. Public Resources Management Group, Inc.Utility, Rate, Financial and Management Consultants

WATER, WASTEWATER AND RECLAIMED WATER RATE STUDYPublic Meeting to ReviewProposed Financial Plan for Utility

April 1, 2014

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

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Rate Study Timeline

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”

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Major Issues Currently Affecting Utility System

Projected Funding of Capital Program:● Balance of Internal Funding Sources and

Debt Financing

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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

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Major Issues Currently Affecting Utility System (continued)

Items 1-Year Change 5-Year Change 10-Year Change 20-Year Change

BUREAU OF LABOR STATISTICSCPI - U.S. City Average 1.49% 2.10% 2.38% 2.39%Electricity 3.21% 0.93% 3.76% 2.38%Fuel Oil -1.81% 8.31% 10.89% 7.76%Water and Sewerage Maintenance Index 3.84% 5.93% 5.87% 4.61%

ENGINEERING NEWS-RECORDConstruction Cost Index 2.41% 2.56% 3.50% 2.99%

HISTORICAL INFLATIONHistorical Annual Compound Growth Rate

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

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Major Issues Currently Affecting Utility System (continued)

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:

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Revenue Under Existing Rates Projected to Be Insufficient to Meet All Revenue Requirements

Balance of Operational and Financial Considerations

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Projected Need for Revenue Adjustments

2015 2016 2017 2018 2019

Water System (CPI Adjustments) 1.9% 2.1% 2.2% 2.4% 2.4%Wastewater and Reclaimed Water System 9.0% 9.0% 9.0% 9.0% 9.0%

Combined Retail System - Water, Wastewater and Reclaimed Water 5.0% 5.3% 5.4% 5.6% 5.8%

Fiscal Year Ending September 30,

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

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Revenue Adjustment Comments

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)

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Revenue Adjustments Are Positioning Utility for More Pay-As-You-Go Funding of Renewals and Replacements

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 11

Recommendation: Price Indexing Adjustment Clause

Monthly Usage of 4,000 Gallons ● Average Usage of Single Family Residential Customer in System

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Water User Rate Comparison

[*] 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

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Wastewater User Rate Comparison

[*] 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

Monthly Usage of 4,000 Gallons ● Average Usage of Single Family Residential Customer in System

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Combined Water and Wastewater User Rate Comparison

[*] 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

Monthly Usage of 4,000 Gallons ● Average Usage of Single Family Residential Customer in System

Monthly Usage of 12,000 Gallons ● Average Usage of Single Family Residential Customer with Reclaimed

Water Service in System

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Reclaimed Water User Rate Comparison

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

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Moving Forward…

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 / Funding17

Financial Plan

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 Reserves18

Financial Plan Guiding Principles

Identified Water System Capital Program:

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Major Issues Currently Affecting Utility System (continued)

Estimated Total % ofCost During Total Capital

Project Description Forecast Period Costs

WATER SYSTEMWater System Replacements $4,255,397 7.4%Upgrade Water Meters and Flex Tower Read 3,116,664 5.4%Potable Water Plant Renovations / Replacements 2,145,831 3.7%Departmental Capital 1,389,015 2.4%City Cost Participation Projects 695,441 1.2%Fleet Replacement Projects 594,247 1.0%Telemetry Instrument / Control System Upgrades 530,000 0.9%Potable Water Supply Projects 521,573 0.9%Other Water System Projects 1,298,597 2.3%

Total Water System Projects $14,546,765 25.3%

Identified Wastewater and Reclaimed Water System Capital Program:

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Major Issues Currently Affecting Utility System (continued)

Estimated Total % ofCost During Total Capital

Project Description Forecast Period Costs

WASTEWATER ANDRECLAIMED WATER SYSTEM

Sewer System Rehabilitation $16,810,490 29.2%Existing Plant Renovations 10,376,841 18.0%Upgrade Water Meters and Flex Tower Read 3,543,503 6.2%Water Reuse Program 3,150,000 5.5%Replace Existing Lift Stations 2,470,845 4.3%Reservoir Outfall 2,342,304 4.1%Departmental Capital 843,237 1.5%Fleet Replacement Projects 615,253 1.1%Other Wastewater and

Reclaimed Water System Projects 2,795,544 4.9%Total Wastewater and

Reclaimed Water System Projects $42,948,017 74.7%

TOTAL CAPITAL PROGRAM $57,494,782 100.0%

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

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Revenue Requirements

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Breakdown of Need for Revenue Adjustments

5.0% FY 20155.3% FY 20165.4% FY 20175.6% FY 20185.8% FY 2019

30.2% Cumulative

Implementation ofCumulative Revenue

Adjustment

CompoundAnnual Growth

2014 2019 Rate

Revenue Under Existing Rates:Projected Rate Revenues $22,744,950 $23,004,309 0.23%Other Operating Revenue 808,053 812,253 0.10%Unrestricted Interest Income 20,383 118,907 42.30%

Total System Revenue $23,573,385 $23,935,469 0.31%

Revenue Requirements:Projected Operating Expenses $13,209,290 $15,830,386 3.69%Annual Debt Service (Senior Lien Bonds Plus SRF Loans) 6,808,526 9,041,723 5.84%Transfer to Renewal and Replacement (R&R) Fund 2,399,999 2,917,066 3.98%Payment-in-Lieu-of-Taxes (PILOT) 1,276,118 1,443,810 2.50%Capital Funded From Rates 732,520 1,233,262 10.98%Allowance For Debt Service Coverage / Maintenance of

Adequate Operating Reserves / Additional R&R Funding 0 411,663Total System Revenue Requirements $24,426,453 $30,877,911Less Bulk, Other Revenue and Unrestricted Interest Income (828,436) (931,160)Total Amount to Be Recovered From User Rates $23,598,018 $29,946,751

Revenue Surplus / (Deficiency) ($853,068) ($6,942,442)Use of Operating Reserves to Cover Deficiency $853,068Months in Effect 12Cumulative Revenue Adjustment Required 0.0% 30.2%

Fiscal Year