A 12-04-01 Direct Testimony of Robert Larkins MPWMD.pdf

7/28/2019 A 12-04-01 Direct Testimony of Robert Larkins MPWMD.pdf

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DIRECTTESTIMONY OF ROBERTLARKINS

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WD-8

BEFORE THE PUBLIC UTILITIES COMMISSION

OF THE STATE OF CALIFORNIA

In the Matter of the Application of California- Application No. 12-04-019American Water Company (U210W) for a (Filed April 23, 2013)Certificate of Public Convenience andNecessity to Construct and Operate itsMonterey Water Supply Project to Resolve theLong-Term Water Supply Deficit in itsMonterey District and to Recover All PresentAnd Future Costs in connection Therewith inRates

DIRECT TESTIMONY OF ROBERT LARKINS

De LAY & LAREDODavid C. Laredo, CSBN 66532Heidi A. Quinn, CSBN 180880Alex J. Lorca, CSBN 266444606 Forest AvenuePacific Grove, CA 93950-4221Telephone: (831) 646-1502Facsimile: (831) 646-0377Email: [email protected]

[email protected]@laredolaw.net

Attorneys forMONTEREY PENINSULA WATER

MANAGEMENT DISTRICT

February 22, 2013


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BEFORE THE PUBLIC UTILITIES COMMISSION

OF THE STATE OF CALIFORNIA

In the Matter of the Application of California- Application No. 12-04-019

American Water Company (U210W) for a (Filed April 23, 2013)Certificate of Public Convenience andNecessity to Construct and Operate itsMonterey Water Supply Project to Resolve theLong-Term Water Supply Deficit in itsMonterey District and to Recover All PresentAnd Future Costs in connection Therewith inRates

DIRECT TESTIMONY OF ROBERT LARKINS

I. INTRODUCTION

Q1. What is your name and address?

A1. My name is Robert Larkins. My business address is One Embarcadero Center, Suite 650,

San Francisco, CA 94111.

Q2. By whom are you employed and in what capacity?

A2. I am employed by Raymond James & Associates, Inc., as a Managing Director and

Manager of the Western Region for Public Finance. I am the lead representative for my

firm in our role as Consultant to the Monterey Peninsula Water Management District.

Q3. Can you briefly describe your educational background?

A3. I graduated with a degree in Political Science, Magna cum Laude and Phi Beta Kappa from

Stanford University in 1984.


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Q4. Do you have professional experience with large scale capital projects, such as water supply

projects?

A4. Yes. I have spent my entire career (1985 to present) in California municipal finance. I have

completed over $50 billion of bond financings. Specific water-related experience includesfinancings for the Lopez Dam in San Luis Obispo County, the Los Vaqueros Dam

expansion for Contra Costa Water Authority, and the City of San Diegos inaugural

wastewater system financing in 1993. I have done work for East Bay MUD, Marin

Municipal Water District, and Sacramento Regional Sanitation District. I have also done

bond underwriting work for Monterey County and the City of Carmel-by-the- Sea.

Q5. What is the purpose of this direct testimony?

A5. I am here to testify to the benefits to ratepayers in the Cal-Am service territory from the

Public Financing Proposal submitted by the Monterey Peninsula Water Management

District.

Q6. Are there financing tools available from the public sector that can reduce the cost of the

proposed project to ratepayers?

A6. Yes, there are a number of tools that can benefit ratepayers. Any tool that will provide

longer term financing at a lower cost of capital than Cal-Ams regulated return on equity

and allowed corporate debt cost will benefit ratepayers, as will tools that reduce or replace

Cal-Ams proposed surcharge 2 which, despite not bearing a gross-up for debt cost or

equity return in the revenue requirement, still must be paid by ratepayers, and still impacts

the revenues required from consumers in the near term.

a) State Revolving Fund loans. Certainly, if Cal-Am can secure SRF financing,this is the best form of financing from a rate payer perspective. Currently

bearing a cost of 1.7% for 20 years, this is very cheap money, and as is the

generally the case in any project financing of this nature, the better one can


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match the term of the debt to the useful life of the asset the better it is for

ratepayersboth today and in the future. However, it is not clear to me that the

Company will qualify, as the existing programs are set up for public agencies

and native American organizations, not private investor owned utilities.Further, because in California the SRF programs are, in part, funded with tax-

exempt bonds, it is not clear that a large loan to Cal-Am would not run afoul of

existing tax covenants made by the State to its bondholders, and we also have

concerns that the SRF program administrators would make such a large loan to

an unrated entity like Cal-Am. I think all parties would be well served before

going too far down this road, by requiring the Company to provide written

documentation from the relevant agencies at the State that demonstrate it not

only is an eligible borrower, but that the targeted SRF loan programs can, in

fact, provide the magnitude of contribution being sought. At least one Cal-Am

case assumes $86.1 million of SRF debtthat is an enormous input to the

model, which, if not viable, has significant impacts for ratepayers.

b) Securitization. From a cost perspective, the second best tool for lowering the

burden of this project on ratepayers would be a tax-exempt securitization,

which has been described in the Districts February 5 proposal. In this

approach, the District would set up a non-recourse, special purpose entity to

issue long term tax-exempt financing secured by a Commission- ordered, Cal-

Am collected surcharge that would be sufficient to amortize the debt. Think of

securitization as an enhanced revenue bond. While local ratepayers would

be paying the surcharge (much like conventional water revenue bonds), the

legal architecture of the securitization results in the debt being neither an

obligation of the District nor Cal-Am, and the rating agencies and capital

markets look solely to the integrity of the Commission-ordered, non-

bypassable user fee. Properly structured, we anticipate a securitization would


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enjoy very strong ratings, most likely AA or better. In the current market, a 30

year AA tax exempt securitization as described above, and subject to the

Alternative Minimum Tax (AMT) because Cal-Ams use of the funds is for

exempt facilities under the federal tax code, would likely clear the market at3.6%. Though the rate is higher than the SRF loan, the 30 year term is

beneficial to ratepayers by reducing the annual revenue requirement.

c) Use of tax-exempt debt by Cal-Am for its debt component. Cal-Am has, on

prior occasions, accessed the tax-exempt debt market through the California

Pollution Control Financing Authority (CPCFA). This requires obtaining so-

called private activity bond allocation through the California Debt Limit

Allocation Committee (CDLAC). We estimate this debt clears the market at

4.80%.

d) Public Agency certificates of participation (COPs). As outlined in

MPWMDs memo (Exhibit WD-1 of Mr. Stoldts testimony), a public

financing issued by MPWMD (as certificates of participation) backed by the

Districts Net Revenues, is another tool for reducing the burden on ratepayers.

The revenues that would support this borrowing would include a water-use

surcharge collected on the Cal-Am bill, plus the Districts existing Water

Supply Charge, certain permit fees, interest earnings, and amounts in a District

Rate Stabilization Fund. As is typical in California water revenue bond issues,

the District would covenant to maintain Net Revenues in an amount equal to

1.25x annual debt service, and the District would covenant to enact the

requisite Prop 218 proceedings to maintain the coverage requirement. We

believe this structure would achieve ratings in the A category, and a 30 year

financing, subject to the AMT would clear the market at 4.0%.

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I I. PUBLIC CONTRIBUTION OF FUNDS

Q7. How would a public contribution of funds work?

A7. The Securitization and COPs structures discussed above are the best vehicles for a public

contribution. A public contribution of funds would reduce the amount of the project thatCal-Am would have to finance with internal resources or SRF loans. Because the portion

financed with a public contribution would not be included in the ratebase, the revenue

requirement paid by ratepayers for the pretax equity and debt returns on that portion is

replaced by the lower cost of public debt. The remaining portion would be financed by

Cal-Am in a traditional 47% debt/53% equity manner using resources available to the

company, with no impact to its debt-to-equity ratios for credit analysis purposes.

Q8. What are the potential financial benefits to ratepayers of a public contribution?

A8. We have modeled a wide range of scenarios. At one end of the spectrum, the 100 Cal Am

Equity & Corporate Debt case below, there is no public contribution, and the project is

financed with 53% Cal-Am equity and 47% Cal-Am taxable corporate debt. The Gross

revenue requirement for this scenario through 2056, is $1.971 billion. Using a 6% discount

rate, the present value is $580 million. At the other end of the spectrum, the Maximum

Public Contribution case below, the capital structure is 53% Cal-Am equity, 47% SRF

debt at 2% with a public contribution financed with $100 million of tax-exempt (AMT)

AA-rated securitization at 3.60%. This approach has a gross revenue requirement of

$1.959 billion, or $526 million present value, at 6%.

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100% Cal-AM

Equity &

Corporate Debt

Cal-AM Equity

and SRF Debt

Maximum Public

Contribution

$ (mm) % $ (mm) % $ (mm) %

Equity 98.4 53.0 97.2 53.0 40.1 53.0

Cal-AM

Corporate Debt 87.2 47.0 0.0 0.0 0.0 0.0

SRF 0.0 0.0 86.1 47.0 35.5 47.0

Securitization 0.0 0.0 0.0 0.0 100.0 (Contribution)

Gross Revenue

Requirement 1,971.3 2,021.3 1,958.8

Present Value at

6% 580.2 568.6 526.4

Q9. What modeling methodology did you use to perform your analysis?

A9. The common model agreed to by the parties in A.12-04-019 distributed January 3, 2013 and

as revised in the Supplemental Testimony Errata of Jeffrey Linam filed February 15, 2013.

Q10. Describe your interest rate assumptions for the cost of debt in your analysis.

A10. We have used the following assumptions based on the views of Raymond James &

Associates of the marketplace as of February 2013:

Cal-Am taxable debt: 5% Cal-Am CPCFA tax-exempt, AMT: 4.80% Tax-exempt securitization (conservative AA rating), AMT: 3.60% MPWMD public contribution, A-rated, AMT: 4% SRF debt (20 year): 2%


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Q11. What discount rate did you use?

A11. We have used a discount rate of 6%.

Q12. Why is that discount rate preferable to the Cal-Am assumption in the common model?A12. Cal-Ams 12% discount rate in the common financial model released January 3, 2013 is

simply indefensible. Discount rates are generally supposed to be reflective of the obligors

opportunity cost. In fact, in more normal interest rate environments, we would use our

clients pooled investment rate for discounting purposes. In other words, a rate at which

the borrower could invest idle funds. Its a bit trickier in this rate environment that reflects

the Feds near-zero interest rate policies. For example, LAIF, the Local Agency

Investment Fund managed by the State Treasurer for idle local cash is yielding 30 basis

points, or .30%. We note that the Department of Water Resources generally uses a

discount rate of 6%for project analysis. See also the supplemental testimony of Mr. Stoldt

on this topic.

Q13. What if SRF is used for Cal-Ams debt? How does this affect your analysis?

A13. As discussed above, SRF debt would be very beneficial to ratepayers. For example, in the

case we analyzed (9.6MGD/High End Capital Cost, excluding Cal-Am only facilities, with

a surcharge) replacing $87 million of Cal-Am corporate debt at an assumed cost of 5%,

with a like amount of SRF debt at 2%, reduces the present value of the revenue requirement

by $11.6 million, using a 6% discount rate.

Q14. Could interest rates rise or the relationship between taxable and tax-exempt interest rates

change by the time the debt is issued? If so, how might this affect your analysis?

A14. Yes. Interest rates remain near historic lows. The 10-year Treasury bond is currently

hovering near 2%. Before the Lehman Brothers bankruptcy in September 2008, the 10-

year was at 3.97%. Traditionally, as interest rates decline, the relationship between taxable


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and tax-exempts compresses. Before the financial crisis of 2008-09, long-term municipal

debt (munis) generally averaged 85% of taxable debt. Hence, if 30 year Treasuries were

at 6%, a high grade muni would be at roughly 5%. One consequence of the crash was that

investors realized that munis lack the liquidity characteristics of Treasuries. As a result, fora few years now, muni rates, despite their tax-exemption, have been above Treasury rates.

We strongly recommend that the final decision on the precise capital structure be

determined at a date much closer to when the project is ready to be financed. We would

recommend evaluating market conditions and relative costs six months before permanent

financing, as the financing can easily be assembled in 4-5 months of time.

100% Cal-Am Equity

& Debt Financing*

Cal-Am Equity and

SRF Debt Financing*

GrossRevenue

Requirement $2.118.7bb $2.021.3bb

Present Value at 6% $623.4mm $577.1mm

*Assumes Cal-Am corporate debt at Treasury+300bps =9%; SRF debt at 4%.

Q15. What is the impact of the proposed Surcharge 2 on your analysis?

A15. The surcharge reduces the need for higher cost Cal-Am equity and debt, but the surcharge

isnt free. Because we are talking about financing a large project with upfront costs, a

surcharge that comes in over time doesnt provide enough cash to build the projectunless

the surcharge is monetized through a borrowing, such as the securitization discussed above.

Otherwise, to make a difference, the surcharge needs to be large. For example, in the case

we analyzed, Cal-Ams model envisions surcharge revenues of $103 million in years 2014

to 2017. Those charges will fall directly on ratepayers. Our perspective is that you need to

look not only at the total revenue requirement over time, and the NPV of that revenue

requirement, but also the annual burden on ratepayers, which is why we have added to our


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modeling output a summary of rate payer impact over 5 and 10 year horizons. As shown

below, and detailed in Exhibit WD-3, we compared the 100% Cal Am Equity & Debt

case discussed in Question 8 using the surcharge versus no surcharge. The total Revenue

Requirement with the surcharge is $1.971 billion vs. $2.235 billion with no surcharge.Using a 6% discount rate, the present value of that case is $580 million with a surcharge

compared to $640.5 million without it, or a benefit to ratepayers of $60 million from the

surcharge.

100%Cal-Am Equity

& Debt Financing

with surcharge

100%Cal-Am Equity

& Debt Financing

with no surcharge

GrossRevenue

Requirement $1.971 billion $2.235 billion

Present Value at 6% $580.2 million $640.5 million

Q16. Were there concerns, corrections, or modifications you had to make to the model?

A16. Upon our initial review of the model in mid January, we found several illogical outcomes,

such as a higher revenue requirement resulting from more SRF debt, which is

counterintuitive. The District conveyed some of our findings to the Company, who has

made a number of revisions included in Mr. Linams February 15, 2013 Errata filing. We

also point out that the model assumes a large financing in 2037, and our understanding of

the corporate debt mechanics are a continuous rollover of intercompany debt, rather than a

discrete 30 year financing with a fixed amortization, as would be the case with a

securitization or MPWMD financing. In the public contribution scenarios, there is no

rollover or refinancing risk.

Q17. When do you assume the project financing occurs for the results you modeled?

A17. We have used the agreed upon model, which assumes financing takes place in March 2016.


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Q18. Describe the security for repayment and expected credit rating if District funding were

obtained for a public contribution of funds to the project.

A18. We refer to the Districts February 4 proposal letter to Cal-Am (Exhibit WD-1) and

answers provided above. We expected a securitization would be rated AA or better, andthat the Districts COP structure would be rate in the single A category.

Q19. Can private activity certificates of participation be sold by District and proceeds delivered

to investor-owned utility without an ownership stake in facility or water produced?

A19. We refer to the legal memorandum prepared by the Districts finance counsel, Sidley

Austin attached as Exhibit WD-4.

Q20. What is the public purpose such that a contribution is not a gift of public funds?

A20. We refer to Exhibit WD-4.

Q21. Does District have debt capacity sufficient to provide a public contribution?

A21. Yes, using a combination of a water-use surcharge collected on the Cal-Am bill, plus the

Districts existing Water Supply Charge, certain permit fees, interest earnings, and amounts

in a District Rate Stabilization Fund, the District could raise up to $100mm. This amount

was shown in the proposal included as Exhibit WD-1 of Mr. Stoldts testimony, which we

have reviewed.

Q22. Is sufficient private activity volume cap likely to be available through CDLAC? How does

that process work? Will it impact the Cal-Am schedule?

A22. CDLAC allocates the States private activity volume cap on a calendar year basis. They

have a very transparent application process, and they have regularly schedule public

meetings at which the Committee decides on pending applications. In 2013, the States

allotted $3.614 billion of private activity bond capacity, which is annually adjusted for


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population and inflation. In 2012, the State reserved $2 billion for housing related projects,

but had $1.53 billion unreserved. The Poseidon desalinization project for the San Diego

County Water Authority used $530 million of allocation for its non-pipeline projects. We

expect no adverse impact on the Cal-Am schedule.

Q23. Would there be any adverse effect on other (non-Monterey area) Cal-Am ratepayers?

A23. No. All financings we have modeled assume that only ratepayers in the Cal-am service

area would be paying for the project and the Cal-Am debt-to-equity ratio state-wide would

be unaffected.

Q24. Would there be any requirements on Cal-Ams systems or day-to-day operations?

A24. We dont believe there would be any material impact on Cal-Ams systems or day-to-day

operations from any of the public contribution scenarios discussed. While a securitization

would require Cal-Am to segregate the line-item surcharge and remit to a bank or servicing

agent daily as received, we dont view that as a major intrusion on their business.

Q25. Would the public contribution result in the need for a Cal-Am-specific credit rating?

A25. No.

Q26. Is there any reason to expect a delay in project schedule due to financing with a public

contribution?

A26. No.

Q27. Would the use of a surcharge on the Cal-Am bill cause the public debt to be booked as a

debt by the investor-owned utility?

A27. I am not an accountant, and I am not qualified to opine on that. However, I can tell you that

if the public contribution is in the form of a securitization, investors would know that the


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debt is absolutely non-recourse to the Company. And if MPWMD were the issuer of COPs

as previously discussed, then I can say with certainly that the Company would not have to

book it as debt.

Q28. Is there an advantage in the current marketplace to obtain tax-exempt debt?

A28. I believe we have addressed this question extensively above. Tax-exempt debt is almost

always cheaper than comparably rated taxable corporate debt.

Q29. Does the advantage hold if Cal-Am can obtain SRF loans?

A29. The advantage is amplified by SRF loans, because the loans are subsidized.

Q30. How would a Cal-Am tax-exempt issuance be executed?

A30. As discussed above, Cal-Am could access the tax-exempt market through the CPCFA,

assuming the project meets the requisite pollution control criteria. The company would

need to apply for private activity allocation through CDLAC (which is true for all of the

tax-exempt options), and then make an application to the CPCFA, which normally takes 2-

3months.

Q31. Does this conclude your testimony?

A31. Yes it does. Thank you very much.

Exhibits to Robert Larkins testimony:

WD-3 MPWMD High End Cap Scenario and Water Supply Scenarios

WD-4 Eric Tashman Memorandum

U:\GENERAL (NEW)\MPWMD - Main\PUC - A.12-04-019 (MRY Water Supply Project)\Testimony\Robert Larkins\Direct Testimony ofRobert Larkins.docx


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EXHIBITWD-3


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ExhibitWD3

TestimonyofRobertLarkins

MontereyWaterSupplyProject(9.6MGDHighEndCapitalScenariowithSurcharge):$289.2MMProjectCosSummaryofResults

A B C D E

Description 100%CalAmEquity

andCorporateDebt

100%ofdebtisissued

throughCPCFAastax

exemptAMTDebt

100%ofdebtisSRF

loan

100MMofdebtistax

exemptsecuritization;

remainderofdebtisSRF

100MMofdebtis

MPWMDtaxexempt

debt;remainderof

debtisSRF

CapitalStructure(%)

CAWEquity 53.0% 53.0% 53.0% 22.8% 22.8%

CAWCorporateTaxableDebt 47.0% 0.0% 0.0% 0.0% 0.0%

Company CPCFAtaxexempt,AMT 0.0% 47.0% 0.0% 0.0% 0.0%

TaxExemptSecuritizationcontribution 0.0% 0.0% 0.0% 57.0% 0.0%

MPWMDpubliccontribution 0.0% 0.0% 0.0% 0.0% 57.0%

RFDebt 0.0% 0.0% 47.0% 20.1% 20.1%

Total 100.00% 100.00% 100.00% 100.00% 100.00%

CapitalStructureatYE2017 ($MM)

urchargeFundedCosts 102.7 102.7 102.7 102.5 102.5

CAWEquity 98.4 98.3 97.2 40.1 40.1

CAWCorporateTaxableDebt 87.2 0.0 0.0 0.0 0.0

Company

CPCFAtax

exempt,

AMT 0.0 87.2 0.0 0.0 0.0

TaxExemptSecuritizationcontribution 0.0 0.0 0.0 100.0 0.0

MPWMDpubliccontribution 0.0 0.0 0.0 0.0 100.0

RFDebt 0.0 0.0 86.1 35.3 35.3

SummaryofResults(Through2056)

Totalcashflowfromcustomers($MM) 1,971.3 1,964.0 2,021.3 1,958.8 1,967.0

NPVcostat6%($MM) 580.2 578.0 568.6 526.4 529.6

SummaryofResults NearTermCustomerImpact(5Years)

Totalcashflowfromcustomers($MM) 143.6 143.4 139.1 134.5 135.1

NPVcostat6%($MM) 118.6 118.4 115.2 111.9 112.3

SummaryofResults IntermediateTermCustomerImpact(10Years

Totalcashflowfromcustomers($MM) 322.2 321.0 298.8 260.1 261.9

NPVcostat6%($MM) 230.9 230.2 215.6 190.7 191.9

GeneralInterest

Cost

Assumptions

for

each

scenario:

Costofcorporateequity:9.99%

Companycorporatetaxabledebt: 5%(T+200bps)

CompanyCPCFAtaxexempt,AMT: 4.80%(Poseidon)

Taxexemptsecuritization,AMT: 3.60%(highgradeCalwaterrevenuebond+40bpsforAMT)

MPWMDpubliccontribution,Arated,AMT: 4%

RFdebt(20year):2%

TotalProjectCostAssumptions:

Plantsize(MGD) 9.6

CapitalScenario HighEnd

ncludeCAWOnlyFacilities? No

urcharge? Yes

Total

Project

Cost

Summary

($MM)DesalPlant 271.30 271.30 271.30 271.30 271.30

CAWOnlyFacilities 0.00 0.00 0.00 0.00 0.00

AFUDC 21.11 20.85 17.92 14.66 14.66

TotalProjectCost 292.41 292.15 289.22 285.96 285.96

reparedby

Raymond

James 2/19


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ExhibitWD3

TestimonyofRobertLarkins

SummaryofResults

A F

Description 100%

Cal

Am

Equity

andCorporateDebt

Surcharge

100%

Cal

Am

Equity

andCorporateDebt

NoSurcharge

CapitalStructure(%)

CAWEquity 53.0% 53.0%

CAWCorporateTaxableDebt 47.0% 47.0%

Company CPCFAtaxexempt,AMT 0.0% 0.0%

TaxExemptSecuritizationcontribution 0.0% 0.0%

MPWMDpubliccontribution 0.0% 0.0%

SRFDebt 0.0% 0.0%

Total 100.00% 100.00%

CapitalStructureatYE2017 ($MM)

SurchargeFundedCosts 102.7 0.0

CAWEquity 98.4 163.0

CAWCorporateTaxableDebt 87.2 144.5

Company CPCFAtaxexempt,AMT 0.0 0.0

TaxExemptSecuritizationcontribution 0.0 0.0

MPWMDpubliccontribution 0.0 0.0

SRFDebt 0.0 0.0

SummaryofResults(Through2056)

Totalcashflowfromcustomers($MM) 1,971.3 2,235.1

NPVcostat6%($MM) 580.2 640.5

SummaryofResults NearTermCustomerImpact(5Years)

Totalcashflowfromcustomers($MM) 143.6 60.8

NPVcostat6%($MM) 118.6 45.8

Summary

of

Results

Intermediate

Term

Customer

Impact

(10

Years)Totalcashflowfromcustomers($MM) 322.2 322.8

NPVcostat6%($MM) 230.9 210.9

GeneralInterestCostAssumptionsforeachscenario:

Costofcorporateequity:9.99%

Companycorporatetaxabledebt: 5%(T+200bps)

CompanyCPCFAtaxexempt,AMT: 4.80%(Poseidon)

Taxexemptsecuritization,AMT: 3.60%(highgradeCalwaterrevenuebond+40bpsforAMT)

MPWMDpubliccontribution,Arated,AMT: 4%

SRFdebt(20year):2%

TotalProjectCostAssumptions:

Plantsize

(MGD) 9.6 9.6

CapitalScenario HighEnd HighEnd

ncludeCAWOnlyFacilities? No No

Surcharge? Yes No

TotalProjectCostSummary($MM)

DesalPlant 271.30 271.30

CAWOnlyFacilities 0.00 0.00

AFUDC 21.11 25.70

TotalProjectCost 292.41 297.00

MontereyWaterSupplyProject(9.6MGDHighEndCapitalScenario

ComparisonofSurchargeVersusNone):$289.2MMProjectCost

reparedby

Raymond

James 2/19/


17/27

MontereyWaterSupplyProject(A)

PlantSize(MGD) 9.6


FinancingAssumptions Totalcashflowsfromconsumers

Costof

Capital NPV

at

12.1%

of

cash

flows

through

2056

CostofEquity 9.99% NPVat6.0%ofcashflowsthrough2056

CostofDebt 5.00%

Equity% 53.00%

Debt% 47.00%

CostofCapital 7.64%

OtherDebtRates

ShortTermDebtRate 1.00%

ShortTermDebtCap($MM) $20.0

SRFDebtRate 2.00%

SRFTerm(yrs) 20

SRFAssets

Exempt

from

Prop

Tax? Yes

1 StandardCAW

CAWCapitalStructure (%) $mm(asof12/31/17)

CAWEquity 53.0% $98.38

CAWDebt 47.0% $87.24

SRFDebt 0.0% $0.00

Total 100.0% $185.61

Surcharge&ContributionAssumptions

UtilizeaSurcharge? Yes

AmountofSurcharge($MM) $102.97

Tranche1 Tranche2 Tranche3

ContributionDate(EndofMonth Jan17 Jan17 Jan17

ContributionAmount($MM) $0.0 $0.0 $0.0

FinancingRate 0.0% 0.0% 0.0%

FinancingTerm 30 20 20

0.0

10.0

20.0

30.0

40.0

50.0

60.0

70.0

80.0

90.0

2013

2015

2017

2019

2021

2023

2025

2027

2029

2031

2033

2035

2037

2039

2041

2 0 4 3

CashFlowsfromConsumer

PublicAgencyContributionTranche3 PublicAgency

PublicAgencyContributionTranche1 SRFLoanRepa

CAWRevenueRequirement Surcharge2

PreparedbyRaymondJames


18/27

MontereyWaterSupplyProject(B)

PlantSize(MGD) 9.6



Costof

Capital NPV

at

12.1%

of

cash

flows

through

2056


CostofDebt 4.80%

Equity% 53.00%

Debt% 47.00%

CostofCapital 7.55%

OtherDebtRates



SRFDebtRate 2.00%

SRFTerm(yrs) 20

SRFAssets

Exempt

from

Prop

Tax? Yes

1 StandardCAW



CAWDebt 47.0% $87.17

SRFDebt 0.0% $0.00

Total 100.0% $185.46









0.0

10.0

20.0

30.0

40.0

50.0

60.0

70.0

80.0

90.0

2013

2015

2017

2019

2021

2023

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2027

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2041

2 0 4 3







19/27

MontereyWaterSupplyProject(C)

PlantSize(MGD) 9.6



Costof

Capital NPV

at

12.1%

of

cash

flows

through

2056


CostofDebt 4.80%

Equity% 53.00%

Debt% 47.00%

CostofCapital 7.55%

OtherDebtRates



SRFDebtRate 2.00%

SRFTerm(yrs) 20

SRFAssets

Exempt

from

Prop

Tax? Yes

2 CAWEquity/SRFDebt



CAWDebt 0.0% $0.25

SRFDebt 47.0% $85.90

Total 100.0% $183.30









0.0

10.0

20.0

30.0

40.0

50.0

60.0

70.0

80.0

90.0

2013

2015

2017

2019

2021

2023

2025

2027

2029

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2 0 4 3







20/27

MontereyWaterSupplyProject(D)

PlantSize(MGD) 9.6



Costof

Capital NPV

at

12.1%

of

cash

flows

through

2056


CostofDebt 4.80%

Equity% 53.00%

Debt% 47.00%

CostofCapital 7.55%

OtherDebtRates



SRFDebtRate 2.00%

SRFTerm(yrs) 20

SRFAssets

Exempt

from

Prop

Tax? Yes

2 CAWEquity/SRFDebt



CAWDebt 0.0% $0.22

SRFDebt 47.0% $35.31

Total 100.0% $75.59









0.0

10.0

20.0

30.0

40.0

50.0

60.0

70.0

80.0

90.0

2013

2015

2017

2019

2021

2023

2025

2027

2029

2031

2033

2035

2037

2039

2041

2 0 4 3







21/27

MontereyWaterSupplyProject(E)

PlantSize(MGD) 9.6



Costof

Capital NPV

at

12.1%

of

cash

flows

through

2056


CostofDebt 4.80%

Equity% 53.00%

Debt% 47.00%

CostofCapital 7.55%

OtherDebtRates



SRFDebtRate 2.00%

SRFTerm(yrs) 20

SRFAssets

Exempt

from

Prop

Tax? Yes

2 CAWEquity/SRFDebt



CAWDebt 0.0% $0.22

SRFDebt 47.0% $35.31

Total 100.0% $75.59









0.0

10.0

20.0

30.0

40.0

50.0

60.0

70.0

80.0

90.0

2013

2015

2017

2019

2021

2023

2025

2027

2029

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2035

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2039

2041

2 0 4 3







22/27

MontereyWaterSupplyProject(F)

PlantSize(MGD) 9.6



Costof

Capital NPV

at

12.1%

of

cash

flows

through

2056


CostofDebt 5.00%

Equity% 53.00%

Debt% 47.00%

CostofCapital 7.64%

OtherDebtRates



SRFDebtRate 2.00%

SRFTerm(yrs) 20

SRFAssets

Exempt

from

Prop

Tax? Yes

1 StandardCAW


CAWEquity 53.0% $162.97

CAWDebt 47.0% $144.52

SRFDebt 0.0% $0.00

Total 100.0% $307.50


UtilizeaSurcharge? No







0.0

10.0

20.0

30.0

40.0

50.0

60.0

70.0

80.0

90.0

2013

2015

2017

2019

2021

2023

2025

2027

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2039

2041

2 0 4 3







23/27

EXHIBITWD-4


24/27

EXHIBIT WD-4

Testimony of Robert Larkins


25/27

EXHIBIT WD-4



26/27

EXHIBIT WD-4



27/27

EXHIBIT WD-4


A 12-04-01 Direct Testimony of Robert Larkins MPWMD.pdf

Documents

Transcript of A 12-04-01 Direct Testimony of Robert Larkins MPWMD.pdf