2019-03-25-AC-ATM-rpt - Laserfiche WebLink

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APPROPRIATION COMMITTEE-2019 ATM first five years (however, this does not account for meters that fail before the end of their 15-year service life). Column(10) adds it all up to show the net annual costs (savings) for 15 years. Potential savings from reduced leaks are discussed below. The table below reports the present value of the net costs for several discount rates ranging from 3%to 6%. If one assumes a bond rate of 4% and uses that rate to discount the cash flows, the present value of the estimated net costs is about$4.3 million. Discount Rate 3% 4% 5% 6% NPV net costs $4,480,357 $4,281,936 $4,096,751 $3,923,800 Several alternatives have been proposed for apportioning the annual costs of the project into water bills,but the Committee offers no recommendation regarding those alternatives,which are not part of the motion. It is the Board of Selectmen's purview to make this determination during the annual rate-setting process. The consultant assumes that enhanced customer awareness of water usage and frequent monitoring by the Town will lead to reduced water consumption,due in part to more proactive maintenance and repairs within homes and other areas on the customer side of water meters. As a. result, the consultant also asserts the Town will not have to issue as many water bill abatements, which represent lost water system revenue in the short term. They estimate the reduction in abatements to be$3,038,000 over 15 years.10 However,most of that"lost"revenue due to abatements must eventually be recovered to keep the enterprise funds solvent. Thus,the net impact of abatements over the long term is to raise water rates for all customers, so the enter- prise funds do not run deficits. Reducing abatements would make it possible to reduce water rates,because there would be less lost revenue to recover. Lowering abatements does not save the Town any money,but it allows the Town to provide the same water service at a lower cost. The real savings (if any)will flow to the customers who are motivated to reduce their water consumption, in part by having more useful data about their personal water usage. The appropriate measure of the real net savings for the Town and its residents/customers would be the reduction in water lost to leaks multiplied by the wholesale price of water paid to the MWRA by the Town (because after-meter leaks do not affect the fixed costs of the system). However, the consultants have not provided an estimate of the volume of water that would be saved (in total, not just associated with abate- ments)from faster leak repairs. Such an analysis would have to estimate not only the volume currently lost to post-meter leaks,but also what percentage would be eliminated by the proposed system.That calculation would also require an estimate for the likelihood of ratepayers to act independently based on information provided by the new system, and an estimate of Town's own ability to correctly identify actionable prob- lems using the system. There also may be additional savings for a limited number of homeowners if the new system flags cata- strophic leaks that occur while a homeowner is away from home.Reduced or avoided repair costs to home- owners would be a benefit,perhaps a very large one. However, the system might be of limited use in this regard because the leaks would not be identified instantaneously by the Town and, during the absence of the homeowner, it is not clear how quickly the water could be turned off or repairs made to stop the leak. For Town Meeting Members who might appreciate a simple summary of this analysis, the $4.3 million in the net costs corresponds to annualized costs of about$332,000 per year(in current dollars) over 15 years. Spread over about 14,450 meters in the Town,that translates to about$23 per meter per year. The Committee recommends approval of 16(a-e,g-p) by a vote of(9-0). The Committee recommends approval of 16(f) by a vote of(6-3). °It is not clear if the consultant also assumed a less generous policy regarding leak-related abatements with the new system. 35