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HomeMy Public PortalAboutExhibit MIEC 45 - Rebuttal Testimony of Michael GormanStormwater Rate Change Proceeding - 2018 BEFORE THE RATE COMMISSION OF THE METROPOLITAN ST. LOUIS SEWER DISTRICT For Consideration of a Stormwater Rate Change Proposal By the Rate Commission of the Metropolitan St. Louis Sewer District REBUTTAL TESTIMONY SUBMITTED BY INTERVENOR MISSOURI INDUSTRIAL ENERGY CONSUMERS Pursuant to Section 3(6) of the Operational Rules, Regulations and Procedures of the Rate Commission of the Metropolitan St. Louis Sewer District, Intervenor Missouri Industrial Energy Consumers submits the attached written testimony prepared by Mr. Michael P. Gorman. Respectfully submitted, BRYAN CAVE LEIGHTON PAISNER LLP By:/ /r Tana M. Vuylstek , #42419 randon W. Neuschafer, #53232 211 N. Broadway, Suite 3600 St. Louis, Missouri 63102 Telephone: (314) 259-2543 (Diana) Telephone: (314) 259-2317 (Brandon) Facsimile: (314) 259-2020 dmvuylsteke@bc1plaw.com bwneuschafer@bclplaw.com Dated: May 2, 2018 1 Stormwater Rate Change Proceeding - 2018 CERTIFICATE OF SERVICE The undersigned certifies that a copy of the foregoing was sent by electronic transmission to the following on this 2nd day of May, 2018. Ms. Janice Fenton Office Associate Senior Metropolitan St. Louis Sewer District 2350 Market Street St. Louis, MO 63103 jfenton@stlmsd.com Ms. Susan Myers General Counsel Metropolitan St. Louis Sewer District 2350 Market Street St. Louis, MO 63103 smyers@stlmsd.com Ms. Lisa O. Stump Lashly & Baer, P.C. 714 Locust Street St. Louis, MO 63101 lostump@lashlybaer.com 2 Exhibit No.: Witness: Type of Exhibit: Sponsoring Party: Date Testimony Prepared: BEFORE THE Michael P. Gorman Rebuttal Testimony Missouri Industrial Energy Consumers May 2, 2018 RATE COMMISSION OF THE METROPOLITAN ST. LOUIS SEWER DISTRICT 2018 Stormwater Capital Rate Proposal Proceeding Rebuttal Testimony of Michael P. Gorman On behalf of Missouri Industrial Energy Consumers May 2, 2018 BRUBAKER & ASSOCIATES, INC. Project 10562 BEFORE THE RATE COMMISSION OF THE METROPOLITAN ST. LOUIS SEWER DISTRICT 2018 STORMWATER CAPITAL RATE PROPOSAL PROCEEDING Table of Contents to the Rebuttal Testimony of Michael P. Gorman Page I. SUMMARY 2 II. OVERVIEW OF MSD FILING 2 III. CAPITAL IMPROVEMENTS 6 IV. DEBT FINANCING VS. RATE REVENUE 8 V. RATE DEVELOPMENT 14 QUALIFICATIONS OF MICHAEL P. GORMAN Appendix A Michael P. Gorman Table of Contents BRUBAKER & ASSOCIATES, INC. BEFORE THE RATE COMMISSION OF THE METROPOLITAN ST. LOUIS SEWER DISTRICT 2018 STORMWATER CAPITAL RATE PROPOSAL PROCEEDING Rebuttal Testimony of Michael P. Gorman 1 Q PLEASE STATE YOUR NAME AND BUSINESS ADDRESS. 2 A Michael P. Gorman. My business address is 16690 Swingley Ridge Road, Suite 140, 3 Chesterfield, MO 63017. 4 Q WHAT IS YOUR OCCUPATION? 5 A I am a consultant in the field of public utility regulation and a Managing Principal of 6 Brubaker & Associates, Inc., energy, economic and regulatory consultants. 7 Q PLEASE DESCRIBE YOUR EDUCATIONAL BACKGROUND AND EXPERIENCE. 8 A This information is included in Appendix A to this testimony. 9 Q ON WHOSE BEHALF ARE YOU APPEARING IN THIS PROCEEDING? 10 A I am appearing on behalf of the Missouri Industrial Energy Consumers ("MIEC"), a 11 group of large industrial customers of the Metropolitan St. Louis Sewer District 12 ("MSD" or "District"). Michael P. Gorman Page 1 BRUBAKER & ASSOCIATES, INC. 1 I. SUMMARY 2 Q PLEASE SUMMARIZE YOUR FINDINGS AND RECOMMENDATIONS AS 3 OUTLINED IN YOUR TESTIMONY. 4 A MSD's proposed stormwater charge and collection of $30 million a year for 5 stormwater capital and labor expenses has not been justified and should be rejected. 6 I have reached this conclusion for several reasons. 7 1. MSD has not justified and proven that its proposed stormwater capital program is 8 prudent and reasonable. MSD includes stormwater capital expenditures on both 9 private and MSD-owned property. This is not appropriate. MSD's own policy 10 states that it will only make investments in the public stormwater system, or 11 infrastructure that is located in easements where MSD has rights to access, or is 12 property owned by MSD. That same policy prohibits MSD from making 13 investments in a private stormwater system. Therefore, MSD's proposal to 14 include stormwater capital projects on private property should not be allowed. 15 2. MSD has not clearly developed a capital funding plan for allowable stormwater 16 capital programs to minimize cost on its retail customers. MSD should design a 17 significant capital plan such as it is proposing in this case, to manage both its 18 ability to fund the programs while mitigating costs to its customers. MSD's 19 proposal for a 100% rate revenue funding has not been shown to be prudent and 20 reasonable and should be denied. 21 For all these reasons, MSD's proposed stormwater capital program and the 22 related stormwater capital charge should be denied. 23 II. OVERVIEW OF MSD FILING 24 Q PLEASE DESCRIBE THE STORMWATER CAPITAL RATE PROPOSAL. 25 A MSD proposes a stormwater rate to recover capital costs associated with planning, 26 design, and construction of improvements that will minimize localized flooding, control 27 regional flooding, and mitigate erosions in high water events. MSD determined the 28 total amount of stormwater capital improvements needed based on historical records 29 and engineering studies that address customer complaints about flooding and 30 erosion. MSD proposed a total cost of $562 million for the improvements. Michael P. Gorman Page 2 BRUBAKER & ASSOCIATES, INC. 1 The stormwater capital program will charge stormwater rates to collect 2 approximately $30 million per year. The rate is based on a customer's impervious 3 area at their property. The District proposes to charge MIEC companies $2.25 per 4 Equivalent Residential Unit ("ERU"). An ERU is equal to 2,600 square feet of 5 impervious area. 6 The proposed rate is subject to voter approval, tentatively scheduled for April 7 2019. The rate would go into effect January 2020. 8 Q DOES MSD HAVE A LEGAL OBLIGATION TO MAKE THE PROPOSED 9 STORMWATER CAPITAL IMPROVEMENTS? 10 A MSD has opined that it does not have a legal obligation to undertake this capital 11 program.' 12 Q PLEASE DESCRIBE HOW MSD DEVELOPED THE $562 MILLION TOTAL COST 13 FOR THE STORMWATER CAPITAL IMPROVEMENTS. 14 A MSD's $562 million total cost is a very rough estimate and not the result of a detailed 15 analysis. According to MSD's Rate Proposal (Exhibit MSD 1), the amount is based 16 on historical records and engineering studies that address customer complaints about 17 flooding and erosion, but MSD did not provide a satisfactory explanation for how 18 these studies were used to calculate its $562 million total cost. During the April 4, 19 2018 Technical Conference, MSD described the $562 million as conceptual in nature 20 and consisting of minimal amounts of detailed information and engineering.2 My 21 understanding is that MSD has not identified $562 million worth of projects.3 Rather, 1 Exhibit MSD 36 — Transcript of April 4, 2018 Technical Conference, page 23, line 6. 2Exhibit MSD 36 —Transcript of April 4, 2018 Technical Conference, page 151, lines 16-24. 3Exhibit MSD 36 — Transcript of April 4, 2018 Technical Conference, page 27, lines 8-13. Michael P. Gorman Page 3 BRUBAKER & ASSOCIATES, INC. 1 2 3 4 $562 million serves as MSD's best guess for the amount of funds needed to address the stormwater issues. The $562 million is also based on what MSD believes voters will approve. Mr. Unverferth argued the following during the April 4, 2018 Technical Conference: 5 I think what we try to do is propose a program that our customer will be 6 willing to pay for. The thing to understand is not all of our customers 7 have an issue. They're not always -- they're not all subject to flooding. 8 They're not all subject to erosion. So we felt like we picked a number 9 that was appropriate to feel that people would be willing to help their 10 friends and neighbors that may be experiencing these issues.4 11 And Mr. Unverferth testified: 12 Q And you base this request on what you believe your customers will 13 pay; correct? 14 A Yes. What we did through our public information, gathering what -- 15 what our customer is willing to pay to provide this service. 16 Q And you've done that in lieu of addressing a more detailed study to 17 size the scope of this problem? 18 A Yeah, we -- yes. Understand, in order to take that $562 million and 19 refine that scope takes funding and -- in other words, go through 20 that effort and then not have funding to do the work, there's an 21 expenditure involved and, again, does -- in some cases what I've 22 seen over time, just like it did back in 2008, all of a sudden, it sets 23 an expectation level if I'm out there doing an engineering analysis 24 on a project that may never happen.5 25 Q HOW WAS THE ANNUAL $30 MILLION REVENUE REQUIREMENT 26 DETERMINED? 27 A MSD's financial plan for the Stormwater Capital Rate is shown on Table 3-1 of its 28 Rate Proposal. MSD proposes an annual revenue requirement of approximately 29 $30 million. The rate would go into effect in January 2020. The proposed financial 30 plan has a lower revenue requirement for the first two years as MSD ramps ups to 31 address the flooding and erosion issues. As shown on Table 3-1, the costs 4Exhibit MSD 36 —Transcript of April 4, 2018 Technical Conference, page 151, lines 7-14. 5Exhibit MSD 36 — Transcript of April 4, 2018 Technical Conference, pages 152, line 20-page 153, line 10. Michael P. Gorman Page 4 BRUBAKER & ASSOCIATES, INC. 1 associated with the stormwater improvements include capital investment and labor 2 costs. 3 MSD stated the $30 million revenue requirement is proposed at the size 4 needed to address flooding and erosion issues.6 5 Exhibit MSD 30B, Response 43, also suggests that $30 million was the largest 6 annual amount MSD believed voters would approve. The exhibit states, "MSD views 7 the major risk to be that the proposal does not receive voter approval. This was the 8 main risk consideration in setting the annual spending threshold." This response 9 combined with Mr. Unverferth's comments at the April 4, 2018 Technical Conference 10 show a main driver of the total and annual cost estimates was what MSD believes the 11 ratepayers are willing to pay. Based on this evidence and MSD's lack of planning, it 12 appears that MSD has simply made approximations on capital expenditures and 13 stormwater remediation costs that can be paid for by collecting $30 million per year 14 from customers. This is in stark contrast to conducting prudent planning and 15 identifying capital programs that are needed to remediate stormwater collection 16 problems and develop plans to meet MSD's stormwater collection obligations to its 17 service territory. The proposal is simply not prudent and is in conflict with the public's 18 best interest. 19 Q HOW DID MSD PROPOSE TO FUND THE STORMWATER CAPITAL 20 IMPROVEMENTS? 21 A The stormwater capital improvements will be funded 100% by current revenue 22 collected by the proposed Stormwater Capital Rate. MSD did not propose any debt 6Exhibit MSD 31A, Response 18. Michael P. Gorman Page 5 BRUBAKER & ASSOCIATES, INC. 1 financing to fund the improvements. MSD was asked whether or not it considered 2 debt financing by the Rate Commission. MSD responded with the following: 3 The District will be funding projects that may not result in the District 4 owning assets upon the completion of the proiects and that will be 5 owned and maintained by private parties. As such, the District may be 6 precluded from issuing tax-exempt bonds to finance these projects. In 7 addition, the District believes that the cash funding of the stormwater 8 CIRP via the stormwater capital rate is the most appropriate financing 9 mechanism given the proposed annual program size of $30 million and 10 the minor impact on the proposed rate that would be derived by debt 11 financing. Debt financing of capital projects is ultimately a more 12 expensive cost of funding over the long term for customers. 13 Approximately 88%* of the respondents to the Black & Veatch 2016 14 Stormwater Utility Survey (see Exhibit MSD 19, pages 16-17) indicated 15 that they cash fund their annual stormwater capital improvement 16 program budgets.' 17 Q DOES MSD HAVE ANY ADDITIONAL RATE INCREASES PLANNED? 18 A Yes. MSD stated during the April 4, 2018 Technical Conference it will initiate a 19 wastewater rate proceeding in 2019.8 Wastewater rate revenue makes up the 20 majority of MSD's revenues and charges to its customers. 21 III. CAPITAL IMPROVEMENTS 22 Q DID MSD PERFORM DETAILED ENGINEERING PLANS TO SUPPORT ITS 23 $30 MILLION A YEAR STORMWATER REVENUE REQUIREMENT REQUEST? 24 A. No. MSD's Rate Proposal was provided as Exhibit MSD 18, and the Stormwater 25 Capital programs are found on the Storm Dashboard tab. MSD provided a list of 26 projects and costs in Appendix D of Exhibit MSD 1. However, Appendix D only lists 27 "anticipated" stormwater capital programs over the period FY20-24. MSD's filing 28 does not provide specific detail explaining why the anticipated capital programs are 7Exhibit MSD 30B, Response 44, emphasis added. BMr. Hoelscher stated the wastewater rate proceeding will cover the 2021 to 2024 rates. Michael P. Gorman Page 6 BRUBAKER & ASSOCIATES, INC. 1 needed or why they should be paid for by MSD ratepayers as opposed to private 2 property owners, municipalities, other community government stakeholders, or a 3 combination of all stakeholders. MSD acknowledged during the April 4, 2018 4 Technical Conference that its proposal is conceptual in nature and consisting of 5 minimal amounts of detailed information and engineering.9 6 For these reasons, MSD simply has not justified the District undertaking a 7 capital program for stormwater capital improvements, collecting $30 million per year 8 from MSD customers for facilities that are not part of MSD utility operations or 9 obligations. 10 Q WHERE WILL MSD MAKE THE CAPITAL IMPROVEMENTS? 11 A The capital improvements will be made on a mix of private property and property that 12 MSD owns. MSD witness Brian Hoelscher stated the following during the April 4, 13 2018 Technical Conference: 14 [I]f the solution results in facilities that are mandated to become public 15 facilities by our charter and our policies, again, the most easy example 16 is to solve somebody's backyard flooding, we put in an inlet and a 100 17 feet of storm sewer, that will become a public facility. If we were to go 18 into an area where there is erosion and bio-stabilized the site which 19 doesn't result in that, or if we were to buy people out of floodplains and 20 then turn the property over to the municipalities to maintain, those 21 would not result in assets that are operated and maintained by the 22 district.10 9Exhibit MSD 36 — Transcript of April 4, 2018 Technical Conference, page 151, lines 16-24. 10Exhibit MSD 36 — Transcript of April 4, 2018 Technical Conference, page 58, lines 13-24. Michael P. Gorman Page 7 BRUBAKER & ASSOCIATES, INC. 1 Q SHOULD MSD PROVIDE CLEAR EVIDENCE THAT IT IS APPROPRIATE FOR IT 2 TO MAKE CAPITAL IMPROVEMENTS ON PROPERTY THAT WILL BE OWNED 3 BY THIRD PARTIES, WHERE THE IMPROVEMENTS WOULD BE PAID FOR BY 4 MSD CUSTOMERS? 5 A Yes. There is simply no justification for MSD making improvements on property it 6 does not own, and is not part of the MSD public stormwater or wastewater utility 7 infrastructure. Making improvements on private property can have the effect of 8 enhancing the market value of the private property. This could result in MSD paying 9 for improvements that enrich the private property owner. 10 MSD should be obligated to justify that all projects it undertakes are made in 11 the public interest and within MSD investment policy constraints. Toward this 12 obligation, MSD has not explained or justified why it should pay for stormwater 13 improvements to private property. 14 IV. DEBT FINANCING VS. RATE REVENUE 15 Q HAS MSD EXPLORED ALTERNATIVE METHODS OF FUNDING AND CHARGING 16 CUSTOMERS FOR THE PROPOSED STORMWATER CAPITAL PROGRAMS? 17 A No. Rather, MSD is simply requesting to recover currently the cost of the capital 18 program from its stormwater customers. Michael P. Gorman Page 8 BRUBAKER & ASSOCIATES, INC. 1 Q DID MSD EXPLAIN WHY IT IS NOT CONSIDERING A COMBINATION OF DEBT 2 AND RATE REVENUE FUNDING FOR STORMWATER PROGRAMS SIMILAR TO 3 WHAT IT IS CURRENTLY SUCCESSFULLY IMPLEMENTING FOR 4 WASTEWATER CAPITAL IMPROVEMENTS? 5 A Only in the response to the Rate Commission's discovery, stating that capital 6 improvements may be on third -party property, i.e., property not owned by MSD, which 7 may prevent MSD from using its revenue bond funding." However, if it is 8 inappropriate for MSD bondholders to fund this improvement, then MSD has simply 9 not explained why it would be appropriate for MSD ratepayers to fund these 10 improvements. Ratepayers should at a minimum receive the same protections as 11 MSD bondholders. 12 As such, MSD's responsibility in making these improvements simply has not 13 been justified, and the proposed stormwater rates should not be approved until the 14 justification is clearly established. 15 MSD also argued in Exhibit MSD 41A that, "bond funding should be used to 16 address affordability concerns of paying for long-term assets" and that any rate relief 17 would be "limited and short-term."12 However, this argument is simply without 18 support. If the capital improvements benefit its service area, and customers, then 19 MSD should be obligated to finance the improvements in the most economic way that 20 minimizes costs to customers, or justify why alternative funding sources would 21 increase costs to customers. MSD asserts, without any proof or support, that using 22 bond funding for the capital improvements would result in additional costs for 23 customers or an impact on MSD's credit rating. MSD should identify projects that do 11Exhibit MSD 30B, Response 34. MSD clarified its response in Exhibit MSD 41A by stating it was only referring to tax-exempt bonds. 12 Exhibit MSD 41A, Response 1d. Michael P. Gorman Page 9 BRUBAKER & ASSOCIATES, INC. 1 not qualify for bond funding, and prove that the projects will benefit its customers and 2 the public. Again, to the extent bondholders are protected from funding certain 3 stormwater investments, then MSD should be obligated to show why its customers 4 should be asked to fund such an improvement. 5 Q WHY DOES MSD STATE IT WILL NOT OWN ASSETS FUNDED BY THE 6 STORMWATER CAPITAL CHARGE? 7 A MSD witness Marion M. Gee addressed this issue during the April 4, 2018 Technical 8 Conference. Mr. Gee stated that many of the stormwater capital improvements will 9 not generate assets for the District and he cited erosion control as an example. Mr. 10 Gee expanded on the information provided in Exhibit MSD 30B, Response 44, during 11 the April 4, 2018 Technical Conference: 12 Typically, when you issue tax exempt bonds, you have to have some 13 kind of ownership interest in that particular asset. With these projects, 14 we do not; so it calls into question if we would even be able to issue 15 tax exempt bonds to fund a large portion of this -- this program.13 16 MSD clarified in Exhibit MSD 41A that approximately 75% of capital improvement 17 assets will be owned by MSD. Again, a funding source should be developed based 18 on what would allow MSD to accomplish the development of infrastructure that 19 benefits its customers and its service territory but at the lowest possible cost to its 20 ratepayers. With 75% of the assets being owned by MSD, a financing structure that 21 uses a mix of bond and rate revenue funding is worthy of consideration in this 22 proceeding, and appears to be within MSD's authority to use bond funding on at least 23 a portion of the proposed stormwater capital program. 24 Further, in MSD's Revised Stormwater Policy, it defines the Public Stormwater 25 Systems as, "Stormwater infrastructure that is located in easements with rights to 13Exhibit MSD 36 —Transcript of April 4, 2018 Technical Conference, page 163. Michael P. Gorman Page 10 BRUBAKER 8; ASSOCIATES, INC. 1 MSD. Stormwater infrastructure that has been formally dedicated to MSD for 2 maintenance."14 As such, stormwater infrastructure is an obligation for MSD to make 3 and to maintain as long as it falls within its public utility obligations. If the capital 4 improvements meet MSD's stormwater infrastructure policy, and are consistent with 5 MSD's obligation to protect the public interest, then MSD also has an obligation to 6 mitigate rate impact on customers while fulfilling its public utility obligations. For 7 these reasons, MSD needs to demonstrate that the capital investments meet its 8 stormwater policy infrastructure obligations, and that the funding mix is designed to 9 minimize costs to MSD customers. Absent a clear demonstration of both, MSD's 10 proposed stormwater capital program should be denied. 11 Q ARE THERE OTHER ISSUES OR CONCERNS WITH MSD MAKING 12 INVESTMENTS WHERE THE OWNERSHIP OF THE INVESTMENT MAY BE 13 TURNED OVER TO A THIRD PARTY? 14 A Yes. To the extent it is not an ongoing MSD obligation to implement and maintain a 15 stormwater infrastructure such that appropriate use of debt and rate revenue funding 16 would not be appropriate, then this raises a significant question about whether MSD 17 should be making the investment in the first instance. Specifically, if MSD is making 18 capital improvements to private property, and then turning those capital 19 improvements over to property owners, then there is significant public interest 20 protection concern of whether MSD's proposed stormwater capital program should be 21 approved. MSD simply has not justified charging its utility customers over $30 million 22 a year for stormwater improvements, in whole or in part, to private property. Such 23 improvements can enhance the value of private property and possibly enrich the 14Exhibit MSD 23, page 1. Michael P. Gorman Page 11 BRUBAKER & ASSOCIATES, INC. 1 2 3 4 5 6 7 owner of the property. MSD ratepayers should not fund these improvements. On the other hand, if the improvements deteriorate the market value of a third party's property, MSD could have some exposure of legal action by the property owner for the erosion in value of the property. In either case, MSD customers should not be obligated to make improvements to private property when the ultimate result of the improvement can either benefit the third party owner or expose MSD customers to further costs related to negative impacts on the property owner. 8 Q ARE THERE OTHER FACTORS THAT SHOULD BE CONSIDERED WHEN 9 REVIEWING HOW TO FUND THE PROGRAM? 10 A Yes, I believe there are two other factors that should be considered. MSD Staffs 11 desire to initiate a voluntary program, where it would make private capital investments 12 on private property which MSD has no legal or public interest obligations to make, 13 raises significant concern about whether MSD's proposal exceeds its authority to 14 spend capital. MSD's proposal in this case is in whole or in part simply well outside of 15 its obligations for operating as a stormwater and wastewater utility. 16 Second, MSD plans another wastewater rate increase to be filed in 2019. 17 This is the next series of significant rate increases MSD has been imposing on its 18 customers to comply with the Consent Decree that separate stormwater and 19 wastewater collections systems. The increases on its wastewater system have been 20 very significant. MSD should consider the impact of wastewater increases with its 21 proposed voluntary stormwater capital program, and assess the combined economic 22 impact on its customers, and confirm the proposal does not exceed MSD customers' 23 ability to pay. Michael P. Gorman Page 12 BRUBAKER & ASSOCIATES, INC. 1 Q PLEASE RESPOND TO MSD'S CLAIM THAT A MAJORITY OF STORMWATER 2 UTILITIES USE CASH TO FUND THEIR ANNUAL STORMWATER CAPITAL 3 IMPROVEMENTS. 4 A This claim is incomplete and its conclusion is flawed. MSD bases this claim on the 5 2016 Stormwater Utility Survey (Exhibit MSD 19). It is correct that the survey results 6 show 88% of the respondents rely primarily on rate revenue to fund their annual 7 stormwater capital improvement budgets (Figure 16). However, Figure 15 of the 8 survey shows the average budget supporting the 88% is approximately $4.5 million. 9 MSD's proposed annual budget is $30 million, more than 6x larger than the average 10 stormwater budget contained in the data set. I do not believe the survey data justifies 11 MSD's decision to not consider debt financing, and assess the use of debt to mitigate 12 rate impacts on MSD customers. 13 Q PLEASE RESPOND TO MSD'S CLAIM THAT FUNDING THE STORMWATER 14 CAPITAL IMPROVEMENTS WITH RATE REVENUE IS MORE APPROPRIATE 15 DUE TO THE SIZE OF THE PROGRAM? 16 A MSD is proposing a $30 million revenue stormwater remediation program to fund 17 approximately a $562 million capital program. This is a major capital expenditure 18 program. MSD should be obligated to manage this capital program in a way that is 19 consistent with its obligation to protect the public interest. Toward this objective, MSD 20 should mitigate the significant cost it is proposing to impose on MSD ratepayers by 21 managing the annual cost of this program in a way that minimizes cost to customers. 22 For these reasons, if this capital program is approved, the size of this capital program 23 justifies the consideration of use of bond funding to mitigate price impacts on MSD 24 customers. Michael P. Gorman Page 13 BRUBAKER & ASSOCIATES, INC. 1 V. RATE DEVELOPMENT 2 Q WHAT STORMWATER CAPITAL RATE DID MSD PROPOSE? 3 A The stormwater capital program will charge stormwater rates to collect approximately 4 $30 million per year. The rate is based on a customer's impervious area at their 5 property. MSD proposes to charge MIEC companies $2.25 per ERU. According to 6 MSD witness Henrietta Locklear, the rate is based on impervious area because it is a 7 commonly used metric. MSD cites a 2016 survey where 77% of the responding 8 stormwater utilities use an impervious area rate. 9 Q DO YOU BELIEVE USING IMPERVIOUS AREA IS REASONABLE FOR THE 10 PROPOSED STORMWATER CAPITAL RATE? 11 A If the proposed stormwater capital program and related operating costs are shown to 12 be in the public interest, then MSD's proposal for an impervious charge applied to all 13 customers within its service territory is fair and reasonable. However, I reach this 14 conclusion only if there is a clear demonstration that MSD's proposed capital 15 investments for stormwater improvements are consistent with its infrastructure 16 obligations and it ensuring the stormwater charge is in the public interest. 17 MSD did conclude that its proposed impervious stormwater charge is 18 consistent with industry practices for charging customers for stormwater service. 19 MSD witness Ms. Locklear concluded that a "vast majority of stormwater utilities" use 20 an impervious area rate to recover stormwater remediation and infrastructure costs. 21 She cited a survey based on 74 respondents.15 Hence the structure of the proposed 22 charge seems reasonable, but the justification for the capital expenditures has not 23 been established. 15Exhibit MSD 19, page 4. Michael P. Gorman Page 14 BRUBAKER & ASSOCIATES, INC. 1 Q DOES THIS CONCLUDE YOUR REBUTTAL TESTIMONY? 2 A Yes. Michael P. Gorman Page 15 BRUBAKER & ASSOCIATES, INC. Qualifications of Michael P. Gorman 1 Q PLEASE STATE YOUR NAME AND BUSINESS ADDRESS. 2 A Michael P. Gorman. My business address is 16690 Swingley Ridge Road, Suite 140, 3 Chesterfield, MO 63017. 4 Q PLEASE STATE YOUR OCCUPATION. 5 A I am a consultant in the field of public utility regulation and a Managing Principal with 6 the firm of Brubaker & Associates, Inc. ("BAI"), energy, economic and regulatory 7 consultants. 8 Q PLEASE SUMMARIZE YOUR EDUCATIONAL BACKGROUND AND WORK 9 EXPERIENCE. 10 A In 1983 I received a Bachelor of Science Degree in Electrical Engineering from 11 Southern Illinois University, and in 1986, I received a Master's Degree in Business 12 Administration with a concentration in Finance from the University of Illinois at 13 Springfield. I have also completed several graduate level economics courses. 14 In August of 1983, I accepted an analyst position with the Illinois Commerce 15 Commission ("ICC"). In this position, I performed a variety of analyses for both formal 16 and informal investigations before the ICC, including: marginal cost of energy, central 17 dispatch, avoided cost of energy, annual system production costs, and working 18 capital. In October of 1986, I was promoted to the position of Senior Analyst. In this 19 position, I assumed the additional responsibilities of technical leader on projects, and 20 my areas of responsibility were expanded to include utility financial modeling and 21 financial analyses. Michael P. Gorman Appendix A Page 1 BRUBAKER & ASSOCIATES, INC. 1 In 1987, I was promoted to Director of the Financial Analysis Department. In 2 this position, I was responsible for all financial analyses conducted by the Staff. 3 Among other things, I conducted analyses and sponsored testimony before the ICC 4 on rate of return, financial integrity, financial modeling and related issues. I also 5 supervised the development of all Staff analyses and testimony on these same 6 issues. In addition, I supervised the Staffs review and recommendations to the 7 Commission concerning utility plans to issue debt and equity securities. 8 In August of 1989, I accepted a position with Merrill -Lynch as a financial 9 consultant. After receiving all required securities licenses, I worked with individual 10 investors and small businesses in evaluating and selecting investments suitable to 11 their requirements. 12 In September of 1990, I accepted a position with Drazen-Brubaker & 13 Associates, Inc. ("DBA"). In April 1995, the firm of Brubaker & Associates, Inc. was 14 formed. It includes most of the former DBA principals and Staff. Since 1990, I have 15 performed various analyses and sponsored testimony on cost of capital, cost/benefits 16 of utility mergers and acquisitions, utility reorganizations, level of operating expenses 17 and rate base, cost of service studies, and analyses relating to industrial jobs and 18 economic development. I also participated in a study used to revise the financial 19 policy for the municipal utility in Kansas City, Kansas. 20 At BAI, I also have extensive experience working with large energy users to 21 distribute and critically evaluate responses to requests for proposals ("RFPs") for 22 electric, steam, and gas energy supply from competitive energy suppliers. These 23 analyses include the evaluation of gas supply and delivery charges, cogeneration 24 and/or combined cycle unit feasibility studies, and the evaluation of third -party 25 asset/supply management agreements. I have participated in rate cases on rate Michael P. Gorman Appendix A Page 2 BRUBAKER & ASSOCIATES, INC. 1 design and class cost of service for electric, natural gas, water and wastewater 2 utilities. I have also analyzed commodity pricing indices and forward pricing methods 3 for third party supply agreements, and have also conducted regional electric market 4 price forecasts. 5 In addition to our main office in St. Louis, the firm also has branch offices in 6 Phoenix, Arizona and Corpus Christi, Texas. 7 Q HAVE YOU EVER TESTIFIED BEFORE A REGULATORY BODY? 8 A Yes. I have sponsored testimony on cost of capital, revenue requirements, cost of 9 service and other issues before the Federal Energy Regulatory Commission and 10 numerous state regulatory commissions including: Arkansas, Arizona, California, 11 Colorado, Delaware, Florida, Georgia, Idaho, Illinois, Indiana, Iowa, Kansas, 12 Louisiana, Michigan, Mississippi, Missouri, Montana, New Jersey, New Mexico, New 13 York, North Carolina, Ohio, Oklahoma, Oregon, South Carolina, Tennessee, Texas, 14 Utah, Vermont, Virginia, Washington, West Virginia, Wisconsin, Wyoming, and before 15 the provincial regulatory boards in Alberta and Nova Scotia, Canada. I have also 16 sponsored testimony before the Board of Public Utilities in Kansas City, Kansas; 17 presented rate setting position reports to the regulatory board of the municipal utility 18 in Austin, Texas, and Salt River Project, Arizona, on behalf of industrial customers; 19 and negotiated rate disputes for industrial customers of the Municipal Electric 20 Authority of Georgia in the LaGrange, Georgia district. Michael P. Gorman Appendix A Page 3 BRUBAKER & ASSOCIATES, INC. 1 Q PLEASE DESCRIBE ANY PROFESSIONAL REGISTRATIONS OR 2 ORGANIZATIONS TO WHICH YOU BELONG. 3 A I earned the designation of Chartered Financial Analyst ("CFA") from the CFA 4 Institute. The CFA charter was awarded after successfully completing three 5 examinations which covered the subject areas of financial accounting, economics, 6 fixed income and equity valuation and professional and ethical conduct. I am a 7 member of the CFA Institute's Financial Analyst Society. \\Doc\Shares\ProlawDocs\SDNA 10562\342981.docx Michael P. Gorman Appendix A Page 4 BRUBAKER & ASSOCIATES, INC.