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City of Detroit
Water and Sewerage
Department
Wholesale Customer Rates Meeting
Sewage Disposal System
Meeting #4
Preliminary Proposed FY 2010-11 Sewer Rates
January 21, 2010
TFG
THE FOSTER GROUP
Customer Rate Season Schedule
• This is the third of a series of meetings
 10/13 –Capital Improvement Program Presentation
 11/19 – Units of Service, Preliminary SYSTEM
Revenue Levels
 12/17 – Preliminary Cost Allocations to Customers
 1/21/2010 – Preliminary Individual Rate
Proposals
 2/24/2010 – BOWC Public Hearing
 3/ /2010 – City Council Public Hearing
 7/1/2010 – Effective Date for Rates
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• Parallel meetings of Partnership Work Groups
TFG
THE FOSTER GROUP
Information Portals
• DWSD web site
 www.dwsd.org
 Customer Information / “Wholesale Customers
Season Rate Schedule”
• DWSD Customer Outreach Portal
 www.dwsdoutreach.org
 For information contact Teresa Newman
 [email protected]
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TFG
THE FOSTER GROUP
Today’s Agenda
• Rollout Presentation

Updated Preliminary Revenue Requirements (And
System Revenue) for FY 2010-11

Updated Units of Service and Cost of of Service
Allocations to Customers

Presentation of Preliminary Proposed Rates to
Customers

Illustration of Rate Calculation
• Sewer Rates Work Group

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Detailed Discussions on Rate Issues
TFG
THE FOSTER GROUP
The 3 Fundamental Steps in
the Sewer Rate Methodology
• Revenue Requirement Projections
How Much Money is Needed?
• Cost of Service Analysis
From Whom Should the Money be
Collected?
• Design of Recommended Rates
How Should DWSD Services be Priced?
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TFG
THE FOSTER GROUP
Timeout for Some
Perspective . . .
TFG
THE FOSTER GROUP
DWSD Sewer Rate Changes
(1983-2010)
500%
Avg =6.5%
400%
Avg =6.4%
300%
200%
Avg =3.2%
100%
Avg =3.0%
0%
-100%
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CPI
Nat'l Sewer Rates
Detroit Retail
Suburban Wholesale
TFG
THE FOSTER GROUP
Annual Capital Improvement Investments
Sewage Disposal System – ($ millions)
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TFG
THE FOSTER GROUP
Compliance with Wastewater Treatment
Standards - A Very Possible Potential Reality
Stormwater
CSO
Sanitary
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TFG
THE FOSTER GROUP
Funding Wastewater Infrastructure:
A Historical Perspective
Federal
Representative
Citizen
Goals
Communities
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EPA
State Agency
Utility
TFG
THE FOSTER GROUP
Water Industry (AWWA) Perspective
on Financing Infrastructure
• Primary focus has always been local,
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and should remain so
• Aging infrastructure is an issue in the
US, but it is not at a crisis, and it is not
all “crumbling”
• There is a role for the federal
government in lowering cost of capital
and in special circumstances, but
water infrastructure challenges are not
primarily federal problems
TFG
THE FOSTER GROUP
Water Industry (AWWA) Perspective
on Financing Infrastructure
• Water trust fund is not the most
effective option
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Overhead costs of sending money to
Washington rather than retaining it locally
Encouragement of delay in establishing
true cost rates while local officials wait for
trust fund assistance
Congress’ history of not spending
revenues on purpose for which they were
TFG
collected
THE FOSTER GROUP
Water Industry (AWWA) Perspective
on Financing Infrastructure
• More effective financing tools include:
Enhancement of existing SRF programs
Removal of annual volume caps for private
activity bonds
Full cost pricing for water service
Creation of federal water infrastructure bank
• AWWA opposes national water tax
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Inefficient, regressive, inequitable and
punishes communities that have responsibly
addressed local concerns
TFG
THE FOSTER GROUP
FY 2010-11 Sewage
Disposal System Revenue
Requirement Update
TFG
THE FOSTER GROUP
Updated Sewage Disposal System FY
2010-11 Revenue Requirements
• Projected Revenues have been
decreased
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DWSD’s intention is to begin billing OMI
District for Flows measured at single
meter upstream of Northeast Pump
Station
Initial technical data had indicated
additional flow would accrue
Technical data needs additional review
At Sewer Rates Work Group’s request, FY
2010-11 Sewer Rates will not anticipate
the increase pending further review
TFG
THE FOSTER GROUP
Updated Sewage Disposal System FY
2010-11 Revenue Requirements
• Budgeted operating expenses in
financial plan for rates reduced by 2%
Reflects Management’s expectations
regarding outcomes of strategic process
Reflects desire to offset negative rate
consequences of revenue reduction noted
above
• Debt Service Coverage mildly reduced
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Reflects fact that some implementation of
FY 2007-08 and FY 2008-09 Look-Back
will count as FY 2010-11 revenue TFG
THE FOSTER GROUP
FY 2010-11 Budget Target –
Combined Water & Sewer
420
400
380
360
340
320
300
2005
Actual
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2006
2007
Trend
2008
Trend2
2009
Budget
2010
2011
Modified Budget
TFG
THE FOSTER GROUP
Sewage Disposal System Preliminary
Revenue Level – December Projection
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TFG
THE FOSTER GROUP
Sewage Disposal System Preliminary
Revenue Level – Proposed Projection
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TFG
THE FOSTER GROUP
Preliminary Sewer Rate Level –
Increase Drivers
2.7%
0.4%
3.7%
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Revenue Base
O&M
Capital
TFG
THE FOSTER GROUP
Updated Allocation of FY
2010-11 Sewage Disposal
System Revenue
Requirements to Customers
TFG
THE FOSTER GROUP
Updated Revenue Requirements to
Customers
• As discussed at prior meetings, two
•
methodology modifications are being
proposed
Flow Balance Issues
Alternative flow allocation approach? YES
Reflect any changes to overflow %’s? NO
What about I/I strength vs. sanitary
strength? NO
• Utility Basis YES
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Facilitated by OMI Transfer
Ties capital allocations to more reliable data
Results in minor (+/- 2%) cost shift
TFG
THE FOSTER GROUP
Wet Weather Inflow Calculations
Suggested WWWG Changes
• Deduct Dry Weather Flow from
Total Annual Flow to Determine
Wet Weather Volume
Compute Inferred “Delivery
Coefficient”
• Recalculate Overflow Credit
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Factor(s)?
• Estimating Techniques for System
Meter Customers?
• Understand/Reflect Differential
Flow Quality Issues?
TFG
THE FOSTER GROUP
Utility Basis for FY 2010-11
Sewer Rates
• Benefits include:
More reliable and stable source for capital
cost allocation
• Better “generational equity” alignment
with cost recovery and use of assets over
their useful life
• Per 1978 Rate Settlement Agreement, no
differential in rate of return between
Detroit and Suburban customers
• Reflects detailed review of DWSD’s Fixed
Asset records
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TFG
THE FOSTER GROUP
Sample Capital Cost Recovery for
DWSD Infrastructure Investment
$9
Annual Revenue Req's - millions
$8
$7
$6
$5
$4
$3
$2
$1
$0
1
6
11
16
21
26
31
Cash Basis *
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36
41
46
51
56
61
66
Utility Basis **
* Includes principal, interest, and debt service coverage
** Includes depreciation expense and return on rate base
TFG
THE FOSTER GROUP
Conversion of FY 2010-11 Revenue
Req’ts to Utility Basis – ($millions)
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TFG
THE FOSTER GROUP
Preliminary Proposed
FY 2010-11 Sewer Rates
TFG
THE FOSTER GROUP
Proposed Rates for FY 2010-11
Minor Rate Calculation Change
• Vetted by Sewer Rates Work Group
• Fixed Monthly Charge component
includes recovery of “Wholesale
Only” costs related with:
Master Meters
Customer Outreach Support
• Previously collected through
•
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commodity element
Results in lower commodity rates,
higher fixed monthly charges
TFG
THE FOSTER GROUP
Next Steps
• Rates will become “proposed” when
•
•
•
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submitted to Board of Water
Commissioners
Formal notification will be mailed
Ongoing review of all revenue
requirement, cost of service allocation, and
rate design calculations
Next meetings
Immediately following – Sewer Rates Work
Group
February 24, 2010 – Board of Water
Commissioners Public Hearing on Proposed FY
2010-11 Water Rates
TFG
THE FOSTER GROUP
Takeaways
• DWSD announces a reduced preliminary
•
•
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estimate of Overall SYSTEM Revenue
Increase from 7.4% to 6.8%
DWSD has presented preliminary proposed
rates for FY 2010-11
Proposed rates remain under review
TFG
THE FOSTER GROUP
Sample Sewer Rate
Calculation
TFG
THE FOSTER GROUP
Determine Units of Service
• Wastewater Volume
 Sanitary
 Dry Weather Infiltration/Inflow
 Wet Weather Flows
 Uniform Overflow Credit
• Wastewater Strength
 Industrial Surcharge Customers
 All Other “Domestic”
• Detroit CSO Facilities
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 83% Detroit
 17% Suburban
 Detailed Allocation
TFG
THE FOSTER GROUP
Allocate Costs to Functions
Wastewater
Volume
(Domestic Strength)
Collection
System
Specific
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CSO
Industrial
Specific
TFG
THE FOSTER GROUP
Allocate Costs to Customers
• Determine Unit Costs of Service
Divide Functional Costs by Units of
Service
• Apply Uniform Unit Costs of
Service to Customer Specific
Units of Service
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TFG
THE FOSTER GROUP
Recognize Settlement
Agreement Adjustments
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TFG
THE FOSTER GROUP
Calculate Rates
• Commodity Charge
Recovers Costs Associated With:
 Sanitary Volume
 Dry Weather Infiltration/Inflow
• Fixed Monthly Charge
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Recovers Costs Associated With:
 Wet Weather Flow
 Customer Specific Costs
 Detroit CSO Program
 Wholesale Only Costs
TFG
THE FOSTER GROUP