TUD again in crosshairs of Tuolumne County Grand Jury probe

Tuolumne Utilities District is once again the subject of an investigation by the Tuolumne County Civil Grand Jury in a new report released last week.

Titled “Water is Life,” the 31-page document details the citizen-watchdog group’s examination of TUD’S finances, management and operations; personnel and leadership changes; and the proposed acquisition of water rights and infrastructure from Pacific Gas and Electric Co.

It’s the second consecutive Grand Jury to look into TUD, the area’s largest provider of water and sewer services. The findings from the previous report released in July 2020 were largely disputed by the district’s leadership at the time, which factored into the reasons for the follow-up investigation.

The new report released last Thursday noted how “nearly every resident in Tuolumne County benefits from TUD’S services” in one way or another. Roughly 33,000 people in the county receive their treated water from the district, while about 24,000 are served by the agency’s wastewater collection system.

Findings from the Grand Jury’s probe of the agency’s finances, management and operations included that the existing rate structure does not adequately fund future improvements needed to the TUD’S aging infrastructure, as well as a lack of enough reserve funding for emergencies.

A repeated theme that emerged through the Grand Jury’s investigation of the district’s finances was “that the aging infrastructure inherited and consolidated by TUD presents a major strategic and financial challenge to the agency,” the report stated.

The agency was formed in 1992 through the voter-approved merger of the two local public water systems operating at the time: the Tuolumne Water System and Tuolumne Regional Water District, also formerly known as Tuolumne County Water District No. 2, the report stated.

Over the ensuing years, TUD acquired

more than 17 water and sewer systems throughout the county and within the City of Sonora that were in varying states of disrepair. The agency now owns and operates 11 water systems and five sewer systems, according to the report.

Some of the infrastructure that TUD has inherited over the years dates back more than 170 years to the days of the Gold Rush, such as the network of ditches and flumes that convey water to communities.

Such acquisitions have contributed to the operationally “costly and complicated” conveyance system for water and sewer services, the report stated, with the district’s challenges compounded by the county’s hilly geography.

The report also noted that much of the district’s funding for improvements to its systems has come from state and federal grants over the years, as the revenue from rates paid by TUD customers have mostly just covered operational costs.

While a rate study conducted by the agency in 2015 led to the TUD board approving increases to water and sewer rates over the next five years, the Grand Jury said the study also noted that the district’s final rates would remain below the median for the region and “significant grant funding” would be required to successfully execute its capital improvement plan.

One of the Grand Jury’s recommendations was for TUD to consider undertaking a new rate study by January 2023 that would also address funding needs for capital improvements, inflation and identify opportunities for savings through modernizing its infrastructure.

The report also recommends that TUD dedicate staff and resources to opportunities for funding from the Infrastructure Investment and Jobs Act, a bill passed by the U.S. Congress and signed into law by President Joe Biden in November to provide $1.2 trillion for a variety of infrastructure projects and programs.

Additionally, the Grand Jury found that TUD”S budget is not providing adequate contingency reserve funding for emergencies that could happen throughout the year.

There was an estimated $100,000 in damage to the district’s system from historic storms in December, but the report noted that TUD had only set aside nearly $19,500 for its water contingency fund.

“The ability of TUD customers to survive and thrive requires the agency to have a robust capacity to budget and to plan for the unforeseen without relying on emergency declarations, grants, or assistance from agencies in the short response term,” the report stated.

The Grand Jury also commended staff at TUD for facilitating new connections despite the challenges of topography and infrastructure.

According to the report, TUD has not denied any applications for new water service connections in the past five years. A total of 175 new connections were approved in that time, representing “a fraction of one percent of TUD’S overall water demand.”

“Interviewees did not articulate any need for or intent to limit new connections or impose a moratorium of any kind on new connections,” the report stated.

The report also detailed personnel and leadership changes at TUD, which includes eight different general managers or interim general managers over the past eight years.

Such turnover in general managers, two of whom had their contracts prematurely terminated by the TUD board, can carry tangible and intangible costs such as those associated with severance pay and benefits, impacts to employee morale and a reduction in productivity, the Grand Jury stated in one its findings.

One of the Grand Jury’s recommendations was to create a board-approved policy that establishes the process for selecting, terminating, evaluating and compensating a general manager, which the district currently lacks

The Grand Jury also recommended evaluating the salaries and benefit packages of TUD employees to ensure they are competitive in order to improve employee recruitment and retention.

As for the proposed acquisition of PG&E water rights and infrastructure, the Grand Jury said there was little information that the agency could share at the time of the investigation due to the confidential nature of the ongoing negotiations with the utility.

“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,” the Grand Jury stated in its findings. “Potential effects of this lack of transparency include public confusion and ultimately a risk to public support for the proposal.”

The negotiations were publicly announced in March 2020, though talks with PG&E had been happening behind closed doors years before that. A public relations firm, Raftelis Financial Consultants Inc., was hired by the district last December for nearly $120,000 to help facilitate a public outreach campaign.

Last week, TUD was finally able to reveal an estimated cost — $22.5 million over the next five years, which includes the purchase and ongoing maintenance of the assets TUD would acquire. District officials say it would require the average customer to pay an additional $200 per year.

Among the assets under negotiation are both Lyons and Pinecrest reservoirs, which currently store 95% of the district’s supply of surface water that serves a majority of its customers; associated hydropower generations facilities; and senior pre-1914 water rights on the South Fork Stanislaus River.

The most coveted piece of the deal for TUD are the water rights, as the county is currently the only in the state without any water rights. Pre-1914 water rights are not subject to the permitting jurisdiction of the State Water Resources Control Board, the report stated.

In addition, the Grand Jury noted that the acquisition will require community support “to a degree (TUD) has not needed in its 30-year existence.”

TUD must also “prepare for its new roles in wildlife enhancement and recreation that are natural adjuncts to the PG&E acquisition,” as well as the unfinished Phoenix Lake Preservation and Restoration Plan.

The district recently completed a dredging project to restore additional stores in Phoenix Reservoir, also known as Phoenix Lake, though funding was not available for the plan’s improvements to recreational opportunities.

According to the Grand Jury’s recommendations, TUD should develop a plan by June 2023 to pursue funding for completion of the plan’s recreational components and amend its strategic plan to include stronger environmental goals and objectives.

Under state law, the TUD board must approve responses to the Grand Jury’s findings and recommendations within 90 days.

“It is important that we have citizen oversight over how we manage water resources for people and the environment,” TUD Board President Barbara Balen said in a written statement Wednesday when asked for comment on the report. “I thought the findings were fair, and we will be taking their recommendations seriously.”

To read the full report, go online to www.tuolumne. courts.ca.gov/general-info/ grand-jury.shtml.