1. Commission Meeting November 18, 2015 WSSC Customer Use and Pricing

2.  To review a history of WSSC customer usage and trends, as an essential step in the ongoing review of the WSSC rate structure (user fees and charges)  Improve Revenue Forecasting  Identify future activities for review of the water and wastewater rate structure Purpose 2

3. Background In 2010, WSSC and representatives from Montgomery County and Prince George’s County began a journey to examine long term financial stability of the Commission o A bi-county report was published in 2012 that included pricing objectives identified for WSSC services and recommended that WSSC: Maintain the existing rate structure Create a separate fee for system reconstruction charges Issue 30 year debt rather than 20 year amortization, with a coverage of 1.25x and 365 days of cash reserve o A 2014 Rate Study was conducted to review rate alternatives and found the following: The fixed portion of WSSC rate structure generates an extremely low percentage of total revenues, leaving WSSC highly dependent upon declining water consumption and volatility. The addition of an infrastructure investment fee as a fixed component of the Ready-To-Serve charge was recommended An update of the Account Maintenance component of the Ready-To-Serve charge is needed to recover the actual cost of service Alternative volumetric rate structures were reviewed, but the study recommended that WSSC retain the existing 16 tiered system as no compelling reason existed to justify changing the structure. In fact, it was noted that changes would have significant customer impacts and most of the pricing objectives identified under the bi-county study were achieved 3

4. Background 4 The need for continuing review of user fees becomes acute as we examine the continuous decline in water production of the last 20 years, yet see an increase in the number of accounts o number of miles required to be maintained increase 16% between 1995 -2014

5. National Trends F i n a n c e 5 As customer use declines, water and sewer rates continue to increase, leaving volumetric revenues as an inadequate revenue source for utilities This trend has been seen nationally

6. Revenue Requirements 6 Most of our revenues are volumetric; that is based upon the amount of water used by our customers

7. Assessment Overview While the average residential WSSC bill is still low by comparison*, the Commission has committed to continue the review of its total rate structure begun in 2010 7 *Bill calculations take into account the fees and charges in effect as of 10/1/15. The average bill for Howard County includes the costs included on the property bill of an average residential home owner.

8. Redesigning a Rate Structure 8 Best practice suggests several steps when engaging in the rate- setting process The 2012 Bi-County study helped identified pricing objectives while the 2014 Rate Study helped to balance revenue sources from volumetric to more stable fixed user fees A more robust review of our customer use may provide interesting data points for future consideration 5: Design the rate structure 4: Allocate costs and determine cost of service 3: Identify revenue Requirements 2: Forecast demand and units of service 1: identify Financial and pricing objectives

9. Redesigning a Rate Structure 9 WSSC Pricing Objectives/Priorities Identified in the 2012 Bi-County Financial Study

10. Customer Use 10 MFSG was engaged to review 15 years of customer use data by customer category (FY2001-2015) An extensive pivot table was created to help view the data Overall usage has declined slightly over the 15 year period, with nearly an 8% decrease over the last 10 years alone The data was compared to historic weather patterns, employment statistics and rate adjustments to look for correlations that might impact water use 47,573,706 47,405,049 51,078,585

11. Residential Use Down: Commercial Use Up 11 The number of commercial accounts and total volume has increased (14% & 10%), while their use per account has decreased (3.4%) The number of residential accounts has increased (12%), but the total volume has decreased (6%), and their use per account has decreased (15.2%)

12. Impact On Revenue Projections 12 Revising Revenue Projections based upon use rather than production can help improve forecasting and thus expectations: History provides us with some insight into customer patterns to aid forecasting Customer consumption decline is not correlated to production assumptions Only volumetric growth is anticipated within the commercial sector

13. Future Activities Revise methodology for revenue/rate projections Base upon customer use rather than plant production Lower use/growth also has capital planning implications Revise average customer use comparison Residential customers using about 145 gpd; not 160gpd Implement second year of Infrastructure Investment Fee Hold fee stable through FY2020 Financial Consultant RFP underway Review Permit Fees/charges Develop a rate policy using pricing objectives identified in Bi-County Study Initiate strategic rate structure review Engage both counties Develop outreach 13

14. Questions/ Comments Questions/ Comments 14