HomeMy Public PortalAboutAugust 16, 2019 Rate Recommendation ReportRATE RECOMMENDATION REPORT
of
THE RATE COMMISSION OF THE
METROPOLITAN ST. LOUIS SEWER DISTRICT
to the
BOARD OF TRUSTEES OF THE
METROPOLITAN ST. LOUIS SEWER DISTRICT
upon the
WASTEWATER RATE CHANGE PROPOSAL
August 16, 2019
BLACK & VEATCH MANAGEMENT CONSULTING, LLC, RATE CONSULTANT,
AND LASHLY & BAER, P.C., LEGAL COUNSEL,
TO THE RATE COMMISSION OF THE
METROPOLITAN ST. LOUIS SEWER DISTRICT
THIS IS THE REPORT REQUIRED BY THE CHARTER PLAN AND HAS
BEEN ADOPTED BY A MAJORITY OF THE RATE COMMISSION
DELEGATES IN ACCORDANCE WITH CHARTER PLAN, § 7.280(f).
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TABLE OF CONTENTS
INTRODUCTION....................................................................................................................... 3
EXECUTIVE SUMMARY ....................................................................................................... 4
BACKGROUND ........................................................................................................................ 9
Metropolitan St. Louis Sewer District .............................................................................. 9
The Rate Commission ....................................................................................................... 10
Appointment ...................................................................................................................... 11
Rate Commission’s Operational Rules ........................................................................... 13
Rate Commission’s Procedural Schedule ....................................................................... 13
Rate Commission’s Proceedings ...................................................................................... 14
Statutory Construction ..................................................................................................... 18
CRITERIA FOR RECOMMENDATION ............................................................................ 19
First Criteria: Whether the Rate Change Proposal is necessary to pay interest and
principal falling due on bonds issued to finance assets of the District ................................ 20
Second Criteria: Whether the Rate Change Proposal is necessary to pay the
costs of operation and maintenance ....................................................................................... 34
Third Criteria: Whether the Rate Change Proposal provides for funds in such
amounts to cover emergencies and anticipated delinquencies ............................................. 39
FACTORS FOR RECOMMENDATION ............................................................................. 45
First Factor: Whether the Rate Change Proposal, and all portions thereof, “Is
consistent with constitutional, statutory or common law as amended from time to
time” .......................................................................................................................................... 46
Second Factor: Whether the Rate Change Proposal, and all portions thereof,
“Enhances the District’s ability to provide adequate sewer and drainage systems
and facilities, or related services” ........................................................................................... 60
Third Factor: Whether the Rate Change Proposal, and all portions thereof, “Is
consistent with and not in violation of any covenant or provision relating to any
outstanding bonds or indebtedness of the District” .............................................................. 67
Fourth Factor: Whether the Rate Change Proposal, and all portions thereof,
“Does not impair the ability of the District to comply with applicable Federal or State
laws or regulations as amended from time to time” ............................................................. 79
Fifth Factor: Whether the Rate Change Proposal, and all portions thereof,
“Imposes a fair and reasonable burden on all classes of ratepayers” ................................. 90
EXHIBIT A – Rate Commission Consultant’s Memorandum regarding Evaluation
of the Impact of the Rate Commission’s Recommended Modifications ..................... 114
MINORITY REPORTS ........................................................................................................ 120
PROCEEDINGS INDEX ...................................................................................................... 125
ABBREVIATIONS & ACRONYMS ................................................................................... 134
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INTRODUCTION
The Wastewater Rate Change Proposal of the Metropolitan St. Louis Sewer District (the
“District”) was presented to the Rate Commission on March 4, 2019.
The Rate Commission initiated certain proceedings in order to provide for the advance
submission of written testimony, the conduct of three technical conferences, a prehearing
conference, discovery procedures, public hearings, and the filing of post-hearing briefs with
procedural fairness to the parties. See Charter Plan of the Metropolitan St. Louis Sewer District
(hereinafter “Charter Plan”), § 7.280. The Missouri Industrial Energy Consumers (“MIEC”)
intervened and participated in these proceedings. The record of these proceedings may be found
online at the Metropolitan St. Louis Sewer District website under “MSD Rate Commission.” All
of the written testimony, exhibits, document requests and responses, transcripts of testimony,
legal memoranda, and other materials contained therein have been admitted into evidence and
discussed and considered by the Rate Commission Delegates for the purpose of making the
findings and determinations contained in this Report. These proceedings (the “Proceedings”) are
incorporated herein by reference.
The Rate Commission’s Report to the Board of Trustees (the “Board”) of the District is
due within 120 days of receipt of the Rate Change Proposal, or July 2, 2019, unless the Board of
Trustees shall, upon application of the Rate Commission, extend the period for one additional
45-day period. The Rate Commission submitted a request for such an extension on March 4,
2019; and on March 14, 2019, the Board of Trustees approved an extension of the period to
August 16, 2019. See Charter Plan, § 7.290(f).
This is the Report required by the Charter Plan and has been adopted by a majority of the
Rate Commission Delegates. See Charter Plan, § 7.280(f).
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EXECUTIVE SUMMARY
The District’s Rate Change Proposal 1 was presented to the Rate Commission on March 4,
2019. The Rate Change Proposal presents the District’s proposal to use $500,000,000 in bond
financing and $550,000,000 in cash financing to fund its Capital Improvement and Repairs
Program (“CIRP”) from FY 2021 through FY 2024; to provide the funds needed to comply with
regulatory requirements relating to deficiencies in the District’s wastewater system, including
sewers, pump stations, and treatment plants; and to satisfy the requirements of the Consent
Decree in the matter captioned United States of America, the State of Missouri and the Missouri
Coalition for the Environment Foundation vs. the Metropolitan St. Louis Sewer District. On July
15, 2011, the District entered into a Consent Decree program with the United States
Environmental Protection Agency (the “EPA”), the State of Missouri and the Missouri Coalition
for the Environment Foundation obligating the District to invest $4.7 billion for a 23-year period
in activities described in the Consent Decree. See Ex. MSD 37.
The District proposes to finance the required capital improvements by a combination of
wastewater user charge revenues, available fund balances, senior revenue bonds, Water
Infrastructure Finance and Innovation Act loans, Missouri State Revolving Fund loans, grants
and contributions, and interest income. The impact of the Rate Change Proposal upon
wastewater rates, if principally funded by bond financing, is described in Ex. MSD 1, Table 4-
10.
In the event that voters of the District do not approve bond financing for the CIRP, the
District proposes cash financing in order to comply with the terms of the Consent Decree. The
1 This summary of the Rate Setting Documents does not purport to be complete and
reference is made to the full text of the Rate Setting Documents or a complete recital of
the terms of the rate changes proposed by the District.
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impact of the Rate Change Proposal upon wastewater rates, if principally funded by cash
financing is described in Ex. MSD 1, pgs. 6-1 – 6.5.
First Criteria: Whether the Rate Change Proposal is necessary to pay interest and
principal falling due on bonds issued to finance assets of the District. See Charter Plan,
§ 7.040.
The Rate Commission, after discussion and consideration of all of the facts and
circumstances disclosed in these Proceedings, finds and determines that the Rate Change
Proposal to fund the capital improvement and replacement program with a combination of bond
and cash financing provides for the funds necessary to pay principal and interest falling due on
revenue bonds previously authorized and the additional $500 million revenue bonds proposed to
be issued.
Alternatively, if voter approval is not obtained for future bond financing, the Rate
Commission, after consideration of all of the facts and circumstances disclosed in these
proceedings, finds and determines that the Rate Change Proposal to fund the capital
improvement and replacement program with a combination of bond and cash financing provides
for the funds necessary to pay principal and interest falling due on the revenue bonds previously
issued as authorized in prior proceedings to finance the capital improvement and replacement
program.
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Second Criteria: Whether the Rate Change Proposal is necessary to pay the costs of
operation and maintenance. See Charter Plan, § 7.040.
The Rate Commission, after discussion and consideration of all of the facts and
circumstances disclosed in these Proceedings, finds and determines that the Rate Change
Proposal provides the funds necessary to pay the costs of operation and maintenance.
Third Criteria: Whether the Rate Change Proposal provides for funds in such
amounts to cover emergencies and anticipated delinquencies. See Charter Plan, § 7.040.
The Rate Commission, after discussion and consideration of all of the facts and
circumstances disclosed in these Proceedings, finds and determines that the Rate Change
Proposal provides for funds in such amounts as may be required to cover emergencies and
anticipated delinquencies.
First Factor: Whether the Rate Change Proposal “is consistent with constitutional,
statutory or common law as amended from time to time.” See Charter Plan, § 7.240.
The Rate Commission, after discussion and consideration of all of the facts and
circumstances and the record presented in these Proceedings, finds and determines that the Rate
Change Proposal is consistent with constitutional, statutory, and common law, as amended from
time to time.
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Second Factor: Whether the Rate Change Proposal “enhances the District’s ability
to provide adequate sewer and drainage systems and facilities, or related services.” See
Charter Plan, § 7.240.
The Rate Commission, after discussion and consideration of all of the facts and
circumstances disclosed in these Proceedings, finds and determines that the Rate Change
Proposal enhances the District’s ability to provide adequate sewer and drainage facilities or
related services.
Third Factor: Whether the Rate Change Proposal “is consistent with and not in
violation of any covenant or provision relating to any outstanding bonds or indebtedness of
the District.” See Charter Plan, § 7.240.
The Rate Commission, after discussion and consideration of all of the facts and
circumstances disclosed in the record and presented in these Proceedings, finds and determines
that the Rate Change Proposal is consistent with and not in violation of any covenant or
provision relating to any outstanding bonds or indebtedness of the District.
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Fourth Factor: Whether the Rate Change Proposal “does not impair the ability of
the District to comply with applicable Federal or State laws or regulations as amended from
time to time.” See Charter Plan, § 7.240.
The Rate Commission, after discussion and consideration of all of the facts and
circumstances disclosed in these Proceedings, finds and determines that the Rate Change
Proposal does not impair the ability of the District to comply with applicable Federal and State
laws or regulations as amended from time to time during this Rate Change Proposal cycle.
Fifth Factor: Whether the Rate Change Proposal “imposes a fair and reasonable
burden on all classes of ratepayers.” See Charter Plan, § 7.240.
The Rate Commission, after discussion and consideration of all facts and circumstances
disclosed in these Proceedings, finds and determines that the Rate Change Proposal does not
result in rates that impose a fair and reasonable burden on all classes of ratepayers.
The Rate Commission, after discussion and consideration of all facts and circumstances
disclosed in these Proceedings, finds and determines that the Rate Change Proposal modified
with utilizing a minimum total debt service coverage ratio of 1.6x and with the proposed
increases for extra strength surcharges phased in over at least a two-year period will result in
rates that impose a fair and reasonable burden on all classes of ratepayers.
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BACKGROUND
Metropolitan St. Louis Sewer District
Article VI, § 30(a) of the Missouri Constitution has authorized “[t]he people of the city of
St. Louis and the people of the county of St. Louis … to establish a metropolitan district or
districts for the functional administration of services common to the area included therein ….”
Mo. Const. art. VI, § 30(a). At a special election on February 9, 1954, the freeholders adopted
and the voters of the City of St. Louis and St. Louis County approved the Charter Plan (as
amended on November 7, 2000) creating the Metropolitan St. Louis Sewer District. The Charter
Plan establishing the District has been held to be constitutional. State on inf. Dalton v. Metro. St.
Louis Sewer Dist., 275 S.W.2d 225 (Mo. banc 1955).
The District is a body corporate, a municipal corporation, and a political subdivision of
the state, with power to … act as a public corporation within the purview of the Plan, and shall
have the powers, duties, and functions as herein described. See Charter Plan, § 1.010. The
Missouri Constitution provides that upon the adoption of the Charter Plan, it “shall become the
organic law of the territory therein defined, and shall take the place of and supersede all laws,
charter provisions and ordinances inconsistent therewith relating to said territory.” Mo. Const.
art. VI, § 30(b). As explained by the Missouri Supreme Court, “[t]he apparent intent is to give
the freeholders, with the approval of the voters, power to do whatever the Legislature could
ordinarily do with respect to the creation, organization and authority of such a district.” Dalton,
275 S.W.2d at 228.
As such, the Charter Plan is similar to legislation, and thus, the District has only such
powers as are delegated to it by the Charter Plan, or as may properly be implied from the nature
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of the duties imposed. State on inf. McKittrick v. Wymore, 132 S.W.2d 979, 987-988 (Mo. banc
1939).
To determine whether a certain action of the District is authorized by the Charter Plan, it
must be construed to further the intent of the voters. Centerre Bank of Crane v. Dir. of Revenue,
744 S.W.2d 754, 759 (Mo. banc 1988). Intent must be ascertained by examining the plain
language of the Charter Plan reviewed as a whole. Staley v. Dir. of Revenue, 623 S.W.2d 246,
248 (Mo. banc 1981).
It is clear that authorization was provided to residents in St. Louis City and County to
establish a metropolitan sewer district, Mo. Const. art. VI, § 30(a), and that authorization was
provided by the voters of St. Louis City and County to authorize the activities which carry out
the intent expressed and implied from the Charter Plan, including the establishment of the Rate
Commission.
The Rate Commission
The Rate Commission was established by the amendments to the Charter Plan approved
by the voters at a general election on November 7, 2000, to represent commercial-industrial
users, residential users and other organizations interested in the operation of the District,
including by way of example but not by way of limitation, organizations focusing on
environmental issues, labor issues, socio-economic issues, community-neighborhood
organizations and other nonprofit organizations. See Charter Plan, § 7.230. The Rate
Commission shall review and make recommendations to the Board regarding proposed changes
in wastewater, stormwater, and tax rates. Specifically, upon receipt of a Rate Change Notice
from the District, the Rate Commission is to recommend to the Board changes in a wastewater,
stormwater, or tax rate necessary to pay (i) interest and principal falling due on bonds issued to
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finance assets of the District; (ii) the costs of operation and maintenance; and (iii) such amounts
as may be required to cover emergencies and anticipated delinquencies. See Charter Plan,
§ 7.040.
Any change in a rate recommended to the Board by the Rate Commission pursuant to
§ 7.270 of the Charter Plan is to be accompanied by a statement of the Rate Commission that the
proposed rate change (i) is consistent with constitutional, statutory, or common law as amended
from time to time; (ii) enhances the District’s ability to provide adequate sewer and drainage
systems and facilities, or related services; (iii) is consistent with and not in violation of any
covenant or provision relating to any outstanding bonds or indebtedness of the District; (iv) does
not impair the ability of the District to comply with applicable Federal or State laws or
regulations as amended from time to time; and (v) imposes a fair and reasonable burden on all
classes of ratepayers.
Appointment
On September 14, 2017, the District enacted Board Ordinance No. 14800, as required by
§ 7.230 of the Charter Plan, and designated the Rate Commission Representative Organizations.
The Ordinance designated: Associated General Contractors of St. Louis, St. Louis County
Municipal League, Lutheran Senior Services, St. Louis Council of Construction Consumers,
Greater St. Louis Labor Council, Missouri Botanical Garden, Mound City Bar Association,
League of Women Voters of Metro St. Louis, Home Builders Association, North County
Incorporated, Missouri Coalition for the Environment, the City of Ladue, Engineers Club of St.
Louis, Missouri Industrial Energy Consumers, and Education Plus. Each of these Organizations
designated an individual to serve as a Rate Commission Delegate and notified the Rate
Commission. The Delegates currently comprising the Rate Commission are:
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Commission Delegates Representing
Paul Ziegler, Ed. Education Plus
Mickey Croyle League of Women Voters of Saint Louis
Paul Brockmann Missouri Botanical Garden
Gerald Beckmann St. Louis Council of Construction Consumers
Chan Mahanta North County Incorporated
Leonard Toenjes Associated General Contractors (AGC)
Brad Goss Home Builders Association of St. Louis and
Eastern Missouri
Lloyd Palans City of Ladue
Don Bresnan Greater St. Louis Labor Council
Tom Ratzki The Engineers’ Club of St. Louis
Brandy Bowdry Mound City Bar Association
John L. Stein Missouri Industrial Energy Consumers
Steve Mahfood Missouri Coalition for the Environment
Mark Schoedel Lutheran Senior Services
Russell Hawes St. Louis County Municipal League
Under the Charter Plan, the Board is to identify the Rate Commission Representative
Organizations for a term of years determined by the Board. See Charter Plan, § 7.230. Each Rate
Commission Representative Organization selected by the Board shall have the right to designate
a Rate Commission Delegate to the Rate Commission for a term of six years or the completion of
any unexpired terms. See Charter Plan, § 7.240. This section continues, “[p]rior to the expiration
of a Rate Commission Representative Organization’s term, the Board of Trustees shall designate
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organizations within the District to succeed such Rate Commission Representative
Organization.” See Charter Plan, § 7.240. Nothing bars a Rate Commission Organization from
being named to successive terms. See Charter Plan, § 7.240.
Rate Commission’s Operational Rules
On August 16, 2001, and under the authority of §§ 7.250 and 7.280(e) of the Charter
Plan, the Rate Commission adopted Operational Rules, Regulations and Procedures as amended
on March 21, 2002, April 16, 2003, March 2, 2007, January 18, 2008, March 7, 2011, March 4,
2015, and February 26, 2018, to govern the activities of the Rate Commission. On March 4,
2019, the Rate Commission adopted the Restated Operational Rules, Regulations and Procedures
of the Rate Commission of the Metropolitan St. Louis Sewer District.
Rate Commission’s Procedural Schedule
On March 8, 2019, the Rate Commission, under the authority of § 7.280(e) of the Plan
and pursuant to § 3(3) of the Operational Rules, adopted a Procedural Schedule for the
Consideration of a Wastewater Rate Change Notice.
Under the Charter Plan, the Rate Commission must issue its Rate Recommendation
Report to the Board and the public no later than 120 days after receipt of a Rate Change Notice.
See Charter Plan, § 7.280(f). As a result, the Recommendation Report for the Wastewater Rate
Change would be due July 2, 2019. Section 7.280(f) of the Charter Plan, however, allows the
Board, upon application of the Rate Commission, to extend the period of time for the issuance of
the Rate Commission Report for one additional 45-day period. By correspondence dated March
5, 2019, the Rate Commission made such application to the Board, asking the deadline to be
extended until August 16, 2019. The Board granted the request for an extension on March 14,
2019, and the Rate Commission Report is now due August 16, 2019.
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Rate Commission’s Proceedings
Under procedural rules adopted by the Rate Commission, any person who would be
affected by the Rate Change Proposal has an opportunity to submit an application to intervene in
the rate change proceedings. An application to intervene was granted for MIEC.
On March 4, 2019, the District submitted to the Rate Commission prepared Direct
Testimony of Brian L. Hoelscher, Susan M. Myers, Richard L. Unverferth, Bret A. Berthold,
Marion M. Gee, Tim R. Snoke, Bethany Pugh, William Stannard and Thomas A. Beckley.
On March 8, 2019, the Rate Commission submitted its First Discovery Request to the
District. On March 13, 2019, the District filed its Responses.
On March 11, 2019, the Rate Commission submitted its Second Discovery Request to the
District, which the District responded to on March 20, 2019.
On March 25, 2019, the Rate Commission submitted its Third Discovery Request to the
District, which the District responded to on April 2, 2019.
On April 8, 2019, a Technical Conference was held on the record regarding the Rate
Setting Documents and the Direct Testimony filed with the Rate Commission by the District.
The purpose of the Technical Conference was to provide the District an opportunity to answer
questions propounded by members of the Rate Commission; then by the Intervenor; and finally
by Lashly & Baer, Legal Counsel to the Rate Commission.
On April 8, 2019, Intervenor Missouri Industrial Energy Consumers submitted its First
Discovery Request to the District, which the District responded to on April 18, 2019.
On April 11, 2019, the Rate Commission submitted its Fourth Discovery Request to the
District, which the District responded to on April 22, 2019.
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On April 11, 2019, Intervenor Missouri Industrial Energy Consumers submitted its
Second Discovery Request to the District, which the District responded to on April 22, 2019.
On April 23, 2019, the Rate Commission submitted Rebuttal Testimony of Pamela
Lemoine, Prabha Kumar, and Nicole Young, and Intervenor Missouri Industrial Energy
Consumers submitted Rebuttal Testimony of Michael Gorman.
On April 26, 2019, the District submitted its First Discovery Request to Intervenor
Missouri Industrial Energy Consumers, to which Missouri Industrial Energy Consumers
responded on May 7, 2019.
On May 9, 2019, a Technical Conference was held on the record regarding the Rebuttal
Testimony. The purpose of the Technical Conference was to provide the Consultants to the
Intervenor and the Rate Commission to respond to questions propounded by members of the
Rate Commission, the District, the Intervenor, and Legal Counsel to the Rate Commission.
On May 14, 2019, the District submitted its Second Discovery Request to Intervenor
Missouri Industrial Energy Consumers, to which Missouri Industrial Energy Consumers
responded on May 24, 2019.
On May 14, 2019, the Rate Commission submitted its Fifth Discovery Request to the
District, which the District responded to on May 24, 2019.
On May 16, 2019, Intervenor Missouri Industrial Energy Consumers submitted its Third
Discovery Request to the District, which the District responded to on May 28, 2019.
On June 3, 2019, the District submitted Surrebuttal Testimony of Richard Unverferth,
Tom Beckley, William Stannard, Marion Gee, Bethany Pugh and Tim Snoke. The Rate
Consultants submitted Surrebuttal Testimony of Pamela Lemoine and Nicole Young. Intervenor
Missouri Industrial Energy Consumers submitted Surrebuttal Testimony of Michael Gorman.
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On June 20, 2019, a Technical Conference was held on the record regarding the
Surrebuttal Testimony. The purpose of the Technical Conference was to provide the Consultants
to the Intervenor and the Rate Commission to respond to questions propounded by members of
the Rate Commission, the District, the Intervenor, and Legal Counsel to the Rate Commission.
On June 24, 2019, Intervenor Missouri Industrial Energy Consumers submitted its Fourth
Discovery Request to the District, which the District responded to on July 3, 2019.
On June 24, 2019, Intervenor Missouri Industrial Energy Consumers submitted its First
Discovery Request to the Rate Commission, which the Rate Commission responded to on July 5 ,
2019.
On June 25, 2019, the Rate Commission submitted its Sixth Discovery Request to the
District, which the District responded to on July 3 , 2019.
On June 25, 2019, the Rate Commission submitted its First Discovery Request to
Intervenor Missouri Industrial Energy Consumers, which Intervenor responded to on July 2,
2019.
On July 12, 2019, a Prehearing Conference was held on the record to provide statements
of the District, the Intervenor and Counsel to the Rate Commission and to answer questions of
the Rate Commissioners.
On July 19, 2019, Prehearing Conference Reports were submitted by the District, the
Rate Commission and Intervenor MIEC.
Ratepayers who did not wish to intervene were permitted to participate in a series of on-
the-record public hearings conducted in six sessions beginning on May 8, 2018, and concluding
on June 29, 2018. Specifically, public hearing sessions were held as follows:
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Date Location Address Time
May 14, 2019 St. Louis County Library
Grant’s View Branch
9700 Musick Road
St. Louis, MO 63123
6:00 p.m.
May 22, 2019 Manchester Parks Recreation
& Arts Center
359 Old Meramec Station Rd.
Manchester, MO 63021
6:00 p.m.
(online
streaming)
June 4, 2019 The Heights 8001 Dale Avenue
Richmond Heights, MO 63117
6:00 p.m.
June 27, 2019 Maryland Heights
Community Center
2300 McKelvey Road
Maryland Heights, MO 63043
6:00 p.m.
July 10, 2019 University of Missouri-St.
Louis (UMSL)
Wellness & Recreation Center
1 University Blvd.
St. Louis, MO 63121
6:00 p.m.
July 24, 2019 Metropolitan St. Louis Sewer
District
2350 Market Street
St. Louis, MO 63103
9:00 a.m.
(online
streaming)
Public Notice regarding these Proceedings was published in the St. Louis Post-Dispatch
on March 14, March 16, and March 17, 2018, and in the St. Louis American on March 15, 2018,
by the Rate Commission. This Notice contained the time, dates and location of each of the
conferences and hearings. In addition, the Rate Commission utilized a webpage, Twitter,
Facebook and other social media in an effort to increase public involvement.
The public hearing session on July 24, 2019, was held for the purpose of (1) receiving
into evidence any prepared testimony previously submitted to the Commission subject to any
valid objections, together with the discovery responses and transcripts of the technical
conferences; (2) permitting the Rate Commission members or those designated by the Rate
Commission to ask questions regarding any issue addressed by the prepared testimony or any
other element of the Proposed Rate Change; and (3) permitting closing statements by the
District, any person who has been permitted to intervene, and Legal Counsel for the Rate
Commission.
During the Proceedings, Exhibits and Discovery Requests and Discovery Request
Responses were introduced and on July 24, 2019, were admitted into evidence. These
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documents, together with the transcripts of testimony, written testimony, and certain other
materials, may be found at https://www.stlmsd.com/our-organization/msd-rate-
commission/meetings-and-exhibits-FY2021-2024-Rate-Commission and the Proceedings Index
may be found at the end of the Report.
The findings and determinations contained in this Report were considered at public
meetings of the Rate Commission on July 29, 2019, and August 5, 2019, and adopted by
Resolution of the Rate Commission on August 12, 2019.
Statutory Construction
The primary rule of construction of terms found in the Charter Plan is to ascertain the
intent from the language used, to give effect to that intent if possible, and to consider the words
used in their plain and ordinary meaning. See Hampton v. Hampton, 17 S.W.3d 599, 602 (Mo.
App. W.D. 2000). Under traditional rules of statutory construction, the word’s dictionary
definition supplies its plain and ordinary meaning. See Hoffman v. Van Pak Corp., 16 S.W.3d
684, 688 (Mo. App. E.D. 2000). The courts are without authority to read into a statute an
interpretation that is contrary to the intent made evident by giving the language employed in the
statute its plain and ordinary meaning. See Mo. Dept. of Pub. Safety v. Murr, 11 S.W.3d 91, 96
(Mo. App. W.D. 2000). Only when the statute is ambiguous, or when it leads to an illogical
result, may courts look past the plain and ordinary meaning of the statute. Id. To determine if a
statute is unambiguous, “the standard is whether the statute’s terms are plain and clear to one of
ordinary intelligence.” See Wolff Shoe Co. v. Dir. of Revenue, 762 S.W.2d 29, 31 (Mo. banc
1988).
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CRITERIA FOR RECOMMENDATION
The Rate Commission is to review and make recommendations to the Board regarding
proposed changes in wastewater, stormwater or tax rates necessary to pay (i) interest and
principal falling due on bonds issued to finance assets of the District; (ii) the costs of operation
and maintenance; and (iii) such amounts as may be required to cover emergencies and
anticipated delinquencies. See Charter Plan, § 7.040.
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First Criteria: Whether the Rate Change Proposal is necessary to pay interest and
principal falling due on bonds issued to finance assets of the District.
The District’s Proposed Rate Change Proposal for a Wastewater Rate Change proposes a
rate increase to generate an approximately 3.6% increase in revenues to finance approximately
$1.58 billion in needed improvements during FY 2021 through FY 2024. See Ex. MSD 1, pgs.
ES-1 – ES-2. The District’s Capital Improvement and Replacement Program (the “CIRP”) is the
primary driver of the District’s financial plan, representing approximately two-thirds of
anticipated expenditures during the rate cycle. See Ex. MSD 1, p. 4-15. The largest components
of the CIRP over this period will be capital investment related to capacity improvements in the
wastewater system, and sewage sludge incineration. Id. The CIRP includes improvements
necessary to comply with the Consent Decree, with permit and regulatory requirements outside
of the Consent Decree, and with asset management renewal at the treatment plants. Id.
The District proposes to finance these improvements by a combination of rate revenue
and debt financing.2 See Ex. MSD 1, p. 4-16. The District intends to use approximately $587
million in rate revenue (approximately 37% of the total CIRP) with the remainder of the CIRP
financed by a combination of grants, loans from the state revolving fund, and existing and
additional bonding authority. See Ex. MSD 1, p. 4-17. A typical metered residential customer
contributing 6 CCF of wastewater each month will experience a rate increase of approximately
3.3% each year from FY 2021 through FY 2024. See Ex. MSD 1, p. ES-5. The District intends to
seek voter authorization prior to FY 2022 for an additional $500 million of additional wastewater
revenue bonds. See Ex. MSD 1, p. ES-2. If the voters do not approve additional bonding
2 The Rate Change Proposal relies upon certain assumptions with respect to conditions,
events, and circumstances that may occur in the future. Although considered reasonable,
some of these anticipated conditions, events and circumstances may not occur resulting in
potential differences in revenues and costs than currently projected.
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authority, the District will need to finance the CIRP with 100% cash financing once its existing
bonding authorization has been depleted. See Ex. MSD 1, p. 6-1. Rates would increase by
approximately 15% in FY 2022, by 17% in FY 2023, and by 13% in FY 2024 if voters do not
approve additional bonding authority. Id.
Revenue Bonds
The District was formed on February 9, 1954, when voters in the City of St. Louis and a
portion of St. Louis County approved the Charter Plan to provide a metropolitan-wide system of
stormwater treatment and facilities for the collection, treatment, and disposal of sewage. The
Charter Plan was amended on November 7, 2000, and further amended on June 5, 2012.
Section 3.020. Powers of the District. – the District established under the
provisions of this Plan shall have power:
…
To meet the cost of acquiring, constructing, improving, or extending all or any
part of the sewer or drainage systems: (a) through the expenditure of any funds
available for that purpose; (b) through the issuance of bonds for that purpose,
payable from taxes to be levied and collected by the District; (c) through the
issuance of bonds for that purpose, payable from special benefit assessments
levied and collected by the District; (d) from the proceeds of special benefit
assessments or bills evidencing such assessments; (e) from any other funds which
may be obtained under any law of the state or of the United States for that
purpose; (f) from the proceeds of revenue bonds, payable from the revenues to be
derived from the operation of sewerage and drainage facilities and systems of the
entire District … as may be set forth in propositions submitted at elections in the
District … from time to time called and held to authorize the issuance of such
revenue bonds; or (g) from any combination of any or all such methods of
providing funds.
…
See Charter Plan, § 3.020(15) (emphasis added).
The Charter Plan requires an annual budget, an explanatory budget message, and a
general appropriation ordinance conforming with the budget. The budget shall provide a
22
complete financial plan for the budget year for all District and subdistrict funds, and shall
include the following:
(1) Estimated revenues to be actually received from all sources during the
budget year, together with a comparative statement of revenues for the two
years next preceding, itemized by year, fund, and source.
(2) Proposed expenditures, including projected expenses included in the Rate
Commission’s budget as provided in Section 7.260, recommended by the
Executive Director for the budget year, together with a comparative
statement of expenditures for the two years next preceding, itemized by
year, fund, activity, and object.
(3) The amount required for the payment of interest, amortization, and
redemption charges on the debt of the District or any subdistrict.
(4) A general budget summary.
(5) A list of capital projects.
In no event shall the total amount of proposed expenditures for the budget
year from any fund exceed the estimated revenues to be actually received
plus any unencumbered balance or less any deficit estimated for the
beginning of the budget year.
See Charter Plan, § 7.130 (emphasis added). Subject to these restrictions, the District has the
authority to issue revenue bonds.
At the end of each fiscal year, the unexpended and unencumbered parts of all
appropriations shall revert to the funds from which appropriated. See Charter Plan, § 7.050.
Upon approval by the Board of Trustees, the Executive Director may transfer any
unencumbered appropriation balances or portion thereof from one classification of expenditure
to another. See Charter Plan, § 7.150. The District’s authority to issue revenue bonds requires
the approval of the voters of the District. Specifically, the Charter Plan provides:
No general obligation bonds, except bonds for refunding, advance refunding,
extending, or unifying the whole or any part of valid bonded indebtedness, shall
be issued without the assent of the voters of the District … in the number required
by Article VI, § 26(b) of the Constitution of Missouri (as amended from time to
time), voting at an election to be held for that purpose. No revenue bonds payable
from the revenues to be derived from the operation of any or all sewer and
drainage systems and facilities of the District … except bonds for refunding,
advance refunding, extending, or unifying the whole or any part of revenue bonds,
23
shall be issued without the assent of a simple majority of the voters of the District
… voting at an election to be held for that purpose. Notwithstanding anything
herein to the contrary, the District is expressly authorized to issue District-wide
general obligation and revenue bonds.
See Charter Plan, § 7.170 (emphasis added).
The Missouri Supreme Court has expressly recognized this authority, stating, “[t]he
other powers objected to, namely, … incurring debts, … issuance of tax anticipation warrants,
… and issuance of bonds, … are essential powers of such district.” See State on inf. Dalton v.
Metro. St. Louis Sewer Dist., 275 S.W.2d 225, 231 (Mo. banc 1955). The court continued,
“[w]ithout the power to incur debts and issue bonds, adequate drains, sewers and disposal plants
could not be constructed. However, in the exercise of this power, the District is subject to the
financial limitations imposed by the Constitution on all government subdivisions.” Id.
Outstanding Revenue Bonds
Revenue bonds do not rely upon the general credit or tax money of the District and do
not constitute indebtedness of the District within the limitations of Charter Plan § 7.190 or
Article VI, § 26(b) of the Missouri Constitution. Under the authority of Mo. Rev. Stat. §
250.120.1 (2016), once the voters have approved revenue bonds, the District has authority to
raise wastewater and stormwater rates to pay principal and interest on the bonds and to meet the
costs 3 of maintenance and operation of the facilities.
On April 22, 2004, the Board of Trustees issued its first revenue bonds under the terms
of a Master Bond Ordinance.
Section 6.1 of the Bond Ordinance requires the District to operate the System on a
revenue producing basis and at all times to prescribe, fix, maintain, and collect rates, fees, and
other charges for the services, facilities, and commodities furnished by the System fully
3 District “costs” are based on various levels of estimates.
24
sufficient at all times to pay annual operation and maintenance (“O&M”) expense, provide a
reasonable operating reserve, produce net revenues in each fiscal year equal to at least 1.25
times the Debt Service Requirement on all Senior Bonds currently outstanding and 1.15 times
the Debt Service Requirement on all Bonds then outstanding and accumulate sufficient funds to
meet the costs of major renewals, replacements, repairs, additions, betterments, and
improvements to the System to keep it in good working condition. See Ex. MSD 14, § 6.1.
Additional senior revenue bonds have been issued in 2006, 2008, 2010, 2011, 2012,
2013, 2015, 2016 and 2017. See Ex. MSD 1, p. 4-18. Supplemental Bond Ordinances
authorized by the Board of Trustees relating to additional revenue bond issues include the same
covenants. See Exs. MSD 15 through 36. The principal remaining on all of the District’s senior
revenue bonds issued to date is approximately $1.2 billion as of June 30, 2018. The District has
also participated in multiple subordinate series of revenue bonds issued under the Missouri
State Revolving Fund loan program. The total amount of principal remaining on all of the
District’s State Revolving Fund loans issued to date is approximately $423 million as of June
30, 2018. See Ex. MSD 1, p. 4-18.
A consideration in measuring the adequacy of District revenues is the provision of
sufficient debt service coverage to meet the actual debt service paid to the bondholders on the
senior revenue bonds and on the State Revolving Fund loans. The debt service coverage of the
senior revenue bond debt service, i.e., the ratio of net revenue to total senior revenue bond debt
service for each year of the study period shows the debt service coverage of the combined
senior revenue bond and State Revolving Fund debt service (i.e., the ratio of net revenue to total
debt service for each year of the study period). Current wastewater revenue bond covenants
require the District to provide debt service coverage equal to at least 125% (>1.25x) of the
25
annual principal and interest payment on all senior revenue bonds and 115% (>1.15x) of the
combined annual principal and interest payment on all wastewater senior revenue bonds and all
State Revolving Fund loans. See Ex. MSD 1, p. 4-24.
Moody’s Investors Services assigned a credit rating of Aa1 to the District’s 2017A
revenue bond obligations on November 17, 2017. See Ex. MSD 39. Fitch Ratings assigned a
rating of AA+ on November 21, 2017, to the District’s Series 2017A revenue bond obligations.
See Ex. MSD 40. Standard & Poor’s Ratings Service assigned a rating of AAA on November
15, 2017, to the District’s Series 2017A revenue bond obligations. See Ex. MSD 38.
The rating agencies have each noted that the District’s current credit rating could be
compromised if projected senior debt service coverage fell below the 2.4x to 2.9x range and
projected total debt coverage fell below the 1.6x to 1.8x range. The Rate Proposal is designed to
maintain a senior debt service coverage ratio of at least 2.50x over the Rate Proposal period.
See Ex. MSD 3G, p. 5, ll. 3-6. See also Ex. MSD 3F, p. 7, ll. 18-22; Ex. MSD 68, p. 286, ll. 8-
20; Ex. MSD 68, p. 293-94, ll. 4-5 & 1; Ex. MSD 67A, p. 3.
Proposed Revenue Bonds
The Rate Change Proposal is designed to generate debt service coverage for proposed
revenue bonds consistent with rating agencies’ expectations for “AA” rated large metropolitan
wastewater systems. See Ex. MSD 3G, p. 5, ll. 3-23; p. 6, ll. 1-12. The District’s CIRP projects
are primarily funded by the issuance of senior revenue bonds and State Revolving Fund loans
while the smaller remaining work is on a cash-funded basis (Pay As You Go). Debt financing of
the majority of the CIRP allows the financing burden to be appropriately shared by both present
and future users benefiting from the wastewater system improvements. Capital improvements
routinely incurred each year as determined by the District’s comprehensive asset management
26
program are more appropriately financed with Pay As You Go revenue generated from annual
wastewater service revenue. See Ex. MSD 1, p. 4-16; see also Ex. MSD 3E, p. 4, ll. 1-8.
New senior revenue bonds with a total par value of $785 million and $120 million in
additional State Revolving Fund loans are expected to be issued between FY 2021 and FY 2024
to provide this funding. This will require the District to obtain voter approval for authorization
of $500 million of additional debt financing prior to FY 2022. The District plans to take
advantage of the State Revolving Fund loan program but expects to be limited to $30 million
each year from FY 2021 through FY 2024. In total, cash financing is expected to fund 37% of
the total CIRP between FY 2021 and FY 2024. See Ex. MSD 1, p. 4-17.
The District anticipates receiving grants and contributions of $2.9 million between FY
2021 and FY 2024. Id.
The projected amortization of future revenue bond issues determined by PFM, the
District’s financial advisor, is based on current market conditions and certain assumptions
regarding future market conditions. Proposed revenue bond issues will be governed by
supplemental bond ordinances incorporating the bond covenants set forth in the Master Bond
Ordinance. Generally, future senior revenue bonds are assumed to have a 30-year term and
annual coupon rates between 5.0% and 5.5%. Future State Revolving Fund loans issued to fund
the CIRP are expected to have 20-year terms and a net effective annual interest and
administration cost of about 3% per year. In addition to the interest cost of future debt, the
District will incur issuance costs with each senior revenue bond issue and State Revolving Fund
loan, and be required to maintain a debt service reserve fund for the senior revenue bonds. The
issuance costs for senior revenue bonds are estimated at 1.0% of the total issuance amount.
27
Issuance costs for State Revolving Fund loans are expected to be 0.65% of the total State
Revolving Fund loan amount. See Ex. MSD 1, p. 4-18.
Based on these assumptions, the total annual debt service during the forecast period for
existing debt and future proposed debt is expected to increase from $115.6 million in FY 2019
to $177.0 million in FY 2024. See Ex. MSD 1, p. 4-19. The Missouri Supreme Court has
specifically held that the issuer of revenue bonds for the operation and maintenance of a sewage
system had the authority to raise water and sewage rates, not only to pay principal and interest
in revenue bonds issued for the purpose of construction of a water treatment plant and water
transmission lines, but also to meet the cost of maintenance and operation of the physical plan
itself. See Oswald v. City of Blue Springs, 635 S.W.2d 332, 333-34 (Mo. banc 1982).
Moreover, once the voters have approved the bonds, such increases may be made without again
submitting the increase to the voters. Id. at 334. Under Oswald, approval of the Rate Change
Proposal is not required to meet existing bond covenant requirements on revenue bonds
previously authorized by the voters.
Missouri State Revolving Fund
The “Missouri Clean Water Law” is designed to meet the requirements of the Federal
Clean Water Act of 1987 (the “Act”); 33 U.S.C. §§ 125-1376. See Mo. Rev. Stat. § 644.011
(2016). It also establishes the Missouri Clean Water Commission (the “Commission”), which is
required to adopt rules and regulations to enforce the powers and duties of Chapter 644 and the
Act. See Mo. Rev. Stat. §§ 644.021, 644.026 (2016). The Missouri Code of State Regulations
sets forth the general requirements for the implementation of Title VI of the Act, which
authorizes the administrator of the EPA to make capitalization grants to states to fund financial
assistance programs authorized by Title VI of the Act. See 10 CSR 20-4.021.
28
The Missouri State Revolving Fund Program is a partnership between the EPA and the
Missouri Department of Natural Resources (the “Department”), and provides subsidized low
interest rate loans to qualifying applicants.
In Missouri, the Clean Water State Revolving Fund Program consists of the Water and
Wastewater Loan Fund (“WWLF”) and the Water and Wastewater Revolving Loan Fund
(“WWRLF”) and those accounts secured by funds from the WWLF and the WWRLF. 10 CSR
20-4.040(2)(P). The State Revolving Fund is subject to the requirements, restrictions, and
eligibilities placed on the State Revolving Fund by the Act. Id. The State Revolving Fund also
funds the State Direct Loan Program (“Direct Loans”). See 10 CSR 20-4.041.
The Department may make Direct Loans by purchasing the general obligation bonds,
revenue bonds, short-term notes or other acceptable obligations of any qualified applicant for
the planning, design, and/or construction of an eligible project. See 10 CSR 20-4.041(1). These
loans shall not exceed the total eligible project cost. Id.
Direct Loans are funded from State Revolving Fund loan repayments of federal
capitalization grants. See 10 CSR 20-4.041(3). The Department purchases the revenue bonds,
general obligation bonds, or other acceptable debt obligations from the recipient no later than
six months following the initial operation of the facilities constructed by the project or by the
closing deadline contained in the construction loan agreement, whichever is earlier. See 10 CSR
204.041(8). In addition, the Department may require the recipient to include those assurances
and clauses in the loan agreements and bond resolutions as deemed necessary to protect the
interest of the state. Id.
Under the Direct Loan Program, the bonds, notes or other debt obligations shall be fully
amortized in no more than 20 years after initiation of operation and the payment frequency shall
29
be no less than annually with the first payment no later than one year after the initiation of
operation. See 10 CSR 20-4.041(9). Repayment of principal shall begin no later than one year
after initiation of operation and if at any time during the loan period the facility financed
through a Direct Loan is sold, either outright or on contract for deed, to an entity other than a
political subdivision of the state, the loan becomes due and payable upon transfer. Id.
Cash/Debt Ratio and Debt Service Coverage
It is the District’s position that the proposed rate change is necessary to “balance the use
of debt financing and current wastewater user charge revenue to simultaneously fund a
wastewater improvement and replacement program needed to meet anticipated regulatory
requirements and minimize the impact on customer monthly bills to the extent possible.” See Ex.
MSD 3E, p. 4, ll. 7-10. Tim Snoke testified that the District’s proposal “is an outcome of the
many factors being balanced to fully fund MSD operations and the CIRP in a way that minimizes
rate increases and adheres to MSD actual financial policies…” See Ex. MSD 80F, p. 5, ll. 9-20.
When asked how the debt service coverage targets where developed, Bethany Pugh stated
“[p]rojected minimum coverage targets of 2.5x and 1.8x have been identified as the optimal
coverage levels needed to maintain AA level bond ratings, thereby ensuring cost effective market
access for the District’s large capital program.” See Ex. MSD 3G, p. 5, ll. 8-11.
Michael P. Gorman, testifying on behalf of Missouri Industrial Energy Consumers
(“MIEC”), recommends a modification to the amount of cash or Pay As You Go funding for the
CIRP during the next rate cycle from FY 2021 through FY 2024. See Ex. MSD 79, p. 39, ll. 16-
25; p. 40, ll. 1-25; p. 41, ll. 1-3. Mr. Gorman believes a 40/60 cash/debt ratio relies too heavily
on rate revenue and that the District should consider a funding policy closer to 25/75 cash/debt
ratio. See Ex. MSD 91, p. 192, ll. 7-10.
30
It is Mr. Gorman’s position that the District’s proposed funding mix is a change to
District or Rate Commission Policy and that the change is unnecessary and should remain
consistent. See Ex. MIEC 73, p. 3, ll. 12-13.
In addition, MIEC suggests that the District should target a minimum total debt service
coverage of approximately 1.6x to be consistent with past rate proceedings. See Ex. MIEC 73, p.
9, ll. 17-22. Mr. Gorman agrees with the District that a reassessment of the debt service coverage
and funding mix are warranted, but he does not agree that a shift in the debt service coverage is
necessary. It is Mr. Gorman’s opinion that the minimum total debt service coverage ratio should
be maintained at 1.6x because the District’s proposed changes are not needed to support its bond
rating and maintain access to capital. See Ex. MIEC, p. 3, ll. 15-17.
Pamela R. Lemoine, Rate Consultant to the Commission, states that: (i) the District’s
proposed issuance of revenue bonds and state revolving loan bonds to finance a substantial
portion of the Capital Improvement and Replacement Program is a sound capital financing
approach; and (ii) financing the Capital Improvement and Replacement Program from a mix of
long-term debt and cash financing is reasonable, and helps spread the cost of improvements to
help pay for the improvements. In addition, bond rating agencies favorably view a meaningful
amount of cash financing of a utility’s capital program. Ms. Lemoine believes that the District’s
proposal of approximately 37% cash financing is consistent with the 25% to 30% cash financing
of capital that is deemed an industry accepted best practice. The District’s proposed financing
plan, assuming that voters authorize the District to issue additional bonds, will help minimize the
impact of the Capital Improvement and Replacement Program on wastewater rates during the
projected four-year planning period. See Ex. RC 70, pgs. 13-14, ll. 15-23 & 1-6.
31
Ms. Lemoine observes that the District’s Rate Change Proposal requires substantial
additional debt to be incurred over a short period of time, with continued issuance of debt in FY
2021 through FY 2024 and beyond in order to continue to fund the projects required by the
Consent Decree. While the District’s proposal provides for debt service coverage well over the
minimum required by the District’s bond covenants, the District’s proposal indicates projected
debt service coverage declining to the District’s minimum policy level by FY 2024. She
expresses concern given that the Rate Proposal results in debt service coverage reaching the
District’s minimum policy levels by FY 2024 and any unforeseen impact to revenue generation
and/or expenditures relative to the assumptions used in the development of the Rate Change
Proposal could pose a risk of coverage levels dropping lower than the District’s minimum policy
level. Id. at p. 14, ll. 16-23; p. 15, ll. 1-6.
Ms. Lemoine considers the District’s policy to maintain senior debt service coverage of
2.5 times or greater and total debt service coverage of 1.8 times or greater is a valid and
important metric, particularly in light of the District’s current and anticipated future heavy debt
profile. Id. at p. 21, ll. 2-4.
Available cash balances are a very important element of a wastewater utility’s financial
plan. Adequate fund balances are necessary to ensure adequate working capital and funds for
unanticipated events. Table 4-10 of the District’s Rate Proposal (Ex. MSD 1A, p. 4-23, ll. 24)
presents the District’s forecasted combined operating reserve. As shown, the District projects
that at the end of FY 2024 there will be a balance of $49,871,963 in Combined Operating
Reserves, equating to approximately 89 days of operation and maintenance expenses. This is
consistent with the targets of other wastewater utilities and provides the District with adequate
32
working capital to provide for any unanticipated expenditures or emergencies. Id. at p. 21, ll. 7-
14.
It is the overall position of the Rate Commission that the cash/debt mix is adequate to
pay the interest and principal falling due on bonds issued to finance assets of the District, and
meets the standard set forth in the Charter. Similarly, the Rate Commission finds that the debt
service coverage ratio used in the Rate Change Proposal is appropriate to provide funds
necessary to pay the interest and principal falling due on the bonds issued by the District, and
thus meets the standard set forth in the Charter.
However, the Rate Commission notes that the cash/debt mix may actually be excessive
and recommends that the District consider a longer term plan on long-term debt. The Rate
Commission is concerned that authorizing additional bonds while the District has not expended
the amount already authorized will impact future potential ratings and future generations of
District customers. The Rate Commission finds that the District’s proposed total debt service
coverage ratio is not the optimal ratio. The Rate Commission strongly suggests the Board of
Trustees take into consideration the long-term outlook of the District. The Rate Commission
suggests taking a long view of debt financing over a 10 to 20 year period to guide future four
year rate cycles.
The Rate Commission believes that the evidence found in this record supports a finding
that the Wastewater Rate Change Proposal is necessary to pay interest and principal falling due
on bonds issued to finance assets of the District.
33
THE RATE COMMISSION, AFTER DISCUSSION AND CONSIDERATION OF
ALL OF THE FACTS AND CIRCUMSTANCES DISCLOSED IN THESE
PROCEEDINGS, FINDS AND DETERMINES THAT THE RATE CHANGE
PROPOSAL TO FUND THE CAPITAL IMPROVEMENT AND REPLACEMENT
PROGRAM WITH A COMBINATION OF BOND AND CASH FINANCING PROVIDES
FOR THE FUNDS NECESSARY TO PAY PRINCIPAL AND INTEREST FALLING
DUE ON REVENUE BONDS PREVIOUSLY AUTHORIZED AND THE ADDITIONAL
$500 MILLION REVENUE BONDS PROPOSED TO BE ISSUED.4
ALTERNATIVELY, IF VOTER APPROVAL IS NOT OBTAINED FOR FUTURE
BOND FINANCING, THE RATE COMMISSION, AFTER CONSIDERATION OF ALL
OF THE FACTS AND CIRCUMSTANCES DISCLOSED IN THESE PROCEEDINGS,
FINDS AND DETERMINES THAT THE RATE CHANGE PROPOSAL TO FUND THE
CAPITAL IMPROVEMENT AND REPLACEMENT PROGRAM WITH A
COMBINATION OF BOND AND CASH FINANCING PROVIDES FOR THE FUNDS
NECESSARY TO PAY PRINCIPAL AND INTEREST FALLING DUE ON THE
REVENUE BONDS PREVIOUSLY ISSUED AS AUTHORIZED IN PRIOR
PROCEEDINGS TO FINANCE THE CAPITAL IMPROVEMENT AND
REPLACEMENT PROGRAM.
4 Please see page 120 of this Report for Minority Report of Commissioner Palans on the
Amount of Bonding Proposed.
34
Second Criteria: Whether the Rate Change Proposal is necessary to pay the costs
of operation and maintenance.
The District’s current wastewater rate structure consists of monthly service charges and
volume charges applicable to all District customers. All non-residential customers are also
assessed a compliance charge and extra strength charges where applicable. The monthly service
charges include a billing and collection charge and a system availability charge. A volume
charge is assessed to all customers based on their respective water usage. Water usage
information is provided by customers’ respective water provider on either a metered or
unmetered basis. Non-residential customers are also assessed one of five tiered compliance
charges based on the amount of inspection and testing of wastewater needed to comply with
current regulations. Extra strength surcharges are applied to monitored non-residential customers
generating excess biochemical oxygen demand, chemical oxygen demand, and total suspended
solids. See Ex. MSD 1, p. 4-1.
A summary of the financial plan showing projected wastewater revenues and
wastewater revenue requirements for the District during the forecast period is presented in
Table 4-10 of Exhibit MSD 1 which shows projected wastewater user charge revenue that is
required in order to balance the revenue requirements through FY 2024. The increase shown for
each year was selected based on consideration of three principal criteria:
(i) Total revenue necessary to meet cash requirements for normal wastewater
operations. This includes consideration of a one-month lag in the receipt of
additional user charge revenue from increased rates;
(ii) Annual increases in wastewater revenues available to cash finance a portion of
the wastewater utility related major capital improvements; and
(iii) Wastewater revenue required to meet certain financial metrics, based on
comments from the District’s rating agencies, including debt service coverage
levels and strong liquidity position over the Rate Proposal period.
35
See Ex. MSD 1, p. 4-22. Total Revenue is projected to be $411.8 million in FY 2019 and
increase to $517.2 million in FY 2024. This represents an overall annual compound increase of
5.3% during this time period. Id.
Wastewater Operating Reserve. The operating reserve is a balance maintained to
accommodate fluctuations in annual revenues and expenditures. The District has a minimum
operating reserve target equal to 60 days of annual operating expenses. The existing revenue
bond covenants require the District to maintain a minimum balance equal to 45 days of
Operation and Maintenance expense. The self-imposed 60-day minimum provides a buffer to
allow for potential timing issues involved with funding requirements, provide increased
operational flexibility, and helps support future bond ratings. The wastewater operating reserve
is projected to exceed the minimum balance during the period FY 2021 to FY 2024. Figure 4-5
presents the estimated balance in the wastewater operating reserve throughout the forecast
period. See Ex. MSD 1, p. 4-19. See also Ex. MSD 3I, p. 5-6, ll. 21-24 & 1-2.
Customer Accounts. The District’s ratepayers are classified into three customer classes:
single family, multi-family and non-residential. The District’s wastewater revenue reflects the
assessment of the specific rate components for each customer class. Id.
The historical and projected average number of wastewater customers served by the
District are provided in Figure 4-1 and Table 4-2 of Exhibit MSD 1. The projected change in the
number of customers is based on a 10-year average historical trend using a US Census based
cohort-component methodology. As indicated in Table 4-2, the number of total customer
accounts increased by 0.83% between FY 2013 and FY 2018. Based on this trend, the number of
customer accounts is projected to increase by 0.1% annually throughout the forecast.
36
Projected Wastewater Revenues. Estimated revenues for FY 2021 through FY 2024 use
FY 2020 approved rates. The District’s historical wastewater revenue for FY 2017 and FY 2018
is based on actual rates, customer account and usage data. Projected revenue from wastewater
user charges is based on projected customer demands and the rates approved through FY 2020
(revenue in FY 2021-FY 2024 assumes no changes in the approved rates for FY 2020). The
wastewater user charge revenue under existing rates increased from $440.9 million in FY 2020
to a projected $444.8 million in FY 2024. This change is due to a combination of key factors:
approved rate increases, the impact of economic conditions, projected fluctuations in excess
strength wastewater revenue due to more extensive pre-treatment programs and projected
decreases in wastewater volume consistent with historical trends. As customer volumes
continue to decline over the projection period, the revenue would be expected to decline as
well. See Ex. MSD 1, p. 4-8.
Wastewater Operation and Maintenance Expense. On April 22, 2004, the Board of
Trustees issued revenue bonds under the terms of a Master Bond Ordinance which obligated the
District to provide revenues sufficient to fund 100% of the expenses of operation and
maintenance and for the accumulation of a reasonable operating reserve. See Ex. MSD 14,
§ 6.1.1.
The revenue needed to support the Operations wastewater system must be sufficient to
meet its cash requirements. The District’s operating revenue requirements consist of the
following: (i) total wastewater system Operations and Maintenance expenses; (ii) expenditures
for routine capital improvements; (iii) components of the CIRP funded directly from revenues;
(iv) wastewater revenue bond debt service; and (v) a minimum 60-day operating reserve. See
Ex. MSD 1, p. 4-12.
37
A summary of projected wastewater Operations and Maintenance for FY 2017 through
FY 2024 is presented in Table 4-6 of Exhibit MSD 1. Future wastewater operation and
maintenance expense is projected to increase from $184.6 million in FY 2019 to $211.3 million
in FY 2024. See Ex. MSD 1, p. 4-13.
The District asserts that the single digit increases in wastewater rates are necessary for
FY 2021 through FY 2024 to provide the revenue to perform operations, maintenance, and
construction activities required to comply with the Clean Water Act as well as other regulatory
requirements. See Ex. MSD 3A, p. 2, ll. 3-6. Wastewater operations and maintenance expenses
for FY 2021 through FY 2024 are projected to be $786 million, or 89% of the total District
operating expenses of $881.3 million the time period ($95 million is attributable to stormwater).
Exhibit MSD 1 (Rate Proposal), Section 7.3 Performance Metrics, page 7-97 through 7-
99 provide a number of performance metrics, comparing the District with peers using
benchmark metrics from the 2018 AWWA Utility Benchmarking Survey for Wastewater
Facilities. Section 7.3.1 provides operational benchmarks, and indicates that the District
performs well in comparison to peers. Specifically, this Section notes that collection operations
and maintenance cost of wastewater services is higher for the District than median. Treatment
operations and maintenance cost of wastewater services is significantly lower than median.
Energy consumption is slightly below median. Section 7.3.1 includes other benchmark metrics
as well. Id. Wastewater Operation and Maintenance expenses are funded through wastewater
user charges, engineering fees, waste hauler permits, connection fees, interest income and other
miscellaneous revenues. Wastewater user charges also fund debt service expenses, a portion of
the CIRP and necessary reserves. See Ex. MSD 3E, p. 5, ll. 3-12.
38
Bret Berthold testified on behalf of the District that the “Rate Change Proposal provides
the funds needed to continue adequate O&M in the collection systems, pump stations, and
wastewater treatment plants. The [Capacity, Management, Operation and Maintenance] program
should continue to improve the operations of the collection system and reduce overflows and
basement backups. This Rate Change Proposal will also allow for our aging treatment plants to
continue to operate efficiently and meet permit requirements.” See Ex. MSD 3D, p. 4, ll. 11-15.
Pamela R. Lemoine, Rate Consultant to the Rate Commission, testified that the District’s
projected costs to provide wastewater service and complete anticipated capital projects required
under the Consent Decree over the Rate Proposal period appear to be reasonable and are
projected to provide the District with adequate funding to maintain the financial health of the
utility. The District has proposed wastewater rates based on cost of service principles that are
commonly used in the industry, as outlined in the Water Environment Federation’s Manual of
Practice No. 27, “Financing and Charges for Wastewater Systems.” See Ex. RC 70, p. 11, ll. 5-
13.
There was no evidence presented that the District Rate Change Proposal would not
provide the funds necessary to pay the costs of operations and maintenance.
THE RATE COMMISSION, AFTER DISCUSSION AND CONSIDERATION OF
ALL OF THE FACTS AND CIRCUMSTANCES DISCLOSED IN THESE
PROCEEDINGS, FINDS AND DETERMINES THAT THE RATE CHANGE
PROPOSAL PROVIDES THE FUNDS NECESSARY TO PAY THE COSTS OF
OPERATION AND MAINTENANCE.
39
Third Criteria: Whether the Rate Change Proposal provides for funds in such
amounts to cover emergencies and anticipated delinquencies.
Proposed Wastewater Capital Funding. The Rate Change Proposal presents the District’s
proposed use of $539 million of debt financing pursuant to its existing $900 million debt
financing authority, an additional $366 million of additional debt under a new $500 million
authorization, and $550 million in cash financing to fund its Wastewater Capital Improvement
and Replacement Program through FY 2024 to provide the funds needed to comply with
regulatory requirements relating to deficiencies in the District’s wastewater system including
sewers, pump stations and treatment plants and to satisfy the requirements of the Consent
Decree. See Ex. MSD 3F, p. 2, ll. 4-9.
The District proposes to finance the required capital improvements by a combination of
wastewater user charge revenues, available fund balances, revenue bond proceeds, Missouri
Clean Water State Revolving Fund loan proceeds, potential commercial paper proceeds, grants
and contributions, other operating revenues, and interest income. See Ex. MSD 1, p. 4-17.
Proposed Wastewater Operations and Maintenance Funding. The District’s current
wastewater rate structure consists of monthly service charges and volume charges applicable to
all District customers. All non-residential customers are also assessed a compliance charge and
extra strength charges where applicable. The monthly service charges include a billing and
collection charge and a system availability charge. A volume charge is assessed to all customers
based on their respective water usage. Water usage information is provided by customers’
respective water provider on either a metered or unmetered basis. Non-residential customers are
also assessed one of five tiered compliance charges based on the amount of inspection and
testing of wastewater needed to comply with current regulations. Extra strength surcharges are
40
applied to monitored non-residential customers generating excess biochemical oxygen demand,
chemical oxygen demand, and total suspended solids. Id. at p. 4-1.
Days Cash on Hand. Days Cash on Hand is a liquidity metric that measures an entity’s
ability to meet short-term needs and contingencies. Days Cash on Hand is calculated by dividing
cash and relatively liquid investments by operating expenses (less depreciation) and then
dividing by 365 days. The District’s financial planning model was developed to ensure a
minimum of 550 Days Cash on Hand. See MSD 3F, p. 6, ll. 15-19.
Wastewater Operating Reserve. The operating reserve is a balance maintained to
accommodate fluctuations in annual revenues and expenditures. The District has a minimum
operating reserve target equal to 60 days of annual operating expenses. The existing revenue
bond covenants require the District to maintain a minimum balance equal to 45 days of
Operations and Maintenance expense. The self-imposed 60 days minimum provides a buffer to
allow for potential timing issues involved with funding requirements, provide increased
operational flexibility, and helps support future bond ratings. The wastewater operating reserve is
projected to exceed the minimum balance during the period FY 2021 to FY 2024. Figure 4-5
presents the estimated balance in the wastewater operating reserve throughout the forecast
period. See Ex. MSD 1, p. 4-19; see also Ex. MSD 3I, p. 5-6, ll. 21-24 and 1-2.
Wastewater Cash Balances. Available cash balances are a very important element of a
wastewater utility’s financial plan. Adequate fund balances are necessary to ensure adequate
working capital and funds for unanticipated events. Table 4-10 of the District’s Rate Proposal
(Ex. MSD 1) presents the District’s forecasted Operating Reserve. As shown, the District
projects that at the end of FY 2020 there will be a balance of $49,871,963 in Operating Reserves,
equating to approximately 89 days of Operation and Maintenance expenses. This is consistent
41
with the targets of other wastewater utilities and provides the District with adequate working
capital to provide for any unanticipated expenditures or emergencies. See Ex. RC 70, p. 21, ll. 7-
14.
Collection of Unpaid Wastewater Charges. The District, as a public sewer district created
and authorized pursuant to constitutional authority, may discontinue service and place a lien
upon a customer’s property for unpaid sewer charges. This lien will have priority and be
enforced in the same way as taxes are levied for state and county purposes. Mo. Rev. Stat.
§ 249.255 (2016).
The District may “establish by ordinance a schedule or schedule of rates, rentals, and
other charges, to be collected from all the real property served by the sewer facilities of the
District … and to collect or enforce collection of all such charges.” See Charter Plan, § 3.020
(16).
In 1957, the Board of Trustees of the District adopted an Ordinance providing that:
Whenever a sewer service charge has been delinquent for more than sixty days
the Executive Director may cause a notice of lien for non-payment thereof to be
filed in the Office of the Recorder of Deeds within and for the City of St. Louis or
St. Louis County, as the case may be. Such notice of lien shall state the amount of
the delinquent sewer service charge, and shall properly describe the property
against which such lien is asserted. Upon the filing of such notice, such sewer
service charge shall be and become a lien upon the real property served to the
amount of such delinquent bill, and shall have priority over all other liens except
taxes, deeds of trust then of record, and prior judgments.
District Ordinance 138 (June 24, 1957).
The District has the authority to impose and enforce a lien upon the real property of a
customer for the failure to pay sewer charges. See St. Louis Inv. Prop., Inc. v. Metro. St. Louis
Sewer Dist., 873 S.W.2d 303 (Mo. App. E.D. 1994). The Missouri Revised Statutes provides that
should a public sewer district place a lien upon a customer’s property for unpaid sewer charges,
42
the lien shall have priority and be enforced in the same manner as taxes levied for state and
county purposes. Mo. Rev. Stat. § 249.255.1 (2016). Prior to 1991 and the enactment of Section
249.255, no Missouri Statute or District ordinance gave the District’s sewer liens priority over
deeds of trust. St. Louis Inv. Prop., Inc., 873 S.W.2d at 307. Pursuant to Section 249.255, District
liens are applied prospectively and do not have priority over deeds of trust recorded prior to the
enactment of Mo. Rev. Stat. § 249.255.1 (2016) on May 29, 1991. See Gershman Inv. Corp. v.
Duckett Creek Sewer Dist., 851 S.W.2d 765, 769 (Mo. App. E.D. 1993). However, any liens
imposed after 1991 have the same priority and are enforced in the same manner as taxes levied
for state and county purposes. See Mo. Rev. Stat. § 249.255.1 (2016).
Customer Assistance Charges. The District provides a 50% discount on wastewater
charges for low-income residential customers participating in the District’s Customer Assistance
Program (“CAP”) based on established District policy. The current customer participation is
approximately 4,200 customer accounts or 1% of the District’s total number of single family and
multi-family (up to 6 units) ratepayers. Figure 4-8 shows the historical 5-year trend in the
program. See Ex. MSD 1, p. 4-38.
The first CAP rate was adopted by the Board of Trustees in 1993 by Ordinance 9031.
Since that time numerous changes have been made to the program to remain current with the
changing demographics of District ratepayers. Current policy defines Customer Assistance
Program eligibility as residential customers with household income for the previous year less
than 200% of the most recent Health and Human Services poverty guidelines by household size
and less than 250% for disabled individuals or those ages 62 or older. The District expanded the
eligibility criteria to include Multi-Family residential customers residing in Multi-Family
housing consisting of six units or less. In November 2014, the District Board of Trustees
43
approved a one-time 50% reduction in any outstanding service charges for those accepted into
the program. These changes were made to assist the District’s continued efforts to increase the
number of customers participating in the program. Considerable focused outreach efforts are
also a significant component of promoting the Customer Assistance Program. Id. at p. 4-39.
The cost impact of the District’s current CAP on a typical single family residential customer not
eligible for assistance and discharging 6 Ccf per month of wastewater is expected to be about
$0.25, or 0.43% per month of the District’s FY 2021 wastewater service charge revenue. The
impact of the change in eligibility requirements is expected to increase participation in
subsequent years as the District continues to actively promote this program and increase the
number of qualified low-income customers. Id. Several comments were made at public hearings
regarding customer assistance. The Rate Commission encourages the District to make every
possible effort to inform the public of the availability of the CAP program and the services it
provides.
The Rate Change Proposal has been set to achieve minimum debt coverage ratios of
2.50x (senior bonds) and 1.80x (total bonds), a minimum days Cash on Hand target of 550
days, and a minimum Operating Reserve of 60 days. See Ex. MSD 3F, p. 7, ll. 17-22. “Days
cash on hand is a liquidity metric that measures an entity’s ability to meet short-term needs and
contingencies. Days cash on hand is calculated by dividing cash and relatively liquid
investments by operating expenses (less depreciation) and then dividing by 365 days.” See Ex.
MSD 3G, p. 6, ll. 16-19. A bad debt provision equal to the projected base charge and volume
charge revenue growth from FY 2020 to FY 2024 has been applied to the FY 2019 bad debt
expense budget to compensate for a potential decrease in the collection rate due to rate
increases. See Ex. MSD 3E, p. 4, ll. 18-23. The testimony of Bethany Pugh of PFM notes that
44
the Moody’s Water and Sewer Utilities US 2019 outlook report on December 5, 2018 states that
the 2019 outlook is stable, and that “‘Liquidity will likely top a median of 450 days cash on
hand in 2019, a very healthy level.’” See Ex. MSD 3G, p. 7, ll. 2-10.
The District Rate Change Proposal states that the “operating reserve is a balance
maintained to accommodate fluctuations in annual revenues and expenditures. The District has
a minimum operating reserve target equal to 60 days of annual operating expenses. The existing
revenue bond covenants require the District to maintain a minimum balance equal to 45 days of
O&M expense. The self-imposed 60 day minimum provides a buffer to allow for potential
timing issues involved with funding requirements, provide increased operational flexibility, and
helps support future bond ratings. The [Wastewater] operating reserve is projected to exceed the
minimum balance throughout the forecast period [FY 2021 – FY 2024].” See Ex. MSD 1, p. 4-
19.
There was no evidence presented that the District Rate Change Proposal would not
provide the funds necessary to cover emergencies and anticipated delinquencies.
THE RATE COMMISSION, AFTER DISCUSSION AND CONSIDERATION OF
ALL OF THE FACTS AND CIRCUMSTANCES DISCLOSED IN THESE
PROCEEDINGS, FINDS AND DETERMINES THAT THE RATE CHANGE
PROPOSAL PROVIDES FOR FUNDS IN SUCH AMOUNTS AS MAY BE REQUIRED
TO COVER EMERGENCIES AND ANTICIPATED DELINQUENCIES.
45
FACTORS FOR RECOMMENDATION
Any Rate Change recommended to the Board of Trustees by the Rate Commission is to
be accompanied by a statement of the Rate Commission that the proposed Rate Change, and all
portions thereof:
(1) is consistent with constitutional, statutory or common law as amended from time
to time;
(2) enhances the District’s ability to provide adequate sewer and drainage systems
and facilities, or related services;
(3) is consistent with and not in violation of any covenant or provision relating to any
outstanding bonds or indebtedness of the District;
(4) does not impair the ability of the District to comply with applicable Federal or
State laws or regulations as amended from time to time; and
(5) imposes a fair and reasonable burden on all classes of ratepayers.
See Charter Plan, § 7.270.
46
First Factor: Whether the Rate Change Proposal, and all portions thereof, “is
consistent with constitutional, statutory or common law as amended from time to time.”
The Charter Plan does not define the terms or phrases utilized as the criteria governing
the rate. As such, to interpret the meaning of words used in a statute, usually the words are
attributed their plain and ordinary meaning. See Sermchief v. Gonzales, 660 S.W.2d 683, 688
(Mo. banc 1983). Similarly, an interpretation of words in their plain and ordinary meaning can be
performed on the words and phrases utilized in the Charter Plan. The commonly understood
meaning of words is derived from the dictionary. See Buechner v. Bond, 650 S.W.2d 611, 613
(Mo. banc 1983).
Webster’s Dictionary defines “consistent” as “agreement or harmony in parts or of
different things.” See Webster’s Dictionary, p. 154 (2016 ed.).
Black’s Law Dictionary defines “constitutional law” as “the body of law deriving from
the U.S. Constitution and dealing primarily with governmental powers, civil rights, and civil
liberties.” See Black’s Law Dictionary, p. 331 (8th ed. 2004). See also Webster’s Dictionary, p.
155 (2016 ed.) (constitutional is “of or pertaining to, or inherent in, the constitution of body or
mind”).
Next, “statutory law” is “the body of law derived from statutes rather than from
constitutional or judicial decisions.” See Black’s Law Dictionary, p. 1452 (8th ed. 2004). See also
Webster’s Dictionary, p. 699 (2016 ed.) (statutory is defined as “imposed by statute”).
Further, according to Black’s Law Dictionary, “common law,” as distinguished from
statutory law created by the enactment of legislatures, is the body of law derived from judicial
decisions rather than from statutes or from constitutions. See Black’s Law Dictionary, p. 293 (8th
ed. 2004).
47
With this, Missouri defines “common law” as:
The common law of England and all statutes and acts of parliament made prior to
the fourth year of the reign of James the First, of a general nature, which are not
local to that kingdom and not repugnant to or inconsistent with the Constitution of
the United States, the constitution of this state, or the statute laws in force for the
time being….
See Mo. Rev. Stat. § 1.010 (2016).
Finally, according Black’s Law Dictionary, the word “amend” means to change, correct,
or revise. See Black’s Law Dictionary, p. 89 (8th ed. 2004). See also Webster’s Dictionary, p. 23
(2016 ed.) (to amend means to change for the better).
This first factor appears in identical fashion in § 7.300 of the Charter, which indicates
that the Board of Trustees shall accept a Rate Commission Report unless it finds that the report
“is contrary to constitutional, statutory or common law as amended from time to time.” See
Charter Plan, § 7.300(b)(1). However, this factor is not further defined or explained.
As such, this factor must be interpreted in its plain and ordinary meaning pursuant to the
rules of statutory construction. Consequently, to interpret the phrase, “is consistent with
constitutional, statutory or common law as amended from time to time” with respect to the Rate
Commission’s rate recommendation means to ensure that any recommended rate comports with
all existing and relevant federal and statutory provisions.
The District is a body corporate, a municipal corporation, and a political subdivision of
the state, with power to act as a public corporation. See Charter Plan, § 1.010. Pursuant to the
District’s Charter, the District has the authority to propose or recommend a change in wastewater
rates, stormwater rates and tax rates or change the structure of any of the foregoing. See Charter
Plan, § 7.040. The Charter Plan “supersedes conflicting laws” inconsistent therewith relating to
the District’s territory. See State on Inf. of Dalton v. Metro. St. Louis Sewer Dist., 275 S.W.2d
48
225, 228 (Mo. banc 1955). See also Mo. Const. art. VI, § 30(b) (A charter established pursuant to
this section shall “take the place of and supersede all laws, charter provisions and ordinances
inconsistent therewith relating to said territory”).
Authority
Pursuant to the District’s Charter, the District has the authority to propose or recommend
a change in wastewater rates, stormwater rates and tax rates or change the structure of any of the
foregoing. See Charter Plan, § 7.040. Section 3.020(16) of the Charter Plan provides that the
District shall have the power to “establish by ordinance a schedule or schedules of rates, rentals,
and other charges, to be collected from all the real property served by the sewer facilities of the
District, whether public or private….”
“Rates” are not expressly defined in the Charter Plan or case law. “When construing a
provision of a city charter or ordinance, the general rules of statutory construction apply.” Civil
Serv. Comm’n. of City of St. Louis v. Members of Bd. of Aldermen of City of St. Louis, 92
S.W.3d 785, 787 (Mo. banc 2003). “The primary rule of statutory interpretation is to effectuate
legislative intent through reference to the plain and ordinary meaning of the statutory language.
This Court must presume every word, sentence or clause in a statute has effect, and the
legislature did not insert superfluous language. ‘When the words are clear, there is nothing to
construe beyond applying the plain meaning of the law.’ A court ‘will look beyond the plain
meaning of the statute only when the language is ambiguous or would lead to an absurd or
illogical result.’” Bateman v. Rinehart, 391 S.W.3d 441, 446 (Mo. banc 2013) (internal citations
omitted). “Courts are instructed by the legislature to take the words in a statute in their plain and
ordinary sense. Sec. 1.090. The plain meaning of words, as found in the dictionary, will be used
unless the legislature provides a different definition.” Lincoln Indus., Inc. v. Dir. of Revenue, 51
49
S.W.3d 462, 465 (Mo. banc 2001). “Rate” is defined by Webster’s Dictionary as “a charge,
payment, or price fixed according to a ratio, scale, or standard.” See Webster’s Dictionary, p.
597 (2016 ed.).
The Rate Change Proposal presents the District’s proposed use of $539 million of debt
financing pursuant to its existing $900 million debt financing authority, an additional $366
million of additional debt under a new $500 million authorization, and $550 million in cash
financing to fund its Wastewater CIRP through FY 2024 to provide the funds needed to comply
with regulatory requirements relating to deficiencies in the District’s wastewater system
including sewers, pump stations and treatment plants and to satisfy the requirements of the
Consent Decree. See Ex. MSD 3F, p. 2, ll. 4-9.
The District proposes to finance the required capital improvements by a combination of
wastewater user charge revenues, available fund balances, senior revenue bonds, Water
Infrastructure Finance and Innovation Act loans, Missouri State Revolving Fund loans, grants
and contributions, and interest income. See Ex. MSD 1, p. 4-17.
In the event the District voters do not authorize new bonds to finance the CIRP in order
to comply with the terms of the Consent Decree, the District proposes cash financing. The
financial analysis supporting the development of the alternative cash financing rate is described
in Ex. MSD 1, § 6.1, Figure 6.1 and Tables 6-1 through 6-4.
Revenue Bonds. The District was formed on February 9, 1954, when voters in the City
of St. Louis and a portion of St. Louis County approved the Charter Plan to provide a
metropolitan-wide system of stormwater treatment and facilities for the collection, treatment,
and disposal of sewage. The Charter Plan was amended on November 7, 2000, and further
amended on June 5, 2012.
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SECTION 3.020. Powers of the District. — the District established under the
provisions of this Plan shall have power:
* * *
To meet the cost of acquiring, constructing, improving, or extending all or any
part of the sewer or drainage systems: (a) through the expenditure of any funds
available for that purpose; (b) through the issuance of bonds for that purpose,
payable from taxes to be levied and collected by the District; (c) through the
issuance of bonds for that purpose, payable from special benefit assessments
levied and collected by the District; (d) from the proceeds of special benefit
assessments or bills evidencing such assessments; (e) from any other funds which
may be obtained under any law of the state or of the United States for that
purpose; (f) from the proceeds of revenue bonds, payable from the revenues to be
derived from the operation of sewerage and drainage facilities and systems of the
entire District … as may be set forth in propositions submitted at elections in the
District … from time to time called and held to authorize the issuance of such
revenue bonds; or (g) from any combination of any or all such methods of
providing funds.
* * *
See Charter Plan, § 3.020(15) (emphasis added).
The Charter Plan requires an annual budget, an explanatory budget message, and a
general appropriation ordinance conforming with the budget. The budget shall provide a
complete financial plan for the budget year for all District and subdistrict funds, and shall
include the following:
(1) Estimated revenues to be actually received from all sources during the
budget year, together with a comparative statement of revenues for the two
years next preceding, itemized by year, fund, and source.
(2) Proposed expenditures, including projected expenses included in the Rate
Commission's budget as provided in Section 7.260, recommended by the
Executive Director for the budget year, together with a comparative
statement of expenditures for the two years next preceding, itemized by
year, fund, activity, and object.
(3) The amount required for the payment of interest, amortization, and
redemption charges on the debt of the District or any subdistrict.
(4) A general budget summary.
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(5) A list of capital projects.
In no event shall the total amount of proposed expenditures for the budget
year from any fund exceed the estimated revenues to be actually received
plus any unencumbered balance or less any deficit estimated for the
beginning of the budget year.
See Charter Plan, § 7.130 (emphasis added). Subject to these restrictions, the District has the
authority to issue revenue bonds.
At the end of each fiscal year, the unexpended and unencumbered parts of all
appropriations shall revert to the funds from which appropriated. See Charter Plan, § 7.050.
Upon approval by the Board of Trustees, the Executive Director may transfer any unencumbered
appropriation balances or portion thereof from one classification of expenditure to another. See
Charter Plan, § 7.150.
The District's authority to issue revenue bonds requires the approval of the voters of the
District. Specifically, the Charter Plan provides:
No general obligation bonds, except bonds for refunding, advance refunding,
extending, or unifying the whole or any part of valid bonded indebtedness, shall
be issued without the assent of the voters of the District … in the number required
by Article VI, § 26(b) of the Constitution of Missouri (as amended from time to
time), voting at an election to be held for that purpose. No revenue bonds payable
from the revenues to be derived from the operation of any or all sewer and
drainage systems and facilities of the District … except bonds for refunding,
advance refunding, extending, or unifying the whole or any part of revenue bonds,
shall be issued without the assent of a simple majority of the voters of the District
… voting at an election to be held for that purpose. Notwithstanding anything
herein to the contrary, the District is expressly authorized to issue District-wide
general obligation and revenue bonds.
See Charter Plan, § 7.170 (emphasis added).
The Missouri Supreme Court has expressly recognized this authority, stating, “The other
powers objected to, namely, … incurring debts, … issuance of tax anticipation warrants, … and
issuance of bonds, … are essential powers of such district.” State on inf. Dalton v. Metro. St.
52
Louis Sewer Dist., 275 S.W.2d 225, 231 (Mo. banc 1955). The court continued, “[w]ithout the
power to incur debts and issue bonds, adequate drains, sewers and disposal plants could not be
constructed. However, in the exercise of this power, the District is subject to the financial
limitations imposed by the Constitution on all government subdivisions.” Id.
Clean Water Act and Consent Decree
Section 204(b) of the Water Pollution Control Act of 1972, as amended in 1977,
commonly known as the “Clean Water Act,” specifies conditions relating to charges for
wastewater service. See 33 U.S.C. § 1283.
Implementation of the Clean Water Act and approval of a system of user charges by the
EPA had generally resulted in a simple, uniform, flat commodity or volumetric charge for all
customers, regardless of billable volume, effluent strengths, load factor, peaking characteristics,
or other considerations. Acceptable exceptions have included a surcharge system for high
effluent strength discharges and assignment of the cost of the industrial pretreatment program to
the participants.
The EPA has adopted rules and regulations regarding user charges. These rules and
regulations are incorporated in Part 35 of Title 40 of the Code of Federal Regulations.
User Charges are those levied on users of treatment works for their proportionate shares
of the cost of operation and maintenance (including interim replacement) of the treatment works.
40 C.F.R. § 35.2005 (52). Treatment works consist of all facilities used for the collection,
transmission, storage, treatment, and disposal of wastewater. 40 C.F.R. § 35.2005 (49). If the
wastewater utility is to be eligible for federal grants, it must demonstrate compliance with the
following user charge requirements as part of the rate design process:
53
● Rates must result in the distribution of the cost of operation and maintenance of all
treatment works within the grantee’s jurisdiction. Distribution must be in proportion to
each user or user class contribution to the total wastewater loading of the treatment
works.
● Rates must generate sufficient revenues to offset the cost of all treatment works operation
and maintenance expense.
● Each user who discharges pollutants to the treatment works causing increased costs will
pay for such increased costs.
● Grantee must apportion operation and maintenance costs associated with the treatment
and disposal of I/I to users on the basis of the allocation of all other operations, or a
system that includes consideration of flow volume of the users, land area of the users, or
the number of connections to the users.
See 40 C.F.R. 35.2140.
The District’s position is that the Rate Change Proposal is necessary for it to comply with
the Consent Decree, and other laws including the Clean Water Act. On June 11, 2007, the United
States of America, acting at the request and on behalf of the Administrator of the EPA, and the
State of Missouri by the authority of the Attorney General of Missouri, filed a claim in the
United States District Court for the Eastern District of Missouri against the Metropolitan St.
Louis Sewer District captioned United States of America and the State of Missouri and the
Missouri Coalition for the Environment Foundation v. The Metropolitan St. Louis Sewer
District, for injunctive relief and civil penalties alleging: unpermitted discharges from combined
sewer system; violation of the proper operation and maintenance condition in the District’s
NPDES permits; violation of the backup power condition in the District’s NPDES permits;
54
violation of the bypass prohibition condition in the District’s NPDES permits; violation of the
noncompliance reporting condition in the District’s NPDES permits; failure to submit long-term
CSO control plan pursuant to Part D.1 of the District’s NPDES permits and Clean Water Act §
308 Request; and violation of the general criteria special condition in the District’s NPDES
permits.
The District executed on July 15, 2011, a 23-year, $4.7 billion Consent Decree program
with the EPA, the State of Missouri, and the Missouri Coalition for the Environment Foundation.
This program requires the District to make investments in the wastewater system to eliminate
sanitary sewer overflows and combined sewer overflows, and helps reduce the risk of flooding
customer properties. See Ex. MSD 37. The current estimated CIRP needs are presented in
Figure 4-3 and Table 4-7 of Exhibit MSD 1 for FY 2019 through FY 2024. The total CIRP
project cost for FY 2021 through FY 2024 is $1.58 billion. The largest component of the CIRP
over this period will be capital investments related to capacity improvements in the wastewater
system, and sewage sludge incineration. Additional needs include other improvements to comply
with regulatory requirements outside of the Consent Decree are also included therein, and with
asset management renewal at the plants. See Ex. MSD 1, p. 4-15.
In 2018, an amendment to the Consent Decree was agreed to, providing an additional five
years for the District to complete its Consent Decree obligations, and rescheduling a number of
major CSO tunnels to later years. This was requested by the District to mitigate the rate impact
of additional major treatment plant investment in sewage sludge incinerators and air emissions
control systems for compliance with the Clean Air Act. See Ex. MSD 3B, p. 4, ll. 23-24. See also
Ex. MSD 37A. “The Bissell and Lemay Fluidized Bed Incinerators project replaces incinerators
originally constructed in the 1970s. The operation of these incinerators is regulated by USEPA
55
and [Missouri Department of Natural Resources]. 40 CFR Part 62 – Federal Plan Requirements
for Sewage Sludge Incineration Units Constructed on or Before October 14, 2010 (SSI Rule) was
finalized in June, 2016, and required new Maximum Achievable Control Technology (MACT)
standards to be included in the Bissell and Lemay plant operating permits… The District’s
second material amendment to the Consent Decree was negotiated to financially accommodate
the construction of new fluidized bed incinerators, by delaying a number of major Consent
Decree tunnel projects. This Consent Decree amendment states ‘the Parties agree that this
proposed Amendment is necessary because MSD currently incinerates 68,000 tons of sewage
sludge annually, utilizing multiple hearth incinerators. The Federal Plan Requirements for
Sewage Sludge Incineration Units Constructed on or before October 14, 2010, set forth at 40
C.F.R. Part 62, Subpart LLL (‘SSI Rule’), issued by EPA in 2016, require MSD to replace its
multiple hearth incinerators. The replacement of these incinerators will occur in fiscal years
2021-2026 timeframe and is estimated to cost approximately $360 million in 2017 dollars.’” See
Ex. MSD 80A, pgs. 1-2, ll. 26-42.
The projects which the District contends are required to comply with the Consent Decree
are set forth in Appendix 7.2.2 of the Rate Change Proposal, Ex. MSD 1, pgs. 7-18 – 7-90. See
also Ex. MSD 56B.
The District testified that the Clean Water Act provides for penalties up to $50,000 per
violation per day. Failure to meet the requirements imposed at the Federal and State level would
be extremely financially burdensome and would directly hamper or at differing levels, even
thwart the efforts of the District. The Consent Decree also outlines stipulated penalties ranging
from $500 per day to $4,000 per day depending upon the type and length of noncompliance. See
Ex. MSD 3B, p. 3, ll. 8-14.
56
Missouri Constitution
In 1980, Missouri voters approved Article X, Sections 16-24 of the Missouri Constitution
(the “Hancock Amendment”). The Hancock Amendment purports to shield taxpayers against the
government’s ability to increase the tax burden above that borne by the taxpayers on November
4, 1980. See Zweig v. Metro. St. Louis Sewer Dist., 412 S.W.3d 223, 231 (Mo. banc 2013).
Specifically, the first sentence of the Hancock Amendment states:
Property taxes and other local taxes … may not be increased above the limitations
specified herein without direct voter approval as provided by this constitution….
See Mo. Const. art. X, § 16. This provision is implemented by Section 22(a), which provides:
[P]olitical subdivisions are hereby prohibited from levying any tax, license or
fees, not authorized by law, charter or self-enforcing provisions of the constitution
when this section is adopted or from increasing the current levy of an existing tax,
license or fees, above that current levy authorized by law or charter when this
section is adopted without the approval of the required majority of the qualified
voters….
See Mo. Const. art. X, § 22(a) (emphasis added).
The current Rate Change Proposal is factually similar to the rate increase upheld by the
Missouri Court of Appeals in Missouri Growth Association v. Metropolitan St. Louis Sewer
District, 941 S.W.2d 615 (Mo. App. E.D. 1997). Specifically, for property with a water meter,
the bill is calculated using a base charge in addition to usage-based rates. For property without a
water meter, the bill is calculated using a base charge in addition to estimated usage-based rates
based on the number of rooms, baths, showers and water closets in a property.
The District states that the Rate Change Proposal is consistent with constitutional,
statutory or common law as amended from time to time. Susan Myers testified that “the
Proposed Rate Change complies with the rate change procedures set forth in Charter Section
7.280. Second, in Missouri Growth Association v. Metropolitan St. Louis Sewer District, 941
57
S.W.2d 615 (Mo. App. E.D. 1997), the Missouri Court of Appeals held that the District’s
wastewater service charges were user fees, not taxes, and therefore rate increases did not require
voter approval pursuant to Article X, Section 22(a) of the Missouri Constitution (the Hancock
Amendment). The structure of the wastewater charge contained in the Proposed Wastewater Rate
Change is the same as that approved in the Missouri Growth decision.” See Ex. MSD 3B, p. 2, ll.
7-14.
The District’s Rate Change Proposal states that “[t]he District’s current [Wastewater] rate
structure consists of base service charges and volume charges applicable to all MSD customers.
The base service charges include a billing and collection charge and a system availability charge.
The volume charge is assessed to all customers based on their respective water usage. Billing
data is provided by the customers’ respective water providers on either a metered or unmetered
basis. All non-residential customers are also assessed one of five tiered compliance charges
based on the amount of inspection and testing of [Wastewater] needed to comply with current
regulations and extra strength charges where applicable. Extra strength surcharges are applied to
monitored non-residential customers generating excess biochemical oxygen demand (BOD),
chemical oxygen demand (COD), and total suspended solids (TSS).” See Ex. MSD 1, p. 4-1.
“The volume from unmetered residential customers is likewise measured in Ccfs as determined
based upon estimates of indoor water usage per fixture and the number of rooms within these
properties, referred to as attributes throughout the Proposal. Billable [Wastewater] volumes for
all metered residential customers are determined based on water used during the period best
equated to contributed [Wastewater] volume. [The District] defines its best equated period as a
90 to 92 day period of water usage between November and April of the preceding winter period.
This period most closely reflects the water entering the [District’s] [Wastewater] system by
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avoiding spring and summer water usage for activities such as lawn sprinkling and the filling of
swimming pools.” See Ex. MSD 1, p. 4-5.
In the Missouri Growth case, the court described the District’s rate setting methodology
as follows:
Under the new and current form of billing, all customers are charged a $.37
billing and collection charge, a $3.72 system availability or ‘readiness to serve’
charge, and a volume charge of $.99 per 100 cubic feet of customer contributed
wastewater. Wastewater volume is determined in one of two ways, depending
upon whether or not the customer has a water meter. For customers who have
water meters, the volume charge is based on the water usage shown on their home
meters. Metered water usage for single-family residential customers is based on
the “best equated period,” which is a period of water usage between November
and April when the amount of outdoor water usage is at a minimum. This
minimizes the chance of customers being charged for water used for outdoor
purposes since the water used outdoors does not enter MSD’s sewer system. Since
all non-residential customers including both commercial and multi-family users
have water meters, they are also billed on this basis of usage.
…
For non-metered customers, the volume charge is based on water consumption
figures based on the number of rooms and fixtures on their property. These water
consumption measures used in determining water usage for metered and non-
metered customers are laid out in MSD’s Charter (Plan) and have already been
approved by the voters.
941 S.W.2d at 618-619. The Court of Appeals held that “these two methods of measuring
wastewater usage for metered and non-metered customers have both been specifically approved
by the voters in MSD’s Charter (Plan), Article 3, § 3.020(16). Therefore, the charge bears a
direct relationship to the services provided.” Id. at 624.
The current Rate Change Proposal is factually similar to the rate increase already held to
be a “true” user fee by the Missouri Court of Appeals in Missouri Growth.
It is the District’s position that the Rate Change Proposal is compliant with
Constitutional, statutory, and common law as amended from time to time, and no other party has
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presented evidence to the contrary. Any rate increase resulting from revenue bond proposals
would be approved by the voters, as required by the District’s Charter Plan.
There was no evidence presented that the Wastewater Rate Change Proposal is not in
compliance with constitutional, statutory and common law as amended from time to time.
THE RATE COMMISSION, AFTER DISCUSSION AND CONSIDERATION OF
ALL OF THE FACTS AND CIRCUMSTANCES AND THE RECORD PRESENTED IN
THESE PROCEEDINGS, FINDS AND DETERMINES THAT THE RATE CHANGE
PROPOSAL IS CONSISTENT WITH CONSTITUTIONAL, STATUTORY, AND
COMMON LAW, AS AMENDED FROM TIME TO TIME.
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Second Factor: Whether the Rate Change Proposal, and all portions thereof,
“Enhances the District’s ability to provide adequate sewer and drainage systems and
facilities, or related services.”
The terms “adequate sewer and facilities” appear in part in § 1.010 of the Charter Plan,
which reads, “In the interest of the public health and for the purpose of providing adequate sewer
and drainage facilities within the boundaries herein defined … there is hereby established a
metropolitan sewer district….” See Charter Plan, § 1.010 (emphasis added).
These terms appear again in § 7.300 of the Charter Plan, which provides that the Board of
Trustees shall accept a Rate Commission Report unless it finds that the report “substantially
impairs the District’s ability to provide adequate sewer and drainage systems and facilities or
related services to the point where public health or institutional safety may be jeopardized.” Id.
at § 7.300(b)(2) (emphasis added).
Similar language may be found in the Restated Operational Rules of the Rate
Commission indicating that the District shall submit to each member of the Commission
information related to direct testimony that may explain “how the Proposed Rate Change will
enhance the District’s ability to provide adequate sewer and drainage systems and facilities, or
related services.” See Ex. RC 55, p. 24 (emphasis added).
The Charter Plan requires the Rate Commission to state whether the Proposed Rate
Changes “enhances” the District’s ability to provide these “adequate” sewer and drainage
systems and facilities. Neither the Charter Plan nor the Operational Rules, however, define the
term “enhance.” To interpret the meaning of words used in a statute, usually the words are
attributed their plain and ordinary meaning. See Sermchief v. Gonzales, 660 S.W.2d at 688. The
commonly understood meaning of words is derived from the dictionary. See Buechner v. Bond,
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650 S.W.2d at 613. See also Black’s Law Dictionary defines “enhanced” as “made greater;
increased.” Black’s Law Dictionary, p. 570 (8th ed. 2004). See also Webster’s Dictionary, p. 238
(2016 ed.) (to enhance means to increase or improve (as in value or desirability)). According to
Black’s Law Dictionary, the word “adequate” means legally sufficient. See Black’s Law
Dictionary, p. 40 (8th ed. 2004). See also Webster’s Dictionary, p. 9 (2016 ed.) (adequate means
equal to or sufficient for a specific requirement).
Consequently, this criteria may be interpreted in accordance with its plain and ordinary
meaning. An analysis of this criteria in its plain and ordinary meaning which reads, “enhances
the District’s ability to provide adequate sewer and drainage systems and facilities or related
services” would be to ensure that the proposed rate improves or increases the District’s ability to
provide adequate services and systems throughout the metropolitan district.
A summary of the financial plan showing projected wastewater revenues and wastewater
revenue requirements for the District during the forecast period is presented in Table 4-10 of
Exhibit MSD 1 which demonstrates projected wastewater user charge revenue that is required in
order to balance the revenue requirements through FY 2024. The magnitude of the increase
shown for each year was selected based on consideration of three principal criteria:
(1) Total revenue necessary to meet cash requirements for normal wastewater
operations. This includes consideration of a one-month lag in the receipt of
additional user charge revenue from increased rates;
(2) Annual increases in wastewater revenues available to cash finance a portion of
the wastewater utility related major capital improvements; and
(3) Wastewater revenue required to meet certain financial metrics, based on
comments from the District's rating agencies, including debt service coverage
levels and strong liquidity position over the Rate Proposal period.
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See Ex. MSD 1, p. 4-22. Total revenue is projected to be $411.8 million in FY 2019 and
increase to $517.2 million in FY 2024. This represents an overall annual compound increase of
5.3% during this time period. Id. at p. 4-24.5
Table 4-10 shows the estimated net revenue remaining after deducting wastewater
Operations and Maintenance expenses from total wastewater revenues. Anticipated debt service
requirements on senior revenue bonds and State Revolving Fund loans will require the District to
obtain additional revenue bond authorization in the amount of $500 million before the start of
FY 2022. Id. The District’s existing wastewater rates have been in effect since July 1, 2018, and
the approved rates for FY 2020 will go into effect on July 1, 2019. Id. at p. 4-1.
The District executed on July 15, 2011, a 23-year, $4.7 billion Consent Decree program
with the EPA and the Missouri Coalition for the Environment Foundation. See Ex. MSD 37.
The Consent Decree program requires the District to make investments in the wastewater
system to eliminate sanitary sewer overflows and combined sewer overflows; and help reduce
the risk of flooding customer properties. The current estimated Capital Improvement and
Replacement Program needs are presented in Figure 4-3 and Table 4-7 of Exhibit MSD 1 for
FY 2019 through FY 2024. The total Capital Improvement and Replacement Program project
cost for the next four year rate cycle is projected to be $1.58 billion. The largest component of
the Capital Improvement and Replacement Program over the next rate cycle will be capital
investments related to capacity improvements in the wastewater system, and sewage sludge
incineration. Additional needs include other improvements necessary to comply with the
Consent Decree, permit and regulatory requirements outside of the Consent Decree, and with
5 The Rate Change Proposal relies upon certain assumptions with respect to conditions,
events, and circumstances that may occur in the future. Although considered reasonable,
some of these anticipated conditions, events and circumstances may not occur resulting
in potential differences in revenues and costs than currently projected.
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asset management renewal at the treatment plants. Combined sewer overflows projects begin to
substantially impact the Capital Improvement and Replacement Program as this component
reaches $158.3 million in FY 2020. See Ex. MSD 1, p. 4-15.
In 2018, an amendment to the Consent Decree was agreed to, providing an additional five
years for the District to complete its Consent Decree obligations, and rescheduling a number of
major CSO tunnels to later years. This was requested by the District to mitigate the rate impact
of additional major treatment plant investment in sewage sludge incinerators and air emissions
control systems for compliance with the Clean Air Act. See Ex. MSD 3B, p. 4, ll. 23-24; see also
Ex. MSD 37A. “The Bissell and Lemay Fluidized Bed Incinerators project replaces incinerators
originally constructed in the 1970s. The operation of these incinerators is regulated by USEPA
and [Missouri Department of Natural Resources]. 40 CFR Part 62 – Federal Plan Requirements
for Sewage Sludge Incineration Units Constructed on or Before October 14, 2010 (SSI Rule) was
finalized in June, 2016, and required new Maximum Achievable Control Technology (MACT)
standards to be included in the Bissell and Lemay plant operating permits… The District’s
second material amendment to the Consent Decree was negotiated to financially accommodate
the construction of new fluidized bed incinerators, by delaying a number of major Consent
Decree tunnel projects. This Consent Decree amendment states ‘the Parties agree that this
proposed Amendment is necessary because MSD currently incinerates 68,000 tons of sewage
sludge annually, utilizing multiple hearth incinerators. The Federal Plan Requirements for
Sewage Sludge Incineration Units Constructed on or before October 14, 2010, set forth at 40
C.F.R. Part 62, Subpart LLL (‘SSI Rule’), issued by EPA in 2016, require MSD to replace its
multiple hearth incinerators. The replacement of these incinerators will occur in fiscal years
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2021-2026 timeframe and is estimated to cost approximately $360 million in 2017 dollars.’” See
Ex. MSD 80A, pgs. 1-2, ll. 26-42.
The projects which the District contends are required to comply with the Consent Decree
are set forth in Appendix 7.2.2 of the Rate Change Proposal, Ex. MSD 1, pgs. 7-18 – 7-90. See
also Ex. MSD 56B.
Wastewater revenues “must at least be sufficient to finance the [Wastewater] utility’s
O&M expense, routine annual capital improvements and debt service costs on existing and
proposed senior revenue bonds and [State Revolving Fund] loans, while maintaining an adequate
operating reserve and complying with all revenue bond debt service coverage requirements.
Annual revenues or existing reserve funds can also be used to finance the [Wastewater] utility’s
major capital improvement program. Figure 4-6 below presents the estimated financial plan of
the [Wastewater] enterprise, which shows that annual [Wastewater] revenues under existing rates
are not sufficient to meet the total revenue requirements of the [Wastewater] utility during the
forecast period without future revenue increases.” See Ex. MSD 1, p. 4-20.
The Wastewater CIRP provides a “listing, schedule, and cost of needed repairs, additions,
and improvements to the wastewater system to maintain the system in operating order and to
ensure the system operates in a manner that complies with all State and Federal Regulatory
requirements and the Consent Decree.” See Ex. MSD 3C, p. 2, ll. 3-6. “The CIRP is needed to
provide the project identification, planned fiscal year and anticipated annual costs associated
with system improvements. This will then provide the basis for required annual revenue and
resources needed to plan, design, and construct these improvements.” Id., ll. 8-11. The
Wastewater CIRP for this rate cycle is set forth in Appendix 7.2.2 of Ex. MSD 1, pgs. 7-18 – 7-
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90. The CIRP consists of approximately $1.6 billion in improvements during the rate cycle, FY
2021 through FY 2024. Id., ll. 15.6
The District’s position is that the Rate Change Proposal looking forward will enhance
the District’s ability to provide adequate sewer and drainage systems and facilities, and related
services. “The Rate Change Proposal provides the funds needed to continue adequate O&M in
the collection systems, pump stations, and wastewater treatment plants. The [Capacity,
Management, Operation and Maintenance] program should continue to improve the operations
of the collection system and reduce overflows and basement backups. This Rate Change
Proposal will also allow for our aging treatment plants to continue to operate efficiently and
meet permit requirements.” See Ex. MSD 3D, p. 5, ll. 11-15. The funding proposed in the
District Rate Change Proposal “is necessary to allow the District to operate and maintain our
systems, and make necessary capital improvements to meet the commitments of the [Consent
Decree] and comply with existing permit regulations.” See Ex. MSD 3C, p. 6, ll. 21-23.
The parties to this proceeding agree that a wastewater rate increase is necessary to
enhance the District’s ability to operate and maintain its systems, and make necessary capital
improvements.
It is the position of the Rate Commission that there is no evidence in the proceeding
indicating that the Wastewater Rate Change Proposal will not enhance the District’s ability to
provide adequate services, and no party has presented any evidence to the contrary.
6 The Commission notes that although the CIRP often refers to “costs,” the testimony in
these Proceedings indicates the “costs” are really various levels of estimated costs.
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THE RATE COMMISSION, AFTER DISCUSSION AND CONSIDERATION OF ALL
OF THE FACTS AND CIRCUMSTANCES DISCLOSED IN THESE PROCEEDINGS,
FINDS AND DETERMINES THAT THE RATE CHANGE PROPOSAL ENHANCES
THE DISTRICT’S ABILITY TO PROVIDE ADEQUATE SEWER AND DRAINAGE
FACILITIES OR RELATED SERVICES.
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Third Factor: Whether the Rate Change Proposal, and all portions thereof, “Is
consistent with and not in violation of any covenant or provision relating to any outstanding
bonds or indebtedness of the District.”
The Charter Plan states that the Board of Trustees shall accept a Rate Commission Report
unless it finds that the report “is contrary to or in violation of any covenant or provision relating
to any outstanding bonds or indebtedness of the District.” The Operational Rules provide that the
District shall submit to each member of the Commission any and all direct testimony that may be
required to fully demonstrate and explain, “whether and to what extent the Proposed Rate
Change is necessary to enable the District to comply with any covenant or provision relating to
any outstanding bonds or indebtedness of the District, together with a specific quantification of
the amount of the Proposed Rate Change that is necessary for such purposes. See Ex. RC 55, p. 5
(emphasis added).
Neither the Charter Plan nor the Operational Rules defines “consistent with” or “not in
violation.” As such, to interpret the meaning of words used in a statute, usually the words are
attributed their plain and ordinary meaning. See Sermchief v. Gonzales, 660 S.W.2d at 688. The
commonly understood meaning of words is derived from the dictionary. See Buechner v. Bond,
650 S.W.2d at 613.
Webster’s Dictionary defines the term “consistent” as “agreement or harmony in parts or
of different things.” See Webster’s Dictionary, p. 154 (2016 ed.).
Further, a “violation” is “an infraction or a breach of the law; a transgression.” See
Black’s Law Dictionary, p. 1600 (8th ed. 2004). See also Webster’s Dictionary, p. 807 (2016 ed.)
(a violation is a breach or infringement).
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An analysis of the language “is consistent with and not in violation of any covenant or
provision relating to any outstanding bonds or indebtedness of the District” would require the
Rate Commission to recommend a rate only if it complies with provisions relating to any
outstanding bonds or indebtedness of the District.
The Rate Change Proposal presents the District’s proposed use of an additional $500
million in bond financing and $587 million is expected to fund 37% of the total CIRP between
FY 2021 and FY 2024 to provide the funds needed to comply with regulatory requirements
relating to deficiencies in the District's wastewater system including sewers, pump stations and
treatment plants and to satisfy the requirements of the Consent Decree.
The District proposes to finance the required capital improvements by a combination of
wastewater user charge revenues 7, available fund balances, senior revenue bonds, Water
Infrastructure Finance and Innovation Act loans, Missouri State Revolving Fund loans, grants
and contributions, and interest income. See Ex. MSD 1, p. 4-17.
Outstanding Revenue Bonds. Revenue bonds do not rely upon the general credit or tax
money of the District and do not constitute indebtedness of the District within the limitations of
Charter Plan Section 7.190 or Article VI, § 26(b) of the Missouri Constitution. Under the
authority of Mo. Rev. Stat. § 250.120.1 (2000), once the voters have approved revenue bonds,
the District has authority to raise wastewater and stormwater rates to pay principal and interest
on the bonds and to meet the costs of maintenance and operation of the facilities.
On April 22, 2004, the Board of Trustees issued its first revenue bonds under the terms
of a Master Bond Ordinance.
7 The phrase “wastewater user charge revenues” is used interchangeably with “rate
revenues” throughout these Proceedings.
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Section 6.1 of the Bond Ordinance requires the District to operate the System on a
revenue producing basis and at all times to prescribe, fix, maintain, and collect rates, fees, and
other charges for the services, facilities, and commodities furnished by the System fully
sufficient at all times to pay annual operation and maintenance expense, provide a reasonable
operating reserve, produce net revenues in each fiscal year equal to at least 1.25 times the Debt
Service Requirement on all Senior Bonds currently outstanding and 1.15 times the Debt Service
Requirement on all Bonds then outstanding and accumulate sufficient funds to meet the costs of
major renewals, replacements, repairs, additions, betterments, and improvements to the System
to keep it in good working condition. See Ex. MSD 14.
Additional senior revenue bonds have been issued in 2006, 2008, 2010, 2011, 2012,
2013, 2015, 2016 and 2017. See Ex. MSD 1, p. 4-18. Supplemental Bond Ordinances
authorized by the Board of Trustees relating to additional revenue bond issues include the same
covenants. See Exs. MSD 15 through 36. The principal remaining on all of the District’s senior
revenue bonds issued to date is $1.2 billion as of June 30, 2018. The District has also
participated in multiple subordinate series of revenue bonds issued under the Missouri State
Revolving Fund loan program. The total amount of principal remaining on all of the District's
State Revolving Fund loans issued to date is approximately $423 million as of June 30, 2018.
See Ex. MSD 1, p. 4-18.
A consideration in measuring the adequacy of District revenues is the provision of
sufficient debt service coverage to meet the actual debt service paid to the bondholders on the
senior revenue bonds and on the State Revolving Fund loans. The debt service coverage of the
senior revenue bond debt service, i.e., the ratio of net revenue to total senior revenue bond debt
service for each year of the study period shows the debt service coverage of the combined
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senior revenue bond and State Revolving Fund debt service (i.e., the ratio of net revenue to total
debt service for each year of the study period). Current wastewater revenue bond covenants
require the District to provide debt service coverage equal to at least 125% (>1.25x) of the
annual principal and interest payment on all senior revenue bonds and 115% (>1.15x) of the
combined annual principal and interest payment on all wastewater senior revenue bonds and all
State Revolving Fund loans. Id. at p. 4-24.
Moody’s Investors Services assigned a credit rating of Aa1 to the District's 2017A
revenue bond obligations on November 17, 2017. See Ex. MSD 39. Fitch Ratings assigned a
rating of AA+ on November 21, 2017, to the District's Series 2017A revenue bond obligations.
See Ex. MSD 40. Standard & Poor's Ratings Service assigned a rating of AAA on November
15, 2017, to the District's Series 2017A revenue bond obligations. See Ex. MSD 38.
Proposed Revenue Bonds. The Rate Change Proposal is designed to generate debt
service coverages for proposed revenue bonds consistent with rating agencies’ expectations for
"AA" rated large metropolitan wastewater systems. See Ex. MSD 3G, p. 3-4, ll. 21-23 and 1-2.
The District’s Capital Improvement and Replacement Program projects are primarily
funded by the issuance of senior revenue bonds and State Revolving Fund loans while the
smaller remaining work is on a cash-funded basis (Pay As You Go). Debt financing of the
majority of the Capital Improvement and Replacement Program allows the financing burden to
be appropriately shared by both present and future users benefiting from the wastewater system
improvements. Capital improvements routinely incurred each year as determined by the
District’s comprehensive asset management program are more appropriately financed with Pay
As You Go revenue generated from annual wastewater service revenue. See Ex. MSD 1, p. 4-
16. See also Ex. MSD 3F, p. 2, ll. 4-9; p. 3-4, ll. 23-24 and 1-8.
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New senior revenue bonds with a total par value of $785 million and $120 million in
additional State Revolving Fund loans are expected to be issued between FY 2021 and FY 2024
to provide this funding. This will require the District to obtain voter approval for authorization
of $500 million of additional debt financing prior to FY 2022. The District plans to take
advantage of the State Revolving Fund loan program but expects to be limited to $30 million
each year from FY 2021 through FY 2024. Total senior revenue bonds, State Revolving Fund
loans and Water Infrastructure Finance and Innovation Act bonds are expected to finance
approximately 61% of the four-year Capital Improvement and Replacement Program costs. The
cash financing of capital improvements from annual revenues is expected to total $550 million
between FY 2021 through FY 2024. In total, cash financing is expected to fund 37% of the total
Capital Improvement and Replacement Program between FY 2021 and FY 2024. The District
anticipates receiving grants and contributions of $2.9 million between FY 2021 and FY 2024.
See Ex. MSD 1, p. 4-17.
The projected amortization of future revenue bond issues determined by PFM, the
District's financial advisor, is based on current market conditions and certain assumptions
regarding future market conditions. Proposed revenue bond issues will be governed by
supplemental bond ordinances incorporating the bond covenants set forth in the Master Bond
Ordinance. Generally, future senior revenue bonds are assumed to have a 30-year term and
annual coupon rates between 5.0% and 5.5%. Future State Revolving Fund loans issued to fund
the Capital Improvement and Replacement Program are expected to have 20-year terms and a
net effective annual interest and administration cost of about 3% per year. In addition to the
interest cost of future debt, the District will incur issuance costs with each senior revenue bond
issue and State Revolving Fund loan, and be required to maintain a debt service reserve fund for
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the senior revenue bonds. The issuance costs for senior revenue bonds are estimated at 1.0% of
the total issuance amount. Issuance costs for State Revolving Fund loans are expected to be
0.65% of the total State Revolving Fund loan amount. See Ex. MSD 1, p. 4-18.
Based on these assumptions, the total annual debt service during the forecast period for
existing debt and future proposed debt is expected to increase from $115.6 million in FY 2019
to $177.0 million in FY 2024. Id. at p. 4-19.
The Missouri Supreme Court has specifically held that the issuer of revenue bonds for
the operation and maintenance of a sewage system had the authority to raise water and sewage
rates, not only to pay principal and interest in revenue bonds issued for the purpose of
construction of a water treatment plant and water transmission lines, but also to meet the cost of
maintenance and operation of the physical plan itself. See Oswald v. City of Blue Springs, 635
S.W.2d 332, 333-334 (Mo. banc 1982). Moreover, once the voters have approved the bonds,
such increases may be made without again submitting the increase to the voters. Id. at 334.
Under Oswald, approval of the Rate Change Proposal is not required to meet existing bond
covenant requirements on revenue bonds previously authorized by the voters.
Missouri State Revolving Fund. The “Missouri Clean Water Law” is designed to meet
the requirements of the Federal Clean Water Act of 1987 (the “Act”). See 33 U.S.C. §§ 125-
1376. See also Mo. Rev. Stat. § 644.011 (2014). It also establishes the Missouri Clean Water
Commission (the “Commission”), which is required to adopt rules and regulations to enforce
the powers and duties of Chapter 644 and the Act. See Mo. Rev. Stat. §§ 644.021, 644.026
(2014). The Missouri Code of State Regulations sets forth the general requirements for the
implementation of Title VI of the Act, which authorizes the administrator of the EPA to make
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capitalization grants to states to fund financial assistance programs authorized by Title VI of the
Act. See 10 CSR 20-4.021.
The Missouri State Revolving Fund Program is a partnership between the EPA and the
Missouri Department of Natural Resources (the “Department”), and provides subsidized low
interest rate loans to qualifying applicants.
In Missouri, the Clean Water State Revolving Fund Program consists of the Water and
Wastewater Loan Fund (“WWLF”) and the Water and Wastewater Revolving Loan Fund
(“WWRLF”) and those accounts secured by funds from the WWLF and the WWRLF. 10 CSR
20-4.040(2)(P). The State Revolving Fund is subject to the requirements, restrictions, and
eligibilities placed on the State Revolving Fund by the Act. Id. The State Revolving Fund also
funds the State Direct Loan Program (“Direct “Loans"). See 10 CSR 20-4.041.
The Department may make Direct Loans by purchasing the general obligation bonds,
revenue bonds, short-term notes or other acceptable obligations of any qualified applicant for
the planning, design, and/or construction of an eligible project. See 10 CSR 20-4.041(1). These
loans shall not exceed the total eligible project cost. Id.
Direct Loans are funded from State Revolving Fund loan repayments of federal
capitalization grants. See 10 CSR 20-4.041(3). The Department purchases the revenue bonds,
general obligation bonds, or other acceptable debt obligations from the recipient no later than
six months following the initial operation of the facilities constructed by the project or by the
closing deadline contained in the construction loan agreement, whichever is earlier. See 10 CSR
204.041(8). In addition, the Department may require the recipient to include those assurances
and clauses in the loan agreements and bond resolutions as deemed necessary to protect the
interest of the state. Id.
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Under the Direct Loan Program, the bonds, notes or other debt obligations shall be fully
amortized in no more than 20 years after initiation of operation and the payment frequency shall
be no less than annually with the first payment no later than one year after the initiation of
operation. See 10 CSR 20-4.041(9). Repayment of principal shall begin no later than one year
after initiation of operation and if at any time during the loan period the facility financed
through a Direct Loan is sold, either outright or on contract for deed, to an entity other than a
political subdivision of the state, the loan becomes due and payable upon transfer. Id.
Effect on Rate Change Proposal. It is the District’s position that the proposed rate
change is necessary to reflect: (i) the level of cash balances and resulting bond coverage ratios
required through FY 2024 to minimize a possible deterioration in the District’s bond rating; (ii)
the generation of sufficient revenue to fund the Capital Improvement and Replacement Program
required to address the Consent Decree; and (iii) the District’s debt service obligations.
The District’s voters approved a bond issuance of $900 million in 2016. See Ex. MSD
3F, p. 2, ll. 17-19. The District’s Rate Change Proposal assumes the use of $539 million
additional debt financing remaining under its current $900 million authorization, up to $366
million of additional debt under a new $500 million authorization, and $550 million of cash, or
PAYGO, funding to fund the CIRP from FY21 through FY24. Id., ll. 4-7. There is currently
$674.5 million remaining under the $900 million authorization to finance capital improvements
in FY19, FY20, and into the new rate cycle. Id., ll. 12-13. Debt financing is expected to be made
up of approximately 90% percent senior lien bonds and 10% State Revolving Fund (SRF) loans.
Id., ll. 16-17. The District intends to seek voter approval for additional bonding authority prior to
FY 2022. Id. at p. 6, ll. 4-5.
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The District’s “outstanding revenue bonds are being repaid according to an amortization
schedule established when the bonds were issued from revenue collected from wastewater user
charges. FY19 wastewater net revenue is expected to be approximately three times FY19 senior
debt service costs.” See Ex. MSD 3F, p. 7, ll. 10-13. The District’s debt agreements require a
minimum senior bond debt coverage (“DSC”) ratio of 1.25x and a minimum total bond debt
coverage ratio of 1.15x. Id., ll. 17-24. To maintain the District’s high credit ratings, the Rate
Change Proposal has been set to achieve a minimum DSC of 2.5x for senior bonds and 1.8x for
total bonds. Id.
Section 6.1 of the Master Bond Ordinance (see Ex. MSD 14) requires the District to: (i)
prescribe, fix, maintain, and collect rates, fees, and other charges for the services, facilities, and
commodities furnished by the System fully sufficient at all times to provide for 100% of
operations and maintenance expenses and for the accumulation of a reasonable reserve; (ii)
produce Net Operating Revenues in each fiscal year that will equal at least 125% (1.25x) of the
Debt Service Requirement on all Senior Bonds then outstanding and 115% (1.15x) of the debt
service requirement on all bonds outstanding for the year of computation; and (iii) meet the costs
of major renewals, replacements, repairs, additions, betterments, and improvements to the
System, necessary to keep the same in good operating condition or as is required by any
governmental agency having jurisdiction over the System.” See Ex. MSD 61A, p. 9.
The District states that Wastewater Financial Plan, Table 4-10 in Ex. MSD 1, shows that
the proposed rates are expected to be sufficient to cover operating expenses, maintain an
adequate reserve (see § 4-7 of Ex. MSD 1), and fund the CIRP while maintaining debt coverage
ratios above the minimums. See Ex. MSD 61A, p. 9. The District states that the net operating
revenues and debt service totals projected in the Rate Change Proposal and Rate Model show
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that the proposed rates will comply with Sections 5.3 and 5.4 of the Master Bond Ordinance,
relating to debt service coverage requirements. See Ex. MSD 61A, pgs. 9-10. Further, Section
6.7 of the Master Bond Ordinance requires that “[n]one of the facilities or services afforded by
the System will be furnished to any user without a reasonable charge being made therefor.” See
Ex. MSD 14, p. A-42. The District states that the “Rate Change Proposal does not assume or
propose that any service be provided for free.” See Ex. MSD 61A, p. 10.
No party has provided testimony that the District Rate Change Proposal would violate a
covenant or provision relating to any outstanding bonds or indebtedness of the District. Further,
there is no evidence to indicate that if the minimum total debt service coverage ratio is reduced
to 1.6x, as the Rate Commission proposes under the Fifth Factor (Page 90 of its Report), that
the Rate Change Proposal will violate any covenant or provision relating to outstanding bonds
or indebtedness of the District.
The District’s senior lien bond debt service coverage is projected at 3.19x in FY 2021
while total debt service coverage is projected at 2.1x. Pledged revenues for FY 2021 will
provide adequate coverage of projected maximum senior lien debt service and adequate coverage
of projected maximum total debt service. See Ex. MSD 1, p. 4-23.
In FY 2024, minimum debt service coverage on senior and total is projected to be 2.57x
and 1.81x, respectively. This compares to bond covenant minimum debt service requirements of
1.25 and 1.15 above net annual revenues respectively. See Ex. MSD 1, pgs. 4-23 and 4-24. The
projected debt service coverage meets the District’s objective to maintain senior debt service
coverage above 2.50x, which is in line with comments provided by rating agencies during the
District’s last bond issuance, related to expectations for debt service coverage in order to
maintain ratings.
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Cash Financing. In the event that the voters of the District do not approve $500 million
in bond financing for a portion of the Capital Improvement and Replacement Program, the
District proposes cash financing in order to comply with the terms of the Consent Decree.
Table 5-1 in the Rate Change Proposal presents projected wastewater bills based on the
authorization of $500 million in revenue bonds. The typical customer bill of 6 Ccf per month is
shown on line 3, with the annual percentage change shown directly beneath. Table 6-4 presents
the same information with the assumption of no further bond authorization.
The alternative rates to finance the entire Capital Improvement and Replacement
Program are presented by Table 4-7 of Ex. MSD 1. The resulting rate components change to
those shown in Table 6-3. This change results in a 1.9% increase in the FY 2021 average single
family residential monthly bill, a 15% increase in FY 2022, a 17% increase in FY 2023 and a
13% increase in FY 2024. The typical single family customer bill throughout the Rate Proposal
timeframe is presented in Table 6-4 and shows the impact of not using debt financing for the
Capital Improvement and Replacement Program beyond what has already been authorized. See
Ex. MSD 1, p. 6-1.
It is the District’s position that the Wastewater Rate Change Proposal is compliant with
any covenant or provision relating to any outstanding bonds or indebtedness of the District. It is
the position of the Rate Commission that the Wastewater Rate Change Proposal is compliant
with any covenant or provision relating to any outstanding bonds or indebtedness because there
is no evidence in the record to the contrary.
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THE RATE COMMISSION, AFTER DISCUSSION AND CONSIDERATION OF
ALL OF THE FACTS AND CIRCUMSTANCES DISCLOSED IN THE RECORD AND
PRESENTED IN THESE PROCEEDINGS, FINDS AND DETERMINES THAT THE
RATE CHANGE PROPOSAL IS CONSISTENT WITH AND NOT IN VIOLATION OF
ANY COVENANT OR PROVISION RELATING TO ANY OUTSTANDING BONDS OR
INDEBTEDNESS OF THE DISTRICT.
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Fourth Factor: Whether the Rate Change Proposal, and all portions thereof, “Does
not impair the ability of the District to comply with applicable Federal or State laws or
regulations as amended from time to time.”
Section 7.270(4) of the Charter Plan states that the “[a]ny change in a Rate recommended
to the Board by the Rate Commission … shall be accompanied by a statement of the Rate
Commission that the proposed Rate change, and all portions thereof; … does not impair the
ability of the District to comply with applicable Federal or State laws or regulations as amended
from time to time….” The Charter Plan states that the Board of Trustees of the District shall
accept a Rate Commission Report unless it finds that the report “fails to meet an existing or new
standard contained in applicable Federal or State laws or regulations as amended from time to
time.” See Charter Plan, § 7.300(b)(4). The same language appears in the Operational Rules
indicating that the District shall submit to each member of the Commission information related
to direct testimony that may explain “whether and to what extent the Proposed Rate Change is
necessary to enable the District to comply with applicable Federal or State laws or regulations as
amended from time to time….” See Ex. RC 55, p. 5, § 3(4)(d) (2019).
The phrase “does not impair”, however, is not defined. To interpret the meaning of words
used in a statute, usually the words are attributed their plain and ordinary meaning. See
Sermchief v. Gonzales, 660 S.W.2d at 688. The commonly understood meaning of words is
derived from the dictionary. See Buechner v. Bond, 650 S.W.2d at 613.
“Federal law” means the United States Constitution, all federal statutes and treaties
promulgated by Congress, and all federal regulations promulgated by federal agencies, and “state
law” means state constitutions, state statutes and regulations, and the concept of state common
80
law tort actions. See Gorton v. American Cyanamid Co., 533 N.W.2d 746 (Wis. 1995), cert.
denied 516 U.S. 1067 (1996).
As such, an interpretation of the plain and ordinary meaning of the language “does not
impair the ability of the District to comply with applicable Federal or State laws or regulations”
would require the Rate Commission to propose a rate that complies with all relevant federal,
state, local laws and regulations. The dictionary definition of “impair” means “[t]o diminish the
value of.” See Black’s Law Dictionary, p. 767 (8th ed. 2004). See also Webster’s Dictionary, p.
358 (2016 ed.) (to impair means to diminish in quantity, value, excellence, or strength).
Pursuant to the Charter Plan, the District has the authority to propose or recommend a
change in wastewater rates, stormwater rates and tax rates or change the structure of any of the
foregoing. See Charter Plan, § 7.040.
Capital Improvement and Replacement Program
The District’s Capital Improvement and Replacement Program (the “CIRP”) is the
primary driver of the District’s financial plan, representing approximately two-thirds of
anticipated expenditures during the rate cycle. See Ex. MSD 1, p. 4-15. The largest components
of the CIRP over this period will be capital investment related to capacity improvements in the
wastewater system, and sewage sludge incineration. Id. The CIRP includes improvements
necessary to comply with the Consent Decree, with permit and regulatory requirements outside
of the Consent Decree, and with asset management renewal at the treatment plants. Id.
The CIRP “provides a listing, schedule, and cost of needed repairs, additions, and
improvements to the wastewater system to maintain the system in operating order and to ensure
the system operates in a manner that complies with all State and Federal Regulatory
requirements and the [Consent Decree].” See Ex. MSD 3C, p. 2, ll. 3-6. “The CIRP is needed to
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provide the project identification, planned fiscal year and anticipated annual costs associated
with system improvements. This will then provide the basis for required annual revenue and
resources needed to plan, design, and construct these improvements.” Id., ll. 8-11. The
Wastewater CIRP for this rate cycle is set forth in Appendices 7.2.2, 7.2.3, and 7.2.4 of Ex. MSD
1, p. 7-18 – 7-96. The CIRP consists of approximately $1.6 billion in improvements during the
rate cycle, FY 2021 through FY 2024. Id., l. 15. Richard Unverferth testified on behalf of the
District that 76.7% of the projects in the CIRP are required for the Consent Decree, 22.4% of
projects are required to meet other regulatory requirements, and only 0.9% are not required for
either. See Ex. MSD 80A, p. 4, ll. 89-90.
The total cost of the CIRP is approximately $1.6 billion. See Ex. MSD 69, p. 320, l. 1.
Richard Unverferth testified on behalf of the District that “[i]f you break it down, basically in
major categories, we have consent decree projects, projects that are not related to consent decree
but are regulatory required, and then we have projects that – our projects… are more asset
management, just strictly asset management related due to the wear and tear of those systems.”
Id., ll. 10-16. Approximately $1.2 billion is related to the Consent Decree, and approximately
$340 million is required to comply with other Federal and State regulations. Id. at pgs. 320-321,
ll. 23-25, 1-4.
Consent Decree
On June 11, 2007, the United States of America, acting at the request and on behalf of the
Administrator of the EPA, and the State of Missouri by the authority of the Attorney General of
Missouri, filed a claim in the United States District Court for the Eastern District of Missouri
against the Metropolitan St. Louis Sewer District captioned United States of America and the
State of Missouri v. The Metropolitan St. Louis Sewer District, for injunctive relief and civil
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penalties alleging: unpermitted discharges from combined sewer system; violation of the proper
operation and maintenance condition in the District’s NPDES permits; violation of the backup
power condition in the District’s NPDES permits; violation of the bypass prohibition condition
in the District’s NPDES permits; violation of the noncompliance reporting condition in the
District’s NPDES permits; failure to submit long-term CSO control plan pursuant to Part D.1 of
the District’s NPDES permits and Clean Water Act § 308 Request; and violation of the general
criteria special condition in the District’s NPDES permits.
The District executed on July 15, 2011, a Consent Decree with the EPA and the Missouri
Coalition for the Environment Foundation. The Consent Decree initially required the District to,
over a 23-year period, make $4.7 billion in investments in the wastewater system to ensure it has
adequate capacity and is properly maintained (Asset Management), to eliminate sanitary sewer
overflows (SSO), to eliminate, reduce, and control combined sewer overflows (CSO), and to
reduce the risk of flooding in the combined sewer area (Cityshed). This multi-decade Consent
Decree effort is estimated to cost $6 billion (in 2018 dollars), with $1.7 billion appropriated from
FY13 through the end of FY19. See Ex. MSD 1, p. 4-15.
In 2018, an amendment to the Consent Decree was agreed to, providing an additional five
years for the District to complete its Consent Decree obligations, and rescheduling a number of
major CSO tunnels to later years. This was requested by the District to mitigate the rate impact
of additional major treatment plant investment in sewage sludge incinerators and air emissions
control systems for compliance with the Clean Air Act. See Ex. MSD 3B, p. 4, ll. 23-24; See also
Ex. MSD 37A.
The Bissell and Lemay Fluidized Bed Incinerators project replaces incinerators
originally constructed in the 1970s. The operation of these incinerators is
regulated by USEPA and [Missouri Department of Natural Resources]. 40 CFR
Part 62 – Federal Plan Requirements for Sewage Sludge Incineration Units
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Constructed on or Before October 14, 2010 (SSI Rule) was finalized in June,
2016, and required new Maximum Achievable Control Technology (MACT)
standards to be included in the Bissell and Lemay plant operating permits… The
District’s second material amendment to the Consent Decree was negotiated to
financially accommodate the construction of new fluidized bed incinerators, by
delaying a number of major Consent Decree tunnel projects. This Consent Decree
amendment states ‘the Parties agree that this proposed Amendment is necessary
because MSD currently incinerates 68,000 tons of sewage sludge annually,
utilizing multiple hearth incinerators. The Federal Plan Requirements for Sewage
Sludge Incineration Units Constructed on or before October 14, 2010, set forth at
40 C.F.R. Part 62, Subpart LLL (‘SSI Rule’), issued by EPA in 2016, require
MSD to replace its multiple hearth incinerators. The replacement of these
incinerators will occur in fiscal years 2021-2026 timeframe and is estimated to
cost approximately $360 million in 2017 dollars.’
See Ex. MSD 80A, pgs. 1-2, ll. 26-42.
The projects which the District contends are required to comply with the Consent Decree
are set forth in Appendix 7.2.2 of the Rate Change Proposal, Ex. MSD 1, pgs. 7-18 – 7-90. See
also Ex. MSD 56B.
Non-Consent Decree Regulatory Requirements
The projects in the CIRP which are not required by the Consent Decree, but are required
due to other regulatory requirements, are set forth in Appendix 7.2.4 of Ex. MSD 1, pgs. 7-92 –
7-96. See also Ex. MSD 56D. Many of these projects relate to the Bissell Point and Lemay
Wastewater Treatment Plants. The District holds permits to operate the two plants. See Ex. MSD
89B. See also Ex. MSD 89C. These permits are issued by the Missouri Department of Natural
Resources pursuant to Chapter 643, Missouri Revised Statutes and the Federal Clean Air Act.
Construction funding for the fluidized bed incinerators is budgeted for FY 2023, FY 2024, and
FY 2025. See Ex. MSD 80A, p. 2, ll. 42-43.
All other projects in the CIRP (those not required for regulatory compliance or Consent
Decree compliance) are set forth in Appendix 7.2.3. of the Rate Change Proposal, Ex. MSD 1, p.
7-91. See also Ex. MSD 56C.
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Deferring Projects
Intervenor MIEC proposes to defer some projects in the CIRP, which it claims can be
done without jeopardizing compliance with the Consent Decree or other regulations. “[C]ertain
major capital investments in FY 2023, and FY 2024 more specifically, have not been shown to
be needed for the EPA Consent Decree or any other way that MSD does not have the discretion
to levelize these over the entire forecast period.” See Ex. MIEC 73, p. 16, ll. 13-16. “[T]here are
several very large capital programs that could be deferred for a few years, in an effort to produce
an annual level of CIRP spending during the forecast period and several years immediately
following it.” Id., ll. 20-22.
MIEC proposes adjusting the amount of CIRP spending in FY 2023 and FY 2024 by $70
million for each year, and increase the proposed spending in FY 2025 and FY 2026 by the same
amount. See Ex. MIEC 83, pgs. 4-5, ll. 11-14 and 1-2. “The actual selection of which projects
could be deferred can be left up to MSD Staff, which can be managed in a way which meets its
Consent Decree (‘CD’) obligations, other regulatory obligations, and manage impacts on
wastewater rates.” Id. at p. 5, ll. 5-7. MIEC suggests that the District negotiate an amendment to
the Consent Decree to permit it to move projects out of the CIRP. “[I]t might be possible to
negotiate an extension in the permitting with the EPA to allow them a little more flexibility to try
to spread out this annual level of CIRP spending.” See Ex. MSD 91, p. 164, ll. 1-4.
MIEC argues that “[t]here are hundreds of projects that are being undertaken during the
CIRP period, and it doesn’t take many smaller projects being shifted to create a real impact on
the ratepayer.” See Ex. MIEC 98, p. 4. “MIEC supports MSD’s obligations to meet these
regulatory and consent decree obligations. However, MIEC does believe that MSD has not
adequately established that many of its purported deadlines are indeed required by law.” Id.
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The District asserts that it lacks discretion to move projects out of the CIRP without
jeopardizing compliance with the Consent Decree or other regulations. “The wastewater CIRP is
primarily composed of projects required to comply with the [Consent Decree] or other regulatory
requirements.” See Ex. MSD 3C, p. 2, ll. 18-19.
Susan Myers, the District’s General Counsel, testified that the “District is subject to an
array of Federal and State environmental laws concerning such things as discharge and effluent
levels, each of which carry with them the imposition of financial fines of various amounts.
Administration of the Federal Clean Water Act has been delegated to the Missouri Department of
Natural Resources (“MDNR”) by the EPA. The District is regulated by the MDNR to ensure
compliance with the requirements established under the Clean Water Act. It is critical to note the
proposed rate change is needed to provide the District with the funds necessary to address the
aging wastewater system and resulting wet weather impact. The Clean Water Act provides for
statutory penalties up to $50,000 per violation per day. Failure to meet the requirements imposed
at the Federal and State level would be extremely burdensome financially and could directly
hamper or even thwart the efforts of the District.” See Ex. MSD 3B, pgs. 2-3, ll. 24 & 1-11.
“Therefore, the proposed rate change is necessary to meet legal requirements in that the failure to
construct mandated projects or properly maintain existing lines and facilities bring with them the
possibility of immediate and direct legal and financial consequences.” Id. at p. 3, ll. 14-17.
When asked “If the proposed rate change is not implemented, will the District be able to
construct all of the projects required by the Consent Decree (CD)?” Richard Unverferth’s
response was “No.” See Ex. MSD 3C, p. 3, ll. 4-6. The Fluidized Bed Incinerator projects, which
MIEC suggested that the District consider moving out of the CIRP, could not be removed from
the CIRP without jeopardizing the District’s NPDES permits. See Ex. MSD 80A, p. 1, ll. 9-24.
86
“MSD’s position is that the existing incinerators will be in violation of the law without
maintenance. Under the SSI Rule maintenance repairs are not an option, and the units have to be
replaced. MSD committed to the EPA to follow the law and replace the incinerators beginning
construction in 2023 as a condition of a [Consent Decree] amendment.” See Ex. MSD 95, p. 8.
The District believes the only project large enough to have an impact is the incinerator
project, which was delayed in the Consent Decree amendment so the District could maintain
compliance with air quality regulations and mitigate rate impact on customers. See Ex. MSD
88A, p. 4. In Ex. MSD 88A, the District provided the difference in user charge revenues and
monthly bills if $70 million of budgeted CIRP was deferred from both FY 2023 and FY 2024 to
FY 2025 and FY 2026. The difference in a Typical Single Family Residential bill based on 6 Ccf
per month would result in no change in FY 2021, a decrease of 0.8% in FY 2022, a decrease of
1.5% in FY 2023, and a 2.3% decrease in FY 2024.
While it may be theoretically possible to move a certain few projects which are not
required by the Consent Decree or other regulations out of the CIRP, the Rate Consultant noted
that the District must weigh the pros and cons of moving such project. Nicole Young of Lion
CSG testified that the “prioritization of a CIRP can be complicated, so it is difficult to have a
project-by-project analysis of timing of the program. There may be extenuating circumstances
that may move a project forward or backward in a schedule, such as association with another
project, risk of failure, or coordination of projects with other utilities.” See Ex. RC 82, p. 6, ll.
20-23. The District stated in response to a discovery request that “these [non-Consent Decree,
non-regulatory] are very critical. They will allow for the repair, replacement, and rehabilitation
of deteriorated closure gates and gate structures at several 50 plus year old facilities. The District
along with the City of St. Louis is required by the U.S. Army Corp of Engineers to maintain
87
these facilities and the floodwall. This Mississippi River Floodwall system provides flood
protection for the City of St. Louis and its downtown area. The economic damage to businesses,
homes, and institutional properties that would occur if floodwall protection fails would be
substantial.” See Ex. MSD 77A, pgs. 4-5.
It is the position of the Rate Consultant that the projects within the CIRP are appropriate.
See Ex. RC 82, p. 6, ll. 3-4. Nicole Young of Lion CSG testified that the “majority of the
projects – about [$]1.1 billion – are consent decree related. Another – my estimation is [$]340
million are regulatory based. It leaves very little room for adjustment within the CIRP.” See Ex.
MSD 79, p. 118, ll. 13-17. Regarding the small percentage of projects not required for the
Consent Decree or other regulatory requirements, these projects are comprised of “the Floodwall
ORS pump station system, which is the main system that protects the City of St. Louis from
flooding. The Floodwall ORS system is over 50 years old, which is the end of its useful life. The
risk of moving these asset management projects further into the schedule exceeds the cost-
benefit of the 1% reduction in the CIRP.” See Ex. RC 82, p. 6, ll. 11-15. Ms. Young testified that
“there appear to be four projects [that are required by the Consent Decree] that could be moved
from the FY 2021 through FY 2024 CIRP into a future budget cycle. These projects are 12088,
11833, 12334, and 12350 [listed in Appendix 7.2.2 of Ex. MSD 1, p. 7-18 – 7-90]. MSD may
have reasons, beyond regulatory deadlines, for pulling these projects forward into this CIRP.
Project 12350 appears to have a related pump station project in FY 2021 through FY 2024 CIRP,
so it may be more cost-effective to build these at the same time. Project 12334 is a phased
project, which may need to be adjusted for the schedule of the overall project. The four projects
in question amount to less than 2% of the CIRP.” See Ex. RC 82, p. 7, ll. 4-11.
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When asked about the deferral of $70 million a year for FY 2023 and FY 2024, the Rate
Consultant testified “the capital program is not all cash funded, it’s debt funded. So in debt
financing, capital improvement program, that’s spreading the cost of that capital program over a
30 year period of time for all of that portion that is debt funded. So when you shift costs from
[FY2023] and [FY2024] into [FY2025] and [FY2026]… it does allow some downward
movement of the rates, but not in a material way.”8 See Ex. MSD 91, p. 194, ll. 9-21.
The Rate Commission believes that the evidence presented in the record indicates that the
District has little discretion to move projects out of the CIRP without jeopardizing compliance
with the Consent Decree or other regulatory requirements, and even if the few projects that might
be able to be moved were moved, it would have minimal, if any, effect on the wastewater rates.
8 During deliberations, the Rate Consultant provided the Rate Commission with actual
dollar amounts based on the percentages the District provided in Ex. MSD 88A. The Rate
Consultant concluded the dollar amounts were “minimal.”
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THE RATE COMMISSION, AFTER DISCUSSION AND CONSIDERATION OF
ALL OF THE FACTS AND CIRCUMSTANCES DISCLOSED IN THESE
PROCEEDINGS, FINDS AND DETERMINES THAT THE RATE CHANGE
PROPOSAL DOES NOT IMPAIR THE ABILITY OF THE DISTRICT TO COMPLY
WITH APPLICABLE FEDERAL AND STATE LAWS OR REGULATIONS AS
AMENDED FROM TIME TO TIME DURING THIS RATE CHANGE PROPOSAL
CYCLE.
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Fifth Factor: Whether the Rate Change Proposal, and all portions thereof, “Imposes
a fair and reasonable burden on all classes of ratepayers.”
The Charter Plan does not define the terms or phrases utilized as the criteria governing
the rate. As such, to interpret the meaning of words used in a statute, usually the words are
attributed their plain and ordinary meaning. See Sermchief v. Gonzales, 660 S.W.2d at 688.
Similarly, an interpretation of words in their plain and ordinary meaning can be performed on the
words and phrases utilized in the Charter Plan. The commonly understood meaning of words is
derived from the dictionary. See Buechner v. Bond, 650 S.W.2d at 613.
According to Black’s Law Dictionary, the term “fair” is defined as “impartial; just;
equitable; disinterested. Free of bias or prejudice.” See Black’s Law Dictionary, p. 673 (8th ed.
2004). See also Webster’s Dictionary, p. 257 (2016 ed.) (fair is just).
“Reasonable” is defined as, “fair, proper, or moderate under the circumstances.” See
Black’s Law Dictionary, p. 1293 (8th ed. 2004). See also Webster’s Dictionary, p. 600 (2016 ed.)
(reasonable is being in the bounds of reason: not extreme).
Similar language of this fifth factor can be found in § 7.300 of the Charter Plan, which
indicates that the Board of Trustees shall accept a Rate Commission Report unless it finds that
the report “imposes an unfair or excessive burden on one or more classes of ratepayers.” See
Charter Plan, § 7.300(b)(5).
Further, this language appears in the Restated Operational Rules of the Rate Commission
whereby the District shall submit to each member of the Commission information related to
direct testimony that may explain “why the Proposed Rate Change is necessary, fair and
reasonable” and “why the burden imposed on each class of ratepayers by the Proposed Rate
Change is fair and reasonable, including whether and how cost of service considerations, cost
91
causation principles, customer impact data, economic development considerations,
environmental effects and other factors have not been factored into such determination.” See Ex.
RC 55, p. 5, §§ 3(4)(a) and 3(4)(e) (2019). However, neither of these provisions are defined nor
explained.
The District’s rates and rate models have been exhaustively reviewed by the courts in
Zweig v. Metro. St. Louis Sewer Dist., 412 S.W.3d 223; Ring v. Metro. St. Louis Sewer Dist.,
969 S.W.2d 716 (Mo. banc 1998), overruled by Zweig, 412 S.W.3d 223; Missouri Growth Ass.
v. Metro. St. Louis Sewer Dist., 941 S.W.2d 615 (Mo. App. E.D. 1997); Beatty v. Metro. St.
Louis Sewer Dist., 914 S.W.2d 791 (Mo. banc 1995), overruled by Zweig, 412 S.W.3d 223; and
Beatty v. Metro. St. Louis Sewer Dist., 867 S.W.2d 217 (Mo. banc 1993). However, none of the
cases have considered whether the rates charged by the District are fair and reasonable.
On several occasions, Missouri courts have discussed whether a rate is fair or reasonable
in utility rates cases where a class of ratepayers alleged that the Public Service Commission
(“PSC”) approved unlawfully discriminatory rates. For instance, in State of Missouri at the
Relation of Nancy Dyer and J. Raymond Dyer v. Pub. Serv. Comm’n., 341 S.W.2d 795, 796
(Mo. 1960), the PSC approved a schedule of rates which allowed for higher percentage increases
in electric utility rates for residential and commercial customers than for industrial customers. In
this case, the rate for residential customers was increased 8.6% while the rate for industrial
customers was increased 5.5%. Id. at 799. The PSC found that the higher increase, imposed upon
residential and commercial customers rather than industrial customers, was due to larger capital
expenditures such as the use of air conditioning, installation for hundreds of miles of heavier
wires and transformers, and higher labor costs, incurred on behalf of the residential customers.
Id. As such, the court found that the rates were fair and no unlawful discrimination had occurred.
92
Several months later, the Missouri Supreme Court heard R.P. Smith, et al. v. Pub. Serv.
Comm’n., 351 S.W.2d 768 (Mo. 1961). In this case, the PSC approved an order which allowed
electric utility rates to be increased a greater percentage for commercial than residential
customers. Id. at 771. The Missouri Supreme Court affirmed the PSC’s order and found that the
fact that there was a larger increase applied to one class as opposed to another does not alone
indicate that the rate is unfair or unreasonable. Id. Further, the Court found that there is no
discrimination where a reasonable classification has a direct correlation to the differences in the
situation of the customers or the furnishing of the services whereby valid reasons exist to justify
the imposition of varying rates. Id.
Factors which supported the differential increase included the fact that the demand from
industrial users is often high, the use is often occasional or inconsistent, and the use is often for
only a portion of the day or a short duration during the year. Id. at 772. With this, the
maintenance of the facilities to meet variable and often demanding loads was unprofitable to the
utility. Id. As such, the rates were increased disproportionately to the disfavor of industrial
customers to account for such costs. The Court stated that because there was a larger increase
applied to one class as opposed to another does not alone indicate that the rate is unfair or
unreasonable or that discrimination occurred. Id. at 771. Further, the Court found that there is no
discrimination where a reasonable classification has a direct correlation to the differences in the
situations of the customers or the furnishing of the services whereby valid reasons exist to justify
the imposition of varying rates. Id. This increase, consequently, was held to be a reasonable one.
Id. at 772-773.
However, in State of Missouri ex rel. DePaul Hosp. School of Nursing v. Public Service
Comm’n., 464 S.W.2d 737, 740 (Mo. App. 1970), the Missouri Court of Appeals found the
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PSC’s order approving a rate to be unlawfully discriminatory. In this case, the evidence
demonstrated that the respondent was charged a substantially higher rate for the operation of its
nursing home than others similarly situated who received a substantially lower rate, known as the
hotel-motel rate. The court found that “it was said that arbitrary discriminations alone are unjust,
but if the difference in rates be based upon a reasonable and fair difference in conditions which
justify a different rate, it is not unjust discrimination.” Id. at 740 (quoting State ex rel. City of St.
Louis v. Pub. Serv. Comm’n., 36 S.W.2d 947, 950 (Mo. 1931) (emphasis added)).
In State of Missouri ex rel. City of Oak Grove, et al. v. Pub. Serv. Comm’n., 769 S.W.2d
139 (Mo. App. W.D. 1989), the Missouri Court of Appeals found the PSC’s order, which
allowed a telephone company to provide extended area service in one metropolitan area when it
was not provided in other suburban exchanges approximately the same distance from the central
exchange, to be “lawful and reasonable.” Id. at 141. In this case, the court held that
discrimination does not exist merely because the distance between a central exchange and
service complainant’s exchange is approximately the same. Id. at 143. The court reasoned that
the PSC was entitled to take into account factors such as population density and gross territory
area when making these determinations. Id.
The PSC regulates telephone and telegraph companies (Mo. Rev. Stat. § 392.200 (2016))
and gas, electric, water, heating and sewer companies (Mo. Rev. Stat. §§ 393.130, 393.140
(2016)). Generally, the PSC uses the standard “just and reasonable” in determining whether a
proposed rate is valid.
The standard of review for telephone and telegraph companies provides that “all charges
made and demanded by any telecommunications company for any service rendered or to be
rendered in connection therewith shall be just and reasonable and not more than allowed by law
94
or by order to decision of the commission.” See Mo. Rev. Stat. § 392.200 (2016) (emphasis
added).
The standard of review for gas, electric, water and sewer corporations provides that the
PSC has the power to “determine and prescribe the just and reasonable rates and charges
thereafter to be in force of the service to be furnished, notwithstanding that a higher rate or
charge has heretofore been authorized by statute, and the just and reasonable acts and regulations
to be done and observed.” See Mo. Rev. Stat. § 393.140(5) (2016) (emphasis added).
The PSC’s role in the electric utility resource planning “shall be to provide the public
with energy services that are safe, reliable and efficient, at just and reasonable rates, in a manner
that serves the public interest.” See 4 CSR 240-22.010(2) (emphasis added).
Whether a rate in effect at any given time is “just and reasonable” depends upon many
facts and only can be determined after a rather extended investigation and study. See State of
Missouri ex rel. Laclede Gas Co. v. Pub. Serv. Comm’n., 535 S.W.2d 561 (Mo. App. 1976). A
reasonable rate is a question of fact, calling for the exercise of common sense and sound
judgment, not bound by any hard and fast rule, nor limited to any general formula. State ex rel.
Office of Pub. Counsel v. Pub. Serv. Comm’n., 367 S.W.3d 91, 107 (Mo. App. S.D. 2012); see
also State ex rel. Associated Natural Gas Co. v. Pub. Serv. Comm’n., 706 S.W.2d 870, 880 (Mo.
App. W.D. 1985); Ark. Power & Light Co. v. Pub. Serv. Comm’n, 736 S.W.2d 457, 462 (Mo.
App. W.D. 1987).
No writer whose views on public utility rates command respect purports to find a
single yardstick by sole reference to which rates that are reasonable or socially
desirable can be distinguished from rates that are unreasonable or adverse to the
public interest. A complex of tests of acceptability is required, just as would be
the case with the tests of a good automobile, a good income-tax law, or a good
poem.
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State ex rel. City of Lake Lotawana v. Pub. Serv. Comm’n, 732 S.W.2d 191, n.1 (Mo. App.
W.D. 1987) (quoting J. Bonbright, Principles of Public Utility Rates 67 (1961)).
In Laclede Gas, the Missouri Court of Appeals analyzed the issue of just and reasonable
rates when the gas company argued that its existing approved rates were so unreasonably low as
to be confiscatory. 535 S.W.2d at 569. Laclede argued that the rates must be sufficient to
produce a fair return on the property. Id. The court determined that “[e]very utility does have an
undoubted constitutional right to such a fair and reasonable return, and thus is a continuing right
which does not cease after beginning rates are initially determined.” Id.
The court found that whether the rates in effect are just and reasonable depends upon
many facts and can only be determined after rather extended investigation and study. Id. at 570.
The United States Supreme Court has analyzed the standard of “just and reasonable
rates” under the Natural Gas Act in two relevant cases. See Fed. Power Comm’n. v. Nat. Gas
Pipeline Co., 315 U.S. 575 (1942); Fed. Power Comm’n. v. Hope Nat. Gas Co., 320 U.S. 591
(1944). In Natural Gas Pipeline, the Court, in determining whether the rate was just and
reasonable, stated:
The Constitution does not bind rate-making bodies to the service of any single
formula or combination of formulas. Agencies to whom the legislative power has
been delegated are free, within the ambit of their statutory authority, to make the
pragmatic adjustments which may be called for by particular circumstances. Once
a fair hearing has been given, proper findings made and other statutory
requirements satisfied, the courts cannot intervene in the absence of a clear
showing that the limits of due process have been overstepped. If the
commission’s order, as applied to the facts before it and viewed in its entirety,
produces no arbitrary result, our inquiry is at an end.
315 U.S. at 586.
The Supreme Court provided further guidance in Hope Natural Gas, when it stated that
rates cannot be made to depend upon the fair value, which is the end product of the process of
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rate-making and not the starting point, when the value of the going enterprise depends on
earnings under whatever rates may be anticipated. 320 U.S. at 601. The Supreme Court further
provided that under the statutory standard that natural gas rates shall be “just and reasonable,”
the result reached, and not the method employed, is controlling. Id. at 602. If the total effect of
the natural gas rates fixed by the Federal Power Commission cannot be said to be unjust and
unreasonable, judicial inquiry under the Natural Gas Act is at an end. Id.
Debt Service Coverage Ratio / Debt-Cash Mix of CIRP Funding
The District’s debt agreements require a minimum senior bond debt [service] coverage
(“DSC”) ratio of 1.25x and a minimum total bond debt [service] coverage ratio of 1.15x. See Ex.
MSD 3F, p. 7, ll. 17-24. To maintain the District’s high credit ratings, the Rate Change Proposal
has been set to achieve a minimum DSC of 2.5x for senior bonds and 1.8x for total bonds. Id.
The District’s Rate Change Proposal provides that the CIRP will be funded through a ratio of
approximately 40% rate revenue and 60% debt. Id. at p. 3, ll. 15-17.
The District maintains there is no formal financial policy for debt/cash funding of the
CIRP and that the 60/40 ratio results from the District’s target of 1.8x DSC ratio. Mr. Snoke
testified, “[t]he roughly 60/40 Debt/PAYGO funding of the CIRP in MSD’s proposal is an
outcome of the many factors being balanced to fully fund MSD Operations and the CIRP in a
way that minimizes rate increases and adheres to MSD actual financial policies, like holding a
minimum Operating Reserve of 60 days.” See Ex. MSD 80F, p. 5, ll. 9-20. “The mix has ranged
from 80/20 some years to approximately 70/30 over the last wastewater rate process, averaging
75/25 over time, but it is not correct to say that 75/25 is a formal policy. Overall wastewater user
charges for this cycle are actually projected to be lower with the 60/40 debt/PAYGO mix than
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they would be with the historical average of 75/25 due to the higher projected debt service, and
resulting DSC ratios, associated with a 75% debt/25% PAYGO mix.” Id.
Bethany Pugh testified on behalf of the District that the “financial planning model
assumed the District managed its financial obligations to maintain AA category credit ratings.”
See Ex. MSD 3G, p. 4, ll. 7-16. “Based on these parameters, we then analyzed the District’s
historical ratio of debt to cash funding for CIRP (75%/25% debt to equity from FY2004-
FY2018) and attempted to maintain a ratio consistent with this, in light of future CIRP funding
needs and revenue increase parameters. As a result the debt to cash ratio for the rate period
FY2021-FY2024 is approximately 60% debt to 40% cash. This ratio includes both revenue
bonds and any state revolving fund (‘SRF’) obligations of the District.” Id.
Intervenor MIEC presented the testimony of Michael Gorman, who proposes that the
District target DSC coverage of approximately 1.6x, which would be in line with the District’s
2011 and 2015 rate proceedings. See Ex. MIEC 73, p. 3, ll. 8-12; p. 10, ll. 3-5. MIEC notes that
in the District’s “last rate case, its earned DSC was much higher than the target DSC used for
ratemaking purposes. MSD explained that rate projections used in 2015 over-recovered its cost
of service…. By understating miscellaneous revenues, and overstating operating expenses and
debt service costs, MSD’s actual earned DSC was much higher than that used to set rates. The
Rate Commission should again be careful to ensure that MSD is not again overstating operating
expenses and debt service costs, and understating revenue collections from non-wastewater
service charges.” See Ex. MIEC 73, pgs. 10-11, ll. 19-24, 2-6.
Mr. Gorman stated that the proposed 40/60 cash/debt ratio relies too heavily on rate
revenue and that the District should consider a funding policy closer to 25% cash and 75% debt.
See Ex. MSD 91, p. 192, ll. 7-10. Mr. Gorman stated that “previously, the District developed a
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revenue requirement using a CIRP funding policy of 75% debt and 25% PAYGO (equity)
funding from the period 2004 through 2018.” See Ex. MIEC 73, p. 7, ll. 6-10. Mr. Gorman noted
that the Rate Commission approved a 25/75% ratio in the 2007 rate proceedings. See Ex. MIEC
73, p. 12, ll. 1-12. Mr. Gorman testified at the technical conference that a 30/70 cash/debt ratio
would be appropriate here. See Ex. MSD 79, p. 39, ll. 12-18.
It is the position of the Rate Consultant that MIEC’s position of targeting a 1.6x DSC
ratio to achieve a roughly 30/70 cash/debt ratio may place MSD at risk of a rating downgrade.
“Furthermore, based upon a review of Mr. Gorman’s rate model, while he has testified that
MSD’s policies should be adjusted to those used in prior rate proposals, his financial plan results
in debt service coverage that is not materially different than MSD’s proposal, at 1.76x at the end
of FY 2024, as compared to MSD’s rate model of 1.81x. In addition, the reduction in cash
financing compared to MSD’s proposal appears to be primarily the result of the assumed lower
interest rates on projected bonds.” See Ex. RC 81, p. 3, ll. 9-16. The Rate Consultant testified
that the current policy of 1.8x is consistent with what rating agencies have indicated they expect
to see. “Specifically, Moody’s considers debt service coverage of 1.7x – 2.0x to be consistent
with Aa rated utilities. Fitch indicated in its report related to MSD’s 2017 rating that MSD would
be at risk of a downgrade if debt service coverage fell below what they are expecting. In their
report they indicated that MSD’s debt service coverage was solid at 1.8x in 2017 and was
projected at 1.9x in FY 2019-20. Fitch further stated that ‘any deterioration in financial
performance beyond the projected levels would be expected to result in a negative rating
action.’” Id. at p. 4, ll. 9-16.
MIEC also notes that the District’s targeted DSC is not always the same as the earned
DSC. “[I]n MSD’s last two rate cases, [MSD] set wastewater rates to achieve a minimum DSC
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of approximately 1.6x. However, in all years that wastewater rates were in effect, MSD earned a
DSC above the 1.6x DSC minimum… [W]hile MSD’s rate-setting policy over the last three rate
cases has been a minimum DSC of 1.6x-1.9x, it has consistently earned a higher DSC of over
1.9x or higher from the wastewater rates approved in its last two rate cycles.” See Ex. MIEC 83,
pgs. 9-10, ll. 17-21, 1-5. MIEC attributes this discrepancy to MSD “overstat[ing] operating
expenses in its 2015 rate model by about $43.2 million, and overstated debt service costs by
approximately $26.9 million.” Id. at p. 11, ll. 6-8. MIEC concludes that if MSD sets rates to
achieve a 1.8x DSC, “it is likely MSD will earn a DSC higher than its actual earned DSC over
the last several years. There is simply no sound basis to increase rates to wastewater customers to
accomplish an increase in the DSC, when all the evidence in this case shows that the rate-setting
practice used to set rates for MSD over the last two rate cycles, and actual earned DSC have
supported its very strong investment grade bond rating.” Id., ll. 16-22.
The Rate Consultant further testified that “[w]hile MSD’s debt service coverage policy in
the past was 1.6x, it is appropriate for utilities to regularly evaluate financial policies to reflect
current conditions and rating agency expectations. As utilities become more heavily debt
burdened, rating agencies will expect to see the growth in outstanding debt mitigated to the
extent possible with reasonable debt service coverage, which will provide cash for cash financing
a portion of the capital program.” See Ex. RC 81, p. 4, ll. 2-7. Ms. Lemoine noted that the 2.5x
and 1.8x ratios were valid and important metrics, particularly in light of the District’s current and
anticipated future heavy debt profile. See Ex. RC 70, p. 21, ll. 2-4.
Rate Consultant Pamela Lemoine testified that the District’s proposed 40/60 cash/debt
ratio is “reasonable and cost effective.” Ms. Lemoine also noted that “at this point in time for the
District, debt service coverage really is driving the financial plan, not the cash debt mix. The
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cash debt mix is an outcome of achieving the debt service coverage that’s required in light of the
currently CIRP funding level.” See Ex. MSD 79, p. 79, ll. 5-10. Ms. Lemoine acknowledged that
“[t]he District’s current Rate Proposal provides for cash financing of approximately 37%, which
exceeds the District’s historical cash versus debt funding mix of 25%/75%,” however, Ms.
Lemoine believes this level of cash financing “is consistent with the 25% to 30% cash financing
of capital that is deemed an industry accepted best practice and is in practice in other peer
utilities.” See Ex. RC 70, pgs. 13-14, ll. 22-23 & 1-4. Ms. Lemoine testified that “the debt cash
mix that is targeted is not a standalone policy that can be achieved in a vacuum. It’s a function of
a utility’s outstanding debt, and the impact that the debt service coverage has on revenue that’s
generated to meet that debt service coverage level, as well as the size of the capital program… if
the capital program changes, all things being equal, that cash generated will result in a different
percentage, just from the basic math.” See Ex. MSD 79, pgs. 85-86, ll. 22-25 & 1-6.
The Rate Commission notes that a minimum total DSC of 1.6x is in line with prior
practices of the District, and that the District’s earned DSC has exceeded the District’s targets in
the last two rate cases. While the Rate Commission acknowledges the District’s, and the Rate
Consultant’s, concerns regarding the risk of a ratings downgrade, the Rate Commission believes
that the record does not clearly reflect that the District’s revised policy of a 1.6x minimum total
DSC would result in a ratings downgrade. Further, the record does not reflect that a ratings
downgrade would adversely affect ratepayers or would increase borrowing costs. Therefore, for
the Rate Change Proposal to be fair and reasonable to all classes of ratepayers, the Rate
Commission believes that the District’s Board of Trustees should maintain the senior debt
service coverage ratio at a minimum of 2.5x and consider reducing the minimum total debt
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service coverage ratio to 1.6x, and modify the 40/60 cash/debt mix as necessary, to mitigate the
impact on ratepayers.
Gradualism of Rate Increases
The Rate Consultant expressed concern that “the District is projecting a potential rate
increase of 7.2% in FY 2025 to maintain minimum policy levels. This increase is nearly double
the indicated annual rate increases for FY 2021 through FY 2024.” See Ex. RC 70, p. 15, ll. 7-9.
“This type of a higher increase right at the beginning of the next rate setting period could cause
bill impact volatility. A series of annual revenue adjustments in FY 2021 through FY 2024 that
mitigates such a sudden higher spike in revenue adjustments, becoming necessary in FY 2025,
should be considered.” See Ex. RC 70, p. 7, ll. 15-18. Ms. Lemoine noted that costs and interests
rates for this rate cycle have been lower than what was anticipated during the last rate
proceeding. See Ex. MSD 79, p. 84, ll. 2-5. However, “I think there is a risk of assuming that
that trend will continue to become even more apparent in the future. In fact, I think there’s
probably a risk – more of a risk at this point in time the other way; that three or four years from
now, interest rates could be – or inflation rates could be higher, the construction industry could
be in a different position, where bids are coming in higher. So I really don’t agree that you can
extrapolate the fact that we came in lower this time, that that would happen again in the future.
It’s a risk.” Id., ll. 11-22. “[W]ith slightly higher revenue increases in this [rate cycle], that spike
in 2025 could be mitigated.” See Ex. MSD 79, p. 89, ll. 9-11.
The District’s position is that the “rate increases shown for FY25 are for illustrative
purposes only,” which Ms. Lemoine acknowledged. Id. at p. 83, ll. 8-10. Marion Gee testified on
behalf of the District that “[t]he raw data used to calculate the projected rate increase in FY 2025
has not been subjected to the same level of scrutiny and analysis that was conducted to calculate
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rates during FY 2021 thru FY 2024. Also, given the District’s history of projected rate increases
beyond previously proposed four-year rate cycles being less than expected, it would be prudent
to not increase rates in the current four year cycle to mitigate a potential spike in rates in FY
2025.” See Ex. MSD 80D, p. 3, ll. 60-64. “For instance, we didn’t go through and try to – we
didn’t have data, for instance, for inflation rates that would go out that far over a 16-year period.
We didn’t apply those rates in the rate model. We didn’t go through, for instance, and try and
look at our capital program and go into the same level of scrutiny that we made in terms of trying
to prioritize projects that were placed in FY25 or in FY30 that we may have the ability to either –
we may have to accelerate some stuff or change things out. We didn’t go through that level of
exercise because, again, our focus was just on what we were asking the Rate Commission to
approve.” See Ex. MSD 91, p. 120, ll. 14-25.
The Rate Commission notes that the rates proposed during this rate cycle, FY 2021
through FY 2024, are significantly less than what was anticipated during the 2015 rate change
proceedings, which set rates for FY 2017 through FY 2020. See Ex. MSD 1, p. 7-118. The Rate
Commission finds that since the potential rate increases shown for FY 2025 and beyond are for
illustrative purposes only and have not been thoroughly scrutinized, it would not be appropriate
to modify the rates proposed in this Rate Change Proposal to mitigate a forecasted increase in FY
2025 which may or may not come to fruition.
Infiltration/Inflow “I/I”
Infiltration and Inflow (“I/I”) is water entering the wastewater system from illegal roof
and foundation drains, groundwater infiltration through sewer service pipe and main joints, and
stormwater runoff or inflow from the combined sewer system. See Ex. MSD 3H, p. 6, ll. 14-16.
The District estimates that I/I is approximately 59% of the total wastewater flow reaching the
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treatment plants on an annual basis. Id. at p. 7, ll. 1-2. In the most recent rate case, I/I was
estimated to be approximately 50%. The District cited to a 2005 study by CDM to determine that
that 40 percent of the total I/I is related to individual customers and 60 percent is related to the
District’s collection system infrastructure. Id. at p. 8, ll. 2-12. William Stannard testified on
behalf of the District that “the amount of I/I costs to be recovered directly from wastewater
service charges is assigned to customer classes on the premise that 40 percent of the total cost is
distributed on the basis of the number of customers within each class, with the remaining 60
percent allocated on the basis of contributed wastewater volume. These percentage allocations
were adopted in the District’s 2007 Wastewater and Stormwater Rate Change Proposal and have
been used ever since.” Id. See also Ex. MSD 1, p. 4-35, Table 4-16.
MIEC objects to the District’s allocation of 60% of the cost to volume. Michael Gorman
testified on behalf of MIEC that “I believe it is not appropriate to allocate 60% of I/I costs on
volume. Specifically, as noted by MSD, I/I costs are incurred based on customer connections,
and leaky collector systems, manholes and pumping stations. As such, the actual collection
system is driven by both number and location of customers on the system and volumetric
throughput. As such, I recommend allocating I/I costs on the basis of 50% customer and 50%
volume.” See Ex. MIEC 73, p. 20, ll. 7-13. MIEC notes that the study relied upon by the District
relied upon data from 2001-2003, and that “there have been significant changes to MSD’s
system since this study was completed. In particular, MSD has made substantial improvements
to its wastewater system to comply with the requirements of the Consent Decree. Additionally,
I/I costs are largely created through the collection infrastructure and geographic area, length of
pipe, number of lift stations and infrastructure age. It would be more appropriate to utilize an I/I
allocation that is more heavily weighted toward the number of customers on the system.” Id. at p.
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24, ll. 5-12. “Increasing the customer-related component of I/I supports recovering more I/I costs
through the fixed customer charges.” See Ex. MIEC 90A, p. 2.
It is the Rate Consultant’s position that “the District’s allocation of costs such as I&I
costs between customer and volume has the potential to impose a higher level of cost
responsibility on classes with higher wastewater flow volumes…” See Ex. RC 71, p. 6, ll. 4-6.
The Rate Consultant agreed with the District that “I&I volume appears to be 59% of the total
plant flow volume.” Id. at p. 7, ll. 5-6. With regard to the 2005 study relied upon by the District,
“it is not clear to which specific section of that report or to which specific conclusion in that
report the District attributes these allocation factors. It is also not clear what specific assumptions
used in that report the District deems still valid for this current allocation.” Id., ll. 14-17.
In his surrebuttal testimony, William Stannard testified that “[e]ven though I agree with
some of the comments expressed by the Rate Commission’s Consultant and the Intervenor that
the analyses used to estimate the causes and responsibility for I/I occurring within the MSD
wastewater collection system may change over time, I believe that the [40% customer / 60%
volume] allocation used remains reasonable. I believe that it is important to note that the nature
of wastewater collection systems and the wide range of causes for the level of I/I do not provide
a foundation for an engineering analysis of sufficient detail to support an exact determination of
relative responsibility for I/I. As such the allocation factors used by rate consultants throughout
the United States and incorporated within guidance documents are typically based on judgement
more so than engineering analyses and testing.” See Ex. MSD 80C, p. 1, ll. 6-15. He noted that
Kansas City uses the proposed 40% customer / 60% volume I/I ratio that the District proposes in
the Rate Change Proposal. Kansas City is “a similar utility in terms of geographic location,
topography, climate, and size of service area.” Id., ll. 20-21.
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The Rate Commission believes that the concerns of the Rate Consultant and Intervenor
MIEC regarding the I/I allocation of roughly 60% to volume and 40% to users merits further
examination. The 2005 study which the District relied upon was based on data collected from
2001 through 2003, and does not account for the changes to the District’s system since 2003.
Susan Myers stated that “MSD is committed to performing a new I&I allocation study prior to
the next rate proposal. The new report will take into account the impact of the removal of 189
sanitary sewer overflows [and] 85 percent removal since the start of the consent decree.” See Ex.
MSD 96, p. 12, ll. 11-16. The District’s commitment to conduct a new study prior to the next
rate change proceedings is appropriate.
The Rate Commission recognizes that the I/I study is dated and it would have been
preferable for the District to have conducted another study prior to these proceedings. However,
while acknowledging the Rate Consultant and MIEC’s concerns with the I/I allocation, the Rate
Commission has determined that the record does not support a modification to this allocation at
this time without the new study because there is insufficient data to support a finding that a 50/50
allocation, or an allocation between 50/50 and 60/40, is appropriate. Modifying the I/I allocation
would increase the burden on ratepayers by an indeterminate amount. In the absence of updated
data supporting a different I/I allocation, the Rate Commission believes it cannot adjust the
allocation, thereby increasing the burden on customers. As such, the Rate Commission believes
that the I/I allocation proposed in the Rate Change Proposal is supported by the record, and is,
unless and until data is presented which supports a different allocation, fair and reasonable. The
Rate Commission proposes that a new I&I study be conducted as expeditiously as possible, and
that the Rate Commission be advised of its conclusions as soon as they are available.
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Extra Strength Surcharges
The Rate Change Proposal proposes significant increases in extra strength surcharges.
Tom Beckley testified on behalf of the District that such increases are warranted because “[t]he
cost of service analysis indicates a significant increase in the surcharge rates for BOD
[Biochemical Oxygen Demand], COD [Chemical Oxygen Demand], and TSS [Total Suspended
Solids]. This increase is caused by several factors, most significant is that the capital cost
allocated to these functional categories increased by approximately 70% from FY 2017 to the
test year of FY 2021 while units of service for BOD and COD decreased by 7% and TSS
decreased by 5% over the same time period. In total, these factors result in the increase in the
rates that is larger than other rate components.” See Ex. MSD 3I, p. 11, ll. 1-8.
Under the Rate Change Proposal, in FY 2021, the TSS surcharge would increase by 11%,
the BOD surcharge would increase by 27%, and the COD surcharge will increase substantially.
See Ex. MSD 61A, Q3; See also Ex. MSD 1, p. 4-37, Table 4-18.
MIEC testified that the sharp increase in extra strength surcharge is unreasonable.
Michael Gorman testified on behalf of MIEC that “MSD states that the increase is primarily due
to the fact that the capital cost allocated to these functional categories increased by
approximately 70% from FY17 to the test year of FY21, while the units of service for BOD and
COD decreased by 7% and TSS decreased by 5% over the same time period.” See Ex. MIEC 73,
p. 29, ll. 4-9. Gorman further testified that “MSD’s capital expenditures related to BOD and TSS
are primarily associated with the improvement of operating efficiency of wastewater treatment
plants because these improvements are expected to reduce the cost of waste disposal. The capital
expenditures associated with these improvements are not directly related to an increase in the
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cost of treating wastewater with BOD and TSS strengths in excess of the normal loadings.” Id.,
ll. 11-16.
The Rate Consultant testified that “moving to cost of service based rates immediately in
FY 2021 for Surcharge rates poses a potential for ‘rate shock’ for some customers.” See Ex. RC
71, p. 6, ll. 6-8. The Rate Consultant further testified, “[t]o mitigate any potential ‘rate shock’ on
Surcharge customers, the District should consider phasing in to cost of service over at least a
two-year time period. Subsequent to the ‘phase-in’ period, the District should also consider
increasing all rates, including surcharge rates, during FY 2022 through FY 2024 based on an
‘across the board’ increase approach. The across the board annual increase should be based on
the overall system-wide revenue increase required.” Id. at p. 5, ll. 13-18. “The results of the cost
of service analysis therefore indicate increases in both TSS and BOD rates that are higher the
average system revenue increase. In FY 2022 through FY 2024, the District is again proposing
Surcharge rates increase at a level equivalent to the overall projected increase in just the O&M
expenses, and not at a level that is aligned with the overall system-wide revenue increase.” Id. at
pgs. 8-9, ll. 21-23 & 1-2. “Due to the significant increase in both TSS and BOD rates in FY
2021, the District should consider ‘phasing-in’ the Surcharge rates over at least a two-year
period. In addition, rather than increasing Surcharge rates in FY2022 through FY2024 based on
the calculated increase in O&M, the District should consider increasing Surcharge rates in a
more traditional ‘across the board’ manner, reflecting the overall increase required for system
wide rate revenues in each year.” Id. at p. 9, ll. 4-9.
Tom Beckley testified on behalf of the District that while, in concept, an across the board
approach could be preferable, “the problem is it ignores the fact that the proposed increase is
necessary because these rates were increased at less than an ‘across the board increase’ for fiscal
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years 2018, 2019, and 2020 based on what turned out to be an inaccurate assumption that the
change in these rates would be driven by operation and maintenance expense more than capital.
In other words these customers have received the benefit of what turned out to be an inaccurate
assumption for those three years. It should be noted that while an across the board increase for
the years 2018, 2019, 2020 would have been closer to the currently proposed rates it too would
have been inaccurate and would have increased surcharge rates more than is now necessary, by
approximately 13% for TSS and 4% for BOD.” See Ex. MSD 80B, p. 1, ll. 6-15. Mr. Beckley
disagreed with MIEC’s contention that the District’s proposed capital expenditures are not
directly related to the costs of treating wastewater with higher BOD and TSS than normal
wastewater. “The processes being improved at the treatment plants are directly related to
removing BOD and TSS from the wastewater flow, so these capital costs are reasonably
allocable to BOD and TSS.” Id. at pgs. 1-2, ll. 23-24 & 1.
Marion Gee also testified on behalf of the District that the increases in extra strength
surcharges are appropriate because presently, ratepayers are subsidizing surcharge users. “Per
our current wastewater proposal, the one that is from FY17 to FY20, from FY17 through FY19,
our customers that are not commercial customers that are subject to this surcharge, they are
subsidizing that by having to pay $1.1 million more than they would if that rate would have been
distributed to those customers that are subject to the surcharge. So they’re – Again, they’re
paying an additional $1.1 million through FY19 that really should be charged to those customers
with the higher wastewater strengths.” See Ex. MSD 91, p. 100, ll. 10-19. “So the $7.1 million is
actually what would be needed to treat that extra strength surcharge that’s coming from those
customers. We’re not going back trying to recover what we’ve lost in the current recycle. Again,
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it’s based solely on what it’s going to cost to service those customers for the next four-year rate
cycle.” Id. at p. 101, ll. 11-16.
The Rate Commission acknowledges the concerns for a potential rate shock that could be
caused by sharp increases to surcharges in FY 2021. These sharp increases can drive investment
decisions caused by large industrial users subject to the surcharges, which may choose to modify
their facilities or make location decisions to minimize their exposure to surcharges, thereby
depriving the District of revenue. The Rate Commission determines that, for the Rate Change
Proposal to be fair and reasonable to all classes of ratepayers, the proposed increases for extra
strength surcharges should be phased in over at least a two-year period.
CIRP Projects
MIEC proposes to defer some projects in the CIRP to mitigate the impact on ratepayers.
“[C]ertain major capital investments in FY 2023, and FY 2024 more specifically, have not been
shown to be needed for the EPA Consent Decree or any other way that MSD does not have the
discretion to levelize these over the entire forecast period.” See Ex. MIEC 73, p. 16, ll. 13-16.
“[T]here are several very large capital programs that could be deferred for a few years, in an
effort to produce an annual level of CIRP spending during the forecast period and several years
immediately following it.” Id., ll. 20-22.
MIEC proposes adjusting the amount of CIRP spending in FY 2023 and FY 2024 by $70
million for each year, and increase the proposed spending in FY 2025 and FY 2026 by the same
amount. See Ex. MIEC 83, pgs. 4-5, ll. 11-14 & 1-2. “The actual selection of which projects
could be deferred can be left up to MSD Staff, which can be managed in a way which meets its
Consent Decree (‘CD’) obligations, other regulatory obligations, and manage impacts on
wastewater rates.” Id. at p. 5, ll. 5-7. MIEC suggests that the District negotiate an amendment to
110
the Consent Decree to permit it to move projects out of the CIRP. “[I]t might be possible to
negotiate an extension in the permitting with the EPA to allow them a little more flexibility to try
to spread out this annual level of CIRP spending.” See Ex. MSD 91, p. 164, ll. 1-4.
It is the position of the Rate Consultant that there is little flexibility to move projects out
of the CIRP, and the benefits of doing so would be limited. Regarding the small percentage of
projects not required for the Consent Decree or other regulatory requirements, these projects are
comprised of “the Floodwall ORS pump station system, which is the main system that protects
the City of St. Louis from flooding. The Floodwall ORS system is over 50 years old, which is the
end of its useful life. The risk of moving these asset management projects further into the
schedule exceeds the cost-benefit of the 1% reduction in the CIRP.” See Ex. RC 82, p. 6, ll. 11-
15. Nicole Young of Lion CSG testified that “there appear to be four projects [that are required
by the Consent Decree] that could be moved from the FY 2021 through FY 2024 CIRP into a
future budget cycle. These projects are 12088, 11833, 12334, and 12350 [listed in Appendix
7.2.2 of Ex. MSD 1, pgs. 7-18 – 7-90]. MSD may have reasons, beyond regulatory deadlines, for
pulling these projects forward into this CIRP. Project 12350 appears to have a related pump
station project in FY 2021 through FY 2024 CIRP, so it may be more cost-effective to build
these at the same time. Project 12334 is a phased project, which may need to be adjusted for the
schedule of the overall project. The four projects in question amount to less than 2% of the
CIRP.” Id. at p. 7, ll. 4-11.
The District asserts that it lacks discretion to move projects out of the CIRP without
jeopardizing compliance with the Consent Decree or other regulations. The Fluidized Bed
Incinerator projects, which MIEC suggested that the District consider moving out of the CIRP,
could not be removed from the CIRP without jeopardizing the District’s NPDES permits. See
111
Ex. MSD 80A, p. 1, ll. 9-24. “The Bissell and Lemay Fluidized Bed Incinerators project replaces
incinerators originally constructed in the 1970s. The operation of these incinerators is regulated
by USEPA and MDNR.” Id., ll. 26-28. “The District’s second material amendment to the
Consent Decree was negotiated to financially accommodate the construction of new fluidized
bed incinerators, by delaying a number of major Consent Decree tunnel projects. This Consent
Decree amendment states ‘the Parties agree that this proposed Amendment is necessary because
MSD currently incinerates 68,000 tons of sewage sludge annually, utilizing multiple hearth
incinerators. The Federal Plan Requirements for Sewage Sludge Incineration Units Constructed
on or before October 14, 2010 … require MSD to replace its multiple hearth incinerators. The
replacement of these incinerators will occur in fiscal years 2021-2026 timeframe and is estimated
to cost approximately $360 million in 2017 dollars.’ Construction funding for this project is
budgeted in FY 2023, 2024, and 2025. The FY 2025 budget funds construction work that will
extend into FY 2026. The District has no discretion to delay this project.” Id. at p. 2, ll. 33-45.
Since the District has limited flexibility to move projects without affecting its ability to
comply with the Consent Decree and other regulatory requirements, and because moving
projects out of the CIRP for this rate cycle would likely have modest, if any impact on
ratepayers, the Rate Commission finds that the CIRP as proposed results in rates that are fair and
reasonable to all classes of ratepayers. The Rate Commission acknowledges that those few
projects not required for the Consent Decree or other regulatory requirements are still important.
Based on the record before the Rate Commission, the Rate Commission does not find that any
identified projects should be moved to a subsequent rate cycle. While the Rate Commission
encourages the District to search for cost savings wherever possible, it does not conclude that
112
moving projects out to the CIRP would be an effective means of mitigating the impact of
increased rates.
In fact, the Rate Commission believes that due to the current low interest rates and low
cost of CIRP pricing, the District should consider doing more projects during the current rate
cycle. The Rate Commission recommends that if additional funds are available the District
should evaluate its capacity and move projects up when feasible.
To ensure that the Proposed Rate Change is fair and reasonable to all classes of
ratepayers, the Rate Commission proposes that the District consider a minimum total Debt
Service Coverage ratio of 1.6x, and that the increases proposed for extra strength surcharges be
phased in over at least a two-year period.
The Rate Commission has included with its Report, as Exhibit A for informational
purposes only, a memo and chart developed by its Consultant during its deliberations showing
examples of the possible effect of these two issues on the rates themselves. These computations
are to be considered an example only, and are simply for informational purposes, and not part of
the record of these Proceedings.
THE RATE COMMISSION, AFTER DISCUSSION AND CONSIDERATION OF
ALL FACTS AND CIRCUMSTANCES DISCLOSED IN THESE PROCEEDINGS,
FINDS AND DETERMINES THAT THE RATE CHANGE PROPOSAL DOES NOT
RESULT IN RATES THAT IMPOSE A FAIR AND REASONABLE BURDEN ON ALL
CLASSES OF RATEPAYERS.
113
THE RATE COMMISSION, AFTER DISCUSSION AND CONSIDERATION OF
ALL FACTS AND CIRCUMSTANCES DISCLOSED IN THESE PROCEEDINGS,
FINDS AND DETERMINES THAT THE RATE CHANGE PROPOSAL MODIFIED
WITH UTILIZING A MINIMUM TOTAL DEBT SERVICE COVERAGE RATIO OF
1.6x AND WITH THE PROPOSED INCREASES FOR EXTRA STRENGTH
SURCHARGES PHASED IN OVER AT LEAST A TWO-YEAR PERIOD WILL
RESULT IN RATES THAT IMPOSE A FAIR AND REASONABLE BURDEN ON ALL
CLASSES OF RATEPAYERS.9
9 Please see page 122 of this Report for Minority Report of Commissioners Stein and
Toenjes on the Appropriate Allocation of Infiltration/Inflow Costs.
Please see page 123 of this Report for Minority Report of Commissioner Stein on
Deferring Some of the Capital Improvement and Replacement Projects (CIRP).
EXHIBIT A - Metropolitan St. Louis Sewer District Rate Commission | EVALUATION OF THE IMPACT OF THE
RATE COMMISSION’S RECOMMENDED MODIFICATIONS
BLACK & VEATCH MANAGEMENT CONSULTING, LLC | MEMORANDUM 1
August 7, 2019
To: St. Louis Metropolitan Sewer District Rate Commission
From: Pam Lemoine, Black & Veatch Management Consulting, LLC CC: Lisa Stump, Lashly & Baer. P. C.
Subject: Evaluation of the Impact of the Rate Commission’s Recommended Modifications
This memorandum summarizes the evaluation of the impact of two changes to the Metropolitan St. Louis Sewer District’s (MSD or District) Rate Proposal, as recommended by the Rate Commission during deliberations. This analysis has been completed at the Rate Commission’s request for illustrative purposes only and is not part of the Record of the Rate Commission proceedings.
RECOMMENDED MODIFICATIONS TO THE DISTRICT’S RATE PROPOSAL During deliberations, the Rate Commission recommended two changes to the District’s Rate Proposal, as follows:
Minimum Total Debt Service Coverage of 1.6x
Phase-In Surcharge Rates to Cost of Service over at least a 2-year period
Minimum Total Debt Service Coverage (DSC) of 1.6x The District’s Rate Proposal includes minimum targets for debt service coverage, both for Senior Bond Debt Service Coverage and Total Debt Service Coverage. Senior Bond Debt Service coverage is the ratio of net revenue 10 to total senior revenue bond debt service11. The District’s minimum target for Senior Bond Debt Service Coverage is 2.5x. Total Bond Debt Service Coverage is the ratio of net revenue to total debt service on all outstanding debt 12. The District’s minimum target for Total Debt Service Coverage is 1.8x. This is a change from prior rate proposals, where the minimum target was 1.6x. In addition to DSC targets, the District also has a minimum operating reserve target of 60 days of annual operating expenses. In developing the financial plan, all three targets must be met. Due to the nature of the CIRP and the capital financing plan, as well as outstanding debt, one or more of these three targets will drive the need for rate increases. In the District’s Rate Proposal, the Operating Reserve Target and Total Bond DSC drove the District’s proposal. Senior Bond DSC remains slightly above the minimum target of 2.5x. In evaluating the Rate Commission’s recommendation to set the minimum Total DSC at 1.6x, by FY 24, Senior Bond DSC becomes the restricting factor in lowering rates.
Phase-In Surcharge Rates to Cost of Service Over at Least a 2-Year Period The District’s Rate Proposal indicates the need for significant increases in Surcharge Rates in order to recover the allocated cost of service for Surcharge customers. Due to the magnitude of
10 Net revenue equals total wastewater pledged revenue less operating expenses.
11 Annual principal and interest due on all outstanding senior revenue bonds.
12 Annual principal and interest due on all outstanding debt, including revenue bonds, state revolving fund loans,
and any other long-term debt.
EXHIBIT A - Metropolitan St. Louis Sewer District Rate Commission | EVALUATION OF THE IMPACT OF THE
RATE COMMISSION’S RECOMMENDED MODIFICATIONS
BLACK & VEATCH MANAGEMENT CONSULTING, LLC | MEMORANDUM 2
the increases, the Rate Commission’s second recommendation is to phase-in to cost of service over at least a 2-year period.
IMPACT OF THE RATE COMMISSION’S RECOMMENDATIONS To evaluate the potential impact on the District’s financial plan and rates, the District’s Rate Model (see Exhibit MSD 52) was used to develop an alternative financial plan and rate design that incorporates the Rate Commission’s recommendations. Table 1 provides a comparison of the District’s Rate Proposal and the Rate Commission Recommendation for FY 2021-FY 2024 (current Rate Cycle) for several key financial metrics. FY 2025-FY 2028 are presented as a high-level forecast for illustrative purposes but are not part of the current Rate Cycle. Lines 1-4 present a comparison of the resulting projection of wastewater user charge revenue. Line 1 summarizes projected wastewater user charge revenue under the District’s original Rate Proposal. As shown in Line 2, revenue increases between 2.8%-4.1% per year under the District’s Rate Proposal. Line 3 presents the resulting user charge revenue with the two changes recommended by the Rate Commission. As shown in Line 4, projected revenue increases are slightly less than under the District’s Rate Proposal, ranging from 2.4%-3.9% per year. Lines 5 and 6 provide a comparison of Total Debt Service Coverage. As shown, Total DSC declines over the Rate Cycle, reaching 1.76x in FY 2024. In Lines 7-8, a comparison of Senior Revenue Bond DSC is presented. As shown, Senior Bond DSC reaches the minimum target of 2.5x in FY 2025. Therefore, Senior Bond DSC is the limiting factor in the Rate Commission’s Recommendation. Lines 9-10 present a summary of the percentage of the CIRP that is debt funded in each year. As shown, the Rate Commission’s recommendation results in slightly higher debt financing over the four-year period. Lines 11-12 present a summary of the Operating Reserve, presented in terms of “Days Cash.” Days Cash is a representation of the ending Operating Reserve balance in terms of number of days of operating expenses. As previously discussed, the District’s minimum target for the Operating Reserve is 60 days. As shown, during the four-year Rate Cycle, both the District’s Rate Proposal and the Rate Commission’s Recommendation achieve very similar year end balances. Line 13 provides a summary of the District’s annual CIRP, which is the same for both proposals.
EXHIBIT A - Metropolitan St. Louis Sewer District Rate Commission | EVALUATION OF THE IMPACT OF THE
RATE COMMISSION’S RECOMMENDED MODIFICATIONS
BLACK & VEATCH MANAGEMENT CONSULTING, LLC | MEMORANDUM 3
Table 1 –Comparison of Rate Commission Recommendation and District Proposal – Key Metrics
Table 2 provides a comparison in typical monthly bills for each rate class. Lines 1-6 summarize the comparison between the District’s original Rate Proposal and the Rate Commission’s Recommendation for a typical single family residential monthly bill (6 Ccf/month). Line 1 presents the estimated monthly bill for the District’s original Rate Proposal. Line 2 provides the percentage change in the bill over the prior year. Line 3 presents the estimated monthly bill, reflecting the two changes recommended by the Rate Commission. Line 4 provides the percentage change in the bill over the prior year. Lines 5-6 provide a comparison between the two scenarios, indicating the increase/(decrease) in the monthly bill (Line 5) and the percentage change from the District’s original Rate Proposal. The remainder of the table provides the same information for typical bills for each customer class.
FY 2021 FY 2022 FY 2023 FY 2024 FY 2025 FY 2026 FY 2027 FY 2028
1 Original Rate Proposal 453.3$ 471.2$ 490.2$ 510.1$ 550.1$ 573.6$ 597.5$ 620.7$
2 increase 2.8%4.0%4.0%4.1%7.8%4.3%4.2%3.9%
3 Surcharge Phase In, 1.6x DSC 451.7$ 467.8$ 485.1$ 504.2$ 553.3$ 577.6$ 598.9$ 621.3$
4 increase 2.4%3.6%3.7%3.9%9.7%4.4%3.7%3.7%
FY 2021 FY 2022 FY 2023 FY 2024 FY 2025 FY 2026 FY 2027 FY 2028
5 Original Rate Proposal 2.10 2.05 1.94 1.81 1.82 1.85 1.98 2.10
6 Surcharge Phase In, 1.6x DSC 2.08 2.03 1.90 1.76 1.82 1.86 1.97 2.09
FY 2021 FY 2022 FY 2023 FY 2024 FY 2025 FY 2026 FY 2027 FY 2028
7 Original Rate Proposal 3.19 3.09 2.86 2.57 2.50 2.50 2.58 2.68
8 Surcharge Phase In, 1.6x DSC 3.16 3.05 2.80 2.50 2.50 2.50 2.56 2.66
FY 2021 FY 2022 FY 2023 FY 2024 FY 2025 FY 2026 FY 2027 FY 2028
9 Original Rate Proposal 50.4%51.6%68.8%68.9%47.3%0.0%0.0%0.0%
10 Surcharge Phase In, 1.6x DSC 51.0%52.4%70.4%70.3%49.5%0.0%0.0%0.0%
FY 2021 FY 2022 FY 2023 FY 2024 FY 2025 FY 2026 FY 2027 FY 2028
11 Original Rate Proposal 113.6 76.3 88.4 86.8 73.3 170.5 185.2 81.1
12 Surcharge Phase In, 1.6x DSC 113.6 73.7 87.8 86.0 85.7 186.6 200.8 95.1
FY 2021 FY 2022 FY 2023 FY 2024 FY 2025 FY 2026 FY 2027 FY 2028
13 Total CIRP Needs 351.6$ 342.3$ 438.3$ 450.2$ 313.2$ 109.0$ 178.3$ 273.4$
Total CIRP ($ MILIONS)
PROJECTED FORECAST
Operating Reserve (Days Cash)
PROJECTED FORECAST
Line
No.
REVENUE BOND DEBT SERVICE COVERAGE
WASTEWATER USER CHARGE REVENUE ($ MILLIONS)
PROJECTED FORECAST
FORECAST
PROJECTED FORECAST
TOTAL DEBT SERVICE COVERAGE
% OF CIRP NEEDS FUNDED BY DEBT
PROJECTED
PROJECTED FORECAST
Table 2 – Comparison of Rate Commission Recommendation and District Proposal – Typical Bills
FY 2021 FY 2022 FY 2023 FY 2024 FY 2025 FY 2026 FY 2027 FY 2028
1 Original Rate Proposal 1 56.63$ 58.78$ 61.02$ 63.36$ 67.97$ 70.43$ 72.91$ 75.25$
2 increase over prior year 1.9%3.8%3.8%3.8%7.3%3.6%3.5%3.2%
3 Surcharge Phase In, 1.6x DSC 2 56.40$ 58.33$ 60.36$ 62.59$ 68.42$ 70.98$ 73.13$ 75.36$
4 increase over prior year 3.4%3.5%3.7%9.3%3.7%3.0%3.0%
Change from Original Proposal
5 Change ($/month)(0.23)$ (0.45)$ (0.66)$ (0.77)$ 0.45$ 0.55$ 0.22$ 0.11$
6 Change (%)-0.4%-0.8%-1.1%-1.2%0.7%0.8%0.3%0.1%
FY 2021 FY 2022 FY 2023 FY 2024 FY 2025 FY 2026 FY 2027 FY 2028
7 Original Rate Proposal 1 61.66$ 64.04$ 66.48$ 69.04$ 74.09$ 76.76$ 79.52$ 82.08$
8 increase over prior year 2.0%3.9%3.8%3.9%7.3%3.6%3.6%3.2%
9 Surcharge Phase In, 1.6x DSC 2 61.36$ 63.52$ 65.75$ 68.17$ 74.50$ 77.28$ 79.66$ 82.08$
10 increase over prior year 3.5%3.5%3.7%9.3%3.7%3.1%3.0%
11 Change from Original Proposal
12 Change ($/month)(0.30)$ (0.52)$ (0.73)$ (0.87)$ 0.41$ 0.52$ 0.14$ -$
13 Change (%)-0.5%-0.8%-1.1%-1.3%0.6%0.7%0.2%0.0%
FY 2021 FY 2022 FY 2023 FY 2024 FY 2025 FY 2026 FY 2027 FY 2028
14 Original Rate Proposal 1 327.71$ 340.12$ 353.16$ 366.84$ 393.59$ 407.93$ 422.29$ 435.97$
15 increase over prior year 2.9%3.8%3.8%3.9%7.3%3.6%3.5%3.2%
16 Surcharge Phase In, 1.6x DSC 2 326.40$ 337.51$ 349.26$ 362.29$ 396.20$ 411.18$ 423.59$ 436.62$
17 increase over prior year 3.4%3.5%3.7%9.4%3.8%3.0%3.1%
18 Change from Original Proposal
19 Change ($/month)(1.31)$ (2.61)$ (3.90)$ (4.55)$ 2.61$ 3.25$ 1.30$ 0.65$
20 Change (%)-0.4%-0.8%-1.1%-1.2%0.7%0.8%0.3%0.1%
FY 2021 FY 2022 FY 2023 FY 2024 FY 2025 FY 2026 FY 2027 FY 2028
21 Original Rate Proposal 1 532.95$ 553.07$ 574.27$ 596.49$ 639.80$ 663.11$ 686.44$ 708.70$
22 increase over prior year 3.2%3.8%3.8%3.9%7.3%3.6%3.5%3.2%
23 Surcharge Phase In, 1.6x DSC 2 530.84$ 548.86$ 567.97$ 589.14$ 644.01$ 668.36$ 688.54$ 709.75$
24 increase over prior year 3.4%3.5%3.7%9.3%3.8%3.0%3.1%
25 Change from Original Proposal
26 Change ($/month)(2.11)$ (4.21)$ (6.30)$ (7.35)$ 4.21$ 5.25$ 2.10$ 1.05$
27 Change (%)-0.4%-0.8%-1.1%-1.2%0.7%0.8%0.3%0.1%
FY 2021 FY 2022 FY 2023 FY 2024 FY 2025 FY 2026 FY 2027 FY 2028
28 Original Rate Proposal 1 5,422.11$ 5,622.06$ 5,836.11$ 6,058.44$ 6,483.59$ 6,718.26$ 6,953.54$ 7,179.24$
29 increase over prior year 3.6%3.7%3.8%3.8%7.0%3.6%3.5%3.2%
30 Surcharge Phase In, 1.6x DSC 2 5,401.60$ 5,581.44$ 5,775.39$ 5,987.66$ 6,523.35$ 6,768.05$ 6,973.16$ 7,188.80$
31 increase over prior year 3.3%3.5%3.7%8.9%3.8%3.0%3.1%
32 Change from Original Proposal
33 Change ($/month)(20.51)$ (40.62)$ (60.72)$ (70.79)$ 39.76$ 49.79$ 19.62$ 9.55$
34 Change (%)-0.4%-0.7%-1.0%-1.2%0.6%0.7%0.3%0.1%
1 Exhibit MSD 52.
2 Calculated utilizing the District's Rate Model.
SAMPLE NON-RESIDENTIAL / HIGH STRENGTH MONTHLY BILL (1,000 CCF)
SAMPLE NON-RESIDENTIAL / NORMAL STRENGTH MONTHLY BILL (100 CCF)
TYPICAL SINGLE FAMILY RESIDENTIAL MONTHLY BILL (METERED / 6 CCF)
SAMPLE MULTI-FAMILY RESIDENTIAL MONTHLY BILL (60 CCF)
TYPICAL SINGLE FAMILY RESIDENTIAL MONTHLY BILL (UNMETERED /5 Rms, 1 WC, 1 Bth, 0 Shwr)
Line
No.
TYPICAL BILLS (MONTHLY)
PROJECTED FORECAST
EXHIBIT A - Metropolitan St. Louis Sewer District Rate Commission | EVALUATION OF THE IMPACT OF THE RATE
COMMISSION’S RECOMMENDED MODIFICATIONS
BLACK & VEATCH MANAGEMENT CONSULTING, LLC | MEMORANDUM 5
The purpose of the Rate Commission’s second recommendation, to phase-in Surcharge Rates to cost of service over at least two years, is to reduce the impact of the significant increases proposed in the District’s Rate Proposal. In this analysis, Surcharge Rates are phased-in to cost of service over a two-year period. This means that Surcharge Rates are set mid-way between the current rates and cost of service rates in FY 2021. In FY 2022, Surcharge Rates are set to recover cost of service. In FY 2023 and FY 2024, Surcharge Rates are escalated the same as they are in the District’s Rate Proposal, based on the calculated operation and maintenance expense increases utilized in the Rate Proposal. Table 3 provides a comparison of projected Surcharge Rates for the District’s Rate Proposal and the Rate Commission’s Recommendation. Lines 1-8 provide a summary of the District’s Rate Proposal, presenting the proposed Surcharge Rates (Lines 1-3), projected revenue from Surcharge Rates (Lines 4-6), and the calculated percent increase in Surcharge Rates over the prior year. Lines 9-16 present the same information, reflecting only the change in the Rate Commission’s recommended minimum Total DSC of 1.6x. As previously discussed, because Senior Bond DSC becomes the driving factor by FY 2024, there are only minor differences between this scenario and the District’s Rate Proposal. This difference in revenue is presented in lines 17-20. Lines 20-27 present the same information for the Rate Commission’s Recommendation, including the phase-in of Surcharge Rates to cost of service over a two-year period. As shown in Lines 26-27, the indicated increase in Surcharge Rates in FY 2021 is significantly lower than under the District’s Rate Proposal. In FY 2022, Surcharge rates are then increased at a higher rate than under the District’s Rate Proposal, in order to bring Surcharge Rates to a cost of service level in FY 2022. In FY 2023 and FY 20224, Surcharge Rates then increase at the indicated annual escalation for operation and maintenance expenses and are the same percentage increase as under the District’s Rate Proposal. The difference in revenue generated by the phase-in of the Surcharge Rates, compared to the change in revenue due to the change in the minimum Total DSC, is shown in Lines 28-30. As expected, there is a loss of revenue from Surcharge Rates under the Rate Commission’s Recommendation in FY 2021. This loss of revenue is recovered through slightly higher user charges in FY 2021. Finally, Lines 31-33 present the difference in revenue generated by Surcharge Rates in each year for the combined two changes recommended by the Rate Commission, compared to the revenue generated by Surcharge Rates under the District’s Rate Proposal. As indicated, over the four-year period, Surcharge Rates would generate approximately $609,000 less revenue than under the District’s Rate Proposal.
EXHIBIT A - Metropolitan St. Louis Sewer District Rate Commission | EVALUATION OF THE IMPACT OF THE RATE
COMMISSION’S RECOMMENDED MODIFICATIONS
BLACK & VEATCH MANAGEMENT CONSULTING, LLC | MEMORANDUM 6
Table 3 – Comparison of Rate Commission Recommendation and District Proposal – Surcharge Rates
Line
No.2020 2021 2022 2023 2024 Total (FY21-24)
Surcharge Rates
1 TSS $ 283.87 $ 314.00 $ 321.47 $ 332.35 $ 341.76
2 BOD $ 708.56 $ 898.00 $ 919.37 $ 950.46 $ 977.36
3 COD $ 354.30 $449.00 $459.69 $475.24 488.69
Surcharge Revenue
4 TSS 1,609,543$ 1,759,028$ 1,779,336$ 1,817,622$ 1,846,529$ 7,202,516$
5 BOD 4,287,142$ 5,368,244$ 5,430,259$ 5,546,885$ 5,634,969$ 21,980,357$
6 Total 5,896,685$ 7,127,272$ 7,209,595$ 7,364,507$ 7,481,498$ 29,182,872$
Surcharge Rate Increase
7 TSS 10.61%2.38%3.38%2.83%
8 BOD 26.74%2.38%3.38%2.83%
Surcharge Rates
9 TSS $ 283.87 $ 314.00 $ 321.47 $ 332.35 $ 341.76
10 BOD $ 708.56 $ 896.00 $ 917.32 $ 948.34 $ 975.18
11 COD $ 354.30 $448.00 $458.66 $474.17 487.59
Surcharge Revenue
12 TSS 1,609,543$ 1,759,028$ 1,779,336$ 1,817,622$ 1,846,529$ 7,202,516$
13 BOD 4,287,142$ 5,356,288$ 5,418,151$ 5,534,512$ 5,622,400$ 21,931,351$
14 Total 5,896,685$ 7,115,316$ 7,197,487$ 7,352,134$ 7,468,930$ 29,133,867$
Surcharge Rate Increase
15 TSS 10.61%2.38%3.38%2.83%
16 BOD 26.45%2.38%3.38%2.83%
Revenue Difference
17 TSS -$ -$ -$ -$ -$ -$
18 BOD -$ (11,956)$ (12,108)$ (12,372)$ (12,569)$ (49,005)$
19 Total -$ (11,956)$ (12,108)$ (12,372)$ (12,569)$ (49,005)$
Surcharge Rates
20 TSS $ 283.87 $ 302.67 $ 321.47 $ 332.35 $ 341.76
21 BOD $ 708.56 $ 812.94 $ 917.32 $ 948.34 $ 975.18
22 COD $ 354.28 $ 406.47 $ 458.66 $ 474.17 $ 487.59
Surcharge Revenue
23 TSS 1,609,543$ 1,695,557$ 1,779,336$ 1,817,622$ 1,846,529$ 7,139,045$
24 BOD 4,287,142$ 4,859,755$ 5,418,151$ 5,534,512$ 5,622,400$ 21,434,818$
25 Total 5,896,685$ 6,555,313$ 7,197,487$ 7,352,134$ 7,468,930$ 28,573,864$
Surcharge Rate Increase
26 TSS 6.62%6.21%3.38%2.83%
27 BOD 14.73%12.84%3.38%2.83%
Revenue Difference
28 TSS -$ (63,471)$ -$ -$ -$ (63,471)$
29 BOD -$ (496,533)$ -$ -$ -$ (496,533)$
30 Total -$ (560,003)$ -$ -$ -$ (560,003)$
Revenue Difference
31 TSS -$ (63,471)$ -$ -$ -$ (63,471)$
32 BOD -$ (508,489)$ (12,108)$ (12,372)$ (12,569)$ (545,538)$
33 Total -$ (571,959)$ (12,108)$ (12,372)$ (12,569)$ (609,009)$
1 Exhibit MSD 1, page 4-37, Table 4-18.
2 COS Based Rates Using MSD Methodology, reflects RC Proposal for DSC (All) of 1.6x.
3 RC Proposal, with 2 year phase-in to COS for Surcharge Rates.
Comparison of RC Scenario Phase In with MSD Rate Proposal
MSD Rate Proposal 1
RC Scenario 2
RC Scenario - Phase In 3
Comparison of RC Scenario Phase In with RC Scenario
Comparison of RC Scenario with MSD Rate Proposal
Fiscal Year
120
MINORITY REPORTS
COMMISSIONER PALANS SUBMITS THIS MINORITY REPORT REGARDING THE
AMOUNT OF BONDING PROPOSED
I respectfully disagree that the Rate Change Proposal and all portions thereof (the
“Proposal”) impose a “fair and reasonable burden on all classes of ratepayers” for the reasons
that follow:
The District faces mandatory performance under a Consent Decree to comply with the
Clean Water Act, the terms of which require the District to spend nearly $6 billion through 2039
on capital improvement projects. The District is charged with maintaining an aging sewer system
infrastructure (with some sewers over 150 years old), and faces other contingent exposure risks
as well. Compliance with the Clean Water Act drives in excess of 90% of all scheduled CIRP
remediation projects over the life of the Consent Decree. To borrow a phrase embedded in an old
television jingle, “you can either pay me now, or pay me later.” Under any scenario, remediation
is required. Compliance with the Clean Water Act is mandatory. The cost of compliance is $6
billion. Public health and safety requires nothing less.
The evidentiary record before the Rate Commission clearly established that: (i) the
District currently experiences favorable financial and liquidity positions, and enjoys a AA credit
rating from rating agencies, (ii) historically favorable interest rates prevail during the current
economic climate, (iii) the District has experienced historically competitive bid pricing on CIRP
projects, (iv) the District projects a potential rate increase of 7.25% in FY 2025 to maintain its
minimum policy levels, and (v) the type and magnitude of the rate “spike” in FY 2025 may result
in “bill impact volatility” as identified by Black & Veatch, the Rate Commission’s consulting
firm.
In order for a Proposal to be “fair and reasonable” on all classes of ratepayers, it must be
“impartial,” “just,” and “proper” “under the circumstances.” (See Black’s Law Dictionary and
Webster Dictionary definitions.) Against this background, under these circumstances, based
upon the evidentiary record established and in the face of mandatory compliance with the Clean
Water Act to protect public health and safety, the District has a unique opportunity to adopt a
pragmatic approach, accomplish more during this rate cycle than currently scheduled, avoid
potential “rate shock” and modify the Proposal as follows:
increase the amount of proposed authorization of $500 million in additional bonds by an
amount of $100 million to a total of $600 million, with such additional $100 million
funding borrowed at the rate of $25 million per year during the 4-year rate cycle;
accelerate CIRP projects as and where possible and feasible by $25 million each year
during the 4-year rate cycle; and
modify the Proposal to account for increased costs associated with such increased
borrowing.
Borrowing an additional $100 million will result in approximately $6 million costs (when
fully funded) offset by an immaterial rate impact upon customers, and will not materially nor
121
adversely impact the District’s credit rating and/or the District’s liquidity position. Such
modification to the Proposal “locks in” favorable interest rates, accelerates CIRP projects
mandated under the Consent Decree, and mitigates sudden “spikes” in revenue adjustments
becoming necessary in FY 2025. The combination of increased debt financing, and minimally
increased user rates (which are substantially less than those projected during the last wastewater
rate cycle) fall within a range of reasonableness, maximize the District’s ability to perform its
obligations under the Consent Decree, and is fair and reasonable for all classes of ratepayers.
Public health and safety drive this result. When opportunity presents itself to do more the
District must act in a thoughtful and responsible way. Prevailing circumstances present at this
time create an opportunity for the District to accomplish more during this 4-year cycle while
smoothing the risk of future bill volatility.
122
COMMISSIONERS STEIN AND TOENJES SUBMIT THIS MINORITY REPORT
REGARDING THE APPROPRIATE ALLOCATION OF INFILTRATION/INFLOW
COSTS
We respectfully dissent from the majority decision with respect to the appropriate
allocation of Infiltration/Inflow (“I/I”) costs.
The District relies on a 2005 study to determine that the I/I costs should be allocated at
40% to individual customers and 60% to the District’s collection system infrastructure.
Intervenor MIEC proposes that a 50/50 allocation of I/I costs is more appropriate because
there have been significant changes to the District’s system since the 2005 study. In particular,
the District has made substantial improvements to its wastewater system in order to comply with
the Consent Decree. Ex. MSD 80C, p. 1, ll. 6-21.
We believe that for the time being until a more definite study is completed that the
appropriate allocation of I/I at 50/50 as proposed by MIEC is more appropriate than to continue
to utilize an outdated I/I allocation that is more heavily weighted toward the number of
customers. The system is not perfect; however, increasing industrial customers’ bills for services
will be felt by the community at large in many ways including the potential for decreased
economic development. We disagree with the majority’s decision that this change should not be
made until a new study is complete.
123
COMMISSIONER STEIN SUBMITS THIS MINORITY REPORT REGARDING
DEFERRING SOME OF THE CAPITAL IMPROVEMENT AND REPLACEMENT
PROJECTS (CIRP)
I respectfully dissent from the majority decision to support the District’s position
regarding CIRP Projects, and not to defer certain of those projects into the next rate cycle.
The District has stated they lack the discretion to move projects in or out of the CIRP due
to the Consent Decree and other regulatory requirements.
Intervenor MIEC has proposed to defer some projects in the CIRP to mitigate the impact
on ratepayers. A number of capital investments in FY 2023 and FY 2024 are not required by the
Consent Decree and could be deferred for a few years in an effort to produce an annual level of
CIRP spending during the forecast period and several years following it. The Rate Commission’s
own consultant identified approximately $30 million in projects that could be deferred, and
District staff has refused to undertake any additional analysis to determine whether more projects
could be deferred.
I believe projects should be moved out of this CIRP into the next rate cycle in order to be
fair and reasonable to all classes of ratepayers as proposed by MIEC.
124
RESPECTFULLY SUBMITTED THIS 16TH DAY OF AUGUST, 2019, BY THE RATE
COMMISSION OF THE METROPOLITAN ST. LOUIS SEWER DISTRICT
Gerald Beckmann Steve Mahfood
Don Bresnan Lloyd Palans
Brandy Bowdry Tom Ratzki
Paul Brockmann Mark Schoedel
Mickey Croyle John Stein
Brad Goss Leonard Toenjes
Russell Hawes Paul Ziegler
Chan Mahanta
OF COUNSEL
LASHLY & BAER, P.C. BLACK & VEATCH
Lisa O. Stump MANAGEMENT CONSULTING, LLC
Brian J. Malone Pamela Lemoine
714 Locust Street 16305 Swingley Ridge Road
St. Louis, Missouri 63101 Suite 230
(314) 621-2939 – Telephone Chesterfield, Missouri 63017
(314) 621-6844 – Fax (636) 536-5813 – Telephone
(636) 536-1123 – Fax
Attorneys for The Rate Commission of Rate Consultant for The Rate Commission
the Metropolitan St. Louis Sewer District of the Metropolitan St. Louis Sewer District
LION CSG
Nicole Young
915 Olive Street
Suite 902
St. Louis, Missouri 63101
(314) 409-7081 – Telephone
Rate Consultant for The Rate Commission
of the Metropolitan St. Louis Sewer District
125
2019 Rate Change Proceeding
INDEX
Exhibit MSD 1 Rate Change Proposal
Exhibit MSD 1A Rate Change Notice Cover Memo to Rate Commission
Exhibit MSD 2 Rate Change Public Notice
Exhibit MSD 3 Cover Memo to Rate Commission Secretary – Direct Testimony
Submission
Exhibit MSD 3A Direct Testimony, Brian Hoelscher MSD
Exhibit MSD 3B Direct Testimony, Susan Myers MSD
Exhibit MSD 3C Direct Testimony, Richard Unverferth MSD
Exhibit MSD 3D Direct Testimony, Bret Berthold MSD
Exhibit MSD 3E Direct Testimony, Marion Gee MSD
Exhibit MSD 3F Direct Testimony Tim Snoke MSD
Exhibit MSD 3G Direct Testimony, Bethany Pugh PFM
Exhibit MSD 3H Direct Testimony, Bill Stannard RFC
Exhibit MSD 3I Direct Testimony, Tom Beckley RFC
Exhibit MSD 4 Civil Service Rules and Regulations June 2017
Exhibit MSD 5 2015 Rate Proposal
Exhibit MSD 6 2015 Rate Commission Recommendation Report
Exhibit MSD 7 FY 2019 Operating Budget Document
Exhibit MSD 8 FY 2019 CIRP Budget Document
Exhibit MSD 9 2015 Comprehensive Annual Financial Report (CAFR)
Exhibit MSD 10 2016 Comprehensive Annual Financial Report (CAFR)
Exhibit MSD 11 2017 Comprehensive Annual Financial Report (CAFR)
Exhibit MSD 12 2018 Comprehensive Annual Financial Report (CAFR)
Exhibit MSD 13 2018 Popular Annual Financial Report (PAFR)
Exhibit MSD 14 Bond Master Ordinance 11713
Exhibit MSD 15 Supplemental Bond Ordinance 11736
Exhibit MSD 16 Supplemental Bond Ordinance 11986
Exhibit MSD 17 Supplemental Bond Ordinance 12179
Exhibit MSD 18 Supplemental Bond Ordinance 12332
Exhibit MSD 19 Supplemental Bond Ordinance 12755
Exhibit MSD 20 Supplemental Bond Ordinance 12937
126
Exhibit MSD 21 Supplemental Bond Ordinance 13024
Exhibit MSD 22 Supplemental Bond Ordinance 13025
Exhibit MSD 23 Supplemental Bond Ordinance 13183
Exhibit MSD 24 Supplemental Bond Ordinance 13327
Exhibit MSD 25 Supplemental Bond Ordinance 13465
Exhibit MSD 26 Supplemental Bond Ordinance 13521
Exhibit MSD 27 Supplemental Bond Ordinance 13731
Exhibit MSD 28 Supplemental Bond Ordinance 13763
Exhibit MSD 29 Supplemental Bond Ordinance 14225
Exhibit MSD 30 Supplemental Bond Ordinance 14312
Exhibit MSD 31 Supplemental Bond Ordinance 14567
Exhibit MSD 32 Supplemental Bond Ordinance 14571
Exhibit MSD 33 Supplemental Bond Ordinance 14572
Exhibit MSD 34 Supplemental Bond Ordinance 14835
Exhibit MSD 35 Supplemental Bond Ordinance 15077
Exhibit MSD 36 Supplemental Bond Ordinance 15098
Exhibit MSD 37 MSD Consent Decree
Exhibit MSD 37A Second Material Amendment to Consent Decree (June 22, 2018)
Exhibit MSD 37B MSD Combined Sewer Overflow Long-Term Control Plan (LTCP)
Exhibit MSD 37B1 2013 Update (LTCP) - Supplement 1
Exhibit MSD 37B2 2013 Update (LTCP) - Supplement 2
Exhibit MSD 37B3 2015 Update (LTCP) - Modifications A & B
Exhibit MSD 37B4 2015 Update (LTCP) - DNR Approval Letter
Exhibit MSD 37B5 2018 Update (LTCP) - Supplement 3
Exhibit MSD 37C MSD Sanitary Sewer Overflow Control Master Plan Executive
Summary
Exhibit MSD 38 Standard and Poor's Rating Report 2017
Exhibit MSD 39 Moody's Rating Report 2017
Exhibit MSD 40 Fitch Rating Report 2017
Exhibit MSD 41 Ordinance 14395 - Wastewater User Charge
Exhibit MSD 42 Ordinance 15048 - Sewer Use Ordinance
Exhibit MSD 43 CIRP Project Listing FY 2017-FY 2020
Exhibit MSD 44 Map of Constructed SSO and CSO
127
Exhibit MSD 45 FY 2018 MSD Annual Diversity Report
Exhibit MSD 45A FY 2018 MSD Annual Diversity Report Presentation September
13, 2018
Exhibit MSD 46 Ordinance 13796 & 14776 - Pension Plan
Exhibit MSD 47 Cigna - Medical & Dental
Exhibit MSD 48 Cigna - Life
Exhibit MSD 49 Liberty Mutual - Long-Term Disability
Exhibit MSD 50 Ordinance 13795 - Defined Contribution Plan
Exhibit MSD 51 NACWA 2017 Survey
Exhibit MSD 52 Rate Model
Exhibit MSD 53 Rate Model Guide
Exhibit RC 54 Resolution to Request 45-Day Extension from the District Board
of Trustees
Exhibit RC 55 Restated Rate Commission Operational Rules-2019 (As Adopted
March 4, 2019)
Exhibit RC 56 Rate Commission's First Discovery Request to MSD - March 8,
2019
Exhibit MSD 56A MSD's Response to First Discovery Request of the Rate
Commission
Exhibit MSD 56B Appendix 7.2.2 Detailed WW CIRP Project List
Exhibit MSD 56C Appendix 7.2.3 Detailed WW CIRP Project List – Not Regulatory
or CD
Exhibit MSD 56D Appendix 7.2.4 Detailed WW CIRP Project List –Regulatory but
not CD
Exhibit MSD 56E 4-CIRP Adjustments November 5, 2018
Exhibit MSD 56F 4a-WW CIRP3 FY17 October 23, 2017
Exhibit MSD 56G 4b-WW CIRP RC FY16 to FY18 Report Construction Engineering
August 21, 2018
Exhibit MSD 56H 4c-WW CIRP RC Report Construction Engineering November 2,
2018
Exhibit MSD 57 Rate Commission Orientation and Summary
Exhibit MSD 58 Intergovernmental Cooperation Agreement between MSD & City
of Arnold
Exhibit MSD 59 MSD Energy Saving Projects
Exhibit RC 60 Resolution Adopting Procedural Schedule and Public Notice
128
Exhibit RC 61 Rate Commission's Second Discovery Request to MSD - March
11, 2019
Exhibit MSD 61A MSD's Response to Second Discovery Request of the Rate
Commission
Exhibit MSD 61B MSD Combined Sewer Projects Prioritization System Worksheet
Exhibit MSD 61C Sample Green Infrastructure (GI) Grant Worksheet
Exhibit MSD 61D Review of Construction Projects in Progress, December 2018
Exhibit MSD 61E Process Review - Construction Change Orders, February 2016
Exhibit MSD 61F Review of the Capacity, Management, Operations, and
Maintenance (CMOM) Program, July 2015
Exhibit MSD 61G Emergency Contracts, February 2018
Exhibit MSD 61H Review of Engineering Design and Construction Management
Contracts and Invoices, May 2015
Exhibit MSD 61I Review of the Fleet Management Process, August 2016
Exhibit MSD 61J Review of the Inventory Management Process-Maintenance
Repairs Operations (MRO), April 2017
Exhibit MSD 61K Overhead Rate Review, October 2014
Exhibit MSD 61L Review of Project Accounting, August 2014
Exhibit MSD 61M Review of Electric Utilities, February 2015
Exhibit MSD 61N Summary of Overhead Procedures, January 2019
Exhibit MIEC 62 Application to Intervene, Missouri Industrial Energy Consumers
(MIEC)
Exhibit RC 63 Rate Commission's Third Discovery Request to MSD - March 25,
2019
Exhibit MSD 63A MSD's Response to Third Discovery Request of the Rate
Commission
Exhibit MSD 63B Project Justification and ID Form
Exhibit MSD 63C Project Risk Quantification Monetization Tool
Exhibit MSD 63D Project Monetized Prioritization Rulebook
Exhibit MSD 63E Large Wastewater Revenue Bond Issuer Statistics
Exhibit MSD 63F MSD 2018 Rating Agency Presentation
Exhibit MSD 63G MSD Preliminary FY 2020 Operating Budget
Exhibit MSD 63H Ordinance 14854 - Connection Fees
Exhibit MSD 64 MSD Opening Statement.pdf
Exhibit MIEC 65 MIEC'S First Discovery Request to MSD - April 8, 2019
129
Exhibit MSD 65A MSD's Response to First Discovery Request of Interveners MIEC
Exhibit MSD 65B 2005 CDM Wet Weather Flow Cost Allocation Study
Exhibit MSD 65C Page 3-32 of 2007 Rate Proposal
Exhibit RC 66 Rate Commission's Fourth Discovery Request to MSD - April 11,
2019
Exhibit MSD 66A MSD's Response to Fourth Discovery Request of the Rate
Commission.pdf
Exhibit MSD 66B Wastewater System Improvement and Refunding Revenue
Bonds.pdf
Exhibit MSD 66C Rate Model (Exhibit MSD 52) Unlocked.pdf
Exhibit MSD 66D MSD Tunnel Projects.pdf
Exhibit MSD 66E 25 Year History of 20 Year MMD.pdf
Exhibit MSD 66F MSD Insurance Summary 2017.pdf
Exhibit MSD 66G Current Projections Compared to 2015 Rate Model.pdf
Exhibit MIEC 67 MIEC'S Second Discovery Request to MSD - April 11, 2019
Exhibit MSD 67A MSD's Response to Second Discovery Request of Interveners
MIEC.pdf
Exhibit MSD 67B Moody's Water and Sewer Utilities 2019 Outlook Report.pdf
Exhibit MSD 67C Comparison of FY19 Base Budget to FY18 Actual Expenses.pdf
Exhibit MSD 67D Cost of Service and Financial Planning Model.pdf
Exhibit MSD 67E Employment Cost Index FY21-FY24.pdf
Exhibit MSD 68 Transcript of Technical Conference for District Testimony - April
8, 2019
Exhibit MSD 69 Transcript of Technical Conference for District Testimony - April
9, 2019.pdf
Exhibit RC 70 Rebuttal Testimony, Pamela Lemoine.pdf
Exhibit RC 70A Summary of Wastewater Utility Bills.pdf
Exhibit RC 70B Memo Summary of CIRP Development.pdf
Exhibit RC 71 Rebuttal Testimony, Prabha Kumar.pdf
Exhibit RC 72 Rebuttal Testimony, Nicole Young.pdf
Exhibit MIEC 73 Rebuttal Testimony, Michael P. Gorman.pdf
Exhibit MSD 74 MSD's First Discovery Request to Intervener MIEC April 26,
2019.pdf
Exhibit MIEC 75 MIEC's Response to MSD's First Discovery Request.pdf
Exhibit MIEC 75A Treasury and Water Sewer Bond Yields.pdf
130
Exhibit MIEC 75B Accuracy of Interest Rate Forecasts.pdf
Exhibit MIEC 75C Rate Model to Support Mr. Gorman's Rebuttal Testimony.pdf
Exhibit MIEC 75D Rate Model Using 3.5 Percent Rate and Supporting Table 1 of
Discovery Response Number 1.pdf
Exhibit MIEC 75E Schedule MPG-3.pdf
Exhibit MIEC 75F Schedules MPG-5 and MPG-6.pdf
Exhibit MSD 76 MSD's Second Discovery Request to Intervener MIEC May 14,
2019.pdf
Exhibit MIEC 76A MIEC's Response to MSD's Second Discovery Request.pdf
Exhibit RC 77 Rate Commission's Fifth Discovery Request to MSD May 14,
2019.pdf
Exhibit MSD 77A MSD's Response to Fifth Discovery Request of The Rate
Commission.pdf
Exhibit MSD 77B BMP4 Cost Estimating.pdf
Exhibit MSD 77C BMP12 Preliminary Studies.pdf
Exhibit MSD 77D MSD Unit Costs Summary Item Listing.pdf
Exhibit MSD 77E 12106 Cost Estimate.pdf
Exhibit MSD 77F 12472 Cost Estimate.pdf
Exhibit MSD 77G 13033 Cost Estimate.pdf
Exhibit MSD 77H 12248 Cost Estimate.pdf
Exhibit MSD 77I 12255 Cost Estimate.pdf
Exhibit MIEC 78 MIEC's Third Discovery Request to MSD - May 16, 2019.pdf
Exhibit MSD 78A MSD's Response to the Third Discovery Request of Interveners
MIEC.pdf
Exhibit MSD 78B Wastewater CIRP Project List FY21-24 Amended May 21,
2019.pdf
Exhibit MSD 78C Wastewater CIRP Project List FY21-24 Amended May 21, 2019
Projects Not Regulatory or CD related.pdf
Exhibit MSD 78D Wastewater CIRP Project List FY21-24 Amended May 21, 2019
Regulatory related projects that are not CD related.pdf
Exhibit MSD 78E MSD Coupon and Yield Debt Assumptions.pdf
Exhibit MSD 78F Bond Calculation Model.pdf
Exhibit MSD 78G Debt Scenario Results.pdf
EXHIBIT MSD 79 Transcript of Technical Conference for Rebuttal Testimony - May
9, 2019_0.pdf
131
Exhibit MSD 80 Formal Submission of Surrebuttal Testimony Memorandum.pdf
Exhibit MSD 80A Surrebuttal Testimony Richard Unverferth, MSD.pdf
Exhibit MSD 80B Surrebuttal Testimony Tom Beckley, RFC.pdf
Exhibit MSD 80C Surrebuttal Testimony William Stannard, RFC.pdf
Exhibit MSD 80D Surrebuttal Testimony Marion Gee, MSD.pdf
Exhibit MSD 80E Surrebuttal Testimony Bethany Pugh, PFM.pdf
Exhibit MSD 80F Surrebuttal Testimony Tim Snoke, MSD.pdf
Exhibit MSD 80F1 Range of MMD over last 15 Years with Current Yield
Percentile.pdf
Exhibit MSD 80F2 Historical Rate Volatility by Fiscal Year.pdf
Exhibit RC 81 Surrebuttal Testimony Pamela Lemoine.pdf
Exhibit RC 82 Surrebuttal Testimony Nicole Young.pdf
Exhibit MIEC 83 Surrebuttal Testimony Michael Gorman.pdf
Exhibit MIEC 83A MIEC Surrebuttal Testimony Rate Model.pdf
Exhibit MSD 84 Transcript of Public Hearing - May 14, 2019.pdf
Exhibit MSD 85 Rate Impact - 50 Percent-50 Percent Infiltration and Inflow
Allocation.pdf
Exhibit MSD 86 Transcript of Public Hearing - June 4, 2019.pdf
Exhibit MIEC 87 MIEC'S First Discovery Request to the Rate Commission June 24,
2019.pdf
Exhibit RC 87A Rate Commission's Response to First Discovery Request of
MIEC.pdf
Exhibit RC 87B Analysis based on 4.5 Percent Premium.pdf
Exhibit MIEC 88 MIEC's Fourth Discovery Request to MSD June 24, 2019.pdf
Exhibit MSD 88A MSD's Response to MIEC's Fourth Discovery Request.pdf
Exhibit MSD 88B 70-30 CIRP Funding St. Louis MSD Rate Financial Plan Model
FY21-24.pdf
Exhibit MSD 88C CIRP Delay St. Louis MSD Rate Financial Plan Model FY21-
24.pdf
Exhibit MSD 88D Requested Model Changes.pdf
Exhibit MSD 88E 70-30 CIRP Funding and CIRP Delay.pdf
Exhibit RC 89 Rate Commission's Sixth Discovery Request to MSD June 25,
2019.pdf
Exhibit MSD 89A MSD's Response to the Rate Commission's Sixth Discovery
Request.pdf
132
Exhibit MSD 89B Bissell Air Permit.pdf
Exhibit MSD 89C Lemay Air Permit.pdf
Exhibit MSD 89D Declaration of Jodi M. Bruno, EPA.pdf
Exhibit MSD 89E Unopposed Motion to Enter Proposed Second Material
Amendment to Consent Decree.pdf
Exhibit MSD 89F Solids Handling Master Plan Executive Summary.pdf
Exhibit MSD 89G Solids Handling Master Plan Phase 1 Technical Memorandum.pdf
Exhibit MSD 89H Solids Handling Master Plan Phase 2 Technical Memorandum.pdf
Exhibit MSD 89I Solids Handling Master Plan Phase Technical Memorandum
Update.pdf
Exhibit MSD 89J Rate Impact at Various Usage Levels for 50 Percent Customer 50
Percent Volume II.pdf
Exhibit MSD 89K Rating Change History.pdf
Exhibit MSD 89L St Louis MSD Rate Financial Plan Model FY21-24 Extra 25 Per
Year.pdf
Exhibit MSD 89M Plant Asset Comparison 2019 2015.pdf
Exhibit MSD 89N CIRP Discretionary Spending FY16 - FY19.pdf
Exhibit RC 90 Rate Commission's First Discovery Request to MIEC June 25,
2019.pdf
Exhibit MIEC 90A MIEC's Response to the Rate Commission's First Discovery
Request.pdf
Exhibit MIEC 90B Citizens-Indianapolis Infiltration-Inflow Analysis-v1.pdf
Exhibit MIEC 90C Comparison of Typical Wastewater Bills-v1.pdf
Exhibit MSD 91 Transcript of Surrebuttal Testimony June 20, 2019.pdf
Exhibit MSD 92 Pre-Hearing Conference Summary of MSD.pdf
Exhibit MSD 93 Transcript of Public Hearing June 27, 2019.pdf
Exhibit MSD 94 Transcript of Public Hearing May 22, 2019.pdf
Exhibit MSD 95 MSD Prehearing Conference Report.pdf
Exhibit MSD 96 Transcript of Prehearing Conference July 12, 2019.pdf
Exhibit RC 97 Rate Commission Prehearing Conference Report.pdf
Exhibit MIEC 98 Prehearing Conference Report of Intervenor Missouri Industrial
Energy Co.pdf
Exhibit MIEC 98A MIEC Submittal of Revised Appendix B to Prehearing Conference
Report.pdf
133
Exhibit RC 99 Customer Comments submitted to Consumers Council of
Missouri.pdf
Exhibit RC 100 District Response to Inquiry From Robert Schuetz.pdf
Exhibit RC 101 Letter from Kevin Morris regarding Non-metered Charges.pdf
Exhibit MSD 102 Exhibit Index 2019 as of July 24, 2019.pdf
Exhibit MSD 103 District Response to Letter from Kevin Morris.pdf
Exhibit MSD 104 Transcript of Public Hearing July 10, 2019.pdf
Exhibit MSD 105 Transcript of Public Hearing July 24, 2019.pdf
Exhibit MSD 106 Submittal of Final Exhibit Index.pdf
134
2019 Rate Change Proceeding
ABBREVIATIONS & ACRONYMS
AWWA American Water Works Association
AWWARF American Water Works Association Research Foundation
Board Metropolitan St. Louis Sewer District Board of Trustees
BOD Biochemical Oxygen Demand
Ccf Hundred (100) cubic feet (about 748 gallons)
CD Consent Decree
CIRP Capital Improvement and Replacement Program
City City of St. Louis
CMOM Capacity, Management, Operation and Maintenance
COD Chemical Oxygen Demand
County St. Louis County
CSO Combined Sewer Overflow
CIP Capital Work In Progress
District Metropolitan St. Louis Sewer District (MSD)
EPA The United States Environmental Protection Agency
FY Fiscal Year (July 1 – June 30)
HHS Health and Human Services
I/I Infiltration/Inflow
mg/l milligrams per liter
mgd million gallons per day
MIEC Missouri Industrial Energy Consumers
MDNR Missouri Department of Natural Resources
MSD Metropolitan St. Louis Sewer District (District)
MWWC Missouri Wastewater Coalition
NACWA National Association of Clean Water Agencies
NPDES National Pollutant Discharge Elimination System
O&M Operation and Maintenance
OM&R Operation, Maintenance and Replacement
OMCI Operation, Maintenance and Construction Improvement
PAYGO Pay-As-You-Go
135
PFM PFM Financial Advisors LLC
Raftelis Raftelis Financial Consultants Inc.
SRF State Revolving Loan Fund
SSO Sanitary Sewer Overflow
SS Suspended Solids
TSS Total Suspended Solids
WEF Water Environment Federation
WIFIA Water Infrastructure Finance and Innovation Act
WWLF Water and Wastewater Loan Fund
WWRLF Water and Wastewater Revolving Loan Fund