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The Zone 7 Water Agency last month sued the city of Pleasanton alleging it failed to pay the agency over $18 million in fees after Pleasanton increased water meter sizes and connections but failed to properly report those changes.
Because the city did not uphold its end of a longstanding agreement, Zone 7’s finances have been heavily impacted and is looking for the city to pay what it owes, and possibly more, according to the petition for writ of mandate and complaint for breach of contract, declaratory relief and failure to perform mandatory duty under state law – a copy of which has been obtained by the Pleasanton Weekly.
“Zone 7 has been personally affected by the City’s past failures to pay water connection fees pursuant to the written agreement and the ordinance,” according to the petition filed in Alameda County Superior Court on Jan. 26. “Zone 7 has no plain, speedy, and adequate remedy in the ordinary course of law in that it will suffer irreparable harm if the fees are not paid.”
The Zone 7 lawsuit is the latest fallout for Pleasanton from internal reporting discrepancies allegedly unearthed two years ago by a city utilities director who has also sued the city claiming he was unjustly placed on leave and ultimately fired as retaliation in the months after his revelations came to light.
According to Zone 7’s petition, city officials have yet to explain how it under-collected over $18 million in fees during 2015 to 2022, nor have they explained why there are discrepancies in reports the city provided to Zone 7 during that period or why there are differences between the fee amounts outlined by the governing ordinance and the amounts collected by the city during that period.
Pleasanton City Attorney Dan Sodergren told the Weekly that the city does not have any comment on the pending litigation.
Zone 7 General Manager Valerie Pryor similarly said this week that the agency’s practice is to not comment on ongoing litigation matters.
According to the petition, the Alameda County Board of Supervisors adopted an ordinance in 1972 that imposes a fee for each new water service connection to its retailers’ water systems that is “based on a standard meter size and capacity and further provides for variation of that charge for meters of different sizes and capacities.”
During that same year, the city and its potable water wholesaler Zone 7 entered into an agreement for the city to follow that ordinance and collect that fee whenever it issues a permit for a new connection to its water system.
The city reports the number, size and capacity of new connections every month and sends payments based on all of that information to Zone 7, which the agency then uses to pay for things like infrastructure and water quality improvements.
The ordinance was amended a couple of times over the years, but in general the city has collected those fees and paid the water agency without issues for over 40 years, according to Zone 7’s lawsuit.
“Zone 7 and the City have a four-decade business relationship where the city performed under the agreement and integrated ordinance by accurately reporting the correct meter sizes and remitting the appropriate fees without any issues,” according to the lawsuit.
However, that all changed on June 14, 2022 when now-former Pleasanton utilities director Dan Repp went to Zone 7 staff and showed them how Pleasanton had been reporting incorrect meter sizes and collecting the incorrect fees from 2015 through June 2022 for all new meters installed on commercial and residential properties,” according to the lawsuit.
“City staff also informed Zone 7 that the city began upgrading all of its customer’s meters around 2015 or 2016 with larger meters,” according to the petition. “As part of the upgrade process, the city replaced all existing customers’ 5/8-inch meters with 3/4-inch meters or one-inch meters. The city did not pay any fees for increasing the meter size on existing meters for any commercial or residential properties.”
Repp was fired from the city effective in July 2023, with second-year City Manager Gerry Beaudin citing profanity in the workplace toward a subordinate among the primary justifications, according to the termination letter.
But Repp has since filed his own suit claiming wrongful termination and alleging that him finding out about the city not informing Zone 7 about installing new water meters in 2016 and not adjusting the water connection fees was one of the main reasons he was fired.
The bulk of the alleged misreporting window occurred during the final years of former city manager Nelson Fialho’s administration before he retired, with Repp reportedly sharing his revelations weeks after the start of Beaudin’s tenure.
While Zone 7 is still working to figure out the actual number of new meters installed and the amount of fees the city has failed to collect as part of those upgrades, the water agency has reviewed preliminary information provided by Pleasanton city staff, according to the petition. Through that, the agency learned that from 2015 to 2022, the city misreported the “meter sizes for both residential and commercial properties for meters on newly permitted properties and upgraded meters on existing properties for all meter sizes ranging from 5/8-inch to one-inch.”
“Between 2015 and 2022, the difference between the new connection fees and upgrade connection fees that were collected and paid to Zone 7 and the amounts due under the agreement and incorporated ordinance are substantial,” according to the petition.
One example of this laid out in the petition is that the city’s monthly reports consistently state that Pleasanton was installing 5/8-inch meters and that the city was making appropriate payments for that meter size. But after Repp’s discovery, it was found that in certain months, “the actual meters being installed were one-inch meters that required the City to collect a significantly higher fee,” according to the petition.
The lawsuit lays out it has conservatively calculated under-payment of fees which breaks down those amount differences and shows how in years like 2019, the city underpaid as much as about $6.8 million to Zone 7.
“The total preliminary estimate of additional collections required based on the capacities of the meters actually installed from January 2015 to July 2022 is $18,541,655,” according to the petition.
However, these numbers only represent new meter installations; it doesn’t include meters that were replaced by the city through its citywide meter upgrade project, according to city officials.
In their lawsuit, Zone 7 officials indicate that one reason the discrepancies went unnoticed for years is because the city has been reporting the correct meter sizes and paying accurate fees for the previous four decades so the water agency had every reason to believe Pleasanton was doing so during 2015 to 2022.
After submitting its initial claims on Nov. 18, 2022, going back and forth with the city on the topic of statute of limitations and the agency making the argument that it did not know about any of the claims until recently, Zone 7 is now bringing these issues to the Alameda County Superior Court.
The agency will be looking to get the city to pay for what it owes as well as unspecified damages, upgrade its new water connection fees to align with the agreement and ordinance set in place, and cover for any attorney fees.
A case management conference has been scheduled on March 30 at the Rene C. Davidson Courthouse in Oakland, according to online court records.
Once again, City Manager Beaudin, the Mayor, and the City Council majority have done a bang-up job. They create chaos, completely mismanage the essentials (can they do anything—literally, anything—correctly with the city’s water system?), leaving Pleasanton’s residents to bear the financial burden. And then residents are expected to cover the cost of the raises that the excessive City Manager demands every six months. For what, exactly? For his failure to perform his duties without costing the city tens of millions more than necessary because of their inability to manage basic tasks?
The idea that Pleasanton residents would vote to give these individuals even MORE of their money as a reward for a job “well done” is beyond delusional.
City Manager Gerry Beaudine served as Pleasanton’s Director of Development between 2015 and 2019 before leaving and returning as city manager in May. 2022. I sent an email to City Manager Gerry Beaudine with the following question: During the period 2015-2019 when you served as the city’s director of development, what was your involvement with the metering sizing and upgrade? Were you involved with the decisions regarding the sizing and the upgrades? I expected a yes with an explanation or no in reply.
There was no reply. My question is reasonable. It is important to understand why decisions were implemented that put the city of Pleasanton as a defendant in an 18.5-million-dollar lawsuit. An action that caught tax-paying citizens of Pleasanton by surprise.
The stink is profound, it is the lack of transparency, and the failure to protect, and to cause harm to tax-paying citizens. The evidence points to dishonest, deceitful activity by city government employees at the management level. Intentionally withholding, and not reporting meter changes to Zone 7 is deceitful, where transparency and honesty are expected.
The city has not acknowledged a yes, publicly, they are involved in litigation with Zone 7. The March 2024 update from the city of Pleasanton has no mention of this litigation. Why not? Will the city leadership just this once, exercise transparency, “We are the defendant”, and we are sorry you are involved?
About an hour after I posted the above comment, I received an email from city manager Gerry Beaudine
“The Community Development Department was not involved with the meter sizing upgrade project. The Operations Services Department led that project.”