Santa Paula: Council Selects Highest Priced Bid for Wastewater

By Sheryl Hamlin

A special meeting of October 27, 2016 ended with the Santa Paula City Council selecting the highest priced bid for the new Operations & Maintenance contract for the Wastewater Treatment Facility.

The city of Santa Paula concluded the buyout of its wastewater treatment facility (WTF) in 2015 by issuing bonds against the revenue stream of the sewer enterprise fund. The city’s press release was reported here.

At the time of the WTF buyout, it was noted that “There was nothing discussed in the public session about the potential savings to the sewer users.” In fact, to date, there has been no pro forma comparing the pre-buyout to the post-buyout financial conditions.

As part of the 2015 bond sale, the city was obliged, according to City Attorney Cotti, to enter into a new O&M (Operations and Maintenance) contract for the plant. An RFP (request for proposal) was issued and the O&M contract was agendized on two council meetings with no resolution. These meetings were reported here and here.

The Special City Council meeting of October 27, 2016 was held in order to continue and refine the discussion about the new O&M contract. Presenters at the special meeting were John Ilasin, Interim Public Works Director, Ceasar Hernandez, Regulatory Compliance Associate, and Mike Nunley, Consultant.

Mr. Nunley presented a summary of the findings (not given in the handouts) showing a comparison of actual operating costs for the month of June 2016 versus the bids. The bids for American Water and Severn Trent were “similar” to the current conditions and the new proposal from PERC was slightly smaller than the current conditions. Note that PERC is the current operator of the plant and also designed the plant.

Council Member Gherardi asked about these comparative costs saying that during the discussions of the WTF buyout, it was represented to the city that a new O&M contract would be significantly less than the current contract. To this, the consultant said that he was not involved in such conversations, but reconfirmed that the results would be “about the same” for two of the bidders with PERC reducing their costs.

The consultant presented a bar chart showing the order of the bids with American Water highest, followed by Severn Trent, followed by PERC. The spread between the highest (American Water) and PERC (the lowest) was about $20,000 per month or $250,000 annually.

Public Comments

During Public Comments, Brian Cullen from PERC, pointed out that in the four year scenario, the difference between the highest and lowest bidder is $900,000 with PERC at $2.8 million, Severn Trent at $3.3 million and American Water at $3.7 million. In the 10 year contract, the difference is even more substantial with PERC the lowest.

Bob Nespeca of PERC pointed out that the PERC bid included groundwater monitoring, which according to the consultant would be a responsibility of the city. This made the PERC bid even more attractive, he said. He then discussed the Koch membranes saying that PERC was trained by Koch in the use of the membranes which is why the extended warranty would travel with PERC. Note that there are only six months left on the existing membrane warranty.

Bob Ashfield of Severn Trent, said he was pleased that Severn Trent was the highest ranking and was the lowest cost in the 24/7 situation. Below are the rankings:


Graph produced by City Staff with totals added by reporter

Tom Peterson from American Water, who works at the Fillmore plant, reminded that AW is currently operating Santa Paula’s collection system and that the company has a “great relationship” with Santa Paula. Recall that AW built and operates the Fillmore plant (DBO). Note that Fillmore sewer rates are $100 a month and considered one of the highest in the state and that American Water is actively involved in the political process via contributions. Although council members from the city of Fillmore gave AW high marks according to Council Member Procter, other cities such as Monterey have had controversial experiences.

Mr. Peterson announced that AW had brought in $250,000 in revenues to the City of Fillmore, but declined to describe the details until pressed by Council Member Procter. Mr. Peterson explained that AW recommended that Fillmore augment their revenue stream by taking in waste from portable toilets.

The State of California says this about portable toilet discharge: Discharges from RV holding tanks or portable toilets may contain chemicals that can pollute groundwater quality.

Recall that there was speculation that the Santa Clara Wastewater spill involved portable toilet material, which is now under investigation by the State of California.

Gayle Washburn, former council member of Fillmore, said that as a rate payer, she cares about the selection of the new operator and said that the city should chose PERC because it is the lowest bidder, the most experienced, and provides the best warranty. She also suggested an Oversight Committee for the Enterprise Funds because she is “not sure” that the $1 million transfers from the Enterprise funds to the General Fund are Proposition 218 compliant. She noted that the Measure T sales tax has an Oversight Committee with only $2 million in revenue while the Enterprise Funds have $20 million in revenue.

Council Discussion

Council Member Tovias asked the consultant why the panel picked American Water. Note that Council Member Tovias and Mayor Hernandez are members of the subcommittee for the new contract.

The consultant replied: local staff, 24/7 monitoring, tech support center, performance history with the collection system, experience at Fillmore, Maintenance Services Group, Internal Engineering Group and 30 people in southern California who can be resources to Santa Paula. There were no financial attributes given as reasons for selection.

Council Member Procter asked about the requirement for choosing the lowest bidder to which City Attorney replied that because this was not a Public Works contract, the lowest bid is not required. The consultant reiterated that this bid was a “qualification based process” first.

Mayor Hernandez asked about insurance and the PERC pre-payment penalty to terminate the existing contract. Staff replied that pollution insurance was specified in the RFP and that bond monies would be used to pay PERC.

It was clear that Mayor Hernandez did not view the bond monies as actual cash, even though the city and the citizens would be paying interest on these monies for 20 years. The PERC buyout is $829,685. At 4.5% interest, which is the average coupon rate of the 2015 bonds, this will cost the city $746,716 in interest payments in addition to the $829,685 payment.

Mayor Hernandez said he liked the “suite of services” offered by AW and supported the staff recommendation. Council Member Gherardi disagreed saying she supported Gayle Washburn’s statements and provided a document showing the costs over 10 years with American Water clearly the highest.

A detailed comparison of the four and ten year contracts is shown below:

10 Year Comparison of Three Bids by Gayle Washburn

Council Member Procter said he was “all over the map”, but liked American Water best. He said he had called various people on the panel who confirmed the unanimous choice. He also spoke to several council members from Fillmore, but did not want to state publicly the details, although their comments were complimentary.

2015 Wastewater Plant Spill

Clearly there is animosity between the city and PERC over the 2015 spill and the $1.5 million insurance claim. Attorney Cotti had previously explained this as a lack of pollution insurance; however, Mr. Cullen of PERC said that it was the city’s policy which was insufficient. He said the cleanup spill claim (not pollution) was filed against the city’s insurance because the city was the owner at the time of the spill.

And according to Council Member Gherardi, who reported in a document provided at the meeting:

“The spill which occurred in October 2015 was not ‘caused’ by PERC since they had notified both Brian Yanez and Jaime Fontes in writing. In March of 2015 (I have seen copies of the notification), that the SCADA computer needed to be replaced and requested authorization for the expenditure. No authorization for a replacement part came from the City despite several requests. The unreplaced part finally failed in October causing the spill.”

The Elephant in the Room: Chlorides

The $1.5 million 2015 uninsured million spill was indeed a sore point with the city as evidenced by Mayor Hernandez’ snapping at Mr. Cullen at a previous meeting, but the elephant in the room is the chloride removal.

In 2014, the city took PERC to court over the lack of chloride processing in the new plant, a feature which the city contends was required, but PERC says was never specified. This article explains the suit and has a link to the city’s press release.

The city settled the suit with PERC in arbitration by receiving $5 million reduction in the buyout price of the plant. However, the chloride issue still remains.

One item stood out in the American Water Response:

Have available RO system that could be repurposed for City; could set up feasibility study and pilot test

Vice Mayor Crosswhite asked about the availability of a Reverse Osmosis (RO) system which AW would provide to Santa Paula to solve the chloride problem. The AW representative said he “did not know” how much chloride he has to take out, but he could prototype the system for the city. Council Member Procter said he was not aware of an RO capability at the city’s plant, to which Mr. Cullen of PERC said that the Santa Paula RO system is not intended for chloride removal, which was PERC’s position in the lawsuit. No one asked if American Water had tried the RO pilot in Fillmore.

Clearly members of the council saw the potential for chloride removal as an advantage in the AW proposal, although this was not specified in the RFP, is untested and potentially impossible according to PERC.

Motion and Discussion

Mayor Hernandez moved to award the contract to American Water because of its “suite of services”.

Council Member Gherardi dissented saying that the contract be awarded to PERC which “would save the rate payers $3,868,585 in payments, plus an additional unknown amount from extended warranty on membranes over the next 10 years over the Santa Paula Staff recommended option.”

The Mayor’s motion passed 4-1 with Council Member Gherardi voting ‘no’.

A detailed summary of costs appears below:

Summary by Gayle Washburn

To download the meeting packet, click here. The meeting was not videotaped.

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Correction: The suit was against Santa Paula Water, LLC which was PERC and Alinda Capital. Although the city’s press release says $5 million , this amount is also disputed.