CITY OF GEORGETOWN CHISHOLM TRAIL SUD

Transcription

1 When the well is dry, we learn the worth of water Benjamin Franklin CITY OF GEORGETOWN CHISHOLM TRAIL SUD Consolidation Feasibility Study Project Team

2 Page Section 1.0 Executive Summary 1 Section 2.0 Introduction 2.1. Regionalization Project Work Plan Goals and Evaluation Criteria Governance Alternatives 12 Section 3.0 Policy Issues 3.1. Introduction Raw Water Shared Staffing and Resources Cost Allocation Financing Policies Annexation Policies 28 Section 4.0 Management Structure 4.1 Introduction Management/Operating Structures Further Analysis Evaluation Criteria 40 Section 5.0 Engineering Issues 5.1 Introduction Population Projections Water Demand Projections Raw Water Supply and Demand Treated Water Supply and Demand Storage and Pumping Distribution System Analysis Capital Improvement Plan Condition Assessment 74

3 Page Section 6.0 Financial Analysis 6.1 Introduction Financing Issues Scenarios to Assess Financial Model Description Financial Modeling Results 85 Section 7.0 Regulatory Assessment 7.1 Regulatory Process for Transition Rate Jurisdiction 95 Section 8.0 Governance 8.1 Overview of Alternatives Customer Presentation Evaluation Criteria 103 Section 9.0 Other Issues 9.1 Other Issues 106 Section 10.0 Transitional Plan Overview of Transitional Plan 109 Appendix A Inspection Reports Appendix B - Financials

4 Page Executive Summary 1

5 Section Executive Summary Regionalization of water/wastewater utilities has proven to provide substantial benefits to the customers of the regionalized system due to improved planning, operations, and management of the systems. In many cases, duplicative services can be eliminated and economies of scale achieved through regionalization resulting in a decrease of costs and an increase in quality of service to all of the affected customers. The State of Texas strongly encourages regionalization; so much so, that any utility seeking a new Certificate of Convenience and Necessity (CCN) must first illustrate that regionalization with a neighboring system is not feasible. There are several factors contributing to the need for both Chisholm Trail Special Utility District (District) and the City of Georgetown (City) to consider the advantages of regionalization or consolidation of the respective utility operations. The District has been forced to implement stringent watering restrictions during the late spring and summer months for several years in a row. This is due primarily to limitations of both raw and treated water resources. In addition, insufficient infrastructure has limited fire flow capabilities. These limitations have led to significant customer dissatisfaction as well as being an impediment to growth which in turn restricts the District s revenue recovery potentially influencing the District s ability to secure funding for future projects. The City is equally concerned about the growth and service limitations of the District. Many of the District s customers, and future customers, are in the City s Extra Territorial Jurisdiction (ETJ), some of which the City currently provides both wastewater and electrical service. The City is concerned that any limitation of water supply to these areas could have a long term negative impact on economic development to the region as well as future annexations. Recognizing these issues, the two entities began discussions in an effort to identify viable solutions. As a result, in February 2012, the City and District, collectively referred to as Stakeholders, entered into an inter-local agreement to perform a feasibility analysis for a potential regionalization of utility services. The proposed regionalization may prove to be mutually beneficial to both entities; however, in taking on such an important endeavor, many issues have to be thoroughly evaluated. To conduct this analysis the Stakeholders hired the consulting team of Water Resources Management, LLC, CDM Smith, and HDR, (Project Team). The feasibility analysis set out to: 1. Determine whether regionalization of these two systems is feasible from a regulatory, legal, engineering, and operational perspective; 2. Determine whether there is a significant economic benefit which may be realized through regionalization; and 3. Evaluate various regionalization vehicles, i.e. governance structures. It must be noted, however, the feasibility analysis did not: 1. Obligate or otherwise commit either entity to do anything other than perform the feasibility analysis itself; 2. Negotiate the specific terms or contractual agreement associated with a regionalization plan; and 3. Determine specific rates, cost allocations, or cost-sharing plans for customers. The analysis evaluated two governance structures for providing regionalized services: Feasibility Study Page 1 of 113

6 1. Local Government Corporation (LGC) whereby the City would acquire all or a portion of the District s service area and provide service to that area under an LGC framework. 2. Public Utility Agency (PUA) whereby a new legal entity would be formed to own the water treatment plant, intake structure and raw water supplies for both Stakeholders. The PUA would provide wholesale services to each Stakeholder. The City and the District continue to exist and provide retail services to their individual customers. One of the most significant issues driving the need for this analysis is the District s limitations associated with water treatment and raw water supply. It must be emphasized that any recommendations should resolve these limitations. Findings The LGC and the PUA regionalization frameworks were evaluated against the current status quo with regard to the following six evaluation criteria outlined by City and District representatives: 1. Representation; 2. Cost Savings; 3. Quality of Service; 4. Growth management; 5. Infrastructure and Water Supply Planning; and 6. Risk Management. The chart below identifies how each alternative compares to the current status quo. Table 1-1. Options Comparative to Status Quo. Evaluation Criteria Local Government Corporation Public Utility Agency City District City District Representation Voting Same Decrease Same Same TCEQ Appellate Jurisdiction Same Same Same Same Cost-Savings Approximately $27,400,000 Approximately $3,600,000 Quality of Service Same Enhanced Same Enhanced Growth Management Enhanced Enhanced Same Enhanced Infrastructure and Water Supply Planning Enhanced Enhanced Same Enhanced Risk Management Slight Increase Decrease Moderate Increase Decrease The analysis determined that from a legal, regulatory, operational, and engineering perspective, regionalization of the two systems is a viable alternative to the status quo. Furthermore, the analysis determined that the LGC model provided a significant net present value cost savings of approximately $27.9 million over fifteen years. A significant portion of these cost savings are associated with the substantial financing benefits associated with the City s ability to issue bonds at significantly lower rates than the District. Finally, as illustrated above, it was determined that overall, the LGC model provided enhancements above the current status quo for all of the evaluation criteria outlined by the Stakeholder representatives with the exception of one category, which is voting representation. Although the LGC would not be able to provide voting representation to the District s customers, some representation may be provided through the LGC/GUS Board of Directors, this issue is more thoroughly discussed later in this report. Feasibility Study Page 2 of 113

7 Recommendations In addition to the evaluation criteria, Stakeholder representatives also outlined specific goals that final recommendations should achieve. These goals are listed below: Develop a plan that facilitates efficient growth and economic development in the region; Resolve volumetric capacity limitations of the District in a mutually beneficial cost-effective manner; Provide for fire flow protection within the District, where cost-effective; Pursue joint infrastructure planning and water supply planning as feasible, and mutually beneficial; Establish new water utility service standards for controlled development that facilitate future growth of both Stakeholders; Create protections for customers of each Stakeholder that alleviate cross-subsidization risks; Provide for representation of each Stakeholder, to the greatest extent possible; Provide for future flexibility for annexation and transfer of service area; Ensure the final recommendation is capable of issuing tax exempt debt in a cost effective manner; Provide for future flexibility for future regional cooperative efforts with other stakeholders; and Continued transparency in operations, management, and governance. After careful consideration of the alternatives, the project team recommends the utilization of the LGC model as a regionalization vehicle. The LGC achieves all of the goals outlined by the Stakeholders and provides enhancements above the current status quo. Furthermore, the LGC solves the water treatment and raw water capacity limitations of the District. It must be emphasized that pursuing regionalization through the consolidation of two separate legal entities is a long, extensive process. The issuance of this report represents the end of the first step ( Phase 1 ). As previously described, this analysis does not obligate or commit either entity to proceed any further from the issuance of this report. The project team recommends that each individual stakeholder proceed with their individual public process to identify whether or not it is prudent to proceed with additional discussions, which would be Phase 2 of this process. Each Stakeholder can determine the best means of expediting this process for their constituents. It is anticipated that Phase 2 would take days. If the Stakeholders are able to reach a consensus of if, how, and when to proceed, the project team recommends the Stakeholders enter into a memorandum of understanding ( MOU ) that outlines the mutually agreed upon process for proceeding. This MOU would not be a final agreement and would not outline the terms of the regionalization structure; this is a non-binding agreement. In the event the Stakeholders execute an MOU to proceed, Phase 3 would commence. During Phase 3, additional analyses and due diligence would be performed, and specific contract terms negotiated and discussed. Phase 3 would culminate in a draft agreement circulated between the two entities. It is at the culmination of this Phase that the specific structure of the agreement, the specific service area to be transferred, and an evaluation of the impact of the agreed upon terms would have on customer rates would be thoroughly evaluated and described. Upon circulation of a draft agreement, Phase 4 would proceed. Phase 4 is the second public process that would provide opportunity for public feedback and input. Feasibility Study Page 3 of 113

8 At any point during Phases 2, 3, or 4, either entity can determine that they do not wish to proceed with regionalization. It is not until the culmination of Phase 5 (8-12 months following the issuance of the Feasibility Analysis) that a formal contractual agreement is entered into between the Stakeholders. If the entities execute formal agreements for regionalization, the legal and regulatory phases begin. Embedded within these phases are additional public notice requirements and filings. In totality, the final acquisition of assets would be a minimum of months from the date wherein the Feasibility Analysis was completed. Figure 1-1 below, outlines each of these phases. Feasibility Study Page 4 of 113

9 Figure 1-1 Regionalization Process Feasibility Study Page 5 of 113

10 Page 2.1 Regionalization Project Work Plan Goals and Evaluation Criteria Governance Alternatives 12

11 Section 2.1 Regionalization Section Introduction In February 2012 the City of Georgetown and Chisholm Trail Special Utility District, collectively entered into an inter-local agreement to perform a feasibility analysis and implementation plan for a potential regionalization of utility services. The proposed regionalization may prove to be mutually beneficial to both entities; however, in taking on such an important endeavor, many issues must be thoroughly evaluated. Section Regionalization The industry has provided many different definitions related to regionalization, which include: The consolidation of the operations, physical systems, or both of two or more existing or proposed water or domestic wastewater systems. (Texas Commission on Environmental Quality, 2003). Regionalization refers to large, physically united systems or the coordinated management of two or more independent systems (American Water Works Association, 1979). Regionalization is the administrative or physical combination of two or more community water systems for improved planning, operation, and/or management. Regionalization should be viewed in the context of a range of possible approaches, from the actual physical interconnection of systems to an administrative and management arrangement to provide common technical, operational, or financial services for two or more systems (SMC Martin, Inc., 1983: III-1). Regionalization is the integration or coordination of the physical, economic, social, information, or personnel structure of water resource projects to better [address] national, regional, and local societal objectives and constraints (Whitlatch and ReVelle, 1990: 70). Regionalization is not a new or novel idea; it has been contemplated by the water utility industry for decades. One of the significant driving forces leading the industry to contemplate the regionalization of systems is the ever-increasing obligations of utilities to provide water in compliance with the Safe Drinking Water Act and Clean Water Act. These obligations translate to a substantial cost impact to customers. Conceptually speaking, the theory is that the cost of compliance per person or connection served decreases as the system size increases. In addition, growing systems encounter additional challenges associated with maintaining capacity to meet future demands today while the customers to pay for that infrastructure will not be on-line for years to come; how and when to install the additional capacity; and how to keep the cost impacts of meeting such growth requirements off their current ratepayers. As such, in theory regionalization yields economies of scale that ultimately benefits customers and can assist with efficient growth management practices. In addition to economies of scale which may be realized through regionalization, additional benefits may exist such as watershed management, integrated resource planning, and the acquisition or development of new water supply resources. Regardless of the definition, the ultimate goal of regionalization is to provide timely and cost-effective solutions for achieving quality service. Feasibility Study Page 6 of 113

12 Section a Regionalization in Texas The State of Texas has shown a preference for regionalization. In fact, the TCEQ s Regionalization Policy Statement, which is utilized in evaluating new CCN applications, specifically states: Our policy is that regionalization is feasible unless one of these three exceptions applies: (a) No other systems are reasonably close to your planned system. (b) You have requested service from neighboring systems, and your request has been denied. (c) You can successfully demonstrate that an exception based on costs, affordable rates, and financial, managerial, and technical capabilities of the existing system should be granted. 1 Section b Impacts of Regionalization The regionalization of two existing autonomous systems into a single consolidated effort, as contemplated by the Stakeholders, may constitute fundamental, structural, and institutional changes in the way services are provided in the future. Fundamental changes may include redefining governmental roles and may require new forms of intergovernmental coordination. Structural changes may include consolidation of ownership, along with operations, and management of the systems. Institutional changes include changes in public policy and resource planning. New policies, institutions, authorities, and legal frameworks may be needed for effective regionalization. While the described changes may represent a substantial shift from the status quo of system operations and ownership, many entities have found regionalization to be a substantially more efficient and effective means of providing utility services. Section Purpose of this Analysis As previously described, regionalization could provide substantial cost savings to the Stakeholders, as well as many intangible benefits. Likewise, regionalization necessarily can redefine existing roles for each of the Stakeholders; as such, the Stakeholders have set out to perform a regionalization feasibility analysis. This feasibility analysis was intended to: 1. Determine whether regionalization of these two systems is feasible from a regulatory, legal, engineering, and operational perspective; 2. Determine whether there is a significant economic benefit which may be realized through regionalization; and 3. Evaluate various regionalization vehicles, i.e. governance structures. It must be noted, however, the feasibility is not intended to: 1. Obligate or otherwise commit either entity to do anything other than perform the feasibility analysis itself; 2. Negotiate the specific terms or contractual agreement associated with a regionalization plan; nor 3. Determine specific rates, cost allocations, or cost-sharing plans for customers. 1 January 2003 RG-357, The Feasibility of Regionalizing Water and Wastewater Utilities: A TCEQ Policy Statement Feasibility Study Page 7 of 113

13 Section 2.2 Project Work-Plan Section Introduction The Stakeholders retained the services of Water Resources Management, LLC(WRM), CDM Smith, and HDR, Inc. (HDR), collectively referred to as Project Team, to collaboratively perform a feasibility analysis to evaluate available options. The Project Team also worked with legal counsel, the Stakeholders Financial Advisor, and Bond Counsel in developing this analysis. This report summarizes the methodology, findings, and recommendations of the feasibility analysis that was performed. Section a Project Work Plan The Project Team developed a work plan to perform this analysis, and more specifically a process that was designed to guide the Stakeholders through specific, guided steps to evaluate available options. The work plan entailed a multi-step process, which involved the evaluation of identified straw-men (further described in Section 2.3.2) related to specific criteria outlined by the Stakeholders (further described in Section b). The Project Team reviewed and analyzed data, performed site-visits, interviewed representatives of each Stakeholder, and performed appropriate research as necessary to evaluate the regionalization options throughout the process. The Project Team then prepared written summaries of their methodology, and findings; these summaries are each presented as sections of this report. During biweekly meetings, the Executive Committee (further described in Section b) discussed the analysis that was performed and associated findings. Figure 2-1 below depicts the process that was utilized throughout this analysis. Figure 2-1 Project Facilitation Process Consulting Team Analysis Section Write-up of Methodology and Findings Project Team Recommendation Distribute Section Write-up to Stakeholder Team and Executive Committee Comments Received Feasibility Study Page 8 of 113

14 Section b Stakeholders and Executive Committee The Project Team has referenced the City and the District when collectively referred to as Stakeholders. This nomenclature was strategically selected as both the City and the District are equal stakeholders in this process as the outcome of this endeavor, regardless of what that is, will impact both entities. In expediting this process, a smaller group of individuals was identified to represent each entity; this smaller group is referred to as the Executive Committee. The Executive Committee continually reviewed the draft report as prepared by the Project Team, participated in bi-weekly discussions of Project Team analyses, and collectively provided guidance and direction to the Project Team. The Executive Committee consisted of the following team members: City of Georgetown Jim Briggs Micki Rundell Glenn Dishong Chisholm Trail Special Utility District John Hatchel Gordon Pierce Leonard Dougal Feasibility Study Page 9 of 113

15 Section 2.3 Goals and Evaluation Criteria Section Goals Section a Background Through Project Team interviews with representatives of each Stakeholder, it became apparent that one of the primary driving forces behind the need to evaluate regionalization efforts was related to critical water supply and treatment plant capacity limitations of the District. From the District s perspective, capacity limitations have led to two critical circumstances: 1. In peak summer months, the District has been forced to implement stringent watering restrictions. This has led to significant customer dissatisfaction, especially when customers of the neighboring utility (Georgetown), are not subject to the same restrictions. Furthermore, these restrictions also affect the District s revenue recovery as these limitations impact the amount of water consumed by customers (i.e. sold to customers), and hence the District s revenue stream. 2. In addition, as a portion of the area served by the District lies within the City s ETJ, the City has a responsibility to approve site-plans and plats submitted by developers. In performing site-plan and plat reviews, the City evaluates available treatment plant and water supply capacity. Given the District s capacity limitations, the City s ability to approve future plats may be restricted. This will in turn limit the District s ability to grow. As the District s growth is restricted, the District s future revenues are equally restricted, which may influence the District s ability to secure future funding for projects. 3. As the District s commitments to provide water service will soon exceed the District s raw water supplies, landowners who do not currently have written commitments from the District may not ever get such commitments for service. Just as the District is impacted by its inability to grow due to capacity limitations, as a portion of the District is within the City s ETJ, the City s ultimate growth is limited as many of the District s water customers in these areas are also the City s wastewater and electric customers. This also affects the City s long-term economic development, taxing area, as well as future annexation ability. In addition to the circumstances imposed by the District s capacity limitations, both entities have equally, expressed concerns related to fire-flows for specific areas within the District s boundaries. Modeling performed by the District indicates that the District s flows are capable of meeting fire-flow requirements; however, the District does not guarantee fire flows. The lack of guaranteed fire-flow protection to the District s customers not only results in a lower standard of service to these customers, but it also may influence insurance rates to customers. The City is equally concerned with fire-flow measures for specific areas within the District s service territory as the City intends to continue to grow through annexation. Lack of fire-flow protection within these areas may present a barrier to future annexation by the City, as retrofit protection is often costly and impractical. Both Stakeholders expressed interest in pursuing joint infrastructure planning which would achieve mutually beneficial economies of scale. Feasibility Study Page 10 of 113

16 In addition to the items listed above, the City was equally interested in achieving controlled development within specific areas lying within the City s ETJ as well as outlying areas. Such controlled development would facilitate future economic development within the City, the County, as well as the District. Section b Establishment of Project Goals At the on-set of this engagement, the Executive Committee established the following as goals that should be achieved through the end-recommendations 2 : Develop a plan which facilitates efficient growth and economic development in the region; Resolve volumetric capacity limitations of the District in a mutually beneficial cost-effective manner; Provide for fire flow protection within the District, where cost-effective; Pursue joint infrastructure planning and water supply planning as feasible, and mutually beneficial; Establish new water utility service standards for controlled development which facilitate future growth of both Stakeholders; Create protections for customers of each Stakeholder which alleviate cross-subsidization risks; Provide for representation of each Stakeholder, to the greatest extent possible; Provide for future flexibility for annexation and transfer of service area; Ensure that the final recommendation is capable of issuing tax exempt debt in a cost effective manner; Provide for future flexibility for future regional cooperative efforts with other stakeholders; and Continued transparency in operations, management, and governance. Section Evaluation Criteria While the ultimate recommendations, to the greatest extent possible, should achieve the above listed goals, the Executive Committee has established the following criteria to be utilized to evaluate available options: Representation to the greatest extent possible for each Stakeholder; Cost-savings achieved through regional efforts (i.e. cost effectiveness); Quality of service achieved (dependable, sustainable service for customers which includes fire flows); Enhanced growth management; Effective long-term infrastructure and water supply planning; and Risk management. These criteria were expressed by the Stakeholders as the most significant priorities to be addressed. 2 The goals listed are not in any order of priority. Feasibility Study Page 11 of 113

17 Section 2.4 Governance Alternatives Section Introduction As many options exist for regional efforts, it is necessary to narrow the options for evaluation purposes. Two-primary regional governance options have been proposed: a Local Government Corporation and a Public Utility Agency. All analyses performed by the project team evaluate the two proposed strawmen governance structures as well as the current status quo. Section a Status Quo Chisholm Trail Special Utility District was created in 1990 by order of the Texas Natural Resources Conservation Commission (now, the Texas Commission on Environmental Quality, TCEQ ) pursuant to Chapter 65 of the Texas Water Code. The District has a seven-member board of directors that govern, among other things, District policies, capital programs, budgeting, and rate setting. The District s general manager answers directly to the board of directors and is responsible for carrying out day to day operations of the District in accordance with policies and directions set forth by the board of directors. The City of Georgetown is a home rule city, which adopted its first charter in As adopted, the City has a council-manager form of government. Under this form of government, the City Council provides leadership by establishing the City s goals and policies. The City Council appoints a City Manager to achieve the desired end set by the City Council. The manager oversees the day-to-day activities of the City and executes Council established laws and policies. The City Council consists of eight members a mayor, elected at large, and seven council members elected from individual single-member districts. 3 Georgetown Utility Systems (GUS) is a Division of the City of Georgetown. GUS is responsible for the management and operations of the City s electric, water and wastewater systems. GUS has an advisory board that reviews policy, rates, and contracts and makes recommendations related to these issues to the City Council. 4 Recommendations made by the GUS advisory board are subject to ratification by the City council. The GUS advisory board is selected by the City Council. The City Manager reports directly to the City Council, the City s Assistant City Manager reports to the City Manager and serves as a liaison to the GUS advisory board. The City and the District are currently separate and distinct legal entities. While the two have vested interest in a shared water treatment plant, their governance, operations and management are separate and distinct from one another. As a means of evaluating the benefits of proposed governance structures, the two identified alternatives will be measured against the status quo. The governance structure of these entities is illustrated on Figure City of Georgetown website: 4 The GUS advisory board does not make recommendations related to transportation issues. Feasibility Study Page 12 of 113

18 Figure 2-2 Status Quo Governance Structures 5 Chisholm Trail Special Utility District Customers City of Georgetown Citizens Board of Directors City Council GUS Advisory Board General Manager City Manager Asst. City Manager Section b Local Government Corporation The first alternative to be evaluated through this analysis is a Local Government Corporation that would be formed under Chapter 431 of the Texas Transportation Code. A LGC is a corporate entity formed by a municipality or a county to act on behalf of the governmental entity. LGCs are commonly used as a funding mechanism for transportation, water and sewer infrastructure, economic development ventures, and other beneficial projects. Through the creation of a LGC, the municipality has some limitation of exposure from lawsuits and claims brought against the LGC and financial risk to the parent entity (ies) may be limited. Furthermore, as an LGC typically has a separate board of directors, the elected officials of the parent entity (ies) can concentrate on other local issues, allowing the LGC to specifically focus on utility related matters. An LGC allows for autonomy for the overall operations and management of the utility within the LGC. LGCs can be formed jointly between two municipalities or a municipality and a county. Within the LGC framework, either the District may be dissolved in its entirety with the service area subsumed by the LGC in its entirety; or the District may continue to exist and serve a smaller subset of its current service territory, with the balance of the District s service territory being transferred to the LGC. Under this scenario, the City would acquire a portion or all of the District s assets, infrastructure, and CCN territory. The City would form a separate LGC to own, manage, and operate the LGC system. A board of directors for the LGC would be appointed; representation of the customers of the LGC board would be through and by the customers of the LGC system. Specific processes for board appointments, 5 Figure 2-2 illustrates the governance of the two entities and does not present the management and operational organizational structures. These structures will be further evaluated in other sections of this report. Feasibility Study Page 13 of 113

19 LGC authority, and ultimate policy setting would have to be identified and outlined within the LGCs articles of incorporation. It is anticipated that the LGC would fall under the purview of the GUS board and as such, it may be feasible for LGC board members to also serve on the GUS board. Furthermore, in the event an LGC were pursued, the roles of the GUS advisory board may be amended as necessary. This issue would equally need to be addressed and, if deemed appropriate, outlined within the LGCs articles of incorporation. Figure 2-3 provides a draft outline for the governance related to this option. Future sections of this report will address management and operational organizational structures. Additional discussions of the pros and cons of LGCs are outlined later in this report. Figure 2-3 Local Government Corporation Organizational Structure Section c Public Utility Agency The second alternative to be evaluated through this analysis is a Public Utility Agency (PUA) which would be formed to own all or a portion of the utility system assets for one or both Stakeholders. A PUA is authorized under Chapter 572 of the Texas Local Government Code. Specifically Section provides authority to jointly own, operate, finance, and maintain facilitates to: 1. Achieve economies of scale; 2. Promote orderly economic development; and 3. Provide environmentally sound protection of the state s future water and wastewater needs. A PUA is an agency of the participating entities, a PUA is recognized as a political entity and corporate body and a political subdivision of the State of Texas. A PUA may not impose a tax, but has other powers that are related to facilities that are provided by law to a municipality that owns a utility. Current analyses indicate that a PUA may serve as a wholesale service provider, yet under current legislation cannot provide retail service. 6 6 Legislation may be introduced in the 2013 legislative session to address this issue. Feasibility Study Page 14 of 113

20 A PUA would be formed through a concurrent ordinance/resolution of the participating entities. Chapter 572 outlines specific rights, powers and duties of the participating entities. Under this scenario, the District would continue to exist as a separate legal entity. Ownership of all or some of the Stakeholder assets may be transferred to the PUA, as deemed appropriate by the participating entities. The PUA would have a separate board of directors, which would be responsible for the management, operations, and control of the assets belonging to the PUA. All or a portion of the assets may be transferred to the PUA. The participants of a PUA are not limited to municipalities; Districts, municipalities, and counties may be participating entities of a PUA. Additional discussions of the pros and cons of PUAs are outlined later in this report. The general governance structure of a PUA is outlined on Figure 2-4 below. Figure 2-4 Public Utility Agency Organizational Structure Section Additional Available Alternatives While this analysis is primarily focusing on three available alternatives (status quo, LGC and PUA), it must be noted that many alternatives are available. These alternatives include transfer of specific service areas from the District to the City, Investor Owned Utility (IOU) ownership of the District s system, as well as other publically owned governance structures. As appropriate throughout this analysis, discussions related to these alternatives may be presented. Feasibility Study Page 15 of 113

21 Page 3.1. Introduction Raw Water Shared Staffing and Resources Cost Allocation Financing Policies Annexation Policies 28

22 Section 3.1 Introduction As stated in Section of this report, this feasibility analysis is intended, among other things, to the greatest extent possible, determine the new policies that must be in place to accomplish the goals of the Stakeholders. These policies will provide the framework for the remaining analysis and ultimate recommendations as they serve as an underlying current to all other facets of the ultimate recommendations. While many policy decisions must be in place prior to the commencement of any regionalization effort, and such policies will continue to evolve throughout the life span of the regional entity, this section is intended to identify the most significant policies that are currently apparent. The project team has provided a description of the policy issues, and options available for addressing each. The project team has also made recommendations pertaining to these policy issues that, in the Project Team s opinion best meet the goals and evaluation criteria set out by the Executive Committee. It must be noted however, the specific arrangements of how each of these items would work, would have to be negotiated between the Stakeholders. Feasibility Study Page 16 of 113

23 Section 3.2 Raw Water Section Introduction As was described previously in this report, water availability on behalf of the District has been identified as a significant driving force behind the need for this analysis. The District currently has 12,551 acre-feet per year of water reserved; in 2012, the District s current demands are anticipated to be 4,052 acre-feet. The District s commitments to developers for future service indicates the District is currently committed to providing service requiring a total of 10,283 acre feet per year, plus any additional growth needs. The project team is currently aware of three tracts of land for which service has been requested, or is projected to be requested in the near future, which is not included in this figure. Whereas, the City has 37,208 acre-feet of water reserved and current demands of 12,310 acre-feet projected for While the City has secured future water resources to meet the City s future demand projections, it is projected that by 2022, the City s projected water demands would reach only 15,911 acre-feet per year. As the City pays for these supplies on a take-or-pay basis, loaning or sharing the City s raw water supplies currently between the two systems may reduce the overall cost impact to the City, while simultaneously solving some of the District s water availability issues. While this is likely not a long-term solution to the District s raw water availability needs, it is an immediately available solution that could allow the Stakeholders to meet several of the goals identified by the Executive Committee. The goals that may be partially met through a sharing of raw water resources would include, but would not be limited to: 1. Develop a plan which facilitates efficient growth and economic development in the region; 2. Resolve volumetric capacity limitations of the District in mutually beneficial cost-effective manner; and 3. Pursue joint infrastructure planning and water supply planning as feasible, and mutually beneficial. The engineering analysis presented later in this report will more fully evaluate current and future raw water demands on each Stakeholder. However, in order to perform such an analysis and the subsequent cost impact analysis which would be performed, policies relating to raw water sharing must be thoroughly evaluated as such policy directives will necessarily impact the engineering and financial analyses. Due to contractual raw water provisions with the BRA, sharing of raw water resources between the two entities is not an option under the status quo scenario. However, should the two entities elect to pursue regionalization; specific policy issues must be evaluated. Policy direction related to raw water may include, but would not be limited to co-owned or separately reserved resources, quantity of shared resources, and cost sharing of resources. Section Co-Ownership or Separate Reservations First and foremost, it must be determined whether the entities would continue to hold two separate contracts for raw water supplies, or if a joint agreement/joint ownership would be pursued. Factors to be considered with regard to this policy issue are outlined below. Feasibility Study Page 17 of 113

24 Section a Separate Contracts It is the Project Team s understanding that the individual Stakeholders currently have separate agreements for raw water resources. As such, those contracts do not permit sharing of resources with other parties. Continuation of two separate contracts could be maintained for the regionalized utility as a means of ensuring a strict separation of costs. However, as outlined in Table 3-1, it is apparent that separate raw water supply contracts do not meet any of the evaluation criteria outlined by the Executive Committee. Section b Joint Raw Water Supply Contract As an alternative, the Stakeholders may elect to have a single raw water supply contract that would facilitate the sharing of the resources by both entities. In this scenario, raw water would belong to the regional entity and would be shared between the Stakeholders based on agreed upon terms. Assuming the Stakeholders can come to mutually acceptable terms surrounding the sharing of those supplies, as can be seen on Table 3-1; a joint raw water supply contract meets the evaluation criteria outlined by the Executive Committee. Table 3-1 Summary of Raw Water Supply Sharing Alternatives Separate Raw Water Contracts Joint Raw Water Agreement Representation n/a n/a Cost-Savings no yes Quality of Service no yes Growth Management no yes Infrastructure and Water Supply Planning no yes Risk Management n/a n/a Project Team Recommendation: First, and foremost, the Project Team believes that sharing of raw water resources is necessary in the near-to mid-term future as it is a means of resolving the significant driving force leading to the need for this analysis and is one of the benefits of entering into a regionalization agreement. Significant barriers exist which prevent the District from securing additional raw water resources immediately, including the current lack of availability of raw water from BRA, firm versus interruptible water, location of raw water, and the cost of the raw water. The Project Team recognizes that one of the most immediately realized benefits of a regionalized effort is the sharing of raw water resources. As such, the Project Team recommends sharing of raw water resources; this keeps the pressure off the District in the immediate future to develop raw water supplies in a hostile marketplace, and facilitates growth within the District s service territory while providing much needed time to establish new raw water resources. The Project Team proposes that raw water contracted through a raw water supplier, in this case the BRA, to the regional service provided (either the City, acting on behalf of the GUS and the LGC systems, or the PUA). Subsequently, it would be contracted via internal agreements/contracts to the two separate CCNs service territories. The proposed contractual relationships are illustrated on the figure below. The single contract with BRA for the totality of the raw water avoids the cumbersome BRA process for the release of raw water each time raw water supplies are to be borrowed from one entity to the other. While at the same time, the internal raw water agreements segregating the raw water ownership between the two separate CCN s allows for long-term ownership guarantees of the raw water between entities. Feasibility Study Page 18 of 113

25 Figure 3-1 Section Quantity of Shared Resources If the Stakeholders determine that it is mutually beneficial to share raw water resources through a joint raw water supply contract, the extent to which that resource is shared must next be identified. Options include, unlimited sharing, specific volume limitations, and limitations based on growth and demand of the City. Section a Unlimited Sharing Conceptually, this alternative means that the joint raw water belongs to the regionalized system as a whole with no differentiation between the City s system and the District s system. If, or when, it becomes time to pursue new raw water resources, that obligation/liability is put upon both Stakeholders. While this alternative may solve short-term challenges of the District, in the long-term, this option would not present cost-savings to the City since the City has already secured its long-term raw water supplies. Further, this option would not facilitate growth for the City as it could result in limitations of growth due to availability of water. Furthermore, the Executive Committee s goal of alleviating cross-subsidization across customer groups would not be met. Section b Specific Volume Limitations One possible means of limiting the shared raw water resources would be a specific volumetric limitation. This limitation could be based on projected demands and might provide an up-to amount for a defined period into the future. This is a clearly defined and easy to under-stand approach that could be specifically outlined. However, a significant risk of this approach is the inherent inaccuracies of future demand projections that could leave both Stakeholders at risk for their abilities to meet future demands. Section c Limitations Based on District s Demand The final alternative is to define the quantity of shared water that would be available to the District from the City based upon the City s growth and demands. Essentially, the agreement would identify that the City s shared water resources would be available to the District, to include the City s available excess capacity with no obligation beyond the available excess raw water capacity. Feasibility Study Page 19 of 113

26 This option may be more complicated to outline in a contract, but would provide the District with shared resources for as long as they are available, while allowing the City to meet its growth demands and obligations. Table 3-2 outlines these alternatives and their ability to meet the Evaluation Criteria outlined by the Executive Committee. Table 3-2 Summary of Raw Water Quantity of Shared Resources Alternatives Unlimited Shared Resources Volumetric Limitation Limitation Based on City Demands Representation n/a n/a n/a Cost-Savings n/a n/a n/a Quality of Service No No Yes Growth Management No Yes Yes Infrastructure and Water Supply Planning Yes Yes Yes Risk Management No No Yes Project Team Recommendation: The Project Team recognizes that sharing raw water resources prolongs the need to immediately search for additional supply; however, the Project Team also recognizes that unlimited sharing of resources increases the risk to the City to an intolerable level. As a result, the Project Team recommends that specific conditions and timing associated with raw water sharing be identified and outlined during contract negotiations. Section Cost-Sharing of Shared Resources If the Stakeholders determine that it is mutually beneficial to share raw water resources through a joint raw water supply contract and the Stakeholders have determined a means of identifying the volume of the shared water that would be available to the District then; the next area that must be determined is a means of sharing the cost for that shared resource between the Stakeholders. The project team has outlined three cost-sharing alternatives, including a take-or-pay price based on a reserved amount for the District, a fee for the raw water used only, and an inflated fee for the raw water used. An Evaluation Criteria matrix has not been presented for cost sharing of raw water resources as it is anticipated that each alternative would have the same impacts on the cost-sharing matrix. Section a Take-or Pay Price Fundamentally, this option entails a loan of the City s reserved raw water, and the associated take-orpay fees to the District for a specified period of time. This would ultimately transfer the cost of the City s take-or-pay water from the City to the District for a period of time. This alternative covers the City s otherwise stranded fixed costs for a specified period and places that cost burden on the District. As a whole, the duplicative costs of additional resources may be saved during the interim shared water period. However, from the District s perspective, this alternative does not differ substantially from the District pursuing their own water resources today. Feasibility Study Page 20 of 113

27 Section b Fee for Raw Water Used The second alternative for cost sharing would entail the District reimbursing the City for the City s raw water based on the volume of water used at the City s volumetric cost for that water. This alternative would allow the City to limit their stranded fixed costs to the amount of water that is not used by either entity. Section c Inflated Fee for Raw Water Used This final option would recognize a return to the City in exchange for the City s risks associated with securing those raw water resources. The volumetric fee would be set at an amount above the City s cost for use plus an identified return component in recognition of the City s risks and long-term costs associated with that water. This fee would be below the effective fee due to the take-or-pay nature of the City s raw water contract, but would be higher than the fee for raw water described in Section b. Project Team Recommendation: As the Project Team has tied raw water sharing to10-year projected growth, fundamentally, shared raw water resources are essentially for contractual purposes, allowing the District to make additional commitments for the future development and facilitating growth; the District would be required to obtain its own raw water supplies well before raw water to meet actual demands is necessary. The Project Team recommends that the specific means in which costs for shared raw water are outlined during contract negotiations. Feasibility Study Page 21 of 113

28 Section 3.3 Shared Staffing and Resources Section Introduction A fundamental issue that must be determined in evaluating regionalization is the degree to which resources are shared, if any; this issue applies to management, administrative staff, operational staffing, as well as shared equipment. To some extent, depending on governance and public policy surrounding such, through a regionalized effort, duplicative services such as legal, auditing, budgeting, and management can be dramatically reduced through consolidation. Furthermore, the Stakeholders can share resources such as tools and equipment. This is a fundamental principle surrounding a preference towards regionalization. However, the degree to which cost savings can be achieved largely depends upon the policies surrounding shared resources. Issues to consider in determining if, how, and when to share resources between the systems includes: general management, legal, financial, operational staffing as well as shared tools and equipment. A specific goal of the Executive Committee is that there are protections for customers of each Stakeholder that alleviate cross-subsidization risks, which may be created through this process. Furthermore, while not listed as a goal of the project, the Executive Committee did list cost-savings achieved through regionalization as evaluation criteria to be considered. Section Areas to Consider The Stakeholders must determine if, how, and when resources are to be shared. Autonomous resources or consolidated resources are options available for evaluation. It may be determined that one philosophy, such as consolidated resources, may apply to one category of staffing, such as general management; while another philosophy such as autonomous resources may be appropriate for another category of staffing, such as distribution system operations. The degree to which resources are to be shared should be determined for each area of the organization, including, but not limited to: General Management Finance Legal Human Resources Plant Operations Distribution System Operations Meter Reading Customer Service Billing Vehicles Equipment Shop Tools Inventory Section a Autonomous Resources Autonomous resources in which there are dedicated resources in place to manage, operate, and maintain each of the systems is the easiest way to limit cross-subsidization risks. The associated expenses of the dedicated resources would be assigned to the individual systems and would not be shared among them. However, in this instance, the potential economies of scale that may be realized through regionalization may be limited as a result. Feasibility Study Page 22 of 113

29 Section b Consolidated Resources Consolidated resources that are shared between the systems maximize the economies of scale, and resultant operational cost savings that may be realized through regionalization. This option may increase risks of cross-subsidization. However, it must be noted that these risks may be largely mitigated through agreed upon cost-allocation policies and processes. Furthermore, it can be argued that through consolidation of resources joint infrastructure planning can also be achieved. Figure 3-3 summarizes these options based on the Evaluation Criteria established by the Executive Committee. Figure 3-3 Summary Shared Resources Alternatives Autonomous Staffing Consolidated Staffing Representation n/a n/a Cost-Savings No Yes Quality of Service n/a n/a Growth Management n/a n/a Infrastructure and Water Supply Planning No Yes Risk Management n/a n/a Project Team Recommendation: As consolidation of operations maximizes cost savings, the Project Team recommends consolidation of operations to the maximum extent possible. However, the specific means in which this is accomplished should be negotiated between the Stakeholders. Feasibility Study Page 23 of 113

30 Section 3.4 Cost Allocation Section Introduction If the Stakeholders determine that sharing of resources is appropriate, the next policy issue to be addressed is a means of allocating costs between the two systems. Any time two or more systems share resources, specific policy decisions must be made as to whether, and how to allocate costs of shared resources among the systems. One of the goals set forth by the Executive Committee was to create protections for customers of each Stakeholder which alleviate cross-subsidization risks ; this policy issue is of particular importance in evaluating this project. Identification of effective means to allocate costs, and alleviate cross-subsidizations should provide assurances to consumers that this goal is being met and fully considered through this endeavor. While many options for cost allocation are available, the Project Team has presented four options for consideration by the Executive Committee: operations contract, work-order system, departmental budgeting, and cost allocation methodology. An Evaluation Criteria matrix has not been presented, as the manner in which the costs are allocated to the entities will not influence the matrix as much as the specific costs that are shared. Section a Operations Contract The first option available for consideration is the utilization of an operations contract between the City and the District. Said contract could be similar to other operations contracts whereby the City would serve as a contract operator for the District s system. Typically, there would be a base-fee for basic operational services as well as a per customer fee for billing and meter reading services; non-standard repairs and maintenance activities would be billed on a time and expense basis. The contract could build in inflationary assumptions and other terms and conditions to protect both parties. This approach would provide the simplest and most predictable means of sharing costs. However, the City may be exposed to more risk associated with this approach, and the City would need to have personnel available for repair services, which is less predictable and may as a result be subject to bearing costs for non-billable time of its employees. Means of alleviating this risk on behalf of the City would be to have the repairs and maintenance costs be set at an amount above cost to cover the City s risk associated with this circumstance. Section b Work-Order System The second alternative for consideration would be a work-order system in which hours spent by employees are tracked via timesheets and a work-order system. Employee time would ultimately be charged to either the City s system or the District s system. The costs would be booked within the individual systems on a monthly basis. Time spent working on shared assets as well as idle time of employees would be allocated based on an agreed upon allocation methodology. In general, direct charging labor to projects is the most accurate means of alleviating risks of crosssubsidization. However, it must be recognized that there is an administrative cost to this degree of accuracy. First, a work-order/time-tracking system must be purchased to facilitate this process. Secondly, a mechanism for employees to record their time must be implemented. Additionally, a mechanism for Feasibility Study Page 24 of 113

31 recording costs between entities leads to additional bookkeeping requirements. Such tracking is also subject to the accuracy of reporting by employees. This methodology of cost sharing does effect the predictability of costs among the entities from one year to the next. Finally, the entities must determine a means of sharing costs for time spent on mutual projects that include the administration and management of the shared entity. Section c Departmental Budgeting The third option available for allocating costs for shared services would be similar to departmental budgeting of a city where certain staff and employees time are budgeted to the City s system and others to the District s system. Conceptually, specific employees would be budgeted to a specific system and would mostly work on that system. Assumptions would be made to allocate costs between the systems for employees whose time is spent on both systems (specifically management and overhead related costs). Specific allocation assumptions (such as allocations based on number of employees, number of connections, etc) could be outlined for shared staff. Annual reviews of budgeted items would be conducted to determine whether the employees are working within the budgeted system and the costs are budgeted between systems appropriately. This is by far the easiest and most efficient means of sharing costs between the systems. However, the concept in which employees are dedicated to one system versus the other may partially influence the potential efficiencies of sharing resources between systems. Section d Cost Allocation The final alternative for discussion would be allocations through regular performance of cost allocation studies where costs are allocated to systems based upon set, pre-determined allocation criteria. Examples of allocation criteria include; miles of main, number of connections, accounts payable transactions, budgeted costs, number of employees, etc. Criteria could be specifically and contractually identified and available to the public in the event of a question. Cost allocations could be conducted monthly, quarterly, or annually. Spreadsheet models could be created to facilitate the process and minimize the administrative burden associated with this methodology. Furthermore, this methodology could be combined with any of the above alternatives as appropriate. Project Team Recommendation: The Project Team recommends that a clear and specific cost sharing methodology be defined in the initial agreements between the City and the District that would serve as a fundamental framework to be utilized going forward. The cost sharing methodology may consist of a hybrid between departmental budgeting and a specific cost allocation methodology, whereas annual budgets are set using an allocation methodology and costs assigned per the budget. The specific means of cost sharing would be negotiated by the Stakeholders. Feasibility Study Page 25 of 113

32 Section 3.5 Financing Policies Section Introduction Project funding and financing mechanisms available through a regionalization effort may be largely dependent upon the ultimate governance recommendations. However, financing policies related to debt issuance alternatives can be evaluated at the on-set of the project and further refined once governance recommendations are made. Section Debt Issuance Alternatives The Stakeholders must determine policy guidelines surrounding the issuance of future debt service and if separate debt issuance for each system is desired or consolidated issuance would be more appropriate. Section a Consolidated Issuance A fundamental policy regarding whether debt is issued on a consolidated basis or on a system specific basis must be determined, if possible depending on governance. It must be noted that even though the actual debt issuance may have been consolidated, internal bookkeeping mechanisms may be in place to track debt service for each system individually. The primary benefit of consolidated debt issuance is that it assists in meeting the following goals established by the Executive Committee: Develop a plan that facilitates efficient growth and economic development in the region; Create protections for customers of each Stakeholder that alleviates cross-subsidization risks 7 ; and Provide for future flexibility for annexation and transfer of the service area. In the event the City determines that it is appropriate to annex areas from the District s service area into the City and absorb those customers into the City s customer base, debt defeasance is not an issue. Internal bookkeeping can accommodate the transfer of the debt from one system to another. It must be noted that consolidated debt issuance does increase risks of cross-subsidization among the Stakeholders. Specific policies and procedures must be in place in order to mitigate these risks. This alternative does however tie both entities together which increases risk. Section b System Specific Debt The issuance of system specific debt is the best means of achieving the Executive Committee s goal of alleviating cross-subsidization. However, the issuance of system specific debt, neither assists in facilitation of efficient growth and economic development in the region, nor provides for future flexibility of annexation and transfer of the service area. In the long run, system specific debt may prove to be less cost-effective, due to the potential defeasance costs and re-issuance costs that would be associated with moving system assets/service area from one system to another as annexation occurs. This alternative may decrease risks of the Stakeholders, depending on governance. The ability of these options to meet the Executive Committee s evaluation criteria is outlined in Figure The goal can be met is internal bookkeeping is kept which appropriately assigns debt to the individual systems. Feasibility Study Page 26 of 113

33 Figure 3-4 Summary Debt Issuance Alternatives Individual Issuance Consolidated Issuance Representation n/a n/a Cost-Savings No Yes Quality of Service n/a n/a Growth Management No Yes Infrastructure and Water Supply Planning No Yes Risk Management Yes No Project Team Recommendation: As consolidated debt issuance results in the greatest cost savings, and facilitates growth management and joint infrastructure and water supply planning; the Project Team recommends consolidated debt issuance where possible. Feasibility Study Page 27 of 113

34 Section 3.6 Annexation Policies Section Introduction The Executive Committee defined the following items as goals for the final recommendations of this endeavor: Develop a plan that facilitates efficient growth and economic development in the region; and Provide for future flexibility for annexation and transfer of service area. In facilitating these goals, annexation policies must be determined. While this project cannot determine if, how, and when the City would annex specific areas into the City, it may be necessary to outline policies and processes related to the resultant impact that annexation would have on the service areas of the City and the District. Currently, it is clear which areas are served by the City s system and which areas are served by the District s system. However, if the City annexes in the future, it must be determined which system would serve the annexed area? Options available for the determination of this include the annexed area would immediately be served by the City (i.e. the City limits or ETJ would define the City s service area), or service by the City versus the District would be more flexible. Section a Immediate Service by the City This scenario assumes that the City would begin service of the annexed area immediately upon annexation, depending on financing logistics. While the City would still be able to annex the area, the flexibility of determining when to provide service through the City s system would be limited; as such, this alternative limits growth management as it creates a barrier to annexation. Section b Flexible Service by the City Using this alternative, the CCN boundaries of the systems would be used as a designation of service area. As such, the CCN transfer and service by the City could be at any point in time before or after the annexation of the specific service area. This alternative would allow for maximum flexibility and would not create a barrier to growth. Figure 3-5 Summaries these alternatives and their ability to meet the evaluation criteria outlined by the Executive Committee. Figure 3-5: Summary of Options for Service to Annexed Areas Immediate Service Flexible Service Representation n/a n/a Cost-Savings n/a n/a Quality of Service No Yes Growth Management No Yes Infrastructure and Water Supply Planning n/a n/a Risk Management n/a n/a Feasibility Study Page 28 of 113

35 Project Team Recommendation: One means where a specific goal outlined by the Executive Committee could be achieved; is to have the service area transfer from one system to the other when the CCN is transferred, if agreed upon by both entities. The CCN service area may be transferred before, after, or upon annexation by the City. The CCN would designate which system, and ensuing rates, will serve each customer. If agreed upon, the District s service area would be transferred when the customer base more closely resembles the City s system. However, explicit details of how and when annexations would occur should be negotiated. Feasibility Study Page 29 of 113

36 Page 4.1 Introduction Management/Operating Structures Further Analysis Evaluation Criteria 40

37 Section 4.1 Introduction Considerable discussion has ensued concerning the available possibilities for an effective and mutually beneficial governance/management structure. Three options have been proposed and will be evaluated during this process. The first option maintains the current status quo of the two entities, keeping them both completely separate and autonomous in their respective ownership and operations. The second entails the creation of a Local Government Corporation, whereby CTSUD would be dissolved, and the City of Georgetown would effectively take over ownership of the assets, liabilities, operation, and service territory of CTSUD. Meanwhile, maintaining the financial integrity of the separate systems ensuring no cross subsidization. Finally, the third alternative would be to create a Public Utility Agency (PUA) combining some of the assets of both entities but effectively leaving the separate system operations intact. The PUA would have a separate board of directors, which would be responsible for the management, operations, and control of the assets belonging to the PUA. The second and third options will be evaluated relative to the first, or status quo which is the existing management structures of the City of Georgetown and CTSUD. The three proposed alternative management / operating structures must also be evaluated relative to the goals established by the Stakeholder Groups. Webster s Dictionary defines management as The act of getting people together to accomplish desired goals and objectives using available resources efficiently and effectively. Management comprises planning, organizing, staffing, directing and controlling an organization or effort for accomplishing a goal. The final decision regarding a management structure must provide the framework for achieving the goals and objectives of this effort. Feasibility Study Page 30 of 113

38 Section 4.2 Management / Operating Structures There are aspects to each of the proposed governance structures that can contribute to efficient management and operations. In this section, we will attempt to explore the characteristics of each structure, identify any associated cost savings/increases, and determine the cost/benefit of each of the respective regionalization strategies. Additionally, the management structures are critical in meeting several of the goals established by the Executive Committee at the inception of this process. Expected goals to be met through the development of a suitable management structure include: 1. Pursue joint infrastructure and water supply planning as feasible, and mutually beneficial; 2. Establish new water utility service standards that influence development which facilitates future growth of both Stakeholders; and 3. Continued transparency in operations, management, and governance. In addition to the goals listed here, the proper management structure will help ensure other goals are realized as well. Section Status Quo As stated previously, the City and District are separate and distinct entities. The District does contribute to a portion of the debt service related to the surface water treatment plant; however, the City operates and maintains the facility. Beyond this cooperative effort, the City and the District are governed and managed independently. This type of cooperative relationship is common, and in fact, is reflected in many areas across the State and the country where public entities have shared interests. As the basis for our analysis, we will analyze the current operating costs specific to the District as they are affected by each potential management structure. The City s operating costs should remain relatively constant regardless of the management structure; therefore, the City s operating costs will be evaluated in more detail in later sections of this report. Figure 4-1 below illustrates the current governance/management structure for the City. Figures 4-2 and 4-3 illustrate the current governance/management structure and the associated operating costs for the water service operations of the District, respectively. Feasibility Study Page 31 of 113

39 Figure 4-1 City of Georgetown Governance/Management Structure Figure 4-2 Chisholm Trail SUD Governance/Management Structure Feasibility Study Page 32 of 113

40 Figure 4-3 Chisholm Trail SUD Current Budgeted Water Utility Operating Costs DESCRIPTION AMOUNT Salaries / Benefits $ 1,077,901 Vehicles / Equipment $ 95,830 Operating Expense $ 1,327,535 Administrative / Professional $ 346,466 TOTAL $ 2,947,732 As illustrated above, the current management structures are essentially the same and represent a typical structure for utility operations. There are minor differences but each governs and manages quite effectively as an independent, autonomous public entity. As discussed throughout this report, cost savings may not be the primary goal, but it is an important aspect of regionalization. Therefore, careful analysis of the cost/benefit of each proposed options is required. In the next section, we will look at the governance/management structure for each proposed options and evaluate the cost/benefit of each. Section Regional Management Local Government Corporation For the purposes of this section, Regional Management refers to having a single management structure over all of the combined water utility operations. In other words, the services for both the City and the District would be consolidated under a single management structure. As previously stated in section two of this report, under this management structure the District would ultimately be dissolved and all of the assets, liabilities, and CCN, would become the property of the city of Georgetown. A Local Government Corporation (LGC) would be created by the City to own, manage, and operate the utility system. A board of directors would be appointed to oversee the LGC and provide representation of the rural customers. Under this scenario, the City would effectively operate the two systems as one in order to realize cost savings through utilization of shared resources. However, an important goal of both stakeholder groups is to not cross subsidize between the systems; therefore, for accounting purposes, the systems would remain separated as an urban and rural operation. Even though, in an effort to decrease or control costs through shared resources, cross subsidization can occur. Consequently, as noted earlier, agreed upon cost-allocation policies and processes should be determined and put in place at the introduction. Under this management structure there would likely be a reduction in the labor force, primarily associated with the duplication in management and administrative staff that could be eliminated resulting in reduced costs for the system has a whole. Examples of potential costs savings are derived from the elimination of duplicate services such as finance, legal and engineering. It does appear that, at least initially, the number of field staff that the District currently has would continue to be necessary to maintain effective operations of the rural facilities. Figure 4-4 below illustrates the regional management concept. Feasibility Study Page 33 of 113

41 Figure 4-4: Regional Management A substantial amount of the cost savings realized by consolidation is generally due to a reduction in personnel. The District currently has 19 budgeted positions however, if the systems were consolidated under one management structure, at least five positions would no longer be needed. It is anticipated, that while the general manager position would not be considered necessary, the field manager position is significant to the operation, as is the remaining field personnel. Therefore, the reduction in costs shown is what might eventually be expected through this consolidation. However, it should be emphasized that should the Stakeholders proceed with regionalization, the action would not result in an immediate loss of jobs to five of the District s employees. It is recommended that if the Stakeholders proceed with regionalization, the District refrain from filling any vacancies until the transition of operations has occurred. Furthermore, as stated earlier in this report, it is anticipated that remaining positions that would be alleviated would not result in immediate lay-offs for at least one year following the operational transfer. If a regional management structure is pursued, the resultant impact would not be an assumed alleviation of District personnel; any lay-offs following one year after the operational transfer would be based upon merit and qualifications of all employees both those of the City s and the District s former employees. Finally, it must also be noted that if an LGC model were utilized whereby the District s employee become City employees, District employees would be exposed to enhanced opportunities of employment through other City Departments. In addition, expected growth in both systems could dictate that in order to effectively meet the increased workload, all existing staff from both utilities may ultimately be needed. The cost savings identified above that are included in this table are based on fully loaded salaries and budgeted overtime. Other significant cost savings that can be realized through this regional management structure include a reduction in administrative and professional costs due primarily to the elimination of legal and engineering services. However, other duplicated fees and programs could also be eliminated Feasibility Study Page 34 of 113

42 resulting in additional savings. Other duplicated operating expenses that could be eliminated with regionalization include, among others, leak detection, GIS, and inspections. These result in significant cost savings while not affecting service levels. In addition, a small savings can be realized through more efficient use of vehicles and equipment in a regionalized system. Any services eliminated as a result of consolidation will be provided by the City and it is estimated that the reduction in the annual cost to operate the District is approximately $900, This is reflected in the table in Figure 4-5 below. It appears that this management / operating structure does meet the majority of the evaluation criteria outlined by the Executive Committee. Figure 4-5 Chisholm Trail SUD Current Operating Budget vs. Regional Management Current Operating Budget Regional Management Cost Savings Salaries / Benefits $ 1,077,901 $ 736,480 $ 341,421 Vehicles / Equipment $ 195,830 $ 188,930 $ 6,900 Operations Expense $ 1,327,535 $ 1,067,720 $ 259,815 Administrative/Professional $ 346,466 $ 37,607 $ 308,859 TOTAL $ 2,947,732 $ 2,030,737 $ 916,995 8 This analysis presents potential cost savings associated with the alleviation of duplicative positions and expenses if regionalization were to occur. While this analysis utilizes the District s operating costs as a basis for recommendations for removal of positions; the alleviated positions would be positions alleviated in totality between the two systems. Shared costs of the two systems would be appropriately allocated. As such, the cost savings presented would be shared equitably between the two entities because of an agreed upon cost allocation methodology. Feasibility Study Page 35 of 113

43 Section Sub-Regional Management Public Utility Agency A different governance structure to the LGC is the creation of a Public Utility Agency (PUA). In this alternative, the District would remain intact under this sub-regional management model. We are referring to the management structures possible under the PUA as sub-regional management, which in this case refers to a management structure that would entail some regional management for shared services, but also individual management for non-shared services allowing both systems to remain completely autonomous. In addition, it is possible under this scenario to maintain the autonomy of each entity while taking advantage of some economies of scale through shared resources via an operating contract. Additional discussion of this issue is provided later in the report. In this case, the PUA board would be established with equal representation from both the City and the District to oversee the existing operations. However, there would be regional management for shared services that would include joint assets, plant operations, raw water, and finance. Other shared services could be included as well. Moreover, while the existing and separate GUS and District operations would fall under the direction of the PUA, they would remain assets owned by the respective entities. This management structure under the PUA can provide an opportunity for orderly growth by the city by promoting policies today that support the interests of both entities working together. However, this approach does appear to insert an additional layer of management and/or bureaucracy that may not be in line with the stated goals. Figure 4.6 below shows the first of the sub-regional management structures under the direction of the PUA. As indicated, while there can be some advantages to this option, especially in future development issues, it appears that it could be somewhat cumbersome to manage and might add cost to both entities. Further analysis of this option will be necessary to fully understand the cost impacts. Figure 4-7 below shows the cost allocations associated with this scenario, and as shown there does not appear to be any real cost savings with this option. Figure 4-6 Sub-Regional Management (Scenario 1) Feasibility Study Page 36 of 113

44 Figure 4-7 Sub-Regional Management (Scenario 1) Cost Allocations POSITION Current Operating Budget Sub-Regional Management (Scenario 1) Salaries / Benefits $ 1,077,901 $ 1,077,901 Vehicles / Equipment $ 195,830 $ 195,830 Operations Expense $ 1,327,535 $ 1,327,535 Administrative/Professional $ 346,466 $ 346,466 TOTAL $ 2,947,732 $ 2,947,732 An additional option would be to explore creating a management structure under the PUA that could possibly take advantage of some of the economies of scale recognized by the LGC model. However, it does still require the establishment of an additional governing body and layer of management. The structure is essentially the same in that the PUA would be the governing body overseeing the operations of both the GUS and District utility operations. However, in this case, rather than the entities providing separate services, the District would enter into an operating contract with GUS to manage and operate the District system. This scenario would allow the entities to remain autonomous while taking advantage of a shared approach to operations. This scenario is detailed in Figure 4-8 below. The governance and management structure stay the same as in sub-management scenario 1; the difference is however, that the District would contract with the City to manage its utility operations. While this option does not involve the dissolution of the District, nor do any of the Districts assets transfer to the City, there could possibly be some savings realized under this option. While Figure 4-7 above does not show a cost change from the current operation, it must be noted, that there would likely be additional costs under this scenario, similar to any contract operation, as well as increased costs associated with creating an additional layer of management. These additional costs would be passed on to the District and City customers. It is a little more difficult to estimate those costs at this level however; Figure 4-9 provides an estimate of cost savings to the District operation under this sub-management option. Those savings are derived primarily from a reduction in salaries and the elimination of some duplicated services resulting in a decrease in operating costs as well as some administrative and professional fees. Figure 4-8 Sub-Regional Management (Scenario 2) Feasibility Study Page 37 of 113

45 Figure 4-9 Sub-Regional Management (Scenario 2) Cost Allocations Current Operating Budget Sub-Regional Management (Scenario 2) Cost Savings Salaries / Benefits $ 1,077,901 $ 736,480 $ 341,421 Vehicles / Equipment $ 195,830 $ 195,830 $ 0 Operations Expense $ 1,327,535 $ 1,223,117 $ 104,418 Administrative/Professional $ 346,466 $ 293,945 $ 52,521 TOTAL $2,947,732 $ 2,449,372 $ 498,360 Feasibility Study Page 38 of 113

46 Section 4.3 Further Analysis Section While this section focused on three basic management structure alternatives (status quo, regional and subregional), it must be noted that there are very possibly many alternatives available. However, the alternatives reviewed appear to be the most likely scenarios within the proposed governance alternatives to achieve the stated goals. While it is relatively easy to identify some basic cost savings, it will require much more in-depth analysis to fully understand the intricacies of the cost sharing options as well as the impacts of cost decreases or increases on the customer base. How these cost savings would ultimately be allocated between the two entities will be up to the governing bodies of the District and the City to determine. Feasibility Study Page 39 of 113

47 Section 4.4 Evaluation Criteria Previous sections of this report outlined specific evaluation criteria established by the Executive Committee at the commencement of this engagement. The Committee identified the criterion that would be utilized as measuring sticks to evaluate the ability of the alternative options to meet the goals and directives of the Stakeholders. The criterions identified are: 1. Representation to the greatest extent possible for each Stakeholder; 2. Cost-savings achieved through regional efforts (i.e. cost effectiveness); 3. Quality of service achieved (i.e. fire flows); 4. Enhanced growth management; 5. Effective long-term infrastructure and water supply planning; and 6. Risk management. Figure 4-10below summarizes the ability of each of the management structures to meet the evaluation criteria established as compared to the status quo. Figure 4-10: Summary of Management Structures and Evaluation Criteria Evaluation Criteria Regional Management Sub-Regional Management Scenario 1 Scenario 2 Representation N/A N/A N/A Voting N/A N/A N/A TCEQ Appellate Jurisdiction N/A N/A N/A Cost-Savings $916,995 $498,360 Same Annually Annually Quality of Service Enhanced Same Enhanced Growth Management Enhanced Enhanced Enhanced Infrastructure and Water Supply Planning Enhanced Enhanced Enhanced Risk Management Same Same Same Feasibility Study Page 40 of 113

48

49 Section Introduction An integral part of determining the feasibility of combining the City and the District water systems is the impact this combination would have on the supply, treatment, storage, pumping and distribution systems of each entity. It is also necessary to determine the condition of the District s assets to allow the City to determine if additional costs will be incurred upon combining the systems. Furthermore, it is necessary to determine if there are benefits from the combination of the systems that would produce savings in the system s CIP or non-labor operating costs. The Engineering Assessment and Future CIP section will address these issues. Feasibility Study Page 41 of 113

50 Section 5.2 Population Projections To determine if adequate water supply, treatment, storage, pumping, and distribution system capacity are available for current and future customers, population projections for both the City and the District are necessary. Data used for preparing the population projections included the 2010 US Census, the City of Georgetown Water Master Plan prepared for the City by CDM Smith (December 2008), the 2011 Region G Water Plan, the Pressure Reduction Plan prepared for the District by Bury + Partners (May 2011) and the Related Studies Report prepared for the District by Halff Assoc. and Bury + Partners (February 2012). Population data and projections collected from these sources for the District were plotted on a graph and presented to the Executive Committee for review. The population graph for the District is shown as Figure 5-1. In addition to the population projections from the two reports prepared for the District, CDM Smith also prepared two population projections for this study that are shown on Figure 5-1. The first projection used an arithmetic population growth model by adding 300 connections to the District per year. The estimated people per connection for the District are 3.21 based on data provided in the May 2011 Bury + Partners report. The second projection used a geometric population growth model by using a per annum growth rate of 4 percent. Both the connections per year and the per annum growth rate were based on historical connection data provided by the District. Figure 5-1 also shows the population projection used in the District s 2008 Impact Fee Study as purple dots. This population projection was dismissed by the Consulting Team and Executive Committee as being too aggressive. It was determined that the City would use the population projections from its master plan and that the District would use the population projections from the Region G Water Plan. The population projections by decade for the City and the District are shown in Table 5-1. Table 5-1 Population Projections by Decade Section Commitments Year District City ,668 52, ,074 70, ,218 94, , , , , , , , ,398 In addition to existing population and existing meters, the City and the District each have made commitments to serve future developments or subdivisions. Some of these commitments are in the form of a contract or development agreement in which there is an executed agreement and funds have been paid to the system by the developer. Other commitments are on the books but there is not a formal agreement and funds have not been exchanged. We relied on the systems to provide us with the number of commitments they believe are firm and must be considered in the development of future raw water supplies and future treated water capacity. The commitments received from the District are presented in Table 5-2 and the commitments received from the City are presented in Table 5-3. Feasibility Study Page 42 of 113

51 Figure 5-1 Population Projections Considered for the District Feasibility Study Page 43 of 113

52 Table 5-2 District Commitments Development Name Contracted LUEs in Service Committed LUEs Remaining LUEs Contracted Total LUEs (Active and Potential) District Active LUEs 6, West Hwy Beltorre Subdivision Cierra Springs Ranch Cierra Vista Cimmarron Hills (LUE for 3/4 meters) 148 1, Estancia Estates of Westlake Foster Tract Commercial-MUD Gabriel's Grove Gabriel's Overlook Section Five Hidden Meadows of Florence Highland Meadows Hines Ranches Legacy at Georgetown Middlebrook (MUD 19) Mission Oaks Oaks at San Gabriel Quarry Lake Rancheo Sienna 27 1,584 1,557 1,557 Ranches at Florences Santa Rita (MUD 19) 0 2,858 2,858 2,858 Shadow Canyon 0 1,100 1,100 1,100 Shady Oaks Stonewall Ranch 175 1, Summerlyn (MUD 13) 656 1, The Vineyard of Florence Walnut Springs Westlake of the Woods Westridge Woodland Park Woodland Park West Woods of Fountainwood District Commitments-Total 1,899 12,840 10,941 17,874 Total Population 6,096 41,216 35,121 57,376 Feasibility Study Page 44 of 113

53 Table 5-3 City Commitments Development Name Contracted LUEs in Service Committed LUEs Remaining LUEs Contracted Total LUEs (Active and Potential) City Active LUEs 22,000 Sun City 6,400 7,500 1,100 1,100 Georgetown Village 688 3,273 2,585 2,585 Terra Vista 114 1,225 1,111 1,111 Water Oak 0 5,200 5,200 5,200 Parkside MUD 307 1, Highlands MUD Cowan Springs 0 5,500 5,500 5,500 La Conterra Pinnacle Heritage Oaks City Commitments-Total 8,069 26,195 18,126 40,126 Total Population 20,173 65,488 45, ,315 Feasibility Study Page 45 of 113

54 Section 5.3 Water Demand Projections In order to estimate annual demands on the raw water supply and max day demands on the treated water system, it is necessary to characterize the water demands of the City and the District. The water demand characteristics were determined by analyzing historical water data provided by the City and the District. From the data provided, the water demand characteristics shown in Table 5-4 were determined. Table 5-4 Raw Water Demands City District Average per Capita Usage Peak Year per Capita Usage Design per Capita Usage Conservation per Capita Usage Max Day Factor Because water systems must be able to deliver water during all weather events, the design per capita usage was used to determine the raw water supply needed for each system in the near term. The City has an aggressive water conservation program and long term raw water supply projections for the City assume that by 2040 the per capita consumption in the City will fall to 160 gpcd. This same assumption that per capita water consumption will fall to 160 gpcd was used in the long-term raw water supply projections for the District as well. Section LUE Frequently the term Living Unit Equivalent (LUE) and connection are used to represent the same thing. When discussing single family connections, representing connections and LUEs as the same, is accurate. However, when discussing larger meters and commercial/industrial properties, the connection must be presented in terms of LUEs so that the demand on the system from these properties is accurately represented. The determination of commercial/industrial LUEs for the City is based on the land use plan and the 2008 Water Master Plan. The commercial/industrial LUEs for the District are based on a similar ratio of residential to nonresidential LUEs in the future as the current ratio. Because a LUE is defined as the amount of water used by a single family residence, it is important to determine what a LUE for the City and District uses. Currently, a LUE in the City uses 550 gal/day based on 2.5 people per LUE and 220 gal/day-person. A LUE in the District uses 546 gal/day based on 3.21 people per LUE and 170 gal/day-person. With conservation and a reduction in per capita usage for the City and the District to 160 gal/day-person, the water consumed by a LUE in the City drops to 400 gal/day and the water consumed by a LUE in the District is 514 gal/day. Feasibility Study Page 46 of 113

55 Section 5.4 Raw Water Supply and Demand The City and the District have similar raw water supplies. The City has supply contracts with BRA for water from Lake Georgetown, Lake Stillhouse, and BRA System Water. The City also has ground water supplies developed from the Edwards Aquifer with six wells. The District has supply contracts with BRA for water from Lake Stillhouse and BRA System Water. The District has ground water supplies developed in the Edwards Aquifer with two wells. The surface water supplies and ground water supplies for the City and the District are summarized in Table 5-5. When determining the raw water supply from the ground water wells, the availability of water in the Edwards Aquifer during drought times was considered. In the Related Studies Report prepared for the District by Halff Assoc. and Bury + Partners (February 2012) it was recommended that the District assume the wells were available for six months of the year and not during the driest times. The City has 9.5 mgd (10,642 ac-ft/yr) of well capacity, but has only assumed that there is 5,040 ac-ft/yr available on a long term basis. Table 5-5 Raw Water Supply City District Lake Georgetown 6,720 ac-ft/yr 0 Lake Stillhouse 15,448 ac-ft/yr 3,760 ac-ft/yr System Water 10,000 ac-ft/yr 7,340 ac-ft/yr Ground Water 5,040 ac-ft/yr 1,451 ac-ft/yr Total Raw Water Supply 37,208 ac-ft/yr 12,551 ac-ft/yr Raw water demand is the water used by the City and the District during the course of a year. Raw water demand is based on the average water usage of the system over the course of the year. To calculate the raw water demand, the population for a given year is multiplied by the design per capita consumption for that year. Raw water demand is typically expressed in terms of acre-feet/year. Table 5-6 lists the raw water demands for the City and the District. Feasibility Study Page 47 of 113

56 Table 5-6 Raw Water Demands for the City and District Year No Conservation City Water Demand (ac-ft/yr) With Conservation All Commitments (With Conservation) No Conservation District Water Demand (ac-ft/yr) With Conservation All Commitments (With Conservation) ,864 12,864 17,980 3,746 3,746 10, ,369 14,369 17,980 3,897 3,897 10, ,541 12,310 17,980 4,076 4,052 10, ,314 12,451 17,980 4,257 4,232 10, ,773 12,753 17,980 4,440 4,388 10, ,295 13,105 17,980 4,625 4,571 10, ,821 13,452 17,980 4,813 4,728 10, ,350 13,795 17,980 5,002 4,914 10, ,288 14,490 17,980 5,194 5,072 10, ,850 14,834 17,980 5,388 5,229 10, ,431 15,185 17,980 5,537 5,341 10, ,034 15,544 17,980 5,781 5,543 10, ,660 15,911 17,980 5,981 5,700 10, ,628 17,023 17,980 6,594 6,245 10, ,145 18,837 17,980 7,659 7,208 10, ,488 20,228 17,980 8,772 8,256 10, ,659 21,224 17,980 9,956 9,371 10, ,816 24,789 17,980 12,449 11,717 10, ,400 28,657 17,980 15,119 14,230 10,283 A graph of the raw water supplies and demands for the City and the District are shown in Figure 5-2 and Figure 5-3, respectively. These figures also show the raw water demands of the commitments that each entity holds. Figure 5-4 shows the combined raw water supplies and demands of the City and the District. The District is currently using 3,746 ac-ft/yr compared to a supply of 12,551 ac-ft/yr. However, with the commitments the District has made, the District has committed 10,283 ac-ft/yr. After accounting for all the commitments, the District has 2,268 ac-ft/yr of its raw water supply uncommitted. This remaining raw water supply can meet the needs of an additional 3,942 LUE commitments. The City is currently using 12,864 ac-ft/yr compared to a supply of 37,208 ac-ft/yr. The City has 18,126 LUE commitments yet to serve in addition to their existing connections. It is estimated that the remaining supply will meet the City s needs until Feasibility Study Page 48 of 113

57 Figure 5-2 City Raw Water Supplies and Projected Demands Feasibility Study Page 49 of 113

58 Figure 5-3 District Raw Water Supplies and Projected Demands Feasibility Study Page 50 of 113

59 Figure 5-4 Combined Raw Water Supplies and Projected Demands Feasibility Study Page 51 of 113

60 Section 5.5 Treated Water Supply and Demand Treated water must be supplied to meet the system demand on the maximum water use day of the year. Treated water is currently supplied to the City by one surface water treatment plant that it shares with the District and two ground water treatment plants. The surface water treatment plant treats raw water from Lake Georgetown and water pumped to Lake Georgetown from Lake Stillhouse by the Williamson County Regional Raw Water Pump Station and Pipeline. With the Phase III expansion, the City s share of the plant capacity is 19 mgd. The ground water plants consist of the Park Plant (6.3 mgd) and the Southside Plant (3.2 mgd). The District is supplied treated water from the Lake Plant that is shares with the City and the Domel ground water wells. The District s capacity in the Lake Plant with the completion of the Phase III expansion is 9.6 mgd. The Related Studies Report prepared for the District by Halff Assoc. and Bury + Partners (February 2012) recommends not counting the capacity of the Domel wells toward the max day supply of the District as they may not be available during the time of year that a max day demand is expected. The treated water capacity for the City and the District are shown in Table 5-7. Table 5-7 Treated Water Capacity City District Treated Surface Water Supply 19 mgd 9.6 mgd Ground Water Supply 9.5 mgd 0 mgd 9 Total Treated Water Capacity 28.5 mgd 9.6 mgd Max day demand is calculated using the average day demand and the max day factor. Treated water demand is typically expressed in million gallons per day (mgd). Max day demands are met by water produced in water treatment plants or by well production. A graph of the max day supply and demands for the City and the District are shown in Figure 5-5 and Figure 5-6, respectively. Figure 5-7 contains a graph showing the combined max day supply and demands of the City and the District. Figures 5-5, 5-6, and 5-7 also show a line that represents 85 percent of the treated water capacity. This line is drawn based on the 30 TAC 291 rule which states that systems exceeding 85 percent of the capacity of any component in their potable water system must notify the Executive Director of the TCEQ and demonstrate how they will have capacity to meet the demands within their CCN. In other words, when demand reaches 85 percent, a water supplier must demonstrate to the TCEQ how it will expand capacity to keep up with demand or how growth will be controlled so that demands will not exceed present capacity. Based on existing treated water supply and projected demands, the following conclusions can be drawn: The City s treated water demand will exceed 85 percent of its treated water supply by 2015; The City s treated water demand is projected to exceed all of its treated water supply by 2020; 9 The District s capacity in the Lake Plant with the completion of the Phase III expansion is 9.6 mgd. Feasibility Study Page 52 of 113

61 The District s treated water demand will exceed 85 percent of its treated water supply in 2014; The combined system treated water demand will exceed 85 percent of the combined systems capacity by 2015; and The combined system treated water demand is projected to exceed all of its treated water supply by Feasibility Study Page 53 of 113

62 Figure 5-5 City Max Day Supply and Projected Demands Feasibility Study Page 54 of 113

63 Figure 5-6 District Max Day Supply and Projected Demands Feasibility Study Page 55 of 113

64 Figure 5-7 Combined Max Day Supply and Projected Demands Feasibility Study Page 56 of 113

65 Section 5.6 Storage and Pumping TCEQ has established minimum capacities for ground storage, elevated storage, and high service pumping for retail water utilities. The TCEQ capacities are based on a unit capacity per connection. The minimum capacities are variable based on the amount of elevated storage in the system and are summarized below. The rules can be found in 30 TAC A total storage capacity of 200 gallons per connection (Storage Criteria 1). Elevated storage capacity of 100 gallons per connection. An elevated storage capacity of 100 gallons per connection is required for systems with more than 2,500 connections (Storage Criteria 2). For systems with pressure storage, a total storage capacity of 20 gallons per connection is required (Storage Criteria 3). This is only applicable to the District s Hoover pressure plane. A service pump capacity that provides each pump station or pressure plane with two or more pumps that have a total capacity of 2.0 gpm per connection (Pumping Criteria 1) or that have a total capacity of at least 1,000 gpm and the ability to meet peak hourly demands with the largest pump out of service (Pumping Criteria 2), whichever is less. For systems which provide an elevated storage capacity of 200 gallons per connection, two service pumps with a minimum combined capacity of 0.6 gpm per connection are required at each pump station or pressure plane (Pumping Criteria 3). In addition to the minimum TCEQ requirements, the elevated storage capacity was evaluated relative to historic Fire Commission rules which require 165 gallons/connection. The existing storage and pumping capacity of the City and District were compared to the TCEQ minimum criteria and the additional criterion for elevated storage for existing and projected populations. The results of the analysis are shown in tabular form in Table 5-8 and Table 5-9. In general, the analysis of the pumping and storage shows that both the City and the District have adequate pumping, ground storage and elevated storage to meet the minimum TCEQ requirements and the fire flow requirements. Based on Table 5-8, the District s Hoover Pressure Plane is the exception. This pressure plane uses a pressure tank to maintain pressure in lieu of elevated storage so it is not capable of meeting the fire flow requirements. If part of the District s service area is moved from the 1178 pressure plane to the 1065 pressure plane to reduce maximum pressures and is served through the City s system, improvements to the elevated storage in the 1065 pressure plane will be required. Additional elevated storage for the 1065 pressure plane is included in the City s 10-year CIP. Based on Table 5-9, The City and the District have adequate pumping for the existing connections. In 2030, the City is projected to have pumping capacity deficiencies in its 1178 pressure plane. In the combined system, this deficiency is corrected by the addition of the Pastor Pump Station. In 2030, the 1065 pressure plane is showing a pumping deficiency for the combined system due to the addition of District connections to the City s system. This deficiency is corrected by the addition of the Sequoia Spur Elevated Storage Tank and the retasking of the existing Sequoia Spur Pump Station to pump into the 1065 pressure plane in lieu of the 980 pressure plane. These improvements are included in the City s CIP. Feasibility Study Page 57 of 113

66 Table 5-8 Storage Requirements Based on TCEQ Minimum Criteria Feasibility Study Page 58 of 113

67 Table 5-9 Pumping Requirements Based on TCEQ Minimum Criteria Feasibility Study Page 59 of 113

68 Section 5.7 Distribution System Analysis The piping system of the District was analyzed to determine how it operates compared to normal guidelines for residential water service. Generally, residential water service is provided at a pressure of 60 to 80 psi. The TCEQ rules state that the minimum pressure under normal conditions should not be less than 35 psi and that the minimum pressure shall not be less than 20 psi in emergency conditions (fire fighting conditions). The plumbing code requires that buildings with pressures higher than 85 psi be provided with individual pressure reducing valves to protect the plumbing and plumbing fixtures inside the building. This requirement protects plumbing fixtures that are not designed to accommodate pressures over 85 psi and absolutely not in excess of 125 psi. The water distribution system model of the District s water distribution system prepared by Bury + Partners was made available for this analysis. There are three major pressure planes within the District s CCN. The central area of the District is operated at a pressure plane of The north end of the system is in the Hoover pressure plane that is supplied by the Hoover pump station. Pressure is maintained by two hydropneumatic tanks, along with PRVs that feed lower elevation areas within the Hoover pressure plane. The west side of the system is in the Carriage Oaks pressure plane is supplied by the Stonewall pump station while the hydraulic grade line maintained by the Carriage Oaks EST. The first analysis of the District s system was to determine the maximum static pressures. To determine the maximum static pressures, the water demands were set to near zero and the pressure determined at each node in the model. Figure 5-8 graphically shows the maximum static pressures for the existing system when tanks are at maximum level and demands are at a minimum. In Figure 5-8, it can be seen that a majority of the District s CCN has maximum static pressures in excess of 85 psi and even 125 psi. Approximately 375 out of 720 total nodes in the hydraulic model, or 52 percent of the total nodes, have static pressures above 85 psi. About 66 nodes, or 9 percent of total nodes, have pressures above 125 psi. Service connections to the District s system in these areas should have individual PRVs to protect their plumbing. These high pressures are straining the District s piping and pumping systems and placing a cost burden on the District to pump all the water to this pressure. As an alternative to the existing 1178 pressure plane, an evaluation of an additional pressure plane was conducted. Based on ground elevations, the District s existing 1178 pressure plane was divided into an 1178 pressure plane and a 1065 pressure plane. The 1065 pressure plane was selected because in conjunction with the 1178 pressure plane it provides acceptable service to the entire District s CCN and is a pressure plane currently used by the City. In a system that utilizes both the City s and the District s assets, the connections in the District s 1065 pressure plane would be served by the City via the Jennings Branch EST which has a maximum water elevation of 1065 feet. Domel pump station was assumed to be out of service in this future operating scenario. In its place, Jennings Branch EST was assumed to supply an equivalent amount to the District s pressure plane.static pressures with the proposed new pressure plane are graphically presented in Figure 5.9. The percentage of nodes that are greater than 85 psi are reduced from 52 percent in the existing pressure plane configuration to 44 percent with the new configuration. The number of nodes greater than 125 psi were reduced from 9 percent to less than 6 percent. In addition to static conditions, a 72-hour extended period simulation (EPS) was evaluated for minimum and maximum pressures. The minimum pressures in the District s existing pressure planes are shown in Figure This figure is developed under normal conditions so the minimum pressure is 35 psi for the most part. Because the District s water system is normally at such a high pressure, there are few areas Feasibility Study Page 60 of 113

69 with pressures less than the minimum. A three-block stretch along FM 3405 show pressures dipped below 35 psi in the model. There are isolated nodes with high elevation relative to adjacent nodes in the Hoover and 1178 pressure planes that have pressure below 35 psi, as shown in the figure. Figure 5-11 presents maximum pressures encountered during a maximum day EPS with the existing pressure planes. Maximum pressures were greater than static pressures because of the additional pumping head required to refill tanks. Highest pressures occurred between Domel pump station, 320 psi, and the parallel 12-inch lines west of SH-195 to CR-147, which experienced maximum pressures of 250 psi. The new 1065 pressure plane was developed to address the excessively high pressures, especially those resulting from Domel pump station. The 1065 pressure plane would be supplied by Jennings Branch EST and Domel pump station would no longer be in service. The 72-hour model simulation resulted in an average flow of 800 gpm out of Jennings Branch EST with a peak flow of 1150 gpm. Further study would be needed to ensure this amount of supply from the tank is available. Figure 5-12 presents minimum pressures with the new 1065 pressure plane. Isolation valves near the intersection of FM-2338 and FM 3405 were configured so that higher elevation areas were part of the 1178 pressure plane, minimizing low pressure areas. This figure shows that minimum pressures were not adversely affected by the addition of the 1065 pressure plane. Figure 5-13 shows the maximum pressures in the system with the new 1065 pressure plane. Maximum pressures in the transmission line from Domel pump station north along SH-195 and westward off of CR- 147 have been reduced by up to 100 psi as compared to the existing pressure plane configuration where Domel pumps were in operation. The District s water distribution system was evaluated for fire flows. Each node in the water distribution model was evaluated for the maximum flow that could be expected without reducing the pressure elsewhere in the distribution system to less than the TCEQ minimum 20 psi. This analysis was conducted with the existing pressure plane option only. The fire flows are shown in Figure Minimum fire flows depend on the development type. For example, 500 gpm is acceptable for single family residences on lots larger than one acre. Whereas, for commercial facilities including public buildings such as schools and churches may require a fire flow of between 2500 and 3000 gpm. Of the 610 nodes tested for fire flow, 260 nodes resulted in a fire flow of less than 500 gpm. The system was also evaluated to determine if Georgetown s Escalara EST can effectively serve pressure plane Escalara EST has a maximum water elevation of 1178 feet and is located approximately 16,000 feet south of SH-29. The closest tie in point into the District s 1178 pressure plane is on SH-29 and Park Place Drive, or about 7,700 feet east of Ronald Reagan Boulevard. Escalara EST was modeled as a fixed grade reservoir at its max elevation of 1178 feet connected to the 20-inch transmission line on SH-29 via 16,000 foot 20-inch pipeline. A check valve was also placed at the intertie point to prevent flow from the District into the Escalara EST. Model results show that supply from Escalara EST can be utilized for six hours of the day when the gradeline in pressure plane 1178 drops below 1178 feet when Pastor pump station is either unable to maintain pressures or is cycled off. While Pastor pump station is in operation, the operating HGL is above 1178 feet, which prevents flow from Escalara EST into the District s 1178 pressure plane. Due to the relatively low HGL of Escalara EST, it cannot replace Pastor pump station. Without the benefit of Pastor pump station, the HGL dropped as low as 1150 feet during peak demands. Consequently, model results indicated Braun EST cycling at a much lower water level, dropping to 5 percent capacity. Due to the long transmission distance from Escalara EST to the District s transmission Feasibility Study Page 61 of 113

70 line, a significant amount of headloss will occur. As an example, at 3 feet of head loss per thousand feet of the 16,000 foot long pipeline, the gradeline at the intertie will be 48 feet lower than the grade line at Escalara EST. Thus, an intertie from Escalara EST will benefit the District s 1178 pressure plane by providing supply during peak hours when Pastor pump station is off or cannot maintain enough pressure to fill Braun EST. Feasibility Study Page 62 of 113

71 Figure 5-8 District s Maximum Static Pressures with Existing Pressure Planes Feasibility Study Page 63 of 113

72 Figure 5-9 District s CNN Static Pressure with Proposed New Pressure Planes Feasibility Study Page 64 of 113

73 Figure 5-10 Minimum Pressure with Existing Pressure Planes Feasibility Study Page 65 of 113

74 Figure 5-11 Maximum Pressure During Max Day EPS with Existing Pressure Planes Feasibility Study Page 66 of 113

75 Figure 5-12 Minimum Pressures with New Pressure Plane Feasibility Study Page 67 of 113

76 Figure 5-13 Maximum Pressure with New Pressure Plane Feasibility Study Page 68 of 113

77 Figure 5-14 Available Fire Flow During Max Day Demand Feasibility Study Page 69 of 113

78 Section 5.8 Capital Improvement Plan One benefit of combining the City s and the District s water systems is use of individual assets to the mutual benefit of both parties. In some instances, the City may have treatment or pumping assets that it can share with the District and the District may have storage or piping assets that it can share with the City. The sharing of assets should result in a cost savings for both parties. The capital improvement plan (CIP) for the City and the District were evaluated for the option where the utilities operated in the status quo (sharing treatment assets but little else) and for the option where the utilities combined assets for their mutual benefit. The City s 10-year CIP was taken from the 2008 Water Master Plan as updated and revised by the City in their 5-year CIP. The District s CIP was taken from the Related Studies Report prepared for the District by Halff Assoc. and Bury + Partners (February 2012). The City s CIP is shown in Table 5-10 and the District s CIP is shown in Table It should be noted that the City s CIP accounts for connection growth in the system as well as maintenance and replacement. The District s CIP only accounts for maintenance and replacement. The District s most recent CIP associated with the growth of the system did not use a reasonable growth projection consistent with the assumptions in this evaluation. It is recommended that the District update its CIP associated with System growth and this evaluation of capital cost reduction be revisited to determine if additional savings are possible A 10-year CIP for a combined system was developed by evaluating the projects in the City s and the District s CIPs and determining which projects could be eliminated based on the retirement of certain assets in the combined utility. The 10-year CIP for the combined utility is shown in Table The combination of the utilities allows the reduction of $13,063,300 in the CIP. Feasibility Study Page 70 of 113

79 Table City CIP Item No. Description Capital Cost Year West Loop, Thousand Oaks to Inner Loop (H-1b) $ 1,408,000 Sun City EST 2,750, Waterline Along SH 29 to Wolf Ranch (H-1a) 2,177,000 Lake WTP 980 PS 1,391, Sequoia EST 5,498,000 Rabbit Hill EST 1,435, Rabbit Hill Waterline Additions (RH-1) 2,801,000 Waterline Additions along IH-35 (C-2a) 1,994,000 Lakeway Drive Waterline Additions (C-5) 2,913,000 West Loop, South of Inner Loop (H-1b) 3,824, High PP EST 2,716,000 Park WTP PS 1,199,216 Southeast EST and Waterlines 2,965,000 West University Avenue 896,000 Waterline Additions along IH-35 (C-2d) 3,350,000 Airport Road Waterline Additions (C-6) 996,000 Shell Road Waterline Additions (H-5) 2,801, Shell Road Waterline Additions (H-3) 6,421,000 Park WTP Clearwell 2,200,000 West PP Pump Station 2,121,000 West PP GST 1,834, Waterline from New South Plant to West PP (W/H-1) 20,461,000 SH 195/CR 143 Waterline Additions (H-4) 2,565, Waterline from New South Plant to High PP (H-9) 1,035, West Loop, Inner Loop to Rabbit Hill (RH-2) 2,591, Southwestern Blvd (C-3) 3,125,000 FM 1460 to Maple St (H-2) 1,939, Sub Total $ 85,406,216 South Lake WTP (8.4 mgd) 21,000, City Utility CIP Total $ 106,406,216 Feasibility Study Page 71 of 113

80 Table District CIP Item No. Description Capital Cost Year Pump Installation at Stonewall GST $ 120,000 Braun EST Tank Rehab 325, RM 2338/CR 248 Waterline Replacement 2,378,640 Daniels's Mountain GST #1 Rehab 235,000 SW 138 Waterline Replacement 1,062, Pump Addition at the Lake WTP 150,000 CR 262 Waterline Replacement 349,560 Additional EST in Carriage Oaks Pressure Plane 2,550, Daniels's Mountain GST #2 Rehab 375,000 CR 245 Waterline Replacement 264, CR 244 Waterline Replacement 447, Cedar Hollow Waterline Replacement 435, Daniel's Mtn to Hoover PS Waterline Replacement 288, Carriage Oaks EST Rehab 325,000 Domel GST Rehab 180, FM 3405/CR 255 Waterline Replacement 2,283,840 SH Dippery Waterline Replacement 1,379, CR 229 Waterline Replacement 234,480 Indian Springs Waterline Replacement 563, Sub Total $ 13,947,760 Additional Water Supply (Pipeline) 2,578,320 Additional Water Supply (Treatment Plant 5.2 mgd) $ 15,500, Additional Water Supply (Annual Cost of Water) 294,950 District Utility CIP Total $ 32,026,080 Feasibility Study Page 72 of 113

81 Table 5-12 Combined CIP Item No. Description Capital Cost Year Pump Installation at Stonewall GST $ 120,000 Braun EST Tank Rehab 325,000 RM 2338/CR 248 Waterline Replacement 2,378, West Loop, Thousand Oaks to Inner Loop (H-1b) 1,408,000 Sun City EST 2,750,000 Daniels's Mountain GST #1 Rehab 235,000 SW 138 Waterline Replacement 1,062,480 Pump Addition at the Lake WTP 150,000 Waterline Along SH 29 to Wolf Ranch (H-1a) 2,177, Lake WTP 980 PS 1,391,000 Sequoia EST 5,498,000 CR 262 Waterline Replacement 349,560 Additional EST in Carriage Oaks Pressure Plane 2,550, Rabbit Hill EST 1,435,000 Daniels's Mountain GST #2 Rehab 375,000 CR 245 Waterline Replacement 264,600 Rabbit Hill Waterline Additions (RH-1) 2,801,000 Waterline Additions along IH-35 (C-2a) 1,994,000 Lakeway Drive Waterline Additions (C-5) 2,913, West Loop, South of Inner Loop (H-1b) 3,824,000 High PP EST 2,716,000 Park WTP PS 1,199,216 Southeast EST and Waterlines 2,965,000 CR 244 Waterline Replacement 447,360 West University Avenue 896,000 Waterline Additions along IH-35 (C-2d) 3,350,000 Airport Road Waterline Additions (C-6) 996,000 Shell Road Waterline Additions (H-5) 2,801, Shell Road Waterline Additions (H-3) 6,421,000 Park WTP Clearwell 2,200,000 West PP Pump Station - Cedar Hollow Waterline Replacement 435,720 West PP GST Daniel's Mtn to Hoover PS Waterline Replacement 288,640 Waterline from New South Plant to West PP (W/H-1) $ 20,461, SH 195/CR 143 Waterline Additions (H-4) $ 2,565,000 Carriage Oaks EST Rehab 325,000 Domel GST Rehab - FM 3405/CR 255 Waterline Replacement $ 2,283, Waterline from New South Plant to High PP (H-9) $ 1,035,000 SH Dippery Waterline Replacement $ 1,379,400 West Loop, Inner Loop to Rabbit Hill (RH-2) $ 2,591, CR 229 Waterline Replacement 234,480 Indian Springs Waterline Replacement 563,040 Southwestern Blvd (C-3) $ 3,125, FM 1460 to Maple St (H-2) $ 1,939,000 Sub Total $ 95,218,976 Additional Water Supply (Treatment Plant 13.4 mgd) $ 30,150, Combined Utility CIP Total $ 125,368,976 Feasibility Study Page 73 of 113

82 Section 5.9 Condition Assessment A condition assessment of the primary District assets was conducted. The assets evaluated included storage tanks and pump stations. The condition of the pipe in the distribution system is discussed somewhat in the Pressure Reduction Plan prepared for the District by Bury + Partners (May 2011) and recommendations in that report are incorporated in the District s current CIP. Section Storage The District has an ongoing program to conduct condition assessments of their storage tanks using a third party consultant, Dunham Engineering, Inc. The District s ground storage and elevated storage tanks were inspected in 2011 and the reports prepared by Dunham Engineering were reviewed. The recommended repair work on the tanks is included in the District s CIP. Section Pumping Facilities A description of the District s pumping facilities was included in the Pressure Reduction Plan prepared for the District by Bury + Partners (May 2011). However, a description of the condition of the pumping facilities was not included. Personnel from CDM Smith and the City reviewed the District s pumping facilities on March 21, Their observations are provided below and in Appendix A. 1. Pastor PS a. One pump was out of service, Pump was removed for repair. b. The District does not boost the Chloramines with chlorine and ammonia. They only use Chlorine. If the free ammonia is in correct proportion, then this practice should be fine, but there is the potential to hit chlorine break point. c. District personnel reported the small Vent-O-Mat ARVs (1 ) were problems, but the larger were fine (4 and larger). d. The pump elevation relative to the clearwell elevation precludes them from using bottom 5 feet of clearwell. 2. Domel PS and Wells a. Pump station is older and the pumps, piping, valves, etc. are squeezed in the space. The electrical gear/panels are in a small space. b. Domel Well 2 is gpm, which is much less than the Bury + Partners report. c. Both wells will need some insulation. d. Liquid ammonia and pumps are in the same room. e. There is no surge relief. 3. Woods PS a. Out of service due to Lake WTP PS. 4. Stonewall PS a. One pump is out of service. Motor was removed for repair. b. No surge relief a. Out of service due to Stonewall being on line. 6. Andice Booster a. One small pump, so no redundancy. b. The suction pressure was around 15 psi, which is low. Feasibility Study Page 74 of 113

83 c. It does not serve Andice, but does serve surrounding homes. 7. Hoover a. No Ammonia, only Chlorine. b. No surge relief. c. They are planning to add HVAC due to VFDs. 8. North Lake in Woodland Park a. Not in service because it is not needed. 9. New Lake WTP PS a. Noise issue with pumps. b. Noise issue with the HVAC units inside and outside the electrical building. c. They are planning to add another large (400 HP) pump. 10. Schnider Well a. Rarely used. Must be blended with water at Irving due to high fluoride. 11. Irving PS & Well a. Well motor has a short and needs to be repaired. b. Station is currently out of service because not needed. Feasibility Study Page 75 of 113

84 Page 6.1 Introduction Financing Issues Scenarios to Assess Financial Model Description Financial Modeling Results 85

85 Section 6.1 Introduction A potential consolidation of two water utilities can involve many detailed considerations. However, a key first step is to determine the general feasibility of a consolidation so that decision-makers can then determine whether to proceed to the next steps of evaluating and negotiating those details and deciding whether to proceed with the ultimate implementation of a merger One of the most important tests of feasibility is whether a proposed action is economic or costeffective. While there may be significant non-monetary reasons for taking action, it is often very difficult to justify pursuing a certain course of action if that action is ultimately going to cost more than doing nothing. In other words, are there potential gains to be had in taking action that are sufficient to rationalize pursuing that course of action? This is the primary financial or economic feasibility test addressed in this chapter. Some of the options to be considered might involve actions including, but not be limited to: physically interconnecting the utilities to take advantage of combined system capabilities and thus being able to defer certain capital projects; through sharing water supply, being able to defer a costly near-term project and purse a more cost-effective longer-term project; reductions in staffing and other costs over time through consolidated operations and management; and sharing of additional cost-efficient financing capabilities. All of these actions require one or both parties to provide something, at some cost or risk to each entity, so that potential broader cost efficiencies can result and be shared by both parties. While it is relatively straightforward to model the potential combined benefits of a consolidation, we do not know at this time how those benefits will be shared between the two parties. In other words, we can address the broad feasibility question of whether it is sufficiently economic to justify consolidating the two utility systems, but the details of how those economic benefits are to be shared, and their ultimate effect on each respective system s rates, is subject to future negotiations by the two parties. There are other aspects of financial feasibility, such as the ability to issue or re-finance certain types of debt that may be associated with certain consolidation scenarios; this is addressed in Section 6.2. There are also issues that do not easily lend themselves to monetization, such as possible changes in service quality or possible constraints on the extent, type, and quality of land development due to inadequate water supplies or service delivery capability. It is safe to presume that a well-managed consolidation could enhance both service quality and foster the best and highest ultimate land uses. Feasibility Study Page 76 of 113

86 Section 6.2 Financing Issues For purposes of assessing the financial implications of a possible consolidation four scenarios were evaluated: Scenario 1 Status Quo; Scenario 2 Local Government Corporation (LGC); Scenario 3 Public Utility Authority (PUA) with Separate Operations and Maintenance (O&M); and Scenario 4 PUA with Contract O&M. Annual debt service associated with funding of capital infrastructure represents a significant cost impact to most utilities annual budget. As a result, it is important to analyze and understand the impact of this seemingly ever increasing annual cost. This analysis examines three financing alternatives, and the cost of each alternative as it is related to the proposed governance structures. Section Types of Debt Options Analyzed The project team analyzed three of the most common types of municipal bonds that could be utilized for this proposed endeavor. Not only does each financing vehicle have different costs associated with it, but the issuing agency (i.e. the governance structure) has different associated costs as well. Financing vehicles analyzed include revenue bonds, certificates of obligation and contract revenue bonds. A Revenue Bond is a special type of municipal bond that utilizes annual revenues of a specific revenuegenerating entity (in this case a utility) to secure those bonds. Only the revenues specified in the legal contract between the bondholder and the bond issuer are required to be used for repayment of the bonds. Other revenues, such as tax revenues, and the general credit of the issuing agency are not so encumbered. Comparative to General Obligation bonds, revenue bonds are generally considered the second-most secure type of municipal bond from the bondholder s perspective. Certificates of Obligation ( COs ) are authorized by the Certificate of Obligation Act of 1971, Subchapter C of Chapter 271 of the Texas Local Government Code. CO s are a streamlined method of financing. Unlike General Obligation Bonds, COs, generally do not require a bond election unless 5% of the registered voters submit a valid petition protesting the issuance. They are limited to statutory purposes, and may be authorized for up to 40 years. These bonds may be payable and backed from ad valorem taxes, revenues or a combination thereof. CO issuance is a means of avoiding the time and expenses of an election unless the public determines that an election should be held before the CO s are issued. Contract Revenue Bonds are similar to Revenue Bonds where specific revenues are utilized to secure the bonds rather than tax-revenues. The distinction is that an underlying contract exists between entities that are utilized to secure bonds. Feasibility Study Page 77 of 113

87 Section Impact of Financial Vehicle and Governance Structure on Costs As previously mentioned, each of the above described financing vehicles has very different costs. In addition, the type of governance structure of the utility equally influences the cost impact of issuing debt. The governance structure not only affects the financing vehicle options available, but it also influences the costs associated with each financing vehicle. Put another way, the costs of issuance of revenue bonds are very different for the City compared to the District. It is anticipated that under the LGC scenario, the debt service for the City s system would continue to utilize revenue bonds; however, the LGC System would utilize CO s. In the PUA scenario, it is anticipated that both the City and the District would issue revenue bonds in a manner that is consistent with the status quo for individually owned assets; yet, the PUA would issue contract revenue bonds for jointly owned assets. Section a Revenue Bonds As previously described, revenue bonds are backed and secured by system revenues and are utilized by both the City and the District under the status quo scenario. Per the analysis conducted by Specialized Public Finance, it is anticipated that interest rates for the District would be approximately basis points higher than the rates that the City could achieve for revenue bonds. Issuance costs for revenue bonds are anticipated to be approximately double for the District than they would be for the City due to the state laws for debt issuance that are specific to a special district. These issuance costs include approximately 0.25% fee to the TCEQ, additional engineering, and bond reports that would be prepared for the TCEQ filing; these items are not required when the City issues debt. Furthermore, the City is able to achieve lower bond council and financial advisor costs simply because of the volume of annual debt the City issues. Revenue bonds are available for both the Status Quo and LGC scenarios; they could be utilized for the PUA scenario, but only for the assets individually owned by the separate entities. Joint assets owned by the PUA would not be funded by revenue bonds. Section b Certificates of Obligation Overall, certificates of obligation issued by the City for the District s assets as part of an LGC structure are projected to achieve the lowest interest rates and issuance costs than could be achieved through any other governance structure. Certificates of Obligation issued by the City as part of an LGC structure are projected to achieve a 75 basis point interest rate savings over the status quo; furthermore, they are anticipated to have roughly half the issuance costs than the District could otherwise achieve. CO s are available to the City for the Status Quo and LGC scenarios. CO s are not available to the District under the Status Quo. For the PUA scenario, the City could only utilize contract revenue bonds for individually owned assets. Assets that are jointly owned by the PUA could not be funded with CO s. The District s system could only be funded by CO s under the LGC scenario; otherwise, the District does not have this funding mechanism available. Section c Contract Revenue Bonds Of the financing vehicles described, contract revenue bonds have interest rates and issuance costs that are similar to that of Revenue Bonds. Contract revenue bonds would likely be utilized for funding assets Feasibility Study Page 78 of 113

88 jointly owned through the PUA. As such, the PUA would be subject to financing costs similar to those the District would be subject to since the PUA is similar to a special district. Section Summary of Financial Terms Utilized for this Analysis As previously mentioned, each of the above described financing vehicles and governance structures have very different cost impacts. Specialized Public Finance analyzed current market conditions to provide assumed interest rates and issuance costs that were utilized in this analysis. Table 6-1 below presents a summary of assumptions relied upon. It must be noted that while actual interest rates may change depending on the timing of the market, the differential between the interest rates associated with the different financing vehicles and governance structures is expected to remain largely the same regardless of market timing. Table 6-1 Summary of Financing Terms Utilized Scenario Revenue Certificates of Contract Bonds Obligation Revenue Bonds STATUS QUO GUS Term 25 yrs Interest Rate 3.75% Financing Costs 2.50% CTSUD Term 25 yrs Interest Rate 4.00% Financing Costs 5.00% LOCAL GOVNT CORPORATION GUS Term 25 yrs Interest Rate 3.75% Financing Costs 2.50% CTSUD Term 25 yrs Interest Rate 3.25% Financing Costs 2.50% PUBLIC UTILITY AUTHORITY GUS Term 25 yrs Interest Rate 3.75% Financing Costs 2.50% CTSUD Term 25 yrs Interest Rate 4.00% Financing Costs 5.00% PUA Term 25 yrs Interest Rate 4.00% Financing Costs 5.00% The impact of this differential in financing terms can be significant to customers over the life of the bonds. The below analysis has been performed to illustrate this differential. The analysis assumes a total financing of $20,000,000. It was assumed that $10,000,000 was for City projects and $10,000,000 for Feasibility Study Page 79 of 113

89 District projects. Under the PUA Scenario, $10,000,000 of the projects were assumed to be jointly funded by the PUA while the remaining projects would be funded by the individual Stakeholders. Table 6-2 Financing Options Status Quo LGC PUA City District City District City District PUA Par Value $10,000,000 $10,000,000 $10,000,000 $10,000,000 $5,000,000 $5,000,000 $10,000,000 Financing Revenue Revenue Revenue Revenue Revenue Contract CO's Vehicle Bonds Bonds Bonds Bonds Bonds Revenue Bonds Interest Rate 3.75% 4.00% 3.75% 3.25% 3.75% 4.00% 4.00% Term (Years) Financing Costs 2.50% 5.00% 2.50% 2.50% 2.50% 5.00% 5.00% Annual Payment $ 623,317 $ 640,120 $ 623,317 $ 590,393 $ 311,658 $ 320,060 $ 640, Year Total Payments $ 15,582,922 $ 16,002,991 $ 15,582,922 $ 14,759,831 $ 7,791,461 $ 8,001,495 $ 16,002, Year Interest Expense $ 5,582,922 $ 6,002,991 $ 5,582,922 $ 4,759,831 $ 2,791,461 $ 3,001,495 $ 6,002,991 Issuance Cost $ 250,000 $ 500,000 $ 250,000 $ 250,000 $ 125,000 $ 250,000 $ 500,000 Total Interest $ 11,585,913 $ 10,342,754 $ 11,795,947 Total Issuance $ 750,000 $ 500,000 $ 875,000 As can be seen from this analysis, the LGC by far achieves the lowest overall financing and interest costs of all options evaluated. This savings is only available through the LGC scenario as the more favorable financing terms can only be achieved through issuance of CO s by the City. It must be noted that this scenario does present the greatest financial risk to the City as the City would essentially be extending its ratings and credit to the District. Feasibility Study Page 80 of 113

90 Section 6.3 Scenarios to Assess In any financial analysis that projects future conditions, assumptions must be made. Special care has been taken to ensure that assumptions are applied to each scenario in a uniform manner to ensure an apples to apples comparison to the greatest extent possible. The below discussion identifies conditional assumptions made between the various scenarios. Section Scenario 1 Status Quo The City and the District would continue to hold their own separate CCNs. The City and the District would continue as separate legal entities with each solely responsible for providing and funding their own water supply, water treatment, distribution systems, and for the administration and governance of their separate water utility systems. Each entity's, capital improvements program would be separately determined. The District, facing near-term water supply limitations, would quickly move to secure interim or longer-term water supplies from another party, such as the City of Leander. Section Scenario 2 Local Government Corporation (LGC) 10 The District would be reformed as a LGC of the City. The CCN of the former District would be transferred to the City of Georgetown. Each entity would maintain separate water supply accounts, separate cost center accounting, and separate water rates. The City would share its existing water supply with the LGC for a prearranged duration, thus avoiding the need to seek costly supplies from Leander. The currently separate systems would physically inter-connect to improve service delivery and also realize benefits from future infrastructure projects that could be avoided. The City would provide consolidated O&M services and capital planning for the entire combined system with costs allocated to each service area. The City would extend its low-cost financing capability to the LGC. Cost efficiencies realized in this scenario from common management, O&M, system interconnects, and financing advantages would be fairly shared between the City and the District. A scenario in which a portion of the District is transferred to the LGC and the remaining portion of the service area of the District was not analyzed at this time, as extensive analysis would have to be conducted to determine what the appropriate portions of the service territory to transfer. 10 The option of having a portion of the District subsumed by the LGC, while the District continues to provide service to a smaller sub-set of the District s current service territory was not analyzed for this analysis. Feasibility Study Page 81 of 113

91 Section Scenario 3 PUA with Separate O&M A regional PUA would be formed that would be responsible for receiving the existing water supply contract rights and for allocation and cost recovery of those existing surface water supplies to the City and the District. The PUA would also be responsible the development of future water supply and treatment facilities as well as allocation of those costs to the City and the District based on their respective capacity shares and/or level of use. The City and the District would continue to hold their own separate CCNs. The City and the District would continue as separate legal entities with each solely responsible for providing and paying for their own portions of their water systems (other than new supply and/or treatment) and for providing administration and governance of their respective water utility systems. The currently separate systems would not physically inter-connect. The City would not be able to extend its low-cost financing capability to the PUA or the District. Net benefits or cost efficiencies realized in this scenario would be fairly shared between the City and the District. While there are other possible financial scenarios that could be modeled, the Executive Committee felt that the assessment of these three alternatives spanned a sufficient range of interests, would be straightforward to understand and communicate, and would provide adequate feasibility information to allow the two entities to decide whether to proceed with further evaluation and negotiation of a possible consolidation. Feasibility Study Page 82 of 113

92 Section 6.4 Financial Model Description Section Model Structure The financial evaluation model was developed on an Excel spreadsheet. The spreadsheet model is currently designed to run and evaluate the three future financial scenarios described in Section 6.3. The financial evaluation model compared the Status Quo costs for the City and the District, LGC Costs for both systems as well as the costs for both systems combined with the PUA. A self-contained 15-year financial planning forecasting model for each utility area (City, CTSUD/LGC) or conceptual regional utility (such as the PUA) was developed that includes the following: 1. A projected Income Statement table that summarizes the projected revenues, expenses, net income, fund balance, and fund transfers of the utility. Financial performance statistics are also calculated in this first table to indicate the degree of operating reserves and revenue bond coverage that are being produced by the projected cash flow. 2. A table that forecasts utility growth and water demand. 3. A table identifying the Capital Improvements Plan, capital projects, expected date of funding, source of funding, and an indication of whether or not that project would be funded under each of the analyzed scenarios. 4. A table showing fund accounting of capital reserves monies as well as anticipated use of those cash funds to support future project construction. 5. Various tables to calculate future debt service requirements by type of bonds. Once all three scenarios had been evaluated, the net present value of the 15-year cost for each scenario was identified and the cost savings of each were analyzed in comparison to the Status Quo. Section Data Sources and Assumptions Data inputs and various assumptions for the model were provided by members of the Project Team. These included; various budgetary and customer information from the City and the District; engineering and CIP information; framing of the scenarios anticipated; and O&M costs that were developed earlier in this report. In addition, anticipated financing terms from Specialized Public Finance, Inc., inflation rates and other parameters accepted by the Executive Committee were assumed. Various key assumptions will be described in more detail in Section 6.6. Section Consideration of Aggregate Benefits at this Time In most cases, it is straightforward to identify the total potential financial benefit for both entities combined, but it is much more complex and time-consuming to negotiate and assign shares of those benefits to the two individual entities. At this feasibility stage of the consolidation evaluation, the focus is towards identifying if there are sufficient aggregate benefits that warrant proceeding with further consolidation considerations and negotiations. Specifically, how those cost-benefits would be shared should be negotiated at a later point in time. Feasibility Study Page 83 of 113

93 For instance, if the two utility systems are interconnected (as in Scenario 2), it is anticipated that the City could avoid some projects in its CIP, the LGC could avoid building one, and could avoid some pumping (power) costs with a portion of its service area being fed from an adjacent City pressure plane. In each instance, one party benefits, additional costs are realized by the other party, but overall, aggregate savings are realized. Another example in the LGC scenario is the extension of the City s lower-cost funding capability to the LGC. This noticeably lowers the cost of financing the LGCs CIP, but it also increases the credit risk to the City. If the consolidation discussions proceed, exactly how the two parties would share benefits (or compensate each other for additional costs or risks incurred) remains to be determined 11. However, at this feasibility stage, it is still safe to say that if there are sufficient net benefits that span both entities, then there will remain gains for each entity once the benefits are fairly distributed. 11 In the event the Stakeholders determine that it is prudent to proceed with evaluation of regionalization, it is anticipated that specific cost allocation processes would be negotiated as part of contract negotiations such that ensuring that prior to entering into contractual arrangements, the parties are fully informed of how the regionalization would influence their individual system and associated revenue requirements. Feasibility Study Page 84 of 113

94 Section 6.5 Financial Modeling Results The modeling results for each scenario are discussed below along with identification of the key assumptions or factors that determine the outcome. Then, the action scenarios are compared to the Status Quo Scenario to identify if there are potential net financial benefits of implementing various forms of consolidation. It should also be stipulated that long-range forecasts are best professional estimates, inflation and certain actions that affect costs may not occur as expected. Section Scenario 1 Status Quo Future In Scenario 1, the City and the District would continue as separate entities, providing for their own water supply, O&M, financing, administration, and governance. The City would continue to issue revenue bond debt for its utility with its favorable credit rating and interest rate, 1.5 times bond coverage factor, and no debt service reserve fund requirement. The City would continue to hold the entirety of its surface water contract rights and carry the full costs of unused raw water supply capacity. The City would build its intended CIP, including a new 8.4 mgd water treatment plant in 2018; a new west ground storage tank with pump station, and various other projects to meet its own needs. The District would continue to issue revenue bond debt for its utility with its own credit rating and slightly higher interest rate (compared to the City), 1.1 times bond coverage factor, plus a debt service reserve fund requirement. Given its need to supplement its near-term raw and treated water supply (given its current water use and existing raw supply, water supply commitments, and limited treatment capacity), it is assumed that the District would build facilities to purchase somewhat-costly wholesale treated water from the City of Leander. The District would build the remainder of its intended CIP, including a rehab of a ground storage tank and various other projects to meet its own needs. For Scenario 1 Status Quo Scenario, the anticipated annual revenue requirement (O&M and capital costs plus any needed addition to reserves or bond coverage) was forecast under the assumption that each utility were to remain separate. Together, the combined utilities would need $444.6 million in revenue over the next 15 years. The projected revenue requirement for each utility begins to increase more noticeably after In the case of the District, the large increase in revenue requirements in 2016 is due to the near-term need for additional treated water and construction and treated water purchase costs associated with accessing the Leander water supply option. For the City, its increasing revenue requirements between 2016 and 2019 is driven by the funding of various major waterline and pump station improvements, and in 2018, the construction of a new water treatment plant. In the later years, the need for major project funding is reduced, and each utility begins to enjoy some economies of scale as growth (more customers) more fully utilizes the existing and new facility capacity. It should be mentioned that CIP place holder amounts (reflecting a representative CIP spending average) were included in the model in the last few years as the existing CIP s do not yet extend that far in time. It should also be noted, as previously described, the District s CIP related to growth has not been included in this analysis. The available growth CIP provided by the District was prepared in 2008 and assumed growth of connections per year and was inexcess of $300M over ten years. As these growth rates were far in-excess of the growth assumptions Feasibility Study Page 85 of 113

95 accepted by the Executive Committee, it was determined that the District s growth CIP should be excluded from the analysis. It should be noted if the District s growth CIP were included in the analysis, the resultant impact is that cost savings would be amplified as financing costs for District assets were a large portion of the identified cost savings. Section Scenario 2 Recast District as an LGC of the City In Scenario 2, the City would take over ownership of the District, its assets, liabilities, and service territory through the formation of an LGC. The City would continue to issue revenue bond debt for the City portion of the consolidated utilities, maintain a 1.5 times bond coverage factor for its revenue debt, and not realize debt service reserve fund requirement. Separate water supply accounts, separate cost center accounting, and separate rates would be maintained for the City and the LGC service area. The City would make a portion of its contracted water supply available to the LGC for a determined period of time. In doing so, the City would realize some financial benefit in not having to carry the cost of those used contract rights during that interim period. With the LGC Scenario, the physical utility systems would interconnect for joint operations. In doing so, the City could avoid the construction of the West Pump Station and Ground Storage Tank and the new water treatment plant would be built to a total capacity of 13.3 mgd to accommodate both the City and LGC needs. The LGC would assume the CCN (service area certification) from the District and would receive consolidated planning, administration, and O&M services from the City. The City would make a defined portion of its contracted surface water supply available to the LGC for a prescribed period of time. The City and LGC water systems would physically inter-connect for joint operations purposes, realizing some power cost savings, and avoiding the need to rehabilitate a ground storage tank in the LGC service area. As a City-owned utility, the LGC would also be extended the City s low-cost capital funding capabilities (lower interest rate and no debt service reserve requirement) using City issued Certificates of Obligation. The LGC would also participate with the City in the funding and use of a new water treatment plant in For Scenario 2 LGC system, the anticipated annual revenue requirement for the combined utilities total $409.5 million over the next 15 years. This represents a net present value savings over the Status Quo of $27.4 million over the next 15 years. The various aspects of a consolidation (more cost-effective O&M, shared resources, avoided projects, economical financing) in the LGC scenario act to noticeably lessen and smooth the projected revenue requirements over time. To be clear, these potential consolidation savings are not forecast to reduce water rates, but to instead dampen the percentage increase and help avoid severe rate spikes and/or pay for infrastructure improvements. Section Scenario 3 Create a PUA for Regional Water Supply In Scenario 3, the City and the District would mostly continue as separate entities, each continuing to hold their own CCN, and providing for their own O&M, financing, administration, and governance of their respective retail systems. However in this scenario, a regional PUA would be formed to receive the current surface water contract rights from the City and the District, provide for an interim reallocation (and charging) for those rights to the two entities to cover anticipated needs of the District, and be the sponsor of constructing new water treatment plant capacity, and ultimately when needed, a new water supply. Feasibility Study Page 86 of 113

96 The City would continue to issue revenue bond debt for its utility with its favorable credit rating and interest rate, 1.5 times bond coverage factor, and no debt service reserve fund requirement. In the transfer of City s surface water contract rights to the PUA and subsequent interim reallocation to the District, the City would realize some savings in not having to carry the full costs of unused contract water. The two systems would not physically interconnect nor be operated as a combined system. The City would build its intended retail CIP, but ultimately participate in the PUA-sponsored construction of a regional water treatment to serve the City and the District. The District would continue to issue revenue bond debt for its utility with its own credit rating and slightly higher interest rate (compared to the City), and provide a 1.1 times bond coverage factor, plus a debt service reserve fund requirement. Instead of pursuing the costly Leander water supply (as was the case in the Status Quo Scenario), the District would now be able to access the City s unused surface water contract rights and additional treatment capacity through the auspices of the PUA. The District would build the remainder of its intended CIP, including a rehab of a ground storage tank and various other projects to meet its own needs. In this scenario, a third utility would now exist. The PUA would acquire the surface water contract rights of the City and the District, be responsible for contract payment to the supplier, and reallocate and charge for them, on an interim basis, to the two underlying entities. The PUA would also be responsible for building new water treatment plant capacity and pursuing longer-term new water supplies. It is anticipated that the PUA would issue contract revenue bonds to finance the debt (at much the same terms that the District now receives) and would have a very small part-time staff and budget to support PUA business. For Scenario 3 Creation of a PUA with Separate Underlying Utilities, the anticipated annual revenue requirement for the combined utilities total $439.9 million over the next 15 years, representing a net present value savings over 15-years over the Status Quo of $3.9 million The more limited aspects of cooperation between the two utilities (basically shared water resources and new treatment capacity) in the PUA scenario act to only marginally reduce the projected combined cost of service. In fact, in this PUA Scenario the City s projected costs actually increase over that of the Status Quo Scenario in having its needed water treatment plant financed under more costly terms through the PUA and from the additional (albeit small) PUA overhead expenses. Net benefits realized by the District under the PUA Scenario act to offset the City s higher costs, but result in only a small amount of 15-yr savings for the two utilities combined. Again, the benefits would need to be shared between the two parties to produce a fair result. In any case, the degree of potential combined financial benefits with a PUA is not nearly as significant as with the LGC Scenario. Section Scenario Comparison The projected 15-yr revenue requirements discussed for each scenario in the previous sections were stated in nominal dollars, i.e. the expected amount of funds to be actually realized in each future year. However, the projected cash flows for each scenario are not uniformly spread through time. For instance, Scenario 1 - Status Quo has the District moving quickly to secure supply from the City of Leander (and thus realizing more significant near-term spending impacts), whereas with Scenarios 2 and 3, the City s water resources are more economically shared with the District service area and the high cost of developing a new water supply is deferred in time. Costs incurred sooner in time have a more significant time-value-ofmoney impact. A technique for capturing those time-based differences between scenarios is to state the projected revenue requirements in present value terms, i.e. what is the expected present value of those future cash flows in today s dollars. When these present value amounts are summed over a defined time frame, a net present Feasibility Study Page 87 of 113

97 value (NPV) statistic can be derived. These NPV statistics can be compared between the differing scenarios to identify comparable potential savings amounts. Figure 6-1 shows the projected net present value of 15 years revenue requirements. The NPV difference between the Status Quo Scenario and the LGC or PUA scenarios identifies the potential savings in costs of taking consolidation action. The NPV difference between the LGC and PUA scenarios indicates the relative gains (or costs) of choosing one action scenario over another. As can be seen, the potential net present value saving of consolidating under an LGC approach produces about $27.4 million of net present value savings. The PUA approach is estimated to produce about $3.9 million in savings. The LGC approach realizes about $23.5 million in savings over that of the PUA. The potential savings with a LGC consolidation approach are consequential. The prospective reduction is more than both utilities annual budgets combined and approximates the cost of a large new water treatment plant. Once more, the various beneficial aspects of a consolidation act to lessen and smooth the projected revenue requirements over time. To be clear, these potential consolidation savings are not forecast to reduce water rates, but to instead help fund the future CIP, dampen the percentage increase, and help avoid severe rate spikes. Feasibility Study Page 88 of 113

98 Page 7.1 Regulatory Process for Transition Rate Jurisdiction 95

99 Section 7.1 Regulatory Process for Transition In the event the Stakeholders determine it is in their best interest to pursue a regionalization initiative, there are regulatory implications that must be considered. The regulatory process may be required for the transition. This process varies depending on the specific governance structure utilized to achieve the regionalization, in addition, the Local Government Corporation process will vary to some degree depending on the ultimate handling of the District. These regulatory implications are discussed further below. Section Public Utility Agency Section a Creation of a Public Utility Agency As described in Section c, a PUA is authorized under Chapter 572 of the Texas Local Government Code and is an agency of the participating entities, a PUA is recognized as a political entity and corporate body and a political subdivision of the State of Texas. A PUA would be formed through concurrent ordinances or resolutions of the participating entities. Chapter 572 outlines specific rights, powers and duties of the participating entities, as well as specific notice requirements for formation of a PUA. The participating entity may form a PUA only if that entity has the authority to engage in providing water and wastewater utility services. The participating entities must each publish notice of its intent to form the PUA in a newspaper of general circulation in the county in which the entity is located. Notice must be published once a week for two consecutive weeks. The first publication must appear at least 14 days before the date set for passage of the concurrent ordinance. The concurrent ordinances must contain identical provisions; define the boundaries of the agency; designate the name of the agency; and designate the number, place, initial term, and manner of appointment of directors. If, before the date set for the adoption of the concurrent ordinance that creates the PUA, 10% of the registered voters of one of the entities forming the PUA present a petition requesting a referendum to be called to the entity requesting the creation of the PUA; the ordinance may not take effect unless a majority of the qualified voters of the entity voting in the election have approved the ordinance. However, if 10% of the voters have not filed a petition, a concurrent ordinance is not subject to a referendum. Section b CCN Boundaries The current proposal for the PUA is that the two entities would continue to own and operate their individual transmission and distribution systems; no change to public certificate of convenience and necessity (CCN) boundaries would be necessary. As such, an application before the TCEQ to amend or change the CCN of either entity would not be necessary. Feasibility Study Page 89 of 113

100 Section c Sale, Transfer, or Merger Application (STM) In the event facilities are to be transferred from the participating entities to the PUA, (such as the treatment plant, intake structure, and major transmission facilities) pursuant to the Texas Water Code, Section , it is likely that a Sale, Transfer, or Merger (STM) Application would have to be filed with the TCEQ as a means of transferring the facilities. The STM Application will have to be filed with the TCEQ and notice must be provided to each customer being transferred as well as each utility in a two mile radius, within at least, 120 days before the effective date of the transfer. The TCEQ can waive public notice requirements for the STM Application for good cause. The STM Application will contain information pertaining to the proposed transaction, the assets to be sold, as well as the financial, managerial, and technical capabilities of the purchasing entity. Upon receipt of the Application, TCEQ staff will perform an administrative review within ten working days to verify administrative completeness. If deficiencies are identified, written notice of the deficiencies is provided to the applicant by mail; corrections must be provided back to the TCEQ within thirty days of receipt of written notice. Prior to the expiration of the 120 day notification period, the TCEQ staff will investigate the proposed transaction during a technical review period. The technical review will evaluate the financial, managerial, and technical abilities of the purchasing entity to meet its duties in providing service. The TCEQ executive director may request a hearing if: 1. Improper notice was given; 2. The purchasing entity is inexperienced as a utility service provider; 3. The purchasing entity has a history of noncompliance with the TCEQ or the Texas Department of Health or of continuing mismanagement or misuse of revenues as a utility service provider; 4. The purchasing entity cannot demonstrate the financial ability to provide necessary capital investment to ensure continuous and adequate service to customers; and 5. There are concerns that the transaction may not serve the public interest. Unless a public hearing is held, the transaction may be completed as proposed at the end of the 120 day period following proper notice or anytime after notice that a hearing will not be requested. If proper notice has not been provided or if a hearing is requested, the transaction may not be completed without a determination by the TCEQ that the transaction serves public interest. If the transaction is contested and a hearing is requested, the application will be referred to the State Office of Administrative Hearings (SOAH). An Administrative Law Judge (ALJ) will be assigned to the case and will take testimony from each party and present a report to the TCEQ to consider in making a final decision on the application. Section d Reissuance of Debt Essentially, the proposed transaction for the PUA would involve the purchase of shared assets from the stakeholders by the PUA. The PUA would have to reissue debt for those assets in the name of the PUA. The PUA financing would represent the purchase money from the PUA to the District and the City; the District and the City would in turn utilize these funds to defease its debt against those assets. Feasibility Study Page 90 of 113

101 Current analysis 12 indicates that a PUA would not have to get TCEQ approval for the issuance of bonds as long as at least one member of the PUA does not have to seek TCEQ approval. Since the City does not require TCEQ approval for issuance of bonds, it is expected that under the PUA model, for PUA issued debt service, TCEQ approval is not necessary. However, to the extent the District issues bonds for its individually owned facilities, TCEQ approval is still necessary. Section Local Government Corporation Section a Creation of a Local Government Corporation As described in Section b, a Local Government Corporation (LGC) is formed under Section of the Texas Transportation Code. An LGC is a corporate entity formed by a municipality or county to aid or act on behalf of the local government to accomplish any governmental purpose of that entity. The LGC must comply with all state laws that apply to the local government that created the corporation. LGCs are fairly common throughout the United States for funding transportation, water and wastewater infrastructure, economic development ventures, and other projects that provide needed benefit to the public. To form an LGC, the local government adopts a resolution supporting the formation of the LGC, as well as articles of incorporation that specify details such as the name, duration, purpose, and number of directors. The Secretary of State of Texas then approves the resolution and articles of the LGC and issues a certificate of incorporation. The LGC board, consisting of three (3) or more non-compensated directors will then adopt bylaws to guide its operation and governance. Once formed, the LGC may work directly with property owners, state and local governments, and elected officials in order to meet the objectives for which it was formed. In this case, the LGC Board, under the direction of the Georgetown City Council, would have oversight of the utility operations assumed from the District and outside the current City service territory. In this manner, the LGC Board would be able to provide increased direct representation to that specific customer base and would facilitate a separation of costs between the two systems. Section b Destiny of Current District As further described in this section, there are a number of options for the destiny of the District in the event that regionalizations were to be achieved through an LGC model. Two specific options include; complete dissolution of the District; or shrinking of the District to be more focused on rural service, while the remaining portions of the District are acquired by the LGC. Each option has its advantages and disadvantages that must be evaluated. The Regulatory transition process for each of these options is outlined below. Complete Dissolution of the District If the Stakeholders determine that the LGC model is the most appropriate regionalization option available and it is necessary to completely dissolve the District in achieving that goal, it appears that the dissolution of the District would be pursuant to the process described in Section 65 of the Texas Water Code. 12 As of the writing of this report, the currently existing PUAs in the State of Texas have not yet issued bonds; as such, this report is relying upon analyses performed on behalf of the West Travis County PUA in preparation for issuance of their first bonds in July 2012 Specific requirements for this PUA, if formed, would rely upon specific analyses performed by the new entity s bond counsel and financial advisor. Feasibility Study Page 91 of 113

102 It must be noted that Section of the Texas Water Code describes a process for the Dissolution of District Prior to Issuance of Bonds ; the statute seems to be silent on the process for dissolution of a district once bonds have been issued. The project team discussed this statute with Tammy Benter, who is with the Utilities Technical Review Team at the TCEQ. It is her opinion that as long as the District s bonds are defeased, the District can be dissolved under the direction of the Texas Water Code. A complete dissolution of the District, acquisition of the assets and accompanying CCN by the LGC would involve several steps to achieve the end acquisition. It is likely that these steps would be conducted concurrently and/or in tandem with one other. Execution of Formal Purchase Agreement for the District s System In the event that both the City and the District mutually agree to the full acquisition of the District s assets and CCN service territory by the City through the formation of a LGC, a formal purchase agreement between the two parties would have to be negotiated and executed. This purchase agreement would outline the transaction details, defeasance of debt, provisions of future service by the City, etc. This purchase agreement would have to be part of the STM Application submitted to the TCEQ. Further, this agreement would be required in order for the City to issue bonds. STM Application Since the LGC would be acquiring the District s system in its entirety, it would be necessary to file an STM Application with the TCEQ. Section c describes the STM Application and associated process. The process for the LGC model is largely the same as that described for the PUA; however, the entirety of the system and its assets would be the subject of the sale. The City/LGC and the District would jointly file this Application with the TCEQ. The LGC would be required to demonstrate the financial, managerial, and technical capabilities of the LGC in providing safe, reliable service. Financial capabilities to meet future capital requirements would also be evaluated. Furthermore, any outstanding compliance issues with either the City s system or the District s system would have to be resolved prior to approval by the TCEQ. While the TCEQ has the ability to waive notice for good cause, it is likely that written public notice of the transaction would have to be provided to each customer being transferred along with each utility within a two mile radius of the system. The TCEQ may request a hearing before SOAH as described in Section c prior to the approval of the transaction. Debt Defeasance As previously described, in order for the District to be dissolved, the District s debt must be defeased. The assets will have to be acquired by the LGC. The City/LGC would issue debt for the acquisition of the system; those funds would be utilized to defease the District s existing debt service. Once the District s debt has been defeased, the District can then be dissolved. District Dissolution The project team has identified two alternatives available for the dissolution of a SUD. 1. Chapter of the Texas Water Code specifically states If a majority of the board finds at any time before the issuance of bonds, notes, or other obligations or the final lending of its credit in another form that the proposed undertaking for any reason is impracticable or apparently Feasibility Study Page 92 of 113

103 cannot be successfully and beneficially accomplished, the board may issue notice of a hearing on a proposal to dissolve the district. Notice of the public hearing must be posted on the bulletin board at the courthouse door of each county in which the District is located and at three or more public places within the boundaries of the district. Further, notice must be published twice in a newspaper with general circulation in the district. The notice must be posted and published at least one time no later than the 14 th day before the date set for the hearing. During the public hearing, the Board shall hear all interested persons and shall consider their evidence at the time and place stated in the notice. Following proper notice and the public hearing, the Board must vote unanimously that the best interests of the persons and property in the district will be served by dissolving the district. In the event of the unanimous vote to dissolve the district, the board shall enter the appropriate findings and order in its records dissolution of the district. If the Board did not unanimously vote to dissolve the district, the board shall enter its order providing that the district has not been dissolved. The Board s decree to dissolve the District may be appealed for the review. 2. Chapter of the Texas Water Code states, After notice and hearing, the commission [TCEQ] may dissolve any district that is inactive for a period of five consecutive years and has no outstanding bonded indebtedness. As a result, if it were determined that due to the fact that the District had previously issued debt, and as a result, the District could not be dissolved per the provisions of Chapter , then it is possible for the TCEQ to dissolve the District after fiveyears of inactivity. Under this scenario, the city would purchase District assets as outlined in this report; the District would still continue to technically exist, but it would become inactive for a period of five-years, at the end of which, the TCEQ could have the District dissolved Amend District Service Area and CCN Boundaries Another option available for consideration is amending the District s Service Area and CCN Boundaries for the purpose of shrinking the District to be more focused on rural service. In this scenario, the City would acquire a portion of the District s system via the LGC model; while a portion of the District s system would remain owned and operated by the District. In addition to amending the District s boundaries, the District s CCN boundaries must also be amended with the TCEQ. Moreover, the transaction would require the filing of a STM Application with the TCEQ. In discussions with TCEQ staff, the most efficient means of processing the transaction with the TCEQ would be to file a STM Application that would concurrently amend the CCN boundaries. The process and notice requirements are largely the same as that outlined in Section c In proceeding with the formation of the LGC as well as an amendment of the District s service and CCN boundaries, these concurrent steps are required. Execution of Formal Purchase Agreement for a Portion of the District s System In the event that both the City and the District mutually agree to the partial acquisition of the District s assets and CCN service territory through the formation of a LGC, a formal purchase agreement between the two parties would have to be negotiated and executed. This purchase agreement would outline the transaction details, defeasance of debt, the service area and assets to be transferred, provisions of future service by the City, etc., in addition to the purchase price. This purchase agreement would have to be part of the STM Application submitted to the TCEQ. Further, this agreement would be required in order for the City to issue bonds. Feasibility Study Page 93 of 113

104 STM Application As the LGC would be acquiring a portion of the District s system and customer base, it would be necessary to file an STM Application with the TCEQ. Section c describes the STM Application and associated process. The City/LGC and the District would jointly file this Application with the TCEQ transferring a portion of the assets. This application would also concurrently amend the District s CCN dedicating a portion of the current CCN to the City. The LGC as well as the remaining District would be required to demonstrate the financial, managerial, and technical capabilities in providing safe, reliable service to the two proposed individual systems. Financial capabilities of the LGC as well as the new, amended District, to meet future capital requirements would also be evaluated. Furthermore, any outstanding compliance issues with either the City s system or the District s system would have to be resolved prior to approval by the TCEQ. While the TCEQ has the ability to waive notice for good cause, it is likely that written public notice of the transaction would have to be provided to each customer being transferred and to each utility within a two mile radius of the system to be transferred. The TCEQ may request a hearing before SOAH as described in Section c prior to the approval of the transaction. Debt Defeasance The purchase agreement would identify the portion of assets and the corresponding cost of those assets to be transferred to the LGC. The City/LGC would issue debt for the negotiated acquisition amount; those funds would be utilized to defease the District s existing debt service Feasibility Study Page 94 of 113

105 Section 7.2 Rate Jurisdiction Once the regionalization transition has taken place, a significant issue of consideration is related to rate jurisdiction of the proposed governance structures. The TCEQ has varying jurisdictional authority over rates charged by a utility, depending on the governance structure of the owning entity. Prior to describing the authority of the TCEQ over rates charged by an entity, it is first necessary to define a few specific terms: Original Jurisdiction. Circumstances where the TCEQ has the authority to review and approve or modify the rates charged by an individual or corporation for water or sewer services. Appellate Jurisdiction. Circumstances where the TCEQ has the authority to review and either approve or modify the decision of another authority after receiving an appeal from affected customers or parties. Section Status Quo The City of Georgetown has original jurisdiction for rates charged by the City to the City s inside-city customers. The TCEQ has appellate jurisdiction over the City s rates charged to outside city customers if 10% of those customers file a petition for review of the rates charged. If 10% of the outside city customers appeal the rates, the TCEQ would then proceed with a formal review process of the rates. This review process would be referred to SOAH for formal proceedings. The City is required to give notice of the rate change to outside city customers prior to implementing the change. The conceptual reasoning for original jurisdiction over rates charged to inside city customers belonging to the City is that as those customers reside within the City, they have the power to vote for the elected officials who ultimately assess the rates. Whereas, outside city customers do not have the ability to vote for the elected officials who approve the rates, therefore, these customers receive representation through the appellate process by way of the TCEQ. The TCEQ does not have original jurisdiction over rates charged by the District. However, the TCEQ does have appellate jurisdiction over rates if 10% of the customers, residing within the District s boundaries or outside, file a petition of appeal with the TCEQ. The District does not have to provide notice to inside-district customers regarding the change in rates; however, notice must be given to outside-district customers. Section Public Utility Agency Under the PUA, retail services would continue to be provided by the City and the District. As such, retail rate jurisdiction would remain unchanged from the Status Quo. However, as the PUA would essentially become a wholesale service provider to the two entities, the TCEQ may have appellate jurisdictional authority over the wholesale rates charged by the PUA to the wholesale customers. Section Local Government Corporation If the City were to form a LGC for ownership of all or a portion of the District s service territory, the affected customers would essentially become the equivalent of outside city customers. Consequently, Feasibility Study Page 95 of 113

106 the TCEQ would have appellate jurisdiction over rates charged to customers in other words, customer protection through the appellate jurisdiction of the TCEQ would essentially remain unchanged from the Status Quo. Since all of the LGC customers served by the City would be outside city customers, the City would be required to provide notice of a rate change to these customers; thereby increasing the notice currently required to be given to the District s customers. Feasibility Study Page 96 of 113

107 Page 8.1 Overview of Alternatives Customer Presentation Evaluation Criteria 103

108 Section 8.1 Overview of Alternatives Section Status Quo Chisholm Trail Special Utility District was created in 1990 by order of the Texas Natural Resources Conservation Commission (now, the Texas Commission on Environmental Quality, TCEQ ) pursuant to Chapter 65 of the Texas Water Code. The District has a seven-member board of directors that govern, among other things, District policies, capital programs, budgeting, and rate setting. The District s general manager answers directly to the board of directors and is responsible for carrying out day to day operations of the District in accordance with policies and directions set forth by the board of directors. The City of Georgetown is a home rule city, which adopted its first charter in As adopted, the City has a council-manager form of government. Under this form of government, the City Council provides leadership by establishing the City s goals and policies. The City Council appoints a City Manager to achieve the desired goals and objectives set by the City Council. The manager oversees the day-to-day activities of the City and executes Council established laws and policies. The City Council consists of eight members a mayor, elected at large, and seven council members elected from individual singlemember districts. 13 Georgetown Utility Systems (GUS) is a Division of the City of Georgetown. GUS is responsible for the management and operations of the City s electric, water and wastewater systems. GUS is an advisory board that reviews policy, rates, and contracts and makes recommendations related to these issues to the City Council. 14 The City Manager reports directly to the City Council, the City s Assistant City Manager of the Utility Operations, reports to the City Manager and serves as a liaison to the GUS advisory board. The City and the District are currently separate and distinct legal entities. While the two have vested interest in a shared water treatment plant, their governance, operations and management are separate and distinct from one another. The governance structure of these entities is illustrated on Figure City of Georgetown website: 14 The GUS advisory board does not make recommendations related to transportation issues. Feasibility Study Page 97 of 113

109 Figure 8-1 Status Quo Governance Structures 15 - Chisholm Trail Special Utility District Customers City of Georgetown Citizens Board of Directors City Council GUS Advisory Board General Manager City Manager Asst. City Manager Section Local Government Corporation LGCs are commonly used as a funding mechanism for transportation, water and sewer infrastructure, economic development ventures, and other beneficial projects. Through the creation of a LGC, the municipality has some limitation of exposure from lawsuits and claims brought against the LGC and financial risk to the parent entity (ies) may also be limited. Furthermore, as an LGC typically has a separate board of directors, the elected officials of the parent entity (ies) can concentrate on other local issues, allowing the LGC to specifically focus on utility related matters. A LGC allows for autonomy for the overall operations and management of the utility within the LGC. LGCs can be formed jointly between two municipalities or a municipality and a county. Under this scenario, the District either would be dissolved or amended in service territory for a more focused rural service, therefore, the City could acquire all or a portion of the District s assets, infrastructure, and CCN. The City would form a separate LGC to own, manage, and operate the system. A board of directors is appointed to the LGC to represent the interest of the customers of the system. Specific processes for LGC board appointments, authority, and policy setting will have to be identified and outlined within the articles of incorporation. It is anticipated that the LGC would fall under the purview of the GUS board and as such, it is feasible for LGC board members to also serve on the GUS board. This issue will likewise need to be addressed and outlined within the articles of incorporation. Figure 8-2 provides a draft outline for the governance related to this option. 15 Figure 8-1 illustrates the governance of the two entities and does not present the management and operational organizational structures. These structures will be further evaluated in other sections of this report. Feasibility Study Page 98 of 113

110 Figure 8-2 Local Government Corporation Organizational Structure Georgetown City Council LGC System Customers GUS/LGC Board GUS System Customers Management Section Public Utility Agency The next option to be evaluated is a Public Utility Agency (PUA), that could be formed to own all or a portion of the utility system assets for one or both Stakeholders. A PUA is authorized under Chapter 572 of the Texas Local Government Code; Section provides authority to jointly own, operate, finance, and maintain facilitates in a manner that will: 1. Achieve economies of scale; 2. Promote orderly economic development; and 3. Provide environmentally sound protection of the state s future water and wastewater needs. A PUA may not impose a tax, but has other facility related powers that are provided by law to a municipality that owns a utility. Current analyses indicate that a PUA can serve as a wholesale service provider, yet under current legislation cannot provide retail service. 16 Under this scenario, the District would continue to exist as a separate legal entity. Ownership of all or some of the Stakeholder assets may be transferred to the PUA, as deemed appropriate by the participating entities. The PUA would have a separate board of directors, which would be responsible for the management, operations, and control of the assets belonging to the PUA. All or a portion of the assets may be transferred to the PUA. The participants of a PUA are not limited to municipalities; Districts, and counties may be participating entities of a PUA. The general governance structure of a PUA is outlined on Figure 8-3 below. 16 Legislation may be introduced in the 2013 legislative session to address this issue. Feasibility Study Page 99 of 113

111 Figure 8-3 Public Utility Agency Organizational Structure Feasibility Study Page 100 of 113

112 Section 8.2 Customer Representation At the beginning of this engagement, the Executive Committee established that a primary goal within this endeavor is to provide for representation of each Stakeholder, to the greatest extent possible. Furthermore, the Committee established customer representation as criteria for evaluation of the alternative options available. Consequently, the following discussion provides an overview of customer representation that will be provided through each of the alternatives. Section Status Quo The current City of Georgetown residents are afforded representation through their ability to vote for the City of Georgetown city council. Section Local Government Corporation Using the Local Government Corporation model, the City s representation would remain unchanged. As stated in Section 7.2.3, the District s customers would be the equivalent of outside-city customers and would continue to have representation through the appellate jurisdiction of the TCEQ. If a petition, including 10% of the outside-city customers within a specific rate class were filed with the TCEQ, then they would refer the case to the State Office of Administrative Hearings (SOAH) for a hearing. This is basically the same representation and remedy for rate issues currently available to the District s customers. However, upon conversion to a LGC model, customers served by the LGC would no longer have the ability to vote for the elected officials as is currently available. That being said, the LGC customers would have specific representation on the LGC Board. The specific mechanics related to the number of representatives appointed, their roles and responsibilities would need to be determined and specifically outlined and addressed in the Purchase Agreement as well as the LGC by-laws. It must also be noted that several of the District s water customers receive wastewater and/or electric utility services from the City. Therefore, through the infusion of representation of LGC customers on the GUS Board, in some respects, representation to these customers actually increases. Section Public Utility Agency As the Public Utility Agency would essentially function as a wholesale service provider to the City and the District, the TCEQ would have appellate jurisdiction over the wholesale rates charged by the PUA to the two entities. The PUA board would likely be appointees made by the Georgetown City Council and the District Board of Directors. Residents residing within City limits and District boundaries would have the ability to vote for the elected officials who appoint the PUA board members. Utilizing the PUA model, the City and the District would continue to provide retail service to their respective customers. As a result, these customers would have the same representation available to them as with the Status Quo for retail rate issues. Figure 8-4 summarizes the differences in representation available for each governance structure. Feasibility Study Page 101 of 113

113 Figure 8-4 Summary of Representation Available with Each Governance Structure Customer Representation Ability to Vote for Elected Officials- Inside City/District Ability to Vote for Elected Officials- Outside City/District Appellate Jurisdiction of TCEQ- Inside City/District Appellate Jurisdiction of TCEQ- Outside City/District Status Quo Local Government Corporation Public Utility Agency City District City District City District Yes Yes Yes No Yes Yes No No No No No No No Yes No Yes No Yes Yes Yes Yes Yes Yes Yes Feasibility Study Page 102 of 113

114 Section 8.3 Evaluation Criteria Section 2.0 of this report outlined specific evaluation criteria established by the Executive Committee at the commencement of this engagement. The Committee identified the criterion that would be utilized as measuring sticks to evaluate the ability of the alternative options to meet the goals and directives of the Stakeholders. The criterions identified are: 1. Representation to the greatest extent possible for each Stakeholder; 2. Cost-savings achieved through regional efforts (i.e. cost effectiveness); 3. Quality of service achieved (i.e. fire flows); 4. Enhanced growth management; 5. Effective long-term infrastructure and water supply planning; and 6. Risk management. The text below describes the ability of each of the alternatives to meet the evaluation criteria established. Section Status Quo Representation Customers residing within the District s boundaries and City limits currently both have the ability to vote for the elected officials who ultimately approve budgets, capital spending and authorize rates. Customers who are served by the City s utility system who are not within city-limits fall within the appellate jurisdiction of the TCEQ. Customers within the District s boundaries as well as those who are outside the District s boundaries also fall within the appellate jurisdiction of the TCEQ. Most of the customers served by the systems have enhanced representation as they have a voice in spending and operations through their respective vote for the elected officials who approve such spending. While more costly, the Status Quo allows both entities complete autonomy and maximizes representation to the greatest extent possible. Cost Savings as illustrated in Figure 8-5 of this report, the Status Quo scenario is the least cost-effective as many services provided by these neighboring systems are duplicative in nature and the District s ability to obtain low-cost financing is limited Quality of Service in terms of enhanced services for items such as meeting fire-flows, the District simply would not be able to meet these demands under the Status Quo scenario. Additionally, as the District continues to have issues meeting the required water supplies and treatment capacity necessary to meet summer peaking demands; without substantial capital investment, the District would continue to be susceptible to summer watering restrictions. Growth Management the Status Quo would not facilitate growth management; in fact, as the District s water supplies are almost completely committed, future growth within the District would cease without the District securing additional water supplies. This may have a severe economic impact on the area; and could severely affect the District s future financial performance. Infrastructure and Water Supply Planning while the two Stakeholders may continue to coordinate joint infrastructure planning into the future, the joint opportunities would be limited as compared to regionalization scenarios. Feasibility Study Page 103 of 113

115 Risk Management the risks of the Status Quo scenario are limited to the individual performance of the autonomous entities, for the most part. However, it must be noted that there are risks associated with the Status Quo such as limitations on growth that equally must be considered. Section Local Government Corporation Representation Under the LGC model, the City s customers would not see any change to representation associated with the regionalization. All of the District s customers will continue to fall within the appellate jurisdiction of the TCEQ; meaning the District s customers would always have the ability to file a petition with the TCEQ pertaining to their rates. The District s customers would also have a voice in the operations of the LGC system through the LGC Board that would likely be made up of residents within the City as well as those residing in the areas outside the City. Cost Savings as illustrated in Figure 8-5 of this report, the LGC presents the greatest opportunity for cost savings; currently estimated at a net present value of $27.4M in savings over 15-years. Quality of Service A regionalized system would result in enhanced services being provided to all of the LGC customers. The LGC customers would have the same watering restrictions imposed on the City s customers (which historically have been substantially less severe as the restrictions imposed by the District). Furthermore, in some areas of the LGC, fire flows would be provided. As a result, the overall quality of service under the LGC framework would improve from the Status Quo. Growth Management the LGC would facilitate growth management; well beyond that which is possible with the Status Quo. The City would be able to extend/loan some of the City s water rights to the LGC, allowing the District to continue to provide service to new subdivisions, thus enabling the entire area to continue to grow. Through enhancement of fire flows, growth management is further enhanced. Joint Infrastructure and Water Supply Planning As a unified regional system, water supply, and facility planning can be maximized. Risk Management regionalization of these entities through an LGC reduces the District s risk although the City s risks are slightly increased. It is anticipated that the risks to the City can be managed through efficient and effective operations, fair and reasonable cost allocations to both systems, and joint management. It must also be emphasized that the benefits of solving the growth limitation issues to the City due to the District s water supply issues; likely, far out weight the slight increase in risk. Section Public Utility Agency Representation The TCEQ would continue to have the same appellate jurisdiction over rates charged to retail customers as the Status Quo. In addition, the TCEQ would have appellate jurisdiction over the wholesale rates charged by the PUA to the two separate entities. The voting representation of the two separate entities would remain unchanged from the Status Quo. Cost Savings the PUA presents marginal cost savings over the Status Quo. This marginal cost savings could easily be alleviated due to possible additional costs that may be associated with the creation of an additional layer of government to manage. Quality of Service in terms of enhanced services for items such as meeting fire-flows, the District may not be able to provide fire flows through the PUA. Using the PUA, the District s ability to meet peak summer demands may be enhanced, depending on the water sharing agreement structured within the Feasibility Study Page 104 of 113

116 PUA. However, the specifics of if, and how this is accomplished would have to be negotiated through the Purchase Agreement, concurrent ordinance/resolution, and possible additional Inter Local Agreements between the PUA and the City and District. Growth Management if an amicable water sharing agreement could be reached, growth management may be enhanced by the PUA. Joint Infrastructure and Water Supply Planning the PUA will not have any enhanced joint infrastructure planning over the Status Quo. However, there may be some enhancement in water supply planning. Risk Management the City may see a moderate increase in risk due to the PUA model, while the District may see a slight decrease in risk associated with the PUA. Figure 8-5 summarizes the ability of each governance structure to meet the evaluation criteria. Figure 8-5 Summary of Governance Structures and Evaluation Criteria Evaluation Criteria Local Government Corporation Public Utility Agency City District City District Representation Voting Same Decrease Same Same TCEQ Appellate Jurisdiction Same Same Same Same Cost-Savings Approximately Approximately $27,400,000 $3,600,000 Quality of Service Same Enhanced Same Enhanced Growth Management Enhanced Enhanced Same Enhanced Infrastructure and Water Supply Planning Risk Management Enhanced Enhanced Same Enhanced Slight Increase Decrease Moderate Increase Decrease Feasibility Study Page 105 of 113

117 Page 9.1 Other Issues 106

118 Section 9.1 Other Issues In additional to the areas of examination previously outlined in this report, a number of other issues were discussed with the Executive Committee, as described below. Continued Safe and Reliable Services to All Customers It should be emphasized that both Stakeholders are committed to ensuring that safe and reliable services will continue to be provided to all of the District s customers, regardless of governance option pursued. In the event the Stakeholders determine that the LGC model is the most effective means of expediting regionalization and it is most appropriate to have only a portion of the District s assets and service territory transfer to the LGC at this time; it should be emphasized that additional due diligence of this option should be conducted in order to thoroughly analyze the impacts of such option on all Stakeholders, including the District s customers who transfer to the LGC and those who remain with the District. Prior to proceeding with this option, a determination would be made that both the LGC system and the District s remaining system would have the financial, managerial and technical abilities necessary to provide safe and reliable services without undue burden on the ratepayers of both systems. Reliable service would continue to be provided to all customers and the financial impacts of providing such service under the proposed governance option would be well understood prior to proceeding with the transaction. As part of providing safe and reliable services, a fair and equitable distribution of raw water contracts/rights between the two systems would be determined/negotiated as well. Rural Customers Substantial discussion has ensued regarding the distinctions between rural and urban customers. It is evident that the District s customer base has evolved over the years from a predominantly rural system, to a system that provides service to rural as well as urban customers. In fact, District staff and representatives indicate that the District serves more urban customers than rural customers at this time. This trend is anticipated to continue as growth areas, such as those neighboring the City continue to build higher density subdivisions. Typically, the cost of providing service to rural customers is very different from the costs of providing service to urban type customers. Several factors influence the differential in costs including variations in level of service (such as providing fire-flows to urban areas and not rural areas), infrastructure utilized to provide service, excess system capacity which may be reserved for future urban growth, as well as usage and peaking patterns of system customers. In the event that a regionalized initiative is pursued, there are strategies that could be used to create additional protections for rural customers. Specifically, regardless of the regional initiative utilized, a separate rural customer class could be established. Cost of service analyses would be performed to identify specific costs associated with providing service to rural customers. Customer rates would be designed to recover solely those costs of service associated with serving rural customers. As such, rural customers would not subsidize growth areas. This would provide an additional layer or protection and equity to these customers. Furthermore, through the creation of a rural customer class, the required threshold for customers signing a petition to appeal rates is 10% of the affected customer class. As a result, through the creation of a separate customer class, rural customers need a significantly small number of customers to sign a petition protesting rates to Feasibility Study Page 106 of 113

119 trigger the appellate process through the TCEQ. This is an added layer or protection that could enhance representation for the rural customer class. O&M Contract As an alternative to regionalization through governance, it was discussed that the Stakeholders may elect/choose to enter into an Operations and Maintenance contract (O&M contract) whereby the City would operate the District s system through a contractual agreement. While some economies of scale may be achieved through this effort, the cost savings would not be nearly as great as those that would be achieved through true regionalization. If the District continues to be an autonomous legal entity, the District would still have to have general counsel, bookkeeping and auditing services, as well as engineering services. In addition, an O&M contract would not address the driving force behind the need for regionalization; and would equally not meet any of the goals and evaluation criteria identified by the Executive Committee. Investor Owned Utility Purchase of the District s System Another alternative that may be available for the District is selling the District s system to an Investor Owned Utility (IOU). In this instance, the District would be dissolved and would sell its assets and service area to an IOU for an agreed upon purchase price. IOU purchases of utility systems are not uncommon. In some instances an IOU can infuse capital investment into systems that otherwise may not be possible if the system were owned by a governmental entity due to bonding capacity limitations. There are many examples of successful investor owned utility systems. However, prior to making such a decision, the impacts to customers due to investor owned utility ownership must be thoroughly understood. While there are many factors which must be considered when evaluating an IOU purchase, the following discussion focuses on the differences in rate setting for an IOU as compared to a governmental owned system. Government owned utilities (such as the City, the District, the LGC, or the PUA) generally set customer rates using a cash-basis methodology. IOU s set rates based upon a utility basis methodology. The primary difference is that the cash-basis methodology includes annual debt service, cash-capital outlay, times coverage and reserve requirements in addition to O&M expenses in setting rates while an IOU sets rates based upon a return on investment, interest expense, and depreciation expense (as well as O&M expenses). The resultant impact is that an IOU s capital costs borne by ratepayers will typically be higher. Figure 9-1 provides an illustration of the variances in capital costs for an IOU versus a governmentally owned utility. It was assumed that the principle on the governmental owned utility s bonds are the same as the net book value of assets. Feasibility Study Page 107 of 113

120 Figure 9-1 Sample of IOU versus Government Owned Utility Rates Government Owned Utility IOU Variance Net Book Value of Assets/Bond Principal $ 10,000,000 $10,000,000 Annual Debt Service (Assumed 4%, 25 Years) 640,120 n/a Times Coverage 160,030 n/a Annual Depreciation Expense (Assumed 40 Years) n/a 250,000 Return on Investment (Assumed ROI 8%) n/a 800,000 Total Annual Capital Expense $ 800,150 1,050,000 $249,850 Percent Variance 31% In addition, in the state of Texas, an IOU can also recover through its rates property taxes and income taxes; which is not included in this analysis. In addition, while a government owned utility could often collect impact fees, an IOU meets its revenue requirements through rates. As a result, in many cases IOU rates can be as much as 50%-100% higher than the rates charged by governmentally owned entities. While IOU systems have their place and can provide added benefits to customers, the long-term impacts to customers must be thoroughly understood. Feasibility Study Page 108 of 113

121 Page Overview of Transitional Plan 109

122 Section 10.1 Overview of Transitional Plan The project team has developed a transitional plan that would be utilized as a road map in proceeding in the event the Stakeholders determined that continued coordination toward regionalization is prudent and in the best interests of each individual stakeholder. The transitional plan is broken into sequential phases that would be required in order to pursue either the PUA or LGC scenarios presented in this report. Phase 1: Conduct Feasibility Study The regionalization process began through the agreement between the City and the District to conduct a feasibility study to identify whether regionalization is feasible and economical, and an examination of various regionalization governance vehicles. This is the first-step in a lengthy due-diligence evaluation process. This report presents a summary of the findings of that feasibility study. Expected Duration: Deliverable: 120 Days Feasibility Study Phase 2: Decisions to Proceed Once the Feasibility Study has been presented to the Stakeholders, each entity must then proceed with their independent processes to determine whether it makes sense to proceed forward with regionalization efforts. This involves answering the following basic questions. 1. Do we proceed with regionalization? If either Stakeholder determines that they are not interested in proceeding with regionalization, the process would stop. 2. If it is determined, that regionalization should be pursued, which governance vehicle should be utilized? The project team has outlined two alternative regionalization governance vehicles. Each entity must determine which regionalization vehicle is preferred. It must also be emphasized that both Stakeholders must agree as to which regionalization vehicle is to be utilized. 3. If it is determined that the LGC model is the preferred governance vehicle, do we proceed with absorption of the entire District s service area into the LGC, or a partial service area? If it is determined that the LGC model is the preferred governance vehicle to be utilized to achieve regionalization, it must also be determined whether the LGC would absorb the entire service area of the District, or a portion thereof. Prior to proceeding with future phases of regionalization, these fundamental questions must be answered, as they will provide guidelines as to specifically how to proceed. In the event that both Stakeholders agree as to whether and how to proceed with regionalization, it is recommended that, the entities enter into a Memorandum of Understanding (MOU) that outlines a basic Feasibility Study Page 109 of 113

123 understanding between the entities. Items to be addressed in the MOU may include, but would not be limited to: The governance structure to be utilized; In the event the LGC model is to be utilized, whether the entire service territory or a portion thereof is to be transferred; Scope of work and associated time-line for proceeding; and Capital contributions towards due diligence, negotiations, and additional analysis. Expected Duration: Action Item: Days Executed MOU Phase 3: Additional Analysis, Due Diligence and Contract Negotiations During Phase 3, the entities would proceed with independent and joint due diligence initiatives. If the entities determine that the LGC model in which only a portion of the District s system transfers, additional analysis must be conducted. First, the portion of the system to be transferred must be defined. In so doing, it must be determined the most appropriate portion of assets to transfer. As part of this analysis, financial models must be built for each individual entity (the remaining District and the LGC) which illustrates that each individual entity can be a self-sustaining enterprise without undue burden on the rate payers; this is a critical issue to all customers of the District s system and is also an issue of concern to the TCEQ during their evaluation of the proposed transaction. If the entities determine that the PUA model is to be utilized, additional analyses must be conducted to determine which assets are to transfer to the PUA. Financial models for all three entities (PUA, City and District) must be conducted to illustrate that all three entities can operate as self-sustaining enterprises. Wholesale rate structures and the subsequent impact on retail ratepayers must be analyzed. The results of additional analysis would be reported to each entity through written reports as well as public presentations as necessary. During Phase 3, contract negotiations would ensue to determine assets and service area to be transferred, timing of the transfer, cost of the transfer and related debt defeasance, cost allocation methodologies, board representation (which applies to either the PUA or the LGC), and other relevant issues would all be outlined in the negotiated contracts. It is anticipated that this would be a highly interactive process such that both entities have ample opportunity to evaluate the proposed contract terms. Expected Duration: Deliverables: Days Reports on Additional Analyses Draft Contracts Phase 4: Public Process Following the negotiation of draft contracts, it is anticipated that each entity would proceed with their joint and/or independent public processes that may consist of publication of notice as well as public hearings as appropriate and required by law. Expected Duration: Days Feasibility Study Page 110 of 113

124 Phase 5: Contract Execution and State Filings Following the public process implemented by each Stakeholder, publication of notice as required by law, appropriate motions and voting to approve the proposed transaction, each entity would execute contracts to proceed with the transaction. This is the point in which each entity has formally and officially agreed to proceed with regionalization. If the LGC model is to be utilized the City would proceed with the required process to form the LGC through notice publication, public hearings and passing of resolutions approving the LGC as required by law. If the PUA model were to be utilized, both entities would proceed with notice publication, public hearings, and passing of concurrent ordinances/resolution to approve the PUA. In addition, if the LGC model were to be utilized, the City would have to make appropriate filings with the Secretary of State following the passing of the resolution authorizing the creation of the LGC. Finally, if the parties were to desire and agree to terms, the City may assume interim contract operations of the District s system upon contract execution. Interim contract operations would continue until the final transaction closing and the official transfer of system assets. Expected Duration: Action Items: Days Contract Execution New Governance Formation State Filings Operations Transfer Phase 6: TCEQ Process Upon the execution of contracts and formation of the new governance entity, Phase 6 encompasses the TCEQ processes associated with filing the STM and/or CCN applications as required. These processes were more thoroughly described in Section 7.1 Regulatory Process. Initial applications consisting of details of the service area and assets to be transferred, as well as validation of the financial, managerial, and technical capabilities of the owning entities must be included in the application. Notice must be provided to affected customers, property owners and neighboring utilities. As previously described, the TCEQ may make a determination that a hearing process through SOAH may be required. The transaction may proceed only after the TCEQ issues a notice to proceed. Expected Duration: Deliverable: Days Relevant TCEQ Applications TCEQ Approval of Transaction Phase 7: Close Transaction Upon notification from the TCEQ to proceed with the transaction, the purchasing entity (LGC or the PUA) will proceed with the issuance of bonds to fund the transaction. Upon receipt of bond monies, the purchasing entity will submit funds to the District. At this time, the entities would essentially exercise a closing whereby the assets would transfer to the purchasing entity. The District would utilize the funds to defease/retire its bonds. Feasibility Study Page 111 of 113

125 Expected Duration: Deliverable: Days Project Funding Final Closing Asset Transfer District Debt Defeasance Phase 8: District Dissolution In the event it is determined, that the LGC model should be utilized and the District would be dissolved, the District would then proceed with the formal process of dissolving the District. At this point, the District would no longer have any assets, the District would no longer have customers or a CCN, and the District would no longer have outstanding bonds. The District attorney would guide the District through the process of dissolution. Step 1 of this process has been completed. It is anticipated that it will take between 8 and 12 months to complete additional due diligence and negotiations and proceed through public processes prior to the execution of contracts. In totality, it will take between 14 and 20 months to fully transfer assets from the District to the regional entity. Delays associated with extended public hearings or SOAH processes would further extent this timeline. Figure 10-1 summarizes this process. Feasibility Study Page 112 of 113

126 Figure 10-1 Transitional Plan Feasibility Study Page 113 of 113

127

128 APPENDIX A CHISHOLM TRAIL UTILITY DISTRICT FIELD INSPECTION REPORTS

129 Field Inspection Report Inspection Date: March 22, 2011 Witness: Mark Handley, P.E. Plant: Legend Oaks Pump Station Contact: David Briggs, P.E. CDM Smith A Riata Trace Parkway Suite 210 Austin, TX Type of Testing: A visual evaluation of the electrical distribution equipment and respective equipment was initiated within the confines of NFPA 70B Recommendations are based upon the observations in the field and are not guaranteed to be indicative of conditions in areas not accessible for inspection under energized conditions. Manufacturer/Model/Serial #: GE Evolution Series E9000 MCC, 1600A, Cat # 0C64X0606F01 Ge Zenith transfer switch, 1600A Area: Pump Station Location: General Vicinity of Georgetown, TX Comments: 480V utility service is via a 500kVA pad mounted transformer. The utility service is connected to a 1600-A transfer switch, which feeds a 1600A MCC. The existing transfer switch is service entrance rated. Provisions for a future generator are provided. Discipline: Electrical Engineer Asset Type and Description: Existing electrical infrastructure Voltage/Amperage/Phase: 480V/ 1600A/ 60HZ/ 3-Ø Specification/ Submittal Reference: N/A Project: Georgetown CTSUD Consolidation Feasibility Overall Condition Rating: No major problems noted. Overall Performance Rating: Good rating. The facility was built in No equipment problems were Observed. Photograph shows the MCC (right side) and the VFD and solid state soft starter (left side). Date Revised: 5/25/12

130 Field Inspection Report Comments (continued from previous page): The existing pump station consists of (2) 250HP pumps with provisions for an additional (2) 250HP pumps. One of the existing pumps is VFD driven while the other pump is on a solid state soft starter. The capacities of the existing transfer switch and MCC are adequate for the new and future load. The existing MCC (General Electric Evolution Series E9000) is of current manufacture; spare parts from the manufacturer are still available. NEMA enclosure type 12. Arc flash labels are not present on the distribution equipment. The PLC is an Allen Bradley Micrologix. Spare parts are still available from the manufacturer. The site includes an antenna for SCADA communications. Electrical equipment testing reports were not observed Date Revised: 5/25/12

131 Field Inspection Report Recommendations: 1. Per NFPA, arc flash labels are required for distribution equipment to warn the operators or electricians of potential electric arc hazards and the personal protective equipment required for working on the equipment. It is recommended to perform a short circuit study, coordination study, and arc flash calculation per NFPA 70E for the power distribution system to estimate the available incident energy during electric fault at the qualified equipment. Arc flash labels should be provided and installed for the equipment. 2. No testing records on the electric equipment such panelboards and motor control centers were observed. Electrical protection devices such as circuit breakers need to function properly during a fault; improper operation could lead to safety hazard or equipment damage. It is recommended that breakers 100A and above be tested for proper operation. 3. Per NFPA, arc flash labels are required for distribution equipment to warn the operators or electricians of potential electric arc hazards and the personal protective equipment required for working on the equipment. It is recommended to perform a short circuit study, coordination study, and arc flash calculation per NFPA 70E for the power distribution system to estimate the available incident energy during electric fault at the qualified equipment. Arc flash labels should be provided and installed for the equipment. 4. No testing records on the electric equipment such panelboards and motor control centers were observed. Electrical protection devices such as circuit breakers need to function properly during a fault; improper operation could lead to safety hazard or equipment damage. It is recommended that breakers 100A and above be tested for proper operation. Date Revised: 5/25/12

132 Field Inspection Report Inspection Date: March 22, 2011 Witness: Mark Handley, P.E. Plant: Stonewall Pump Station Contact: David Briggs, P.E. CDM Smith A Riata Trace Parkway Suite 210 Austin, TX Type of Testing: A visual evaluation of the electrical distribution equipment and respective equipment was initiated within the confines of NFPA 70B Recommendations are based upon the observations in the field and are not guaranteed to be indicative of conditions in areas not accessible for inspection under energized conditions. Manufacturer/Model/Serial #: Eaton Freedom Series MCC, 1200A # SUX73939 Area: Pump Station Location: General Vicinity of Georgetown, TX Comments: 480V utility service is via a 750kVA pad mounted transformer. The utility service is connected to a 1200A MCC. The MCC includes 2 main breakers, one for utility feed and one for generator power; the two mains are kirk key interlocked so that only one main can be closed at a time. Provisions for a portable generator connection are present. Discipline: Electrical Engineer Asset Type and Description: Existing electrical infrastructure Voltage/Amperage/Phase: 480V/ 1200A/ 60HZ/ 3-Ø Specification/ Submittal Reference: N/A Project: Georgetown CTSUD Consolidation Feasibility Overall Condition Rating: No major problems noted. Overall Performance Rating: Good rating. The facility was built in No equipment problems were observed. Photograph shows the 1200A MCC Date Revised: 5/25/12

133 Field Inspection Report Comments (continued from previous page): The existing MCC (Eaton Freedom Series 2100) is of current manufacture; spare parts from the manufacturer are still available. NEMA enclosure type 12. The MCC has adequate capacity to accommodate the installed (2) 250HP VFD driven pumps. Arc flash labels are not present on the distribution equipment. The site includes an antenna for SCADA communications. The PLC is an Allen Bradley Micrologix. Spare parts are still available from the manufacturer. Electrical equipment testing reports were not observed Recommendations: 1. Per NFPA, arc flash labels are required for distribution equipment to warn the operators or electricians of potential electric arc hazards and the personal protective equipment required for working on the equipment. It is recommended to perform a short circuit study, coordination study, and arc flash calculation per NFPA 70E for the power distribution system to estimate the available incident energy during electric fault at the qualified equipment. Arc flash labels should be provided and installed for the equipment. 2. No testing records on the electric equipment such panelboards and motor control centers were observed. Electrical protection devices such as circuit breakers need to function properly during a fault; improper operation could lead to safety hazard or equipment damage. It is recommended that breakers 100A and above be tested for proper operation. Date Revised: 5/25/12

134 Field Inspection Report Inspection Date: March 21, 2012 Witness: Mark Handley, P.E. Plant: 1896 Pump Station Contact: David Briggs, P.E. CDM Smith A Riata Trace Parkway Suite 210 Austin, TX Type of Testing: A visual evaluation of the electrical distribution equipment and respective equipment was initiated within the confines of NFPA 70B Recommendations are based upon the observations in the field and are not guaranteed to be indicative of conditions in areas not accessible for inspection under energized conditions. Manufacturer/Model/Serial #: Square D Motor Control Center, Model 6 FO# Area: Pump Station Location: General Vicinity of Georgetown, TX Comments: 480V utility service is via (3) 100kVA pole mounted transformers. The utility feed is connected to a pole mounted 600A NEMA 3R disconnect switch which feeds the 600A MCC. The existing MCC (Square D Model 6) is of current manufacture; spare parts from the manufacturer are still available. NEMA enclosure type 12. Discipline: Electrical Engineer Asset Type and Description: Existing electrical infrastructure Voltage/Amperage/Phase: 480V/ 600A/ 60HZ/ 3-Ø Specification/ Submittal Reference: N/A Project: Georgetown CTSUD Consolidation Feasibility Overall Condition Rating: No major problems noted. Overall Performance Rating: Fair rating. The facility was built in No equipment problems were Observed. Arc flash labels are not present on the distribution equipment. Date Revised: 6/4/12

135 Field Inspection Report Comments (continued from previous page): The MCC has adequate capacity for the installed (2) 100HP pumps. The site includes an antenna for SCADA communications. The PLC is an Allen Bradley Micrologix. Spare parts are still available from the manufacturer. Electrical equipment testing reports were not observed Recommendations: 1. Per NFPA, arc flash labels are required for distribution equipment to warn the operators or electricians of potential electric arc hazards and the personal protective equipment required for working on the equipment. It is recommended to perform a short circuit study, coordination study, and arc flash calculation per NFPA 70E for the power distribution system to estimate the available incident energy during electric fault at the qualified equipment. Arc flash labels should be provided and installed for the equipment. 2. No testing records on the electric equipment such panelboards and motor control centers were observed. Electrical protection devices such as circuit breakers need to function properly during a fault; improper operation could lead to safety hazard or equipment damage. It is recommended that breakers 100A and above be tested for proper operation. Date Revised: 5/25/12

136 Field Inspection Report Inspection Date: March 22, 2011 Witness: Mark Handley, P.E. Plant: Andice Booster Pump Station Contact: David Briggs, P.E. CDM Smith A Riata Trace Parkway Suite 210 Austin, TX Type of Testing: A visual evaluation of the electrical distribution equipment and respective equipment was initiated within the confines of NFPA 70B Recommendations are based upon the observations in the field and are not guaranteed to be indicative of conditions in areas not accessible for inspection under energized conditions. Manufacturer/Model/Serial #: N/A Area: Pump Station Location: General Vicinity of Georgetown, TX Comments: The utility service is connected to a single phase, pole mounted transformer. Service voltage is 240V, 1-phase, 3-wire. The Andice Booster Pump Station consists of a skid mounted booster pump station that includes a 5 HP pump, a Gould Aquavar VFD and PLC cabinet. The VFD appears to be exposed to the environment and does not appear to be in a weatherproof (NEMA 3R or NEMA 4) enclosure. Also, from the utility configuration and the motor nameplate data, it appears that the VFD is fed with single phase power while the pump motor is fed with 3 phase power. Discipline: Electrical Engineer Asset Type and Description: Existing electrical infrastructure Voltage/Amperage/Phase: 240V/ 60HZ/ 1-Ø Specification/ Submittal Reference: N/A Project: Georgetown CTSUD Consolidation Feasibility Overall Condition Rating: No major problems noted. Overall Performance Rating: Fair rating. The facility was built in No equipment problems were Observed. Date Revised: 5/25/12

137 Field Inspection Report Comments (continued from previous page): VFD output reactors were not present. The motor nameplate does not state that the motor is inverter duty rated. The meter socket appears to be in good condition. Arc flash labeling was not present on the distribution equipment. The site includes an antenna for SCADA communications. The PLC is an Allen Bradley Micrologix. Spare parts are still available from the manufacturer. Electrical equipment testing reports were not observed Recommendations: 1. If the VFD is constantly exposed to the environment, (as it appears to be in the photograph), the VFD should be replaced with one housed in a NEMA 3 or NEMA 4 enclosure for protection from rain. 2. The motor does not appear to be inverter duty rated and VFD output reactors were not observed. The distance from the VFD to the motor is short, so reflected waves should not be a concern. Output reactors should be installed to minimize voltage spikes at the motor terminals. 3. Per NFPA, arc flash labels are required for distribution equipment to warn the operators or electricians of potential electric arc hazards and the personal protective equipment required for working on the equipment. It is recommended to perform a short circuit study, coordination study, and arc flash calculation per NFPA 70E for the power distribution system to estimate the available incident energy during electric fault at the qualified equipment. Arc flash labels should be provided and installed for the equipment. Date Revised: 5/25/12

138 Field Inspection Report Inspection Date: March 22, 2011 Witness: Mark Handley, P.E. Plant: Henderson Pump Station Contact: David Briggs, P.E. CDM Smith A Riata Trace Parkway Suite 210 Austin, TX Type of Testing: A visual evaluation of the electrical distribution equipment and respective equipment was initiated within the confines of NFPA 70B Recommendations are based upon the observations in the field and are not guaranteed to be indicative of conditions in areas not accessible for inspection under energized conditions. Manufacturer/Model/Serial #: Square D Motor Control Center FO# Area: Pump Station Location: General Vicinity of Georgetown, TX Comments: 480V utility service is via (3) 75kVA pole mounted transformers. The utility service is connected to a pole mounted 400A NEMA 4X disconnect. The disconnect switch feeds a manual transfer switch which feeds a 600A MCC. Site includes provisions for a generator connection. The existing MCC (Square D Model 6) is of current manufacture; spare parts from the manufacturer are still available. NEMA enclosure type 12. Discipline: Electrical Engineer Asset Type and Description: Existing electrical infrastructure Voltage/Amperage/Phase: 480V/ 400A/ 60HZ/ 3-Ø Specification/ Submittal Reference: N/A Project: Georgetown CTSUD Consolidation Feasibility Overall Condition Rating: No major problems noted. Overall Performance Rating: Fair rating. No equipment problems were Observed. Date Revised: 5/25/12

139 Field Inspection Report Comments (continued from previous page): The existing pump station consists of (2) 75HP VFD driven pumps. The 400A disconnect and 600A MCC have adequate capacity to accommodate the installed (2) 75HP pumps. Note that the manual transfer switch size was not verified. Arc flash labels are not present on the distribution equipment. Electrical equipment testing reports were not observed The site includes an antenna for SCADA communications. The PLC is an Allen Bradley Micrologix. Spare parts are still available from the manufacturer. Recommendations: 1. Per NFPA, arc flash labels are required for distribution equipment to warn the operators or electricians of potential electric arc hazards and the personal protective equipment required for working on the equipment. It is recommended to perform a short circuit study, coordination study, and arc flash calculation per NFPA 70E for the power distribution system to estimate the available incident energy during electric fault at the qualified equipment. Arc flash labels should be provided and installed for the equipment. 2. No testing records on the electric equipment such panelboards and motor control centers were observed. Electrical protection devices such as circuit breakers need to function properly during a fault; improper operation could lead to safety hazard or equipment damage. It is recommended that breakers 100A and above be tested for proper operation. Date Revised: 5/25/12

140 Field Inspection Report Inspection Date: March 22, 2011 Witness: Mark Handley, P.E. Plant: Northlake Pump Station Contact: David Briggs, P.E. CDM Smith A Riata Trace Parkway Suite 210 Austin, TX Type of Testing: A visual evaluation of the electrical distribution equipment and respective equipment was initiated within the confines of NFPA 70B Recommendations are based upon the observations in the field and are not guaranteed to be indicative of conditions in areas not accessible for inspection under energized conditions. Manufacturer/Model/Serial #: GE Disconnect Switch (Service), 400A Allen Bradley starters, Size 5 Area: Pump Station Location: General Vicinity of Georgetown, TX Comments: 480V utility service is vis (3) ple mounted transformers. The utility service is connected to a 400A disconnect switch. A feeder from the 400A disconnect switch is installed in a gutter where (2) size 5 starters and all other 480V loads are tapped. Discipline: Electrical Engineer Asset Type and Description: Existing electrical infrastructure Voltage/Amperage/Phase: 480V/ 400A/ 60HZ/ 3-Ø Specification/ Submittal Reference: Georgetown CTSUD Consolidation Feasibility Project: Jordan Northern Governorates Eastern Eastern Primary Water Transmission Project Overall Condition Rating: No major problems noted. Overall Performance Rating: Good rating. The facility was built in No equipment problems were Observed. Date Revised: 5/25/12

141 Field Inspection Report Comments (continued from previous page): The 400A service disconnect switch has adequate capacity to accommodate the installed (2) 125HP pumps. The 400A disconnect is not labeled as service entrance rated. Arc flash labels are not present on the distribution equipment. The PLC is an Allen Bradley Micrologix. Spare parts are still available from the manufacturer. Electrical equipment testing reports were not observed It was reported that the pump station is not in use because the pump station boosts pressure in the system to high. Date Revised: 5/25/12

142 Field Inspection Report Recommendations: 1. Per NFPA, arc flash labels are required for distribution equipment to warn the operators or electricians of potential electric arc hazards and the personal protective equipment required for working on the equipment. It is recommended to perform a short circuit study, coordination study, and arc flash calculation per NFPA 70E for the power distribution system to estimate the available incident energy during electric fault at the qualified equipment. Arc flash labels should be provided and installed for the equipment. 2. No testing records on the electric equipment such panelboards and motor control centers were observed. Electrical protection devices such as circuit breakers need to function properly during a fault; improper operation could lead to safety hazard or equipment damage. It is recommended that breakers 100A and above be tested for proper operation. 3. If the pressure produced from the pump station is too high for the system, VFDs could be used to decrease the outout pressure to a pressure that is compatible with the existing system. Recommend that a system pressure analysis be performed to determine if VFDs could lower the output pressure to an acceptable range. Date Revised: 5/25/12

143 Field Inspection Report Inspection Date: March 22, 2011 Witness: Mark Handley, P.E. Plant: Woods Pump Station Contact: David Briggs, P.E. CDM Smith A Riata Trace Parkway Suite 210 Austin, TX Type of Testing: A visual evaluation of the electrical distribution equipment and respective equipment was initiated within the confines of NFPA 70B Recommendations are based upon the observations in the field and are not guaranteed to be indicative of conditions in areas not accessible for inspection under energized conditions. Manufacturer/Model/Serial #: Square D Model 6 MCC, 600A FO# Area: Pump Station Location: General Vicinity of Georgetown, TX Comments: 480V utility service is from (3) 100kVA pole mounted transformers. The utility service is connected to a pole mounted 600A NEMA 3R disconnect switch which feeds a 600A MCC. Discipline: Electrical Engineer Asset Type and Description: Existing electrical infrastructure Voltage/Amperage/Phase: 480V/ 600A/ 60HZ/ 3-Ø Specification/ Submittal Reference: N/A Project: Georgetown CTSUD Consolidation Feasibility Overall Condition Rating: No major problems noted. Overall Performance Rating: Fair rating. The facility was built in No equipment problems were Observed. Date Revised: 5/25/12

144 Field Inspection Report Comments (continued from previous page): The existing MCC (Square D Model 6) is of current manufacture; spare parts from the manufacturer are still available. NEMA enclosure type 12. The pump station consists of (2) 150HP pumps. The service disconnect switch and MCC are adequate to supply the pumps. Expansion of the MCC is not possible without relocating existing circuits or equipment. Refer to photograph above. Arc flash labels are not present on the distribution equipment. The site includes an antenna for SCADA communications. The PLC is an Allen Bradley Micrologix. Spare parts are still available from the manufacturer. Electrical equipment testing reports were not observed Recommendations: 1. Per NFPA, arc flash labels are required for distribution equipment to warn the operators or electricians of potential electric arc hazards and the personal protective equipment required for working on the equipment. It is recommended to perform a short circuit study, coordination study, and arc flash calculation per NFPA 70E for the power distribution system to estimate the available incident energy during electric fault at the qualified equipment. Arc flash labels should be provided and installed for the equipment. 2. No testing records on the electric equipment such panelboards and motor control centers were observed. Electrical protection devices such as circuit breakers need to function properly during a fault; improper operation could lead to safety hazard or equipment damage. It is recommended that breakers 100A and above be tested for proper operation. Date Revised: 5/25/12

145 Field Inspection Report Inspection Date: March 22, 2011 Witness: Mark Handley, P.E. Plant: Lake Plant Pump Station Contact: David Briggs, P.E. CDM Smith A Riata Trace Parkway Suite 210 Austin, TX Type of Testing: A visual evaluation of the electrical distribution equipment and respective equipment was initiated within the confines of NFPA 70B Recommendations are based upon the observations in the field and are not guaranteed to be indicative of conditions in areas not accessible for inspection under energized conditions. Manufacturer/Model/Serial #: Eaton Freedom Series 2100 MCC SO# LUX IT.002-FCV Area: Pump Station Location: General Vicinity of Georgetown, TX Comments: 480V utility service is via a pad mounted transformer. The utility feed is connected to a 1600A MCC. The MCC includes (2) main breakers: one for utility power and one for generator power. The two main breakers are kirk-key interlocked so that only one main breaker may be closed at a time. Stubs for a future generator are present. Discipline: Electrical Engineer Asset Type and Description: Existing electrical infrastructure Voltage/Amperage/Phase: 480V/ 1600A/ 60HZ/ 3-Ø Specification/ Submittal Reference: N/A Project: Georgetown CTSUD Consolidation Feasibility Overall Condition Rating: No major equipment problems noted. See comments for additional information. Overall Performance Rating: Good rating. The facility was built in No equipment problems were observed. Date Revised: 5/25/12

146 Field Inspection Report Comments (continued from previous page): The existing MCC (Eaton Freedom 2100) is of current manufacture; spare parts from the manufacturer are still available. NEMA enclosure type 12. The pump station consists of (2) 200HP pumps and (1) 400HP pump. All three pumps are VFD driven. The pump motors were not labeled as inverter duty rated. Spare conduit and stubs for a future 400HP pump are installed. The existing 1600A MCC has adequate capacity and space to accommodate the existing pumps and future 400HP pump. The space allotted for the new VFDis of concern; a clean power 400HP VFD will most likely need more space than is available. Arc flash labels are not present on the distribution equipment. A photograph of the existing PLC was not available; therefore an evaluation is not possible at this time. The site includes an antenna for SCADA communications. Electrical equipment testing reports were not observed Date Revised: 5/25/12

147 Field Inspection Report Recommendations: 1. Per NFPA, arc flash labels are required for distribution equipment to warn the operators or electricians of potential electric arc hazards and the personal protective equipment required for working on the equipment. It is recommended to perform a short circuit study, coordination study, and arc flash calculation per NFPA 70E for the power distribution system to estimate the available incident energy during electric fault at the qualified equipment. Arc flash labels should be provided and installed for the equipment. 2. No testing records on the electric equipment such panelboards and motor control centers were observed. Electrical protection devices such as circuit breakers need to function properly during a fault; improper operation could lead to safety hazard or equipment damage. It is recommended that breakers 100A and above be tested for proper operation. Date Revised: 5/25/12

148 Field Inspection Report Inspection Date: March 22, 2011 Witness: Mark Handley, P.E. Plant: Domel Well Site Contact: David Briggs, P.E. CDM Smith A Riata Trace Parkway Suite 210 Austin, TX Type of Testing: Short Commerical, Sound, and Vibration Testing. Discipline: Electrical Engineer Asset Type and Description: Existing electrical infrastructure Manufacturer/Model/Serial #: A visual evaluation of the electrical distribution equipment and respective equipment was initiated within the confines of NFPA 70B Recommendations are based upon the observations in the field and are not guaranteed to be indicative of conditions in areas not accessible for inspection under energized conditions. Area: Well site Location: General Vicinity of Georgetown, TX Comments: 480V utility service is via (3) pole mounted transformers. Utility feed is connected to a disconnect switch. The well site is equipped with submersible pump. The electrical distribution system consists of the service disconnect, transformer, circuit breaker enclosure/panel, and a pump protection monitoring system. Voltage/Amperage/Phase: 480V/ 60HZ/ 3-Ø Specification/ Submittal Reference: N/A Project: Georgetown CTSUD Consolidation Feasibility Overall Condition Rating: Problems with the circuit breaker/ panel was observed. Overall Performance Rating: Poor rating. The facility was built in Problems with the circuit breaker/ panel and wireway. Date Revised: 5/25/12

149 Field Inspection Report Comments (continued from previous page): As seen in the above photograph, the wireway cover is missing. Also, the cable on the floor is not protected from physical damage. Note that the service size was not verified. The circuit breaker enclosure/panel is shown above. Wiring and terminals are exposed to the operating handles of the breakers. Arc flash labels are not present on the distribution equipment. The well site appears to be equipped with a PLC/SCADA cabinet. The PLC/SCADA equipment was not evaluated as photographs were not taken of this equipment. The site includes an antenna for SCADA communications. Recommendations: 1. Verify disconnect size is adequate for loads at the well site. 2. Verify disconnect is listed for use as a service entrance. If existing disconnect is not service entrance rated, replace existing disconnect with one listed for use as service equipment. 3. Install missing wireway covers. 4. Provide physical protection for coiled wire. Verify wire is listed for wet location use and install coiled wire in raceway. 5. Replace the circuit breaker enclosure/panel with a panel that includes a deadfront to protect operators from exposed wiring and terminals. 6. Per NFPA, arc flash labels are required for distribution equipment to warn the operators or electricians of potential electric arc hazards and the personal protective equipment required for working on the equipment. It is recommended to perform a short circuit study, coordination study, and arc flash calculation per NFPA 70E for the power distribution system to estimate the available incident energy during electric fault at the qualified equipment. Arc flash labels should be provided and installed for the equipment. Date Revised: 5/25/12

150 Field Inspection Report Inspection Date: March 22, 2011 Witness: Mark Handley, P.E. Plant: Domel Pump Station Contact: David Briggs, P.E. CDM Smith A Riata Trace Parkway Suite 210 Austin, TX Type of Testing: A visual evaluation of the electrical distribution equipment and respective equipment was initiated within the confines of NFPA 70B Recommendations are based upon the observations in the field and are not guaranteed to be indicative of conditions in areas not accessible for inspection under energized conditions. Manufacturer/Model/Serial #: ASCO A Manual Transfer Switch Area: Pump Station Location: General Vicinity of Georgetown, TX Comments: 480V utility service is via (3) 250kVA pole mounted transformers. The utility service is connected to an 800A manual transfer switch which feeds (2) 400A main disconnects. It is assumed that each disconnect feeds (3) 75HP pumps. The 800A transfer switch and 400A disconnects have adequate capacity to accommodate the installed (6) 75HP pumps. Discipline: Electrical Engineer Asset Type and Description: Existing electrical infrastructure Voltage/Amperage/Phase: 480V/ 800A/ 60HZ/ 3-Ø Specification/ Submittal Reference: N/A Project: Georgetown CTSUD Consolidation Feasibility Overall Condition Rating: No major equipment problems noted. See comments for additional information. Overall Performance Rating: Fair rating. The facility was built in No equipment problems were observed. Date Revised: 5/25/12

151 Field Inspection Report Comments (continued from previous page): The manual transfer switch is an ASCO model 386 and is not service entrance rated. Arc flash labels are not present on the distribution equipment. The above photograph shows the (2) main 400A disconnect switches. Per field notes, the distance between the disconnect switch and the opposite wall is less than 3 feet; NEC Table (A)(1), Condition 2 requires a minimum of 3-6 from the disconnect to the opposite (grounded) wall. Wireway covers are missing and should be installed. Open knock outs were observed at the starter disconnect and should be covered. Date Revised: 5/25/12

152 Field Inspection Report Comments (continued from previous page): The above photograph shows a panel with an opening where a breaker or blank is missing. The PLC is an Allen Bradley Micrologix. Spare parts are still available from the manufacturer. Electrical equipment testing reports were not observed The site includes an antenna for SCADA communications. Recommendations: 1. Provide a service entrance rated circuit breaker or fused switch ahead of the existing manual transfer switch to comply with NEC Article Install missing wireway covers. 3. Install blank covers on equipment with open knock outs. 4. Install blank at panel to limit access to wiring and live parts. 5. Per NFPA, arc flash labels are required for distribution equipment to warn the operators or electricians of potential electric arc hazards and the personal protective equipment required for working on the equipment. It is recommended to perform a short circuit study, coordination study, and arc flash calculation per NFPA 70E for the power distribution system to estimate the available incident energy during electric fault at the qualified equipment. Arc flash labels should be provided and installed for the equipment. 6. No testing records on the electric equipment such panelboards and motor control centers were observed. Electrical protection devices such as circuit breakers need to function properly during a fault; improper operation could lead to safety hazard or equipment damage. It is recommended that breakers 100A and above be tested for proper operation. Date Revised: 5/25/12

153 Field Inspection Report Inspection Date: March 22, 2011 Witness: Mark Handley, P.E. Plant: Schneider Well Contact: David Briggs, P.E. CDM Smith A Riata Trace Parkway Suite 210 Austin, TX Type of Testing: A visual evaluation of the electrical distribution equipment and respective equipment was initiated within the confines of NFPA 70B Recommendations are based upon the observations in the field and are not guaranteed to be indicative of conditions in areas not accessible for inspection under energized conditions. Manufacturer/Model/Serial #: General Electric 100A Disconnect Switch Cat# NP E Area: Pump Station Location: General Vicinity of Georgetown, TX Comments: 480V utility service is via (3) 50kVA pole mounted transformers. The utility service is connected to a 100A disconnect switch. A feeder from the 100A disconnect switch is installed in a gutter, The well pump starter is tapped from the feeder; all other 480V loads are tapped off of the same feeder. Discipline: Electrical Engineer Asset Type and Description: Existing electrical infrastructure Voltage/Amperage/Phase: 480V/ 100A/ 60HZ/ 3-Ø Specification/ Submittal Reference: N/A Project: Georgetown CTSUD Consolidation Feasibility Overall Condition Rating: No major problems noted. Overall Performance Rating: Fair rating. The facility was built in No equipment problems were Observed. Photograph shows the electrical distribution system (minus the service). Date Revised: 5/25/12

154 Field Inspection Report Comments (continued from previous page): The 100A disconnect is not labeled as service entrance rated. Some of the electrical distribution equipment enclosures exhibit rust. The interior components were not evaluated. The pump station does not appear to be connected to the SCADA system; no PLC and antenna were observed. Arc flash labels are not present on the distribution equipment. It was noted that the pump station was not operational. Cable to pump is not protected from physical damage. Recommendations: 1. Per NFPA, arc flash labels are required for distribution equipment to warn the operators or electricians of potential electric arc hazards and the personal protective equipment required for working on the equipment. It is recommended to perform a short circuit study, coordination study, and arc flash calculation per NFPA 70E for the power distribution system to estimate the available incident energy during electric fault at the qualified equipment. Arc flash labels should be provided and installed for the equipment. 2. Provide physical protection for cable by installing pump cable in flexible conduit. 3. Install an Allen Bradley MicroLogix PLC (to match existing facilities) for SCADA operation. 4. Install an antenna for wireless SCADA communication. Date Revised: 5/25/12

155 Field Inspection Report Inspection Date: March 22, 2011 Witness: Mark Handley, P.E. Plant: Irving Pump Station Contact: David Briggs, P.E. CDM Smith A Riata Trace Parkway Suite 210 Austin, TX Type of Testing: A visual evaluation of the electrical distribution equipment and respective equipment was initiated within the confines of NFPA 70B Recommendations are based upon the observations in the field and are not guaranteed to be indicative of conditions in areas not accessible for inspection under energized conditions. Manufacturer/Model/Serial #: N/A Area: Pump Station Location: General Vicinity of Georgetown, TX Comments: It was noted that this pump station is currently not in use. 480V utility service is via (3) pole mounted transformers. The utility service is connected to a disconnect switch. The disconnect switch was not labeled. The disconnect feeds starters to (2) 75HP pumps. Discipline: Electrical Engineer Asset Type and Description: Existing electrical infrastructure Voltage/Amperage/Phase: 480V/ 60HZ/ 3-Ø Specification/ Submittal Reference: N/A Project: Georgetown CTSUD Consolidation Feasibility Overall Condition Rating: No major problems noted. Overall Performance Rating: Fair rating. The facility was built in No equipment problems were observed. Photograph shows the (2) starters for the 75HP pumps. Note that the cover for one starter is missing. Date Revised: 5/25/12

156 Field Inspection Report Comments (continued from previous page): The above photo shows the service disconnect switch. Note that the disconnect switch does not have labels. Arc flash labels are not present on the distribution equipment. The site does not include an antenna for SCADA communications. The RTU is an Opto 22 system. The Opto 22 system does not match the rest of the CTSUD facilities, which use an Allen Bradley Micrologix PLC. Depending on the model of the existing RTU system, spare parts may be available from the manufacturer. Electrical equipment testing reports were not observed. Recommendations: 1. Install cover on existing starter. 2. Replace existing disconnect switch with one that is service entrance rated and is of adequate size to accommodate the loads. 3. Replace the existing Opt022 RTU system with a new Allen Bradley Micrologix PLC to match the current CTSUD facilities. 4. Per NFPA, arc flash labels are required for distribution equipment to warn the operators or electricians of potential electric arc hazards and the personal protective equipment required for working on the equipment. It is recommended to perform a short circuit study, coordination study, and arc flash calculation per NFPA 70E for the power distribution system to estimate the available incident energy during electric fault at the qualified equipment. Arc flash labels should be provided and installed for the equipment. 5. No testing records were observed. Electrical protection devices such as circuit breakers need to function properly during a fault; improper operation could lead to safety hazard or equipment damage. It is recommended that breakers 100A and above be tested for proper operation. Date Revised: 5/25/12

157

158 APPENDIX B PROJECTED INCOME STATEMENTS FROM THE FINANCIAL PLANNING MODEL FOR VARIOUS SCENARIOS MODELED

159 PROJECT INCOME STATEMENTS SCENARIO 1 STATUS QUO FUTURE FOR THE SEPARATE CITY OF GEORGETOWN AND CHISHOLM TRAIL SUD WATER UTILITIES Notes: Capital Improvements Plans (CIPs) not well defined in the later years of the financial forecasts. Forecast time frame does not include development of long-term water supplies.

160 GEORGETOWN WATER UTILITY INCOME STATEMENT - STATUS QUO SCENARIO Item Projection Period Operating Fund Beginning Balance (mill. $) $8.180 $2.990 $3.099 $3.200 $3.313 $3.404 $3.496 $3.593 $3.704 $3.910 $4.022 $4.158 $4.299 $4.442 $4.593 Income Sales Revenue $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ Other Operating Revenue $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ Transfers In (misc.) $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ Impact Fee Revenue $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ Total Operating Income $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ Expenses Operating Expenses Personnel Expenses $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ Utilities Expenses $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ Purchased Water Expenses $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ Raw Water Line Debt Service $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ Vehicle Lease $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ Vehicle Maintenance $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ Technology ISF $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ Administrative Allocation $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ Franchise Fees $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ AMR Allocation $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ Economic Development Allocation $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ Joint Services Allocation $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ Other Operating Expenses $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ PUA Allocated Water Rights Expenses $ - $ - $ - $ - $ - $ - $ - $ - $ - $ - $ - $ - $ - $ - $ - PUA Allocated Administrative Expenses $ - $ - $ - $ - $ - $ - $ - $ - $ - $ - $ - $ - $ - $ - $ - Total Operating Expenses $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ Transfers Out Internal Service Fund $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ General Fund $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ General Fund - ROI $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ Other Transfers Out $ - $ - $ - $ - $ - $ - $ - $ - $ - $ - $ - $ - $ - $ - $ - Impact Fee Reserve Fund $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ Debt Service Revenue Bonds $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ Certificates of Obligation $ - $ - $ - $ - $ - $ - $ - $ - $ - $ - $ - $ - $ - $ - $ - PUA Allocated WTP Debt Service $ - $ - $ - $ - $ - $ - $ - $ - $ - $ - $ - $ - $ - $ - $ - Total Debt Service $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ Total Transfers $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ Total Expenses before Capital Reserve Transfer $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ Net Income $1.024 $1.078 $1.083 $1.090 $1.319 $1.715 $2.632 $3.136 $3.140 $3.083 $3.071 $2.837 $2.800 $2.802 $2.806 Transfer to Cash Capital Reserve Fund $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ Operating Fund Ending Balance $2.990 $3.099 $3.200 $3.313 $3.404 $3.496 $3.593 $3.704 $3.910 $4.022 $4.158 $4.299 $4.442 $4.593 $4.751 Performance Indicators $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ Operating Reserves 3 month target Times Coverage 1.5 times target Rate Revenue Requirement (mill.$) Total Expenses before Capital Reserve Transfer less Impact Fee Transfe $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ Times Coverage Requirement $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ Non-Rate Revenue $ (0.585) $ (0.603) $ (0.621) $ (0.640) $ (0.659) $ (0.679) $ (0.699) $ (0.720) $ (0.742) $ (0.764) $ (0.787) $ (0.810) $ (0.835) $ (0.860) $ (0.886) Rate Revenue Requirement $ $ $ $ $ $ $ $ $ $ $ $ $ $ $

161 CHISHOLM TRAIL SUD INCOME STATEMENT - STATUS QUO SCENARIO Item Projection Period Operating Fund Beginning Balance (mill. $) $1.000 $1.087 $1.071 $1.106 $1.143 $1.331 $1.264 $1.306 $1.350 $1.395 $1.441 $1.490 $1.539 $1.591 $1.644 Income Sales Revenue $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ Other Operating Revenue $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ Impact Fee Revenue $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ Total Operating Income $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ Expenses Personnel Expenses $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ Administrative Expenses $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ Professional Fees $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ Operating Expenses $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ Misc. Expenses $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ Water Rights $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ Wholesale Water Purchases $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ Well Costs $ $ $ $ $ $ - $ - $ - $ - $ - $ - $ - $ - $ - $ - Electrical $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ Surface Water O&M Costs $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ Repairs/Parts/Meters $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ Eqiupment Costs $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ Vehicles $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ PUA Allocated Water Rights Expenses $ - $ - $ - $ - $ - $ - $ - $ - $ - $ - $ - $ - $ - $ - $ - PUA Allocated Administrative Expenses $ - $ - $ - $ - $ - $ - $ - $ - $ - $ - $ - $ - $ - $ - $ - Total Operating Expenses $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ Transfers Out to Impact Fee Reserve Fund $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ to Debt Service USDA Loan $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ Revenue Bonds $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ COs $ - $ - $ - $ - $ - $ - $ - $ - $ - $ - $ - $ - $ - $ - $ - PUA Allocated WTP Debt Service $ - $ - $ - $ - $ - $ - $ - $ - $ - $ - $ - $ - $ - $ - $ - Total Debt Service $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ Total Transfers $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ Total Expenses before Capital Reserve Transfer $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ Net Income $0.092 $0.095 $0.105 $0.108 $0.264 $0.264 $0.264 $0.264 $0.267 $0.266 $0.268 $0.268 $0.269 $0.257 $0.227 Transfer to Cash Capital Reserve Fund $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ Operating Fund Ending Balance $1.087 $1.071 $1.106 $1.143 $1.331 $1.264 $1.306 $1.350 $1.395 $1.441 $1.490 $1.539 $1.591 $1.644 $1.699 Performance Indicators Operating Reserves 3 month target Times Coverage 1.1 times target Rate Revenue Requirement (mill.$) Total Expenses before Capital Reserve Transfer $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ Times Coverage Requirement $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ Non-Rate Revenue $ (2.441) $ (2.515) $ (2.590) $ (2.668) $ (2.748) $ (2.830) $ (2.915) $ (3.003) $ (3.093) $ (3.185) $ (3.281) $ (3.379) $ (3.481) $ (3.585) $ (3.693) Rate Revenue Requirement $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ 6.075

162 PROJECT INCOME STATEMENTS SCENARIO 2 CITY OF GEORGETOWN WATER UTILITY PROVIDES REGIONAL SERVICE AND THE CHISHOLM TRAIL SUD IS RECAST AS A LOCAL GOVERNMENT CORPORATION Notes: Capital Improvements Plans (CIPs) not well defined in the later years of the financial forecasts. Forecast time frame does not include development of long-term water supplies. For ease of modeling, most benefits (lower costs) are currently shown as accruing to the LGC. Later negotiations will define benefits sharing and a more representative future cost of service for each service area.

163 GEORGETOWN WATER UTILITY INCOME STATEMENT - CITY AND LGC SCENARIO Item Projection Period Operating Fund Beginning Balance (mill. $) $8.180 $2.990 $3.046 $3.145 $3.255 $3.345 $3.437 $3.533 $3.642 $3.846 $3.956 $4.088 $4.226 $4.365 $4.512 Income Sales Revenue $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ Other Operating Revenue $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ Transfers In (misc.) $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ Impact Fee Revenue $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ Total Operating Income $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ Expenses Operating Expenses Personnel Expenses $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ Utilities Expenses $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ Purchased Water Expenses $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ Raw Water Line Debt Service $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ Vehicle Lease $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ Vehicle Maintenance $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ Technology ISF $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ Administrative Allocation $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ Franchise Fees $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ AMR Allocation $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ Economic Development Allocation $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ Joint Services Allocation $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ Other Operating Expenses $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ PUA Allocated Water Rights Expenses $ - $ - $ - $ - $ - $ - $ - $ - $ - $ - $ - $ - $ - $ - $ - PUA Allocated Administrative Expenses $ - $ - $ - $ - $ - $ - $ - $ - $ - $ - $ - $ - $ - $ - $ - Total Operating Expenses $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ Transfers Out Internal Service Fund $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ General Fund $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ General Fund - ROI $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ Other Transfers Out $ - $ - $ - $ - $ - $ - $ - $ - $ - $ - $ - $ - $ - $ - $ - Impact Fee Reserve Fund $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ Debt Service Revenue Bonds $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ Certificates of Obligation $ - $ - $ - $ - $ - $ - $ - $ - $ - $ - $ - $ - $ - $ - $ - PUA Allocated WTP Debt Service $ - $ - $ - $ - $ - $ - $ - $ - $ - $ - $ - $ - $ - $ - $ - Total Debt Service $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ Total Transfers $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ Total Expenses before Capital Reserve Transfer $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ Net Income $1.024 $1.078 $1.083 $1.090 $1.319 $1.715 $2.608 $3.040 $3.044 $2.987 $2.975 $2.741 $2.703 $2.706 $2.710 Transfer to Cash Capital Reserve Fund $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ Operating Fund Ending Balance $2.990 $3.046 $3.145 $3.255 $3.345 $3.437 $3.533 $3.642 $3.846 $3.956 $4.088 $4.226 $4.365 $4.512 $4.667 Performance Indicators $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ Operating Reserves 3 month target Times Coverage 1.5 times target Rate Revenue Requirement (mill.$) Total Expenses before Capital Reserve Transfer less Impact Fee Transfe $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ Times Coverage Requirement $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ Non-Rate Revenue $ (0.585) $ (0.603) $ (0.621) $ (0.640) $ (0.659) $ (0.679) $ (0.699) $ (0.720) $ (0.742) $ (0.764) $ (0.787) $ (0.810) $ (0.835) $ (0.860) $ (0.886) Rate Revenue Requirement $ $ $ $ $ $ $ $ $ $ $ $ $ $ $

164 LOCAL GOVERNMENT CORPORATION INCOME STATEMENT - CITY AND LGC SCENARIO Item Projection Period Operating Fund Beginning Balance (mill. $) $1.000 $1.087 $0.928 $0.962 $1.001 $1.028 $0.944 $0.970 $1.004 $1.037 $1.075 $1.117 $1.159 $1.202 $1.247 Income Sales Revenue $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ Other Operating Revenue $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ Impact Fee Revenue $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ Total Operating Income $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ Expenses Personnel Expenses $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ Administrative Expenses $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ Professional Fees $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ Operating Expenses $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ Misc. Expenses $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ Water Rights $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ Wholesale Water Purchases $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ Well Costs $ $ $ $ $ $ - $ - $ - $ - $ - $ - $ - $ - $ - $ - Electrical $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ Surface Water O&M Costs $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ Repairs/Parts/Meters $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ Eqiupment Costs $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ Vehicles $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ PUA Allocated Water Rights Expenses $ - $ - $ - $ - $ - $ - $ - $ - $ - $ - $ - $ - $ - $ - $ - PUA Allocated Administrative Expenses $ - $ - $ - $ - $ - $ - $ - $ - $ - $ - $ - $ - $ - $ - $ - Total Operating Expenses $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ Transfers Out to Impact Fee Reserve Fund $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ to Debt Service USDA Loan $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ Revenue Bonds $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ COs $ - $ $ $ $ $ $ $ $ $ $ $ $ $ $ PUA Allocated WTP Debt Service $ - $ - $ - $ - $ - $ - $ - $ - $ - $ - $ - $ - $ - $ - $ - Total Debt Service $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ Total Transfers $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ Total Expenses before Capital Reserve Transfer $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ Net Income $0.092 $0.095 $0.103 $0.106 $0.111 $0.110 $0.164 $0.165 $0.166 $0.165 $0.167 $0.167 $0.167 $0.156 $0.125 Transfer to Cash Capital Reserve Fund $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ Operating Fund Ending Balance $1.087 $0.928 $0.962 $1.001 $1.028 $0.944 $0.970 $1.004 $1.037 $1.075 $1.117 $1.159 $1.202 $1.247 $1.296 Performance Indicators Operating Reserves 3 month target Times Coverage 1.1 times target Rate Revenue Requirement (mill.$) Total Expenses before Capital Reserve Transfer $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ Times Coverage Requirement $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ Non-Rate Revenue $ (2.441) $ (2.515) $ (2.590) $ (2.668) $ (2.748) $ (2.830) $ (2.915) $ (3.003) $ (3.093) $ (3.185) $ (3.281) $ (3.379) $ (3.481) $ (3.585) $ (3.693) Rate Revenue Requirement $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ 3.352

165 PROJECT INCOME STATEMENTS SCENARIO 3 CITY OF GEORGETOWN WATER UTILITY AND CHISHOLM TRAIL SUD CONTINUE AS SEPARATE ENTITIES BUT A PUA IS FORMED FOR REGIONAL TREATED WATER SUPPLY Notes: Capital Improvements Plans (CIPs) not well defined in the later years of the financial forecasts. Forecast time frame does not include development of long-term water supplies. For ease of modeling, most benefits (lower costs) are currently shown as accruing to CTSUD. Later negotiations will define benefits sharing and a more representative future cost of service for each service area.

166 GEORGETOWN WATER UTILITY INCOME STATEMENT - CITY, CTSUD, AND PUA SCENARIO Item Projection Period Operating Fund Beginning Balance (mill. $) $8.180 $2.990 $3.058 $3.157 $3.267 $3.358 $3.450 $3.546 $3.656 $3.860 $3.970 $4.103 $4.241 $4.381 $4.529 Income Sales Revenue $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ Other Operating Revenue $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ Transfers In (misc.) $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ Impact Fee Revenue $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ Total Operating Income $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ Expenses Operating Expenses Personnel Expenses $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ Utilities Expenses $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ Purchased Water Expenses $ $ - $ - $ - $ - $ - $ - $ - $ - $ - $ - $ - $ - $ - $ - Raw Water Line Debt Service $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ Vehicle Lease $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ Vehicle Maintenance $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ Technology ISF $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ Administrative Allocation $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ Franchise Fees $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ AMR Allocation $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ Economic Development Allocation $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ Joint Services Allocation $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ Other Operating Expenses $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ PUA Allocated Water Rights Expenses $ - $ $ $ $ $ $ $ $ $ $ $ $ $ $ PUA Allocated Administrative Expenses $ - $ $ $ $ $ $ $ $ $ $ $ $ $ $ Total Operating Expenses $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ Transfers Out Internal Service Fund $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ General Fund $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ General Fund - ROI $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ Other Transfers Out $ - $ - $ - $ - $ - $ - $ - $ - $ - $ - $ - $ - $ - $ - $ - Impact Fee Reserve Fund $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ Debt Service Revenue Bonds $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ Certificates of Obligation $ - $ - $ - $ - $ - $ - $ - $ - $ - $ - $ - $ - $ - $ - $ - PUA Allocated WTP Debt Service $ - $ - $ - $ - $ - $ - $ $ $ $ $ $ $ $ $ Total Debt Service $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ Total Transfers $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ Total Expenses before Capital Reserve Transfer $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ Net Income $1.024 $1.078 $1.083 $1.090 $1.319 $1.715 $1.810 $2.314 $2.318 $2.261 $2.249 $2.015 $1.978 $1.980 $1.984 Transfer to Cash Capital Reserve Fund $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ Operating Fund Ending Balance $2.990 $3.058 $3.157 $3.267 $3.358 $3.450 $3.546 $3.656 $3.860 $3.970 $4.103 $4.241 $4.381 $4.529 $4.683 Performance Indicators $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ Operating Reserves 3 month target Times Coverage 1.5 times target Rate Revenue Requirement (mill.$) Total Expenses before Capital Reserve Transfer less Impact Fee Transfe $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ Times Coverage Requirement $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ Non-Rate Revenue $ (0.585) $ (0.603) $ (0.621) $ (0.640) $ (0.659) $ (0.679) $ (0.699) $ (0.720) $ (0.742) $ (0.764) $ (0.787) $ (0.810) $ (0.835) $ (0.860) $ (0.886) Rate Revenue Requirement $ $ $ $ $ $ $ $ $ $ $ $ $ $ $

167 CHISHOLM TRAIL SUD INCOME STATEMENT - CITY, CTSUD, AND PUA SCENARIO Item Projection Period Operating Fund Beginning Balance (mill. $) $1.000 $1.087 $1.136 $1.177 $1.222 $1.336 $1.336 $1.375 $1.422 $1.469 $1.520 $1.577 $1.634 $1.692 $1.754 Income Sales Revenue $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ Other Operating Revenue $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ Impact Fee Revenue $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ Total Operating Income $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ Expenses Personnel Expenses $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ Administrative Expenses $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ Professional Fees $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ Operating Expenses $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ Misc. Expenses $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ Water Rights $ $ - $ - $ - $ - $ - $ - $ - $ - $ - $ - $ - $ - $ - $ - Wholesale Water Purchases $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ Well Costs $ $ $ $ $ $ - $ - $ - $ - $ - $ - $ - $ - $ - $ - Electrical $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ Surface Water O&M Costs $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ Repairs/Parts/Meters $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ Eqiupment Costs $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ Vehicles $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ PUA Allocated Water Rights Expenses $ - $ $ $ $ $ $ $ $ $ $ $ $ $ $ PUA Allocated Administrative Expenses $ - $ $ $ $ $ $ $ $ $ $ $ $ $ $ Total Operating Expenses $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ Transfers Out to Impact Fee Reserve Fund $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ to Debt Service USDA Loan $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ Revenue Bonds $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ COs $ - $ - $ - $ - $ - $ - $ - $ - $ - $ - $ - $ - $ - $ - $ - PUA Allocated WTP Debt Service $ - $ - $ - $ - $ - $ - $ $ $ $ $ $ $ $ $ Total Debt Service $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ Total Transfers $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ Total Expenses before Capital Reserve Transfer $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ Net Income $0.092 $0.095 $0.105 $0.108 $0.114 $0.114 $0.113 $0.114 $0.116 $0.116 $0.117 $0.118 $0.118 $0.107 $0.076 Transfer to Cash Capital Reserve Fund $ $ $ $ $ - $ $ $ $ $ $ $ $ $ $ Operating Fund Ending Balance $1.087 $1.136 $1.177 $1.222 $1.336 $1.336 $1.375 $1.422 $1.469 $1.520 $1.577 $1.634 $1.692 $1.754 $1.820 Performance Indicators Operating Reserves 3 month target Times Coverage 1.1 times target Rate Revenue Requirement (mill.$) Total Expenses before Capital Reserve Transfer $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ Times Coverage Requirement $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ Non-Rate Revenue $ (2.441) $ (2.515) $ (2.590) $ (2.668) $ (2.748) $ (2.830) $ (2.915) $ (3.003) $ (3.093) $ (3.185) $ (3.281) $ (3.379) $ (3.481) $ (3.585) $ (3.693) Rate Revenue Requirement $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ 5.602

168 PUBLIC UTILITY AUTHORITY INCOME STATEMENT - CITY, CTSUD, AND PUA SCENARIO Item Projection Period Operating Fund Beginning Balance (mill. $) $0.000 $0.000 $0.000 $0.000 $0.000 $0.000 $0.000 $0.251 $0.503 $0.754 $0.944 $0.991 $1.038 $1.083 $1.133 Income Water Rights Charge $ - $ $ $ $ $ $ $ $ $ $ $ $ $ $ WTP Debt Service Charge $ - $ - $ - $ - $ - $ - $ $ $ $ $ $ $ $ $ Administrative Charge $ - $ $ $ $ $ $ $ $ $ $ $ $ $ $ Transfer in from Capital Reserve Fund $ - $ - $ - $ - $ - $ - $ - $ - $ - $ - $ - $ - $ - $ - $ - Total Operating Income $ - $ $ $ $ $ $ $ $ $ $ $ $ $ $ Expenses Operating Expenses Personnel Expenses $ - $ $ $ $ $ $ $ $ $ $ $ $ $ $ Administrative Expenses $ - $ $ $ $ $ $ $ $ $ $ $ $ $ $ BRA Water Rights $ - $ $ $ $ $ $ $ $ $ $ $ $ $ $ Total Operating Expenses $ - $ $ $ $ $ $ $ $ $ $ $ $ $ $ Transfers Out to Debt Service Contract Revenue Bonds $ - $ - $ - $ - $ - $ - $ $ $ $ $ $ $ $ $ Total Debt Service $ - $ - $ - $ - $ - $ - $ $ $ $ $ $ $ $ $ Total Transfers $ - $ - $ - $ - $ - $ - $ $ $ $ $ $ $ $ $ Total Expenses before Capital Reserve Transfer $ - $ $ $ $ $ $ $ $ $ $ $ $ $ $ Net Income $0.000 $0.000 $0.000 $0.000 $0.000 $0.000 $0.251 $0.251 $0.251 $0.251 $0.251 $0.251 $0.251 $0.251 $0.251 Transfer to Cash Capital Reserve Fund $ - $ - $ - $ - $ - $ - $ - $ - $ - $ $ $ $ $ $ Operating Fund Ending Balance $0.000 $0.000 $0.000 $0.000 $0.000 $0.000 $0.251 $0.503 $0.754 $0.944 $0.991 $1.038 $1.083 $1.133 $1.192 Performance Indicators Operating Reserves 3 months Times Coverage 1.1 times Rate Revenue Requirement (mill.$) Total Expenses before Capital Reserve Transfer $ - $ $ $ $ $ $ $ $ $ $ $ $ $ $ Times Coverage Requirement $ - $ - $ - $ - $ - $ - $ $ $ $ $ $ $ $ $ Non-Rate Revenue $ - $ - $ - $ - $ - $ - $ - $ - $ - $ - $ - $ - $ - $ - $ - Rate Revenue Requirement $ - $ $ $ $ $ $ $ $ $ $ $ $ $ $ 7.532

169