Mark Beauchamp Utility Financial Solutions, LLC 12-11-2018 Groton Utilities: Wastewater Cost of Service, Financial Plan, and Rate Design Mark Beauchamp Utility Financial Solutions, LLC

Utility Financial Solutions, LLC International consulting firm providing financial services to utilities across the United States, Guam, Canada and the Caribbean Instructors for cost of service and financial planning for AWWA and APPA. Hometown Connections preferred vendor Previous Class A Wastewater License (Class Four)

Objectives Financial Projections and Targets Long term capital plan Debt Coverage Ratios Minimum Cash Reserves Target Operating Income Long term capital plan Bonding requirements for preliminary capital replacement plan Review long term rate adjustments to meet bonding and cash needs requirements of the Wastewater Department

Situation Past funding was to cover operating expense that included limited capital improvements. Capital expenses were primarily for emergency work requirements System is aged (69% (Ideal 50%) depreciated) Accounting records indicate the system is $12.5 million behind in capital investment System is 59% leveraged in debt and debt is expected to increase to fund future asset replacements Cash reserves below minimum cash requirements needed to operate, maintain and fund capital improvements Original plan to transition from tax funded to rate funded utility Customers deduct meters resulted in original plan overstating revenues by approximately $1.0 million

Study Objectives Establish a plan to fund future capital improvements and identify sources Plan is to fund capital replacements through a combination of rates, bond issuances, grants and low interest federal loans Identify cash needs to operate, maintain and fund capital replacements of the Wastewater Department Cash reserves are maintained to fund emergencies, capital replacements and meet working capital needs of Wastewater Utility Calculate debt coverage requirements to ensure the utilities ability to issue debt to fund future capital replacements Develop a plan with a long term rate track to meet financial targets over a number of years

Plant Asset Review

JUPITER POINT PUMP STATION PUMP STATIONS JUPITER POINT PUMP STATION WESTSIDE PUMP STATION

COLLECTION SYSTEM

POLLUTION ABATEMENT FACILITY

Development of Financial Plan and Key Financial Targets

Assumptions

Financial Projection (no rate change)

Financial Projections (Based on Current Capital Improvement Plan)

Cash Targets Why does a utility need a “Cash Reserve” and what is it used for? Pay expenses Fund system improvements help ensure reliability Pay Debt Service Fund unanticipated cost contingencies (Risk) Phase in large rate adjustment Keep utility healthy for future management

Minimum Cash Reserve (No Rate Changes, with bonding)

Debt Coverage Ratio (No Rate Changes, with bonding)

Target Operating Income (No Rate Changes, with bonding)