Detroit, the mystery thickens

This July 13th article provides further information regarding the ongoing crisis affecting the Detroit Water and Sewerage Department (DWSD). Interestingly, the numbers provided do not quite make sense with respect to  those in recent (June 22nd) articles discussed here. 

Specifically, delinquent accounts dropped from 150,000 to 90,000, total outstanding debt from US$118M to US$90M. These numbers are extremely impressive, given that only 21 days have passed. 

The most recent article gives information on the efficiency of the DWSD's investigations of water theft (not the same as delinquent accounts). Specifically, we can see that DWSD employees can investigate about 60 suspected accounts per day. Unless there is another team inside DWSD dedicated to resolving delinquent accounts, or the DWSD is using automated or analytical methods, it is hard to imagine how 60,000 accounts could have been dealt with in 21 days, at a rate of 2857 accounts per day. This would seem worth mentioning or explaining in the article.

My point here is not so much to criticize, without full information, the DWSD or the reporting. Rather, it is to point out some inconsistencies in the reporting of this human and financial crisis. These inconsistencies have real consequences, and they detract from:

• the optimal flow of information needed to keep stakeholders abreast of each other, and 
• the necessary and healthy debate needed to resolve this ongoing crisis

Access to accurate and timely information about the technical and financial status of a public utility is paramount to ensure that it is adequately run and regulated. Transparency is crucial to building and maintaining trust between those who run the water and sanitation utilities, those who consume their products, those who protest their alleged anti-social or anti-environmental policies, those who regulate their activities, those who write the laws that define their operational framework, etc... And that trust is the basis for crisis resolution.

Unfortunately, transparency has not historically been a strong suit for water and sanitation utilities, and this can partly explain the suspicions that surround the business (whether the utility is public or private). I will discuss this further in another post, and in particular how the utility must organize itself to be capable of sharing information with stakeholders.

Detroit

If the numbers provided in recent articles (here & here) are to be believed, the Detroit Water & Sewerage Department (DWSD) is in dire financial straits. 

This is completely understandable as the population of the city has been dropping, leaving ever fewer people to pay the fixed depreciation and increasing maintenance costs of past capital investments. Over-sized infrastructure is a major drain on any utility, and it is one of the most legitimate reasons to aggressively price water services in order to encourage conservation.

Another major issue appears to be delinquent accounts (150,806 out of 323,900 - 48,4%), with an average debt of roughly US$780, for a total of US$118M. Shockingly, this represents only a fraction of the total US$5 billion in debt that the utility has accrued. 

The average monthly water bill is US$75, which means that the utility is grossing US$24.3M per month, US$11.3M of which is going straight into accounts receivables. With the US$13M left over, DWSD has to pay salaries, other operational costs, etc. not to mention the US$5 billion (!) in debt. Looked at it another way, the debt represents 32 years' worth of collected sales.

This calls into question activists' accusations that DWSD is undertaking this campaign to ready itself for privatization. It is hard to imagine a private utility that would take a second look at the DWSD without significant public assistance in cleaning up the debt situation - even with 100% collection rate. Given Detroit's otherwise disastrous debt situation, this is very unlikely.

Whether the disconnection strategy will yield results remains to be seen. While the utility is right to seek redress from bad payers, outright disconnection effectively reduces the customer base, without providing a solution to sponge up the accounts receivables mess. Disconnecting customers is also costly, to wit:

3000 disconnections per week are 600 disconnections per day, 5 days a week. Depending on the efficiency of technicians, the opposition of residents, the distance between disconnections, etc., we can conservatively assume that this will require 75 technicians (1 disconnection per hour per technician, 8 hr/d). Assuming that a technician's yearly salary is about US$35,000, the monthly cost of the disconnection program is at least US$218K, or about 2% of uncollected monthly sales, not including management costs, gas, depreciation of vehicles, etc...

In other words, this disconnection operations makes sense only if it results in at least a 2% monthly improvement in collected sales. If customers are not paying their bills for lack of money, this seems like an unattainably ambitious goal. If they are failing to pay for lack of discipline or any other non-financial reason, this program might just work.