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2018 Rate Commission Report - FINAL REPORT DATED 8-9-18RATE 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 STORMWATER RATE CHANGE PROPOSAL August 9, 2018 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). 2 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 STATEMENT OF RATE COMMISSION ON THIRD PARTY CONTRIBUTIONS ..... 19 CRITERIA FOR RECOMMENDATION ............................................................................ 52 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 ................................ 53 Second Criteria: Whether the Rate Change Proposal is necessary to pay the costs of operation and maintenance ....................................................................................... 56 Third Criteria: Whether the Rate Change Proposal provides for funds in such amounts to cover emergencies and anticipated delinquencies ............................................. 58 FACTORS FOR RECOMMENDATION ............................................................................. 62 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” .......................................................................................................................................... 63 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” ........................................................................................... 75 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” .............................................................. 85 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” ............................................................. 89 Fifth Factor: Whether the Rate Change Proposal, and all portions thereof, “Imposes a fair and reasonable burden on all classes of ratepayers” ................................. 94 MINORITY REPORTS ........................................................................................................ 112 PROCEEDINGS INDEX ...................................................................................................... 116 3 INTRODUCTION The Stormwater Rate Change Proposal of the Metropolitan St. Louis Sewer District (the “District”) was presented to the Rate Commission on February 26, 2018. 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 at https://www.stlmsd.com/our-organization/organization-overview/rate-commission/fy2018- stormwater-rate-proposal/fy2018. 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 June 26, 2018, 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 April 17, 2018, and on May 1, 2018, the Board of Trustees approved an extension of the period to August 10, 2018. 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). 4 EXECUTIVE SUMMARY The District’s Rate Change Proposal1 was presented to the Rate Commission on February 26, 2018. The Rate Change Proposal presents the District’s proposal to add an impervious area- based Stormwater Capital Rate to fund capital improvements needed throughout the District’s service area. The Rate Commission, in its July 30, 2015 report, found “that a stormwater rate change proposal which charges customers an established rate times the quantity of impervious area of their property to fund stormwater operations does impose a fair and reasonable burden on all classes of ratepayers.” See Ex. MSD 10, p. 9. The Stormwater Capital Rate would fund only capital improvement projects, rather than operations and maintenance, which are financed through an existing 10-cent property tax, and regulatory tax and expenses which are funded through an existing 2-cent property tax. The District estimates its capital improvement needs to be funded by the Stormwater Capital Rate at approximately $562 million. See Ex. MSD 25, p. 5. The Stormwater Capital Rate would generate approximately $30 million annually to finance these capital improvements. See Ex. MSD 1, p. 3-3. The Rate Change Proposal would not utilize debt financing. See Ex. MSD 1, p. 3-2. The Stormwater Capital Rate would charge ratepayers per Equivalent Residential Units (“ERUs”) of impervious area (“IA”). An ERU is calculated to be 2,600 square feet of IA. See Ex. MSD 1, p. 4-6. The Rate Change Proposal would assess a monthly rate of $2.25 per ERU. Id. Residential property will be divided into four tiers based on the amount of IA. Most residential property will fall into Tier 2 (2,001-3,600 sq. ft. of IA) and will be charged $2.25 per month (for 1 ERU) when the rate is fully implemented. Residential property in Tier 1 (200-2,000 sq. ft. of IA) will be charged $1.42 per month (0.63 ERUs). Residential property in Tier 3 (3,601-6,000 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. 5 sq. ft. of IA) will be charged $3.74 per month (1.66 ERUs). Residential property in Tier 4 (more than 6,000 sq. ft. of IA) will be charged $6.84 per month (3.04 ERUs). Id. An incentive program would be available to residential property owners implementing best management practices (“BMPs”) such as rain gardens or cisterns. See Ex. MSD 1, p. 4-7. Non-residential properties will be charged per each ERU of IA on the property. See Ex. MSD 1, p. 4-6. An incentive program will also be available for non-residential ratepayers who implement BMPs. See Ex. MSD 1, p. 4-7. The District proposes to charge the Stormwater Capital Rate to nonprofit and governmental entities since it considers the Stormwater Capital Rate to be a “rate” or “charge” pursuant to § 3.020(16) of the Charter Plan. See Ex. MSD 4, p. 7. The District intends to seek voter approval for the Stormwater Capital Rate. See Ex. MSD 1, p. 3-3. 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 Stormwater capital improvements does not provide the funds necessary to pay the principal and interest falling due on the bonds issued to finance assets of the District, because it does not contemplate any debt to be issued. 6 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 does not provide funds necessary to pay the costs of operations and maintenance because the Rate Change Proposal is not designed to do so. 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 does not provide funds in such amounts as may be required to cover emergencies because the Rate Change Proposal is not designed to do so. 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 funds in such amounts as may be required to cover 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 or common law as amended from time to time. 7 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 for stormwater 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 consideration of all of the facts and circumstances disclosed 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. 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 8 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. 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 results in rates that impose a fair and reasonable burden on all classes of ratepayers. 9 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 10 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 11 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, League of Women Voters of Metro St. Louis, Home Builders Association of St. Louis and Eastern Missouri, Mound City Bar 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 12 and notified the Rate Commission. The Delegates currently comprising the Rate Commission are: 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 Kennard Jones 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 13 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 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. Rate Commission’s Procedural Schedule On March 5, 2018, 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 Stormwater Rate Change Notice. The Rate Commission adopted a Revised Procedural Schedule on May 17, 2018. 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 Stormwater Rate Change would be due June 26, 2018. Section 7.280(f), 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 April 17, 2018, the Rate Commission made such application to the Board, asking the deadline to be extended 14 until August 10, 2018. The Board granted the request for an extension on May 1, 2018, and the Rate Commission Report is now due August 10, 2018. 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 February 26, 2018, the District submitted to the Rate Commission prepared Direct Testimony of Susan M. Myers, Brian L. Hoelscher, Richard L. Unverferth, Marion M. Gee, Thomas A. Beckley, and Henrietta Locklear. On March 12, 2018, the Rate Commission submitted its First Discovery Request to the District. On March 22, 2018, the District filed its Responses. On March 19, 2018, the Rate Commission submitted its Second Discovery Request to the District, which the District responded to on March 29, 2018. On April 4, 2018, 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 10, 2018, the Rate Commission submitted its Third Discovery Request to the District, to which the District responded on April 20, 2018. On April 10, 2018, Intervenor MIEC submitted a request to modify the Procedural Schedule. Because the request sought to extend the deadline for submission of Rebuttal Testimony, the Rate Commission scheduled a meeting on April 16, 2018 (the original deadline 15 for submission of Rebuttal Testimony) to consider the request. At its meeting on April 16, 2018, the Rate Commission adopted a resolution to request a 45-day extension from the Board and to change the deadline for submission of Rebuttal Testimony from April 16 to May 2. By letter dated April 17, the Rate Commission requested that the Board grant the Rate Commission a 45- day extension. On April 18, 2018, Intervenor MIEC submitted its First Discovery Request to the District, which the District responded to on April 27, 2018. On May 2, 2018, the Rate Commission Consultants Pamela Lemoine and Nicole Young submitted Rebuttal Testimony. On behalf of Intervenor MIEC, Michael Gorman submitted Rebuttal Testimony. On May 17, 2018, 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 20, 2018, Intervenor MIEC submitted its Second Discovery Request to the Rate Commission, to which the Rate Commission responded on May 30, 2018. On May 21, 2018, the Rate Commission submitted its Fourth Discovery Request to the District, to which the District responded on May 31, 2018. On May 25, 2018, the District submitted Surrebuttal Testimony of Brian L. Hoelscher, Marion M. Gee, Richard L. Unverferth, and Henrietta Locklear. On June 7, 2018, a Technical Conference was held on the record regarding the Surrebuttal Testimony. The purpose of the Technical Conference was to provide the Consultants 16 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 11, 2018, the Rate Commission submitted its Fifth Discovery Request to the District, to which the District responded on June 14, 2018. On June 21, 2018, 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 June 28, 2018, 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: Sunset Hills Community Center, 3915 S. Lindbergh, St. Louis, MO 63127 City of Bridgeton Recreation Center, 4201 Fee Fee Road, Bridgeton, MO 63044 Manchester Parks, Recreation and Arts Center, 359 Old Meramec Station Road, Ballwin, MO 63021 Maryland Heights Community Center, 2300 McKelvey Road, Maryland Heights, MO 63043 Streaming Meeting Forest Park Visitors Center (Dennis & Judith Jones Visitor and Education Center), 5595 Grand Drive in Forest Park, St. Louis, MO 63112 Metropolitan Sewer District Offices, 2350 Market Street, St. Louis, MO 63103 May 8, 2018 @ 6 PM May 15, 2018 @ 6 PM May 17, 2018 @ 6 PM May 22, 2018 @ 6 PM May 30, 2018 @ 1 PM June 6, 2018 @ 6 PM June 29, 2018 @ 9 AM 17 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 was held on June 29, 2018, 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. This public hearing was left open until July 10, 2018 to afford the Rate Commission ample time to review the Prehearing Conference Reports, and was closed on July 10, 2018. During the Proceedings, Exhibits and Discovery Requests and Discovery Request Responses were introduced and on June 29, 2018, were admitted into evidence. Additional exhibits which were not available on June 29, 2018 were entered into the record on July 10, 2018. These documents, together with the transcripts of testimony, written testimony, and certain other materials, may be found at https://www.stlmsd.com/our-organization/organization- overview/rate-commission/fy2018-stormwater-rate-proposal/fy2018 and the Proceedings Index may be found at the end of the Report. 18 The findings and determinations contained in this Report were considered at public meetings of the Rate Commission on July 10, July 11, July 18, and July 19, 2018, and adopted by Resolution of the Rate Commission on August 3, 2018. 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. 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. 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. 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.” Wolff Shoe Co. v. Dir. of Revenue, 762 S.W.2d 29, 31 (Mo. banc 1988). 19 STATEMENT OF RATE COMMISSION ON THIRD-PARTY CONTRIBUTIONS The District asserts that its prioritization and cost-sharing methods would impose a fair and reasonable burden on all classes of ratepayers, as required by § 7.240 of the Charter Plan. See Ex. MSD 36, p. 196, ll. 14-19. The Stormwater Capital Rate would fund projects listed in the Capital Improvement and Replacement Program (the “CIRP”). See Ex. MSD 1, p. 4-2. A benefit/cost ratio is calculated to determine project priority ranking. See Ex. MSD 30B, p. 5 (Request No. 13). Benefit points are totaled for a project, and the points are divided by the cost of the project. Id. To ensure that the Stormwater Capital Rate is fair and equitable, the District does not intend to alter its benefit/cost analysis, or adjust a project’s prioritization based on the contribution of third-party funds. See Ex. MSD 65, p. 50, ll. 18-25; p. 51, ll. 1. According to the District, this is to ensure that wealthier communities or entities cannot increase their chosen project’s priority at the expense of a project in a community which does not have access to third- party funding. Id. at p. 58, ll. 8-18. Throughout the Proceedings, some of the Rate Commissioners questioned the District witnesses as to whether the District should consider incentivizing contributions by third parties by adjusting a project’s priority when a third party (governmental agency, a municipality, or some other entity) contributes funding. See Ex. MSD 65, pp. 43-53. The District witnesses responded that it is a policy decision, and the District believes its process insures that the value of the stormwater capital dollars from all ratepayers will be weighed equally and not be influenced by the ability of a third-party source to provide additional funding to the process. See Ex. MSD 54, p. 3 (Question No. 3). Further, the process eliminates discrimination of those municipalities with limited/insufficient stormwater funding. See Ex. MSD 30B, p. 13 (Request No. 45). 20 As discussed in its Report, the Rate Commission perceives an inadequacy in the size and scope of projects considering the problems facing the District. See Factor 2, pp. 75-81, and Factor 5, pp. 105-109, herein. As such, the Rate Commission believes contribution of third-party funds should be used to address this issue and provide additional funds for the program. This would allow for the District to do more projects and complete them faster. The Rate Commission conducted discussions during the deliberation process as to how a revised prioritization process utilizing third-party funding might work and speculated as to what the effect of such a revised process could be. As a result, during the deliberation process, the Rate Commission requested that its Rate Consultants utilize District and other publicly available information and run a sample model which would consider the effect of allowing municipalities to contribute 50% of Parks and Stormwater sales tax revenue for a project(s) within their municipality. This would then be taken into account on the priority scorecard in the cost factor because it would lower the cost to the District for the project. Thus, that project would be moved up in prioritization. The Rate Commission asked for this model under the belief that it may have the potential to increase funding and encourage municipalities to enact a Parks and Stormwater Sales Tax. Furthermore, in the District-wide picture, this could benefit all communities in the District as it may potentially accelerate the CIRP by five to ten years. Specifically, the Commission requested the Rate Consultants to take the proposal in Exhibit RC 78 and run a 5-year scenario in which every municipality with a Parks and Stormwater Sales Tax contributed 50% of the funds for their projects. The results of this sample model of potential impact of third-party funding on prioritization are included as Attachment A to this Statement. While this is a preliminary, high level analysis, the Rate Commission believes that this is an example of a starting point for the Board of Trustees which shows methods and 21 factors to consider and the material benefit that is possible from third-party funding. Furthermore, the Rate Commission, in order to identify the effect on certain disadvantaged communities, asked the Rate Consultants to create a chart of municipalities within the District whose median household income (“MHI”) is less than 75% of the State of Missouri MHI, which is included as Attachment B to this Statement. The Rate Commission does have concern as to whether changing the prioritization process in all cases will be fair and equitable due to the possibility that it can lead to disadvantaged communities dropping lower in priority as a result of being unable to contribute funds. Particularly, the Commission cited the testimony in the Proceedings from Laverne Mitchom from the City of Ferguson and Elaine Laura from University City indicating that some communities feel they are not being treated fairly or do not have the resources to contribute funds. See Ex. MSD 80, pp. 35-42. The Rate Commission notes the model run by its Consultants that it asks the Board of Trustees to consider, is an illustration only and the Board of Trustees might want to consider additional input insuring the process is equitable. The Rate Commission believes that there could be a model in which disadvantaged communities are not hurt while still incentivizing third-party funding. Some potential solutions suggested include having a cap that only allows one project per community per year to be pushed up in prioritization. Other options may be to have certain funds set aside for disadvantaged communities or to have certain disadvantaged communities not have their project’s prioritization be affected based upon median poverty level. In conclusion, the Rate Commission recommends that an incentive program to increase contributions from private parties or groups or government entities to provide additional funding to accomplish more projects within the CIRP should be considered by the Board of Trustees 22 using the illustration developed by the Rate Commission Consultants as an example, with additional consideration from the Rate Commission discussion on this issue to maintain a fair and equitable process for all ratepayers. ATTACHMENT A TO STATEMENT 24 25 26 27 28 29 30 31 32 33 34 35 36 37 38 39 40 41 42 43 44 45 46 47 48 49 50 51 ATTACHMENT B TO STATEMENT St. Louis Metropolitan Sewer District Rate Commission Municipalities with MHI <= 75% of State of Missouri MHI United States 55,322$ 7.4%15.1% State of Missouri 49,593$ 6.6%15.3% 75% of State MHI 37,195$ St. Louis County 61,103$ 6.7%10.3% Berkeley 9,068 4.90 30,262$ 14.1%26.9%No Efffect Y Has funding, no MSD ranked projects, Tax funding moves one to FY22, two remaining projects Beverly Hills 490 0.10 33,750$ 20.9%22.4%No Efffect Y No projects in system Castle Point CDP 3,163 0.70 32,295$ 21.4%31.8%No Efffect Unincorp No projects in system Country Club Hills 1,356 0.20 28,167$ 12.8%35.4%No Efffect Y No projects in system Edmundson 855 0.30 35,139$ 6.8%21.6%No Efffect Y No projects in system Flordell Hills 765 0.10 29,250$ 25.40%33.20%No Efffect N No projects in system Glasgow Village CDP 5,382 0.90 33,864$ 23.20%33.40%No Efffect Unincorp No projects in system Hanley Hills 2,026 0.36 33,654$ 21.60%31.20%No Efffect N No projects in system Hillsdale 1,344 0.30 23,750$ 27.00%40.20%No Efffect N No projects in system Jennings 14,749 3.70 31,981$ 21.40%24.70%No Efffect Y No MSD ranked projects Kinloch 308 0.70 18,594$ 18.00%54.60%No Efffect Y No projects in system Moline Acres 2,409 0.60 35,492$ 11.30%22.70%No Efffect Y No projects in system Normandy 4,973 1.80 32,830$ 14.20%27.80%No Efffect Y Project ranking does not change. Norwood Court 829 0.10 30,813$ 7.90%26.40%No Efffect Y No projects in system Pagedale 3,306 1.20 27,000$ 17.40%31.10%No Efffect Y Project ranking does not change. Pine Lawn 3,423 0.60 28,573$ 19.80%32.70%No Efffect Y No projects in system Riverview 2,835 0.80 36,371$ 17.20%23.30%No Efffect N No projects in system Spanish Lake CDP 19,105 7.50 36,452$ 18.10%21.50%No Efffect Unincorp No projects in system St. Louis City 316,030 36,809$ 10.60%26.70%No Efffect N Project ranking does not change. Velda City 1,325 0.20 33,819$ 18.70%17.40%No Efffect N No projects in system Velda Village Hills 978 0.10 32,667$ 12.20%32.40%No Efffect Y No projects in system Vinita Park 1,885 0.70 32,589$ 10.70%26.80%No Efffect Y No projects in system Wellston 1,882 0.90 18,056$ 26.20%51.90%No Efffect N No projects in system (1) American Community Survey, 2016 5 year estimates. CDP = Census Designated Place (unincorporated St. Louis County) City Population (1) Approx. Sq. Miles Effect on RCM Prioritization Tax in Place? Reason for "Effect" Median Household Income (1) % Unemployed (1) % below Poverty Level (All People) (1) 52 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. 53 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. There are no outstanding bonds to fund stormwater operations and none are proposed. The Rate Proposal for the Stormwater Capital Rate does not contemplate the use of any debt. See Ex. MSD 1, p. 3-2; see also Ex. MSD 3D, p. 6, ll. 2; Ex. MSD 3E, p. 6, ll. 17-18; Ex. MSD 30B, p. 15 (Request No. 54). The District testified that it believes it should make improvements in the most affordable way possible. Debt funding would automatically increase costs and, under the District’s proposal, the average ratepayer would pay only $2.25 per month, which is well within EPA affordability metrics. See Ex. MSD 55, p. 1, ll. 12-16. Because the rate is so low, any debt funding would have a limited impact. Id. at p. 1, ll. 23-24. If debt financing were used, the District would have to collect rate revenue beyond the construction timeline. Id. at p. 2, ll. 1-4. The District also expressed concern about whether and to what extent debt may be needed in future rate proceedings. See Ex. MSD 52, p. 68, ll. 1-19. Further, if the District considered debt financing, it would be precluded from issuing tax-exempt bonds to finance certain projects and thus debt financing of capital projects would ultimately be more expensive for consumers. See Ex. MSD 30B, p. 12 (Request No. 44). The District does not claim the Stormwater Capital Rate cannot be funded by bonds, just that certain projects cannot be funded with tax-exempt bonds because the District may not own certain assets upon completion, and that it would drive rates higher. See Ex. MSD 41A, p. 5 (Request No. 1d); see also Ex. MSD 30B, p. 12 (Request No. 44). It is the position of Intervenor MIEC that the District should be considering debt financing, but MIEC does not make a proposal as to how much debt should be issued. See Ex. 54 MIEC 71, pp. 7-9; see also Ex. MSD 52, p. 40, ll. 9-24. MIEC Consultant Michael P. Gorman admits that the District will be required to take on significant additional debt as part of the Consent Decree, thus, “it should be a prudent level of bond and rate revenue funding.” Id. at ll. 9-10. “Consideration should be impact on debt – the structure of any bond rating, so that would require consideration of debt service coverage, which is a credit rating factor…. It should also consider affordability by customers in terms of issuing bonds for the stormwater, recognizing additional bonds for the wastewater consent decree program.” Id. at ll. 10-18. In response to the District’s position, MIEC states that, “[t]he larger size of MSD’s CIRP program makes bond funding for at least a portion of the program much more economic, and the size of the required CIRP spend suggests a need to mitigate cost to customers up front by spreading the CIRP cost over time to the benefit of MSD customers by designing rates in a fair and equitable manner.” See Ex. MIEC 71, p. 9. The Rate Consultant supports the District’s decision not to issue debt. See Ex. MSD 52, p. 69, ll. 1-3. The Rate Commission finds, based on the record in these Proceedings, that the issuance of debt would not meaningfully reduce the burden on ratepayers because the Stormwater Capital Rate is so low. The Rate Commission further finds that the use of debt in this Rate Change Proposal could reduce the District’s capacity to issue new debt to meet its obligations under the Consent Decree for future rate change proposals. 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 55 PROPOSAL TO FUND STORMWATER CAPITAL IMPROVEMENTS DOES NOT PROVIDE THE FUNDS NECESSARY TO PAY THE PRINCIPAL AND INTEREST FALLING DUE ON THE BONDS ISSUED TO FINANCE ASSETS OF THE DISTRICT, BECAUSE IT DOES NOT CONTEMPLATE ANY DEBT TO BE ISSUED. 56 Second Criteria: Whether the Rate Change Proposal is necessary to pay the costs of operation and maintenance. The Rate Change Proposal is limited to capital improvement projects and would not be used to fund operation and maintenance. See Ex. MSD 1. District stormwater revenue is now derived from: (1) the District’s 2-cent property tax used to fund stormwater regulatory services; and (2) the District’s 10-cent property tax used to fund stormwater operation and maintenance services (funded through Prop. S). See Ex. MSD 30A, p. 2. There is currently no dedicated funding source for stormwater capital improvements within the District. See Ex. MSD 1, p. 3-1. District Executive Director Brian L. Hoelscher submitted a Memorandum, Ex. MSD 30A, further clarifying the other District taxes and noting that “MSD’s 10 cent property tax is used to fund stormwater operation and maintenance services and the services themselves are not being changed in any way and therefore are not a part of the current Rate Proposal. The current funding and structure should be sufficient for the foreseeable future. This is the tax recently passed as Proposition S.” See Ex. MSD 30A, p. 2. The Stormwater Rate Change is not designed to address operation and maintenance, but rather capital projects only. See Ex. MSD 3A, p. 3, ll. 3-5. Section 3.020(20) of the Charter Plan limits the amount of taxes that the District can levy for operations and maintenance to 10 cents on the hundred dollars of assessed valuation. See Ex. MSD 36, p. 38, ll. 8-9; see also Ex. MSD 4, p. 8. The District testified that operations and maintenance activities will not increase as a result of the Stormwater Capital Rate. See Ex. MSD 36, p. 37, ll. 18-22. Only a slight increase is possible “if the solution of a capital problem is the installation of some more storm sewer.” Id. at p. 37, ll. 24-25; p. 38, ll. 1. However, “the O&M of that – the operation and maintenance of those facilities would then fall under Prop S revenues.” Id. at p. 42, ll. 1-3. 57 The Rate Commission finds that the record in these Proceedings is clear that this Rate Change Proposal is a capital rate only, and is not designed or intended to address operation and maintenance costs. As such, this criteria is not a part of these Proceedings. 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 PROVIDE FUNDS NECESSARY TO PAY THE COSTS OF OPERATIONS AND MAINTENANCE BECAUSE THE RATE CHANGE PROPOSAL IS NOT DESIGNED TO DO SO. 58 Third Criteria: Whether the Rate Change Proposal provides for funds in such amounts to cover emergencies and anticipated delinquencies. Emergencies The District testified that funds from the Stormwater Capital Rate would not be used to cover emergencies and anticipated delinquencies. “If by ‘emergency,’ we mean is there something that needs to be done quickly – and I assume that’s the ‘emergency’ you’re talking about. There are other options available to the district. A delay for a small period in current plans for that year or the next year, moving back a couple months to make sure the funding is available for something that becomes an emergency.” See MSD Ex. 36, p. 49, ll. 13-20. “There is room financially for us to make sure we can address emergencies in other ways without changing the proposed rate.” Id. at p. 50, ll. 1-3. “If you have some emergency come[] up, there are financial mechanisms where we can either move it up and delay some other projects, or even doing some internal borrowing between our own funds internally to make sure we can provide a service in an emergency situation.” Id. at p. 50, ll. 8-13. Since the proposed Stormwater Capital Rate is designed to fund only capital improvements, no minimum fund balance is proposed to cover emergencies and anticipated delinquencies. See Ex. MSD 31A, p. 6 (Request No. 20). “[T]he District considered the setting of a minimum fund balance inappropriate for a capital fund.” Id. “[I]mplementation of a minimum fund balance would delay projects since the minimum amount would sit idle, and the District would need to collect the amount of the minimum fund balance in addition to the amount of a project before the start of that project.” Id. “[S]ince the District does not intend to issue debt to fund this Stormwater program, no fund balance will be needed to fund a targeted debt service coverage level.” Id. The District further testified that setting a minimum fund 59 balance to cover emergencies and delinquencies would create the risk of taking in more revenue than is needed for capital projects. See MSD Ex. 36, p. 50, ll. 17-23. Reserve funds are available for stormwater-related emergencies and unplanned expenses from the ad valorem taxes for regulatory costs and operations and maintenance. See Ex. MSD 1, p. 4-3. The District targets an operating reserve equal to 240 days of regulatory and operations and maintenance costs. See Ex. MSD 1, p. 4-3. The existing operations and maintenance funds do not have a minimum reserve requirement. Id. Therefore, the District’s position is that the Stormwater Capital Rate need not provide for funds to cover emergencies. Anticipated Delinquencies The District took into account anticipated delinquencies for this proposal by applying the wastewater revenue method. See Ex. MSD 1. Specifically, in order to account for uncollectible wastewater revenue, the District makes a monthly entry to write off a certain percentage of wastewater billed revenue. Id. at p. 6-18. This bad debt percentage is calculated based on actual historical revenue collection percentages and then applied to the billed revenue. Id; see also Ex. MSD 36, p. 205, ll. 7-15. For the proposed Stormwater Capital Rate, the District decided to apply this same bad debt percentage for all existing customers. See Ex. MSD 1, p. 6-18. This is because the additional Stormwater Capital Rate will simply be added on to their standard monthly invoice. Id. Within the District boundaries there are an estimated 40,000 customers to which the District currently does not provide wastewater service, but which do have impervious area (example: parking lots or homes with septic tanks). Id. When the District begins billing the proposed impervious area rate these will be considered stormwater only customers. Id. The District is projecting an increased bad debt percentage for these customers based on average 60 collection data from similar utilities with similar situations. Id. The calculation of overall bad debt percentage of all accounts is 4%. The projected bad debt percent for stormwater only customers is 40%. See Ex. MSD 1, p. 6-18, Table E-1. MIEC did not take a position with regard to the need for a minimum fund balance to cover emergencies and anticipated delinquencies. The Rate Consultant, Pamela Lemoine, testified that “a nominal minimum fund balance is appropriate to allow the ability to accommodate unforeseen circumstances with projects underway, without relying on borrowing from other Stormwater or Wastewater funds.” See Ex. RC 43, p. 13. The Rate Commission finds that the record in these Proceedings support the conclusion that the Stormwater Capital Rate is for capital projects only, and is not designed or intended to cover the cost of emergencies. Further, the Rate Commission finds that the Stormwater Capital Rate properly considers, and is sufficient to cover, 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 DOES NOT PROVIDE FUNDS IN SUCH AMOUNTS AS MAY BE REQUIRED TO COVER EMERGENCIES, BECAUSE THE RATE CHANGE PROPOSAL IS NOT DESIGNED TO DO SO. THE RATE COMMISSION, AFTER DISCUSSION AND CONSIDERATION OF ALL OF THE FACTS AND CIRCUMSTANCES DISCLOSED IN THESE 61 PROCEEDINGS, FINDS AND DETERMINES THAT THE RATE CHANGE PROPOSAL PROVIDES FUNDS IN SUCH AMOUNTS AS MAY BE REQUIRED TO COVER ANTICIPATED DELINQUENCIES. 62 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. Charter Plan, § 7.270. 63 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. 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. 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.” 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.” 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.” 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. Black’s Law Dictionary, p. 293 (8th ed. 2004). 64 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 …. Mo. Rev. Stat. § 1.010, RSMo. (2015). Finally, according Black’s Law Dictionary the word “amend” means to change, correct, or revise. 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. 65 The District characterizes the Stormwater Capital Rate as a “rate” or “charge” pursuant to § 3.020(16) of the Charter Plan, and distinct from its authority to levy taxes and special assessments. See Ex. MSD 4, p. 7. 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 ….” The District’s authority to levy taxes is set forth in § 3.020(20), which provides that the District may “levy, assess, and collect taxes on all taxable property within the District or a subdistrict, as the case may be; provided, that the rate of taxation for purposes of operation and maintenance shall not exceed ten cents on the hundred dollars assessed valuation.” Section 3.020(21) authorizes the District to “fix, levy, and collect special benefit assessments for the construction, improvement, or extension of sewer or drainage facilities, levied upon such lots or parcels of ground within the District, whether public or private, as are benefited by said construction, improvement, or extension ….” “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 66 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 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.” Webster’s Dictionary, p. 597 (2016 ed.). The District testified that the Rate Change Proposal is consistent with constitutional, statutory, and common law, as amended from time to time. See Ex. MSD 3B, p. 1, ll. 24; p. 2, ll. 1-8; see also Ex. MSD 30Q; Ex. MSD 36. p. 83, ll. 12-15. No participant in the hearing, and no person speaking at any of the public hearings, argued or introduced evidence that the Rate Change Proposal would be unconstitutional, or would violate a statute or the common law. The Rate Consultant took no position regarding whether the Rate Change Proposal was consistent with constitutional, statutory or common law. Ms. Lemoine testified that to “determine if the rate proposal is consistent with constitutional, statutory or common law as amended from time to time,” the “Rate Commission should evaluate Charter Plan authority, environmental improvement agency regulations, constitutional and statutory provisions and applicable case law.” See Ex. RC 43, p. 6 (Question No. 13). Intervenor MIEC submitted no testimony or arguments regarding whether the Rate Change Proposal was consistent with constitutional, statutory or common law as amended from time to time. Counsel for MIEC inquired of Susan Myers, General Counsel for the District, as to whether the District has evaluated “charter plan authority, environmental laws of regulations, constitutional and statutory provisions and case law ….” See Ex. MSD 36, p. 80, ll. 20-23. Ms. 67 Myers testified that the District has conducted such evaluation and that the totality of that evaluation is provided in her testimony “supplemented with Exhibit 30Q [summarizing a legal opinion from outside counsel].” Id. at p. 80, ll. 24; p. 81, ll. 1-2. In its Prehearing Conference Report, Legal Counsel to the Rate Commission identified the following potential legal issues for consideration: (1) the impact of the Missouri Supreme Court’s decision in Zweig, if any, on the authority of the District to impose a charge based on impervious area; (2) whether the Stormwater Capital Rate can be imposed on nonprofit and governmental entities; and (3) the effect of Mo. Rev. Stat. § 204.700, if any, on the Stormwater Capital Rate. See Ex. MSD 79, p. 39, ll. 8-23. Zweig v. Metropolitan St. Louis Sewer District In 2007, the District recommended and subsequently implemented a stormwater fee (not the Stormwater Capital Rate) based on impervious area. Zweig v. Metropolitan St. Louis Sewer District, 412 S.W.3d 223 (Mo. banc 2013). In Zweig, the Court held that the District violated Art. X, § 22(a) of the Missouri Constitution (commonly known as the “Hancock Amendment”) by implementing the new stormwater fee based on impervious area without voter approval. The Court determined it was tax requiring voter approval, as opposed to a user fee which would not require voter approval. Id. at 227. In discussing the method for calculating the stormwater charge, the Zweig Court explained that the District’s ability to fund its activities is limited and quotes Art. VI, § 30(b) of the Missouri Constitution, as follows: “The plan shall provide for the assessment and taxation of real estate … giving due regard to other provisions of this constitution.” Zweig, 412 S.W.3d at 229. The court states in a footnote: “Ratepayers do not challenge MSD’s authority to levy the stormwater user charge under the Plan or section 30(b) of the constitution. The only claim in this case – and the only issue decided here – is whether 68 section 22(a) prohibits MSD from levying this stormwater user charge without prior voter approval.” Id. at n.2. Although the District will submit the Stormwater Capital Rate to the voters, and thus no Hancock Amendment issue will exist, the Zweig court did make reference to authority in the above noted footnote. It is unclear whether the Zweig Court in the footnote was actually alluding to the possibility that a stormwater charge based on impervious area may be unauthorized under the Missouri Constitution and/or the District’s Charter Plan. The District testified that the proposed Stormwater Capital Rate based on impervious area is consistent with the law. See Ex. MSD 3B, p. 1, ll. 24; p. 5, ll. 9-11. The District presented testimony that Zweig merely “confirmed that a new impervious area-based rate must be approved by the voters to comply with the Hancock Amendment.” See Ex. 3B, p. 5, ll. 14-16. Exhibit MSD 37D, the summary of the District’s legal opinion, concludes that Zweig “is not applicable here because that case did not decide this issue. Zweig focused on whether the stormwater user charge was a tax under the Hancock Amendment and the reworked Keller test and necessitated a vote – nothing more. Because the stormwater capital rate will be decided by the voters, Zweig and any Hancock-related analysis should not apply.” See Ex. MSD 37D, pp. 1-2. Governmental Entities and Nonprofits Since the District considers the Stormwater Capital Rate to be a rate as opposed to a tax (from which governmental and nonprofit entities would be exempt), the District intends to charge the Stormwater Capital Rate to property owned by nonprofit and governmental entities. See Ex. MSD 1. 69 Article X, § 6 of the Missouri Constitution provides that “[a]ll property, real and personal, of the state, counties and other political subdivisions … shall be exempt from taxation; … and all property, real and personal, not held for private or corporate profit and used exclusively for religious worship, for schools and colleges, for purposes purely charitable, for agricultural and horticultural societies, or for veterans’ organizations may be exempted from taxation by general law.” Emphasis added. The General Assembly has exercised the authority granted by Art. X, § 6 by enacting Mo. Rev. Stat. § 137.100(5), which provides that “[a]ll property, real and personal, actually and regularly used exclusively for … purposes purely charitable and not held for private or corporate profit,” shall be “exempt from taxation for state, county or local purposes.” 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 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”). The District presented testimony that, if it were determined that the Stormwater Capital Rate was actually a tax, then nonprofits would still not be exempt because the tax exemption for nonprofits derives from Mo. Rev. Stat. § 137.100(5), as opposed to the Missouri Constitution. See Ex. MSD 3B, p. 3, ll. 1-3. “The Plan thus supersedes only inconsistent ‘laws, charter provisions, and ordinances’; the Plan does not supersede inconsistent constitutional provisions.” State ex rel. City of St. Louis v. Mummert, 875 S.W.2d 108, 109 (Mo. banc 1994). “The exemption from taxation for non-profit entities is not constitutional, but rather is statutory in nature, so it can be superseded if it is inconsistent with the Charter.” See Ex. MSD 3B, p. 3, ll. 7-9. 70 Susan Myers testified that: the Stormwater Capital Rate can be properly interpreted as not being a property tax or any other form of tax, but instead is a charge or ‘rate’ authorized by the Charter Plan, thus non-profit and governmental entities would not be exempt from paying the rate. The constitutional and statutory exemptions for governmental and non-profit entities apply to ad valorem property taxes. The Stormwater Capital Rate is not in any way based on the value of property, so it is not an ad valorem tax, and thus the tax exemptions should not apply to the Stormwater Capital Rate. The Charter Plan expressly allows the District to collect revenue through ad valorem property taxes, special assessments, and rates and charges. The Stormwater Capital Rate is plainly a rate or charge that is authorized by the Charter and is not a special assessment or ad valorem tax. Therefore, this Stormwater Capital Rate can be charged to all customers ‘whether public or private’ in the District pursuant to the express terms of the Charter § 3.020(16). See Ex. MSD 3B, p. 2, ll. 13-23. The District testified that it has a legal opinion on this issue prepared by the law firm of Shands, Elbert, Gianoulakis, and Giljum, LLP, and presented a summary of the opinion into the record. See Ex. MSD 36, p. 89, ll. 18-20; see also Ex. MSD 37D. Specifically, the opinion states that: (1) the Stormwater Capital Rate is, in fact, a rate, rather than a tax or a special assessment; (2) that the District has the authority to charge the Stormwater Capital Rate to owners of public and private real property to fund stormwater capital improvements pursuant to § 3.020(16) of the Charter Plan; and (3) that the Charter Plan would supersede the statute exempting nonprofits from taxation. See Ex. MSD 36, p. 86, ll. 2-9.; see also Ex. MSD 30Q. The District declined to provide the legal opinion to the Rate Commission on the grounds that the opinions are privileged communications. See Ex. MSD 36, p. 6, ll. 6-9; p. 89, ll. 21-23; see also Ex. MSD 30B, p. 6 (Request No. 17). Instead, the District provided summaries of these opinions to the Rate Commission. See Ex. MSD 30Q; see also Ex. MSD 37D. According to the summary of the legal opinions, “[t]axes fall into three separate categories: (1) capitation or poll taxes (assessed to a person); (2) ad valorem property taxes; and 71 (3) excise taxes (such as sales, use, and licensing taxes and fees). Arsenal Credit Union v. Giles, 715 S.W.2d 918, 923 (Mo. banc 1986); City of Springfield v. Fredricks, 630 S.W.3d 574, 576 (Mo. banc 1982).” See Ex. MSD 37D, p. 2. “The stormwater capital rate is not an ad valorem property tax because it in no way relies on the value of the real property.” Id. at p. 3. The summary continues: Nor does it appear that the stormwater capital rate falls within the other two categories of taxation. The rate is certainly not charged to each person within the District, so it is not a capitation tax. Excise taxes are defined very broadly to include ‘every form of taxation which is not a burden laid directly upon persons or property; in other words, excises include every form of charge imposed by a public authority for the purpose of raising revenue upon the performance of an act, the enjoyment of a privilege, or the engaging in an occupation.’ Centerre Bank of Crane v. Dir. of Revenue, 744 S.W.2d 754, 756 (Mo. bane 1988). The stormwater capital rate is not dependent on the performance of an act, enjoying some privilege, or engaging in an occupation. So, by process of elimination, the rate does not fall within any traditional category of taxes and should not be subject to any exemption. The stormwater capital rate is best characterized as a rate or charge. Id. at pp. 3-4. The summary of the District’s legal opinion asserts that “[a]ssuming the stormwater capital rate is a property tax, the District should still have a sound and straightforward argument that the rate can nevertheless be charged to non-profit entities.” See Ex. MSD 37D, p. 5. “Therefore, the District could contend that, because the non-profit exemption is statutory in nature … the statute is superseded within the District if it inconsistent with MSD’s Charter.” Id. at p. 6. The District also presented testimony that, if it were determined that governmental entities and/or nonprofit entities were exempt from the Stormwater Capital Rate, the District would scale back the capital program by approximately 15% to account for the loss in revenue. See Ex. MSD 36, p. 44, ll. 4-11. The District’s Executive Director Brian Hoelscher testified: 72 we do right now believe legally, and for policy position, that all the customers that we’ve indicated, the rate proposal should be charged [the Stormwater Capital Rate]. We envisioned there’s two ways that maybe that would not happen. One I did discuss previously is, if out of these proceedings, we decide they should not pay the cost of those, MSD staff would then have the question if they don’t pay the rate, should they receive the service. The other thing that’s always possible, and I believe I’ve experienced this in the past, there could be, for instance, a legal process that occurs after we’re done, where, in some way, those entities were judged not to have to pay this rate. And what I was trying to convey to the rate commission that MSD’s plans in that contingency, if that were to occur, is we would just simply take the decrease of approximately 15 percent in revenues, not ask for an increase in rates, and we would just move forward with a slightly smaller program, 15 percent the size of what we’re currently proposing. See Ex. MSD 36, pp. 43-44. The District was asked in a discovery request “what services a non-profit entity would not be eligible to receive from the District if non-profits do not pay the proposed Stormwater Capital Rate.” See Ex. MSD 37A, p. 7 (Request No. 9). The District responded that, under such circumstances, “these entities would not be provided the flooding and erosion services being paid for by this Stormwater Capital Rate. If, however, after the Rate Commission process it was determined (through legal action, applicable legislative actions, etc.) that the non-profit entities should be not be contributing to the cost of this program but still benefit from the flooding and erosion services being paid for by this Stormwater Capital Rate, then the District would still provide these services.” Id. Mo. Rev. Stat. § 204.700 Missouri Revised Statute § 204.700, enacted by House Bill 661 (2009), must also be addressed in determining whether the Stormwater Rate Change proposal is consistent with statutory law. Section 204.700 provides that “[n]o person who owns real property that is used for residential purposes within the boundaries of any district created under Section 30 of Article VI of the Missouri Constitution shall be assessed any fee, charge, or tax for storm water 73 management services if the district does not directly provide sanitary sewer services to such property and if the storm water runoff from such person’s property does not flow, or is not otherwise conveyed, to a sewer maintained by such district.” See Ex. MSD 20. If this statute is applicable to the Stormwater Capital Rate, then the Rate would not be consistent with statutory law. District General Counsel Susan Myers testified that § 204.700 is an unconstitutional special law in violation of Art. III, § 40(30) of the Missouri Constitution; that House Bill 661 (2009) violates the single-subject provision (Art. III, § 23, Mo. Const.); and that the Bill is inconsistent with the Charter Plan, and thus is superseded. See Ex. MSD 3B, p. 4, ll. 7-14. Ms. Myers testified that a statute is an unconstitutional special law if “it is close-ended, meaning it is based on non-changing characteristics such as historical or physical facts, geography, or constitutional status, and thus an affected political subdivision cannot come into the group or leave the group. Because R.S.Mo. § 204.700 relates only to a district created under Article VI, § 30 of the Constitution that provides stormwater services and because MSD is the only district by constitutional status, historical fact, and geography that can fit that description, the statute is special on its face and unconstitutional.” See Ex. MSD 3B, p. 4, ll. 8-14. Further, Ms. Myers testified that it is an unconstitutional special law in violation of Art. III, § 40(30) of the Missouri Constitution, that House Bill 661 (2009), which enacted § 204.700, violates the single-subject provision (Mo. Const. art. III, § 23), and is inconsistent with the Charter Plan, and thus preempted. See Ex. MSD 3B, p. 4, ll. 5-24; p. 5, ll. 1-5. The District testified that they had an opinion from an outside law firm supporting this position. See Ex. MSD 30B, p. 6 (Request No. 17). The District would not, however, provide that legal opinion to the Rate Commission or Legal Counsel to the Rate Commission. Id. 74 The District has not pursued a legal action to declare the statute unconstitutional. See Ex. MSD 30B, p. 14 (Request No. 48). The District noted that the Proposition S ad valorem tax is currently being imposed on the properties which § 204.700 purports to exempt from stormwater taxes and fees. See Ex. MSD 37A, p. 8 (Request No. 11). 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. 75 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 ….” 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 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 28, p. 5, Operational Rules, Regulations and Procedures of the Rate Commission of The Metropolitan St. Louis Sewer District, § 3(2)(b) (2018) (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. Sermchief v. Gonzales, 660 S.W.2d at 688. The 76 commonly understood meaning of words is derived from the dictionary. Buechner v. Bond, 650 S.W.2d at 613. 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. 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. The Stormwater Capital Rate would be a new program for the District to address flooding and erosion within its boundaries. The District testified that it has an obligation and authority to address stormwater flooding and erosion, and the public expects it. See Ex. MSD 56, p. 1, ll. 4- 12. Section 1.010 of the Charter Plan provides that the District was established “for the purpose of providing adequate sewer and drainage facilities within the” District. See Ex. MSD 4, p. 1. The Charter Plan gives the District the authority to “maintain, operate, reconstruct, and improve the same as a comprehensive sewer and drainage system, and to make additions, betterments, and extensions thereto….” Id. at p. 4, § 3.020(1). The District receives hundreds of calls annually related to flooding and erosion issues. See Ex. MSD 56 p. 1, ll. 8-10. District Executive Director Brian Hoelscher testified that “I think it’s a recognized need throughout MSD’s service area that the flood – flooding, localized flooding, river flooding next to creeks and rivers and erosion is a 77 problem.” See Ex. MSD 36, p. 23, ll. 10-13. “When MSD was formed, one of the powers available to MSD is to provide this kind of service throughout its entire area, throughout the entire service area.” Id. at p. 23, ll. 14-17. “If there’s any entity that’s in place, in order to have a comprehensive program to address these issues, it’s MSD.” Id. at p. 24, ll. 1-3. In formulating the Rate Change Proposal, the District conducted public outreach to solicit feedback from residents and municipalities regarding what stormwater services the public expects MSD to provide, and what ratepayers would be willing to pay for stormwater capital projects. See Ex. MSD 30B, pp. 2-3 (Request No. 6); see also Ex. MSD 30F. Numerous ratepayers testified at public hearing sessions that they have erosion and flooding issues which they desire the District to remedy. See Ex. MSD 60, p. 37, ll. 8-9; see also Ex. MSD 61, p. 44, ll. 22-23; Ex. MSD 62, p. 42, ll. 3-6; Ex. MSD 67, p. 26, ll. 25; p. 27, ll. 1-2; Ex. MSD 80, p. 26, ll. 19-21; Id. at p. 35, ll. 21-24; Id. at p. 36, ll. 24-25; p. 37, ll. 1; Id. at p. 38, ll. 12-13. Intervenor MIEC asserts that the District is not obligated to conduct stormwater capital projects within its service area. See Ex. MIEC 45, p. 3, ll. 10-11. Further, MIEC asserts that public demand for a stormwater capital program is vastly overstated. MIEC notes that MSD claimed to receive approximately 300 calls per year about flooding and erosion, which represents 0.00065% of its 425,000 accounts. See Ex. MIEC 71, p. 3. MIEC also argues that “contrary to MSD’s assertions, the survey clearly indicates that a nearly three-quarters of MSD’s ratepayers are not willing to pay the rate proposed by MSD.” Id. at p. 4. The Rate Consultants did not provide testimony as to whether the District is authorized or obligated to undertake a stormwater capital program. The Rate Commission finds that the District is authorized and/or obligated to create a stormwater capital program to address flooding and erosion issues within the District. 78 Size / Scope of Capital Program The District estimates its capital improvement needs to be funded by the Stormwater Capital Rate at approximately $562 million. See Ex. MSD 25, p. 5. The Stormwater Capital Rate would generate approximately $30 million annually to finance these capital improvements. See Ex. MSD 1, p. 3-3. The District states that the Stormwater CIRP is prudent and reasonable. See Ex. MSD 54, p. 1, ll. 2-4. The District asserts it has put sufficient planning in the CIRP to justify the $30 million annually. See Ex. MSD 3E, p. 7, ll. 4-7. MIEC provided testimony that there is inadequate planning to justify $30 million per year of revenue collection from customers because the projects are, at the very best, a preliminary list of projects that may benefit the stormwater erosion and collection objectives of the District. See Ex. MSD 52, p. 15, ll. 6-11. MIEC’s consultant, Michael P. Gorman, testified that: “I don’t believe the detailed engineering has been conducted to create what would normally be a reasonable budget estimate that is appropriate for either setting rates or asking bondholders to fund.” Id. at p. 16, ll. 7-10; see also p. 28, ll. 1-6 (“[I]f they want customers to pay for the projects then they have to show which projects need to be completed and why they need to be completed, and to get bond funding they would have to make that demonstration to the bondholders, so I think the customers should get the same protections”). The Rate Consultants disagree with MIEC. Nicole Young testified that the District has done sufficient, reasonable planning. See Ex. MSD 52, p. 97, ll. 23-25; p. 98, ll. 1-14. Pamela Lemoine testified that the rate “may generate sufficient revenue to fund the District’s projected stormwater capital costs at the level of spending indicated in its Rate Proposal.” See Ex. RC 43, p. 8. 79 There is no testimony in the Proceedings indicating that the Rate Change Proposal will not enhance the District’s ability to provide adequate services, and no party has presented such a position. However, there was testimony as to whether the Stormwater Capital Rate would be sufficient to address the outstanding problems. Some of the Rate Commissioners raised the question as to whether $562 million is sufficient. In a Technical Conference, Commissioner Palans noted the City of Ladue estimated the scope of stormwater projects within its boundaries at 55 projects totaling $113 million. See Ex. MSD 65, p. 33, ll. 14-20. “So my little municipality identified about [10] percent2 of the number of projects that the District identified and our cost to remediate those projects is about 20 percent of what the District identified to remediate within a 520-square mile area.” Id. at ll. 21- 25. The District has testified that it is a reasonable start, and they considered what they believed the voters could tolerate. See Ex. MSD 52, p. 45, ll. 14-18. Rate Consultant Pamela Lemoine testified that the District is one of the largest stormwater service areas in the country, and so the magnitude of the issues that it is going to have to address is large. See Ex. MSD 52, p. 52, ll. 23-25; p. 53, ll. 1. “Certainly if the fees were higher and they could fund more projects sooner, the program could be addressed more quickly…. I think it’s definitely a step in the right direction to be able to start to address these issues that haven’t been funded in the past. And again, it becomes a balancing act of customer affordability and the need to address the issues.” Id. at p. 53, ll. 1-7. Based on the record in these Proceedings, the Rate Commission perceives an “inadequacy” in the size and scope of projects in the CIRP in light of the number of problems facing the District and the potential costs related thereto. The Rate Commission noted that 2 The transcript of this technical conference reflects this figure as 2%. After seeking clarification from Commissioner Palans, the correct figure is 10%. 80 although they cannot definitively say there is an “inadequacy,” they do find that the record clearly indicates that there are factors indicative of such. These indicative factors included a concern that the $562 million CIRP budget for capital projects is conceptual in nature, and could in fact be much greater. See MSD Ex. 65, p. 25, ll. 16-19. Moreover, the CIRP budget for capital projects is in 2018 dollars, not 2048 dollars. Id. at p. 25, ll. 20-24. The Stormwater Capital Rate is based upon a record that reflects a minimal amount of detailed information regarding geotechnical conditions, utility relocation requirements, easement requirements, and other site- specific issues that have the potential to significantly affect the project’s eventual construction cost. Id. at p. 25, ll. 25; p. 26, ll. 1-7. The $562 million CIRP budgeted projects represent conceptual costs based upon a minimal amount of detailed information and were formulated without doing much engineering. Id. at p. 26, ll. 8-16. The $562 million capital improvement costs represent taking every issue that was out there and doing a very quick analysis. Id. at p. 26, ll. 17- 21. “Rough estimates” were the words used to describe this process. Id. at p. 26, ll. 22-24. The District stated that its engineering group maybe spent “a few minutes” looking at each project. Id. at p. 26, ll. 25; p.27, ll. 1-2. Further, conceptual costs do not include easement acquisition costs. See Ex. MSD 36, p. 109, ll. 7-19. The $562 million conceptual estimate for capital projects would increase in cost due to inflation. See Ex. MSD 65, p. 28, ll. 13-19. The deterioration of a project over the years (i.e., flooding and/or erosion) may also affect the costs. Id. at p. 30, ll. 4-6. The District receives hundreds of calls annually from District customers requesting assistance in dealing with flooding and erosion issues. See Ex. MSD 56, p. 1, ll. 8-10 (Question No. 1); see also Ex. MSD 65, p. 30, ll. 18-25; p. 31, ll. 1. 81 The District testified that the Stormwater Capital Rate is based upon what the District believes its customers will pay in lieu of addressing a more detailed study to size the scope of the problem. Id. at p. 31, ll. 2-9. No detailed study of the 483 issues was made. Id. at p. 32, ll. 9-22. When asked how reliable is the likelihood that the $562 million sizing will remediate or fix all flooding and erosion problems within the District today or over the next 30 years, Executive Director Hoelscher testified that “[t]here’s a chance that it will.” Id. at p. 35, ll. 7-25; p. 36, ll. 1- 5. If third-party funds were encouraged to be invested in stormwater capital projects, affected projects could be completed faster. More projects could be done in a given year. Id. at p. 43, ll. 24-25; p. 44, ll. 1-3. Although the Rate Commission expresses concern about how the assessment of size and scope was made and the Rate Commission believes the process indicates that the overall current CIRP will prove inadequate to address all flooding and erosion issues, the Rate Commission also understands the District’s intent and desire to present a Proposed Rate Change that the community can afford and which is a fair and reasonable rate for all classes of ratepayers. As a result, and given the limited budget for these projects, the Rate Commission finds that the Stormwater Capital Rate enhances the District’s ability to provide adequate sewer and drainage systems, facilities and related services. As such, the Rate Commission recommends that the District consider the use of third- party funding from various sources to provide additional funding for the stormwater capital improvement program.3 3 The Rate Commission’s recommendation here relates to the desire to have the District seek additional funds in general to grow the amount of funds available for flooding and erosion generally, and does not address the effect any such funds may or may not have on the prioritization of projects. The Rate Commission’s statement on prioritization of projects is set forth in pages 19-22. 82 Further, the Rate Commission supports the use of incentive plans for all ratepayers. It is the District’s position that the credit programs in the Rate Change Proposal are fair and reasonable, in that they give credits to those who choose to construct and maintain green infrastructure without compromising the financing of projects in the CIRP. See MSD Ex. 64, p. 5. The District does not intend to inspect BMPs and will “assume[] that most BMPs will remain in place and functional until such time as the BMP fails or is removed by the property owner.” See Ex. MSD 37A, p. 9 (Request No. 15). The District determined that an upfront 50% credit of $135.00 for residential ratepayers was preferable as opposed to reducing a ratepayer’s bill by 50% (which would reduce their bill by $1.12 in most cases). Id. at pp. 9-10 (Request No. 16). The District determined that “an ongoing credit program would involve costs to track and manage the credit program, plus efforts to continue to ensure the effectiveness of the creditable practice. The District chose not to create a burdensome program unsupported by revenue or otherwise offset by the benefits received.” Id. at p. 6 (Request No. 5). Intervenor MIEC has not stated a position with regard to the whether the credit programs are fair and reasonable. Rate Consultant Pamela Lemoine testified that “[g]iven the small monthly fee, the Residential Incentive program as currently proposed may not provide adequate incentive for customers to deploy and maintain BMPs. The Commercial Incentive Program criteria appears reasonable.” See Ex. RC 43, p. 5. However, the Commercial Incentive Program is unlikely to achieve a reduction in effective impervious area. “Because the proposed Stormwater Capital Rate is so low, it is unlikely that a credit program will greatly incentivize customers to incur the up-front capital costs required to design and implement stormwater BMPs, if the properties already do not have those.” Id. at p. 10. 83 The District in the Rate Change Proposal originally submitted did not propose allowing subdivisions and/or homeowners associations to be eligible for credits to maintain BMPs which serve their residents. Commissioner Goss asked Richard Unverferth whether the District would give consideration to permitting homeowners associations to “pool” their credit. Mr. Unverferth testified that “we probably could explore that a little farther than has been done.” See Ex. MSD 65, p. 98, ll. 3-4. On June 28, 2018, the District filed Exhibit MSD 68, committing to revise its Residential Incentive Program to include an incentive “pooling” alternative. See Ex. MSD 68. Specifically, the District will allow for the implementation of regional BMPs whereby incentives can be combined, or pooled, for residential properties within a drainage area of a regional BMP. The same conditions for a single residential incentive will apply. The runoff from a minimum of 500 square feet of impervious area per property in aggregate would have to be captured by the BMP. Drainage area size limitations may be required to maintain intended performance. As an alternative to a new facility, retrofitting existing stormwater detention basins could be made to provide equivalent BMP modifications to protect stream channels. Id. In addition, on July 2, 2018, the District committed to developing a Stormwater Grant Program to address water quality issues, to be paid for out of the Regulatory Stormwater property tax. See Ex. MSD 76. The District will dedicate $300,000.00 toward the grant program to incentivize green infrastructure projects. Id. The Rate Commission recommends that the Stormwater Capital Rate include an option in the incentive program allowing subdivisions and/or homeowners associations to be able to pool all of its individual homeowners’ incentives to update failing and/or inadequate basins. These individuals’ Stormwater runoff is handled by community basins and thus they would not be able 84 to participate in the current proposed incentive program. However, with the ability to pool their incentives together, the association could address all their Stormwater runoff. This new proposal would add no administrative burden, as the associations would apply for the credits through the same process that individuals would in the current proposal. The Rate Commission recommends that these incentive funds be used to repair, not maintain, basins. Therefore, the Commission recommends that the programs under both Ex. MSD 68 and Ex. MSD 76 be implemented, as part of the Rate Change Proposal. 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 FOR STORMWATER SERVICES. 85 Third Factor: Whether the Rate Change Proposal for Stormwater Services, 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 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 any covenant or provision relating to any outstanding bonds or indebtedness of the District.” See Ex. RC 28, p. 5, Operational Rules, Regulations and Procedures of the Rate Commission of The Metropolitan St. Louis Sewer District, § 3(2)(c) (2018) (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. Sermchief v. Gonzales, 660 S.W.2d at 688. The commonly understood meaning of words is derived from the dictionary. 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.” Webster’s Dictionary, p. 154 (2016 ed.). Further, a “violation” is “an infraction or a breach of the law; a transgression.” 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). 86 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. There are no outstanding bonds to fund the stormwater capital improvements and none are proposed. The Rate Proposal for the Stormwater Capital Rate does not contemplate the use of any debt. See Ex. MSD 1, p. 3-2; see also Ex. MSD 3D, p. 6, ll. 2; Ex. MSD 3E, p. 6, ll. 16-18; Ex. MSD 30B, p. 15 (Request No. 54). The District testified that it believes it should make improvements in the most affordable way possible. Debt funding would automatically increase costs and, under the District’s proposal, the average ratepayer would pay only $2.25 per month, which is well within EPA affordability metrics. See Ex. MSD 55, p. 1, ll. 12-16. Because the rate is so low, any debt funding would have a limited impact. Id. at p. 1, ll. 23-24. If debt financing were used, the District would have to collect rate revenue beyond the construction timeline. Id. at p. 2, ll. 1-4. The District also expressed concern about whether and to what extent debt may be needed in future rate proceedings. See Ex. MSD 52, p. 68, ll. 1-19. It is MIEC’s position that the District should be considering debt, but MIEC does not make a proposal as to how much. See Ex. MIEC 71, pp. 7-9; see also Ex. MSD 52, p. 40, ll. 9- 24. MIEC’s consultant Michael Gorman stated that “[i]f capital improvements benefit its service area, and customers, then MSD should be obligated to finance the improvements in the most economic way that minimizes costs to customers, or justify why alternative funding sources would increase costs to customers.” See Ex. MIEC 71, p. 7. MIEC stated that “[b]ased on MSD’s financial metrics, MSD clearly has the ability to issue additional debt to fund some or all of the 87 CIRP. As noted by MSD, many of the projects that it is seeking to undertake will have operational lives of many decades or generations.” Id. at p. 8. MEIC further asserts that “bond funding (or at least partial bond funding) would allow for (a) a reduction in the current annual revenue needed to be charged to ratepayers, and (b) spreading out the rate charges over multiple generations of MSD ratepayers.” Id. Finally, MIEC asserts that “[i]n rate setting, cost to customers is measured in annual cost to fund the program, and MSD has failed to seize the opportunity minimize annual cost to its customers.” Id. MIEC admits that the District will be required to take on significant additional debt as part of the Consent Decree, thus, “it should be a prudent level of bond and rate revenue funding.” See Ex. MSD 52, p. 40, ll. 9-10. “Consideration should be impact on debt – the structure of any bond rating, so that would require consideration of debt service coverage, which is a credit rating factor…. It should also consider affordability by customers in terms of issuing bonds for the stormwater, recognizing additional bonds for the wastewater consent decree program.” Id. at p. 40, ll. 10-18. The Rate Consultant supports the District’s decision not to issue debt. See Ex. MSD 52, p. 69, ll. 1-3. There was no testimony offered by any of the participants that the Stormwater Capital Rate would, if enacted, be inconsistent with or in violation of any covenant or provision relating to any outstanding bonds or indebtedness of the District. The Rate Commission finds that since the Rate Change Proposal is a revenue generating proposal and does not envision debt, it would not affect the debt side of the balance sheet. As a result, the Rate Commission finds it appropriate to support the conclusion 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. 88 THE RATE COMMISSION, AFTER CONSIDERATION OF ALL OF THE FACTS AND CIRCUMSTANCES DISCLOSED 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. 89 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.” 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 28, p. 5, Operational Rules, Regulations and Procedures of the Rate Commission of The Metropolitan St. Louis Sewer District, § 3(2)(d) (2018). 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. Sermchief v. Gonzales, 660 S.W.2d at 688. The commonly understood meaning of words is derived from the dictionary. 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 law tort actions. 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” 90 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.” 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. Consent Decree On June 11, 2007, the United States of America, acting at the request and on behalf of the Administrator of the United States Environmental Protection Agency, 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 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 CWA § 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 United States Environmental Protection Agency and the Missouri Coalition for the 91 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. At the Public Hearing on June 29, 2018, the District provided the Rate Commission with an update on the status of the Consent Decree. See Ex. MSD 80, pp. 47-56. When the Consent Decree was drafted, the District knew that for operational purposes, the incinerators that handled solids at the Lemay and Bissell treatment plants were starting to reach end of life. Id. at p. 48, ll. 22-5; p. 49, ll. 1-3. The project to replace these incinerators was originally scheduled to start in 2026 at a cost of $360 million. Id. at p. 49, ll. 3-5. After the Consent Decree was executed, regulations were revised to add additional requirements. Id. at p. 49, ll. 13-25. Solids handling was not part of the Consent Decree, but there was a condition in the Consent Decree that if there were regulatory changes after the Consent Decree was signed that would impact the District, the District could request an amendment to the Consent Decree to address those changes. Id. at p. 50, ll. 19-25. The District has gone through the process of getting that change approved. Id. at p. 51, ll. 7-9. The replacement for the incinerators has been moved up to 2021, and other projects to comply with the Consent Decree have been delayed. Id. at p. 51, ll. 9-12. The final result is that the Consent Decree was extended five years. Id. at p. 52, ll. 15-22. This change will have a significant positive impact on wastewater rates. Id. at p. 54, ll. 24-25; p. 55, ll. 1. Although the District provided this update as requested by the Rate Commission, it is the District’s position that the current Stormwater Rate Change has no effect on the District’s obligations under the Consent Decree. The District stated that the “Consent Decree requirements of funding is not relevant to the current Rate Proposal. MSD’s Consent Decree only involves wastewater issues, and is funded by wastewater rates. MSD’s wastewater rates and services are 92 not being changed in any way and therefore are not included in the current Rate Proposal. They will be the subject of a future rate proposal scheduled to be delivered in 2019.” See MSD Ex. 30B, p. 7 (Request No. 22). MIEC and the Rate Consultants did provide testimony with regard to the District’s obligations under the Consent Decree and whether they would be impacted by the proposed Stormwater Capital Rate. MIEC Consultant Michael Gorman stated that the District should consider the impact of the Consent Decree with its proposed Stormwater Capital Program, and assess the combined economic impact on its customers, to confirm the proposal does not exceed the District’s customers’ ability to pay. See Ex. MIEC 54, p. 12; see also Ex. MSD 52, p. 40, ll. 15-18. Similarly, the Rate Consultant stated the Commission should evaluate the proposal to determine whether the proposed capital rates provide the funding capacity needed to address issues including flooding mitigation and erosion control – which are critical to provide sufficient revenue to allow completion of capital projects necessary to meet Consent Decree obligations while maintaining current assets. See Ex. RC 43, p. 7 (Question 16). However, there was no testimony offered by any of the participants that the Stormwater Capital Rate, if enacted, would impair the ability of the District to comply with the Consent Decree, or any other applicable Federal or State laws or regulations as amended from time to time. Based on the above, the Rate Commission finds that the Rate Change Proposal would not fiscally impair in any way the fulfillment of the Consent Decree nor any Federal or State laws or regulations. 93 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. 94 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. 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. 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.” 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.” 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 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 causation 95 principles, customer impact data, economic development considerations, environmental effects and other factors have not been factored into such determination.” See Ex. RC 28, p. 5, Operational Rules, Regulations and Procedures of the Rate Commission of The Metropolitan St. Louis Sewer District, §§ 3(2)(a) and 3(2)(e) (2018). 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 96 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. 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 by 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 722-773. 97 However, in State of Missouri ex rel. DePaul Hosp. School of Nursing v. Public Service Comm’n., the Missouri Court of Appeals found the PSC’s order approving a rate to be unlawfully discriminatory. 464 S.W.2d 737, 740 (Mo. App. 1970). 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 “[I]t 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) and gas, electric, water, heating and sewer companies (Mo. Rev. Stat. §§ 393.130, 393.140). Generally, the PSC uses the standard “just and reasonable” in determining whether a proposed rate is valid. 98 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 or by order to decision of the commission.” Mo. Rev. Stat. § 392.200 (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.” Mo. Rev. Stat. § 393.140(5) (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.” 4 C.S.R. 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. 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 99 the case with the tests of a good automobile, a good income-tax law, or a good poem. 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. 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. 100 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 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. With the Proposed Rate Change, the District proposes to add an impervious area-based Stormwater Capital Rate to fund stormwater-related capital improvements throughout the District’s service area. The District estimates its capital improvement needs to be funded by the Stormwater Capital Rate at approximately $562 million. See Ex. MSD 25, p. 5. The Stormwater Capital Rate would generate approximately $30 million annually to finance these capital improvements. See Ex. MSD 1, p. 3-3. As discussed, the Rate Change Proposal would not utilize debt financing. See Ex. MSD 1, p. 3-2. The Stormwater Capital Rate would charge ratepayers per Equivalent Residential Units (“ERUs”) of impervious area (“IA”). An ERU is calculated to be 2,600 square feet of IA. See Ex. MSD 1, p. 4-6. The Rate Change Proposal would assess a monthly rate of $2.25 per ERU. Id. Residential property will be divided into four tiers based on the amount of IA. Most residential property will fall into Tier 2 (2,001-3,600 sq. ft. of IA) and will be charged $2.25 per month (for 1 ERU) when the rate is fully implemented. Residential property in Tier 1 (200-2,000 sq. ft. of IA) will be charged $1.42 per month (0.63 ERUs). Residential property in Tier 3 (3,601-6,000 sq. ft. of IA) will be charged $3.74 per month (1.66 ERUs). Residential property in Tier 4 (more 101 than 6,000 sq. ft. of IA) will be charged $6.84 per month (3.04 ERUs). Id. A credit program would be available to residential property owners implementing best management practices (“BMPs”) such as rain gardens or cisterns. Id. at p. 4-7. Non-residential properties will be charged per each ERU of IA on the property. Id. at p. 4-6. A credit program will also be available for non-residential ratepayers. Id. at p. 4-7. The District proposes to charge the Stormwater Capital Rate to nonprofit and governmental entities since it considers the Stormwater Capital Rate to be a “rate” or “charge” pursuant to § 3.020(16) of the Charter Plan. See Ex. MSD 4, p. 7. The District intends to seek voter approval for the Stormwater Capital Rate. See Ex. MSD 1, p. 3-3. Use of Impervious Area The District, MIEC, and the Rate Consultant agree that the use of an impervious area charge, in concept, is fair and reasonable. See Ex. MSD 10, p. 126; see also Ex. RC 43, p. 4, (Question No. 9); Ex. RC 70, p. 16. However, the parties differ as to whether the specifics of the proposed Stormwater Capital Rate would impose a fair and reasonable burden on all classes of ratepayers. The Rate Commission finds the record is clear and the consultants have confirmed that the use of impervious area rather than property value is a fair and reasonable basis for assessing the Stormwater Capital Rate. The Rate Commission finds that there is no evidence on record in these Proceedings that the use of impervious area is unfair. Use of Debt The District believes the Stormwater Capital Rate imposes a fair and reasonable burden on all classes of ratepayers. The Rate Proposal for the Stormwater Capital Rate does not 102 contemplate the use of any debt. See Ex. MSD 1, p. 3-2; see also Ex. MSD 3D, p. 6, ll. 2; Ex. MSD 3E, p. 6, ll. 16-18; Ex. MSD 30B, p. 15 (Request No. 54). The Rate Consultant supports the District’s decision not to issue debt. See Ex. MSD 52, p. 69, ll. 1-3. The Rate Consultant testified that “you have to look at the nature of the projects, will the utility have an asset on their books as a result of that project, as well as the program as a whole, when you’re investing a lot of money on a year-to-year basis.” Id. at p. 68, ll. 8-12. It is MIEC’s position that the District has not met its burden to demonstrate that the current stormwater rate proposal is fair and reasonable. See Ex. MIEC 71, p. 1. MIEC’s primary objection is that the District should be considering debt, but MIEC does not make a proposal as to how much. Id. at pp. 7-9; see also Ex. MSD 52, p. 40, ll. 9-24. MIEC admits that the District will be required to take on significant additional debt as part of Consent Decree, thus, “it should be a prudent level of bond and rate revenue funding.” See Ex. MSD 52, p. 40, ll. 9-10. MIEC also objects that the financial burden of the Stormwater Capital Rate would be excessive, that the public does not support the program, and that inadequate planning has been done. See Ex. MIEC 71, pp. 2, 3, 5, and 8. The Rate Commission finds that the record in these Proceedings supports the District’s decision not to issue debt based upon the nature of the projects as being too small and not all are bondable. The Rate Commission also notes that in order to utilize bonding it will cost the District. Therefore, the Rate Commission finds that it would not be prudent or proper to use debt, and the consideration of the Proposal, without debt, results in rates that impose a fair and reasonable burden on all classes of taxpayers. 103 Incentive Programs It is the District’s position that the credit programs in the Rate Change Proposal are fair and reasonable, in that they give credits to those who choose to construct and maintain green infrastructure without compromising the financing of projects in the CIRP. See MSD Ex. 64, p. 5. The District does not intend to inspect BMPs and will “assume[] that most BMPs will remain in place and functional until such time as the BMP fails or is removed by the property owner.” See Ex. MSD 37A, p. 9 (Request No. 15). The District determined that an upfront 50% credit of $135.00 for residential ratepayers was preferable as opposed to reducing a ratepayer’s bill by 50% (which would reduce their bill by $1.12 in most cases). Id. at pp. 9-10 (Request No. 16). The District determined that “an ongoing credit program would involve costs to track and manage the credit program, plus efforts to continue to ensure the effectiveness of the creditable practice. The District chose not to create a burdensome program unsupported by revenue or otherwise offset by the benefits received.” Id. at p. 6 (Request No. 5). Intervenor MIEC has not stated a position with regard to the whether the credit programs are fair and reasonable. Rate Consultant Pamela Lemoine testified that “[g]iven the small monthly fee, the Residential Incentive program as currently proposed may not provide adequate incentive for customers to deploy and maintain BMPs. The Commercial Incentive Program criteria appears reasonable.” See Ex. RC 43, p. 5 (Question No. 9). However, the Commercial Incentive Program is unlikely to achieve a reduction in effective impervious area. “Because the proposed Stormwater Capital Rate is so low, it is unlikely that a credit program will greatly incentivize customers to incur the up-front capital costs required to design and implement stormwater BMPs, if the properties already do not have those.” Id. at p. 10 (Question No. 22). 104 The District, in the Rate Change Proposal originally submitted, did not propose allowing subdivisions and/or homeowners associations to be eligible for credits to maintain BMPs which serve their residents. Commissioner Goss asked Richard Unverferth whether the District would give consideration to permitting homeowners associations to “pool” their credit. Mr. Unverferth testified that “we probably could explore that a little farther than has been done.” See Ex. MSD 65, p. 98, ll. 3-4. On June 28, 2018, the District filed MSD Exhibit 68, committing to revise its Residential Incentive Program to include an incentive “pooling” alternative. See Ex. MSD 68. Specifically, the District will allow for the implementation of regional BMPs whereby incentives can be combined, or pooled, for residential properties within a drainage area of a regional BMP. The same conditions for a single residential incentive will apply. The runoff from a minimum of 500 square feet of impervious area per property in aggregate would have to be captured by the BMP. Drainage area size limitations may be required to maintain intended performance. As an alternative to a new facility, retrofitting existing stormwater detention basins could be made to provide equivalent BMP modifications to protect stream channels. Id. In addition, on July 2, 2018, the District committed to developing a Stormwater Grant Program to address water quality issues, to be paid for out of the Regulatory Stormwater property tax. See Ex. MSD 76. The District will dedicate $300,000.00 toward the grant program to incentivize green infrastructure projects. Id. The Rate Commission recommends that the Stormwater Capital Rate include an option in the incentive program allowing subdivisions and/or homeowners associations to be able to pool all of its individual homeowners’ incentives to update failing and/or inadequate basins. These individuals’ stormwater runoff is handled by community basins and thus they would not be able 105 to participate in the current proposed incentive program. However, with the ability to pool their incentives together, the association could address all their stormwater runoff. This new proposal would add no administrative burden, as the associations would apply for the credits through the same process that individuals would in the current proposal. The Rate Commission recommends that these incentive funds be used to repair, not maintain, basins. Therefore, the Commission recommends that the programs under both Exhibits MSD 68 and MSD 76 be implemented, as part of the Rate Change Proposal. Governmental & Nonprofit Entities It is the District’s position that imposing the Stormwater Capital Rate on governmental and nonprofit entities is fair and reasonable. The Rate Consultant and MIEC did not take a position with regard to whether it is fair and/or reasonable to charge governmental and nonprofit entities. The Rate Commission finds that the rain falls on both taxable and nontaxable entities’ property and thus applying the Stormwater Capital Rate to all property owners, including nonprofit and governmental entities, results in rates that impose a fair and reasonable burden on all classes of ratepayers. CIRP The District states that the CIRP is prudent and reasonable. See Ex. MSD 54, p. 1, ll. 2-4. The District asserts it has put sufficient planning in the CIRP to justify the $30 million annually. See Ex. MSD 3E, p. 7, ll. 4-7. The District estimates its capital improvement needs to be funded by the Stormwater Capital Rate at approximately $562 million. See Ex. MSD 25, p. 5. The Stormwater Capital Rate would generate approximately $30 million annually to finance these capital improvements. See Ex. MSD 1, p. 3-3. The District states that the Stormwater CIRP is 106 prudent and reasonable. See Ex. MSD 54, p. 1, ll. 2-4. The District asserts it has put sufficient planning in the CIRP to justify the $30 million annually. See Ex. MSD 3E, p. 7, ll. 6-7. MIEC provided testimony that there is inadequate planning to justify $30 million per year of revenue collection from customers because the projects are, at the very best, a preliminary list of projects that may benefit the stormwater erosion and collection objectives of the District. See Ex. MSD 52, p. 15, ll. 6-11. MIEC’s consultant Michael P. Gorman testified that: “I don’t believe the detailed engineering has been conducted to create what would normally be a reasonable budget estimate that is appropriate for either setting rates or asking bondholders to fund.” Id. at p. 16, ll. 7-10; see also p. 28, ll. 1-6 (“[I]f they want customers to pay for the projects then they have to show which projects need to be completed and why they need to be completed, and to get bond funding they would have to make that demonstration to the bondholders, so I think the customers should get the same protections”). The Rate Consultants disagree with MIEC. Nicole Young testified that the District has done sufficient, reasonable planning. See Ex. MSD 52, p. 98, ll. 2-14. Pamela Lemoine testified that the rate “may generate sufficient revenue to fund the District’s projected stormwater capital costs at the level of spending indicated in its Rate Proposal.” See Ex. RC 43, p. 8. Some of the Rate Commissioners raised the question as to whether $562 million is sufficient to address the outstanding problems. In a Technical Conference, Commissioner Palans noted the City of Ladue estimated the scope of stormwater projects within its boundaries at 55 projects totaling $113 million. See Ex. MSD 65, p. 33, ll. 14-20. “So my little municipality identified about [10] percent4 of the number of projects that the District identified and our cost to remediate those projects is about 20 percent of what the District identified to remediate within a 4 The transcript of this technical conference reflects this figure as 2%. After seeking clarification from Commissioner Palans, the correct figure is 10%. 107 520-square mile area.” Id. at ll. 21-25. The District has testified that it is a reasonable start, and they considered what they believed the voters could tolerate. See Ex. MSD 52, p. 45, ll. 14-18. Rate Consultant Pamela Lemoine testified that the District is one of the largest stormwater service areas in the country, and so the magnitude of the issues that it is going to have to address is large. See Ex. MSD 52, p. 52, ll. 23-25; p. 53, ll. 1. “Certainly if the fees were higher and they could fund more projects sooner, the program could be addressed more quickly…. I think it’s definitely a step in the right direction to be able to start to address these issues that haven’t been funded in the past. And again, it becomes a balancing act of customer affordability and the need to address the issues.” Id. at p. 53, ll. 1-7. Based on the record in these Proceedings, the Rate Commission perceives an “inadequacy” in the size and scope of projects in the CIRP in light of the number of problems facing the District and the potential costs related thereto. The Rate Commission noted that although they cannot definitively say there is an “inadequacy,” they do find that the record clearly indicates that there are factors indicative of such. These indicative factors included a concern that the $562 million CIRP budget for capital projects is conceptual in nature, and could in fact be much greater. See Ex. MSD 65, p. 25, ll. 16-19. Moreover, the CIRP budget for capital projects is in 2018 dollars, not 2048 dollars. Id. at p. 25, ll. 20-24. The Stormwater Capital Rate is based upon a record that reflects a minimal amount of detailed information regarding geotechnical conditions, utility relocation requirements, easement requirements, and other site- specific issues that have the potential to significantly affect the project’s eventual construction cost. Id. at p. 25, ll. 25; p. 26, ll. 1-7. The $562 million CIRP budgeted projects represent conceptual costs based upon a minimal amount of detailed information and were formulated without doing much engineering. Id. at p. 26, ll. 8-16. The $562 million capital improvement 108 costs represents taking every issue that was out there and doing a very quick analysis. Id. at p. 26, ll. 17- 21. “Rough estimates” were the words used to describe this process. Id. at p. 26, ll. 22- 24. The District stated that its engineering group maybe spent “a few minutes” looking at each project. Id. at p. 26, ll. 25; p. 27, ll. 1-2. Further, conceptual costs do not include easement acquisition costs. See Ex. MSD 36, p. 109. The $562 million conceptual estimate for capital projects would increase in cost due to inflation. See Ex. MSD 65, p. 28, ll. 13-19. The deterioration of a project over the years (i.e., flooding and/or erosion) may also affect the costs. Id. at p. 30, ll. 4-6. MSD receives hundreds of calls annually from MSD customers requesting assistance in dealing with flooding and erosion issues. See Ex. MSD 56, p. 1 ll. 8-10 (Question No. 1); see also Ex. MSD 65, p. 30, ll. 18-25; p. 31, ll. 1. The District testified that the Stormwater Capital Rate is based upon what the District believes its customers will pay in lieu of addressing a more detailed study to size the scope of the problem. Id. at p. 31, ll. 2-9. No detailed study of the 483 issues was made. Id. at p. 32, ll. 9-22. When asked how reliable is the likelihood that the $562 million sizing will remediate or fix all flooding and erosion problems within the District today or over the next 30 years, Executive District Hoelscher testified that “[t]here’s a chance that it will.” Id. at p. 35, ll. 7-25; p. 36, ll. 1-5. If third-party funds were encouraged to be invested in stormwater capital projects, affected projects could be completed faster. More projects could be done in a given year. Id. at p. 43, ll. 24-25; p. 44, ll. 1-3. Although the Rate Commission expresses concern about how the assessment of size and scope was made and the Rate Commission believes the process indicates that the overall current CIRP will prove inadequate to address all flooding and erosion issues, the Rate Commission also 109 understands the District’s intent and desire to present a Proposed Rate Change that the community can afford and which is a fair and reasonable rate for all classes of ratepayers. As a result, and given the limited budget for these projects, the Rate Commission finds that the Stormwater Capital Rate based on the proposed CIRP results in rates which impose a fair and reasonable burden on all classes of ratepayers. Improvements on Private Property It is the District’s position that making stormwater improvements on private property can add value to the community overall. See Ex. MSD 50A, p. 4 (Request No. 2). Projects on private property can be done, consistent with the Charter Plan, requiring easements in favor of the District. Id. The District is not prohibited by any policy from constructing improvements or repairs on private property, provided easement or property rights exist. Id. MIEC testified that it does not believe that it is possible that a project can be done on private property and still be within the public interest. See Ex. MSD 52, p. 13, ll. 16-23. The Rate Consultant agrees with the District that certain projects could and should be constructed on private property. Ms. Lemoine explained, “[i]f the capital program is addressing erosion and flooding issues that are, you know, even where they’re on a private property for instance in the example of a stream erosion, that runoff is occurring and that erosion is occurring due to runoff through that watershed, and so in that regard that’s benefitting the entire watershed area and the service area.” Id. at p. 62, ll. 19- 25. The Rate Commission finds that the record in these Proceedings supports that the projects on private property are not just for the benefit of that individual property, but for the community overall. Furthermore, the record is clear that the District will obtain easements to do the project and will not make any improvements without an easement. Additionally, the Rate Commission 110 notes that there would also be a maintenance agreement in place for every project on private property. Therefore, the Rate Commission finds that it is fair and reasonable to include improvements on private property in the CIRP, and doing so results in rates that impose a fair and reasonable burden on all classes of ratepayers. Prioritization / Cost-Sharing Arrangements The District’s position is that its prioritization and cost-sharing methods would impose a fair and reasonable burden on all classes of ratepayers, as required by § 7.240 of the Charter Plan. See Ex. MSD 36, p. 195, ll. 14-19. The Stormwater Capital Rate would fund projects listed in the CIRP. See Ex. MSD 1, p. 4-2. A cost/benefit ratio is calculated to determine project priority ranking. See Ex. MSD 30B, p. 5 (Request No. 13). Benefit points are totaled for a project, and the points are divided by the cost of the project. Id. To ensure that the Stormwater Capital Rate is fair and equitable, the District does not intend to alter its cost/benefit analysis, or adjust a project’s prioritization based on the contribution of third-party funds. See Ex. MSD 65, p. 50, ll. 18-25; p. 51, l. 1. This is to ensure that wealthier communities or entities cannot increase their chosen project’s priority at the expense of a project in a community which does not have access to third-party funding. Id. at p. 58, ll. 8-18. Some of the Rate Commissioners questioned the District witnesses as to whether the District should consider incentivizing contributions by third parties by adjusting a project’s priority when a third party (governmental agency, a municipality, or some other entity) contributes funding. See Ex. MSD 65, pp. 43-53. Intervenor MIEC supports the use of third-party funding for projects in the CIRP, but did not state a position with regard to whether a third party’s contributions to a project should affect that project’s priority. See Ex. MIEC 45, p. 8, ll. 5-13. Rate Consultant Nicole Young believes 111 that the prioritization system, and the District’s position with regard to third-party funding, is appropriate. See Ex. RC 44, p. 5, (Question No. 11); see also Ex. MSD 52, p. 87. The Rate Commission recommends that the District consider an incentive program to increase contributions from private parties, groups, or governmental entities to provide additional funding as more fully set forth in its Statement to the Board of Trustees as set forth herein at pages 19-22. THE RATE COMMISSION, AFTER DISCUSSION AND CONSIDERATION OF ALL FACTS AND CIRCUMSTANCES DISCLOSED IN THESE PROCEEDINGS, FINDS AND DETERMINES THAT THE RATE CHANGE PROPOSAL RESULTS IN RATES THAT IMPOSE A FAIR AND REASONABLE BURDEN ON ALL CLASSES OF RATEPAYERS. 112 MINORITY REPORT COMMISSIONERS STEIN AND BECKMANN SUBMIT THIS MINORITY REPORT REGARDING THE USE OF DEBT We respectfully dissent from the majority decision that the Stormwater Capital Rate without considering the use of any debt financing results in a rate that imposes a fair and reasonable burden on all classes of taxpayers. We would propose that the rate change proposal consider the use of debt where appropriate to maximize benefit to ratepayers where possible. Our view is that the District should be open to the use of debt financing for Stormwater Capital Projects if debt capacity was available and there were opportunities to accelerate the program. We believe the District’s own statements on debt position show plenty of opportunity for debt financing of a program this size. The District has testified that the stormwater projects are likely to vary over time due to changes in flooding conditions. Shortening the construction period of the projects through the issuance of debt would make the program as a whole more predictable and have the benefit of accelerating water quality improvements that will result from controlling flooding and erosion. Furthermore, we believe in the context of fair and reasonable on a generational basis and the benefit of these projects will be in effect for generations. Thus, debt financing would allow future generations to assist in the payment of projects from which they will be benefiting, and considering some debt financing for this program would mitigate the price impact on the current District customers, particularly in light of anticipated increase associated with the wastewater rate proposal to be submitted in 2019. 113 MINORITY REPORT COMMISSIONER BROCKMANN SUBMITS THIS MINORITY REPORT REGARDING THIRD PARTY FUNDING AND PRIORITIZATION OF PROJECTS I respectfully dissent from the majority’s Statement on Third Party Contributions and its recommendation that an incentive program to increase contributions from various third parties to provide additional funding should be considered by the Board of Trustees using the illustration developed by the Rate Commission Consultants as an example, which suggests changes in prioritization of projects based on the contributions. I believe third parties should be allowed to help fund projects. However, I do not find an incentive program that allows third parties to move their projects up the priority list at the determent of other projects without third party funding is fair and equitable to all classes of ratepayers. I believe that if the projects are important enough within municipalities that have funding available, they will proceed with fixing those issues themselves. Furthermore, the District testified that some of these projects may come off the list because of completion through other programs. It is also possible that more issues will be brought to the District and be added to the list. Thus, the size and scope is not definitive and has many changing possibilities and factors. Therefore, I recommend the Board of Trustees to consider different possibilities to solicit additional funds into the program without changing prioritization based upon third party contributions. I would further hope that if the District determines the current funding is insufficient and they feel the public would support additional increases they would return to the Rate Commission to address any inadequacy. 114 MINORITY REPORT COMMISSIONER STEIN SUBMITS THIS MINORITY REPORT REGARDING THE DISTRICT’S DEVELOPMENT OF THE CIRP I respectfully dissent from the majority decision that the Stormwater Capital Rate, without considering the manner in which the District developed the CIRP, results in a rate that imposes a fair and reasonable burden on all classes of taxpayers. There was significant discussion throughout these Proceedings regarding the manner in which the District determines its “scorecard” for projects. I believe that the scorecard is fair and reasonable, however, it can only be as good as the data that is put into the scorecard. There is significant testimony in the record that the District’s CIRP planning appears conceptual and insufficient, and often based on information that is very old and likely out-of-date. It is my opinion that there should be more standardization as to how preliminary engineering and cost estimation is done. I believe there should be a more formalized procedure for prioritization. I am not suggesting, however, that preliminary engineering be completed for all 483 projects in order to rank them. Rather, MSD should develop more clear standards that suggest appropriate rigor and consistency in creating priorities and estimates associated. MSD needs to insure a clear and transparent process for selecting and ranking stormwater capital projects, to avoid any manipulation of the rankings and to make certain that ratepayers across the district have fair and equal access to the capital resources available for stormwater remediation. 115 RESPECTFULLY SUBMITTED THIS 3RD DAY OF AUGUST, 2018, BY THE RATE COMMISSION OF THE METROPOLITAN ST. LOUIS SEWER DISTRICT Gerald Beckmann Steve Mahfood Don Bresnan Lloyd Palans Paul Brockmann Tom Ratzki Mickey Croyle Mark Schoedel Brad Goss John Stein Russell Hawes Leonard Toenjes Kennard Jones 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 116 2018 Rate Change Proceeding INDEX Exhibit MSD 1 Rate Change Proposal Exhibit MSD 1A Cover Memo to Rate Commission – Rate Change Proposal Submission 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, Marion Gee, MSD Exhibit MSD 3E Direct Testimony, Tom Beckley, RFC Exhibit MSD 3F Direct Testimony, Henrietta Locklear, RFC Exhibit MSD 4 MSD Charter Exhibit MSD 5 2007 Rate Proposal Exhibit MSD 6 2007 Rate Commission Recommendation Report. Exhibit MSD 7 2008 Rate Proposal Exhibit MSD 8 2008 Rate Commission Recommendation Report Exhibit MSD 9 2015 Rate Proposal Exhibit MSD 10 2015 Rate Recommendation Report Exhibit MSD 11 2017 Comprehensive Annual Financial Report (CAFR) Exhibit MSD 12 2017 Popular Annual Financial Report (PAFR) Exhibit MSD 13 Levee District Agreement – Monarch-Chesterfield, Missouri Bottoms (Bridgeton Subdistrict), Earth City, Howard Bend, Riverport Exhibit MSD 14 Stormwater Capital (Prop S) Status Exhibit MSD 15 Customer Assistance Program (CAP) Ordinance #13826 Exhibit MSD 16 Billing Adjustments & Delinquent Accounts Procedures Exhibit MSD 17 CIRP-1 and CIRP-2 Exhibit MSD 18 Rate Model (Available Upon Request) Exhibit MSD 19 2016 Stormwater Utility Survey Exhibit MSD 20 RSMo Section 204.700 117 Exhibit MSD 21 Overhead Rate Review FY2017 Exhibit MSD 22 William Zweig et al. vs. Metropolitan Sewer District Exhibit MSD 23 Revised Stormwater Policy Exhibit MSD 24 FY18 Budget Document Exhibit MSD 25 Overview of Stormwater Capital Funding Proposal Exhibit MSD 26 Stormwater Rate Setting Workshop Exhibit RC 27 Resolution Approving Amendments to Operational Rules, Regulations and Procedures Exhibit RC 28 Rate Commission Operational Rules Exhibit RC 29 Resolution to Adopt Procedural Schedule and Notice by Publication Exhibit RC 30 Rate Commission’s First Discovery Request to MSD March 12, 2018 Exhibit MSD 30A Informational Memo Regarding MSD’s Response to the Rate Commission’s 1st Discovery Request Exhibit MSD 30B MSD’s Response to First Discovery Request of the Rate Commission Exhibit MSD 30C Potential Annual Charges from SW Capital Rate - Large Commercial Customers Exhibit MSD 30D Projected Annual Stormwater Charges for 25 Largest Customers Exhibit MSD 30E December 2016 Stormwater Outreach Presentation Exhibit MSD 30F March 2017 Stormwater Public Outreach - Public Meetings Exhibit MSD 30G 2017 MSD Stormwater Survey Report Exhibit MSD 30H 2018 Project Clear Update and Stormwater Capital Rate Proposal Exhibit MSD 30I Western Kentucky University 2017 Stormwater Survey Exhibit MSD 30J Prioritization Worksheet Guidelines Exhibit MSD 30K Prioritization Worksheet Exhibit MSD 30L Revised CIRP-2 Exhibit MSD 30M Operation and Maintenance Inflation Assumptions Exhibit MSD 30N Revised Assessed Valuation Trend Analysis Exhibit MSD 30O Blanket Contracts and Purchase Orders greater than $500,000 Exhibit MSD 30O-1 Engineering Consultant Contracts greater than $500,000 as of March 15, 2018 Exhibit MSD 30O-2 Engineering Consultant Contracts with an amount remaining greater than $500,000 as of March, 15, 2018 118 Exhibit MSD 30O-3 Construction Contracts with remaining balance greater than $500,000 as of March 15, 2018 Exhibit MSD 30O-4 Construction Contracts of $500,000 or more, regardless of balance Exhibit MSD 30P Process Review – Construction Change Orders February, 2016 Exhibit MSD 30P-1 Review of Engineering Design and Construction Management Contracts and Invoices May, 2015 Exhibit MSD 30P-2 Demolition Contracts - Contractor Payment Process August, 2017 Exhibit MSD 30P-3 Emergency Contracts February, 2018 Exhibit MSD 30P-4 Review of the Capacity, Management, Operations and Maintenance (CMOM) Program July, 2015 Exhibit MSD 30P-5 Engineering Time and Materials Contract Review February, 2011 Exhibit MSD 30P-6 Time and Materials Contracts – Technology Charges Review June, 2011 Exhibit MSD 30P-7 Process Review – Construction Change Orders October, 2011 Exhibit MSD 30P-8 Review of the Capacity, Management, Operations and Maintenance (CMOM) Program May, 2013 Exhibit MSD 30P-9 Overhead Rate Review January, 2012 Exhibit MSD 30P-10 Overhead Rate Review July, 2012 Exhibit MSD 30P-11 Overhead Rate Review November, 2012 Exhibit MSD 30P-12 Overhead Rate Review October, 2014 Exhibit MSD 30Q Legal Summary in Response to Question 17 Exhibit RC 31 Rate Commission’s Second Discovery Request to MSD March 19, 2018 Exhibit MSD 31A MSD’s Response to Second Discovery Request of the Rate Commission Exhibit MSD 31B CIRP Support Schedule for Rate Model Storm Dashboard Tab Exhibit MSD 31C Basis for Stormwater Input Values in Exhibit MSD 18 Exhibit MIEC 32 Application to Intervene: Missouri Industrial Energy Consumers (MIEC) Exhibit MSD 33 MSD Opening Statement Exhibit MSD 34 FY 2019 Preliminary Budget Document Exhibit MSD 35 FY 2019 CIRP Preliminary Budget Supplement Exhibit MSD 36 Transcript of the First Technical Conference April 4, 2018 Exhibit RC 37 Rate Commission’s Third Discovery Request to MSD April 10, 2018 119 Exhibit MSD 37A MSD’s Response to Third Discovery Request of the Rate Commission Exhibit MSD 37B Assessed Valuation Trend Analysis 2001-2009 Exhibit MSD 37C Estimated Stormwater Capital Rate Bill for Non-Residential Customer Exhibit MSD 37D Legal Rationale for Charging the Proposed Stormwater Capital Rate to Non-Profit and Governmental Entities Exhibit MSD 37E Baltimore Single Family Property Credits Guidance Document Exhibit MSD 37E-1 Baltimore Non-Single Family Property Credits Guidance Document Exhibit MSD 37E-2 Northeast Ohio Stormwater Fee Credit Policy Manual Exhibit MSD 37E-3 Raleigh Rainwater Rewards Credits Program Exhibit MSD 37E-4 Raleigh Stormwater Quality Cost Share Policy Revised Resolution Exhibit MSD 37E-5 Raleigh Stormwater Utility Fee and Rate Information Exhibit MSD 37E-6 Raleigh Stormwater Utility Credit and Adjustment Manual Exhibit MSD 37E-7 Realize Rain Gardens Rochester Cost Share Grant Exhibit MSD 37E-8 Rochester, MN Rain Gardens Grant Program Exhibit MSD 37F SSMIP 1995 Policy and Standards Report Exhibit MSD 37G MSD Stormwater Facility Planning Final Report 2010 Exhibit MSD 37H MSD Stormwater Prioritization Scoring Examples Exhibit MIEC 38 MIEC’s Request to Seek Modification of the Procedural Schedule Exhibit RC 39 Resolution Requesting a 45-Day Extension Exhibit RC 40 Public Notice of Rate Change by Rate Commission Exhibit MIEC 41 Missouri Industrial Energy Consumers First Discovery Request to MSD April 18, 2018 Exhibit MSD 41A MSD’s Response to First Discovery Request of MIEC Exhibit MSD 41B Fitch Rating Agency Report November 2017 Exhibit MSD 41C Standard and Poors Rating Agency Report November 2017 Exhibit MSD 41D Moody’s $261M Wastewater Rev. Bonds Series 2017A Exhibit MSD 41E CIRP Support Schedule for Rate Model Storm Dashboard Tab Exhibit MSD 41F Stormwater CIRP Exhibit RC 42 Rate Commission’s Letter to MSD Board of Trustees-Request for a 45-Day Extension Exhibit RC 43 Rate Commission Rebuttal Testimony of Pamela Lemoine 120 Exhibit RC 44 Rate Commission Rebuttal Testimony of Nicole Young Exhibit MIEC 45 MIEC Rebuttal Testimony of Michael Gorman Exhibit MSD 46 Resolution 3423 – 45 Day Extension to Rate Commission Procedural Schedule Exhibit MSD 47 Journal of the MSD Board of Trustees May 1, 2018 Meeting Adopting 45-Day Extension Exhibit MSD 48 Public Hearing Rate Presentation Exhibit MIEC 49 MIEC’s Second Discovery Request to the Rate Commission May 20, 2018 Exhibit RC 49A Rate Commission’s Response to Second Discovery Request of the MIEC Exhibit RC 50 Rate Commission’s Fourth Discovery Request to MSD May 21, 2018 Exhibit MSD 50A MSD’s Response to Fourth Discovery Request of the Rate Commission Exhibit MSD 50B Project Proposal Exhibit MSD 50C Moore Resume Exhibit MSD 51 Transcript of the May 8, 2018 Public Hearing Exhibit MSD 52 Transcript of the May 17, 2018 Technical Conference Exhibit MSD 53 City and County Impervious Surface Area Data by Tax Code Exhibit MSD 54 Surrebuttal Testimony of Brian Hoelscher, MSD Exhibit MSD 55 Surrebuttal Testimony of Marion Gee, MSD Exhibit MSD 56 Surrebuttal Testimony of Richard Unverferth, MSD Exhibit MSD 57 Surrebuttal Testimony of Henrietta Locklear, RFC Exhibit RC 58 Resolution to Adopt Revised Procedural Schedule Exhibit MSD 59 Transcript of the May 15, 2018 Public Hearing Exhibit MSD 60 Transcript of the May 17, 2018 Public Hearing Exhibit MSD 61 Transcript of the May 22, 2018 Public Hearing Exhibit MSD 62 Transcript of the May 30, 2018 Public Hearing Exhibit RC 63 Rate Commission’s Fifth Discovery Request to MSD June 11, 2018 Exhibit MSD 63A MSD’s Response to Fifth Discovery Request of the Rate Commission Exhibit MSD 63B EPA CSO Guidance for Financial Capability Assessment and Schedule Development 121 Exhibit MSD 63C SSMIP Reports Exhibit MSD 64 Prehearing Conference Summary of MSD Exhibit MSD 65 Transcript of the Third Technical Conference June 7, 2018 Exhibit MSD 66 Second Material Amendment to MSD’s Consent Decree Exhibit MSD 67 Transcript of the June 6, 2018 Public Hearing Exhibit MSD 68 Proposed Residential Incentive Program Exhibit MSD 69 MSD’s Prehearing Conference Report Exhibit RC 70 Rate Commission’s Prehearing Conference Report Exhibit MIEC 71 MIEC’S Prehearing Conference Report Exhibit MSD 72 Exhibit Index as of June 28, 2018 Exhibit MSD 73 LTCP Program Implementation Schedule Exhibit RC 74 Formal Comments Received by Laverne Mitchom on behalf of Citizens of Ferguson Exhibit MSD 75 Exhibit Index as of June 29, 2018 Exhibit MSD 76 Proposed Stormwater Small Grant Program Exhibit MSD 77 Exhibit Index as of July 2, 2018 Exhibit RC 78 Sales and Use Tax Rates Exhibit MSD 79 Transcript of the June 21, 2018 Prehearing Conference Exhibit MSD 80 Transcript of the June 29, 2018 Public Hearing Exhibit MSD 81 Transcript of the July 10, 2018 Public Hearing Exhibit MSD 82 Final Exhibit Index