Water wholesaler discusses rates, transparency ruling

Zone 7 board discussed why raising wholesale rates might be necessary

While the final plan is still a ways off and fairly amorphous, the writing is on the wall for the future of the Zone 7 Water Agency: They're probably going to have to raise their wholesale rates.

A years-long drought has affected the agency's revenues and reserves, and board members discussed how Zone 7 has cut back on staff, delayed construction projects and tried to delay raising rates as long as possible, but the time has probably come.

"We've squeezed the sponge a lot, and I don't see much fat," said board member Dick Quigley at a The Zone 7 Water Agency board meeting Wednesday in Livermore.

The meeting discussed an ongoing study that will impact whether the the Zone 7 Water Agency -- a water wholesaler which sells to water providers in Pleasanton and other Tri-Valley communities -- will change its water rates.

Some residents spoke during the public meeting, bemoaning the concept that the more water the Tri-Valley residents conserved, the more water was going to cost.

Zone 7 is looking at about $20 million a year in capital improvement projects to replace aging water management infrastructure and to manage flood control infrastructure. Maintenance costs are also rising each year on old pipes and old water treatment plants.

In addition, the drought means the water that is coming into the treatment plants has to travel greater distances, which muddies it with algae, salts and other contaminants that are more expensive to treat, according to staff comments during the meeting.

In addition, he drought may be hitting the agency's reserves harder than was initially expected, according to a presentation by Sanjay Guar, vice president of Raftelis Financial Consultants, which was contracted to conduct the cost of service study.

The agency's end-of-year reserves were projected to end at $7.3 million at June 30, 2016. However, Guar said, those projections were made under the assumption the area would conserve 20% of its water usage.

At the moment, it's looking like the area will actually conserve 38%, said Zone 7 general manager Jill Duerig. While that's great for water supply, it's bad for the agency's funding, so Zone 7 may have to use its reserves to make up for the water it won't be selling.

If all of those assumptions are correct, the presentation indicated Zone 7 will could easily run out of its reserves in a few years if the agency doesn't act soon.

Guar recommended putting in some type of a drought surcharge that will bring in $3.5 million from January to June 2016, $7 million in fiscal year 2016-17 and $3.5 million in fiscal year 2017-18. Fiscal years run from July 1 to June 30 of the next year.

Board members haven't decided what type of surcharge they want to implement -- or whether they definitely want to use a surcharge.

The board and public will be updated on the study again at the next public meetings on Sept. 16 and Oct. 21.

The study is analyzing the cost of service and will propose a three-year wholesale water rate, which will go before the water board this fall. It will also propose a drought wholesale rate that can be incorporated into the forthcoming Urban Water Management Plan, which will be adopted by the board in the spring.

Overall, the study is reviewing the agency's finances, including its budgets, the funding needed to put the agency's capital improvement and asset management plans into effect, findings from the Water Supply Evaluation and recent audits.

The water agency also decided to respond to an Alameda County civil grand jury decision by saying allegations that the agency wasn't fully transparent during its deliberations to buy land surrounding Lake Del Valle for $18.6 million were incorrect, and thus the agency doesn't need to change its processes.

The civil grand jury claimed that by having discussions about the sale of land during closed session, Zone 7 was violating the spirit of open government detailed in the Brown Act.

Zone 7 rebutted that all of its negotiations followed state public information laws as described in the Brown Act. The agency stated having some discussions in closed session where the public couldn't hear was necessary to secure the land, which the agency describes as invaluable to water management purposes.

The agency attested it needed to buy that land because otherwise, developer would have come in and built homes around the lake, which would have impeded water management. Lake Del Valle acts as a potable water reservoir for Zone 7, which sells to retailers in Pleasanton, Livermore, Dublin and San Ramon.

Civil grand juries are citizen panels that hears cases brought to its attention by residents, issues a decision and provides recommendations. While Zone 7 must legally respond to the recommendations and findings, the civil grand jury cannot force any agency or individual to adopt their recommendations, said Adam Byer, a spokesman for the Alameda County Superior Court.

The civil grand jury argued that by making all discussions on the sale of the Lake Del Valle land during closed session, Zone 7 had violated the Brown Act, failed to make a public case for the purchase and failed to disclose the financials of the purchase prior to making the deal.

Zone 7's planned response is that they did not violate the Brown Act or mishandle the situation in any way because a section of the public information act allows agencies to discuss sale and purchase of property in closed session.

The agency stated it is not required to make a public case for the purchase because it was consistent with the district's overall watershed management plan.

In addition, the agency stated it posted the parcel number on its agenda items for closed session meetings, but no residents showed up to discuss the matter before the board convened for closed session. The financial details were also said to have been stated in the 2013-14 budget.

For closed session items in any public meeting, there is a scheduled time where individuals can speak on the matter to the board publicly, typically for three minutes.

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