June 27, 2017

Board of Directors, East Bay Municipal Utility District Alexander R. Coate, General Manager
375 11th Street
Oakland, CA 94607-4240

Dear Mr. Coate and EBMUD Board Members:

The Alameda County Civil Grand Jury Association (Association) is a 501(c)(3) organization that consists of former members of the Alameda County Civil Grand Jury (Grand Jury). Although not affiliated with the formal Grand Jury, our organization’s purpose includes determining whether the agencies subject to Grand Jury investigations have complied with previous Grand Jury recommendations. The Association is a chapter of the California Grand Jurors’ Association.

In 2013-2014, the Grand Jury investigated the East Bay Municipal Utility District. After reviewing EBMUD’s rates and rate-setting practices, the Grand Jury found that EBMUD did not disclose sufficient information in its June 2013 Notice to enable consumers to understand the need for a rate increase. Consequently, the Grand Jury’s investigation found a greater need for transparency in EBMUD’s public notifications regarding rate increases. With this in mind, the Grand Jury’s first recommendation in its 2013-2014 Report stated in part:

EBMUD should provide the public with a complete and objective analysis in connection with future rate increases, including all factors that drive the recommended increases.1

Specifically, the Grand Jury was concerned with EBMUD’s failure to inform the public of all factors underlying the proposed rate hike. Equally important, the Grand Jury was particularly concerned that neither the unfunded pension liability nor the rate hikes of the past ten years were disclosed in the 2013 Notice. Based on these findings, the Grand Jury made a second recommendation in its 2014 Report:

EBMUD must provide live streaming of board meetings, televise on public access channels, and have online access of past meetings available on the EBMUD website.2

In September 2014, EBMUD responded to the Grand Jury’s recommendations. EBMUD reported that it would implement the second recommendation in its next budget cycle.

1. 1  See 2013-2014 Grand Jury Report, Recommendation 14-26 at p. 105.
2. 2  See 2013-2014 Grand Jury Report, Recommendation 14-27 at p. 105.

To achieve enhanced transparency, EBMUD promised the Grand Jury that it would:

(1) “Explore alternative ways to present rate information that may aid customers as they seek to understand … projected rates;” and

(2) “Investigate adding audio or video of Board meetings.”3

We note that EBMUD’s website still lacks any links to live streaming or video archives of meetings of the Board of Directors. We believe that public access to such videos would enable EBMUD consumers to better understand why rate increases are needed. Certainly, costs for the projected rate increases include compensation and pension liabilities. However, no mention of labor costs or pension liabilities were found in the 2013 notice. The Grand Jury recommended that EBMUD “provide the public with a complete and objective analysis in connection with future rate increases, including all factors that drive the recommended increases.”

Now in 2017, EBMUD has notified the public about a meeting to be held July 11, 2017, regarding an impending rate hike. As in 2013, the 2017 Notice of Public Hearing is silent regarding the role that unfunded pension liabilities and employee compensation play in contributing to rate increases. We believe that the District’s omission of pension liability in the 2017 Notice constitutes a failure to follow the 2014 Grand Jury’s recommendation. “All the factors that drive the recommended rate increase” should include the reimbursement of unfunded liability if, in fact, a portion of customer receipts will be used to pay down the pension debt. EBMUD previously indicated that pension cost “was not a major driver of the rate increases.”4 However, with an unfunded pension liability of $462 million,5 EBMUD appears compelled to increase rates every year. We have observed that the Alameda County Water District has indicated retiree benefits as one reason for rate hikes in its notices to ratepayers.6 For the purposes of transparency, we urge EBMUD to inform the public in future notices that pension liability and labor costs are factors behind its rate hikes.

The Grand Jury’s first recommendation also stated:

The analysis should contain the financial impact of the proposed rate increase on a broader range of water or sewer consumers (for example, the 25th percentile point, the 50th percentile point and the 75th percentile point) as opposed to just a district-wide average. The analysis should also include a history of prior rate increases. (See 2013-2014 Grand Jury Report, Recommendation 14-26, at p. 105.)

The 2017 Notice cites a great deal of district information, but omits details regarding historical rate increases as recommended by the 2014 Grand Jury. We believe the public would not know that similar rate hikes averaging four times the rate of inflation have been approved by EBMUD, and that with the proposed rate increase, the cost of a unit of water (100 cubic feet, or CCF) will

3 Response to 2013-2014 Grand Jury Report dated September 2014, pages 3 and 9.
4 Response to 2013-2014 Grand Jury Report dated September 2014, page 6.
5 EBMUD Comprehensive Annual Financial Report for FY2016, Page 80.
6 ACWD Notice lists four reasons for justifying a rate increase. The fourth reason refers to retiree benefits. Mailed in 2017, the ACWD Notice states “financial analyses make it clear that the proposed rates increases are needed to . . . fund retiree benefits obligations.” (Page 2 of Notice of Increase in Water Rates, located at http://www.acwd.org/DocumentCenter/View/1530 .)

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have increased from $1.42 to $3.45 from 2003 to 2017. If the 2017 rate increase is approved, customers’ water bills since 2003 will have increased by 143%. Without such history, most consumers will not recall the last time their rate changed or appreciate that a protest of such hikes may be appropriate.

EBMUD’s 2014 response to the Grand Jury’s recommendations essentially said that it is sufficient to have historical rate information available online in its Comprehensive Annual Financial Reports and budgets. However, we have found that these documents are not readily available or comprehensible to the general public. Regrettably, we do not find EBMUD’s position consistent with the transparency that the public deserves. Indeed, it would be time- consuming for most ratepayers to locate and digest rate information in such lengthy documents.

We believe it is commendable that EBMUD provides ample details regarding water flow charges and water service charges to its customers, and that it provides examples of the impact of rate increases to the consumer’s bill. Unfortunately, the example in District’s 2017 Notice cites the impact to a single family’s bill that used 8 units and 6 units. This example is limited and unclear for residential consumers. The 2017 Notice lacks specific examples of rate changes aligned to the consumer’s water usage percentile levels. The 2014 Grand Jury report specifically recommended that EBMUD should provide the public with an analysis that contains “the financial impact of the proposed rate increase on a broader range of water or sewer consumers … [at] the 25th percentile point, the 50th percentile point and the 75th percentile point . . . .” Information regarding low-level users versus high-level users is absent from the 2017 Notice. We believe consumers will more readily appreciate the proposed rates by receiving information about how the increase impacts residents at their usage levels.

We have noted that in 2015, during a prior rate increase consideration, the Bay Area News Group summarized EBMUD rate increases. (Please refer to the following table.) We believe consumers need to know how their usage levels will impact their water bill once the proposed rates are implemented. A table like the one published below, could easily be included in future notices issued by EBMUD.

EBMUD water rate increases7

7 Bay Area News Group, “Steep water rate increases eyed for EBMUD customers,” East Bay Times, published March 24, 2015. (Amounts in Monthly bill column reflects the base rate increase and a drought surcharge.)

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We conclude that despite the 2014 Grand Jury report and recommendations, and despite EBMUD’s response to those recommendations promising a commitment to transparency, the 2017 Notice is not an improvement in transparency over the 2013 Notice. For EBMUD to comply with the recommendations of the 2014 Grand Jury Report, the District should provide improved public notices that include (1) historical rate charges; (2) a cost impact analysis that refers to water usage percentiles; and (3) all factors responsible for driving up the utility rates, including quantifying the role of pension liability on the proposed rate hike. In the 2017 Notice, none of the three items is set forth. We therefore request that EBMUD explain how it plans to implement the 2014 Grand Jury recommendations in all future notices pertaining to rate increases.

Consistent with the Association’s purpose, we shall continue to monitor the completeness of future EBMUD notices. To assist us with our monitoring please provide the Association with the following: (1) documents demonstrating your efforts to add video links of EBMUD board meetings to your website; (2) documents provided to the public that detail reasons behind the 2017 rate hikes; (3) copies of presentations given to the public in the last two years relating to rate hikes planned for 2017 and 2018; and (4) a history of rate increases for the past six years, as was done in the 2016 Comprehensive Annual Financial Reports (p. 136), with the addition of the resulting price per unit in a new column.

Please send your response to the undersigned at 6288 Girvin Drive, Oakland CA 94611. We appreciate your cooperation in this matter and look forward to hearing from you.

Very truly yours,

Janet Clark

Janet Clark
Alameda County Civil Grand Jury Association President

cc: Ray Souza, 2016-2017 Grand Jury Foreman

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Editors Note: Opinions expressed are those of the authors. 

Correspondence regarding the 19%rate increase can be sent to:

Board of Directors, East Bay Municipal Utility District Alexander R. Coate, General Manager
375 11th Street
Oakland, CA 94607-4240