The State Water Project (SWP) is designed to deliver over four million acre-feet of water annually to 29 agricultural, municipal, and industrial water contractors. However, the actual annual water delivered to the Contractors is heavily dependent on the hydrology, SWP water supply, and Contractors’ water management strategies. Contractors are charged for SWP costs through billing components, some fixed and some variable, that are defined in the original and amended Water Supply Contract terms. The proportion of costs charged to each Contractor is based on a fair and equitable distribution of SWP costs by proportionate use factors and direct benefit of facilities.
Annually, DWR calculates and transmits the Statements of Charges (SOCs) for all 29 Contractors by July 1 for the Bill Year (subsequent calendar year), currently $1.3 Billion. Annual charges are based on planned costs and a true up of the historic costs and payments. As part of this true-up process, DWR re-determines all prior year charges and applies a charge or credit with interest for the net under- or over-payments made in prior years. The DWR generates the SOCs based on different sets of data and multiple methodologies that are illustrated in a high-level view of the cost allocation process below with more detail in Attachment B.
· Step 1 Input Actual Costs, Water, and Data
· Step 2 Input Projected Costs, Water, and Data
· Step 3 Collect Other Data for Calculations
· Step 4 Allocate Costs
The Contractors are contractually obligated to pay these costs under the Water Supply Contracts (WSC). In May 2013, DWR and the Contractors entered into public negotiations to extend the term of these contracts and make other financial improvements. These negotiations successfully concluded in June 2014 with an “Agreement in Principle” outlining the changes and additions to be made to the WSC. Among the changes are the way future SWP costs are to be allocated and recovered from the contractors, which will require changes to the current CAB system and require more transparency of the financial management of the SWP.
Cost are captured in DWR’s SAP ERP system of record, and the costs are interfaced monthly into the current CAB system. The CAB system is a separate instance of an SAP ECC platform, hosted on-prem, which is comprised of highly-customized modules to determine the annual charges. Over time, changes to cost allocation rules required DWR to create manual processes and workarounds outside the current system due to the complexity of modifying the customized modules. Contractual provisions require the CAB system to be able to re-determine all prior year cost and charges. Furthermore, to ensure full recovery of all SWP costs, cost and revenue information is needed for Calendar Year 1952 and forward. The SWP Cost Allocation and Billing Project will modernize these tools and create additional tools to include the new billing methodology.
The Current system results in:
· Lack of transparency in traceability of expenditures
· Highly-customized modules results in inflexibility due to changes to cost allocation requirements
· Inability to modify processes to include updated water supply contract provisions.
· Manual work-arounds due to a lack of system interactions with several other DWR systems (e.g., water, debt service schedules, power transactions)
Additional information about the current environment is provided in the Bidders Library.
DWR is seeking a new environment to:
Enhance the data structure
Provide transparency and traceability of cost information throughout the allocation process
Enhanced flexibility to adapt to current and future billing provisions (FREEZE GO and PAY GO)
Fully integrate with other enterprise DWR systems
The renegotiated Water Supply Contract provisions will require the SWP to implement new cost allocation methodologies that will calculate the "pay-go" components of the Statements of Charges in accordance with the recently negotiated Water Supply Contract. A tool to support this methodology is non-existent today.
The processes and methodologies for old and the new billings will be needed through 2035 and the processes for the new methodology through 2085. Information and processes will need to work in tandem to accurately compute the Statements of Charges. Data points and integrations must be tested to ensure information is accurately reflected and available for billing components charges under both cost allocation methodologies.
Advanced planning of SWP activities and resources, along with budget planning and cost projections, will be the critical source of information that will be used for preparing the Statements of Charges to the public water agencies (Contractors) receiving SWP water supply and power benefits. Effective integration of information between the project and resource planning and budget planning systems and the existing and new cost allocation and billing tools is essential.
Overtime, changes to cost allocation rules required DWR to create manual processes and workarounds outside the existing CAB system. DWR staff require the flexibility to evaluate scenarios and generate the Statements of Charges quickly. By modernizing these tools, DWR will reduce the number of manual processes and workarounds and will be able to generate the annual Statements of Charges and report results in a timelier fashion. The new tools will be flexible enough to adopt to future changes in processes.
Transparency of SWP expenditures and Contractor Statements of Charges is critically important. Modernizing the cost allocation and billing tools will enable DWR to generate reports that will provide the Contractors more visibility into their bills.