HomeMy Public PortalAboutExhibit BJH 88 Supplemental Testimony (Billie LaConte)Exhibit No.:
Issues:Rate Model
Witness:Billie S. LaConte
Sponsoring Party:Barnes‐Jewish Hospital
Type of Exhibit:Supplemental Testimony
Case No.:
Date Testimony Prepared:September 16, 2011
Metropolitan St. Louis Sewer District
2011 Wastewater Rate Change Proceeding
Before the
MSD Rate Commission
Supplemental Testimony of
Billie S. LaConte
on Behalf of
Barnes‐Jewish Hospital
Project No. 101479
September 16, 2011
Metropolitan St. Louis Sewer District
MSD Rate Commission
2011 Wastewater Rate Change Proceeding
Affidavit of Billie S. LaConte
STATE OF MISSOURI )
)
COUNTY OF ST. LOUIS )
Billie S. LaConte, being of lawful age and duly affirmed, states the following:
1. My name is Billie S. LaConte. I am a consultant in the field of public utility economics
and regulation and a member of Drazen Consulting Group, Inc.
2. Attached hereto and made a part hereof for all purposes is my Supplemental
Testimony consisting of Pages 1 through 4 and Schedule BSL‐1, filed on behalf of
Barnes‐Jewish Hospital.
3. I have reviewed the attached Supplemental Testimony and schedule and hereby
affirm that my testimony is true and correct to the best of my knowledge and belief.
Billie S. LaConte
Duly affirmed before me this 16th day of September, 2011.
Notary Public
My commission expires on July 6, 2015.
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Drazen Consulting Group, Inc.
Metropolitan St. Louis Sewer District 1
MSD Rate Commission 2
2011 Wastewater Rate Change Proceeding 3
Supplemental Testimony of Billie S. LaConte 4
Q PLEASE STATE YOUR NAME AND BUSINESS ADDRESS. 5
A Billie S. LaConte, 8000 Maryland Avenue, Suite 1210, St. Louis, Missouri 63105. 6
Q ARE YOU THE SAME BILLIE S. LACONTE THAT FILED REBUTTAL AND SURREBUTTAL 7
TESTIMONY IN THIS PROCEEDING? 8
A Yes. 9
Q WHAT IS THE PURPOSE OF YOUR SUPPLEMENTAL TESTIMONY IN THIS PROCEEDING? 10
A I shall discuss the rate model used by MSD to calculate its revenue requirement and 11
rates in its current rate proposal. 12
Q WHAT ARE YOUR COMMENTS REGARDING THE RATE MODEL? 13
A I reviewed the rate model used by MSD and altered some of the inputs. Based on my 14
changes, MSD could fulfill the requirements of the Consent Decree with lower rate 15
increases. 16
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Drazen Consulting Group, Inc.
Q PLEASE EXPLAIN. 1
A In my Surrebuttal Testimony dated August 19, 2011, I suggested changes that MSD 2
could make to lower its proposed rate increases and, at the same time, meet its 3
proposed capital schedule. 4
Q PLEASE PROVIDE A SUMMARY OF YOUR SUGGESTED CHANGES. 5
A 6
• MSD’s customer count would remain the same throughout the rate period. 7
Usage would decline by 0.76% by FY2013, then remain the same through 8
FY2016. (MSD assumed that customer accounts would decline by 0.2% over 9
the rate period and that usage would decline by 1.9% over the rate period 10
(MSD Exhibit 1, Table 3‐1 and Table 3‐2, respectively).) MSD Exhibit 11A34 11
shows that actual FY2011 customers and usage increased by 0.3% and 2.3%, 12
respectively, over forecast 2011. Based on this data, assuming no growth is a 13
conservative estimate; 14
• Operating costs would increase 2.3% per year, excluding Rate Commission 15
cost, Additional Operating and Maintenance cost, Civil Service Commission 16
cost, or Group Insurance cost which remain the same as proposed in MSD’s 17
Rate Proposal. This is based on Exhibit 18G titled “MSD’s Inflation Trend 18
Analysis,” which shows the average Consumer Price Index (CPI) from FY2006‐19
FY2012 as 2.3%. In the second year of the rate proposal, I lowered the 20
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Drazen Consulting Group, Inc.
increase to 5% for OPEB cost and Pension cost. This recognizes that MSD has 1
switched from a defined benefit pension plan to a defined contribution 2
pension plan; 3
• I used a cash expenditure method to estimate the annual CIRP costs, based 4
on Exhibit MSD 50A and an inflation allowance of 1.5% (using 2010 $). The 5
inflation allowance is lower than the CPI rate to reflect that some of the bids 6
for capital work may come in below traditional costs; 7
• Based on the lower CIRP requirements, I lowered the revenue bond issuance 8
from $805 million to $727 million over the rate period and maintained the 9
State Revolving Loan proceeds as shown in MSD’s Rate Proposal; 10
• Cash financing was lowered to $142 million over the rate period, compared 11
to MSD’s proposed cash financing of $159.1 million over the rate period; and 12
• I used a bad debt expense escalator of 3% per year instead of MSD’s 32% for 13
FY2013 and 12% for FY2014‐FY2016. This is based on the assumption that 14
MSD’s improved collection methods will mitigate somewhat the effect of the 15
rate increases on bad debt expense. 16
Q WHAT RATE INCREASES WOULD MSD NEED USING YOUR ASSUMPTIONS? 17
A MSD would need to increase rates by 8.5% per year for the rate period FY2013‐FY2016. 18
MSD has proposed 11%‐12% annual increases. Schedule BSL‐1 is a reproduction of 19
Table 3‐11 in MSD Exhibit 1, using my inputs and assumptions. 20
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Drazen Consulting Group, Inc.
Q SHOULD MSD USE YOUR PROPOSED RATE INCREASES FOR ITS RATE PROPOSAL 1
PERIOD? 2
A MSD should use the assumptions for the first year of the rate proposal period, FY2013, 3
which begins on July 1, 2012 and ends on June 30, 2013. The rates for the remaining 4
period, FY2014‐FY2016 should be determined at a later hearing. 5
Q WHY SHOULD MSD HAVE AN ADDITIONAL RATE HEARING TO DETERMINE THE RATE 6
INCREASES FOR FY2014‐FY2016? 7
A MSD has not finalized its Sanitary Sewer Overflow Control Master Plan (SSO Plan), which 8
is approximately 55% of its total proposed CIRP for the rate period ($485.5 million for 9
FY2013‐FY2016). In MSD Exhibit 60C, Surrebuttal Testimony of Brian Hoelscher, Mr. 10
Hoelscher states that the SSO Plan will be submitted to the EPA for approval by 11
December 31, 2013 (Page 9, Lines 6‐7). Upon cross‐examination at the surrebuttal 12
testimony rate hearing, on September 6, 2011, Mr. Hoelscher stated that the internal 13
draft of the plan is not available for review at this time. Therefore, it is premature for 14
MSD to propose rate increases for FY2014‐FY2016, based on a CIRP schedule that is not 15
finalized and has not been fully approved by the EPA. What MSD has proposed today 16
versus what will be approved by the EPA on December 31, 2013, could differ 17
dramatically. It is unfair to customers to ask them to pay for a CIRP program that is still 18
in the early stages of planning. 19
Q DOES THAT CONCLUDE YOUR SUPPLEMENTAL TESTIMONY? 20
A Yes. 21