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Exhibit MSD 66A - MSD's Response to Fourth Discovery Request of the Rate CommissionI, Exhibit MSD 66A EFORE THE PATE COMMISSION OF THE MET I" OPOLITAN ST. LOUIS SEWER DISTRICT MSD'S RESPONSE TO FOURTH DISCOVERY REQUEST OF T H E RATE C M M ➢S S I OIL' The Metropolitan St. Louis Sewer District I" espouse ISSUE: WASTEWATER RATE CHANGE PROCEEDING WITNESS: SEONSO I!; ING PA DATE IP I,, EPAED: ILaslnly & i::aer, P.C. 714 Locust Street St. Louis, Missouri 63101 MET(! OIPOLITAN ST. LOUIS SEWE TY: RATE COMMISSION APRIL 22, 2019 DISTRICT xnobn 6 A BEFORE THE RATE COMMISSION OF THE METROPOLITAN ST. LOUIIS SEWER DUST For Consideration of a ) Wastewater Rate Change Proposal by ) The Rate Commission of The Metropolitan ) St. Louis Sewer District ) APR➢L U, 2019 FOURTH IID➢SCOVEi''V EQUEST OF THE j''ATE COMMISSION The Metropolitan St. Louis Sewer District JCT Pursuant to § 7.280 and § 7.290 of the Charter Plan of The Metropolitan St. Louis Sewer District (the "Charter Plan"), Restated Operational Rule 3(7) and Procedural Schedule § 16 and § 17 of the Rate Commission of The Metropolitan St. Louis Sewer District ("Rate Commission"), The Metropolitan St. Louis Sewer District ("District") hereby responds to the April 11, 2019 Fourth Discovery Request of The Rate Commission for additional information and answers regarding the Rate Change Notice dated March 4, 2019 (the "Rate Change Notice"). 1 hxhHoR MOO c 6A EFORE THE RATE COMMISSION OF THE METROPOLITAN ST. LOUIS SEWEI DISTRICT For Consideration of a Wastewater Rate Change Proposal by the Rate Commission of the Metropolitan St. Louis Sewer District FOURTH DISCOVERY EQUEST OF THE RATE COMMISSION Pursuant to §§ 7.280 and 7.290 of the Charter Plan of the Metropolitan St. Louis Sewer District (the "Charter Plan"), Restated Operational Rule § 3(7) and Procedural Schedule §§ 16 and 17 of the Rate Commission of the Metropolitan St. Louis Sewer District (the "Rate Commission"), the Rate Commission requests additional information and answers from the Metropolitan St. Louis Sewer District (the "District") regarding the Rate Change Proposal dated March 4, 2019 (the "Rate Change Proposal"). The District is requested to amend or supplement the responses to this Discovery Request, if the District obtains information upon the basis of which (a) the District knows that a response was incorrect when made, or (b) the District knows that the response, though correct when made, is no longer correct. The following Discovery Requests are deemed continuing so as to require the District to serve timely supplemental answers if the District obtains further information pertinent thereto between the time the answers are served and the time of the Prehearing Conference. 2 Exhibit MSD 66A FOURTH DISCOVERY REQUEST 1. Please provide a copy of the most recent official statement regarding the District's Wastewater System Improvement and Refunding Revenue Bonds. RESPONSE: See attached MSD Exhibit 66B. 2. Please provide a summary of all pending litigation against the District, including estimated exposure risk to the District for each case. Please identify any lawsuit in which an adverse ruling would impact the Rate Change Proposal. RESPONSE: The District currently has no pending litigation in which an adverse ruling would impact the Rate Change Proposal. The following is a summary of all pending litigation against the District and the highest estimated exposure risk for a single case. # of Cases Type of Matter Estimated Exposure Risk 2 Breach of Contract/Mechanic's Lien <$25,000 11 Labor & Employment <$50,000 8 Eminent Domain 0 13 Inverse Condemnation <$250,000 6 Personal Injury <$50,000 3 Boring Claim <$25,000 45 Quiet Title 0 1 Small Claims <$5,000 3. Please provide a copy of the Rate Model, Exhibit MSD 52, with all tabs unlocked. Note: The version previously provided by the District in response to the Rate Commission's Discovery Request had some tabs hidden and unavailable for review and/or edits to inputs, such as the "Rate Summary" tab, which is referenced on the Sanitary Dashboard where projected revenue increases are indicated (lines 55 and 56). RESPONSE: See Exhibit MSD 66C. 4. On page 4-14 of the Rate Change Proposal, Exhibit MSD 1, Table 4-6 shows a roughly $15.7 million increase in General Fund Operating Expenses from FY 2018 to FY 2019. Please identify all factors accounting for this increase. RESPONSE: See Exhibit MSD 67C in MIEC 's Second Discovery Request response. 3 Exhibit MSD 66A 5. Please state whether the District anticipates increased delinquencies if voters reject additional bond authorizations and higher rate increases are implemented as a result. Please provide an analysis of the potential increase in delinquencies if voters do not approve the additional bond authorizations proposed in the Rate Change Proposal and describe how such increases were accounted for in the development of the alternative rates that will be presented to voters for the "No Bond Authorization" option. RESPONSE: The District does not model delinquencies. However, assuming that the same percent of user charge revenue would become bad debt (i.e., the same bills that would be bad debt under the proposed scenario with bonds would be bad debt under the "No Bond Authorization" scenario), bad debt expenses are estimated to increase by approximately $2.8 million over the period of FY 22 to FY 24 (proposed rates in FY 21 are the same in both scenarios, so there would be no change in FY 21). For purposes of the rate proposal it was assumed that all the District's expenses would remain the same in the "No Bond Authorization" scenario, including total amount of bad debt expense. 6. Please provide the number of basement backups reported to the District for each year from FY 2009 — FY 2018. RESPONSE: Fiscal Year Number 2009 4803 2010 971 2011 1647 2012 529 2013 774 2014 294 2015 946* 2016 2174* 2017 1428* 2018 221 * Increased number of basement backups due to record flooding events for the Meramec River and associated rainfall. 7. Please provide the number of dry weather overflows of which the District is aware for each year from FY 2009 — FY 2018. 4 Exhibit MSD 66A RESPONSE: Fiscal Year Number 2009 299 2010 199 2011 191 2012 132 2013 122 2014 112 2015 167* 2016 162* 2017 171 * 2018 127 * Increased number of dry weather overflows due to record flooding events for the Meramec River and associated rainfall. 8. Please state whether the failure of Proposition S (2019) will result in additional anticipated costs being shifted from stormwater to wastewater. If the answer is "Yes", please identify the amounts anticipated to be shifted, and state how such funds will be spent. RESPONSE: Overhead and capitalized labor that would have been charged to the stormwater CIRP will now be charged to other CIRP projects which are primarily wastewater projects. These costs ranged from $1.3 million in FY 2020 to $5.9 million in FY 2024. 9. Please identify all tunnel projects planned as part of the Consent Decree. For each project, please state the project's name, start date, completion date, length and diameter of tunnel, approximate location, and its estimated cost. If a map of such projects is available, please provide a copy. RESPONSE: See attached document provided as Exhibit MSD 66D - MSD Tunnel Projects. 10. Please provide a chart/model from PFM illustrating the historical and current interest rate differentials between AAA, AA, A, etc. RESPONSE: Please see attached Exhibit MSD 66E for a graph that show the 25-year history of the AAA, AA, A, and BAA Municipal Market Data (MMD) scales. The MMD scales, reflecting different credit rating categories, are the municipal bond industry benchmarks. 5 Exhibit MSD 66A 11. Please explain the anticipated impact on borrowing costs if the District's bond rating is upgraded or downgraded. RESPONSE: While PFM cannot predict how the market will react with a change to the District's ratings, we expect there would be no material impact to borrowing costs with an upgrade. The District currently has the highest rating from S&P and is only one notch removed from the highest rating from Moody's and Fitch. In response to question 10 above, we have shown the industry benchmark 20 year spot rate over the last 25 years. During this time the average difference between a AA -rated and A -rated bond has been 30 basis points (0.30%). If we added 30 basis points to the true interest cost of the District's $200 million new money issuance in 2017, this would equate to an additional present value cost of $5,160,000. Furthermore, in times of market stress and volatility, lower rated issues have the potential to realize greater credit spreads and issuers could struggle to gain market access, as certain credits experienced during the last financial crisis. 12. Please explain how the District establishes insurance requirements for projects. Please provide examples of insurance requirements for CIRP projects of varying sizes. RESPONSE: See attached document provided as Exhibit MSD 66F - MSD Summary Insurance 2017. Insurance requirements are established by MSD's Risk Management Group, with input from the General Counsel 's Office and Engineering Department, working with advice from outside resources: insurance broker and legal representatives. Insurance limits are based on an evaluation done of industry standards, sovereign immunity limits and specific project needs. 13. In the FY 2021 - FY 2024 CIRP, $38.6 million is identified as green infrastructure or raingardens. Will the District get credit towards the $100 million in Bissell and $20 million in Lemay Consent Decree requirements for these projects? RESPONSE: Yes. These projects include: • CSO VOLUME REDUCTION GREEN INFRASTRUCTURE - $20 Million • CSO VOLUME REDUCTION GREEN INFRASTRUCTURE - RIVER DES PERES - $4 Million • MALINE CREEK CSO BP 051 & 052 LOCAL STORAGE FACILITY (RAIN GARDEN) - $200,000 • HARLEM CITYSHED MITIGATION BASINS (ASHLAND AND ESSEX) - $14.4 Million Please note that project 13231, Harlem Cityshed Mitigation Basins (Ashland and Essex), is a Cityshed project that includes green infrastructure. Approximately $900,000 of the project will be counted towards the green infrastructure obligation, and the balance, $13.5 Million, will be counted towards the Cityshed obligation of $230 Million under the Consent Decree. 6 Exhibit MSD 66A 14. Please provide a copy of Table 7.8 on page 7-118 of the Rate Change Proposal, Exhibit MSD 1, for wastewater only. RESPONSE: See Exhibit MSD 66G. 15. Please state the total number of projects the District is required to complete for the Consent Decree. ESPONSE: Generally, the projects in Exhibit 56B minus those projects identified in Exhibit 56C and 56D reflect the amount of work required by the Consent Decree in the FY21 to FY24 period. There are a total of 278 CD projects during the FY21-24 period. The Consent Decree is performance based, and is therefore guided by but not restricted to the specific projects identified in the SSO Master Plan or the CSO Long Term Control Plan. 16. Please explain the impact an unanticipated revenue shortfall, due to decreasing billable units or some other factor(s), would have on the Rate Change Proposal. RESPONSE: As has been done in the past, MSD's management would evaluate cuts in discretionary expenditures that might be necessary to offset the decrease in anticipated revenue. If these cuts were not sufficient to offset the revenue shortfall and the shortfall would have an impact on MSD's ability to fund its capital program and comply with other regulatory requirements, staff would consider another Rate Commission proceeding to adjust rates as necessary to make up for the shortfall. Respectfully submitted, san M. Myers, General Co . el THE METROPOLITAN ST. OUIS SEWER DISTRICT 2350 Market Street St. Louis, Missouri 63103 smyers@stlmsd.com Tel: (314) 768-6366 Fax: (314) 768-6279 7 Exhibit MSD 66A CERTIFICATE OF SERVICE The undersigned certifies that a copy of the foregoing was sent by electronic transmission to Lisa O. Stump and Brian J. Malone, Lashly & Baer, P.C., Brandon W. Neuschafer and Kamilah Jones, Bryan Cave Leighton Paisner on this 22nd day of April 2019. Lisa O. Stump, Esq. Lashly & Baer, P.C. 714 Locust Street St. Louis, MO 63101 lostump@lashlybaer.com Brian J. Malone, Esq. Lashly & Baer, P.C. 714 Locust Street St. Louis, MO 63101 bmalone@lashlybaer.com Brandon W. Neuschafer 211 N. Broadway, Suite 3600 St. Louis, Missouri 63102 bwneuschafer(i bclplaw.corn Kamilah Jones 211 N. Broadway, Suite 3600 St. Louis, Missouri 63102 kami.jones cr,bclplaw.com usan M. Myers, General Ccylinsel THE METROPOLITAN ST. LOUIS SEWER DISTRICT 2350 Market Street St. Louis, Missouri 63103 smyers@stlmsd.com Tel: (314) 768-6366 Fax: (314) 768-6279 8