10/13/2011 1 Meeting #4 Meeting #4 M b A M M ti M b A M M ti CFO Group October 14, 2011 1 Member Agency Managers Meeting Member Agency Managers Meeting October 14, 2011 October 14, 2011 Issues related to fixed revenue: Fixed revenue generation Tier 1 limit / trading Tier 1 limits Fixed commitment to pay for the system (contracts) Fixed commitment to pay for the system (contracts) Purchase Order status, Compton Review of financial policies Issues related to specific programs: Replenishment (report at WP&S) Aligning the WSAP and T1/T2 rates CFO Group October 14, 2011 2 Issues related to cost causation Growth charge for infrastructure Treated water cost recovery Look back period for Capacity Charge
Issues related to fixed revenue:Fixed revenue generationTier 1 limit / trading Tier 1 limitsFixed commitment to pay for the system (contracts)Fixed commitment to pay for the system (contracts)Purchase Order status, ComptonReview of financial policies
Issues related to specific programs:Replenishment (report at WP&S)Aligning the WSAP and T1/T2 rates
CFO Group October 14, 2011 2
Issues related to cost causationGrowth charge for infrastructureTreated water cost recoveryLook back period for Capacity Charge
10/13/2011
2
Compton Purchase OrderBoard Action in November
Align Water Supply Allocation Plan and Tier 1/ Tier 2 calculation
Option: Tier 2 calculation performed on a fiscal year basis, not calendar yearTransition to be worked out
CFO Group October 14, 2011 3
Compton has asked to withdraw its Purchase Order
Compton’s Tier 1 limit will be lowerCompton will potentially be subject to Tier 2 Supply Rates based on the lower limit, both retroactively and going forwardNo water purchased at Tier 2 through December 31 2010
CFO Group October 14, 2011 4
31, 2010
Board Action letter in NovemberOptions for Board consideration
10/13/2011
3
Supply Allocation Plan on a fiscal year basis; Rates and Charges, including Tier 1/Tier 2, on a calendar year basiscalendar year basisOption #1: WSAP implementation moves up to January 1 from July 1Option #2: Tier 2 calculation performed on a fiscal year basis, not calendar year
CFO Group October 14, 2011 5
Option #3: Effective Date for rate changes moves up from January 1 to July 1 of the prior year
Calendar year calculation in effect for 2012, fiscal year calculation begins FY 2013/14fiscal year calculation begins FY 2013/14
6‐month gap
Calendar year calculation in effect for 2012, fiscal year calculation begins FY 2012/13
6‐month overlapTier 2 usage calculated in July December 2012
CFO Group October 14, 2011 6
Tier 2 usage calculated in July – December 2012 credited against Tier 2 usage calculated in January –June 2013
10/13/2011
4
Background InformationBackground Information
CFO Group October 14, 2011 7
80%
90%
100%
Water Sales
30%
40%
50%
60%
70%Sales
Other Charges
CFO Group October 14, 2011 8
0%
10%
20%Property Taxes
10/13/2011
5
80%90%
100%
0%10%20%30%40%50%60%70%80%
Other revenue %Volumetric revenue %Fixed revenue %
CFO Group October 14, 2011 9
0%
YCW
ASF
PUC
Taco
ma
MW
DSA
WS
EBM
UD
SCW
ASN
WA
SDC
WA
SCVW
DZo
ne 7
CLW
AAV
EKC
AWC
DM
WD
OC
SDC
WA
Rev
Tam
paSo
lano
KC
WA
MW
RA
$
$2,500
Variable
2011/12 2019/20
1,207 1,748
267
1,209
493
1,943
$500
$1,000
$1,500
$2,000
Million Dollars
Fixed
CFO Group October 14, 2011 10
251 318 $0
Costs Revenues Costs Revenues
Variable Costs include SWP Variable Power, CRA Power, Variable Treatment, & Supply ProgramsFixed Revenues include RTS, CC, and Taxes/Annexations
17% 14%
10/13/2011
6
2.5
etT1/2 Replenishment IAWP Other Non-Firm SDCWA Exchange
1.0
1.5
2.0
Mill
ion
Acr
e-Fe
e
CFO Group October 14, 2011 11
0.0
0.5
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
Cash Year Ending
2 3
2.5
eet
Actual Water SalesRevenue Requirement Projected Water Sales
1.7
1.9
2.1
2.3
Mill
ion
Acr
e-Fe
CFO Group October 14, 2011 12
1.3
1.5
2003
2004
2005
2006
2007
2008
2009
2010
2011
Cash Year Ending
10/13/2011
7
3.0 600
ReservesMaximum ReserveMinimum ReserveW t S l
1.0
1.5
2.0
2.5
200
300
400
500
MA
F
Mill
ion
Dol
lars
Water Sales
CFO Group October 14, 2011 13
-
0.5
0
100
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
Fiscal Year Ending
1000
1200Reserves Operating Revenues
FY 1990: 88%
200
400
600
800
Mill
ion
Dol
lars
FY 2011: 22% of revenues
FY 1990: 88% of revenues
CFO Group October 14, 2011 14
0
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
Fiscal Year Ending
10/13/2011
8
Rat
e In
crea
se
CFO Group October 14, 2011 15
1.7MAF
0%
CFO Group October 14, 2011 16
10/13/2011
9
Adjust Reserve PoliciesRates Based on More Conservative Water SalesRates Based on More Conservative Water Sales EstimatesAdjust Purchase Order TermsIncrease Fixed Revenues
Adjust Property Tax Rate
CFO Group October 14, 2011 17
Adjust Existing ChargesNew Charges/Fees
Others
Option Potential Change(s) Pros Cons
Adjust Reserve Policies
• Increase reserve requirements
• Clarify purpose of reserves e g
• Does not require changes to rate structure
• Could increase
• Will take rate increases to increase reserves
• Subject to annualreserves, e.g.,mitigate against decline in water sales
• Further define required actions associated with Reserve Policy
Could increase revenues
• Does not require action by State legislature
Subject to annual rate setting process
Rates Based on More C ti
• Reduce assumed water sales levels
t f l
• Same as above• Any excess
ld dd
• Will increase level of rate increasesB d h b
CFO Group October 14, 2011 18
Conservative Water Sales Estimate
as part of annual rate setting process(e.g., IRP LT Sales Forecast)
revenues could add to reserves or fund PayGo
• Board has been willing to adjust annually
10/13/2011
10
Option Potential Change(s) Pros Cons
Adjust Purchase Order Terms
• Establish annual purchase commitments by the member
• Does not require changes to rate structure
• Could decrease
• May require rate structure adjustments by member agenciesthe member
agenciesCould decrease revenue volatility
• Does not require action by State legislature
member agencies(i.e., How do member agencies “flow through” the commitment)
New Fixed Revenues Options
Adjust Property Tax Rate
• Maintain/increase tax rate through a change to MWD Act
• Stable form of revenue
• Low administrative
• Cost of water “muted” – possibly reduces
CFO Group October 14, 2011 19
gcost conservation signal
• Changing MWD Act requires action by State legislature
Option PotentialChange(s)
Pros Cons
Adjust Existing • Increase costs • Does not require • Potentially reducesAdjust Existing Charges
• Increase costs recovered through RTS/Standby Charge and/or Capacity Charge
• Does not require change to rate structure
• Will increase fixed revenues
• Does not require action by State legislature
• Potentially reducesprice signal for local resource development
• Requires Prop 218 notice process for Standby Charge
• Could lose grandfathering of existing Standby Charge
CFO Group October 14, 2011 20
g
Add to Existing Charges
• Additional charge on property tax bills other than Standby Charge or Ad Valorem tax
• May not require change to rate structure
• Will increase fixed revenues
• Must be within authority to impose
• Must be compatible with Prop 218 (able to define the special benefit provided) and Prop 26
10/13/2011
11
Option Potential Change(s) Examples
New Charges/Fees
• Addition of one or more charges or
• Treated Water Capacity Charge• Delta ChargeCharges/Fees
May require action by the State Legislature
more charges or fees
Delta Charge• Retail Meter Charge (MWDOC)• Meter Maintenance Charge (SFPUC)• Regional Connection Charge (SNWA)• Seismic Surcharge (EBMUD)• Water Supply Replacement Charge (El Paso)• Environmental Charge (Phoenix)• Fixed Availability Fee (Charlotte)• Customer Service Charge (SDCWA)• Revenue Stability Fee (Austin Water)• Other
CFO Group October 14, 2011 21
Work through OptionsBoth presented and proposedMore in depth analysisMore in‐depth analysis
