Detroit Water and Sewerage Department

Transcription

1 Detroit Water and Sewerage Department Briefing to GLWA Board DWSD Water and Sewer Rate Setting - A Historical Perspective ADDITIONAL BACKGROUND MATERIAL March 5, 2015 Sewer Rate Settlement Agreements and Methodology A More Detailed History Page 2 1

2 Chapter 1 THE 1970 S AND EARLY 1980 S Page 3 DWSD Sewer Activities/Rates in the 1970s! 1975 Rate Study - Sewer Rates use Utility Basis!!Differential rate of return!!owner (Detroit) lower than non-owner (Suburban Wholesale)! Oakland County Sues DWSD (in State Court) in 1975 over Sewer Rates!!Objects to Differential Rate of Return!!Both Circuit Court and Court of Appeals ruled differential was consistent with Michigan Law!!Remanded on contract issues Page 4 2

3 DWSD Sewer Activities in the 1970s! OMI System Construction ( )! Rapid WWTP Expansion! Discharge Violations! EPA Lawsuit (1977)!! Judge Feikens Oversight on all pertinent DWSD Sewage matters "! Detroit Mayor Young appointed Special Administrator!! Oakland County moves to intervene as a party "! Eventually all other customers are enjoined! OMI Collapses!! 1 st (15 & Hayes) 1978!! 2 nd (Corridor) 1980! EPA Grant Program finances majority of Capital Improvements!! Requires approvable EPA User Charge System Page 5 DWSD Sewer Rates in the 1970s! Rapid WWTP Expansion leads to rapidly increasing revenue requirements!! Construction of new facilities increases capital requirements "! Offset by EPA Grant Funding!! Escalating staffing levels increase operating budgets! Sewer Rates still use Utility Basis!! Differential rate of return!! Owner (Detroit) lower than non-owner (Wholesale)! Cost Allocation / Responsibility!! WWTP & Interceptors = CTA!! OMI = Clinton/Oakland & Macomb!! Local Detroit Sewers, etc. = Detroit Only Page 6 3

4 Sewer Rate Challenges late 1970s / early 1980s! Projected revenue requirements for prospective rates higher than actual costs!! Overly optimistic capital investment and staffing escalation! City of Detroit overcharging DWSD! Detroit should not be entitled to owner rate of return differential!! Significant grant funding!! Payment to City of Detroit (COD) for equity! Responsibility for repairs to OMI collapse! Judge Feikens oversees negotiations!! Appoints Special Masters!! 1978 Masters Report Page 7 Initial Sewer Rate Settlement Agreements! Defined Revenue Requirements and Cost Allocation Practices; Established Rules for Charges from City of Detroit! 1980 Introduced Look-Back Adjustments; Established Allocation of 15 & Hayes Interceptor Collapse Repair Costs! 1982 Established Allocation of Corridor Interceptor Collapse Repair Costs; Refined definition of Maximum Debt Financing Page 8 4

5 1978 Rate Settlement Agreement! Defined Revenue Requirements!!O&M and capital including debt service & coverage!!maximum Debt Financing!!No cash basis depreciation expense! Uniform Allocation of Costs!!Proportional use / cost of service based!!no differential rate of return if utility basis is used!!weighted average interest rate if cash basis used Page Rate Settlement Agreement (continued)! Future Ratemaking Information!! DWSD shall notify and make available rate study reports! Payment for Indirect Benefits or Services (Adj A)!! Akin to a PILOT (payment in lieu of taxes)!! Police & fire protection, risk of tort liability, loss of tax base as result of DWSD tax exemption, suburbs receive sewage treatment w/o devoting land to tax free utility!! Deduct revenue requirement from Detroit/add to suburban wholesale class!! $1 million for 1979, 5% compounded annual inflation "! $5.5 million for 2014! Allows for COD Costs for Direct Services Page 10 5

6 1980 Rate Settlement Agreement! Hayes-15 Mile Road Interceptor (1978)Collapse!!Interim & Final Repairs "!DWSD finances, Macomb pays fixed charges as determined in annual rate setting process "!Necessitates two separate cost of service modifications in rate allocation process! Surcharge System & Industrial Cost Recovery (ICR)!!Surcharge all over domestic strength!!establish ICR rates (since repealed) Page Rate Settlement Agreement (continued)! Look-Back Adjustments!!DWSD shall review costs attributable to user classes for purposes of determining and applying revenue surpluses or deficits to the extent required by EPA User Charge Requirements 40 CFR (b)!!Strict interpretation limited to O&M, including replacement!!dwsd implemented to all revenue requirements, including capital! Review User Charge System at least every two years Page 12 6

7 1982 Rate Settlement Agreement! Corridor Interceptor (1980) Repairs!!Costs integrated system (Common-to-All)!!NE Wayne Co & Rouge Valley s share reduced by 60% "! Wayne Co Adjustment allocates to others! Refined definition of Maximum Debt Financing!! DWSD shall obtain capital funds (sic) from the issuance of revenue bonds, to the maximum extent possible together with the maximum use of coverage monies generated thereby.!! Coverage as envisioned by Additional Bonds Test Page 13 Chapter 2 THE 1990 S Page 14 7

8 DWSD Sewer Activities/Rates in the 1980s early 1990s! Judge Feikens maintains oversight role! Relative quiet until 1989 NPDES Permit proposal requiring adequate treatment to all CSOs on the Rouge River!!Negotiations via Court Monitor (Dr. Bulkley) results in revised CSO control requirements in 1992! DWSD initiates development of Long Term CSO Control Plan (LTCSO)!!Initial Partnership Agreement with Suburban Wholesale representatives!!ltcso finalized 2006 Page 15 Rate Challenges to FY Sewer Rates Areas of Concern 1.! Application of Maximum Debt Financing concept in CIP Financing Plan 2.! Calculation of the FY 1991 Look-Back Amount 3.! Allocation of a one-time non-cash revenue requirement 4.! Costs charged to Sewer System by City of Detroit 5.! Bad Debt for Detroit retail customers inappropriately raising suburban wholesale rates 6.! Allocation to customers of amounts associated with unaccounted for wastewater volumes 7.! CSO revenue requirements should be Detroit only Page 16 8

9 Settlement Negotiations! Judge Feikens takes jurisdiction!!assigns Monitors / Masters (led by Dr. Bulkley)! Items 1 through 4 resolved with no changes to rate process! Bad Debt expense resolved through 1995 Rate Settlement Agreement! Items 6 and 7 deferred for later resolution from additional deliberations and negotiations!!gave Birth to DWSD Partnering Process for Sewer Rate Discussions Page 17 2nd Wave Sewer Rate Settlement Agreements! 1995 Established Bad Debt Expense Responsibility!!Formally dismissed all other items except for those resolved by 1999 RSA! 1999 Determined Allocation Approach for CSO Facilities and Unaccounted for Flow Volumes Page 18 9

10 1995 Rate Settlement Agreement Resolves Bad Debt Issue! Initial Settlement of Areas of Concern From 1992 Rate Challenge to FY Sewer Rates! Responsibility for Bad Debt Expense!!Responsibility Aligns with Attributable Customer Class "! Retail (City of Detroit) customers - allocated to Detroit "! Suburban wholesale customers - allocated to ALL suburban wholesale!!dwsd Credits Suburban Wholesale Customers $4.25 Million "! Negotiated amount Page Rate Settlement Agreement Resolves Final 2 Areas of Concern! CSO Facilities!! New Facilities = 83% Detroit / 17% Suburban Wholesale!! Improvements to Existing Facilities = CTA!! Detroit Only & OMI Only projects = direct to those customers! Unaccounted for Flows!! Use Best Available Data from GDRSS and Other Sources "! Shifts Cost Responsibility from Suburban Wholesale to Detroit!! Uniform Overflow Credits "! $10.5 Million Retroactive Reallocation! Phased Implementation Strategy to Facilitate Rate Stabilization Page 20 10

11 Chapter 3 THE 2000 S Page 21 DWSD Sewer Activities/Rates in the late 1990s through early 2000s! Judge Feikens maintains oversight role! Periodic excursions from NPDES Permit compliance in late 1990s!! Detroit Mayor Archer appointed Special Administrator!! Committee to identify root cause "! Issues Root Cause Report!! Special Administrator role to Detroit Mayor Kilpatrick! Establishes Southeastern Consortium for Water Quality!! Purpose: To resolve differences through a cooperative forum rather than litigation! Oakland County commissions report in 2003 identifies Areas of Concern of DWSD Water and Sewer Rates!! Judge Feikens refers matter to Consortium!! Resolved without changes to rates or rate methodologies Page 22 11

12 DWSD Sewer Activities/Rates in the mid 2000s! Judge Feikens maintains oversight role! OMI 15 Mile Road and Hayes in 2004!!DWSD assigns repair costs directly to Macomb County!!Macomb County Objects "! Also objects to interest rate being applied to collapse repairs and Garfield Interceptor project! DWSD takes lead in implementing City-wide 800 MHz radio system!!mou assigns 60% of infrastructure costs to DWSD "! 30% Water / 30% Sewer!!Suburban Wholesale Customers Object Page 23 DWSD Sewer Activities/Rates in the late 2000s! Judge Feikens maintains oversight role! Oakland County challenges oversight roles of various Court-appointed consultants and persons! Negotiations to resolve OMI repair costs, interest rate charges, and 800 MHz Radio System issues! World-wide financial crisis dramatically impacts City of Detroit and Southeast Michigan!!Affordability of Original LTCSO plan comes into question!!dwsd Terminates Upper Rouge Tunnel and Detroit River Outfall Capital Projects! 2008 Global Settlement emerges Page 24 12

13 2008 Global Settlement Agreement! Resolves Macomb interest rate dispute! Resolves 2004 OMI collapse repair cost dispute!! OMI sold to new OMI District and new MID "! Price reflects negotiated treatment of outstanding debt and lingering issues "! Wayne County negotiates partial responsibility for CTA amounts! Resolves 800 MHz Dispute!! City of Detroit reimburses DWSD $27 million! Parties agree to enter new long-term service contracts based on Model Contract! Parties Establish Director s Council!! Embraces cooperative problem solving! Commits parties to cooperatively seek infrastructure financing from outside sources Page 25 Chapter THRU 2013 Page 26 13

14 OMI Transfer! Corridor Interceptor and Oakland Arm transferred to OMID October 2009! Macomb Interceptors transferred to MID in September 2010! OMID / MID become fully separated July 2012 when new meters at Northeast Pump Station (NEPS) become operational! OMID rehabilitation project requires substantial improvements to NEPS! DWSD/OMID in discussions re: long-term operating agreement for NEPS Page 27 DWSD Sewer Activities/Rates subsequent to the Global Settlement! DWSD updates/revises LTCSO & introduces Green Infrastructure concept to replace Grey Infrastructure projects! Judge Cox assumes oversight role from Judge Feikens!! Several Stipulated Orders to restructure DWSD Board and Governance!! Includes Exhibit of Surviving Rate Settlement Terms! Parties deliberate on Look-Back Adjustments for FYs !! Results in 3-Year LBA Settlement Agreement!! Commits parties to continue exploration of pertinent issues, including future CSO programs Page 28 14

15 2011 Order Establishing Sewer Rate Terms! Detroit and Counties stipulate to surviving rate settlement agreement terms! Detroit and Counties move to end prior rate orders and move surviving terms into model contract! Court orders that rate disputes are no longer a matter of federal Court jurisdiction! Partnering Process becomes part of the model contract Page 29 Partnering Process (Actually initiated 1990s)! Establishes Sewer Steering Committee!!Facilitate discussion and recommendations based on a free flow of information!!review sewer rates and CIP! Meet annually with Board and communicate with Board as necessary! Continue to establish work groups to support initiative Page 30 15

16 Proposed FY BUDGET and Cost Allocation Summary Material Page 31 Executive Summary Comparison of Changes in System Unit Costs to Meet FY BUDGET Water Sewer Total System Total 9.3% 6.0% 7.4% Suburban Wholesale 11.3% 1.1% 6.4% Detroit Retail 3.4% 16.7% 12.8% Page 32 16

17 Page 33 FY BUDGET Summary Total DWSD ($ millions) FY 2015 FY 2015 FY 2016 FY 2016 Approved Bond Budget Budget Budget Projections Request vs 15 Budg Jan 2014 Aug 2014 Feb 2015 Combined Water and Sewer Operation & Maintenance 1 Salaries & Wages "Current" Fringe Benefits (5.9) 3 Subtotal Personnel Costs (3.2) 4 Non-Personnel Total "Current" O&M Pension Reimbursement Total O&M Expense Debt Service (5.9) 9 Fixed Non-Operating Expense Net Resources (22.2) 11 Total BUDGET (0.9) 12 less: Miscellaneous Revenue (14.8) (16.7) (14.8) (0.0) 13 Net BUDGET Required from - RatesCharges (0.9) Application of "Net Resources" 14 Residential Assistance Program Detroit Specific Rev. Fin. Capital System Rev. Fin. Capital & Reserves (76.8) Page 34 FY BUDGET Summary Water Supply System ($ millions) FY 2015 FY 2015 FY 2016 FY 2016 Approved Bond Budget Budget Budget Projections Request vs 15 Budg Jan 2014 Aug 2014 Feb 2015 Water Supply System Operation & Maintenance 1 Salaries & Wages "Current" Fringe Benefits (1.9) 3 Subtotal Personnel Costs Non-Personnel Total "Current" O&M Pension Reimbursement Total O&M Expense Debt Service (1.9) 9 Fixed Non-Operating Expense Net Resources (15.8) 11 Total BUDGET (1.6) 12 less: Miscellaneous Revenue (8.5) (8.4) (7.6) Net BUDGET Required from - RatesCharges (0.6) Application of "Net Resources" 14 Residential Assistance Program Detroit Specific Rev. Fin. Capital System Rev. Fin. Capital & Reserves (40.3) 17

18 Page 35 FY BUDGET Summary Sewage Disposal System ($ millions) FY 2015 FY 2015 FY 2016 FY 2016 Approved Bond Budget Budget Budget Projections Request vs 15 Budg Jan 2014 Aug 2014 Feb 2015 Sewage Disposal System Operation & Maintenance 1 Salaries & Wages (0.3) 2 "Current" Fringe Benefits (4.0) 3 Subtotal Personnel Costs (4.3) 4 Non-Personnel Total "Current" O&M (2.6) 6 Pension Reimbursement Total O&M Expense Debt Service (4.0) 9 Fixed Non-Operating Expense Net Resources (6.4) 11 Total BUDGET less: Miscellaneous Revenue (6.3) (8.3) (7.3) (1.0) 13 Net BUDGET Required from - Rates Charges (0.4) Application of "Net Resources" 14 Residential Assistance Program Detroit Specific Rev. Fin. Capital System Rev. Fin. Capital & Reserves (36.5) FY Revenue Estimate Page 36! Through first 5 months of current fiscal year revenue shortfall totals over $26 million!!due to continued lower usage! Lower usage patterns and revenues are not expected to change in the remainder of the year! Revenue shortfall is structural and needs to be addressed 18

19 FY Wholesale Water Revenue Commodity based revenues over $17 million below budget, ALL in summer months Monthly Revenue - $ millions Cumulative Revenue - $ millions Page Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr May Jun Monthly Goal Monthly Actual Cumulative Goal Cumulative Actual 2,500,000 Recent Wholesale Monthly Water Sales Volumes - Mcf 2,000,000 1,500,000 1,000, ,000 Page 38 0 Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr May Jun Forecast 2015 Actual 19

20 Annual Suburban Wholesale Water 450 Sales (Fiscal Year Basis - mgd) Projections equal to contract volumes Projections equal to 24 month Avg thru 9/ Page 39 Projected Actual Largest Suburban Wholesale Water Customers 24 Mo Avg Sales vs FY 2012 Proj 120% 12 Largest Customers Purchased <85% of Projected Sales 110% 100% 90% 80% 70% 60% Page 40 Actual Projected 20