Temescal Valley Water District

Water Utility Financial Overview For Fiscal Year 2016-17 (FY 2017), the District's total opening reserve balance for the water utility reached approximately $6.7 million. Following industry Best Management Practices, utilities should maintain at least 90-120 days of operational reserves plus sufficient capital to ensure planned infrastructure projects proceed without delays due to funding shortages.

The District currently exceeds the 90-day reserve recommendation and has adequate funds available for its current capital plan. Financial analysis indicates the District maintains a strong position; however, without revenue adjustments, the Repair and Replacement Reserve will be depleted by FY 2019. Rate increases are therefore necessary to maintain financial stability and continue essential system reinvestment.

After thorough evaluation of revenue requirements, reserve policies, capital planning schedules, and current income, a financial plan was developed with these objectives:

• Maintain positive net cash income each fiscal year
• Fully fund capital projects through Pay-As-You-Go (PAYGO) financing
• Establish and maintain proper reserves through the Study Period (FY 2017-2021)

The District will utilize a portion of its reserves to moderate necessary revenue adjustments during the first three fiscal years. By leveraging available reserves to help fund the Dawson Canyon Tank project, significant rate increases during construction can be mitigated. A modest 4.5% annual adjustment is recommended throughout the Study Period, with the first change effective February 1, 2017, and subsequent adjustments occurring annually on January 1.

The District relies on imported water from the Metropolitan Water District of Southern California (MWD) delivered via Western Municipal Water District's (WMWD) Mills Pipeline. The financial plan accounts for anticipated wholesale water cost increases but does not incorporate these costs into the proposed rates. Instead, the District recommends authorization for automatic pass-through adjustments for commodity costs and ready-to-serve (RTS) charges as MWD implements them.

These automatic Pass-Through adjustments, permitted under Government Code Section 53756, provide several benefits:

• Clear transparency between District-controlled costs versus external agency costs
• Enhanced revenue stability
• Direct correlation between MWD cost increases and consumer rate adjustments

The proposed rate structure changes include:

• Transitioning from a 5-tier to a 3-tier structure for Residential accounts
• Adjusting Tier 1 allocation to 7 ccf based on 55 gallons per capita daily
• Modifying Tier 2 allocation from 15 ccf to 18 ccf to better reflect average summer usage
• Maintaining uniform rates for Non-Residential accounts due to varied commercial water needs
• Changing Irrigation rates from a 2-tier to uniform rate structure

The District's current fixed meter charge represents approximately 39% of total revenue. The recommendation is to adjust this to 33%, shifting more recovery to the variable component to encourage conservation while establishing rates based on consumption levels lower than the District's 2013 usage baseline.

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