Sewer Meeting 1 - Detroit Water and Sewerage … Rates Meeting Sewer System Meeting #1 – Projected...

Customer Rates Meeting Sewer System

Meeting #1 – Projected FY 2014-15 Units of Service

October 10, 2013

| City of Detroit Water & Sewerage Department

Today’s Agenda

•  First Look at FY 2012-13 Financial Results •  Preliminary Units of Service for FY 2014-15

Sewer Rates

•  Introduction of Rate Simplification Concept and Proposal

•  Takeaways and Critical Issues

1

| City of Detroit Water & Sewerage Department 2

Customer Rate Season Schedule

•  This is the second of a series of meetings   10/10 – Units of Service   11/19 – Capital Improvement Program Presentation   12/17 – Preliminary SYSTEM Revenue Requirement

Levels

  1/23/2014 – Preliminary Individual Rate Proposals   2/26/2014 – BOWC Public Hearing

  7/1/2014 – Effective Date for Rates

•  Parallel meetings of Steering Committee Work Groups


FY 2012-13 Financial Results A First Look

NOTE: Data presented today is UNAUDITED. The Audit is underway and on track to be

completed by the end of December.

3


FY 2012-13 Financial Result Summary Sewage Disposal System - UNAUDITED

•  The initial report for focuses entirely on preliminary reported revenues

• Operating expenses are still under review and are not ready for discussion

4

Handout Pgs 3-6


FY 2014-15 Units of Service Sewage Disposal System

NOTE: Data presented today reflects all

contracts, correspondence, etc. as of 10/04/2013, and the current version of the

DWSD Proposal to implement the Rate Simplification Initiative

5


There are 3 Fundamental Steps in the Sewer Rate Methodology

•  Revenue Requirement Projections  How Much Money is Needed?

•  Cost of Service Analysis  From Whom Should the Money be Collected?

•  Design of Recommended Rates  How Should DWSD Services be Priced?

6


Annual Flow Volumes

•  Use in Rate Model  Project revenue base  Forms initial basis for allocating costs to

customers

•  Actual figures subject to technical review using protocol set forth by GDRSS Billing Workgroup

7


Annual Flow Volume Projections

•  Review Historical Data

•  Project Rate Year Based on Regression Analyses, etc.

•  Transmit Projections to Customer Communities

•  Utilize Input from Customers

8


At the end of the year projected flow volumes are reconciled with BILLED volumes

•  Summary of FY 2012-13:  SYSTEM ~ 13% Below Target  Sub Wholesale ~ 12% Below Target  Detroit Retail ~ 18% Below Target

•  Detroit Retail Volumes under review o  Ensure appropriately reflection of billing

adjustments

9

Handout Pgs 6-7


Annual System Billable Wastewater Volumes – (mgd)

10

300

325

350

375

400

425

450

475

500

1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

Projected Actual

Handout Page 7


Annual Suburban Wholesale Billable Wastewater Volumes (mgd)

11

250

275

300

325

350

375

400

1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

Projected Actual

Handout Page 7


Annual Suburban Wholesale Water and Wastewater Billed Volumes – (mgd)

12

250

275

300

325

350

375

400

425

450

1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013

Water Wastewater

Handout


Annual Detroit Retail Billed Volumes (mgd) Billed volumes for retail wastewater service reflect billed water volumes

13

0

25

50

75

100

125

150

1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

Projected Actual

Handout Page 7


Sewer Rate Simplification Initiative

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Utility Rate “Equalizer”

5/10/13

Utility Capital Financing Strategies “Light” “Heavy”

Utility Revenue Requirement Levels

Utility Cost of Service Allocation Approaches

Utility Rate Design Methodologies


Predictability

Rate Methodology: Cost of Service Continuum

Equitableness Reasonable Precise

Complexity Simple Complex

•  DWSD Rate Fundamental Principle: “Use best available, verifiable information to establish water and sewer rates”

High Low


Current Approach

•  Since late 1970s, most costs have been allocated to customers based on proportionate shares of contributed wastewater volumes

•  Evolution throughout the years to refine relative shares o  Sanitary o  Dry Weather Infiltration o  Wet Weather Inflow (storm water) o  Strength of Flow considerations

•  Coupled with more refined technical evaluation o  GDRSS, Flow Balance, etc.

5/10/13


Sewer LBA Committee Observations re: Current Approach

•  Resource intensive in pursuit of implied “precision” regarding wastewater flows

•  Precision is unattainable o  Current metering / flow estimation

approaches produce estimates that are 10% over/under actual flows

•  Relative shares of major customers do not vary significantly over the years

• Oakland/Wayne/Macomb County Districts account for 94% of Suburban Wholesale class

5/10/13


Sewer LBA Committee Simplification Recommendations

1. Simplified Calculation of SHARES 2. Simplified Flow Balancing

3. Simplified Estimates of Cost Pools


1. Simplified Calculation of SHARES

•  Basic Premise - Since relative SHARES of major customers do not vary significantly year to year: o  Determine customer average base SHARES o  Lock in for Rate Periods;  Initial Rate Period suggested to be 3 years

o  Recover all costs through fixed monthly charges

o  Commit to ongoing review of technical data to determine future SHARES


1. Simplified Calculation of SHARES Sample PRELIMINARY SHARE data points under review

0%

10%

20%

30%

40%

50%

60%

70%

2008 2009 2010 2011 2012 2013 2014 2015 6-Yr Avg

3-Yr Avg

M Class Total Rates LBOrig LBAdj Act ActMod

0%

10%

20%

30%

40%

50%

60%

70%

2008 2009 2010 2011 2012 2013 2014 2015 6-Yr Avg

3-Yr Avg

D+ Class Rates LBOrig LBAdj Act ActMod

Handout Pgs 8-9


2. Simplified Flow Balance

• Multi-Year Effort to Calculate Flow Balance •  Search for the “Holy Grail” of precise

understanding of flows •  Customer discontent with results o  Precision unattainable

•  Collaborative Task Force to resolve mystery •  Decided to eliminate existing flow balance for

cost allocation analysis o  A truly historic achievement


Overly Simplified View of Existing Flow Balance Approach For Rates

W = WWTP - X = Bill Mtrs = Y = Unmetrd

W’ = WWTP

- X’ = Bill Mtrs

= Y’ = Unmtrd

W = WWTP - X = Bill Mtrs = Y = Unmetrd

All Days

- Dry Days

= Incremental Wet

- Sanitary = DWII

- Sanitary = DWII

Specific

“Local”

CTA

D+ = Detroit M = Sub Mtrd

Apply uniform overflow credit

S = System M <> X because of overflow credit and allocated “specific” DWII


Suggested Simplified “Flow Balance” Approach For Rates

W = WWTP

D+ = Detroit

M = Sub Mtrd (metered

wastewater)

S = System

Z = Common

Then assign to sanitary & non-sanitary


Simplified Calculation of SHARES – “Z” Approach Sample Average Data Points

OMID

Rouge Valley

Oakland GWK

Everg Farm

NE Wayne Co

Other M

D+

!"#$$%&'()"*%'+"#$$%&'()"


3. Simplified Estimates of Cost Pools Cost Pool Illustration

All Other Costs are “Common”

Wholesale Only

OMID Only

(NEPS)

Detroit Retail Only

CSO Facilities

Industrial Waste Control


3. Simplified Estimates of Cost Pools (Approximate Allocation of Total Revenue Req’t)

Detroit Only

CSO Facilities

OMID Only

Wholesale Only

IWC

Common


Common Cost Pool Split into Two Elements

Volume Pollutants

Common Costs


Sewer Rate Simplification Proposal “The End Game”

•  Implementing the 3 recommendations will dramatically simplify the “Rate Model” o  5 simple tables

•  Inputs o  Overall revenue requirements o  Cost Pool allocation factors o  Customer SHARES

• Outputs o  Customer allocated revenue requirement o  Fixed Monthly Charges

Handout Pgs 10-11


Rate Simplification Specifics in the Process of Being Finalized

•  Data set from which to establish initial SHARES o  Current proposal is to maintain SHARES at

existing (FY 2013-14) Rate Levels  Supports goal of no volatility associated with Rate

Simplification  Recognizes new technical understanding of flows

that calls into question historical SHARES  Reflects differing flow balance protocols  Acknowledges unknown factors such as strength

of flow and “Z” o  Feedback from Customers has introduced

other approaches that are being reviewed


Rate Simplification Specifics in the Process of Being Finalized (continued)

•  Appropriate level of System (“Z”) flow

•  Specific approach for assigning costs to COST POOLS in a simplified manner

• Modifications to Rate Settlement Agreements

• Ongoing communication to customers


Benefits of Recommended Simplification Approach

• Makes rates easier to understand / explain • Makes rates more stable and predictable, both

year to year and during the year • Makes it easier for customer communities to

develop their own financial plans •  Aligns rates with actual cost allocation (fixed

costs) •  Eliminates volatility due to weather conditions o  ~ 90% of DWSD costs do not vary with flow

– why should revenues?

5/10/13


Benefits of Recommended Simplification Approach (continued)

•  Preserves relative historical allocation o  Most customers consider recent averages to be

fair and reasonable •  Further aligns rate making with reality o  Efforts to get precise estimates of I&I and other

elements are (and will continue to be) fruitless •  Eliminates waste – unnecessary oversight and

analytical work •  Reduces costs for legal / consulting / engineering

support o  Allows resources to focus on higher value

added initiatives

5/10/13


“Strength of Flow”

•  Reflects premise that sanitary flow carries more pollutants than does DWII and wet weather flow •  Initiated for FY 2011-12 Sewer Rates o  “Extraneous” flow strength = 45% of Sanitary •  Studied during planning for FY 2012-13 rates o  Reviewed by Wet Weather Work Group o  Reviewed by Rates Work Group o  Several alternatives developed, resulting in: o  “Extraneous” flow strength = 33% of Sanitary •  Same approach applied for FY 2013-14 Sewer Rates •  DWSD intends to use this same approach for FY 2014-15 Sewer Rates, pending development of final SHARES

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Takeaways

•  DWSD has provided preliminary data indicating customers’ projected use of the System for FY 2014-15

•  This data, which is under review and may change, will be utilized to allocate costs to customers

•  DWSD is committed to implementing the Rate Simplification Initiative with the FY 2014-15 Rates

•  DWSD is preparing a financial plan that will continue to incorporate aspects of the Organizational Optimization Study

•  DWSD is committed to proposing FY 2014-15 System Revenue Requirements that reflect continued implementation of the published financial plan

•  Additional material will be presented at the CIP Rate Rollout meeting on November 19

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Critical issues for ongoing review and potential customer feedback and involvement •  Final approach for determining initial SHARES •  Reported flows at WWTP under review, and potentially

could be modified o  This would impact flow balances used to assign units of

service to customers o  Also would impact calculated strength of flow for the

various pollutants and flow types o  DWSD committed to involve customers in review

process through Sewer Rates Work Group •  Retail Detroit volumes under review to make sure that

billing adjustments are appropriately reflected

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