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Home My WebLink AboutWATER SEWERAGE REVENUE BONDS 2004 .J;J,# /55~{P NEW ISSUE (Book-Entry Only) RATINGS Moody's: Aaa Standard & Poor's: AAA See "MISCELLANEOUS - Ratings" herein. In the opinion of Bond Counsel, under existing laws, regulations, and judicial decisions, and assuming continued compliance by the Consolidated Government with certain covenants in the Bond Resolution, interest on the Series 2004 Bonds is exempt from present State of Georgia income taxation, is excluded from gross income for federal income tax purposes, and is not an item of tax preference for purposes of the federal alternative minimum tax imposed on individuals and corporations; provided, however, with respect to corporations (as definedfor federal income tax purposes), such interest is taken into account in determining adjusted current earnings for the purpose of computing the federal alternative minimum tax imposed on such corporations. The opinion contains greater detail, and is subject to exceptions, as noted in "LEGAL MATTERS - Opinion of Bond Counsel" herein. /r .Lt.'~ ............ . j~ ,lA $160,000,000 AUGUSTA, GEORGIA Water and Sewerage Revenue Bonds, Series 2004 Dated: Date of Issuance Due: October 1, as shown below The Water and Sewerage Revenue Bonds, Series 2004 (the "Series 2004 Bonds") are being issued by Augusta, Georgia (the "Consolidated Government") for the purposes of financing the costs of making additions, extensions, and improvements to the Consolidated Government's water and sewer system. See "PLAN OF FINANCING" herein. Interest on the Series 2004 Bonds is payable semiannually on April I and October 1 of each year, commencing on April 1, 2005. All Series 2004 Bonds bear interest from their date of issuance. See "INTRODUCTION - Description of the Series 2004 Bonds" herein. The Series 2004 Bonds are subject to mandatory and optional redemption prior to maturity as described herein. See "THE SERIES 2004 BONDS - Redemption" herein. The Series 2004 Bonds are special limited obligations of the Consolidated Government payable solely from and secured by a pledge of and lien on revenues derived by the Consolidated Government from the ownership and operation of its water and sewer system, remaining after the payment of expenses of operating, maintaining, and repairing the system. The Series 2004 Bonds will be issued and secured on a parity with the Prior Bonds (as defined herein) and any additional revenue bonds of the Consolidated Government hereafter issued on a parity with the Prior Bonds and the Series 2004 Bonds. See "SECURITY AND SOURCES OF PAYMENT FOR THE SERIES 2004 BONDS" herein. The Series 2004 Bonds do not constitute a debt or general obligation of the Consolidated Government or a pledge of the faith and credit or taxing power of the Consolidated Government. No governmental entity, including the Consolidated Government, is obligated to levy any tax for the payment of the Series 2004 Bonds. No recourse may be had against the General Fund of the Consolidated Government for the payment of the Series 2004 Bonds. The scheduled payment of principal of and interest on the Series 2004 Bonds when due will be guaranteed under an insurance policy to be issued concurrently with the delivery of the Series 2004 Bonds by FINANCIAL SECURITY ASSURANCE INC. PFSA MATURITIES, PRINCIPAL AMOUNTS, INTEREST RATES, AND PRICES OR YIELDS $40,025,0005.25% Term Bonds due October 1,2034, Priced at 104.918% to Yield 4.62%1 $119,975,0005.25% Term Bonds due October 1,2039, Priced at 104.196% to Yield 4.71 %1 Priced to October 1,2014 optional redemption date. THIS COVER PAGE CONTAINS CERTAIN INFORMATION FOR QUICK REFERENCE ONLY. IT IS NOT A SUMMARY OF THIS ISSUE. INVESTORS MUST READ THE ENTIRE OFFICIAL STATEMENT TO OBTAIN INFORMATION ESSENTIAL TO MAKING AN INFORMED INVESTMENT DECISION. The Series 2004 Bonds are offered when, as, and if issued by the Consolidated Government and accepted by the Underwriters, subject to prior sale and to withdrawal or modification of the offer without notice, and are subject to the approving opinion of Sutherland Asbill & Brennan LLP, Atlanta, Georgia, Bond Counsel. Certain legal matters will be passed on for the Consolidated Government by its counsel, Shepard, Plunkett, Hamilton, Boudreaux & Tisdale, LLP, Augusta, Georgia, and for the Underwriters by their counsel, Kilpatrick Stockton LLP, Augusta, Georgia. The Series 2004 Bonds in definitive form are expected to be delivered to The Depository Trust Company in New York, New York on or about December 9,2004. MERRILL LYNCH & CO. Dated: November 23, 2004 A.G. EDWARDS AUGUSTA, GEORGIA ELECTED OFFICIALS Augusta-Richmond County Commission Bob Young, Mayor Williams H. Mays, III, Mayor Pro Tempore Betty Beard Tommy Boyles Andy Cheek Richard Colclough Don A. Grantham Bobby G. Hankerson Barbara Sims Jimmy Smith Marion F. Williams APPOINTED OFFICIALS Frederick L. Russell, Interim Administrator David Persaud, Director of Finance Lena J. Bonner, Clerk of Commission Stephen E. Shepard, Consolidated Government Attorney Utilities Department N. Max Hicks, P.E., Director Steven J. Little, C.P.A., Assistant Director of Finance and Administration D. Allen Saxon, Jr., Assistant Director of Wastewater Clifford A. (Drew) Goins, Assistant Director of Water Douglas A. Cheek, P. E., Assistant Director of Engineering & Construction Division Alma Stephenson, Superintendent of Sales, Collections, and Customer Service SPECIAL SERVICES System Auditors Cherry, Bekaert & Holland, L.L.P. Augusta, Georgia Bond Counsel Sutherland Asbill & Brennan LLP Atlanta, Georgia Consulting Engineers CH2M HILL Atlanta, Georgia TABLE OF CONTENTS Page INTRODUCTION .........................................................................................................................................................1 The Consolidated Government.......................................... ............................................... ............................. ......... 1 Purpose of the Series 2004 Bonds ..........................................................................................................................1 The System.......................................... ......................................... ................ .......................................................... 1 Security and Sources of Payment for the Series 2004 Bonds.................................................................................2 Description of the Series 2004 Bonds ....................................................................................................................2 Tax Exemption .................................................. .....................................................................................................3 Bond Registrar, Paying Agent, Custodian, and Depository.................................................................................... 3 Professionals Involved in the Offering.......................................................................................... .........................3 Legal Authority .... ........ ..................................... ........ ...... .......... ...................... ......... ................... ...... .... .... ...... .......3 Offering and Delivery of the Series 2004 Bonds....................................................................................................4 Continuing Disclosure ..... ................. ......... ............ ..... ..... .... ...... ...... .............. ....... .... ........... .......... ... ......... .... .........4 Other Information.... ........ ..... ........................... ....... ..... ... ..... ... .......... ................. .............. ............................... ........ 4 PLAN OF FINANCING ................................................................................................................................................5 Estimated Sources and Applications of Funds .......................................................................................................5 System Improvements................................... ............ .................... ..................................... ....................................6 THE SERIES 2004 BONDS .......................................................................................................................................... 7 Description....... ........... .......... ......... ................ ........... ...... ............. ................ ....... ... ............... ............................. .... 7 Redemption ............................................................................................................................................................7 Book-Entry Only System ..................................... ......................... ................ .........................................................8 Legal Authority ............ .................................. ............ ................... ............... ........................................................ 10 Investments. ................. .... ...................... .... ..... ....... .... ....... ......... ... ............ ... ............. ............. ..................... .......... 10 SECURITY AND SOURCES OF PAYMENT FOR THE SERIES 2004 BONDS ....................................................11 Pledge of Revenues........................................ .................... ................................................ .................................. 11 Bond Insurance............................................................................. ...................................... .................................. 11 Funds Created By the Bond Resolution and Flow of Funds................................................................................. 11 Rate Covenant.. ............ .................... ............... .................... ............................................... .................................. 13 Parity and Subordinate Bonds ..............................................................................................................................14 Limited Obi igations......................................... ................... .............. ............. ............................................ ........... 14 Remedies.... ......................................................................................................................... ................................. 14 BOND lNSURANCE ..................................................................................................................................................16 Bond Insurance Policy..................... .......................................... ................. ................. ............................. ............ 16 The Bond Insurer. ............................................................... ................. ................. .................... ..................... ....... 16 THE CONSOLIDATED GOVERNMENT .................................................................................................................17 Introduction ........................ .................................................... ................... ................................... ...................... ..17 Consolidated Government Administration and Officials .....................................................................................17 THE SySTEM.............................................................................................................................................................18 Introduction......................... ........... .................... ...................................... ............ ................... .......................... ...18 Principal Administrative Personnel.. ..................................... ............................................. ....................... ........... 18 System Facilities........... ....... ........... ..... ...... ..... .... ....... ... ......... ...... ...... .... .... ............ ........... ..... ...... .... ........... .... ...... 20 Contract Operator of Wastewater Treatment Plants .............................................................................................22 Water Sources............... ................... ................... ......................... ............... ........... .................... ................. .......... 23 Service Area...... ....... ..... ....... ...... .......... ........... .... ...... ........ ..... .... ........... .... ........ .... ...... ..... ........................ .... ..... ... 23 Service Area Demographic Information.......... ....... ....... ................ .......................... ....................... ................. ..... 24 Service Area Economic Information ........... ...................... ........... ..................... ..... ..............................................24 (i) Page Customers. ..... ............ .................... ..................... ....... ........ .... ................. .......... ..... ...... ...... ..... ..... ...... .............. .....26 Rates, Fees, and Charges........................................................................................................................ ..............28 Rate Setting Process ............................................................................................................................................. 31 Billing and Collection.................................................................................................................................... .......31 Governmental Approvals and Environmental Regulation ....................................................................................32 Employees, Employee Relations, and Labor Organizations.................................................................................36 SYSTEM FINANCIAL INFORMATION ..................................................................................................................36 Accounting System and Policies.............................. ....................................... .............................. .......................36 Historical and Pro Forma Capital Structure..........................................................................................................36 Debt Service Requirements........................... ............................................................ .......................... ................. 3 9 Proposed Refunding and Related Hedge Agreement ...........................................................................................40 Five Year Operating History ................................................................................................................................41 Management's Discussion and Analysis of Results of Operations.............................................................. .........42 Historical and Forecasted Debt Service Coverage Ratios ....................................................................................43 Operating Budget ........................ ............................ ............................................................................................. 45 Capital Improvements Program.................................................. ................... .................... ............................. ...... 45 Employee Benefits.... .................... .............. ............. .............. ..... .......... ........ ... .... .......... ......... .... ..... ......... ............46 Insurance Coverage ................ .... ............. .... ............ .............. ....... ................. ................ ..... ............... .... ......... ......49 LEGAL MATTERS ....................................................................................................................................................50 Pending Litigation........................................ ........................................................................... .............................50 Opinion of Bond Counsel........................... ..,...................................................... ................................................. 51 Bond Premium...................................................................................................................................................... 51 Collateral Federal Tax Consequences ..................................................................................................................52 Validation Proceedings................................................. ...................................... .................... ..............................52 Closing Certificates..................................................... .................... ...... ............ ...................... .................. ...........52 MISCELLANEOUS ....................................................................................................................................................53 Ratings.. ..... ........................ ........ .... ... ..... .......... ..... ..... .................. ................ ... ....... ..... .... ..... ......... ..... .... ....... ..... ... 53 Underwriting ............. ..... ... ................ ..... ........ ................. ... ................. .... .... ...... ....... ........ ..... .... ........... ........ ..... ...53 Independent Professionals ............................................... ................... ................... ........................... ....................53 Summary of Continuing Disclosure Certificate..... .................... ................................... .................... .......... .......... 54 Certain Relationships........... ... ................. .......... .... .................... ...... ..... ....... ............ ..... .... ....... ..... ........ ..... ...........57 Additional Information..................................... ................... ............... ................... ..................... ........ ......... .........57 CERTIFICATION .......................................................................................................................................................57 APPENDIX A: FINANCIAL STATEMENTS OF THE SYSTEM.........................................................................A-l APPENDIX B: ENGINEERING REPORT .............................................................................................................B-l APPENDIX C: SUMMARY OF THE BOND RESOLUTION ...............................................................................C-l APPENDIX D: FORM OF LEGAL OPINION ........................................................................................................D-l APPENDIX E: SPECIMEN BOND INSURANCE POLiCy.................................................................................. E-l (ii) OFFICIAL STATEMENT of AUGUSTA, GEORGIA relating to its $160,000,000 WATER AND SEWERAGE REVENUE BONDS, SERIES 2004 INTRODUCTION The purpose of this Official Statement, which includes the cover page and the Appendices hereto, is to furnish certain information in connection with the sale by Augusta, Georgia of $160,000,000 in aggregate principal amount of its Water and Sewerage Revenue Bonds, Series 2004 (the "Series 2004 Bonds"). Definitions of certain terms used in this Official Statement and not otherwise defined herein are set forth in Appendix C to this Official Statement under the heading "SUMMARY OF THE BOND RESOLUTION - Definitions." This Introduction is not a summary of this Official Statement and is intended only for quick reference. It is only a brief description of and guide to, and is qualified in its entirety by reference to, more complete and detailed information contained in the entire Official Statement, including the cover page and the Appendices, and the documents summarized or described herein. Potential investors should fully review the entire Official Statement. The offering of the Series 2004 Bonds to potential investors is made only by means of the entire Official Statement, including the Appendices hereto. No person is authorized to detach this Introductionfrom the Official Statement or to otherwise use it without the entire Official Statement, including the Appendices hereto. The Consolidated Government Augusta, Georgia (the "Consolidated Government") is a political subdivision of the State of Georgia, created on January 1, 1996 pursuant to Acts of the General Assembly of the State of Georgia that authorized the consolidation of the municipal corporation known as "The City Council of Augusta" (the "City") and the political subdivision known as "Richmond County, Georgia" (the "County"). The Consolidated Government is located in the central eastern portion of the State of Georgia bordering the South Carolina state line, approximately 155 miles east of Atlanta, Georgia and 75 miles southwest of Columbia, South Carolina. For more complete information, see "THE CONSOLIDATED GOVERNMENT" herein. Purpose of the Series 2004 Bonds The proceeds of the Series 2004 Bonds will be used, together with other available funds, (i) to pay the costs of making additions, extensions, and improvements to the Consolidated Government's water and sewer system, (ii) to fund a portion of interest on the Series 2004 Bonds for approximately 58 months, (iii) to pay costs associated with settling an interest rate lock (the "Interest Rate Lock"), and (iv) to pay the costs of issuance of the Series 2004 Bonds. For more complete information, see "PLAN OF FINANCING" herein. The System The Consolidated Government owns and operates a water supply, treatment, and distribution system and a sanitary sewer treatment and collection system (the "System"). The water system consists of a raw surface water supply with a monthly average allotment of water of 75 million gallons per day ("MGD"), a ground water supply with a monthly average allotment of 18.4 MGD, raw surface water storage capacity of approximately 124 million gallons, five raw surface water pump stations with aggregate raw water pumping capacity of 88 MGD, 26 active wells with aggregate well-water pumping capacity of23.l MGD, four water treatment plants and a rural chlorination system with an aggregate rated capacity for treatment of raw water of 82.7 MGD and an aggregate treated water pumping rated capacity of 65.7 MGD, treated water storage capacity of 48.8 million gallons, and a water distribution network of approximately 1,048 miles of pipelines. The sewer system consists of two wastewater treatment plants with an aggregate treatment capacity of 48.34 MGD and a wastewater collection system of 28 wastewater pumping stations and approximately 680 miles of collection sewers. The water system serves an approximately 210 square mile area containing an estimated population in excess of 180,000 and has approximately 68,113 water connections. The sewer system serves an approximately 106 square mile area containing an estimated population in excess of 150,000 and has approximately 53,644 sewer connections. For more complete information, see "THE SYSTEM" herein. Security and Sources of Payment for the Series 2004 Bonds The Series 2004 Bonds are special limited obligations of the Consolidated Government payable solely from and secured by a first priority pledge of and lien on revenues derived by the Consolidated Government from the ownership and operation of the System, remaining after the payment of expenses of operating and maintaining the System. The Consolidated Government has previously issued $62,880,000 in original aggregate principal amount of its Water and Sewerage Revenue Refunding and Improvement Bonds, Series 1996A, $3,760,000 in original aggregate principal amount of its Taxable Water and Sewerage Revenue Refunding Bonds, Series 1996B, $5,910,000 in original aggregate principal amount of its Water and Sewerage Revenue Refunding Bonds, Series 1997, $97,080,000 in original aggregate principal amount of its Water and Sewerage Revenue Bonds, Series 2000, and $149,400,000 in original aggregate principal amount of its Water and Sewerage Revenue Bonds, Series 2002 (collectively the "Prior Bonds"). The Prior Bonds are presently outstanding in the aggregate principal amount of $307,595,000 and are payable solely from and secured by a first priority pledge of and lien on the Pledged Revenues. The Series 2004 Bonds will be equally and ratably secured on a parity basis with the Prior Bonds and with any additional revenue bonds of the Consolidated Government hereafter issued on a parity basis with the Prior Bonds and the Series 2004 Bonds. The Prior Bonds, the Series 2004 Bonds, and any additional revenue bonds of the Consolidated Government hereafter issued on a parity basis with the Prior Bonds and the Series 2004 Bonds are collectively referred to as the "Bonds" in this Official Statement. Simultaneously with the issuance of the Series 2004 Bonds, Financial Security Assurance Inc. (the "Bond Insurer") will issue an insurance policy (the "Bond Insurance Policy") which will insure payment of principal of and interest on the Series 2004 Bonds, when due. The Bond Insurance Policy will extend for the term of the Series 2004 Bonds and cannot be cancelled. For more complete and detailed information, see "BOND INSURANCE" herein. The Series 2004 Bonds do not and will not constitute a debt or general obligation of the Consolidated Government or a pledge of the faith and credit or taxing power of the Consolidated Government. No governmental entity, including the Consolidated Government, is obligated to levy any tax for the payment of the Series 2004 Bonds. No recourse may be had against the General Fund of the Consolidated Government for the payment of the Series 2004 Bonds. The pledge of and lien on Pledged Revenues securing the Series 2004 Bonds do not create a legal or equitable pledge, charge, lien, or encumbrance upon any of the Consolidated Government's property or income, receipts, or revenues, except the Pledged Revenues and the amounts on deposit in the funds held under the hereinafter described Bond Resolution. The Series 2004 Bonds will also be secured by a debt service reserve account to be held in trust for the owners of all of the Bonds, equally and ratably, under the terms of the hereinafter described Bond Resolution. The debt service reserve account will be fully funded upon the issuance of the Series 2004 Bonds, from surety bonds in the aggregate amount of $30,044,756.26 issued by Financial Guaranty Insurance Company and Financial Security Assurance Inc. For more complete and detailed information, see "SECURITY AND SOURCES OF PAYMENT FOR THE SERIES 2004 BONDS" herein. Description of the Series 2004 Bonds Redemption. The Series 2004 Bonds are redeemable at the option of the Consolidated Government, not earlier than October 1, 2014, at the prices and on the terms described in this Official Statement. The Series 2004 Bonds maturing on October 1,2034 and 2039 are subject to mandatory redemption in part prior to maturity on the dates and in the amounts described in this Official Statement. For more complete information, see "THE SERIES 2004 BONDS - Redemption" herein. Denominations. The Series 2004 Bonds are issuable in denominations of $5,000 or any integral multiple thereof. -2- I Book-Entry Bonds. Each of the Series 2004 Bonds will be issued as fully registered certificates in the denomination of one certificate per aggregate principal amount of the stated maturity thereof, and, when issued, will be registered in the name of Cede & Co., as nominee for The Depository Trust Company ("DTC"), New York, New York, an automated depository for securities and clearing house for securities transactions, which will act as securities depository for the Series 2004 Bonds. Purchasers will not receive certificates representing their ownership interest in the Series 2004 Bonds purchased. Purchases of beneficial interests in the Series 2004 Bonds will be made in book-entry only form (without certificates), in authorized denominations, and, under certain circumstances as more fully described in this Official Statement, such beneficial interests are exchangeable for one or more fully registered certificates of like principal amount and maturity in authorized denominations. For more complete information, see "THE SERIES 2004 BONDS - Book-Entry Only System" herein. Payments. So long as DTC or its nominee, Cede & Co., is the registered owner of the Series 2004 Bonds, payments of the principal of, premium, if any, and interest on the Series 2004 Bonds will be made directly to Cede & Co., which will remit such payments to the DTC participants, which will in turn remit such payments to the beneficial owners of the Series 2004 Bonds. For a more complete description of the Series 2004 Bonds, see "THE SERIES 2004 BONDS" herein. Tax Exemption In the opinion of Bond Counsel, under existing laws, regulations, and judicial decisions, and assuming continued compliance by the Consolidated Government with certain covenants in the Bond Resolution, interest on the Series 2004 Bonds is exempt from present State of Georgia income taxation, is excluded from gross income for federal income tax purposes, and is not an item of tax preference for purposes ofthe federal alternative minimum tax imposed on individuals and corporations; provided, however, with respect to corporations (as defined for federal income tax purposes), such interest is taken into account in determining adjusted current earnings for the purpose of computing the federal alternative minimum tax imposed on such corporations. See Appendix D hereto for the form of the opinion Bond Counsel proposes to deliver in connection with the issuance of the Series 2004 Bonds. For a more complete discussion of such opinion and certain other tax consequences of owning the Series 2004 Bonds, including certain exceptions to the exclusion of the interest on the Series 2004 Bonds from gross income, see "LEGAL MATTERS - Opinion of Bond Counsel, - Bond Premium, and - Collateral Federal Tax Consequences" herein. Bond Registrar, Paying Agent, Custodian, and Depository SunTrust Bank, Atlanta, Georgia, will act as bond registrar and as paying agent for the Series 2004 Bonds, as custodian of the Sinking Fund and the Hedge Payments Fund created under the hereinafter described Bond Resolution, and as depository of the Construction Fund and the Capitalized Interest Fund created under the hereinafter described Bond Resolution. Georgia Bank & Trust, Augusta, Georgia, will act as depository of the Revenue Fund and the Utility General Fund created under the hereinafter described Bond Resolution. Professionals Involved in the Offering Certain legal matters pertaining to the Consolidated Government and its authorization and issuance of the Series 2004 Bonds are subject to the approving opinion of Sutherland Asbill & Brennan LLP, Atlanta, Georgia, Bond Counsel. Copies of such opinion will be available at the time of delivery of the Series 2004 Bonds,.and a copy of the proposed form of such opinion is attached hereto as Appendix D. Certain legal matters will be passed on for the Consolidated Government by its counsel, Shepard, Plunkett, Hamilton, Boudreaux & Tisdale, LLP, Augusta, Georgia, and for the Underwriters by their counsel, Kilpatrick Stockton LLP, Augusta, Georgia. The financial statements of the System as of December 31, 2003 and 2002 and for the years then ended, attached hereto as part of Appendix A, have been audited by Cherry, Bekaert & Holland, L.L.P., Augusta, Georgia, independent certified public accountants, to the extent and for the periods indicated in their report thereon which appears in Appendix A hereto. The Engineering Report attached to this Official Statement as Appendix B has been prepared by CH2M HILL, Atlanta, Georgia. See "MISCELLANEOUS - Independent Professionals" herein. Legal Authority The Series 2004 Bonds are being issued and secured pursuant to the authority granted by the laws of the State of Georgia and under the provisions of a Bond Resolution adopted by the Augusta-Richmond County Commission on October 21, 1996, as ratified, reaffirmed, supplemented, and amended by resolutions adopted by the Augusta- Richmond County Commission on December 3, 1996, December 17, 1996, August 22,2000, September 15,2000, May 30, 2002, June 21, 2002, May 4, 2004, June 1,2004, June 15,2004, and November 23,2004 (collectively the "Bond Resolution"). For more complete information, see "THE SERIES 2004 BONDS - Legal Authority" herein. -3- Offering and Delivery of the Series 2004 Bonds The Series 2004 Bonds are offered when, as, and if issued by the Consolidated Government and accepted by the Underwriters, subject to prior sale and to withdrawal or modification of the offer without notice. The Series 2004 Bonds in definitive form are expected to be delivered to The Depository Trust Company in New York, New York on or about December 9, 2004. Continuing Disclosure The Consolidated Government has covenanted in the Bond Resolution and a Continuing Disclosure Certificate (the "Disclosure Certificate") for the benefit of the beneficial owners of the Series 2004 Bonds to provide certain financial information and operating data relating to the System (the "Annual Report") by not later than 195 days after the end of each fiscal year ofthe Consolidated Government, commencing with fiscal year 2004, and to provide notices of the occurrence of certain enumerated events, if material. The Annual Report will be filed by the Consolidated Government with each Nationally Recognized Municipal Securities Information Repository. The notices of material events will be filed by the Consolidated Government with each Nationally Recognized Municipal Securities Information Repository. The specific nature of the information to be contained in the Annual Report or the notices of material events is summarized herein under the caption "MISCELLANEOUS - Summary of Continuing Disclosure Certificate." These covenants have been made in order to assist the Underwriters in complying with Securities and Exchange Commission Rule l5c2-l2(b)(5). Other Information This Official Statement speaks only as of its date, and the information contained herein is subject to change. This Official Statement contains forecasts, projections, and estimates that are based on current expectations but are not intended as representations of fact or guarantees of results. If and when included in this Official Statement, the words "expects," "forecasts," "projects," "intends," "anticipates," "estimates," and analogous expressions are intended to identifY forward-looking statements as defined in the Securities Act of 1933, as amended, and any such statements inherently are subject to a variety of risks and uncertainties, which could cause actual results to differ materially from those contemplated in such forward-looking statements. These forward-looking statements speak only as of the date of this Official Statement. The Consolidated Government disclaims any obligation or undertaking to release publicly any updates or revisions to any forward-looking statement contained herein to reflect any change in the Consolidated Government's expectations with regard thereto or any change in events, conditions, or circumstances on which any such statement is based. This Official Statement and the Appendices hereto contain brief descriptions of, among other matters, the Consolidated Government, the Bond Insurer, the Series 2004 Bonds, the System, the Bond Resolution, the Disclosure Certificate, the Bond Insurance Policy, and the security and sources of payment for the Series 2004 Bonds. Such descriptions and information do not purport to be comprehensive or definitive. The summaries of various constitutional provisions and statutes, the Bond Resolution, the Disclosure Certificate, the Bond Insurance Policy, and other documents are intended as summaries only and are qualified in their entirety by reference to such documents, and references herein to the Series 2004 Bonds are qualified in their entirety to the forms thereof included in the Bond Resolution. A specimen Bond Insurance Policy is included as Appendix E to this Official Statement. Copies of the Bond Resolution, the Disclosure Certificate, and other documents and information are available, upon request and upon payment to the Consolidated Government of a charge for copying, mailing, and handling, from Frederick L. Russell, Interim Administrator of Augusta, Georgia, 530 Greene Street, Augusta, Georgia 30911, telephone (706) 821-2400. During the period of the offering of the Series 2004 Bonds copies of such documents are available, upon request and upon payment to the Underwriters of a charge for copying, mailing, and handling, from Merrill Lynch & Co., 3455 Peachtree Road, The Pinnacle, Suite 200, Atlanta, Georgia 30326, telephone (404) 264-3860. The Series 2004 Bonds and the Bond Insurance Policy have not been registered under the Securities Act of 1933, and the Bond Resolution has not been qualified under the Trust Indenture Act of 1939, in reliance on exemptions contained in such Acts. This Official Statement does not constitute an offer to sell or the solicitation of an offer to buy, nor shall there be any sale of the Series 2004 Bonds by any person in any jurisdiction in which it is unlawful for such person to make such offer, solicitation, or sale. No dealer, broker, salesman, or other person has been authorized by the Consolidated Government, the Bond Insurer, or the Underwriters to give any information or to make any representations other than those contained in this Official Statement, and, if given or made, such other information or representations should not be relied upon as having been authorized by the Consolidated Government, the Bond Insurer, or the Underwriters. Except where -4- otherwise indicated, all information contained in this Official Statement has been provided by the Consolidated Government. The information set forth herein has been obtained by the Consolidated Government from sources that are believed to be reliable but is not guaranteed as to accuracy or completeness by the Underwriters. The Consolidated Government has not provided information regarding the Bond Insurer and does not certifY as to the accuracy or sufficiency of the disclosure practices of or content of the information provided by the Bond Insurer and is not responsible for the information provided by the Bond Insurer. Other than with respect to information concerning the Bond Insurer contained under the caption "BOND INSURANCE" and in the specimen Bond Insurance Policy included as Appendix E to this Official Statement, none of the information in this Official Statement has been supplied or verified by the Bond Insurer and the Bond Insurer makes no representation or warranty, express or implied, as to (i) the accuracy or completeness of such information, (ii) the validity of the Series 2004 Bonds, or (iii) the tax-exempt status of the interest on the Series 2004 Bonds. The information contained herein is subject to change without notice, and neither the delivery of this Official Statement nor any sale made hereunder shall under any circumstances create an implication that there has been no change in the affairs of the Consolidated Government or the Bond Insurer or the other matters described herein since the date hereof or the earlier dates set forth herein as of which certain information contained herein is given. In connection with this offering, the Underwriters may over-allot or effect transactions that stabilize or maintain the market prices of the Series 2004 Bonds at a level above that which might otherwise prevail in the open market. Such stabilizing, if commenced, may be discontinued at any time. PLAN OF FINANCING Estimated Sources and Applications of Funds The sources and applications of funds in connection with the issuance of the Series 2004 Bonds are estimated below. Estimated Sources of Funds: Proceeds of Series 2004 Bonds! Estimated Interest Earnings During Construction2 Other System Funds3 Total Sources of Funds Estimated Applications of Funds: System Improvements3 Capitalized Interest4 Payment to Bond InsurerS Settlement ofInterest Rate Lock6 Costs ofIssuance7 Total Applications of Funds $167,002,581 10,666,534 37.404.063 $215.073.178 $189,600,000 10,173,333 940,966 12,420,000 1.938.879 $215.073.178 4 After adding premium of$7,002,580.50. Based on estimated earnings on the unexpended construction funds at an investment rate of3.25% over a period of 59 months and on the unexpended capitalized interest funds at an investment rate of2.00% over a period of 58 months. See "PLAN OF FINANCING - System Improvements" herein. Represents a portion ofthe interest on the Series 2004 Bonds for approximately 58 months. Consists of premiums for Bond Insurance Policy and Reserve Account Surety Bond. Represents costs associated with settling an interest rate lock that the Consolidated Government entered into with Merrill Lynch Capital Services, Inc. on June 3, 2004 in anticipation of the issuance of the Series 2004 Bonds. Merrill Lynch Capital Services, Inc. is an affiliate of Merrill Lynch & Co. , Inc., one ofthe Underwriters. Includes underwriting discount, legal and accounting fees, initial Bond Registrar's and Paying Agent's fees, printing costs, validation court costs, rating agencies' fees, and other costs of issuance. See "MISCELLANEOUS - Underwriting" herein. -5- System Improvements The System's staff, together with CH2M HILL, Atlanta, Georgia (the "Consulting Engineer"), the Consolidated Government's consulting engineer, has developed a multi-year capital improvements program for the System and a plan to finance the program which relies on a combination of proceeds of revenue bonds, investment earnings, and System revenues. See "SYSTEM FINANCIAL INFORMATION - Capital Improvements Program" herein. The Consolidated Government expects that the proceeds of the Series 2004 Bonds to be used for System improvements, together with proceeds of Prior Bonds, investment earnings, and System revenues, will be sufficient to provide funding for the System's capital improvements program through 2013. During the years 2005 through 2013, the Consolidated Government has planned and approved capital improvements to the System to be financed by the Series 2004 Bonds, investment earnings, and System revenues in the following general categories: Uses of Funds: Water System Improvements: Highland Avenue Water Treatment Plant Distribution System Total Water System Improvements Sewer System Improvements: Wastewater Treatment Plants Conveyance System Total Sewer System Improvements System- Wide Improvements: New AdministrativeIMaintenance Facility Miscellaneous Improvements Total System-Wide Improvements Total System Improvements $ 38,300,000 17.455.000 55.755.000 55,751,000 56.084.000 111.835.000 11,510,000 10.500.000 22.010.000 $189.600.000 For a more complete description of the System improvements described above, see the Engineering Report attached to this Official Statement as Appendix B. The Consolidated Government plans to engage various engineering firms to act as the engineers for the design and construction of the capital improvements described above. The Consolidated Government expects to complete the plans and specifications for these capital improvements in stages for the particular projects described above. The Consolidated Government expects to select general contractors for the projects described above through separate bidding processes after the plans and specifications for each particular project are completed. The Consolidated Government plans to require each general contractor to agree to construct the capital improvements described above for a guaranteed maximum price and to secure its obligations for construction and timely completion by labor and material payment and performance bonds. The timely completion of the construction of the capital improvements described above is dependent upon, among other factors, promptly obtaining approvals and permits from various governmental agencies and the absence of delays due to strikes, shortages of materials, and adverse weather conditions. The cost of constructing the capital improvements described above may be affected by factors beyond the control of the Consolidated Government, including strikes, energy and material shortages, subcontractor defaults, adverse weather conditions, and other unforeseen contingencies. The Consolidated Government has a contingency budget of approximately 15% of the budgeted amounts included in its cost estimates for the capital improvements described above. There can be no assurance that the Consolidated Government will complete the construction of the capital improvements described above in accordance with its present construction schedule and construction budget. For a description of governmental approvals that are required in connection with the capital improvements described above, see "THE SYSTEM - Governmental Approvals and Environmental Regulation" herein. The Consolidated Government expects to commence the construction of the capital improvements described above in the second quarter of 2005 and to complete construction of substantially all of the capital improvements described above by December of2009. For a discussion of restrictions that apply to the use of the amounts held in the Construction Fund under the Bond Resolution, see "SECURITY AND SOURCES OF PAYMENT FOR THE SERIES 2004 BONDS - Funds Created By the Bond Resolution and Flow of Funds" herein. -6- THE SERIES 2004 BONDS Description The Series 2004 Bonds will be dated as of their date of issuance and will bear interest at the rates set forth on the front cover page of this Official Statement, payable April 1, 2005, and semiannually thereafter on October 1 and April 1 of each year to the registered owner as shown on the books and records of SunTrust Bank, Atlanta, Georgia, as Paying Agent and Bond Registrar (the "Paying Agent" or the "Bond Registrar"), as ofthe close of business on the 15th day of the calendar months next preceding such October 1 and April 1 (each such date a "Record Date"). Notwithstanding the foregoing, the registered owner of not less than $1,000,000 in aggregate principal amount of Series 2004 Bonds may request that payments of interest be made by deposit of immediately available funds to the account of such registered owner maintained with the Paying Agent or transmitted by wire transfer to such registered owner at any account maintained at a commercial bank located within the United States if the Paying Agent receives from such registered owner written deposit or wire transfer instructions prior to the Record Date immediately preceding the Interest Payment Date for which the deposit or wire transfer is requested. Subject to the redemption provisions described below, the Series 2004 Bonds will mature on the dates and in the amounts set forth on the front cover page of this Official Statement. The principal of and redemption premium, if any, on the Series 2004 Bonds are payable when due to the registered owner upon presentation and surrender at the principal corporate trust office of the Paying Agent. The Series 2004 Bonds are issuable only as fully registered bonds, without coupons, in any authorized denomination. Purchases of beneficial ownership interests in the Series 2004 Bonds will be made in book-entry form and purchasers will not receive certificates representing interests in the Series 2004 Bonds so purchased. If the book-entry system is discontinued, Series 2004 Bonds will be delivered as described in the Bond Resolution, and beneficial owners ofthe Series 2004 Bonds will become the registered owners of the Series 2004 Bonds. See "THE SERIES 2004 BONDS - Book-Entry Only System" herein. Redemption Optional Redemption The Series 2004 Bonds are redeemable at the option of the Consolidated Government in whole at any time or in part on any Interest Payment Date, not earlier than October 1, 2014, in the order of maturities selected by the Consolidated Government (less than all of such Series 2004 Bonds of any series of a single maturity to be selected by lot in a manner determined by the Bond Registrar), from any moneys available therefor at a redemption price equal to 100% of the principal amount of the Series 2004 Bonds being redeemed plus accrued interest to the redemption date, all in the manner provided in the Bond Resolution. Mandatory Redemption The Series 2004 Bonds maturing on October 1,2034 are subject to scheduled mandatory redemption prior to maturity in part (the actual bonds to be redeemed to be selected by lot in such manner as may be designated by the Bond Registrar) at a redemption price equal to 100% of the principal amount thereof, plus accrued interest to the redemption date, in the following principal amounts and on the dates set forth below: Series 2004 Bonds Maturing October L 2034 October 1 of the Year Principal Amount 2033 $19,500,000 (Leaving $20,525,000 to mature October 1,2034) -7- The Series 2004 Bonds maturing on October 1,2039 are subject to scheduled mandatory redemption prior to maturity in part (the actual bonds to be redeemed to be selected by lot in such manner as may be designated by the Bond Registrar) at a redemption price equal to 100% of the principal amount thereof, plus accrued interest to the redemption date, in the following principal amounts and on the dates set forth below: Series 2004 Bonds Maturing October L 2039 October 1 ofthe Year Principal Amount 2035 $21,605,000 2036 22,740,000 2037 23,930,000 2038 25,190,000 (Leaving $26,510,000 to mature October 1,2039) Redemption Notices Notice of any redemption of the Series 2004 Bonds, designating the Series 2004 Bonds to be redeemed, will be mailed, postage prepaid, not less than thirty (30) days nor more than sixty (60) days prior to the redemption date to all registered owners of the Series 2004 Bonds to be redeemed (in whole or in part) at addresses which appear upon the bond registration book. Failure to mail any such notice ofredemption of the Series 2004 Bonds will not affect the validity of the proceedings for such redemption or cause the interest to continue to accrue on the principal amount of such Series 2004 Bonds so designated for redemption after the redemption date. Book-Entry Only System The Depository Trust Company ("DTC"), New York, New York, or its successor, will act as securities depository for the Series 2004 Bonds. The Series 2004 Bonds will be issued as fully registered securities registered in the name of Cede & Co. (DTC's partnership nominee) or such other name as may be requested by an authorized representative of DTC. One fully registered Series 2004 Bond will be issued for each maturity, in the aggregate principal amount of such maturity, and will be deposited with DTC. So long as DTC or its nominee is the registered owner of the Series 2004 Bonds, payments of the principal and redemption premium of and interest due on the Series 2004 Bonds will be payable directly to DTC. DTC is a limited-purpose trust company organized under the New York Banking Law, a "banking organization" within the meaning of the New York Banking Law, a member of the Federal Reserve System, a "clearing corporation" within the meaning of the New York Uniform Commercial Code, and a "clearing agency" registered pursuant to the provisions of Section l7A of the Securities Exchange Act of 1934. DTC holds and provides asset servicing for over 2 million issues of U.S. and non-U.S. equity issues, corporate and municipal debt issues, and money market instruments from over 85 countries that DTC's participants ("Direct Participants") deposit with DTC. DTC also facilitates the post-trade settlement among Direct Participants of sales and other securities transactions in deposited securities, through electronic computerized book-entry transfers and pledges between Direct Participants accounts. This eliminates the need for physical movement of securities certificates. Direct Participants include both U.S. and non-U.S. securities brokers and dealers, banks, trust companies, clearing corporations, and certain other organizations. DTC is a wholly-owned subsidiary of The Depository Trust & Clearing Corporation ("DTCC"). DTCC, in turn, is owned by a number of Direct Participants ofDTC and members of the National Securities Clearing Corporation, Government Securities Clearing Corporation, MBS Clearing Corporation, and Emerging Markets Clearing Corporation (NSCC, GSCC, MBSCC, and EMCC, also subsidiaries of DTCC), as well as by the New York Stock Exchange, Inc., the American Stock Exchange LLC, and the National Association of Securities Dealers, Inc. Access to the DTC system is also available to others such as both U.S. and non-U.S. securities brokers and dealers, banks, trust companies, and clearing corporations that clear through or maintain a custodial relationship with a Direct Participant, either directly or indirectly ("Indirect Participants"). DTC has Standard & Poor's highest rating: AAA. The DTC Rules applicable to its Participants are on file with the Securities and Exchange Commission. More information about DTC can be found at www.dtcc.com. Purchases of Series 2004 Bonds under the DTC system must be made by or through Direct Participants, which will receive a credit for the Series 2004 Bonds on DTC's records. The ownership interest of each actual purchaser of each Series 2004 Bond (a "Beneficial Owner") is in turn to be recorded on the Direct and Indirect Participants' records. Beneficial Owners will not receive written confirmation from DTC of their purchase. Beneficial Owners are, however, expected to receive written confirmations providing details of the transaction, as well as periodic -8- statements of their holdings, from the Direct or Indirect Participant through which the Beneficial Owner entered into the transaction. Transfers of ownership interests in the Series 2004 Bonds are to be accomplished by entries made on the books of Direct and Indirect Participants acting on behalf of Beneficial Owners. Beneficial Owners will not receive certificates representing their ownership interests in Series 2004 Bonds, except in the event that use of the book-entry system for the Series 2004 Bonds is discontinued. To facilitate subsequent transfers, all Series 2004 Bonds deposited by Direct Participants with DTC are registered in the name of DTC's partnership nominee, Cede & Co., or such other name as may be requested by an authorized representative of DTC. The deposit of Series 2004 Bonds with DTC and their registration in the name of Cede & Co., or such other DTC nominee, do not effect any change in beneficial ownership. DTC has no knowledge of the actual Beneficial Owners of the Series 2004 Bonds; DTC's records reflect only the identity of the Direct Participants to whose accounts such Series 2004 Bonds are credited, which mayor may not be the Beneficial Owners. The Direct and Indirect Participants will remain responsible for keeping account of their holdings on behalf of their customers. Conveyance of notices and other communications by DTC to Direct Participants, by Direct Participants to Indirect Participants, and by Direct Participants and Indirect Participants to Beneficial Owners will be governed by arrangements among them, subject to any statutory or regulatory requirements as may be in effect from time to time. Redemption notices will be sent to DTC. Ifless than all of the Series 2004 Bonds within a maturity are being redeemed, DTC's practice is to determine by lot the amount of the interest of each Direct Participant in such maturity to be redeemed. Neither DTC nor Cede & Co. (nor any other DTC nominee) will consent or vote with respect to Series 2004 Bonds unless authorized by a Direct Participant in accordance with DTC's procedures. Under its usual procedures, DTC mails an Omnibus Proxy to the Paying Agent as soon as possible after the record date. The Omnibus Proxy assigns Cede & Co.'s consenting or voting rights to those Direct Participants to whose accounts the Series 2004 Bonds are credited on the record date (identified in a listing attached to the Omnibus Proxy). Principal, premium, and interest payments on the Series 2004 Bonds will be made to Cede & Co., or such other nominee as may be requested by an authorized representative of DTC. DTC's practice is to credit Direct Participants' accounts upon DTC's receipt of funds and corresponding detail information from the Consolidated Government or the Paying Agent, on the payable date in accordance with their respective holdings shown on DTC's records. Payments by Participants to Beneficial Owners will be governed by standing instructions and customary practices, as is the case with securities held for the accounts of customers in bearer form or registered in "street name," and will be the responsibility of such Participant and not of DTC, the Paying Agent, or the Consolidated Government, subject to any statutory or regulatory requirements as may be in effect from time to time. Payment of principal, premium, and interest to Cede & Co. (or such other nominee as may be requested by an authorized representative of DTC) is the responsibility of the Consolidated Government or the Paying Agent, disbursement of such payments to Direct Participants will be the responsibility of DTC, and disbursement of such payments to the Beneficial Owners will be the responsibility of Direct and Indirect Participants. DTC may discontinue providing its services as securities depository with respect to the Series 2004 Bonds at any time by giving reasonable notice to the Consolidated Government or the Paying Agent. Under such circumstances, in the event that a successor securities depository is not obtained, Series 2004 Bonds are required to be printed and delivered. The Consolidated Government may decide to discontinue use of the system of book-entry transfers through DTC (or a successor securities depository). In that event, Series 2004 Bonds will be printed and delivered to DTC. The information concerning DTC and DTC's book-entry system set forth above has been obtained DTC, and the Consolidated Government takes no responsibility for the accuracy thereof. -9- -10- SO LONG AS CEDE & CO., AS NOMINEE FOR DTC, IS THE SOLE BONDHOLDER, THE CONSOLIDATED GOVERNMENT SHALL TREAT CEDE & CO. AS THE ONLY BONDHOLDER FOR ALL PURPOSES, INCLUDING RECEIPT OF ALL PRINCIPAL AND PREMIUM OF AND INTEREST ON THE SERIES 2004 BONDS, RECEIPT OF NOTICES, VOTING, AND REQUESTING OR DIRECTING THE CONSOLIDATED GOVERNMENT AND THE PAYING AGENT TO TAKE OR NOT TO TAKE, OR CONSENTING TO, CERTAIN ACTIONS. THE CONSOLIDATED GOVERNMENT HAS NO RESPONSIBILITY OR OBLIGATION TO THE DIRECT OR INDIRECT PARTICIPANTS OR THE BENEFICIAL OWNERS WITH RESPECT TO (A) THE ACCURACY OF ANY RECORDS MAINTAINED BY DTC OR ANY DIRECT OR INDIRECT PARTICIPANT; (B) THE PAYMENT BY ANY DIRECT OR INDIRECT PARTICIPANT OF ANY AMOUNT DUE TO ANY BENEFICIAL OWNER IN RESPECT OF THE PRINCIPAL AND PREMIUM OF AND INTEREST ON THE SERIES 2004 BONDS; (C) THE DELIVERY OR TIMELINESS OF DELIVERY BY ANY DIRECT OR INDIRECT PARTICIPANT OF ANY NOTICE TO ANY BENEFICIAL OWNER WHICH IS REQUIRED OR PERMITTED UNDER THE TERMS OF THE BOND RESOLUTION TO BE GIVEN TO BONDHOLDERS; OR (D) OTHER ACTION TAKEN BY DTC OR CEDE & CO. AS BONDHOLDER. Beneficial Owners of the Series 2004 Bonds may experience some delay in their receipt of distributions of principal and interest on the Series 2004 Bonds since such distributions will be forwarded by the Paying Agent to DTC and DTC will credit such distributions to the accounts of Direct Participants which will thereafter credit them to the accounts of Beneficial Owners either directly or indirectly through Indirect Participants. Issuance ofthe Series 2004 Bonds in book-entry form may reduce the liquidity of the Series 2004 Bonds in the secondary trading market since investors may be unwilling to purchase Series 2004 Bonds for which they cannot obtain physical certificates. In addition, since transactions in the Series 2004 Bonds can be effected only through DTC, Direct Participants, Indirect Participants, and certain banks, the ability of a Beneficial Owner to pledge Series 2004 Bonds to persons or entities that do not participate in the DTC system, or otherwise to take action in respect of such Series 2004 Bonds, may be limited due to lack of a physical certificate. Beneficial Owners will not be recognized by the Paying Agent as registered owners for purposes of the Bond Resolution, and Beneficial Owners will be permitted to exercise the rights of registered owners only indirectly through DTC and the Direct or Indirect Participants. Legal Authority Paragraph I of Section VI of Article IX of the Constitution of the State of Georgia authorizes any political subdivision to issue revenue bonds as provided by general law and provides (1) that the obligation represented by revenue bonds shall be repayable only out of the revenue derived from the project and shall not be deemed to be a debt of the issuing political subdivision and (2) that no issuing political subdivision shall exercise the power of taxation for the purpose of paying any part of the principal or interest of any such revenue bonds. The Series 2004 Bonds are being issued and secured pursuant to the authority granted by Article 3 of Chapter 82 of Title 36 of the Official Code of Georgia Annotated, known as the "Revenue Bond Law" (the "Revenue Bond Law"), and under the provisions of a Bond Resolution adopted by the Augusta-Richmond County Commission on October 21, 1996, as ratified, reaffirmed, supplemented, and amended by resolutions adopted by the Augusta-Richmond County Commission on December 3, 1996, December 17, 1996, August 22, 2000, September 15, 2000, May 30, 2002, June 21, 2002, May 4, 2004, June 1, 2004, June 15, 2004, and November 23, 2004 (collectively the "Bond Resolution"). Investments For a description of how the proceeds of the Series 2004 Bonds that are being used to finance System improvements are to be invested pending their use, the provisions governing those investments, the conditions that must be satisfied before such proceeds of the Series 2004 Bonds may be applied to their intended use, and other provisions governing the investment of such proceeds of the Series 2004 Bonds and the amounts held to pay debt service on the Series 2004 Bonds, see "SUMMARY OF THE BOND RESOLUTION - Investments" in Appendix C hereto and "SECURITY AND SOURCES OF PAYMENT FOR THE SERIES 2004fBONDS - Funds Created By the Bond Resolution and Flow of Funds" herein. SECURITY AND SOURCES OF PAYMENT FOR THE SERIES 2004 BONDS Pledge of Revenues -11- Under the terms of the Bond Resolution, the Series 2004 Bonds are secured by a first priority pledge of and lien on revenues derived by the Consolidated Government from the ownership and operation of the System, remaining after the payment of expenses of operating and maintaining the System. The Consolidated Government has covenanted in the Bond Resolution that it will not create or suffer to be created in the operation and maintenance of the System any charge, lien, or security interest on the System or upon the revenues derived therefrom ranking prior to or (except as provided in the Bond Resolution with respect to the issuance of parity bonds) equally with the lien and charge upon such revenues created by the Bond Resolution. The Consolidated Government has also made certain covenants in the Bond Resolution concerning the sale or disposition of the System, insurance on the System, and the books and records relating to the System, which are described in "SUMMARY OF THE BOND RESOLUTION - Disposition of Property; Encumbrances, - Insurance; Bonding of Employees, and - Accounts and Reports" in Appendix C to this Official Statement. Under the terms of the Bond Resolution, the Series 2004 Bonds will be equally and ratably secured on a parity basis with the Prior Bonds, which are presently outstanding in the aggregate principal amount of$307,595,000. Bond Insurance Payment of the principal of and interest on the Series 2004 Bonds when due will be insured by the Bond Insurance Policy, which will be issued by the Bond Insurer simultaneously with the delivery of the Series 2004 Bonds. Payment under such policy is subject to certain conditions described under "BOND INSURANCE - Bond Insurance Policy" herein. The Bond Insurance Policy will extend for the life of the Series 2004 Bonds and cannot be cancelled. For a description of the Bond Insurer and the terms and conditions of the Bond Insurance Policy, see "BOND INSURANCE" herein and "SPECIMEN BOND INSURANCE POLICY" attached hereto as Appendix E. Funds Created By the Bond Resolution and Flow of Funds The Bond Resolution creates and requires the Consolidated Government to maintain the following funds: (1) the Revenue Fund, to be held by the Consolidated Government separate and apart from its other funds with Georgia Bank & Trust, Augusta, Georgia, as depository; (2) the Sinking Fund, to be held in trust by SunTrust Bank, Atlanta, Georgia, as custodian, and therein the following two accounts: (a) the Debt Service Account, and (b) the Debt Service Reserve Account; (3) the Hedge Payments Fund, to be held in trust by SunTrust Bank, Atlanta, Georgia, as custodian; (4) the Utility General Fund, to be held by the Consolidated Government separate and apart from its other funds with Georgia Bank & Trust, Augusta, Georgia, as depository; (5) the Construction Fund, to be held by the Consolidated Government separate and apart from its other funds with SunTrust Bank, Atlanta, Georgia, as depository; and (6) the Capitalized Interest Fund, to be held by the Consolidated Government separate and apart from its other funds with SunTrust Bank, Atlanta, Georgia, as depository. Revenue Fund Pursuant to the Bond Resolution, the Consolidated Government has agreed to deposit all revenues derived from the operation of the System into the Revenue Fund. The Consolidated Government will first pay from the Revenue Fund the Expenses of Operation and Maintenance, other than payments in lieu of taxes and payments in lieu of franchise fees. Payments in lieu of taxes and payments in lieu of franchise fees, whether or not constituting Expenses of Operation and Maintenance, may not be paid from the Revenue Fund, but are payable solely from the Utility General Fund as described below. Sinking Fund The Sinking Fund contains two accounts, the Debt Service Account and the Debt Service Reserve Account (the "Reserve Account"). The Consolidated Government has agreed to pay into the Debt Service Account of the Sinking Fund funds sufficient to pay the principal of and interest on the Bonds as same become due and payable, either at maturity or by proceedings for mandatory redemption. The Consolidated Government also has agreed to create and maintain a reserve in the Reserve Account of the Sinking Fund equal to the Reserve Requirement. All amounts held in the Sinking Fund are for the equal and ratable benefit of all owners of the Bonds. After the payment of Expenses of Operation and Maintenance (other than payments in lieu of taxes and payments in lieu of franchise fees), there will next be paid monthly from the Revenue Fund into the Debt Service Account substantially. equal payments sufficient to pay the principal of and interest on the Bonds as they become due and payable. There will next be paid monthly from the Revenue Fund into the Reserve Account such amounts as may be required to maintain the "Reserve Requirement." The Reserve Requirement is equal to the least of (i) 10 percent of the stated principal amount of the Bonds, (ii) the maximum annual principal and interest requirements with respect to the Bonds, or (iii) 125 percent of the average annual principal and interest requirements with respect to the Bonds. All sums required to be paid to comply with the provisions of the preceding paragraphs described above must be paid on or prior to the twenty-fifth (25th) day of each month in which payment is due, and if, for any reason, the Consolidated Government fails to pay the full amount required to be paid into the Sinking Fund, the amount of any such deficiency must be added to and will become a part of the amount due and payable by the Consolidated Government into the Sinking Fund in the next succeeding month. The Consolidated Government has agreed that in the event it elects to issue additional parity bonds, the above-described payments into the Debt Service Account will be increased to the extent necessary to pay the principal of and interest on the Bonds then outstanding and on the bonds proposed to be issued coming due, either at maturity or by proceedings for mandatory redemption, in the then current Sinking Fund Year and to create and maintain a reserve in the Reserve Account for that purpose in an amount at least equal to the Reserve Requirement on the then outstanding Bonds and on the bonds proposed to be issued. The Reserve Requirement may be funded with (i) money, (ii) one or more Reserve Account Surety Bonds (upon meeting certain conditions set forth in the Bond Resolution), or (iii) a combination of the foregoing, so long as such money and Reserve Account Surety Bonds will result in the required amount of funds being available in the Reserve Account. A Reserve Account Surety Bond is an insurance policy, letter of credit, or surety bond, together with any substitute or replacement therefor, if any, complying with the provisions of the Bond Resolution. The Reserve Account will be fully funded upon the issuance of the Series 2004 Bonds from Reserve Account Surety Bonds in the aggregate amount of $30,044,756.26 issued by Financial Guaranty Insurance Company and Financial Security Assurance Inc. -12- In the event moneys then on hand in the Debt Service Account are in the aggregate insufficient to make the required payments in full on the principal of and interest on the Bonds then due and payable, such deficiency will be cured by a withdrawal of moneys from the Reserve Account or by a draw-down upon a Reserve Account Surety Bond held within the Reserve Account of the amount of such deficiency to the extent such amount is then available under the terms of such Reserve Account Surety Bond. In such event, the Consolidated Government must repay such withdrawals or make all payments to the provider of such Reserve Account Surety Bond required as a repayment of such draw-down from the first moneys available in the Revenue Fund and not required to be used for Expenses of Operation and Maintenance and not required to make the monthly payments into the Debt Service Account of the Sinking Fund, such that the Reserve Account will be restored to the Reserve Requirement, all as provided in the Bond Resolution; provided, however, such payments must in any event be at least sufficient to restore the Reserve Account to the proper balance within 12 months after the date upon which money is withdrawn from the Reserve Account or a draw on a Reserve Account Surety Bond is made. Hedge Payments Fund After the payment of Expenses of Operation and Maintenance (other than payments in lieu of taxes and payments in lieu of franchise fees) and after monthly transfers to the Debt Service Account and Debt Service Reserve Account, there will next be paid monthly to the Hedge Payments Fund an amount sufficient, taking into account amounts on deposit therein, to pay amounts due to the Hedge Providers under the Hedge Agreements (other than payments upon early termination thereof). Payments upon early termination of any Hedge Agreements are payable only from the Utility General Fund. The obligation of the Consolidated Government to make the deposits to the Hedge Payments Fund, as well as to make any other payments under the Hedge Agreements, is junior and subordinate in all respects to the obligation of the Consolidated Government to make payments to the Sinking Fund as described above. Utility General Fund All moneys remaining in the Revenue Fund after the payments listed above have been made will be deposited into the Utility General Fund. Except as set forth below, the moneys on deposit in the Utility General Fund may be used only for the purpose of (a) paying principal of and interest on the Bonds then outstanding and falling due at any time for the payment of which money is not available in the Sinking Fund securing the payment of same; (b) making payments into the Sinking Fund in the amounts required in order to accumulate and maintain the Reserve Account created therein at its proper balance; ( c) paying such expenses as may be necessary to alleviate or remove the effects of an emergency having a major impact on the System caused by some extraordinary occurrence that makes it necessary to use the funds of the System, to the extent that moneys on deposit in the Revenue Fund are insufficient to meet such emergencies; (d) paying Expenses of Operation and Maintenance, including without limitation payments in lieu of taxes and payments in lieu of franchise fees, for which moneys are not available in the Revenue Fund; (e) making replacements, additions, extensions, and improvements and acquiring equipment and paying the cost of any engineering studies, surveys, or plans and specifications pertaining to the future development or expansion of the System deemed to be reasonable and in the best interest of the Consolidated Government and the holders of the Bonds; (f) payment of the charges of the Utility General Fund Depository for investment services; (g) paying to any provider of a Reserve Account Surety Bond interest on amounts drawn under such Reserve Account Surety Bond; and (h) payments to the Hedge Providers under Hedge Agreements for which moneys are not available in the Hedge Payments Fund, including without limitation payments upon the early termination of any Hedge Agreement. The Consolidated Government will maintain at all times a minimum balance in the Utility General Fund equal to the lesser of $2,500,000 or 5 percent of the Operating Revenues of the System for the immediately preceding fiscal year. If bonds are hereafter issued that are secured by a lien on the Pledged Revenues that is subordinate to the lien securing the payment of the Bonds, then the payments into the Utility General Fund may be suspended and such moneys may be used to the extent necessary to pay the principal of and interest on such junior lien bonds and to create a reasonable reserve therefor. The gross revenues derived by the Consolidated Government from the ownership and operation of the System may be used only in accordance with the provisions of the Bond Resolution described above and, except as described above, may not be transferred to either the General Fund or any other fund of the Consolidated Government. Construction Fund After depositing accrued interest in the Sinking Fund, depositing capitalized interest in the hereinafter described Capitalized Interest Fund, and paying costs of issuance, the remaining proceeds received from the sale of the Series 2004 Bonds are required by the Bond Resolution to be deposited in the Construction Fund. Money in the Construction Fund must be applied toward the costs of acquiring, constructing, and equipping the System improvements in accordance or substantially in accordance with the Engineering Report (attached to this Official Statement as Appendix B) and subject to the provisions and restrictions contained in the Bond Resolution. Moneys and securities held for the Construction Fund are subject to a lien or charge in favor of the owners ofthe Series 2004 Bonds until paid out as provided in the Bond Resolution. Any funds remaining in the Construction Fund after completion of the System improvements contemplated by the Bond Resolution must be withdrawn from the Construction Fund and deposited into the Debt Service Account of the Sinking Fund. Capitalized Interest Fund There will be paid into the Capitalized Interest Fund such amount from the proceeds of the sale of the Series 2004 Bonds allocable to capitalized interest. Such moneys will be transferred to the Debt Service Account held within the Sinking Fund and used to pay a portion of the interest on the Series 2004 Bonds coming due October 1 and April 1 of each year during the years 2005 through 2009. Rate Covenant The Consolidated Government has covenanted in the Bond Resolution that it has placed into effect a schedule of rates, fees, and charges for the services, facilities, and commodities furnished by the System and, as often as it appears necessary, the Consolidated Government shall revise and adjust such schedule of rates, fees, and charges for either water or sewerage services and facilities, or both, to the extent necessary to produce funds sufficient to operate and maintain the System on a sound business-like basis and to create and maintain the Sinking Fund in accordance with and in compliance with the terms, covenants, and provisions of the Bond Resolution and to create -13- and maintain a reserve therefor in the amount as required by the Bond Resolution or such larger amounts as may be required in any proceedings authorizing any such issue or issues of Additional Bonds, as well as to create and maintain a reserve for extensions and improvements to the System. The Bond Resolution requires the Consolidated Government to maintain such rates, fees, and charges, in addition to the foregoing requirements, at such level so as to produce Pledged Revenues (excluding Investment Earnings, if any, on the Construction Fund) equal to 1.1 times the sum of (x) the amount required to discharge the payment of the principal of and the interest on the Bonds then outstanding, as the same become due and payable in the then current Sinking Fund Year, either at maturity or by proceedings for mandatory redemption plus (y) the scheduled payment of net interest amounts payable under the Hedge Agreements, but in no event, however, may such amount be less than that required to create and maintain the Debt Service Account and the Reserve Account, as required by the Bond Resolution. Parity and Subordinate Bonds Upon satisfaction of certain conditions, the Bond Resolution permits the Consolidated Government, for specified purposes, to issue additional revenue bonds without express limit as to principal amount, which will be equally and ratably secured on a parity basis with the Prior Bonds and the Series 2004 Bonds under the Bond Resolution. See "SUMMARY OF THE BOND RESOLUTION - Additional Bonds" in Appendix C hereto. The Consolidated Government may issue additional parity bonds in the future to finance part of the cost of ongoing capital improvements to the System. The issuance of additional parity bonds may, for a period of time, dilute the security for the Series 2004 Bonds. The Bond Resolution also allows the Consolidated Government to issue obligations secured by the Pledged Revenues that are junior and subordinate to the Bonds as to lien and right of payment. Under the terms of the Bond Resolution, should revenue bonds or other obligations be issued ranking as to lien on the revenues of the System junior and subordinate to the lien securing the payment of the Bonds, then payments to the Utility General Fund may be suspended and such money will be available to the extent necessary to pay the principal of and interest on such junior lien bonds and to create and maintain a reasonable reserve therefor, and such moneys may be allocated and pledged for that purpose. So long as any Hedge Agreement is in effect, however, no Subordinate Bonds may be issued or other obligations incurred which are secured by a lien on Pledged Revenues that is both junior to the lien securing the Bonds and senior to the lien securing the payments to be made to the Hedge Payments Fund. Limited Obligations The Series 2004 Bonds are special limited obligations of the Consolidated Government payable solely from the Pledged Revenues. The Series 2004 Bonds are not payable from and are not secured by a charge, lien, or encumbrance upon any funds or assets of the Consolidated Government other than the Pledged Revenues and the funds created and held under the Bond Resolution. The Series 2004 Bonds do not and will not constitute a debt or general obligation of the Consolidated Government or a pledge of the faith and credit or taxing power of the Consolidated Government. No governmental entity, including the Consolidated Government, is obligated to levy any tax for the payment of the Series 2004 Bonds. No recourse may be had against the General Fund of the Consolidated Government for the payment of the Series 2004 Bonds. The pledge of and lien on Pledged Revenues securing the Series 2004 Bonds do not create a legal or equitable pledge, charge, lien, or encumbrance upon any of the Consolidated Government's property or income, receipts, or revenues, except the Pledged Revenues and the amounts on deposit in the funds held under the Bond Resolution. Remedies The Revenue Bond Law provides that the provisions of the Revenue Bond Law and the Bond Resolution constitute a contract between the Consolidated Government and the owners of the Bonds. For a description of the remedies available to owners of the Bonds under the terms of the Bond Resolution upon the occurrence of an Event of Default thereunder, see "SUMMARY OF THE BOND RESOLUTION - Events of Default and Remedies" in Appendix C hereto. In addition to the remedies set forth in the Bond Resolution, the Revenue Bond Law provides that the duties of the Consolidated Government, the Augusta-Richmond County Commission, and the officers of the Consolidated Government under the Revenue Bond Law and the Bond Resolution are enforceable by any owner of the Bonds by mandamus or other appropriate action or proceeding at law or in equity. The Revenue Bond Law also provides that in the event the Consolidated Government defaults in the payment of the principal or interest on any of the Bonds after the same becomes due, whether at maturity or upon call for redemption, and such default continues for a period of 30 days, or in the event the Consolidated Government or the Augusta-Richmond County Commission or the officers, agents, or employees of the Consolidated Government fail or refuse to comply with the essential provisions of the Revenue Bond Law or default in any material respect in the -14- Bond Resolution, any holders of the Bonds shall have the right to apply in an appropriate judicial proceeding to the Superior Court of Richmond County or to any court of competent jurisdiction for the appointment of a receiver of the System, whether or not all Bonds have been declared due and payable and whether or not such holder is seeking or has sought to enforce any other right or to exercise any remedy in connection with the Bonds. Upon such application, the Superior Court, if it deems such action necessary for the protection of the bondholders, may appoint and, if the application is made by the holders of25 percent in principal amount of the Bonds then outstanding, shall appoint a receiver of the System. The receiver so appointed under the Revenue Bond Law, directly or by his agents and attorneys, is required under the Revenue Bond Law to forthwith enter into and upon and take possession of the System. If the court so directs, the receiver may exclude the Consolidated Government, the Augusta-Richmond County Commission, and the Consolidated Government's officers, agents, and employees, and all persons claiming under them, wholly from the System. Under the Revenue Bond Law, the receiver will have, hold, use, operate, manage, and control the System, in the name of the Consolidated Government or otherwise, as the receiver may deem best. Under the Revenue Bond Law, the receiver will exercise all the rights and powers of the Consolidated Government with respect to the System as the Consolidated Government itself might do. The receiver will maintain, restore, insure, and keep insured the System and from time to time will make all such necessary or proper repairs, as the receiver may deem expedient. Under the Revenue Bond Law, the receiver will establish, levy, maintain, and collect such fees, tolls, rentals, and other charges in connection with the System, as he deems necessary or proper and reasonable. Under the Revenue Bond Law, the receiver will collect and receive all revenues and will deposit the same in a separate account and apply the revenues so collected and received in such manner as the court shall direct. Notwithstanding the provisions of the Revenue Bond Law described above, the receiver has no power to sell, assign, mortgage, or otherwise dispose of any assets of whatever kind or character belonging to the Consolidated Government and useful for the System. The authority of any such receiver is limited to the operation and maintenance of the System. No court may have jurisdiction to enter any order or decree requiring or permitting the receiver to sell, assign, mortgage, or otherwise dispose of any such assets. The receiver must, in the performance of the powers conferred upon him, act under the direction and supervision of the court making such appointment and will at all times be subject to the orders and decrees of such court and may be removed by such court. Under the terms of the Revenue Bond Law, whenever all that is due upon the Bonds and interest thereon and upon any other notes, bonds, or other obligations and interest thereon having a charge, lien, or encumbrance on the revenues of the System and under any of the terms of the Bond Resolution has been paid or deposited as provided therein and whenever all defaults have been cured and made good and it appears to the court that no default is imminent, the court must direct the receiver to surrender possession of the System to the Consolidated Government. The same right of the holders of the Bonds to secure the appointment of a receiver exists upon any subsequent default as is provided in the Revenue Bond Law. If the Consolidated Government were to default on the Series 2004 Bonds, the realization of value from the pledge of the Pledged Revenues to secure the payment of the Series 2004 Bonds would depend upon the exercise of various remedies specified by the Bond Resolution and Georgia law (including the Revenue Bond Law). These remedies may require judicial actions, which are often subject to discretion and delay and which may be difficult to pursue. The enforceability of rights or remedies with respect to the Series 2004 Bonds may be limited by state and federal laws, rulings, and decisions affecting remedies and by bankruptcy, insolvency, or other laws affecting creditors' rights or remedies heretofore or hereafter enacted. Section 36-80-5 of the Official Code of Georgia Annotated provides that no political subdivision created under the Constitution or laws of the State of Georgia shall be authorized to file a petition for relief from payment of its debts as they mature or a petition for composition of its debts under any federal statute providing for such relief or composition or otherwise to take advantage of any federal statute providing for the adjustment of debts of political subdivisions and public agencies and instrumentalities. Section 36-80-5 of the Official Code of Georgia Annotated also provides that no chief executive, mayor, board of commissioners, or other governmental officer, governing body, or organization shall be empowered to cause or authorize the filing by or on behalf of any political subdivision created under the Constitution or laws of the State of Georgia of any petition for relief from payment of its debts as they mature or a petition for composition of its debts under any federal statute providing for such relief or composition or otherwise to take advantage of any federal statute providing for the adjustment of debts of political subdivisions and public agencies and instrumentalities. -15- BOND INSURANCE The Consolidated Government has applied to the Bond Insurer for the issuance, concurrently with the issuance ofthe Series 2004 Bonds, of the Bond Insurance Policy. The following information has been furnished solely by the Bond Insurer for inclusion in this Official Statement. No representation is made by the Consolidated Government or the Underwriters as to the accuracy, completeness, or adequacy of such information or as to the absence of material adverse changes in the condition of the Bond Insurer. Reference is made to Appendix E for a specimen of the Bond Insurance Policy, which should be read in its entirety. Bond Insurance Policy Concurrently with the issuance of the Series 2004 Bonds, the Bond Insurer will issue the Bond Insurance Policy. The Bond Insurance Policy guarantees the scheduled payment of principal of and interest on the Series 2004 Bonds when due as set forth in the form of the Bond Insurance Policy included as Appendix E to this Official Statement. The Bond Insurance Policy is not covered by any insurance security or guaranty fund established under New York, California, Connecticut, or Florida insurance law. The Bond Insurer The Bond Insurer is a New York domiciled financial guaranty insurance company and a wholly-owned subsidiary of Financial Security Assurance Holdings Ltd. ("Holdings"). Holdings is an indirect subsidiary of De xi a, S.A., a publicly held Belgian corporation, and of Dexia Credit Local, a direct wholly-owned subsidiary of Dexia, S.A. Dexia, S.A., through its bank subsidiaries, is primarily engaged in the business of public finance, banking, and asset management in France, Belgium, and other European countries. No shareholder of Holdings or the Bond Insurer is liable for the obligations of the Bond Insurer. At June 30,2004, the Bond Insurer's total policyholders' surplus and contingency reserves were approximately $2,212,545,000 and its total unearned premium reserve was approximately $1,501,280,000 in accordance with statutory accounting practices. At June 30, 2004, the Bond Insurer's total shareholders' equity was approximately $2,438,206,000 and its total net unearned premium reserve was approximately $1,255,708,000 in accordance with generally accepted accounting principles. The financial statements included as exhibits to the annual and quarterly reports filed by Holdings with the Securities and Exchange Commission are hereby incorporated herein by reference. Also incorporated herein by reference are any such financial statements so filed from the date of this Official Statement until the termination of the offering of the Series 2004 Bonds. Copies of materials incorporated by reference will be provided upon request to the Bond Insurer: 350 Park Avenue, New York, New York, 10022, Attention: Communications Department (telephone (212) 826-0100). The Bond Insurance Policy does not protect investors against changes in market value of the Series 2004 Bonds, which market value may be impaired as a result of changes in prevailing interest rates, changes in applicable ratings, or other causes. The Bond Insurer makes no representation regarding the Series 2004 Bonds or the advisability of investing in the Series 2004 Bonds. The Bond Insurer makes no representation regarding the Official Statement, nor has it participated in the preparation thereof, except that the Bond Insurer has provided to the Consolidated Government the information presented under this caption for inclusion in the Official Statement. -16- THE CONSOLIDATED GOVERNMENT Introduction The consolidated government of Augusta-Richmond County is a political subdivision created and existing under the laws of the State of Georgia and presently has as its formal or legal name "Augusta, Georgia." The Consolidated Government was created on January 1, 1996 pursuant to Acts of the General Assembly of the State of Georgia (collectively the "Consolidation Act") which authorized the consolidation of the municipal corporation known as "The City Council of Augusta" and the political subdivision known as "Richmond County, Georgia." The Consolidation Act and the consolidation of the City and the County were separately approved by a majority of the qualified voters of the City and the County at an election held on June 20, 1995. On January 1, 1996, the Consolidated Government became a consolidated city-county government, with territorial limits covering all of what was formerly Richmond County. This geographic area is hereinafter referred to as "Richmond County." The Cities of Blythe and Hephzibah, small communities with populations of approximately 307 and 3,336, respectively, still hold their own municipal charters within the consolidated territory. The relationship between the Consolidated Government and the Cities of Blythe and Hephzibah is similar to that of counties to municipalities located within the territorial limits of such counties. The Consolidated Government is the third consolidated city-county government within the State of Georgia. As such, it has all of the governmental and corporate powers of both municipal corporations and counties under Georgia law. Under the terms of the Consolidation Act, the Augusta-Richmond County Commission may exercise and is subj ect to all of the rights, powers, duties, and obligations previously applicable to the governing authorities of the City and the County. Consolidation is intended to result in the removal of duplicate services formerly rendered by the City and County governments. As a result of consolidation, the Consolidated Government provides, under one management, public services throughout its territorial limits, which services would have been provided separately by the City and the County. The City was originally chartered in 1789 by the General Assembly of the State of Georgia, making it Georgia's second oldest city. As a city, the Consolidated Government would rank as the second largest by population in the State of Georgia. The Consolidated Government is located in the central eastern portion of the State of Georgia on the south bank of the Savannah River, which is the Georgia-South Carolina state boundary, approximately 155 miles east of Atlanta, Georgia and 75 miles southwest of Columbia, South Carolina. Richmond County has a land area of approximately 325 square miles. At its highest point, Richmond County is situated at 520 feet above sea level. Richmond County is located on the Fall Line, which is the natural division of the Piedmont Plateau and the Coastal Plain of Georgia. Its physical features include rolling slopes in the north, transitioning to more level terrain in the south. Average rainfall is 43 inches per year, and average temperatures range from a high of9l degrees in the summer to a low of34 degrees in the winter. Consolidated Government Administration and Officials The form of government of the Consolidated Government is the municipal form of government. Under the Consolidation Act, the governing authority of the Consolidated Government is a board of commissioners designated as the Augusta-Richmond County Commission (the "Commission"). The Commission consists of a Mayor and ten commissioners. The members of the Commission serve terms of office of four years and until a successor is elected and qualified. All members of the Commission are full voting members, except for the Mayor, who has the right to vote only to make or break a tie vote on any matter. Under the terms of the Consolidation Act, seven members of the Commission constitute a quorum for the transaction of ordinary business, and an affirmative vote of at least six members is required for the Commission to take action. For the purpose of electing members of the Commission, Richmond County is divided into ten commission districts. Each commissioner is elected by the voters residing within such commissioner's commission district. Commission district 9 encompasses all of commission districts 1,2,4, and 5. Commission district 10 encompasses all of commission districts 3,6, 7, and 8. No person will be eligible to serve as a commissioner unless he or she: (1) has been a resident of the commission district from which elected for a period of one year immediately prior to the date of the election, (2) continues to reside within the commission district from which elected during his or her term of office, (3) is a registered and qualified elector of Richmond County, and (4) meets the qualification standards required for members of the Georgia House of Representatives. No person who has served two consecutive full four-year terms of office as commissioner will again be eligible to hold office as commissioner until after the expiration of four years from the conclusion of that person's last term of office as commissioner. -17- The Mayor is the chief executive officer of the Consolidated Government and is elected on a county-wide basis by the voters of the entire county. No person will be eligible to serve as Mayor unless he or she (1) has been a resident of Richmond County for a period of one year immediately prior to the date of the election, (2) continues to reside within Richmond County during his or her term of office, (3) is a registered and qualified elector of Richmond County, and (4) meets the qualification standards required for members of the Georgia House of Representatives. No person who has served two consecutive full four-year terms of office as Mayor will again be eligible to hold office as Mayor until after the expiration of four years from the conclusion of that person's last term of office as Mayor. Under the Consolidation Act, the Mayor presides at all meetings of the Commission, but has no power to veto ordinances, resolutions, or other actions of the Commission. Information concerning the current Mayor and commissioners is set forth below: Name and Office Held Bob Young, Mayor Betty Beard, District 1 Marion F. Williams, District 2 Barbara Sims, District 3 Richard Colclough, District 4 Bobby G. Hankerson, District 5 Andy Cheek, District 6 Tommy Boyles, District 7 Jimmy Smith, District 8 Williams H. Mays, III, District 9 Don A. Grantham, District 10 Introduction Expiration of Term Principal Occupation December 31,2006 December 31, 2005 December 31, 2007 December 31, 2005 December 31, 2007 December 31, 2005 December 31, 2007 December 31, 2005 December 31, 2007 December 31, 2005 December 31, 2007 Full-time Mayor Retired Teacher Pastor Volunteer Social Worker Minister Manager Business Owner Retired Business Owner Business Owner Business Owner THE SYSTEM The Revenue Bond Law authorizes the Consolidated Government to acquire and operate for users within and outside its territorial boundaries systems, plants, works, instrumentalities, and properties (i) used or useful in connection with obtaining a water supply and conserving, treating, and disposing of water for public and private uses and (ii) used or useful in connection with collecting, treating, and disposing of sewage and wastewater. The City's water system was established in 1840 to provide water service to the City. The City's water system was a surface water system. The City's sewer system was established in approximately 1850 to provide sewer service to the City. The County's water system was established in 1949 by a private developer to provide water service to a private development and was conveyed to the County in 1951. The County's water system was a well water system. The County's sewer system was established in 1950 to provide sewer service to portions of the unincorporated areas of the County. The consolidation of the governments of the City and the County vested ownership and operation of the System with the Consolidated Government. The System operates as a department ofthe Consolidated Government. Principal Administrative Personnel The Consolidated Government administers the daily operations of the System through its Utilities Department. The Administrator of the Consolidated Government, who is appointed by the Commission upon recommendation of the Mayor, oversees the management and coordination of the operations and activities of the Utilities Department. The chief managerial officer of the Utilities Department is the Director, who is appointed by the Commission. Frederick L. Russell, age 51, has been the Interim Administrator of the Consolidated Government since June 2004. From January 2002 until he assumed the Interim Administrator position, Mr. Russell served as the Consolidated Government's Deputy Administrator, Public Safety Portfolio. He attended the FBI National Academy, l50th Session. Some of the former positions he has held include Deputy Chief, Richmond, Virginia Police Department; Executive Director, Virginia S~ate Crime Commission; and Chief of Police, City of Bedford, -18- Virginia. Mr. Russell received a Master of Science degree in Criminal Justice from Nova University and a Bachelor of Science degree from Virginia Tech. David Persaud, age 47, has been the Director of Finance of the Consolidated Government since June 3, 2002. Mr. Persaud was the Director of Finance for Chatham County, Georgia from November of 1985 through May of 2002. From August of 1984 through November of 1985, Mr. Persaud was the Director of Finance of the City of Mount Dora, Florida. From February of 1982 through August of 1984, Mr. Persaud was the accountant for Glynn County, Georgia. Prior to August of 1984, Mr. Persaud was employed in the private sector. Mr. Persaud received a B.S. degree in Business Administration and Accounting from California Coast University and a Masters degree in Public Administration from Savannah State University. He is a Certified Government Financial Manager (CGFM) and has a Chartered Pension Executive (CPE) certification. N. Max Hicks, P.E., age 64, has been the Director of the Augusta Utilities Department since June 4, 1996. From 1991 to 1996, Mr. Hicks was the General Superintendent and the Assistant General Superintendent, respectively, of the City's Water Works Office. From 1989 to 1991, Mr. Hicks was Public Works Director for the City of Toccoa, Georgia. Prior to that, he was a partner, director, and vice president of the cOJlsulting engineering firm of Zimmerman, Evans, and Leopold, Inc., Augusta, Georgia. Mr. Hicks studied Engineering and English at Charlotte College (now University of North Carolina at Charlotte), Charlotte, North Carolina, and Economics and Accounting at the University of South Carolina at Aiken, Aiken, South Carolina. Mr. Hicks is a Licensed Professional Engineer and Land Surveyor in Georgia. Mr. Hicks received the 2002-03 Government Civil Engineer of the Year Award from the South Carolina section of the American Society of Civil Engineers and the Best Friend Award from the Georgia Water Wise Council in 1998. He was the 1996 recipient of the Elizabeth McIntyre Award for Outstanding Service in Water Supply from the Georgia Water and Pollution Control Association. His technical society memberships include the American Society of Civil Engineers, American Water Works Association, Water Environment Federation, Surveying and Mapping Society of Georgia, and the Association of Metropolitan Water Agencies, for which he serves on the Regulatory Committee and the Management Committee. Steven J Little, C.P.A., age 48, has been the Assistant Director of Finance and Administration of the Utilities Department since December of 2001. From 2000 to 2001, he was the Assistant to the Chief Financial Officer at the national headquarters for Electrolux Home Products, makers of Frigidaire appliances, located in Augusta, Georgia. Prior to that, he was the Chief Financial Officer for a start-up medical referral company and its sister corporation in Aiken, South Carolina. His previous experience includes over 10 years of public accounting, with an emphasis in auditing local governments, and internal auditing for a private utility company. Mr. Little is a licensed certified public accountant and currently serves as the Vice Chair for the Finance and Administration Subcommittee for the Utility Management Committee of the Water Environment Federation. He received a B.B.A. degree in Accounting from Iowa State University in 1982. D. Allen Saxon, Jr., age 48, has been the Assistant Director of Wastewater for the Utilities Department since March 5, 2001. Mr. Saxon previously served as the Supervisor of Water Pollution for the City for 17 years until September of 1994, when he resigned to further his education. He is an active member of the Georgia Water and Pollution Control Association and the Water Environment Federation. Mr. Saxon was Georgia's 1990 recipient of the William D. Hatfield Award from the Water Environment Federation. Mr. Saxon earned a B.B.A. degree in 1983 from Augusta College and an M.S. degree in 1996 from Georgia State University. Mr. Saxon is certified as a Class I Wastewater Treatment System Operator by the State of Georgia. Clifford A. (Drew) Goins, age 49, has been the Assistant Director of Water for the Utilities Department since May 29, 2001. Mr. Goins has been employed by the Consolidated Government and the City for almost 23 years in various capacities. He began his employment with the City as a Resident Engineer in 1982 until his promotion to Assistant Commissioner of Public Works and Director of Engineering in 1990. From 1993 through 1996, Mr. Goins served as the acting Commissioner of Public Works and Director of Engineering while the Commissioner of Public Works was reassigned to the position of acting City Administrator. After serving in that capacity, Mr. Goins served as the Assistant Director of Public Works and Engineering until he accepted his current position. Mr. Goins has been a 10th District Chapter Director for American Public Works Georgia and a member of the American Public Works National Engineering and Technology Professional Educational Technical Committee. He received a Bachelor of Civil Engineering Technology Degree from Southern Technical Institute in 1981. Douglas A. Cheek, P.E., age 40, has been the Assistant Director for the Engineering and Construction Division of the Utilities Department since May 29, 2001. From August of 1998 until June of200l, Mr. Cheek served as the City/County Engineer for the Consolidated Government. From February of 1995 until July of 1998, Mr. Cheeks served as the Bridge Construction Liaison Engineer for the Georgia Department of Transportation's Metro Atlanta District Office. In June of 1998, Mr. Cheek received a Bachelor of Civil Engineering from the Georgia Institute of Technology in Atlanta, Georgia. He also studied Biology at Clayton State College in Morrow, Georgia from 1982 to 1984. Mr. Cheek is a Registered Professional Engineer in Georgia. -19- Alma Stephenson, age 57, has been the Superintendent of Sales, Collections, and Customer Service of the Utilities Department of the Consolidated Government since June 4, 1996. Ms. Stephenson was employed by the City for 30 years and was appointed Director of Consolidated Revenue/Manager of the Water Works Office and Sales Department in June of 1995 after serving for 8 years as the Assistant Director of Consolidated Revenue/Manager of the Water Works Office and Sales Department. System Facilities Water System The Consolidated Government's water system consists ofa water supply, treatment, and distribution system. The System's primary sources of raw water are the Savannah River and the Augusta Canal, which draws water from and is located parallel to the Savannah River. The System has four raw water intakes located on the Augusta Canal, two primary and two standby, plus an additional diesel-engine-driven standby raw water pump that can pump from either the canal or the river. The Consolidated Government ordinarily pumps raw water from the System's primary water intakes, through the System's raw water pump stations located on the Augusta Canal, to the System's surface water treatment plant located on Highland Avenue. The location of the Highland Avenue water treatment plant allows most of the water treated at that plant to be fed by gravity throughout the System's distribution network. The Consolidated Government also pumps treated water from the Highland Avenue plant to five of the System's elevated storage tanks, from which the treated water is then fed by gravity throughout the System's water distribution network. The Consolidated Government also obtains raw water for the System from the Tuscaloosa Formation aquifer. The Consolidated Government taps the aquifer through 26 active wells. The Consolidated Government pumps raw water (1) from 23 of the System's wells to the System's ground water treatment plants located on Peach Orchard Road, the Highway 56 Loop, and Old Waynesboro Road (known as "Little Spirit Creek Ground Water Treatment Plant") and (2) from three ofthe System's wells to a rural chlorination system. The Consolidated Government then pumps this treated water to the System's storage facilities, from which the treated water is then re-pumped throughout the System's water distribution network. The Consolidated Government owns two raw water pump stations located at the System's water intakes on the Augusta Canal with raw water pumping capacity of20 million gallons per day ("MGD") and 30 MGD, respectively. These raw water pump stations are powered by water-driven turbines that take advantage of the falling water from the Augusta Canal to the Savannah River, were originally constructed in 1952 and 1975, respectively, and were both improved in 1993 and 1998. The condition of these raw water pump stations is good. The Consolidated Government also owns two smaller raw water pump stations located at the System's water intakes on the Augusta Canal, each with raw water pumping capacity of 9.0 MGD, which are used as supplemental supply for peak demands and when one of the other units is taken out of service for maintenance. These raw water pump stations are powered by water and were originally constructed in 1898 and were both improved in 1939 and 1999. The condition of these raw water pump stations is fair. The Consolidated Government owns a standby, diesel engine- driven raw water pump station, with a water intake that can be used in the Augusta Canal or the Savannah River, with raw water pumping capacity of 20 MGD. This standby auxiliary system was originally constructed in 1975, was improved in 1999, and is in good condition. The Consolidated Government has raw water storage capacity of approximately 379 acre-feet or 124 million gallons at two raw water storage reservoirs that serve the System's Highland Avenue water treatment plant. The Consolidated Government's 26 active wells have an aggregate well-water pumping capacity rated at 23.1 MGD. These wells were originally constructed between 1949 and 1995. The condition of the wells is good. -20- The Consolidated Government owns four water treatment plants and a rural chlorination system, which are described below. Rated Capacity Treated Water 2003 Production of Date of Water Treatment for Treatment of Pumping Rated Treated Water (MGD) Original Dates of F acilitvl Raw Water (MGD) Capacitv (MGD) Average Maximum Construction Improvements Highland Avenue 60.0 34.5 26.8 34.7 1939 1949,1954,1987, 1994,2000, and 2002 Peach Orchard 5.0 10.3 3.6 5.5 1966 1969 and 1996 Highway 56 Loop 10.0 10.3 5.8 7.9 1979 1985,1992, and 1996 Little Spirit Creek 5.0 7.9 1.4 5.0 2001 None Rural Chlorination System2 n n --=:Q: --=:Q: 1972 Each year since 1981 Totals .82,] til .31Ji .i3...l The Consolidated Government is nearing completion of construction of a new surface water treatment plant, located on Tobacco Road and to be known as the "N. Max Hicks Water Treatment Plant," to treat water pumped from a new raw water intake located on the Savannah River. The new surface water treatment plant will initially have a rated capacity for treatment of raw water of 15.0 MGD and treated water pumping rated capacity of 15.0 MGD. The Consolidated Government expects the new surface water treatment plant to be completed and operational during 2005. The rural chlorination system is currently utilized only as an operational reserve to meet critical demands. The rural chlorination system is served by three wells; at each well there is a chlorine solution feed system for disinfection, a caustic soda solution feed system for pH adjustment, and an HFS acid feed system to put fluoride in the water as a dental hygiene additive. The condition of the water treatment facilities is good. The capital improvements described herein under the caption "PLAN OF FINANCING - System Improvements" include expansion and modification of the Highland Avenue water treatment plant and expansion and upgrade of the raw water pumping station and supply line serving the plant. The Consolidated Government expects the upgrades to the Highland Avenue water treatment plant and the raw water pumping system to be completed by July of2009. The Consolidated Government owns 10 ground storage tanks with an aggregate storage capacity for treated water of 17.1 million gallons and 13 elevated storage tanks with an aggregate storage capacity for treated water of 9.75 million gallons. These storage tanks were constructed between 1935 and 1999 and are in good condition. A new 3 million gallon elevated storage tank is currently under construction and is expected to be operational by December 31, 2004. In addition, the Consolidated Government has 18.95 million gallons of clear well water storage capacity at its water treatment plants. The System's water distribution network consists of approximately 1,048 miles of pipelines, ranging in size from 6 inches to 24 inches in diameter. Most of the pipelines are made of cast iron or ductile iron. Approximately 20% of the pipelines have been in service for 50 years or more, with the oldest pipelines installed approximately 140 years ago. The general condition of the water distribution network is good. The capital improvements described herein under the caption "PLAN OF FINANCING - System Improvements" include improvements to the System's water distribution network to strengthen delivery capability throughout the System. The Consolidated Government maintains standby power systems in the form of diesel-engine powered generators at its water treatment plants, to insure reliability of its water system during periods of power outage. The Consolidated Government also owns 15 buildings, 70 vehicles, and various equipment related to its water system. Sewer System The Consolidated Government's sewer system consists of a sewage and wastewater treatment and collection system. The sewer system dates from storm water drains constructed in downtown Augusta prior to 1900. The older portion of the sewer system was designed to transport storm water from the downtown area. Over time, sanitary sewage was diverted into the storm sewers, and the City's downtown storm sewers evolved into a combined storm and sanitary sewer system. Until 1968, the outfall sewers emptied into the Savannah River without treatment. In the 1980s and early 1990s, the City eliminated all known combined sewers by constructing trunk mains to -21- separate sanitary sewage from storm water. Presently, no known combined sewers remain and the Consolidated Government continues to evaluate whether any unknown combined sewers remain. The Consolidated Government owns two wastewater treatment plants, which are described below. 2003 Treated Rated Treatment Wastewater (MGD) Date of Original Dates of Receiving Plant Capacitv (MGD) Average Maximum Construction Improvements Stream James B. Messerly 46.10 33.9 53.81 1968 1976,1984, Butler Creek 1995, 1997,2001, and 2002 Spirit Creek 2.24 .....ti -.2d1 1988 1995 Spirit Creek Totals 4834 .18Jl .5.2.J. Flows in excess of rated treatment capacity result primarily from major infiltration and inflow of storm water into the wastewater collection and conveyance system following significant rainfall. The capital projects described herein under the caption "PLAN OF FINANCING - System Improvements" include improvements to the wastewater collection and conveyance system to reduce infiltration and inflow. The condition of the two wastewater treatment plants is good. Improvements at the Messerly wastewater treatment plant for critical system upgrades, funded primarily by proceeds of revenue bonds issued in 2000 and 2002, have been completed. The capital improvements described herein under the caption "PLAN OF FINANCING - System Improvements" include an additional $55.7 million for continued improvement and upgrade to the Messerly wastewater treatment plant to increase treatment reliability and odor control. The Consolidated Government expects the upgrades to the Messerly wastewater treatment plant to be completed by December of2008. The Consolidated Government's wastewater collection and conveyance system consists of 8 drainage basins, 28 wastewater pumping stations, and approximately 680 miles of collection pipes that transport primarily sanitary sewage. Approximately 80 percent of the wastewater collection system is drained by gravity, and the remainder requires pumping at least once. The collection and conveyance system uses a combination of 8-inch to 72-inch collection pipes. Most of the collection pipes are made of vitrified clay, but some are made of brick, concrete, and polyvinyl chloride. Approximately 20% of the collection pipes have been in service for 50 years or more, with the oldest collection pipes installed approximately 105 years ago. The collection and conveyance system has standby pumps and a standby power system. The general condition of the collection and conveyance system is good. The capital improvements described herein under the caption "PLAN OF FINANCING - System Improvements" include upgrades to interceptor and relief sewers, reduction of infiltration and inflow of storm water into the wastewater collection and conveyance system, and expansion into areas not currently served by the wastewater collection and conveyance system. Contract Operator of Wastewater Treatment Plants The Operations Contract The Consolidated Government and Operations Management International, Inc. (the "Operator") have entered into an Agreement for Operations, Maintenance and Management Services, dated July 20, 1999, as amended by amendments dated May 2, 2000, December 19,2000, June 19,2001, May 21, 2002, September 10,2002, December 3, 2002, and December 16, 2003 (collectively the "Operations Contract"), under the terms of which the Operator agreed to operate, maintain, and manage the Consolidated Government's two wastewater treatment plants and to operate and maintain the Consolidated Government's industrial pretreatment and sludge disposal programs. The term of the Operations Contract commenced on August 7, 1999 and terminates on December 31, 2004. The Operations Contract may be extended for a successive term of five years at the sole discretion of the Consolidated Government. On July 1, 2004, the Commission authorized a one year extension of the existing agreement until December 31,2005 and is considering whether to extend the contract through December 31,2009. The Consolidated Government may terminate the Operations Contract at any time upon six months' notice. Either party may terminate the Operations Agreement for a material breach of the Operations Agreement by the other party after giving the other party written notice of the breach and 30 days to correct the breach. -22- The Operations Contract requires the Consolidated Government to pay the Operator a fee for services rendered during an initial period from August 7,1999 to December 31,2000 and for each l2-month period thereafter equal to a base fee equaling the actual cost of services performed during such period, plus an administrative fee equaling 10.50% of the base fee, plus a management fee. Pursuant to the Operations Contract, the management fee equals $6,128,879 for calendar year 2004 and will increase proportionately to increases in the base fee during subsequent years. Under the Operations Contract, the term "cost" means the total of all costs determined on an accrual basis in accordance with generally accepted accounting principles, including but not limited to, direct labor, labor overhead, chemicals, materials, supplies, utilities, equipment, maintenance, repair, mobilization/system implementation, taxes, insurance, leases, owner-approved regional support, and outside services, but excluding corporate taxes. The Operator Operations Management International, Inc. is a California corporation organized in 1980 which specializes in the operation, maintenance, and management of water, wastewater, electrical, and other utility facilities for private and public sector owners. The Operator provides full contract operation and management services and is responsible for overall system performance. The Operator operates and manages more than 160 facilities around the world, including facilities in the Americas, the Middle East, and Asia. For its fiscal year ended December 31, 2003, the Operator reported total assets of approximately $51 million and total revenues of approximately $185 million. The Operator is wholly owned by CH2M HILL Companies, Ltd., an Oregon corporation which acts as the holding company of several environmental and engineering services companies, including the Consolidated Government's consulting engineer, CH2M HILL. The Operator's executive offices are located in Denver, Colorado. Water Sources The Consolidated Government is located on the south bank ofthe Savannah River. The primary sources of raw water for the System are the Savannah River and the Augusta Canal, which draws water from the Savannah River, is approximately seven miles long, and runs parallel to the Savannah River. The Augusta Canal was constructed in 1845 and enlarged in 1875 as a means of transportation for cotton barges and to provide water power for textile mills and other industries located in the City. The City began using the Augusta Canal as a source of raw water in 1885. With an average daily flow of 6.1 billion gallons, the Savannah River has the volume and stability to provide an adequate supply of raw water for the Consolidated Government's water system for the foreseeable future. The Savannah River's lowest current daily flow is 2.6 billion gallons, which occurs during the summer in dry years. Lake Hartwell, Richard B. Russell Lake, Thurmond Lake, and Stevens Creek Dam are located above the Augusta Canal on the Savannah River. All of these impoundments are controlled by the U.S. Army Corps of Engineers and guarantee minimum flows in the Savannah River for aquatic life and potable water usage by the Consolidated Government. The System also obtains raw water from the Tuscaloosa Formation aquifer through 26 active wells. The Consolidated Government plans to continue to use the Augusta Canal and the Savannah River as its primary sources of raw water for the System and to use the aquifer as a secondary source of raw water for the System. Service Area The System supplies water to residential, commercial, and industrial customers located within Richmond County. The System supplies water to a geographic area of approximately 210 square miles (which constitutes approximately 88% of the land area of Richmond County exclusive of Fort Gordon) containing an estimated population in excess of 180,000. The System provides sewer services to residential, commercial, and industrial customers located within Richmond County. The System provides sewer services to a geographic area of approximately 106 square miles (which constitutes approximately 44% of the land area of Richmond County exclusive of Fort Gordon) containing an estimated population in excess of 150,000. The Consolidated Government has the non-exclusive right to provide water and sewer service within Richmond County. The water and sewer systems of Fort Gordon and the City of Hephzibah provide water and sewer service within those jurisdictions in Richmond County. The City of Blythe provides water service but not sewer service within that city. The water and sewer system of the City of Hephzibah and the water system of the City of Blythe compete to a limited extent with the System in the unincorporated areas of Richmond County adjacent to those cities. -23- Service Area Demographic Information Set forth below is selected demographic data for Richmond County. Year 2003 2002 2001 2000 1999 1990 1980 1970 1960 Population! 198,149 198,159 198,978 199,775 190,310 189,719 181,629 162,437 135,601 Per Capita Income2 County State $ n/a $ n/a 23,994 28,821 22,749 28,555 22,105 27,989 21,207 26,359 17,704 17,722 7,617 8,474 3,156 3,394 n/a n/a Median Household Effective Buving Income3 Countv State $30,331 32,337 28,449 28,299 n/a 23,054 15,131 n/a n/a $38,335 38,043 35,713 34,908 n/a 26,342 16,301 n/a n/a Median Agel n/a n/a n/a 32.3 n/a 30.3 26.7 23.7 24.5 Sources: I U.S. Department of Commerce, Bureau of the Census. All population figures for years other than 1960, 1970, 1980,1990, and 2000 are estimates by the U.S. Department of Commerce, Bureau ofthe Census. 2 U.S. Department of Commerce, Bureau of Economic Analysis. 3 Sales and Marketing Management Magazine. New effective buying income measurement benchmarks were used for 2000. No effective buying income statistics were compiled for 1999. Service Area Economic Information The following information is provided to give prospective investors an overview of the general economic conditions in the service area. These statistics have not been adjusted to reflect economic trends. Retail Sales (in thousands) Richmond Countv $2,869,956 2,898,832 3,089,096 2,836,385 n/a Year 2003 2002 2001 2000 1999 Source: Sales and Marketing Management Magazine. No retail sales statistics were compiled for 1999. Year 2003 2002 2001 2000 1999 Summary of Richmond Countv Building Permits Commercial/ Industrial/Otherl Permits Value 109 70 76 n/a 81 Residential2 Single Family Permits Value $55,785,272 26,789,932 24,091,820 n/a 24,122,389 657 543 523 483 639 $84,546,713 68,036,546 64,068,924 54,669,285 41,372,328 Multi-Family Units Value 224 343 196 42 529 Sources: I Augusta License and Inspection Department. 2 U.S. Department of Commerce, Bureau of the Census, Manufacturing and Construction Division. -24- $ 5,447,051 13,622,643 4,153,666 2,195,646 10,541,395 Following is a table showing the percentage of the 2001 payroll distribution in Richmond County for each major sector of the local economy. Percentage of200l Payroll Distribution in Richmond County by Sector Industry Forestry, Fishing, Hunting, and Agricultural Support Mining Utilities Construction Manufacturing Wholesale Trade Retail Trade Transportation and Warehousing Information Finance and Insurance Real Estate and Rental and Leasing Professional, Scientific, and Technical Services Management of Companies and Enterprises Administrative, Support, Waste Management, and Remediation Services Educational Services Health Care and Social Assistance Arts, Entertainment, and Recreation Accommodation and Food Services Other Services (Except Public Administration) Auxiliaries (Except Corporate, Subsidiary, and Regional Management) Unclassified Establishments Percentage of200l Pavroll Distribution 0.02% 0.28 0.67 4.65 21.05 3.84 9.95 1.71 3.32 3.72 1.62 4.05 1.15 6.70 0.73 28.08 0.84 3.80 3.08 0.71 ~ 100.00% Source: U.S. County Business Patterns, U.S. Department of Commerce, Bureau of the Census. Set forth below are the ten largest employers located in Richmond County as of January 30, 2004, their industries, and their approximate number of employees. There can be no assurance that any employer listed below will continue to be located in Richmond County or will continue employment at the level stated. No independent investigation has been made of, and no representation can be made as to, the stability or financial condition of the companies listed below. Emolover U.S. Army Signal Center and Fort Gordon Medical College of Georgia Richmond County School System University Hospital Medical College of Georgia Health, Inc. Augusta-Richmond County Consolidated Government Veterans Administration Hospital East Central Regional Hospital Doctors Hospital E-Z-GO Textron Industry U.S. Army Signal Corps Education; Health Care Education Hospital Health Care Government Hospital Hospital Hospital Golf Cart Manufacturer Source: Augusta Metro Chamber of Commerce. -25- Emolovees 17,404 4,656 4,418 3,200 3,000 2,600 1,975 1,800 1,400 1,277 Set forth below are labor statistics for Richmond County for the past five years, with comparative data for the State of Georgia. Employment Unemployment Total Labor Force County Unemployment Rate State Unemployment Rate 1999 75,509 5,106 80,615 6.3% 4.0% 2000 79,000 4,708 83,708 5.6% 3.7% 2001 76,662 4,354 81,016 5.4% 4.0% 2002 76,302 4,988 81,290 6.1% 5.1% 2003 79,877 4,570 84,447 5.4% 4.7% Source: State of Georgia Department of Labor. According to the State of Georgia Department of Labor, the preliminary September 2004 unemployment rate for Richmond County was 5.9 percent, compared to 4.2 percent for the State of Georgia. Total Deposits in Financial Institutions as of June 30 Year Richmond County (in thousands) 2003 2002 2001 2000 1999 $2,259,643 2,028,629 1,974,437 1,969,048 1,804,166 Source: State of Georgia Department of Banking and Finance. According to the State of Georgia Department of Banking and Finance, as of June 30, 2004, Richmond County had 10 financial institutions with a total of 52 branch offices. Customers Water System Set forth below is information concerning the demand for water from the System for its past five fiscal years and for the seven-month periods ended July 31, 2003 and 2004. Water Demand Years Ended December 31 2000 2001 2002 Seven-Month Periods Ended July 31 2003 2004 Average Daily (MGD) Maximum Daily (MGD) 1999 39.2 60.3 41.7 64.8 40.5 59.1 40.5 58.3 2003 37.6 53.1 38.2 50.3 42.5 56.9 -26- Set forth below is the number of connections to the water system by customer class as of the dates shown. Number of Water Connections As of December 31 As of Customer Class 1999 2000 2001 2002 2003 Julv 3 L 2004 Residential 58,042 57,953 58,246 59,914 59,851 60,105 Commercial and Industriall 6.355 6.995 7.424 6.722 7.989 8.008 Total 64.397 64.948 65.670 66.636 67.840 68.113 Includes apartment complexes, which are served by a single connection. Set forth below is information concerning the ten largest water customers of the System for the year ended December 31, 2003. No independent investigation has been made of, and consequently no representation can be made as to, the stability or financial condition of any of the customers listed below or that such customers will continue to maintain their status as major customers ofthe System. Ten Largest Water Customers Customer Nutra Sweet Shapiro Packing Avondale Mills Castleberry Food Co. Huron Tech Medical College of Georgia Amoco Searle Kendall Monsanto Dairy Total Gallons Metered 1 555,323 200,866 199,822 193,620 170,409 164,302 162,271 153,507 148,881 145.501 2.094.502 1 In thousands. Total Billing $ 720,978 310,579 308,499 298,376 263,013 289,756 255,237 240,004 229,546 226.121 $3.142.109 Percentage of Total Water Revenues 3.44% 1.48 1.47 1.42 1.26 1.38 1.22 1.15 1.10 1.08 15.00% Sewer System Set forth below is information concerning the demand for sewer service from the System for its past five fiscal years and for the seven-month periods ended July 31, 2003 and 2004. Treated Wastewater Flow Years Ended December 31 Average Daily (MGD) Maximum Daily (MGD) 1999 29.2 34.4 2001 30.9 40.0 2000 33.4 46.3 -27- 2002 30.7 46.0 2003 38.0 59.1 Seven-Month Periods Ended July 31 2003 2004 41.1 31.0 59.0 37.8 Set forth below is the number of connections to the sewer system by customer class as of the dates shown. Number of Sewer Connections As of December 31 As of Customer Class 1999 2000 2001 2002 2003 Julv 3 L 2004 Residential 43,889 44,343 44,048 45,433 47,397 47,744 Commercial and Industriall 4.810 4.867 5.591 5.128 5.888 5.900 Total 48.699 49.210 ~ 50.561 53.285 53.644 Includes apartment complexes, which are served by a single connection. Set forth below is information concerning the ten largest sewer customers of the System for the year ended December 31, 2003. No independent investigation has been made of, and consequently no representation can be made as to, the stability or financial condition of any of the customers listed below or that such customers will continue to maintain their status as major customers of the System. Ten Largest Sewer Customers Gallons Total Percentage of Customer Meteredl Billine Total Sewer Revenues Nutra Sweet 788,979 $1,388,607 7.19% Castleberry Food Co. 222,483 391,344 2.03 Shapiro Packing 198,856 836,592 4.33 Avondale Mills 198,822 429,447 2.22 Proctor & Gamble 164,322 278,262 1.44 EKA Nobel 154,312 405,892 2.10 Searle 153,507 263,119 1.36 Kendall 148,881 390,155 2.02 Amoco 145,138 462,220 2.39 Monsanto Dairy 145.133 500A05 2.59 Total 2.320A33 $5.346.043 27.67% In thousands. Based upon water consumption plus additional sewer surcharges. Rates, Fees, and Charges Monthly residential service charges for water and sewer services generally consist of a monthly demand charge regardless ofthe size of the customer's water meter plus a volume charge applied to the monthly water consumption. Monthly commercial service charges for water and sewer services generally consist of a monthly demand charge based upon the size of a customer's water meter plus a volume charge applied to the monthly water consumption. In addition, connection fees varying by water meter size are charged to new customers connecting to the System. The water and sewer rates to all customers within each class of service are uniform. Other than water service provided to public parks, fire hydrants, and fire sprinklers, the Consolidated Government does not provide any free water or sewer service. -28- The Consolidated Government has adjusted its water and sewer rate schedules on April 1 of each year since April 1, 1998. A summary of the residential water and sewer service rate schedules in effect since April 1, 1998 is set forth below. Monthlv Residential Water Service Rates! 3,000 Effective Period or Less More Than 3,000 April 1, 1998 $8.18 $5.66 plus $0.78 per thousand to March 31, 1999 April 1, 1999 $8.31 $5.75 plus $0.79 per thousand to March 31, 2000 April 1, 2000 $8.53 $5.91 plus $0.81 per thousand for to March 31, 2001 first 3000, plus $0.91 per thousand over 3,000 April 1, 2001 $9.47 $6.56 plus $0.90 per thousand for to March 31, 2002 first 3000, plus $1.01 per thousand over 3,000 April 1, 2002 $10.51 $7.28 plus $1.00 per thousand for to March 31, 2003 first 3000, plus $1.12 per thousand over 3,000 April 1, 2003 $11.67 $8.08 plus $1.11 per thousand for to March 3 1, 2004 first 3,000, plus $1.24 per thousand over 3,000 April 1, 2004 to present $12.95 $8.97 plus $1.23 per thousand for first 3,000, plus $1.38 per thousand over 3,000 ! Measured in gallons. Monthly Residential Sewer Service Rates (Based on Water Consumption!) 3,000 Effective Period or Less More Than 3,000 April 1, 1998 $6.85 $9.62 plus $0.89 per thousand to March 31,1999 April 1, 1999 $6.96 $9.77 plus $0.90 per thousand to March 31, 2000 April 1, 2000 $7.66 $10.75 plus $0.99 per thousand to March 31, 2001 April 1, 2001 $8.50 $11.93 plus $1.10 per thousand to March 31, 2002 April 1, 2002 $9.44 $13.24 plus $1.22 per thousand to March 31, 2003 April 1, 2003 $10.48 $14.70 plus $1.35 per thousand to March 31, 2004 April 1, 2004 to present $11.63 $16.32 plus $1.50 per thousand 1 For all periods shown, the Consolidated Government used a winter billing method for calculating monthly residential sewer service rates. Under this method, rates for each l2-month period from April 1 to March 31 of the following year are fixed based on average monthly gallons consumed by the customer during the prior November, December, and January. -29- The Consolidated Government charges commercial customers the monthly minimum charges set forth in the table below plus $1.58 for the first 3,000 gallons of water used and $1.74 per each additional thousand gallons of water used for water service each month and the monthly minimum charges set forth in the table below plus $1.90 per thousand gallons of water used for sewer service each month. Monthly Minimum Charges on Commercial Meters Minimum Charge Water Sewer Meter Size 5/8" and 3/4" 1" 1-1/4" and 1-1/2" 2" 3" 4" 6" 8" 10" 12" $ 9.73 13.79 22.85 32.82 54.92 79.56 134.17 194.61 259.93 337.30 $ 17.18 24.56 41.04 59.29 99.80 144.59 244.37 354.78 474.24 600.61 The Consolidated Government also charges commercial sewer customers a surcharge for disposal of certain types of high strength wastewater. The Consolidated Government imposes a surcharge of $0.24 per pound for biological oxygen demand and suspended solids in excess of200 parts per million. Set forth below are the water and sewer connection fees presently in effect for the Consolidated Government. Water Connection Fees Meter Size Tap Fee 5/8" and 3/4" 1" 1-1/4" and 1-1/2" 2" 3" 4" 6" 8" $ 390 435 575 975 7541 1,1151 2,2431 3,4451 Plus installation costs. The Consolidated Government presently charges a sewer connection fee of $350 plus installation costs for a six-inch tap. -30- Set forth below is a comparison of average monthly residential water and sewer bills of customers of the System and customers of other water and sewer systems surrounding the Consolidated Government. Utility Monthly Residential Water and Sewer Bill for Rates in Effect on July 31. 20041 The System2 Columbia County, Georgia North Augusta, South Carolina3 North Augusta, South Carolina4 Aiken, South Carolina3 Aiken, South Carolina4 $45.00 39.45 39.30 60.08 35.41 70.82 Based upon monthly water consumption of7,000 gallons. Assumes the water and sewer service rates that became effective on April 1, 2004 were in effect. Inside the city customers. Outside the city customers. 4 Rate Setting Process Under Georgia law, the Consolidated Government has the exclusive authority to establish rates and charges for water and sewer service supplied by the System. The rates charged by the Consolidated Government for water and sewer service supplied by the System are not subject to review or approval by any federal or state regulatory body. The Commission establishes the rates, which are subject to change at any time, as the Commission deems advisable. On August 15,2000, the Commission adopted an ordinance whereby the water and sewer rates of the System are to be adjusted as established in each annual budget of the Consolidated Government or in connection with financing capital improvements to the System. The staff of the System makes periodic reviews of the rate structure to determine if modifications are needed. See "SECURITY AND SOURCES OF PAYMENT FOR THE SERIES 2004 BONDS - Rate Covenant" herein for a description of the Consolidated Government's agreements concerning the rates, fees, and charges for the services, facilities, and commodities to be furnished by the System. No statutory procedures are required as a condition precedent to a change in rates. Billing and Collection The Consolidated Government presently uses a cycle billing method, consisting of twelve cycles, for System service. The cycles are relatively evenly distributed throughout each month. Normally, 26 to 30 days are allowed between each meter reading for each cycle, and bills are due on the 1st, 4th, 6th, 8th, 12th, 20th, 22nd, or 25th day of each month. The Consolidated Government presently prepares a monthly, combined water and sewer bill for each customer of the System. A 10% penalty is added to the bill if payment is not made by 15 days after the due date. If the delinquent amount is not paid by 15 days after the due date for the next succeeding bill, water and sewer service is discontinued and a $25 delinquent fee is charged. To restore service, the customer must pay all overdue amounts, penalties, and delinquent fees in full. The Consolidated Government collected in excess of 95% of its total billings for the System during its past five fiscal years. The Consolidated Government's present policy is to write off, as uncollectible, overdue accounts of the System that are more than 6 months old and to turn these accounts over to a private collection agency for collection. Upon application for service, the Consolidated Government requires a $25 non-refundable service fee from new customers of the System. -31- Governmental Approvals and Environmental Regulation Water Withdrawal The Georgia Water Quality Control Act authorizes the State of Georgia Department of Natural Resources, Environmental Protection Division ("EPD"), to regulate the withdrawal of water from lakes, streams, and aquifers in Georgia. The Consolidated Government holds permits for withdrawal of raw water in the following amounts from the following sources: Raw Water Source Permitted Withdrawal (MGD) Monthly Average Maximum 2003 Actual Withdrawal (MGD) Monthly Average Maximum Savannah River/Augusta Canal (Surface Water) Tuscaloosa Formation Aquifer ( Groundwater) 1 Savannah River (Surface Water)2 Totals 60.0 60.0 31.0 18.4 None 10.8 15.0 21.0 n/a 93.4 n/a 41.8 45.5 18.4 n/a 63.9 Also subject to a withdrawal limit of 17.4 annual average MGD. Currently not utilized. The Consolidated Government expects to utilize this allowed completion of the new surface water treatment plant and intake anticipated to occur in 2005. withdrawal upon FERC Licensefor Augusta Canal The Federal Power Act and its amendments provide that the Federal Energy Regulatory Commission ("FERC") has licensing jurisdiction over the construction, operation, and maintenance of dams, water conduits, reservoirs, or other works utilizing streams or other bodies of water subject to federal jurisdiction for the purpose of generating hydro-electric power. Since 1885, the City, succeeded by the Consolidated Government, has used water diverted from the Savannah River into the Augusta Canal as its primary source of raw water and, since 1898, to generate hydro-mechanical power from the falling water in the Canal to power its raw water intake pump station located on the Canal. In addition, the City, succeeded by the Consolidated Government, has maintained contractual relationships with certain industries located along the Canal to allow those industries to use water from the Canal to generate hydro-electric power for their own use. There are currently two textile mills and one former textile mill converted to residential use which operate hydro-electric generating facilities powered by water from the Canal. Each of the three hydro-electric facilities are individually licensed to operate by FERC. FERC does not have licensing jurisdiction over the use of the Augusta Canal by the Consolidated Government for water supply needs or to generate hydro-mechanical power to power the raw water intake pump station. In 1929, the City was granted a license that expired in 1979 to use the Augusta Canal for hydro-electric power generation. Discussions with FERC regarding relicensing of the Augusta Canal began in 1976 prior to expiration of the license. In 1983, the City's application for relicensing was accepted by FERC. Late in the consultation phase of the application review, the Fish and Wildlife Service of the United States Department of the Interior took the position that the City needed to undertake an "instream flow incremental methodology" ("IFIM") study to determine the effects that the diversion of water to the Augusta Canal to generate hydro-electric power may have on fish habitats in the Savannah River. The City disagreed with the scope of the requested study, and consequently the City's relicensing application was dismissed by FERC in January of 1994. A new application for a preliminary permit to license was filed with FERC by the Consolidated Government on June 12, 1996 in competition with an application for permit to license filed by Fall Line Hydro Company, Inc. The Consolidated Government was given municipal preference and was issued a preliminary permit to license on September 27, 1996. The purpose of a preliminary permit is to maintain priority of application for a license during the term of the permit while the permittee conducts studies to address the feasibility of the proposed project. In further pursuit of the final FERC license, the Consolidated Government contracted with EDA W, Inc., an environmental consulting firm, to perform an IF 1M fish study to assess the effect on the fish habitats, and with Dr. Gene Eidson to perform the required endangered species study. -32- An August 19, 1996 letter from the Fish and Wildlife Service to the Consolidated Government expressed opposition to any "additional water withdrawals from the Augusta Canal for new [power] generation capacity." In letters dated November 24, 1999 and June 1, 2000 from the Fish and Wildlife Service to FERC, the Fish and Wildlife Service expressed its desire that the Consolidated Government address the "major resource problems" associated with licensing, including (1) provision of adequate flows for fish habitat in the area of the Savannah River bypassed by the Canal, (2) upstream and downstream passage of migratory fish, and (3) cumulative entrainment and mortality of fish which enter the Canal. These communications were unusual in their aspect of being issued prior to the submittal of the IFIM study results. The Fish and Wildlife Service also recommended that FERC integrate the relicensing of the Consolidated Government's facilities with the licenses for the three hydro-electric facilities located on the Canal so that common licensing issues relating to all of these projects could be addressed on a coordinated basis. In addition, the National Marine Fisheries Service of the National Oceanic and Atmospheric Administration of the United States Department of Commerce intervened in the licensing proceedings and has taken the same position as the Fish and Wildlife Service. Because the preliminary permit expired prior to completion of the IF 1M study, the Consolidated Government applied for and was issued another preliminary permit to license on February 4, 2000, which was effective for a period of three years. During this period, the Consolidated Government completed all studies addressing the concerns expressed by the Fish and Wildlife Service, including the IFIM study. The Consolidated Government submitted its application for relicensing, including the IFIM study results, to FERC in January of 2003, and it submitted a revision to its application in June of 2003. In its application, the Consolidated Government has not proposed to develop new hydro-electric generation facilities or to produce electric power. Instead, the Consolidated Government has proposed that FERC grant a license to the Consolidated Government for facilities consisting of the existing Augusta Diversion Dam on the Savannah River, the existing Augusta Diversion Dam impoundment, and the existing Augusta Canal. In February of2004, FERC accepted the Consolidated Government's application for relicensing, and FERC is currently preparing an environmental assessment. A number of disputed issues are expected to be addressed during the relicensing process, including the priority for water between the Consolidated Government and the mills, the amount of flow permitted in the Augusta Canal versus the bypassed area of the Savannah River, and the timing and need for fish ways in the bypassed area. The Consolidated Government expects the relicensing process to take another one to three years. The Consolidated Government expects that FERC will ultimately grant the license to the Consolidated Government; however, the Consolidated Government cannot predict when the license will be issued or what restrictions the license will place on the Consolidated Government's use of the existing Augusta Diversion Dam on the Savannah River, the existing Augusta Diversion Dam impoundment, and the existing Augusta Canal. The license, when issued, may negatively impact the Consolidated Government's ability to use hydro-mechanical power to pump water withdrawals from the Augusta Canal, in which case the Consolidated Government would utilize another more costly energy source to pump raw water from either the Augusta Canal or the Savannah River. Water Treatment EPD also regulates water treatment systems in Georgia. EPD has issued to the Consolidated Government operating permits for the treatment of water in the following amounts at the following water treatment facilities: Water Treatment Facilitv Permitted Treatment 2003 Actual Capacity (MGD) Treatment Flow (MGD) Monthly Monthly Average Maximum Average Maximum 60.0 60.0 26.8 34.7 18.4 None 10.8 18.4 78.4 n/a 37.6 53.1 Highland Avenue Peach Orchard, Highway 56 Loop, Little Spirit Creek, and Rural Chlorination System 1 Totals Permitted treatment capacity at these facilities is limited on a combined basis to the permitted withdrawal amount from the Tuscaloosa Formation aquifer. See "THE SYSTEM - Governmental Approvals and Environmental Regulation -- Water WithdrawaP' herein. -33- Wastewater Treatment The Consolidated Government's wastewater operations are subject to the regulatory requirements imposed by the federal Water Pollution Control Act, as amended (the "Clean Water Act"), and the Georgia Water Quality Control Act. The regulatory requirements are administered by the federal Environmental Protection Agency ("EPA") and EPD. EPD has issued to the Consolidated Government operating permits for the treatment of wastewater in the following amounts at the following wastewater treatment plants: Plant James B. Messerly Spirit Creek Totals Permitted Limit on Flow (MGD) Monthly Weekly Average Average 46.10 2.24 48.34 57.60 2.80 60.40 State and federal regulations applicable to the Consolidated Government's wastewater operations deal with, among other issues, the quality of effluent which may be discharged from the Consolidated Government's wastewater treatment plants, the disposal of sludge generated by the wastewater treatment plants, and the nature of waste material (particularly industrial waste) discharged into the collection system. To comply with federal regulations concerning the industrial discharge of waste materials into the sewer system, the Consolidated Government must administer and enforce industrial pretreatment limitation standards upon users of the sewer system. The City had an industrial waste program in effect since 1983. The County did not have an industrial waste program in effect. As a condition of having received federal EPA grant funds under the Clean Water Act for planning, design, and construction of various wastewater projects, the Consolidated Government is subject to additional regulatory requirements. Among the grant-related requirements are guidelines that must be followed concerning planning methodologies, design criteria, construction activities, and the operation, maintenance, and ., financing of facilities. National Pollutant Discharge Elimination System (UNPDES") Permits Under the Clean Water Act, an NPDES permit is generally required for discharges to surface water. Therefore, to comply with federally mandated effluent quality and disposal criteria, the Consolidated Government must operate its wastewater treatment plants according to discharge limitations and reporting requirements set forth in NPDES permits. The Messerly and Spirit Creek wastewater treatment plants have separate NPDES permits allowing discharges to Butler Creek and Spirit Creek, respectively. In addition to the NPDES permits discussed above for the two wastewater treatment plants, the Consolidated Government is covered under a general NPDES permit issued by EPD for the discharge of filter backwash and settling basin drawdown water to waters of the State of Georgia. Coverage under this permit allows the Consolidated Government to discharge filter backwash and settling basin drawdown water from the Highland Avenue water treatment plant to Oates Creek, a tributary of Butler Creek. The Consolidated Government is also covered under a general NPDES permit issued by EPD for the discharge of storm water associated with industrial activities to waters of the State of Georgia. Coverage under this permit allows the Consolidated Government to discharge storm water associated with industrial activities from the Messerly and Spirit Creek wastewater treatment plants to waters of the State of Georgia. Finally, the Consolidated Government holds an NPDES permit for discharges from its storm sewer system to waters of the State of Georgia. Other Approvals EPD has the authority to review and approve the plans and specifications for the improvements and extensions to the System that are described in this Official Statement under the caption "PLAN OF FINANCING - System Improvements." The u.S. Army Corps of Engineers (the "Corps") has the authority to review and approve any construction to be conducted in the Augusta Canal, the Savannah River, and all wetlands. When these plans and specifications are finalized, the Consolidated Government will submit the appropriate plans and specifications to EPD and will apply for the necessary approval from the Corps. The Consolidated Government is not aware of any -34- further approvals necessary for the planned improvements and extensions to the System or for the operation of the System. Issues Relating to Noncompliance Except as discussed below, the Consolidated Government is currently in substantial compliance with all of its environmental permits and all environmental requirements applicable to the System. Rae's Creek Sewer - Consent Orders with Penalties EPD issued a consent order on June 28, 1996 in response to three separate wet weather overflow events from the Rae's Creek trunk sewer, a separate sanitary sewer line. This order imposed a $10,000 fine and required the Consolidated Government to undertake a rehabilitation program regarding the Rae's Creek sewer line. This order also required approval by EPD for new sewer connections to the Rae's Creek sewer line. The Consolidated Government's original schedule provided for project completion by August 1, 1999; however, the Consolidated Government was unable to meet that deadline, partially because the sewer line needed to be replaced, rather than rehabilitated, and partially because of problems related to condemnation of property. On April 18, 2000, EPD issued a new consent order superseding the 1996 consent order. The new consent order imposed an additional $3,750 fine and required the Consolidated Government to complete the Rae's Creek project by December 31, 2000 or pay a stipulated penalty of $1,500 per month until the Consolidated Government completed the project. Under this consent order, EPD continues to have approval authority for certain connections to the Rae's Creek sewer line. This project has been completed. However, EPD has determined that the sewer connection restrictions established in the consent order should remain in effect until the Consolidated Government can insure that wet weather overflows from the line will not occur. The Consolidated Government has continued to experience and report wet weather overflows from the Rae's Creek sewer line. On February 4, 2003, EPD issued an amendment to its 2000 consent order. Pursuant to this amendment, construction of a replacement sewer line for the current Rae's Creek sewer line must be completed by September 1,2005. The amendment also required the Consolidated Government to submit an interim plan to EPD for management of the current line to ensure that unpermitted discharges will not occur from the line while the replacement line is being constructed. The Consolidated Government has submitted the interim plan and expects to complete construction ofthe replacement line by the required deadline. Spirit Creek Wastewater Treatment Plant- Consent Orders with Penalties On November 12, 1997, EPD issued a consent order in response to violations that occurred between January of 1996 and June of 1997 at the Spirit Creek wastewater treatment plant of the effluent limits on flow, BOD, pH, and fecal coliform contained in the plant's NPDES permit. The order imposed a fine of $4,000 for these violations and required the Consolidated Government to attain compliance with the effluent limits, except for the flow limit, within 90 days of the order or pay a stipulated penalty of $1,000 per month that the plant violated its permitted effluent limits, except for the flow limit. Between November of 1997 and November of2003, the plant violated its permitted effluent limits in 14 months and the Consolidated Government paid $14,000 in additional penalties pursuant to the order. The order also required the Consolidated Government to submit a schedule for reducing infiltration/inflow in order for the Spirit Creek wastewater treatment plant to comply with the flow limits in the NPDES permit. This plant has historically had problems with exceeding its flow limitation due to infiltration/inflow primarily from the Spirit Creek interceptor sewer. In response to the consent order, the Consolidated Government completed and submitted to EPD a comprehensive study of the infiltration/inflow at the Spirit Creek plant to identify needed improvements and submitted a schedule that required completion of certain projects by July 31, 2002. Although the Consolidated Government met the July 31, 2002 deadline, these improvements did not sufficiently reduce flow volume. As a result, EPD issued a new consent order on December 19, 2003 that superseded the 1997 consent order. Pursuant to the new consent order, the Consolidated Government paid a fine of $43,312 to EPD for certain unpermitted discharges not related to the Spirit Creek plant that occurred between January and April of 2003 and for failure to maximize the efficiency of the Spirit Creek plant. The consent order also (1) restricts new sewer connections to the plant without permission from EPD, (2) requires the Consolidated Government to construct a new pump station and force main by September of 2006 and undertake additional infiltration/inflow reduction projects, (3) requires the Consolidated Government to submit to EPD the results of an evaluation of dry weather flows versus infiltration/inflow influenced flows at the plant, and (4) provides for a stipulated penalty of $2,000 per month for violations of certain permitted effluent limits occurring through -35- September of 2006 and, until six consecutive months of compliance are achieved, $6,000 per month for violations occurring in October of2006 and thereafter. The plant violated its permitted effluent limits in September of 2004, and the Consolidated Government paid $2,000 to EPD pursuant to the 2003 consent order. The Consolidated Government expects to complete the improvements and satisfy the other conditions of the 2003 consent order by the required deadlines. Improvements to the wastewater collection and conveyance system serving the Spirit Creek wastewater treatment plant to reduce infiltration/inflow are included in the capital projects described under the caption "PLAN OF FINANCING - System Improvements" herein. Employees, Employee Relations, and Labor Organizations The Consolidated Government employed 236 persons related to the System as of September 30, 2004, all of which are full-time employees. No employees of the Consolidated Government related to the System are represented by labor organizations or are covered by collective bargaining agreements, and the Consolidated Government is not aware of any union organizing efforts at the present time. The Administrator of the Consolidated Government believes that employee relations are good. The System's plant operators and maintenance and repair personnel are required to be certified by the State of Georgia. The Consolidated Government has a continuing education program to ensure that System personnel are qualified and able to meet the State of Georgia's certification requirements. SYSTEM FINANCIAL INFORMATION Accounting System and Policies The Consolidated Government maintains all of its funds and accounts relating to the System separate from other Consolidated Government funds. The accounting practices and policies of the Consolidated Government relating to the System conform to generally accepted accounting principles as applied to governments. The System is accounted for as an Enterprise Fund of the Consolidated Government. Enterprise Funds are used to account for operations (i) that are financed and operated in a manner similar to private business enterprises, where the intent of the governing body is that the cost (expenses, including depreciation) of providing goods or services to the general public on a continuing basis be financed or recovered primarily through user charges, or (ii) where the governing body has decided that periodic determination of revenues earned, expenses incurred, and change in net assets is appropriate for capital maintenance, public policy, management control, accountability, or other purposes. The System is accounted for using the accrual basis of accounting. Its revenues are recognized when earned, and its expenses are recognized when incurred. Note 1 of the audited financial statements of the System included as part of Appendix A contains a detailed discussion of the Consolidated Government's significant accounting policies relating to the System. Historical and Pro Forma Capital Structure Set forth below is an historical, comparative summary of the capital structure of the System as of the end of its past five fiscal years and as of July 31, 2004. The information in the following table has been extracted from audited financial statements of the System for the years ended December 31, 1999 to 2003 and from unaudited interim financial statements of the System for the seven-month period ended July 31, 2004. Although the information for the past five fiscal years was taken from audited financial statements, no representation is made that the information is comparable from year to year, or that the information as shown taken by itself presents fairly the capital structure of the System as of the end of the years shown. The unaudited interim amounts reflected below are not necessarily indicative of the amounts that will be outstanding as of the end of the full fiscal year. For more complete information, reference is made to the financial statements from which this information was extracted, copies of which are available from the Consolidated Government upon request. -36- 2 Consists of a capital lease obligation through the lease pool program of the Georgia Municipal Association (the "GMA Lease"). Although the Consolidated Government intends to repay the GMA Lease from revenues of the System, the GMA Lease is not secured by any lien on the revenues ofthe System. Presently consists of two notes payable to the Georgia Environmental Facilities Authority. These notes evidence loans made by the Georgia Environmental Facilities Authority to finance improvements to the System. The notes are general obligations of the Consolidated Government to which its full faith and credit and taxing power are pledged. Although the Consolidated Government intends to repay the notes from revenues of the System, the notes are not secured by any lien on the revenues of the System. -37- Set forth below is the pro forma capital structure of the System as of July 31, 2004, determined by the application of pro forma adjustments to the actual amounts outstanding as of July 31, 2004, which assume that the Series 2004 Bonds were issued on July 31, 2004. Pro Forma Capital Structure of the Svstem Liabilities Current Liabilities Accounts payable and accrued liabilities Due to other funds Current maturity on long-term debt Total current liabilities Liabilities to be Paid From Restricted Assets Current portion of revenue bonds Total liabilities to be paid from restricted assets Long-Term Liabilities Revenue bonds payable Capital leases payable Notes payable Total long-term liabilities Total Liabilities Net Assets Invested in capital assets net of related debt Restricted for debt service Unrestricted net assets Total Net Assets Total Liabilities and Net Assets Ratio of Long-Term Liabilities to Net Assets Long-Term Liabilities as a Percentage of Total Capitalization Amount Outstanding as of July 31, 2004 (Unaudited) $ 7,258,316 8,989,820 944.683 17.192.819 2.255.000 2.255.000 460,667,263 237,084 8.456,920 469.361.267 488.809.086 105,254,818 8,644,501 27,785507 141,684,826 $630.493912 331.27% 74.44% The Consolidated Government has no present plans to finance additional capital improvements to the System by the issuance of additional revenue bonds secured by revenues of the System in the next five years. The Consolidated Government expects to refund approximately $60.34 million in aggregate principal amount of the Prior Bonds during fiscal year 2006. See "SYSTEM FINANCIAL INFORMATION - Proposed Refunding and Related Hedge Agreement" herein. There has never been a default in payment of the principal of or interest on any revenue bonds of the Consolidated Government, the City, or the County secured by revenues of the System. -38- Debt Service Requirements Following are the principal and interest payment requirements with respect to the Series 2004 Bonds, compared to the principal and interest payment requirements with respect to the Prior Bonds, for the years shown below. For purposes of calculating the principal payable in any year, the relevant maturity or mandatory redemption amount is used. The debt service requirements set forth below do not include debt service payable on obligations not secured by a lien on the revenues of the System, which consist of two notes payable to the Georgia Environmental Facilities Authority and the GMA Lease. Prior Bonds! Series 2004 Bonds Total Total Combined Total Year Ending Debt Service Interest Debt Service Debt Service October I Principal Requirements Principal Rate Interest Requirements Requirements 2005 $ 2,340,000 $ 17,853,920.00 $ n_% $ 6,813,333.33 $ 6,813,333.33 $ 24,667,253.33 2006 2,785,000 18,206,480.00 8,400,000.00 8,400,000.00 26,606,480.00 2007 3,950,000 19,241,930.00 8,400,000.00 8,400,000.00 27,641,930.00 2008 4,825,000 19,933,705.00 8,400,000.00 8,400,000.00 28,333,705.00 2009 5,575,000 20,476,292.50 8,400,000.00 8,400,000.00 28,876,292.50 2010 6,420,000 21,076,777.50 8,400,000.00 8,400,000.00 29,476,777.50 2011 7,270,000 21,641,477.50 8,400,000.00 8,400,000.00 30,041,477.50 2012 7,595,000 21,641,646.26 8,400,000.00 8,400,000.00 30,041,646.26 2013 7,940,000 21,640,731.26 8,400,000.00 8,400,000.00 30,040,731.26 2014 8,350,000 21,642,987.51 8,400,000.00 8,400,000.00 30,042,987.51 2015 8,780,000 21,644,187.51 8,400,000.00 8,400,000.00 30,044,187.51 2016 9,225,000 21,643,012.51 8,400,000.00 8,400,000.00 30,043,012.51 2017 9,695,000 21,641,200.01 8,400,000.00 8,400,000.00 30,041,200.01 2018 10,190,000 21,640,331.26 8,400,000.00 8,400,000.00 30,040,331.26 2019 10,695,000 21,641,706.26 8,400,000.00 8,400,000.00 30,041,706.26 2020 11,265,000 21,644,756.26 8,400,000.00 8,400,000.00 30,044,756.26 2021 11,860,000 21,642,587.50 8,400,000.00 8,400,000.00 30,042,587.50 2022 12,480,000 21,639,937.50 8,400,000.00 8,400,000.00 30,039,937.50 2023 13,135,000 21,639,737.50 8,400,000.00 8,400,000.00 30,039,737.50 2024 13,815,000 21,643,575.00 8,400,000.00 8,400,000.00 30,043,575.00 2025 14,525,000 21,642,400.00 8,400,000.00 8,400,000.00 30,042,400.00 2026 15,270,000 21,639,650.00 8,400,000.00 8,400,000.00 30,039,650.00 2027 16,060,000 21,643,525.00 8,400,000.00 8,400,000.00 30,043,525.00 2028 16,885,000 21,641,712.50 8,400,000.00 8,400,000.00 30,041,712.50 2029 17,755,000 21,642,400.00 8,400,000.00 8,400,000.00 30,042,400.00 2030 18,670,000 21,643,262.50 8,400,000.00 8,400,000.00 30,043,262.50 2031 19,630,000 21,642,000.00 8,400,000.00 8,400,000.00 30,042,000.00 2032 20,610,000 21,640,500.00 8,400,000.00 8,400,000.00 30,040,500.00 2033 19,500,000 5.25 8,400,000.00 27,900,000.00 27,900,000.00 2034 20,525,000 5.25 7,376,250.00 27,901,250.00 27,901,250.00 2035 21,605,000 5.25 6,298,687.50 27,903,687.50 27,903,687.50 2036 22,740,000 5.25 5,164,425.00 27,904,425.00 27,904,425.00 2037 23,930,000 5.25 3,970,575.00 27,900,575.00 27,900,575.00 2038 25,190,000 5.25 2,714,250.00 27,904,250.00 27,904,250.00 2039 26510.000 5.25 1.391.775.00 27.901.775.00 27.901.775.00 Totals $307 595 000 $592912428.84 $160000000 $268 929 295 83 $428 929 295 83 $1021 841 724 67 I Amounts shown represent actual debt service on the Prior Bonds without taking into account the expected refunding of approximately $60.34 million in aggregate principal amount of the Prior Bonds during fiscal year 2006, as described under the caption "SYSTEM FINANCIAL INFORMATION - Proposed Refunding and Related Hedge Agreement" herein. -39- Proposed Refunding and Related Hedge Agreement Pursuant to the Bond Resolution, the Consolidated Government has authorized the issuance of auction rate revenue bonds in an aggregate principal amount not to exceed $65,000,000 (the "Proposed Refunding Bonds") for the purpose of refunding its Water and Sewerage Revenue Refunding Bonds, Series 1996A, maturing on and after October 1,2007, in the aggregate principal amount of $56,000,000, and its Water and Sewerage Revenue Refunding Bonds, Series 1997, maturing on and after October 1, 2007, in the aggregate principal amount of $4,340,000 (collectively the "Proposed Refunded Bonds"). In order to hedge its interest rate exposure and to secure the desired level of interest rate savings with respect to the issuance of the Proposed Refunding Bonds, the Consolidated Government entered into an ISDA Master Agreement, together with related schedules and confirmation, dated June 2, 2004 (collectively the "Hedge Agreement"), with Merrill Lynch Capital Services, Inc., as counterparty (the "Hedge Provider"). The Hedge Provider is an affiliate of Merrill Lynch & Co., Inc., one of the Underwriters. Under the terms of the Hedge Agreement, the Hedge Provider paid the Consolidated Government an upfront swap option premium of $121,000 on June 16,2004 and agreed to pay the Consolidated Government annual swap option premiums of $500,000 on each October 1 of the years 2004 through 2007. The Consolidated Government applied the $500,000 that it received on October 1, 2004 and plans to apply the remaining $1,500,000 that it is entitled to receive from the Hedge Provider under the Hedge Agreement to debt service on the Bonds, although it is not legally or contractually required to apply such premiums to debt service on the Bonds. In consideration for the payment by the Hedge Provider of the swap option premiums, the Consolidated . Government agreed pursuant to the Hedge Agreement to provide the Hedge Provider with the option to require the Consolidated Government to enter into a swap transaction (the "Proposed Swap") the terms of which are set forth in the Hedge Agreement. If the Hedge Provider exercises this option, the Consolidated Government will issue the Proposed Refunding Bonds in order to refund the Proposed Refunded Bonds, and the Proposed Swap will become effective October 1, 2006 and will terminate October 1, 2028. Under the terms of the Proposed Swap, on a basis determined by reference to notional amounts corresponding in amount and date to the principal maturities of the Proposed Refunding Bonds, (1) the Consolidated Government will pay to the Hedge Provider a semiannual fixed amount based on 4.54% per annum, and (2) the Hedge Provider will pay to the Consolidated Government monthly floating amounts based on 67% of the London Interbank Offered Rate (the "LIB OR Index"). The Consolidated Government expects that the LIB OR Index-based payments will be sufficient to enable the Consolidated Government to pay the interest on the Proposed Refunded Bonds. The Consolidated Government has obtained a forward commitment from Financial Security Assurance Inc. to issue simultaneously with the delivery of the Proposed Refunding Bonds, if delivered, a financial guaranty insurance policy insuring payment of the principal of and interest on the Proposed Refunding Bonds and payment of the fixed rate payments under the Proposed Swap when due. The Hedge Agreement will not alter the Consolidated Government's obligation to pay the principal of and interest on the hedged Proposed Refunded Bonds, if delivered, or any other Bonds. LIBOR Index-based payments under the Proposed Swap may not match the interest payments due on the hedged Proposed Refunded Bonds. Under certain circumstances, the Hedge Agreement is subject to early termination at the option of the Consolidated Government; however, the Consolidated Government may elect an early termination of the Hedge Agreement that would require a termination payment by the Consolidated Government only with the prior written consent of Financial Security Assurance, Inc. Additionally, under certain limited circumstances, principally being a default under the Hedge Agreement by either party, or significant rating reductions to either party (in the case of the Consolidated Government, both the rating of the Consolidated Government and the rating of Financial Security Assurance, Inc. must be reduced or withdrawn), the transactions under the Hedge Agreement may be terminated in whole or in part prior to their respective stated expirations, and the Consolidated Government or the Hedge Provider may owe a termination payment to the other, depending upon market conditions and the events that caused the Hedge Agreement to terminate. Under certain market conditions, the Consolidated Government could owe termination payments to the Hedge Provider that could be material to the Consolidated Government. The Consolidated Government's obligations to pay LIBOR Index-based payments under the Proposed Swap, if it becomes effective, as well as any termination payments, fees, expenses, and indemnity payments due under the Hedge Agreement, are secured by a pledge of, and lien on, the Pledged Revenues subordinate to the lien created by the Bond Resolution to secure the Bonds. -40- Five Year Operating History Set forth below is an historical, comparative summary of the revenues and expenses of the System for its past five fiscal years and for the seven-month periods ended July 31, 2003 and 2004. The information in the following table has been extracted from audited financial statements of the System for the years ended December 31, 1999 to 2003 and from unaudited interim financial statements of the System for the seven-month periods ended July 31, 2003 and 2004. Although the information for the past five fiscal years was taken from audited financial statements, no representation is made that the information is comparable from year to year, or that the information as shown taken by itself presents fairly the results of operations of the System for the periods shown. The interim amounts set forth below have been prepared by the staff of the System without audit and, in the opinion of staff of the System, include all adjustments necessary for a fair statement of the operating results of the System for such interim periods, all of which adjustments are of a normal recurring nature. The interim amounts reflected below are not necessarily indicative of the financial results that will be achieved for the full fiscal year. For more complete information, reference is made to the financial statements from which this information was extracted, copies of which are available from the Consolidated Government upon request. Summarv of Svstem Revenues and Expenses Seven-Month Periods Years Ended December 31 (Audited) Ended July 31 (Unaudited) 1999 2000 2001 2002 2003 2003 2004 Operating Revenues: Charges for service and sales $33,471,486 $34,806,812 $38,339,666 $ 42,165,457 $ 45,135,820 $ 25,954,067 $ 28,331,022 Operating Expenses: Personnel services 5,410,825 5,144,857 6,591,639 7,286,872 7,974,248 4,409,702 4,995,070 Other operating expenses and supplies 11,971,038 11,158,505 13,526,443 13,189,540 13,690,779 8,530,105 9,148,362 Payment in lieu of taxes 697,325 697,325 800,000 800,000 800,000 466,669 466,669 Payment in lieu of franchise fees 885,823 1,000,000 1,065,996 1,144,720 1,224,850 714,497 738,458 Depreciation 9.059,606 6 820 600 9 735 642 10 352 576 10019815 5 844 892 5892511 Total opemting expenses 28024617 24821287 31.719,720 32.773.708 33 709 692 19965.865 21,241.070 Operating Income 5 446 869 9.985 525 6619946 9391 749 11426128 5.988.202 7 089 952 Non-Operating Revenues (Expenses): Interest income I 2,954,996 6,731,515 7,922,609 6,760,816 3,497,081 2,210,106 Interest expense (5,086,775) (5,886,522) (9,484,376) (12,584,510) (16,008,308) (9,311,736) (9,289,638) Amortization ofbond issuance costs (284,268) (327,039) (389,587) (434,265) (253,321) (253,321) Gain (loss) on sale of assets 127,700 53,152 90,854 Intergovernmental revenue2 4 734 350 3009471 Net non-opemting revenues (expenses) (224 725) (206323) (3 079 900) (4 998 336) (9 590.903) (6067976) (7 332 853) Change in Net Assets before Operating Transfers 5,222,144 9,779,202 3,540,046 4,393,413 1,835,225 (79,774) (242,901) Opemting transfers out (2 500 000) Change in Net Assets 2,722,144 9,779,202 3,540,046 4,393,413 1,835,225 (79,774) (242,901 ) Total Net Assets, Beginning of Period 116,005,084 119,946,822 129,726,023 133,266,069 140,092,502 140,092,502 141,927,727 Prior period adjustment 1219594 2.433.020 Total Net Assets, End of Period $119946822 $129726024 $133 266 069 $140092502 $141927 727 $]40012728 $141684826 1 Interest income for fiscal years 2000 through 2003 and for the seven-month periods ended July 31, 2002 and 2003 includes investment earnings on the Construction Fund held under the Bond Resolution in the following amounts: fiscal year 2000 - $2,455,166, fiscal year 2001 - $6,370,931, fiscal year 2002 - $7,593,894, fiscal year 2003 - $6,456,567, seven-month period ended July 31, 2003 - $3,349,083, and seven-month period ended July 31, 2004- $2,046,272. For fiscal year 1999, investment earnings on the Construction Fund were netted with interest expense. 2 Represents proceeds of special purpose local option sales tax, the use of which was restricted by law to certain capital expenditures relating to the System. This sales tax expired on December 31, 2000. -41- Management's Discussion and Analysis of Results of Operations On August 15, 2000, the Commission approved a new policy to adjust rates as established in the Consolidated Government's annual budget or as approved in connection with financing capital improvements to the System. In accordance with this policy, the Commission approved an 11% rate increase that became effective April 1, 2001 and another 11 % rate increase that became effective April 1, 2002, and covenanted in the Bond Resolution to take further actions in future years to cause the revenues of the System to equal or exceed the forecasted revenues of the System set forth in Table 6-4 to the Engineering Report included as Appendix B to this Official Statement. System operating revenues increased from approximately $33.5 million in fiscal year 1999 to approximately $45.1 million in fiscal year 2003, an increase of 34.6%. System operating expenses increased from approximately $28.0 million in fiscal year 1999 to approximately $33.7 million in fiscal year 2003, an increase of 20.4%. The increase in operating expenses was due primarily to an increase in personnel services, professional services to an outside firm to operate the wastewater treatment plant, and an increase in depreciation expense. During fiscal year 1999, $4.7 million was transferred from the System into the Consolidated Government's general fund. These transfers were eliminated in fiscal year 2000. Pursuant to the Bond Resolution, (1) operating transfers from the System to the Consolidated Government's general fund are not permitted in future years while the Bonds remain outstanding, and (2) payments in lieu of taxes and payments in lieu of franchise fees are payable only from the Utility General Fund. The number of customers of the System has steadily increased. The System's customer base consists of a diversified mixture of large industries, commercial establishments, institutional establishments, and residential accounts. During the past five years, water and sewer connections have increased by 5.4% and 9.4%, respectively. Demographic data supplied by the U.S. Department of Commerce, Bureau of the Census, indicates that the population increased approximately 4.4% from 1990 to 2003. In addition, previously undeveloped areas of Richmond County, with limited services, have experienced population growth and should result in continued customer growth for the System. [Remainder of Page Intentionally Left Blank] -42- Historical and Forecasted Debt Service Coverage Ratios Set forth below is the System's historical ratios of Net Revenues Available for Debt Service to Debt Service on Revenue Bonds secured by revenues of the System, for the past five fiscal years and for the seven-month periods ended July 31, 2003 and 2004. Historical Debt Service Coverage Ratios 1999 Years Ended December 31 (Audited) 2000 2001 2002 2003 Seven-Month Periods Ended July 31 (Unaudited) 2003 2004 Historical Net Revenues Available for Debt Service I $16,217,323 $19,003,280 $18,582,168 $22,070,912 $23,865,896 $13,162,258 $14,351,424 Historical Debt Service on Revenue Bonds2 4.763.210 4,727.115 5.274.379 9,948.035 10,586,963 6.175.7283 8,534.6903 Historical Debt Service Coverage Ratio 3AQx 4..Q2x 1.52x 2.22x 2.2.5.x 2.l1x L68.x Change in net assets of the System plus (i) interest on debt, (ii) depreciation and amortization, (iii) net operating transfer out, and (iv) payments in lieu of taxes and payments in lieu of franchise fees and minus (a) intergovernmental revenues and (b) interest income earned on the funds held under the Bond Resolution. 2 Excludes (i) debt service on notes payable to the Georgia Environmental Facilities Authority and the GMA Lease, since the notes and the GMA Lease are not secured by revenues ofthe System, and (ii) capitalized interest on revenue bonds paid from proceeds of the Prior Bonds. 3 7/12ths of Historical Debt Service on Revenue Bonds. The Consolidated Government has prepared a financial forecast of the System's net revenues available for debt service, for a period of 10 years commencing with fiscal year 2004, based upon assumptions and estimates concerning future events and circumstances which the Consolidated Government believes to be reasonable. The Consolidated Government's financial forecast has been examined and reported on by CH2M HILL, Atlanta, Georgia, the Consolidated Government's consulting engineer. The forecasted Debt Service Coverage Ratios set forth below are derived from the financial forecast included as part of Appendix B to this Official Statement, the Engineering Report of CH2M HILL. THE FINANCIAL FORECAST IS BASED SOLEL Y UPON ASSUMPTIONS MADE BY THE CONSOLIDATED GOVERNMENT, INCLUDING, WITHOUT LIMITATION, ASSUMPTIONS AS TO RATES FOR WATER AND SEWER SERVICE, STABILITY AND GROWTH OF THE CUSTOMER BASE, AND OPERATING EXPENSES. THERE IS NO ASSURANCE THAT ACTUAL EVENTS WILL CORRESPOND WITH SUCH ASSUMPTIONS, THAT UNCONTROLLABLE FACTORS WILL NOT AFFECT SUCH ASSUMPTIONS, OR THAT THE FORECASTED RESULTS WILL BE ACHIEVED. THE ACHIEVEMENT OF THE FINANCIAL FORECAST WILL BE AFFECTED BY ECONOMIC CONDITIONS AND OTHER UNCONTROLLABLE FACTORS AND IS DEPENDENT UPON THE OCCURRENCE OF FUTURE EVENTS WHICH CANNOT BE ASSURED. THUS, THE ACTUAL RESULTS ACHIEVED MAY VARY FROM THOSE FORECAST, AND SUCH VARIATIONS COULD HAVE AN ADVERSE EFFECT UPON THE SYSTEM'S NET REVENUES AVAILABLE FOR DEBT SERVICE. THE ASSUMPTIONS AND RATIONALE INCLUDED IN THE ENGINEERING REPORT ARE AN INTEGRAL PART OF THE FORECAST. THE ENGINEERING REPORT, INCLUDING ALL COMMENTS, ASSUMPTIONS, NOTES, AND DISCLAIMERS, SHOULD BE READ IN ITS ENTIRETY. See "ENGINEERING REPORT" in Appendix B to this Official Statement. -43- Forecasted Debt Service Coverage Ratios Years Ending December 31 2004 2005 2006 2007 2008 Forecasted Net Revenues Available for Debt Service' $25,892,069 $25,946,310 $30,564,295 $35,438,237 $37,383,473 Maximum Annual Debt Service on Revenue Bonds2 30,044,756 30,044,756 30,044,756 30,044;756 30,044,756 Forecasted Debt Service Coverage Ratio 0.86x 0.86x 1.02x 1.18x 1.24x Change in net assets of the System plus (i) interest on debt, (ii) depreciation and amortization, (iii) net operating transfer out, and (iv) payments in lieu of taxes and payments in lieu of franchise fees and minus (a) intergovernmental revenues and (b) interest income earned on the funds held under the Bond Resolution. The Commission has covenanted in the Bond Resolution to take actions in.future years to cause the revenues of the System to equal or exceed the forecasted revenues of the System set forth in Table 6-4 to the Engineering Report included as Appendix B to this Official Statement. 2 Amount shown represents maximum annual debt service on the Series 2004 Bonds and the Prior Bonds without taking into account the expected refunding of approximately $60.34 million in aggregate principal amount of the Prior Bonds during fiscal year 2006, as described under the caption "SYSTEM FINANCIAL INFORMATION - Proposed Refunding and Related Hedge Agreement" herein. Actual net debt service on the Bonds (after deducting capitalized interest on revenue bonds expected to be paid from proceeds of the Series 2004 Bonds and the revenue bonds issued in 2002, but without taking into account the expected refunding or the swap option premiums payable to the Consolidated Government pursuant to the Hedge Agreement) is presently scheduled to be $14,630,897, $10,636,233, $18,577,293, $26,801,930, and $27,493,705 in fiscal years 2004, 2005, 2006, 2007, and 2008, respectively, resulting in debt service coverage ratios of 1.77, 2.44, 1.65, 1.32, and 1.36, respectively. [Remainder of Page Intentionally Left Blank] -44- Operating Budget The Consolidated Government is not legally required to adopt a budget for the System. The staff of the System, however, prepares an annual operating budget for the System for management control purposes. The staff of the System uses the accrual basis of accounting in its annual operating budget for the System, which is consistent with the basis of accounting used in the System's financial statements. Set forth below is a summary of the System's budget for the year ending December 31, 2004. This budget is based upon certain assumptions and estimates of the staff of the System regarding future events, transactions, and circumstances. Realization ofthe results projected in this budget will depend upon implementation by management of the System of policies and procedures consistent with the assumptions. There can be no assurance that actual events will correspond with such assumptions, that uncontrollable factors will not affect such assumptions, or that the projected results will be achieved. Accordingly, the actual results achieved could materially vary from those projected in the budget set forth below. System Budget for Year Ending December 31, 2004 Operating Revenues: Charges for service and sales Operating Expenses: Personnel services Other operating expenses and supplies Payment in lieu of taxes Payment in lieu of franchise fees Depreciation Total operating expenses Operating Income Non-Operating Revenues (Expenses): Interest income Interest expense Total non-operating revenues (expenses) Change in Net Assets Total Net Assets, Beginning of Year Total Net Assets, End of Year $ 49560.240 9,668,515 17,442,240 800,000 1,224,850 14.941.419 44.077.024 5.483.216 3,186,469 06.041.160) (12.854.691 ) (7,371,475) 141,927.727 $134556.252 Capital Improvements Program The following table summarizes the estimated value of capital improvements made to the System in each year for the past five fiscal years and the funding sources for such capital improvements. Funding Sources Special Purpose Fiscal Total Value of Debt Proceeds and Local Option Year Capital Improvements System Revenues Investment Earnings Sales Tax 1999 $20,689,186 $1,329,710 $14,625,126 $4,734,350 2000 27,122,744 8,480,957 15,632,316 3,009,471 2001 25,925,273 4,775,193 21,150,080 2002 32,424,382 3,359,639 29,064,743 2003 58,037,936 2,465,251 55,572,685 -45- The staff of the System has developed a multi-year capital improvements program and a plan to finance the program that relies on proceeds of revenue bonds and investment earnings on such proceeds. The capital improvements program allows the staff of the System to plan, on a long-term basis, for future System capital needs. Each year the capital improvements program is updated. The following table summarizes the System's capital improvements program for fiscal years 2004 through 2009. 2004 2005 Years Ending December 31 2006 2007 2008 2009 Total Type of Capital Expenditure Water System Sewer System System-Wide Improvements Total Costs $13,414,206 $33,703,925 $ 4,872,955 $23,279,889 $16,101,037 $ 5,059,104 $ 96,431,1l6 44,335,212 35,689,861 43,303,448 31,815,000 27,766,667 6,375,000 189,285,188 1.030,531 14.185.767 6.844.445 IJOO.OOO 91.667 23.252.4 JO $58 779 949 $83 579 553 $55 020 848 $56 194 889 $43959371 $11 434 104 $308968714 Type of Funding Source Series 2004 Bonds! Prior Revenue Bonds! System Revenues Total Funding Sources $ $35,532,312 $38,938,588 $56,194,889 $21,530,148 $ $152,195,937 58,779,949 48,047,241 16,082,260 122,909,450 22.429.223 11.434.104 33.863,327 $58 779 949 $83 579 553 $55 020 848 $56194 889 $43959371 $ll 434 104 $308968714 Includes investment earnings on proceeds of revenue bonds. The staff of the System has also planned capital improvements in the following approximate amounts during the following fiscal years to be financed by System revenues and proceeds of revenue bonds and investment earnings on such proceeds: $1.19 million in 2010, $1.22 million in 2011, $0.38 million in 2012, and $0.75 million in 2013. Employee Benefits The Consolidated Government presently maintains one agent multiple-employer (the "GMEBS Plan") and three single-employer defined-benefit pension plans (the "General Retirement Plan", the "1945 Plan", and the "1977 Plan") covering certain employees of the System. The Consolidated Government also presently maintains one defined-contribution plan, described below, covering certain employees of the System. The GMEBS Plan is administered through the Georgia Municipal Employees Benefit System ("GMEBS"), an agent multiple-employer public employee retirement system that acts as a common investment and administrative agent for cities in the State of Georgia. The General Retirement Plan covers former City employees. The 1945 Plan and the 1977 Plan cover former County employees. The funding methods and determination of benefits payable for the defined-benefit plans in general provide that pension funds are to be accumulated from employee contributions, employer contributions, and income from the investment of accumulated funds. Former City employees hired after March 1, 1949 and before March 1, 1987, whose age did not exceed 35 at the time of their employment, are covered by the General Retirement Plan. Former City employees hired on or after March 1, 1987 and before consolidation of the City and County governments are covered by GMEBS. Former County employees hired prior to October 1, 1975 are covered by the 1945 Plan. Former County employees not covered by the 1945 Plan, whose age did not exceed 60 at the time of their employment, are covered by the 1977 Plan. Consolidated Government employees who are not covered by another plan are covered by the defined-contribution plan described below. All of the Consolidated Government's pension plans, except for the defined-contribution plan, are closed to new employees. -46- Set forth below is selected information about the Consolidated Government's defined-benefit pension plans covering employees of the System. Contributions to Defined-Benefit Pension Plans Years Ended December 31 1999 2000 2001 2002 2003 General Retirement Plan Employee Contributions $354,875 $351,357 $358,858 $384,975 $364,431 Employer Contributions -0- -0- -0- -0- -0- GMEBS Employee Contributions $ n/a $ n/a $ n/a $ n/a $ n/a Employer Contributions 191,385 204,576 192,622 168,316 181,834 1945 Plan Employee Contributions $9,777 $9,016 $9,262 $10,438 $10,290 Employer Contributions -0- -0- -0- -0- -0- 1977 Plan Employee Contributions $ 958,892 $892,142 $882,844 $868,682 $802,692 Employer Contributions 1,124,928 975,037 998,983 925,071 655,871 Analvsis of Funding Progress of Defined-Benefit Pension Plans (Funded) Unfunded (Funded) Actuarially Unfunded Accrued Actuarial Actuarial Actuarially Actuarially Liability as a Valuation Value of Accrued Accrued Funded Covered Percentage of Date Assets Liabilitv Liabilitv Ratio Payroll Covered Payroll General Retirement Plan OliO lI99 $71,138,815 $51,388,074 $(19,750,741) 138% $5,794,554 (341 )% OliO lIOO 70,974,830 54,306,953 (16,667,877) 131 5,ll2,578 (326) OllOllOI 70,721,724 54,824,779 (15,896,945) 129 5,237,225 (304) OliO lI02 66,542,266 52,471,765 (14,070,50 I) 127 5,473,137 (257) o lIO lI03 59,091,990 53,688,662 (5,403,328) llO 5,774,707 (94) GMEBS 03/0 lIOO $5,559,655 $6,422,501 $862,846 86% $7,719,739 11.2% 03/0 lI02 6,308,424 6,887,424 579,000 91 6,913,560 8.4 03/0 lI03 6,477,885 7,146,314 668,429 90 6,988,509 9.6 03/0 lI04 6,913,410 7,553,9ll 640,50 I 91 6,637,655 9.6 1945 Plan OliO 1/99 $13,760,620 $12,535,885 $(1,224,735) 110% $598,795 (205)% OliO lIOO 13,038,384 12,251,489 (786,895) 106 168,818 (466) OllOllOI 12,352,795 12,069,544 (283,251 ) 102 180,462 (157) o lIO 1/02 ll,023,816 10,075,638 (948,178) 109 184,511 (514) OllOll03 8,897,080 9,878,269 981,189 90 193,921 506 1977 Plan OliO lI99 $ 9,976,793 $14,137,712 $4,160,919 71% $24,454,857 17% OliO lIOO 10,836,439 15,060,421 4,223,982 . 72 21,709,421 19 OllOllOI ll,136,602 15,575,523 4,438,921 72 21,705,175 20 OliO 1/02 14,065,581 16,860,437 2,794,356 83 21,029,237 13 OliO lI03 12,609,297 18,150,192 5,540,895 69 22,187,948 25 -47- Membership in Defined-Benefit Pension Plans as of December 31. 2003 Retirees and Beneficiaries Receiving Benefits Terminated Plan Members Entitled to But Not Yet Receiving Benefits Active Plan Members General Retirement Pension Plan GMEBS 1945 Plan 1977 Plan Total 151 77 37 ...n. 337 11 5 -0- 170 186 152 226 4 626 1.008 The Consolidated Government is required by Georgia law to have an actuarial valuation of its defined-benefit pension plans done once every three years. The Consolidated Government met the minimum funding levels prescribed by state law through January 1,2003. Note 7 of the audited financial statements of the System included as a part of Appendix A to this Official Statement contains a detailed description of the Consolidated Government's defined-benefit pension plans covering employees of the System. The Consolidated Government maintains a single employer, defined-contribution plan created in accordance with Internal Revenue Code Section 40l(a) for its full-time employees. In a defined-contribution plan, benefits depend solely on amounts contributed to the plan plus investment earnings. The Consolidated Government has no liability under this plan except for contributions established and made each year. Employees are eligible to participate in the plan after one month of employment. Participants in the plan are required to contribute 4% of their salary, and the Consolidated Government is required to contribute 2% of the participant's salary to the plan. The Consolidated Government's contributions for each employee are fully vested after five years of continuous employment. The plan is administered by Nationwide Life Insurance. As of December 31, 2003, there were approximately 1,297 participants in the plan. For the year ended December 31, 2003, participants in the plan contributed approximately $1,403,334 and the Consolidated Government contributed approximately $701,667. The Consolidated Government also offers its employees a deferred compensation plan created in accordance with Internal Revenue Code Section 457. The plan is available to all employees and permits them to defer income taxation of a portion of their salary to future years. Participation in the plan is optional. The deferred compensation is not available to employees until termination, retirement, death, or unforeseeable emergency. All amounts of compensation deferred under the plan, all property and rights purchased with those amounts, and all income attributable to those amounts, property, or rights are (until paid or made available to the employee or other beneficiary) solely the property and rights of the Consolidated Government subject only to the claims of the Consolidated Government's general creditors. Participants' rights under the plan are equal to those of general creditors of the Consolidated Government in an amount equal to the fair market value of the deferred account for each participant. The Consolidated Government believes that it is unlikely that it will use these assets to satisfY the claims of general creditors in the future. The Consolidated Government believes that it has no liability for losses under the plan but does have the duty of care that would be required of an ordinary prudent investor in making plan investments. Consolidated Government employees accrue vacation and sick leave in different amounts, depending upon the period of time the Consolidated Government has employed them. The maximum amount of vacation leave that employees may accumulate is 26 days. The Consolidated Government pays accrued vacation leave upon termination of employment and has reflected a liability for accumulated vacation pay in its financial statements. The maximum amount of sick leave that Consolidated Government employees (other than firefighters) may accumulate is 132 days. The Consolidated Government, however, does not pay accrued sick leave upon termination of employment and has not reflected accumulated sick leave as a liability in the Consolidated Government's financial statements. In addition to pension benefits, the Consolidated Government provides certain health care and life insurance benefits for retired employees of the Consolidated Government. The Consolidated Government's employees who are also participants in one of the retirement plans are eligible for these post-employment retirement benefits if they reach normal retirement age or are totally disabled while employed by the Consolidated Government. The cost of these benefits is recognized as expenditures as claims and premiums are paid. For the year ended December 31, 2003, there were 230 retirees eligible for these post-employment retirement benefits, which cost approximately $956,543. -48- Insurance Coverage The Consolidated Government carries liability insurance for the System or is self-insured for the types of claims and in amounts that are customary for similar enterprises. The Consolidated Government also carries property and casualty damage insurance on buildings and other physical assets related to the System. See "SUMMARY OF THE BOND RESOLUTION - Insurance; Bonding of Employees" in Appendix C to this Official Statement for a description of the Consolidated Government's covenants regarding insurance for the System. Present insurance coverage for the Consolidated Government is summarized below: ~ Amount in Force Building and Contents Employee Blanket Bond Public Official Bond for each Commissioner $319,000,0001 100,000 10,000 Limits of Liability ~ Public Officials' Liability Each Occurrence Aggregate $2,000,000 None Includes boiler and machinery and valuable papers. The Consolidated Government maintains four Risk Management Funds to account for and finance its self- insured risks of loss. The Risk Management Funds are maintained to provide general liability insurance, workers' compensation coverage, and unemployment coverage for the Consolidated Government, including the System. As of December 31, 2003, the fund' balances of the Risk Management Funds totaled $564,245. In addition, the Consolidated Government designated $4,705,000 of its unreserved fund balance in its general fund for risk management. The Consolidated Government is also self-insured for its workers' compensation coverage through a self-insurance program that is administered under contracts with third party administrators. For a description of the Consolidated Government's self-insurance programs, see Note 8 to the audited financial statements of the System included as part of Appendix A to this Official Statement. A summary of the Consolidated Government's self-insured retention and excess liability insurance coverage is set forth below: ~ Self-Insured Retention Each Occurrence Aggregate Excess Liability Insurance Limits of Liability Each Occurrence Aggregate Workers' Compensation $500,000 None $1,000,000 None The Consolidated Government requires payment and performance surety bonds and builders' risk insurance of all contractors and subcontractors involved in construction related to the System. The Consolidated Government requires the surety bonds to be issued by surety firms listed on the U.S. Treasury-approved list and the builders' risk insurance to be in the amount of the contract sums. -49- LEGAL MATTERS Pending Litigation The Consolidated Government, like other similar bodies, is subject to a variety of suits and proceedings arising in the ordinary conduct of the affairs of the System. The Consolidated Government, after reviewing the current status of all pending and threatened litigation relating to the System with its counsel, Stephen E. Shepard, believes that, while the outcome of litigation cannot be predicted, the final settlement of all lawsuits which have been filed (except the lawsuit described below) and of any actions or claims pending or threatened against the Consolidated Government relating to the System or its officials in such capacity are adequately covered by insurance or self- insurance reserves maintained by the Consolidated Government or will not have a material adverse effect upon the financial position or results of operations of the System. On February 21, 2001, following dismissal of their respective lawsuits filed in federal court, Robert A. McElmurray, Jr., Martha P. McElmurray, and R.A. McElmurray and Sons, Inc. (the "McElmurray Plaintiffs") and Henrietta M. Boyce, George William Boyce, Carolyn Scott Boyce, and Hugh R. Boyce d/b/a Boyceland Dairy (the "Boyceland Plaintiffs"), filed separate lawsuits against the Consolidated Government in the Superior Court of Richmond County, Georgia, in connection with these plaintiffs' participation in the former City's sludge disposal program, under which the City disposed of sludge by applying it to privately-owned land with the consent of the landowner. In their respective Complaints, the McElmurray Plaintiffs and the Boyceland Plaintiffs (collectively the "Plaintiffs") alleged that, during the 1980s through the mid-1990s, the City disposed of sludge generated at the Messerly wastewater treatment plant on the Plaintiffs' farmlands and that the sludge (1) contained contaminants not disclosed to the Plaintiffs, (2) contained unknown contaminants, and (3) was applied at rates in excess of applicable standards. The Plaintiffs alleged, under various theories of Georgia law, that, as a result of the City's application of contaminated sludge, the Plaintiffs sustained property damage to their farmland and cattle and suffered loss of income. The McElmurray Plaintiffs and the Boyceland Plaintiffs each sought compensatory damages from the Consolidated Government in an amount in excess of $10 million, plus recovery of attorneys' fees, costs, and expenses. The Consolidated Government answered the Plaintiffs' Complaints by denying any wrongdoing and asserting numerous defenses to the Plaintiffs claims. Experts hired by the Consolidated Government contended that the City's sludge program was in substantial compliance with the applicable state and federal guidelines and that these claims were unfounded. The Plaintiffs' complaints each included fifteen counts based upon the allegations set forth above. The Superior Court, upon motion of the Consolidated Government, subsequently dismissed thirteen of the fifteen counts, and the Plaintiffs voluntarily dismissed one count. The remaining count was a breach of contract claim. On April 4, 2002, the Consolidated Government filed a Motion for Summary Judgment in the Boyceland case and, on May 13, 2002, filed a Motion for Summary Judgment in the McElmurray case. In its Motions for Summary Judgment, the Consolidated Government argued that there was insufficient evidence to prove that the Plaintiffs' lands, crops, and cattle were damaged by the application of sewage sludge from the former City's land application program. In the Boyceland case, the Superior Court denied the Consolidated Government's Motion for Summary Judgment, and the case proceeded to trial on June 9, 2003. The trial concluded with a jury verdict in favor of the Boyceland Plaintiffs in the amount of $550,000. The Consolidated Government has satisfied the judgment, and the Boyceland case is now concluded. In the McElmurray case, the Superior Court granted the Consolidated Government's Motion for Summary Judgment. In September 2004, the McElmurray Plaintiffs appealed this ruling to the Court of Appeals of Georgia. Following a decision by the Court of Appeals, anticipated no earlier than Spring 2005, the losing party will be entitled to file a petition for certiorari with the Supreme Court of Georgia. The Consolidated Government, after reviewing the McElmurray Plaintiffs' appeal and their remaining claims with Consolidated Government's counsel, Stephen E. Shepard, cannot presently predict the outcome of such litigation. The judgment against the Consolidated Government in the Boyceland case and any adverse judgment in the McElmurray case, as well as defense costs in both cases, may be covered by the Consolidated Government's liability insurance. The Consolidated Government has placed its insurance carriers on notice of these claims; however, to date, none has assumed the Consolidated Government's defense or agreed to coverage. The Consolidated Government has retained counsel and begun litigation to resolve insurance coverage issues, and the outcome of such litigation cannot be predicted. There is no litigation now pending or, to the knowledge of the Consolidated Government, threatened against the Consolidated Government which restrains or enjoins the issuance or delivery of the Series 2004 Bonds, the pledge of the Pledged Revenues to secure the Series 2004 Bonds, or the use of the proceeds of the Series 2004 Bonds or which questions or contests the validity of the Series 2004 Bonds or the proceedings and authority under which they are to be issued and secured. There is no litigation now pending or, to the knowledge of the -50- Consolidated Government, threatened against the Consolidated Government that contests or questions the creation, organization, or existence of the Consolidated Government or the title of the present members or other officials of the Consolidated Government to their respective offices. Opinion of Bond Counsel Certain legal matters incident to the authorization and issuance of the Series 2004 Bonds are subject to the approval of Sutherland Asbill & Brennan LLP, Atlanta, Georgia, Bond Counsel, whose approving opinion will be available at the time of delivery of the Series 2004 Bonds. It is anticipated that the approving opinion will be in substantially the form attached hereto as Appendix D. The Internal Revenue Code of 1986, as amended (the "Code"), contains a number of requirements and restrictions that apply to the Series 2004 Bonds. These include restrictions on investments, requirements for periodic payment of arbitrage profits to the United States, requirements regarding the use of the Series 2004 Bond proceeds, and other restrictions and requirements. Failure to comply with certain of such requirements and restrictions may cause interest on the Series 2004 Bonds to become subject to federal income taxation, retroactive, in some cases, to the date of issuance of the Series 2004 Bonds. In the opinion of Bond Counsel, under existing statutes, rulings, and court decisions and under applicable regulations, interest on the Series 2004 Bonds is excluded from gross income for federal income tax purposes and is not an item of tax preference for purposes of the federal alternative minimum tax imposed on individuals and corporations; provided, however, with respect to corporations (as defined for federal income tax purposes), such interest is taken into account in determining adjusted current earnings for purposes of computing the alternative minimum tax imposed on such corporations. No other opinion will be expressed with respect to any other federal tax consequences of the receipt or accrual of interest on the Series 2004 Bonds. In rendering its opinion that the interest on the Series 2004 Bonds is excluded from gross income for federal income tax purposes, Bond Counsel will (i) rely as to questions of fact material to its opinion upon certificates and certified proceedings of public officials, including officials of the Consolidated Government, and representations of the Consolidated Government (including representations as to the use and investment of the proceeds of the Series 2004 Bonds), without undertaking to verify the same by independent investigation and (ii) assume the continued compliance by the Consolidated Government with its covenants relating to the use of the proceeds of the Series 2004 Bonds and compliance with the requirements of the Code that must be satisfied subsequent to the issuance of the Series 2004 Bonds in order that the interest on the Series 2004 Bonds be, and continue to be, excluded from gross income for federal income tax purposes. The inaccuracy of any such representations or noncompliance with such covenants may cause interest on the Series 2004 Bonds to become includable in gross income for federal income tax purposes retroactive to the date of issuance of the Series 2004 Bonds. In the further opinion of Bond Counsel, the interest on the Series 2004 Bonds is exempt from present State of Georgia income taxation. Bond Counsel has not opined as to whether interest on the Series 2004 Bonds is subject to state or local income taxation in jurisdictions other than Georgia; interest on the Series 2004 Bonds mayor may not be subject to state or local income taxation in jurisdictions other than Georgia under applicable state or local laws. Each purchaser of the Series 2004 Bonds should consult its own tax advisor regarding the tax-exempt status ofthe interest on the Series 2004 Bonds in a particular state or local jurisdiction other than Georgia. Bond Premium The Series 2004 Bonds are being sold at prices in excess of the principal amount thereof. Under the Code, the excess of an owner's cost basis of a bond over the principal amount of such bond (other than a bond held as inventory, stock in trade, or for sale to customers in the ordinary course of business) is generally characterized as "bond premium." For federal income tax purposes, bond premium is amortized over the term of the related bond. An owner will therefore be required to decrease its basis in the Series 2004 Bonds by the amount of amortizable bond premium attributable to each taxable year it holds Series 2004 Bonds. The amount of amortizable bond premium attributable to each taxable year is determined on an actuarial basis at a constant interest rate compounded on each interest payment date. The amortizable bond premium attributable to a taxable year is not deductible for federal income tax purposes. Purchasers of Series 2004 Bonds should consult their own tax advisors with respect to the precise determination for federal income tax purposes of the treatment of bond premium upon sale, redemption, or other disposition of Series 2004 Bonds. -51- Collateral Federal Tax Consequences Ownership of the Series 2004 Bonds may result in collateral federal tax consequences to certain taxpayers, including, without limitation, financial institutions, property and casualty insurance companies, certain recipients of Social Security or railroad retirement benefits, foreign corporations operating branches in the United States, Subchapter S corporations, and taxpayers who may be deemed to have incurred or continued indebtedness to purchase or carry the Series 2004 Bonds. Prospective purchasers of the Series 2004 Bonds should consult their tax advisors as to the applicability of any such collateral federal tax consequences. In this respect, prospective purchasers of the Series 2004 Bonds should be aware ofthe following collateral federal tax consequences. 1. Section 265 of the Code denies a deduction for interest on indebtedness incurred or continued to purchase or carry the Series 2004 Bonds or, in the case of a financial institution, that portion of the owner's interest expense allocated to interest on the Series 2004 Bonds. 2. Property and casualty insurance companies are required to reduce the amount of their deductible underwriting losses by 15% of their amount of tax-exempt interest, including interest on the Series 2004 Bonds. If the amount of this reduction exceeds the amount otherwise deductible as losses incurred, such excess may be includable in income. 3. Interest on the Series 2004 Bonds must be included in the adjusted current earnings of corporations, and such corporations are required to include in their calculation of alternative minimum taxable income 75% of the excess of adjusted current earnings over alternative minimum taxable income (determined without regard to this adjustment and prior to reduction for certain net operating losses). 4. Certain recipients of Social Security benefits and railroad retirement benefits will be required to include a portion of such benefits within gross income by reason of receipt or accrual of interest on the Series 2004 Bonds. 5. For foreign corporations operating branches in the United States, Section 884 of the Code imposes a branch-level tax on certain earnings and profits. Interest on the Series 2004 Bonds may be included in the determination of such domestic branches' taxable base on which this tax is imposed. 6. Passive investment income, including interest on the Series 2004 Bonds, may be subject to federal income taxation under Section 1375 of the Code for any Subchapter S corporation that has Subchapter C earnings and profits at the close of the taxable year, if greater than 25% of the gross receipts of such Subchapter S corporation is passive investment income. Validation Proceedings The State of Georgia will institute proceedings in the Superior Court of Richmond County, Georgia to validate the Series 2004 Bonds and the security therefor. The State of Georgia will be the plaintiff in the proceeding, and the Consolidated Government will be the defendant. A final judgment confirming and validating the Series 2004 Bonds and the security therefor will be entered before the Series 2004 Bonds are issued and delivered. Under Georgia law, the judgment of validation will be forever conclusive against the Consolidated Government upon the validity of the Series 2004 Bonds and the security therefor. Closing Certificates At closing of the sale of the Series 2004 Bonds by the Underwriters, the Consolidated Government will deliver to the Underwriters a certificate (1) that no litigation is pending or threatened against it that would have a material effect on the issuance or validity of the Series 2004 Bonds or the security for the Series 2004 Bonds or, except as disclosed in this Official Statement, on the financial condition of the System, and (2) that the information contained in this Official Statement does not contain any misstatement of a material fact and does not omit to state any material fact necessary to make the statements herein contained, in light of the circumstances under which they were made, not misleading. -52- MISCELLANEOUS Ratings Moody's Investors Service, Inc. and Standard & Poor's Ratings Services have assigned ratings of "Aaa" and "AAA", respectively, to the Series 2004 Bonds, with the understanding that upon delivery of the Series 2004 Bonds a policy insuring the payment when due of the principal of and interest on the Series 2004 Bonds will be issued by the Bond Insurer. Moody's Investors Service, Inc. and Standard & Poor's Ratings Services have assigned underlying ratings (without regard to the issuance of the Bond Insurance Policy) of"A2" and "A+", respectively, to the Series 2004 Bonds. The ratings reflect only the respective views of the rating agencies, and an explanation of the significance of each rating may be obtained from the rating agency furnishing such rating at the following addresses: Moody's Investors Service, Inc., 99 Church Street, New York, New York 10007 and Standard & Poor's Ratings Services, 55 Water Street, New York, New York 10041. Generally, a rating agency bases its rating on the information and materials furnished to it and on investigations, studies, and assumptions of its own. There is no assurance that either or both of such ratings will remain unchanged for any given period oftime or that they will not be revised downward or withdrawn entirely by the rating agency furnishing the same, if, in its judgment, circumstances so warrant. Any such downward revision or withdrawal of such ratings, or either of them, may have an adverse effect on the liquidity and market price ofthe Series 2004 Bonds. Underwriting The Series 2004 Bonds will be purchased for re-offering at negotiated sale by the underwriters named on the cover page of this Official Statement (the "Underwriters") from the Consolidated Government at an aggregate purchase price of 103.8592476 percent of the principal amount of the Series 2004 Bonds plus accrued interest to the date of delivery. The Underwriters will enter into a Bond Purchase Agreement that provides that the Underwriters will purchase all of the Series 2004 Bonds, if any are purchased. The obligation of the Underwriters to accept delivery of the Series 2004 Bonds will be subject to various conditions contained in the Bond Purchase Agreement. The Underwriters intend to offer the Series 2004 Bonds to the public initially at the offering prices set forth on the front cover page of this Official Statement, which offering prices may subsequently be changed from time to time by the Underwriters without any requirement of prior notice. The offering prices set forth on the front cover page of this Official Statement average $5.17 per $1,000 face amount of the Series 2004 Bonds in excess of the purchase price to be paid to the Consolidated Government by the Underwriters. The Underwriters will receive no fee (other than the anticipated profits described in the preceding sentence) from the Consolidated Government for underwriting the Series 2004 Bonds. The Underwriters have reserved the right to permit other securities dealers who are members of the National Association of Securities Dealers, Inc. to assist in selling the Series 2004 Bonds. The Underwriters may offer and sell the Series 2004 Bonds to certain dealers (including dealers depositing Series 2004 Bonds into investment trusts) at prices lower than the public offering prices set forth on the front cover page of this Official Statement or otherwise allow concessions to such dealers who may re-allow concessions to other dealers. Any discounts or commissions that may be received by such dealers in connection with the sale of the Series 2004 Bonds will be deducted from the Underwriters' underwriting profits. Independent Professionals The financial statements of the System as of December 31, 2003 and 2002 and for the years then ended, attached hereto as part of Appendix A, have been audited by Cherry, Bekaert & Holland, L.L.P., Augusta, Georgia, independent certified public accountants, to the extent and for the periods indicated in their report thereon, which appears in Appendix A. Such financial statements have been included herein in reliance upon the report of Cherry, Bekaert & Holland, L.L.P. The Consolidated Government has retained CH2M HILL, Atlanta, Georgia, as its consulting engineers to develop several reports and studies relating to the System and certain financial matters. CH2M HILL has prepared the Engineering Report included as Appendix B to this Official Statement, which is included herein in reliance upon the authority of such firm as experts in engineering and related financial matters. See "MISCELLANEOUS - Certain Relationships" herein. -53- Summary of Continuing Disclosure Certificate Definitions The following capitalized terms have the following meanings for purposes ofthe Disclosure Certificate: "Annual Report" means any Annual Report provided by the Consolidated Government pursuant to the provisions of the Disclosure Certificate described herein under the caption "MISCELLANEOUS - Summary of Continuing Disclosure Certificate -- Provision of Annual Reports and -- Content of Annual Reports." "Bondholders" means the beneficial owners of the Series 2004 Bonds. "Dissemination Agent" means the Consolidated Government, or any successor Dissemination Agent designated in writing by the Consolidated Government and that has filed with the Consolidated Government a written acceptance of such designation. "Fiscal Year" means any period of twelve consecutive months adopted by the Consolidated Government as its fiscal year for financial reporting purposes and initially means the period beginning on January 1 of each calendar year and ending on December 31 of the same calendar year. "Listed Events" means any of the events listed in the provisions of the Disclosure Certificate described herein under the caption "MISCELLANEOUS - Summary of Continuing Disclosure Certificate -- Reporting of Significant Events." "National Repository" means any Nationally Recognized Municipal Securities Information Repository for purposes of the Rule. Currently, the following are National Repositories: (1) Bloomberg Municipal Repository, Skillman, ~ew Jersey, (2) DPC Data Inc., Fort Lee, New Jersey, (3) FT Interactive Data, New York, New York, and (4) Standard & Poor's Securities Evaluations, Inc., New York, New York. "Repository" means each National Repository and each State Repository. "Rule" means Rule l5c2-l2(b)(5) adopted by the Securities and Exchange Commission under the Securities Exchange Act of 1934, as the same may be amended from time to time. "State Repository" means any public or private repository or entity designated by the State of Georgia as a state repository for the purpose of the Rule. As ofthe date of this Official Statement, there is no State Repository. Provision of Annual Reports The Consolidated Government agreed in the Disclosure Certificate to, or to cause the Dissemination Agent to, not later than 195 days after the end of each Fiscal Year, commencing with fiscal year 2004, provide to each Repository an Annual Report which is consistent with the requirements of the provisions of the Disclosure Certificate described below under the caption "MISCELLANEOUS - Summary of Continuing Disclosure Certificate -- Content of Annual Reports." Not later than fifteen business days prior to such date, the Consolidated Government agreed to provide the Annual Report to the Dissemination Agent (if other than the Consolidated Government). The Annual Report may be submitted as a single document or as separate documents comprising a package, and may cross-reference other information as provided in the provisions of the Disclosure Certificate described below under the caption "MISCELLANEOUS - Summary of Continuing Disclosure Certificate -- Content of Annual Reports"; provided that the audited financial statements of the System may be submitted separately from the balance of the Annual Report. If the Consolidated Government is unable to provide to the Repositories an Annual Report by the date required as described above, the Consolidated Government must send a notice to each Repository of such failure. The Dissemination Agent is required to: (i) determine each year prior to the date for providing the Annual Report the name and address of each National Repository and each State Repository, if any; and -54- (ii) if the Dissemination Agent is other than the Consolidated Government, file a report with the Consolidated Government certifying that the Annual Report has been provided pursuant to the Disclosure Certificate, stating the date it was provided and listing all the Repositories to which it was provided. The Consolidated Government is required to promptly file a notice of any change in its Fiscal Year with each Repository. If the audit report specified in clause (1) of the provisions of the Disclosure Certificate described below under the caption "MISCELLANEOUS - Summary of Continuing Disclosure Certificate -- Content of Annual Reports" is not submitted as part of the Annual Report to each Repository pursuant to the Disclosure Certificate, the Consolidated Government agreed to, or to cause the Dissemination Agent to, provide to each Repository such audit report, together with the audited financial statements of the System to which such audit report relates, when they are available to the Consolidated Government. Content of Annual Reports The Disclosure Certificate requires the Consolidated Government's Annual Report to contain or incorporate by reference the following: (1) the financial statements of the System for the preceding Fiscal Year, which must be prepared in accordance with generally accepted accounting principles, as in effect from time to time, and which must be accompanied by an audit report, if available at the time of submission of the Annual Report to each Repository pursuant to the Disclosure Certificate, resulting from an audit conducted by an independent certified public accountant or firm of independent certified public accountants in conformity with generally accepted auditing standards; (2) if generally accepted accounting principles have changed since the last Annual Report was submitted pursuant to the Disclosure Certificate and if such changes are material to the System, a narrative explanation describing the impact of such changes on the System; and (3) information for the preceding Fiscal Year regarding the following categories of financial information and operating data of the System: (A) average and maximum daily (in MGD) water demand, (B) number of water connections by customer class, (C) ten largest water customers, (D) average and maximum daily (in MGD) treated wastewater flow, (E) number of sewer connections by customer class, (F) ten largest sewer customers, (G) rates, fees, and charges, (H) historical debt service coverage ratio, (I) total costs of capital improvements and funding sources, and (1) the insurance coverage ofthe System. Any or all of the items listed above may be incorporated by reference from other documents, including official statements of debt issues of the Consolidated Government or related public entities, which have been submitted to each of the Repositories or the Securities and Exchange Commission. If the document incorporated by reference is a final official statement, it must be available from the Municipal Securities Rulemaking Board. The Consolidated Government must clearly identifY each such other document so incorporated by reference. Reporting of Significant Events The Disclosure Certificate governs the giving of notices of the occurrence of any of the following events with respect to the Series 2004 Bonds: (1) Principal and interest payment delinquencies; (2) Non-payment related defaults; (3) Unscheduled draws on debt service reserves reflecting financial difficulties; (4) Unscheduled draws on credit enhancements reflecting financial difficulties; (5) Substitution of credit or liquidity providers, or their failure to perform; (6) Adverse tax opinions or events affecting the tax-exempt status of the Series 2004 Bonds; (7) Modifications to rights of Bondholders; (8) Series 2004 Bond calls; (9) Defeasances; -55- (10) Release, substitution, or sale of property securing repayment of the Series 2004 Bonds; and (11) Rating changes. If the Consolidated Government obtains knowledge of the occurrence of a Listed Event that is material, the Consolidated Government has agreed to promptly file a notice of such occurrence with each Repository. Notwithstanding the foregoing, notice of Listed Events described in clauses 8 and 9 need not be given under the Disclosure Certificate any earlier than the notice (if any) of the underlying event is given to the owners of the affected Series 2004 Bonds pursuant to the Bond Resolution. Termination of Reporting Obligation The Consolidated Government's obligations under the Disclosure Certificate will terminate upon the legal defeasance, prior redemption, or payment in full of all of the Series 2004 Bonds. Dissemination Agent The Consolidated Government may, from time to time, appoint or engage a Dissemination Agent to assist it in carrying out its obligations under the Disclosure Certificate, and may discharge any such Dissemination Agent, with or without appointing a successor Dissemination Agent. Amendment; Waiver Notwithstanding any other provision of the Disclosure Certificate, the Consolidated Government may amend the Disclosure Certificate, and any provision of the Disclosure Certificate may be waived, if (a) such amendment or waiver is made in connection with a change in circumstances that arises from a change in legal requirements, change in law, or change in the identity, nature, or status of the obligor on the Series 2004 Bonds, or type of business conducted; (b) such amendment or waiver does not materially impair the interests of the Bondholders, as determined either by an unqualified opinion of nationally recognized bond counsel filed with the Consolidated Government or by the approving vote of the Bondholders owning more than two-thirds in aggregate principal amount of the Series 2004 Bonds outstanding at the time of such amendment or waiver; and (c) such amendment or waiver is supported by an opinion of counsel expert in federal securities laws, to the effect that such amendment or waiver would not, in and of itself, cause the undertakings in the Disclosure Certificate to violate the Rule if such amendment or waiver had been effective on the date of the Disclosure Certificate but taking into account any subsequent change in or official interpretation of the Rule, as well as any change in circumstances. If any provision of the Disclosure Certificate described herein under the caption "MISCELLANEOUS - Summary of Continuing Disclosure Certificate -- Content of Annual Reports" is amended or waived, the first Annual Report containing any amended, or omitting any waived, operating data or financial information must explain, in narrative form, the reasons for the amendment or waiver and the impact of the change in the type of operating data or financial information being provided. If the provisions of the Disclosure Certificate described herein under the caption "MISCELLANEOUS - Summary of Continuing Disclosure Certificate -- Content of Annual Reports" specifying the accounting principles to be followed in preparing the financial statements of the System are amended or waived, the Annual Report for the year in which the change is made must present a comparison between the financial statements or information prepared on the basis of the new accounting principles and those prepared on the basis of the former accounting principles. The comparison must include a qualitative discussion of the differences in the accounting principles and the impact of the change in the accounting principles on the presentation of the financial information, in order to provide information to the Bondholders to enable them to evaluate the ability of the Consolidated Government to meet its obligations. To the extent reasonably feasible, the comparison must also be quantitative. The Consolidated Government must file a notice of the change in the accounting principles with each Repository on or before the effective date of any such amendment or waiver. Additional Information Nothing in the Disclosure Certificate will prevent the Consolidated Government from disseminating any other information, using the means of dissemination set forth in the Disclosure Certificate or any other means of communication, or including any other information in any Annual Report or notice of occurrence of a Listed Event, -56- in addition to that which is required by the Disclosure Certificate. If the Consolidated Government chooses to include any information in any Annual Report or notice of occurrence of a Listed Event in addition to that which is specifically required by the Disclosure Certificate, the Consolidated Government will have no obligation under the Disclosure Certificate to update such information or include it in any future Annual Report or notice of occurrence of a Listed Event. Default In the event of a failure of the Consolidated Government to comply with any provision of the Disclosure Certificate, any Bondholder may take such actions as may be necessary and appropriate, including seeking mandamus or specific performance by court order, to cause the Consolidated Government to comply with its obligations under the Disclosure Certificate. A default under the Disclosure Certificate will not be deemed an "event of default" or "default" under the Bond Resolution, and the sole remedy under the Disclosure Certificate in the event of any failure ofthe Consolidated Government to comply with the Disclosure Certificate will be an action to compel performance. A court may decide not to order the specific performance of the covenants contained in the Disclosure Certificate. Certain Relationships CH2M HILL has prepared the Engineering Report attached to this Official Statement as Exhibit B. An affiliate of CH2M HILL, Operations Management International, Inc., operates, maintains, and manages the Consolidated Government's two wastewater treatment plants and operates and maintains the Consolidated Government's industrial pretreatment and sludge disposal programs pursuant to the Operations Contract. See "THE SYSTEM - Contract Operator of Wastewater Treatment Plants" herein. Additional Information Use of the words "shall," "must," or "will" in this Official Statement in summaries of documents or laws to describe future events or continuing obligations is not intended as a representation that such event will occur or obligation will be fulfilled but only that the document or law contemplates or requires such event to occur or obligation to be fulfilled. Any statements made in this Official Statement involving estimates or matters of opinion, whether or not so expressly stated, are set forth as such and not as representations of fact, and no representation is made that any of the estimates or matters of opinion will be realized. Neither this Official Statement nor any statement that may have been made orally or in writing is to be construed as a contract with the owners of the Series 2004 Bonds. CERTIFICATION The execution and delivery of this Official Statement, and its distribution and use by the Underwriters, have been duly authorized and approved by the Consolidated Government. AUGUSTA, GEORGIA By: Isl Bob Young Mayor, Augusta-Richmond County Commission -57- APPENDIX A FINANCIAL STATEMENTS OF THE SYSTEM The financial statements of the System as of December 31, 2003 and 2002 and for the years then ended, included as part of this Appendix A, have been audited by Cherry, Bekaert & Holland, L.L.P., Augusta, Georgia, independent certified public accountants, to the extent and for the periods indicated in their report thereon which appears in this Appendix A. Such financial statements have been included herein in reliance upon the report of Cherry, Bekaert & Holland, L.L.P. The financial statements of the System as of July 31, 2004 and 2003 and for the seven-month periods then ended, included as part of this Appendix A, have been prepared by the staff of the System without audit and, in the opinion of the staff of the System, include all adjustments necessary for a fair statement of the results of operations of the System for such interim periods, all of which adjustments are of a normal recurring nature. The interim amounts reflected in these financial statements are not necessarily indicative of the financial results that will be achieved for the full fiscal year. [Remainder of Page Intentionally Left Blank] Report of Independent Certified Public Accountants Augusta-Richmond County Commission Augusta, Georgia Utilities Augusta, Georgia We have audited the accompanying financial statements of the Augusta, Georgia Utilities (an enterprise fund of Augusta, Georgia) as of and for the years ended December 31, 2003 and 2002, as listed in the table of contents. These fmancial statements are the responsibility of Augusta, Georgia Utilities' management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America and the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disciosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall fmancial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of the Augusta, Georgia Utilities as of December 31, 2003 and 2002, and the results of its operations and cash flows for the years then ended in conformity with accounting principles generally accepted in the United States of America. As discussed in Note 1, the financial statements present only Augusta, Georgia Utilities and are not intended to present fairly the financial position of Augusta, Georgia and the results of its operations and cash flows of its proprietary fund types in conformity with accounting principles generally accepted in the United States of America. As described in Note 1 to the financial statements, the Augusta, Georgia Utilities.adopted Governmental Accounting Standards Board (GASB) Statement Nwnber 34 during the year ended December 31,2002. Management's Discussion and Analysis is not a required part of the basic financial statements but is supplementary information required by the Governmental Accounting Standard's Board. The Augusta, Georgia Utilities has not presented the Management's Discussion and Analysis that the Governmental Accounting Standard's Board requires to supplement, although not to be part of, the basic financial statements. In accordance with Government Auditing Standards, we have also issued our report dated May 21, 2004 on our consideration of Augusta, Georgia Utilities' internal control over financial reporting and our tests of its compliance with certain provisions of laws, regulations, contracts and grants. This report is an integral part of an audit performed in accordance with Government Auditing Standards and should be read in conjunction with this report in considering the results of our audit. . Our audits were made for the purpose of forming an opinion on the basic financial statements taken as a whole. The Miscellaneous Statistical Data is presented for purposes of additional analysis and is not a required part of the basic financial statements. Such information has not been subjected to the auditing procedures applied in the audit of the basic fmancia1 statements and, accordingly, we express no opinion . on it. ~J~"-7~ Augusta, Georgia May 21,2004 Lt..~ . . . AUGUSTA, GEORGIA UTILITIES Balance Sheets December 31,2003 and 2002 ASSETS 2003 2002 Current assets Cash and cash equivalents $ 26,092,976 $ 23,872,141 Customer accounts receivable, net of allowance for doubtful accounts of $270,500 in 2003 and 2002 5,936,762 5,261,247 Interest receivable 913,235 1,365,479 Inventory 1,435,013 1,451,762 Total current assets 34,377,986 31,950,629 Restricted assets Construction fund - 96/97 Bond 506,487 563,761 Sinking fund - 96/97 Bond 4,576,531 2,759,581 Construction fund - 2000 Bond 32,673,669 68,849,179 Construction fund - 2002 Bond 121,746,123 126,737,271 Capitalized interest fund - 2002 Bond 3,178,763 10,207,974 Total restricted assets 162,681,573 209,117,766 . nCapital assets Capital assets not being depreciated 88,609,742 36,427,404 Capital assets, net of accumulated depreciation of $122,413,472 and $112,961,037 181,755,741 183,160,148 Total capital assets 270,365,483 219,587,552 Other assets Deferred bond issuance costs 4,154,589 4,309,287 Total other assets 4,154,589 4,309,287 Total assets $ 471,579,631 $ 464,965,234 See notes to fmancial statements. LIABILITIES AND NET ASSETS 2003 2002 Current liabilities Accounts and other payables $ 6,069,271 $ 4,286,952 Accrued interest 3,948,582 4,004,586 Due to Augusta, Georgia 5,702,212 109,236 Accrued salaries 297,750 255,523 . Compensated absences 335,475 317,567 Claims payable 596,833 550,000 Notes payable - current 428,936 412,199 Capital leases payable - current 498,133 749,834 Total current liabilities 17,877,192 10,685,897 Current liabilities (payable from restricted assets) Revenue bonds payable - current 2,255,000 2,175,000 Total current liabilities (payable from restricted assets) 2,255,000 2,175,000 Long-term liabilities Revenue bonds payable 300,504,183 302,479,619 Notes payable 8,778,445 9,271,168 Capital leases payable 237,084 261,048 Total long-term liabilities 309,519,712 312,011,835 Net assets mvested in capital assets net of related debt 112,589,981 100,388,895 Restricted for debt service 7,755,294 12,967,555 Unrestricted net assets 21,582,452 26,736,052 Total net assets 141,927,727 140,092,502 Total liabilities and net assets $ 471,579,631 $ 464,965,234 3 AUGUSTA, GEORGIA UTILITIES Statements of Revenues, Expenses and Changes in Fund Net Assets For the years ended December 31, 2003 and 2002 2003 2002 Operating revenues Water and sewerage sales $ 40,263,832 $ 37,889,548 Industrial sewer charges 2,615,374 2,151,842 Water and sewerage service fees 1,060,969 860,995 Other 1,195,645 1,263,072 Total operating revenues 45,135,820 42,165,457 Operating expenses Personnel services 7,974,248 . 7,286,872 Depreciation 10,019,815 10,352,576 Other operating expenses 1,511,550 1,829,245 Materials and supplies 3,742,423 3,690,942 Professional services 6,855,546 6,021,584 General allocation 804,500 558,900 Risk management 296,226 766,014 Vehicle cost allocation 480,534 322,855 Payment in lieu of taxes 800,000 800,000 Payment in lieu of franchise fees 1,224,850 1,144,720 Total operating expenses 33,709,692 32,773,708 Operating income 11,426,128 9,391,749 Nonoperating revenues (expenses) Interest revenue 6,760,816 7,922,609 Interest and fiscal charges (16,008,308) (12,584,510) Bond amortization (434,265) (389,587) Gain on sale of capital assets 90,854 53,152 Net nonoperating revenues (expenses) (9,590,903) (4,998,336) Change in net assets 1,835,225 4,393,413 Total net assets, beginning of year 140,092,502 133,266,069 Prior period adjustment 2,433,0~~) Total net assets, beginning of year as restated 140,092,502 135,699,089 Total net assets, end of year $ 141,927,727 $ 140,092,502 See notes to financial statements. 4 AUGUSTA, GEORGIA UTILITIES Statements of Cash Flows For the years ended December 31, 2003 and 2002 2003 2002 Operating activities Cash received from customers $ 44,460,305 $ 41,009,626 Cash paid for goods and services (10,263,618) (11,836,742) Cash paid to or on behalf of employees (7,914,113) (7,182,367) Cash paid for interfund services 1,986,866 (7,632,508) Net cash provided by operating activities 28,269,440 14,358,009 Capital and related financing activities Proceeds from capita11eases 711,253 787,307 Proceeds from issuing bonds 148,172,480 Proceeds from sale of assets 90,854 53,152 Interest on bond funds 6,456,567 7,593,894 Bond issuance costs paid'-'- (2,025,010) Acquisition and construction of capital assets (60,797,746) (32,371,235) Principal paid on revenue bonds (2,175,000) (1,470,000) Principal paid on notes and lease payable (1,462,904) (9,959,323) Interest paid (16,064,312) (10,796,185) Net cash provided by (used in) capital and related financing activities (73,241,288) 99,985,080 Investing activities Interest received 756,490 (1,030,866) Net cash provided by (used in) investing act~vities 756,490 n,030,866) Net increase (decrease) in cash and cash equivalents (44,215,358) 113,312,223 Cash and cash equivaleuts, beginning of year 232,989,907 119,677,684 Cash and cash equivalents, end of year $ 188,774,549 $ 232,989,907 See notes to financial statements. 5 AUGUSTA, GEORGIA UTILITIES Statements of Cash Flows For the years ended December 31, 2003 and 2002 Reconciliation of operating income to net casb provided by (used in) operating activities . Operating income Adjustments to reconcile operating income to net cash provided by operating activities Depreciation Net change in assets and liabilities Accounts receivable Inventory ACCOllllts and other payables Claims payable Due to Augusta, Georgia Accrued salaries and compensated absences Net cash provided by operating activities 2003 2002 $ 11,426,128 $ 9,391,749 10,019,815 10,352,576 (675,515) (1,155,831) 16,749 (224,539) 1,782,319 999,958 46,833 550,000 5,592,976 (5,660,409) 60,135 104,505 $ 28,269,440 $ 14,358,009 See notes to fmancial statements. 6 AUGUSTA, GEORGIA UTILITIES Notes to Financial Statements December 31, 2003 and 2002 Note 1 - Summary of significant accounting policies Augusta, Georgia Utilities (the "Utilities") accounts for its financial position and results of operations in accordance with accounting principles generally accepted in the United States of America (GAAP) applicable to governmental units. The following is a summary of the significant accounting policies: Reporting Entity The Utilities is an enterprise fund of Augusta, Georgia and consists of one enterprise fund. These fmancial statements present only an enterprise fund and are not intended to present fairly the financial position and results of operations of Augusta, Georgia in conformity with accounting principles generally accepted in the United States of America. Basis of Presentation The Utilities' financial statements are presented on the full accrual basis in accordance with accounting principles generally accepted in the United States of America. The Utilities applies all Governmental Accounting Standards Board (GASB) pronouncements as well as Financial Accounting Standards Board (FASB) statements and interpretations, and the Accounting Principles Board (APB) of the Committee on Accounting Procedure issued on or before November 30, 1989, unless those pronouncements conflict with or contradict GASB pronouncements. The Utilities is a major enterprise fund used to account for the activity of providing water and sewer services to the residents of Augusta, 'Georgia. All activities necessary to provide such services are accounted for in this fund, including, but not limited to, operations, maintenance, financing and related debt service, and billing and collection Measurement focus and basis of accounting The financial statements are reported using the economic resources measurement focus and the full accrual basis of accounting. Revenues are recorded when earned and expenses are recorded at the time liabilities are incurred, regardless of when the related cash flows take place. Non-exchange transactions, in which the Utilities gives (or receives) value without directly receiving (or giving) equal value in exchange, include grants, entitlements, and donations. On the full accrual basis, revenue from grants, entitlements, and donations is recognized in the fiscal year in which all eligibility requirements have been satisfied. The Utilities' fund is an enterprise fupd, which distinguishes operating revenues and expenses from nonoperating items. Operating revenues and expenses generally result from providing services and producing and delivering goods in connection with the fund's principal ongoing operations. The principal operating revenues of the Utilities' fund are charges to customers for sales and services. Operating expenses for the Utilities' fund include the costs of sales and services, general and administrative services and depreciation of capital assets. All revenues and expenses not meeting this definition are reported as nonoperating revenues and expenses. When both restricted and unrestricted resources are available for use, it is the Utilities' policy to use restricted resources first, then unrestricted resources as they are needed. . 7 . AUGUSTA, GEORGIA UTILITIES Notes to Financial Statements - Continued December 31, 2003 and 2002 Note 1 - Summary of significant accounting policies (Continued) Use of estimates The preparation of [mancial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Cash and cash equivalents For purposes of the statement of cash flows, the Utilities considers all highly liquid investments (including restricted assets) with an original maturity of tlrree months or less, or with insignificant early withdrawal penalties, to be cash equivalents. Investments Investments are reported at fair value. Fair value is determined as follows: short-term investments are reported at cost, which approximates fair value; securities traded on national exchanges are valued at current prices or current prices of similar securities; securities for which an established market does not . exist are reported at estimated fair value using selling prices for similar investments for which there is an active market. Inventory All items in inventory are valued at lower of cost (frrst-in, first-out) or market. . Restricted assets Certain assets are classified as restricted assets on the balance sheet because their use is limited by applicable debt covenants. Capital assets Capital assets are recorded at cost when purchased. Depreciation is provided using the straight-line method over the estimated useful lives of the respective assets. Maintenance and repairs are charged to expense as incurred and major renewals and betterments are capitalized. Minimum capitalization costs are $5,000 for all categories of capital assets. When items of capital assets are sold or retired, the related cost and accumulated depreciation are removed from the acc01.mts and any gain or loss is recognized. The estimated lives used in determining depreciation are: Water and sewer systems Buildings and other improvements Vehicles Machinery and equipment Office furniture and fixtures Capital leases . Other capital items 10 - 40 years 10 - 30 years 3 - 5 years 5 - 10 years 5 - 10 years 3 years 3 - 12 years The value of water and sewerage systems installed by various subdivision developers and deeded to Utilities at no cost prior to 1970 have been recorded based on an appraisal by an engineering finn. Such donated assets are recorded at estimated fair market values effective with the date of said appraisals. 8 AUGUSTA, GEORGIA UTILITIES Notes to Financial Statements - Continued December 31,2003 and 2002 Note 1- Summary of significant accounting policies (Continued) Construction costs - capitalization Construction costs include, among other things, capitalized net interest costs and engineering fees. Capitalized net interest costs w~re immaterial in 2003 and 2002. Bond discounts and issuance costs Bond discounts and issuance costs are deferred and amortized over the life of the bonds on a straight-line basis, which does not differ materially from the use of the effective interest method. Bond discounts are presented as a reduction of the face amount of bonds payable, whereas issuance costs are recorded as deferred charges. Due to Augusta, Georgia During the course of operations, numerous transactions occur between the individual funds of Augusta, Georgia and Utilities for goods provided or services rendered. Receivables and payables related to these transactions are classified as "due to Augusta, Georgia" in the accompanying balance sheet. Compensated absences Accumulated unpaid vacation is accrued when incurred and reported as a fund liability. Net assets Net assets are classified as invested in capital assets net of related debt, restricted and unrestricted. Restricted net assets represent constraints on resources that are either externally imposed by creditors, . grantors, contributors or laws and regulations of other governments or imposed by law through state statute. Reclassifications Certain reclassifications have been made to the prior years' financial statements to conform to the current year presentation. These reclassifications had no effect on previously reported results of operations or net assets. Note 2 - Business of the Utilities The Utilities is a provider of water and sewerage services with locations in Augusta, Georgia. The Utilities grants credit to residential, business and industrial customers, substantially all of who are local in the Central Savannah River Area. Note 3 - Legal compliance - budgets The Utilities operates under the annual budget ordinance of Augusta, Georgia. The ordinance provides for revenues and appropriations for the water and wastewater operations. All annual appropriations lapse at the end of the fiscal year. 9 AUGUSTA, GEORGIA UTILITIES Notes to Financial Statements - Continued December 31,2003 and 2002 Note 4 - Deposits and investments Various restrictions on deposits and investments are imposed by statutes and restrictions included with the various series of revenue bonds and are summarized as follows: Augusta, Georgia is authorized to make direct investments in obligations of the State of Georgia or the U.S. Government, obligations fully insured or guaranteed by the U.S. Government, repurchase agreements, and certificates of deposit which are secured by direct obligations of the State of Georgia or the U.S. Government. At December 31, 2003 the Utilities' cash and investment balances were as follows: Category Carrying Market 1 2 3 Amount Value Repurchase agreements $ 124,312,233 $ - $ - $ 124,312,233 $ 124,312,233 U.S. Government securities 38,369,340 38,369,340 38,369,340 Carrying amount of deposits with financial institutions 24,528,105 24,528,105 Certificates of deposit held by investment houses 1,560,921 1,560,921 Cash on hand 3,950 3,950 $ 188,774,549 $ 188,774,549 At December 31, 2002 the Utilities' cash and investment balances were as follows: Category Carrying Market 2 3 Amount Value Repurchase agreements $ 205,794,424 $ - $ - $ 205,794,424 $ 205,794,424 U,S. Government securities 3,323,342 3,323,342 3,323,342 Local government investment pool (1,620,390) (1,620,390) Carrying amount of.deposits with financial institutions 23,979,388 23,979,388 Certificates of deposit held by investment houses 1,509,193 1,509,193 Cash on hand 3,950 3,950 $ .232,989,907 $ 232,989,907 Investments made by Utilities, including repurchase agreements consisting of U.S. Treasury notes, are summarized above. The investments that are represented by specific identifiable investment securities are classified as to credit risk by the three categories described below: The Utilities' investments are shown by type, carrying amount, market value and level of risk assumed in the holding ofthe various securities. . 10 AUGUSTA, GEORGIA UTILITIES Notes to Financial Statements - Continued December 31,2003 and 2002 Note 4 - Deposits and investments (Continued) The levels of risk assumed in the various investments are categorized as follows: Category 1: includes the investments that are insured or registered or for which the securities are held by Utilities or its agent in Utilities' name. Category 2: includes uninsured and unregistered investments for which the securities are held by the Bank's or dealer's trust department or agent in Utilities' name. Category 3: includes uninsured and unregistered investments for which the securities are held by the bank or dealer, or by its trust department or agent but not in Utilities' name. Note 5 - Capital assets A summary of the change in capital assets at December 31, 2003 follows: , Balance Balance . December 31, December 31, 2002 Additions Disposals 2003 Water and Sewer Capital assets, not being depreciated: Land $ 4,292,942 $ 2,734,017 $ - $ 7,026,959 Construction in progress 32,134,462 56,332,927 (6,884,606) '" 81,582,783 Total capital assets not being depreciated 36,427,404 59,066,944 (6,884,606) 88,609,742 Other capital assets: Buildings 38,959,592 66,565 39,026,157 Vehicles 4,695,678 929,649 (417,667) 5 ,207 ,660 Machinery and equipment 5,641,631 503,697 (150,106) 5,995,222 '.. Furniture and fixtures 421,374 421,374 Other capital 2,057,262 32,814 2,090,076 Water and sewerage systems 233,782,225 7,083,076 240,865,301 Contributed water and sewerage systems 10,563,423 10,563,423 Total capital assets being depreciated 296,121,185 8,615,801 (567,773) 304,169,213 Less accumulated depreciation for: Buildings (19,500,163) (1,204,305) (20,704,468) Vehicles (2,800,446) (1,1l8,153) 417,667 (3,500,932) Machinery and equipment (4,582,292) (359,155) 149,713 (4,791,734) Furniture and fixtures (4lQ,891) (lQ,482) (421,373) Other capital (l,866,086) (107,405) (1,973,491) Water and sewerage systems (78,436,338) (6,711,900) (85,148,238) Contributed water and sewerage systems (5,364,821) (508,415) (5,873,236) Tolal accumulated depreciation (112,961,037) (10,019,815) 567,380 (122,413,472) Other capital assets being depreciated, net 183,160,148 (1,404,014) (393) 181,755,741 Water and sewer capital assets, net 219,587,552 57,662,930 (6,884,999) 270,365,483 '" Disposals in Construction in progress are shown as additions to Capital assets being depreciated. Vehicle additions include $711,252 of capital leases. The total accumulated depreciation on capita1leases was $1,355,899 as of December 31, 2003. 11 AUGUSTA, GEORGIA UTILITIES Notes to Financial Statements - Continued December 31, 2003 and 2002 Note 6 - Long-term obligations A-Notes payable The following is a summary of the notes payable outstanding as of December 31, 2003 and 2002: Georgia Environmental Facilities Authority revolving loan - due in quarterly principal and interest installments of$94,668, including interest at 4%, through May 2016. $ 2003 2002 3,710,613 $ 3,935,217 Georgia Environmental Facilities Authority revolving loan - principal and interest at 4% due in quarterly installments of $119,392, including interest at 4%, through July 2019. 5,496,768 5,748,150 Total notes payable $ 9,207,381 $ 9,683,367 B - Revenue bonds payable The following is a summary of the revenue bonds outstanding as of December 31, 2003 and 2002: Water and Sewerage Revenue Bonds (Series 2002) - issued in the original amount of $149,400,000 in 2002 with interest varying from 2.50% to 5.375% on $57,840,000 serial bonds, with interest of 5.0% on $91,560,000 term bonds. Principal is payable in annual installments beginning October 1, 2002 ranging from $235,000 to $20,610,000 through maturity in October 2032. $ 148,260,000 $ 149,165,000 2003 2002 Water and Sewerage Revenue Bonds (Series 2000) - issued in the original amount of $97,080,000 in 2000 with interest varying from 4.40% to 5.25% on $30,590,000 serial bonds, and with interest of 5.25% on $66,490,000 tenn bonds. Principal is payable in annual installments beginning October 1, 2006, ranging from $355,000 to $11,105,000 through maturity in October 2030. 97,080,000 97,080,000 Water and Sewerage Revenue Bonds (Series 1996) - issued in the original amount of $66,640,000 in 1996 with interest varying from 3.6% to 6.25% and principal payable in annual installments ranging from $920,000 to .$4,445,000 through maturity in October 2028. 59,620,000 60,720,000 12 AUGUSTA, GEORGIA UTILITIES Notes to Financial Statements - Continued December 31, 2003 and 2002 Note 6 - Long"term obligations (Continued) Water and Sewerage Revenue Refunding Bonds (Series 1997) - issued in the original amount of$5,910,000 in 1997 with interest varying from 3.60% to 5.25% and principal payable annually ranging from $100,000 to $400,000 through maturity in October 2021. 2003 2002 Total bonds payable $ 4,890,000 $ 5,060,000 309,850,000 312,025,000 (2,331,961 ) (2,431,289) (4,758,856) (4,939,092) $ 302,759,183 $ 304,654,619 Less: Deferred refunding amounts Less: Bond issue discounts During 2002, Utilities issued $149.4 million in Series 2002 Water and Sewerage Revenue bonds. A portion of the proceeds from the sale of these bonds was used to pay the outstanding balance of the Georgia Environmental Facilities Authority revolving loan in the amount of $8,815,000 with an interest rate of 5.5%. The remaining portion of the bond proceeds $140,585,000 was issued for the purpose of financing the costs of making additions, extensions and improvements to the Utilities' water and sewer system. A portion of the net proceeds of $8,692,368 (after payment of$153,574 of underwriting fees and other issuance costs) was used to repay the Georgia Environmental Facilities Authority revolving loan. The remaining portion of the proceeds of $125,691,320 (after payment of $2,748,066 of underwriting fees and other issuance costs) plus an additional $11,753,672 of funds from a capitalized interest fund is to be used to for improvements to the Utilities' water and sewer system. No difference resulted in the current refunding between the reacquisition price and the net carrying amount of the old debt. Utilities completed the refunding to obtain an economic gain (difference between present values of the old and new debt service payments) of approximately $792,000. During 2000, Utilities issued $97.08 million in Series 2000 Water and Sewer Revenue bonds for the purpose of fmancing the costs of making additions, extensions and improvements to the Utilities' water and sewer system. During 1996, Utilities issued $66.6 million in Series 1996 Water and Sewer revenue bonds. A portion of the proceeds from the sale of these bonds was used to advance refund all of the former City of Augusta's Series 1972 and 1991 Water and Sewer revenue bonds and the former Richmond CountY's Series 1987 and 1991 Water and Sewer revenue bonds. Proceeds 0[$19.4 million plus an additional $4.9 million of sinking fund monies from the defeased issues were used to purchase U.S. government securities. Those securities were deposited in an irrevocable trust fund with an escrow agent to provide for all future debt service payments on the above-mentioned bonds. As a result, the bonds are considered to be defeased and the liabilities for those bonds have been removed from the Utilities Fund. 13 AUGUSTA, GEORGIA UTILITIES Notes to Financial Statements - Continued December 31,2003 and 2002 Note 6 - Long-term .obligations (Continued) In 1997, Utilities issued $5.9 million in Series 1997 Water and Sewer Revenue Bonds. A portion of the proceeds from the sale of these bonds was used to advance refund all of the former Richmond County's Series 1986 Water and Sewer Revenue Bond. Proceeds of approximately $5.6 million plus an additional $.9 million of sinking fund monies from the defeased issues were used to purchase U.S. government securities. Those securities were deposited in an irrevocable trust fund with an escrow agent to provide for all future debt service payments. on the above-mentioned bonds. As a result, the bonds are considered defeased and the liability for those bonds have been removed from the Utilities Fund. As of December 31, 2002 and 2003, the amount of these defeased debts outstanding but removed from the Water and Sewer Fund is $2,480,793 and $2,595,281, respectively. The advance refunding during 1996 resulted in a difference between the reacquisition price and the net carrying amount of the 'old debt of approximately $2.5 million. This difference, reported in the accompanying financial statements as a deduction from bonds payable, is being charged to operations through the year 2028 using the straight-line method. The refunding increased the total debt service payments over the next 30 years by approximately $8.6 million and produced an economic gain of approximately $260,000. The advance refunding during 1997 resulted in a difference between the reacquisition price and the net carrying amount of the old debt of approximately $540,000. This difference, reported in the accompanying financial statements as a deduction from bonds payable, is being charged to operations through the year 2021 using the straight-line method. The refunding will increase total debt service payments over the next 24 years by approximately $2.1 million and will produce an economic gain of approximately $110,000. C - Debt service requirements to maturity for bonds and notes payable The annual requirements to amortize debt outstanding as of December 31, 2003, including interest are as follows: Notes Payable Revenue Bonds Tota] Principal Interest Principal Interest Principal Interest 2004 $ 428,936 $ 307,911 $ 2,255,000 $ 15,610,614 $ 2,683,936 $ 15,918,525 2005 512,729 343,511 2,340,000 15,513,920 2',852,729 15,857,431 2006 533,548 322,692 2,785,000 15,421,480 3,318,548 15,744,]72 2007 555,212 301,028 3,950,000 15,307,550 4,505,2]2 15,608,578 2008 577,756 278,484 4,825,000 15,122,208 5,402,756 15,400,692 2009-2013 3,260,308 1,020,890 34,800;000 71,676,925 38,060,308 72,697,815 2014-2018 2,987,762 346,759 46,240,000 61,971,719 49,227,762 62,318,478 2019-2023 351,130 7,046 59,435,000 48,773,725 59,786,130 48,780,771 2024-2028 76,555,000 31,655,862 76,555,000 31,655,862 2029-2033 76,665,000 9,903,163 76,665,000 9,903,]63 $ 9,207,381 $ 2,928,321 $ 309,850,000 $ 300,957,166 $ 319,057,381 $ 303,885,487 14 AUGUSTA, GEORGIA UTILITIES Notes to Financial Statements- Continued December 31, 2003 and 2002 Note 6 - Long-:term obligations (Continued) D - Capital lease obligations The future minimum lease payments under leases and the net present value of these minimum lease payments as of December 31, 2003, are as follows: Year Endinl! December 31 Amount 2004 2005 $ 498,133 237,084 735,217 Less: interest Present value of lease payments $ 735,217 E - Changes in long-term obligations Balance December 31, 2002 Increases Balance December 31, Current Decreases 2003 Portion (2,175,000) $ 309,850,000 $ 2,255,000 (475,986) 9,207,381 428,936 (986,918) 735,217 498,133 (350,461) 335,475 335,475 (3,988,365) 320,128,073 (2,331,961) (4,758,856) $ 313,037,256 $ 3,517,544 Revenue bonds payable $ .312,025,000 $ - $ Notes payable 9,683,367 Capital leases payable 1,010,882 711,253 Compensated absences 317,567 368,369 323,036,816 $ 1,079,622 $ Less: Deferred refunding amounts (net of amortization) (2,431,289) Less: Bond issue discounts (net of amortization) (4,939,092) Total long-term obligations $ 315,666,435 Note 7 - Pension fund Employees of the Utilities are covered under pension plans of Augusta, Georgia, the 1945 Plan, the 1997 Plan, the General Retirement Plan and the Georgia Municipal Employees Benefit System (GMEBS). As of January 1,2003, the date of the latest information available, the total pension benefit obligations for the 1945 Plan and 1977 Plan amounted to approximately $9,878,269 and $18,150,192, respectively. As of January 1,2003, the net assets available for pension benefits for the 1945 Plan and 1977 Plan amounted to approximately $8,897,080 and $12,609,297, respectively. As of January 1,2003 and March 1,2004, the total pension benefit obligations for the General Retirement Plan and GMEBS amounted to approximately $53,688,662 and $7,553,911, respectively. As of January 1,2003 and March 1, 2004, the net assets available for pension benefits for the General Retirement Plan and GMEBS amounted to approximately $59,091,990 and $6,913,410, respectively. 15 AUGUSTA, GEORGIA UTILITIES Notes to Financial Statements - Continued December 31, 2003 and 2002 Note 7 - Pension fund (Continued) All full-time employees with more than one month of service are eligible to participate in the Retirement Savings Plan. The Plan is a defmed contribution plan under Section 401(a) of the Internal Revenue Code, and is administered by Nationwide Life Insurance, PP A support. The Plan was organized and may be amended by a majority vote of the full-body of the governing board, the Augusta-Richmond County Commission. Employees contribute four percent (4%) of their salary, and Augusta, Georgia contributes two percent (2%) of the employee's salary. At December 31,2003, there were 1,297 plan participants. Participants are considered fully vested in Augusta, Georgia's contributions after completing five (5) years of service. For the year ended December 31, 2003, the employees' contributions were approximately $1,403,334, and Augusta, Georgia's contributions were approximately $701,667. . Detailed information concerning the pension plans maintained by Augusta, Georgia is presented in the publicly available December 31,2003 Annual Financial Report of Augusta, Georgia. Note 8 - Risk management The Board of Commissioners of Augusta, Georgia has elected to provide its own coverage for claims against Augusta, Georgia in the area of public liability and vehicular public liability due to the large increases in liability insurance premiums. Augusta, Georgia has procured fire and extended coverage insurance on the insurable portions of the Utilities. In addition, Augusta, Georgia has established a separate fund in order to handle any major losses. Augusta, Georgia is of the opinion that the sums that have been set aside are more than adequate to cover any claims or judgments against Augusta, Georgia and its Utilities. Augusta, Georgia is also of the opinion that no bondholder is jeopardized by Augusta, Georgia maintaining its own insurance coverage due to the amounts available for claims or judgments. During the year, Augusta, Georgia government accumulates expenses for risk management, workers' compensation, health benefits, unemployment taxes, disability, and GMA leases in an internal service fund, and allocates the expenses to the various funds at year-end. 16 -. . . ~ . . I CERTIFIED PUBLIC ACCOUNTA\'iTS & CONSULTANTS Accountants' Review Report Augusta-Richmond County Commission Augusta, Georgia Utilities Augusta, Georgia We have reviewed the accompanying balance sheets of the Augusta, Georgia Utilities (an enterprise fund of Augusta, Georgia) as of July 31, 2004 and 2003, and the related statements of revenues, expenses and changes in fund net assets and cash flows for the seven months then ended, in accordance with Statements on Standards for Accounting and Review Services issued by the American Institute of Certified Public Accountants. All information included in these financial statements is the representation of the management of the Augusta, Georgia Utilities. A review consists principally of inquiries of Utilities personnel and analytical procedures applied to .financial data. It is substantially less in scope than an audit in accordance with auditing standards generally accepted in the United States of America, the objective of which is the expression of an opinion regarding the [mancial statements taken as a whole. Accordingly, we do not express such an opinion. As discussed in Note 1, the financial statements present only the Augusta, Georgia Utilities and are not intended to present fairly the financial position of Augusta, Georgia and the results of its operations and cash flows of its proprietary and similar trust fund types in accordance with Statements on Standards for Accounting and Review Services. Based on our reviews, we are not aware of any material modifications that should be made to the . accompanying financial statements in order for them to be in conformity with accounting principles generally accepted in the United States of America. Management's Discussion and Analysis is not a required part of the basic financial statements but is supplementary information required by the Governmental Accounting Standard's Board. The Augusta, Georgia Utilities has not presented the Management's Discussion and Analysis that the Governmental Accounting Standard's Board requires to supplement, although not to be part of, the basic financial statements. . ~, ~..,.1~L.L:1? Augusta, Georgia September 10,2004 AUGUSTA, GEORGIA UTILITIES Balance Sheets July 31,2004 and 2003 (See Accountants' Review Report) ASSETS 2004 2003. Current assets Cash and cash equivalents $ 30,915,745 $ 27,245,539 Customer accounts receivable, net of allowance for doubtful accounts of $270,500 in 2004 and 2003 6,979,317 5,801,779 Interest receivable 271,961 336,104 Inventory 1,802,272 1,656,802 Total current assets 39,969,295 35,040,224 Restricted assets Construction fund - 96/97 Bond 491,665 512,671 Sinking fund - 96/97 Bond 8,644,501 4,719,775 Construction fund - 2000 Bond 24,310,580 46,134,638 Construction fund - 2002 Bond 100,540,745 127,426,802 Capitalized interest fund - 2002 Bond 6,719,334 Total restricted assets 133,987,491 185,513,220 Capital assets Qipital assets not being depreciated 115,863,349 66,344,608 Capital assets, net of accumulated depreciation of $128,305,983 and $118,805,929 176,609,429 178,134,921 . Total capital assets 292,472,778 244,479,529 Other assets Deferred bond issuance costs 4,064,348 4,219,046 Total other assets 4,064,348 4,219,046 Total assets $ 470,493,912 $ 469,252,019 See notes to financial statements. LIABILITIES AND NET ASSETS 2004 2003 Current liabilities Accounts and other payables $ 1,408,041 $ 2,183,190 Accrued interest 5,217,050 5,244,083 Due to Augusta, Georgia 8,989,820 5,422,199 Accrued salaries 297,750 247,767 Compensated absences 335,475 325,323 Claims payable 596,833 Notes payable - current 446,550 429,126 Capital leases payable - current 498,133 749,834 Total current liabilities 17,192,819 15,198,355 Current liabilities (payable from restricted assets) Revenue bonds payable - current 2,255,000 2,175,000 Total current liabilities (payable from restricted assets) 2,255,000 2,175,000 Long-term liabilities Revenue bonds payable 300,667,263 302,642,699 Notes payable 8,456,920 8,962,189 . Capital leases payable 237,084 261,048 Total long-term liabilities 309,361,267 311,865,936 Net assets Invested in capital assets net of related debt 105,254,818 103,333,744 Restricted for debt service 8,644,501 11,439,109 Unrestricted net assets 27,785,507 25,239,875 Total net assets 141,684,826 140,012,728 Totalliabillties and net assets $ 470,493,912 $ 469,252,019 3 AUGUSTA, GEORGIA UTILITIES Statements of Revenues, Expenses and Changes in Fund Net Assets For the seven months ended July 31,2004 and 2003 (See Accountants' Review Report) 2004 2003 Operating revenues Water and sewerage sales $ 25,774,642 $ 23,}21,881 Industrial sewer charges 1,321,105 1,456,953 Water and sewerage service fees 609,536 645,995 Other 625,739 729,238 Total operating revenues 28,331,022 25,954,067 Operating expenses Personnel services 4,995,070 4,409,702 Depreciation 5,892,511 5,844,892 Other operating expenses 2,166,646 1,592,530 Materials and supplies 1,966,131 1,740,377 Professional services 4,098,956 4,256,020 General allocation 512,442 469,287 Risk management 175,098 165,697 Vehicle cost allocation 229,089 306,194 Payment in lieu oftaxes 466,669 466,669 Payment in lieu of franchise fees 738,458 714,497 Total operating expenses 21,241,070 19,965,865 Operating income 7,089,952 5,988,202 Nonoperating revenues (expenses) Interest revenue 2,210,106 3,497,081 . Interest and fiscal charges (9,289,638) (9,311,736) Bond amortization (253,321) (253,321) Net nonoperating revenues (expenses) (7,332,853) (6,067,976) Change in net assets (242,901) (79,774) Total net assets, beginning of period 141,927,727 140,092,502 Total net assets, end of period $ 141,684,826 $ 140,012,728 See notes to financial statements. 4 AUGUSTA, GEORGIA UTILITIES Statements of Cash Flows For the seven months ended July 31, 2004 and 2003 (See Accountants' Review Report) 2004 2003 Operating activities Cash received from customers $ 27,288,467 $ 25,413,535 Cash paid for goods and services (13,857,055) (9,850,896) Cash paid to or on behalf of employees (4,995,070) (4,409,702) Cash paid for interfimd services (2,121,756) (2,122,344) Net cash provided by operating activities 6,314,586 9,030,593 Capital and related financing activities Interest on bond funds 2,687,545 4,378,459 Acquisition and construction of capital assets (27,999,806) (30,736,869) Principal paid on notes and lease payable (303,911) (292,052) Interest paid (8,021,170) (8,072,239) Net cash used in capital and related imancing activities (33,637,342) (34,722,701) Non-capital financing activities Cash used from General Fund 3,287,608 5,312,963 Net cash provided by non-capital financing activities 3,287,608 5,312,963 Investing activities Interest received 163,835 147,997 Net cash provided by investing activities 163,835 147,997 Net decrease in cash and cash equivalents (23,871,313) (20,231,148) Cash and cash equivalents, beginning of period 188,774,549 232,989,907 Cash and cash equivalents, end of period $ 164,903,236 $ 212,758,759 Reconciliation of operating income to net cash provided by (used in) operating activities Operating income $ 7,089,952 $ 5,988,202 Adjustments to reconcile operating income to net cash provided by operating activities Depreciation 5,892,511 5,844,892 Net change in assets and liabilities Accounts receivable (1,042,555) (540,532) Inventory (367,259) (205,040) .Accounts and otherpayables (7,948,838) (7,416,725) Claims payable (596,833) 46,833 Due to Augusta, Georgia 3,287,608 5,312,963 Net cash provided by operating activities $ 6,314,586 $ 9,030,593 See notes to financial statements. 5 AUGUSTA, GEORGIA UTILITIES Notes to Financial Statements July 31, 2004 and 2003 (See Accountants' Review Report) , Note 1 - Summary of significant accounting policies Augusta, Georgia Utilities (the "Utilities") accounts for its financial position and results of operations in accordance with accounting principles generally accepted in the United States of America (GAAP) applicable to governmental units. The following is a summary of the significant accounting policies: Reporting Entity The Utilities is an enterprise fund of Augusta, Georgia and consists of one enterprise fund. These fmancial statements present only an enterprise fund and are not intended to present fairly the financial position and results of operations of Augusta, Georgia in conformity with accounting principles generally accepted in the United States of America. Basis of l'resentation The Utilities' financial statements are presented on the. full accrual basis in accordance with accounting principles generally accepted in the United States of America. The Utilities applies all Governmental Accounting Standards Board (GASB) pronouncements as well as Financial Accounting Standards Board (FASB) statements and interpretations, and the Accounting Principles Board (APB) of the Committee on Accounting Procedure issued on or before November 30, 1989, unless those pronmlllcements conflict with or contradict GASB pronouncements. The Utilities is a major enterprise fund used to account for the activity of providing water and sewer services to the residents of Augusta, Georgia. All activities necessary to provide such services are accounted for in this fund, including, but not limited to, operations, maintenance, fmancing and related debt service, and billing and collection. Measurement focus and basis of accounting The financial statements are reported using the economic resources measurement focus and the full accrual basis of accounting. Revenues are recorded when earned and expenses are recorded at the time liabilities are incurred, regardless of when the related cash flows take place. Non-exchange transactions, in which the Utilities gives (or receives) value without directly receiving (or giving) equal value in exchange, include grants, entitlements, and donations. On the full accrual basis, revenue from grants, entitlements, and donations is recognized in the fiscal year in which all eligibility requirements have been satisfied. The Utilities' fund is an enterprise fund, which distinguishes operating revenues and expenses from nonoperating items. Operating revenues and expenses generally result from providing services and producing and delivering goods in connection with the fund's principal ongoing operations. The principal operating revenues of the Utilities' fund are charges to customers for sales and services. Operating expenses for the Utilities' fund include the costs of sales and services, general and administrative services and depreciation of capital assets. All revenues and expenses not meeting this definition are reported as nonoperating revenues and expenses. When both restricted and unrestricted resources are available for use, it is the Utilities' policy to use restricted resources frrst, then unrestricted resources as they are needed. 6 AUGUSTA, GEORGIA UTILITIES Notes to Financial Statements - Continued July 31,2004 and 2003 (See Accountants' Review Report) Note 1- Summary of significant accounting policies (Continued) Use of estimates The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenUes and expenses during the reporting period. Actual results could differ from those estimates. , Cash and cash equivalents For purposes of the statement of cash flows, the Utilities considers all highly liquid investments (including restricted assets) with an original maturity of three months or less, or with insignificant early withdrawal penalties, to be cash equivalents. Investments Investments are reported at fair value. Fair value is determined as follows: short-term investments are , reported at cost, which approximates fair value; securities traded on national exchanges are valued at . current prices or current prices of similar securities; securities for which an established market does not exist are reported at estimated fair value using selling prices for similar investments for which there is an active market. Inventory All items in inventory are valued at lower of cost (first-in, first-out) or market. Itestrictedassets Certain assets are classified as restricted assets on the balance sheet because their use is limited by applicable debt covenants. Capital assets Capital assets are recorded at cost when purchased. Depreciation is provided using the straight-line method over the estimated useful lives of the respective assets. Maintenance and repairs are charged to expense as incurred and major renewals and betterments are capitalized. Minimum capitalization costs are $5,000 for all categories of capital assets. When items of capital assets are sold or retired, the related cost and accumulated depreciation are removed from the accounts and any gain or loss is recognized. The estimated lives used in determining depreciation are: Water and sewer systems Buildings and other improvements Vehicles Machinery and equipment Office furniture and fixtures Capital leases Other capital items 10 - 40 years 10 - 30 years 3 - 5 years 5 - 10 years 5 - 10 years 3 years 3 - 12 years 7 AUGUSTA, GEORGIA urIT1TIES . Notes to Financial Statements - Continued July 31,2004 and 2003 (See Accountants' Review Report) Note 1 - Summary of significant accounting policies (Continued) The value of water and sewerage systems installed by various subdivision developers and deeded to Utilities at no cost prior to 1970 have been recorded based on an appraisal by an engineering finn. Such donated assets are recorded at estimated fair market values effective with the date of said appraisals. Construction costs - capitalization Construction costs include, among other things, capitalized net interest costs and engineering fees. Capitalized. net interest costs were immaterial in 2004 and 2003. Bond discounts and issuance costs Bond discounts and issuance costs are deferred and amortized over the life of the bonds on a straight-line basis, which does not di,ffer materially from the use of the effective interest method. Bond discounts are presented as a reduction of the face amount of bonds payable, whereas issuance costs are recorded as deferred charges. . Due to Augusta, Georgia . During the course of operations, numerous transactions occur between the individual funds of Augusta, Georgia and Utilities for goods provided or services rendered. Receivables and payables related to these transactions are classified as "Due to Augusta, Georgia" in the accompanying balance sheet. Compensated absences Accumulated unpaid vacation is accrued when incurred and reported as a fund liability. . Net assets Net assets are classified as invested in capital assets net of related debt, restricted and unrestricted. Restricted net assets represent constraints on resources that are either externally imposed by creditors, grantors, contributors or laws and regulations of other governments or imposed by law through state statute. Note 2 - Business of the Utilities The Utilities is a provider of water and sewerage services with locations in Augusta, Georgia. The Utilities grants credit to residential, business and industrial customers, substantially all of who are local in the Central Savannah River Area. Note 3 - Legal compliance - budgets The Utilities operates under the annual budget ordinance of Augusta, Georgia. The ordinance provides for revenues and appropriations for the water and wastewater operations. All annual appropriations lapse at the end of the fiscal year. 8 AUGUSTA, GEORGIA UTILITIES Notes to Financial Statements - Continued July 31,2004 and 2003 (See Accountants' Review Report) Note 4 - Deposits and investments Various restrictions on deposits and investments are imposed by statutes and restrictions included with the various series of revenue bonds and are summarized as follows: Augusta, Georgia is authorized to make direct investments in obligations of the State of Georgia or the U.S. Government, obligations fully insured or guaranteed by the U.S. Government, repurchase agreements, and certificates of deposit which are secured by direct obligations of the State of Georgia or the U.S. Government. At July 31, 2004 the Utilities' cash and investment balances were as follows: Category Carrying Market 2 3 Amount Value Repurchase agreements $ 100,484,658 $ - $ - $ 100,484,658 $ 100,484,658 U.S. Government securities 33,502,833 33,502,833 33,502,833 C~ngmnountofdepo&ts with financial institutions 29,350,874 29,350,874 Certificates of deposit held by investment houses 1,560,921 1,560,921 Cash on hand 3,950 3,950 $ 164,903,236 $ 164,903,236 At July 31, 2003 the Utilities' cash and investment balances were as follows: Category Carrying Market 1 2 3 Amount Value Repurchase agreements $ 173,418,329 $ - $ - $ 173,418,329 $ 173,418,329 U.S. Govenunent securities 12,094,891 12,094,891 12,094,891 Carrying amount of deposits with financial institutions 25,732,396 25,732,396 Certificates of deposit held by investment houses 1,509,193 1,509,193 Cash on hand 3,950 3,950 $ 212,758,759 $ 212,758,759 Investments made by Utilities, including repurchase agreements consisting of U.S. Treasury notes, are summarized above. The investments that are represented by specific identifiable investment securities are classified as to credit risk by the three categories described below: 9 AUGUSTA, GEORGIA UTILITIES Notes to Financial Statements - Continued July 31,2004 and 2003 (See Accountants' Review Report) Note 4 - Deposits and investments (Continued) The Utilities' investments are shown by type, carrying amoWlt, market value and level of risk assumed in the holding of the various securities. The levels of risk assumed in the various investments are categorized as follows: Category 1: includes the investments that are insured or registered or for which the securities are held by Utilities or its agent in Utilities' name. Category 2: includes Wlinsured and unregistered investments for which the securities are held by the Bank's or dealer's trust department or agent in Utilities' name. Category 3: includes uninsured and unregistered investments for which the securities are held by the bank or dealer, or by its trust department or agent but not :in Utilities' name. Note 5 - Capital aSsets A summary ofthe change in capital assets at July 31, 2004 follows: Balance Balance January I, July 3], 2004 Additions Disposals 2004 Water and Sewer Capital assets, not being depreciated: Land $ 7,026/)59 $ - $ - $ 7,026,959 Construction in progress 81,582,783 27,253,607 ]08,836,390 Total capital assets not being depreciated 88,609,742 27,253,607 1]5,863,349 Other capital assets: Buildings 39,026,157 39,026,157 Vehicles 5,207,660 9,860 5,217,520 Machinery and equipment 5,995,222 256,005 6,251,227 Furniture and fixtures 421,374 421,374 Other capital 2,090,076 39,859 2,129,935 Water and sewerage systems 240,865,30] 440,475 24],305,776 Contributed water and sewerage systems 10,563,423 ]0,563,423 Total capital assets being depreciated 304,169,213 746,199 304,915,412 Less accumulated depreciation for: Buildings (20,704,468) (702,511 ) (21,406,979) Vehicles (3,500,932) (653,694) (4,]54,626) Machinery and equipment (4,791,734) (239,374) (5,031,108) Furniture and fixtures (421,373) (6,115) (427,488) Other capital (1,973,491) (70,403) (2,043,894) Water and sewerage systems (85,148,238) (3,923,839) (89,072,071) ContrIbuted water and sewerage systems (5,873,236) (296,575) (6,169,811) Total accumulated depreciation (122,413,472) (5,892,511) (128,305,983) . Other capital assets being depreciated, net 181,755,741 (5,146,312) 176,609,429 Water and sewer capital assets, net $ 270,365,483 $ 22,107,295 $ - $ 292,472,778 10 AUGUSTA, GEORGIA UTILITIES Notes to Financial Statements - Continued July 31,2004 and 2003 (See Accountants' Review Report) Note 5 - Capital assets (Continued) A summary of the change in capital assets at July 31, 2003 follows: Balance Balance January 1, July 31, 2003 Additions Disposals 2003 Water and Sewer Capital assets, not being depreciated: Land $ 4,292,942 $ - $ - $ 4,292,942 Construction in progress 32,134,462 29,917,204 62,051,666 Total capital assets not being depreciated 36,427,404 29,917,204 66,344,608 Other capital assets: Buildings 38,959,592 8,345 38,967,937 Vehicles 4,695,678 18,427 4,714,105 Machinery and equipment 5,641,631 196,569 5,838,200 Furniture and fIXtures 421,374 421,374 Other capital 2,057,262 2,057,262 Water and sewerage systems 233,782,225 596,324 234,378,549 Contributed water and sewerage systems 10,563,423 10,563,423 Total capital assets being depreciated 296,121,185 819,665 296,940,850 Less accumulated depreciation for: Buildings (19,500,163) (702,511 ) (20,202,674) Vehicles (2,800,446) (652,256) (3,452,702) Machinery and equipment (4,582,292) (209,507) (4,791,799) Furniture and fixtures (410,891) (6,115) (417,006) Other capital (1,866,086) (62,653) (1,928,739) Water and sewerage systems (78,436,338) (3,915,275) (82,351,613) Contributed water and sewerage systems (5,364,821) (296,575) (5,661,396) Total accumulated depreciation (112,961,037) (5,844,892) (118,805,929) Other capital assets being depreciated, net 183,160,148 (5,025,227) 178,134,921 Water and sewer capital assets, net 219,587,552 24,891,977 244,479,529 Total capital assets include $3,069,373 and $2,783,891 of capital leases as of July 31, 2004 and 2003, respectively. The total accumulated depreciation on capital leases was $1,636,946 and $1,155,152 as of July 31, 2004 and 2003, respectively. 11 AUGUSTA, GEORGIA UTILITIES Notes to Financial Statements - Continued July 31,2004 and 2003 (See Accountants' Review Report) Note 6 - Long-term obligations A - Notes payable The following is a summary of the notes payable outstanding as of July 31, 2004 and 2003: Georgia Environmental Facilities Authority revolving loan - due in quarterly principal and interest installments of $94,668, including . interest at 4%, through May 2016. 2004 2003 $ 3,536,195 $ 3,767,605 Georgia Environmental Facilities Authority revolving loan - principal and interest at 4% due in quarterly installments of $119,392, including interest at 4%, through July 2019. 5,367,275 5,623,710 Total notes payable $ 8,903,470 $ 9,391,315 B - Revenue bonds payable The following is a summary of the revenue bonds outstanding as of July 31, 2004 and 2003: Water and Sewerage Revenue Bonds (Series 2002) - issued in the original amount of $149,400,000 in 2002 with interest varying from 2.50% to 5.375% on $57,840;000 serial bonds, with interest of 5.0% on $91,560,000 term bonds. Principal is payable in annual installments beginning October 1,2002 ranging from $235,000 to $20,,610,000 through maturity in October 2032. $ 148,260,000 $ 149,165,000 2004 2003 Water and Sewerage Revenue Bonds (Series 2000) - issued in the original amount of $97,080,000 in 2000 with interest varying from 4.40% to 5.25% on $30,590,000 serial bonds, and with interest of 5.25% on $66,490,000 term bonds. Principal is payable in annual installments beginning October 1, 2006, ranging from $355,000 to $11,105,000 through maturity in October 2030. 97,080,000 97,080,000 Water and Sewerage Revenue Bonds (Series 1996) - issued in the original amount of $66,640,000 in 1996 with interest varying from 3.6% to 6.25% and principal payable in annual installments ranging from $920,000 to $4,445,000 through maturity in October 2028. 59,620,000 60,720,000 12 AUGUSTA, GEORGIA UTILITIES Notes to Financial Statements - Continued July 31, 2004 and 2003 (See Accountants' Review Report) Note 6 - Long-term obligations (Continued) Water and Sewerage Revenue Refunding Bonds (Series 1997)- issued in the original amount of $5,910,000 in 1997 with interest varying from 3.60% to 5.25% and principal payable annually ranging from $100,000 to $400,000 through maturity in October 2021. 2004 2003 Total bonds payable $ 4,890,000 $ 5,060,000 309,850,000 312,025,000 (2,278,165) (2,377,493) (4,649,572) (4,829,808) $ 302,922,263 $ 304,817,699 Less: Deferred refunding amounts Less: Bond issue discounts During 2002, Utilities issued $149.4 million in Series 2002 Water and Sewerage Revenue bonds. A portion of the proceeds from the sale of these bonds was used to pay the outstanding balance of the Georgia Environmental Facilities Authority revolving loan in the amount of $8,815,000 with an interest rate of 5.5%. The remaining portion of the bond proceeds $140,585,000 was issued for the purpose of financing the costs of making additions, extensions and improvements to the Utilities' water and sewer system. A portion of the net proceeds' of $8,692,368 (after payment of $153,574 of underwriting fees and other issuance costs) was used to repay the Georgia Environmental Facilities Authority revolving loan. The remaining portion of the proceeds of$125,691,320 (after payment of $2,748,066 of underwriting fees and other issuance costs) plus an additional $11,753,672 of funds from a capitalized interest fund is to be used to for improvements to the Utilities' water and sewer system. No difference resulted in the current refunding between the reacquisition price and the net canying amount of the old debt. Utilities completed the refunding to obtain an economic gain (difference between present values of the old and new debt service payments) of approximately $792,000. During 2000, Utilities issued $97.08 million in Series 2000 Water and Sewer Revenue bonds for the purpose of financing the costs of making additions, extensions and improvements to the Utilities' water and sewer system. DUring 1996, Utilities issued $66.6 million in Series 1996 Water and Sewer revenue bonds. A portion of the proceeds from the sale of these bonds was used to advance refund all of the fonner City of Augusta's Series 1972 and 1991 Water and Sewer revenue bonds and the fonner Richmond County's Series 1987 and 1991 Water and Sewer revenue bonds. Proceeds of $19.4 million plus an additional $4.9 million of sinking fund monies from the defeased issues were used to purchase U.S. government securities. Those securities were deposited in an irrevocable trust fund with an escrow . agent to provide for all future debt service payments on the above-mentioned bonds. As a result, the bonds are considered to be defeased and the liabilities for those bonds have been removed from the Utilities Fund. 13 AUGUSTA, GEORGIA UTILITIES Notes to Financial Statements - Continued July 31,2004 and 2003 (See Accountants' Review Report) Note 6 - Long-term obligations (Continued) In 1997, Utilities issued $5.9 million in Series 1997 Water and Sewer Revenue Bonds. A portion of the proceeds from the sale of these bonds was used to advance refund all of the former Richmond Cotmty's Series 1986 Water and Sewer Revenue Bond. Proceeds of approximately $5.6 million plus an additional $.9 million of sinking fund monies from the defeased issues were used to purchase U.S. government securities. Those securities were deposited in an irrevocable trust fund with an escrow agent to provide for all future debt service payments on the above-mentioned bonds. As a result, the bonds are considered defeased and the liability for those bonds have been removed from the Utilities Fund. As of December 31, 2002 and 2003, the amount of these defeased debts outstanding but removed from the Water and Sewer Fund is $2,480,793 and $2,595,281, respectively. The advance refunding during 1996 resulted in a difference between the reacquisition price and the net carrying amount of the old debt of approximately.$2.5 million. This difference, reported in the accompanying [mancial statements as a deduction from bonds payable, is being charged to operations 1hrough the year 2028 using the .straight-line method. . The refunding increased the total debt service payments over the next 30 years by approximately $8.6 million and produced an economic gain of approximately $260,000. The advance refimding during 1997 resulted in a difference between the. reacquisition price and the net carrying amount of the old debt of approximately $540,000. This difference, reported in the accompanying fmancial statements as a deduction from bonds payable, is being charged to operations through the year 2021 using the straight-line method. The refunding will increase total debt service payments over the next 24 years by approximately $2.1 million and will produce an economic gain of approximately $110,000. C - Debt service requirements to maturity for bonds and notes payable The annual requirements to amortize debt outstanding as of July 31, 2004, including interest are as follows: Notes Payable Revenue Bonds Total Principal lnterest Principal lnterest Principal Interest 2005 $ 446,550 $ 341,291 $ 2,255,000 $ 15,562,267 $ 2,701,550 $ 15,903,558 2006 525,784 330,455 2,340,000 15,467,700 2,865,784 15,798,155 2007 547,133 309,106 2,785,000 15,364,515 3,332,133 15,673,621 2008 569,349 286,890 3,950,000 15,214,879 4,519,349 15,501,769 2009 592,467 263,772 4,825,000 15,011,750 5,417,467 15,275,522 2010-2014 3,740,622 1,018,144 34,800,000 70,872,773 38,540,622 71,890,917 2015-2019 2,481,565 186,052 46,240,000 60,798,578 48,721,565 60,984,630 2020-2024 59,435,000 47,214,659 59,435,000 47,214,659 2025-2029 76,555,000 29,685,275 76,555,000 29,685,275 2030-2034 76,665,000 7,966,322 76,665,000 7,966,322 $ 8,903,470 $ 2,735,710 $ 309,850,000 $ 293,158,718 $ 318,753,470 $ 295,894,428 14 AUGUSTA, GEORGIA UTILITIES Notes to Financial Statements - Continued July 31,2004 and 2003 (See Accountants' Review Report) Note 6 - Long-term obligations (Continued) D - Capital lease obligations The future minimum lease payments under leases and the net present value of these minimum lease payments as of July 31, 2004, are as follows: 15 AUGUSTA, GEORGIA UTILITIES Notes to Financial Statements - Continued July 31,2004 and 2003 (See Accountants' Review Report) Note 6 - Long-term obligations (Continued) Balance Balance January I, July 31, Current 2003 Increases Decreases 2003 Portion Revenue bonds payable $ 312,025,000 $ - $ - $ 312,025,000 $ 2,175,000 Notes payable 9,683,368 (292,053) 9,391,315 429,126 Capital leases payable 1,010,882 1,010,882 749,834 Compensated absences 317,567 7,756 325,323 325,323 323,036,817 $ 7,756 $ (292,053) 322,752,520 Less: Deferred refunding amounts (net of amortization) (2,431,289) (2,377,493) Less: Bond issue discounts (net of amortization) (4,939,092) (4,829,808) Total long-term obligations $ 315,666,436 $ 315,545,219 $ 3,679,283 Note 7 - Pension plans A. Plan descriptions, contribution information and funding policies Employees of the Utilities are covered under three single-employer pension plans and one agent multiple- employer pension plan of Augusta, Georgia. These plans are defined benefit plans. All full-time employees with more than one month of service are eligible to participate in a single-employer, defined contribution plan of Augusta, Georgia. The following is a summary of funding policies, contnbution methods, and benefit provisions for each plan. Single-emplover pension plans 1945 Plan The 1945 Plan was available to all former Richmond County employees hired prior to October 1, 1975 that met the Plan's age and length of service requirements. Participants in the Plan who retired at or after age 60 are entitled to a monthly benefit equal to 2% of average earnings multiplied by years . of service. Also, the benefit is not to exceed 60% of the av~rage earnings. The Plan provides death and disability benefits. These benefit provisions and all other requirements including amendments are established by Government ordinance. The Plan also provides for reduced benefits if the participant elects to retire after attaining age 50 and completing 15 years of service. Employees are required to make contributions to the Plan equal to 5% of earnings. The Government is required to contribute the remaining amounts necessary to fund the Plan. If a participant terminates employment prior to completion often years of credited service, the participant receives a lump-sum amount equal to his total contributions to the Plan, with 5% interest computed from January 1, 1997. After completion of at least ten years of credited service, the participant receives a monthly benefit deferred to his normal retirement date, equal to the benefit computed as for normal retirement multiplied by the percentage based on completed years of credited service, as follows: .50% after 10 years, 16 AUGUSTA, GEORGIA UTILITIES Notes to Financial Statements - Continued July 31,2004 and 2003 (See Accountants' Review Report) Note 7 - Pension plans (Continued) increasing 10% each year to 100% after 15 years of credited service. This is a closed retirement plan (new employees may not participate in the Plan). The 1945 Plan does not issue a stand-alone fmancial statement report. 1977 Plan The 1977 Plan was available to all former Richmond County full-time employees who were not participants in the 1945 Plan provided that they were not hired after reaching age 60. Normal retirement for the Plan is age 65 or the date when age 62 is attained and an employee completes 25 years of credited service. At that time, the employee is entitled to a monthly benefit equal to 1 % of average earnings multiplied by years of credited service. . The Plan. provides death and disability benefits. These benefit provisions and all other requirements including amendments are established by Government ordinance. The Plan also provides for reduced benefits if the participant elects to retire after attaining age 50 and completing 15 years of service. Employees are required to make contributions to the Plan equal to 4% of earnings. The Government is required to contribute the 'remaining amounts necessary to fund the Plan. If a participant terminates employment prior to completion of five years of credited service, the participant receives a lump-sum amount equal to his total contributions to the Plan, with interest After completing at least five years of credited service, the participant receives a monthly benefit deferred to his normal retirement date, equal to the benefit computed as for normal retirement. This is a closed retirement plan (new employees may not participate in the Plan). The 1977 Plan does not issue a stand-alone financial statement report. The funding policies for the 1945 and 1977 Plans provide for actuarially determined periodic contributions at rates that, for individual employees, remain stable over time so that sufficient assets will be available to pay benefits when due. The attained age aggregate cost method has been used to compute the normal cost for the plan. Any unfunded plan costs are spread over the average future working lifetime of the participants as a level percentage of payroll. The significant actuarial assumptions used to compute pension contribution requirements are the same as those used to determine the standard measure of the pension obligation. General Retirement Plan Employees hired after March 1, 1949 and before March 1, 1987, whose age did not exceed thirty-five years at the time of their employment and are not participants of the 1977 Plan are covered under the General Retirement Plan. Pension benefits vest after an employee is 45 years of age and has 15 years of full-time employment. An employee may retire at age 60 with 25 years of service and receive annual pension benefits equal to 2% of the employee's average salary earned during the last three years of employment, multiplied by the number of full-time years of employment. The Plan provides death and disability benefits. These benefit provisions and all other requirements including amendments are established by Government ordinance. All fun-time employees hired before July 1, 1980, must contribute 8% of gross earnings to the Plan, with the Government contributing remaining amounts sufficient to provide future pensions. This is a closed retirement plan (new employees may not participate in the Plan). The General Retirement Plan does not issue a stand-alone financial statement report. 17 . AUGUSTA, GEORGIA UTILITIES Notes to Financial Statements - Continued July 31, 2004 and 2003 (See Accountants' Review Report) Note 7 - Pension plans (Continued) Periodic employer contributions to the pension plan are determined on an actuarial basis using the frozen entry age cost method. The unfunded accrued liability is composed of pieces that are amortized over various periods to comply with Georgia law. When the actuarial value of assets exceeds 150% of the present value of accrued benefits, the Official Code of Georgia Annotated states that there is no minimum required contribution. The significant actuarial assumptions used to compute pension contribution requirements are the same as those used to determine the standard measure of the pension obligation. Agent multiple-emplover pension plan Georgia Municipal Employees Benefit System (GMEBS) Employees hired after March 1, 1987 and before consolidation on December 31, 1995, and who were not participants in any other employer-sponsored retirement plan are covered under the Georgia Municipal Employees Benefit System. The Plan provides pension benefits, deferred allowances, and death and disability benefits. These benefit provisions and all other requirements including amendments are established by Government ordinance. A participant may retire after reaching the age of 65 if the participant is not classified as public safety personnel; participating public safety personnel may retire at age 65 or age 55 with 25 years of total credited service, whichever is earlier. Early retirement may be taken at age 55 with 10 years of credited service. Benefits vest after 10 years of service. Employees who retire at or after age 55 with 10 or more years' of service are entitled to pension payments for the remainder of their lives equal to 1 l/4% of their final five-year average salary times the number of years of which they were employed as a participant in the GMEBS. The fmal five-year average salary is the average salary of the employee during the final five years of full-time employment. Pension provisions include deferred allowances, whereby an employee may terminate his or her employment with the Government after accumulating 10 years of service but before reaching the age of 55. If the employee does not withdraw his or her accumulated contributions, the employee is entitled to all pension benefits upon reaching the age of 55. Employees must contribute 3.5% of their gross earnings to the Plan. fu addition, the Government must provide annual contributions sUfficient to satisfy the actuarially determined contribution requirements as amended by GMEBS. The GMEBS Retirement Fund issues a publicly available financial report that includes financial statements and required supplementary information. That report may be obtained by writing to Georgia Municipal Employees Benefit System, 201 Pryor Street, SW, Atlanta, Georgia 30303. Periodic employer contributions to the pension plan are determined on an actuarial basis using the entry age normal actuarial cost method. Normal cost is funded on a current basis. The Plan is subject to the minimum funding standards of the Public Retirement Systems Standards Law. Since the Government's policy is to contribute the pension expense in each year, the funding strategy should provide sufficient resources to pay employee pension benefits on a timely basis. The significant actuarial assumptions used to compute pension contribution requirements are the same as those used to determine the standardized measure of the pension obligation. 18 AUGUSTA, GEORGIA UTILITIES Notes to Financial Statements - Continued July 31,2004 and 2003 (See Accountants' Review Report) Note 7 - Pension plans (Continued) Membership of the defmed benefit plans are as follows: Retirees and beneficiaries receiving benefits Tenninated plan members entitled to but not yet receiving benefits Active Plan members 1945 Plan 37 1977 Plan 72 170 General Retirement Plan (City 1949) 151 11 GMEBS 77 5 Total 337 186 4 626 152 226 1,008 The cost of administering the plans is financed through investment earnings. Actuarial asswnptions and other information used to determine the annual required contributions are located in the Supplementary fuformation section of the December 31, 2003 Annual Financial Report of Augusta, Georgia. Defined contribution plan Augusta-Richmond County Board of Commissioners Retirement Savings Plan (the "1998 Plan'') All full-time employees with more than one month of service are eligible to participate in the Retirement Savings Plan. The Plan is a defined contnbution plan under Section 401 (a) of the Internal Revenue Code, and is adniinistered by Nationwide Life Insurance, PP A support. The Plan was organized and may be amended by a majority vote of the full-body of the governing board, the Augusta-Richmond County Commission. Employees contribute four percent (4%) of their salary, and the Government contributes two percent (2%) of the employee's salary. At December 31,2003, there were approximately $1,297 plan participants. Participants are considered fully vested in the Government's contnoutions after completing five (5) years of service. For the year ended December 31, 2003, the employees' contributions were approximately $1,403,334, and the Government's contributions were approximately $701,667. B. Summary of significant accounting policies Pension trust funds are accounted for on the accrual basis. The accrual basis of accoWlting recognizes revenues when earned. Expenses are recorded when incurred. Plan member contnbutions are recognized in the period in which the contributions are due. Employer contributions are recognized . when due and the Government has made a formal commitment to provide the contributions. Benefits and refunds are recognized when due and payable in accordance with the terms of the plan. For information relating to reported investment values, see Note 1 G of the December 31,2003 Annual Financial Report of Augusta, Georgia. 19 AUGUSTA, GEORGIA UTILITIES Notes to Financial Statements - Continued July 31,2004 and 2003 (See Accountants' Review Report) Note 7 - Pension plans (Continued) C. Concentrations and reserves There are no assets legally reserved for purposes other than the payment of plan member benefits for any plans. The plans held no individual investments whose market value exceeds five percent or more of net assets available for benefits. There are no long-term contracts for contributions. D. Annual pension cost and net pension obligation The Government's annual pension cost is determined using the calculation methodology defined in GASB Statement No. 27. The annual pension cost equals the Government's annual required contribution, plus any adjustments required to reflect defmed minimum and maximum amortization periods and any prior period differences between the actual contribution paid into the plans and the . annual pension cost E. Trend information Fiscal Annual Actual Percentage Year Pension COWlty OfAPC Beginning Cost Contribution Contributed 2001 1945 Plan 01/01/2001 $ $ 100% 1977 Plan 01/01/2001 979,131 998,983 102% General Retirement Plan (City 1949) 01/01/2001 100% GMEBS . 01/01/2001 192,622 192,622 100% Fiscal Annual Actual Percentage Year Pension County OrAPC Beginning Cost Contribution Contributed 2002 1945 Plan 01101/2002 $ $ 100% 1977 Plan 01/0 112002 916,427 925,071 101% General Retirement Plan (City 1949) 01/01/2002 100% GMEBS 01/01/2002 168,316 168,316 100% 20 Net Pension (Asset) Obligation $ Net Pension (Asset) Obligation $ (54,035) AUGUSTA, GEORGIA UTILITIES Notes to Financial Statements - Continued July 31, 2004 and 2003 (See Accountants' Review Report) Note 7 - Pension plans (Continued) 2003 1945 Plan 1977 Plan General Retirement Plan (City 1949) GMEBS Fiscal Year Beginning Annual Pension Cost Actual County Contribution Percentage OfAPC Contributed Net Pension (Asset) Obligation 01/01/2003 $ 01/01/2003 $ 620,596 655,871 100% 106% $ (179,218) 01/01/2003 01/01/2003 181,834 181,834 100% 100% Note 8 - Risk management The Board of Commissioners of Augusta, Georgia has elected to provide its own coverage for claims against Augusta, GeOrgia in the area of public liability and vehicular public liability due to the large increases in liability. insurance premiums. Augusta, Georgia has procured fire and extended coverage insurance on the inSl,lIable portions of the Utilities. In addition, Augusta, Georgia has established a separate fund in order to handle any major losses. Augusta, Georgia is of the opinion that the sums that have been set aside are more than adequate to cover any claims or judgments against Augusta, Georgia and its Utilities. Augusta, Georgia is also of the opinion that no bondholder is jeopardized by Augusta, Georgia maintaining its own insurance coverage due to the amounts available for claims or judgments. During the year, Augusta, Georgia government accumulates expenses for risk management, workers' compensation, health benefits, unemployment taxes, disability, and GMA leases in an internal service fund, and allocates the expenses to the various funds at year-end. 21 REPORT Engineer's Report Water and Sewerage Revenue Bonds, Series 2004 Prepared for Augusta Utilities Department Prepared by CH2MHILL Utility Management Solutions NOVEMBER 2004 Contents Acronyms ............................................ ....... ................................................................... ....................... v 1.0 Introd ucti on ......... ........ .................................................................................... ................... .1-1 1.1 Authorization and Purpose...................................................................................1-1 1.2 References... ...... ............. ....... ............ ....... ............. ......... .......... ........ ........... ..... ........1-2 1.3 Assumptions .......... ........ ........ .............. ..... ................. ........ .......... ......... ................ ..1-3 2.0 System History and Organization, and County Growth ............................................2-1 2.1 Organizational Structure .. ..... ........... ........ ............. ................. ........... ................ .... 2-2 2.1.1 Augusta.. ... ....... ........ .............. .... ........ ..... .... ... ........... ... ........ .... ......... .......... 2-2 2.1.2 System Management................ ....... ... .... ....... .... .......... ......... .....................2-2 2.2 Augusta Population Trends........ .......... .......... ........... ............... ........... ................. 2-6 3.0 Water System............................ ........................................................................................... 3-1 3.1 Overview of Potable Water System .....................................................................3-1 3.2 Water Service Area .................................................................................................3-2 3.3 Water Supply..... ........ ....... ... ........... ......... ....... ...... ........ .............. ........... ............. .... 3-3 3.3.1 Raw Water Pumping.................................................................................3-4 3.3.2 Raw Water Transmission and Storage ...................................................3-5 3.4 Water Treatment Facilities ....................................................................................3-6 3.4.1 Highland Avenue WTP System Processes.............................................3-6 3.5 Finished Water Storage, Chemical Feed Systems, and High Service Pumping ..................................................................................................................3-7 3.5.1 Finished Water Storage... ......... ................ ................................. ................3-7 3.5.2 Chemical Feed Systems ............................................................................3-8 3.5.3 High Service Pumping ............. .................. ... ........ ..................... ...... ......... 3-8 3.6 Water Distribution System .... .......... ......... ............. ........... ............. ......... ..... .......... 3-9 3. 7 Water Quality...... ......... ....... .... .......... ......... ............ ............ ........................... ........ 3-14 3.8 Projected Water Demand ....................................................................................3-14 3.9 Regulatory Impacts ........ ........ ........... .......... ............................ ........ ............. ........ 3-17 3.9.1 Existing Regulations ...............................................................................3-18 3.9.2 Recently Promulgated Regulations ......................................................3-19 3.9.3 Future Regulations ..... ................ ..... ...... .......... ........... ......... ............... .....3-20 4. 0 Wastewater System .......................................................... ................................... ............... 4-1 4.1 Overview of Wastewater System .........................................................................4-1 4.2 Wastewater Collection and Conveyance ............................................................4-2 4.3 Wastewater Treatment Facilities ..................... .......... .............. ....... .......... ...... ...... 4-3 4.4 Projected Wastewater Flows ...... ........................ ....... ............. ......... ............... ....... 4-5 4.5 Regulatory Impacts.. ........ ....... ... ... ................... .......... ... .......... ......... ......................4-6 4.5.1 Watershed Management ..... ....... ................. ............. ........ .......... ........ ...... 4-7 4.5.2 Total Maximum Daily Load Development............................................4-7 4.5.3 NPDES Permitting and Nutrient Management ....................................4-7 4.5.4 Onsite Septage Systems ............................ ............ .................... ...... .......... 4-8 4.5.5 Residuals Management and 503 Regulations........................................4-8 4.5.6 Stormwater Pollution Prevention Plan...................................................4-9 CONTENTS (CONTINUED) 4.5.7 Spill Prevention, Control, and Countermeasures Plan ........................4-9 4.5.8 Municipal Storm Water Discharge Permit...........................................4-10 5.0 Proposed System Capital Improvement Plan ...............................................................5-1 5.1 Planning Criteria and Assumptions ....................................................................5-1 5.2 Cost Opinions for Recommended Projects .........................................................5-3 5.3 Summary of Capital Improvements ....................................................................5-4 5.3.1 Water Treatment.... ....... ... ... ..... ... .......... ....... ......... .......... .......... ......... ........ 5-5 5.3.2 Water Distribution System..... ........ .......... ..... ........ ..... ........ ............. ......... 5-6 5.3.3 Wastewater Treatment.... ....... ........ ... ....... ... ........ .......... ........ ............ .... .... 5-8 5.3.4 Wastewater Conveyance ........ ....... ... ... ........ ........ ......... ...... .................. ....5-9 5.3.5 System-wide Improvements ..................................................................5-12 5.4 Anticipated Future Work .................................................................................... 5-13 6.0 Financial Performance....................................................................................................... 6-1 6.1 Historical Performance..... ........ .......... ............. ........ ........ ........... ........... ................6-1 6.2 Water and Sewer Rates .......................................................................................... 6-1 6.3 Financial Policies .............. ............ ........ ............. .... ......................... ........... ..... ........6-4 6.4 Projected Operating Results........ .......... ........... ........ ....... ........... .............. .............6-5 6.4.1 Revenues... ....... ........ ... ................... ............. ................... ....... ................ ... ... 6-5 6.4.2 Expenses .......... ........ .................... ........... ... ..... .............. ....... .......... ............. 6-8 6.4.3 Debt Service.. ..... ... ........... ........ .......... ... .... .............. ........ ... ........... ..............6-9 6.4.4 Debt Service Coverage... ........ ............. ........ ........ ............................. ....... 6-10 6.4.5 Operating Fund Balances .......................................................................6-10 6.5 Capital Financing.. ........ ........... .................. ............. ..... .............. ........... ................6-12 6.6 Conclusions. ................... ... .......... ....... ............ ....... ........... .......... ......... .................. 6-12 Tables 2-1 Population Forecasts 3-1 Water Withdrawal Permits 3-2 Existing Equipment at the Raw Water Pump Station 3-3 Water Treatment Plants and Chlorination System 3-4 Summary of High Service Pumping 3-5 Pressure Gradient Summary 3-6 Surface Water Storage Facilities 3-7 Surface Water Pumping Facilities 3-8 Groundwater System Storage Facilities 3-9 Groundwater System Pumping Facilities 3-10 Water Demand 2003 3-11 The 10 Largest Water Customers (for the 12-month period ending December 31, 2003) 3-12 Projected Water Consumption 3-13 Projected Water Usage by Customer Class 3-14 Summary of Stage 1 DjDBP Rule Limits 4-1 Wastewater Treatment Plants Owned by Augusta 4-2 J. B. Messerly WPCP Effluent Limitations 4-3 Spirit Creek Effluent Limitations 4-4 Wastewater Flows (mgd)1 4-5 10 Largest Wastewater Customers 4-5 10 Largest Wastewater Customers 5-1 2004 Series Bond Projects-Summary of Estimated Costs III CONTENTS (CONTINUED) 5-2 2004 Series Bond Projects-Summary of Estimated Water Treatment Costs 5-3 2004 Series Bonds Projects-Summary of Estimated Costs for Water Distribution Projects 5-3.1 2004 Series Bonds Projects- Estimated Costs for Water Distribution Other System Improvements 5-3.2 2004 Series Bonds Proj ects - Estimated Costs for Water Distribution State Highway Projects 5-4 2004 Series Bonds Projects-Summary of Estimated Wastewater Treatment System Costs 5-5 2004 Series Bonds Projects-Summary of Estimated Wastewater Conveyance System Costs 5-5.1 2004 Series Bonds Projects- Estimated Wastewater Conveyance System Costs: PlanninglOperationsjMonitoring 5-5.2 2004 Series Bonds Projects-Estimated Wastewater Conveyance System Costs: Interceptor Upgrades 5-5.3 2004 Series Bonds Projects-Estimated Wastewater Conveyance System Costs: 1/1 Reduction 5-5.4 2004 Series Bonds Projects- Estimated Wastewater Conveyance System Costs: Unsewered Pockets 5-5.5 2004 Series Bonds Projects- Estimated Wastewater Conveyance System Costs: ExpansionsjExtensions 5-6 2004 Series Bonds Projects-Summary of Estimated System-wide Costs 6-1 Historical Water and Sewer System Operating Results 6-2 Water and Sewer Rates (Effective 4/1/2004) 6-3 Comparison of Typical Monthly Residential Customer Bills 6-4 Water and Sewer System Operating Results 6-5 Operating Fund, Sources and Uses of Cash Flows 6-6 Funding Decisions Figures 2-1 Location Map 2-2 Organizational Chart 2-3 Projected Growth by Region 3-1 Service Areas and Major Water Distribution Lines 3-2 Existing Wells and Treatment Plants 3-3 Water Pumping Stations 4-1 Wastewater System Service Areas 4-2 Drainage Basins 5-1 Projects Totally Funded Under Previous Bond Programs 5-2 Projects Partially Funded Under Previous Bond Programs 5-3 Water Distribution Construction Projects 5-4 Wastewater Conveyance Construction Projects Appendices A Population Growth within Census Tracts B Future Water Treatment Regulations IV Acronyms ... AL AMWA ASCE AUD AWWA BMP BPS CFR cfs CGFM CIP CMOM CPA CPE CT CWA D/DBP DI DNR DO EPA EPD FAC FM fps ft2 FTE FY GEFA gpcpd gpd gpml ft2 GWTP HAA HPC III Action Limit Association of Metropolitan Water Agencies American Society of Civil Engineers August Utilities Department American Water Works Association Best Management Practice booster pump station Code of Federal Regulations cubic feet per second Certified Government Financial Manager Capital Improvement Plan Capacity, Maintenance, Operation, and Management Certified Public Accountant Chartered Pension Executive Contact Time Clean Water Act Disinfectants I Disinfection Byproducts Rule ductile iron Department of Natural Resources Dissolved Oxygen United States Environmental Protection Agency State of Georgia, Department of Natural Resources, Environmental Protection Division Federal Advisory Committee force main feet per second square feet Full-time Equivalent Fiscal Year Georgia Environmental Facilities Authority gallons per capita per day gallons per day gallons per minute per square foot groundwater treatment plant Haloacetic Acid Heterophic Plant Count infiltration and inflow v ACRONYMS (CONTINUED) IDSE IESWTR IT kgal LRAA LTlESWTR LT2ESWTR MCL(G) MG mg/L mgd MS4 MSA msl NPDES NTU O&M PAC PE PRV PS PSI PVC RMP SDWA SPCCP SWAP SWP3 SWTR TDH TM TMDL TSS TIHM UV WEF WPCP WTP WWTP Initial Distribution System Evaluation Interim Enhanced Surface Water Treatment Rule Information Technology 1,000 gallons Locational Running Annual Average Long-Term 1 Enhanced Surface Water Treatment Rule Long-Term 2 Enhanced Surface Water Treatment Rule maximum contaminant level (goal) million gallons Milligrams per Liter million gallons per day Municipal Separate Storm Sewer System Metropolitan Statistic Area mean sea level National Pollutant Discharge Elimination System Nephelometric Turbidity Unit Operations and Maintenance Powdered Activated Carbon Professional Engineer Pressure-Reducing Valves pump station pounds per square inch polyvinyl chloride risk management plan Safe Drinking Water Act Spill Prevention, Control, and Countermeasures Plan Source Water Assessment Plan Stormwater Pollution Prevention Plan Surface Water Treatment Rule Total Dynamic Head Technical Memorandum Total Maximum Daily Load Total Suspended Solids total trihalomethanes Ultraviolet Water Environment Federation Water Pollution Control Plant water treatment plant wastewater treatment plant VI 1.0 Introduction 1.1 Authorization and Purpose CH2M HILL was retained to prepare this Engineer's Report ("the Report") as an analysis of the feasibility of issuing $160,000,000 Augusta, Georgia Water and Sewerage Revenue Bonds, Series 2004 (the "Series 2004 Bonds"). CH2M HILL has served as the overall program manager for the $42 million, $94 million, and $130 million water and sewerage (also referred to as "wastewater") capital improvement programs in Augusta, funded by the 1996,2000, and 2002 bond issues, respectively. CH2M HILL also completed the Augusta Master Plan 2000, approved by the Augusta-Richmond County Commission on July 19, 2000, which presented a multiple phase capital improvement plan (CIP). This plan identified capital improvements to be financed through the Series 2000 and 2002 Bonds. During the years 2005 through 2013, approximately $189,600,000 in capital improvements to the Augusta water and wastewater system will be funded by proceeds of the Series 2004 Bonds and interest earnings thereon, plus approximately $31,700,000 in system revenues. The proceeds of the Series 2004 Bonds will be applied in the following approximate amounts, subject to final pricing: · $157,899,704 - (including expected interest earnings of approximately $11,800,000) will finance improvements to the Augusta water and wastewater system; · $13,362,549 - costs of issuance (including underwriter's discount, legal fees, bond insurance and surety bond fees, the cost of settling a rate lock entered into in anticipation of the Series 2004 Bonds, rating fees, and other miscellaneous costs associated with issuance of the Series 2004 Bonds); . $10,041,109 - original issue premium; and . $10,606,759 - to finance a portion of capitalized interest through 10/1/09. The "System" is defined as the water and wastewater facilities that are owned and operated by Augusta, Georgia (Augusta) together with all water and wastewater facilities acquired or used by Augusta in furnishing water and wastewater services. Major components of the System are referred to herein as the "Water System" and the "Wastewater System." This Report contains the following sections: . Section 1- Introduction - outlines authorization and purpose of the Report, study references, and assumptions. . Section 2 - System History and Organization, and County Growth - provides an overview of the System's history, organization, management, and county population trends. 1-1 ENGINEER'S REPORT AUGUSTA UTILITIES DEPARTMENT WATER AND WASTEWATER REVENUE BONDS, SERIES 2004 . Section 3 - Water System - describes the current Water System service area, facilities, operations, and assets. . Section 4 - Wastewater System - describes the current Wastewater System's service area, facilities, operations, and assets. 1 . Section 5 - Proposed System CIP - provides the planning criteria and assumptions used for identifying needed capital improvements and it describes the purpose and function of categories of planned improvements. . Section 6 - Financial Performance - describes historical and projected financial performance, Augusta's financial policies, and a funding analysis for the Series 2004 Bonds. 1.2 References CH2M HILL reviewed and relied upon information provided by the Augusta Utilities Department (the "Department"). As part of previous and current project assignments CH2M HILL has independently verified a significant portion of this information. Although CH2M HILL offers no assurances regarding information not independently verified, it has no reason to believe that the information is invalid for the purposes of this Report. Information used to complete this Report included: · Interviews with Department staff . Preliminary Official Statement, Augusta, Georgia Water and Sewerage Revenue Bonds, Series 2004, dated November, 2004. . Augusta Utilities Department, 2004 Budget Workbook · Augusta-Richmond County, Georgia, Annual Financial Statements, 1997-2003 . Augusta-Richmond County Utilities, Financial Statements and Accompanying Information for the year ended 1997-2003 . City of Augusta, Georgia and Richmond County, Georgia, Combined Water and Sewerage Funds, Combined Balance Sheets, 1997-2003. . Augusta-Richmond County Utilities, Miscellaneous Statistical Data for the years ended 1997-2003 (prepared by Augusta Utilities Department) · Augusta-Richmond County Comprehensive Plan 2004, (prepared by Augusta-Richmond County Planning Commission) . Technical Memorandum: Population Trends and Water/Wastewater Flow Projections, July 12, 2004 (prepared by Diane Reilly, Consulting Economist) · Technical Memorandum: Future Water Treatment Regulations, July 14, 2004 (Steve Lavender, CH2M HILL) 1-2 ENGINEER'S REPORT AUGUSTA UTILITIES DEPARTMENT WATER AND WASTEWATER REVENUE BONDS, SERIES 2004 · Water & Sewerage Revenue Bonds, Series 2002, Engineer's Report, June 13,2002 (prepared by CH2M HILL) · James B. Messerly Water Pollution Control Plant Master Plan, 2003 (prepared by CH2M HILL) · Master Plan 2000 for Water and Wastewater Systems, Augusta Utilities Deparbnent, Technical Memorandum 5.2: Augusta-Richmond County Wastewater Conveyance System Evaluation, April 4, 2002 (prepared by CH2M HILL) · Master Plan 2000 for Water and Wastewater Systems, Augusta Utilities Deparbnent, Summary of Recommendations for Expansions and Improvements, February 4, 2000 (prepared by CH2M HILL) · Water Distribution System Analysis for Augusta Utilities Department September 2001 (prepared by CH2M HILL) · GA Optimization Study of Augusta Utilities Deparbnent Distribution System Master Plan - Design Data Summary, August, 2004 Draft (prepared by CH2M HILL & Optimatics) · Highland Avenue Water Treatment Plant Basis of Design Report, Volume 1 and 2, April 2003 (prepared by Gannett Fleming) · Augusta Canal Power Utilization and Raw Water Pumping Engineering Study, July 6, 1998 (prepared by ZEL Engineers). · Preliminary Engineering Design Report - Upgrade Raw Water Pumping, June 2002 (prepared by ZEL Engineers) 1.3 Assumptions CH2M HILL also made certain assumptions about future conditions with regard to the System. While these assumptions are reasonable for the purposes of this Report, actual conditions may differ from those assumed. To the extent that future conditions differ from those assumed, results will vary from those forecast. CH2M HILL's principal assumptions regarding future conditions are: · Augusta-Richmond County population will increase from the 2000 level of 199,775 to 224,715 by 2025, according to the Augusta-Richmond County Comprehensive Plan 2004. In addition, many areas of Augusta are under development as a result of a shift in growth patterns. This will require that the Deparbnent expand water and wastewater infrastructure to serve new customers. · Augusta has adopted a policy to mandate conversion to central wastewater collection when service is available. The Deparbnent has plans to ensure enforcement but conservatively estimates that actual connections will occur over a period of 3 years following completion of new collection lines in unsewered areas. · System water consumption and wastewater flows will increase in proportion to the forecast increases in the number of water and wastewater accounts and per capita flows. 1-3 ENGINEER'S REPORT AUGUSTA UTILITIES DEPARTMENT WATER AND WASTEWATER REVENUE BONDS, SERIES 2004 . System per capita residential water consumption will decrease by an estimated 2 percent over the next 20 years due to the implementation of local and statewide water conserva- tion measures and response to improved water use metering and projected rate increases. · The Augusta-Richmond County Commission will adopt the rate increases necessary to implement the financial plan outlined in Section 6. Additional assumptions used in preparing the CIP are described in Section 5. 14 2.0 System History and Organization, and County Growth Augusta, Georgia is a political subdivision of the State of Georgia, created on January 1, 1996, pursuant to Acts of the General Assembly of the State of Georgia, which authorized the consolidation of the municipal corporation known as "The City Council of Augusta" and the political subdivision known as "Richmond County, Georgia" (the "Consolidation Charter"). See Figure 2-1 for the County's location in Georgia. Augusta owns the water supply, treatment, and distribution system, as well as the wastewater collection and treatment system. The Department is responsible for the operation and maintenance of the water treatment and distribution facilities (the "Water System"), as well as the wastewater conveyance and treatment facilities (the "Wastewater System") that serve Augusta's service area. In addition, the Department provides customer service functions including meter reading and customer billing, revenue collections, and inspection of new construction. 2-1 ENGINEER'S REPORT AUGUSTA UTILITIES DEPARTMENT WATER AND WASTEWATER REVENUE BONDS, SERIES 2004 2.1 Organizational Structure 2.1.1 Augusta On January I, 1996, Augusta was created as a consolidated city-county government, whose territorial jurisdiction extends to all of what was formerly Richmond County. Blythe and Hephzibah, small municipalities with estimated current populations of 720 and 3,945, respectively, still hold their own municipal charters within the consolidated territory. The relationship between Augusta and Blythe and Hephzibah is similar to that of counties and municipalities within the territorial limits of such counties. As a result of consolidation, Augusta is able to provide public services throughout its territorial limits through a single organization and management structure. Augusta has a municipal form of government. Under the Consolidation Charter, the governing authority of Augusta is a board of commissioners designated as the Augusta- Richmond County Commission (the "Commission"). The Commission consists of a Mayor, who is the chief executive officer of the Commission, and 10 commissioners. 2.1.2 System Management The System is managed by Augusta through the Department. The Administrator of Augusta, who is appointed by the Commission upon recommendation of the Mayor, oversees the management of the operations and capital program of the Department. The chief managerial officer of the Department is the Director, who is appointed by the Commission. Interim Administrator. Frederick L. Russell, age 51, was appointed Interim Administrator in June, 2004 following the resignation of former Administrator, Mr. George Kolb. Mr. Russell served as Augusta's Deputy Administrator, Public Safety Portfolio, from January 2002 until he assumed the Interim Administrator position. Mr. Russell has a Master of Science in Criminal Justice from Nova University and a Bachelor of Science from Virginia Tech. He attended the FBI National Academy, 150th Session. Some of the former positions he has held include: Deputy Chief, Richmond, Virginia Police Department; Executive Director, Virginia State Crime Commission; Chief of Police, City of Bedford, Virginia. Director of Finance. David Persaud, age 47, has been the Director of Finance of Augusta since June 3, 2002. Mr. Persaud was the Director of Finance for Chatham County, Georgia from November 1985 through May 2002. From August of 1984 through November 1985, Mr. Persaud was the Director of Finance of the City of Mount Dora, Florida. From February 1982 through August 1984, Mr. Persaud was the accountant for Glynn County, Georgia. Prior to August 1984, Mr. Persaud was employed in the private sector. Mr. Persaud received a B.S. degree in Business Administration and Accounting from the University of Coastal California and a Masters degree in Public Administration from Savannah State University. He is a Certified Government Financial Manager (CGFM) and has a Chartered Pension Executive (CPE) certification. Director. N. Max Hicks, P.E., age 64, has been the Director of the Augusta Utilities Department since June 4, 1996. From 1991 to 1996, Mr. Hicks was the General Superintendent and the Assistant General Superintendent, respectively, of the City's Water 2-2 ENGINEER'S REPORT AUGUSTA UTILITIES DEPARTMENT WATER AND WASTEWATER REVENUE BONDS, SERIES 2004 Works Office. From 1989 to 1991, Mr. Hicks was Public Works Director for the City of Toccoa, Georgia. Prior to that, he was a Partner, Director, and Vice President of the consulting engineering firm of Zimmerman, Evans, and Leopold, Inc., Augusta, Georgia. Mr. Hicks studied Engineering and English at Charlotte College (now University of North Carolina at Charlotte), Charlotte, North Carolina, and Economics and Accounting at the University of South Carolina at Aiken, Aiken, South Carolina. Mr. Hicks is a Licensed Professional Engineer and Land Surveyor in Georgia. Mr. Hicks received the 2002-2003 Government Civil Engineer of the Year Award from the South Carolina section of the ASCE; the Best Friend Award from the Georgia Water Wise Council in 1998; and was the 1996 recipient of the Elizabeth McIntyre Award for Outstanding Service in Water Supply from the Georgia Water and Pollution Control Association. His technical society memberships include the American Society of Civil Engineers (ASCE), American Water Works Association (AWWA), Water Environment Federation (WEF), Surveying and Mapping Society of Georgia, and the Association of Metropolitan Water Agencies (AMW A) where he serves on the Regulatory Committee and the Management Committee. Assistant Director of Finance & Administration. Steven J. Little, c.P.A., age 48, has been the Assistant Director of Finance and Administration of the Augusta Utilities Deparbnent since December of 2001. From 2000 to 2001, he was the Assistant to the Chief Financial Officer at the national headquarters for Electrolux Home Products, makers of Frigidaire appliances, located in Augusta, Georgia. Prior to that, he was the Chief Financial Officer for a start-up medical referral company and its sister corporation in Aiken, South Carolina. His previous experience includes over 10 years of public accounting, with an emphasis in auditing local governments, and internal auditing for a private utility company. Mr. Little is a certified public accountant. He is currently serving as Vice Chair of the Finance and Administration Sub-Committee of the Water Environment Federation's Utility Management Committee. He received a B.B.A. degree in Accounting from Iowa State University in 1982. Assistant Director, Wastewater Treatment. D. Allen Saxon, Jr., age 48, has been the Assistant Director of Wastewater for the Augusta Utilities Deparbnent since March 5,2001. Mr. Saxon previously served as the Supervisor of Water Pollution for the City for 17 years until September of 1994, when he resigned to further his education. He is an active member of the Georgia Water & Pollution Control Association and the Water Environment Federation. Mr. Saxon was Georgia's 1990 recipient of the William D. Hatfield Award from the Water Environment Federation. Mr. Saxon earned a B.B.A. degree in 1983 from Augusta College and an M.S. degree in 1996 from Georgia State University. Mr. Saxon is certified as a Class I Wastewater Treabnent System Operator by the State of Georgia. Assistant Director, Water Production. Clifford A. (Drew) Goins, age 49, has been the Assistant Director of Water Production for the Augusta Utilities Deparbnent since May 29, 2001. Mr. Goins has been employed by the City for almost 23 years in various capacities. He began his employment with the City as a Resident Engineer in 1982 until his promotion to Assistant Commissioner of Public Works and Director of Engineering in 1990. From 1993 through 1996, Mr. Goins served as the acting Commissioner of Public Works and Director of Engineering while the Commissioner of Public Works was reassigned to the position of acting City Administrator. After serving in that capacity, Mr. Goins served as the Assistant Director of Public Works and Engineering until he accepted his current position. Mr. Goins has been a 10th District Chapter Director for American Public Works Georgia and a 2-3 ENGINEER'S REPORT AUGUSTA UTILITIES DEPARTMENT WATER AND WASTEWATER REVENUE BONDS, SERIES 2004 committee member of the American Public Works National Engineering & Technology. He received a Bachelor of Civil Engineering Technology Degree from Southern Technical Institute in 1981. Assistant Director, Engineering & Construction. Douglas A. Cheek, P.E., age 40, has been the Assistant Director of Engineering and Construction for the Augusta Utilities Department since May 29, 2001. From August of 1998 until May of 2001, Mr. Cheek served as the City Engineer for Augusta. From July of 1988 until July of 1998, Mr. Cheek served as the Bridge Construction Liaison Engineer and Project Engineer for the Georgia Department of Transportation's Metro Atlanta District Office. In June of 1988, Mr. Cheek received a Bachelor of Civil Engineering from the Georgia Institute of Technology in Atlanta, Georgia. He also studied Biology at Clayton State College in Morrow, Georgia from 1982 to 1984. Mr. Cheek is a Registered Professional Engineer in Georgia. Customer Service Superintendent. Alma Stephenson, 57, has been the Superintendent of Sales, Collections, and Customer SerVice of the Augusta Utilities Department since June 4, 1996. Ms. Stephenson has been employed by the City for 27 years. She was appointed Director of Consolidated Revenue/Manager of the Water Works Office and Sales Department in June of 1995, after serving for 8 years as the Assistant Director of Consolidated Revenue/Manager of the Water Works Office and Sales Department. The Department. The Department has 284 full-time equivalent (FTE) positions authorized in its fiscal year (FY) 2004 budget and, as of June 11, 2004, had 52 open positions (9 for the new water treatment plant that will begin training and operation in December 2004). Figure 2-2 illustrates the current organization of the Department. No employees of the System are represented by labor organizations or are subject to provisions of collective bargaining agreements, and the Commission is not aware of any union organizing efforts. The System's plant operators and maintenance and repair personnel are required to meet the certification levels prescribed by the State of Georgia Board of Certification of Water and Wastewater Operators. Augusta pays for continuing education programs to ensure that System personnel are qualified, and achieve and maintain certification of their qualifica- tions. The System's operators meet or exceed the minimum credentials required by the State of Georgia. Additionally, all field employees must attend safety meetings and participate in safety training programs; these cover shoring and trenching, confined space entry, lock-outf tag- out, and other safety topics. 2-4 I- I- .... o::zo ow~ a.::o", ~~~ ",<:0:: o::fu~ Wo - ~m~ ~E~ w=:!rn I-w =>=> <:z I-W "'> =>w <90:: =>0:: <:w I- <: :;: W I- '" <: :;: o z <( 0:: W I- ~ ~ '" ENGINEER'S REPORT AUGUSTA UTILITIES DEPARTMENT WATER AND WASTEWATER REVENUE BONDS, SERIES 2004 2.2 Augusta Population Trends After growing by 5.3 percent from 1990 to 2000, the total population of Augusta declined slightly between 2000 and 2003, from 199,775 to 198,149 according to the U.S. Bureau of the Census. Statewide, the population in Georgia, which grew by 26.4 percent during the 1990s, has increased by 5.5 percent from 2000 to 2003. Despite the slight population decline over the last 3 years, Augusta ranks seventh in the State in terms of population behind five metropolitan Atlanta counties (Fulton, DeKalb, Gwinnett, Cobb, and Clayton) and Savannah's Chatham County. While the growth rate of Augusta has been relatively modest compared to the accelerated growth experienced elsewhere in the State, Augusta's previously undeveloped areas have experienced significant population growth. This redistribution of population has hastened some of the requirements for planned capital improvements. The projected growth by census tracts (Appendix A) from 2000 to 2010 is shown in Figure 2-3 by regions. Note that Regions I, 2 and 5 represent the older, more developed City of Augusta prior to consolidation. The general population shift within Augusta to more rural areas, which previously had limited services or were not served, will require the Department to expand System capacity in these areas. Economic development is largely affected by factors beyond Augusta's direct control including growth in adjacent counties and the health of the Augusta Metropolitan Statistical Area's (MSA) economy. However, economic development and growth manage- ment policies of the local government will significantly impact the pattern of population distribution within the County. The projections used by CH2M HILL in forecasting water and wastewater flows (see Sections 3.8 and 4.4) used the forecast presented in the Augusta-Richmond County Comprehensive Plan 2004, with adjustments made for the U.S. Army's Fort Gordon on-base population. Table 2-1 presents the projected population, including that for Fort Gordon, for Augusta through 2025 (obtained from the U.S. Bureau of the Census). As shown in the table, future growth is expected to be similar to that experienced by the City from 1990 to 2000. TABLE 2.1 Population Forecasts Augusta, 1990 (estimate) through 2025 1990 2000 2010 2020 2025 Area (Census) (Census) (projected) (projected) (projected) State of Georgia 1 6,506,531 8,230,094 Percent Change 26.5% Augusta-Richmond County1 189,719 199,775 208,356 219,759 224,715 Percent Change 5.3% 4.3% 5.5% 2.3% Augusta1 195,182 203,564 214,705 219,642 Percent Change 4.3% 5.5% 2.3% Hephzibah 1 3,880 4,042 4,263 4,263 Percent Change 4.2% 5.5% 0.0% Blythe1 713 750 791 810 Percent Change 5.2% 5.5% 2.4% 'Augusta-Richmond County Comprehensive Plan 2004, prepared by Augusta-Richmond County Planning Commission) 2-<> ENGINEER'S REPORT AUGUSTA UTILITIES DEPARTMENT WATER AND WASTEWATER REVENUE BONDS, SERIES 2004 2-7 3.0 Water System 3.1 Overview of Potable Water System Augusta owns and operates a potable water system serving 60,105 residential and 8,008 commercial and industrial customers as of July 31, 2004. The City may draw surface water from the Savannah River and groundwater from the Tuscaloosa Aquifer that lies beneath the City. Currently water is drawn from the Savannah River through the Augusta Canal that was constructed in the 1840-1870s. Raw water is pumped from the Augusta Canal to raw water holding basins located at the HigWand Avenue Water Treabnent Plant (WTP). The water from the Tuscaloosa Aquifer is pumped by wells to groundwater water treabnent plants (GWTP) Nos. I, 2, and 3. The water system consists of a raw surface water supply with a monthly average allobnent of 75 million gallons per day (mgd) and ground water supply with a monthly average allobnent of 18.4 mgd. The system has raw surface water storage capacity of approximately 124 million gallons (MG), five raw surface water pump stations with aggregate raw water pumping capacity of 88 mgd, and 26 active wells with aggregate groundwater pumping capacity of 23.1 mgd. The system includes four water treabnent plants and a rural chlorina- tion system with an aggregate rated capacity for treabnent of raw water of 83.7 mgd and an aggregate rated treated water pumping capacity of 66.7 mgd. In addition, the system has treated water storage capacity of 43.2 MG and a water distribution network of approximately 1,010 miles of pipelines. Currently Augusta can be supplied with 80 mgd of treated water from the four operating water treabnent plants: HigWand Avenue WTP with 601 mgd production capacity, GWTP No.1 with 5 mgd capacity, GWTP No.2 with 10 mgd capacity, and GWTP No.3 with 5 mgd capacity. Plans call for a reduced groundwater use in the near-term. HigWand Avenue WTP is soon to be expanded and upgraded to produce a continuous 60 mgd (discussed in Section 5). The new N. Max Hicks Tobacco Road WTP (Hicks WTP) with a capacity of 15 mgd is to be completed and operational in early 2005 and will replace water supplied by GWTP No.1, and part of the production of GWTP No.2 (5 mgd). This will reduce average groundwater usage to 10 mgd. By year 2020, the N. Max Hicks Tobacco Road WTP capacity will be increased to 40 mgd and these two GWTPs will become an active reserve source for the system. As active reserve, they will be used regularly to maintain system performance but will not be considered part of the primary water supply source. The surface water treated at the HigWand Avenue and Hicks WTPs will be the primary source at that time. Various associated pipeline, storage, and pump station facilities are to be added or upgraded to permit the transition from current to near-term and to long-term supply sources and to meet projected water demands. 1 The Highland Avenue WTP can produce a continuous 45 mgd but for short periods of high demand can treat up to 60 mgd. 3-1 ENGINEER'S REPORT AUGUSTA UTILITIES DEPARTMENT WATER AND WASTEWATER REVENUE BONDS, SERIES 2004 3.2 Water Service Area The Water System supplies water to residential, commercial, and industrial customers located within the County. The service area encompasses approximately 210 square miles (approximately 88 percent of the land area of the County exclusive of Fort Gordon) containing an estimated population in excess of 180,000. The population of Fort Gordon is estimated to be 19,835. The water systems of Fort Gordon and the Cities of Blythe and Hephzibah currently provide water service within their respective jurisdictions in the County. In April 2003, a Technical Proposal was developed by the Department for Water System Utilities Privatization of Fort Gordon Army Installation. The proposal has not been accepted as of October 2004. The anticipated flows to supply Fort Gordon have been considered when defining future demands to assure availability of system capacity. Figure 3-1 presents the areas currently served by the Water System with overlays of major water distribution lines. Generally, the service area can be characterized as having complete water service coverage for potential customers who wish to connect to the Water System. Projects defined in Section 5 as part of the ClP will continue to enhance the Water System's ability to serve this area. 3-2 ENGINEER'S REPORT AUGUSTA UTILITIES DEPARTMENT WATER AND WASTEWATER REVENUE BONDS, SERIES 2004 3.3 W~ter Supply The Water System's primary source of raw water is the Savannah River, withdrawing directly from the river as well as from the Augusta Canal, which is fed by and located parallel to the river. The Water System has four raw water intakes on the canal, two primary and two secondary, plus an additional diesel-engine-driven standby raw water pump that can pump from either the canal or the river. The raw water supply is pumped from the Water System's raw water facilities located between the Augusta Canal and the Savannah River to the Highland Avenue WTP through a system of parallel raw water lines. There are four raw water transmission lines: a 30-inch-diameter cast iron pipe, 36-inch steel pipe, a 60-inch ductile iron (DI) pipe, and an inactive 42-inch pre-stressed concrete cylinder pipe. In addition, Augusta is permitted to withdraw supplemental raw water from the Tuscaloosa Formation aquifer through 32 wells: 26 actively producing, 5 deactivated, and 1 inactive. The Water System is currently permitted to withdraw groundwater under Georgia Deparbnent of Natural Resources Environmental Protection Division (EPD) Permit No. 121- 0007 to pump 18.4 mgd maximum month average; and 17.4 mgd maximum annual average. See Figure 3-2 for the location of the wells and WTPs in the service area. The HWTP has a rated capacity of 60 mgd and the City's three GWTP together add 18 mgd: GWTP No.1 with a capacity of 5 mgd (Peach Orchard Road WP No. 201), GWTP No.2 with a capacity of 10 mgd (Bush Field WP No. 202), and GWTP No.3 with a capacity of 5 mgd (Little Spirit Creek WP No. 230). A portion of Well Field No.1 (5 mgd) was inactivated and one well abandoned and replaced by the capacity of GWTP No.3. The Georgia Water Quality Control Act authorizes the EPD to regulate the withdrawal of water from lakes, streams, and aquifers in Georgia. Augusta holds permits for raw water sources as noted in Table 3-1. TABLE 3.1 Water Withdrawal Pennits Permitted Withdrawal (mgd) Raw Water Source Monthly Average 24 hour Max. Day Surface Water: Highland Avenue WTP source: Savannah River/Augusta Canal EPD Permit No. 121-0191-06 60.0 60.0 Hicks WTP source: Savannah River EPD Permit No. 121-0191-09 (modified) Groundwater: 15.0 21.0 Monthly Average Annual Average 26 Active Wells - located at GWTP Nos. 1, 2, and 3 plus two individual sites (Rural Chlorination Sys.) EPD Permit No. 121-0007 Note: mgd = million gallons per day 18.4 17.4 3-3 ENGINEER'S REPORT AUGUSTA UtiLITIES DEPARTMENT WATER AND WASTEWATER REVENUE BONDS, SERIES 2004 ound Water Treatment Plant (GWTP) e Water Treatment Plant (WTP) In 1991, Georgia EPD issued to former Richmond County a permit for withdrawal of raw water from the Savannah River of 30 mgd monthly average and 37 mgd maximum daily capacity. The intake was located just north of Interstate 20 where a new WTP was initially planned (EPD Permit No. 121-0191-09), referred to as the North Location. The plant at this location was not constructed. After the consolidation of the former City of Augusta and Richmond County, all permits were also consolidated. In June 2000, EPD approved the transfer of 15 mgd monthly average capacity to the current secondary raw water intake (EPD Permit No. 121-0191-06), increasing the monthly average/24-hour maximum day withdrawal capacity from the Savannah River to 60 mgd. The remaining 15-mgd capacity from the North Location will be relocated to a new WTP intake discussed further in Section 5. The new permit with EPD has been tentatively approved and Augusta is anticipating its final approval by December 2004. The conditions of that draft permit are shown in Table 3-1. 3.3.1 Raw Water Pumping Withdrawal of raw water from Augusta's primary raw water supply is accomplished via a raw water pump station (PS) that has an aggregate pump capacity of 88 mgd and is located at the Water System's water intake on the Augusta Canal. Raw water pumping is accom- plished primarily using two pumps, Units 1 and 4, with capacities of 20 mgd and 30 mgd, respectively. Units 1 and 4 are powered by water-driven turbines, originally constructed in 1952 and 1975, respectively, and improved in 1993 and 1999. Unit 1 is a two-stage 3-1 ENGINEER'S REPORT AUGUSTA UTILITIES DEPARTMENT WATER AND WASTEWATER REVENUE BONDS, SERIES 2004 centrifugal pump and Unit 4 is a single-stage centrifugal pump. Units 2 and 3 are older pumps, each with a capacity of 9.0 mgd, which are used as supplemental supply for peak demands and when one of the other units is taken out of service for maintenance. These pumps were originally constructed in 1898, were improved in 1939, and received major upgrading in 1999. A fifth unit, Unit 5, is a standby diesel-engine-driven raw water pump, with a water intake which can be used in the Augusta Canal or the Savannah River, and a raw water pumping capacity of 20 mgd. This standby auxiliary pump was originally constructed in 1975 and is housed in the same building as Unit 4, which received major upgrading in 1999. See Table 3-2 for detailed information on the five raw water pumps. Table 3-2 outlines information on the raw water pump station equipment as well as their general condition. The Department maintenance staff has rated the pumps based upon equipment age, performance, and reliability. Those rated" good" are considered reliable for continuous use with little maintenance, while those rated" fair" are older and considered reliable only for occasional use. For pumps rated "fair", maintenance is more difficult due to age of equipment and wear. Upgrading of the pump station is part of the planned capital improvements described in Section 5. TABLE 3-2 Existing Equipment at the Raw Water Pump Station Pump Flow Capacity Turbine Flow Installed No. (mgd) (cfs) Capacity Comments NO.1 20 550 1,650 hp Good condition No.2 9 250 750 hp Fair condition No.3 9 250 750 hp Fair condition No.4 30 814 2,500 hp Good condition NO.5 20* o (Diesel-driven) 2,000 hp Good condition *17 if withdrawing water directly from the river Source: Augusta Utilities Department, Water Treatment Division Note: cfs = cubic feet per second 3.3.2 Raw Water Transmission and Storage Raw water is currently transmitted from the PS to raw water holding basins at the Highland Avenue WTP via three pipelines: a 3D-inch cast iron pipe, a 36-inch steel pipe, and a 60-inch ductile iron (DI) pipe. (A 42-inch pre-stressed concrete cylinder pipe has been taken out of service to be evaluated for possible use as a backup supply line.) The pipelines have a total capacity range of 102.15 to 163.40 mgd or a firm carrying capacity with the 60-inch line out of service of 38.7 to 61.88 mgd, at typical velocity ranges of 5 to 8 feet per second (fps) for pumped flow. The Highland Avenue WTP has raw water storage capacity of approximately 379 acre-feet or 124 MG at two raw water holding basins that serve the Water System. They provide pre- settling of suspended matter in the raw water as well as storage during times of low river or canal flows. Water flows by gravity from these holding basins to the WTP. 3-5 ENGINEER'S REPORT AUGUSTA UTILITIES DEPARTMENT WATER AND WASTEWATER REVENUE BONDS, SERIES 2004 3.4 Water Treatment Facilities Augusta owns two Surface WTPs and three GWTPs, as summarized in Table 3-3. TABLE 3.3 Water Treatment Plants and Chlorination System Rated Plants Capacity for 2003 Production Date of EPD Operating Permit Treatment of of Treated Water Original Dates of No. C52450000 Raw Water (maximum day) Construction Improvements Highland Avenue WTP 60.0 mgd 34.7 mgd 1939 1949, 1954, 1987, Permitted to 60 mgd but improvements, 1994,2000,2002 currently under design, are necessary before plant can sustain that production level. Current sustainable capacity 45 mgd. N. Max Hicks WTP 15.0 mgd NA 2003-2005 New Initial phase capacity of 15 mgd currently under construction with completion scheduled for January 2005. Ultimate site capacity of 60 mgd. Peach Orchard Road(GWTP No.1) 5.0 mgd 5.51 mgd 1966 1969, 1996 Original capacity of 10 mgd reduced to 5 mgd in 2001; the new GWTP NO.3 replaced lost capacity. Highway 56 Loop (GWTP No.2) 10.0 mgd 7.92 mgd 1979 1985, 1992, 1996 Little Spirit Creek (GWTP No.3) 5.0 mgd 4.98 mgd 2001 Rural Chlorination System 2.7 mgd Operational 1972 Each year since Reserve only 1981 Totals 97.7 mgd 53.11 mgd* 'Current operating limit 78.4 mgd The rural chlorination system is served by three wells identified as Brown Road, Plantation Road, and Kimberly-Clarke Wells; at each well there is a chlorine solution feed system for disinfection, a caustic soda solution feed system for pH adjustment, and fluoridation via addition of hydrofluosilicic acid. The Kimberly-Clarke well has been taken out of service and the other two wells placed on reserve and will be used only to meet critical demands. 3.4.1 Highland Avenue WTP System Processes The following processes used by the Department are standard for similar water treatment systems and comply fully with regulatory requirements. Using this treatment technology results in treated water that complies with permit criteria and satisfies user demands for a high quality, reliable water supply. Pre-Flash Mixing and Flow Splitting: Pre-treatment chemicals are added just downstream of the raw water venturi meter and control valve. These chemicals include chlorine, lime, and alum. (Polymer, when added, is injected upstream of the flow meter.) ~ ENGINEER'S REPORT AUGUSTA UTILITIES DEPARTMENT WATER AND WASTEWATER REVENUE BONDS, SERIES 2004 Flocculation: Flocculation is provided through six flocculation basins-the effluents from the first two are combined and split among sedimentation basins 1, 2, and 3. Each of the remaining four sedimentation basins has a dedicated flocculation basin. Sedimentation Basins: Flow into sedimentation basins 1, 2, and 3 is through a series of 12 inlets for each basin. Settled water from these first three basins enters a settled water flume; a second settled water flume receives flow from the remaining four sedimentation basins. The two settled water flumes combine in the filter influent flume. Filtration: The Highland Avenue WTP includes 10 dual-media, two-celled filters, each with a surface area of approximately 1,050 square feet (ft2). At the current rated capacity of 60 mgd, the filtration rate is 4.0 gallons per minute (gpm)jftZ with all filters in service. Each filter includes Leopold underdrains, 8 inches of gravel, 9 inches of sand, and 20 inches of anthracite. Backwash troughs are cast-in-place concrete. Rotary surface wash arms with nozzles are included for cleaning the expanded media during backwashing. Filter effluent piping includes a rate-of-flow controller for each filter. Post Flash Mixing: Post flash mixing occurs in a two-compartment basin, with each compartment having a pitched blade turbine mixer. Post-treatment chemicals (fluoride, lime, phosphate, and chlorine solution) are added as the filtered water enters the basin in the transition piece from a 72-inch pipe to a 6-foot by 4-foot rectangular opening. 3.5 Finished Water Storage, Chemical Feed Systems, and High Service Pumping Once the water is treated, distribution throughout the system requires high service pumping and storage in order to maintain a reliable, continuous supply for residential, commercial, and industrial customer uses. The systems described below are maintained at a level to provide operating pressures throughout the system that exceed EPD requirements of 35 pounds per square inch (psi) minimum line pressure. The Department generally maintains line pressures of 60 psi to 120 psi measured at remote fire hydrants located in residential areas. This pressure level is within A WW A guidelines, promotes high levels of customer satisfaction, and provides adequate pressures to support fire protection. 3.5.1 Finished Water Storage The Highland Avenue WTP finished water storage tanks (clearwells) supply the lower pressure zones directly by gravity while the remaining capacity is pumped to the Water System's storage facilities located in various pressure zones. The treated water is then fed by gravity or pumped throughout the water distribution network. There are five clearwells at the Highland Avenue WTP, with a total storage capacity of 15.45 MG: . Clearwell No.1 - 1.25 MG . Clearwell No.2 - 3.0 MG · Clearwell No.3 - 5.0 MG . Clearwell No.4 - 1.6 MG . Clearwell No.5 - 4.6 MG 3-7 ENGINEER'S REPORT AUGUSTA UTILITIES DEPARTMENT WATER AND WASTEWATER REVENUE BONDS, SERIES 2004 Clearwell No.2 was modified in 2000 to provide baffling for disinfection concentration and increased contact time (CT). This will facilitate continued compliance with Safe Drinking Water Act (SDW A) regulations. The current configuration directs all treated water through Clearwell No.2. Two 30-inch influent pipes were added in the 2000 WTP upgrade between the post flash mix basin and Clearwell No.2. Several large diameter pipes connect Clearwell No.2 with the four other finished water clearwells. 3.5.2 Chemical Feed Systems The chemical feed system at the Highland Avenue WIP has 10 components including: a liquid lime system that has two bulk tanks and three lime slurry feed pumps; a dry lime system used as a backup to the liquid feed system: a chlorination system with five chlorine cylinders on-line and five that serve on a standby basis; a polymer feed system used when required by high turbidity levels; a powdered activated carbon (PAC) system used when required for taste and odor problems; a phosphate feed system for corrosion control in the Water System; a liquid alum system used for flocculation enhancement; a liquid fluoride system via the addition of hydrofluosilicic acid; a dry fluoride system used as a backup to the liquid fluoride system; and a potassium permanganate slurry system for oxidation of iron and manganese during the treatment process. 3.5.3 High Service Pumping There are three sets of high service pumps at the Highland Avenue WTP: the generator building pumps (also identified as the old Fort Gordon high service pumps), the filter gallery pumps, and the auxiliary pumps plus the Stovall Booster Pump Station (BPS). An additional set of inline booster pumps is located at the Wrightsboro Road BPS. Table 3-4 lists each system's pumping capacities in gpm, elevation of the pressure zone served (nominal mean sea level [msl], feet) and the difference in elevation the pumps must pump against (head, feet). The pressure zone is designated in elevation (ft msl) of the water surface in storage tanks serving the area when the water is at the full tank level. Reworking of the high service pumps is included as part of the Highland Avenue WIP improvements listed in Section 5. 3-8 ENGINEER'S REPORT AUGUSTA UTILITIES DEPARTMENT WATER AND WASTEWATER REVENUE BONDS, SERIES 2004 TABLE 3.4 Summary of High Service Pumping From Head (ft) To Elevation Location (msl) Stovall BPS 433 Aux. High Service Pump 433 Aux. High Service Pump - Diesel 433 High Service Pump - Diesel 433 High Service Pump 433 High Service Pump - Backup 433 High Service Pump 433 ----------~---------------._._._----------~ Fort Gordon Pump 433 Fort Gordon Pump 433 Fort Gordon Pump 433 Fort Gordon Pump 433 Wrightsboro Road Pump 564 Wrightsboro Road Pump 564 Wrightsboro Road Pump 564 *This station can pump to either pressure zone, 3.6 Water Distribution System Elevation (msl) 420 564 564 564 564 564 564 630 or 597* 630 or 597* 630 or 597* 630 or 597* 630 630 630 Total Dynamic Head Flow (TDH) (gpm) 66 3,000 173 8,100 173 8,100 160 2,000 160 5,600 160 2,000 160 3,500 ---.-.-.----.-.--.-.---------------------- 310 1,250 300 2,500 300 2,500 300 1,250 100 700 100 900 100 900 The water distribution system includes approximately 1,048 miles of pipelines ranging in size from 6 inches to 24 inches in diameter. Most of the pipelines are made of cast iron or ductile iron (DI). Approximately 20 percent of these pipelines have been in service for 50 years or more, with the oldest pipelines installed approximately 140 years ago. Finished water is distributed from the Highland Avenue WTP by gravity and by pumping. Finished water is pumped using the Filter Gallery PS, the Auxiliary High Service PS, and the Fort Gordon (PS). Gravity flow is used to supply the 417-ft msl gradient (Intermediate- North) and the 310-ft msl gradient (Low). The Filter Gallery PS and the Auxiliary High Service PS are used to supply the northern part of the system, which has pressure zone elevations of 564-ft msl and 500-ft msl. The Fort Gordon PS is used to supply the western part of the Water System and can supply either the 597-ft msl system or the 630-ft msl system. The Wrightsboro Road PS was refurbished in 2000 to supply the 630-ft msl pressure zone from the 564-ft msl pressure zone. Finished water is pumped from GWTP No.1 into the Intermediate-South pressure gradient (417 ft msl) and from GWTP No.2 into the Pine Hill pressure gradient (457-ft msl). GWTP No.3 pumps finished water into the Pine Hill high-pressure gradient (521-ft msl). Distribution system pump stations situated at various locations are used to feed isolated higher pressure zones. See Figure 3-3 for the locations of the distribution system pumping stations and associated pressure zones. 3-9 ENGINEER'S REPORT AUGUSTA UTILITIES DEPARTMENT WATER AND WASTEWATER REVENUE BONOS, SERIES 2004 Water levels in the finished water clearwells at the Highland Avenue WTP and the system pressure requirement at the 417-ft msl gradient limits gravity flow from the clearwells into the 417-ft msl (Intermediate-North) pressure zone. Areas in the 417-ft msl (Intermediate- South) pressure zone not served from the Highland Avenue WTP are supplied from GWTP No.1. In addition to the pressure zones listed above, the distribution system contains several smaller pressure zones created by the significant variations in elevation throughout Augusta. These isolated pressure zones are fed using individual wells, BPSs, or pressure- reducing valves (PRVs) to meet the Department's operating pressure requirements. A summary of pressure zones is presented in Table 3-5. 3-10 ENGINEER'S REPORT AUGUSTA UTILITIES DEPARTMENT WATER AND WASTEWATER REVENUE BONDS, SERIES 2004 TABLE 3-5 Pressure Gradient Summary System Surface Water Plant Pressure Zones Super High High Adjusted High Intermediate-North Low Groundwater Plant Pressure Zones High Pine Hill High Pine Hill Intermediate-South Overflow Elevation (ft) 630 564 500 417 310 597 521 457 417 Water Source Fort Gordon PS or BPS from the 564 pressure zone High Service and Auxiliary High Service PS PRV from the 564 pressure zone Gravity or BPS from the 433 pressure zone PRVs from the 433 pressure zone BPS from the 417 pressure zone or the Fort Gordon PS GWTP No 3 GWTP No 2 and Pine Hill Wells 1 and 2 GWTP No. 1 or BPS from the 433 pressure zone In addition, the distribution system is equipped with several storage tanks and BPSs. A summary of the distribution system storage facilities for the surface water plants is presented in Table 3-6. A summary of the surface water system pumping facilities is presented in Table 3-7. TABLE 3-6 Surface Water Storage Facilities Location Pressure Systems Served Gallons Capacity Location Elevation Highland Ave WTP Clearwell 1 433 1,250,000 Highland Ave WTP Clearwell 2 433 3,000,000 Highland Ave WTP Clearwell 3 433 5,000,000 Highland Ave WTP Clearwell 4 433 1,600,000 Highland Ave WTP Clearwell 5 433 4,600,000 ----- - --- -- -- -- -- - - -- --- --- -. - -- ----------- -- ------ --- -- - - -- - - - - --- - - - - - - - - --- -- - - --- -- ------ -- -- ----.....'-.--.._---.....-.-....-.-.....-'. Total Clearwells 433 All 15,450,000 Berckmans Road 417 417 500,000 Highland Ave Tank 564 564 500,000 Highpointe Tank 564 564 1,000,000 Walton Way Extension 500 500 750,000 Belair Road 630 630 1,000,000 Total Elevated Storage 3,750,000 3-11 ENGINEER'S REPORT AUGUSTA UTILITIES DEPARTMENT WATER AND WASTEWATER REVENUE BONDS, SERIES 2004 TABLE 3.7 Surface Water Pumping Facilities Location Head (ft) Rate (gpm) From To Summary of Surface Water System Pumping Stovall BPS 433 417 98 ----.---._--------------------------------._----------------------.-._-.-._-----_._------------------- Aux. High Service Pump 433 564 168 Aux. High Service Pump - Future 433 564 Aux. High Service Pump - Future 433 564 Aux. High Service Pump -- Diesel 433 564 168 ----------------------------------------.---------------------------- High Service Pump - Diesel 433 564 160 High Service Pump 433 564 160 High Service Pump - Backup 433 564 160 High Service Pump 433 564 160 ------------------.------ Fort Gordon Pump 433 630 or 597 310 Fort Gordon Pump 433 630 or 597 300 Fort Gordon Pump 433 630 or 597 300 Fort Gordon Pump 433 630 or 597 310 -----------------------------------.-----------------------------.--------_._---------------------------- Wrightsboro Road BPS 564 630 85 Wrightsboro Road BPS 564 630 85 Wrightsboro Road BPS 564 630 145 Total Surface Water Pumping 1,500 8,000 o o 8,000 2,000 5,600 2,000 3,500 1,250 2,500 2,500 1,250 1,100 1,100 500 40,800 Table 3-8 presents a summary of groundwater system storage facilities. TABLE 3.8 Groundwater System Storage Facilities Location Elevation System Gallons Groundwater System Ground Storage GWTP No. 1 Clearwell 162 417 500,000 GWTP NO.2 Clearwell 128 457 1,000,000 GWTP No.3 Clearwell 240 521 2,000,000 Faircrest Avenue 436 597 5,000,000 Faircrest Avenue 417 597 500,000 Windsor Spring Road 417 417 500,000 Richmond Hill Road 417 597 500,000 Golden Camp Road 417 597 250,000 Algernon 417 417 2,000,000 Morgan Road 470 597 5,000,000 Cedar Ridge 417 521 1,000,000 Rose Hill 412 457 2,000,000 Wallie Drive 457 457 300,000 Total Ground 20,550,000 Groundwater System Elevated Storage Brown Road 521 521 3,000,000 Highway 56 457 457 500,000 3-12 ENGINEER'S REPORT AUGUST A UTILITIES DEPARTMENT WATER AND WASTEWATER REVENUE BONDS, SERIES 2004 TABLE 3-8 Groundwater System Storage Facilities Location Elevation System Gallons Tobacco Road 597 597 500,000 Fairington Drive 597 597 250,000 Georgetown 597 597 500,000 Lumpkin Road 597 597 250,000 Old Waynesboro Road 521 521 500,000 Greenland Road 597 597 500,000 Total Elevated 6,000,000 Table 3-9 presents a summary of groundwater system pumping facilities. TABLE 3.9 Groundwater System Pumping Facilities Location From To Head (ft) gpm Summary of Groundwater System Pumping GWTP No. 1 - Pump 1 162 417 270 1,800 GWTP No. 1 - Pump 2 162 417 270 1,800 GWTP No. 1 - Pump 3 162 417 270 1,800 GWTP No. 1 - Pump 4 162 417 270 1,800 GWTP No. 1 - Pump 5 162 417 270 1,800 GWTP No.2 - Pump 1 128 457 332 1,900 GWTP NO.2 - Pump 2 128 457 332 1,900 GWTP No.2 - Pump 3 128 457 332 1,900 GWTP No.2 - Pump 4 128 457 332 1,900 GWTP No.2 - Pump 5 128 457 332 1,900 -~-~----------------------------------------- --------".-----------..-.------------------- GWTP NO.3 - Pump 1 240 521 337 1,850 GWTP No.3 - Pump 2 240 521 337 1,850 GWTP No.3 - Pump 3 240 521 337 1,850 GWTP No.3 - Pump 4 240 521 337 1,850 --- ----- Morgan Road BPS 417 597 174 2,317 Morgan Road BPS 417 597 174 2,317 Cedar Ridge 417 521 100 1,000 Cedar Ridge 417 521 100 1,000 Brown's Road BPS 417 521 130 1 ,400 Brown's Road BPS 417 521 130 1 ,400 Brown's Road BPS 417 521 130 1,400 Faircrest BPS 417 597 266 1,050 Faircrest BPS 417 597 266 1,050 Faircrest BPS 417 597 266 1,050 Faircrest BPS 417 597 266 1,050 Rose Hill BPS 521 457 183 400 Rose Hill BPS 521 457 183 400 Rose Hill BPS 521 457 183 400 Richmond Hill BPS 417 597 260 1,050 Richmond Hill BPS .417 597 260 1,050 3-13 ENGINEER'S REPORT AUGUSTA UTILITIES DEPARTMENT WATER AND WASTEWATER REVENUE BONDS, SERIES 2004 TABLE 3.9 Groundwater System Pumping Facilities Location From To Head (ft) gpm Norton Road BPS 433 417 59 1,375 Norton Road BPS 433 417 59 1,375 Norton Road BPS 433 417 65 1,800 Golden Camp BPS - Vertical 417 597 265 1,050 Golden Camp BPS 417 597 265 1,050 Golden Camp BPS 417 597 265 1,050 Golden Camp BPS 417 597 265 900 Total Groundwater Pumping 53,284 The distribution system delivers water to customers through meters at each point of service connection, which are read once per month for billing purposes. The 2001 ratio of non-billed water to purchased water or unaccounted for water (representing water that was lost because of unmetered usage or leaks), was approximately 13 percent (monthly average). This lost and unaccounted for water rate is not unusual for water systems of Augusta's vintage. The significant number of older, large meters contributes significantly to this amount of unaccounted for water. The Department is in the process of replacing all older meters, including the smaller residential units. 3.7 Water Quality As a retail water system, Augusta is required to conduct appropriate testing of distribution system water quality. The results of this testing indicate that the Water System is in compliance with regulatory criteria. The system's raw water supply has been of such high quality that it is considered ideal for the surface water treatment processes used by Augusta. See Section 3.9 on regulatory impacts for further discussion of water quality requirements 3.8 Projected Water Demand During 2003, Augusta billed customers for approximately 11,997 million gallons of water. Table 3-10 presents the average daily water consumption, including unaccounted for water, and the number of customers by class. The Water System's 10 largest customers are presented in Table 3-11; these customers represented 14.7 percent of 2003 sales.2 Total water sales for year ending December 31, 2003 were $19,487,941. TABLE 3.10 Water Demand 2003 Actual 2003 water consumption (million gallons)1 Water Demand Average Daily (mgd) 13,731 37.6 2 No independent investigation has been made of the stability or financial condition of any of the customers listed in Table 3-11. Consequently, no definitive representation can be made as to whether such customers will remain major customers of the Water System. 3-14 ENGINEER'S REPORT AUGUSTA UTILITIES DEPARTMENT WATER AND WASTEWATER REVENUE BONDS, SERIES 2004 TABLE 3.10 Water Demand 2003 TABLE 3.11 The 10 Largest Water Customers (for the 12-month period ending December 31, 2003) Thousand Gallons (kgal) Metered 555,323 200,866 199,822 193,620 170,409 164,302 162,271 153,507 148,881 145,501 2,094,502 Actual 2003 water consumption (million gallons)l Maximum Daily (mgd) Number of Water Connections (December 31) Residential Commercial and Industrial Total 11ncludes unaccounted-for water. Customer Nutra Sweet Co. Shapiro Packing Co. Avondale Mills Inc. (Sibley) Castleberry Food Co. Huron Tech Corp. MCG Amoco Searle Kendall Monsanto Dairy Total 13,731 53.1 59,851 7,989 67,840 Annual Billing $720,978 $310,579 $308,499 $298,376 $263,013 $289,756 $255,237 $240,004 $229,546 $226,121 $3,142,109 % of Total Water Revenues 3.44 1.48 1.47 1.42 1.26 1.38 1.22 1.15 1.10 1.08 15.00 Source: Augusta Utilities Department. Augusta's projection of future water production needs is based on the County's anticipated total population, including Fort Gordon's on-base population.3 These future demands for Fort Gordon are included with the industrial customers in the 2010 through 2025 projections. EPD released its Water Conservation Plan Guidelines on May 24, 2004. The plan establishes benchmarks for water use efficiency statewide and voluntary and mandatory educational, regulatory, and financial conservation incentives were set forth. The utility's compliance with the plan is expected to result in a decline in per capita use. It is projected that per capita residential and commercial demands will fall by 2 percent by the year 2025, from 154 gallons per capita per day (gpcpd) to 151 gpcpd. Table 3-12 presents Augusta's 2003 and projected per capita, commercial and residential water usage in gallons per day (gpd). This usage rate is determined by dividing the estimated total water produced in 2003 to meet residential and commercial demand by the total population4. This rate then includes both customer-billed usage and unaccounted for water. Industrial needs are presented separately because they are not directly linked to 3 The geographical distribution of population is not a factor in plant-level planning, but is important for planning water transmission. 4 Because of limitations in the billing data for 2002 and earlier years, only 2003 data can be correlated to demands by customer class. The demands projected are based on only 2003; and therefore, are expected to have more long-term variability than if they had been based on 5 to 10 years of average per capita demands. 3-15 ENGINEER'S REPORT AUGUSTA UTILITIES DEPARTMENT WATER AND WASTEWATER REVENUE BONDS, SERIES 2004 population growth. The projected annual average production in mgd and maximum day production are planning-level estimates (e.g. + / -10 percent) of the future needs of the Department's service area. TABLE 3-12 Projected Water Consumption 2003 to 2025 Total Population Per capita Water Usage, gpd (commercial and residential) Industrial Usage, mgd (beyond 2003 includes 5 mgd allowance for Fort Gordon) 2003 190,3951 154 10.1 2010 200,6022 153 16.4 2020 212,0052 152 16.8 2025 216,9612 151 17.0 Annual Avg. Water Usage, mgd 37.6 47.1 49.0 49.7 Max. Day Water Usage, mgd3 52.7 67.8 70.7 71.9 1Source: U.S. Bureau of the Census, after adjusting for the on-base population of 7,752 at Fort Gordon, as estimated by the U.S. Bureau of the Census, 2000 Census. 2Population projections are from the Augusta-Richmond County Comprehensive Plan 2004, but exclude the estimated on-base population at Fort Gordon. 3Maximum day projections are based on a residential peaking factor of 2.04, a commercial peaking factor of 1.2, and an industrial peaking factor of 1.0. These factors assume a current long-term average peaking factor of 1.5 system-wide. The system-wide peaking factor will fluctuate over time as industrial and non- industrial sectors grow at different rates. While the Department is taking actions to encourage conservation, it should be noted that the development pattern and population distribution will also affect per capita water consumption. For example, more dense development generally results in lower per capita demands, as outdoor watering is limited due to smaller lot sizes. Conversely, low-density development, including estate-sized lots, tends to result in more outdoor watering and consequently higher per capita demands. Projected residential and commercial water use is directly related to population growth. Industrial needs, however, generally are independent of population growth. It is assumed that current industrial water use, exclusive of conservation, will increase by 5 percent over the planning period (2003 through 2025). In addition to the current industrial demands, Fort Gordon is expected to begin purchasing water from the utility. These future Fort Gordon demands are projected to be 5.0 mgd. Table 3-13 summarizes projected water usage by customer class. The peaking factor for industrial usage is assumed to be 1.0; in other words, maximum day and average annual needs are assumed to be, for analytical purposes, equal. Commercial consumption is expected to have a maximum day peaking factor of 1.2 times average day demand. Based on long-term trends, the system-wide peaking factor is assumed to be 1.5. All additional peak day needs are assumed to be associated with residential consumption. The peak demands associated with residential consumption were calculated to be 2.04 times average daily demands. These peaking factors are employed to determine the peak day requirements for capacity sizing in the Department's facilities. System-wide, the peaking factor will change over time as the industrial demands grow at a different rate than non- industrial demands. 3-16 ENGINEER'S REPORT AUGUSTA UTILITIES DEPARTMENT WATER AND WASTEWATER REVENUE BONDS, SERIES 2004 The population of Richmond County is expected to increase from 198,149 persons in 2003 to 224,715 persons by 2025. This growth, combined with additional demands of 5.0 mgd from Fort Gordon, means average annual water demands are expected to increase from 39.5 mgd to 49.8 mgd (74.7 mgd, maximum month). To meet projected demands, the Department has authorized design of upgrades to the Highland Avenue WTP and will be completing con- struction of the new N. Max Hicks WTP (15 mgd) in January 2005. The current withdrawal permits for raw water from the Savannah River will be sufficient to meet surface water supply needs for both facilities, as discussed in Section 5. TABLE 3-13 Projected Water Usage by Customer Class 2003 to 2025 Class 2003 2010 2020 2025 Residential Avg. Annual Water Usage Max. Day Water Usage {Peaking factor: 2.04)1 Commercial Avg. Annual Water Usage Max. Day Water Usage {Peaking factor: 1.2)1 Industrial Avg. Annual Water Usage Max. Day Water Usage {Peaking factor: 1.0)1 System-wide Avg. Annual Water Usage 37.6 47.1 49.0 49.8 Max. Day Water Usage 1 52.7 70.7 73.4 74.7 lPeaking factors assume a current long-term average peaking factor of 1.5 system-wide. The system- wide peaking factor will fluctuate over time as industrial and non-industrial sectors grow at different rates. 21ncludes Fort Gordon demands of 5.0 mgd. 16.6 33.7 17.3 35.3 18.2 37.1 18.5 37.7 12.8 15.3 13.4 16.1 14.1 16.9 14.3 17.2 8.2 8.2 16.42 16.42 16.82 16.82 17.ct 17.02 3.9 Regulatory Impacts The Department has responded to the challenges of the 1996 Amendments to the SDW A and is in compliance with all applicable rules. However, drinking water regulations have recently been changed, imposing still more stringent regulations, with additional regulations planned for the near future. These recently promulgated and planned SDW A regulations will have an impact on Augusta's drinking water treatment plants and distribution system. The Department has taken a proactive approach for compliance with the recently promulgated and the proposed regulations by developing water quality goals that are more stringent than current regulations. These water quality goals will position the Department to meet future regulations. Drinking water regulations that impact the Department can be divided into three categories: . Existing regulations . Recently promulgated regulations . Future regulations 3-17 ENGINEER'S REPORT AUGUSTA UTILITIES DEPARTMENT WATER AND WASTEWATER REVENUE BONDS, SERIES 2004 The following is a brief discussion of each category and the impact on the Department drinking water system. 3.9.1 Existing Regulations EPD has issued rules (Rules and Regulations of the Department of Natural Resources [DNR], Chapter 391-3-5- Safe Drinking Water) to establish policies, procedures, requirements, and standards for implementing drinking water regulations. 3.9.1.1 Surface Water Treatment Rule The Surface Water Treatment Rule (SWTR), promulgated in 1992, establishes treatment techniques instead of maximum contaminant levels (MCLs) for the control of Giardia, viruses, heterotrophic plate count (HPC) bacteria, and Legionella. The SWTR required all water systems to maintain a filtered water turbidity of 0.5 Nephelometric Turbidity Unit (NTU) and to provide a minimum level of inactivation of Giardia and viruses by maintaining adequate contact time with the primary disinfectant. In addition, the SWTR required all water systems to maintain a detectable chlorine residual in the distribution system. The Department is currently in compliance with all of the SWTR requirements. 3.9.1.2 Total Coliform Rule The Total Coliform Rule was promulgated on June 29, 1989. Total coliforms include both fecal coliforms and E. coli. Compliance with the Coliform Rule is based on the results of sampling in the distribution system. The frequency and number of collected samples are a function of the system size (number of people served). The Department has maintained compliance with the Total Coliform Rule by (1) maintaining adequate distribution system disinfectant residual and (2) frequently flushing low flow areas. 3.9.1.3 Primary Contaminants EPD currently regulates a list of 83 contaminants that includes inorganic and organic compounds. These contaminants do not occur at concentrations of concern in most surface waters that are not subject to contamination. Surface waters used by the Department, from the Savannah River, have concentrations of regulated contaminants well below Environmental Protection Agency (EP A) prescribed limits. 3.9.1.4 Lead and Copper Rule On June 7, 1991, the EPA published Action Limits (ALs) and national primary drinking water regulations for lead and copper. Under this regulation, lead and copper levels must not exceed ALs of 0.015 mg/L and 1.3 mg/L, respectively, in 90 percent of the samples collected. Actions required for AL exceedances include collecting source water samples, conducting public education, conducting a corrosion control study, and establishing a corrosion control program. This rule also requires that lead and copper be monitored at consumers' taps every 6 months. Samples at consumers' taps must be taken at high-risk locations, which include homes with lead solder installed after 1982, lead service lines, and lead interior piping. Revisions to the Lead and Copper Rule were promulgated in April 2000. The revisions reduced the frequency of monitoring required for low lead and copper tap levels and updated the analytical methods used for analyzing lead and copper levels. 3-18 ENGINEER'S REPORT AUGUSTA UTILITIES DEPARTMENT WATER AND WASTEWATER REVENUE BONDS, SERIES 2004 The Department currently controls the corrosivity of its finished water by adding a phosphate-based corrosion inhibitor. The Water System has continuously been in compli- ance with the lead and copper ALs. 3.9.1.5 Risk Management Plans (RMPs) The EP A set a deadline of June 21, 1999, for all utilities that store hazardous chemicals (including chlorine gas) above a specified threshold limit, to prepare a risk management plan (RMP). The regulation outlines requirements for preventing or minimizing the conse- quences of catastrophic releases of toxic, reactive, flammable, or explosive chemicals. The threshold level for chlorine is 2,500 pounds. The RMP must include evaluations of buildings and equipment to protect the safety of workers around chlorine facilities and to develop an emergency response plan if a leak occurs. Key information developed must be submitted to EP A and posted on the Internet for public access. The Department has prepared an RMP for the Highland Avenue WTP. In addition, the Department is improving the existing safety program that provides guidance to operators on correct chlorine operations and maintenance procedures and the emergency response plan to be used if there is a leak. The Department is planning to install on-site chlorine generation at the Highland Avenue WTP and the new Hicks WTP to eliminate safety and security concerns associated with chlorine gas. 3.9.1.6 Residuals Management The State of Georgia currently prohibits the direct discharge of water treatment residuals to a receiving stream. A National Pollutant Discharge Elimination System (NPDES) permit is required which specifies an acceptable pH and total suspended solids (TSS) concentration for the discharge of any waste or decant stream from WTPs. The Highland Avenue WTP is currently discharging all of the waste streams to Turknett Pond. An NPDES permit was obtained by the Department to allow discharge of decant from the Turknett Pond. Settled sludge in the pond is dredged when needed by the Department. 3.9.2 Recently Promulgated Regulations 3.9.2.1 Interim Enhanced Surface Water Treatment Rule (IESWTR) The IESWTR was promulgated in December 1998 and established a 2-log Cryptosporidium removal requirement for filtered systems. Under this rule, conventional treatment is assumed to meet the Cnjptosporidium removal requirement by maintaining 95 percent of the time a filtered turbidity of 0.3 NTU, and at no time exceeding 1.0 NTU. The IESWTR also requires individual filter monitoring and additional requirements related to distribution system tank covers. The Highland Avenue WTP is in compliance with the IESWTR requirements. 3.9.2.2 Disinfectants and Disinfection Byproducts (DIDBP) Rule - Stage 1 Stage 1 D /DBP Rule limits resulted in maximum contaminant level (MCL) requirements shown in Table 3-14. The Department has taken these requirements into consideration for both its upgrade of the Highland WTP and for the new WTP currently under construction. 3-19 ENGINEER'S REPORT AUGUSTA UTILITIES DEPARTMENT WATER AND WASTEWATER REVENUE BONDS, SERIES 2004 TABLE 3.14 Summary of Stage 1 D/DBP Rule Limits Final Stage 1 MCls Total Trihalomethanes (TTHMs): 80 micrograms per liter (llg/L) Haloacetic Acids (HAAS): 60 1l9/L Bromate: 10 1l9/L Chlorite: 1.0 mg/L Final Stage 1 Maximum Residual Disinfectant levels Free Chlorine: 4.0 mg/L as Cb Chloramine: 4.0 mg/L as CI2 Chlorine Dioxide: 0.8 mg/L as CI02 3.9.2.3 Filter Backwash Rule The Filter Backwash Rule was promulgated in June 2001 and applies to all systems that use conventional or direct filtration and that recycle spent filter backwash water. The HWTP does not practice recycling. The new Hicks WTP will discharge all produced waste streams, including backwash, to the James B. Messerly Water Pollution Control Plant (WPCP). Therefore, the Filter Backwash Rule is not expected to have any impact on the existing or proposed water plants. 3.9.2.4 Arsenic Rule The Arsenic Rule was promulgated on January 22, 2001. This rule established an MCL of 0.01 mg/L. The Arsenic Rule applies to both Community and Non-Transient, Non- Community Water Systems. Systems must meet this requirement by January 2006. Despite the new lower limit, it is not anticipated that the arsenic regulations will have an impact on the Department. Arsenic is not expected to occur at concentrations of concern in the surface water supply. 3.9.3 Future Regulations The EP A is currently in the process of developing additional regulations related to microbial and disinfection byproducts. The planned regulations are being developed as a follow up to the IESWTR and Stage DBPs. See Appendix B for a detailed discussion of these regulations. 3-20 4.0 Wastewater System 4.1 Overview of Wastewater System The Wastewater System customer population, as of July 31, 2004, was comprised of 47,744 residential and 5,900 commercial and industrial customers. The Wastewater System consists of two WPCPs with an aggregate permitted treatment capacity of 48.34 mgd and a collection system comprised of 28 pumping stations and approximately 680 miles of collection sewers. The Wastewater System provides sewer services to an area of approximately 106 square miles with an estimated population in excess of 150,000. Figure 4-1 shows the areas currently served by the Wastewater System with overlays of wastewater collection lines and the location of the WPCPs. Augusta has the non-exclusive right to provide water and wastewater service within the County. The wastewater systems of Fort Gordon and the Cities of Blythe and Hephzibah provide wastewater service within those jurisdictions in the County. The Department's service area includes all or parts of eight drainage basins shown in Figure 4-2. 4-1 ENGINEER'S REPORT AUGUSTA UTILITIES DEPARTMENT WATER AND WASTEWATER REVENUE BONDS, SERIES 2004 4.2 Wastewater Collection and Conveyance Augusta's wastewater collection system dates from storm water drains constructed in downtown Augusta prior to 1900. Over time, wastewater was diverted into the storm water drains, and Augusta's downtown storm water drains evolved into a combined storm water and wastewater collection system. Until 1968, this system emptied into the Savannah River without treatment. In the 1980s and early 1990s, Augusta eliminated all known combined sewers by constructing trunk wastewater mains to keep wastewater separate from storm water.5 Augusta's wastewater collection and conveyance system consists of 8 drainage basins, 28 wastewater pumping stations, and approximately 680 miles of collection pipes which transport primarily sanitary sewage. Approximately 80 percent of the wastewater collection system is drained by gravity; the remainder requires pumping at least once. The wastewater collection system includes pipes ranging in size from 8-inch to 72-inch diameter. Approximately 20 percent of the wastewater collection system has been in service for 50 years or more. The wastewater collection system includes standby pumps and a standby power system. 5 It is possible that undocumented interconnections of the two systems were not eliminated and remain. As a result, the Department has an ongoing program to verify complete separation of the storm water drain and wastewater collection systems. 4-2 ENGINEER'S REPORT AUGUSTA UTILITIES DEPARTMENT WATER AND WASTEWATER REVENUE BONDS, SERIES 2004 The piping in the wastewater collection system was constructed using a wide variety of materials, including clay, brick, concrete, and polyvinyl chloride (PVC), that create signifi- cant problems for maintenance of the system. The ongoing system evaluations of the Spirit, Butler, and Rocky Creek basins have identified major infiltration and inflow (I/I) rates. An estimated 10 percent of current wastewater flows are contributed by 1/1. Rehabilitation is underway for portions of these basins and further CIP projects identified in Section 5 but significant reduction of 1/1 will be addressed by the Department's ongoing IjI operation and maintenance program. 4.3 Wastewater Treatment Facilities Augusta owns two WPCPs as summarized in Table 4-1. TABLE 4-1 Wastewater Treatment Plants Owned by Augusta 2003 Treated Wastewater Permitted Date of Average Maximum Treatment Capacity Original Day 7 -Day Dates of Receiving WPCP (Monthly Avg, mgd) Construction (mgd) (mgd) Improvements Stream James B. Messerly 46.1 1968 33.94 53.77 * 1976, 1984, Butler (also known as the 1995, 1997, Creek Butler Creek WPCP) 2001,2002 Spirit Creek WPCP 2.24 1988 4.08 5.27 * 1995 Spirit Creek Totals 48.34 38.02 59.04 *Excessive flows resulted from major 1/1 into collection systems following significant rainfall. The J. B. Messerly WPCP has two separate treatment trains, the North Plant and the South Plant. The North Plant, constructed in 1976, was originally designed to provide only pri- mary treatment.6 Later, an oxidation ditch was constructed to provide secondary treatment capacity of approximately 17.8 mgd. In 1984, the South Plant was constructed with a design capacity of 28.4 mgd. Flow equalization basins were added in 1995. In 1997, the first stage of a wetlands system was constructed to provide additional ammonia-nitrogen removal. In 2001, the second stage of the wetlands system was completed along with the first phase of various retrofit projects to significantly improve plant performance. These retrofits included improvements to secondary clarifiers, primary clarifiers, sludge pumps, and various mech- anical and electrical systems throughout the plant. In 2002, the third stage of the wetlands system was completed and the second phase of retrofit projects initiated. The retrofit projects have now been successfully completed. In 2004, the final retrofit projects will be complete. The success of the entire retrofit program that was started in 2001 is evidenced by the WPCP's recent performance that, for the first time in many years, has maintained full compliance for over a year. 6The primary treatment system includes the primary clarifiers, primary sludge pumps, and scum pumps. This system removes settled solids from screened and degritted wastewater. The secondary treatment system includes aeration basins, aeration blower systems, and secondary clarification. 4-3 ENGINEER'S REPORT AUGUSTA UTILITIES DEPARTMENT WATER AND WASTEWATER REVENUE BONDS, SERIES 2004 Based on the continuation of existing trends, the WPCP is projected to reach its hydraulic capacity by 2019. However, due to insufficient capacity of biological treabnent units, the WPCP may reach its process capacity within the next 5 years. Therefore, it is essential that WPCP expansion begin immediately.? The James B. Messerly WPCP Master Plana was developed to address current and future needs including recommendations regarding the Spirit Creek WPCP. Recent improvements to the WPCP, along with operational diligence, will keep the plant within compliance limits until the expansion defined in the master plan is completed. The J. B. Messerly WPCP receives domestic wastewater from the surrounding community as well as a significant flows (2,770 million gallons in 2003) from 20 major industrial contribu- tors. The J. B. Messerly WPCP was originally rated, based on "normal strength" wastewater, to have a treabnent capacity of 46 mgd, and is currently permitted for a capacity of 46.1 mgd (monthly average). The influent strength of the wastewater has increased over the years as a result of additional industrial waste and reduction in collection system 1/1. This increased organic loading has reduced effective capacity. The recently completed upgrades noted above, and further improvements discussed in Section 5, will restore the full capacity of the J.B. Messerly WPCP and will also address future permit compliance. The Deparbnent's planned improvements to the wastewater treabnent system are expected to maximize use of existing plant components and increase the level of reliability in meeting stringent effluent limits. The J. B. Messerly WPCP discharges under NPDES Permit GA0037621, which was issued in 1996, was modified in January 2002, and expires in June 2006. Table 4-2 presents the plant's permit information. TABLE 4-2 J. B. Messerly WPCP Effluent Limitations Parameter Flow - m3/day (mgd) BOD 5-day - mg/I (kg/day) TSS - mg/I (kg/day) Ammonia as N - mg/I (kg/day) Fecal Coliform Bacteria Total Residual Chlorine - mg/I Daily maximum limitations ml milliliters kg/day kilograms per day Discharge Limitations Monthly Average Weekly Average 174488 (46.1) 218016 (57.6) 10 (1,747) 15 (2.184) 30 (5243) 45 (6551) 1.5 (262) 2.25 (328) 200/100 ml 400/100 ml 0.013 0.013" m3/d cubic meters per day mg/I milligrams per liter mgd million gallons per day The Spirit Creek WPCP treabnent process consists of primary treabnent shredding and screening, secondary treabnent in aerated lagoons, disinfection, and polishing lagoons. The Spirit Creek WPCP discharges under NPDES Permit GA0047147, issued in 1999, which expires in October 2004. The "James B. Messerly Wastewater Treabnent Master Plan" completed in 2003, also delineates needs of the Spirit Creek WPCP. Table 4-3 presents the plant's permit information. 7 See Section 5.0 for discussion of planned improvements. a Prepared by CH2M Hill, 2003 44 ENGINEER'S REPORT AUGUSTA UTILITIES DEPARTMENT WATER AND WASTEWATER REVENUE BONDS, SERIES 2004 TABLE 4.3 Spirit Creek Effluent Limitations Discharge Limitations Parameter Flow - m3/day (mgd) BOD 5-day mg/I (kg/day) TSS mg/L (kg/day) Ammonia as N mg/I (kg/day) Fecal Coliform Bacteria Total Residual Chlorine mg/I Daily maximum limitations ml milliliters kg/day kilograms per day Monthly Average 8,478 (2.24) 30 (255) 30 (255) 17.4 (148) 200/100 ml 0.24 m3/d cubic meters per day mg/l milligrams per liter Weekly Average 10,598 (2.80) 45 (318) 45 (318) 26.1 (185) 400/100 ml 0.24. 4.4 Projected Wastewater Flows The projected population and proportion of water accounts connected to the wastewater system were considered to estimate future wastewater flows. WPCP service area population projections were constructed by allocating population by tract estimated in the 2000 Census to WPCP service area. Population projections for the service areas were then developed by assuming that those Census tracts that have experi- enced population growth will continue to do so, and will represent the same share of the total population increase projected for growing tracts. This population increase will come from either population growth or from population shifts within the County. For tracts with declining population, the rate of decline is projected to remain stable through the planning period. The estimated proportion of households connected to the Wastewater System was estimated using the proportion data available from the 1990 Census9, with adjustments made to reflect growth in the systems since 1990. This proportion is expected to continue to change over time as new residences and businesses, as well as some portion of the residences not served currently, connect to the Wastewater System. Using an assumption that per capita and per employee wastewater flows will remain constant over the forecast period, residential and commercial wastewater flows are assumed to grow in proportion to the growth in the population connected to the Wastewater System. Table 4-4 presents the population and percentage change in population receiving sewer service, as well as projected annual average flows and maximum month flows. The maxi- mum month flows are based on the historical relationship between annual average flows and maximum month flow at the J.B. Messerly WPCP, as well as the expected relationship at Spirit Creek after the completion of the major III improvements in its collection system. The Spirit Creek WPCP will treat a maximum of 2.2 mgd after 2005 once the Spirit Creek Pump Station project is completed with the remainder of flows in this collection system going to the JBM WPCP. Section 5 further describes the project. 9 The 2000 Census did not collect information on the source of wastewater disposal. 4-5 ENGINEER'S REPORT AUGUSTA UTILITIES DEPARTMENT WATER AND WASTEWATER REVENUE BONDS, SERIES 2004 TABLE 4-4 Wastewater Flows (mgd)1 2003 to 2025 2003 2010 2020 2025 Total WPCP Flows Sewered Population 149,683 169,938 182,576 191,008 Percent Change 13.53% 7.44% 4,62% Average Annual Flow (mgd) 38.02 40.34 42.89 44.62 Max. Month Flow 3(mgd) 46.33 49.21 52.33 54.44 1 The figures presented in this table will be impacted by changes to the overall level of 1/1 in the WPCP service areas. 2 "Modeled" figures, shown here, assume improvements to Spirit Creek collector system. Modeled figures are presented to illustrate the expected change from 2003 to 2010. 3The maximum month flows are 122 percent of the annual average flows based on historical relationships. The combined volume of the 10 largest customers represented 21.4 percent of 2003 sales. The 10 largest wastewater customers of the Wastewater System are presented in Table 4-5. No independent investigation has been made of the stability or financial condition of any of the customers listed in Table 4-5. Consequently no representation can be made as to whether such customers will continue as major customers. TABLE 4-5 10 Largest Wastewater Customers (for the 12-month period ending December 31, 2003) Customer Nutra Sweet Castleberry Food Co. Shapiro Packing Avondale Mills Proctor & Gamble EKA Nobel Searle Kendall AMOCO Monsanto Dairy Total kgal Metered 788,979 222,483 198,856 198,822 164,322 154,312 153,507 148,881 145,138 145,133 2,320,433 Annual Billing (based upon water consumption plus additional sewer surcharges) $1,388,607 391,344 836,592 429,447 278,262 405,892 263,119 390,155 462,220 500,405 $5,346,043 % of Total Sewer Revenues 7.19% 2.03 4.33 2.22 1.44 2.10 1.36 2.02 2.39 2.59 27.67% Source: Augusta Utilities Department 4.5 Regulatory Impacts The Augusta Utility Department (ADD) Wastewater System is subject to a broad array or regulatory requirements. The following regulatory issues affecting the Wastewater System are discussed below: 4-6 ENGINEER'S REPORT AUGUSTA UTILITIES DEPARTMENT WATER AND WASTEWATER REVENUE BONDS, SERIES 2004 · Watershed Management . Total Maximum Daily Load (TMDL) Development · NPDES Permitting and Nutrient Management . Onsite Septage Systems · Residuals Management and 503 Regulations · General Permit for Stormwater Discharge Associated with Industrial Activity · Stormwater Pollution Prevention Plans (SWP3s) · Spill Prevention, Control, and Countermeasures Plan · Municipal Storm water Discharge Permit . Security and Vulnerability 4.5.1 Watershed Management The EPD has formulated a policy to require municipalities to conduct watershed assessments and develop watershed management programs to address non-point pollution sources. These studies are required to acquire or renew NPDES discharge permits and/ or to modify or renew surface water withdrawal permits. In addition, EPD requires Source Water Assessment Plans (SWAP) for water supply watersheds to assess the potential for water supply contamination. The Department has acted proactively and completed a watershed assessment for the County area that drains into the Savannah River. Simultaneously, the Department completed a SWAP for the Savannah River watershed upstream of the current water intake. Recommendations for source water protection will be developed in the next phase of study, as required by the SDW A. Addressing these issues early better positions the Department to address watershed protection and maintain an "partnership" position with the Georgia EPD. 4.5.2 Total Maximum Daily Load Development The Clean Water Act (CW A) provides a trigger mechanism for requiring development of total maximum daily loads (TMDLs) when a water body does not meet water quality standards. When setting a TMDL, the regulatory agency must consider the designated uses of the water body, water quality standards, various pollutant sources, and the ability of the water body to assimilate pollutants. The State of Georgia has a court-mandated schedule for development of TMDLs that is the most aggressive in the country. The proposed TMDLs for the Savannah River basin must be developed by June 2004. The current 303d list of impaired water bodies lists fecal coliforms, dissolved oxygen (DO), and metals as the water quality parameters not meeting standards in portions of the Savannah River basin. Results of the watershed assessment and the recommendations in the watershed management plan will provide Augusta with an approach for watershed management to meet the anticipated TMDLs. 4.5.3 NPDES Permitting and Nutrient Management The NPDES is a federal program for regulating the discharge of pollutants to the waters of the United States. In Georgia, the EPD has been delegated the authority to administer the program. EPD has adopted a "zero tolerance" policy for permit violations and is imposing penalties or issuing Consent Orders specifying actions that the permittee must take when 4-7 ENGINEER'S REPORT AUGUSTA UTILITIES DEPARTMENT WATER AND WASTEWATER REVENUE BONDS, SERIES 2004 violations occur. Augusta facilities were not designed with a "zero tolerance" perspective, and therefore do not have the level of redundancy that would be included in a facility designed today. Although operational excursions and facility bypasses are expected to be infrequent, Augusta's infrastructure is being continuously upgraded with projects to prevent overflows and bypasses, retain pollutants, and upgrade treatment capabilities to enhance the ability to achieve 100 percent compliance with permit conditions. Many of the CIP projects are defined in Section 5. As a result of interstate discussions on water resources, EPD decided to mandate maximum retention of a community's water consumption to minimize the amount of water lost. This will require the Department to continue efforts to rehabilitate system facilities, including replacement of some major lines. EPD is working on the implementation strategy and policy now. Permit conditions may change to restrict the consumptive retention of water, which may in turn necessitate the elimination of onsite septage systems where feasible and a revision to the water pricing structure. EP A's proposed Capacity, Maintenance, Operation, and Management, also referred to as CMOM, program will require increased accountability for operation and maintenance of wastewater collection systems. This proposed program has been in development for several years, and has been undergoing federal administrative review since January 2000. It is anticipated that when the CMOM program is implemented, it will use NPDES permits as the enforcement vehicle. The Department has already begun implementation of elements of the forthcoming CMOM requirements. Currently, the State of Georgia requires nutrient removal only in basins where water quality in lakes downstream of a discharge are found to be adversely impacted by the discharge. However, the federal EP A is currently considering nationwide nutrient discharge limitations due to concerns about off-shore waters. The greatest concern is in the Gulf of Mexico, but any shallow waters such as those along the Georgia coast could be affected by this possible policy change. 4.5.4 Onsite Septage Systems The design of septage systems is regulated by the Georgia Department of Health (Georgia Code Chapter 290-5-26). Local jurisdictions establish minimum lot requirements for septage systems and requirements for connection to a central wastewater collection system. With the increasing emphasis on minimizing water consumption and water quality issues in watershed management, it will be necessary to evaluate policies related to septage systems and prepare for an expanded role for central wastewater collection systems in the future. Augusta has adopted a policy to mandate conversion to central wastewater collection when service is available and is implementing a program to extend service to 10,000 new customers in the next 10 years. This policy and program will limit the potential impacts of pending regulations related to onsite septage systems. 4.5.5 Residuals Management and 503 Regulations The EP A mandates that wastewater residuals be managed in compliance with its 503 regulations. Since 1993, these regulations have required that utilities obtain 503 permits and provide annual documentation of compliance with regulatory requirements. The 503 regu- lations identify different classes of sludge and mandate minimum practices for treatment, HI ENGINEER'S REPORT AUGUSTA UTILITIES DEPARTMENT WATER AND WASTEWATER REVENUE BONDS, SERIES 2004 handling, and disposal of each class of sludge. General Permit for Stormwater Discharge Associated with Industrial Activity In 1993, EPD issued NPDES Permit 000000 - Authorization to'Discharge Under the National Discharge Elimination System Stormwater Discharges Associated with Industrial Activity. This permit requires properties with certain activities - those included in a specific list of SIC Codes-to file a Notice of Intent for coverage under the permit and to prepare and maintain an SWP3 and a Spill Prevention, Control, and Countermeasures Plan (SPCCP). In 1998, EPD issued a new general permit, GAROOOOOO, and mandated that any entity with the intent to use that general permit would have to update its plans and conform to the new requirements of the permit. The Department plans to update and modify all SWP3s to conform to the additional conditions in the 1998 storm water permit, and identify new locations which might be subject to an SWP3. 4.5.6 Stormwater Pollution Prevention Plan As part of the compliance requirements for the General Permit for Industrial Activity, EPD requires that covered properties prepare a SWP3. This plan describes the storm water discharge points, the potential pollution sources on the site and the material handling and housekeeping practices used to prevent contamination of stormwater runoff. EPD has issued a general stormwater permit that can be used by any location wishing to conform to the permit conditions, as opposed to applying for a site-specific permit. During the original round of storm water permit issuance, the Department complied with the general conditions for its storm water permitting. 4.5.7 Spill Prevention, Control, and Countermeasures Plan The EP A, through 40 Code of Federal Regulations (CFR) Part 112, mandates that an SPCCP be prepared for any facility or location where one of several oil-based material storage thresholds are exceeded: . any tank of 660-gallon capacity or greater; · 1,320 gallons of total onsite storage; or . a 20,OOO-gallon underground tank of petroleum-based product. This requirement is administered by EPD through the General Permit for Stormwater Discharges Associated with Industrial Activity. In addition to the SWP3, any facility meeting the material storage triggers listed above must prepare an SPCCP. An SPCCP provides documentation on oil-based products and specifies reporting and documentation requirements for best management practices (BMPs). The Department has implemented a formal inspection of all system facilities and will document the tanks and quantities of oil-based products stored onsite. This review will either (1) identify those locations that need an SPCCP or, (2) if no SPCCP is required, satisfy the regulatory requirements. The Department will also prepare a statement for each facility as to whether that facility needs an SPCCP and what basis was used to determine the applicability of the SPCCP requirement for each facility. 4-9 ENGINEER'S REPORT AUGUSTA UTILITIES DEPARTMENT WATER AND WASTEWATER REVENUE BONDS, SERIES 2004 4.5.8 Municipal Storm Water Discharge Permit EPD currently requires municipalities with populations over 100,000 (Phase 1 communities) to obtain an NPDES permit to operate a Municipal Separate Storm Sewer System (MS4). In 2003, a general permit will be prepared (Phase 2 Regulations), which will cover communities in other" urbanized areas." Each Phase 2 community, including Augusta- Richmond County, will be required to submit a Notice of Intent to be covered by the general permit, and must implement a stormwater management program that addresses the six "minimum control measures of the MS4 program: . Public education and outreach . Public participation/involvement . Illicit discharge detection and elimination . Construction site runoff . Post-construction runoff control . Pollution prevention/ good housekeeping The stormwater management program must be phased in over the initialS-year permit period. The Department will comply at its facilities, but the Department is not the Augusta city department tasked with developing and enforcing the plan to comply with stormwater discharge permit regulations. 4-10 5.0 Proposed System Capital. Improvement Plan The Water and Sewerage Revenue Bonds, Series 2004 will be used to fund the next phase of the Department's 10-year CIP initiated in 2000. Proceeds will assist in eliminating current System deficiencies, meeting current and future regulatory requirements, and accommodat- ing future demands related to system growth. Construction associated with the 2004 Program will be completed in 2009. The 2004 Bonds will be issued to qualify for the 5-year spending period provided for in Treasury Regulations for certain capital projects involving a substantial amount of construction expenditures and for which a construction period longer than 3 years is necessary. The strategy for meeting 2025 water needs defined in Table 3-12 will require surface water as the primary water source. This will require expansion and modification of the Highland Avenue WTP to assure sustained operational capacity of 60-mgd in addition to the new Hicks WTP 15-mgd first phase. Upon completion of the 15-mgd facility in early 2005, the remaining wells serving GWTP No.1 will be deactivated. The system will then have a total production capability of 75 mgd from surface water supply and a reserve capacity of 10 mgd available from GWTPs. This will meet additional demand while minimizing reliance upon groundwater supply. Future expansions of the Hicks WTP (ultimately to meet demand of 60 mgd) will reduce groundwater reliance further even as demand growth continues. 5.1 Planning Criteria and Assumptions The Department's CIP needs planned through 2025, uses a number of planning criteria for identifying the facilities necessary for the System. Recommendations of the Master Plan 2000, dated February 2000, were updated in the Water & Sewerage Revenue Bonds, 2002 Engineering Report, dated June 13,2002. The Technical Memoranda (TMs) included in the Master Plan 2000 document a baseline approach to evaluating the System facilities with respect to water demands, wastewater conveyance needs, and treatment requirements. While the data used for this plan was updated in both 2002 and for this Engineering Report to reflect new information including changes in population and various regulations, the major planning criteria and assumptions used for development of the CIP have remained unchanged. These include: · Population in Augusta is shifting from developed areas to undeveloped areas where water and sewer services were previously unavailable. · Water and wastewater system demand will increase as the population grows in Augusta. Projected water demands for the design year of 2025 are for average dayWdemand of 49.7 mgd and maximum day demand of 71.9 mgd. Wastewater flow projections are for an average daily flow of 44.62 mgd and a maximum month flow of 54.44 mgd. 5-1 ENGINEER'S REPORT AUGUSTA UTILITIES DEPARTMENT WATER AND WASTEWATER REVENUE BONDS, SERIES 2004 · Water and wastewater treatment improvements and expansions must be planned for compliance with all current regulatory requirements, as well as changes to these requirements that are anticipated in the next 5 years. · A significant number of the CIP projects defined in the Water and Sewerage Revenue Bonds, Series 2002 Engineer's Report have been completed. Several others will require additional funding from the Series 2004 Bond Issue. As an example, the Highland Avenue WTP improvements were designed and some construction funded by the 2002 Series Bonds, with the construction to be completed with the 2004 Bond Issue Capital Program. Figures 5-1 and 5-2 indicate the projects totally or partially funded under previous bond programs. The CIP projects planned for the 2004 Bond Issue Capital Program are discussed in the following paragraphs.m 5-2 ENGINEER'S REPORT AUGUSTA UTILITIES DEPARTMENT WATER AND WASTEWATER REVENUE BONDS, SERIES 2004 5.2 Cost Opinions for Recommended Projects A cost opinion was prepared for each of the recommended projects to establish initial construction budgets for projects to be funded by the Series 2004 Bonds. The cost opinions also include, as indirect costs, engineering and other technical services. Other designated projects may include only planning or special services and not construction costs. The cost opinions were prepared using 2004 construction costs from similar projects in the Augusta area and the State of Georgia. The cost opinions were based on recent design engineering estimates or inspection of facilities, projections of equipment and facility needs, experience with similar projects, and manufacturer prices for recommended equipment. By necessity, some project cost opinions were developed in advance of detailed engineering work including preparation of specifications and detailed design drawings. For these projects, all of the required information concerning the nature and full scope of the project has not yet been obtained so cost opinions are based upon similar facilities recently constructed in this area. Rehabilitation of an existing facility (e.g., James B. Messerly WPCP or the Highland Avenue WTP) could encounter a variety of unforeseen factors that may affect project costs and schedule. Examples of these factors include contaminated soils, inaccurate piping and duct bank location drawings, concealed defects in existing construction, and incomplete demoli- tion of former structures (or abandoned in place rather than removed as shown on the 5-3 ENGINEER'S REPORT AUGUSTA UTILITIES DEPARTMENT WATER AND WASTEWATER REVENUE BONDS, SERIES 2004 record drawings). For this reason, contingencies are included to cover unforeseen costs. Cost opinions also include cost values for construction allowances. These are known scope activities that cannot be quantified at this stage of cost estimation and as such, are defined through the use of allowances. These allowances have been developed as percentages of construction cost based on experience with numerous other projects and range from 10 percent to 25 percent. These allowances, at a Program level, are anticipated to be sufficient to meet project requirements. 5.3 Summary of Capital Improvements The 5-year CIP is summarized in Table 5-1 and further described in the following sections. It will provide for upgrades and development of the water treatment and distribution system, wastewater conveyance, and wastewater treatment facilities. For the Water System, the CIP provides for construction of significant improvements to the existing Highland Avenue WTP and improvements to the water distribution system. For the Wastewater System, the CIP provides for design and construction of significant improvements to the James B. Messerly WPCP and expansions and extensions to the wastewater conveyance system. TABLE 5-1 2004 Series Bond Projects-Summary of Estimated Costs Recommended Improvements Water Treatment Facilities (Section 5.3.1) Water Distribution System (Section 5.3.2) Wastewater Treatment Plants (Section 5.3.3) Wastewater Conveyance System (Section 5.3.4) System-Wide Projects (Section 5.3.5) Total System Estimated Costs $ 38,300,000 17,455,000 55,751,000 56,084,000 22,010,000 $189,600,000 Projected costs inflated using an annual interest rate of 3 percent. The Series 2004 Bonds projects are discussed below. Planning-level cost estimates have been developed from available information for guidance in project evaluation. Final project costs will depend on actual labor and material costs, competitive market conditions, actual site conditions, implementation schedules, and other variables. Detailed engineering design plans have been completed for some projects and the proceeds of the Series 2004 Bonds will fund construction. Other projects for which detailed engineering design plans have not yet been developed will require 2004 Series Bond proceeds to fund both design and construc- tion. Project budgets are based upon either completed engineering plans or conceptual layouts of those yet to be designed. An allowance of 6 to 10 percent has been added to all construction costs to cover engineering and other technical (such as surveying) costs. The base construction costs are based on Augusta and Atlanta area market conditions, as of the second quarter of 2004 then adjusted for inflation based upon the anticipated scheduled construction. 5-4 ENGINEER'S REPORT AUGUSTA UTILITIES DEPARTMENT WATER AND WASTEWATER REVENUE BONDS, SERIES 2004 5.3.1 Water Treatment Augusta is supplied an average of 65 mgd of treated water from four operating water treatment plants: HA WTP with 45 mgd production capacity, GWTP No.1 (located at Peach Orchard Road) with 5 mgd capacity, GWTP No.2 (located at the Highway 56 Loop) with 10 mgd capacity and GWTP No.3 (located on Old Waynesboro Rd.) with 5 mgd capacity. As noted, the strategy for meeting the 2025 water needs defined in Table 3.12 contemplates employing surface water as the primary water source. This will require expansion and modification of the Highland Avenue WTP to assure sustained operational capacity of 60-mgd in addition to the new Hicks WTP 15-mgd first phase. The design for the expansion and upgrade of the Highland Avenue WTP and raw water pumping system is underway and should be completed in 2004. The construction will be funded by proceeds of the Series 2002 Bonds and the Series 2004 Bonds. The system will then have a total production capability of 75 mgd from surface water supply, as required by EPD to meet the projected 72-mgd maximum day demand. A reserve capacity of 18 mgd will be available from the GWTPs. Implementation of this strategy began with the completion of GWTP No.3 in 2001, and will be continued with completion of the Hicks WTP in 2005 and the Highland Avenue WTP upgrades in 2005 through 2009. 5.3.1.1 Improvements to the Water Treatment Plant Improvements to the water treatment system to be funded by the Series 2004 Bonds are shown in Table 5-2. The HA WTP improvements currently being designed include upgrades to and expansion of the plant to meet anticipated regulatory needs and future demands. These improvements will enable the treatment plant to serve as a primary water supply for Augusta, with reliable production capacity of 60 mgd. Upon completion of design, the 2004 Series Bonds will fund construction of the recommended components noted in Table 5-2. TABLE 5-2 2004 Series Bond Projects-Summary of Estimated Water Treatment Costs Recommended Improvements Estimated Costs Highland Avenue WTP Total Estimated Cost To be Funded by 2004 Series Water Treatment System Upgrade Raw Water Pumping Station Upgrade Relining 42 inch diameter Raw Water Supply Line Total Water Treatment System Projected costs inflated using an annual interest rate of 3 percent. $ 48,400,000 1,100,000 $ 36,000,000 1,200,000 1,100,000 $ 38,300,000 12,400,000 The largest single addition to the Highland Avenue WTP is a new multi-purpose filter building. This facility contains an administration area; a process area with control room, laboratory, operations, maintenance, and the seven new deep bed filters; and a chemical area housing treatment chemical storage and process systems except for liquid lime and powdered activated carbon systems that are housed separately. Also included are 5-5 ENGINEER'S REPORT AUGUSTA UTILITIES DEPARTMENT WATER AND WASTEWATER REVENUE BONDS, SERIES 2004 additional pumping systems, new electrical control systems, plant piping improvements, new valves and meters, emergency generators and security upgrades. The raw water pump station will be upgraded in two phases. The first phase, funded by the Series'2002 Bonds and 2004 Bonds, will include an engine-powered pumping station with three diesel engine-driven vertical turbine pumps; interconnection to existing piping; and installation of two new lines crossing the Augusta Canal. This project will provide redundancy in pumping capacity to further assure reliable supply of raw water to the Highland Avenue WTP. Phase 2, to be constructed later, will replace the current hydropowered pumping system. 5.3.2 Water Distribution System Table 5-3 is a summary of water distribution system improvements to be funded by the 2004 Series Bonds. The construction projects are highlighted on Figure 5-3. Previously completed projects, part of the overall Master Plan 2000, are also shown to demonstrate the Departments planned progress toward the goal of total area service. TABLE 5-3 2004 Series Bonds Projects-Summary of Estimated Costs for Water Distribution Projects Recommended Improvements Estimated Costs Primary Supply System Highland Avenue WTP to Barton Chapel Rd. 30" Water Main Doug Barnard Parkway 16" and 20" Water Main Hicks WTP to Lumpkin Rd. 20" & 24" Water Main Systems Interconnect 20" Water Line $3,800,000 3,840,000 2,3000,000 1,335,000 $11,275,000 6,180,000 $ 17,455,000 Other System Improvements (Table 5-.3.1) & Highway Projects (Table 5-3.2) Total Water Distribution System Projected costs inflated using an annual interest rate of 3 percent. 5-6 ENGINEER'S REPORT AUGUSTA UTILITIES DEPARTMENT WATER AND WASTEWATER REVENUE BONDS, SERIES 2004 5.3.2.1 Primary Supply System Improvements The 2000 Master Plan and 2002 Engineer's Report identified several distribution system improvements that will be completed as part of a program to maintain adequate system pressure and improve reliability and operating conditions. The Water Distribution System Analysis further clarified specific parameters of these improvements and identified others. The following list identifies the most critical projects from Table 5-3. These projects will strengthen delivery capability throughout the system. · The Highland Avenue WTP to Barton Chapel Road project will improve hydraulic capacity from the Highland Avenue WTP to the growing western portions of the city as well as enable an existing IS-inch line to be dedicated to supplying the Fort Gordon systems. · The Doug Barnard Parkway water main will strengthen supply to Augusta's rapidly expanding Medical Center area and the major industries located on the Savannah River in the same proximity. These areas are now supplied by the Highland Avenue WTP only and the addition of this supply line will allow the Hicks WTP to further stabilize supply to these two critical areas. · The Hicks WTP to Lumpkin Road water mains will be installed from the new Hicks WTP to add flow capacity from the new Hicks WTP towards GWTP No.1. This will 5-7 ENGINEER'S REPORT AUGUSTA UTILITIES DEPARTMENT WATER AND WASTEWATER REVENUE BONDS, SERIES 2004 ensure effective distribution of the new WTP flows to the 417-foot pressure zone and will also supply the Doug Barnard water main. 5.3.2.2 Other System Improvements Other system improvements include multiple water distribution line improvements listed in the Water Distribution System Analysis to complete pressure distribution, strengthen supply, and support fire protection in the city. These various distribution system improvements include the following: TABLE 5-3.1 2004 Series Bonds Projects-Estimated Costs for Water Distribution Other System Improvements Hwy 25 - Thermal Ceramics $200,000 Auburn Avenue 12" Water Line Powell Rd. 12" Water 200,000 400,000 500,000 360,000 600,000 500,000 900,000 400,000 620,000 $ 4,680,000 Lumpkin Rd: Hwy 56 to Doug Barnard Pkwy Tobacco Rd. :HICKS WTP to Doug Barnard Pkwy Maddox Road Water 630 South: System Improvements - Powell Rd. Area Birdwell Road Barton Chapel Rd 16": Wrightsboro Rd. to 30" 630 North: Pumping Station Total Other System Improvements Projected costs inflated using an annual interest rate of 3 percent. State highway improvements require the Department to relocate water lines prior to roadway improvements. These relocations allow for accelerated improvement to related water system assets and location of new assets away from roadways where repair and maintenance can be costly. Highway projects to be built are: TABLE 5-3.2 2004 Series Bonds Projects-Estimated Costs for Water Distribution State Highway Projects Windsor Spring Rd - SR88 to Tobacco Rd (DOT) $ 500,000 1-20/ 1-520 Crossings and Improvements (DOT) Total Highway Projects: 1,000,000 $1,500,000 Projected costs inflated using an annual interest rate of 3 percent. 5.3.3 Wastewater Treatment Planned improvements to the James B. Messerly WPCP will address problems and issues noted in the James B. Messerly WPCP Master Plan. The James B. Messerly WPCP will be upgraded, rehabilitated, and modified by implementing process modifications and adding 5-8 ENGINEER'S REPORT AUGUSTA UTILITIES DEPARTMENT WATER AND WASTEWATER REVENUE BONDS, SERIES 2004 facilities to support those modifications. Consistent and full compliance with nitrification requirements under winter operating conditions requires additional aeration tanks, secondary clarifiers, plant air system improvements, and upgrade of facility electrical and Instrumentation and Control systems. Design, permitting, construction, and startup of these projects is expected to take 2 to 3 years. TABLE 5-4 2004 Series Bonds Projects-Summary of Estimated Wastewater Treatment System Costs Recommended Improvements Estimated Costs JBM WPCP Process Modification and Facilities Expansions Additional aeration facilities $26,100,000 9,800,000 10,000,000 51,000 Total Facility Odor Control Wetlands Study & Scope of Mitigation Spirit Creek WPCP Spirit Creek WPCP (ByPass PS & FM) Total WPCP Improvements Projected costs inflated using an annual interest rate of 3 percent. $9,800,000 $55,751,000 The James B. Messerly WPCP Master Plan (CH2MHILL, November 2003) evaluated the current status of both the JBM WPCP and the Spirit Creek WPCP. The Spirit Creek WPCP will be maintained at its permitted capacity of 2.2 mgd with no further improvements. To accommodate flows in excess of the capacity and future growth in the service area, a bypass pumping station and force main (FM) will be constructed near Spirit Creek WPCP to direct excess flows to the James B. Messerly WPCP for treatment. The James B. Messerly WPCP will have sufficient capacity to treat excess flows from the Spirit Creek service area through the year 2025. This pump station will also allow service to the Augusta Corporate Park area that includes a future industrial development site. The Spirit Creek WPCP is not permitted to handle industrial waste. 5.3.4 Wastewater Conveyance Table 5-5 through 5.5.5 are summaries of wastewater conveyance system improvements to be funded by the Series 2004 Bonds. The construction projects are highlighted on Figure 5-4. Previously completed projects, part of the overall Master Plan 2000, are also shown to demonstrate the Departments planned progress toward the goal of total area service. 5-9 ENGINEER'S REPORT AUGUSTA UTILITIES DEPARTMENT WATER AND WASTEWATER REVENUE BONDS, SERIES 2004 TABLE 5-5 2004 Series Bonds Projects-Summary of Estimated Wastewater Conveyance System Costs Recommended Improvements Planning/Operations/Monitoring Interceptor Upgrades Infiltration/Inflow Reduction Estimated Costs Unsewered Pockets $900,000 36,625,000 3,920,000 5,630,000 9,009,000 $ 56,084,000 Expansions/Extensions Total Conveyance System Improvements Projected costs inflated using an annual interest rate of 3 percent. 5.3.4.1 Planning/Operations/Monitoring The 2004 Program includes initial Planning/Operations/Monitoring projects that will identify previously undetected problems and develop baseline information for the Department's system-wide hydraulic capacity management plan. Projects to be funded by the 2004 Series Bonds include: 5-10 ENGINEER'S REPORT AUGUSTA UTILITIES DEPARTMENT WATER AND WASTEWATER REVENUE BONDS, SERIES 2004 TABLE 5-5.1 2004 Series Bonds Projects-Estimated Wastewater Conveyance System Costs: Planning/Operations/Monitoring Flow Monitoring & Modeling $900,000 Total Planning/Operations/Monitoring $900,000 Projected costs inflated using an annual interest rate of 3 percent. 5.3.4.2 Interceptor Upgrades The Butler Creek, Industrial and Main Interceptors will be upgraded with new lines to replace or supplement current pipes. The required areas have been defined by engineering designs completed under the 2002 Series Bonds. TABLE 5-5.2 2004 Series Bonds Projects-Estimated Wastewater Conveyance System Costs: Interceptor Upgrades Butler Creek Interceptor Sewer Industrial Interceptor FM Main Interceptor Sewer Total Interceptor Upgrades $13,625,000 2,000,000 21,000,000 $ 36,625,000 Projected costs inflated using an annual interest rate of 3 percent. 5.3.4.3 Infiltration/lnflow Reduction Collection systems in the following basins will have infiltration/inflow (1/1) reduction projects funded. These projects will effectively provide more capacity for wastewater flow and reduce sewer line maintenance requirements. The allocation among basins is estimated to be as follows: TABLE 5-5.3 2004 Series Bonds Projects-Estimated Wastewater Conveyance System Costs: 1/1 Reduction Rae's Creek Butler Creek $ 980,000 980,000 980,000 980,000 $3,920,000 Rocky Creek Spirit Creek Total 1/1 Reduction Projected costs inflated using an annual interest rate of 3 percent. 5.3.4.4 Sewer Service to "Pockets" of Unsewered Areas Throughout the collection system there are various "pockets" of unsewered areas. These are locations ranging in size from one block long to entire subdivisions that were bypassed when sewers were first built in a neighborhood and are now adjacent to or surrounded by 5-11 ENGINEER'S REPORT AUGUSTA UTILITIES DEPARTMENT WATER AND WASTEWATER REVENUE BONDS, SERIES 2004 areas with sewer service. Previously completed projects have enhanced environmental protection through reduced reliance on septic systems, and provided additional customer connections to the system. The remaining projects that will provide sewer service to the following pockets have been identified for funding through with Series 2004 Series Bond proceeds. TABLE 5-5.4 2004 Series Bonds Projects-Estimated Wastewater Conveyance System Costs: Unsewered Pockets Fairington Sewer (Spirit Creek Basin Pocket) Berckman Road (Rae's Creek Pocket) Meadowbrook Drive (Butler Creek Pocket) Total Pockets $2,200,000 1,100,000 2,330,000 $5,630,000 Projected costs inflated using an annual interest rate of 3 percent. 5.3.4.5 Expansions and Extensions "Expansion" is defined as providing sewer service to basins not currently having access to sewer systems. An "extension" is defined as lengthening a line beyond its current point of terminus to unsewered areas. These projects will enhance environmental protection through reduced reliance on septic systems and will provide additional customer connections to the system. The proposed areas for sewer expansion and extensions are listed below: TABLE 5-5.5 2004 Series Bonds Projects-Estimated Wastewater Conveyance System Costs: Expansions/Extensions Belair Road - South (Butler Creek) $1,000,000 Dean's Bridge (Butler Creek) 1,100,000 Belair Road - North (Rae's Creek) 1,500,000 Floyd Dr. (Rae's Creek) 53,000 Aumond/Huxley (Rae's Creek) 420,000 Wimberly Park (Rocky Creek) 350,000 Bertram Rd. (Rock Creek) 295,000 Belmont/Fairview Dr. (Rocky Creek) 490,000 McDuffie Rd. (Rocky Creek) 3,300,000 Walton Acres (Spirit Creek) 501,000 Total Expansion/Extension Projects $9,009,000 Projected costs inflated using an annual interest rate of 3 percent. 5.3.5 System-wide Improvements System-wide improvements are summarized in Table 5-6. 5.12 ENGINEER'S REPORT AUGUSTA UTILITIES DEPARTMENT WATER AND WASTEWATER REVENUE BONDS, SERIES 2004 TABLE 5-6 2004 Series Bonds Projects-Summary of Estimated System-wide Costs Recommended Improvements Estimated Costs System-wide Projects New Utility Admin./Maintenance Facility Program Management Augusta Canal Improvements Legal, Advertising, Other Professional Total $11,510,000 8,250,000 2,000,000 250,000 $22,010,000 Projected costs inflated using an annual interest rate of 3 percent. A new Utility Administration/Maintenance Building, currently under design, will be constructed with Series 2004 Bond funds. Off-site work such as access roads and water and sewer service connections are being completed with funding from the 2002 Series Bonds. This building will relieve space constraints for administrative and engineering operations. It is being designed to address the Deparbnent's needs for the next 10 years considering both space requirements and implementation of new management and communication technologies. The Augusta Canal serves as a primary source of raw water supply for the Highland Avenue WTP. The structure is over 100 years old and in need of major levee repair and some equipment upgrade to assure continued support of the Deparbnent's water supply system. To continue effective implementation of the CIP, various professional services will be required to assist the Deparbnent, including Program and Construction Management (Program Management) and legal support related to land and rights-of-way acquisition. 5.4 Anticipated Future Work The system will require continued invesbnent to meet projected demands throughout the service area, address regulatory requirements, and meet Deparbnent's commibnent to deliver quality services. This future work will continue to strengthen and expand the water distribution and sewer collection network to support expanded service areas and replace older portions of the system as needed. The Hicks WTP and the James B. Messerly WPCP expansions will be completed as planned when system demands are projected to need the additional capacity. The Deparbnent's future CIP planning will more closely define the projects, related costs and timing in context of financial capacity in the later years of our current forecast period. 5-13 6.0 Financial Performance This section presents an overview and evaluation of the historical and projected financial performance of the System for the study period 2004 through 2013. 6.1 Historical Performance Table 6-1 presents the financial performance of the Department for the past 5 years, 1999- 2003. System revenues increased from $33.5 to $45.1 million during this period, an increase of 34.8 percent. Operations and maintenance (O&M) expenses increased 20.3 percent, from $28.0 million to $33.7 million. This increase is attributable to increased depreciation from capital projects and increased personnel costs as the utility attempts to separate Water and Sewer maintenance activities and moves towards preventative maintenance operation. After deducting depreciation and other expenses, net revenues available to pay debt service totaled between $16.2 and $23.8 million. Over the 5-year period, the Department received sales tax proceeds of approximately $7.7 million. During that same period, the Department made transfers to Augusta's General Fund totaling $2.5 million. These transfers were eliminated in 2001 as a result of restrictions imposed by the Series 2000 bond resolution. The Department's minimum debt service coverage requirement for the issuance of additional debt is for each year of the forecast period 1.25 times maximum annual debt service on all senior lien bonds. The Department has an annual rate covenant of 1.10 times debt service payments. Between 1999 and 2002, debt service coverage ranged from 2.22 to 4.02. These ratios are based on the inclusion of PILOT and PILaFF in net revenues available for debt service. Following issuance of the Series 2002 Bonds, debt service coverage remained substantially in excess of the minimum requirement, at 2.25 times scheduled debt service for 2003. 6.2 Water and Sewer Rates The Department's water rate structure consists of a monthly customer charge and a two- tiered volumetric rate. For residential customers with metered consumption exceeding 3,000 gallons per month, the monthly customer charge is $8.97. The volumetric rate is $1.23 per kgal for the first 3,000 gallons and $1.38 for each additional kgal. For customers using less than 3,000 gallons per month, a $12.95 customer charge applies with no volumetric charges. For non-residential customers, the monthly customer charge is $9.73 for 5/8 inch and % inch meters. For meters larger than % inch the monthly customer charge increases in relation to the equivalent meter ratio. The volumetric rate for non-residential customers is $1.58 per kgal for the first 3,000 gallons and $1.74 for each additional kgal. The Department's sewer rate structure is based on monthly water consumption and consists of a monthly customer charge and a uniform volumetric rate. For residential customers with a winter average metered water consumption exceeding 3,000 gallons per month during the 6-1 ENGINEER'S REPORT AUGUSTA UTILITIES DEPARTMENT WATER AND WASTEWATER REVENUE BONDS, SERIES 2004 previous November, December and January, the monthly customer charge is $16.32. The volumetric rate is $1.50 per kgal. For customers using less than 3,000 gallons of water per month, a $11.63 customer charge is applied with no volumetric charge. For non-residential customers, the monthly customer charge is $17.18 for customers with either S/8-inch or %-inch water meters. For non-residential customers with water meters larger than % inch, the montWy customer charge increases in relation to the equivalent meter ratio. The volumetric rate for these non-residential customers is $1.90 per kgal. TABLE 6.1 Historical Water and Sewer System Operating Results 1999 For Year Ended December 31 2000 2001 2002 2003 OPERATING REVENUES Charges and Fees $33,471,486 $34,806,812 $38,339,666 $42,165,457 $45,135,820 OPERATING EXPENSES Personnel Services 5,410,825 5,144,857 6,591,639 7,286,872 7,974,248 Other Operating Expenses 11,971,038 11,158,505 13,526,443 13,189,540 13,690,779 Payment in Lieu of Taxes 697,325 697,325 800,000 800,000 800,000 Pmt. in Lieu of Franchise Fees 885,823 1,000,000 1,065,996 1,144,720 1,224,850 Depreciation 9,059,606 6,820,600 9,735,642 10,352,576 10,019,815 Total 28,024,617 24,821,287 31,719,720 32,773,708 33,709,692 Operating Income (Loss) $5,446,869 $9,985,525 $6,619,946 $9,391,749 $11,426,128 NON-OPERATING REVENUES (EXPENSES) Interest Income 0 2,954,996 6,731,515 7,922,609 6,760,816 Bond Interest & Fiscal Charges (5,086,775) (5,886,522) (9,484,376) (12,584,510) (16,008,308) Amortization of Bond Issuance Costs 0 (284,268) (327,039) (389,587) (434,265) Intergovernmental Revenue 4,734,350 3,009,471 0 0 0 Other Revenues (Expenses) 127,700 0 0 53,152 90,854 Total (224,725) (206,323) (3,079,900) (4,998,336) (9,590,903) Change in Net Assets Before Transfers $5,222,144 $9,779,202 $3,540,046 $4,393,413 $1,835,225 Transfers IN Transfers OUT (2,500,000) Change in Net Assets $2,722,144 $9,779,202 $3,540,046 $4,393,413 $1,835,225 Plus: Bond Interest & Fiscal Charges Depreciation & Amortization Net Operating Transfer Out Payment in Lieu of Taxes Pmt. in Lieu of Franchise Fees Less: Construction Fund Interest Income Intergovernmental Revenues Net Revenues Available for DS Debt Service on Revenue Bonds Debt Service Coverage Ratio Data Source: Audited Financial Statements 1999-2003 a Debt service in 2001excludes $4,873,722 paid from the Capitalized Interest fund. Inclusion of this amount would decrease the coverage ratio to 1.65x b Debt service in 2002 excludes $2,423,104 paid from the Capitalized Interest fund. Inclusion of this amount would decrease the coverage ratio to 1.63x C Debt service in 2003excludes $3,631,719 paid from the Capitalized Interest fund. Inclusion of this amount would decrease the coverage ratio to 1.54x Note: Although PILOT and PILaFF costs are payable from system revenues as operating expenses, the Bond Resolution provides that such PILOT and PILaFF costs are payable only from the revenues of the System remaining after the payment of other operating expenses and after the payment of debt service on the bonds, subordinate debt service and hedge payments. Accordingly, under the Bond Resolution, PILOT and PILaFF costs are added back to net income for the purposes of determining net income available for debt service. In the previous bond report PILOT and PILaFF were not included in the calculation of net revenues available for debt service. Under the previous approach, historic debt service coverage ratios for 1999 through 2003 would have been 3.07, 3.66, 3.17, 2.02 and 2.06 respectively. 5,086,775 9,059,606 2,500,000 697,325 885,823 5,886,522 7,104,868 9,484,376 10,062,681 12,584,510 10,742,163 16,008,308 10,454,080 (4,734,350) $16,217,323 $4,763,210 3.40 697,325 1,000,000 (2,455,166) (3,009,471) $19,003,280 $4,727,115 4.02 800,000 1,065,996 (6,370,931 ) 800,000 800,000 1,144,720 1,224,850 (7,593,894) (6,456,567) $18,582,168 $22,070,912 $23,865,896 $5,274,379 9,948,035 10,586,963 3.52 2.22 2.25 6-2 ENGINEER'S REPORT AUGUSTA UTILITIES DEPARTMENT WATER AND WASTEWATER REVENUE BONDS, SERIES 2004 Water and sewer service customer charges by meter size and volumetric rates for both residential and non-residential customers are shown in Table 6-2. TABLE 6-2 Water and Sewer Rates (Effective 4/1/2004) Water Customer Rate Charge (per kgal) RESIDENTIAL RATES $12.95 NA $8.97 $1.23, $1.38* NON-RESIDENTIAL RATES 5/8" & 0/." NA $9.73 $1.58,1.74* $17.18 $1.90 1" NA $13.79 Same $24.56 Same 1-114" & 1-1/2" NA $22.85 Same $41.04 Same 2" NA $32.82 Same $59.29 Same 3" NA $54.92 Same $99.80 Same 4" NA $79.56 Same $144.59 Same 6" NA $134.17 Same $244.37 Same 8" NA $194.61 Same $354.78 Same 10" NA $259.93 Same $474.24 Same 12" NA $337.30 Same $600.61 Same The first charge is applied to each of the first 3 kgals of metered consumption; the second charge is applied to each additional kgal. Source - http://www.augustaga.gov/departments/utilities/water_rates.htm Meter Size Kgals Metered Sewer Customer Charge Rate (per kgal) All Meters All Meters Less than 3 Greater than 3 $11.63 $16.32 NA $1.50 The AUD monthly bill for a typical residential customer using 9000 gallons is $20.94 for water service, and $29.82 for sewer service. A comparison of this bill to typical residential monthly water and sewer bills in effect in 2003 for customers of various systems throughout Georgia is presented in Table 6-3. This table indicates that Augusta's water and sewer rates, even after the 2004 rate increase, are relatively low compared to those of other Georgia communities. TABLE 6-3 Comparison of Typical Monthly Residential Customer Bills Monthly Billing Local Jurisdiction Water* Sewer* Total Paulding County $38.75 $38.75 $77.50 Forsyth County $33.24 $43.56 $76.80 Douglas County $33.24 $43.22 $76.46 Rockdale County $33.65 $41.75 $75.40 Fayette County $35.60 $39.42 $75.02 Cherokee County $31.50 $43.20 $74.70 Fulton County $25.50 $45.75 $71.25 Henry County $34.98 $34.98 $69.96 Gwinnett County $34.93 $33.12 $68.05 City of Roswell $22.20 $45.75 $67.95 Clayton County $29.16 $34.24 $63.40 City of Gainesville $20.94 $41.88 $62.82 Augusta $20.94 $29.82 $50.76 City of Lawrenceville $17.28 $33.06 $50.34 Dawson County (Etowah Water) $43.75 $0.00 $43.75 City of Cumming (inside City limits) $19.56 $19.92 $39.48 *Based on average consumption of 9,000 gallons per month. Data source: State of Georgia Water and Sewerage Systems Rate Comparisons 200212003 Banc of America Annual rate increases of 11 percent were implemented in 2001 through 2004, and 11 percent per annum increases are scheduled in 2005 through 2007. These increases will be followed 6-3 ENGINEER'S REPORT AUGUSTA UTILITIES DEPARTMENT WATER AND WASTEWATER REVENUE BONDS, SERIES 2004 by 3 percent per annum increases in 2008 through 2013. Water and sewer rate increases are assumed to apply uniformly across utilities and customer classes. That is, planned rate increases will be applied to all water and sewer customer charges, volumetric rates, and industrial surcharge rates for both the water and wastewater systems. The projected water and sewer rate adjustments will increase the typical residential customer's monthly water bill in 2013 to $34.28 ($26.27 in 2004 dollars) and monthly sewer bill to $48.70 (or $37.32 in 2004 dollars)10. While the future combined bill of $82.98 represents a total increase of 63.50 percent in combined monthly bills over the 10-year forecast period, the combined monthly bill in current dollars ($63.59) is below the median of the range of typical monthly bills presented in Table 6-3, without accounting for prospective increases in these communities' water and sewer rates. Water and sewer tap fees are $350 per service for residential connections11. The water and sewer tap fees assessed to new customers connecting to the system are conservatively assumed to remain constant throughout the forecast period. 6.3 Financial Policies The Department uses a system of fund accounting to track water and sewer system revenues and expenditures. Funds include the Revenue Fund, the Utility General Fund, and the Bond Funds associated with specific bond series. With the exception of sales tax proceeds, all revenues are deposited into the Revenue Fund. Revenue Fund expenditures include all O&M expenses other than PILOT and PILaFF costs, operating capital expendi- tures, transfers to the Utility General Fund for capital projects and certain other costs of the System, including PILOT and PILaFF costs, debt service, and transfers to the Bond Fund for capital projects funded through debt proceeds. Bond proceeds are deposited into the Capitalized Interest and Construction Fund. In accordance with the Bond Resolution, the Department is required to maintain a minimum balance in the Utility General Fund of the lower of $2,500,000 or 5 percent of the preceding fiscal year's operating revenues. The Utility General Fund's cash and investment balance as of January 1, 2004, was $26,092,976. Throughout the forecast period, Utility General Fund cash balances are projected to range from a low of $2.6 million to $35.3 million. In the past, the Department made transfers from the Utility General Fund to Augusta's General Fund. In 1999 this transfer was $2.5 million. Conversely, in 1999 and 2000, the Department received sales tax revenues totaling approximately $7.74 million. To ensure financial integrity and self-sufficiency, the Master Bond Resolution provides that the Department will no longer receive sales tax revenues nor make transfers to Augusta's General Fund. 6-4 10 A 3.0 percent discount rate was used to calculate the residential bills in terms of 2004 dollars 11 Tap fees vary depending on water meter and tap sizes. Cost does not include additional fees assessed for road crossing or, sidewalk replacement. .. ENGINEER'S REPORT AUGUSTA UTILITIES DEPARTMENT WATER AND WASTEWATER REVENUE BONDS, SERIES 2004 6.4 Projected Operating Results Table 6-4 presents projected operating results for the System, including projected revenues, expenses, debt service, and debt service coverage through 2013. 6.4.1 Revenues Projections of new customers, water consumption and wastewater flows by customer class, and proposed rate increases are used to forecast water and sewer sales revenues over the planning period. As of December 31, 2003, the System provided service to 59,077 active . water accounts and 44,884 active sewer accounts.12 Growth of residential water customer accounts is based on projected population growth and is consistent with historical customer growth patterns. Annual water system growth is expected to range between 0.68 and 1.35 percent-an increase of between 600 and 800 new water accounts per annum. Total water accounts are projected to increase 11.0 percent over the 10-year study period. Sewer customer growth projections are established from a detailed analysis of the proposed extension of sewer service to isolated pockets of water customers within the Department's service area and population growth. Annual sewer customer growth is expected to fluctuate between 5.06 and 1.08 percent during the study period. The wider range of annual growth is due to the variable effects on active customer accounts of collection line extensions into unsewered pockets within the service area. New sewer accounts are projected to increase between 600 and 2,620 annually; the total number of sewer accounts is projected to increase 24.7 percent over the forecast period. Revenue projections are based on the conservative assumption that revenue collection from one-half of the new customers in a given year is delayed until the following year. In addition, commercial and industrial water and sewer customer accounts are projected to remain constant over the forecast period. Weighted average monthly consumption estimates by customer class were developed from customer billing information and are consistent with historical revenues. However, to account for reduced consumption in response to proposed rate increases, consumption estimates across all customer classes are forecast using a price elasticity of demand factor of 0.1513. Annual water sales revenues are forecast to increase from $23.3 to $38.0 million and sewer sales and industrial surcharge revenues from $24.4 to $42.3 million. Water and sewer tap fees are projected based on new accounts resulting from system expansion. These fees are expected to generate $6.4 million between 2004 and 2013. Cut-on fees, set to recover administrative costs associated with new accounts, and other miscellaneous revenues are assumed to remain unchanged over the study period. These fees and revenue items are expected to average $1.25 million per annum between 2004 and 2013. 12 AUD's recently implemented billing system, acquired by the utility in 2003, has substantiated that the previous billing system was prone to data reporting that over estimated active water and sewer customer account data. All revenue forecasting reported herein is based on revised, more conservative, customer account data reflected in AU D's new billing system. 13 Price elasticity of demand is equal to the percentage change in quantity demanded divided by the percentage change in price. An elasticity factor of 0.15 indicates that, for every 10% increase in price, demand (consumption) will decrease by 1.5%. 6-5 ............ 0::20 OW~ a.:::!", ~h:~ ",<(0:: o::tb~ W Cl . ~ff}~ ~E5 W~m ....w =>=> <(2 ....W "'> =>W <.')0:: =>0:: <(w .... ~ W .... 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Gl al Gl :5 c.~ CIlGl- ~ 0 CIl-- C ~ Gl ~~ ~ X al U Q) "0 .5 OlC_ c al Gl ~(/)c ~ Gl 0 GlCll- a.c-'" o Gl u ~ ~~ CIlGl"O ~ g>~ 5i:a;al a; CD ~ ~ a. al E 0 CIl .sIDe;; ~:5 8 CIlOu. ~'Ot5 ~~~ :i:iE"O al >. c >'alal ~ 0.1- ~~g :::0: - Gl - CIl <l:: c o al 0 U +::I tt .~-6 O.E gj ...Jalo:: C:~"O "Q~C fiiEdl 1-2Gl o ~:5 :::!CJJm Q.Gl"O ..c..cC Ol- ::::I 5o~ :5rn~ <i:~'5 CD ffi 5 0>0 z~~ :b ll:l o o N in C ::::I o E al Ol C ';: .Q :2 Gl :5 .E CIl "Q C o ID '<t o o N CIl Gl .~ C/) Gl :5 '0 CIl "0 Gl Gl u o a E o .:= "0 OOi a. Gl .<:l .s "0 Gl U Gl a. x Gl in ~ Gl :5 "0 Gl o!::! ]j 00. al u CIl Gl "0 ::::I 13 x Gl Gl u '2: Gl C/) :E Gl o CIl "0 C o ID '<t o o N CIloo GlO "C 0 ~g co ~ '" ENGINEER'S REPORT AUGUSTA UTILITIES DEPARTMENT WATER AND WASTEWATER REVENUE BONDS, SERIES 2004 Interest revenues are earned at an annual interest rate of 3.20 percent on 2004 series bond proceeds in the construction fund and capitalized interest funds, 2.84 percent on Series 2002 funds within the Construction Fund, and 1.26 percent on balances in the Operating Fund. In 2013, total revenues of $82.0 million are projected, and are to be comprised of water sales (46.4 percent), sewer sales (51.6 percent), other revenues (1.5 percent), and water and sewer tap fees (less than 1 percent). Total annual revenues are expected to grow 64.6 percent from $49.8 million in 2004 to $82.0 million in 2013, primarily as a consequence of projected rate increases and customer account growth. 6.4.2 Expenses Total system O&M expenses for 2003 were $33.7 million and are projected to be $37.4 million in 2004. System operating expenses include incremental costs related to the installation of new capital facilities. Expenses are stated in 10 categories: Administration (includes payments to the General Fund in lieu of Franchise Fees and Taxes), Customer Service, Construction and Maintenance, Raw Water, Surface Water Treatment, Groundwater, Messerly Wastewater Treatment Plant, New Programs and Positions, New WTP, and Depreciation. The escalation rate for these categories is computed as the annual rate of inflation (3 percent) plus half the rate of annual residential customer account growth; for water-related categories, 3.61 percent, for sewer-related categories, 4.24 percent14. Additional O&M expenses attributed to the capital improvement program are included in the fiscal year 2004 budget for each category and include additional staffing expenses and recurring costs related to process changes, system expansions, system administrative reorganization, and other aspects of AUD's Benchmark 2010 program. One of the cost centers, New Programs and Positions, is projected to total $15.8 million over the 10-year period and is comprised exclusively of incremental operating and staffing costs required for new facilities and staffing additions related to reorganization. Between fiscal years 2004 and 2005, there will be cost increases in several of the operating divisions that are in excess of the long-term escalation rates denoted above. In the case of the Water and Sewer Administration Divisions, costs are projected to increase by $1 million or 24 percent. This is due to $300,000 for F.E.R.C. licensing costs, $150,000 to pay an increased General Fund risk management transfer allocation, a one-time $300,000 General Fund vehicle maintenance additional charge from a prior period, and $250,000 in increased personnel expenses. In the case of the Water and Sewer Customer Service Divisions, costs are projected to increase by $880,000 or 32 percent between fiscal years 2004 and 2005. This $880,000 is due to concurrent one-time increases of $125,000 for budgeted personnel costs, $500,000 for Automatic Meter Reading maintenance contract fees, and $175,000 for the new utility billing system maintenance fees. Following 2005, the Customer Service costs are projected to continue increasing at long-term escalation rates. 14 For categories such as Administration and Customer Service, 3.92 percent is used-an average of the two escalation rates. Exceptions are: depreciation is escalated based on the installation of new capital; payments in lieu of franchise fees are escalated at 3.0 percent per annum; and payments in lieu of taxes are escalated at a 3% annual rate of increase. This rate is annually subject to adjustment by the City of Augusta. 6-8 ENGINEER'S REPORT AUGUSTA UTILITIES DEPARTMENT WATER AND WASTEWATER REVENUE BONDS, SERIES 2004 Water and Sewer Construction & Maintenance Division costs are projected to increase by $930,000 or 18 percent between 2004 and 2005. Personnel expenses are to be incurred within this division as the utility transitions to separate Water & Sewer maintenance crews and from a staffing capability supporting only reactive maintenance to staffing levels that enable preventive maintenance activities. Between 2005 and 2006, an additional $463,000 in Maintenance Division costs related primarily to maintenance staffing increases is projected. Following 2006, the Construction & Maintenance Division costs are projected to continue increasing at long-term escalation rates. Total Surface Water Treatment Division expenses are projected to experience substantial changes with planned shifts between the use of groundwater and surface water sources. For example, a one-time, $1.2 million increase equivalent to 38 percent of the 2004 surface water budget is projected for 2005. This $1.2 million is comprised of $200,000 for additional personnel, $200,000 for increased electrical costs and $800,000 in increased chemical costs related to the operation of the new water treatment plant and raw water pumping station. As 2005 will be the first full year that the new surface water treatment plant is on line, costs for the surface water division are projected to increase consistent with long-term escalation rate estimates thereafter. In the case of the Groundwater Division, Raw Water Division, and the Messerly Wastewater Treatment Plant Division, no extraordinary cost increases are expected between 2004 and 2006. Dedicated positions currently denoted as New Personnel and Programs will be incorporated into the AUD budget as AUD implements a staffing reorganization. This reorganization is designed to accomplish 1) restructuring of the maintenance division to provide for tracking of engineering, collection and distribution activities, 2) establishing an effective metering program, and 3) creating an internal Information Technologies (IT) group. These positions will be staffed during the period from 2004 through 2006. Additional expenses in fiscal year 2005 will be approximately $680,000 and an additional $450,000 in 2006. These new staff positions will include dedicated IT staff, a new Assistant Director, a new Training Coordinator, and staff increases necessary to support additional meter maintenance within the Maintenance Division. In total the projected increase in Total Water and Sewer Operating Division Expenses is 19.9 percent between 2004 and 2005. Between 2005 and 2006 the increase is expected to be approximately 5.00 percent. From 2006 through the end of the planning period, combined division costs are projected to increase at a long-term escalation rate of 3.92 percent. Total operating expenses are expected to grow 72.6 percent from $37.4 to $64.6 million over the study period. Of the $27.2 million differential, $15.9 million (58.4 percent) is attributed to increases in O&M costs. The $11.3 million (41.6 percent) balance is attributed to $10.7 million (39.3 percent) of increased depreciation expenses accrued as new projects are placed into service, $244,000 in increased PILOT costs (.90 percent), and $386,000 in increased PILOFF costs (1.42 percent). 6.4.3 Debt Service Projected debt service includes debt service for both existing and proposed revenue bond issues. Currently, the Department is repaying four revenue bond issues: Series 1996A Bonds, Series 1997 Bonds, Series 2000 Bonds, and Series 2002 Bonds. The combined annual 6-9 ENGINEER'S REPORT AUGUSTA UTILITIES DEPARTMENT WATER AND WASTEWATER REVENUE BONDS, SERIES 2004 principal and interest payment for these revenue bonds ranges between $10.1 and $21.64 million over the forecast period. The 1997 Bonds will be repaid in 2021, the 1996A Bonds in 2028, the 2000 Bonds in 2030, and the 2002 Bonds in 2032. The Department also pays principal and interest on two loans, Series 1997 and Series 1999, issued by the Georgia Environmental Facilities Authority (GEFA). The GEFA Series 1997 loan will be repaid in 2016 and the Series 1999 loan in 2019. These GEFA loans are not included in the parity coverage requirements according to the Master Bond Resolution and are therefore not included in debt service coverage calculations. The proposed Series 2004 bond amount will fund the capital program, maintain appropriate Operating Fund reserves, meet debt service coverage criteria, and minimize rate impacts. Of the $160 million par amount, capitalized interest on the Series 2004 Bonds is $10.61 million. Deposits into the Series 2004 project fund will be $146 million and the remaining $3.6 mil- lion of the par amount will be used for issuance cost, bond insurance, and surety costs. Annual debt service costs are budgeted at $14.1 million in 2004. Future bonded debt service costs are projected to increase to $30.24 million in 2013 under the proposed bond issuance schedule. 6.4.4 Debt Service Coverage Debt service coverage is evaluated in terms of the System as a whole (combined water and sewer). The debt service coverage ratio is calculated as the net revenues available for debt service divided by total annual debt service. Net revenues available for debt service are the sum of net income adding back bond interest expense and fiscal charges, depreciation (a non-cash expense) and amortization, PILOT and PILaFF. Although PILOT and PILaFF costs are payable from system revenues as operating expenses, the Bond Resolution pro- vides that such PILOT and PILaFF costs are payable only from the revenues of the System remaining after the payment of other operating expenses and after the payment of debt service on the bonds, subordinate debt service and hedge payments. Accordingly, under the Bond Resolution, PILOT and PILaFF costs are added back to net income for the purposes of determining net income available for debt service. The system has an annual rate covenant of 1.10 times debt service payments. System debt service coverage is estimated to be 1.83 in 2004 and projected to range from 1.31 to 2.56 over the study period as shown in Table 6-4. As indicated in Table 6-4, during the period from 2009 through 2013 which follows the construction period, the System will generate net revenues available for debt service that will be in excess of the 1.25 times maximum annual debt service requirement found within Bond Resolution requirements necessary for future borrowing. System debt service coverage ratios for this period based upon the maximum annual debt service of $30,244,831 occurring in 2030 are projected to range from 1.26 to 1.39. 6.4.5 Operating Fund Balances Revenue Fund cash flows are presented in Table 6-5. In addition to operating expenses and debt service payments, uses of cash include current revenue financing of planned capital improvements, GEFA loan payments, Utility General Fund project funding, and the Department's budgeted requirements for operating capital. 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C:O)O}_ OO}.!!!O}(/)x.l!! -g:d E c:cn1)W.- cua.. wa>-Q)"C CO "'"0 lii ~.gCl ~u gC:O::IllCl"O_c: ;0 CO"ED.. g>~~;o III I- O}<(o- 0 0} III n;OI:::u.1ijo.cn; o-~c3~~~~O ....I ~ o I- LO~ coO> "<t"0> - co o - NC') CD"<t" . V> N ~ V> ~o C')~ .q:;: ~-~ N ~ V> LO~ 0>0 ..q~ ;:: N O~ I'-LO -I'- N - V>~ ~ LO~ OLO CDN - C') t:~ "<t"CD -co "<t" - V>~ ~ o ~ C')CD o>LO - LO LO - C')N C')N - 0> CD - V>::: ~ CD ~ COLO "<t"LO -N CO - LON N~ - CO CO - ~CD V>~ ~ o ~ "<t"0> I'-"<t" -N o - 1'-0> 01'- -N LOv> C')~ V> O>"<t" CO CO O>N en 00 "<t""<t" C') '" ..oM C')~ V> LO 0 ON I'- CD ~ ........- 00> 01'- N .,....~ C')~ V> LO 0 CO V> o .,r o N o C') V> Q) '" III 0} t; 0} e- O} '" ~ m c: (J Ill.f: &ja; Z c: '5 c: w ENGINEER'S REPORT AUGUSTA UTILITIES DEPARTMENT WATER AND WASTEWATER REVENUE BONDS, SERIES 2004 remainder of the forecast period. Expenditures for renewal and extension projects are anticipated to be $1.6 million in 2004. In 2005, a one-time reconciliation of operating division carryovers accounts for projected expenditures of $7.5 million. In 2006, these costs are projected to drop back to a level of $2.3 million from which they are projected to escalate on a per annum basis at 3.00 percent. These Renewal and Replacement funds are used for minor or miscellaneous capital improvements. Scheduled rate increases provide for compliance with the Master Bond Resolution requirement to maintain Utility General Fund balances equal to the lesser of $2.5 million or 5 percent of the preceding fiscal year's operating revenues. Utility General Fund balances range from $2.6 million to $35.3 million over the forecast period. 6.5 Capital Financing The capital improvement program will require approximately $189.6 million ($174.4 million in 2004 dollars) in total funding over the 10-year period, as discussed in Section 5 and shown in Table 6-6. Three sources of funds will be used to fund the capital program: bond proceeds (77.0 percent), current revenues (16.7 percent), and interest in the Construction Fund (6.2 percent). Approximately $146 million in bond proceeds will be placed into the 2004 Project Fund. Current revenue transfers totaling $31.7 million will be made from the Operating Fund over the forecast period. These transfers are expected in amounts of $17 million in 2008, $12 million in 2009, $1 million in 2009 and 2010, and $715,000 in 2013. Interest in the Construction Fund is projected to total $11.8 million over the 10-year period. Planned water and sewer rate increases are projected to generate nearly $179.8 million in additional revenues over the forecast period; tap fees are projected to generate $6.4 million. Use of these funds provides an appropriate matching of revenues to capital expenses (including debt service payments) to accommodate system growth, effect major system improvements, and extend sewer service to unsewered areas. In the event that actual growth in the Department's water and sewer systems is less than projected, project deferrals may be employed without degradation of services to ensure adequate matching of system revenues and projected capital expenditures. 6.6 Conclusions CH2M HILL's projection of the financial performance of the System for the 10-year period 2004 through 2013 is summarized as follows: · Total revenues are projected to increase 64.6 percent over the 10-year period. Total Uses of Funds, including incremental operating expenditures attributed to planned capital expenditures and associated debt service, are projected to increase by 78.2 percent over the forecast period. · Projects identified in the Department's 10-year CIP reflect priority needs of the system and, after adjusting for inflation, are expected to total $189.6 million. These expenditures will be funded through the debt issue in 2004 ($146.1 million in project funds), current revenues ($31.7 million), and interest on the Construction Fund ($11.8 million). 6-12 ENGINEER'S REPORT AUGUSTA UTILITIES DEPARTMENT WATER AND WASTEWATER REVENUE BONDS, SERIES 2004 · Financing of the planned la-year capital program will be enabled by planned system- wide water and sewer rate increases of 11 percent per annum from 2004 through 2007, and 3 percent increases from 2008 through 2013. The typical residential bill for both water and sewer service is projected to increase 63.5 percent over the forecast period as a result of these rate increases. However, projected residential bills are expected to remain comparable to, and competitive with, those of other Georgia communities. · Given scheduled water and sewer rate increases throughout the forecast period, net revenues of the System will be sufficient to meet projected debt service obligations on existing debt and the Series 2004 Bonds. 6-13 >- >- ..,. OOZO ow~ CL::;;", ~~~ ",<(00 o::fu~ Wa _ W",'" Zwa (3-Z z!:::O wdco >-W ::J::J <(z >-W "'> ::JW <900 ::Joo <(W ~ >- '" ~ a Z <( 00 W >- <( ;;: U) <:: o 'in '0 Q) <DO cb w<:: ffi'g <l:=> I- U. M .... o N N .... o N .... .... o N o .... o N en o o N co o o N ,... o o N lD o o N II) o o N ..,. o o N ...I ~ o I- o a C1> Lri M tFt CD N C1> <:0 a ~ tFt It) It) It) N N CD tFt It) C1> N ~. C1> .... tFt N ~ It) N. 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It) ci <XI ~ .f tFt 0; M r-: It) o r-: ~ tFt <XI N ~ ai o oq <:0 oq tFt <XI N ~ ai o oq <XI- oq ~ tFt oq o .... .f to ai <XI ;;; en "0 e ::l Ll.. ro o I- "0 _ e Q) ::l uLl.. e e ..!ll 0 m; [Ou 012 c- ._ en "Oe e 0 WU APPENDIX A Population Growth Within Census Tracts Actual and Projected Population by Census Tractla) Richmond County, 1990 through 2025 2000 2010 2020 2025 Tract Persons Change Persons Change Persons Change Persons Change 1 4,237 -9% 3,843 -9% 3,485 -9% 3,160 -9% 2 3,204 -2% 3,149 -2% 3,095 -2% 3,042 -2% 3 1,739 -11% 1,541 -11% 1,365 -11% 1,209 -11% 4 920. 17% 1,029 12% 1,149 12% 1,273 11% 6 3,051 13% 3,337 9% 3,654 9% 3,977 9% 7 1,264 -31% 870 -31% 598 -31% 412 -31% 8 685 -33% 459 -33% 308 -33% 206 -33% 9 2,664 -22% 2,091 -22% 1,641 -22% 1,288 -22% 10 3,412 3% 3,492 2% 3,581 3% 3,672 3% 11 1,829 4% 1,889 3% 1,956 4% 2,025 3% 12 4,826 0% 4,840 0% 4,856 0% 4,872 0% 13 1,512 -14% 1,308 -14% 1,131 -14% 979 -14% 14 2,953 7% 3,111 5% 3,285 6% 3,463 5% 15 1,636 -32% 1,110 -32% 753 -32% 511 -32% 16 8,316 -6% 7,791 -6% 7,300 -6% 6,839 -6% 101.01 4,062 2% 4,116 1% 4,176 1% 4,237 1% 101.02 6,884 10% 7,369 7% 7,905 7% 8,454 7% 101.04 3,845 11% 4,146 8% 4,480 8% 4,820 8% 101.05 5,333 -6% 5,030 -6% 4,745 -6% 4,475 -6% 102.01 5,275 -2% 5,195 -2% 5,117 -2% 5,039 -2% 102.03 4,432 10% 4,765 8% 5,132 8% 5,508 7% 102.04 7,930 77% 10,674 35% 13,706 28% 16,808 23% 103 5,337 -10% 4,829 -10% 4,369 -10% 3,952 -10% 104 4,259 -15% 3,637 -15% 3,106 -15% 2,653 -15% 105.04 6,836 -9% 6,197 -9% 5,618 -9% 5,092 -9% 105.05 8,255 2% 8,358 1% 8,471 1% 8,587 1% 105.06 4,661 -12% 4,113 -12% 3,629 -12% 3,203 -12% 105.07 6,059 -10% 5,479 -10% 4,954 -10% 4,479 -10% 105.08 3,331 -13% 2,886 -13% 2,501 -13% 2,167 -13% 105.09 4,455 -3% 4,313 -3% 4,175 -3% 4,042 -3% 105.1 5,103 -6% 4,773 -6% 4,464 -6% 4,175 -6% 105.11 3,855 2% 3,902 1% 3,954 1% 4,007 1% 106 5,840 -10% 5,237 -10% 4,697 -10% 4,212 -10% 107.03 9,602 17% 10,709 12% 11,933 11% 13,184 10% 107.04 9,845 44% 12,220 24% 14,844 21% 17,529 18% 107.05 9,881 34% 11,884 20% 14,097 19% 16,361 16% 107.06 5,225 47% 6,559 26% 8,033 22% 9,541 19% 108 7,754 -15% 7,754 0% 7,754 0% 7,754 0% 109.01 8,166 48% 10,280 26% 12,616 23% 15,006 19% 109.02 11,302 44% 14,069 24% 17,127 22% 20,255 18% Total 199,775 5% 208,356 4% 219,759 5.50% 232,469 6% (al The projections presented here were developed to provide a rough estimate of the potential population growth in the Spirit Creek and Messerly WWTP service areas. The tract level projections are not intended to provide guidance for future water and wastewater infrastructure needs within a small area. The change in population per tract is based on expected countywide shifts and trends in population growth and density. Population changes within anyone Census tract may vary significantly from the projections presented here because reasons ranging from availability of land to quality of elementary schools to location of office space. A-1 Appendix B Future Water Treatment Regulations Long-Term 2 Enhanced Surface Water Treatment Rules (L T2ESWTR) The LT2ESWTR was proposed in June 2003 to provide additional pathogen protection from microbial contaminants such as Cryptosporidium. It currently is under final review and is expected to be promulgated in the summer of 2005. The rule incorporates system-specific treatment requirements based on a Microbial Framework approach. This approach generally involves assignment of systems into one of several categories (or bins) based on results of source water Cryptosporidium monitoring. Additional treatment requirements depend on the bin to which the system is assigned. Systems will then choose technologies to comply with additional treatment requirements from a toolbox of options. To determine the bin classification for systems greater than or equal to 10,000 customers, source water Cryptosporidium monitoring must be conducted using EP A Method 1622/23 and with the analysis to be conducted on no less than 10-L (in quantity) samples. Cryptosporidium, E. coli, and turbidity source water sampling must be carried out on a predetermined schedule for 24 months with two choices: . Bin classification based on the highest 12-month running annual averages of monthly samples, or · Optional bin classification based on 2-year mean if the facility conducts twice-per-month monitoring for 24 months. Systems with at least 2 years of historical Cnjptosporidium data that are equivalent in sample number, frequency, and data quality (volume analyzed, percent recovery) to data that would be collected under the LT2ESWTR may use those data to determine bin classification by submitting the data to the State/Primacy Agency. Systems that provide 2.5 logs of treat- ment for Cryptosporidium in addition to conventional treatment are exempt from monitoring for purposes of selecting bin placement. "Conventional treatment" is defined as coagulation, flocculation, sedimentation, and granular media filtration. Action bins (for conventional treatment plants) have been structured considering the total Cryptosporidium oocyst count, uncorrected for recovery, as measured using EP A Method 1623 and 10-L samples. Systems have 3 years following initial bin classification to meet the treatment requirements associated with the bin (see Table B-1). The State/Primacy Agency may grant systems an additional2-year extension to comply when capital investments are necessary. Systems using ozone, chlorine dioxide, ultraviolet (UV) treatment, or membranes in addition to conventional treatment may receive credit for those technologies towards bin requirements. The additional treatment requirements in Table B-1 are based in part on the B-1 APPENDIX B FUTURE WATER TREATMENT REGULATIONS assumption that conventional treahnent plants in compliance with the IESWTR achieve an average of 3 log removal of Cryptosporidium. The total Cnjptosporidium removal requirements for the action bins with 1 log, 2 log, and 2.5 log additional treahnent correspond to total Cryptosporidium removals of 4,5, and 5.5 log, respectively. Meeting the log treahnent requirements identified for each" action bin" in Table B-1 may necessitate one or more actions from an array of management strategies which include watershed control, reducing influent Cnjptosporidium concentrations, improved system performance, and additional treahnent barriers. Based on available information, the Federal Advisory Committee (FAC) recommended that the LT2ESWTR use a "toolbox" approach, and that the specific tools (when properly designed and implemented) receive log credit (or range of credit) as shown in Table B-2. EP A must use the best information available in developing the final rule and will request comment on the proposed log credits shown in Table B-2. EP A will also provide guidance for determining if toolbox options are properly designed and implemented. TABLE B-1 Bin Requirements as Set Forth in September 2000 Agreement in Principle Average Cryptosporidium Concentration Bin Number Additional treatment requirements for systems with conventional treatment that are in full compliance with IESWTR Cryptosporidium < 0.075/L No action 2 0.075/L ~ Cryptosporidium 1-log treatment (systems may use any technology or combination of < 1.0/L technologies from toolbox as long as total credit is at least 1-log) 3 1.0/L ~ Cryptosporidium 2.0-log treatment (systems must achieve at least 1-log of the required < 3.0/L 2-log treatment using ozone, chlorine dioxide, UV, membranes, bag/cartridge filters, or in-bank filtration) 4 Cryptosporidium > 3.0/L 2.5 log treatment (systems must achieve at least 1-log of the required 2.5-log treatment using ozone, chlorine dioxide, UV, membranes, bag/cartridge filters, or in-bank filtration) In the next few years, the anticipated Stage 2 D/DBP Rule and the anticipated LT2ESWTR are expected to require increased levels of Giardia and Cryptosporidium removal! inactivation, while at the same time effectively limiting the maximum free chlorine contact time (CT) for the disinfection process. As a result, many utilities may need to consider an alternative primary disinfectant, such as ozone or ultraviolet (UV), in order to balance the requirements of the two upcoming regulations. The Deparhnent has incorporated the design and construction of UV facilities at the Highland Avenue and the Hicks WTPs in anticipation of the requirements of this rule. The UV facilities will be sized based on available research data and the proposed LT2ESWTR that have been released by the EP A for public comment. In addition, a filtered water tur- bidity goal of 0.1 NTU is also being established for both water plants to ensure compliance with possible future reduction and potential inactivation credits of Cryptosporidium. B-2 TABLE B-2 Microbial Toolbox Components to be Used in Addition to Existing Treatment (from Stage 2 M-DBP, FAC Agreement in Principle, September Signature Copy) APPROACH Watershed Control WATERSHED CONTROL PROGRAM (1) Reduction in oocyst concentration (3) Reduction in viable oocyst concentration (3) Alternative Source INTAKE RELOCATION (3) Change to Alternative Source of Supply (3) Management of Intake to Reduce Capture of Oocysts in Source Water (3) Managing Timing of Withdrawal (3) Managing Level of Withdrawal in Water Column (3) Pretreatment OFF-STREAM RAW WATER STORAGE WI DETENTION - X DAYS (1) Off-Stream Raw Water Storage wI Detention - Y weeks (1) Pre-Settling Basin wlCoagulant Lime Softening (1) In-Bank Filtration (1) Improved Treatment LOWER FINISHED WATER TURBIDITY (0.15 NTU 95 PERCENTILE IN COMBINED FILTERED EFFLUENT) Slow Sand Filters (1) Roughing Filter (1) Membranes (MF, UF, NF, RO) (1) Bag Filters (1) Cartridge Filters (1) Improved Disinfection CHLORINE DIOXIDE (2) OZONE (2) UV (2) APPENDIX B FUTURE WATER TREATMENT REGULATIONS I Potential LO!:J Credit I . 0.5 l 1 I 2 I >2.5 X As measured As measured As measured As measured As measured As measured As measured 1. X X 1---... .. X X X X ~ X X X X X X X X X Peer Review I Other Demonstration I Validation or System Performance Peer Review ProQram (ex. Partnership Phase IV! I X I 1 Performance studies demonstrating reliable specific log removals for technologies not listed above. This provision does not supercede other As demonstrated inactivation requirements. Kev to table svmbols: (X) indicates potential log credit based on proper design and implementation in accordance with EPA guidance. Arrow indicates estimation of potential log credit based on site-specific or technology-specific demonstration of performance. Table footnotes: (1) Criteria to be specified in guidance to determine allowed credit, (2) Inactivation dependent on dose and source water characteristics, (3) Additional monitoring for Cryptosporidium after this action would determine new bin classification and whether additional treatment is required. B-3 APPENDIX B FUTURE WA TER TREATMENT REGULATIONS D/DBP Rule - Stage 2 Considerable debate resulted from the proposed Stage 2 D/DBP Rule when total trihalomethanes (TIHM) and haloacetic acid (HAA)15 limits of 40 and 30 Ilg/L, respectively were proposed - there being acute concern that those levels would be too stringent. As a result, EP A and various stakeholders formed the F AC to address concerns of interested parties. The result is the September 12 Signature Copy of the Stage 2 M-DBP Agreement in Principle (Agreement). Table B-3 summarizes the proposed Stage 2 D/DBP Rule limits that resulted from the Agreement. TABLE B.3 Summary of Stage 2 D/DBP Rule Limits Parameter Timeline Action Monitoring lOSE Monitoring Phase 1 Phase 2 Phase 2 Monitoring Bromate MCL Conduct Cryptosporidium and Initial Distribution System Evaluation (lOSE) monitoring and submit results to State/Primacy Agency lOSE: monitor bimonthly (on regular schedule of approximately every 60 days) for one year at 8 distribution sites per plant (at sites that are in addition to Stage 1/0BP compliance monitoring sites). For plants with chlorine distribution systems, sites will include: . One near distribution system entry point . Two at average residence time, . Five at points representative of highest THM and HAA5 concentrations · THM/HAAs of 80/60 Jlg/L running annual average (RAA) · THM/HAAs of 120/100 Jlg/L location running annual average (LRAA) . Based on Stage 1 monitoring sites THM/HAAs of 80/60 Jlg/L LRAA based on all new sampling sites based on lOSE Monitor quarterly (on a regular schedule approximately every 90 days) at 4 sites: · One representative average from among current Stage 1 locations · One representative of highest HAA5 identified under lOSE . Two at highest TTHM identified during lOSE At least one quarterly sample must be taken during the peak historical month for OBP levels. . 0.010 mg/L for purposes of Stage 2. . Under review to 0.005 mg/L as part of 6-year review 2 years and 2- Yo years, respectively after promulgation 3 years after promulgation 6 years after promulgation 6 years after promulgation a Plus 2 years for systems requiring capital improvements This rule could impact the AUD based on hydraulic situations present in the distribution system that cause some water to be in contact with free chlorine residual for long periods of time. These long contact times can result in TIHM and HAA levels exceeding the 80/60 (TIHM/HAA) quarterly running average at some individual sampling points. As a result, 15 TTHM and HAAs are formed when naturally occurring organics in the source water react with free chlorine that is added to provide primary disinfection and a disinfection residual in the distribution system. B-4 APPENDIX B FUTURE WA TER TREATMENT REGULATIONS AUD has planned for and is implementing advanced treatment processes in the N. Max Hicks Tobacco Road Water Treatment Plant (under construction) to remove naturally occurring organics and thereby reduce the amount of DBPs formed after chlorine is added. The Department is also providing flexibility in the Highland Avenue WTP upgrade (see Section 5.0) to provide enhanced coagulation for organic removal if needed to minimize TIHM/HAA formation. In addition, AUD is implementing distribution infrastructure improvements to loop dead ends, provide blow-offs on other dead ends to reduce the detention times (especially in warm water months) and thus reduce the formation of TIHM and HAA. 8-5 APPENDIX C SUMMARY OF THE BOND RESOLUTION This Appendix C has been prepared by Sutherland Asbill & Brennan LLP, Atlanta, Georgia, Bond Counsel. The Bond Resolution adopted by the Augusta-Richmond County Commission on October 21, 1996, as ratified, reaffirmed, supplemented, and amended by resolutions adopted by the Augusta-Richmond County Commission on December 3, 1996, December 17, 1996, August 22, 2000, September 15,2000, May 30, 2002, June 21, 2002, May 4, 2004, June 1, 2004, June 15, 2004, and November 23, 2004 is a contract for the benefit of the owners of the Bonds which specifies the terms and details of the Series 2004 Bonds and which defines the security for the Series 2004 Bonds. The following is a summary, which does not purport to be comprehensive or definitive, of certain provisions of the Bond Resolution. Other provisions of the Bond Resolution are described in this Official Statement under the captions "SECURITY AND SOURCES OF PAYMENT FOR THE SERIES 2004 BONDS - Pledge of Revenues," "SECURITY AND SOURCES OF PAYMENT FOR THE SERIES 2004 BONDS - Funds Created by the Bond Resolution and Flow of Funds," and "SECURITY AND SOURCES OF PAYMENT FOR THE SERIES 2004 BONDS - Rate Covenant." Reference is made to the Bond Resolution in its entirety for a complete recital of the detailed provisions thereof, copies of which are available from the Consolidated Government upon request. [Remainder of Page Intentionally Left Blank] SUMMARY OF THE BOND RESOLUTION The following is a general summary of certain provisions of the Bond Resolution pursuant to which the Series 2004 Bonds are being issued. The summaries as hereinafter set forth do not purport to be complete, and for further information reference is made to the Bond Resolution, copies of which are available from the Consolidated Government upon request. Definitions The following terms are used in this summary with the meanings set forth below. "Additional Bonds" shall mean any revenue bonds of the Consolidated Government ranking on a parity with the Prior Bonds and the Series 2004 Bonds which may be hereafter issued pursuant to the Bond Resolution. "Additional Interest" means, for any period during which any Bank Bonds are owned by a Credit Issuer pursuant to a Credit Facility or Credit Facility Agreement, the amount of interest accrued on such Bank Bonds at the Bank Bond Rate less the amount of interest which would have accrued during such period on an equal principal amount of Bonds at the Bond Rate. "Bank Bond" means any Bond purchased and held by a Credit Issuer pursuant to a Credit Facility Agreement. A Bond shall be deemed a Bank Bond only for the actual period during which such Bond is owned by a Credit Issuer pursuant to a Credit Facility. "Bank Bond Rate" means the rate of interest payable on Bank Bonds, as may be provided in a Credit Facility or Credit Facility Agreement. "Bond Rate" means the rate of interest per annum payable on specified Bonds other than Bank Bonds. "Bond Resolution" means that certain resolution adopted by the Augusta-Richmond County Commission on October 21, 1996, as ratified, reaffirmed, supplemented, and amended by resolutions adopted by the Augusta- Richmond County Commission on December 3, 1996, December 17, 1996, August 22, 2000, September 15,2000, May 30, 2002, June 21, 2002, May 4, 2004, June 1,2004, June 15,2004, and November 23,2004, as same may be supplemented from time to time. "Bonds" shall mean any revenue bonds authorized by and issued pursuant to the Bond Resolution, including the Series 1996/1997 Bonds, the Series 2000 Bonds, the Series 2002 Bonds, the Series 2004 Bonds and any Additional Bonds of the Consolidated Government issued pursuant to the Bond Resolution. "Capitalized Interest Fund" shall mean the "Augusta, Georgia Water and Sewerage System Capitalized Interest Fund-2004" created in the 2004 Refunding Resolution. "Construction Fund" shall mean the "Augusta, Georgia Water and Sewerage System Construction Fund-2004" created in the 2004 Resolution. "Consulting Engineer," when used with respect to the Series 2004 Bonds, shall mean CH2M Hill, Atlanta, Georgia, or its successors or such other engineer, engineers or engineering firm that might hereafter be employed in relation to the supervision of the additions, extensions and improvements to be made to the System and in relation to the services to be rendered as contemplated by the 2004 Resolution. "Credit Facility" means any letter of credit, insurance policy, guaranty, surety bond, standby bond purchase agreement, revolving credit agreement, or similar obligation, arrangement, or instrument issued by a bank, insurance company, or other financial institution which is used by the Consolidated Government to perform one or more ofthe following tasks: (a) to enhance the Consolidated Government's credit by assuring owners of any of the Bonds that principal of and interest on such Bonds will be paid promptly when due; (b) to provide liquidity for the owners of Bonds through undertaking to cause the Bonds to be bought from the owners thereof when submitted C-I pursuant to an arrangement prescribed by a supplemental bond resolution; or (c) remarketing any Bonds so submitted to the Credit Issuer (whether or not the same Credit Issuer is remarketing the Bonds). The term Credit Facility shall not include a Reserve Account Surety Bond. "Credit Facility Agreement" means an agreement between the Consolidated Government and a Credit Issuer pursuant to which the Credit Issuer issues a Credit Facility and may include the promissory note or other instrument evidencing the Consolidated Government's obligations to a Credit Issuer pursuant to a Credit Facility Agreement. The term Credit Facility Agreement shall not include a Reserve Account Surety Bond. "Credit Issuer" means any issuer of a Credit Facility then in effect for all or part of the Bonds. The term Credit Issuer shall not include any Reserve Account Surety Bond Provider. Whenever in the Bond Resolution the consent of the Credit Issuer is required, such consent shall only be required from the Credit Issuer whose Credit Facility is issued with respect to the Bonds for which the consent is required, and such consent whenever required shall not be unreasonably withheld. "Debt Service Requirement" means the amounts required in each Sinking Fund Year to pay the principal of and interest on the Bonds as same become due and payable; provided, however, with respect to any term obligation which is required to be repaid prior to its stated maturity through the operation of a mandatory sinking fund, the amount of principal coming due in any Sinking Fund Year with respect to such obligation shall be the amount required to be deposited into the sinking fund for the retirement of the principal amount of such obligation rather than the entire principal amount of such debt coming due at the stated maturity. If any Bonds outstanding or proposed to be issued bear interest at a Variable Rate, the interest rate per annum on such Bonds for purposes of calculating the Debt Service Requirement shall be the lesser of (a) the 30-year Revenue Bond Index, (b) the maximum interest rate for such Bonds permitted by the supplemental bond resolution authorizing the issuance thereof or (c) the "cap" rate, if any, established with respect to such bonds in a related Hedge Agreement. With respect to any Bonds secured by a Credit Facility, Debt Service Requirement shall include (a) any commission or commitment fee obligations with respect to such Credit Facility, (b) the outstanding amount of any Reimbursement Obligation owed to the relevant Credit Issuer and the interest thereon, (c) any Additional Interest owed on Bank Bonds to a Credit Issuer and (d) any remarketing agent fees. With respect to Bonds for which there exists a related Hedge Agreement, Debt Service Requirement shall include the net amounts paid with respect to such Hedge Agreement. "Engineering Report," when used with respect to the Series 2004 Bonds, shall mean the report entitled "Engineer's Report, Water and Sewerage Revenue Bonds, Series 2004," dated November 2004, and prepared by the Consulting Engineer. "Expenses of Operation and Maintenance" means all expenses reasonably incurred in connection with the operation and maintenance of the System, including salaries, wages, the cost of materials and supplies, rentals of leased property, if any, payments to others for the purchase of water, if any, and for the treatment and disposal of sewage, the cost of audits, Paying Agent's and Bond Registrar's fees, payment of premiums for insurance required by the Bond Resolution and other insurance which the Consolidated Government deems prudent to carryon the System and its operations and personnel, and, generally, all expenses, exclusive of interest on the Bonds and depreciation or amortization, which under accounting principles generally accepted for municipal utility purposes are properly allocable to operation and maintenance; however, only such expenses as are reasonably and properly necessary or desirable for the proper operation and maintenance of the System shall be included. "Expenses of Operation and Maintenance" also includes the Consolidated Government's obligations under any contract with any other political subdivision or public agency or authority of one or more political subdivisions pursuant to which the Consolidated Government undertakes to make payments measured by the expenses of operating and maintaining any facility which constitutes part of the System and which is owned or operated in part by the Consolidated Government and in part by others. "Fiscal Year" shall mean the period commencing on the 151 day of January in each year and extending through the 3151 day of December in that year, or such other period as shall be adopted by the Consolidated Government as provided in the Bond Resolution. C-2 "Forecast Period" means a period offive consecutive Fiscal Years commencing with the Fiscal Year after the later of (1) the Fiscal Year in which any proposed Additional Bonds are to be issued or (2) the Fiscal Year in which any project to be financed with the proceeds of any proposed Additional Bonds is expected to be completed. "Government Obligations" means (a) direct obligations of the United States of America for the full and timely payment of which the full faith and credit of the United States of America is pledged, or (b) obligations issued by a person controlled or supervised by and acting as an instrumentality of the United States of America, the full and timely payment of the principal of, premium, if any, and the interest on which is fully and unconditionally guaranteed as a full faith and credit obligation of the United States of America (including any securities described in (a) or (b) issued or held in book-entry form on the books of the Department of the Treasury of the United States of America), which obligations, in either case, are not subject to redemption prior to maturity at less than par by anyone other than the holder. "Hedge Agreement" means any agreement between the Consolidated Government and any Hedge Provider providing a swap, cap or collar for any Bonds, in each case as such agreement is originally executed and as the same may from time to time be amended or supplemented in accordance with its terms. "Hedge Payments Fund" shall mean the "Augusta, Georgia Water and Sewerage System Hedge Payments Fund" created pursuant to the 2004 Refunding Resolution. "Hedge Provider" means any counterparty with whom the Consolidated Government enters into a Hedge Agreement. "Independent Certified Public Accountant" means a certified public accountant, or a firm of certified public accountants, who or which is an "independent" as that term is defined in Rule 101 and related interpretations of the Code of Professional Ethics of the American Institute of Certified Public Accountants, of recognized standing, who or which does not devote his or its full time to the Consolidated Government (but who or which may be regularly retained by the Consolidated Government). "Interest Payment Date" shall mean April 1 and October 1 of each year, except that with respect to any series of Bonds which bear interest at a Variable Rate, the Consolidated Government may provide in the supplemental bond resolution authorizing such Bonds for any other interest payment dates, as it deems appropriate and with respect to any Bank Bond, the date such Bank Bond is remarketed pursuant to a remarketing agreement. "Investment Earnings" means all interest received on and profits derived from investments made with Pledged Revenues or any moneys in the funds and accounts established under the Resolutions. "1996 Resolution" means the bond resolution of the Consolidated Government adopted on October 21, 1996, as supplemented on December 3 and 17, 1996, authorizing the issuance of the Series 1996/1997 Bonds. "Operating Revenues" means all income and revenues of any nature derived from the operation of the System, including monthly water and sewage billings, service charges, other charges for water and sewage service and the availability thereo f (other than any special assessment proceeds), connection or tap fees (whether accounted for as revenues or as contributed capital), and hydrant rentals, but excluding local, state, or federal grants, loans, capital improvements contract payments, or other moneys received for capital improvements to the System and excluding Investment Earnings. "Permitted Investments" shall mean and include any of the following securities, if and to the extent the same are at the time legal for investment of Consolidated Government funds: (i) any bonds or other obligations of the State of Georgia or of other counties, municipal corporations and political subdivisions of the State of Georgia; (ii) Government Obligations; C-3 (iii) obligations of agencies of the United States government issued by the Federal Land Bank, the Federal Home Loan Bank, Federal Intermediate Credit Bank, and the Central Bank for Cooperatives; (iv) bonds or other obligations issued by any public housing agency or municipal corporation in the United States, which such bonds or obligations are fully secured as to the payment of both principal and interest by a pledge of annual contributions under an annual contributions contract or contracts with the United States government, or project notes issued by any public housing agency, urban renewal agency, or municipal corporation in the United States which are fully secured as to payment of both principal and interest by a requisition, loan, or payment agreement with the United States government; (v) certificates of deposit issued by any national or state bank located within the State of Georgia which have deposits insured by the Federal Deposit Insurance Corporation and certificates of deposit of federal savings and loan associations and state building and loan or savings and loan associations located within the State of Georgia which have deposits insured by the Savings Association Insurance Fund of the Federal Deposit Insurance Corporation or the Georgia Credit Union Deposit Insurance Corporation and, provided that such certificates of deposit in excess of the amount insured by the Federal Deposit Insurance Corporation, the Savings Association Insurance Fund of the Federal Deposit Insurance Corporation or the Georgia Credit Union Deposit Insurance Corporation are continuously and fully secured by such securities as are described in clauses (i) and (ii) above which (I) have a principal amount (exclusive of accrued interest) at all times at least equal to the principal amount of such certificates of deposit, (2) are secured by deposit with the Federal Reserve Bank of Atlanta, Georgia or any financial institution listed in this subparagraph and located in the State of Georgia; (vi) pooled investment programs sponsored by the State of Georgia for the investment oflocal government funds; (vii) securities of or other interests in any no-load, open-end management type investment company or investment trust registered under the Investment Company Act of 1940, as amended, or any common trust fund maintained by any bank or trust company which holds such proceeds as trustee or by an affiliate thereof so long as: (a) the portfolio of such investment company or investment trust or common trust fund is limited to the obligations referenced in paragraph (ii) above and repurchase agreements fully collateralized by any such obligations; (b) such investment company or investment trust or common trust fund takes delivery of such collateral either directly or through an authorized custodian; (c) such investment company or investment trust or common trust fund is managed so as to maintain its shares at a constant net asset value; and (d) securities of or other interests in such investment company or investment trust or common trust fund are purchased and redeemed only through the use of national or state banks having corporate trust powers and located within the State of Georgia; and (viii) any other investments if and to the extent the same are at the time legal for investment of Consolidated Government funds. "Pledged Revenues" means Operating Revenues, after provision for payment of all Expenses of Operation and Maintenance, and Investment Earnings. "Prior Bonds" shall mean the outstanding Series 1996/1997 Bonds, Series 2000 Bonds and Series 2002 Bonds. "Reimbursement Obligation" means the obligation ofthe Consolidated Government to directly reimburse any Credit Issuer for amounts paid by such Credit Issuer under a Credit Facility, whether or not such obligation to so reimburse is evidenced by a promissory note or other similar instrument. C-4 "Reserve Account Surety Bond" means the letter of credit, insurance policy or surety bond, together with any substitute or replacement therefor, if any, complying with the provisions of the Bond Resolution thereby fulfilling all or a portion of the Reserve Requirement. "Reserve Account Surety Bond Provider" means any provider of a Reserve Account Surety Bond. "Reserve Requirement" means the least of (i) the highest Debt Service Requirement in the then current or any succeeding Sinking Fund Year, (ii) 10 percent of the aggregate principal amount of the Prior Bonds, the Series 2004 Bonds and Additional Bonds outstanding, or (iii) 125 percent of the average annual Debt Service Requirement in the current or any succeeding Sinking Fund Year. "Revenue Fund" shall mean the "Augusta, Georgia Water and Sewerage System Revenue Fund" originally created and designated as the "Richmond County Water and Sewerage System Revenue Fund-1996" in the 1996 Resolution and subsequently redesignated in the 2000 Resolution. "Series 2004 Bonds" means the Consolidated Government's Water and Sewerage Revenue Bonds, Series 2004 in the aggregate principal amount of $160,000,000 authorized to be issued pursuant to the 2004 Resolution. "Sinking Fund" shall mean the "Augusta, Georgia Water and Sewerage-System Sinking Fund" originally created and designated as the "Richmond County Water and Sewerage System Sinking Fund" in the 1996 Resolution and subsequently redesignated in the 2000 Resolution. "Sinking Fund Year" shall mean the period commencing on October in each year and extending through October 1 in the next year. "System" shall mean the consolidated water and sewerage facilities of the City and the County now owned, operated and maintained by the Consolidated Government, as now existent and as added to, extended and improved and owned by the Consolidated Government and used by it in furnishing water and sewerage services and facilities. "2000 Resolution" means the resolution of the Augusta-Richmond County Commission of Augusta, Georgia adopted August 22,2000, as supplemented on September 15,2000, authorizing the issuance of the Series 2000 Bonds. "2004 Bond Insurer" means Financial Security Assurance Inc., a New York stock insurance company, or any successor thereto or assignee thereof, as insurer of the Series 2004 Bonds. "2002 Resolution" means the resolution of the Augusta-Richmond County Commission adopted May 30, 2002, as supplemented on June 21, 2002, authorizing the issuance of the Series 2002 Bonds. "2004 Amending Resolution" means the resolution of the Augusta-Richmond County Commission adopted June 15,2004. "2004 New Money Resolution" means the resolution of the Augusta-Richmond County Commission adopted June 1,2004. "2004 Resolution" means the 2004 New Money Resolution, as supplemented, amended and restated by a resolution of the Augusta-Richmond County Commission adopted November 23, 2004 authorizing the issuance of the Series 2004 Bonds. "2004 Refunding Resolution" means the resolution of the Augusta-Richmond County Commission adopted May 4, 2004, authorizing its not to exceed $65,000,000 Water and Sewerage Revenue Refunding Bonds, Auction Rate Series 2006. C-5 "Utility General Fund" shall mean the "Augusta, Georgia Water and Sewerage System Utility General Fund" originally created and designated as the "Richmond County Water and Sewerage System Utility General Fund" in the 1996 Resolution and redesignated in the 2000 Resolution. "Variable Rate" means a rate of interest applicable to the Bonds, other than a fixed rate of interest which applies to a particular maturity of Bonds so long as that maturity of Bonds remains outstanding. Revenues and Funds The Bond Resolution creates the following funds and accounts: 1. Revenue Fund 2. Sinking Fund consisting of: (a) Debt Service Account (the "Debt Service Account") (b) Debt Service Reserve Account (the "Reserve Account") 3. Hedge Payments Fund 4. Utility General Fund 5. Construction Fund 6. Capitalized Interest Fund Revenue Fund. Pursuant to the Bond Resolution, all revenues arising from the ownership or operation of the System shall be collected by the Consolidated Government and deposited into the Revenue Fund so long as the Bonds are outstanding and unpaid or until provision is duly made for the payment thereof. Moneys in the Revenue Fund are to be disbursed to the extent available and in the following manner and order: (a) There shall first be paid from the Revenue Fund the Expenses of Operation and Maintenance, other than payments in lieu of taxes and payments in lieu offranchise fees. (b) To make the required payments into the Sinking Fund as described hereinafter. (c) To make the required payments into the Hedge Payments Fund as described hereinafter. ( d) Any excess funds in the Revenue Fund not required to make the above-referenced payments will be deposited into the Utility General Fund, as described below. The Bond Resolution provides that the Pledged Revenues are pledged to the payment of the principal of and the interest on the Bonds secured pursuant to the Bond Resolution. The Pledged Revenues are subject to a lien in favor of the holders of the Bonds secured pursuant to the Bond Resolution. Sinkin!!: Fund. The Bond Resolution requires that monthly payments be made from the Revenue Fund into the Debt Service Account of the Sinking Fund for the purpose of paying the principal of and the interest on the Bonds as the same become due and payable in the then current sinking fund year. There shall next be paid into the Reserve Account in the Sinking Fund such amounts, ifany, as may be required to maintain therein a reserve equal to the Reserve Requirement. The Reserve Account shall be maintained and used for the payment of the principal of and interest on the Bonds falling due at any time as to which there would otherwise be a default. All sums required to be paid to comply with the provisions of the preceding paragraph must be paid on or prior to the 25th day of each month in which payment is due, and if, for any reason, the Consolidated Government C-6 fails to pay the full amount required to be paid into the Sinking Fund, the amount of any such deficiency must be added to and will become a part of the amount due and payable by the Consolidated Government into the Sinking Fund in the next succeeding month. The Consolidated Government agreed that in the event it elects to issue Additional Bonds, the above-described payments into the Debt Service Account will be increased to the extent necessary to pay the principal of and interest on the Bonds then outstanding and on the bonds proposed to be issued coming due, either at maturity or by proceedings for mandatory redemption, in the then current sinking fund year and to create and maintain a reserve in the Reserve Account for that purpose in an amount at least equal to the Reserve Requirement on the then outstanding bonds and on the bonds proposed to be issued. The Reserve Requirement may be funded with (i) money, (ii) a Reserve Account Surety Bond (upon meeting certain conditions set forth in the Bond Resolution), or (iii) a combination of the foregoing, so long as such money and Surety Bond will result in the required amount of funds being available in the Reserve Account. In the event moneys then on hand in the Debt Service Account are in the aggregate insufficient to make the required payments in full on the principal of and interest on the Bonds then due and payable, such deficiency will be cured by a withdrawal of moneys from the Reserve Account or by a draw-down upon the Reserve Account Surety Bond held within the Reserve Account of the amount of such deficiency to the extent such amount is then available under the terms of the Reserve Account Surety Bond. In such event, the Consolidated Government must repay such withdrawals or make all payments to the Reserve Account Surety Bond Provider required as a repayment of such draw-down from the first moneys available in the Revenue Fund and not required to be used for Operation and Maintenance Expenses and not required to make the monthly payments into the Debt Service Account of the Sinking Fund, such that the Reserve Account will be restored to the Reserve Requirement, all as provided in the Bond Resolution; provided, however, such payments must in any event be at least sufficient to restore the Reserve Account to the proper balance within 12 months after the date upon which money is withdrawn from the Reserve Account or a draw on the Reserve Account Surety Bond is made. If on October 2 of any year, moneys or securities are on deposit in the Debt Service Account in excess of the amount then required to be on deposit therein, such excess shall be withdrawn therefrom and deposited into the Revenue Fund. If on October 2 of any year, moneys or securities are on deposit in the Reserve Account in excess of the Reserve Requirement, then such excess shall be withdrawn and deposited into the Revenue Fund. For this purpose, securities shall be valued at their market value plus accrued interest thereon to October 2. All moneys and all securities held in and for the Sinking Fund and all income and increments therefrom are pledged to the payment of all payments required to be made from the Sinking Fund. The Bond Resolution provides that moneys in the Sinking Fund are to be disbursed for (a) the payment of the interest on the Bonds as such interest becomes due and payable; (b) the payment of the principal on the Bonds as such principal becomes due and payable; (c) the optional redemption of the Bonds issued as provided for in the Bond Resolution; (d) the purchase of the Bonds in the open market at a price not to exceed the authorized call price for such issue; (e) the payment of charges for paying the Bonds and interest thereon and the charges for the registration ofthe Bonds and their transfer or exchange; (f) the payment of any charges for investment services; and ,(g) the transfer of any excess moneys to the Revenue Fund, as hereinabove described. Hedl!:e Payments Fund. The Bond Resolution requires that monthly payments be made to the Hedge Payments Fund in an amount sufficient, taking into account amounts on deposit therein, to pay amounts due to the Hedge Providers under the Hedge Agreements (other than payments upon early termination thereof). Payments upon early termination of any Hedge Agreements are payable only from the Utility General Fund. The obligation of the Consolidated Government to make the deposits to the Hedge Payments Fund, as well as to make any other payments under the Hedge Agreements, is junior and subordinate in all respects to the obligation of the Consolidated Government to make payments to the Sinking Fund as described above. C-? Utilitv General Fund. The Bond Resolution requires that after all other required payments have been made from the Revenue Fund as hereinabove provided, at the end of each month all moneys remaining in the Revenue Fund shall be paid into the Utility General Fund. Moneys in the Utility General Fund are to be used only for the following purposes: (a) Paying principal of and/or interest on the Bonds then outstanding and falling due at any time for the payment of which money is not available in the Sinking Fund securing the payment of same; (b) Making payments into the Sinking Fund in the amounts required in order to accumulate and maintain the Reserve Account created therein at its proper balance; (c) Paying such expenses as may be necessary to alleviate or remove the effects of an emergency having a major impact on the System caused by some extraordinary occurrence which makes it necessary to use the funds of the System, to the extent that moneys on deposit in the Revenue Fund are insufficient to meet such emergencies; (d) Paying Expenses of Operation and Maintenance for which moneys are not available in the Revenue Fund, including without limitation payments in lieu of taxes and payments in lieu of franchise fees; (e) Making replacements, additions, extensions and improvements and acquiring equipment and paying the cost of any engineering studies, surveys or plans and specifications pertaining to the future development or expansion of the System deemed to be reasonable and in the best interest of the Consolidated Government and the holders of the Bonds; (f) Payment of the charges of the Utility General Fund Depository for investment services; (g) Paying to any Reserve Account Surety Bond Provider interest on amounts drawn under such Reserve Account Surety Bond; and (h) Payments to the Hedge Providers under Hedge Agreements for which moneys are not available in the Hedge Payments Fund, including without limitation payments upon the early termination of any Hedge Agreement. Indebtedness of the Consolidated Government to the Georgia Environmental Facilities Authority, which ranks as to lien on the Pledged Revenues junior and subordinate to the lien securing the Bonds, shall be paid from moneys remaining in the Revenue Fund after the required payments have been made to the Sinking Fund and the Hedge Payments Fund and prior to the payments permitted to be made from the Utility General Fund. If bonds are hereafter issued ranking as to lien on the Pledged Revenues junior and subordinate to the lien securing the payment of the Bonds authorized to be issued under the Bond Resolution ("Subordinate Bonds"), then such payments into the Utility General Fund may be suspended and such moneys shall be available to the extent necessary to pay the principal of and interest on such Subordinate Bonds and to create and maintain a reasonable reserve therefor and such moneys may be allocated and pledged for that purpose. So long as any Hedge Agreement is in effect, however, no Subordinate Bonds may be issued or other obligations incurred which are secured by a lien on Pledged Revenues that is both junior to the lien securing the Bonds and senior to the lien securing the payments to be made to the Hedge Payments Fund. The Consolidated Government shall maintain at all times a minimum balance in the Utility General Fund equal to the lesser of $2,500,000 or 5 percent of the Operating Revenues of the System for the immediately preceding Fiscal Year. Construction Fund. Upon the issuance and delivery of the Series 2004 Bonds, a portion of the proceeds of the issuance shall be deposited with SunTrust Bank, Atlanta, Georgia, as the Construction Fund Depository. C-8 The purpose of the Construction Fund is to provide for adding to, operating, improving, extending and equipping the System in accordance with, or substantially in accordance with, the Engineering Report (the "Project"), and the Consolidated Government will not cause or permit any moneys to be paid from the Construction Fund unless such disbursements are in accordance with the Engineering Report. Costs of adding to, improving, operating, extending and equipping the Project which justify the disbursement of Construction Fund moneys include: (i) the cost of indemnity and fidelity bonds purchased to either secure deposits in the Construction Fund or to insure the faithful completion of any contract pertaining to improvements to the Project; (ii) any taxes or charges lawfully assessed against the Project; (iii) engineering fees relating to the Project; (iv) legal expenses relating to the Project; (v) direct costs of improvements (labor, equipment, materials, etc.) made to the Project; (vi) the cost of acquiring lands and rights of way necessary for contemplated improvements; and (vii) reimbursements to the Consolidated Government for advance payments of costs pertaining to the Project now contemplated, as set forth in the Engineering Report, prior to the receipt of the proceeds derived from the sale of the Series 2004 Bonds. Formal procedures for disbursing Construction Fund moneys are established in the Bond Resolution. Capitalized Interest Fund. There shall be paid into the Capitalized Interest Fund such amount from the proceeds of the sale of the Series 2004 Bonds allocable to capitalized interest. Such moneys shall be transferred to the Debt Service Account held within the Sinking Fund and on each Interest Payment Date until the balance in the Capitalized Interest Fund has been reduced to zero. The amounts so transferred shall be used to pay interest coming due on the Series 2004 Bonds. Investments Moneys in the Sinking Fund and in the Utility General Fund not immediately needed to make the required payments shall, in the discretion of the Sinking Fund Custodian and of the Utility General Fund Depository, respectively, be held, managed, invested and reinvested in Permitted Investments. Construction Fund moneys not needed for the payment of current obligations may be invested in Permitted Investments (except for the investments described in paragraph (vi) of the definition thereof). Additional Bonds The Bond Resolution authorizes the Consolidated Government to issue Additional Bonds having a parity of lien with the Prior Bonds and the Series 2004 Bonds and authorize the elevation of junior and subordinate lien bonds to a parity with the Prior Bonds and the Series 2004 Bonds from time to time provided certain conditions are met. In order to issue Additional Bonds secured on a parity with the Prior Bonds and the Series 2004 Bonds, the following conditions must be met: (a) The payments covenanted to be made into the Sinking Fund, as the same may have been enlarged and extended in any proceedings authorizing the issuance of any Additional Bonds, must be currently being made in full amount as required and the Debt Service Account and Reserve Account held within the Sinking Fund must be at their proper respective balances. (b) Except in the case of Additional Bonds issued for refunding purposes pursuant to Article V, Section 8 of the 1996 Resolution, there shall have been procured and filed with the Consolidated Government (i) a report by an Independent Certified Public Accountant to the effect that the Pledged Revenues (excluding Investment Earnings, if any, on construction funds) for a period of 12 consecutive months out of the most recent 18 consecutive months preceding the month of adoption of the proceedings authorizing the issuance of such Additional Bonds must have been equal to at least 1.25 times the maximum Debt Service Requirement for any succeeding Sinking Fund Year on the Prior Bonds, the Series 2004 Bonds and any other issue or issues of Additional Bonds therewith then outstanding and on the proposed Additional Bonds to be issued, or in lieu of the foregoing formula, if a new C-9 schedule of rates and charges for the services, facilities and commodities furnished by the System shall have been adopted and shall be in effect and an Independent Certified Public Accountant shall certify that had this new rate schedule been in effect during the period described above, the Pledged Revenues of the System would have equaled the requirements of the above formula; or (ii) (x) a report by an Independent Certified Public Accountant to the effect that the historical Pledged Revenues (excluding Investment Earnings, if any, on construction funds) for a period of 12 consecutive months out of the most recent 18 consecutive months preceding the month of adoption of the proceedings authorizing the issuance of the proposed Additional Bonds were equal to at least 1.1 0 times the historical Debt Service Requirement on all Bonds (other than Subordinate Bonds) which were outstanding during such 12-month period, and (y) a report by the Consulting Engineer to the effect that the forecasted Pledged Revenues (excluding Investment Earnings, if any, on construction funds) for each Fiscal Year in the Forecast Period are expected to equal at least 1.25 times the maximum annual Debt Service Requirement on all Bonds (other than Subordinate Bonds) which will be outstanding immediately after the issuance of the proposed Additional Bonds, in the then current or any succeeding Sinking Fund Year. The reports by the Independent Certified Public Accountant that are required by this paragraph (b) may contain pro forma adjustments to historical Pledged Revenues equal to 100 percent of the increased annual amount attributable to any revision in the schedule of rates, fees and charges for the services, facilities and commodities furnished by the System, imposed prior to the date of delivery of the proposed Additional Bonds and not fully reflected in the historical Pledged Revenues actually received during such 12-month period. Such pro forma adjustments shall be based upon a report of the Consulting Engineer as to the amount of Operating Revenues which would have been received during such 12-month period had the new rate schedule been in effect throughout such 12-month period. For the purpose of calculating the maximum Debt Service Requirement under this subparagraph (b), the maximum annual Debt Service Requirement shall be reduced by an amount equal to any capitalized interest funded from the proceeds of the Additional Bonds proposed to be issued in each succeeding Sinking Fund Year for the period for which said interest has been capitalized. (c) An Independent Certified Public Accountant shall certify in triplicate to the Consolidated Government that the requirements of subparagraph (a) above are being complied with and that the requirements of subparagraph (b) above have been met. A copy of such certificate shall be furnished to the Designated Representative of the original purchasers of the Prior Bonds and the Series 2004 Bonds. (d) Except when Bonds are being issued solely for the purpose of refunding outstanding Bonds, the Consulting Engineer for the Consolidated Government shall provide the Consolidated Government with a written report recommending the additions, extensions and improvements to be made to the System and stating that same are feasible, designating in reasonable detail the work and installation proposed to be done and the estimated cost of accomplishing the undertaking. The Consulting Engineer shall set forth in said report the forecasted Pledged Revenues to be derived from the System which will be available for debt service payments in each of the next 10 years and shall indicate the projected coverage of such debt service payments in each succeeding Sinking Fund Year. An executed duplicate original of such report ofthe Consulting Engineer as required by this provision shall be furnished to the Designated Representative of the original purchasers of the Prior Bonds and the Series 2004 Bonds issued under the Bond Resolution not less than 10 days before any proceedings are taken to actually issue such Additional Bonds. (e) The Consolidated Government shall pass proper proceedings reciting that all of the above requirements have been met, shall authorize the issuance of the Additional Bonds and shall provide in such proceedings, among other things, the date such Additional Bonds shall bear, the rate or rates of interest and maturity dates, as well as the registration and redemption provisions. Except for Additional Bonds that bear interest at a Variable Rate, the interest on the Additional Bonds of any such issue shall fall due on April 1 and October 1 of each year, and the Additional Bonds shall mature in installments on October I, but, as to principal, not necessarily in each year or in equal installments. Any such proceeding or proceedings shall require the Consolidated Government to C-IO increase the monthly payments then being made into the Sinking Fund to the extent necessary to pay the principal of and the interest on the Prior Bonds, the Series 2004 Bonds and on all such Additional Bonds therewith then outstanding and on the proposed Additional Bonds to be issued as same become due and payable, either at maturity or by proceedings for mandatory redemption, in the then current Sinking Fund Year, and to create upon the issuance of the proposed Additional Bonds to be issued a reserve in the Reserve Account at least equal to the Reserve Req~irement on the Prior Bonds, the Series 2004 Bonds and any Additional Bonds therewith then outstanding and on the proposed Additional Bonds to be issued and to maintain said reserve in an amount sufficient for that purpose; provided, however, the Consolidated Government may satisfY funding of the required reserve through the purchase of a Reserve Account Surety Bond meeting the requirements of the Bond Resolution. Any such proceeding or proceedings shall restate and reaffirm, by reference, all of the applicable terms, conditions and provisions of the Bond Resolution. If any Additional Bonds would bear interest at a Variable Rate, the resolution under which such Additional Bonds are issued shall provide a maximum rate of interest per annum which such Additional Bonds may bear. In connection with the issuance of any Additional Bonds under the Bond Resolution, the Consolidated Government may obtain or cause to be obtained one or more Credit Facilities providing for payment of all or a portion of the principal of, premium, if any, or interest due or to become due on such Additional Bonds, providing for the purchase of such Additional Bonds by the Credit Issuer, or providing funds for the purchase of such Additional Bonds by the Consolidated Government. In connection therewith the Consolidated Government shall enter into Credit Facility Agreements with such Credit Issuers providing for, among other things, (i) the payment of fees and expenses to such Credit Issuer for the issuance of such Credit Facility; (ii) the terms and conditions of such Credit Facility and the Additional Bonds affected thereby; and (iii) the security, if any, to be provided for the issuance of such Credit Facility. The Consolidated Government may in a Credit Facility Agreement agree to directly reimburse such Credit Issuer for amounts paid under the terms of such Credit Facility, together with interest thereon; provided, however, that no Reimbursement Obligation shall be created, for purposes of the Bond Resolution, until amounts are paid under such Credit Facility. Any such Reimbursement Obligation shall be deemed to be a part of the Additional Bonds to which the Credit Facility relates which gave rise to such Reimbursement Obligation, and references to principal and interest payments with respect to such Additional Bonds shall include principal and interest (except for Additional Interest) due on the Reimbursement Obligation incurred as a result of payment of such Additional Bonds with the Credit Facility. All other amounts payable under the Credit Facility Agreement (including any Additional Interest) shall be fully subordinate to the payment of debt service on Bonds (other than Subordinate Bonds). Any such Credit Facility shall be for the benefit of and secure such Additional Bonds or portion thereof as specified in the applicable bond resolution authorizing such Additional Bonds. (f) Such Additional Bonds or obligations and all proceedings relative thereto, and the security therefor, shall be validated as prescribed by law. The Bond Resolution permits the issuance of Subordinate Bonds without limit. So long as any Hedge Agreement is in effect, however, no Subordinate Bonds may be issued or other obligations incurred which are secured by a lien on Pledged Revenues that is both junior to the lien securing the Bonds and senior to the lien securing the payments to be made to the Hedge Payments Fund. Rates and Charges The Consolidated Government has placed into effect a schedule of rates, fees and charges for the services, facilities and commodities furnished by the System and as often as it appears necessary the Consolidated Government is required by the Bond Resolution to revise and adjust such schedule of rates, fees and charges for either water or sewerage services and facilities, or both, to the extent necessary to produce funds sufficient to operate and maintain the System on a sound business-like basis and to create and maintain the Sinking Fund as provided in the Bond Resolution and produce Pledged Revenues equal to I.I times the sum of (x) the amount required to discharge the payment of the principal of and the interest on the Bonds then outstanding, as the same become due and payable in the then current Sinking Fund Year, either at maturity or by proceedings for mandatory redemption plus (y) the scheduled payment of net interest amounts payable under the Hedge Agreements, but in no event, however, may such amount be less than that required to create and maintain the Debt Service Account and the Reserve Account, as required by the Bond Resolution. Without limiting the foregoing, the Consolidated Government pursuant to the 2004 Resolution has covenanted to take such actions after the date of adoption of the 2004 C-Il Resolution as necessary to cause the revenues of the System to equal or exceed the forecasted revenues of the System set forth in the Engineering Report for the period set forth therein. Operation of the System The Consolidated Government covenants that it has and will continue to enforce reasonable rules and regulations governing the System and the operation thereof, and that all compensation, salaries, fees and wages paid by it in connection with the operation, repair, and maintenance of such System will be reasonable, and that no more persons will be employed by it than are necessary, and that it will operate same in an efficient and economical manner, and will at all times maintain same in good repair and in sound operating condition, and will make all necessary repairs, renewals and replacements and will comply with all valid acts, rules, regulations, orders and directions of any legislative, executive, administrative or judicial body applicable to such undertaking and enterprise. Disposition of Property; Encumbrances The Consolidated Government covenants that it will not encumber the System or any part thereof, and it will not sell or otherwise dispose of the System or any integral part thereof, except it may sell such System as a whole, or substantially as a whole, if the proceeds of such sale are at least sufficient to provide for the redemption of the Prior Bonds, the Series 2004 Bonds and any Additional Bonds and any interest accrued or to accrue thereon, and that the proceeds of any such sale shall be deposited with the sinking fund custodians with respect to the Prior Bonds and the Series 2004 Bonds, as applicable, in trust and applied by them to the extent necessary to purchase or redeem the Prior Bonds, the Series 2004 Bonds or any Additional Bonds. The Consolidated Government shall not, however, be precluded from the sale of a part Qf the System where the sale would not, in any way, adversely affect the revenues of the System, and provided further that the proceeds from such sale are used for extension and improvements to the System, or are paid into the Sinking Fund for deposit into the Debt Service Account held therein and applied toward the purchase or redemption of the Prior Bonds, the Series 2004 Bonds and any Additional Bonds. The Consolidated Government will not create, or permit to be created, any charge, lien, or encumbrance or any security interest in or on the revenues of the System, as it now exists and as it is hereafter added to, extended and improved, ranking prior to the lien on said revenues created to secure the payment of the Prior Bonds and the Series 2004 Bonds except that it may secure Additional Bonds standing on a parity with the Prior Bonds and the Series 2004 Bonds in accordance with the provisions of the Bond Resolution. Furthermore, the Consolidated Government covenants that it will not create or suffer to be created, in the operation and maintenance of the System, any lien, security interest or charge thereon, or any part thereof, or upon the revenues derived therefrom, ranking equally with or prior to the lien and charge authorized by the Bond Resolution upon such revenues, and that it will pay, or cause to be discharged, or will make adequate provision to satisfY and discharge, within 60 days after the same shall accrue, all lawful claims and demands for labor, materials, supplies, or other objects, which, if unpaid, might by law become a lien upon such System, or any part thereof, or upon the revenues derived therefrom; provided, however, that the Consolidated Government will not be required to pay, or cause to be discharged, or make provisions for, any such lien, security interest or charge, so long as the validity thereof shall be contested in good faith and by appropriate legal proceedings. Insurance; Bonding of Employees The Consolidated Government is required to keep the insurable portions of the System insured, so long as the Prior Bonds, the Series 2004 Bonds or any Additional Bonds are outstanding, in an amount equal to not less than 80 percent of the full insurable value under fire and extended coverage policies written with responsible insurance companies authorized and qualified to do business under the laws of the State of Georgia. The Consolidated Government is also required to carry public liability insurance relating to the operation of the System and vehicular public liability insurance on any vehicle owned and operated by the Consolidated Government and used in the operation of the System. Such public liability insurance and vehicular public liability insurance policies must each be in amounts within the limits of not less than $100,000 for injury to or death of one individual, $500,000 for injury or death arising out of anyone accident and $50,000 property damage insurance for anyone accident. The proceeds C-12 of such fire and extended coverage insurance are pledged as security for the Prior Bonds, the Series 2004 Bonds and any Additional Bonds, but shall be available for and shall, to the extent necessary and desirable, be applied to the repair and replacement of the damaged or destroyed property. In the event the proceeds are not used for that purpose, such proceeds shall be deposited in the Utility General Fund. All insurance policies shall be open to the inspection of the bondholders or their duly authorized representatives at all times. Accounts and Reports Within one month after the end of its fiscal year, or as soon thereafter as practicable, the Consolidated Government is required to cause an audit to be made of the books and accounts pertaining to the System by an independent and recognized firm of certified public accountants of suitable experience and responsibility. Pursuant to the Bond Resolution, the audit report is to be open to inspection by all interested persons. The Consolidated Government will also cause any additional reports or audits relating to the System to be made, as required by law, and from time to time, as often as may be required, it will furnish to the Designated Representatives of the original purchasers of the Prior Bonds and the Series 2004 Bonds such other information concerning the System or the operation thereof as may reasonably be requested. Events of Default and Remedies Events of default include (a) failure to pay principal of any of the Prior Bonds, the Series 2004 Bonds or any Additional Bonds as same shall become due and payable at maturity or by proceedings for redemption; (b) failure to pay any installments of interest as such interest becomes due and payable or within 30 days thereafter; (c) any situation which renders the Consolidated Government incapable of fulfilling its obligations under the Bond Resolution; (d) failure to remedy a default in the performance of any other of the covenants, conditions, agreements or provisions for 30 days after written notice of such default shall have been given by any bondholder; (e) certain events of bankruptcy or insolvency (f) failure by any Credit Issuer to pay the purchase price of Bonds (other than Subordinate Bonds) under any Credit Facility then in effect or (g) delivery by a Credit Issuer to the Consolidated Government a written notice stating that an "Event of Default" has occurred under the Credit Facility Agreement. Upon the happening of any such Event of Default (except in (f) and (g) above), the holders of not less than 55 percent in the principal amount of the Bonds then outstanding may declare the principal of all of the Bonds then outstanding to be immediately due and payable together with the interest thereon, subject to rescission of any such declaration by holders of 55 percent in principal amount of the Bonds if all such defaults have been cured. If any Event of Default has occurred and has not been remedied, any bondholder may proceed to protect and enforce the rights of the bondholders under the Bond Resolution by suit, action or special proceedings in equity or at law, either for the appointment of a Receiver of the System or for the special performance of any covenant or agreement contained in the Bond Resolution or in aid or execution of any power granted in the Bond Resolution or in the enforcement of any proper legal or equitable remedy as such bondholder shall deem most effectual to protect and enforce the rights of the bondholder. No bondholder is authorized to enforce any rights under the Bond Resolution except in the manner therein provided and all proceedings must be for the equal benefit of all the bondholders. Amendment Provision is made in the Bond Resolution for its amendment or supplementation under certain circumstances. Except for supplemental proceedings not inconsistent with the terms of the Bond Resolution which are adopted to cure any ambiguity or formal defect or omission or to grant additional rights to the holders of the Bonds, any such supplemental resolutions will become effective only with the consent of the holders of at least 65 percent in aggregate principal amount of the Bonds then outstanding. In no event, however, may any such supplemental proceedings permit (i) extension of the maturity of any of the Bonds; (ii) reduction in principal amount, change of the rate of interest, or modification of the payment terms of any of the Bonds; or (iii) reduction of the percentage of holders of the Bonds required to consent to any such supplemental proceedings. C-I3 Defeasance The Bonds shall be deemed to be paid within the meaning of the Bond Resolution if sufficient moneys or sufficient Government Obligations have been irrevocably deposited with the Paying Agent or Sinking Fund Custodian to pay the same when they become due, or provision has been duly made therefor. Non-Arbitrage Covenant The Consolidated Government covenants and agrees that it will not, subsequent to the date of the issuance and delivery of the Series 2004 Bonds, intentionally use any portion of the proceeds of the Series 2004 Bonds to acquire higher yielding investments, or to replace funds which were used directly or indirectly to acquire higher yielding investments, except as may otherwise be permitted by the Internal Revenue Code of 1986, as amended (the "Code") or the regulations promulgated thereunder, including, but not limited to, complying with the requirements of Section 148(f) of the Code and the regulations promulgated thereunder and the payment of rebate, ifany, required to be made, and that it will expend the proceeds of the Series 2004 Bonds in compliance with the applicable provisions of Sections 141 to 150, inclusive, of the Code. Anything in the Bond Resolution notwithstanding, earnings on amounts in any fund or account may, and shall to the extent necessary, be used to make the payments required under this paragraph. Use of Proceeds The Series 2004 Bonds are being issued by the Consolidated Government in compliance with the conditions necessary for interest income on the Series 2004 Bonds to be excluded from gross income for federal income tax purposes pursuant to the provisions of Section 103(a) of the Code relating to obligations of the State or political subdivision thereof. It is the intention of the Consolidated Government that the interest on the Series 2004 Bonds be and remain excludable from gross income for federal income tax purposes, and, to that end, the Consolidated Government hereby covenants with the holders of the Series 2004 Bonds as follows: (a) That it will not take any action, or fail to take any action, if any such action or failure to take action would adversely affect the tax exempt status or interest on the Series 2004 Bonds under Section 103 of the Code. (b) That they will not directly or indirectly use or permit the use of any proceeds of the Series 2004 Bonds or any other funds of the Consolidated Government or take or omit to take any action that would cause the Series 2004 Bonds to be "arbitrage bonds" within the meaning of Section 148 of the Code. To that end, the Consolidated Government will comply with all requirements of Section 148 of the Code to the extent applicable to the Series 2004 Bonds. In the event that at any time the Consolidated Government is of the opinion that for purposes of this paragraph it is necessary to restrict or limit the yield on the investment of any moneys held under the Bond Resolution, the Consolidated Government shall take such action as may be necessary. 2004 Bond Insurer So long as it is insuring the Series 2004 Bonds and is not in default of its obligations thereunder, the 2004 Bond Insurer shall be deemed to be the sole holder of the Series 2004 Bonds for the purpose of exercising any voting right or privilege or giving any consent or direction or taking any other action that the holders of the Series 2004 Bonds are entitled to take pursuant to the Bond Resolution. C-14 Sutherland · Asbill &.- Brennahue 999 Peachtree St., N.E. Atlanta, GA 30309-3996 tel 404.853.8000 fax 404.853.8806 www.sablaw.com Al1llRNf.YS M lAW December _, 2004 Augusta-Richmond County Commission Augusta, Georgia Re: $160,000,000 Augusta, Georgia Water and Sewerage Revenue Bonds, Series 2004 Ladies and Gentlemen: We have examined a certified copy of the validation proceedings, judgment of validation entered on December 7, 2004, the bond resolution adopted by the Augusta-Richmond County Commission (the "Commission") of Augusta, Georgia (the "Consolidated Government") on October 21, 1996, as supplemented on December 3 and 17, 1996 (the "1996 Resolution"), as ratified, reaffirmed, broadened and extended by a resolution of the Commission adopted on August 22, 2000, as supplemented on September 15, 2000 (the "2000 Resolution"), a resolution of the Commission adopted on May 30, 2002, as supplemented on June 21, 2002 (the "2002 Resolution"), a resolution of the Commission adopted on May 4, 2004 (the "2004 Refunding Resolution"), a resolution of the Commission adopted on June 15, 2004 (the "2004 Amending Resolution") and a resolution of the Commission adopted on June 1, 2004, as supplemented, amended and restated by a resolution of the Commission adopted on November 23, 2004 (the "2004 Resolution" and, together with the 1996 Resolution, the 2000 Resolution, the 2002 Resolution, the 2004 Refunding Resolution and the 2004 Amending Resolution, the "Bond Resolution"), the law and other documents relating to the Augusta, Georgia Water and Sewerage Revenue Bonds, Series 2004, in the aggregate principal amount of $160,000,000 (the "Series 2004 Bonds"). The Series 2004 Bonds are dated the date of issuance and delivery, are initially issued as book-entry only bonds in fully registered form without coupons in the denomination of$5,000 or any integral multiple thereof and are transferable to subsequent owners as therein provided. The Series 2004 Bonds bear interest from date at the rate per annum set forth below opposite each principal maturity, all interest payable semiannually on April I and October 1 in each year, commencing on April 1, 2005, and mature on October I in the following years and principal amounts: Year Amount Rate 2034 2039 $ 40,025,000 119,975,000 5.25% 5.25 AO 1229212.1 Atlanta . Austin . New York . Tallahassee . Washington, DC Augusta-Richmond County Commission December _, 2004 Page 2 The Series 2004 Bonds are subject to redemption prior to their respective maturities as stated in the text of the Series 2004 Bonds and in the manner and upon the terms set forth in the 2004 Resolution. The Series 2004 Bonds are being issued under the Constitution of the State of Georgia, the Revenue Bond Law (Title 36, Chapter 82, Article 3 of the Official Code of Georgia Annotated, as amended-the "Revenue Bond Law"), an Act of the General Assembly of the State of Georgia (Georgia Laws 1997, p. 4024 et seq.) and the Bond Resolution for the purpose of providing funds to finance, in whole or in part, the cost of adding to, extending, improving and equipping the Consolidated Government's water and sewerage system (the "System"), acquiring the necessary property or rights in property therefor, both real and personal, to pay the cost of settling an interest rate lock, to pay a portion of the interest accruing on the Series 2004 Bonds during the estimated period of construction of additions, extensions and improvements to the System, to fund a reasonably required debt service reserve and to pay all expenses necessary to accomplish the foregoing. The Consolidated Government pursuant to the 1996 Resolution has heretofore issued and delivered $62,880,000 aggregate principal amount of Richmond County Water and Sewerage Revenue Refunding and Improvement Bonds, Series 1996A (the "Series 1996A Bonds"), $3,760,000 aggregate principal amount of Richmond County Taxable Water and Sewerage Revenue Refunding Bonds, Series 1996B (the "Series 1996B Bonds") and $5,910,000 aggregate principal amount of Richmond County Water and Sewerage Revenue Refunding Bonds, Series 1997 (the "Series 1997 Bonds"). Pursuant to the 2000 Resolution the Consolidated Government has heretofore issued and delivered $97,080,000 aggregate principal amount of Augusta, Georgia Water and Sewerage Revenue Bonds, Series 2000 (the "Series 2000 Bonds"). Pursuant to the 2002 Resolution the Consolidated Government has heretofore issued and delivered $149,400,000 aggregate principal amount of Augusta, Georgia Water and Sewerage Revenue Bonds, Series 2002 (the "Series 2002 Bonds"). The Series 2004 Bonds have been issued in accordance with the terms and conditions of the Bond Resolution and rank on a parity as to lien on the net operating revenues of the System (gross operating revenues of the System after payment of expenses of operation and maintenance) and earnings on investments made with moneys and securities from time to time on deposit in the funds and accounts established in the Bond Resolution (the "Pledged Revenues") with the lien created thereon securing payment of the outstanding Series 1996A Bonds, Series 1997 Bonds, Series 2000 Bonds and Series 2002 Bonds (collectively, the "Prior Bonds"). The Series 1996B Bonds have all been paid. The Bond Resolution provides that additional bonds may be issued from time to time, under certain terms and conditions, ranking on a parity as to lien on the Pledged Revenues with the lien enjoyed by the Prior Bonds and the Series 2004 Bonds. Pursuant to the 2004 Refunding Resolution, the Consolidated Government has authorized the issuance of auction rate revenue bonds in an aggregate principal amount not to exceed $65,000,000 (the "Auction Rate Bonds") for the AO 1229212.1 Augusta-Richmond County Commission December _, 2004 Page 3 purpose of refunding its Water and Sewerage Revenue Refunding Bonds, Series 1996A, maturing on and after October 1,2007, in the aggregate principal amount of $56,000,000, and its Water and Sewerage Revenue Refunding Bonds, Series 1997, maturing on and after October 1, 2007, in the aggregate principal amount of $4,340,000 (the "Proposed Refunded Bonds"). The Auction Rate Bonds, although authorized, have not been issued. If issued, the Auction Rate Bonds would rank on a parity as to lien on the Pledged Revenues with the lien securing the outstanding Prior Bonds (excluding the Proposed Refunded Bonds) and the Series 2004 Bonds. The Series 2004 Bonds shall not be deemed to constitute a debt of the State of Georgia or the Consolidated Government nor a pledge of the faith and credit of said State or Consolidated Government, nor shall the State or Consolidated Government be subject to any pecuniary liability thereon. The Series 2004 Bonds shall not be payable from, nor be a charge upon, any funds other than the revenues pledged to the payment thereof, and are payable solely from the special fund provided therefor from the Pledged Revenues, including all future additions thereto and any other moneys deposited therein. No owner of the Series 2004 Bonds shall ever have the right to enforce payment thereof against any property of the State or the Consolidated Government, nor shall the Series 2004 Bonds constitute a charge, lien or encumbrance, legal or equitable, upon any other property of the Consolidated Government other than the revenues pledged to the payment thereof. The issuance of the Series 2004 Bonds shall not directly, indirectly or contingently obligate the State or the Consolidated Government to levy or pledge any form of taxation whatever therefor or to make any appropriation for their payment. We express no opinion with respect to title to any of the property comprising the System, the accuracy or completeness of any disclosure or other document by which the Series 2004 Bonds have been offered for sale or the compliance by the underwriters of the Series 2004 Bonds with any law applicable to any of them in connection with the offer or sale of the Series 2004 Bonds. In rendering our opinion that the interest on the Series 2004 Bonds is excluded from gross income for federal income tax purposes, we have relied as to questions of fact material to our opinion on certificates and certified proceedings of public officials, including officials of the Consolidated Government, and covenants of the Consolidated Government with respect to the use of the proceeds of the Series 2004 Bonds and the nature and use of the facilities being financed, without undertaking to verify the same by independent investigation. In addition, the Consolidated Government has covenanted in the Bond Resolution that it will not, subsequent to the date hereof, intentionally use any portion of the proceeds of the Series 2004 Bonds to acquire higher yielding investments or to replace funds which were used directly or indirectly to acquire higher yielding investments, except as may be otherwise permitted by Section 148 of the Internal Revenue Code of 1986, as amended (the "Code"), and that it will comply with the arbitrage rebate requirements of Section 148(f) of the Code. Failure to comply with these covenants could AO 1229212.1 Augusta-Richmond County Commission December _, 2004 Page 4 result in interest on the Series 2004 Bonds being includable in gross income for federal income tax purposes retroactive to the date of issuance. Based on the foregoing, we are ofthe opinion that: (a) The Revenue Bond Law is valid and under the authority thereof the Bond Resolution provides for prescribing and revising rates and collecting fees and charges for the services and facilities furnished by the System to the extent necessary to provide funds sufficient to pay the reasonable and necessary cost of operating and maintaining the System and to provide for the payment into the Augusta, Georgia Water and Sewerage System Sinking Fund (the "Sinking Fund") of the amounts required to provide for the payment of the principal of and interest on the Prior Bonds, the Series 2004 Bonds and any bonds hereafter issued on a parity therewith as the same become due and payable, either at maturity or by proceedings for mandatory redemption, and to create and maintain a reserve therein for that purpose, as well as to create and maintain a reserve for extensions and improvements to the System. (b) The lien created on the Pledged Revenues derived from the System securing the payment of the Prior Bonds and the Series 2004 Bonds constitutes a first or prior pledge of said revenues to any heretofore made or that may hereafter be made, except that the Consolidated Government may issue, from time to time upon meeting certain terms and conditions as provided in the Bond Resolution, additional bonds or obligations, and if issued, said bonds shall be payable, both as to principal and interest, from the Pledged Revenues and shall stand on a parity as to lien on the Pledged Revenues with the Prior Bonds and the Series 2004 Bonds. (c) The Series 2004 Bonds are valid, special obligations of the Consolidated Government enforceable in accordance with the terms thereof, payable solely from the Pledged Revenues of the System, including all future additions and improvements thereto, and the Sinking Fund, including the Debt Service Reserve Account held therein, which Sinking Fund, by the Bond Resolution, is pledged to and charged with the payment of the principal of and interest on the Prior Bonds, the Series 2004 Bonds and any parity bonds therewith hereafter issued. (d) Assuming compliance by the Consolidated Government with the above-described covenants, interest on the Series 2004 Bonds (i) is excluded from the gross income ofthe owners thereof for federal income tax purposes and (ii) is not an item of tax preference for purposes of the federal alternative minimum tax imposed on individuals and corporations; provided, however, it should be noted that with respect to certain corporations (as defined for federal income tax purposes) such interest is taken into account in determining adjusted current earnings for the purpose of computing the alternative minimum tax imposed on such corporations. We express no opinion regarding other federal tax consequences with respect to the Series 2004 Bonds. AO 1229212.1 Augusta-Richmond County Commission December _, 2004 Page 5 (e) The interest on the Series 2004 Bonds is exempt from present State of Georgia income taxation. It is to be understood that the rights of the owners of the Series 2004 Bonds and the enforceability of the Series 2004 Bonds and the Bond Resolution may be subject to bankruptcy, insolvency, reorganization, moratorium and other laws affecting creditors' rights generally and that their enforcement may also be subject to judicial discretion in certain cases. Very truly yours, SUTHERLAND ASBILL & BRENNAN LLP By: AO 1229212.1 SUMMARY OF CONTENTS 1 Pal!e $160,000,000 AUGUSTA, GEORGIA Introduction ... ........... ... ...................... ..... ........... ............... I Plan of Financing......... ...................... ..... ....... ......... ..........5 The Series 2004 Bonds ..................................................... 7 Security and Sources of Payment for the Series 2004 Bonds ................................................. II Bond Insurance ............................................................... 16 The Consolidated Government ...................................... 17 The System ....................................................................18 System Financial Information ........................................36 Legal Matters.. ..... ........ ... ....... ........... ......... ........... ..... .....50 Miscellaneous ..... .......... ....... ....... .............. ............ ..... .....53 Certification ...... ....... ..... ...... ... ....... ......... .................... ....57 Appendix A: Financial Statements ofthe System .......A-I Appendix B: Engineering Report ................................B-I Appendix C: Summary of the Bond Resolution .......... C-I Appendix D: Form of Legal Opinion ..........................D-I Appendix E: Specimen Bond Insurance Policy........... E-I Water and Sewerage Revenue Bonds, Series 2004 OFFICIAL STATEMENT No dealer, broker, salesman, or other person has been authorized to give any information or to make any representations, other than those contained in this Official Statement, and, if given or made, such other information or representations should not be relied upon as having been authorized by the Consolidated Government, the Underwriters, or the Bond Insurer. This Official Statement does not constitute an offer to sell or the solicitation of an offer to buy, nor shall there be any sale of the Series 2004 Bonds by any person in any jurisdiction in which it is unlawful for such person to make such offer, solicitation, or sale. The delivery of this Official Statement at any time does not imply that the information herein is correct as of any time subsequent to this date. MERRILL LYNCH & CO. A.G. EDWARDS Dated: November 23, 2004 I See detailed "TABLE OF CONTENTS" on pages (i) to (ii).