Page 58 - Yucaipa Valley Water District

Workshop Memorandum No. 17-015 Page 3 of 4

counties. The district provides retail water, wastewater and recycled water to a primarily
residential population of approximately 44,900 through 12,670 connections in the cities
of Calimesa and Yucaipa.

IMPROVED FINANCIAL PROFILE

The system's financial profile has improved since Fitch's last review in 2015, driven by
the savings provided by the refunding of the previously outstanding 2015A bonds plus a
rebound in connection fee revenue. The improvement to all-in DSC occurred even with a
9% decrease in operating revenue in fiscal 2016 - a result of the state-mandated water
usage restrictions. The system's liquidity position also improved in fiscal 2016, finishing
with the cash equivalent of approximately 350 days of operational expenses (days cash).
This is a favorable turnaround from a cash standpoint, as fiscal 2013 finished with just
88 days cash.

Management is in the process of updating its five-year forecast and CIP; Fitch was not
provided a draft. However, further improvements are expected in fiscals 2017 and 2018
as the lifting of the state's water restrictions is expected to combine with the trend of
new connections thereby resulting in higher overall revenue. A recently completed six
million gallon reservoir should help drive new development in the city of Calimesa
beginning in 2018.

ELEVATED DEBT METRICS

The district's debt profile is somewhat elevated but improving. Total debt per customer
finished fiscal 2016 at $2,604, which was above Fitch's 'AA' category median of $1,823.
Based on the amortization schedule of the system's debt, debt-per-customer should
reach approximately $1,800 at the end of five years, which would be more in line with
the system's peers. The system's other debt metrics also align well with its peers.

An updated CIP is not available, but capital needs are reportedly minimal over the next
few years with all projects reportedly related to rehabilitation of existing pipelines and
reservoirs. Capital projects are expected to be funded entirely by cash, helping to
alleviate any pressure to the system's debt profile.

DIVERSE WATER SUPPLY

The district has a wide array of water resources available for its customers, including the
use of recycled water, which places it in a favorable position versus many other regional
peers. Approximately 60% of the district's potable water supply is derived from the
Yucaipa and Beaumont groundwater basins. The remaining 40% is derived from surface
water sources, including treated water from the Oak Glen Plant and untreated water from
the State Water Project (SWP), which is treated at the Yucaipa Filtration Facility. In times
of drought, the district can utilize supply from its reservoirs and wells. Conversely, when
supply is readily available, the district uses surpluses from the SWP to recharge its wells.

RATES REMAIN COMPETITIVE

Current rates, which have been held flat the last two years, include a fixed-charge
component and a usage-based component. An additional 1% property tax charge is

Yucaipa Valley Water District - January 31, 2017 - Page 57 of 68