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ATTACHMENT A October 19, 2009 Board of Directors Zone 7 100 N. Canyons Parkway Livermore, CA 94551 Dear Board Members: Recently the Zone 7 Finance Committee and staff heard from the various retailers regarding concerns over the 9.25% rate increase that the Zone 7 Board will consider at their meeting on October 21, 2009. You have also heard that if Zone 7 is determined to proceed with a rate increase effective January 1, 2010, the Zone 7 staff recommended increase is the least objectionable of the alternatives presented to date. On behalf of the City of Pleasanton City Council and its constituents, this letter is to request that Zone 7 Board of Directors forego any rate increase this year due to the unprecedented economic times that we find ourselves in today. This is a unique and severe economic time for the customers served by both the retailers and Zone 7. Pleasanton has not raised its water rates to its customers since 2001 but during this almost ten year period, the City has absorbed approximately 46% cumulative rate increases in Zone 7 water rates. Over the years we have balanced our water budget by staff reductions and reorganizations, no salary increases for management staff, deferring capital improvement projects and utilizing reserves to balance our budget. While we understand Zone 7 will be keeping positions vacant and is also considering other staff cost reductions, Zone 7 has had major rate increases since 2001 and projections show further significant increases each year in the future. We understand that many of these increases are driven by the current Zone 7 policy of pay -as- you -go financing of capital projects. Most organizations use a prudent mix of pay -as- you -go combined with debt financing for their more costly significant projects. This mix of financing alternatives better matches the benefit from the project and its useful life with the customers receiving the improvement (rather than collecting significant amounts from current customers who may never benefit from the major capital improvement when it is put into service many years later). Zone 7 had approximately $21 million in reserve funds at the end of FY 2008. When the 2009 rate increase was adopted (effective January 1, 2009), the Zone 7 Board was told