Presentation toCITY OF PALM COAST, FLORIDA

WATER AND WASTEWATER RATE STUDYAND BOND FEASBILITY REPORT

Prepared in Conjunction with the Issuance ofUtility System Revenue Bonds, Series 2013

January 8, 2013

Public Resources Management Group, Inc.Presented by

Agenda

Recap of Initial Rate Study Results Presented at the 10/30/2012 Workshop

Series 2013 Bonds Financial Forecast

• Customer Statistics / Revenue Projections• Capital Improvement Funding• Revenue Requirements• Adequacy of System Rates

Rate Study Results Rate Design Bulk Water and Wastewater Charges Capital Facilities Fees

Conclusions and Recommendations

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Recap of Initial Rate Study Results – 10/31/2012

Prepared in Anticipation of the Issuance of the Series 2013 Bonds Last Formal Rate Study Prepared in FY 2007

Support Issuance of Series 2007 Bonds Rates Adjusted Uniformly 12.5% Effective November 1, 2008 City has Annually Indexed Rates (Inflation)• Fiscal Years 2010 to 2012• Average Annual Increase = 1.67%

Evaluate the Sufficiency of Rates Five-Year Financial Forecast & Funding Analysis – FY 2013-2017 Fully Fund System Expenditures Develop Capital Improvement Financing Plan Establish Rates Sufficient to Support Issuance of Series 2013 Bonds Includes Meeting Rate Covenants Defined in the Bond Resolution Maintain Financial Stability of System and Maintain Favorable Bond Rating

Series 2013 Bonds

Refunding of the Existing Series 2003 Bonds Low-Interest Rate Environment / Achieve Interest Rate Savings Annual Savings of Approximately $450,000 to $550,000 Free-Up Debt Service Reserve Fund of Approximately $6.2 Million

– Available to Fund Future Capital Projects

New Money to Fund Capital Improvements = $15,000,000 Total Funds for Capital Projects = $21.2 million Series 2013 Bonds-Funded Projects Include:

Water Treatment Plant No. 1 $1,550,000 Water Treatment Plant No. 2 $12,420,000 Water Treatment Plant No. 3 $2,225,000 Water Mains $2,150,000 Wastewater Treatment Plant No. 1 $1,080,000 Lift Stations and Pump Stations $1,775,000 4

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Series 2013 Bonds (cont'd.)

Issuance of Series 2013 Bonds Requires: Preparation of Financial Forecast Adoption of Utility Rates Preparation of a Bond Feasibility Report

Debt will be payable from Pledged Revenues which includes Rates and Capital Facilities Fees (Impact Fees)

No Tax Revenues will be used to Support the Debt

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FINANCIAL FORECAST

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During FY 2012 the City Served on Average: 42,720 Water Accounts 35,102 Sewer Accounts

Active Account Growth of System Compounded Growth Rate FY 2000 to FY 2006 – 11.60% Compounded Growth Rate FY 2007 to FY 2012 – Less than 1.0%

Utility Customer Growth Projections FY 2013 through FY 2017 Forecast Assumes Conservative Growth Projection of Less than

1.0% – Less than 100 Connections per Year

Average Use per Customer Relatively Consistent by Class Typical Residential Customer = 4,100 Gallons per Month of Water

Customer StatisticsRevenues Projections

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Projected Revenues from Existing Rates Based on the Following: Customer and Sales (Use) Forecast Current Rates and Charges as Adopted

– No Indexing to Identify Total Rate Needs

Customer StatisticsRevenues Projections (cont'd.)

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Revenue Requirements

Evaluated Revenue Requirements – Based on Following Formula:+ Operating Expenses+ Debt Service Payments+ Capital Funded from Operations+ Deposits to Working Capital / Debt Compliance *– Other Operating Revenues and Income – Use of Working Capital (Fund Balance)

= Net Revenue Requirements Funded From Rates

* Includes:Maintain Council Fund Balance PolicyMaintain Rate Covenant ComplianceMaintain Favorable Bond Rating

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Revenue Requirements

Operating Expense Forecast Based on FY 2013 Adopted Budget

Forecast Recognized: System Growth in Accounts Served/Sales and Flows Inflationary Allowances Ranging from 1.5% to 3.5% Based on

Nature of Expense Labor Cost Increases and Personnel Additions (8 Positions

Over the Forecast) Contingency Allowance of 3.0% was Included in Forecast to

Account for Unanticipated Expenses

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Capital Improvement Plan Assumed to be Funded as Follows:Summary of Five-Year Capital Improvement Plan Funding

Total Fiscal Years

2013 – 2017 Percent Five-Year Capital Improvement Plan:

Water System Improvements $27,991,936 35.70% Wastewater System Improvements 45,681,189 58.26% Miscellaneous Utility Services [1] 4,733,685 6.04%

Total Capital Projects $78,406,810 100.00% Funding Sources:

Renewal, Replacement, and Improvement Fund $15,891,810 20.27% Release of Series 2003 Bonds – DSR 6,247,823 7.97% System Capital Facilities Fees (Impact Fees) 877,177 1.12% Prior Bond Proceeds 1,400,000 1.79% Series 2013 Bond Proceeds 15,000,000 19.13% Series 2014/2015 Bond Proceeds 38,990,000 49.73%

Total Funding Sources $78,406,810 100.00% __________ [1] Reflects non-CIP capital such as fleet and equipment replacement.

Capital ImprovementProgram Funding

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Annual Transfer for Renewal and Replacements Required Per Bond Resolution (5% Minimum) Forecast Recognizes 10% of Prior Year's Gross Revenues

or Approximately $3,000,000 per Year 10% Required for Sustainable Long-Term Operations

Series 2013 Bonds – Provide $15.0 Million in New Project Funding Approximately $400,000 to $500,000 per Year Net

Increase in Debt Service Payments after Refunding Benefit

Capital ImprovementProgram Funding (cont'd.)

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Future Bonds Recognized: $43.9 Million Principal Amount of Bonds Approximately $3,100,000 per Year Increase in Net Debt

Service Payments• Assumptions for the Series 2014/2015 Bonds are as Follows:

Assumed Level Debt Service Payments beginning in Fiscal Year 2015

Capital ImprovementProgram Funding (cont'd.)

Total Principal Amount of

Bonds Projected

Issuance Date

Projected Average Annual

Interest Rate

Estimated Annual Debt Service Requirement

$43,905,000 October 1, 2014 5.75% $3,104,796

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Adequacy of System Rates

Existing Monthly Water and Wastewater Rates Not Anticipated to be Adequate to Meet: Operating Expenditures and Capital Funding Requirements Debt Service Payments and Coverage Requirements

Overall System Identified Required Revenue Adjustments:

Estimated System Average Revenue Percentage Adjustment

Fiscal Year

Effective Date Price Indexing Rate

Adjustment [1] Additional Revenue

Adjustment Combined Increase 2013 March 1, 2013 N/A 8.00% 8.00% 2014 October 1, 2013 1.50% 5.50% 7.00% 2015 October 1, 2014 1.70% 5.30% 7.00% 2016 October 1, 2015 2.00% 0.00% 2.00% 2017 October 1, 2016 2.20% 0.00% 2.20%

__________ [1] Reflects estimated price index rate adjustment.

Adequacy of System Rates (cont'd.)

Reason for the Proposed Rate Adjustments: Lack of Historical System Growth Affecting Revenues

– Utility Absorbed Price Increases Above Indexing Allowance– Significant Reduction in Capital Facilities Fees

Continued Inflationary Impacts on Cost of Operations Need to Fund Capital Improvements to System

– Regulatory Requirements Increased Debt Service Requirements Associated with Additional Utility

System Revenue Bonds

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Adequacy of System Rates (cont'd.)

Reason for the Proposed Rate Adjustments: Need to Have Sufficient Revenues to:

– Meet Bond Issuance Requirements– Maintain Financial Creditworthiness and Favorable Bond Ratings

Increase in Annual Transfer to Renewal and Replacement Fund from 5% to 10% per Year of Gross Revenues– Reduces Future Debt Requirements– Improves Long-Term Utility Position– Viewed Favorable by Rating Agencies– Provides Rate Flexibility

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Reason for the Proposed Rate Adjustments: Maintain Adequate Debt Service Coverage Ratios and Bond

Ratings in Support of Financing

City Currently an "A" Rated Utility By Fitch and Standard & Poor’s Fitch “ A " Rated "All-In" Coverage Medium = 1.4X

Adequacy of System Rates (cont'd.)

Calculated CalculatedSenior Lien Coverage All In(Required 110.00%) Coverage

Fiscal Year (Target 150.00%) (Target 140.00%)2013 157.08% 130.66%2014 168.64% 141.49%2015 149.95% 130.79%2016 155.17% 135.35%2017 155.43% 135.57%

RATE DESIGN RESULTS

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Proposed Cost of Service Analysis to Develop Rates Proposed Rates Based on FY 2013 Revenue Requirements

Costs Assigned to Water and Wastewater System Separately Individual Water and Wastewater Revenue Requirements Allocated

between Base and Usage Charges

Future Proposed FY 2014 and 2015 Rate Adjustments to be Applied uniformly Across the Board to the Redesigned 2013 Rates

Study Identified Different Level of Rate Adjustments (Not Uniform Application): Water and Wastewater System Base and Usage Charges Class of Service (Residential, Commercial, Bulk, etc.)

Rate Design

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Rate DesignProposed Water Rates

Existing Rates 2013 2014 20151.7 8 7 7

Monthly Base Charge:

Residential, Commercial andMulti-family Service(a) Meter Size 5/8 x 3/4", 3/4" 14.18$ 14.50$ 15.52$ 16.61$ (b) 1" 35.48 36.25 38.79 41.51 (c) 1-1/2" 70.96 72.50 77.58 83.01 (d) 2" 113.54 116.00 124.12 132.81 (e) 3" 227.05 232.00 248.24 265.62 (f) 4" 354.76 362.50 387.88 415.03 (g) 6" 709.53 725.00 775.75 830.05 (h) 8" 1,134.31 1,160.00 1,241.20 1,328.08 (i) 10" 1,630.58 1,667.50 1,784.23 1,909.13

Irrigation Service (Water-Only):Meter size(a) Meter Size 5/8 x 3/4", 3/4" 7.10 7.25 7.76 8.30 (b) 1" 35.48 36.25 38.79 41.51 (c) 1-1/2" 70.95 72.50 77.58 83.01 (d) 2" 113.54 116.00 124.12 132.81 (e) 3" 227.05 232.00 248.24 265.62 (f) 4" 354.76 362.50 387.88 415.03 (g) 6" 709.53 725.00 775.75 830.05

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Rate Design

Proposed Water Rates Existing Rates 2013 2014 2015

Monthly Usage - Domestic

General and Multi-Family 3.94$ 4.50$ 4.82$ 5.16$

Single-Family and DuplexRate Block:0 - 5,000 gallons 3.84$ 3.93$ 4.21$ 4.50$ 5,001-10,000 gallons 4.22 4.32 4.62 4.94 10,001-20,000 gallons 5.77 5.50 5.89 6.30 Above 20,000 gallons 6.92 7.07 7.56 8.09

Monthly Usage - IrrigationRate Block:0 - 5,000 gallons 3.94$ 4.32$ 4.62$ 4.94$ 5,001-10,000 gallons 4.22 4.32 4.62 4.94 10,001-20,000 gallons 5.77 5.50 5.89 6.30 Above 20,000 gallons 6.92 7.07 7.56 8.09

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Rate Design (cont’d.)

Proposed Wastewater Rates Existing Rates 2013 2014 2015

Monthly Base Charge:

Residential, Commercial and Multi-family Service

(a) Meter Size 5/8 x 3/4", 3/4" 11.90$ 14.23$ 15.23$ 16.30$ (b) 1" 29.78 35.58 38.07 40.73 (c) 1-1/2" 59.54 71.15 76.13 81.46 (d) 2" 95.27 113.84 121.81 130.34 (e) 3" 190.19 227.68 243.62 260.67 (f) 4" 297.72 355.75 380.65 407.30 (g) 6" 595.45 711.50 761.31 814.60 (h) 8" 951.87 1,138.40 1,218.09 1,303.36 (i) 10" 1,368.32 1,636.45 1,751.00 1,873.57

Retail wastewater rate (residential 8,000 Cap): 3.30$ 3.70$ 3.96$ 4.24$

Retail wastewater rate (General/multi family) 3.97$ 4.44$ 4.75$ 5.08$

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Water and Wastewater System Overall Increase Overall Combined System – 8.00% Overall Water System – 3.27% Overall Wastewater System – 15.61%

Overall Water Base Vs. Usage Increases: Overall Water System – 3.27% Overall Water Base Charges – 2.21% Overall Water Usage Charges – 4.05%

Overall Wastewater Base Vs. Usage Increases: Overall Wastewater System – 15.61% Overall Wastewater Base Charges – 19.60% Overall Wastewater Usage Charges – 11.87%

Rate Design (cont’d.)

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Impact to the Various Customer Classes:

Rate Design (cont’d.)

Typical Monthly Bill - 5/8 inch Meter @ 4,000 Gallons(Represents 99.9% of the Class)

Water Wastewater CombinedResidential:

Existing Rates 29.54$ 25.10$ 54.64$ Proposed Rates 30.22$ 29.03$ 59.25$

Monthly Increase - Amount 0.68$ 3.93$ 4.61$ Percentage Increase 2.30% 15.66% 8.44%

Typical Monthly Bill - 5/8 inch Meter @ 4,000 Gallons(Represents 95% of the Class)

Water Wastewater CombinedMulti-Family:

Existing Rates 29.94$ 27.78$ 57.72$ Proposed Rates 32.50$ 31.99$ 64.49$

Monthly Increase - Amount 2.56$ 4.21$ 6.77$ Percentage Increase 8.55% 15.15% 11.73%

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Impact to the Various Customer Classes:

Rate Design (cont’d.)

Typical Monthly Bill - 5/8 inch Meter @ 5,000 Gallons Typical Monthly Bill - 1 inch Meter @ 15,000 Gallons(Represents 42% of the Class) (Represents 18% of the Class)

Water Wastewater Combined Water Wastewater CombinedCommercial:

Existing Rates 33.88$ 31.75$ 65.63$ 103.45$ 89.33$ 192.78$ Proposed Rates 37.00$ 36.43$ 73.43$ 112.81$ 102.18$ 214.99$

Monthly Increase - Amount 3.12$ 4.68$ 7.80$ 9.36$ 12.85$ 22.21$ Percentage Increase 9.21% 14.74% 11.88% 9.05% 14.38% 11.52%

Irrigation: Water5/8 inch Meter @4,000 Gallons:

Existing Rates 22.84$ Proposed Rates 24.53$

Monthly Increase - Amount 1.69$ Percentage Increase 7.38%

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Water and Wastewater Comparison

Typical Residential 5/8" Meter Monthly Bill At 4,000 Gallons

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City of O

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Brevard

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City of S

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St. Jo

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City of P

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City of E

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CITY OF T

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City of M

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City of P

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- Pro

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VOLUSIA

COUNTY

CITY OF D

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City of P

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City of S

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CITY OF P

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FLAGLER

COUNTY $-

$10.00

$20.00

$30.00

$40.00

$50.00

$60.00

$70.00

$80.00

$90.00

$100.00

Sewer Water Average

Other Utilities' Average: $56.40

Capitalized Utilites are either currently involved in a Rate Study or are planning a Rate Study in the next twelve months.

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Bulk Water and Wastewater Charges Based on the System-Wide Revenue Requirements Allocable to

Providing Bulk Service City Currently Provides Bulk Water Service to Flagler County

(Beverly Beach Area) Only City Will Provide Bulk Wastewater Service to Flagler County

(Beverly Beach Area) in the Future

City’s Existing Bulk Water Rate was originally developed in 2004 for the Dunes Community Development District (No longer a customer of the City) Designed for specific circumstances applicable only to the Dunes

Development District and not Other Bulk Users

Bulk Water and Wastewater Rates

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Analysis Identified to Need for the following Bulk Rate Adjustments:

Bulk Water and Wastewater Rates (cont’d.)

Bulk Rate Analysis: Water Wastewater

Existing Rate Per 1,000 Gallons 2.19$ 3.22$ Proposed Rate Per 1,000 Gallons 4.08$ 3.55$

Proposed Percentage Increase 86.30% 10.25%

System Wide Average Cost Per 1,000 Gallons 7.02$ 6.86$ (Including Base Charges)

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Estimated Monthly Impact on Typical Flagler County – Beverly Beach Residential Customer:

Bulk Water and Wastewater Rates (cont’d.)

Typical Monthly Bill - 5/8 inch Meter @ 5,000 GallonsWater Wastewater Combined

Flagler County (Beverly Beach)Existing Base Charge 28.88$ 14.42$ Existing Usage Charge Per 1,000 Gallons 6.54$ 4.72$

Typical Bill @ 5,000 Gallons - Existing Rates 61.58$ 38.02$ 99.60$

Bulk Rate Increase Per 1,000 Gallons 1.89$ 0.33$

Typical Bill @ 5,000 Gallons - Adjusted 71.03$ 39.67$ 110.70$

Estimated Monthly Increase - Amount 9.45$ 1.65$ 11.10$ Estimated Monthly Increase - Percent 15.35% 4.34% 11.14%

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Fees Last Established in 2007 Based on Large Capital Improvement Program Required for Anticipated Customer Growth

Proposed Capital Facilities Fees (Impact Fees) Revised Capital Facilities Fees – Calculated Recognizing Current Fixed

Assets and New Capital Improvement Program (FY 2013 through 2017)

Also Recommend a 20% Reduction to the Proposed Fees for Water Star Certified Properties

Capital Facilities Fees (Impact Fees)

Capital Facilities Fees (Impact Fees): Water Wastewater Total

Existing Rate Per ERC 2,679.81$ 2,734.95$ 5,414.76$ Proposed Rate Per ERC 2,040.00$ 2,260.00$ 4,300.00$

Proposed Percentage Change (23.88%) (17.37%) (20.59%)

Other Neighboring Utilities Average 1,776$ 2,048$ 3,824$

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Capital Facilities Fees (Impact Fees)

City of S

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City of D

aytona B

each

New Sm

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each

City of M

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City of P

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City of P

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ity of Ja

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City of T

itusvi

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City of S

t. Augu

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City of E

dgewate

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Brevard

County (North

)

St. Jo

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City of P

alm Coast

Pro

posed

Volusia County

City of O

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Flagle

r County

City of P

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Exis

ting

City of P

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City of W

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1,000.00

2,000.00

3,000.00

4,000.00

5,000.00

6,000.00

7,000.00

8,000.00

Wastewater Water Other Utilities' Average

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Other Issues

Proposed Modification to Annual Rate Indexing Provision Change Section 10(d) The rates, fees and charges involving monthly base and usage charges, private fire protection services, reclaimed water service and bulk rates relating to the Systems of the City as set forth herein shall be adjusted annually on October 1 of each year, commencing on October 1, 2015 and thereafter, by the Consumer Price Index for All Urban Consumers as of June 30 of each year as published by the United States Department of Labor, Bureau of Labor Statistics. The rates, fees and charges involving capital facilities (connection) fees, installation fees, and taps relating to the Systems of the City as set forth herein shall be adjusted annually on October 1 of each year, commencing on October 1, 2013 and thereafter, by the Construction Cost Index as of June 30 of each year as published by the Engineering News-Record.

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Conclusions and Recommendations

Existing System Rates are not Projected to be Adequate to Meet System Expenditures throughout the Forecast Period

Rate Increases Necessary to Fund Capital Plan / Issue Bonds and Maintain Creditworthiness of the System

The Financial Forecast Recognizes Need for Proposed Rate Adjustment

Council Should Adopt the Proposed Rates for Fiscal Year 2013 Effective March 1, 2013 Based on Proposed Cost Allocation Analysis

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Conclusions and Recommendations Council Should Adopt the Additional Proposed Rate Adjustments are

as Follows:

Council Should Adopt the Proposed Decreased Capital Facilities Fees (Impact Fees) Effective February 6, 2013

Council Should Adopt the Proposed Bulk Water and Wastewater Rates

Proposed Rates Should be Adequate to:

Comply with the Rate Covenants as Defined in the City's Bond Resolution

Maintain Fund Balance Policy

Maintain Current Bond Rating

Fiscal Year 2014 7.0% October 1, 2013 Fiscal Year 2015 7.0% October 1, 2014 Thereafter Price Indexing October 1st of Each Year

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Discussion and Questions