Presentation for a W ATER R ATE S TUDY Chris Fisher Jeff McGarvey Tony Thrasher CITY OF SOLEDAD, CALIFORNIA Presented by

Presentation to the City of Soledad | Water Rate Study | 2 P RESENTATION C ONTENTS Introductions Utility Rate Setting Process Results of Analyses – Major Assumptions – Customer Information – Financial Outlook Current State: “Do – Nothing” or Status Quo Recommendation: Proposed Revenue Path Questions and Discussion

P URPOSE OF THE R ATE S TUDY CITY OF SOLEDAD, CALIFORNIA

Presentation to the City of Soledad | Water Rate Study | 4 P URPOSE OF THE R ATE S TUDY Evaluate sufficiency of the existing water rate revenue stream to: – Provide funding for current and future operating / capital expenses – Meet minimum reserve level requirements – Meet legal obligations associated with outstanding debt Develop rates and charges which will generate sufficient revenue / meet cost of service standards (Prop 218)

U TILITY R ATE S ETTING P ROCESS CITY OF SOLEDAD, CALIFORNIA

Presentation to the City of Soledad | Water Rate Study | 6 U TILITY R ATE S ETTING P ROCESS Utility Rates Regulatory Requirements System Needs Political Pressures Economic Impact Financial Goals

Presentation to the City of Soledad | Water Rate Study | 7 U TILITY R ATE S ETTING P ROCESS Typical utility rate-setting process Planning Project Initiation & Management Data Collection & Assessment Confirmation of Goals and Objectives Frequent Communication Analysis Rate Setting & Financial Plan Customer Statistics System Revenue Requirements Integration of Capital Improvement Plan Multi-year Financing Analysis Alternatives Analyses Communication Summary Report Written Public Presentations Adopted Rates & Financial Plan

Presentation to the City of Soledad | Water Rate Study | 8 Comprehensive rate-setting process… U TILITY R ATE S ETTING P ROCESS Provides structure for system changes Operational requirements Water supply Policy/Personnel changes Service territory (growth; usage characteristics) Capital additions and replacements Provides structure for system changes Operational requirements Water supply Policy/Personnel changes Service territory (growth; usage characteristics) Capital additions and replacements Creates approach for securing resources Evaluate existing financial condition Identify funding alternatives Design appropriate rates/charges Creates approach for securing resources Evaluate existing financial condition Identify funding alternatives Design appropriate rates/charges

Presentation to the City of Soledad | Water Rate Study | 9 Evaluate Current Financial Condition Operating Revenues lessOperating Expenses lessDebt Service lessTransfers lessCapital Expenditures lessReserve Requirements =Total Available Resources vs.Needed Capital Additions and O&M Identify Optimum Funding Strategy U TILITY R ATE S ETTING P ROCESS

Presentation to the City of Soledad | Water Rate Study | 10 Rates & Rate Design Issues: Revenue RelatedCost RelatedPractical Meet total revenue requirements Revenue stability and predictability Rate stability and predictability Promote efficient use of water Reflect internal costs Fairness of rates Non-discriminatory Responsiveness to changes in demand/supply Easy to understand and administer Free from controversy Defensible (Prop 218) U TILITY R ATE S ETTING P ROCESS

Presentation to the City of Soledad | Water Rate Study | 11 Determine revenue needed to meet utility costs Project O&M, capital and debt expenses Analyzes reserves Revenue Requirements Analysis Allocate utility costs by function and customer demand Assign revenue required to each customer class in a proportionate manner Cost of Service Analysis Develop rate structure for each customer class to collect appropriate level of revenues Encourage water conservation Rate Design Analysis U TILITY R ATE S ETTING P ROCESS Holistic Approach to Rate Design:

R ESULTS OF A NALYSES CITY OF SOLEDAD, CALIFORNIA

Presentation to the City of Soledad | Water Rate Study | 13 M AJOR A SSUMPTIONS AMBAG Regional Growth Forecast provided account class specific growth assumptions Yearly escalation factors: – Materials & Supply 4% – S&B 3%, Pension 4% – Admin & General 3% – Utility 3% Staff provided an updated CIP schedule to ensure proper utility function for the next decade Reserve targets: – O&M reserve of 90 days – Depreciation is fully funded after the second year

Presentation to the City of Soledad | Water Rate Study | 14 C USTOMER I NFORMATION DescriptionGrowth FY 2014/15FY 2015/16FY 2016/17FY 2017/18FY 2018/19 Accounts: Public0.00%67 Commercial2.15% Multi-Residential1.08% Single-Family Residential1.73%3,0663,1193,1733,2283,284 School0.00%17 Total Accounts 3,7213,7823,8443,9083,972 Total Meter Equivalents 5,595 5,6875,7805,876

Presentation to the City of Soledad | Water Rate Study | 15 C USTOMER I NFORMATION DescriptionAvg/Cust FY 2014/15FY 2015/16FY 2016/17FY 2017/18FY 2018/19 Consumption (HCF*): Public 1,14776,530 Commercial ,792115,217117,695120,225122,810 Multi-Residential ,066147,643149,238150,849152,479 Single-Family Residential ,296646,833658,017669,395680,969 School 5,07886,328 Total Consumption 7,4201,083,0121,072,5521,087,8071,103,3281,119,116 * HCF is one hundred cubic feet, which is 748 gallons

Presentation to the City of Soledad | Water Rate Study | 16 Description FY 2014/15FY 2015/16FY 2016/17FY 2017/18FY 2018/19 Revenues $1,453$1,476$1,501$1,526$1,551 Less: Operating Expenses [1] 1,2261,2771,3291,3821,438 Non-Operating Expenses 80 Debt Service Capital Expenditures Expenditures$2,556$2,027$1,988$2,100$1,994 Difference($1,104)($551)($487)($574)($442) F INANCIAL O UTLOOK Current State: No revenue increases – cumulative negative cash flow of $3.2 million All figures in thousands [1] Excludes depreciation expense

Presentation to the City of Soledad | Water Rate Study | 17 F INANCIAL O UTLOOK Current State: No revenue Increases –Graph shows cumulative effect and includes beginning operating fund cash balance

Presentation to the City of Soledad | Water Rate Study | 18 Description FY 2014/15FY 2015/16FY 2016/17FY 2017/18FY 2018/19 Proposed Revenue Increase0.00% Net Income (incl depr, excl CIP)($548)($573)($604)($631)($659) Metrics: Days of Operating Reserves6(98)(201)(313)(397) Debt Service Coverage (125%)(56%)(65%)(73%)(83%)(94%) Operating Fund Balance$28($544)($1,148)($1,779)($2,438) Capital R&R Fund Balance($210)$22 ($98)$52 F INANCIAL O UTLOOK Current State: No revenue increases ** All figures in thousands

Presentation to the City of Soledad | Water Rate Study | 19 Description FY 2013/14FY 2014/15FY 2015/16FY 2016/17FY 2017/18 Revenues $1,558$2,181$2,538$2,658$2,784 Less: Operating Expenses [1] 1,2261,2771,3291,3821,438 Non-Operating Expenses 80 Debt Service Capital Expenditures Expenditures $2,556$2,027$1,988$2,100$1,994 Difference ($999)$154$551$559$790 F INANCIAL O UTLOOK Recommendation: FY 2013/ % revenue increase - implemented in Q4, and; FY 2014/ % revenue increase – implemented mid-year (Jan 1), and; CPI inflator (maximum 3%) implemented mid-year (Jan 1) each subsequent year All figures in thousands

Presentation to the City of Soledad | Water Rate Study | 20 F INANCIAL O UTLOOK Recommendation: FY 2013/14 30% and FY2014/15 30% revenue Increases, with CPI inflator –Graph shows cumulative effect and includes beginning operating fund cash balance

Presentation to the City of Soledad | Water Rate Study | 21 Description FY 2014/15FY 2015/16FY 2016/17FY 2017/18FY 2018/19 Proposed Revenue Increase30.00% 3.00% Net Income ($443)$132$434$502$573 Net Income (Incl Depr, excl CIP) ($443)($150)$157$285$246 Metrics: Days of Operating Reserves Debt Service Coverage (125%)(21%)Covered Operating Fund Balance $134$266$538$537$580 Capital R&R Fund Balance ($210)$22$183$566$1,247 F INANCIAL O UTLOOK Recommendation: FY 2013/14 30% and FY2014/15 30% revenue increases, with CPI inflator All figures in thousands

Presentation to the City of Soledad | Water Rate Study | 22 F INANCIAL O UTLOOK Using CPI as an inflator each year since previous rate analysis, the 2014 rates would be 54% higher than the 1996 rates FYE 2014 cash flow deficiency is projected to be 64% of current revenue Based on past bills PG&E rates have risen 6.7% per year, on average, since 1997

Q UESTIONS & D ISCUSSION CITY OF SOLEDAD, CALIFORNIA