1. Developer Charges: Vital Financial Tools for Australias Infrastructure FundingN O V E M B E R2 0 1 3

2. JasonMumm Global Director of Financial, Commercial and Risk ServicesExpert in water, wastewater, and stormwater utility finances and rates with 18 years direct experience. Education: MBA Finance BS Finance Accreditation: Accredited Valuation Analyst, NACVALeads the global financial, commercial and risk practice for MWH Global including the technical direction and client satisfaction for consulting operations worldwide. Jasons 18 years experience includes financial planning, cost-of-service allocations, business valuations, rate designs, demand forecasting, utility regionalization, strategic planning, economic studies, and utility cost-sharing solutions at local, state, and regional levels. Performed over a hundred individual studies for water/wastewater utilities primarily for local governments in the United States. Prepared expert witness testimony in regulatory proceedings in Canada and the United States. Testimony also provided in numerous other court, administrative, and alternative dispute resolution cases. Admitted as an expert witness in Colorado, Nova Scotia, Texas, Oregon, and Hawaii in matters involving utility finances, rates, and/or cost sharing. Developed utility business model training for local elected officials. Held elected office on a water/sewer board in his local community.370 Interlocken Blvd, Suite 300 Broomfield, CO 80021 jason.mumm@MWHGlobal.comPublished Works: Author of 100+ published works including: The Equity Option: How to Make the Most of Your Debt. Journal of American Water works Association. Vol. 104, No. 11, Nov. 2012. Managing Financial and Water Supply Challenges with Regional Partnerships. Journal American Water Works Association. Vol. 104, No. 7., July 2012. Regionalization as a Solution for Affordability, Presented at the American Water Works Association Annual Conference and Exposition. Dallas, TX. June, 2012. Accepting the Affordability Challenge, Journal American Water Works Association. Vol. 104, No. 5., May 2012. Fair Water Pricing. Water & Wastes Digest, April 2012. Adapting GASB 34 for Water Utility Ratemaking. Journal of American Water Works Association. Vol. 96. No. 1, January 2004. 3. We need to make changes in the way we approach infrastructure investment, from our Government approval processes to identifying how we pay for infrastructure.Sir Rod Eddington AO Chairman, Infrastructure Australia 4. Insufficient Chargescouncils are still not collecting 100% of the costs for infrastructure, leaving the remainder to be covered through general rates. 5. Inequitable Chargesnew residential development has been called upon to carry the cost of community infrastructure 6. Unpredictable Chargesthere is currently little or no clarity as to how these infrastructure charges are levied by Councils. 7. Getting Developer Fees Right is Crucial Proper Cost Recovery Identifying and quantifying the full financial costs of expanding capacity ensures full cost recovery.Transparency Developer community acceptance will increase dramatically with clearly delineated fee calculations.Improved Economic Efficiency When developer fees reflect the full cost of expansion, market participants can make efficient decisions on where and when to develop. 8. Developer Fees: The Key Issues Defining The Rational Nexus Understanding The Funding Conundrum Achieving Transparency and Equity Creating Equitable Assessments 9. Developer Fees: The Key Issues Defining The Rational Nexus Understanding The Funding Conundrum Achieving Transparency and Equity Creating Equitable Assessments 10. What is the Rational Nexus?The logical connection between new development and new infrastructure. 11. Why it Matters Governments Have to Explain Developers Need to Accept Residents Need to Agree 12. People Need InfrastructureSome is economic infrastructureWhen people inhabit an area, they acquire infrastructure to meet their needs.Some is social infrastructure 13. More People, More Capacity 14. Intergenerational Equity Equity exists when new generations pay for cost to acquire needed capacity. These costs are avoidable absent new development (i.e. population growth). Other lifecycle costs are best borne by user fees and/or taxes. growth 15. Two Kinds of Expansion CapacityReserve CapacityProposed CapacityEconomic and social infrastructure already acquired with some amount of remaining service capacityFuture capacity, above and beyond any reserve, that will be required to serve expanded population. 16. Expansion: The Key to Rationality New Generationsn/a Upgrades & ReplacementsFees ExpansionsRates & TaxesRates & TaxesExisting Generations 17. Developer Fees: The Key Issues Defining The Rational Nexus Understanding The Funding Conundrum Achieving Transparency and Equity Creating Equitable Assessments 18. The Funding Conundrum Funding always precedes construction. Current or prior generations always provide the funding. Development occurs at its own pace, outside the control of local government. Therefore, development fees are always subsequent to the investment. Development fees are a reimbursement. 19. Investment Anticipates Future Generations CapacityTime 20. Developer Fees: The Key Issues Defining The Rational Nexus Understanding The Funding Conundrum Achieving Transparency and Equity Creating Equitable Assessments 21. Value of Reserve CapacityTwo Questions: 1. What is this capacity? 2. What is its value?This is the part thats available for growth! Its the reserve capacity.We have to deduct this part from the total its already used. Its the subscribed capacity.THE INFRASTRUCTURE 22. Valuing Reserve Capacity No DepreciationOriginal CostIndexed CostNominal DollarsReal Dollars Net Book ValueIndexed Book ValueDepreciated 23. What About Market Value? We do not advise it. The idea is intergenerational EQUITY, not intergenerational speculation. Market value is subjective. Actual costs are less subjective, more transparent. 24. Examples of Valuation TechniquesAsset NameYr. InstalledOriginal CostUseful Life (yrs)Book ValueBridge1980$30m40$5.25mAsset NameYr. InstalledIndexed CostUseful Life (yrs)Indexed Book ValueBridge1980$115m40$20.2m 25. Choosing a Valuation MethodCost of InflationCost of DepreciationOriginal CostCurrent UsersDevelopers/GrowthBook ValueCurrent UsersCurrent UsersIndexed Book ValueDevelopers/GrowthCurrent UsersIndexed CostDevelopers/GrowthDevelopers/Growth 26. Adjusting for Liabilities and Contributions Who needs to be reimbursed? What should be reimbursed? The Why has to do with the Rational Nexus 27. What are Carrying Costs?The opportunity cost of investing in expansion capacity ahead of reimbursement.With proper adjustment for time-value, carrying costs can be recouped from development fees. 28. Do We Ever Achieve Parity?* YESAt various points, the present value of dollars expended will be equal to the present value of dollars collected from developer fees.If the Developer Fees are properly calculated 29. How These Adjustments WorkTwo Questions: 1. Capacity: 50%20,000 unitsReserve Capacity Value: $700 million50%Subscribed Capacity Value: $700 million2: Value Total$2,000Debt($500)Contributions($100)Net$1,400THE INFRASTRUCTURE 30. The Value of Planned ExpansionTwo Questions: 1. How much capacity is being added? 2. How much will it cost?All of this is new capacity to serve growth. 31. 3 Types of Future Infrastructure Projects that repair, replace, or extend the life of existing infrastructure. Projects that expand capacity. Projects that accomplish both of these. 32. Four Ways to Allocate Joint-Purpose ProjectsProportionateIncrementalCostUpgradeCapacityExpansion 33. Example: Proportionate Capacity2,500 Units Capacity2,000 Units Capacity 34. Issues with Planned Expansion Plans are subject to change Costs are estimates, not actual These can add to uncertainty Validity of fee depends on credibility of the plan Credibility of plan depends on proven delivery 35. Calculating a Transparent Fee: Step Reserve Capacity Value Using the Indexed Book Value Method1$1,921m 36. Calculating a Transparent Fee: StepAdjustment for Liabilities2$430mOutstanding debt associated with assetsAdjustment for Contributions$147mDonated cash and/or assets in kindTotal Adjustments$577m 37. Calculating a Transparent Fee: StepTotal Capacity Value3$1,921mTotal Adjustments$(577m)Net Capacity Value$1,344mReserve Capacity LevelValue of Reserve Capacityx14%$188m 38. Calculating a Transparent Fee: Step4$463mProposed Expansion Costs Capital improvements through 2025 120Millions100 8060 Expansion40Upgrades20 0 123456789Years10111213141516 39. Calculating a Transparent Fee: Step5Proposed Expansion Costs$463mValue of Reserve Capacity$188mFinancial Carrying Cost$309mRecoverable Expansion Costs$961m 40. Calculating a Transparent Fee: Step6Total Expansion Cost$961mUnits of Capacity56,300The capacity units that can be served by the Reserve Capacity and Expansion Projects togetherDevelopment Fee per Unit$17,000 41. Developer Fees: The Key Issues Defining The Rational Nexus Understanding The Funding Conundrum Achieving Transparency and Equity Creating Equitable Assessments 42. Principles of Fee Assessment Units of capacity provide equal utility. There is a finite inventory. The cost of one is the same as another. Consumers could buy multiple units. 43. Determine the Unit of Consumption New Homes Indoor Use # of Fixtures Size# of Fixtures Each fixture subscribes a certain amount of capacity The more fixtures, the more capacity units required. Number of fixtures is known at time of construction 44. Relate the Units to Capacity Subscription# of FixturesTotal Expansion Capacity56,300 kL / DaykL / Day 45. Reduce the Relationship to a Fee ScheduleNo. of Fixtures 0-10kL / Day 0.5Fee $8,50011-201$17,00021-402$34,00041-603$51,000 46. Getting Developer Fees Right is Crucial Proper Cost Recovery Identifying and quantifying the full financial costs of expanding capacity ensures full cost recovery.Transparency Developer community acceptance will increase dramatically with clearly delineated fee calculations.Improved Economic Efficiency When developer fees reflect the full cost of expansion, market participants can make efficient decisions on where and when to develop. 47. Developer Fees: The Key Issues Defining The Rational Nexus Understanding The Funding Conundrum Achieving Transparency and Equity Creating Equitable Assessments 48. Developer Charges: Vital Financial Tools for Australias Infrastructure FundingN O V E M B E R2 0 1 3