Finance Director/Treasurer, Tracy McCraner

September 18, 2012 1

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What do we spend our money on

How do we manage costs/fiscal responsibility

Key Rate and Charge Drivers

Summary

Water purchases & treatment

CIP Expenditures

Debt service

Operating departments

Hodges operations

Equipment replacement

Other expenditures

$700,474 49%

$321,129 23%

$280,394 20%

$87,715 6%

$6,052 <1%

$1,220 <1%

$20,449 1%

$1,417,434 100%

Water Purchases and Treatment

CIP Debt Service

23% 49% 20%

Three categories account for 92% of the total budget:

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Water Authority’s Two-Year Budget for Fiscal Years 2012 and 2013 reflects a number of cost reduction and rate mitigation strategies in light of the “new normal – decrease of 16% from previous two-year budget ◦ Significant staffing reductions

31.33 positions (FTEs) or 16.4% eliminated in the Budget

Shift from building to managing existing assets

◦ Two-year no net cost MOUs

◦ Increased PERS employee cost sharing

Strong Fiscal Policies: Debt/Reserves/Investment

Rate Relief approved by the Board by lowering debt coverage level for FY 2013

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Increasing cost of water from suppliers

Significant investment in capital improvements and planned debt service

Reduced water sales volumes

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Projected CY 2013 M&I Cost of Water

Purchases/QSA Exchange

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MWD represents 81% of the Water Authority’s cost of water purchased and/or transported

* Excludes the debt service for capital projects and recovery of settlement expenditures.

MWD Supply Costs 52%

Canal Water Purchases*

<1%

IID Water Purchases*

19%

QSA Transportation Costs with MWD

29%

Total Cost = $285M

CY 2013 Water Sales

61% 39%

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8 * Excludes CP program fees and trustee services

2012 2013 2014 2015 2016

2011 Projected Debt Service $114 $138 $144 $148 $153

2012 Projected Debt Service $114 $135 $141 $145 $151

$60

$80

$100

$120

$140

$160

$180

$200

Mill

ion

s ($

)

Fiscal Year

Senior Lien Debt Service Increase -

$21M

9

0

100

200

300

400

500

600

700

2006 2007 2008 2009 2010 2011 2012 prelim

1,0

00

acr

e f

eet

Fiscal Year

Water sales in FY 2011 were 36% lower than in FY 2006

Water sales are projected to be relatively flat

36% Reduction

Untreated Water $88/AF Increase

14%

Treated Water Rate $111/AF Increase

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MWD Costs

Increase in IID Water Rate

Primarily Debt Service and Other Factors

48% 48%

10%

26%

12%

31%

11%

Increase in IID Supplies

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Cost of water purchases is 63% of the wholesale cost of water

The remaining 37% or $19.22/month is for the Water Authority to:

◦ Deliver water and maintain the system

◦ Rapidly diversify the region’s water supplies

◦ Provide in-region emergency water storage

◦ Develop in-region water storage capacity

Water Authority Operating Costs

Estimated CY 2013 Wholesale Costs per

Household *

$14.70

$5.30

$4.52

$27.93

IID/QSA Costs

Water Authority Capital Costs

MWD Costs 63% is the

Cost of Water

37% is Water Authority

Costs

Wholesale Monthly Cost of Water to Households

TOTAL: $52.45/month

* Based upon 0.5 AF of consumption a year

Wholesale Charges

Proposed Rates Monthly Retail Cost

Percent Retail Impact

Untreated $3.03 4.2%

Treated $3.82 5.4%

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5 Retail Agency Average Composite Cost (CY 2012) o Fixed Charge: $19.83 monthly

o Commodity Charge: $51.40

o Composite Monthly Residential Bill: $71.23

Actual rate impact will vary by member agency Notes:

1. Analysis based on retail rates for the City of Carlsbad, Helix Water District, the City of San Diego, Sweetwater Authority, and Otay Water District.

2. Tier 1 and Tier 2 pricing blocks vary by member agency.

3. Historic total water demand used to calculate member agency specific weighting factors.

4. Individual member agency commodity charge calculated using its average single family residential water use (hcf).

5. Composite commodity charge is the sum of the individual member agency's commodity charge times its weighting factor.

Key rate and charge drivers for CY 2013

◦ 8.5% increase in MWD costs

◦ $21 million (18%) increase in senior lien debt service – significant planned capital investment in our facilities and infrastructure

◦ Increasing IID deliveries and scheduled IID cost increase

◦ Persistent low water sales environment

MWD rate and charge volatility mitigation

◦ Succeeded in limiting MWD’s average rate increase to 5%

◦ Coverage level reduced to 1.35x in FY 2013; target of 1.5X will be achieved in FY2014

Overall rate and charge increase will vary by member agency depending upon the fixed charge allocations

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Any Questions please contact:

Tracy McCraner

Finance Director/Treasurer

tmccraner@sdcwa.org

858-522-6671