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Cost of Service Water Rate Study Habib Isaac Principal Greg Tobler Task Manager May 14, 2012

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Elk Grove Water District - Utility Rate Project | 2 Project Objectives Develop water rate structures that: Provide adequate revenues in short and long term Update and incorporate CIP Strong financial outlook for utility Minimize revenue adjustments Rate Design Are defensible / equitable across customer classes Consider ability to pay / affordability Minimize rate shock

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Elk Grove Water District - Utility Rate Project | 3 Additional Considerations Revenue Requirements Analysis Determine revenue needed to meet utility costs Project O&M, capital, and debt expenses Analyze reserves Cost of Service Analysis Allocate utility costs by function and customer demand Assign revenue required to each customer class in a proportionate manner Rate Design Analysis Develop rate structure for each customer class to collect appropriate level of revenues Achieve equity and policy objectives Revenue Requirements Analysis Determine revenue needed to meet utility costs Project O&M, capital, and debt expenses Analyze reserves

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Elk Grove Water District - Utility Rate Project | 4 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 Holistic Approach to Rate Design

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Elk Grove Water District - Utility Rate Project | 5 Analyzed EGWD Budget EGWD financials embedded within model Model may be used as part of budgetary process Accounted for specific adjustments Capital Improvement Plan Debt Management 10-year projection Reserves Established financial thresholds Created multiple scenarios to reach five year goal Revenue Requirements

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Elk Grove Water District - Utility Rate Project | 6 GUIDE Comprehensive Modeling Dashboard

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Elk Grove Water District - Utility Rate Project | 7 Programmed scenarios for quick comparisons Visualize impacts on revenue & rates immediately Variable Assumptions Toggles and Inputs Financial Thresholds

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Elk Grove Water District - Utility Rate Project | 8 Scenarios are quickly run with a push of the Run Scenario Button GUIDE provides the ability to save, name, and compare scenarios to determine the optimal financial plan.

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Elk Grove Water District - Utility Rate Project | 9 Key Variables: Numerous assumptions that are easy to modify allow for easy and instantaneous, yet complex, scenario planning Assumptions Include: Purchased Water Power Inflation Reserve Policies Debt Management Reserves Funded

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Elk Grove Water District - Utility Rate Project | 10 Immediate reflection of impacts to revenues & rates

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Elk Grove Water District - Utility Rate Project | 11 SCENARIOS Revenue Options

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Elk Grove Water District - Utility Rate Project | 12 Revenue Adjustments Based on Annual Needs Reserves allow District to defer two years of increases 4 th and 5 th yr adjustments @ 9% and 11%, respectively Bond covenants maintained and reserves funded Yearly fluctuations in revenue collection Rate shock to customers starting in 4th year Reactive approach to utilitys 5yr/10yr financial plan

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Elk Grove Water District - Utility Rate Project | 13 Financial Outlook - Reactive

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Elk Grove Water District - Utility Rate Project | 14 One Year Delay on Revenue Adjustments O&M Reserve equals 180 days of O&M Reserves allow District to defer adjustment for 1 year Revenue adjustments of 4%, 4%, 4%, 6% for remaining years Bond covenants satisfied District already has three years of 3% adjustments approved Essentially two years of new increase (Years 4 and 5) Allows economy to recover Years 6 through 10 not pro-actively considered

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Elk Grove Water District - Utility Rate Project | 15 Financial Outlook - 1 st Year Delay

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Elk Grove Water District - Utility Rate Project | 16 3% Revenue Adjustments Revenue adjustments of 3% for next five years District already has three years of 3% adjustments approved O&M Reserve adjusted from 180 days to 120 days Reserves fully funded including reserve programs Bond covenants satisfied CIP funded with a combination of existing Debt and PAYGO Higher increases necessary in later years

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Elk Grove Water District - Utility Rate Project | 17 Financial Outlook - 3% Adjustments

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Elk Grove Water District - Utility Rate Project | 18 O&M Reserves Adjusted to 90-Days District already has three years of 3% adjustments approved O&M Reserve adjusted from 180 days to 90 days All five years reflect 3% revenue adjustments Reserves fully funded including reserve programs CIP funded with a combination of existing Debt and PAYGO Bond covenants satisfied Funds short-term and long-term needs Years 6-10 revenue adjustments range between 4%-6%

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Elk Grove Water District - Utility Rate Project | 19 O&M Reserves - 90 Days

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Elk Grove Water District - Utility Rate Project | 20 Debt Restructure with 90-Day O&M Reserve O&M Reserve adjusted from 180 days to 90 days Debt management allows District to take advantage of current market conditions Debt obligation reduced Bond covenants easier to satisfy Reserves fully funded including reserve programs CIP funded with a combination of refinanced Debt and PAYGO May consider funding certain improvements with debt restructure Funds short-term and long-term needs Revenue adjustments in years 6-10 limited to 3%-4%

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Elk Grove Water District - Utility Rate Project | 21 Recommended Debt Restructure; 90-Day O&M

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Elk Grove Water District - Utility Rate Project | 22 Incorporate consumption data into model Review and correlate CIP with depreciation Rate Design Analyze peaking factors and demand characteristics Set unique rates for each customer class Discuss tiered structure Options for residential Conservation objectives Collaborate with EGWD staff throughout rate design process Next Steps