Financial Impactof Drought

March 5, 2008

Updated 3/17/08

Drought Impacts

• Current Year Budget• Future Years’ Budget• Rate Adjustments

Budget Review

Consumption

Budget Review

Average

2008

MGD

80

90

100

110

120

130

140

150

160

July

Augus

t

Septe

mbe

r

Octobe

r

Novem

ber

Decem

ber

Janu

ary

Febru

ary

Mar

chApr

ilM

ayJu

ne

Water Revenues

Budget Review

Percentage of Total Annual Revenue

Average

2008

(In thousands)

Cumulative

2,565 285Expected Loss of $(7,500)

5.00%

6.00%

7.00%

8.00%

9.00%

10.00%

11.00%

12.00%

13.00%

14.00%

July Aug Sept Oct Nov Dec Jan Feb March April May June

2,850

1,753 (158) (3,237) (755) (1,001) (1,101)

4,603 4,445 1,208 453 (548) (1,649)

Wastewater Revenues

Budget Review

Percentage of Total Annual Revenue

Average

2008

(In thousands)

Cumulative

6.00%

6.50%

7.00%

7.50%

8.00%

8.50%

9.00%

9.50%

10.00%

10.50%

11.00%

July Aug Sept Oct Nov Dec Jan Feb March April May June

824 797 (2,761) 700 (578) (850) Expected Loss $(4,300)

3,850 4,647 1,886 2,586 2,008 1,158

2,386 640

3,026

Water Rates

* Sewer - $3.22

Budget Review

Tiers 2008

* Commercial - $1.73

$1.89

$1.33

$2.18

$4.31> 22

12 - 22

0 - 11

Tap & Capacity

Budget Review

$ (7.1) M $ 20.3 M $ 27.4 M

ShortfallActualBudget

FY 2008 Projected

Budget Review

$ 252.4 M $ 254.8 MTotal Expenditures

28.9 M 28.9 MPay Go Contribution

129.0 M 129.7 MDebt Service

94.5 M 96.2 MOperating

$ 226.5 M $ 244.8 M Revenues

ActualBudget

$ (15.9) M $ ---

10 M 10 M Fund Balance

Total Revenues $ 236.5 M $ 254.8 M

Decrease to Fund Balance

Rate Issues

• FY 08 Bond Covenants• Mandatory Restrictions

– 1 or 2 watering seasons

• Long Term Consumption Habits• Effect Of Housing Starts

Budget Review

Bond Covenants

Budget Review

Test 1 (greater than 1 times debt service, can use fund balance)

0.94 $(13 M) 1.03

35.4% 40 .3%35% Fund Balance ActualBudget

Test 2 (greater than 1 times debt service)

0.97 $(6 M) 1.06

Projected 09 Water RevenuesPercentage of Total Annual Revenue

Full Year Shortfall of $18 Million

Average

2009

5.00%

6.00%

7.00%

8.00%

9.00%

10.00%

11.00%

12.00%

July Aug Sept Oct Nov Dec Jan Feb March April May June

Budget Review

Projected 09 Wastewater Revenues

Budget Review

Full Year Shortfall of $12 Million

Average

2009

Percentage of Total Annual Revenue

6.00%

6.50%

7.00%

7.50%

8.00%

8.50%

9.00%

9.50%

10.00%

July Aug Sept Oct Nov Dec Jan Feb March April May June

Adjustments

• Revenue Requirement – 23%• Delay Capital• Operating Savings• Reduce Pay Go

Budget Review

Rate Increase

• Model Increase FY2009 - 6.05%• Drought Impact – 9.87%• Implement May 1, 2008

Budget Review

Why Additional Rates?

• Fixed vs. Variable Expenses• Operations Impacts• Rates Driven by Capital

Budget Review

Fixed vs. Variable

Budget Review

$ 255 Million Total Budget

Debt Service$159M

CustomerService $6M

Water Plants $13M

Sewer Plants$31M

Variable$4.9M

1% Reduction in Usage =$1.9M Reduction in Revenue

Fixed$8.1M

1% Reduction =$49K

City$14M

Overhead$22M

Dept. Admin$8M

Plants$44M

Lines$24M

Employees by Division

Budget Review

Field Operations

Plants

Customer Service

Laboratory

Engineering

Other

25%

4%5%

14%

15%

37%

Employees Per Thousand Accounts

Budget Review

2.08

2.02

1.881.91

1.83

1.77

1.60

1.65

1.70

1.75

1.80

1.85

1.90

1.95

2.00

2.05

2.10

2.15

2002 2003 2004 2005 2006 2007

Cost of Enforcement to Date

• Total Cost - $358 k

• Out of Pocket - $156 k• Fines - $237 k

• Employees Involved - 126

Budget Review

McDowell Creek WWTP

McAlpine Lift Station

Budget Review

Capital SpendingCompleted Projects

• McDowell Plant Expansion • Southwest Water Main Phase 1 • McAlpine Lift Station

Projects Under Way• WW Treatment Plant Expansion• Briar Creek Phase 1• Southwest Water Main 2 &3

Five Year CIP Projects• Long Creek WWTP• Northeast Water Main• Annexation

Sugar Creek WWTP

Irwin Creek WWTP

$ 76 M$ 40 M$ 32 M

$ 132 M$ 51 M$ 26 M

$ 197 M$ 117 M$ 90 M

Short Term Pain - Long Term Gain

Reduced Consumption = Reduced Water Capital

• Reduction in Size• Delay Projects• Extends Life of Current Interbasin Transfers• Extends Life of Current Federal Energy

Regulatory Commission Authorization

Budget Review

Work & Asset Management

• Reduce Capital• Repair vs. Replace• Life Cycle Cost• Risk Assessment• Pilot - $9M Reduction

Budget Review

Tier Adjustment

Budget Review

Current

0-11 $1.33

12-22 $2.18

+22 $4.31

5-8 $1.59

9-16 $2.61

+16 $5.16

Projected

0-4 $1.38

Impact

Budget Review

$13.1912 ccf

$6.368 ccf

$2.764 ccf

Monthly IncreaseUsage

* 1 ccf = 748 gallons

Conservation Impact

Budget Review

$72.2412 ccf

$46.368 ccf

$35.466 ccf

ProjectedUsage

15 ccf

10 ccf

8 ccf

Usage

* 1 ccf = 748 gallons

$75.25

$49.10

$40.00

Current

Other Rate Adjustments

Budget Review

Irrigation

Commercial

Sewer Cap

Begins Tier 1

$4.95 per ccf

18 ccf

Existing

Begins Tier 3

* $5.80 per ccf

24 ccf

Proposed

* Water rate - $1.94 per ccfSewer rate - $3.86 per ccf

Model

Budget Review

20132012201120102009

42%42%42%41%43%

40%42%43%40%41%

40%40%42%41%41%ProjectedFund Balance

1.30 1.20 1.23 1.15 1.18 1.33 1.24 1.26

1.16

1.16

Coverage

1.38 1.27 1.32 1.19 1.22 ProjectedDebt Service

$48 M $25 M $29 M $17 M $16 M $57 M $34 M $29 M $17 M $16 M

$60 M $39 M $42 M $21 M $24 M ProjectedPay Go

6.83%6.62%6.58%7.39%17.84%

6.42%7.56%7.52%9.97%15.92%

Alternative

Recommendation

6.50%6.50%6.50%6.74%6.05%ProjectedRates

Alternative

Recommendation

Alternative

Recommendation

Alternative

Recommendation

NC & SC Survey Summary of Combined Water and Sanitary Sewer

(10 CCF Usage) 2008 Rates

Budget Review

$59.30$53.45 $57.16 $58.09 $62.37

$75.78$78.86 $79.83 $79.94 $80.93 $81.26 $82.48 $83.75 $85.45

$91.69 $91.73

$106.84

$125.75

$49.10

$0

$20

$40

$60

$80

$100

$120

$140

Charlo

tte

Union C

ountyRal

eigh

Win

ston-S

alem M

onroe

Hicko

ry

Chapel

Hill Car

y

Rock H

ill

Ashev

ille

Durham

Linco

ln C

ounty

Concord

Green

sboro

Gasto

nia

Kannap

olis

Charle

ston

Moore

svill

e

Budget Review

National Survey Summary of Combined Water and Sanitary Sewer

(10 CCF Usage) 2008 Rates

$49.10$59.3

048.7556.50 59.26 60.97 61.21 63.60

75.68 75.93 80.41 85.66

128.63

148.11

$0

$20

$40

$60

$80

$100

$120

$140

$160

India

napolis

Charlo

tte

Orlando, F

L

Phoenix

Fort W

orth

Philadel

phia

Mobile

, AL

Austin

Richm

ond, VA

Louisvi

lle

Cinci

nnati

Seattl

e

Atlanta

Budget Review

Survey of Drought Stricken Jurisdictions Summary of Combined Water and Sanitary Sewer

(10 CCF Usage) 2008 Rates

$44.17$49.10

$57.16 $58.09 $59.88 $63.55$74.12 $75.95 $79.83 $79.94

$85.45 $89.32

$125.36

$148.11

$0

$20

$40

$60

$80

$100

$120

$140

$160

Colum

bus, G

A

Charlo

tte

Ralei

gh

Win

ston S

alem

Cobb County

, GA

Augusta,

GA

Mar

ietta

, GA

Gwinnet

t, GA

Cary

Rock H

ill

Green

sboro

Chap

el H

ill

Birmin

gham, A

L

Atlanta

$59.30

Budget Review

Next Steps

• Stakeholder Information - March 6th

• Council Agenda - March 24th

• Customer Information - April• New Rate - May 1st

Budget Review

Conclusion

The Value of Water Is Changing• Water is not an unlimited, cheap commodity that can be

wasted.• It is rather a valuable, limited resource that sustains life

and provides for a growing economy.• The demand for clean drinking water & a clean,

sustainable environment goes on – even during a drought.