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Customer Rates Meeting Sewer System
Meeting #1 – Projected FY 2014-15 Units of Service
October 10, 2013
| City of Detroit Water & Sewerage Department
Today’s Agenda
• First Look at FY 2012-13 Financial Results • Preliminary Units of Service for FY 2014-15
Sewer Rates
• Introduction of Rate Simplification Concept and Proposal
• Takeaways and Critical Issues
1
| City of Detroit Water & Sewerage Department 2
Customer Rate Season Schedule
• This is the second of a series of meetings 10/10 – Units of Service 11/19 – Capital Improvement Program Presentation 12/17 – Preliminary SYSTEM Revenue Requirement
Levels
1/23/2014 – Preliminary Individual Rate Proposals 2/26/2014 – BOWC Public Hearing
7/1/2014 – Effective Date for Rates
• Parallel meetings of Steering Committee Work Groups
| City of Detroit Water & Sewerage Department
FY 2012-13 Financial Results A First Look
NOTE: Data presented today is UNAUDITED. The Audit is underway and on track to be
completed by the end of December.
3
| City of Detroit Water & Sewerage Department
FY 2012-13 Financial Result Summary Sewage Disposal System - UNAUDITED
• The initial report for focuses entirely on preliminary reported revenues
• Operating expenses are still under review and are not ready for discussion
4
Handout Pgs 3-6
| City of Detroit Water & Sewerage Department
FY 2014-15 Units of Service Sewage Disposal System
NOTE: Data presented today reflects all
contracts, correspondence, etc. as of 10/04/2013, and the current version of the
DWSD Proposal to implement the Rate Simplification Initiative
5
| City of Detroit Water & Sewerage Department
There are 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?
6
| City of Detroit Water & Sewerage Department
Annual Flow Volumes
• Use in Rate Model Project revenue base Forms initial basis for allocating costs to
customers
• Actual figures subject to technical review using protocol set forth by GDRSS Billing Workgroup
7
| City of Detroit Water & Sewerage Department
Annual Flow Volume Projections
• Review Historical Data
• Project Rate Year Based on Regression Analyses, etc.
• Transmit Projections to Customer Communities
• Utilize Input from Customers
8
| City of Detroit Water & Sewerage Department
At the end of the year projected flow volumes are reconciled with BILLED volumes
• Summary of FY 2012-13: SYSTEM ~ 13% Below Target Sub Wholesale ~ 12% Below Target Detroit Retail ~ 18% Below Target
• Detroit Retail Volumes under review o Ensure appropriately reflection of billing
adjustments
9
Handout Pgs 6-7
| City of Detroit Water & Sewerage Department
Annual System Billable Wastewater Volumes – (mgd)
10
300
325
350
375
400
425
450
475
500
1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
Projected Actual
Handout Page 7
| City of Detroit Water & Sewerage Department
Annual Suburban Wholesale Billable Wastewater Volumes (mgd)
11
250
275
300
325
350
375
400
1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
Projected Actual
Handout Page 7
| City of Detroit Water & Sewerage Department
Annual Suburban Wholesale Water and Wastewater Billed Volumes – (mgd)
12
250
275
300
325
350
375
400
425
450
1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013
Water Wastewater
Handout Page 7
| City of Detroit Water & Sewerage Department
Annual Detroit Retail Billed Volumes (mgd) Billed volumes for retail wastewater service reflect billed water volumes
13
0
25
50
75
100
125
150
1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
Projected Actual
Handout Page 7
| City of Detroit Water & Sewerage Department
Sewer Rate Simplification Initiative
14
| City of Detroit Water & Sewerage Department
Utility Rate “Equalizer”
5/10/13
Utility Capital Financing Strategies “Light” “Heavy”
Utility Revenue Requirement Levels
Utility Cost of Service Allocation Approaches
Utility Rate Design Methodologies
| City of Detroit Water & Sewerage Department
Predictability
Rate Methodology: Cost of Service Continuum
Equitableness Reasonable Precise
Complexity Simple Complex
• DWSD Rate Fundamental Principle: “Use best available, verifiable information to establish water and sewer rates”
High Low
| City of Detroit Water & Sewerage Department
Current Approach
• Since late 1970s, most costs have been allocated to customers based on proportionate shares of contributed wastewater volumes
• Evolution throughout the years to refine relative shares o Sanitary o Dry Weather Infiltration o Wet Weather Inflow (storm water) o Strength of Flow considerations
• Coupled with more refined technical evaluation o GDRSS, Flow Balance, etc.
5/10/13
| City of Detroit Water & Sewerage Department
Sewer LBA Committee Observations re: Current Approach
• Resource intensive in pursuit of implied “precision” regarding wastewater flows
• Precision is unattainable o Current metering / flow estimation
approaches produce estimates that are 10% over/under actual flows
• Relative shares of major customers do not vary significantly over the years
• Oakland/Wayne/Macomb County Districts account for 94% of Suburban Wholesale class
5/10/13
| City of Detroit Water & Sewerage Department
Sewer LBA Committee Simplification Recommendations
1. Simplified Calculation of SHARES 2. Simplified Flow Balancing
3. Simplified Estimates of Cost Pools
| City of Detroit Water & Sewerage Department
1. Simplified Calculation of SHARES
• Basic Premise - Since relative SHARES of major customers do not vary significantly year to year: o Determine customer average base SHARES o Lock in for Rate Periods; Initial Rate Period suggested to be 3 years
o Recover all costs through fixed monthly charges
o Commit to ongoing review of technical data to determine future SHARES
| City of Detroit Water & Sewerage Department
1. Simplified Calculation of SHARES Sample PRELIMINARY SHARE data points under review
0%
10%
20%
30%
40%
50%
60%
70%
2008 2009 2010 2011 2012 2013 2014 2015 6-Yr Avg
3-Yr Avg
M Class Total Rates LBOrig LBAdj Act ActMod
0%
10%
20%
30%
40%
50%
60%
70%
2008 2009 2010 2011 2012 2013 2014 2015 6-Yr Avg
3-Yr Avg
D+ Class Rates LBOrig LBAdj Act ActMod
Handout Pgs 8-9
| City of Detroit Water & Sewerage Department
2. Simplified Flow Balance
• Multi-Year Effort to Calculate Flow Balance • Search for the “Holy Grail” of precise
understanding of flows • Customer discontent with results o Precision unattainable
• Collaborative Task Force to resolve mystery • Decided to eliminate existing flow balance for
cost allocation analysis o A truly historic achievement
| City of Detroit Water & Sewerage Department
Overly Simplified View of Existing Flow Balance Approach For Rates
W = WWTP - X = Bill Mtrs = Y = Unmetrd
W’ = WWTP
- X’ = Bill Mtrs
= Y’ = Unmtrd
W = WWTP - X = Bill Mtrs = Y = Unmetrd
All Days
- Dry Days
= Incremental Wet
- Sanitary = DWII
- Sanitary = DWII
Specific
“Local”
CTA
D+ = Detroit M = Sub Mtrd
Apply uniform overflow credit
S = System M <> X because of overflow credit and allocated “specific” DWII
| City of Detroit Water & Sewerage Department
Suggested Simplified “Flow Balance” Approach For Rates
W = WWTP
D+ = Detroit
M = Sub Mtrd (metered
wastewater)
S = System
Z = Common
Then assign to sanitary & non-sanitary
| City of Detroit Water & Sewerage Department
Simplified Calculation of SHARES – “Z” Approach Sample Average Data Points
OMID
Rouge Valley
Oakland GWK
Everg Farm
NE Wayne Co
Other M
D+
!"#$$%&'()"*%'+"#$$%&'()"
| City of Detroit Water & Sewerage Department
3. Simplified Estimates of Cost Pools Cost Pool Illustration
All Other Costs are “Common”
Wholesale Only
OMID Only
(NEPS)
Detroit Retail Only
CSO Facilities
Industrial Waste Control
| City of Detroit Water & Sewerage Department
3. Simplified Estimates of Cost Pools (Approximate Allocation of Total Revenue Req’t)
Detroit Only
CSO Facilities
OMID Only
Wholesale Only
IWC
Common
| City of Detroit Water & Sewerage Department
Common Cost Pool Split into Two Elements
Volume Pollutants
Common Costs
| City of Detroit Water & Sewerage Department
Sewer Rate Simplification Proposal “The End Game”
• Implementing the 3 recommendations will dramatically simplify the “Rate Model” o 5 simple tables
• Inputs o Overall revenue requirements o Cost Pool allocation factors o Customer SHARES
• Outputs o Customer allocated revenue requirement o Fixed Monthly Charges
Handout Pgs 10-11
| City of Detroit Water & Sewerage Department
Rate Simplification Specifics in the Process of Being Finalized
• Data set from which to establish initial SHARES o Current proposal is to maintain SHARES at
existing (FY 2013-14) Rate Levels Supports goal of no volatility associated with Rate
Simplification Recognizes new technical understanding of flows
that calls into question historical SHARES Reflects differing flow balance protocols Acknowledges unknown factors such as strength
of flow and “Z” o Feedback from Customers has introduced
other approaches that are being reviewed
| City of Detroit Water & Sewerage Department
Rate Simplification Specifics in the Process of Being Finalized (continued)
• Appropriate level of System (“Z”) flow
• Specific approach for assigning costs to COST POOLS in a simplified manner
• Modifications to Rate Settlement Agreements
• Ongoing communication to customers
| City of Detroit Water & Sewerage Department
Benefits of Recommended Simplification Approach
• Makes rates easier to understand / explain • Makes rates more stable and predictable, both
year to year and during the year • Makes it easier for customer communities to
develop their own financial plans • Aligns rates with actual cost allocation (fixed
costs) • Eliminates volatility due to weather conditions o ~ 90% of DWSD costs do not vary with flow
– why should revenues?
5/10/13
| City of Detroit Water & Sewerage Department
Benefits of Recommended Simplification Approach (continued)
• Preserves relative historical allocation o Most customers consider recent averages to be
fair and reasonable • Further aligns rate making with reality o Efforts to get precise estimates of I&I and other
elements are (and will continue to be) fruitless • Eliminates waste – unnecessary oversight and
analytical work • Reduces costs for legal / consulting / engineering
support o Allows resources to focus on higher value
added initiatives
5/10/13
| City of Detroit Water & Sewerage Department
“Strength of Flow”
• Reflects premise that sanitary flow carries more pollutants than does DWII and wet weather flow • Initiated for FY 2011-12 Sewer Rates o “Extraneous” flow strength = 45% of Sanitary • Studied during planning for FY 2012-13 rates o Reviewed by Wet Weather Work Group o Reviewed by Rates Work Group o Several alternatives developed, resulting in: o “Extraneous” flow strength = 33% of Sanitary • Same approach applied for FY 2013-14 Sewer Rates • DWSD intends to use this same approach for FY 2014-15 Sewer Rates, pending development of final SHARES
35
| City of Detroit Water & Sewerage Department
Takeaways
• DWSD has provided preliminary data indicating customers’ projected use of the System for FY 2014-15
• This data, which is under review and may change, will be utilized to allocate costs to customers
• DWSD is committed to implementing the Rate Simplification Initiative with the FY 2014-15 Rates
• DWSD is preparing a financial plan that will continue to incorporate aspects of the Organizational Optimization Study
• DWSD is committed to proposing FY 2014-15 System Revenue Requirements that reflect continued implementation of the published financial plan
• Additional material will be presented at the CIP Rate Rollout meeting on November 19
36
| City of Detroit Water & Sewerage Department
Critical issues for ongoing review and potential customer feedback and involvement • Final approach for determining initial SHARES • Reported flows at WWTP under review, and potentially
could be modified o This would impact flow balances used to assign units of
service to customers o Also would impact calculated strength of flow for the
various pollutants and flow types o DWSD committed to involve customers in review
process through Sewer Rates Work Group • Retail Detroit volumes under review to make sure that
billing adjustments are appropriately reflected
37