Annual report

BOSTON PUBLIC LIBRARY

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Boston Water and
Sewer Commission

425 Summer Street
Boston, MA 02210-1700
61 7-330-9400
Fax 617-330-5167

June 21, 1991

Dear Friend:

The Boston Water and Sewer Commission 1990 Annual Report tells
the story of success.

Once again the Commission has successfully responded to economic
and financial challenges posed both by the local economic
conditions and by the Massachusetts Water Resources Authority's
rate increases.

Our story is one of commitment and hard work. . .meeting customer
satisfaction, systematic infrastructure maintenance and quality
service delivery.

Additionally, our story is one of strong management and
dedicated, successful financial operations which have positioned
the Commission to continue to cushion the impact of future
challenges.

We are pleased to share our story and success with you and invite
you to share your comments and questions with us.

Very truly yours,

'atricia A. Fahy /
Acting Executive Director

Enclosure

hd/

In 1978, the Boston Water and Sewer Commission (BWSC) was
created to address an aging water and sewer infrastructure and to
provide the City of Boston with some of the cleanest water in the
nation. Today, our tradition of excellence continues. The BWSC
has established a standard for quality, cost-effective service, well-
maintained facilities, and impressive capital improvement programs.

Roxana Marchosky
Chairperson

Mary Nee

Commissioner

Our water originates at the Quabbin Reservoir and flows through
miles of pipeline before reaching Boston and the Commission's
1,182 mile water system and our 1,300 mile wastewater collection
system. In Boston's climate of fiscal austerity, operating, maintaining
and improving these systems is an ongoing challenge — but a
challenge which we continue to successfully meet.

As the 1990s unfold, most public agencies face difiFicult financial
constraints and adjustments. We are proud to announce that the
BWSC has been operating at a surplus for the sixth year in row. Our
solid fiscal planning and budgeting have enabled us to increase our
reserves and improve our debt service coverage. We attribute these
successes to a dedicated management team and a committed, well-
trained work force.

In addition to our financial successes, our operational
accomplishments are many. We have seen a substantial reduction in
unaccounted-for water and have made important strides in the
critical area of metering. We have made additional commitments to
environmental protection which have significandy contributed to
the Boston Harbor cleanup. These achievements are meaningful and
important, but serve only to mark out the foundadon for our goals
in the coming years.

As we move forward in the new decade, we take pride in our
tradition of excellence, and stand firm in our commitment to
■ progress.

RobertJ. Cioiek
Executive Director

Patricia A. Fahy
Deputy Director

m

^recious Resource

The Boston Water and Sewer
Commission (BWSC) provides
•water distribution, wastewater
collection and storm drainage
services on a retail basis to the
City of Boston, encompassing
an area of approximately 45
square miles. The water
distribution system serves
approximately 87,900 accounts
through 1,180 mileS of water
main. The wastewater
collection system collects
wastewater and stormwater
from 20,500 acres through
approximately 90,000
wastewater connections and
1,340 miles of sewers. Over
75% of these sewers consist of
separated storm and sanitary
lines.

The BWSC obtains its bulk
water supply from the Massa-
chusetts Wajer Resources Au-
thority (MWRA), which
supplies water from the
Quabbin, Wachusetts and
Ware River Watersheds, to the
distribution system for the City
of Boston. "

Unaccounted-for water — the
difference between the amount
of water purchased from the
MWRA and the amount actually
billed to BWSC customers — is
an ongoing issue of concern to
the Commission. Since its
inception in 1978, the Com-
mission has made substantial
progress in reducing such water^
loss. Unaccounted-for water has
been reduced from 44% in
1978 to 27% in 1990, a sub-
stantial improvement. This
progress has been made
through efforts in several areas.

N

^

A Newly Formed
Unaccounted-for Water
Task Force

An Aggressive Renewal atjd
Replacement Program

During its first decade, the
Commission devoted consider-
able time and energy to emer-
gency repairs necessitated by a
water distribution system, parts
of which are over 100 years old.
The majority of this work has
been completed. Today, efforts
are focused on a Renewal and
Replacement Program with
long-range planning for main-
tenance and rehabilitation
reconstruction. As part of this
program, the Commission
coordinates its efforts with
street reconstruction and build-
ing projects to help eliminate
. neighborhood disruptions.

In 1990 the Commission cre-
ated the Unaccounted-for
Water Task Force, whose man-
date is to research and analyze
existing areas of unaccounted-
for water and to make recom-
mendations to help eliminate .
these losses. The Task Force has
already presented some prelimi-
nary recommendations. One
such recommendation cur-
rently in place is the Meter
Downsizing Program. Larger
meters do not always capture all
of low flows during non-peak
consumption periods. This is_
an important cause of
unaccounted-for water. Since
its implementation in August,
over 200 three-inch-and-larger
meters have been replaced by
smaller rrieters able to detect
low flows. The results, while
still preliminary, are extremely
positive and cost-effective.
Other recommendations from
the Task Force promise equally
substantial savings '

In 1990, the BWSC was able to
survey the entife 1,182 miles of
delivery pipes for leaks, an
undertaking which in the p^t
has required rwo to three years
to complete. The Commission
reduced water leakage signifi-
cantly by prioritizing the repair
of leaks arid completing alL
repairs within an efficient
timefi'ame. In 1990, this pro-
gram saved 3.6 million gallons
of water each day, which would
have-Otherwise been lost -
through leakage.

The Commission s Leaik Detec-
tion and Renewal and Replace-
ment programs ha\'e received
national recognition for their
effectiveness in water savings.
We will continue to build upon
these existing successes, incor-
porating Task Force recom-
mendations into the
Commission's long-range
planning.

Renewing Our
Commitment to Fiscal
Strength and Integrity

The Commission renews its
commitment to sound manage-
ment and financial structure.
The Commission will continue
its practices of using conserva-
tive budgeting assumptions,
funding capital expenses from
both debt and rate revenue,
sustaining adequate reserves
and substantial coverage ratios,
and most of all, ensuring a
strong balance sheet. With
strong reserves and sound fiscal
policies, the Commission pro-
duced a net operating surplus
for 1990 of over $7 million.
Because of its strong manage-
ment, financial operations, and
stable customer base, the Com-
mission has received bond
ratings of A/A-from Moody's
Investor Services and Standard
and Poors, respectively.

ignificant Contributions to
perating and Debt Service
eserve Funds

These contributions include
additional subsidies to the
Stabilization Fund, which can
be used to stabilize rates or fund
any shortfall in debt service. In
the midst of a regional reces-
sion, the Commission added $2
million to this fund. At the end
of 1990, operating and debt
service reserve funds totaled
over $50 million.

Effective Billing and
Collection System

As rates continue to rise, the
metering, billing and collec-
tions processes have become an
increasingly important focus of
the Commission. The Com-
mission employs a Rally inte-
grated approach to its
collections program, including
dunning letters and phone
contact, termination of water
service and litigation. In 1990,
the Commission reached an
agreement with the City of
Boston to pursue tax takings on
any property for which pay-
ment is overdue.

We have worked assiduously
and wisely to achieve out solid
financial position, and will
continue our tradition of con-
servative approaches to budget-
ing and planning, both in
estimating revenues and in
forecasting and controlling
expenses. We are confident that
this foundation of prudent
financial management will
result in a continuation of a
strong fiscal position for years
to come.

Independent Auditors' Report

Boston Water and Sewer Commission:

We have audited the accompanying balance sheet Of the Boston Water and Sewer Commission (the
"Commission") as of December 31, 1990 and the related statements of operations, Commission
equity and cash flows for the year then ended. These financial statements are the responsibility of
the Commission's management. Our responsibility is to express an opinion on these financial
statements based on our audit. The financial statements of the Commission as of December 31 ,
1989, were audited by other auditors whose report thereon dated April 27,1990, expressed an
unqCialified opinion on those statements.

We conducted our audit in accordance with generally accepted.auditing standards. Those standards
require that we plan and perform the audit to obtain r^easonable assurance about whether the
financial statements are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and si'gnificant estimates made by management, as well
as evaluating the overall financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.

In our opinion, the 1990 financial statements referred to above present fairly, in all material respects,
the financial position of the Commission^ at December 31, 1990 and the results of its operations and
, its cash flows for the year'then ended in conformity with generally accepted accounting principles.

Our audit was made for the purpose of forming an opinion on the basic financial statements taken
as a whole. The supplemental schedule of revenues and expenses for the year ended December
31, 1990 is presented for purposes of additional analysis and is not a required part of the basic
financial statements. Such information has been subjected to the auditing procedures applied in our
audit of the basic financial statements and, in our opinion, is fairly stated in all material respects in
relation to the basic financial statements taken as a whole.

^^^^^/-.-<X^

KPMG Peat IVIarwick

Boston, Massachusetts
April 12,1991

Balance Sheets

Decemb'er 3-i, 1990 and 198^>

Assets 1990 1989
Current assets: \ "

Cash and Cash equivalents (note 8) . $ ^ '480,578 503,784
Accounts receivable: •

Customers, less allowances of . . •

~ '$17,382,603 in 1990 and • ^ .

$12,517,089 in 1989 ■ 51,296,234 45,591,527
Unbilled earned revenues, less allowances of
$1,908,716 in 1990 and ^

$1,732,419 in 1989 ' ' 11,916,310 10,838,488

Construction grants receivable ~ ' 5,887,247 12,893,326

Prepaid expenses 483,109 '1,521,537

Deferred charges (note 2) . 9,311,472 12,594,773

Total current assets 79,374,950, 83,943,435

Trusteed investments (notes 4 and 8) - ' ■ " 113,828,686 107,513;209

Nontrusteed investments (notes 4 and 8) 4l-,223,681 50,004,590

Property, plant and equipment, net ' ' - 283,041,005 256,914,295

Deferred charges (riote 2) • •- 26,326,567 27,355,384

Bond issue costs, net , ' 4,691,125 4,451,430

Total assets - - $ 548,486,014 530,182,343

L.iabiiities and Commission Equity . . -

Current liabilities: - . : ^ , _

Payable from current assets: ' • '

■ Accounts payable $ 14,765,186 10,437,048

Other accrued liabilities -" 6,491,070 7,192,207

Total ■ 2i;256,256 17,629.255

Payable from trusteed assets:

Massachusetts Water Resources Authority assessment 3,175,692 2,976,492

Current portion of City of Boston bonds ^ 380,000 585,000

Total 3,555,692 3.561,492

Current portion of revenue bonds '' 3,540,000 ' 3,305,000

ETeferred credits (note 2)/ , - 24,428,296 18,426,107

Total currenrliabilities . 52,780.244 42.921,854

Long-term debt (note 4):

City of Boston bonds ' , 1,330,000 • ' 1,710,000

Revenue bonds " ' - 238,152,737 ^ 241,143,511

Deferred long-term credits (note 2) ^ , 136,304,850 ^ 125,570,982

Other long-term liabilities , ' ' ' 1^57.562 .1^249,247

TptaUther liabilities 377.745,149 '. 369.673.740

Commission equity:

Contributed capital . 117,960,621 117,586,749

Commitments and Contingencies (notes 10 and 11) . , -

Total liabilities and commission equity $ 548,486,014 530,182,343

See accompanying notes lo financial staiemenis . , . '

Statements of Operations

For the Years Ended December 3 1 , 1 990 and 1989

IS 30

■i98S

Operating revenues:

Water and sewer usage
' Fire pipe

Other
Total operating revenues

Operating expenses:

Operations ' . ^

Maintenance

MWRA Assessment

Depreciation and amortization
Total operating expenses

Excess operating revenues

Other revenues ' "

Excess revenues before interest expense , '

Interest expense

Excess revenues before depreciation add-back and transfer requirements

Add depreciation on fixed assets acquired by grants

Excess revenues before transfer requirements

Excess revenues used to fund reserves and other deferrals (note 2)

AccumtJated revenues used to ofiset fiiture rates - b^inning of year

$ 136,822,659

1,845,393

2,489,763

141,157,815

47,824,134
6,350,149

61,520,881

7,090,212

122,785,376

18,372,439

16,441,629

•34,814,068

20,066,709

14,747,359

1,580,562

16,327,921

(15,676,198)

6,432,956

125,251,504

1,678,379

870,533

127,800,416

- 46,472,452

4,831,816

54,716374

7,136,591

113,157,233

14,643,183
13,132,786
27,775,969
- 16,089,852
11,686,117

1,490,992
13,177,109
(9,740,717)

2,996,564

Accumulated revenues used to offset future rates - end of year $ 7,084,679

6,432,956

Statements of Comnaission Equit)'

For the Years Ended December 31.- 1990 and ]98'

Balance, January 1, 1989

Contributions in aid of construction

Depreciation of related property

Prior year rate deficits recovered in 1989

Recoveries on pre-commission receivables written-ofFin prior years
Balance, December 31, 1989

Contributions in aid of construction

Depreciation of related property

Balance, December 31, 1990

Total

Contributed

Accumulated

Commission

Capital

Deficit

■ Equity

$ 105,768,355

(5,546,696)

100,221,659

13,309,386

—

13,309,386

(1,490,992)

' —

(1,490,992)

—

4,856,609

. 4,856,609

690,087

690,087

1 17,586,749

117,586,749

1,954,434

—

1,954,434

(1,580,562)

_

(1,580,562)

$ 117,960,621

117,960,621

Statements of Cash Flows

For the Years Ended December 31 , 1990 and r989

1990

Excess operating revenues

- Adjustment to reconcile operating income to net cash:

Excess revenues used to fund reserves and other deferrals

Depreciation and amortization

Recovery of accumulated deficit

Change in assets and liabilities: ■ , ■

Accounts receivable

Unbilled earned revenues

Construction grants receivable

Prepaid expenses

Deferred charges

Accounts payable , - ,

Other accrued liabilities

MWRA assessment

Deferred credits

Other long-term liabilities

Other
Net cash provided by operating activities

Investing activities:

Purchase/ (sale) of investments

Other revenues
Net cash provided by (used for) investing activities

Capital and related financing activities: ^

Additions to property, plant and equipment

Proceeds from issuance of bonds

Payment on bonds, including current maturities

Payment of debt issuapce costs

Proceeds of contributions in aid of construction

Payment of bond interest
Net cash used for capital and related financing activities

Net increase (decrease) in cash .

Cash and cash equivalents, at beginning of year

Cash and cash equivalents at end of year "

Supplemental disclosure of cash flow information:

Cash paid during the year for interest, net of amount capitalized

$ 18,372,439

14,643,183

(16,327,921)

(13,17.7,109)

7,090,212

7,136,591

—

5,546,696

^ (5,704,707)

(7,193,568)

■ (1,077,822)

(3,704,015)

7,006,079

(1,109,102)

343,879

(447,558)

3,395,131

(997,634)

4,328,138

4,855,989

(701,137)

(1,473,561)

199,200

481,265

16,736,057

15,901,883

708,314

(424,879)

60,099

—

34,427,961

20,038,181

2,465,432

(32,161,911)

16,4'^ ,629

13,132,786

18,907,061 .

(19,029,125)

(31,905,17;))

(33,846,150)

—

39,269,678

(3,890,000)

(3,115,000)

(779,000)

1,954,434 -

13,309,386

(19,517,483)

(15,543,822)

(53,358,228)

(704,908)

(23,206)

304,148

503,784 '

-199,636

$ 480,578

503,784

$ 16,313,200

l'',398,500

Notes to Financial Statements

December 31, 1990 and 1989

(1) 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 equi-
table basis in the City of Boston (the "City") as, required' under the Boston
Water and Sewer Reorganization Act of 1 977 (the "Enabling Act").

Under the Enabling Act, the Commission is subject to regulation with
respect to rates, accounting and other matters, where applicable, by the
Board of Commissioners (the "Board"). The Board regulates the rates that
the Commission can charge its customers for water and sewer usage. These
rates-charged to customers are based on the cash required for the
Commission's operations, debt-service, and reserve contributions. To com-
ply with the financial reporting requirements of the Board, however, the
accompanying financial statements are presented on a basis that is consistent
with generally accepred accounting principles (GAAP) for regulated utilities.
This repotting pracrice provides for the recognition of certain costs in ac- ,
counting periods other than those in which the costs are incurred.

To accommodate this rate making process, the Commission follows the
accounting standards set forth in Financial Accounting Standards Board
Statement No. 71 ("FAS-yi"), "Accounting for the Effects of Certain Types
of Regulation". FAS-7 1 allows certain (a) revenues provided for fiiture
allowable costs to be deferred until the costs are acttially incurred (deferred
credits) and (b) costs incurred to be capitalized if future recovery is reason-
ably assured (deferred charges). Revenues and current expenses appearing on
- the Supplemental Schedule of Revenues and Epenses are presented in the
same format as utilized in the Commission's budgeting and rate setting
process. The revenues and expenses show on the Statement of Operations
are presented prior to adjustments required by FAS-71 (see note 2). A more
detailed reconciliation between the revenues and expenses of these two
operating statements is provided below:.

Revenues Expenses

As presented_ in the Statement

of Operations

Operating revenues/expenses " $141,157,815 "122,785,376

Otiner revenues/expenses 16,441,629 20,066,709

Total ~ 157,599,444 142,852,085

PeclassificationsBnd deferrals
ContributiorHo reserves
Provision for worl<ing caprtal
Bad debt expense ' -
Excess depreciation over

bond payments
Interest expense
interest income
Capitalexpenditures
Excess revenue used to offset
current rates .

Other deferrals

As presented in the

.Supplemental Schedule

— , 5,193,000

" . — ■ 1,579,199

(16,261,594) (16,261,594)

— (3,200,212)

— ' (3,334,055)
(6,364,985) ' — -

6,432,956
(100,248)

$ 141,305,573

The Enabling Act requires that any net surplus, as defined by the rate
setting process, must either be returned to the Cit^ or applied to offset
water and sewer rates for the following year. The Commission has applied
$7,084,678 and S6;432,956 for rhe years ended December 31, 1990 and
1989, respectively, to offser rates in the respective subsequenr years.

, ;;! Rl-ht.ucs and Earned' Revenues in ILxcess of Billing...

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

, (hi Trusteed and Nontrusteed Investmei.

These assets, consisting of direct and unconditionally guaranteed short-
rerm obligations of the U.S. Government, repurchase agreements and
money market units secured by government securities, are srared at amor-
rized cost plus accrued interest.

icj r'ropert)', I'kuii and Lquipnitr

Property, plant and equipment is stated at cost. Depreciation is pro-
vided on the straight-line method based upon the estimated useful lives of
the various classes of assers. Maintenance and repairs are charged to ex-
pense as incurredr Major renewals or bettermenrs are capiralized and
depreciated over their estimated useRil lives.

The Commission capitalizes interest costs during construction of assets
for its own use. Interest roralling approximately $1,094,000 and $442,000
was-capitalized in 1990 and 1989, respectively.

Itli DepreLi.-.;.:-. " -

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

Years

Water:

Works , - 60 to 100

Meters and hydrants " 10 to 40 •

Sewerage:

Works ■ ' '40 to 75

Pumping station '35

Other- 3 to 15

Contributions from governmental agencies, individuals and cities
received in aid of specific construcrion projects, which are not refiindable,
are included in Commission equiry as conrribured capital. Accordingly,
depreciation of the related properry is charged directly to Commission
equity and is not included iri the accompanying statements of operations.

In 1989, the Commission recovered through revenues an accumulated
deficit of $5,546,696. This recovery was ner of all previous receipts-that_
represented payment of pre-Commission receivables previously written off
to the accumulated deficit.

'li.Cash Equiv:ilenii

The Commission considers all highly liquid, short-term cash invest-
ments with a maturiry of less than rhree months to be cash equivalents for
purposes of the cash flow sratement.

' r-ond Issrie Coki ^

Expenses related to the issuance of bonds are amortized on a weighted- '
average basis over the life of the bonds, which approximates the effective
interest method.

(h) RccLissiOcation^

Certain amounts in the 1989 financial statements have been reclassified
to conform to the 1990 presentation.

(2) Defert-ed Charges and Credits

■ As discussed in note 1, the application of FAS-71 results in certain
revenues and expenses being removed from the Statement of Operations
and reflected in the balance sheet as either deferred charges or deferred-
credits. .The current year revenues and expenses that have been removed
from the Statement of Operations and included on the balance sheets as
part of deferred charges or deferred credits appear in the line "Excess rev- '
enues used to fund required reserves and other deferrals" on the Statement
of Operations. The major components of this amount are:

1990
Contributions to reserves $ 5,193,000

Provision for working capital 1 ,579, 1 99

Princfpal payments on long-term debt 3,890,000

Interest paid from escrow funds, net - (3,342,727)

Capital expenditures . 7,967,383

Depreciation (4,197,907)

Interest income on project and

escrow funds 6,364,985

Other (1,777,735)

S 15,676,198

• The major components- of the deferred credits included in the accompa-
nying balance sheet are as follow?:

1989

3,213,000
6,294,360
-3,115,000
(5,771,050)
3,882,321
(4,366,778)'

5,146,168
(1,772,304)

The major components of the deferred charges included in the accom-
panying balance sheet are as follows:

Current deferred.charges:
Accrued interest expenses
Accrued-pension expenses
Accrued legal claims
Accrued vacation and sick time

- expenses
Debt extinguishment expenses

Total current deferred charges

Noncurrent deferred charges:
Accrued pension expense
Accrued legal claims
Debt extinguishment expense

Total noncurrent deferred charges

Current deferred credits:

Reserve deposits made under

-

^

the terms of the Bond

Indenture (note 4)

$ 16,806,000

11,573,162

Prior year surplus deferred to

' subsequent year . -

7,084,678

6,432,956

Other

537,618
S 24,428,296

419,989

Total current deferred credits

18,426,107

Noncurrent deferred credits: • .

Revenues'raised for capital ■
improvements and

payments on long-term debt $ 78,804,981 69,626,118

Working capital at inception of

Commission- ~ 28,985,575 28,985,575

Provision for additional working capital 26,274,294 24,734,963

Self insurance and other 2,240,000 2,224,326'

Total noncurrent deferred credits S 136,304,850 125,570,982

(3) Property, Plant and Equipment " - -- '

The cost of water and sewerage plant and equipment in service and
related accumulated depreciation at December 31, 1990 and 1989 are as
follows: '

1990
Water:

Works '■ . $104,536,336

JVIeters and hydrants _ 12,473,263

Total water

1989

90,153,870
10,762,835

Sewerage;

Works

$

6,844,425 ^

10.186,561

Pumping station

215,755

201,833

Total sewerage

^ 427,835

• 427,835

Other

965:831

818,544

Total

. 857,626

960,00

Less accumulated depreciation

_s_

9,311,472

12,594,773

Total

Construction in progress

$

16,321,068.
, 1:664,822

16,541,824-
1,664,822

Total

8,340,677 ■

9,148,738

_$_

26,326,567

27,355,384

117,009,599

166,446,473
6,798,216

304,394,277

41,137,026
263,257,251

19,783,754
8 283,041,005

136,939,338

6,798,216

143,737,554

256,517,560.

35.647,669
220,869,891

36,044,404

At the time of its creation, the Commission assumed general obligation
certificates of indebtedness of the City (the "City bonds") pertaining to the
water and sewerage works systems. Payments of principal and interest ^te
made directly to the City in accordance with the original maturity and
interest schedules.

A summary of these City bonds as of December 31, 1 990 and 1989 follows:

City Bonds, bearing interest at rates
ranging from,5.1 % to 9.5% witli
"maturity dates ranging from
December 1990 to December 1999
Less current installments
Total general obligation debt of the
City, net of current installments

1,710,000
380,000

S 1,330,000

2,295,000
585,000

1,710,000

A summary of revenue bonds of the Commission follows:

1990 1989

1 984 Series A, bearing interest at i
rates ranging from 6.75% to 10.0%,

with maturity dates ranging from

January 1, 1.991 to January 1, 2001 $ 21.105,000 22,065,000

1 985 Series A, bearing a variable interest
rate (5.85% and 6.6% at December 31 ,

1 990 and 1989, respectively), matunng -'

in two equal amounts on November 1 ,

201 4 and 201 5 and requiring annual .

sinking fund contributions tfirough 2014 49,170,000 49,675,000

1986 Series A, bearing interest at
rates ranging from 4.75% to 7.88%,
witfi matunty dates ranging from -
November 1, 1991 to 2015 ■

1988 Series A, bearing interest at
rates canging from 6.0% to 7.4%,
with maturity dates ranging from
November 1, 1991 to 2008

1 989 Series A, bearing interest at
' rates ranging from 5.85% to 7.1 %,

with maturity dates ranging from
November 1, 1991 to 2019

Less:

Current installments
Total long-term debt

Less:

Unamortized issue discount

80,605,000

39,890,000
247,945,000

3,540,000
244.405,000

6,252,263

40,000,000
251,250,000

The 1984 Series A Bonds were issued in order to refund a series of 1980
System Revenue Bonds. Under the Refunding Trust Agreement, the 1980
Bondholders have no right, tide, interest or liens in any other fijnds, real or
personal property or assets of the Commission other than the amounts held
under the Refunding Trust Agreement and pledged for their benefit there-
under. , , '

The 1985 Series A Bonds were issued to~provide fiinds for projects
under the Commission's ongoing capital improvement programs and other
capital and operating needs. The Commission maintains a letter of credit
to guarantee the principal and interest payments on these variable interest
rate bonds in the event that the Commission is unable to make such pay-
ments.

In August 1986, the Commission issued 1986 Series A General Rev-
enue 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 program 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. ,

In December 1988, the Commission issued 1988 Series A Bonds to
provide for the defeasance of a portion of the Commission's General Rev-
enue Bonds 1984 Series A to provide supplementalftinding for the Operat-
ing Reserve Fund and to pay costs of issuance. Under the 1988 Refijnding
Trust Agreement, the Commission deposited sufficient funds with the 1984
Bond Trustee to pay when due the principal and interest on the reilinded
bonds until the first call date, January 1, 1995. As a result, the refiinded
bonds are no longer outstanding under the Commission's Resolution. ^

In December 1989, the Commission issued the 1989 Series A Bonds to
provide funds for projects, undertaken as part of the Commission's ongo-
ing capital improvement program.

In the aggregate $106,320,000 remains outstanding at December 31,
1990 on the portions of the 1980 and 1984 issues that were defeased "in-
substance".

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 sufl^icient to meet a net revenue test on an annual basis and requires that
all revenues, as defined, be deposited in a Revenue Fund maintainedi)y a
fiscal agent. Amounts held in the Revenue F,und are to be disbursed to and
withdrawn from other fijnds provided for in the Resolution. The Resolu--
tiort provides that all excess cash be held in the Revenue Fund until th? last
business day of the fiscal year. 'At that tirrie, if certain covenants are met. the
Commission has the option to remove any excess cash from the Revenue
Fund and place such cash in a fi.md not resrricted by the Resolution.

Total revenue debt

$238,152,737

241,143,511

The Commission has options for early redemption of revenue bonds
starting in 1995 at prices ranging from 100% to 103% of face value. In
addition, in compliance with the Resolution, the Commission has estab-
lished both trusteed and nontrusteed fiinds with investments, principally
short-term securities, which are restricted for payment of specified liabili-
ties, capital projects or other costs of operations. The major components of
the trusteed and nontrusteed amounts at December 31, 1990 and 1989 are
as follows:

Trusteed:

U.S. Treasury notes

U.S. Treasury bills

Other government obligations

Money market and

cash investments
Commercial paper
Repurchase agreements

Nontrusteed:

U.S. Treasury notes
U.S. Treasury bills
Money market and

cash investments
Commercial paper
Repurchase agreements

$ 31,848,636

11,336,912

58,601,842

4,613,678

113,828,686

16,964,007

687,747

13,650,707

41,223,681

; 155,052,367

17,004,351
8,546,636
11,110,798

23,758,828
47,092,596

107,513,209

1,546.681
1,092,642

12,572,529

34,792.738
50,004,590

157,517,799

Annuil sinking fund requirements and debt principal maturities for all
future years are as follow

1991
1992
1993
1994
1995
Thereafter

illows:

City

Revenue

Bonds

Bonds

Total

$ 380,000

3,540,000

3,920,000

380.000

4,060,000

4,440,000

270.000

4,360,000

4,630,000

270,000

4,685,000

4.955,000

195,000

5,060,000

5,255,000

215.000

226,240,000

226,455,000

$ 1,710,000

247,945,000

249,655,000

(5) Massachusetts Water ResourcesAuthQrity

The Massachusetts Water Resources Authority (the "Authority") pro-
vides all the Commission's water supply and sewer treatment requirements
and assesses the Commission for a portion of its actual operating and
capital expenses. The assessment is based on the Authority's fiscal year
(July 1 to June 30) and payments at;e due to the Authority in four install-
ments in September, November, March and May. Interest is not charged
on the outstanding balan.ce. The amounts included in the operating state-
ment for the MWRA assessments for 1990 and 1989 are as follows:

Assessments allocated on:
Water usage
Wastewater usage

Total

S 22,880,297
_ 38,640,584
S 61,520,881

21,928,747
32,787,627
54,716,374

During 1990 and 1989, over 73% and 70%, respectively of water
received from the Authority was billable to customers. Since its inception,
the Commission has increased the percentage of billable water from 52% in
1977 to over 73% in 1990 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.

t6) Transactions with the City of Boston

The Commission's ongoing program to meter City facilities has re-
sulted in billings to nine City departments based on actual consumption of
■ $2,618,000 and $1,391,000 in 1990 and 1989, respectively. The remain-
ing City departments were billed $287,000 and $1,593,000 based on
estimated consumption during 1990 and 1989, respectively.

The City provides services to the Commission, includig paving and
facilities rental. Operating costs billed by the City were $2,433,000 and
$520,000 during both 1990 and 1989. Capital costs billed by the City
were $4,672,000 and $763,000 during 1990 and 1989, respectively.

The Commission provides retirement benefits to substantially all of its
employees through a pension trust fund (the "Trust Fund") or the State-
Boston Retirement System (the "Boston System"). A dispute concerning
the Commission's past and fviture obligations to all Commission employees
covered by the Boston System was settled in 1 986, resulting in a payment
of $19,100,000 to the Boston System. This payment was fijnded primarily
through 1985 and 1986 bond proceeds and is recorded as a'deferred charge
that will be recovered through Riture rates.

As part of the settlement with the Boston System, the Commission
annually reimburses the City for the Commission's share of pension ben- '
efits paid to Commission employees. The Commission's share is based
upon the proportion of each employee's total years of creditable service that
were spent with the Commission. Employees become 100% vested after
10 years of creditable service as defined by Chapter 32 of the Massachusetts
General Laws.

The Commission's covered payroll was approximately $16,-924,000 and
$14,739,000 in 1990 and 1989, respectively; Total payroll for allCom-
mission employees vvas approximately $18,629,000 and $17,443,000 in
1990 and 1989, respectively. In compdiance with Statement No. 5 of the
Governmental Accounting Standards Board, as of January 1, 1991 4nd
1990, the Commission updated its actuarial valuation originally performed
as of January 1, 1989. The valuation and subsequent updates were based
on 98 retired and inactive employees, 133 vested active employees and 363
non-vested active employees. Employee contributions are defined under
Massachusetts General Laws, Chapter 32.- Total employee contributions
were approximately $1,200,000 and $1,017,000 or 6.4% and 6.9% of
covered payroll in \990 and 1989, respectively.

As required by the Commission's Enabling Act, employee pension
contributions are transferred to the Boston System and are either returned
to employees upon termination or, for vested employees, are used to defray
a portion of the total rerirement benefit. The Commission's policy is to.
make additional contributions to the Trust Fund based upon the actuari-
ally determined cost of future benefits, net. of employee contributions.

Trust fiind assets at December 31,1 990 and 1 989 are as follows:

Assets (at fair market value):
Common stock
U.S. Government s'ecufities
Corporate bonds and notes
Short-term investments
Cash
Otlner

Total

$ 9,740,375

609,045
6,724,988

8,740,563
4,378,249
1,924,029
1,591,600
264,957
289,817 -
17,189,215

Net assets in excess of the pension benefit obligation applicable to the
Commission's employees, as of January 1 are determined as follows:

1991 1990

Net assets available for benefits

S 17,074,408

17,189,215

Pension benefit obligation:
Retirees and beneficiaries
- currently receiving benefits
Current emiployees:

Employer-financed vested
Employer-financed nonvested
Total pension benefit obligation

Net assets in excess of pension
benefit obligation

7,118,000
2,814,000
13,378,000

S 3,696,408

3,213,000
4,551,000

7,424,215

The amount shown as the pension benefit obligation is a standardized
disclosure measure of the present value of pension benefits, adjusted for the
effects of projected salary increase estimated to be payable in the future as a .
result of employees' service to date. The measure is infended to help users
assess the funding status of the system on a going concern basis, assess
progress made in accumulating sufficient assets to pay benefits when due
and make comparisons among systems. The measure is independent of the
actuarial funding method used to determine contributions to the pension
trust fund.

The pension benefit obligations were computed as part of actuarial updates
performed as of January 1, 1991 and 1990 using the information contained in
the January 1 , 1989 actuarial valuation. The significant assumptions tised in
the calcularion of the pension benefit obligadon as of January 1, 1991 include
an 8% annually compounded rate of return on present and fijture assets and
projected salary increases of 6% per-year, compounded annually. Significant'
actuarialassumptions used to calculate the pension benefit obligadon as of
January 1, 1990 include a rate of return on investment of present and fumre
assets of 9% per year compounded annually and projected salary increases of
7% per year; compounded annually.

The increase in the pension benefit obligation from the January 1 , 1 990
calculation is due primarily to the change in the investment return assump-
tion from 9% to 8%. . ' ,

The Commission's funding policy has been to provide for quarterly
employer contributions to the Trust Fund based upon an actuarially deter-
mined rate using the aggregate actuarial cost method. The Commission's
contributions totalled approximately $930,000 and $990,000 in 1990 and
1989, respectively, or 5.1% and 6.7% of the covered payroll. Historical
information on the Commission's pension plan is not available. Historical
and other financial information on the Boston System can be found in the
Boston System's June 30, 1990 financial statements.

(8) Deposits and investmei :

The Boston Water and Sewer Commission'^ General Revenue Bond
Resolution, adopted December 6, 1984, as amended, places certain limita-
tions on the nature of deposits and investments available to the Commis-
sion. Demand deposits and term deposiis without collateralization can
only be made with financial institutions meeting certain criteria. Certifi-
cates of deposit must be fully collateralized and issued by FDIC insured
banks. Investments can also be made in securities issued by or uncondi-
tionally guaranteed by the U.S. Government or its Agencies'; public agen-
cies, municipalities or state obligations carrying the highest bond rating;
commercial paper rates A-1; P-1, A-Rjted "money market funds; fully
collateralized investment contracts and certain-futures contracts.

In addition, the Commission's Pension Trust Fund has additional
investment powers, most notably the ability to invest in stocks, corporate.,
bonds and other instruments.

(a) Deposits

A summary of the amount of the Commission's deposits that are (Cat-
egory 1 ) fully insured or collateralized with securities held by the Commis-
sion or its agent in the Commission's name, ((^ategory 2) those deposits
that are collateralized with securities held by the pledging financial
institution's trust departmentor agent in the. Commission's name and
(Category 3) those deposits that are not collateralized as of December 3 1 ,
1990 follows (in thousands):

Bank Balances

Category Total Bank Carrying

Balance Amount

Cash $ 300 — 3,104 3.404 -1.254

Money market — ' — 734 734 734

Total

$ 300

2

3

—

3,104
734

—

3,838

4,138

(b) Investments > ^

The Commission's investments are categorized according to the level of
risk assumed by the Commission. Category 1 includes investments that are
insured, registered or held by the Commission's trustee in the
Commission's name. Category 2 includes uninsured and unregistered
investments held by the counterparty's trust department or agent in the
Commission's name. Category 3 includes uninsured or unregistered
investments held by the counterparty, its trust department or agent but not
in the Commission's name (in thousands):

Carrying Amount Estimated

Category Carrying Market

1 2' 3 Amount Value

U.S. Government.

obligations $48,857 — — 48,857 50,644

U.S. Government

Agency obligations 48,624 — 48,624 60,235

Repurchase agreements — 16,886 — 16,886 16,8.86

Money market — — 26,621 26,621 26,621

Other investments — 12,557 — 12,557 12,557.

Total $97,481 29,443 26,621 153,545 166,943

(9) Lease Commitmei

The Commission has entered into leases for building space under
various leases expiring through 1992. These leases have been accounted for
as operating leases. The Commission also leases office equipment under
various leases expiring through 1995, that have also been accounted for as
operating leases. Such leases are expected to be renewed as they expire in
the normal course of business.

Minimum lease commitments under all leases with terms in excess of
one year at December 31,1 990 are as follows:

1991 ' $ 1,188,267

1992 777,107

1 993 1 08, 1 20

1994 108,120

1995 106,336
S 2,287,950

Rent expense under operating leases amounted to $1,677,000 and
$1,220,000 in 1990 and i989, respectively.

A major capital improvement program is currendy in progress. As part
of this program, the Commission has entered into a number of contracts
for the design and construction of its facilities. Commitments under these
contracts aggregate approximately $47 million as of December 31, 1990.
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 approximately $128 million for 1991 through 1992.
Of this amount, approximately $98 million represents extension and
improvement projects and $30 million represents renewal and replacement
projects. The extension and improvement projects will be 40% funded by
federal and state grants. The remaining amounts will be funded from the
Commission's bond proceeds and operating revenues.

The Commission is involved inordinary and routine Iftigation and
other matters related to its operations and the establishment of rates. Man-
agement believes that the resolution of these matters will not materially
affect the financial position of the Commissicvi.

The Commission has received federafand 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 terms of jhe grant. The Commission be-
lieves 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 in-
creases in future MWRA assessments related to the litigation, the
Commission's extensive capital improvement program (see note 10) ad-
dresses probable actions that the Commission may be required to under-
take in connection with this litigation.

Supplemental Schedule of Revenues and Expenses— Rate Basis

For the Years ended Decemlber 31, 1990 and 1989

1990 1989

Revenues:

Water revenue

Sewer revenue ^ - ■

Less:

Adjustments

Discounts

Bad debt
Total '

Net biOed charges -

Prior year surplus
Miscellaneous revenues:

Late charge revenue

Investment income

Fire pipe revenue

Other income
Total revenues

Direct operating expenses:

Salaries and wages -

Overtime wages

Fringe benefits

Supplies and materials —

Repairs and maintenance

Utilities

Professional services

Space and equipment rentals

Other services

Insurance

Damage claims

Inventory

Capital outlay
Total direct operating expenses

Nonoperating expenses:

MWRA assessment

Capital improvements

Principal payments

Interest expense

Deposits to reserve funds'

Working capital provision

Deferred interest expense

Recovery of accumulated deficit
Total nonoperating expenses

Total current expenses

Current year rate surplus

This s'upplemental schedule.presenis the Commission's revenii
and expenses on the basis that is prcscnied in the Cdnimlssion
budget and rate-setting documents.

$ ^59,959,305

58,568,444

76,863,354

66,683,058

9,016,613

9,323,376

759,587

566,758

6,485,394

5,850,715

16,261,594

15,740,849

120,561,065

109,510,653

6,432,956

2,996,564

3,810,106

2,411,481

6,266,538

5,575,137

1,845,393

1,678,380

2,389,516

1,421,737

141,305,573

123,593,952

19,221,885

16,335,091

1,179,909

1,108,150

2,981,876

2,900,338

1,428,448

1,247,115

6,350,149

4,831,816

396,610

423,507

2,067,094

r,6l7,191

1,681,940

1,220,120

681,434

298,075

651,124

786,642

354,637

104,717

342,672

446,411

818,808

584,478

38,156,586

31,903,651

61,520,881

54,716,374

Z,148,575

3,297,843

3,890,000

3,115,000

13,732,654

9,772,770

5,193,000

3,213,000

.1,579,199

6,294,360

• 3,000,000

—

—

4,847,998

96,064,309

85,257,345

134,220,895

117,160,996

$ 7,084,678

6,432,956

Boston Water and Sewer Commission

425 Summer Street
Boston, MA 02210

617.330-9400