Los Angeles 4th Regional Investors Conference March 19-20, Los Angeles Wastewater System

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1 City of Los Angeles Los Angeles 4th Regional Investors Conference March 19-20, 2018 Los Angeles Wastewater System Presented by: Lisa Mowery, Chief Financial Officer LA Sanitation

2 Disclaimer This Investor Presentation is provided as of March 19-20, 2018 as part of the Los Angeles 4th Regional Investor Conference 2018 organized by the City of Los Angeles ( City ) with respect to its Wastewater System Revenue Bonds (the Bonds ). If you are viewing this presentation after March 19-20, 2018, there may have been events that occurred subsequent to such date that may have a material adverse effect on the financial information that is presented herein, and the City has not undertaken any obligation to update this Investor Presentation. All financial data and other information provided herein are not guaranteed as to completeness or accuracy and are subject to change without notice. This Investor Presentation does not constitute a recommendation or an offer or solicitation for the purchase or sale of any security or other financial instrument, or to adopt any investment strategy. Any offer or solicitation with respect to the purchase or sale of any security will be made solely by means of an Official Statement, which describes the actual terms of such securities. This Investor Presentation is not an Official Statement. In no event shall the City be liable for any use by any party of, for any decision made or action taken by any party in reliance upon, or for any inaccuracies or errors in, or omissions from, the information contained herein and such information may not be relied upon by you in evaluating the merits of participating in any transaction mentioned herein. The City makes no representations as to the legal, tax, credit or accounting treatment of any transaction mentioned herein, or any other effects such transactions may have on you and your affiliates or any other parties to such transactions and their respective affiliates. You should consult with your own advisors as to such matters and the consequences of the purchase and ownership of any security. Nothing in this Investor Presentation constitutes a commitment by the City. This Investor Presentation contains certain forward-looking statements. The achievement of certain results or other expectations contained in any forward-looking statements involve known and unknown risks, uncertainties and other factors which may cause actual results, performance or achievements described to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. Although the City believes that such expectations reflected in such forward-looking statements are reasonable, there can be no assurance that such expectations will prove to be correct. The City is not obligated and has not undertaken any obligation to issue any updates or revisions to the forward-looking statements if or when its expectations, or events, conditions or circumstances on which such statements are based occur. 2

3 Presentation Highlights Large service area population and stable customer base Continued improvement in system reliability Sound historical financial results with strong cash reserves Approved and implemented 10-year rate plan provides predictable funding stream and demonstrates political support for the Wastewater System Affordable and manageable capital improvement plan (CIP) Use of non-bond funding sources keeps debt level moderate Water conservation has reduced revenues, but will not affect daily operations or have a material impact on debt coverage Continued commitment to sustainability 3

4 Stable City Population & Solid and Established Customer Base City of Los Angeles Population 4,100,000 3,900,000 3,700, % 1.00% 0.50% Providing service to the 2 nd largest City in the nation, the System s population base is large and stable 3,500, Population Annual Growth Rate 0.00% Source: State of California, Department of Finance 700, , ,000 Wastewater System Accounts Customer base, by category and in aggregate, has remained relatively constant for the last 5 years 400, , , , All Others Commercial/Industrial Large Multifamily Small Multifamily Single Family Source: LA Sanitation 4

5 Wastewater System Customers for Fiscal Year Ten largest customers comprised only 6% of total Fiscal Year sewer service charge revenues of $555 million Largest customers are stable: Government Universities Billable Wastewater Volume by Customer Class Governmental, 5% Healthcare provider Large residential complex Commercial/ Industrial, 23% Large Multifamily, 30% Single Family, 34% Small Multifamily, 9% While water conservation has reduced flows, this was largely accounted for in the rate increases adopted in Source: LA Sanitation

6 System Overview Built-out System 6,700 miles of mainline sewers 7 main interceptor sewers 44 pumping plants 4 City-owned water reclamation plants System uses natural geography of LA basin to maximize gravity flow of sewers to 4 water reclamation plants 29 contracting agencies use the System and accounted for 11.9% of wastewater flow in Fiscal Year New sewers and rehabilitation projects have helped reduce spills by 90% during the past sixteen years Ratio of Average Flow to Capacity at Plants is 4:7 Source: LA Sanitation 6

7 Regulatory Status System is in compliance with all federal and state permits Terminal Island Water Reclamation Plant received its 5-year National Pollutant Discharge Elimination System permit in The other three plants received their 5- year permits in City is a stakeholder in the process of developing State Water Resources Control Board Total Maximum Daily Loads that is expected to continue for the next decade 7

8 Planning For Climate Resiliency LASAN Strategic Plan Goal No. 8 Complete a Climate Change Adaptation Plan Identify Projects for LASAN s 10-Yr CIP Initial Risk Screening Climate Resilience Evaluation and Awareness Tool (CREAT) LASAN Climate Change Resiliency Assessment and Recommendations Climate Change Adaptation and Resiliency Plan / CIP Projects Mayor s Sustainable City plan Integrate natural disaster resiliency strategy with climate action and adaptation plans by 2017 Prepare for future earthquakes and increasing climate disruptions 8

9 Venice Beach Pumping Plant No. 647 Climate change risks Located in the 500-year flood zone and tsunami zone Coastal flooding, additional risk with sealevel rise Liquefaction Adaptation options Waterproof hatches Raise vents to elevations above future design flood elevation Use watertight enclosures on electrical, instrumentation and controls and MCCs Resize green infrastructure and other drainage enhancements for design storms For planning purposes the estimated cost of the recommended adaptations is $610,000. The estimated damage replacement costs of the facility is $3,750,000. 9

10 LA Sanitation is a Visionary Leader in Sustainability City Vision Will lead the nation in water conservation and source the majority of our water locally Will strengthen LA s economy by dramatically reducing GHG emissions and rallying other cities to follow our lead LASAN Initiatives Implement/expand advanced treatment at all plants to produce recycled water for operational needs, irrigation and groundwater replenishment Construction of co-generation facility to power the largest water reclamation plant using renewable biogas LA will become the first big city in the US to achieve zero waste, and recycle and reuse most of its waste locally Process food and organic waste via anaerobic digesters to produce renewable energy or fuel for trucks and manage more waste locally 10

11 Unprecedented 10-year Sewer Service Charge Increase Adopted February 2012 City action raised sewer rates annually through Fiscal Year Received unanimous Mayor and City Council support No further City Council action required for annual rate increases during this time period Effective as of April 6, 2012 Gradual rate increase provides predictable revenue stream to support System operations Annual increases already implemented for first seven years, 6.5% in next three years $60.00 Monthly Sewer Service Charge for Typical Household $50.00 $40.00 $30.00 $20.00 $10.00 $ Fiscal Year Source: LA Sanitation 11

12 Monthly Residential Sewer Service Charge 40 Largest US Cities Typical monthly residential charge of $35.76 is moderate compared to other large cities Monthly bill rate represents 0.8% of per capita personal income for Los Angeles County Source: Black and Veatch Management Consulting, LLC 50 Largest Cities Rate Survey 2016: Building Financial Resilience 12

13 Anticipated Capital Improvement Program Projected CIP Funding Sources (Fiscal Years ) Projected CIP Expenditures (Fiscal Years ) System Revenues $1.98 Billion, 44% System Revenues $1.5 Billion 42% Debt Financing $2.54 Billion, 56% Debt Financing $2.1 Billion 57% Systemwide Collection and Pumping Wastewater $1.92 Billion, Treatment 42% and Water Recycling Wastewater Treatment $2.6 Billion, $1.7 Billion, 47% 58% Total - Projected CIP Expenditures & Funding Sources (Fiscal Years ): $4.52 Billion 44% of CIP is projected to be funded through system revenues 42% of CIP costs are for collection system, which has an expected useful life in excess of 75 years 13 Source: LA Sanitation

14 Summary of Historical Operating Results CASH BASIS (UNAUDITED) (in Thousands) Total Operating Revenues $ 567,036 $ 543,748 $ 572,641 $ 607,386 $ 624,661 Non-Operating Revenues 12,548 8,789 14,374 8,764 20,154 Total Revenues $ 579,584 $ 552,537 $ 587,015 $ 616,150 $ 644,815 Less Operating Expenses 264, , , , ,730 Net Revenues $ 315,447 $ 265,956 $ 303,698 $ 345,917 $ 356,085 Senior Lien Debt Service $ 118,023 $ 97,924 $ 101,423 $ 106,353 $ 87,225 Debt Service Coverage 2.67x 2.72x 2.99x 3.25x 4.08x Subordinate Debt Service $ 90,464 $ 92,679 $ 87,126 $ 93,187 $ 106,329 Total Debt Service $ 208,487 $ 190,603 $ 202,154 $ 213,145 $ 207,159 Debt Service without SRF Loans 194, , , , ,554 Total Debt Service Coverage w/o SRF Loans 1.62x 1.50x 1.61x 1.73x 1.84x Net Revenues After Debt Service $ 106,960 $ 75,353 $ 101,544 $ 132,772 $ 148,926 Non-operating Revenues $ 10,454 $ 21,760 $ 20,251 $ 24,368 $ 54,233 Non-operating Expenses $ 1,524 $ - $ - $ - $ - Balance Available $ 115,890 $ 97,113 $ 121,795 $ 157,140 $ 203,159 System operations have generated $695 million in operating funds during five-year period to contribute to funding CIP 14 Source: LA Sanitation

15 Strong Historical Cash Balances Sewer Construction and Maintenance Fund Cash Balances ($000 s) Fiscal Year Ended June UNRESTRICTED FUNDS Sewer Construction $ 102,856 $ 75,651 $ 56,950 $ 66,217 $ 31,602 Sewer Operation and Maintenance 14,400 24,333 41,535 45,359 48,110 Sewer Capital 8,840 18,424 31,512 28,414 56,152 Total Unrestricted Funds $ 126,096 $ 118,408 $ 129,997 $ 139,990 $ 135,864 RESTRICTED FUNDS Construction Funds $ 118,130 $ 151,903 $ 252,054 $ 110,364 $ 262,538 Reserve Funds 98, , , , ,413 Debt Service Funds 17,441 20,510 16,598 19,746 20,743 Operation and Maintenance (O&M) Reserve 36,553 37,027 36,981 37,099 39,590 Insurance and Liability Claims Funds 3,000 3,000 3,000 3,000 3,000 Emergency Fund 5,000 5,000 5,000 5,000 5,026 Rebate Funds Total Restricted Funds $ 278,640 $ 319,750 $ 422,406 $ 283,931 $ 433, TOTAL FUNDS $ 404,736 $ 438,158 $ 552,403 $ 423,920 $ 569,542 Fiscal Year Cash available for Operation & Maintenance (O&M) Expenses: Total unrestricted cash in Sewer Construction and Maintenance and Sewer Operation and Maintenance Funds of $80 million, plus $40 million in required O&M Reserves, plus $5 million in Emergency Fund, aggregate to 157 days of operating expenses (shaded in blue) Source: LA Sanitation

16 Millions Existing and Projected Debt Existing Debt as of March 2018 Fixed Rate Variable Rate ** Total Senior Lien (AA+)* $1,050,760,000 $ - $1,050,760,000 Subordinate Lien (AA)* 1,348,510, ,860,000 1,629,370,000 SRF Loans 95,238,000-95,238,000 Total $2,494,508,000 $280,860,000 $2,775,368,000 $350 Estimated issuances: 2019 $284 million 2020 $326 million 2021 $238 million 2022 $156 million Debt Service on Existing and Projected Bonds *** $300 $250 $200 $150 $100 $50 $ Existing Projected 16 Source: LA Sanitation * Ratings from Fitch, Kroll, and Standard & Poor s ** Includes Commercial Paper Notes and portion of Variable Rate bonds associated with outstanding swap agreements *** Does not include debt service on SRF loans, which are subordinate to Subordinate Lien Bonds and Commercial Paper Notes

17 Projected Operating Results Strong projected debt service coverage: Ratios are expected to range from 3.03x to 5.50x for Senior Lien Bonds and 1.67x to 1.75x for Subordinate Lien Bonds from Fiscal Year to Debt Service Coverage (In Thousands) Projected Net Revenue 347, , , , ,294 Debt Service Existing Senior Lien Bonds 75,479 60,519 64,350 81,967 92,278 Additional Senior Lien Bonds - 7,100 27,195 50,958 63,335 Total Senior Lien Bonds 75,479 67,619 91, , ,613 Existing Subordinate Lien Bonds 128, , , , ,133 Commercial Paper Notes 500 3,000 3,000 3,000 3,000 Total Subordinate Lien Bonds 128, , , , ,133 Total All Bonds and CP Notes 204, , , , ,746 Projected Debt Service Coverage: Total Senior Lien Bonds 4.60x 5.50x 4.43x 3.36x 3.03x Total Senior and Subordinate Debt 1.70x 1.67x 1.68x 1.68x 1.75x 17 Source: LA Sanitation

18 Summary System serves one of the largest and most diverse service areas in the US Revenue reductions due to water conservation have been incorporated into projections and are not negatively impacting operations or debt service coverage Current and projected financial results bolstered by approved 10-year rate increases (three years remaining) Senior Lien Debt Service Coverage FY : ranges from 3.03x to 5.50x Total Senior and Subordinate Lien Debt Service Coverage FY : ranges from 1.67x to 1.75x 18