Financial Overview of Danville Utilities Dawn Lund VicePresident

Financial Overview of Danville Utilities Dawn Lund Vice-President Utility Financial Solutions www. ufsweb. com 1

Services UFS Providing to Danville � Cost of Service, Financial Projection and Rate Design for: ◦ ◦ ◦ Electric Water Wastewater Telecommunications Gas These are Enterprise Funds: Self sustaining operation = Revenues should meet financial requirements, including reinvestment for reliability 2

Utility Financial Solutions, LLC � International consulting firm providing financial services to utilities across the country � Here to present the financial overview of each utility to help aid in budget preparation � Get Direction from the Council on rate recommendations � Complete COS results and Rate Design will be presented early next year. Date upon request. 3

Overview of Financial Planning, Cost of Service and the Rate Setting Process 4

Financial Projection � Gives an overview of were the utility is today compared to key financial targets � Outlines a rate track needed to keep (or get) the utility financially healthy � Key targets include ◦ Operating Income ◦ Minimum Cash Reserve ◦ Debt Coverage Ratio 5

Operating Income � Adequate rate of return on investment to help ensure current customers are paying their fair share of the use of the infrastructure and not deferring the charge to future generations ◦ Fund Depreciation Expense ◦ Fund Interest Expense ◦ Fund inflationary increase on historical investment of system 6

Reasons for Adequate Cash � Minimum cash reserve recommendation is MINIMUM – Considered cash critical � Funds exist to: ◦ ◦ ◦ Pay expenses Normal capital improvements (approx depr) Pay Debt Service Support and unexpected expense Keep utility healthy for future management and operations 7

Meet Debt Coverage • Debt coverage ratios mandated by covenants and established in bond ordinances when debt issued • Identifies cash generated by operations above the debt service payment • Know your requirements and meet them 8

Financial Planning Tools � Small periodic increases ◦ Keep up with inflation ◦ Avoid large/double digit increases in the future � Financial projection should be updated with budget process to monitor targets and rate track � Cost of Service Study every 3 years – know your costs and structure 9

Why is Cost of Service Important? � Cost of service is: ◦ A method to equitably allocate the revenue requirements of the utility among the various customer classes of service ◦ What revenues should I recoup from whom and how should I do it? 1 0

Three Important Objectives of COS � Ensure rates recover costs to provide service to customers ◦ Including depreciation and rate of return � Defines Optimal rate structure � Reduce cross -subsidization between classes ◦ ◦ Customer Charge Commodity Charge Demand Charge (electric) PCA/PGA

Individual Utility Financial Position e 12

Telecommunications Department e 13

Telecommunications Financial Projection with NO Rate Changes 14

Telecommunications Financial Projection Recommended Changes � The Telecommunications Department is currently meeting financial targets over the projection period � No revenue changes are recommended at this time � The projection will need to be updated yearly during the budget process as revenues, expenses and capital investment can change the financial projection 15

Gas Department e 16

Gas Financial Projection with NO Rate Changes The PGA will continue to adjust with purchased gas cost 17

Gas Financial Projection Recommended Changes 18

Wastewater Department e 19

Wastewater Financial Projection NO Rate Changes 20

Wastewater Financial Projection Recommended Changes 21

Wastewater Preliminary COS Results (NOT Recommended Rate Design) The table above is NOT the recommended rate design and used in the rate design process to work toward COS rates overtime, lessening the rate impact to customers 22

Water Department e 23

Water Financial Projection NO Rate Changes 24

Water Financial Projection Recommended Changes 25

Water Preliminary COS Results (NOT Recommended Rate Design) The table above is NOT the recommended rate design and used in the rate design process to work toward COS rates overtime, lessening the rate impact to customers 26

Electric Department e 27

Electric Financial Projection NO Rate Changes 28

Electric Financial Projection Recommended Changes 29

Electric COS Results 30

Electric Preliminary COS Rates (Not Recommended Rate Design) 31

Summary of Rate Recommendations 32

Next Steps and Direction � UFS is looking for direction to prepare the rate design � What percentages are approved in each utility � A 2% bandwidth where appropriate on rate design � Move customer charges with rate designs � Onsite visit early next year to present rate design? 33

Questions? Dawn Lund Vice-President Utility Financial Solutions 231 -218 -9664 34