1. Pasadena Water and Power Public Hearing Water Capital Improvement Charge Pasadena City Council Meeting January 11, 2016 Item #12

2. Pasadena Water and Power Recommendation 1.California Environmental Quality Act (“CEQA”) exemption 2.Public Hearing to receive public comment on CIC recommendation: a)Approve the implementation of the CIC formula and, b)Adopt the recommended system average increase of $0.45 per billing unit and, c)Authorize use of the CIC formula for FY 2017 based upon adoption of the CIP budget and updated forecast of water sales volumes; 3.City Clerk to report on timely written protests received; 4.Close the Public Hearing; 5.Approve the proposed CIC formula implementation and rate increase effective January 18, 2016 or as soon as practical thereafter; and 6.Direct the City Attorney to prepare an amendment to the Water Rate Ordinance to reflect the proposed CIC formula implementation. 2

3. Pasadena Water and Power Projected Financial Impact of State Mandated 28% Reduction in Water Usage 3 Water Fund (Numbers shown in $ millions) 2016 Adopted Budget 2016 Revised Projections Difference Gross Operating Revenues$59.0$46.9($12.1) Operating Expenses$55.1$49.0($6.1) Net Income$3.9($2.1)($6.0)

4. Pasadena Water and Power Water Rate Components Distribution and Customer (D&C) Charge fixed charge generates revenues to recover maintenance and operations costs Includes Fire Protection Surcharge which covers the cost of fire hydrant replacements and upgrades that are not directly related to new development Commodity Charge 100% volumetric charge generates revenues to cover the costs of actual water both groundwater and purchased water Purchased Water Adjustment Charge (PWAC) 100% volumetric charge mechanism to recover the increased cost of water purchased from the Metropolitan Water District (“MWD”) Also applied to increased groundwater production costs Capital Improvement Charge (CIC) 100% volumetric charge generates revenues dedicated to long-term capital improvements to water infrastructure Revenues also cover debt service of bonds issued for investment in the water infrastructure. CIC $0.64 Current $4.76 4 * System average rate based on 9.6 million billing units of sales

5. Pasadena Water and Power Water Capital Projects Funded by the current CIC Project Types IncludedProject Types Not Included Distribution main replacementsMeters and Services – customer requested Fire protection system improvementsWater Telemetry System (SCADA) Well and Booster Pump Switchgear Upgrades Facility Security Systems Recycled Water construction costs Reservoir ImprovementsWater IRP update Permanent infrastructure expansion/replacement Customer Billing System replacement Radio replacements Vehicle replacements 5 Water Master Plan approved by City Council in 2002 CIC formula and rate approved as part of funding plan for Master Plan Formula provides for annual adjustments based on adopted budget

6. Pasadena Water and Power FY2016 Major Water Capital Projects CIP Project TypeFY2016 Work Plan Distribution Mains Replacement, Fire Protection System Improvements $3.8 million Monk Hill Perchlorate Treating System$1.9 million Arroyo Spreading Basins$1.8 million Reservoir Improvements$1.1 million Upgrade Well and Booster Pump Switchgear$650,000 Sunset Chloramination Facility$500,000 6

7. Pasadena Water and Power CIC Rate Adjustment Formula Capital Improvement Charge = ((Funding Target Ratio x Capital Expenditure) + Debt Service) Water Sales 7 Where: Funding Target RatioIdeal debt to equity (cash from pay-go) funding Capital ExpenditureFive-year average annual capital expenditure Debt ServiceFive-year average annual CIC-related debt service Water SalesProjected water sales volume for next 12 months $1.09 = [(30% x $10.9M) / $7.18M] /9.6M billing units

8. Pasadena Water and Power Water Sales (million BU/year) 8

9. Pasadena Water and Power Sample Bill Impact on Monthly Charges (no reduction of water usage) Meter Size Monthly Usage Existing Monthly Charges Impact of Proposed Increase Revised Monthly Charges % Change 5/8"5$27.19$2.09 $29.287.7% 3/4"12$46.95$5.01 $51.9610.7% 1"25$101.80$10.45 $112.2510.3% 1 1/2"100$389.65$41.78 $431.4310.7% 2"125$518.99$52.23 $571.2210.1% 3”300$1,251.03$125.34 $1,376.3710.0% 4"600$2,334.85$250.68 $2,585.5310.7% 6"1,400$5,017.95$584.92 $5,602.8711.7% 8"2,400$9,075.38$1,002.72 $10,078.1011.0% 9

10. Pasadena Water and Power Bill Impact with 25% Reduced Usage 10 Bill Comparisons Based on Reduced Water Consumption Historical UsageReduced Usage Monthly Usage (in billing units) 129 Existing Monthly Bill$46.95 $36.50 Impact of CIC Increase$5.04$3.78 Revised Monthly Bill$51.99$40.28 % Change10.7%(14.2%)

11. Pasadena Water and Power Alternative Sales Volume Forecast Scenarios Sales Forecast (Billing Units)9,600,00010,000,00010,400,000 Reduction in sales from CY 2013 (%)28%25%22% Formula CIC Rate Increase ($/Billing Unit)$0.45$0.41$0.36 Overall System-Average Rate Increase10%9%8% Full CIC Rate ($/Billing Unit)$1.09$1.05$1.00 FY2016 CIC Revenue at Current Rate ($0.64/Billing Unit) $ 6,144,000$ 6,400,000$ 6,656,000 New Revenue from CIC Increase (February - June 2016) $ 1,512,000$ 1,435,000$ 1,310,400 Projected FY2016 CIC Revenue$ 7,654,000$ 7,835,000$ 7,966,000 Projected Annual Revenue at Full CIC Rate$ 10,464,000$ 10,500,000$ 10,400,000 11

12. Pasadena Water and Power Revised Draft Schedule: Water Cost of Service and Rate Redesign 12 DateAction March 2016MSC info item – rate structure discussion April 2016City Council – workshop discussion May and June 2016Customer outreach and feedback July 2016 MSC and City Council Action – rate recommendation and set public hearing September 2016Public Hearing and City Council Rate Action October 2016Rate action effective

13. Pasadena Water and Power 13

14. Pasadena Water and Power City Council Actions That Could Reduce CIC Rate 1.Reduce level of capital improvement budget  More “deferred maintenance”  May result in more water main breaks and higher water losses  Higher future rate increases 2.Consider additional debt issuance  Maintains higher level of capital investment  Increased debt service costs  Impacts funding target ratio of pay-go to long-term debt funding 3.Revise formula based on higher projected unit sales 4.Importance of taking current action  Mitigate part of FY 2016 net income reduction  Provide coverage of debt service requirements and some pay-go  Encourage additional conservation 14

15. Pasadena Water and Power Other Agency Water Rate Actions Agency NameRate ActionWhen Effective RiversideCustomer chargePending January 2017 AnaheimCustomer chargePending February 2016 GlendaleDrought surchargeSpring 2015 Irvine Ranch Water District Multi-year rate action from cost of service update Beginning July 2015 LADWPFour-year rate plan, cost of service update Pending - Approved by Board October 2015, to be effective April 2016 Santa MonicaFive annual consecutive increases Annual beginning January 2014 Santa Margarita Water District Rate action of cost of service update January 2016 15

16. Pasadena Water and Power Existing & Proposed CIC Rates ($ per Billing Unit) Existing Rates Proposed RatesIncrease Summer Area A$0.62429$1.06715$0.44286 Area B$0.84274$1.44056$0.59782 Winter Area A$0.58896$1.00676$0.41780 Area B$0.79504$1.35902$0.56398 16 These are the specific rates that would go into effect if the staff recommendation is approved.

17. Pasadena Water and Power Existing and Proposed Rates 28% Sales Reduction and 25% rate differential Existing RatesProposed RatesIncrease Summer Area A$0.62429 $1.08109 $0.45680 Area B$0.84274 $1.35136 $0.50862 Winter Area A$0.58896 $1.01990 $0.43094 Area B$0.79504 $1.27487 $0.47983 17 Same sales units as in AR recommendation 9.6 million 28% reduction Reduced the Inside/Outside rate differential from 35% to 25%. Since we kept the revenue requirement and sales volumes the same as in the AR, the System Average increase is still 45¢.

18. Pasadena Water and Power Existing and Proposed Rates 25% Sales Reduction and 25% rate differential Existing RatesProposed RatesIncrease Summer Area A$0.62429$1.03785$0.41356 Area B$0.84274$1.29731$0.45457 Winter Area A$0.58896$0.97910$0.39014 Area B$0.79504$1.22388$0.42884 18 Sales forecast is 10.0 million BU (this is the “25% alternative” in Table IV of AR) Reduced the Inside/Outside rate differential from 35% to 25%. We kept the revenue requirement the same as in the AR ($10.452 million), the System Average increase is 41¢ per BU.

19. Pasadena Water and Power Existing and Proposed Rates 22% Sales Reduction and 25% rate differential Existing RatesProposed RatesIncrease Summer Area A$0.62429$0.99793$0.37364 Area B$0.84274$1.24741$0.40467 Winter Area A$0.58896$0.94144$0.35248 Area B$0.79504$1.17680$0.38176 19 Sales forecast is 10.4 million BU (this is the 22% alternative in Table IV of AR) Reduced the Inside/Outside rate differential from 35% to 25%. the System Average increase is 36¢ per BU for a system average rate of $1.00

20. Pasadena Water and Power Annual Debt Service 20

21. Pasadena Water and Power Annual Debt Service Including Projected 2016 Issuance 21 [comment]

22. Pasadena Water and Power Projected Financial Impact of State Mandated 28% Reduction in Water Usage 22 Water Fund (Numbers shown in $ millions) 2016 Adopted Budget 2016 Revised Projections Difference Gross Operating Revenues$59.0$46.9($12.1) Operating Expenses$55.1$49.0($6.1) Net Income$3.9($2.1)($6.0)

23. Pasadena Water and Power Projected Financial Impact of State Mandated 25% Reduction in Water Usage 23 Water Fund (Numbers shown in $ millions) 2016 Adopted Budget 2016 Revised Projections Difference Gross Operating Revenues$59.0$48.3($10.7) Operating Expenses$55.1$49.2($5.9) Net Income$3.9($0.9)($4.8)

24. Pasadena Water and Power Projected Financial Impact of State Mandated 22% Reduction in Water Usage 24 Water Fund (Numbers shown in $ millions) 2016 Adopted Budget 2016 Revised Projections Difference Gross Operating Revenues$59.0$49.7($9.3) Operating Expenses$55.1$49.8($5.3) Net Income$3.9($0.1)($4.0)