WATER, WASTEWATER AND RECLAIMED WATER RATE STUDY

1. WATER, WASTEWATER AND RECLAIMED WATER RATE STUDY Public Meeting to Review Proposed Financial Plan for Utility April 1, 2014 .

2. Rate Study Timeline • November 12, 2013: Public Meeting to Establish City Council Expectations, Direction and Policy • Minimum Monthly Charges and Base Usage Rates Unchanged Since 2008 • Course of Action Discussed: Present Proposed Financial Plan (e.g., Need for Revenue / Rate Increases) and Obtain Council Approval Before Proceeding With Rate Design • April 1, 2014 (Today): Presentation of Proposed Financial Plan for Utility

3. Major Issues Currently Affecting Utility System • Staff Has Identified Approximately $57.5 Million in Capital Projects • Primarily Necessary Repairs and Upgrades to Utility System • Public Health and Safety • Quality of Service • Asset Management • Could Face Future Fines From Regulatory Agencies If Not Completed • Recommend Additional Debt Financing to Avoid “Rate Shock”

4. Major Issues Currently Affecting Utility System (continued) • Projected Funding of Capital Program: • Balance of Internal Funding Sources and Debt Financing

5. Major Issues Currently Affecting Utility System (continued) • Operating Expenses Projected to Continue Increasing • Congressional Budget Office National CPI Projections: Over 2% Increase Per Year • Due to Regulatory Environment, Capital-Intensive Nature of Utility Operation, and Commodity Cost Increases (Electricity, Chemicals, Fuel, etc.), Utility Costs Typically Increase at Higher Rate Than General Inflation • Inflation and Costs of Construction (ENR Construction Cost Index) Continue to Increase Despite Economy

6. Major Issues Currently Affecting Utility System (continued) • Must Meet Debt Service Requirements Associated With Existing and Anticipated Debt • 150% All-In Coverage Target Recommended (Supported by Credit Rating Agencies) • Need to Maintain Adequate Operating Reserves and Margins to Ensure Continued Creditworthiness of System and Provide Funds for Emergencies • Target Operating Reserves Balance = 90 Days of Rate Revenue

7. Revenue Under Existing Rates Projected to Be Insufficient to Meet All Revenue Requirements • Projected Need to Adjust Rates to Keep Utility Sustainable • Cumulative National CPI Change Since Last Adjustment (in 2008) of Minimum Monthly and Base Usage Charges: 7.3% • Revenue Requirements Analysis:

8. Projected Need for Revenue Adjustments • Balance of Operational and Financial Considerations

9. Revenue Adjustment Comments • Water Revenue Adjustments • CPI Adjustments to Preserve Operating Margins • User Rates Anticipated to Remain Around Average of What Neighboring Utilities Are Charging • Wastewater and Reclaimed Water Revenue Adjustments • Adjustments for Wastewater and Reclaimed Water Are Same Since Systems Are Integrally Linked • City Considers Reclaimed Water 100% Wastewater-Related • Reclaimed Water Revenue Classified as Component of Wastewater Revenues in City Financial Reports • User Rates Anticipated to Gradually Increase to Average of What Neighboring Utilities Are Charging • Alternative: Could Make All User Rate Revenue Adjustment Percentages the Same

10. Revenue Adjustments Are Positioning Utility for More Pay-As-You-Go Funding of Renewals and Replacements • Existing Senior Lien Bonds Fully Paid By Fiscal Year 2022 and Largest Existing SRF Loan Fully Paid By Fiscal Year 2024 • Revenues Currently Used to Pay These Debt Issues Can Be Used for Either: • Pay-As-You-Go Funding for Routine Capital Replacements • Additional Debt for Major Capital Expenditures (e.g., Growth-Related Projects, Major System Replacements)

11. Recommendation: Price Indexing Adjustment Clause • Discussed During November 12th Meeting • In Absence of Rate Study Recommendation, Automatic Rate Increases for Inflationary Effects on Costs of Operation • Implemented Without Formal Public Hearing or Analysis • Effective October 1st of Each Fiscal Year • Could Consider Maximum and Minimum Percentages (e.g., No Rate Decreases If Index Percentage Change Is Negative) • Favored By Credit Rating Agencies • More Assurance That Rates Will Keep Up With Inflation • Less Implied Risk of Default on Debt Service Payments • Any Adjustments Above Index Adjustment Would Require Council Adoption

12. Water User Rate Comparison • Monthly Usage of 4,000 Gallons • Average Usage of Single Family Residential Customer in System [*] Utilities in CAPITALIZED letters: i) are involved in rate study; ii) are planning to conduct rate study; or iii) will implement rate revision or price index / pass-through adjustment within twelve months

13. Wastewater User Rate Comparison • Monthly Usage of 4,000 Gallons • Average Usage of Single Family Residential Customer in System [*] Utilities in CAPITALIZED letters: i) are involved in rate study; ii) are planning to conduct rate study; or iii) will implement rate revision or price index / pass-through adjustment within twelve months

14. Combined Water and Wastewater User Rate Comparison • Monthly Usage of 4,000 Gallons • Average Usage of Single Family Residential Customer in System [*] Utilities in CAPITALIZED letters: i) are involved in rate study; ii) are planning to conduct rate study; or iii) will implement rate revision or price index / pass-through adjustment within twelve months

15. Reclaimed Water User Rate Comparison • Monthly Usage of 12,000 Gallons • Average Usage of Single Family Residential Customer with Reclaimed Water Service in System

16. Moving Forward… • Request Approval of Proposed Financial Plan • PRMG Will Return in a Few Weeks with Proposed Rates • User Rates • Development Fees (Impact Fees) • Miscellaneous Service Charges

17. Financial Plan • Development of Financial Forecast • Fiscal Years 2014 to 2019 • Purpose: To Identify Funding Requirements and Cost Recovery Strategies • Assess the Adequacy of Existing Rates • Analysis Includes Forecast of: • Customer Growth and Revenue • Operating Expenses • Debt Service Obligations • Capital Improvement Requirements / Funding

18. Financial Plan Guiding Principles • Compliance With Regulatory Requirements • EPA / FDEP / SJRWMD • Revenues Should Be Sufficient to Recover Full Cost of Providing Service • Utility Should Remain Financially Viable and Sustainable • Adequate Funding for Operating and Maintaining the System • Capital Investment to Improve, Renew and Rehabilitate Facilities • Compliance With Rate Covenants for Existing and Anticipated Debt • Balanced Debt Risk (Pay-As-You-Go vs. Debt Financing) • Adequate Cash Reserves

19. Major Issues Currently Affecting Utility System (continued) • Identified Water System Capital Program:

20. Major Issues Currently Affecting Utility System (continued) • Identified Wastewater and Reclaimed Water System Capital Program:

21. Revenue Requirements • Reflect Total Expenditures Funded from Rates • Expenditures Include the Following: • Operation and Maintenance Expenses • Debt Service Requirements • Renewals and Replacements • Ongoing: Allows Assets to Meet Useful Service Life • Major: Extends Useful Service Life of Assets • Administrative Transfers

22. Breakdown of Need for Revenue Adjustments