Comprehensive Rate Study & Cost Allocation Analysis Public Workshop December 4, 2017
Today s Workshop: Present findings and solicit Board input on rate design and fiscal policy considerations Financial Outlook and Challenges Financial Planning Scenarios Rate Structure Recommendations Filename.ppt/2 Next Steps / Q&A
Financial Outlook and Challenges
Financial Plan: Review uses three tests to assess the viability of the rates and corresponding revenues Do the rates fully fund operating expenditures? Is there sufficient revenue for bond coverage? Is the capital plan fully funded through rates, reserves, and/or debt? Filename.ppt/4
O&M expenses have kept pace with projected levels from the last rate study, and have even fallen below projections this year Millions $20 $15 Projected vs. Actual/Budgeted Expenses $10 $5 Filename.ppt/5 $0 FY 2014/15 FY 2015/16 FY 2016/17 FY 2017/18 MW Projected MS Projected OW Projected OS Projected Actual/Budgeted Expenses
Like most utilities in California, the financial plan is impacted by recent conservation, and ongoing capital funding needs Water Demand Trends 3,000 2,500 2,751 2,447 2,518 Acre-Feet 2,000 1,500 1,000 500 Total demand last year was 11% below FY 2014/15 levels. - FY 2014/15 FY 2015/16 FY 2016/17 Filename.ppt/6 Marina Ord
As a result of the conservation, water rate revenue was at least 10 percent below projected levels in FY 2015/16 Millions $6.0 $5.0 Marina Water Rate Revenue Millions $6.0 $5.0 Ord Water Rate Revenue $5.71 $5.73 $5.71 $5.71 $5.02 $5.85 $4.0 $4.12 $4.12 $4.12 $3.62 $3.36 $3.67 $4.0 $3.0 $3.0 $2.0 $2.0 $1.0-12% -18% -11% $1.0 0% -12% +2% $0.0 FY 2014/15 FY 2015/16 FY 2016/17 $0.0 FY 2014/15 FY 2015/16 FY 2016/17 Filename.ppt/7 Projected Actual Projected Actual
Previous forecast of gradual buildup of reserves didn t materialize Millions $12 $10 $8 Combined Balances $6 $4 $2 $- Filename.ppt/8 Combined Capital Reserve Combined Operating Reserve Required Capital Reserve Required Operating Reserve
All four systems have significant increases in capital funding needs forecasted in the next five years, a challenge with limited reserves for some cost centers R&R Capital Funding Needs Millions $9 $6 $3 $1.23 $1.78 $3.99 $4.67 $3.14 $7.72 $1.90 Filename.ppt/9 $- FYE 2017 FYE 2018 FYE 2019 FYE 2020 FYE 2021 FYE 2022 FYE 2023 Ord Water Ord Sewer Marina Water Marina Sewer CIP Projection from Last Rate Study
Financial Planning Scenarios
Adjusting to the New Normal: Key considerations and changes to system costs necessitate review of existing rates Water use reductions Future funding viability Revenue resiliency Customer impacts Expenditures exceed revenues Customer understanding Legal considerations Filename.ppt/11
Filename.ppt/12 Ord Water: Significant capital needs that are currently underfunded by rates or reserves over the next five years
Ord Water: Financial plan options offer a spectrum of capital funding scenarios Immediate Increases (%): 11 / 5 / 5 / 2 thereafter Debt $4.9m in FYE 2022 Reserves: O&M reserve $1.5m below target in FYE 2019; $300k in 2020 Meets target in all other years Typical Customer Impact:* Approx. $10 per month Balanced Increases (%): 5 / 5 / 2 thereafter Debt $1.5m in FYE 2019 $4.9m in FYE 2022 Reserves: O&M reserve $250k below target in FYE 2019 Meets target in all other years Typical Customer Impact:* Approx. $4 per month Extended Increases (%): 3 in all years Debt $1.5m in FYE 2019 $4.9m in FYE 2022 Reserves: O&M reserve $1.4m below target in FYE 2019; $1.0m in FYE 2020 Meets target in all other years Typical Customer Impact:* Approx. $2 per month Filename.ppt/13 *Typical customer assumes 9 CCF with a 3/4 meter
Filename.ppt/14 Ord Sewer: Significant capital needs that are currently underfunded by rates or reserves over the next five years
Ord Sewer: Options offer either no debt in FYE 2019 and high increases, or lower increases with immediate debt Immediate Increases (%): 25 / 3 thereafter Debt No debt in FYE 2019 $3.0m in FYE 2020 $1.4m in FYE 2021 Reserves: Allows only 38% of FYE 2019 CIP to be funded before reserves go negative Meets target in all other years Typical Customer Impact:* Approx. $9 per month Balanced Increases (%): 6 / 3 thereafter Debt $2.3m in FYE 2019 $3.0m in FYE 2020 $1.4m in FYE 2021 Reserves: Meets target in all years Typical Customer Impact:* Approx. $2 per month Extended Increases (%): 3 in all years Debt No additional debt Reserves: Falls short of O&M target in all years Allows only approx. 50% funding of total CIP over next 5 years Typical Customer Impact:* Approx. $1 per month Filename.ppt/15 *Typical customer assumes SFR with 1 EDU
Filename.ppt/16 Marina Water: Rates would need increases to fund O&M, but increases would be inflationary and modest (<4%)
Marina Water: Financial plan options balance how quickly to rebuild operating and capital reserves Balanced Increases (%): 3 in all years Debt No additional debt Reserves: O&M reserve meets target in all years Typical Customer Impact:* Approx. $3 per month Filename.ppt/17 *Typical customer assumes 9 CCF with a 3/4 meter
Filename.ppt/18 Marina Sewer: Significant capital expenditures planning in FYE 2020-2022, necessitating additional funding
Marina Sewer: Financial plan balances debt in FYE 2022 with more modest rate increases (3% versus 5% without debt) Immediate Increases (%): 5 in all years Debt No additional debt Reserves: Meets target in all years Relies on reserve funding in FYE 2020 and 2022 Typical Customer Impact:* Approx. $1 per month Balanced Increases (%): 3 in all years Debt $1.3m in FYE 2022 Reserves: Meets target in all years Relies on reserve funding in FYE 2020 Typical Customer Impact:* < $1 per month Extended Increases (%): 3 in all years Debt No additional debt Reserves: Meets target in all years Relies on reserve funding in FYE 2020 through 2022 Typical Customer Impact:* < $1 per month Filename.ppt/19 *Typical customer assumes SFR with 1 EDU
Rate Structure Recommendations
Ord Water: Cost recovery continues to be stabilized by a high percentage of revenues from fixed charges Ord Water Cost Allocation Results Current 54% 18% 28% High fixed cost recovery helped smooth revenue collection during the drought However, percentage went up as volumetric usage went down in recent years Proposed 51% 19% 30% 0% 20% 40% 60% 80% 100% Filename.ppt/21 Fixed Base Peak
While less than Ord, Marina Water fixed cost recovery is still high enough to help stabilize revenues Marina Water Cost Allocation Results Current 38% 25% 37% Proposed 37% 25% 38% 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% Filename.ppt/22 Fixed Base Peak
Three-Tiered rates have a firm cost of service foundation But have the underlying assumptions changed since these were developed? What changes could be made to the rates? More closely tailored to cost of service? More reflective customer demands? Greater mitigation of financial risk? Filename.ppt/23
With the exception of Institutional customers, MCWD customers have a relatively flat peak profile 250% Month vs. Average Peak Profile 200% 150% 100% 50% 0% Max month is only 22% higher compared to an average month for all customer classes Single Family Residential Multi-Family Residential Filename.ppt/24 Commcerial Institutional
Over 85 percent of all usage for both Marina and Ord occurs within tiers 1 or 3, questioning the need for a tier 2 Usage by Tier Marina 41% 12% 48% Ord 44% 12% 44% 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% Percent of Usage Filename.ppt/25 Tier 1 Tier 2 Tier 3
Given the limited peaking of the District s customers, a twotiered approach may provide a better alternative Easier to understand and administer Simpler cost of service nexus Potentially less subject to revenue risk Filename.ppt/26
Two-Tier structure would expand the first tier, and consolidate the second and third tiers Tier 1 would be expanded to provide additional base capacity water Tier 2 would cover all usage above the tier 1 allowance Tier Three-Tier CCF Two-Tier CCF 1 8 10 2 16 All other usage 3 All other usage Eliminated Tier 3 would be eliminated Filename.ppt/27
Proposed Water Rates: Assuming the balanced funding scenario Ord Marina Tier Current Rates (Eff. 1/1/18) Three Tier (1/1/19) Two Tier (1/1/19) Tier Current Rates (Eff. 1/1/18) Three Tier (1/1/19) Two Tier (1/1/19) 1 $3.68 $4.15 $4.08 2 $5.65 $5.80 $8.33 3 $7.62 $8.57-1 $2.78 $3.29 $3.28 2 $3.19 $4.19 $4.99 3 $5.63 $5.02 - Filename.ppt/28
Balanced Financial Plan: Bill impacts for the typical customers Ord Monthly Bill Comparison (9 CCF) Marina Monthly Bill Comparison $90 $79.53 $81.57 $90 $60 $40.74 $38.00 $60 $54.99 $56.56 $30 $38.79 $43.57 $30 $32.63 $31.95 $22.36 $24.61 $0 Existing Proposed $0 Existing Proposed Filename.ppt/29 Fixed Variable Fixed Variable
Two-Tier structure would impact Marina water customers differently based on usage levels relative to old tier breakpoints 20% 15% 68% of all bills 17% MW Bill Impact at Each Usage Level 10% 5% New Tier 1 10 CCF New Tier 2 above 10 CCF Filename.ppt/30 0% Old Tier 1 8 CCF Old Tier 2 16 CCF Old Tier 3 above 16 CCF 1 3 5 7 9 11 13 15 17 19 21 23 25 27 29 Monthly CCF
Next Steps
Schedule and Next Steps Introduction of Draft Results Consideration of Initiating Proposition 218 Process Rate Adoption December 4 (Board) December 18 (Board) January 2018 July 1, 2018 Filename.ppt/32