05-09-12 Regular Meeting of the La Porte Area Water Authority

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Memo To: La Porte Area Water Authority Board From: David Mick, Public Works Director CC: Steve Gillett, Don Pennell, Michael Dolby Date: April 17, 2012 Re: Update City of Houston Settlement Agreement Offer for 2007 — 2010 True Up (Upcoming Board Meeting Agenda Item #3) LPAWA Board: At your February board meeting we discussed that the City of Houston had forwarded a draft settlement agreement to each of the Southeast Water Purification Plant (SEWPP) co -participants. The agreement states that the City of Houston will drop any future claim for FY 2007, 2008, and 2009 True -Up claims against the co - participant if the co -participant agrees to pay the City of Houston invoice to the co -participant for FY 2010. The FY 2010 True -up amount provided to the LPAWA is $138,898. The City of Houston holds a LPAWA contingency reserve balance of nearly $204,000, If this board is in agreement — pending La Porte City Council approval as well — the FY 2010 invoice amount would be deducted from this contingency balance. Staff' contacted the City of Pasadena, Gulf Coast Water Authority, and Clear Lake Water Authority who are the largest 3 co -participants in the SEWPP totaling 75% of the non -Houston ownership share. Clear Lake Water Authority's board agreed to settle, and Pasadena and the Gulf Coast Water Authority has agreed in concept pending slight modifications to the agreement. In fact, all of the co -participants except for LPAWA gave indication to the City of Houston at the April quarterly meeting that their agencies plan to provide the City of Houston with executed agreements prior to May 1. But while the co -participants are seemingly unanimous in their decision to settle the FY 2007 — FY 2010 True -Up dispute with IIouston, they also seem to be unanimous in challenging the allocation costs proposed by the City of Houston with their draft FY 2013 budget utilizing the process provided in the attached sections 3.4.2 — 3.4.5 and 5.15 from the current contract to object to those items unless Houston can provide data to support these costs. Staf 's recommendation is to settle with the City of Houston along with the other co -participants. Houston's likely next step toward the minority co participant that does not settle would be to draw the FY 2010 invoiced amount fi-om the co participant's contingency fund. The challenging co -participant would then be in a position to have to sue the City of Houston in an attempt to recover the funds. In our case, the cost to litigate would almost surely be greater than the invoiced amount with the potential for being required to also pay for the City of Houston legal fees ifthe challenge was unsuccessful.