MOUNTAIN REGIONAL WATER 2017 Tentative Budget Recommendations and 2016 Budget Amendments to the Summit County Council November 2, 2016

Statutory Budget Process Pursuant to Section 17B-1-6 Adopt Tentative 2017 and 2016 Amended Operating, Capital, and Debt Service budgets at 1st Council meeting in November Set time and place for budget public hearing at least 30 days from today Order public notice of hearing be published at least 7 days prior to the hearing in the Park Record and Utah Public Notice Website Direct Mountain Regional to make changes to Tentative budgets prior to public hearing, if so desired

2017 Budget Process Revenue projections biggest variable Bonds require 1.25 times cash debt coverage Drives rates and fees Debt service changes typically have the greatest impact on budget Cash reserves critical Cyclical nature of building economy Weather patterns Operating expenses easier to forecast See Page 10 Below

2017 Budget Overview 1.03 Retail Water Consumption Rebounds 1.04 Development Related Collections Remain Strong 1.05 Major Wholesale Water Contracts 1.06 District Water Production 1.08 Allocation of Cash Payments 1.10 Increasing Debt Payments Lead to 2019 Rate & Fee Increases 1.12 Debt Coverage Ratio 1.13 Cash 1.14 Personnel & Compensation 2.0 2017 Operating Budget 3.0 2017 Debt Service Budget 4.0 Capital Budget 5.0 2016 Budget Amendments

1.03 Retail Water Consumption Rebounds Average Annual Gals Since Conservation Rates Adopted Thru Sep 2015 144,269 Thru Sep 2016 148,058 Assumed for 2017 Budget 144,000 Past 12 Months (thru Sep) 163,302 Lead to Projected $575,500 Additional Sales in 2016

1.03 Retail Water Budget Variances Average Annual Variance Since Past Ten Years $82,576 or 1.46% Over Budget Five Years Over Budget Five Years Under Budget 2009 $366,844 Under Budget $823,321 Over Budget 2016 575,500 Projected Over Budget

1.04 Development Related Collections Remain Strong Impact Fee Collections Strongly Correlate with New Water Connections 10 Year Average New Connections 80 Assumed in 2017 Budget 80 10 Year Average Impact Fee Used in 2017 Budget $7,400 (Average Includes Prepaid Connections)

1.05 Major Wholesale Water Contracts Park City Wheeling Has Lost Canyon Rights Up to 2,900 Acre Feet Average Wheeled Since 2012 1,525 Acre Feet Take-or-Pay Contract (Pay for all 2,900 AF) Rate Methodology Outlined in Contract 2017 Projected Revenue $615,200 2017 Increase from Wheeling Rate Increase 2016 Projected Revenue $575,000 Production Cost Increase of which Park City Pays 43.9% Increase Not Due to Increase in Water Taken Summit Water (thru Weber Basin Regionalization) Take-or-Pay Contract (Pay for All Contracted Water) 2017 Revenue $889,600 for 800 Acre Feet 2017 Increase from Rate Increase and 100 Additional AF 2016 Revenue $684,600 for 700 Acre Feet

1.06 District Water Production Wholesale Water Sales Over 50% of Production Park City Started Taking Water in 2012 Summit Water Started Taking Water in 2015 2016 Projected Production 4,806 AF Higher Than 2017 Due to Hot 2016 Weather 2017 Projected Production 4,650 AF Based Upon Average Consumption

1.08 Allocation of Cash Payments Efficiency Measures – Power Costs Are Only 10% of 2017 Budget According to State DDW Study, MRW Saving $400,000 Per Year Without Efficiency Measures, Power would be 14% By 2020, MRW’s Share of Debt Payments goes to 37% from 22% 2017 Promontory’s Share of Debt Payments drops to 3% from 16% in 2017 This Will Necessitate a 2019 Rate & Fee Increase

1.10 Increasing Debt Payments Lead to 2019 Rate & Fee Increases Debt Payments Increase $1.03 M between 2016 & 2019 Includes Debt Paid From Water Sales, Impact Fees & Other Minor Revenue Combined with $250,000 Increase in Weber Basin Regionalization Lease Fees Starting in 2020, Rate & Fee Increase Needed Estimated Range $15 to $25 Per Month Depending Upon Growth & Sales to Summit Water Can Phase in Rate Increase Over 4 Years by Prepaying Debt With Funds Generated From Current Weber Basin Regionalization Water Sales to Summit Water Current Regionalization Reserves Balance $558,000

1.12 Debt Coverage Ratio Parity Debt Coverage Must be 1.25 or Higher Pursuant to Bonding Requirements For 2017, Projected Parity Coverage Ratio is 1.34 The Ratio When All Debt is Included is 1.26 (Non-parity Debt Includes Weber Basin and Zions Property Loan) It is Projected that $1,018,900 in Additional Cash Will Be Generated in 2017 Capital Facility Reserves $ 306,900 Operating Reserves 131,200 Regionalization Reserves 341,500 2018 Capital Budget 239,300

1.13 Cash (Unrestricted) District’s Current Cash Position Strong Debt Restructuring in 2012 Strong Building Economy Rate Increases Hot Weather in 2016 Unrestricted Cash Fell $591,527 Below Policy Minimum of 120 Days Operating Reserves in 2012. Unrestricted Cash Can be Used for Any Purpose Other Cash is Restricted for Specific Purposes Debt Payments Customer Deposits Facility Repairs, Replacement & Construction Rate Stabilization Funds Bond Proceeds for Construction Impact Fee and Assessment Collections

1.13 Cash (Debt Reserves Held by District) Reserves Available to Make Debt Payments if Revenue Fall Short of Budget $1.0 M Rate Stabilization Fund (Created 2011) Reduced Reserves Held by Trustee Other Debt Reserves Held by the District: Special Assessment Reserves Impact Fee Reserves Impact Fee Collections are Cyclical Collections Over Budget Placed Into Reserve Each Year When Revenue Falls Below Budget, Money is Taken from Reserves to Make Debt Payments, as Happened During the Great Recession

1.13 Cash (Debt Reserves Held by Bond Trustee) Debt Reserves Held by Trustee Since 2012 Used Only to Make Scheduled Debt Payments Due Within One Year 12 Equal Monthly Deposits Required 1) Pay Annual Principal 2) Pay Semi-Annual Interest Reduced Trustee Held Reserves by $3.5 M No Longer Large Reserves Held to Make Debt Payments in Case District Lacks Funds to Make Debt Payments New Rate Stabilization Fund ($1.0 M Balance) Fund Provides Security if District Lack Funds from Operations to Make Debt Payments Use of Rate Stabilization Reserves Less Problematic Than Use of Trustee Held Reserves

1.13 Cash (Capital Facility Reserves) Goal is to Maintain Balance Between $500,000 and $1.0 M Generally Used for Emergency Repairs Use Restricted to: Acquire Capital Equipment (Typically Use Cash from Prior Years) Facility Repair & Replacement (Typically Use Bonds) New Facility Construction (Typically Use Bonds) Used During Great Recession to Fund Critical Small Capital Projects Typically Funded with Unrestricted Cash Generated From Prior Years’ Operations 2017 Capital Budget Includes $500,000 of these Reserves for Silver Creek Pump Projected Year-End 2017 Balance is $700,000

1.14 Personnel & Compensation 2017 Budget Includes average 3.5% Pay Increase Plan to Give Same Pay Increase that Summit County Provides its Employees One Level 5 Distribution Operator Retiring Replace with 2 Level 1 Operators One in Distribution One in Public Services – to read meters and respond to service calls

2.0 2017 Operating Budget Projected 2017 Change in Net Position $1.71 M Operating Revenue Increase $507,600 or 6.1% Operating Expense Increase $439,000 or 6.0% Non-operating Revenue Decrease $303,000 or 11.5% Non-operating Expense Decrease $69,800 or 4.2%

2.02 2017 Revenue Total Increase $204,600 (1.9%) 2017 Revenue Projections Based Upon: Average Culinary Consumption – 144,000 Gals New Customers Using Water - 125 Average New Water Connections – 80 Summit Water to Take 800 Acre Feet Park City & Summit Water Pay Higher Rates To Cover Higher Production and Treatment Costs Interest Earnings Higher Due to 50 Basis Point Increase in PTIF Rates Promontory Contracted Assessments Decline $336,500

2.03 2017 Operating Expenses Total Increase - $439,000 (6.0%) Reductions in Some Programs and Increases in Other Programs Due to Reassignment of FTEs Total Increase - $439,000 (6.0%) Non-cash Depreciation - $40,000 Cash Increase - $399,000 Weber Basin Fees Increase - $131,400 Wholesale Water Costs - $50,000 One Retiring Level 5 Operator Replaced with Two Entry Level 1 Operators (minimal budget impact)

2.03 2017 Non-operating Expenses Interest Expense Declining $69,800 in 2017 due to 2016 Principal Payments Although Not Part of This Budget, Total Debt Payments (including 1.25 Coverage) Paid from Waters Sales and Impact Fees are Increasing by $271,500

3.0 Debt Service Budget Bonding Contracts Require 1.25 Coverage of Debt Payment Once All Operations Expenses Paid 2017 Coverage All Debt 1.26 Parity Debt 1.34 2017 Additional Cash Generated $1.02 M

4.0 Capital Budget $1.43 M Total Increase $256,900 Capitalized Personnel Costs $729,200 Series 2014 Bond Projects Expanded Tank Size to 2.0 M Gals Allows MRW to Increase Regionalizaton Water Sales to Summit Water Adds $225K Additional Annual Revenue Silver Creek Tank Requires $1.13 M Pump Station (original site did not) Funded With Capital Reserves $ 500,000 2017 Capital Budget Funds 900,000 Additional Bond Interest Earnings 29,200 $443,100 General System Improvements New Meter Replacement Program Replace Older Vehicles Minor Repairs 4.0 Capital Budget

5.01 2016 Budget – Amended Expenses Additional IT Costs - $25,000 Move Data to the Cloud Reduce Future Computer Equipment Purchases Weber Basin Fees - $135,000 Davis Weber Reservation Fees 2013 to 2016 2017 Budget Includes $45,000 Annual Expense District, Park City, and Summit Water Disputing the Charging of these Fees by Weber Basin Prior to 2020 Expensing Now to Avoid $315,000 Expense in 2020 if Weber Basin Prevails in Dispute

5.01 2016 Budget - Revenue 2016 $160,000 Budget Amendment Funded from Additional Water Sales 2016 Revenue Projected to Exceed Budget by $1.06 M Hot Dry Weather Strong Building Economy Higher Interest Earnings Rate & Higher Cash Balances

5.01 2016 Debt Service Budget Debt Coverage Projections Higher than Initial Budget due to Higher Revenue Collections for 2016 All Debt 2016 Budget 1.29 2016 Current Projection 1.52 Parity Debt 2016 Budget 1.38 2016 Current Projection 1.62