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Annual Service Contract - page 11 / 43





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Water, Water Connection and Wastewater Rates

A principle reason for all outsourcing contracts is cost. The City hired a third party consultant, Alternative Resources Inc. (ARI), to ensure that the outsourcing project would be approved and implemented.  A principle argument in favor of outsourcing, presented by ARI, was that costs for the services of maintenance and operation would remain low and that the City would experience a savings during the life of the Contract. Residents and users were assured that water and wastewater related rates would remain low.

Not all the fees paid to OMI for the day-to-day operations are fixed. The Service Contract contains two annual adjustments to the fees that the City pays to OMI. These Contract-mandated fee adjustments are tied to different variations of the commonly understood Consumer Price Index (CPI).  The two components are (1) the fixed service fee, which covers everything in the Contract except (2) the energy fees. These fee adjustments cannot be applied until 2005.

The fixed service fee is adjusted by a figure called CPI-A, which is the unadjusted CPI for ALL URBAN CONSUMERS, all items, except energy. This number is derived using figures reported to the Bureau of Labor Statistics from the entire United States.

The energy fee adjustment is based on CPI-B, which is the CPI for energy in San Francisco-Oakland-San Jose California.

With this information as background, in June 2003 the City Council, under the advisement of the Assistant City Manager Gary Ingraham (now retired) and City Manager Mark Lewis, approved an annual fee increase and adjustment to the water, wastewater and water connection fees residents pay. This new resolution put into place a first year increase of 2.5% and an annual adjustment tied to a CPI index factor. The argument was made that the CPI used for the consumer rate increase is the same as what is used in the Service Contract with the outside vendor. However, the CPI index

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