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Full text of "Annual report"

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Boston Water and Sewer Commission 



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annual J Q Q y report 



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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 



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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. 



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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 



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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. 



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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 



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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 / () 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. 



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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. 



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