Sept. 30, 2015

Sewer Rate Study Update

Presented by:Shawn KoornAssociate Vice PresidentHDR Engineering, Inc.

City of Oak Harbor

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Overview of the Presentation

• Review of the previous sewer rate analyses

• Summary of the updated analysis

• Overview of the rate scenarios

• Questions and answers

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Prior Sewer Rate Analyses

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• Established initial projections during the 2009 rate study– Used conservative borrowing assumptions and

estimated capital costs• Updated the analysis for financing scenarios in

2012 for the feasibility study– Updated O&M and other capital assumptions– Updated revenue projections– Various funding sources (loans/bonds/grants)– Based on project cost estimates at that time

• Updated the analyses for planned long-term debt issuance

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Overview of the Updated Sewer Analysis

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• Analysis reviews the 2016 – 2021 time period• Updated revenue projections based on current

customer information and adopted rates– Rates were adopted through 2016 (last adjustment in

December 2015)• Updated O&M expenses

– Based on current budgeted O&M– Estimated O&M for the new WWTF– Annual inflation assumed at 3.5%

• Updated the capital improvement plan– Items other than the WWTF

• Updated fund balances (reserves)

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WWTF Capital Cost Scenarios

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• Based on the current financing scenarios– 2015 and 2016 SRF loans– 2015/16 revenue bond and close-out bond– Grants– Use of reserves (capital and SDCs)

• Developed three rate scenarios– Low project cost ($90 million)– Mid project cost ($98 million)– High project cost ($110 million)

• Each scenario results in different long-term debt amounts and annual debt service payments

• Developed rate adjustments to meet DSC ratios and minimum target reserve funds

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Capital Plan Summary

• Project costs are based on preliminary estimates– May not reflect actual year of total costs

• 2018 through 2021 reflects typical annual capital– Approximately $500,000 per year on average

$0

$10,000,000

$20,000,000

$30,000,000

$40,000,000

$50,000,000

$60,000,000

$70,000,000

$80,000,000

2015 2016 2017 2018 2019 2020 2021

Low Mid High

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• Key difference is the annual debt service payments– Ability to maintain required DSC ratios

• All three options maintain target minimum reserve levels

• Rate adjustments would be implemented the December prior to the year effective

• Reserves are utilized in several years (2018 & 2019) to fund annual deficiencies (both O&M and capital needs)

Summary of the Proposed Sewer Rate Transition Plans

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2017 2018 2019 2020 2021

Low Estimate 15.0% 12.0% 10.0% 10.0% 8.0%

Mid Estimate 15.0% 15.0% 15.0% 10.0% 9.5%

High Estimate 20.0% 15.0% 15.0% 15.0% 15.0%

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Residential Customer Bill Impacts

• Developed approximate monthly residential customer bill impacts based the scenarios

• 2015 is the current residential customer rate• 2016 is the adopted residential customer rate

– 12.5% adjustment effective Jan 1, 2016

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2015 2016 2017 2018 2019 2020 2021

Low Estimate $57.50 $64.75 $74.46 $83.40 $91.74 $100.91 $108.98

Mid Estimate $57.50 $64.75 $74.46 $85.63 $98.48 $108.32 $118.62

High Estimate $57.50 $64.75 $77.70 $89.36 $102.76 $118.17 $135.90

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Residential Customer Bill Impacts(cont’d)

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$40.00$50.00$60.00$70.00$80.00$90.00

$100.00$110.00$120.00$130.00$140.00

2015 2016 2017 2018 2019 2020 2021

Low Mid High

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Preliminary Debt Service Coverage Ratios

• Combined utility (water and sewer) calculation– Actual calculation will exclude utility taxes

• Minimum of 1.0• Target of 1.25 and above

0

0.5

1

1.5

2

2.5

3

3.5

2016 2017 2018 2019 2020 2021

Low Mid High

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Summary of the Reserve Funds• Target minimums vary based on total revenue

– Operating fund is 25% of total revenues, including additional revenues from rate adjustments

– Target is approximately $2.2 million in 2015 increasing to $3.6 million in 2021

• Reserve funds exclude the SDC fund

$0

$1,000,000

$2,000,000

$3,000,000

$4,000,000

$5,000,000

$6,000,000

2015 2016 2017 2018 2019 2020 2021

Low Mid High Target

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Summary of the Updated Analysis

• Annual rate adjustments vary depending on final project cost and total borrowing

• Rates provide required DSC ratios and meet minimum target reserve funds

• Additional low cost borrowing (low interest loans) and grants will reduce overall rate impacts

• Through 2018 rate impacts are similar to what was provided during the feasibility study– Final three years (2019 – 2021) were not included in

the prior analyses

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