FY 2017-18 and FY 2018-19 Biennial Budget Assumptions Charles Turner March 15, 2017

Agenda Key Budget Assumptions Schedule Rate and Fee Adjustments Water Budget and Rate Setting is Centered Around the District’s Strategic Plan: With a clearly defined mission and vision, as well as guiding principles that define how we interact with customers and employees, EMWD is driven by standards to provide safe, reliable, economical and environmentally friendly services: Highly reliable water, recycled water and wastewater service Protection of public and environmental health Superior customer and community service Sound planning and appropriate investment Efficiency and fiscal responsibility Exemplary employer Effective communication and accountability Key Budget Assumptions Water Sales Purchases Water Shortage Contingency Plan Energy Electricity Natural Gas Fuel Chemicals Wages and Benefits Capital Needs Schedule Rate and Fee Adjustments

Conditions Assessment Statewide emergency drought regulations remain in place until October 2017 (Possible reconsideration in May 2017) Imported supplies above normal - Statewide snowpack is at 180% of normal and CRA watershed snowpack at 147% of normal EMWD reverted to a Stage 2 voluntary reduction in February 2017 - reinstated Tier 3 (101-150% of budget) EMWD customer conservation remaining steady at 18% relative to 2013 Staff recommends conservative assumptions related to sales growth and cost projections

Water Sales and Supply For FY 2017, project 6% increase in water sales (AF) compared to FY 2016 Actual. Key driver is higher wholesale demand by LHMWD, WMWD, and Perris. Assume 1% increase in water sales (AF) per year in FY 2018 and FY 2019 Slightly higher demands result in increased water purchases. Higher IRRP replenishment deliveries are also forecasted through 2019.

Water Supply Costs Metropolitan Water District (MWD) rates overall are projected to increase effective 1/1/2018 and 1/1/19 by 4.0% and 4.5% respectively. Full Service Untreated Tier 1 rate increase by 4.4% in 2018 Changes to Treatment Fixed Rates are not expected to be implemented in this budget window MWD Rates (2016-2018)

Water Supply Costs (cont’d) EMWD’s purchased water costs are projected to increase by $6.2 million and $3.5 million in FY 2017-18 and FY 2018-19 respectively. Estimated Purchased Water Cost

Water Revenue - WSCP District’s water shortage contingency plan (WSCP) stages impact assumed revenue forecast. Based upon current hydrology and supply conditions, staff anticipates remaining in non-mandatory WSCP stages (Stage 2 or lower) for FY 2018-19. Stage Date Approved Description Actions Stage 1 April 2011 Supply Watch Voluntary reduction up to 10% Stage 2 April 2014 February 2017 Supply Alert Voluntary reduction up to 25% Voluntary reduction up to 20% Stage 3 August 2014 (3a) June 2016 (3c) Mandatory Waste Reduction 3a: No variance adjustments; observation based penalties 3b: Tier 3 budgets decreased by 50% 3c: Tier 3 budgets decreased by 100%; All water waste prohibitions remain in place Stage 4 May 2015 (4a) Sept 2015 (4b) January 2015 (4c) April 2016 (4b) Mandatory Outdoor Reduction Watering schedules limited (1-2 days/week) 4a: Tier 2 budgets decreased by 10% 4b: Tier 2 budgets decreased by up to 50% 4c: Tier 2 budgets decreased by up to 100% Stage 5 Mandatory Indoor Reductions Catastrophic stage (50% reduction in demand) 5a: Tier 1 budgets decreased by 10% 5b: Tier 1 budgets decreased by up to 30% 5c: Tier 1 budgets decreased by up to 50%

Energy Electric energy cost to decrease as result of: Lower demands (water), Lower rates by SCE, and Benefits associated with the installation of 5 MW of solar. Gas energy cost to increase in FY 2017-18 as result of higher rates. TVRWRF Solar Array Lot E – Looking Easterly toward Diaz Road, Temecula

Chemicals and Gasoline Chemical costs anticipated to increase by $0.6 million and $1.5 million in FY 2017-18 and FY 2017-19, respectively due to higher chlorine and sodium hypochlorite costs at wastewater plants. Gasoline and diesel fuel costs are projected to remain unchanged through FY 2018-19.

Wages and Benefits Assumptions Base Wages: Proposing to add positions Two FTEs in FY 17-18 (to 632) Four FTEs in FY 18-19 (to 636) COLA estimated at 2.3% each year, but will be indexed based on actual change in CPI Merit Increase 2.1% each year Pay for Performance 2.5% Pool Compensation Study adjustments in late FY 17-18 Pension Contributions Lump-Sum Prepayment of Actuarially Determined Contribution each year Increases to employer PERS contributions based on PERS reduction in discount rate and portfolio de-risking Continued negotiated transition of employee contributions to PERS through 2019 OPEB Full Annual Actuarially Determined Contributions Medical Implications of ACA repeal and replacement are unknown Assumes a 6% overall increase each year

Capital Program Capital Improvement Plan (CIP) Anticipate $100 million to $110 million in annual CIP funding needs for FY 2017-18 and FY 2018-19 Funding from 2017 new money bonds and reserves Operating Fixed Assets (OFA) Anticipate $9 million in OFA projects from FY 2016-17 to carry forward to FY 2017-18. Long lead-times for equipment orders will be delivered in FY 2017-18 Various IT initiatives will continue into FY 2017-18 New OFA projects are anticipated to exceed prior year budget ($30 million) Additional funding to support completion of AMI Meter program Funding for OFA projects is from existing reserves and PAYGO (rates)

Budget Schedule for FY 2017-18 and FY 2018-19 Dates Proposed Actions March 15, 2017 Workshop: Review Key Budget Assumptions April 5, 2017 Workshop: Review Initial Draft of Operating and Capital Biennial Budget April 19, 2017 Workshop: Review Biennial Budget Final Draft, Consider Adoption (if appropriate) June 21, 2017 If not adopted previously, last day to adopt FY 2017-18 and FY 2018-19 Biennial Budget before new fiscal year September 6, 2017 Approve Prop 218 Notice and Review Proposed Rates based on New Cost of Service Methodology September 30, 2017 Last Day to Mail Proposition 218 Notices November 15, 2017 Public Hearing; Adopt Rates January 1, 2018 Rates Become Effective

Contact Information Charles Turner Director of Finance (951) 928-3777 Ext. 4363 turnerc@emwd.org