Clean, fresh water is plentiful in southeast Michigan.Like many things in good supply, we sometimes takeour water for granted. Rarely is a second thought givento what happens after water goes down the drain. Thevalue of treating our used water or wastewater issignificant – the benefits are far reaching.

Sewer systems protect public health – they are acornerstone of developed nations. Sewer systemsprevent the spread of bacteria and viruses that causedysentery, cholera, polio and hepatitis. Sewer systemsprotect our drinking water sources by preventingcontamination. They contribute to overall cleaner waterand limit our exposure to harmful organisms whileswimming. They protect our environment, enableeconomic sustainability and are necessary to meetfederal regulations.

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This documentwas created by theRates Work Group ofthe Detroit Water andSewerage Department (DWSD)Wastewater First Tier CustomerPartnering Effort to help wholesale cus-tomers gain a better understanding of the sewer ratesetting process. Learning more about the sewer rateprocess will enable wholesale customers to providespecific input to the process and to feel confident thattheir rates are allocated in a fair and equitable manner.It also empowers local officials with the informationneeded to aid in decision-making and to answerresidents’ questions. The Rates Work Group is com-posed of DWSD and First Tier Wastewater Custom-ers with the goal of assisting first tier customers inunderstanding background information used in ratedevelopment.

Owned by DWSD:Detroit WWTPInterceptors feeding into WWTPOther major interceptors throughout thesystemLocal sewers in City of DetroitSystem pump stationsCombined Sewer Overflow (CSO) treatmentfacilities

Owned by Counties:Interceptors feeding into Detroit interceptorsCSO treatment facilitiesRegional pump stations

Owned by local communities:Local sewer systems feeding into Countyand/or Detroit interceptorsLocal pump stationsCSO treatment facilities

Owned by residents, businesses andmanufacturers:Lead sewer pipe running from home, businessor manufacturing facility to local sewer instreet.

The Detroit Water and Sewerage Department(DWSD) owns and operates one of the largestwastewater systems in the world. The system servesapproximately three million residents in 77 communi-ties in southeast Michigan. The system dates back to 1836 when the first sewerwas constructed to drain directly into the DetroitRiver. By 1910, over 600 miles of sewer had beenconstructed to serve the City of Detroit. In 1916, theCity of Highland Park became the first communityto contract with Detroit for wastewater disposalservices. By 1940, sewage was being treated before itwas discharged into the Detroit River. The sewer system eventually grew to include anetwork of sewers, diversion and control devices,pumping stations and the Wastewater Treatment Plant(WWTP). Numerous improvements have beenundertaken to ramp the plant up to its current levelof treatment and capacity. Today, there are over3,000 miles of sewer pipes in the system.

History of the Detroit Sewer System

Detroit owns the network of large sewer pipes(interceptors) that transports sewage from thesuburbs to the Detroit WWTP. Wayne, Oakland andMacomb Counties and the suburban communitiesown and maintain the sewers that connect intoDetroit’s main interceptors. (Detroit owns the maininterceptors in Macomb County where Detroitconstructed them at the request of Macomb County.Macomb County paid for their construction and paysfor their operation and maintenance.) The countiesand communities contract with the City of Detroit todischarge their sewage into Detroit interceptors forconveyance to the WWTP. Further outlying suburbancommunities contract with the counties or otheragencies for capacity in their interceptors.

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Ownership of allpipes in DWSD

service area

Ownership of Large Sewer Pipes in Detroit System

What happens when you flusha toilet?Sewage takes many different journeys throughout theDetroit sewer system depending on where it comesfrom. For example, sewage travels across fourjurisdictional boundaries to go from a toilet insoutheast Livonia to the final point of treatment onthe Detroit River. First the sewage flows throughprivate property, down the home’s main drain pipeto a sanitary sewer lead pipe in the yard that connectsto a local sewer under the street owned by the Cityof Livonia. The sewage makes its way to a largesewer on Inkster Road where it travels to HinesDrive and enters an interceptor (larger regionalsewer) owned by Wayne County in the North HuronValley/Rouge Valley System. It continues southeast-erly to the Southfield Freeway where it enters a maininterceptor owned by the DWSD called the North-west Interceptor. The sewage then travels down tothe Oakwood Interceptor where it takes an expressroute to the Detroit WWTP.

Once at the plant, the sewage is lifted into the plantby a pump station to begin the treatment process.After going through a five-step process, the treatedwastewater (effluent) is discharged into the DetroitRiver. The treated effluent must meet stringent waterquality requirements outlined in a permit issued by theMichigan Department of Environmental Quality.

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Sewage flowsthrough a networkof pipes to get tothe DetroitWastewaterTreatment Pant.Detroit owns andoperates the coresystem of sewers,pump stations andthe treatmentplant. Counties andlocal communitiesown and operatethe pipesconnecting into thecore system.

Sewage Flow to Wastewater Treatment Plant

Rate setting is a forward-looking process based onassumptions of how much sewage will be trans-ported and treated in the coming year. In simpleterms, it’s like determining how much money tocharge for a group trip with optional activities. Forthe trip, you might estimate the costs for differentactivities and divide it by the number of peopleyou think will attend to come up with unit costs.Each individual’s final cost would be proportionalto the activities they plan to undertake. If fewer ormore people attend than you planned, the unitprice for some items, like the bus that is a lumpfee, could change. Based on the final number thatattend, you may have to refund extra money or goback and collect more if some of the costsincreased because the minimum number of peopleyou planned for aren’t attending.

Like the group trip example, DWSD uses its bestjudgment to determine what costs will be forwastewater transport and treatment services for thecoming year and establishes a rate to cover thosecosts. DWSD can only recover the cost of service.An adjustment (called a look-back analysis) is thenmade at the end of each year to compensateDWSD or the wholesale customer for the differ-ence between the projection and actual system useand expenditures. This adjustment may be the resultof customers sending more or less flow thananticipated. (The total volume of sewer flows isdependent upon the weather. Drier weather canhave a lower total volume because Detroit has acombined system and the amount of inflow/infiltration of rain and groundwater is dependenton the weather.)

Rate Methodology Steps

Estimate costs to operate systemfor the coming year

In the first step, costs are estimated for two majorcategories: Operations and Maintenance (O&M) andCapital Improvement Program (CIP). These costs arelater assigned to customer categories as shown by thecorresponding colors below and on the next page. CIPfinancing costs are also referred to as revenue require-ments since they are costs DWSD must recoverthrough customer revenues.

O&M and CIP projects are critical to system perfor-mance. Each year DWSD reviews and adjusts its five-year CIP that identifies new and rehabilitation projectsthat should be undertaken to keep the system operatingcost-effectively and to meet state and federal regula-tions. The cost to design and construct CIP projects isfinanced through the sale of revenue bonds andrevenues collected from customers. The CIP has built-in controls to retain a favorable Wall Street rating andto secure lower interest rates that benefit all customers.

Assign costs to specific customersbased on use

In step 2, O&M/CIP costs are assigned to customercategories based on use as shown in the diagram onthe next page. Usage is defined in terms of annualflow volume in most categories. Sewage flow is usuallymeasured in cubic feet per second (cfs); sewage volumeis measured in thousand cubic feet (Mcf).

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Rates are developed bycustomer category to fairlyallocate costs based on eachcustomer’s projected use oftransport and treatmentfacilities.

Wastewater Rate Setting Process

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Capital Improvement Program (CIP)New and rehabilitation projects to keepsystem operating cost effectively and tomeet regulations

Interest rates on revenue bonds sold tofund these projects

Operation and Maintenance (O&M)WWTPPump StationsSystem-wide InterceptorsCSO FacilitiesLocal Detroit SewersSuburban InterceptorsIndustrial Pretreatment Program

An analysis is conducted for each individual First TierCustomer to calculate their estimated flows based onthe previous years’ usage and anticipated changes. Theestimated flows are broken down into three differentmeasurement categories that are used to develop unitor fixed costs for the final rate:• Estimated sanitary flow - This is the amount of

wastewater projected to be delivered based onpast wastewater meter readings and any anticipatedchanges. Approximately 95% of First Tier Cus-tomers’ wastewater flows are metered. Wheresewage meters are not available or not feasible toinstall, water meter data is used. Sewage flows areassumed to be 90% of water flows for thosecustomers.

• Estimated dry weather inflow & infiltration - Thisis the estimated amount of water in the groundthat is absorbed into the sewer pipes through jointsor connections. These flows are estimated basedon an analysis of the sewerage flows recordedeither by billing meters or by system meterslocated within the city of Detroit.

• Estimated wet weather flow - This is the estimatedamount of storm water that gets into separate andcombined sewers during storms and snow melt.These flows are determined from baseline datausing Detroit’s model called the Greater DetroitRegional Sewer System (GDRSS) model.

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Flows are estimated for First Tier Customers, City ofDetroit retail and industrial customer groups. Asystem-wide unit cost is then calculated for WWTP,interceptors and pump station O&M/CIP projectsbased on the projected flows and costs. The system-wide unit cost is applied to each customer’s flow toexpress their share of the costs on a proportionalbasis. New CSO treatment facilities’ unit costs aresplit according to the 1999 settlement agreement to83% Detroit and 17% First Tier Wastewater Cus-tomer. As illustrated in the diagram, costs specific toeach group are allocated within that group. Thecustomer specific allocations are split within thatcategory.

Develop structure to calculaterates for each customer

In the final step, a rate structure is developed torecover the projected service costs. The structureincludes three components that are unique to eachFirst Tier Customer District and Detroit:• Commodity charge to recover transportation and

treatment cost of sanitary flows and dry weatherinfiltration based on estimates from the GDRSSModel. This is a unit cost per Mcf that is calculatedby dividing cost of service by the anticipated billedvolume.

• Fixed monthly charge to recover costs of wetweather flow and each customer’s share of theDWSD CSO control program.

• Look-back credit or charge that corrects thedifference between the previous year’s revenuecollected and actual cost of service (actually a two-year difference).

Look-back analyses have been conducted annuallysince 1980. Rates for the previous year are recalcu-lated using actual expenditures and flow data, and anadjustment is credited or added to the coming year’srate. Bad debt expenses are also included in the look-back. All City of Detroit retail customer bad debt isallocated to City of Detroit retail customers. All FirstTier Wastewater Customer bad debt is allocated toFirst Tier Wastewater Customers. Other Michiganutilities that conduct look-back analyses include BayCity and Kalamazoo.

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Customer Cost Assignments

Rate Setting ScheduleSeptember Preliminary review of previous year’s actual expenditures and sewage billed.

DWSD conducts flow analysis to determine flow projections for Detroit and First TierCustomers. Estimated flow projections are sent to each First Tier Wastewater Customer toreview. Modifications to units of service are finalized.

October DWSD determines preliminary cost to operate system (revenue requirements) and con-ducts preliminary look-back analysis.

Nov-Dec Cost of service allocations and preliminary rates are calculated based on 1999 RateSettlement Agreement. DWSD Director approves preliminary rates. DWSD notifies BOWCof rate proposals and mails preliminary rate notifications to customers.

December BOWC Rates Workshop held. Rates Work Group meeting held with First Tier WastewaterCustomers to review methodology and answer any questions.

January Board of Water Commissioners public hearing and approval.Feb City Council public hearing. Rates approved by City Council.July New rates effective on all bills issued on or after August 1.

How are customers involved inthe rate setting process?The rate setting schedule goes from August toFebruary with the new rates approved by theBoard of Water Commissioners (BOWC) and theDetroit City Council and then going into effect inJuly. Wholesale customers are involved in theprocess through mailings and work groupmeetings. Each fall, DWSD sends First TierCustomers their flow projections for review foraccuracy and to incorporate any anticipatedchanges in the coming year. These flow projec-tions are based on each customer’s historical trend.If a customer feels their data will change signifi-cantly in the coming year, the customer’s revisedprojection is used.

Workshops are held with wholesale customersand the BOWC to review rate information andanswer questions. A BOWC public hearing is heldin January and the City Council public hearing isheld in February. First Tier Customers may obtaininput from Second Tier Customers through theirown processes.

The counties develop their own rate structure forthe communities they serve based on their costs toprovide sewer service including the charges theypay to Detroit.

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Allen ParkCenter LineDearborn

Dearborn EastDearborn WestDearborn NE

FarmingtonGrosse PointeGrosse Pointe FarmsGrosse Pointe ParkHamtramckHarper WoodsHighland ParkMacomb CountyMelvindaleOakland County

Clinton-OaklandSE Oakland CountyEvergreen-Farmington

Redford TownshipWayne County

NE Wayne CountyNorth Huron ValleyRouge ValleyWayne County #3Wayne County #6

First Tier Customer Billing Districts

Groups involved in DetroitWastewater SystemBoard of Water Commissioners - A seven-memberboard that is appointed by and serves the Mayor ofDetroit. The Board includes four members from theCity of Detroit and one each from Oakland, Wayneand Macomb County (based on county recommen-dation). The Board is the governing body of theutility.

City of Detroit Administration - The Detroit CityCouncil, a nine-member board of elected officials,approves the rates established for water and sewereach year and all contracts. The Mayor oversees theDetroit Water and Sewerage Department andappoints the Director to manage the Department.

Detroit Water and Sewerage Department - Autility that is a City of Detroit Department employingover 2,800 persons. The DWSD provides sewerageservice to 77 communities and drinking water to 126communities.

First Tier Wastewater Customers - Wastewatercustomers that have contracts for sewage transportcapacity and treatment with the City of Detroit.There are 18 First Tier Customer Billing Districtsincluding Wayne, Oakland and Macomb Countieswho provide service to second tier customers.

First Tier Wastewater Partnering Effort - Aneffort that started with an agreement in 1997 betweenDWSD and its First Tier Wastewater Customers towork together to fairly allocate costs for Detroit’sLong Term CSO Control Plan. After successfullydeveloping an allocation methodology and addressingother issues, a new agreement was entered into in2001 to keep ongoing communications. The currentpartnering effort includes a Steering Committee andeight work groups.

Second Tier Wastewater Customers - Customerswithin the DWSD system who contract for wastewa-ter disposal through Wayne, Oakland and MacombCounties. There are 59 second tier customers in theDetroit wastewater system.

USEPA - The United States Environmental Protec-tion Agency is the federal agency responsible foradministering the Clean Water Act.

Michigan Department of EnvironmentalQuality - Formerly known as the Michigan Depart-ment of Natural Resources, the MDEQ has regula-tory oversight for and issues all National PollutantDischarge Elimination Systems (NPDES) permits inthe state of Michigan. The NPDES permit functionsare delegated to the MDEQ.

Federal Court - The Federal Court has been in-volved in different aspects of the Detroit WWTPoperations since 1977 when the state of Michigansued DWSD. The court, under the guidance of JudgeJohn Feikens has issued rate settlement agreementsthat impact how DWSD can charge its customers forwastewater transport and treatment service since1980.

Water Quality Consortium - A joint public/privatepartnership working to resolve key water qualityissues in the region. The Consortium was formed atthe urging of Judge John Feikens as a voluntaryinitiative to foster regional cooperation. The Consor-tium is focusing on several rate-related issues includ-ing: full disclosure, incorporating incentives forimplementing best management practices, andassuring that rates reflect the true cost of service.

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DWSD meets with First TierCustomers to review therate methodology andanswer questions beforeit is finalized.

A work group meeting from original 1997 partneringagreement with First Tier Customers.

How has the federal court beeninvolved in the rate settingprocess?The federal court has been involved in DWSDoperations and rate setting since 1977 when theUSEPA sued DWSD and the MDEQ for violatingits discharge permit. Later, MDEQ was made aplaintiff instead of a defendant. Settlement agree-ments relating to rate setting were developed inresponse to this and subsequent lawsuits. Thesesettlement agreements have influenced the currentDWSD rate methodology that dates back to 1980.Rate settlements have addressed issues such asproportionality, look-backs, cost allocations forspecific projects, bad debt expense allocation andflow measurement data.

The most recent rate settlement from the federalcourt is probably the most significant because itincorporated changes identified as part of the LongTerm Combined Sewer Overflow (CSO) ControlPlan partnering effort. The partnering group tooktheir final agreement to federal court because itaddressed outstanding court issues at the time. Thisagreement incorporated the following items into the1999 settlement agreement:• The costs of new wet weather/CSO treatment

facilities will be apportioned 83% to the City ofDetroit and 17% to wholesale customers. Programcomponents that solely benefit Detroit such asdownspout disconnection are being paid 100% bythe City.

• A uniform overflow credit (initially 31%) will beapplied to all customers’ incremental wet weatherflow (the estimated amount of storm waterrunoff not transported to the WWTP.)

• The latest GDRSS Model and data will be used toreduce the amount of unaccounted flow shared byall customers and better reflect system usage. Thisamounted to an estimated net volume increase of14% from First Tier Wastewater Customers toDetroit.

• Mechanism to phase in changes over 3-5 years toavoid dramatic fluctuations in rates.

• An Inflow & Infiltration Study, completedwithin the City of Detroit in 2004, is providingnew flow information.

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How does Detroit’s rate settingprocess compare to industrypractices?Detroit follows the Water Environment Federation(WEF) Manual on Rates and Financing, an industrystandard for the basic rate methodology. The manualidentifies how to allocate service costs, how todistribute service costs to customer classes, and howto develop rate schedules.

Under generally accepted rate-making principles,municipal utilities routinely charge higher rates tosuburban customers than to their own citizens.Detroit does not do this. A rate settlement agreementnegotiated in federal court prohibits Detroit fromcharging a higher rate to its wholesale customers forthe same service.

Why do rates change from yearto year?Wastewater transport and treatment depends on anaging infrastructure that must be maintained orreplaced. The level of treatment continues to increasedue to regulatory requirements. Two major expensesimpact rates:

Capital Improvement Program Financing - Contin-ued improvements from an established CIP ensurereliable service for an aging infrastructure. Many CIPprojects are also necessary to maintain compliancewith environmental regulations. The percentage ofCIP expenditures for any given year required to meetregulations can vary from a low of about 27% to ahigh of 74%. The CIP changes from year to yeardepending on current needs.

Operations & Maintenance Expense - Inflationimpacts both labor and equipment for O&M. Thisexpense rises as new facilities are constructed andbrought into service, increasing the amount of O&Mthat must be performed. O&M expense can beoffset by efficiency achievement in some areas. O&Mexpenses are also impacted by the cost of utilities,chemicals and property insurance that can increase inprice. For instance, property insurance has risen sincethe September 11 terrorist attack.

DWSD’s wastewater rate setting process followsestablished industry practices and has beensignificantly influenced by federal court rate

settlement agreements.

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Controlling Detroit’s CSO

Combined sewers are remnants of ourcountry’s early infrastructure that use a singlepipe to carry wastewater and storm water.During wet weather the sewers become over-loaded and discharge untreated wastewater intoa nearby river. Combined sewer systems serveroughly 900 communities in 32 states. InMichigan, 52 communities have combinedsewer systems including 26 in the DWSDservice area.

Detroit developed and began implementing aplan to control CSO discharges from 78 pointsalong the Detroit and Rouge Rivers in 1995.The plan includes four control strategies:expanding the treatment capacity at the WWTP,building end-of-pipe treatment facilitieslike the basin shown above, usingexisting sewer pipes for additionalstorage and preventing storm waterfrom getting into the sewer system bydisconnecting residential downspouts.

DWSD and First Tier WastewaterCustomers Work Together toAllocate CSO CostsPartnerships can focus different groups in theirefforts to work toward a common goal. For theDWSD and Detroit’s First Tier Customers, a partner-ship agreement provided a process to develop a fairand equitable cost allocation for Detroit’s Long TermCSO Control Plan. The process used work groupsmade up of DWSD and First Tier Customer staff toaddress issues, resolve differences, and come toagreement. Over 100 work group meetings wereheld during a two-year period to thoroughly addresscost allocation of the Long Term Plan and two otherrate issues that had been in litigation since 1992.

In June 1999, decision makers from key First TierCustomers and the DWSD agreed on a method to

allocate cost for the $1.07 billion CSO controlplan and address the two other rate issues.

When the August 1, 2000, rates wentinto effect, it was the first time in eight

years that rates went into effectwithout a CSO rate matter pendingin federal court.

The success of the first partneringagreement has led to new collabo-

rative efforts. In 2001, a newpartnering agreement was initiated

between DWSD and its First TierWastewater Customers to address other

issues including rate setting. In 2004, theagreement was updated and Second Tier

Wastewater Customers were brought into thepartnering process.

DWSD and its First TierWastewater Customersworked together todevelop a fair and

equitable method toallocate costs for the $1.07

billion Long Term CSO Control Plan.

What is DWSD doing to controlcosts and proactively managethe utility?DWSD has been under new leadership since MayorKwame M. Kilpatrick appointed Victor M. Mercadoas the Director in June 2002. Mr. Mercado hasbrought a private sector approach to the utility andimplemented some major changes to monitor andcontrol costs, and to run the utility like a business.

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How do wastewater rates inSoutheast Michigan compare toother utility rates?Water and sewage disposal rates are frequentlyscrutinized more closely than other monthly billsbecause they vary by community. DTE Energy,Comcast, SBC Ameritech, Verizon and Cellular Oneall directly serve residents in surrounding communi-ties and charge similar prices for those services. Withwater and wastewater, there are more service provid-ers since the local government delivers the servicerather than a private company. Therefore, residents inadjacent communities may pay the same price forelectricity and cable service but different prices forwater and sewage disposal service. This differencecan make residents question the rate they are chargedfor their service. Citizen involvement also tends to bemuch greater since the community adopts rates at thelocal level.

Wastewater or sewage disposal rates are impacted bya variety of factors and programs so direct compari-sons between communities are not always equal. Forinstance, community residents could elect to pay for amajor improvement project like a CSO constructionproject through property taxes rather than its sewerrate so they can take advantage of the tax write-off.As a result, their rate would appear lower than itreally is. Or a community could be forced to under-take a major rehabilitation project because their aginginfrastructure needs to be improved or modified tomeet new standards established by the USEPA orMDEQ. These types of expenses would dramaticallyincrease CIP spending and subsequently rates.

The household impact of sewage disposal is smallwhen compared to other monthly utility and home-owner bills.

Monthly Household CostsBreakdown

Gas 18%Cell Phone 18%Electric 15%Internet 12%Cable 11%Telephone 8%Sewer 8%Water 6%Newspaper 4%

Based on average monthly household bills of $367,sewer charges fall near the bottom of expenditures asa percentage.

The DWSD was reorganized at the beginning of2003 to align divisions along the Department’sfunctional lines and eliminate redundancy. A Cus-tomer Service Group was created to assist in-Cityand suburban customers with questions related tobillings, rates and other matters. The Commercial andMeter Operations were reassigned to the CustomerService Group. Department purchasing was stream-lined by reassigning the Purchasing and MaterialsManagement Divisions to the Financial ServicesGroup so that everything bought, stored and used istracked by a single source. Pipeline installation andrepair were also reassigned to a single group tomaintain DWSD’s assets.

Three new divisions were formed to monitordifferent aspects of DWSD performance andregulations impacting its operations. A PerformanceMeasures Division was formed to monitor theoperational performance of each division. A CapitalManagement Division was created to monitor allcapital improvement projects from start to finish. A

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How is DWSD planning andinvesting in the system forthe future?DWSD completed a Wastewater Master Planthat takes a long view of what the systemshould look like in 50 years to meet thedemands of the customer service area. First andsecond tier wholesale customers were involved in thedevelopment of the plan providing critical input onhow their needs will change over the next 50 years. ALong Term Rehabilitation and Repair Program wasdeveloped as part of the Master Plan. This Programidentifies maintenance projects that will be necessaryover the next 20 to 50 years and project funding thatwill be needed.

More immediate investments that are being madeinclude the Rehabilitation and Upgrade Program atthe WWTP, the Instrumentation and Control Pro-gram, and the Long Term CSO Control Plan. Theseare major wastewater programs underway in addi-tion to ongoing pipe rehabilitation.

The WWTP Rehabilitation and Upgrade Program,known as DWSD Contract PC-744, is in itsfinal year of a five-year program torehabilitate and upgrade the 1.6billion gallon per day plant toachieve sustained, continuouslong-term regulatory permitcompliance. $330 million inimprovements have been com-pleted to date with another

Water Resource Division was created to monitorongoing revisions to the Clean and Safe DrinkingWater Acts and other regulatory issues.

Other changes were implemented as part of thisrestructuring effort. The Director:• reduced overtime costs through more efficient

scheduling and work shifts• reduced the size of the vehicle fleet• refinanced capital debt through bond issues

DWSD’s goal is to provide better customerservice, greater management and employeeaccountability, and a more efficient businessoperation.

$75 million planned before project completion in2005. The program also includes planning, design,O&M support and training for WWTP staff.

TheInstru-

mentationand Control

Program, knownas DWSD ContractPC-713, will upgraderemote and radiocontrol operationsthroughout the system to

enable more efficient dataexchange and remote

operation of devices.DWSD is also finishing imple-

mentation of its Long Term CSOControl Plan. This demonstrative

program addresses combined seweroutfalls along the Rouge River that will be moni-

tored for performance. Efforts will then focustoward planning improvements along the DetroitRiver.

Investments to maintain and upgrade the system areongoing costs that are necessary to keep the systemoperational and in compliance with state and federalregulation. These costs will be reflected in future ratesas CIP costs.

DWSD hasundertakenchanges tomonitor and

control costs,and run theutility like abusiness.

September 2005

What regulations could impactrates in the future?Sewer rates are impacted by regulatory changes thataffect the cost of operating the system in compliancewith state and federal environmental laws. History hasshown that environmental regulations are not static,and new requirements often emerge as more infor-mation is obtained about how current practices mayimpact the environment. As DWSD looks ahead, it isexpected that regulatory requirements will continue tohave an effect on sewer rates.

For example, the practices used to dispose ofbiosolids generated during the waste treatmentprocess are currently under review. DWSD’sbiosolids are either incinerated or trucked to a landfillfor disposal. Air quality regulations governing incin-erator emissions and landfill regulations governing theoperation of these facilities could be modified, andbiosolids disposal costs would likely increase if newrequirements are imposed.

DWSD is now being required to institute a costlynew testing procedure to identify the possiblepresence of mercury at levels far below levelspreviously detectable with conventional analyticalprocedures. Mercury is a common pollutant that maybe present in trace amounts in the waste stream. Thenew “ultra-clean” sampling protocol and testingprocedures are far more expensive, and this addi-tional cost must be factored into the rates. Dependingon the results of the new mercury testing, additionalcontrols may need to be developed to minimizedischarges of this pollutant into the sewer system.

The EPA has drafted new regulations that proposean expansion of federal oversight of local collectorsewer systems and that may even require that permitsbe obtained for the operation of these previouslyunregulated components. If these measures areadopted, the cost to develop and implement requiredsewer system management reports and programs willalso need to be factored into the rates.

Costs incurred by MDEQ to administer the state’swater quality program are to be passed onto permit-tees under a new law recently passed by the statelegislature. Annual permit fees have been establishedas a way to minimize the state General Fund appro-priation by assessing fees to permit holders tosupplement MDEQ’s budget. These new permit feeswill need to be paid out of system revenues underthe new legislation.

Another potentially costly regulatory initiative thatcould be imposed is the installation of dechlorinationfacilities at CSO basins if the chlorine disinfectionsystems are shown to have an adverse impact on fishor aquatic life in the receiving water. Studies to datehave been inconclusive as to whether it is necessary toremove the chlorine that is added to eliminatebacteria and comply with public health protectionstandards.

EPA is currently considering new nutrient limitationsto control phosphorus and nitrogen levels that impactthe water quality in Lake Erie. If more restrictivenutrient requirements are adopted, the cost ofproviding treatment facilities to achieve these reduc-tions will need to be incorporated in the rates.

Future rates will continue to be impacted bynew regulatory requirements such as biosolids

disposal, “ultra clean” mercury testing, localcollector sewer system permitting, discharge

permit fees and nutrients control.

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