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<br />~-// <br /> <br />Financial Impacts of a Drought <br />Without a reliable alternative source of supply and an active conservation program, the <br />City could face severe financial consequences due to a drought. Droughts typically result <br />m: <br /> <br />a. higher wholesale water costs due to increased drought rates, and <br />b. revenue shortfalls due to a decrease in water sales. <br /> <br />During the last SFPUC system-wide drought, water supply assurances from the SFPUC <br />were reduced by about 20%. Agencies that could not immediately reduce water demand <br />faced drought wholesale rates that were two to 10 times higher than normal-year SFPUC <br />rates for water use in excess of a temporarily-reduced supply assurance level. Based on <br />this historical information, a moderate 20% SFPUC system-wide drought could result in <br />a financial impact to the City of about $7 - $10 million per year, accounting for a <br />reasonably attainable level oflocal conservation and construction of the water recycling <br />project. Without the recycled water project, the financial impact of a drought would be <br />substantially higher. <br /> <br />Minimum Fund Reserve Target <br /> <br />Based on longstanding City policy and prior financing plan recommendations, the water <br />enterprise aims to maintain a minimum fund reserve target comprised of two <br />components: <br /> <br />a. emergency operating reserves ($2 million per Council policy), and <br /> <br />b. rate stabilization reserves ($8.3 million as of June 30, 2005), to provide the City <br />with a cushion for moderating the financial impacts of a drought <br /> <br />Bartle Wells Associates does not currently recommend any revisions to the City's water <br />fund reserve targets. <br /> <br />Policy Issues <br /> <br />This financing plan provides a long-term roadmap for funding the City's water operating <br />and capital needs including the recycled water project. However, a number of <br />outstanding policy issues remain unresolved including: <br /> <br />. Upcoming water rate structure adjustments <br /> <br />. Procedure for adopting rate adjustments <br /> <br />. <br /> <br />Facilities Fees update <br /> <br />These outstanding policy issues are discussed in more detail on Table A-5. <br /> <br />Additional information about the recycled water project and the Water Financing Plan <br />is available upon request from the Redwood City Public Works Services Department <br />at (650) 780-7464 or online at www.redwoodcity.org/water. <br /> <br />6 <br />