FROM:~ Keith Levchenko, Senior Legislative Analyst

Transcription

1 AGENDA ITEM #75 May 9, 2017 Worksession MEMORANDUM May 5, 2017 TO: County Council FROM:~ Keith Levchenko, Senior Legislative Analyst SUBJECT: FY18 Washington Suburban Sanitary Commission (WSSC) Operating Budget Summary of T &E Committee Recommendations System Development Charge Concur with WSSC to maintain System Development Charge (SDC) rates for FYl 8 at current approved levels, but to increase the maximum chargeable rate (the rate the charge could be increased in the future) by a CPI adjustment as allowed for under State law. NOTE: Final action on the charge will occur via action on a resolution in mid-may.' Revise the definition of "revitalization" in Schedule B of the Council's SDC resolution to allow exemptions for distilleries, breweries, and wineries in Montgomery County. NOTE: See page 8 for discussion of this change originally proposed by Councilmember Riemer. FY18 WSSC Operating Budget: Revise FY18 debt service downward (-$385,600 estimate) based on the latest bond-funded costs assumed for the Blue Plains Wastewater Treatment Plant projects in FY18 (savings to 1 revert to fund balance). 1 Attachments to this Memorandum Excerpts from the Proposed FY18 WSSC Budget 1 ( 1-36) County Executive's FY18 Recommended Budget Section for WSSC ( 37-41) Rate Increase Components ( 42) Slide: National Trends - Rate Increases since 2002 ( 43) Public Hearing Testimony ( 44) WSSC Response to Public Hearing Testimony ( 44a-44f) Status Update on Customer Service Transformation ( 45-47) Memorandum dated April 18 from Councilmember Riemer to T &E Members ( 48) 1 WSSC's Proposed FY18 Operating Budget is available for download at:

2 The following officials and staff are expected to attend this meeting: wssc Fausto Bayonet, Commission Chair Howie Denis, Commissioner Eloise Foster, Commissioner Carla Reid, General Manager/CEO Tom Street, Deputy General Manager for Administration Joe Beach, Chief Financial Officer Letitia Carolina-Powell, Budget Group Leader Julie Pohutsky, Budget Unit Coordinator County Government Dave Lake, Manager, Water and Wastewater Management, Department of Environmental Protection (DEP) Matthew Schaeffer, Management and Budget Specialist, OMB Budget Highlights Below are some major highlights ofwssc's Proposed FYI8 Budget: The combined total of the Capital and Operating Budget is $I.44 billion, an increase of $I0.8 million (or 0.8 percent) from the Approved FYI 7 amount of $1.43 billion. The total proposed Operating Budget is $740.8 million, an increase of $4.4 million (or 0.6 percent) from the Approved FYI 7 Operating Budget of $736.4 million. Assumes continued implementation of a customer assistance program (reducing FYI 8 revenue by $1.34 million) waiving the Account Maintenance Fee and Infrastructure Investment Fee for an estimated I2,000 eligible customers. 3.5 percent average rate increase (the rate ceiling agreed upon by both Councils during the spending control limits process last fall). No changes in the Account Maintenance Fee or Infrastructure Investment Fee are proposed for FYI8. A pool of $5.3 million for salary enhancements is included in the Proposed Budget, with the final amount and allocation of these dollars to be considered in the context of both Councils' actions regarding their employee union bargaining agreements. The $5.3 million is equivalent to a I.5 percent COLA and merit increases of up to 4 percent for eligible employees, subject to ratification by WSSC's employee union (with $136,I85 reserved for IT bonuses). Water production is projected at I 64 million gallons per day (mgd), which is the same amount assumed in FYI 7 and the same as assumed for FYI 8 during the spending control limits process last fall. Includes $53.6 million (a decrease of $884,000, or -1.6 percent, from FYI 7) for regional sewage disposal costs for WSSC sewage treated at the Blue Plains Wastewater Treatment Facility

3 Note: Last year, WSSC estimated that the cost per thousand gallons of treatment ofwssc sewage at Blue Plains is $1.37 compared to $2.05 at WSSC facilities. About 64 percent of all WSSC sewage and 84 percent of Montgomery County's sewage (generated within the WSSC service area) are treated at the Blue Plains Wastewater Treatment Plant. Includes no dollars for "additional and reinstated" programs in either the Operating Budget or CIP and no increase in positions. NOTE: WSSC is proposing to use $11.08 million from fund balance to fund WSSC's IT Strategic Plan in FY18 (similar to past years) and $500,000 in fund balance to continue its strategic energy plan implementation and its climate change vulnerability assessment. Includes $28.4 million for large diameter pre-cast concrete cylinder pipe (PCCP) water main inspection, repairs, and acoustic fiber optic (AFO) installation, as well as acoustic fiber optic monitoring of all previously installed AFO. Also includes $16.3 million for large diameter main repairs and cathodic protection and $2.8 million for large valve inspections, replacement, and repairs. These expenditures represent a similar level of effort to FYI 7 's. Funds 5 5 miles of water main reconstruction and associated house connection renewals (consistent with the Proposed FY18-23 CIP and similar in scope to the current budget). The FY18 request is consistent with WSSC 's goal of a steady state of approximately 55 miles of replacement per year (or about a JOO-year replacement cycle). Schedule On March 1, WSSC transmitted its proposed FYl 8 Operating Budget to the Montgomery and Prince George's County Executives and County Councils. On March 15, the County Executive transmitted his recommendations to the Council. Public hearings for the County and Agency Operating Budgets (including WSSC) were held on April 4, 5, and 6. Testimony related to WSSC is attached on The Bi-County meeting to resolve any CIP and Operating Budget differences with Prince George's County is scheduled for May 11. NOTE: The Prince George's County Council will be taking up the WSSC Budget on May 9. General Information about WSSC WSSC provides public water and sewer services to nearly 1.8 million residents in a sanitary district covering nearly 1,000 square miles in Montgomery and Prince George's Counties. WSSC has 3 reservoirs and 2 water treatment plants (providing about 164 mgd of drinking water) and maintains 7 wastewater treatment plants (including the Blue Plains Plant in Washington DC). WSSC has 5,600 miles of water mains and 5,500 miles of sewer mains. WSSC has about 450,000 customer accounts (see 33 for more statistical information) and is one of the ten largest water and wastewater utilities in the country. WSSC's governing board consists of six commissioners-three from Montgomery County and three from Prince George's County, serving staggered 4 year terms. The positions of Chair and Vice Chair alternate annually between the counties. The current commissioners are: 2 WSSC staffs response to the testimony is attached on 44a-44e

4 Montgomery County Fausto Bayonet, Chair Howie Denis T. Eloise Foster Prince George's County Chris Lawson, Vice-Chair Omar M. Boulware Thomasina V. Rogers The current General Manager, Carla Reid, was appointed by the Commissioners in early An organizational chart is attached on 40. The Chair's budget transmittal letter and other excerpts from the Proposed FY18 budget are attached on About two-thirds of all WSSC sewage and four-fifths of Montgomery County's sewage (generated within the WSSC service area) is treated at the Blue Plains Wastewater Treatment Plant in the District of Columbia. This plant is managed by DCWater. 3 WSSC makes operating and capital payments each year to DCWater, consistent with the Blue Plains Intermunicipal Agreement (IMA) of Blue Plainsrelated costs are a major element of the sewer program and reflect a majority of overall CIP expenditures. The projected FY18 operating payment is $53.6 million (7.2 percent of WSSC's Proposed Operating Budget). County Executive Recommendations for the FY18 WSSC Budget (See Operating Budget Excerpt on ) In his March 15 transmittal, the Executive recommended approval of WSSC's FY18 Budget expenditures as proposed. Performance Measures WSSC has included a number of performance measures in its FY18 Proposed Budget. Most of these measures speak to water quality, quality of service, timeliness of service, and customer satisfaction. As noted in WSSC's budget document, "WSSC has never exceeded a maximum contaminant level (MCL) or failed to meet a treatment technique (TT) requirement established by the US. Environmental Protection Agency (EPA) in accordance with the Safe Drinking Water Act." However, one area of concern in recent years has been "Customer Calls for Maintenance Assistance" (see 31 ). WSSC' s "percent of calls answered" goal is 95 percent, but WSSC fell below this goal in FY14 and FY15 (90 percent and 88 percent respectively). In FY16, WSSC rebounded to a 97 percent response rate. Last year, both Councils approved 10 additional customer service positions to implement WSSC's "Contact Center Optimization" project. An update on WSSC's efforts to transform its customer service is attached on Rate Increase History Table A, below, shows that from FY06 through FY15 (prior to the change in the Account Maintenance Fee in FY16 and the phase-in of the Infrastructure Investment Fee in FY16 and FYl 7), rates 3 The Montgomery and Prince George's County Governments each have two representatives (with two alternates) on the eleven-member DCWater Board of Directors. Fairfax County has one representative. The other six members represent the District of Columbia. The Montgomery, Prince George's, and Fairfax County board members only vote on "joint use" issues (i.e., issues affecting the suburban jurisdictions). These board members do not vote on issues affecting only the District of Columbia. -4-

5 increased 89.5 percent (with an average of 7.8 percent per year). Interestingly, expenditures only increased about 43 percent over that same time (equivalent to a 4.06 percent increase per year). 4 The change in the consumer price index from 2006 to 2016 was about 22 percent. Table: A WSSC Rate Increase and Budget Increase Percentages FY06 through FY1S FY07 3.0% FY08 6.5% FY /o 21.4% FYlO 9.00/o 32.4% FYll 8.5% 43.6% FY12 8.5% 55.8% FY13 7.5% 67.5% FY14 7.3% 79.6% FY15 5.5% 89.5% 707, % average annual increase= 7.75% 4.06% Three years ago, Council Staff asked WSSC for comparative rate increases for other utilities. The slide on 43 shows rate increases since 2002 for a number of utilities. The utilities are clustered into categories of 70 to 89 percent, 90 to 129 percent, and 130 to 233 percent. WSSC's rate increase from 2002 to FY14 is 85 percent. The regional CPI during that time was 34.4 percent. The chart shows that many water and sewer utilities have increased rates well above the CPI in the last decade. WSSC's rate increase trend over that time is not the lowest, but is on the edge of the lower third and middle third of the utilities presented. The Proposed Operating Budget includes two updated slides showing residential bill comparisons (as of November 2016) for a number of large water utilities across the country (see 17) and a bill comparison as a percentage of median income (see 18) across a number of water utilities. In both cases, WSSC's level is near the lowest end of the chart. Benchmarking Study Last July, the T&E Committee received a briefing from the consultants who performed WSSC's Utility Benchmarking and Organizational Efficiency Review. This study had been supported by both Councils as part of the FY16 budget. WSSC had not had a comprehensive benchmarking study since the late 1990's. That effort (which included benchmarking and then substantial multi-year follow up by WSSC work teams) ultimately led to 4 The rate of increase in water and sewer rates over the FY06 through FY15 period is more than double that of the rate of increase in expenditures. This is because WSSC's primary source of funding is from volumetric water and sewer fees. Water production has been flat over the past 20 years, despite increases in the population served, due to declining per capita water usage. This trend has resulted in rate increases being needed to offset revenue shortfalls, in addition to funding increased expenditures

6 a reduction in WSSC staffing from 2,120 in FY96 to 1,458 in FY06 (a reduction of 662 positions, or over 30 percent of the workforce). Since FY06, WSSC has steadily increased its workforce. The Approved FYl 7 Budget includes 1,776 positions. Much of WSSC's ramp-up in staffing and rates has been a result of its increased infrastructure recapitalization work in recent years to address aging water/sewer pipe infrastructure. WSSC has also faced increased environmental regulation costs over time (such as its sanitary sewer overflow (SSO) Consent Decree). Given the increases in staffing, costs, and rates over the past decade, both counties agreed that a benchmarking study would be helpful to assess where WSSC stands today compared to other similar utilities on a number of measures and where WSSC's major operations may be improved. Some of the conclusions of the benchmarking study included: WSSC's current staffing appears to be at or below the median compared with its peers. For current average single-family residential bills across large national and regional water/sewer utilities, WSSC's bills are at or below the average in terms of total and affordability (as a percentage of household income). However, because of WSSC's current inclining block rate structure (with customers charged for all water used at increasing amounts based on average daily consumption), the affordability impact is much greater for higher water users. (See 35). NOTE: For other bill comparison information, see The study also looked at best practices for WSSC operations. Of these, WSSC exceeded the industry median in 6 of 10 attributes. Opportunities for improvement were found in the areas of: customer satisfaction, operational optimization, and infrastructure stability. In terms of financial performance, the results were mixed. WSSC is the only utility reviewed with an across the board AAA bond rating. WSSC also has the smallest percentage of revenue coming from its top 10 customers. However, WSSC is above the median in debt per capita and has an above average "capital intensity" (ratio of net asset value to revenues). The best practices review found three areas - customer service, Fleet, and CIP-asset management - that were recommended for initial focus for improvements. Procurement and utility services also show potential for significant improvement. WSSC teams have been assembled and a multi-year action plan has been developed to respond to these findings. For further information, please see the WSSC presentation at the following link: https :// se%20to%20veolia%20benchmarking%20study%20to%20commission% l 6%20Revised.pdf. WSSC Staff will be available at the Council meeting to provide further information on this work. Rate Structure Study Status At the request of both Councils during the FYI 7 budget review process, WSSC initiated a comprehensive rate study during the summer of Staff from both counties are participating in a Bi-County Rate Study Workgroup with WSSC, with assistance from consultant Black and Veatch. The group has studied rate structures used by other water/sewer utilities and will review a cost of service analysis done by the consultant. A stakeholder group made up of various ratepayer classes was also assembled, and met several times to discuss rate structure alternatives and provide comments

7 WSSC is holding several informational meetings in May (May 8 in Prince George's County, May 9 in Montgomery County in the Council Office Building, and May 10 at WSSC's Headquarters). The latest schedule assumes review and action by both Councils this fall, with implementation of any rate structure change occurring with the FYl 9 WSSC budget. System Development Charge (SDC) Fees and Exemptions WSSC's Proposed CIP and draft Operating Budget assumes no change in the SDC rate. However, WSSC supports increasing the maximum rate the charge could be increased in future years by a CPI adjustment for FY18, as permitted under State law. The proposed charge and the maximum allowable charge are presented in Table 1. Table 1: Proposed SOC Charges Max. Allowable Item FY18 Charge Charge Apartment -Water $896 $1,289 - Sewer $1,140 $1, toilets/residential -Water $1,344 $1,937 - Sewer $1,710 $2, toilets/residential -Water $2,240 $3,227 - Sewer $2,850 $4, toilets/residential -Water $3, 135 $4,517 - Sewer $3,991 $5, toilets/residential* -Water $88 $128 - Sewer $115 $167 Non-residential* -Water $88 $128 - Sewer $115 $167 *costs shown are per fixture unit The SDC fund itself is discussed in more detail in the Council CIP packet from March 28 (Agenda Item #7). Council Staff is supportive of WSSC's approach, with the caveat that the issue of SDC rates is an annual decision. NOTE: Both the maximum rate and the adopted rate will be noted in the annual Council resolution to be approved in mid-may. Change in Exemptions During the recent Maryland General Assembly session, legislation was considered to modify the current mix and/or definitions of exemptions available to property owners in Montgomery County. House Bill 335 "System Development Charge - Exemptions" (MC/PG ) included provisions to allow the Montgomery or Prince George's County Councils to grant exemptions from a system development charge -7-

8 imposed by WSSC for distilleries, breweries, and wineries. Councilmember Riemer expressed support for this concept during the bill's discussion at the Council. While this provision of the legislation was ultimately removed, Council Legal Staff, at Councilmember Riemer' s request, reviewed the issue and determined that an exemption for distilleries, breweries, and wineries could be added by modifying the current definition for revitalization projects (an existing exemption) through action by both Councils via their annual SDC resolutions. Mr. Riemer sent an to the T&E Committee members (see 48) explaining his rationale for this change and seeking support from the Committee. Council Staff is agnostic regarding this request. From a budget standpoint, this particular change would likely have little budgetary impact on WSSC, since it is limited in scope and in most years, neither county utilizes their full exemption amounts ($500,000 each per year with leftover rolling over into future years). In addition, Montgomery County imposes its own $50,000 cap on any particular exemption request, further minimizing the potential impact. This new definition under consideration may help Montgomery County at least marginally utilize more of its available cap space. Council Staffs main caution is that the Councils avoid "exemption creep" (i.e., more and more types of development getting exemptions). The SDC fund was established to have "growth pay for growth" and if more and more exemptions are added, then there could be more fiscal pressure to raise SDC rates in the future. At its April 21 meeting, the T &E Committee supported Councilmember Riemer's proposal. Account Maintenance Fee and Infrastructure Investment Fee For FYl 6, the Councils approved a recalibrated account maintenance fee (AMF) and a new Infrastructure Investment Fee (IIF) (phased in over two years). The Approved FYl 7 WSSC Budget reflects the full phase-in. For FY18, WSSC is not recommending changes to either fee. Fee schedules for both are based on meter size. Most residential customers pay an AMF of $16 per quarter and an IIF of $12 per quarter. Ratepayers eligible for the customer assistance program have these fixed charges waived. The customer impact information discussed later, takes into account both volumetric charges and these fixed fees. NOTE: While WSSC 's ongoing rate structure review is focusing on volumetric charges, the cost of service study, which is part of this review, will inform future decisions regarding possible changes in the AMFandIIF. Customer Assistance Program A new customer assistance program was also begun during FYl 6 after the State General Assembly passed the necessary enabling legislation during the 2015 legislative session. Under this program, WSSC provides a substantial ongoing benefit to eligible residential customer accounts across the WSSC service area (based on current Maryland Office of Home Energy Program eligibility in the two counties). The benefit includes waivers of the full Account Maintenance Fee (typically $16 per quarter), the Infrastructure Investment Fee ($12 per quarter), and the existing Bay Restoration Fee ($15 per quarter). The monthly benefit (not counting the Bay Restoration Fee waiver) for most eligible residential customers in FYI 7 is $9.33 per month ($112 per year). WSSC is still working to fully implement the program. The FY18 budget assumes 12,000 customers receive the $112 benefit, with a budget impact (i.e., lower revenue) of $1.344 million per year. One continuing effort is to implement the waiver for tenants in multi-unit homes

9 Other Fees A list of WSSC fees (and proposed revenue changes) is attached on Most of these fees have to do with construction activity, and the Council has not received any comments from the development community. Background Spending Control Limits In April I994, the Council adopted Resolution No. I2-I558, which established a spending affordability process for the WSSC budget. Under this process, which stems from the January I994 report of the Bi-County Working Group on WSSC Spending Controls, each Council appoints a Spending Affordability Committee (SAC). For Montgomery County, the SAC is the Transportation, Infrastructure, Energy and Environment (T &E) Committee. There are four spending control limits: Maximum Average Rate Increase, Debt Service, New Debt, and Total Water and Sewer Operating Expenses. The spending control limits provide a ceiling regarding what the Councils direct WSSC to propose in its budget. The limits do not cap what the Councils can ultimately approve each year. FYI 8 Spending Control Limits Last fall, the T&E Committee and the Council reviewed WSSC's major revenue and expenditure assumptions as part of the FYI 8 spending control limits process. WSSC developed a "base case" scenario (a "same services" scenario with some enhancements) that included a 6.9 percent rate increase. The Montgomery County and Prince George's County Councils supported a 3.5 percent rate ceiling, which resulted in a revenue gap (off the base case scenario) of $20.3 million. Table 4, below, shows how WSSC's Proposed FYI8 Budget compares to the approved limits and to the County Executive's FYI8 budget recommendations. The FYI8 Proposed WSSC Budget is within each of the limits for New Debt, Water and Sewer Debt Service, Water and Sewer Operation Expenses, and the Maximum Average Rate Increase. The County Executive's assumptions reflect his support of the WSSC budget as proposed. Table 4: FY18 Spending Control Limits Approved by Each Council versus the FY18 Proposed WSSC Bud et and CE Recommendation ~ WSSC CE Spending Control Limit Categories MC PG Proposed Rec New Debt (in $000s) Water and Sewer Debt Service (in $000s) Water/Sewer Operating Expenses (in $000s) Maximum A\9. Rate Increase % Unallocated Reserve Balance Status % % % WSSC's unallocated reserve projections and potential uses were previously discussed last fall during the Council's spending control limits discussion. An updated chart is presented below: - 9 -

10 co ~ > LL Table 5: Unallocated Reserve Calculation (in $000s) Unallocated Reserve (end of FY17) IT Strategic Plan Strategic Energy Plan Implementation Climate Change Vulnerability Assessment Total Use of Fund Balance in FY16 (no additional and reinstated programs) Unallocated Reserve (end of FY18) Additional Use of Fund Balance (included in Base Case Scenario #3) Climate Change Vulnerability Assessment (FY16 A&R) Strategic Energy Plan Implementation AMI Billing System Replacement Implementation of Asset Management Recommendations for Support Facilities Operating Resen.e Contribution (to maintain 10% of budgeted re~nues) Additional Use of Fund Balance in FY17 Total Remaining Unallocated Reserve After All Uses 60,621 (11,080) (200) (300) (11,580) 49,041 (500) (500) (8,500) (12,500) (17,616) (39,616) 9,425 Staff from both Montgomery and Prince George's County Council have been supportive of WSSC's use of excess fund balance to fund items such as PAYGO, one-time items, and special projects rather than to provide one-time rate relie Using one-time unallocated reserve dollars for rate relief would result in a revenue shortfall the following year, which could cause rates to rise higher in the next year than would otherwise be required. WSSC's February 20I 7 Monthly Status Report assumes revenues and expenditures to be equal to the original FYI 7 budget. Therefore, there is no net overall financial change since the spending control limits discussion last fall. Council Staff suggests that if any additional unallocated reserve amount is realized, this can be considered in the context of the FY19 spending control limits process this fall. Revenues Table 6: WSSC Revenue Trends: FY17 to FY18 Approved Proposed Impact on Revenue FY17 FY18 change %change Rate(%) Water and Sewer Rate Revenue 580, 124, ,924,000 1,800, % (0.31) Customer Affordability Program (888,000). (1,344,000) (456,000) 51.4% 0.08 Account Maintenance Fee 32,552,000 32, 118,000 (434,000) -1.3% 0.07 Infrastructure Renewal Fee 38,962,000 38,360,000 (602,000) -1.5% 0.10 Interest Income 700, , % - Plumbing/Inspection Fees 9,380,000 11,300,000 1,920, % (0.33) Rockville Sewer Use 2,632,000 2,632, % - Miscellaneous 17,500,000 19,600,000 2, 100, % (0.36) Total Revenues 680,962, ,290,000 r- 4,328, % (0.74) Use of Fund Balance 26,050,000 11,580,000 (14,470,000) -55.5% 2.49 Adjustments for REDO and SDC Debt Service Offset 10,006,000 7,700,000 (2,306,000) -23.0% 0.40 Funds Available 717,018, ,570,000 (12,448,000) -1.7% 2.14 Revenue trends were discussed in detail during last fall's spending control limits process. The above chart compares WSSC's FYI8 revenue assumptions (assuming no water/sewer rate increase) with FYI 7 approved revenues. The chart shows that water/sewer rate revenue (WSSC's dominant source of revenue) is expected to increase by about 0.3 percent. WSSC is also assuming reduced revenue from the implementation of a customer assistance program (-$1.3 million). WSSC is proposing to use excess fund

11 balance for some one-time FY18 expenditures, but less than what is being used in FYl 7. Overall, funds available are down $I2.45 million (for an equivalent rate increase impact of 2.14 percent). This trend of flat to declining revenues is not new and is the result of overall water consumption in the WSSC service area being essentially unchanged from 20 years ago, despite 23 percent growth in the WSSC customer base over that same time. Per capita water usage is down 2 I percent since FY96. While water conservation is a good thing from an environmental standpoint, it means WSSC's dominant revenue source has been stagnant, putting more pressure on rates. WSSC's unique rate structure (where customers are billed at the highest tier their water usage falls into) exacerbates this revenue decline as per capita usage goes down. Average Water Usage PerWSSC Customer FY96 to FY18 Projected ~20.0 -r-~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~--, c Q;115.0 a s:: g105.0 CIS ~00.0 Q) g> 95.0 U) :::> Q) ~ ~~--.-~...--~----.~ ~~--.-~.--~---.~-.---"T~ ~ ~ ~ FY96 FY98 FYOO FY02 FY04 FY06 FY08 FY10 FY12 FY14 FY16 FY18 Fiscal Year Summary Charts FY18 WSSC Proposed Budget The following chart presents summary budget data for WSSC for the FYI 7 Approved and FYI 8 Proposed Budgets

12 Table 7: WSSC Expenditures by Fund (in $000s) Approved Proposed FY17 FY18 $$ % Capital Water Supply 317, ,445 25, % Sewage Disposal 355, ,256 (21,266) -6.0% General Construction 17,467 20,010 2, % Total Capital 690, ,711 6, % Operating Water Operating 320, , % Sewer Operating 396, , 108 7, % Subtotal W&S Operating 717, ,892 7, % Interest and Sinking 19,364 15,888 (3,476) -18.0% Total Operating 736, ,780 4, % Grand Total 1,426,680 1,437,491 10, % The combined total of the FYI8 Capital and Operating Budget is $1.44 billion, an increase of $I0.8 million (or 0.8 percent) from the Approved FYI 7 amount of $1.43 billion. The total proposed FYI8 Operating Budget is $740.8 million, an increase of $4.4 million (or 0.6 percent) from the Approved FYI 7 Operating Budget of $736.4 million. The following chart summarizes the Approved and Proposed operating expenditures by major category. Table 8: Total Operating Expenditures by Category Approved Proposed - Expense Categories FY17 FY18 $$ % Salaries and Wages 114, ,919 6, % Heat, Light, and Power 23,581 22,015 (1,566) -6.6% Regional Sewage Disposal 54,501 53,617 (884) -1.6% All Other 282, ,627 (9,518) -3.4% Debt Service 261, ,602 10, % Total 736, ,780 4, % Apart from the "All Other" category (which includes a variety of operating expense items), debt service continues to be the biggest single expenditure item (about 36.7 percent of total operating expenditures). Debt service and salaries and wages are the only categories increasing in the Proposed Budget. During the Council's WSSC CIP discussions, Council Staff presented revised Blue Plains project cost estimates based on more recent budget information from DCWater than was available at the time WSSC's Proposed CIP was transmitted last fall. The revisions assume $I4.7 million more in six-year costs, but $I I.2 million less in FYI 8. According to WSSC, the reduced FYI 8 expenditures result in an estimated reduction in WSSC debt service of $385,600. Council Staff recommends reducing debt service accordingly and having those savings revert to fund balance. The T &E Committee concurs. - I2 -

13 The heat, light, and power category is down significantly for FY18 (-6.6 percent). This trend continues small declines seen the past several years as a result of both reductions in the weighted average unit price of electricity (down 7 percent in WSSC's current projections) and also reductions in energy usage. Over the past 10 years, WSSC has pursued a number of electricity retrofit initiatives, funded mostly through a large performance contract with Constellation Energy, that have helped offset operational changes increasing WSSC's energy requirements (such as installation of ultraviolet disinfection processes). WSSC also has made a major long-term investment in wind power through wholesale purchases from a wind farm in Pennsylvania. This purchase provides approximately 29 percent of WSSC's power needs at fixed kwh rates. Reduced infiltration and inflow into WSSC's sewer lines (thanks to sewer line rehabilitation efforts) has resulted in reduced flows to wastewater treatment plants and thereby reduced energy requirements as well. The "All Other" category includes all operating costs not otherwise broken out above, including: services by others ($62.9 million), employee benefits ($63 million), professional services ($18 million), PAYGO ($30.2 million), outside engineering ($17.4 million), paving restoration ($13 million), depreciation ($13 million), contract work ($12.2 million), chemicals ($9.9 million), materials ($11.9 million), claims and damages ($6.3 million), insurance premiums ($2.l million), telephone and communications ($2 million), fuel ($1.4 million), and a number of other items ($21.2 million in total). Regional sewage disposal costs are paid by WSSC to DCWater to cover WSSC's portion of costs for the Blue Plains Wastewater Treatment Plant's operations. The costs are based on actual flows. For FY18, the amount is expected to be down slightly (-1.6 percent) as a result of savings from the new Blue Plains digesters. Compensation Salary and wages remain a comparatively small, although still significant, part of the WSSC Operating Budget (as shown in the following pie chart). WSSC FY18 Proposed Operating Expenditures ($7 40.Bm) Debt Sen.foe 36.7% Salaries and Wages 16.3% Heat, Light, and Power 3.0% _ _ ---~ Regional Sewage ~ ~ Disposal 7.2%

14 Even adding employee benefits 5 (which are included in the "All Other" category), personnel costs for FYl 8 make up less than 25% of operating budget expenditures. This ratio contrasts sharply with ratios in County Government, where personnel costs are 51 % of County Government expenditures in the FY18 Recommended Budget. MCPS' personnel costs have historically represented about 90% of its budget. WSSC's total "Salaries and Wages" costs are proposed to increase by $7.5 million (5.3 percent). A total of $5.3 million is for salary enhancements. Putting aside WSSC's allocation for IT bonuses ($136,185) 6 and flexible worker pay ($561,074), the balance ($4.6 million) would provide a 1.5 percent COLA and merit increases of up to 4 percent for eligible employees, subject to ratification by WSSC's employee union. WSSC's personnel costs (and increases) are a small part of WSSC's budget. The ratepayer impact of all salary changes from FYl 7 to FYl 8 (not just enhancements) is $6.2 million and equates to less than a 1.1 % rate increase. Note: since WSSC 's budget is funded by ratepayers rather than by tax dollars, WSSC 's compensation increases do not directly compete for the same tax supported funding that covers other County agency employees. However, both the County Executive and the Council have expressed support for the concept of the equitable treatment of employees across agencies, especially in the context of annual pay increases. For FY18, the County Executive's agreements with the three unions (and passed on to nonrepresented employees) include 2.0 percent cost of living adjustments for all employees (starting in the first full pay period after July 1, 2017 for Police, the first full pay period after August 1 for General Office Employees, and the first full pay period after October 1 for Fire and Rescue) and 3.5 percent service increments to eligible employees not at the top of their salary grade (typically about 2/3 of the workforce). Council Staff supports the concept of treating employees consistently across all agencies, whenever possible, in the context of compensation adjustments. WSSC's salary enhancements, as proposed, are in line overall with County Government office employee salary enhancements assumed under the County Executive's recommendation (with WSSC's proposed COLA slightly lower and its merit pay assumptions slightly higher). Based on the above, Council Staff supports WSSC's salary enhancements as proposed. The T &E Committee concurs. Closing the Gap For FY18, in order to stay within its volumetric rate limit of 3.5 percent, WSSC did not assume any program expansions or new programs and no new positions are requested. Each 1.0 percent of rate increase provides an estimated $5.8 million in revenue. WSSC's Proposed budget assumes a 3.5 percent rate increase with no changes assumed for its Account Maintenance Fee or Infrastructure Investment Fee. The chart on 42 presents all of the elements (plus and minus) that go into the rate increase request for FY18. 5 Benefit costs (such as Social Security, Group Insurance, and Retirement) are loaded in the "All Other" expense category and total about $63 million for FY In addition to WSSC's regular employees, WSSC has contract employees working in their IT office who are not eligible for COLA or merit increases. WSSC's FY18 Proposed Budget assumes bonus awards for these employees, which is consistent with past practice

15 WSSC noted that it had to reduce its existing team budgets by nearly $17 million and also defer a number of service improvements it supports. These deferred improvements are noted below in priority order by team (NOTE: costs shown include operating costs and salaries and benefits where applicable): UTILITIES SERVICES TEAM i. Fire Hydrant Testing to Enhance Fire Protection: Currently, WSSC tests approximately 200 hydrants a year, mainly at the request of contractors and engineers. This program would test all 43,000 hydrants on a ten year cycle - 4,300 hydrants a year. The AWWA recommends each hydrant is tested on a ten year cycle. ($395,800-4 workyears) ii. iii. iv. Implement System Wide Flushing Program: Flushing is now done on an as-needed basis, i.e., someone complains about discolored water. WSSC responds and conducts an isolated flush of that particular water main. This program would be a systematic approach to flush the entire system. Other WSSC inspection programs do not equate to a flushing program, but assist in setting up the program. Other jurisdictions have issues with valves or hydrants working when beginning a flushing program. WSSC already has a thorough valve and FH inspection program in place, meaning we know what works ahead of time. Therefore, WSSC shouldn't have issues meeting the productivity goals of a flushing program from valves not working. ($1, 13 6, workyears) Expand Leak Detection Program: Currently, WSSC has 3 leak detection crews performing a minimum amount of leak surveys in Gaithersburg, Lyttonsville, and Temple Hills services area. This program would add a leak detection crew to the Central Zone. As recommended by the AMP, this is a proactive effort in repairing leaks. ($254, workyears) Accelerating Large Valve Inspections: This 4 year cycle inspection program of approximately 1,500 valves was initiated in April Based upon industry standards, it is recommend these inspections increase to a 3 year cycle. ($185,000- contract work) ENGINEERING & CONSTRUCTION TEAM L_ ll. iii. Establishing a Force Main Design. Program: The Commission does not have a program to address deficient sewer force mains in the system. Funding for this program would be to establish and execute a successful program. ($324,500-2 workyears; all capital costs, no direct rate impact) Develop a Water Main Replacement Unit: Currently, work is being performed within various E&C areas. This initiative would centralize the planning.function and enable projects to be developed and design-ready before they are handed off for the CIP project delivery execution. The risk of not implementing a centralized planning.function is continued delays in project delivery. ($702,200-5 workyears) 75% CAPITAL- $526,600 & 25% W&S IMPACT- $175,600 Overhauling Large Commercial {FM) Meters: Funding to increase the rehabilitation of large meters from 45 to 55 meters a year. The FY18 request was to begin the design portion of this program. ($146,500-1 workyear; all capital costs, no direct rate impact) These efforts represent industry best practices, a shortening of work cycles for existing programs, and/or a move from reactive to pro-active maintenance practices. Of particular note are the #1 priorities under each of the two teams: enhanced fire hydrant testing (a ten-year cycle per American Water Works Association (A WWA) recommendations) and the establishment of a force main design program to address deficient force mains. Councilmembers may recall a force main failure in Olney in August 2015 that resulted in a 271,000 gallon sanitary sewer overflow. The failure was caused by multiple sections of severely deteriorated pipe which fed into the Olney Wastewater Pumping Station

16 Council Staff suggests that these and the other programs (as well as WSSC's CIP pressures, which were previously discussed by the Committee) be revisited as part of next fall's FY19 spending control limits process. The T &E Committee concurs. Summary of T &E Committee Recommendations Concur with WSSC to maintain System Development Charge rates for FYI 8 at current approved levels, but to increase the maximum chargeable rate (the rate the charge could be increased in the future) by a CPI adjustment as allowed for under State law. Revise the definition of "revitalization" in Schedule B of the Council's SDC resolution to allow exemptions for distilleries, breweries, and wineries in Montgomery County. Approve the FYI 8 WSSC Operating Budget with the following change: o Revise FYI8 debt service downward (-$385,600 estimate) based on the latest bond-funded costs assumed for the Blue Plains Wastewater Treatment Plant projects in FYI8 (savings to revert to fund balance). Attachments KML:f:\levchenko\wssc\wssc psp\fy 18\council fy 18 wssc operating budget docx - I6 -

17 ~... <_fwssc Where Water Matters Sweitzer Lane, Laurel, MD (301) (800) TTY: (301) To The Honorable: Rushem L. Baker, Ill, Prince George's County Executive Isiah Leggett, Montgomery County Executive Derrick Leon Davis, Chair, Prince George's County Council Roger Berliner, President, Montgomery County Council Members of Prince George's County Council Members of Montgomery County Council Elected Officials, Valued Customers, and Interested Citizens: March 1, 2017 We are hereby transmitting the Proposed Fiscal Year 2018 (FY'l8) Capital and Operating Budget Document for the Washington Suburban Sanitary Commission (WSSC). This document is released and distributed on this date for review by interested customers, citizens, and elected officials. This proposed budget reflects our continued mission to provide safe and reliable water, life's most precious resource, and return clean water to the environment, all in an ethical, sustainable, and financially responsible manner. The programs, goals, and objectives included in this budget seek to achieve the Commission's mission through the following strategic priorities: Deliver Excellent Customer Service Enhance Stakeholder Relationships e 1

18 Improve Infrastructure Achieve Business Process Excellence and Maintain Financial Stability Inspire Employee Engagement The proposed budget for Fiscal Year 2018 for all operating and capital funds totals $1.4 billion or $10.8 million (0.8%) more than the Approved FY' 17 Budget. The proposed operating budget of $740.8 million represents an increase of $4.4 million which is only a 0.6% increase over the FY' 17 Approved Operating Budget of $736.4 million. The largest component of the 0.6% operating increase is due to debt service ($10.2 million increase) and PAY GO for the capital budget ($7.l million increase) which were offset by other spending reductions in the Operating Budget. When controlling for the non-discretionary capital budget related expenditures, the WSSC FY' 18 Operating Budget is actually 1. 7% less than the FY' 17 Approved Operating Budget. The proposed Capital Budget of $ million represents an increase of $6.4 million which is 0.9% over the FY' 17 Approved Capital Budget of $690.3 million. The budget calls for a combined 3.5% average increase in water and sewer rates. This proposed increase meets the 3.5% increase included in the Spending Affordability Guidelines approved by Prince George's and Montgomery Counties. Even with this increase, WSSC rates continue to be favorable when compared to other comparable water and sewer utilities, and the average WSSC residential bill is less than 1 % of the median household income (see pages of the proposed budget for details). The 3.5% rate increase will add $1.46 per month to the bill of a customer using 13 7 gallons per day. The Commission's current rate structure dates back to 1992 and is presently under comprehensive review. The implementation of the infrastructure fee in FY' 16, as recommended by the Bi-County Infrastructure Working Group and supported by the 2014 rate study, was just the first step. The Commission has procured a consulting firm to review WSSC rates and fees including the current 16 tier water and sewer rate schedule. This new study involves input from both counties, feedback from stakeholders as well as extensive customer outreach. The planned implementation date for a new rate structure is July 1, Like many utilities across the country, WSSC continues to face the challenge of balancing increasing costs for infrastructure and operations with affordability considerations for our customers. While the average costs to ensure access to clean, safe drinking water and efficient wastewater treatment remains a bargain when compared to other household utilities and expenses, there are still too many residents who struggle to meet their monthly expenses. The Customer Assistance Program (CAP) was created in FY'l6 to help economically disadvantaged customers by providing financial assistance with water and sewer bills. The CAP has already reached over 7,000 customers and we are working diligently to expand participation to all eligible customers. The CAP will continue in FY' 18 and the proposed budget estimates the revenue offset at $1.3 million. 2

19 'l-<y<-,1~ Spending Affordability Guideline Limitations WSSC staff had originally recommended a water & sewer rate increase of 6.9% as part of the FY' 18 Spending Affordability Guideline process with Montgomery and Prince George's Counties. While the Montgomery County Executive supported a 4.5% rate increase, both Counties ultimately supported a 3.5% rate increase. In order to reconcile the Commission's planned FY'l8 service program to the water and sewer rates approved by both Counties it was necessary to make several very difficult decisions about reductions to existing programs and deferring implementation of several initiatives to improve system performance and reliability. First and foremost, this budget includes no new positions, or initiatives, or enhancements to existing programs. These limitations will prevent the Co-mmission from implementing some important improvements that were proposed by our Teams that would support and advance our strategic priorities including: Implementing a System-Wide Flushing Program of our water distribution pipe network in order to reduce discolored water and improve water quality; Enhancing fire protection by testing all 43,000 fire hydrants in our service area on a ten year cycle; a best practice recommended by the American Water Works Association; Overhauling FM meters (large commercial meters) which have significant potential to under-register, or fail to work properly due to the design and materials used in the older units of these type of meters: Expanding our leak detection program to identify leak locations and provide proactive repairs to prevent breaks and customer inconvenience; Accelerating large water valve inspections from a four year to a three year cycle which is necessary because these are aging elements of our infrastructure; Establishing a Sewer Force Main Design Program to expedite replacement of aging and vulnerable sewer force mains; and Improving infrastructure renewal process by developing a water main replacement planning unit by centralizing fragmented functions and adding additional resources to improve water main replacement efficiency and capacity. In addition to deferring implementation of these and other important service improvements it was necessary to make reductions of nearly $17 million to existing Team budgets. We will work diligently over the next year to maintain service at current expected levels though it may be necessary to pull back on certain preventative and non-essential services during FY' 18 in order to remain within approved budget limitations. - We continue to strongly support an increase to the Water & Sewer rate above the level approved by both Counties in November This will allow the General Manager to have greater flexibility in managing our resources to implement the safety and system reliability improvements needed for our aging infrastructure as discussed above. In the absence of these 3

20 resources our deferred maintenance backlog will continue to grow and we will not have the capacity to address the service and system reliability expectations of our customers. We understand the reluctance to approve an additional rate increase especially in light of the difficult economic circumstances of many of our customers and rate increases supported by both Counties over the past several years. However, the rate increase should be understood in the context of how our rates compare to other Water & Wastewater Utilities and the cost drivers in the WSSC Budget. WSSC's monthly estimated FY'l8 residential water & sewer bill ($52.59) is significantly lower than comparably sized utilities including Washington, DC and Baltimore and the monthly bill as a percentage of area median income is 0.72% which, again, compares favorably to other comparable utilities and is below the national benchmark average of 1.64%. WSSC's budget is not driven by the consumer price index (CPI) but rather is capital intensive and is driven by the construction market, commodity prices and other factors including compliance with the Sanitary Sewer Overflow (SSO) Consent Decree and the Potomac River Consent Decree; environmental regulation compliance; maintaining the security of our water infrastructure and for our employees working in the field; and Information Technology improvements to streamline our business processes. Many of these costs are legally mandated and not easily def erred or reduced. It is critical to note that WSSC continues to make diligent efforts to control and reduce costs and identify opportunities for cost savings: Our efforts in the Supply Chain Management Transformation project which has been supported by the Commission and both Counties since FY' 13 have produced significant cost reductions in excess of $21 million in the operating and capital budgets since the inception of this program and cost avoidance savings of over $18 million in the same time period. If not for these intensive efforts in contract negotiation and cost management additional rate increases or service reductions would be necessary. Our most recent efforts in this program are projected to yield additional savings in our Fleet Service's capital and operating costs of nearly $18 million in the FY' s time period. Group Insurance plan design changes and other efforts have resulted in significant savings including $570,000 in prescription costs for active employees and Pre-Medicare retirees; $900,000 in annual savings for Medicare retiree prescription costs; Medical costs savings of $1,230 per enrollee in Calendar Year 2017; maintaining medical premium contribution rates at no increase for CYl 7; and a $370,000 reduction to our Stop Loss Insurance for employee medical costs. In addition to this WSSC will be increasing the employee premium cost share from 23% to 24% for point of service plan participants in CYl 7 which will provide further relief for rate payers. WSSC has also seen a significant reduction in both bio-solids hauling requirements and lower energy costs for regional sewage disposal due to our investment in the Blue Plains digester program. This investment resulted in a $5.3 million rebate from DC 0 4

21 ''"1''1'.t:iriM au w~-, -v, r... ~... "'.. Water to WSSC in FY' 16. In anticipation of continued savings, the FY' 18 proposed regional sewage budget has been reduced from the FY' 17 approved level. However, it should be noted that DC Water's operation and maintena1ce cost share methodology within the Blue Plains lntermunicipal Agreement has been revised. As a result, the cost reductions for regional sewage disposal reflected in the budget may not be fully realized. In addition to these efforts, we have created the WSSC Stat Office during 2016 to provide in-depth analysis and accountability of critical performance issues including paving inspections, water main replacement, and overtime use and costs. We will expand the scope of the Stat Office to ensure that WSSC is monitoring key performance indicators an<l that there is accountability at all levels of the organization to rate payers and all of our stakeholders. Water and Sewer Infrastructure Reliability The state of WSSC's infrastructure remains a significant concern as our buried assets continue to age. On the water side, the budget proposes the rehabilitation of 55 miles of smaller water mains (less than 16 inches in diameter), house connections, large water service meters, and vaults. For large diameter water mains, the Pre-stressed Concrete Cylinder Pipe (PCCP) Program provides for the ongoing acoustic fiber optic (AFO) monitoring of 99 miles, inspection of 18 miles of PCCP, and any identified repairs or rehabilitation of large diameter pipes. Funding is also included for large valve inspection, replacement, and repairs. On the wastewater side, funding is included for continued compliance with the Consent Decree which is a major cost driver in both the operating and capital budget. FY'18 Proposed Capital and Operating Budgets In addition to investments in the Commission's physical infrastructure, the budget also provides for investment in the Commission's internal infrastructure through the use of strategic contributions from Fund Balance. Funds are included to support the fifth year of the Information Technology (IT) Strategic Plan. The IT Strategic Plan is an aggressive undertaking to improve our operations, contain costs, and vastly improve customer service. Just as we invest in our aging infrastructure, it is imperative that we invest in planning, designing, and implementing IT systems that will replace legacy systems and drastically improve business processes. The Proposed Budget also includes funds to continue the Climate Change Vulnerability Assessment and to continue the implementation of the Strategic Energy Plan to further reduce our energy 5

22 '"/>"""."$ =..ioiiiiiiiiiiiiiiliiiiiiiiiiiiiiiiliiilliliiiiiiiiil Capital Funds Water Supply Sewage Disposal General Construction Total Capital Comparative Expenditures by Fund FY'17 Approved FY'18 Proposed $317,309,000 $342,444, ,522, ,256,156 17,467,000 20,010, ,298, ,711,316 FY'18 Over I (Under) FY'17 O/o Change $25,135, % (21,265,844) (6.0)% 2,543, % 6,413, % Operating Funds Water Operating Sewer Operating General Bond Debt Service Total Operating GRAND TOTAL 320,236, ,784, ,782, , 107,917 19,364,000 15,887, ,382, , 780, 177 $1,426,680,000 $1,437,491, , % 7,325, % (3,476,185) (18.0) % 4,398, % $10,811, % The FY'l8 Proposed Budget further secures the long-term fiscal sustainability of the Commission by maintaining the operating reserve at I 0% of water and sewer revenues. WSSC is currently reviewing its reserve policies to determine if they are sufficient to meet our liquidity needs as well and protect our AAA bond rating by all three major rating agencies. At this point in our budget process, we are including a pool of funds for salary enhancements. The specific use of these funds will be determined during collective bargaining and the budget approval process as the two Counties decide how they will address salary enhancements for their employees. The FY' 18 Proposed Capital Budget of $ million represents an increase of $6.4 million (0.9%) from the FY' 17 Approved Budget. It provides $7.0 million for the planning, design and construction required for the implementation of short-term operational and long-term capital improvements at the Potomac Water Filtration Plant to allow the Commission to meet the new discharge limitations identified in the Consent Decree. The FY'18 Proposed Operating Budget of $740.8 million represents an increase of $4.4 million (0.6%) from the FY'17 Approved Operating Budget. The primary driver of the increase in operating costs are water and sewer debt service and PA YGO ~ 6

23 ... financing of capital projects as recommended by the. Bi-County Infrastructure Funding Working Group. These costs are partially offset by cost decreases for regional sewage disposal, chemicals and bio-solids hauling. System Development Charge State law provides that the System Development Charge (SDC), a charge to new applicants for WSSC service which is intended to recover growth costs, may be adjusted annually by the change in the Consumer Price Index for the Washington, DC metropolitan area (CPI-W). Historically, we have adjusted the maximum allowable charge based on the change in the November CPI W. We plan to do the same this year. Looking at the charge itself, with no change from the current level of charges, our analyses show that over the upcoming six years, the SDC fund may encounter a deficit situation, whereby the Commission would need to issue debt for growth construction projects that would be supported by SDC revenue. Although we are not recommending it at this time, the Commission should begin to have conversations with both counties on the advisability of increasing the SDC in order to ensure that it covers all growth-related costs. Spending Affordability The Commission, in cooperation with the Montgomery County and Prince George's County governments, continues to participate in the spending affordability process. The spending affordability process focuses debate, analysis, and evaluation on balancing affordability considerations against the provision of resources necessary to serve existing customers (including infrastructure replacement/rehabilitation), meet environmental mandates, maintain affordable rates, and maintain operating and capital budgets and debt service at prudent and sustainable levels. In October and November 2016, the Montgomery County Council and Prince George's County Council approved resolutions establishing four limits on the WSSC's FY'l8 budget. As indicated in the following table, the proposed FY' 18 budget is in compliance with all four of the spending affordability limits. L C3) 7

24 '"''!i!..""" ~i'."' WSSC FY'18 Proposed Budget vs. Spending Affordability Limits ($ in Millions) FY'18 Prince George's County Montgomery County Proposed Budget Limit Limit New Water and Sewer Debt $570.0 $570.0 $570.0 Total Water and Sewer Debt Service Total Water/Sewer Operating Expenses Water/Sewer Bill Increase $257.5 $ % $260.5 $260.5 $730.5 $ % 3.5% The proposed budget provides for: Funding the first year of the Fiscal Years Capital Improvements Program; Complying with the Sanitary Sewer Overflow Consent Decree; Inspecting and monitoring our large diameter water main transmission system; Promptly paying $271.6 million in debt service on $3.2 billion in outstanding debt to WSSC bondholders; Meeting or surpassing all federal and state water and wastewater quality standards and permit requirements; Keeping maintenance service at a level consistent with the objective of arriving at the site of a customer's emergency maintenance situation within 2 hours of receiving the complaint and restoring service within 24 hours of a service interruption; Enhancing customer service through expanded investment in contact center operations; Paying WSSC's share of operating ($53.6 million in FY'18) and capital costs ($75.5 million in FY'l8; $302.3 million in FY' l 8-FY'23) for the District of Columbia Water and Sewer Authority's Blue Plains Wastewater Treatment Plant; Funding for employee salary enhancements; Operating and maintaining a system of 3 reservoirs impounding 14 billion gallons of water, 2 water filtration plants, 6 wastewater treatment plants, 5,600 miles of water main, and 5,500 miles of sewer main 24 hours a day, 7 days a week; Continuing to make recommended safety and access improvements in our watershed; Maintaining an operating reserve of 10% of water and sewer revenues; and ) 8

25 -...,..,,,,.,., Funding the annual required contribution for non-retirement post-employment benefits based on Government Accounting Standards Board Statement No. 45. In addition to reviewing expenses and revenues for water and sewer services, we have analyzed the cost and current fee levels for other WSSC services. Based upon these analyses, some new fees and adjustments to current fees are recommended in Table X (pages 24 through 32). Budget Review Process The Proposed Budget is subject to the Counties' hearings, procedures, and decisions, as provided under Section of the Public Utilities Article, of the Annotated Code of Maryland, before the final budget is adopted for the fiscal year beginning July 1, Final Thoughts In closing, on behalf of the Commission, I want to reiterate our position that the Water and Sewer rate increase approved in the Spending Affordability Guideline process should be reconsidered. We strongly believe that a rate increase of 3.5% which limits our operating spending plan to a less than I% increase will put additional pressure on rates in FY' 19; prevent WSSC from continuing to make necessary improvements in our infrastructure safety and reliability program; and impair our joint efforts to make WSSC a world-class utility that provides world-class customer service. With the support of both Montgomery and Prince Georges Counties in the recent past we have been able to make impressive strides in our preventative maintenance and infrastructure reliability efforts. We want to make sure that we are responsive to our customer expectations for continue~jlence in service, quality and safety. Fausto R. Bayonet, Chair Washington Suburban Sanitary Commission ~ 9

26 FY 2018 PROPOSED BUDGET BY MAJOR EXPENSE CATEGORY I CAPITAL=$696,711,316 I I OPERATlNG ;$740,780,177 I Consulting Engineer $57,813,906 (8.3%) All Other $155,491,475 (22.3%) I Salaries & Wages $30,008,906 (4.3%) I Salaries & Wages $120,919,385 (16.3%) \ Regional Sewage Disposal $53,617,000 (7.2%) \ Heat, Light & Power $22,014,931 (3.0%) I Contract Work $453,397,029 (65.1%) All Other $272,626,861 (36.8%) I GRAND TOTAL= $1,437,491,493 I Debt Service $271,602,000 (36.7%) 12

27 TABLE II Comparative Expenditures by Major Expense Category ($in Thousands) FY'16 Actual FY'17 Approved FY'18 Proposed Expense Ca_tegories Capital Operating Total Capital Operating Total caeital Oeerating Total Salaries & Wages $ 29,390 $ 104,753 $ 134,143 $ 28,667 $ 114,718 $ 143,385 $ 30,009 $ 120,919 $ 150,928 Heat, Light & Power - 22,000 22,000-23,581 23,581-22,015 22,015 Regional Sewage Disposal - 50,068 50,068-54,501 54,501-53,617 53,617 Contract Work 379, , , , , ,397 Consulting Engineers 45,626-45,626 54,851-54,851 57,814-57,814 All Other 196, , , , , , , , ,118 Debt Service - 228, , , , , ,602 TOTAL $ 650,199 $ 646,039 $ 1,296,238 $ 690,298 $ 736,382 $ 1,426,680 $ 696,711 $ 740,780 $ 1,437,

28 FY 2018 PROPOSED BUDGET OPERATING I FUNDING SOURCES I I FUNDING USES ] H/C Deferred Interest Account Maintenance Charges Income Fee $3,349,000 $720,000 C $32,118,000 (0.5%)~ (0.1%) FFB (4 3%)... \ $15,503, ~ Iii - (2.0%) Iii Use of Fund Balance $11,580, (1.6%) Infrastructure / Investment /,, Fee $38,360,000 (5.2%) Miscellaneous Revenue - $33, 772,362 (4.5%) REDO $7,700,000 (1.0%) Operation & Maintenance $265,494,069 (35.8%) "" Billing/Collecting $23,676,145 (3.2%) \ Support Services $58,420, 107 I (7.9%) Non-Departmental $67,970,856 (9.2%) / REDO = Reconstruction Debt Service Offset SOC =System Development Charge H/C = House Connection FFBC = Front Foot Benefit Charge I TOTAL SOURCES= $744,004,362 Water/Sewer Rates $600,902,000 (80.8%) I / Regional Sewage Disposal $53,617,000 (7.2%) Debt Service (General Bond) $14, 145,000 (1.9%) Debt Service (Water & Sewer) $257,457,000 (34.8%) I TOTAL USES = $7 40, 780, I (ij) 14

29 TABLE Ill FY FY 2018 Summary of Revenue & Expenses Water Operating Sewer Operating General Bond Cap Ital Fund Fund Debt Service Fund Funds Aeeroved Proeosed Aeeroved ~osed Approved Proposed Approved Proposed REVENUES Water Consumption Charges $ 255,054,000 $ 267,080,000 $ - $ - $ - $ - $ - $ Sewer Use Charges 324, 182, ,822,000 Front Foot Benefit & House Connection Charges (Deferred) ,719,000 18,852,000 Account Maintenance Fees 16,276,000 16,380,000 16,276,000 15,738,000 Infrastructure Investment Fee 19,481,000 19,564,000 19,481,000 18,796,000 Interest Income 100, , , , ,000 20,000 Miscellaneous 15,360,000 17,660,445 14,152,000 15,871, , ,000 Use of Fund Balance Reserve Contribution 3,100,000 3,424,000 Other 7,862,000 11,664,000 11,580,000 9,800,000 7,700,000 Reconstruction Debt Service Offset 2,800,000 7,000,000 7,700,000 (9,800,000) (7,700,000) SOC Debt Service Offset 203,000 3,000 Bonds & Cash ,371, ,061,316 Anticipated Contributions: Federal & State Grants - 16,822,000 15,380,000 System Development Charge 77,978,000 32,189,000 Other ,127,000 28,081,000 TOTAL REVENUES $ 320,236,000 $ 320,784,445 $ 396,782,000 $ 404,107,917 $ 22,119,000 $19,112,000 $ 690,298,000 $696,711,316 EXPENSES Salaries & Wages $ 60,897,000 $ 64,169,215 $ 53, 191,000 $ 56, 106,695 $ 630,000 $ 643,475 $ 28,667,000 $ 30,008,906 Heat, Light & Power 12,843,000 11,760,491 10,738,000 10,254,440 Regional Sewage Disposal 54,501,000 53,617,000 Contract Work 442,324, ,397,029 Consulting Engineers ,851,000 57,813,906 Contribution to Required Reserve 3,100,000-3,424,000 All Other 127,384, ,371, ,037, ,962, 782 1,105,000 1,099, ,456, ,491,475 Debt Service 105,305, ,320, ,503, ,137,000 17,629,000 14,145,000 PAYGO 10,707,000 13, 163,000 12,388,000 17,030, TOTAL EXPENSES $ 320,236,000 $ 320,784,445 $ 396, 782,000 $ 404,107,917 $ 19,364,000 $ 15,887,815 $ 690,298,000 $696,711,316 Net Increase (Decrease) in Fund Balance ,755,000 3,224, 185 Fund Balance - July 1 $ 16,877,000 $ 9,015,000 $ 131,694,000 $ 120,030,000 $ 57,480,000 $ 50,435,000 $ - $ Net Increase (Decrease) in Fund Balance ,755,000 3,224,185 Use of Fund Balance (7,862,000) - (11,664,000) (11,580,000) (9,800,000) (7,700,000) Fund Balance - June 30 $ 9,015,000 $ 9,015,000 $ 120,030,000 $ 108,450,000 $ 50,435,000 $ 45,959,185 $ - 15

30 TABLEV Combined Water/Sewer Operating Funds - FY'18 Proposed Rate Impact ($in Thousands) (3.5% AVERAGE RATE INCREASE PROPOSED FOR FY'18) Funding Sources Revenues at Current Rates Consumption Charges Account Maintenance Fee Infrastructure Investment Fee Interest Income Miscellaneous Revenues Sub-Total Reconstruction Debt Service Offset Use of Fund Balance Total Funding Sources Requirements Operating, Maintenance & Support Services Expenses Debt Service PAYGO Operating Reserve Contribution Total Requirements Shortfall to be Covered by Rate Increase PROPOSED AVERAGE WATER AND SEWER RATE INCREASE FY'18 ~osed $ 580,580 32,118 38, , ,290 7,700 11, , , ,457 30, ,892 $ (20,322) 3.5% 17

31 TABLE VI Annual Customer Bills At Various Consumption Levels Average Daily Consumption (ADC) Gallons Per Day FY 2014 FY 2015 FY 2016 FY 2017 FY $ $ $ $ $ (36,500 GAL/YR) 3/4" Residential Meter (50,005 GAL/YR) 3/4" Residential Meter 500 2, , , , , (182,500 GAL/YR) 3/4" Residential Meter 1,000 6, , , , , (365,000 GAL/YR) 2" Meter 5,000 30, , , , , (1,825,000 GAL/YR) 3" Meter 10,000 63, , , , , (3,650,000 GAL/YR) 6" Meter Annual customer bills include the Account Maintenance Fee shown on page 22 and the Infrastructure Investment Fee shown on page 18

32 TABLE VII WSSC Water/Sewer Rate Schedules Effective July 1, 2016 & Proposed for Implementation July 1, 2017 (3.5% AVERAGE RATE INCREASE PROPOSED FOR FY'18) Water Rates Per 1,000 Gallons Average Daily Consumption Effective by Customer Unit During Billing Period July 1, 2016 July 1, 2017 (Gallons Per Day) 0-49 $ 3.38 $ ,000-3, ,000-6, ,000-8, ,000 & Greater Current Flat Rate Sewer Charge - $ per quarter Proposed Flat Rate Sewer Charge - $ per quarter Sewer Rates Per 1,000 Gallons Effective July 1, 2016 July 1, 2017 $ 4.30 $ Combined Water & Sewer Rates Per 1,000 Gallons Effective July 1, 2016 July 1, 2017 $ 7.68 $

33 RESIDENTIAL MONTHLY WATER/SEWER BILL COMPARISON $120 $100 $80 $60 $40 $20 $0 (137 Gallons Per Day) $ $86 $92 69 $ $50.21 $51.13 $52.59 $55.30 $56.12 $56.52 $58.82 $61.27 $64.61 $68.67 $70.34 $70.67 $77.02 $ ~"'?" ~,:;. ~""'b ~"'?" ~ o~!c \' (,<( ~ <(!C\'.!C\' ~ ~<:' f," b«; ~<:' 0 ~.;s..+-evo ~ ~o evo.j...o~ ~~~. {:.-r. ~o ~o<:' ~ evo <(~ (,~ (:-</O ~fl, ~"'" ~~ ~o ~"'?" ~"'?" o~ ~"'?". - ~<::>,:S."' ~~ o<:'' ~-0. ~7'' J,_$;r ~e, "o ;;:>..;s o~ ~~'t; i~,:s.". ~o <-,"-' Q.~ ~ c)e, -~-r.'s "o ~~ ~~ ~ ~ (, ~ ~o <::)' o<:'' <::)fl, ~ ~<::' ~-r." ~O' ~o ~o ~"'?" 0"?- ~ '!o-..7'' 0 '1-.7'<:' i;>' ~ -$'<::' <lj Presented is a comparison of WSSC's rates to other cities and communities, both nationally and locally, for residential customers using 137 gallons of water per day. The rates used in this comparison were in effect November The chart includes WSSC bills at FY'17 approved and FY'18 proposed rates. 20

34 AVERAGE MONTHLY BILL COMPARISON AS A PERCENTAGE OF MEDIAN INCOME (137 Gallons Per Day) 4.5% 4.0% 3.5% 3.0% 2.5% 2.0% 1.5% 1.0% ~ 0.54% 0.63% 0.70% 0.72% 0.5% 0.0%.:,.~.::,.~ ~<:!' ~ ~<:!' ~ c.p c.p ~+ o<:- <cj.- 'f..~~ ~ <f-y.,i...!j> ~ <c ~ r!?" ~<:) (): -:I- cf.o'> 4..o~ <l.<i.',,,~ r!;>c., ~ ~ q;f>~ ~~ (, <:) o~ ~ ~ ~'!>., ~to o'i:- <I.~ ~ ~o ~<:) <I.~ ~ " ~ *-e' ~, e' ~', o -.S:'~~ ~..s>~.~o~ ~~.,,.~!$>... ' 'I>~ qji <I.~ c.,0 q_~..s>., 3.86% 0~.::.~ o'i:- ~ o'i:- ~'l>' ~' h-t 1'). ~o ~'!><:!' ~< ' }._'!><:!' "*"' ~'I> if i.>~ <i?--" oe; o<:!'.;:' ~,,_e; Q Median household income (in 2015 dollars) Figures gathered from 21

35 TABLE VIII Account Maintenance Fees Proposed for Implementation July 1, 2017 Meter Size Current FY'17 Quarterly Charges Proposed FY'18 Quarterly Charges Small Meters 5/8" to 1" $ $ Large Meters 1-1 /2" 2" 3" 4" 6" 8" 10" Detector Check Meters 2" 4" 6" 8" 10" Fire Service Meters 4" 6" 8" 10" 12" This is a quarterly fee which is prorated based on the length of the billing cycle. ~ 22

36 TABLE IX Infrastructure Investment Fees Proposed for Implementation July 1, 2017 Meter Size Current FY'17 Quarterly Charges Proposed FY'18 Quarterly Charges Small Meters 5/8" 3/4" 1" $ $ Large Meters 1-1/2" 2" 3" 4" 6" 8" 10" , , , , , , Fire Service Meters 4" 6" 8" 10" 12" , , , , , , This is a quarterly fee which is prorated based on the length of the billing cycle. ([) 23

37 TABLEX Miscellaneous Fees and Charges - Proposed Changes The Commission provides a number of services for which separate fees or charges have been established. Recent review of the costs required to provide these services indicates a need to change the amounts charged for some of the services. The fee and charge changes listed below are proposed to be effective July 1, ITEM 1. Inspection Fees - Water/Sewer Connection Hookup, Well/Septic Hookup, Plumbing and Gasfitting Inspections New Single Family Detached Dwellings New Attached Dwellings (townhouse/multiplex excluding apartments} All Other Residential: Water/Well Hookup Meter Yoke Inspection (meter only installation) Water Hookup Converting from Well (includes 2 inspections} Sewer/Septic Hookup First Plumbing Fixture Each Additional Fixture SOC Credit Fixture Inspection (per fixture} Minimum Permit Fee Permit Reprocessing Fee Long Form Permit Refund Fee Long Form Permit Re-Issue Fee All Non-Residential: Plan Review (without Permit Application} 50 Fixtures or Less Fixtures Over 200 Fixtures 2nd or 3rd Review (with or without Permit Application) 50 Fixtures or Less Fixtures Over 200 Fixtures Water/Well Hookup Meter Yoke Inspection (meter only installation) Sewer/Septic Hookup FOG Interceptor First Plumbing Fixture Each Additional Fixture SOC Credit Fixture Inspection (per fixture} Minimum Permit Fee Permit Reprocessing Fee CURRENT PROPOSED CHARGE CHARGE EFFECTIVE JULY 1, 2017 $660 $ * * * *395 1,340 *1,340 2,670 *2, * * * *60 * No change to this line item. 24

38 TABLEX Miscellaneous Fees and Charges - Proposed Changes (Continued) CURRENT PROPOSED CHARGE ITEM CHARGE EFFECTIVE JULY 1, 2017 Long Form Permit Refund Fee $230 $253 Long Form Permit Re-Issue Fee Site Utility (On-Site) Review Fee Base Fee 3,190 3,301 Additional Fee per 100 feet Minor (Waived) Site Utility (On-Site) Fee License Fees for the Regulated Trades Reciprocal Master Plumber, Gasfitter: Initial Registration per type 85/2 years 93/2 years Registration Renewal all types 85/2 years *85/2 years Late Registration Renewal 50 *50 Examined Master Plumber, Gasfitter: Initial Registration per type 105/4 years *105/4 years Registration Renewal all types 105/4 years *105/4 years Late Registration Renewal 50 *50 Cross-connection Technician Registration 25 *25 Sewer and Drain Registration and Renewal 40/2 years *40/2 years Sewer and Drain Late Renewal Fee 20 *20 Journeyman License Registration: Initial Registration 30/2 years *30/2 years Registration Renewal 30/2 years *30/2 years Late Registration Renewal 20 *20 License Transfer Fee 30 *30 License Replacement Fee 15 *15 Apprentice License Registration Renewal 10 *10 4. Short Form Permit Fee (up to 3 fixtures)- Non-Refundable Fee for the Sale of WSSC Plumbing and Fuel Gas Code (Plumbing Code) and Cross Connection Control Manual Sale of Plumbing Regulation (per book) No change to this line item. 25

39 TABLEX Miscellaneous Fees and Charges - Proposed Changes (Continued) ITEM CURRENT CHARGE PROPOSED CHARGE EFFECTIVE JULY 1, Septic Hauler Discharge Permit Fee Category I Residential & Septic Waste & Grease 1-49 gallons gallons 800-2,999 gallons 3,000 - gallons and up January through June Transfer and/or Replacement Permit Sticker Industrial/Special Waste Disposal Fee Zero Discharge Permit Fee Temporary Discharge Permit Fee Sewer Rate - Domestic Low Strength Wastewater Sewer Rate - Domestic High Strength Wastewater 7. Long Form Permit Transfer Fee 8. Small Meter Replacement Fee (at Customer Request) 9. Meter Replacement Fee (Damaged or Stolen Meter) 5/8" Encoder (outside) 5/8" Encoder 3/4" Encoder (outside) 3/4" Encoder 1" Encoder (outside) 1" Encoder 1-1/2" Encoder 2" Standard 3" Compound 4" Compound 6" Compound 2" MVR 3" MVR 4" MVR 6" MVR $250/vehicle 3,645/vehicle 10,395/vehicle 24,655/vehicle 50% of fee /1,000 gallons Sewer Rate/1,000 gallons 10.14/1,000 gallons of truck capacity 53.69/1,000 gallons of truck capacity ,100 3,190 3,960 5,830 1,210 2,035 2,915 4,510 *$250/vehicle 4,009/vehicle 11,434/vehicle 27, 120/vehicle *50% offee 93 *325/1,000 gallons 93 *85 + Sewer Rate/1,000 gallons *10.14/1,000 gallons of truck capacity 54.00/1,000 gallons of truck capacity *150 * *750 *1, 100 *3,190 *3,960 *5,830 *1,210 2,239 3,207 No change to this line item. 26

40 TABLEX Miscellaneous Fees and Charges - Proposed Changes {Continued) CURRENT PROPOSED CHARGE ITEM CHARGE EFFECTIVE JULY " Fire Service Meter $7,700 $8,239 6" Fire Service Meter 9,820 *9,820 8" Fire Service Meter 11,495 *11,495 10" Fire Service Meter 14,225 *14,225 12" Fire Service Meter 16,250 *16, Meter Testing Fees 5/8"to 1" /2" " and up Sub-Meter Installation Fee One-time Sub-Meter Charge - Small One-time Sub-Meter Charge - Large One-time Inspection Fee Minimum Permit Inspection Fee 200 * Tapper License Fee Permit Fee $330 $363 Duplicate Temporary Fire Hydrant Connection Fee 314" Meter - Deposit Over 2 Weeks/Less than 2 weeks w/unapproved payment record " Meter - Deposit Over 2 Weeks/Less than 2 weeks w/unapproved payment record 2,420 *2,420 Service Charge 2 Weeks or Less (3/4" meter) Weeks or Less (3" Meter) 130 *130 Over 2 Weeks (3/4" and 3" Meters) Loss/Destruction Wrench 40 * Water Tum-Off, Turn-On Fee Small Meter Turn-Off Small Meter Turn-On No change to this line item. 27

41 TABLEX Miscellaneous Fees and Charges - Proposed Changes (Continued) ITEM Large Meter Turn-Off Large Meter Turn-On 15. Feasibility Review Fee (Non-SEP) Feasibility Submission Fee (Non-refundable) Feasibility Review & Report Fee Deposit (can be deferred as deficit when extension is completed) 16. Industrial Discharge Control Program Fees By Category Industrial users subject to Categorical Pretreatment Standards Less than 5,000 gpd (double visit) Greater than 5,000 gpd (double visit) Non-discharging Categorical Industries (zero discharge) Significant Industrial User Less than 25,000 gpd (single visit - priority pollutant sampling) Greater than 25,000 gpd (double visit - priority pollutant sampling) 17. Fees for Sale of Contract Specifications, Contract Specification Books, Drawings, Design Manuals, Standard Details, and General Conditions Utility Contracts Construction Standard Details Construction General Conditions & Standard Specifications SEP Construction General Conditions & Standard Specifications 18. Call Back Fees (small meters, plumbers) 19. Call Back Fees (large meters, plumbers) 20. Missed Appointment Fee First Missed Appointment or Turn-On Each Additional Missed Appointment 21. Connection Redemption Fee 22. Connection Abandonment Fee County Roads (Except Arterial Roads) -Water CURRENT CHARGE $ ,375 8,525 3,655 5, ,655 5, ,320 PROPOSED CHARGE EFFECTIVE JULY 1, 2017 $ ,512 9,377 4,020 6,160 1,083 4,020 6,160 *15 * * ,452 No change to this line item. 28

42 TABLE X Miscellaneous Fees and Charges- Proposed Changes (Continued) ITEM County Roads (Except Arterial Roads) - Sewer State Roads and County Arterial Roads - Water State Roads and County Arterial Roads - Sewer 23. Fire Hydrant Inspection Fee Controlled Access Surcharge Fee 24. Erosion and Sediment Control Training Package Fee 25. Erosion and Sediment Control Training Certification Session Fee 26. Dishonored Check Fee & Electronic Payment Fee (applies to all dishonored checks and dishonored electronic payments) 27. Fire Hydrant Flow Test Fee No Current Test Current Test 28. Shut Down/Charge Water Main Fee Shut Down/Complex Water Main Fee 29. Right-of Way Release Review Fee CURRENT CHARGE $1,760 1,760 2, O/hydrant /package 60/session, per participant , /document PROPOSED CHARGE EFFECTIVE JUL y 1 I 2017 $1,847 *1,760 *2, /hydrant *25 Delete 66/session, per participant , /document 30. Fee for Review and Inspection of Site Work Potentially Impacting WSSC Pipelines Simple Review 330 Complex Review I Non-DR Developer Review 1,895 Inspection for minor adjustment I Non-DR Developer 220/inspection 363 *1, /inspection 31. Chlorination Confirmation Test Fee Re-Test or Additional Tests (per hour) 32. Meter Reinstallation Correction Fee 33. Sewer Meter Maintenance Fee 220/first test 150/hour 340 9,920/year 237 /first test *150/hour ,912/year * No change to this line item. 29

43 TABLEX Miscellaneous Fees and Charges - Proposed Changes (Continued) ITEM Quarterly Calibrations 34. Discharge Authorization Permit Fee Significant Industrial User - Initial Permit Significant Industrial User - Renewal Initial zero-discharge CIU Permit Reissued zero-discharge CIU Permit Temporary Discharge Permit (Non - SIU) 35. Property Inspection Fee 36. Extra Review Fee Per SEP Plan Review: Minor Additional Reviews of Unsigned or Signed Plans (per review) Major/Splitting Additional Reviews of Unsigned or Signed Plans (per review) Per Site Utility Additional Signed or Unsigned Plan Review: Site Utility Minor Utility Additional Review of Required Data (per application) 37. Hydraulic Planning Analysis and System Planning Forecast Modeling and Re-Modeling Fee - Up to 3 parts Modeling and Re-Modeling Fee - per part Over 3 Pressure Sewer System Review Fee - per system 38. Partial Release Fee CURRENT CHARGE $2,480/quarter 4,345/4 years 2, 130/4 years 1,650/4 years 1, 100/4 years 4, ,000 1, , /part 290 1,100 PROPOSED CHARGE EFFECTIVE JULY 1, 2017 $2,728/quarter 4,779/4 years 2,343/4 years 1,815/4 years 1,210/4 years 4, ,045 2,133 1, , /part 319 1, Service Connection Application and Inspection Fee (per permit) 40. Discharge Fee - Food Service Establishment (FSE) Full Permit FSE BMP Permit FSE 41. Feasibility Review Fee for On-Site Takeover Projects 1,980/water and/or sewer connection , 178/water and/or sewer connection * No change to this line item. 30

44 TABLEX Miscellaneous Fees and Charges - Proposed Changes (Continued} CURRENT PROPOSED CHARGE ITEM CHARGE EFFECTIVE JULY 1, Fee for the Preparation of Hold Harmless Agreement $845 $ Government Referred Plan Review Fee Major Development - Over 10 Units 1,375 1,513 Minor Development - 10 or Less Units Re-Review Fee for Major Development Re-Review Fee for Minor Development Warehouse Restocking Fee Residential Outside Meter Housing Upgrade/Pipe Alteration 5,170 5, Pre-Screen Re-Submission Fee Cross Connection Fee Test Report Fee Base Fee for High Hazard Commercial Water Customer - per month 13 *13 Base Fee for All Other Commercial Water Customer- per month 7 *7 48. Site Utility Inspection Fee Base Fee 1,000 1,100 Pipeline (per foot) 5.60 * Name/Transfer of Ownership Change Fee Protest Filing Fee No change to this line item. 31

45 TABLEX Miscellaneous Fees and Charges - Proposed Changes (Continued) CURRENT PROPOSED CHARGE CURRENT MAXIMUM PROPOSED MAXIMUM ITEM CHARGE EFFECTIVE JULY 1, 2017 ALLOWABLE CHARGE ALLOWABLE CHARGE 51. *** System Development Charge Apartment Water $896 $896 $1,274 $1,289 Sewer 1,140 1,140 1,624 1, toiletsfresidential Water 1,344 1,344 1,914 1,937 Sewer 1,710 1,710 2,432 2, toiletsfresidential Water 2,240 2,240 3,189 3,227 Sewer 2,850 2,850 4,056 4,105 5 toiletsfresidential Water 3,135 3,135 4,463 4,517 Sewer 3,991 3,991 5,681 5, toiletsfresidential (per fixture unit) Water Sewer Non-residential (per fixture unit) Water Sewer *** No increase is proposed for the System Development Charge for FY'18 in any category. The maximum allowable charge is being adjusted pursuant to Division II, Section (c) of the Public Utilities Article of the Annotated Code of Maryland, based on the 1.2% change in the Consumer Price Index for Urban Wage Earners and Clerical Workers for all items in the Washington, D.C. metropolitan area from November 2015 to November CID 32

46 Short-Term Fiscal and Service Policies EXPLANATION OF THE BUDGET (Continued) Short-term policies are specific to the budget year. They address key issues and concerns that frame the task of preparing a balanced budget that achieves Commission priorities within the context of current and expected economic and political realities. The General Manager and the Commission adopted the following key policies in preparing the FY'l8 Proposed Budget. Forecast FY' 18 water production conservatively at million gallons per day. Propose a 3.5 percent average increase in water and sewer rates for FY'l 8. Continue to address the WSSC's aging infrastructure by proposing the following: ~ Rehabilitation of 55 miles (290,400 feet) of small diameter and 4 miles (21, 120 feet) of large water diameter mains. ~ Inspection and repair of 18 miles (95,040 feet) of Prestressed Concrete Cylinder Pipe (PCCP). ~ Acoustical fiber optic monitoring of 99 miles (522,720 feet) of PCCP. ~ Continuation of the Trunk Sewer Reconstruction Program. Ensure adequate funding for regulatory compliance requirements. Fund the implementation of the Information Technology Strategic Plan to include a new Customer Care Billing system. Fund the annual required contribution for other post-employment benefits in accordance with Governmental Accounting Standards Board Statement No. 45. Offset $7.7 million of debt service with REDO. ~ 1-6

47 Sewer House Connection Renewal PERFORMANCE OF KEY SERVICES (Continued) The sewer house connection renewal program replaces sewer house connections when structural problems have caused customer backups. Damaged or deteriorated sewer house connections are replaced as necessary to ensure that customers do not suffer repeated sewer backups into their homes. The program objective is to prevent a second backup after the WSSC has confirmed there is a problem with the service. At the beginning of FY'l6, 389 house connections met the criteria for renewal, versus 307 at the beginning of FY' 15. During FY' 16, the Commission replaced 966 connections, versus 682 connections in FY' 15. Customer Calls for Maintenance Assistance During FY' 16, the Commission answered 97% of customer calls for maintenance assistance, as shown in the graph to the right. Our goal continues to be a 95% response rate. We continue to work through several measures in furtherance of this goal. Cross-training agents from the Non-Emergency Call Center allows for greater flexibility in staffing and an improved knowledge base. A Geographic Information System (GIS) application enables customers to report emergencies using their smart phones. The system complements the Maintenance Management Information System (MMIS) by placing needed information about leaks and other emergencies at the dispatchers' fingertips, thereby allowing representatives to provide consistent and knowledgeable responses. Detailed help in determining the proper response to customers' problems and questions is included along with other frequently required reference materials, such as phone numbers and standard operating procedures. 100% I 95% 90% 85% 80% 75% 70% Percent of Customer Phone Calls Answered 96% 97% FY'12 FY'13 FY'14 FY'15 FY'16 In addition, a Workforce Management Center of Excellence (CoE) is being implemented to forecast, plan, schedule, and handle intra-day adjustments so staffing levels required to meet service levels are achieved. The benefit of this initiative is that the Workforce Management CoE will proactively monitor staffing levels and maintain best services, routing between in-house and out-sourced 2-12

48 wssc OPERATING EFFICIENCY MEASURES Water Production Cost per 1,000 Customer Accounts $500, ~ $450,000,,.. --~-- $400, ~ l $350,000 I...,. 9 I $300, FY'12 FY'13 FY'14 FY'15 FY'16 FY'17 FY'18 Wastewater Treatment Cost per 1,000 Customer Accounts 00 $600,0 I / -----""' $550,000 I,J,, '* " $500,000 r. &',. - '"',lif;lf $ " f'p,«~ $400:000 --;:;;;:-"' ~-,*~S::.i""'"--" ~ _j 1 I FY'12 I I FY'13 FY'14 FY'15 FY'16 FY'17 FY'18 /l ' Water Operating Cost to Produce One Million Gallons of Water Wastewater Operating Cost to Treat One Million Gallons of Sewage $4, $3,500..,...- _."'"' $3, ~ < $4,000 ~ $3,500 _,,.I -.i~!.:,; '~,,,r,-,,. $3,000 ~' "'. '" ', I!!' $2,500 ±--~""""""" l $2, FY'12 FY'13 FY'14 FY'15 FY'16 FY'17 FY'18 $2,500 _L -j $2, ,-----, ,------l FY'12 FY'13 FY'14 FY'15 FY'16 FY'17 FY'18 Note: FY'17 & FY'18 are budgeted, not actual. 2-42

49 SELECTED STATISTICAL DATA FY'12 FY'13 FY'14 FY'15 FY'16 FY'17 FY'18 ACTUAL ACTUAL ACTUAL ACTUAL ACTUAL APPROVED PROPOSED Population Served 1,742,000 1,749,000 1,757,000 1,765,000 1,774,000 1,783,000 1,792,000 Customer Accounts 439, , , , , , ,061 Water Produced (average MGD) Water Produced (millions of gallons) 60,648 58,830 58,603 59,469 59,933 59,860 59,860 Water Mains Maintained (miles) 5,471 5,494 5,521 5,552 5,586 5,606 5,640 Water Mains Constructed (miles added by WSSC) Water Mains Constructed (miles added by developers) Water House Connections Maintained 444, , , , , , ,393 Water House Connections Installed 2,591 2,269 2,880 3,671 4,389 2,800 4,000 Water Meters Issued 11,598 18,554 14,675 17,540 17,936 18,065 18,065 Sewage Systems Total Flow (average MGD) Sewage Systems Total Flow (millions of gallons) 66,950 64,666 71,232 69,650 67,452 79,388 75,628 Sewer Mains Maintained (miles) 5,363 5,376 5,402 5,424 5,451 5,476 5,503 Sewer Mains Constructed (miles added by WSSC) Sewer Mains Constructed (miles added by developers) Sewer House Connections Maintained 421, , , , , , ,789 Sewer House Connections Installed 2,374 2,018 2,335 2,834 3,310 2,600 3,100 Maintenance Work Orders (Emergency and Routine) 84,906 99, , , ,372 98, ,047 Vehicles in Fleet ,079 1, Miles Traveled by Fleet 5,866,778 5,250,810 5,028,532 5,432,420 6,940,268 5,230,476 7,963,922 Water Meter Readings Completed 2,006,837 1,967,090 1,987,261 2,028,473 2,225,306 2,052,950 2,283,266 Authorized Positions 1,681 1,693 1,717 1,729 1,747 1,776 1,776 Authorized Workyears 1,681 1,693 1,717 1,729 1,747 1,776 1,776 Actual Employment Level - Beginning 1,528 1,549 1,549 1,550 1,561 1,633 Actual Employment Level - Ending 1,549 1,549 1,550 1,561 1,633 Actual Workyears 1,522 1,535 1,530 1,

50 WATER & SEWER OPERATING FUNDS - COMBINED ($ In Thousands) FY'12 FY'13 FY'14 FY'15 FY'16 FY'17 FY'18 ACTUAL ACTUAL ACTUAL ACTUAL ACTUAL APPROVED PROPOSED REVENUES Water Consumption Charges $ 226,286 $ 225,212 $ 227,923 $ 242,867 $ 235,805 $ 255,054 $ 267,080 Sewer Use Charges 255, , , , , , ,822 Interest Income Miscellaneous 24,788 26,926 25,104 29,484 31,989 29,512 33,532 Account Maintenance Fee 22,386 22,772 22,582 22,753 29,247 32,552 32, 118 Infrastructure Investment Fee ,700 38,962 38,360 Total Revenues 529, , , , , , ,612 SDC Debt Service Offset 2,293 2,192 1,428 1, Reconstruction Debt Service Offset 11,000 11,000 10,500 10,000 8,500 9,800 7,700 Use of Fund Balance 3,400 18,528 27,481 30,193 20,721 26,050 11,580 Total Funds Available $ 546,642 $ 582,911 $ 625,051 $ 656,484 $ 651,650 $ 717,018 $ 724,892 EXPENDITURES Salaries & Wages $ 88,666 $ 92,996 $ 95,482 $ 100,118 $ 104,030 $ 114,088 $ 120,276 Heat, Light & Power 24,658 22,979 24,443 24,229 22,000 23,581 22,015 Regional Sewage Disposal 49,483 49,226 44,631 54,485 50,068 54,501 53,617 Debt Service Principal Payments 128, , , , , , ,702 Interest Payments 47,269 55,604 60,772 68,013 76,190 70,602 74,755 Debt Reduction (PAYGO) ,782 19,996 18,821 23,095 30,193 All Other 180, , , , , , ,334 Working Capital Reserve Transfer - 10,200 11,700 2,300 6,300 6,524 Total Expenditures $ 518,560 $ 548,485 $ 586,366 $ 627,043 $ 693,665 $ 717,018 $ 724,892 Water Production (average MGD) ~ 3-3

51 Comparative Expenditures by Organizational Unit Commissioners Office/Corporate Secretary's Office Internal Audit FY'17 Approved Workyears Amount 2 10 $ 358,200 1,260,200 FY'18 Proposed Workyears - Amount 2 $ 380, ,308,751 General Manager's Office Intergovernmental Relations Office WSSC Stat Office General Counsel's Office Communications & Community Relations Office Human Resources Office Small, Local and Minority Business Enterprise Office Equal Employment Opportunities Office (formerly Fair Practice Office) Procurement Office Occupational Health & Safety Group (formerly in General Services Office) ,920, , ,400 4, 110,800 2,878,500 4,781,400 1,368, ,300 3,552, , ,100, , , ,031, ,756, ,839, ,378, , ,388, ,040,665 Engineering & Construction Team Production Team General Services Office (formerly Logistics Office) Finance Office Utility Services T earn Customer Relations Team Information Technology Team ,481, ,500,100 29,972,900 6,977, ,630,200 13,961,200 45,159, ,079, ,942, ,922, ,198, ,497, ,112, ,403,922 Non-Departmental (Finance) Non-Departmental (Human Resources) Debt Service PAYGO Depreciation Expense Operating Reserve Contribution 47,489,500 35,531, ,437,000 23,095,000 16,301,600 6,524,000 51,436,496 36,724, ,602,000 30,193,000 16,625,200 SUMMARY-TOTAL 1,776 $ 1,426,680,000 1,776 $ 1,437,491,493 ~ 6-2

52 Comparative Personnel Complement by Organizational Unit FY'16 Actual FY'17 Ap~roved FY'18 Proposed Authorized Authorized Authorized Positions Workyears Positions Workyears Positions Workyears Commissioners Office/Corporate Secretary's Office *8 1.0 *8 2.0 *8 2.0 Internal Audit General Manager's Office Intergovernmental Relations Office WSSC Stat Office General Counsel's Office Communications & Community Relations Office Human Resources Office Small, Local and Minority Business Enterprise Office Equal Employment Opportunities Office (formerly Fair Practice Office) Procurement Office Occupational Health & Safety Group (formerly in General Services Office) Engineering & Construction Team Production Team General Services Office (formerly Logistics Office) Finance Office Utility Services Team Customer Relations Team Information Technology Team SUMMARY-TOTAL 1,747 1, ,776 1, ,776 1,776.0 * Commissioners (6) not included in total positions or workyears. 6-3

53 Washington Suburban Sanitary Con1111ission Mission Statement The Washington Suburban Sanitary Commission (WSSC) is a bi-county governmental agency established in 1918 by an act of the Maryland General Assembly. It is charged with the responsibility of providing water and sanitary sewer service within the Washington Suburban Sanitary District, which includes most ofmontgomery and Prince George's Counties. In Montgomery County, the Town of Poolesville and portions of the City of Rockville are outside of the District. WSSC'S PROPOSED BUDGET WSSC's proposed budget is not detailed in this document The Commission's budget can be obtained from WSSC's Budget Group at the WSSC Headquarters Building, Sweitzer Lane, Laurel, Maryland (phone: l l 0) or from their website at Prior to January 15 of each year, the Commission prepares preliminary proposed capital and operating budgets for the next fiscal year. On or before February 15, the Commission conducts public hearings in both Counties. WSSC then prepares and submits the proposed capital and operating budgets to the County Executives of Montgomery and Prince George's Counties by March 1. By March 15 of each year, the County Executives of Montgomery and Prince George's Counties are required by law to transmit the proposed budgets, recommendations on the proposed budgets, and the record of the public hearings held by WSSC to their respective County Councils. Each County Council may hold public hearings on WSSC's proposed operating and capital budgets, but no earlier than 21 days after receipt from the County Executive. Each County Council may add to, delete from, increase, or decrease any item in either budget. Additionally, each Council is required by law to transmit by May 15 any proposed changes to the other County Council for review and concurrence. The failure ofboth Councils to concur on changes constitutes approval of the item as originally proposed by WSSC. Should the Councils fail to approve the budgets on or before June 1 of each year, WSSC's proposed budgets are adopted Accomplishments and Initiatives Operating and maintaining a system of 3 reservoirs impounding I 4 billion gallons of water, 2 water filtration plants, 6 wastewater treatment plants, 5,600 miles of water main, and 5,550 miles of sewer main 24 hours a day, 7 days a week. In FYI 8, WSSC will continue a robust study of the Commission's rate structure with planned implementation of a new rate structure in FYI 9. WSSC's Water and Sewer Reconstruction Programs will improve upon previous years' output In FYI 8, the Commission is projected to rehabilitate 55 miles of sewer mains and lateral lines, I 6 miles ( 41 % ) more than the FYI 5 actual output of 39 miles. Continue to inspect and repair large diameter pre-stressed concrete cylinder pipe (PCCP) water mains for I 8 miles of pipe in FYl8. Maintain current ratings for WSSC-issued debt by keeping a budgetary reserve equal to ten percent of water and sewer rate revenues. Spending Control Limits The spending control limits process requires that the two counties set annual ceilings on WSSC's water and sewer rate increase and on debt (bonded indebtedness as well as debt service) and then adopt corresponding limits on the size of the capital and operating budgets. Washington Suburban Sanitary Commission Agency Summaries 1 s-@

54 The two councils must not approve capital and operating budgets in excess of the approved spending control limits unless a majority of each council votes to approve them. If the two councils cannot agree on expenditures above the spending control limits, they must approve budgets within these limits. The following table shows the FYI 8 spending control limits adopted by the Montgomery and Prince George's County Councils, compared to the spending control results projected under WSSC's Proposed FY 18 Budget and under the County Executive's Recommended Budget for WSSC. The Commission's Proposed Budget complies with all of the spending control limits approved by the two County Councils. FY18 Spending Control Limits Comparison Approved Spending Control Limits Projected Levels Under SPENDING CONTROL LIMITS Montgomery Prince George's WSSC's County Executive County County Proposed Budget Recommended Budget Maximum Average Water/Sewer Rate Increase 3.5% 3.5% 3.5% 3.5% New Debt ($millions) $570.0 $570.0 $570.0 $570.0 Water and Sewer Debt Service ($millions) $260.5 $260.5 $257.5 $257.5 Total Water and Sewer Operating Expenses ($millions) $730.5 $730.5 $724.9 $724.9 County Executive Recommendations Operating Budget The County Executive recommends that WSSC's proposed FYI 8 budget be approved with: a water and sewer rate increase of3.5% in FYI 8 consistent with the Commission's resource needs outlined in their proposed budget Capital Budget The County Executive recommended the WSSC FY18-23 Capital Improvements Program (CIP) budget be approved as submitted by the Commission. While the County Executive did not recommend changes to the proposed CIP budget, it is further recommended that the Commission work with Executive and Council staff as estimates continue to be refined for the Potomac Water Filtration Plant Consent Decree project. Major construction should not begin on this project until both counties approve the long-term implementation plan. The County Executive further recommends the cost changes submitted by DC Water for the Blue Plains projects. FYl 8 fiscal projections for all funds and budgets are shown below. Expenditures by Category - FY18 WSSC Proposed and Executive Recommended ($000s) wssc wssc CE CE CE %Change Total Total Capital Operating Total (CE Rec. Approved Proposed Recommended Recommended Recommended vs. wssc Expenditure Categories FY17 FY18 FY18 FY18 FY18 Proposed) Salaries and Wages 143, ,928 30, , , % Heat, Light, & Power 23,581 22,015-22,015 22, % Regional Sewage Disposal 54,501 53,617-53,617 53, % Contract Work 442, , , , % Consulting Engineers 54,851 57,814 57, , % All Other 416, , , , , % PAYGO 23,095 30, ,193 30, % Reserve Contribution 6, Debt Service 261, ,602.Q 271, ~ Total Budget 1,426,680 1,437, , ,780 1,437, % Note: Total expenditures include the water and sewer operating funds, the general bond debt service fund, and the three capital funds 15-2 Agency Summaries

55 Program Contacts Contact Letitia Carolina-Powell of the Washington Suburban Sanitary Commission at or Matt Schaeffer of the Office of Management and Budget at for more information regarding this agency's operating budget. _W_a_s_h-in_g_t_o_n_S_u_b_u_r_b_a_n_S_a_n-it_a_ry~C-o_m_m_i_s_s-io-n~~~~~~~~~~~~~~~~~~-A-ge_n_c_y_S_um~m-a-ri-es~-1-5~-3(ij)

56 !nterml Aucflt DirectoT MaxeN! BerdweU, CPA, CIA -- - WSSC Organization Chart I Deputy General Manager fo;r Stratqic Partnerships ~niql J,Johnson Communications and Community Relations Director...,:~~~... _. Equil Employment Opportumtie Offk:er _.~:~~e.~~~ec~.~ng).. II Human Resources Director Todd Allen \.. lnteraovemmentcd Relations Offke Director ~rynfuley: Senior Staff Director Jaclyn Vincent Commissioners I General Manager/CEO Carla A. Reid 1 ""' H Deputy General Manager for Operat.iom Jqe.Mantua Chief Engineer GaJVGllmm Chief of Plant Operations J. q. Langley Chief of Utiity Servires Damion Lampley: Group Leader Asset Management Thais Vitl5gf umo General Counsel Amanda stakem Conn, Esq. WSSC Stat Bryan Samuels I I I Deputy General Manager furadmi~ COrpor1te Secrehty Shella ll. Finlayson~Esq_ Tl)p~sJ.~...,:-:_;;:,-, --~:. -,.. ~ I Chief FiMnc:W Officer J_~Dea'th, I Chief lnfomurtion Officer y~~~ ~rl~~. I Generiiil Services Director ~ura Rtlpr~tlt - I I SLMBE Offire OVector To:wanda LNingston I Chief of Customer Refatiom crystal Kn igtrt-lee 15-4 Agency Summaries FY18 Operating Budget and Public Services Program FY18-23@

57 WSSC PROPOSED BUDGET: SIX-YEAR FORECAST FOR WATER AND SEWER OPERATING FUNDS FY17 FY18 FY18 FY19 FY20 FY21 FY22 FY23 FISCAL PROJECTIONS ESTIMATED PROPOSED CE REC PROJECTION PROJECTION PROJECTION PROJECTION PROJECTION SPENDING AFFORDABILITY RESULTS New Water and Sewer Debt (Smlllions) S $ S S331.8 $317.1 TolalW-and SewarOperaling Exp<!llSeS ismillions) $717.0 $724.9 $724.9 $785.3 $848.6 SB99.1 $940.8 $981.5 Debt SeJVlce ($mllllons) S243.B $257.5 $257.5 $285.E S321J $347.1 S354.2 $379.5 Average Water and sewer Rate Increase 3.00% 3.51J'16 350% 11.60% 9.50% 120% 5.50% 4.80% BEGINNING FUND BALANCE ($000) 149, , , , , , ,481 REVENUES ($000) Watsr and Sewer Rate Reverwe 579, , , , , , ,657 Inter.st lrn:ome llO Acoount Mainten3nce Fee 29,247 32, ,298 32,477 32,657 32,831; 33,015 lntrastructure Investment Fee , ,489 38,618 38,747 38,876 39,004 MfsceJfaneous 22,811 33, ,825 32,529 33,346 33,376 Total Revenues 670, , , , , , , ,752 SDC Detr. SeMce Offset 2! Reconstruction Debt Service Ofset (REDO) 9,800 7, ,600 3,500 1, Use of P'1of Year Net Revenue 26,050 11,580 11,5110 6,283 6,948 5,3S5 4,372 4,495 TOTAL FUNDS AVAllABLE 707, , , , , , , ,247 EXPENDITURES ($000) Salaries and Wages 114, , , , ,573 Heat, l.jghl. and Power , ,840 27,675 26,520 29,397 29,405 Regional Sewage Disposal ,617 53,617 58,193 60,346 62,579 64,894 67,295 Debt Service , ,m 321, , ,479 PAYGO 23,095 30, , ,511 AU 01her 241, , , , , ,419 Reserve Contribution 6, ,783 6, ,495 Unspedl!ed E><pendirure Reductions (81,5491 (75,950) (65,700 (56,121) (53,930) TOTAL USE OF RESOURCES 707, , , , , ! D9 941,247 REVENUBECPENDITURE SURPLUS/(GAP) YEAR END FUND BALANCE wio addltlonal reserve conbibntion 123, , , , ,0JJ 112,096 1!3, ,986 Aclclltlonal Reserve Contribution ,783 6,448 5,385 4,372 4,495 TOTAL YEAR END FUND BALANCE 130, , , , , , , ,481 Debt Service as a Percentage of Water and Sewer Operating Budget 34.5% 35.5% 35.5% 39.9% 41.0% 41.0% 40.6% 40.3% Estima!ed Water Production (MGO) Total End DI Ascal Year Operattng Reserve B,411D 68, ,631 85,016 90,388 94,883 Total Operating Reserve as a Percenta.De of Water and Sewer Rate Revenue 11.6% 11.4% 11.4% 12.3% 12.0% 11.7% 11.5% 11.4% Total Worl<yeaB {al fundsl , Assmnptions: 1. The County Executve'a. o~ budget reoommendafian is for FY18 arty aoo il1cofpol'8tes t1e Executive's revenue and expenon.re assumptions for ll3t budget. 2. The FY1S..23 projections reflect WSSC'a m.jlti-)«yf~ and ass~, which are not adjlmed to conform 10 ltre County Execuive'a Rec:anmended budget forwssc. The ~cted expemilures. ~-emree. and rum~ tor these )'e8b rnmy be based on chan;es to rates, fees. usage. imlllon, fudjre labor agreements, and olherfactora oot l3ssull\8d In lhe COmtv Executive's Recommended FY16 wster" and sewarcpemttng budget for wssc. 3. The FY17 estinutedspenwrgafforcbbiey~arethevaluesbthebrspendjng.mforda!>i'ilypinmeters impjied ~ttie FY17 budgetjointlyoippmvedby ManlgOmefYrand Prince George's counti=s. The FV1aProposed q:iencingaffurdabrity resullsaretheva!uesdthitspendlng: afbdabilil:f paraneter.1 associated with WSSC'8JXopcsed FY18 budget. The FV18 recommendod ~ding.affcn:labilftyre"...ulm are thespe:ndlng 31'fonta:b1ky!)2J'allleters BSSOcioled wflh the CoWlt:i ~'sreconunen!led WSSC l::udget for FY ta_ ~ FV19-23 spend!no ~figw\!s conespond to the values of the vanous epend"~ ilfforde.btlny p:tremerem based cn ihe revenue and ellpeflditure forecasts shcl'ml tor fhe given )mt' and are prdljided by wssc_ 4. The IOtaf FY17estirn:ncd wcrkyears shown correspond totheactuall~as of Jawary, s_ Estimates or revenue i-1 FY19-23 auume ttie mile inc.mases P'oj&cted by WSSC in the AllmBge Wmet" and Sevmt- Rate Increase lne. 6. lnttle Pf'Ol«tlonforfY19-23 addlticnalt1nspecifiedexpendibjrereduetansareinclwed to clooewssc'sprofecled revemiabhcrtfall in these years. Washington Suburban Sanitary Commission Agency Summaries 15 5@

58 WSSC FY18 Proposed Budget Overview Approved Proposed Impact on Revenue FY17 FY18 change % change Rate(%) Water and Sewer Rate Revenue 580,124, ,924,000 1,800, % (0.31) Customer Affordability Program (888,000) (1,344,000) (456,000) 51.4% 0.08 Account Maintenance Fee 32,552,000 32,118,000 (434,000) -1.3% 0.07 Infrastructure Renwal Fee 38,962,000 38,360,000 (602,000) -1.5% 0.10 Interest Income 700, , % - Plumbing/Inspection Fees 9,380,000 11,300,000 1,920, % (0.33) Rockville Sewer Use 2,632,000 2,632, % - Products and Technology n/a - Miscellaneous 17,500,000 19,600,000 2,100, % (0.36) Use of Fund Balance 26,050,000 11,580,000 (14,470,000) -55.5% 2.49 Adjustments for REDO and SDC Debt Service Offset 10,006,000 7,700,000 (2,306,000) -23.0% 0.40 Funds Available 717,018, ,570,000 (12,448,000) -1.7% 2.14 Expenditures Maintenance and Operating (see breakout below) 389,090, ,625,000 (5,465,000) -1.4% (0.94) Regional Sewage Disposal 54,501,000 53,617,000 (884,000) -1.6% (0.15) Debt Service 243,808, ,457,000 13,649, % 2.35 PAYGO 23,095,000 30,193,000 7,098, % 1.22 Additional Operating Reserve Contribution 6,524,000 - (6,524,000) % (1.12) Unspecified Reductions - n/a - Total Expenditures 717,018, ,892,000 7,874, % ,210, ,435,000 Surplus (Gap) - (20,322,000) (20,322,000) 3.492% Rate Increase Requirement 3.00% 3.50% impact of 1 % increase 5,819,240

59 National Trends - Rate l.ncreases Since 2002 j v~::!~ +79% 1 SAN JOSE +89%'. '\ :'(j: : :';ii'. i,\--~l.. ~",:,; MINNEAPOLIS }~ +773 \.. ~.,. '"" ('.. ~ PROVIDENCHit +81%., 1 G NEWARK oesmoines,.,, %.. l +78% ;.~i', '-*" ' '.G WASHINGTON,0.C.. INDIANA~OllS. 0. CINCINNATI' +81%, ("+80%',lf +71~ ' '_ ~,1. RICH~ONO.(.,...10,, LOUISVILLE.,.. n 1+88,. ";.,. ~;;, ~ '.+76%' ';-; 1. GREENSBORO ",. l~_' ' I~; "" t;) o<. ":+79% ' 70-89% Increase Through FV'14, WSSC rates have increased 85% since 2002 e HONOLULU +73% "Mt,, :. ANCHORAGE +78% / e san ANTONIO ":as%._... ~ ' ~:t' JACKSONVILLE +71% ' % Increase GINGHAMTON!-" +143% CLEVELAND 0 1' +130% I I,_,, NEWVOR ~ 111: i151% 0 :.. /, PHllAOELPHIA.r;;.. PALTIMORe.e 1, + 164%. +14Q% I I 1,.. WILMINGTON ~,. ~vt. +200% ~ ri.: 1' SEATTLE l.+ 109% :C~~t~ f'. I Nl,+1 ALAMEDA COUNTY, ; +102%..", 1 :. S~NTA' CRUZ :LAS VEGAS. + 11~% + 129%. JI! rj_ 1,,-n... ~./,. \' r OMAHA. +92% COLORADO SPRINGS <: +97%. '"'Ii ",,>;,.. CHICAG ~6%. l\j 0 KANSAS CITY +92% LANSING +113.% I DETROIT +119% ''<': "' ~ 0 COLUMBUS +118% _, CHARLOTTE,,.rf~ {; SPAllTANBURG. +112% +107% JACKSON. ;,,;, +110%. AUSTIN 96% 0 TAMPA 117% BOSTON +119%..,) Hl>JITTORD 127% AllfNTOWN +108% AUGUSTA O>, +141% % Increase

60 MCPS and WSSC: Odious Monopolies in Montgomery County, Gordie Brenne, MCTL4/5/17 "... Monopolies are odious, contrary to the spirit of a free government and the principles of commerce, and ought not to be suffered" (Maryland Constitution, Declaration of Rights, Article 41}. I'm Gordie Brenne, VP of Montgomery County Taxpayers League, and I'm going to talk about the two largest monopolies in the state of Maryland (due to time limit I'm skipping the Dept. of Liquor Control): 1. MCPS- operates as a monopoly for poor kids who can only afford to attend public schools, where only 10% of those in east county graduate college ready (OLO, 4/14}, offers no charter school choices, and governs schools with a secret plan and formulas (Baltimore's Empowerment Academy- a few blocks from Freddie Grey's Sandtown neighborhood- has outperformed four public schools in eastern MC). 2. WSSC- this is the last utility monopoly in our county and their budget request ignores findings from last summer's benchmarking study that would cut costs, fought a bill to establish an Inspector General, have higher billing rates than Fairfax County {34% for families- per OLO, 2016, and 69% for small businesses), and an unbilled water rate that's double (17.9% vs. 8.9%), and Rockville's 9.5%. Council supervision is our only hope, since both monopolies are nurtured by state laws that undermine cost controls- (MoE for MCPS, and the default budget requirement within the Public Utilities Article for WSSC), and have weak governance structures and limited strategic plans that force Board and Commission members to rubber stamp budget requests in the aggregate, without regard to performance. Like our county government, these monopolies do not base their budgets on performance targets, but make incremental increases to large bases whose costs have never been benchmarked to high performing organizations. Also, like our county government which has just approved a ridiculous 5.5% pay raise, these monopolies are prone to collective bargaining excesses. MCPS has a new Superintendent, and we wish him success. But, we still don't have a public plan for closing the gap and the.re are no published performance targets. Consequently, we'. re blindly throwing money at the problem, and don't know if we're funding the most cost-effective strategies or old priorities that don't move the academic performance needle. Half of the budget goes to overhead compared to just one-third in California's larger school systems. Salary and benefit costs are way above market and out of control, taking money away from instruction, enriching adults not kids. Less than 10% of the requested budget increase is for initiatives to close the gap. WSSC has a similar predicament. It's rates have increased at an annual rate of 3 times the CPI (6.63%) over the last 10 years. Salary costs went up a whopping 4.5% last year. The culprit is weak cost controls. Last summer's benchmarking study (Veolia, 6/13/16) found staffing levels are too high, and there are inefficient practices in areas key to service reliability (Utility Services, Fleet management, and Asset Management/CIP). This fosters high fixed costs which contribute to EPA compliance problems, reactive fixes to frequent system failures, and deferred replacement of old meters that underbill. We recommend the MCPS budget be held to the MoE level until there's a public strategic plan for closing the gap, cross-walked to the budget. WSSC should be given no budget increase until cost controls are implemented that make our rates competitive with Fairfax County. Lastly, all county supervised organizations should be held to pay raises under 4%.

61 WSSC Response to Public Hearing Testimony Unbilled Water Rate compared to Fairfax and Rockville: With respect to unbilled water, it is true that in Fiscal Year 2015, WSSC experienced a 17.9% water loss. This water loss can be attributed to apparent losses (tied to customer metering inaccuracies, theft and illegal connections, and data handling errors) and real losses (tied to leakage on water mains and at service connections) in our system. While WSSC is continually working to reduce the water losses in our system, we feel that the amount of water loss is our system is standard for a utility of the size and age of WSSC's system. WSSC's water loss is in line with other regional water systems of similar age or size. By comparison, Philadelphia Water with approximately 585,000 customers has a water loss of 39.5%; DC Water with approximately 135,000 customers has a water loss of 25.3%. In comparison to Fairfax Water and the City of Rockville, there are several factors which point to our higher water loss. WSSC has older water infrastructure than Fairfax Water. Older water systems tend to have higher rates of water loss. The majority of Fairfax Water's water mains have been in the ground for 30 years or less. In contrast to the relatively young age of Fairfax Water's water system, the majority of WSSC's water mains fall within an age range of 30 to 70 years old. WSSC also has more miles of pipelines than Fairfax Water, and provides less water to wholesale customers. Fairfax Water has approximately 4,000 miles of water mains, and provides water to several neighboring jurisdictions. In contrast, WSSC has approximately 5,650 miles of water mains. While WSSC has interconnections with neighboring jurisdictions, a small percentage (less than 4%, on average) of WSSC's water produced is purchased by neighboring jurisdictions. WSSC is also a much larger system than the City of Rockville. Larger water systems tend to have higher rates of water loss. The City of Rockville produces 1.7 billion gallons (BG) of water annually, and serves approximately 12,700 customers. WSSC produces approximately 58.5 BG/year to approximately 480,000 customers. WSSC is working to reduce our water loss through a multi-year Water Loss Reduction Roadmap exercise. As part of the exercise, we will be assessing existing water loss methods in further detail and identifying data gaps. Next, we will be gathering additional data available from new data gathering programs and processes, such as the new customer billing system and advanced metering infrastructure being implemented. All these data will be evaluated to develop a plan to further reduce water use in our system. This will be a program of continuous improvement as our data sources improve. 1. Inspector General: WSSC did not support the proposed legislation because it would have been duplicative of the responsibilities currently assigned to our Internal Audit Office. Please see the attached analysis provided by our Intergovernmental Relations Office. The WSSC Internal Audit Office has 10 staff members and a robust annual risk based audit plan ( /Proposed%20FY%202017%20Risk-Based%20Audit%20Plan.pdf) that promotes accountability, sound internal controls, and provides strong safeguards against fraud, waste, and abuse. 2. Benchmarking Report Findings: WSSC is not ignoring the recommendations in the benchmarking report but has developed a multi-year action plan to respond to the findings and recommendations in the report ( 6/Response%20to%20Veolia%20Benchmarking%20Study%20to%20Commission% %20Revised.pdf) The implementation of these plans is being monitored by the WSSC Stat Page 1of3

62 Office. However, I want to point out that the report's findings concerning WSSC staffing levels actually indicated that "Compared to comparably sized Utilities providing water and wastewater services, WSSC's unit staffing levels are at or below median. Due to the mix of retail and wholesale services provision by large utilities this is, necessarily a rough evaluation of staffing efficiency." And "Functional staffing comparisons (compared to large utilities) show that WSSC is at or below average for most functions with the exception of IT and Engineering and Construction which are going through a major upgrade program." (Page II, Executive Summary). 3. Weak Cost Controls: The General Manager and the Commission take cost controls very seriously because of their responsibilities to the rate payer. The FY18 proposed combined operating and capital budgets are growing at only 0.8% - well below the rate of inflation. The Operating budget authorizes no new positions and is growing at a rate of only 0.6%. Most of the increases in the operating budget are due to increases in debt service and PAYGO to finance the capital program because of the priority placed on replacing aging infrastructure and complying with the terms of the Sanitary Sewer Overflow and Potomac Water Filtration plant Consent Decrees. In addition, to comply with the 3.5% water & sewer rate increase approved in the FY18 Spending Affordability Guideline process we reduced $17 million in costs from departmental budgets. Since 2013, WSSC has instituted a Supply Chain Transformation initiative that has been focused on reducing costs, increasing collaboration, diversifying supply chain sourcing, and improving the quality of goods and services acquired. This has been a very successful effort and the achievements in costs controls are especially impressive. Since its inception the program has achieved ongoing operating cost savings of $29.2 million and capital cost savings of $46.4 million. These efforts have helped to keep the annual increase in water & sewer rates down by over 5%. /Commission%20Transformation%20Update%20December%202016%20Final4.pdf In addition our efforts at Group Insurance plan design changes have resulted in significant savings including: $570,000 in prescription costs for active employees; $900,000 in annual savings for Medicate retiree prescription costs; medical cost savings of $1,230 per enrollees in 2017; and a $370,000 reduction to our Stop Loss Insurance for medical costs. In addition, WSSC is increasing the employee premium share from 23% to 24% for point of service plan participants in In 2016 the General Manager established the WSSC Stat Office to monitor performance, enhance accountability for improved program results, and bring management focus on performance issues. So far this year, the Stat Office has facilitated improvements in the paving program, overtime monitoring, and claims management and processing. Currently the Stat Office is working on billing and customer service issues. All of these efforts are ongoing and we are working to embed this cost conscious approach throughout all of our operating departments and at every level of the organization. However, it should be recognized that several challenges are ahead in both maintenance and infrastructure that will require difficult decisions in the coming year. The freeze on new positions prevented us from several needed improvements including implementing a system wide flushing program to address discolored water complaints; enhancing fire protection by testing 43,000 fire hydrants on a ten year cycle; accelerating large water valve inspections from a 4 year to a 3 year cycle; and expanding the leak detection program to provide proactive repairs. To the limited extent that we can, we will make service improvements Page 2 of 3

63 within existing resources. However, sustainable program enhancements require additional ongoing resources. On the capital side, WSSC's costs, as a utility, are driven by capital and not labor costs. And WSSC has several critical capital projects that are in or will be in the CIP in the next ten years that will have a significant, ongoing rate impact including: )- Potomac Consent Decree ~$165 MM )- Potomac Submerged Channel Intake ~$78 MM )- Piscataway Bio-Energy Project ~$249 MM )- Potomac WFP 69kV Feeder Options ~$38 MM - $217 MM )- Regional Water Supply Redundancy ~$400 MM These are major projects that will affect this region's access to safe clean drinking water and our capacity to responsibly process waste water for generations to come. We will work with both Counties as the project details mature, and collaboratively weigh options, timing, costs, rate impacts, and risks. Page 3 of 3

64 WASHINGTON SUBURBAN SANITARY COMMISSION MEMORANDUM INTERGOVERNMENTAL RELATIONS OFFICE To: Thru: Thru: From: WSSC Commissioners Carla A. Reid, General Manager and Chief Executive Officer Monica Johnson, Deputy Manager for Strategic Partnerships Karyn Riley, Director of Intergovernmental Relations~ Date: January 31, 2017 Re: Position Recommendation on MC/PG Washington Suburban Sanitary Commission and Maryland-National Capital Park and Planning Commission - Office of the Inspector General Recommendation OPPOSE Overview This proposed legislation mandates the creation of an Inspector General at WSSC and MNCPPC to investigate mismanagement, misconduct and fraud. In addition, the legislation gives the Inspector General subpoena powers. Discussion According to the bill's sponsor, this legislation supports open government by providing transparency in WSSC's operations. WSSC strives to be fully transparent, but feels this legislation duplicates existing practices performed by the Internal Auditor, the Office of Internal Audit and the Ethics Office. The broad functions outlined by the bill mirror what is currently in place at WSSC: Inspector General duties: Mismanagement Current Practices Internal Audit has the stated mission to help WSSC achieve its goals in a fiscally and ethically responsible manner, and independently and objectively investigates business practicies. Internal Audit conducts Commission-Wide risk-based audit plans, identifies methods to improve operations, and monitors and reports implementation of efforts publically at WSSC Commission Meetings. Internal Audit conducts audit engagements in accordance with The Institute of Internal Auditor's nationally recognized standards.

65 WASffiNGTON SUBURBAN SANITARY COMMISSION INTERGOVERNMENTAL RELATIONS OFFICE Misconduct Employees and contractors are bound by the WSSC Code of Ethics that is publically available. WSSC has a full-time Ethics Officer (who reports to the lntemal Auditor) and an Independent Board of Ethics, who is modeled after the State Board of Ethics (whose code binds WSSC Commissioners). Fraud, Waste and Abuse WSSC has a fraud, waste and abuse reporting system available to both the public and employees, and accepts submission via a toll-free hotline; via confidential online submission form; and via . Internal Audit conducts Fraud, Waste and Abuse investigations, and provides updates during public Commission meetings. All internal auditors are Certified Fraud Examiners. Staff has held discussions with the bill sponsor who incfjcated that a key concern was the lack of independence of our current Internal Auditor. Currently, the lntemal Auditor reports directly to the Commissioners, who as part of their oversight responsibilities, are charged with monitoring the agency's audit processes and risk management plans. The Commissioners, as a whole, comprise the Audit Committee. The Audit Committee monitors WSSC's audit process, 'financial reporting processes, internal controls, and compliance with WSSC Ethics (Resolution ). The Internal Auditor provides reports to the Audit Committee, the Board of Commissioners, and the public. The Internal Auditor~ n2t report to any member of the management team, including and up to, the General Manager/CEO, and does not have any direct oversight nor report any of the business units within WSSC. In addition, the county councils and county executives, under PUA , can audit WSSC's books upon request. This option was most recently exercised by the Montgomery County's Office of the Inspector General (OIG) in 2014 to evaluate p-card purchases. OIG's findings were submitted to the County Executive and the County Council. The Internal Audit Office's practices are also subject to evaluation by an outside quality assessment team who examines If lntemal audit practices are conforming to national standard; the report found that WSSC's internal audit activity conforms to The Institute of Internal Auditor's International Standards. During discussions with the bill sponsor, staff learned he anticipated that WSSC would draft the reporting structure for an Inspector General to include: how the Inspector General was selected; who the Inspector General reported to; and how the Inspector General's position would be funded. Impact Staff finds It difficult to assess the financial and administrative lmpad of this legislation, as the proposed bill ls 111ent as to the: appointment of an Inspector General; the reporting structure of an Inspector General; and how this role would be funded. The bill sponsor has Indicated that he wlfl model the proposed structure under the Montgomery County of Inspector General

66 WASffiNGTON SUBURBAN SANITARY COMMISSION Prior leaislation INTERGOVERNMENTAL REI.A TIONS OFFICE PG/MC CHB 1132) (2016): WSSC sought subpoena power for the Board of Ethics that mirrored the subpoena powers of the State Board of Ethics and the Montgomery County Board of Ethics. WSSC argued that the Board Ethics were hampered in their hearings, specifically, in cases regarding contractors, since the Board could not compel contractors and/or sub-contractors to attend hearings or produce other evidence In hearings. The bill received an unfavorable report in the Environment and Transportation Committee based on an unfavorable recommendation from the local delegation, and was withdrawn. Other Positions Maryland National Capital Park and Planning Commission: Pending Maryland Taxpayers league: Support Maryland Civic Association: Support UFCW Local 1994: Support

67 {fwssc Where Water Matters Status Update on Customer Service Transformation April 17, 2017 Overview The Customer Service Department is implementing a multi-year Customer Service Strategy that includes a number of people, process, and technology initiatives designed to transform the customer experience. We are strengthening internal operations by establishing more robust functions: customer service, billing and revenue protection, customer engagement, and a center of excellence. Customer Service Department goals include: Improving the Customer Experience Increasing Employee Engagement Enhancing Staffing and Recruiting Streamlining Business Processes Improving Resource Utilization Improving Revenue Recovery Highlights In FY 2016, we recruited for positions below: No. Position Name Grade Status 1 Innovation Officer EX. 1 Hired - 5/9/ Division Manager, Customer Service GS.15 Hired - 12/19/ Section Mgr., Investigations and Research GS.13 Hired - 12/16/ Division Manager, Customer Engagement GS.15 Interviewing Below is a status update on the ten new positions approved for Customer Service in FY No. Position Name Grade Status 1 Division Manager, Billing & Revenue Protection GS.15 Hired - 3/13/ Section Manager, Center of Excellence GS.13 Hired - 10/11/ Section Manager, Billing Operations GS.12 Drafting job description 4 Section Manager, Collections GS.12 Drafting job description 5 Training Specialist/Quality Specialist GS.12 Interviewing 6 Training Specialist/Quality Specialist GS.10 Drafting job description 7 Workforce Management Planner/Scheduler GS.12 Interviewing 8 Collections Specialist GS.12 Drafting job description 9 Customer Assistance Program Specialist GS.12 Drafting job description 10 Customer Assistance Program Specialist GS.12 Drafting job description 1

68 {fwssc Where Water Matters Status Update on Customer Service Transf~rmation April 17, 2017 We are establishing a Center of Excellence that is driving innovation, workforce management, training, and technology initiatives across the department. Center of Excellence Employee engagement. performance-based management and rewards strategies Wor1<Jorce scheduling, fo recasting and resource allocation Quality assurance, training and coaching strategies Innovative business process & customer senice technology 1mplernentat1ons Customer relationship management strategies Some key initiatives are below: Program Management: Our Innovation Officer is leading the design and implementation of the new billing system which is a core component of the customer service technology modernization. Additional customer service technology initiatives are underway. Business Process Mapping: All processes in the meter-to-cash lifecycle are being mapped and documented. This includes customer processes that begin with permits and account creation and end with revenue management. Employee Engagement: Monthly employee activities have been implemented to stimulate morale and engagement. Internal committees have been formed to engage and involve employees in the development of new performance metrics, business process improvements, quality assurance and training, and workforce management. 2

69 ~wssc Where Water Matters Status Update on Customer Service Transformation April 17, 2017 Contact Center Performance Below are Customer Service statistics for FY 2017 pertaining to Contact Center Operations. Chart 1 highlights the percent of calls answered through February. The average monthly answer rate to-date for FY 2017 is 93% (target is 95%). Chart 2 highlights the calls answered within 180 seconds. In February 2017, the Service Level was 91/180. Chart 1 Percent of Calls Answered --.. FY FY 2016 Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr May Jun Chart 2 Percent of Calls Answered Within 180 Seconds --...;;.. FY 2017 FY Target Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr May Jun 3