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World Water Congress and Exhibition - Montréal, Canada

WATER AND POWER UTILITY PUBLIC SECTOR FINANCINGPresented by: James B. McDaniel, Senior Assistant General Manager – Water

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Discussion TopicsDiscussion Topics

Organization OverviewOrganization Overview Asset ManagementAsset Management Financial PlanningFinancial Planning Financing OptionsFinancing Options Financial MetricsFinancial Metrics Coordination EffortsCoordination Efforts SummarySummary

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Discussion TopicsDiscussion Topics

Organization OverviewOrganization Overview Asset ManagementAsset Management Financial PlanningFinancial Planning Financing OptionsFinancing Options Financial MetricsFinancial Metrics Coordination EffortsCoordination Efforts SummarySummary

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Organization OverviewOrganization OverviewSize and Scale of DWPSize and Scale of DWP

Power Business

Number of Customers 1,434,425

Employees 6,303

Transmission Miles 3,655

Distribution Miles 11,031

Water Business

Number of Customers 665,976

Employees 3,188

Delivered Volume (million gallons) 199,000

Pipeline Miles 7,300

LADWP’s Operations Extend Across Seven States, Affecting Four Million People

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LADWP Board of CommissionersLADWP Board of Commissioners Sets policy and governs activities Rate-setting authority Subject to review and approval by

L.A. Mayor & City Council

Neighborhood CouncilsNeighborhood Councils 90+ Neighborhood Councils throughout City Composed of advisory citizen groups

Ratepayer Advocate (proposed)Ratepayer Advocate (proposed) Full-time paid positions to provide overall

oversight for LADWP, including rate-setting

Organization OverviewOrganization OverviewGovernance and Rate-Making AuthorityGovernance and Rate-Making Authority

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Discussion TopicsDiscussion Topics

Organization OverviewOrganization Overview Asset ManagementAsset Management Financial PlanningFinancial Planning Financing OptionsFinancing Options Financial MetricsFinancial Metrics Coordination EffortsCoordination Efforts SummarySummary

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Asset ManagementAsset Management

Asset Management is key to long-term financial Asset Management is key to long-term financial planning (both capital and O&M)planning (both capital and O&M)

Continuously refine operations and maintenance (O&M) practices

Condition assessment and useful life evaluation Develop replacement and rehabilitation strategy Determine staffing levels

required for O&M Determine long-term

funding needs

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Discussion TopicsDiscussion Topics

Organization OverviewOrganization Overview Asset ManagementAsset Management Financial PlanningFinancial Planning Financing OptionsFinancing Options Financial MetricsFinancial Metrics Coordination EffortsCoordination Efforts SummarySummary

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Financial PlanningFinancial Planning

Financial planning based on Board-adopted policies

Financial Outlook: O&M – annual Capital – 10 years

Performed on a continuous basis to adapt to changing needs

Considers current and future economic outlook to develop financing strategy

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Financial PlanningFinancial Planning

Planning projections are developed for key Planning projections are developed for key financial planning factorsfinancial planning factors

Water and Power Sales Revenue Capital and O&M Expenses Borrowing Financial Ratios

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1111

$0

$100

$200

$300

$400

$500

$600

$700

CAPITAL WATER RECLAMATION PROGRAM $6 $11 $19 $28 $58 $69 $69

CAPITAL WATER QUALITY PROGRAM $89 $120 $184 $295 $372 $296 $136

CAPITAL WATER INFRASTRUCTURE $94 $103 $120 $188 $179 $213 $305

CAPITAL WATER FUNDED JOINT $22 $14 $31 $30 $27 $27 $23

CAPITAL SECURITY $8 $12 $26 $27 $28 $35 $21

CAPITAL OWEN LAKE DUST MITIGATION $8 $66 $83 $18 $0 $0 $0

CAPITAL CAPITAL DEMAND SIDE MANAGEMENT $0 $1 $2 $1 $0 $0 $0

FY 07-08 Actl

FY 08-09 Actl

FY 09-10 FY 10-11 FY 11-12 FY 12-13 FY 13-14

$555

$640$664

$588

$464

$328

$227

2/26/2010

CAPITAL(in $ Millions)

Financial PlanningFinancial PlanningCapital Budget BreakdownCapital Budget Breakdown

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Discussion TopicsDiscussion Topics

Organization OverviewOrganization Overview Asset ManagementAsset Management Financial PlanningFinancial Planning Financing OptionsFinancing Options Financial MetricsFinancial Metrics Coordination EffortsCoordination Efforts SummarySummary

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CashCash from water and power sales revenue funds day-to-day operations

DebtDebt from issuance of tax-exempt and taxable bonds (Build

America Bonds) funds capital program

State Revolving Fund (SRF) or GrantsState Revolving Fund (SRF) or Grants SRF are zero or low interest government loans grants typically from state or federal government

Financing OptionsFinancing Options

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Water Facility ChargesWater Facility Charges Recovers cost of new facilities to serve new

development Existing rate payers do not pay for system

expansion Charge collected as a condition of service Recovers costs for pipes,

pump/tank facilities, services, fire hydrants, etc.

Financing OptionsFinancing Options

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Public/Private Partnership (PPP)Public/Private Partnership (PPP) Private sector involvement can bring

creativity, efficiency, and capital to address complex public sector problems

Varying types of PPP; all involve risk-sharing PPP may provide additional revenue sources

and mix a variety of funding sources These partnerships can reduce demands on

constrained public budgets

Financing OptionsFinancing Options

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Existing Debt Profile Existing Debt Profile Power SystemPower System

Data as of June 23, 2010

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Existing Debt Profile Existing Debt Profile Water SystemWater System

Data as of June 23, 2010

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Discussion TopicsDiscussion Topics

Organization OverviewOrganization Overview Asset ManagementAsset Management Financial PlanningFinancial Planning Financing OptionsFinancing Options Financial MetricsFinancial Metrics Coordination EffortsCoordination Efforts SummarySummary

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Financial MetricsFinancial Metrics

Maximum Debt on Balance Sheet is 60% (i.e., minimum 40% cash financing)

Minimum Debt Service Coverage: Water System = 2.00 Power System = 2.25

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Financial MetricsFinancial Metrics

Minimum Unrestricted Cash Balance (Liquidity):

Water System = $ 150 M Power System = $ 300 M

Debt Service Coverage and Liquidity are among the criteria that credit rating agencies consider

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Discussion TopicsDiscussion Topics

Organization OverviewOrganization Overview Asset ManagementAsset Management Financial PlanningFinancial Planning Financing OptionsFinancing Options Financial MetricsFinancial Metrics Coordination EffortsCoordination Efforts SummarySummary

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Coordination EffortsCoordination Efforts

LADWP is proactive in timely communications with credit rating agencies

Work with auditors and financial consultants to adequately respond to inquiries and prudently manage financial assets

We also work with our grant and/or loan funding partners to maximize opportunities and address administrative issues

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Coordination EffortsCoordination Efforts

Water System and Power System manage finances separately; each has its own credit rating

Water and Power synergy exists in sharing services and costs from “Joint Services” arm of LADWP

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Discussion TopicsDiscussion Topics

Organization OverviewOrganization Overview Asset ManagementAsset Management Financial PlanningFinancial Planning Financing OptionsFinancing Options Financial MetricsFinancial Metrics Coordination EffortsCoordination Efforts SummarySummary

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SummarySummary

LADWP uses typical public agency financing methods, subject to policy set by governing body

Use asset management principles to not only maintain and upgrade infrastructure, but also to assist in financial planning

Financial planning process is dynamic need to maintain flexibility anticipate trends and long-term needs

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SummarySummary

Financing options include cash, debt, grants, third party monies, and public/private partnerships

Financial metrics are established to ensure fiscal integrity, a high credit rating, and sufficient liquidity

Coordination with credit rating agencies and other stakeholders are proactive and timely

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Questions?Questions?