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 0

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 0

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

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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 0
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,

Type

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 0 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 0 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

$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 0 (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 0

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 0

♦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