ITEM:		ACTION ITEM
12.	CONSIDER AUTHORIZATION OF ADDITIONAL CONSULTING AND LEGAL WORK IN ADVANCE OF A RESOLUTION OF NECESSITY
Meeting Date:			December 16, 2019	Budgeted:	No
From:			David J. Stoldt,	Program/	N/A
			General Manager	Line Item:
Prepared By:			David J. Stoldt	Cost Estimate:	$1,241,000
General Counsel Review: N/A
Committee Recommendation: N/A
CEQA Compliance: This action does not constitute a project as defined by the California Environmental Quality Act Guidelines Section 15378.

SUMMARY: The November 12, 2019 public workshop related to Rule 19.8/Measure J concluded that an acquisition of Cal-Am’s water system assets is economically feasible. Seven different consultants or law firms worked on that phase of the analysis. After requesting final invoices, it appears the work was completed under the $650,000 budget.

At the November 18, 2019 Board meeting five additional areas of consulting work were identified that would help best position the Board to vote on a Resolution of Public Necessity sometime next summer. The scope of services has a preliminary budget totaling $1,241,000. The types of services are described under “DISCUSSION” below.

RECOMMENDATION: The General Manager recommends the Board approve entering into new agreements with Rutan & Tucker, Raftelis, Close and Associates; sole-source professional service agreements with Jacobs Engineering, and an MAI appraiser to be determined; and issue a competitive Request for Qualifications for CEQA work, all as described below, and authorize a total budget of $1,241,000.

DISCUSSION: The five additional areas of services, and their respective budgets are discussed below.

Formal Appraisal and Rate Study

In discussing with Rutan & Tucker and District Counsel, we believe that it would be best to have Raftelis further develop its analysis to make a formal appraisal/offer sometime next summer.  We would find an MAI appraiser to look at land value.  We have agreed to not do any additional analysis of water rights at this time.  We will collectively have to discuss what regulatory assets and/or other add-ons would go into the final bona fide offer to purchase. A more comprehensive scope of work is attached as Exhibit 12-A.

We would also request Raftelis to do a high-level evaluation of two aspects regarding rates: (i) Looking at what Prop 218 might allow, what would rates need to look like upon acquisition?  How does that compare to Cal-Am’s structure if they leave their steep tiers in place or if by then they have a more traditional block rate structure? and (ii) Look at the District’s proposal for a low-income rate subsidy, check the math and Prop 218 assumptions.

The attorneys have suggested some additional rate study tasks as part of the findings which Raftelis has not included in their budget. In addition, if the Operations Plan work (see below) results in significant impacts to the cost of service work done in the feasibility phase recently completed, then there may be additional work required to update that information. These unbudgeted potential costs are covered in the contingency in the summary table below.

Raftelis budget: $200,000 and $35,000 (estimate) for MAI appraiser.

Findings and Other Legal Work

We would have Rutan & Tucker work directly with District Counsel to develop findings to support the resolution of public necessity.  This will involve reading testimony from recent General Rate Cases, CPUC decisions in those GRCs and other applications of Cal-Am, and other research to support findings that an acquisition is in the public interest. It would be the intention to put into the record of the Resolution of Necessity hearing all of the evidence needed to fend off any challenges Cal-Am is likely to make on the “more necessary public use” issue during the “right-to-take” phase of the eminent domain case to follow (assuming, of course, the District Board adopts the resolution).  This entails evidence on 3 basic issues: (1) relative cost of service (District vs. Cal Am); (2) relative quality and reliability of service (District vs. Cal Am); and (3) governance issues (District vs. Cal Am).  The purpose for performing these tasks during this phase of the acquisition effort and not waiting until after the eminent domain case is actually filed is to provide a solid basis for the District Board to justify the decision to condemn and to provide the public with the confidence that the decision has been well thought through and is supported.

The attorneys will also weigh in on our CEQA work and the formal appraisal/offer analysis prepared by others. They will also prepare proper notices and filings (e.g. Notice of intent to appraise, Writ to gain entry if needed, etc) and other duties as necessary. Rutan & Tucker has provided a budget of $150,000 to $200,000, excluding litigation if it were to be filed, and an additional $50,000 if a writ to gain access is to be filed. We will use a budget of $225,000.

Operations Plan

Integrated Operations – Water System

One of the needs is to develop an operating plan for the system.  It will be time to actually write up a business and operational plan of a standard that could be taken to the Right-to-Take trial, and address how the District will operate the water system if the Cal-Am employees join the District, as well as how to coordinate District administration with 1 or 2 third party contract operators, if Cal-Am employees are unavailable to join the District. A detailed scope of service is attached as Exhibit 12-B.

Incorporating the level of service goals previously identified in the feasibility phase, but assuming existing Cal-Am operating levels are maintained and current employees are integrated into District operations:

• Prepare a list of Policies, Procedures, Practices, and Plans that will be developed and implemented under the District’s operation
• Define the Maintenance Programs that the District will implement associated with detailing the program requirements and frequency
• Prepare a detailed Workplan for the Operations (Production & Distribution), Maintenance, Customer Service, Engineering & Planning, Construction Inspection, and Emergency Response core functions for routine daily, weekly, monthly, quarterly, and annual work tasks and activities. The objective of the workplan is to describe the typical work tasks, the hours to perform the tasks (including transit time), the quantity of the work tasks, and the frequency of how often the tasks are required to be performed. From this analysis a forecast of the needed Full-Time Employees (FTEs) for the various job positions will be determined.
• Prepare a proposed Operational Structure and chart including job classifications

Work with District staff to plan transitional steps for billing software, meter reading software, accounting software, asset management tools, and other software (including, but not limited to IT software, data, and other platforms such as the SCADA system, GIS database, and water quality data and health department reporting software.) Close & Associates budget: $145,000

Contract Operations – Water System

Develop a third-party contract operations operating plan for the treatment, transmission, and distribution system.  We would want to know how it would be staffed, training and certification, risk allocation, basic terms and conditions, how the team would interact with the District’s administrative team, how it would interact with the District’s other 3^rd party contract operator of the proposed desalination facility, and so forth.  Working with our staff and some of the other consultants we would collectively determine the extent of operations handled by the District versus its operator (e.g. water quality testing, among others). We would look at an initial term of 10 years, with a desire to transition to internal employees thereafter – but would be open-minded to a contract renewal. This plan would be sole-sourced to Jacobs Engineering, an operator of water and wastewater systems world-wide (see Exhibit 12-C, attached.) Jacobs budget: $87,000.

CEQA Work

Need to perform CEQA for two aspects:

• LAFCO – We will need to annex into the District two small portions of the Cal-Am Main System representing approximately 33-34 service connections, a portion near Yankee Point and a portion off Laureles Grade in Hidden Hills. A CEQA expert consulted on this topic believes the boundary change does not meet the definition of a “project” under CEQA. CEQA. Guidelines Section 15378, Project, states “Project means the whole of an action, which has a potential for resulting in either a direct physical change in the environment, or a reasonably foreseeable indirect physical change in the environment…” Therefore, if there is no physical change, it does not meet the definition of a project. However, if District Counsel or the Board feels it meets the definition of a “project” under CEQA, but has no physical impact on the environment, then the filing of an exemption is appropriate. If the District determines it is a “project” under CEQA, we should seek to process this action with a General Rule Exemption or some other type of Statutory or Categorical Exemption (e.g. Categorical exemption, Section 15301, Existing Facilities). We could precede the filing of the exemption with an environmental initial study to document the file that there are no physical impacts on the environment by this boundary change (although this is not necessary or recommended) and the Board could make appropriate findings (which the consultant could prepare) with the action to adopt the CEQA Exemption and direct District Staff to apply to LAFCO for the reorganization. This is likely beyond what is needed for this action, as it probably does not even qualify as a “project” under CEQA, however, it just depends on how cautious the District Staff and Board want to be.

• The Acquisition – Because the Cal-Am assets are not all within MPWMD’s boundaries, this may be a partial taking which could result in duplicate vehicles, miles travelled, etc.  A look at impacts to energy, air, GHG, traffic, etc might need to be analyzed.   A potential reduction in the cost of operations (hence rates) might result in increased demand – as an option, we may request that this impact be evaluated.

It may be in the District’s interest to put all CEQA work expected for the next year or two – Measure J, water credit transfers, allocation of new water supply, etc – into a single package and issue an RFQ for the comprehensive needs.

For just the Measure J work above, one potential CEQA consultant has suggested that an EIR for the acquisition analysis would range from $275,000-$475,000, however we believe by carefully defining the scope of work this can be reduced. For the LAFCO process, an exemption with an environmental initial study, Board findings, attendance at one Board meeting, and preparing and filing the LAFCO application for the Reorganization/Boundary change (includes two meetings with LAFCO Staff and one LAFCO Board meeting: $40,000-$52,000.

Staff suggests the District use a preliminary budget of $450,000 and see what the RFQ process yields.

Other

Additional costs will be incurred for DeLay & Laredo performing contract management, meeting expenses, document preparation, research, and potential small third-party contracts as needed. $40,000 is allocated for this category.

A budget summary is shown on the next page.

Budget Summary

Item	Consultant	Budget
Appraisal & Rate Study	Raftelis MAI Appraiser	$200,000 $35,000
Findings & Other Legal	Rutan & Tucker	$225,000
Operations Plan	Close & Associates Jacobs Engineering	$145,000 $87,000
CEQA Work	To Be Determined	$450,000
Other	To Be Determined	$40,000
Contingency (5%)		$59,000
TOTAL		$1,241,000

EXHIBITS

12-A Formal Appraisal and Rate Study Scope of Services

12-B Operations Plan Scope of Services

12-C Contract Operations Scope of Services

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