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PLEASANTONe CITY COUNCIL AGENDA REPORT October 4, 2016 Finance and Operations Services TITLE: APPROVE A RESOLUTION RELATED TO ZONE 7 RATE INCREASES AND RELATED FINANCIAL POLICIES SUMMARY Zone 7 supplies most of the City of Pleasanton's water. Zone 7's rates are set by the Zone 7 Board of Directors and passed through to Pleasanton's customers on the City's utility bill. The continuing drought and related water conservation is adversely affecting Zone 7's ability to cover its fixed operating costs which, in turn, caused Zone 7 to deplete their operating reserves to historically low levels. To provide more revenue stability, effective January 1, 2017, Zone 7 is proposing to recover 35% of their expenses through fixed rates and 65% through variable rates instead of the current practice of recovering 100% of their expenses through variable rates. In addition, Zone 7 is proposing to increase its Drought Surcharge (Surcharge) from $0.57 per ccf to $0.62 per ccf in 2017 and $0.49 per ccf effective January 1, 2018. Finally, Zone 7 is proposing a policy setting reserve levels for its various funds. The proposed resolution expresses support for most of Zone 7's proposals with some modifications. RECOMMENDATION Staff recommends that Council adopt a resolution with recommendations related to Zone 7's proposed fixed rate methodology and Surcharge. FISCAL IMPACT The proposed Zone 7 rate methodology and Surcharge will increase Zone 7's rates effective January 1, 2017 by 4.5% more than originally anticipated. If these increases are approved by the Zone 7 board, the City will spend approximately $38,350 more for water in FY 2016/17 than budgeted. Of that, $37,583 or 98% would be from the City's General Fund and the remaining 2% would primarily be from the City's six Landscape and Lighting Maintenance Districts' budgets. 18