March 1, 2007

March 1, 2007

Review of theFinancial Parameters

Affecting Policy Decision Making

Water and Sewer Enterprise System

Water and Sewer Enterprise SystemWater and Sewer Enterprise System

1. Financial parameters and limitations

2. Utility system – capabilities, strengths and weaknesses

3. Capital plan

4. Financial feasibility

Informational needs in order to make policy leadership decisions


1. Allocates resources, plans for contingencies

2. Contains data and information - to make good business decisions

3. Financial and capital decisions

4. Requirement to raise capital

5. Informs - planners, investors, banks, community

6. Rating agencies

Business Plan


What financial resources are available to invest in the

utility system?

What types of investments should be made?

What options are available to make water and wastewater

resources more available and who pays?

Policy leadership decisions


Lenders contractual requirements

Financial structure and performance

Credit quality standards - cost of borrowing

Washington and Raleigh laws and regulations and BOCC policies

Factors influencing policy decisions


Contractual Requirements


borrowed money for capital improvements

mortgage secured by the utility system revenues -

promises

contractual agreement - general trust indenture

enforce and monitor County’s compliance - lenders

appointed a trustee

Revenue Bonds


Revenue Bonds - Trustee Accounts

Revenue Acct.$1.00

Debt Acct.1st – Revenue

2nd - Subordinate$0.30

Extension &Repair Acct.

$0.03

Surplus - CIP$0.20

O&M Acct.$0.47


Revenue Bonds - Rate Covenant

Revenues +20%

WorkingCapital

Operations & Maintenance

+P&I+

20%>=

A B CSales 1.00 1.00 1.00Capacity Fees 0.30 0.30 -Working Capital (20%) 0.16 0.02 0.16

1.46 1.32 1.16

O&M 0.60 0.60 0.60Debt Service 0.70 0.70 0.70+20% 0.14 0.14 0.14

1.44 1.44 1.44


lenders’ permission historical earnings test – existing debt + new debt future earnings test – consulting engineer report for

the first two fiscal years liens or encumbrances – NTE 20% of assets

Revenue Bonds - Additional Bonds Test


political subdivision or public agency

portions of the system - no longer necessary, useful or profitable

Extension and Replacement Fund

Revenue Bonds - Sale of the System


file with lenders and the LGC an annual audit report

demonstrate compliance with rate covenant

SEC continuing disclosure

file with the lenders an annual budget

inspection of the system by consulting engineers and the filing

of the report with the lenders and the LGC

risk management – liability, property loss and damage,

business interruption

Revenue Bonds - Monitoring and Financial

Budget Report

Audit Report

Engineering Reports


Credit Quality Standards



lenders ===> evaluate risk no rating = no access to capital credit ratings impact borrowing costs higher ratings = lower borrowing costs each category in “investment grade” = $16K/$1MM Current CIP - $1.4MM A2, A and A+

AAA - Highest Quality

AA - High Quality

A - Strong Capacity

BBB - Adequate Capacity

BB - Low Speculative

B - Speculative

CCC & CC - High Speculation

D - Default


indicators - fiscal, debt, economic, management, system no single, absolute indicator

working capital (BOCC 365 days, 385 – 438 days NC) senior debt service coverage (credit compliance standard - 2.1X to 2.5X) all debt service coverage (BOCC 1.0X minimum – credit compliance standard

closer to 1.5X) contribution of equity to capital program (minimum 35%) rates – (1.5% MHI) cost of service based rates and self-sufficiency master plans, CIPs and financial feasibility



Laws, Regulations and Policies


G.S. 153A-276/277/284 “establish and revise from time to time schedules of rents, rates, fees,

charges, and penalties for the use of or the services furnished by a public

enterprise” “rents, rates, fees, charges, and penalties may vary for the same class of

service in different areas of the county” “may vary according to classes of service”

recoup capital costs for facilities in use/not in use (I.e. growth) cannot be arbitrary nor w/o basis (i.e. result from planned

improvements) capacity component costs – water and wastewater treatment plant,

transmission and outfall facilities, pump and lift stations restricted to the use of capital costs for which capacity fees are

imposed

Laws and Regulations

NC General Statutes - Rates and Charges - Capacity Fees


BOCC Policies

PW Rules and Regulations

Water and Sewer Line Extension

Construction Policy

Rates, Fees and Charges

Easement Acquisition

Self-help

Automated Meter Reading

Risk Management

Sewer Cap

I&I Reduction and Rehabilitation

Billing and Collections

Cashiering and Petty Cash Policy

Water Conservation

Bank Drafts

Utility Line Locates & NC 1 Call

Fire Hydrant Usage

Harris Customer Information

System


Financial Performance


Capital Improvement Plan Summary (2007-2011 : $181mm)

Sources

Debt, $84,800,000 ,

47%

Paygo, $93,495,444 ,

51%

Contributed capital,

$3,325,724 , 2%

Uses

Water Treatment,

$69,063,000 , 38%

Sewer Treatment,

$52,575,260 , 29%

Collection, $8,989,055 ,

5%

Metering, $3,776,327 ,

2%

Storage, $17,032,637 ,

9%

Support, $3,494,963 ,

2%

Water Lines, $26,689,927 ,

15%


Capital Improvement Plan Detail

Water

Construction of 25 miles of water transmission main and lines (12” to 36”)

Expansion of the Catawba River Water Treatment Plant increasing the County’s allocation from 18MGD to 30MGD

Construction of 8MGD Northern Union County Water Treatment Plant

Construction of 3 elevated storage tanks with combined capacity of 4MG

Sewer

Rerating (+0.5MGD) and expansion (+3.0MGD) of the 12 Mile Creek Wastewater Treatment Plant (after completion a 6MGD plant)

Expansion (+3MGD from 6MGD to 9MGD) 12 Mile Creek Wastewater Treatment Plant

NO COSTS FOR TREATMENT OR CONVEYANCE OF YADKIN/PEE DEE BASIN SEWER ($78M)

Project 2006-2007 2007-2008 2008-2009 2009-2010 2010-2011 Total

Water Projects Treatment 1,080,000 2,133,000 14,653,000 17,945,000 33,252,000 69,063,000 Water Lines 9,098,753 10,235,424 3,903,000 2,444,000 1,008,750 26,689,927 Metering 3,776,327 - - - - 3,776,327 Storage 2,513,277 7,419,360 7,100,000 - - 17,032,637 Support 437,365 1,000,000 200,000 - - 1,637,365

Total Water Projects 16,905,722 20,787,784 25,856,000 20,389,000 34,260,750 118,199,256

Sewer Projects Treatment 18,300,609 9,824,651 9,050,000 7,700,000 7,700,000 52,575,260 Collection 3,775,555 1,540,000 3,443,500 115,000 115,000 8,989,055 Other Projects and Studies 985,598 672,000 200,000 - - 1,857,598

Total Sewer Projects 23,061,762 12,036,651 12,693,500 7,815,000 7,815,000 63,421,912

Total Water & Sewer Projects 39,967,484 32,824,435 38,549,500 28,204,000 42,075,750 181,621,168


Financial Forecast Projection Projection Projection Projection ProjectionJune 30 June 30 June 30 June 30 June 30

2007 2008 2009 2010 2011

1 Capital Program2 Prior balance 14,040,336 - - - - 3 Paygo 20,900,000 15,544,388 16,010,720 12,700,000 14,300,000 4 Contributed capital 2,525,724 200,000 200,000 200,000 200,000 5 Debt 15,000,000 27,000,000 - 42,800,000 - 6 Total 52,466,060 42,744,388 16,210,720 55,700,000 14,500,000

7 Number of water customers 34,540 38,145 41,749 44,865 47,991 8 Number of sewer customers 24,177 26,716 29,254 31,448 33,649 9 % annual increase in customers 12.0% 10.5% 9.5% 7.5% 7.0%

10 % increase in avg. residential bill 0.0% 0.0% 1.5% 0.0% 0.0%

11 Revenue (w/o capacity fees) 26,472,993 28,408,344 31,316,592 33,516,299 35,823,340 12 Operating expenses (12,792,875) (13,576,993) (14,336,803) (15,145,848) (16,017,515) 13 Net revenues available for debt service (10+11) 13,680,118 14,831,351 16,979,789 18,370,451 19,805,825

14 Total debt service (7,245,065) (8,856,533) (9,035,811) (10,316,264) (11,138,334)

15 Net revenues after debt service (12+13) 6,435,053 5,974,818 7,943,977 8,054,187 8,667,492

16 Capacity fees 12,863,980 9,098,196 11,096,020 8,792,646 8,794,759

17 Net revenues available to fund capital (14+15) 19,299,033 15,073,014 19,039,997 16,846,833 17,462,251

18 Capital19 Recurring (669,582) (687,724) (665,910) (688,105) (727,905) 20 CIP (20,900,000) (15,544,388) (16,010,720) (12,700,000) (14,300,000) 21 Total Capital (21,569,582) (16,232,112) (16,676,630) (13,388,105) (15,027,905)

22 Other Transfers (158,367) (163,118) (168,012) (173,052) (178,243)

23 Remaining available funds (16+20) (2,428,916) (1,322,215) 2,195,356 3,285,676 2,256,102

24 25,187,807 22,758,891 21,436,676 23,632,032 26,917,707

25 22,758,891 21,436,676 23,632,032 26,917,707 29,173,810

26 Working capital required - days 365 19,583,934 21,913,529 23,931,285 26,187,191 28,722,979

27 Net sources available for reinvestment (24-25) 3,174,957 (476,853) (299,253) 730,517 450,830

Total Beginning Cash & Investments (incs. req. working cap.)Total Ending Cash & Investments (incs.req. working cap.)


Rate Affordability Compliance

Effect of Proposed Water and Sewer Rate Increases on Average Residential Customer

$53.57$53.57$53.57$52.78$52.78

$86.71$84.47

$82.28$80.15

$78.07

$20.00

$30.00

$40.00

$50.00

$60.00

$70.00

$80.00

$90.00

$100.00

FY07 FY08 FY09 FY10 FY11

Month

ly C

ost fo

r 6,7

00 G

allons

Acceptable Water/Sewer Burden*

*Acceptable Water/Sewer Burden is equal to 1.5% of the County's median household income. This threshold is set by the North Carolina General Assembly through the NC Clean Water Revolving Loan and Grant Act of 1987 in establishing high-unit cost for utilities.


Debt Service Coverage

0

0.5

1

1.5

2

2.5

3

3.5

4

2004 2005 2006 2007 2008 2009 2010 2011

Senior Debt All Debt

BOCC Standard All Debt 1X; Credit Requirements – Senior 2.1 to 2.5X


Working Capital Requirements

0

100

200

300

400

500

600

700

800

2004 2005 2006 2007 2008 2009 2010 2011

BOCC Standard 365 days; NC systems 385-438 days (Source: LGC)


policy leadership decision making

relevant and valid information

deliberate

considerations

Summary


What financial resources are available to invest in the utility system?

Size of CIP $181 and higher?? ==> PayGo, Debt and Capital

Contributions

What types of investments should be made? Historically, CIP includes

“backbone infrastructure” projects that benefit large #’s of customers

What options are available to make water resources more available and

who pays? Self-help … 1¢ for extension of distribution system

Next Steps …..Policy leadership decisions


Capital Improvement Plan – Major wastewater decisions absent –

March meeting to review CIP

Business Plan – Revisions to CIP will require update

Capacity Fees – Revisions to CIP will necessitate update to fees; tiered

3/4” residential based on sq. ft.

Rates – CIP and Business Plan will likely necessitate review

Water extension line policy

Additional policy leadership decisions

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March 1, 2007

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