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<br />b. roughly maintain current levels of water operating fund reserves and continue to <br />meet minimum fund reserve targets over the long-term <br />c. meet future debt service obligations and debt service coverage requirements. <br /> <br />Projected Overall Water Rate Adj ustments <br /> <br />2005/06 2006/07 2007/08 2008/09 2009/10 2010/11 2011/12 2012/13 2013/14 2014/15 <br /> <br />120/0 <br /> <br />120/0 <br /> <br />120/0 <br /> <br />6.50/0 <br /> <br />6.50/0 <br /> <br />6.50/0 <br /> <br />6.50/0 <br /> <br />6.50/0 <br /> <br />6.50/0 <br /> <br />6.50/0 <br /> <br />The projected rate adjustments account for a number of anticipated cost increases over <br />the next 10 years. Key factors driving the rate projections include: <br /> <br />. SFPUC wholesale water rate increases <br /> <br />. <br /> <br />Recycled water proj ect financing <br />Operating cost inflation <br /> <br />. <br /> <br />The financing plan calculates the overall rate and revenue increases required from annual <br />water sales and service charges. The City will need to determine how various <br />components of the rate structure will be adjusted to achieve the overall rate and revenue <br />requirements. Based on the final rate adjustments implemented, rate impacts may vary <br />based on customer class, type of usage, and amount of water consumption. <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 /> <br />. <br /> <br />In: <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 standard SFPUC rates for water <br />use over the reduced supply assurances. Based on this historical information, a moderate <br />20% SFPUC system-wide drought could result in a financial impact to the City of about <br />$7 - $10 million per year, accounting for a reasonably attainable level of local <br />conservation and construction of the water recycling proj ect. Without the recycled water <br />project, the financial impact of a drought would be substantially higher. <br /> <br />Minimum Fund Reserve Target <br /> <br />The City should consider adopting a minimum fund reserve target for the water operating <br />fund. A prudent level of fund reserves can provide a financial safeguard for dealing with <br />financial emergencies and the financial impacts of a drought. A fund reserve target also <br />provides long-term policy guidance and promotes prudent financial stewardship without <br />placing any mandates on the City. <br /> <br />Water Financing Plan <br /> <br />5 <br /> <br />December 2004 <br />