HomeMy Public PortalAboutExhibit MSD 119A Transcript September 26, 2011 Technical ConferenceExhibit MSD 119A
98874msdconfO9262O11
1
1
2
3 METROPOLITAN ST. LOUIS SEWER DISTRICT
4
5
6 MEETING OF THE RATE COMMISSION
7 SEPTEMBER 26, 2011
8
9 (Meeting start time, 10:05 a.m.)
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
0
Page 1
98874msdconf09262011
2
1
2 WITNESSES:
3
INDEX
PAGE
4 MR. MICHAEL GORMAN
QUESTIONING BY:
5 Ms. Whatley 11
Ms. Stump 17
6 Mr. Tomazi 18
Mr. Brockmann 19
7
8 MS. BILLIE LACONTE
QUESTIONING BY:
9 Ms. Stump 21
Mr. Chairman 22
10 Mr. Tomazi 22
11
12 MR. THOMAS BECKLEY
QUESTIONING BY:
13 Ms. Stump 24
Mr. Gorman 27
14 Mr. Koenen 37
Mr. Tomazi 38
15
16 MR. KEITH BARBER
QUESTIONING BY:
17 Mr. Gorman 40
Ms. Langeneckert 51
18 Mr. Beckley 53
Ms. Whatley 56
19
20 MR. BRIAN HOELSCHER
QUESTIONING BY:
21 Mr. Brockmann 58
Mr. Gorman 59
22 Mr. Stein 70
Mr. chairman 71
23 ms. Whatley 73
24
25 (No Exhibits Marked)
0
Page 2
98874msdconf09262011
3
1 MEETING OF THE RATE COMMISSION OF THE METROPOLITAN
2 ST. LOUIS SEWER DISTRICT, produced and examined on
3 September 26, 2011, between the hours of 10:05 in the
4 forenoon and 11:43 in the forenoon of that day, at the
5 Metropolitan St. Louis sewer District, 2350 Market
6 Street, Room 109, St. Louis, Missouri 63103, before
7 Suzanne Zes, Certified court Reporter.
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
0
Page 3
98874msdconfO9262011
4
1 APPEARANCES
2
3 FOR THE MSD RATE COMMISSION:
4 Glenn Koenen
West County Chamber of Commerce
5
6 Mike Seidel
St. Louis Council of Construction Consumers
7
8 Mike O'Connell
Greater St. Louis Labor Council
9
10 Paul Brockmann
Missouri Botanical Garden
11
12 George D. Tomazi
The Engineers' Club of St. Louis
13
14 Eric Schneider
Regional Chamber & Growth Association
15
16 Leonard Toenjes
Associated General Contractors
17
18 John Stein
Missouri Industrial Energy Consumers
19
20 George Liyeos
St. Louis County Municipal League
21
22 Nancy Bowser
League of Women Voters of St. Louis
23
24 Ralph Wafer
Missouri Coalition for the Environment
25
0
Page 4
98874msdconf09262011
5
1 LEGAL COUNSEL ON BEHALF OF THE RATE COMMISSION:
Lisa 0. Stump
2 Lashley & Baer, PC
3
Thomas A. Beckley
4 Raftelis Financial Consultants, Inc.
5
6 ON BEHALF OF METROPOLITAN ST. LOUIS SEWER DISTRICT:
Susan Myers, Legal Counsel
7 Kristol Whatley, Legal Counsel
Jan Zimmerman, Director of Finance
8 Brian Hoelscher, Director of Engineering
Keith Barber, Black & Veatch
9
10 ON BEHALF OF MISSOURI INDUSTRIAL ENERGY CONSUMERS:
John Kindschuh
11 Bryan Cave, LLP
Michael P. Gorman
12 Brubaker & Associates
13
14 ON BEHALF OF BARNES -JEWISH HOSPITAL:
Lisa C. Langeneckert
15 Sandberg, Phonenix & Von Gontard, PC
16
Billie S. LaConte
17 Drazen Consulting Group, Inc.
18
19 ON BEHALF OF AARP AND CONSUMERS COUNCIL OF MISSOURI:
John Coffman
20
21 The Court Reporter:
Suzanne Zes
22 Midwest Litigation Services
711 North Eleventh Street
23 St. Louis, MO 63101
314.644.2191
24 314.644.1334 Fax
25
9
Page 5
98874msdconf09262011
6
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
MR. CHAIRMAN: We will reconvene. My name
is Len Toenjes and I am Chairman of the Rate
Commission of the Metropolitan St. Louis Sewer
District and I will serve as Chair of this proceeding.
Present are those Rate Commissioners who were
identified earlier at the roll call. I guess we
should probably by rights do another roll call since
we have had some additional folks join us. So Ms.
Bowser, I will ask you to take the roll call for the
technical conference.
COMMISSIONER BOWSER: Mr. Brockmann?
COMMISSIONER BROCKMANN: Here.
Mr.
Mr.
COMMISSIONER BOWSER:
Koenen?
COMMISSIONER KOENEN:
COMMISSIONER BOWSER:
COMMISSIONER LIYEOS:
COMMISSIONER BOWSER:
Ms. Casey; Mr. Goss;
Here.
Mr. Lieyos?
Here.
Mr. O'Connell?
COMMISSIONER O'CONNELL: Here.
COMMISSIONER BOWSER: Mr. Post;
Schneider?
COMMISSIONER
COMMISSIONER
COMMISSIONER
COMMISSIONER
SCHNEIDER: Here, present.
BOWSER:
SEIDEL:
BOWSER:
Page 6
Mr. Siedel?
Here.
Mr. Stein?
98874msdconf09262011
7
1 COMMISSIONER STEIN: Present.
2 COMMISSIONER BOWSER: Mr. Toenjes?
3 COMMISSIONER TOENJES: Present.
4 COMMISSIONER BOWSER: Mr. Tomazi?
5 COMMISSIONER TOMAZI: Here.
6 COMMISSIONER BOWSER: Mr. Wafer?
7 COMMISSIOER WAFER: Here.
8 MR. CHAIRMAN: Thank you, Ms. Bowser. The
9 Charter Plan of the District was approved by the
10 voters of St. Louis City and St. Louis County by a
11 special election on February 9th, 1954 and amended at
12 a general election on November 7th, 2000. The
13 amendment to the charter Plan established the Rate
14 Commission to review and make recommendations to the
15 District regarding changes in wastewater rates,
16 stormwater rates and tax rates proposed by the
17 District. On May 10th, 2011, the Rate Commission
18 received a rate change notice proposing changes to the
19 District's wastewater rates. The Rate Commission
20 adopted operational rules and a procedural schedule to
21 govern the proceedings on May 17th, 2011, and amended
22 its procedural schedule on July 8th, 2011. Additional
23 addendum to the schedule were approved on August 2nd,
24 2011, and September 6th, 2011. Under the procedural
25 schedule adopted by the Rate Commission as amended,
0
Page 7
98874msdconf09262011
8
1 the MSD Rate Commission has until October 21st, 2011,
2 to review and make a recommendation to the MSD Board
3 of Trustees as to whether the proposed rates should be
4 approved, not approved or modified with suggestive
5 changes and then approved. Under procedural rules
6 adopted by the Rate Commission as amended, any person
7 affected by the rate change proposal had an
8 opportunity to submit an application to intervene in
9 these proceedings. Applications to intervene have
10 been filed by Barnes -Jewish Hospital, Covidien,
11 Missouri Industrial Energy Consumers, Robert A.
12 Mueller, AARP and consumers council of Missouri.
13 These applications have been granted. since May 10th,
14 2011, the MSD Rate Commission has received testimony
15 from MSD staff, the interveners and the rate
16 consultant. The parties have also engaged in
17 discovery requests. Technical conferences were held
18 on June 3rd, 2011, August 8th, 2011, and September
19 6th, 2011, where the participants and the Rate
20 Commission were given an opportunity to ask questions
21 of those submitting testimony. Ratepayers who do not
22 wish to intervene are permitted to participate in a
23 series of on the record public hearings conducted in
24 several sessions, which began on August 6th, 2011, and
25 concluded on the October 6th, 2011. I'm sorry, it's
0
Page 8
98874msdconf09262011
9
1 August 16th, 2011. This technical conference will be
2 held on the record and address supplemental testimony
3 on the electronic model and then responsive testimony
4 too, on the electronic model. Each person submitting
5 supplementary or responsive testimony shall answer
6 questions propounded by the members of the Rate
7 Commission, the District, the other interveners, and
8 finally by our legal counsel. Who is here on behalf
9 of Metropolitan St. Louis Sewer District?
10 MS. MYERS: Myself, Susan Myers and my
11 colleague, Kristol Whatley.
12 MR. CHAIRMAN: Who is here on behalf of
13 Missouri Industrial Energy Consumers?
14 MR. KINDSCHUH: John Kindschuh with the law
15 firm of Bryan Cave and Michael Gorman with Brubaker
16 and Associates, as my expert.
17 MR. CHAIRMAN: Who is here on behalf of
18 Barnes -Jewish Hospital?
19 MS. LANGENECKERT: Lisa Langeneckert of the
20 law firm of Sandberg, Phoenix and Von Gontard and our
21 expert, Billie LaConte, from Drazen Consulting.
22 MR. CHAIRMAN: who is here on behalf of
23 Robert Mueller? Who is here on behalf of AARP?
24 MR. COFFMAN: John B. Coffman and I am also
25 representing the Consumers Council of Missouri.
n
Page 9
98874msdconf09262O11
10
1 MR. CHAIRMAN: Okay. Also present are
2 Thomas Beckley of Raftelis Financial Consultants Inc.,
3 consultant to the Rate Commission and Lisa stump of
4 Lashley & Baer, legal counsel to the Rate Commission.
5 Under the Rate Commissions operational rules no person
6 shall by required to answer questions for a total
7 period of more than three hours and the time shall be
8 evenly divided among all the participants desiring to
9 ask questions. Following questions by members of the
10 Rate Commission, I will attempt to allocate the time
11 equally among participants and our legal counsel. To
12 the extent that the District, one of the interveners
13 or legal counsel has not completed the questions at
14 the expiration of that person's allotted time and to
15 the extent that time remains, such persons will be
16 permitted to propound additional questions until the
17 three hours has expired. Are there any procedural
18 matters to be taken care of at this time?
19 MS. STUMP: Not that I'm aware of.
20 MR. CHAIRMAN: There being no further
21 procedural matters, Mr. Kindschuh, are you ready to
22 begin with Mr. Gorman?
23 MR. KINDSCHUH: Yes, Mr. Gorman is available
24 for questions during this conference.
25 MR. CHAIRMAN: Thank you. Mr. Gorman, is
0
Page 10
98874msdconf09262011
11
1 the testimony you are about to give the truth, the
2 whole truth and nothing but the truth?
3 MR. GORMAN: It is.
4 MR. CHAIRMAN: Thank you. Does any member
5 of the Rate Commission have any questions for
6 Mr. Gorman at this time? Hearing none,
7 Ms. Langenckert, do you have any questions for
8 Mr. Gorman on behalf of Barnes -Jewish Hospital?
9 MS. LANGENECKERT: We do not.
10 MR. CHAIRMAN: Mr. Coffman, do you have any
11 questions of Mr. Gorman on behalf of the AARP or the
12 Consumers Council of Missouri?
13 MR. COFFMAN: No questions, thank you.
14 MR. CHAIRMAN: Ms. Myers, do you have
15 questions on behalf of the District for Mr. Gorman?
16 MS. MYERS: Yes we do, Mr. Chair, and I am
17 going to turn the questions on over to Kristol
18 Whatley.
19 MR. CHAIRMAN: Thank you.
20 QUESTIONS BY MS. WHATLEY:
21 Q. Good morning, Mr. Chair, my name is Kristol
22 Whatley and I'm an attorney with the District in the
23 in-house legal department. Good morning, Mr. Gorman,
24 I do have a few questions for you.
25 A. Good morning.
0
Page 11
98874msdconf09262011
12
1 Q. Mr. Gorman, I would like to first direct
2 your attention to your supplemental testimony on page
3 4, lines 8 through 13.
4 A. I'm there.
5 Q. okay. Mr. Gorman, on line 8, do you start
6 to state that you reduce the capital improvement
7 program budget by approximately 10 percent to reflect
8 a reduction in the CIP provided in the current outline
9 on the consent Decree mandates rather than the
10 overstated amounts included in the BNB model, you go
11 on to say that you noted in your previous testimony
12 that MSD overstated the amount of CIPs necessary to
13 comply with the consent Decree over the next four
14 years, is that the statement that you have in your
15 testimony?
16 A. It is.
17 Q. Mr. Gorman, am I correct in understanding
18 your statement that it is your opinion that the CIRP
19 in the rate model has been overstated by 10 percent
20 over the next four years?
21 A. well, relative to the information that the
22 District provided us with respect to capital
23 expenditures mandated by the Consent Decree, yes.
24 Q. So, Mr. Gorman, have you read the responsive
25 testimony submitted by Mr. Brian Hoelscher?
Page 12
98874msdconf09262011
13
1 A. Yes.
2 Q. Is it still your opinion that the District
3 has overstated the CIRP program by 10 percent?
4 A. well, I haven't been able to validate his
5 claim that the reason there is a difference is the
6 information provided, outlining the consent Decree,
7 was not stated in 2010 dollars, it was adjusted by
8 inflation. I have looked though the data responses
9 they have provided us to try to validate that claim
10 and there is simply no way to validate based on the
11 information that he gave us that the budget he
12 provided us were stated in 2010 dollars.
13 Q. okay. Just a minute. So you were not able
14 to validate that the budget, that the $884 million
15 number, was 2010 dollars?
16 A. Right.
17 Q. okay. Mr. Gorman, do you base your
18 statement and your supplemental testimony on Table 2,
19 which was included in your surrebuttal testimony?
20 A. well, based -- that's where I summarized the
21 information that the District gave me in response to
22 the District's Exhibit MSS 50-A.
23 Q. okay. And we handed out page 17, of your
24 surrebuttal testimony, which has Table 2 on it. Do
25 you have that in front of you?
0
Page 13
98874msdconf09262011
14
1 A. Yes.
2 Q. And, Commissioners, you should have a copy
3 of this same table. Mr. Gorman, in Table 2 you have a
4 column that is titled updated Consent Decree, which
5 has a $884,738,250 number; is that correct?
6 A. Yes.
7 Q. And is that what you claim to be the updated
8 Consent Decree number?
9 A. Yes.
10 Q. And you can't find any basis for that to be
11 in 2010 dollars?
12 A. well, 1 looked at the data response provided
13 with that information that was provided and it did not
14 state that those numbers were in 2010 dollars.
15 Q. Okay. Mr. Gorman, would you please look at
16 the second column, the one titled COSS, and that is
17 footnoted as coming from line 12, Table 3-8, of MSD
18 Exhibit 1; is that correct?
19 A. Yes.
20 Q. And the third column in your Table 2 shows
21 the difference between those two columns that we just
22 explained; is that correct?
23 A. Yes.
24 Q. And what is the dollar figure for that
25 difference?
0
Page 14
98874msdconfO9262011
15
1 A. 23 million.
2 Q. Is that difference the basis for your
3 reduction of the CIRP program in your supplemental
4 testimony?
5 A. Well, I generalized it to be approximately
6 10 percent of the billion, $6 million, but yes, it is.
7 Q. Okay. will you take a look at Exhibit MSD
8 18-v that has been handed out?
9 A. I have it.
10 Q. If we turn to the second to last page of
11 that document, do you see that total figure at the top
12 of that page, under the word cost, as the $884 million
13 number?
14 A. I'm sorry, the second to last page?
15 Q. Yes. It's on the last page, not on the
16 back, they're double sided.
17 A. Yes.
18 Q. Is that the number you were not able to
19 validate that it was in 2010 dollars?
20 A. Yes.
21 Q. Okay. will you please flip to the last page
22 of Exhibit MSD 18-v? Are you there?
23 A. Yes.
24 Q. Do you see down at the bottom of that page
25 in bold, where it says, the text says, the total
0
Page 15
98874msdconf09262011
16
1 number is $884 million. we believe this to be a
2 static number in 2010 dollars. It does not reflect
3 potential inflation or cost increase. Do you see that
4 statement?
5 A. Yes.
6 Q. Does that now verify for you that the
7 $884 million number is in 2010 dollars?
8 A. It clearly states it on this document but I
9 would have to review the data response provided to us
10 to see if I missed this statement in that document.
11 But this one does note it as that, yes.
12 Q. And this is a document MSD Exhibit 18-V, one
13 that was submitted by the District way before today,
14 right?
15 A. I have noted in my table I relied on Exhibit
16 MSD 50-A. I can verify that subject to check but it
17 was provided.
18 Q. But these are the same numbers, correct?
19 A. same numbers, but I am not ready to accept
20 yet as whether or not the last page, including the
21 assumptions, was provided in the data response that
22 MSD provided.
23 Q. So, Mr. Gorman, just so we are clear this
24 table here, with the $884 million number in there, is
25 the basis for your reduction in the CIRP cost,
9
Page 16
98874msdconf09262011
17
1 correct?
2 A. Yes.
3 MS. WHATLEY: I don't have any further
4 questions for the witness.
5 MR. CHAIRMAN: Ms. Stump, do you have
6 questions of Mr. Gorman on behalf of the Rate
7 commission?
8 QUESTIONS BY MS. STUMP:
9 Q. Just one question, Mr. Gorman or two
10 parts. You went to the Black and veatch offices and
11 reviewed the electronic model, correct?
12 A. Two people from my office did.
13 Q. And your testimony is written in response to
14 that review?
15 A. Yes.
16 Q. Notwithstanding the matter of the bad debt
17 expense issue which you bring up in your testimony,
18 did you find anything else in your review of the
19 electronic model that changes the conclusions from
20 your previous testimony?
21 A. No.
22 MS. STUMP: Thank you.
23 MR. CHAIRMAN: Thank you, Ms. Stump. Do any
24 members of the commission have further questions for
25 Mr. Gorman? Mr. Tomazi?
0
Page 17
98874msdconfO9262011
18
1 QUESTIONS BY MR. TOMAZI:
2 Q. I would just like to be sure I understand
3 what the headache is with this Table 2, on page 17,
4 says Michael P. Gorman on the bottom, exactly what
5 this means. The first column it says updated Consent
6 Decree. Is this, Mr. Gorman, your calculation of what
7 the CIRP -- your opinion of what the CIRP program
8 should be?
9 A. No, this is --
10 Q. stand a little closer to the microphone, if
11 you don't mind.
12 A. This is a list of the CIRP projections made
13 by MSD, as provided, in response to a data request
14 where Exhibit MSD 50-A was provided.
15 Q. okay.
16 A. And in that data response they said that
17 this was the budget that should track to Table 3-8 in
18 the rate filing package, MSD Exhibit 1.
19 Q. What is the column titled cols mean, what is
20 that an acronym for?
21 A. cost of service study. That is Exhibit 1 of
22 the rate filing package. It's the amount of capital
23 expenditures which were included in the development of
24 the proposed rate increase over the next four years.
25 Q. I guess where I am confused is the so-called
0
Page 18
98874msdconf09262011
19
1 column 1, updated Consent Decree of $884 million, how
2 is that arrived at? Isn't that simply adding up these
3 or the list of projects that were submitted by MSD or
4 is there something else that is in the model that I
5 don't understand?
6 A. Well, the point of this portion of my
7 rebuttal testimony was to determine whether or not the
8 amount of capital expenditures MSD included in the
9 rate model was consistent with the capital expenditure
10 budget they estimated as being mandated by the Consent
11 Decree. So when I compared the capital budget
12 included in the Consent Decree it was about 10 percent
13 lower than the capital budget included in the cost of
14 service study. And based on that observation, I
15 concluded that the cost of service study is providing
16 funding for more capital budget than that is necessary
17 to meet the budgets included in the Consent Decree.
18 COMMISSIONER TOMAZI: Okay. I don't have
19 any other questions.
20 MR. CHAIRMAN: Other Rate Commissioners?
21 Mr. Brockmann?
22 QUESTIONS BY MR. BROCKMANN:
23 Q. Mr. Gorman, do you have a copy of MSD 50-A
24 with you?
25 A. Over at the table I do.
0
Page 19
98874msdconf09262011
20
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
0
Q.
inflation
A.
Could we look at that and see if that
item is in that document or not, please?
Exhibit 50-A was provided to me in response
to and MSD's response to Industrial Group's data
request 2-2. In that response, unless there is an
error in my printing, that last page with the
assumptions
had time to
was not included. Now, because I haven't
double-check myself to make sure I didn't
misprint this, I can't say for certain it's not there.
But
Mr.
Mr.
Mr.
Ms.
Ms.
I would be happy to double-check it.
COMMISSIONER BROCKMANN: Thank you.
MR. CHAIRMAN: Any further questions for
Gorman from the Rate Commissioners?
Kindschuh, do you have any questions for
Gorman at this time?
MR. KINDSCHUH: No, I do not.
MR. CHAIRMAN: Thank you, Mr. Gorman.
Langeneckert, are you ready to present
LaConte?
MS.
MR.
you are about to give the truth, the whole truth and
nothing but the truth?
MS. LACONTE: Yes, it is.
MR. CHAIRMAN: Does any member of the Rate
LANGENECKERT: Yes, we are.
CHAIRMAN: Ms. LaConte, is the
Page 20
testimony
98874msdconf09262011
21
1 commission have questions for Ms. LaConte at this
2 time? Hearing none, Mr. Kindschuh, do you have any
3 questions for ms. LaConte on behalf of the MIEC?
4 MR. KINDSCHUH: No, I do not, Mr. Chairman.
5 MR. CHAIRMAN: Mr. Coffman, do you have any
6 questions for ms. LaConte?
7 MR. COFFMAN: No questions, thanks.
8 MR. CHAIRMAN: Ms. Myers, questions of ms.
9 LaConte?
10 MS. MYERS: None at this time, Mr. Chairman.
11 MR. CHAIRMAN: Ms. Stump, do you have any
12 questions of ms. LaConte on behalf of the Rate
13 commission?
14 QUESTIONS BY MS. STUMP:
15 Q. Just a couple. Ms. LaConte, you went to the
16 Black and veatch offices and reviewed the electronic
17 model; is that correct?
18 A. Yes, I did.
19 Q. And was there anything that you found in
20 that review of the electronic model that changes your
21 previously filed supplemental -- or surrebuttal or
22 rebuttal testimony?
23 A. NO.
24 MS. STUMP: Thank you, that is it.
25 QUESTIONS BY MR. CHAIRMAN:
0
Page 21
98874msdconf09262O11
22
1 Q. Any of the members of the Rate Commission
2 have further questions at this time for Ms. LaConte?
3 I guess I would just like to hear and I should have
4 asked with Mr. Gorman, after the discussions we had
5 about the electronic model, how did you find that
6 process?
7 A. You mean the process of going and reviewing
8 it or the process of trying to get access to the
9 model?
10 Q. Yes, the process of going and reviewing it.
11 A. I would have preferred to have had more
12 time. I was able to go and take my own assumptions
13 and put them into the model and run it but it is a
14 very detailed model and I did not have enough time or
15 resources really for my client to actually go through
16 and review all of the formulas within it. so in the
17 next rate proceeding I would have prefer to have
18 access to it at an earlier time and that would allow
19 us to review it more and make sure we agree with all
20 the assumptions.
21 MR. CHAIRMAN: Thank you. Mr. Tomazi?
22 QUESTIONS BY MR. TOMAZI:
23 Q. I'm sorry, I thought of another question.
24 Did you also look at proposed interest rates on the
25 bond offerings in that model and are there serious
0
Page 22
98874msdconf09262011
23
1 differences between what you would have forecast for
2 interest rates and what the District has used in their
3 model for the calculation of their proposed rate
4 increase?
5 A. i reviewed the interest rates that they used
6 and I reviewed Mr. Gorman's assumptions but I did not
7 come up with any recommendations myself.
8 MR. CHAIRMAN: Thank you, Mr. Tomazi.
9 Ms. Langeneckert, do you have any questions for
10 Ms. LaConte?
11 MS. LANGENECKERT: No, I do not.
12 MR. CHAIRMAN: Thank you, Ms. LaConte, thank
13 you very much.
14 MS. LACONTE: You're welcome.
15 MR. CHAIRMAN: ms. Stump, are you ready to
16 present Mr. Beckley?
17 MS. STUMP: I am. Would it be all right if
18 we just stayed here or do you want us to move?
19 MR. CHAIRMAN: You look very comfortable.
20 Mr. Beckley, is the testimony you are about to give
21 the truth, the whole truth and nothing but the truth?
22 MR. BECKLEY: Yes, it is.
23 MR. CHAIRMAN: Thank you. Does any member
24 of the Rate Commission have any questions for Mr.
25 Beckley at this time? Hearing none, Mr. Kindschuh, do
0
Page 23
98874msdconf09262011
24
1 you have any questions for Mr. Beckley on behalf of
2 MIEC?
3 MR. KINDSCHUH: No, we do not, Mr. Chairman.
4 MR. CHAIRMAN: Ms. Langeneckert, do you have
5 any questions for Mr. Beckley?
6 MS. LANGENECKERT: No, we do not.
7 MR. CHAIRMAN: Mr. Coffman?
8 MR. COFFMAN: No, your Honor.
9 MR. CHAIRMAN: Ms. Myers?
10 MS. MYERS: No, we do not. Not at this
11 time.
12 MR. CHAIRMAN: Does any member of the
13 Commission have questions for Mr. Beckley? I am
14 certainly glad you didn't change your seats.
15 Ms. Stump, do you have questions for Mr. Beckley?
16 QUESTIONS BY MS. STUMP:
17 Q. I do have a couple of questions that I would
18 like to ask him. Mr. Beckley, you reviewed their
19 responsive testimony that has been filed both on
20 behalf of relating to the electronic model and both on
21 behalf of the intervener's consultant and also the
22 testimony subsequently filed on behalf of the
23 District?
24 A. Yes.
25 Q. I would like to ask you one question about
0
Page 24
98874msdconf09262011
25
1 Mr. Barber's testimony which is identified as Exhibit
2 94-A. Did you review Mr. Barber's responsive
3 testimony?
4 A. I did.
5 Q. Can you read for me on page 3, his response
6 where he starts the District?
7 A. Yes. The District can correct MIEC's
8 misinterpretation by restating the information
9 provided in paragraph 2.2 as follows, the provision
10 for bad debt has historically increased but is
11 expected to temporarily decline at a total of 6.5
12 million in the next two years comprised of 4 million
13 in 2012 and 2 1/2 million in 2013, due to more
14 comprehensive use of collection agencies and there is
15 a misprint but it should say law firms, to collect
16 prior years' past due amounts.
17 Q. Reading that, what is your understanding of
18 how this bad debt issue is handled?
19 A. Mr. stannard and I spent a good deal of time
20 reviewing the bad debt associated with this rate
21 filing and I kind of disagree and this was in the
22 original testimony and in this, that Mr. Barber used
23 the word temporarily. our understanding was in 2012
24 the increased collection efforts improved collections
25 by $4 million in 2012. And then in 2013 that
Page 25
98874msdconf09262011
26
1 improvement decreases down to $2 1/2 million in that
2 year. Basically, you know, our understanding was that
3 reflected kind of the low hanging fruit that the
4 District would be able to get in the first year but in
5 the second year the collection efforts wouldn't be as
6 effective but they would still have some effect. In
7 our understanding of reviewing the printed models,
8 even prior to reviewing the electronic model, is that
9 that $2 1/2 million carries in 2014, 2015, 2016, as
10 well. And I have re -reviewed that since reviewing
11 this responsive testimony and I am -- that is our
12 understanding of the model and we would certainly
13 appreciate some clarification. we do not believe
14 that's its model is being temporary, we believe that
15 that it's a $2 1/2 million -- that $2 1/2 million
16 because of the way that bad debt inflation increases
17 over the years. Based on collections there is some
18 reduction maybe in that 2 1/2 million but it is still
19 reflected. There is still impact in 2014, '15 and
20 '16, due to those efforts. And that is our
21 understanding of the model based on reviewing the
22 printed, actually the printed material because this is
23 something we did look at, Mr. stannard and I.
24 Q. And when you reviewed the electronic model
25 at the Black and veatch offices, did you find anything
0
Page 26
98874msdconfO9262O11
27
1 else in your review of the electronic model that
2 changes your previous testimony filed in this case?
3 A. No, I didn't find anything that would change
4 Mr. Stannard's testimony that he had previously filed
5 that I had helped him prepare.
0
6
MS. STUMP: Okay. Thank you.
7 MR. KINDSCHUH: Mr. Chairman, if I may make
8 a request?
9 MR. CHAIRMAN: Please Mr. Kindschuh,
10 proceed.
11 MR. KINDSCHUH: Thank you, Mr. Chairman. It
12 was my understanding that Ms. Stump there just asked
13 Mr. Beckley some questions about Mr. Barber's
14 testimony, if the MIEC and other interveners may be
15 permitted to ask a few follow-up questions regarding
16 that line of inquiry?
17 MR. CHAIRMAN: Certainly.
18 MR. KINDSCHUH: Thank you, sir. I will
19 yield to Mr. Gorman for those questions.
20 QUESTIONS BY MR. GORMAN:
21 Q. Good morning, Mr. Beckley.
22 A. Good morning, Mr. Gorman.
23 Q. I'm not a lawyer, so if I stumble through
24 this please work with me.
25 A. Please work with me if I stumble through the
Page 27
98874msdconf09262011
28
1 answer.
2 Q. Back to Mr. Barber's testimony on page 3.
3 A. Yes.
4 Q. In the original report it states concerning
5 bad debt expense, they may be -- well, first of all,
6 do you agree that in the model it was a hard number of
7 adjustments to bad debt expense in calendar year 2012
8 and 2013?
9 A. It was. And, you know, certainly I saw your
10 testimony and Mr. Barber's response and I can
11 understand. It wasn't very well documented, even in
12 the model, how that was flowing in. But, you know, we
13 saw basically they had a minus $4 million to reflect
14 bad debt improvement, then the plus $1 1/2 million
15 wasn't written very well which led to your comment.
16 But, you know, we kind of dug through how that was
17 coded in and that was our understanding was that it
18 was $4 million, and then basically they said it wasn't
19 4 million in the next year, it was $1 1/2 million
20 less, which was kind of a, you know, I might have
21 coded it the same way but I might have tried to
22 document it better, so I can certainly understand how
23 you got to your conclusion.
24 Q. Thank you. Is there any way you would have
25 been able to determine what they did in those years
U
Page 28
98874msdconf09262011
29
1 without having access to the electronic version of
2 that model?
3 A. I have reached -- it is something we looked
4 at in the hard copies and it is something that I
5 personally look at in the hard copies. It took me a
6 lot more effort to do in the hard copies than it would
7 have taken in the electronic model but it is something
8 I was able to verify and I actually reverified it
9 before we had this discussion today just to make sure
10 my understanding was correct.
11 Q. so by looking at the hard copies you were
12 able to determine there was a hard number reduction of
13 $4 million one year and a reversal of that by 1 1/2
14 million in the following year?
15 A. I was able to determine that but it was much
16 more difficult than it would have been if we -- if I
17 would have had access to the electronic model but it
18 certainly is possible.
19 Q. can you describe to me how you were able to
20 determine that?
21 A. I used Exhibits -- let me make sure I have
22 the right exhibit numbers, I have them up here. It's
23 exhibit -- Exhibit 4-A is, of course, all of the
24 spread sheets and Exhibit 5 is a several --
25 Q. we're getting off track a little bit.
0
Page 29
98874msdconf09262011
30
1 A. No, that's okay. Exhibit 5 is a 1342 page
2 printout of every formula in Exhibit 4-A, which is a
3 voluminous document that is very difficult to use but
4 because I have some experience with the MSS model and
5 other Black and veatch models, actually that are
6 structured similarly, I was able to navigate but it's
7 not easy and it is possible.
8 Q. Thank you. Back to page 3 of Mr. Barber's
9 testimony.
10 A. Yes.
11 Q. Do you understand that page 10 and 11 of
12 that testimony was his intent to adjust the bad debt
13 expense to a more normal level going forward?
14 A. I believe, actually looking at his -- I
15 believe you're talking about his original testimony
16 that is kind of indented in that page of my responsive
17 testimony?
18 Q. Yes.
19 A. Since he corrected that I was -- but I
20 believe really the use of -- let me read what he says,
21 however, after these enhanced collection efforts of
22 prior years bad debt the annual allowance for bad debt
23 expense is projected to increase from normal levels in
24 proportion to the proposed revenue increases. what
25 actually happens, I believe, that is not very clear,
0
Page 30
98874msdconf09262011
31
1 it's not really increasing from normal levels, it is
2 increasing from those adjusted levels having been
3 adjusted down by 2 1/2 million, the 2013 numbers
4 adjusted down to 2 1/2 million. And then it increases
5 from that reduced level. so I believe that that is
6 really not a very clear statement of what he is really
7 doing in the model. That is my -- again, that is my
8 understanding of having reviewed the model and having
9 reviewed this text. This is something we have had
10 discussions with in the past week based on your
11 testimony and Mr. Barber's responsive testimony and I
12 do not believe that that is a very clear way to
13 explain what really was occurring.
14 Q. SO is it your testimony now that the bad
15 debt expense was not increased from a normal level?
16 A. It is increased from a reduced level, is
17 what I would say.
18 Q. Please answer my question. Is it not
19 reduced from a normal level based on your assessment
20 of what he did?
21 A. It's not reduced from what I would consider
22 a normal level but maybe he would consider -- I don't
23 want to --
24 Q. I don't want you to speak for him.
25 A. It's not increased from what I would
0
Page 31
98874msdconf09262011
32
1 consider a normal level.
2 Q. Thank you. How long have you been doing
3 cost of service studies?
4 A. I have been with Raftelis Financial
5 Consultants for 11 years and we work solely on cost of
6 service studies. I shouldn't say cost of service
7 studies but we do -- I have only worked for municipal
8 water and wastewater utilities in my 11 years doing
9 studies like this and other similar studies.
10 Q. Are you familiar with the concept of
11 normalization in projecting cost of service?
12 A. Yes.
13 Q. Can you explain why that is an accepted
14 industry practice in estimating cost of service?
15 A. Well, typically, of course, when we do a
16 cost of service we usually use a test year and then we
17 will use a normalized test year, I think is what you
18 mean, right?
19 Q. Yes.
20 A. All right. It is an accepted industry
21 standard because you need to adjust it, you know. It
22 depends to some extent of what you're using as your
23 test year because, of course, with regulated utilities
24 typically you have to use actual results as your test
25 year and then you can normalize it based on known
0
Page 32
98874msdconf09262011
33
1 immeasurable changes. whereas with municipal
2 utilities, we typically use a budget year for our test
3 year and then again -- and then the budget will
4 include those changes to be normal based on that. But
5 generally it's just a reflection of what we believe is
6 a reasonable estimate of costs for that test year and
7 so they need to be adjusted to account for known
8 immeasurable changes.
9 Q. Let me ask you a hypothetical to describe
10 the normalization process. If the budget level was
11 based on sales that were abnormally low and the cost
12 of service was based on budget levels reflecting
13 normal conditions because there is a mismatch in the
14 sales that would occur under normal levels and the
15 cost that would occur under normal levels, would you
16 get a good measurement of what operating income would
17 produce the rates, that combination of abnormal sales
18 and normal expense levels?
19 A. If you use normal expense levels and
20 abnormal sales then your revenues would be high or low
21 depending on whether those usage levels were
22 abnormally high or low, low or high.
23 Q. You wouldn't accurately determine how
24 revenues properly recover expense with necessary
25 margin?
0
Page 33
98874msdconf09262011
34
1 A. The estimate would over or under recover
2 based on what actually happens.
3 Q. okay. So sales can be uncertain going
4 forward also, correct?
5 A. I would agree that sales are uncertain going
6 forward.
7 Q. so if you set rates based on normalized
8 sales, then when the rates are actually in effect,
9 rates could -- actual sales could be higher or they
10 could be lower the following year, the first year the
11 rates are in effect, correct?
12 A. They will almost always be higher or lower.
13 Q. And in the following year it could be the
14 reversal of what they were the year before?
15 A. Absolutely.
16 Q. But over longer periods of time sales
17 typically revert back to a normal level?
18 A. Over the long-term, sales usually increase
19 or decrease actually, just depending on what is going
20 on.
21 Q. There could be an increase but there is also
22 a normal baseline to the trend in sales too, correct?
23 A. Mr. Stannard has given pretty extensive
24 testimony on the trends we have seen and certainly
25 this is the trends z have seen in the 11 years I have
0
Page 34
98874msdconf09262011
35
1 been working in the industry but even -- certainly
2 there have been downward trends with many utilities
3 that we have seen. So I am not sure I can agree with
4 your statement that they're either going to be normal
5 or increase. They are either going to increase,
6 decrease or stay the same.
7 Q. I'm sorry, didn't you just -- wasn't it you
8 that said sales usually increase over time?
9 A. I did not say that. I don't recall saying
10 that.
11 MS. STUMP: Excuse me. I think we are
12 getting a little bit away from any of the testimony on
13 the electronic model. I mean, even Mr. Beckley's
14 references to Mr. Barber's had to do with the bad debt
15 expense and I would -- I mean, because now we are
16 talking about testimony that was filed by
17 Mr. Stannard, who is not here and I would move that we
18 kind of move on.
19 Q (By Mr. Gorman) All right. Just to conclude
20 this then and I may have already asked this question
21 and if I have I apologize but I want to make sure I
22 ask. Normally when you perform a cost of service study
23 either with projections specifically from rate filing
24 or use of budgeted material, you would use normalized
25 information based on your experience in setting rates?
D
Page 35
98874msdconf09262011
36
1 A. when we are doing a multiyear projection
2 usually we make some estimate of what is going to
3 happen to the sales. Either they increase, decrease
4 or stay the same depending on the situations with the
5 specific client that we are doing that projection for.
6 when we are talking about a specific test year, of
7 course, we are not projecting increase, decrease, it's
8 a normal level just for the test year. It kind of
9 depends on whether we are talking a test year or
10 projection, a multiyear projection.
11 Q. But before you determine whether or not you
12 need an increase or decrease, do you look at
13 normalized projections and or budgets of sales and
14 operating costs before a determination is made of
15 whether or not a rate change is necessary?
16 MS. STUMP: Mr. Chair, I think -- I mean, he
17 is trying to force an answer out of him that obviously
18 he's not -- I mean, I think we just need to move on.
19 This isn't about Mr. Beckley's testimony, it's not
20 about Mr. Barber's testimony. I think we just need to
21 move on.
22 MR. KINDSCHUH: I respectfully disagree. I
23 don't think he is trying to force an answer. But I
24 understand we are getting away a little bit from the
25 testimony, I agree with you on that.
0
Page 36
98874msdconfO9262O11
37
1 MR. CHAIRMAN: Let's move on.
2 MR. GORMAN: Thank you very much.
3 MR. BECKLEY: I'm sorry I couldn't answer
4 your question more clearly.
5 MR. CHAIRMAN: ms. Langeneckert, questions?
6 MS. LANGENECKERT: No, thank you.
7 MR. CHAIRMAN: Rate Commissioners, further
8 questions?
9 COMMISSIONER KOENEN: Mr. Chairman?
10 MR. CHAIRMAN: Yes, Mr. Koenen?
11 QUESTIONS BY MR. KOENEN:
12 Q. Mr. Beckley, going through the bad debt
13 information, I was confused about whether the model is
14 based on a certain percentage of customers falling in
15 arrears or a lower number of customers falling in
16 arrears at a higher rate of arrears? Do you have an
17 opinion of what the model is showing us there?
18 A. I would certainly suggest we ask Mr. Barber.
19 My understanding is that it's based on a percentage of
20 rate revenues. And again, that is something that we
21 looked at when considering recent responses.
22 Q. So in that scenario, if the average bill
23 goes up by 70 percent and the same number of customers
24 are in arrears, your total arrears would go up
25 approximately 70 percent?
0
Page 37
98874msdconf09262011
38
1 A. Basically, that would be one way -- my
2 understanding that would be one way to interpret it,
3 is the same number of customers will still be in
4 arrears, they will just have a higher bill.
5 COMMISSIONER KOENEN: Thank you.
6 MR. CHAIRMAN: Mr. Tomazi?
7 QUESTIONS BY MR. TOMAZI:
8 Q. You made comment as you were going through
9 that you found no other changes in the rate model. As
10 a matter of clarification, I just want to be sure as
11 to whether or not you found any differences between
12 the MSD projects compared to the Consent Decree versus
13 the electronic model, as in terms of what Mr. Gorman
14 had mentioned earlier in his testimony, basically it's
15 the same question.
16 A. Well, the electronic model really doesn't
17 have that level of detail per se, it just has a total
18 CRRP in there and that is supported by the other
19 various exhibits that MSD has provided including the
20 ones that Mr. Gorman talked about.
21 Q. so you were not -- I don't want to put words
22 if your mouth -- you didn't find any differences?
23 A. No, I did not.
24 Q. Did you find anything in there that you
25 would disagree with on the proposed interest rates on
0
Page 38
98874msdconf09262O11
39
1 revenue models?
2 A. I did not find anything that I would
3 disagree on with the proposed interest rates. You
4 know we have had tons of discussion on that and I
5 think that has been covered.
6 COMMISSIONER TOMAZI: Thank you.
7 MR. CHAIRMAN: Further questions from the
8 Rate Commissioners for Mr. Beckley? Thank you,
9 Mr. Beckley, we appreciate your time. Ms. Myers, are
10 you ready to present those persons for whom you filed
11 responsive testimony on the electronic model?
12 MS. MYERS: Yes, we are.
13 MR. CHAIRMAN: Please proceed.
14 MS. MYERS: We will call Keith Barber to the
15 witness stand first.
16 MR. CHAIRMAN: Mr. Barber, is the testimony
17 you are about to give the whole truth, the truth and
18 nothing but the truth?
19 MR. BARBER: Yes, it is.
20 MR. CHAIRMAN: Thank you. Does any member
21 of the Rate Commission have any questions for
22 Mr. Barber at this time? Hearing none, Mr. Kindschuh,
23 questions of Mr. Barber?
24 MR. KINDSCHUH: Yes, the MIEC has some
25 questions.
0
Page 39
98874msdconf09262011
40
1 MR. CHAIRMAN: Thank you, please proceed.
2 MR. KINDSCHUH: Thank you. And I will yield
3 to Mr. Gorman to ask those questions.
4 QUESTIONS BY MR. GORMAN:
5 Q. Morning, Mr. Barber.
6 A. Morning.
7 Q. You heard the discussion between myself and
8 Mr. Beckley?
9 A. Yes.
10 Q. Concerning page 3 of your testimony?
11 A. Yes.
12 Q. Can you turn to that page, please? In that
13 original Exhibit 1, you quote there statements made in
14 the cost of service model, lines 5 through 12,
15 correct?
16 A. Yes.
17 Q. Can you read lines -- excuse me -- 8 through
18 12, starting with the word however?
19 A. However, after these enhanced collection
20 efforts of prior years' bad debt the annual allowance
21 for bad debt expense is projected to increase from
22 normal levels in proportion to the proposed revenue
23 increases.
24 MR. GORMAN: So bad debt expense, after you
25 make the adjustments in 2012 and 2013, was projected
0
Page 40
98874msdconf09262011
41
1 to increase from normal rates?
2 A. well, if you look at Table 3-6, you will see
3 that the value of 2011 was 10.9 million, then it
4 decreases to 6.8 million and then it starts to come
5 back up more towards the 2011 number, at 8 point --
6 almost 9 million and then finally levels out in 2014
7 at about the same level that would have been projected
8 without adjustment in 2011 and 2012.
9 Q. why was an adjustment necessary in 2012 and
10 2013?
11 A. Those adjustments were a reflection of past
12 due debt for prior years.
13 Q. where was the expense booked for those prior
14 years?
15 A. That would be a question for the finance
16 department.
17 Q. Do you understand then why you made this
18 adjustment in the rate model is because expenses at
19 some point in time for bad debt were not at normal
20 levels?
21 A. Again, that is another question for District
22 staff but as z understand it, the District has all
23 along made efforts to collect bad debt but in this
24 particular instance for 2012 and 2013, they enlisted
25 aid of additional contractors to go back to prior
0
Page 41
98874msdconf09262011
42
1 years to collect debt. I believe it is on a
2 percentage collection basis that they get, so they're
3 motivated to collect as much as possible and that is
4 what we are doing in this projection.
5 Q. The staff refers to that as enhanced
6 collection processes?
7 A. I believe it is enhanced and they also have,
8 I believe, have a computerized system that reminds
9 people to pay their bills.
10 Q. which would be part of the enhanced process
11 to collect bad debt expense?
12 A. Yes.
13 Q. All right. so the reason they are excelling
14 that effort is to try to bring bad debt expense down
15 to where it had been in earlier years; is that
16 correct?
17 A. well, they're bringing the debt down to
18 collect the money that is owed to them.
19 Q. That is not the question, Mr. Barber. Mr.
20 Barber, the question is, you made an explicit
21 adjustment to bad debt expense in 2012 and the 2013,
22 correct?
23 A. Correct.
24 Q. That wasn't based on some trending analysis
25 from 2011, correct?
0
Page 42
98874msdconf09262011
43
1 A. No.
2 Q. And the reason that was necessary is because
3 bad debt expense reported in 2011, was estimated by
4 the District to be higher than what likely -- would be
5 higher than what would be realized by the District
6 with these enhanced collection measures?
7 A. without the enhanced District measures in
8 2012 through '13, if the level of 10.9 million in
9 2011, was left alone and just increased in proportion
10 to the proposed interest rate, by 2016 we would be
11 showing a bad debt expense of 16.7 million.
12 Q. Thank you. But you didn't do that did you?
13 A. No, we did not.
14 Q. Because you reflected enhanced collection
15 measures in 2012 and 2013?
16 A. That's correct, which are continued to --
17 which are projected to continue in 2014, with the
18 intent -- with the goal of keeping the levels down at
19 the 2011, 2012, amounts.
20 Q. well, you stated in the rate study, z assume
21 you drafted this, that the objective was to bring the
22 bad debt expense level down to a normal level.
23 A. Normal in regard to what has been
24 experienced in 2011 and 2012, which are 10.9 and 10.8
25 million.
0
Page 43
98874msdconf09262011
44
1 Q. So the 2011 was before the enhanced
2 collection measures were put into effect, correct?
3 A. Those temporary measures, right.
4 Q. All right. so if the enhanced collection
5 measures are successful, then bad debt expense after
6 2011, would be better -- would be lower than bad debt
7 expense in 2011, correct?
8 A. well, we are showing a $4 million reduction
9 in 2012.
10 Q. Did you leave that 4 million reduction in
11 affect through the entire forecast period?
12 A. No, I don't think you can assume you can get
13 that much every year. In fact, basically what we are
14 assuming, the first year you get 4 million, the second
15 year you get 2 1/2 million and after that we would be
16 continuing with measures to keep it at around 10, 11
17 million.
18 Q. Did you do any study to determine what a
19 normal level of bad debt expense is for the District?
20 A. No, I did not.
21 Q. Have you ever conducted a normalization
22 study on bad debt expense or any kind of expense for
23 the MSS or any other utility company?
24 A. I don't see how one could do a study such
25 that because it really depends on the customer base
0
Page 44
98874msdconf09262011
45
1 and the local economy.
2 Q. You could do it on a utility specific basis.
3 How does the local economy impact that determination?
4 A. well, if people are out of work then they
5 are not going to be paying their wastewater bill.
6 Q. what is the unemployment rate in the st.
7 Louis Metropolitan area in 2011?
8 A. I do not have that information.
9 Q. Do you know if that information is in the
10 record?
11 A. I don't recall if it is or not.
12 Q. so if the unemployment level improves, then
13 you would expect that bad debt expense would decline
14 with an improvement or decline in the unemployment
15 percentage in the metropolitan area?
16 A. Bad debt would decrease if people started
17 paying their bills.
18 Q. And one indication that people that would
19 normally pay their bills but weren't, in 2011, is the
20 percentage of unemployment in the District?
21 A. I would not like to speculate on that.
22 Q. well, you said before the economy was a
23 factor that impacted bad debt expense?
24 A. I don't want to pretend that I could predict
25 the future. what a person will do or will not do, I
0
Page 45
98874msdconf09262011
46
1 cannot tell. But if they do have jobs they will be
2 more likely to pay their bills then if they do not.
3 Q. so your projection of bad debt expense
4 reflects something that you're not able to predict
5 through the forecast period?
6 A. The projection of bad debt is an estimate.
7 An estimate that may be more optimistic if you were to
8 look at the projection if these adjustments are not
9 made. so the District is making every effort to keep
10 its bad dead expense down.
11 Q. And the effect of doing, making every effort
12 to keep its bad debt expense down would hopefully mean
13 that they're able to get it more in line with where it
14 has been historically, prior to 2011?
15 A. well, the information I have shows a 10.9
16 million as being more or less at a base level. what
17 we are doing in this bad debt projection is keeping
18 that down in 2014 at about the same level and at that
19 point it does increase in proportion to the revenue
20 increases.
21 Q. so if your report has information for bad
22 debt expense prior to 2011, then that could give some
23 information on whether or not 2011 was a level that
24 was generally characteristic of MSD for the last five
25 or six years?
0
Page 46
98874msdconf09262011
47
1 A. The assumption is that the 2011 level is a
2 normalized level.
3 Q. who made that assumption?
4 A. That was in -- that was in the budget.
5 Q. I'm sorry?
6 A. It was in the budget.
7 Q. For 2011?
8 A. Yes.
9 Q. When the budget for 2011 was made, do you
10 understand MSD looks at things like unemployment rates
11 for the District?
12 A. That would be a question for District staff.
13 Q. Based on your experience and your
14 understanding of bad debt expense, should they look at
15 things like the economy?
16 MS. WHATLEY: Yeah, I'm just going to
17 object. I think that we are exceeding the scope of
18 Mr. Barber's testimony for this hearing. He directly
19 testified in response to Mr. Gorman's testimony about
20 the rate model and its use of the bad debt calculation
21 and not about unemployment rates and other things that
22 were considered for the MSD budget.
23 MR. KINDSCHUH: Counsel, I disagree. This
24 goes to the heart of Mr. Barber's testimony about what
25 comprises bad debt expense.
0
Page 47
98874msdconf09262011
48
1 MR. CHAIRMAN: Let's continue, Mr. Barber.
2 we will continue to -- pardon me -- let's continue to
3 delve into what the economic and specific economic
4 issues are that could impact bad debt expense.
5 MR. KINDSCHUH: Thank you, Mr. Chairman.
6 Q (By Mr. Gorman) I hope I am not repeating
7 things but think this is important. Mr. Barber, didn't
8 I understand one of your responses correct, that you
9 understand bad debt expense to be impacted by the
10 economy in a service area in any given year?
11 A. Bad debt is impacted by customers who are
12 not paying their utility bills.
13 Q. okay. And when customers aren't paying
14 their utility bills and helping to make an estimate of
15 what that cost will be going forward, do you look at
16 things like the economy and how utility customers have
17 paid bills in the past?
18 A. we look at the trend of the amount that is
19 not collected from prior years, recognizing that if
20 there is a pool of people who are not paying their
21 wastewater bills, that once the bill is increased, the
22 likelihood that they would not pay that increased
23 amount is probably high.
24 MR. GORMAN: So a way of tracking that,
25 could you possibly track that trend by looking at bad
0
Page 48
98874msdconf09262011
49
1 debt as a percentage of revenue levels, that projected
2 rates?
3 A. well, that could be one possible way but if
4 you look at the history in 2009, bad debt was
5 9.7 million, in 2010 it was 10.2 million.
6 Q. what was it in '06, '07, '08?
7 A. '06 was much smaller at 3.2 million, '07 was
8 at 4.2 million and '08 was at 5.2 million.
9 Q. were there any events such as a challenge to
10 a stormwater rate that occurred right around 2008,
11 2009?
12 A. There was a challenge to the impervious area
13 rate.
14 Q. Did that
15 A. what I'm talking about is wastewater cost.
16 Q. when you did your cost of service study did
17 you allocate bad debt expense between stormwater and
18 wastewater?
19 A. Bad debt is allocated 100 percent to
20 wastewater.
21 Q. All right. so all of that bad debt expense
22 is for the entire MSD, it wasn't a split between
23 wastewater and stormwater, right?
24 A. we have allowance in the model to split it
25 between wastewater and stormwater but at the current
0
Page 49
98874msdconf09262011
50
1 time stormwater is on a tax basis, so the likelihood
2 of collecting that is much higher than it is for the
3 wastewater charges, which has really no enforcement
4 ability to shutoff water if one does not pay their
5 wastewater utility bill.
6 Q. Do you know, is part of the District served
7 by Missouri American Water company?
8 A. I believe that is correct.
9 Q. Does Missouri American water company have
10 the right to shut-off a customer's water service?
11 A. I would think that they do.
12 Q. what happens to MSD's wastewater volumes
13 when Missouri American shuts off the water service?
14 A. If Missouri American would shut-off their
15 water then there would be no wastewater bill other
16 than the service charge.
17 Q. very simply, is the objective of the bad
18 debt expense included in your cost of service study
19 intended to be an estimate of what the actual bad debt
20 expense would be when the rates are in affect?
21 A. The bad debt expense is intended to be an
22 estimate of what may be expected in the future.
23 Q. when the rates are in effect?
24 A. when the rates are in place, that is
25 correct.
D
Page 50
98874msdconf09262011
51
1 Q. So if there is factors in the historical
2 data which may not be in place when the rates are in
3 affect, that could impact the cost projections?
4 A. Bad debt could be higher or lower than what
5 is shown, that is correct.
6 Q. And if there are processes implemented by
7 MSD staff, specifically to reduce that bad debt
8 expense, that could impact future cost but it would
9 not be reflected in historical cost?
10 A. That is correct.
11 MR. GORMAN: Thank you, that is all I have.
12 MR. CHAIRMAN: Mr. Kindschuh, any other
13 questions for the witness at this time?
14 MR. KINDSCHUH: No, I do not, Mr. Chairman.
15 MR. CHAIRMAN: Ms. Langeneckert, do you have
16 questions of Mr. Barber at this time?
17 QUESTIONS BY MS. LANGENECKERT:
18 Q. Just a couple. Good morning, Mr. Barber.
19 A. Good morning.
20 Q. Black and Veatch is based in Kansas City; is
21 that correct? Or is it Overland Park, have they
22 moved?
23 A. My division is in Overland Park.
24 Q. Okay. And how many people are in overland
25 Park versus Kansas City? I know that's the bulk of
0
Page 51
98874msdconfO9262O11
52
1 your activities are down in that area.
2 A. I am not really sure, as a guess I would say
3 maybe 600 in Kansas City and 1200, 1300 in Overland
4 Park.
5 Q. So more in Overland Park, Kansas?
6 A. Yes.
7 Q. You have worked with a lot of utilities,
8 you, being Black and veatch, over the years; is that
9 correct?
10 A. That is correct.
11 Q. And other utilities for whom you have worked
12 have had access to your electronic rate model?
13 A. We customize electronic rate models for
14 customers and sometimes we create those models for use
15 by utility staff.
16 Q. So, yes, they have had access to your
17 electronic rate model?
18 A. If we design it for them, yes.
19 MS. LANGENECKERT: That is all I have.
20 MR. CHAIRMAN: Thank you, Ms. Langeneckert.
21 Mr Coffman, do you have any questions for the witness
22 at this time?
23 MR. COFFMAN: None at this time, thank you.
24 MR. CHAIRMAN: Ms. Stump, do you have
25 questions at this time?
0
Page 52
98874msdconf09262011
53
1 MS. STUMP: I would like to turn the
2 questioning over to Mr. Beckley.
3 MR. CHAIRMAN: Please proceed, Mr. Beckley.
4 QUESTIONS BY MR. BECKLEY:
5 Q. Good morning, Keith. You heard my testimony
6 certainly and again, this is something that
7 Mr. Stannard and I spent some time looking at before
8 we had access to the electronic model and because of
9 that it is actually -- I looked at the electronic
10 model and I again looked at it again. And so if you
11 don't mind, I would like to just explain to you what
12 my understanding of what you did in the model is and
13 then can you just tell me if that sounds reasonable or
14 what I am not saying correctly, if that is okay with
15 you?
16 A. That's fine.
17 Q. Okay. Reviewing the formulas in there, at
18 the top of page B-19 in your printouts, you have two
19 hard coded numbers, you have a positive $4 million and
20 then a minus $1 1/2 million in there labeled as bad
21 debt adjustment, I believe it is labeled as. So that
22 number, is that incorporated into the bad debt
23 expense, you reduce it by $4 million in 2012 and then
24 by 2013 the bad debt expense goes up by -- the
25 negative number increases by $1 1/2 million, so it is
0
Page 53
98874msdconf09262011
54
1 a smaller negative number --
2 MR. KINDSCHUH: I apologize to interrupt. I
3 just spoke with counsel and I want to raise this to
4 the commission. It is our understanding right now,
5 Mr. Beckley, that you are testifying by asking the
6 question and so we just want to --
7 MR. BECKLEY: I am open for any suggestion
8 on how to get to this point --
9 MS. STUMP: Let's do this, can we have-- I
10 mean, Keith heard your testimony, so can we ask Keith
11 to -- you heard Mr. Beckley previously explain what he
12 felt about your testimony, could you please give your
13 thoughts and if there were any corrections there,
14 could you please clarify those?
15 MR. BARBER: I could see why you would say
16 that and essentially if you look at it that way, that
17 is correct. I mean, by normalized levels we are
18 considering 2011 and 2012, which is at the 10.9, 10.8
19 million. we make the 4 million adjustment and we make
20 a smaller $4 million adjustment, 2.5, because each of
21 the bad debt expense is based on the prior debt. so
22 you can't expect to get more than 4 million the second
23 year or get more money the second year than you did in
24 the first year. so basically we assumed -- we are
25 reducing the 10.9 by 4 million in 2012 and then it
D
Page 54
98874msdconf09262011
55
1 kind of comes back up to the level and reduce it by 2
2 1/2 million more and we more or less leave it at that
3 level.
4 Q (By Mr. Beckley) Correct. Just to kind of
5 summarize, wouldn't you agree that really that $2 1/2
6 million is in there in 2013 through 2016 and so it is
7 not really temporary? It just happens to -- it
8 increases, so it kind of erases that but it's a
9 different factor that erases it?
10 A. We are more or less assuming that in 2014,
11 it does increase from 2013 but we are assuming that we
12 are going to continue with more prudent measures and
13 keep it more or less at the 2011, 2012 levels as much
14 as possible but there will be some increases due to
15 the level of rates increasing.
16 Q. Correct. So just to summarize, the $2 1/2
17 million, it doesn't really go away, it just happens
18 that other factors increase the bad debt?
19 A. That's correct. Once we get down to 2013,
20 we more or less leave it at that level as adjusted for
21 future increases.
22 Q. So it's not really a temporary, it's really
23 in there in 2014 through 2016, it's just that other
24 factors have to increase it back up to normal levels?
25 A. Yeah, I mean, you could say that. That is
0
Page 55
98874msdconf09262011
56
1 basically what we are doing. I mean, like I said
2 before, if we did not make these adjustments, by 2016
3 it would be 16.7 million.
4 Q. Right. I agree. I think we are on the same
5 page. It's just hard to explain in a couple of
6 sentences.
7 A. It is very difficult to explain.
8 MR. BECKLEY: That is all I have.
9 MR. CHAIRMAN: No further questions at this
10 time? Does any member of the Rate Commission have
11 questions for Mr. Barber at this time? Does the
12 District have any questions for Mr. Barber at this
13 time?
14 MS. WHATLEY: I have a couple of questions
15 for Mr. Barber.
16 MR. CHAIRMAN: Please continue.
17 QUESTIONS BY MS. WHATLEY:
18 Q. Keith, did you hear our discussion earlier
19 about Table 2 of Mr. Gorman's testimony?
20 A. Yes.
21 Q. Keith, that $884 million number, under the
22 updated Consent Decree, was that number inflated for
23 the rate proposal?
24 A. Yes, it was.
25 Q. How much was it inflated by?
0
Page 56
98874msdconf09262011
57
1 A. It is inflated at 3 percent per year from
2 2010 cost levels.
3 Q. Does the statement that it is inflated, is
4 that included in any of the documents that were
5 produced to the interveners and to the Rate
6 Commission?
7 A. well, that statement is in the detailed rate
8 calculations. In fact, it is on Exhibit 4-A, page
9 F-1, it says CIP is in 2010 dollars.
10 Q. And then is the rate of inflation increase,
11 is that also in that same exhibit?
12 A. There is 3 percent annual increase shown
13 every year and there is also inflation factors that
14 show that in 2011, the inflation factor is 1.03, in
15 2012, the inflation factor is 1.0609, continues to
16 inflate at a compounded rate of 3 percent per year
17 from that point on. If you look at the detailed
18 calculations it would have indicated a 3 percent
19 annual increase.
20 ms. wHATLEY: I don't have any further
21 questions of Mr. Barber at this time.
22 MR. CHAIRMAN: Thank you, Mr. Barber.
23 MS. MYERS: The District's next witness is
24 Brian Hoelscher.
25 MR. CHAIRMAN: Mr. Hoelscher, is the
0
Page 57
98874msdconf09262011
58
1 testimony you are about to give the truth, the whole
2 truth and nothing but the truth?
3 MR. HOELSCHER: Yes, sir.
4 MR. CHAIRMAN: Thank you. Does any member
5 of the Rate Commission have any questions for
6 Mr. Hoelscher at this time?
7 COMMISSIONER BROCKMANN: I do.
8 MR. CHAIRMAN: Mr. Brockmann?
9 QUESTIONS BY MR. BROCKMANN:
10 Q. Brian, does MSD 50-A reflect the 10 percent
11 inflation or in reference, the inflation factor, on
12 the 884 million number?
13 A. No, it is in 2010 dollars. 50-A was
14 produced as a supplement to a discovery request. The
15 rate, the CD, had become public and the piece of 50,
16 the main piece of 50-A was to give a reference within
17 the CD for all the projects, that was the purpose of
18 the document, in reference, 50-A. So that number,
19 that 884, does not include any inflation, its 2010
20 dollars.
21 Q. And is there a statement on that 50-A
22 document that says that it is 2010 dollars?
23 A. 50-A again, was a -- it is not. There was a
24 supplemental -- it was a supplemental to a previous
25 document that just outlined CD references, since the
0
Page 58
98874msdconf09262011
59
1 CD was made public.
2 COMMISSIONER BROCKMANN: Thank you.
3 MR. CHAIRMAN: Any of the other Rate
4 Commissioners have questions for Mr. Hoelscher at this
5 time? Mr. Kindschuh, do you have questions for
6 Mr. Hoelscher?
7 MR. KINDSCHUH: Yes, Mr. Chairman, the MIEC
8 has questions.
9 MR. CHAIRMAN: Please proceed.
10 MR. KINDSCHUH: I turn to Mr. Gorman, thank
11 you.
12 QUESTIONS BY MR. GORMAN:
13 Q. Good morning, Mr. Hoelscher. Again, if my
14 questions aren't clear, please just stop me and I will
15 do my best to try and clear them up. Page 1 of your
16 testimony, where you identify the amount of capital
17 expenditures provided in MSD 50-A I believe it was,
18 you stated in 2010 dollars; is that correct?
19 A. Yes.
20 Q. When was that budget actually put together?
21 A. Sometime prior to the submission of the rate
22 proposal. I don't have an exact date.
23 Q. Approximately? I think the rate proposal
24 has various iterations, did it not?
25 A. well, it just had one. It would have been
0
Page 59
98874msdconf09262011
60
1 pulled together sometime in the last half of calendar
2 2010, I guess is when the final sets of numbers would
3 have been put together.
4 Q. were those numbers put together in
5 conjunction for the rate filing or in conjunction with
6 negotiating a settlement for the Consent Decree?
7 A. It was for the rate filing.
8 Q. so did the rate filing then drive the
9 settlement as it was found in the Consent Decree or is
10 the rate filing based on the best deal available from
11 the consent Decree?
12 A. The rate filing is -- and I'm assuming we
13 are talking about the CRP list, is the list of
14 projects for the four-year period, '13 through '16,
15 needed to meet the Consent Decree requirements. so it
16 was developed knowing that we had a Rate commission
17 process that we had to reduce the projects and the
18 cost that were going to be included in that rate case.
19 Q. The consent Decree is based on the
20 settlement, correct?
21 A. Not mincing words, I think the Consent
22 Decree is the settlement, I believe.
23 Q. Okay. And the settlement was between MSD
24 staff and other parties?
25 A. Yes.
Page 60
98874msdconf09262011
61
1 Q. So in reaching a settlement on the capital
2 projects required by the Consent Decree, was it MSD's
3 staff intent to comply with the regulations in a way
4 that would spread the cost in the least -- describe
5 the process MSD staff went through in determining what
6 level of construction or costs were necessary to reach
7 a settlement in the Consent Decree?
8 MS. WHATLEY: Just before we get too far, I
9 am just going to object to the extent that Mr.
10 Gorman's question requires Mr. Hoelscher to give some
11 type of explanation as to the District's negotiation
12 position or opinions that would be attorney/client
13 privilege. However, if Mr. Hoelscher wants to discuss
14 the way that the summary of the projects were
15 compiled, I think that is within the scope of what
16 could be asked here.
17 MR. CHAIRMAN: Is that acceptable,
18 Mr. Gorman?
19 MR. GORMAN: I think so.
20 MR. CHAIRMAN: Proceed, Mr. Hoelscher.
21 A. The list of projects were put together in
22 order to meet the conditions of the consent Decree.
23 Q (By Mr. Gorman) Those conditions of the
24 Consent Decree were based on settlements between MSD
25 staff and other parties?
0
Page 61
98874msdconf09262011
62
1 A. I'm not the lawyer, assuming that the
2 Consent Decree is the settlement, yes.
3 Q. All right. The actual projections for 2010
4 dollars were made somewhere in the second half of 2010
5 for the capital projects, correct?
6 A. Correct.
7 Q. okay. Do you have your direct testimony
8 with you?
9 A. which exhibit number? which testimony?
10 Q. The very first testimony you filed.
11 A. No, I don't.
12 Q. All right. I am just going to read to you a
13 couple of sentences, if you could accept it subject to
14 check?
15 A. I would like to have the document in front
16 of me so i know the context of the whole statement.
17 MS. MYERS: what Exhibit number is it?
18 MR. KINDSCHUH: It's MSD Exhibit No. 9-B.
19 MS. MYERS: Give us just a quick second and
20 we will get that. Did you say 94-B?
21 MR. KINDSCHUH: 9-B, page 5.
22 MR. HOELSCHER: Okay. I have the document
23 in front of me.
24 Q (By Mr. Gorman) Could you turn to page 5?
25 A. Okay.
0
Page 62
98874msdconf09262011
63
1 Q. would you read the two sentences starting on
2 line 11, continuing through line 15, starting with the
3 word because? or actually start with the beginning of
4 line 11, starting with the word the.
5 A. The other major issue was the downturn in
6 the economy. Because of this economic condition, the
7 District was receiving bids for capital work that in
8 some cases was 40 percent below traditional costs.
9 This created additional funds that could be used to
10 complete projects beyond the original program budget.
11 unfunded contingency projects were designed and
12 annually approved by the District's Board of Trustees.
13 Q. And line 13 where you talk about traditional
14 costs, were you using that with program budgets, tying
15 that into program budgets on line 14?
16 A. I think I was referring to just individual
17 project bids.
18 Q. coming in under budget?
19 A. Yes.
20 Q. That occurred in 2010, correct?
21 A. what occurred in 2010?
22 Q. The observation that you had certain capital
23 projects coming in under budget?
24 A. I'm not sure of the time frame. It was
25 somewhere between the start of fiscal '08 and the time
Page 63
98874msdconf09262011
64
1 I made the statement.
2 Q. what calendar year are you referring to in
3 that testimony?
4 A. I am not looking, I don't see a calendar
5 year. I am not sure what you're asking.
6 Q. Well, I am trying to understand the
7 testimony. If the answer starts off the District is
8 scheduling completion of wastewater Capital
9 Improvement Replacement Programs fiscal '08 through
10 '12, and goes through other assertions and offers an
11 observation that budgets for capital projects -- or
12 bids for capital projects, are coming in under budget
13 and in some cases 40 percent under budget.
14 A. Yes.
15 Q. Could you explain that to me?
16 MS. WHATLEY: At this time, I am just going
17 to go ahead and object on behalf of the District. we
18 are supposed to be here to talk about Mr. Hoelscher's
19 responsive testimony that was submitted last week on
20 September 22nd. At this time Mr. Gorman is
21 questioning him on something that was submitted on May
22 13th, 2011. Mr. Gorman and MIEC have had a chance to
23 cross-examine Mr. Hoelscher on a previous occasion at
24 a technical conference. So to the extent that these
25 questions do not stand for Mr. Hoelscher's testimony
Page 64
98874msdconf09262011
65
1 regarding this one instance of Mr. Hoelscher's -- Mr.
2 Gorman's misrepresentation of uninflated versus
3 inflated cost, I think that this line of questioning
4 is inappropriate.
5 MR. KINDSCHUH: First of all, I object to
6 your objection on the characterization that it's a
7 mischaracterization and misrepresentation and I don't
8 believe that is the testimony we have heard today.
9 More importantly, Mr. Hoelscher's direct testimony and
10 any sort of supplemental testimony serves as a
11 foundation for the responsive testimony that was
12 submitted today. so any sort of testimony that we are
13 discussing is cumulative, counsel, and I would request
14 to this point, Mr. chair, that we would be allowed to
15 continue discussions regarding Mr. Hoelscher's direct
16 testimony which feed directly into the responsive
17 testimony.
18 MS. WHATLEY: I am just going to say that's
19 not the way that this was represented. It was
20 represented that this would be testimony specifically
21 based on Mr. Hoelscher's testimony that was submitted
22 on September 22nd.
23 MR. GORMAN: The issue here is whether or
24 not the four-year construction budget was stated in
25 2010 dollars. That fact may have been in some data
0
Page 65
98874msdconf09262011
66
1 response some place but the primary data response I
2 noted in my rebuttal testimony, I believe,
3 Mr. Hoelscher acknowledged that that information or
4 that assumption, which was not included. Had it been
5 included in it, I could have tested the validity or
6 the accuracy of the 2010 budget process. But since it
7 wasn't represented as being made in 2010 to reflect
8 this forward period, I didn't review it under those
9 conditions. Now I am trying to look at whether or not
10 there might have been other factors in 2010, which may
11 have or may not have impacted the need to escalate
12 2010 budgets through the forecast period. If there is
13 a need, he should know it because he has had all this
14 information the entire time and I have not.
15 MR. CHAIRMAN: Let's summarize that request
16 in one question and allow Mr. Hoelscher to answer that
17 question.
18 Q (By Mr. Gorman) Mr. Hoelscher, in calendar
19 year 2010, you observed in your direct testimony, that
20 certain bids for projects were coming in under budget
21 and in some cases, as much as 40 percent under budget,
22 correct?
23 A. No, I indicate that that is through fiscal
24 year 2008 through 2012. Nowhere in my statement do I
25 say it is in 2010.
0
Page 66
98874msdconf09262011
67
1 Q. Okay. You noted a downturn in the economy,
2 correct?
3 A. I noted that we were receiving bids for
4 capital work in some cases 47 percent below
5 traditional cost. It was an economic issue with the
6 construction industry, yes. That is in my statement.
7 Q. So the entire period, fiscal year 2008
8 through 2012, you are seeing bids for construction
9 that is 40 percent below budget?
10 MS. WHATLEY: I am just going to go ahead
11 and object again because Exhibit 50-A was submitted
12 prior to the surrebuttal technical conference and Mr.
13 Hoelscher was presented as a witness to be questioned
14 on his surrebuttal testimony and also Exhibit 50-A was
15 already produced to everybody here. And I think you
16 directed Mr. Gorman to ask one question and now we are
17 at the third or fourth question.
18 MR. CHAIRMAN: I think what I would like Mr.
19 Kindschuh and Mr. Gorman to consider is the essential
20 piece of information that you're looking for here and
21 let's get to that essential bit of information that
22 you're looking for.
23 MR. KINDSCHUH: Mr. Chairman, in response to
24 that request, could we maybe stand on break for five
25 to ten minutes?
0
Page 67
98874msdconf09262011
68
1 MR. CHAIRMAN: Yes, five-minute break until
2 11:35.
3 MR. KINDSCHUH: Thank you.
4 (Recess taken.)
5 MR. CHAIRMAN: We will reconvene and allow
6 Mr. Kindschuh and Mr. Gorman to ask their question and
7 I encourage you to ask the point of the questioning
8 that you're getting on, so that we can move forward in
9 an expeditious matter.
10 MR. KINDSCHUH: Thank you, Mr. Chairman, I
11 appreciate the opportunity to break for five minutes
12 as well.
13 MR. CHAIRMAN: Thank you.
14 MR. KINDSCHUH: We will resume and conclude
15 briefly.
16 MR. CHAIRMAN: Please continue.
17 Q (By Mr. Gorman) Thank you. Mr. Hoelscher,
18 just quickly concerning this observation that certain
19 costs will come in below budget, can you identify which
20 projects you had in mind when you drafted your direct
21 testimony?
22 A. No, I don't have off the top of my head
23 which ones those are. It was a project -by -project
24 observation. All the information is available on
25 MSD's website as to what estimates were and what the
Page 68
98874msdconf09262011
69
1 actual bids were. I don't have any information in
2 front of me that says actually which ones.
3 Q. Well, do you recall what you did when you
4 wrote -- how did you get the information for your
5 direct testimony?
6 A. I view the projects. Again, we have to
7 present the capital project -by -project. We have to
8 present to the Board, for contract approval and
9 appropriation, every project. It's not a general
10 budget, we have to do it for every project. I present
11 every one of those. I know they were coming in under
12 and my recollection is that we had one that just came
13 in under 40 percent. And so that is the one I used
14 just to try to characterize -- I don't think, if you
15 take a look, I don't think the point of my testimony
16 was trying to justify the 40 percent. I think the
17 discussion had to do with contingency projects and the
18 flexibility of the program. I wasn't trying to
19 testify on the reason for decreased costs.
20 Q. Would it be fair to use that information to
21 draw the conclusion that there is somewhat a bit of
22 uncertainty in whether or not construction bids will
23 come in line with construction budgets?
24 A. Yes.
25 MR. GORMAN: Thank you.
D
Page 69
98874msdconf09262011
70
1 MR. KINDSCHUH: We have no further
2 questions, Mr. Chairman.
3 MR. CHAIRMAN: Thank you, Mr. Kindschuh and
4 thank you for taking the time to get us back on track.
5 Ms. Langeneckert, do you have questions of this
6 witness at this time?
7 MS. LANGENECKERT: I do not.
8 MR. CHAIRMAN: Mr. Coffman?
9 MR. COFFMAN: No questions.
10 MR. CHAIRMAN: Ms. Stump?
11 MS. STUMP: We do not have any questions.
12 MR. CHAIRMAN: Does any member of the Rate
13 Commission have questions for the witness at this
14 time? Yes?
15 QUESTIONS BY MR. STEIN:
16 Q. Brian, this is a point of clarification, you
17 have not discounted any of the 2012, going forward,
18 projects by 40 percent, correct?
19 A. Correct. We have taken, I think as we
20 stated, we took the projects of 2010 dollars and we
21 have increased them 3 percent. We have shown that
22 logic and I think Keith indicated where in his
23 original proposal he had listed that. We have shown
24 it on Exhibit 18-A4, we have shown it on Exhibit 18-v,
25 I testified to it at the last surrebuttal technical
0
Page 70
98874msdconf09262011
71
1 conference in response to another question, so the
2 fact that that's in 2010 and we have increased 3
3 percent per year has been available in many forms
4 before today.
5 Q. But the budgets that you established are
6 clearly historical data and not just from a snapshot
7 of time when the economy is down and construction
8 spending --
9 A. Right. They're based on historical
10 information.
11 COMMISSIONER STEIN: Thank you.
12 QUESTIONS BY MR. CHAIRMAN:
13 Q. Mr. Hoelscher, is it also -- I'll ask a
14 couple of questions unless anybody else is. As bids
15 have come in during this time, all the projects are
16 still approved by the Trustees?
17 A. On a project -by -project basis. The
18 operating budgets and the annual appropriation, every
19 project as the bids come in, have to be approved by
20 the District on a project -by -project basis by the
21 District's Board of Trustees.
22 MR. CHAIRMAN: In the happenstance that bids
23 would continue to come in far below than what you had
24 budgeted, would it be accurate to assume that the
25 Trustees would work to allocate those dollars towards
a
Page 71
98874msdconf09262011
72
1 the additional work that may go on after the
2 conclusion of this rate case?
3 A. And I think that is what they have done,
4 chairman. Knowing that this situation is out there,
5 at least on an annual basis through 8 through 12, we
6 presented those with projects that quite possibly
7 might be available if that situation continues. And
8 then if we bring those to them, we indicate here is
9 why we can move forward, here is where we have seen
10 savings and some jobs and some costs. I put to you, I
11 guess just a recent observation, prices aren't as low
12 as they used, they are creeping to some degree, we are
13 driven a lot by commodity cost as well and sometimes
14 those can really impact our projects. So it moves
15 around a lot but, you know, on any given month exactly
16 what kind of bids we are seeing for what kind of
17 projects, that goes in front of the Board on a monthly
18 basis.
19 Q. I would also anticipate there would be some
20 regulatory variations over the next four years as we
21 experienced during this current rate case?
22 A. we are making our -- we believe we have got
23 a list of projects through '13 through '16 that meet
24 everything we know, the requirements in the CD, there
25 is always a possibility that something else could
0
Page 72
98874msdconf09262011
74
1 which has inflation added to it at 3 percent per year
2 and the difference therefore, is the cost of interest
3 on the capital.
4 MS. WHATLEY: Okay. I just want to
5 demonstrate so that we are clear. Here are the
6 updated Consent Decree values, those are uninflated
7 figures, right?
8 A. Correct.
9 Q. And these are the inflated figures, right?
10 A. Correct.
11 Q. And so this figure here is not a reduction
12 to the Consent Decree requirements, is it?
13 A. No, it is just the impact of inflation over
14 time.
15 MS. WHATLEY: Okay. Thank you, Brian. I
16 don't have any more questions.
17 MR. CHAIRMAN: Are there any other matters
18 before we adjourn? Hearing none, we will stand
19 adjourned until 9:00 a.m. on September 28th for the
20 prehearing conference. Thank you all.
21
22 (Meeting concluded at 11:43 a.m.)
23
24
25
Page 74
98874msdconf09262011
75
1 CERTIFICATE OF REPORTER
2
3 I, Suzanne M. zes, certified Court Reporter,
4 within and for the state of Missouri, do hereby
5 certify that the witness whose testimony appears in
6 the foregoing deposition was duly sworn by me; the
7 testimony of said witness was taken by me to the best
8 of my ability and thereafter reduced to typewriting
9 under my direction; that I am neither counsel for,
10 related to, nor employed by any of the parties to the
11 action in which this deposition was taken, and further
12 that I am not a relative or employee of any attorney
13 or counsel employed by the parties thereto, nor
14 financially or otherwise interested in the outcome of
15 the action.
16
17
18 certified Court Reporter
19
20
21
22
23
24
25
0
Page 75