2020 Water Rate Study Preliminary Findings August 17, 2020 Agenda - PowerPoint PPT Presentation

2020 Water Rate Study Preliminary Findings August 17, 2020

Agenda 1. Overview of water rate setting a. The rate setting process b. Legal requirements c. Committee participation 2. Current water rates 3. Survey 4. Financial Plan Scenarios 5. Rate Structure a. Current Rates b. Cost-of-Service Analysis c. Proposed Rates d. Bill Impacts 6. Water Shortage Rates 7. Project Schedule 2

The Rate Setting Process Compares the revenues of each utility to its expenses to determine the overall level of Revenue Requirements annual rate adjustments to meet financial objectives Equitably allocates the revenue requirements Cost-of-Service between the various customer classes of service on a proportionate basis Design rates for each class of service to meet Rate Design the revenue needs of the utility, along with any other rate design goals and objectives 3

Legal Requirements for Setting Water Rates In California • Proposition 218 (Article XIIID, Section 6 of California Constitution) • Revenues shall not exceed funds required to provide service; nor used for another purpose • Amount shall not exceed the proportional cost of the service attributable to the parcel • Service must be actually used or immediately available • Approval process includes 45-day notice, public hearing, and written majority protest. Does not require a voting process (unlike taxes). • Many court decisions have clarified requirements 4

Business Plan Model 5

Financial Plan 6

Estimated Cash Reserves For fiscal year beginning July 1, 2020 (as of July 2020) WAB General Fund $10,485,000 LAIF $1,928,000 Filter Replacement Fund $690,000 Total Unrestricted: $13,103,000 Facility Fees (Capital Only) $480,000 OPEB Trust Fund $1,765,000 Total Reserves: $15,348,000 7

Revenue FY2020/21 Budget Retail Rate Revenue $12,129,000 Non-Rate Revenue Aerojet – Firm Capacity* $1,400,000 GSWC – Treatment & Delivery $1,173,000 Interest Earnings $57,000 Other Operating Revenue $127,000 Capital Facility Fees $68,000 Transfer In $170,450 Total: $15,124,450 * Revenue expires in FY 2022/23 8

Historic Water Production 9

Operating & Debt Service Expenses FY2020/21 Budget Adminstrative $4,219,000 Production $2,774,000 Distribution $1,933,000 Debt Service $2,540,000 Transfers for pensions/OPEB liabilities $600,000 Total Budget: $12,066,000 10

Recent and Projected Capital Spending Replacement of aging infrastructure $8M for filter replacement Average cash-funded Average cash-funded capital = $2M capital = $5.7M 11

Capital Spending Replacement of aging infrastructure FY2020/21 FY2021/22 FY2022/23 FY2023/24 FY2024/25 FY2025/26 FY2026/27 FY2027/28 FY2028/29 FY2029/30 FY2030/31 Production $0 $1,150,000 $1,225,000 $1,560,000 $1,375,000 $820,000 $525,000 $705,000 $655,000 $380,000 $190,000 Distribution $1,053,063 $4,060,424 $2,609,986 $3,382,172 $1,943,210 $3,057,630 $2,849,878 $4,614,947 $4,440,541 $3,651,376 $1,986,216 Adminstrative Services $138,902 $1,094,043 $297,469 $256,056 $259,373 $290,432 $268,423 $385,056 $308,840 $273,585 $1,282,020 Contingency Budget $0 $0 $413,246 $519,823 $357,758 $416,806 $364,330 $570,500 $540,438 $430,496 $345,824 Total Operating $1,191,965 $6,304,467 $4,545,701 $5,718,050 $3,935,341 $4,584,868 $4,007,632 $6,275,503 $5,944,819 $4,735,457 $3,804,059 Expenses Detailed Tables Available as Extra Slides 12

Reserves The following are established & proposed District reserve policies. In addition to protecting the District against unforeseen circumstances, these policies also contribute towards the District’s credit rating. Target Current Reserve* Purpose and Policies Level Level MINIMUM RESERVES Purpose : Provide sufficient funds for working capital, cash flow, and funds for continued operation in the Operating Reserve event of unplanned operating and maintenance expenditures. $3.8M $3.8M Minimum Reserve : 33% of budgeted O&M costs less debt service Purpose : provide safeguard to ensure that District meets the debt service coverage requirements Rate Stabilization Minimum Reserve : None $520K $520K Policy : Surplus net revenues may be deposited into the Rate Stabilization Reserve Fund Subtotal: $4.3M $4.3M TARGET RESERVES Purpose: Smooths the annual cost of replacing filters Filter Replacement NA $670K Proposed Policy: Set aside $0K to $600K annually Purpose: Smooths the annual cost of replacing equipment, facilities, and structures at the WTP Water Treatment Plant Replacement Proposed Target: Combine with Capital Replacement Reserve, see below $4.0M $5.3M Purpose: Supports District’s ability to support “Pay As You Go” (cash) funding of capital program Capital Replacement Proposed Target: 10-year average Pay-Go capital budget spending Subtotal: $4.0M $6.0M UNRESTRICTED RESERVES General Fund Purpose: Cash in excess of target reserves $0 $3.3M $8.3M $13.6M Total: * This list does not include the existing OPEB and CalPERS reserves (currently at $1.8M combined) since these reserves are restricted and are based 13 on actuarial assessments

Financial Forecast – #1 Cash finance the filter replacement in 10 years (annual contributions of $753 thousand) Non-Rate Revenue Existing Rate Revenue Additional Rate Revenue Operating Expenses $35 Total Revenue / Expenses ($M) Debt Filter Reserve Expense Cash Capital Reserve Funded Capital $30 $25 $20 $15 Revenues $10 Expenses $5 $0 FY2020 FY2021 FY2022 FY2023 FY2024 FY2025 FY2026 FY2027 FY2028 FY2029 FY2030 FY2031 $20 Ending Fund Balance Cash Reserves (excluding Filter Reserve) Target Reserves Compounded MILLIONS $10 rate increases after 5 years: $0 65% FY2020 FY2021 FY2022 FY2023 FY2024 FY2025 FY2026 FY2027 FY2028 FY2029 FY2030 FY2031 Proposed Revenue Increases: 10.5% 10.5% 10.5% 10.5% 10.5% 3.0% 3.0% 3.0% 3.0% 3.0% 3.0% 14 3.18 2.53 2.99 3.55 3.53 4.09 4.48 4.62 4.75 4.90 5.53 5.33 Debt Coverage Ratio: Net Debt Proceeds: $20.0M $0.0M $0.0M $0.0M $0.0M $0.0M $0.0M $0.0M $0.0M $0.0M $0.0M $0.0M

Financial Forecast – #2 Cash finance the filter replacement in 15 years (annual contributions of $600 thousand) debt if the filters fail after 10 years) Non-Rate Revenue Existing Rate Revenue Additional Rate Revenue Operating Expenses $30 Total Revenue / Expenses ($M) Debt Filter Reserve Expense Cash Capital Reserve Funded Capital $25 $20 $15 Revenues $10 Expenses $5 $0 FY2020 FY2021 FY2022 FY2023 FY2024 FY2025 FY2026 FY2027 FY2028 FY2029 FY2030 FY2031 $20 Ending Fund Balance Cash Reserves (excluding Filter Reserve) Compounded Target Reserves MILLIONS rate increases $10 after 5 years: 57% $0 FY2020 FY2021 FY2022 FY2023 FY2024 FY2025 FY2026 FY2027 FY2028 FY2029 FY2030 FY2031 9.5% 9.5% 9.5% 9.5% 9.5% 5.0% 5.0% 3.0% 3.0% 3.0% 3.0% Proposed Revenue Increases: 15 3.18 2.50 2.92 3.41 3.31 3.78 4.19 4.48 4.69 4.83 4.97 5.25 Debt Coverage Ratio: Net Debt Proceeds: $20.0M $0.0M $0.0M $0.0M $0.0M $0.0M $0.0M $0.0M $0.0M $0.0M $0.0M $0.0M

Financial Forecast – #3 Debt finance the filter replacement Non-Rate Revenue Existing Rate Revenue Additional Rate Revenue Operating Expenses $25 Total Revenue / Expenses ($M) Debt Filter Reserve Expense Cash Capital Reserve Funded Capital $20 $15 $10 Revenues Expenses $5 $0 FY2020 FY2021 FY2022 FY2023 FY2024 FY2025 FY2026 FY2027 FY2028 FY2029 FY2030 FY2031 $20 Ending Fund Balance Cash Reserves (excluding Filter Reserve) Target Reserves Compounded MILLIONS $10 rate increases after 5 years: $0 47% FY2020 FY2021 FY2022 FY2023 FY2024 FY2025 FY2026 FY2027 FY2028 FY2029 FY2030 FY2031 8.0% 8.0% 8.0% 8.0% 8.0% 3.0% 3.0% 3.0% 3.0% 3.0% 3.0% Proposed Revenue Increases: 3.18 2.47 2.80 3.21 3.01 3.35 3.61 3.72 3.82 3.94 3.26 3.42 Debt Coverage Ratio: 16 Net Debt Proceeds: $20.0M $0.0M $0.0M $0.0M $0.0M $0.0M $0.0M $0.0M $0.0M $0.0M $8.2M $0.0M

Reasons for Rate Increases 1. Increase in capital spending (approximately 25% rate increase) • From $2M per year to $5.7M per year 2. Loss of Aerojet revenue (approximately 11% rate increase) • $1.3M per year starting in FY23 3. Lack of rebound in water usage (approximately 9% rate increase) • 20% lower than historic highs 4. Inflation • Rate increases of 3% per year are (approximately 16% rate increase over 5 years) needed even without the above factors 17

Survey of Rate at Regional Public Utilities Single Family accounts with 1” meters and 11 CCF of monthly usage (average) 18

Current Water Rates Water Usage Rate: $1.54 per HCF (748 gallons) 42% of revenue Bimonthly Service Charge: 3/4“ meter $57.16 1” meter $87.37 1.5” meter $162.90 58% of revenue 2” meter $253.50 3” meter $464.93 4” meter $766.98 6” meter $1,522.10 Water Shortage Surcharge Rate apply in the event of a drought 19