1. Town of Yountville B ARTLE W ELLS A SSOCIATES Independent Public Finance Advisors Water and Wastewater Financing Plan Rate Study 2010 December 14, 2010

2. 2 Study Objectives Enterprise Fund Water Utility Wastewater Utility Proposition 218 Miscellaneous Fees Next Steps Presentation Overview

3. 3 Study Objectives  Develop 10-year cash flow projections & long-term financial plans  Determine annual operating and capital revenue requirements  Review cost allocations for the Veteran’s Home and all customers  Develop rate alternatives that reflect the cost of providing service  Phase out subsidies from the General Fund  Recommend minimum fund reserve targets  Phase in rate increases over time (to extent possible) in order to help minimize the annual impact on customers  Assist with public outreach and Proposition 218 compliance Rate increases are needed to restore financial stability and to cover the cost of providing service

4. 4 Enterprise Fund  Definition: Fund that provides goods or services similar to the operation of a commercial enterprise to the public for a fee or charge that makes the entity self-supporting  Examples: water, wastewater, solid waste, storm water, electricity  User charges are main source of revenue and need to recover the cost of providing service: - System operations & maintenance - Water purchases - Capital improvement projects - Repairs and replacements - Debt service - Reserves

5. 5 Pay-As-You-Go vs. Debt  Pay-As-You-Go Financing - Use for recurring expenses, such as annual repairs and equipment replacements - Fund annually through rates  Debt Financing - Use to fund spikes in capital spending and major projects - Options include revenue bonds or certificates of participation, bank loans and lines of credit, State revolving fund loans, other Federal & State funding programs (grants, low cost loans) - Debt service coverage covenants will require the Town to raise rates as needed to achieve at least 125 percent coverage on annual debt service

6. 6 WATER UTILITY

7. 7 Overview of Water Enterprise  Last rate increase was in 2007  The Town provides water service to about 769 connections Residential accounts (SFR, multi-family, & mobile home) = 87%  2010/11 Budget  Water fund has been operating in deficit mode and received over $3 million in subsidies from the General Fund over the past decade  Water sales revenue account for 97% of total water enterprise revenues  Total 2009/10 Annual Use = 142,508,000 gallons Average SFR bi-monthly water consumption = 22,000 gallons

8. 8 General Fund Subsidies General Fund Subsidies total over $3 million

9. 9 Water Service Charge - Fixed charge based on meter size - Same charge for residential and nonresidential customers - Recovers fixed cost, i.e. salaries, supplies, repairs Water Commodity Charge - 4 tiers – price per unit increases as water use increases - Different breakpoints and rates for SFR, multi-family, and nonresidential - Conservation incentive - Recovers costs that vary based on the amount of water sold, i.e. electricity, water purchases Revenue Distribution: 72% volumetric, 28% fixed - Does not reflect the Town’s proportion of fixed vs. variable costs Water Rates

10. 10 Current Water Rates  Bimonthly Meter Water Service Charge – Residential and Non-Residential  Water Commodity Rate per 1,000 gallon Billing Unit (BU)

11. 11 Water Accounts

12. 12 Water System  Town’s main source of water is rainfall runoff captured in the Rector Reservoir  In 2009, the Town distributed 476 acre feet (AF) or 155 million gallons of water. 2010/11 Budget projects purchasing 510 AF from the Veteran’s Home.  Water Distribution System includes the Yountville Municipal Well and 6.9 miles of water distribution mains

13. 13 Map of Water System

14. 14 Water Consumption Total 2009/10 Annual Consumption = 142,508,000 gallons or 437 acre feet

15. 15 Water Funds The Water Utility Enterprise is comprised of the following funds & departments/divisions:  Water Utility Operating Fund (61) – accounts for water revenue from user fees, operating expenses to distribute water to customers, purchases of water, primarily from the Veteran’s Home, and conservation efforts - Water Operations & Treatment – 4505 - Water Purchases & Conservation – 4507  Water Utility Capital Improvements Fund (60) - accounts for acquisition of water system improvements & acquisition of major equipment  Water Drought Reserve Fund (57) – established by Council policy to account for $2 million reserve established for water purchases on the spot market in the event of a drought  Water Connection Impact Fee Fund (58) - accounts for fees charged on residential & commercial development –funds allocated for capital infrastructure projects

16. 16 Water Fund Balance

17. 17 Why Rate Increases are Needed  Operating Deficit and General Fund Subsidies - Without rate increases, the operating deficit will continue to grow and deplete reserves - The General Fund has been subsidizing the water utility for over 10 years  Water Purchases from Veteran’s Home - Largest expenditure for water utility – nearly 54% of all operating expenses - In past 5 years, cost per AF has increased $250 per AF or 50%  2010/11 – 2014/15 Capital Improvement Program - Five-year total for water distribution projects = $442,082 - Projects include main replacement program, water meter replacements, pipes and blow offs, pressure pit upgrades, an upgrade to the groundwater management plan, and a fireflow study  Operating Expenses - Operating expenses will continue to increase in the future - Cost escalation: 4% for personnel services, 3% for other expenses (not including water purchases)

18. 18 Water Expenses Water Expenses

19. 19 Water Purchases  For water rate scenarios, use 2 different escalation factors: 7.5% and 10%  Pass-Through Provision allows Town to raise rates within 30 days if wholesale rates increase above budgeted projections

20. 20 History of Cost of Water Purchases from Veteran’s Home Fiscal Year 2006/07: $500 per AF Purchased 522 AF: Total Cost = $260,770 Fiscal Year 2007/08: $582 per AF – 16.4% increase Purchased 513 AF: Total Cost = $299,170 Fiscal Year 2008/09: $667 per acre foot – 14.6% increase Purchased 507 AF: Total Cost = $338,085 Fiscal Year 2009/10: $728 per acre foot (current estimate)– 9.1% increase Purchases 497 AF: Total Cost: $361,816 Fiscal Year 2010/11: $750 per acre foot (estimate provided by the Veteran’s Home) – 3.0% increase Projected Purchase 510 AF: Total Projected Cost: $382,500

21. 21 Water Capital Projects Water Capital Projects

22. 22 Rate Structure Modification: Meter Ratio Equivalents  Current ratios for customers are lower than those recommended by the American Water Work Association (AWWA)  Recommendation: aligning the service charges with meter ratios recommended by the AWWA will bring the cost of service in line with meter capacity  Same ratios and service charges for residential and non-residential customers

23. 23 Rate Structure Modification: Multi-Family Tiers  Current tiers are unfair; most multi-family water is sold in Tier 4  Recommendation: Multi-family customers should be charged a uniform commodity rate like non-residential customers. The commodity rate for both multi-family and non-residential customers will be based on the average single family residential rate

24. 24 Rate Structure Modification: Outside Town Rates  Town currently has 35 customers outside the town limits  Current outside town rates are unequal - 78% within town service charge - 25% within town commodity charge  Recommendation: Outside town rate for both the service charge and commodity charge should be 75% of the within town charges

25. 25 Rate Structure Modification: Water System Replacement Fee  No current annual funding revenue for capital projects and replacements and repairs  Recommendation: Establish annual revenue stream based on water system’s depreciation collected through the “Water System Capital Fee.” The fee will be a separate charge on the bi-monthly bill and earmarked only for capital projects.

26. 26 Rate Structure Modification: Fixed vs Variable Revenue Allocation  Current revenue allocation is 28% fixed and 72% commodity which does not reflect the Town’s actual operating costs  Recommendation: Consider modifying the fixed vs variable allocation to collect additional revenue from the fixed charge  Changing the fixed vs variable relationship will result in larger rate increases in 2011/12 for some customers

27. 27 Water Rate Scenarios Water Rate Scenarios  BWA developed 10-year cash flow projections to determine rate increases and the impact on revenues and fund balances  Based on best information currently available & reasonable assumptions: - The first rate increase will take effect on Mar 1, 2011. Future rate increases will be effective Jan-1 of each year, beginning in 2012 - Personnel services escalated 4.0% each year - All operating expenses except water purchases escalated 3.0% annually - No significant growth is anticipated over next 10 years - Water utility will borrow $220,000 from the General Fund or Water Drought reserve fund in 2011/12 which will be repaid in 2015/16 - Annual revenues from the Water System Replacement Fee will be deposited into the Water Capital Improvements Fund

28. 28 Water Rate Scenario #1 Water Rate Scenario #1  Assumptions for Water Rate Scenario #1: - Water purchase escalation is 10% each year - 50% of water sales revenue will be collected through the service (fixed) charge and 50% will be collected through the commodity (variable) charge - Even annual rate increases, but for the first increase, rate impacts will vary - For the first rate increase, there will only be a rate adjustment to the service charge. Subsequent rate increases will be applied to both the service and commodity charges - The commodity rate will be the same for non-residential and multi-family customers - Outside town customers will be charged 1.75 times the within town rate for both the service charge and commodity charge beginning on March 1, 2011

29. 29 Water Rate Scenario #1 Water Rate Scenario #1  Cash Flow Projection

30. 30 Water Rate Scenario #1 Water Rate Scenario #1  Projected Average Single Family Residential Bill – ¾” meter, 22,000 gallons  Projected Commercial Bill – 2” meter, 115,000 gallons

31. 31 Water Rate Scenario #2 Water Rate Scenario #2  Assumptions for Water Rate Scenario #2: - Water purchase escalation is 7.5% each year - 50% of water sales revenue will be collected through the service (fixed) charge and 50% will be collected through the commodity (variable) charge - Even annual rate increases, but for the first increase, rate impacts will vary - For the first rate increase, there will only be a rate adjustment to the service charge. Subsequent rate increases will be applied to both the service and commodity charges - The commodity rate will be the same for non-residential and multi-family customers - Outside town customers will be charged 1.75 times the within town rate for both the service charge and commodity charge beginning on March 1, 2011

32. 32 Water Rate Scenario #2 Water Rate Scenario #2  Cash Flow Projection

33. 33 Water Rate Scenario #2 Water Rate Scenario #2  Projected Average Single Family Residential Bill – ¾” meter, 22,000 gallons  Projected Commercial Bill – 2” meter, 115,000 gallons

34. 34 Water Rate Scenario #3 Water Rate Scenario #3  Assumptions for Water Rate Scenario #3: - Water purchase escalation is 7.5% each year - 40% of water sales revenue will be collected through the service (fixed) charge and 60% will be collected through the commodity (variable) charge - Even annual rate increases, but for the first increase, rate impacts will vary - Rate increases will be applied to both the service and commodity charges beginning March 1, 2011 - The commodity rate will be the same for non-residential and multi-family customers - Outside town customers will be charged 1.75 times the within town rate for both the service charge and commodity charge beginning on March 1, 2011

35. 35 Water Rate Scenario #3 Water Rate Scenario #3  Cash Flow Projection

36. 36 Water Rate Scenario #3 Water Rate Scenario #3  Projected Average Single Family Residential Bill – ¾” meter, 22,000 gallons  Projected Commercial Bill – 2” meter, 115,000 gallons

37. 37 Water Regional Survey Water Regional Survey

38. 38 WASTEWATER UTILITY

39. 39 Overview of Wastewater Enterprise  Last rate increase was in 2007  The Town provides wastewater service to 628 residential accounts (1,153 dwelling units) and 79 non-residential accounts Residential accounts = 94%  2010/11 Budget  Wastewater fund has been operating in deficit mode  Wastewater sales revenue = 96% of total enterprise revenues - Veteran’s Home = 42%

40. 40 Wastewater System  Town-owned wastewater treatment plant also treats wastewater for the Veteran’s Home.  Town has been treating recycled water since the mid-1970’s  Approximately 127 million gallons generated in 2009 – 87% was recycled  Collection system includes 8 miles of piping in Town, 0.75 miles of force main from the pump station to the WWTP, 1.4 miles of gravity discharge piping from WWTP to the River, and 4 miles of force main recycled water lines

41. 41 Map of Wastewater System

42. 42 Residential Wastewater Rates - Bi-monthly Sewer Service Charge

43. 43 Non-Resid. Wastewater Rates - Fixed charge based on meter size and customer type - Volume per BU charged based on customer type and water use

44. 44 Sample Non-Residential Bill - Medium Strength Customer with 2” meter, using 90 BUs Fixed Charge = $ 77.45 Volume Charge 85% x 90 BUs = 76.5 BUs 76.5 BUs x $1.872 = $143.21 Total Bi-monthly Wastewater Charge=$374.27

45. 45 Wastewater Accounts

46. 46 Wastewater Funds The Wastewater Utility Enterprise is comprised of the following funds & departments/divisions:  Wastewater Utility Operating Fund (62) – accounts for wastewater revenue from user fees, operating expenses for collection of wastewater from customers and treatment of wastewater, including that which is sold as reclaimed water - Wastewater Collection System Operations – 4510 - Wastewater Treatment Operations – 4515  Joint Treatment Capital Recovery Fund (63) - accounts for wastewater treatment plant capital improvements & acquisition of major equipment – costs are shared equally with the Veteran’s Home, with the Town’s share of funding generated by the wastewater operating revenue  Wastewater Capital Improvements Fund (64) – accounts for capital improvements of Town’s sewer collection system and related major equipment – funding generated by wastewater operating revenue  Sewer Connection Impact Fee Fund (65) - accounts for fees charged on residential & commercial development –funds allocated for capital infrastructure projects

47. 47 Wastewater Fund Balance

48. 48 Why Rate Increases are Needed  Operating Deficit - Without rate increases, the operating deficit will continue to grow and deplete reserves  2010/11 – 2014/15 Capital Improvement Program - Five-year total for wastewater and reclaimed water projects = $2.4 million - National Pollutant Discharge Elimination System (NPDES) permit requires Town to upsize recycled water distribution pumps, variable frequency drives, and electrical systems by December 1, 2013 - Other projects include main and lateral replacement program, inflow and infiltration reduction program, and dredging wastewater ponds - Town is applying for a low cost loan from the State Revolving Fund (SRF)  Operating Expenses - Operating expenses will continue to increase in the future - Cost escalation: 4% for personnel services, 3% for other expenses

49. 49 Wastewater Expenses Wastewater Expenses

50. 50 Wastewater Capital Projects Wastewater Capital Projects

51. 51 SRF Loan SRF Loan  The Clean Water State Revolving Fund (SRF) Loan program offers 20-year fixed rate loans for wastewater projects  Interest rate = 50% of State’s general obligation bond rate Current interest rate = 2.6%  First debt service payment is not due until 1 year after project is completed  Debt service covenant requires the Town to maintain a ratio of 120%  To obtain SRF loan, Town must show that adopted rates will provide sufficient revenue for debt service repayment and provide adequate coverage

52. 52 Debt Service Debt Service  Projections assume Town will obtain $2.4 million SRF Loan in 2012/13  Terms: 20 years, 3%  Annual debt service estimated at $163,000 beginning in 2014/15

53. 53 Veteran’s Home Share Veteran’s Home Share  Veteran’s Home pays 50% of all costs related to the joint wastewater treatment plant

54. 54 Rate Structure Modification: Non-Residential Fixed Charge  Current non-residential fixed charges are disproportionate; medium customers charged less than low and high customers  Recommendation: charge all non-residential (low, medium, and high) customers the same fixed charge based on meter size.  Align fixed charges with new meter ratios recommended by the AWWA

55. 55 Rate Structure Modification: Wastewater System Replacement Fee  Current annual capital transfer of $50,000 is insufficient for funding wastewater capital projects and replacements and repairs  Recommendation: Establish annual revenue stream based on wastewater system’s depreciation collected through the “Wastewater System Capital Fee.” The fee will be a separate charge on the bi-monthly bill and earmarked only for capital projects.

56. 56 Wastewater Rate Scenarios Wastewater Rate Scenarios  BWA developed 10-year cash flow projections to determine rate increases and the impact on revenues and fund balances  Based on best information currently available & reasonable assumptions: - The first rate increase will take effect on Mar 1, 2011. Future rate increases will be effective Jan-1 of each year, beginning in 2012 - Personnel services escalated 4.0% each year - All operating expenses escalated 3.0% annually - No significant growth is anticipated over next 10 years - Annual revenues from the Wastewater System Replacement Fee will be deposited into the Wastewater Capital Improvements Fund and the Joint Treatment Capital Recovery Fund - Rates are designed to meet debt service coverage requirements

57. 57 Wastewater Rate Scenario #1 Wastewater Rate Scenario #1  Assumptions for Wastewater Rate Scenario #1: - Town will not borrow money to fund $2.4 million CIP. Projects will be funded by rates on a pay-as-you-go basis  Cash Flow Projection

58. 58 Wastewater Rate Scenario #1 Wastewater Rate Scenario #1

59. 59 Wastewater Rate Scenario #2 Wastewater Rate Scenario #2  Assumptions for Wastewater Rate Scenario #2: - Town will obtain a $2.4 million SRF loan with in 2012/13 - Debt repayment will begin in 2014/15 - Even annual rate increases  Cash Flow Projection

60. 60 Wastewater Rate Scenario #2 Wastewater Rate Scenario #2

61. 61 Wastewater Rate Scenario #3 Wastewater Rate Scenario #3  Assumptions for Wastewater Rate Scenario #3: - Town will obtain a $2.4 million SRF loan with in 2012/13 - Debt repayment will begin in 2014/15 - Lower rate increases in 2011/12 and 2012/13 and higher increases for 2013/14 and 2014/15  Cash Flow Projection

62. 62 Wastewater Rate Scenario #3 Wastewater Rate Scenario #3

63. 63 Wastewater Regional Survey Wastewater Regional Survey

64. 64 Proposition 218  Cost of Service: Fees cannot exceed the cost of service  Intended Purpose: Revenues derived from the fee or charge can only be used for the purpose for which the fee was imposed  Proportional Cost Recovery: The amount of the fee or charge levied on any customer shall not exceed the proportional cost of service attributable to that customer

65. 65 Prop. 218 Procedural Requirements  Noticing Requirements: Must mail notice of proposed rate increases & info on public hearing to affected property owners  Public Hearing: Hold public rate hearing at least 45 days after the notice is mailed  Rate Increases Subject to Majority Protest: Rates cannot be adopted if more than 50% of ratepayers submit written protests

66. 66 Miscellaneous Fees

67. 67 Next Steps  Receive input and recommendation from Town Council  Week of Dec 27, 2010: Town mails out Proposition 218 rate increase notices and information on public hearing to property owners  February 15, 2010: Town holds public rate hearing and considers adoption of new rates  March 1, 2011: New water and sewer rates go into effect. Future rate increases will be effective January 1 of each year beginning in 2012.