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HomeMy Public PortalAboutExhibit MSD 64 - Prehearing Conference Summary Statement of MSDTHE DISTRICT'S PREHEARING CONFERENCE SUMMARY June 21, 2018 Good Morning, my name is Susan Myers and I am the General Counsel for the Metropolitan St. Louis Sewer District. As you all know the District submitted a Stormwater Rate Change Proposal to you on February 26, 2018 to mitigate flooding and erosion within our district. This proposal was based upon the wants and the needs of MSD's customers as articulated to Brian Hoelscher and Lance LeComb. Brian & Lance spent many months out talking to the community about what additional stormwater services they wanted and how much they were willing to pay for such services. The accumulation of what Brian & Lance learned and previous requests from customers was the basis for this proposal. In addition, as committed by Brian Hoelscher during surrebuttal testimony, MSD staff will continue to listen to the input of its rate payers to see if any change in scope or size of the program should, in the future, be brought to the Rate Commission for consideration. This proposal is about setting a Stormwater Capital Rate that is fair and equitable to all classes of rate payers. Upon acceptance by the MSD Board of Trustees, the Stormwater Capital Rate will be taken to the public for a vote. The public will decide if they want MSD to have a revenue source to fund additional District -wide stormwater services in the form of capital improvements to mitigate the impacts of flooding and erosion. You have heard a lot of testimony and received a lot of evidence that supports the District's proposal. You have also heard a lot of thoughts and comments about the methodology used by the District to determine the project list. This includes the methodology MSD uses to prioritize projects, how MSD utilizes cost sharing, and how the projects are programmed into the overall Capital Improvement and Replacement Program (CIRP). With these in mind, the task at hand is for the Rate Commission to issue its Rate recommendation to the Board of Trustees that meets the five criteria outlined in the MSD Charter Section 7.270. -1- Criteria 1 of the Charter requires that the proposed rate change "is consistent with constitutional, statutory, or common law as amended from time to time." The proposed Stormwater Capital Rate complies with this criterion and will be taken to the public to be voted on in FY2019. Criteria 2 requires that the proposed rate change "enhances the District's ability to provide adequate sewer and drainage systems and facilities, or related services." As shown by the District's written evidence and witness testimony, the Stormwater Capital Rate complies with this criterion because the main driver for the proposed rate is to provide a funding source, via an impervious rate, primarily to mitigate flooding and erosion. Criteria 3 requires that the proposed rate change "is consistent with and not in violation of any covenant or provision relating to any outstanding bonds or indebtedness of the District." The District has satisfied this requirement because it is not proposing the use of bonds or other indebtedness and, therefore, the proposed Stormwater Capital Rate will not violate any covenants or provisions of outstanding bonds or indebtedness. Criteria 4 requires that the proposed rate change "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 proposed Stormwater Capital Rate does not address any particular federal or state law or regulation. The Stormwater Capital Rate is being proposed based upon the MSD rate payer's needs and wants to address flooding and erosion in our region. Criteria 5 requires that the proposed rate change "imposes a fair and reasonable burden on all classes of ratepayers." The Stormwater Capital Rate, as evidenced through District testimony and also by your own technical consultants, clearly imposes a fair and reasonable burden on all classes of ratepayers. -2- The District has also identified three topics for further discussion. ISSUE 1 — MSD's Prioritization System You have heard a lot of testimony by both the District and the Rate Commission's technical consultant that MSD's Stormwater Projects Prioritization System is an acceptable and appropriate way to develop a Capital Improvement and Replacement Program (CIRP). The identification and prioritization of projects to be included in the CIRP is a multi -step process, requiring monitoring and updating to ensure that the highest priority problems within the District are addressed in a timely manner, given available funding. The Stormwater projects are identified to address flooding and erosion issues and are prioritized based upon the severity of the flooding and erosion and the overall benefit provided by the project. In order to maximize the benefits per dollar spent on a project, a benefit/cost ratio is calculated to determine the project priority ranking. Your technical consultant agreed that this type of scoring system is commonly used in infrastructure projects to provide quantification to project prioritization. 1.A. Cost Sharing Cost sharing has been a discussion point during the discussion about prioritizing projects. It is the District's goal that the projects with the highest priority are funded first. With that being the case, MSD has always been receptive to partnering with other entities for them to provide full or partial funding contributions to stormwater capital projects. MSD plans to continue with this policy so long as the use of MSD funding does not delay the execution of other scheduled projects that have a higher priority. As has previously been testified to, the potential use of outside funding will have no effect in the priority calculation for each project. In calculating the cost of a project in determining the benefit - cost ratio, cost shall always be the cost to complete the project, regardless of the source of funding. This process insures that the value of the stormwater capital dollars from all rate payers will be weighed equally and not be influenced by the ability of a third party source -3- to provide additional funding to the process. This helps ensure that the prioritization process is fair and reasonable to all classes of rate payers. ISSUE 2 - Capital Improvement and Replacement Program includes Projects and Programing Development of the CIRP Stormwater program includes the process for prioritization of projects and also programing those projects. There have been many questions around how projects are prioritized and then how they get programed. Previously I discussed the prioritization process and how it is fair and reasonable to all classes of rate payers. You also heard testimony from your technical consultant validating that the projects currently in the CIRP program are appropriate. In addition, you heard that the prioritization process in place allows the District to have flexibility to include new projects or projects with increasing severity in the program. These statements are all true and support the process that has been place for many years and allows the CIRP program to be fair and reasonable to all classes of rate payers. The process for scheduling or programming within the annual CIRP is an iterative process impacted by a number of factors. Projects are generally placed in the annual CIRP according to the benefit/cost ratio, scheduling higher priority projects sooner in the program. The annual CIRP typically includes a five year rolling block of projects potentially being impacted by a number of factors. These factors and this programming process can require the movement of projects both higher in priority to be delayed or projects of lesser priority to be expedited in the program. However, as stated earlier, it is always the intent to address the highest priority issues sooner in the program. Mr. Unverferth testified that the cost estimates were based on historical District bid prices using conceptual design information, technical expertise of consulting engineers, and past data on similar District projects. Your technical consultant is in agreement and testified that the District's cost estimates were completed in accordance with common practice for this phase of the program. -a- ISSUE 3 — Incentives and Credits The Rate Commission's technical expert and MSD are in agreement regarding the incentive/credit program being proposed. Ms. Young testified that we should focus on how effective the incentive/credit program is to reducing impervious area — not whether the incentive/credit is large enough. Ms. Young further testified that "Best Management Practices (BMPs) are beneficial to the overall system if they are maintained over the long term. However, it is unlikely that BMPs will have a significant effect in reducing the civil infrastructure investments necessary in the program. While it is beneficial to install BMPs, MSD needs to collect the funds in order to build the stormwater infrastructure or undertake buyouts included in the CIRP. Increasing incentives or credits may increase BMPs, without actually achieving a reduction in effective impervious area where needed." MSD testified that "similar to other stormwater programs across the country the District has developed a proposed Storm Water Incentive Program that provides customer incentives for reducing their effective impervious area through the use of constructed features or low impact development and the proposed program is within industry norms for such programs with respect to its major features." Your technical consultant testified that the incentive and credit program will provide some nominal benefit to property owners to provide BMPs without compromising the CIRP. Thus, the District's program is a reasonable approach to providing some benefit to BMPs while still maintaining the integrity of accomplishing the CIRP. As I stated at the beginning of my statement, the task at hand is for the Rate Commission to issue its Rate recommendation to the Board of Trustees that meets the five criteria outlined in the MSD Charter Section 7.270. Upon review of the complete record of these proceedings you will be able to determine that the District's proposal does just that. This concludes the District's official summary statement. A copy of our statement will be filed as Exhibit MSD 64. Thank You -5-