Town of Lochbuie Water 2015 Water Rate Options Presented to the Town of Lochbuie Board of Trustees Raftelis Financial Consultants, Inc. December 16, 2014

Agenda Review of Customer Water Consumption Profile Review of Current Water Rates Conceptual Discussion of Base Charges Rate Design Options Requested by the Board 2015 Revenue Requirement from Water Rates Annual Customer Bill Impacts Under Rate Design Options 2

Water Customer Profile (2013 Data) 3 Customer TypeMetered Usage (Gallons)Accounts Residential150,006,0001,779 HOAs4,514,0002 Subtotal154,520,0001,781 Town of Lochbuie8,695,0009 Total163,215,0001,790 Average Annual Residential Water Consumption = 84,322 gallons

Monthly Profile of Residential Water Use (2013 Data) 4 MonthGallons of Billed UsageMonthly % of TotalSummer % of Total January8,297, % February7,169, % March7,271, % April8,238, % May10,461, % June23,516, % 55.98% July21,864, % August20,652, % September17,907, % October9,803, % November7,322, % December7,506, % Total150,006, %

Current Lochbuie Water Rates 5 Base Charges Meter SizeMonthly Charge 5/8"$ /4"$ "$ /2"$ "$ /2"$ "$ "$1, "$2, Volumetric Rate$3.79 per Thousand Gallons for All Usage

Profile of Water Utility Rate Revenue (2013 Data) Base Charge Revenue Volumetric Rate Revenue Total Revenue Annual Total$922,680$578,193$1,500,873 % of Total61.48%38.52%100.00% 6

Utility Cost and Revenue Recovery Characteristics The Vast Majority of Water Utility Costs are Fixed (75% - 90%) Debt Service Salaries and Benefits Administrative Overhead At Most Utilities the Vast Majority of Revenues are Variable “Pay for What You Use” Conversation Price Signal Affordability for Low Consumption Customers 7

Is There an “Industry Standard” for Setting Base Charges? 8 ConsiderationPossible Base Charge Outcome Climate Induced Revenue VolatilityHigh Risk = Higher Base Charges Cash Reserve PoliciesLarge Cash Reserves = Lower Base Charges Conservation Price SignalAggressive Price Signal = Low Base Charges Financial Leverage (Debt)Heavy Debt Burden = Higher Base Charges Each Utility is Unique:

Water Rate Design Directives from the Board (July 29, 2014 Water Rate Workshop) Move to an Inclining Block Rate Structure of the Following Design: Consider the Following Base Charge Options: 9 Consumption BlockMonthly Usage (Gallons) Rate Differential Block 10 – 10, Block 211,000 – 20, Block 3Over 20, Option #1Option #2Option #3Option #4 $30.00 per Month$32.50 per Month$30.00 per Month including 1,000 Gallons of Usage $32.50 per Month Including 1,000 Gallons of Usage

2015 Revenue Requirement from Rates 10 ItemSourceAmount Gross Revenue Requirement2015 Budget Water Operations & Maintenance" $649,055 Water Operations CIP" 1,073,200 Water Administration" 744,171 Debt Service" 160,388 Projected Cash Draw Down Due to Net Loss" (759,414) Total Gross Revenue Requirement" 1,867,400 Less: Miscellaneous Non-Rate Revenues Plant Investment Fees2015 Budget 192,000 All Other" 175,400 Total Non-Rate Revenues 367,400 Gross Revenue Requirement from Rates $1,500,000

Rate Design Outcomes Rate Component Existing 2014Option #1Option #2 Option #3 Base Charge Includes 1,000 Gallons Option #4 Base Charge Includes 1,000 Gallons Volumetric Rates Block 1 (0 - 10,000)$3.79$4.99$4.68$5.70$5.34 Block 2 (11, ,000) Block 3 (Over 20,000) Base Charges 5/8"$40.07$30.00$32.50$30.00$ /4" " /2" " /2" " "1, , "2, , , , , % Base Charge Revenue61.5%42.7%46.3%42.7%46.3% % Volumetric Revenue38.5%57.3%53.7%57.3%53.7% 11

12 Annual Bill Impact Comparison Annual UsageExisting 2014Option #1Option #2 Option #3 Base Charge Includes 1,000 Gallons Option #4 Base Charge Includes 1,000 Gallons 15, , , , , , , , , , , , , , ,0001, , , , , ,0001, , , , , ,0001, , , , , ,0001, , , , , ,0001, , , , ,579.02