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Figure 3: Fund 100 Ending Balances (Scenario 3) Fund 100 $60 $50 $40 $30 $20 $10 $0 ($10) FY 2019 FY 2020 FY 2021 FY 2022 MNEnding Balance • Target -Target w/o Rate Stab. Recommendations A discussion of the fmal recommendations and results should begin with reviewing the major objectives set forth in the beginning of the Study: • Develop a fmancial plan to ensure financial sufficiency, meet O&M costs,fund capital projects, and develop sufficient reserve levels • Develop a four-year rate structure that increases revenue stability while minimizing customer impacts • Develop treated wholesale water rates that are fair and equitable The fmancial plan scenarios in the previous section were analyzed carefully to determine the resulting fmancial and rate impacts of each scenario. Based on discussion with Agency staff, Scenario 3 represents the situation most likely to arise in future years.The additional water supply reliability costs,totaling approximately$15.2 million in the four-year Study period,provide a contingency plan during periods of unreliable water supply. Currently,80 percent of water demand is met through SWP water. However,this demand can only be met if supply conditions for SWP are favorable. During unfavorable conditions,the Agency must purchase water from other sources which may drive up costs considerably. The funds used for additional water supply reliability projects will increase water supply reliability for the Agency. The revenue adjustments proposed in Scenario 3(3.0 percent CPI increase,with an additional 6.5 percent per year) produce sufficient revenues to ensure the utility's financial sufficiency and cover all costs. The Agency is expected to meet reserve targets without funding the Rate Stabilization Reserve. Although this is a reasonable approach to reduce customer impacts during this Study period,Raftelis recommends that the Agency fund the Rate Stabilization Reserve in the future to have the ability to stabilize rates in case of increased or unexpected expenses. However,increasing revenues alone does not address another problem the Agency faces:revenue instability. Due to increased conservation over the past few years,fueled mainly by the five-year drought conditions in prior years and conservation mandates,there is a discrepancy between projected sales and actual sales.Agency staff receives projections from its customers,which are ultimately used to determine the variable charge.When actual sales are less than projected sales,there is a revenue shortfall. The Agency's costs,however,are mostly fixed;in instances of reduced revenue, the Agency must draw down reserves to offset the shortfall. ZONE 7 WATER AGENCY TREATED WATER WHOLESALE RATE STUDY REPORT 11