2020-2022 Grand Jury Report*

1: Considering its inherited and aging infrastructure, TUD's existing rate structure is not adequate to fund its capital improvement needs unless significant grant funding materializes. While the agency is doing a good job in maintaining affordable rates, living within its means, and seeking external funding, it relies heavily on sources beyond its CIP. This creates a risk of further deferring important capital improvements. District Response Unfortunately, the total needs far exceed the ability to maintain affordable rates, so we are continuing to seek grant funding everywhere possible. The district plans on conducting a cost of services study as soon as appropriate which will likely develop rate change recommendations. While it is true that TUD relies on outside resources like grants and loans, we are fortunate that these programs are available for water systems within disadvantaged communities. Although the emphasis is on being self-reliant, we also see the strength in responding to grant opportunities that require community-based solutions in partnership with local tribes and private partners. These grants achieve much community benefit that supplement operations and maintenance type projects.

1a: The frequent termination and turnover of TUD general managers over the last decade has carried both tangible and intangible costs, including costs associated with the payment of severance pay and benefits, impacts to employee morale, and a reduction in productivity associated with changes in leadership priorities. District Response TUD agrees with the assessment that there are both tangible and intangible costs associated with general manager turnover. Each board weighs these costs usually at the time a GM contract is up. Termination at the end of the contract term is often the most cost-effective way to end the relationship, but in certain situations it may not be, or it may not be desirable. On two occasions over the past 30 years, the TUD board terminated a GM before their contract was up. The reasons for this were varied but believed to be in the best interest of TUD at that time. It is the district's goal to hire and retain high performing staff, including at the general manager level. The Board and the current general manager executed a five-year employment agreement in October 2021 and are committed to continuity of operations and the benefits that leadership longevity can have for its customers.

1: There has been a lack of transparency about the status, progress, potential conclusion, and possible effects of the proposed acquisition of PG&E property and water rights on TUD and the ratepayers. Potential effects of this lack of transparency include public confusion and ultimately a risk to public support for the proposal. <u>District Response</u> Approximately five years ago, PG&E approached TUD about acquiring the Phoenix System and associated water rights on the South Fork Stanislaus River. Since that time TUD has completed many of the "due diligence" tasks necessary to communicate with the public about the costs, benefits, and risks associated with acquiring or not acquiring the PG&E assets. Some of the initial work involved executing non-disclosure agreements, a term sheet, and recruiting and retaining several consultants to assist in evaluating the technical and financial aspects of the transaction. As was the case in previous PG&E hydroelectric project divestments across California, many details cannot be released and are appropriately part of a legally binding non-disclosure agreement between PG&E and TUD as the two parties negotiate towards an agreement. Throughout the process TUD has shared what information it could with the public; however as mentioned, much of the information is protected under the legally binding non-disclosure agreement. Further, TUD worked hard to accommodate PG&E and its desire to have review and approval authority over public documents and press releases. TUD worked patiently and cooperatively with PG&E to provide valuable information to both utilities' customers. TUD is a strong advocate of transparency and practices transparency throughout the organization. Recognizing the importance of the PG&E acquisition, TUD hired a communications firm to assist in developing a comprehensive communications plan incorporating stakeholder interview, videos, print and radio advertisements, and informational materials. TUD has been transparent from the beginning; however, we are also very sensitive to managing expectations of the public in respect to the transaction with PG&E, a private company, while the negotiations were on-going, and terms had not been finalized. Until an agreement is executed between the two parties, TUD is unable to be fully transparent. TUD has held several public meetings with the community, including joint meetings with the County and the City during which TUD shared the information it had available. While this was occurring, TUD staff and its consultants completed an extensive line by line analysis of the operations and maintenance costs of assuming ownership of the Phoenix System. This exercise and due diligence took significant time and many requests for information from PG&E to reach an appropriate level of certainty on costs so that TUD could calculate the additional revenue necessary to fund the expected O&M costs. TUD hired Raftelis to develop the financing plan and to calculate the impact to customers in the form of rate increases. The rate study and proposed rate increase details were recently released to the public. It would have been premature and potentially damaging to the public trust for TUD to share draft revenue needs and draft rate increases with the public until thoroughly vetted and its third-party financial consultant (Raftelis) completed the financing plan. The information was first daylighted to the TUD Board on May 9, 2022. On May 10th, the information was shared with the Tuolumne County and City of Sonora at a joint board meeting in the Tuolumne County Board of Supervisors chambers. Press releases to local media outlets were circulated and public outreach was coordinated. TUD also scheduled future meetings and open houses to give the public a voice in the process. The TUD Board authorized mailing a Proposition 218 Notice to all of its customers outlining the justification and rationale for a rate increase. The notices were mailed on June 1, 2022. Unfortunately, on June 2nd, one day after TUD mailed its Proposition 218 rate notice, TUD General Manager Don Perkins was informed that PG&E was suspending negotiations until at least the end of 2023. The challenge for TUD moving forward will be to continue being transparent by keeping the public engaged and informed during the next 18 months, when little to no new information will likely be available to share. TUD is committed to upholding its commitment to the public and will share any new disclosable information as it becomes available. In addition, since the GJ report came out, TUD has taken the opportunity to fill a staff vacancy with a community relations specialist dedicated to providing timely information.