Fiscal Year 2020 Semi–Annual

Budget Performance

Finance/Administration Committee

February 25, 2020

Water and Wastewater Systems Overview

Six-Months

Revenues are higher than budget and expenditures are lower than planned for both enterprises.

Year-end Projection

Projected net revenue and expense savings is estimated to be above budget for both enterprises.

1

Water System Revenue & Expenses

FY20 Through 12/31/2019

2

366.4

221.9

168.9

377.1

193.5

145.6

0

100

200

300

400

Revenues Operating Expenses &Commitments

Capital Cash Flow Expenses

$ M

illio

ns

Jul-Dec Budget Actual

3

Water System Revenues

FY20 Through 12/31/2019

300.6 313.1

0

100

200

300

400

$ M

illions

26.0

17.5

9.1 6.1

4.7 2.4

18.8 17.5

10.4

6.0 7.3 4.1

0

10

20

30

40

$ M

illions

Jul-Dec Budget Actual Revenue

4

Water Operating Expenses & Commitments

FY20 Through 12/31/2019

151.3

70.6

129.9

63.6

0

40

80

120

160

Operations Debt Service

$ M

illio

ns

Jul-Dec Budget Actual Expense

Water Major Capital Cash Flow Expenses

FY20 Through 12/31/2019

5

25.8

19.7

8.8

7.8

5.6

4.8

0 5 10 15 20 25 30

Pipeline Infrastructure Renewals

Reservoir Rehab

New Service Installations

Treatment Plant Upgrades

Pumping Plant Rehab

Maloney PZ Improvements

$ Millions

Total direct capital cash flow spending year-to-date was 86% of 6-month budget

6

Wastewater System Revenue & Expenses

FY20 Through 12/31/2019

70.1

47.1

24.3

73.4

43.7

22.8

0

20

40

60

80

Revenues Operating Expenses &Commitments

Capital Cash Flow Expenses

$ M

illio

ns

Jul-Dec Budget Actual

39.7 40.9

0

15

30

45

$ M

illions

7

Wastewater System Revenues

FY20 Through 12/31/2019

13.7

5.0

3.6 2.7 2.2 2.0

1.2

13.7

6.5

3.6 2.7 2.3 2.8

0.9

0

5

10

15

$ M

illions

Jul-Dec Budget Actual Revenue

8

Wastewater Operating Expenses & Commitments

FY20 Through 12/31/2019

37.5

9.7

34.5

9.3

0

10

20

30

40

Operations Debt Service

$ M

illio

ns

Jul-Dec Budget Actual Expense

9

Wastewater Major Capital Cash Flow Expenses

FY20 Through 12/31/2019

3.7

2.6

2.6

2.5

2.4

Concrete Rehab at SD1

Digester Upgrades

Pump Station Q Dual Mode

3rd St Sewer Interceptor

Treatment Plant Infrastructure

0 1 2 3 4

$ Millions

Total direct capital cash flow spending year-to-date was 94% of 6-month budget

Water System FY20 Year-End Projection

($Millions) Amended Budget

Year-End Projection

Over / (Under) Budget

Operating Revenues:

Water Charges 543.5 550.0 6.5

SCC Revenues 40.0 40.0 0.0

Other 79.7 90.0 10.3

TOTAL REVENUES 663.2 680.0 16.8

Operating Expenses:

Operations 299.2 275.8 (23.4)

Debt Service 208.2 204.8 (3.4)

TOTAL EXPENSES 507.4 480.6 (26.8)

• Water Charges revenue is within 1 percent of budget

• Year-end water sales projection is above budget – 143 MGD

• Other revenues above budget are Power Sales, Interest Income, Property Taxes and All Other

• Total expenses projected 5 percent below budget

• Year-end Projection does not contain CP pay down

10

Numbers in table may be rounded

Wastewater System FY20 Year-End Projection

($Millions) Amended Budget

Year-End Projection

Over / (Under) Budget

Operating Revenues:

Treatment Charges & Permits

79.4 79.6 0.2

Resource Recovery 10.0 12.0 2.0

Capacity Charges (WCF)

4.0 4.0 0.0

Other 46.8 47.3 0.5

TOTAL REVENUES 140.2 142.9 2.7

Operating Expenses:

Operations 75.1 69.7 (5.4)

Debt Service 30.2 30.0 (0.2)

TOTAL EXPENSES 105.3 99.7 (5.6)

• Revenues projected to be two percent above budget and expenses

• Treatment Charges & Permits revenues on target

• Total expenses projected 5 percent below budget

• Year-end Projection does not contain CP pay down

11 Numbers in table may be rounded

Questions

12

FY20 Budget Amendment for Commercial Paper Pay Down

Finance/Administration Committee

February 25, 2020

Budget Amendment for Commercial Paper Pay Down

• Funds available in FY19 from higher-than-budgeted revenues and lower-than-budgeted expenses

• Strategy to use a portion of this to pay down commercial paper presented at Finance/ Administration Committee on October 22, 2019

• This item seeks Board approval to amend the FY20 budgets for Water and Wastewater to implement commercial paper pay down

– $24 million for Water System

– $5 million for Wastewater System

1

FY19 Year-end Funds Water System ($M)

2

Strategy Benefits Amount

FUNDS AVAILABLE FY19 YEAR END: $129.0

Used in FY20 & FY21 rate model

Lowered rates $88.4

Pay off Commercial Paper over 15 years in equal annual payments*

Reduces interest cost and provides capacity for future borrowing if needed

$24.0

Retain in fund balance Reduce needed borrowing for capital and creates room for future borrowing

$16.6

*Director of Finance will review and recommend annually

FY19 Year-end Funds Wastewater System ($M)

3

Strategy Benefits Amount

FUNDS AVAILABLE FY19 YEAR END: $23.8

Used in FY20 & FY21 rate model

Lowered rates $5.8

Pay off Extendable Commercial Paper over three years in payments of $5.0 million per year

Reduces interest cost and provides capacity for future borrowing if needed

$5.0

Retain in fund balance Reduce needed borrowing for capital and creates room for future borrowing

$13.0

Commercial Paper (CP) Overview

• Form of variable rate debt issued as short-term notes

• Water CP: traditional CP program with liquidity support

• Wastewater CP: extendable CP program with no liquidity support

• CP outstanding:

– Water System: $359.8 million

– Wastewater System: $15 million

• Cost of carrying CP include:

– Interest cost

– Remarketing fees

– Liquidity fees (for traditional CP)

– Other support costs 4

FY20 Budget Amendment

• This budget amendment provides the appropriation in FY20 to implement the CP pay down

• This item will be presented for Board Determination this afternoon

• Future year additional CP pay downs will be based on financial performance and outlook at that time

5

Recommendation to the Board

• Amend the FY20 Water System budget in the amount of $24,000,000 and the Wastewater System budget in the amount of $5,000,000 to pay down a portion of each system’s outstanding commercial paper

6

2020 Strategic Plan Update

Finance/Administration Committee

February 25, 2020

Overview

• First adopted in 2004

• 2020 update will be the 9th edition

• Establishes long-term goals and strategies

• Multiple years to accomplish goals

• Interim reviews conducted every two years

• Advantageous to minimize number of significant changes to focus efforts

• Comprehensive updates every four to six years

• Proposed changes to be presented at May 2020 workshop

1

Update Process

2

• Strategic Plan update process and biennial budget cycle work together

• 2020 Strategic Plan will

guide FY22 & FY23 budget priorities

• Strategic Plan update process will culminate in June

3

2020 Update Focus

• Goals still on target

• Minor updates to some strategies and objectives

• Major focus on key performance indicators — Certain KPI targets were not well suited to their

intentions

— Establish realistic targets to track progress

— Create supplemental Key Performance Indicators publication instead of incorporating into the Strategic Plan

Schedule

4

• Launched process (November 2019)

• Update process underway (November 2019 – March 2020)

• Board Workshops held/planned: √ Infrastructure (November 2019) √ Customer Assistance Program (January 2020) — Long-Term Water Supply (February 2020) — Financial Stability (March 2020) — FY21 Mid-cycle & Strategic Plan (May 2020)

• Adoption (June 2020)

Questions

5