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<br />SALE TO THIRD PARTIES <br /> <br />If treated water can be sold to third parties, a rate should be <br />assessed to compensate for direct and indirect costs as well as <br /> <br />some additional margin for providing this service to others in the <br /> <br />region. <br /> <br />This margin should be based on economic factors including <br /> <br />a <br /> <br />reasonable <br /> <br />rate <br /> <br />of <br /> <br />return <br /> <br />on <br /> <br />investment. <br /> <br />The <br /> <br />net <br /> <br />income <br /> <br />realized <br /> <br />from <br /> <br />any <br /> <br />such <br /> <br />sales <br /> <br />would <br /> <br />be <br /> <br />divided <br /> <br />between <br /> <br />New <br /> <br />Braunfels and San Marcos on a pro rata basis. <br /> <br />FINANCIAL OVERSITE <br /> <br />San Marcos recognizes that New Braunfels' <br /> <br />utility operates its <br /> <br />facilities in an outstanding manner. <br /> <br />As such, it is assumed that <br /> <br />New Braunfels will <br /> <br />provide <br /> <br />the <br /> <br />function <br /> <br />of <br /> <br />the <br /> <br />treatment <br /> <br />of <br /> <br />surface water on the most economical basis. <br /> <br />However, the City of <br /> <br />San <br /> <br />Marcos <br /> <br />should <br /> <br />have <br /> <br />some <br /> <br />mechanism <br /> <br />for <br /> <br />commenting <br /> <br />on <br /> <br />operational costs through the budget process. <br /> <br />As such, the city <br /> <br />of San Marcos should be provided with an opportunity to review the <br /> <br />proposed annual budget for the surface water treatment function <br /> <br />and to provide comments to the New Braunfels utility Board. <br /> <br />AUDIT <br /> <br />The City of New Braunfels should provide to the City of San Marcos <br /> <br />an <br /> <br />annual <br /> <br />audit <br /> <br />of <br /> <br />the <br /> <br />operation <br /> <br />of <br /> <br />this <br /> <br />water <br /> <br />treatment <br /> <br />facility. <br /> <br />In the event New Braunfels and San Marcos cannot agree <br /> <br />upon the amount to be charged for all costs of operation after the <br />annual audit 'review and following the initial year of operation, <br /> <br />the differences could be submitted to arbitration or to the Public <br /> <br />utilities Commission for resolution. <br /> <br />It <br /> <br />should <br /> <br />be <br /> <br />understood <br /> <br />that <br /> <br />it <br /> <br />is <br /> <br />not <br /> <br />intended <br /> <br />for <br /> <br />this <br /> <br />memorandum to be all inclusive and that the final understanding <br />