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
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
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THE FOSTER GROUPTFG
City of DetroitCity of DetroitWater and Sewerage Water and Sewerage
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
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]
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
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
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
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
Total Annual Flow to Determine Total Annual Flow to Determine Wet Weather VolumeWet Weather VolumeCompute Inferred “Delivery Compute Inferred “Delivery
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)
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
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
Wet Weather FlowWet Weather Flow Customer Specific CostsCustomer Specific Costs Detroit CSO ProgramDetroit CSO Program Wholesale Only CostsWholesale Only Costs