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

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operator with a two-thirds majority (by head count) of the co -participants if it can be shown that the new manager/operator can provide the same or better service at lesser cost. FNI presented their draft Phase 1 report to the co -participants January 26th. FNI's PowerPoint slides for the presentation are attached. Major points from the draft report and presentation include: • COH provides plant operations at or below a private contractor rate. SEWPP water quality, pressures, and delivery is good. The COH procurement side is very good • COH management cost is perhaps competitive, but there are possible management deficiencies with: o Annual inspection of critical equipment. o Operating the plant within contract efficiency standards (quantities chemicals uses, electric consumptions, etc.). COH not providing efficiency -related audits as required by the contract. o Repair/replacement of equipment without determining cause of failure. • COH "allocation" costs are not competitive o Some of the allocated costs include testing, engineering services, etc. that would be routinely provided by contract operators as part of their normal business activities. o The "allocation" costs are new and are the primary cause of the consternation of the co - participants. o COH uses very general assumptions to distribute their allocation costs. For example: COH executive management cost is distributed 57% water, 43% sanitary. The water portion of the expense of the executive management cost is then distributed to all of the COH water plants and prorated by volume of water produced. This is a fatal flaw in the opinion of La Porte staff. COH appears to be distributing their costs to run a retail utility to a wholesale entity. For instance costs to supervise COH personnel maintaining their retail system might be distributed to LPAWA in their current proposal. COH is not forthcoming with their accounting so it is difficult to come to any definitive conclusions. • FNI recommendations: o Co -participants should be more proactive with capital improvement planning, monitoring plant efficiency standards, performing equipment audits and consider assigning or hiring a person to do this full-time. (These are activities now assigned by contract to the managing participant (COH).) o Co -participants must decide to either work with COH to restructure existing contracts or contract some or all of the management and operations duties. The contractors who have expressed interest will not entertain a "managed competition" process where they would be competing against COH. o See the attached PowerPoint slide titled "Strategy Implementation Plan." Action Item: Receive Board comments, questions, and direction. • Page 2 {End memo)