Managing the Financial Impacts of the 2015 Mandatory Water Restrictions

Outlook

Water agencies look to manage the impacts from an average 25 percent reduction in water consumption by end users effective July 1st, based on the Governor’s executive action earlier this month.

Below is a summary of provisions and timing of events:

  • Proposed cutbacks for the State’s 411 urban water agencies ranges from 10 percent to 35 percent, and are tentatively scheduled for a one-year duration;
  • Reductions are based on a 2013 base year;
  • Scheduled reductions are planned for approval by the State Water Board on May 5th or 6th to be effective from June 2015 through February 2016, with possible extensions;
  • MWD approved a 15 percent reduction in regional supply on April 14th.

Impact

Whether dependent primarily on groundwater or imported water supply, agencies should seek an action plan that remediates negative financial impacts due to large reductions in water sales revenue and penalty rates and fines. The SWRCB will impose up to $10,000 per day for non-compliance; MWD will penalize $1,480-$2,960 per AF for purchases above reduced amounts. Such negative financial impacts stand to affect service delivery, planned capital, and coverage on existing or planned debt issuances.

Financial Remediation Plan

DROUGHT RATE STRUCTURE & WATER SUPPLY MANAGEMENT PLAN A temporary drought rate structure can be developed to reflect the increased cost of service delivery to be passed through to end users so that agencies can continue quality service delivery. They can be developed in conjunction with a water supply management plan where appropriate, with an interactive dashboard with a graphical representation of cash flows and water supply for effective planning and decision-making.

The two primary approaches to determining temporary rate adjustments are: 1) a cost-of-service methodology based on the agency’s current COS-based rate structure; and 2) penalty basis to penalize use above a threshold determined through histogram analysis.

IMPLEMENTATION

Drought rate plans can be developed within 100 days, in time for the 45-day Proposition 218 notification period and close to the July 1 effective date for mandatory restrictions. They can be implemented through ordinance or board resolution, the process for which would be developed in conjunction with the drought rate plans.

Note that an April 14th appellate court ruling related to City of San Juan Capistrano State law challenges the tiered rate structure that about two-thirds of California water agencies currently use. This may affect agencies’ ability to raise rates temporarily, and we are monitoring progress of the issue in the courts.

 

Untitled

, ,

No comments yet.

Leave a Reply