Irvine Ranch Water District

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• Irvine Ranch Water District
• Special District Consolidations

Presentation to CALAFCo Conference September 6,
2006
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Todays Discussion Topics

• Background on IRWD and the districts 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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The IRWD Community

• 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.)

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(No Transcript)
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Six Critical Components
Successful Consolidations and Reorganizations

• 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

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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 Agencys rates reduced
• Full services are received immediately
• After Acquisition Balance funded and parity
  achieved, rates equal among both agencies

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Successful Reorganizations/Consolidations

• 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 Agencys 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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Successful Reorganizations/Consolidations

• 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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Successful Reorganizations/Consolidations

• Integration of Workforce
• No staff reductions - all employees
  migrate into IRWD workforce
• Employees integrated into IRWDs 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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Successful Reorganizations/Consolidations

• Water Delivery Service
• Dissolved Agencys 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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Successful Reorganizations/Consolidations

• Water Delivery Service (contd)
• Dissolved Agencys 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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Successful Reorganizations/Consolidations

• 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 HOAs and
  community organizations
• Personalized customer service

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Successful Reorganizations/Consolidations

• Discussion What is the Acquisition Balance?
• Tool to achieve equity and fairness
• Method by which dissolved agencys ratepayers
  fund their fair share of existing IRWD-funded
  water facilities
• Enables dissolved agencys ratepayers to take
  advantage of existing IRWD facilities to lower
  water costs
• Allows dissolved agencys rates ultimately to be
  equivalent to IRWD rates

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Successful Reorganizations/Consolidations
Acquisition Balance (Buy-in) - Example
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
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Successful Reorganizations/Consolidations
Acquisition Balance from the Consolidation (Net
Buy-in Cost Credits) - Example
CATEGORY CATEGORY AMOUNT
Buy-in Cost (previous Page) Buy-in Cost (previous Page) 5,854,900
BUY-in Credits BUY-in Credits
Cash transferred Cash transferred 2,330,000
Value of real property assets Value of real property assets 500,000
Value of surplus system capacity that can benefit consolidated district Value of surplus system capacity that can benefit consolidated district 1,129,600
Total estimated credits Total estimated credits 3,959,600
Net buy-in costs Net buy-in costs 1,895,300
ESTIMATED ANNUAL PAYMENTS FROM RATE DIFFERENTIAL ESTIMATED ANNUAL PAYMENTS FROM RATE DIFFERENTIAL 291,500
ESTIMATED TERM 6 years, 6 months 6 years, 6 months
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Successful Reorganizations/Consolidations
Acquisition Balance Calculation Example SCWD
SCWD
2.50/ccf
19.00/mo
20 Rate Reduction
2.00/ccf
15.00/mo
108,000/yr
183,000/yr

291,500/yr
IRWD
0.88/ccf
5.45/mo
6 yrs. 6 mo.
Acquisition Balance
1.86 million


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Successful Reorganizations/Consolidations

• 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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Successful Reorganizations/Consolidations

• 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
• jones_at_irwd.com