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➢ Costs <br /> ■ Utility staffing and expenses are based on experience in operating small <br /> municipal utilities. The costs of operating new utilities with underground <br /> distribution is used here rather than industry data that is dominated by the <br /> costs of operating aged overhead distribution systems. <br /> • Wholesale power prices are based on a combination of forward power market <br /> prices, quotes from power brokers for specific services that would be required <br /> by a new utility, and experience with industry models of pricing relationships <br /> and behavior. <br /> • Cost Responsibility Surcharges(CRS)are a cost that LID may have to pay to <br /> PG&E and DWR. The CRS are based on forecasts in regulatory flings, <br /> recent PG&E tariff filings that include CRS, and PG&E advice letters that <br /> forecast components of the CRS. <br /> The results of the pro-forma demonstrate that Lathrop Irrigation District is viable and <br /> financable based on the information used to construct the pro-forma. The key <br /> demonstrations of viability are the positive NPV and the high debt coverage ratios after <br /> revenue bond financing. The positive NPV demonstrates that the district will have more <br /> value for its customer-owners over the period included in the pro-forma than they would <br /> experience with service from PG&E. That value could be delivered to its customer- <br /> owners over time in some combination of lower rates,additional services,or other forms. <br /> The high debt coverage ratios will make LID bonds attractive investments. <br /> Advanced Energy Strategies, Inc. <br /> 1390 Willow Pass Road,Suite 610 Ph: (925)521-0203 <br /> Concord,CA 94520 March 25,2005 Fax:(925)521-0207 <br />