TEN-YEAR FINANCIAL FORECAST...2016/17 and 2017/18 Biennial Budget 2 Attachment 2, Ten‐Year...
14
2016/17 and 2017/18 Biennial Budget 1 Attachment 2, Ten‐Year Financial Forecast TEN-YEAR FINANCIAL FORECAST The ability to ensure a reliable supply of high quality water for Metropolitan’s 26 member agencies depends on Metropolitan’s ongoing ability to fund operations and maintenance, maintain and augment local and imported water supplies, fund replacements and refurbishment of existing infrastructure, and invest in system improvements. This ten‐year plan builds on the biennial budget to support long range resource, capital investment and operational planning. As such, it includes a forecast of future costs and the revenues necessary to support operations and investments in infrastructure and resources that are derived from Metropolitan’s planning processes while conforming to Metropolitan's financial policies. These financial policies, which address reserve levels, financial indicators, and capital funding strategies, ensure sound financial management and fiscal stability for Metropolitan. Projected Financial Indicators The figure above summarizes the financial metrics of the ten‐year financial forecast. Metropolitan projects that the fixed charge coverage ratio will meet the board‐established targets throughout the ten‐year period. Revenue bond coverage will meet target in FY 2021/22. Reserve levels will be above minimums as established by board policy; PAYGo expenditures are set at a level that is consistent with the board policy adopted in 2014 that PAYGo expenditures would be funded from revenues, with the proposed amount set at Ave Rate Increase 1.5% 1.5% 4.0% 4.0% 4.5% 4.5% 4.5% 4.5% 4.5% 4.5% 4.5% 4.5% Sales, MAF 1.90 1.63 1.70 1.70 1.75 1.75 1.75 1.75 1.80 1.80 1.80 1.80 Rev. Bond Cvg 2.7 1.5 1.6 1.6 1.7 1.8 1.9 2.0 2.3 2.4 2.6 2.7 Fixed Chg Cvg 2.4 1.3 1.3 1.3 1.4 1.4 1.4 1.4 1.5 1.5 1.5 1.5 PAYGO, $M 210 99 120 120 120 120 120 123 127 130 133 137 476 448 396 383 395 397 408 422 490 569 640 716 0 100 200 300 400 500 600 700 800 900 1000 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 Million Dollars Fiscal Year Ending Unrestricted Reserve Target Reserve Minimum Reserve 2/9/2016 Board Meeting 9-2 Attachment 2, Page 1 of 14
Transcript of TEN-YEAR FINANCIAL FORECAST...2016/17 and 2017/18 Biennial Budget 2 Attachment 2, Ten‐Year...
-
2016/17and2017/18BiennialBudget 1 Attachment2,Ten‐YearFinancialForecast
TEN-YEAR FINANCIAL FORECAST
TheabilitytoensureareliablesupplyofhighqualitywaterforMetropolitan’s26memberagenciesdependsonMetropolitan’songoingabilitytofundoperationsandmaintenance,maintainandaugmentlocalandimportedwatersupplies,fundreplacementsandrefurbishmentofexistinginfrastructure,andinvestinsystemimprovements.Thisten‐yearplanbuildsonthebiennialbudgettosupportlongrangeresource,capitalinvestmentandoperationalplanning.Assuch,itincludesaforecastoffuturecostsandtherevenuesnecessarytosupportoperationsandinvestmentsininfrastructureandresourcesthatarederivedfromMetropolitan’splanningprocesseswhileconformingtoMetropolitan'sfinancialpolicies.Thesefinancialpolicies,whichaddressreservelevels,financialindicators,andcapitalfundingstrategies,ensuresoundfinancialmanagementandfiscalstabilityforMetropolitan.
Projected Financial Indicators
Thefigureabovesummarizesthefinancialmetricsoftheten‐yearfinancialforecast.Metropolitanprojectsthatthefixedchargecoverageratiowillmeettheboard‐establishedtargetsthroughouttheten‐yearperiod.RevenuebondcoveragewillmeettargetinFY2021/22.Reservelevelswillbeaboveminimumsasestablishedbyboardpolicy;PAYGoexpendituresaresetatalevelthatisconsistentwiththeboardpolicyadoptedin2014thatPAYGoexpenditureswouldbefundedfromrevenues,withtheproposedamountsetat
AveRateIncrease 1.5% 1.5% 4.0% 4.0% 4.5% 4.5% 4.5% 4.5% 4.5% 4.5% 4.5% 4.5%Sales,MAF 1.90 1.63 1.70 1.70 1.75 1.75 1.75 1.75 1.80 1.80 1.80 1.80
Rev.BondCvg 2.7 1.5 1.6 1.6 1.7 1.8 1.9 2.0 2.3 2.4 2.6 2.7FixedChgCvg 2.4 1.3 1.3 1.3 1.4 1.4 1.4 1.4 1.5 1.5 1.5 1.5PAYGO,$M 210 99 120 120 120 120 120 123 127 130 133 137
476
448
396
383
395
397
408
422 490 569 640 716
0
100
200
300
400
500
600
700
800
900
1000
2015
2016
2017
2018
2019
2020
2021
2022
2023
2024
2025
2026
Million Dollars
Fiscal Year Ending
Unrestricted ReserveTarget ReserveMinimum Reserve
2/9/2016 Board Meeting 9-2 Attachment 2, Page 1 of 14
-
2016/17 and 2017/18 Biennial Budget 2 Attachment 2, Ten‐Year Financial Forecast
60percentoftheCapitalInvestmentPlan(CIP);andprojectedrateincreasesareadequatetocovercostswithmoderatedchangesfromoneyeartoanother.TheestimatedoverallrateincreasesresultfromincreasinginvestmentsfortheStateWaterProject(SWP)andtheCaliforniaWaterFix,investmentsinreliabilitythroughconservationandlocalresources,investmentstomaintaintheconveyanceanddistributionsystem,andincreasingoperatingandmaintenancecosts.Annualexpendituresareexpectedtoincreasefrom$1.7billioninFY2016/17to$2.4billionbyFY2025/26,oranannualaverageincreaseofabout4.0percent.Metropolitan'sshareofthecostsfortheCaliforniaWaterFixisexpectedtoincreasetoabout$246millionbyFY2025/26.Duringthissameperiod,capitalinvestmentsareexpectedtobeabout$2.1billion.Tofinancethesecapitalinvestments,theten‐yearforecastanticipatesfunding$1.2billionoftheCIPfromwatersalesrevenues,orPAYGo.ThebalanceoftheCIP,or$0.9billion,wouldbefinancedbyissuingrevenuebonddebt,eitherfixedorvariable.PlanningisnecessaryforMetropolitantosuccessfullyfundthemanyinvestmentsnecessarytomeetthechallengesfacingtheregionoverthenexttenyearswithmanageablerateincreases.Amongthemoresignificantchallengesare:
Investingintheelementsofthe2015IRPUpdatetoensurereliablewatersuppliesforMetropolitan’sserviceareaandpreparingforuncertainty.
Continuingtoprovidesupplyreliabilitythroughadiversifiedportfolioofactionstostabilizeandmaintainimportedsupplies.
Meetingfuturegrowththroughincreasedwaterconservationandthedevelopmentofnewlocalsupplies,whileprotectingexistingsupplies,toachievehigherretailwateruseefficiency,incompliancewithstatepolicy.
Pursuingacomprehensivetransferandexchangestrategy. Buildingstorageinwetandnormalyearstomanagerisksanddrought. Fundinganestimated$2.1billioncapitalprogramthatprovidesprojectsmeetingwaterquality,
reliability,stewardshipandinformationtechnologydirectives.
ASSUMPTIONS FOR THE TEN-YEAR FORECAST
Thefollowingtablesummarizeskeyassumptionsthatunderlietheten‐yearforecast.
FiscalYearEnding 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026Sales,MAF 1.70 1.70 1.75 1.75 1.75 1.75 1.80 1.80 1.80 1.80
CRAdiversions,MAF 1.01 1.04 1.06 1.08 1.07 1.06 1.06 1.06 1.06 1.04SWPallocation,% 50% 50% 50% 50% 50% 50% 50% 50% 50% 50%
CIP,$M 200 200 200 200 200 205 211 217 222 228PAYGO,$M 120 120 120 120 120 123 127 130 133 137
Conservation,$M 27 32 38 38 38 38 38 38 38 38CAWaterFix,$M ‐ ‐ 20 38 63 96 133 169 206 246Inflation,% 2.25% 2.25% 2.25% 2.25% 2.25% 2.25% 2.25% 2.25% 2.25% 2.25%
Interestoninvestments,% 1.25% 1.30% 1.70% 1.70% 1.70% 1.70% 1.70% 1.70% 1.70% 1.70%Interestrate,fixedbonds,% 4.50% 4.50% 4.50% 4.50% 4.50% 4.50% 4.50% 4.50% 4.50% 4.50%
Interestrate,variablebonds,% 0.45% 0.80% 1.20% 1.20% 1.20% 1.20% 1.20% 1.20% 1.20% 1.20%
2/9/2016 Board Meeting 9-2 Attachment 2, Page 2 of 14
-
2016/17 and 2017/18 Biennial Budget 3 Attachment 2, Ten‐Year Financial Forecast
Metropolitan’sprincipalsourcesofwatersuppliesaretheSWPandtheColoradoRiver.MetropolitanreceiveswaterdeliveredfromtheSWPunderStateWaterContract(SWC)provisions,includingcontractedsupplies,useofcarryoverstorageinSanLuisReservoir,andsurplussupplies.MetropolitanholdsrightstoabasicapportionmentofColoradoRiverwaterandhaspriorityrightstoanadditionalamountdependingonavailabilityofsurplussupplies.TheSupplyProgramssupplementtheseSWPandColoradoRiversupplies.TheSWPandColoradoRiversourcesderivefromtwodifferenthydrologicregions,whichhavehelpedbuffershortages.Theten‐yearforecastassumesanaveragehydrologyonbothregions.TogetherwithMetropolitan’sSupplyPrograms,dryperiodsineitherregioncanbemanaged.TheCIPhasbeenfurtherreducedfrompriorforecaststomaintainaffordabilitythroughouttheten‐yearperiod,reducedebtservice,andprovideheadroomtoabsorbtheadditionalcostsoftheCaliforniaWaterFix.CIPprojectshavebeencarefullyreviewed,scoredandrankedtoensurethatonlytheprojectsnecessarytodeliverwaterreliablyandsafelywhilemeetingallregulatoryrequirementsareincluded.TheinflationfactorisbasedonforecastsbyeconomistsandisappliedtoMetropolitan’sO&Mexpenses,includinglabor,chemicals,andotherO&Mexpenses.TheinterestrateapplicabletoMetropolitan’sinvestmentportfolioisbasedonananalysisofthecurrentforwardcurveforinvestmentsoveraten‐yearperiod.Thisinterestrateforecastinformstheinterestrateapplicabletovariableratebonds.Theinterestrateforfixedratebondsisalsobasedonforecasts.
WATER SALES FORECAST
Watersalesrevenueprovidesapproximately80percentoftherevenuesnecessarytosupportMetropolitan’scapitalandoperatingcosts.The2015IRPUpdateprovidesthebasisforthewatersalesforecastoverthetenyears.ItisexpectedthatdemandforMetropolitansupplieswillremainrelativelyflatovertheten‐yearperiod,from1.70millionacre‐feetin2016/17to1.85millionacre‐feetby2025/26.ThisforecastincludestheSanDiegoCountyWaterAuthorityexchangeagreement(exchangeagreement)waterdeliveries.The2015IRPUpdatecontemplatescontinuedinvestmentinlocalresourcesandretailandregionalconservationmeasurestomeetstatepolicyregardingwateruseefficiency.By2025/26,conservationandwaterefficiencyinitiativeswillresultinafurtherreductionofregionalwaterusebyanestimated163,000acre‐feet,whichreflecteffortstomeetstatepolicytoreducepercapitaretailwateruseby20percentby2020.Localresourceaugmentationwillresultinapproximately157,000acre‐feetofadditionallocalsupply,includingproductionalreadyanticipatedfromexistingprograms.TheselocalsuppliesandincreasedconservationandwateruseefficiencyreducetheneedtoimportwaterandreduceexpectedwatersalesbyMetropolitan.Thefigurebelowshowshistoricandforecastwatersales,includingtheexchangeagreementwater.Long‐term,Metropolitan’ssaleshaveaveragedjustunder2.0millionacre‐feet.Asnotedabove,expectedsalesareforecasttobebelowthisaverageat1.85millionacre‐feetby2025/26.Underchangedeconomic,climaticandhydrologicconditions,salesoverthenexttenyearscouldrangebetween1.5millionacre‐feetand2.0millionacre‐feet80percentofthetime.
2/9/2016 Board Meeting 9-2 Attachment 2, Page 3 of 14
-
2016/17 and 2017/18 Biennial Budget 4 Attachment 2, Ten‐Year Financial Forecast
Water Sales, MAF
SOURCES OF FUNDS
Revenues
Through2025/26,receiptsfromratesandcharges,whichincludetheRTS,CapacityChargeandwatersalesrevenues,collectedfromthememberagencieswillaccountforapproximately92percentoftotalrevenues.Totalrevenuesareprojectedtoincreasefromabout$1.6billionin2016/17to$2.5billionin2025/26.Thisincreaseisalmostentirelyattributedtoincreasesinwaterratesandcharges.
Water Rates and Charges
Thetablebelowshowstheestimatedunbundledwaterratesandchargesunderthecurrentratestructure.Componentsoftheratestructuremayincreaseatdifferentratesdependingonthecostsrecovered.Thefull‐servicetreatedTier1waterrateisestimatedtobeapproximately$1,344peracre‐footbyJanuary1,2026,comparedto$942peracre‐footonJanuary1,2016,anaverageincreaseof3.6percentperyearovertheten‐yearperiod.
2.43
2.07
2.11 2.35
2.26
2.15
1.77
1.60 1.70 1.85 2.06
1.90
0.00.51.01.52.02.53.0
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
2021
2022
2023
2024
MillionAcre‐Feet
FiscalYearEnding
ActualSalesLongTermAverageSalesProjection
Rates&ChargesEffectiveJanuary1st 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026Tier1SupplyRate($/AF) $156 $201 $209 $214 $226 $238 $245 $250 $261 $273 $285Tier2SupplyRate($/AF) $290 $295 $295 $295 $295 $295 $295 $295 $295 $295 $295SystemAccessRate($/AF) $259 $289 $299 $320 $335 $358 $383 $412 $440 $469 $499WaterStewardshipRate($/AF) $41 $52 $55 $59 $60 $61 $61 $62 $62 $62 $62SystemPowerRate($/AF) $138 $124 $132 $145 $162 $178 $187 $193 $198 $204 $210FullServiceUntreatedVolumetricCost($/AF)Tier1 $594 $666 $695 $738 $783 $835 $876 $917 $961 $1,008 $1,056Tier2 $728 $760 $781 $819 $852 $892 $926 $962 $995 $1,030 $1,066
TreatmentSurcharge($/AF) $348 $313 $320 $315 $309 $288 $288 $288 $288 $288 $288FullServiceTreatedVolumetricCost($/AF)Tier1 $942 $979 $1,015 $1,053 $1,092 $1,123 $1,164 $1,205 $1,249 $1,296 $1,344Tier2 $1,076 $1,073 $1,101 $1,134 $1,161 $1,180 $1,214 $1,250 $1,283 $1,318 $1,354
Readiness‐to‐ServeCharge($M) $153 $135 $140 $143 $148 $156 $168 $182 $196 $211 $228CapacityCharge($/cfs) $10,900 $8,000 $8,700 $9,000 $9,300 $9,700 $10,000 $10,500 $11,100 $11,100 $11,300
2/9/2016 Board Meeting 9-2 Attachment 2, Page 4 of 14
-
2016/17 and 2017/18 Biennial Budget 5 Attachment 2, Ten‐Year Financial Forecast
Thefollowingfigureshowsthevolumetriccostperacre‐footforTier1FullServiceuntreatedwaterandTier1FullServicetreatedwater.AproposalwillbepresentedtotheBoardforconsiderationtoaddressfixedcostrecoveryofTreatmentcostswhicharecurrentlyrecoveredthroughavolumetricrate.
Volumetric Cost, $ AF
Propertytaxrevenueisexpectedtoincreasefrom$98.3millioninFY2016/17to$120.1millioninFY2025/26.ThisprojectionassumestheBoardmaintainstheadvaloremtaxrateat.0035percentofassessedvaluations,bysuspendingthelimitunderMWDActSection124.5,andassessedvalueincreasesby2.5percentperyear.ByFY2025/26almostalloftherevenuesareusedtopaySWPcosts,whichwouldincludeMetropolitan’sshareoftheCaliforniaWaterFixcosts.
PowersalesfromMetropolitan’shydroelectricpowerrecoveryplantsareprojectedtoaverageabout$18.5millionperyearoverthisten‐yearperiod.Metropolitanhas16smallhydroelectricplantsonitsdistributionsystem.Thecombinedgeneratingcapacityoftheseplantsisapproximately122MW.TheserevenuesaredependentontheamountofwaterthatflowsthroughMetropolitan'sdistributionsystemandthepricepaid.Powerfromsomeoftheplantsissoldunderexistingcontractsthatarepricedsignificantlyhighercomparedtothepricescurrentlybeingofferedforrenewablepower.Benefitsfromthehydroelectricplants’environmentalattributesincludingtheRenewableEnergyCredits(RECs)areincludedintheexistingcontractsandfortheEtiwandaPowerPlant.RenewablePortfoliostandard(RPS)CaliforniaEnergyCommissioncertificationfortheDVLunitswasreceivedin2009;theassociatedRECsaresoldonanunbundledbasis.Interestincomeisprojectedtoincreasefrom$13.6millioninFY2016/17to$28.3millioninFY2025/26asaresultofincreasedbalancesandhigheraveragereturnsof1.25percentto1.7percentfromFY2016/17toFY2025/26.Metropolitanearnsinterestoninvestedfundbalancesandusesthisincometoreducethecoststhatmustberecoveredthroughratesandcharges.TheseinvestedfundsalsoactasapartialhedgeagainstchangesininterestratesonMetropolitan’svariableratedebtobligations.Interestincomewillvaryovertheten‐yearforecastperiodasinterestratesandcashbalancesavailableforinvestmentswillfluctuate.Miscellaneousincomeincludesitemslikeleasesandlatefeesandisforecastedtoincreasefrom$12.0millioninFY2016/17to$15millioninFY2025/26.
0200400600800
1,0001,2001,4001,600
2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026
DollarsperAF
CalendarYear
FullServiceUntreatedTier1 FullServiceTreatedTier1
2/9/2016 Board Meeting 9-2 Attachment 2, Page 5 of 14
-
2016/17 and 2017/18 Biennial Budget 6 Attachment 2, Ten‐Year Financial Forecast
Forecastedrevenuesbymajorcategoryareshowninthefigurebelow.
Revenue Forecast, $ millions
Other Funding Sources
Othersourcesoffundsincludewithdrawalsfrombondconstructionfunds,RefurbishmentandReplacement(R&R)Fund,GeneralFund,WaterStewardshipFund(WSF),TreatmentSurchargeStabilizationFund(TSSF),WaterRateStabilizationFund(WRSF),RevenueRemainderFund,andworkingcapitalborrowing.
USES OF FUNDS
Overthenexttenyears,totalannualexpendituresareprojectedtorangefrom$1.7billionto$2.4billion.
Expenses
Expensesaregroupedintosixmajorcategories:SWP,O&M,demandmanagementprograms,CRApowercosts,supplyprograms,andcapitalfinancing.Thefirstfigurebelowillustratesthegeneraltrendsinexpensesovertheten‐yearperiodfromFY2016/17toFY2025/26.ThesecondfigurefollowingshowsthecomparisonofFY2016/17toFY2025/26intermsofthecontributionofexpensestothetotal.
0
500
1,000
1,500
2,000
2,500
2017
2018
2019
2020
2021
2022
2023
2024
2025
2026
Million Do
llars
Fiscal Year Ending
Power Generation
Capacity Charge
Interest Income
Readiness‐to‐Serve
Taxes
Treatment SurchargeRevenueWater Sales Revenue (lessTS)
2/9/2016 Board Meeting 9-2 Attachment 2, Page 6 of 14
-
2016/17 and 2017/18 Biennial Budget 7 Attachment 2, Ten‐Year Financial Forecast
Expenditure Forecast, $ millions
Expenditure Forecast, Contribution by Major Area
FY2016/17:$1.65B
FY2025/26:$2.35B
‐
500
1,000
1,500
2,000
2,500
2017
2018
2019
2020
2021
2022
2023
2024
2025
2026
MillionDollars
FiscalYearEnding
CRAPower
DemandManagement
SupplyPrograms
O&M
SWP
DebtService&PAYGO
2/9/2016 Board Meeting 9-2 Attachment 2, Page 7 of 14
-
2016/17 and 2017/18 Biennial Budget 8 Attachment 2, Ten‐Year Financial Forecast
State Water Project
Metropolitanisoneof29agenciesthatcontractwiththeStateofCaliforniaforservicefromtheSWP.Metropolitanisobligatedtopayitsshareofthecapitalandminimumoperations,maintenance,power,andreplacementchargesoftheSWPregardlessoftheamountofwateractuallyreceived.Inaddition,Metropolitanpaysthepowercoststoconveythewater.Theten‐yearforecastassumesthatSWCannualcosts,includingpower,willincreasefrom$582millioninFY2016/17to$1,131millionin2015/26,asshowninthefigurebelow.SWCcostsaccountfor35percentofMetropolitan’sexpendituresinFY2016/17,growingto47percentinFY2025/26,primarilyduetotheCaliforniaWaterFixcosts.Thesecostsaccountfor$246millioninFY2025/26.WatersupplybenefitsfromtheCaliforniaWaterFixarerealizedoutsidetheten‐yearperiodoftheforecast,asareoperations,maintenanceandenergycosts.TheremainderofthefixedcostsisbaseduponinformationprovidedbytheDepartmentofWaterResources,andisassociatedwithTransportationCapitalandMinimumOperations&Maintenance,andtheDeltaWaterSupplyCapitalandMinimumOperations&Maintenance.VariableSWPpowercostsareprojectedtograduallyincreaseovertheten‐yearperiod.Powercostswillvarydependingonthepriceofelectricity,totalsystemdeliveries,storageoperations,andtheamountofwaterpumpedontheSWP.SWPvariablepowercostsareprojectedtoincreaseabout6.2percentperyearovertheten‐yearforecastperiod.IncreasingcostsaffectingtheSWPincludethecostofemissionsallowances,addingrenewableenergytotheSWPpowerportfolio,andusingtheCaliforniaIndependentSystemOperatorgridtotransmitpowerfromgenerationsourcestotheSWPloadlocations.TheSWPownsgeneratingresources,includingtheHyattcomplex,recoverygenerationunitsontheAqueduct,andacontractforpowerfromtheKingsRiverConservationDistrict'sPineFlatgeneratingfacility.TheSWPisaparticipantintheLodiEnergyCenter,anaturalgas‐firedcombinedcyclegeneratingfacilitylocatedinLodi,California,andoperatedbytheNorthernCaliforniaPowerAgency.TheSWPhasacquiredrenewableresources.Additionalresourcesnecessarytomeetthebalanceoftheproject'senergyrequirementsareobtainedfromthewholesaleenergymarket,whichexposestheSWPtowholesaleenergymarketpricevolatility.NetflowsthroughtheSWPthatincurpowerareexpectedtoaverageabout1.0MAFperyear.ThetotalSWCcostsareshowninthefigurebelow.TheSWPisdescribedundertheGeneralDistrictRequirementssectionoftheBiennialBudget.
SWP Forecast, $ millions
582 599645
709779
849910
9791,056
1,131
0
200
400
600
800
1000
1200
2017
2018
2019
2020
2021
2022
2023
2024
2025
2026
Million Do
llars
Fiscal Year Ending
Power
Water Fix Costs
Remaining FixedCosts
2/9/2016 Board Meeting 9-2 Attachment 2, Page 8 of 14
-
2016/17 and 2017/18 Biennial Budget 9 Attachment 2, Ten‐Year Financial Forecast
Operations and Maintenance
O&McostsinFY2025/26areprojectedtobe$504million.Thisrepresentsanaverageannualincreaseof2.1percentfromFY2016/17.Duringthistimeframe,inflationisassumedtobe2.25percent.Theten‐yearforecastassumesMetropolitancontinuestofullyfundtheannualrequiredcontributiontomeetfutureretireemedicalcosts(OtherPost‐EmploymentBenefits,orOPEB)andretirementbenefits.
Figure 14. O&M Forecast, $ millions
Demand Management
DemandmanagementcostsincludefundingfortheLocalResourcePrograms(LRP)andtheConservationCreditProgram(CCP)andareprojectedtoincreasefrom$75.1millioninFY2016/17to$84.5millioninFY2025/26.TheLRPcostsareprojectedtobefairlyflatovertheten‐yearperiodatabout$45.0millionperyear.AstheyieldfromexistingLRPprojectsreceivingincentivesdecreases,newprojectsareexpectedtoreceivefunding.TheCCPcostsareprojectedtoincreasefrom$27.0millioninFY2016/17to$38millioninFY2018/19,andremainflatthroughtheremainderoftheten‐yearperiod.Thisprogramprovidescontinuedfundingofresidential,commercial,andoutdoorconservationprograms.DemandManagementprogramsaredescribedundertheGeneralDistrictRequirementssectionoftheBiennialBudget.
CRA Power Costs
CRAPowercostsareprojectedtoincreasefrom$46.6millioninFY2016/17to$89.7millioninFY2025/26.Powercostswillvarydependingonthepriceofelectricity,Metropolitan’sresourceportfoliotomeetelectricityneeds,storageoperations,andtheamountofwaterpumpedontheCRA.DuetotheexpirationoftheSCEServiceandInterchangeAgreement,Metropolitanwillbebuyingmoresupplementalpowerandwillhaveexposuretomarketprices.PowercostsaredescribedundertheGeneralDistrictRequirementssectionoftheBiennialBudget.ColoradoRiverdiversionsareexpectedtoaverageabout1.0MAFovertheten‐yearperiod,slightlymorethandeliveriesaswaterisstored.
‐
100
200
300
400
500
600
2017
2018
2019
2020
2021
2022
2023
2024
2025
2026
Million Do
llars
Fiscal Year Ending
Other
Materials &Supplies
VariableTreatment
Labor & Additives
2/9/2016 Board Meeting 9-2 Attachment 2, Page 9 of 14
-
2016/17 and 2017/18 Biennial Budget 10 Attachment 2, Ten‐Year Financial Forecast
Supply Programs
Supplyprogramsincreaseslightlyovertheten‐yearperiodfrom$78.7millioninFY2016/17to$93.7millioninFY2025/26.Theestimatesrepresentexpendituresforexpectedconditions.Ifextremeweatherconditionsareexperienced,thesecostestimatescouldbemuchhigherorlower.Ifhigherthannormaldemandiscoupledwithlowerthannormalsupply,supplyprogramcostscouldbesignificantlyhigher.AdescriptionofMetropolitan’sSupplyProgramsisprovidedundertheGeneralDistrictRequirementssectionoftheBiennialBudget.
Capital Investment Plan
Theten‐yearprojectedCIPthroughFY2025/26isestimatedat$2.1billion.TheCIPcontinuestoreflectthedeferraloffacilityexpansionprojects.TheCIPfocusesonprojectsthatenhancereliabilitywhilefocusingonnecessaryrefurbishmentandreplacementofaginginfrastructure.Thefollowingfigureshowsthefundingsourcefortheten‐yearCIP.
CIP Ten-Year Forecast and Funding Sources, $ millions
Capital Financing Options
TheCIPwillbefundedfromacombinationofbondproceedsandoperatingrevenues.Inordertomitigateincreasesinwaterrates,providefinancialflexibility,andsupportMetropolitan'shighcreditratingsincludingmaintainingrevenuebonddebtserviceandfixedchargecoverageratios,itisproposedthat60percentoftheCIPbefundedfromcurrentrevenues,orPAYGo.ThislevelofPAYGofundingisappropriategiventhatasignificantportionoffutureCIPprojectshasbeenidentifiedasR&Rprojects.ThislevelofPAYGoalsoensuresthatMetropolitanmeetsitscoveragetargetsbygeneratingamarginofrevenuesoveroperatinganddebtexpenditures.TheadditionalrevenuerequiredtomeetMetropolitan’srevenuebonddebtservicecoveragetargetof2.0timesandfixedchargecoverageof1.2timesisavailabletofundtheCIP.PAYGofundingthroughouttheten‐yearhorizonoftheplanningperiodensuresthatcurrentcustomersarealwayscontributingfundstowardsthecapitalinvestmentstheyarebenefitingfrom,andnotdeferringthesecostsentirelytofuturegenerationsofratepayers.
0
50
100
150
200
250
2017 2018 2019 2020 2021 2022 2023 2024 2025 2026
Million Do
llars
Fiscal Year Ending
Bonds
PAYGO
2/9/2016 Board Meeting 9-2 Attachment 2, Page 10 of 14
-
2016/17 and 2017/18 Biennial Budget 11 Attachment 2, Ten‐Year Financial Forecast
Bondfundedexpenditureswillincludeacombinationofvariableandfixedratedebt.Debthasbeenstructuredtomitigatenear‐termrateimpactsandsmoothoutlong‐termdebtservice.Theprincipaladvantageofvariableratedebtistheopportunityforalowerinterestcost.Normally,short‐terminterestratesarelowerthanlong‐terminterestratesfordebtofcomparablecreditquality.Ifinterestratesremainconstant,Metropolitanwillgenerallyhavesignificantlylowerinterestcostsonvariableratedebtthanonfixedratedebt,evenafterremarketingandliquidityfacilitycosts.Also,ifinterestratesdecline,Metropolitanwillbenefitfromlowerinterestcostswithoutthenecessityorcostofarefunding.Ifinterestratesrise,variableratescouldstaylowerthanthefixedrateoriginallyavoided,andthelongerthevariableratedebtisoutstandingatfavorablespreads,thehigherthebreak‐evenpointbecomesonfixedratedebt.Variableratedebtisusedtomitigateinterestcostsoverthelongterm,andprovidesanaturalhedgeagainstchangesininvestmentearnings:wheninterestratesarehigh,interestcostsonvariableratedebtishigherbutsoareearningsfromMetropolitan’sinvestmentportfolio.Wheninterestratesarelow,interestearningsarelower,butsoarevariablerateinterestcosts.Fixedratedebtholdersgenerallyrequiresomeformof“callprotection.”Typically,fixedratebondsareonlyredeemableagivennumberofyearsaftertheirissuanceandiftheissuerpaysaprepaymentpremium.Becausetheinterestrateonvariableratedebtisperiodicallyreset,callprotectionisnotimportanttovariableratedebtholders.Variableratedebt,therefore,maygenerallybeprepaidwithoutpremiumonanydateonwhichtheinterestrateischangedoronanyinterestpaymentdate.However,variableratedebtdoeshaverisks.Theserisksinclude:
Risinginterestrates.Becausefutureinterestratesareunknown,thecostsofcapitalimprovementsfinancedwithvariableratedebtaremoredifficulttoestimateforrevenueplanningpurposes.Significantinterestrateincreasescouldcausefinancialstress.
Liquidityfacilityrenewalrisk.Variableratedebtnormallyrequiresaliquidityfacilitytoprotecttheinvestorsandissuersagainst“puts”ofalargeportionorallofthedebtonasingleday.Liquidityfacilitiesgenerallydonotcoverthefulltermofthedebt.Ifanissuer’screditdeclinesortheliquidityfacilitycapacityisnotavailable,theissuerrunstheriskofnotbeingabletoobtainanextensionorrenewaloftheexpiringliquidityfacility.Inthatevent,theissuermayhavetoretirethedebtorconvertittofixedratedebt.
Inthelastseveralyears,Metropolitanhasissuedself‐liquiditydebt.Metropolitanisirrevocablycommittedtopurchaseallself‐liquiditybondstenderedpursuanttoanyoptionalormandatorytendertotheextentthatremarketingproceedsareinsufficientandnostandbybondpurchaseagreementorotherliquidityfacilityisineffect.Metropolitan’sobligationtopaythepurchasepriceofanytenderedself‐liquiditybondsisanunsecured,speciallimitedobligationofMetropolitanpayablefromnetoperatingrevenues.Inaddition,Metropolitan’sinvestmentpolicypermitsittopurchasetenderedself‐liquiditybondsasaninvestmentforitsinvestmentportfolio.So,whileMetropolitanisonlyobligatedtopurchasetenderedself‐liquiditybondsfromnetoperatingrevenues,itmayusethecashandinvestmentsinitsinvestmentportfoliotopurchasetenderedself‐liquiditybonds.Metropolitanhasnotsecuredanyliquidityfacilityorletterofcredittopaythepurchasepriceofanytenderedself‐liquiditybonds;however,Metropolitanhasenteredintorevolvingcreditagreementswithwhichitmaymakeborrowingsforthepurposeofpayingthepurchasepriceofself‐liquiditybonds.
Salesofvariableratedebtissuesaremorecomplexthanfixedratedebtissues.Largerissuersoftenissueaportionoftheirdebtasvariableratedebt.Also,ifconstructioncostsareuncertainaborrowercanusevariableratedebtinitiallyandconverttofixedratedebtintheamountneededafterconstructioniscompleted.
2/9/2016 Board Meeting 9-2 Attachment 2, Page 11 of 14
-
2016/17 and 2017/18 Biennial Budget 12 Attachment 2, Ten‐Year Financial Forecast
Debt Financing
Itisanticipatedthattherewillbeabout$2.1billionofcapitalexpendituresovertheten‐yearperiod.Ofthis,$0.9billion,or40percentoffuturecapitalexpenditures,areanticipatedtobefundedbydebtproceeds.Outstandingbonddebt,includingrevenueandGObonds,asofDecember31,2015is$4.35billion.ThenetassetsofMetropolitanatJune30,2015were$6.9billion.Metropolitanmaynothaveoutstandingrevenuebonddebtinamountsgreaterthan100percentofitsequity.AsofJune30,2015,thedebttoequityratiowas63percent.Totaloutstandingdebtisillustratedbelow.Totaloutstandingdebtisestimatedtobe$3.6billionbyFY2025/26.
Outstanding Debt, $ billions
Metropolitan’svariableratedebtasapercentageoftotalrevenuebonddebtisprojectedtoincreaseto31percentoverthistimeperiodasfixedratedebtisretiredandnewvariableratedebtisissued.Theappropriateamountofvariableratedebtwillcontinuetobemonitoredandadjusteddependingonmarketrates,financingneeds,availableshort‐terminvestments,andfundlevelsintheinvestmentportfoliowithwhichvariableinterestrateexposurecanbehedged.GObonddebtwilldecreaseasvoterapprovedindebtednessmatures.
0
1
2
3
4
5
2017 2018 2019 2020 2021 2022 2023 2024 2025 2026
BillionDollars
FiscalYearEnding
GeneralObligationBondsFixedRateRevenueBondsVariableRateRevenueBonds
2/9/2016 Board Meeting 9-2 Attachment 2, Page 12 of 14
-
2016/17 and 2017/18 Biennial Budget 13 Attachment 2, Ten‐Year Financial Forecast
FUND BALANCES AND RESERVES
Asshowninthefigurebelow,overthenexttenyearstotalfundbalancesareprojectedtoincreaseto$1.8billioninFY2025/26.TheExchangeAgreementSet‐asidedesignatedfundisnolongerneededafter2018bywhichtimeallappealsintheSDCWAlitigationareexpectedtobedecided.
End of Year Fund Balances, $ millions
* IncludesWaterRateStabilizationFundandRevenueRemainderFund.Workingcapitalborrowingshavebeenused,inpart,toreplacerevenuesthathavebeendepositedtotheExchangeAgreementSet‐asideDesignatedFund.** IncludesWaterStewardshipFundandTreatmentSurchargeStabilizationFund.FINANCIAL RATIOS
Revenuebonddebtservicecoverageisoneprimaryindicatorofcreditquality,andiscalculatedbydividingnetoperatingrevenuesbydebtservice.Revenuebonddebtservicecoveragemeasurestheamountthatnetoperatingrevenuesexceedor"cover"debtservicepaymentsoveraperiodoftime.Highercoveragelevelsarepreferredsincetheyindicateagreatermarginofprotectionforbondholders.Forexample,amunicipalitywith2.0timesdebtservicecoveragehastwicethenetoperatingrevenuesrequiredtomeetdebtservicepayments.Theten‐yearforecastprojectsthatMetropolitan'srevenuebondcoverageratioachieves2.0timesduringthelasthalfoftheperiod.Metropolitan’sminimumcoveragepolicyisvitaltocontinuedstrongcreditratingsandlowcostbondfunding.Inadditiontorevenuebonddebtservicecoverage,Metropolitanalsomeasurestotalcoverageofallfixedobligationsafterpaymentofoperatingexpenditures.ThisadditionalmeasureisusedprimarilybecauseofMetropolitan'srecurringcapitalcostsfortheStateWaterContract.Ratingagenciesexpectthatafinanciallysoundutilityconsistentlydemonstrateanabilitytofundallrecurringcosts,whethertheyareoperatingexpenditures,debtservicepaymentsorothercontractualpayments.Theten‐yearforecastprojectsthatMetropolitan'sfixedchargecoverageratioisatleast1.2timesovertheten‐yearperiod.Theselevelshelpmaintainstrongcreditratingsandaccesstothecapitalmarketsatlowcost,andprovidesPAYGofundingfortheCIP.
0200400600800
1,0001,2001,4001,6001,8002,000
2016
2017
2018
2019
2020
2021
2022
2023
2024
2025
2026
MillionDollars
FiscalYearEnding
ReserveFunds*
RateStabilizationFunds**
ExchangeAgreementSet‐aside
Other(operating,debtservice,constructionandtrustfunds)
2/9/2016 Board Meeting 9-2 Attachment 2, Page 13 of 14
-
2016/17 and 2017/18 Biennial Budget 14 Attachment 2, Ten‐Year Financial Forecast
Ten-Year Financial Forecast, Sources and Uses of Funds, $ millions
Ten-Year Financial Forecast, Coverage Ratios and Fund Balances, $ millions
FiscalYearEnding 2017Budget2018Budget
2019Forecast
2020Forecast
2021Forecast
2022Forecast
2023Forecast
2024Forecast
2025Forecast
2026Forecast
SOURCESOFFUNDSRevenuesTaxes 98.3 100.5 102.8 105.1 107.4 109.8 112.3 114.8 117.4 120.1InterestIncome 13.6 12.4 19.1 19.8 20.5 21.1 22.3 24.1 26.1 28.3HydroPower 15.3 21.6 22.2 22.7 22.4 21.8 23.1 23.3 21.8 22.3FixedCharges(RTS&CapacityCharge) 182.3 172.7 178.8 184.0 192.0 203.5 218.2 234.5 250.3 266.7TreatmentSurchargeRevenue* 272.9 261.3 275.6 273.1 261.9 251.2 259.0 258.1 257.3 256.6WaterSalesRevenue(lessTS) 1,032.3 1,114.2 1,197.7 1,259.9 1,335.5 1,413.3 1,528.1 1,601.8 1,679.5 1,760.7MiscellaneousRevenue 12.0 12.1 12.4 12.8 13.3 13.7 14.0 14.3 14.6 15.0BondProceeds 89.6 79.7 79.7 79.7 79.7 79.7 89.4 79.4 89.4 109.2WorkingCapitalBorrowing 46.6 47.4 ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐Sub‐totalRevenues 1,763.0 1,822.0 1,888.3 1,957.3 2,032.6 2,114.1 2,266.3 2,350.3 2,456.3 2,578.9
FundWithdrawalsR&RandGeneralFund 120.0 120.0 120.0 120.0 120.0 123.0 127.0 130.0 133.0 137.0BondFundsforConstruction ‐ 0.3 0.3 0.3 0.3 2.8 ‐ 7.2 0.1 ‐TreatmentSurchargeStabilizationFund* ‐ 3.2 ‐ ‐ ‐ 6.3 ‐ ‐ ‐ 4.0DecreaseinRateStabilizationFund 94.2 23.0 ‐ 9.8 2.9 ‐ ‐ ‐ ‐ ‐Sub‐totalFundWithdrawals 214.2 146.5 120.3 130.1 123.2 132.0 127.0 137.2 133.1 141.0
TOTALSOURCESOFFUNDS 1,977.2 1,968.5 2,008.6 2,087.4 2,155.8 2,246.1 2,393.3 2,487.5 2,589.4 2,719.9
FiscalYearSales&Exchange(MAF) 1.68 1.70 1.74 1.76 1.75 1.75 1.79 1.80 1.80 1.80Totalsmaynotfootduetorounding.*Notaffectedbytreatmentratestructure
FiscalYearEnding 2017Budget
2018Budget
2019Forecast
2020Forecast
2021Forecast
2022Forecast
2023Forecast
2024Forecast
2025Forecast
2026Forecast
USESOFFUNDSExpensesStateWaterContract 582.3 599.4 645.5 708.8 778.6 849.2 910.3 978.5 1,056.2 1,131.3SupplyPrograms 78.7 81.7 83.8 84.4 84.8 87.8 89.6 91.6 93.7 93.7ColoradoRiverPower 46.6 54.4 64.6 70.1 74.0 76.5 78.8 83.0 85.7 89.7DebtService 328.5 344.1 338.4 334.4 320.5 317.4 308.5 311.9 298.1 307.6DemandManagement 75.1 75.9 82.0 84.5 84.5 84.5 84.5 84.5 84.5 84.5DepartmentalO&M 358.6 358.1 366.1 374.4 382.8 391.4 400.2 409.3 418.5 428.0TreatmentChemicals,Solids&Power 24.3 24.6 26.5 27.3 27.9 28.4 30.0 30.6 31.1 31.8OtherO&M 34.7 37.1 37.9 38.7 39.6 40.5 41.4 42.4 43.3 44.3Sub‐totalExpenses 1,528.8 1,575.3 1,644.7 1,722.5 1,792.6 1,875.8 1,943.3 2,031.8 2,111.3 2,210.9
CapitalInvestmentPlan 200.0 200.0 200.0 200.0 200.0 205.4 210.9 216.6 222.5 228.5FundDepositsR&RandGeneralFund 120.0 120.0 120.0 120.0 120.0 123.0 127.0 130.0 133.0 137.0RevenueBondConstruction 9.6 ‐ ‐ ‐ ‐ ‐ 5.4 ‐ ‐ 17.7WaterStewardshipFund ‐ ‐ ‐ 0.8 2.4 3.4 6.9 8.4 7.3 7.7ExchangeAgreementSet‐aside 46.6 47.4 ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐TreatmentSurchargeStabilizationFund* 6.7 ‐ 10.6 9.9 2.3 ‐ 1.2 1.8 0.2 ‐InterestforConstruction&TrustFunds 0.3 0.4 0.6 0.6 0.6 0.6 0.6 0.7 0.7 0.9IncreaseinRequiredReserves 65.1 25.4 32.7 33.6 38.0 37.8 46.1 37.7 62.8 55.6IncreaseinWaterRateStabilizationFund ‐ ‐ 0.0 ‐ ‐ 0.2 51.8 60.5 51.6 61.5Sub‐totalFundDeposits 248.4 193.2 163.9 164.9 163.2 164.9 239.0 239.1 255.7 280.5
TOTALUSESOFFUNDS 1,977.2 1,968.5 2,008.6 2,087.4 2,155.8 2,246.1 2,393.3 2,487.5 2,589.4 2,719.9Totalsmaynotfootduetorounding.*Notaffectedbytreatmentratestructure
FiscalYearEnding 2017Budget2018Budget
2019Forecast
2020Forecast
2021Forecast
2022Forecast
2023Forecast
2024Forecast
2025Forecast
2026Forecast
RATIOSFixedChargeCoverage 1.3 1.3 1.4 1.4 1.4 1.4 1.5 1.5 1.5 1.5RevenueBondCoverage 1.6 1.6 1.7 1.8 1.9 2.0 2.3 2.4 2.6 2.7Var.RateDebtas%ofRev.BondDebt 15% 18% 20% 23% 27% 30% 31% 32% 33% 33%
RESTRICTEDFUNDSEOYbalanceGeneralFund 109.0 109.0 109.0 109.0 109.0 109.0 109.0 109.0 109.0 109.0Other 637.2 652.6 673.9 695.3 719.7 741.8 778.0 790.4 834.7 894.1Sub‐totalRestrictedFunds 746.2 761.6 782.9 804.3 828.7 850.8 887.0 899.4 943.7 1,003.1
UNRESTRICTEDFUNDSEOYbalanceReserveFunds(1) 395.9 383.1 394.7 397.3 408.3 422.0 489.8 569.1 639.8 716.2TreatmentSurchargeStabilizationFund 6.7 3.4 14.0 23.9 26.1 19.9 21.0 22.9 23.1 19.1WaterStewardshipFund ‐ ‐ ‐ 0.8 3.2 6.6 13.5 21.8 29.1 36.9R&RFund ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐GeneralFund ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ExchangeAgreementSet‐aside 303.5 350.9 ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐Sub‐totalUnrestrictedFunds 706.1 737.4 408.7 422.0 437.7 448.5 524.3 613.8 692.1 772.1
TOTALFUNDS 1,452.3 1,499.0 1,191.6 1,226.4 1,266.4 1,299.2 1,411.3 1,513.2 1,635.8 1,775.2Totalsmaynotfootduetorounding.(1)includesWaterRateStabilizationFundandRevenueRemainderFund.
2/9/2016 Board Meeting 9-2 Attachment 2, Page 14 of 14
