CITY OF LAREDO
SPECIAL CITY COUNCIL MEETING
M2002-SC-001
CITY COUNCIL CHAMBERS
1110 HOUSTON STREET
LAREDO, TEXAS 78040
APRIL 22, 2002
5:30 P.M.
I. STAFF REPORTS
1.
Status report by staff and City consultants regarding the possible
privatization of the
City's water and wastewater
operations, with possible action.
Cm.
Galo, Chairperson of the Utilities Privatization Oversight Committee, provided
an overview of how City staff addressed this issue at their meeting. He stated that a presentation was made by
the City's consultants. He mentioned
that City Manager, Larry Dovalina, asked for a motion from the committee to
proceed with the privatization and said motion passed. The City Manager then went ahead and
submitted its recommendation to the committee and they selected OMI for
proposals #1 or #3 and United Water for proposal #2.
Cm.
J. Valdez, Jr. stated that he is concerned about the quality of service to be
provided to the taxpayer. He mentioned
that he has spoken to Beto Ramirez, Interim Utilities Director, in the past
regarding the number of employees needed to run the system and their ideal
numbers do not jive given the number of employees currently working for the
Utilities Department. The difference
is roughly 91 employees which translates to $2.2 million in savings if those
employees were to retire early. He is
also concerned about the quality of water service that the community as a whole
would be receiving. In his opinion,
this change would not be providing any real savings. If the City would want to move employees around that would be
$2.2 million savings for the City. If
you take that from the $4 million savings that the firm is promoting, then the
savings would be $3.5. Right now, the anticipated savings is only
$2 million if the proposal from OMI were to go through. There are still many other issues to be
addressed. He feels there are two many
gray areas to allow for any one of the companies to modify the contract at a
later date.
Cm.
Galo stated that he disagrees with Cm. Valdez on the savings calculations. What has happened now is that the savings
being proposed here is $2.9 million and there is also an $800,000 transition
cost which the City always knew would be included. He mentioned that the City has now gone back and deliberated on
the base line which he thinks has been a good effort from Mr. Ramirez and city
staff to identify where the costs lie within the City. The City went ahead and established a base
line, the companies
have used that base line and have gone in and given the City a
price. As a result, what has happened
is that the City has taken out some of the profit factors that they had figured
in. As the City made adjustments to
save money on its own, we started whittling away at theirs. We still managed to come out with a $2.9
million savings less the transition costs.
That still quantifies out to a total savings of $61,392,000 and
$50,871,000, respectively. He commented
that the City Manager was fair and equitable in all the discussions held and he
has acknowledged that the cost savings are there. The City is being guaranteed, as much as one can secure a
guarantee, that the level of service will be equal to or better than the
existing service. He also mentioned
that aside from creating numerous hypothetical situations, the City has a termination for
convenience. The advantage here is that
a private company can guarantee the City a price for the next five or ten
years, and the City cannot do that.
Cm.
Bruni stated that the employees have nothing to worry about. He assured the City employees that their
jobs and benefits will remain the same or better; including their retirement
benefits. No City employee's job is
going to be placed in jeopardy. He
stated that he would not vote for privatization if any employee were to be
hurt. He also mentioned that as far as
he is concerned United Water offers better compensation, better stock purchase
programs, annual bonuses, life insurance, long-term disability insurance,
etc. All City employees would remain
employees of United Water, plus over a ten-year period, United Water would
provide a substantial savings of $61,392,000.
That money will go straight into the City's secondary source of water
which is one of the most important projects undertaken by the City of
Laredo. He mentioned that the savings
to be generated through this privatization effort would guarantee economic
development for the City of Laredo.
Cm.
Agredano stated that the only way he would vote for privatization would be if
none of the employees would be hurt in any way. Looking over these contracts and listening to what these two
companies have said, they have told the City that this will not occur.
Beto
Ramirez, Interim Utilities Director, reported that the latest information
available reflects that the City of Laredo does have the lowest water and
wastewater rates. In terms of the cost
savings discussed, City staff has gone through an evaluation of the financial
information and they submitted new information to City Council this
afternoon. He mentioned that the City
has to take into consideration what the first year savings is because that will
be the base for the next five or ten years.
He cautioned City Council on the $2.9 million savings stressing that he
feels it is very unfair and risky to say that those monies could be used for
other projects because the companies will not guarantee those savings. City Council needs to know that these are
proposed savings assuming everything in the contract goes smoothly and no
unforeseen circumstances arise that fall within the gray areas of the
contract. If City Council commits $2.9
million for another project, after seeing the savings from one year to the
next, those savings might not be there.
Mayor
Flores stated that when the newspapers or City Council talk about savings,
those proposed savings will be passed over to the consumer (ratepayers); it will be used to make improvements to
the system, and it will be passed on to the employees. She emphasized that the City Council has to
be clearer to the public on what the City intends to do and be made aware that
there may not be cost savings. That at
the end of the day, the City is going to try to use these funds for other
important projects necessary to the City.
However, people want to know what is going to happen to their water bill
today.
Mayor
Pro Tempore Valdez, Jr. inquired based on the City's projected growth, how much
does the City need to invest in capital improvements and how do we fund those
capital improvements.
Beto
Ramirez, Interim Utilities Director, reported that the current CIP lists about
$45 million that the City would need to invest. To begin with, staff would need to look at the fund to see if
they could use any part of the fund balance to offset part of the costs; look
for efficiencies within the system to see if expenses could be reduced; find
ways to look for additional revenues.
Ultimately, the last vehicle for funding capital improvements would be
for the City to issue a bond.
Rick
Sapir, with Hawkins, Delafield, and Wood, reported on part of the
recommendation of the Evaluation Committee:
The
Evaluation Committee which consists of one member from each of the City
Attorney's Office, the Utilities Department, the City Manager's Office, and the
technical, financial, and legal advisory firms hired by the City, has
undertaken a thorough review and analysis of the proposals submitted by
OMI/Thames Water and United Water in response to the City's Request for
Proposals, as such proposals have been clarified by the proposers' responses to
the City's Request for Clarification and Resubmittals and various written and
oral clarification questions. Each
proposer submitted responses to three proposal scenarios:
Proposal
Scenario One which required the proposers to offer employment to each City
employee currently performing the services specified in the Request for
Proposals (the "Management Services") at equal or better wages and
benefits with a no-layoff policy;
Proposal
Scenario Two which required the proposers to offer employment to each City
employee currently performing the Management Services at equal or better wages
and benefits with a no-layoff policy and to maintain the current staffing level
(216 employees) throughout the term of the Service Contract; and
Proposal
Scenario Three which is the same as Proposal Scenario One except that the
proposers would not be required to offer employment to the City's 18-man
construction crew. For each of the
three Proposal Scenarios, the proposers proposed guaranteed pricing for both a
five-year term with a five-year renewal upon the same (or better) terms and
conditions which could be exercised by the City at its sole option, and a
ten-year term. The objective of the
evaluation was to identify which of the proposals is most advantageous to the
City under each Proposal Scenario.
In
accordance with the provisions of the Request for Proposals, the Evaluation
Committee has evaluated the proposals based upon several factors. These factors included business, technical,
and pricing considerations. In order to
assist the Evaluation Committee with its review and analysis, evaluation
reports were prepared by THC Utility Management Specialists (with respect to
technical aspects of the proposals), Competitive Government Strategies (with
respect to pricing aspects of the proposals) and Hawkins, Delafield & Wood
(with respect to contractual aspects of the proposals), copies of which are
provided herewith.
The
Evaluation Committee determined to accord 50% of the evaluation weight to
pricing matters and 50% to non-pricing matters (technical and business). Several factors were considered within each
of these broad categories. The
technical evaluation included an analysis of each proposer's (i) qualifications and experience; (ii)
technical approach to this project; (iii) acceptance of employee-related
requirements; (iv) proposed site manager and key staff; and (v) performance
record, and each of these areas included subcategories. The business evaluation considered (i) the
risk assumption of each proposer as indicated in its mark-up to the draft
Service Contract and Guaranty Agreement provided to the proposers, (ii) any
proposed limitations on Guarantor liability, and (iii) the financial strength
of the proposed Guarantors. The pricing
evaluation consisted of a comprehensive review of the cost aspects of the
proposals including, but not limited to, the proposed guaranteed fixed
component of the Service Fee, proposed variable components of the Service Fee,
the maximum electricity utilization guarantee and other cost factors. The pricing evaluation took into
consideration the net present value of the proposers' pricing proposals over a
five-year term and a five-year term followed by a five-year renewal term. In addition, sensitivity analyses were
performed to determine the effect, if any, of variation from assumptions
included in the net present value calculation and to take into effect the
pricing proposed for a 10-year term.
Cm.
Guerra asked for clarification as to what the companies' policy would be
concerning the employees.
Beto
Ramirez stated that both companies have agreed under Proposal Number One to
hire all the employees that would like to be hired. If an employee chooses not to be hired by the company, then this
proposal would give both companies a situation which they can evaluate and they
can do without those employees although they may not reach the personnel
numbers.
Cm.
Guerra inquired whether the Employee Committee members have considered the
various employee severance packages being offered.
Cm.
Galo explained that for those employees who opt not to work for the private
company have an option. Both companies
have offered a training package where they will provide re-training to those
individuals who do not want to transfer in order to qualify for another job
within the City. Both companies
mentioned that for those individuals who have 25 years of service, they can
sign on with the company and then negotiate a buy-out package with the company,
but it is not going to be pre-determined.
These individuals would have to be hired first and then be offered a
severance package.
Motion
to privatize the City's water and wastewater operations.
Moved: Cm. Guerra
Second: Mayor Pro Tem E. Valdez, Jr.
For: 6 Against: 2 Abstain: 0
Cm.
J. Valdez, Jr.
Cm.
Amaya
2.
Status report by staff and City consultants regarding the recommendation
for selection of
a company for continued
negotiations, with possible action.
Rick
Sapire, with Hawkins, Delafield, and Wood continued with the recommendation
report from the Evaluation Committee.
Recommendation
Based upon the evaluation undertaken, the
Evaluation Committee has determined that for Proposal Scenarios One and Three,
OMI/Thames Water has provided the most advantageous proposal; and for proposal
Scenario Two, United Water has provided the most advantageous proposal. Therefore, the Evaluation Committee
recommends that if the City desires to pursue a contract pursuant to Proposal
Scenario One or Proposal Scenario Three, OMI/Thames Water be designated for
final negotiations, and that if the City desires to pursue a contract pursuant
to Proposal Scenario Two, United Water be designated for final
negotiations. It is further recommended
that if the City designates OMI/Thames Water for negotiations pursuant to
Proposal Scenario One or Three, but is unable to negotiate a successful final
Service Contract, that the City enter into negotiations with United Water.
Discussion
In
general, with respect to Proposal Scenarios One and Three, the Evaluation
Committee determined that the relative strength of OMI/Thames Water's technical
and business proposal aspects outweighed the somewhat more advantageous pricing
proposal submitted by United Water. The
projected savings (averaged over the terms considered) associated with United
Water's pricing proposals for Proposal Scenarios One and Three, respectively,
were approximately 10% and 6% higher than those proposed by OMI/Thames
Water. The relative strengths of the
non-cost aspects of the OMI/Thames Water proposal that ultimately outweighed
United Water's cost advantage, include, but are not limited to, the
following:
Technical
stronger
experience in Texas interacting with the TNRCC (more projects, longer
period
of time, wastewater and water project experience)
more
advantageous training and long-term utilization of existing experience staff
less
risk with respect to residuals management
less
risk of failure to achieve anticipated electricity consumption efficiencies
project
manager with significantly more water/wastewater operations experience
stronger
references and site visit experiences
Business
proposal of joint and several liability of Guarantors CH2MHill
Companies, Ltd and Thames Water Holdings, Inc., two financially strong
entities, provides a strong hedge against a financial downturn of the Guarantor
significantly higher limitation on Guarantor liability
more limited pay-outs by Guarantor counted against limitation on
liability
proposes to guarantee additional revenue generation to the City
(in the amount of $1,567,000 over ten years) beyond that revenue which will be
generated from decreasing the Unaccounted for Water Guarantee from 25% to 18%
provides a relatively low "convenience" termination fee,
$1,982,775, which is less than half the fee proposed by United Water
greater assumption of the "as-is" risk of the System
The Evaluation Committee further concluded that under various
sensitivity analyses, including consideration of all term lengths, the
OMI/Thames Water proposal is more advantageous under Proposal Scenarios One and
Three.
With respect to Proposal Scenario Two, the pricing proposal of United
Water was significantly more advantageous than the pricing proposal provided by
OMI/Thames Water (approximately 80% more "savings" than OMI/Thames
Water's price proposal for the terms considered under the scenario). As a result, the Evaluation Committee
determined that the significant price advantage offered by United Water for
Proposal Scenario 2 outweighed the non-price advantages offered by OMI/Thames
Water's proposal. The conclusion was
consistent under various sensitivity analyses.
Conclusion
Both proposers have provided high quality proposals and have made
significant efforts in their participation in the City's procurement. They have both agreed to perform all of the
Management Services, assume significant contractual risk, comply with all
regulatory and enhanced treatment requirements, undertake significant asset
maintenance responsibilities including those of a capital nature and offer
employment to all employees currently performing the Management Services on
terms and conditions which include equal or better wages and benefits and no
layoffs, all for a guaranteed price.
Based on the proposals submitted, however, the Evaluation Committee has
determined that for Proposal Scenarios One and Three, OMI/Thames Water has
provided the most advantageous proposal to the City, and for Proposal Scenario
Two, United Water has proposed the most advantageous Proposal. In the event negotiations pursuant to any
Proposal Scenario are unsuccessful, it is likely that if directed by the City,
a favorable contract can be achieved with the second proposer.
Larry Dovalina, City Manager, reported that the contractor is
coming back for City Council approval by April 30th. He mentioned that they have instructed staff involved
in the contract negotiations to leave for New York tomorrow to
begin intense negotiations until this contract is finished. We would ask that any concerns by City
Council be made in writing so that they may be incorporated into the contract. They have also had discussions with Noe
Hinojosa, Consultant, regarding his concerns and he will be submitting those
concerns in writing. He stated that
city staff is recommending Proposal Number One together with OMI/Thames as the
company to be selected.
Cm. Galo mentioned that during the workshops, they talked about
the baseline costs and the savings.
What the company is guaranteeing the City is their fixed costs. What is not protected are the revenues and
he has a concern should there be some unforeseen event that would bring a
decline in revenues. He wants to have
an assurance from the companies that they cannot charge the City a base fee if
they are not producing the water. On
the issue of savings to the secondary water source project, he stated that
there will be some savings. The water would
come into the system, there will be reduced pumping at the Jefferson water
plant along with a reduction in power consumption, but they do not have a
reduction in manpower because it has to be manned 24 hours a day.
Larry Dovalina, City Manager, commented that on the issues related
to savings, he has directed Beto Ramirez to take those monies saved and place
it on a Restricted Reserve Fund as they would do with the projected savings by
going to the privatization.
Cm. Bruni stated that in the report he received from TNRCC,
Amistad and Falcon Dams were at 31.92% of capacity. The report also stated that there was little, if any, inflow to
either one of those reserves.
Cm. Amaya made a motion to select OMI/Thames Water with Proposal
Scenario Number One which was seconded by Cm. J. Valdez, Jr.
Motion dies for lack of majority vote.
Motion to instruct the City Manager to begin negotiations with
United Water under Proposal Scenario One for a 5-year contract followed by a
5-year renewal and to present the contract for approval and execution at the
City Council meeting of May 1, 2002.
Moved: Cm. Guerra
Second: Cm. Bruni
For: 8 Against: 0 Abstain: 0
Mayor Flores also mentioned that Council had made a motion not to
accept staff's recommendation as this Council had put more weight on the
pricing.
II. MOTION
3.
Consideration to reschedule regular City Council meeting of Monday, May
6, 2002 to
Wednesday, May 8, 2002.
Motion to approve.
Moved: Cm. Bruni
Second: Cm. Agredano
For: 8 Against: 0 Abstain: 0
III. EXECUTIVE SESSION
The City Council hereby reserves the
right to go into executive session at any time during this public meeting, if such is requested by the City
Attorney or other legal counsel for the City,
pursuant to his or her duty under Section 551.071(2) of the Government Code, to
consult privately with his or
her client on an item on the agenda, or on a matter arising out of such item.
IV. ADJOURNMENT
Motion to adjourn. Time: 7:10 p.m.
Moved: Cm. Bruni
Second: Cm. Agredano
For: 8 Against: 0 Abstain: 0
I, Gustavo Guevara, Jr., City Secretary, do hereby certify that
the above minutes contained in pages 01 to 08 are true, complete, and correct
proceedings of the City Council held on April 22, 2002.
__________________
Gustavo
Guevara, Jr.
City
Secretary