MINUTES OF THE BOARD OF DIRECTORS
ALAMEDA COUNTY FLOOD CONTROL AND WATER CONSERVATION DISTRICT
SPECIAL BOARD MEETING
September 5, 2018
The following were present:
DIRECTORS: SANDS FIGUERS
ANGELA RAMIREZ HOLMES
DIRECTORS ABSENT: NONE
ZONE 7 STAFF: VALERIE PRYOR, GENERAL MANAGER
OSBORN SOLITEI, TREASURER/ASSISTANT GENERAL MANAGER, FINANCE
COLTER ANDERSEN, PRODUCTION MANAGER
JARNAIL CHAHAL, ENGINEERING MANAGER
CAROL MAHONEY, INTEGRATED WATER RESOURCES MANAGER
NZINGA ARRINGTON, ACTING EXECUTIVE ASSISTANT
JAVIA GREEN, STAFF ANALYST
GENERAL COUNSEL: DAVID ALADJEM, DOWNEY BRAND
Item 1 -
CALL ZONE 7 WATER AGENCY MEETING TO ORDER
President Ramirez Holmes called the meeting to order at 5:00 p.m.
Item 2 -
PLEDGE OF ALLEGIANCE
President Ramirez Holmes led the Pledge of Allegiance.
Item 3 -
There were not any comments from the public.
Item 4 -
WHOLESALE WATER RATE STUDY
President Ramirez Holmes stated that tonight's meeting was a workshop to ask questions. This would be the Board's first time seeing the proposed water rates study along with the public. The vote for water rates would be held on October 17, 2018 and another meeting will be held on September 19, 2018. The public is also welcome to email the Board of Directors: at email@example.com
Ms. Pryor stated that the wholesale water rate study discussion is a board workshop format to allow for the Board and Public input on the cost of service study for calendar years 2019-2022. Four water rates scenarios were presented ranging from inflation only to other scenarios funding reserves at minimum levels and water supply reliability projects. None of the scenarios add any additional operating programs or staff. The proposed rates on all the scenarios are based on the cost of service for maintaining the water system. The cost of service study was conducted by Raftelis.
Mr. Solitei presented a presentation on the wholesale water rate study. The presentation covered the following topics:
. The Agency public outreach on the rates;
. The recent Agency cost efficiency measures to save cost;
. Key assumptions used in the rate study;
. Fixed cost recovery options;
. Water sales demand projections from the retailers;
. The four financial plan scenarios;
. Customer impacts on the four scenarios; and
. The capital improvement plan (CIP) for the Agency
Mr. Solitei provided the following four scenarios on the rates and discussed the customer impact on all the scenarios:
. Scenario 1 - Includes 3% Consumer Price Index (CPI) and the water supply reliability projects funded at $9 million through FY 2021-22.
. Scenario 2 - Includes 3% Consumer Price Index (CPI), the water supply reliability projects funded at $9 million through FY 2021-22 and funding fund 100 (Water Enterprise Fund) minimum reserves by FY 2021-22.
. Scenario 3 - Includes 3% Consumer Price Index (CPI), the water supply reliability projects funded at $9 million through FY 2021-22, funding fund 100 (Water Enterprise Fund) minimum reserves by FY 2021-22 and an additional funding of $6.2 million for water supply reliability projects.
. Scenario 4 - Includes 3% Consumer Price Index (CPI), funding fund 100 (Water Enterprise Fund) minimum reserves by FY 2021-22 and no funding for any water supply reliability projects.
Director Ramirez Holmes reiterated that this was the Board's first time seeing the presentation along with the public.
Director Palmer questioned where Fund 100 O&M and Water Supply Reliability Projects came in with the scenarios as the numbers did not match up with any of the scenarios. Ms. Pryor stated that the scenarios divide the water supply reliability projects into two components. Included in all of the scenarios is a portion of the water supply reliability projects which is for California WaterFix. Staff expects California Department of Water Resources (DWR) will start billing the contractors through the statement of charges. The additional water supply reliability project of $6.2 million, that is a few years out, could include projects such as the Los Vaqueros Reservoir project, Potable Reuse, etc., or some combination of those projects. Funding has been included in the scenarios as the Urban Water Management Plan does show a need for additional reliability projects in that time frame.
Director Gambs stated that a lot of assumptions have been made but typically a CIP project goes through a CIP process where it is identified specifically with a total dollar amount and the funding source. At this point we need water supply reliability both for new water and existing customers and that hasn't been settled yet. So the assumption has to be revisited in view of a CIP where the Board can say and understand how much is for expansion because the new water should be paid for by connection fees and not water rates. Ms. Pryor responded that for the purpose of this rate study the new water project that we are looking at the Sites Reservoir we are assuming will be 100% funded by connection fees. Other projects such as potable reuse or Los Vaqueros Reservoir expansion or others would be to bolster our reliability or maintain the reliability we have today are assumed in the water rates.
Director Stevens stated that the CPI in Scenario1 is too low as it's going to get higher with time as the cost of money is going up. If you look at it over 4-year period that is a 16% increase total. Scenario 2 is 34% over 4 years and still lower than most other agencies in the Bay Area. Scenario 3 is 41% over a 4-year period. Scenario 4 is a 22% rate increase. In response to the emails stating that the Agency should cut back on costs, if we cut back on employees we would have to hire contractors, the same amount of work has to be done. The employment rate is so low in the Bay Area it is hard to find people to work. If you keep the reserves too low there could be an earthquake, another drought and not have the funds available. We also have $25.5 million in the pension liability which is growing by about $1.5 million a year that still needs to be addressed. One way to look at this is to build up the reserves in case we need to use that to take care of the pension. The past Boards did not increase the rate incrementally enough. Now we have to make up for it.
Director Sanwong stated that she has read all of the emails that they have received and thanked everyone who has sent one and has attended the workshop. She was prompted to look through all of her water bills and thinks that Zone 7 should take the opportunity to educate the water users as there may be differences with the different retailers that use Zone 7 water with other items included in their water bills. Some of the retailers provide resources as to what each item listed on the water bill is for. Director Sanwong also stated that the base calculation is missing from the spreadsheets and charts that have been presented, such as number of households or meters, and new residential or businesses opening. Ms. Pryor stated that it would be in the water sales actuals projections. We don't use meters but we use acre-feet of sales that we receive from the retailers. The retailers factored in what they think their new connections will be for that period and the demand for that period. Director Sanwong addressed that the concept of readiness to serve water, the value and ability to turn on the faucet and have water available should be emphasized to the public.
Director Quigley stated that for many years the Board held rates too low and let the reserves get to a dangerous level. The scenarios are complicated and he requested one that covered our cost adequately and helped us with our goal of building our reserves to a healthy, safe level. Having the reserves at a good level helped with the credit rating for the bonds. This agency is a public agency and does not make a profit. We really want to keep rates low. Director Quigley requested a chart with the other Bay Area water rates with Zone 7's likely scenarios by them to see the differential.
Director Figuers stated that there has been an average of 7% increase per year since 1974 to present and the problem is with the Rate Stabilization reserve The Operating and Emergency reserves are fine. The drought contingency and rate stabilization are low. These funds do not do anything for supplying water but are a savings package that are supposed to be refilled the next year after use. Director Figuers also questioned over what time period the $7.1 million savings from the building purchase covered. Mr. Solitei responded that the lease was to end in 2020 and the purchase in 2017 created savings from a 5% lease increase each year. Director Figuers also questioned how much does the energy savings vary from year to year with the solar. Mr. Solitei stated that DVWTP solar panels generate an estimated $50,000 per year in energy savings. Director Figuers also asked if the pension liability of $25 million could be pre-paid it with monthly or yearly payments. President Ramirez Holmes responded that the $25 million is an estimate figure based on Alameda County Employees' Retirement Association (ACERA) actuarial valuation study. Director Figuers also asked what the numbers for the inflation factors were based on. Mr. Solitei responded that the energy and utility at 5% inflation, salaries and benefits at 3% inflation and all other cost at 3% inflation factor.
Director Figuers further stated that if the fixed charge is increasing than the variable charge greatly reduces, and it looks like the emergency and contingency funds can be reduced since everything will be fixed. President Ramirez Holmes stated that all four scenarios assume an increase in the fixed charge to 45%. Director Figuers stated that the deficits in all four scenarios are due to the rate stabilization and drought contingency reserves. President Ramirez Holmes asked Mr. Solitei to confirm the impact of increasing the fixed charge recovery and the need for meeting the minimum reserves. Mr. Solitei responded, the operation reserves are based on operating expense, rate stabilization and drought contingency reserves are based on water sales and the emergency reserve is based on FEMA recommendations at 2-3% of water enterprise assets value. Director Figuers responded that the drought and rate stabilization funds do not need to be funded.
President Ramirez Holmes requested reviewing the Asset Management Plan (AMP) as it relates to the CIP. President Ramirez Holmes asked where the inflation factor came from. Mr. Solitei responded that they are based on past few years' expenditure trends and the Consumer Price Index (CPI at 3%).
Director Gambs stated that making more of the water rate fixed would be best and had a fixed rate been in place during the time of the drought there would not have been such an increase in the use of reserves. He also suggested reviewing the Reserve Policy to see if it's still reasonable given the increase in the fixed charge recovery. Director Gambs requested a background on the fixed part of the water rate and why the fixed charge is recommended to increase from 35% to 45%. Mr. Solitei stated that during the last drought the agency spent $26 million in reserves since at the time the agency had nearly 100% volume-based rates. The mandatory reduction in water for example 25% meant a similar or more reduction in the agency revenues. With an increased fixed charge this would help with financial risks. Ms. Pryor stated that as a larger portion of the cost becomes fixed, it would be a good time to review the Reserve Policy. Also, all of the reserves are at the minimum levels, not the target or maximum levels. The operating and emergency reserves are a little lower than the industry standard. Director Gambs stated the Reserve Policy is an area that could be looked at as customers have requested that ways to cut cost be reviewed.
President Ramirez Holmes stated that she was confused as to raising rates to increase the rate stabilization fund. She would understand increasing rates for operation or emergency reserves, but not to increase a rate stabilization reserves. Director Ramirez Holmes requested a scenario without reserve increases. Since debt funding was done this year, would the same amount of capital funding need to be transferred to fund 120? She is looking at the Agency's ability to complete the projects that are currently planned in the CIP, particularly the two large projects that were moved up. The AMP has not been looked at after the decision to use debt funding, and it needs to be reviewed along with a realistic number of projects to be done. The CIP plan lists twenty-four projects for one year. That would be more than ever done previously, it's normally fifteen. President Ramirez Holmes stated that there are funds besides Fund100 for water reliability projects. Mr. Solitei stated Fund 310 (Water Supply and Reliability Fund) has been used to fund the California WaterFix and Sites Reservoir planning phase of the projects. Fund 120 has debt proceeds of $57 million for Ozone at both treatment plants (DVWTP and PPWTP) and fund 120 cash reserves of $11 will be used for Ozone at DVWTP and approximately $16 million for upgrades projects at PPWTP. President Ramirez Holmes stated that she understands that during the drought projects were put off, but the same amount is still being transferred. One year as part of the drought strategy the plan was to not transfer the same amount, but reduce it and she reiterated the necessity to review the AMP to figure out the CIP.
Ms. Pryor stated that the debt financing is for two specific projects, but the other projects would still be funded from water rates. There are also backlogged projects such as the Chain of Lakes, Well Stabilization, some other Well projects, Chain of Lakes Pipeline Projects and the infrastructure is getting older. There is some funding from two other funds for the water supply reliability projects, but those were one-time payments in past years and those funds should be exhausted within the next few years. They could continue for a few years to fund some of the planning and beginning of designs, but they will not be there to fund the ongoing water supply projects. President Ramirez Holmes stated that there is $7 million there. Ms. Pryor stated that the Cal Water Fix funding is planned to come from the water rates and that the Urban Water Management Plan stated the need for additional water supply projects. President Ramirez Holmes responded that without knowing all of the projects that will be brought to the Board it is difficult to approve a four-year rate increase. President Ramirez Holmes asked which scenario was assumed for the Budget that was approved in June 2018. Mr. Solitei stated it was 8% and that at the time there was not enough data on water supply reliability projects. President Ramirez Holmes pointed out that the difference between the revenues and increase is mostly the $9 million California WaterFix which is in Scenarios 1, 2, and 3. She asked if there was a breakdown of the $9 million in terms of fixed and variable. Ms. Pryor stated that for the four-year period it would all be fixed. President Ramirez Holmes stated that it could be a property tax assessment versus a water rate. Ms. Pryor confirmed.
Director Figuers stated that the rate stabilization and drought contingency reserves are mostly due to a Board Policy that requires immediate repayment of the two reserves and the Board can address that. Zone 7's water rate increase has been between 0 - 14% over the last forty to fifty-five years. Director Figuers stated that currently we have major re-building projects to re-build the infrastructure and rate increases are necessary to increase water supply reliability.
Director Palmer questioned whether there was any leakage or corrosion with the pipes or degradation of the infrastructure. Ms. Pryor replied that there weren't any specifics and that the water loss factors are within industry standards. The Zone 7 infrastructure is getting older, so eventually we will have to look at repair, rehabilitation, and replacement and we need to prepare for this. Director Palmer asked if other agencies had been contacted regarding when they absolutely had to replace their pipes and would Zone 7 have a survey. Ms. Pryor stated that she would look into it.
President Ramirez Holmes opened the discussion for public comment. A citizen of Livermore asked if the water key assumptions for the water rates based information from DWR or past usage. Mr. Solitei responded the key inflationary assumption are from past expenditure trends and CPI. He asked about the $9 million and $6.2 million are the projects in the 2015 Urban Water Management Plan (UWMP). Ms. Pryor responded yes, the water supply reliability assessment was part of the UWMP report in 2015. He asked why the rate period was going through 2022, four years as opposed to two years. President Ramirez Holmes and Ms. Pryor stated that it was requested by the retailers as they prefer a longer planning cycle, such as five or six years.
Kathy Narum, Pleasanton City Council (speaking for herself) asked whether the fixed charge amount is allocated to each retailer on what they projected or will they be assigned a dollar amount per water unit. Mr. Solitei responded that actual usage is based on usage not projections. Fixed charge is based on 2-year rolling average for each retailer. Ms. Narum also asked if the Water Round Table Policy group is being factored in and whether that group has made a decision. Director Stevens responded that they are listening and they get the same presentation. The $9 million included for California WaterFix is an estimated amount only, it's the least costly option than other projects being looked at and that amount may change. President Ramirez Holmes stated that $6.2 million is also included for additional water reliability that is not California WaterFix. On the pension liability, Ms. Narum suggested investing in Section 115 trust, its irrevocable pension trust for the unfunded pension liability as it's only going to get worse.
Alfred Exner, a resident of Pleasanton asked why an equitable portion wasn't being charged to the untreated water customers. Ms. Pryor stated that the cost of service study for untreated water would be going to the Finance Committee on September 18, 2018. Both rates will be based on cost of service study and the appropriate overhead will be applied to both treated and untreated customers. He requested to see a worksheet with overhead and costs, and the basis for the allocation. Also, how many dollars are being allocated between those two groups and will the untreated customers get a fixed charge. Mr. Exner also questioned soft hiring, the employees contributing more to their share of medical premium from 10 - 15% in 2022 and the energy savings at North Canyons Administration building. President Ramirez Holmes responded to Mr. Exner questions and stated that they are seeing savings with the solar panels at the Treatment Plant and the purchase of the building has been a savings as the lease was not very good as explained at a previous meeting. President Ramirez Holmes stated that the employee benefits are negotiated between the County of Alameda and most of the employees are unionized. Zone 7 only negotiates the salary portion.
Jim Irving, Livermore resident, asked if the font size could be increased on the chart of Other Bay Area Water Rates per CCF on the next iteration as that is a considerable point of pride that Zone 7 has the lowest rate. He is concerned about increasing the water rates for water supply reliability projects when the cost is unknown. It would be a really good selling point to try to supply the Board Members with information that would help justify the $6.2 million. It would be perfectly understandable if we know what it is the cost Los Vaqueros Reservoir, Potable Reuse, etc.
Bodhi, Pleasanton resident, stated that the five-year revenue and expenses were well managed. He asked what is causing the 30% increase as shown in Scenario 3 Additional Water Supply Reliability Projects Cash Flow. From 2018 $3 million is being added up to $39 million, excluding the WaterFix. Mr. Solitei responded, FY 2018-19 includes $1.5 million in labor savings due to soft hiring and that savings is not realized in the coming years as those position are added back to the budget. Mr. Bodhi responded that the water demand has decreased even with additional customers as listed in the Water Sales Actuals/Projections. Zone 7's revenue has increased significantly. He is asking for the Agency to consider the cost structure based on what is displayed as there has been a 67% rate increase over three years.
Mr. Dan McIntyre, General Manager, Dublin San Ramon Services District, made the recommendation that the water reliability piece should be separated out from O&M because it makes it look as if the O&M is going up and it's not, it's the water supply reliability project cost. The water supply reliability project does not yet exist in the ten year CIP, but we know from our studies that something or several things will be needed at the amount of at least $1 million. The number that is built into the model is reasonable. DSRSD supports funding reserves to the appropriate industry standard level, but the number of reserves categories is a concern and consider consolidating several of the reserve categories. He stated, DSRSD supports increasing the fixed charge percentage from 35% to 45%, it's becoming a common industry standard, many water retailers in California have been doing this.
A member of the public made a comment on the Staff Report. He stated that Livermore's customers through 2005 used about 15 units a month. Between 2005 -2012 used 17.5 units per month. Pleasanton has been renowned for using more than Livermore for quite some time; however it shows the same percentage increase. A number more realistic to what people use would be better comparison. Mr. Solitei stated that he talked to DSRSD and Cal Water and they use 10 units, and the City of Livermore uses an average of 15 units and have no data usage from the City of Pleasanton. President Ramirez Holmes requested the information for the next meeting.
President Ramirez Holmes returned the discussion back to the Board as there were no more questions from the public.
Director Stevens stated that Scenario 1 was definitely not a good scenario and neither was Scenario 3 as they do not make sense. We need to bring the reserves back up until we are about at 50 to 60 % fixed cost. There is going to be another earthquake and drought and the reserves need to be built up for emergencies. The $6.2 million assumes something that he doesn't think the Agency will be going in that direction yet. Mr. Solitei asked if he would like to see a scenario with the $9 million and funding all reserve at minimum levels. Director Stevens said Scenario 2 makes sense, but it may get changed with everyone else's comments.
Director Palmer stated that it was mentioned that other agencies throughout the Valley have been putting things into a fixed cost and stated that she would like to see their percentage of fixed cost.
Director Figuers had no further comment.
Director Gambs stated that in Scenario 2, the reserve requirements should go up the same each year so then when it got to the end of the four year period, you don't need to transfer more into the reserves at once. Scenario 2 shows $6.1 million going to reserve in one year, if that number could be evenly distributed.
Director Sanwong would like to understand if a scenario was chosen that does not show the water supply reliability projects, what happens when they need funding. She also asked if the money isn't needed until 2023. Ms. Pryor replied that DWR has stated that in 2019 or 2020 CalWaterFix will be showing on the bills. Potable Reuse has a liaison committee meeting in January 2019.
Director Quigley stated that Scenario 2 seems the most easy to understand. He also stated that some of the water supply reliability projects aren't likely to happen in four years as Director Gambs stated, however we are committed to many projects. Having a best estimate of those costs would be helpful with a long-term or short-term planning window for the potential projects.
President Ramirez Holmes asked if the scenarios are well explained in their title. It should be clearer what each scenario includes unless you read in three other places. Also, the monthly customer impact should include the average unit used by many customers, 10 unit, 15 or 20 units. There should also be a scenario about addressing the reserves based on comments received from the Directors and pull out the water reliability from O&M as Mr. McIntyre suggested.
Director Gambs stated that amounts should be revisited after knowing costs for Los Vaqueros Reservoir expansion, Potable Reuse, etc. We may need to adjust the rates once this information is known. Ms. Pryor stated that the Board can revisit the rates at any time. For example, if two-year rates they could be revisited in nine months. Four-years, revisit in two years.
Director Palmer stated the chart on the cost of water should be included in the next report to compare as they review various different water supply reliability scenarios.
Mr. Solitei requested clarification on the requested reserve scenario. President Ramirez Holmes stated that she was on board with Director Figuers in not increasing rates to fund rate stabilization reserves. She would like to look at a scenario which shows the operating and emergency reserves fully funded, as well as not showing reserve levels above the minimum requirement. Some work needs to be done on the reserves. All of the scenarios show the reserves being funded in four years and she heard from several Directors that they may want to take a longer look at that.
President Ramirez Holmes reiterated to the public that the Board can be contacted at firstname.lastname@example.org
Item 5 - Closed Session
The Board adjourned for Closed Session at 7:08p.m.
Item 6 -
Closed Session adjourned at 7:24p.m.
One item was reported out of Closed Session. The Board agreed to a Settlement of $699,000 plus interest in the case of Zone 7 v. Bhupinder Singh, et al., Alameda County case no. RG17862001 and related cross action.