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21 ST CENTURY CUSTOMER SERVICE
RESOURCES
QUALITY ASSISTANCE
Boston Water and Sewer Commission
Annual Report 2006
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Left to Right: Vincent G. Mannering, Executive Director;
Dennis DiMarzio, Chair, Board of Commissioners;
Cathleen Douglas Stone, Commissioner; and
Muhammad Ali-Salaam, Commissioner
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MESSAGE FROM THE
EXECUTIVE DIRECTOR
What can't be measured can't be managed. Today, when it
seems the cost of government at the local, state and federal
levels is inflating more rapidly than at any time in recent
memory, a public agency like the Boston Water and Sewer
Commission (BWSC) must manage its resources carefully.
We are responsible to our ratepayers: responsible to deliver
a quality product, to preserve our resources, to protect
your health, to minimize costs and save you money, and do
it all while still providing the high level of service you have
come to expect from BWSC.
In 1995, Mayor Menino charged me with controlling ever
increasing water and sewer rates. Rising housing, home
heating and electricity costs may be pinching household
budgets everywhere, but I am proud to say that, through
effective management and hard work, we have met the
Mayor's challenge. Since 1995, Boston's water and sewer
rates have risen less than the rate of inflation, going from
among the highest to among the lowest rates in the
MWRA district.
However, effective management means more than saving
money. It means managing resources, both human and
natural. Today our employees are more productive than
they have ever been; by applying the latest technology
they are more responsive to our ratepayers. This effective
management has been rewarded with two bond upgrades
and now the BWSC enjoys its highest bond rating ever.
Effective management also helps conserve the resource it
is our mission to deliver. Thirty years ago, Boston's aging
water infrastructure lost 70 million gallons of water daily.
Since then, BWSC has reduced its water loss by more than
70% and today meets the water distribution needs of
Boston's residents and businesses using less water than it
lost those 30 years ago.
In these difficult fiscal times, doing more with less isn't a
luxury; it's a necessity. Even as we keep rates low and
conserve water, BWSC will continue to protect the
environment and the health and well-being of Boston's
residents. For in the twenty-first century, that is what is
required of us. Twenty-first century customer service
means both careful financial management and responsible
environmental stewardship.
Under Mayor Menino's leadership the City of Boston and
the BWSC are well positioned to meet the challenges of
the new century.
Vincent Mannering
Executive Director
SAVING YOU MONEY
Saving you money requires doing more with less.
Every year, household budgets seem to grow thinner
and thinner. Every year gas, home heating oil and
electricity prices go up. And every year at the Boston
Water and Sewer Commission (BWSC), we pledge to
do all we can to keep water and sewer rates down.
How.' Hard work and responsible fiscal management.
A SKILLED WORKFORCE
At BWSC, the Engineering and Operations Divisions
are integrated units of employees,
trained to perform a broad range
of field service and to respond to
all emergencies. They are
equipped with and trained to
use the latest technology. As a
result, BWSC has been better able
to deploy its workforce as it
responds more rapidly and more
effectively to customer requests.
This is what we mean by doing more with less.
THE BUDGET PROCESS
At BWSC, the budget process does not mean simply
tacking on higher costs of business to the previous
year's budget. If it did, our operating
costs would be inflating as rapidly
as they are at other utilities.
At BWSC, before a single dime is
allocated, every department and
every division sets goals. We then
determine the most cost-effective
ways to achieve those goals.
Through this approach, we achieve value. So much so
that, in the last decade, we have reduced operating costs
19% against inflation.
RESPONSIBLE FISCAL MANAGEMENT
BWSC has the highest bond ratings in its history.
Like a high credit rating, high bond
ratings grant BWSC better access
to more favorable interest rates,
the savings from which we pass
on to our customers. In addition,
BWSC has managed its
outstanding bonds to maximize
opportunities. In the last decade,
refunding the callable portions of
outstanding bonds has generated savings of more
than $19 million.
THE BOTTOM LINE
What does it all mean? Lower water and sewer
rates. Even as electricity, gas, and home heating oil
prices have more than doubled in the last decade,
BWSC has succeeded in freezing rates eight of the last
twelve years. Although inflationary pressure has
sometimes forced us to raise them, Boston's water and
sewer rate increases have remained below the general
rate of inflation.
PRESERVING OUR RESOURCES
ELIMINATING UNBILLED WATER
Unbilled water is the difference between the water BWSC
buys from the Massachusetts Water Resources Authority
(MWRA) and the water we sell to our customers. Some of
this water is lost through illegal conneaions and leaks in the
system's older mains. In 1979, in part to eliminate system
leaks, BWSC initiated a Capital Improvement Program
(CIP) through which we have relined or replaced almost
500 miles of water main. In addition, BWSC has a^ressively
pursued illegal connections. As a result, we have reduced
unbilled water by more than 70% and, today, BWSC on
average delivers less water daily (61 mgd) than was lost in
unbilled water three decades ago (70 mgd).
REDUCING COMBINED SEWER OVERFLOWS
Twenty years ago Boston Harbor was a national embarrass-
ment. Since then the Deer Island Treatment Plant, which
serves 43 Massachusetts cities and towns, has been replaced
with a state-of-the-art facility and the treated wastewater it
now releases into Massachusetts Bay is cleaner than it has
ever been. However, that is only part of the story. When
Boston's sewers were first built, wastewater and stormwater
were collected in the same system, which often overflowed,
releasing the combined sewage direcdy into the harbor and
its tributaries. As part of the CIP, BWSC has worked to
separate combined sewers, all but eliminating overflows
during dry weather and dramatically reducing wet weather
overflows. Last year in recognition of our environmental
efforts, the Boston Harbor Association presented BWSC
with the John Ames Award.
DISCONNECTING DOWNSPOUTS
In a further effort to make sure that the wastewater and
stormwater systems operate separately, BWSC helps home-
owners disconnect downspouts that discharge directly into
the sewer system. By increasing the volume of the water in
the sewer system, connected downspouts can cause sewer
backups into homes and businesses during periods of heavy
rain. Moreover, the inflow from downspouts is delivered to
the Deer Island Treatment Plant. MWRA charges BWSC
based on the total volume of wastewater treated at the plant.
Eliminating stormwater sent to Deer Island reduces BWSC's
operating costs, ultimately saving you money.
FIXING SEWER LATERALS
When a sewer lateral, the pipe connecting your home or
business to the main sewer, becomes blocked or broken, it
poses a risk to your family and to the environment. Raw
sewage can seep from it directly into the ground. While it
is a property owner's responsibility to maintain the sewer
lateral, BWSC recognizes the need to help homeowners
repair or clear broken or obstructed laterals. Preserving
the environment and protecting your health are shared
responsibilities, responsibilities we take seriously because
we know you take them seriously too.
STENCILING STORM DRAINS
Many people assume the grates they see in Boston's gutters
are sewers, but they're not. They are catch basins that
collect runoff when it rains. This water is not transported
to Deer Island for treatment, but empties directly into
Boston Harbor and its tributaries. Illegally dumping
chemicals or oils into catch basins directly impacts local
waterways. BWSC initiated a storm drain stenciling and
education program to inform the public that what is
dumped on our streets and in our storm drains ends up on
our beaches and in our rivers and harbor. BWSC works
with schools and neighborhood groups to stencil the
message "Don't Dump, Drains to Boston Harbor" next
to storm drains throughout the cit\'.
PROTECTING YOUR HEALTH
MAKING SURE YOUR WATER IS CLEAN
BWSC buys the water that flows from
^^C>^ your faucets from the Massachusetts
X< Water Resources Authority. It starts
js^ in the Quabbin and Wachusett
Reservoirs and travels some seventy
miles through MWRA turmels to
29 metered connections, where it
enters the BWSC system. From there
it travels through our mains to your
service pipes and into your home or office. The MWRA
treats your water when it leaves the Quabbin to make
sure it is clean. After its long journey, BWSC wants to
make sure your water is still clean. That is why we
test it daily. Around the city, BWSC has designated
56 sites where we collect water samples. This water is
tested so that we know and you can be assured what
you are drinking and cooking and cleaning with is
clean and healthy.
MAINTAINING OUR SYSTEM
Boston has one of the oldest water distribution systems
in the country. The system we use today opened in
1848. Some of our mains are more than a century old.
That is why one of the goals outlined by our Capital
Improvement Program (CIP) is that by 2010 no pipe in
the system older than 100 years will remain unrehabili-
tated. Aggressively relining and replacing old mains has
helped BWSC maintain the lowest rate of main breaks
of any large system in the country. Relining and replac-
ing mains does more than that however. Older iron and
steel pipes rust. Water that flows through newly relined
mains is cleaner; and just to make sure, BWSC regularly
flushes parts of its system where standing water might
have acquired impurities from sitting in the pipes too
long. By maintaining our system, BWSC helps protect
your health.
REPLACING LEAD
The water you drink is lead-free when it leaves the
Quabbin and Wachusett Reservoirs. Because the
MWRA and BWSC tunnels and mains are made mostly
of iron and steel, they don't add lead to the water.
However, many older homes may have lead piping.
To educate residents about the
possibility that the piping in their
homes may be leaking lead into
their water, BWSC launched a
public information campaign.
The information includes
posting on the BWSC website
(wvvfw.bwsc.org) a geographical
information system (CIS) map of the
entire city, which allows residents to click on their
address and find out whether their service pipes are
lead. Our capacity to inform residents of what material
their service pipes are made was a result of managerial
foresight. When converting from manually-read meters
to the Automated Meter Reading (AMR) system, BWSC
also conducted an onsite survey of all connections to
the meters in its system. BWSC has since informed all
customers who have lead in their services (<5%). The
threat of lead is so serious that BWSC grants $1,000 to
help homeowners eliminate old lead piping.
MAKING IT EASY FOR YOU
BILLING ASSISTANCE
In addition to vigorous efforts to
keep water and sewer rates
affordable, BWSC works with
customers to ensure monthly
payments do not pose a financial
hardship. Programs include elderly
and disabled discounts, payment
plans and the right to service during
serious illness. Homeowners 65 years of age or older, or
fully disabled homeowners living in one to four family
homes, are eligible for a 25% discount on the water
portion of their bill. If a ratepayer needs more time to
pay a bill, BWSC can arrange a payment plan, allowing
the ratepayer to pay the bill over a period of time. In a
further effort to make it easier to pay your bill, BWSC
extends its customer service each month to neighbor-
hood locations throughout Boston. Reaching out to the
commimity strengthens our ability to respond to resident
concerns and provide the most efficient service possible.
ONLINE ACCOUNTS
Neighborhood site visits are not the only means by
which customers can communicate with us. The BWSC
website (www.bwsc.org) allows customers to view
their account information and to pay their bill online.
Your online account even allows you to view your
personal consumption so that you can budget how
much water you use.
CONSTRUCTION REPORTS
So that you are also aware of possible construction activity
in your neighborhood, BWSC regularly posts on its
website notice of construction projects being undertaken
throughout the city. These reports describe the work to be
performed and the purpose for it, list the streets affected
and track the project's progress. This is part of an effort to
share information with customers. BWSC is committed to
a culture of transparency so that our relationship with
Boston's residents and businesses is one based on trust.
READING YOUR METER
In 2004, BWSC completed installation of its state-of-the-
art automated meter reading (AMR) system. The primary
reason we imdertook this ambitious
project was to improve customer
service. With the AMR, BWSC
now reads each and every one of
the meters in its system four
times daily. The data collected
allows us to better serve you.
For example, BWSC has nearly
eliminated bills based on estimated
consumption — previously the most common complaint
we received from customers. More importantly, the
AMR allows us to anticipate customer needs. Spikes in a
property's water consimiption often indicate a leak in the
internal plumbing. BWSC has actually called customers
to inform them they had a leak of which the\' were not
even aware. This is just one more example of the efficient
service BWSC provides its customers.
Digitized by the Internet Archive
in 2010 with funding from
Boston Public Library
http://www.archive.org/details/annualreport2006bostsew
BOSTON WATER AND
SEWER COMMISSION
Financial Statements,
Required Supplementary Information
and Supplemental Schedules
December 31 , 2006 and 2005
(With Independent Auditors' Report Thereon)
m\
mm^^^.
INDEPENDENT
AUDITOR'S 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, 2006 and 2005, 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. An audit includes consideration of internal
control over financial reporting as a basis for designing
audit procedures that are appropriate in the circum-
stances, 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 also includes examining, on
a test basis, evidence supporting the amounts and
disclosures in the financial statements, 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, 2006 and
2005, and the results of its operations and its cash
flows for the years then ended in conformity with U.S.
generally accepted accounting principles.
The Management's Discussion and Analysis on pages 2
through 6 is not a required part of the basic financial
statements, but is supplementary information required
by U.S. generally accepted accounting principles.
We have applied certain limited procedures, which con-
sisted 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 conducted for the purpose of
forming an opinion on the basic financial statements.
The accompanying supplemental schedules 1, 2, and
3 are presented for purposes of additional analysis and
are 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 opinion, is fairly stated in all
material respects in relation to the basic financial
statements taken as a whole.
K>M& LCp
May 25, 2007
\ifat\
im
MANAGEMENT'S DISCUSSION
AND ANALYSIS
Required Supplementary Information,
December 31, 2006 and 2005
(Unaudited)
OVERVIEW
Upon its creation in 1977, the Boston Water and Sewer
Commission (the Commission) assumed the responsibiUty
to provide water distribution, wastewater collection
and storm water drainage services in the City of Boston
(the City).
The Commission has realized a rate basis surplus from its
operation in each year since its inception. In accordance
with the Boston Water and Sewer Reorganization Act of
1977, the Commission applies 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. 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).
The statements of net assets provide information on the
assets and liabilities of the Commission, with net assets
reported as the difference between assets and liabilities.
The statements of operations of the Commission reflect
all revenues earned and all expenses incurred.
Condensed financial information for the most recent
fiscal years is presented in this section of the report.
CONDENSED FINANCIAL INFORMATION
2006
2005
2004
Current assets
$ 35,104,802
32,611,209
26,430,582
Capital assets, net
872,517,983
795,417,390
739,101,305
Other assets
216,671,639
245,773,502
274,110,222
Total assets
1,124,294,424
1,073,802,101
1,039,642,109
Current liabilities
75,580,330
40,671,961
38,655,940
Noncurrent liabilities
759,125,225
757,780,958
763,595,703
Total liabilities
834,705,555
798,452,919
802,251,643
Net assets
Invested in capital assets, net of related debt
516,472,664
470,598,624
417,744,545
Restricted net assets
83,184,014
82,702,304
80,959,511
Unrestricted net deficit
(310,067,809)
(277,951,746)
275,349,182
(261,313,590)
Total net assets
$289,588,869
237,390,466
[lit
A- • ' j-'insmasss^sss
During the year, the Commission saw a sUght increase
in total assets and in total liabilities, resulting in an
increase in total net assets of $14.2 million, or 5.2%.
In 2005, net assets totaled $275.3 million, an
increase of $38.0 million, or 16.0% from 2004.
The Commission's 2006 operations resulted in a
budgetary surplus of $0.1 million, compared to
$0.6 million in 2005 and $7.8 million in 2004.
The Commission invested in various capital assets,
including capital improvement projects, machinery and
equipment, buildings, and improvements. These invest-
ments, net of accumulated depreciation, totaled $872.5
million, which is 9.7% higher than in 2005. In 2005,
these investments totaled $795.4 million, an increase of
$56.3 million, or 7.6% over the 2004 total investment
in capital assets.
Total operating revenues in 2006 were $244.8 million,
which is 2.4% greater than in 2005. Total operating
revenues in 2005 were $239.1 million, representing
an increase in total operating revenue of $10.3 million,
or 4.5% over 2004. Operating revenues consist of
water and sewer revenue, late charge revenue, fire pipe
revenue and other income. Water and sewer revenue in
2006, 2005 and 2004 represented 95.1%, 90.0% and
97.0% of total operating revenues, respectively.
Total operating expenses in 2006 were $223.3 million,
which represents an increase of 4.1% from 2005.
Total operating expenses in 2005 were $214.4 million,
which was $13.6 million, or 6.8%, higher than
2004. Operating expenses consist of operations and
maintenance, Massachusetts Water Resources Authority
(MWRA) assessment, and depreciation and amortiza-
tion. The MWRA assessment is the largest expense
incurred by the Commission, representing 68.6%,
in both 2006 and 2005 and 68.0% in 2004 of total
operating expenses.
CONDENSED FINANCIAL INFORMATION
2006 2005
Operating revenues
Water and sewer usage
Other
Operating expenses
Excess operating revenues
Investment income
Interest expense
Total nonoperating net expense
Excess revenues before capital grants
and contributions and transfer requirements
Capital grants and contributions
Excess revenues used to fund reserves
and other deferrals
Change In accumulated revenues used to
offset future rates
Change in net assets
Net assets, beginning of year
Net assets, end of year
2004
$232,826,975
215,212,365
221,749,374
11,979,637
23,873,471
7,009,540
223,294,165
214,399,120
200,801,196
21,512,447
24,686,716
27,957,718
10,888,561
9,050,638
6,687,643
(17,876,667)
(17,886,207)
(15,031,958)
(6,988,106)
(8,835,569)
(8,344,315)
14,524,341
15,851,147
19,613,403
18,649,193
34,645,337
29,781,881
(19,382,031)
(19,734,082)
(16,016,268)
448,184
7,196,314
(7,250,802)
14,239,687
37,958,716
26,128,214
275,349,182
237,390,466
211,262,252
$289,588,869
275,349,182
237,390,466
Ii!^l
MANAGEMENT'S DISCUSSION
AND ANALYSIS, continued
CAPITAL ASSETS
In fiscal year 2006, major Commission project additions
totaled $43.6 million, of which $27.0 million was
financed with bond proceeds. Major project expendi-
tures (in millions) are as follows:
Relay of watermains
Reline of water mains
Rehabilitation/replacement
of sewers or storm drains
Interceptor improvements
Separation of combined sewers
Infiltration and inflow
Meter replacement
$15.8
7.7
13.7
1.7
1.4
3.0
0.3
$43.6
The Commission's 2007-2009 capital budget includes
projected expenditures of $177.3 million for infrastruc-
ture and capital projects. The major projects are for
the rehabilitation of water mains and the replacement/
rehabilitation of the sewer system. Some water projects
are financed on a pay-as-you-go basis combined with an
interest free loan for water rehabilitation provided by
the MWRA. The majority of the sewer improvements
along with the installation of a new radio frequency
meter reading system will be financed through bond
proceeds. However there are sewer improvements that
are funded through the utilization of the MWRA loan
programs. Please refer to footnote 3 for more detailed
capital asset information.
DEBT PLAN
The Commission is empowered by the Boston Water
and Sewer Reorganization Act of 1977 (the Enabling
Act) to issue bonds and notes payable solely constituted
on the general obligation of the Commission. The
Commission has no legal restrictions concerning the
amount of debt which it may have outstanding,
subject to the coverage requirements described below.
The Commission issues General Revenue Bonds to
finance portions of its capital improvement projects.
The Commission's 2007-2009 capital budget,
which totals $177.3 million, anticipates that projects
totaling $107.2 million, or 60.5% of the Commission's
2007-2009 capital budget, will be funded from bond
proceeds. The 2007 budget for debt service is $35.5
million.
The Commission currently has nine series of General
Revenue Bonds outstanding at the end of 2006, totaling
approximately $319.7 million as follows (in millions):
$ 30.8
46.7
31.7
13.0
11.2
112.0
4.0
18.8
51.5
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
$319.70
Please refer to footnote 4 for more detailed long term
debt information.
DEBT SERVICE COVERAGE REQUIREMENTS
The Commission's bond covenants require 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
agreement 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 maintain rates and charges at levels suffi-
cient 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.
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, paying costs of issuance, paying the principal,
premium and interest on any notes issued in anticipation
of additional 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 outstand-
ing will not be increased as a result of the issuance
of the Refunding Bonds; provided that, in lieu of such
certification, the Commission may deliver to the Trustee
certificates satisfying the conditions described above
for the issuance of additional bonds.
BUDGETS AND RATES
The Commission from 1994 to 2001 was able to
maintain 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
fiscal year 2002. In fiscal year 2003 a rate increase
of 8.9% was implemented on January 1st and another
rate increase of 3.9% on April 1st. As a result, the total
increase in water and sewer rates for fiscal year 2003
was 12.8%. The April increase was due to a special
assessment from the MWRA and the elimination of
the debt service assistance program from the
Commonwealth of Massachusetts. In fiscal year
2004 the water and sewer rate revenue increased by a
combined 5.8%. This new rate increase was effective
on January 1, 2004. There were no additional rate
increases for fiscal year 2005. In 2006, the Commission
modified its inclining block rate structure. The number
of rate blocks was reduced from ten to six, thereby
making the structure easier to understand for customers
while still promoting water conservation and generating
sufficient revenue. In addition, average water and
sewer rates were increased by 9.85%. The major
reasons behind these increases were: (i) the increase
in assessment paid to the Massachusetts Water Resource
Authority (MWRA), and (ii) the decline in water sales
due to general water conservation efforts of individuals
and businesses throughout the City.
Effective January 1, 2007, the Commission increased its
water and sewer rates by an average of 9.25%.
STATEMENTS OF NET ASSETS
December 31, 2006 and 2005
ASSETS
Current assets:
Cash and cash equivalents (note 9)
Accounts receivable, net:
Customers, less allowances of $2,839,653 in 2006 and 2005 (note 1 )
Unbilled revenues, less allowances of $1,702,361 in 2006 and 2005
Construction grants receivable
Prepaid expenses
Total current assets
Noncurrent assets:
Restricted cash and investments (notes 4 and 9)
Capital assets (note 3):
Depreciable, net
Nondepreciable
Deferred charges (note 2)
Bond issue costs, net
Total noncurrent assets
TOTAL ASSETS
LIABILITIES
Current liabilities:
Payable from current assets:
Accounts payable
Other accrued liabilities
Commercial paper notes (note 5)
Current portion of long-term notes (note 4)
Current portion of revenue bonds (note 4)
Total current liabilities
Noncurrent liabilities:
Long-term debt, net (note 4)
Long-term notes payable (note 4)
Other long-term liabilities
Deferred credits and reserves (note 2)
Total noncurrent liabilities
TOTAL LIABILITIES
NET ASSETS
Net assets:
Invested in capital assets, net of related debt
Restricted for debt service
Restricted for capital assets
Restricted for debt covenants
Unrestricted net deficit
TOTAL NET ASSETS
2006
2005
$ 6,782,025
5,304,224
16,842,215
16,967,606
10,889,490
9,762,355
19,535
—
571,537
577,024
35,104,802
32,611,209
197,050,990
224,787,913
663,745,646
637,178,715
208,772,337
158,238,675
17,997,808
19,155,856
1,622,841
1,829,733
1,089,189,522
1,041,190,892
1,124,294,424
1,073,802,101
24,645,796
15,804,012
5,364,015
5,806,165
25,000,000
—
8,215,519
7,131,784
12,355,000
11,930,000
75,580,330
40,671,951
305,080,221
315,809,555
47,362,938
47,604,066
4,799,712
7,321,998
401,882,354
386,045,239
759,125,225
757,780,958
834,705,555
798,452,919
515,472,664
470,598,624
37,618,370
36,492,290
—
2,187,140
45,555,644
44,022,874
(310,067,809)
(277,951,746)
$289,588,869
275,349,182
Commitments and contingencies (notes 11, 12,and 13)
See accompanying notes to financial statements.
Bfe>Sfe&i>-a55S!SC3aii9i^S£5
^^^:^ii^>f:i-21i^-^^J.X^i^'i;:
STATEMENTS OF OPERATIONS
Years ended December 31, 2006 and 2005
2006
2005
Operating revenues:
Water and sewer usage (note 7)
Fire pipe
Ottier(notel)
Total operating revenues
Operating expenses:
Operations
iVlaintenance
iWWRA assessment (note 6)
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)
Ctiange in accumulated revenues used to offset future rates (note 2)
Change in net assets
Net assets, beginning of year
Net assets, end of year
$232,826,975
215,212,365
3,469,844
3,362,480
8,509,793
20,510,991
244,806,612
239,085,836
49,045,154
45,914,266
4,181,233
6,223,180
154,135,878
147,856,848
15,931,900
14,404,826
223,294,165
214,399,120
21,512,447
24,686,716
10,888,561
9,050,638
(17,876,667)
(17,886,207)
(6,988,106)
(8,835,569)
14,524,341
15,851,147
18,649,193
34,645,337
33,173,534
50,496,484
(19,382,031)
(19,734,082)
448,184
7,196,314
14,239,687
37,958,716
275,349,182
237,390,466
$289,588,869
275,349,182
See accompanying notes to financial statements.
SiR
dhlfta»gw«Hi5»r^asKfe^g
STATEMENTS OF CASH FLOWS
Years ended December 31,2006 and 2005
2006
2005
Cash flows from operating activities:
Receipts from customers
Payments to suppliers
Payments to employees
Net cash provided by operating activities
Cash flow/s from investing activities:
Investment income
Sales of investments
Purchases of investments
Net cash provided by investing activities
Cash flow/s from capital and related financing activities:
Purchase of capital assets
Proceeds from debt
Payment of bond principal
Proceeds from commercial paper
Capital contributions
Payment of bond interest
Net cash used in capital and related financing activities
Net increase
Cash, cash equivalents, beginning of year
Cash, cash equivalents, end of year
Reconciliation of operating income to net cash provided by operating activities:
Excess operating revenues
Adjustment 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
Construrtion grants receivable
Prepaid expenses
Accounts payable
Other accrued liabilities
Other long-term liabilities
Net cash provided by operating activities
$240,688,601
227,402,061
(173,583,733)
(170,120,804)
(33,051,556)
(30,732,695)
34,053,312
26,548,562
10,888,561
9,050,638
181,608,643
174,923,801
(153,871,720)
(147,951,704)
38,625,484
36,022,735
(86,604,778)
(70,980,244)
7,974,391
8,956,058
(19,061,786)
(17,432,434)
25,000,000
—
18,649,193
34,645,337
(17,158,015)
(15,818,757)
(71,200,995)
(60,630,040)
1,477,801
1,941,257
5,304,224
3,362,967
$ 6,782,025
5,304,224
$ 21,512,447
24,686,716
(3,096,732)
(7,454,617)
15,931,900
14,404,826
125,391
(7,426,755)
(1,127,135)
1,891,506
(19,535)
1,306,091
5,487
(10,212)
3,632,693
335,846
(388,918)
65,811
(2,522,286)
(1,250,650)
$ 34,053,312
26,548,562
Noncash capital and related financing activities:
Noncash purchases of capital assets totaled $12,293,152 and $7,084,061 in 2006 and 2005, respectively.
See accompanying notes to financial statements.
NOTES TO FrNANCIAL
STATEMENTS
December 31, 2006 and 2005
(1) ORGANIZATION, BASIS OF PRESENTATION,
AND SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES
The Boston Water and Sewer Commission (the
Commission) has the responsibility to provide water
and wastewater services on a fair and equitable basis
in the City of Boston (the City) as required under
the Boston Water and Sewer Reorganization Act of
1977 (the Enabling Act).
Under the Enabling Act, the Commission is subject to
regulation with respect to rates, accounting and other
matters, where applicable, by the board of commissioners
(the Board). The Board is appointed by the City's
Mayor subject to confirmation 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 U.S. 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 (SPAS)
No. 71, Accounting for the Effects of Certain Types of
Regulation. SEAS No. 71 allows certain board approved
(a) revenues provided for future allowable costs to be
deferred until the costs are actually incurred (deferred
credits) and (b) costs inciu-red to be capitalized if future
recovery is reasonably assiu'ed (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
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, 2006 is provided below:
As presented in the statements of operations
Operating revenues/expenses
Other revenues/expenses
Total
Reclassifications and deferrals:
Contributions to reserves
GAAP adjustments
Excess bond payments over depreciation and amortization
Interest expense (escrow^ed funds)
Investment income (escrowed funds)
Capital expenditures
Excess revenue used to offset current rates
Other deferrals
As presented in the supplemental schedule, rate basis
Revenues
Expenses
$244,806,612
223,294,165
10,888,561
17,876,667
255,695,173
241,170,832
_
568,000
(6,816,385)
(6,816,385)
—
1,813,803
—
(716,174)
(2,061,494)
—
—
11,232,964
582,292
—
—
12,438
$247,399,586
247,265,478
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
$134,108 and $582,292 for the years ended December
31, 2006 and 2005, respectively, to offset rates in the
respective subsequent years.
(a) Revenue Billings
Water and sewerage fees are billed to users of the
systems on a monthly cycle basis. Revenues are accrued
for periods between the termination of billings for
the various cycles and the end of the year. Some
adjustments are made on a post-billing basis that
reduce the amount of total billings. The total customer
bills outstanding as of December 31, 2006 and 2005,
respectively, were $19,681,868 and $19,807,259.
These net billing amounts are reduced by an allowance
for uncollectible accounts of $2,839,653 in both 2006
and 2005 to arrive at the net accounts receivable.
(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
Other
Years
100
10
40
75
35
40
4 to 14
(b) Investments
Investments are stated at fair value. Fair value is deter-
mined 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 2006 or 2005 because the amount
calculated 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 accumu-
lated at the statement of net assets dates. The liability for
both amounts is calculated based on the pay or salary
rates in effect at the statements of net assets dates.
(f) Cash Equivalents
The Commission considers all highly liquid, short-term
cash investments with original maturities of three
months or less to be cash equivalents for purposes of
the statements of cash flows.
(g) Bond Issue Costs
Expenses related to the issuance of bonds are amortized
on a weighted average basis over the life of the bonds,
which approximates the effective interest method.
(h) 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.
(i) Use of Estimates
The preparation of financial statements in conformity
with U.S. GAAP requires management to make
estimates and assumptions that affect the reported
amounts of assets and UabiHties, 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.
(j) Implementation of New Accounting Standards
GASB Statement No. 43, Financial Reporting for
Postemployment Benefit Plans Other Than Pension
Plans is considered applicable to the Commission for
the year ended December 31, 2006. However, the
provisions of the Statement do not currently apply to
the Commission.
GASB Statement No. 45, Accounting and Financial
Reporting by Employers tor Postemployment Benefits
Other Than Pensions is scheduled to be implemented
for the year ending December 31, 2007.
(k) Reclassifications
Certain amounts in 2005 have been reclassified to con-
form to the 2006 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 charges or deferred
credits. The revenues and expenses that have been
removed from the statements of operations and added
to the statements of net assets 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:
The activity in and components of deferred charges
included in the accompanying statements of net assets
are as follows:
2006
2005
Contributions to reserves
$ 568,000
1,118,000
Principal payments on long-term debt
18,527,795
16,921,319
Interest paid from escrow funds
(716,174)
(852,503)
Capital expenditures
11,232,964
12,148,059
Depreciation and amortization
(12,980,768)
(11,225,674)
Investment income on project
and escrow funds
2,061,494
882,822
Other
688,720
742,059
$19,382,031
19,734,082
The activity in and components of deferred charges included in the accompanying statements of net assets are
as follows:
December 31,
Increase/
December 31,
Increase/
December 31,
2004
(decrease)
2005
(decrease)
2006
Deferred loss on land taking
$ 5,526,667
(221,067)
5,305,600
(221,067)
5,084,533
Accrued pension expense
11,195,398
(642,920)
10,552,478
(676,282)
9,876,196
Debt extinguishment expense
3,558,476
(260,698)
3,297,778
(260,699)
3,037,079
Total deferred charges
$20,280,541
(1,124,685)
19,155,856
(1,158,048)
17,997,8
mjj^l
\m
The activity in and components of deferred charges included in the accompanying statements of net assets are
as follows:
December 31,
Increase/
December 31,
Increase/
December 31,
2004
(decrease)
2005
(decrease)
2006
Debt service
$126,178,824
1,118,000
127,296,824
568,000
127,864,824
Capital improvements
222,688,500
18,506,785
241,195,285
18,814,031
260,009,316
Worl<ing capital
22,185,455
(7,454,617)
14,730,838
(3,096,732)
11,634,106
Self-insurance
2,240,000
373,292,779
—
2,240,000
385,462,947
—
2,240,000
12,170,168
16,285,299
401,748,246
Reduction of future rates
7,778,606
(7,196,314)
582,292
(448,184)
134,108
Total deferred credits and reserves
$381,071,385
4,973,854
386,045,239
15,837,115
401,882,354
(3) CAPITAL ASSETS
The cost and activity of water and sewerage capital assets in service and related accumulated depreciation at
December 31, 2006 and 2005 is as follows:
Capital assets, not being depreciated:
Land
Construction in progress
Total capital assets not being depreciated
Capital assets, being depreciated:
Buildings and improvements
Machinery and equipment
Infrastructure
Total capital assets being depreciated
Less accumulated depreciation for:
Buildings and improvements
Machinery and equipment
Infrastructure
Total accumulated depreciation
Total capital assets being depreciated, net
Capital assets, net
Balance at
December 31,
2005
Increases
$ 2,519,243
155,719,432
3,365,000
91,686,080
158,238,675
95,051,080
65,599,726
26,764,636
714,962,536
902,786
717,272
40,202,491
807,326,898
41,822,549
7,486,331
19,873,525
142,788,327
2,007,225
1,642,753
11,605,640
170,148,183
15,255,618
637,178,715
25,566,931
$795,417,390
12U18^1
Decreases
(44,517,418)
(44,517,418)
Balance as of
December 31,
2006
5,884,243
202,888,094
8,772,337
(44,517,418)
66,502,512
27,481,908
755,165,027
849,149,447
9,493,556
21,516,278
154,393,967
185,403,801
663,745,646
872,517,983
Balance at
Increases
Decreases
Balance at
December 31,
December 31,
2004
2005
Capital assets, not being depreciated:
Land
$ 2,519,243
—
—
2,519,243
Construction in progress
207,883,291
68,868,170
(121,032,029)
155,719,432
Total capital assets not being depreciated
210,402,534
68,868,170
(121,032,029)
158,238,675
Capital assets, being depreciated:
Buildings and improvements
60,860,077
4,739,649
—
65,599,726
Machinery and equipment
24,384,618
10,680,980
(8,300,962)
26,764,636
Infrastruaure
607,378,898
692,623,593
107,583,638
123,004,267
—
714,962,536
Total capital assets being depreciated
(8,300,962)
807,326,898
Less accumulated depreciation for:
Buildings and improvements
5,817,706
1,668,625
—
7,486,331
Machinery and equipment
25,875,483
1,536,587
(7,538,545)
19,873,525
Infrastructure
132,231,633
163,924,822
10,556,694
13,761,906
—
142,788,327
Total accumulated depreciation
(7,538,545)
170,148,183
Total capital assets being depreciated, net
528,698,771
109,242,361
(762,417)
637,178,715
Capital assets, net
$739,101,305
178,110,531
(121,794,446)
795,417,390
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. A portion of this loss,
$6,632,000, of which $5,084,533 and $5,305,600
remained unamortized at December 31, 2006 and
2005, respectively, 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 BRA in the future.
^^"^"'^'^''^^'^
m\^^\
(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, 2006 and December 31, 2005
(amounts in thousands).
Balance at Additions Reductions Balance at Amounts
December 31, December 31, due within
2005 2006 one year
DESCRIPTION
Revenue bonds:
1992 Series A, bearing interest rates $ 30,810
ranging from 6.1% to 5.75%, with maturity dates
ranging from November 1,2008 to 201 3
1 993 Series A, bearing interest rates 46,735
ranging from 5.125% to 5.25%,w/ith maturity dates
ranging from November 1,2012 to 2019
1994 Series A, bearing a variable interest rate, 32,600
with maturity dates ranging from
November 1,2007 to 2024
900
30,810
46,735
31,700
1,000
1998 Series A, bearing interest rates
ranging from 5.0% to 5.125%, with maturity dates
ranging from November l,2014to 2015
1 998 Series C, bearing interest rates
ranging from 4.5% to 5.2%, with maturity dates
ranging from 2007 to 2021
1998 Series D, bearing Interest rates
ranging from 4.625% to 5.0%, with maturity dates
ranging from November 1,2007 to 2028
2002 Series A, bearing Interest rates
ranging from 3.0% to 3.0%, with maturity dates
of November 1,2007
2003 Series A, bearing interest rates
ranging from 2.5% to 4.0%, with maturity dates
ranging from November 1,2007 to 2011
2004 Series A, bearing interest rates
ranging from 3.0% to 5.0%, with maturity dates
ranging from November 1, 2007 to 2025
12,960
11,230
114,875
22,295
52,245
2,855
3,495
790
12,960
11,220
112,020
4,000
18,800
51,455
2,990
4,000
3,585
770
331,630
11,930
319,700
12,355
Less unamortized loss on refunding
Less unamortized Issue discount
(3,806)
916
$328,740
z
(793)
168
11,305
(3,013)
748
317,435
—
Net revenue bonds
—
12,355
mx i^^im:'iki^i-*ti&tsvj^j^^.>sijtt!y..<;.'-
■■■:i=if/;:^i.Kfcz^£5:*H!
DESCRIPTION
Balance at Additions Reductions Balance at Amounts
December 3 1 , December 31, due within
2004 2005 one year
Revenue bonds:
1 992 Series A, bearing interest rates $ 30,81
ranging from 5.9% to 5.75%, with maturity dates
ranging from November 1, 2008 to 2013
1 993 Series A, bearing interest rates 46,735
ranging from 5.0% to 5.25%, with maturity dates
ranging from November 1,2012 to 2019
1 994 Series A, bearing a variable interest rate, 33,500
with maturity dates ranging from
November 1,2006 to 2024
900
30,810
46,735
32,600
900
1998 Series A, bearing interest rates
ranging from 5.0% to 5.125%, with maturity dates
ranging from November 1,2014to 2015
12,960
12,960
1998 Series C, bearing interest rates
ranging from 4.5% to 5.2%, with maturity dates 1 1,240
ranging from 2006 to 2021
1998 Series D, bearing interest rates 1 17,610
ranging from 4.5% to 5.0%, with maturity dates
ranging from November 1, 2006 to 2028
2002 Series A, bearing interest rates 1 1 ,660
ranging from 2.5% to 3.0%, with maturity dates
ranging from November 1,2006 to 2007
2,735
11,230
114,875
2003 Series A, bearing interest rates
ranging from 2.4% to 4.0%, with maturity dates
ranging from November 1, 2006 to 201 1
2004 Series A, bearing interest rates
ranging from 3.0% to 5.0%, with maturity dates
ranging from November 1, 2006 to 2025
Less unamortized loss on refunding
Less unamortized issue discount
Net revenue bonds
25,705
52,950
343,170
(4,599)
1,141
$339,712
3,410
705
11,540
(793)
225
22,295
52,245
331,630
(3,806)
916
10,972
328,740
3,495
790
11,930
11,930
Annual sinking fund requirements and debt principal and
interest maturities for all future years as of December 31,
2006 are as follows (amounts in thousands):
REVENUE BONDS
Principal
interest
2007
$ 12,355
16,109
2008
12,825
15,629
2009
13,430
15,020
2010
14,080
14,368
2011
14,775
13,669
2012-2016
82,855
55,894
2017-2021
90,990
33,993
2022-2026
62,740
12,214
2027-2028
15,650
1,053
$319,700
177,949
(a) Prior Year Debt Refunding
In the aggregate, $159,930,000 remains outstanding at
December 31, 2006, on the bond issues that were
defeased "in-substance" during prior years.
(b) Restricted 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 liabilities, capital projects, or other costs of
operations. The components of the trusteed and non-
trusteed investments at December 31, 2006 and 2005
are as follows:
2006
2005
Trusteed:
U.S. Treasury notes
$ —
—
Other governttient obligations
94,545,865
95,083,175
Money market and cash investments
1,851,322
683,209
Open-ended mutual funds
640,150
2,931,867
Commercial paper
39,024,983
42,060,704
Repurchase agreements
11,746,250
11,746,250
147,808,570
152,505,205
Nontrusteed:
U.S. Government Agencies
119,902
187,920
Money market and cash investments
19,578,975
4,833,219
Open-ended mutual funds
19,729,318
28,174,667
Commercial paper
9,814,225
8,395,976
Repurchase agreements
—
30,690,926
49,242,420
72,282,708
Restricted cash and investments
197,050,990
224,787,913
Less trusteed and nontrusteed cash
(21,430,297)
(5,516,429)
Trusteed and nontrusteed investments
$175,620,693
219,271,484
(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 abate-
ment projects. For purposes of offsetting principal and
interest payments, an amount aggregating approximately
$8,997,000 as of December 31, 2006, 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 scheduled loan payments for all MWPAT obligations and related subsidies are shown below as of December 31,
2006 (amounts in thousands):
Contract
Equity
assistance
Principal
Interest
Total
earnings
payments
Total
Principal
Interest
Total
2007
$1,678
781
2,459
382
818
1,200
1,077
192
1,269
2008
1,750
705
2,455
347
815
1,162
1,130
172
1,302
2009
1,825
623
2,448
309
815
1,124
1,186
145
1,331
2010
1,894
543
2,437
271
801
1,072
1,235
125
1,360
2011
1,971
459
2,430
230
801
1,031
1,290
103
1,393
2012-2016
6,991
953
7,944
491
2,395
2,886
4,857
177
5,034
2017
1,551
$17,660
78
1,629
21,802
43
479
522
1,092
11,867
—
1,092
4,142
2,073
6,924
8,997
914
12,781
The Commission has entered into various interest-free loan agreements with the MWRA. Under these agreements, the
Commission is required to repay these loans in annual installments as part of the MWRA'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 communities with sewer system rehabilitation.
The following is a summary of long-term note activities for the years ended December 31, 2006 and 2005.
Description
Balance at
December 31,
2005
Additions
Reductions
Balance at
December 31,
2006
Amounts
due within
one year
MWRA I/I Program Phase III, Interest free,
due August 15,2010
$ 3,484,422
—
881,806
2,602,616
881,806
MWRA I/I Program Phase IV, interest free,
due May 15,2011
3,510,382
1,817,258
982,204
4,345,436
1,345,655
MWRA RA.R Program, interest free,
due November 15,2016
28,507,722
6,157,133
3,694,280
30,970,575
4,309,993
MWPAT Pool 1, subsidized interest,
due August 1,2013
5,754,450
—
589,839
5,164,611
654,144
MWPAT Pool II, subsidized interest,
due August 1,2015
5,408,311
—
415,483
4,992,828
437,504
MWPAT Pool III, subsidized interest.
8,070,563
—
568,172
7,502,391
586,417
due February 1,2017
Total long-term notes
$54,735,850
7,974,391
7,131,784
55,578,457
8,215,519
1 1^1
Description
Balance at
December 31,
2004
Additions
Reductions
Balance at
December 31,
2005
Amounts
due within
one year
MWRA I/I Program Phase III, interest free,
due November 15,2010
$ 2,698,831
1,389,498
603,907
3,484,422
881,805
MWRA I/I Program Phase IV, interest free,
due November 15,2010
2,801,270
1,409,430
700,318
3,510,382
982,204
MWRA RA.P. Program, interest free,
due November 15,2015
25,429,155
6,157,133
3,078,566
28,507,722
3,694,280
MWPAT Pool Subsidized interest,
due August 1,2013
6,315,177
—
560,727
5,754,450
589,839
MWPAT Pool II, subsidized interest,
due August 1,2015
5,803,070
—
394,759
5,408,311
415,484
MWPAT Pool III, subsidized interest,
8,624,723
—
554,160
8,070,563
568,172
due February 1,2017
Total long-term notes
$51,672,226
8,956,061
5,892,437
54,735,850
7,131,784
(5) SHORT-TERM OBLIGATIONS
During fiscal year 2006, the Commission instituted a commercial paper program for the purpose of financing
capital expenditures. The following represents the Commission's commercial paper outstanding as of
December 31, 2005 and 2006:
Description
Balance at
December 31,
2005
Additions Reductions
Balance at
December 31,
2006
Commercial paper notes, interest rate
of 3.55%,due March 2,2007
—
$12,000,000 —
12,000,000
Commercial paper notes, interest rate
of3.57%,due February 6,2007
—
2,000,000 —
2,000,000
Commercial paper notes, interest rate
of 3.65%, due January 8, 2007
—
6,000,000 —
6,000,000
Commercial paper notes, interest rate
—
5,000,000 —
5,000,000
of 3.65%, due January 12,2007
Total long-term notes
—
$25,000,000 —
25,000,000
Subsequent to year-end, all of the commercial paper notes outstanding were rolled-over into other commercial
paper notes with maturities ranging from February 1, 2007 to April 5, 2007 with interest rates ranging from
3.50% to 3.73%.
(6) MASSACHUSETTS WATER RESOURCES
AUTHORITY
The MWRA 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
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 for assessments
by the Authority for 2006 and 2005 are as follows:
Assessments allocated on:
Water usage
Wastewater usage
Total
2006
$ 61,786,176
92,349,702
$154,135,878
2005
56,950,494
90,906,354
147,856,848
In 2006 and 2005, over 81% and 79% respectively,
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 comprehensive
leak detection and repair program.
(7) TRANSACTIONS WITH THE CITY OF BOSTON
The Commission's ongoing program to meter City
facilities has resulted in billings to ten City departments
during 2006 and 2005, respectively, based on actual
consumption of $4,630,853 and $4,294,325.
The City provides services to the Commission, including
paving and facilities rental. Operating costs billed to the
Commission by the City were $463,243 and $385,702
during 2006 and 2005, respectively. Capital costs billed
by the City were $1,168,471 and $1,627,371 during
2006 and 2005, respectively. As of December 31, 2006
and 2005, outstanding operating and capital costs due to
the City totaled $464,382 and $179,382, 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, 2006 and
2005 receivables totaling approximately $160,373 and
$193,733, respectively, 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 transferred into the tax lien program for collection.
As of December 31, 2006 and 2005, approximately
$796,007 and $1,069,267, respectively, remains
outstanding.
(8) RETIREMENT BENEFITS
The Commission provides retirement benefits to substan-
tially all of its employees through the State Boston
Retirement System (SBRS or the System), a cost-sharing
multi-employer retirement plan. Further, Commission
employees currently receive post-employment health
benefits from the City of Boston without reimbursement
by the Commission. In the future, the Commission may
be responsible for funding those post employment health
benefits of their employees.
A dispute concerning the Commission's past and future
obligations to all Commission employees covered by the
SBRS was setded 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).
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(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 benefit provi-
sions of the plan. The System issues a publicly available
financial report w^hich 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
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, 2006, 2005 and 2004
were approximately $501,311, $498,219 and $476,600,
respectively, which equaled its required contribution
each year. Total employee contributions, based on
actuarially determined amounts, were approximately
$2,214,840, $2,094,303 and $2,102,306, or 8.7% of
covered payroll in 2006, 2005 and 2004, 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 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, 2006 and 2005 are
as follows:
2006
2005
Assets (at fair value):
Common stock
$38,188,602
35,392,263
International stock
14,713,678
11,513,283
Fixed income
27,215,774
26,958,712
Total
$80,118,054
73,864,258
The Trust Fund activity is as follows:
Assets (at fair value), January 1,2005
Employer contributions
Investment income and gains
Management fees
Payments to SBRS
Assets (at fair value), December 31,2005
Employer contributions
Investment income and gains
Management fees
Payments to SBRS
Assets (at fair value), December 31, 2006
$69,782,963
498,219
6,945,148
(269,204)
(3,092,869)
73,864,257
501,311
9,169,176
(302,465)
(3,114,225 )
$80,118,054
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 SBRS in future
years for required employer contributions.
(9) DEPOSIT AND INVESTMENT RISKS
The following represents the Commission's essentia! risk
information about deposits and investments for the years
ended December 31, 2006 and 2005.
(a) Custodial Credit Risk
Custodial credit risk is the risk that in the event of bank
failure, the Commission's deposits may not be returned.
The Commission carries deposits that are fully insured
by FDIC insurance or collateralized with securities held
by the Commission or the Commission's agent in the
Commission's name. The Commission also carries
deposits that are not collateralized and are uninsured.
As of December 31, 2006 and 2005, the bank balances
of uninsured and uncoUateralized deposits totaled
approximately $10,593,999 and $11,296,250,
respectively (category 3).
(b) Investment Policy
Investment of Commission funds is governed by federal
and state law and is restricted to permitted investments
as defined by the Commission's General Revenue Bond
Resolution and Supplemental Resolutions. Revenues
generated from the investment of Commission funds
reduce the amount the Commission must charge to its
customers, while any investment losses would negatively
affect the Commission's general rates and charges.
Consequently, the Commission shall at all times
maintain a fully invested, diversified portfolio with the
objective of achieving the highest yield that is attainable
in conjunction with a very low risk of loss of capital.
The basic criteria that will be used in making investment
decisions include the evaluation of risk/reward tradeoffs,
historical price spreads between different securities, the
slope of the yield curve and the anticipated cash flows of
the different investment accounts of the Commission.
Current permitted Investments under the General
Revenue Bond Resolution include:
2. Any bond or other obligation of any state, agency or
local government unit of any state which are:
A.noncallable
B. fully collateralized by fund consisting of cash,
bonds or obligations of one of the above.
3. Public Housing bonds which are secured by the
United States of America, certain notes issued by
public agencies or municipalities fully secured by the
United States of America or obligations issued by
State or public agencies or municipalities carrying
the highest bond rating.
4. Obligations of any state to which the full faith and
credit of the state is pledged and are within the two
highest bond ratings.
5. Prime Commercial Paper rated A - 1 or P - 1.
6. Shares of a money market fund which is open ended
and rated A or better or a money market fund of
banks meeting certain criteria.
7. Certificates of Deposits issued by FDIC banks which
are fully secured by obligations described in 1 or 2
above.
8. Repurchase Agreements fully collateralized by
obligations described in 1 or 2 above.
9. Futures contracts traded on exchange for 1,2, 3,
and 4 above.
A single investment can not be more than $15 million
and can only be purchased once. Further, all investments
of the Commission are held in the Commission's name
by third-party.
1. Any bond or other obligation to which principal and
interest are unconditionally guaranteed by the United
States of America.
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(c) Interest Rate Risk
The following is a listing of the Commission's fixed income investments and related maturity schedule (in years) as of
December 31, 2006 and 2005:
Investment type
LI.S. government agencies
Guaranteed investment contract
Other (comm. paper)
Open ended mutual funds
Fair Value
$ 94,665,767
11,746,250
48,839,208
20,369,468
$175,620,693
Less than 1
5,804
48,839,208
20,369,468
69,214,480
2006
1-5
31,461,192
6-10
17,783,534
More than 10
45,415,237
11,746,250
31,461,192
17,783,534
57,161,487
Investment type
U.S. government agencies
Guaranteed investment contract
Other (comm. paper)
Open ended mutual funds
Fair Value
$ 95,271,094
42,437,176
50,456,680
31,106,534
$219,271,484
Less than 1
50,456,680
31,106,534
81,563,214
2005
1-5
31,231,996
30,690,926
6-10
18,577,644
More than 10
45,461,454
11,746,250
61,922,922
18,577,644
57,207,704
The Commission's guidelines do not specifically address limits on maturities as a means of managing its exposure to
fair value losses arising from increasing interest rates.
(d) Credit Risk
The Commission's fixed income investments as of December 31, 2006 and 2005 were rated by Standard and Poor's
and/or an equivalent national rating organization and the ratings are presented below using the Standard and Poor's
rating scale:
Investment type
Fair Value
AAA
U.S.Govemment Agencies
$ 93,527,652
93,527,652
Guaranteed investment contraa
11,746,250
—
Other (Comm. Paper)
48,839,208
—
Open Ended Mutual Funds
20,369,468
20,369,468
$174,482,578
113,897,120
2006
AA
48,839,208
48,839,208
Not rated
11,746,250
11,746,250
Investment type
Fair Value
AAA
U.S. Government Agencies
$ 93,576,698
93,576,698
Guaranteed investment contrart
42,437,176
—
Other (Comm. Paper)
50,456,680
—
Open Ended IVIutual Funds
31,106,534
31,106,534
2005
AA
50,456,680
Not rated
42,437,176
$217,577,0
124,683,232
50,456,680
42,437,176
As of December 31, 2006 and 2005, the Commission
had $1,138,115 and $1,694,396 of investments that are
explicitly guaranteed by the U.S. Government that are
not included in the above schedules, respectively.
(e) Concentration Risk
The Commission has no investments, at fair value, that
exceed 5% of the Commission's investments as of
December 31, 2006 and 2005.
(10) LEASE COMMITMENTS
The Commission leases office space and 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
$134,141 and $102,747 in 2006 and 2005, respectively.
(11) COMMITMENTS
The 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 infrastructure. Commitments under these contracts
aggregate approximately $67.4 million as of December
31, 2006. Capital improvements, primarily related to
enhance the operation of the water and sewer system proj-
ects including reducing pollution to Boston Harbor and
neighboring waterways, are expected to aggregate approx-
imately $134.4 million for 2007 through 2008. Of this
amount, approximately $112.2 million represents exten-
sion and improvement projects and $22.2 million repre-
sents renewal and replacement projects. The extension
and improvement projects will be funded by federal, state
and Massachusetts Water Resources Authority grants and
loans. The remaining amounts will be funded from the
Commission's bond proceeds and operating revenues.
(1 2) 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 unemploy-
ment benefits. The workers' compensation self-insured
retention limit is $750,000 per claim and is supplement-
ed with $25 million in excess coverage purchased
through an outside carrier. For general liability, the
Commission's self insured limits are $1 million per
occiu'rence, $2.5 million aggregate, and is 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
R.H. 20— Health Premium based
Vehides Combined single limit of $1 million/accident,
there is a $5,000/occurrence deductible
for property damage
Property Aggregate limit of $108 million on Harrison Ave.
with other sublimits at other BWSC facilities.
Public officials Coverage of $3 million;
$100,000 self-insurance retention
Fiduciary $2.5 million coverage;
with $10,000 deductible per claim
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 reasonably estimated. The Commission has estab-
lished a liability based on historical trends of previous
years and attorneys' and independent insurance reserve
appraisers' estimates of pending matters and lawsuits in
which the Commission is involved. Unemployment
claims paid during 2006 and 2005 were immaterial.
Changes for the years ended December 31, 2006 and
2005 are as follows:
2006
2005
Beginning balance of reserves
$2,367,407
3,122,664
Payment of claims attributable to
events of both current and prior years:
Workers' compensation
(422,493)
(390,625)
General liability
—
(784,632)
Incurred claims
350,000
420,000
Ending balance of reserves
$2,294,914
2,367,407
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.
(13) 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 11) addresses
probable actions that the Commission 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, 2006, the overall cleanup costs
are estimated to be approximately $865 million.
However, the extent of the Commission's liability for
these costs cannot be determined.
(14) SUBSEQUENT EVENT
On February 15, 2007, the Commission entered into
an interest-free loan agreement with the MWRA
totaling $4,141,775. The loan is payable in five equal
installments of $828,355 and is due February 15, 2012.
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SUPPLEMENTAL SCHEDULE OF
REVENUES AND EXPENSES— RATE BASIS
Years ended December 31, 2006 and 2005
Revenues:
Water revenue
Sewer revenue
Subtotal
Less:
Adjustments
Discounts
Bad debt
Subtotal
Net billed charges
Prior year surplus
2006
$107,394,320
125,432,655
232,836,975
5,609,032
846,151
361,202
6,816,385
226,010,590
582,292
2005
91,114,033
124,660,340
215,774,373
4,777,934
830,043
566,521
6,174,498
209,599,875
7,778,606
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 dirert operating expenses
Nonoperating expenses:
MWRA assessment
Capital improvements
Principal payments
Interest expense
Deposits to reserve funds
SDWA assessment
Total nonoperating expenses
Total current expenses
Current year rate surplus
993,771
7,833,296
3,469,844
8,509,793
247,399,586
26,801,523
605,167
5,927,567
2,308,064
4,181,232
1,351,769
2,782,136
137,077
1,385,327
782,078
46,358
534,744
17,100
85,151
46,945,293
154,135,878
11,147,813
18,527,795
15,702,119
568,000
238,580
200,320,185
247,265,478
$ 134,108
1,050,087
7,117,728
3,362,480
11,991,211
240,899,987
25,789,857
564,315
5,162,911
2,128,180
6,223,180
1,299,729
2,718,661
108,112
1,334,630
816,866
55,547
55,169
23,484
80,304
46,360,945
147,856,848
12,067,755
16,921,319
15,744,223
1,118,000
248,605
193,956,750
240,317,695
582,292
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. See footnote 1 in the notes to the basic financial statements for the differences between this supplemental
schedule and GAAP.
See accompanying independent auditors' report.
m-
BOSTON WATER AND SEWER COMMISSION
980 HARRISON AVENUE
i? BOSTON, MA 021 19
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