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HomeMy WebLinkAbout08-20-18 City Commission Packet Materials - A2. Water and Wastewater Rate Studies Preliminary Presentation and Policy - SUPPLEMENTAL MATERIALS WATER AND WASTEWATER UTILITY SYSTEM COST OF SERVICE AND RATE DESIGN STUDY Presentation to City Commission: Results, Recommendations, and Future Policy Direction CITY OF BOZEMAN, M- - ANN � Ill� G z i � p y. � �w Common Reasons to Complete a Rate Study • Identify and correct cost inequities to maintain fair and equitable structure • Design rates to send appropriate pricing signals • Support proactive financial planning decisions for short- and long-term capital and operational needs • Avoid "rate shock" • Manage revenue stability and reserve funding strategies • Develop funding strategy for asset management needs • Provide documentation and support for rate-making decision process • Provide framework for rate reasonableness • Educate policy makers and rate payers Ke Stud Considerations for Bozeman y y Unique Challenges Study Drivers • Rapid Growth • Future Supply / Drought Considerations • Successful Conservation Program with Further Aggressive Goals • Aging Infrastructure and Large Capital Investments in the recent past / on the Horizon • Recent Planning Prioritized Improvements to address System Deficiencies • Decreasing Essential Water Use but High Summer Demand • Future Wastewater Regulatory Implications INTEGRATED UTILITY FINANCIAL PLANNING ApproachA Comprehensive Study WEF Manual of Practice No. 27 offer excellent guidance for establishing Water/Wastewater Fees and Charges THE RATE STUDY PROCESS Revenue Requirements Cost of Service Rate Desi n Revenue Determination Analysis (COSA) g Adequacy Policy Direction Drives End Recommendations _7 • Fully functioning Water and Wastewater Rate Models have been developed • Near-term Recommendations are Complete • Long-term Recommendations Require Policymaker Input Key Policy Areas of Discussion for Today: 1. Cost of Service Targets and Corrections 2. Conservation Rate Design Alternatives and Preferred Approach 3. Drought Rate Targets and Reserving Policies 4. Other Reserve Funding Policies ' M RATE RECOMMtIVDATIONS WASTEWATER RATE PROJECTIONS FY19 bob, onthly Service Charge 017 20 2019 2019 % Change Single Family $ 18.63 $ 19.01 $ 19.58 3.0% Multi Family $ 19.10 $ 19.49 $ 20.07 3.0% Commercial $ 19.10 $ 19.49 $ 20.07 3.0% Government $ 19.10 $ 19.49 $ 20.07 3.0% MSU $ 19.10 $ 19.49 $ 20.07 3.0% Industrial $ 49.82 $ 50.82 $ 38.98 -23.3% i Single Family $ 3.08 $ 3.15 $ 3.28 4.0% Multi Family $ 3.16 $ 3.23 $ 3.36 4.0% Commercial $ 3.16 $ 3.23 $ 3.36 4.0% One-time COSA Government $ 3.16 $ 3.23 $ 3.36________ ___ __4.0% C' Based Rate MSU $ 3.16 $ 3.23 $ 3.36 4.0% -- Structure Industrial $ 7.59 $ 7.75 $ 5.50 -29.0% Changes for Industry BOD>200 mg/L $ 0.38 ' $ 0.39 $ 0.33 -15.4%♦ 11 TSS>350 mg/L,per day $ 0.30 $ 0.30 $_ 0.51 _ 70.0% P>5.0 mg/L per day $ 4.95 $ 5.05 $ 5.55 1 9.9% N>20 mg/L per day $ 0.45 $ 0.46 Y $ 0.46 0.0% 7 RATE PROJECTIONS - FY19 Monthly Meter Charge 2017 2018 2019 2019 % Change 5/8" $ 15.39 $ 15.70 $ 16.17 3.0% 1" $ 20.39 $ 20.80 $ 21.42 3.0% 1-1/2" $ 32.08 $ 32.73 $ 33.71 3.0%0 2" $ 46.65 $ 47.59 $ _ 49.02 3.0% 3" $ 80.64 _$ 82.26 $ 84.73 3.0% 4" $ 129.33 $ 131.92 $ 135.88 3.0% 6" $ 241.03" $ 245.85 $ 253.23 3.0% 8" $ 381.10 $ 388.73 $ 400.39 3.0% 2019 ' Change Single Family/Low Income Residential_ _ Tier 1 $ 2.50 $ 2.55 $ 2.68 5.0% Tier 2 $ 2.69 $ 2.75 $ 2.89 5.0% Tier 3 $ 3.17 $ 3.24 $ 3.40 _5_.0% Tier 4 _ Multi Family Residential $ 1.92 $ 1.96 $ 2.06 5.0% Commercial __ _ _ $ 1.74 _$ 1.78 $ 1.87 5.0% Govermnent $ 1.74 $ 1.78 $ 1.87 5.0% MSU $ 1.74 $ 2.22 $ 2.33 5.0% Industrial $ 1.74 $ 1.72 $ 1.81 5.0% 2019 City Park Irrigation(per Acre per Year) $1,883 $1,921 $2,017 5.07/ 8 RATE IMPACTS - FY19 WASTEWATER: WATER: Residential Monthly Bill Residential Monthly Bill % Increase % Increase Based on Annual Average Based on Annual Average 3.8/0 --3 7% 6.0% 0 0 4.8% 3.6% 4.0% --3-5% 3.6% 3.7% 4.2% 4.5/ 3.4% _3.3% 3.2% - -- - - 2.0% -I- L 3.0% - - - - 0.0% - 3 CCF 6 CCF 8 CCF 15 CCF 3 CCF 8 CCF 15 CCF 50 CCF Commercial Monthly Bill Commercial Monthly Bill % Increase % Increase Based on Annual Average Based on Annual Average 0 4.0% 3.6% 3-.7% 3.9 0 5.0% 4.1% 4.2% 4.5% 3.5% 3.2% -..- 4.0% 3.4% . 3.0/ -- 2.0% o r� 0 L_...._..i _I 1.0% - --- 2.5/o - 0.0% - 2 CCF(50th 11 CCF(75th 18 CCF(80th 52 CCF(90th 2 CCF(50th 11 CCF(75th 18 CCF(80th 52 CCF(90th Percentile) Percentile) Percentile) Percentile) Percentile) Percentile) Percentile) Percentile) 9 COST OF SERVICE ANALYSIS COST OF SERVICE ANALYSIS Those Who Cause the Cost, Pay the Cost 1. Establish Test Year Rate Revenue Requirements based on proposed capital improvements,historic revenue&expenses,and base user profiles. Determine whether to perform the analysis on a cash or utility basis(we'll work with you to determine which approach is more appropirate for your situation. WATER RATE REVENUE REQUIREMENTS SEWER RATE REVENUE REQUIREMENTS • Source of Pumping Collection 2. Functionalization Supply Billing Treatment of revenue requirements Treatment Meters based on area of Transmission Pumping/Force Main Customer Billing utility service. Pressure Zone Service • Storage Administration Customer Service • Distribution Administration 3. Classification Capacity Meter Capacity TSS of functionalized costs Commodity Volume TKN based on how they vary. Customer BOD Customer 4. Allocation Residential Wholesale/Bulk Residential Wholesale/Bulk of classified costs based Commercial Contract Commercial Contract on specific customer Industry Industry demand data. -Wr 1 RESULTS Comparlslon of cost to revenue for each user class Residential Commercial Industrial Wholesale ■Cost Percent -:Revenue Percent COST OF SERVICE ANALYSIS Those Who M- . he Cost, Pay the Cost Customer Class A $ Peak - uj ' 'se TIME Combined Total System Demand - $ Peak LU co co 0 $ Base LU TIME Customer Class B $ Peak Base FUNCTIONAL REVENUE REQUIREMENTS WASTEWATER WATER Functions • Functions • Administration $138,000 Administration $961,877 Collection $3,206,332 Treatment— Fixed $5,744,931 Pumping - Fixed $0 Treatment—Variable $336,000 Pumping - Variable $20,500 Treatment - Fixed $4,781,303 Transmission $840,323 Treatment - Variable $897,150 Distribution $2,758,042 Environmental $455,716 Assigned - Hydrant $80,000 Sludge Management $160,630 Conservation $519,439 Industrial Pretreatment $105,750 Meter $577,962 TOTAL $9,765,381 Total $11,817,774 13 COST OF SERVICE ANALYSIS Wastewater Results Customer Class % of Cost % of Revenue % Difference Single Family 36.88% 41.80% _ 13.3% Multi Family 24.31% 23.58% -3.0% Wet Weather Flow Commercial 25.14% 22.59% -10.2% Allocation from Large Government 1.25% 1.15% -7.7% Private Service Area MSU 10.17% ---_- _--- — 8.32% - - - ---_ -18.2% - _ - Industrial 2.25% 2.56% 13.6% Driven by Changes in Total 100% 100% Discharge Practices Target % Difference =+/-5%to 10% • Commercial and MSU user classes not generating revenue commensurate with cost of service (COS) provided • Single Family and Industrial classes generating revenue in excess of COS allocation • All other classes generally in line with COS Water Results Customer Class +; % of Cost % of Revenue % Differene • • i 5:09N.Myne Single Family 50.21% 52.93% 5.4% • . Multi Family 19.98% 20.27% 1.5% Government 3.01% 1.83% -39.2% Irrigation Demand and Lower MSU 5.81% 5.99% 3.0% Constant Block Volumetric Commercial 19.88% 16.01% -19.4% Relative to Other Classes Industrial 0.46% 0.58% 26.4% Driven Lower Peaking Factor City Park Irrigation 0.67% 0.47% -29.9% Capacity Demands Fire Protection 0.00% Totalj 100% Fix_ • Rate per Acre / High Target % Difference = +/- 5%to 10% IrrigationPeaking • Government, Commercial, and City Park Irrigation classes not generating revenue commensurate with COS • Industrial class generating revenue in excess of COSA allocation • All other classes generally in line with cost of service COST OF SERVICE ANALYSIS Results Take-aways and Policy Direction • Various Cost Inequities Identified through COSA • Typical Policy Objectives: • Recognize Cost of Service Analysis is a snapshot in time • Design future rates commensurate w/ cost of service provided • Define acceptable targets and correct gradually to avoid "Rate Shock" • Policy Direction / Recommendations: • Vary volumetric Increases over time to achieve Target vs. One-time Corrections • Define Appropriate Targets (i.e. ±10% by Year 3 / ±5% by Year 5) • Refresh COSA in Year 5 to reset structure and determine progress COST OF SERVICE ANALYSIS RECOMMENDATIONS WASTEWATER: 1. One-time adjustment to Industrial/High-Strength rates to better reflect COS provided 2. Strive for full cost recovery from each class/equitability between classes within 5-years 3. Recover appropriate costs through fixed, volumetric, and high strength rates WATER: 1. Realign Fixed Charges according to AWWA recommended equivalent meter ratios 2. Consider conservation driven alternatives to existing Single Family and Low Income Residential Tier Structure 3. Maintain constant block for non-residential user classes 4. Increase Government and Commercial constant block rates to improve equitability 5. Establish separate Industrial rate class to recognize level of service differences 6. Identify Appropriate Drought Rate and Reserve Funding Strategies � A aNEXUS ® The Financial Link 18 WATER RATES : COMMON PRICING APPROACHES VOLUMETRIC RATE DESIGN q�I w INCLINING BLOCK RATE 5 SEASONAL Constant Block DECLINING BLOCK RATE 19 CONSERVATION WATER RATE DESIGN Existing Tiered Rate Structure Observations 1. Tier 1: Appears to be larger than necessary based on essential use data Single Family 2. Tier 2: Minimal pricing signal being sent for outdoor Charge Per Effective HCF Used 9/1/2017 consumption 0-8 HCF $2.55_ 3. Tier 2: Consumption block is compressed and does not 8-15 HCF $2.75 reflect typical responsible irrigation needs Over 15 HCF $3.24 4. Tier 3: small step in pricing from Tier 2 5. Beyond Tier 3 there is no consideration for inefficient usage pricing of very large volume residential consumers CONSERVATION WATER RATE DESIGN Tier Sizing Considerations • Essential Use - Average Residential winter water use = 4.67 CCF/account • 6 CCF captures indoor water use for Single Family Residential and Low Income up to 80th and 90th percentiles, respectively • City Staff analysis found that average responsible irrigation use is 19 CCF, accounting for typical precipitation, evapotranspiration, and residential lot size • Reduction Target - Water use in excess of 25 CCF/month CONSERVATION RATE DESIGN ALTERNATIVES Single Family and Low Income Residential - - — - - Tier Structure Definition:Tier 1 — Essential Use -- Projected Water Sales by Tier • 100% Fier 2 — Responsible Outdoor Use - - 80% • Tier 3 — Inefficient Outdoor Use 70% 60% 16% 21% • Tier 4 — Excessive Outdoor Use 500� 43% 43 - -- ___ 40% 30% -- - -- - Draft Scenarios: 20% - -- - 10% • Alternative 1: 0% - -------- Tier 1 = 6 CCF, Tier 2 = 25 (6+19) CCF Existing Alternative 1 alternative 2 Alternative 3 • Alternative 2• ■Tier 1 Tier2 ■Tier3 ■Tier4 Tier 1 = 6 CCF, Tier 2 = 25 CCF, Tier 3 = 55 (6+49) CCF • Alternative 3: Tier 1 = 8 CCF, Tier 2 = 27 CCF (8+19), Tier 3 = 46 CCF (8+38) CONSERVATION RATE DESIGN ALTERNATIVES Single Family and Low Income Residential 34% <3% of Consumption of Consumption i i 43% 15% 5% jj ,of Consumption of Consumption 1 of Consumption j Considered Alternatives �$2.551 $3.57 $5.18 $7.76 Alternative 3 19 19 strive to achieve revenue 1$2.401 $3.24 $4.54 $6.81 neutrality from first 3 tiers Alternative 2 19 '$2.40' $3.00 $3.75 with the assumption that � Alternative 1 19 _ 65+ AWf 4th Tier usage is significantly j$2.55j $2.75 $3.24 reduced overtime Existing 7 75+ 0 5 10 15 20 25 30 35 40 45 50 55 60 65 70 75 80 85 90 Hundred Cubic Feet (CCF) 0 Tier 1 Tier 2 ■ Tier 3 ■ Tier 4 WATER RATE DESIGN - ALTERNATIVE 2 Revenue Neutral (Tiers 1-3) Hundred Cubic Description Charge per Tier Used Differential Winter water use at 80th Tier 1 0-6 percentile (90th percentile for Low $2.40 Income) Tier 2 6.01-25 Winter water use plus 19 CCF/month irrigation $3.24 1.35 Irrigating at twice the maximum Tier 3 25.01-55 observed rate of 2x peak monthly $4.54 1.40 ET Tier 4 55.01+ Excessive use tier $6.81 1.50 MonthlV Volumetric • ; Based on • - of BillsPercentile) - (98.8 • '1h Percentile) (>991h Percentile) (>99.9th Percentile) At Existing Rates $15.30 $72.05 $169.25 $266.45 Alternative 2 Rates $14.40 $75.96 $212.16 $416.46 Change -6.3% +5.4% +25.4% +56.3% PREDICTING CONSERVATION RATE DESIGN EFFECTIVENESS Probabilistic Revenue Forecasting Analysis - Model developed to evaluate probability of varying level of water sales and revenue based on: ■ Existing and projected water rates and tier structure alternatives ■ Detailed breakdown of a recent year of billed water sales ■ Account growth factors ■ Demand elasticity factors ■ Weather Variation Potential: o Historical monthly maximum temperature data o Multiple years of historical monthly precipitation data 25 WATER SALES / REVENUE FORECAST Conservation Rate Structures - Projected Performance Forecasted Reduction in Water Sales Probability of Achieving Revenue Target Single Family and Low Income Residential Single Family and Low Income Residential 0% 100.0% 8.0% 7.4% 100.0% 100. - - - - 0 6.8% 90.0% 87.0% 7.0/ 80.0% _.. 6.0% 69.0% 70.0% 5. 0 0 60.0% - - 4.0% 50.0% - -- - 3.0% 40.0% - - 30.0% - 2.0 0 0.8% 20.0% - -- _ 0.0% 0.0% -- — ---- — Alternative 1 Alternative 2 Alternative 3 Existing Alternative 1 Alternative 2 Alternative 3 Average projected water sales difference between Existing and Alternative rates, based on 1,000 modeled simulations WATER SALES / REVENUE FORECAST Alternative 2 Projected Performance Lower water sales projected Higher probability of achieving target revenue Annual Sales Volume Annual Service Charge and Sales Revenue Simulation Distributions Simulation Distributions 180 1005, 250 — ---- �oa— —40— ` 100% f 160 - OR— 90% _ �r Je: 90% ,,, E 140 so% °J a� 200 - SO% E 605/ O 3 150 60% 100 0 50% o / 50% 30 -- qp% c 100 - 40% Q60 30% 3 30% _ 40 - -. 20% E LL so - 20% E LL � 0 __ - - �_e.- 0% 0 - - 0% Water Sales(Thou.CCF) Sales Revenue(Thou.$) 0 Under Current Rates Under Proposed Rates ®Under Current Rates Under Proposed Rates Source:Alliance for Water Efficiency Sales Forecasting and Rate Model,Version 1.0,2018 • Model projects 84% probability of meeting revenue target of $8.8M under proposed Alternative 2 rates • Projected overall water use reduction in Year 1 = 2.5% CONSERVATION RATE DESIGN Policy Direction • Conservation Policy and Pricing is key component to long-term water supply planning effectiveness • Multiple options exist to design rates to send appropriate pricing signals • Staff has identified Alternative 2 as the preferred rate structure, seeking Commission direction to finalize multi-year rate plan DROUGHT RATES and CONTINGENCY PLANNING BOZEMAN DROUGHT RISK CONSIDERATIONS Monthly PDSI for Gallatin County Region (1990 — 2012). 1 1 i Palmer Drought Severity Index i January ■■� ■ �■ 1895-1995 ! February JENNE�■�. r ■ ■ Percent of time in severe and extreme drought March �� I . ■ April May m ■ June �■. . �f m■. July p c August Minn . a A September IN ■ ■ ME on ■ October ■_ o r ■ "" ■ November ro■ . _ -- M"Mid °o of time PDSI< 3 December no ■ moon ❑Less than 54,; _ _ _ _ _ _ _ _ _ 0 0 7 A O il 7 as ICJ z � W O O G O D O O F ❑S:o to 9.99:0 , ❑109E to 14.990 ®15°6 to 19.9'b —- —-----— 20'10 or greater - -4 or less(Eatrerne Drought) -2 to 2(Near Normal) - 4 or more(Extremely Moist) - -4 to-3(Severe Drought) M 2 to 3(Unusual Moist Spell) ® No Data SOURCE:McKee et al.(1993);170AA(1990):High Plains Regional Climate Center(1996) _J ra_7(Moderate Drought) 3 ro 4(Very Hoist Spell) Albers Equal Area Projection.Map prepared at the llational Drought Mitigation Center • PDSI weakness in how it treats snowfall • Could reflect long-term misunderstandings of how much precipitation a given region has historically received... 30 DROUGHT RATES Key Considerations == • What's the maximum reduction potential by user class? • Should Drought Rate increases be revenue-neutral by class? • Is there a target maximum increase for drought pricing on essential use? • How could a Drought Reserve offset required increases? • What is a reasonable timeframe to fully fund Drought Reserve? • Should Drought Reserve funding be shared by all classes? • Should Tier 4 revenue be applied directly to Drought Reserve? DROUGHT RATES Assumed Water Use Reduction by Stage Maximum Assumed Reduction by Stage Reduction on Non. Essential Use • - 1 Stage 2 Stage 3 Stage Single Family and Low Income Residentia 50.0% _ _ 10.0% 20.0% 50.0% 55.2% Multi-Family Residential 16.0% 10.0% 16.0% 16.0% 25.5% Government 54.0% 10.0% 20.0% 55.0% 60.0% MSU 14.0% 10.0% 14.0% 14.0% 23.5% _ Commercial 28.0% 10.0% 20.0% 27.0% 35.6% Industrial 0.0% 10.0% 10.0% 10.0% 19.9% Overall 32.7% 10.0% 18.4% 33.0% 40.4% Drought Management Plan Target 10.0% 20.0% 30.0% 40.0% Drought Usage Reduction = Lost Revenue -1y Stage 3 based on water use in excess Study analyzed a combined strategy of of winter average reserving and rate surcharges to maintain Stage 4 based on an additional 11 revenue sufficiency percent required reduction on indoor water use for all classes DROUGHT RATES Surcharge Rate Increase to Replace Lost Revenue - Stage 3 Drought 186% 122% Single Family and Low-Income Multi-Family Government 16% 38% 11 % MSU Commercial Industrial Projected Stage User Class Revenue Target 3 Water Sales $/CCF %Increase — Single Family&Low Income Residential $3,519,876 512,625 $6.87 186.1% Multi-Family Residential $1,207,075 515,579 $2.34 19.40/. Government $122,997 31,095 $3.96 122.2% MSU $490,070 189,847 $2.58 16.3% Commercial $1,037,901 436,834 $2.38 38.1% Industrial $48,918 25,597 $1.91 11.1% Overall $6,426,838 1,711,577 $3.75 DROUGHT RATES Target Rate Increases by Stage 1111111h.- Increases Revenue-Neutral by Class Stage Single Family and Low Income Residential Maximum Increase? Tier 1 0.0% 10.0% _ 20.0% 25.0% Tier 2 21.0% _ 47.0% 100.0% 200.0% Tier 3 21.1% 47.2% 100.0% 200.3% _Tier 4 21.1% 47.2% 100.0% 200.3% _Mufti-Family Residential _ 11.1% 19.0% 19.0% 25.0% Government 11.1% 25.0% 25.0% 25.0% MSU 11.1% 16.3% 16.3% 25.0% Commercial 11.1% 25.0% 25.0% 25.0% Industrial 11.1% 11.1% 11.1% 11.1% Utilize Drought Reserve to achieve target maximum increases and offset revenue shortfall? DROUGHT SURCHARGE RATES - POLICY DIRECTION Is a Drought Reserve Desired? If yes, what is the corresponding target cap to essential use rate increases? How Much? Years to Water Sales Re se rve • Example: Funding Target = 1 Year Stage 3 Build • Shortfall Offset with = $2,200,092 Reserve 1 Year 2,526,015 $2,200,092 $0.87 2 Years 5,111,225 $2,200,092 $0.43 How Many? - - - - - 5 Years 13,236,685 $2,200,092 $0.17 • How many years is appropriate to accumulate 8 Years 21,948,921 $2,200,092 $0.10 reserve? 10 Years 28,032,673 $2,200,092 $0.08 From Who? • Assess standard surcharge to ail units of water? • Cost of service-based or user class-specific surcharge (i.e. who will benefit most from reserves generated?) 35 RESERVE FUNDING POLICIES RESERVE FUNDING POLICY CONSIDERATIONS Typical WaterMastewater Utility Reserves PurposeReserve Type Common • - Operating / Stable operating cash for minor fluctuations 90 to 180 days of operating expense Working Capital in revenue (i.e. collections lag, etc.) • • Observed revenue fluctuations from Weather Based Influences / weather based influences Rate Stabilization Planned Capital Spending Fluctuations Percentage of average rate funded capital • Forecasted variation in capital spending Ensuring Consistent System Investment • 1-Years depreciation expense Renewal/Replacement Forecasted average annual renewal cost Overtime / Generational Equity Defined asset management plan Variable based on System Risk (i.e. Drought Emergency Varies based on defined purpose and risk Susceptibility) Debt Service Typical per bond covenants / SRF loan Multiplier of total combined maximum P&I covenants / grant requirements payments Target/PolicyWASTEWAitK RESERVE FUNDING RECOMMENDATIONS Reserve Operating Reserve 90 days of O&M Expense $1,492,000 (Year 1 Target) Renewal & Replacement 10-Year Target based on Projected $4,825,000 Renewal Deficiency (2028 Target) Debt Service Reserve 1-Yr Total Payment per Bond Covenants $1,789,000 Rate Stabilization Reserve Floating Target based on Cash Funded Capital Needs FUND RESERVE PLANNING Approach for Renewal and Replacement Reserve Planning Adjusted Depreciation (Replacement Cost New for Facilities) + Forecasted Repair & Replacement (collection System) Cash Funded Capital (Actual ww Infrastructure Investments) Debt Service Principle (Generational Equity Adjustment) = Minimum Contribution to Reserves 2018 2019 2020 2021 2022 2023 Adjusted Depreciation $2,952,451 $3,041,025 $3,132,255 $3,226,223 $3,323,010 $3,422,70 + Forecasted R&R $639,210 $639,210 $892,859 $892,859 $892,859 $892,85 =Total Forecasted Reinvestment $3,591,661 $3,680,235 $4,025,114 $4,119,082 $4,215,869 $4,315,55 -Rate-Funded CIP $1,812,500 $3,514,875 $2,145,670 $1,893,150 $1,859,903 $1,428,80 -Debt Service $1,499,717 $1,694,167 $1,728,167 $1,764,167 $1,802,167 $1,923,96 =Additional Capital Contribution $279,444 $0 $151,277 $461,766 $553,799 $962,78 WASTEWATER FUND: RESERVE TARGET PROJECTIONS Wastewater Reserve Funds: Target Balances $12,000,000 $10,000,000 -- - - - — $8,000,000 $6,000,000 - — $4,000,000 •�' _ _-_ -- --- — $2,000,000 __ !.: !! -- --- --- -_ --_ 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 �Bond Covenant Reserve Cash Balance �0&M Reserve Cash Balance �Renewal/Replacement Reserve Cash Balance �Rate Stabilization Reserve Balance ---Bond Reserve Target ---Operating and Bond Reserve Target ---Stacked Capital Target Reserve RESERVE FUNDING RECOMMENDATIONS Reserve miiiiiiiiiilw Target/Policy Target 7 Operating Reserve 90 days of O&M Expense $1,952,320 (Year 1 Target) Renewal & Replacement 10-Year Target based on Projected $797,600 Renewal Deficiency (2028 Target) Debt Service Reserve 1-Yr Total Payment per Bond Covenants $1,776,690 (Year 1 Target) Drought Contingency 1/2-Yr Revenue Deficiency in Five Years, $1.11M by 2023 Reserve 1-Yr Deficiency in 10 Years $2.21M by 2028 Rate Stabilization Reserve Floating Target based on Capital Needs 41 WATER FUND: RESERVE TARGET PROJECTI ONS Projected Water Fund Balances $14,000,000 $12,000,000 $10,000,000 $8,000,000 $6,000,000ap —— —— — —— $4,000,000 — $2,000,000 - FY18 FY19 FY20 FY21 FY22 FY23 FY24 FY25 FY26 FY27 FY28 f Bond Covenant Reserve Account f, Operations and M a i nte na nc e R ese rve Account �Renewal/Replacement Reserve Account Drought Contingency Reserve �Rate Stabilization Reserve Account ——— Operating and Bond Reserve Target ——— Stacked Target Reserve ——— Bond Reserve Target Drought Contingency Reserve Target CONCLUSION • Adopt Recommended Near-term Rate Increases • Finalize Long-term Rate Models Based on Commission Feedback and Direction: • COSA Target Correction Strategy and Timing • Conservation Pricing Policy • Drought Rates and Reserves • Comprehensive Reserve Target Recommendations • Capital Plan Refinement / Scenario Modeling • Return to Commission in Spring 2019 with finalized multi-year rate projections by class 43 Thank You Shawn Gaddie Shawn .Gaddie@ae2s.com 701 m746=8087 NEXUS n The Financial Link Think Big.Go Beyond.