Annual report

GovDoc i 3 9999 06588 172 2

SI

CONTINU

:limifi#M^

'^&Mmmi£'

Boston Water and Sewer Commission

^Ae

Wiym/mAAMAyyi

Aem/fo/O^' Off eax^eMemx^e n<j(A

1 \ \

«^t,

annual J Q Q y report

^'^°^™^ 0a;ecuM^J€^ z/ji/^^edo^

he year 1999 concluded a
successful era for the Boston
Water and Sewer Commission.
The Commission's heritage of
excellence has developed and
progressed over the years and is
based on a long and proud his-
tory. Boston's water supply
dates back to 1 630 when
Reverend William
Blackstone, in search for
water, settled in Boston
on what is now known
as Beacon Hill.
Boston's first water-
works was estab-
lished in 1652, sup-
plying 208 families
from a 12-foot-deep
cistern fed by wood-
en pipes from local
wells and springs. As
Boston's population
grew, so did the need for
a larger water supply. Over
the years, engineers and
planners searched for the best,
most efficient means of supply-
ing the expanding city with a
potable water supply and
removing its sewerage, all while
protecting the environment.
The Commission continues
that legacy today by providing
advanced systems, state-of-
the-art technology and efficient
programs.

The City of Boston's early water
and wastewater maps consisted of
hand-drawn plans on linen fabric.
The Commission is fortunate to
have these "linens" in its posses-
sion. Today, a new computer-
based Geographical Information
System (CIS) is being developed,
allowing the Commission to
maintain records of changes
throughout the city as well as an
up-to-date mapping system.

When the first waterworks was
established, water meters were
not in place. Instead, families and
businesses would pay a standard

charge. Today, all homes and
businesses are equipped with
a water meter. For the Commis-
sion's largest water users, a
sophisticated "Central Meter

From left to right: Dennis DiMarzio, Chair, Board
of Commissioners; Cathleen Douglas Stone,
Commissioner; Vincent G. Mannering, Exec-
utive Director; and Muhammad Ali-Salaam,
Commissioner (Mr. Ali-Salaam is resting his
hand on a segment of 200-year-old wooden
water pipe).

Reading" (CMR Max®) technol-
ogy is offered. This technology
is implemented via inbound
telephone signals where actual
usage is called in to the Com-
mission three times a month.
In addition to this technology,
the Commission is developing
a five-year action plan to imple-
ment its most recent meter reading
project, the "Fixed Network Radio
Frequency Meter Reading" (RF
AMR). This technology works via
radio frequency and, once imple-
mented, will call in readings to
the Commission four times a
day, improving meter reading
efficiency and customer service.

Since the first water mains were
constructed, maintaining an
efficient system free of leaks has
always been a challenge. When
the Commission was established
in 1978, it began issuing an
annual Capital Improvement
Program (CiP) for its systems.
One goal of the CIP was to
assure that by the year 2010,
no water main in the city
would be over 1 00 years
old without being
replaced or rehabilitat-
-^ ed. In addition, the
3t^ Commission's leak
im detection efforts have
contributed to sub-
stantial water savings
for the city; 1999
marked an all-time
low for the city's
unaccounted for water.

The Commission is now
in the process of consolidating
its three locations into one new
facility. This move will guarantee
a more efficient and cost-saving
approach to doing business,
maintaining the Commission's
pledge of high-quality service to
its customers.

These efforts, together with
sound financial management
practices, have enabled the
Commission to stabilize rates
since 1993. The Commission is
proud of the historic legacy of
Boston's water and wastewater
systems and is committed to
continue the 300-year tradition
of excellence into the new
millennium.

Vincent G. Mannering

EXECUTIVE DIRECTOR

a registered trademark of Schlumberger.

STANDING THE ^fe^OF ft/m/e

FOR OVER

^IS'-^S^

\:>-

The Commission v
issues an annual
Capital Improvement ^■^

Program (CIP) to ensure
proper system maintenance
and upkeep over the years. During 1999,
over 18 miles of water and wastewater
ere replaced or rehabilitated.

annual 7 y y ^/ report

ontinuing its heritage of
excellence was the Commission's
goal for 1999. The City of
Bostons water and sewer systems
have stood the test of time over
three centuries. The first water
systems were constructed of
wood while the sewers were
made from stone and slate.
Today, the water system is con-
structed of ductile iron and the
sewers of concrete and plastic.

STRENGTHENING THE SYSTEM

During 1 999, the Commission
replaced or rehabilitated over
18 miles of water and waste-
water pipe. The annual Capital
Improvement Program (CIP),
initiated in 1 978 and also man-
dated by the General Bond
Resolution, allows the schedul-
ing of long-term improvements,
minimizing the need for repairs
and preventive maintenance. In
addition to replacing and reha-
bilitating the existing systems,
the Commission is also working
with other agencies to relocate
and redesign sections of the
infrastructure. Major construc-
tion projects in Boston, such as
the Central Artery Project (also
known as the "Big Dig") and
the new Convention Center,
have resulted in many of the
Commissions existing pipes
being replaced or relocated. By
the end of the Central Artery
Project in 2005, almost 10
miles of water and sewer pipe
will be replaced. The new
Convention Center in South
Boston, scheduled to begin
construction in spring 2000,
calls for relocating water mains

and sewers. All of this work and
the majority of associated costs
are borne by the proponents of
the projects.

The Commissions leak detec-
tion program fiirther strength-
ens the system. In 1999, leaks
totaling almost 5 million gal-
lons per day (mgd) were located
and repaired. Since 1 977, the
Commission's leak detection
efforts, combined with other
system improvements, have
resulted in unaccounted for
water dropping from almost 70
mgd to less than 20 mgd. This
represents a 70% decrease in
system leakage.

CLEARING THE WAY

Maintaining a system that
delivers clean, potable water is
the Commission's highest prior-
ity. In 1997, the Commission
instituted a water main flushing
program. Routine flushing of
the water distribution lines
keeps them in good working
order and ensures high quality
drinking water. In 1999, 145
miles of mains were flushed.
In addition, as part of the pro-
gram, 2,066 valves and 1,189
hydrants were operated and
checked. Since its inception,
the program has been extremely
successfiil and has become a
model program for other water
utilities. As a result, Commission
staff have been invited to con-
duct a seminar on the Water
Main Flushing Program for
other water suppliers across
New England.

2-3

""V"-;.^^^

n the early 1900s, the
initial water and sewer maps for
Boston's neighborhoods were
created. Hand-drawn on linen-
backed paper, they show the
systems as well as individual
property owners at the time.
From these drawings, modern
technology has its roots. The
sophisticated Geographical
Information System (GIS) is
the outgrowth of a more sim-
pler time. Maintaining reason-
able rates also requires proper
financial "mapping." In 1999,
the Commission was proud to
announce that there would
be no water and sewer rate
increase. That marked the sixth
consecutive year Commission
customers have not had a rate
increase in their water and
sewer bills.

MAPPING THE WAY

When fiJly implemented, the
Commission's new GIS will
allow all Commission employ-
ees to view the water and sewer
system from their personal
computers. GIS will offer a
complete and up-to-date pic-
ture of the system, including
the age and size of pipes as well
as work currently in progress.
Others will also benefit from
this powerful mapping tool.
The application can efficiently
handle large number of data
requests from our customers,
outside agencies, contractors
and constdtants. Recently, the
GIS application "ARC View"
has been enhanced to include a
record plan image retrieval tool
feature. By clicking on a water
and sewer line, this feature
allows the viewer to understand
any repair or replacement of a
particular pipe. This new tech-
nology is a large step from the

original hand-drafted linen
maps employed years ago,
which are still used today for
historical reference.

MANAGING FINANCES

Throughout 1999, the
Commission aggressively
utilized all available fianding
resources such as the
Massachusetts Pollution
Abatement Trust and the
Commonwealth Sewer Rate
Relief Program for its water and
sewer infrastructure projects.
This knowledge and under-
standing of funding resources
resulted in subsidized loans and
grants that greatly reduced the
financial impact to ratepayers
and assisted the Commission in
maintaining stable water and
sewer rates for the past six years.
The addition of Federal Agency
Securities to the Commission's
list of permitted investments
enhanced the Commission's
flexibility in financial markets.
With approval from the
Commission's bondholders
in the form of a "Vote of
Confidence," the Commission
has been able to further diversify
its investment portfolio and
enhance the overall return on
investment by approximately
$1.2 million.

In an effort to track these and
other financial programs, the
Commission has recently
implemented or upgraded a
number of PeopleSoft Financial
Systems such as the Public Sec-
tor General Ledger, Accounts
Payable, Payroll, Purchasing,
Health and Safety, and Asset
Management Modules. These
upgrades in financial programs
emphasize the Commission's
philosophy of improving its
internal and external infra-
structure components.

The Commission operates
eight pumping stations
throughout the city that
control and maintain
the flow of the sewer
and storm drainage
systems.

PROPER

miniiM

LY CONNECTE

annual J Q Q Q report

'eginning in 1652, the
first water charges were record-
ed for famiUes in the City of
Boston. The cost was "12 pence
a year." Each family or business
paid the same amount for water
regardless of usage. Since that
time, the methodology for dis-
tributing water charges has
undergone dramatic changes.
When the Commission was
established, the water metering
system was in need of attention.
Over the years, the Commission
has implemented the latest in
meter reading technology, all
the while upholding fair and
reasonable rates. Proper and fair
metering has ensured the
Commission the source of
funds required to sustain an
efficient system. Water quality
is directly connected to proper
maintenance and performance
of a system. The Commission
has a preventive maintenance
schedule in place to assure a
clean, potable water supply
to our customers.

MEASURING EACH DROP

For the Commission's largest
customers, the CMR Max®
meter reading technology offers
bills based on actual water
usage every month versus an
estimated read every other
month. Transmitted through
telephone lines, the CMR
Max® is an efficient way to
ensure the Commission and its
customers that water usage is
billed accurately, every month.
Approximately 2,500 accounts,
representing 50% of Commis-
sion revenues, are equipped
with this system.

The Commission has also
completed a pilot project for
the new "Fixed Network Radio

Frequency Meter Reading," or
RF AMR technology. This
technology allows four readings
per day from meters equipped
with a radio transmitter. The
radio transmitters send a signal
to data collectors strategically
placed throughout the city.
When implemented, this tech-
nology will allow for more flexi-
ble billing to customers as well
as the ability to closely monitor
water usage at a property. The
pilot program involved 1 ,450
meters and 17 data collectors
and has proven to be highly
successful. The Commission
has decided to develop a five-
year action plan to implement
this technology system-wide.

PROTECTING THE ENVIRONMENT

The Sewer Separation Projects
in Dorchester, East Boston and
Stony Brook (Jamaica Plain) are
all in various stages of design or
construction. These separation
projects take the current "com-
bined" sewer system — ^which
handles sanitary sewage and
storm water in one pipe — and
separates it into two systems:
one for sanitary flow and one
for storm water. At the end of
the projects, sanitary sewers
will carry sewage to the waste-
water treatment plant and
storm sewers will discharge into
receiving waters. In addition to
the separation projects, the
Commission has an aggressive
program to identify illegal
sanitary sewer connections to
the storm drains. Over 50
illegal connections were
corrected during 1999. These
and other programs have
helped reduce levels of pollu-
tion at Boston Harbor beaches
so that they are cleaner and
more inviting to the public.

6-7

^H^H'

i

'WjHHhI

KklEISISlM-

1

1

^hh

W:

^T^^H^^H

1

fl^^l

Hfetw^i

J^H

\

f

r ' ^

W'^

^

r\

liift^J^

--.-1^1

5aii^i

THEFOUNDATIONi

1:

H^H

TlWH^

-cmt

ITEM

' CJi^e/w^t

THE COMMISSIONERS
BOSTON WATER AND SEWER COMMISSION:

e have audited the accompanying balance sheets of the Boston Water and SeWer Commission (the
"Commission") as of December 31, 1999 and 1998, and the related statements of operations and Commission equity
and cash flows for the years then ended. These financial statements are the responsibility of the Commission's manage-
ment. 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 mis-
statement. 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 manage-
ment, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable
basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of
the Commission at December 31, 1999 and 1998, 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
accompanying 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 statements. Such information has. been subjected to the auditing
procedures applied in our audits of the basic financial statements and, in our ppinion, is fairly sfated in all material
respects in relation to the basic financial statements taken as a whole. - .

During 1998, the Commission adopted the provisions of Governmental Accounting Standards Board Statement
No. 3 1 , Accounting and Financial Reporting for Certain Investments and for External Investments Pook.

K^t^C^LCP

April 11,2000

^o/amA^e QJnee^

DECEMBER 31, 1999 AND 1998

ASSETS: ,

Current assets;

Cash and cash equivalents (note 8)
Accounts receivable, net:

Customers, less allowances of $6,035,718 in 1999 and

, in 1998 (note 1)
Unbilled revenues, less allowances of $1,702,361 in 1999
and in 1998
" Construction grants receivable
Bond proceeds receivable (note 4)
Prepaid expenses

$ 6,766,335

11,262,685

7,184,653
1,261,827

334,709

$ 5,082,191

14,526,071

8,089,906

1,278,612

130,352,759

278,772

Total current assets

26,810,209

159,608,311

Restricted investments (notes 4 and 8)
Property, plant and equipment, net (note 3)
Deferred charges (note 2)
Bond issue costs, net

358,911,936

490,121,279

30,971,142

2,767,077

241,151,737

455,100,689

25,726,726

3,059,252

Total assets

$909,581,643

$884,646,715

LIABILITIES AND COMMISSION EQUITY:

Current liabilities: _ -

Payable frorri current assets:
Accounts payable
Other accrued liabilities
Current portion of revenue bonds (note 4)

13,793,084

10,801,474

8,180,000

7,159,313

10,120,896

8,440,000

Total current liabilities

32,774,558

25,720,209

Long-term debt, net (note 4)
Long-term notes payable (note 4)
Other long-term liabilities
Deferred credits and reserves (note 2)

See accompanying notes to financial statements.

337,297,204
34,918,311
50,182,375

310,605,363

345,161,475
35,937,958
58,426,830

288,558,846

Total liabilities

765,777,811

753,805,318

Commission equity:
Contributed capital

143,803,832

130,841,397

Commitments and contingencies (notes 9, 10, 11 and 12)
Total liabilities and commission equity

$909,581,643 .

$884,646,715

annualy O (j (J report

&lcd€/)n€/)t^ oJf &^h€^}wUi<yn6' cc/ywl Jp<ym^mMi<yn' <^a€wtu

YEARS ENDED DECEMBER 31 , 1 999 AND 1 998

OPERATING REVENUES:

Water and sewer usage

Fire pipe

Other

$180,914,114
2,501,159
9,554,406

fl84,371,106
2,412,803
6,305,287

Total operating revenues

192,969,679

193,089,196

OPERATING EXPENSES:

Operations

Maintenance

MWRA assessment (note 5)

Depreciation and amortization

45,181,295

5,695,766

108,826,758

11,289,742

45,654,617

5,113,903

105,461,022

13,935,085

Total operating expenses

170,993,561

170,164,627

Excess operating revenues

21,976,118

22,924,569

NONOPERATING REVENUE (EXPENSE)

Bond redemption costs (note 4)
Investment income
Interest expense

Excess revenue before transfer requirements
Excess revenues used to fund reserves and other deferrals (note 2)
Accumulated revenues used to ofifset future rates — beginning
of year

17,934,599

(19,327,142)

15,414,517

(17,079,887)

8,788,235

(5,558,203)
19,795,336
(17,096,519)

Total nonoperating expense

(1,392,543)

• (2,859,386)

Excess revenues before extraordinary loss on land taking,
depreciation add-back, and transfer requirements
Extraordinary loss on land taking (note 3)

20,583,575
(7,598,710)

20,065,183

"Excess revenues before depreciation add-back

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

12,984,865
2,429,652

20,065,183
2,307,958

22,373,141
(23,207,892)

9,622,986

Accumulated revenues used to offset future rates — end of year

$ 7,122,865

$ 8,788,235

Contributed capital, December 31, 1998
Contributions in aid of construction
Depreciation of related property

$130,841,397 $126,650,508

15,392,087 6,498,847

(2,429,652) (2,307,958)

Contributed capital, December 31, 1999

$143,803,832

$130,841,397

See accompanying notes to financial statements.

■W- H-

YEARS ENDED DECEMBER 31, 1999 AND 1998

CASH FLOWS FROM OPERATING ACTIVITIES:

Excess operating revenues

Adjustments to reconcile operating income to net cash:
Excess revenues useci to fiind 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 and reserves

Deferred charges

Other long-term liabilities

$ 21,976,118

$ 22,924,569

(15,414,517)

(22,373,141)

11,289,742

13,935,085

3,263,386

6,241,151

905,253

772,127

16,785

59,244

(55,937)

(8,838)

6,633,771

1,398,246

680,576

1,743,500

22,046,517

22,373,140

(6,632,000)

—

(8,244,455)

(6,304,357)

Net cash provided by operating activities 36,465,239 40,760,726

CASH FLOWS FROM INVESTING ACTIVITIES:

(Purchase) sale of investments, net (117,760,199) 34,804,629

Investment income ' 22,259,105 18,470,233

Net cash (used for) provided by investing activities (95,501,094) 53,274,862

CASH FLOWS FROM CAPITAL AND -
RELATED FINANCING ACTIVITIES:

Additions to property, plant and equipment (54,897,640) (33,624,421)

(Payment on) proceeds from notes payable (1,019,647) 1,670,518

Payment on bonds (8,780,420) (76,535,000)

Proceeds from bonds 129,352,759 26,082,560

Contributions in aid of construction 15,392,089 6,498,847

Payment of bond interest (19,327,142) (17,096,519)

Net cash provided by (used for) capital and related
financing activities

60,719,999

(93,004,015)

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

1,684,144
5,082,191

- 1,031,573
4,050,618

Cash and cash equivalents at end of year

$ 6,766,335

$ 5,082,191

NONCASH INVESTING AND FINANCING ACTIVITIES:

(Decrease) increase in fair value of investments

$ (4,324,506)

$ 1,325,103

Proceeds of bonds issued in December 1998 and received in
January 1999

$ — '

$130,352,759

See accompanying notes to financial statements.

■ DECEMBER 31, 1999 AND 1998

(1) ORGANIZATION, BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

The Boston Water and Sewer Commission (the "Commission") has the responsibihty 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 "Enabhng Act").

Under the Enabhng Act, the Commission is subjecf to regulation with respect to rates, accounting and other matters,
where applicable, by the Board of Commissioners (the "Board"). The Board is appointed by the City's Mayor subject to
confirination by the City Council. It 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 Statement of
Financial Accounting Standards (SFAS) No. 7 \, Accounting for the Effects of Certain Types of Regulation. SPAS No. 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 and Commission equity are presented on a GAAP basis. A reconciliation between the
revenues and expenses of these two operating statements for the year ended December 31, 1999 is provided below:

AS PRESENTED IN THE STATEMENT OF OPERATIONS:

Operating revenues/expenses
Other revenues/expenses

REVENUES

EXPENSES

$192,969,679

$170,993,561

17,934,599

19,327,142

210,904,278

190,320,703

9,488,235

570,428

—

(7,832,268)

(7,832,268)

—

1,485,153

—

(1,506,304)

(3,400,286)

—

—

10,320,268

8,788,235

—

154,591

. (213,674)

Total
RECLASSIFICATIONS AND DEFERRALS:

Contributions to reserves

Provision for working capital

Revenue adjustments/bad debt expense

Excess bond payments over depreciation and amortization

Interest expense (escrowed funds)

Investment income (escrowed funds)

Capital expenditures

Excess revenue used to offset current rates

Other deferrals

As presented in the Supplemental Schedule

$209,184,978

$202,062,113

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 $7,122,865 and $8,788,235
for the years ended December 31, 1999 and 1998, respectively, to offset rates in the respective subsequent years.

(d) 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 post-billing basis that reduce the amount of total billings. Accordingly, the 1999 ^d 1998 total customer bills
outstanding of $29,318,183 and $32,581,569, respectively, have been reduced by provisions for billing adjustments and
sewer abatements of $9,615,824 and $2,403,956, respectively, in 1999, and $9,615,824 and $2,403,956, respectively, in
1998. These net billing amounts are further reduced by an allowance for uncollectible accounts of $6,035,718 in 1999
and 1998, to arrive at net accounts receivable.

■/^•/J-

DECEMBER 31, 1999 AND 1998 - . '

(b) Investments

Investments, consisting of direct and unconditionally guaranteed short-term obligations of the U.S. Government, repur-
chase agreements and money market fiinds secured by government securities, are stated at fair value.

(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 estimated useful lives of the various classes of assets. Maintenance and repairs are charged to expense as
incurred. Major renewals or betterments are capitalized and depreciated over their estimated useful lives. 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
1999 or 1998 because the difference between interest expense and interest income on unexpended proceeds was not
material.

(d) Compensated Absences

Various employees of the Commission accumulate unused sick time (subject to certain limitations) to be used at a later
date or a percentage paid in cash upon voluntary resignation and/or retirement from the Commission (subject to
Commission policies and/or bargaining agreements). The liability for vacation leave is based on the amount earned but
not used; for sick leave, it is based on a percentage of the amount accumulated at the balance sheet date. The liability for
both amounts is calculated based on the pay or salary rates in effect at the balance sheet date.

(e) Depreciation

The Commission provides for depreciation using the straight-lirie method. Estimated useflil lives used in computing
depreciation are as follows: ' '

Works 100

Meters 10

Hydrants 40

(j) Contributed Capital

Contributions received from governmental agencies, individuals and the City 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 and
Commission equity.

(g) 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 statements of cash flows.

(h) 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.

(i) Proprietary Activity Accounting and Financial Reporting

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

SEWERAGE

YEARS

Works

75

Pumping station

35

BUILDINGJS

40

OTHER

4 to 14

annual / -J J ^J report

QyVo/ed' lo QJf^{}?^(M^A^la/l (3ftwt^em^em^

DECEMBER 31 , 1 999 AND 1 998

(j) Use of Estimates

The preparation of financial statements in conformity with generally accepted accounting principles requires manage-
ment to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.

(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 ,
Statements of Operations and Commission Equity reflected in the balance sheets as deferred charges or deferred credits.
The revenues and expenses that have been removed from the Statements of Operations and Commission Equity and
added to the balance sheets as deferred credits appear in the line "Excess revenues used to fund reserves and other
deferrals" on the Statements of Operations. The components of these amounts are as follows:

1999 1998

Contributions to reserves

Provision for working capital

Provision for capitalized interest

Principal payments on long-term debt

Interest paid from escrow funds

Capital expenditures

Depreciation and amortization

Investment income on project and escrow funds

Bond redemption costs

Loss on land taking

Odier : ■

Total

$ 9,488,235

$18,562,782

(570,428)

(570,428)

(154,593)

(154,593)

12,375,071

10,355,117 ■

(1,506,304)

(1,462,408)

10,320,266

9,913,671

(8,860,087)

(11,627,127)

3,400,286

3,598,558

—

(5,558,203)

(7,598,710)

—

186,151

150,523

$17,079,887

$23,207,892

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

1999

Deferred loss on land taking
Accrued pension expense
Debt extinguishment expense

$ 6,632,000
13,863,392
10,475,750

14,263,215
11,463,511

Total deferred charges

$ 30,971,142

25,726,726

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

Debt service
Capital improvements
Working capital
Self-insurance

DECEMBER 31,

INCREASE

DECEMBER 31.

1998

(DECREASE)

1999

$114,957,602

$ 9,488,235

$124,445,837

135,762,871

14,794,080

150,556,951

26,810,138

(570,428)

26,239,710

2,240,000

—

2,240,000

Reduction of future rates

279,770,611
8,788,235

23,711,887
(1,665,370)

303,482,498
7,122,865

Total deferred credits and reserves

$288,558,846

$22,046,517

$310,605,363

■U--J5-

DECEMBER 31, 1999 AND 1998

(3) PROPERTY, PLANT AND EQUIPMENT

The cost of water and sewerage property, plant and equipment in service and related accumulated depreciation at
December 31, 1999 and 1998 are as follows:

WATER:

Works

Meters and hydrants

$165,731,338
17,321,021

$162,165,940
13,516,756

Total water

183,052,359

175,682,696

SEWERAGE:

Works
Pumping station

265,518,451
6,818,749

255,512,601
6,818,570

Total sewerage

272,337,200

262,331,171

OTHER

Total property, plant and equipment
Less accumulated depreciation

69,108,109
524,497,668
(103,120,333)

73,771,148
511,785,015
(91,982,675)

Net property, plant and equipment
Construction in progress

421,377,335
68,743,944

419,802,340
35,298,349

Total

$490,121,279

$455,100,689

During 1999, the Boston Redevelopment Authority (BRA) took land owned by the Commission through eminent
domain. The book value of the land, at the time of the taking, was $7,598,710 and has been recorded as an extraordinary
loss in the Statement of Operations and Commission Equity. A- portion of this loss, $6,632,000, has been included
in deferred charges in the accompanying balance sheet as that amount will be recovered through future tates. The
Commission was paid no compensation for the land and does not expect to receive any consideration from BRA in
the fiiture.

(4) LONG-TERM DEBT

The Commission issues revenue bonds to support various projects.

A summary of the revenue bonds outstanding as of December 31, 1999 and 1998 follows (amounts in thousands):

1999 1998

SENIOR DEBT:

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 ()A°/a to 6.5%, with maturity
dates ranging from November 1, 2000 to 2001

1992 Series A, bearing interest at rates ranging from 5.5% to 5.75%, with maturity
dates ranging from November 1,2000 to 20 13

1993 Series A, bearing interest at rates ranging from ^A°/a to 5.25%, with maturity
dates ranging from November 1, 2000 to 2019

1994 Series A, bearing a variable interest rate (5.5% at December 31, 2000), with
maturity dates ranging from November 1 , 2000 to 2024

1998 Series A, bearing interest rates ranging from 5.0% to 5.125%, with maturity

dates ranging from November 1, 2014 to 2015
1998 Series C, bearing interest rates ranging from 4.5% to 5.2%, with maturity dates

ranging from November 1, 2000 to 2021
1998 Series D, bearing interest rates ranging from 4.5% to 5.0%, with maturity

dates ranging from Noveijiber 1, 2000 to 2028

Less current installments

Total long-term revenue bonds
Less unamortized issue discount

$ —

$ 585

2,030

2,955

58,500

61,190

96,620

97,410

37,200

37,800

12,960

12,960

11,290

11,300

129,615

132,455

348,215

356,655

8,180

8,440

340,035

348,215'

2,738

3,054

Net long-term revenue bonds

$337,297

$345,161

^ annual / ' ' ' ' ' ' report

DECEMBER 31 , 1 999 AND 1 998

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

REVENUE BONDS
PRINCIPAL INTEREST

2000 $ 8,180 $ 18,335

2001 8,550 17,910

2002 8,955 17,464

2003 9,475 17,005

2004 ■ 9,910 16,512
Thereafter 303,145 177,637

$348,215 $264,863

(a) Prior Year Activity

In December 1998, the Commission issued $132,455,000 of General Revenue Bonds, 1998 Series D (Senior Series)
to provide funds for the projects undertaken as part of the Commission's ongoing capital improvement program. The
majority of these proceeds were received in January 1999 and are recorded as bond proceeds receivable as of December
31, 1998.

On November 2, 1998, the Commission redeemed the remaining $45,065,000 balance of the General Revenue Bonds,
1988 Series A (Subordinated Series) by utilizing internally available flinds on deposit in the Commission's Revenue and
Stabilization Funds. This resulted in savings in debt service of approximately $6.4 million per year for the next 10 years.
A call premium of $207,900 was paid and, a charge of approximately $4.9 million was recognized in the statement of
operations and Commission equity for unamortized bond issue costs.

In March 1998, the Commission issued $12,960,000 of General Revenue Bonds, 1998 Series A (Senior Series), which,
together with available funds of the Commission, were used to current refund $13,165,000 of General Revenue Bonds,
1986 Series A (Senior Series). As a result of this current refunding, the Commission reduced its total debt service
payments over 17 years by approximately $2.4 million and obtained an economic gain of approximately $1.2 million.
A charge of approximately $219,000 was recognized in the statement of operations and Commission equity for unamor-
tized bond issue costs. -

In March 1998, the Commission issued $1 1,325,000 of General Revenue Bonds, 1998 Series C (Senior Series), to
advance refund a portion of General Revenue Bonds, 1991 Series A (Senior Series). The proceeds, together with available
funds of the Commission, were used to purchase government securities sufficient 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 $11,065,000 are no longer considered outstanding under the Commission's "Resolution Establishing
Issue of Revenue Bonds" (the "Resolution"). As a result of this advanced refunding, the Commission reduced its total
debt service payments over 23 years by approximately $1.9 million arid obtained an economic gain of approximately
$0.8 million. A charge of approximately $448,000 was recognized in the statement of operations and Commission equity
for unamortized bond issue costs.

■/^•/7-

QyVote6' lo Qy^i'}^a/ylcla/ (SHa/em^e^^

DECEMBER 31 , 1 999 AND 1 998

(b) Trusteed and Non- Trusteed Investments

The Commission has established both trusteed and non-trusteed funds with investments, principally short-term securi-
ties, which are restricted for payment of specified liabilities, capital projects or other costs of operations. The components
of the trusteed and non-trusteed investments at December 31, 1999 and 1998 are as follows:

U.S. Treasury notes

Other government obligations

Money market and cash investments

Open-ended mutual funds

Commercial paper

Repurchase agreements

$ 65,647,822

70,722,843

1,317,814

4,866,380

48,702,143

8,416,251

$ 81,329,017
16,997,371

1,470,337

9,930,455

81,131,233

199,673,253

190,858,413

NON-TRUSTEED:

Other government obligations
Money market and cash investments
Open-ended mutual funds
Commercial paper
Repujrchase agreements

1,344,283

14,249,578

13,145,930

22,268,072

108,230,820

1,927,227
13,858,046
14,407,475
20,100,576

159,238,683

50,293,324

$358,911,936

$241,151,737

(c) Long-Term Notes Payable

Dating 1997 and 1996, the Commission executed loan agreements with the Massachusetts Water Pollution Abatement
Trust (MWPAT) to finance and refinance a portion of the Commission's water pollution abatement projects. As of
December 31, 1999, an aggregate amount of $32,334,700 was received by the Commission. For purposes of offsetting
principal and interest payments, an amount aggregating $19,918,260 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 remaining term of the loan. The long-term portion of the loan agreements with MWPAT is
$26, lOi, 964 at December 31, 1999.

The scheduled loan payments for all MWPAT obligations and related subsidies 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

2000

$ 1,247

$ 1,461

$ 2,708

$ 725

$ 852

$ 1,577

$ 827

$ 304

$ 1,131

2001

1,288

1,402

2,690

691

852

1.543

855

292

1,147

2002

1,344

1,338

2,682

656

852

1,508

895

280

1,175

2003

1,395

1,271

2,666

619

852

1,471

929

266

1,195

2004 .

1,446

1,200

2,646

582

852

1,434

962

251

1,213

Thereafter

20,743

7,113

27,856

3,424

8,961

12,385

14,040

1,42?

15,469

$27,463

$13,785

$41,248

$6,697

$13,221

$19,918

$18,508

$2,822

$21,330

The Commission has entered into various interest-free loan agreements with the Massachusetts Water Resources Authority
(the "Authority"). Under these agreements, the Commission received $2,143,845, $2,263,384 and $528,000 in 1999,
1998 and 1997, respectively, to be repaid in five equal annual installments as part of the Authority's Infiltration/Inflow
Local Financial Assistance piogram. The long-term portion of these loans at December 31, 1999 is $3,508,791. In
addition, the Commission has received interest-free loans from the Authority as patt of the Authority's Local Water
Infrastructure Rehabilitation Program. Under this program the Commission has received $1,662,600 and $3,754,867
in 1999 and 1998, respectively. The long-term portion of these loans at December 31, 1999 is $5,307,556. These
programs are designed to assist service area communities with sewer system rehabilitation.

: ■- annual '■' ' ' (I ') report

DECEMBER 31 , 1 999 AND 1 998

(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. Amounts included in the statements of operations and Commission equity for assessments by the
Authority for 1999 and 1998 are as follows:

ASSESSMENTS ALLOCATED ON: - " ,

Water usage ' $ 32,619,650 $ 30,951,756

Wastewater usage 76,207,108 74.509,266

Total $168,826,758 $105,461,022

In 1999 and 1998, over 79% of water provided from the Authority was billable to customers. Since its inception, the
Commission has maintained the percentage of billable water at 79% in 1999 and 1998 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.

(6) TRANSACTIONS WITH THE CITY OF BOSTON

The Commission's ongoing program to meter City facilities has resulted in billings to ten and nine City departments
during 1999 and 1998, respectively, based on actual consumption of approximately $2,803,404 and $2,951,000 in
1999 and 1998, respectively

The City provides services to the Commission, including paving and facilities rental. Operating costs billed to the
Commission by the City were approximately $1,216,379 and $1,213,800 during 1999 and 1998, respectively Capital
costs billed by the City were approximately $2,556,541 and $2,097,700 during 1999 and 1998, 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. As of December 31, 1999, receivables totaling
approximately $2.5 million of billings had been included on property tax bills. During 1999, the City did not collect
or remit any money to the Commission.

At the end of 1995, the Commission implemented its own tax lien program. Under this program, accounts which have
unpaid balances over two years old are transferred into the tax lien program for collection. As of December 31, 1999,
approximately $3,695,746 remains outstanding.

(71 RETIREMENT BENEFITS

The Commission provides retirement benefits to substantially all of its employees through the State-Boston Retirement
System (SBRS or the "System"), a cost-sharing multi-employer retirement plan. The Commission does not provide 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 fianded primarily through
1985 and 1986 bond proceeds and is recorded as a deferred charge that will be recovered through ftiture rates. As part of
the setdement with the SBRS, the Commission annually reimburses the City for the Commission's share of pension bene-
fits 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).

(a) Description of the SBRS Plan

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 System provides retirement, disability and
death benefits to plan members and beneficiaries. Chapter 32 of the MGL assigns authority to establish and amend

DECEMBER 31, 1999 AND 1998

benefit provisions of the plan. The System issues a pubhcly available financial report which can be obtained through the
Commonwealth of Massachusetts, Public Employee Retirement Administration (PERA), One Ashburton Place, Boston,
Massachusetts 02108.

(b) Funding Policy

Plan members are required to contribute to the SBRS at rates ranging from 5% to 1 1% of annual covered compensation.
The Commission is required to pay into the SBRS its share of the remaining systemwide actuarially determined contribu-
tion plus administration costs which are apportioned among the employers based on active covered payroll. Through
fiscal 1998, the Commonwealth of Massachusetts reimbursed the SBRS for a portion of benefit payments for cost-of-
living increases. Beginning July 1, 1998, the SBRS is locally ftinding the cost of living adjustments, as approved by the
SBRS' Board of Retirement, the City's Mayor and City Council. The contributions of plan members and the Com-
mission are governed by Chapter 32 of the MGL. The Commission's contributions to the System for the years ended
December 31, 1999, 1998 and 1997 were approximately $1,181,000, $1,131,000 and $1,033,000, respectively, which
equaled its required contribution each year. Total employee contributions, based on actuarially determined amounts were
approximately $1,726,145, $1,633,000 and $1,578,000 or 7.9%, 7.8% and 7.7% of covered payroll in 1999, 1998 and
1997, respectively.

(c) Valuation of Investments

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

(d) The Commission's Trust Fund

On an annual basis, the Commission deposits an amount into a Trust Fund, the assets of which are used to reimburse the
SBRS for amounts paid on behalf of the Commission. As required by the Commission's Enabling Act, employee pension
contributions are transferred to the SBRS directly ancLare 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 employer
contributions to the Trust Fund based upon the actuarially determined cost of future benefits, net of employee
contributions.

Trust Fund assets at December 31, 1999 and 1998 are as follows:

ASSETS (AT FAIR MARKET VALUE):

Common stock
International stock
Mutual funds
Fixed income

$31,769,274

6,710,791

454,685

22,862,135

$27,770,996

4,323,937

570,852

21,612,227

Total

$61,796,885

$54,278,012

The l999 Trust Fund activity is as follows:

ASSETS (AT FAIR MARKET VALUE) JANUARY 1. 1999:

Employer contributions
Investment income and gains
Management fees
Payments to SBRS

$54,278,012

1,180,938

7,610,494

(221,756)

(1,050,803)

Assets (at fair market value) December 31, 1999:

$61,796,885

The investment portfolio is regulated by the MGL, Chapter 32, Section 23. The investments are managed by indepen-
dent investment advisois. Fleet Bank of Massachusetts, N.A., is the custodian of the portfolio. The Trust Fund assets will
be used by the Commission to reimburse SBRS in future years for required employer contributions.

DECEMBER 31 , 1 999 AND 1 998

(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; commer-
cial 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 Fiind 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 financial institution's trust department or agent in the Commission's name and (Category 3) those
deposits that are not collateralized as of December 31, 1999 follows:

1999

1

CATEGORY
2

3

BANK
BALANCE

CARRYING
AMOUNT

Cash

Bank money market deposits

$200,000

I

$ 9,259,743
18.906,408

$ 9,459,743
18,906,408

$ 6,766,335
15,567,392

Total

$200,000

—

$28,166,151

$28,366,151

$22,333,727

1998

Cash

Bank money market deposits

$200,000

-

$ 5,307,117
16.098,220

$ 5,507,117
16,098,220

$ 5,082,191
15,328.383

Total

$200,000

—

$21,405,337

$21,605,337

' $20,410,574

Deposits in transit and outstanding checks account for the majority of the 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 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 Com-
mission'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.

The Commission adopted GASB Statement No. 3 1 , Accounting and Financial Reporting for Certain Investments and for
External Investment Pools. Investments are recorded at a fair value. Fair value is determined based on quoted market price.
The difference between the amortized cost and the fair value of investments at December 31. 1999 was a decrease in fair
value of approximately $3.0 million. This amount was recorded as an unrealized loss and included in investment income
for the year ended December 3 1 „ 1 999.

1999

1

CATEGORY
2

3

FAIR
VALUE

CATEGORIZED:

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

$ 65.647,823
72,067,126

$ — -

116,647,070
70.970,215

-

$ 65,64^,823
72,067,126
116,647,070
70,970,215

NOT CATEGORIZED:

Open-end mutual funds

18,012,310

Total

$137,714,949

$187,617,285

—

$343,344,544

u>/l . a>J '.

DECEMBER 31, 1999 AND 1998

CATEGORY FAIR

1998 1 2 3 VALUE

CATEGORIZED:

U.S. Government obligations $81,329,017 $ — — $81,329,017

U.S. Government agency obligations 18,924,598 — — 18,924,598

Commercial paper

—

- 101,231,809

—-

101,231,809

100,253,615

101,231,809

—

- ,201,485,424

NOT CATEGORIZED:

Open-end mutual funds

24,337,930

Total "

$100,253,615

$101,231,809

—

$225,823,354

(9) LEASE COMMITMENTS

On July 2, 1993, the Commission entered into an operating lease for office space in the same building the Commission
had previously occupied. The lease expires December 31, 2000. This lease accounts for over 53% 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 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, 1999 are as
follows:

2000 $1,864,358

Rent expense under operating leases amounted to $1,899,722 and $1,783,290 in 1999 and 1998, respectively.

(10) COMMITMENTS

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 $68.1 million as of December 31, 1999. 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
$140.5 million for 2000 through 2001. Of this amount, approximaitely $102.8 million represents extension and improve-
ment projects and $37.7 million represents renewal and replacement projects. The extension and improvement projects
are expected to be 8% funded by federal and state grants 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) RISK MANAGEMENT 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 unemployrrtent benefits. The workers' compensation self-insured retention limit is .
$150,000 per claim and is 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 occurence, $2.5 million aggregate and is sub-
ordinate 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.

annual / () 0 0 report

DECEMBER 31, 1999 AND 1998
The Commission maintains other insurance coverage as follows:

POLICY TYPE COVERAGE ^

Health Premium based

Vehicles Combined single limit of $1 million

Property Aggregate limit of $42.1 million

Public Officials Coverage of $3 million; $100,000 self-insurance retention

Piduciary ' $2 million coverage '

Crime Employee dishonesty coverage of $5 million

The Commission participates in the City's health benefits plans for which the City assesses 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.

Liabilities for self-insured claims are 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
independent insurance reserve appraiser's estimates of pending matters and lawsuits in which the Commission is involved.
Unemployment claims paid during 1999 and 1998 were immaterial.

Changes for the years ended December 31, 1999 and 1998 are as follows:

1999 1998

Beginning balance of reserves $5,974,045 $4,296,807

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

Workers' compensation (1,094,438) ■ ■ (706.631)

General liability (1,115,167) (348,932)

Incurred claims ^_ \ 1,326,743 2,732.801

Ending balance of reserves , $5,091,183 $5,974,045

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 estab-
lishment 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 agencies. 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 1 0) addresses probable actions that the Com-
mission may be 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, 1999, the overall cleanup costs are estimated to be approximately $506 million. However, the extent of the
Commission's liability for these costs cannot be determined.

ofu^iJilem^en'^a/ '^fc^r^^ o/ iyXe'Ve^yuce^ a/yid 0cdie/m^

70<X44A

YEARS ENDED DECEMBER 31 , 1 999 AND 1 998

REVENUES:

Water revenue
Sewer revenue

S 65,951,926
114,962,188

5 66,828,252
117,542,854

Sub total

180,914,114

184,371,106

Less:

Adjustments
Discounts
Bad debt

6,281,538

706,572
844,158

6,804,478

720,014

1,288,812

Sub total

7,832,268

8,813,304

Net billed charges

Prior year surplus

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

173,081,846
8,788,235

2,186,829

12,347,483

2,501,159

10,279,426

175,557,802
9,622,986

2,546,050

13,650,728

2,412,803

7,030,306

Total revenues

209,184,978

210,820,675

DIRECT OfERATING 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

24,331,318

692,555

3,892,937

2,073,570

5,695,766

560,502

1,296,310

1,948,416

936,577

351,879

1,125,317

70,223

547,042

23,476,920

807,205

3,874,986

2,264,173

5,113,903

532,068

1,630,676

1,783,290

910,101

320,368

1,088,550

42,167

424,563

Total direct operating expenses

43,522,412

42,268,970

NONOPERATING EXPENSES:

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

108,826,758

9,773,226

12,375,071

17,820,839

9,488,235

255,572

105,461,022

9,489,108

10,355,117

15,634,111

18,562,782

261,330

Total nonoperating expenses

158,539.701

159,763,470

Total current expenses

202,062,113

202,032,440

Current year rate surplus

$ 7,122,865

$ 8,788,235

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.

xxyinwMAMon' (A

h/y<Mm^

o^iMe

Ai6£<yMO lemMyu a

6/u6£e/mA a/mi i& (xymmwtted -(a

WM(MMMiM

-IBIIgl"

••^jrr'-j ■»-»».