SR-502-008 (2)
EPWM:CP:GB/F:/EPWM/ADMIN/STAFFRPT/mwd purchase order.doc
City Council Meeting: October 22, 2002 Santa Monica, California
To: Mayor and City Council
From: City Staff
Subject: Purchase Order for Imported Water Supply with the Metropolitan
Water District
Introduction
This report recommends that the City Council authorize the City Manager to
execute a Purchase Order for imported water supply to be provided by the
Metropolitan Water District.
Background
The Metropolitan Water District (MWD) is a regional wholesale water agency,
providing water imported from Northern California and the Colorado River to a
cooperative of 26 member agencies, including cities and water agencies
throughout Southern California. Santa Monica is a founding member of MWD
and has purchased water to supplement local supplies since 1928.
A new rate structure recently approved by MWD provides an opportunity for
member agencies to enter into a Purchase Order agreement, committing the
agency to take a specified amount of water over a ten year term, in exchange for
pricing incentives. MWD has developed the purchase order option to establish
reliable demand and revenue projections. MWD will rely on the commitments
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from purchase orders in setting its rates and charges, planning and providing its
capital facilities, and developing its water supply, management, and reliability
programs.
Discussion
The MWD Board of Directors approved rates and charges under a new rate
structure, to become effective on January 1, 2003. A new feature in the rate
structure is the opportunity for member agencies to execute a purchase order.
The purchase order is a simple agreement between MWD and the member
agency, whereby the member agency agrees to purchase a specified quantity of
water over a ten-year period.
The economic incentive for Santa Monica is that under a purchase order, the city
can receive a majority of its water from MWD at a unit cost lower than the
present cost of water. Under the new rate structure which becomes effective
January 1, 2003, the unit cost for water from MWD will be $408/acre-foot.
Currently, Santa Monica purchases treated water from MWD at a price of
$431/acre foot. In FY 2001-2002, Santa Monica purchased approximately
12,000 acre feet of water from MWD. Under the pricing structure available in the
purchase order, a savings of approximately $288,000 in water costs may be
realized.
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In Santa Monica?s case, the increased reliance on MWD-supplied water due to
the loss of local groundwater supplies results in a condition that makes a
purchase order agreement economically favorable. The City?s purchase of
imported water from MWD are expected to remain near current levels for the next
five to six years until a treatment facility to clean up MTBE is constructed and
operational. Over the next ten-year period, therefore, the new MWD purchase
order agreement will result in the lowest available price for imported water.
Budget/Financial Impact
Sufficient budget authority exists in the FY 2002-2003 budget for the purchase
agreement at account number 25671.522140. The purchase agreement
represents an opportunity to realize cost reductions in the purchase of imported
water. These cost savings will be reflected in future budget preparation
processes.
Recommendation
It is recommended that the City Council authorize the City Manager to execute a
Purchase Order for imported water supply to be provided by the Metropolitan
Water District.
Prepared by:
Craig Perkins, Director Environmental and Public Works Management
Gil Borboa, Utilities Manager
Jean Higbee, Utilities Business Supervisor
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