08-01-11 Regular Meeting of the La Porte Area Water Authority

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number of tines since the February 2 meeting. information gathering by the committee included meetings with a local attorney, also a litigating attorney from Dallas, and an independent accountant. The co- owners group also heard presentations from two engineenng firms that submitted proposals to prepare new agreements that would govern the plant operator and the plant manager moving forward. A recap of the particularly relevant items follows for the Board's consideration: The SE Houston Plant owned by area governmental agencies. THIS IS NOT A CITY OF HOUSTON PLANT. • The City of Houston is: a) operator by contract with the ownership group (since 2005) and b) plant manager (since at least 2001). They are paid $600,000 + annual cpi -u adjustments for plant manager and reimbursed O &M costs per the operator's agreement. The City of Houston lobbied for and received a contract as plant operator in 2005 claiming that they could run the plant more economically than the contract operator at the titre. The contract with- the previous o perator was terminated. The rates have increased 40% since. o The operator (COH) is governed by a manager /operator's agreement. Several pages fi-otn the operators agreement is attached (Appendix D). Key sections to note: 0 4.2.3 — the operator mast submit their final accounting of the O &M costs within 180 -days of the managing member's fiscal year (June 30 in this case). [Tire 2009 true -up was submitted one -year beyond 180 -days (Appendix Q. 2010 submitted several months beyond the 1S0- days (Appendix F). Also these submittals did not qualify as an audited report required by the operator's agreement.] o 4.2.2 — the managing member is to submit quarterly reports to keep the co- owners apprised of costs in relation to the budget. [Clearly the introduction of 30% "true -up" charges several months or several years after the close of the fiscal year accounting period is contrary to the spirit of this provision.] o 4.2.3, 4.2.4, 4.2.5 -- these sections discuss the need for audited accounting of each year's billings to the co-owners. [An audited report must accompany the annual true up invoices. The report submitted by the City of Houston as the independent audit included this statement provided by the accounting firm: "We we not engaged to, and did not conduct an audit, the objective of which would be the expression of an opinion on the accounting records. "] o 4.4 — the managing member can hold a contingency but it SHALL NOT exceed $1,000,000. COH currently holds approximately $2,000,000 set aside as contingency and continues to add a 2.5% surcharge to their invoices to the co- owners adding to the contingency balance. 0 Page 2