Loading...
HomeMy Public PortalAboutExhibit MSD 56A MSD Response to BJH 2nd Discovery RequestExhibit MSD 56A BEFORE THE RATE COMMISSION OF THE METROPOLITAN ST. LOUIS SEWER DISTRICT AUGUST 22, 2011 RESPONSE TO THE SECOND DISCOVERY REQUEST OF BARNES JEWISH HOSPITAL TO MSD METROPOLITAN ST. LOUIS SEWER DISTRICT RESPONSE ISSUE: WASTEWATER RATE CHANGE PROPOSAL WITNESS: METROPOLITAN ST. LOUIS SEWER DISTRICT SPONSORING PARTY: BARNES JEWISH HOSPITAL DATE PREPARED: AUGUST 22, 2011 Metropolitan St. Louis Sewer District 2350 Market Street St. Louis, Missouri 63103 AUGUST 22, 2011 RESPONSE TO THE SECOND DISCOVERY REQUEST OF BARNES JEWISH HOSPITAL EXHIBIT 56A 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 AUGUST 22, 2011 RESPONSE TO THE SECOND DISCOVERY REQUEST OF BARNES JEWISH HOSPITAL 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 submits this response to the Second Discovery Request of Barnes Jewish Hospital, Dated August 11, 2011, regarding the Rate Change Notice dated May 10, 2011 (the "Rate Change Notice"). Metropolitan St. Louis Sewer District Response 1. In MSD Exhibit 1, Table 3-8, page 3-14, and MSD Exhibit 1, Table 3-9, the total CIRP for FY2013-FY2016 is $1.006 billion. In MSD Exhibit 9B, page 2, line 10, Mr. Brian Hoelscher states that "the size of the CIRP reflected in the Rate Proposal is over $1.0 billion over the four fiscal years 2013-2016". In MSD Exhibit 9B1 and MSD Exhibit 50A, the amount of the CIRP for FY2013 — FY2016 is $884.7 million. Page 2 of 8 AUGUST 22, 2011 RESPONSE TO THE SECOND DISCOVERY REQUEST OF BARNES JEWISH HOSPITAL EXHIBIT 56A A) Please explain why Mr. Hoelscher defined the CIRP as "over $1.0 billion" in his testimony and how that compares to the $884.7 million in MSD Exhibits 9B1 and 50A. RESPONSE: The costs shown in Exhibits MSD 9B1 and 50A are expressed at a 2010 cost level. Applying the same 3 percent annual inflation rate to these amounts produces a total inflated amount of $1,008,622,000 which is 0.17 percent greater than the $1,006,878,000 value reported in Table 3-8 and presented in the table below. Comparison of Consent Decree CIRP Costs with Projected Rate Model CIRP Costs Fiscal Exhibit 50A Inflation Exhibit 50A Rate Model Percent Year Uninflated Factor Inflated Inflated Difference Difference $ $ $ $ 2011 1.03000 2012 1.06090 2013 255,819,000 1.09273 279,540,000 273,807,000 5,733,000 2.05% 2014 203,777,000 1.12551 229,353,000 237,428,000 (8,075,000) -3.52% 2015 227,534,500 1.15927 263,775,000 261,630,000 2,145,000 0.81% 2016 197,607,750 1.19405 235,954,000 234,013,000 1,941,000 0.82% Total 884,738,250 1,008,622,000 1,006,878,000 1,744,000 0.17% B) Please explain in detail the process that MSD used to derive the CIRP amounts in Table 3-8 and MSD Exhibits 9B1 and 50A. RESPONSE: Table 3-8 is based on inflated costs of capital cost categories available from the Engineering Department at the time the report was published. Minor increases in these values have occurred since this time as noted in the table above. 2. MSD Exhibit 50 Response, 2-2.3 states "Exhibit MSD 50A may be used to link the CD to rate proposal tables (sic) 3-8, page 3-14, line 12 and table 3-9 page 3-15 of the Rate Proposal." Please explain how these may be "linked" when the amounts are not the same, in total or for each fiscal year. RESPONSE: They are approximately the same in total when expressed at the same inflated cost levels (see table above for Question 1A). 3. In MSD Exhibit 18A4, the Total Inflated Cash Expenses for CIRP for FY2013-FY2016 is $971.6 million. The Total 2010 Cash Expense is $884.7 million in 2010$. Page 3 of 8 AUGUST 22, 2011 RESPONSE TO THE SECOND DISCOVERY REQUEST OF BARNES JEWISH HOSPITAL A) Please explain why MSD used a 3% inflation factor. EXHIBIT 56A RESPONSE: The District used a composite of several inflation indices specific to MSD expense types as the basis for its inflation assumption. These inflation indices include the Consumer Price Index for All Urban Customers (CPI -U), the Producer Price Index, Fuel and Energy components of the CPI and operational and construction cost indices from the Engineering News -Record. The CPI -U consists of a "market basket" of goods and services not relevant to the goods and services provided by the District. The U.S. Bureau of Labor Statistics defines CPI -U as an index based on the prices of food, clothing, shelter, transportation fares, charges for doctors' and dentists' services, drugs and the other goods and services that people buy for day-to-day living. Per the U.S. Bureau of Labor Statistics, prices of these types of items are collected, on a monthly basis, in 87 urban areas across the country from approximately 4,000 housing units and 25,000 retail establishments such as department stores, supermarkets, hospitals, gas stations, and other types of stores and service establishments. The CPI -U data is collected from urban populations consisting of individual wage earners and groups such as professional, managerial and technical workers, the self-employed, short- term workers, the unemployed, retirees and others not in the work force. While the CPI -U may be used as an inflation indicator for some of the District's O&M costs, the majority of its O&M expenses consist of a combination of expenses impacted by more specific inflation indexes such as the energy and fuel components of the CPI, the Producer Price Index (PPI) and construction and operational supply cost indices published by the Engineering News -Record (ENR). Other O&M expenses are primarily impacted by factors other than inflation like investment market conditions, actuarial traits of the MSD work force and short term historical MSD expense trends. A composite rate based on these inflation indices is 4.50%. The District used a 3% rate to reflect cost efficiencies and an estimate of potential future trends. The use of an inflation assumption lower than the 4.46% composite rate provides a conservative projection to assure sufficient revenue is generated by the proposed rates to recover the District's cost and funding the required CIRP program. B) Please explain why the appropriated amount for CIRP varies from the total inflated cash amount by $35.3 million ($1,006 million less $971.6 million). RESPONSE: Appropriations, as presented in Table 3-8 of the rate proposal, are set to fund projects over a multi -year period whereas actual expenditures reflect Page 4 of 8 AUGUST 22, 2011 RESPONSE TO THE SECOND DISCOVERY REQUEST OF BARNES JEWISH HOSPITAL EXHIBIT 56A appropriations actually spent during the year. Typically, most projects can be completed over a two-year period where approximately 60 percent of the appropriations are expended during the first year and 40 percent during the second year. Although fiscal year budgets provide sufficient funds for all projected appropriations during the year, projects are typically staggered during the year as projects become ready to bid. Also, a lag of typically 2-3 months from introduction of the appropriate ordinance to the first payment to the contractor is needed to introduce and adopt the necessary ordinances, provide time for contractors to mobilize and to pay contractors for work completed during the prior month. In addition, large projects that will take more than two years to complete are typically appropriated in phases to reduce annual appropriation amounts. Therefore, current appropriations will never match current expenditures but total unspent appropriations should always exceed actual costs to be expended. The amount of appropriations in excess of amounts remaining to be spent will vary based on the relative magnitude of the CIRP in a year compared to the CIRP for the prior year. 4. In MSD Exhibit 9B, page 5, lines 11 — 14, Mr. Hoelscher states that "because of this economic condition, the District was receiving bids for capital work that in some cases was 40% below traditional costs. This created additional funds which could be used to complete projects beyond the original program budget." Please provide the amount of the additional funds that became available due to economic conditions. RESPONSE: MSD has not performed a study to determine the amount of the additional funds that became available due solely to economic conditions. More importantly, what MSD does do, is to constantly monitor the current and projected status of fund balances as they are adjusted from the original rate proposal for whatever reason and makes adjustments to the program to make sure that all needed projects can be funded and that any additional funds are used to construct projects needed in the future. 5. In MSD Exhibit 9B, page 5, Mr. Hoelscher explains that during the FY2008-FY2012 period, MSD had to fund the construction of disinfection facilities. The cost of this construction was not anticipated at the time MSD filed its Rate Proposal for the FY2008- FY2012 period. What was the additional cost to complete the construction of the disinfection facilities? RESPONSE: See answer to Question 1-12 on MSD Exhibit 16. Page 5 of 8 AUGUST 22, 2011 RESPONSE TO THE SECOND DISCOVERY REQUEST OF BARNES JEWISH HOSPITAL EXHIBIT 56A 6. In MSD Exhibit 50A, several projects over the period FY2013—FY2016 are designated as either "supplemental appropriation" or "supplemental." Please explain what each term means. RESPONSE: Both mean the same thing. These are yearly appropriations for projects where the vendor and initial appropriation were in a previous fiscal year and the total cost of the project was not appropriated in the initial year. iik Susan Myers, General Counsel METROPOLITAN ST. LOUIS SEWER DISTRICT 2350 Market Street St. Louis, Missouri 63103 smyers@stlmsd.com Tel: (314) 768-6200 Fax: (314) 768-6372 Page 6 of 8 AUGUST 22, 2011 RESPONSE TO THE SECOND DISCOVERY REQUEST OF BARNES JEWISH HOSPITAL CERTIFICATE OF SERVICE The undersigned hereby certifies that on the 22nd day of August, 2011: EXHIBIT 56A An electronic copy of the foregoing instrument was emailed to the Secretary of the Rate Commission c/o jfenton@stlmsd.com SECRETARY OF RATE COMMISSION: Ms. Nancy Bowser Secretary of Rate Commission Metropolitan St. Louis Sewer District 2350 Market Street St. Louis, MO 63103-2555 robowser@swbell.net At the request of Rate Commission Counsel, one paper original and associated Exhibits are held at the Rate Commission office for Commissioner review. An electronic copy of the foregoing instrument and Exhibits were emailed to: RATE COMMISSION LEGAL COUNSEL: Lisa O. Stump, Esq. Lashly & Baer, P.C. 714 Locust Street St. Louis, MO 63101 lostump(a),lashlybaer.com RATE COMMISSION CONSULTANT: Mr. William Stannard President Raftelis Financial Consultants, Inc. 3013 Main Street Kansas City, MO 64108 wstannard@raftelis.com COVIDIEN: Mr. Randy Meyer Utility Manager Covidien 3600 North 2nd Street St. Louis, MO 63147 Randy.Meyer@covidien@com Page 7 of 8 AUGUST 22, 2011 RESPONSE TO THE SECOND DISCOVERY REQUEST OF BARNES JEWISH HOSPITAL ROBERT A. MUELLER: Mr. Robert A. Mueller 16 Ladue Crest Lane St. Louis, MO 63124 ramreco@sbcglobal.net EXHIBIT 56A BARNES JEWISH HOSPITAL: Ms. Lisa Langeneckert Sandberg, Phoenix and VonGontard P.C. One City Centre, Suite 1500 St. Louis, MO 63101 llangeneckert(2i sandbergphoenix.com MISSOURI INDUSTRIAL ENERGY John Kindschuh, Esq. CONSUMERS: Bryan Cave, LLP 211 N. Broadway, Suite 3600 St. Louis, MO 63102 John.kindschuh@bryancave.com AARP & CONSUMERS COUNCIL OF MISSOURI: Diana M. Vuylesteke, Esq. Bryan Cave, LLP 211 N. Broadway, Suite 3600 St. Louis, MO 63102 dmvuylesteke@bryancave.com John B. Coffman, LLC Attorney at Law 871 Tuxedo Blvd. St. Louis, MO 63119 j ohn@j ohncoffman.net 1714/66 Susan Myers, General Counse METROPOLITAN ST. LOUIS SEWER DISTRICT 2350 Market Street St. Louis, Missouri 63103 smyers@stlmsd.com Tel: (314) 768-6200 Fax: (314) 768-6372 • Page 8 of 8