Annual report

Boston
Water one

Sewer
Commission

ANNUAL REPORT
1987

MESSAGE FROM
CHAIRMAN TYE

< Dating back to the
second century A.D., this

aqueduct is located in Segovia,
Spain. It was built by the
Romans with unmortored
granite blocks to tronsport

water from over ten miles away.

Throughout our ten year history, The Boston Water and Sewer Commission has endeav-
ored to build and constantly improve its service obligation to its rate payers by being an efficient
and well managed agency. The Commission is proud, not only of our record of past accomplish-
ments, but also of the significant initiatives which we have undertaken to ensure the proper
delivery and maintenance of quality water and wastewater services to the City of Boston.

As the Commission enters the next decade, we are preparing now for future system
demands. As the largest customer of the Massachusetts Water Resources Authority we are cur-
rently facing the financial impact that the Boston Harbor cleanup mandate will have upon both the
Commission and the citizens of all the MWRA member communities in the Commonwealth of
Massachusetts.

In addition, as Boston's strong economy continues to grow and attract new industry to this
area, we are planning for the additional demand for water and wastewater services. We see our
challenge to be the control of rate increases concurrent with the provision of necessary capital
Improvements.

With continued prudent and sound fiscal management strategies, equipment mainte-
nance and customer service, the Boston Water and Sewer Commission will move confidently into
the 1 990's. We are secure in knowing that the Commission has the resources to continue its
tradition of service to the City of Boston.

Sincerely,

A. Raymond Tye
Chairman

A. Raymond Tye

CHAIRMAN

Lisa G. Chapnick

COMMISSIONER

■«■»«■■"■■»'

A TRADITION
OF SERVICE

Discovered in the Andean region

of Peru, this Inca pottery jar,

or calabash, dates back to 500

A.D., when it was used to

transport water from rivers

and streams to highland

fortresses.

Over tlie past decade ttie Boston Water and Sewer Commission iias embarked upon an
aggressive Capital Improvement Program intended to meet the present and future needs of the
City of Boston. As a result, the Commission is well positioned to provide quality water and waste-
water services at reasonable rates both now and into the next century

The Commission has established an innovative long term debt management strategy
which is designed to cost effectively fund its Capital Improvement Program enabling the Commis-
sion to keep water and sewer rates stable, thus mitigating the cost of required improvements to
Boston's rate payers.

WATER AND SEWER RATES

The Commission's responsibility to provide water and wastewater services on a fair and
equitable basis requires that it set rates at sufficient levels to meet all costs for operations.

The Commission is sensitive to the concerns of its rate payers over rising water and sewer
rates, fueled by the much needed Boston Harbor cleanup. As a result, management has embarked
upon an intensive public awareness effort while at the same time redoubling its efforts to control or
cut administrative costs.

CAPITAL IMPROVEMENT PROGRAM

Boston's public water system dates back to 1 848. Although some components of the
system are over 1 00 years old, its overall structural integrity remains strong. Those portions of
the system that require replacement or repairs have been identified and the necessary work has
either been effected or is in the planning stages. Wherever possible, the Commission has enhanced
the system's operability through upgrading its components to take advantage of advancements in
technology.

Relaying and Relining Program

The primary purpose of the relaying and relining program is to ensure a supply of high
quality water, at adequate pressure, for customer use and fire protection through the rehabilitation,
installation and the cleaning of the water mains.

Metering Program

Since the inception of the metering program in late 1978, over 48,000 remote reading
residential meters have been installed. This has dramatically reduced the number of estimated bills
and has increased water accountability.

Computerized Work Order System

Automation of the water maintenance system was implemented at ttie end of January,
1987 The computerization of this system provides us with better utilization of manpower and
isolation of troublesome areas.

The Boston Water and Sewer

Commission currently

services over 87,000 homes,

apartments, business and

institutions through 1080 miles

of delivery pipes and 1300

miles of drainage pipes.

Leak Detection Program

During 1 987 the Commission conducted leak detection testing on 447 miles of piping
out of a system total of 1 1 82 miles, or 38% of the total system. Increased leak detection efforts will
continue in order to encompass a greater percentage of the total system.

To make the detection of leaks much easier, the Commission has initiated a program of
valve upgrading intended to facilitate the subdividing of service areas Into smaller sections. This
program will be instrumental In shortening response time required to detect and repair water main
breaks or leaks.

The Commission's Hydrant Improvement Program will also reduce unaccounted for
water by improving the operabillty of hydrants by eliminating ungated hydrants.

Wastewater Collection System

The backbone of the wastewater collection system is the Boston Main Drainage system,
which was constructed between 1 877 and 1 884 and currently remains operational. This system
combines five sewer mains, referred to as "interceptors," the Calf Pasture Pumping Station, and the
Dorchester Bay Tunnel. Extensive plans were developed to replace two of the original interceptors
with construction beginning In 1 982, resulting in the completion of the New Boston Main Inter-
ceptor in 1 987 and the New East Side Interceptor to be completed in 1 988. Commission engineers
consider the remaining interceptors to be structurally sound.

FINANCIAL STABILITY

The Boston Water and Sewer Commission's financial statements for 1 987 show continued
improvement in the Commission's financial condition. In 1 987, our debt service coverage was
200%, significantly exceeding the mandated 1 25% requirement of our indenture documents.

Throughout this past year, the Commission maintained its Standard and Poors rating at
"A" and its Moodys rating at "Baa 1 ." Early in the second quarter of 1 988, Moody's Investor
Services upgraded its rating to "A." The Commission has for the tenth consecutive year received
an unqualified audit opinion.

The City's robust, vibrant economy continues to outperform much of the nation, and
with this economic growth comes increased demand for services. As we prepare for these
demands, we stand upon past achievements, secure In knowing that we are prepared to meet
future challenges.

LOOKING

Combined Capital

Improvements

to Water & Sewer

Property

While the accomplishments of the Boston Water and Sewer Commission are many, our
mission has only begun.

WATER DISTRIBUTION SYSTEM

The primary objectives of the proposed 1988-1990 water Capital Improvement Program
will be met through three major areas of activity: a relaying and relining program; a metering pro-
gram; and special projects.

Commission policy, whenever possible, is to tie relaying and relining of water to other
work requiring street and highway construction, urban development, housing development, and
subway construction. Coordinating projects in this way helps to minimize costs and reduce
traffic-flow problems.

The Commission's metering program continues to place emphasis on increasing water
accountability and equitably allocating the costs of water and wastewater services to its customers
based upon actual usage. With this as our goal, we plan to continue the installation of remote read-
ing residential meters, in conjunction with the Commission's 1 5 year meter replacement program.

As a special pilot project, we plan to initiate the use of electronic probing devices on
larger user accounts , as well as the use of computerized hand held meter reading devices. These
innovations should provide for quicker billing, better route manipulations, and the elimination of
read verifications.

SEWER AND DRAINAGE SYSTEM

The sewer system Capital Improvement Program includes the protection of the structural
integrity of current wastewater collection and storm drainage systems; the reduction of infiltration
and inflow in the wastewater system; the control of combined sewer overflows; the improvement
of water quality in Boston Harbor as well as its tributary rivers; and the separation of combined
systems where appropriate and cost-effective.

Improvement projects fall into three broad categories: renewals and replacements, separa-
tion of combined sewers, and increased system capacity Renewal and replacement projects, which
maintain the useful life of existing facilities, are financed from the annual sewer rates. Projects in
the other categories, which improve, enlarge or expand the system, are financed through the sale
of bonds.

The promise of cost-efficient, quality water and wastewater systems is becoming a reality
in Boston due to sound fiscal planning and effective operations management. Regardless of what
the fijture may bring to the City, the Boston Water and Sewer Commission lies prepared to meet
the challenge given to us a decade ago .

AUDITORS'
OPINION

Boston Water and Sewer Commission:

We have examined the balance sheets of the Boston Water and
Sewer Commission as of December 31, 1987 and 1986 and the related state-
ments of operations, of Commission equity and of changes in financial posi-
tion for the years then ended. Our examinations were made in accordance
with generally accepted auditing standards and, accordingly included such
tests of the accounting records and such other auditing procedures as we
considered necessary in the circumstances.

In our opinion, such financial statements present fairly the finan-
cial position of the Boston Water and Sewer Commission at December 31,
1987 and 1986 and the results of its operations and changes in its financial
position for the years then ended, in conformity with generally accepted
accounting principles applied on a consistent basis.

^^jdifi:^ \^cKtAu4 '^sji^

Boston, Massachusetts
March 23, 1988

BALANCE SHEETS, December 31, 1987 and 1986

ASSETS

CURRENT ASSETS:

Cash

Trusteed assets

Nontrusteed assets

Accounts receivable -customers, less

allowances of $8, 1 60,000 in 1 987

and $8,604,000 in 1986
Earned revenues in excess of billings,

less allowances of $639,000 in 1 987

and $397,000 in 1986
Accounts receivable:

Federal and state construction grants

City of Boston -net
Prepaid expenses
Deferred charges
Total Current Assets

TRUSTEED ASSETS

NONTRUSTEED ASSETS

PROPERTY, PLANT AND EQUIPMENT, NET

DEFERRED CHARGES

DEBT ISSUE COSTS, LESS AMORTIZATION

TOTAL

NOTES

1,4,7
1,4

1987

1986

$ 241,950 $ 699,389
10,602,991 12,595,006

4,524,851 3,554,581

27,327,027 35,002,146

7,300,955

4,528,671

19,299,357

12,591,636

6

2,390,799

2,071,369

721,792

1,126,018

1,2,7

32,563,431

22,505,758

104,973,153

94,674,574

1,4

100,426,523

96,867,616

1,4

11,328,676

28,335,874

1,3,8

208,654,029

181,065,695

1,2,7

35,958,127

29,570,773

1

4,606,390

4,941,062

$465,946,898

$435,455,594

See notes to financial statements.

LIABILITIES AND COMMISSION EQUITY

CURRENT LIABILITIES:
Payable from current assets:

Accounts payable

Other accrued liabilities

Total

Payable from restricted asset funds:

Massachusetts Water Resources
Authority assessment for water
and sewerage

City Bonds
Total

General Revenue Bonds
Deferred revenues
Total Current Liabilities

NOTES

1987

5,030,822
4,054,777
9,085,599

1986

$ 6,154,860
3,041,058
9,195,918

5

42,322,893

34,663,756

4

689,436

747,023

43,012,329

35,410,779

4

7,152,511
18,604,763

8,548,984

1,2

21,010,789

77,855,202

74,166,470

OTHER LIABILITIES:
Massachusetts Water Resources

Authority assessment for water and

sewerage
City Bonds

General Revenue Bonds
Deferred revenues
Other liabilities

Total Other Liabilities

COMMISSION EQUITY:
Contributed capital
Accumulated deficit
Total Commission Equity

TOTAL

5

4
4

1,2

29,066,270

2,885,000

193,461,826

68,697,369
2,354,328

18,242,304

3,525,000

195,201,294

58,947,651

3,827,794

296,464,793

279,744,043

1

97,173,599
(5,546,696)

87,091,777
(5,546,696)

91,626,903

81,545,081

$465,946,898

$435,455,594

STATEMENTS OF OPERATIONS

for the Years Ended December 31, 1987 and 1986

OPERATING
REVENUES:

Water and sewer
usage

Fire pipe

Other

Total Operating
Revenues

NOTE

TOTAL

WATER

SEWER

1987

1986

1987

1986

1987

1986

$70,103,869 $62,487,001 $32,553,268 $30,681,253
1,021,521 742,152 1,021,521 742,152

1,127,391 853,753 515,218 418,339

$37,550,601 $31,805,748
612,173 435,414

72,252,781 64,082,906 34,090,007 31,841,744 38,162,774 32,241,162

OPERATING
EXPENSES:

Operations

Engineering and
administrative

Maintenance

Depreciation

Total Operating
Expenses

49,595,870 41,953,509 22,671,027 20,753,385 26,924,843 21,200,124

12,616,729 11,108,885 5,765,845 5,443,354
4,422,268 3,389,586 2,539,977 1,829,625
3,181,591 2,924,362 1,453,987 1,819,423

6,850,884 5,665,531
1,882,291 1,559,961
1,727,604 1,104,939

69,816,458 59,376,342 32,430,836 29,845,787 37,385,622 29,530,555

TOTM OPERAT
ING INCOME

2,436,323 4,706,564 $ 1,659,171 $ 1,995,957 $ 777,152 $ 2,710,607

OTHER INCOME

(EXPENSE):
Interest income
Interest expense

7,716,628 6,746,611
(15,568,111) (7,504,160)

INCOME (LOSS)
FROM
CURRENT
OPERATIONS 1

PRIOR YEAR
RATE SURPLUS
RECOGNIZED
IN CURRENT
YEAR

CURRENT YEAR
RATE SURPLUS
DEFERRED TO
SUBSEQUENT
YEAR 1

(5,415,160) 3,949,015

8,863,251 4,914,236

(3,448,091) (8,863,251)

NET INCOME

-0- $ -0-

See notes to financial statements.

STATEMENTS OF COMMISSION EQUITY

for the Years Ended December 31, 1987 and 1986

Balance, January 1, 1986

Contributions in Aid of
Construction

Depreciation of Related
Property

Balance, December 31, 1986

Contributions in Aid of
Construction

Depreciation of Related
Property

Balance, December 31, 1987

TOTAL

CONTRIBUTED

ACCUMULATED

COMMISSION

CAPITAL

DEFICIT
$(5,546,6961

EOUITY

$72,514,229

$66,967,533

15,138,007

15,138,007

(560,459)

(560,459)

87,091,777

(5,546,696)

81,545,081

10,707,286

10,707,286

(625,464)

(625,464)

$97,173,599

$(5,546,696)

$91,626,903

See notes to financial statements.

STATEMENTS OF CHANGES IN FINANCIAL POSITION
for the Years Ended December 31, 198 7 and 1986

OPERATING ACTIVITIES:

Net income

Depreciation and amortization (no funds required)

Realized from (used for):

Accounts receivable -net

Earned revenues in excess of billings- net

Deferred charges

Accounts payable, assessments, accrued liabilities and other

Deferred revenues
Total

1987 1986

■0- $ -0-

3,677,254 3,243,407

647,968 (14,013,964)

(2,772,284) 3,049,928

(16,445,027) (24,662,657)

16,159,025 886,051

7,343,692 9,184,726

8,610,628 (22,312,509)

FINANCING ACTIVITIES:
Bond:

Proceeds

Payments
Contributions in aid of construction -net
Debt issue costs
Total

81,876,248
(2,850,000) (1,630,000)
10,081,822 14,577,548

(1,548,082)

7,231,822 93,275,714

INVESTING ACTIVITIES-Purchase of
property, plant, and equipment

(30,769,925) (27,589,812)

CASH AND SECURITIES:
Increase (decrease] during year
Balances at beginning of year

Balances at end of year

(14,927,475) 43,373,393
142,052,466 98,679,073

$127,124,991 $142,052,466

YEAR-END BALANCES COMPRISED OF:

Cash

Current portion:

Trusteed assets

Nontrusteed assets
Noncurrent portion:

Trusteed assets

Nontrusteed assets

$ 241,950 $ 699,389

10,602,991
4,524,851

100,426,523
11,328,676

12,595,006
3,554,581

96,867,616
28,335,874

TOTM CASH AND SECURITIES

$127,124,991 $142,052,466

See notes to financial statements.

10

NOTES TO
FINANCIAL STATEMENTS

ORGANIZATION, BASIS OF PRESENTATION AND
SUMMARY OF SIGNIFICANT ACCOUNTING PRINCIPLES

The Boston Water and Sewer Commission (the "Commission") has the responsibility to provide water
and wastewater services on a fair and equitable basis in the City of Boston (the "City") as required under the
Boston Water and Sewer Reorganization Act of 1977 (the "Enabling Act").

Under the Enabling Act, the Commission is required to maintain and present its financial statements
in accordance with generally accepted accounting principles ("GAAP"). Also, the Commission has adopted a
rate setting process which recognizes certain costs in periods other than when the costs are incurred. This is
generally accepted as appropriate regulatory practice.

To accommodate this rate setting process the Commission follows the accounting standards set forth
under the Financial Accounting Standards Board Statement No. 71 ("FAS-71"), "Accounting for the Effects of
Certain Types of Regulation." FAS-71 requires that under regulation a) revenues provided for future allowable
costs are deferred until the costs are actually incurred (deferred revenues); b) allowable incurred costs are capi-
talized if future recovery is assured (deferred charges).

The following is a reconciliation outlining the effects of FAS-71 on the statement of operations for the
years ended December 31, 1987 and 1986:

1987 1986

Income (loss) prior to deferrals $ (4,770,020) $ 2,631,615
Revenues and expenses deferred in

accordance with FAS-71:

Deferred revenues (12,546,479) (14,386,709)

Deferred expenses 11 ,90 1 ,339 1 5,704, 1 09

Income (loss) from current operations $ (5,415,160) $ 3,949,015

The Enabling Act requires that any net surplus or deficit, as defined by the rate setting process, must
either be returned to the City or applied to offset water and sewer rates for the following year. The Commission
hasapplied $3,448,091, and $8,863,251 for the years ended December 31, 1987 and 1986, respectively, to
offset rates in the respective subsequent years.

Revenues

Water and sewerage fees are billed to users of the systems on a quarterly cycle basis. Revenues are
accrued for periods between the termination of billings for the various cycles and the end of the year.

Trusteed and Non-Trusteed Assets

These assets, consisting of direct and unconditionally guaranteed short-term obligations of the U.S.
Government; repurchase agreements and money market units secured by government securities, are stated at
cost plus accrued interest (approximating market).

Property, Plant and Equipment

Property, plant and equipment is stated at cost. Depreciation is provided on the straight-line method
based on the estimated useful lives of the various classes of assets. Maintenance and repairs are charged to
expense as incurred. Major renewals or betterments are capitalized and depreciated over their estimated useful
lives.

60 to 100
10 to 40

40 to

35

3 to

75

15

Contributions received in aid of specific construction projects are considered contributed capital and
are included in Commission equity. Accordingly, depreciation of the related property is charged directly to
Commission equity and is not included in the accompanying statements of operations.

The ranges of estimated useful lives used in computing depreciation are as follows:

YEARS

Water:

Works

Meters and hydrants
Sewerage:

Works

Pumping station
Other

The Commission capitalizes interest cost related to construction of assets for its own use. Interest total-
ing approximately $1,258,000 and $734,000 was capitalized in 1987 and 1986, respectively

Bond Issue Costs

Expenses related to the issuance of bonds are amortized on a weighted-average basis over the life of
the bonds.

Reclassification

Certain prior year balances have been reclassified to conform with current year presentation.

2. DEFERRED CHARGES AND REVENUES

The following is a summarization of the major components of deferred charges and revenues included
in the accompanying balance sheet:

1987 1986

Deferred charges:

Provision for pension settlement (see Note 7)

Excess of amounts accrued for water and
sewerage assessments over cash payments

Provision for litigation claims and other
accruals

Provision for adjustments

Excess of amounts accrued over cash payments-
bond interest

Total deferred charges

Current deferred charges
Noncurrent deferred charges

Total

Deferred revenues:

Capital improvement reimbursements

Principal payments on long-term debt

Allowance for slow collection

Other

Total deferred revenues

Current deferred revenue
Noncurrent deferred revenue

Total

(OOO's omitted)

$17,111

$17,707

42,403

23,938

2,675
1,485

2,928
2,228

4,848

5,276

$68,522

$52,077

$32,564
35,958

$22,506
29,571

$68,522

$52,077

$57,897
4,573
8,282
16,550

$45,803
8,175
9,682
16,299

$87,302

$79,959

$18,605
68,697

$21,011
58,948

$87,302

$79,959

3. PROPERTY, PLANT AND EQUIPMENT

The cost of "water and se"werage plant and equipment in service and related accumulated depreciation
at December 31, 1987 and 1986 are summarized as follows:

1987 1986

Water:
Works
Meters and hydrants

$ 76,078,487
8,926,947

$ 63,189,978
8,228,903

Total water

85,005,434

71,418,881

Sewerage:
Land
Works
Pumping station

195,482

77,030,797

6,781,316

195,482

54,002,202

6,777,290

Total sewerage

84,007,595

60,974,974

Other

8,541,307

6,622,028

Total

Less accumulated depreciation

177,554,336
25,372,933

139,015,883
21,921,021

Total

Construction in progress

152,181,403
56,472,626

117,094,862
63,970,833

Total

$208,654,029

$181,065,695

4. BONDS PAiABLE

Outstanding bonds pa"yable including accrued interest, at December 31, 1987 and 1986 "were

as follows:

1987 1986

Revenue Bonds:

1 984 Series A, bearing interest at
rates ranging from 6.75% to 10.5%
with maturity dates ranging from

January 1,1 988 to January 1,2011 $ 67,495,121 $ 67,991,521

1985 Series A, bearing variable
interest rates (6.50% and 7.375%
at December 31, 1987), maturing
in two equal amounts on
November 1, 2014 and 2015 and
requiring annual sinking fund

contributions through 2014 51,170,192 51,288,424

1986 Series A, bearing interest at
rates ranging from 4.75% to 7.875%
with maturity dates ranging from

November 1,1988 to 2015 81,949,024 84,470,333

City Bonds, bearing interest at
rates ranging from 4.25% to 8%
with maturity dates ranging from
November 1988 to December
1999 3,574,436 4,272,023

Total bonds outstanding 204,188,773 208,022,301

Less current portion due within one
year including accrued interest 7,841,947 9,296,007

Portion due after one year, net of
unamortized original issue
discount $196,346,826 $198,726.294

The Resolution Establishing Issue of Revenue Bonds adopted by the Commission on December 6,
1984 places certain restrictions on the Commission's operations. It requires that rates, charges and fees be set
at a level sufficient to meet a net revenue test on an annual basis and requires that all revenues, as defined, be
deposited in a Revenue Fund maintained by a fiscal agent. Amounts held in the Revenue Fund are to be dis-
bursed to and withdrawn from other funds provided for in the Resolution. The Resolution provides that all
excess cash be held in the Revenue Fund until the last business day of the fiscal year. At that time, if certain cov-
enants are met, the Commission has the option to remove any excess cash from the Revenue Fund and place
such cash in a fund not restricted by the Resolution.

In compliance with the Resolution, the Commission has established both trusteed and non-trusteed
funds with assets, principally short-term securities, which are restricted for payment of specified liabilities. The
Commission has options for early redemption of revenue bonds starting in 1995 at prices ranging from 103 to
100 percent of face value.

Revenue Bonds

The 1 984 Series A Bonds were issued in order to advance reftand a series of 1980 System Revenue
Bonds. Under the Reftinding Trust Agreement, the Commission deposited sufficient funds with the 1980 Bond
Trustee to pay when due, the principal and interest on all 1980 bonds through January 1, 2001, the final matu-
rity date thereon. By depositing such funds with the 1980 Bond Trustee under the Refunding Trust Agreement,
the Commission caused the 1980 Bonds to be no longer outstanding under the 1980 Resolution. The 1980
Bondholders have no right, title, interest or liens in any other funds, real or personal property or assets of the
Commission other than the amounts held under the Reftinding Trust Agreement and pledged for their benefit
thereunder.

The 1985 Series A Bonds were issued to provide fiands for projects under the Commission's ongoing
capital improvement programs and other capital and operating needs.

In August of 1986, the Commission issued 1986 Series A General Revenue Bonds (1986 Bonds). This
issue was structured as a rolling cross-over refunding and new money issue. The 1986 bonds provide funds for
the Commission's ongoing capital improvement programs and other capital and operating needs. In addition,
a portion of the proceeds of the 1986 bonds were deposited to the 1986 Series A Escrow Account to provide
for the principal payments of the 1985 Series A Bonds and the interest payments of the 1986 bonds as they
come due. Thus, the Commission is allowed to pay the low short-term interest rates provided under the 1985
bonds and has secured a guaranteed redemption for the 1985 bonds.

City Bonds

At the time of its creation, the Commission assumed general obligation certificates of indebtedness of
the City (City Bonds) pertaining to the vrater and sewerage works systems. Payments for principal and interest
are madedirectly to the City in accordance with the original maturity and interest schedule.

Aggregate bond maturity and sinking ftind requirements of the Revenue bonds and City bonds at
December 31, 1987 are as follows:

YEAR TOTAL

1988 $ 2,900,000

1989 3,015,000

1990 3,180,000

1991 3,165,000

1992 3,380,000
Thereafter 190,545,000
Subtotal 206,185,000
Accrued interest 4,94 1 ,947
Unamortized debt discount (6,938,174)
Total bonds payable $204,188,773

MASSACHUSETTS WATER RESOURCES AUTHORITY

On January 1,1985, legislation became effective creating the Massachusetts Water Resources Author-
ity (the Authority) which transferred possession, control and operations of the Metropolitan District Commis-
sion (MDC) Waterworks and Sewer System to the Authority. The Authority commenced operations on July 1 ,
1985.

The Authority (previously MDC) provides all the Commission's water and sewer treatment require-
ments and assesses the Commission for its actual operating and capital expenses. Payments for the prior calen-
dar year's water and sewer treatment assessments are due semi-annually in November of the current year and
in May of the subsequent year. Interest is not charged on the outstanding balance. Charges and assessments for
1987 and 1986 are as follows:

1987 1986

Water charges $21,720,502 $15,761,242

Wastewater assessments 31,127,262 20,723,367

Total $52,847,764 $36,484,609

In 1987 and 1986, approximately 67% of water purchased from the Authority was billable to custom-
ers. Since its inception, the Commission has increased the percentage of billable water from 52% in 1977 to the
current level of 67% in 1 987 and is continuing to take steps to improve the amount of water billable, including
replacement of old and defective meters and a comprehensive leak detection and repair program.

TRANSACTIONS WITH THE CITY OF BOSTON

The Commission's ongoing program to meter City facilities has resulted in billings to nine City depart-
ments based on actual consumption of $1,090,000 and $1,016,000 in 1987 and 1986, respectively The
remaining four City departments were billed based on estimated consumption for $ 1 ,3 1 9,000 and $ 1 , 1 82,000
during 1987 and 1986, respectively.

The City provides services to the Commission, including paving and fecilities rental. Operating costs
billed by the City were $463,000 and $481,000 during 1987 and 1986, respectively Capital costs bUled by the
City were $263,000 and $264,000 during 1987 and 1986, respectively

RETIREMENT BENEFITS

The Commission provides retirement benefits to substantially all of its employees through a pension
trust fund (trust fund) and the State-Boston Retirement System (Boston System). The Commission's policy is to
accrue the normal cost of future benefits using an actuarially determined rate of 6.75% and 1 1 . 1 4% of regular
compensation in 1987 and 1986, respectively. Pension expense is generally funded annually and was
$805,000 and $1,267,000 for 1987 and 1986, respectively

The fair market value of trust fund net assets available for benefits was $ 1 1 ,442,000 and $ 1 0,984,000
at December 31, 1987 and 1986, respectively The trust fund reimburses the Boston System for the Commis-
sion's share of all benefit payments made to its retired employees and related administrative costs.

During 1986, a dispute concerning the Commission's past and future obligations to all employees cov-
ered by the Boston System was settled, resulting in a payment of $19,100,000 to the Boston System. This pay-
ment, funded primarily throught proceeds from bonds issued in 1985 and 1986, was recorded as a deferred
charge to be recovered through future rates.

8. COMMITMENTS

During 1987, the Commission moved its administrative offices. In conjunction with the move to new-
offices, the Commission terminated its lease and a new lease was obtained for the new office space. The new
lease provides for an initial term of five years with two options to extend the lease for additional five-year terms.
The basic rent will include an allocation for building operating costs and is subject to an escalation clause sub-
ject to certain limitations. Total rent expense charged to operations amounts to $820,000 and $758,000 in
1987 and 1986, respectively.

A major capital improvement program is currently in progress. As part of this program, the Commis-
sion has entered into a number of contracts for the design and construction of its facilities. Commitments under
these contracts aggregate $1 1,107,000 at December 31, 1987. Capital improvements, primarily related to water
and wastewater system projects with an emphasis on the clean-up of the Boston Harbor area, are expected to
aggregate $65 million for 1987 through 1991. Of this amount $30 million represents extension and improve-
ment projects to be ftinded by the proceeds of Commission revenue bonds and federal and state grants for cer-
tain wastewater projects, and $35 million represents renewal and replacement projects to be funded by current
revenues of the Commission.

9. CONTINGENCIES

The Commission is involved in ordinary and routine litigation incidental to its operations. Manage-
ment believes that the resolution of these matters will not materially affect the financial position of the
Commission.

The Commission has received federal and state grants for specific purposes that are subject to review
and audit by the grantor agencies. Such audits could lead to requests for reimbursement to the grantor agency
for expenditures disallowed under the terms of the grant. The Commission believes such disallowances, if any,
will not be significant.

The Commission is involved as a defendant in litigation regarding the pollution of Boston Harbor
Management believes that, except for increases in future MWRA assessments incidental to the litigation,
the Commission's extensive capital improvement program (see Note 8) addresses possible actions that the
Commission may be required to undertake in connection with this litigation.