12-5-11 lrfp meeting v62011/12/05 · 12/5/2011 1 meeting #6 db5 2011 cfo group december 5, 2011 1...

12/5/2011

1

Meeting #6Meeting #6D b 5 2011D b 5 2011

CFO Group December 5, 2011 1

December 5, 2011December 5, 2011

Review of feedback from November 14Present straw proposal for Rate Structure refinementsContinue discussions of Purchase Order follow onNext Steps


Next Steps

12/5/2011

2

Increase RTS/Capacity Charge

“C t Ch ”“Customer Charge”

Water Quality/Source Protection

Adjust Ad Valorem tax

DHCCP


Support for:Adjusting AV tax rateFixed charge for future DHCCP costsFixed charge for future DHCCP costs

Treatment cost recovery issues need further exploration

Treated Water Capacity Charge and other alternatives have been explored and rejectedFixed Water Quality/Source Protection Charge as


Fixed Water Quality/Source Protection Charge as alternative to recover fixed costs

Increasing existing fixed charges not supported

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3

Status quo: Fixed revenues grow in absolute terms but proportionately become less of theterms, but proportionately, become less of the revenue structureSWP costs addressed through an Ad Valorem tax solution and development of a DHCCP chargeTreatment costs addressed through a revised fi ed charge proposal


fixed charge proposal

500

600

100

200

300

400

Million Dollars Existing Tax

Capacity Charge

RTS

≈ 18% of total revenues ≈ 15% of total revenues


0

2012

2013

2014

2015

2016

2017

2018

2019

2020

2021

Fiscal Year Ending

Forecasted Revenues based on draft information

12/5/2011

4

Status quo: tax revenues will continue to declineMetropolitan is authorized to use property tax p p p yrevenues to fund payments under the State Water ContractEven holding the tax rate constant could lead to revenue benefits in the long term

Mitigate impacts on future water rates


g pUsed to offset SWP costs, including future DHCCP costsSWP reliability benefits all users in Metropolitan’s service areaProvides a long‐term revenue source that does not vary with water sales to cover fixed costs

Two approaches to addressing the additional use of Metropolitan’s Ad Valorem tax authoritySeek legislative change to Section 124.5 of the MWD ActWork within the existing limits of Section 124.5 of the MWD Act


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Send letter to both Senate and Assembly at least 10 days before public hearing10 days before public hearingHold public hearingBoard finds that a tax in excess of the MWD Act restriction is “essential to the fiscal integrity of the district”


Annual ProcessThe process described would be performed annually

$120 s

status quo

pegged tax rate and 2.5% AV annual increase

pegged tax rate and 5% AV annual increase

$40

$60

$80

$100

$

Millions


$‐

$20

$40

2012 2013 2014 2015 2016 2017 2018 2019 2020 2021

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6

Adjusting the Ad Valorem tax rate could generate additional revenues, but the increment would not fully cover future DHCCPincrement would not fully cover future DHCCP costsOption #1: Use adjusted AV tax revenues to offset DHCCP costs and then augment with a new fixed chargeU dj d AV ff SWP


Use adjusted AV tax revenues to offset SWP costs and develop a stand‐alone DHCCP charge to recover the DHCCP costs

Current SWP Fixed Cost recovery:Primarily recovered in the System Access Rate and Supply Rates which are volumetricSupply Rates, which are volumetricOnly 10% currently recovered through property taxes

Recover future DHCCP through a fixed chargeAllocation basis needs to be developed

DHCCP fi d h d fi d i


DHCCP fixed charge produces fixed revenues in the long term

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7

Current estimated cost of DHCCP in FY 2014/15 of $5 million FY2020/21 of $113 millionof $5 million, FY2020/21 of $113 millionIn conjunction with pegging the AV tax rate, would produce a revenue stream to cover the costs of a Delta conveyance facility by FY 2020

If the AV increment is applied to the DHCCP costs, the fixed charge would generate $39 million in FY


the fixed charge would generate $39 million in FY 2020/21

Demonstrates commitment by Metropolitan and its member agencies to funding a solution to the Delta issues

500

600

100

200

300

400

500

Million Dollars DHCCP

Pegged Tax Rate

Existing Tax

Capacity Charge


0

2012

2013

2014

2015

2016

2017

2018

2019

2020

2021

Fiscal Year Ending

RTS


12/5/2011

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Current estimated cost of DHCCP in FY 2014/15 of $5 million FY2020/21 of $113 millionof $5 million, FY2020/21 of $113 millionDHCCP Fixed Charge would produce a revenue stream to cover the costs of a Delta conveyance facility by FY 2020

The pegged AV and a full DHCCP Charge would generate $187 million in FY 2020/21


generate $187 million in FY 2020/21The adjusted AV could be used to offset other SWP costs, which are increasing over time

700800900

Base SWP Costs DHCCP

200300400500600700

Million Dollars


0100

2012 2013 2014 2015 2016 2017 2018 2019 2020 2021Fiscal Year Ending

12/5/2011

9

500

600

100

200

300

400

500

Million Dollars DHCCP

Pegged Tax Rate

Existing Tax

Capacity Charge


0

2012

2013

2014

2015

2016

2017

2018

2019

2020

2021

Fiscal Year Ending

RTS



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10


$250

$300 Capital Other O&M Chemicals, power, sludge

6 21

137 41

41

36

46 61 45

56 62

71

71 79 77 79

9 11

14 25 31

34

34 31

27

28 23 23 29

$100

$150

$200

$250

Million Dollars


52

49

53

54

58 79

74

90

91

97

106

12 1

$0

$50

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012*

Fiscal Year Ending* FY 2012 projected

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2.5Untreated Treated

0.5

1.0

1.5

2.0

Million Acre Feet


0.0

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

M

Cash Year Ending64% 60% 61% 60% 64% 62% 67% 64% 58% 56% 54% 58%

Treated as a % of Total

$217 $217$234

$200

$250

$82$92

$112$122

$147$157

$167

$50

$100

$150

$200

$/AF


$0

2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

Effective January 1*

*2010 increase effective 9/1/2009

12/5/2011

12

March 2005 Board Action:“Work with the member agencies and Budget, Finance, Investment and Insurance Committee to evaluate a Treated Water Capacity Charge to be considered by the Board in January of 2006 to be effective January of 2007”

November 2005 Information letterNo follow‐on discussion

LRFP Rate Refinement Subgroup


LRFP Rate Refinement SubgroupOctober 2007, Raftelis Financial ConsultingApril, May and June 2008October 2008

Treated Water Capacity Charge (TWCC)Treated Water Capacity Charge (TWCC)

Treated Water Peaking Charge (TWPC)

Volumetric, declining block structure that ties volume to peak capacity used (TWDB)

S l Ch


Seasonal Charge

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13

Previous discussions of a Treated Water Capacity Charge, or alternatives, have not

t d tgenerated supportReallocation of costs resulted in “winners” and “losers”Size of targeted fixed cost recovery—$51 million in 2008 analysis—was relatively large



12/5/2011

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Fixed charge to recover fixed O&M and Debt Service costs associated with Quality SourceService costs associated with Quality, Source Protection, and security activitiesRange of $20 to $30 million initiallyReduces Treatment SurchargeAllocate on a basis less likely to result in noticeable shifts


shiftsProvides near‐term benefits to revenue structureAs costs associated with quality/source protection/security mandates increase over time, charge would recover them

500

600≈ 25% of total revenues≈ 20% of total revenues

100

200

300

400

500

Million Dollars

Water Quality

DHCCP

Pegged Tax Rate

Existing Tax

Capacity Charge


0

2012

2013

2014

2015

2016

2017

2018

2019

2020

2021

Fiscal Year Ending

RTS


12/5/2011

15

2012 2013 2014 2015 2016 2017 2018 2019 2020 2021

Adjust AV rate:‐ define process

‐ implement*Fixed Charge, DHCCP


Fixed Charge, H2O Quality

* Board must make annual finding


12/5/2011

16

1 96

2.5

1.96

1.26

0 5

1.0

1.5

2.0

Million Acre‐Feet 1.8 MAF


0.0

0.5

Current Tier 1 60% of BFD

Reason for POs was to provide a financial commitment to Metropolitan in exchange forcommitment to Metropolitan in exchange for greater access to Tier 1 Supply rate

Did POs really provide a financial commitment that was meaningful?Do greater fixed revenues achieve a result equal to POs?


POs?

Some agencies want to “trade” for Tier 1 accessTier 1 is a pricing mechanism, not a right to waterLinked to fixed cost recovery

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Was Tier 2 a disincentive to agencies to store water in wet years?water in wet years?Tier 2 as a price signal to develop local supplies

Does it need to be in place or applied every year?Only in dry years? Only during a Supply Allocation event?

h h ld b d ?


When should agencies be exposed to Tier 2?

Option #1: default, 60% of BFD, no POsOption #2: Roll existing calculation forward

See handout

Option #3: Re‐establish the Initial Base Firm DemandHighest firm sales in last 10 fiscal yearsSee handout

Option #4: Use recent base period demand from the Water Supply Allocation Plan

Better align with need


Better align with needAccounts for local supply development

Option #5: Use SAP data and reduce Tier 1 limit to long‐term demandsOthers?

12/5/2011

18

December 12 F&I WorkshopBoard discussion on the work of this group to dateBoard discussion on the work of this group to date

2012/13 Budget and Revenue Requirements letters, January 2012

Finance and Insurance Committee

Future Workgroup meeting dates to be determined


determined


12-5-11 lrfp meeting v62011/12/05 · 12/5/2011 1 meeting #6 db5 2011 cfo group december 5, 2011 1...

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