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Water and Wastewater Utility Rate Study Matt Hobson, Project Manager September 26, 2019

Public Meeting. Water and Wastewater Utility Rate Study Matt Hobson, Project Manager September 26, 2019. Agenda. Utility Rate Study Background Methodology and Assumptions Study Results, Options, and Recommendations Water Wastewater Next Steps.

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Water and Wastewater Utility Rate Study Matt Hobson, Project Manager September 26, 2019

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  1. Public Meeting Water and Wastewater Utility Rate Study Matt Hobson, Project Manager September 26, 2019

  2. Agenda • Utility Rate Study Background • Methodology and Assumptions • Study Results, Options, and Recommendations • Water • Wastewater • Next Steps

  3. Why Are Rate Studies Important? Maintain the long-term health and integrity of utility system Quantify policies, priorities, and initiatives Tell the “true” cost of providing service Communicate financial decisions and their impact Management tool

  4. Background • Previous water and wastewater utility rate study completed in FY 2013 • Established 6-year rate plan (FY 2013 to FY 2018) • This rate study establishes rate plan from FY 2021 to FY 2025

  5. Rate Study Elements Operating & Maintenance Forecast Multi-year forecast of operating expenses (e.g., labor, materials) Capital Finance Strategy Multi-year cash & debt strategy to support capital investments Rate Revenue Analysis Comparison of rate revenue at existing rates and projected financial obligations and policies Multi-Year Rate Strategy If needed, determine annual rate adjustments Financial Standards & Policies Define minimum financial reserve level and other financial management standards

  6. Fiscal Policies

  7. ADEC Loans • Low-interest state loans awarded to water and wastewater utilities for funding capital infrastructure improvements • Mitigates need to cash fund all capital projects • Helps to stabilize rate revenue adjustments • Potential for up to 50 percent of project costs to be forgiven • Borough projects competing with projects from other communities for loan forgiveness • No loan forgiveness assumed in rate study

  8. Key Assumptions & Inputs • Annual Cost Inflation • General 3.0% • Construction 3.0% • Labor 3.0% • Benefits 3.0% • Annual Customer Growth • No growth expected in the study period • New Debt Terms • Source: ADEC Loans • Term: 20 years • Interest Rate: 1.5% • Operating Forecast • Based on FY 2020 budgeted revenues and expenditures • Interest earnings on cash balances: 1.75%

  9. Water Utility

  10. Water Utility Forecast FY 2020-25 Annual Rate Revenue $1.0m Operating Expenses $0.8m to $0.9m Existing Debt Service $0.4m to $0.3m Capital Improvement Plan $6.9m

  11. Water Capital Plan Baseline CIP $6.9m from FY 2020 to FY 2025 $6.5m from FY 2026 to FY 2030 Revised CIP $2.8m from FY 2020 to FY 2025 $5.6m from FY 2026 to FY 2030

  12. Water Revenue Requirement Analysis

  13. Water Rate Strategies • Option A: 2.00% annual rate increases from FY 2021 to FY 2025 • Meets annual operating, debt, and financial reserves through FY 2025 • Option B: 3.00% annual rate increases from FY 2021 to FY 2025 • Recommended by staff • Sets aside rate revenue for capital projects beyond FY 2025 • Mitigates steeper rate increases in future years

  14. Water Staff Recommendation *Bill assumes Residential ¾” meter, 4,000 gallons

  15. Water Recommended Rate Schedule

  16. Water Residential Rate Comparison *Bill assumes Residential ¾” meter, 4,000 gallons

  17. Wastewater Utility

  18. Wastewater Utility Forecast FY 2020-25 Annual Rate Revenue $0.9m Operating Expenses $0.7m to $0.8m Existing Debt Service $0.1m to 0.2m Capital Improvement Plan $4.0m

  19. Wastewater Capital Plan Baseline CIP $4.0m from FY 2020 to FY 2025 $5.7m from FY 2026 to FY 2030 Revised CIP $3.7m from FY 2020 to FY 2025 $6.2m from FY 2026 to FY 2030

  20. Wastewater Rate Forecast

  21. Wastewater Rate Strategies • Option A: 3.00% annual rate increases from FY 2021 to FY 2025 • Recommended by staff • Meets annual operating, existing debt, and financial reserves • Leverages $0.2m in available reserve funding for capital program • Option B: 4.60% annual rate increases from FY 2021 to FY 2025 • Meets annual operating, existing and new debt, and financial reserves

  22. Wastewater Staff Recommendation *Bill assumes Residential ¾” meter, 4,000 gallons

  23. Wastewater Recommended Rate Schedule

  24. Wastewater Recommended Rate Schedule (Cont.)

  25. Wastewater Residential Rate Comparison *Bill assumes Residential ¾” meter, 4,000 gallons

  26. Next Steps • Municipal election is October 1, 2019 • Rate adjustments subject to Assembly approval by ordinance following three readings and public hearing • If approved, water and wastewater rates would take effect July 1, 2020 • Future rate adjustments would be implemented in July of each subsequent fiscal year

  27. Questions/Discussion

  28. Matt Hobson Project Manager MatthewH@fcsgroup.com Direct (425) 615-6056 Contact FCS GROUP: (425) 867-1802 www.fcsgroup.com

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