Cost of Service Water Rate StudyHabib Isaac – PrincipalGreg Tobler – Task ManagerMay 14, 2012

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Project Objectives• Develop water rate structures that:

– Provide adequate revenues in short and long term– Update and incorporate CIP– Strong financial outlook for utility– Minimize revenue adjustments

• Rate Design– Are defensible / equitable across customer classes– Consider ability to pay / affordability– Minimize rate shock

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Additional Considerations

Revenue Requirements

Analysis

• Determine revenue needed to meet utility costs

• Project O&M, capital, and debt expenses

• Analyze reserves

Cost of Service Analysis

• Allocate utility costs by function and customer demand

• Assign revenue required to each customer class in a proportionate manner

Rate Design Analysis

• Develop rate structure for each customer class to collect appropriate level of revenues

• Achieve equity and policy objectives

Revenue Requirements

Analysis

• Determine revenue needed to meet utility costs

• Project O&M, capital, and debt expenses

• Analyze reserves

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• Determine revenue needed to meet utility costs

• Project O&M, capital and debt expenses

• Analyzes reserves

Revenue Requirements Analysis

• Allocate utility costs by function and customer demand

• Assign revenue required to each customer class in a proportionate manner

Cost of Service Analysis • Develop rate structure for

each customer class to collect appropriate level of revenues

• Encourage water conservation

Rate Design Analysis

Holistic Approach to Rate Design

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• Analyzed EGWD Budget– EGWD financials embedded within model– Model may be used as part of budgetary process

• Accounted for specific adjustments– Capital Improvement Plan– Debt Management– 10-year projection – Reserves

• Established financial thresholds• Created multiple scenarios to reach five year goal

Revenue Requirements

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GUIDEComprehensive Modeling Dashboard

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FYE 2011 FYE 2012 FYE 2013 FYE 2014 FYE 2015 FYE 2016 FYE 2017 FYE 2018 FYE 2019 FYE 2020 FYE 2021 FYE 2022Lock Unlock Unlock Unlock Unlock Unlock Unlock Unlock Unlock Unlock Unlock Unlock

Proposed Revenue Increase 0.0% 28.0% 0.0% 0.0% 0.0% 14.0% 8.0% 2.0% 4.0% 0.0% 0.0% 0.0%

Days of Operating Reserves 57.00 91.00 113.00 113.00 112.00 94.00 94.00 92.00 94.00 113.00 113.00 113.00

Calculated Debt Coverage Ratio 145.7% 417.4% 390.2% 210.9% 191.8% 182.6% 200.2% 190.5% 200.0% 291.9% 254.4% 212.9%Net Income (2,623,104)$ 3,387,375$ 5,831,161$ 1,978,783$ 518,916$ (77,899)$ 972,708$ 388,352$ 951,386$ 6,378,571$ 4,125,727$ 1,668,479$

Assumptions / Variables

Conservation Target (gpcd)

Indoor Usage, per capita

Single Family Density

Single-Family (%)

Multi-Family (%)

201,300 Non-Res (%) No Growth (%)33,823 Indoor Allocation (gpd) 267

Average SFR Lot Size

Average SFR BSF

Irrigable Area (sq. ft.)

Usage, per 100 sq. ft. irrigable

area (gpd)Materials & Supplies (%) Treatment (%)

Electric (%) Labor (%) Outdoor Consumption (gpd) 376

Pool Volume # of Pools MWD (%) Price Elasticity20,000 8,245

Total Daily Household, gpd 643 Monthly Household Allocation (hcf) 26

Water Resources & Purchasing Costs

Source of WaterSan Fernando

Wells Verdugo WellsMetropolitan Water District

Recycled Water Total Usage

2005 Usage (AF) 7,800 3,856 20,158 2,010 33,824 Projected Cost (Per AF)

Projected Cost -$ -$ 15,118,500$ -$

Financing Options & Assumptions

Issue New Debt (Yes/No)

R&R Fund Balance Minimum ($1,000)

Operating Reserve Buffer

(%)

Debt Coverage Service Ratio

(%)

Targeted Operating Fund

Balance (days)

Net Income Minimum

Willdan Financial ServicesG.U.I.D.E.

Graphical User Interface Design Engine

1.00

1.00

Inflation & Growth

0.00

0.00

150 2.67

Water Use

100

4.00

5.00

3.00

4.00

90.00$

5.00

750 0

8.00

125.00 90.00

1,8899,416

No

0 0

25.00

3,764 10

3,000

Run Scenario Save

ResetProposed No

Projected Monthly Bill

-

10,000,000

20,000,000

30,000,000

40,000,000

50,000,000

60,000,000

70,000,000

80,000,000

FYE 2011 FYE 2012 FYE 2013 FYE 2014 FYE 2015 FYE 2016 FYE 2017 FYE 2018 FYE 2019 FYE 2020 FYE 2021 FYE 2022

Total O&M Expenses Debt ServiceCapital Project Funded by Rates Capital Projects - R&R Funded (PAYGO)Total Required Revenue Ending Operating Fund BalanceDesired Fund Balance

Programmed scenarios for quick comparisons

Visualize impacts on revenue & rates

immediately

Variable Assumptions Toggles and Inputs

Financial Thresholds

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Scenarios are quickly run with a push of the “Run Scenario Button”

GUIDE provides the ability to save, name, and compare scenarios to determine the optimal financial plan.

Back to Index

FYE 2013 FYE 2014 FYE 2015 FYE 2016 FYE 2017 FYE 2018Lock Lock Lock Lock Lock Lock

Proposed Revenue Increase 3.0% 3.0% 3.0% 3.0% 3.0% 3.0%

Days of Operating Reserves 416 375 344 252 199 160

Calculated Debt Coverage Ratio 151.4% 149.4% 146.6% 143.0% 139.9% 137.7%

Net Income 1,569,921$ 1,669,081$ 1,700,044$ 824,705$ 1,223,539$ 925,889$ Total Reserves 9,523,502$ 9,020,583$ 8,705,627$ 6,690,332$ 5,567,871$ 4,713,761$

Willdan Financial ServicesG.U.I.D.E.

Graphical User Interface Design EngineRun Scenario Save

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Key Variables:

Numerous assumptions that are easy to modify allow for easy and instantaneous, yet complex, scenario planning

AssumptionsInclude: Purchased Water Power Inflation Reserve Policies Debt Management Reserves Funded

Inflation / Escalation FactorsMaterials &

Supplies (%) Treatment (%) Pension (%)Purchased Water (%)

Purchased Power (%) Labor (%)

Other Production (%)

Administration & General (%)

Miscellaneous (%) Elasticity (%)Capitalized Expense (%) Flat

Financing Options & AssumptionsDepreciation

Options CIPR&R Fund Balance Minimum ($1,000)

Operating Reserve Buffer (%)

Debt Coverage Service Ratio (%)

Minimum Operating Fund

Net Income Minimum

Include New Depreciation

Catastophe Fund (Target) CIP Options Issue New Debt?

Capital Investment Funds and Reserves

7.0

8.0 3.0

90120

5.0

4.0 5.0

3.0 3.0

3.0 0.0

200,000.00$ NoYes

3.0 3.0

125.00

Full CIP Program

YesFull Recovery 400 5.00

$1,320,000 $430,000 $340,000 $135,000 $25,000 $9,523,502 $120,000

Unrestricted Meter Retrofit Supply/DistTreatment

Plant BuildingCapital

ReplacementElections /

Studies

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Immediate reflection of impacts to revenues & rates

(40,000,000)

(30,000,000)

(20,000,000)

(10,000,000)

-

10,000,000

20,000,000

30,000,000

FYE 2013 FYE 2014 FYE 2015 FYE 2016 FYE 2017 FYE 2018 FYE 2019 FYE 2020 FYE 2021 FYE 2022 FYE 2023

Total Expenses Debt Service Capital Projects - R&R Funded (PAYGO)

Total Revenue Operating Fund Balance Fund Balance Days of O&M

-

5,000,000

10,000,000

15,000,000

20,000,000

25,000,000

FYE 2013 FYE 2014 FYE 2015 FYE 2016 FYE 2017 FYE 2018 FYE 2019 FYE 2020 FYE 2021 FYE 2022 FYE 2023Total Expenses Debt Service Capital Projects - R&R Funded (PAYGO)

Total Revenue Operating Fund Balance Fund Balance Days of O&M

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SCENARIOSRevenue Options

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Revenue Adjustments Based on Annual Needs• Reserves allow District to defer two years of increases• 4th and 5th yr adjustments @ 9% and 11%, respectively• Bond covenants maintained and reserves funded• Yearly fluctuations in revenue collection • Rate shock to customers starting in 4th year• Reactive approach to utility’s 5yr/10yr financial plan

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Financial Outlook - ReactiveFYE 2013 FYE 2014 FYE 2015 FYE 2016 FYE 2017

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Proposed Revenue Increase 0.0% 0.0% 4.0% 9.0% 11.0%

Days of Operating Reserves 398 323 267 182 181

Calculated Debt Coverage Ratio 140.8% 128.0% 128.4% 145.7% 172.8%

Net Income 1,160,521$ 838,081$ 980,544$ 935,105$ 2,574,739$

Total Reserves 9,114,102$ 7,780,183$ 6,745,727$ 4,840,832$ 5,069,571$

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One Year Delay on Revenue Adjustments• O&M Reserve equals 180 days of O&M• Reserves allow District to defer adjustment for 1 year• Revenue adjustments of 4% , 4%, 4%, 6% for remaining years

– Bond covenants satisfied– District already has three years of 3% adjustments approved– Essentially two years of new increase (Years 4 and 5)– Allows economy to recover– Years 6 through 10 not pro-actively considered

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Financial Outlook - 1st Year DelayFYE 2013 FYE 2014 FYE 2015 FYE 2016 FYE 2017

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Proposed Revenue Increase 0.0% 4.0% 4.0% 4.0% 6.0%

Days of Operating Reserves 398 346 311 219 185

Calculated Debt Coverage Ratio 140.8% 142.0% 142.8% 142.7% 150.9%

Net Income 1,160,521$ 1,383,881$ 1,548,144$ 815,805$ 1,674,839$

Total Reserves 9,114,102$ 8,325,983$ 7,859,127$ 5,834,932$ 5,163,771$

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3% Revenue Adjustments• Revenue adjustments of 3% for next five years

– District already has three years of 3% adjustments approved– O&M Reserve adjusted from 180 days to 120 days – Reserves fully funded – including reserve programs– Bond covenants satisfied – CIP funded with a combination of existing Debt and PAYGO– Higher increases necessary in later years

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Financial Outlook - 3% AdjustmentsFYE 2013 FYE 2014 FYE 2015 FYE 2016 FYE 2017

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Proposed Revenue Increase 3.0% 3.0% 3.0% 3.0% 3.0%

Days of Operating Reserves 416 375 344 252 199

Calculated Debt Coverage Ratio 151.4% 149.4% 146.6% 143.0% 139.9%

Net Income 1,569,921$ 1,669,081$ 1,700,044$ 824,705$ 1,223,539$

Total Reserves 9,523,502$ 9,020,583$ 8,705,627$ 6,690,332$ 5,567,871$

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O&M Reserves Adjusted to 90-Days• District already has three years of 3% adjustments approved• O&M Reserve adjusted from 180 days to 90 days • All five years reflect 3% revenue adjustments• Reserves fully funded – including reserve programs• CIP funded with a combination of existing Debt and PAYGO• Bond covenants satisfied• Funds short-term and long-term needs• Years 6-10 revenue adjustments range between 4%-6%

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O&M Reserves - 90 DaysFYE 2013 FYE 2014 FYE 2015 FYE 2016 FYE 2017

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Proposed Revenue Increase 3.0% 3.0% 3.0% 3.0% 3.0%

Days of Operating Reserves 416 375 344 252 199

Calculated Debt Coverage Ratio 151.4% 149.4% 146.6% 143.0% 139.9%

Net Income 1,569,921$ 1,669,081$ 1,700,044$ 824,705$ 1,223,539$

Total Reserves 9,523,502$ 9,020,583$ 8,705,627$ 6,690,332$ 5,567,871$

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Debt Restructure with 90-Day O&M Reserve• O&M Reserve adjusted from 180 days to 90 days • Debt management allows District to take advantage of current

market conditions— Debt obligation reduced— Bond covenants easier to satisfy

• Reserves fully funded – including reserve programs• CIP funded with a combination of refinanced Debt and PAYGO

— May consider funding certain improvements with debt restructure• Funds short-term and long-term needs• Revenue adjustments in years 6-10 limited to 3%-4%

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Recommended – Debt Restructure; 90-Day O&MFYE 2013 FYE 2014 FYE 2015 FYE 2016 FYE 2017

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Proposed Revenue Increase 3.0% 3.0% 3.0% 3.0% 3.0%

Days of Operating Reserves 421 388 366 285 245

Calculated Debt Coverage Ratio 156.7% 156.7% 156.4% 155.8% 154.8%

Net Income 1,699,599$ 1,851,065$ 1,947,870$ 1,156,924$ 1,619,152$

Total Reserves 9,653,180$ 9,332,246$ 9,265,115$ 7,582,039$ 6,855,191$

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• Incorporate consumption data into model• Review and correlate CIP with depreciation• Rate Design

– Analyze peaking factors and demand characteristics – Set unique rates for each customer class– Discuss tiered structure– Options for residential – Conservation objectives

• Collaborate with EGWD staff throughout rate design process

Next Steps