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Emergency Reserve • Minimum: 2.0 percent of capital assets • Target:2.5 percent of capital assets • Maximum: 3.0 percent of capital assets Rate Stabilization Reserve • Minimum: 10.0 percent of water sales revenue • Target: 15.0 percent of water sales revenue • Maximum:20.0 percent of water sales revenue Scenario Analyses The Study involved an analysis of three fmancial plan scenarios.The three scenarios include the status quo and the two most likely cost scenarios. This section outlines the conditions of each scenario and presents the resulting financial plan and revenue adjustments. SCENARIO 1: BASE CASE Scenario 1 includes projected costs and capital funding based on budget input from Agency staff.Projected costs include salaries and benefits,purchased water,treatment chemicals,debt service,capital funding, additional water supply reliability project costs, and other miscellaneous expenses. The additional water supply reliability project costs include$9.0 million from FY 2019 to FY 2022 and represent costs associated with additional water supply to increase reliability in future years. Scenario 1 represents the status quo and shows the Agency's financial standing if there were no additional revenue adjustments above the 3.0 percent CPI factor.Table 5 shows the cash flow projections under Scenario 1. The rate revenues(Lines 1-4)are calculated using the water demand projections for each FY in Table 3 and the average of CPI inflated CY rates from Table 4.The FY variable charge is equal to the average of the two CY charges',equal to$2.07 per ccf in FY 2019(average of$2.04 and$2.10).The estimated FY 2019 variable charge is multiplied by the projections in Table 3 to determine the volume-based rate revenue(Line 2). The fixed charge revenue(Line 3)in FY 2019 is equal to$16,087,355, or the average between CY 2018 and CY 2019 fixed charges in Table 4(average of$15,849,610 and$16,325,100). The expenses(Lines 11-16)include the projected O&M expenses from the Agency's budget(Line 12),additional water supply reliability costs(Line 13),and existing and proposed debt service(Lines 14-15).The Agency is not planning to issue debt during the Study period. The net cash flow before capital funding is equal to the total revenues(Line 9)less total expenses(Line 16).The Accumulated Capital Outlay(ACO)transfer and capital funding are derived from data provided by Agency staff. The total net cash flow(Line 22)is equal to the net cash flow before capital funding(Line 18)less capital funding costs(Lines 19-20).The Fund 100 ending balance includes the net cash flow(Line 22).The Fund 100 reserve targets(excluding Rate Stabilization)are in line with the Agency's current reserve policy. 'FY 2019 is the period from July 2018 to June 2019,which incorporates half of the months in CY 2018(July 2018 to December 2018)and half of the months in CY 2019(January 2019 to June 2019).Therefore,the FY charge is estimated using the average of two CY charges. ZONE 7 WATER AGENCY TREATED WATER WHOLESALE RATE STUDY REPORT 5