HomeMy Public PortalAboutExhibit MSD 11B MSD Response to Discovery Request dated 052611EXHIBIT MSD 11B
BEFORE THE RATE COMMISSION OF THE
METROPOLITAN ST. LOUIS SEWER DISTRICT
MAY 26, 2011 FIRST DISCOVERY REQUEST
OF THE RATE COMMISSION
Metropolitan St. Louis Sewer District Response
ISSUE: WASTEWATER RATE CHANGE PROPOSAL
WITNESS: METROPOLITAN ST. LOUIS SEWER DISTRICT
SPONSORING PARTY: RATE COMMISSION
DATE PREPARED: JUNE 7, 2011
Metropolitan St. Louis Sewer District
2350 Market Street
St. Louis, Missouri 63103
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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
MAY 26, 2011 FIRST DISCOVERY REQUEST
OF THE RATE COMMISSION
Metropolitan St. Louis District Response
Pursuant to §§ 7.280 and 7.290 of the Charter Plan of the Metropolitan St. Louis Sewer District
(the "Charter Plan"), Operational Rule 3(5) and Procedural Schedule §§ 17 (b)(i) and (ii) of the
Rate Commission of the Metropolitan St. Louis Sewer District ("Rate Commission"), the
Metropolitan St. Louis Sewer District ("District") thereby responds to the Metropolitan St. Louis
Sewer District Rate Commission May 26, 2011 First Discovery Request for additional
information and answers regarding the Rate Change Notice dated May 10, 2011 (the "Rate
Change Notice").
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MAY 26, 2011 FIRST DISCOVERY REQUEST
OF THE RATE COMMISSION
Metropolitan St. Louis Sewer District Response
1. Karl Tyminski states that District analysis shows that utilization of debt financing
allows the District to fund large near term capital improvements while moderating the rate
increases imposed on customers. (See lines 22-2 pp. 3-4.) Please (a) describe the analysis that
was performed to reach this conclusion; and (b) provide copies of any memorandum, report,
work paper, summary, analysis, or schedule that supports this conclusion; (c) describe the
rationale for such conclusions; and (d) identify any utility currently maintaining such rationale.
RESPONDER: Jan Zimmerman, MSD Director of Finance
RESPONSE: The Rate Change Proposal (Exhibit MSD 1), presents the District's
proposed use a $945 million in bond financing to fund the next four year phase of it's Capital
Improvement and Repairs Program (CIRP). This level of bond financing is proposed as a means
in which to assess the lowest rates increases considered practical to fund the CIRP and minimize
any potential deterioration in the District's current AAA bond rating. The Rate Change Proposal
(Exhibit MSD 1) also includes an alternative rate increase scenario demonstrating the impact of a
100% pay-as-you-go (PAYGO) approach to generate the funds needed to comply with the
Consent Decree being presented at the June 9, 2010 meeting of the MSD Board of Trustees
(Board) for signature authorization.
The Rate Change Proposal (Exhibit MSD 1) includes the rationale, summary calculations
and conclusions underlying the bond funding scenario. Additional calculations are provided in
the Rate Model Tables provided as Exhibit MSD 4 and Exhibit MSD 5 and detailed calculations
used within the Rate Model as Exhibit MSD 4A The construct of the alternative 100% PAYGO
rate scenario is based on the same rationale as the PAYGO / Debt based rate change without the
use of any additional bond financing.
A large number of sewer utilities across the country are using a PAYGO / Debt approach
to comply with Clean Water Act regulations. The majority, if not all, of these utilities are
operating under a Consent Decree enforcement. A complete list of these sewer utilities is very
lengthy. A list of the major utilities is provided in Jeff Theerman's May 13, 2011 Direct
Testimony (Exhibit MSD 9) in response to Question Q25 on page 7.
2. Karl Tyminski states that while projected debt coverage will exceed the Master
Bond Ordinance requirements, the projected coverages are in line with median metrics used by
credit rating agencies. (See lines 20-22 p. 2.) Please (a) describe the rationale for such a debt
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coverage; (b) identify any utility currently maintaining such coverage; and (c) provide copies of
the median metric as used by credit rating agencies that are relied upon.
RESPONDER: Keith Barber, MSD Rate Consultant
RESPONSE: Median debt service coverage metrics are included in a publication
produced by Fitch, Inc titled "2011 Water and Wastewater Medians" (Exhibit MSD 11C).
Appendix D of this publication shows several medians for annual debt service (ADS) coverage
by utility size, including the minimum debt service coverage projected over the next five years
for both senior lien bonds and all outstanding debt. These debt service coverage medians are 1.8
for senior lien debt and 1.4 for all outstanding debt. On a regional basis, the corresponding ratios
for the Midwest are 2.0 and 1.3 respectively as shown in Appendix C of the report. Appendix F
shows the same ratios by rating category. Utilities Median Debt Service Coverage
with a AAA rating, which includes the District
(after the rating agency's April 2010 recalibration), Senior Lien Total
have a median projected senior lien debt service Description Debt Debt
coverage over the next five years of 2.0 times net
revenues while projected median debt service 2015 District Coverage 2.3 1.6
coverage for all outstanding debt is 1.8. Median Minimum Projected Medians
ratios for utilities with an AA rating are 1.8 and Midwest 2.0 1.3
1.5 respectively. In comparison, Table 3-11 of Large 1.8 1.4
Exhibit MSD 1 shows minimum projected debt AAA 2.0 1.8
service coverage on senior lien debt of 2.3 and on AA 1.8 1.5
all outstanding debt of 1.6. These debt service coverage ratios are summarized in the above table.
Exhibits MSD 11D through 11J are provided as additional information.
3. Karl Tyminski states that the rate covenant provided by the Master Bond
Ordinance requires the District to provide wastewater rates that are sufficient to pay all operating
and maintenance expenditures and provide net operating revenues together with investment
earnings that will at least equal 125% of the annual debt service requirement on all senior bonds
and at least equal 115% of the annual debt service requirement on all outstanding bonds, loans
and other obligations. (See lines 8-13 at p. 2.) Please provide a certified copy of the Master
Bond Ordinance and any Supplemental Bond Ordinances.
RESPONDER: Karl Tyminski, MSD Secretary/Treasurer
RESPONSE: The Master Bond Ordinance is provided as Exhibit MSD 11K.
Supplement Bond Ordinances related to specific bond issues are provided as Exhibits MSD 11L
through 11V.
4. Keith Barber states that municipal debt financing of major capital improvements
is a practical way of obtaining funds. (See lines 7-13 at p. 18.) Please (a) describe the analysis
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that was performed to reach these conclusions; (b) provide copies of any memorandum, report,
work paper, summary, analysis, or schedule that supports this conclusion; (c) describe the
rationale for such conclusion; and (e) identify any utility currently maintaining such a use of
municipal debt financing as proposed in the Rate Change Proposal.
RESPONDER: Keith Barber, MSD Rate Consultant
RESPONSE: The response to Q53 of Keith Barber's direct testimony is consistent with
the Water Environmental Federation (WEF) Manual of Practice No. 27 titled "Financing and
Charges for Wastewater Systems" (this copyrighted material requiring purchase and may be
obtained at https://www.e-wef.org/Home/ProductDetails/tabid/192/productid/6916/Default.aspx or at
Amazon.com). Page 60 of this manual states the following: "Debt financing, while more
expensive than cash funding because of the interest component of the annual debt service
payment, allows for a reasonable alignment of costs across generations, i.e., more of those
benefiting from or using the asset pay the cost. In addition to improving equity between
generations of rate payers, debt funding may allow for the construction of assets sooner than
would occur if all of the cash had to be accumulated before beginning construction."
The only District alternative to debt financing of capital improvements is a PAYGO approach.
Although this is a valid approach, it would require a substantial increase in existing wastewater
charges to be able to finance the current schedule of CIRP projects. It is very common for
municipal wastewater utilities to use debt as a capital improvement financing mechanism. Such
utilities can be identified by bond publications such as the BondBuyer or by utility surveys. For
example, Question B6 in the National Association of Clean Water Agencies (NACWA) 2011
Financial Survey Questionnaire requests information on long-term debt by type and amount (the
referenced Questionnaire is available at www.nacwa.org . Another survey co -produced by the
American Water Works Association and Raftelis Financial Consultants, Inc. lists total long-term
debt of surveyed utilities.
5. Susan Myers states that the projected rate change is needed to provide the District
with the necessary funds to address the aging wastewater system and resulting wet weather
ramifications. (See lines 9-11 at p. 2.) Please (a) describe the analysis which supports this
conclusion; and (b) provide copies of any memorandum, report, work paper, summary, analysis,
or schedule which supports this conclusion.
RESPONDER: Keith Barber, MSD Rate Consultant
RESPONSE: The CIRP addresses the aging wastewater system and wet weather
ramifications which are being driven by regulatory requirements. A large portion of the proposed
rate change is required to construct these facilities. See response to Question 6.
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6. Susan Myers states that a large proportion of the proposed rate change is
necessary to meet legal requirements. (See lines 16-19 at p. 2.) Please (a) identify that
proportion of the proposed rate change that is not necessary to meet the legal requirements; and
(b) provide copies of any memorandum, report, work paper, summary, analysis, or schedule
which supports this conclusion.
RESPONDER: Keith Barber, MSD Rate Consultant
RESPONSE: All of the proposed debt service costs and projected cash financing of
major improvement amounts are related to capital improvements required to meet regulatory
requirements. However, it is estimated that only about $20 million of additional cash financing of
major capital improvements is due to the proposed rate change based on the amount of cash
financing estimated for fiscal year 2011 under existing rates, as shown on Line 28 in Table 3-11
of Exhibit MSD 1. Table 3-11 also shows proposed additional debt service on senior revenue
bonds of $164,657,000 (Line 20), additional debt service on proposed SRF loans of $29,721,500
(Line 23), and $17,698,800 of additional operation and maintenance costs directly related to the
new facilities (Line 17) placed in service by 2016. Therefore, total additional cost associated with
the regulatory related capital improvements, including the estimated $20 million of available
cash financing due to the proposed rate change is $232,077,200. The proposed rate change is
projected to increase wastewater revenues by $312,584,500 (Line 7) or about $80.5 million more
than the additional costs related to the new facilities. Therefore, about 26 percent ($80.5 million /
$312.6 million) of the projected rate change is not necessary to meet the legal requirements
related to the CIRP. However, most of this amount is required to meet increased operation and
maintenance costs which are a legally binding bond covenant requirement.
7. Karl Tyminski states that the terms and associated issuance costs reported in the
recent feasibility report concerning future SRF loans are reasonable. (See lines 9-12 at p. 7.)
Please (a) provide a copy of the feasibility report; (b) describe the analysis which supports this
conclusion; and (c) provide copies of any memorandum, report, work paper, summary, analysis,
or schedule which supports this conclusion.
RESPONDER: Karl Tyminski, MSD Secretary/Treasurer
RESPONSE: The Approval of the State Fiscal Year 2012 Clean Water State Revolving
Fund Intended Use Plan for the Missouri SRF Program is provided as Exhibit MSD 11W. The
Clean Water SRF Loan section on Page 21(agenda package page 49) defines the terms for the
SRF program. The Federal government has cut the funding for all SRF State programs. The
District anticipates receiving a $25 to $35 million share of Missouri SRF funds on an annual
basis.
The District's feasibility study is current being developed. The terms and associated
issuance costs in the study are the same as those estimated for the Wastewater Rate Proposal
(Exhibit MSD 1). The feasibility study is expected to be available by the end of June 2011.
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8. Karl Tyminski states that there is an intergovernmental agreement with the City of
Arnold relating to the Lower Meramec River Wastewater Treatment Plant. (See lines 12-15 at p.
9.) Please provide a copy of the Intergovernmental Agreement.
RESPONDER: Karl Tyminski, MSD Secretary/Treasurer
RESPONSE: A copy of the Intergovernmental Agreement with the City of Arnold is
provided as Exhibit MSD 11X.
9. Brian Hoelscher states that the District submitted a Long Term Control Plan
(LTCP) as mandated by Federal requirements, updated in 2009 to mitigate the impact of CSO's
on water quality. Please (a) identify the Federal requirements; and (b) provide a copy of the
current LTCP update.
RESPONDER: Brian Hoelscher, MSD Director of Engineering
RESPONSE: A copy of the Federal requirements as of April 19, 1994, is provided as
Exhibit MSD 11Y. Copies of the current LTCP Executive Summary and the LTCP Update as of
August 2009 may be found using the following link on the MSD website:
http://www. stlmsd. com/educationoutreach/bestpractices/combinedseweroverflow
10. Jan Zimmerman states that the Rate Change Proposal is fair and reasonable in that
it replaces the current uniform compliance charge with a five tiered structure, which more
equitably recovers the District's environmental compliance monitoring costs from non-residential
customers. (See lines 7-19 at p. 2 and lines 4-20 at p.3) Please (a) describe the analysis that was
performed to reach these conclusions; (b) provide copies of any memorandum, report, work
paper, summary, analysis, or schedule that supports this conclusion; (c) provide the documents
that identify the District's five tiered structure; (d) describe the rationale for such conclusion; and
(e) identify any utility currently maintaining such a tiered structure.
RESPONDER: Keith Barber, MSD Rate Consultant
RESPONSE: The analysis is fully described on Pages 3-37 and 3-38 of the Wastewater
Rate Proposal (Exhibit MSD 1). A survey of utilities imposing a multi -tiered system of
environmental compliance charges was not conducted as part of the rate analysis. However,
Section 60-191 of the Kansas City Missouri municipal code shows a more extensive system of
permit and monitoring fees than that proposed for the District which includes a four -tier system
of charges for categorical facilities and a three tier system of charges for large non -categorical
users. A copy of Kansas City's municipal code is available online as part of the City's web site.
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11. Keith Barber states that the rate proposal presents an expanded recovery
mechanism for environmental compliance costs that more equitably recovers costs from non-
residential customers. (See lines 11-13 at p. 4.) Please (a) describe the rationale for such
conclusion; and (b) identify any utility currently maintaining such a recovery mechanism.
RESPONDER: Keith Barber, MSD Rate Consultant
RESPONSE: The existing system of charges imposes a uniform charge on all non-
residential customers regardless of the costs involved to monitor their respective facilities. The
proposed system of charges develops proposed charges based on the relative cost to serve five
non-residential customer groups. As noted in the response to Question 10, the City of Kansas
City, Missouri has a system of compliance charges that varies with level of effort as measured by
relative size and type of non-residential customer.
12. Keith Barber states that Black and Veatch prepared a 1993 Report entitled "Final
Report on Alternative Rate Structures for the Metropolitan St. Louis Sewer District." (See lines
19-23 at p. 2.) Please provide a copy of the Report.
RESPONDER: Keith Barber, MSD Rate Consultant
RESPONSE: A copy of this report was provided as Exhibit 20A57 during the 2007 Rate
Commission proceedings. It is marked for purposes of these proceedings as Exhibit MSD 11Z.
13. Keith Barber states that Black and Veatch Management Consulting prepared a
wastewater utility cost of service study completed on May 5, 2011. (See lines 22-23 at p. 24, and
lines 1-3 at p. 25.) Please provide a copy of the cost of service study.
RESPONDER: Jan Zimmerman, MSD Director of Finance
RESPONSE: The May 5, 2011 date refers to the date on which the District received the
final Rate Proposal document from Black & Veatch. This is the same document as the Rate
Change Proposal (Exhibit MSD 1) submitted to the Rate Commission on May 10, 2011.
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14. Please provide copies of each contract or lease for goods or services in which the
payment obligation of the District exceeds $500,000.
RESPONDER: Jan Zimmerman, MSD Director of Finance
RESPONSE: This request is unrealistically voluminous to provide. Specific individual
contracts and/or leases will be provided upon request and made available for review at the
District's home office located at 2350 Market Street, St. Louis, Missouri, 63103.
15. Jan Zimmerman states that the inflation allowances used in the rate study report
are reasonable. (See lines 14-15 at p. 5.) Please provide a copy of any memorandum, report,
work paper, summary, analysis or schedule that supports this conclusion.
RESPONDER: Keith Barber, MSD Rate Consultant
RESPONSE: The future inflation allowances used in the rate study report are primarily
based on judgment. They are consistent with prior inflation rates experienced by the District and
in -line with the overall long-term consumer price index for urban consumers. In addition, Section
5.5 of the Rate Change Proposal (Exhibit MSD1) presents a comparison of the projected cost
impact on typical residential customers with those of other wastewater utilities. Part of the cost
impact is attributed to the expected influence of price inflation and as indicated by Figure 5.1.
The projected residential bills for the District are comparable to those of other wastewater
utilities. Historical consumer price indexes are available online from the U.S. Bureau of Labor
Statistics.
16. Please provide a breakdown of the expenses shown in Table 2-1 on page 2-2 of
the MSD Wastewater Rate Change Proposal by the categories used for the inflation allowances
shown on page 2-3 of the MSD Wastewater Rate Change Proposal. (See Ex. MSD 1.)
RESPONDER: Keith Barber, MSD Rate Consultant
RESPONSE: This information is available in the supporting work papers (Exhibit MSD
4, Pages D-14 through D19 and E-14 through E-19)).
17. Please provide a breakdown of the District's expenses for the fiscal year ending in
2006 through 2010 by the categories used for the inflation allowances shown on page 2-3 of the
MSD Wastewater Rate Change Proposal. (See Ex. MSD 1.)
RESPONDER: Keith Barber, MSD Rate Consultant
RESPONSE: This information is available in the supporting work papers (Exhibit MSD
4, Pages D-2 through D-7).
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18. For the additional O&M expense shown on line 20 of Table 2-1 on page 2-2 of the
MSD Wastewater Rate Change Proposal, please (a) describe the analysis which supports this
conclusion; and (b) provide copies of any memorandum, report, work paper, summary, analysis
or schedule which supports this conclusion. (See Ex. MSD 1.)
RESPONDER: Keith Barber, MSD Rate Consultant
RESPONSE: Estimated incremental O&M costs associated with proposed new facilities
at a 2008 cost level were estimated by a project management consultant as part of long-term EPA
mediation efforts and scheduled at the time when the new facilities are expected to be in service.
These costs are shown on Page D -13a of Exhibit MSD 4 and broken down by estimated costs for
additional personal services, supplies, utilities, and contractual services. Projects included in the
time period covered by the Rate Change Proposal (Exhibit MSD 1) primarily consist of costs to
operate and maintain new disinfection facilities as well as secondary treatment expansion at the
Missouri River treatment plant. These costs were inflated to projected cost levels based on
inflation factors presented on Page 2-3 of Exhibit MSD 1 to derive costs shown on Page D-30 of
Exhibit MSD 4 and in total on Line 20 in Table 2-1 of Exhibit MSD 1.
19. Keith Barber states that a customer resistance factor is not considered in the
development of proposed rates but is factored in the alternative PAYGO rates should the District
not obtain approval for additional debt authorization, and that the increased balances for the
CIRP contains funds that could be available to make up potential revenue shortfalls caused by
temporary customer resistance to the higher wastewater rates. (See lines 13-21 at p. 7.) Please (a)
describe the analysis which supports this conclusion; and (b) provide copies of any
memorandum, report, work paper, summary, analysis or schedule supporting this conclusion or
any alternatives.
RESPONDER: Keith Barber, MSD Rate Consultant
RESPONSE: It is considered reasonable to expect some customers to reduce their
billable wastewater volume when faced with a one-time 155 percent increase in their wastewater
bill (See Table 3-24 of Exhibit MSD 1). This expected result of reduced billable volume due to
increased costs is generally referred to as Price Elasticity and is discussed in Chapter 21 of the
AWWA Manual M1 titled "Principles of Water rates, Fees, and Charges" (this copyrighted
material requiring purchase and may be obtained at www.awwa.orq). Such allowance was not
assumed for the two digit annual revenue increases due in part to the financial advisors
recommendation that higher cash balances be maintained to enhance the District's bond rating.
Utilities with higher bond ratings generally have access to lower cost debt. The availability of
this cash also provides some security for possible customer resistance. If billable wastewater
volume decreases due to customer resistance, these funds could be available for the resulting
revenue shortfalls at the potential consequence of lower bond ratings and higher debt costs on
future bond issues. Page 14 of the District's Debt Management Policy (Exhibit MSD 11A1)
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allows for periodic adjustments of cash -on -hand for liquidity purposes. In addition, the Fitch, Inc.
publication "2011 Water and Wastewater Medians" (Exhibit MSD 11C) referenced in the
response to Question 2, reports the median number of days of working capital for utilities with an
AAA bond rating as 532 days. This median value drops to 330 days for utilities with an AA bond
rating. For fiscal year operating costs of $172,855,000 (Exhibit MSD 1, Table 3-11, Lines 16, 17
and 27), the District would need total working capital of $251,942,000 and $156,280,000 to
match the median number of days of working capital for each respective bond rating. Fund
balances projected for 2016 in work paper G-16 (Exhibit MSD 4) total approximately $213.5
million which is between the two median values. This includes approximately $5.0 million in
operating funds, $28.4 in the operating reserve, $38.0 million in capital funds, $91.4 million in
the revenue bond reserve, $6.1 million in emergency funds, and $44.6 million in the P&I
accounts.
20. Please provide a copy of the Consolidated Annual Financial Report (CAFR) of the
District for the fiscal years ending in 2009 and 2010, and a certified copy of any action taken by
the Board of Trustees with respect to each such CAFR.
RESPONDER: Jan Zimmerman, MSD Director of Finance
RESPONSE: The District's 2009 and 2010 CAFRs are provided as Exhibit MSD 11A2
and Exhibit MSD 11A3, respectively.
21. Please provide a copy of the Budget of the District for the fiscal years ending in
2009 and 2010 and a certified copy of any action taken by the Board of Trustees with respect to
each such Budget.
RESPONDER: Jan Zimmerman, MSD Director of Finance
RESPONSE: The 2009 and 2010 MSD Budgets are provided as Exhibits MSD and
11A4 and 11A5, respectively. The District Ordinances approving these budgets are contained
the in the Budget, Tax and User Charge Ordinances sections of each budget document.
22. Please provide a copy of the Capital Improvement and Replacement Program
Budget for the fiscal years ending in 2009 and 2010 and a certified copy of the actions taken by
the Board of Trustees with respect to each such Program Budget.
RESPONDER: Brian Hoelscher, MSD Director of Engineering
RESPONSE: The 2009 and 2010 Capital Improvement and Replacement Program
Budgets (know as the MSD CIRP Supplemental Budgets) are provided as Exhibit MSD 11A6
and Exhibit MSD 11A7, respectively. Resolutions 2780 and 2824 adopting the 2009 and 2010
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CIRP Budget Supplements, respectively, are provided as Exhibits MSD 11A8 and 11A9. These
Board actions adopted the CIRP Budget Supplements as "necessary for implementing the
planning, design and construction of Infrastructure and Stormwater Projects throughout the
District's boundaries". The MSD Board of Trustees (Board) approves awards for specific CIRP
contracts via ordinance on a project by project basis. Providing certified copies of all such
ordinances is unrealistically voluminous to provide. All such ordinances are available via the
District's website www.stlmsd.com.
23. Please provide the actual Capital Improvement and Replacement Program (CIRP)
expenditures for the fiscal years ending in 2006 through 2010.
RESPONDER: Brian Hoelscher, MSD Director of Engineering
RESPONSE: Actual CIRP expenditures for fiscal years 2006 through 2010 are provided
below:
Cumulative
Total Actual Actual
Fiscal Year Expenditures Expenditures
2006 185,279,243 $ 185,279,243
2007 162,654,329 347,933,572
2008 183,636,170 531,569,743
2009 235,510,345 767,080,088
2010 205,665,404 972,745,492
$ 972,745,492
24. Describe what the CIRP expenditures shown in Table 3-8 on page 3-14 of the
MSD Wastewater Rate Change Proposal represent, e.g., expected annual cash expenditures or
encumbrances for projects initiated in those years. (See Ex. MSD 1.)
RESPONDER: Brian Hoelscher, MSD Director of Engineering
RESPONSE: The CIRP expenditures shown in Table 3-8 represent encumbrances.
25. Please provide a copy of the Capital Improvement and Replacement Program
Project Listing for the fiscal years ending in 2006 and 2010 and a certified copy of any action
taken by the Board of Trustees with respect to each such Project Listing.
RESPONDER: Brian Hoelscher, MSD Director of Engineering
RESPONSE: A Project list for Fiscal Years 2006 through 2010 is provided as Exhibit
MSD 11A10. The Board of Trustees approvals the award of CIRP contracts via ordinance on a
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project by project basis. Providing certified copies of any action taken by the Board with respect
to each such Project Listing is unrealistically voluminous to provide. All Ordinances related to
capital projects are, however, available via the District's website www.stlmsd.com.
26. Brian Hoelscher states that without a successful wastewater rate increase,
approximately $840 million in projects would need to be delayed which have a high priority.
(See lines 19-22 at p. 4.) Please describe how such projects to be delayed would be selected.
RESPONDER: Brian Hoelscher, MSD Director of Engineering
RESPONSE: Any decisions on which individual projects during this period would be
pursued and which would be delayed would require coordination with both State and Federal
regulators. However, based on the impact to the environment and where MSD would be in the
process of delivering the proposed program when a wastewater increase failed, the first priority
would probably be projects involving sanitary sewer overflows in the Deer Creek watershed. Of
second priority would be existing pipe repair and rehabilitation and starting design work on that
portion of the Long Term Control Plan involving the Lower River Des Peres and related work at
the Lemay Treatment Plant.
27. Please describe any other facts and circumstances which demonstrate whether the
Rate Change Proposal and all portions thereof whether and to what extent the Proposed Rate
Change is necessary to enable the District to comply with any covenant or provision relating to
any outstanding bonds or indebtedness of the District, together with a specific quantification of
the amount of the Proposed Rate change that is necessary for such purposes, as required by
§7.040 of the Charter Plan and §3(2)(c) of the Operational Rules.
RESPONDER # 2: Keith Barber, MSD Rate Consultant
RESPONSE: The Rate Change Proposal (Exhibit MSD 1) is not needed to meet the
existing the bond covenants requirements. The Rate Change Proposal (Exhibit MSD 1) is
designed to fund the next four year capital improvement program needed to satisfy regulatory
requirements. The Rate Change Proposal (Exhibit MSD 1) incorporates the generation of
revenue needed to satisfy future bond covenants anticipated with the bond program proposed in
Exhibit MSD 1.
Section 6.1.1 of the Master Bond Ordinance requires "100% of the Expenses of
Operation and Maintenance and for the accumulation in the Revenue Fund of a reasonable
reserve". The total cumulative increase in normal operation and maintenance expense over the
2012 amount is $23,337,800 (Exhibit MSD 1, Table 3-11, Line 16). The total increase in
operation and maintenance expense during the same period for additional expenses related to
proposed regulatory related facilities is $17,698,800 (Exhibit MSD 1, Table 3-11, Line 17) for a
total increase of $40,675,600. This combined amount exceeds the $36,233,300 of additional
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revenue provided by the 2012 approved rates over the same four-year period without allowing for
additional operating reserve deposits. Therefore, part of the rate change is required to meet
increased operation and maintenance expenses.
A minimum level of net revenues, which primarily results in cash financing of major
capital improvements, is also required to comply with the Maximum Annual Debt Service
Requirement (additional bonds test) and Debt Service Requirement (annual rate covenant debt
service coverage) specified by Sections 5.3.1 and 6.1.2 respectively of the Master Bond
Ordinance. To meet the minimum debt service requirements in 2016, net revenues must be at
least $130,808,000 for the ensuing year additional bonds test on total debt and $119,825,000 for
the annual rate covenant debt service requirement. However, 2016 net revenues under 2012
proposed rates is $51,324,500. Therefore, part of the rate change is required to meet minimum
debt service coverage requirements.
28. Please describe any other facts and circumstances which demonstrate whether the
Rate Change Proposal and all portions thereof is consistent with and not in violation of any
covenant or provision relating to any outstanding bond or indebtedness of the District, as
required by §7.270(3) of the Charter Plan and §3(2)(c) of the Operational Rules.
RESPONDER: Karl Tyminski, MSD Secretary/Treasurer
RESPONSE: Table 3-11 in the Rate Change Proposal (Exhibit MSD 1) demonstrates
the bond coverage requirements are met throughout the four year study period.
29. Please describe any other facts and circumstances which demonstrate that the Rate
Change Proposal and all portions thereof will enhance the District's ability to provide adequate
sewer and drainage systems and facilities, or related services as required by §7.270(2) of the
Charter Plan and §3(2)(b) of the Operational Rules.
RESPONDER: Jeff Theerman, MSD Executive Director
RESPONSE: The rate change proposal is needed to fund regulatory requirements
relating to deficiencies in the District's wastewater system including sewers, pump stations and
treatment plants. The focus of District projects and activities funded by the increase will be to
reduce overflows of untreated sewage into the regions streams and rivers. Additionally, the
District will fund projects and activities that will reduce the number and frequency of sewer
related basement backups which accompany rain events.
It is the District's perspective that our customers equate adequate wastewater sewer,
drainage systems, facilities and related services to a future state where infrastructure re-
investment occurs such that basement backups and sewage overflows are minimized or
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eliminated. This perspective is in alignment with the position that regulators have taken with
these same issues.
The entire rate increase is crafted to fund required infrastructure investment which is
detailed in a list of proposed projects and activities provided as (Exhibit MSD 11A10).
30. Please describe any other facts and circumstances which demonstrate whether the
Rate Change Proposal and all portions thereof is necessary to enable the District to provide for
the costs of operation and maintenance and such other amounts as may be required to cover
emergencies and anticipated delinquencies as required by §7.040 of the Charter Plan.
RESPONDER: Keith Barber, MSD Rate Consultant
RESPONSE: The necessity for the Rate Change is documented in the Wastewater Rate
Proposal (Exhibit MSD 1) and Direct Testimony submitted by the District (Exhibits MSD 9 — 9f)
Adjustments for bad debt allowances are included in Table 2-3 of the Rate Change Proposal
(Exhibit MSD 1) and cash balances maintained in the operating reserve and other cash reserves
could be available to address emergency situations on a short-term basis if required.
As noted in Section 1.2 of the Rate Change Proposal (Exhibit MSD 1), the proposal relies
upon "certain assumptions with respect to conditions, events, and circumstances that may occur
in the future". Although considered reasonable, some of these anticipated conditions, events and
circumstances may not occur resulting in potential differences in revenues and costs than
currently projected. For example, lower revenues could result from a greater decrease in the
customer base than currently anticipated while higher than anticipated inflation rates would place
upward pressure on operation and maintenance (O&M) costs.
Due to the Consent Decree, the signature authorization of which is on the June 9th Board
Meeting agenda for consideration, the District's ability to alter the proposed CIRP is very
limited. Additional funding available due to higher revenues or lower costs would be expected,
by the regulatory authorities, to be used to cash finance more capital projects. A potential
increase in cash would also allow the District to reduce the proposed bonding level and the
associated long-term debt service costs. Conversely, lower revenues or higher O&M and/or
construction costs would require the District to either increase the proposal bonding level and
associated debt service costs or generate more cash on a PAYGO basis in order to meet the
conditions of the Consent Decree.
The more optimistic scenario of higher revenues and/or lower costs in conjunction with
expectations to apply additional cash funding to the CIRP would result in the proposed rates
remaining unchanged. The opposite scenario would potentially result in higher rates for District
customers.
15
31. Brian Hoelscher states that wastewater projects are selected from the existing
Capital Improvement Plan database based on their level of potential impact on the environment,
and then scheduling and sequencing constraints. (See lines 1-8 at p. 4.) Please provide copies of
the selection analysis.
RESPONDER: Brian Hoelscher, MSD Director of Engineering
RESPONSE: MSD's current criteria for ranking projects is provided as Exhibit MSD
11A11 .While MSD is still using this criteria, additional criteria and requirements may result
from MSD's current litigation with the EPA. These anticipated additional requirements and
criteria are reflected in the CIRP represented in the Rate Change Proposal (Exhibit MSD 1).
32. Brian Hoelscher states that the District, with the assistance of design and
construction management consultants, has the resources to successfully manage, construct and
complete the $1.3 Billion Wastewater Capital Improvement and Replacement Program within the
six -year period presented in the Rate Proposal. (See lines 2-5 at p. 3.) Please provide a copy of
each memorandum, report, work paper, summary, analysis or schedule which supports this
conclusion.
RESPONDER: Brian Hoelscher, MSD Director of Engineering
RESPONSE: Provided as Exhibit MSD 11Al2, is a memo explaining the determination
of sufficient resource. This Exhibit also includes several charts and graphs that represent the
underlying analysis completed to assure MSD has sufficient internal resources to execute the
proposed CIRP program. Based MSD's experience with these resources and continuous
communications with various industry groups it was determined a more detailed analysis was not
needed.
33. Please (a) describe any other facts and circumstances which demonstrate that the
measures taken by the District to ensure that the cost of constructing and maintaining the
District's facilities and providing related services are being incurred in a reasonable and efficient
manner;
RESPONDER: Jonathon Sprague, MSD Director of Operations
RESPONSE: The District regularly conducts analysis to manage its Operations and
Maintenance (O&M) costs in order to ensure services are delivered in an efficient manner. A
major District benchmark to measure the efficiency of its sewer operations and maintenance is
the comparison of its Million Gallons of Wastewater (MGD) treated O&M costs against a regular
national survey conducted by the National Association of Clean Water Agencies (NACWA). The
cost per MGD treated is a standardized metric that allows a normalized view of different utilities'
16
costs. The last available NACWA survey was conducted in 2008 reflective of 2007 data and is
provided as Exhibit MSD 11A13.
In an average year, the District treats approximately 350 million gallons a day, or 127,750
million gallons a year.
Comparison of District O&M Costs to NACWA Averages
Operating Costs Scenarios
Annual Cost
Avg
Annual flow
Cost
per
MGD
NACWA
per
MGD
1. Total projected 2011 Operations O&M costs.
(Exhibit MSD 1, table 3-7, line 13)
$70,203,000
127,750 mgd
$550
$1,747
2. Total projected 2011 Operations including Asset
Management costs.
(Exhibit MSD 1, Table 3-7, Line 8 plus Table 3-8, Line 8)
$85,900,000
127,750 mgd
$672
$1,747
3. Total projected 2011 District O&M costs plus Asset
Management costs.
(Exhibit MSD 1, Table 3-7, Line 23 plus Table 3-8, Line 8)
$152,470,400
127,750 mgd
$1,193
$1,747
The District's O&M costs in all three scenarios above, are lower than the national average
reported by NACWA. NACWA's costs, however, do not include an overhead component which
is reflected in the District's numbers. Scenario # 3 above reflects the District's total O&M costs
including the cost of an Asset Management Program. As a result, compared to the NACWA
benchmark, the total District's operations managed more efficiently than an average utility as
defined by NACWA.
Two presentations documents entitled MSD In -sources Flow Metering Program and
System Wide Cleaning Program are provided as Exhibit MSD 11A14 and Exhibit MSD 11A15,
respectively. Exhibit MSD 11A14 outlines the transfer of a previously contracted flow
monitoring program to MSD resources. This transfer resulted in an approximate three million
dollar cost savings providing further evidence of the District's commitment to obtaining cost
efficiencies. Exhibit MSD 11A15 outlines the improvements in customer service and in response
to overflows associated with the District's system wide sewer cleaning program.
(b) include copies of all internal or external audit reports that address such matters as
required by § 3(2)(f) of the Operational Rules.
RESPONDER: Jan Zimmerman, MSD Director of Finance
RESPONSE: Copies of all internal audits conducted in FY10 and FY11 are provided as
Exhibits MSD 11A16 — 11A27. Copies of internal audits prior to FY1 are unrealistically
voluminous to provide. These copies are available upon request. A copy of the District's June
30, 2010 annual audit is provided as Exhibit MSD 11A28.
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34. Please state (a) whether the District's Long -Term Combined Sewer
Overflow/Sanitary Sewer Overflow (CSO/SSO) Control Plan as updated meets the requirements
of and has been approved by the United States Environmental Protection Agency (EPA) or the
Missouri Department of Natural Resources (MDNR).
RESPONDER: Susan Myers, MSD General Counsel
RESPONSE: Combined Sewer Overflow (CSO) Long Term Control Plan (LTCP) —
Requires the construction and implementation of CSO Control Measures in accordance with the
requirements and schedule set forth in the approved CSO LTCP and consent decree. On June 1,
2011, the State of Missouri approved Chapter 11 "Selected Plan", Chapter 12 "Green
Infrastructure Program", and Appendix Q "MSD's Green Infrastructure Program" of the
Metropolitan St. Louis Sewer District's Combined Sewer Overflow Long -Term Control Plan
Update Report, dated February 2011. The projects in the LTCP will be completed 23 years after
the LTCP approval by the State of Missouri.
35. Jeffrey Theerman states that the Proposed Rate Change is consistent with
constitutional, statutory or common law, as amended from time to time. (See lines 20-22 at p. 2.)
Please (a) describe the analysis which supports this conclusion; and (b) provide a copy of any
memorandum, report, work papers, summary, analysis or schedule which supports this
conclusion.
RESPONDER: Jan Zimmerman, MSD Director of Finance
RESPONSE: See Susan Myers' May 13, 2011 Direct Testimony response to Question 7,
pages 2 -4.
36. Please describe any current or threatened enforcement proceeding of the United
States EPA or the MDNR with respect to combined sewer overflows or sanitary sewer overflows
within the District.
RESPONDER: Susan Myers, MSD General Counsel
RESPONSE: The United States of America and the State of Missouri filed a civil action
against the District on June 11, 2007 that alleged the District had been in violation of the Clean
Water Act by discharging untreated sewage from its collection system through combined sewer
overflows and constructed sanitary sewer overflows. The Plaintiffs also made allegations that the
District was in violation of conditions established in the National Pollutant Discharge
Elimination System ("NPDES") permits issued to MSD by MDNR. The Coalition intervened in
this action in 2007. All of the parties to the action have engaged in extensive mediation of the
matters at issue in settlement of all allegations made by the Plaintiffs in this action. The
representatives of the District, the United States, and the Coalition have negotiated the terms and
18
language of the Consent Decree which would resolve all allegations of the Complaints. The
Consent Decree will still need to be approved by the appropriate officials of the Parties. The
State of Missouri has decided, after joining the action as a Plaintiff and participating in the
extensive mediation in cooperation with the Plaintiff's for almost four years, not to sign the
Consent Decree.
The U.S. and State of Missouri's Petition filed June 11, 2007 and the Coalition For the
Environment's Motion to Intervene are provided as Exhibit MSD 11A29 and Exhibit MSD
11A30, respectively. A resolution to authorize the District to signed the Consent Decree is the
agenda for the June 9, 2011 Board Meeting. This resolution and the associated Detail Sheet are
provided as Exhibit MSD 11A31 and Exhibit MSD 11A32, respectively.
37. Please describe any current or threatened enforcement proceeding of the United
States EPA or the MDNR regarding wastewater to which the District is subject and the current
status of any such proceeding.
RESPONDER: Susan Myers, MSD General Counsel
RESPONSE: The United States of America and the State of Missouri filed a civil action
against the District on June 11, 2007 that alleged the District had been in violation of the Clean
Water Act by discharging untreated sewage from its collection system through combined sewer
overflows and constructed sanitary sewer overflows. The Plaintiffs also made allegations that the
District was in violation of conditions established in the National Pollutant Discharge
Elimination System ("NPDES") permits issued to MSD by MDNR. The Coalition intervened in
this action in 2007. All of the parties to the action have engaged in extensive mediation of the
matters at issue in settlement of all allegations made by the Plaintiffs in this action. The
representatives of the District, the United States, and the Coalition have negotiated the terms and
language of the Consent Decree which would resolve all allegations of the Complaints. The
Consent Decree will still need to be approved by the appropriate officials of the Parties. The
State of Missouri has decided, after joining the action as a Plaintiff and participating in the
extensive mediation in cooperation with the Plaintiff's for almost four years, not to sign the
Consent Decree.
The U.S. and State of Missouri's Petition filed June 11, 2007 and the Coalition For the
Environment's Motion to Intervene are provided as Exhibit MSD 11A29 and Exhibit MSD
11A30, respectively. A resolution to authorize the District to signed the Consent Decree is the
agenda for the June 9, 2011 Board Meeting. This resolution and the associated Detail Sheet are
provided as Exhibit MSD 11A31 and Exhibit MSD 11A32, respectively.
19
38. Please describe any current or threatened enforcement proceeding of the United
States EPA or the MDNR regarding other wastewater facilities within the State of Missouri.
RESPONDER: Susan Myers, MSD General Counsel
RESPONSE: The United States of America and the State of Missouri filed a civil action
against the District on June 11, 2007 that alleged the District had been in violation of the Clean
Water Act by discharging untreated sewage from its collection system through combined sewer
overflows and constructed sanitary sewer overflows. The Plaintiffs also made allegations that the
District was in violation of conditions established in the National Pollutant Discharge
Elimination System ("NPDES") permits issued to MSD by MDNR. The Coalition intervened in
this action in 2007. All of the parties to the action have engaged in extensive mediation of the
matters at issue in settlement of all allegations made by the Plaintiffs in this action. The
representatives of the District, the United States, and the Coalition have negotiated the terms and
language of the Consent Decree which would resolve all allegations of the Complaints. The
Consent Decree will still need to be approved by the appropriate officials of the Parties. The
State of Missouri has decided, after joining the action as a Plaintiff and participating in the
extensive mediation in cooperation with the Plaintiff's for almost four years, not to sign the
Consent Decree.
The U.S. and State of Missouri's Petition filed June 11, 2007 and the Coalition For the
Environment's Motion to Intervene are provided as Exhibit MSD 11A29 and Exhibit MSD
11A30, respectively. A resolution to authorize the District to signed the Consent Decree is the
agenda for the June 9, 2011 Board Meeting. This resolution and the associated Detail Sheet are
provided as Exhibit MSD 11A31 and Exhibit MSD 11A32, respectively.
39. Please describe any current or threatened enforcement proceeding of the United
States EPA or the MDNR or state environmental agencies regarding the wastewater facilities of
the 50 largest wastewater facilities in the United States.
RESPONDER: Susan Myers, MSD General Counsel
RESPONSE: The United States of America and the State of Missouri filed a civil action
against the District on June 11, 2007 that alleged the District had been in violation of the Clean
Water Act by discharging untreated sewage from its collection system through combined sewer
overflows and constructed sanitary sewer overflows. The Plaintiffs also made allegations that the
District was in violation of conditions established in the National Pollutant Discharge
Elimination System ("NPDES") permits issued to MSD by MDNR. The Coalition intervened in
this action in 2007. All of the parties to the action have engaged in extensive mediation of the
matters at issue in settlement of all allegations made by the Plaintiffs in this action. The
representatives of the District, the United States, and the Coalition have negotiated the terms and
language of the Consent Decree which would resolve all allegations of the Complaints. The
Consent Decree will still need to be approved by the appropriate officials of the Parties. The
20
State of Missouri has decided, after joining the action as a Plaintiff and participating in the
extensive mediation in cooperation with the Plaintiff's for almost four years, not to sign the
Consent Decree.
The U.S. and State of Missouri's Petition filed June 11, 2007 and the Coalition For the
Environment's Motion to Intervene are provided as Exhibit MSD 11A29 and Exhibit MSD
11A30, respectively. A resolution to authorize the District to signed the Consent Decree is the
agenda for the June 9, 2011 Board Meeting. This resolution and the associated Detail Sheet are
provided as Exhibit MSD 11A31 and Exhibit MSD 11A32, respectively.
40. Please describe any other facts and circumstances which demonstrate whether the
Rate Change Proposal and all portions thereof is consistent with constitutional, statutory, or
common law, as amended from time to time, as required by §7.270(1) of the Charter Plan.
RESPONDER: Jan Zimmerman, MSD Director of Finance
RESPONSE: See Susan Myers' May 13, 2011 Direct Testimony response to Question 7,
pages 2 -4.
41. Please describe any other facts and circumstances which demonstrate that the Rate
Change Proposal and all portions thereof are necessary to enable the District to comply with
applicable federal or State laws or regulations as amended from time to time, together with a
specific quantification of the amount of the Rate Change Proposal that is necessary for such
purposes as required by § 3(2)(d) of the Operational Rules.
RESPONDER: Jan Zimmerman, MSD Director of Finance
RESPONSE: See Susan Myers' May 13, 2011 Direct Testimony response to Question 6,
pages 1 and 2.
42. Please describe any other facts and circumstances which demonstrate whether the
Rate Change Proposal and all portions thereof does not impair the ability of the District to
comply with applicable Federal or State laws or regulations as amended from time to time as
required by §7.270(4).
RESPONDER: Jan Zimmerman, MSD Director of Finance
RESPONSE: See Brian Hoelscher's May 13, 2011 Direct Testimony response to
Question 7, page 2 and Jeff Theerman's May 13, 2011 Direct Testimony response to Question
11, page 3.
21
43. Please describe any other facts and circumstances which demonstrate that the Rate
Change Proposal and all portions thereof imposes a fair and reasonable burden on each class of
ratepayers, including whether and how cost of service considerations have been factored into
such determination as required by §3(2)(e) of the Operational Rules.
RESPONDER: Keith Barber, MSD Rate Consultant
RESPONSE: All necessary facts and circumstances which demonstrate that the Rate
Change Proposal (Exhibit MSD 1) and all portions thereof imposes a fair and reasonable burden
on each class of ratepayers, including whether and how cost of service considerations have been
factored into such determination have been presented in the following:
Keith Barber's May 13, 2011 Direct Testimony (Exhibit MSD 9F), Q71 — Q108 (pages
23 — 35); Rate Change Proposal (Exhibit MSD 1) Sections 3.7 and 3.8.
44. Please describe any other facts and circumstances which demonstrate whether the
Rate Change Proposal and all portions thereof imposes a fair and reasonable burden on all classes
of ratepayers as required by §7.270(5) of the Charter Plan.
RESPONDER: Keith Barber, MSD Rate Consultant
RESPONSE: See response to Question 43 above.
45. Please describe any other facts and circumstances which demonstrate whether the
Rate change Proposal and all portions thereof why the Proposed Rate Change set forth in the
Rate Change Notice is necessary, fair and reasonable, as required by §3(2)(a) of the Operational
Rules.
RESPONDER: Keith Barber, MSD Rate Consultant
RESPONSE: See response to Question 43 above.
46. Please describe any other facts and circumstances which demonstrate that the Rate
Change Proposal and all portions thereof imposes a fair and reasonable burden on each class of
ratepayers, including whether and how cost causation principles, have been factored into such
determination as required by § 3(2)(e) of the Operational Rules.
RESPONDER: Keith Barber, MSD Rate Consultant
RESPONSE: All necessary facts and circumstances which demonstrates that the Rate
Change Proposal (Exhibit MSD 1) and all portions thereof imposes a fair and reasonable burden
22
on each class of ratepayers, including whether and how cost causation principles have been
factored into such determination have been presented in the following:
Keith Barber's May 13, 2011 Direct Testimony (Exhibit MSD 9F), Q78 — Q82 (pages 25
- 27) and Section 3.7 of the Rate Change Proposal (Exhibit MSD 1).
47. Please describe any other facts and circumstances which demonstrate that the Rate
Change Proposal and all portions thereof imposes a fair and reasonable burden on each class of
ratepayers, including whether and how customer impact data has been factored into such
determination as required by § 3(2)(e) of the Operational Rules.
RESPONDER: Keith Barber, MSD Rate Consultant
RESPONSE: All necessary facts and circumstances which demonstrates that the Rate
Change Proposal (Exhibit MSD 1) and all portions thereof imposes a fair and reasonable burden
on each class of ratepayers, including whether and how customer impact data has been factored
into such determination have been presented in the following:
Keith Barber's May 13, 2011 Direct Testimony (Exhibit MSD 9F), Q107 & Q108 (page
35); Q120 — Q123 (pages 39 — 42); and Section 5.0 of the Rate Change Proposal (Exhibit MSD
1).
48. Please describe any other facts and circumstances which demonstrate that the Rate
Change Proposal (Exhibit MSD 1) and all portions thereof imposes a fair and reasonable burden
on each class of ratepayers, including whether and how economic development considerations
have been factored into such determination as required by § 3(2)(e) of the Operational Rules.
RESPONDER: Keith Barber, MSD Rate Consultant
RESPONSE: All necessary facts and circumstances which demonstrates that the Rate
Change Proposal and all portions thereof imposes a fair and reasonable burden on each class of
ratepayers have been presented in the following:
Keith Barber's May 13, 2011 Direct Testimony (Exhibit MSD 9F), Q8 (page 2); Rate
Change Proposal (Exhibit MSD 1) Section 3.9.2 (page 3-33) and Section 5.6 (page 5-11).
Economic development considerations have not been factor into the determination of
wastewater charges. Any discounted wastewater rates for targeted customers to potentially
promote economic development deviates from cost of service principles and results in
subsidization of the targeted customers by other ratepayers. According to Page 162 of the Water
Environmental Federation (WEF) Manual of Practice No. 27 titled "Financing and Charges for
23
Wastewater Systems", the use of economic factors in the development of rates is relatively
uncommon. The referenced WEF Manual is available at www.wef.org.
49. Please describe any other facts and circumstances which demonstrate that the Rate
Change Proposal and all portions thereof imposes a fair and reasonable burden on each class of
ratepayers, including whether and how environmental effects have been factored into such
determination as required by § 3(2)(e) of the Operational Rules.
RESPONDER: Keith Barber, MSD Rate Consultant
RESPONSE: All necessary facts and circumstances which demonstrates that the Rate
Change Proposal (Exhibit MSD 1) and all portions thereof imposes a fair and reasonable burden
on each class of ratepayers have been presented in the following:
Keith Barber's May 13, 2011 Direct Testimony (Exhibit MSD 9F), Q8 (page 2); Rate
Change Proposal (Exhibit MSD 1) Section 3.9.2 (page 3-33) and Section 5.6 (page 5-11).
Environmental effects are not considered in the Rate Change Proposal (Exhibit MSD 1)
other than those that may have been considered in developing projected CIRP costs.
50. Please describe any other facts and circumstances which demonstrate that the Rate
Change Proposal (Exhibit MSD 1) and all portions thereof imposes a fair and reasonable burden
on each class of ratepayers, including whether and how any other factors have been factored into
such determination as required by § 3(2)(e) of the Operational Rules.
RESPONDER: Keith Barber, MSD Rate Consultant
RESPONSE: All necessary facts and circumstances which demonstrates that the Rate
Change Proposal and all portions thereof imposes a fair and reasonable burden on each class of
ratepayers have been presented in the following:
Keith Barber's May 13, 2011 Direct Testimony (Exhibit MSD 9F), Q8 (page 2); Rate
Change Proposal (Exhibit MSD 1) Section 3.9.2 (page 3-33) and Section 5.6 (page 5-11).
Other factors included in the Rate Change Proposal (Exhibit MSD 1) include the
development of a new environmental compliance charge rate structure (Section 3.9.2.3, page 3-
37) and the possibility of the need for alternative wastewater rates should the proposed bond
initiative fail (Section 3.10, page 3-39). Additional factors noted in Keith Barber's May 13, 2011
Direct Testimony (Exhibit MSD 9F) include an allowance for normal billing lag (Q73, page 24);
and consideration of customer classification factors (Q83 — Q88, pages 27 - 28).
24
51. Please provide the District's actual bad debt expense, actual write-offs, and end of
year bad debt balance for the fiscal years ending in 2006 through 2010.
RESPONDER: Jan Zimmerman, MSD Director of Finance
RESPONSE: The District's actual bad debt expense and write-offs for Fiscal Years
2006 through 2010 is provided in the table below.
Fiscal Year
Actual Bad
Debt
Actual Write
-Offs
Year -End Bad
Debt Balance
2006
$ 3,160,972
$1,249,286
$ (27,358,586)
2007
$ 4,193,703
$ 1,560,904
$ (32,939,693)
2008
$ 5,161,982
$ 1,495,764
$ (36,361,784)
2009
$ 9,678,495
$2,257,786
$(41,945,955)
2010
$10,187,508
$ 2,038,625
$ (51,856,057)
2011 **
$ 9,134,359
$ 2,049,432
$ (56,359,216)
**2011 is thru April 30, 2011.
52. Please provide an aged receivables report for the end of each fiscal year ending
2006 through 2010.
RESPONDER: Jan Zimmerman, MSD Director of Finance
RESPONSE: An aged receivables report is provided as Exhibit MSD 11A33.
53. Please provide a description of the District's process for securing payment of
receivables from delinquent accounts.
RESPONDER: Jan Zimmerman, MSD Director of Finance
RESPONSE: During fiscal year 2011 the District has undertaken the revamping of its
collection procedures to address more of its delinquencies in a timely manner. Below is a
description of each phase of the plan.
Pre -collect
This phase was implemented as a pilot program to make phone calls to customers that are less
than 120 days delinquent reminding them of their past due amount and giving them the option to
make a payment immediately or to speak with a representative to make payment arrangements.
This program was implemented in pilot form January — February 2011 and is scheduled to be
fully implemented in July 2011.
Collection agencies
The District is currently contracted with four collection agencies to collect commercial and
residential accounts that are greater than 90 days and 120 days delinquent, respectively. The
collection plan includes the implementation of an algorithm that requires the collection agencies
to collect at least the current charges for the account as well as a percentage of the past due
25
amount in order to maintain the account in their portfolio. The account is systematically
reviewed on a monthly basis and if the algorithm is not met, the account is automatically sent to
the next phase of collections. With the implementation of the Collection Plan, 15,268 accounts
valued at $11M were identified as not having met the algorithm and therefore moved in April
2011 to the next phase of collections (2nd placement collection agency). Additionally 15,768
accounts valued at $26M were identified as not having made any payments within to past year
and therefore moved in March 2011 to a more aggressive phase of the collection plan (legal
action).
2' placement collection agency
The District is currently contracted with one 2nd placement collection agency to collect
commercial and residential accounts that are greater than 90 days and 120 days delinquent,
respectively. Meeting the algorithm described above is also required of the 2nd placement
collection agency. Accounts not meeting the algorithm are automatically sent to the next phase of
collections.
Law firms
The District is currently contracted with three law firms to collect commercial and residential
accounts greater than 90 days and 120 days delinquent, respectively. If a law firm's collection
attempts are unsuccessful, court judgments against the owner of the property are sought. More
aggressive legal options are pursued, such as Writ of Execution, wage or asset garnishment and
cash box levies as needed to collect the debt.
Liens
The District has the authority to place a lien on any property with an account greater than 90 days
past due. With the collection plan the processing of liens is being outsourced to increase the
coverage of lien placement, thereby securing more of the District's delinquencies in the event of
a change in ownership. There are currently 18,952 accounts valued at $24.3M eligible for lien
placement.
Low Income Program
In an effort to address customers who do not have the ability their sewer bills, the District
expanded its low income program to include tenants and multi -unit properties with up to six
units. This new program became available in January 2011 and discounts the customer's
monthly bill by 50% upon their payment of the other 50%. There are currently approximately
1,900 customers in the program.
26
54. Please provide the forecasted expense related to the Low -Income Assistance
Program described on page 3-33 of the MSD Wastewater Rate Change Proposal. (See Ex. MSD
1.)
RESPONDER: Keith Barber, MSD Rate Consultant
RESPONSE: Expenses related to maintaining the Low -Income Assistance Program are
not separately identified in the Rate Change Proposal (Exhibit MSD 1). The revenue credits
expected to be provided to qualified low-income customers is projected to increase from
$360,000 in 2013 to $579,700 in 2016 (Exhibit MSD 4, Page B-14). This estimate includes
assistance to low-income multifamily customers that increases from $32,900 in 2013 to $85,900
in 2016.
55. Please provide the actual expense related to the Low -Income Assistance Program
for the fiscal years ending 2006 through 2010.
RESPONDER: Keith Barber, MSD Rate Consultant
RESPONSE: Revenue credits recorded for qualified low-income customers were
$446,837 in 2006, $303,800 in 2007, $114,600 in 2008, $171,900 in 2009, and $261,600 in 2010
per Page B-13 of Exhibit MSD 4. Revenue credits were not available to low-income multifamily
customers during this period but they are available during the 2013 through 2016 study period.
56. Please provide billed consumption and account data as shown in Tables 3-1 and 3-2
of the MSD Wastewater Rate Change Proposal for the current fiscal year to date. (See Ex. MSD
1.)
RESPONDER: Keith Barber, MSD Rate Consultant
RESPONSE: The District maintains a summary of monthly billed wastewater volume
and account data which is totaled to derive annual number of bills and billed wastewater volume.
These annual amounts are used by the rate model for analysis and projection purposes. The
number of bills and billed wastewater volume for fiscal year 2011 is provided as Exhibit MSD
11A34.
27
57. Please provide a hard copy of Exhibit MSD's 4 and 5. Please provide an Excel
version of the rate model shown in Exhibit MSD's 4 and 5 to facilitate the Rate Commission's
review of the methodology used.
RESPONDER: Keith Barber, MSD Rate Consultant
RESPONSE: The Rate Model supporting the District's Rate Change Proposal (Exhibit
MSD 1) was developed by Black & Vetch, the District's rate consultants, and contains
proprietary information that can not be released to the public. The Rate Proposal contains the
primary calculation tables and text describing those tables and the general rate making
methodology. Hard copies of all underlying Tables and Formulas used within the rate model are
provided as Exhibits MSD 4 and MSD 5.
Res tfully submitted,
usan Myers, General Counsel
METROPOLITAN ST. LOUIS SE
2350 Market Street
St. Louis, Missouri 63103
smyers@stlmsd.com
Tel: (314) 768-6200
Fax: (314) 768-6372
28
ER 'STRICT