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DECEMBER 6, 2019

Budget Report 2020

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2020 Operating Budget in (000’s) 2019 2019 2020 2021 2022 2023 2024 Budget Forecast Budget Forecast Forecast Forecast Forecast *Revenue 40,121 40,177 43,755 48,668 49,891 52,074 54,540 Operation and Maintenance Operations labour 1,472 1,534 1,622 1,665 1,725 1,785 1,860 Maintenance labour 1,411 1,309 1,259 1,291 1,339 1,386 1,445 Employee benefits 521 493 506 517 529 541 556 Contract maint. - plant & ps 2,036 1,988 2,133 2,189 2,272 2,354 2,455 Contract maint. - trans 1,372 674 1,080 1,108 1,150 1,192 1,243 Electricity 1,750 1,916 1,800 1,842 1,884 1,927 1,981 Natural gas 216 227 220 225 230 235 242 Chemical 173 208 229 234 239 244 250 Biosolids disposal 3,572 4,034 4,162 4,269 4,366 4,465 4,591 Contract sludge haul 1,310 1,260 1,440 1,473 1,507 1,542 1,585 External treatment services 7,219 7,641 7,853 8,307 8,636 8,955 9,342 Other 404 379 424 434 444 454 467 21,456 21,663 22,728 23,554 24,321 25,080 26,017

Regulatory Services 1,341 1,305 1,401 1,433 1,465 1,497 1,537 Corporate Services 1,978 1,944 2,112 2,159 2,207 2,255 2,316 Engineering 1,226 1,056 1,271 1,300 1,329 1,359 1,397 Board 95 106 160 133 136 139 142 Operating costs 26,096 26,075 27,672 28,579 29,458 30,330 31,409 *Financing costs 1,359 1,260 1,421 1,651 1,815 1,998 2,215 Total oper. and fin. exp. 27,455 27,335 29,093 30,230 31,273 32,328 33,624 Excess of rev. over exp. 12,666 12,842 14,662 18,438 18,618 19,746 20,916 Amortization expense (7,100) (7,200) (8,000) (8,300) (8,600) (8,900) (9,200) *Principle repayments (4,508) (4,322) (3,737) (4,332) (4,906) (5,484) (6,097) Net surplus to reserves $1,058 $1,320 $2,925 $5,806 $5,112 $5,362 $5,619 *The revenue, financing costs and principle repayments are presented for 2020 to 2024 based on rates and financing calculations in the revenue requirement attachment

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Operating Budget Highlights The 2020 operating budget is proposed at $27.7 million which is a ~$1.6 million (6.0%) increase in comparison to the 2019 operating budget. Staffing levels are proposed to remain at 49 permanent full-time staff and 3.0 equivalent FTEs. The budget for salaries, benefits, and honorariums have increased by ~161K (2.6%). The salaries and benefits budget include the increments for our performance management program of 1% and a cost of living adjustment of 2.0%.

2020 Operating Budget Allocated by Department

The Operations and Maintenance budget for 2020 increased by ~$1.3 million (5.9%). Attributable cost drivers to the change include:

• External treatment services paid to EPCOR- increase of $634K • Biosolids program- increase of $720K • Utilities- increase of $52K • Chemicals- increase of $56K • Contract Maintenance and Materials- decrease of $195

The Regulatory Services budget for 2020 increased by ~$60K (4.1%) because of an increase in regulatory sampling required by the Province.

Board, 0.55%

Corporate Services, 7.26% Engineering,

4.37%

Regulatory Services,

4.82%

Operations and Maintenance,

31.87%Biosolids and External Treatment,

46.25%

Debenture Intertest,

4.88%

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The Corporate Services budget for 2020 increased by ~$134K (6.8%) because the Materials Handler position has been moved to Corporate Services department from the O& M department and an increase in IT Software. The Engineering budget for 2020 increase by ~$45K (3.7%) because of the need for additional consulting studies. The Board of Directors budget for 2020 increased by ~$65K (68.4%) because of the increase in board meetings, communication advocacy strategy and training requirements for 2020.

2020 Operating Budget Allocated by Costs Drivers

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2020 Budget Proposed 2019 Budget 2019 Forecast

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Capital Budget in (000’s)

Capital Projects Estimated

Capital Expense Capital

Additions

Total Capital

Program 2020

Budget 2021-24 Forecast

Transmission System as of

Dec 31, 2019 START Replace/ Upgrade 27,650 95,000 10,500 22,350 Edmonton Gravity Rehabilitation 70 3,200 1,600 SERTS South Rehab- Transfer Station 600 600 600 Parkland Twinning 9,200 14,300 6,400 Morinville Forcemain River Crossing 130 1,125 1,015 Parkland Regional Trunk Replace/ Upgrade 5,100 Gibbons Forcemain Twinning 1,440 SERTS North Rehab- Manhole Seal 255

Wet Weather System Spruce Grove WWF Storage/Diversion Gate 250 7,700 9,000 Pump Stations Gibbons PS Third Pump 300 625 215 St. Albert PS Pumping/ Electrical Upgrades 2,000 2,000 250 1,750 Parkland HVAC Upgrades 280 280 80 200

Plant Waste Gas Burner Upgrade 300 300 5,100 2,400 2,400 Aeration Blower Upgrade 400 640 3,340 775 2,165 Biogas Pipeline Replace/ Gas De-moisture 950 950 150 800 Plant Substation Breaker Replacement 450 450 50 400 Biosolids Parallel Digester Upgrade 125 1,000 1,600 Maintenance Storage and Office 200 2,900 2,700 Headworks Upgrade/ Peak Flow Mgt 6,000 Plant Blower Building Breaker Replacement 1,700 Flow Distribution/ Bioreactor Process Optim. 2,000 5Kv Feeder Breaker Replacement 400 Bioreactor 4 and Clarifier 6/8 5,400

Other Emergency Line Replacement 3,000 3,000 3,000 12,000 Minor Capital 680 680 680 2,225

Total Capital Requirements 38,625 8,900

142,250 20,300 87,300 Current Paused Future

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Capital Budget Review The 2020 capital budget requirements are proposed at $20.3 million to be financed internally from reserves, surplus from operations and externally through debentures. The Capital Program has an approved budget of $133.35 million. We are proposing $8.9 million in new capital additions for a total of $142.25 million. We are estimating that $38.6 million to be spent by December 31, 2019 from the current Capital Program. From 2020 to 2024 we are expecting to spend approximately $107 million including projects to be approved in future years. Beyond 2024, there are major capital expenditures which include approved and unapproved projects that we use in our utility rate model.

2020 Capital Budget-

• Transmission- $15.715 million • Plant- $3.375 million • Pumpstation- $545K • Minor Capital- $665K

Breakdown of estimated START Replacement projects for 2020

• ATCO Crossing • DND land West of Highway 28 • 82 St. Crossing • East of 66 St. (Previous line repair) • 34 St. Crossing East (Previous line repair)

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2020 Revenue Requirement in (000’s) 2019 2019 2020 2021 2022 2023 2024

Budget Forecast Budget Forecast Forecast Forecast Forecast

Operating Expenses 26,096 26,075 27,672 28,579 29,458 30,330 31,409 Debenture Interest Payment 1,359 1,260 1,421 1,651 1,815 1,998 2,215 Debenture Principle Payment 4,508 4,322 3,737 4,332 4,906 5,484 6,097 Capital Requirements * 20,000 12,000 20,300 23,600 21,000 24,400 22,700 Total Cash Requirement 51,963 43,657 53,130 58,162 57,179 62,212 62,421

a) From (To) Reserves 2,842 (2,520) (625) (506) 287 139 (119) b) Other Revenues 5,687 6,371 7,521 8,234 7,817 8,238 8,685 c) Debentures 9,000 6,000 10,000 10,000 7,000 10,000 8,000

Treatment Charge by Member 34,434 33,806 36,234 40,434 42,075 43,835 45,855 Annual Throughput in 1000 m3 29,684 29,143 29,221 29,731 29,630 29,820 30,168 Actual/ Proposed Unit Rate ($/m3) 1.16 1.16 1.24 1.36 1.42 1.47 1.52 Actual % Rate Increase, 4.5% 4.5% 6.9% 9.7% 4.4% 3.5% 3.4% Ratio of Debt Service to Revenue 15% 14% 13% 14% 14% 15% 16% Ratio of Debt to Revenue 116% 108% 122% 127% 119% 123% 121%

*Construction Inflation included

Revenue Requirements and Rates Revenue requirements for 2020 were derived from our cash-based model. The model was updated with information from our utility master plan and projected operating costs. The proposed flow rate for 2020 is $1.24 per cubic meter. Based on the strategic rate discussion with the Board on October 18th, 2019, it was determined that our historical projected 5-cent annual increases were not sufficient to execute the capital program without taking on debt beyond the 150% debt to revenue capacity set by the board of directors. The 2020 rate projections include an 8-cent increase for 2020, a 12-cent increase for 2021, and a 6-cent increase for 2022. This will allow the ACRWC to increase capital funding to our transmission assets that are prematurely failing without risking our level of service to our member communities. The flow rate revenues are estimated at $41.7 million including City of Edmonton revenues which is an increase of ~$2.8 million (7.2%). Other revenues including grants are anticipated to generate $1.1 million with an increase of $900k. The additional revenues are from the grant we have received for our Waste Gas Burner Facility project.

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Historical and Projected Rates

Proposed Load Based Charges:

• Chemical Oxygen Demand (COD)- $0.33254/kg- Increase 3.8% • Biological Oxygen Demand (BOD)- $0.33254/kg- Increase 3.8% • Total Suspended Solids (TSS)- $0.2681/kg- Decrease 2.3% • Total Kjeldahl Nitrogen (TKN)- $2.0257/kg- Increase 2.4% • Total Phosphorus (TP)- $13.5701/kg- Increase 5.6% • Oil and Grease (O&G)- $0.2815/kg- Increase 0.7%

The load-based rates are proposed from a decrease of 2.3% to an increase of 5.6% depending on the parameter. These rates are calculated by taking the operating budget, the average flow and treatment results from the last five years, to calculate a cost to treat one kilogram of the individual parameters. We are anticipating collecting $1.0 million in revenues in 2020 which is a decrease of $100K (9.1%).

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Reserves Total Reserves Projections

Beyond meeting operational and debt financing costs, the main cost driver on our rate projection is our capital program. We must ensure we have enough reserves available, so we do not exceed the Board policy debt limit ratios. Our reserves are anticipating to slowly grow from $5.3 million in 2020 to $9.0 million by 2030.

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Debentures Debt Limit

Financing costs for 2020 will be increased by ~$62K (4.6%). The Commission is expecting to issue $10.0 million in debentures in 2020 to fund our capital program. Our debt will be increasing from $48.9 million in 2020 to a high of $65.4 million in 2025 and then decrease back down to $57.7 million by 2030.

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