Driving the Conversation Government Finance Officers Association Washington Metropolitan Area November 7, 2018 (DRAFT) Henderson Brown, IV General Counsel Henderson Brown, IV General Counsel

Who We Are Distribute drinking water to 700,000 residents and 21 million visitors to the District of Columbia Collect wastewater from nearly 2 million residents and treat at the world’s largest advanced wastewater treatment plant Diverse group of people who have come together as one team to Improve the environment, Protect the public health and safety, and Deliver exceptional service to our local and regional customers

Every Problem We Face is Financial How do we Address legacy infrastructure Meet our mandates Deliver exceptional service to local and regional customers And still maintain affordability? Ratepayer Funded Our Risk: Simply being a passenger

We are Driven by our Legacy Water main break on a pipe from 1860 In May of last year, a 30” pipe from 1860 reminded us that Mother Nature and Father time are our unofficial bosses as well While our lifestyles today have little resemblance to those before the Civil War, some of our infrastructure is the same Before the Clean Water Act, water and sewer Pipes were only (median age) 44 and 41 years old, respectively, but they’ve continued to age Today, we have 700 miles of unlined cast iron pipe with a median age of 100 years Nine percent of our infrastructure was installed between the Civil War and the 1890s But following an influx of grant spending in the 70s, mandates have continued to increase, while federal support is going down

We are Driven by our Mandates $ Per ERU Clean Rivers Impervious Area Charge Per ERU DC Water takes seriously its commitment to cleaning up our waters, but it comes at a significant cost DC Water’s consent decree is the 4th most expensive in the country according to EPA data, and distributed over a relatively small population The good news is– it’s working We’ve had a very wet spring and summer and since March, the completed section of the Anacostia tunnel has captured 2 billion gallons of stormwater and sewage that would have otherwise entered the river The bad news is– it’s not free We’re paying for it through a dedicated fee assessed on the impervious area of property This charge has increased from $1.24 in 2009 to $23.00 per ERU in 2019, and while there’s a small dip this year because we’ve reassessed some of our costs, the fee will continue to rise Customers are really taking notice of this fee increase, and it’s been a source of concern raised to us and the District

Driven by our Mandates (Clean Rivers) How will you challenge your organization’s culture and better integrate finance throughout? How will you drive the values, needs, and mission of your organization?

Driven by our Mandates (Clean Rivers) By the numbers: DC Clean Rivers: $2.7 Billion Nitrogen Removal: $950 million Total >$3.5 billion 25 year implementation (2005-2030) 96% reduction in CSOs and flood relief in Northeast boundary Projected 1 million lb/year nitrogen reduction

And our Roadmap is Clear Customer Bills Will Increase FY 2019 Approved CIP and Average Residential Customer Bill ($000) ($) A $4 billion dollar Capital Investment Program will drive future rate increases Clean Rivers– ranges from a high of 48% in 2019 to a low of 17% in 2025 Wastewater treatment– somewhat more consistent, but ranges from 19% in 2019 to 27% in 2027 Water and Sewer ranges from 24% in 2019 to 61% in 2024 Our average residential customer’s bill is projected to increase from $102/month to $154/month now to 2027 While we may have lags in investment due to the schedule of Clean Rivers, rates will need to continue increasing to meet continued debt service requirements and ensure adequate funding for the next set of Clean Rivers’ investments in the late 2020s

The End of the Road? Where is the point of no return? Where do we go when we’ve reached it? We heard directly from customers in a series of Town Hall meetings, and we know some are facing significant hardship Rock Creek Church Cemetery’s bill went from $3,500 in 2008 to nearly $200,000 in 2016 Nonprofits and residents implored DC Water and the District for assistance

When Policy becomes a New Mandate Mayor’s summit yielded new program commitments DC Water Funded DOEE Funded CAP (<60% SMI) CAP2 (<80% AMI) CAP3 (80-100% AMI) Non-Profit (Hardship and Mitigation) Funding $1.2M Recovered through rates $6.0M from Rate Stabilization Fund $1.2M from DOEE $1.3M from DOEE $3.35M from DOEE Forecasted Customers 3,575 12,840 4,900 Impacted Charges 4 CCF Water, Sewer, PILOT, ROW 50% CRIAC 100% WSRF 3 CCF Water, Sewer Determined by DOEE for CRIAC only Determined by DOEE for up to 90% CRIAC SMI= State Median Income, Current LIHEAP eligibility AMI= Area Median Income Next Steps/Timeline: DC Water Program benefits cannot begin until program regulations for CAP2, CAP3 and CRIAC Relief Program are approved by the DCWater Board. Process includes: 10/19/2018 – Public comment period 11/19/2018 10/30/2018 – Public Hearing 11/28 or 29/2018 – Special Retail Rates Committee meeting for final recommendation of CAP regulations 12/06/2018 – Board Approval of final CAP regulations 12/21/2018 – Publication of Notice of Final Rulemaking (NOFR) for CAP regulations DOEE Program benefits associated with CRIAC Relief Program begin after regulations are approved

Leadership: Driving the Conversation Learning from our customers: Water is personal-- direct, face-to-face contact more meaningful than other media approaches Ratepayers who attend town halls are committed, care and are not shy about speaking up Financial leaders need to take the wheel in designing the response to their concerns

Finance as the Creative Driver What we’re good at: Detailed accounting Setting budgets and reacting to overages Calculating rate impacts from needed investments Relying on the engineers Reporting What we need to be good at: Big picture strategy and solutions Identifying and selecting alternatives Finding efficiencies and streamlining projects Helping them design solutions Communicating needs and impacts Responsive Proactive Need to turn the corner and shift from consulting/reporting on the back-end to engaged strategically and throughout project lifecycles We can put all the information out there we like in annual reports, but nobody reads them. Town Halls demonstrate we need to be better at delivering our message

Driving Unity Reminding the team that a dollar spent in one part of the organization is a dollar that can’t be spent elsewhere New Strategic Plan Vision: We will be known for superior service, ingenuity and stewardship to advance the health and well-being of our diverse workforce and communities. Mission: Exceed expectations by providing high quality water services in a safe, environmentally friendly, and efficient manner. Strategic Programs: Driving Performance The Employee Experience Leveraging Technology Operational Safety Customer Affordability Resilience and Readiness

Driving Planning & Execution What do we really need? And how do we ensure one doesn’t become the other halfway through the project? Graphics: Ford Taurus, Lamborghini Do we really need custom, or will off-the-shelf do? How do we ensure accountability throughout the planning and project lifecycle to avoid a Taurus from becoming a Lamborghini?

Charting the Course How will you challenge your organization’s culture and better integrate finance throughout? How will you challenge your organization’s culture and better integrate finance throughout? How will you drive the values, needs, and mission of your organization? How will you drive the values, needs, and mission of your organization?