AgdaPkt 2012-12-03 - Laserfiche WebLink

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6.2.B. - Page 3 This risk of bearing the debt service expense of a defaulting Member is no different than the risk each Member assumes on the Prior Debt under the WSA. Under the WSA, San Francisco maintains a balancing account. If its revenues collected are less than its total revenue requirement (due to either a Member's default or lower than expected aggregate water consumption for all members), San Francisco will use the balancing account to fund the revenue deficiency, and increase the wholesale water rate in the subsequent year to make up for the prior year shortfall and reimburse the balancing account. Under the existing Prior Debt repayment structure, because all costs are based on water consumption, each Member pays proportionately more of the Prior Debt as its water consumption increases relative to other Members: its share of the Prior Debt principal and interest increases. Likewise, if a Member reduces its percentage of water purchases, it pays less of the Prior Debt principal and interest. Because the debt service on the proposed bonds will be allocated via a water purchase surcharge based on water consumption, this dynamic will not change. Savings to each Member can only be estimated at this time. Actual savings will depend on the ratings on BAWSCA's bonds, investor reception to this novel credit structure, the level of market rates in effect when bonds are expected to be sold (currently estimated to be January 2013), and the actual share of water purchases each Member makes in every year when surcharges are collected. Taking into account bond pricing uncertainty, BAWSCA estimates that the NPV savings to be realized by Redwood City will range from $1,252,000 to $2,128,000 over the 21.5 year term of the bonds. These savings reflect the 6% to 9% NPV saving range discussed under Analysis. Assuming no change in Redwood City's future water consumption, these total NPV savings figures translate into annual cash flow savings that range from $94,000 to $144,000. Because each Participating Member's repayment of the Prior Debt is proportional to the amount of water purchased, if Redwood City's water consumption rises over this period relative to other wholesale customers, its savings will rise as well. Conversely, the savings will fall if the City's water consumption declines relative to other wholesale customers. If Redwood City's proportion of water consumption declines its savings will also decline but in no event will the City's cost of water increase directly as a result of participating in this refunding. In other words, if the City's proportion of water consumption declines its share of the total debt service will likewise decline. Accordingly, the City will not be penalized for its water conservation efforts. Regardless of participation in this bond financing, each Member will continue to have an incentive to conserve water. The bond resolution to be adopted by the BAWSCA Board, among other limits, requires net present value debt service savings of at least 3% of the Prior Debt. The following table shows the projected sources and uses of bond issue funds.