HomeMy Public PortalAboutExhibit MSD 9D - Direct Testimony ZimmermanMSD Exhibit No.9D
2011 Rate Change Proceeding
Janice M. Zimmerman
Direct Testimony
Metropolitan St. Louis Sewer District
May 13, 2011
Table of Contents
Page
Witness Background and Experience 1
Criteria Governing Rate Change 1
Budget Development 4
Wastewater Capital Improvement and Replacement Program 6
Direct Testimony of Janice M. Zimmerman, MSD May 13, 2011
1 Witness Background and Experience
2 Q1. Please state your name, business address, and telephone number.
3 A. Janice M. Zimmerman, 2350 Market Street, St. Louis, Missouri 63103-2555,
4 (314) 768-6299.
5 Q2. What is your occupation?
6 A. I am the Director of Finance for the Metropolitan St. Louis Sewer District (District).
7 Q3. How long have you been associated with the District?
8 A. I have been with the District continuously since April 15, 2001.
9 Q4. What is your professional experience?
10 A. Prior to joining the District, I was a Principal of Raine Consulting, Inc. and Executive
11 Consultant for its education practice. I also served as the Chief Financial Officer of Fox
12 River Learning, Inc.; a manager in the K-12 Education Unit at Coopers & Lybrand
13 L.L.P.; and filled a variety of financial positions with the St. Louis Public Schools,
14 Community Federal Savings and Loan Association, the Illini Federal Savings and Loan
15 Association and the Federal Reserve Bank of St. Louis.
16 Q5. What is your educational background?
17 A. I am a graduate of Eastern Illinois University with an undergraduate degree in Finance. I
18 received my Master of Finance degree from St. Louis University in August 1987.
19 Criteria Governing Rate Change
20 Q6. Please describe the nature of the Rate Proposal.
21 A. The Rate Proposal addresses only the District's wastewater rates. No stormwater rate
22 changes are proposed at this time due to pending litigation to determine validity of the
23 impervious area based stormwater rate approved by the MSD Board of Trustee ("District
2011 Rate Change Proceeding 1 MSD Exhibit 9D
Direct Testimony of Janice M. Zimmerman, MSD May 13, 2011
1 Board") in December 2007. The stormwater section included in the Rate Proposal is for
2 informational purposes only.
3 Q7. Please explain why the Rate Proposal set forth in the Rate Change Notice is necessary,
4 fair and reasonable.
5 A. The Rate Proposal is necessary in order to fund the District's Wastewater Improvement
6 and Replacement Program (CIRP) through Fiscal Year 2016 and to avoid jeopardizing
7 the District's compliance with anticipated regulatory requirements. The proposed
8 wastewater rate increase is fair and reasonable in that it proportionately distributes the
9 District's projected costs over all classes of ratepayers using a user charge method tied to
10 customer water usage.
11
12 The rate increase is also fair and reasonable as it is based each customer's actual water
13 usage. Water usage for metered single family and most multifamily residential customers,
14 is based on metered water use during the "Best Equated Period" or winter period is used
15 to estimate billable wastewater volume, since this period is typically representative of
16 indoor water use that is ultimately discharged to the sewer system. The number attributes
17 defined as rooms, water closets, baths and separate showers, is used to determine an
18 equivalent CCF (one CCF is equal to 100 cubic feet) water usage for unmetered
19 residential customers.
20 Q8. Has customer impact data been factored into the Rate Proposal?
21 A. Yes. In lieu of a 100% pay-as-you-go ("PAYGO") funding approach, the Rate Proposal
22 attempts to balance the use of debt financing and wastewater user charge revenue to
23 simultaneously fund a wastewater improvement and replacement program needed to meet
2011 Rate Change Proceeding 2 MSD Exhibit 9D
Direct Testimony of Janice M. Zimmerman, MSD May 13, 2011
1 anticipated regulatory requirements and minimize the impact on customer monthly bills
2 to the extent possible.
3
4 In addition, the Rate Proposal replaces the current uniform compliance charge with a five
5 tiered structure which more equitability recovers the District's environmental compliance
6 monitoring costs from non-residential customers. The equitability of the uniform
7 compliance charge was a concern raised by the Rate Commission as well as commercial
8 business owners who voiced their objections during public hearings held throughout the
9 prior rate deliberation proceeding. The current uniform charge is paid by all non-
10 residential customers regardless of the level of District effort needed to monitor
11 compliance with clean water environmental regulations. This level of effort is defined by
12 the number of inspections and samples needed to assess the compliance of each non -
13 residential customer. This method of cost recovery includes the cost of some compliance
14 monitoring applicable to all District customers. Costs directly associated with non -
15 residential compliance are then distributed across non-residential customers based on the
16 level of monitoring efforts needed to assure regulatory compliance. Tier 1 represents the
17 lowest level of required compliance monitoring and thereby the lowest compliance
18 charge. Conversely, Tier 5 represents the highest. 94% of all non-residential customers
19 are defined as Tier 1 entities. The monthly compliance charge for these customers will
20 decrease from $31.95 effective July 1, 2011 to $2.35 per month by FY16.
21
22 Budget Development
23 Q9. How is the District's budget developed?
2011 Rate Change Proceeding 3 MSD Exhibit 9D
Direct Testimony of Janice M. Zimmerman, MSD May 13, 2011
1 A. The District's budget is developed annually using a zero based budget approach. Each
2 District Director develops the budget for his/her area of responsibility based on most
3 current and historical expenditure trends and knowledge of upcoming needs. Each
4 Department prepares a base budget that covers funding for its day-to-day operations and
5 an incremental budget for strategic activities tied to the District's Strategic Operating
6 Plan to be implemented throughout the upcoming budget year. Each Director's
7 components are compiled into a comprehensive, balanced preliminary operating budget is
8 presented to the District's Board by March 15th of each year as required by Charter.
9
10 Simultaneously, the District's Engineering Department updates and developments the
11 District's five year Wastewater Improvement and Replacement Program ("CIRP")
12 Supplemental Budget document. This document, which lists the various capital projects
13 anticipated over the next 5 years, is reviewed by the District's Executive Director prior to
14 presentation to the District's Board and modifications are made accordingly.
15
16 The MSD Board of Trustees ("Board") Finance Committee meet in April to review, in
17 detail, operating expenses, the CIRP and revenues projected for the budgeted year.
18 During these meetings, District Trustees ask questions and provide direction for
19 modifications. These modifications are incorporated into the budget, which is then
20 presented at a public hearing prior to formal introduction by the Board as required by
21 Charter. In the past, this public hearing is held a week before the budget's formal
22 introduction at the Board's May meeting. Final adoption of the District budget occurs at
23 the June Board meeting.
2011 Rate Change Proceeding 4 MSD Exhibit 9D
Direct Testimony of Janice M. Zimmerman, MSD May 13, 2011
1 Q10. What percentage of the total operating budget does the District actually spend?
2 A. The three year average of actual to budget expenditures for the total operating budget is a
3 favorable variance of less than 2.0%.
4 Q11. When was the current fiscal year 2011 budget approved by the District Board?
5 A. The District Board adopted the current fiscal year 2011 budget on October 14, 2010
6 through Ordinance 13145. This version of the FY11 budget represents a revision to the
7 original FY11 Budget adopted by the District Board through 13090. This revision was
8 required to reflect the impact of the July 9, 2010 court decision which found the District's
9 stormwater impervious area based user charge in violation of the Missouri Hancock
10 Amendment. The District is awaiting the outcome of an appeal of this court decision.
11 Q12. Do the budgeted costs for fiscal year 2011 match the 2011 costs shown in the rate study
12 report?
13 A. Yes.
14 Q13. In your opinion, are the inflation allowances used in the rate study report reasonable?
15 A. Yes.
16 Q14. When will the fiscal year 2012 budget be approved by the Board and available for
17 distribution?
18 A. The 2012 budget is expected to be approved by the District Board in June 2011 and be
19 available for distribution shortly thereafter.
20 Q15. Is the 2012 budget available for review?
21 A. Yes. The 2012 budget was introduced at the May 12, 2011 Board meeting with
22 anticipated adoption in June. A copy of the introduced budget was included with the
23 May 10, 2011 submittal of the Proposed Rate Change Notice as MSD Exhibit No. 1.
2011 Rate Change Proceeding 5 MSD Exhibit 9D
Direct Testimony of Janice M. Zimmerman, MSD May 13, 2011
1 Wastewater Capital Improvement and Replacement Program
2 Q16. What is the source or basis for the wastewater Capital Improvement and Replacement
3 Program shown in Table 3-6 of the Rate Proposal (MSD Exhibit No. 1)?
4 A. The primary source for Table 3-6 in the Rate Proposal (MSD Exhibit No. 1) is the project
5 list submitted as part of Brian Hoelscher's direct testimony as MSD Exhibit No. 3B1
6 which outlines the projects and their priorities for the next five years.
7 Q17. Will ad valorem tax revenues be used to finance any of the projects shown in Table 3-6
8 of the Rate Proposal?
9 A. The District currently includes two taxing subdistricts, Lower Meramec River Basin and
10 Missouri River Bonfils dedicated solely to wastewater services. The CIRP includes
11 projects associated with these subdistricts, however, this work will be funded by existing
12 fund balances. No ad valorem taxes have been levies in either subdistrict since 2008.
13
14 Q18. Does this conclude your prepared direct testimony in this matter?
15 A. Yes, it does.
2011 Rate Change Proceeding 6 MSD Exhibit 9D