Consideration of Support of DWR s Approval of California WaterFix Project. ACWD Board Meeting October 12, Month, Day, Year

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1 Consideration of Support of DWR s Approval of California WaterFix Project ACWD Board Meeting October 12, 2017 Month, Day, Year

2 Overview Update on the Delta & California WaterFix Update on Business Case Staff recommendation 2

3 To get water here, we need to pump it uphill and away from the Bay. ~70% of California s Rain & Snow falls North of Sacramento

4 Dependent on non-state/fed levees project levees Non-project levees Most levees are not engineered Subject to failure earthquakes and floods

5 Delta Islands are below sea-level and they are still sinking

6 And the Sea is rising Frank s Tract is a sunk island and Salt Trap Sea-level Rise: 2 by year to 6 by 2100

7 Salt intrusion during Dry years Salt at our water supply pumps

8 Potential massive salt intrusion after an earthquake 8

9 California WaterFix Details Over 100 Alternatives considered Preferred Alternative 4A : Dual Conveyance Two 40 diameter tunnels, up to 150 below ground Tunnel length of over 43 miles Three screened intakes, each with 3,000 cfs capacity, gravity fed 9

10 Sacramento Proposed intakes (3) Proposed tunnel route Existing state and fed. pumps Figure from Outreach Materials, Department of Water Resources. Accessed October

11 Enhanced Flexibility North Delta Modern intake screens allow fish to bypass without salvage Flexibility to divert excess flood flows & reduce fish impacts during low flow periods SWP Pumps CVP Pumps South Delta Reduces reverse flows in river Less fish salvage at pumps 11 11

12 California WaterFix Benefits Improve and protect water supply & water quality against salt water intrusion due to sea level rise, flooding, and earthquakes; Improve reliability by capturing surplus flow in the north Delta when pumping in the south Delta would otherwise be restricted; More protective of endangered native fish species 12

13 California WaterFix Costs 13

14 California WaterFix Costs Total cost ~$16.7B* Assume 45/55 split between CVP/SWP As 1% if SWP, ACWD share is 0.55% of total or ~$92M SWP has no opt-out ; CVP does CVP opt-out impact is TBD ACWD bill impact analysis looked at a worst case cost analysis of: 100% CVP opt-out No project / cost downsizing * Data Source: White Paper: Modernizing the System: California WaterFix Finance & Cost Allocation. (August 2017). Metropolitan Water District of Southern California 14

15 Estimated Project Schedule * Data Source: DWR and SWC 15

16 Request from the State and Possible Action Tonight State Water Contractors and California Department of Water Resources are asking for agencies support for the DWR s approval of California WaterFix 16

17 California WaterFix -Business Case- 17

18 WaterFix Business Case Staff has been preparing a Business Case for WaterFix since early 2016 ACWD was using place holder assumptions which have changed : ACWD Project Cost Yield (TAF / yr) 2014 Assumption EIR / EIS $106M $92M * Data Source: Cost Adjusted 2017 MWD White Paper; Yield DWR 2015 DCR Report 18

19 Purpose for the Business Case Evaluate: The value of the project. Can we get more water for a better price? Whether another water supply alternative has other intrinsic benefits, even if its more costly? 19

20 Scenarios Evaluated WaterFix No-action (Worst Case) Indirect Potable Reuse Bay Desalination Los Vaqueros Expansion (ELV) AMI-based conservation 20

21 Different Ways to Evaluate Conventional Unit costs Simple. Cost divided by yield Lacks consideration of ACWD operations Apples and Oranges hard to compare a supply to storage Integrated Resources Modeling More realistic evaluation considering our other supply sources, facilities & constraints. Evaluates policy objectives including: Integrated reliability Cost: Capital + conditional O&M Local control Risk Water Quality 21

22 Unit Cost - $/ AF Scenario Avg. Yield (TAF/year) Capital Cost Unit Cost ($/AF) Rounded WaterFix 11.2 $92M $470 AMI 2.7 $26M $560 ELV up to 9.2 TBD ~$800 IPR $74M $1,100 - $1,800 Notes Yield estimates have increased reflects range from old (lower) to present (higher) estimates Yield based on 5% conservation benefit on build-out demands Estimated unit cost of M&I water per Draft NEPA. Yields and cost may change as project matures 4.4 TAF project with Realization rate ranging from 53% to 89% Costs are in 2017 dollars 22

23 Variable Cost of ACWD s Existing Imported Supplies - $/ AF Source Existing State Water Project Supply Variable Unit Cost ($/AF) Rounded $400 (+ ~ $300 to treat) SFPUC $1,800 Notes Raw water, requires treatment. Fixed + delivery cost, assumes avg. yield + variable delivery+ treatment costs) Delivered / potable FY unit costs Costs are in 2017 dollars = raw water = potable water 23

24 Caveats: WaterFix Business Case: Integrated Resources Modeling Results from previous analyses Assumptions/numbers have evolved over the past 18 months Results are approximate but remain sufficient for this comparative analysis 24

25 Results: Cost Description Net Capital Costs Amortized Cap. Cost Avg. Annual Production Costs Total Baseline $0 $0 $42.6 M $42.6 M Worst Case WaterFix IPR AMI ECHO SED $0 $0 $43.9 M $43.9 M Alt 4 + SED ECHO SED, 4 mgd IPR ECHO SED, AMI 5% $134 M (w/ SWT enhancements) $8 M $38.6 M $46.3 M $85 M $5 M $46.8 M $51.7 M $25 M $1 M $43.1 M $44.5 M ELV TBD TBD TBD TBD TBD SED Substitute Environmental Document related to San Joaquin River Flows Cost are in 2016 dollars 25

26 Results: Other Description Water Quality Local Control Resiliency Critical Dry Year Shortage Total Cost Baseline O O O 9% $42.6 Worst Case ECHO SED + O 37% $43.9 WaterFix Alt 4 + SED + O + 29% $46.3 IPR AMI Only ECHO SED, 4 mgd IPR + + O 12% $51.7 ECHO SED, AMI 5% O % $44.5 ELV TBD TBD TBD TBD TBD 26

27 California WaterFix - Customer Bill Impact - 27

28 California WaterFix Customer Bill Impact Analysis Agency-specific amortization schedules for multiple bond issuances. Assumes: 30 yr. amortization at 3.55% interest for revenue bonds Current SWP funding mechanisms, consistent with current policy Bill impact applies evenly to the service and commodity charges Bill impacts presented are based on a average residential customer using 16 HCF Customer impacts are based on a 55% SWP / 45% CVP split 28

29 California WaterFix Customer Bill Impact Analysis ACWD Financial Analyst found that: Bill impacts will build up slowly over 15 years Peak bill impact occurs in 2033 and goes until 2048 Avg. SFR bill impact: $2.16 per bill (2033 $) a 1.5% rate increase Worst case bill impact assuming 100% CVP opt out: $3.94 per bill (2033 $) 29

30 California WaterFix - Conclusions - 30

31 Business Case Findings Arguments for The price of WaterFix can be considered reasonable given that all other water supply alternatives have a higher unit cost WaterFix objectively meets most of ACWD s policy criterion as it will : Enhance reliability Minimize rate impacts due to lowest cost option & SFPUC optimization Enhance water quality Reduce risk (earthquake and climate change) Works with Existing System / investments Fungible an asset that can be sold 31

32 Business Case Findings Arguments Against Does not address worst case SED WaterFix does not reduce dependence on imported supply Uncertainties: Final cost and size / CVP participation Legal and other challenges / delays No Habitat Conservation Plan no guarantee that there will not be more regulatory actions in the future 32

33 In Summary For the arguments presented this evening, Staff recommends the District support WaterFix in order to: Protect our customers against a catastrophic loss of supply via natural disaster in the Delta Prepare for climate change/ sea-level rise Maintain/enhance ACWD s water supply reliability Improve water quality Maintain a reasonable cost water supply portfolio 33

34 State Water Project Contractors in Support of California WaterFix Zone 7 Water Agency (5-2) Mojave Water Agency (7-0) San Gorgonio Pass Water Agency (7-0) Desert Water Agency (4-0) San Bernardino Valley Municipal Water District (5-0) Crestline-Lake Arrowhead Water Agency (4-0) Coachella Valley Water District (5-0) Metropolitan Water District of Southern California (28-6-2) Castaic Lake Water Agency (10-0) Kern County Water Agency 34

35 Recommendation: Staff recommends that the Board either: adopt a resolution supporting the California Department of Water Resources approval of California WaterFix; or authorize the General Manager to send a letter in conditional support of the California Department of Water Resources approval of California WaterFix. 35

36 Questions 36

37 Alameda County Water District Year-End Portfolio Review Presented by: Monique Spyke, Managing Director Izac Chyou, Senior Managing Consultant October 12, 2017 PFM Asset Management LLC 50 California St. Suite 2300 San Francisco, CA pfm.com PFM 0

38 Yield Curve Substantially Higher U.S. Treasury Yield Curve 2.0% June 30, 2017 June 30, 2016 Maturity Change 1.8% 1-Mo % 1.6% 3-Mo % 1.4% 6-Mo % 1.2% 1-Yr % 1.0% 2-Yr % 0.8% 3-Yr % 0.6% 0.4% 0.2% 0.0% 3 m 6 m 1 y 2 y 3 y 5 y 5-Yr % 7-Yr % 10-Yr % 30-Yr % Source: Bloomberg, as of 6/30/17. PFM 1

39 A Tale of Two Markets 2, % U.S. Election S&P 500 2, % 2, Year Treasury 2.50% 2, % 2, % Sep '16 Oct '16 Nov '16 Dec '16 Jan '17 Feb '17 Mar '17 Apr '17 May '17 Jun '17 Source: The WSJ Daily Shot, Bloomberg, as of 6/30/17. PFM 2

40 Fiscal Year 2017 Accomplishments Enhanced earnings 1 Investment income rose to $1.7 million Portfolio yield rose to 1.50% Outperformed performance benchmark by +52 basis points 2 Key Investment Strategies Risk mitigation Sector rotation Diversified portfolio holdings Maintained compliance with District s investment policy Kept District staff informed of events impacting investment program Worked with the District to increase efficiencies and improve the quality of banking services Added dedicated staff resources to work with the District Opportunistic management Duration management 1. As of 6/30/17. Aggregate fiscal year income on an accrual (amortized cost) basis. Yield to maturity at cost. 2. ACWD one year total return versus the performance benchmark which is the Bank of America Merrill Lynch 1-5 Year U.S. Treasury Index. PFM 3

41 Portfolio Composition Security Type Market Values as of 6/30/17 Percent of Portfolio Permitted by Policy In Compliance U.S. Treasury $46,652,938 38% 100% Federal Agencies $23,824,378 19% 100% Federal Agency CMOs $1,314,921 1% 20% Negotiable CDs $14,696,317 12% 30% Medium-Term Corporate Notes $16,409,868 13% 30% Municipal Bonds $1,616,525 1% 30% CAMP $10,477 <1% 100% LAIF $18,296,493 15% $65 million Security Sub-Total $122,821, % Accrued Interest $489,485 Security Total $123,311,402 Detail may not add to total due to rounding. PFM 4

42 Portfolio Maturity Distribution 40% 35% 30% 35% 31% Duration (Years) ACWD 2.40 BofA 1-5 Year UST Index % 24% 26% 20% 20% 21% 20% 15% 14% 10% 7% 5% 0% 2% 0-1 Years 1-2 Years 2-3 Years 3-4 Years 4-5 Years Source: Bloomberg, as of 6/30/17. Excludes holdings in CAMP, LAIF and the money market fund. PFM 5

43 Portfolio Characteristics as of June 30, 2017 Credit Quality 1 Sector Allocation A 18% BBB 2 1% AAA <1% Medium-Term Corporate Notes 16% Municipal Bonds 1% Negotiable Certificates of Deposit 14% U.S. Treasury 45% Federal Agency CMO 1% AA 81% Federal Agency 23% Average Credit: AA 3 Portfolio Compliant with Investment Policy Percentages may not sum to 100% due to rounding. 1. Ratings are based on Standard & Poor s, if provided. If Standard & Poor s ratings are not provided, ratings by Moody s and/or Fitch are used. 2. Citigroup rated A by Fitch. Goldman Sachs rated A3 by Moody's. 3. An average of each security s credit rating assigned a numeric value and adjusted for its relative weighting in the portfolio. PFM 6

44 Adding Value Through Sector Allocation 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% Federal Agency Agency MBS CMO Municipal Certificates of Deposit Corporate Notes Federal Agency U.S. Treasury 0% Jun-12 Sep-12 Dec-12 Mar-13 Jun-13 Sep-13 Dec-13 Mar-14 Jun-14 Sep-14 Dec-14 Mar-15 Jun-15 Sep-15 Dec-15 Mar-16 Jun-16 Sep-16 Dec-16 Mar-17 Jun-17 Market value excluding accrued interest. Portfolio holdings as of 6/30/17. PFM 7

45 Portfolio Income Continues to Increase $1.80 $1.60 Portfolio Yield and Aggregate Earnings % $1.40 $1.20 Realized dollar income has increased on average over $356,000 each fiscal year. 1.43% Millions $1.00 $ % $1.7 M $ % $1.3 M $0.40 $0.20 $0.6 M $1.0 M $0.00 FYE 14 FYE 15 FYE 16 FYE Aggregate fiscal year income on an accrual (amortized cost) basis. Yield to maturity at cost. PFM 8

46 Portfolio Generated Strong Returns Annualized Returns 1,2 As of June 30, % 1.00% 1.35% 1.08% 1.13% 0.82% 0.50% 0.00% -0.01% -0.50% -0.53% -1.00% FY 17 3 Years Since Inception ACWD BofA 1-5 Year UST Index 3 1. Source: Bloomberg, as of 6/30/ Performance on trade date basis. Excludes holdings in CAMP, LAIF and the money market fund. 3. Portfolio inception date as of 9/30/12. PFM 9

47 Outlook and Strategy We expect modest economic growth. Future interest rate hikes remain uncertain. Probability of Fed Rate Hike Meeting 06/30/17 08/31/17 09/20/17 16% 1% 11/01/17 17% 2% 12/13/17 52% 33% Strategy Highlights Assess impact of future fiscal and monetary policy Maintain a neutral duration position Identify market opportunities Source: Bloomberg, based on Fed Funds Futures (Effective Rate) by Bloomberg. PFM 10

48 Disclosures This material is based on information obtained from sources generally believed to be reliable and available to the public, however PFM Asset Management LLC cannot guarantee its accuracy, completeness or suitability. This material is for general information purposes only and is not intended to provide specific advice or a specific recommendation. All statements as to what will or may happen under certain circumstances are based on assumptions, some but not all of which are noted in the presentation. Assumptions may or may not be proven correct as actual events occur, and results may depend on events outside of your or our control. Changes in assumptions may have a material effect on results. Past performance does not necessarily reflect and is not a guaranty of future results. The information contained in this presentation is not an offer to purchase or sell any securities. PFM 11

49 Project Update: Washington Boulevard/I-680 Pipeline Improvement Project October 12, 2017

50 Two Work Sites Paseo Padre Parkway ~525 CIPP 12 WSP WITH OFFSET Washington Blvd. I-680 ~1,920 CIPP 12 WSP Incl. BRIDGE

51 Paseo Padre Parkway - Preparation Access Pits ACWD Crew Pit Excavation Segment Removed

52 Preparation Video Inspection Cleaning as necessary Plug existing Service Connections

53 Liner Installation

54 Hot Water Cure

55 Completion Video Inspection Reinstatement of Service Connections Pressure Testing Chlorination Bacteriological Testing Pipeline Closures Pit Backfill and Site Restoration

56 Project Summary / Next Steps Paseo Padre Washington Total Length of Pipe ~525 LF ~1920 LF Approximate Cost $170,000 $740,000 Cost per Linear Foot ~$323 ~$385 Time to Complete ~3 weeks 7-10 weeks (est.) *Mid-October start date

57 Questions? Public Information Tent Event, September 28

Making the Most of Your Financial Assets: Portfolio Management Strategies & Reporting

Making the Most of Your Financial Assets: Portfolio Management Strategies & Reporting Presented By: Sarah Meacham, Managing Director Lesley Murphy, Senior Managing Consultant September 14, 2017 PFM Asset