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HomeMy WebLinkAbout01-22-20 F&A Committee Packet 1 OTAY WATER DISTRICT FINANCE AND ADMINISTRATION COMMITTEE MEETING and SPECIAL MEETING OF THE BOARD OF DIRECTORS 2554 SWEETWATER SPRINGS BOULEVARD SPRING VALLEY, CALIFORNIA BOARDROOM WEDNESDAY January 22, 2020 12:00 P.M. Or Immediately Following the Desalination Project Committee Meeting This is a District Committee meeting. This meeting is being posted as a special meeting in order to comply with the Brown Act (Government Code Section §54954.2) in the event that a quorum of the Board is present. Items will be deliberated, however, no formal board actions will be taken at this meeting. The committee makes recommendations to the full board for its consideration and formal action. AGENDA 1. ROLL CALL 2. PUBLIC PARTICIPATION – OPPORTUNITY FOR MEMBERS OF THE PUBLIC TO SPEAK TO THE BOARD ON ANY SUBJECT MATTER WITHIN THE BOARD'S JU- RISDICTION BUT NOT AN ITEM ON TODAY'S AGENDA DISCUSSION ITEMS 3. ADOPT RESOLUTION NO. 4376 REAPPOINTING GARY CROUCHER AS OTAY WATER DISTRICT’S FIRST REPRESENTATIVE ON THE BOARD OF DIRECTORS OF THE SAN DIEGO COUNTY WATER AUTHORITY (WATTON) [5 minutes] 4. PRESENTATION OF THE DISTRICT’S FIXED AND VARIABLE EXPENSES RELATED TO POTABLE AND RECYCLED WATER (KOEPPEN) [10 minutes] 5. ADJOURNMENT BOARD MEMBERS ATTENDING: Mitch Thompson, Chair Mark Robak 2 All items appearing on this agenda, whether or not expressly listed for action, may be delib- erated and may be subject to action by the Board. The Agenda, and any attachments containing written information, are available at the Dis- trict’s website at www.otaywater.gov. Written changes to any items to be considered at the open meeting, or to any attachments, will be posted on the District’s website. Copies of the Agenda and all attachments are also available through the District Secretary by contacting her at (619) 670-2280. If you have any disability which would require accommodation in order to enable you to par- ticipate in this meeting, please call the District Secretary at 670-2280 at least 24 hours prior to the meeting. Certification of Posting I certify that on January 17, 2020 I posted a copy of the foregoing agenda near the regular meeting place of the Board of Directors of Otay Water District, said time being at least 24 hours in advance of the meeting of the Board of Directors (Government Code Section §54954.2). Executed at Spring Valley, California on January 17, 2020. /s/ Susan Cruz, District Secretary STAFF REPORT TYPE MEETING: Regular Board MEETING DATE: February 5, 2020 SUBMITTED BY: Mark Watton, General Manager W.O./G.F. NO:DIV. NO. APPROVED BY: Joe Beachem, Chief Financial Officer Mark Watton, General Manager SUBJECT: Adopt Resolution No. 4376 Reappointing Gary Croucher as Otay Water District's First Representative on the Board of Directors of the San Diego County Water Authority GENERAL MANAGER’S RECOMMENDATION: Adopt Resolution No. 4376 reappointing Gary Croucher as Otay Water District's First Representative on the Board of Directors of the San Diego County Water Authority. COMMITTEE ACTION: See Attachment A. PURPOSE: To present Resolution No. 4376 for the Board’s adoption to reappoint Board Member Gary Croucher as the District’s first representative to the San Diego County Water Authority Board of Directors. ANALYSIS: The term of the District’s first representative on the San Diego County Water Authority’s (CWA) Board of Directors, held by Director Gary Croucher, is expiring on March 3, 2020. To comply with CWA requirements, it is necessary for the Board to adopt a Resolution to reappoint Director Croucher to continue as the District’s first representative. Through the adoption of Resolution No. 4376 (Attachment B), Director Croucher would continue to fill the District’s first seat with a term that would expire on March 3, 2026. Staff recommends that the Board adopt Resolution 4376 reappointing AGENDA ITEM 3 2 Director Croucher as its first representative on the County Water Authority’s Board of Directors. FISCAL IMPACT: None. STRATEGIC GOAL: Maintain effective communications with other cities, special districts, State and Federal governments, community organizations and Mexico. LEGAL IMPACT: None. Attachments: Attachment A – Committee Action Attachment B – Resolution No. 4376 ATTACHMENT A SUBJECT/PROJECT: Adopt Resolution No. 4376 Reappointing Gary Croucher as Otay Water District's First Representative on the Board of Directors of the San Diego County Water Authority COMMITTEE ACTION: The Finance and Administration Committee is scheduled to review this item at a meeting to be held on January 22, 2020 and Attachment A will be updated with notes from the Committee’s discussion. 1 RESOLUTION NO. 4376 A RESOLUTION OF THE BOARD OF DIRECTORS OF OTAY WATER DISTRICT CONSENTING TO AND APPROVING THE REAPPOINTMENT OF GARY CROUCHER AS A REPRESENTATIVE TO THE BOARD OF DIRECTORS OF THE SAN DIEGO COUNTY WATER AUTHORITY (FIRST SEAT) WHEREAS, Section 6(b) of the County Water Authority Act (Chapter 545 of the Statutes of 1943, Chapter 45 Water Code) provides that the CWA Board (defined below) shall consist of at least one representative from each public agency located within CWA’s area; and WHEREAS, the Board of Directors (District Board) of the Otay Water District (District) has previously consented to and approved the designation and appointment of Gary Croucher to serve as the District’s representative on the San Diego County Water Authority (“CWA”) Board of Directors (“CWA Board”); and WHEREAS, Mr. Croucher’s term as a designated and appointed representative of the District to the CWA Board expires on March 3, 2020; and WHEREAS, the District proposes, and this Board desires to consent to and approve, the designation and reappointment of Gary Croucher to a fourth six-year term as the District’s first representative to the CWA Board ending on March 3, 2026. NOW, THEREFORE, it is hereby resolved, ordered and deter- mined by the Board of Directors of the Otay Water District as follows: ATTACHMENT B 2 SECTION 1. This Board of Directors hereby consents to and ap- proves the designation and reappointment of Gary Croucher as the District’s first representative on the Board of Directors of the San Diego County Water Authority for a term ending on March 3, 2026. SECTION 2. The President of the District’s Board, the General Manager of the District, the District’s Secretary and their de- signees are hereby authorized to take any action required to be taken on behalf of the District to carry out the purpose of this Resolution. SECTION 3. This Resolution shall be effective as of the date it is adopted. PASSED, APPROVED AND ADOPTED by the Otay Water District Board of Directors at a regular meeting held this 5th day of Feb- ruary, 2020. AYES: NOES: ABSENT: ABSTAIN: ___________________________ President ATTEST: ________________________ District Secretary STAFF REPORT TYPE MEETING: Regular Board MEETING DATE: February 5, 2020 SUBMITTED BY: Kevin Koeppen, Assistant Chief of Finance PROJECT: DIV. NO.All APPROVED BY: (Chief) Joseph R. Beachem, Chief Financial Officer Mark Watton, General Manager SUBJECT: Summarization of the District’s Fixed and Variable Expenses Related to Potable and Recycled Water GENERAL MANAGER’S RECOMMENDATION: This is an informational item only. COMMITTEE ACTION: Please see Attachment A PURPOSE: To communicate to the Board the level of fixed and variable expenses incurred by the District’s potable and recycled water operations. BACKGROUND: At the October 2, 2019 Board Meeting, the Board made an inquiry regarding the District’s water operation fixed and variable expense obligations. This Staff Report contains a summary of the nature of the District’s fixed and variable expense obligations. The primary focus of this analysis is how revenues and expenses change with the variability of water sales. Growth related revenues and expenditures were removed in order to simplify the analysis. (The integrity of the analysis is maintained because the variability of growth revenues and costs are independent of water sales variability, and because when looked at together they are predominantly rate neutral, offsetting one-another. Revenues and expenses with other variability bases are not excluded as they do not have a neutral impact on rates.) The classification of items is based on the relationship of each item to water sales volumes and the District’s control over the expenditure. Classifications were based strictly on the characteristics of the item itself. The cost benefit or risks associated with incurring or not incurring costs was not considered AGENDA ITEM 4 as part of the allocation. There are several items that fluctuate based on variables other than water sales and/or the levels of the earnings or expenses are not consistent. These items are classified as semi-fixed/semi-variable revenues and expenses in the analysis. Following is a discussion regarding the various fixed, semi- fixed/semi-variable, and variable classes associated with the District’s revenues and expenses. ANALYSIS: Fixed Revenue and Expenses Fixed revenues are received on a relatively consistent basis independent of water sales volumes. The District’s most significant fixed revenues are system fees, CWA/MWD fixed fee, tax revenues, and lease revenues. Fixed expenses are incurred independent of water sales volumes. The timing and amount of these expenses are largely not controlled by the District. The most significant fixed expenses incurred by the District are CWA/MWD fixed charges, contractual recycled water purchases from the City of San Diego, the UAL component of the District’s annual pension obligation, and the funding of replacement CIP projects. Lesser fixed expenses include insurance, regulatory, and environmental expenses. Semi-Fixed/Semi-Variable Revenue and Expenses Semi-fixed/semi-variable revenues have characteristics that could be considered fixed and/or variable in that they are characterized as uncertain or inconsistent in the amount and timing. These include revenues which are variable based on some other factor such as interest rates. Examples of semi-variable revenues include billable work orders and interest income. Semi-fixed/semi-variable expenses have characteristics that may be considered fixed and/or variable depending on the nature of the expense or the duration of time being considered. They include expenses that are: • Fixed in that they are incurred regardless of water sales volumes, but variable in that the District has control over the scope and/or timing of the item. These items are variable as they may be adjusted or deferred in the short-term as needed but fixed in that they will become required spending at some time. It is important to note that the deferral of these expenses is not necessarily cost beneficial. This category includes maintenance, special projects, studies, surveys, betterment CIP, and advanced OPEB funding. • Unrelated to water sales volumes, variable in that District has some control over the expenditure levels, but fixed due to a certain level of expense being required to maintain an efficient and effective water system. Labor and benefits is the most significant cost in this category. Labor is fixed because a certain level is necessary to operate the District in a safe and effective manner regardless of water volumes. However, there is also a variable component to labor in that the District controls the labor pool, which can be modified as opportunity or necessity arises. Variable Revenues and Expenses Variable revenues and expense fluctuate based on water sales volumes. Variable revenues include per unit water fees, temporary meter fees, pressure zone fees, CWA & MWD recycled rebate, and government fees. Variable expenses primarily include variable water charges from CWA, power costs, and chemicals. As CWA concludes its fiscal sustainability study and agencies roll off or reduce their dependence on CWA, CWA’s variable and fixed charge structure may change. Cost of Service vs. Fixed/Variable Analysis When compared to a fixed/variable analysis, a cost of service analysis is a more technical analysis used to support cost-based water rates for the District. For the purposes of establishing rates, a cost of service study examines additional factors such as the function of costs, e.g. transmission, storage, customer service, and peaking factors associated with flows by customer type. A fixed/variable analysis is not a cost of service study. For this report, examining the allocation of costs in performing a fixed/variable analysis is an accounting exercise aimed at better understanding the District’s cost structure. An example of the difference in the two studies would be the variable charge from CWA. Under the fixed/variable analysis this is a semi-fixed/semi-variable expense, while under a cost of service study this fee is considered variable. Due to the nature of their cost structure, CWA would need to increase the variable rate they charge to agencies or add additional fixed fees to offset a long-term reduction in revenue due to a reduction in water volume. Under the cost of service study this expense is considered variable in that it is a consumption related expense based on water volumes. CONCLUSION: The below table summarizes the variable and fixed categorization of the FY 2020 budgeted revenues and expenses from an accounting standpoint. In analyzing the percentage differences between revenues and expenses, one would ascertain that a large percentage of the semi- fixed/semi-variable category is considered variable from a cost of service perspective and the variability is largely related to factors other than water volumes discussed in the explanations above. FISCAL IMPACT: Joseph R. Beachem, Chief Financial Officer No fiscal impact as this is an informational item only. STRATEGIC OUTLOOK: The District ensures its continued financial health through long- term financial planning and debt planning. LEGAL IMPACT: None. Attachments: A) Committee Action Fixed Semi-Fixed/ Semi-Variable Variable Total Revenues 35,948,885$ 472,800$ 64,295,315$ 100,717,000$ %36%< 1%64%100% Expenditures 31,462,691$ 28,263,626$ 40,990,683$ 100,717,000$ %31%28%41%100% ATTACHMENT A SUBJECT/PROJECT: Summarization of the District’s Fixed and Variable Expenses Related to Potable and Recycled Water COMMITTEE ACTION: This is an informational item only. NOTE: The “Committee Action” is written in anticipation of the Committee moving the item forward for board approval. This report will be sent to the Board as a committee approved item, or modified to reflect any discussion or changes as directed from the committee prior to presentation to the full board.