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BACKGROUND Zone 7 supplies treated drinking water to retailers serving approximately 220,000 people in Pleasanton, Livermore, Dublin and, through special agreement with the Dublin San Ramon Services District, to the Dougherty Valley area. Zone 7 also supplies untreated water for irrigation of 3,500 acres, primarily for South Livermore Valley vineyards, and provides flood protection to all 425 square miles of eastern Alameda County The City of Pleasanton purchases treated drinking water from Zone 7 and distributes it to approximately 22,000 residents and business. Zone 7's water rates are provided to the City and is a direct pass through to the City's customers per Council Resolution. The setting of this rate is not within the control of the City and is subject to change at least each January 1. On August 29, 2018, September 5, 2018 and September 19, 2018, the Zone 7 Board of Directors held public meetings during which Zone 7 staff discussed various water rate scenarios. At the time, Zone 7 staff recommended a 4-year rate schedule for Calendar Years 2019, 2020, 2021 and 2022. It should be noted that per Board direction at each public meeting new rate scenarios were requested of staff. Zone 7's October 17, 2018 staff report (Attachment 3) on the proposed rates was released to the public on October 10, 2018 which includes two new rate scenarios that the City hasn't had time to analyze. Zone 7 will present these two new water rate scenarios at its October 17, 2018 Board meeting, which will go into effect on January 1, 2019, if the Board adopts the proposed rates. Staff recommends that the Zone 7 Board delay the adoption of their multi-year rate proposal for increases commencing January 1, 2019, to allow the public and retailers adequate time to review and comment on the proposed rate changes. A summary of the two proposed rate scenarios is as follows: Scenario 1 - (3% CPI + 3.7% = 6.7% Proposed Rate Adjustments) for calendar years 2019, 2020, 2021 and 2020 Zone 7 Staff Recommendation > Includes 3% CPI > Includes 3.7% Rate Adjustment for the following items: > $3 million for Water Supply Reliability Projects over four years from calendar year 2019 through 2022 > funding three reserves at Target Levels (Operating, Emergency and Drought Contingency), no funding for the Rate Stabilization Reserve in calendar year 2019 > Fixed Component of rate structure gradually increasing from 35% to 45% over four years from calendar year 2019 through 2022 The Zone 7 variable rate for calendar year 2019 is proposed at $2.01/CCF and the Fixed Charge at $1.34/CCF based on the volume of water Pleasanton plans to purchase from Zone 7 for a total Zone 7 cost of $3.35/CCF. Page 2 of 5