1 Emergency Financial Response: Drought Rates May 15, 2014

2 As water managers, how should we plan for financial uncertainty? How do I measure the potential impacts? What issues should I reasonably plan for? What is an acceptable level of risk? How and what should I communicate to my constituents and elected officials? How do I measure whether my financial position is sound prior to a disruptive event?

3 Understanding your key hurdles will help guide your approach System Needs Usage

4 Historical trends illustrate a significant shift in customer behavior *2010 Arcadia Urban Water Management Plan Which is my design year?

Total average flow (MGD) Annual Growth Rate of 0.75% for Riverside Annual Growth Rate of 1.09% for Riverside Annual Growth Rate of 1.50% for Riverside 52.2 mgd 49.4 mgd 47.3 mgd Absent an adaptive program, disruptive events can have severe financial impacts

6 System planning…

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8 Rate structure considerations often require balancing competing objectives Rate Design Legal Compliance Encourage Conservation Equity Across Customer Classes Affordability at Low Usage Financial Stability Economic Uncertainty Reliable Projections Sufficient Revenue

9 Detailed analysis of customer data provides basis for recommended rate structure design Data management of the agency’s historical consumption records Consumption profile analysis and changes in demands Inter and intra-class behavior

10 Consumption analysis creates the basis for setting rate tiers and assessing ratepayer impacts and revenue stability * San Francisco Public Utilities Commission

11 Rate setting can account for changes in supplies and address revenue stability Upper Tier Base $2.20 $ ccf Base Rates 8 ccf Upper Tier Base $4.13 $1.92 $2.20 Middle Tier 13 ccf Drought Level 2 6 ccf Upper Tier Base $4.13 $1.92 $2.20 Middle Tier 11 ccf Drought Level 3

12 Effective communication is central to influencing customer behaviors and opinions Align process, policies, and recommendations with communities values Engage stakeholders and community advocates Translate complex technical and financial concepts into simple language and clear illustrations Pay close attention to equity and affordability… – Recognize the natural tendency to resist change Make rates and resulting bills simple and controllable

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14 San Diego County Water Authority

Water Distribution Plan Increase system capacity and reliability 10 projects $530 million CIP budget Emergency Storage Project Add 92 kaf of emergency storage Add $730 million to CIP $1.594 billion CIP budget History of supply planning decisions and capital improvements 2006 Comprehensive Reliability and Cost Assessment “CRACA” Analyze cost/reliability of CIP Validate storage decisions Carlsbad desal is local project 2004 Water Facilities Master Plan Update Preferred alternative “supply from the west” Add 89 kaf of regional desalination Add 100 kaf of carryover storage Add MGD of treatment capacity $3.229 billion CIP budget 2009 CRACA “lite” Validate CIP scope/cost Drought mgmt impacts 1993 Water Resource Plan 1995 Urban Water Management Plan 2000 Urban Water Management Plan 1997 Water Resource Plan Add IID water transfer 2005 Urban Water Management Plan Add 56kaf desalination 2003 Quantification Settlement Agreement IID water transfer, 35-yr take or pay, 4.88 maf $1.45 billion Canal linings, 110 yrs, 4.32 maf $175 million Carlsbad Desal Project 30 year Water Purchase agreement 56 kaf local supply Add $80 million To CIP for existing system improvements * Ken Weinberg SDCWA

16 Relationship between building permits, sales & rates Building Permits Sales All-In Treated Rate * Ken Weinberg SDCWA

17 Implement new charges to support CIP Standby Charge Capacity Charge Implement new charges to support ESP/CIP Infrastructure Access Charge Special Ag Water Rate Unbundle rate and create new fixed charges Customer Service Charge Storage Charge Transportation Rate Implement melded rates Supply Rate Treatment Rate Enhance financial policies Rate Stab Fund Debt Service Coverage Rate setting was an evolutionary process design to achieve fiscal sustainability Transitional Ag Rates Sales (TAF) Rainfall (inches) * Ken Weinberg SDCWA

18 Robb Grantham Carollo Engineers (415)