HomeMy Public PortalAboutExhibit MSD 89A - MSD's Response to the Rate Commission's Sixth Discovery RequestExhibit MSD 89A
BEFORE THE RATE COMMISSION OF THE
METROPOLITAN ST. LOUIS SEWER DISTRICT
MSD'S RESPONSE TO SIXTH DISCOVERY REQUEST
OF THE RATE COMMISSION
The Metropolitan St. Louis Sewer District Response
ISSUE: WASTEWATER RATE CHANGE PROCEEDING
WITNESS: METROPOLITAN ST. LOUIS SEWER DISTRICT
SPONSORING PARTY: RATE COMMISSION
DATE PREPARED: JULY 3, 2019
Lashly & Baer, P.C.
714 Locust Street
St. Louis, Missouri 63101
Exhibit MSD 89A
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 )
JUNE 25, 2019 SIXTH DISCOVERY REQUEST
OF THE RATE COMMISSION
The Metropolitan St. Louis Sewer District
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 June 25, 2019 Sixth
Discovery Request of The Rate Commission for additional information and answers regarding
the Rate Change Notice dated March 4, 2019 (the "Rate Change Notice").
Exhibit MSD 89A
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
SIXTH DISCOVERY REQUEST
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.
Exhibit MSD 89A
SIXTH DISCOVERY REQUEST
1. Please state the District's proposed capital spending on the Bissell Fluidized Bed
Incinerator Project for Fiscal Year 2025 until completion of the project. For each fiscal year,
please indicate whether the dollar amount indicated is based on 2019 dollars or is adjusted for
inflation.
RESPONSE:
FY25 Budgeting for Fluidized Bed Incinerator Project:
$121, 000, 000 - Construction (supplemental funding)
$12, 000, 000 - Engineering During Construction Services (construction management)
FY26 and future - no further funding budgeted
FY25 budget amounts are 2019 dollars. See Appendix 7.1.2 for overall CIRP
Appropriation Adjustments (which includes inflation as shown in the model, see Exhibit
MSD 52).
2. Please provide a copy of the air permit referenced in Richard L. Unverferth's
testimony at the June 20 technical conference.
RESPONSE: Please see Exhibit MSD 89B - Bissell Air Permit, and Exhibit MSD 89C - Lemay
Air Permit.
The regulatory driver for performing this work is found in EPA regulations. The rule, 40
CFR Part 62 — Federal Plan Requirements for Sewage Sludge Incineration Units Constructed on
or Before October 14, 2010 (the SSI Rule), was finalized in June 2016. The finalization of the
2016 SSI Rule included a provision that requires a permittee to replace their incinerators going
forward if the cumulative cost of improvements and repairs reaches 50% of the original
installation costs. Because the District's incinerators were built around 1970 and have
undergone significant improvements over the years, they are all at or above the 50% threshold
If we continue to operate the incinerators, we could not perform any significant repairs without
violating the new SSI Rule and would be required to replace them. In February of 2017, we
identified some new needed repairs on the incinerators that if performed would trigger a
violation of the law under the SSI Rule. Looking forward, we knew we would have to start
planning the replacement of the incinerators because we could not defer any improvements much
longer. We reported our situation to the EPA.
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Exhibit MSD 89A
Because of the significant costs of replacing the incinerators, and the affordability issues
to our rate payers, we used a provision in our Consent Decree that allows for modifications "[i]f
MSD experiences significant adverse changes to its financial circumstances or other financial or
budgetary issues.... " See Exhibit MSD 37A - Second Material Amendment to Consent Decree.
As such, our compliance situation was documented with the U.S. District Court through a
Declaration of Jodi M. Bruno, Technical Program Manager with EPA Region 7, wherein she
stated, among other things, that "EPA's 2016 SSI Rule included new MACT standards that are
currently being incorporated into the Bissell and Lemay WWTP operating permits. The changes
in the 2016 SSI rule are driving the need for MSD to expedite its solids handling alternative from
2026 to 2021 .... [EPA 's financial analyst] reviewed the economic and financial data provided by
MSD, participated in conference calls between the parties to discuss the financial issues
surrounding the amendment, and met with MSD personnel to better understand MSD's financial
capability. Based on the information provided by MSD and current census data, [EPA's
financial analyst's] analysis indicated the impact on residential sewer rates would be High,
above 2% of the Median Household Income, for the remainder of MSD's Consent Decree work
plus the sludge handling upgrades. With the proposed extension the impact on residential sewer
rates would be 1.8% of the Median Household Income. " See Exhibit MSD 89D — Declaration of
Jodi M. Bruno, EPA.
In its Unopposed Motion to Enter Proposed Second Material Amendment to Consent
Decree, the EPA stated, in part, that "[t]his proposed Amendment is necessary because MSD
currently incinerates 68,000 tons of sewage sludge annually, utilizing multiple hearth
incinerators ... [that the SSI Rule], issued by EPA in 2016 (after the Consent Decree was entered
in 2012), require MSD to expedite replacement of its multiple hearth incinerators from 2026 to
2021...MSD must accelerate the design and construction of these sewage sludge incinerator
improvements by five years at an estimated cost of approximately $360 million in 2017
dollars... [and] [t]hus, these incinerator improvements have placed an additional financial
burden on MSD ratepayers." See Exhibit MSD 89E — Unopposed Motion to Enter Proposed
Second Material Amendment to Consent Decree. Part of this agreement was the delay of
approximately $2 billion in CSO work that EPA agreed to re prioritize and an adjustment of the
enforcement schedule. The replacement of these incinerators will occur in the fiscal years 2021-
2026 timeframe and is estimated to cost approximately $360 million in 2017 dollars. Failure to
comply with the amended Consent Decree schedule related to the incinerators could have
serious consequences.
With regard to the future viability of incineration as a responsible form of managing
sewage sludge, the recent Channel 5 News Report on the impact of incinerators did not present a
complete and accurate assessment. Refer to the entire interview on MSD's web site at
https://vimeo.com/336619879. The fact that EPA just recently approved our Consent Decree
modification and finalized their new SSI Rule in 2016, with much lower emissions limits, means
that incineration will be a viable method of sludge disposal nationwide for the foreseeable
future.
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Exhibit MSD 89A
3. Please provide the solids handling study, including any updates, referenced in
Richard L. Unverferth's testimony at the June 20 technical conference.
RESPONSE: Please see the following MSD Exhibits: Exhibit MSD 89F - Solids Handling
Master Plan Executive Summary, Exhibit MSD 89G - Solids Handling Master Plan Phase 1
Technical Memorandum, Exhibit MSD 89H - Solids Handling Master Plan Phase 2 Technical
Memorandum, and Exhibit MSD 891 - Solids Handling Master Plan Technical Memorandum
Update.
4. Please provide, in Microsoft Excel format (values sufficient), a comparison of
ratepayer bills illustrating different rates charged under the District's Rate Change Proposal (See
Exhibit MSD 1, Table 5-1), and the proposal as modified by MIEC.
RESPONSE: The District sent an e-mail to the Rate Commission's Legal Counsel to obtain
clarification regarding this request and was informed that the Commission wants an analysis of
the rates set forth in Table 5-1 of Exhibit MSD 1 based on a change in the allocation of
infiltration and inflow (I&I) from 60% volume / 40% customer to 50%/50%. The District is
providing data from its model with the only change being the revised allocation percentage of
50%/50%. Please see Exhibit MSD 89J for this information. The District reviewed MIEC's
response to this question (see response to question 2 of Exhibit MIEC 90A and Exhibit MIEC
90C) and noted errors in the information that was provided For example, MIEC 's calculation
of the difference between the District's and its proposed rates at 5 ccfs in FY 2021 is incorrect
(see cell MIO in the tab titled Derence in Exhibit MIEC 90C). The rate proposed by the
District at 5ccfs in FY 2021 is $51.61 and MIEC's proposed rate is $50.21, a dijference of
$1.40; however, MIEC 's calculation of the difference reflects that its rate is less than the
District's by $5.60. There are numerous errors in the remainder of this tab of the spreadsheet as
well.
Also, MIEC's response to question 4 of Exhibit MIEC 90A references information from a
model that Mr. Gorman previously admitted was flawed (see Exhibit MSD 79 — Transcript of
Technical Conference for Rebuttal Testimony — May 9, 2019; starting with line 22 on page 15).
As reflected in Exhibit MSD 89J, the rate increase for a typical residential wastewater
customer in FY2021 would be 6.7% instead of the current request of 1.9% and it would increase
to 8.7% in FY 2022 thru FY 2024 instead of the current request of 3.8% for these three fiscal
years. A typical residential wastewater customer would pay an additional $135.60 over the four-
year rate cycle if the I&I allocation was modified from the existing 60% volume / 40% customer.
The I&I allocation has been 60% volume / 40% customer since 2007. As has been
previously stated, the District believes that these are appropriate allocation percentages until
such time that another MI study can be completed The District's Rate Consultant has also
stated they believe the analysis is still reasonable though the District may consider an updated
I&I study in the future. The records of the proceedings show that the arbitrary change to
50%150% as proposed by MIEC is not fair and reasonable and would be a violation of Factor 5,
as defined in Section 7.270 of the District's Charter
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Exhibit MSD 89A
The table below contains the percent of eels billed on a monthly basis at various levels
for residential and commercial customers in fiscal year 2018.
Monthly Vol.
(ccfs)
Customers
Billed
Avg. Monthly
ccfs billed
Percent of
ccfs billed
0 to 4
146,524
396,654
9.3%
5t010
156,215
1,051,976
24.6%
11 to 50
39,092
727,153
17.0%
51 to 100
4,370
306,774
7.2%
101 to 500
3,390
671,022
15.7%
501 to 1000
391
274,709
6.4%
1001 to 5000
244
446,910
10.5%
5001 to 10000
28
183,162
4.3%
>10,000
11
218,282
5.1%
Total
350,265
4,276,642
100%
5. Please provide a summary of ratings from Standard and Poor's, Moody's, and
Fitch for the District from 2004 to the present. Please provide a copy of each agency's reports for
any instance in which the District's rating was increased or decreased.
RESPONSE: See Exhibit MSD 89Kfor table of changes and copies of related reports. Below is
a summary of findings:
November 2011, S&P Upgrade from AA+ to AAA, "reflecting the system's maintenance
of a strong financial position with timely rate increases while continuing to successfully manage
capital needs in anticipation of a consent decree that was approved in 2011. "
November 2011, Fitch Downgrade from AAA to AA+, "reflects reduced debt service
coverage and the likelihood that margins will remain at these lower levels going forward as a
result of accelerated capital spending and related debt associated with the capital improvement
and replacement program (CIRP) and recent consent decree. "
March 2010, Moody's Recalibration, rating change from Aa2 to Aa1 is not an upgrade
but a recalibration of U.S. Municipal Ratings to Moody's Global Rating Scale. This was not a
review of MSD's individual credit rating but a change to the sector.
March 2010, Fitch Recalibration, rating change from AA+ to AAA is not an upgrade but
a recalibration of ratings. Water/sewer revenue bonds rated A+ or higher were adjusted upward
by one notch. This was not a review of MSD's individual credit rating but a change to the sector.
October 2008, S&P Upgrade from AA to AA+, "reflecting a greatly improved liquidity
position."
October 2008, Fitch Upgrade from AA to AA+, "reflects the substantial improvement in
the district's liquidity position as a result of a planned reclassification of certain cash and
investments which previously had been excluded from liquidity calculations because the assets
were considered restricted and unavailable for operations. "
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Exhibit MSD 89A
6. Please provide calculations demonstrating the impact on rates/surcharges of
increasing the amount of anticipated borrowings by $100 million dollars (assuming an extra $25
million would be borrowed for each fiscal year in this rate cycle beyond the amount presently
proposed). Please also indicate which additional projects could be completed in each fiscal year
with an additional $25 million in debt financing, in addition to the current amount proposed in
the Rate Change Proposal.
RESPONSE: See Exhibit MSD 89L for a model modified to assume an extra $25 million of debt
funding in each fiscal year.
Please note that although the model has been modified as requested, the specific
expenditures for the planning, design, and construction cannot be practically delivered in this
manner. Expenditures would ramp up through the rate cycle with planning and design
expenditure early in the cycle and construction costs later in the cycle.
Also, Consent Decree related projects are sequenced to meet speck Consent Decree
schedule requirements and may not lend themselves to be expedited, especially as the scopes of
some projects are still conceptual in nature. As well, the easement acquisition process for
collection system projects can be lengthy and impacts the ability to expedite that type of project,
especially as FY21 begins less than a year from now. Earlier in the Consent Decree CIRP
program the schedule allowed for expedited work but due to project phasing and construction
sequencing this type of schedule movement is limited. In addition, previous Rate Commission's
preference was to not expedite additional work to keep rate increases lower and avoid spikes in
rates.
With very limited flexibility on Consent Decree projects, this leaves us with work at
facilities to be the likely projects that could be expedited. This asset management renewal work
at pump stations, treatment plants, and the Mississippi River floodwall protection system could
potentially be expedited and completed in addition to the current projects scheduled Again as
stated earlier, planning and design expenditures would most likely occur early in the rate cycle
(FY21 and FY22) with larger construction expenditures in the final two years of the cycle (FY23
and FY24).
7. Please provide the percentage premium of Par that should be used in the District's
Rate Model, each year, for calculating deposit to construction fund in future years for alternative
scenario analysis.
RESPONSE: To assume reasonably similar interest rates as those provided by PFMfor MSD's
model, please use the following as percentage premium of Par (calculated from Par and
Premium amounts provided MSD Coupons and Yields' section of Exhibit MSD78G:
FY20--6.41%
FY21 — 4.43%
FY22 — 3.64%
FY23 — 2.63%
FY24-2.63%
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Exhibit MSD 89A
PFM was not asked to provide rates beyond FY24 for MSD's model since future dates
are outside the proposal period but to answer this request PFM has provided a percentage
premium of Par of 1.98% to use in FY25 and FY26, if necessary.
8. Please provide in Microsoft Excel format (values sufficient) a summary of the
fixed assets used in the District's 2015 Rate Change Proposal and a comparison of same with the
fixed assets in the current proposal (See Exhibit MSD 66C, tab "Plant" columns I through L,
lines 1-147), illustrating any depreciation in such assets.
RESPONSE: Please see Exhibit MSD 89M
9. Please provide an analysis of the impact on volume users if Infiltration/Inflow
("I/I") was adjusted from 60% to volume and 40% to customers to 50%/50%.
RESPONSE: Please see the response to Question 4.
10. Please identify the District's annual discretionary expenditures, and their
components, for the past three fiscal years, and state the amounts budgeted for discretionary
expenditures for the current fiscal year.
RESPONSE: The District has provided the discretionary (non -Consent Decree and Non -
Regulatory) CIRP funding and expenditures for FY16-FY19. Please see Exhibit MSD 89N -
CIRP Discretionary Spending FY16 FY19. There were no discretionary expenditures in FY16.
Discretionary expenditures, although not required by the Consent Decree or as a regulatory
requirement are still necessary to provide appropriate management of District assets and to
maintain District services.
Respectfully submitted,
Susan M. Myers, General Counsel
THE METROPOLITAN ST. LOUIS 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 89A
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 3rd day of July, 2019.
Lisa O. Stump, Esq.
Lashly & Baer, P.C.
714 Locust Street
St. Louis, MO 63101
lostump@lashlvbaer.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@bclplaw.com
Kamilah Jones
211 N. Broadway, Suite 3600
St. Louis, Missouri 63102
kami.jones@bc1plaw.com
Susan M. Myers, General Counsel
THE METROPOLITAN ST. LOUIS SEWER DISTRICT
2350 Market Street
St. Louis, Missouri 63103
smyers@stlmsd.com
Tel: (314) 768-6366
Fax: (314) 768-6279
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