Financial Impact of 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 July August September October November December January February March April May June

Water Revenues Budget Review Percentage of Total Annual Revenue Average 2008 (In thousands) Cumulative 2, Expected Loss of $(7,500) 5.00% 6.00% 7.00% 8.00% 9.00% 10.00% 11.00% 12.00% 13.00% 14.00% JulyAugSeptOctNovDecJanFebMarchAprilMayJune 2,850 1,753 (158) (3,237) (755) (1,001) (1,101) 4,603 4,445 1, (548) (1,649)

Wastewater Revenues Budget Review

Water Rates * Sewer - $3.22 Budget Review Tiers 2008 * Commercial - $1.73 $1.89 $1.33 $2.18 $4.31>

Tap & Capacity Budget Review $ (7.1) M $ 20.3 M $ 27.4 M ShortfallActualBudget

FY 2008 Projected Budget Review $ M $ M Total Expenditures 28.9 M Pay Go Contribution M M Debt Service 94.5 M 96.2 M Operating $ M $ M Revenues Actual Budget $ (15.9) M $ M Fund Balance Total Revenues $ M $ 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) % 40.3% 35% Fund Balance Actual Budget Test 2 (greater than 1 times debt service) 0.97 $(6 M) 1.06

Projected 09 Water Revenues Percentage of Total Annual Revenue Full Year Shortfall of $18 Million Average % 6.00% 7.00% 8.00% 9.00% 10.00% 11.00% 12.00% JulyAugSeptOctNovDecJanFebMarchAprilMayJune 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% JulyAugSeptOctNovDecJanFebMarchAprilMayJune

Adjustments Revenue Requirement – 23% Delay Capital Operating Savings Reduce Pay Go Budget Review

Rate Increase Model Increase FY % 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 Customer Service $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

Cost of Enforcement to Date Total Cost - $358 k Out of Pocket - $156 k Fines - $237 k Employees Involved Budget Review

McDowell Creek WWTP McAlpine Lift Station Budget Review Capital Spending Completed 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$ $ $ $ $ $5.16 Projected 0-4 $1.38

Impact Budget Review $ ccf $6.368 ccf $2.764 ccf Monthly IncreaseUsage * 1 ccf = 748 gallons

Conservation Impact Budget Review $ ccf $ ccf $ 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 ccf Sewer rate - $3.86 per ccf

Model Budget Review % 41%43% 40%42%43%40%41% 40% 42%41% Projected Fund Balance Coverage Projected Debt 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 MProjected Pay 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% 6.74%6.05%Projected Rates 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 $ $ $49.10 $0 $20 $40 $60 $80 $100 $120 $140 Charlotte Union County Raleigh Winston-Salem Monroe Hickory Chapel Hill Cary Rock Hill Asheville Durham Lincoln County Concord Greensboro Gastonia Kannapolis Charleston Mooresville

Budget Review National Survey Summary of Combined Water and Sanitary Sewer (10 CCF Usage) 2008 Rates $49.10 $ $0 $20 $40 $60 $80 $100 $120 $140 $160 Indianapolis Charlotte Orlando, FL Phoenix Fort Worth Philadelphia Mobile, AL Austin Richmond, VA Louisville Cincinnati Seattle 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 $ $ $0 $20 $40 $60 $80 $100 $120 $140 $160 Columbus, GA Charlotte Raleigh Winston Salem Cobb County, GA Augusta, GA Marietta, GA Gwinnett, GA Cary Rock Hill Greensboro Chapel Hill Birmingham, AL Atlanta $59.30

Budget Review Next Steps Stakeholder Information - March 6 th Council Agenda - March 24 th Customer Information - April New Rate - May 1 st

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.