1. 1 World Water Congress and Exhibition - Montréal, Canada WATER AND POWER UTILITY PUBLIC SECTOR FINANCING Presented by: James B. McDaniel, Senior Assistant General Manager – Water

2. 2 Discussion Topics  Organization Overview  Asset Management  Financial Planning  Financing Options  Financial Metrics  Coordination Efforts  Summary

3. 3 Discussion Topics  Organization Overview  Asset Management  Financial Planning  Financing Options  Financial Metrics  Coordination Efforts  Summary

4. 4 Organization Overview Size and Scale of DWP

5. 5 LADWP Board of Commissioners LADWP Board of Commissioners  Sets policy and governs activities  Rate-setting authority  Subject to review and approval by L.A. Mayor & City Council Neighborhood Councils Neighborhood Councils  90+ Neighborhood Councils throughout City  Composed of advisory citizen groups Ratepayer Advocate (proposed) Ratepayer Advocate (proposed)  Full-time paid positions to provide overall oversight for LADWP, including rate-setting Organization Overview Governance and Rate-Making Authority

6. 6 Discussion Topics  Organization Overview  Asset Management  Financial Planning  Financing Options  Financial Metrics  Coordination Efforts  Summary

7. 7 Asset Management Asset Management is key to long-term financial planning (both capital and O&M)  Continuously refine operations and maintenance (O&M) practices  Condition assessment and useful life evaluation  Develop replacement and rehabilitation strategy  Determine staffing levels required for O&M  Determine long-term funding needs

8. 8 Discussion Topics  Organization Overview  Asset Management  Financial Planning  Financing Options  Financial Metrics  Coordination Efforts  Summary

9. 9 Financial Planning  Financial planning based on Board-adopted policies  Financial Outlook:  O&M – annual  Capital – 10 years  Performed on a continuous basis to adapt to changing needs  Considers current and future economic outlook to develop financing strategy

10. 10 Financial Planning Planning projections are developed for key financial planning factors  Water and Power Sales  Revenue  Capital and O&M Expenses  Borrowing  Financial Ratios

11. 11 Financial Planning Capital Budget Breakdown

12. 12 Discussion Topics  Organization Overview  Asset Management  Financial Planning  Financing Options  Financial Metrics  Coordination Efforts  Summary

13. 13 Cash Cash  from water and power sales revenue  funds day-to-day operations Debt Debt  from issuance of tax-exempt and taxable bonds (Build America Bonds)  funds capital program State Revolving Fund (SRF) or Grants State Revolving Fund (SRF) or Grants  SRF are zero or low interest government loans  grants typically from state or federal government Financing Options

14. 14 Water Facility Charges Water Facility Charges  Recovers cost of new facilities to serve new development  Existing rate payers do not pay for system expansion  Charge collected as a condition of service  Recovers costs for pipes, pump/tank facilities, services, fire hydrants, etc. Financing Options

15. 15 Public/Private Partnership (PPP) Public/Private Partnership (PPP)  Private sector involvement can bring creativity, efficiency, and capital to address complex public sector problems  Varying types of PPP; all involve risk-sharing  PPP may provide additional revenue sources and mix a variety of funding sources  These partnerships can reduce demands on constrained public budgets Financing Options

16. 16 Existing Debt Profile Power System Data as of June 23, 2010

17. 17 Existing Debt Profile Water System Data as of June 23, 2010

18. 18 Discussion Topics  Organization Overview  Asset Management  Financial Planning  Financing Options  Financial Metrics  Coordination Efforts  Summary

19. 19 Financial Metrics  Maximum Debt on Balance Sheet is 60% (i.e., minimum 40% cash financing)  Minimum Debt Service Coverage:  Water System = 2.00  Power System = 2.25

20. 20 Financial Metrics  Minimum Unrestricted Cash Balance (Liquidity):  Water System = $ 150 M  Power System = $ 300 M  Debt Service Coverage and Liquidity are among the criteria that credit rating agencies consider

21. 21 Discussion Topics  Organization Overview  Asset Management  Financial Planning  Financing Options  Financial Metrics  Coordination Efforts  Summary

22. 22 Coordination Efforts  LADWP is proactive in timely communications with credit rating agencies  Work with auditors and financial consultants to adequately respond to inquiries and prudently manage financial assets  We also work with our grant and/or loan funding partners to maximize opportunities and address administrative issues

23. 23 Coordination Efforts  Water System and Power System manage finances separately; each has its own credit rating  Water and Power synergy exists in sharing services and costs from “Joint Services” arm of LADWP

24. 24 Discussion Topics  Organization Overview  Asset Management  Financial Planning  Financing Options  Financial Metrics  Coordination Efforts  Summary

25. 25 Summary  LADWP uses typical public agency financing methods, subject to policy set by governing body  Use asset management principles to not only maintain and upgrade infrastructure, but also to assist in financial planning  Financial planning process is dynamic  need to maintain flexibility  anticipate trends and long-term needs

26. 26 Summary  Financing options include cash, debt, grants, third party monies, and public/private partnerships  Financial metrics are established to ensure fiscal integrity, a high credit rating, and sufficient liquidity  Coordination with credit rating agencies and other stakeholders are proactive and timely

27. 27 Questions?