October 31, 2012

Ms. Diana Brooks

California Public Utilities Commission
Division of Ratepayer Advocates
Room 4208
505 Van Ness Avenue
San Francisco, CA 94102-3214

Dear Diana:
As a follow up to our discussions on October 30th about financial models, I am sharing an analysis of the
ratepayer savings due to a public contribution. The comparison is a generic evaluation of traditional
investor-owned utility finance of either $50 million or $100 million, with the resulting annual revenue
requirement compared to the annual amortization of a public debt issuance that would provide the
public contribution.
In the simplest model, the District would issue debt secured by a surcharge on the Cal-Am bill, but backstopped by its own municipal credit based on the Districts ability to raise moneys through a Proposition
218 process in the future. The surcharge could be directed by the CPUC to be placed on the bills and
could be deemed a reinstatement of our previously existing and presently suspended user fee, the
7.125% portion of which is grandfathered from the Proposition 218 process. We would not actually
need the full user fee amount to amortize the debt and would cap it at the amount required for the
debt, rather than let it rise as a percentage of the Cal-Am revenues each year.
The results are quite compelling and are summarized below:
Public Contribution Amount
In 2016
$100 million
$50 million

Total Ratepayer Savings

Over Life of Project
$124.5 million
$62.2 million

Net Present Value of Ratepayer

Savings in 2016 Dollars
$79.2 million
$39.6 million

The net present value was calculated using a 5.0% discount rate. Our other assumptions are as follows:
Traditional Investor-Owned Utility finance
47% debt / 53% equity
5.00% debt interest rate
9.99% post-tax equity rate of return
40.75% Effective Tax Rate
35% Federal tax rate
8.84% California tax rate

Diana Brooks
Page 2 of 2
10-31-12

1.05% Ad Valorem Tax Rate

0.2643% Uncollectibles
40 year depreciable life (2.50% factor)
25 year tax depreciable life (4.00% factor)
Public Debt
3.50% interest cost
30 year term
Debt service reserve fund equal to one annual debt payment
Issuance costs equal to 1% of proceeds plus reserve
Contributions such as SRF loans or tax-exempt debt are treated as repaid through a surcharge, and that
portion is removed from rate base and not subject to a return. This model does not subject the interest
component to gross-up for taxes and does not treat the interest expense as a deductible expense item.
We also did not assume any of the traditional financing was done with State Revolving Fund loans
instead of corporate debt, which would reduce the benefits of a public contribution, but such benefits
would remain substantial.
Please review the following summary analyses and please feel free to contact me as you have questions.
Sincerely yours,

David J. Stoldt
General Manager

cc: Inder Atwal

Scenario1:MPWMDContributionof$100million
PublicAgencyDebtCalculation

2017
2018
2019
2020
2021
2022
2023
2024
2025
2026
2027
2028
2029
2030
2031
2032
2033
2034
2035
2036
2037
2038
2039
2040
2041
2042
2043
2044
2045
2046
2047
2048
2049
2050
2051
2052
2053
2054
2055
2056

PrincipalDue
$2,070,117
2,142,571
2,217,561
2,295,176
2,375,507
2,458,650
2,544,703
2,633,767
2,725,949
2,821,357
2,920,105
3,022,309
3,128,089
3,237,573
3,350,888
3,468,169
3,589,555
3,715,189
3,845,221
3,979,803
4,119,096
4,263,265
4,412,479
4,566,916
4,726,758
4,892,194
5,063,421
5,240,641
5,424,063
5,613,906
0
0
0
0
0
0
0
0
0
0
$106,865,000

InterestDue
$3,740,275
3,667,821
3,592,831
3,515,216
3,434,885
3,351,742
3,265,690
3,176,625
3,084,443
2,989,035
2,890,287
2,788,084
2,682,303
2,572,820
2,459,505
2,342,224
2,220,838
2,095,203
1,965,172
1,830,589
1,691,296
1,547,128
1,397,913
1,243,476
1,083,634
918,198
746,971
569,751
386,329
196,487
0
0
0
0
0
0
0
0
0
0
$67,446,771

Total
DebtService
$5,810,392
5,810,392
5,810,392
5,810,392
5,810,392
5,810,392
5,810,392
5,810,392
5,810,392
5,810,392
5,810,392
5,810,392
5,810,392
5,810,392
5,810,392
5,810,392
5,810,392
5,810,392
5,810,392
5,810,392
5,810,392
5,810,392
5,810,392
5,810,392
5,810,392
5,810,392
5,810,392
5,810,392
5,810,392
5,810,392
0
0
0
0
0
0
0
0
0
0
$174,311,771

DebtService
ReserveUsed
$203,364
203,364
203,364
203,364
203,364
203,364
203,364
203,364
203,364
203,364
203,364
203,364
203,364
203,364
203,364
203,364
203,364
203,364
203,364
203,364
203,364
203,364
203,364
203,364
203,364
203,364
203,364
203,364
203,364
5,810,392
0
0
0
0
0
0
0
0
0
0
$11,707,941

Assumes3.5%interestrate,issuancecosts,andreservefund

Net
DebtService
$5,607,029
5,607,029
5,607,029
5,607,029
5,607,029
5,607,029
5,607,029
5,607,029
5,607,029
5,607,029
5,607,029
5,607,029
5,607,029
5,607,029
5,607,029
5,607,029
5,607,029
5,607,029
5,607,029
5,607,029
5,607,029
5,607,029
5,607,029
5,607,029
5,607,029
5,607,029
5,607,029
5,607,029
5,607,029
0
0
0
0
0
0
0
0
0
0
0
$162,603,830

Depreciation
&Amortization
$2,500,000
2,500,000
2,500,000
2,500,000
2,500,000
2,500,000
2,500,000
2,500,000
2,500,000
2,500,000
2,500,000
2,500,000
2,500,000
2,500,000
2,500,000
2,500,000
2,500,000
2,500,000
2,500,000
2,500,000
2,500,000
2,500,000
2,500,000
2,500,000
2,500,000
2,500,000
2,500,000
2,500,000
2,500,000
2,500,000
2,500,000
2,500,000
2,500,000
2,255,699
0
0
0
0
0
0
$84,755,699

TraditionalUtilityFinancingMethod
Total
Total
PreTax
AdValorem
Revenue
Return
Taxes
Requirement
$11,169,644
$1,041,907
$14,711,551
10,846,670
1,011,780
14,358,450
10,492,902
978,780
13,971,682
10,138,972
945,765
13,584,737
9,785,041
912,751
13,197,791
9,431,109
879,736
12,810,845
9,077,178
846,721
12,423,899
8,723,247
813,706
12,036,953
8,369,316
780,692
11,650,007
8,015,384
747,677
11,263,061
7,661,453
714,662
10,876,115
7,307,522
681,647
10,489,169
6,953,591
648,632
10,102,223
6,599,660
615,618
9,715,277
6,245,728
582,603
9,328,331
5,891,797
549,588
8,941,385
5,537,866
516,573
8,554,439
5,183,935
483,559
8,167,493
4,830,003
450,544
7,780,547
4,476,072
417,529
7,393,601
4,122,141
384,514
7,006,655
3,768,210
351,499
6,619,709
3,414,278
318,485
6,232,763
3,060,347
285,470
5,845,817
2,706,416
252,455
5,458,871
2,387,069
222,666
5,109,735
2,102,488
196,121
4,798,608
1,818,091
169,592
4,487,682
1,533,694
143,063
4,176,757
1,249,298
116,535
3,865,833
964,902
90,006
3,554,908
680,505
63,478
3,243,983
396,109
36,949
2,933,058
126,955
11,842
2,394,497
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
$185,067,593
$17,263,145
$287,086,432
Note:NogrossUpforUncollectibles

SavingsFromMPWMDContribution
Annual
Savings
$9,104,522
8,751,421
8,364,653
7,977,708
7,590,762
7,203,816
6,816,870
6,429,924
6,042,978
5,656,032
5,269,086
4,882,140
4,495,194
4,108,248
3,721,302
3,334,356
2,947,410
2,560,464
2,173,518
1,786,572
1,399,626
1,012,680
625,734
238,788
148,158
497,294
808,421
1,119,347
1,430,272
3,865,833
3,554,908
3,243,983
2,933,058
2,394,497
0
0
0
0
0
0
$124,482,602

NPVof
Savings
$8,670,974
7,937,797
7,225,702
6,563,280
5,947,561
5,375,599
4,844,623
4,352,026
3,895,358
3,472,313
3,080,726
2,718,558
2,383,898
2,074,945
1,790,010
1,527,507
1,285,945
1,063,926
860,135
673,340
502,385
346,185
203,721
74,041
43,751
139,859
216,534
285,538
347,479
894,467
783,358
680,802
586,238
455,804
0
0
0
0
0
0
$79,238,060

Scenario2:MPWMDContributionof$50million
PublicAgencyDebtCalculation

2017
2018
2019
2020
2021
2022
2023
2024
2025
2026
2027
2028
2029
2030
2031
2032
2033
2034
2035
2036
2037
2038
2039
2040
2041
2042
2043
2044
2045
2046
2047
2048
2049
2050
2051
2052
2053
2054
2055
2056

PrincipalDue
$1,035,107
1,071,336
1,108,833
1,147,642
1,187,809
1,229,383
1,272,411
1,316,945
1,363,038
1,410,745
1,460,121
1,511,225
1,564,118
1,618,862
1,675,522
1,734,165
1,794,861
1,857,681
1,922,700
1,989,995
2,059,645
2,131,732
2,206,343
2,283,565
2,363,490
2,446,212
2,531,829
2,620,443
2,712,159
2,807,084
0
0
0
0
0
0
0
0
0
0
$53,435,000

InterestDue
$1,870,225
1,833,996
1,796,499
1,757,690
1,717,523
1,675,950
1,632,921
1,588,387
1,542,294
1,494,587
1,445,211
1,394,107
1,341,214
1,286,470
1,229,810
1,171,167
1,110,471
1,047,651
982,632
915,337
845,688
773,600
698,989
621,767
541,843
459,120
373,503
284,889
193,173
98,248
0
0
0
0
0
0
0
0
0
0
$33,724,963

Total
DebtService
$2,905,332
2,905,332
2,905,332
2,905,332
2,905,332
2,905,332
2,905,332
2,905,332
2,905,332
2,905,332
2,905,332
2,905,332
2,905,332
2,905,332
2,905,332
2,905,332
2,905,332
2,905,332
2,905,332
2,905,332
2,905,332
2,905,332
2,905,332
2,905,332
2,905,332
2,905,332
2,905,332
2,905,332
2,905,332
2,905,332
0
0
0
0
0
0
0
0
0
0
$87,159,963

DebtService
ReserveUsed
$101,687
101,687
101,687
101,687
101,687
101,687
101,687
101,687
101,687
101,687
101,687
101,687
101,687
101,687
101,687
101,687
101,687
101,687
101,687
101,687
101,687
101,687
101,687
101,687
101,687
101,687
101,687
101,687
101,687
2,905,332
0
0
0
0
0
0
0
0
0
0
$5,854,244

Assumes3.5%interestrate,issuancecosts,andreservefund

Net
DebtService
$2,803,645
2,803,645
2,803,645
2,803,645
2,803,645
2,803,645
2,803,645
2,803,645
2,803,645
2,803,645
2,803,645
2,803,645
2,803,645
2,803,645
2,803,645
2,803,645
2,803,645
2,803,645
2,803,645
2,803,645
2,803,645
2,803,645
2,803,645
2,803,645
2,803,645
2,803,645
2,803,645
2,803,645
2,803,645
0
0
0
0
0
0
0
0
0
0
0
$81,305,719

Depreciation
&Amortization
$1,250,000
1,250,000
1,250,000
1,250,000
1,250,000
1,250,000
1,250,000
1,250,000
1,250,000
1,250,000
1,250,000
1,250,000
1,250,000
1,250,000
1,250,000
1,250,000
1,250,000
1,250,000
1,250,000
1,250,000
1,250,000
1,250,000
1,250,000
1,250,000
1,250,000
1,250,000
1,250,000
1,250,000
1,250,000
1,250,000
1,250,000
1,250,000
1,250,000
1,127,850
0
0
0
0
0
0
$42,377,850

TraditionalUtilityFinancingMethod
Total
Total
PreTax
AdValorem
Revenue
Return
Taxes
Requirement
$5,584,822
$520,953
$7,355,775
5,423,335
505,890
7,179,225
5,246,451
489,390
6,985,841
5,069,486
472,883
6,792,369
4,892,520
456,375
6,598,895
4,715,555
439,868
6,405,423
4,538,589
423,361
6,211,950
4,361,623
406,853
6,018,476
4,184,658
390,346
5,825,004
4,007,692
373,838
5,631,530
3,830,727
357,331
5,438,058
3,653,761
340,824
5,244,585
3,476,795
324,316
5,051,111
3,299,830
307,809
4,857,639
3,122,864
291,301
4,664,165
2,945,899
274,794
4,470,693
2,768,933
258,287
4,277,220
2,591,967
241,779
4,083,746
2,415,002
225,272
3,890,274
2,238,036
208,764
3,696,800
2,061,070
192,257
3,503,327
1,884,105
175,750
3,309,855
1,707,139
159,242
3,116,381
1,530,174
142,735
2,922,909
1,353,208
126,228
2,729,436
1,193,534
111,333
2,554,867
1,051,244
98,060
2,399,304
909,045
84,796
2,243,841
766,847
71,532
2,088,379
624,649
58,267
1,932,916
482,451
45,003
1,777,454
340,253
31,739
1,621,992
198,054
18,475
1,466,529
63,478
5,921
1,197,249
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
$92,533,796
$8,631,572
$143,543,218
Note:NogrossUpforUncollectibles

SavingsFromMPWMDContribution
Annual
Savings
$4,552,130
4,375,580
4,182,196
3,988,724
3,795,250
3,601,778
3,408,305
3,214,831
3,021,359
2,827,885
2,634,413
2,440,940
2,247,466
2,053,994
1,860,520
1,667,048
1,473,575
1,280,101
1,086,629
893,155
699,682
506,210
312,736
119,264
74,209
248,778
404,341
559,804
715,266
1,932,916
1,777,454
1,621,992
1,466,529
1,197,249
0
0
0
0
0
0
$62,237,499

NPVof
Savings
$4,335,361
3,968,780
3,612,738
3,281,533
2,973,677
2,687,702
2,422,218
2,175,924
1,947,595
1,736,076
1,540,286
1,359,206
1,191,879
1,037,406
894,942
763,694
642,916
531,908
430,016
336,621
251,145
173,048
101,818
36,980
21,914
69,967
108,302
142,803
173,771
447,233
391,679
340,401
293,119
227,902
0
0
0
0
0
0
$39,617,045