Orange County Utilities Department Water and Wastewater Budget Challenges March 9, 2010

Budget Challenges IntroductionIntroduction Revenue OutlookRevenue Outlook Department ExpensesDepartment Expenses Budget ChallengesBudget Challenges Next StepsNext Steps

Budget Challenges

Large Water and Wastewater Utility –182,000 water & wastewater customers –3,830 miles of pipe –705 pump stations –57.2 MGD water produced –51.0 MGD wastewater treated Introduction

Budget Challenges

Revenue Outlook Revenue Sources –Water rates –Wastewater rates –Reclaimed water rates –Connection fees –Miscellaneous revenues

Affected by economic environment –Foreclosures –Unemployment –Downturn in new development –Reductions in tourism –Commercial establishments going out of business Revenue Outlook

Declining revenues due to economic conditionsDeclining revenues due to economic conditions Appropriate reductions to O&M budget while ensuring essential services and regulatory requirements are metAppropriate reductions to O&M budget while ensuring essential services and regulatory requirements are met Long-term revenue increases and borrowing are needed to fund CIPLong-term revenue increases and borrowing are needed to fund CIP Revenue Outlook

Budget Challenges

Department Expenses FY 2010 Operating Expenses Budget = $118M

Department Expenses Personal Services - $43.3 million - $43.3 million

Outsourced Services –$30.6 million –Includes: Biosolids managementBiosolids management Conserv II operations and maintenanceConserv II operations and maintenance Wastewater infrastructure rehabilitationWastewater infrastructure rehabilitation Department Expenses

Materials & Supplies –$8.6 million –Chemical costs Varies in proportion to flow and priceVaries in proportion to flow and price $6.5 million or 76% of total$6.5 million or 76% of total Department Expenses

Utilities –$14.8 million –Electricity costs Varies in proportion to flow and priceVaries in proportion to flow and price $13.5 million or 91% of total$13.5 million or 91% of total Department Expenses Electric Rates

Repairs & Maintenance –$14.0 million –Includes: EquipmentEquipment Buildings & groundsBuildings & grounds VehiclesVehicles Department Expenses

Other Expenses –$6.7 million –Includes: Self insuranceSelf insurance Postage & messenger servicesPostage & messenger services Equipment rentalEquipment rental Bad debt expenseBad debt expense Bank chargesBank charges Department Expenses

Budget Challenges

County Guideline: 7% reduction would adversely impact… –Regulatory Requirements –Service Levels –Programs –Maintenance –Equipment Replacement Budget Challenges

Regulatory Requirements… –Statutory staffing requirements at facilities Service Levels… –Water quality –Increased risk of sewer overflows –Fire protection reliability –Increased Call Center response times Budget Challenges

Programs… –Water Meter Replacement Potential loss of revenuePotential loss of revenue –Private Pump Station Compliance Program Limited enforcementLimited enforcement –Oil & Grease Prevention Limited enforcementLimited enforcement –Cross Connection Control Reduced inspectionsReduced inspections –Conservation Reduced funding for conservation initiativesReduced funding for conservation initiatives Budget Challenges

Maintenance… –Insufficient resources for preventive maintenance ValvesValves HydrantsHydrants PlantsPlants Pump stationsPump stations Equipment Replacement… Delayed replacement of heavy equipmentDelayed replacement of heavy equipment Increases maintenance costs and downtimeIncreases maintenance costs and downtime Budget Challenges

Sufficient funding is needed to serve customers and meet regulatory requirementsSufficient funding is needed to serve customers and meet regulatory requirements Goal to cut budget 3%-5%Goal to cut budget 3%-5% Challenge is to fund CIPChallenge is to fund CIP Budget Challenges

Total Budget $633.1M Budget Challenges 5-Year CIP

Budget Challenges Infrastructure - Horizons West Wastewater Systems -South Regional Water Transmission System -Transportation Related Water Relocation Phase II -Eastern Regional Water Transmission Systems -South Service Area Effluent Reuse

Budget Challenges Water Plants -Southern Regional Water Supply Facility -Eastern Water Supply Facility Phase III -Western Regional Water Treatment Facilities Phase III -Southwest Water Supply Facility

Budget Challenges Wastewater Plants -Eastern Water Reclamation Facility Expansion -Northwest Water Reclamation Facility Phase III -South Water Reclamation Facility Phase V -Southwest Orange County Effluent Disposal

Budget Challenges Rehabilitation -Wastewater Collection Systems Rehabilitation -Wastewater Pumping Stations Rehabilitation -Water Distribution Systems Rehabilitation

Budget Challenges CIP large and essentialCIP large and essential Current reserves and revenues no longer adequateCurrent reserves and revenues no longer adequate Long-term revenue increases and borrowing are needed to fund CIPLong-term revenue increases and borrowing are needed to fund CIP

Budget Challenges

Finalize the budgetFinalize the budget Analyze cash needsAnalyze cash needs –Ensure budget can be funded for FY11 and beyond –Re-examine CIP for current growth trend Next Steps

Orange County Utilities Department Water and Wastewater Budget Challenges March 9, 2010