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HomeMy WebLinkAbout1998-01-27; Municipal Water District; 402; Changes - Water Authority's Revenue StructureCARLSbAD MUNICIPAL WATER DISTKICT - AGENDA BILL& w AB# yo3 TITLE: REPORT ON IMPLEMENTATION PLAN MTG. 01/27/98 FOR PROPOSED CHANGES TO THE SAN DIEGO - DEPT. COUNTY WATER AUTHORITY’S REVENUE CMWD STRUCTURE CITY MGR. ??-?/ RECOMMENDED ACTION: Since this is an informational update, there is no staff recommendation. ITEM EXPLANATION: The San Diego County Water Authority Board directed it’s staff, in August 1997, to develop a new source of fixed revenue to provide better coverage of the authority’s projected fixed expenditures. The projected increase in the Authority’s fixed costs coupled with potential institutional changes in the water industry make it prudent to revise the authority’s revenue structure in order to better match fixed expenses with fixed revenues. At the October 1997 CWA Board meeting, the Authority’s staff proposed revisions to the Authority’s revenue structure to include an Infrastructure Access Charge (IAC) and a special agricultural commodity rate. In response to the recommendation, the Board directed staff to prepare an implemention plan for the adoption of the revised revenue structure. The recommended implementation plan has two major components. The first is the Authority’s public outreach effort including solicitation of input from stakeholders and the general public, and the second is the actual mechanism for the setting of the IAC by the CWA Board. The proposed implementation plan is attached. (Exhibit 1) In addition to the developing the implementation plan, authority staff also commissioned an independent review of the proposed revenue structure by R.W. Beck. (Exhibit 2) A copy of the executive summary of their report is also attached for your information. District staff will be making a presentation regarding this update at tonight’s meeting. FISCAL IMPACT: This is an informational update and there is no fiscal impact at this time. I EXHIBITS: 1. Proposed implementation plan. 2. Revenue Plan review. ,--. \ .: _’ . . IMPLEMENTATION PLAN FOR PROPOSED CHANGES TO THE SAN DIEGO COUNTY WATER AUTHORITY’S REVENUE STRUCTURE January 1998 The San Diego County Water Authority’s (Authority) Board of Directors has . detetined that a new source of fixed revenue is needed to provide better covetige of the Authority’s projected fixed expenditures. The projected increase in the . Authority’s fixed costs coupled with potential institutional changes in the water industry make it prudent to revise the Authority’s revenue structure in order to better match fixed expenses with fixed revenues. The proposed revisions to the Authority’s revenue structure include an Infrastructure Access Charge (IAC) and a special agricultural commodity rate. ‘The purpose of this implementation plan is to delineate the process for the adoption of the revised revenue structure. Public Outreach It is recommended the Authority continue its commitment to public outreach - especially concerning cost and rate impacts - during the period prior to the adoption of the revised revenue plan. The Authority will meet all of its legal requirements for public notification and review opportunities concerning the plan. The Authority also plans to hold four public open-house meetings in different parts of the county to inform the public about the project’s purpose and need and the revenue plan. Prior to board adoption of the revenue plan, the Authority’s Board will hold a formal public hearing as well. In addition, Authority staff have committed to remaining available to make presentations to Member Agency boards and other interested groups. Staff will formally propose to make a presentation on the revenue plan to all Member Agencies and cities in the Authority’s service area. Briefings also will be offered to key stakeholder groups and news media outlets. Other public outreach efforts concerning the revenue plan include publication of an informational brochure or fact sheet about the revenue plan. 3 The public outreach effort is intended to solicit input on the proposed revenue plan. Comments will be solicited on all aspects of the plan, including the mechanisms for setting the IAC and the Special Agricultural Rate set forth below. As comments are received, the Authority staff may propose modifications to the revenue plan to the Board of Directors prior to its formal adoption of the plan. EXHIBIT "1" C Revised Revenue ;,ructure Implementation Plan January 1998 Page 2 Mechanism for Setting the Infrastructure Access Charge The IAC is a fixed charge levied against each member agency for the purpose of maintaining a minimum ratio of projected fixed revenue to projected fixed expenditures of 1:4, or 25%, in any future fiscal year. The IAC will be adjusted each year as a part of the regular rate-setting process. The steps for setting the IAC will be as follows: . . 1) In January of each year, the Authority will request each member agency to provide a count of retail water meters serviced by that agency and active as of December 31 of the previous year. The meter count shall be based on the number of equivalent household meters, using set multiplication factors for each meter size to determine the number of household meter equivalents. (Criteria for including a meter in the active retail meter count are given later.) 2) The estimated average annual capital and operating expenditures for the following four fiscal years will be established through the annual budgeting process by the end of March of each year. 3) The estimated average annual capital and operating expenditures for the next four years will be multiplied by 25% to establish the minimum level of fixed revenues required for the next fiscal year. Since actual expenditures can vary from the budget estimates upon which the IAC will be based, the estimate of the minimum level of required fixed revenues will be increased by 10% to provide increased assurance that actual fixed revenues will be at least 25% of actual fixed expenditures. (Each year, staff will evaluate the financial position of the Authority, and may recommend the Board modify the 25% minimum level of fixed revenues to fixed expenditures.) 4) Estimated income from the Authority’s other fixed income sources (standby charges and property taxes) will be subtracted from the estimated minimum level of fixed revenues to establish the total revenue required from the IAC. 5) The total revenue required from the IAC will be divided by the sum of the meter counts of all the member agencies to establish the IAC for a household meter equivalent (the per-meter IAC). 6) The amount of the IAC charge to be levied against each member agency will be established by multiplying the member agency’s meter count times the per-meter IAC. I:WOARD\S8V=ISCALW JANUACA’lT.DOC l2l31l97 329 PM I 1 ‘i _- Revised Revenue titructure Implementation Plan January 1998 Page 3 . 7) The Board will adopt the fixed IAC charge for each member agency and the per- meter IAC at the same time the capacity charge and the water rate is set, typically in April. 8) Changes in the IAC will be effective the same date in the fiscal year that changes . ’ in the comrnodii rate are normally effective. . . . 9) Member agencies will be given the option of paying the IAC monthly or quarterly. This year’s efforts for establishing the IAC will require some special actions that will not be necessary in subsequent years. These actions will include the public outreach effort discussed earlier to explain the reasons for the development of the IAC (as opposed to the regular public outreach efforts each year for the rate-setting process), the establishment of definitions for the types of meters that will be included in the meter count, an extra level of coordination between the Authority and the member agencies to assure consistency between all agencies in the calculation of their meter counts, and the amending of the Authority’s Administrative Code to include the IAC. The initial establishment of the IAC for the period January 1, 1999 to December 31, 1999, is recommended to be $1.00 per meter equivalent. This recommendation will result in having fixed revenues of over 25% of estimated fixed expenditures for Fiscal Year 1999, based on only six months of collection of the IAC in the first fiscal year the IAC is established. The current estimate of expenditures for FY 1999 assumes the ESP is approved. Meters will be counted using the following criteria and definitions: l All active retail water meters will be included in the meter count. l The meter count will be expressed as the number of household meter equivalents based on the same factors used for the capacity charge to compute the household meter equivalent for meters l-inch and larger. l Active meters are defined as those meters which took water at any time during the preceding 12 months. If a meter is officially listed as inactive on a member agency’s books on December 31, but has taken any amount of water during the previous 12 months, it must be included in the meter count. l Fire service and similar types of emergency meters are not counted, even if they have taken water during the previous 12 months. l Reclaimed water meters are not counted unless they are connected to a reclaimed water system that has used water from the Authority to meet more than 20% of that reclaimed water system’s total demand* during the past 12 months. I:i8OARDUWlSCALU1 JANU~CAlT.DCC 12t31m 3:19 PM Revised Revenue Slructure Implementation Plan January 1998 Page 4 - -~ l Mutual support meters between member agencies are not counted. l Master meters within a member agency are counted if they are used by a member agency to bill retail customers. l Individual meters within a master metered area are not counted unless they are used by the member agency to bill retail customers in lieu of the master meter. l Meters in areas outside the Authority‘s service area are not counted ’ unless they are a net recipient of imported water through one of the member agencies. (Additional details on this point remain to be worked out, particularly with respect to the member agency’s ability to impose charges on customers outside the Authority’s service area.) l Meters receiving the Special Agricultural Rate will be counted. Mechanism for Setting the Authority’s Special Agricultural Commbdity Rate The Authority’s Special Agricultural Commodity Rate is intended to exclude the portion of the regular Authority commodity rate that will be required to pay for the Emergency Storage Project. The amount of this component will be computed by the Authority and included in the Board’s annual decisions on rates and charges. In return for excluding this increment from the commodity rate for participants in this program, participants agree to receive a level of service during an emergency that is less than that received by the Authority’s customers as a whole. The level of senrice reduction will be at double the rate of the targeted systemwide reductions, up to a maximum of 90%. For example, if the targeted systemwide reduction is 20%,. participants will be required to accept a 40% reduction in service. The reduction in water deliveries will be made by the Authority at the Authority’s meters for each member agency, and will be determined as follows: 1) The normal level of agricultural water deliveries for each member agency will be computed each year by the Authority. The member agency’s normal level of agricuiltural water deliveries will be based on a four-year running average of historical agricultural sales certified under the Metropolii Water District’s interim Agricultural Water Program (IAWP). This will constitute the total, normal, annual demand for agricultural water for each member agency 2) The total, normal, annual demand for agricultural water for each member . agency will be converted to an average daily delivery amount and then multiplied times the estimated number of days the emergency is expected to last to determine the amount which would have been deliiered under normal service conditions during the period of the emergency. This number will c. represent the base commitment for agricultural water deliveries. The number of c = 1 “-/ I:\BOARDW8WSCALW JANUACATTBOC 12/W/97 3:lQ PM ‘ .I * .i i -.-. Revised Revenue, ..iructure Implementation Plan January 1998 Page 5 4) 5) --x ‘I b..J 6) 7) 8) 9) days the emergency is expected to last will be determined by the Authority Board of Directors at the time of the emergency. The Authority will establish a table of agricultural peaking factors for each member agency to account for the time of year during which the emergency occurs. These peaking factors will be used to increase or decrease the agricultural water delivery commitment to the member agency during the emergency. These factors will be established at the initial establishment of the special agricultural rate, and will be adjusted every few years to reflect any changes in member agency demand patterns for agricultural water. t The peaking factors for each member agency will be further adjusted at the beginning of the emergency based upon existing CIMIS data (California Irrigation Management information System) to account for climatic differences between the previous four years and the time of the emergency. The base commitment for agricultural water deliveries to each member agency will be multiplied by the adjusted agricultural peaking factor for the member agency. This amount will be reduced by the targeted reduction rate for participants to determine the total, emergency agricultural water delivery to the member agency. if either the estimated length of the emergency period or the target reduction amount are modified at any time during the emergency, the Authority will transmit new emergency agricultural water delivery commitments to the member agencies. Once the Authority transmits to its member agencies the amount of agricultural water that will be delivered during the emergency, the member agencies will be responsible for ensuring the total of actual deliveries to participants within its service area does not exceed the computed emergency agricultural water delivery amount during the emergency period. Participants will not be allowed to opt out of the Special Agricultural Rate during an emergency. Should Metropolitan discontinue the IAWP, the Authority will establish its own program setting the criteria for panicipatation in the Special Agricultural Rate. These criteria will be similar to those contained in the IAWP. The incremental difference between the amount of water that would have been delivered if a participant’s reduction were equal to the system-wide targeted I:\BOARD\98\FISCALV)lJ~ACATT.DOC 12t31197 3:lQPM Revised Revenue Structure Implementation Plan January 1998 Page 6 reduction and the emergency delivery commitment will be totaled for all participants. This additional amount of water will be made available by the Authority to member agencies for service to commercial and industrial customers. A program to distribute this amount has not been developed. Since it is not material to the implementation of the Special Agricultural Rate, this program will be developed at a later date. . , I:\BOARDWWISCALUlJANUACATT.WC 12BlIB7 339 PM SAN DIEGO COurvy WATER AUTHORITV REVENUE PLAN REVIEW I. EXECUTIVE SUMMARY A. INTRODUCTION 3 L In August 1997, the Authority formed a Revenue Plan Development Team to develop alternative means and recommendations for a balanced source of ’ revenues to fimd the operations and Capital Improvement Program (‘UP”) of the SanDiego County Water Authority (“SDCWA” or “Authority”). R W. Beck (“Consultant*‘) was engaged to review the overall plan with particular focus on a proposed Inf&tructure Access Charge (“IAC”) that would provide an additional fixed revenue stream and thereby increase the percentage of fixed costs that are recovered tirn fixed revenues. At the October 1997 meeting, the SDCWA Board directed its staff to prepare an implementation plan for the adoption of an additional tied revenue source, the IAC. When the IAC is’ considered together with the Authority’s current fixed revenue streams, they will provide revenue to cover at least 25% of total projected Authority fixed expenditures. The implementation plan for the LAC ‘contains a provision for an Authority special agricultural commodity rate for participants in the Metropolitan Water District’s (,,MWD”) Interruptible Agricultural Water Program and a differential emergency water rationing plan for participants. In conducting its review, the Consultant relied extensively on the Authority’s long-ten financial model and took into consideration existing financial . policies and constraints, including the Board’s direction from the October 1997 meeting. The purpose of this Executive Summary is to outline the key considerations used in the analysis and review and to summarize the Consultant’s findings and conclusions. . B. BENEFITS AND NEED FOR INCREASED FIXED REVENUE Implementation of titure Authority programs, such as the Emergency Storage Project (“ESP”) will cause an increase in fbced expenditures by the Authority. The previous revenue plan for the ESP was based on increased commodity rates with projected water sales following a “normal year” demand pattern, and an increase in the capacity charge. However, analysis of past water sales shows the potential for a one-year decrease of over 40% from the previous year and a two-year decrease in water sales of about 25% of “normal year” SihS. _. EXHIBIT "2" SAN DIEGO COUNT-WATER AUTHORIW . If the ESP were to be implemented using only the capacity charge and commodity rate as sources of increased revenues, and a repeat of the sales decrease experienced in the 1992 and 1993 period were to occur, sign&ant increases in the commodity rate would be required to pay fixed expenses. Additionally, in the future, the dependability of Authority revenues may decrease as a result of 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 e&nced by the adoption of a greater amount of fixed revenue rather than simply increasing the commodity rate for future capital projects, such as the ESP The SDCWA staff has tested various fixed revenue percentages and has previously recommended that at least 25% of all fixed expenditures be covered by fixed income to avoid unacceptable rate spikes in the event of &ture temporary sales drops, provided that the Authority can count on a minimum sales amount of approximately 400,000 ac-ft per year by the year 2000. In order to achieve this 25% minimum target the proposed Revenue Plan converts about 50% of the previously projected commodity rate increase needed for the ESP to a fixed income source. C. KEY ASSUMPTIONS AND CONSIDERATIONS The following are the key assumptions and considerations protided to the Consultant by the Authority that served as the basis for the Cons&ant’s analysis and findings. The ClP is the modified CIP which includes the ESP at a cost of approximately $540 million. ‘Ihe Revenue Plan for financing the CIP will, together with long-range revenue and expenditure estimates, produce the lowest and smoothest overall water revenue requirements. No less than 25% of fixed costs should be fLnded fiom fixed revenues. The only revenues defined as fixed are the Standby Water Availability Charge, property taxes, and the proposed IAC which was discussed in a memorandum to the Board of Directors dated October 2,1997. The potential for water purchases from the Imperial Inigation District or suppliers other than the Mitropolitan Water District were not considered in the financial model. Growth should pay for its fair share of future facilities that will serve growth. The only vehicle currently being used to distinguish between existing use and growth-related use is the Capacity Charge. In other words, the capacity charge develops the remainder of growth’s projected share tier accounting for the revenues contributed by growth from the water charge and Standby Charges. c . . . .~ 4 , i.;- 2 R W. Beck 12nlI97 OAMWO1887@0033!22-20202DOC I ‘1 - P ; -...-. 0 - REVENUE PUN REVIEW D. EXISTING REVENUE PUN Currently, the principal sources of revenues fbr the Authority include: m Water Charge n Water Availability Standby Charge m Capacity Charge *. n Interest Income -. -. a. D Property Taxes . . Of these, only Property Taxes and the Water Availability Standby Charge are considered as fixed revenues. Currently, ail water users pay the same water charge to the Authority. E. THE PROPOSED REVENUE PLAN The proposed Revenue Plan introduces two changes to the existing plan: l Addition of the proposed IAC. H Introduction of a Special Agricultural Rate related to the Emergency Storage Project The proposed IAC will be an additional fixed revenue source for the Authority. This, together with the Property Taxes and the Water Availability Standby Charge, will satisfy the Board’s directives of.meeting a minimum of 25% of fixed costs with fixed revenues. Participants in the Special Agricultural Rate would not pay the Authority’s commodity rate increases associated with the ESP. In return, they would receive a lower level of emergency service. However, they would pay the 111 IAC. F. INFRASTRUCTURE ACCESS CHARGE An XAC has been proposed by the Authority stafFI The assessment of the IAC was one of the principal assignments for this study and report.’ The IAC has the attribute of being a fixed charge, of not being tied to property ownership, and can clearly be related to the CIP and associated debt service. G. SUMMARY OF PROCESS AND METHODOLOGY OF CALCULATION OF THE IAC The proposed JAC will be based on the expected potential of a Member Agency to require delivery of water from the Authority. The Authority’s delivery systems are sized based on the potential delivery requirements of its Member Agencies. The potential of a Member Agency to require water delivery‘ from the Authority will be determined by tot&g the combined capacity of all delivery meters within a Member Agency, expressed as *.*l _ ‘t household meter equivalents. ,‘“yqj i 0:WMUIO1887!00033U2-20202.DOC lu31197 R W. Beck 3 . SAN DIEGO COUNVVATER AUTHORITY .- ‘Ihe increase in fixed revenues needed to be collected by the Authority each year will be estimated, such that at least 25% of all fixed annual expenditures will be paid for by fixed annual revenues. This increase in fixed revenues will be divided by the total of all retail meter equivalents in the Authority service area to arrive at the IAC. It is proposed that the IAC would be phased in The 6rst charge of $1 per month per equivalent meter would start in FV 1999. The Board willhave the option to adjust the charge each year. The currently projected maximum charge is $2 per month per meter equivalent. The proposed cbargeswould be based on a multiplier related to meter size and would result in the calculation of revenue responsibility, as shown in the following Table 1. I r Table 1 PROPOSED M0NTHL.Y IAC I I Meter Size Initial Projected Maximum Under 1” $1.00 $2.00 1” $1.60 $3.20 I 1%” ! $3.00 ! S6.00 I 2” s5.20 s10.40 3” $9.60 s19.20 4 S16.40 S32.80 The maximum may be reached as early as 2002, with current projections showing it then remaining constant through 2020. Each agency would be billed on the basis of the number of meter equivalents in their jurisdiction. Thus, each agency would pay on the basis of their potential to require delivery of water from the Authority. Each agency will determine how best to raise revenue to pay the charge. As with the Authority’s other rates and charges, the charge will be considered for adjustment annually. Based on the current equivalent meter counts carried in the Authority’s Resource Department, the estimated initial charge for each Member Agency would be as shown on Table 2. c e.. _ \; ‘3 L 4 R W. Beck 12Bli97 0:VhiW1887’00033U2-20202.DOC -r. REVENUE PLAN REVIEW I- -. i ) i. . ,-- ( - --.: H. PUBLIC PROCESS I. _- 3 I Table 2 INFRASTRUCTURE ACCESS CHARGE Member Agency C&bad Delhku Agency Pays # of Equivalent Meters Fy 98l99 FY 99mo 26,07 1 S156,424 S3 12.848.00 2.034 I s12.205 S24.410.00 Esawlido 28,5% s171.574 S343,148.00 Fallbrook 12,066 S72.397 s144,794.00 Helix 62,710 S376.259 S752.518.00 Oceanside 49.222 5295,330 S590.660.00 Olive&in 18,358 s110,146 s220,292.00 otay 40,128 S240.766 S481.532.00 Padn 24,775 S148.649 S297.298.00 Valley Center Vista YUilIli3 14.726 S88.357 S176.714.00 31.131 S186.788 S373.576.00 1.634 S9.806 S19.612.00 1 Total I 795,091 1 S4,770.543.00 1 S9,541,086.00 1 The IAC is not tied to a specific project but to the need to provide for coverage for fixed expenditures. Each year the Board can choose to adjust the IAC based on projected revenue requirements, which can include eliminating the IAC. The public process required for adoption of the IAC would appear to be no different than that required for the setting of water rates. However, the Authority staff has proposed to provide for a public process beyond that which is required. The process includes presentation to Member Agencies as requested; official notice of the proposed rates and charges; conducting four open house information meetings about proposed rates and charges at different locations in the County; presentations to interested groups about the proposed rates and charges as requested; and conducting a public hearing on the proposed rates and charges. OTHER FUNDING ALTERNATIVES CONSIDERED The Revenue Plan Development Team reviewed the following other fixed revenue sources for funding the expanded CR? 12/31197 R W. Beck 5 , SAN DIEGO COUNT-WATER AUTHORIN H Property or Land-Based Alternatives o A Special Assessment District, This was not recommended because implementation would require a detailed engineer’s evaluation, voting by property owners only, exercise of appeal provisions, and would be cumbersome and expensive. o A Standbv or Parcel CharPe, This was not recommended because it is already at the maximum allowed in the CWA Act Proposition2!8 . . has made chariging this charge as cumbersome as the establishment of a countywide special assessment district o Use of Assessed Valuation General Obligation Bonds& This was not recommended because of perceived inequities and expressed public unpopularity, combined with a need for a two-thirds voter approval. l Member Agency Jurisdictional-Based Alternatives o Using a JPA with revenues individually pledged by the members (Marks-Roos Bonds). This was not recommended due to perceived relative weakness in this type of revenue stream by the Bond Market and the potential for loss of uniformity and potential for revenues to come from other than fixed sources. m Water or Demand Capacity Based Alternatives o Use of a Readiness to Serve-TvDe Charge, This is already being employed by MWD, is, passed through by the Authority, and is perceived as unfair by some Member Agencies. If used, it would need to be based on a different methodology than that employed by MWD. o A Charge ADolied Directly on Retail Meters. This was not recommended because the Authority lacks the authority to impose such a charge on Member Agencies* retail customers. However, using an equivalent meter methodology to determine a fixed assessment for each Member Agency seems valid and equitable for funding the expanded CIP. u A Member Agencv Charae Based on Member Agencv Meter Size. This was not recommended because of equity problems for Member Agencies with muhiple connections to the Authority. D Take-or-Pay Contracts The use of take-or-pay contracts as a fixed revenue was not recommended due to potential challenges from Member Agencies with declining demands or weather-variable local supply sources. This methodology would not produce a lower commodity rate nor provide protection from rate spikes at contract quantities which are readily achievable. c - 6 R W. Beck 12t31191 0:uMy)o1%8Moo33U230202.DOC - REVENUE PIAN REVIEW ,---+ ; \ I 3 J. EMERGENCY STORAGE PROJECT SPECIAL AGRICULTURAL RATE The Authority’s sta8 met regularly with agricultural and urban interests regarding the effect on tree crop agriculture due to the price of water and the ESI? Together, they identified the following unique set of circumstances regarding agriculture in San Diego County: I The adverse impact increased water rates wuld have on tree-crop agriculture. n The existence of an interruptible agricuhural water program by MWD. :. 8 The revenue instability that could be created in some Authority Mem&r Agencies if agricultural sales declined precipitously. l The revenue stability provided the Authority from continued agricultural water sales. 8 The value of agriculture to the regional economy. m Agriculture’s positive influence on the quality of life in San Diego County. In recognition of this unique set of circumstances, staff developed a proposal for an Authority agricultural water rate that would apply to those water users participating in AND’s Interim Agricultural Water Program (“DUVP”). These IAWP participants would have a unique emergency rationing plan that would result in an equitable pricing structure under which they would pay the recommended IAC but not the proposed water charge increase associated with the ESP. StafT has analyzed the proposed differential wmmodity rate to determine& effect on other ratepayers. The effect would be about $2.50 per year (2 11 per month) for a family using one half an acre-foot per year of Authority water. This is the maximum anticipated effect and would not be reached until the year 2007. Emergency Rationing Plan for Participants in the Special Agricultural Rate . The purpose of a differential rationing plan would be to reduce the amount of water allocated to agriculture and provide the water saved by this less preferential service to commercial and industrial users during an emergency. By allocating the additional water, a significant decrease in regional economic damages would be achieved. If the water savings were uniformly applied to all other users, the level of service would not be substantially increased to any one sector of the wmmunity. Agricultural water users not participating in the program would be treated as commercial and industrial users and wouJd receive the higher level of service resulting from the saved water. A proposed water rationing scenario is shown in Table 3. 0:~188NwK)33K2-20202.DOC n/31/97 R W. Beck 7 SAN DJEGO COUNF-~ATER AUTHORITY , Table 3 SAMF’LE WATERRATIONING SCENARIO Parlicipating Targeted System AgIiCUltUl.al % Reduction % Reduction 10% 2fwo Emergency 20% 40% 25% . 50%. . . Water . . 30% 60% Rationing . 40% 80?4 50% 90?/6 60% 90% 70% 90% When the Board certified the EIR for the ESP, it also adopted a finding that the commodity rate increases required to fund the ESP could significantly impact tree-crop agriculture, and that the impact was unmitigable. Authority staff currently believes that the special agricuhural rate to be proposed in the plan would mitigate, to a level below significance, the potential adverse impact to tree-crop agricuhure that was identified in the ElR/EIS for the ESP FINDINGS AND CONCLUSIONS The Consultant, after reviewing applicable documents, reports, financial analyses and the Authority’s financial model, has reached the following conclusions and recommendations: The proposed IAC is prudent and equitable in conjunction with other fixed revenues, is in line with fixed charge ratios in the water industry, and could be higher from a financial perspective based on the high proportion of fixed costs projected by the Authority. With the proposed IAC, the Board’s objective of covering at least 25% of fixed costs with fixed revenues will be met The maximum Authority rate, with the IAC and the Special Agricultural Rate, is projected to be S 130 per acre-feet (AF’) in the year 2009. The Capacity Charge is meeting its objective of “growth pays for growth.” A cross-check of the Authority’s methodology for setting the rate shows that, with the ESP, the Authority’s projected capacity charges will recover at least 85% of the costs of growth not recovered from other charges paid by growth. The Authority should review the cross-check methodology used by the Consultant when reviewing the Capacity Charge. This methodology, after refinement of the approach and assumptions, may be more easily employed in the future to perform the annual review required for the Capacity Charge. The Authority should implement the IAC as a charge to the Member Agencies based on meter equivalents. 8 R W. Beck 12r31197 O:Uh4W1887WO33U2-20202.DOC ; . : -x5 \ ! __.I 0 _- - REVENUE PLAN REVIEW ? m The initial LAC should be $1 per month per meter equivalent beginning January 1,1999. 8 The Authority should review the IAC along with its water rate and capacity charge on an annual basis to maintain a balance between fixed and variable revenues. 0:‘Jh.noo188Moo33Q2-20202.lxx 12/31/97 RW.Beck 9