MINUTES OF THE BOARD OF DIRECTORS
ZONE 7
ALAMEDA COUNTY FLOOD CONTROL AND WATER CONSERVATION DISTRICT

________________________________________________________________

The following were present:

DIRECTORS: SANDS FIGUERS
JOHN GRECI
ANGELA RAMIREZ HOLMES
JIM McGRAIL
SARAH PALMER
RICHARD QUIGLEY
BILL STEVENS

DIRECTORS ABSENT: NONE

ZONE 7 STAFF: JILL DUERIG, GENERAL MANAGER
KURT ARENDS, ASSISTANT GENERAL MANAGER, ENGINEERING
OSBORN SOLITEI, ASSISTANT GENERAL MANAGER, FINANCE
LINDA VAN BUSKIRK, BOARD SECRETARY

COUNSEL: DAVID ALADJEM, DOWNEY BRAND

Item 1 -

CALL TO ORDER / PLEDGE OF ALLEGIANCE

President Quigley called the meeting to order at 6:30 p.m. and the board went into Closed Session immediately.

Item 3 -

OPEN SESSION AND REPORT OUT OF CLOSED SESSION The Board came out of Closed Session at 7:00 p.m. and President Quigley said that no reportable actions had been taken in Closed Session.

Item 4 - Pledge of Allegiance

President Quigley led the Salute to the Flag.

Item 5 -

CITIZENS FORUM There were no public comments at this time.

Item 6 -

MINUTES OF THE REGULAR BOARD MEETING OF SEPTTEMBER 21ST AND 28TH OF 2016 Director Palmer moved that the minutes of September 21, 2016 be accepted and approved, and Director McGrail seconded the motion. The minutes were approved by a voice vote of 7-0.

Director Palmer moved that the minutes of September 28, 2016 be accepted and approved, and Director McGrail seconded the motion. The minutes were approved by a voice vote of 7-0.

Item 7 -

CONSENT CALENDER

a. Contract Proposal for Classification and Staffing Studies, and Succession Planning

b. Joint Funding Agreement with USGS for Annual Sediment Load Monitoring

c. Municipal Water Quality investigations (MWQI) Program Agreement

Director Figuers asked to make a modification to the agenda by moving Items 8-17 to within the Consent Calendar and approve everything. President Quigley asked for direction from David Aladjem, Counsel, who advised that although all items cannot be moved to the Consent Calendar, Director Figuers could make a motion after the Consent Calendar to approve the other items as a group.

Director Ramirez Holmes asked to pull Item 7(a) for a question.

Director Palmer moved to approve Items 7(b) and 7(c) and Director Stevens seconded the motion. The items were passed by a vote of 7-0.

Resolution No. 16-168 Authorized a Joint Funding Agreement with USGS for Annual Stream Gauge Sediment Load Monitoring Program (Item 7b)

Resolution No. 16-169 Authorized Renewal of Municipal Water Quality Investigations Program

Agreement (Item 7c) Item 7(a) Contract Proposal for Classification and Staffing Studies, and Succession Planning

Director Ramirez Holmes asked for clarification on the process used to obtain quotes for the contract. From a legal standpoint, she asked why an informal quote process could be used instead of the formal going out to bid process and why the urgency to get it done this month with no formal bidding process?

David Aladjem, Counsel, addressed the legal question by explaining that this is a professional service contract that is not at all subject to the formal bidding process, which really is required only for construction contracts. As long as Mr. Solitei is satisfied that he is getting the best value for the agency with a competent consultant, the agency has full freedom to do it by either informal proposal, formal bids, anything in between, or whatever process staff and the directors believe is appropriate.

Osborn Solitei, Assistant General Manager of Finance, addressed the urgency piece by stating that during recent discussions with the retailers about the water rates, the retailers have been asking Zone 7 to look at fixed costs. A majority of the agency's fixed costs stem from staffing costs. Management has determined that an outside consulting firm is needed to complete classification and staffing studies and to develop a succession plan for the agency as called for in the Strategic Planning Priorities. Due to the ongoing financial challenges faced by the agency in light of the drought, impending staff retirements and the cost savings and efficiencies that can be realized as a result of these studies, management has determined these processes should begin immediately, with a goal of completing in Spring 2017. Due to these time constraints, informal quotes were requested from four firms. Koff & Associates was deemed the most qualified and cost-effective to provide these services for Zone 7. Koff & Associates has worked with Zone 7 previously as well as with other cities, counties and special districts and has proven to be a very professional and capable firm with a lot of depth and knowledge about what the agency is trying to do and what will be beneficial for the agency.

President Quigley added that he and other long-term directors do recall this process being used in the past on non-construction contracts, specifically management contracts for consultants, as Mr. Aladjem made clear.

Director Greci expressed his support of beginning the succession planning as soon as possible, especially since Zone 7 has a large aging workforce and will be losing a lot of experienced employees.

Director Greci moved to approve Item 7(a) and Director Palmer seconded the motion. The item was passed by a roll call vote of 6-1 with Director Ramirez Holmes voting no.

Resolution No. 16-167 Authorized a Contract with Koff & Associates to Provide Classification and Staffing Studies, and Succession Planning (Item 7a)

Item 8 -

STAFFING UPDATE: EMPLOYEE OF THE MONTH RECOGNITION-ELK RANK

August Employee of the Month Recognition - Elke Rank

Ms. Duerig announced that Elke Rank, Associate Water Resources Planner in Zone 7's Integrated Planning section, was selected as the August Employee of the Month. Elke joined Zone 7 in December 2007 and has become the agency's CEQA and environmental compliance specialist. She has been a key player in putting together grant applications, including the recently awarded $500,000 River Parkways Grant for the Arroyo Mocho Floodplain and Riparian Restoration Project at Medeiros Parkway. The board congratulated Ms. Rank in absentia for her accomplishments.

Item 11 -

PROPOSED TREATED WATER RATE SCHEDULES FOR CALENDER YEARS 2017 AND 2018

Director Stevens asked that Item 11 be heard before Item 9 because he needs to leave the meeting early.

Mr. Osborn Solitei, Assistant General Manager, Finance, gave a detailed presentation entitled "Zone 7 Water Agency Wholesale Water Rate Study CY 2017 & CY 2018 Proposed Rates" in conjunction with Mr. Sanjay Gaur of Raftelis Financial Consultants, Inc. Mr. Solitei and Mr. Gaur then responded to questions from the Board and public.

David Aladjem, Counsel, addressed the question raised by Mr. Alan Burnham, a Livermore resident, who had sent a three-page email to the Board of Directors expressing his concerns about Zone 7's change in rate structure in view of Proposition 218. Mr. Aladjem explained that Prop 218 applies to the Retailers' water rates. The operative language in Prop 218 really does not apply to the wholesale context. He continued that under Prop 218 there are essentially assessments, fees and charges, which are based on property. The proposition was intended to apply to a retail water agency's imposition of those either assessments or fees and assuring there is a relationship to costs for its retail customers. It does not, in his view, apply to a wholesale water agency like Zone 7 because what you have is a set of contracts with your retail water agencies. It is a completely different situation. There are no court cases that he is aware of that show Prop 218 applies in the wholesale context.

Director Figuers stated that a lot of these projected rates are based upon future water usage. He has been tracking staff's estimates of future water usage sometimes going four to five years out in the future. People like to blame it on the drought, which is a portion of it, but what is really driving it, starting back in 1985, going on 20 years, is a massive urging of conservation which has been kicking in and taking hold. This is the new normal. He further stated that he feels the projections of water usage are grossly overestimated. He expressed strong disagreement with portions of the reserve funds. He suggested the need to be realistic as water usage is dropping and water supplies are dropping.

Director Ramirez Holmes asked a question about the total rate revenue. What is the net change between how we're charging currently and how we're going to be charging next year? Mr. Gaur responded that there will be no net change in revenues as we are not collecting more money by restructuring to include the fixed component. The board has previously approved three 10% increases above inflation. One has already been done. There will be another one and then one more. So the $5/month difference is strictly based on the previously approved rates plus the CPI plus the temporary surcharge if it gets approved tonight.

Director Palmer commented that part of our reason for wanting to increase the reserves so rapidly, is that if we do have to take out a loan, we've got the rating to do so. Director McGrail concurred. He said that after meeting with Mr. Solitei, he has a better understanding of the dire straits the agency is in. The staff recommendations have been set out very well and he doesn't know why we are sitting here beating ourselves up with all these questions. He expressed support for the proposed path and suggested getting this done.

President Quigley agreed that past discussions have shown that this process is necessary to get those reserves back to a healthy level sooner rather than later in order to get the agency back on a firm financial footing. He further stated it is clear to him that DSRSD, the City of Pleasanton and City of Livermore also have shown their support through letters and comments at recent meetings.

Director Stevens expressed his support of the proposed rate structure. He compared the differences of cost cutting measures between the private sector and Zone 7 stating that in the private sector during a recent recession, his company had to lay off 40% of its staff. Zone 7 cannot do that as easily, so instead it had to reduce maintenance and delay capital projects. We also did not hire any new staff in that time period, so Zone 7 staff had to work twice as hard during the drought to take care of emergencies and to do their own jobs. The $16M in reserve loss could have been much worse if it wasn't for the management at Zone 7.

Director Greci spoke about the importance of having reserves available when needed and how that affects our ability to borrow money. He stated that customers are paying for reliability, and along with reliability comes fixed costs, infrastructure and employees. They all must work together. Water is a complicated business. He congratulated the Board and Staff for doing a good job over the years through cooperative relationships with the Retailers. He expressed his support of the proposed treated water rate schedule as presented.

In response to Director Figuers' question regarding if the 10%/10% rate increase applies only to the variable rate or whether it also applies to the fixed rate, Mr. Solitei responded that it applies to the total revenue = both variable and fixed.

President Quigley asked for public comment.

Mr. Alan Burnham, a resident of Livermore, thanked the Board and Staff for their public service and willingness to interact with him on these issues. He has written numerous letters to Zone 7 about what he thinks are both moral and legal issues. He expressed satisfaction that Zone 7 staff did a good job of explaining how Proposition 218 does not affect Zone 7 directly, but he thinks there will be more implications to the retailers than they seem to be aware, and pointed to the case of San Juan Capistrano.

Mr. John Archer with DSRSD referred to the Zone 7 Water Rate Structure Review which was Item 8 in their recent DSRSD/Pleasanton Liaison Committee. The item highlighted the proposed modifications to Zone 7's current rate structure and reserve policy and the Retailer's position of support as outlined. He stated that DSRSD will be implementing a new rate and will notice this change under Proposition 218 procedures. He suggested they may pass it through as a variable component.

Ms. Helen Ling with the City of Livermore reiterated that the City of Livermore had previously expressed its appreciation for Zone 7 Staff working with the Retailers and their support of what Zone 7 is trying to do with the hope that the Zone 7 Board will adopt the rates needed so that the agency can continue to provide the reliable water service that we've all come to expect in the Tri-Valley.

Mr. Alfred Exner, Pleasanton, asked for clarification at some point of the fixed costs allocation between the Retailers and the "fixed charge people." He suggested that there should be some minimal amount charged to a lot of these entities that do not seem to be carrying their portion of the burden.

Director Palmer moved to approve Item 11 and Director McGrail seconded the motion. The item was passed by a roll call vote of 6-1 with Director Ramirez Holmes voting no.

Resolution No. 16-172 Adopted Treated Water Service Rates for Calendar Years 2017 and 2018

[NOTE: Director Stevens left the meeting at 8:08 p.m.]

Item 9 -

PROPOSED DOUGHTERY VALLEY FACILITY USE FEE

Mr. Solitei gave a brief background on the Dougherty Valley Facility Use Fee. Amendment No. 1 to the contract between Zone 7 and DSRSD for Municipal & Industrial Water Supply was executed in 2000 to allow Zone 7 to service Dougherty Valley. The Amendment states that fees will be adjusted every five years. The last adjustment was made in 2011, resulting in a fee of $2,890. The adjustment index used is based on the Engineering News Record Construction Costs Index, currently equal to 1.78, which will set the current fee to $3,300.

President Quigley asked for public comment. None was received.

Director Palmer moved to approve Item 9 and Director Greci seconded the motion. The item was passed by a roll call vote of 6-0 with Director Stevens absent.

Resolution No. 16-170 Amended the Dougherty Valley Facility Use Fee Per DUE to $3,300.

Item 10 -

PROPOSED UNTREATED WATER RATES FOR 2017

Mr. Solitei presented the staff report on the Proposed Untreated Water Rates for 2017, stating that the untreated water rate is essentially a pass-through of the cost of imported water, supplemental water purchases, Bay-Delta related costs and an administrative fee. The proposed rate of $113 per acre-foot (AF) is a decrease from the current rate of $130/AF. He stated the agency is projecting a demand of 6,000 AF which equates to approximately $678,000 in revenue.

President Quigley asked for public comment. None was received.

Director McGrail moved to approve Item 10 and Director Greci seconded the motion. The item was passed by a roll call vote of 6-0 with Director Stevens absent.

Resolution No. 16-171 Adopted Untreated Water Rates for 2017

Item 12 -

AWARD OF CONTRACT FOR THE DVWTP CLEARWELL ROOF REPLACEMENT PROJECT Kurt Arends, Assistant General Manager of Engineering, presented the staff report which highlighted the need for replacement of the clearwell's metal roof and structural supports, including two 36-inch inlet and outlet clearwell isolation valves.

The project was advertised in accordance with the California Public Contract Code, and three bids were received. Zone 7 Staff reviewed the bids and the low bid submitted by Integra Construction Services, Inc., was found to be missing required documentation related to bonding, insurance and resumes which constituted a nonresponsive bid. Staff therefore recommends rejecting the bid by Integra Construction Services, Inc., and awarding the construction contract to the second lowest bidder, Conco-West, Inc., in the amount of $1,412,000.00.

In response to Director Figuers' question about the projected length of time of construction, Mr. Arends responded that repairs should be completed by the end of March to early April before the summer demands pick up. Del Valle Water Treatment Plant has two clearwells, so during the winter months it will be using the 4 MG clearwell that will remain in service during repairs on the subject clearwell.

President Quigley asked a question about the possibility of installing a solar array on the 26,000 square foot rooftop if it is deemed strong enough. Mr. Arends said the agency will continue to look for opportunities to install additional solar arrays.

President Quigley asked for public comment. None was received.

Director Palmer moved to approve Item 12 and Director Greci seconded the motion. The item was passed by a roll call vote of 6-0 with Director Stevens absent.

Resolution No. 16-173 Authorized the Award of Contract for the Del Valle Water Treatment Plant Clearwell Roof Replacement Project

Item 13 -

AWARD OF CONTRACT FOR THE HOPYARD WELL NO.6 AND STONERIDGE WELL SODIUM HYPOCHLORITE REPLACEMNT PROJECT

Mr. Arends presented the staff report which highlighted the need for replacement of both the Hopyard Well No. 6 and Stoneridge Well sodium hypochlorite facilities due to the fact that they have reached the end of their useful life and improvements are needed to meet the current Fire Code requirements. The project will be phased over two winters (one well per winter) to reduce the risk to water supply should the contractor be delayed and not complete the work before the typical increased demands during the summer.

The project was advertised in accordance with California Public Contract Code and four bids were received. Staff determined that Conco-West, Inc., was the lowest responsive and responsible bidder with a bid of $537,000.00.

No board or public questions or comments were received.

Director Palmer moved to approve Item 13 and Director Greci seconded the motion. The item was passed by a roll call vote of 6-0 with Director Stevens absent.

Resolution No. 16-174 Authorized the Hopyard Well No. 6 and Stoneridge Well Sodium Hypochlorite Replacement Project

Item 14 -

COMMITTEES a. Water Agency Liaison Committee Meeting - September 22, 2016 - notes pending

b. Water Resources Committee Meeting - September 26, 2016 - notes

No comments were received.

Item 15 -

REPORTS-DIRECTORS

a. Verbal comments by President

b. Verbal reports

President Quigley attended the California Special Districts Association (CSDA) conference last week. He will provide a write-up on what he learned there.

Director Palmer mentioned that Dublin San Ramon Services District (DSRSD) took a formal position of opposition to Proposition 53. She thought that people should be aware that it is a bad proposition. President Quigley added that CSDA also recommended a "no" vote on Proposition 53.

Item 16:

ITEMS FOR FUTURE AGENDA - DIRECTORS

No future items were discussed.

Item 17:

STAFF REPORTS (Information items. No action will be taken.)

a. General Manager's Report
b. Water Inventory and Demand Update (September 2016)
c. Legislative Update
d. Outreach Activities
e. Verbal Reports

Ms. Duerig said that Ms. Van Buskirk will be contacting the board members to determine their availability for the December 21, 2016 board meeting. The concern is not having a quorum due to the holidays. If the board indicates an interest in holding the meeting a week earlier on December 14, 2016, an item will be included in the November board package to change the regular meeting date. Director McGrail said that was a good idea and thanked Ms. Duerig for the consideration.

Director Figuers commented on Item 17b at page 11which is the classic diagram showing annual Northern Sierra Precipitation. He said the rainfall we had this weekend brought up the hydrology average to the green line which is the wettest average this year.

Item 18 -

ADJOURNMENT

The meeting was adjourned at 8:20 p.m.

Board Secretary