02-08-12 Regular Meeting of the La Porte Area Water Authority

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10V R11leJ To: La Porte Area Water Authority Board From: David Mick, Public Works Director C: Steve Gillett, Don Pennell, Michael Dolby Date: Feb 1, 2012 Re: Background Information for February 8, 2012 Agenda Item #5 LPAWA Board: Thank you for your time and consideration of the items on this agenda. Agenda Item #'s 1 — 3 are straight- forward. Michael Dolby, City Financial Officer, will present Item #4 at the meeting. The purpose of this memo is to address Item #5: Status Update of the City of Houston 2007 — 2010 True Up and the Southeast Houston Water Purification Plant (SEWPP) Manager/Operator Contract Study. Staff's July 21, 2011 memo to the board provided background information that is also relevant to this item. A copy of the memo text is attached for your convenience. During your August 1, 2011 meeting, the board agreed to financially participate with the City of Pasadena professional services contracts for engineering, accounting and legal assistance necessary to protest the City of Houston (COH) true up invoices and to investigate alternatives for changing the operations and management structures for SEWPP. TRUE UP UPDATE: At the January 12, 2012 operator's meeting, COH staff distributed a draft settlement agreement for the 2007 — 2010 True Ups that they are claiming are owned to COH. However, this was not a formal request from which COH is anticipating a response. The preliminary draft indicates that COH will waive the 2009 invoice to LPAWA in the amount of $274,018 if LPAWA agrees to pay the FY 2010 True Up invoice of $138,898. Note that COH has not presented invoices for 2007 and 2008. Considerations for the board are: COH has not submitted the 2010 True Up within the timeframe provided in the contract, COH has not submitted a 2010 financial report that meets the generally accepted standards for an audited report as required by the contract, COH has not provided an accounting for "allocated" costs that on the surface appear to be contrary to the contract, and finally, if accepted by the co -participants, the concern that the COH method for calculating the 2010 True Up would then become the new baseline for distributing cost to the co -participants in subsequent years. Action Item: Discuss the board's leanings on this issue and discuss desired procedure iFwhen the official settlement agreement is received by staff. PLANT MANAGER AND OPERATOR CONTRACT STUDY UPDATE: Subsequent to your August 1 authorization, the co -participants contracted with Freese and Nichols Inc. (FNI) for a study of the SEWPP management and operations. Phase 1 of the study is nearly complete. There were two primary goals of the Phase 1 study: 1) Determine if there is sufficient interest from private companies to operate and/or manager the plant (there is), 2) Determine if private contractors can perform these functions more economically than COH (likely on the management side, perhaps not on the operations side). If desired by the co -participants, Phase 2 will include a rewrite of the existing contracts and procurement of a private contractor for certain management and operations activities. COH can be replaced as manager and/or