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

2. 2 Purpose of Water Shortage 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

3. 3 Proposed Stages of Water Shortage and Water Use Reduction Goals  Normal conditions  Stage 1 –Water Alert Up to 20% use reductionUp to 20% use reduction  Stage 2 – Water Warning 21% to 30% use reduction21% to 30% use reduction  Stage 3 – Water Crisis 31% to 40% use reduction31% to 40% use reduction  Stage 4 – Water Emergency 41% to 50% use reduction41% to 50% use reduction

4. 4 Financial Impacts of Water Shortage  Reduced water sales revenue  Reduced pumping and chemical costs  Increased water conservation program costs

5. 5 Financial Deficits Created by Water Shortages (FY 14-15) { Deficit due to shortage

6. 6 Bridging the Financial Deficit Created by Water Shortage

7. 7 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 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 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 About $790,000 for FY 14-15  Total water system reserve target would be about $3.0 million

8. 8 Financial Reserves (as of June 30, 2014)  Unrestricted cash Water system$1,247,000 Water system$1,247,000 Wastewater system $468,000 Wastewater system $468,000 Agency general $252,000 Agency general $252,000  Restricted cash/investments Water system$1,937,000 Water system$1,937,000 Wastewater system $310,000 Wastewater system $310,000

9. 9 Water Rates and Water Shortage Charges

10. 10 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increase by 2.5% due to changes in SF-CPI  Monthly debt service charges remain the same  CAWP-R pumping surcharge is rescinded  CAWP-W districts become wholesale customers similar to Jackson, Plymouth, and Drytown

11. 11 Water Shortage Surcharges  Incremental increases to the normal water usage rates; amount (%) varies by Stage Stage 1 = 15% surcharge on usage all ratesStage 1 = 15% surcharge on usage all rates Stage 2 = 30% surcharge on usage all ratesStage 2 = 30% surcharge on usage all rates Stage 3 = 45% surcharge on usage all ratesStage 3 = 45% surcharge on usage all rates Stage 4 = 60% surcharge on usage all ratesStage 4 = 60% surcharge on usage all rates  No change to monthly service charges or monthly debt service charges

12. 12 Proposed Water Shortage Surcharges

13. 13 Bill Impacts – Typical Usage (Typical 5/8” single family water service) (1)

14. 14 Bill Impacts – Low Usage (Typical 5/8” single family water service)

15. 15 Bill Impacts – High Usage (Typical 5/8” single family water service)

16. 16 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

17. 17 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

18. 18 Transition to Metered Rates  Less than 100 customers remain on flat monthly water rates Only a few are unmetered 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

19. 19 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