December 2009, Authored by the TAC Rates Work Group1

DWSD Rates

A New Regional Paradigm

Working Together to Manage Water Rates

This document was published through a collaborative effort of the Detroit Water and Sewerage Department (DWSD),a not-for-proﬁt agency, and the Technical Advisory Committee (TAC) Rates Work Group. December 2009The purpose of this document is to help you understand whyyour water rates have been increasing and what you and yourcommunity can do to slow the increase. The primary cause ofthese rate increases can be found in declining water usageby households and businesses. As everyone in this regionknows, we have been in a recession since 2002. During muchof this period, water rates have increased. Unfortunately, asour economy has fallen into what many call a “One StateDepression,” more rate hikes will be needed to sustain viableand ﬁnancially responsible utilities and local communitywater departments. A new paradigm of collaboration,peak hour demand management, and responsibility (CPR)will be needed to navigate through this storm. We mustcontinue to work together to manage water rates andbreath new life into a region that depends on a reliablewater infrastructure to grow and become stronger.

A TRACK RECORD OF KEEPINGRATE INCREASES IN CHECK

Since 2006, the Consumer Price Index (CPI) in-creased annually at 4.2%. During the same period,DWSD water rates for suburban customers increasedannually by an average of 6%. DWSD’s increases were mainly driven by capital improvements of nearly $500 million in upgrading aged and undersized waterpump stations and piping. Many costly upgrades,(which were in the DWSD master plan for years) wereeither mandated by evolving water treatment require-ments and regulations or were needed to rehabilitatethe aging elements of the system to maintain currentlevels of service.DWSD and your local community have worked hardto keep rate increases at or near the rate of inflation.For example, DWSD’s operations and maintenancecosts are at the same level as they were in 2002. This stability has been achieved despite significantincreases in energy and chemical costs. Major costreductions have been achieved through overtimereduction, staff attrition, hiring freezes, reducing internal vehicles, and many efficiency improvementsin water treatment and production.DWSD has made critical electrical improvementsto the water treatment plants and booster stationsystems, including installation of variable frequency drives (VFD) to reduce energy consumption. VFDsystems increase efficiency by adjusting the speed of the electrical motors by modulating the frequency of the supply voltage to meet pumping demands.In these tough economic times, urban water utilitiesare struggling to balance two opposing forces – affordability and revenue generation. Utilities inolder cities like Chicago, Detroit, and New York need revenue to maintain aging systems, but thelonger the recession continues, the more difficultit is for water customers to shoulder rate in-creases. This is the “affordability” challenge thatconfronts utilities and community water depart-ments. According to a recent study publishedby the American Water Works Association,

even though there are likely to be a number of areas where utilities can cut costs or strategizeto make service more affordable, there will bedifﬁcult decisions regarding stafﬁng, rates,and long-term goals.

If you live in Metropolitan Detroit, mostlikely you are one of the over 4 millionpeople who get your water from a combi-nation of providers including the City of Detroit and your local community. TheCity of Detroit through its Water andSewerage Department (DWSD) pumpstreated water from the Great Lakes toyour community, and then your local water professionals deliver it to yourhome, apartment, business, school,hospital, etc.

The ﬁve DWSD water treatment plants (WTPs) distribute water through3,400 miles of water transmission pipes using 22 pumping stationsand 17 storage reservoirs, all designed to deliver adequate pressureto customers all year: from freezing winter mornings to swelteringsummer days. The local community water systems receive water from DWSD’s transmission mains and then send it to their customers’doorsteps through distribution systems individually operated andmaintained by individual water departments. These distribution sys-tems range in size and complexity, based upon population, industry,and ﬁre suppression demands. As in the DWSD transmission system,these local systems often provide meter pits, pumping stations andstorage reservoirs, in addition to hundreds of miles of pipe required todeliver the water from the DWSD connections to individual users.

DWSD’s Water Treatment and Distribution System

December 2009, Authored by the TAC Rates Work Group3DWSD has upgraded its plant control systems toimprove energy utilization. While DWSD systemshave featured a variety of electronic indicators andalarms for the last several decades, new automated/computerized systems have improved the treatmentprocess and equipment tracking. Tracking equip-ment allows for better, proactive maintenance of thepumps and process equipment—reducing downtimeand energy consumption.DWSD’s infrastructure is more than 50 years oldon average and many aged transmission pipes andpumps have been replaced in the last ten years. New pipes and new pumps reduce electrical costs. Erosionof the inside of water system piping and equipmentis a natural consequence of moving water. Erosionroughens interior surfaces and increases frictionbetween the water and pipe material—friction thathas to be overcome by using more pumping energy.DWSD also added equipment to optimize chemicalusage, including electronic sensors within the treat-ment plants to monitor chemical levels during waterprocessing. In the case of alum, net positive or nega-tive charges detected in the water stream translate asexcess or deﬁcient dosages of alum and the chemicalconcentrations are adjusted automatically throughthe sensors. Levels of chlorine and ﬂuoride are alsomonitored by sensors capable of detecting concentra-tions of one part per million.Local communities have also undertaken many costsaving measures, including: deferring capital projectsand reducing expenditures for new equipment, using as needed contract services in lieu of hiring staff,

DWSD is working to reduce electrical costs. Awater treatment plant is essentially an industrialfacility. Raw material (waters from Lake Huronor the Detroit River) are refined into a desirableproduct (potable water) and shipped to distribu-tors who then sell to paying customers. Like anyother industrial facility, mechanisms and controlsystems are powered by electricity. It is for thisreason that DWSD is currently in electrical ratenegotiations with DTE. Also, DWSD is conduct-ing a pilot program of utilizing onsite electricalgenerators as a pumping station power sourceto further reduce electrical bills.DWSD and its customers are exploring opportunities in greenand renewable energy. Whether a water or sewer provider iscontemplating purchasing energy from a green source or creat-ing renewable energy themselves, rising traditional energy costscoupled with a stronger sense of environmental stewardship, willfuel this concept for years to come. DWSD and local communitiesmust balance their specific energy requirements with the capitalcosts to connect to or create renewable energy sources.Given the economic conditions of our region, the fiscal impacts ofthis issue tend to outweigh the social and environmental benefits.However, continued evaluation of clean energy to meet our water supply needs is warranted and underway.

Clean and Renewable Energy

wage freezes, working with neighboring communitiesfor shared services, and workforce reductions throughattrition, early out incentives, and where ultimately needed, stafﬁng layoffs. Some communities havealso reduced rate increases by offsetting the revenuerequirements with available reserves from their waterfund or even general fund, although these measuresare not usually long term.

According to a recent American Water WorksAssociation study, of the 106 utilities that had rateincreases in the study, 35 exceeded 6% averageincreases per year. DWSD’s rates are lower thanmost American cities, including midwestern citieslike Chicago, Milwaukee, Cleveland, Columbusand Indianapolis.The Milwaukee Commission Council voted to ask the state Public Service Commissioner to ap-prove a 28.5% increase in its water rates. That’sin addition to a routine 3.8% increase going intoeffect September 1, 2009 for the Milwaukeewater utility.