Irvine Ranch Water District Special District Consolidations Presentation to CALAFCo Conference September 6, 2006

Irvine Ranch Water District

Special District Consolidations

Presentation to CALAFCo Conference

September 6, 2006


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Today’s Discussion Topics

• Background on IRWD and the district’s four past consolidations

• Discuss six critical components of a successful consolidation/reorganization

• What were some of the issues encountered post-reorganization?

• Conclusions and lessons learned


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About Irvine Ranch Water District

• Background: Formed in 1961 by landowners to supply water for extensive irrigation purposes and limited municipal purposes - population 300

• California Water District enabled to provide:- Water - Hydroelectric- Wastewater - Recycled water- Env. Resource Management - Urban Runoff

• Current Customer Base- Residential Population = 316,000- Daytime Population estimated = 500,000- Service Connections = 92,000


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• All or portions of six cities and unincorporated

County, approximately 20% of the County

(120 square miles)

• Irvine “master planned” community

– More uniform lot sizes, HOAs, etc.

– Typically 5,000 - 8,000 square foot lots

• Also large lots (¼-acre to 1-acre) - Newport Coast, Shady Canyon

• Older areas with odd lot sizes, diverse uses, few HOAs (Santa Ana Heights, Santiago Canyon)

• Dense commercial areas (Irvine Spectrum, Irvine Business Complex, etc.)

The IRWD Community

Santa Ana Heights Mutual Water

Company

Date: July 1997

Services: Domestic Water

Customers: 10,100

Employees: 4

Irvine Ranch Water

District

1997

CarpenterIrrigation District

Date: January 1999

Services: Irrigation Water

Customers/Acres: 9/1,335

Employees: 2

Los AlisosWater District

Date: January 2001

Services:• Domestic Water• Wastewater• Reclaimed Water

Customers: 43,000

Employees: 42

Santiago CountyWater District

Date: July 2006

Services: Domestic Water

Customers: 2,500

Employees: 4.5

Irvine RanchWater District

Services:• Domestic Water• Wastewater• Reclaimed Water• Urban Runoff Treatment

Customers: 316,000

Employees: 297


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Six Critical Components

• Recognition of Equity

• Transition Plan for Rates and Charges

• Governance and Representation

• Integration of Workforce

• System Integration and Levels of Service

• Community Issues and Involvement

Successful Consolidations and Reorganizations


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Successful Reorganizations/Consolidations

Recognition of Equity:

•Mechanism to transition agencies into financial parity

– Recognize each agencies’ assets

– Fair to ratepayers in each agency

– Use of “Acquisition Balance” to close gap

• During funding of Acquisition Balance:

– Dissolved Agency’s rates reduced

– Full services are received immediately

• After Acquisition Balance funded and parity achieved, rates equal among both agencies


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• Transition Plan for Rates and Charges:

–Immediate savings from items such as: accounting, legal, Board fees, insurance, etc.

–Typical 10 to 20% rate reduction at consolidation during period to retire Acquisition Balance

–Dissolved Agency’s rates equal to IRWD rates when Acquisition Balance retired

–Projected 25 years savings can be significant (Example: SCWD $7.5 million over 20 years)



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• Governance and Representation:

–Critical Issue to resolve early

–Dissolved Agency Board reconstituted as Advisory Committee to represent former service area

–Advisory Committee meets monthly as committee of IRWD Board and makes recommendations

–Term of the Advisory Committee consistent with LAFCO Three Year Plan of Service

–After term, Advisory Committee designates community liaison(s) to continue to work with Board of consolidated agency


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• Integration of Workforce:

– No staff reductions - all employees migrate into IRWD workforce

– Employees integrated into IRWD’s current salary and benefit system with no pay or net benefit reduction

– If requested by employee, severance arrangements and out-placement assistance provided

– Enhanced job opportunities in consolidated district



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• Water Delivery Service:

– Dissolved Agency’s residents receive all services and operational benefits – fully integrated

• Additional water supply reliability and redundancy

• Enhanced emergency response capabilities

• More diverse, multi-discipline staffing with depth, expertise, and experience

• Other services (i.e. water conservation programs, live customer service, electronic bill pay, etc.)


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• Water Delivery Service (cont’d):

– Dissolved Agency’s service area to have full access to IRWD water system capital Replacement Fund

• Repair/Replacement fund “insurance policy”

– Acquisition Balance includes funding for mutually identified water system deficiency issues

• Review/coordinate capital program with Management Committee


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Community Issues:

• Where does IRWD stand on important issues for residents (examples)?

– Support for lifestyle and environmental values

– Maintain agreed-to level of local services at existing headquarters during Three Year Plan of Service

– Make the existing meeting facilities available for non-profit community meetings

– Maintaining relationships with existing HOA’s and community organizations

– Personalized customer service


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Discussion: What is the Acquisition Balance?

• Tool to achieve equity and fairness

• Method by which dissolved agency’s ratepayers fund their fair share of existing IRWD-funded water facilities

• Enables dissolved agency’s ratepayers to take advantage of existing IRWD facilities to lower water costs

• Allows dissolved agency’s rates ultimately to be equivalent to IRWD rates


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CATEGORY AMOUNT

• Lower Cost water supply buy-in $141,000

• Facility Replacement fund contribution $467,400

• Capital to fund system deficiency corrections (estimate w/contingency)

$1,266,000

• Pipeline and Reservoir Capacity buy-in for increased reliability

$163,000

• PERs buy-in for current employees $50,000

• Consolidation costs (estimated) $7,500

• Outstanding debt $3,760,00

Total estimated buy-in: $5,854,90

Acquisition Balance (Buy-in) - Example


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CATEGORY AMOUNT

Buy-in Cost (previous Page) $5,854,900

BUY-in Credits:

• Cash transferred $2,330,000

• Value of real property assets $500,000

• Value of surplus system capacity that can benefit consolidated district

$1,129,600

Total estimated credits: $3,959,600

Net buy-in costs: $1,895,300

ESTIMATED ANNUAL PAYMENTS FROM RATE DIFFERENTIAL:

$291,500

ESTIMATED TERM: 6 years, 6 months

Acquisition Balance from the Consolidation (Net Buy-in Cost & Credits) - Example



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Acquisition Balance Calculation – Example SCWD

SCWD

Acquisition Balance

IRWD

$2.50/ccf

$2.00/ccf $15.00/mo

$19.00/mo

20% Rate Reduction

$0.88/ccf $5.45/mo

$1.86 million

Commodity Meter Charge

$291,500/yr

= 6 yrs. 6 mo.

$291,500/yr

$183,000/yr $108,000/yr =

=

+


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Other Important items to have in place• A very detailed Consolidation Agreement -

– Governance, representation structure and schedule– Rates transition, Acquisition Balance, assets – Employee matters– Former Board and employee benefits

• Review of Agreement and terms with LAFCO staff prior to application submittal

• Comprehensive Three Year Plan of Service • Completion of certain items prior to Effective Date

– Retirement Plan and health care transition– Contract close-outs– Transitional service contracts (legal, financial, engineering)


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Issues Encountered and Lessons Learned

• Undisclosed or undesirable commitments made by previous Boards and Management

– Example: Retired board member benefits

– Last minute “enhancements” approved by Board or Management

– Water or wastewater rate “deals”

• Condition of facilities

– Sub-standard design or construction

Conclusions

• Issues minimal

• Ratepayers consistently saved money, increased reliability, retained representation, enhanced level of service


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Questions ?Paul D. Jones

General Manager IRWD

[email protected]

Documents

Irvine Ranch Water District Special District Consolidations Presentation to CALAFCo Conference September 6, 2006