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Exhibit RC 71 - Rebuttal Testimony, Prabha KumarLashly & Baer, P.C. 714 Locust Street St. Louis, Missouri 63101 Exhibit No: Issue: Wastewater Rate Change Proceeding Witness: Prabha N. Kumar Type of Exhibit: Rebuttal Testimony Sponsoring Party: Rate Commission Date Testimony Prepared: April 23, 2019 1 1 Q1. Please state your names and business addresses. 2 A. My name is Ms. Prabha Kumar. I am employed by the firm of Black & Veatch Management 3 Consulting LLC (Black & Veatch). My business address is 489 Fifth Avenue, 24th Floor, 4 New York, New York, 10017. 5 Q2. By whom are you employed and in what capacity. 6 A. I am a Director with Black & Veatch Management Consulting, LLC. 7 Q3. Please describe the firm of Black & Veatch Management Consulting, LLC. 8 A. Black & Veatch Management Consulting, LLC is a wholly-owned subsidiary of Black & 9 Veatch Holding Company and brings together over 250 professionals, including 10 experienced industry executives, senior analysts, and technology experts from across the 1 1 electric, water, oil, natural gas and technology industries. In the water sector, Black & 12 Veatch delivers a variety of services for municipalities, special districts and companies 13 involved in the supply, treatment and distribution of drinking water, as well as the 14 collection, treatment, and disposal of wastewater and management of stormwater. More 15 specifically, Black & Veatch assists utilities with utility financial planning, cost of service 16 rate studies, bond feasibility studies, affordability analyses, systems valuation, utility 17 business efficiency and transformation services, operations technology planning and 18 integration services, and customer engagement and advanced metering/billing solutions 19 implementation, and expert testimony during rate proceedings, litigation support, and 20 regulatory review. 21 Q4. Please summarize your educational background and professional experience. 22 A. I graduated from the University of California, Riverside with a Master of Business 23 Administration. I have been with Black & Veatch since 1999 and have served in increasing 2 1 levels of responsibility from staff consultant, project manager, principal consultant and 2 currently director. I currently lead the stormwater utility consulting and practice within the 3 Management Consulting Division. 4 I specialize in directing and managing water and wastewater financial planning and cost of 5 service rate studies, stormwater utility development and implementation services, 6 including the development and implementation of stormwater credits and appeals 7 programs, and stormwater user fee billing mechanisms. I have provided water, wastewater 8 and stormwater utility consulting services to various municipal clients including, to name 9 a few, the Philadelphia Water Department, Pennsylvania; Citizens Energy Group, 10 Indianapolis; City of Newark, New Jersey; DC Water, Washington D.C.; Harford County, 1 1 Maryland; City of Havre de Grace, Maryland; Pittsburgh Water and Sewer Authority, 12 Pennsylvania; City of Wilmington, Delaware; City of Newark, Delaware; City of 13 Springfield, Ohio; City of Olathe, KS; and Unified Government of Wyandotte County, 14 Kansas. I have also served as an expert witness in wastewater rate cases and in litigation 15 matters for multiple municipal utilities. In addition, I am also involved in directing business 16 operations efficiency and implementation services, billing systems evaluation, mediation 17 and litigation support, and benchmarking studies. 18 I am currently a member of the American Water Works Association (AWWA), the Water 19 Environment Federation (WEF), and an active member within the Strategic Practices 20 Management Committee of AWWA. I am also a member of the Stormwater Committee 21 and the Legal Affairs Committee of the National Association of Clean Water Agencies 22 (NACWA). I served as a lead author for the Stormwater Feasibility Study chapter in the 23 User Fee Funded Stormwater Manual, published in 2011 by WEF, and also the lead author 3 1 for the chapter on Wet Weather Financing and Cost Recovery in the Wastewater Financing 2 and Charges, Manual of Practice 27 (WEF MoP 27), 2nd edition, published by WEF in 3 2018. I have also presented in multiple webinars and conferences sponsored by 4 organizations such as the AWWA, WEF, AMWA, and Storm Solutions. 5 Q5. Have you previously testified before the Rate Commission of the St. Louis 6 Metropolitan Sewer District? 7 A. No, I have not. 8 Q6. Please describe your role in this proceeding? 9 A. The scope of our services in this proceeding includes the review of the St. Louis 10 Metropolitan St. Louis Sewer District's (the "District") 2019 Rate Proposal (Rate 1 1 Proposal); to assist the Rate Commission to gain a better understanding of the Rate 12 Proposal; to provide insights to the Rate Commission on industry accepted cost of service 13 and rate setting financial best practices and methodologies, and trends related to wastewater 14 utility ratemaking; to assist the Rate Commission's legal counsel in the examination of 15 witnesses; and to prepare testimony and exhibits setting forth our findings and 16 recommendations. 17 The scope of our services is limited to relying on the record in this proceeding, statements, 18 data, information and reports provided by the District and intervenors and their respective 19 consultants and advisors as well as data and information available in the public domain. 20 My role is to provide national and industry-wide perspectives to the Rate Commission. In 21 this role, I coordinate with Ms. Lemoine and other team members to discuss all aspects of 22 the District's Rate Proposal and provide information to the Rate Commission to assist in 23 their review of the District's Proposal. 4 Q7. Please summarize the issues you will discuss in your testimony. 2 A. The following is a summary of the issues I will discuss in this testimony. 3 1. The Infiltration and Inflow ("I&I") allocation factors of 40% to the customer 4 component and 60% to the volume components of cost-causative parameters appears 5 to allocate a higher proportion of the I&I cost to the volume component than is more 6 commonly seen in peer utility cost allocation practices. A higher allocation of I&I costs 7 to the volume component has the potential to impact customer classes t6t. discharge 8 higher volume of wastewater flows, while I&I contribution to the system is also fairly 9 influenced by the customer classes with higher number of customer connections to the 10 wastewater system. 1 1 2. Surcharge rates are projected to increase substantially in FY 2021 primarily due to cost 12 of service adjustments, and then increase annually based on the projected increase in 13 O&M during FY 2022 through FY 2024. To mitigate any potential "rate shock" on 14 Surcharge customers, the District should consider phasing in to cost of service over at 15 least a two-year time period. Subsequent to the "phase-in" period, the District should 16 also consider increasing all rates, including surcharge rates, during FY 2022 through 17 FY 2024 based on an "across the board" increase approach. The across the board annual 18 increase should be based on the overall system-wide revenue increase required. 19 20 21 Q8. Does the District's allocation of costs, and the overall Rate Change Proposal reflect 22 the use of industry accepted cost of service and rate design principles to develop fair 23 and equitable rates for customer classes? 5 1 A. Overall, in its cost of service analysis, the District has performed its cost allocations and 2 has proposed wastewater rates based on cost of service principles that are commonly used 3 in the industry, as outlined in the Water Environment Federation's Manual of Practice No. 4 27, "Financing and Charges for Wastewater Systems." However, the District's allocation 5 of costs such as I&I costs between customer and volume has the potential to impose a 6 higher level of cost responsibility on classes with higher wastewater flow volumes, and 7 moving to cost of service based rates immediately in FY 2021 for Surcharge rates poses a 8 potential for "rate shock" for some customers. 9 Q9. Is the burden imposed on each class of ratepayers by the District's Rate Proposal 10 "fair and reasonable?" 1 1 A. Yes. Overall, the District's Rate Proposal can be considered to be "fair and reasonable." 12 The District's financial plan reflects reasonable revenue requirement projections, revenue 13 sufficiency, and fund balances, which are all critical to maintain the District's ability to 14 deliver services, meet regulatory compliance, and not violate bond covenants. However, in 15 establishing fair and reasonable rates, multiple pragmatic factors need to be considered. 16 These include long-term resiliency; mitigation of future rate volatility; fair allocation of 17 costs to classes that not only align with industry accepted practices but also doesn't impose 18 undue burden on customer classes, and fair levels of revenue increases from customer 19 classes during the rate period. The District's proposal could better reflect these other 20 considerations, and these concerns along with recommendations are discussed further in 21 this testimony. 22 Wastewater Cost of Service Analysis / Rates 6 1 Q10. How did the District reflect Infiltration and Inflow (I&I) in the cost of service 2 analysis? 3 A. Consistent with industry accepted practices, the District has determined I&I volume as the 4 difference between the total annual measured plant flow and the total annual contributed 5 volume from its customers. Based on this approach, the I&I volume appears to be 59% of 6 the total plant flow volume. 7 Q11. The District's cost of service analysis reflects I&I costs allocated on the basis of 40% 8 to the Customer cost component and 60% to the Volume cost component. Can you 9 opine on any potential impact of such an allocation? 10 A. The allocation factors used to allocate I&I costs between the Customer and Volume 1 1 components have a direct impact on the apportioning of I&I costs among the customer 12 classes. The District attributes these allocation factors of 40% and 60% to Customer and 13 Volume components, respectively, to an older I&I allocation study the District performed 14 in 2005. While the District merely cites that study, it is not clear to which specific section 15 of that report or to which specific conclusion in that report the District attributes these 16 allocation factors. It is also not clear what specific assumptions used in that report the 17 District deems still valid for this current allocation. 18 The District also indicates that large parcel areas contribute higher volume of stormwater 19 as a rationale for allocating a higher proportion of I&I costs to the Volume component. It 20 is important to note that total parcel area has less of an influence on the volume of 21 stormwater entering in to the system as I&I than parcel impervious area. 22 The 40% Customer and 60% Volume allocation factors that the District has used in its 23 proposal to allocate I&I tends to allocate more I&I costs to the Volume component, than 7 1 more commonly seen in many other utilities and in the example guidelines provided in the 2 WEF MoP 27. 3 Q12. What are the primary drivers leading to increased cost allocation to the Surcharge 4 rate class for the FY 2021 test year compared other customer classes? 5 A. The District has provided explanation of some of the factors leading to their proposal to 6 increase Surcharge rates higher than the overall revenue increase indicated for FY 2021 7 and the projected increases proposed for other rate components. In the 2015 Rate Proposal 8 (See Exhibit MSD 5), Surcharge rates for FY 2017 — FY 2020 reflected cost of service 9 results for FY 2017. However, for FY 2018 through FY 2020, the District increased the 10 Surcharge rates only at the level of the average calculated annual increase in total O&M, 1 1 and not at the same level of the system-wide revenue increase in each year. While 12 Surcharge rates increased based on the annual increase in O&M, because a significant 13 portion of the District's budget reflects capital costs, and capital costs are a significant 14 factor in determining the total Wastewater Utility revenue requirement, the increases in 15 Surcharge rates did not align with the overall total increase in costs of providing that 16 service. In addition, while the total units for Total Suspended Solids ("TSS") increased 17 from 165,506,255 pounds in FY 2017 to 174,346,785 in FY 2021, total units for 18 Biochemical Oxygen Demand ("BOD") decreased from 101,046,703 to 95,566,403 19 pounds. These units reflect total pounds for the utility, including both billable Surcharge 20 units and units attributable to normal strength waste and I&I. 21 The results of the cost of service analysis therefore indicate increases in both TSS and BOD 22 rates that are higher the average system revenue increase. In FY 2022 through FY 2024, 23 the District is again proposing Surcharge rates increase at a level equivalent to the overall 8 1 projected increase in just the O&M expenses, and not at a level that is aligned with the 2 overall system-wide revenue increase. 3 Q13. Do you have concerns about the District's calculation of projected Surcharge rates? 4 A. Due to the significant increase in both TSS and BOD rates in FY 2021, the District should 5 consider "phasing-in" the Surcharge rates over at least a two-year period. In addition, rather 6 than increasing Surcharge rates in FY 2022 through FY 2024 based on the calculated 7 increase in O&M, the District should consider increasing Surcharge rates in a more 8 traditional "across the board" manner, reflecting the overall increase required for system- 9 wide rate revenues in each year. Making these adjustments would require adjustments to 10 other rate components, including the Base Charge and Volume Charges to provide overall 11 revenue necessary. 12 Q14. Are the matters contained herein true, correct, and complete to the best of your 13 knowledge and belief? 14 A. Yes. 15 Q15. Does this conclude your testimony? 16 A. Yes. 9 CERTIFICATE OF SERVICE The undersigned certifies that a copy of the foregoing was sent by electronic transmission to Janice Fenton, Office Associate Senior, Metropolitan St. Louis Sewer District; Susan Myers, Counsel for the Metropolitan St. Louis Sewer District; and Brandon Neuschafer, Counsel for the Missouri Industrial Energy Consumers, on this 23rd day of April, 2019. Ms. Janice Fenton Office Associate Senior Metropolitan St. Louis Sewer District 2350 Market Street St. Louis, Missouri 63103 jfenton@stlmsd.com Ms. Susan Myers General Counsel Metropolitan St. Louis Sewer District 2350 Market Street St. Louis, Missouri 63103 smyers@stlmsd.com Brandon W. Neuschafer Kamilah Jones Bryan Cave, LLP 211 North Broadway, Suite 3600 St. Louis, Missouri 63102 bwneuschafer@bclplaw. corn kami.jones@bc1plaw.com Attorneys for Missouri Industrial Energy Consumers G---..c ) Brian J. Malone 10