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Page 1o f2

G a ryF e rn

F ro m :

T o m

F re d e ric k [tfre d e ric k @ riv a n n a .o rg ]

S e n t:

F rid a y , A p ril1 4 , 2 0 0 6 8 :5 4 A M

T o :

'M u e lle r , J u d y '

C c:

'O 'C o n n e ll, G a ry '; G a r y F e rn ; M ic h a e l G a f f n e y ; R o b e r tW .T u c k e r J r.; L o n n ie W o o d

S U b je c t:R E : T h eb ig Q u e s tio n

It w ill d e p e n do nh o w th e in d iv id u a l p r o je c ts a re p h a s e d .

W e k n o w th e fir s t p h a s e o f th e R a g g e d M o u n ta in D a m

h a st oc o m e firs t d u e to D a m S a fe ty is s u e s .

W e a ls o k n o w th e O b s e rv a to ry W T P isi n n e e d o f m a jo r re p a irs a n d

th e p u m p s ta tio n b e tw e e n R a g g e d M o u n ta in a n d O b s e rv a to ry m u s tb ere p la c e d w ith in th e n e x t 5 -7 y e a rs .

T h e n

th e rei sth e n e w S F R Rt o R M R

p ip e lin e its e lf.

W e 'v e m o d e le d th e o p tio n o f c o n s tr u c tin g th e p ip e lin e b e tw e e n 2 0 1 1

a n d 2 0 1 3 , a n d th e o p tio n o f w a itin g u n til

2 0 1 6 to 2 0 1 8 .

If w e w a it u n til 2 0 1 6 (1 0 y e a rs fro m

n o w ) to s ta rt c o n s tru c tin g th e p ip e lin e b u t s ta rti n2 0 0 8 to b u ild

u pc a s h re s e rv e s , th e im p a c to f th e C o m m u n ity W a te r S u p p ly p r o je c to n w h o le s a le ra te s is a b o u t 6 .2 5 %

per year

fo r F Y 0 8 ,0 9 ,a n d1 0 , th e n d ro p st o a ro u n d5 %

p e r y e a r fo r F Y 1 1 ,1 2 , a n d1 3 , th e n c o n tin u e s to in c r e a s e b e y o n d

F Y1 3 b u t a t s m a lle r in c r e m e n tso f le s s th a n5 %

p e r y e a r u n til a b o u t 2 0 2 5 .

If w e a d v a n c e th e p ip e lin e c o n s tru c tio n to 2 0 1 1 -1 3 , th e im p a c to nra te s a re m u c h m o re d ra m a tic .

T h e fo re c a s t fo r

th is s c e n a r ioi s a 10%

in c re a s ei n w h o le s a le ra te s e v e ry y e a r fro m

F Y0 8 u n tilF Y1 3 , th e n a r o u n d 8 %

per yeari n

2014 and 2015.

U n d e r th is s c e n a rio , th e ra te s a r e h ig h e n o u g hb y 2 0 1 5 to s u s ta in th e d e b t s e r v ic e f o r

C o m m u n ity W a te r S u p p ly th ro u g h th e e n tire p la n n in g p e rio d .

Ino t h e r w o rd s , to b u ild th e p ip e lin ei n2 0 1 1

re q u ire s

th a t w e "fro n t" a ll th e ra te in c re a s e s fo r c o m m u n ity w a te r s u p p lyi nth e firs t1 0 y e a rs o f th e 5 0 y e a r p la n .

ID ON O T P L A N T O G E T IN T O T H IS D IS C U S S IO N N E X T T U E S D A Y , w h ic h is w h y y o u d o n 't s e e a n y o f th isi n

th e p re s e n ta tio n .

F irs t, th e tim in gi sb a d fo r a d e e p d is c u s s io no f th is ju s t b e fo r ea n e le c tio n .

Second, Iw antt o

d is c u s s th e im p lic a tio n s o f th e s e tw o s c e n a r io s w ith b o a rd m e m b e r s 2o n 2 s ow e a re to g e th e ro n h o w w e w a n tt o

p re s e n t th is in fo rm a tio nt o th ep U b lic .

F r o m a fin a n c ia l s ta n d p o in t, it m a k e s a lo to f s e n s et o s lo w ly b u ild u p c a s h

r e s e r v e s fo r th e p ip e lin e , w h ic hi nits e lf is n e a rly o n e -th ird th e c o s t o f th e e n tir e 5 0 - y e a r p la n .

B u t I a n tic ip a te

th e r e w ill b e s o m e lo u d v o ic e si nth is c o m m u n ity th a t w ill c a ll fo r th e p ip e lin e tob e b u ilt a lm o s t im m e d ia te ly .

I k n o w y o u a lr e a d y k n o w th is , b u t I lik et ore m in d e v e r y o n e w ith w h o m

I s h a re ra te fo re c a s t a n a ly s is re s u lts th a t

th e fo r e c a s t is o n lya sg o o d a s th e fo re c a s tin g a s s u m p tio n s , a n dn o o n e h a s a p e rfe c t c ry s ta l b a ll.

Inour m odel

w e a r e u s in g 3 %

p e r y e a r fo r in fla tio n , 6 %

per annum

fo r in te re s t ra teo n revenue bonds, 4%

per annum

fo r

in te re s t e a rn e do nin v e s tm e n t o f re s e rv e s , 3 0 -y e a r e q u a l a n n u a l P & I o nd e b t s e rv ic e fo r n e w b o n d s , a n d

a s s u m in g ( e x c e p t fo r in fla tio n ) th a t G a n n e tt F le m in g 's e s tim a te s h o ld .

A ls o , th e fo re c a s te d in c r e a s e si n

w h o le s a le ra te a b o v e a re O N L Y fo r th e w a te r s u p p ly im p ro v e m e n ts a n d d o n o t ta k e in to a c c o u n t fu rth e r in c re a s e s

th a t m ig h tb en e e d e d fo r in c re a s e d o p e ra tin g c o s ts o r o th e r c a p ita l p ro je c ts .

L a s t, fo re c a s tin g o u t1 0 to 1 5 y e a rs

is v e ry d iffic u lt a t b e s t.