AgdaPkt 2014-07-28 Closed, Special and Joint SA

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7.1.B. - Page 1 REPORT To the Honorable Mayor and City Council From the City Manager July 28, 2014 SUBJECT Request to Authorize Bay Area Water Supply and Conservation Agency to Initiate, Defend and Settle Arbitration Related to the Water Supply Agreement RECOMMENDATION Adopt a Resolution authorizing the Bay Area Water Supply and Conservation Agency to initiate, defend and settle arbitration related to the water supply agreement with the City and County of San Francisco. BACKGROUND The City of Redwood City purchases water from the San Francisco Regional Water System (SFRWS) and is one of the twenty six members of the Bay Area Water Supply and Conservation Agency (BAWSCA). In June 2009, Redwood City entered into a Water Supply Agreement (WSA) with the City and County of San Francisco and Wholesale Customers in Alameda County, San Mateo County, and Santa Clara County. The WSA sets forth the terms by which the twenty six wholesale customers will purchase water from the San Francisco Regional Water System. On March 25, 2013, Council adopted a resolution to amend the WSA to prohibit changes to Hetch Hetchy Reservoir unless there is an amendment to the WSA. The WSA requires that disputes related to the calculation of the capital and operating costs owed by the Wholesale Customers to SFRWS be resolved through mandatory binding arbitration. This requirement includes disputes related to SFRWS's adherence to accounting and auditing practices, as well as the classification of new assets for cost allocation. All other questions or disputes related to the WSA, such as water supply, may be presented to a court and are excluded from this request of delegated authority. The 2009 WSA specifically assigned a number of administrative tasks to BAWSCA. However, it did not specifically delegate arbitration authority to BAWSCA. The Agreement recognized that the Wholesale Customers could choose to do so. ANALYSIS Authorizing BAWSCA to initiate, defend and settle arbitration related to the WSA will allow BAWSCA to protect the financial interests of the Wholesale Customers by ensuring they pay no more than their fair share of SFRWS costs. Delegation of this authority was specifically anticipated in the WSA (WSA Section 8.04(c)).