WATER AND WASTEWATER RATE STUDY Financial Plan Rate

WATER AND WASTEWATER RATE STUDY Financial Plan & Rate Board Workshop Las Virgenes Municipal Water District April 18, 2012

Agenda �Background and key assumptions �Financial Plans ◦ Recommendations �Rates ◦ Recommendations �Bill Impacts �Q&A 4/18/2012 Financial Planning Workshop 2

Current Rates and Pass. Through �MWD water costs passed through each January Existing Volume Charge per HCF �FY 2012 rates: effective date: 1/1/2012 Tier 1 Tier 2 Tier 3 Tier 4 4/18/2012 Financial Planning Workshop 1. 78 2. 15 3. 02 4. 35 3

Key Assumptions �Potable Water Sales ◦ FY 2012: 20, 440 AF �Forecast to grow to 22, 173 by FY 2020 � 0. 58% growth in accounts �O&M % Increase ◦ Approximately 3% per year �Rates implemented in January �Financial plan will be examined for FY 2013 to FY 2017 4/18/2012 Financial Planning Workshop 4

Debt Service Coverage Ratio (DSCR) �A metric used to measure a utility’s ability to pay its debts �Net Income / Debt Service = DSCR ◦ Revenue – O&M expenditure = Net Income �DSCR is not impacted by reserve levels �Reserves can be healthy and DSCR can be problematic �DSCR can be an early sign to investors that there may be potential issues with the debt issuer’s ability to pay back debt 4/18/2012 Financial Planning Workshop 5

Financial Plans

Financial Plan Overview �Transfers are made to the Construction (Expansion) Fund to maintain a positive fund balance �Sanitation and Recycling fund balances are projected to be healthy by FY 2017 and beyond �Challenges with Water Fund ◦ Net Revenue for FY 2013 is projected to be -1. 8 M dollars � 7% revenue increase is needed to close this gap in FY 2013 4/18/2012 Financial Planning Workshop 7

Sanitation – Financial Plan �No rate increase in FY 2013 and FY 2014 � 2% annual rate increase FY 2015 through FY 2017 �Maintain reserve targets �CIP – cash funded 4/18/2012 Financial Planning Workshop 8

Sanitation – Financial Plan 4/18/2012 Financial Planning Workshop 9

Sanitation – Financial Plan �There are many unknowns with Sanitation ◦ Uncertainty associated with regulatory requirements ◦ Storage for Recycling �Estimated to be $60 M �Storage cost to be split between Sanitation and Recycling �By 2017 Sanitation will exceed the reserve requirements by ~$8 M and have a debt capacity of ~$15 M 4/18/2012 Financial Planning Workshop 10

Recycled – Financial Plan �No rate increase is needed �Options associated with recycled rates 1. 90% of the adopted rates � Current practice � Given the MWD pass through, 90% target is hard to maintain 2. Keep the current rate structure � Increase in rates is currently not required � By 2017 Recycle Fund is projected to have an additional ~$11. 5 M 3. Conduct cost of service analysis to determine the appropriate rate � Rates would most likely be reduced 4/18/2012 Financial Planning Workshop 11

Recycled – Financial Plan Maintain current rates 4/18/2012 Financial Planning Workshop 12

Financial Plan Scenarios for Water Five years of rate increase with a plan to meet reserve targets by FY 2017 � ◦ Provides flexibility for evaluating water budget rates � Net revenue is positive by FY 2014 � Scenarios: 1. Fund all reserve funds 2. Meet all reserves except for Rate Stabilization 3. Meet all reserves except for Rate Stabilization and issue $9. 5 M debt in FY 2016 4/18/2012 Financial Planning Workshop 13

3 Key Reserve Requirements Operating – 25% of annual O&M and one year of debt service 2. Capital Replacement – 3 -years of CIP 3. Rate Stabilization (water) - 20% of 2 years potable sales 1. 4/18/2012 Financial Planning Workshop 14

Water – Financial Plan 1 �Meet all reserve targets �No new debt �Rate Increases: ◦ 7. 5% annually FY 2013 through FY 2017 *Note: All water rate increases in these analyses do not include annual MWD pass through rates 4/18/2012 Financial Planning Workshop 15

Water – Financial Plan 1 4/18/2012 Financial Planning Workshop 16

Water – Financial Plan 2 �Meet all reserve targets except Rate Stabilization Reserve �No new debt �Rate Increases: ◦ ◦ ◦ FY 2013: 5% FY 2014: 5% FY 2015: 6. 5% FY 2016: 6. 5% FY 2017: 6. 5% 4/18/2012 Financial Planning Workshop 17

Water – Financial Plan 2 4/18/2012 Financial Planning Workshop 18

Water – Financial Plan 3 �Meet all reserve targets except Rate Stabilization Reserve �$9. 5 million in debt in FY 2016 �Rate Increases: ◦ 5% annually FY 2013 through FY 2017 4/18/2012 Financial Planning Workshop 19

Water – Financial Plan 3 4/18/2012 Financial Planning Workshop 20

Financial Plan Recommendations �Water ◦ Financial Plan Scenario #2 �Sanitation ◦ 2% annual rate increase FY 2015 through FY 2017 �Recycled ◦ Status Quo: Rates are unchanged 4/18/2012 Financial Planning Workshop 21

Recommended Sanitation Rates

Sanitation � Existing Bi-Monthly Charge: $108 � Proposed charges will be based upon lowest water usage bill from Jan to March � Minimum charge is 8 billing units (2 people) � Maximum charge is 16 billing units (4 people) 4/18/2012 Financial Planning Workshop 23

Sanitation Bill Impacts 4/18/2012 Financial Planning Workshop 24

Water Rates – Two Options Rate increases are applied across the board 2. Tier 1 rate is set equal to MWD cost of water 1. ◦ In FY 2013, non-Tier 1 rates will adjust by the percentage increase needed to make up remaining revenue requirement 4/18/2012 Financial Planning Workshop 25

Recommended Water Rates Rate Option 2 � Tier 1 rate is set equal to MWD cost of water � ◦ In FY 2013, non-Tier 1 rates will adjust by the percentage increase needed to make up remaining revenue requirement 4/18/2012 Financial Planning Workshop 26

Financial Plan Scenario 2 and Rate Option 2 – Bi-monthly fixed charge 4/18/2012 Financial Planning Workshop 27

Financial Plan Scenario 2 and Rate Option 2 – Commodity w/o MWD increase 4/18/2012 Financial Planning Workshop 28

Discussion 4/18/2012 Financial Planning Workshop 29

CIP Expenditures - Water 4/18/2012 Financial Planning Workshop 30

CIP Expenditures - Sanitation 4/18/2012 Financial Planning Workshop 31

CIP Expenditures - Recycled 4/18/2012 Financial Planning Workshop 32