Potential Consolidation of
WMWD’s Murrieta Division
into EMWD
April 15, 2015
Paul D. Jones II, P.E.
General Manager, Eastern Municipal Water District
www.emwd.org 1
Agenda - Murrieta Division
Purpose:
EMWD was
invited to submit
a conceptual
proposal for the
consolidation of
WMWD’s
Murrieta Division
into EMWD.
• Background Understanding
• Considerations for Potential Change in
Water and Sewer Service
• Policy Principles for Service Transition to
EMWD
• Conceptual Service Proposal
• Acquisition Balance/Financial Example
• Requested Action and Next Steps
www.emwd.org 2
Background Understanding
WMWD’s Murrieta Division
• 6.3 Sq. Mile Service Area
(includes 1 Sq. Mile of
EMWD).
• 2,850 Water Customers.
• 2,220 Sewer Customers.
• Estimated at 60% developed
land area.
• Western Municipal Water
District Division 3.
Murrieta Division Boundaries
www.emwd.org 3
Background Understanding (cont’d)
WMWD’s Murrieta Division
•
•
•
•
Annexed into WMWD –
November 27, 2005.
Separate financial division, with
unique rates and charges.
Well water plus supplemental
imported water from EMWD.
Sewage treatment through
RCWD from Santa Rosa Plant
and EMWD’s Temecula Valley
RWRF.
PVC
18%
AC
7%
CML&
C…
AC
CML&C
CML&W
PVC
Murrieta Division Water Facilities
•
•
•
3 Storage Tanks – 3.7 MG
1 Pump Station, 2 Wells
53 Miles of Water Pipeline
www.emwd.org 4
Our Understanding (cont’d)
WMWD’s Murrieta Division
•
•
VCP
26%
PVC
PVC
74%
Annual Operating Budgeted
Revenue (FY 2014/15):
o Water: $4.4 million
o Sewer: $2.0 million
Outstanding Debt:
o Water: $1.1 million
o Sewer: ~$8 million
(Santa Rosa net estimate)
• Dedicated Operations staffing:
2 FTE’s
•
•
Murrieta Division Sewer Facilities
1 Lift Station
30 Miles of Sewer Pipeline
www.emwd.org 5
VCP
Murrieta Service Area Average Customer
Water and Sewer Rate Comparison
Approximate Annual Rate
Differential = $1.1 Million
www.emwd.org 6
Considerations for Potential
Change in Water and Sewer
Service
Challenges:
• Murrieta Division physically remote from
WMWD’s retail water/sewer operations.
• Supplemental wholesale imported water
needs to be purchased through EMWD’s
system (ultimately 85% of demands).
• Sewage treatment under arrangement
with RCWD has governance, cost and
accounting issues to resolve.
www.emwd.org 7
Considerations for Potential
Change in Water and Sewer
Service
Opportunities:
• Economies of Scale for both Water and
Sewer Operations:
o EMWD is lowest cost provider in area.
o Existing EMWD customers benefit from additional
customers to share fixed costs.
• Immediately adjacent to EMWD retail
operations:
o Operational efficiency.
o Improved emergency response.
• Provides options to evaluate and ensure
lowest cost sewage treatment for customers.
www.emwd.org 8
Proposed Policy Principles - Service Transition
to EMWD
• Service Efficiencies: Provide the opportunity to reduce water
and sewer rates through economies of scale, service efficiencies
and lower operating costs.
• Governance: Incorporate a governance structure that retains the
seat of the sitting WMWD Board member to ensure continuity of
existing elected local representation.
• Staffing: Implement a staff transition plan at WMWD’s discretion
that provides the opportunity for staff members to either join
EMWD in similar positions/compensation.
www.emwd.org 9
Proposed Policy Principles
• Financial Parity and Equity:
•
o Financial transition plan resulting in economic parity
between
the Murrieta Division and EMWD.
o EMWD customers not required to subsidize Murrieta Division rates.
o Murrieta Division customers receive the benefit of past investments in
water and sewer assets.
Operational Parity: Finance and implement capital improvements in the
Murrieta Division and EMWD transmission system, as necessary, that will
ensure the same levels of water and sewer system reliability and service
as exists in EMWD.
• Rate Transition: Provide a rate plan that, to the extent feasible, results in
the migration of rates and charges to EMWD’s upon achieving economic
and operational parity.
www.emwd.org 10
Conceptual Service Proposal
• Transition of Service:
o EMWD will become full retail water and sewer service
provider upon LAFCO approval.
o All water and wastewater assets, liabilities and
obligations (contractual/financial) transferred to EMWD.
o Murrieta Division customers immediately receive service
levels identical to all EMWD water/sewer customers.
o EMWD would absorb employees servicing the
Murrieta Division, at WMWD’s request.
Murrieta Division customers would receive
an immediate rate reduction
www.emwd.org 11
Conceptual Service Proposal (cont’d.)
• Governance:
o Upon LAFCO approval, EMWD’s retail boundaries
will be adjusted to include the Murrieta Division.
o Western MWD boundaries will not be adjusted, and
will initially remain the wholesale agency.
 Will maintain current WMWD Board member is seat and
boundary for duration of office (current and subsequent terms).
 Second phase adjustment to WMWD’s boundary will occur
only after office is vacated.
 Will be guaranteed through Consolidation Agreement
approved by Boards and included in LAFCO action.
www.emwd.org 12
Conceptual Service Proposal (cont’d.)
• Financial and Operational Transition:
o Determination of Buy-in Costs:
Determination of needed capital improvements.
Financial liabilities and reserve needs.
o Determination of Credits:
Non-operating assets
(Buy-in Costs – Credits) = Acquisition Balance
o Apply difference in rates to pay-down acquisition
balance until financial parity achieved.
www.emwd.org 13
Acquisition Balance Conceptual Example
Acquisition Balance – Water System Example
Calculation of Buy-in Costs
CATEGORY
AMOUNT
•
Capital to fund system deficiencies
•
Consolidation costs
$110,000
•
Outstanding debt
$990,000
Total estimated buy-in:
$5,900,000
$7,000,000
14
Acquisition Balance Conceptual Example
Acquisition Balance – Conceptual Water System Example
Net Buy-in Cost & Credits
CATEGORY
Buy-in Cost (previous Page)
AMOUNT
$7,000,000
BUY-in Credits:
•
Cash transferred
•
Value of non-operating real property assets
$500,000
•
Value of surplus system capacity that can benefit
consolidated district
$500,000
$1,000,000
Total estimated credits:
$2,000,000
Net buy-in costs for Agency A:
$5,000,000
ESTIMATED ANNUAL PAYMENTS FROM RATE
DIFFERENTIAL (Assumes 5% rate reduction):
$807,120
ESTIMATED TERM:
6.2 years
15
Rate Mechanism Illustration – Water System
Agency A
Meter Charge
Commodity
$2.70/ccf
$34.00/mo
5% Rate Reduction
$2.57/ccf
$32.60/mo
$128,250/yr*
Agency B
$12.75/mo
$2.32/ccf
Acquisition Balance
=
$5.0 million
$807,120/yr
* Based upon 15 ccf/mo
$678,870/yr =
+
=
$807,120/yr
6.2 years
Requested Action
• WMWD Board Actions Requested:
o Concur with Consolidation Policy Principles as presented.
o Authorize WMWD staff to support EMWD staff, as needed, to
complete EMWD’s due diligence.
o Authorize WMWD staff to support EMWD staff, as needed, to
finalize EMWD’s formal proposal for consideration by both
WMWD and EMWD Boards.
www.emwd.org 17
Overview of Next Steps if Requested to
Proceed by WMWD
• Due Diligence Phase (complete by July 2014)
o Perform Water and Sewer System Condition Assessment.
o Complete water and sewer system Due Diligence in cooperation with
WMWD staff.
o Develop Preliminary Acquisition Balance / Rate Analysis:
 Determine water system improvements and costs.
 Analyze best value and lowest long-term lifecycle cost sewage
treatment and conveyance alternative with RCWD and WMWD.
o Report recommendations to pursue consolidation to WMWD and EMWD
ad hoc Committee and Boards.
www.emwd.org 18
Overview of Next Steps if Requested to
Proceed by WMWD
• Consolidation Proposal Phase (schedule TBD)
o Negotiate and finalize EMWD/WMWD consolidation
Agreement Terms and Conditions.
Complete and incorporate final Acquisition Balance / Rate
proposal.
o Develop customer outreach plan.
o Develop staff transition plan (as needed)
o Review and seek concurrence of WMWD and
EMWD Ad Hoc Committee.
www.emwd.org 19
Overview of Next Steps if Requested to
Proceed by WMWD
• Approval and Implementation Phase (schedule TBD):
o Based upon Ad Hoc Committee review, EMWD and
WMWD Boards would consider approval of:
 Consolidation Agreement based upon recommended
terms/conditions.
 All LAFCO documents (application, resolutions, etc.).
 Outreach Plans and schedule.
o Implementation Activities:
 Complete customer outreach and community workshops.
 Initiate and secure LAFCO approval.
www.emwd.org 20
EASTERN MUNICIPAL WATER DISTRICT
Contact Information
Paul D. Jones II, P.E.
General Manager
(951) 928-6130
[email protected]
www.emwd.org 21