Massachusetts Water Resources Authority

Wastewater and Water Advisory Committees’ Presentation

FY17 Proposed

Capital Improvement &

Current Expense Budgets

Thomas J. Durkin Director, Finance

April 12, 2016

Massachusetts Water Resources Authority

MWRA Fiscal Year 2017 Proposed

Capital Improvement Budget

MWRA continues to focus on Asset Protection and Long Term Redundancy initiatives;

MWRA continues to reduce debt levels; and

FY17 Proposed CIP meets the overall 5-Year spending Cap requirement.

3

FY17 Proposed CIP – Fix it First

FY14-FY18 Capital Expenditures – Fix it First

4

Asset Protection

$359.853%

Water Redundancy

$186.527%

New Facilities$80.912%

Other$51.5

8%

City Tunnel Redundancy Decision Time;

Acceleration of pipeline projects; and

Acceleration of Shaft 12, Shaft 2, & Winsor Power Station.

5

FY17 Proposed CIP

FY17 Proposed CIP

6

(000s) FY16 FinalFY17

Proposed $ Change % ChangeFY16 Final

FY14-18

FY17 ProposedFY14-18

FY14-18 $ Change

FY14-18 % Change

Total Wastewater 2,974.6$ 3,062.3$ 87.7$ 2.9% 419.3$ 397.5$ (21.8)$ -5.2%Total Waterworks 2,909.4$ 3,790.6$ 881.1$ 30.3% 251.3$ 239.4$ (11.9)$ -4.7%Business & Operations Support 128.4$ 134.7$ 6.3$ 4.9% 40.9$ 41.8$ 0.9$ 2.1%

Total MWRA 6,012.4$ 6,987.5$ 975.1$ 16.2% 711.5$ 678.7$ (32.8)$ -4.6%

Paying More Principal than Interest

7

$-

$1,000,000,000

$2,000,000,000

$3,000,000,000

$4,000,000,000

$5,000,000,000

$6,000,000,000

$7,000,000,000

As of June 30th

MWRA's Projected Outstanding IndebtednessIncludes Projected Issuance of $159 Million per Year

Incremental Redundancy not included

Paying More Principal than Interest

8

$5.90B$5.94B

$5.85B

$5.73B

$5.60B

$5.51B $5.49B$5.46B

$5.3B$5.2B

$4,500,000,000

$4,700,000,000

$4,900,000,000

$5,100,000,000

$5,300,000,000

$5,500,000,000

$5,700,000,000

$5,900,000,000

$6,100,000,000

2011 2012 2013 2014 2015 2016 2017 2018 2019 2020as of June 30th

Reduction to MWRA Projected DebtBetween FY11 and FY20

Historic and Projected Capital Improvement Spending

9

$24

$44

$120

$149

$196

$304

$413

$504

$608

$580

$437

$377

$447

$498

$392

$333

$365

$297

$194

$168

$152

$178

$196

$182

$211

$139

$138

$155

$102

$104

$118

$160

$195

$234

$292

$0

$100

$200

$300

$400

$500

$600

$700

$ M

illio

ns

Actual Projected

FY04-15 Average $160M/year

FY16-20 Average $200M/year

10

FY14-18 Base-Line Cap as Compared with FY17 Proposed Spending

FY14 FY15 FY16 FY17 FY18 TotalFY14-18

Projected Expenditures $142.5 $147.6 $149.3 $141.8 $136.8 $718.0Contingency 7.6 9.5 10.1 9.8 9.3 46.1Inflation on Unawarded Construction 0.8 4.2 8.4 11.1 13.5 37.9Less: Chicopee Valley Aqueduct Projects (5.0) (2.2) (1.4) (1.3) (0.4) (10.3)FY14-18 Base-Line Cap $145.8 $159.1 $166.4 $161.3 $159.1 $791.7

FY14 FY15 FY16 FY17 FY18 Total FY14-18

Projected Expenditures $102.2 $103.6 $118.3 $160.1 $194.6 $678.7Contingency 0.0 0.0 5.6 9.5 12.0 27.0Inflation on Unawarded Construction 0.0 0.0 2.1 5.3 11.1 18.5Less: I/I Program 0.0 (17.5) (19.4) (19.0) (17.3) (73.1)Less: Water Loan Program 0.0 1.4 1.4 2.0 (0.6) 4.3Less: Chicopee Valley Aqueduct Projects (5.6) (1.2) (0.5) (0.1) (0.0) (7.4)FY17 Proposed FY14-18 Spending $96.6 $86.3 $107.5 $157.9 $199.7 $648.0

FY14 FY15 FY16 FY17 FY18 Total FY14-18

Projected Expenditures ($40.3) ($43.9) ($31.1) $18.3 $57.8 ($39.3)Contingency (7.6) (9.5) (4.5) (0.3) 2.7 (19.1)Inflation on Unawarded Construction (0.8) (4.2) (6.2) (5.8) (2.4) (19.4)Less: I/I Program 0.0 (17.5) (19.4) (19.0) (17.3) (73.1)Less: Water Loan Program 0.0 1.4 1.4 2.0 (0.6) 4.3Less: Chicopee Valley Aqueduct Projects (0.6) 0.9 0.9 1.2 0.4 2.9FY14-18 Cap ($ Change) ($49.2) ($72.7) ($58.9) ($3.4) $40.6 ($143.7)

FY17

Pro

pose

d FY

14-1

8

Bas

e-L

ine

Cap

FY17

Pro

pose

d vs

.

FY14

-18

Bas

e-L

ine

Cap

FY17 Proposed CIP Expenditures by Major Programs for 2017

11

Wastewater (excluding CSO)

$82.3 51%

CSO $5.0 3%

Waterworks $61.0 38%

Business Operations &

Support $11.9

8%

FY17 Big Spenders

12

The top spenders account for 54% of FY17 planned spending.

Subphases FY17 Spending

Community Financial Assistance Programs $30.3Section 89/29 Redundancy $16.1Chelsea Creek Upgrade Construction $15.2Wachusett Aqueduct PS Construction $15.0Alewife Brook PS Construction $5.3NMPS & WTF Butterfly Valve Replacement $4.5Top Spenders in FY17 $86.3

Total Projected FY17 Spending $160.1

FY14-18 Proposed CIP Expenditures by Major Programs

13

Wastewater (excluding CSO)

$331.649%

CSO$65.910%

Waterworks$239.4

35%

Business Operations &

Support$41.8

6%

Asset Protection and Redundancy are the principle drivers of future capital expenditures.

FY17 Proposed CIP Expenditures by Major Initiatives

14

FY09-13 FY14-18 FY19-23

Asset Protection $248.0 $359.8 $760.7Carroll WTP 38.5 15.0 11.2Water Redundancy 134.7 186.5 431.8CSO 315.5 65.9 3.0Other 88.4 51.5 -6.3Total $825.1 $678.7 $1,200.4 Asset Protection 30.1% 53.0% 63.4%Carroll WTP 4.7% 2.2% 0.9%Water Redundancy 16.3% 27.5% 36.0%CSO 38.2% 9.7% 0.2%Other 10.7% 7.6% -0.5%Total 100.0% 100.0% 100.0%

FY17 Projected Contract Awards ($ in millions)

15

The top awards account for over 80% of FY17 planned awards.

Project Subphase NTP FY17 Proposed

NIH Redundancy & Storage Sec 89 & 29 Redundancy Construction Phase 2 Jul-16 $21.4Central Monitoring System Waterworks SCADA/PLC Upgrades Oct-16 $18.5SEH Redundancy & Storage Redundancy Pipleline Section III Contstruction 2 Jul-16 $10.8Residuals Asset Protection Residuals Facility Upgrade-Construction Jul-16 $10.0SEH Redundancy & Storage Redundancy Pipleline Section III Contstruction 3 Oct-16 $7.4DI Treatment Plant Asset Protection Future Miscellaneous VFD Replacements-Construction May-17 $5.3Facility Asset Protection IR-Construction 1 Reading Extension Sewer Mar-17 $4.3Applicat Improvement Program Enterprise Content Management Aug-16 $4.0

Top Awards for FY17 $81.6

$101.727 Contract Awards Planned for FY17

Completed Projects

16

MWRA CSO Capital Spending

17 $891.2 million spent to date. Remaining spending of $15.4 million for surface restorations, contract close-outs and CSO performance assessment thru 2020.

18

Spot Pond Covered Storage Facility and Pump Station

Deer Island – North Main Pump Station VFDs and Motors

19

FY17 Big Spenders

20

21

Big Spenders in FY17

Section 89/29 North Main Valve Replacement Wachusett PS Alewife Brook PS Chelsea Creek

FY17 Proposed CIP – What is New?

22

23

Acceleration of Pipeline Jobs

Southern Extra High

Cambridge Sewer Branch

24

Acceleration of Shaft 12, Shaft 2 and Winsor Power Station

Further presentations to the Board on Redundancy

options;

Work with the Advisory Board;

Affordability; and

Reach a decision by June 2016.

25

Next Steps

Massachusetts Water Resources Authority

MWRA Fiscal Year 2017 Proposed

Current Expense Budget

27

Mission

“Sustainable and Predictable”

28

Goals

• Continue to deliver on the mission; • Manage long-term goals; and • Address for the first time smoothing of assessments at the

utility level

29

Mission - Sustainable and Predictable

3.9%

0%

1%

2%

3%

4%

5%

6%

Assessment History 2007 - 2017

Historical Spending Chart

30

$-

$100,000,000

$200,000,000

$300,000,000

$400,000,000

$500,000,000

$600,000,000

$700,000,000

$800,000,000

Major Budget Elements

Total Indirect Costs

Total Direct Costs

Total Debt Service

Total Operating Costs

31

Fiscal Year 2017 – Challenges Continue

• Manage Debt; • Continue to address major liabilities; • Changing market conditions; • Controlling expenses; and, • System expansion

32

Outstanding Debt

$0.0

$1.0

$2.0

$3.0

$4.0

$5.0

$6.0

$7.0

$ in

Bill

ions

Outstanding Debt History1990 - 2025

Debt % is growing – peaking in 2022

33

25.0%

30.0%

35.0%

40.0%

45.0%

50.0%

55.0%

60.0%

65.0%

70.0%

1990

19

91

1992

19

93

1994

19

95

1996

19

97

1998

19

99

2000

20

01

2002

20

03

2004

20

05

2006

20

07

2008

20

09

2010

20

11

2012

20

13

2014

20

15

2016

20

17

2018

20

19

2020

20

21

2022

20

23

2024

20

25

2026

20

27

2028

Debt Service as % of Total Budget

Debt Challenge

34

• Defeasance • Use of Reserves

• Rate Stabilization Fund • Bond Redemption Fund

• Tactical Issuance – Repayment Structure • Control Capital Spending • Strategic use of Current Revenue/Capital funding

Ways to address the Debt Service challenge

CEB Budget Structure

35

• Direct Expenses • Indirect Expenses • Debt Service Expenses • Non-Rate Revenue

CEB Budget Structure - continued

36

Direct Expense $228.6 MIndirect Expense $44.2 MDebt Service $451.4 MNon-Rate Revenue ($25.50) M

Rate Revenue Requirement $698.7 M

FY17 Proposed Current Expense Budget (CEB)

37

Direct Expense 32%

Indirect Expense 6%

Debt Service 62%

FY17 Current Expense Budget

CEB Budget Structure – Direct Expenses

38

Wages, Salaries, and Overtime

57%

Maintenance 13%

Energy & Utilities 10%

Chemicals 4%

Other 16%

Direct Expenses

Direct Expenses Comparison

39

$- $20 $40 $60 $80 $100 $120

Training and Meetings

Workers' Compensation

Overtime

Other Materials

Professional Services

Chemicals

Fringe Benefits

Other Services

Energy and Utilities

Maintenance

Wages and Salaries

Direct Expenses Comparison FY16 -FY17

FY16

FY17

FY17 Proposed Current Expense Budget (CEB)

40

• Wages and Salaries $102.2M – Budgeted FTE’s: 1,155; 5 fewer than FY16;

• Maintenance $30.3M – $1.6 million above FY16; • Utilities - $22.4M – $747,000; • Other Services - $23.7M – basically level funded to FY16; and • Fringe Benefits of $20.6M – $1.3 million higher.

Highlights – Direct Expenses

CEB Budget Structure – Indirect Expenses

41

Watershed/PILOT 68%

Retirement Fund 21%

Insurance 5%

Other 6%

Indirect Expenses

Indirect Expenses Comparison

42

$- $5 $10 $15 $20 $25 $30 $35

Addition to Reserves

Mitigation

Insurance

HEEC

OPEB

Retirement Fund

Watershed/PILOT

Indirect Expenses Comparison FY16 -FY17

FY16

FY17

FY17 Proposed Current Expense Budget (CEB)

43

• Watershed Program for operating, PILOT and debt $30.0M; • Pension Fund required contribution $3.1M plus an

additional $1.5M contribution; • OPEB $4.9M; • Insurance, level funded at $2.2M; • Mitigation $1.6M; and • HEEC contract $0.8M.

Highlights – Indirect Expenses

CEB Budget Structure – Debt Service

44

Senior & Subordinate Debt

75%

State Revolving Fund 19%

Other 6%

Debt Service Expenses

45

Debt Service Expenses Comparison

$- $50 $100 $150 $200 $250 $300

Core Fund Deposit

Capital Lease

Local Water Pipeline

Current Revenue For Capital

SRF

Subordinate Debt

Senior Debt

Debt Services Expenses Comparison FY16 -FY17

FY16

FY17

FY17 Proposed Current Expense Budget (CEB)

46

• Variable Rate Debt Assumption 3.25%; • $25M defeasance built into the FY17 Budget; • Increase commitment to Current Revenue for Capital; and • No Debt Service Assistance.

Highlights – Debt Service Expenses

FY17 Proposed Current Expense Budget (CEB)

47

• Non-Rate Revenue - Other User Charges - Other Revenue • Investment Income

Revenue

Planning Estimate Assumptions

48

• Direct Expenses Inflation

• Indirect Expenses Inflation

• Capital Spending Levels

• Variable and Fixed Debt Interest Rates

• Investment Income Interest Rates

• Level of Pension/OPEB Funding

• Use of Reserves

Assumptions

49

Forecasted Assessment Changes

3.9% 3.9% 3.9% 4.1% 4.1% 4.5%

FY17 FY18 FY19 FY20 FY21 FY22

Forecasted Assessment Changes

50

FY17 Current Expense Budget Next Steps

• Transmit Proposed Budget to Advisory Board for 60 day review

• Reconvene Long-Term Rates Management Committee • Public Hearings • Staff will present Draft Final Budget in June