Board of DirectorsJune 10, 2010June 10, 2010

Supply costs shifted to transportation rate◦ Financial impacts to Water Authority◦ Disincentive for

ConservationConservationCost-effective local water supply developmentBeneficial use of transportation facilities

l dClosed session

2

MWD’s rate structure misallocates significant water supply costs to transportation◦ ~80% of MWD’s State Water Project supply costs

misallocated through the System Access Rate andmisallocated through the System Access Rate and System Power Rate onto transportation◦ Local water supply development funding

( li d li ti d ti )(recycling, desalination and conservation) misallocated through the Water Stewardship Rate onto transportation

3

Water Authority worked within all available f t MWD t l t di tforums at MWD to resolve rate dispute◦ Cost of Service Review process (2009)◦ Member Agencies Managers (2009-2010)g g◦ Budget & Finance Committee (2009-2010)◦ Three Board of Directors’ Budget Workshops

(January, February & March 2010)(J y, y )Fully engaged at staff and board levelPresented analysis, letters and testimony to

t f i l tisupport fair resolution

4

March public hearing B l W ll A i d l d i◦ Bartle Wells Associates study, oral and written testimony at Business & Finance Committee and Board

l bl hApril public hearing ◦ Bartle Wells Associates letter, letter from Water

Authority Special Counsely pNo substantive response from MWDNo substantive response from other MWD member agenciesmember agencies◦ Other member agencies lack motivation to correct

5

MWD agrees that the Water Authority has exhausted its administrative remedies:exhausted its administrative remedies:◦ “We agree that SDCWA’s participation in the four-month

process that led to adoption of water rates on April 13 2010 which included participation of SDCWA board13, 2010, which included participation of SDCWA board members in board and committee meetings, participation of staff in meetings for member agency representatives, and submission of comments to g y p ,the Business and Finance Committee and the board, exhausted SDCWA’s administrative remedies with respect to the consideration and adoption of those

t ” d ’ l lrates.” -- Sydney Bennion, MWD’s Assistant General Counsel, to Water Authority General Counsel Dan Hentschke on behalf of MWD General Counsel Karen Tachiki

6

MWD’s imported water supply costs appear artificially lowBy making imported water supplies appear less expensive than they really areless expensive than they really are◦ Local agencies have no incentive to develop new

local suppliespp◦ Water users have less incentive to conserve water ◦ Local projects that really are cost-effective are

discourageddiscouraged

7

MWD’s transportation rate is artificially high◦ Discourages use of MWD’s transportation facilities

Artificially increases cost of water transfersDiscourages cost-effective local water supply programs and projects which require use of MWD facilities

◦ All MWD member agencies would benefit financially from increased use of facilities

Because Water Authority uses MWD transportation services for QSA supplies◦ Water Authority overpays for transportation◦ Water Authority overpays for transportation◦ All MWD member agencies underpay for water supplies

8

YearYear $/AF$/AF20032003 $253$25320032003 $253$25320042004 $253$25320052005 $258$25820062006 $258$258 55 yearyear20062006 $258$25820072007 $258$25820082008 $278$278

55--year year TimeTime--outout

20092009 $278$27820102010 $314$31420112011 $372$37220112011 $372$37220122012 $396$396

9

$1,637 $1,637 $1 311$1 311

$2,105 $2,105 

$330$330 $330$330

$1,033 $1,033 $1,311 $1,311 

$330 $330  $330 $330 

LowLow HighHigh

Next 10 YearsNext 10 Years 35 Year Term35 Year Term 45 Year Term45 Year Term

10

$250$250

$175$175$200$200$225$225$250$250

$230

$100$100$125$125$150$150$175$175

Delta FixDelta Fix

Water StewardshipWater Stewardship$116

$25$25$50$50$75$75

$100$100 Water StewardshipWater Stewardship

State Water ProjectState Water Project

$0$0$25$25

LowLow HighHigh

11

$450$450$500$500$550$550

$200$200$250$250$300$300$350$350$400$400$450$450

20112011 20122012 20132013 20142014 20152015 20162016 20172017 20182018 20192019 20202020 20212021 20222022 20232023 20242024 20252025 20262026 20272027 20282028 20292029 20302030$0$0

$50$50$100$100$150$150$200$200

TotalTotal $50$50 $57$57 $66$66 $71$71 $76$76 $80$80 $84$84 $103$103 $124$124 $146$146 $384$384 $396$396 $408$408 $421$421 $434$434 $448$448 $462$462 $477$477 $493$493 $510$510

Water Stewardship Water Stewardship ‐‐ HighHigh $0$0 $0$0 $0$0 $0$0 $0$0 $0$0 $0$0 $0$0 $0$0 $0$0 $87$87 $91$91 $95$95 $99$99 $104$104 $109$109 $114$114 $119$119 $125$125 $130$130

$40B Delta Fix$40B Delta Fix $0$0 $0$0 $0$0 $0$0 $0$0 $0$0 $0$0 $0$0 $0$0 $0$0 $103$103 $103$103 $103$103 $103$103 $102$102 $102$102 $101$101 $101$101 $101$101 $100$100

$10B Delta Fix$10B Delta Fix $0$0 $0$0 $0$0 $0$0 $0$0 $0$0 $0$0 $0$0 $0$0 $0$0 $34$34 $34$34 $34$34 $34$34 $34$34 $34$34 $34$34 $34$34 $34$34 $33$33

Water StewardshipWater Stewardship ‐‐ LowLow $9$9 $10$10 $12$12 $13$13 $14$14 $14$14 $15$15 $18$18 $22$22 $26$26 $29$29 $30$30 $32$32 $33$33 $35$35 $36$36 $38$38 $40$40 $42$42 $43$43Water Stewardship Water Stewardship  LowLow $9$9 $10$10 $12$12 $13$13 $14$14 $14$14 $15$15 $18$18 $22$22 $26$26 $29$29 $30$30 $32$32 $33$33 $35$35 $36$36 $38$38 $40$40 $42$42 $43$43

State Water ProjectState Water Project $41$41 $47$47 $54$54 $58$58 $63$63 $66$66 $69$69 $85$85 $102$102 $120$120 $131$131 $137$137 $144$144 $151$151 $159$159 $167$167 $175$175 $184$184 $193$193 $203$203

QSA Wheeling QSA Wheeling (1,000(1,000 AF)        AF)         160160 170170 180180 180180 180180 180180 180180 210210 240240 270270 280280 280280 280280 280280 280280 280280 280280 280280 280280 280280

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Some MWD member agencies analyzed i t f t t t timpacts of current rate structure◦ Water Authority’s estimates are more conservative◦ Agencies’ analysis shows similar magnitude of cost g y g

impacts if water supply costs are properly accounted for

Numbers differ due to different time periods analyzed and differences in other assumptions

Agencies object to change in rate structureOther agencies favor status quo because theyOther agencies favor status quo because they benefit from the misallocation

13

$0.4$0.4

$0.2$0.2

$0.2$0.2

City of AnaheimCity of Anaheim

City of Beverly HillsCity of Beverly Hills

City of BurbankCity of Burbank $$

$2.0$2.0

$0.9$0.9

$0.0$0.0

$1.7$1.7

yy

Calleguas MWDCalleguas MWD

Central Basin MWDCentral Basin MWD

City of ComptonCity of Compton

Eastern MWDEastern MWD $1.7$1.7

$0.2$0.2

$0.2$0.2

$0.4$0.4

$1.4$1.4

Foothill MWDFoothill MWD

City of FullertonCity of Fullerton

City of GlendaleCity of Glendale

Inland Empire Utilities AgencyInland Empire Utilities Agency $1.4$1.4

$0.4$0.4

$0.6$0.6

$7.6$7.6

$4.3$4.3

a d p e Ut t es ge cya d p e Ut t es ge cy

Las Virgenes MWDLas Virgenes MWD

City of Long BeachCity of Long Beach

City of Los AngelesCity of Los Angeles

MWD of Orange CountyMWD of Orange County $4.3$4.3

$0.4$0.4

‐‐$26.6$26.6

$0.0$0.0

$0 0$0 0

MWD of Orange CountyMWD of Orange County

City of PasadenaCity of Pasadena

San Diego County Water AuthoritySan Diego County Water Authority

City of San FernandoCity of San Fernando

City of San MarinoCity of San Marino $0.0$0.0

$0.2$0.2

$0.2$0.2

$1.2$1.2

$0 3$0 3

City of San MarinoCity of San Marino

City of Santa AnaCity of Santa Ana

City of Santa MonicaCity of Santa Monica

Three Valleys MWDThree Valleys MWD

City of TorranceCity of Torrance

14

$0.3$0.3

$0.1$0.1

$2.2$2.2

$1.4$1.4

City of TorranceCity of Torrance

Upper San Gabriel MWDUpper San Gabriel MWD

West Basin MWDWest Basin MWD

Western MWDWestern MWD

Authorize General Counsel and Special Counsel to file suit challenging Metropolitan's allocation of State Watersuit challenging Metropolitan s allocation of State Water Project costs and Water Stewardship costs under its current rate structure. Confirm the chair’s appointment of a negotiating teamConfirm the chair s appointment of a negotiating team and authorize continued negotiations with Metropolitan pursuant to the Exchange Agreement.Direct the General Manager to:Direct the General Manager to:◦ Return at the June 24th Board meeting with a recommendation

to initiate a rate structure analysis/cost of service study of the Water Authority’s rate structure.

◦ Include in the recommended FY 2011 budget the anticipated costs of these actions to be taken from the Authority’s reserves.

15