1. Water Replenishment District Draft Budget Fiscal Year 12-13 Special Water Resources Committee Meeting Workshop 7 of 10 April 11, 2012

2. 2 Plan & Organize Midyear Review Revise 11/12 Budget Draft 12/13 Budget Revise 12/13 Budget Adopt 12/13 Budget Phase I – Jan/Feb Phase VI May 4 Phase V April Phase IV – Mar/Apr Phase III March Phase II Feb. BUDGET CYCLE Budget Process Overview

3. 3 Fiscal Year 12-13 Budget Workshop Schedule February 22 – 12 p.m. Finance Committee 11/12 Midyear Budget Review March 2 – 9 a.m. Board of Directors 11/12 Midyear Budget Review March 9 – 9 a.m. Special Board of Directors 12-13 Budget Workshop #1 March 14 – 12 p.m. Special Water Resources Committee 12-13 Budget Workshop #2 March 16 – 9 a.m. Board Meeting 12-13 Budget Workshop #3 March 21 – 12 p.m. Finance Committee 12-13 Budget Workshop #4

4. 4 March 28 – 12 p.m. Special Audit and Budget Advisory Committee 12-13 Budget Workshop #5 April 6 – 9 a.m. Board of Directors 12-13 Budget Workshop #6 April 11 – 12 p.m. Special Water Resources Committee 12-13 Budget Workshop #7 April 19 – 12 p.m. Special Audit and Budget Advisory Committee 12-13 Budget Workshop #8 April 20 – 9 a.m. Board of Directors 12-13 Budget Workshop #9 May 4 – 9 a.m. Board of Directors 12-13 Budget Workshop #10 Fiscal Year 12-13 Budget Workshop Schedule

5. 5 Fiscal Year 12-13 Budget Meeting Schedule (Tentative) 11. 11.City of Lakewood – March 19, 2012 10 a.m. 12. 12.Technical Advisory Committee (TAC) – March 28, 2012 13. 13.Central Basin Small Producers Group – April 3, 2012 14. 14.South East Water Coalition (SEWC) – April 5, 2012 15. 15.Golden State Water Company – TBD 16. 16.Long Beach Water Department – TBD

6. 6 Value of Groundwater WRD serves 10% of the population of the state of California Groundwater meets approximately 40% of water demands within WRD service area Groundwater / imported water blends vary from purveyor to purveyor Those purveyors that meet demands with groundwater enjoy a cost savings over those that are more reliant on imported water

7. 7 Value of Groundwater Groundwater provides a buffer from imported water cost increases and possible curtailments WRD’s reliance on imported water has decreased as local replenishment supplies have been developed by the District and these Alternative local water sources provide cost stability Result: Development of local replenishment sources have reduced the impact of imported water price increases on the Replenishment Assessment

8. 88 Historical Replenishment Assessment and Imported Water Rates Current Imported Water Rate $915/AF WRD RA Imported Water Current RA $244/AF ~$670/AF

9. 99 Imported Water Rate $915/AF Current WRD RA $244/AF $915/AF $244/AF IMPORTED WATER GROUNDWATER Cost difference between groundwater and imported water is approximately $670/AF Value of Groundwater

10. Unavoidable Spreading Water Costs in Central Basin 10 Transition from Seasonal Spreading Water to Tier 1 Water in 2010-11 (per TAC recommendation) * *Central Basin Municipal Water District surcharge calculation does not include $388,800 annual service charge

11. 11 During the 2010-11 rate setting process, the Metropolitan Water District stated that seasonal spreading water would only be available two or three years out of ten. When reviewing the water resource options in spring of 2010, the Technical Advisory Committee (TAC) and the Central Basin Small Producers Group recommended that WRD budget for Tier 1 Water rather than seasonal spreading water to help stabilize future rates and to have funds available to purchase the water when available for the health of the groundwater basin. 12-13 Water Costs

12. 12 QUANTITY AND COST OF REPLENISHMENT WATER FOR WY 2012-13 ItemQuantity (AF)Total Cost (In Dollars) Spreading - Tier 1 Untreated Imported21,000$ 15,319,800 Spreading – Tier 1 Make Up3,5002,488,500 Spreading – Recycled50,0001,858,898 Alamitos Barrier – Imported2,540$ 2,389,265 Alamitos Barrier - Recycled*1,800 - Dominguez Barrier – Imported8,000$ 8,756,276 Dominguez Barrier – Recycled0 - West Coast Barrier – Imported4,500$ 4,951,551 West Coast Barrier – Recycled13,5009,517,500 In-Lieu MWD Member0 $ - In-Lieu WBMWD Customer0 - TOTAL104,840 $ 45,281,790 12-13 Water Costs Detail 24,500 acre-feet of Imported Spreading

13. 13 At their meeting on March 28 th, the Technical Advisory Committee reviewed the water resource needs for 2012-13 and recommended the following: 1. 1.Defer budgeting for 17,500 acre-feet of carryover water for one year. 2. 2.Consider special Long Beach In-Lieu purchases made in 2010-11 and 2011-12 as a direct offset to spreading water. 3. 3.Do not budget for the District’s regular In-Lieu Program in 2012-13. 4. 4.Utilize no more than 50% of the WRD’s banked water with Long Beach for the Alamitos Seawater Intrusion Barrier (total of 2,160 acre-feet) if absolutely needed for rate relief. The TAC recommended that use of any more than 50% be brought back to the TAC for additional consideration. 12-13 Water Costs TAC Recommendation

14. 14 Other Draft Budget Assumptions: 1. 1.Continued use of the Water Purchase Carryover Fund in the amount of $3,000,000 to help stabilize the RA as part of the five-year scenario presented during the budget process last year 2. 2.Recovery of $8.6 million of non-payment of the 11-12 Replenishment Assessment by the five (5) non-paying cities based on their 5-year historical annual groundwater production (in order to avoid an unfair rate hike in fiscal year 2012-13, any non-payment of the Replenishment Assessment for fiscal year 12-13 will be addressed in the ensuing year’s budget) 3. 3.100% Imported Water at the Dominguez Gap Barrier 4. 4.Estimated 244,500 acre-feet of production 5. 5.Updated water rates as of April 10, 2012 12-13 Budget Assumptions

15. 15 Current scenarios reflect a net decrease in expenditures to the District’s Projects and Programs and Administrative Departments 12-13 Budget Assumptions

16. 16 Draft 12-13 Water Costs will vary greatly depending upon water purchase scenarios. The following scenarios are being presented for the Board’s consideration: Scenario 1 – Do not budget for the regular In-Lieu Program, limited imported spreading water purchases Scenario 2 – (TAC Recommendation for water purchases) Do not budget for the regular In-Lieu Program, imported spreading water purchases of 12,200 acre-feet Scenario 3 – Do not budget for the regular In-Lieu, no imported spreading water purchases, no pumping from five (5) cities 12-13 Water Costs

17. 17 12-13 Draft Budget Water Purchase Scenario (in acre-feet) Fiscal Year 2010-1121,000 Imported Spreading Water Purchases (24,220) Special Long Beach In-Lieu Water (6,700) 2010-11 Spreading Water Credit(9,920) Fiscal Year 2011-1221,000 Imported Spreading Water Purchases(13,080) Special Long Beach In-Lieu Water (6,800) 2011-12 Spreading Water Credit(8,800) Fiscal Year 2012-13 21,000 Total Replenishment Water Needed for 2012-13 12,200

18. 18 Scenario 1 – No In-Lieu, Limited Spreading 11-12 12-13 Adopted Draft BudgetBudgetDifference Water Related Costs$48,485,000$32,929,000($15,556,000) Projects and Programs9,344,0008,863,000(481,000) Administrative4,822,0004,819,000(3,000) Litigation915,0002,553,0001,638,000 Estimated RA $244.00 Dollar Change ($0.00) Percentage Change (0.0%)

19. 19 Scenario 2 – TAC Recommendation on Water Purchases No In-Lieu, 12,200 Imported Spreading 11-12 12-13 Adopted Draft BudgetBudgetDifference Water Related Costs$48,485,000$40,053,000($8,432,000) Projects and Programs9,344,0008,863,000(481,000) Administrative4,822,0004,819,000(3,000) Litigation915,0002,553,0001,638,000 Estimated RA $273.15 Dollar Increase $29.15 Percentage Increase 11.9% (10.3 %using banked water)

20. 20 Scenario 3 – No In-Lieu, No Spreading, Neutralized Impact for Non-Paying Entities* 11-12 12-13 Adopted Draft BudgetBudgetDifference Water Related Costs$48,485,000$31,379,000($17,106,000) Projects and Programs9,344,0008,863,000(481,000) Administrative4,822,0004,819,000(3,000) Litigation915,0002,553,0001,638,000 Estimated RA $276.05 Dollar Increase $32.05 Percentage Increase 13.1% *Estimated Annual Production of 210,500 af (represents a decrease in production based on five (5) cities not pumping or paying for groundwater)

21. 21 SCENARIO SUMMARY Estimated DollarPercentage RA Increase Increase Scenario 1 No In-Lieu, Limited Spreading$244.00$ 0.000.00% Scenario 2 TAC Recommended Water Purchases$273.15$29.1511.90% Using banked water$269.05$25.0510.30% Scenario 3 No In-Lieu, No Imported Spreading, Decreased $276.05$32.0513.10% Production (210,500 af)

22. 22 12-13 Draft Budget 11-12 12-13 Adopted Draft BudgetBudgetDifference Water Related CostsDepends upon scenario Projects and Programs 9,344,0008,863,000(481,000) Administrative4,822,0004,819,000(3,000) Litigation915,0002,553,0001,638,000

23. 23 Litigation – Estimating an additional $1,638,000 for unavoidable litigation costs due to : Case BS 120643 – City of Cerritos, et al. v. WRD Case BS 128136 – 09 Central and West Basin Storage Motion filed in Central & West Basin Judgment cases (Downey, Cerritos, Signal Hill & CBWMD) Case C786656 – Proposition 218 challenge to Replenishment Assessment Case B226743 appeal to C786656 – WRD et al v. City of Cerritos et al Court of Appeals Case BS 129817 – Central Basin Municipal Water District v. WRD 12-13 Litigation

24. 24 Case C786656 – WRD/Central and West Basin Water Replenishment Districts v. Charles Adams Case BS 132202 – Central Basin Municipal Water District v. WRD Case BS 108180 – WRD/LAUSD v. County of Los Angeles Case BS 130308 – WRD/LACC v. County of Los Angeles Case BS464772/773 – WRD v. the Cities (Cities of Downey, Cerritos and Signal Hill; RA Validation Action and RA Motion for Declaratory Relief) Case LACV11-7531VBF(RZx) – Central Basin Municipal Water District v. WRD Case BS 134295 – WRD v. Central Basin Municipal Water District 12-13 Litigation

25. 25 Case BS 134239 – Tesoro v. WRD Case VC060546 – WRD v. City of Downey Case VC060498 – WRD v. City of Cerritos Case VC060496 – WRD v. City of Signal Hill Case VC060499 – WRD v. City of Bellflower Case VC060592– WRD v. City of Pico Rivera 12-13 Litigation

26. 26 California Water Code §60290 – “The district may establish an annual reserve fund in an amount not to exceed ten million dollars ($10,000,000) commencing with the 2000-01 fiscal year. The maximum allowable reserve fund may be adjusted annually commencing with the 2001-02 fiscal year to reflect the percentage increases or decreases in the blended cost of water from district supply sources” California Water Code §60291 – “The limitation on the reserve established in §60290 does not apply to the unexpended balance of any appropriated funds in a capital improvement project construction account established to pay the cost of a project or projects under construction” Cash Reserves

27. 27 California Water Code §60328.1 – “The district shall apply the estimated fiscal year end balance in excess of the amount permitted in §60290 to a replenishment assessment rate reduction or to the purchase of water in the succeeding fiscal year” In fiscal year 10-11, WRD utilized $8.27 million to lessen the impact of moving from seasonal spreading water to more expensive Tier 1 Water (see chart on slide 10) In fiscal year 11-12, WRD continued the use of the Water Purchase Carryover Fund by authorizing the use of an additional $10 million to help stabilize the RA as part of the five-year scenario presented during the budget process last year Cash Reserves

28. 28 California State Auditor, Bureau of State Audits In its May 2002 report (page 18) the California State Auditor wrote, “The district projects that it will have a reserve fund balance of slightly more than $6 million at June 30, 2002, a level that may pose a threat to the district’s ability to maintain the current quantity of groundwater in the basins.” This reserve level was considered to be the minimum by the State Auditor a decade ago and does not take into account the significant increase in the cost of water over the last 10 years. Cash Reserves

29. 29 Currently, the cities who are currently not paying the replenishment assessment are as follows: City of Cerritos City of Downey City of Signal Hill City of Bellflower City of Pico Rivera Non-Payment of Replenishment Assessment

30. 30 BUDGET WORKSHOPS #8 & #9 Thursday, April 19 – 12:00 p.m. Special Audit and Budget Advisory Committee Meeting & Budget Workshop #8 Friday, April 20 – 9:00 a.m. Board of Directors Meeting & Budget Workshop #9 What’s Next?