Assistant C~ty M~nagew~'
- Mark S. He~ton, Dtrector of Eng~neertn~ Servtcesvtb
James R. H~lltams, 01rector of Publlc Services
D~E: April ]8, ]995
SUBJECT: Metro Sewer Bills for FY ]995
ABSTRACT
The City of San Dtego has billed the City of Poway for $2,115,037 for three quarters of
FY 95 which represent the full allocation of all improvement costs minus Mayor
Golding's concessions for the Clean Hater Program. Poway supports implementation of
water reclamation but the current btlling raises many fundamental questions about
appropriateness of certain charges. Staff recommends paying the btll under protest and
participate in a detailed audit of the CHP accounting and cost allocation methodology.
[NVIRONNENTAL REVIEW
This report does not require environmental review.
FISCAL IMPACT
The bill for the first three quarters of 1995 is $2,115,037 and has been budgeted in
~he current sewer rate case.
~DDITIONAL PUBLIC NOTIFICATION AND CORRESPONDENCE
Standard distribution.
RECOMMENDATION
It is recommended that the City Council:
1. Approve full payment of the invoice for the first three quarters of Metro and
Clean Water Program under protest. The payment shall be accompanied by a
letter of protest clearly reserving all of Poway's rights under the contract.
2. Authorize the City Manager to enter into an agreement with other members to
fund an audit of accounting, cost allocation, and engineering analysis of all
costs to determine appropriateness of costs assigned to the members.
ACTION
1 OF ~ APR 18 1995 ITEM
.kGENDA REPORT-
CITY OF POWAY
TO: Honorable Mayor and Members of_the City Council
FROM: James L. Bowersox, City Man~,_)~~
XNITIATEO BY: John D. Fitch, Assistant City Manager
Mark S. Weston, Oirector of Engineering Servlces~;
James R. Williams, Director of Public Services~
OATE: April 18, 1995
SUBJECT: Metro Sewer Bills for FY lgg5
BACKGROUND
The Metro Sewer System formed in 1960 is owned and operated by the City of San
Diego to serve the greater metropolitan San Diego area. The City of Poway is
one of 14 participating agencies which contract with the City of San Diego for
wastewater service from Metro. Poway represents about 2% of the flow. As the
operators, San Diego determines the costs to run the system based on the Metro
contracts and bills the agencies for their share of the costs under the
contract.
In the mid 1980's the City of San Diego withdrew their application filed with
EPA for a waiver of secondary treatment requirements under the Clean Water
Act. In 1987 the City of San Diego began planning the design of wastewater
treatment facilities to meet the secondary requirements under the Act. In
addition, they began negotiating a Consent Decree with EPA to phase the
construction of the improvements. The Consent Decree was filed with the
court; however, a lawsuit regarding the Consent Decree was initiated to
dispute the elements of the Consent Decree. In addition, the City of San
Diego sought to reduce the cost of compliance with secondary treatment
requirements by favoring the construction of the 'Consumers Alternative",
which included constructing a new water reclamation facility in North City,
retain the Point Loma facility at advance primary treatment, and building new
water reclamation facilities throughout the service area as additional
capacity was needed. Judge Rudy Brewster has listened to testimony regarding
the scientific facts and regulatory requirements of this case. Judge Brewster
has attempted to find a compromise between the requirements of the Act and the
overall cost of the system, while promoting water reclamation in the region.
San Diego also sought new federal legislation which would allow the Consumers
Alternative to comply with the Clean Water Act. Finally, on October 31, 1994,
President Clinton signed into law a bill which would allow San Diego to apply
for a waiver of secondary treatment standards as long as a portion of the
wastewater was treated to tertiary standards and reclaimed.
ACTION:
2 OF 5 APR 1 8 1995 ITEM 14/
FY
18,
Pege
In 1988, the Governance Advisory Group reviewed alternative governmental
structures to manage, own, and operate the regional wastewater treatment and
disposal system. This effort resulted in the creation of the San Diego Area
Wastewater Management District on January 3, 1993. After 24 months of
transition, to fully implement the District, agencies which represent about
85% of the flow have withdrawn from the District. Several agencies were
unable to accept the minimum terms of a Memorandum of Understanding negotiated
with San Diego. The Memorandum of Understanding was to establish fundamental
agreements which would allow the development of a Master 1nteragency Agreement
leading to the full establishment of the District. Major issues of
disagreement include the responsibility of payment for water reclamation
facilities, cost sharing of expansion of the system, capacity rights,
connection fees, and weighted vote on the Board.
In 1987, the City of San Diego began incurring costs for: 1) State Ocean Plan
Compliance (COP), 2) Fiesta Island Replacement Program {FIRP), 3) Clean Water
Program Administration Costs (City), 4) Clean Water Program Administration
Costs (Consultants), 4) Water Reclamation Facilities, 5) Expansion and
Oversizing, 6) Environmental Mitigation, 7) system upgrade and replacement
versus original system requirements. Originally, San Diego planned to front
fund all costs for the Clean Water Program and bill members after future bonds
were sold to build the system. In 1990, San Diego began charging for SOP,
FIRP, and Clean Water Program Administration (City). Poway has paid these
costs as billed.
In May lgg4, San Diego calculated Metro sewer rates expressed as "Contract"
and "Fair Share". Fair share rates represent the Metro sewer charge to the
members for all costs including water reclamation and expansion expressed on a
flow based system. Many members dispute the ability of San Diego to charge a
"Fair Share" under the current contracts. Judge Rudy Brewster stated in the
lawsuit between the City of San Diego and the Department of Justice that he
was not ruling on any contract disputes between San Diego and the members. In
addition, many of the members feel they are not obligated to pay for many of
the improvement costs until the court case is settled; the waiver is granted;
and the disputes under the contract are settled.
In 1994, San Diego staff indicated that the first quarter billings for FY 95
(September 1994) would include fair share costs. Poway received no bills for
the first quarter FY 95. Several mayors were concerned that the billing would
include costs not included in the contract and would force the cities to
initiate arbitration immediately. To avoid this confrontation, many mayors
met with Mayor Susan Golding in November of 1994 to express their concern.
Mayor Golding listened to their concerns and told them that she would review
their concerns with her staff. In December Mayor Golding met again with the
mayors and presented a list of concessions and a settlement offer to them. In
addition, the Mayor stated that she intended to send out the bills for the
full program improvement costs based on San Diego's interpretation of the
contract. On March 17, 1995, three months after the mayors met with Mayor
Golding, Poway received the first bill for FY 95 totaling $2,115,037. This
30F 5
.APR :18 1995 ITEM 14-4-'
~ Ii~,l~rt - Metro $~r B~LL for FY 1~
~riL 18o
bill includes the first, second, and third quarter Metro costs; first, second
and third quarter Clean Water Program costs, and the first of eight
installments for front funded costs from 1987 to lgg3 not previously billed.
In addition, all project costs in FY g4 not previously assigned to the
members, have been recalculated and added to the first quarter of lgg5 as an
adjustment to FY g4 bills. This adjustment significantly increased the cost
to the members for FY g4 total pa~ents.
The City of Poway total front funded obligation from lg87 to lgg3 is $$40,085.
San Diego intends to recover this amount with interest over the next eight
quarters. Anticipating this cost during the development of the MOU, Poway has
included these costs in their current sewer rate case.
FINDINGS
San Diego is billing all members their share of the total costs of the
improvement program including expansion and water reclamation. Our bill for
the first three quarters of 1995 totals $2,115,037 which we have budgeted in
the current sewer rates. Poway, like many other members, has fundamental
questions about contract costs, contract requirements, program improvement
cost allocations, overhead and administrative charges, program improvements
assigned to members outside the scope of the contract, and arbitrary
interpretation of water reclamation obligation. Poway has always been
supportive of the Waiver Application, Lowest Cost Improvement System, Water
Reclamation, a new Regional Management District, and fair share cost
allocations. However, the concessions and settlement offered by San Diego
include new obligations not discussed publicly with any of the members or
endorsed by our Council.
Areas of fundamental concern include the following:
1) Methodology for cost sharing of Metro capital improvement program has
been disputed by the technical staffs and remains unresolved.
2) The Consumers Alternative has been 'modified" by San Oiego to include a
South Bay water reclamation facility which has not been developed in the
current approved regional planning documents nor endorsed by the members.
Technical reports for the South Bay Water Reclamation Facility have not
been presented to the members.
3} The South Bay facilities include over $100 million dollars of pipelines
and outfalls fully cost shared by the members without our acceptance or
endorsement as new construction under the contract. These facilities far
exceed the requirements of the 234 million gallons under the current
contract.
4) The current capital improvement program has over 60 projects totaling
$659 million dollars which have not been approved or endorsed by the
members. Many of the projects are clearly 'new construction" and not
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APR 18 1995 ITEM 14/Y
Agenda Rel:ort - Iletro S~er Bt[[ for FY 1995
- ~prlL 18, 1995
Page &
repair and replacement or O&M when reviewed in terms of the current
contracts.
5} The methodology of cost allocation for the Clean Water Program Capital
Improvement Program has not been presented.
6} The amount of overhead and administrative charges for Metro appears
excessive and its determination is unknown.
7) Poway's flow estimate far exceeds actual flows and needs to be corrected
in the current cost tables.
8) Cost sharing for reclaimed water facilities between water and
sewer customers disagrees with previous advisory committees and is in
dispute with the members.
g) The arbitrary usage of October 31, 1994 as the starting point for water
reclamation does not appear to be based in the contract.
10) Methodology for cost allocations is unknown and unaudited by the members.
ENVIRONMENTAL REVIEW/
This report does not require environmental review.
FISCAL IMPACT
The bill for the first three quarters of 1995 is $2,115,037 and has been
budgeted in the current sewer rate case.
AOOITXONAL PUBLIC NOTIFICATION AND CORRESPOMOENCE
Standard distribution.
RECOMMENOATXON
It is recommended that the City Council:
1. Approve full payment of the invoice for the first three quarters
of Metro and Clean Water Program under protest. The payment shall
be accompanied by a letter of protest clearly reserving all of
Poway's rights under the contract.
2. Authorize the City Manager to enter into an agreement with other
members to fund an audit of accounting, cost allocation, and
engineering analysis of all costs to determine appropriateness of
costs assigned to the members.
JLB:JDF:MSW:RJW:mh
5 OF 5 APR 18 1995 ITEM