1 CITRUS COUNTY Board of County Commissioner’s Meeting August 25, 2015

2 Frank Davis Raftelis Financial Consultants, Inc. Frank Davis Manager at Raftelis Financial Consultants, Inc. - Sarasota Served as financial and rate consultant with RFC in the water and wastewater industry since 1997 Conducted numerous cost of service and rate studies throughout the Country University of South Carolina B.A. in Political Science, 1991; University of South Florida, B.S. in Finance, 1995; and Wake Forest, MBA 1997 Sugarmill Woods engaged RFC to review the Citrus County Rate Study and determine if proposed rates are based on cost to serve Sugarmill Woods customers

3 Citrus County Rate Study Calculated both Uniform County-wide Rates and “Stand Alone Rates” for 11 water and 6 wastewater systems Uniform Rates represents a 77% bill increase to Sugarmill Woods customer* −28% increase for water −111% increase for wastewater Stand Alone Rates represents a 62% bill increase to Sugarmill Woods customer* −15% increase for water −92% increase for wastewater *Assumes residential customer with 10,000 gallons of water use per month.

4 Observations of Rate Study Analysis Neither alternative recognizes cost of service differences of separate facilities serving numerous systems Uniform rates determined as if all customers served by and benefit equally from all facilities Stand Alone cost allocations based on approximate apportionments to all customers −Number of accounts −Flows −Revenues −Net Income Stand Alone wastewater cost allocation includes an inconsistent/incorrect allocation of capital that has a material impact on Sugarmill Woods Rates

5 Allocation of 2016 Revenue Bond 2016 bond proceeds or debt service are not included in the forecast of combined County-wide revenue requirements Stand Alone Sugarmill Woods system wastewater cost of service includes a 100% allocation of $767,000 in debt service for 2016 Revenue Bond Issue Stand Alone cost of service for five other wastewater systems includes a deduction of $767,000 in debt service for 2016 Revenue Bond Issue, i.e. other systems’ rates are reduced by SMW paying 100% of new debt service Revenue requirement for County-wide uniform rates do not include any debt service for a 2016 Revenue Bond – Is wastewater uniform rate understated? Stand Alone cost of service for Sugarmill Woods is dramatically overstated; while costs of service for five other systems is understated! IMPLICATIONS OF TREATMENT OF 2016 REVENUE BONDS

Bill Impacts – Alternative 1 Alternative 1: Exclude Allocation of 2016 Revenue Bond Debt Service to Sugarmill Woods and Offset of Debt Service to Other Sewer System Customers

Bill Impacts – Alternative 2 Alternative 2: Include 2016 Revenue Bond Debt Service in Combined Revenue Requirements and Allocate 100% to Sugarmill Woods. Exclude Offset of Debt Service to Other Sewer System Customers

8 Robert Scheffel “Schef” Wright Gardner, Bist, Bowden, Bush, Dee LaVia, & Wright Schef Wright Partner/Vice President at Gardner, Bist, Bowden, Bush, Dee LaVia & Wright, P.A. Worked with Energy and Water Utilities in FL since 1980 Served in Governor Graham’s Energy Office from 1980 – 1982 and on FL Public Service Commission staff from University of Florida B.A. in Economics, 1971; Duke University, M.A. in Economics, 1973; and Florida State University College of Law, J.D. with High Honors, 1992 Successfully represented Cypress and Oak Villages Association in 1991 Southern States Utilities (SSU) rate case

9 Rate Shock SSU proposed system-wide rates would have imposed drastic increases to Sugarmill Woods customers – “RATE SHOCK” County’s proposed uniform rates similarly impose RATE SHOCK on Sugarmill Woods customers while providing reduced rates for other customers Rate Study not based on detailed analysis of what it really costs to serve Sugarmill Woods Rates set for Sugarmill Woods by PSC were presumably “compensatory, fair, just and reasonable” SMW rates at time of County acquisition from FGUA have been adjusted to reflect inflationary increases

10 Rate Shock Sugarmill Woods customers contributed essentially all capital representing their rate base FGUA estimated Sugarmill Woods would provide $939K a year in net operating income at time of acquisition (2003) Sugarmill Woods net operating income of $939K would more than pay for SMW’s share of debt service on acquisition value County as made approximately $4.4 million in improvements to Sugarmill Woods systems - $250,000 in estimated debt service* Rate Study allocates 100% of new regional WWTP to Sugarmill Woods −Plant has at least 2 times capacity required to serve Sugarmill Woods −Plant will serve new customers that will contribute utility fees *Assumes 4% interest and 30 year repayment term.

11 Rate Shock Bottom Line: No analytical basis to support imposing 77% combined increase on Sugarmill Woods customers next year −Rate Study provides no evidence that Sugarmill Woods current rates are below SMW cost of service −County’s total net revenue requirements increase by only 2.6% in 2015, 2.9% in 2017, and 3.0% in % combined increase imposes RATE SHOCK and is inappropriate without detailed cost of service analysis demonstrating Sugarmill Woods existing rates are below cost of service In electric utility rate cases, FL PSC applies informal “transition rules” or policies to prevent drastic rate increases even when cost of service warrants increases

12 Florida Public Service Commission Transition Rules If system requires a rate increase, no customer class get a decrease If system requires a rate decrease, no customer class gets an increase No customer class gets an increase/decrease greater than 1.5 times the system average increase/decrease

13 Alternative Rate Proposal Citrus County Proposed Total Revenue Increases % increase for water and wastewater % increase for water and wastewater % increase for water and wastewater Sugarmill Woods Proposed Alternative 2016SMW-5.2% increase for water and wastewater, all others 2.01% 2017SMW-5.8% increase for water and wastewater, all others 2.01% 2018SMW-6.0% increase for water and wastewater, all others – 2.01% Prior to 2019, perform a detailed cost of service analysis to determine true cost of service rates for Sugarmill Woods customers

14 Impacts of 2016 Sugarmill Woods Proposed Alternative Total System Revenue Increase = $383,000 SMW Revenue Increase = $141,000 SMW Increase more than double other customers SMW pays 37% of total increase