65B - PROPOSED WATER AND SEWER RATE ADJ

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City of Santa Ana, CAI WATER RATE STUDY Based on the proposed CIP summarized above, the Water Enterprise will need to issue debt through revenue bonds in FY 15/16 under Scenario 1 to allow the utility to catch up with deferred activities. The proposed debts is indicated above assume the following service terms: 20 -year payment period, 5.5 percent annual interest rate, 2 percent issuance expense, and issuance of a surety bond equal to 2.5 percent of the nominal debt issuance. Operating Fund Financing Summarized in Tables 10 and 11 are the proposed long -term operating financial plans for the Water Enterprise under each scenario. Table 10 summarizes the financial results should the City elect to carry out the CIP in the absence of revenue adjustments (Status Quo Scenario) and Table 11 shows the plan for the preferred option (Scenario 1). The intent of the financial plan is to generate sufficient funds to cover short-term and long -term expenses. Sources of revenue include water sales under existing rates, additional revenues realized from proposed rate adjustments, miscellaneous revenue and interest earnings on available balances. As mentioned, other miscellaneous revenue includes meter installations and turn -on charges, trust agency revenue, and security fee charges. Uses of funds include operation and maintenance expenses (including water purchases), routine capital outlay, debt service payments, and transfers to other funds such as the capital fund. The projected water revenue under existing rates represents service and commodity charges at current rate levels that are subject to rate adjustments. Based on the existing revenue indicated, additional annual revenue adjustments are necessary to meet operating fund requirements and fiscal policy objectives. Adjustments are typically assumed to become effective July 1 of each fiscal year, except for FY 14/15 increases, which are planned for March 1. Initial analyses indicate that steady rate increases are needed for the next five years as shown on Lines 2 through 6 on each table. Any changes to the capital- financing policies and /or CIP may alter these results since the operating fund helps supplement funds for traditional repair and replace projects. The resulting dollar impact of the proposed revenue adjustments are illustrated on Line 7. In addition to rate revenue, other operating and non - operating charges contribute to the income of the Water Enterprise. Typically, these revenue sources are minimal and volatile and are thus considered a constant in the revenue projections. There is a one -time revenue bump in FY 14/15 that represents the refinancing of the 2004 Water Revenue Bond. Non - operating sources include interest income from the operating fund. Interest income is calculated using an interest rate of 1 percent in order to be conservative. BLACK & VEATCH I water Rate Study [INTENTIONALLY LEFT BLANK] 65B -45 33