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HomeMy WebLinkAbout25-City Administrator . CITY OF SAN BERt( RDIN~EQUEST l )R COUNCIL ACTION From: Fred A. Wilson, Assistant to City Administrator Oept: City Administrator Subject: AGREEMENT WITH DONALD MAYNOR FOR AUDIT SERVICES RELATIVE TO GAS AND ELECTRIC FRANCHISE AGREEMENTS Date: 1 0 / 4 / 8 9 Synopsis of Previous Council action: NONE. Recommended motion: Adopt resolution. Signature Contact person: Fred A. Wilson Phone: 5122 Supporting data attached: Yes Ward: FUNDING REQUIREMENTS: Amount: N/A Source: (Acct. No.) (Acct. DescriPtion) Finance: Council Notes: 75-0262 Agenda I tern No .2S CITY OF SAN BERN' RDINO - REQUEST ( )R COUNCIL ACTION STAFF REPORT The attached resolution relates to the execution of an agreement with Donald Maynor to perform audit services for the City's gas and electric franchise agreements. Under the existing franchise agreement with these utilities, computation of the City's franchise payments are based on a percentage calculation of gross annual receipts of franchise activities in the City. The formula which is used in the calculation of the franchise fee involves determining the original cost of their infrastructure along with the cost of the transmission distribution system and using these figures as a basis in calculating the City's franchise fee. The City annually receives a one page summary of these calculations. This proposed audit will focus on the discovery of franchise company errors which could result in either the undercollection or noncollection of gas and electric franchise revenues as well as the associated utility users tax revenues which are collected by these franchises. Examples of the utility errors which may be discovered by this audit are noted below: 1. Large utility customers incorrectly coded as being located outside the City. 2 . Utility customer billed under the wrong schedule resulting in the undercollection franchise fees and utility users tax. rate of 3. Delays in including an annexation in the gas or electric franchise fee calculation. 4. Utility making a computational error in calculating the City's franchise fee. It has been the experience of the Mr. Maynor that audits of this nature for various cities in Texas and New Mexico have discovered significant errors which resulted in new revenues accruing to the city. According to Mr. Maynor, this type of audit has not yet been conducted in California. The potential for generating new franchise revenues for the city can therefore not be estimated at this time. The consultant will conduct an initial audit of utility company records to determine the potential for generating new franchise revenues. If the initial audit does not reveal this potential, the audit will be discontinued. On the other hand, if the initial audit of utility company records discovers significant utility company errors, a more extensive audit will be conducted. 75-0264 It is important to note that Mr. Maynor will only be compensated on a contingency basis. If the initial review does not reveal the potential for new revenues, the audit will be discontinued and the City will not incur any costs. If a more extensive audit is conducted, Mr. Maynor will be compensated based on the percentage of new revenues identified as noted in the attached agreement. Mr. Maynor has experience in working with utility companies in this area. Mr. Maynor served as chief negotiator for the City of Pasadena on the renewal of their gas franchise agreement. The City now assesses the highest franchise fee of any city in the state. The net impact of this action was to increase franchise revenues to the City by approximately $150,000 per year. Adoption of the form motion is recommended. F . WILSON, Assistant to the city Administrator FAW/sh Attachment 1 RESOLUTION NO. 2 RESOLUTION OF THE MAYOR AND COMMON COUNCIL OF THE CITY OF SAN BERNARDINO AUTHORIZING THE EXECUTION OF A COOPERATIVE 3 AGREEMENT BETWEEN THE CITY OF SAN BERNARDINO AND DONALD H. MAYNOR. 4 BE IT RESOLVED BY THE MAYOR AND COMMON COUNCIL OF THE CITY 5 OF SAN BERNARDINO AS FOLLOWS: 6 The Mayor is hereby authorized and directed SECTION 1. 7 to execute on behalf of said City an Agreement between the City 8 of San Bernardino and Donald H. Maynor, which agreement is 9 attached hereto, marked Exhibit "1", and incorporated herein by 11 10 reference as fully as though set forth at length. The authorization to execute the above- SECTION 2. 12 referenced agreement is rescinded if the parties to the agreement 13 fail to execute it within sixty (60) days of the passage of this 14 resolution. 23 24 25 28 15 I HEREBY CERTIFY that the foregoing resolution was duly 16 adopted by the Mayor and Common Council of the City of San 17 Bernardino at a meeting thereof, held on the 18 day of , 1989, by the following vote, to wit: 19 AYES: Council Members 20 21 NAYS: 22 ABSENT: 26 City Clerk / / / / / / / / / DAB/ses 1 October 5, 1989 27 10 11 12 13 14 15 16 17 18 20 21 1 RESOLUTION...AUTHORIZING THE EXECUTION OF A COOPERATIVE AGREEMENT BETWEEN THE CITY OF SAN BERNARDINO AND DONALD H. MAYNOR. 2 3 The foregoing resolution is hereby approved this day 4 , 1989. of 5 6 W.R. Holcomb, Mayor City of San Bernardino 7 8 Approved as to form and legal content: 9 JAMES F. PENMAN, Cit~ By: /: / . 19 22 23 24 25 26 27 28 DAB/ses October 5, 1989 2 AGREEMENT THIS AGREEMENT is entered into this day of , 1989, between the CITY OF SAN BERNARDINO, a municipal corporation, referred to as "City", and Donald H. Maynor, A Professional Law Corporation, referred to as "Consultant". City and Consultant agree as follows: 1. Consultant shall perform an audit of the City's gas and electric franchise revenues and utility users taxes. The audit will focus on the identification and correction of utility errors that result in the undercollection or noncollection of franchise revenues and/or utility users taxes. 2. The scope of the proposed audit services includes, but is not limited to the following tasks: A. Conduct an evaluation of commercial and residential utility accounts in the City of San Bernardino to determine whether the utility accounts within the city limits are coded correctly. In addition, audit will also seek to identify and rectify incorrect designations or coding errors for City utility accounts which may not be included in City's franchise fee calculation. B. Consultant will review franchise revenue collection procedures to determine whether the revenues from newly annexed areas in the city are included in the City's franchise calculation. C. Consultant will review franchise fee calculations to determine whether revenues are properly included in the revenue base calculation and thereby determine whether gas and electric franchises fees are correctly calculated. D. Consultant shall also review certain City utility accounts to determine whether such accounts are being billed under the most advantageous rate tariff, given the consumption pattern of those accounts. E. Upon a determination of an undercollection or noncollection of franchise fees under subsections above, Consultant shall advise the City Administrator in writing of the nature and amount of such revenues, and the likelihood of successfully collecting these amounts. Under the direction of the City Administrator, Consultant shall commence negotiations for payment to the City of the disputed amounts. If any litigation is anticipated as a result of the negotiations, Consultant shall consult with the City Attorney who shall review the material compiled by Consultant and advise the Mayor and Common Council of the merit of the case and recommend whether or 2 not to institute litigation. Consultant shall have no authority to settle any claim without the consent of the Mayor and Common Council of City. 3. Consultant's sole compensation shall be as follows: 40% of the first $100,000 of the additional revenues and/or savings recovered, as a result of Consultant's activities; 30% of the next $200,000 additional savings and/or of additional revenues and/or savings recovered by Consultant; 25% of any additional revenues and/or savings recovered by Consultant in excess of $300,000. "Additional revenues and/or savings" will be initially established by Consultant identifying in writing the corrected or added revenue items and monitoring those corrected or added revenue items for the duration of the agreement. Consultant will annually provide the City with an updated listing of the corrected or added revenue items. Such items must be confirmed in writing by the City. Failure to respond to Consultant within sixty (60) days of submission to City by Consultant shall be deemed agreement with such items. "Additional revenues" shall include the correction of computation errors, revenues from certain customers not being included or not being correctly calculated, and the inclusion of certain types of utility revenues 3 previously excluded in the calculation of the gas and electric franchise fees. It shall also include any amounts collected by the city after litigation pursuant to the recommendation of Consultant. It shall also include the additional utility users taxes that result from such correction. Correction of a computational error made by the franchisee (e.g. tax on tax) that has not previously occurred in more than two consecutive years will not be carried forward beyond the year of correction for purposes of calculating "Additional Revenues". Additional savings from section 2.D shall mean the savings to the City that result from changing to the more advantageous rate tariff recommended by Consultant. Said savings shall be calculated from the time of the change in rate tariffs for a period of 36 months thereafter, provided the less favorable rate tariff continues to exist during that period. The examples of "Additional Revenues" in Attachment A are incorporated herein by reference. 4. The term of this agreement shall be for the 1989-90, 1990-91, 1991-92, 1992-93, and 1993-94 fiscal years. The scope of the audit shall also include, at the Consultant's option, up to four years prior to 1989. 5. Consultant shall be responsible for the payment of all subcontractor costs, and shall hold City harmless from 4 any claim by any such subcontractor(s} of non-paYment. 6. This agreement may be terminated with or without cause upon 90-days prior written notice by either the Consultant or City. The City Administrator is hereby authorized to give such notice on behalf of the City. Upon termination by either party, Consultant shall be entitled to compensation as provided herein based upon "additional revenues and/or savings" identified to city in writing as of the date of termination. 7. Nothing herein shall in any way limit or restrict City from conducting its own audit at any time; provided, however, once Consultant identifies added or corrected items of revenue or savings and notifies City in writing thereof, such items of revenue shall be deemed to be "additional revenues and/or savings" for purposes of calculating Consultants' compensation, regardless of the results of city's concurrent or subsequent audit(s} . 8. Should negotiations for the disputed amounts be unsuccessful, Consultant shall assist the city Attorney with technical advice, and where necessary as an expert witness in prosecuting any litigation to collect said amounts. 9. City shall not be responsible to pay to Consultant any amounts as noted in Paragraph 3 except on funds actually received or savings received under Section 2D. 5 10. Consultant shall be considered for all intents and purposes as an independent contractor and not as an employee of the city. 11. Consultant agrees to hold harmless, save and defend (upon request by City) the City of San Bernardino, its officers, agents and employees from any claim, action or proceeding arising out of the performance, or failure to perform, of this Agreement by Consultant its officers, agents or employees. 12. Before commencing to perform the terms of this Agreement Consultant shall obtain public liability and property damage insurance in an amount of $100,000 combined single limit naming the City, its officers, agents and employees as additional insureds. A current certificate of such insurance shall be kept on file with the city Administrator. Failure to do so shall be cause for immediate termination of the Agreement. 13. Any notice to be given from one party to the other pursuant to this Agreement shall be deposited with the United states Postal Service postage prepaid and addressed as follows: To city: city Administrator City Hall 300 N. "0" Street San Bernardino, CA 92418 To Consultant: Donald H. Maynor Attorney At Law 2471 E. Bayshore Road, suite 501 Palo Alto, CA 94303 6 Nothing in this Paragraph shall be construed to prevent the giving of notice by personal service. IN WITNESS WHEREOF the parties hereto have executed this Agreement on the date and date first above shown. "City" W.R. HOLCOMB, MAYOR ATTEST: SHAUNA CLARK, CITY CLERK APPROVED AS TO LEGAL FORM AND CONTENT: JAMES F. PENMAN, City Attorney By: ~~ ./ "Consultant" 0~)I~_ DONALD H. MAYNOR agrmnt 7 ATTACHMENT "A" Scope of Services ADDITIONAL REVENUES within thirty (30) days of the execution of this Agreement, an audit of the City's gas franchises fees, electric franchises fees, and utility user's taxes will be commenced for calendar year 1989. The audit will focus on the discovery of utility errors that result in the undercollection or noncollection of gas franchise, electric franchise, and/or utility user's tax revenues. Such errors may be the result of the utility: incorrectly designating or coding City customers as being located outside the City; failing to include revenues from annexed areas on a timely basis; failing to properly include all revenues in the revenue base; failing to correctly calculate all amounts due the City; and other similar errors. Upon a determination of an undercollection or noncollection of the above-described revenues, Consultant shall advise the City Manager in writing of the nature and amount of such revenues, and the likelihood of successfully collecting such amounts. City shall cooperate with Consultant and Consultant's agents in providing Consultant and his agents access to information necessary to perform the above-described audit. Example Of "Additional Revenues" As Defined in Fee Agreement Hypothetical: As a result of an audit of calendar year 1989, the following errors are discovered: 1. Large gas customer, whose annual billing would generate $5,000 of gas franchise fees and utility user's taxes, was wrongfully coded as being located outside the city; "Additional revenue" would include: $5,000 for 1989, any gas franchise fees and utility user's taxes excluded from previous years from that customer, and all gas franchise fees and utility user's taxes derived in the next four years (i.e. through the 1993 accounting period) from that wrongfully excluded customer. 2. Electric customer was billed under the wrong rate schedule resulting in the undercollection of $1,000 annually of electric franchise fees and utility user's taxes; "Additional revenue" would include: $1,000 for 1989, any undercollections from previous years, and the additional franchise fees and utility user's taxes derived from the difference between the erroneous rate schedule and the correct rate schedule as applied to that customer for the next four years (i.e., through 1993 accounting period). 3. In 1989, there was a six month delay in including an annexation in the gas franchise fee calculation. Loss of $5,000 of gas franchise fees and utility user's taxes to the City; "Additional revenue" would be $5,000. 4. Electric utility failed to include revenue from the sale of utility widgets in the City. Annual loss of $4,000 of electric franchise fees; "Additional revenue" would include: $4,000; all electric franchise fees and utility user's taxes from previous years derived from the sale of widgets; and any such fees and taxes from the sale of widgets for the next four (4) annual accounting periods. 5. utility made a computational error of $2,000 in calculating a utility franchise fee. "Additional revenue" would include: $2,000 only, unless the same error had occurred in more than a total of two (2) consecutive years, in which case, "additional revenues" would include the previous years' corrections as well as the amount of the correction calculated for the next four (4) accounting periods. ADDITIONAL SAVINGS Example of Additional Savings Hypothetical: Attorney's accountant determines that City's city hall is currently billed under an industrial electric rate tariff, and that the monthly bill for that facility can be reduced $1,000 if it changes to a commercial rate tariff. The city follows our recommendation in July, 1990, and changes to a commercial electric rate tariff. "Additional Savings" would be determined by calculating the city hall's electric bill under the commercial and industrial rate schedules, and then calculating the actual difference between these billing methods for each month from July, 1990, through June, 1993 (i.e. 36 months). If the industrial rate tariff was discontinued in April, 1991, then there would be no "additional savings" thereafter under this agreement.