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Full text of "Supporting documentation for the 1989 rate schedule"

BOSTON PUBLIC LIBRARY 



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Boston Water and 
Sewer Commission 



SUPPORTING DOCUMENTATION 

FOR 
THE 1989 RATE SCHEDULE 




DUaiUN KUBLIU LIUKAKY 




Boston Water and 
Sewer Commission 









SUPPORTING DOCUMENTATION 



THE 1 989 RATE SCHEDULE 




Boston Water and 
Sewer Commission 



425 Summer Street 
Boston, MA 02210-1700 
61 7-330-9400 



January 26, 1989 



Councillor Christopher A. lanella 
Boston City Council 
Boston City Hall 
One City Hall Plaza 
Boston, MA 02201 

Dear Councillor lanella: 

The enclosed supporting documentation for the 1989 Rate 
Schedule is sent for your perusal. 

As you know after a Public Hearing held on December 8, 1988, 
the Board of Commissioners voted to approve the continuation 
of a ten-tier block rate structure in 1989 to encourage more 
efficient and less wasteful use of water in the City of 
Boston. 

Also Boston's elderly and fully disabled resident homeowners 
currently receive a 25% discount on all water charges. For 
1988 we estimate that this discount resulted in a decrease 
in water charges to the disabled and elderly of 
approximately $475,000 and in 1989 the savings will be 
approximately $583,000. 

Should you have any questions, please do not hesitate to 
call me. 



ly yours. 





Catena 
DirectoV of Public Affairs 

pob 

Attachment 



TABLE OF CONTENTS 

I. EXECUTIVE SUMMARY PAGE 
1 . Executive Summary 1 

II. PATE HISTORY 

1 . Rate History 12 

2 . Water Rates 14 

3 . Sewer Rates 15 

III. DESCRIPTION OF BOSTON'S WATER AND SEWAGE SYSTEM 

1 . Water Distribution System 18 

2 . Sewage Collection System 19 

IV. SOURCES AND USES OF WATER 

1. Sources and Uses of Water 20 

2 . User Population 2 

3 . Water Use 21 

4. Conservation and System Improvements 23 

5. City of Boston, Billable Water Volume 24 

6. Estimating the Number of Billable Gallons 25 

V. RATE SETTING METHODOLOGY 

1. Rate Setting Methodology 27 

2 . Legislative Review 27 

3 . Rate Revenue Requirements 28 

4 . Capital Costs 28 

5 . Other Income 30 

6. Allocation of Costs 30 

7. Billable Gallons 31 

8 . Design of Rates i 31 

VI. FINANCIAL ANALYSIS 

1 . Introduction 3 2 

2 . 1989 Operating Budget Summary 34 

3 . Program Ob j ect ives 3 5 

4 . Water and Sewer Expenses 39 



TABLE OF CONTENTS 
(Cont. ) 

VI. FINANCIAL ANALYSIS (Cont.) 

5 . Revenue Ad j ustments 39 

A. Elderly/Fully Disabled Discount 39 

B. Billing Adjustments and Bad Debt 39 

6 . Other Income 4 

A. Special Service Fees 40 

B . Late Payment Charges 41 

C . Fire Pipe Charges 43 

D. Investment Income 44 

E . Prior Year ' s Surplus 44 

VII. RATE CALCULATION 

1. Rate Calculation 46 

2 . Deteirmination of Rate Blocks 46 

3 . Water and Sewer Rate Calculations 47 



Digitized by the Internet Archive 

in 2010 with funding from 

Boston Public Library 



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



LIST OF EXHIBITS 



EXHIBIT 



TITLE 



PAGE NUMBER 



Exhibit A 
Exhibit B 
Exhibit 
Exhibit 
Exhibit 
Exhibit 
Exhibit 
Exhibit H 
Exhibit I 
Exhibit J 
Exhibit K 
Exhibit L 
Exhibit M 
Exhibit N 
Exhibit 
Exhibit P 



Approved Water and Sewer Rates 6 

Impact of Existing and Approved Rates 7 

Approved Special Service Fee Schedule 8 

Approved Special Fire Service Fees 11 

Approved Late Payment Charge ii 

Discount for Elderly and Fully Disabled 11 

Rate History 17 

Water Purchases and Billing Statistics 26 

Rate Revenue Requirement Methodology 3 3 

1989 Operating Budget Summary 38 

Revenue from Special Service Fees 42 

Projected 1988 Surplus Analysis 45 

1989 Water Rate Revenue Requirement 48 

1989 Sewer Rate Revenue Requirement 49 

1989 Water Revenue Analysis 50 

1989 Sewer Revenue Analysis 51 



I. EXECUTIVE SUMMARY 



Section I.l EXECUTIVE SUMMARY 

The Boston Water and Sewer Commission (BWSC or Commission) , 
a political subdivision of The Commonwealth of Massachusetts, was 
created by an Act of the Massachusetts State Legislature on 
August 5, 1977. On that date, the Commission was charged with 
the responsibility of providing water and wastewater services to 
the City of Boston, a function that had previously been performed 
by the Public Works Department of the City. BWSC currently 
serves approximately 87,600 customers. 

Among other mandates, the Commission's Enabling Legislation 
requires that fees, rates and charges for water and sewerage 
services be established on just and equitable standards. All 
consumers, without discrimination, must pay their fair share of 
the costs of such services based upon their actual usage. A 
discount on water charges is provided to certain elderly and 
fully disabled customers. Rates and charges are set to generate 
revenues sufficient to permit the operations of the Commission to 
be self-sustaining. Any surplus generated is, by legislation, 
either returned to the City of Boston or utilized to offset the 
following year's rates, and any deficit is to be recovered in the 
following year's rates. In addition to establishing a rate 
structure which is adequate with respect to full cost recovery, 
the Commission also considers a number of other requirements in 
the review of its rates. In this regard, BWSC must ensure 
compliance with existing relevant legislation, bond resolutions 
and rate covenants. 



The approved rate schedule is set forth in Exhibit A (pg. 
6) . It has been determined in accordance with legislative 
mandates, the Commission's financial requirements, and generally- 
accepted rate making practices. The approved water rates 
represent an increase of 20%; the approved sewer rates represent 
an increase of 3 5.5%. The combined increase for the approved 
rates is 28%. These rates became effective on January 1, 1989. 

The approved rates reflect the costs of the Commission's 
1989 Operating Budget plus projected revenue adjustments. Total 
approved revenues and expenses for 1989 are $127,4 million. Of 
this total, $54.1 million or 50 percent represents the 
assessments which the Commission must pay to the Massachusetts 
Water Resources Authority (MWRA or Authority) for water and 
wastewater services. The projected increase of 52.5 percent in 
the MWRA assessment is BWSC's most significant cost increase for 
1989. 

The approved water and sewer charges consist of a ten- 
tiered inclining block rate structure. BWSC adopted this rate 
structure in 1985. In general, the first four blocks of the ten- 
block tier correspond to customers in single and multi-family 
residences, or professional and small commercial offices. The 
fifth through eighth blocks reflect large multi-unit residences, 
medium to large commercial businesses, or small industries. The 
ninth and tenth blocks apply almost exclusively to medium and 
large industrial customers. 



The Commission approved the continuation of the ten-tier 
inclining block rate structure in 1989 to encourage more 
efficient and less wasteful use of water in the City of Boston. 
The impact of the proposed rate schedule is shown in Exhibit B 
(pg. 7). 

In addition to providing water and wastewater services, the 
Commission furnishes certain other special services to the 
community. The approved Special Service Fee Schedule recovers 
the costs for the provision of these additional services without 
burden to the general rate payer. The approved Special Service 
Fee Schedule is summarized in Exhibit C (pg. 8) . 

The Commission approved the institution of a Septage 
Disposal Fee for contractors who dispose of septage in BWSC's 
wastewater collection system. The establishment of this fee has 
primarily been based on the user charge for wastewater services, 
but also incorporates the recovery of the administrative costs 
for the regulation and billing of providing this service. 

The Commission charges separately for the high pressure 
private fire protection system in place in downtown Boston. The 
approved Special Fire Service Fee Schedule for 1989 is shown in 
Exhibit D (pg. 11) . 

The Commission assesses a late payment charge of .03288% 
interest per day compounded with each billing on all amounts 
which are not paid within 45 days of the billing date (see 
Exhibit E on pg. 11) . 



Elderly and fully disabled resident homeowners currently 
receive a 25% discount on all water charges. For 1988, Staff 
estimated that this discount will result in a decrease in water 
charges to the disabled and elderly of approximately $475,000. 
Staff projects that the total savings on water charges generated 
by this discount in 1989 will be approximately $583,000. The 
conditions that pertain to this discount are presented in 
Exhibit F (pg. 11) . 

The process utilized for developing the 1989 rates is 
similar to the methodology used in the past, and incorporates 
policies which are in conformity with sound and appropriate rate 
making practices used by similar organizations, and is generally 
accepted as appropriate regulatory practice. 

The methodology used in developing the 1989 Rates 
proceeded through the following four steps: 

o Legislative Analysis - A review was made of 
the various state legislation affecting the 
rate setting process, including the Act 
creating the MWRA. The variety of 
legislation affecting rates substantially 
prescribes the method of setting rates. 

o Financial Analysis - A detailed analysis, 
including projections of the financial 
condition of the Commission, was performed 
for calendar years 1988 and 1989. Forecasts 
were made of all operating costs, MWRA 
assessments, debt service, working capital 
requirements and capital needs. 

o Water Use Analysis - An analysis was 

performed of the sources and uses of water 
to forecast water consumption and wastewater 
flows and to estimate, for billing purposes, 
the amount of water and sewer service 
utilized by BWSC customers. 



Rate Calculation - Prior to determining the 
approved rates, miscellaneous revenues, 
adjustments, delinquencies and allowances 
were estimated. Based upon these estimates, 
and appropriate legal considerations, the 
approved rates were calculated as specified 
below. 



Exhibit A 

APPROVED WATER AND SEWER RATES 
Effective as of January 1, 1989 



Consumption < Water Rate > < Sewer Rate > 

(Cu. Ft. /Day) /lOOO cu.ft. /lOOO gal. /lOOO cu.ft. /lOOO gal. 

First 19 $14,710 $1,966 $16,170 $2,162 

Next 20 $14,730 $1,970 $16,360 $2,187 

Next 50 $14,770 $1,975 $16,550 $2,213 

Next 70 $14,810 $1,979 $16,740 $2,238 

Next 190 $14,850 $1,985 $16,930 $2,263 

Next 250 $14,870 $1,988 $17,120 $2,289 

Next 700 $14,910 $1,994 $17,310 $2,315 

Next 1700 $14,950 $1,999 $17,500 $2,339 

Next 3000 $14,980 $2,002 $17,690 $2,365 

Over 5999 $15,010 $2,007 $17,870 $2,389 



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Exhibit C 

APPROVED 

SPECIAL SERVICE FEE SCHEDULE 



Type 

Lien Certificate ( 1) 
Return Check Processing Fee 
Cross Connection Inspection (2 ) 
Water Service Installation 

Excavation 

Fire Pipe Excavation 

Water Pipe Inspection 

Sewer Pipe Inspection 

Water and Sewer Construction 
Multi-day Inspection (3) 

Water Turn-on (4) 

Water Turn-off (4) 

Fire Flow Test 

Temporary Connection 

(Hydrant Permit) 

2 days or less 
Greater than 2 days 



Special Meter Test (5) 
(meters 2 inch or smaller) 

Special Meter Test (5) 
(meters 3 inch or larger) 



Fee 



$100 
$ 15 
$ 90 
$135- 

Cost 
Cost 
$125 
$125 



Maximum 



•$425 (depending 

on pipe size) 
Basis ($900 deposit required) 
Basis ($2,500 deposit required) 



$175 per diem 
$ 30 
$ 30 
$165 



$ 25 

$ 50 per 90 day period or fraction 
thereof, plus water usage 
($250 deposit required) 



$40 deposit 
Cost Basis 



Drain Layers License $ 13 

Construction Plans $ 4 

and Drawings (6) 
Special Consultation Services (7) 

Rates per hour for Commission staff personnel: 
Senior Management $ 75 

Professional and Other $ 50 
Clerical $ 25 

Frozen Meter Replacement (8) Cost Basis 

Septage Disposal (9) Sewer Rate plus $0. 038/gallon of 

septage disposed. 



APPROVED 
SPECIAL SERVICE FEE SCHEDULE rcONT.^ 

(l)In accordance with M.G.L. Chapter 60, Section 23A: 

"...for land of less than one acre upon which there is no permanent 
structure a fee of ten dollars; for land upon which is situated no 
more than a single family residence and outbuildings a fee of 
fifteen dollars; for land upon which is situated no more than a 
three family residence with outbuildings a fee of twenty dollars; 
for land upon which is situated a residence for four or more 
families a fee of forty dollars; for land upon which is situated a 
commercial, industrial or public utility structure a fee of one 
hundred dollars; for farms, forest land and all other real property 
a fee of fifty dollars. In no case shall the fee exceed one half 
of one percent of the assessed value of the real estate...." 
Maximum fee, one hundred dollars. 

(2) Requires semi-annual inspection of each device. 

(3) Assessed daily while providing water and sewer inspectional 

services on construction projects of one or more days duration. 

(4) For services affected by the Commission's termination of service 
procedures. 

(5) No charge if meter is over-registering, based on A.W.W.A. standards 
or if Commission ordered test. 

(6) Additional information concerning maps may be obtained from the 
Commission on request. Public agencies and Commission consultants 
receive prints at no charge. The cost per map is detailed below: 



II, 



Typ e 

Base Maps 

- Prints 

- Paper Sepias 

- Mylar Sepias* 

- Washoff Mylars* 

Water and Sewer Maps 

- Prints 

- Paper Sepias 

- Mylar Sepias 

- Washoff Mylars 



Cost 



$ 4/sheet 

$ 4/sheet 

$ 50/set plus printer's charge 

$ 50/set plus printer's charge 



$ 4/sheet 
$ 4/sheet 
Not Available 
Not Available 



*Sold to government agencies only 



APPROVED 
SPECIAL SERVICE FEE SCHEDULE fCONT.^ 



(7) For special water and sewer consultation services rendered by 
Commission staff to persons other than rate payers of the 
Commission and for special engineering and legal services. 

(8) For replacement of frozen meters. 

Size of Meters Replacement Fee 
5/8" $ 87.00 

3/4" 114.00 

1" 130.00 

1 1/2" 256.00 

2" 320.00 

(9) This charge applies to Contractors who dispose septage at the 
Commission's septage disposal site. Billing will be made 
quarterly. 



10 



Exhibit D 

APPROVED 

SPECIAL FIRE SERVICE FEES; 

(INTERNAL SPRINKLERS AND STANDPIPES) 

Size of Service Quarterly Charge 

4 inch or smaller $ 62.00 

6 inch $140.00 

8 inch or larger $249.00 



Exhibit E 

APPROVED 
LATE PAYMENT CHARGE 

03288% interest per day compounded with each billing on all 
amounts past due (greater than 45 days from the billing date) 



Exhibit F 

APPROVED 
DISCOUNT FOR ELDERLY AND FULLY DISABLED 

25% discount on all water charges billed. This discount is 
applicable only to owner-occupied structures with one to four 
dwelling units. 



11 



II. RATE HISTORY 



Section II. 1 Rate History 

The Boston Water and Sewer Commission began providing water 
and sewer services to the City of Boston on August 5, 1977. 
Prior to then, the City of Boston had provided water and sewer 
services through its Public Works Department. An Act of the 
State Legislature transferred the responsibility for providing 
such services to the Commission, a political subdivision of The 
Commonwealth of Massachusetts. The statute mandated that fees, 
rates and charges for water and sewerage services be established 
on just and equitable standards. It also provided that all 
consumers, whether public or private, taxpayer or tax-exempt, 
resident or commuter, pay their fair share of the costs of such 
services based on their actual usage. 

Two important rate changes resulted from the Commission's 
Enabling Legislation. First, it specified the use of a flat rate 
structure (i.e., a fixed amount per cubic foot as compared to a 
declining charge for increased consumption as allowed under the 
City of Boston) . Second, it required the provision of a discount 
on water charges for the elderly and fully disabled. The 
Commission incorporated these mandates in all of its detailed 
rate studies from 1978 through 1984. 

In 1985, the Massachusetts Legislature created the 
Massachusetts Water Resources Authority, also a political 
subdivision of The Commonwealth of Massachusetts. It did so in 
order to improve the delivery of water and wastewater services, 
encourage conservation, and reduce water pollution in Eastern 



12 



Massachusetts. Prior to 1985, the Metropolitan District 
Commission (MDC) , a state agency, had provided water and 
wastewater services to the Commission and other communities in 
the Metropolitan Boston area. The MWRA took over operating 
responsibility from the MDC on July 1, 1985. 

The Authority's Enabling Legislation prohibited the use of 
the declining block rate structure, but authorized local bodies, 
including the Commission, to establish charges for rates on an 
ascending unit or progressive rate based on quantity of water 
consumed. It also called for a comprehensive study of the 
environmental, social, and economic impacts of its water and 
sewer charges, which was completed in December, 1986. 

In response to the MWRA's legislative mandates, the 
Commission undertook a review of its own rates in 1985. it 
examined and evaluated its existing rate structure, conservation 
policies and practices, and alternative rate structures that had 
become allowable under the passage of the MWRA's Enabling 
Legislation. 

Commission staff determined that the need existed for an 
external stimulus to promote water conservation among its 
customers. Staff believed implementation of an ascending unit, 
or inclining block, rate structure provided the best alternative 
to promote conservation. Accordingly, the Commission adopted the 
staff's proposal for an inclining block rate structure in August, 
1985. 



13 



Exhibit G (pg. 17) summarizes the water and sewer rates for 
the City of Boston from 1977 through 1988. The rates have 
generated sufficient revenues to recover all associated expenses 
since the Commission's assumption of operational responsibility 
for the system on January 1, 1978. 

Section II. 2 Water Rates 

Water rates remained relatively stable from 1977 through 
1984. The wholesale water rate charged by the MDC to members of 
the water district rose only $5 per million gallons from 1978 to 
1984, or from $240 to $245 per million gallons. However, during 
this same period, the amount of water purchased by the Commission 
from the MDC decreased from 143 million gallons per day in 1978 
to 117 million gallons per day in 1984, or a decline of 18 
percent. As a result, the MDC's total water assessment to Boston 
declined during this period. Consequently, the Coinmission's 
declining wholesale water assessments absorbed some of the 
effects of increasing costs in other expense categories which 
allowed the Commission to hold its retail water rates steady. 

The major factor forcing the Commission to increase its 
water rates since 1984 has been the substantial compounding 
increases in MWRA water assessments. Since the establishment of 
the MWRA, the wholesale water rate has increased 91.4 percent, 
from $245 per million gallons in FY 1984 to $469 per million 
gallons in FY 1988. The MWRA has been required to increase its 
water rates in order to fund improvements to its water 
distribution system, undertake a strong leak detection program, 
and implement a conservation program. 



14 



The Commission anticipates that the MWRA will need to 
continue to annually increase the wholesale water rate to its 
member communities. The MWRA projects that its water rates will 
increase by 40.7 percent in FY 1990 to $660 per million gallons. 

Section II. 3 Sewer Rates 

While the Commission's water rates remained stable during 
the period 1978 to 1984, the effects of the following factors 
resulted in repeated increases to its sewer rates during the same 
time period. Prior to the Commission's creation in 1978, the 
City's sewer rates were subsidized by property taxes. The 
Commission's Enabling Legislation, however, mandated that the 
BWSC establish sewer rates at levels sufficient to recover the 
costs of operating the sewerage system. Federal and state 
wastewater requirements forced the Coitmiission to implement costly 
programs to upgrade the sewerage system. During the same time 
period, the MDC increased the Commission's sewer assessment by 
approximately 33%. 

Since the MWRA assumed operational responsibility from the 
MDC, sewer assessments to the Commission have increased by 227 
percent, from a level of $8,825 million in FY 1985 to a level of 
$28,834 million in FY 1989. The Authority projects that its 
FY 1990 sewer assessment to the Commission will increase by an 
additional 45.9 percent to a level of approximately $41,911 
million. 



15 



Currently, the MWRA projects annual increases in total 
water and sewer assessments to range between 3 and 4 5 percent 
over the next five years. The Commission will continue to 
monitor all rates and rate methodology proposals by the MWRA to 
ensure equitable assessments to the Commission. 



16 



III. DESCRIPTION OF BOSTON'S WATER AND SEWAGE SYSTEM 



EXHIBIT G 
BOSTON WATER AND SEWER COMMISSION 
RATE HISTORY 
(per 1,000 cubic feet) 







Water 


Sewer 


Combined 


% Change From 






Rate 


Rate 


Rate 


Prior Year 


1977 


(1) 


$ 7.65 


$ 1.00 


$ 8.65 




1978 




$ 8.90 


$ 3.96 


$12.86 


48.7% 


1979 




$ 7.55 


$ 3.59 


$11.14 


(13.4%) 


1980 




$ 7.55 


$ 4.04 


$11.59 


4.0% 


1981 




$ 7.55 


$ 4.04 


$11.59 


0.0% 


1982 




$ 7.55 


$ 4.94 


$12.49 


7.8% 


1983 




$ 7.48 


$ 5.46 


$12.94 


3.6% 


1984 




$ 7.63 


$ 6.28 


$13.91 


7.5% 


1985 


(2) 


$ 7.76 


$ 7.22 


$14.97 


7.6% 


1986(2) 


$ 8.66 


$ 9.60 


$18.25 


21.9% 


1987 


(2) 


$ 8.92 


$10.70 


$19.62 


7.5% 


1988 


(2) 


$12.38. 


$12.70 


$25.08 


27.8% 


1989i 


(3) 


$14.89 


$17.21 


$32.10 


28.0% 



(1) Water and sewer rates were established by the City prior to 
the creation of the Boston Water and Sewer Commission in 
1978 . 

(2) Due to the shift to the inclining block rate structure in 
1985, the water and sewer rates shown since then represent 
weighted averages. 

(3) Effective as of January l, 1989. 



17 



Section III.l Water Distribution System 

The Commission's water distribution system consists of 
water mains, service pipes, hydrants, valves, and gates. The 
Boston public water system has been in operation since 1848. 

There are approximately 1,182 miles of mains, which range 
in size from 2 to 48 inches in diameter. The system also 
includes approximately 13,000 hydrants and a high pressure fire 
system serving downtown Boston. 

The system contains four major water service (pressure) 
networks: 1) The Southern Low Service, 2) The Northern Low 
Service, 3) The Southern High Service, and 4) The Southern Extra 
High Service. In addition, a single connection to the Northern 
High Service System serves a small section of East Boston. 

The Commission obtains its water from the MWRA. The MWRA's 
supply sources are the Quabbin and Wachusetts Reservoirs, which 
are located in western and central Massachusetts respectively. 
MWRA distribution reservoirs convey water from the supply 
reservoirs for delivery to the Commission's 29 metered 
connections with the MWRA distribution system. 



Section III. 2 Sewage Collection System 

The Commission's sewer system collects wastewater and storm 
drainage in the City of Boston through approximately 85,000 
wastewater service connections. The system consists primarily of 
conduits, which range in size from 6-inch clay lateral sewers to 
2 by 15-1/2 foot concrete culverts. There are approximately 
1,340 linear miles of sewers, including 535 miles of sanitary 
sewers, 490 miles of storm drains, and 315 miles of combined 
sewers. Other facilities include eight pumping stations, two 
gatehouses, 52 combined sewer overflow outlets, 137 regulators, 
and 119 tidegates. 

The original backbone of the wastewater collection system 
was the Boston Main Drainage System, built between 1877 and 1884. 
It included five combined interceptors, the Calf Pasture pumping 
station and the Dorchester Bay tunnel. 

Construction of the New Boston Main Interceptor and the New 
East Side Interceptor has been completed during the past year. 
This system is presently on-line serving the sewer needs of 
Boston Proper, the South End, Roxbury, Dorchester and South 
Boston. With their completion, the new systems replace the 
Boston Main Drainage System as the major conduit of wastewater 
for the City of Boston. 

Additional collection facilities provide service to other 
parts of the City. Separate sanitary sewers and storm drains 
serve most of the other neighborhoods. 

The collection system transports Boston's wastewater flows 
to MWRA facilities that carry the sewerage to MWRA's Nut Island 
plant in Quincy, or Deer Island plant in Boston for treatment and 
disposal. 



19 



IV. SOURCES AND USES OF WATER 



Section IV. 1 Sources and Uses of Water 

Projecting water use for rate setting purposes involves 
four major factors that staff considered: 

- Forecasting the user population. 

Assessing water use patterns. 

Assessing the impact of conservation and pricing 
structures on total consumption. 

Identifying losses in the system (through undermetering, 
leaks, etc. ) . 

Section IV. 2 User Population 

The Commission currently serves approximately 87,600 
accounts, including the City's residential population, its 
businesses and industries, and its public and private 
institutions. Boston has a population of 573,600 residents (1). 
The City's daytime population increases by approximately 340,000 
workers; 7 0,000 shoppers, tourists and business visitors; and 
75,000 commuting students. 

Residential customers account for approximately 86 percent 
of all metered accounts but only about 23 percent of the 
consumption volume. Commercial and industrial users have the 
largest impact on water consumption. 

New residential construction in Boston primarily accounts 
for the number of new residential water accounts. The City of 
Boston reports that the number of building permits issued for 
residential units in Boston has slowed since last year. Staff 



(1) Boston Redevelopment Authority, Department of Policy 
Development and Research, June, 1988. 

20 



expects new residential construction to hold steady at the 
current level through 1989. Therefore, staff predicts modest 
growth in the number of new residential accounts. 

On the commercial and industrial side, the Boston 
Redevelopment Authority projects about $238 million of private 
investment, non-residential construction projects to be completed 
in 1989. These projects include office, retail, medical, 
institutional, parking and transportation-related, industrial, 
and hotel/convention facility construction. This represents a 
$699 million decline from the projected 1988 year-end total of 
$937 million. This lowering of private investment construction 
completion in 1989 will moderate growth in commercial and 
industrial water accounts and the associated water usage. 

Based on this analysis, the Commission predicts only modest 
growth in the number of accounts it will serve in 1989. 

Section IV. 3 Water Use 

Exhibit H (pg. 26) shows the amount of water the Commission 
has bought from the MDC/MWRA, the amount the Commission billed to 
its customers, and the ratio of billings to total MDC/MWRA water 
purchases. Exhibit G demonstrates that while the Commission's 
purchases from the MDC/MWRA have decreased by 19 percent since 
1976, the Commission's sales to consumers have only increased by 
8 percent in the same period. System losses have decreased from 
over 50 percent in 1976 to approximately 33 percent in 1988. 



21 



Older cities such as Boston have always experienced rather 
large water system losses, where the age of the system 
contributes significantly to this problem. The Commission has 
undertaken a number of programs to correct system losses. The 
results show clearly in the decline of wholesale water purchases 
from the MDC/MWRA and the decline in system losses during the 
past decade. A description of the current leak-detection, system 
improvement and meter-upgrade programs that the Commission is 
undertaking can be found in Section VI . 3 , Program Objectives. 

Water consumption by Boston consumers has increased 
moderately over the past decade. Water sales increased by three 
percent when the Commission began billing the City of Boston for 
its water consumption in 1978. However, from 1978 to 1983, total 
billable gallons actually declined. Since 1983, water sales have 
risen from 76.9 million gallons per day to a projected 81.5 
million gallons per day in 1988, or an increase of approximately 
5 percent. This increase reflects the results of the 
Commission's efforts to upgrade faulty meters, institute an 
improved billing system, and the economic growth of the City. 

In 1989, the Commission forecasts that consumption will 
increase moderately to 82 million gallons per day. 



22 



Section IV. 4 Conservation and System Improvements 

Over the past ten years, withdrawals from the MWRA's water 
supply systems have approached or exceeded the average safe yield 
(approximately 300 million gallons per day) of its reservoirs. 
The MWRA has accepted the responsibility to meet the ongoing 
legitimate water supply needs of its constituency, and to manage 
the assets of its water delivery system in order to conserve 
water at the wholesale and retail levels. The MWRA's 
conservation measures are directed toward minimizing leakage, 
waste, and excessive use. The MWRA has adopted policies to 
institute educational programs to promote conservation, and has 
encouraged its member communities to adopt conservation-oriented 
rate structures. 

The Commission, the largest user of water in the MWRA 
system, is directly affected by the MWRA legislation and 
policies. In response, the Commission has placed added emphasis 
on its leak detection and metering programs in an effort to 
reduce water purchased from the MWRA and to comply with the 
Authority's mandate to conserve water resources. 

In addition to the above conservation efforts, Staff 
investigated the impact of various rate structures on customers' 
consumption habits, and with a supporting recommendation from the 
Commission's rate consultants. Camp, Dresser & McKee, the 
Commission adopted an inclining block rate structure in 1985. 

The approved 1989 water and sewer rates reflect this 
conservation-oriented rate structure. 



23 



Section IV. 5 City of Boston, Billable Water Volume 

The Commission billed the City of Boston for water and 
sewer use beginning in 1978. Estimates of water usage were used 
from 1978 to 1980 because many City facilities were unmetered. 

Since 1981, actual metered billings have been initiated for 
the following City departments: Fire, Libraries, Police, Public 
Works, Printing, Schools, Traffic and Parking, and the Charles 
Street Jail. 

Other City departments receive estimated billings. These 
departments include the City's Health and Hospital Department, 
Parks and Recreation, the Deer Island Jail and other 
miscellaneous properties. 

Staff uses a model that was originally developed by Coopers 
and Lybrand, a public accounting and consulting firm, to estimate 
the water use of the unmetered departments. For 1989, staff 
estimates that these unmetered City departments will use an 
average of 1.5 million gallons per day. This number is added to 
the Commission's projection of total metered water use. 

The program to meter all City facilities will continue to 
be implemented wherever feasible and cost-effective. Meters will 
begin to be installed for the City's Health and Hospitals 
Department in 1989. The Commission plans to complete this work 
in 1990. 



24 



Section IV. 6 Estimating the Number of Billable Gallons 

An analysis of the major factors involved in forecasting 
water usage (i.e., population, conservation, city redevelopment, 
leak detection and metering programs) indicates a probable 
increase in billable water usage during 1989. Staff estimates 
that total water sales, including the City of Boston unmetered, 
will be 82 million gallons per day. This represents a 0.6 
percent increase from 1988. Staff expects that sewer sales will 
follow the same usage trends as water. Staff projects that total 
sewer sales will be 80.8 million gallons per day. 



25 



Exhibit H 

WATER PURCHASES AND BILLING STATISTICS 
Millions of Gallons Per Day (MGD) (1) 



Purchased Water from MDC/MWRA 
Total MDC/MWRA Boston 

System Consumption 

(MGD) (MGD) 



1988 (2) 


311.1 


122.0 


1987 


307.1 


122.9 


1986 


293.4 


120.9 


1985 


299.0 


119.2 


1984 


291.0 


117.3 


1983 


293.6 


125.3 


1982 


297.3 


128.6 


1981 


309.1 


132.2 


1980 


312.7 


135.2 


1979 


307.9 


137.3 


1978 


317.1 


143.0 


1977 


318.9 


146.1 


1976 


317.2 


150.4 



Water Billed 


Billings As 


To Boston 


A Percent 


Users 


Of Purchases 


(MGD) 




81.5 


66.8% 


81.8 


66.6% 


81.3 


67.2% 


81.3 


68.2% 


78.0 


66.5% 


76.9 


61.4% 


78.6 


61.1% 


78.4 


59.3% 


80.6 


59.6% 


81.5 


59.4% 


79.9(3) 


55.9% 


76.1 


52.1% 


74.8 


49.7% 



(1) 7.48 gallons = 1 cubic foot 

(2) Projected 

(3) Beginning in 1978, the Commission began billing the City of Boston 
(e.g., Schools, Health and Hospital Facilities, Jails, etc.) v;hich 
accounts for approximately 3% of billable gallons. 



26 



V. RATE SETTING METHODOLOGY 



Section V.l Rate Setting Methodology 

The Commission develops its rates in accordance with 
legislative mandates, its financial requirements, and generally- 
accepted ratemaking principles. Staff reviews each of these 
areas to ensure that the Commission's rates meet the prescribed 
tests. This chapter describes the steps the Commission takes in 
order to develop its rates. 

Section V.2 Legislative Review 

Staff reviewed pertinent federal and state legislation, as 
well as Commission policy, to establish a framework for setting 
rates. This review produced the following guidelines: 

o The Commission must be self-sustaining. 

o Water and sewer rates must be proportionate. 

o The Commission must bill the City of Boston for water 
and sewer services. Prior to 1978 the City was not 
billed. 

o The discount for the elderly and fully disabled, as 
required by the Enabling Legislation, is applied to 
water service. 

o The sewer rate must meet certain federal requirements 

in order to remain an approved EPA user charge, and for 
the Commission to remain eligible to receive federal 
and state grants to finance major capital projects for 
its sewer system. 

o Legislation creating the MWRA permits the use of an 
inclining block rate structure and mandates 
conservation efforts in the region. 



27 



Specifically, the Enabling Legislation requires the Commission's 
rates to be sufficient to: 

1) recover current expenses, 

2) pay all debt service, 

3) create and maintain reasonable reserves required by any 
bond resolution, 

4) provide funds for paying the cost of all necessary 
repairs, replacements and renewals of the system, and 

5) pay or provide for any and all other amounts that the 
Commission may be obligated to pay or provide for by 
law or contract. 

Section V.3 Rate Revenue Requirements 

The Commission determines its gross revenue requirement 
through its Operating Budget and projections of revenue 
adjustments. Generally-accepted rate making practices suggest 
that future rates be based on future costs. The approved 1989 
Operating Budget specifies the rate revenue requirement used to 
develop the approved rates. 

Section V.4 Capital Costs 

Capital projects involve renewal, replacement, extensions, 
and improvements to the water and sewer system. The Commission 
annually prepares a three-year Capital Improvement Program that 
specifies the capital projects the Commission will undertake. 



28 



Historically, BWSC has funded the rehabilitation, or in-kind 
replacement, of water and sewer lines as well as replacement of 
meters from current rate revenues; all other projects have been 
funded with bond proceeds and grants when available. With 
respect to this policy, the Commission has utilized encumbrance 
accounting for the rate-funded capital projects. This accounting 
method has the effect of freezing resources, so they may be 
committed to a particular action. 

In 1988, The Commission approved the utilization of 
unexpended bond proceeds from previous bond issues to pay for 
renewal and rehabilitation projects that were begun in 1987 and 
1988. This decision was necessitated in part by federal tax laws 
governing the use of tax-exempt bonds. In addition, the 
utilization of the unexpended bond proceeds for 1987 and 1988 
renewal and replacement projects permitted the Commission to 
realize a lower interest rate on the remarketing of its 1985 
variable rate bond issue. 

For 1989, the funding for capital projects that has been 
included in the calculation of the proposed water and sewer rate 
schedule represents the projected current year expenditures 
associated with the 1989 renewal and replacement projects. The 
approved 1989 Operating Budget provides detailed information on 
the Commission's debt service payments, required deposits to 
reserve funds, and the projected expenditures for the Renewal and 
Replacement projects included in the approved 1989-1991 Capital 
Improvement Programs. 



29 



In addition, under stipulations of the Commission's General 
Revenue Bond Resolution, the Commission is required to maintain 
rates and charges sufficient to produce net revenues (as defined 
in the Resolution) equal to at least 125% of the maximum 
principal and interest payment due in any future year. 

Section V.5 Other Income 

The Commission reduces its total revenue requirement with 
other income it receives. This other income includes fees for 
special services the Commission provides, interest earned on 
certain operating and reserve funds, fire pipe fees, and late 
payment charges. In addition, the Commission applies any surplus 
or deficit from the previous year to the current rate revenue 
requirement. 

Section V.6 Allocation of Costs 

The Commission allocates its rate revenue requirement 
between its water and sewer components. Many of the Commission's 
costs can be directly allocated to either water or sewer 
services (for example, the Commission's MWRA assessments and its 
water and sewer operations costs) . The Commission allocates its 
debt service costs to water or sewer according to the applied 
purpose of the bond. 



30 



However, certain administrative and other indirect costs do 
not fall neatly into a water or sewer component. The Commission 
allocates other operating costs according to the water and sewer 
allocation ratios developed by its directly-allocated operating 
costs. 

Section V.7 Billable Gallons 

The Commission divides its net water rate revenue 
requirement and its net sewer rate revenue requirement by the 
projected number of billable gallons for each category. To 
determine the billable gallons estimate, the Commission reviews 
and analyzes population and economic growth trends for the City 
of Boston, consumption patterns by different users, and the 
impact of conservation on water consumption. 

Section V.8 Design of Rates 

In 1985, the Commission adopted a ten-tier inclining block 
rate structure to encourage conservation. Staff is recommending 
the continuation of this rate structure for 1989. In addition, 
in accordance with the Commission's Enabling Legislation, the 
approved rates continue to offer a 25 percent discount on water 
charges for elderly and fully disabled homeowners in structures 
with one to four dwelling units. 



31 



VI. FINANCIAL ANALYSIS 



Section VI . 1 Introduction 

Generally-accepted ratemaking principles suggest that future 
rates be based on future costs. Therefore, the Commission bases 
its approved rates on its 1989 Operating Budget. 

The second section of this chapter summarizes the 1989 
Operating Budget. Subsequent sections explain the major expense 
and revenue forecasts made in the determination of the net 
revenue requirement. 

Exhibit I (pg. 33) presents the basic equation involved in 
determining the net revenue requirement as well as delineation of 
the revenue and expense categories. 

As defined by statute, the Commission must be self 
sustaining; it is mandatory that gross revenues be sufficient to 
meet the cost of total expenses, including any revenue 
adjustments. The gross revenue requirement, reduced by other 
revenues, including the prior year's surplus, equals the rate 
revenue requirement. The rate revenue requirement divided by the 
total billable gallon figure is used to establish the water and 
sewer rate schedule. 



32 



Exhibit I 
RATE REVENUE REQUIREMENT METHODOLOGY 
TOTAL EXPENSES 

Plus REVENUE ADJUSTMENTS 

Less OTHER REVENUES 

Equals RATE REVENUE REQUIREMENT 

TOTAL EXPENSES : 

Massachusetts Water Resources Authority Assessment 
Operating Expenses: 

- Wages and Related Benefits 

- Supplies and Materials 

- Contractual Repairs to System, Vehicles and 
Equipment 

Indirect Expenses: 

- Professional Services 

- Damage Claims 

- Utilities, Space and Equipment Rental 

- Other 

Capital Projects (Renewal and Replacement) 

Interest Expense 

Principal Repayment 

Deposit to Operating Reserve Fund 

Deposit to Renewal and Replacement Reserve Fund 

Deposit to Debt Service Stabilization Fund 

Working Capital Allowance 

PLUS : 

REVENUE ADJUSTMENTS; 

Elderly and Fully Disabled Discounts 
Billing Adjustments 
Bad Debt Allowance 

LESS: 

OTHER REVENUES : 

Investment Income 
Miscellaneous Revenues: 

-Special Service Fees 

-Late Payment Charges 

-Fire Service Fees 
Prior Period Surplus 

EQUALS : 

RATE REVENUE REQUIREMENT ; 
Water 
Sewer 



33 



Section VI . 2 1989 Operating Budget Summary 

The rate revenue requirement stems from the approved 1989 
Operating Budget, Exhibit J (pg. 38) presents the Operating 
Budget for 1989 by major revenue and expense category. 

The Commission developed the 1989 Operating Budget based on 
the program priorities and performance objectives of each 
department. This process defined each department's sense of 
purpose and mission, promoted greater departmental 
accountability, and matched scarce resources with critical 
program objectives. 

Total revenues and expenses proposed for 1989 are $127.4 
million as presented in Exhibit J (pg. 38) . This represents an 
increase of 25.0 percent over the 1988 Operating Budget. 

The projected increase in the MWRA Assessment to the 
Commission represents the most significant increase in the 1989 
Operating Budget. The Commission is budgeting $64.1 million in 
1989 for the projected MWRA. assessment expense, an increase of 
52.5 percent over the 1988 budget of $42.0 million. This 
includes the 3 6 percent FY 1989 MWRA rate increase, the projected 
45 percent increase in the MWRA's rates effective July 1, 1989, 
as well as the additional monies that the Commission must 
transfer to its MWRA Assessment Fund in accordance with the 
requirements of the Commission's General Revenue Bond Resolution. 

The 52.5% increase in budgeted MWRA charges compares with a 
net increase of only 5.7% in all other operating expenses of the 
Commission, including debt service, renewal and replacement 
expenditures and reserve fund payments. This modest increase in 



34 



the Commission's other current expenses is primarily due to a 
rigorous budgetary review process, to changes in the Commission's 
bond portfolio that have reduced debt service costs, and to the 
change of budgeting renewal and replacement expenses to a 
forecasted current year expenditure basis. 

In summary, the approved 1989 expense budget represents a 
very lean estimate of the resources required to provide ongoing 
water and sewer services and to achieve the priority objectives 
outlined below. The programmatic initiatives in this budget, 
such as leak detection, aggressive collection of overdue accounts 
and improved fiscal controls, will ultimately result in cost 
savings to the Commission's rate payers. 

Section VI . 3 Program Objectives 

Staff will focus on five priority areas in 1989 that span all 
departments of the Commission. These objectives will improve the 
Commission's ability to manage its operations, track its 
resources and control its finances. The five areas with a sample 
of key objectives are: 



35 



Reducing Unaccounted for Water 

Survey 700 miles of water lines to detect leaks in the 
system. 

Increase by 20% the number of locking devices on 
hydrants to prevent illegal use and water losses. 

Increase the large meter testing program which improves 
accuracy in billing by testing 350 large meters, a 250% 
increase from 1988. 



Promoting Affirmative Action 

Increase the percentage of minority employees from 13% 
to 15% and the percentage of women employees from 15% to 
19%. 

Ensure that 15% of purchasing contracts are awarded to 
minority-owned firms and 5% to women-owned firms. 

Ensure that all staff have attended at least one 
sensitivity training session by the end of the year. 

Improving Accountability and Control Procedures 

Prepare detailed reporting formats and procedures to 
monitor departments' performances on 1989 goals and 
objectives. 

Develop quarterly forecasts to analyze year-end revenues 
and actual expenditures relative to budget and the 
Commission's year-end surplus or deficit position. 

Revise and implement new policies and procedures to 
reduce delinquent accounts by 25%. 

Settle all cases of disputed bills within one year of 
being filed. 

Pursue, via legal channels, all delinquent accounts over 
$2,500 and outstanding for more than one year. 

Define and establish a reporting format to track cash 
receipts as a percentage of quarterly-billed revenues 
and set a year-end goal for increasing the collection 
rate. 

Addressing Public Health Issues 

Increase on-demand water sampling tests from 200 in 1988 
to 400 in 1989 per Environmental Protection Agency 
proposed copper and lead regulations. 

Replace 21,000 linear feet of lead water service pipes. 

Identify alternative disposal sites and techniques for 
the Commission's solid fill by the end of 1989. 

36 



5 . Increasing Preventive Maintenance 

Increase flushing sewer and storm lines to 150,000 
linear feet from 100,000 linear feet in 1988. 

Initiate a program to examine 4,000 small water valves 
and to replace an estimated 240 defective valves. 

- Inspect and monitor 100 restaurants to ensure compliance 
with commercial discharge regulations. 

In addition to the above five priority areas, the projected 
capital expenditures for renewal and replacement projects, which 
have been included in the 1989 Operating Budget, will pay for the 
initiation of the relaying and relining of approximately 16 miles 
of water pipe, fund the Commission's residential meter 
replacement program and allow for the inspection of approximately 
20 miles of sewer line. 



37 



EXHIBIT J 

1989 OPERATING BUDGET SUMMARY 

(OOO'S) 



RATE REVENUE REQUIREMENT $127,449 

Billing Adjustments (8,741) 

Discounts (583) 

Bad Debts (1,150) 

Prior Year Surplus 1,601 
Net Adjustments to Prior Period 
Miscellaneous Revenues: 

-Investment Income 3,737 

-Late Payment Income 2,600 

-Other Income 734 

-Fire Service 1.753 

TOTAL REVENUES $127,4 00 



EXPENSES 

MWRA Assessment $ 64,100 

Operating Expenses 34,104 

Capital Projects (R & R) * 7,500 

Interest Expenses 9,752 

Principal Repayment 3,135 

Deposit to Reserve Funds 3,926 

Allowance for Working Capital 4 . 883 

TOTAL EXPENSES $127,400 



*RENEWAL AND REPLACEMENT, 



38 



Section VI . 4 Water and Sewer Expenses 

The CoTnmission divides its total expenses into their water 
and sewer components. The calculation of separate water and 
sewer rates requires this step. Exhibits M (pg. 48) and 
N (pg. 49) present the results of this allocation. 

Many costs can be directly allocated to either water or 
sewer, such as the MWRA assessment, the Commission's largest cost 
component. However, other costs, such as indirect expenses, are 
not as clearly defined. In these cases, the Commission allocates 
these costs based upon the proportion of direct costs attributed 
to water and sewer services. 

Section VI . 5 Revenue Adjustments 

A. Elderly/Fully Disabled Discount 

Elderly homeowners, 65 years of age or older, or fully 
disabled homeowners, living in structures with one to four 
dwelling units, are currently eligible for a discount on their 
water bill for that structure. The current 25 percent discount 
will be continued for 1989. Staff estimates that approximately 
13,000 customers will take advantage of the elderly/ fully 
disabled discount in 1989. The total associated expense will be 
approximately $583,000. 

B. Billing Adjustments and Bad Debt 

Billing adjustments represent corrections to customers' 
accounts due to incorrect bills, inaccurate usage estimates, or, 
in the case of sewer use, situations where the amount of 



39 



wastewater returned is significantly less than the amount of 
water used. Staff estimates that billing adjustments will amount 
to $8,741 million in 1989. 

Bad debt represents uncollectable amounts of billed revenues. 
The Commission has substantially reduced the percent of bad debt 
relative to total revenues in recent years due to its improved 
revenue collection programs. Staff estimates that bad debt will 
be approximately $1.1 million in 1989. 

Section VI . 6 Other Income 
A. Special Service Fees 

In addition to the provision of water and wastewater 
services, the Commission furnishes certain special services to 
the community. BWSC has established an approved fee schedule to 
recover the cost of providing these special additional services, 
where needed, without burden to the general rate payer. 

The Commission reviews the approximate cost and frequency of 
special services each year. Based upon the results of this 
year's review. Staff recommended an increase for some of the fees 
to more accurately reflect the Commission's cost of rendering 
these services. The approved Special Service Fees are set forth 
in Exhibit C, (pg. 8) . Exhibit K (pg. 42) presents the projected 
revenues for 1989 from the Special Service Fee Schedule. 

For 1989, the Commission approved the institution of a 
Septage Disposal charge for contractors who dispose of septage in 
the Commission's system. Septage is defined as the liquid and 
solid wastes of primarily sanitary sewage origin that are removed 
from a cesspool, septic tank or similar receptacle. Currently, 



40 



the Commission allows 13 contractors to dispose of this septage 
in the system at no charge. The proposed Septage Disposal Fee 
has been calculated to recover the costs associated with the 
treatment of the septage which has been disposed and also the 
administrative costs associated with monitoring and billing for 
the disposal process to ensure compliance with relevant 
permitting requirements. 

B. Late Payment Charges 

Prior to 1978 water and sewer services were provided by the 
City of Boston, whose collection policy for delinquent customers 
did not encourage prompt payment. As unpaid bills eventually 
became liens on property, most bills were ultimately paid. 
However, on average, 27% of billings remained uncollected prior 
to water and sewer charges being added to property taxes. 

To alleviate this problem, upon its inception the 
Commission adopted a late payment penalty to encourage more 
timely payments. This mechanism, in addition to other collection 
procedures instituted by the Commission, has been successful to 
the extent that the Commission now collects over 95% of its 
adjusted billings within 12 months. 

The Commission approved for 1989 the continuation of the late 
payment charge at its current rate of .03288% per day compounded 
with each billing on all amounts past due 45 days (approximately 
equal to 12% per annum). Late charge revenue in 1989, net of a 
payment allowance of approximately 27%, is projected to be $2.6 
million. 



41 



Exhibit K 
REVENUE FROM SPECIAL SERVICE FEES 



NAME FEES 




ESTIMATED 
FREQUENCY 


ESTIMATED 

ANNUAL 

REVENUE 


FIRE FLOW TEST 


$165 




110 


$18,150 


RETURN CHECK PROCESSING 


$ 


15 




500 


$7,500 


TEMPORARY CONNECTION 
-greater than 2 Days 
-less than 2 Days 


$195(1) 
$ 25 




90 

45 


$17,550 
$1,125 


WATER PIPE INSPECTION 


$125 




500 


$62,500 


SEWER PIPE INSPECTION 


$125 




250 


$31,250 


WATER SERVICE 
INSTALLATION 


$280(1) 







$0 


SPECIAL METER TESTS 


$ 


40(1) 




200 


$8,000 


DRAIN LAYERS LICENSE 


$ 


13 




500 


$6,500 


MULTI-DAY CONSTRUCTION 
INSPECTION $175/diem 
FIRE PIPE EXCAVATION 
Cost Basis (approx. $2500) 




50 

1 


$8,750 
$2,500 


EXCAVATION 

Cost Basis (approx. $900) 








1 


$ 900 


LIEN CERTIFICATE 


$ 


25(1) 


4 


,500 


$112,500 


SCRAP SALES 


- 




- 




$7,000 


WATER TURN-ON/ 
TURN-OFF 


$ 


30(2) 




360 


$10,800 


CONSTRUCTION PLANS 
AND DRAWINGS 


$ 


4 


2 


,500 


$10,000 


FROZEN METER REPLACEMENT $ 




98(1) 




215 


$21,070 


CROSS CONNECTION 
INSPECTION 


$ 


90 


3, 


,500 


$315,000 


SEPTAGE DISPOSAL 




(3) 




2.5 Million 
Gallons 


$92,639 


TOTAL: 










$733,734 



(1) Average cost 

(2) For services affected by the Commission's termination of 
service procedures. 

(3) Sewer charge plus $0 . 038/gallon of septage disposed. 

42 



C. Fire Pipe Charges 

Generally-accepted rate making practices prescribe the 

imposition of fire pipe fees for private fire protection. The 

American Water Works Association suggests that: 

"The costs of providing private fire-protection service to 
individual properties represent a service not directly 
benefitting the general customer population of the utility. 
Such a service provides a measurable benefit that can 
reasonably be charged for through a system of rates and 
charges to those customers receiving private fire-protection 

service. " ^ ' 

The installation of a private fire-protection system has 
value to property owners and tenants. The private fire 
protection system reduces fire insurance premiums and enhances 
fire fighting capabilities. 

The Commission incurs costs associated with providing the 
fire protection system. It must maintain and inspect the 
connections to the water system. Furthermore, it does not meter 
any water use by the fire protection system. 

In past years fire pipe charges have been set to recover 
approximately three percent of the net water revenue 
requirement. The Commission approved the continuation of this 
practice for 1989. 

The following table summarizes the proposed quarterly fire 
pipe charges for 1989: 

Size of Service Quarterly Charge 

4 inch or smaller $ 62.00 

6 inch $ 140.00 

8 inch or larger $ 249.00 

The Commission has 4,055 such connections in the City. 

The anticipated revenue from these charges is $1,753 million for 
1989. 

^■"■^ American Water Works Association Manual M26, "Water Rates and 
Related Charges," 1986. 

43 



D. Investment Income 

The Commission has a number of large expenses that are paid 
in lump sum installments on a semi-annual basis, such as 
principal and interest payments. By utilizing effective cash 
management techniques, the funds accumulated to meet these 
expenses will earn investment income. In addition, the reserve 
requirements of certain trust indentures are also available for 
investment purposes. The investment income earned serves to 
reduce water and sewer rates. 

Based upon a cash flow analysis, the Commission estimates 
investment income for the calendar year of 1989 will be $3.7 
million. The Commission bases its projected investment income on 
an estimated average return of approximately 7.0% during 1989. 
It has developed this estimate in conjunction with its financial 
advisor, senior underwriter, and other appropriate economic 
sources. 

E. Prior Year's Surplus 

The Enabling Legislation requires that any surplus earned in 
any year be used to offset the following year's rates or be 
returned to the City of Boston. Conversely, any deficit must be 
recovered in the following year's rates. In the past, the 
Commission has elected to use any surplus to reduce rates. 

Staff estimated a 1988 year-end surplus of approximately 
$1.6 million (see Exhibit L, pg. 45). This surplus has been 
incorporated into the rate calculation to decrease the 1989 water 
and sewer rate revenue requirements. 



44 



Exhibit L 

PROJECTED 1988 SURPLUS ANALYSIS 
(OOO'S) 



Estimated 
@ 12/31/88 
(unaudited ) 



1988 REVENUES 

OPERATING REVENUES 

Billed Water & Sewer Charges 
Billing Adjustments 
Discounts 
Bad Debts 

Total Net Operating Revenues 

OTHER REVENUES 

Prior Year Surplus 
Other Income 
Investment Income 

Total Other Revenues 

TOTAL ACCRUED REVENUES 

1988 EXPENSES 

Direct Operating Expenses 

MWRA Assessment 

Capital Projects Renewal & Replacement 

Debt Service 

Deposit to Reserve Funds 

Provision for Working Capital 

TOTAL CURRENT EXPENSES 

Excess 1988 Revenues over 1988 Expenses 
(Available for Reduction to 1989 

Rate Revenue Requirement (1) 



$94,203 
(6,272) 
(475) 
QAl 

$87,382 



$ 3,448 
3,575 
3.930 

$10.953 

$98,335 



$30,724 

40,699 

(6,470) 

15,466 

3,465 

$12.850 

$96,734 
$ 1,601 



(1) The distribution of this 1988 surplus has been allocated to the 
water and sewer rate revenue requirements with water accounting for 
$743,000 and sewer for $858,000. This allocation reflects the 
relative ratios of the water and sewer rate revenue requirement 
adopted in 1988 (i.e.. Water - 46.4% Sewer - 53.6%). 



45 



VII. RATE CALCULATION 



Section VII. 1 Rate Calculation 

The Commission must set rates to fully recover its total 
expenses, including debt service and revenue adjustments. 
This section calculates the water and sewer rate revenue 
requirements, and develops the water and sewer rates. Chapter 
IV provides an overview of the Commission's ratemaking process. 
Exhibit I (pg. 33) displays the formula to determine the 
Commission's rate revenue requirement. Chapter VI addresses the 
expenses, revenue adjustments and other income sources that go 
into calculating the water and sewer rate revenue requirements. 

Section VII. 2 Determination of Rate Blocks 

In 1985 the Commission undertook a major study of its rate 
structure. As a result of that study, the Commission adopted a 
ten-tier, inclining block rate structure. The Commission has 
maintained that rate structure in each of its succeeding rate 
setting processes since 1985. 

The Commission approved the continuation of this rate 
structure for 1989. The consumption level of each of the rate 
blocks will remain the same as established in 1985. The 
Commission approved this structure in order to maintain equity 
between similar types of customers, encourage conservation, 
raise adequate revenues, and maintain rate continuity. 



46 



Section VII. 3 Water and Sewer Rate Calculations 

Exhibits M (pg. 48) and N (pg. 49) present the calculation 
of the water rate revenue requirement and sewer rate revenue 
requirement respectively. The Commission estimates the 
following rate revenue requirements for 1989: 

Water - $59,591,000 

Sewer - $67,858,000 

Exhibits (pg. 50) and P (pg. 51) show the calculation of 
the water and sewer rates respectively. These rates are based on 
the water and sewer rate revenue requirements determined in 
Exhibits M and N, the billable gallons estimated in Chapter V, 
and the proposed rate structure. Exhibit B (pg. 7) illustrates 
the impact of the approved rates on various users. 



47 



EXHIBIT M 

1989 WATER RATE CALCULATION 

(OOO'S) 



REVENUES 



WATER RATE REVENUE REQUIREMENT $59,591 

Billing Adjustments (4,087) 

Discounts (583) 

Bad Debts (538) 

Prior Year Surplus 743 
Net Adjustments to Prior Period 
Miscellaneous Revenues: 

-Investment Income 1,747 

-Late Payment Income 1,216 

-Other Income 34 3 

-Fire Service 1,753 

TOTAL WATER REVENUES $60, 185 



EXPENSES 



MWRA Assessment $26,794 

Operating Expenses 17,388 

Capital Projects (R & R) * 5,865 

Interest Expense 4,181 

Principal Repayment 1,4 65 

Deposit to Reserve Funds 2,002 

Allowance for Working Capital 2,490 

TOTAL WATER EXPENSES $60,185 



*Renewal and Replacement. 



48 



EXHIBIT N 

19 8 9 SEWER RATE CALCULATION 

(OOO'S) 



REVENUES 



SEWER RATE REVENUE REQUIREMENT $67,858 

Billing Adjustments (4,654) 

Discounts 

Bad Debts (612) 

Prior Year Surplus 858 
Net Adjustments to Prior Period 
Miscellaneous Revenues: 

-Investment Income 1,990 

-Late Payment Income 1,3 84 

-Other Income 391 

-Fire Service 



♦Renewal and Replacement. 



TOTAL SEWER REVENUES $67,215 



EXPENSES 



MWRA Assessment $37,306 

Operating Expenses 16,716 

Capital Projects (R & R) * 1,635 

Interest Expense 5,571 

Principal Repayment 1,670 

Deposit to Reserve Funds 1,924 

Allowance for Working Capital 2,393 

TOTAL SEWER EXPENSES $67,215 



49 



EXHIBIT O 
Water Rate: 



1989 Approved Rate Revenue Requirement $59,591,000 



BOSTON WATER AND SEWER COMMISSION 
REVENUE ANALYSIS FOR APPROVED WATER RATES 

CUBIC FEET ESTIMATED ESTIMATED 

PER DAY BILLED BILLED BILLED APPROVED ESTIMATED 

USAGE USAGE USAGE USAGE RATE REVENUE 

BLOCK (CU. FT.)* (000 'S GAL.) (PERCENT) ($/1000 CF) PER BLOCK 



0-19 68,822,995 514,796 1.72% $14,710 $1,012,386 

20-39 256,485,695 1,918,513 6.41% $14,730 $3,778,034 

40-89 554,985,428 4,151,291 13.87% $14,770 $8,197,135 

90-159 312,504,412 2,337,533 7.81% $14,810 $4,628,190 

160-349 368,523,128 2,756,553 9.21% $14,850 $5,472,568 

350-599 290,897,193 2,175,911 7.27% $14,870 $4,325,641 

600-1299 458,953,342 3,432,971 11.47% $14,910 $6,842,994 

1300-2999 456,152,406 3,412,020 11.40% $14,950 $6,819,478 

3000-5999 339,313,369 2,538,064 8.48% $14,980 $5,082,914 

6000 OR > 894,698,930 6,692,348 22.36% $15,010 $13,429,431 

4,001,336,898 29,930,000 100.00% $59,588,771 

REVENUE FROM APPROVED RATES $59,588,771 
(1/1/89 - 12/31/89) 

REVENUE REQUIREMENT $59,591,000 

SURPLUS/ (DEFICIT) ($2,229) 

* Based on 1989 projected billable consumption of 82.0 million 
gallons per day. 



50 



EXHIBIT P 



Sewer Rate: 



1989 Approved Rate Revenue Requirement 



$67,858,000 



CUBIC FEET 
PER DAY 
USAGE 
BLOCK 

0-19 

20-39 

40-89 

90-159 

160-349 

350-599 

600-1299 

1300-2999 

3000-5999 

6000 OR > 



BOSTON WATER AND SEWER COMMISSION 
REVENUE ANALYSIS FOR APPROVED SEWER RATES 

ESTIMATED ESTIMATED 

BILLED BILLED BILLED APPROVED ESTIMATED 

USAGE USAGE USAGE RATE REVENUE 

(CU. FT.)* (OOO'S GAL.) (PERCENT) ($/1000 CF) PER BLOCK 



67,815,829 
252,732,246 
546,863,690 
307,931,176 
363,130,107 
286,640,160 
452,236,952 
449,477,005 
334,347,807 
881,605,775 





507, 


,262 


1, 


.72% 


1, 


,890, 


,437 


6, 


.41% 


4, 


,090, 


,540 


13, 


.87% 


2, 


,303, 


,325 


7, 


.81% 


2, 


,716, 


,213 


9, 


.21% 


2, 


,144, 


,068 


7, 


.27% 


3, 


,382, 


,732 


11, 


.47% 


3, 


-362, 


,088 


11. 


,40% 


2, 


-500, 


,922 


8. 


,48% 


6, 


,594, 


,411 


22. 


,36% 


9. 


,492, 


,000 


100. 


,00% 



REVENUE FROM APPROVED RATES 
(1/1/89 - 12/31/89) 

REVENUE REQUIREMENT 

SURPLUS/ (DEFICIT) 



$16,170 $1,096,582 
$16,360 $4,134,700 
$16,550 $9,050,594 
$16,740 $5,154,768 
$16,930 $6,147,793 
$17,120 $4,907,280 
$17,310 $7,828,222 
$17,500 $7,865,848 
$17,690 $5,914,613 
$17,870 $15,754,295 
$67,854,695 
$67,854,695 

$67,858,000 
($3,305) 



* Based on 1989 projected billable consumption of 80.8 million 
gallons per day. 



51