HomeMy WebLinkAbout1997-10-28; Municipal Water District; 392; Water Authority's Emergency Water Storage ProjectCARLSBAU MUNICIPAL \~VATER DISTRIL,-~ - AGENDA BILL
AB# 35% TITLE: UPDATE ON FINANCING FOR THE SAN DEPT. HD.
DIEGOCOUNTY WATER AUTHORITY’S MTG. 1 Ql28l97 EMERGENCY STORAGE PROJECT (ESP) AND C’TY AnY*
nenT INCLUSION IN THE AUTHORITY’S CIP
RECOMMENDED ACTION:
This item is an update on the inclusion of the San Diego County Water Authority’s Emergency
Storage Project (ESP) in the Water Authority’s Capital Improvement Program (UP) and the
financing alternatives to fund this storage project as well as the Capital Improvement Program.
Water Authority staff will be making a presentation on this item this evening. This is an update
and there is no staff recommendation at this time.
ITEM EXPLANATION:
The Emergency Storage Project environmental permitting and conceptual design phase is
complete. The project is ready to begin the formal design phase which would be followed by
the construction phase. The Board has requested that a revenue plan be developed for the
project prior to beginning the project design. Special Board Meetings were held on May 2, 1997
and July 24, 1997 to solicit Board guidance on various revenue collection options. Staff has
reviewed a variety of options and recommends preparation of a fixed revenue implementation
plan for Board consideration at the November Board Meeting.
The development of future programs, such as the Emergency Storage Project or water supply
contracts, will increase the Authority’s commitments to fixed annual expenditures. An increase
in fixed expenses makes it prudent to revise the Authority’s revenue structure in order to better
match fixed revenues with fixed expenses. The Water Authority Board directed CWA staff to
prepare a detailed plan for the adoption of additional fixed revenue sources which, when
considered together with the Authority’s current revenue streams, will provide revenue to cover
at least 25 percent of total projected Authority fixed expenditures.
To achieve a minimum 25 percent fixed revenue target for the entire CIP, implementation of the
Emergency Storage Project will require approximately half of the additional revenues necessary
for the Emergency Storage Project to be developed from the new fixed revenue source. This
would reduce the previously projected commodity rate increase for the Emergency Storage
Project by about half.
Water Authority staff recommended that the fixed income stream be obtained by the
implementation of an infrastructure access charue to each member agency based on the
relative potential of the member agency to require water delivery from the Authority. The
relative potential of a member agency to require delivery of water from the Authority would be
determined by comparing the total of the water delivery meters, expressed as household meter
equivalents within the member agencies. About $2.00 per month per household meter
equivalent for each delivery meter in a member agency’s water system would be required to
achieve the minimum fixed income target when the Emergency Storage Project is implemented.
The CWA staff recommended that the fixed revenue implementation plan should also contain
a provision for the adoption of a special commodity rate for agricultural users participating in
MWD’s Interruptible Agricultural Program. These customers would participate in the fixed
charge required for the Emergency Storage Project, but not the associated commodity rate.
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Participation in the Authority’s, special agricultural rate would require an agreement to less
preferential emergency service than that provided to other water users
In addition to adoption of the detailed revenue plan, future approvals by the CWA Board will be
required to carry out the Emergency Storage Project. These include approval of budgets,
appropriation of funds, approval of joint reservoir use agreements with Olivenhain Municipal
Water District and the City of San Diego, and approval of procurement actions such as the
acquisition of mitigation lands, right of way acquisition, and the award of consultant and
construction contracts.
As previously stated, the San Diego County Water Authority staff will be making a presentation
on this agenda item.
FISCAL IMPACT:
As this is only an update on the Emergency Storage Project, there is no fiscal impact at this
time.
EXHIBITS:
1. Document titled, “Staff Report of the Fiscal Policy Committee of the San Diego County
Water Authority - Implementation Plan for an Infrastructure Access Charge.”
EXHIBIT 1
WATER AUTHORITY STAFF REPORT TO
THE FISCAL POLICY COMMllTEE
OF THE
SAN DIEGO COUNTY WATER AUTHORITY
Subject
Implementation Plan for an hfmstructure Access Charue to be based on the relative
potential of a Member Agency to require water delivery from the Authority and that
approximately 50% of the increased revenues required for the Emergency Storage
Project shall be derived from this Charge.
Obiectives
l Develop storage facilities to provide for 75 percent of the six-month peak water
demand expected through 2030. The development shall be timed in lo-year
minimum increments with the first phase completed and filled with water by 2005.
l Develop storage facilities south of the San Luis Rey River to provide for 75%, of the
two-month peak water demand expected through the year 2030. The development
shall be timed in lo-year minimum increments with the first phase completed and
filled with water by 2005.
Environmental Compliance
As with the previous establishment of new charges in the Authority’s revenue
structure, an environmental assessment may be required as a part of the
implementation plan for the recommended fixed charge.
The Final Environmental Impact Report/Environmental Impact Statement
(EIWEIS) has been prepared for the Emergency Storage Project. The Final EIR was
certified by the Board on August 15, 1996. The Record of Decision for the Final EIS
was signed by the Corps of Engineers on August 4, 1997.
Staff Recommendation
The CWA Board direct Authority staff to prepare an implementation plan for
additional fixed revenues based on the concept that at least one-quarter of projected
annual fixed expenditures are to be paid by fixed annual revenues. The plan is to be
presented at the November CWA Board meeting and will specifically consider the
implementation of the Emergency Storage Project (ESP) as a part of the plan. The
plan will also include a recommendation for an Authority agricultural commodity rate in
which participants in MWD’s Interruptible Agricultural Program would mpay the
portion of the Authority commodity rate required for the Emergency Storage Project.
The new fixed revenue required by the plan would be derived as follows:
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A new fixed charge would be implemented by the Authority to provide for required
increases in fixed revenue. The new fixed charge would be called the infrastructure
Access Charae and would be based on the expected relative potential of a member
agency to require delivery of water from the Authority. The potential of a member
agency to require water delivery from the Authority will be determined by totaling the
combined capacity of all delivery meters within a member agency, expressed as
household meter equivalents. The relative potential shall be determined by dividing an
agency’s potential by the combined potential of all member agencies. The expected
charge resulting from this recommendation and from the implementation of the
Emergency Storage Project is about $2.00 per month per household meter equivalent.
Alternatives
1. Request staff to prepare a detailed revenue plan based on a different or
modification of the recommended fixed revenue option.
2. Request staff to prepare a detailed revenue plan without increasing fixed revenues
and develop a plan for enhanced reserve accounts to address the potential for wider
swings in future revenues.
3. Not approve preparation of any detailed revenue plan and delay or cancel the
Emergency Storage Project.
Detail
The Emergency Storage Project environmental permitting and conceptual design
phase is complete. The project is ready to begin the formal design phase which would
be followed by the construction phase. The Board has requested that a revenue plan
be developed for the project prior to beginning project design. Special Board Meetings
were held on May 2, 1997 and July 24, 1997 to solicit Board guidance on various
revenue collection options. Staff has reviewed a variety of options and recommends
preparation of a fixed revenue implementation plan for Board consideration at the
November Board Meeting.
Implementation of future Authority programs such as the Emergency Storage
Project will cause an increase in fixed expenditures by the Authority. Previous revenue
plans for the Emergency Storage Project were based on increased commodity rates
and an increase in the capacity charge. Analysis of past water sales shows the
potential for temporary (two year) decreases in water sales of about 25 percent of
normal sales.
If the Emergency Storage Project were to be implemented using only the
capacity charge and commodity rate as sources of increased revenues, and a repeat of
the sales decrease of 1992 and 1993 were to occur, significant increases in the
commodity rate would be required to pay fixed expenses. Additionally, in the future, the
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consistency of Authority revenues may be challenged by institutional changes in the
water industry, such as the development of wheeling policies that might reduce the
Authority’s revenues from water sales.
The stability of the Authority’s revenue streams could be enhanced by the
adoption of a greater amount of fixed revenue sources rather than by increasing
variable revenues for the implementation of the Emergency Storage Project. Authority
staff has tested various fixed revenue percentages and determined that at least 50
percent of the revenue increases necessitated by the Emergency Storage Project
should come from fixed income to avoid unacceptable rate spikes in the event of future
sales drops. This is equivalent to a policy requiring at least 25 percent of all fixed
expenditures be covered by fixed income.
At the July 24, 1997 Board Workshop, a number of questions were posed to staff
concerning the development of financing and revenue plans for the Emergency Storage
Project. These questions concerned a variety of topics from growth inducement, to the
economic value of the Emergency Storage Project, to the impact of the project on
agriculture.
Authority staff, in meeting with agricultural and urban interests regarding the
effect on agriculture due to the price of water and the Emergency Storage Project, has
identified the following unique set of circumstances regarding agriculture in San Diego
County:
l The adverse impact increased water rates could have on tree crop agriculture.
l The value of agriculture to the regional economy.
l Agriculture’s positive influence on the quality of life in San Diego County.
l The revenue stability provided by continued agricultural water sales.
In recognition of this unique set of circumstances, authority staff developed a
proposal for an Authority agricultural water rate that would apply to those water users
participating in MWDSC’s Interim Agricultural Water Program (IAWP). If one half of the
revenues for the Emergency Storage Project were obtained from the recommended
fixed charge and one half from commodity rate increases, one method to provide a
differential rate to agriculture (defined as IAWP participants) would be to have
agriculture pay the recommended fixed charge but none of the proposed commodity
rate increases required to finance the Emergency Storage Project.
Authority staff has analyzed this differential commodity rate to determine its
effect on other rate payers. The effect would be about $3.50 per year (30 cents a
month) for a family using one half as acre foot per year of Authority water. This is the
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maximum anticipated effect which would last for a period of about three years starting
at about the year 2010.
To assist authority staff in the evaluation of alternative fixed income sources a
general managers advisory group was formed composed of six member agency
general managers. The advisory group met three times, The recommended plan,
including the agricultural proposal, reflects many. of the general managers’ comments.
The final meeting will be held on Monday, October 6, 1997, to discuss the
recommended revenue plan. Authority staff has also met with the agricultural rate
advisory group two times to discuss the revenue plan.
After considering various fixed revenue alternatives and various evaluation criteria
such as implementability and perceived equity, authority staff considered a fixed charge
based on the meter connection between the Authority and the member agency. This
fixed charge would be referred to as an infrastructure access charge. However, if such
a charge was based solely on the capacity of the meter connection between the
Authority and the member agency, it would not fairly allocate costs because many
agencies have multiple connections for system flexibility, rather than to meet their total
demand for water. This flexibility often serves both the agency’s and Authority’s benefit.
Authority staff determined that the relative maximum demand capacity of an agency
could instead be based on the sum of the capacities of all of the delivery meters within
a given member agency.
A fixed charge levied against each member agency based on the number of
household meter equivalents is a good measure of the relative costs of the investments
made by the Authority to serve that agency. The hfrasfrucfure Access Chame is
preferable to a parcel charge in that it can be applied to water users who are currently
exempt from property taxes and standby charges (e.g., school districts, government
entities, leaseholds on government lands, etc.). Additionally, an lnfrasfrucfure Access
Charcre based on meter equivalents limits the opportunity for a member agency to
reduce its obligations unless it has a reduction in its customer base, while a water-use-
based RTS charge allows a reduction in obligation through a/decrease in water
purchases from the Authority. Such reductions would increase the obligations of the
other member agencies.
Authority staff considered a wide variety of other fixed revenue alternatives.
These other alternatives and the reason that they were not selected are described
below.
Property or Land Based Alternatives
Standbv or Parcel Charqe: This charge is already at the maximum allowed in
the CWA Act. Imposition of a new standby charge through use of the Uniform Standby
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Charge Act may place our existing authorization at risk by requiring voter approval of
the entire standby charge, not just the additional standby charge.
Collecting one half of the total revenue for the Emergency Storage Project from
this charge would require an increase from the current $1 0 per year per parcel or acre
to $34 per year per parcel or acre. This charge collects the most revenue from
agencies where the land has been the most subdivided. Public opinion surveys show
this form of revenue collection to be unpopular compared to other alternatives.
Collecting one quarter of the total revenue for the Emergency Storage Project
(one half of the fixed revenue) by the standby charge was considered as an option.
This would only require a total standby charge of $22 per year per parcel. However if
the $22 per year charge was not approved, the Authority could lose the existing $10 per
year charge. This loss would probably require an increase of $20 in the commodity rate
even without the Emergency Storage Project.
To increase the standby charge Proposition 218 requires a mail in ballot, from
resident and non-resident property owners, with the majority, as weighted by the
number of acres or parcels voted by the property owners, of the ballots returned to
favor the increased standby charge. Additionally, Proposition 218 now requires an
engineers report on each parcel, just as described for the Special Assessment District
below, before the ballot can be taken.
Special assessment District: An Authority wide special assessment district would
require a detailed engineers evaluation of the benefit of the assessment for each of the
approximately one million parcels in the Authority’s service area. Such an evaluation
would costly and require as much as one year to complete. After the evaluation is
complete time should be allowed for property owners to question their individual
assessments. After the evaluation is complete, ballots must be mailed to the owner of
record for each parcel. A majority of returned ballots as weighted by the amount of the
assessment must be in favor of the assessment for it to be imposed. The engineering
evaluation, conduct of meetings and exercise of appeal provisions for an Authority wide
district would be very cumbersome and expensive to effectively implement.
Assessed Valuation (General Obliaation Bonds): Collects revenues based on
the assessed value of property, rather than acreage or parcels. The collected revenue
is a tax. Agencies with the greatest assessed value of property will provide the greatest
percentage of revenue of the Emergency Storage Project. This may be perceived as
an inequitable distribution of project costs. Public opinion surveys have shown this to
be a very unpopular method of revenue collection for water projects.
This option requires a general election and a two thirds majority of the voters for
approval. In other words, one third of the voters can turn down the project of the whole
community. People may vote against the tax, but still be for the project.
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Member Aqencv Jurisdictional Based Alternatives
JPA with Revenues lndividuallv Pledqed bv the Members (Marks - Roos Bonds):
Individual agencies would pledge revenue streams of their own choosing. There may
not be uniformity of the kind of revenue collected through out the Authority. To
accomplish the goal of income stability the revenue collected in each agency would
need to come from a fixed source. JPA revenues are generally viewed as the weakest
revenue stream by the Bond Market. Bonds issued by the JPA may be rated in
accordance with the weakest member.
Water or Demand Capacitv Based Alternatives
Readiness to Serve Charqe: This charge has been imposed by MWDSC. The
MWDSC charge is based upon a fixed percentage that is calculated from an average of
imported water purchases by member agencies. The Authority passes this charge
through using the same methodology as MWDSC. The methodology used by MWDSC
is perceived as unfair by some member agencies The recommended infrastructure
access charge might also be considered a readiness to serve charge. However, its
methodology is different than the MWDSC methodology. The proposed methodology
limits the opportunity for a member agency to reduce its obligations unless it has a
reduction in its customer base, while a water-use-based RTS charge allows a reduction
in obligation through a decrease in water purchases from the Authority.
Infrastructure Access Charqe at the Retail Meter Based on Meter Size: The
Authority lacks the authority to impose a charge directly on a member agency’s retail
meters.
Member Aqencv Infrastructure Access Charqe Based on Aqencv Meter Size (first
Increment of water not included): If the charge is based directly on the size of meter
between the agency and the Authority there would be equity problems with some
member agencies, since they have multiple connections to provide system flexibility to
both themselves and the Authority. A variation of this alternative is the staff
recommendation.
Member Aqencv Infrastructure Access Based or Size (charqe also includes the
first increment of water): This could have the same revenue stream instability problems
as take or pay contracts (see below). This problem may be mitigated by making the
included first increment of water quite small.
Take or Pav Contracts
One other method of achieving fixed revenue is from take or pay contracts. A
reasonable amount or sum of these contracts may be achievable. There would
challenges in determining the amount for agencies with declining total demand or
weather variable local supply sources. To provide an incentive for a take or pay
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contract, the Authority might need to charge a significantly greater rate for requested
water deliveries above the take or pay amount. Additionally, agencies may request that
take or pay be associated with the development of a wheeling policy.
Use of take or pay contracts to achieve the required fixed income would not
reduce the projected commodity rate for the Emergency Storage Project. However, a
take or pay quantity of as little as 25% of average Authority demands could further
enhance the credit profile of the Authority. A take or pay alternative will require a
significant level of effort to structure a program that will encourage member agency
participation and provide the revenue security needed by the Authority.
a