City of Detroit Water and Sewerage Department
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THE FOSTER GROUP TFG City of Detroit City of Detroit Water and Water and Sewerage Sewerage Department Department Wholesale Customer Rates Wholesale Customer Rates Meeting Meeting Sewage Disposal System Sewage Disposal System Meeting #4 Meeting #4 Preliminary Proposed FY 2010-11 Preliminary Proposed FY 2010-11 Sewer Rates Sewer Rates January 21, 2010 January 21, 2010
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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. Customer Rate Season Schedule. This is the third of a series of meetings - PowerPoint PPT Presentation
Transcript of City of Detroit Water and Sewerage Department
THE FOSTER GROUPTFG
City of DetroitCity of DetroitWater and Sewerage Water and Sewerage
DepartmentDepartment
Wholesale Customer Rates MeetingWholesale Customer Rates MeetingSewage Disposal SystemSewage Disposal System
Meeting #4Meeting #4
Preliminary Proposed FY 2010-11 Sewer Preliminary Proposed FY 2010-11 Sewer RatesRates
January 21, 2010January 21, 2010
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Customer Rate Season Customer Rate Season ScheduleSchedule• This is the third of a series of meetingsThis is the third of a series of meetings
10/13 –Capital Improvement Program Presentation10/13 –Capital Improvement Program Presentation 11/19 – Units of Service, Preliminary SYSTEM 11/19 – Units of Service, Preliminary SYSTEM
Revenue Levels Revenue Levels 12/17 – Preliminary Cost Allocations to Customers12/17 – Preliminary Cost Allocations to Customers 1/21/2010 – Preliminary Individual Rate 1/21/2010 – Preliminary Individual Rate
ProposalsProposals 2/24/2010 – BOWC Public Hearing2/24/2010 – BOWC Public Hearing 3/ /2010 – City Council Public Hearing3/ /2010 – City Council Public Hearing 7/1/2010 – Effective Date for Rates7/1/2010 – Effective Date for Rates
• Parallel meetings of Partnership Work Parallel meetings of Partnership Work GroupsGroups
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Information PortalsInformation Portals
• DWSD web siteDWSD web site www.dwsd.org Customer Information / “Wholesale Customer Information / “Wholesale
Customers Season Rate Schedule”Customers Season Rate Schedule”• DWSD Customer Outreach PortalDWSD Customer Outreach Portal
www.dwsdoutreach.org For information contact Teresa NewmanFor information contact Teresa Newman [email protected]
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Today’s AgendaToday’s Agenda
• Rollout PresentationRollout Presentation Updated Preliminary Revenue Updated Preliminary Revenue
Requirements (And System Revenue) for FY Requirements (And System Revenue) for FY 2010-112010-11
Updated Units of Service and Cost of of Updated Units of Service and Cost of of Service Allocations to CustomersService Allocations to Customers
Presentation of Preliminary Proposed Rates Presentation of Preliminary Proposed Rates to Customersto Customers
Illustration of Rate CalculationIllustration of Rate Calculation
• Sewer Rates Work GroupSewer Rates Work Group Detailed Discussions on Rate IssuesDetailed Discussions on Rate Issues
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The 3 Fundamental Steps The 3 Fundamental Steps in the Sewer Rate in the Sewer Rate MethodologyMethodology
• Revenue Requirement ProjectionsRevenue Requirement ProjectionsHow Much Money is Needed?How Much Money is Needed?
• Cost of Service AnalysisCost of Service AnalysisFrom Whom Should the Money be From Whom Should the Money be
Collected?Collected?• Design of Recommended RatesDesign of Recommended Rates
How Should DWSD Services be Priced?How Should DWSD Services be Priced?
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Timeout for Some Timeout for Some Perspective . . .Perspective . . .
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DWSD Sewer Rate Changes DWSD Sewer Rate Changes (1983-(1983-2010)2010)
Avg =3.0%
Avg =6.5%
Avg =3.2%
Avg =6.4%
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Annual Capital Improvement Investments Sewage Disposal System – ($ millions)
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Compliance with Compliance with WastewaterWastewater Treatment Standards - Treatment Standards - A Very Possible A Very Possible Potential RealityPotential Reality
Sanitary
CSO
Stormwater
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Funding Funding WastewaterWastewater Infrastructure:Infrastructure:A Historical PerspectiveA Historical Perspective
Citizen
Goals
Representative
Communities
EPA
UtilityPage Page 1010
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WaterWater Industry (AWWA) Industry (AWWA) Perspective on Financing Perspective on Financing InfrastructureInfrastructure
• Primary focus has always been local, Primary focus has always been local, and should remain soand should remain so
• Aging infrastructure is an issue in Aging infrastructure is an issue in the US, but it is not at a crisis, and it the US, but it is not at a crisis, and it is not all “crumbling”is not all “crumbling”
• There is a role for the federal There is a role for the federal government in lowering cost of government in lowering cost of capital and in special circumstances, capital and in special circumstances, but water infrastructure challenges but water infrastructure challenges are not primarily federal problemsare not primarily federal problems
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WaterWater Industry (AWWA) Industry (AWWA) Perspective on Financing Perspective on Financing InfrastructureInfrastructure
• Water trust fund is not the most Water trust fund is not the most effective optioneffective optionOverhead costs of sending money to Overhead costs of sending money to
Washington rather than retaining it Washington rather than retaining it locallylocally
Encouragement of delay in establishing Encouragement of delay in establishing true cost rates while local officials wait true cost rates while local officials wait for trust fund assistancefor trust fund assistance
Congress’ history of not spending Congress’ history of not spending revenues on purpose for which they revenues on purpose for which they were collectedwere collected
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WaterWater Industry (AWWA) Industry (AWWA) Perspective on Financing Perspective on Financing InfrastructureInfrastructure
• More effective financing tools include:More effective financing tools include:Enhancement of existing SRF programsEnhancement of existing SRF programsRemoval of annual volume caps for private Removal of annual volume caps for private
activity bondsactivity bondsFull cost pricing for water serviceFull cost pricing for water serviceCreation of federal water infrastructure Creation of federal water infrastructure
bankbank• AWWA opposes national water taxAWWA opposes national water tax
Inefficient, regressive, inequitable and Inefficient, regressive, inequitable and punishes communities that have punishes communities that have responsibly addressed local concernsresponsibly addressed local concerns
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FY 2010-11 Sewage FY 2010-11 Sewage Disposal System Disposal System
Revenue Requirement Revenue Requirement UpdateUpdate
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Updated Sewage Disposal System Updated Sewage Disposal System FY 2010-11 Revenue FY 2010-11 Revenue RequirementsRequirements
• Projected Revenues have been Projected Revenues have been decreaseddecreasedDWSD’s intention is to begin billing DWSD’s intention is to begin billing
OMI District for Flows measured at OMI District for Flows measured at single meter upstream of Northeast single meter upstream of Northeast Pump StationPump Station
Initial technical data had indicated Initial technical data had indicated additional flow would accrueadditional flow would accrue
Technical data needs additional reviewTechnical data needs additional reviewAt Sewer Rates Work Group’s request, At Sewer Rates Work Group’s request,
FY 2010-11 Sewer Rates will not FY 2010-11 Sewer Rates will not anticipate the increase pending further anticipate the increase pending further review review Page Page 1515
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Updated Sewage Disposal System Updated Sewage Disposal System FY 2010-11 Revenue FY 2010-11 Revenue RequirementsRequirements
• Budgeted operating expenses in Budgeted operating expenses in financial plan for rates reduced by 2%financial plan for rates reduced by 2%Reflects Management’s expectations Reflects Management’s expectations
regarding outcomes of strategic processregarding outcomes of strategic processReflects desire to offset negative rate Reflects desire to offset negative rate
consequences of revenue reduction noted consequences of revenue reduction noted aboveabove
• Debt Service Coverage mildly reducedDebt Service Coverage mildly reducedReflects fact that some implementation of Reflects fact that some implementation of
FY 2007-08 and FY 2008-09 Look-Back will FY 2007-08 and FY 2008-09 Look-Back will count as FY 2010-11 revenuecount as FY 2010-11 revenue
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FY 2010-11 Budget Target – FY 2010-11 Budget Target – Combined Water & SewerCombined Water & Sewer
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Sewage Disposal System Sewage Disposal System Preliminary Revenue Level – Preliminary Revenue Level – December ProjectionDecember Projection
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Sewage Disposal System Sewage Disposal System Preliminary Revenue Level – Preliminary Revenue Level – Proposed ProjectionProposed Projection
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Preliminary Sewer Rate Preliminary Sewer Rate Level – Level – Increase DriversIncrease Drivers
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Updated Allocation of FY Updated Allocation of FY 2010-11 Sewage 2010-11 Sewage Disposal System Disposal System
Revenue Requirements Revenue Requirements to Customers to Customers
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Updated Revenue Updated Revenue Requirements to CustomersRequirements to Customers
• As discussed at prior meetings, two As discussed at prior meetings, two methodology modifications are being methodology modifications are being proposedproposed
• Flow Balance IssuesFlow Balance IssuesAlternative flow allocation approach? Alternative flow allocation approach? YESYESReflect any changes to overflow %’s?Reflect any changes to overflow %’s? NO NOWhat about I/I strength vs. sanitary What about I/I strength vs. sanitary
strength?strength? NO NO• Utility Basis Utility Basis YESYES
Facilitated by OMI TransferFacilitated by OMI TransferTies capital allocations to more reliable Ties capital allocations to more reliable
datadataResults in minor (+/- 2%) cost shiftResults in minor (+/- 2%) cost shift
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Wet Weather Inflow Wet Weather Inflow CalculationsCalculationsSuggested WWWG Suggested WWWG ChangesChanges• Deduct Dry Weather Flow from Deduct Dry Weather Flow from
Total Annual Flow to Determine Total Annual Flow to Determine Wet Weather VolumeWet Weather VolumeCompute Inferred “Delivery Compute Inferred “Delivery
Coefficient”Coefficient”• Recalculate Overflow Credit Recalculate Overflow Credit
Factor(s)?Factor(s)?• Estimating Techniques for Estimating Techniques for
System Meter Customers?System Meter Customers?• Understand/Reflect Differential Understand/Reflect Differential
Flow Quality Issues?Flow Quality Issues?Page Page 2323
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Utility Basis for FY 2010-11 Utility Basis for FY 2010-11 Sewer Rates Sewer Rates
• Benefits include:Benefits include:More reliable and stable source for capital More reliable and stable source for capital
cost allocationcost allocation• Better “generational equity” Better “generational equity”
alignment with cost recovery and use alignment with cost recovery and use of assets over their useful lifeof assets over their useful life
• Per 1978 Rate Settlement Agreement, Per 1978 Rate Settlement Agreement, no differential in rate of return no differential in rate of return between Detroit and Suburban between Detroit and Suburban customerscustomers
• Reflects detailed review of DWSD’s Reflects detailed review of DWSD’s Fixed Asset recordsFixed Asset recordsPage Page 2424
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Sample Capital Cost Recovery Sample Capital Cost Recovery for DWSD Infrastructure for DWSD Infrastructure InvestmentInvestment
* Includes principal, interest, and debt service coverage
** Includes depreciation expense and return on rate base
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Conversion of FY 2010-11 Conversion of FY 2010-11 Revenue Req’ts to Utility Basis Revenue Req’ts to Utility Basis – – ($millions)($millions)
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Preliminary ProposedPreliminary ProposedFY 2010-11 Sewer RatesFY 2010-11 Sewer Rates
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Proposed Rates for FY 2010-11Proposed Rates for FY 2010-11Minor Rate Calculation ChangeMinor Rate Calculation Change• Vetted by Sewer Rates Work Vetted by Sewer Rates Work
GroupGroup• Fixed Monthly Charge component Fixed Monthly Charge component
includes recovery of “Wholesale includes recovery of “Wholesale Only” costs related with:Only” costs related with:Master MetersMaster MetersCustomer Outreach Support Customer Outreach Support
• Previously collected through Previously collected through commodity elementcommodity element
• Results in lower commodity rates, Results in lower commodity rates, higher fixed monthly chargeshigher fixed monthly charges
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Next StepsNext Steps
• Rates will become “proposed” when Rates will become “proposed” when submitted to Board of Water submitted to Board of Water CommissionersCommissioners
• Formal notification will be mailedFormal notification will be mailed• Ongoing review of all revenue Ongoing review of all revenue
requirement, cost of service requirement, cost of service allocation, and rate design allocation, and rate design calculationscalculations
• Next meetingsNext meetingsImmediately following – Sewer Rates Immediately following – Sewer Rates
Work GroupWork GroupFebruary 24, 2010 – Board of Water February 24, 2010 – Board of Water
Commissioners Public Hearing on Commissioners Public Hearing on Proposed FY 2010-11 Water RatesProposed FY 2010-11 Water RatesPage Page 2929
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TakeawaysTakeaways
• DWSD announces a reduced DWSD announces a reduced preliminary estimate of Overall SYSTEM preliminary estimate of Overall SYSTEM Revenue Increase from 7.4% to 6.8%Revenue Increase from 7.4% to 6.8%
• DWSD has presented preliminary DWSD has presented preliminary proposed rates for FY 2010-11proposed rates for FY 2010-11
• Proposed rates remain under reviewProposed rates remain under review
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Sample Sewer Rate Sample Sewer Rate CalculationCalculation
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• Wastewater VolumeWastewater VolumeSanitarySanitaryDry Weather Infiltration/InflowDry Weather Infiltration/InflowWet Weather FlowsWet Weather Flows
Uniform Overflow CreditUniform Overflow Credit• Wastewater StrengthWastewater Strength
Industrial Surcharge CustomersIndustrial Surcharge CustomersAll Other “Domestic”All Other “Domestic”
• Detroit CSO FacilitiesDetroit CSO Facilities83% Detroit83% Detroit17% Suburban17% Suburban
Detailed AllocationDetailed Allocation
Determine Units of ServiceDetermine Units of Service
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Allocate Costs to FunctionsAllocate Costs to Functions
Wastewater Volume
(Domestic Strength)Industrial Specific
CSOCollection System Specific
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• Determine Unit Costs of Determine Unit Costs of ServiceServiceDivide Functional Costs by Divide Functional Costs by
Units of ServiceUnits of Service• Apply Apply UniformUniform Unit Costs of Unit Costs of
Service to Service to Customer Customer SpecificSpecific Units of Service Units of Service
Allocate Costs to Allocate Costs to CustomersCustomers
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Recognize Settlement Recognize Settlement Agreement AdjustmentsAgreement Adjustments
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• Commodity ChargeCommodity ChargeRecovers Costs Associated With:Recovers Costs Associated With:
Sanitary VolumeSanitary Volume Dry Weather Infiltration/InflowDry Weather Infiltration/Inflow
• Fixed Monthly ChargeFixed Monthly ChargeRecovers Costs Associated With:Recovers Costs Associated With:
Wet Weather FlowWet Weather Flow Customer Specific CostsCustomer Specific Costs Detroit CSO ProgramDetroit CSO Program Wholesale Only CostsWholesale Only Costs
Calculate RatesCalculate Rates
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