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Presentation to Public Forum September 11, 2012. Background.

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Presentation on theme: "Presentation to Public Forum September 11, 2012. Background."— Presentation transcript:

1 Presentation to Public Forum September 11, 2012

2 Background

3  44 square miles  Population: 35,000  9,100 water customers  5,000 sewer customers  25 reclaimed customers  68 employees budgeted  $21 million op. revenues*  $90 million in total assets  10,600 acre feet sold  78 square miles  Population: 18,000  7,200 water customers  1,900 sewer customers  No reclaimed customers  55 employees budgeted  $31 million op. revenues*  $111 million in total assets  17,700 acre feet sold * audited financials

4  Outgrowth of functional consolidation investigations in 2011  GM discussions in first quarter 2012  Board ad hoc committees formed in March 2012  Initial feasibility review in March-April 2012

5  Reducing administrative overhead  Optimizing operating assets  Improving emergency response  Capturing economies of scale (warehousing, purchasing, risk management)  Expanding water reclamation  Consolidating operating management  Advancing technology  Strengthening financial capacity

6 Governance

7  Remain Separate Entities (base case)  Form a Joint Powers Authority  Consolidate through LAFCO* * San Diego Local Area Formation Commission

8 Remain Separate Entities (base case)  No consolidation of staffs  Systems are operated independently  Separate financials are maintained  No significant joint savings  Provide for mutual aid  Collaborate on CWA issues Rainbow Ratepayers Rainbow Board Rainbow Employees FPUD Ratepayers FPUD Board FPUD Employees

9 JPA BOARDFPUD Board Management Rainbow Board FPUD RatepayersRMWD Ratepayers FPUD Employees | RMWD Employees Form a Joint Powers Authority

10 JPA: Advantages and Disadvantages ◦ Creates new agency  Adds a layer of bureaucracy ◦ Easier to undo ◦ No LAFCO involvement but level of study probably similar ◦ Allows each agency to retain existing CWA vote ◦ Existing labor contracts could remain in place ◦ More difficult to merge workforce to create greatest efficiency, but certainly possible ◦ Potential to perpetuate employees’ existing attitudes towards old entities

11 Consolidation through LAFCO Combined Ratepayers Consolidated Board Consolidated Employees  A merger of equals  A new entity (i.e. MWD, PUD, CSD, etc.)  Unified management team  Ratepayer group protections  Employee protections

12 Consolidation: Advantages & Disadvantages ◦ Reduces number of public agencies ◦ Difficult to undo ◦ Time and expense of LAFCO review and approval ◦ Existing Boards replaced with yet to be determined Board makeup ◦ Merges CWA Vote ◦ New agency means new labor contracts ◦ Best opportunity to create most cost-effective organizational hierarchy  Fresh start ◦ Ends employee ties to old entity ◦ Loss of individual Branding  Potential new Branding opportunity

13  Greater resources to better meet the needs of the ratepayers ◦ More crews for critical response ◦ Ability to devote crews to infrastructure improvement (i.e., valve replacement)  Improves system reliability/ reduces construction costs ◦ Better response to bids for services  Billing  Cross-connection  Legal  Audit ◦ Opportunity to pool bulk purchases, i.e.; chemicals, meters, computers, office supplies, etc.  Potential for sharing assets: ◦ Red Mountain/Beck Reservoirs  Utilize Red Mountain and UV plant for domestic storage and Beck for recycled/ground water storage ◦ Ability to create agricultural water/recycled water dual distribution system ◦ FPUD has 2700 sq. ft. modern office space available and larger board room  No need to upgrade RMWD campus ◦ RMWD has good corporate yard and storage for supplies ◦ Pooling and reducing size of motor vehicle fleet Opportunity for more effective use of technology:  IT functions  SCADA

14 Savings

15  Ability to reduce overhead costs (particularly through reductions in labor costs) and eliminate redundant capital equipment FPUD 68 Budgeted Employees RMWD 55 Budgeted Employees JPA/CONSOLIDATION 115/103 Budgeted Employees +/-

16  Timing of senior management RIFs concurrent with consolidation  Rank-and-file RIFs: ◦ Attrition/managed re-sizing ◦ Separation payments ◦ Retirement and “other post-employment benefits” (OPEB) services  Less impact on employees ◦ Takes longer to achieve full cost savings ◦ Delays full implementation of reorganization ◦ Supports LAFCO position for dealing with RIFs

17  Sewer Collection Operations: ◦ Rainbow staff: 6 (1900) ◦ Fallbrook staff: 8 (5000) ◦ Total equipment: 3 Vactor trucks  Combined operation: ◦ Staff: ◦ Equipment: 2 Vactor trucks  Savings: ◦ Labor: >$350,000/year (salaries plus benefits) ◦ Equipment: eliminate one vactor truck ◦ Per sewer customer: >$50.00/year

18 Employee reduction assumptions were provided through interviews with District Staff (GM’s & CFO’s) 3 Year Staff reduction proposal reflects a measured approach which still provides flexibility to adjust plans should service levels require it

19 Consolidation Benefit Assumptions - Workforce Year 1Annual SavingsCumulative SavingsConsolidation ExpenseNet Savings Savings from 6 Positions GM, CFO, 4 others 975, , ,000 Year 2 Savings from 6 Positions 2 RMWD Rate 228,000 4 FPUD Rate 440, ,000 1,643, ,000 1,343,000 Year 3 Savings from 8 Positions 3 RMWD Rate 342,000 5 FPUD Rate 550, ,000 2,535,000

20 VCMWDWMWDEMWDRCWDFPUDRMWDCombined # of EE’s Note: This metric excludes wastewater employees FPUDRMWDTotalCombined # of Water EE’s # of Water Accounts 9,1007,20016,300 # off EE’s per 1,000 Water Accounts

21

22 Financial Perspective:  Advantages: ◦ Financially stronger consolidated district  Total assets  Cash position  Debt capacity  Credit rating ◦ Significant labor/other savings potential  Due Diligence: ◦ Operating assets condition ◦ Rate setting philosophies ◦ Obligations/liabilities ◦ Divisional accounting

23 RCWD service area  Santa Rosa/Rancho consolidation  Divisional accounting format assures ratepayer equity  Each division maintains separate assets, liabilities, rates and charges

24 Divisional Accounting Debts and Assets Under Divisional Accounting the debts and assets of the two existing agencies remain separate and are assigned to existing ratepayers. FPUD ratepayers pay for FPUD Debt and RMWD ratepayers pay for RMWD debt. This is very common among other public agencies, including RMWD and FPUD.

25  New agency would share administrative overhead and some operating costs between both districts  Capital costs remain the responsibility of the predecessor agency ◦ Sharing of assets may occur, but agency receiving benefit must pay fair share of the cost  Both FPUD and RMWD already accomplish this through Improvement Districts—it is not a complicated process

26  Cost Reduction Opportunities: ◦ Reduced property and liability insurance - JPIA ◦ Reduced vehicle fleet – heavy/specialty equipment ◦ Reduced information technology costs ◦ Banking service fee reduction ◦ Internal training opportunities ◦ One general counsel ◦ One Board of Directors ◦ Combined outsource billing savings ◦ Audit costs ◦ Eliminating one office location ◦ Optimize operations – pumping/storage facilities (capital & operating) ◦ Potential to reduce more costly outsourcing ◦ Potential to outsource existing internal functions performed by staff  Income Enhancement Opportunities: ◦ Rental RMWD office ◦ Investment management (lower fees & potentially improved return)

27  Net savings in year 1 - $675,000 ◦ $65,000 per month  Net savings, per year, by year 3 - $2,535,000 ◦ $211,000 per month  Assuming 29,000 acre-feet of annual water sales $2.5 million in savings could offset the cost of water by more than $86 per acre-foot

28

29 Backup Slides

30  Combining the two agencies, through consolidation or JPA, creates an agency that: ◦ Covers 122 square miles (3 rd largest in San Diego County) ◦ Serves a population of 53,000 ◦ Delivers water to 16,300 connections ◦ Has assets totaling over $200 million ◦ Collects $50+ million in annual operating revenue ◦ Sells 29,000 acre-feet of water annually ◦ Controls 6.6 percent of the vote at CWA (2 nd greatest behind City of San Diego) ◦ Provides considerable economies for the ratepayers of both organizations

31  Engineering  Customer Service  Finance/Accounting  Maintenance  Construction  Human Resources  Operations Support  Collections  WW Treatment  System Services  System Operation  Administration Combined Staffing Transition Plan Necessary Staffing Time----- 

32 With the exception of revenues, both agencies have very similar Statements of Revenues, Expenses, and Changes in Net Assets

33 Consolidated district provides opportunity for investment grade credit rating.

34 SeparateConsolidated Water Cost Base Yr$28.6 Water Cost Yr-3$35.9 Increase$7.3 % Increase26% (Water Cost are increasing 7.9%, 11.1%, 5.0% during this period) All Other Costs Base Yr$27.3 All Other Costs Yr-3$29.4$26.8 Increase$2.1($0.5) % Increase7%(2%) (Cost are increase 3% per, depreciation constant, consolidated savings net of consolidation costs and EE savings) Total Increase$9.4$6.8 % Increase17%12% Amounts in Millions

35 Utility Billing Payroll Accounts Payable Accounting Record (General Ledger) Financial Statements (Rancho) Balance Sheet /Income Stmt Inventory Financial Statements (Santa Rosa) Balance Sheet /Income Stmt Financial Statements Consolidated Balance Sheet /Income Stmt

36 Phillip Forbes, Consultant 3 Year Pro-Forma FY Audit Report Separate EntitiesConsolidated OperationsPer A/F FPUDRMWDTotalFPUDRMWDTotalSavingsBenefit Operating Revenues 21,255,448 28,068,091 49,323,539 21,255,448 28,068,091 49,323,539 Operating and nonoperating expenses 24,175,989 31,715,356 55,891,345 24,175,989 31,715,356 55,891,345 Non-operating revenues (expenses): 2,193,567 3,802,368 5,995,935 2,193,567 3,802,368 5,995,935 Change in net assets (726,974) 155,103 (571,871) (726,974) 155,103 (571,871) -0 Year 1 Separate EntitiesConsolidated Operations FPUDRMWDTotalFPUDRMWDTotal Operating Revenues 22,417,906 29,782,343 52,200,249 22,417,906 29,782,343 52,200,249 Operating and nonoperating expenses 25,339,889 33,441,049 58,780,938 25,087,062 33,018,876 58,105,938 Non-operating revenues (expenses): 2,193,567 3,802,368 5,995,935 2,193,567 3,802,368 5,995,935 Change in net assets (728,416) 143,662 (584,754) (475,589) 565,835 90, , Year 2 Separate EntitiesConsolidated Operations FPUDRMWDTotalFPUDRMWDTotal Operating Revenues 24,025,253 32,229,468 56,254,721 24,025,253 32,229,468 56,254,721 Operating and nonoperating expenses 26,950,388 35,880,790 62,831,178 26,447,357 35,040,822 61,488,178 Non-operating revenues (expenses): 2,193,567 3,802,368 5,995,935 2,193,567 3,802,368 5,995,935 Change in net assets (731,568) 151,046 (580,522) (228,536) 991, ,478 1,343, Year 3 Separate EntitiesConsolidated Operations FPUDRMWDTotalFPUDRMWDTotal Operating Revenues 25,003,147 33,623,712 58,626,859 25,003,147 33,623,712 58,626,859 Operating and nonoperating expenses 27,928,773 37,299,110 65,227,883 26,979,268 35,713,615 62,692,883 Non-operating revenues (expenses): 2,193,567 3,802,368 5,995,935 2,193,567 3,802,368 5,995,935 Change in net assets (732,059) 126,970 (605,089) 217,446 1,712,465 1,929,911 2,535,000 90

37  Potential Consolidation of FPUD and RMWD ◦ How to ensure fiscal fairness & equity is achieved  Ensure that the cost of one District does not become the cost of the other  Ensure assets and liabilities of each District remain their assets and liabilities  Ensure that the rates are set to reflect each District’s cost of service  Ensure that revenues are applied to the appropriate Divisions ◦ Divisional Accounting can achieve this  Multiple ways to implement divisional accounting  Share the RCWD method which has been successfully utilized since 1977 (35 years)


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