HomeMy Public PortalAboutExhibit MSD 67A - MSD's Response to Second Discovery Request of Interveners MIECExhRoN MSO 67A
BEFORE THE RATE COMMISSION OF THE
MET OPOLITAN ST. LOUIS SEWE DIST I IGT
MSD'S RESPONSE TO THE SECOND DISCOVERY REQUEST
OF INTE VENERS MISSOU I', I IN PI.USTRIAL ENE I'. GY CONSUME
ISSUE:
WITNESS:
SPONSORING PA
DATE P
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EPARED:
Metropolitan St. Louis Sewer District Response
WASTEWATER RATE CHANGE PROCEEDING
THE MET
I''
OPOLITAN ST. LOUIS SEWER DIST
TY: RATE COMMISSION
ILasInly I„aier, P.C.
714 Locust Street
St. Louis, Missouri 63101
APRIL 22, 2019
1'
S
IGT
EFORE THE RATE COMMISSION
OIF THE METROPOLITAN ST. LOUIS SEWER DIST
For Consideration of a )
Wastewater Rate Change Proposal by )
The Rate Commission of The Metropolitan )
St. Louis Sewer District )
OF INTE
ICT
APRIL II, 2019 SECOND DISCOVERY REQUESTS
VENTER MISSOURI INDUSTRIAL ENERGY CONSUMERS
Metropolitan St. Louis Sewer District Response
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 Second
Discovery Request of Missouri Industrial Energy Consumers ("MIEC") for additional
information and answers regarding the Rate Change Notice dated March 4, 2019 (the "Rate
Change Notice").
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Exhibit MSD 67A
BEFORE THE RATE COMMISSION
OF THE METROPOLITAN ST. LOUIS SEWER DISTRICT
For Consideration of a Wastewater
Rate Change Proposal by the Rate Commission
of the Metropolitan St. Louis Sewer District
SECOND DISCOVERY REQUESTS OF INTERVENER
MISSOURI INDUSTRIAL ENERGY CONSUMERS
Pursuant to §§ 7.280 and 7.290 of the Charter Plan of the Metropolitan St. Louis Sewer
District (the "Charter Plan"), Operational Rule 3(5) and Procedural Schedule §§ 1, 17 and 18 of
the Rate Commission of the Metropolitan St. Louis Sewer District ("Rate Commission"),
Intervener Missouri Industrial Energy Consumers ("MIEC") requests additional information and
answers from the Metropolitan St. Louis Sewer District ("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.
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F xh 1M Msa 67A
SECON !D DISCOVERY REQUEST OF IVIIIEC
REQUEST NO. 8. Regarding the Direct Testimony of Bethany Pugh, please provide
the Moody's Water and Sewer Utilities 2019 Outlook Report referenced on page 7.
RESPONSE: Please see attached Exhibit MSD 67B.
REQUEST NO. 9. Bethany Pugh states on page 5 of her Direct Testimony that,
"Projected minimum coverage targets of 2.50X (senior lien bonds) and 1.80X (inclusive of
subordinate obligations) have been identified as the optimal coverage levels needed to maintain
AA level bond ratings, thereby ensuring cost effective market access for the District's large
capital program." Please explain why MSD only targeted a 1.8x Debt Coverage Ratio in
FY2024, as shown on Table ES-1 — Wastewater Financial Plan.
RESPONSE: Consistent with the testimony of Bethany Pugh, Tim Snoke also testified
(Exhibit MSD 3F, Q26) that, "revenue in the Rate Change Proposal has been set to achieve
minimum debt coverage ratios of 2.50x (senior bonds) and 1.80x (total bonds), a minimum Days
Cash on Hand target of 550 days, and a minimum Operating Reserve of 60 days. " Revenue is
set so that each of these financial targets is at or above the minimum target. Note that these are
all minimum targeted levels. In any given year, minimum revenue requirements can be driven by
the need to meet the senior bond service coverage target, or the total bond service coverage
target or days cash on hand targets or Operating Reserve fund requirements. The District
believes the proposed rates strike the best balance between affordability, smooth rate increases,
and achieving the desired financial targets necessary to maintain AA level bond ratings.
REQUEST NO. 10. Marion Gee states on page 4 of his Direct Testimony, "The Rate
Proposal attempts to balance the use of debt financing and current wastewater user charge
revenue to simultaneously fund a wastewater improvement and replacement program needed to
meet anticipated regulatory requirements and minimize the impact on customer monthly bills to
the extent possible." Is it MSD's position that this is accomplished by targeting a Debt Coverage
ratio of 1.8x? Please explain.
RESPONSE: As indicated in response 9 above, the District considers multiple financial
targets when developing its financial plans. Debt service coverage is one of those targets. The
District believes that a 1.8 debt service coverage ratio will help it to maintain its current bond
ratings. If its bond rating was lowered, the District would expect to pay additional debt service
cost thus increasing the rates needed to fund its operations.
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ExMbit MSD 67A
REQUEST NO. 11. Please explain the source of MSD's budgeted FY2019 operating
expenses. Operating expenses after FY2019 are calculated in the rate model primarily using
escalators from the Inputs tab. For example, in FY2020 Personal Services are escalated at 2.9%
over the FY2019 level. Operating expenses before FY2019 are reported as actuals.
Alternatively, please explain why the forecasted FY2019 budget is not calculated within the Rate
Model.
RESPONSE: The budgeted FY2019 operating expenses that appear in the Rate Model
(tab O&M Summary) agree with the General Fund Operating Expenses (see page 93 of Exhibit
MSD 7) listed in the District's FY2019 budget book. The total FY2019 General Fund Operating
Expense Budget equals $199, 397, 712 which ties to the O&M Summary tab in the rate model by
adding General Fund expenses (166, 758, 032) in cell v128 less the stormwater deductions that
appears in cells V72 ($-12,169, 693) and V98 ($-13, 565, 674) plus the Capital Outlay
($6, 904, 316) in cell V160. There is a small rounding difference of $3 when the aforementioned
calculation is done. The District uses Board approved numbers in the Rate Model which would
be numbers from its year-end audits or its most recent budget.
REQUEST NO. 12. Will the FY2020 Budget that is presented to the MSD Board for
approval in June 2019 match the FY2020 amounts in the Rate Model?
RESPONSE: No. The FY2020 Budget will not match the forecasted amounts for
FY2020 in the Rate Model. The forecast for the Rate Model was prepared prior to the
completion of the preliminary FY2020 budget. Adjustments to the FY2020 preliminary budget
were made as recently as the week of April 1st and the budget will not be considered by the MSD
Board of Trustees for approval until June 2019.
REQUEST NO. 13. Please explain the large increase in General Fund Operating
Expenses from FY2018 to FY2019. Referring to Line 17 of Table 4-6 - Historical and Projected
Operating Expenses in Exhibit MSD 1, MSD forecasts a cost increase of 12.4%, or $18.4
million. MSD is only forecasting a cost increase on that same line of 8.8% between FY2021 and
FY2024, or $15.2 million.
RESPONSE: The FY2018 numbers in Line 17 of Table 4-6 are actual numbers whereas
the FY2019 numbers are budgeted numbers. The major variances are identified in Exhibit
MSD 67C.
REQUEST NO. 14. Referring to the same Table and Line as above, please explain the
decrease in General Fund Operating Expenses between FY2017 and FY2018.
RESPONSE: See Exhibit MSD 67D for an explanation of the significant changes.
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o o� MID 67A
REQUEST NO. 15. Does the Rate Commission have the authority in this case to
recommend changes to the FY2019 budget?
RESPONSE: The scope of the Rate Commission's duties are outlined in MSD's
Charter. The Rate Commission is to review Proposed Rate Changes and make recommendations
to the Board of Trustees regarding any changes in rates or changes in the structure of those
rates (Section 7.040 and 7.280). Any change in rate recommended by the Rate Commission shall
meet 5 factors listed in the Charter (Section 7.270). The scope of the Rate Commission does not
include the District's budgeting process. The budgeting process is the responsibility of the Board
of Trustees, the Executive Director, and MSD staff as described elsewhere in the Charter.
REQUEST NO. 16. Please describe the $3.5 million of one-time office system services
expenses in FY2021 (Line 2535 of the O&M Summary Tab of the Rate Model). Please describe
how MSD proposes to pay for this and other one-time expenses.
RESPONSE: The $3.5 million of one-time office system services expenses in FY2021
are to move Oracle E-Business Suite and Analytics from on -site to the cloud This and other
one-time expenses are accounted for in the rate model as revenue requirements. As such, these
expenses are recouped by the rates which were designed to recover the District's costs in a fair
and equitable manner from its customers.
REQUEST NO. 17. MSD proposes to escalate Personal Services at 3.3% after FY2021.
Please answer the following:
a. Does this escalator take into account a changing employee mix at MSD? For
example, older employees retiring and being replaced by younger, lower salaried, employees.
b. Does MSD believe escalating Personal Service costs at the rate of inflation, as
MSD did for most other escalators, is reasonable?
c. Please provide the `Employment Cost Index FY21-FY24.xlsx' file referenced in
the Rate Model.
RESPONSE:
a The salaries of vacant positions are projected at less than the mid point of the
respective salary range which would account for new employees that are hired at salaries below
those employees that typically retire at salaries above mid point of the pay grade range.
b. MSD did not escalate personal service cost at the rate of inflation. Please see
page 4-12 and 7-2 thru 7-5 of the Rate Change Proposal (Exhibit MSD 1) for a description of
how personal service cost were escalated
c. Please see Exhibit MSD 67E.
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Respectfully submitted,
Susan M. Myers, General oun el
,/-
THE METROPOLITAN ST. L UIS SEWER DISTRICT
2350 Market Street
St. Louis, Missouri 63103
smyers@stlmsd.com
Tel: (314) 768-6366
Fax: (314) 768-6279
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Exhibit MSD 67A
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@bc1plaw.com
Kamilah Jones
211 N. Broadway, Suite 3600
St. Louis, Missouri 63102
kami.jones@bc1plaw.com
/
san M. Myers, General Counsel
THE METROPOLITAN ST. LOUIS SEWER DISTRICT
2350 Market Street
St. Louis, Missouri 63103
smvers@stlmsd.com
Tel: (314) 768-6366
Fax: (314) 768-6279
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