1. What are they and how are they calculated? May 2015

2. What are System Development Charges (SDCs)? Upfront charge that a new customer pays for investment in system capacity that will serve the customer System capacity is typically added in large increments over time Covers the cost of both existing water and sewer treatment and distribution/collection facilities as well as those under construction and scheduled in the 10 Year Capital Improvement Plan (CIP) SDCs are calculated separately for water and sewer

3. What SDCs are Not SDCs are not repair and rehabilitation projects SDCs are not projects that provide no system wide benefit (example single neighborhood projects)

4. Calculating SDCs SDC = Cost of Capacity per Gallon x Estimated Gallons of Capacity Needed to Serve Customer Calculated for 5/8” meter Larger meters require more capacity

5. Calculating SDCs Key Calculations Cost of Capacity Available Capacity Estimated Cost Per Gallon of Capacity Full Cost of Capacity per Equivalent Residential Unit (ERU) (5/8” meter) Debt Service Credit

6. Cost of Water Capacity Includes Water Treatment & Water Distribution: Existing water treatment facilities – Sweeney, Nano, Monterey Heights Major water treatment expansion and upgrade construction in progress Major water treatment expansion and upgrade projects in 10-year CIP Existing backbone water distribution systems Major water distribution line extension construction in progress Major water distribution line extensions in 10-year CIP Excludes repair and rehabilitation projects and projects that provide no system wide benefit (example single neighborhood projects)

7. Cost of Sewer Capacity Includes Sewer Treatment & Sewer Collection: Existing sewer treatment facilities – Northside & Southside Major sewer treatment expansion and upgrade construction in progress Major sewer treatment expansion and upgrade projects in 10-year CIP Existing backbone sewer collection systems Major sewer collection construction in progress Major sewer collection projects in 10-year CIP Excludes repair and rehabilitation projects and projects that provide no system wide benefit (example single neighborhood projects)

8. Cost of Capacity

9. Cost of Capacity (continued)

10. Maximum Daily Water Capacity Each Water Treatment Plant has a Maximum Daily Capacity expressed in million gallons per day (MGD)

11. Average Daily Water Capacity Treatment Facilities Distribution System The maximum daily treatment capacity is assumed to be 1.5 times the average daily capacity Estimated line loss factor is 16%; therefore 84% of distributable water flow is estimated to be available Average Daily Capacity of 23.41 41.80 MGD ÷ 1.5 x 84% = 23.41 MGD Estimated line loss factor is 16%; therefore 84% of distributable water flow is estimated to be available Average Daily Capacity of 35.11 41.80 MGD x 84%

12. Cost of Water Capacity Total Cost of Water Capacity per gallon = $11.46 Treatment Facilities: $212,360,318 ÷ 23,410,000 gallons = $9.07 per gallon Distribution Facilities: $83,791,786 ÷ 35,110,000 gallons = $2.39 per gallon Per gallon cost used for current rate $11.77 Total Full Cost of Capacity per Equivalent Dwelling Unit (ERU) = $4,584 Treatment Facilities: $9.07 per gallon x 400 gallons = $3,628 Distribution Facilities: $2.39 per gallon x 400 gallons = $956 Standard level of service is assumed to be 400 gallons per day (per NC Administrative Code 15A NCAC 18C.0409) Full cost used for current rates $4,708

13. Water Debt Service Credit Because most of our facilities are debt funded and debt payments are recovered from user rates, Full Cost of Water Capacity is reduced by Debt Service Credit to calculate Water SDC Debt Service Credit represents the net present value of the principal payments on the cost of capacity Net present value is the price the market would pay today for a stream of payments to be received in the future SDC policy uses All-In True Interest Cost of the most recent bond sale for net present value calculation Most recent bond sale was 2014, with interest rate of 3.45% Debt Service Credit = $2,863, using the 2014 bond interest rate

14. Water Debt Service Credit An average interest rate could be used to stabilize fees from one bond sale to the next: Most recent bond sale was 2014, with interest rate of 3.45% Bonds issued in 2011 has interest rate of 3.83% Bonds issued in 2008 has interest rate of 4.58% Average interest rate 3.95% Debt service credit using average interest rate = $2,665

15. Water System Development Charge

16. Maximum Daily Sewer Capacity Each Sewer Treatment Plant has a Maximum Daily Capacity expressed in million gallons per day (MGD)

17. Average Daily Sewer Capacity Treatment Facilities Collection System The maximum daily treatment capacity is assumed to be 1.5 times the average daily capacity Estimated level of infiltration and inflow (I&I) is 19.8%; therefore 80.2% of capacity is customer generated Average Daily Capacity of 17.11 MGD 32 MGD ÷ 1.5 x 80.2% = 17.11 Estimated level of infiltration and inflow is 19.8%; therefore 80.2% of capacity is customer generated Average Daily Capacity of 25.66 MGD 32 MGD x 80.2% = 25.66

18. Cost of Sewer Capacity Total Cost of Sewer Capacity = $14.50 per gallon Treatment Facilities: $176,219,245 ÷ 17,110,000 gallons = $10.30 per gallon Collection Facilities: $107,670,294 ÷ 25,660,000 gallons = $4.20 per gallon Per gallon cost used for current rates $14.36. Difference attributed to higher I&I. Total Full Cost of Capacity per ERU= $6,090 Treatment Facilities: $10.30 per gallon x 420 gallons = $4,326 Collection Facilities: $4.20 per gallon x 420 gallons = $1,764 Standard level of service is assumed to be 420 gallons per day (120 gallons per NC Administrative Code 15A NCAC 02T.0114 x 3.5 bedrooms per NHC Tax Office) Full cost used for current rates $6,031

19. Sewer Debt Service Credit Debt Service Credit using most recent bond interest rate = $3,810 Debt Service Credit using average bond interest rate = $3,541

20. Sewer System Development Charge

21. Calculated System Development Charges (5/8”)

22. Calculated SDCs by Meter Size

23. Projected Revenues Change Using Most Recent Bond Interest Rate -$(429,400)

24. Projected Revenues Change Using Average Bond Interest Rate $101,700

25. How CFPUA SDCs Compare with Other Public Utilities

27. Notes for Comparisons Rocky Mount includes a Capacity Fee and a Main Fee for 3/4” and 5/8” meters City of Raleigh includes an Acreage Fee and a Nutrient Fee Greenville Utilities Commission includes a Capacity Fee and a Sewer Acreage Fee City of Jacksonville includes a Facility Charge Town of Navassa includes an Impact Fee for 3/4” water meter and Impact Fee for single family dwelling City of Greensboro includes Capacity Use Fees for 5/8” meters OWASA includes a Service Availability Fee for a 1,701-2,400 square foot home PWC of Fayetteville includes a Facility Investment Fee for 5/8” meters Town of Cary includes a Development Fee for a 1,701-2,400 square foot home City of Durham includes a Capital Facility Fee for 5/8” meters Carolina Beach has impact fee of $2.57 per heated sq ft($1.285=water, $1.285=sewer); used 1,700 sq ft for comparison Brunswick County includes a Capital Recovery Fee and a Transmission Capital Recovery Fee for a 3 bedroom home Town of Wrightsville Beach includes a Utility System Impact Fee for 3/4” and 5/8” meters Brunswick Regional Water and Sewer includes an Impact Fee and Transmission Capital Recovery Fee City of Southport includes Impact Fees for a 3 bedroom home for sewer and Impact Fees for a 3/4” meter for water ONWASA includes an Impact Fee for a 3/4” meter

28. Staff Recommendation Staff recommends no change in SDCs for FY16 since current rates are at a level between the lower and higher result.