Wednesday, November 29, 2000
PRESENT: Council Members Chavez, Dando, Diquisto, Fiscalini, LeZotte, Powers, Reed, Shirakawa Jr., Woody; Mayor Gonzales
ABSENT: Diaz
STAFF: City Manager Borgsdorf, City Attorney Doyle, Deputy City Attorney Deignan, Senior Deputy City Manager Dearborn, Director of Environmental Services Mosher, City Auditor Silva, Mayor’s Budget and Policy Office Assistant Shioshita, Assistant City Clerk Alford, and Legislative Secretary Thrower
The meeting was called to order at 1:40 p.m.
Documents Filed: (1) Agenda of City Council Study Session of November 29, 2000. (2) Memorandum from Senior Deputy City Manager Darrell Dearborn, dated November 22, 2000, recommending Council take appropriate actions regarding the structure and content of an RFP to solicit proposals to manage or lease the Municipal Water System. (3) Document entitled “Presentation to the San José City Council”, prepared by consulting firms of HDR Engineering, Inc., and Hawkins, Delafield and Wood.
Discussion/Action: Mayor Gonzales welcomed everyone to the City Council Study Session on the update on the Municipal Water RFP and pointed out that Council action on the Administration’s recommendations would be taken during a future Council meeting. As part of the presentation, Senior Deputy City Manager Dearborn introduced Alan Cohen Ph.D. of HDR Engineering, Inc., and attorney Eric Petersen of the law firm of Hawkins, Delafield, and Wood, as firms having extensive expertise in structuring, negotiating, and implementing public-private partnerships retained to assist Council in defining goals and objectives in the selection of the most appropriate alternative for the Municipal Water System. He stated the firms’ presentations would include comprehensive explanations of the issues surrounding the decisions requested by the City Council. Using a slide presentation, Darrell Dearborn and the consultants presented a comprehensive summary of the five directives – Financial Benefit, City Employees, Managed Competition, Lease or Management Contract, and Rates – outlined each objective – Objectives of RFP Process, Accelerated Financial Benefit, MuniWater’s Participation, Alternative Business Structures, Median Water Rates, and the South Bay Water Recycling System – and described related processes by which the City could prepare and issue an RFP for the operation and/or lease of the Municipal Water System. They summarized the subject matter from various perspectives, identifying fundamental benefits between Lease Options A and B, and described benefits derived from proceeding with or rejecting the management plan. Darrell Dearborn stated additional consideration has been given to the consequences for the System, should Council decide an RFP should not be issued (the “No-Go Decision”). He provided explicit descriptions of how a proposal to retain the system under city management and operation would be considered and compared to operation by a third party and to a lease of the System to a third party, should Council decide to proceed with the RFP. Prior to the issuance of an RFP, he recommended that Council (1) determine whether the RFP should solicit proposals to manage or lease the System, or both, and (2) approve the development and submission of a management Plan in the RFP process which would present the option of retaining operating responsibility for the System in Environmental Services Department, and (3) approve establishment of an RFP Team including representatives of the Administration, the City Attorney’s Office, and the consultants to draft the RFP, including the basis for setting water rates during the term of the agreement with a third party, if approved, and bring it back to the City Council for review and approval, (4) and determine that the City should retain responsibility for control and marketing of the City’s recycled water, and (5) direct the Administration to prepare the required appropriation actions for funding the preparation, circulation and evaluation of the RFP and responses, and negotiating the terms of agreements that may result from that process.
During open discussion Staff responded to Council questions and concerns regarding retention of the recycle water program, the positive and negative aspects of developing a hybrid system similar to that in Indianapolis; and in response to additional requests, explained the limitations of using federal funds and the reason for not promoting the sale of recycled and potable water as a separate system or enterprise with crossover personnel; explained associated risks involving the conveyance of water ownership and continued access to Hetch-Hetchy water supply; and outlined the Lease A design which maximizes the accelerated plan benefits – sources and order of magnitude of financial benefits. Of particular concern to Council was the need for additional information on a variety of issues: economic value translated into a large up-front payment to the City, various scenarios on water rate ranges, potential for water conservation related to continued control of environmental programs, and estimated value of MuniWater System; information regarding other City water policies relative to the operation of the MuniWater System; information on the number of City employees and positions dedicated to the operation of the four systems – Edenvale, Evergreen, Recycled Water, and North San José – and a request to separate out the financing structure and personnel for each enterprise fund with a report back to Council. Staff was requested to describe in greater detail the “No Project” alternative, specifically, an evaluation or an analysis on any study that concludes that the current operational structure is unfavorable or concludes that the Municipal Water System is not providing quality service at the least possible cost to ratepayers, and to make available to Council the responses to the RFI issued to firms identified as potentially interested in managing or leasing the City’s Water System. In an effort to achieve Council consensus on the next steps in the MuniWater System competitive process and whether to proceed toward the RFP/RFQ, Mayor Gonzales suggested Staff review the April 18, 2000 memorandum co-authored by Vice Mayor Fiscalini containing specific direction for staff to proceed with the competitive procurement process through an RFP, and address in the RFP the policy priorities listed therein. He suggested Staff review the “Go/No-Go Options” and return to Council on December 12, 2000 with a report and recommendation to proceed with or discontinue the process. Referencing the November 22, 2000 memorandum from Darrell Dearborn and that portion of the recommendation which states “If the decision is to proceed with the RFP, the City Council should:”, Mayor Gonzales stated Item #3 should include the solicitation of proposals both for the management and the leasing of the System; and that prior to completely disallowing Item #6, the City Attorney should provide Council with the legal ramifications of such actions. With respect to the value, Mayor Gonzales urged City Staff to work with the consultants to develop a low, medium, and high range rate structure comparable to that of competing communities.
The City Council deferred action on the recommendations from the Administration to the City Council meeting of December 12, 2000 with direction to Staff to address the issues raised and respond accordingly.
The meeting was adjourned at 4:45 p.m.
NANCY ALFORD
ASSISTANT CITY CLERK