HomeMy Public PortalAboutExhibit MSD 16 MSD Response to MIEC Discovery Request 060711Exhibit MSD 16
BEFORE THE RATE COMMISSION OF THE
METROPOLITAN ST. LOUIS SEWER DISTRICT
JUNE 7, 2011 FIRST DISCOVERY REQUEST
OF THE
MISSOURI INDUSTRIAL ENERGY CONSUMERS
Metropolitan St. Louis Sewer District Response
ISSUE: WASTEWATER RATE CHANGE PROPOSAL
WITNESS: METROPOLITAN ST. LOUIS SEWER DISTRICT
SPONSORING PARTY: MISSOURI INDUSTRIAL ENERGY CONSUMERS
DATE PREPARED: JUNE 17, 2011
Metropolitan St. Louis Sewer District
2350 Market Street
St. Louis, Missouri 63103
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
JUNE 7, 2011 FIRST DISCOVERY REQUEST
OF THE MISSOURI INDUSTRIAL ENERGY CONSUMERS
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 Missouri Industrial
Energy Consumers June 7, 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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JUNE 7, 2011 FIRST DISCOVERY REQUEST
OF THE MISSOURI INDUSTRIAL ENERGY CONSUMERS
Metropolitan St. Louis Sewer District Response
Referring to Exhibit MSD 1, please provide an electronic copy, with all foliuulas
intact, of the May 10, 2011 Metropolitan St. Louis Sewer District wastewater rate
proposal performed by Black & Veatch. Please note whether or not any revised
model has been made since May 10, 2011, and provide an electronic copy of the
updated version.
RESPONDER: Jan Zimmerman, MSD Director of Finance
RESPONSE: Exhibit MSD 4, Exhibit 4a and Exhibit MSD 5 provide all
the tables, detailed calculations and formulas underlying the rate model used to
develop the Rate Change Proposal (Exhibit MSD 1). No revisions have been
made since its submittal to the Rate Commission.
1-2. Concerning the Black & Veatch wastewater rate proposal included in Exhibit
MSD 1, please provide the following:
a. All supporting analyses, and spreadsheets with formulas intact, supporting all
key rate proposal assumptions outlined at page 1-3 of the report.
RESPONDER: Jan Zimmeiiiian, MSD Director of Finance
RESPONSE: Exhibit MSD 16A10 provides a cross reference of
requested information for the key assumptions outlined at page 1-3 of the Rate
Change Proposal (Exhibit MSD 1)
b. A complete copy of all analyses supporting the projected decrease in
wastewater volume from 69.3 million CCF in 2011 to 68.0 million CCF in
2016 due to a decline in non-residential and unmetered accounts stated at page
1-4 of the report. Please also explain how this decrease in non-residential
volume was considered in estimating the decrease in revenue associated with
the surcharges for BOD, COD and SS on that same page.
RESPONDER: Keith Barber, MSD Rate Consultant
RESPONSE: A discussion of projected accounts and billed wastewater
volume is presented on Pages 3-1 to 3-4 of the Wastewater Rate Proposal
(Exhibit MSD 1). Table 3-2 of the report projects a 1.9 percent decline in
billed volume for the five fiscal years of 2011 — 2015 with this decreased
volume leveling out in 2016 versus a 12.5 percent decline for the preceding
five years of 2006 — 2010. Detailed calculations supporting the projected billed
wastewater volume are presented in Exhibit MSD 4a, Pages B-4 through B-9.
Projections of surcharge loadings are not linked to billed wastewater volumes
since a reduction in wastewater volume does not necessarily cause a reduction
in wastewater strength loadings.
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c. Please identify all routine capital expenditures noted at page 1-4 in item 8, and
explain how MSD derived an increase in this level of expenditures.
RESPONDER: Keith Barber, MSD Rate Consultant
RESPONSE: Projected routine capital expenditures or capital outlays are
treated as a separate line item without detail concerning individual equipment
or vehicle purchases. A discussion of wastewater related routine capital
improvements is presented on Page 3-11 of the Wastewater Rate Proposal
(Exhibit MSD 1). Table 3-7 of the report shows the capital outlay projection
on Line 22. Detailed calculations supporting the projected capital outlays for
each Department are presented in Exhibit MSD 4a, Pages D-1 through D-19
where total wastewater related capital outlays are shown on Page D-19.
d. Please provide all studies that show the available terms and current interest
rates of rate revenue tax-exempt financing identified at page 1-5, paragraph
11, and the same for the term of the state revolving funds, and related interest
rates.
RESPONDER: Keith Barber, MSD Rate Consultant
RESPONSE: Available terms and current interest rates of tax-exempt
financing vary by utility and depend upon the utility's bond rating and current
market conditions. Terms for current debt issuances can be found in a recent
Bond Buyer publication or on the Bond Buyer's web site. Terms anticipated
for future debt are summarized in paragraph 11 of Page 1-5 and Page 3-16 of
Exhibit MSD 1. Detailed terms and calculations of debt service related to
each existing traditional revenue bond are shown on Pages L-1 through L-4
and on Pages M-1 through M10 of Exhibit MSD 4a for SRF loans.
A review of the 25 -Year Revenue Bond Index produced by Bond Buyer since
1991 shows an average interest rate over the 20 year period of 5.61 percent
with current rates at about 5.3 percent (Exhibit MSD 16A).
e. Concerning page 2-1, historical and projected operating expenses, please
identify all major new operation and maintenance expense activities in the
forecasted level, and escalation for existing operation and maintenance tasks
used to develop the forecasted level of expenses.
RESPONDER: Keith Barber, MSD Rate Consultant
RESPONSE: New operating expense activities include allowances for
future rate change proceedings, decreased costs in contractual services for the
Finance Department as costs to collect past due amounts by outside
contractors decrease, increased contractual services for the Information
Services Department to continue enhancements to the District's information
systems and increased operating costs related to new facilities constructed
during the study period. Operating expenses for FY14 and FY15 also reflect
increases associated with regulations requiring disinfection at District
treatment plants. Detail supporting these changes are presented at projected
cost levels on Pages D-8 through D-13 of Exhibit MSD 4a for existing
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facilities and on Page D -13a of Exhibit MSD 4a at a 2008 cost level for
operating anticipated new facilities. Cost escalation factors are identified on
Page 2-3 of Exhibit MSD 1 and Page D-1 of Exhibit MSD 1.
Please provide all management reports where changes in current operation and
maintenance activities, and costs associated with the same have been
presented to executive board members of the MSD, and any engineering
reports outlining the MSD Staffs recommended level of projected operation
and maintenance activities.
RESPONDER: Jon Sprague, MSD Director of Operations
RESPONSE: The EPA Consent Decree (Decree) refers to the Capacity
Management Operations and Maintenance (CMOM) activities required as part
of this settlement. An ordinance, including support detail, providing District
authority to sign the Decree was introduced at the June 9, 2011 meeting of the
MSD Board of Trustees (Board) for its full consideration. The ordinance
detail is provided as Exhibit MSD 11A32. While the District is not
anticipating any major increases in its workforce to support CMOM activities,
Staff responsibilities have been modified as represented in Exhibit MSD 16B.
Additionally, Exhibit MSDB 1 outlines changes to current operations and
maintenance activities recommended for FY12.
g.
Referring to page 2-4, Table 2-2, please provide the allocation between
wastewater and storm water of direct operating costs as used in MSD's last
rate filing, and explain any changes in the allocation between wastewater and
stotiu water of common operating costs in this case relative to the last case.
RESPONDER: Keith Barber, MSD Rate Consultant
RESPONSE: The allocation of utility costs was previously provided as
Table 2-2 on Page 2-4 of Exhibit MSD 1 from the 2007 rate case. The prior
rate case was predicated on a new impervious area based user charge that
would increase stormwater services with transitional support from the
wastewater utility through fiscal year 2008. The current rate case assumes a
level of stormwater service supportable by available stormwater revenues and
thus decreases the relative level of stormwater costs. The allocations used in
the current rate case were also compared with the District's segmented
wastewater/stormwater utility financial records for verification purposes.
h. Referring to page 2-7, Table 2-4, please provide a comparison of the
allocation of other operating revenue between wastewater and storm water in
MSD's last rate case, compared to the allocation proposed in this case in
Table 2-4.
RESPONDER: Keith Barber, MSD Rate Consultant
RESPONSE: The allocation of miscellaneous income was previously
provided as Table 2-10 on Page 2-17 of Exhibit MSD 1 from the 2007 rate
case. The prior rate case was based on a new impervious area user charge that
would increase stormwater services with transitional support from the
wastewater utility through fiscal year 2008. The current rate case assumes a
level of stormwater service supportable by available stormwater revenues
from taxes and a small flat rate charge and thus decreases the relative level of
stormwater costs that could be offset by operating revenues. The allocations
used in the current rate case are thus more heavily weighted toward
wastewater.
i. Please provide a study of all changes in customer growth used and discussed
at Section 3-1, under customer growth, and the related wastewater volume at
that same page in paragraph 3.2.
RESPONDER: Keith Barber, MSD Rate Consultant
RESPONSE: Detailed calculations supporting expected changes in
customer growth and projected billed wastewater volume are presented in
Exhibit MSD 4a, Pages B-4 through B-9.
With respect to the change in customer growth and volume growth, please
provide copies of any state or local economic reports projecting changes in
non-residential customer growth which can be used to gauge the relative
outlook used in the Black & Veatch report for MSD relative to that used by
state or local governments projecting future economic activity.
RESPONDER: Keith Barber, MSD Rate Consultant
RESPONSE: Customer growth was based on historic trends and
projected billed volume was based on projected growth and expected billed
volume per customer. State and local economic reports that may project
changes in customer growth were not identified or considered in the
proj ections.
k. On an electronic spreadsheet with all formulas intact, please provide the
analyses used to develop the wastewater service charge revenue for metered
and unmetered services in paragraph 3-4 for wastewater revenue under
existing rates.
RESPONDER: Keith Barber, MSD Rate Consultant
RESPONSE: Projected number of customers, projected billed volume
and projected surcharge loadings were applied to fiscal year 2011 wastewater
rates to project wastewater revenue under existing rates as discussed in
Section 3.4 of the Wastewater Rate Proposal (Exhibit MSD 1). Detailed
calculations supporting this calculation are shown on Pages B-1 through B-15
of Exhibit MSD 1 with the total revenue under existing rates, which matches
Table 3-5 of the report, shown on Page B-15 of Exhibit MSD 4a. A formula
showing the basic calculation of each page is typically included at the top of
each calculation sheet along with page references of where values used in the
calculation can be obtained. In addition formulas for each cell shown in
Exhibit MSD 4a are available in Exhibit MSD 5.
1. Please provide a projection of wastewater revenues under proposed rates on
an electronic spreadsheet with all formulas intact using the same billing
determinants as used to develop the revenue charges under current rates in
paragraph 3-4, page 3-6 of the report.
RESPONDER: Keith Barber, MSD Rate Consultant
RESPONSE: A multi -year projection of wastewater revenue under
proposed rates, similar to the projection under existing rates, is not available
in the Wastewater Rate Proposal. However, revenue increases shown on
Lines 2 through 6 of Table 3-11 on Page 3-18 of Exhibit MSD 1, together
with revenue under existing rates (Line 1 of Table 3-11) should be
representative of wastewater revenue under proposed rates. Total projected
wastewater revenue is shown on Line 8 of Table 3-11.
m. On an electronic spreadsheet with all formulas intact, please provide the
spreadsheet used to produce the projected wastewater operating revenue.
RESPONDER: Jan Zimmerman, MSD Director of Finance
RESPONSE: Exhibit MSD 4, Exhibit 4a and Exhibit MSD 5 provide all
the tables, detailed calculations and formulas underlying the rate model used
to develop the Rate Change Proposal (Exhibit MSD 1).
n. For each category of projected wastewater operating cost shown in Table 3-7,
please provide a description showing the rationale and expected inflation and
other changes for annual operating costs for each of the identified operating
cost categories.
RESPONDER: Keith Barber, MSD Rate Consultant
RESPONSE: Support for Table 3-7 is provided by Pages D-1 through D-
19 of the detailed calculations (Exhibit MSD 4a). Budget values for fiscal
year 2011 are inflated at the rates shown in Page D-1 with any known changes
in operating costs recognized. Costs for power and chemicals at pump
stations and treatment plants are further adjusted for changes in billed
wastewater volume. Similar support for additional O&M due to the
completion of new facilities is available on Pages D -13a and D-30 of Exhibit
MSD 4a.
o. Please provide a complete copy of the 20- to 30 -year capital improvement
program budget for MSD, and compare the capital improvements through
2016 shown on page 3-13 of the Black & Veatch report with that 20 -year CIP
forecast.
RESPONDER: Jan Zimmerman, MSD Director of Finance
RESPONSE: The CIRP numbers shown in the Rate Change Proposal
(Exhibit MSD 1) for 2011 — 2016 are based on the same time period as in the
20 to 30 year capital program underlying the Consent Decree. An ordinance
to authorization the District to sign the Decree was introduced for
consideration by the Board at its June 9, 2011 meeting. However, the District
is not a liberty to provide a complete version of the long term CIRP program
until the Decree is lodged with the Court.
P.
q.
Please explain how the capital improvement program shown at page 3-13 of
the Black & Veatch report, compares with the current settlement for the
Consent Decree which MSD recently entered into with the EPA.
RESPONDER: Jan Zimmerman, MSD Director of Finance
RESPONSE: Same as response to Question 0 above.
Referring to page 3-13 of the Black & Veatch report, wastewater capital cost
financing, please identify any grants, low interest rate loans, or any other
source of funding the Consent Decree capital programs available but where
the MSD did not quality for them. Please explain the rationale for the source
of funding actually considered by Black & Veatch in its rate projections.
RESPONDER: Keith Barber, MSD Rate Consultant
RESPONSE: The source of funding for low-cost SRF loans is limited to
state-wide funds available for all qualified projects and the amount of
qualified projects requesting such funding. The Wastewater Rate Report
assumes the District will be able to obtain $35 per year of SRF loans. A $1
million grant is anticipated to be received in fiscal year 2013 for rehabilitation
of a River Des Peres foul water interceptor. Additional information
concerning SRF loans is provided in the District's response to Q1-31 and Q1 -
34. The District's response to Q1-33 addresses grant funding.
r. Concerning pages 3-21 through 3-31, please provide a five-year history of all
volume costs, capacity costs and wastewater strength costs used to develop the
class cost of service study in the Black & Veatch report.
RESPONDER: Keith Barber, MSD Rate Consultant
RESPONSE: Historic data in this format is not determined or maintained
by the District nor available in the rate model.
s. Concerning page 3-21 of the Black & Veatch report, it identifies capital
capacity cost as being related to facilities that are designed to meet the
maximum or peak rates of wastewater flow. Please provide all workpapers
used to develop the capacity cost units of service as shown at page 3-31 of the
Black & Veatch report in Table 3-17. Please also clearly define what these
units of service represent, and show what they have been over the last five
years.
RESPONDER: Keith Barber, MSD Rate Consultant
RESPONSE: Capacity units of service shown in Table 3-17 of Exhibit
MSD 1 were developed in Table 3-16 of the same exhibit. Support for these
values is calculated on Page J-7 of Exhibit MSD 4a. Capacity related units of
service represent relative peak flows during dry weather and wet weather
conditions and are primarily used to allocate collection system and pumping
related costs to customer classes. Historic data of this nature is not
determined or maintained by the District.
t. Please provide the same five-year history of number of units for volume,
capacity, wastewater strength, and all customers and non-residential
customers shown in Table 3-17 on page 3-31 of the Black & Veatch report.
RESPONDER: Keith Barber, MSD Rate Consultant
RESPONSE: Information in the detailed calculations (Exhibit MSD 4a)
can be used to determine historic units of service for all parameters except
capacity because historic capacity factors are not available. Total wastewater
volume for all treatment facilities is summarized on Page J-4 in million
gallons per day and converted to hundred cubic feet (Ccf) in the table below.
Billed wastewater volumes can be compared with these values to determine
average annual I/I for the five-year period of 54 percent. For the Wastewater
Rate Proposal, an average I/I percent of 55 percent was used and applied to
the test year billable volume to derive the total volume units shown in Table
3-17. Total wastewater strength loadings of the wastewater treatment plants
are also summarized on Page J-4 of the detailed calculations and converted to
pounds per year in the table below. Average wastewater strengths for the five
year period was 96 parts per million (ppm) for BOD and 171 ppm for
suspended solids. These values were rounded to 100 ppm and 170 ppm and
applied to total wastewater volume to estimate test year wastewater strength
loadings for the rate report. Total bills are summarized on Page B-4 of the
detailed calculations. Historic non-residential equivalent bills can be
approximated by multiplying non-residential accounts shown on Table 3-1 by
a constant (K) determined in Table 3-22 of the rate report by dividing the
2010 number of equivalent bills (1,037,700) by the 2010 number of non-
residential accounts (25,165).
Non -Res.
Fiscal Billed Total Percent Suspended Equivalent
Year Volume Flow I/I BOD Solids Bills Bills
Ccf Ccf Pounds Pounds
Table 3-2 J-4 J-4 J-4
B-4 Table 3-1 xK
2006 80,915,800 141,999,000 43% 92,644,300 137,041,805 5,177,115 1,060,256
2007 78,510,300 156,638,000 50% 99,307,010 165,346,095 5,193,756 1,056,462
2008 77,882,000 174,693,000 55% 93,337,800 169,243,200 5,191,386 1,054,937
2009 73,779,500 178,108,000 59% 111,836,365 216,533,695 5,139,438 1,046,854
2010 70,834,700 192,747,000 63% 104,504,975 220,197,565 5,124,234 1,037,700
Average 168,837,000 54% 100,326,090 181,672,472
Average Strength - ppm 96 171
2013 68,168,000 151,484,400 55% 95,638,300 161,570,400 5,081,042 1,023,422
Strength - ppm 100 170
1-3. Concerning the Consent Decree capital projects, and operation and maintenance
expense projects included in the five-year rate plan developed in the Black &
Veatch report, please explain the following:
a. Explain how the Consent Decree alters or has influenced the capital program
related to the collector system of the MSD throughout the rate forecast period.
RESPONDER: Brian Hoelscher, MSD Director of Engineering
RESPONSE: The CIRP as proposed matches that reflected in the
Consent Decree. An ordinance authorizing the District to sign the Consent
Decree was introduced to the Board on June 9, 2011.
b. Please explain how changes in the collector systems, and volume of water will
be changed as a result of the capital improvements necessary to comply with
the Consent Decree?
RESPONDER: Jon Sprague, MSD Director of Operations
RESPONSE: While the specifics of the Consent Decree are still
confidential, the accompanying fact sheet, provided as Exhibit MSD 11A32,
spells out the CIRP requirement to reduce CSO's and eliminate SSO's.
The reduction in CSO's and SSO's will require the increase of flows to
treatment plants serving the combined sewer system and an estimated overall
slight decrease in flow to treatment plants serving the separate sewer system.
This will be accomplished through a combination of continued proactive
maintenance of the existing system, increasing capacity through completion of
CIRP projects and the controlled feeding of excess wet weather flows to
treatment plants through temporary capture and storage. The Consent Decree
is a long tent' program and these changes will happen over time. As the
program progresses flows may increase or decrease in the interim as projects
and the program progress.
c. Please identify the capital projects needed to comply with the Consent Decree
and separate them by impacts on collector systems, and pumping stations, and
water treatment capacity.
RESPONDER: Brian Hoelscher, MSD Director of Engineering
RESPONSE: A categorized five year CIRP project list, including
Consent Decree capital projects, is provided as Exhibit MSD 16C. The list is
categorized by project type: CSO-Combined Sewer overflow, SSO-Separate
Sewer Overflow, Cityshed, Treatment Plant, Asset management Renewal, and
Asset Management Capacity. The project listing has not been segregated to
the exact impacts listed above, but is similarly segregated.
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d. Please identify any aspect of the Consent Decree which changes the MSD's
cost for treating BOD, SS or COS in water treatment plant.
RESPONDER: Jon Sprague, MSD Director of Operations
RESPONSE: The Consent Decree projects are not expected to increase
MSD's unit costs (e.g., dollars per pound treated) for treating BOD, SS, or
COD at the wastewater treatment plants. The Consent Decree projects will
ultimately result in larger quantities of these constituents being treated during
wet -weather conditions, thereby increasing total treatment costs.
e. Please identify any implications on the collector system for BOD, SS or COS
in complying with the Consent Decree as it approaches the water treatment
plant.
RESPONDER: Jon Sprague, MSD Director of Operations
RESPONSE: The Consent Decree projects are not expected to have a
significant impact on BOD, SS, or COD concentrations in the collection
system as it approaches the wastewater treatment plant. Concentrations of
these constituents are not expected to change at all during dry -weather
conditions as a result of the Consent Decree projects. Concentrations during
wet -weather conditions may be nominally increased due to efforts to reduce
wet weather flows by infiltration/inflow control in the sanitary sewer system
and green infrastructure projects in the combined sewer system.
For both 1-3d and 1-3e, please note the minimal impacts to plants or systems
will be very gradual and years down the road. Due to the timeframe to
implement projects, we would suspect limited if any change during the
upcoming rate cycle.
1-4. Please provide a map of the entire MSD system showing locations of non-
residential customers and the collector size mains used to serve these customers.
Please provide the same information for residential customers.
RESPONDER: Jonathon Sprague, MSD Director of Operations
RESPONSE: The District maintains a GIS system which provides spatial
data of the entire MSD system infrastructure. This data, however, does not
provide a break down between residential and commercial customers.
1-5. Please provide a cost estimate of MSD's collector mains by size of pipe, or
pressure of pipe.
RESPONDER: Jonathon Sprague, MSD Director of Operations
RESPONSE: An estimate of the replacement and rehabilitation costs of
MSD's collector mains was prepared as part of the District bond due diligence in
2010. This is only an estimate based on general replacement and rehabilitation
costs by pipe size and does not reflect actual conditions of the pipe or field
conditions. The collection system is a gravity system and pressure has no impact
on costs. This analysis is provided as Exhibit MSD 16D.
1-6. On an electronic spreadsheet with all formulas intact, including a copy of all tariff
rate information, please provide copies of analyses performed by MSD, or Black
& Veatch, comparing MSD's current and projected wastewater rates to
wastewater rates of other wastewater utility systems around the country.
RESPONDER: Keith Barber, MSD Rate Consultant
RESPONSE: A comparison of District wastewater rates with rates of
other wastewater utilities was not conducted by the District or by Black & Veatch
as part of the recent rate studies. However, information is provided in Section 5.5
of Exhibit MSD 1 concerning comparisons of typical residential bills of the
District with those previously surveyed by Black & Veatch and a survey by the
National Association of Clean Water Agencies (NACWA). In addition, Exhibit
MSD 16A11 compares MSD to the 50 largest city survey by customer class and
indicates as volume increases, the ranking of St Louis relative to the 50 largest
cities significantly improves. This survey indicates MSD rates are more favorable
to large customers than other cities.
1-7. Please provide all workpapers, analyses and studies used to support the
assumption that billed wastewater volume will continue to decrease but will level
off towards the end of the study period.
RESPONDER: Keith Barber, MSD Rate Consultant
RESPONSE: The assumption that billed wastewater volume will
continue to decrease but will level off towards the end of the study period is based
on historical trends, the realization there must be a limit to conservation efforts
and an expectation the economy will eventually get improve.
1-8. Please provide copies of MSD's annual reports for the three most recently
completed fiscal years.
RESPONDER: Jan Zimmerman, MSD Director of Finance
RESPONSE: MSD's 2008, 2009 and 2010 annual financial reports
known as the Comprehensive Annual Financial Report (CAFR) are provided as
Exhibit MSD 16E, Exhibit MSD 11A2 and Exhibit MSD 11A3, respectively. The
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District's Annual Reports for 2008, 2009 and 2010 may be found using the
following link at MSD's website:
http://w %.stl sd.com/aboutmsd/fiscal/annualreport
1-9. Please provide complete copies of all credit ratings reports of MSD issued by
Moody's, Standard & Poor's, Fitch or any other firm that rates corporate and
municipal debt credit rating, issued over the last two years.
RESPONDER: Karl Tyminski, MSD Secretary / Treasurer
RESPONSE: Complete copies of MSD's Moody's, Standard & Poor's
and Fitch credit rating reports are provided as Exhibit MSD 16L, Exhibit MSD
16M and Exhibit 16N.
The following questions relate to the direct testimony of Jeffrey L. Theerman, MSD Exhibit
No. 9:
1-10. In reference to page 8, Q29, please identify all new regulations being considered
by regulators and the potential dollar impact those new regulations may have on
wastewater utilities.
RESPONDER: Jeff Theerman, MSD Executive Director
RESPONSE: New environmental regulations are in a constant state of
development at both the Federal and State level. MSD includes involvement in
that regulation development as part of its Strategic and Operating Plan. The most
likely areas where regulatory decisions will affect the District include:
Mississippi River Water Quality Standards — Since 2004 MSD has been in
discussions with both State and Federal regulators about potential changes to the
water quality standards for the 28 mile segment of the river at St. Louis. The
District believes the river velocities, barge traffic, bank slope, river access, and a
lack of any swimming in the segment make a swimming standard inappropriate.
MSD has conducted two separate Use Attainability Analysis (UAA) have
conclusively shown swimming is not a current use nor is it attainable for the
above listed reasons. In spite of MSD's scientific data, the USEPA has insisted
that the state promulgate a swimming standard. The State is currently
contemplating requiring such a standard and has begun the process by reporting as
such to the Missouri Clean Water Commission. While we continue to try to bring
an appropriate conclusion to this issue, it remains to be seen what standard will be
imposed. The potential financial impact of this decision was estimated in the
development of the MSD CSO Long Term Control Plan as $1.5 Billion. This
additional cost is over an above the estimated $4.7 Billion cost of the proposed
Consent Decree. The District's Long Term Control Plan is available at the
following link on the MSD website:
https://www/stlmsd.com/educationoutreach/bestpractices/combinedseweroverflow
Sewage Sludge Incineration Rules — EPA has promulgated new rules governing
Sewage Sludge Incinerators. MSD currently incinerates approximately 60,000
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tons of sewage sludge each year at two treatment plants. This process has
continued to be the most cost effective treatment and disposal alternative for this
treatment plant byproduct. MSD has invested significantly in air pollution
controls on these incinerators but may now have to accelerate plans to replace
these incinerators with new technology. Current plans are to make a technology
changes at the end of the useful life of the current incinerators ten or more years
from now. It is unclear if this rule change will force the District to advance its
investment in this area. MSD is a member of a group of over 40 utilities that is
challenging this rule change on a number of grounds. The estimated cost of this
rule, if it forces a process change at MSD, is estimated at $250 Million. This
additional cost is over an above the estimated $4.7 Billion cost of the proposed
Consent Decree.
Nutrients — Nationally the issue of nutrient pollution is becoming significant.
Nutrients, typically nitrogen and/or phosphorus, act as fertilizer in water bodies
causing algae blooms and depleted oxygen levels. Nutrient pollution is
responsible for the hypoxic zone in the Gulf of Mexico. The EPA and the States
have been including nutrient removal requirements on treatment plants in the
Chesapeake Bay, Florida, and several other regions. Nutrient removal is not a
requirement at any of the MSD existing treatment plants on the Missouri or
Mississippi Rivers. It is very likely that these facilities will have nutrient removal
requirements within ten years. The cost of these process changes has not been
estimated because the standards to be achieved are presently not determined. The
additional cost would be over an above the estimated $4.7 Billion cost of the
proposed Consent Decree.
As stated in my testimony in Exhibit MSD 9, it is not possible to anticipate all
new regulations. Other areas which may see increase regulatory burden include,
immerging contaminants, climate change, mercury, increased treatment to comply
with Total Maximum Daily Loan determinations, and security requirements.
Although not part of this rate case, stormwater utilities are likely to see
significantly increased regulation as well.
1-11. Please identify, state the amount, and describe any fines or penalties included in
MSD's Rate Change proposal.
RESPONDER: Keith Barber, MSD Rate Consultant
RESPONSE: No fines or penalties are included in the Rate Change
proposal. This includes the $1.2 million civil penalty that is part of the recent
Consent Decree settlement. However, the anticipated payment of this penalty is
factored into fiscal year 2012 and will not affect the proposed rates. The impact
of this civil penalty will be a reduction in the balances shown in Table 3-9 of the
Wastewater Rate Proposal and a slight decrease in fiscal year 2012 debt service
coverage since the civil penalty is considered to be an operation and maintenance
expense.
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The following questions relate to the direct testimony of Brian L. Hoelscher, MSD Exhibit
No. 9B:
1-12. In reference to page 2, Q10, please identify all wastewater capital improvement
adjustments that have been made over the last five years to address changing
regulatory requirements and identify the total dollar impact on ratepayers
associated with those adjustments.
RESPONDER: Brian Hoelscher, MSD Director of Engineering
RESPONSE: The largest regulatory change was the requirement to
install disinfection at 4 of MSD's Treatment Facilities. At three of the facilities
(Lemay WWTP- $25 million, Bissell WWTP- $28 million, Lower Meramec- $5
million) no disinfection requirements were anticipated. While disinfection
requirements were anticipated at the Missouri River Treatment Plant, inability to
re -use existing facilities as part of the overall expansion as originally planned
increased costs by $30 million.
Other regulatory requirements became apparent during the past five years as well,
primarily originating from MSD's continuous discussions with EPA and MDNR.
These include a $3 million Green Pilot Program to abate the impact of CSO's, a
$10 million project in North St. Louis City to purchase a subdivision and install a
detention basin where existing residents were severely impacted by surcharging
combined sewers, and $16 million in Sewer Cleaning to proactively address
overflows in the sewer system. All of these activities are referred to in the fact
sheet for the proposed Consent Decree.
The total dollar impact on the ratepayers during the last 5 years would be the total
of these projects, or approximately $117 million. Planned projects were delayed to
provide funding for these additional projects within the District's funding limits
over the past 5 years, however, the delayed planned projects will eventually have
to be addressed.
1-13. With regard to MSD's June 2 agreement with the U.S. Environmental Protection
Agency, please provide an updated wastewater capital improvement and
replacement program cost projection for the period FY 2011 through FY 2016
associated with the construction of only those projects necessary to comply with
the terms of the June 2 agreement.
RESPONDER: Brian Hoelscher, MSD Director of Engineering
RESPONSE: No such update is available or necessary. The CIRP in the
Rate Change Proposal (Exhibit MSD 1) reflects that in the Consent Decree
introduced for signature authorization at the June 9, 2011 meeting of the MSD
Board.
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1-14. Please identify all adjustments to MSD's engineering consultant delivery model to
assure cost-effective and timely completion of MSD's capital improvement and
replacement program.
RESPONDER: Brian Hoelscher, MSD Director of Engineering
RESPONSE: MSD will now be contracting with consultant teams to
address geographic areas that have similar regulatory issues instead of going
through a consultant selection process for every individual project. Time and cost
will be saved by reducing the amount of effort required for the selection process,
by having immediately available resources to evaluate time and cost saving
opportunities, by having resources immediately available to pursue design
opportunities that can save money and cost, by having resources immediately
available to address unanticipated problems, and allow for better overall
coordination of activity within each geographic area. MSD has completed the
reorganization of its Engineering Department to be able to manage this process.
The change in the consultant delivery model and the reorganization of the
Engineering Department will allow it to execute the proposed capital program
without an increase in Staff.
1-15. Please identify by rate year what portion of MSD's wastewater capital
improvement and replacement program is required to comply with state
requirements.
RESPONDER: Brian Hoelscher, MSD Director of Engineering
RESPONSE: All the CIRP projects reflected in the Rate Change
Proposal (Exhibit MSD 1) are required to comply with State requirements per the
Consent Decree introduced for signature authorization at the June 9, 2011 meeting
of the MSD Board. Note that State and Federal regulatory requirements are
essentially equal.
1-16. Please identify by rate year what portion of MSD's wastewater capital
improvement and replacement program is required to comply with federal
requirements.
RESPONDER: Brian Hoelscher, MSD Director of Engineering
RESPONSE: All the CIRP projects reflected in the Rate Change
Proposal (Exhibit MSD 1) are required to comply with Federal requirements per
the Consent Decree introduced for signature authorization at the June 9, 2011
meeting of the MSD Board. Note that State and Federal regulatory requirements
are essentially equal.
1-17. In reference to page 3, Q16, Mr. Hoelscher states that all of the wastewater capital
improvement and replacement program projects are designed to meet regulatory
requirements and schedules anticipated based on the current status of the EPA
mediation and therefore cannot be delayed. With regard to MSD's June 2
agreement with the EPA, please identify all wastewater capital improvement and
- 16 -
replacement program projects included in MSD's six -year study that could be
delayed and identify the per year dollar reduction associated with those projects.
RESPONDER: Brian Hoelscher, MSD Director of Engineering
RESPONSE: None of the projects in the CIRP contained in the Rate
Change Proposal (Exhibit MSD 1) may be changed. The CIRP correlates with
that in the Consent Decree and as such is needed in its entirety to meet regulatory
requirements. Note that there may be a few projects in the CIRP, such as the
Prospect Hill Landfill project that is needed to meet regulations regarding the
proper disposal of incinerator ash, that may not be specifically required by the
Consent Decree but are required to meet environmental regulations in the most
cost effective manner possible.
1-18. Please provide a copy of MSD's August 2009 Long Term Control Plan.
RESPONDER: Jan Zimmerman, MSD Director of Finance
RESPONSE: The size of the Long Term Control Plan document makes a
copy impractical to provide. The District's August 2009 Long Term Control Plan
may be found using the following link on the MSD website:
https://wmT.stlmsd.com/educationoutreach'bestpractices/combinedseweroverflow
1-19. Referring to page 5 of Mr. Hoelscher's testimony, he states that due to economic
conditions, the District will be receiving bids for capital work that in some cases
were 40% below traditional cost. With respect to this testimony, please identify
how this below traditional cost construction bidding has impacted the projected
level of capital expenditure costs included in the MSD's current rate filing, and
provide a complete copy of all assessments the MSD Staff has taken to deteiiuine
whether or not the current low capital improvement bidding costs can be used to
minimize the construction projects budgeted to be completed over the next four
years, 10 years and 20 years.
RESPONDER: Brian Hoelscher, MSD Director of Engineering
RESPONSE: Current economic conditions were not assumed to be in
place during the current proposed rate study period, or during the 10 or 20 year
horizon. If economic conditions during the current rate period continue to be
favorable, MSD would continue its current practice of accelerating the program to
take advantage of the associated cost savings and reduce the overall cost of the
program. Any economic conditions beyond the current proposed rate study period
would be taken in the account in the next rate change proceeding.
1-20. Referring to pages 5 and 6 of Mr. Hoelscher's testimony, please answer the
following:
a. Please identify the sanitary sewer overflows (SSO) and how these overflows
are spread across MSD's collector systems. Specifically, please identify
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whether or not the SSOs are directly related to certain sizes of sewer lines,
pump stations or other measures on the system.
RESPONDER: Brian Hoelscher, MSD Director of Engineering
RESPONSE: A map of the constructed SSO and CSO locations is
provided as (Exhibit MSD 16F). SSO's are not related to the size of sewer
lines or pump stations and in all locations are most directly related to inflow
and infiltration of stormwater and groundwater into the separate sanitary
sewer system.
b. Please answer the same question above but with respect to the combined
sewer overflows listed above.
RESPONDER: Brian Hoelscher, MSD Director of Engineering
RESPONSE: A map of the constructed SSO and CSO locations is
provided as Exhibit MSD 16F. The regulatory requirement regarding CSO
abatement is not related to the size of sewer lines or pump stations. CSO's are
directly related to the original design of the system in that they are constructed
to activate and discharge upon a storm event that exceeds the capacity of the
interceptor.
The following questions relate to the direct testimony of Janice M. Zimmerman, MSD
Exhibit No. 9D:
1-21. In reference to page 2, Q7, please provide a copy of all material relied on to
support the statement that "The proposed wastewater rate increase is fair and
reasonable in that it proportionately distributes the District's projected costs over
all classes of ratepayers."
RESPONDER: Jan Zimmerman, MSD Director of Finance
RESPONSE: The basis for the cited quotation is the 1997 decision by the
Missouri Court of Appeals following a retransfer of the case from the Missouri
Supreme Court, which found MSD's sewer service charges to be a fee and not a
tax. A general chronology of this past wastewater litigation is provided as an
excerpt from the March 7, 2007 Direct Testimony given by Randy Hayman, the
then MSD General Counsel, during the 2007 Rate Commission rate change
proceeding. This excerpt is provided as Exhibit MSD 16G
In addition, the October 25, 2002, August 13, 2007 and April 1, 2008 Rate
Recommendation Reports submitted by each respective Rate Commission found
the methodology used to design the District's wastewater rates did not "impose an
unfair or excessive burden on one or more classes of ratepayers" per MSD
Charter Section 7.300(b)(5).
These recommendations may be found as following:
1) Exhibit MSD 16G1: 2002 Rate Commission Recommendation Report (prior to
deliberations)
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The last paragraph on page 60 of this Exhibit states "The Rate Commission, after
consideration of all the facts and circumstances disclosed in the Proceeding, finds
and determines that the Rate Commission Wastewater Rate Change
Recommendation imposes a fair and reasonable burden on all classes of
ratepayers."
2) Exhibit MSD 6 : 2007 Rate Commission Recommendation Report (prior to
deliberations)
The second paragraph on page 159 of this Exhibit states "The Rate Commission,
after consideration of all the facts and circumstances disclosed in the Proceeding,
finds and determines that the elimination of the resistance factor from the rates in
the Rate Change Proposal results in rate for Wastewater Services that impose a
fair and reasonable burden on all classes of ratepayers."
3) Exhibit MSD 7: 2008 Rate Commission Recommendation Report (prior to
deliberations)
The last paragraph on page 179 of this Exhibit states "The Rate Commission, after
consideration of all the facts and circumstances disclosed in the Proceeding, finds
and determines that the 2008 Proposed Rate Change imposes a fair and reasonable
burden on all classes of ratepayers."
All three recommendation reports included Minority Reports from various groups
of Rate Commissioners. None of these Minority Reports contradicted the finding
that the wastewater rate was fair and reasonable.
The District's wastewater rate design has not changed since the Rate
Commission's initial 2002 Rate Recommendation Report.
1-22. Please provide a detailed description as to how MSD's proposed five -tiered cost
structure for recovering MSD's environmental compliance monitoring costs from
non-residential customers was developed.
RESPONDER: Keith Barber, MSD Rate Consultant
RESPONSE: A description of how MSD's proposed five -tiered cost
structure for recovering MSD's environmental compliance monitoring costs from
non-residential customers was developed and is provided in Section 3.9.2.3 of the
Rate Change Proposal (Exhibit MSD 1). The underlying concept of the proposed
five -tier rate structure is to better align relative costs of monitoring different
groups of non-residential customers with the charges imposed on non-residential
customers for such relative monitoring efforts.
1-23. Please identify MSD's projected environmental compliance costs for
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non-residential customers for each year of MSD's six -year rate proposal and
identify the portion of costs recovered from each customer tier level.
RESPONDER: Keith Barber, MSD Rate Consultant
RESPONSE: Total projected environmental compliance revenue for each
year of the six -year study period by each tier is compared to allocated costs for
the compliance program during the transition period in the table below. Revenue
is projected by applying the 2010 percentage distribution of customers identified
in Table 3-22 of Exhibit MSD 1 to the total number of non-residential accounts
shown in Table 3-1, multiplying by 12 to get annual bill distributions and then
multiplying these distributions by the respective monthly environmental
compliance charges shown in Table 3-21. Revenues shown for Tier 2 through
Tier 5 also represent costs of service for the four respective tiers in fiscal years
2013 through 2016. Costs to be recovered by the environmental compliance
charge significantly decrease in fiscal year 2013 due to the reallocation of costs to
all customers to reflect system wide benefits of the program. The Tier 1 charge is
decreased over a four-year transition period to lessen the immediate rate impact
on residential customers that are absorbing a large share of the costs foirnerly
only recovered from non-residential customers.
2011 2012 2013 2014 2015 2016
$ $ $ $ $ $
Revenue
Tier 1 8,741,900 8,981,500 6,439,600 4,479,700 2,509,700 655,300
Tier 2 162600 167,100 209,600 221,900 228,500 235,200
Tier 3 250,900 257,800 688,600 728,400 750,700 772,700
Tier 4 84,600 86,900 340,300 360,000 370,900 381,800
Tier 5 55,800 57,300 295,700 312800 322200 ` 331,800
Total 9,295,800 9,550,600 7,973,800 6,102,800 4,182,000 ' 2,376,800
Cost 9,295,800
9,550,600
2,113,900 2,229,600 2,304,600 2,372,500
1-24. Please provide a copy of the 2008, 2009, 2010, 2011 and 2012 preliminary
operating budget and five-year Wastewater Improvement and Replacement
Program supplemental budget presented to the District's Board in March.
RESPONDER: Jan Zimmerman, MSD Director of Finance
RESPONSE: The requested budgets are provided as follows:
2008 Operating Budget
2008 CIRP Supplemental Budget
2009 Operating Budget
2009 CIRP Supplemental Budget
2010 Operating Budget
2010 CIRP Supplemental Budget
2011 Operating Budget
2011 CIRP Supplemental Budget
2012 Operating Budget
2012 CIRP Supplemental Budget
Exhibit MSD 16H
Exhibit MSD 16I
Exhibit MSD 11A4
Exhibit MSD 11A6
Exhibit MSD 11A5
Exhibit MSD 11A7
Exhibit MSD 16J
Exhibit MSD 16K
Exhibit MSD 8
Exhibit MSD 8A
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1-25. Please provide a copy of all meeting minutes from the April 2011 Board of
Trustees Finance Committee meetings to review in detail operating expenses, the
CIRP and revenues projected for the budgeted 2012 year.
RESPONDER: Karl Tyminski, MSD Secretary/Treasurer
RESPONSE: A copy of the minutes from the April 2011 Board Finance
Committee meeting is provided as Exhibit MSD 160.
1-26. Please identify and describe all inflation allowances used in the rate study report.
RESPONDER: Keith Barber, MSD Rate Consultant
RESPONSE: All inflation allowances for operating costs are presented
on Page 2-3 of the Wastewater Rate Proposal (Exhibit MSD 1) and on Page D-1
of the detailed calculations (Exhibit MSD 4a). A uniform inflation allowance of
3% per year is provided for CIRP projects.
1-27. Please provide a copy of all workpapers, analyses and studies used to develop
MSD's identified inflation allowances used in the rate study report.
RESPONDER: Keith Barber, MSD Rate Consultant
RESPONSE: See response to Question 1-26. Inflation allowances used
in the rate study calculations are based on judgment with recognition of prior
inflationary trends.
1-28. Please provide a complete copy of all of MSD's financial filings issued over the
last five years.
RESPONDER: Jan Zimmerman, MSD Director of Finance
RESPONSE: The requested financial filings are provided as follows:
2006 CAFR
2007 CAFR
2008 CAFR
2009 CAFR
2010 CAFR
2006 Annual Audit
2007 Annual Audit
2008 Annual Audit
2009 Annual Audit
2010 Annual Audit
Supplemental Bond Ordinances
Exhibit MSD 16P
Exhibit MSD 16Q
Exhibit MSD 16E
Exhibit MSD 11A2
Exhibit MSD 11A3
Exhibit MSD 16R
Exhibit MSD 16S
Exhibit MSD 16T
Exhibit MSD 11A2
Exhibit MSD 11 A28
Exhibits MSD 11L through 11V
1-29. Please provide a complete copy of all financial presentations MSD has made to
credit rating agencies, or other sources of the state loan revolving agreement fund
-21 -
organization, or other sources of capital investigated by MSD to fund its capital
improvement program.
RESPONDER: Karl Tyminski, MSD Secretary/Treasurer
RESPONSE: The requested information is provided as Exhibits MSD
16U through 16A1.
The following questions relate to the direct testimony of Karl J. Tyminski, MSD Exhibit No. 9E:
1-30. In reference to page 2, Q6, please provide a copy of all credit rating agency
median metrics material relied on to support the statement that "While projected
debt coverage exceeds Master Bond Ordinance requirements the projected
coverages are only in line with median metrics used by the credit rating agencies."
RESPONDER: Karl Tyminski, MSD Secretary/Treasurer
RESPONSE: The requested information has been provided by Exhibits
MSD 11C through 11J.
1-31. Please identify the max amount of State Revolving Fund (SRF) loans by rate year
that MSD could receive over the course of MSD's proposed rate plan.
RESPONDER: Karl Tyminski, MSD Secretary/Treasurer
RESPONSE: The State will not commit in advance on available funding.
Therefore, a projection using a "mosaic" approach was developed. This
projection is initially based the State's FY2012 Intended Use Plan provided as
Exhibit MSD 11W, which shows the resources of the State Revolving Loan fund
(SRF) in conjunction with a graph of the size of the federal funding for State SRF
funds provided as Exhibit MSD 16A2. This graph is also available from the EPA
using the following link: http://www.americanwaterintel.com/archive/2/3/. An
article from The Source Utility Enterprise Management magazine speaks to a 27%
reduction in Federal funding to State revolving funds. This article is provided as
Exhibit MSD 16A3. This information taken collectively provides the basis for the
District's SRF funding projection. This projection, however, indicates the $35
million a year SRF funding assumed in the Rate Change Proposal (Exhibit MSD
1) may be overly optimistic.
The District believes the State SRF program in future years will have receive $70
and $80 million in annual cash inflows from either repayments or new Federal
monies to be made available statewide. MSD's historical share of the statewide
pool has ranged from 20% to 40%. Currently MSD's share is closer to 40%
because of its needs and strong credit rating. Assuming the SRF receives the
higher funding level of $80 million and MSD share remains at 40%, the maximum
anticipated SRF funding would be $32 million a year compared to the $35 million
annual SRF funding assumed in the Rate Change Proposal (Exhibit MSD 1). This
$12 million shortfall will need to be recovered through the issuance of a greater
amount of revenue bonds, thereby placing additional pressure on maintaining the
District's current AA bond rating.
- 22 -
1-32. Please provide all internal and external communication that MSD has had
regarding increased Missouri SRF program loans to help fund future MSD capital
expenditure programs.
RESPONDER: Karl Tyminski, MSD Secretary/Treasurer
RESPONSE: MSD communications considered key to this response are
provided as Exhibits MSD 16A4 through 16A8. Additional communications are
unrealistically voluminous to provide.
1-33. Please provide all internal and external communication that MSD has had
regarding contributions and grant monies from city, state or federal agencies.
RESPONDER: Karl Tyminski, MSD Secretary/Treasurer
RESPONSE: Exhibits MSD 16A represent the key MSD
communications requested. Additional material is unrealistically voluminous to
provide.
1-34. Please provide MSD's current level of Missouri SRF loan capability.
RESPONDER: Karl Tyminski, MSD Secretary/Treasurer
RESPONSE: The determination of MSD's current level of SRF
capability requires the consideration of a number of uncontrollable variables
which may be represented by the following four key questions:
1) Will the Missouri SRF be run as a cash basis or leveraged program?
Historically until 2008, the State of Missouri has run a leveraged loan program
which provided a large pool of available funds and was fairly flexible in terms
of increased borrowing by a large borrower. This program worked due to the
interest rate spread between the borrowing rate and the reinvestment rate
resulting in a 70% subsidized rate to borrowers. The cost of borrowing at that
time was in the 4% range while the reinvestment rate range was 5%, yielding
an attractive positive spread. The 2008 economic downturn, however, in
conjunction with the implementation of the Federal government's quantitative
easing policy, has managed to keep a borrowing rate in the 4% range. The
reinvestment rate, however, has dropped to 50 basis points resulting in an
additional borrowing cost of 3.5% annually when compared to the historical
SRF subsidized rates. Due to current budget constraints, the decision was
made by the State to convert the leveraged SRF program, at least temporarily,
to a cash basis. A cash basis program is constrained by the cash receipts in a
given year plus any monies not taken by other entities.
Currently, the repayment of existing loans is approximately $50 million
annually. This is partially offset by "Federal CAP Grants" of approximately
$30 million. The State, therefore, is expected to have $80 million available on
an annual basis. Due to the 70% subsidized structure of this program, the $80
million statewide funding level can support approximately $115 million per
year. The level of supported annually funding increases as the subsidy level
- 23 -
declines. For example, a 50% subsidy would support approximately $160
million in loans annually on a statewide basis.
2) What is the statewide demand for the program?
The demand prior to the stimulus funding of 2009 (ARRA funding) was less
than robust. However, the stimulus program coupled with DNR's pressure on
smaller communities for Clean Water Compliance has increased the demand
for Clean water SRF funds on a statewide basis.
3) At what point does a concentration of debt by MSD become a credit risk to the
pool?
MSD's current high credit rating serves as a benefit to the SRF program as it
provides a partial offset for lower rated municipalities also participating in the
funding pool. MSD's current rating coupled with its concentration of debt
becomes a risk to the overall SRF pool at approximately $400 million. This
amount will decline if MSD's credit rating deteriorates.
4) What is an equitable distribution of the total SRF available funds from a
statewide allocation perspective?
An allocation based on population is the most reasonable basis for an equitable
distribution of available SRF funds. Since the St Louis metropolitan area has
approximately 20% of the State's population, one can argue that at least 20%
of the SRF loans should be concentrated in this region. This would result in a
maximum loan amount of approximately $200 million.
MSD's current and proposed debt levels are the first components to consider in
order to translate the variables outlined above specifically to the District. Footnote
# 7 of the District's financial statements included its 2010 CAFR (Exhibit MSD
11A3) begins this translation. As of June 30, 2010 the District had $605 of
outstanding long term debt. The composition of the debt was $342 million of
stand alone debt and $267 million of SRF debt. Since then the District has
borrowed an additional $37 million in SRF debt, repaid $2 million of the stand
alone debt and $30 million of the SRF debt. Therefore as of May 31, 2011 the
District's total outstanding bonds equaled $610 million comprised of $340 million
in stand alone debt and $274 million in SRF debt. In 2012, the District plans to
issue approximately $52 million of stand alone debt and another $40 million of
SRF debt. As are result, the proposal rate change period begins with
approximately $300 million of total SRF debt.
In summary there is no set answer. An amount between $200 million and $400
million is reasonable, or between 20% and 40% of the statewide SRF pool.
MSD's share of the pool is currently in the middle of that range and has projected
growing its relative percentage over the 2013 to 2016 rate cycle.
1-35. Please provide a copy of all workpapers, analyses and studies used to support
- 24 -
MSD's assumption that future revenue bonds will be issued at an average annual
interest rate of 5.50 percent.
RESPONDER: Karl Tyminski, MSD Secretary/Treasurer
RESPONSE: A spreadsheet containing detailed information related to
MSD's total outstanding debt as of April 30, 2011, is provided as Exhibit MSD
16A. The average coupon interest rate, per this data, was 5.11%. The 20 year
average revenue bond rate is 5.61%. This average rate is based on the Bond
Buyer 25 Year Revenue Bond Index provided as Exhibit MSD 16Al2. The Rate
Change Proposal (Exhibit MSD 1) assumes a more conservative rate between
short term and long term averages of 5.50%.
1-36. Please provide the interest rate, terms and associated issuance costs of MSD
issued revenue bonds over the past seven years.
RESPONDER: Karl Tyminski, MSD Secretary/Treasurer
RESPONSE: All information related to the interest rate, terms and
issuance costs of MSD's outstanding revenue bonds is provided as Exhibit MSD
11K through Exhibit 11V.
The following questions relate to the direct testimony of Keith D. Barber, MSD Exhibit No. 9F:
1-37. In reference to page 4, response to Q11, Mr. Barber states "almost all of the
proposed capital improvement projects are required to be constructed due to
Federal and State environmental regulations." Please provide a listing and
associated projected dollar costs associated with all proposed capital improvement
projects that are not required to be constructed due to Federal and State
environmental regulations that are included in MSD's six -year study period.
RESPONDER: Keith Barber, MSD Rate Consultant
RESPONSE: All of the proposed capital improvement projects are
required due to regulatory requirements. A 5 year CIRP project list is provided as
Exhibit MSD 16C.
1-38. Please provide a copy of all workpapers, analyses and studies used to develop the
projected number of wastewater customer accounts.
RESPONDER: Keith Barber, MSD Rate Consultant
RESPONSE: See responses to Items 1-2b, 1-2i and 1-2j.
1-39. Please provide a copy of all workpapers, analyses and studies used to develop the
projected average volume per bill for each metered customer class.
RESPONDER: Keith Barber, MSD Rate Consultant
RESPONSE: Projected average volume per bill for each metered
customer class is available as Pages B-4, B-7 and B-8 of Exhibit MSD 4a.
- 25 -
1-40. Please provide a copy of all workpapers, analyses and studies used to develop the
projected average volume per bill for each unmetered customer class.
RESPONDER: Keith Barber, MSD Rate Consultant
RESPONSE: Projected average volume per bill for each metered
customer class is available as Pages B-4, B-7 and B-8 of Exhibit MSD 4a.
1-41. In reference to page 14, response to Q44, please provide a copy of all workpapers,
analyses and studies used to develop the projected inflation -related cost increases
for each year of the six -year study.
RESPONDER: Keith Barber, MSD Rate Consultant
RESPONSE: Please see response to Item 1-26.
1-42. Please provide a table identifying historical annual costs and inflation cost
adjustments during the period 2007 through 2011 associated with: (1) Wages,
Salaries and Overtime; (2) Personal Services and Benefits; (3) Group Insurance;
(4) Supplies, including chemicals; (5) Electric and Gas; (6) Contractual Services;
(7) Bond and Liability Insurance; (8) Capital Outlay; and (9) Pension.
RESPONDER: Keith Barber, MSD Rate Consultant
RESPONSE: Historical annual costs for the combined wastewater and
stormwater operations are presented in Table 2-1 on Page 2-2 of the Wastewater
Rate Proposal (Exhibit MSD 1). Detailed historical costs for the combined
utilities are available as Pages D-2 through D-7 of Exhibit MSD 4a. Information
related to historic wastewater related costs is not available.
1-43. Please identify the current operating reserve level (number of days of expected
operating costs) embedded in MSD's current rate levels.
RESPONDER: Keith Barber, MSD Rate Consultant
RESPONSE: Current operating reserves are set at 60 days of O&M and
routine capital costs.
1-44. Please provide an electronic version of the May 5, 2011 MSD wastewater utility
cost of service study (in Exhibit MSD 1), with all formulas and file references
intact.
RESPONDER: Keith Barber, MSD Rate Consultant
RESPONSE: This is regarded by Black & Veatch as proprietary
information and not available to third parties. However, all calculation sheets
with text formulas showing the basic calculations used and page references are
available as Exhibit MSD 4a. In addition, formulas used in the rate model are
included in Exhibit MSD 5.
- 26 -
1-45. When compared with MSD's cost of service study used in the development of
rates in its 2007 rate proceeding, please identify and quantify all customer class
allocation differences made in MSD's May 5, 2011 cost of service study.
RESPONDER: Keith Barber, MSD Rate Consultant
RESPONSE: The methodology used to allocate costs to customer classes
in the 2007 rate proceedings is the same methodology used in the current
proceedings. The most notable difference is the allocation of environmental
compliance costs to non-residential customers. A large portion of the costs
recovered only by non-residential customers in the 2007 cost allocations are now
recovered from all customers and the costs remaining in the non-residential
functional cost component are now recovered on the basis of respective service
requirements of five non-residential sub categories instead of a uniform charge.
Increased costs and relative changes in customer class units of service will also
impact how costs are allocated to the different customer classes.
1-46. Please provide an electronic version of MSD's rate model that supports the
wastewater rate proposal, with all formulas and file references intact.
RESPONDER: Keith Barber, MSD Rate Consultant
RESPONSE: Please see response to Item 1-44.
1-47. In reference to Table 3-23 "Comparison of Wastewater Cost of Service with
Revenue Under Proposed Rates Test Year 2013," please provide a detailed
description as to why Non -Residential customers' portion of revenue as a percent
of cost of service is set at 108.7% while the single family and multifamily
portions of revenue levels are set at 96.4% and 97.9%, respectively.
RESPONDER: Keith Barber, MSD Rate Consultant
RESPONSE: Table 3-18 on Page 3-32 of the Rate Change Proposal
(Exhibit MSD 1) indicates that the fiscal year 2013 cost of service increase over
approved 2012 rates for non-residential customers is a negative 0.9 percent. This
compares to an overall revenue increase of 11 percent for the system, 16.6 percent
for single family customers and 15.7 percent for multifamily customers. This is
due to the reallocation of costs formerly recovered only from non-residential
customers through the environmental compliance charge to other cost components
that are recovered by all customer classes. The indicated revenue increases are
based on an immediate transition to cost of service in 2013.
In contrast, the revenue as a percent of cost of service values shown in Column 3
of Table 3-23 show the proposed first year transition of the five -tier
environmental compliance charge where Tiers 2 through 5 are immediately set at
cost of service levels but the proposed charge for Tier 1 customers is lowered
from the 2012 approved compliance charge but over recovers costs based on the
revised cost allocation. This provides some relief to residential customers as the
- 27 -
Tier 1 compliance charge moves towards the indicated cost of service rate in
2016. The table below shows indicated cost recovery in 2016 when Tier 1 rates
are fully transitioned to cost of service charges. See table on next page.
Table 3-23
Comparison of astewater Cost of Service
nth Revenue Under Proposed Rates
Test Year 2016
Line
No. Customer Class
(1) (2) (3)
Revenue Revenue As
Under Allocated a Percent
Proposed Cost of of Cost of
Rates Service Service
$ $
J-9 (1)/(2)
Metered Customers
1 Single Family 154,413,500 154,429,400 100.0
2 Multifamily 34,330,500 34,268,000 100.2
Non -Residential (a)
3 Anheuser-Busch 6,834,300 6,822,600 100.2
4 All Other 88,414,200 88,192,700 100.3
5 Total 283,992,500 283,712,700 100.1
Unmetered Customers
6 Single Family 37,659,700 37,911,300 99.3
7 Multifamily 20,599,800 20,649,100 99.8
8 Total 58,259,500 58,560,400 99.5
Total System
9 Single Family 192,073,200 192,340,700 99.9
10 Multifamily 54,930,300 54,917,100 100.0
11 Non -Residential (a) 95,248,500 95,015,300 100.2
12 Total 342,252,000 342,273,100 100.0
(a) Includes revenue and allocated cost of service associated with
surcharge customers.
1-48. Please confirm that under MSD's rate proposal, the rates of MSD's
non-residential customers would be set above cost of service while the rates of
MSD's single family and multifamily customers would be set below cost of
service.
RESPONDER: Keith Barber, MSD Rate Consultant
RESPONSE: Please see response for Item 1-48.
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1-49. Please provide MSD's basis for setting the rates of MSD's non-residential
customers above cost of service.
RESPONDER: Keith Barber, MSD Rate Consultant
RESPONSE: Please see response for Item 1-48. The basis is to provide a
four-year transition of Tier 1 rates so as to realign costs from the current uniform
compliance charge to a reduced Tier 1 charge due to the reallocation of
compliance related costs from only the non-residential customer class to all
customer classes.
1-50. At page 17 of Mr. Barber's testimony, he states that certain operation,
maintenance and construction improvement funds are not included in wastewater
capital improvement financing plans since these funds are supported by ad
valorem taxes from various districts and dedicated to local area projects. Please
identify the exact amount of revenue MSD receives from ad valorem taxes from
these districts, and the operation, maintenance and construction improvement
funds and expenditures made for these districts.
RESPONDER: Keith Barber, MSD Rate Consultant
RESPONSE: Historically, the District has maintained two OMCI
subdistricts solely dedicated for wastewater related capital improvements:
Missouri River - Bonfils (Fund 5590) and the Lower Meramec River Basin (Fund
5591). At this time, taxes are not being assessed in these areas and only residual
balances are maintained in each subdistrict fund. Per the 2012 Budget (Exhibit
MSD 8, Pages 116 & 117), Missouri River - Bonfils is expected to have an end of
year 2011 balance of $3,581,000 and the Lower Meramec River Basin is
projected to have a 2011 end of year balance of $6,318,000.
1-51. Referring to page 19 of Mr. Barber's testimony, please provide all workpapers
used to develop the debt service coverage ratios calculated at lines 2-10 of that
testimony.
RESPONDER: Keith Barber, MSD Rate Consultant
RESPONSE: Debt service calculations are shown on Lines 35 and 36 of
Table 3-11 from Page 3-18 of Exhibit MSD 1. The values on Line 35 are the
result of dividing Line 18 by line 33 and the values on Line 36 are the result of
dividing Line 18 by the sum of Lines 33 and 34 of Table 3-11.
1-52. Concerning the debt service coverage ratios developed on page 19, please state
whether or not the ad valorem tax revenue receipts referred to at page 17 net of
operation, maintenance and construction improvement expenditures are included
in the development of debt service coverage ratios.
RESPONDER: Keith Barber, MSD Rate Consultant
RESPONSE: Tax revenues are solely related to the District's stormwater
program which is not a component of the current Rate Change Proposal (Exhibit
MSD 1). As such, tax revenue is not used in the debt service calculations.
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1-53. Referring to page 19, Mr. Barber states that the forecast includes $945 million of
additional bond authorizations based on a 30 -year term and an interest rate of
5.5%. Please provide all supporting documentation relied on by Mr. Barber to
estimate the 5.5% interest rate on tax-exempt municipal bond issuances.
RESPONDER: Keith Barber, MSD Rate Consultant
RESPONSE: Historic interest rates can be obtained from the Bond Buyer
25 -Year Revenue Bond Index (Exhibit MSD 16A). Based on this information, a
reasonable estimate for future debt was determined to be 5.5 percent. See
response to Q 1 — 35 for more information.
1-54. Referring to page 19 of Mr. Barber's testimony, please provide all supporting
documentation describing the State Revolving Fund loans, interest rates and
maturities used in the forecast.
RESPONDER: Keith Barber, MSD Rate Consultant
RESPONSE: Please see response for Item 1-2d.
1-55. Concerning page 19 of Mr. Barber's testimony, please describe the commercial
paper program, provide support for the assumed 5% interest rates and issuance
costs of $25,000 per issue.
RESPONDER: Keith Barber, MSD Rate Consultant
RESPONSE: Although the ability to issue commercial paper has been
provided for in the rate model, no commercial paper is expected to be issued
during the study period.
1-56. Referring to page 19 of Mr. Barber's testimony, please provide a detailed report
describing how the targeted minimum debt service coverage ratios of senior and
junior lien bonds of 220% and 150% were developed.
RESPONDER: Keith Barber, MSD Rate Consultant
RESPONSE: These values were suggested by the District's financial
advisors to help maintain the District's credit rating and provide reasonable
assurances that the rate covenant and additional revenue bond coverage tests can
be consistently met.
1-57. Referring to page 21 of Mr. Barber's testimony, please provide a copy of financial
reports from MSD supporting the beginning of Fiscal Year 2011 fund balances.
RESPONDER: Keith Barber, MSD Rate Consultant
RESPONSE: The wastewater fund balance as of June 30, 2010 is
determined on Page G-8 of Exhibit MSD 4a. The source document for these
values is attached as Exhibit MSD 16A13.
1-58. Referring to pages 14 and 15 of Mr. Barber's testimony, please provide all
supporting documentation used to develop the inflation rates for each of the O&M
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expense items included at those pages. Please also provide a narrative explaining
how the escalation rates were derived.
RESPONDER: Keith Barber, MSD Rate Consultant
RESPONSE: See responses to Items 1-26 and 1-27.
1-59. Referring to page 27 of Mr. Barber's testimony, he states that certain wholesale
customers may own and operate their own sewer collection system and may not
be responsible for the smaller mains serving the utility's retail customers. With
respect to this testimony, please answer the following:
a. Are the larger mains serving wholesale customers connected to the smaller
mains serving retail customers?
RESPONDER: Keith Barber, MSD Rate Consultant
RESPONSE: No, typically large mains from a wholesale customer
connect directly to large mains of the utility providing service to the wholesale
customer.
The District currently serves the City of Arnold on a wholesale basis. By
contract (Exhibit MSD 11X), the City of Arnold is charged for O&M costs
based on their relative portion of wastewater contributed to the Lower
Meramec Treatment Plant in addition to the loan repayment currently being
paid to MSD for a share of the treatment plant's capacity.
b. If the larger mains serving wholesale customers are connected to the smaller
mains serving retail customers, why shouldn't wholesale customers pay a
portion of those smaller mains?
RESPONDER: Keith Barber, MSD Rate Consultant
RESPONSE: For utilities that serve wholesale customers, where the
wholesale customer is typically a municipality, the wholesale customer
maintains its own sewer lines serving its customers within its city limits and
typically sends it wastewater through large interceptor sewers to the
contracting utility's interceptor sewer system for eventual treatment and
disposal.
The City of Arnold owns and maintains all sewer lines serving its customers.
These lines are connected to a larger main that flows to the Lower Meramec
Treatment Plant. In this case, due to Arnold's southern location, Arnold's
interceptor goes directly to the treatment plant and is not connected to the
District's interceptor sewer system as would typically occur as described
above.
1-60. Is excluding an allocation of small main costs to wholesale customers, because
they own their own sewer collection system, consistent with the Water
Environment Federation (WEF) in its "Financing and Charges for Wastewater
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Systems" manual as identified by Mr. Barber at page 25 of his testimony? Please
explain answer.
RESPONDER: Keith Barber, MSD Rate Consultant
RESPONSE: Yes, pages 160 — 161 of the WEF manual states: "if the wholesale
customer owns and operates its own collection system and provides its own
billing services, it should only be billed for transporting the wastewater from the
connection point to the treatment plant and for handling and treating the
wastewater."
Wholesale customers typically own and maintain sewer lines serving their
customers within their jurisdiction. Therefore, these customers typically only
share in large sewer mains and treatment facilities owned and operated by the
contracting wastewater utility.
1-61. Referring to page 28, please explain how I/I is allocated on both customer and
volume basis in the rate manual in order to equitably allocate costs between
customer classes. Please also identify where in the cost allocation component of
the rate filing this I/I customer/volume allocation is made.
RESPONDER: Keith Barber, MSD Rate Consultant
RESPONSE: An explanation of allocated I/I is provided on Page 3-28 of
the Wastewater Rate Proposal (Exhibit MSD 1). A detailed allocation of I/I is
provided on Page J-5 of Exhibit MSD 4a. This methodology is consistent with
recovery methods allowed by Federal user charge requirements as mirrored 011
Page 132 of the WEF manual. In addition, the WEF manual states on Page 132
that: "The most common approaches have been to use contributed wastewater
flow, the number of connections (or customers), or a combination of the two to
allocate I/I related costs."
1-62. Referring to pages 28 and 29 of Mr. Barber's testimony, please identify the
specific costs related to reviewing environmental compliance with specified
pollutants identified by the EPA, and which were used to identify the tier ratio
rate schedule proposed by MSD in this proceeding. Please provide a complete
description of all cost elements, a billing unit breakdown for the tiered approach,
and number of customers under each of the tier stacking procedure.
RESPONDER: Keith Barber, MSD Rate Consultant
RESPONSE: Costs are not specific to pollutants. EPA maintains a list of
pollutants that may be contributed or stored on -site by various industrial users
which could result in an industrial user being classified as a categorical industrial
user. Information concerning the proposed compliance charge is available on
Pages 3-37 and 3-38 of Exhibit MSD 1.
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1-63. Please provide a complete copy of the January 2005 CDM study included in the
2007 wastewater/storm water rate proposal as referenced at page 31 of
Mr. Barber's testimony.
RESPONDER: Jan Zimmerman, MSD Director of Finance
RESPONSE: A copy of the January CDM Wet Weather Study is
provided as Exhibit MSD 16A14.
1-64. Please provide a copy of all workpapers and supporting documents used to
develop the capacity factors for contributed wastewater and infiltration and inflow
volume stated at page 33 of Mr. Barber's testimony.
RESPONDER: Keith Barber, MSD Rate Consultant
RESPONSE: The calculations used to develop the requested capacity
factors stated in Q101 on Page 33 of the referenced testimony are based on prior
analyses not readily available. The application of these factors is presented on
Page J-7 of Exhibit MSD 4a.
1-65. Please provide copies of all resource documents and other supporting information
used to determine whether or not the proposed wastewater rates are reasonably
affordable for the ratepayers as discussed at page 36 and Q&A109 of Mr.
Barber's testimony.
RESPONDER: Keith Barber, MSD Rate Consultant
RESPONSE: Affordability considerations are discussed in Section 5.6 of
the wastewater Rate Proposal (Exhibit MSD 1, Pages 5-11 & 5-12).
1-66. Referring to page 36, Q110 of Mr. Barber's testimony, please identify all
quantitative support for Mr. Barber's contention that his proposed wastewater
rates were designed to recover costs of providing wastewater service.
RESPONDER: Keith Barber, MSD Rate Consultant
RESPONSE: Quantitative support for recovery of costs to provide
wastewater service is presented in the Rate Change Proposal (Exhibit MSD 1) in
its entirety. The methodology presented in Exhibit MSD 1 is consistent with
standard industry practice and all prior Rate Commission proceedings.
1-67. Referring to pages 38 and 39 of Mr. Barber's testimony, please provide complete
copies of all supporting documentation supporting his contention that the MSD's
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surcharges are comparable with rates currently charged by Kansas City, Missouri,
and also provide copies of surcharge rate comparisons with any other wastewater
system.
RESPONDER: Keith Barber, MSD Rate Consultant
RESPONSE: All Kansas City ordinances are available online at the
City's web site (www.kcmo.org), including the referenced Ordinance 110167. A
survey of excess strength charges levied by other wastewater utilities was not
conducted as part of this rate change proposal.
Respectfully submitted,
Susan Myers, General Counsel
ME 1ROPOLITAN ST. LOUIS SEWER DISTRICT
2350 Market Street
St. Louis, Missouri 63103
smyers= istlmsd.com
Tel: (314) 768-6200
Fax: (314) 768-6372
CERTIFICATE OF SERVICE
The undersigned hereby certifies that on the 7th day of June, 2011:
An electronic copy of the foregoing instrument was emailed to the Secretary of the Rate Commission c/o
jfenton(i 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(Jswbell.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 was emailed and one paper copy and associated Exhibits
were couriered to:
RATE COMMISSION LEGAL COUNSEL: Lisa O. Stump, Esq.
Lashly & Baer, P.C.
714 Locust Street
St. Louis, MO 63101
lostump Olashlybaer.com
RATE COMMISSION CONSULTANT: Mr. William Stannard
President
Raftelis Financial Consultants, Inc.
3013 Main Street
Kansas City, MO 64108
wstannardrci,raftelisxom
COVIDI EN: Mr. Randy Meyer
Utility Manager
Covidien
3600 North 2nd Street
St. Louis, MO 63147
Randy Meverin)covidiem(e com
ROBERT A. MUELLER:
Mr. Robert A. Mueller
16 Ladue Crest Lane
St. Louis, MO 63124
ramreco( sbcglobaLnet
- 35 -
BARNES JEWISH HOSPITAL:
MISSOURI INDUSTRIAL ENERGY
CONSUMERS:
Ms. Lisa Langeneckert
Sandberg, Phoenix and VonGontard P.C.
One City Centre, Suite 1500
St. Louis, MO 63101
tlangenecker[@sandbergphoenix.com
John Kindschuh, Esq.
Bryan Cave, LLP
211 N. Broadway, Suite 3600
St. Louis, MO 63102
John.kindschuh@bryancave.com
Diana M. Vuylesteke, Esq.
Bryan Cave, LLP
211 N. Broadway, Suite 3600
St. Louis, MO 63102
dmvuylesteke@bryancave.com
Susan Myers, General Counsel
METROPOLITAN ST. LOUIS SEWER DISTRICT
2350 Market Street
St. Louis, Missouri 63103
Email: smyers@stlmsd.com
Tel: (314) 768-6200
Fax: (314) 768-6372
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