Zone 7 Meeting - September 1, 2021

1. Call Meeting to Order

2. Public Comment

3. Policy Considerations for Untreated Water Rate Components

4. Declaration of Drought Emergency and Stage 2 Water Shortage Emergency

5. Adjournment






September 1, 2021

The following were present:




















Item 1 -

1. Call Meeting to Order

President Ramirez Holmes called the meeting to order at 6:03 p.m.

Item 2 -

2. Public Comment

Public comment was received from Kelly Abreu, Fremont resident.

Item 3 -

3. Policy Considerations for Untreated Water Rate Components

Lizzie Foss, Financial Analyst, provided an overview of the untreated water rates setting process. She hoped to discuss and receive guidance from the Board on policy considerations for the untreated water rate components. Staff had been looking to implement a formal policy that would create an efficient process in setting rates each year. Her presentation included background on Untreated Water Rate Program and each of the policy considerations for the five untreated water rate components. She welcomed questions from the Board after reviewing each component.

Component 1: Water Supply Costs

Director Gambs asked if there were differences between what was being presented and what has been done previously. Ms. Foss said there were no differences, but that staff was providing the full scope of covering the water supply. She would be sure to point out any new aspects of the components as she went through the presentation.

Director Figuers inquired about which items were new costs. He also asked if untreated water customers pay for them. Valerie Pryor, General Manager, stated that all the items have been part of the water supply portfolio, which come in and out from year to year, but none of them were new items. She confirmed that they were charged to untreated water customers.

Director Sanwong asked if untreated water rates were reconciled each year to ensure that they are within the range of the Component 1 costs from previous years. Osborn Solitei, Treasurer/Assistant General Manager, Finance, stated that in 2019 the Finance Committee recommended a reconciliation, which has been each year since then. Ms. Foss added that actual costs incurred for the year were received and compared against the plan and what the rate was based on. Then either a credit or a charge can be associated with the following year's rates. Most recently it was a credit of $9.

Director Figuers questioned why staff was seeking guidance on whether the components shall be included in the untreated water rate calculation that has historically been in place. Ms. Pryor clarified that staff wanted a comprehensive review of the policy behind untreated rates. This was the Board's opportunity to formally address these items whether they were new or existing.

Component 2: Water Supply Management Costs

President Ramirez Holmes asked Ms. Foss to clarify if this was mostly staff labor costs to manage Component 1. Ms. Foss concurred.

Director Sanwong asked for a basic definition of the difference between untreated and treated water for the public. Ms. Foss answered that water supply, water utility, water storage programs would be charged to both treated and untreated customers. Water treatment and water transmission are excluded from the untreated rate, as these customers do not incur any costs related to water treatment, ozonation, or chemicals used to ensure that water is potable and drinkable.

Director Figuers asked about the difference between the general administration for the water storage program specifically for Semitropic and Cawelo. And asked for examples of non-specific projects that fall under the general administration. Carol Mahoney, Integrated Water Resources Manager, explained that any activity specific to an existing project or program is charged to a number underneath that budgeting platform. General administration items like attending meetings associated with water supply planning that may not be directly connected to an existing water supplier are charged to it.

Director Figuers asked about the reference to "utility", and if it was a word used for multiple meanings. He also questioned the costs associated with it. Ms. Pryor said it is the entire utility, as everything Zone 7 does is part of the water utility including running the entire utility operation related to untreated water. Ms. Mahoney added that staff looked at water as an integrated system. Mr. Solitei explained that the first component deals with water supply from the South Bay Aqueduct (SBA) and other utilities are variable costs from the state. Actual invoices from DWR, water from Mojave, or transports on those utilities were staff costs to mitigate them.

Director Gambs asked if the cost-of-service study was done to determine rates that could be used to provide details and accountability on individual components to untreated water customers. Mr. Solitei confirmed.

Director Palmer asked if Los Vaqueros was classified under water storage administration, as there were staff expenses in forming the Joint Powers Authority (JPA). Mr. Solitei said Los Vaqueros was part of the capital projects, so it was not paid out of untreated water rates yet.

Director Sanwong asked of these were overhead costs associated only with the items under Component 2. She also asked how these costs were attributed to untreated and treated water customers. Mr. Solitei stated that they were direct staff costs, as overhead costs were covered under Component 5. Engineering labor costs would only be charged if staff was working on the programs listed under Component 2, and the consultant's report would display the direct staff costs attributed to untreated customers. The portion for the treated customer is a percentage of the balance of what is not being charged to untreated customers. A timesheet program is used to directly capture accurate staff costs.

Component 3: Local Water Rights Administration

President Ramirez Holmes asked if water rights administration were included in the past. Ms. Foss indicated yes.

Director Figuers asked when it started to be included and why. Ms. Foss said access to more local water offsets any surface water that comes through the SBA, which is why untreated water customers can get their water. If there are more sources of water available for treated water customers, untreated customers benefit from having access to more water available from the aqueduct.

Director Figuers said the amount of water that they can pull is based upon yearly rainfall rates, which controls groundwater local rights administration. He asked if rainfall was factored into it.

Mr. Solitei explained that if more local water is available, the M&Is for treated customers will receive that portion. Untreated water customers will benefit from water that comes through the SBA because more water is available for the treated customers. He gave the example that during the current drought, little water comes through which would benefit the untreated customers more. Director Figuers expressed concerns about upstream untreated water customers who would lose out on any additional water depending on rainfall. He questioned why they would be charged. Mr. Solitei stated untreated water customers benefit from water that comes through the SBA because treated customers are using other sources of water instead.

Director Palmer asked a question regarding how water availability is balanced. Amparo Flores, Integrated Planning Manager, explained that Zone 7 operates as an integrated water supply system. Available supplies are reviewed to meet the demands to the best of the agency's ability. In any given year, a mix of supplies will meet 100% of those demands. As Director Figuers pointed out, there are turnouts upstream of Lake Del Valle that cannot access lake water; however, about 50% of ag demand can be fed by Lake Del Valle. Even when there is no water coming through the Delta, it is still possible to serve Lake Del Valle water to some ag customers.

Director Sanwong noted where the map of the turnouts for untreated water customers could be found in the packet. She asked for confirmation of the specific turnouts. Ms. Flores stated that the turnouts that could be served from Lake Del Valle were Wente 4, Concannon, and Norman. These were upstream of the Del Valle branch pipeline, which connects Lake Del Valle to the SBA, but water could be backed up to meet those demands from those turnouts. There were also a couple of turnouts that were also off the Del Valle branch pipeline, which connects directly to Lake Del Valle. Other sources of water used to serve M&I demands frees up water for ag.

Director Figuers indicated that the mixed system was unclear to him in the past, and there were some turnouts that were solely dependent on the canal and cannot be serviced like Lake Del Valle. Ms. Flores said he was correct and a few of the turnouts depend entirely on the SBA and water moving from the Delta.

Component 4: Groundwater Monitoring and Management

Ms. Foss noted that this component has been included.

Director Smith McDonald asked how untreated water customers' benefits were quantified to provide direction. She also asked if there were standard benefits for these customers based on certain components.

Ms. Pryor said water is managed from the overall water supply program. Untreated customers are getting untreated water from the SBA, which has several components within it. However, a mix of groundwater, local water rights, and imported water is available throughout the service area but the exact combination varies each year. This year would be about 50% groundwater and 50% imported water. The concept is that every component of the water supply benefits the overall water supply portfolio. All demands are being met by having a full water supply portfolio that is robust for the entire Tri-Valley.

Director Sanwong asked if untreated water customers face significant water conservation measures in the surface water they receive with regard to water rights and groundwater basin management if there is limited water supply in an extreme scenario. Ms. Pryor indicated they would in the current 2021 drought year since there were no local water rights due to no rain or runoff. The use of groundwater was being maximized so there would be plenty of surface water available for untreated water customers.

Director Figuers asked Ms. Pryor to explain if SBA water is not available from the state, groundwater pumping will not help untreated water customers because there are no pipelines going up to them. He was concerned about these customers paying for groundwater pumping, but not benefitting whatsoever from it. Ms. Pryor indicated that was exactly why they were holding the workshop to get Board policy guidance. These components were recommended by a rate consultant about three years ago. Staff wanted policy guidance from the Board on these components before they conducted the next rate study.

Director Green asked if the wells that exist in ag areas for personal were not useful for agriculture. Ms. Mahoney explained that most of the existing wells across the Valley were either for domestic use or for winery buildings, but they were not generally used for irrigation because the plants are sensitive to the naturally occurring boron in groundwater.

JaVia Green, Financial Analyst, responded to a question that Director Figuers posed about the SBA and if there is a potential 0% allocation from State Water Project (SWP). In those situations, water in Cawelo and Semitropic, and other water transfers were water available to untreated customers.

Component 5: Agency Overhead

Director Smith McDonald asked to confirm that the overhead for untreated water customers not charged to them was estimated at 1.8%. Ms. Foss confirmed.

Director Gambs asked about the allocation methodology and why it was the chosen method of allocating it. Ms. Foss clarified that untreated customers would not be charged any overhead associated programs they are not responsible for. There were several programs in Fund 100, but untreated customers were only charged a few of them, as they have to do with water treatment and water transmission. No overhead associated with those programs flows to untreated customers which is why the percentage is so low, because it is only a few programs within Fund 100. The whole calculation would be outlined in the Cost-of-Service Study.

Director Figuers asked to confirm that Component 5 did not include untreated water administration, conveyance administration, general administration, and support to water in Component 2. That this was a different type of overhead. Ms. Foss explained that Component 2 were the direct staff labor costs associated with those programs, then the overhead is central services and anything within administrative services. General administration was specific to those programs but not to agency-wide operations.

President Ramirez Holmes announced that staff would not review Component 6, as it was not proposed to be incorporated into the untreated water rates. She then welcomed comments from the public.

Director Green asked why Component 6 was not included. Ms. Foss explained that it had been discussed previously, and due to the rules and regulations governing the untreated water service, Zone 7 does not control the SBA and cannot fully guarantee water deliveries. There was a disconnect on whether some capital projects associated with water reliability should be included.

Rich Thompson, a member of the public, asked about the concept of pooled source funds under Component 4. He inquired why untreated users absorb the costs of groundwater.

Dan McIntyre, General Manager at Dublin San Ramon Services District (DSRSD) appreciated Zone 7's efforts to ensure that costs are equitably distributed between treated and untreated customers based on benefits. He expressed their support in how treated and untreated users share costs required to achieve a similar level of water supply reliability. As noted in the staff report, water supply costs for the calendar year 2021 were anticipated to be significantly higher due to dry conditions and should be equitably distributed to all Zone 7 customers.

David Lunn, a resident of Livermore, posed questions about water utility planning under Component 1. How much DSRSD pays Zone 7 to pump, and how much Cal Water and Pleasanton pay towards the management of the basin. He made comments about maximizing groundwater. He felt that overhead was not based on water usage, but rather on hours worked. Management time should be directly billed to specific projects and not spread out equally between the programs. He asked if staff could verify that the cost proposed for water purchases was about $160 an acre-foot to the untreated water customers.

Karl Wente, Chief Operating Officer of Wente Vineyards, Vice-President of the Board of the Growers Association, who is also on the Alameda County Ag Advisory Committee, understood the shared costs but also shared that it was challenging to keep vineyards growing and in operation, as they were at a competitive disadvantage with every rate increase. He felt that their competitors around the state were paying less per acre-foot but was optimistic about in being in the Livermore Valley. He touched on Tri-Valley Conservancy and UC Davis undergoing a study to look at the south valley area plan viticulture and the general agricultural economy to show how challenging it is to grow grapes and keep sustainability alive. He thanked the Board for continuing to maintain the water supply and quality, as it made a difference. And to have a voice for the agricultural community, such that they could continue to have a vibrant agricultural economy and agrotourism in the area. He added that the water rights associated with untreated water, with non-potable are very much public domain. The Zone 7 website displays the allocations.

Mr. Abreu made suggestions in the consideration that goes into the cost which included the assured guarantee of water, quality, and labor costs. He felt strongly that the historical cost was irrelevant, and the marginal cost and fair market value is the only thing that mattered. The replacement cost for untreated water was about $900 per acre-foot on the NASDAQ Veles California Water Index the week prior, which included transactions from five water markets in California. He felt that arguing about $175 per acre-foot and elements of the overhead costs allocated into it was pointless, useless, and esoteric.

President Ramirez Holmes reiterated that staff looked for direction from the Board on which components should be included in the study and perhaps the rate. The Board either agreed or disagreed to include each component.

The Board agreed to continue including Components 1 and 2. They were in agreeance of considering Component 2 and 5 but were opposed to Component 4.

Director Figuers asked about the difference between how public agencies and private businesses do their billing. Ms. Pryor gave said that engineers working daily on the SWP are charged to staff costs, while the General Manager and Board of Directors were considered overhead. She also explained how the agency bills directly. Untreated water customers' bill was based on the rates established by the Board, which included direct supply costs, but not other overhead costs. President Ramirez Holmes added that a cost-of-service study was not done before Ms. Pryor became General Manager.

Director Green believed that everyone should pay their fair share but expressed concerns about a significant increase that could impact the agricultural industry. She felt that phasing in a significant rate increase or a multi-year plan should be considered.

President Ramirez Holmes added it would be charged by calendar year and commented that the agency does not usually do a true-up, but this was a proposal to include it. She thought this would be helpful because there was an $8 overage, which was credited back.

Director Palmer asked about how a true-up would be incorporated. Mr. Solitei indicated that in the previous discussion of 2019, there was a water rate calculation and reconciliation of a true-up which resulted in a credit given to the untreated customers; however, it could also go the other way. Reconciliation will take place and either a credit or a debit will be issued in the following year. President Ramirez Holmes asked staff to present more information about the true-up to the Finance Committee. Ms. Green noted that the previous credit was $9. With the 2021 cost, the 2021 calendar year rate does not reflect the costs incurred this year for water supply. In the future, it would be an additional charge.

Director Gambs gave the example of this year's Mojave water costs that would increase next year's billing. He agreed with Director Green's suggestion in doing a multi-year increase for a significant amount. He then asked when the decision to incorporate a true-up took place. President Ramirez Holmes pointed out where the information could be found in the staff report and how it would be implemented. Mr. Solitei explained that the true-up would be included in the study, and the adjustment calculation would be presented to the Finance Committee. Years like 2022 with larger adjustments would also be refined.

President Ramirez Holmes asked if untreated water users weighed in on the true-up. Mr. Solitei believed it was filed in the 2019 study and discussed it with them but could not recall whether it was part of the survey. They agreed to include it in the upcoming workshop with the untreated water users.

Director Palmer decided that she did not want to include Component 4 but was still considering Component 5.

Director Figuers asked for staff to create a pie chart of the various costs associated with each of the components. Mr. Solitei said it could be included in the study.

The Board took a 15-minute break.

Item 4 -

4. Declaration of Drought Emergency and Stage 2 Water Shortage Emergency

Ms. Pryor gave a follow-up on the previous board meeting where worsening drought conditions were discussed. She gave an overview of the severe statewide drought conditions, and how they may affect Zone 7 in its limited opportunities to purchase additional water in 2022. Based on current conditions, it was reasonable to project that the water supply may not meet planned water demands next year. She provided a few scenarios at 0% and 5% allocations with some limits to water purchases. Ms. Pryor said staff had implemented several actions in the Water Shortage Contingency Plan and were recommending additional actions to address a potential water supply shortage. The key component of this plan was to declare a water shortage condition stage two, which includes mandatory conservation from the retailers of 15%. Additionally, staff recommended a declaration of a Local Drought Emergency which would allow the implementation of projects and improve water supply reliability. Staff also recommended adding funds to its on-call well and pump contract to conduct repairs and to expedite getting the wells into service. She then welcomed questions and comments from the Board.

Director Sanwong asked for background information on the water rate drought surcharge in the previous drought. She asked staff to comment on the water rate scheduled that moved towards fixed versus a variable rate, and how it would not affect current agency operations. She also asked if there would be any financial impacts from a 15% mandatory conservation. Ms. Pryor stated that the Water Shortage Contingency Plan includes the possibility of drought rates, but staff was not recommending them at this time. When the mid-cycle budget adjustment was conducted, they projected 10% conservation in the calendar year 2021, which was not met, and a 20% conservation in the calendar year 2022. Under that scenario, it showed a need for a very modest dip into the reserves, so there would be no reason for staff to recommend a drought surcharge. She noted that this does not preclude the retailers from implementing drought rates on their own, but Zone 7 staff does not foresee recommending that to the Board.

Director Sanwong asked if the Board would be voting on the resolution, the next step for the retailers and if the retailers could make different drought declarations. She inquired if staff were familiar with Cal Water's process, as it was a private entity. She also asked to confirm that retailers were responsible for implementing their own conservation programs. Ms. Pryor confirmed and noted that staff had been communicating with the retailers and their next steps may include drought rates and limited watering days over the next few months. She confirmed that all the retailers were taking this seriously and were ready for the necessary steps. It was also up to their elected officials.

Director Figuers asked what the 15% reduction was based upon. Ms. Pryor explained this was consistent with the Governor's 15% voluntary conservation from 2020.

Director Smith McDonald asked what households should expect in what a 15% conservation means. Ms. Pryor stated that each retailer was responsible for implementing those programs.

President Ramirez Holmes shared how Pleasanton did it in the past and reiterated that the retailers will decide. She then welcomed public comment.

Mr. Lunn asked about Zone 7's pumping capacity. Ms. Pryor stated that staff recommends the appropriate pumping capacity. Wells could be running at higher rates, but the current rate will contain the PFOS fume.

Linda Kelly, a resident of Pleasanton, asked for clarification on the current rate in Mr. Lunn question. Ms. Pryor stated that the agency is currently on pace to produce 14,000 acre-feet from groundwater production this year. She had answered the question that the wells could run at a higher rate, but staff felt the current rate is what they feel is most appropriate for containing the PFOS fume.

Mr. Abreu commented on how other agencies are doing in their conservation rates. He asked if untreated water users were expected to participate in the cutback. He also asked if cooperation would be done through political pressure or in rates and water pricing mechanisms to ensure participation. President Ramirez Holmes emphasized that the Board cannot impose restrictions, as Zone 7 is a wholesale agency. Its only direct customers are untreated customers, who are not subject to the 15% reduction. The retailers are responsible for enforcing the cooperation that the agency advises. The goal is to take advantage of the fall because most households can reduce their usage by limiting their outdoor landscaping.

Jill Buck, a resident of Pleasanton, expressed her support of the declaration. She recently took photos of Lake Oroville, Shasta Dam, Folsom Dam, and the Los Vaqueros Dam, and compared them to the ones she had from 2014 and 2015. She stressed how dire the situation is and thanked the Board for doing their part in getting through these tough times.

President Ramirez Holmes said she was in favor of the resolution but asked for the following correction: "BE IT FURTHER RESOLVED that the General Manager is hereby authorized and directed to identify emergency projects for Board consideration that will minimize impacts on water deliveries in the Zone 7 service area; and." Director Figuers seconded the changes.

All the directors expressed their support of the declaration. They also agreed with President Ramirez Holmes' proposed changes to the resolution.

Director Sanwong asked if staff could receive updates on the actions the retailers are taking.

Director Palmer noted that Cal Water offers its own rebate programs since it does not participate in rebates through Zone 7.

President Ramirez Holmes reiterated the importance of taking the right steps in conserving water.

Director Palmer moved to approve Item 4 and Director Smith McDonald seconded the motion.

The item was approved by a roll call vote of 7-0.

Resolution No. 21-67 Declaration of a Drought Emergency and a Stage 2 Water Shortage Emergency

5. Adjournment

President Ramirez Holmes adjourned the meeting at 8:35 p.m.