* Berkley * Beverly Hills * Bingham Farms * Birmingham

* Clawson * Huntington Woods * Lathrup Village * Pleasant Ridge

* Royal Oak * Southfield * Southfield Township

SOCWA 3910 W. Webster Road Royal Oak Michigan 48073 Phone 248.288.5150 Fax 248.435.0310 Email socwa@socwa.org

www.socwa.org

Printed on Post Consumer Recycled Content Paper

www.socwa.org

Printed on Post Consumer Recycled Content Paper

QUARTERLY REPORT

JANUARY 2015

F BOARD OF TRUSTEES

Representative Municipality

D. Schueller City of Berkley

C. Wilson Village of Beverly Hills

D. Warren Village of Bingham Farms

P. T. O’Meara City of Birmingham

H. Drinkwine City of Clawson

C. Galed City of Huntington Woods

M. Baumgarten City of Lathrup Village

S. Pietrzak City of Pleasant Ridge

G. Rassel City of Royal Oak

L. Schultz City of Southfield

R. Walsh Township of Southfield

OFFICERS

Chairman: H. Drinkwine

Vice Chairman: G. Rassel

Secretary: C. Galed

Advisory Committee: H. Drinkwine

S. Pietrzak

J. A. McKeen General Manager

R. Jackovich Operations Manager

January 2015

Board of Trustees

Southeastern Oakland County Water Authority

Subject: Quarterly Report - January 2015

Board Members:

Attached is a copy of the Southeastern Oakland County Water Authority's Quarterly Report

covering the first six months operation of the fiscal year 2014/15. The report contains a financial

statement of the Authority's operation and an outline of projects in progress or completed during

the second quarter. The report also contains statistical information and other information of

general interest to the members of this Authority.

FINANCIAL STATEMENT

The total net operating income before depreciation for the first 6 months of 2014/15 was

$225,201.

Actual Compared to Budget

Revenue $11,437,840 - $2,993,560

Expenses $11,197,764 - $1,518,964

Net Income (before depreciation) $ 225,201 - $ 1,474,596

This level of net income is significantly lower than planned and is also significantly lower than

the net income of $710,816 recorded for the same period in the 2013/14 fiscal year. The

decrease in net income reduced our working capital to 14.1%, based on unrestricted assets, as of

December 31, 2014. This is higher than the 8.3% working capital goal approved by the Board

and it is a decrease from the 22.7% working capital as of December 27, 2013.

The decrease in revenue was primarily due to lower than planned water sales to both the member

communities (-$1,250,000) and to Bloomfield Hills and Bloomfield Twp. (-$1,695,000).

Revenue from rentals (-$26,000), grants (-$10,000) and interest (-$9,000) were also below

budget. Water sales were significantly lower than budgeted for the August to October period.

Water sales for the six month period were 6% below the actual water sales for the same period in

2013/14 and 19% below budget.

The decrease in expenses was due largely to reduced costs for water purchased (-$1,258,000),

labor (-$71,000), utilities (-$35,000), maintenance (-$25,000), supplies (-$12,000) and lower

than planned expenses for non-labor Administrative & General (-$119,000).

Capital expenditures for the first six months of the fiscal year totaled $339,962 and were for the

final expenses for the internal painting of the 7.5 million gallon reservoir at Webster Station.

Additional financial detail is attached.

II

The following is the Authority’s record of revenues and expenditures based on the average cost

per 1,000 cu. ft. of water.

2012/13

2013/14

2014/15

Over or

Under

2013/14

Total Sales (MCF) 833,666 716,634 672,438 -44,196

Water Sales $16.53 $16.47 $16.95 +0.48

Other Income .07 .07 .06 -0.01

Total Income $16.60 $16.54 $17.01 +0.47

Water Purchased for Resale 12.69 14.11 15.20 +1.09

Operating Expenses 1.30 1.39 1.45 +0.06

Fixed Charges 0.05 0.04 0.02 -0.02

Total Operating Expenses $14.04 $15.54 $16.67 +$1.13

Available for Debt Service

and Improvements

$2.56 $0.99 $0.34 -$0.65

COMPARATIVE STATEMENT

The following is a comparison of the first six months operation of the current fiscal year with the

same period of the previous fiscal year.

Revenues From the Sale of Water - $399,214

Revenues From Other Sources - 13,597

TOTAL REVENUES - $412,811

Operating Expenses

Water Purchased for Resale + $112,494

Other Operating Expenses - 25,684

Fixed Charges - 14,006

TOTAL EXPENDITURES +$72,804

NET INCOME BEFORE DEPRECIATION -$485,615

The following is the record of water sales to member municipalities for the period July 1 through

December 31. The six month record shows a decrease in water sales of 6.2% during the current

fiscal year compared with the same period of the previous fiscal year. For the six month period,

our sales were 19% lower than budget. The wet weather this summer drastically reduced the

amount of water sold for sprinkling and we are continuing to observe a slow decline in water

sales during the winter months. Water sales will be well below budget for the entire fiscal year.

III

WATER CONSUMPTION – DAILY AVERAGE (MGD)

JULY 1 THROUGH DECEMBER 31

Month

2010

2011

2012

2013

2014

Over or

Under

2013

July 34.23 53.25 52.33 35.92 36.61 +0.69

August 36.47 40.61 43.25 38.34 32.91 -5.43

September 28.83 32.13 38.20 32.31 28.27 -4.04

October 21.99 24.90 25.70 24.58 23.09 -1.49

November 19.13 22.35 22.03 21.63 21.76 +0.13

December 19.45 22.39 21.60 21.89 21.24 -0.65

Average 26.71 32.66 33.89 29.13 27.34 -1.79

Variance +4.4% +22.3% +3.8% -14.0% -6.2%

The following is the precipitation record, as recorded at the Webster Station:

PRECIPITATION – INCHES

Month 2009 2010 2011 2012 2013

July 1.55 4.95 3.40 3.80 3.00

August 4.00 0.25 3.30 4.30 3.30

September 1.56 2.70 7.80 2.00 2.00

October 2.85 2.20 3.20 1.70 3.10

November 0.20 4.30 5.60 0.72 2.40

December 2.80 0.70 3.10 2.10 3.60

Total: 12.96 15.10 26.40 14.62 17.40

MAJOR PROJECTS

DWSD WATER RATES

DWSD will be announcing the rates for 2015/16 in late February. Preliminary information

provided by DWSD has indicated that the average rate for all water customers (both City of

Detroit and suburban customers) may increase by about 10% for 2015/16. The increase will

likely be significantly larger than in the past several years and is due to increases in DWSD’s

costs combined with significant decreases in the volume of water sold by DWSD. Water sales

are down due to the wet weather discussed above and to the loss of Flint as a DWSD customer.

We will be providing a water rate estimate to the member communities in February of 2014,

after we receive the actual rate increase proposed by DWSD.

DWSD ISSUES

Major changes are taking place at DWSD with the formation of the Great Lakes Water Authority

(GLWA). The GLWA was set up at the end of 2014. The current plan is that the GLWA and

the City of Detroit will negotiate a lease of the DWSD assets that will be used by the GLWA

during the first half of 2015 and that the GLWA will begin operations as of July 1, 2015. This

IV

will probably result in DWSD being split into two organizations, the GLWA and the City of

Detroit retail system. The City of Detroit will become a wholesale water customer of the

GLWA. Between now and June 30, 2015, the Board of Water Commissioners will continue to

be responsible for the operations of DWSD including setting the rates for 2015/16. The Board of

Water Commissioners will probably cease to exist when the GLWA becomes operational.

Great Lakes Water Authority

The GLWA Board held its initial meeting, which was its organizational meeting, on December

12, 2014. As of that date, only 4 of the 6 Board members had been named. The full complement

of 6 Board members has since been named:

Bob Daddow, Interim Chair Oakland County, Deputy County Executive, Oakland

County

Brian Baker Macomb County, Finance Director, Sterling Heights

Joe Nardone Wayne County, Director of Development, Wayne County

Airport Authority

Gary Brown Detroit, Group Executive for Operations, Detroit

Ike McKinnon Detroit, Deputy Mayor, Detroit

Ed Hood State of Michigan, Retired attorney

At their December 12 meeting, the Board took a series of organizational actions, including

having DWSD staff provide interim staff support to the GLWA. The Board will be conducting

at least one meeting and one workshop each month throughout 2015. At their meeting on

January 7, the GLWA Board appointed Sue McCormick as the Interim Executive Director of the

GLWA. This is an extremely important decision that will serve to minimize confusion during

the transition period. The GLWA Board will make a permanent appointment at some point in

the future, likely after the GLWA becomes operational. The Board of Water Commissioners will

continue to meet during this period. Both Boards appear to be taking steps to minimize

confusion that could be caused by having two different Boards active at the same time.

The 200 day period (which will last until mid-June 2015) to develop a lease agreement between

the GLWA and the City of Detroit has begun. Several study groups have been established to

assist with the development of the GLWA including making recommendations as to how the

assets and employees of DWSD will be divided between the GLWA and the Detroit retail

system. I have been asked to serve on both the Finance/Accounting and Operations Study

Groups. At the moment, it appears as if all of the activities of these study groups will be public

except for items subject to future confidentiality orders by Judge Cox or financial or personnel

items that would be subject to a confidentiality agreement which would protect these items from

public disclosure. It is my opinion that very few financial issues and no operational issues would

require confidentiality agreements. Employees of the Oakland County Water Commissioner’s

Office are taking the lead role in the Operations Study Group.

A detailed work plan is being developed to address the many issues that will arise as the GLWA

is established. Central to this work plan is the separation of DWSD into 2 organizations, the

GLWA and a separate organization to manage Detroit’s retail system.

Veolia Water Study

The peer review reports on DWSD and DWSD’s retail services that were conducted by Veolia

Water were released in early January. SOCWA staff will be reviewing these lengthy reports

over the next several weeks.

V

DWSD

In the midst of all of the changes discussed above, DWSD is continuing their long term

organizational improvement plan and they have filled several high level managerial jobs with

external hires. Their total number of employees is continuing to decrease through attrition.

SOCWA staff is continuing to participate in the DWSD Customer Outreach Process. I have been

serving as one of four elected customer co-chairs of the Technical Advisory Committee that

guides this process. I am also serving on a customer group that is working with DWSD to update

their water master plan, which is about 10 years old. This plan was developed with only minor

customer input and a number of key demographic assumptions that need to be updated to reflect

the changes in the region in the last 10 years. This plan will be completed by June 30, 2015.

Significant progress has been made in improving the level of communication and understanding

between DWSD and its customers through this process, which will be a continuing effort.

SOCWA continues to be a strong proponent of DWSD’s customer partnering process.

The City of Flint discontinued the purchase of DWSD water in April of 2014 and they are

running their own water treatment plant using the Flint River as source water. Flint has had a

number of significant water quality issues, including violations of the Safe Water Drinking Act,

as a result. Genesee County is continuing to purchase DWSD water while they are constructing a

new water supply system for Flint and Genesee County using Lake Huron water. DWSD has

offered to resume water supply to Flint at the rates that were proposed for 2014/15.

SALE OF WATER TO BLOOMFIELD TWP.

As part of our water sales contract with Bloomfield Twp., the Township is required to build an

interconnection with the SOCWA system. The Township developed a plan to use our existing

interconnection with Bloomfield Hills to also supply a portion of the Township system. The

construction required by this plan has been completed and SOCWA is directly supplying a

portion of the Bloomfield Twp. and Bloomfield Hills systems. We have completed an

engineering study that determined that this interconnection will have no effect on the SOCWA

supply to Birmingham. We will be adjusting how this interconnection is operated this spring in

order to verify the findings of our engineering study. We have also refurbished an existing meter

vault that supplies Birmingham in order to improve the security of the SOCWA supply to the

Birmingham system.

MAIN DAMAGE SETTLEMENT

We reached a settlement regarding the damage that was done to our 30” concrete water main in

the Birmingham Country Club. The SOCWA main was punctured by a contractor doing work

for Consumers Energy. The settlement ended a lawsuit that SOCWA filed against the contractor.

PENSION FUNDING

The Board took continued additional steps to address the underfunded status of SOCWA’s

pension plan. SOCWA has been contributing the actuarially required amounts to this plan for

many years, however it remains significantly underfunded. The Board approved a five year plan

to make additional funding to the SOCWA pension plan above the actuarially required amount.

VI

The third of the five planned annual contributions was made before the end of 2014. We will

include an additional contribution to this fund in our budget for 2015/16.

ANNUAL AUDIT

The audit report for the 2013/14 fiscal year was completed by our auditors, Plante & Moran and

was reviewed at the November SOCWA Board meeting. This was the fourth audit performed by

Plante & Moran under our five year agreement. For the 2013/14 audit, the financial statements

contained in the audit were prepared by the SOCWA staff and reviewed by the auditors. The

audit found the Authority to be in complete conformity with generally accepted accounting

practices. The auditors concluded that the Authority’s level of working capital has been

maintained above the goal level established by the Board but that the net position of SOCWA

decreased by $219,000 during the year.

Respectfully submitted,

Jeffrey A. McKeen, P.E.

General Manager

SOUTHEASTERN OAKLAND COUNTY WATER AUTHORITY

BUDGET ANALYSIS

JULY 1, 2014 THROUGH DECEMBER 31, 2014

VARIANCES

ESTIMATED ACTUAL OVER OR

REVENUES REVENUES REVENUES UNDER

OPERATION

SALE OF WATER $8,774,000.00 $7,524,368.06 ($1,249,631.94)

SALE OF WATER OTHERS 5,570,000.00 3,875,023.18 (1,694,976.82)

$14,344,000.00 $11,399,391.24 ($2,944,608.76)

OTHER INCOME

RENTALS $52,600.00 $26,235.00 ($26,365.00)

WATER ANALYSIS-LAB & MISC. 4,500.00 1,200.30 (3,299.70)

GRANT REVENUE 9,900.00 0.00 (9,900.00)

INTEREST ON INVESTMENTS 20,400.00 11,013.16 (9,386.84)

$87,400.00 $38,448.46 ($48,951.54)

TOTAL REVENUES $14,431,400.00 $11,437,839.70 ($2,993,560.30)

EXPENSES

WATER PURCHASED FOR RESALE $6,796,000.00 $5,628,215.30 ($1,167,784.70)

WATER PURCHASE IN TRANSIT 4,689,000.00 4,598,468.30 (90,531.70)

POWER, PUMPING & GROUNDS WEBSTER 318,764.08 256,198.53 (62,565.55)

POWER, PUMPING & GROUNDS 143,034.00 82,343.77 (60,690.23)

COMPUTER OPERATIONS 34,100.04 33,306.86 (793.18)

PURIFICATION 32,599.98 43,472.26 10,872.28

METERS & MAINS 60,200.04 63,829.99 3,629.95

ADMINISTRATIVE & GENERAL 643,030.00 491,928.67 (151,101.33)

$12,716,728.14 $11,197,763.68 ($1,518,964.46)

FIXED CHARGES

INTEREST ON BONDS $14,875.00 $14,875.00 $0.00

BOND MATURITIES 0.00 0.00 0.00

$14,875.00 $14,875.00 $0.00

TOTAL EXPENSES $12,731,603.14 $11,212,638.68 ($1,518,964.46)

NET INCOME BEFORE DEPRECIATION $1,699,796.86 $225,201.02 ($1,474,595.84)

-1-

SOUTHEASTERN OAKLAND COUNTY WATER AUTHORITY

COMPARATIVE STATEMENT OF INCOME

JULY 1, 2014 THROUGH DECEMBER 31, 2014

2014/15 2013/14

AVERAGE AVERAGE

PER 1,000 PER 1,000

AMOUNT CUBIC FEET CUBIC FEET

REVENUES

OPERATION

SALE OF WATER $7,524,368.06 $14.4600 $13.9000

SALE OF WATER OTHERS 3,875,023.18 25.4800 24.5000

$11,399,391.24 $16.9523 $16.4639

OTHER INCOME

RENTALS $26,235.00 $0.0390 $0.0385

LAB & MISCELLANEOUS 1,200.30 0.0018 0.0008

INTEREST ON INVESTMENTS 11,013.16 0.0164 0.0334

$38,448.46 $0.0572 $0.0727

TOTAL REVENUES: $11,437,839.70 $17.0095 $16.5366

EXPENSES

WATER PURCHASED FOR RESALE $5,628,215.30 $8.3699 $7.8909

WATER PURCHASE IN TRANSIT 4,598,468.30 6.8385 6.2226

POWER, PUMPING & GROUNDS WEBSTER 256,198.53 0.3810 0.3730

POWER, PUMPING & GROUNDS 82,343.77 0.1225 0.1407

COMPUTER OPERATIONS 33,306.86 0.0495 0.0482

PURIFICATION 43,472.26 0.0646 0.0542

METERS & MAINS 63,829.99 0.0949 0.0689

ADMINISTRATIVE & GENERAL 491,928.67 0.7316 0.7058

BOND INTEREST 14,875.00 0.0221 0.0403

$11,212,638.68 $16.6746 $15.5446

INC. BEFORE DEPRECIATION $225,201.02 $0.3349 $0.9919

DEPRECIATION $248,885.34 $0.3701 $0.3486

NET INCOME ($23,684.32) ($0.0352) $0.6433

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SOUTHEASTERN OAKLAND COUNTY WATER AUTHORITY

STATEMENT OF REVENUES & EXPENDITURES

COMPARED WITH TOTAL BUDGET

JULY 1, 2014 THROUGH DECEMBER 31, 2014

TOTAL PER CENT

BUDGET ACTUAL REC'D OR

2014/15 6 MONTHS BALANCE EXPENDED

REVENUES

OPERATION

SALE OF WATER $15,756,000.00 $7,524,368.06 $8,231,631.94 47.76%

SALE OF WATER OTHERS 8,790,600.00 3,875,023.18 4,915,576.82 44.08%

$24,546,600.00 $11,399,391.24 $13,147,208.76 46.44%

OTHER INCOME

RENTALS $108,000.00 $26,235.00 $81,765.00 24.29%

LAB & MISCELLANEOUS 10,000.00 1,200.30 8,799.70 12.00%

GRANT REVENUE 20,000.00 0.00 20,000.00 0.00%

INTEREST ON INVESTMENTS 40,000.00 11,013.16 28,986.84 27.53%

$178,000.00 $38,448.46 $139,551.54 21.60%

TOTAL REVENUES: $24,724,600.00 $11,437,839.70 $13,286,760.30 46.26%

EXPENSES

WATER PURCHASED FOR RESALE $21,236,000.00 $5,628,215.30 $15,607,784.70 26.50%

WATER PURCHASE IN TRANSIT 0.00 4,598,468.30 (4,598,468.30) 0.00%

POWER, PUMPING & GROUNDS WEBSTER 622,500.00 256,198.53 366,301.47 41.16%

POWER, PUMPING & GROUNDS 292,200.00 82,343.77 209,856.23 28.18%

COMPUTER OPERATIONS 68,200.00 33,306.86 34,893.14 48.84%

PURIFICATION 85,200.00 43,472.26 41,727.74 51.02%

METERS & MAINS 120,400.00 63,829.99 56,570.01 53.01%

ADMINISTRATIVE & GENERAL 1,033,600.00 491,928.67 541,671.33 47.59%

BOND INTEREST 29,750.00 14,875.00 14,875.00 0.00%

TOTAL EXPENDITURES $23,487,850.00 $11,212,638.68 $12,275,211.32 47.74%

NET INCOME BEFORE DEPRECIATION $1,236,750.00 $225,201.02 $1,011,548.98 18.21%

DEPRECIATION $497,770.58 $248,885.34 $248,885.24 50.00%

-3-

SOUTHEASTERN OAKLAND COUNTY WATER AUTHORITY

COMPARATIVE STATEMENT JULY 1, 2014 THROUGH DECEMBER 31, 2014

2014/15 2013/14 OVER OR (UNDER)

REVENUES

OPERATION

SALE OF WATER $7,524,368.06 $7,551,787.99 ($27,419.93)

SALE OF WATER OTHERS 3,875,023.18 4,246,817.31 (371,794.13)

$11,399,391.24 $11,798,605.30 ($399,214.06)

OTHER INCOME

RENTALS $26,235.00 $27,594.00 ($1,359.00)

LAB & MISCELLANEOUS 1,200.30 550.00 650.30

GRANT REVENUE 0.00 0.00 0.00

INT. ON INVESTMENTS 11,013.16 23,901.63 (12,888.47)

$38,448.46 $52,045.63 ($13,597.17)

TOTAL REVENUES $11,437,839.70 $11,850,650.93 ($412,811.23)

EXPENSES

WATER PURCHASED FOR RESALE $5,628,215.30 $5,654,856.02 ($26,640.72)

WATER PURCHASE IN TRANSIT 4,598,468.30 4,459,333.12 139,135.18

OPERATING EXPENSES 971,080.08 996,764.11 (25,684.03)

FIXED CHARGES 14,875.00 28,881.25 (14,006.25)

TOTAL EXPENSES $11,212,638.68 $11,139,834.50 $72,804.18

NET INCOME $225,201.02 $710,816.43 ($485,615.41)

-4-

SOUTHEASTERN OAKLAND COUNTY WATER AUTHORITY

TOTAL CHARGES JULY 1, 2014 THROUGH DECEMBER 31, 2014

WATER

CONSUMPTION TOTAL WATER

MUNICIPALITY CUBIC FEET CHARGES

BERKLEY 23,282.000 $336,657.72

BEVERLY HILLS 20,006.800 $289,298.33

BINGHAM FARMS 5,459.700 $78,947.26

BIRMINGHAM 59,196.000 $855,974.17

CLAWSON 19,720.500 $285,158.43

HUNTINGTON WOODS 11,431.600 $165,300.94

LATHRUP VILLAGE 8,267.700 $119,550.94

PLEASANT RIDGE 5,530.400 $79,969.58

ROYAL OAK 125,756.700 $1,818,441.91

SOUTHFIELD 233,351.000 $3,374,255.48

DETROIT ZOO & RACKHAM 8,355.000 $120,813.30

MEMBERS 520,357.400 $7,524,368.06

NON-MEMBERS

BLOOMFIELD HILLS 29,827.372 760,001.44

BOOOMFIELD TOWNSHIP 122,253.600 3,115,021.74

152,080.972 3,875,023.18

TOTAL: 672,438.372 $11,399,391.24

-5-

SOUTHEASTERN OAKLAND COUNTY WATER AUTHORITY IMPROVEMENT FUND

JULY 1, 2014 THROUGH DECEMBER 31, 2014

FIXED ASSET EXPENDITURES

Water Meter Project 500.00

Webster Tank Painting 339,461.60

TOTALS: $339,961.60

-6-