Drought Financial Management Drought Rates. Board of Directors August 12, 2014

Transcription

1 Drought Financial Management Drought Rates Board of Directors August 12, 214

2 Workshop Topics Workshop 1 Introduction Workshop 2 Reserves Workshop 3 Drought Rates Workshop 4 Capital Plan Workshop Rates Strategic Plan Update Review Financial Planning Model How policies drive revenue requirements Demand projections and variability Funding drought costs Fixed/variab le revenues Review/eval uate reserve policies EBMUD drought rate history Alternative drought rate structures Pros/cons of alternative drought rate structures CIP Projections Review/evalu ate capital investment policies CIP funding: debt vs. cash Debt Service Coverage Ratios Seismic Improvement program Develop Financial Forecast based on Workshops 1-3 Review preliminary results of Cost of Service study 2

3 Agenda Rep-cap of Workshop #2 Developing a System of Drought Rates What are Neighboring Agencies Doing? Discussion and Consideration 3

4 Re-cap of Workshop #2 4

5 Drought Management Tools Supply/Demand Tools Voluntary conservation Supplemental supplies (CVP, Placer, other) Mandatory conservation Financial Tools RSF Rates -Supplemental Supply Surcharge -Drought rates

6 Significant Financial Exposure to Sales Revenues Expenses Variable Expenses 8% Fixed Charge 28% Volume Charge 72% Fixed meter charge Volume charge Fixed Expenses 92% Variable Operating Expenses electricity, chemicals, disposal Fixed Operating Expenses labor, equipment, materials Excludes other fixed expenses such as debt service and capital investment 6

7 Financial Impact of Drought Impact by Year Costs During Drought and Drought Recovery Normal Expenses $31M $272M/yr 3. Supplemental Supply + Other Costs = $68M Revenue Shortfall Considered a Cost = $283M Half of costs are post-drought loss of sales due to drought tail Supplemental Supply Costs Reduced Revenue "Costs" Rate Revenue

8 Financial Tools Short-Term and Long-Term Considerations Short-Term Depending on severity and duration of drought, current RSF may not be sufficient to meet needs Deploy additional tools Supplemental Supply Surcharge in FY1 Develop drought rates for FY16 and FY17 Long-Term RSF not sized to handle a multi-year drought event Supplemental Supply Surcharge may inhibit optimal water supply decisions A larger RSF could Help manage through a multi-year event Support optimal water supply decisions Mitigate volatility in drought rates 8

9 Schedule Considerations Board Direction on Drought Rate Approach August Sept 214 Incorporate into regular rate process Complete COS- Nov Notice April 21 Effective July 21 9

10 Developing a System of Drought Rates

11 History of Recent Regular and Drought Rates Drought 27-2 Drought Drought Rates Tiers End of Drought Rates Drought Rates 4 Tiers End of Drought Rates Regular Rates 2 Tiers Drought Rates % Surcharge, Allocation and Penalty 3 Tiers End of Drought Rates Supplemental Supply Surcharge Created Regular Rates - 3 Tiers Regular Rates - 4 Tiers Regular Rates - 3 Tiers = Voluntary Conservation = Mandatory Conservation 11

12 Drought Rate and Regular Rate Have Converged Over Time Fiscal Year SFR Regular Rate Structure 197 Declining 1986 Flat 1993 Inclining 2 Tier 1996 Inclining 4 Tier 1999 Inclining 3 Tier 12

13 Current District Water Rate Structure Has four customer classes: SFR, MFR, Commercial/Industrial, Non-potable Use a combination of a Fixed Meter and Variable Charges to recover revenue SFR: uses an Inclining Tier Structure 3 tier structure for SFR class Tier 1 representing average indoor water use Others: uses a Flat Commodity Charge 13

14 Current District SFR Rates CURRENT FY1 RATES 2 2 Fixed Charge Variable Charge 9 8 FIXED CHARGE $/MONTH 1 $17.43 $2.91 $3.6 $ VOLUME CHARGE $/CCF 1 Fixed Monthly Tier 1 (-7 Ccf) Tier 2 (8-16 Ccf) Tier 3 (16+ Ccf) 14

15 Current Rate Structure vs Policy Considerations Policy Considerations Reliably recover sufficient revenue Encourage water use efficiency and provide economic incentive to conserve Easy to understand Perceived as equitable Implementable and manageable Current Structure Revenue sufficient Encourages efficient SFR use and tier efficiency as price increases at each tier breakpoint Familiar to customers Recognizes SFR indoor water-use In-place 1

16 Historical Average Per Capita Use -year (199-24) Baseline = 16 GPCD -year (23-7) Baseline = 18 GPCD 134 * Projected 214 Conservation and Recycling 121* 16

17 Some Observations Current rate structure does a good job incentivizing conservation Need a system of Drought rates and charges to replace emergency driven, reactive response 17

18 Features of a Staged System of Drought Rates Adopted in advance of drought Progressive response to a range of water supply conditions Encourage water use efficiency Easy to understand/message Meets District s financial needs 18

19 Staged System of Drought Rates Stage Demand Reduction Supplemental Supplies Voluntary -1% Voluntary -1% Mandatory 1% Mandatory >=1% Up to 3 TAF Up to 6 TAF Up to 6 TAF Normal rates Normal rates Normal rates; and Normal rates; and Normal rates; and Rates and Charges Supplemental supply surcharge TBD TBD Moves through stages as severity of drought conditions increase Recovers growing drought costs with a progressive series of surcharges 19

20 How Do We Want to Recover Our Drought Costs? Three basic approaches: Recover all costs on Fixed Charge Recover all costs on Variable Charge Some combination of Fixed and Variable 2

21 Drought Surcharge Options 1- Fixed Surcharge 2 - Uniform Commodity Surcharge Collects all drought costs by meter size Increases all tiers proportionally 3 - Inclining Commodity Surcharge 4 - Water Budget Makes tiers steeper to further incentive conservation Uses allocations to incentivize efficient water use 21

22 1 - Fixed Surcharge Recovers Drought Costs on Fixed Charge FIXED MONTHLY SURCHARGE 3 2 Fixed Monthly Drought Surcharge $ FIXED CHARGE $/MONTH VOLUME CHARGE $/CCF Fixed Monthly Tier 1 (-7 Ccf) Tier 2 (8-16 Ccf) Tier 3 (16+ Ccf) 22

23 2 - Uniform Commodity Surcharge Recovers Drought Costs on Volume Charge Increase 2 2 UNIFORM SURCHARGE ON VOLUME 9 8 FIXED CHARGE $/MONTH 1 2% Uniform Surcharge on Volume $.88 $.72 $ VOLUME CHARGE $/CCF 2 1 Fixed Monthly Tier 1 (-7 Ccf) Tier 2 (8-16 Ccf) Tier 3 (16+ Ccf) 23

24 3 - Inclining Commodity Surcharge Recovers Drought Costs on Steeper Tiers FIXED CHARGE $/MONTH INCREASING SURCHARGE ON VOLUME Increasing Surcharge On Volume 3% $1. 2% $.72 $.44 1% Fixed Monthly Tier 1 (-7 Ccf) Tier 2 (8-16 Ccf) Tier 3 (16+ Ccf) VOLUME CHARGE $/CCF 1 24

25 4 - Water Budget Individual Tiers for Each Customer Would be developed as a regular non-drought rate structure Budget is set for each individual customer account Budget is based on factors decided in non-drought periods which could be household occupancy, lot size, evapo-transpiration rate, etc. Can be seasonal and vary from month to month Budgets could be modified to reflect drought condition Say, 1% reduction to base use and/or % reduction to outdoor budget 2

26 4 - Water Budget Individual Tiers for Each Customer 2 Water Budget Non Drought. 9. FIXED CHARGE $/MONTH VOLUME CHARGE $/CCF 1. Fixed Monthly Base (-% Budget) Inefficient (1-1% Budget) Excessive (11%+ Budget) - 26

27 - Water Budget Individual Tiers for Each Customer Reduced 2 Water Budget Drought Rates. 9. FIXED CHARGE $/MONTH VOLUME CHARGE $/CCF Fixed Monthly Base (-8% Budget) Budgets Are Reduced For Drought Inefficient (86-13% Budget) Excessive (136%+ Budget) - 27

28 4 - Water Budget Experience with Water Budget Rate Structure Irvine Ranch Water District Regular rate structure is Water Budget Generally has homogenous SFR usage master planned community San Diego Reviewed Water Budget structure; mixed reviews 9% of SFR homes in pilot were w/in efficient budget Initial implementation and on-going maintenance costs were high 28

29 Summary of Drought Rate Surcharge Options Fixed Surcharge Uniform Commodity Surcharge Inclining Commodity Surcharge Promote Water User Efficiency and Economic Incentive to Conserve Revenue Predictability

30 Fixed, Uniform Commodity, and Inclining Bill Impacts SFR Bill Impacts BASIC DROUGHT SURCHARGE OPTIONS FY1 OPTION 1 FIXED OPTION 2 UNIFORM 2% OPTION 3 INCLINING Monthly Total Total Total Consump CCF Bill Surcharge Bill % Surcharge Bill % Surcharge Bill % 4 $29.7 $7.7 $ % $2.32 $ % $1.76 $ % 7 $37.8 $7.7 $4. 2.% $4.6 $ % $3.8 $ % $48.6 $7.7 $ % $6.22 $ % $.24 $3.84.8% 2 $87.88 $7.7 $ % $14.6 $ % $1.76 $ % 3 $132.8 $7.7 $ % $22.86 $ % $31.26 $ % $22.48 $7.7 $ % $4.46 $ % $62.26 $ % 3

31 Staged System of Drought Rates Stage Demand Reduction Supplemental Supplies Voluntary -1% Voluntary -1% Mandatory 1% Mandatory >=1% Up to 3 TAF Up to 6 TAF Up to 6 TAF Normal rates Normal rates Normal rates; and Normal rates; and Normal rates; and Rates and Charges Supplemental supply surcharge (replaced w/uniform drought surcharge) Uniform drought surcharge; or Fixed and uniform drought surcharge Uniform drought and penalty surcharges Moves through stages as severity of drought conditions increase Recovers growing drought costs with a progressive series of surcharges Address excessive use through penalty surcharge 31

32 Discussion and Consideration Drought surcharges for Stages 3 and 4 Review bill impacts for Stage 3 options Uniform drought surcharge Fixed and uniform drought surcharge Review bill impacts for Stage 4 options Uniform and penalty drought surcharges Penalty surcharge of $2./CCF applied to units over 6 CCF/month Two Inclining drought surcharges (steepening tiers) 32

33 Stage 3 Mix of Fixed and Uniform Commodity Options Review a Mix of Fixed and Uniform Commodity Options 33

34 % Recovery on Fixed Surcharge Recovers Drought Costs on Fixed Charge FIXED MONTHLY SURCHARGE 3 2 Fixed Monthly Drought Surcharge $ FIXED CHARGE $/MONTH VOLUME CHARGE $/CCF 2 1 Fixed Monthly Tier 1 (-7 Ccf) Tier 2 (8-16 Ccf) Tier 3 (16+ Ccf) 34

35 6% Recovery on Fixed Surcharge 4% Recovery on Volume Surcharge 6%/4% RECOVERY ON FIXED/VOLUME SURCHARGE 2 FIXED CHARGE $/MONTH 2 1 $4.7 Fixed Monthly Drought Surcharge $.2 7% Uniform Surcharge on Volume $.2 $ VOLUME CHARGE $/CCF 1 Fixed Monthly Tier 1 (-7 Ccf) Tier 2 (8-16 Ccf) Tier 3 (16+ Ccf) 3

36 4% Recovery on Fixed Surcharge 6% Recovery on Volume Surcharge FIXED CHARGE $/MONTH %/6% RECOVERY ON FIXED/VOLUME SURCHARGE $3.2 Fixed Monthly Drought Surcharge $.32 11% Uniform Surcharge on Volume $.4 $.49 Fixed Monthly Tier 1 (-7 Ccf) Tier 2 (8-16 Ccf) Tier 3 (16+ Ccf) VOLUME CHARGE $/CCF 36

37 2% Recovery on Fixed Surcharge 8% Recovery on Volume Surcharge 2%/8% RECOVERY ON FIXED/VOLUME SURCHARGE 2 FIXED CHARGE $/MONTH 2 1 Fixed Monthly Drought Surcharge $1.7 $.47 16% Uniform Surcharge on Volume $.8 $ VOLUME CHARGE $/CCF 1 Fixed Monthly Tier 1 (-7 Ccf) Tier 2 (8-16 Ccf) Tier 3 (16+ Ccf) 37

38 % Recovery on Fixed Surcharge Recovers Drought Costs on Volume Charge Increase 2 2 UNIFORM SURCHARGE ON VOLUME 9 8 FIXED CHARGE $/MONTH 1 2% Uniform Surcharge on Volume $.88 $.72 $ VOLUME CHARGE $/CCF 2 1 Fixed Monthly Tier 1 (-7 Ccf) Tier 2 (8-16 Ccf) Tier 3 (16+ Ccf) 38

39 Fixed/Variable SFR Bill Impacts SFR Bill Impacts MIX OF FIXED/VARIABLE DROUGHT SURCHARGE OPTIONS FY1 / 6/4 4/6 2/8 / Monthly Total Total Total Total Total Consump CCF Bill Surcharge Bill % Surcharge Bill % Surcharge Bill % Surcharge Bill % Surcharge Bill % 4 $29.7 $7.7 $ % $. $ % $4.3 $ % $3.63 $ % $2.32 $ % 7 $37.8 $7.7 $4. 2.% $6.1 $ % $.49 $ % $.4 $ % $4.6 $ % $48.6 $7.7 $ % $6.9 $. 14.2% $6.69 $ % $6.78 $ % $6.22 $ % 2 $87.88 $7.7 $ % $9.64 $ % $11. $ % $13. $ % $14.6 $ % 3 $132.8 $7.7 $ % $12.74 $ % $1.9 $ % $2.2 $ % $22.86 $ % $22.48 $7.7 $ % $18.94 $ % $2.7 $ % $34.4 $ % $4.46 $ % Recovering greater share of drought costs on fixed surcharge results in higher percentage impact on low users with smaller bills. 39

40 Stage 4 Uniform Commodity + Penalty Drought Surcharge Review Uniform Commodity with Penalty Drought Surcharge 4

41 2 - Uniform Commodity Surcharge Recovers Drought Costs on Volume Charge Increase UNIFORM SURCHARGE ON VOLUME 2 2 Penalty for units over 6CCF/mo $ FIXED CHARGE $/MONTH 1 2% Uniform Surcharge on Volume $.88 $.72 $ VOLUME CHARGE $/CCF 2 1 Fixed Monthly Tier 1 (-7 Ccf) Tier 2 (8-16 Ccf) Tier 3 (16+ Ccf) 41

42 Stage 4 Inclining Tier Options Considerations for Inclining Drought Surcharges (steepening tiers) 42

43 A - Inclining Commodity Surcharge 1% Tier 1, 2% Tier 2, 3% Tier 3 FIXED CHARGE $/MONTH INCREASING SURCHARGE ON VOLUME Increasing Surcharge On Volume 3% $1. 2% $.72 $.44 1% Fixed Monthly Tier 1 (-7 Ccf) Tier 2 (8-16 Ccf) Tier 3 (16+ Ccf) VOLUME CHARGE $/CCF 1 43

44 B - Inclining Commodity Surcharge % Tier 1, 2% Tier 2, 4% Tier 3 2 INCREASING SURCHARGE ON VOLUME FIXED CHARGE $/MONTH 1 Increasing Surcharge On Volume 2% $.72 $.29 % $1.99 4% VOLUME CHARGE $/CCF 1 Fixed Monthly Tier 1 (-7 Ccf) Tier 2 (8-16 Ccf) Tier 3 (16+ Ccf) 44

45 Inclining Tier SFR Bill Impacts Drought Options A and B SFR Bill Impacts INCLINING DROUGHT SURCHARGE OPTIONS FY1 A B Monthly Total Total Consump CCF Bill Surcharge Bill % Surcharge Bill % 4 $29.7 $1.76 $ % $1.16 $ % 7 $37.8 $3.8 $ % $2.3 $ % $48.6 $.24 $3.84.8% $4.19 $ % 2 $87.88 $1.76 $ % $16.47 $ % 3 $132.8 $31.26 $ % $36.37 $ % $22.48 $62.26 $ % $76.17 $ % The challenge with introducing inclining tiers in Stage 4 is the price signal to Tier 1. 4

46 Uniform Commodity + Penalty Tier at $2/CCF Penalty surcharge targets excessive use not able to recover significant share of drought costs. SFR Bill Impacts UNIFORM + PENALTY DROUGHT SURCHARGE OPTIONS FY1 UNIFORM 2% +$2 PENALTY ABOVE 6 CCF Monthly Total Consump CCF Bill Surcharge $2 Penalty Bill % 4 $29.7 $2.32 $ % 7 $37.8 $4.6 $ % $48.6 $6.22 $ % 2 $87.88 $14.6 $ % 3 $132.8 $22.86 $ % $22.48 $4.46 $ % 6 $ $49.26 $. $ % 7 $38.88 $8.6 $2. $ % 8 $33.8 $66.86 $4. $ % 9 $ $7.66 $6. $ % $ $84.46 $8. $ % 46

47 What are Neighboring Agencies Doing? 47

48 How Are Neighboring Agencies Approaching Drought? Agency Water Supply Call for Conservation SFPUC Strong % voluntary None at present CCWD Strong 1% voluntary None at present SCVWD Medium 2% mandatory None at present MMWD Medium 2% voluntary None at present Planned Additional Drought Response ACWD Weak 2% mandatory Moved from flat $/CCF to inclining tier drought rate DSRSD Weak 2% mandatory In Stage 3 of 4-Stage drought system Santa Cruz Weak 2% mandatory -SFR allocation of CCF/mo with $2/CCF and $/CCF penalties in place -Fall vote on recovering all drought costs on fixed charge 48

49 Schedule Considerations Board Direction on Drought Rate Approach August Sept 214 Incorporate into regular rate process Complete COS- Nov Notice April 21 Effective July 21 49

50 Board Discussion