65B - PROPOSED WATER AND SEWER RATE ADJ

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38 WATER RATE STUDY I City of Santa Ana, CA Based on the analyses of revenues and revenue requirements, it is evident that regardless of the level of CIP activity, the Water Enterprise needs a rate revenue increase in order to meet revenue requirements and working capital reserve as a stand -alone enterprise. The suggested adjustments are summarized below for Scenario 1 in Table 13 and are shown on Lines 2 through 6 of Table 12. Table -13: Proposed Rate Adjustments FY 14/15 March 1 2.8% FY 15/16 July 1 2.8% FY 16/17 July 1 2.8% FY 17/18 July 1 2.8% FY 18/19 July 1 2.8% With these adjustments, the Water Enterprise should be able to accomplish its objectives under the assumption that no significant change occurs. Without the proposed revenue adjustments, the Water Enterprise may have trouble meeting debt covenant requirements and will run into cash flow difficulties. While the financial plan should be a working document, the City will need to re- examine the rate structure prior to FY 18/19 to verify it is still adequate. The revenue requirements of Water consist of system 0 &M expenses, routine capital outlay for minor expenditures on equipment not financed from bond proceeds, debt service requirements on existing and proposed bonded debt, transfers to other funds, and reserve requirements to ensure that debt service coverage, rate covenant requirements, and adequate levels of working capital are met. As shown on Line 22 in Tables 10 through 11, total revenue requirements for the Water Enterprise fluctuate during the study period and can be correlated with inflationary factors, different R &R funding levels, and additional debt service requirements. Under the Status Quo, the total revenue requirements range from $64,994,700 in FY 14/15 to $61,087,700 in FY 18/19. For Scenario 1, total revenue requirements range from a low of $60,421,900 in FY 15/16 to a high of $65,008,700 in FY 14/15. Subtracting total revenue requirements from total revenues results in the projected annual operating fund surpluses or deficits shown on Line 23. As of July 1, 2013, it was estimated that a beginning balance of $16.6 million was available for use in this fund. The ending balance is shown on Line 25, while the minimum ending balance of 25 percent of operation and maintenance expense plus an emergency reserve is shown on Line 26. Applying a cumulative revenue adjustment of 14.8 percent (Scenario 1) over the 5 -year period should allow the Water Enterprise to maintain the desired target level of ending year -end balances, meet minimum working capital and satisfy minimum debt service requirements. The financial objectives and targets are not met under the Status Quo. 65B -50 NOVEMBER 2014