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

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• The City of Houston advised the co- owners that if they do not contest the 2009 and 2010 true -up invoices, COH will not bill 2007 and 2008. • The attorneys advising the co- owners suggest that the owners are on solid ground in refusing to pay the 2009 true -up invoice and reasonably solid ground for the 2010 true -up. • Potential worst -case exposure for the co- owners (combined): a) 10% annual interest for unpaid balances, b) $300,000 - $500,000 attorney fees, c) double attorney fees if determined that the co- owners are to by COH legal fees, d) attorneys suggest no chance we lose our water rights and no chance they shut off water — a judge wouldn't allow it. • On May 12, 2011 the co- owners, after consulting with their attorneys, advised the City of Houston that the owners will look for another operator and manager for the SE Plant. • The LPAWA response to the COH 2009 and 2010 true -up invoices are included in Appendices F and li respectively. With regard to the 2009 invoice, COH's reply to the LPAWA response is also included with Appendix E. Agenda Item 7: Consider Approval of an interlocal Agency Agreement 'vvith the City of Pasadena for Reimburseinent to the City of Pasadena for Expenses Related to a Potential Change in both the Manager and Operator of the SE Houston 'Water Purification Plant, The costs associated with contesting the City of Houston invoices includes legal, accounting, and engineering. The City of Pasadena will enter into professional services contracts as needed for the completion of this work, Pasadena will be billed directly and in turn invoice each co -owner for their prorated share of the expense based on the co- owner's annual water consumption. Before executing the agreement, the Board will need to know if any of the other owners are declining to share in the cost which would increase the LPAWA share. The draft agreement is included in (Appendix G). Costs that might be anticipated include $395,000 for an engineering firm to prepare a scope of services and new contracts for the plant operator and plant manager, roughly estimate $10,000 for independent audit, perhaps $300,000 - $500,000 in legal fees assuming litigation and a trial. If all owners participate, the LPAWA share of the expenses (8 %) would be in the range of $56,000 to $72,000. One engineering firm indicated that they would be able to manage the plant for considerably less money than the owners now pay to the City of Houston. As much as $350,000 a year less. Accepting this to be the case, the LPAWA share of the savings would be $28,000 /year, and the break -even point is less than 3 -years out. The required time to break -even is accelerated if there is any savings at all on the O &M side which seems likely. (end memo) s Page 3