Rock River Water Reclamation District Plant Equity Fee Update

1. Rock River Water Reclamation DistrictPlant Equity Fee Update Public Meeting November 23, 2009

2. Presentation outline • Utility Rates & Charges • Principles and objectives • National and local trends • Historical Increases (vs. Inflation) • Community comparison • Plant Equity Fee Analysis • Purpose • Analysis Methodology • Analysis results • Implementation Options • Fee transitioning • Non-residential fee multipliers • Recommendations & Next Steps

3. Presentation outline • Utility Rates & Charges • Principles and objectives • National and local trends • Historical Increases (vs. Inflation) • Community comparison • Plant Equity Fee Analysis • Purpose • Analysis Methodology • Analysis results • Implementation Options • Fee transitioning • Non-residential fee multipliers • Recommendations & Next Steps

4. Rates & ChargesPrinciples • Rates and charges based on services provided – NOT a tax • Fixed and volume charges do not typically reflect fixed vs. variable costs • Cost-of-service approaches reflect cost causation • Use of customer classes upheld to allocate costs across different types of user • Charges to new services may enable allocation of growth-related costs • Prospective perspective

5. Rates & Charges:General Objectives Traditional Policy Based Water resource management (e.g., conservation) Economic development Affordability of service • Equity • Allocation of revenue responsibilities based on cost causation (cost-of-service) • Revenue adequacy & stability • Public understanding & acceptance • Administrative simplicity

6. Rates & Charges: National Utility Finance Trends • Increasing costs / decreasing Fed/State support • Aging systems, regulations, capacity needs • Rates and charges: • 2x rate of inflation over last decade which is expected to continue • Cost-of-service based rate setting • Development / miscellaneous fees • Equitable distribution of costs • Revenue / financial stability

7. Rates & Charges: Local Considerations • Economic challenges resound • Declining / evolving industrial base • Unemployment rates • Economic development concerns • RRWRD’s history of high quality performance a community asset • Permit compliance • Reliable, cost-effective services • Future regulations & system renewal will impose major costs • Phosphorous limits

8. Rates & ChargesRRWRD Rate & Fee History

9. Rates & ChargesCommunity Comparison * Persons per household assumptions and billing determinants for non-residential accounts vary across communities

10. Presentation outline • Utility Rates & Charges • Principles and objectives • National and local trends • Historical Increases (vs. Inflation) • Community comparison • Plant Equity Fee Analysis • Purpose • Analysis Methodology • Analysis results • Implementation Options • Fee transitioning • Non-residential fee multipliers • Recommendations & Next Steps

11. Plant Equity Fee AnalysisPurpose • Plant Equity Fee recovers common growth-related costs: • Supplemented by basin specific charges • Excludes grant / contributed funded assets • Equitable allocation of growth-related capacity costs • “Growth pays for growth” • RRWRD implemented fees following 1992 Revenue Option study • In Illinois, fees permissible yet only specific enabling legislation for roads

12. Plant Equity Fee Analysis Unit Cost of Capacity Methodology Existing Demand Growth Demand Existing Facilities Future Improvements Determine Growth Costs Step 1: System Valuation Existing Capacity ($) Capacity Expansion ($) Step 2: Available Capacity Determination Step 3: Project Cost Allocation

13. Plant Equity Fee Analysis System Valuation Options Inflated Cost + Interest less Depreciation Replacement Cost New Less Depreciation + Interest Book Value Historical Cost Inflated Book Value Inflated Cost Inflated Cost + Interest Replacement Cost New less Depreciation Replacement Cost Full Carrying Cost Existing Customers Growth

14. Plant Equity Fee Analysis Analysis Results • Unit cost of existing capacity • Inflated Costs + Interest - Depreciation $ 1,353 • Allocated unit cost of planned capital improvements $ 241 LESS: • Debt service credit $ 328 Total Plant Equity Fee per ERU $ 1,266

15. Plant Equity Fee Analysis Analysis Results • Why an increase? • Fees in 1995 and 2005 based on 1992 analysis • 2009 applied updated methodology • Inflation • Previously built capacity largely grant funded • Prospective capacity costs

16. Presentation outline • Utility Rates & Charges • Principles and objectives • National and local trends • Historical Increases (vs. Inflation) • Community comparison • Plant Equity Fee Analysis • Purpose • Analysis Methodology • Analysis results • Implementation Options • Fee transitioning • Non-residential fee multipliers • Recommendations & Next Steps

17. Plant Equity Fee Analysis Implementation Options • Fee Increase: • Implementation of $1,266 in FY 2010 • Phase-in implementation over 3-4 years • Payment Terms • Payment due to obtain connection • Enable multi-year financing • Non-residential multipliers • Preserve strength-based multipliers • Revise calculations to redistribute capacity costs among non-residential users • Appeal procedures: • Preserve “payment under protest” • Provision for ‘contest’ of charges and for ‘special circumstance’ users

18. ERU Determination:Alternative Basis Evaluation

19. Presentation outline • Utility Rates & Charges • Principles • General objectives • Historical Increases (vs. Inflation) • Community comparison • Plant Equity Fee Analysis • Purpose • Analysis Methodology • Analysis results • Implementation Options • Fee transitioning • Non-residential fee multipliers • Recommendations & Next Steps

20. Recommendations & Next StepsImplementation recommendations • Transition to calculated plant equity fee level of $1266 / ERU over 3-4 years • Defer implementation to 2010 • Equal increments vs. limited increase in 2010 • Update fee calculations with capital project schedule / cost estimate revisions • Revise non-residential multipliers to eliminate strength-basis • Facilitate economic development

21. Recommendations & Next StepsImplementation measures • Effective dates: • Implementation of $1,266 in FY 2010 • Phase-in implementation over 3-4 years • Accounting • Revenues deposited in special trust fund or interest bearing account • Expenditures of fee collections for capacity-increasing improvements, within designated time frame • Buy-In component may be applied to debt service • Provision for ‘contest’ of charges and for ‘special circumstance’ users

22. Recommendations & Next StepsRRWRD Board actions • Fee adoption • Notice to development community • 1st fee increase effective 2010 • Revised ordinance provisions related to special circumstances, appeals • 2nd fee increase effective 2011 • Final fee increase effective 2012 • Schedule may be revised in event of significant changes to regulations, CIP

23. Rock River Water Reclamation DistrictPlant Equity Fee Update Public Meeting November 23, 2009

24. User Rates: Development Process: Cost-of-Service System Revenue Requirements (financial plan) Annual Revenue from User Charges Other Revenues (e.g., Plant Equity Fees, Miscellaneous Charges) Allocation to system functions Grouping of functions by joint and specific categories Specific costs Cost allocation process Joint costs Allocation to customer classes Classification of cost of service by service characteristic Rate Design

25. Existing demand Growth demand New facilities Existing facilities Determine growth costs Existing capacity ($) New capacity ($) Growth units = TOTAL PLANT EQUITY FEE REIMBURSEMENT IMPROVEMENT Calculate offsets & credits Past payments Future payments Plant Equity Fee: Development Process Capacity Assessment Develop Proportionate Share Fees Scaling measure Land use factors Geographic area

26. Plant Equity Fee Analysis Billing determinant revision • Current basis*: • ERU determination for plant-buy-in (PERU) shall be the highest of the equivalent domestic loading as determined from estimated or actual flow, BOD, ammonia nitrogen or suspended solids. • Related policy issues: • Selected users charged significant fees due to high strength discharges • Capacity planning and cost allocations are primarily flow based • Preliminary recommendation: revert to flow based approach * Title 5, Article 1 – Definitions, Section 6 – Equivalent Residential Unit: One ERU equals an average flow of 350 gallons per day with wastewater characteristics of 0.60 pounds of BOD5, 0.70 pounds of suspended solids and 0.035 pounds per day of ammonia.

27. ERU Determination:Alternative Basis Evaluation