AgdaPkt 2016-06-13 Interview and Joint SA PFA

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7.A. - Page 52 financial impact of reduced water sales is partially mitigated by the reduction in water supply costs, the City still faces significant financial impact from the reduction in water sales. The impact is exacerbated because a higher percentage of water is conserved in higher rate tiers as a) higher use customers have more potential to conserve, particularly by reducing outdoor water use, and b) each unit conserved is at the highest marginal rate applicable to each customer. For example, from 2013/14 to 2014/15, water sales declined by approximately 12.6% resulting in a hypothetical $3.9 million, or 15.8% decrease in revenues if water use in both years was billed at the 2014/15 rates. However, a corresponding reduction in the volume of SFPUC wholesale water purchases offsets approximately half of revenue loss, resulting in a net revenue loss of roughly $2.0 million in 2014/15. While reduced water sales put upward pressure on rates, these rate increases do not correspond to actual increases in a customer's bill. This is because customers who have conserved purchase fewer units of water. So the financial impact of the share of rate increases due to reduced water sales is largely offset by the reduction in the number of units actually purchased. All other things held equal, customer who conserve end up purchasing fewer units of water at higher rates resulting in minimal changes in their water bill. 2.9.3 Capital Improvement Needs & Rehabilitation of Aging Infrastructure Many of the City's water distribution pipelines were installed over 50 years ago and are approaching the end of their useful lives. Based on analysis of the age and condition of the City's water pipelines, staff from the City's engineering department had previously estimated the City should substantially ramp up investment for pipeline replacements. The City also faces other capital needs including the need to periodically rehabilitate or replace pump stations, storage tanks and reservoirs, and other infrastructure. To help ensure adequate funding for water system capital needs, the financial projections incorporate a gradual increase in annual funding from $3 million in 2016/17 plus an additional $500,000 each year to a total of $6 million of funding in 2022/23, in line with funding needs identified in the City's engineering analysis and the 2011 Water Master Plan (Scenario 2). Current rates in 2015/16 are projected to generate roughly $2 million of pay-as-you-go funding for City capital needs after funding operating and debt service expenses. Additionally, the City is currently undertaking a multi-year program to install new water meters and transition to automatic meter reading (AMR) technology to enable electronic meter reading and reduce the costs of manually reading meters. This program is expected to cost roughly $6.5 to $7.0 million and is being funded by a $3 million 10-year inter-fund loan coupled with $750,000 of annual pay-as-you-go through 2018/19. B Water Utility Finances& Rates 2.5 'VV Water&Sewer Financial Plans&Rate Studies