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Exhibit RC 82 - Surrebuttal Testimony Nicole YoungLushly & Baer, P.C. 714 Locust Street St. Louis, Missouri 63101 Exhibit No: Issue: Wastewater Rate Change Proceeding Witness: Nicole Young Type of Exhibit.• Surrebuttal Testimony Sponsoring Party: Rate Commission Date Testimony Prepared: June 3, 2019 1 1 Ql. Please state your names and business addresses. 2 A. My name is Nicole Young. My local business address is 915 Olive Street, Suite 902, St. 3 Louis, Missouri 63101. 4 Q2. Please describe your specific work experience with capital improvement programs, 5 capital improvement and replacement programs and/or infrastructure budgets? 6 What knowledge are you using to evaluate MSD's Capital Improvement and 7 Replacement Program (the "CIRP")? 8 A. A selection of my capital improvement program, CIRP, and infrastructure budget project 9 experience includes: 10 11 12 13 14 15 16 1 7 18 19 20 21 22 • St. Louis MSD SKM&E Project — On this project, I assisted in development of the CIRP for the $4.7 billion program that is currently under construction. I was responsible for the River Des Peres Watershed, the largest of MSD's watersheds. This was the development of the FY 2017 — 2020 CIRP. • St. Louis MSD Nutrient Study — On this project, I assisted in development of the cost estimation and programming for the projects that will be required at the MSD wastewater treatment facilities for the anticipated future nutrient requirements. Depending on the level of regulations implemented and timing of the projects, the total cost for the nutrient program is expected to approach the same level as the current CIRP of approximately $1 billion. This work will possibly enter into the FY 2025-2028 CIRP, depending on when nutrient regulations are enacted. • US Air Force Nationwide Infrastructure Condition Assessment & Valuation — I provided assistance on a nation-wide condition assessment and valuation of all US 2 1 Air Force infrastructure including wastewater. A total estimation of infrastructure 2 under evaluation was $10 billion. 3 • Aging Infrastructure Assessment, Metro Water Infrastructure Partnership — I 4 reviewed the capital improvement programs for City of St. Louis, Missouri; 5 Missouri American Water; Illinois American Water; and the City of Kirkwood, 6 Missouri in an effort to document regional infrastructure investments of over $1 7 billion and quantify projected rate increases. 8 • Water Division Third Party Cost Estimation, City of St. Louis, Missouri — Lion 9 CSG was selected through a qualifications-based procedure to be the Third Party 10 Reviewer for Cost Estimation of water infrastructure for the City of St. Louis. I am 11 the lead in charge of all cost estimates for the Third Party Reviews for the City on 12 this project. 13 • Review and Prioritization of Capital Improvement Program ("CIP"), Aqua Illinois 14 Inc., a subsidiary of Aqua America, Inc. — I provided third party review of CIP and 15 assisted in priority and programming for 9 wastewater treatment facilities serving 16 customers in 11 counties in the state of Illinois. 17 • Review and Prioritization of CIP, Aqua Missouri Inc., a subsidiary of Aqua 18 America, Inc. — I provided third party review of CIP and assisted in priority and 19 programming for 59 wastewater treatment systems throughout the state of 20 Missouri. 21 • Master Plan and Rate Setting, Public Water Supply District No. 2 of St. Charles 22 County, Missouri — I assisted in developing the Master Plan for the District 23 including 400 square miles of water infrastructure and treatment plants in the 3 1 southwest St. Charles County and eastern Warren County. The District service 2 includes the cities of Lake St. Louis, Defiance, New Melle, Augusta, Dardenne 3 Prairie, Dutzow, and parts of O'Fallon, Weldon Spring, Innsbrook, Wright City and 4 unincorporated St. Charles and Warren Counties. During this process, I advised the 5 District on their rate structure. 6 • Master Plan and Rate Setting, Jefferson City, Missouri — I assisted in developing 7 the City's wastewater CIP for $134 Million in system improvements and $22 8 million in wastewater treatment improvements. During this process, I advised the 9 City on their rate structure and participated in meetings to the public regarding rate 10 increases. 1 1 • CIP and Rate Setting, City of Arnold, Missouri — I was the lead engineer in 12 developing the City's wastewater capital improvement program. As part of the 13 program, I advised the City on rate increases. 14 • CIP Review and Rate Study, American Bottoms, Illinois — I reviewed the regional 15 system's wastewater CIP as part of a rate study and advised on rate structure. 16 I have participated in MSD's CIRP development in the past. However, I did not participate 17 in the development of the current CIRP under review by the Rate Commission. My 18 background in working on MSD's CIRP in the past gives me a firm understanding of the 19 methodology, unit costs, and process that have been used to develop the current CIRP. 20 21 Through my experience on the Nutrient Study, I personally evaluated the treatment 22 facilities at Bissell Wastewater Treatment Facility, Coldwater Wastewater Treatment 23 Facility, Lemay Wastewater Treatment Facility, and Missouri River Wastewater Treatment 4 1 Facility; and was involved with condition assessment at Lower Meramec Wastewater 2 Treatment Facility, Grand Glaize Wastewater Treatment Facility, and Fenton Wastewater 3 Treatment Facility. My knowledge of the MSD wastewater treatment facilities provides an 4 understanding of the needs at each of the facilities to meet NPDES permit requirements. 5 Each of these facilities was evaluated for the size and condition of all equipment and 6 infrastructure at the facilities for anticipated improvements needed to meet future 7 requirements. 8 9 Over my 20-years of experience in the industry, I have gained an understanding of the cost 10 of wastewater infrastructure and the rules of thumb that are used in the industry. For 1 1 instance, 12-inch sanitary sewer can be estimated by calculating $200 per linear foot, and 12 a new treatment plant can be estimated by calculating $12M per million gallons per day 13 ("MGD") of average daily flow. There are complicating factors that can make projects 14 more expensive to construct. Generally, engineering is estimated at 12% of construction. 15 It is typical for projects to have up to a 30% contingency added at the CIRP level of 16 estimation. Generally, over a 20-year period, some projects will come in at a lower 17 constructed cost and some projects will come in at a higher constructed cost. The industry 18 has found that the 30% contingency at a CIRP level is appropriate. MSD is able to reduce 19 contingency in some cases because they use a long history of local bid number on very 20 similar projects to determine unit costs. 21 Q3. On May 9, 2019, you provided testimony that it was your opinion that the projects 22 MSD has identified in the CIRP for Fiscal Year (FY) 2021 through FY 2024 are 5 1 appropriate. Given the additional information provided by MSD, is that still your 2 opinion? 3 A. Yes, it is still my opinion that the projects included in the FY 2021 through FY 2024 CIRP 4 are appropriate. 5 6 7 8 9 10 11 12 13 14 15 In Exhibit RC 70B, I provide a review of the development of the CIRP based on information provided by MSD. The CIRP is driven by the Consent Decree and regulatory requirements. Approximately, 77% of the CIRP is required by the consent decree (Exhibits MSD 37, MSD 37A) and approximately 22% is required to meet regulatory requirements. There is less than 1% that is asset management based. As MSD has stated in Exhibit MSD 78A, the asset management portion is for the Floodwall ORS pump station system, which is the main system that protects the City of St. Louis from flooding. The Floodwall ORS system is over 50 years old, which is the end of its useful life. The risk of moving these asset management projects further into the schedule exceeds the cost-benefit of the 1% reduction in the CIRP. 16 Q4. On May 9, 2019, you testified that it was your opinion that the timing of projects MSD 1 7 has identified in the CIRP for FY 2021 through FY 2024 seemed appropriate. Given 18 the additional information MSD has provided, is it still your opinion that the timing 19 of the projects is appropriate? 20 A. The prioritization of a CIRP can be complicated, so it is difficult to have a project-by- 21 project analysis of timing of the program. There may be extenuating circumstances that 22 may move a project forward or backward in a schedule, such as association with another 23 project, risk of failure, or coordination of projects with other utilities. 6 1 2 3 4 5 6 7 8 9 10 11 As has been stated, the majority of the CIRP is Consent Decree-related. MSD has provided additional information in Exhibit MSD 78B, which delineates the Consent Decree deadlines for projects. Based on Exhibit MSD 78B, there appear to be four projects that could be moved from the FY 2021 through FY 2024 CIRP into a future budget cycle. These projects are 12088, 11833, 12334, and 12350. MSD may have reasons, beyond regulatory deadlines, for pulling these projects forward into this CIRP. Project 12350 appears to have a related pump station project in FY 2021 through FY 2024 CIRP, so it may be more cost- effective to build these at the same time. Project 12334 is a phased project, which may need to be adjusted for the schedule of the overall project. The four projects in question amount to less than 2% of the CIRP. 12 13 Overall, the timing of projects in the CIRP for FY 2021 through FY 2024 appears to be 14 reasonable. 1 5 Q5. You testified on May 9, 2019 that the cost estimates for the projects identified in the 16 FY 2021 through FY 2024 CIRP are reasonable. Given the additional information 1 7 MSD has provided in Exhibit MSD 77A through MSD 77D, is it still your opinion that 18 the cost estimates identified in the CIRP are reasonable? 19 A. Yes, it is still my opinion that the cost estimates for the projects in the CIRP are reasonable. 20 21 MSD provided several documents in Exhibits MSD 77B, 77C, and 77D to demonstrate the 22 methodology, unit costs, and process that the District uses in developing CIRP cost 23 estimates. Exhibit MSD 77B provides a thorough review of the best practices used in 7 1 developing CIRP-level cost estimates, with Appendix E through Appendix J providing the 2 metrics that are used in CIRP level estimating projects. Exhibit MSD 77C discusses MSD's 3 preliminary study process and the CIPRO cost estimation database which MSD has 4 customized in an Oracle platform. The CIPRO program has been developed from local bid 5 prices of historical projects. MSD provided a summary item listing of the unit costs in 6 Exhibit MSD 77D. MSD states that the usefulness and reliability of the database has 7 enhanced their preparation of projects. Local bid numbers are the most reliable unit costs 8 that can be used for cost estimating purposes. The fact that MSD uses actual bid price data 9 from recent construction project enhances their ability to perform accurate cost estimates. 10 The process and documentation demonstrate good practice in engineering cost estimating. 1 1 MSD has a good and thorough process for their CIRP cost estimating procedure. 12 Q6. MSD has provided cost estimates of specific projects in Exhibits MSD 77E through 13 MSD 771. Do you have an opinion on whether these cost estimates and the methods 14 used are appropriate? 15 A. Yes, they appear to be appropriate in the value and method based on my review. MSD and 16 their engineering consultants have used best practices in developing the cost estimates. The 17 methods, unit costs, and processes are all appropriate. 18 • 12106 Cost Estimate for Project Buckhurst Dr to Oak Hill Dr Sanitary Relief. This 19 project includes 2,850 feet of 12-inch sanitary sewer. For a rough construction 20 estimate, I would use $200 per linear foot with a 30% contingency. My estimate 21 would be $741,000 as compared to MSD's estimate of $722.475. MSD's estimate 22 for engineering fees seems high based on my experience, however, in section 4.3.2 23 of the report, it is stated that the engineering costs included in the CIRP includes 8 1 expenses incurred by MSD for activities such as legal and administrative functions, 2 surveys, geotechnical investigations, preliminary studies and construction services, 3 in addition to engineering. Based on the comprehensive professional services 4 included in the design estimate for the project, a 25% multiplier of cost of 5 construction seems a reasonable amount for professional services. 6 • 12472 Cost Estimate for DC-02 & DC-03 Sanitary Relief Phase III & IV. This 7 project is scoped at 16,200 feet of 8-inch to 54-inch. This project is a unique 8 situation, because I have provided an extensive Third Party review of this project 9 and have an understanding beyond what is presented in the CIRP. The engineer's 10 construction estimate was prepared based on quantities that were anticipated during 1 1 construction. MSD has already completed Phase I of this project, and Phase II is 12 underway. As MSD has already accepted construction bids for two phases of this 13 project, there is a solid basis for the construction estimate. Both the quantities and 14 the unit costs seem reasonable for the level of estimate that is provided. 15 • 13033 Cost Estimate for Bissell-Coldwater-Missouri Meramec Public I/I Reduction 16 (2023) Contract C. MSD states that this project is a combination of two projects. 17 MSD further states that limited information was available at the time of the 18 conceptual estimate and the preliminary study is currently in progress. I/I projects 19 are very difficult to conceptually estimate because they need to be targeted to 20 specific areas. They can also be quite costly on a linear foot basis since the 21 remediation often involves point repairs in existing neighborhoods. I have 22 experience on large basin-wide PIIR projects in cities across the Midwest. As a 23 rough estimate, I typically estimate sewer remediation costs at half of the 9 1 replacement cost and approximately $15,000 per point repair. I use a reduced 10% 2 engineering and 15% contingency because the scope of these projects is limited. 3 The two projects combined have a total of 9,340 feet of sewer construction, 4 point 4 repairs, 130 service lateral repairs, 8 mainline defects, 12 cross connections, 37 5 manhole rehabilitation, and PIIR on 3 properties. As a rough order of estimate, I 6 calculate a total of $4,862,000. MSD's estimate that was provided has an initial 7 estimate of $2,648,000 which was adjusted upward for the CIRP to $4,300,000. 8 Based on the scope of work for these projects, the current CIRP budget appears 9 reasonable. 10 • 12248 Cost Estimate for Caulks Creek A Pump Station (P-750). As a direct 1 1 example of comparison for this project, I was involved in a project similar in size 12 and scope with the Creve Coeur Creek Pump Station project. The Creve Coeur 13 Creek Pump Station was a project for improvements for a 10 MGD pump station 14 for $18 million in the mid-2000s. The $18 million cost does not include consultant 15 engineering, MSD engineering, easements, legal, administration, or construction 16 services, which MSD does include in their cost estimates. Having worked on 17 dozens of pump station designs, the estimate of $21.5 million for improvements to 18 a deteriorating pump station of this size is reasonable and appropriate. 19 • 12255 Cost Estimate for Lower Meramec Phase II (12255) and Fenton Wastewater 20 Treatment Facility Elimination (12170). Lower Meramec is currently an 21 approximate 10 MGD facility with plans to expand to accommodate the 22 approximate a design flow of 6.75 MGD from Fenton Wastewater Treatment 23 Facility. A general rule of thumb is $12 per MGD of treatment capacity for new 10 1 facilities. Based on that a cost estimate in the range of $81 million would be a 2 reasonable construction value. Engineering is typically 12% of construction cost 3 for an approximate engineering cost of $10 million. Total cost for the project is 4 approximated, in my rough estimate at $90.7 million. MSD has budgeted $90.3 5 million which is reasonable and appropriate. For the Fenton decommissioning, 6 costs are more difficult to calculate and there are not standard rules of thumb with 7 decommissioning as there are for constructing new facilities. Lion CSG was 8 involved in getting Fenton back online after flooding events in 2015, and we have 9 an understanding of what exists at the facility and what would be needed to 10 decommission and abandon Fenton Wastewater Treatment Facility. Based on our 1 1 knowledge of the facility, having worked with the majority of the equipment on- 12 site, the estimate of $7.138 million and engineering of $2.324 million seems 13 reasonable and appropriate. 14 15 Based on my review, MSD is conducting cost estimating in a manner consistent with 16 industry practice and their estimates are reasonable. 17 Q7. Are the matters contained herein true, correct, and complete to the best of your 18 knowledge and belief? 19 A. Yes. 20 Q8. Does this conclude your testimony? 21 A. Yes. 11 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 3rd day of June, 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@bc1plaw.com kami.jones@belplaw.com Attorneys for Missouri Industrial Energy Consumers 12 Brian J. Malone