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ATTACHMENT #1 Special Utility Committee Meeting of 06/01/2009 City of Dover Electric Revenue Fund Five Year Financial Forecast 2010 - 2014 Special Utility Committee Meeting of 06/01/2009 Utility Committee June 1, 2009 Prepared by Finance p p Department ATTACHMENT #1

2 Key Assumptions kWh Growth ▫ No growth through 2012 ▫ 2013 – 1.06% ▫ 2014 – 2.13% ▫ Sales growth = power supply growth provided by PACE Interest rate for investments and cash – 3.0% Sale of E i mission Credits – 2011 thru 2014 $400,000/year Annual Department Expenses – Growth 3.5% Retiree’s Medical Insurance – Growth 6.0% No new debt issuance Estimate for OPEB included 2011 – 2014 Includes annual appropriation to I & E Fund for capital improvements

3 Power Supply Estimates • Projections by PACE as of March 11, 2009 ▫ Based on current hedges and open market position • 2010 $73 473 ,473,322 +3.1% (to 2009 Budget) ▫ Using $3,000,000 of Rate Stabilization Reserve • 2011 $67,482,774 -8.2% • 2012 $64,585,722 -4.3% • 2013 $64,560,838 0.0% • 2014 $62,332,649 -3.5% • Subject to market prices and new regulations; i.e. carbon tax

4 Capital Improvements & Maintenance • In order to keep rate increases to a i i minimum, we d reduced hthe transfer to the I & E Fund in the past two years to an amount less than the $3 million annual estimate for system maintenance included in the financial model in 2007. We have instead used reserves or debt issuance for these improvements. • This forecast includes the following transfers to the I & E Fund for Equipment Replacement, System Improvements & Maintenance; with no new debt requirement – ▫ 2010 $2,500,000 ▫ 2011 $3,000,000 ▫ 2012 $3,250,000 ▫ 2013 $3,500,000 ▫ 2014 $3 75 .750,000

5 Reserve Replenishment • Depreciation Reserve – to bring back to policy level. Fiscal Year 2011 - $1 million in addition to interest earned each year; Used $4.7 million in Fy08 for projects; • Rate Stabilization Reserve – to bring up to policy level and replenish the $3 million transfer in FY2010, interest earnings plus the following: ▫ 2011 - $1.5 illi million ▫ 2012 - $1.0 million ▫ 2013 - $1.0 million ▫ Subject to change based on outcome of FY09

6 Debt Service Coverage Ratio • Covenant 1.25 times • Ten Year Trend 2.5 times – 3.5 times ▫ Adjusted to include General Fund Transfer • Financial Forecast ▫ 2010 1.84 ▫ 2011 2.75 ▫ 2012 2.68 ▫ 2013 2.84 ▫ 2014 2.55

7 Forecasted Revenue Adjustments • FY 2012 -4.0% • FY 2014 -4.0% Based on financial forecast estimates as of 5/8/09 for FY10 – Fy14 Positive/(negative) results from FY09 will impact forecast starting in FY11; This may create a potential for further revenue reductions; Note – hthese are revenue dj adjustments, not rate adjustments; The rate model will have to be updated to determine actual rates;

8 Net Margins

9 Positive/(Negative) Cash

10 Reserve Balances Reserve 2010 estimate 2014 estimate Policy Depreciation $7,991,763 $10,087,563 Min. $10 million Future Capacity $8 900 ,900,651 $10,017,751 Min. $10 million Insurance $395,002 $444,702 Min. $350,000 Rate Stabilization $1,718,613 $5,664,313 Min. 3% of power supply cost, not to exceed 10% Contingency $1,036,069 $1,166,169 Min. 1% of Operating Revenues

City of Dover Water and Wastewater Fund Five Year Financial Forecast 2010 – 2014 Utility Committee June 1, 2009 Prepared by Finance p p Department

2 Water and W t astewater Usage • Fitch Ratings – Sales for top ten < 10% ▫ City of Dover x 2008 = 24.3% x 2009 = 23.8% • Apr 2007 – Mar 2008 as compared to Apr 2008 – Mar 2009 Water Usage ▫ Total Usage -39,060 T/gals ▫ Fy09 Monthly Avg. -5,000 T/gals ▫ Less water usage = less wastewater usage • Fitch considers reserves and cash on hand policies when analyzing credit to determine if utility can make it through loss of major customers • Fitch reviews major customer by type; i.e. industrial, residential, governmental, private utility, colleges • Fitch reviews growth, demographics, and local/regional comparisons Source: Fitch Ratings Public Finance Report January 2009 – 2009 Median Ratios for Water and Sewer Revenue Bonds – Retail Systems 2

3 Key Assumptions • T/Gallons Growth ▫ 2006 +3.8% 3 ▫ 2007 no growth ▫ 2008 -4.0% ▫ 2009 projection -1.5% ▫ 2010 thru 2014 no growth • Interest rate for investing and cash – 3.0% • No growth in impact fees 2011 - 2014 • Annual Department Expenses – Growth 3.5% • Retiree’s Medical Insurance – Growth 6.0% • Estimate for OPEB included 2011 – 2014; Approximately $350,000 annually • Sewer Adjustment Revenues equal County Treatment Fees; no allowance for inflow and infiltration or treatment fee increases from the County; • General Fund transfer remains at 4.5% across all years Note - Zero growth estimates require all forecasted cost increases to be covered by rate increases

4 Reserve R l i eplenishment • Water Capital Asset Reserve – to bring back to policy level. Fiscal Year 2011 through 2013 $100,000 annual plus interest; • Wastewater Capital Asset Reserve – to bring back to policy level. Fiscal Year 2011 through 2014 $125,000 annual plus interest;

5 Capital Improvements Financing Plan • Fiscal Year 2010 Capital Improvement Plan has several major projects financed by State Revolving Loan Funds and a total of $700,000 transfer from p operations • The five year plan includes projects for water quality and inflow/infiltration improvements; new water tower and plans for several wastewater pump station replacements; • Forecast does include $500,000 annual appropriation from Operations for each utility in order to provide some pay go funding in 2011 – 2014 (i.e. vehicles, equipment) • Water Revolving Loan Fund 2% interest rate • Wastewater Revolving Loan Fund 3% interest rate • Using the revolving loan funds saves the City approximately $2.3 million in interest cost • Fiscal Year 2011 through 2014 Capital Improvement Plan is dependent on heavy use of bond proceeds in order to mitigate significant rate increases ▫ 86% of the 5 Year Capital Improvement Plan is forecasted to be debt financed ▫ This does not allow for rates to be set at a level to insure pay go financing for future projects and system maintenance past 2014 ▫ Any financing above the $500,000 appropriation beyond 2014 would require additional bond financing • Rate increases are implemented throughout the forecast but at a lesser degree of increase if all projects were pay go • Impact fees are used to help pay annual debt service cost along with rate increases

6 Annual Capital Improvement Plan • Utility Committee – CIP presentation of 4/13/09 has been reduced from $37.9 million Five Year Plan to $32.6 million In Thousands • Fitch reviews average annual CIP per cost per Per customer Water Wastewater Total Customer ▫ Officials try to accommodate rising capital costs by financing more projects with debt to alleviate the immediate effect on the ratepayers; ▫ Utility capital improvement programs are growing 2010 $3,026 $6,700 $9,726 $818 overall from a combination of sharp recent hikes in material and labor costs, normal inflation, aging infrastructure, ongoing regulatory enhancements, 2011 4,084 1,950 6,034 $508 and customer growth. 2012 2,085 , 2,312 , 4,397 , $370 ▫ Fitch takes into account comprehensive plans to maintain existing infrastructure, and evaluates a utilities annual depreciation to gauge the amount of ongoing maintenance being preformed 2013 2,908 2,363 5,271 $443 2014 3,909 3,280 7,189 $605 Note – Combined Water & Wastewater customers for FY10 = 11,887; no growth forecasted at this time; Total $16,012 $16,605 $32,617 $2,744 Source: Fitch Ratings Public Finance Report January 2009 – 2009 Median Ratios for Water and Sewer Revenue Bonds – Retail Systems 6

7 Forecasted Debt Issuance Fiscal Year Total Issuance Type of Debt 2010 $8.3 million State Revolving Loan – secured by revenues; must keep debt coverage 1.5 – 2.0 times; Water & Wastewater projects; 2011 $15.0 million Revenue Bonds secured by revenues; Principal includes estimated set aside for bond reserve and cost of issuance; Water & Wastewater projects; 2013 $3.3 million Revenue Bonds secured by revenues; Principal includes estimated set aside for bond reserve and cost of issuance; Wastewater projects; 2014 $3.3 million Revenue Bonds secured by revenues; Principal includes estimated set aside for bond reserve and cost of issuance; Wate projects;

8 Annual Capital Demands City of Dover – Long Term Debt Fitch Comparison – Long Term Debt Principal Per Per Debt Per Per Debt (000’s) Customer Capita Ratio Customer Capita Ratio 2005 $1,330 $57.14 $19.64 2.07 2009 $1,875 $474 7.0 2006 $1,376 $57.88 $20.26 2.86 2007 $1,392 $57.54 $20.04 2.53 2014 $2,329 $822 2008 $654 $26.61 $9.41 3.98 2009 $675 $27.53 $9.71 2.60 Fitch Median – Rated A Credit Population 68,309; 2010 $691 $28,20 $9.95 3.25 Median Income $42,887 2011 $449 $18.32 $6.46 3.31 Water Customers 27,697; Wastewater Customers 17,009; 2012 $1,120 $45.72 $16.13 1.86 City of Dover 2013 $1,241 $50.64 $17.87 1.84 Population – approximately 35,200 Water Customers – 12,254 2014 $1,575 $64.28 $22.68 1.70 Wastewater Customers – 11,519

9 Affordability Measures 2009 City Fitch/AWWA • A key measure of water and sewer Median rates is the percent of median Household household income for h the area b i eing Income (2000 served. The rating agencies use a Census) $46,504 threshold of 2% for this measure on Annual Utility combined systems. Bill $930.08 • They also look for reserve policies for In City $443.40 rehab and replacement funds, Out City $580.20 operating funds, and rate stabilization funds. % of Median Household Income 2.0% In City 1.0% Out City 1.2% • Another measure used by the American Water Works Association is the ratio of the In City rate to the Out Average of City rate to insure the taxpayer’s are Combined not subsidizing the non-taxpayer’s. Rates In City $7.39 $8.61 This ratio is 2:1; The City’s current Out City $9.67 $17.22 ratio is 1.3:1; Ratio 1.3:1 2:1 9

10 Kent County Comparables – Water Rates Avg. Quarterly Rate - $/1,000 gallons (Calculated on 15,000 gallons and includes customer charge) Source: Synthesis of Water Rates in Delaware and Contiguous States – IPA, U of D, December 2008 2000 2004 2008 Camden-Wyoming --- 6.16 7.14 Clayton Water Department --- 2.17 3.83 Dover Inside City 1.90 2.35 2.53 Outside City 2.85 3.53 3.76 Felton 2.53 Inside City --- 2.53 --- Outside City --- 3.80 --- Frederica --- 3.33 4.33 Greenwood --- 4.00 6.40 Harrington --- 2.24 5.58 Magnolia Inside City --- 3.33 3.67 Outside City --- 4.00 4.33 Smyrna 2.87 Inside City --- --- 2.87 Outside City --- --- 5.33 10

11 Rates – Past and Forecasted In Out $ % Out $ % Water City City Chg Chg Sewer In City City Chg Chg 2005 $2.35 $3.53 2005 $1.90 $2.85 2006 $2.45 $3.68 .10 - .15 10.5% 2006 $2.10 $3.15 .20 - .30 10.5% 2007 $2.45 $3.68 2007 $2.10 $3.15 2008 $2.45 $3.68 2008 $2.10 $3.15 2009 $2.45 $3.68 2009 $2.10 $3.15 2010 $2.70 $4.05 .25 - .37 10.0% 2010 $2.10 $3.15 2011 $2.96 $4.45 .26 - .40 10.0% 2011 $2.31 $3.47 .21 - .32 10.0% 2012 $3.26 $4.90 .30 - .45 10.0% 2012 $2.61 $3.92 .30 - .45 13.0% 2013 $3.49 $5.24 .23 - .34 7.0% 2013 $2.87 $4.31 .26 - .39 10.0% 2014 $3.84 $5.77 .35 -.53 10.0% 2014 $3.16 $4.74 .29 - .43 10.0% 2006 Implemented $1.25 customer charge which 2006 Implemented $1.25 customer charge which is is included in above rate included in above rate

12 Comparison of Annual Utility Bill Residential Customer 60 T/Gallons per year In City Annual $ Increase Out City Annual $ Increase 2009 $443.40 2009 $580.20 2010 $458.10 $ 4 14.70 2010 $602.28 $22.08 2011 $486.87 $28.77 2011 $645.47 $43.19 2012 $522.68 $35.80 2012 $699.21 $53.74 2013 $552.03 $29.36 2013 $743.28 $44.06 2014 $590.20 $38.16 2014 $800.56 $57.29

13 Trends of Revenues & Expenses (In Thousands) Operating Treatment Debt Revenues Expenses Fees Service Depreciation 2005 $10,854 $4,648 $3,470 $1,520 $1,221 2006 $12,103 $4,586 $3,628 $1,604 $1,234 2007 $11,928 $4,832 $3,703 $1,594 $1,310 2008 $12,258 $5,637 $3,634 $830 $1,428 2009 $11,647 $6,268 $3,435 $836 $1,729 % Change 7.3% 34.9% -1.0% -45.0% 41.6% 2010 $12,100 $6,111 $3,435 $833 $2,020 2011 $13,132 $6,704 $3,435 $947 $2,232 2012 $13,947 $6,962 $3,435 $1,978 $2,415 2013 $14,547 $7,219 $3,435 $2,189 $2,618 2014 $15,270 $7,490 $3,435 $2,641 $2,890 % Change 26.2% 22.6% 0.0% 217.0% 43.1% Operating Expenses do not include transfers to reserves or the I & E Fund; Does include General Fund transfers; Kent County Treatment Fee Increases – FY06 $.28 or 15%; FY08 $.21 or 9.9%;

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17 Reserve Balances Reserve 2010 Estimate 2014 Estimate Policy Contingency - Water $122,667 $138,083 2% of Annual Operating Revenues Contingency – $136,674 $153,828 2% of Annual Wastewater Operating Revenues Impact Fee – Water $0 $0 Minimum 20% of Used for projects Operating Revenues related to system All impact fees used to growth help pay increase in debt service Impact Fee – $3,141,013 $3,700,199 Minimum 20% of Wastewater Operating Revenues Used for projects After 2012, all impact related to system fees used to help pay growth increase in debt service Capital Asset – Water $205,734 $549,918 Minimum $500,000 Capital Asset – $66,321 $597,598 Minimum $500,000 Wastewater

18 Information Sources • Fitch Ratings Public Finance – 2009 Median Ratios for Water and Sewer Revenue Bonds – Retail Systems, January 28, 2009 • Fitch Ratings Public Finance – Water and Sewer Revenue Bond Rating Guidelines, August 6, 2008 • Synthesis of Water Rates in Delaware and Contiguous States, December 2008

ATTACHMENT #2 Special Utility Committee Meeting of 06/01/2009 1 Alternative Forecasts – Combined Revenues & CIP Capital As Presented Revenue Increase Revenue Increase Fiscal Improvements Revenue FY10 & FY11 $6 Mil. Trasnfer to I & E Year (In millions) Increase Covers all 5 years No layering new debt 2010 $9.7 10.0% 10.0% 10.0% 2011 6.0 20.0% 80.0% 20.0% 2012 4.4 23.0% 0.0% 200.0% 2013 5.3 17.0% 0.0% 0.0% 2014 7.2 20.0% 0.0% 0.0% Cumulative $32.6 90.0% 90.0% 230.0% Special Utility Committee Meeting of 06/01/2009 Capital No New Debt past FY10 Fiscal Improvements Reduced Water Quality & Year (In millions) I & I Projects 2010 $9.7 10.0% 2011 1.3 0.0% 2012 1.0 10.0% 2013 0.9 4.0% ATTACHMENT #2 2014 1.2 0.0% Cumulative $14.1 24.0%