1. 1 Department Department of of Public Utilities Presentation of Study Results August 2006

2. 2 Report Components Driving factors behind the report Results of the Rate Study

3. 3 CHESAPEAKE CITY COUNCIL GOALS REVIEW January 18, 2003 Primary responsibility Rehabilitate water and sewer lines Secure additional water sources to insure an abundant supply for City residents Unstated support responsibility Support established neighborhoods by keeping housing and infrastructure up-to-date Strengthen emergency planning and facilities Redevelop areas of the City to generate wealth Maintain good financial management policies and strategies Protect water resources Create and implement economic development strategies that insure prosperity

4. 4 It must be self-supporting through its rates and fees Operating costs are paid via User Fees Capital costs are funded on - pay as you go basis - or bonds Capital costs are paid through a combination of both user fees and connection fees It receives no subsidy from the General Fund (i.e. taxes) Bond Coverage Ratio (BCR) required by our Master Bond Resolution to be 1.0 or greater

5. 5 Issue Overview Bond coverage Operating costs increased at a much greater rate than CPI EPA/DEQ regional consent order CIB Needs Unserved Areas

6. 6 Bond Coverage Ratio Revenues Expenses Required by our Master Bond Resolution to be 1.0 or greater BCR may be greater depending on type of financing BCR =

7. 7 Average Annual Increase By Expense Drivers (FY2001-2006)

8. 8 Water Distribution Plan

9. 9 Operating costs-Raw Water Purchases The 2001 Rate Study for the current rates estimated the cost to be $0.60 per 1,000 gallons (Lake Gaston raw water) Actual cost of water is $1.05 per 1,000 gallons (Norfolk raw water) $1.2M – $1.5M more per year

10. 10 Operating Costs-Treated Water Purchases FY 2001 –FY2005 Consumer Price Index from 2001 to 2005 +10% Portsmouth Unit Price +15% Norfolk Unit Price+28% Through FY06 and FY07 Portsmouth’s rate will have increased another +9% Norfolk’s rate will have increased another +12%

11. 11 Impact of Purchased Water (Using current Rates) Purchased Sold Net Loss (per CCF) (per CCF) (per CCF) Norfolk Water $3.47* $3.225* ($0.25) Portsmouth Water $3.79* $3.225* ($0.57) *at current water rate

12. 12 Unit Purchase Price vs. Unit Sales Price

13. 13 Other Operating Cost Increases (Consumer Price Index from 2001 to 2005 increased 10%) During this past Fiscal Year Copper tubing (hourly quotes)+276% to +505% Sewer main materials+218% to 361% Water Main materials+147% to 218%

14. 14 How Did Public Utilities Mitigate the Increases ? Controlled discretionary spending Controlled CIB projects in spite of needs Reduced CIB funds for system renewals (routine annual maintenance) Optimized service areas

15. 15 Operating Expense Breakdown Water Purchases Debt Personnel O & M Controllable O & M Non-Controllable

16. 16 Does Growth Help? Increased operating costs (meter reading, billing, customer service, maintenance, repairs) Flat Sales Does not help as much as one might assume

17. 17 Actual Revenue vs Actual Growth (FY02-06) Water/Sewer Account Growth +1.62% per FY Average amount of water people consumed only increased by +0.24% per FY Previous rate study estimated 2% growth in both categories

18. 18 EPA/DEQ This is an unfunded mandate on region. Required by both the State and Federal Governments Sanitary Sewer Evaluation Survey (SSES) Potential fiscal impact of the SSES is unknown at this time. Proposal contains an approximation of the eventual EPA/DEQ impact Norfolk (SSES $2.8M; CIB 2002-2004 $13.5M; CIB 2004-2008 $39.4M plus EPA mandated rate increase)

19. 19 CIB Needs Current plan reflects a 5-year $66M CIB to address Infrastructure issues per the Council’s goals Membrane Replacement Vehicle replacement Water System Renewal (routine O&M) Sewer System Renewal (routine O&M) Pump Station & Wet Well Upgrade (routine O&M) Customer Service/Billing software System Optimization Storm Hardening Storage Tank Renovation Northwest River Water Treatment Plant Cover Replacement 800 MHz Digital Radio System Waterline Upgrades (replacement) Force Main Upgrades (replacement) Sewer Line Upgrades (replacement) Water Reliability (New Installations) 30" NWR Raw Water Main Raw Water Transmission Main Greenbrier Tank (New Installations)

20. 20 Unserved Areas 79 Sewer Projects totaling $74.7M (2005 Dollars) 44 Water projects $20.4M (2005 Dollars) This Financial Plan provides $27.0M for Unserved Areas Best estimate indicates that 10 areas might be served List prioritized by Chesapeake Department of Health New Cost Participation Policy

21. 21 Unserved Sewer Areas Identified in 2005 Study

22. 22 Unserved Water Areas Identified in 2005 Study

23. 23 Proposed Ten Unserved Areas SewerWater Willow Lakes $2.4M$0.9M Albemarle Acres$5.3M$2.6M Manning Ct/Vico$1.7M$0.3M Etheridge Manor (Sect.1)$1.1M - Battlewood Meadows$4.6M - Bridgewood$0.8M$0.3M Old Mill Rd$3.4M - Cedar$1.7M - Shipyard Rd$1.2M$0.3M Waters Rd.$0.4M - (Listed in priority per Chesapeake Health Department)

24. 24 Summary Operating costs have increased at a higher rate than expected We have exhausted all options to mitigate the increases The EPA/DEQ mandate is imminent/mandatory The bond coverage ratio will be impossible to meet without fiscal help. An Unserved Areas program is introduced

25. 25

26. 26 Basic assumptions used in study:

27. 27

28. 28 Recommendation for Connection Fees

29. 29 Comparison of Connection Fees (5/8” meter)

30. 30

31. 31

32. 32 FY 2007 Rate Increase Factors

33. 33 Average Monthly Residential Bill Average Monthly Bill for Water & Sewer

34. 34

35. 35

36. 36 FY 2009 Rate Increase Factors

37. 37

38. 38

39. 39 FY 2011 Rate Increase Factors

40. What’s Next..... ? August 8, 2006 – Conduct a work session for City Council September 12, 2006 – Conduct a public hearing and request council action November 1, 2006 – Implement revised rates

41. Discussion