The City's December 14, 1998, Agreement with the County Water District of Billings Heights (District) specifies that the City will provide wholesale water services to the District and in return, the City will collect resale rates from the District to cover the cost of these services.  As allowed for in the Agreement, during the 2008 update of rates, the District objected to various items in the resale rate calculation.  A memorandum of understanding was agreed to in 2009 to resolve the disputed items.  That memorandum of understanding is expired and the District has requested a new Memorandum of Understanding (MOU) to resolve two outstanding items. 

The proposed MOU addresses the classification of transmission lines for rate making purposes and clarifies the methodology used to calculate the rate of return used in determining the resale rate for the District.  The City Council approved resale water rates for the District on May 13, 2013 as part of the overall water and wastewater adjustment and the methodology in the proposed MOU was used in calculating that rate. 

The City Council may:

• Approve the Memorandum of Understanding; or
• Not approve the Memorandum of Understanding.  If not approved, the City and the District would need to resolve the outstanding issues through mediation or arbitration.

In accordance with the agreement with the District, the resale water rate is determined on a cost-of-service basis, which is an accepted methodology in the water industry.  Accordingly, while the changes addressed in the MOU regarding classification of transmission lines and the rate of return possibly decrease the District's rate, the amount is indeterminate and staff believes that the change is justifiable and in conformance with the cost of service determination. 

Staff recommends that Council approve the Memorandum of Understanding between the City and the County Water District of Billings Heights.