TEXAS WATER CONSERVATION ASSOCIATION

Central Texas Drought: Austin’s Financial Impacts and Response

Presented byDavid Anders, CFO, Austin Water

Extreme Drought Conditions

• 2008-2015

• Stage 2 Water Restrictions – 1/week watering– In place for over 4 years

• Significantly Reduced demand

2

Central Texas Drought Conditions

3

AUSTIN’S FINANCIAL IMPACTS

Stage II

4

Water Demand Reductions

FY 07 FY 08 FY 09 FY 10 FY 11 FY 12 FY 13 FY 14 FY 150

10

20

30

40

50

60

40.746.4 48.1

39.3

48.643.9 41.9

38.7 38.0

Water Consumption (BG)

Consumption (BG)

Stage II

FY 07 FY 08 FY 09 FY 10 FY 11 FY 12 FY 13 FY 14 FY 15 4,000

5,000

6,000

7,000

8,000

9,000

10,000

6,870

8,380 8,790

6,760

8,810

7,620

6,930

6,100 5,840

Annual Average Residential Water Consumption Per Account (Gallons)

5

Water Demand Reductions

Stage II

6

Gallons Per Capital Per Day

Revenue Losses

FY 10 FY 11 FY 12 FY 13 FY 14 FY 15$0.0

$10.0

$20.0

$30.0

$40.0

$50.0

$60.0 $52.3

$3.6 0.8%

$26.3

$49.4

$16.5

Water and Wastewater Revenue Losses

Revenue Losses (Budget vs. Actual)

$ in

Mill

ions

12.8%

5.4%

3.2%

9.6%

7 7

Stage II

($20,000,000)

($10,000,000)

$0

$10,000,000

$20,000,000

$30,000,000

$40,000,000

$50,000,000

($15,144,543.9)

Water Cash Balance History: Oct 2008 – Oct 2014

8

Water Cash Balances

8

Stage II

9

Debt Service Coverage

FY 07 FY 08 FY 09 FY 10 FY 11 FY 12 FY 13 FY 14 FY 151

1.1

1.2

1.3

1.4

1.5

1.6

1.7

1.8

1.9

1.44

1.55

1.45

1.25

1.77

1.48 1.41

1.25

1.40

Austin Water Debt Service Coverage

Debt Service Coverage

Financial Policy: 1.50

• Austin Water Bond Ratings – Standard & Poors: AA– Moody’s: Aa2– Fitch:AA-

• Moody’s and Fitch– 2014 – put Austin Water on a Negative Outlook– Without improvement in financial benchmarks a

downgrade would be likely

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Bond Ratings

AUSTIN’S RESPONSE

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• Fixed revenue– Low percentage of fixed revenue at 11%

• Volume revenue– Very volatile to weather conditions and drought

• Residential rates– 5 blocks with high volume rates for high users– Blocks 1 and 2 below cost of service– High volume users subsidizing low volume users– Increase higher blocks at a faster pace than the lower

blocks to reduce impact to low users

• Low cash reserve balances

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Old Business Model

FY 2012 Water Rates: Residential

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$1.17

$3.08

$7.92

$10.50

$12.19

$0.00

$2.00

$4.00

$6.00

$8.00

$10.00

$12.00

$14.00

Block 1(0-2k)

Block 2(2 - 9k)

Block 3(9 - 15k)

Block 4(15 - 25k)

Block 5(25k - Over)

Residential Volume Rate Per 1,000 Gallons:Uniform vs. Block Rates

Block Rates (Non-CAP) Uniform Rate

Average Cost of ServiceVolume Rate: $4.40

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73% Customers Use less than 9K/monthand charged below cost of service

Joint Committee on Financial Plan

• Council created Joint Committee in 2011• Committee consisted of 9 citizen Commissioners

drawn from 3 separate Commissions• Charge was to review Austin Water’s financial

plan and policies and consider recommendations on changes to stabilize finances

• Convened 3 separate times over 2 years– 20 meetings overall

– Included staff, rate consultants, citizens, financial advisors

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Residential Water Rate Changes

• Fixed Charges• Fixed revenue goal at 20%, then increase to 25% over a

2-year period starting in 2016

• Tiered Fixed Fee– Create tiered fixed fee based on each month’s consumption

– Low volume users had lower fixed charges while high volume users had higher fixed charges

– Strengthens conservation incentive

– Less volatility in revenue when using tiered fixed charge instead of volume rates

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Fixed Revenue Percentage Changes

FY 2011 FY 2012 FY 2013 FY 2014 FY 2015 FY 2016 Proj.FY 2017

0.0%

5.0%

10.0%

15.0%

20.0%

25.0%

30.0%

11.0%

17.0%

20.0% 20.0% 20.0%22.5%

25.0%

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2016 Residential Fixed Charges

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Tiered Minimum Charge

Tier Gallons 2016Approved Rates

Tier 1 0 – 2,000 $1.20

Tier 2 2,001 – 6,000 $3.45

Tier 3 6,001 – 11,000 $8.75

Tier 4 11,001 – 20,000 $27.35

Tier 5 20,001 - over $27.35

Meter Equivalent Minimum Charge

Meter Size 2016Approved Rates

5/8” $7.10

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Volumetric Rate Changes

• New residential volumetric rate block intervals and rates– Residential blocks remained at 5

– Block 2-5 thresholds were reduced

– Any rate increase would impact each block by equal dollar amount – spread between blocks remain same

– Increase block 2 to the average cost of service rate over a 2-year period starting in 2016

1818

FY 2016 Water Rates: Residential

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$3.16$4.84

$7.88

$11.90

$14.16

$0.00

$5.00

$10.00

$15.00

Block 1(0-2k)

Block 2(2 - 6k)

Block 3(6 - 11k)

Block 4(11 - 20k)

Block 5(20k - Over)

Residential Volume Rate Per 1,000 Gallons:Uniform vs. Block Rates

Block Rates (Non-CAP) Uniform Rate

Average Cost of ServiceVolume Rate: $5.62

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18% of Customers Use less than 2K/month

$0.78

• Revenue Stability Reserve Fund– Create revenue stability reserve fund

– Implement reserve fund surcharge• Currently $0.19 per 1,000 gallons

– Goal to reach 120 days of operating costs in 5 years

– $50M reserve when funded

– Restrictions for use – revenue shortfalls only, 50% in one year, Council approval

• Operating cash reserves– Enhance operating cash reserves

– Goal to reach 365 days cash20

Reserve Fund Changes

20

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Residential Bill Increases - Water

FY 2011 FY 2012 FY 2013 FY 2014 FY 2015 FY 2016 Proj.FY 2017

0.0%

5.0%

10.0%

15.0%

20.0%

25.0%

30.0%

35.0%

6.1%

29.4%

7.5%

13.0%

18.0%

7.0%

3.2%

Average Residential Customer5,700 Gallons Usage / Month

45% System-Wide Rate Increase85% Bill Impact to Average Customer

Drought Rates

• Council approved drought rates that would go into effect when Stage 3 and Stage 4 restrictions are implemented

• Stage 3 Water Restrictions (600,000 AF Storage)– Billed consumption projected to be 6 billion gallons less than Stage

2 levels– $1.00 per 1,000 gallons of water usage

• Stage 4 Water Restrictions (450,000 AF Storage)– Billed consumption projected to be an additional 8 billion gallons

less than Stage 3 levels– $3.00 per 1,000 gallons of water usage

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• Current drought over– Lakes overfull!

• Water restrictions– Stage 2 lifted in Austin, back to conservation stage– New Conservation Stage approved

• More restrictive than previous conservation stage• 1/week watering for irrigations systems• 2/week watering for hose-end sprinklers• Wash your car at your home!

• Financial Condition– Significant improvement to financial metrics – Bond Ratings: Moody’s and Fitch just improved our ratings to a Stable

outlook – Rate increases have stabilized to inflation levels

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How’s the Future Look?

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Questions?