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DWSD It’s complicated, please keep paying !

September 22, 2013

IF you ever thought everything was measured; you are a fool.

“”””much of the flow in the system does not pass through
billing meters, a complicated methodology to allocate
“unmetered” flow has been developed and is currently employed”””

http://www.dwsd.org/downloads_n/about_dwsd/bowc/presentations/overview_of_rate_simplification_recommendations_2013-08-12.pdf

…and that news is combined with an $8 Million dollar contract
for radio network upgrades involved with data acquisition
used to determine billing for 126 Metro-Detroit communities ?????

https://redrundrain.wordpress.com/2013/06/06/detroit-radio-team-and-sewage/

Over half of the flow reaching the Wastewater Treatment Plant
is not measured through customer wastewater billing meters and,
therefore, is not directly attributable to any specific
customer based on wastewater meter data.
The flows originating within Detroit come from unmetered retail customers.
The local sewer systems in Highland Park, Hamtramck and parts of
Dearborn are interconnected with Detroit’s system,
preventing customer-specific metering of those flows.
Finally there is infiltration and in-flow (1/1) in the shared trunk
and interceptor sewers that is unmetered in terms of contributions
from specific customers.

Un-Metered volumes gets a category

Un-Metered volumes gets a category

TO: Board of Water Commissioners
FROM: Rate Simplification Work Group
DATE: August 12, 2013
SUBJECT: Rate Simplification — Overview of Recommendations

This memo contains an abbreviated description of the
Group’s recommendations to simplify rate setting.
For a discussion of the principal details, see the attached memorandum
“Rate Simplification — Summary of Recommendation

1. The Why and What of Rate Simplification
The Rate Simplification Work Group was charged with recommending
a simplified approach to estimate each customer’s relative share
of the sewer system’s revenue requirements while maintaining
the present level of fairness and accuracy of the share estimates,
improving transparency and revenue predictability
requiring less time and effort.
Accordingly, the Working Group recommended three proposals to simplify
the rate-setting process. The proposals should be implemented
in the 2014-2015 rates.
Before the end of the FY 2016-17 rate year the steering Committee
will evaluate the implementation of the proposals and recommendations
as may be deemed necessary.

DWSD will continue to monitor the flow and cost data used
in allocating revenue requirements to
“insure that the data and the processes/equipment used to generate
the data are valid and to correct material errors when detected.
These efforts are necessary.

2. Simplified Allocation Common To All Costs
For more than a decade,each Tier 1 customer’s share of the common-to-all
revenue requirement has been remarkably stable, notwithstanding that there
have been significant changes in demographics and economic conditions.
Furthermore there appears to be a consensus among customers that the
overall allocation of the revenue requirement has been fair.

It is proposed that the allocation of common-to-all revenue requirements

– Each Tier 1 customer’s “Share” expressed as a percentage of the DWSD
common-to-all revenue requirements for an agreed-upon future multi-year
“Rate Period” will be based on its average share of system revenue requirements
for an agreed-upon pm period.
The first Rate Period will be three years beginning FY 2014-15.
The Work Group is still evaluating the period to be used to establish
shares for the first Rate Period.

– Differences between the projected revenue requirement for a rate year
and the actual revenue requirement for that year may be made up by adjusting
revenue requirements in a subsequent rate year as decided by the Board.
However, differences between the amounts of bad debt estimated in the budget
and actual bad debt be incorporated into the revenue requirement for a
subsequent rate year to insure that revenue shortfalls due to nonpayment
of sewer charges are recovered.

– The rate protocols used to calculate Shares will not be changed
during a Rate Period.

– Each customer’s share of the system revenue requirement will
be billed in monthly installments.

– Shares may be adjusted during a Rate Period if a customer can
demonstrate a material change in shares has occurred.

– The current “Look Back” process will not be continued after FY 2013-14.

3. Simplified Flow Balancing

Over half of the flow reaching the Wastewater Treatment Plant is not measured
through customer wastewater billing meters and, therefore, is not directly
attributable to any specific customer based on wastewater meter data.
DWSD and its customers developed procedures to estimate these flows and to
remove from the rate allocation process some flows that do not reach
the wastewater treatment plant.

The Working Group recommends a simplified approach be adopted to allocate flows
between customers with billing meters and the unmetered customers Detroit
plus Highland Park and Hamtramck. The simplified flow balance process is designed
to accomplish the same flow allocation as the more complex procedures presently used.
The 6 smallest unmetered customers
(Dearborn—East, Dearborn-Northeast, Harper Woods,
Redford Township, Wayne County #3, and Wayne County #6)
will be handled on a separate basis (to be determined),
because collectively they represent
less than 0.5% total system wastewater flow.

4. Simplified Estimates of Cost Pools
DWSD’s costs are accumulated into several cost pools reflecting costs for
certain types of wastewater services because use of these services varies
by customer class (Detroit retail specific, suburban wholesale specific,
industrial specific, (ISO-related, sanitary and stormwater).
The Working Group recommends that for the first Rate Period, operating costs
in the cost pools will be approximated as their historical average of total
non-capital revenue requirements.
Capital costs will continue to be allocated based on DWSD’s fixed asset database.
At the end of the first Rate Period, the quality of DWSD cost accounting will
be evaluated with the objective of revisiting the best method to allocate costs
to the cost pools for rate setting purposes.
Capital revenue requirements will continue to be assigned to cost pools based
on DWSD’s fixed asset records.

Summary of the Recommended Approach for Rate Simplification

Each customer’s charge for sewer services is a function of two components:
i.) the sewer system’s total revenue requirement
ii.) each customer’s relative share based on its
relative volume and flow characteristics.
Because much of the flow in the system does not pass through
billing meters, a complicated methodology to allocate “unmetered” flow
has been developed and is currently employed. Further, because the
costs to treat wastewater flow depend on flow characteristics,
other protocols are used to develop costs pools
of various types of transport and treatment costs.

(a) Historical Stability of Customers’ Relative Shares of Revenue Requirements
The key to the rate simplification recommendations made below is that for
more than a decade, each Tier 1 ‘or’ wholesale customer’s share of the
total sewer revenue requirement has been remarkably stable,
notwithstanding that there have been significant changes in
demographics and economic conditions.
Allocation volume is the principal measure on which “common-to-all” costs
(those costs all customers share) are allocated.
This measure is coupled with the characteristics of sanitary and nonsanitary flow
and the pollutant strength of each to determine each customer’s final share.

There is a consensus among customers that the overall allocation of the
revenue requirement has been fair. Furthermore, when a customer has identified
data that is in error, questioned the proper attribution or accounting for costs,
or challenged an aspect for the rate protocols, DWSD and the customers have worked
successfully to reach a consensus on a resolution.

The take-away has been that the allocation of revenue requirements
could be greatly simplified by allocating revenue requirement based
on “historical” shares so long as there are processes to:

– Adjust historical shares to reflect any material changes in use of
the wastewater system over time, and address any errors in flow data,
correct any inaccuracies in aggregation or allocation of costs to customer classes,
or review any rate protocol that appears to stray from the underlying principle
that customers should bear a proportional share of system costs based on their use.

The Work Group believes that the recommendations below are an appropriate way to
allocate costs consistent with historical practices while incorporating the protections mentioned.

(b) Simplified Calculation of Shares
– At present, the calculation of each customer’s revenue requirement is performed
before each rate year begins, using detailed budget and flow projections.
After the close of the rate year, a Look Back is performed in which the detailed
calculations are repeated to true up customers’ charges based on audited financials
and actual flow.
– The calculations rely on complex technical analyses, approximations and assumptions
to produce “best estimates” of volume and flow characteristics
for each customer. Analyses of these rate protocols have demonstrated that
although they demand substantial time and effort in their calculation,
they result in only approximate estimates of each customer’s
use of or demand on the DWSD’s system.

Further, when considered as a proportionate share of the
total system revenue requirement, each customer’s
estimated relative share of the common-to-all revenue requirement
has been fairly constant over the past 10 years,
notwithstanding demographic changes and changes in the rate protocols.

To simplify the calculation of Shares, the Working Group recommends:
– Each wholesale customer’s percentage “Share” of the DWSD sewer system’s
common-to-all revenue requirement for an agreed-upon future multi-year
“Rate Period” will be based on its average share of system revenue requirements
for an agreed-upon prior period.
-The first Rate Period will be three years beginning FY 2014-15.
-Shares for the first Rate Period will be based on the relative shares in the period
for which the data has been the most thoroughly vetted.
-As of the preparation of this summary, that period is still under consideration
by the Work Group.

The Shares will also reflect adjustments in flows derived
from the Simplified Flow Balancing protocol outlined below.

Although the length of the second Rate Period will be determined
later during evaluation of the first Rate Period, the initial
expectation of most work group members is to establish subsequent
Rate Periods of five-years duration.

Each year during a Rate Period, DWSD will establish annual budgets
and annual revenue requirements for all customers.
Thus, although a customer’s Share will remain the same during a
Rate Period, its annual revenue requirement during the Rate Period
will go up or down as DWSD’s annual budget goes up or down.

Differences between the projected revenue requirement for a rate year
and the actual revenue requirement for that year may be made up by
adjusting revenue requirements in a subsequent rate year.
The Rate Simplification Work Group regards this as an annual Board policy
decision based on the Board’s current financial plan.

– However, differences between the amounts of bad debt estimated in the
budget and actual bad debt will be incorporated into the revenue
requirement for a subsequent rate year
to insure that revenue shortfalls due
to nonpayment of sewer charges are recovered.
The rate protocols used to calculate Shares will not be changed
during a Rate Period. Changes in Shares will be adjusted prospectively only
to the extent that the Steering Committee approves interim adjustments.

– If, during a Rate Period, a customer demonstrates to the satisfaction
of the Steering Committee that its flows will or have changed materially
during that Rate Period, the Steering Committee will recommend to the
Board adjustments to all customers’ Shares during that Rate Period.

– In a similar fashion, if there is a reason to change the
allocation of CSO/wet weather costs, DWSD and its customers
will engage in a process to reallocate.

– During the Rate Period, meters will continue to be maintained,
meter data will continue to be collected, and the data will be
monitored at least annually for any apparent permanent trends
in relative shares.

– Before the beginning of a Rate Period, customer Shares will be
updated as necessary to take into consideration any changes in
relative shares among customers during the immediately preceding Rate Period.

– Each customer’s share of the system revenue requirement will
be billed in monthly installments.

– The default approach will be 12 equal installments,
but winter and summer seasonal factors are under consideration.

The current “Look Back” process will not be continued after FY 2013-14.

DID YOU CATCH THAT ! — It all goes away forever after 2014 —-

(c) Simplified Flow Balancing

Over half of the flow reaching the Wastewater Treatment Plant
is not measured through customer wastewater billing meters and,
therefore, is not directly attributable to any specific
customer based on wastewater meter data.
The flows originating within Detroit come from unmetered retail customers.
The local sewer systems in Highland Park, Hamtramck and parts of
Dearborn are interconnected with Detroit’s system,
preventing customer-specific metering of those flows.
Finally there is infiltration and in-flow (1/1) in the shared trunk
and interceptor sewers that is unmetered in terms of contributions
from specific customers.

DWSD and its customers developed procedures to estimate these
flows and to remove from the rate allocation process some flows
that do not reach the wastewater treatment plant.
The practical net effect of this allocation process is to
attribute some unmetered flow to Detroit,
Highland Park and Hamtramck and several small wholesale
customers (collectively “Detroit + Flow”), and to attribute
the balance of the unmetered flow (“Common Flow”), to all customers
pro rata.

To simplify the allocation of unmetered flows, the Working Group recommends:

– Common Flow as an average percentage of total flow will be
estimated based on a review of historical data.

– Common Flow will be excluded when computing Shares.

– Shares will be computed as fractions of the sum of
billing meter flows plus Detroit+ Flow.

– Detroit+ Flow will be allocated among Detroit, Hamtramck and Highland Park
based on estimated retail water sales or some other basis as
determined by DWSD.

– The 6 smallest unmetered customers (Dearborn-East, Dearborn-Northeast,
Harper Woods, Redford Township, Wayne County #3, and Wayne County #6)
will be handled on a separate basis (to be determined), because collectively
they represent less than 0.5% total system wastewater flow.

(d) Simplified Estimates of Cost Pools

DWSD’s costs are accumulated into several cost pools reflecting costs
for certain types of wastewater services because use of these services
varies by customer class (Detroit retail specific, suburban wholesale specific,
industrial specific, CSO-related, sanitary and stormwater).
– It has been challenging to accurately accumulate many of DWSD’s
non-capital costs into distinct cost pools.
As DWSD implements new finance and accounting systems,
accurate cost accumulation should improve.

To simplify the development of cost pools, the Working Group recommends:
– For the first Rate Period, cost pools will be approximated as their
historical average of total non-capital revenue requirements
.
At the end of the first Rate Period, the quality of DWSD cost accounting
will be evaluated with the objective of revisiting the best method to
allocate costs to the cost pools for rate setting purposes.
– Capital revenue requirements will continue to be assigned to cost pools
based on DWSD’s fixed asset records.

3. Activities to Insure the Accuracy of Cost and Flow Data

(a) Flows

Presently the Flow Monitoring Task Force is charged with overseeing
the accuracy of meters and data validation.
This activity will continue as before.
A stronger emphasis should be placed on determination whether any
customer’s underlying flow characteristics have changed
(as distinguished from normal variations due to climatological conditions).

The rate simplification approach will reduce the level of effort on activities
related to cost allocation (e. g. flow balance) and may permit a reduction
in the amount or frequency of data validation activities.
Data verification will be performed annually.

While a detailed cost allocation procedure Will Not be performed annually,
DWSD and the wholesale customers will develop flow-based measure(s)
to compare how annual shares track against the historical average
being used for the Rate Period.

If a significant trend is found, communication to all customers for
future rate planning will be required.

(b) Costs
The tracking of costs by cost center and customer class
is an activity that has been challenging.
DWSD has several initiatives underway to improve cost tracking
and allocation for a variety of management purposes,
not only rate setting.
DWSD is committed to continue these efforts as part of its overall program
to improvement financial planning and accounting.
The proposal to simplify the allocation of cost pools should help
streamline this effort.
There are a number of open issues related to the accounting
for or classification of certain costs
(e. g., meter costs, customer outreach costs, customer connect interceptors).


SouthEast Michigan Sewage Districts

SouthEast Michigan Sewage Districts



Retention Basin Facilities in Metro Detroit

Retention Basin Facilities in Metro Detroit



DWSD 2013_2014 Revenue Requirements

DWSD 2013_2014 Revenue Requirements

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