(navigation image)
Home American Libraries | Canadian Libraries | Universal Library | Community Texts | Project Gutenberg | Biodiversity Heritage Library | Children's Library | Additional Collections
Search: Advanced Search
Anonymous User (login or join us)
Upload
See other formats

Full text of "Annual report"

BOSTON PUBLIC LIBRARY 



Boston Water and 
Sewer Commission 




Setting the 
Standards 

Raising the Level 

of Service and 

Satisfaction 



Annual Report 
2004 




RISING 




Digitized by the Internet Archive 

in 2010 with funding from 

Boston Public Library 



o 




http://www.archive.org/details/annualreport2004bosts 



A Message 

from the 
Executive Director 



Left to right: 

Muhammad Ali-Salaam, Commissioner, 

Dennis DilVlarzio, Chair, Board of Commissioners, 

Cathleen Douglas Stone, Commissioner, and 

Vincent G. Mannering, Executive Director 




Throughout our history, the Boston 
Water and Sewer Commission has 
endeavored to build and constantly 
improve its service obligation to ratepayers by 
being an efficient and well managed agency. 
The Commission is proud not only of its 
record of past accomplishments, but also of 
the significant initiatives we have undertaken 
to ensure the proper delivery and maintenance 
of quality water and wastewater services to the 
City of Boston. The intelligent use of integrated 
technology is critical to that mission. 

Last year we reported that the Boston Water and 
Sewer Commission introduced SmartRead, an 
automated meter reading system designed to 
revolutionize the way we serve our customers. 
This year I am happy to report that the installation 
is complete. Over 86,000 residential and commercial 
water meters are now read daily, eliminating the 
need for estimated bills. 



Technology also helps us track the flow of water 
throughout the system, reducing leakage that wastes 
water and helping to pinpoint where maintenance 
is needed, hi addition, an integrated geographic 
information system and state-of-the-art inventory 
and work order management systems help us 
improve workforce productivity. 

Since 1995, our Capital knprovement Program has 
spent over $375 million while repairing or replacing 
over 351 miles of water, sewer or drain pipe. While 
accomplishing this, the Boston Water and Sewer 
Commission has also received two bond upgrades 
and now has the highest bond rating in our history. 

The support of Mayor Thomas Menino, along with 
innovative technology, a strong fiscal position and 
award winning business procedures, enables the 
Commission to continue its quest for excellence in 
public service. 



Sincerely, 




jt^jtn/JC^fC^ 



Vincent G. Mannering / 
Executive Director 




BOSTON 



WATER 



AND 



SEWER 



C O M M 



S S I O N 



Raising the Standard 
Toward Excellence 



International, national and local agencies 
have all recognized the Boston Water 
and Sewer Commission (BWSC) for 
excellence in metering, financial management, 
operational efficiency and system maintenance. 
However, the BWSC does not rest on its laurels. 
It continues to search for innovative ways to 
improve service to customers and raise the 
standard in its quest for excellence. 




Improved Customer Service 

In 2004, the Commission completed the installation 
of SmartRead, a citywide state-of-the-art automated 
meter reading system. With SmartRead, meters 
across Boston, in both homes and commercial 
buildings, are now read via radio frequency four 
times daily, eliminating the need for conventional 
meter reading. The SmartRead system improves 
customer service and billing accuracy and provides 
BWSC with the ability to track the use of water 
throughout the system. 

Thanks to the successful implementation of 
SmartRead, more than 86,000 customers can now 
access their BWSC account information 24 hours 
a day, seven days a week at the Commission's 
website, www.bwsc.org. Customers can review 
the last 90 days of water consumption, monthly 
billing statements and recent transactions. 
Water and sewer bills can also be paid online. 
Graphs that display monthly and daily water 
consumption enable customers to monitor their 
water usage, track the results of their conservation 
efforts and identify leaks. 

For its part, the Commission now uses SmartRead 
data to periodically analyze meter readings 
and find anomahes in water usage. Recently, 
SmartRead data enabled the Commission to 
identify four buildings in a commercial area that 
were identical in occupancy and function yet 
differed in water usage. In one of the buildings, 



^ 



ANNUAL 



REPORT 



2 4 




Thanks to the successful implementation 
of SmartRead. more than 86,000 customers 
can now access their BWSC account 
information 24 hours a day, seven days 
a week at the Commission's website, 
www.bwsc.org. 



water consumption was much higher than in the 
others. When BWSC technicians investigated and 
found that a pipe in that building had been 
damaged during interior renovations and was 
leaking considerably, they notified the building's 
facilities personnel, who fixed the problem. 

Integrated business systems also help the 
Commission to respond quickly to customers. 
The Work Order Management System (WOMS) 
helps workers coordinate preventive maintenance 
and respond efficiently to emergencies and 
customer concerns. When ratepayers call the 
Commission's 24-hour Emergency Operations 
Center to request service, work orders are opened. 
Work orders track the nature and location of the 
call and are integrated with the Commission's 
database, to allow maximum efficiency in our 
response. In a major emergency, all details can 
be displayed graphically on the Commission's 
SmartBoard, an interactive, computerized white- 
board, and staff can coordinate and determine 
how best to respond to the emergency. 

The Work Order Management System prevents 
prevents duplication of effort by ensuring that 
when multiple calls for the same problem are 
received, only one crew is dispatched to investigate. 
BWSC managers analyze this information to deter- 
mine a course of action, track the progress of 
repairs, and mobilize the requisite workforce and 
equipment efficiently from a central location. 



The Commission's use of the latest technology makes 
it possible not only to improve worker productivity 
and response time but also to anticipate customer 
problems and move proactively to solve them. 

In recognition of its citywide installation of 
SmartRead devices, the Commission has earned 
the prestigious international award for "Best 
Automated Meter Reading Initiative in a North 
American Municipal Utility" from Metering 
International. Additionally, the use of integrated 
business systems has helped the Commission win 
the Gold Award for Competitiveness Achievement 
from the Association of Metropolitan Water 
Agencies. The award recognizes large public drink- 
ing water systems whose management practices 
chart new financial courses, seek new growth 
opportunities and meet the ever-expanding array 
of customer service needs and expectations. 




Repairing the infrastructure 



O S T O N 



WATER 



AND 



SEWER 



COMMISSION 





Data-logging devices 



Recently, BWSC's Leak Detection 
Program won national attention on 
the CBS Evening News. 

In 2004, this program surveyed 
approximately 700 miles of the BWSC's 
1,021 linear miles of water mains in 
order to find and repair hidden leaks. 



Installing a data-logger 



System-wide Water Monitoring 

A key facet of the Commission's mission is to ensure 
the continued adequate supply of high quality, 
potable water at a reasonable cost to ratepayers. 
This involves reducing the amount of non-revenue 
producing water throughout the system. Much of 
the system's unbiUed water is due to water leakage 
which may end up in city sewers, causing the 
Commission and its customers to pay for the 
water that was never used. 

One way the Commission reduces this gap is 
through its Leak Detection Program. \n 2004, 
this program surveyed approximately 700 miles 
of the BWSC's 1,021 linear miles of water mains 
in order to find and repair hidden leaks. A series 



of data-logging devices are remotely positioned in 
the city to "listen" for leaks on water mains within 
a defined area. Correlating devices then pinpoint 
the exact location of leaks so that engineers and 
technicians can find and repair them. 

Recently, BWSC's Leak Detection Program won 
national attention on the CBS Evening News. 
BWSC was also prominently recognized by the 
Massachusetts Department of Environmental 
Protection's Drinking Water Program with the 
2004 Public Water System Award. This state award 
recognizes Boston for outstanding performance 
in maintaining a consecutive water distribution 
system and water management practices. 



ANNUAL 



REPORT 



2 4 



Strategic Information 
Technology Plan 

Integration of technologies is essential to the 
Commission's raising the bar toward excellence. 
The goal of our Information Technology Strategic 
Plan is to become "one Commission," so that we 
have a single, Commission-wide view of all the 
data necessary to resolve customer issues quickly 
and efficiently. 

To that end, a robust data base has been set up to 
capture and store citywide information about 
BWSC's infrastructure. Data governance guidelines 
set the rules and make it possible for users to access 
data from across multiple storage applications. 
Instead of paper maps, BWSC staff can now 
access computerized infrastructure maps remotely 
from laptops in their vehicles to quickly identify 
the exact location of shut-off valves and other 
infrastructure components for repairs. Using the 
same technology, emergency and special conditions 
can easily be noted and efficiently handled based 
on real-time information. 

The Commission has also committed to funding 
new technologies that track material and work 
crews, which is essential to efficient resource 
management. For instance, the Commission 
has integrated the WOMS system with our 
Geographic Information System (GIS), so we can 
track and graphically display work performed 
throughout the city as well as monitor the use 
of materials and equipment used in preventive 
maintenance and emergency repairs. Using 
historical data, we have developed preventive 
and corrective maintenance protocols that help us 
perform those tasks and ensure that vehicles are 
equipped with the proper tools and materials. 

The GIS system is also integrated with the 
Customer Information & Billing System, so 

that by reconciling GIS spatial data with account 
data, abnormalities can quickly be identified and 
displayed and buildings showing no water 
usage can be investigated to ensure that all 
active buildings have accounts. 




BWSC managers and staff utilize SmartBoard, 

WOMS, and GIS technologies to coordinate 

response to emergecy situations. 



Applications for new water services are now 
processed automatically by the General Service 
Application (GSA) tracking system. When engineers 
apply for permits, a checklist of requisite tasks is 
generated. As requirements are completed, the 
tracking system is updated, streamlining both the 
installation process and establishment of new 
accounts. 




BOSTON 



WATER 



AND 



SEWER 



COMMISSION 



Exceptional Fiscal Management 

Over the last ten years, the Commission's water and 
sewer rates have risen less than the rate of inflation, 
despite a more than 45 percent rise in wholesale 
prices. In fact, during that period, the rates BWSC 
customers pay went from among the highest in 
the MWRA service district to among the lowest. 
BWSC has achieved this stability by keeping direct 
operating expenses controlled, and by careful, effec- 
tive management. The Commission's conservative 
fiscal policy, combined with prudent management 
of its debt, has resulted in two upgrades in its bond 
rating. The Commission now has the highest bond 
rating in its history: AA- from Fitch Investor 
Services, AA from Standard and Poor's and Aa2 
from Moody's Investor Services. 




In 2004, the Commission's fiscal management received 
the Government Finance Officers Association (GFOA) 
top honors in financial reporting for the thirteenth 
consecutive year with the Distinguished Budget 
Presentation Award. GFOA commended the 
Commission's budget both as a communications tool 
and as a model financial plan, noting a strong willing- 
ness to embrace changes in budgeting standards and 
regulatory requirements. The Distinguished Budget 
Presentation Award is the highest form of recognition 
in governmental budgeting. It is based on meeting 
GFOA's program criteria as a policy document, opera- 
tion guide, financial plan and communications device 
and represents a celebrated accomplishment for a 
municipality or governmental agency. 

Equally important was GFOA's 2004 Certificate of 
Achievement for Excellence in Financial Reporting 
for BWSC's Comprehensive Annual Financial 
Report of strategic departmental goals and objectives. 
The Commission's report is judged based on its 
conformity to Generally Accepted Accounting 
Principles (GAAP) and its comphance with legal 
and contractual provisions. This high honor was 
also received for the thirteenth consecutive year 
and represents a significant achievement for a 
government agency. 



ANNUAL 



REPORT 



2 4 




BWSC has been honored for 13 consecutive years with both the Distinguished Budget Presentation Award 
and the Certificate of Achievement for Excellence in Financial Reporting 



Over the last ten years, the Commission's 
water and sewer rates have risen less 
than the rate of Inflation, despite a more 
than 45 percent rise in wholesale prices. 
In fact, during that period, the rates 
BWSC customers pay went from among 
the highest in the MWRA service district 
to among the lowest. 



Awards Won by BWSC in 2004 

Public Water System Award 

The Massachusetts Department of Environmental 

Protection's Drinking Water Program 

Best Automated Meter Reading Initiative in a 
North American Municipal Utility 
Metering International 

Gold Award for Competitiveness Achievement 

Association of Metropolitan Water Agencies 

Certificate of Achievement for Excellence 
in Financial Reporting 

Government Finance Officers Association 

Distinguished Budget Presentation Award 
Government Finance Officers Association 




BOSTON 



WATER 



AND 



SEWER 



COMMISSION 




ANNUAL REPORT 2004 



Boston Water and Sewer Commission 



Financial Statements 

Required Supplementary Information, 
and Supplemental Schedules 



December 31, 2004 and 2003 




o o "^^ 



O S T O N 



WATER 



AND 



SEWER 



COMMISSION 



Independent Auditors' Report 



The Commissioners 

Boston Water and Sewer Commission 

We have audited the accompanying statements 
of net assets of the Boston Water and Sewer 
Commission (the Commission) as of December 31, 
2004 and 2003, and the related statements of 
operations, and cash flows for the years then ended. 
These financial statements are the responsibility of 
the Commission's management. Our responsibility is 
to express an opinion on these financial statements 
based on our audits. 

We conducted our audits in accordance with 
auditing standards generally accepted in the United 
States of America. Those standards require that we 
plan and perform the audit to obtain reasonable 
assurance about whether the financial statements 
are free of material misstatement. Our audit included 
consideration of internal control over financial 
reporting as a basis for designing audit procedures 
that are appropriate in the circumstances, but not 
for the purpose of expressing an opinion on the 
effectiveness of the Commission's internal control 
over financial reporting. Accordingly, we express no 
such opinion. An audit includes examining, on a 
test basis, evidence supporting the amounts and 
disclosures in the financial statements. An audit also 
includes assessing the accounting principles used 
and significant estimates made by management, as 
well as evaluating the overall financial statement 
presentation. We believe that our audits provide a 
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, 2004 and 2003, and the results of its operations 
and its cash flows for the years then ended in 
conformity with accounting principles generally 
accepted in the United States of America. 

The management's discussion and analysis on pages 
11 through 14 is not a required part of the basic 
financial statements, but is supplementary informa- 
tion required by accounting principles generally 
accepted in the United States of America. We have 
applied certain limited procedures, which consisted 
principally of inquiries of management regarding 
the methods of measurement and presentation of 
the required supplementary information. However, 
we did not audit the information and express no 
opinion on it. 

Our audits were made for the purpose of forming 
an opinion on the basic financial statements. 
The accompanying supplemental schedules are not 
required parts 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 opinion, is fairly 
stated in all material respects in relation to the 
basic financial statements taken as a whole. 



K>MCb- LL-P 



March 31, 2005 



10 



ANNUAL 



REPORT 



2 4 



Management's Discussion 
and Analysis 



Required Supplementary Information, 
December 31, 2004 and 2003 



Since its creation in 1977, the Boston Water and Sewer 
Commission (the Commission) has assumed the responsi- 
bility to provide water distribution, wastewater collection, 
and storm water drainage services in the City of Boston 
(the City). 

The Commission has realized surpluses from its operations 
in each year since its inception. In accordance with the 
Boston Water and Sewer Reorganization Act of 1977 (the 
Enabling Act), the Commission applies audited surpluses 
to reduce its rates in succeeding years. 

To accommodate the rate-making process, the Commission 
follows the accounting standards set forth in Statement of 
Financial Accounting Standards (SFAS) No. 71. SPAS No. 



71 allows certain (a) revenues provided for future allowable 
costs to be deferred until the costs are actually inciu^red 
(deferred credits) and (b) costs incurred to be capitalized if 
future recovery is reasonably assured (deferred charges). 

The statements of net assets provide information on the 
assets and liabilities of the Commission, with net assets 
(deficits) reported as the difference between assets 
and liabilities. The statements of operations of the 
Commission reflect ail revenues earned and all expenses 
incurred for each of the years ended December 31, 2004 
and 2003. 

Condensed financial information for the three most recent 
fiscal years is presented in this section of the report. 





2004 


2003 


2002 




Current assets 


$26,430,582 


27,371,123 


27,527,877 




Capital assets, net 


739,101,305 


686,412,129 


627,393,255 




Other assets 


274,110,222 


230,477,452 


280,074,598 




Total assets 


1,039,642,109 


944,260,704 


934,995,730 




Current liabilities 


38,655,940 


37,587,106 


31,755,677 




Noncurrent liabilities 


763,595,703 


695,411,346 


717,989,162 




Total liabilities 


802,251,643 


732,998,452 


749,744,839 




Net assets 










Invested in capital assets, net of related debt 


417,744,545 


379,695,558 


318,390,253 




Restricted net assets 


82,331,511 


75,559,717 


83,636,998 




Unrestricted net deficits 


(262,685,590) 


(243,993,023) 


(216,776,360) 




Total net assets 


$237,390,466 


211,262,252 


185,250,891 





11 



O S T O N 



WATER 



AND 



SEWER 



COMMISSION 



Management's Discussion and Analysis, continued 



In 2004, the Commission's net assets totaled $237.4 
million, an increase of $26.1 million, or 12.4%, from FY 

03, and in 2003, net assets totaled $211.3 million, an 
increase of $26.0 million, or 14.0%, from FY 02. The 
Commission recognized stamtory surplus of $7.8 million in 
FY 04, $0.5 million in FY 03, and $0.4 million in FY 02. 

Total assets in FY 04 were $1.0 billion, an increase of 
$95.4 million, or 10.1%, from FY 03 total assets of 
$944.3 million. In FY 03, total assets were $944.3 
million, an increase of $9.3 million, or 1.0%, from FY 02 
total assets of $935.0 million. 

The Commission invested in various capital assets, includ- 
ing capital improvement projects, machinery and equip- 
ment, buildings, and improvements. These investments, net 
of accumulated depreciation, totaled $739.1 million, an 
increase of $52.7 million, or 7.7%, over FY 03's total 
investment in capital assets. In FY 03, these investments 
totaled $686.4 million, an increase of $59.0 million, or 
9.4%, over FY 02's total investment in capital assets. 

Water and sewer charges in FY 04 represented 97.0% 
of operating revenues. Water and sewer charges totaled 
$221.7 million, which was $16.7 million, or 8.2%, higher 
than the same period in the prior year, due primarily to a 
rate increase of 5.8% in water and sewer charges in FY 

04. The Commission accrued billing adjustments at 2.5% 
and bad debts at 0.3% of accrued water and sewer 
charges for the year. Additionally, discounts were accrued 
at 1.0% of unbilled water revenue. 

Total operating revenues in FY 04, which, in addition 
to water and sewer revenue, include fire pipe and other 



revenues, totaled $228.8 million, representing an increase 
in total operating revenue of $6.8 million, or 3.1%, over 
FY 03. 

In FY 03, water and sewer charges represented 92.4% of 
operating revenues. They totaled $205 million, which is 
$17.9 million, or 9.6%, higher than water and sewer 
charges in FY 02 due to a combined rate increase of 
12.8% in water and sewer charges in FY 03. The 
Commission accrued billing adjustments at 2.75% and 
bad debts at 0.3% of accrued water and sewer charges 
for the year. Additionally, discounts were accrued at 1.0% 
of unbilled water revenue. 

Total operating revenues in FY 03, which, in addition to 
water and sewer revenue, include fire pipe and other rev- 
enues, totaled $221.9 million, representing an increase in 
revenue of $17.5 million, or 8.6%, over FY 02's revenue. 

Direct operating expenses in FY 04 totaled $200.8 million, 
which was $3.1 million, or 1.5%, less than direa operating 
expenses for the same period in FY 03. This decrease was 
due primarily to decreased maintenance expense in the 
current fiscal year, which was driven by a decrease in the 
contract to repair sewer systems. Investment income 
increased by $2.4 million, or 57.6%, in FY 04, reflecting 
the slightly higher interest rate environment compared to 
FY 03. In FY 03, direct operating expenses totaled $203.9 
million, which was $11.1 million, or 5.7%, over direct 
operating expenses in FY 02. This increase was due prima- 
rily to an increase in the Massachusetts Water Resources 
Authority (MWRA) assessment. Investment income 
decreased by $7.5 million in FY 03, offset slightly by a 
decrease of $1.0 million in interest paid. 



2004 2003 

Operating revenues $228,758,914 221,915,418 

Operating expenses 200,801,196 203,889,999 

Excess operating revenues 27,957,718 18,025,419 

Nonoperating expenses (8,344,315) (11,327,734) 
Excess revenues before capital grants and 

contributions and transfer requirements 1 9,613,403 6,697,685 

Capital grants and contributions 29,781 ,881 29,352,1 47 
Excess revenues used to fund reserves 

and other deferrals (16,016,268) (9,949,275) 
Change in accumulated revenues used to 

offset future rates (7,250,802) (89,196) 

Change in net assets 26,128,214 26,011,361 

Net assets, beginning of year 211,262,252 185,250,891 

Net assets, end of year $237,390,466 21 1 ,262,252 



2002 

204,389,352 

192,848,177 

11,541,175 

(5,118,090) 

6,423,085 

25,169,818 

(9,369,771) 

(17,183) 
22,205,949 

163,044,942 
185,250,891 



12 



ANNUAL 



REPORT 



2 4 



Capital Assets 

In FY 04, the Commission's infrastructure project additions 
totaled $27.6 million, of which $12.6 million was financed 
with bond proceeds. Infrastructure project expenditures are 
as follows (in millions): 



Relay of water mains 
Reline of water mains 
Rehabilitation/replacement 
of sewer or storm drains 
Interceptor improvements 
Separation of combined sewersa 
Infiltration and inflow 
Meter replacement 





$30.8 million 


$6.5 


46.7 million 


2.4 


33.5 million 




13.0 million 


8.8 


11.2 million 


0.3 


117.6 million 


1.1 


11.7 million 


1.1 


25.7 million 


7.4 


53.0 million 



The Commission currently has nine series of general 
revenue bonds outstanding at the end of 2004, totaling 
approximately $343.2 million: 



1992 Series A 

1993 Series A 

1994 Series A 
1998 Series A 
1998 Series C 
1998 Series D 

2002 Series A 

2003 Series A 

2004 Series A 



The Commission's FY 05-FY 07 capital budget includes 
projected expenditures of $175.5 million for infrastruc- 
ture and capital projects. The major projects are for the 
rehabilitation of water mains and the replacement/rehabil- 
itation of the sewer system. Some water projects are 
financed on a pay-as-you-go cash basis combined with an 
interest-free loan for water rehabilitation provided by the 
Massachusetts Water Resources Authority (MWRA). 
The majority of the sewer improvements will be financed 
through bond proceeds. However, there are sewer 
improvements that are funded through the utilization of 
the MWRA loan programs. 

More detailed information about the Commission's capital 
assets is presented in note 3 to the financial statements. 



Debt Plan 

The Commission is empowered by the Enabling Act to 
issue bonds and notes payable constituting sole general 
obligations of the Commission. The Commission has no 
legal restrictions concerning the amount of debt that it 
may have outstanding, subject to the coverage require- 
ments described below. 

The Commission issues general revenue bonds to finance 
portions of its capital improvement projects. The 
Commission's FY 05-FY 07 capital budget, which totals 
$175.5 million, anticipates that projects totaling $123.9 
million, or 70.6%, of the Commission's FY 05-FY 07 
capital budget, will be funded from bond proceeds. 
The FY 05 budget for debt service is $33.3 million. 



In FY 04, the Commission completed an issue of $53.0 
million General Revenue Series A Bonds to fund future 
capital projects. 

More detailed information about the Commission's long- 
term obligations is presented in note 4 to the financial 
statements. 

Debt Service Coverage Requirements 

The Commission's bond covenant requires that rates and 
charges be at least sufficient to provide revenues (i) to pay 
all current expenses of the Commission, (ii) to pay the 
principal of, premium, if any, and interest on all bonds 
issued by the Commission as they become due and 
payable, (iii) to create and maintain such reasonable 
reserves as may be reasonably required by any trust agree- 
ment or resolution-securing bonds, (iv) to provide funds 
for paying the cost of all necessary repairs, replacements, 
and renewal of the systems, and (v) to pay or provide 
for any and all amounts which the Commission may be 
obligated to pay or provide for by law or contract. 
The Commission is also required to establish and main- 
tain rates and charges at levels sufficient so that total net 
revenues in each year during which bonds are outstanding 
will equal at least 125% of (1) the bond debt service 
requirement during such year less (2) the amount, if any, 
of bond proceeds available to pay interest becoming due 
in such year on bonds outstanding as of the first day of 
such year. The Commission has exceeded the 125% debt 
service coverage requirement of the Resolution in each 
year since its inception in 1977. 



13 



O S T O N 



WATER 



AND 



SEWER 



COMMISSION 



Management's Discussion and Analysis, continued 



Additional Bonds and Refunding Bonds 

The Enabling Act permits the issuance of additional 
bonds for paying the cost of any project, making deposits 
in various funds established under the Enabling Act, pay- 
ing the costs of issuance, paying the principal, premium, 
and interest on any notes issued in anticipation of addi- 
tional bonds, or any combination of the above. 

Refunding bonds may also be issued by the Commission 
only upon certifying that the aggregate debt service in 
each fiscal year in which refunding bonds are outstanding 
will not be increased as a result of the issuance of the 
refunding bonds; provided that, in lieu of such certifica- 
tion, the Commission may deliver to the Trustee certifi- 
cates satisfying the conditions described above for the 
issuance of additional bonds. 



Next Year's Budget and Rates 

The Commission, from 1994 to 2001, was able to main- 
tain its water and sewer rates to its customers without an 
increase. Additionally, the Commission is required by law 
to be self-sustaining, to set its rates at a level sufficient to 
cover expenses and debt service requirements each year. 

The Commission instituted a rate increase of 8.9% in FY 
02. In FY 03, a rate increase of 8.9% was implemented 
on January 1 and another rate increase of 3.9% was 
implemented on April 1 . As a result, the total increase in 
water and sewer rates for FY 03 was 12.8%. The April 
increase was due to special assessment from the MWRA 
and the elimination of the debt service assistance program 
from the Commonwealth of Massachusetts. In FY 04, the 
water and sewer rate revenue increased by a combined 
5.8%. This new rate increase was effective on January 1, 
2004. The major reasons behind these increases were: (i) 
the increase in assessments paid to the MWRA, and (ii) 
the decline in water sales due to general water conserva- 
tion efforts of individuals and businesses throughout the 
City. There will be no rate increase in FY 05. 



14 



ANNUAL REPORT 2004 



Statements of Net Assets 

Years ended December 31, 2004 and 2003 

See accompanying notes to financial statement 

ASSETS 

Current assets: 
Cash and cash equivalents (note 8) 
Accounts receivable, net: 
Customers, less allowances of $4,096,888 and $5,435,458 
in 2004 and 2003, respectively (note 1) 
Unbilled revenues, less allowances of $1 ,702,361 in 2004 and 2003 
Construction grants receivable 
Prepaid expenses 
Total current assets 

Noncurrent assets: 
Restricted cash and investments (notes 4 and 8) 
Capital assets: 

Depreciable, net (note 3) 

Nondepreciable (note 3) 
Deferred charges (note 2) 
Bond issue costs, net 

Total noncurrent assets 

TOTAL ASSETS 

LIABILITIES 

Cuaent liabilities: 
Payable from current assets: 



2004 


2003 


$3,362,967 


8,135,734 


9,540,851 


8,128,780 


11,653,861 


9,334,029 


1,306,091 


1,279,663 


566,812 


492,917 


26,430,582 


27,371,123 


251,760,009 


207,173,685 


528,698,771 


511,515,378 


210,402,534 


174,896,751 


20,280,541 


21,375,118 


2,069,672 


1,928,649 


1,013,211,527 


916,889,581 


1,039,642,109 


944,260,704 



Accounts payable 


15,468,167 


15,830,813 


Other accrued liabilities 


5,755,337 


5,710,434 


Cup-ent portion of long-term notes (note 4) 


5,892,436 


5,690,859 


Current portion of revenue bonds (note 4) 


11,540,000 


10,355,000 


Total current liabilities 


38,655,940 


37,587,106 


Noncurrent liabilities: 






Long-term notes payable (note 4) 


45,779,790 


44,096,735 


Long-term revenue bonds, net (note 4) 


328,171,880 


283,067,334 


Other long-term liabilities 


8,572,648 


10,552,258 


Deferred credits and reserves (note 2) 


381,071,385 


357,695,019 


Total noncurrent liabilities 


763,595,703 


695,411,346 


TOTAL LIABILITIES 


802,251,643 


732,998,452 


NET ASSETS 






Net assets: 






Invested in capital assets, net of related debt 


417,744,545 


379,695,558 


Restricted for debt service 


35,243,278 


31,070,812 


Restricted for capital assets 


4,460,086 


3,666,284 


Restricted for debt covenants 


42,628,147 


40,822,621 


Unrestricted net deficit 


(262,685,590) 


(243,993,023) 


Commitments and contingencies (notes 9, 1 0, 1 1 , and 1 2) 






TOTAL NET ASSETS 


$237,390,466 


211,262,252 



15 



OSTON WATER AND SEWER COMMISSION 



Statements of Operations 

Years ended December 31, 2004 and 2003 

See accompanying notes to financial statement 



Operating revenues: 
Water and sewer usage 
Fire pipe 
Other 
Total operating revenues 

Operating expenses: 
Operations 
Maintenance 

MWRA assessment (note 5) 
Depreciation and amortization 
Total operating expenses 

Excess operating revenues 

Nonoperating revenue (expense): 
Investment income 
Interest expense 
Total nonoperating net expense 

Excess revenues before capital grants and 
contributions, and transfer requirements 
Capital grants and contributions 

Excess revenues before transfer requirements 

Excess revenues used to fund reserves and other deferrals (note 2) 
Change in accumulated revenues used to offset future rates (note 2) 

Change in net assets 

Net assets, beginning of year 

Net assets, end of year 



2004 2003 



$221,749,374 


205,000,340 


3,222,465 


3,108,779 


3,787,075 


13,806,299 


228,758,914 


221,915,418 


44,365,699 


45,156,684 


5,691,954 


7,704,164 


136,473,253 


135,185,604 


14,270,290 


15,843,547 


200,801,196 


203,889,999 


27,957,718 


18,025,419 


6,687,643 


4,243,091 


(15,031,958) 


(15,570,825) 


(8,344,315) 


(11,327,734) 


19,613,403 


6,697,685 


29,781,881 


29,352,147 


49,395,284 


36,049,832 


(16,016,268) 


(9,949,275) 


(7,250,802) 


(89,196) 


26,128,214 


26,011,361 


211,262,252 


185,250,891 


$237,390,466 


211,262,252 



16 



ANNUAL 



REPORT 



2 4 



Statements of Cash Flows 

Years ended December 31, 2004 and 2003 

See accompanying notes to financial statement 



2004 



2003 



Cash flows from operating activities: 
Receipts from customers 
Payments to suppliers 
Payments to employees 
Net cash provided by operating activities 

Cash flows from investing activities: 
Investment income 
(Purchase) sale of investments 
Net cash (used) provided by investing activities 

Cash flows from capital and related financing activities: 
Purchase of capital assets 
Proceeds from debt 
Payment of bond principal 
Capital contributions 
Payment of bond interest 

Net cash used in capital and related financing activities 

Net (decrease) 

Cash and cash equivalents, beginning of year 
Cash and cash equivalents, end of year 

Reconciliation of operating income to net cash provided by operating activities: 
Excess operating revenues 

Adjustments to reconcile operating income to net cash: 
Reserves released to stabilize rates 
Depreciation and amortization 
Changes in assets and liabilities: 
Accounts receivable, net 
Unbilled revenues 
Construction grants receivable 
Prepaid expenses 
Accounts payable 
Other accrued liabilities 
Other long-term liabilities 
Net cash provided by operating activities 



$225,000,583 


210,409,164 


(158,588,250) 


(155,197,516) 


(30,697,104) 


(28,026,178) 


35,715,229 


27,185,470 


6,687,643 


4,243,091 


(44,586,324) 


44,967,857 


(37,898,681) 


49,210,948 


(62,539,231) 


(75,293,961) 


60,525,497 


40,189,895 


(16,045,865) 


(56,377,115) 


29,781,881 


29,352,147 


(14,311,597) 


(15,472,096) 


(2,589,315) 


(77,601,130) 


(4,772,767) 


(1,204,712) 


8,135,734 


9,340,446 


$3,362,967 


8,135,734 


$27,957,718 


18,025,419 


— 


(10,530,561) 


14,270,290 


15,843,547 


(1,412,071) 


(561,260) 


(2,319,832) 


(460,267) 


(26,428) 


45,834 


(73,895) 


(72,265) 


(362,646) 


4,630,812 


(338,297) 


409,117 


(1,979,610) 


(144,906) 


$35,715,229 


27,185,470 



17 



O S T O N 



WATER 



AND 



SEWER 



COMMISSION 



Notes to Financial Statements 



December 31, 2004 and 2003 



(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. 

Under the Enabling Act, the Commission is subject to 
regulation with respect to rates, accounting, and other 
matters, where applicable, by the board of commissioners 
(the Board). The Board is appointed by the City's mayor 
subjea to confirmation by the city council. It regiJates 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 opera- 
tions, 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. 71, Accounting 
for the Effects of Certain Types of Regulation. SFAS 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 utilized in the Commission's operational 
budgeting and rate-setting process. The revenues and 
expenses shown on the statements of operations are 
presented on a GAAP basis. A reconciliation between the 
revenues and expenses of these two operating statements 
for the year ended December 31, 2004 is provided below: 



As presented in the statements of operations: 
Operating revenues/expenses 
Other revenues/expenses 
Total 

Reclassifications and deferrals: 
Contributions to reserves 
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 



Revenues 


Expenses 


$228,758,914 


200,801,196 


6,687,643 


15,031,958 


235,446,557 


215,833,154 




877,786 


(5,468,201) 


(5,468,201) 


— 


1,899,482 


— 


(914,987) 


(962,444) 


— 


— 


9,624,738 


527,804 


— 


— 


(86,862) 


$229,543,716 


221,765,110 



ANNUAL 



REPORT 



2 4 



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 $7,778,606 
and $527,804 for the years ended December 31, 2004 
and 2003, respectively, to offset rates in the respective 
subsequent years. 

(a) Revenue Billings 

Water and sewerage fees are billed 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 2004 and 2003 total customer 
bills outstanding of $22,157,519 and $23,584,018, 
respectively, have been reduced by provisions for billing 
adjustments and sewer abatements of $8,519,780 and 
$10,019,780 in 2004 and 2003, respectively These net 
billing amounts are further reduced by an allowance for 
uncollectible accounts of $4,096,888 and $5,435,458 in 
2004 and 2003, respectively, to arrive at net accounts 
receivable. 



liability for both amounts is calculated based on the 
pay or salary rates in effect at the statements of net 
assets dates. 

(e) Depreciation 

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



Water: 
Works 
Meters 
Hydrants 

Sewerage: 
Works 

Pumping station 
Buildings 
Gtlier 



Years 

100 
10 
40 



75 
35 
40 

4 to 14 



(b) Investments 

Investments are stated at fair value. Fair value is 
determined based on quoted market prices. 

(c) Capital Assets 

Capital assets are 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 over $500 
are capitalized and depreciated over their estimated 
useful lives. 

The Commission capitalizes interest costs during 
construction of assets for its own use. No interest 
was capitalized in 2004 or 2003 because the amount 
calculated was not material. 

(d) Compensated Absences 

Various employees of the Commission accumulate 
unused sick and vacation time (subject to certain limi- 
tations) 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 amoimt 
accumulated at the statements of net assets dates. The 



(f) Cash Equivalents 

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

(g) Bond Issue Costs 

Bond issue costs are amortized on a weighted average 
basis over the life of the bonds, which approximates 
the effective interest method. 

(h) Business-Type 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. 

Business-type activity funds distinguish operating 
revenues and expenses from nonoperating items. 
Operating revenues and expenses result from providing 
services in connection with ongoing operations. 
All revenues and expenses not meeting this definition 
are reported as nonoperating revenues and expenses. 



19 



O S T O N 



WATER 



AND 



SEWER 



COMMISSION 



Notes to Financial Statements, continued 



(i) Use of Estimates 

The preparation of financial statements in conformity 
with accounting principles generally accepted in the 
United States of America requires management to 
make estimates and assumptions that affect the reported 
amounts of assets and liabilities, and disclosure of 
contingent assets and liabilities, at the dates of the 
financial statements and the reported amounts of 
revenues and expenses during the reporting periods. 
Actual results could differ from those estimates. 

(j) Reclassifications 

Certain 2003 amoimts have been reclassified to 

conform with the 2004 presentation. 



(2) Deferred Charges and Credits 

As discussed in note 1, the application of SFAS No. 71 
results in certain revenues and expenses being removed 
from the statements of operations and reflected in the 
statements of net assets as deferred credits or deferred 
charges, respectively. The revenues and expenses that have 
been removed from the statements of operations and 
added to the statements of net assets as deferred credits or 
charges appear in the line "Excess revenues used to fund 
reserves and other deferrals" on the statements of 
operations. The components of these amounts, which 
are based on approval of the Board, are as follows: 



Contributions to reserves 

Principal payments on long-term debt 

Interest paid from escrow funds 

Capital expenditures 

Depreciation and amortization 

Investment income on project and escrow funds 

Qtfier 



2004 


2003 


$877,786 


855,201 


15,556,963 


14,518,527 


(914,987) 


(974,798) 


9,624,738 


10,768,406 


(10,616,624) 


(12,502,761) 


962,444 


(3,602,058) 


525,948 


886,758 


$16,016,268 


9,949,275 



The components of deferred charges included in the accompanying statements of net assets are as follows: 



Deferred loss on land taking 
Deferred pension expense 
Debt extinguishment expense 
Total deferred charges 



2004 


2003 


$5,526,667 


5,747,733 


11,195,398 


11,808,209 


3,558,476 


3,819,176 



$ 20,280,541 



21,375,118 



20 



ANNUAL REPORT 2004 



The activity in and components of deferred credits and reserves included in the accompanying statements of net assets are as 
follows: 



De( 

Debt service 
Capital improvements 
Working capital 
Self-insurance 


:ember31,2002 

$124,445,837 

198,346,649 

24,528,426 

2,240,000 

349,560,912 

438,608 
$349,999,520 


lncrease/(decrease) 

855,201 

9,094,073 

(2,342,971) 


December 31, 2003 

125,301,038 

207,440,722 

22,185,455 

2,240,000 

357,167,215 

527,804 
357,695,019 


Increase 

877,786 
15,247,778 


December 31, 2004 

126,178,824 

222,688,500 

22,185,455 

2,240,000 


Reduction of future rates 

Total deferred credits 
and reserves 


7,606,303 
89,196 

7,695,499 


16,125,564 
7,250,802 

23,376,366 


373,292,779 
7,778,606 

381,071,385 



(3) Capital Assets 

The cost and activity of water and sewerage capital assets in service and related acciunulated depreciation at December 31, 
2004 and 2003 are as follows: 





Balance at 


Increases 


Decreases 


Balance at 


December 31, 2003 






December 31, 2004 


Capital assets not being depreciated; 










Land 


$2,519,243 


— 


— 


2,519,243 


Construction in progress 


172,377,508 


63,686,615 


28,180,832 


207,883,291 


Total capital assets not being depreciated 


174,896,751 


63,686,615 


28,180,832 


210,402,534 


Capital assets being depreciated: 










Buildings and improvements 


60,850,992 


9,085 


— 


60,860,077 


Machinery and equipment 


22,502,364 


1,882,254 


— 


24,384,618 


Infrastructure 


579,737,104 
663,090,460 


27,641,794 
29,533,133 


— 


607,378,898 


Total capital assets being depreciated 


— 


692,623,593 


Less accumulated depreciation for: 






Buildings and improvements 


4,015,201 


1,622,614 


— 


5,637,815 


Machinery and equipment 


16,642,536 


1,691,362 


— 


18,333,898 


Infrastructure 


130,917,345 

151,575,082 

511,515,378 

$686,412,129 


9,035,764 
12,349,740 
17,183,393 
80,870,008 


— 


139,953,109 


Total accumulated depreciation 


— 


163,924,822 


Total capital assets being depreciated, net 


— 


528,698,771 


Capital assets, net 


28,180,832 


739,101,305 



21 



BOSTON WATER AND SEWER COMMISSION 



Notes to Financial Statements, continued 





Balance at 


Increases 


Decreases 


Balance at 


December 31, 2003 






December 31, 2004 


Capital assets not being depreciated: 










Land 


$2,519,243 


— 


— 


2,519,243 


Construction in progress 


143,685,107 


71,395,248 


42,702,847 


172,377,508 


Total capital assets not being depreciated 


146,204,350 


71,395,248 


42,702,847 


174,896,751 


Capital assets being depreciated: 










Buildings and improvements 


59,730,528 


1,120,464 


— 


60,850,992 


Machinery and equipment 


21,979,210 


795,509 


272,355 


22,502,364 


Infrastructure 


537,305,662 
619,015,400 


42,431,442 
44,347,415 


— 


579,737,104 


Total capital assets being depreciated 


272,355 


663,090,460 


Less accumulated depreciation for: 










Buildings and improvements 


2,397,760 


1,617,441 


— 


4,015,201 


Machinery and equipment 


14,797,209 


2,076,821 


231,494 


16,642,536 


Infrastructure 


120,631,526 
137,826,495 


10,285,819 
13,980,081 


— 


130,917,345 


Total accumulated depreciation 


231,494 


151,575,082 


Total capital assets being depreciated, net 


481,188,905 


30,367,334 


40,861 


511,515,378 


Capital assets, net 


$627,393,255 


101,762,582 


42,743,708 


686,412,129 



During 1999, the Boston Redevelopment Authority (the 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. A portion of this loss, $6,632,000, of which 
$5,526,667 remains unamortized at December 31, 2004, was included in deferred charges in the accompanying statements 
of net assets as that amount will be recovered through future rates. The Commission was paid no compensation for the 
land and does not expect to receive any consideration from the BRA in the future. 



22 



ANNUAL REPORT 2004 



(4) Long-Term Obligations 

The Commission issues revenue bonds to support various projects. 

The following is a summary of revenue bond activity for the years ended December 31, 2004 and 2003 (amounts 
in thousands): 

Balance at Additions Reductions Balance at 

DESCRIPTION December 31 , 2003 December 31 , 2004 

Revenue bonds: 

1 992 Series A, bearing interest rates ranging 
from 5.5% to 5.75%, with maturity dates 

ranging from November 1,2004 to 2013 $30,810 — — 30,810 

1993 Series A, bearing interest rates ranging 
from 4.6% to 5.25%, with maturity dates 

ranging from November 1,2004 to 2019 46,735 — — 46,735 

1994 Series A, bearing a variable interest rate, 
with maturity dates ranging from 

Novemberl, 2004 to 2024 34,300 — 800 33,500 

1998 Series A, bearing interest rates ranging 

from 5.0% to 5.125%, with maturity dates 

ranging from November 1,2014 to 2015 12,960 — — 12,960 

1998 Series C, bearing interest rates ranging 

from 4.5% to 5.2%, with maturity dates 

ranging from November 1,2004 to 2021 11,250 — 10 11,240 

1998 Series D, bearing Interest rates ranging 

from 4.5% to 5.0%, with maturity dates 

ranging from November 1,2004 to 2028 120,225 — 2,615 117,610 

2002 Series A, bearing interest rates ranging 
from 2.0% to 3.0%, with maturity dates 

ranging from November 1,2004 to 2007 15,365 — 3,705 11,660 

2003 Series A, bearing interest rates ranging 
from 2.4% to 4.0%, with maturity dates 

ranging from November 1,2004 to 2011 28,930 — 3,225 25,705 

2004 Series A, bearing Interest rates ranging 
from 3.0% to 5.0%, with maturity dates 

ranging from November 1,2005 to 2025 — 52,950 — 52,950 

300,575 52,950 10,355 343,170 

Less unamortized loss on refunding (6,746) — (2,147) (4,599) 

Less net unamortized (discount) unaccreted premium (407) 1,751 203 1,141 

Net revenue bonds $293,422 54,701 8,411 339,712 



23 



BOSTON WATER AND SEWER COMMISSION 



Notes to Financial Statements, continued 



Balance at Additions Reductions Balance at 

DESCRIPTION December 31 , 2002 December 31 , 2003 

Revenue bonds: 

1992 Series A, bearing interest rates ranging 
from 5.5% to 5.75%, with maturity dates 

ranging from November 1,2003 to 2013 $30,810 — — 30,810 

1993 Series A, bearing interest rates ranging 
from 4.6% to 5.25%, with maturity dates 

ranging from November 1,2003 to 2019 90,950 — 44,215 46,735 

1994 Series A, bearing a variable interest 
rate, with maturity dates ranging from 

November 1,2003 to 2024 35,100 — 800 34,300 

1998 Series A, bearing interest rates ranging 

from 5.0% to 5.125%, with maturity dates 

ranging from November 1,2014 to 2015 12,960 — — 12,960 

1998 Series C, bearing interest rates ranging 

from 4.5% to 5.2%, with maturity dates 

ranging from November 1,2003 to 2021 11,260 — 10 11,250 

1998 Series D, bearing interest rates ranging 

from 4.5% to 5.0%, with maturity dates 

ranging from November 1,2003 to 2028 122,730 — 2,505 120,225 

2002 Series A, bearing interest rates ranging 
from 2.0% to 3.0%, with maturity dates 

ranging from November 1,2003 to 2007 19,005 — 3,640 15,365 

2003 Series A, bearing interest rates ranging 
from 2.4% to 4.0%, with maturity dates 

ranging from November 1,2004 to 2011 ^ 28,930 — 28,930 

322,815 28,930 

Less unamortized loss on refunding 1 ,025 6,087 

Less unamortized issue discount 1 ,433 — 

Net revenue bonds $320,357 22,843 



51,170 


300,575 


366 


6,746 


1,026 


407 


49,778 


293,422 



24 



ANNUAL REPORT 2004 



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



2005 

2006 

2007 

2008 

2009 

2010-2014 

2015-2019 

2020-2024 

2025-2029 



REVENUE BONDS 




Principal 


Interest 


$11,540 


16,912 


11,930 


16,530 


12,355 


16,109 


12,825 


15,629 


13,430 


15,020 


78,000 


64,228 


85,505 


42,896 


83,210 


20,305 


34,375 


3,762 


$343,170 


211,391 



(a) Prior Year Debt Refundings 

In the aggregate, $181,755,000 remains outstanding at December 31, 2004 on the bond issues that were defeased 
"in-substance" during prior years. 

(b) Trusteed and Nontrusteed Cash and Investments 

The Commission has established both trusteed and nontrusteed funds with investments, principally short-term 
securities, which are restricted for payment of specified liabihties, capital projects, or other costs of operations. 
The components of the trusteed and nontrusteed investments at December 31, 2004 and 2003 are as follows: 



2004 



2003 



Trusteed: 
Other governmental obligations 
Money market and cash investments 
Open-ended mutual funds 
Commercial paper 
Repurchase agreements 

Nontmsteed: 
Other governmental obligations 
Money market and cash investments 
Open-ended mutual funds 
Commercial paper 
Repurchase agreements 



Less trusteed and nontrusteed cash 
Trusteed and nontrusteed investments 



$100,983,157 


106,945,246 


608,878 


1,777,909 


4,893,913 


8,601,319 


46,031,993 


28,176,876 


11,746,250 


8,416,250 


164,264,191 


153,917,600 


274,423 


439,619 


1,734,501 


1,586,052 


20,487,990 


38,215,494 


13,307,978 


13,014,920 


51,690,926 


— 


87,495,818 


53,256,085 


251,760,009 


207,173,685 


(2,343,379) 


(3,363,961) 


$249,416,630 


203,809,724 



25 



BOSTON WATER AND SEWER COMMISSION 



Notes to Financial Statements, continued 



(c) Long-Term Notes Payable 

During 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. For purposes of offsetting principal and interest 
payments, an amount aggregating $12,381,288, consisting 
of contract assistance payments from the Commonwealth 
of Massachusetts and other interest subsidies from 
MWPAT, will be recognized as capital grants over the 
remaining term of the loans. 



The Commission has entered into various interest-free 
loan agreements with the Massachusetts Water Resources 
Authority (the MWRA or the Authority). Under these 
agreements, the Commission is required to repay these 
loans in annual installments as part of the Authority's 
Infiltration/Inflow Local Financial Assistance program 
(I/I), Local Water Infrastructure Rehabilitation Program 
(WIR), and Pipeline Assistance Program (PAP). These 
programs are designed to assist service area commimities 
with sewer system rehabilitation. 



The scheduled loan payments for all MWPAT obligations 
and related subsidies are shown below (amounts in 
thousands): 











LOAN SUBSIDY AMOUNTS 






SCHEDULED LOAN REPAYMENTS 




Equity 


Contract 
assistance 




NET LOAN REPAYMENTS 




Principal 


Interest 


Total 


earnings 


payments 


Total 


Principal 


Interest Total 


2005 


$1,510 


1,115 


2,625 


$542 


859 


1,401 


$992 


232 1,224 


2006 


1,573 


1,031 


2,604 


501 


862 


1,363 


1,029 


212 1,241 


2007 


1,647 


940 


2,587 


458 


862 


1,320 


1,075 


192 1,267 


2008 


1,728 


845 


2,573 


413 


859 


1,272 


1,129 


172 1,301 


2009 


1,813 


742 


2,555 


365 


860 


1,225 


1,185 


145 1,330 


2010-2014 


9,498 


2,081 


11,579 


1,042 


3,783 


4,825 


6,359 


395 6,754 


2015-2019 


2,974 


190 


3,164 


103 


872 


975 


2178 


11 2,189 




$20,743 


6,944 


27,687 


$3,424 


8,957 


12,381 


$13,947 


1,359 15,306 



26 



ANNUAL REPORT 2004 



The following is a summary of long-term note activities for the years ended December 31, 2004 and 2003: 



1, 


Balance at 


Additions 


Reductions 


Balance at 




December 31, 2003 






December 31, 2004 


MWRA I/I Program Phase III, interest free, 










due November 15, 2009 


$2,032,298 


1,416,008 


749,475 


2,698,831 


MWRA I/I Program Phase IV, interest free. 










due February 15, 2008 


3,501,589 


— 


700,319 


2,801,270 


MWRAWIR Program, interest free, 










due November 15, 2004 


332,521 


— 


332,521 


— 


MWRA PAP Program, interest free. 










due November 15, 2014 


21,732,285 


6,159,489 


2,462,619 


25,429,155 


MWPAT Pool 1, subsidized interest. 










dueAugust 1,2013 


6,846,959 


— 


531,637 


6,315,322 


MWPAT Pool II, subsidized interest. 










dueAugust 1,2015 


6,178,350 


— 


375,425 


5,802,925 


MWPAT Pool III, subsidized interest. 










due February 1,2017 


9,163,592 
$49,787,594 


— 


538,869 
5,690,865 


8,624,723 


Total long-temi notes 


7,575,497 


51,672,226 




Balance at 


Increases 


Decreases 


Balance at 




December 31, 2002 






December 31, 2003 


MWRA I/I Program Phase II, interest free. 










due November 15, 2003 


$221,797 


— 


221,797 


— 


MWRA I/I Program Phase III, interest free. 










due November 15, 2004 


1,088,418 


1,603,529 


659,649 


2,032,298 


MWRA I/I Program Phase IV, interest free, 










due February 15, 2008 


— 


3,501,589 


— 


3,501,589 


MWRAWIR Program, interest free. 










due November 15, 2004 


1,416,015 


— 


1,083,494 


332,521 


MWRA PAP Program, interest free, 










due November 15, 2011 


17,424,649 


6,154,777 


1,847,141 


21,732,285 


MWPAT Pool 1, subsidized interest. 










dueAugust 1,2013 


7,354,257 


— 


507,298 


6,846,959 


MWPAT Pool II, subsidized interest, 










dueAugust 1,2015 


6,535,728 


— 


357,378 


6,178,350 


MWPAT Pool III, subsidized interest. 










due February 1,2017 


9,693,950 
$43,734,814 


— 


530,358 
5,207,115 


9,163,592 


Total long-term notes 


11,259,895 


49,787,594 









27 



BOSTON WATER AND SEWER COMMISSION 



Notes to Financial Statements, continued 



(5) Massachusetts Water Resources Authority 

The MWRA provides all of 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 MWRA's 
fiscal year (July 1 to June 30), and payments are due to 
the Authority in ten equal installments excluding the 
months of January and July. Amounts included in the 
statements of operations as assessments by the Authority 
for 2004 and 2003 are as follows: 



Assessments allocated on: 
Water usage 
Wastewater usage 

Total 



2004 

$49,644,220 
86,829,033 



2003 

46,875,982 
88,309,622 



$136,473,253 135,185,604 



In 2004 and 2003, over 81% of water provided from the 
Authority was billable to customers. Since its inception, 
the Commission has maintained the percentage of billable 
water at 78% and is continuing to take steps to improve 
the amount of billable water, including replacement of old 
and defective meters and implementation of a comprehen- 
sive 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 City departments during 
2004 and 2003, respectively, based on actual consump- 
tion of $4,289,727 and $4,652,674 in 2004 and 2003, 
respectively. 

The City provides services to the Commission, including 
paving and facilities rental. Operating costs billed to the 
Commission by the City were $561,745 and $1,200,552 
during 2004 and 2003, respectively. Capital costs billed 
by the City were $2,564,963 and $2,678,231 during 
2004 and 2003, 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 agree- 
ment, the City provides collection services on these bills 
for an administrative fee. As of December 31, 2004, 
receivables totaling approximately $268,253 of billings 
had been included on property tax bills. 



Under the Commission's own tax lien program, accounts 
which have unpaid balances over two years old are trans- 
ferred into the tax lien program for collection. As of 
December 31, 2004 and 2003, $1,540,532 and $2,380,564, 
respectively, remain outstanding. 



(7) Retirement Benefits 

The Commission provides retirement benefits to 
substantially all of its employees through the State- 
Boston Retirement System (the SBRS or the System). 
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 funded 
primarily through 1985 and 1986 bond proceeds and is 
recorded as a deferred charge that will be recovered 
through future rates. As part of the settlement with the 
SBRS, the Commission annually reimburses the City for 
the Commission's share of pension benefits paid to 
Commission employees. The Commission's share is based 
upon the proportion of each employee's total years of 
creditable service, level of compensation, and group 
classification. Employees become 100% vested after 
ten 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, multiemployer, 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 benefit provi- 
sions of the plan. The System issues a publicly available 
financial report which can be obtained through the 
Commonwealth of Massachusetts, Public Employee 
Retirement Administration Commission (PERAC), 
One Ashburton Place, Boston, Massachusetts 02108. 

(b) Funding Policy 

Plan members are required to contribute to the SBRS 
at rates ranging from 5% to 11% of annual covered 
compensation. The Commission is required to pay into 
the SBRS its share of the remaining systemwide actuari- 
ally determined contribution plus administration costs, 
which are apportioned among the employers based on 
active covered payroll. Through fiscal 1998, the 



28 



ANNUAL REPORT 2004 



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 
funding 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 Commission are governed by Chapter 32 of the 
MGL. The Commission's contributions to the System 
for the years ended December 31, 2004, 2003, and 
2002 were $476,600, $456,264, and $481,719, respec- 
tively, which equaled its required contribution each 
year. Total employee contributions, based on actuarially 
determined amounts, were $2,102,306, $1,946,993, 
and $2,001,820, or 8.6%, 8.5%, and 8.3% of covered 
payroll, in 2004, 2003, and 2002, respectively. 

(c) The Commission's Trust Fund 
On a quarterly 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 and are either returned 
to employees upon termination oi; 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 actuari- 
ally determined cost of future benefits, net of employee 
contributions. 

Trust fund assets at December 31, 2004 and 2003 are 
as follows: 



The trust ftmd activity is as follows: 



Assets (at fair value): 
Common stock 
Intemational stock 
Mutual funds 
Fixed income 

Total 



2004 

$32,461,853 

10,379,740 

753,810 

26,187,560 

$69,782,963 



2003 

32,005,754 

8,192,654 

1,012,557 

24,870,128 

66,081,093 



Assets (at fair value), December 31 , 2002 


$55,615,132 


Employer contributions 


456,264 


Investment income and gains 


12,505,237 


Management fees 


(286,072) 


Payments to the SBRS 


(2,209,468) 


Assets (at fair value), December 31 , 2003 


66,081,093 


Employer contributions 


476,600 


Investment Income and gains 


6,193,214 


Management fees 


(234,878) 


Payments to the SBRS 


(2,733,066) 


Assets (at fair value), December 31 , 2004 


$69,782,963 



The investment portfolio is regulated by the MGL, 
Chapter 32, Section 23. The investments are managed 
by independent investment advisors. Bank of America 
is the custodian of the portfolio. The trust fund assets 
will be used by the Commission to reimburse the SBRS 
in future years for required employer contributions. 



(8) Deposits and Investments 

The Commission's General Revenue Bond Resolution, 
adopted December 6, 1984, as amended, places certain lim- 
itations on the nature of deposits and investments available 
to the Commission. Demand deposits and term deposits 
wdthout coUateralization 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 obliga- 
tions carrying the highest bond rating; commercial paper 
rated A-1 or P-1; A-rated money market funds; fully collat- 
eralized investment contracts, and certain futures contracts. 
In addition, the Commission's trust fund has additional 
investment powers, most notably the ability to invest in 
stocks, corporate bonds, and other instruments. 



(a) Deposits 

A summary of the Commission's deposits that are fully 
insured or collateralized with securities held by the 
Commission or its agent in the Commission's name 
(Category 1), those deposits that are collateralized with 
securities held by the pledging financial instimtion's trust 
department or agent in the Commission's name (Category 
2), and those deposits that are not collateralized as of 
December 31, 2004 and 2003 (Category 3) follows: 



29 



OSTON WATER AND SEWER COMMISSION 



Notes to Financial Statements, continued 



2004 

Cash 

Bank money market deposits 


1 
$100,000 


Category 
2 


3 

5,342,503 
2,343,379 
7,685,882 


Total bank balance 

5,442,503 
2,343,379 
7,785,882 


Carrying amount 

3,362,967 
2,343,379 


Total 


$100,000 


— 


5,706,346 








2003 

Cash 

Bank money market deposits 


1 

$100,000 


Category 
2 


3 

8,595,758 

3,363,961 

11,959,719 


Total bank balance 

8,695,758 

3,363,961 

12,059,719 


Carrying amount 

8,135,734 
3,363,961 


Total 


$100,000 


— 


11,499,695 









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 custodial credit risk assumed by the Commission. 
Category 1 includes investments that are insured, registered, or held by the Commission's trustee in the Commission's 
name. Category 2 includes uninsured and unregistered investments held by the counterparty's trust department or agent in 
the Commission's name. Category 3 includes uninsured or unregistered investments held by the counterparty, its trust 
department, or agent but not in the Commission's name. 



2004 

Categorized: 
U.S. government agency obligations 
Repurchase agreements 
Commercial paper 


1 
$— 


Category 
2 

101,257,580 
63,437,176 
59,339,971 

224,034,727 


3 


Total 


— 


— 


Not categorized: 

Open-ended mutual funds 
Total 






2003 

Categorized: 
U.S. government agency obligations 
Repurchase agreements 
Commercial paper 


1 
$— 


Category 
2 

107,384,865 

8,416,250 

41,191,796 

156,992,911 


3 


Total 


— 


— 


Not categorized: 

Open-ended mutual funds 
Total 







Fair value 

101,257,580 
63,437,176 
59,339,971 

224,034,727 

25,381,903 
$249,416,630 



Fair value 

107,384,865 

8,416,250 

41,191,796 

156,992,911 

46,816,813 
$203,809,724 



30 



ANNUAL REPORT 2004 



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

(9) Lease Commitments 

The Commission leases equipment under various leases 
that have been accounted for as operating leases. The 
payments received under these leases are not material. 

Rent expense under operating leases amounted to $92,301 
and $95,866 in 2004 and 2003, respectively. 

(10) Commitments 

A major capital improvement program is currendy in 
progress. As part of this program, the Commission has 
entered into a number of contracts for the design and con- 
struction of its water and sewer systems. Commitments 
under these contracts a^regate approximately $37.9 million 
as of December 31, 2004. 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 $143.6 million for 
2005 through 2006. Of this amount, approximately $123.5 
million represents extension and improvement projects, and 
$20.1 million represents renewal and replacement projeas. 
The extension and improvement projeas are expected to be 
22% funded by federal and state grants and Authority grants 
and loans. The remaining amounts will be funded from the 
Commission's bond proceeds 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 unemployment 
benefits. The workers' compensation self-insured retention 
limit is $750,000 per claim and is supplemented with $10 
million in excess coverage purchased through an outside 
carrier. For general liability, the Commission's self-insured 
limits are $1 million per occurrence, $2.5 million aggregate, 
and are subordinate to $10 million of excess coverage 
purchased through an outside carrier. Under the sections 
of the Model Water and Sewer Act, the Commission's tort 
liability is capped at $100,000 per claimant. 

The Commission maintains other insurance coverage as 
follows: 



Policy type 


Coverage 


Health 


Premium based 


Vehicles 


Combined single limit of $1 million 


Property 


Aggregate limit of $77 million 


Public officials 


Coverage of $3 million; 




$1 00,000 self-insurance retention 


Fiduciary 


$2.5 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 proba- 
ble that a loss has been incurred and the amount can be 
reasonably estimated. The Commission has established a 
liability based on historical trends of previous years and 
attorneys' and independent insurance reserve appraiser's 
estimates of pending matters and lawsuits in which the 
Commission is involved. Unemployment claims paid 
during 2004 and 2003 were immaterial. 

Changes for the years ended December 31, 2004, 2003, 
and 2002 are as follows: 



2004 


2003 


2002 


Beginning balance of reserves $3,188,171 


3,333,077 


2,854,971 


Payment of claims attributable to 






events of both cun-ent and prior years: 






Workers' compensation (406,672) 


(339,895) 


(333,044) 


General liability (78,835) 


(403,689) 


(252,215) 


Incun-ed claims 420,000 


598,678 


1,063,365 


Ending balance of reserves $3,1 22,664 


3,188,171 


3,333,077 



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

(12) Contingencies 

The Commission is involved in ordinary and routine 
litigation and other matters related to its operations and 
the establishment of rates. Management believes that the 
resolution of these matters will not materially affect the 
financial position of the Commission. 

The Commission has received federal and state grants for 
specific purposes that are subject to review and audit by 
the grantor 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 10) addresses probable actions that the 
Commission may be required to undertake in connection with 
this litigation. Additionally, the Commission is likely to beat; 
either directly or through future assessments of the MWRA, a 
substantial portion of the financial costs involved. As of 
December 31, 2004, the overall cleanup costs are estimated to 
be approximately $747 million. However, the extent of the 
Commission's liability for these costs cannot be determined. 



31 



BOSTON WATER AND SEWER COMMISSION 



Supplemental Schedule of Revenues and Expenses — Rate Basis 
Years ended December 31, 2004 and 2003 



See accompanying independent auditor's report 

Revenues: 
Water revenue 
Sewer revenue 

Subtotal 
Less: 
Adjustments 
Discounts 
Bad debt 

Subtotal 

Net billed charges 

Prior year surplus 

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

Direct operating expenses: 
Salaries and wages 
Overtime wages 
Fringe benefits 
Supplies and materials 
Repairs and maintenance 
Utilities 

Professional services 
Space and equipment rentals 
Other services 
Insurance 
Travel and training 
Damage claims 
Inventory 
Capital outlay 
Total direct operating expenses 

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

Total nonoperating expenses 

Total current expenses 

Cun^ent year rate surplus 



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. 



2004 



527,804 



2003 



$93,775,330 


85,996,060 


127,974,044 


119,004,280 


221,749,374 


205,000,340 


4,175,472 


6,095,736 


875,848 


867,894 


416,881 


786,729 


5,468,201 


7,750,359 


216,281,173 


197,249,981 



438,608 



1,226,004 


1,309,806 


4,499,195 


6,535,345 


3,222,465 


3,108,779 


3,787,075 


13,806,299 


229,543,716 


222,448,818 


25,206,587 


24,101,884 


749,687 


686,946 


4,900,011 


4,526,164 


2,220,115 


2,013,603 


5,691,954 


7,704,164 


1,174,809 


1,090,693 


2,726,639 


2,834,941 


92,301 


95,867 


1,175,394 


1,201,341 


729,405 


701,958 


38,933 


53,754 


133,287 


721,690 


28,470 


7,059 


50,932 


623,996 


44,918,524 


46,364,060 


136,473,253 


135,185,604 


9,573,805 


10,144,410 


15,556,963 


14,518,527 


14,116,971 


14,596,027 


877,786 


855,201 


247,808 


257,185 


176,846,586 


175,556,954 


221,765,110 


221,921,014 


$7,778,606 


527,804 



32 









Photographs of Boston Water and Sewer Commission: Jeremy Staffer 
Annual Report Design: Hudson Nummerdor 





Boston Water and 
Sewer Commission 

980 Harrison Avenue 
Boston, MA 02119 



617-989-7000 
www.bwsc.org