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Exhibit MSD 80D - Surrebuttal Testimony Marion Gee, MSDMSD Exhibit No. MSD80D 2019 Rate Change Proceeding MARION GEE Surrebuttal Testimony Metropolitan St. Louis Sewer District June 3, 2019 Table of Contents Page Infiltration and Inflow Allocations……………………………………………. .........................1 Extra Strength Surcharges……………………………………………........................................1 Rate Model Calculations…………………………………………… ..........................................3 Surrebuttal Testimony of Marion Gee, MSD June 3, 2019 2019 Rate Change Proceeding 1 MSD Exhibit No. MSD 80D Infiltration and Inflow Allocations 1 2 Q1. Has MSD changed the allocation of infiltration and inflow to customers and volume 3 that was used during the 2015 Rate Commission process? 4 5 A. No, MSD has not changed the allocation of infiltration and inflow to customers and 6 volume that was used during the 2015 Rate Commission process. The allocation of 40% to 7 customers and 60% to volume in the current rate model is the allocation that was previously used 8 during the 2015 Rate Commission process. 9 10 Q2. What would be the impact on the proposed rates if the infiltration and inflow 11 allocation to customer and volume was changed to 50%/50% as recommended by Mr. 12 Michael Gorman? 13 14 A. As depicted in the table below, the rate increase for a typical residential wastewater 15 customer in FY 2021 would be 6.7% instead of the current request of 1.9% and it would increase 16 to 8.7% in FY 2022 thru FY 2024 instead of the current request of 3.8% for these three fiscal 17 years. 18 19 20 Q3. What is the purpose of the Extra Strength Surcharge? 21 22 A. The wastewater discharged from businesses often contains solids and organic matter at 23 higher concentrations in comparison to concentrations found in residential wastewater. 24 Wastewater is considered to be "normal strength" if it meets the wastewater quality standards 25 FY 2021 FY 2022 FY 2023 FY 2024 Original % increase (1)1.90%3.80%3.80%3.80% Modified % increase (2)6.70%8.70%8.70%8.70% Original Monthly Rate (1)56.63$ 58.78$ 61.02$ 63.36$ Modified Monthly Rate (2)59.28$ 61.57$ 63.90$ 66.34$ (1) Original has I/I allocated 40% to Customer and 60% to Volume. (2) Modified has I/I allocated 50% to Customer and 50% to Volume. Surrebuttal Testimony of Marion Gee, MSD June 3, 2019 2019 Rate Change Proceeding 2 MSD Exhibit No. MSD 80D established for typical residential wastewater. Extra strength surcharges recover the additional 26 costs of treating high strength wastewater that base sewer charges don't cover. 27 28 Q4. How much revenue does MSD expect to receive from customers that pay the Extra 29 Strength Surcharge? 30 31 A. MSD expects to receive approximately $5.8 million and $5.9 million in extra strength 32 surcharge revenue in FY 2019 and FY 2020, respectively. 33 34 Q5. Are customers not subject to the Extra Strength Surcharge rates currently 35 subsidizing the amount paid by those customers that are? If so, how much is the subsidy? 36 37 A. Yes. During FY 2017 and FY 2018, customers not subject to extra strength surcharges 38 paid $346,000 to subsidize the amount paid by those that are. The projected subsidy for FY 39 2019 is $734,000 for a total subsidy of $1.1 million from FY 2017 thru FY 2019. 40 41 Q6. Is it fair and reasonable for customers not subject to the Extra Strength Surcharge 42 rates to continue to subsidize customers that are? 43 44 A. No, it is not fair and reasonable. A fundamental premise of utility rate design is that cost 45 should be recovered from the customer class that is generating it. 46 47 Q7. What would be the anticipated revenue during FY 2021 thru FY 2024 if the 48 proposed change to the Extra Strength Surcharge rates were approved? 49 50 A. Extra Strength Surcharge revenues would increase from a projected amount of $5.9 51 million in FY 2020 to $7.1 million in FY 2021 thereby eliminating the current subsidy paid by 52 customers not subject to this rate. The projected revenues are expected to increase by $100,000 53 in each of the remaining fiscal years in the rate cycle ( FY 2022 thru FY 2024) reaching the 54 maximum projected amount of $7.5 million in FY 2024. 55 56 Surrebuttal Testimony of Marion Gee, MSD June 3, 2019 2019 Rate Change Proceeding 3 MSD Exhibit No. MSD 80D Q8. Why should the District not increase rates in the proposed FY 2021 thru FY 2024 57 rate cycle to prevent a potential spike in rates in FY 2025? 58 59 A. The raw data used to calculate the projected rate increase in FY 2025 has not been 60 subjected to the same level of scrutiny and analysis that was conducted to calculate rates during 61 FY 2021 thru FY 2024. Also, given the District’s history of projected rate increases beyond 62 previously proposed four-year rate cycles being less than expected, it would be prudent to not 63 increase rates in the current four year cycle to mitigate a potential spike in rates in FY 2025. 64 65 Q9. On page 19 (beginning at line 4) of the rebuttal testimony of Michael P. Gorman 66 (Exhibit MIEC 73), Mr. Gorman states that MSD’s rate model includes an error because 67 the District’s proposed rates are different than the rates included in the revenue proof tab. 68 Is Mr. Gorman correct? 69 70 A. No, Mr. Gorman is not correct. The rates shown in the revenue proof tab were 71 preliminary rates for which a cost of service analysis had yet to be performed in the model. The 72 rate model contains the rates proposed by MSD in the tab labeled “COS Rate Summary” (see 73 Exhibit MSD 52). 74 75 Q10. Does this conclude your surrebuttal testimony? 76 A. Yes 77 78