Financing Greenfield Developments An Overview of Financing Options for a combined Water System

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Financing Greenfield DevelopmentsAn Overview
of Financing Options for a combined Water System

• Presentation to NARUC Water Committee
• July 2007
• By Keith Switzer, Golden State Water Company
• Peter Johnson, Sun Cal Companies

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Golden State Water Company

• GSWC is a subsidiary of American States Water
  Company (NYSE AWR)
• GSWC provides water and electric utility service
  in California
• GSWC is regulated by the California Public
  Utility Commission (CPUC)
• GSWC was incorporated in 1929.

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Golden State Water Company

• GSWC operates 40 separate water systems
• GSWC serves 75 communities in 10 counties in the
  State of California
• GSWC provides water service to over 1 million
  people, or 1 out of 30 Californians
• GSWC has an annual water revenue of approximately
  219 million

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Water Issues in California

• Increasing Demand for water
• Availability / Cost of Supply
• Reliability
• Water Quality
• Infrastructure

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California Public Utilities Commission Water
Action Plan

• Issued in December 2005
• Identifies policy objectives of the CPUC
• Highlights actions to meet objectives.
• In light of increasing statewide concerns about
  water quality and supply, the Commission will
  explore innovative solutions to water problems

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California Public Utilities Commission Water
Action Plan

• Four Key Principles Underlying the CPUC
  Regulatory Policy
• Safe, high quality water
• Highly reliable water supplies
• Efficient use of water
• Reasonable rates and viable utilities

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California Public Utilities Commission Water
Action Plan

• Six Objectives
• Maintain Highest Standards of Water Quality
• Strengthen Water Conservation Programs to a Level
  Comparable to those of Energy Utilities
• Promote Water Infrastructure Investment
• Assist Low Income Ratepayers
• Streamline CPUC Regulatory Decision-making
• Set Rates Balancing Investment, Conservation, and
  Affordability

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SunCal Companies

• Privately held development company
• Residential Development since 1940s
• Specialize in large master plan projects
• Sell graded lots to national builders
• Over 160,000 residential lots in California
• A further 100,000 in NV, AZ, TX and NM

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Intuitive Water Conservation

• Water exists on earth in a finite amount
• Any new project creates new demand for water
• We should reduce demand as much as practicable
• We should then do our best to get the most use
  out of the water we do have (i.e. by using it
  twice)

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Water Demand Management

• Xeriscape landscape and irrigation
• Limitations on turf or thirsty areas
• Computerized central irrigation controllers
• Smart irrigation controllers on all homes
• Remote reading smart utility meters

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Water Supply Management

• Only 40 of total demand need be potable quality
  water
• Treat and reuse all of that 40
• Large projects facilitate new treatment
  techniques because of their size
• Locate alternative existing sources for recycled
  water (most are currently underutilized)
• Storage facility (lake) doubles for recreation

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Bundled Utility Opportunity

• There is no current provider of utility service
  to the project area
• We can design the water, recycled water, and
  sewer systems to be optimally operated by a
  single entity
• This implies multiple economies in operation and
  administration particularly in timing of energy
  demand across all three utilities and maintenance
  operations

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Summary of Project Benefits

• Project water needs are reduced by 60
• No conveyance cost and reduced energy demand for
  onsite reuse
• Much increased reliability of recycled water vs.
  other sources
• Smart meters save both labor and vehicle trips
• Bundled utility management is more efficient
  resulting in long term savings to ratepayers

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Why isnt everyone doing it?

• Additional capital costs are considerable
• Many existing municipal utilities will not
  contemplate the bundled utility concept
• Most projects are not large enough to deliver all
  the needed components
• There is no real incentive for a developer to
  risk additional millions of dollars

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Whats stopping us from doing it?

• We have a willing and qualified public utility
• We have a very large project that will deliver
  all of the infrastructure needed to accommodate
  recycled water
• But we cannot employ the normal financing tools
  available to municipal utility companies with
  taxing authority
• Current rules do not allow SunCal to recapture
  the cost of infrastructure sufficiently quickly
  for there to be any incentive to invest

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Is this project consistent with the WAP
objectives?

• Water Conservation Aspect
• Energy Conservation
• Increased Reliability
• Improved Life-cycle cost of facilities

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Underlying Economics

• Cost and Benefits of Dual System
• Capital cost of reclaimed system
• Reduced cost of water
• Social Benefits
• Reclaimed water reduces demand for potable water
• Reduced energy usage
• Reduction in greenhouse gases
• Recreation benefit

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Recycled Water System Annual Cost Savings
Comparison
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Financing Options for Greenfield Development

• Utility Funds and Builds Infrastructure
• Special Assessment
• Developer Advance (CPUC Rule 15)
• Another Option ????

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Goals of New Financing Approach

• Have integrated services provided by CPUC
  regulated utility
• Create a financing mechanism that can compete
  with the assessment district option
• Provide incentive to developer to do the right
  thing re-use where cost is lowest
• Avoid the utility absorbing development risk
• Recognize the life-cycle savings as a means to
  finance the upfront cost of re-use