1 Amador Water Agency Financial Impacts of Water Shortage and Proposed Shortage Strategy April 9, 2015 The Reed Group, Inc.

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Amador Water Agency

Financial Impacts of Water Shortageand Proposed Shortage Strategy

April 9, 2015

The Reed Group, Inc.

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Purpose of WaterShortage Analysis

To assess the financial risks and potential mitigation measures associated with water shortages

To develop a strategy for countering the financial risks of water shortage

To aid in providing incentives to customers for reaching water use reduction goals

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Proposed Stages of Water Shortage and Water Use Reduction Goals

Normal conditions Stage 1 –Water Alert

• Up to 20% use reduction

Stage 2 – Water Warning• 21% to 30% use reduction

Stage 3 – Water Crisis• 31% to 40% use reduction

Stage 4 – Water Emergency• 41% to 50% use reduction

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Financial Impacts ofWater Shortage

Reduced water sales revenue Reduced pumping and chemical costs Increased water conservation program

costs

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Financial Deficits Createdby Water Shortages (FY 14-15)

{Deficit due to shortage

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Bridging the Financial Deficit Created by Water Shortage

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Water System Reserves Operating Reserve equal to 2-months (16.67%) of

annual operating and maintenance costs About $1,370,000 for FY 14-15

Rate Stabilization Reserve equal to 1-month (8.33%) of annual operating and maintenance costs

About $850,000 for FY 14-15 Capital Replacement Reserve equal to 1% of

capital asset value (net of depreciation) About $790,000 for FY 14-15

Total water system reserve target would be about $3.0 million

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Financial Reserves(as of June 30, 2014)

Unrestricted cash Water system $1,247,000 Wastewater system $468,000 Agency general $252,000

Restricted cash/investments Water system $1,937,000 Wastewater system $310,000

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Water Rates andWater Shortage Charges

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FY 15-16 Water Rates Water usage rates and monthly service

charges to increase by 2.5% due to changes in SF-CPI

Monthly debt service charges remain the same

CAWP-R pumping surcharge is rescinded CAWP-W districts become wholesale

customers similar to Jackson, Plymouth, and Drytown

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Water Shortage Surcharges Incremental increases to the normal water

usage rates; amount (%) varies by Stage• Stage 1 = 15% surcharge on usage all rates• Stage 2 = 30% surcharge on usage all rates• Stage 3 = 45% surcharge on usage all rates• Stage 4 = 60% surcharge on usage all rates

No change to monthly service charges or monthly debt service charges

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Proposed Water Shortage Surcharges

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Bill Impacts – Typical Usage(Typical 5/8” single family water service)(1)

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Bill Impacts – Low Usage(Typical 5/8” single family water service)

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Bill Impacts – High Usage(Typical 5/8” single family water service)

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Recommendations

Establish a Rate Stabilization Reserve and build funding to 1-month of annual operating and maintenance costs

Adopt water shortage surcharges (percentages) through Prop. 218 rate setting process

Implement water shortage surcharges during declared water shortage emergencies

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Rate Adoption Process Refine analyses based on comments Submit final report on water shortage financial

strategy and water shortage surcharges Mail notice of proposed rates to customers by

April 27 (45 days prior to public hearing) Hold public hearing on water rates on early

June 11 Implement water shortage surcharges based

on Board’s declared Stage of water shortage

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Transition to Metered Rates

Less than 100 customers remain on flat monthly water rates Only a few are unmetered

State law requires all customers to be transitioned to metered rates

Water meters are a proven means of achieving water conservation

Drought conditions help justify making the transition now

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Summary Confronting a water shortage requires a multi-

pronged effort and a balanced use of available tools

Efforts should be scaled to the severity of the shortage

Water shortage surcharges help, but do not resolve all challenges

Reserves are key to a sound financial strategy Rate proposal attempts to strike the right

balance under a range of potential needs