Zone 7 Meeting - September 7, 2022

1. Call Meeting to Order

2. Wholesale Water Rate Study

3. Adjournment





September 7, 2022

The following were present:














Item 1 -

1. Call Meeting to Order

President Palmer called the meeting to order at 6:05 p.m.

Item 2 -

2. Wholesale Water Rate Study

Osborn Solitei, Treasurer/Assistant General Manager - Finance, introduced the item stating that the study assumes a two-year adopted budget rate that the Board approved in June. The first two years, '23 and '24, include the budget as approved by the Board, and the last two years, '25 and '26, assume inflationary factors. He listed several assumptions that were included in the study such as the funding of various capital projects, getting the Drinking Water State Revolving Fund Loan fund and the debt and O&M paid, water transfers, State Water Project allocations, retail demand, how much water will be available to supply, and current conservation levels.

JaVia Green, Financial Analyst, presented the Wholesale Water Rate Study. She discussed the schedule and some of the key dates, assumptions that went into developing the financial plan scenarios, reserve policy compliance, draft financial plan scenarios, and next steps.

Director Figuers asked if debt funding was being used. Ms. Green replied that for the Chain of Lakes PFAS Project, the assumption is that we are going to go after debt, which is a loan through the Drinking Water State Revolving Fund (SRF); and that loan would be for $24 million.

Director Figuers asked about the payback time period if we used reserve funds. Ms. Green replied that for the PFAS project, there isn't a lot of reserve financing associated with that project. We would draw on the loan to fund the construction costs over a two-year pay period. The Stoneridge Well PFAS project, however, does have reserve funding. For that project, we would assume that in fiscal year '23, we would use $16 million in reserves, and then through additional rate revenue, we would replenish the reserves that were used in Fund 120 over a four-year period at $3.3 million a year.

Director Sanwong noted that customer water bills are different by retailers. She wondered if the way we handle fixed and variable revenue affects that; and she requested a fixed and variable breakdown at the next meeting. Mr. Solitei confirmed that the way the retailers pass on rates is different. So, what they did is blend rates for now. For the next meeting they will show what the volume base will be by itself, the line item and then what the fixed cost will be. He said they will show all of that at the next meeting. Valerie Pryor, General Manager, added that the percentages won't necessarily match between the overall revenue adjustment and the impact to customers because there is a little bit of growth assumed in this forecast. So even though, overall, this scenario shows we need to collect 2% more revenue, it's over an increased base.

Director Sanwong said that it would be helpful to see a little bit more of the fixed variable charges to the retailers in order to understand our impact. Mr. Solitei replied that they will come back with a breakdown of the variable component and the fixed charge component.

Director Sanwong asked if the potential future costs of the Delta Conveyance were included. Mr. Solitei confirmed that it was included. Director Sanwong stated that the projected cost might be quite a bit more and asked if we were going to bring that back, maybe to the Finance Committee, to talk about property taxes. Ms. Pryor answered that the Delta Conveyance Project for scenario three includes the planning and permitting funding at the same level that the Board approved for calendar year '24. The actual cost in those years will be higher because it will be going to the design phase, but we are assuming some sort of debt financing so that's why we're keeping the cost the same for right now. We don't have the overall final cost, but as we move into future phases with the Delta Conveyance Project, we will be looking at debt financing through DWR. The cost will go up significantly, but it's not reflected in this four-year rate cycle.

Director Green expressed the desire to see treated and untreated water done at the same time. Ms. Pryor replied that they would have to look at the different rate cycles and then confer with the Board President as far as agenda setting. They do untreated water rates on an annual basis year-by-year. Treated is on a four-year rate cycle. So, they are on different cycles.

Director Gambs asked how the water demand conservation and the State Water Project (SWP) allocation estimates were reached and how are they connected. Ms. Green replied that the 5% and the 10% for calendar years '22, '23, and the 30% for '24, were the assumptions that were provided from the Integrated Planning team. They assume that SWP project allocations follow the operations plan, and the operations plan equates to costs that are then put into the budget, which eventually lead to rates. Director Gambs wanted to know that if we had an average allocation, how much of the water revenues would be based on a normal year rather than a worst-case year. Ms. Pryor said that she predicted that we will start out next year with a 0% allocation and maybe go up to 5%. But because we are using so much water from storage, we'll likely still be buying water to repay that storage. So, our operations plan shows water transfers every year until new water supply projects come online. In a good year, we're buying water to repay. In a bad year, we're buying water to supply water.

Dennis Gambs asked what we can expect in an average year. Ms. Pryor replied that in an average year, we would have similar costs because we would be buying water to replenish our storage. Ms. Green explained that for the fiscal year '24 budget, which becomes the baseline for future cost because we don't have an operations plan or a budget for '25 and '26, our total water budget is $8.2 million. So, they take that $8.2 million forward and use it by a 5% inflation factor to come up with a water budget for '25 and '26. It's not showing the $15 million that we spent on water last year in this. It's showing a middle ground at about $8 million carrying forward. Director Palmer stated that she would like to see a couple scenarios where we've got more conservation versus less conservation, because we probably are not going to be out of this drought and our revenue may be down because of that. Mr. Solitei proposed adding a scenario having 15% conservation for the whole four years.

Director Sanwong thought it could be helpful for the next meeting to have some information about how project costs have changed each year. Mr. Solitei stated that they will have a draft report prepared for the Board on October 19 that will explain how they reach those assumptions.

Director Gambs asked what assumption was made regarding water transfers for this study. Ms. Green explained that for the Board-approved budget for '24, the water transfers are 2,000 acre feet at $1,300 per acre foot. So, $2.6 million is in the fiscal year '24 budget and because we don't have budgets for '25 and '26, we carry that forward with inflation. The amount that's in these rates for transfers is $2.5 million a year by 5%. Mr. Solitei added that the water transfers that we are assuming is $2,000 per acre foot. But, in the last few years, Mojave was $2,000 an acre foot and we bought almost in those transfers totaling $9.8 million. Here, we're just estimating $2.6 million. It's a lot of money but that's a conservative assumption on the transfers. Ms. Green further explained that this dovetails the need to fund reserves for economic uncertainties, at least at a target level, because if we don't buffer our rates with higher transfers, if that need arises, we could possibly use reserves to fund higher water costs like last year. So that is why staff recommends that we stay at target level for reserves.

Director Palmer inquired what our fixed rate was. Ms. Green answered 42.5%. Director Palmer asked about the progress on the plan to increase our fixed rates to come on par with what our actual costs are. Ms. Green responded that we are assuming 45%, which we will reach in "23. Our actual fixed costs are close to 70%, however, our rate consultant doesn't recommend anything above 45%.

Director Benson requested more detail summarizing the debt line items. Mr. Solitei responded that they will provide a table of the cost of the debt and the repayment schedule.

Director Palmer asked if we would still be drawing down reserves if we did not defer other projects. Mr. Solitei replied that if we did not defer those projects and wanted to fund PFAS at the same time, we would not have enough money to fund both. But staff will give her an attachment of the deferred projects and the repayment, and the proposed PFAS or Stoneridge funding and the schedule. Ms. Green added that all those costs are incurred in Fund 120, so they will show the costs and the cash flow for Fund 120 separately.

Public comment was received by Vin Pohray, a resident of Pleasanton, Kelly Abreu, a resident of Fremont, and Dan McIntyre, General Manager, Dublin San Ramon Services District.

Director Palmer noted that if we have a higher state water project allocation would expenses be somewhat less than if we had to worry about water transfers and buying water from other folks. Ms. Pryor explained that we've been paying to extract water and bank water. If there were more water in the system, that would be a good opportunity to buy more water to start paying back our storage. Our water supply evaluation shows that we need water transfers in every year, whether it's a good year or bad year. In bad years, we need them to make up water supply. In good years, we need them to repay our storage. So, it's likely that there'll be a similar level of costs year in and year out.

Director Palmer stated that we need to be able to make sure that we have water available for when the bad times come, and we need to make sure our infrastructure and our operating maintenance stays up to date. Whether we like it or not, it's going to cost us and if we don't do it, then we're setting up the entire area for a very bad situation in terms of not being able to keep up with public health and safety, which is our prime goal.

Item 5 -

3. Adjournment

President Palmer adjourned the meeting at 7:27 p.m.