Annual report

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Boston Water and Sewer Commission

Annual Report 1 9 9 5

I. V

By utilizing state-of-the-art trenchiess technologies, such as microtunneling,
pipe bursting and cured-in-place lining, the Commission is able to rehabilitate
its 1 00-year-old sewer system in Copley and Park Squares while minimizing impacts
to the residential, commercial and tourist activities in this vibrant area of Boston.

Victoria L. Williams
Commissioner

Dennis A. DiMarzio
Chairman,
Board of
Commissioners

Vincent G. Mannering Cathleen Douglas Stone

Executive Director Commissioner

Ihat does innovating savings and service mean? At the Boston Water and Sewer Commission it means
finding ways to be more efficient and deliver the highest quality services in the most cost-effective
manner. That is what the Commission did in 1995 and will continue to do under my administration.
From senior management and division directors to unit supervisors and individual employees, we
worked collectively examining ways to produce cost savings while simultaneously improving service
to Boston's residents and businesses.

Our efforts did not go unrewarded. Implementing a variety of measures to promote greater effi-
ciency resulted in a $2.3 million savings over 1995 budgeted expenses and an $8.8 million operating
surplus. These savings allowed us to announce that for an unprecedented third consecutive year
there will be no rate increase in 1996. This announcement is even more remarkable in light of the
fact that the Massachusetts Water Resources Authority (MWRA) assessment, which comprises 54% of
our current expenses, is projected to increase by a minimum of 7.0% in 1996.

Obviously, the Commission cannot continue to absorb increases in MWRA's assessment without
increasing our customers' water and sewer rates. However, we will do everything in our power to
assure our ratepayers high quality water and sewer services at the lowest possible cost.

Mayor Thomas M. Menino, BWSC's Board of Commissioners and the State Legislature have all con-
tributed significantly to our achievements. The Board, by its constant vigilance and oversight,
ensures that we are as proficient as possible. The Mayor and the State Legislature, by supporting and
providing funding for rate relief assistance and the Commonwealth's State Revolving Loan Fund
Program (SRF), enable the Commission to complete needed improvements to our infrastructure
while lessening the burden of these costs on our ratepayers.

Our goal in 1996 is to continue to search for more innovative ways to generate savings and improve
services to our customers. The Board of Commissioners will provide the direction and oversight of
these efforts, and I pledge my best effort and that of my administration toward this endeavor.

Implementing a
variety of measures
to promote greater
efficiency resulted
in a $2.3 million

savings and

an $8.8 million

operating

surplus.

Vincent G. Mannering /

Executive Director

Message from the
Executive Director

Sophisticated computer
hardware and software
systems enable the
Commission to:||||^form a
wide array of c^ifpiicated
functions quicidy and
efficiently.

J^- t Li

he Commission began 1995 with a new
Executive Director and a mission to tighten its
fiscal belt to ensure every dollar is well spent.
The Board of Commissioners directed the staff
to implement all conceivable and practical cost-
cutting measures and increase employee pro-
ductivity. The goal of these measures was to
ensure no rate increase in 1996, a goal which the
Commission achieved for an unprecedented
third consecutive year. To meet this goal, senior
management evaluated the organizational struc-
ture of the agency, eliminated or streamlined
redundant activides and consolidated areas of
common purpose. The Commission's highly
skilled and experienced workforce was given the
necessary resources to implement cost-cutting
and efficiency measures. The subsequent reorga-
nization of the Commission's management struc-
ture produced operational efficiencies and
increased employee productivity. The result is a
solid foundation on which the Commission will
continue to build.
Repair and Maintenance

Enhancements to the operations and mainte-
nance work order system, and increases in
employee productivity enabled the Commission
to achieve a 1626,500 savings in operations and
maintenance costs and significantly reduced the
need for costly emergency repairs.

Professional Services

Increases in technical proficiency and
productivity by the Commission's employees
generated a $268,700 savings by eliminating the
need to procure professional assistance for
certain activities.
Tax Title Program

A new in-house Tax Title Program was developed
to enable the Commission to secure a tax lien on
a property that supersedes all liens except for
federal, state and local taxes. The program gen-
erated approximately $328,000 in savings by
eliminating the need to obtain outside legal
counsel for the Commission's collections efforts.
Insurance Procurement

The Commission revised its procedures
for procuring various types of insurance.
It adopted a three-year procurement
contract, which stimulated greater interest
and competition among insurance providers,
generating a first-year reduction in premiums
of $132,000. Over the initial three years of this
program, the Commission anticipates a savings
of approximately $500,000.

Office Supplies Materials

A Centralized Order Processing System for office
supplies and other related materials was imple-
mented. The system produced a $25,100 savings
by coordinating and streamlining the purchase
of these materials.

The goal . . .
was to insure no
rate increase in
1996, a goal wliicli
the Commission
achieved for an
unprecedented
third consecutive
year.

Increasing Operational
Efficiencies

he objectives of the Commission's Capital
Improvement Program (CIP) are to improve the
delivery and service of high quality drinking
water for domestic consumption and fire protec-
tion, and the efficient and hygienic collection of
sewage for transport to MWRA's treatment facili-
ties. In 1995 the Commission continued its strat-
egy of intelligent, directed investments in its
water, sewer and drainage systems.
Water Main Rehabilitation Progratn

To ensure high quality drinking water from
the Commission's protected source supply at
the Quabbin and "Wachusett Reservoirs to
our customers' tap, over 20 miles of water
mains were cleaned and cement-lined, or
replaced, in 1995.

Valve and Hydrant
Replacement Program

To ensure reliable fire protection throughout the
City of Boston, 4,156 hydrants were inspected
and repaired when necessary, 194 hydrants were
replaced and 252 custodian locking devices were
installed to prevent unauthorized use of water
from a hydrant.

Lead Service Line
Replacement Program

To minimize the presence of lead in drinking
water, the Commission replaced 24,269 linear feet

of old lead service pipes that deliver water from
the main in a street to a customer's property

Water Quality Monitoring
and Sampling

To closely monitor drinking water quality
throughout the City and ensure compliance
with public health regulations and standards,
the Commission sampled and analyzed 2,971
drinking water samples.
Sewer System Rehabilitation

To improve the capacity and operational effi-
ciency of the sewer system to transport flow to
MWRA's treatment facilities, 21 miles of sewers
were televised and inspected, approximately two
miles of sewer pipe were rehabilitated, 27,346
manholes were inspected and 2,214 inspections
of the Commission's unmanned pump stations
were conducted.
Sewer Lateral Progratn

To ensure the proper operation of a building's
sewer or storm drain, the Commission provides
direct financial assistance to property owners
whose buildings' sewers or storm drains are
completely blocked or broken and require exca-
vation in the public way to repair. In 1995, the
Commission reimbursed 83 property owners a
total of $238,798 to repair their sewer laterals or
storm drains.

""^^^^H

The Commission
continued its strategy
of intelligent, directed
investments in its
water, sewer and
drainage systems.

Enhancing Service w i t ii
System Improvements

,. V %

m izing \
' e s our c e

■A'- , C*

n 1995, the Commission continued to target
areas where it could secure financial and techni-
cal assistance to implement cost-effective solu-
tions to challenging and complex problems. The
ability to recognize that sharing resources often
produces better, more cost-effective solutions to
common problems is yet another example of the
Commission's innovative savings and service.

Combined Sewer Overflow (CSO)
Control Program

The Commission formalized its participation in
MWRA's Combined Sewer Overflow (CSO) Plan.
In 1996, the Commission and MWRA will enter
into a Memorandum of Understanding and exe-
cute a Financial Assistance Agreement to enable
the Commission to complete significant separa-
tion of its combined sewer system in Dorchester
and East Boston, and other CSO control pro-
jects. MWRA estimates this work will result
in $120 million in improvements to the
Commission's sewerage and drainage systems.
This work will enable the Commission to close
its CSO outfalls that discharge to the beaches
and critical shellfish areas of the Neponset River,
Dorchester Bay and Constitution Beach.

System Optitnization Plan (SOP)
Grant Program

System Optimization Plans (SOPs) are defined
by MWRA as minor modifications and improve-
ments to a combined sewer system to maximize
its storage and transport capacity, and reduce
the volume and frequency of CSO discharges.
Prior to implementing the CSO Control

Program, the Commission took advantage of an
approximately $3 million grant from MWRA to
complete numerous SOP projects to reduce
CSO discharges.
Infiltration/Inflow (I/I) Removal

Infiltration and inflow (1/1) are groundwater and
stormwater runoff that enter the sewer system.
I/I decreases capacity in the sewer system to
transport sanitary waste and is an unnecessary
cost to Commission customers, since treatment
costs are based in part on total flow to MWRA
treatment plants. The Commission is aggres-
sively eliminating I/I in the sewer system. By
participating in MWRA's I/I Local Financial
Assistance Program, the Commission has
secured $7.5 million to remove an estimated
52 million gallons per day of peak I/I from the
sewer system.

Comtnon wealth of Massachusetts
State Revolving Loan Fund (SRF)

The Massachusetts Water Pollution Abatement
Trust and the Department of Environmental
Protection administer a subsidized loan program
for communities to complete sewer system
improvement projects. The Commission is
participating in this program and has secured
$8.6 million for the St. James Avenue Interceptor
and the Boston Main Interceptor Projects.
An additional $10.8 million was also secured
for five other projects. The Commission also
received approximately $ 1 million in 1995
from the Commonwealth's Sewer Rate
Relief Fund.

By taking
advantage of
financial assistance
programs, the
Commission is malcing
needed improvements
to its sewerage system
and saving tlie
ratepayers
money.

Securing Financial and
Teciinicai Assistance

In 1995, the

Commission received

an Environmental

Leadership Award

from the

Save The Harbor/

Save The Bay

environmental

organization.

Public awareness and concern for environmental
protection is growing. The Commission is proud
of its proactive initiatives and leadership in
improving water quality in Boston. The
Commission is expanding its Harbor Quality
Department and will continue to identify and
implement cost-effective measures that produce
environmental benefits.
Environmental Leadership Award

In 1995, the Commission received an
Environmental Leadership Award from the Save
The Harbor/Save The Bay environmental organi-
zation for its efforts and success in reducing
pollution in Boston's waters. This prestigious
honor validates the importance of the work
Commission crews do each day to safeguard
against degradation of Boston's rivers, beaches
and historic harbor.

Illegal Connection
Remediation Program

Sanitary sewage connections from homes or
businesses, that are incorrectly tied to a storm

drain rather than a sewer, result in the discharge
of untreated sewage directly into a river,
beach or Boston Harbor These connections
violate the federal Clean Water Act and
Commission regulations. The Commission insti-
tuted a program in 1983 to identify and correct
illegal connections at no direct cost to residential
property owners. This program is considered a
model by the Environmental Protection Agency
(EPA) for other communities to adopt. In 1995,
51 illegal connections were corrected, removing
an estimated 9,100 gallons per day of untreated
sewage that was previously being discharged to
surface waters in Boston.
Controlling CSO Discharges

In 1995, the Commission conducted approxi-
mately 2,132 inspections of its combined sewer
system to ensure that it operates properly and
that its CSOs are minimized. This work helped
the Commission achieve a 48% reduction in the
volume of CSOs from 1994 while total precipita-
tion only decreased by 33%.

Env ir n nm, p nt al

Stewardship:

Ensuring Cleaner

Waters in Boston

Jndepf^ndent Auditors' Report

The Commissioners

Boston Water and Sewer Commission:

We have audited the accompanying balance sheets of the Boston Water and Sewer Commission
(the "Commission") as of December 31, 1995 and 1994, and the related statements of operations,
Commission equity and cash flows for the years 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 audits.

We conducted our audits in accordance with generally accepted auditing standards. Those standards
require that we plan and perform the audit 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 disclosures 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 financial statement presentation. We believe that our audits provide a reason-
able basis for our opinion.

In our opinion, the financial statements referred to above present fairiy in all material respects, the
financial position of the Commission at December 31, 1995 and 1994 and the results of its operations
and its cash flows for the years then, ended in conformity with generally accepted accounting
principles.

Our audits were made for the purpose of forming an opinion on the basic financial statements
taken as a whole. The attached Supplemental Schedule of Revenues and Expenses — Rate Basis is
presented for purposes of additional analysis and is not a required part of the basic financial state-
ments. Such information has been subjected to the auditing procedures applied in our audits 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.

The Commission adopted the provisions of Governmental Accounting Standards Board Statement
No. 10, Accounting and Financial Reporting for Risk Financing and Related Insurance Issues.

\^?M«, J^/viM-tL

March 29, 1996

Balance Sheets

December 31, 1995 and 1994

Assets 1995 1994

Current assets:

Cash and cash equivalents (note 8)
Accounts receivable;

Customers, less allowances of $6,401,080 in 1995

and $7,723,949 in 1994 (note 1)
Unbilled revenues, less allowances of $1,702,361
in 1995 and 1994 (note 1)
Construction grants receivable
Prepaid expenses
Deferred compensation plan assets (note 13)

Total current assets

Investments (notes 4 and 8)

Property, plant and equipment, net (note 3)

Deferred charges (note 2)

Bond issue costs, net

Total assets $809,504,518 $768,015,687

Liabilities and Commission Equity

Current liabilities:

Payable from current assets:

Accounts payable $ 10,570,956 $ 10,841,490

Other accrued liabilities 7,956,650 7,052,248

Current portion of revenue bonds (note 4) 91,080,000 4,695,000

109,607,606 22,588,738

Payable from trusteed assets:

Current portion of City of Boston bonds (note 4) 65,000 195,000

Total current liabilities 109,672,606 22,783,738

Long-term debt (note 4) 277,211,066 367,721,063

Long-term notes payable (note 4) 18,103,070 9,331,328

Deferred compensation plan liability (note 13) 3,050,527 2,430,175

Other long-term liabilities 39,714,801 22,333,095

Deferred credits and reserves (note 2) 241,229,145 222,876,765

$ 5,447,550

$ 5,134,635

24,541,870

20,266,671

8,553,520

8,416,669

1,351,519

1,797,103

388,048

730,306

3,050,527

2,430,175

43,333,034

38,775,559

331,960,852

319,738,498

394,813,124

367,579,672

35,096,998

37,179,669

4,300,510

4,742,289

Total liabilities

688,981,215

647,476,164

Commission equity:
Contributed capital

120,523,303

120,539,523

Commitments and contingencies (notes 9, 10 and 12)
Total liabilities and commission equity

$809,504,518

$768,015,687

See accompanying notes to financial statements.

10

I Statementfi of Oppratinns

I Years Ended December 31, 1995 and 1994

Operating revenues:

Water and sewer usage

Fire pipe

Other

5182,329,845
2,334,589
3,176,442

35,669,000
2,197,270
3,509,789

Total operating revenues

187,840,876

191,376,059

Operating expenses;

Operations

Maintenance

MWRA assessment (note 5)

Depreciation and amortization

50,817,277

7,437,583

98,650,422

12,151,610

Accumulated revenues used to offset future rates -end of year $ 8,758,602

50,840,829

8,705,946

99,589,282

11,609,869

Total operating expenses

169,056,892

170,745,926

Excess operating revenues

18,783,984

20,630,133

Nonoperating revenue (expense):

Interest income
Interest expense

19,924,461
(22,360,845)

15,648,552
(20,875,519)

Total nonoperating expense

(2,436,384)

(5,226,967)

Excess revenues before depreciation add-back

and transfer requirements
Add: Depreciation on fixed assets acquired by grants

16,347,600
2,004,780

15,403,166
1,845,540

Excess revenue before transfer requirements 18,352,380 17,248,706

Excess revenues used to fund reserves and other

deferrals (note 2) (19,934,463) (19,965,487)

Accumulated revenues used to offset future rates - beginning

of year 10,340,685 13,057,466

$ 10,340,685

See accompanying notes to financial statements.

11

statements ofCommissinn Equity

Years Ended December 31, 1995 and 1994

Contributed
Capital

Balance, December 31, 1993 $120,781,279

Contributions in aid of construction 1,603,784

Depreciation of related property (1,845,540)

Balance, December 3 1 , 1994 120,539,523

Contributions in aid of construction 1,988,560

Depreciation of related property (2,004,780)

Balance, December 31, 1995 $120,523,303

See accompanying notes to financial statements.

12

statements of Cash Flows

Years Ended December 31, 1995 and 1994.

1995

Operating activities:

Excess operating revenues

Adjustments to reconcile operating income to net cash:
Excess revenues used to fund reserves and

other deferrals
Depreciation and amortization
Change in assets and liabilities:

Accounts receivable, net

Unbilled revenues

Construction grants receivable

Prepaid expenses

Accounts payable

Other accrued liabilities

Deferred credits

Other long-term liabilities

$18,783,984

$20,630,133

(18,352,380)

(17,248,706)

12,151,610

12,299,545

(4,275,199)

7,126,034

(136,851)

583,875

445,584

(32,794)

342,258

123,686

(270,534)

1,942,123

904,402

1,053,667

18,352,380

17,248,706

17,381,705

12,205,698

Net cash provided by operating activities

45,326,959

55,931,967

Investing activities:

Purchase of investments
Interest income

(12,222,354)
19,924,461

(58,252,406)
15,648,552

Net cash provided by (used for) investing activities

7,702,107

(42,603,854)

Capital and related financing activities:

Additions to property plant and equipment (36,860,608) (27,418,081)

Proceeds from notes payable 8,771,742 543,835

Proceeds from issuance of bonds — 40,000,000

Bond issue costs — (305,000)

Payment on bonds, including current maturities (4,255,000) (5,575,000)

Contributions in aid of construction 1,988,560 1,603,784

Payment of bond interest

(22,360,845)

(20,875,519)

Net cash used for capital and related
financing activities

(52,716,151)

(12,025,981)

Net increase in cash and cash equivalents
Cash and cash equivalents at beginning of year

312,915
5,134,635

1,302,132
3,832,503

Cash and cash equivalents at end of year

$ 5,447,550

$ 5,134,635

See accompanying notes to financial statements.

13

JVntPs to Financial Statements

December 31, 1995 and 1994

Organization, Basi

of Presentation and Summary of

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 subject to regulation with respect to rates, accounting and other matters, where applica-
ble, by the Board of Commissioners (the "Board"). The Board regulates the rates that the Commission can charge its customers for
water and sewer usage. The rates charged to customers are based on the cash required for the Commission's operations, debt
service and reserve contributions. However, there is no legally adopted budget that the Commission must adhere to. To comply with
the external financial reporting requirements of the Board, the accompanying financial statements are presented on a basis that is
consistent with generally accepted accounting principles ("GAAP") for regulated utilities (i.e., the accrual basis of accounting and the
capital maintenance measurement focus).

To accommodate the rate making process, the Commission follows the accounting standards set forth in Financial Accounting
Standards Board Statement No. 71 ("FAS-71"), "Accounting for the Effects of Certain Types of Regulation." FAS-71 allows certain (a)
revenues provided for future allowable costs to be deferred until the costs are actually incurred (deferred credits) and (b) costs
incurred to be capitalized if future recovery is reasonably assured (deferred charges). Revenues and expenses appearing in the
Supplemental Schedule of Revenues and Expenses — Rate Basis are presented in the same format as utilized in the Commission's
operational budgeting and rate setting process. The revenues and expenses shown on the Statement of Operations are presented
on a GAAP basis. A reconciliation between the revenues and expenses of these two operating statements for the year ended
December 31, 1995 is provided below:

As presented in tlie Statement of Operations:

Operating revenues/expenses
Other revenues/expenses

Total

Reclassifications and deferrals:

Contributions to reserves

Revenue adjustments/bad debt expense

Excess depreciation and amortization over

bond payments
Interest expense (escrowed funds)
Interest income (escrowed funds)
Capital expenditures

Excess revenue used to offset current rates
Other deferrals

Revenues

Expenses

$187,840,876

$169,056,892

19,924,461

22,360,845

207,765,337

191,417,737

14,372,282

(18,080,388)

(18,080,388)

(7,737,463)

—

(6,620,645)

(6,892,285)

—

—

10,958,162

10,340,685

—

—

65,062

As presented in the Supplemental Schedule

$193,133,349

$184,374,747

The Enabling Act requires that any net surplus, as defined by the rate setting process, be either turned over to the City or applied to
offset water and sewer rates for the following year The Commission has applied $8,758,602 and $10,340,685 for the years ended
December 31, 1995 and 1994, respectively to offset rates in the respective subsequent years.

(a) Revenue Billings

Water and sewerage fees are billed to users of the systems on a monthly cycle basis. Revenues are accrued for periods between the
termination of billings for the various cycles and the end of the year Various adjustments are made on a postbilling basis that reduce
the amount of total billings. Accordingly the 1995 and 1994 total customer bills outstanding of $42,830,670 and $45,073,977, respec-
tively have been reduced by provisions for billing adjustments and sewer abatements of $9,510,176 and $2,377,544, respectively in
1995 and $13,141,044 and $3,942,313, respectively in 1994. These net bOling amounts are further reduced by an allowance for uncol-
lectible accounts of $6,401,080 in 1995 and $7,723,949 in 1994, to arrive at net accounts receivable.

(b) Investments

Investments, consisting of direct and unconditionally guaranteed short-term obligations of the U.S. Government, repurchase agree-
ments and money market funds secured by government securities, are stated at amortized cost plus accrued interest.

(c) Property, Plant and Equipment

Property, plant and equipment is stated at historical cost. Depreciation is provided on the straight-line method based upon the esti-
mated usefijl 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 usefiil lives. The Commission does not have any donated fixed
assets.

The Commission capitalizes interest costs during construction of assets for its own use. No interest was capitalized in 1995 or 1994
because the difference between interest expense and interest income on unexpended proceeds was not material.

14

ate s to Financial Statements

December 31, 1995 and 1994

(d) Depreciation

Estimated useful lives used in computing depreciation are as follows:

Works
Meters
Hydrants

100
10

40

Sewerage:

Works

Pumping station
Other

Years

75

35

4 to 14

(e) Contributed Capital

Contributions from governmental agencies, individuals and the City, received in aid of specific construction projects that are not
refundable, are recorded as contributed capital. Accordingly, depreciation of the related property is charged directly to contributed
capital and appears as an addition to excess revenues in the accompanying Statements of Operations.

(f) Cash Equivalents

The Commission considers all highly liquid, short-term cash investments with original maturities of three months or less to be cash
equivalents for purposes of the statement of cash flows.

(g) Bond Issue Costs

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) Proprietary Activity Accounting and Financial Reporting

Under the Governmental Accounting Standards Board Statement (GASB) No. 20, Accounting and Financial Reporting for
Proprietary Activities, the Commission has elected the option to apply all Financial Accounting Standards Board Statements (FASH)
and Interpretations issued on or before November 30, 1989, except those that conflict with or contradict GASB pronouncements.

(i) Reclassifications

Certain amounts in the 1994 financial statements have been reclassified to conform to the 1995 presentation.

2. Deferred 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 deferred charges or deferred credits. The revenues and expenses that have been
removed from the Statement of Operations and added to the balance sheets as deferred credits appear in the line "Excess revenues
used to fund reserves and other deferrals" on the Statement of Operations. The components of these amounts are:

1995

1994

Contributions to reserves

Principal payments on long-term debt

Interest paid from escrow funds

Capital expenditures

Depreciation

Interest income on project and escrow funds

Other

$14,372,282
4,125,000
(6,620,645)
10,958,162
(7,622,380)
6,892,285
(2,170,241)

$13,718,866
4,875,000

(4,231,826)
9,552,023

(7,111,683)
5,410,492

(2,247,385)

Total

$19,934,463

$19,965,487

The components of deferred charges included in the accompanying balance sheets are as follows:

Accrued pension expense
Debt extinguishment expense

$15,283,666
19,813,332

115,572,813
21,606,856

Total deferred charges

$35,096,998

$37,179,669

The activity in and components of deferred credits and reserves included in the accompanying balance sheets are as follows:

December 31,
1994

Increase
(Decrease)

Debt service
Capital improvements
Working capital
Self-insurance

$ 45,880,695

106,908,388

57,506,997

2,240,000

$14,372,281
5,562,182

December 31,
1995

$ 60,252,976

112,470,570

57,506,997

2,240,000

Subtotal
Reduction of fijture rates

212,536,080
10,340,685

19,934,463
(1,582,083)

232,470,543
8,758,602

Total deferred credits

$222,876,765

$18,352,380

$241,229,145

15

Notes to Financial St at em tints

December 31, 1995 and 1994

3. Property, Plant and Equipment

The cost of water and sewerage property, plant and equipment in service and related accumulated depreciation at December 31,
1995 and 1994 are as follows:

1995

1994

Water:

Works

Meters and hydrants

$135,147,076
17,693,699

$126,942,753
16,155,965

Total water

152,840,775

143,098,718

Sewerage:

Works
Pumping station

198,482,540
6,818,570

192,056,760
6,818,570

Total sewerage

205,301,110

198,875,330

Other

Total
Less accumulated depreciation

55,395,196

413,537,081

73,701,462

49,462,351

391,436,399

65,006,460

Total
Construction in progress

339,835,619
54,977,505

326,429,939
41,149,733

Total

$394,813,124

$367,579,672

4. Long-term Debt

At the time of its creation, the Commission assumed general obligation certificates of indebtedness of the City (the "City bonds") per-
taining to the water and sewer systems. Payments of principal and interest are made directly to the City in accordance with the origi-
nal maturity and interest schedules. The Commission also issues revenue bonds to support various projects.

A summary of the City bonds and revenue bonds outstanding as of December 3 1 , 1995 and 1994 follows (amounts in thousands) ;

City bonds, bearing interest at rates ranging from 5-1% to 9.5% with maturity
dates through December 1999
Less current installments

215
65

410
195

Total City bonds, net of current installments

150

$ 215

Senior debt:

1985 Series A, bearing a variable interest rate (5.1% and 4.9% at December 31, 1995 and 1994,
respectively), maturing in two equal amounts on November 1, 2014 and 2015

and requiring annual sinking fund contributions through 2014 and 2015, respectively

1986 Series A, bearing interest at rates ranging from 7.4% to 7.88%, with maturity
dates ranging from November 1, 1996 to 2015

1989 Series A, bearing interest at a rate of 6.9% with a maturity date of November 1, 1999

1991 Series A, bearing interest at rates ranging from 6.25% to 7.0%, with maturity dates
ranging from November 1, 1996 to 2021

1992 Series A, bearing interest at rates ranging from 4.6% to 6.1%, with maturity dates
ranging from November 1, 1996 to 2013

1993 Series A, bearing interest at rates ranging from 35% to 5.4%, with maturity
dates ranging from November 1, 1996 to 2019

1994 Series A, bearing a variable interest rate (4.7% and 5.3% at December 31, 1995 and 1994,
respectively), with maturity dates ranging from November 1, 1996 to 2024

Subordinated debt:

1984 Series A, bearing interest at a rate of 10%, with a maturity date of January 1, 1996
1988 Series A, bearing interest at rates ranging from 6.9% to 7.4%, with maturity dates
ranging from November 1, 1996 to 2008

$ 45,920

% 46,685

51,870

52,865

585

585

16,480

17,205

67,065

67,895

97,610

97,670

39,500

40,000

1,610

1,610

53,540

54,360

Less current installments

374,180
91,080

378,875
4,695

Total long-term revenue bonds
Less unamortized issue discount

283,100
6,039

374,180
6,674

Net long-term revenue bonds

$277,061

$367,506

16

JVn tfis to Financial St atpm.ents

December 31, 1995 and 1994

Annual sinking fund requirements and debt principal and interest maturities for all future years are as follows (amounts in thousands):

City Bonds

Revenue Bonds

Totals

Principal

Interest

Principal

Interest

Principal

Interest

1996

« 65

$15

$ 91,080

$ 22,884

$ 91,145

$ 22,899

1997

50

10

6,750

16,592

6,800

16,602

1998

50

7

7,115

16,187

7,165

16,194

1999

50

3

8,815

15,737

8,865

15,740

2000

—

—

9,435

15,192

9,435

15,192

Thereafter

—

—

250,985

154,370

250,985

154,370

Total

$215

$35

$374,180

$240,962

$374,395

$240,997

The 1984 Series A Bonds were issued to refund a series of 1980 System Revenue Bonds. Under the Refunding Trust Agreement, 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 Refunding Trust Agreement and pledged for their benefit thereunder.

The 1985 Series A Bonds were issued to provide funds for projects under the Commission's ongoing capital improvement program
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 payments.

In August 1986, the Commission issued 1986 Series A 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 on the 1986 Bonds were deposited into the 1986 Series A Escrow Account to
provide for the principal payments of the 1985 Series A Bonds and the interest payments on 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 on November 1, 1996. As a result, the outstanding balance of $45,920,000 is classified as current at
December 31, 1995 and will be paid from the 1986 escrow funds.

In December 1988, the Commission issued 1988 Series A Bonds to provide for the defeasance of a portion of the 1984 Series A Bonds
(subsequently paid January 1, 1995), to provide supplemental funding for the Operating Reserve Fund and to pay costs of issuance.
In December 1989, the Commission issued 1989 Series A Bonds to provide funds for projects undertaken as part of the
Commission's ongoing capital improvement program.

In June 1991, the Commission issued 1991 Series A Bonds to provide funds for projects, to provide funds for the Senior Debt Reserve
Fund and to pay the cost of issuance of the 1991 Series A Bonds. The Commission maintains an insurance policy with Financial
Guaranty Insurance Company to guarantee payment of principal and interest on the 1991 Series A Bonds maturing November 1, 1997
through November 1, 2021.

In September 1992, the Commission issued 1992 Series A Bonds to provide funds for the advanced refunding of $23,930,000 of the
Commission's 1986 Series A Bonds and the establishment of an escrow account to provide for future principal and interest payments
on $37,640,000 of the same 1986 series bonds as part of a cross-over refunding transaction. Under the 1992 Refunding Trust
Agreement, the Commission deposited sufficient funds with the Bond Trustee to pay when due the principal and interest on the
advanced refunded bonds until the first call date, November 1, 1996. As a result, this transaction qualifies as an in-substance defea-
sance and the advanced refunded bonds of $23,930,000 are no longer considered outstanding under the Commission's Resolution.
The bonds refunded through the cross-over transaction are not considered defeased; accordingly the outstanding debt of
$37,640,000 and related escrow account are included in the accompanying financial statements. The outstanding debt is classified as
current at December 31, 1995 and will be paid from the 1992 cross-over funds.

In March 1993, the Commission issued $100,505,000 of General Revenue Bonds, 1993 Series A to advance refund a portion of the
1984 Series A (Subordinated Series), a portion of the 1989 Series A (Senior Series) and a portion of the 1991 Series A (Senior Series)
Bonds. Under the 1993 Refunding Trust Agreement, the Commission deposited sufficient funds with the Bond Trustee to pay the
principal and interest on the advanced refunded bonds when due. As a result, this transaction qualifies as an in-substance defeasance
and the advanced refunded bonds of $88,040,000 are no longer considered outstanding under the Commission's Resolution. The
Commission advance refunded the bonds to reduce its total debt service payments over the next 26 years by almost $7,426,000 and
to obtain an economic gain of $6,256,720.

In October 1994, the Commission issued $40,000,000 of General Revenue Bonds, 1994 Series A to provide funds for projects under-
taken as part of the Commission's ongoing capital improvement program. The Commission maintains a letter of credit to guarantee
the principal and interest payments on these bonds maturing November 1, 1996 through 2024, in the event that the Commission is
unable to make such payments.

In the aggregate $162,990,000 remains outstanding at December 31, 1995 on the bond 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 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 disbursed into 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 covenants 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.

The Commission has options for early redemption of revenue bonds starting in 1996 at prices ranging from 100% to 103% of face
value. In addition, in compliance with the Resolution, the Commission has established both trusteed and nontrusteed funds with
investments, principally short-term securities, which are restricted for payment of specified liabilities, capital projects or other costs
of operations. The components of the trusteed and nontrusteed investments at December 31, 1995 and 1994 are as follows:

17

Nates to Financial Stat p. merits

December 31, 1995 and 1994

Trusteed:

U.S. Treasury notes

Other government obligations

Money market and cash investments

Open-ended mutual funds

Commercial paper

Repurchase agreements

96,512,359
29,585,647
29,458,282

24,844,277
36,151,225
47,917,612

$ 83,874,713
30,275,214
33,719,591
11,683,829
37,230,321
50,323,709

264,469,402

247,107,377

Nontrusteed:

U.S. "D-easury notes
Money market and cash investments
Open-ended mutual funds
Commercial paper

3,488,633

30,762,366

8,343,211

3,516,625

6,631,692
18,439,640
11,063,653

Repurchase agreements

21,380,615

36,496,136

67,491,450

72,631,121

Total

$331,960,852

$319,738,498

Long-Term Notes Payable:

During 1995 the Commission executed loan agreements with the Massachusetts Water Pollution Abatement Trust ("MWPAT") to
finance and refmance a portion of the Commission's water pollution abatement projects. As of December 31, 1995, an aggregate
amount of $15,340,208 was received by the Commission. The Commission is eligible to receive the remaining $3,593,641 once
the projects are completed. For purposes of offsetting principal and interest payments, an amount aggregating approximately
$16,716,000 consisting of contract assistance payments from the Commonwealth of Massachusetts and other interest subsidies from
MWPAT will be recognized as capital grants in aid of construction over the term of the loan. The long-term portion of the loan agree-
ments with MWPAT is $14,707,261 at December 31, 1995. The scheduled loan payments for all MWPAT obligations and related subsi-
dies are shown below (amounts in thousands):

Scheduled Loan Repayments

Loan Subsidy Amounts

Net Loan Repayments

Contract

Equity

Assistance

Principal

Interest

Total

Earnings

Payments

Total

Principal

Interest

Total

1996

$ 633

$ 992

$ 1,625

$ 501

$ 599

$ 1,100

$ 333

$ 192

$ 525

1997

656

967

1,623

487

597

1,084

351

188

539

1998

684

938

1,622

466

599

1,065

373

184

557

1999

715

907

1,622

450

597

1,047

397

178

575

2000

749

873

1,622

430

599

1,029

422

171

593

Thereafter

15,498

6,904

22,402

3,307

8,084

11,391

9,620

1,391

11,011

Total

$18,935

$11,581

$30,516

$5,641

$11,075

$16,716

$11,496

$2,304

$13,800

The Commission entered into various interest-free loan agreements with the Massachusetts Water Resource Authority (the
'Authority") during fiscal 1995 and 1994. Under these agreements, the Commission received $2,110,501 and $1,488,236 in
1995 and 1994, respectively, to be repaid in five equal annual installments as part of the Massachusetts Water Resource Authority
Infiltration/Inflow Local Financial Assistance program. The long-term portion of these loans at December 31, 1995 is $3,395,808.
This program is designed to assist service area communities with sewer system rehabilitation.

5. Massachusetts Water Resources Authority

The Authority provides 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 are due to the Authority in four equal installments in September, November, March and May. Interest is not charged on
the outstanding balance. Amounts included in the Statements of Operation for assessments by the Authority for 1995 and 1994 are
as follows:

Assessments allocated on:
Water usage
Wastewater usage

$28,097,916
70,552,506

$28,247,069
71,342,213

Total

$98,650,422

$99,589,282

During both 1995 and 1994, over 74% 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 74% in 1995 and is continuing to take steps to
improve the amount of billable water, including replacement of old and defective meters and implementation of a comprehensive
leak detection and repair program.

18

Notes to Pin an rial Statements

December 31, 1995 and 1994

6. Transactions with the City of Boston

The Commission's ongoing program to meter City of Boston facilities has resulted in billings to nine City departments based on
actual consumption of approximately $2,771,000 and 13,002,000 in 1995 and 1994, respectively

The City provides services to the Commission, including paving and facilities rental. Operating costs billed to the Commission by the
City were approximately $1,081,000 and $1,760,000 during 1995 and 1994, respectively Capital costs billed by the City were approxi-
mately $4,149,845 and $3,445,000 during 1995 and 1994, respectively

The Commission has an agreement with the City that allows the Commission's water and sewer bills that have remained unpaid for
more than two years to be added as liens on the City's property tax bills. Under this agreement, the City provides collection services
on these bills for an administrative fee. In 1995, approximately $7.0 million of billings were included on property tax bills and approxi-
mately $1.6 million of this amount was collected and remitted to the Commission. During the last quarter of 1995, the Commission
implemented its own tax lien program that will be fully operational for all of fiscal 1996.

7. Retirement Benefits

The Commission provides retirement benefits to substantially all of its employees which are funded by a pension trust fund (the
"Trust Fund"), and the State-Boston Retirement System (the "SBRS"), a cost-sharing retirement plan. The Commission does not pro-
vide any other significant postemployment benefits.

A dispute concerning the Commission's past and future obligations to all Commission employees covered by the SBRS was settled in
1986, resulting in a payment of $19,100,000 to the SBRS. This payment was funded primarily through 1985 and 1986 bond proceeds
and is recorded as a deferred charge that will be recovered through future rates. As part of the settlement with the SBRS, the
Commission annually reimburses the City for the Commission's share of pension benefits paid to Commission employees. The
Commission's share is based upon the proportion of each employee's total years of creditable service, level of compensation and
group classification. Employees become 100% vested after 10 years of creditable service as defined by Chapter 32 of the
Massachusetts General Laws ("MGL").

Description of the SBRS Plan and the Trust Fund

The SBRS is a cost-sharing multi-employer public employee retirement system established under Chapter 32 of the MGL and is a
member of the Massachusetts Contributory Retirement System.

The SBRS provides for retirement allowance benefits up to a maximum of 80% of a member's highest consecutive three-year average
annual rate of regular compensation. Benefit payments are based upon a member's age, length of creditable service, level of compen-
sation and group classification.

Members become vested after ten years of creditable service. A superannuation retirement allowance may be received upon the com-
pletion of twenty years of service or upon reaching the age of 55 with ten years of service. Normal retirement for employees occurs at
age 65.

A retirement allowance has two parts: an annuity and a pension. A member's accumulated total deductions and a portion of the
interest they generate constitute the annuity The differential between the total retirement benefit and the annuity is the pension.
The average retirement benefit is approximately 80-85% pension and 15-20% annuity

Members who become permanently and totally disabled from further duty may be eligible to receive a disability retirement
allowance. The amount of benefits to be received in such cases is dependent upon several factors including whether or not the dis-
ability is work-related, the member's age, years of creditable service, level of compensation, veteran's status and group classification.
Employees who resign and are not eligible to receive a retirement allowance or who are under the age of 55 are entided to request a
refijnd of their accumulated total deductions. In addition, depending upon the number of years of creditable service, such employ-
ees are entided to receive either zero (0%) percent, fifty (50%) percent, or one hundred (100%) percent of the regular interest which
has accrued upon those deductions.

Survivor benefits are extended to eligible beneficiaries of deceased members.

Administrative expenses are appropriated from governmental entities whose employees are members of the SBRS.
The Commission and its employees are obligated to contribute to the plan under authority of the Pension Reform Law adopted in 1988.
The SBRS plan is funded by the assets held in the Trust Fund as well as assets earmarked for the Commission held as part of the
SBRS. As required by the Commission's Enabling Act, employee pension contributions are transferred to the SBRS and are either
returned to employees upon termination or, for vested employees, are used to defray a portion of the total retirement benefit. The
Commission's policy is to make additional employer contributions to the Trust Fund based upon the actuarially determined cost of
future benefits, net of employee contributions.

The Commission's Trust Fund

(a) Valuation of Investments

Trust Fund assets at December 31, 1995 and 1994 are as follows:

Assets (at fair market value):
Common stock
Preferred stock
Cash

Mutual funds
Fixed income

Total

$18,625,462

18,950

2,313,722

14,290,407

$35,248,541

$16,420,065

336,500

398,065

10,113,713

$27,268,343

19

Notes to Financial Statements

December 31, 1995 and 1994

The investment portfolio is regulated by the MGL, Chapter 32, Section 23. The investments are managed by independent investment
advisors. Fleet Bank of MA, N.A., is the custodian of the portfolio.

(b) Funding Status and Progress

The Commission's funding policy has been to provide for quarterly employer contributions to the Tl-ust Fund based upon an actuari-
ally determined rate using the aggregate actuarial cost method. The Commission's contributions totalled approximately $780,000 in
1995, 1760,000 in 1994 and 1781,000 in 1993. As a percentage of the covered payroll this amounts to 4.0% in 1995, 1994 and 1993.
The Commission's covered payroll was approximately $19,503,000, $18,855,000 and $19,327,000 in 1995, 1994 and 1993, respectively
Total payroll was approximately $21,014,000, $20,255,000 and $21,051,000 in 1995, 1994 and 1993, respectively

Net assets in excess of the pension benefit obligation ("PBO") applicable to the Trust Fund, as of January 1 (the latest data available),
are determined as follows:

1995

Net assets available for benefits

$27,268,343

1994

$27,489,689

Pension benefit obligation:

Retirees and beneficiaries currently receiving benefits and terminated
employees entitled to benefits but not yet receiving them

Current employees:

Employer-financed vested
Employer-financed nonvested

5,543,304

11,390,995
663,558

4,791,898

13,534,959
1,933,861

Total pension benefit obligation

17,597,857

20,260,718

Net assets in excess of pension benefit obligation

$ 9,670,486

$ 7,228,971

In compliance with Statement No. 5 of the Governmental Accounting Standards Board, the January 1, 1995 PBO was computed
through an actuarial valuation. The significant assumptions used in the calculation of the PBOs as of January 1, 1995 and 1994 include
annually compounded rates of return of 7.5%, on present and future assets and projected salary increases, due to inflation, of 5% per
year, compounded annually The January 1, 1995 actuarial valuation was based on 145 retired and inactive employees and 559 active
employees. These assumptions are the same as those used to determine actuarial contribution requirements.

(c) Historical Trend Information

Trend information gives an indication of the progress made in accumulating sufficient assets to pay benefits when due. Net assets
available for benefits as a percentage"of the PBO are 155% for 1995 and 136% for 1994 and 1993. The excess assets as a percentage of
covered payroll are 50%, 38% and 33% for 1995, 1994 and 1993, respectively Ten-year historical trend information for the Trust Fund
is included in the statistical section of the Commission's comprehensive annual financial report.

SBRS

(a) Valuation of Investments

The investment portfolio is regulated by the MGL, Chapter 32, Section 23. The investments are presented in the financial statements
at fair market value. The investments are managed by independent investment advisors. State Street Bank and Trust Company is the
custodian of the portfolio.

(b) Funding Status and Progress

The amount shown below as the PBO for SBRS is a standardized disclosure measure of the present value of pension benefits,
adjusted for the effects of projected salary increases estimated to be payable in the future as a result of employee service to date. The
measure is intended to help users assess the funding status of the system on a going-concern basis, assess progress made in accumu-
lating sufficient assets to pay benefits when due, and make comparisons among systems. Employee contributions are actuarially
determined as defined under MGL, Chapter 32. Total employee contributions, based on the actuarially determined amounts, were
approximately $1,449,000, $1,388,000 and $1,412,000 or 7.4%, 7.4% and 7.3% of covered payroll in 1995, 1994 and 1993, respectively
The Commission's covered payroll and total payroll is disclosed under the Ti^ust Fund.

The PBO was computed as part of an actuarial valuation performed as of January 1, 1994. Significant actuarial assumptions used in the
valuation include (a) the life expectancy of participants using the 1971 Group Annuity Mortality Table, set back six years for females,
(b) projected salary increases of 6% both retroactively and prospectively a year, attributed to inflation and seniority/merit, (c) a rate of
return on the investments of present and future assets of 10% a year and (d) retirement age assumptions of 64, 62 and 60 for various
groups.

Total unfijnded PBO of SBRS and an estimate of the Commission's share as provided by SBRS at June 30, 1994 (die latest data
available) are as follows (in thousands):

20

Notes to Financial Statements

December 31, 1995 and 1994

Commission

Retirees and beneficiaries currently receiving benefits and
terminated employees not yet receiving benefits

Current employees:

Accumulated employee contributions including investment earnings

Employer-financed vested

Employer-financed nonvested

Cost-of-living adjustments ("COLA") reimbursable by the

$1,056,177

$13,600

653,118

12,668

328,105

6,762

166,055

3,201

Commonwealth of Massachusetts

270,897

4,043

Total pension benefit obligation
Net assets available for benefits, at market

2,474,352
1,450,059

40,274
26,103

Unftjnded pension benefit obligation
Effect of COLA

1,024,293
270,897

14,171
4,043

Unfunded pension benefit obligation, net of COLA

$ 753,396

$10,128

(c) Contribution Requirements and Contributions Made

Effective July 1, 1991, the SBRS adopted a funding schedule, approved by the Public Employee Retirement Administration, equal to
the following amounts calculated in accordance with the entry age normal actuarial cost method:

1. Normal cost, or the cost of projected pension benefits attributed to the fiscal year.

2. 12-year amortization, in an amount increasing by no more than 4.5% per year, of the unfunded actuarial liability resulting from
retiree liabilities frozen at July 1, 1991 (8 years remaining).

3. 29-year amortization, in an amount increasing by no more than 4.5% per year, of the unfunded actuarial liability resulting firom
active liabilities (25 years remaining).

4. 15-year amortization of the unfunded actuarial liability resulting from actuarial gains and losses (11 years remaining).

5. 15-year amortization of actuarial (gain) or loss as of July 1, 1992 (12 years remaining).

6. 15-year amortization of actuarial (gain) or loss as of July 1, 1993 (13 years remaining).

The Commission's contribution to SBRS represents less than 1% of the total contribution.

(d) Special Termination Benefits

During 1994, certain Commission employees participated in an early retirement incentive program. As a result, the Commission's
annual contribution to the SBRS will increase approximately $70,000 per year.

(e) Historical Trend Information

Ten-year historical trend information designed to provide information about SBRS and its progress-made in accumulating sufficient
assets to pay benefits when due is presented in the SBRS financial statements. For the three years ended June 30, 1994, 1993 and
1992, available assets were sufficient to fund 59%, 58% and 54% of the PBO, respectively Unfunded PBO represented 133%, 138% and
154% of the annual payroll for employees covered by the SBRS for 1994, 1993 and 1992, respectively

8. Deposits and Investments

The Commission's General Revenue Bond Resolution, adopted December 6, 1984, as amended, places certain limitations on the
nature of deposits and investments available to the Commission. Demand deposits and term deposits without collateralization can
only be made with financial institutions meeting certain criteria. Certificates of deposit must be fully collateralized and issued by
FDIC-insured banks. Investments can also be made in securities issued by or unconditionally guaranteed by the U.S. Government or
its Agencies; public agencies, municipalities or state obligations carrying the highest bond rating; commercial paper rated A-1, P-1;
A-Rated money market funds; fully collateralized investment contracts and certain futures contracts. In addition, the Commission's
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 Commission's deposits that are (Category 1) fully insured or collateralized with securities held by the Commission
or its agent in the Commission's name (Category 2) those deposits that are collateralized with securities held by the pledging finan-
cial institution's trust department or agent in the Commission's name and (Category 3) those deposits that are not collateralized as of
December 31, 1995 follows:

Total

1

Category

2

3

Bank
Balance

Carrying
Amount

Cash

Bank money market deposits

$482,014

—

$ 1,966,172
63,234,869

$ 2,448,186
63,234,869

$ 5,447,550
60,220,648

Total

$482,014

-

$65,201,041

$65,683,055

$65,668,198

Deposits in transit account for the majority of the cash difference between the bank balance and the carrying amount.

(b) Investments

The Commission's investments are categorized according to the level of risk assumed by the Commission. Category 1 includes invest-
ments that are insured, registered or held by the Commission's trustee in the Commission's name. Category 2 includes uninsured

21

N ntp s to Financial Statements

December 31, 1995 and 1994

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:

1

Category

2

3

Carrying
Amount

Estimated
Market
Value

Categorized:

U.S. Government obligations
U.S. Government Agency obligations
Repurchase agreements
Commercial paper

$100,000,992
29,585,647

$ —

69,298,227
39,667,850

-

$100,000,992
29,585,647
69,298,227
39,667,850

1 99,750,512
28,965,387
69,298,227
39,480,000

—

«238,552,716

$237,494,126

Not categorized:

Open-end mutual funds

33,187,488

33,187,488

Total

$129,586,639

$108,966,077

-

$271,740,204

$270,681,614

$ 1,178,963

$ 712,241

1,227,386

238,653

1,254,057

206,273

1,313,798

14,166

1,342,993

—

36,653,679

—

$42,970,876

$1,171,333

9. Lease Commitments

On July 2, 1993, the Commission entered into a new 30-year operating lease for office space in the same building the Commission
had previously occupied. This lease accounts for over 95% of the Commission's future minimum lease commitments. In addition to
the minimum base rent under this lease, the Commission must pay as additional rent, a percentage of operating costs of the leased
building.

The Commission also leases other office space and equipment under various leases expiring through 1996, that have also been
accounted for as operating leases. Leases associated with other office space are expected to be renewed as they expire in the normal
course of business.

Minimum lease commitments under all operating leases with terms in excess of one year at December 31, 1995 are as follows:

Office Otiier

1996
1997
1998
1999
2000
Thereafter

Total
Rent expense under operating leases amounted to $2,036,046 and $1,957,922 in 1995 and 1994, respectively

10. Cornmitments

A major capital improvement program is currently 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 $53 million as
of December 31, 1995. Capital improvements, primarily related to water and wastewater system projects with an emphasis on the
cleanup of the Boston harbor area, are expected to aggregate approximately $77.7 million for 1996 through 1997. Of this amount,
approximately $56.6 million represents extension and improvement projects and $21.1 million represents renewal and replacement
projects. The extension and improvement projects will be 35% funded by federal and state grants and loans and Authority grants
and loans. The remaining amounts will be funded from the Commission's bond proceeds, the sale of surplus property and operating
revenues.

11. Risl( iVIanagement and Other Insurance

The Commission carries self-insured retention limits for claims filed under workers' compensation and general liability and completely
self-insures for all unemployment benefits. The workers' compensation self-insured retention limits are $300,000 (formeriy $250,000)
per claim, $1,868,000 aggregate and are supplemented with $5 million in excess coverage purchased through an outside carrier. For
general liability the Commission's self-insured limits are $1 million per occurrence, $2.5 million aggregate and are subordinate to
$5 million of excess coverage purchased through an outside carrier. Under the sections of the Model Water and Sewer Act, the
Commission's tort liability is capped at $100,000 per claimant.

The Commission maintains other insurance coverage as follows:

Policy Type

Coverage

Health

Vehicles

Property

Public Officials

Fiduciary

Crime

Premium Based

Combined single limit of $1 million

Coverage of $31,647,952; limit of $10 million for loss due to earthquake/flood

Coverage of $3 million (formeriy $5 million); $100,000 self-insurance retention

$2 million coverage

Employee dishonesty coverage of $5 million

22

Notes to Financial Statements

December 31, 1995 and 1994

The Commission participates in tJie City's health benefit plans for which the City asscbbcs monthly premiums to the Commission
based on current enrollments. Insurance claims for all policies have not exceeded coverage by a material amount in the past three
years.

Effective January 1, 1995, the Commission adopted the provisions of Governmental Accounting Standards Board No. 10, which
requires that liabilities for self insured claims be reported if it is probable that a loss has been incurred and the amount can be reason-
ably estimated. The Commission has established a liability based on historical trends of previous years and attorney's and indepen-
dent insurance appraiser's estimates of pending matters and lawsuits in which the Commission is involved. Unemployment claims
paid during 1995 were immaterial.

Changes for the years ended December 31, 1995 and 1994 are as follows:

1995 1994

Beginning balance of reserves $4,059,543 $4,500,378

Payment of claims attributable to events of both current and prior years:

Workers' compensation (327,592) (674,904)

General liability (17,000) (168,972)

Incurred claims 793,381 403,041

Ending balance of reserves $4,508,332 $4,059,543

Incurred claims represent the total of a provision for events of the current fiscal year and any change in the provision for events of
the prior fiscal years.

12. Contingencies

The Commission is involved in ordinary and routine litigation and other matters related to its operations and the establishment of
rates. Management 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 agen-
cies. Such audits could lead to requests for reimbursement to the grantor agency for expenditures disallowed under 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 the
Commission's extensive capital improvement program (see note 10) addresses probable actions that the Commission maybe
required to undertake in connection with this litigation. Additionally, the Commission is likely to bear either directly or through
future assessments of the Authority a substantial portion of the financial costs involved. As of December 31, 1995, the overall cleanup
costs are estimated to be approximately $375 million. However, the portion of the costs that the Commission may be responsible for
cannot been determined.

The Commission has collected a large quantity of catch basin cleanings at one of its pumping station locations. The Commission is
aware of the need to properly dispose of this material and has accounted for the estimated future costs associated with the cleanup
in the financial statements. Additional costs associated with the cleanup may occur but cannot be reasonably estimated at this time.

13. Deferred Compensation

The Commission offers its employees a deferred compensation plan created in accordance with Section 457 of the U.S. Internal
Revenue Code. The plan is administered by Aetna Life Insurance and Annuity Company The plan, available to all employees, permits
them to defer a portion of their current salary to future years. The deferred compensation is not available to the participants until
termination, retirement, death or unforeseeable emergency

In accordance with Section 457 of the Internal Revenue Code, all amounts of compensation deferred under the plan, all property and
rights purchased with such amounts, and all income attributable to such amounts, property or rights are (until they are made avail- _
able to the employee or other beneficiary) solely the property and rights of the Commission (without being restricted to the provi-
sions of benefits under the plan), subject only to the claims of the Commission's general creditors.

Participants' rights created under the plan are equivalent to those of general creditors of the Commission and only in an amount
equal to the fair market value of the deferred account maintained with respect to each participant. Plan assets have been used for no
purpose other than to pay benefits. In addition, the Commission believes that it is unlikely that it will use the assets to satisfy the
claims of general creditors in the future.

The Commission and its agent have no liability for losses under the plan, but do have the duty of care that would be required of any
ordinary prudent investor

The activity of the plan for the fiscal year ended December 3 1 , 1995 , is as follows :

Fund assets (at market value) January 1, 1995 $2,430,175
Increase (decrease) in fund assets:

Deferrals of compensation 272,739

Earnings and adjustments to market value 368,447

Payments, withdrawals and other reductions (20,834)

Fund assets (at market value) December 31, 1995 $3,050,527

23

Supplemental Schedule of

Revenues and Expenses - Rate Basis

Years Ended December 31, 1995 and 1994

Revenues:

Water revenue
Sewer revenue

$ 65,964,976
116,364,869

$ 66,972,690
118,696,310

Adjustments
Discounts
Bad debt

182,329,845

12,763,652

758,288

4,558,448

185,669,000

13,072,142

784,931

4,667,952

Total

18,080,388

18,525,025

Net billed charges

Prior year surplus

Miscellaneous revenues:
Late charge revenue
Investment income
Fire pipe revenue
Other income

Total revenues

164,249,457
10,340,685

1,755,635

11,276,541

2,334,589

3,176,442

193,133,349

167,143,975
13,057,466

2,774,021
7,464,039
2,197,270
3,509,789

196,146,560

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

20,971,994

911,882

3,058,562

1,943,289

7,437,583

393,502

1,272,585

2,036,046

751,079

412,983

703,543

251,289

947,607

20,542,866

903,217

3,080,549

1,972,179

8,705,947

454,011

1,611,556

1,957,922

712,756

517,024

118,432

295,804

832,436

Total direct operating expenses

41,091,944

41,704,699

Nonoperating expenses

IvTWRA assessment
Capital improvements
Principal payments
Interest expense
Deposits to reserve funds
SDWA assessment
Miscellaneous

Total nonoperating expenses

98,650,422

10,010,555

4,125,000

15,740,199

14,372,282

280,511

103,834

143,282,803

99,589,282
8,985,359
4,875,000
16,643,693
13,718,866
288,976

144,101,176

Total current expenses

184,374,747

185,805,875

Current year rate surplus

$ 8,758,602

$ 10,340,685

This supplemental schedule presents the Commission's revenues and expenses on the basis that is presented in the Commission's
budget and rate-setting documents.

24

The Commission uses iiigli tech vactor trucics to clean its sewers. A hose, inserted
into a sewer, shoots a stream of water that loosens any obstructions or accumulated
sediment blocking a pipe. The loosened material is then removed by a vacuum
attached to the vactor.

This report was produced by the Executive Director's Office of the Boston Water and Sewer Commission with
communication assistance from Austin & Associates.

Design and Print Production:
Photography:

Champagne/Lafayette Communications Inc.
Harry R. Happeny

®

This annual report was printed on recycled paper.

Sewer Commissio

425 Summer Street

Boston, MA 02210

61 7-330-9400