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Exhibit MSD 11D Fitch District of Columbia Water & Sewer 2010-10-15
Public Finance Revenue New Issue District of Columbia Water and Sewer Authority Ratings New Issue Public Utility Subordinate Lien Revenue Bonds, Series 2010 (Federally Taxable Issuer Subsidy Build America Bonds) Outstanding Debt Public Utility Senior Lien Revenue Bonds Public Utility Subordinated Lien Revenue Bonds AA AA AA Rating Outlook Stable Analysts Christopher Hessenthaler +1 212 908-0773 christopher.hessenthaler@fitchratings.com Amy Laskey +1 212 908-1568 amy.laskey@fitchratings.com New Issue Details Sale Information: Approximately $300,000,000 Public Utility Subordinate Lien Revenue Bonds, Series 2010 (Federally Taxable Issuer Subsidy Build America Bonds), scheduled for negotiated sale on Oct. 18. Purpose: To fund numerous capital improvement projects of the water and sewer utility system. Final Maturity: 2044. Related Research For information on Build America Bonds, visit www.fitchratings.com/BABs. Applicable Criteria Revenue-Supported Rating Criteria, Oct. 8, 2010 Water and Sewer Revenue Bond Rating Guidelines, Aug. 6, 2008 Other Research Fairfax County, Virginia, Oct. 9, 2009 Loudoun County, Virginia, April 6, 2010 Montgomery County, Maryland, Nov. 2, 2009 Prince George’s County, Maryland, Sept. 25, 2009 Rating Rationale Continued growth in District of Columbia Water and Sewer Authority’s (DC Water, or the authority) already large capital plan coupled with reduced reserves and narrow debt service coverage will likely pressure debt levels and limit financial flexibility for the foreseeable future. DC Water’s vast and diverse service area provides strength and stability to its financial operations and capital planning efforts. The authority’s low rates are easily affordable to a majority of its customer base and provide much needed flexibility necessary to meet the substantial growth in annual debt obligations forecast over the next several years. Notwithstanding the growth in the CIP and the subsequent increase in system leveraging, management continues to exhibit strong capital planning efforts and prudent financial management. Legal provisions are sound. Key Rating Drivers Utilization of DC Water’s rate capacity is critical to maintaining current debt service coverage and liquidity levels while embarking on an aggressive capital plan. Prudent management and timely implementation of future capital projects is essential to the authority’s regulatory compliance and its financial and debt profile. Credit Summary DC Water continues to face regulatory issues and contend with aging infrastructure common among older, major metropolitan water and sewer utility systems. With 45% of the capital improvement plan comprised of mandated projects, Fitch Ratings believes future flexibility for managing capital needs will be limited. In addition to its costly combined sewer overflow (CSO) remediation program, DC Water continues to operate under an EPA mandate requiring a reduction in nitrogen limits as part of a broader Chesapeake Bay clean-up program that includes several public partners. Although the Considerations for Taxable/Recovery Zone Economic Development Bonds Investors This sector credit profile is provided as background for investors new to the municipal market. Water and Sewer Utility Revenue Bonds Municipal water and sewer utilities in the U.S. are enduring natural monopolies that typically have autonomous rate-setting ability and provide highly essential services. The bonds are secured by a pledge of net revenues generated by the water and/or sewer system and typically include structural legal protections such as rate covenants, debt service reserve requirements, and antidilution tests. As such, the sector exhibits extremely strong credit characteristics with minimal defaults. Reflective of this strong performance, the average water and sewer revenue bond rating is ‘AA’ with 86% at or above ‘AA’ and approximately 2% rated ‘BBB+’ or below. Those with low investment-grade or below-investment-grade ratings generally have substantial capital programs, a high degree of leverage, or weak financial flexibility as reflected in low cash levels, narrow debt service coverage, and/or limited rate-raising flexibility. www.fitchratings.com October 15, 2010 Public Finance cost to upgrade the Blue Plains Wastewater Treatment Facility and implement the reduction in nitrogen is substantial, estimated at $1.5 billion, much of the expense will be allocated among DC Water’s wholesale customers. Nonetheless, DC Water’s 10-year capital improvement plan (CIP) continues to rise, increasing from a total of about $1.8 billion in fiscal 2004 to $3.8 billion in fiscal 2009. The current fiscal years 20092018 CIP is also $600 million more than the prior year’s plan, although a majority of the increase is for projects management believes are discretionary in nature. DC Water’s financial management remains a credit strength. A measured approach to rate increases, historically prudent cost control, and a notable reduction in delinquent accounts have resulted in a sustained improvement in the system’s financial profile. While the Board’s cash reserve policy was reduced beginning in fiscal 2009 to a minimum of 120 days of operating expenses from 180 days, it remains well above the 60 days required by the trust indenture and represents an adequate operating cushion for the system. Audited results for fiscal 2009 are consistent with historical projections, despite a 4% decline in consumption that partially offset a planned 7.5% rate hike. Coverage of senior lien debt service was strong at 3.0x, and coverage of all-in debt service, including subordinate lien obligations, was adequate at 1.4x. With the change in reserve policy, unrestricted cash declined in fiscal 2009 as DC Water drew down its rate stabilization fund (RSF) by approximately $15 million, leaving total cash equal to slightly better than 250 days of operating expenses. Year-end projections for fiscal 2010 show almost no change in all-in debt service coverage compared to the prior year and the use of an additional $16 million from the RSF, leaving a modest projected balance of approximately $16.7 million in the fund. While the draw down of the RSF in recent years is consistent with DC Water’s historical projections, utilization of the transfers represents a departure from typically out-performing its financial forecast. Rating History Rating Action Outlook/ Watch Date AA Assigned Stable 9/24/10 Related Research (continued) Washington Suburban Sanitary District, Maryland, Sept. 25, 2009 2010 Water and Sewer Medians, April 6, 2010 2010 Water and Sewer Sector Outlook, Feb. 10, 2010 DC Water’s most recent financial forecast shows sizable annual rate hikes of 12.5% in fiscal 2011, 8% in fiscal years 20122014, and 5%6% each year after through fiscal 2016. All-in debt service coverage is projected to stay within a range of 1.20x1.25x through the forecast period. Despite the rise in charges, rates remain very affordable compared to median household income levels throughout the service area and other peer utility systems. DC Water’s 10-year CIP has a projected cost of approximately $3.8 billion through fiscal 2018. About 70% of planned spending addresses CSO projects and capacity expansion and rehabilitation and maintenance of the Blue Plains wastewater treatment plant. Excluding capital contributions derived from wholesale customers, almost 80% of remaining capital projects will be debt financed with commercial paper and long-term revenue bonds expected to be issued annually. Additional funding sources include state and federal grants and pay-as-you-go funding from excess revenues. While the system maintains ample rate flexibility, system leveraging is already well above average and is expected to grow substantially going forward. Security Provisions Pledged Revenues: Senior lien bonds are payable from net revenues of the combined water and sewer system after the payment of operations and maintenance (O&M) expenses. Subordinate lien bonds are secured by net revenues of the combined system after payment of debt service on any current or future senior lien obligations and funding of certain funds and accounts created under the master trust indenture. Rate Covenant: DC Water covenants to set rates, fees, and other charges so net revenues in each fiscal year equal to at least 1.20x ADS requirements on senior debt. The authority further covenants that rates will be set so that net revenues are equal to 2 District of Columbia Water and Sewer Authority October 15, 2010 Public Finance at least 1.00x ADS on combined senior and subordinated debt. Debt Service Reserve Requirement: The current offering will not have a debt service reserve fund. Additional Bonds Covenant: Additional senior parity debt may be issued, provided that either: for any 12 consecutive months of the 18 months prior to bond issuance, the authority would have been able to meet the rate covenant relative to maximum ADS of the proposed and outstanding bonds, taking into account the rates, fees, and charges in effect and any future changes thereto approved by the authority’s board at the time of delivery of the proposed bonds; or a qualified independent consultant projects operating expenses, revenues, and net revenues for five full fiscal years following issuance of the proposed bonds so that it is demonstrated that on the basis of the projection, the authority can comply with the rate covenant, taking into account the same conditions. Senior Debt: DC Water has approximately $523 million of senior debt outstanding, consisting entirely of series 1998 and 2009A senior lien public utility revenue bonds. The master indenture has been amended to provide for crediting direct payments relating to the Build America Bonds against ADS for purpose of the rate covenant calculation. While this amendment doesn’t impact the ABT calculation, the authority is proposing a separate amendment which requires the consent of a majority of bondholders of outstanding senior lien bonds. Parity Subordinate Debt: Including the current offering, DC Water will have approximately $72 million of parity subordinate debt outstanding. Outstanding bonds issued under the 1998 master indenture include: the current offering; the series 2007A; series 2007B; and series 2003. Additional subordinate lien debt includes notes payable to the federal government for the Jennings Randolph reservoir; notes payable to the Washington Suburban Sanitary District (the district) for the Little Seneca reservoir; and the district’s general obligation bonds assumed by DC Water upon its creation. Flow of Funds All revenues are to be deposited into the revenue fund held by DC Water and then transferred at least monthly by the last business day of the month to the operating fund in an amount sufficient to pay operating expenses during the following month. On the last business day of the month, net revenues are to be transferred to various funds and accounts for payment in the following amounts and order: To the interest subaccount, one-sixth of the interest next due. To the principal subaccount, 1/12 of the principal payment next due. To the applicable debt service reserve account, if necessary. To the operating reserve fund, to restore it to the required level within 24 months of any withdrawal. The operating reserve fund requirement is defined as an amount equal to 60 days of operating expenses based on the prior fiscal year’s operating expenses or such other amount as determined by an independent consultant. To the renewal and replacement fund in an amount equal to the requirement, such amount to be fully funded in equal installments if not funded at closing. The renewal and replacement fund requirement is defined as equal to 2% of the original cost value of the plants in service or such other amount as determined by an independent consultant. To the subordinate bond fund, such deposits as required in the supplemental indenture. District of Columbia Water and Sewer Authority October 15, 2010 3 Public Finance To the applicable subordinate debt service reserve account, if necessary. To the district, on each May 15 and quarterly thereafter, the PILOTs required under the PILOT memorandum of understanding (MOU). On each Sept. 1, an amount necessary to satisfy the cash reserve requirement as defined in the annual credit policies established by DC Water. At any time, to the rate stabilization fund, the amount determined at the discretion of DC Water’s general manager. Governance and Management DC Water is an independent public authority that became operational on Oct. 1, 1996 to expedite the rehabilitation, modernization, and extension of the system. Prior its creation, the district’s Department of Public Works, Water, and Sewer Utility Administration owned, operated, and maintained the system. Under its Home Rule Act, the district has delegated to DC Water its power to issue revenue bonds to finance water and sewer facilities. DC Water may not issue bonds or notes unless the district auditor certifies the sufficiency of its financial plan; the auditor’s certification has been received for this sale. DC Water is also required to submit its annual operating budget to the district for review and recommendations, but the district has no power to change the annual budget of the authority. Nine agreements govern the relationships among DC Water, the several authority member jurisdictions, and various providers of water and reservoir capacity. DC Water is governed by a board of directors with 11 principal and nine alternate members. The district appoints six of the principal members, Prince George’s County and Montgomery County appoint two each, and Fairfax County appoints one (collectively, the three counties are the user jurisdictions). Authority action can be taken only with the approval of a minimum of six board members; the five board members representing the user jurisdictions may vote only on decisions directly affecting the joint-use facilities. The authority is managed by a general manager, two deputy general managers, and an assistant general manager. Sewer System Sewer system assets include Blue Plains and a sewage collection system that consists of 1,800 miles of sanitary and combined sewers, nine off-site pumping stations, and 16 stormwater pumping stations. Although the system is made up predominantly of sanitary sewers, the older portions of the district, equal to about one-third of the capital city’s land area, are served by combined sanitary and stormwater sewer systems. The Blue Plains service area includes retail service to district customers and wholesale service to parts of Fairfax and Loudoun counties in Virginia and Prince George’s and Montgomery counties in Maryland, as well as the Town of Vienna, VA, Dulles International Airport, and various U.S. government agencies. Originally constructed in 1938 and upgraded several times, Blue Plains provides advanced treatment for wastewater flows of 370 million gallons per day (mgd). The average daily flow has ranged from 290 mgd320 mgd over the past six years, although demand climbed to about 327 mgd in fiscal 2010, primarily due to significant snow accumulation during the winter months. Advanced treatment processes include nutrient removal, filtration, and dechlorination. Capacity is sufficient to serve the district for the foreseeable future, and additional treatment capacity needed by wholesale users is the user jurisdiction’s responsibility. The IMA allocates capacity among users as follows: the district, 153 mgd; Washington Suburban Sanitary Commission (Maryland counties), 169.6 mgd; Fairfax County, 31 mgd; Loudoun County Sanitation Authority, 13.8 mgd; 4 District of Columbia Water and Sewer Authority October 15, 2010 Public Finance and other Potomac Interceptor users, 11.4 mgd. Treated wastewater is discharged through two outfalls into the Potomac River, one of which is the principal outfall for fully treated wastewater and the other an emergency outfall. The authority was recently granted a National Pollutant Discharge Elimination System (NPDES) wastewater discharge permit, valid through 2015, that includes more stringent nitrogen discharge limits for the Chesapeake Bay watershed. Flows above certain levels have historically received excess flow treatment, defined as primary treatment, chlorination, and dechlorination. Currently, most of the high-quality biosolids produced by Blue Plains are land applied at various farms and other sites in Maryland and Virginia. Combined Sewer Overflows Approximately one-third of the district is served by combined sanitary and storm sewers. During wet weather events, flows collected by the combined sewer system have periodically exceeded treatment capacity, requiring excess mixed sewage and stormwater to be discharged into the Anacostia and Potomac rivers and Rock Creek to avoid flooding. While the CSOs are common in older wastewater collection systems, the overflows prompted a 2005 federal consent decree among the U.S., the District of Columbia, and DC Water. The consent decree requires DC Water to implement a long- term CSO control plan over 20 years at an estimated cost of about $2.7 billion. Through targeted separation, pumping station improvements, construction of three large storage tunnels, and consolidation and elimination of several outfalls, DC Water expects to reduce 96% of CSOs. The current CIP allocates $1.1 billion toward the CSO long-term control plan. To date, all milestones associated with the consent decree have reportedly been completed on time. Water System The U.S. Army Corps of Engineers (ACOE) owns and operates the Washington Aqueduct, which supplies DC Water, Arlington County, VA, and the city of Falls Church, VA with treated water pursuant to a water sales agreement entered into in 1997. DC Water’s portion of the delivered water, which is derived from two Potomac River Intakes, typically accounts for about three-quarters of total water produced. To cover operation and capital improvements costs to the Aqueduct, DC Water makes monthly payments based on its pro rata share of water allocation. While ACOE retains ownership and management responsibility for the aqueduct, DC Water has significant input into operational and capital investment decisions. Fitch expects, the water sales agreement, which expires in September 2023, to yield sufficient supply for future needs. In fiscal 2009, demand dropped to 80 mgd, about a 4% decline from the prior year. From its peak of 87 mgd in fiscal 2006, consumption is down a notable 8%. The declining trend, which management attributes to conservation efforts and the economic recession, appears similar to other large urban systems located in the northeast portion of the U.S. Offsetting the drop in consumption is the significant excess capacity provided by two water treatment plants. The total treatment capacity of the plants of 320 mgd greatly exceeds daily demand and peak requirements. The progress DC Water has made in past years with regard to water loss appears to have regressed somewhat. After peaking at about 31% in fiscal 2003, water loss improved to about 23% in fiscal 2007, but then increased back up to 27% in fiscal 2009. While nonetheless high, the amount of unbilled water is somewhat skewed as it includes system flushing, cleaning, and fire fighting use. DC Water’s transmission and distribution system includes four pumping stations, two distribution reservoirs owned by DC Water and three owned by ACOE, four elevated tanks, and about 1,300 miles of pipeline. Because of the age and condition of the District of Columbia Water and Sewer Authority October 15, 2010 5 Public Finance distribution system, as well as past maintenance practices, the authority is engaged in an aggressive program to fix hundreds of water valves and leaky pipes. Capital Improvement Plan and Debt DC Water continues to benefit from sound, long-term capital planning and modelling, although capital needs continue to escalate and remain a primary concern for Fitch. DC Water prepares a 20-year facility plan, as well as a 10-year rolling CIP. The latest 10- year CIP (fiscal years 20092018) totals $3.8 billion, which is $600 million more than the 2008 plan, $1.6 billion more than the 2006 CIP and more than double the fiscal years 20042013 CIP. The majority of the increase over the fiscal 2008 CIP (approximately $400 million) is driven by the planned construction of new anaerobic digestors designed to reduce biosolids volume, produce a more stable product, and reduce land application costs. While the project is considered to be discretionary and not an essential need of the utility, management estimates that the savings generated over time will eventually match the cost of the project. Despite the continued escalation in the size and scope of the capital program, management indicated that the CIP is likely to increase again once the 10-year plan is updated and released in January 2011. However, any potential increase is still unknown at this point. Rising costs over the years have been driven primarily by the Blue Plains Total Nitrogen Removal Program and the CSO long-term control plan. An increasingly aggressive water main rehabilitation program has also contributed to the rise in capital Financial Summary ($000, Audited Fiscal Years Ending June 30) Projected 2007 2008 2009 2010 2011 2012 2013 2014 2015 Balance Sheet Unrestriced Cash and Investments 192,243 189,052 166,105 189,550 125,428 (287,758) (514,512) (593,727) (870,037) Accounts Receivable 37,862 33,323 37,624 Other Current Unrestriced Assets 46,458 120,557 111,644 (189,550) (125,428) 287,758 514,512 593,727 870,037 Current Liabilities Payable from Unrestricted Assets (143,923) (157,036) (184,596) Net Working Capital 132,640 185,896 130,777 Net Fixed Assets 2,176,335 2,378,784 2,580,669 Net Long-Term Debt Outstanding 1,053,880 1,012,522 1,281,978 Operating Statement Operating Revenues 306,457 322,334 332,398 359,794 391,968 423,744 467,901 484,821 516,319 Non-Operating Revenues 20,239 13,573 2,285 Gross Revenues 326,696 335,907 334,683 359,794 391,968 423,744 467,901 484,821 516,319 Operating Expenses (Excluding Depreciation) (208,314) (226,973) (234,019) (251,649) (272,374) (280,504) (288,188) (270,035) (277,783) Net Revenues Available for Debt Servicea 118,382 108,934 100,664 108,145 119,594 143,240 179,713 214,786 238,536 Senior Lien Debt Service Requirements 23,367 22,767 33,631 41,321 41,511 52,556 83,399 105,077 125,055 Total Debt Service Requirements 56,304 67,685 74,778 84,700 100,062 119,878 153,581 178,549 199,023 Financial Statistics Senior Lien Debt Service Coverage (x) 5.1 4.8 3.0 2.6 2.9 2.7 2.2 2.0 1.9 Total Debt Service Coverage (x) 2.1 1.6 1.3 1.3 1.2 1.2 1.2 1.2 1.2 Days Cash on Hand 337 304 259 Days Working Capital 232 299 204 Debt to Net Plant (%) 48 43 50 Outstanding Long-Term Debt per Customer ($) 1,333 1,280 1,619 Operating Margin (%) 32 30 30 30 31 34 38 44 46 aAnnual debt service on the series 2010 bonds is shown net of the anticipated issuer subsidy provided by the Build America Bonds. Note: Numbers may not add due to rounding. 6 District of Columbia Water and Sewer Authority October 15, 2010 Public Finance costs given that an estimated 65% of existing mains are at least 75 years old and the number of water main breaks is reportedly on the rise. Consequently, DC Water has allocated about $300 million in the current capital program to replace an average of about 1.0% of mains annually compared to a historical average of 0.5%. The largest capital improvement need (41% of planned spending) continues to be the rehabilitation and upgrade of Blue Plains to enhance nutrient removal and ensure continued regulatory compliance with the NPDES permit. Projects under way are reportedly on schedule and within budgeted costs, and it is expected that through the life of the current CIP, Blue Plains will be completely renovated, resulting in a reduction in future capital spending to a more moderate level commensurate with routine maintenance- type projects. The second largest capital outlay (29%) over the next 10 years will be for the long-term control plan related to CSO events. To date, all related projects are also reportedly on schedule and within budget. Additional spending included in the 10-year plan will be for improvements to the Washington Aqueduct, water treatment, the sanitary sewer system, and stormwater- related issues. Capital Improvement Plan Summary for Fiscal Years 20092018 ($ Mil., Fiscal Years Ending Sept. 30) Amount % of Total Project/Uses of Capital Funds Water 555.3 14.0 Wastewater Treatment/Blue Plains 1,572.7 41.0 Combined Sewer 1,108 29.0 Washington Aqueduct 92.7 2.0 Sanitary Sewer 395.6 10.0 Capital Equipment 98.5 3.0 Stormwater 21.5 1.0 Sources of Capital Funds Revenue Bonds/Commercial Paper 2,364.8 62.0 Wholesale Customer Contributions 1,032.5 27.0 EPA CSO Grants 292.2 7.0 Pay-As-You-Go Financing 108.0 3.0 Interest Income 21.3 1.0 EPA U.S. Environmental Protection Agency. CSO Combined sewer overflow. Approximately 45% of DC Water’s capital program, or $1.7 billion, is federally mandated. Although Fitch believes the percentage of required projects is high and limits overall flexibility, it is down slightly from about 52% in 2008. Of the $3.8 billion in planned spending over the next 10 years, approximately $1.0 billion will be funded from capital contributions derived from wholesale customers. Almost two-thirds will be debt funded, one-tenth will come from state and federal grants, and the balance will be funded on a pay-as-you-go basis. Because DC Water expects to borrow annually through fiscal 2014, Fitch expects system leveraging to rise considerably, particularly given the slow pay-out rate. Nevertheless, the system’s above-average debt burden is in part mitigated by its participation in the district’s pension system and the absence of post-employment benefits offered to its employees. In addition, DC Water’s debt profile does not include the use of variable rate debt or derivatives. Rates The board establishes DC Water’s rates, fees, and charges based on the authority’s financial forecast and 10-year CIP. Board approval of rate hikes is subject only to the publication of a notice of emergency rulemaking and public hearing. Modest rate hikes ranging from 2.5% in fiscal 2005 to 5.5% in fiscal 2008 have given way in recent years to more sizable increases, primarily to fund the growing capital improvement and to offset declining consumption levels. DC Water boosted charges by 8.5% in fiscal 2009 and by an additional 12% in fiscal 2010. The authority’s board also approved an impervious area charge beginning in fiscal 2009 aimed at providing a better allocation of cost responsibility related to surface area runoff. Revenue generated from the new charge is District of Columbia Water and Sewer Authority October 15, 2010 7 Public Finance used to fund the CSO long-term control plan. At almost $69, DC Water’s average residential monthly bill for combined water and wastewater service is near the median compared with rates for other similarly sized utilities. The average monthly bill equals a moderate 1.6% of median household income for the district, which Fitch believes is affordable for rate payers. Finances DC Water’s financial management continues to be credit strength. A measured approach to regular rate increases, good cost control, and a notable reduction in delinquent accounts have allowed for the build up and retention of reserves. Board policy requires maintenance of cash reserves equal to 120 days of expenses (or a minimum of $125 million), well above the 60 days required by the trust indenture. The policy was reduced in 2009 from 180 days to give DC Water more flexibility with its cash management. Included in the 120 day (or $125 million) reserve is a RSF that was drawn down by approximately $15 million in fiscal 2009 to a balance of $28.6 million. While the authority’s financial forecast in years past included nearly depleting the RSF, actual financial results were consistently better than budget, typically leaving a sizeable balance. For fiscal 2010, unaudited results show a decline in the RSF of approximately $16.1 million, although the adopted budget included the use of $28 million. Audited results for fiscal 2009 are consistent with historical projections, despite a 4% decline in consumption that partially offset a planned 7.5% rate hike. Coverage of senior lien debt service was strong at 3.0x, and coverage of all-in debt service, including subordinate lien obligations, was adequate at 1.4x. With the change in reserve policy, unrestricted cash declined in fiscal 2009 as DC Water drew down its RSF by approximately $15 million, leaving total cash equal to slightly better than 250 days of operating expenses. Year-end projections for fiscal 2010 show almost no change in all-in debt service coverage compared to the prior year and the use of an additional $16 million from the RSF, leaving a modest projected balance of approximately $16.7 million in the fund. While the draw down of the RSF in recent years is consistent with DC Water’s historical projections, utilization of the transfers represents a departure from typically out-performing its financial forecast. DC Water’s most recent financial forecast shows sizable annual rate hikes of 12.5% in fiscal 2011, 8% in fiscal years 20122014, and 5%6% each year after through fiscal 2016. All-in debt service coverage is projected to stay within a range of 1.20x1.25x through the forecast period. Despite the rise in charges, rates remain very affordable compared to median household income levels throughout the service area and other peer utility systems. DC Water maintains shutoff powers, although limits shutoffs during extreme weather, weekends, and holidays. In many cases, DC Water uses receiverships in which tenants pay rent directly to the receiver, bypassing the landlord and ensuring that DC Water’s bill is paid at least in part. Operating revenue in accounts receivable has fallen from 91 days in fiscal 1999 to just $4.9 million at the close of fiscal 2009. Installation of automated meters allows DC Water to bill monthly rather than quarterly, which will allow for more timely intervention in delinquent accounts, further reducing accounts receivable. The 10 largest commercial and retail customer accounts account for about 11% of revenue and include major governmental users, such as the General Services Administration, the Smithsonian Institution, the U.S. Congress, and the district’s school system. Wholesale customers and the federal government together make up 31% of DC Water’s revenues. 8 District of Columbia Water and Sewer Authority October 15, 2010 Public Finance Economy The authority’s service area includes the district and several of its adjacent suburbs. The regional economy benefits from the stable employment and substantial contract spending of the federal government. An above-average percentage of the work force is highly educated, and income levels are, accordingly, well above average. The district is the heart of the service area, and its users, including the federal government, account for more than three-quarters of operating revenue. The district’s credit profile has markedly improved since the mid-1990s, when financial problems led to the establishment of a financial control board (since removed). Population losses have slowed as the district has addressed its needs for economic development, crime reduction, and improved school performance. ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: HTTP://FITCHRATINGS.COM/UNDERSTANDINGCREDITRATINGS. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEB SITE AT WWW.FITCHRATINGS.COM. PUBLISHED RATINGS, CRITERIA, AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH'S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE, AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE CODE OF CONDUCT SECTION OF THIS SITE. Copyright © 2010 by Fitch, Inc., Fitch Ratings Ltd. and its subsidiaries. One State Street Plaza, NY, NY 10004.Telephone: 1-800-753-4824, (212) 908-0500. Fax: (212) 480-4435. Reproduction or retransmission in whole or in part is prohibited except by permission. All rights reserved. In issuing and maintaining its ratings, Fitch relies on factual information it receives from issuers and underwriters and from other sources Fitch believes to be credible. Fitch conducts a reasonable investigation of the factual information relied upon by it in accordance with its ratings methodology, and obtains reasonable verification of that information from independent sources, to the extent such sources are available for a given security or in a given jurisdiction. 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In certain cases, Fitch will rate all or a number of issues issued by a particular issuer, or insured or guaranteed by a particular insurer or guarantor, for a single annual fee. Such fees are expected to vary from US$10,000 to US$1,500,000 (or the applicable currency equivalent). The assignment, publication, or dissemination of a rating by Fitch shall not constitute a consent by Fitch to use its name as an expert in connection with any registration statement filed under the United States securities laws, the Financial Services and Markets Act of 2000 of Great Britain, or the securities laws of any particular jurisdiction. Due to the relative efficiency of electronic publishing and distribution, Fitch research may be available to electronic subscribers up to three days earlier than to print subscribers. District of Columbia Water and Sewer Authority October 15, 2010 9