75E - PH - WATER SHORTAGE PENALTIES

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BLACK &VEATCH Building a world of difference MEMORANDUM City of Santa Ana Water & Wastewater Rate Studies Subject : Development of Water Drought Rates To: Nabil Saba From: Ann Bui, Black & Veatch B &V 175203 B &V File Number A4 Date 12 June 2015 In accordance with your May 14, 2015 request to Black & Veatch, Corporation (Black & Veatch), we hereby submit this Technical Memorandum (TM) describing the work conducted in support of the development of the proposed Drought Rates. This TM serves as an addendum to the 2014 Water Financial Plan, Rate Study /Rehabilitation & Replacement Program Report (2014 Water Study Report) and uses the same methodologies endorsed by the American Water Works Association (AWWA) M- 1 Manual. Disclaimer In conducting our study, we reviewed the books, records, agreements, and customer sales and financial projections of the Water Enterprise as we deemed necessary to express our opinion of the operating results and projections. While we consider such books, records, documents, and projections to be reliable, Black & Veatch has not verified the accuracy of these documents. The projections set forth in this technical memorandum below are intended as "forward- looking statements ". In formulating these projections, Black & Veatch has made certain assumptions with respect to conditions, events, and circumstances that may occur in the future. The methodology utilized in performing the analyses follows generally accepted practices for such projections. Such assumptions and methodologies are reasonable and appropriate for the purpose for which they are used. While we believe the assumptions are reasonable and the projection methodology valid, actual results may differ materially from those projected, as influenced by the conditions, events, and circumstances that actually occur. Such factors may include the City's ability to execute the capital improvement program as scheduled and within budget, regional climate and weather conditions affecting the demand for water, and adverse legislative, regulatory or legal decisions (including environmental laws and regulations) affecting the ability of any of the enterprise's ability to manage the system and meet water quality, waste discharge, and / or other regulatory or environmental requirements. Background With the water supply outlook becoming less promising, water wholesaler Metropolitan Water District of Southern California (MWD) has implemented a three -stage allocation to customers like the City of Santa Ana (City). The Water Supply Allocation Plan (WSAP) imposes surcharges on agencies that exceed delivery limits at a WSAP Level 3 Regional Shortage Level. To meet its anticipated water use reduction target associated with that action, the City may in turn need to implement a water allocation for its water customers. Exhibit 1 75E -4