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HomeMy Public PortalAboutExhibit MSD 77 Transcript August 18, 2011 Public HearingExhibit MSD 77 96605 msd hearing 08 18 11 1 1 2 3 4 5 6 7 8 9 METROPOLITAN ST. LOUIS 10 SEWER DISTRICT 11 RATE COMMISSION PUBLIC HEARING 12 WASTEWATER RATE PROPOSAL SUMMARY 13 14 THURSDAY, AUGUST 18, 2011 15 16 17 18 19 20 21 22 23 24 25 Page 1 96605 msd hearing 08 18 11 2 1 APPEARANCES 2 3 METROPOLITAN ST. LOUIS SEWER DISTRICT 4 MEMBERS: 5 MR. JOHN L. STEIN; 6 MR. GLENN KOENEN; 7 MR. MIKE SEIDEL; 8 MS. NANCY BOWERS: 9 10 REPORTER: 11 MS. HOLLY A. SCHMID 12 Midwest Litigation Services 13 711 North 11th Street 14 st. Louis, MO 63101 15 (314) 644-2191 16 17 18 19 20 21 22 23 24 25 0 Page 2 96605 msd hearing 08 18 11 3 1 (Hearing began at 6 p.m.) 2 MR. STEIN: I will be presiding 3 over the public hearing this evening. with 4 me tonight are the following MSD Rate 5 Commission members: Ms. Nancy Bowers; 6 Mr. Glen Koenen, and Mr. Mike Seidel. 7 The charter plan of the District 8 was amended at the general election on 9 November 7, 2000, and established the Rate 10 Commission to review and make recommendations 11 to the District regarding changes in 12 wastewater rates, storm water rates, and tax 13 rates proposed by the District. 14 The charter plan requires the MSD 15 Board of Trustees to select organizations to 16 ensure a fair representation of all users of 17 the District's services on the Rate 18 Commission. The Rate Commission 19 representative organizations are to represent 20 commercial, industrial users, residential 21 users, and other organizations interested in 22 the operation of the District, including 23 organizations focusing on environmental 24 issues, labor issues, socioeconomic issues, 25 community neighborhood organizations and Page 3 96605 msd hearing 08 18 11 4 1 other non-profit organizations. 2 The MSD Rate Commission currently 3 consists of 14 members from organizations and 4 institutions throughout St. Louis city and 5 county. on May 10, 2011, the Rate Commission 6 received a rate change notice proposing 7 changes in the district's wastewater rates. 8 The Rate Commission adopted operational rules 9 and a procedure schedule to govern the 10 proceedings on May 17, 2011, and amended its 11 procedural schedule on July 8, 2011. 12 under the procedural schedule 13 adopted by the Rate Commission, as amended, 14 the MSD Rate Commission has until October 21, 15 2011, to review and make a recommendation to 16 the MSD Board of Trustees as to whether the 17 proposed rates should be approved, not 18 approved, or modified with suggested changes 19 and then approved. The MSD Rate Commission 20 has engaged legal counsel and a rate 21 consultant independent of those used by the 22 MSD staff. Under procedural rules adopted by 23 the Rate Commission as amended, any person 24 affected by the rate change proposal had an 25 opportunity to submit an application to 0 Page 4 96605 msd hearing 08 18 11 5 1 intervene in these proceedings. 2 Applications to intervene have 3 been filed by the Barnes -Jewish Hospital, 4 Covidien, Missouri Industrial Energy 5 consumers, Robert A. Miller, AARP, and the 6 Consumers Council of Missouri. These 7 applications have all been granted. 8 Since May 10, 2011, the MSD Rate 9 Commission has received testimony from MSD 10 staff, the interveners and the rate 11 consultant. The parties have also engaged in 12 discovery requests. Technical conferences 13 were held on June 13, 2011, and August 8, 14 2011, and are planned for September 6, 2011, 15 where the participants and the Rate 16 Commission are given an opportunity to ask 17 questions of those submitting testimony. A 18 pre -hearing conference for the purpose of 19 identifying any issues raised by the 20 rate -setting documents and the prepared 21 testimony previously submitted will be 22 conducted on the record on September 15, 23 2011. 24 All persons submitting testimony 25 may participate in the pre -hearing conference Page 5 0 96605 msd hearing 08 18 11 1 and each participant in the pre -hearing 2 conference shall submit, on or before, 3 September 22, 2011, a pre -hearing conference 4 report describing the issues raised by the 5 rate -setting documents and to prepare 6 testimony, together with a brief description 7 of such participant's position, if any, on 8 each issue and the rationale therefore. 9 Rate payors who do not wish to 10 intervene are permitted to participate in 11 these on -the -record public hearings conducted 12 in six sessions beginning on August 16, 2011, 13 and concluding on September 26, 2011. 14 The Rate Commission published a 15 public notice regarding these proceedings in 16 the St. Louis Post Dispatch on May 20, 23rd 17 and 24th of 2011, and July 20, 21, and 22, 18 2011, and in the St. Louis American on May 19 26, 2011, and July 21, 2011. These notices 20 contain the time, dates and location of each 21 of these conferences and hearings. 22 The public hearing session tonight 23 is for the purpose of permitting the District 24 to present its wastewater rate change 25 proposal and to permit any rate payor an Page 6 6 0 96605 msd hearing 08 18 11 1 opportunity to comment. 2 we will begin with a presentation 3 by the District followed by a public comment 4 period. Those wishing to speak should sign 5 in on the sheet provided -- blue card -- 6 thank you, and will be called on in the order 7 of the names listed thereon. Each rate payor 8 should identify himself or herself and any 9 organizations represented by such rate payor. 10 A few housekeeping rules before we 11 begin. If you wish to present testimony, 12 please sign in at the entry door. Speakers 13 will be recognized in the order in which they 14 sign up. Each rate payor may have a maximum 15 of 10 minutes to speak regarding the proposed 16 rate change. As the presiding officer, I can 17 limit or expand the time, should I deem it 18 necessary. The restrooms are located right 19 across the hall, if you need those. And at 20 this time, are there any questions regarding 21 the procedure this evening? 22 Hearing none, Mr. Theerman, is the 23 District ready to proceed? 24 MR. THEERMAN: Yes. 25 MR. STEIN: Please step forward. Page 7 7 96605 msd hearing 08 18 11 8 1 MR. THEERMAN: Thank you, 2 Mr. Stein. My name is Jeff Theerman. I'm 3 the executive director of MSD. what I'm 4 going to do is give a brief presentation 5 about what we have proposed to the Rate 6 commission. so we will walk through that, 7 and I will be available to answer any 8 questions that the audience may have. 9 First of all, a little bit about 10 MSD. We are two utilities in one. We are 11 responsible for storm water management and 12 wastewater management and treatment in all of 13 st. Louis city and eight -tenths of St. Louis 14 County out to, roughly, Highway 109. 15 we serve, approximately, 1.4 16 million customers, and we have 428,000 17 customer accounts. we are the assembly of 79 18 different sewer systems. MSD was created in 19 the Fifties, and at that time sewer systems 20 and sewage treatment plants were either owned 21 by private sewer companies or by 22 municipalities, so when the district was 23 formed, we first served an area of about 200 24 square miles out to, roughly, Lindberg, and 25 then, in the 1970's, we annexed the west 0 Page 8 96605 msd hearing 08 18 11 9 1 County area after a vote of the public to 2 make the total area, roughly, 525 square 3 miles. 4 we are the fourth largest sewer 5 system in the nation, which is sort of a 6 surprise to people because we're not the 7 fourth largest metropolitan area. Our sewer 8 system in terms of miles of pipe is right 9 behind L.A., with New York and Chicago being 10 in front of them. That presents a problem for 11 us because, all though we are the fourth 12 largest sewer system, we don't have the 13 population of L.A. to support that, that 14 infrastructure. 15 our sewer system's size is almost 16 6,700 miles. That breaks down into 1,900 17 miles of combined sewer system. That is the 18 way sewers were built in the 18OO's. 19 storm water and wastewater flows 20 together in one pipe system and because 21 the -- when it rains, you have a lot of 22 excess water. Not all of that can be taken 23 to treatment plants for complete treatment, 24 and we have what's called combined sewer 25 overflows, which z will talk more about in a 0 Page 9 96605 msd hearing 08 18 11 10 1 minute. 2 There's also 4,700 miles of 3 separate sanitary sewer. That's the more 4 contemporary design of sewers where there's a 5 wastewater system and storm water system in 6 one area, and wastewater is to flow in one 7 set of pipes and storm water in the other. 8 We operate seven treatment plants treating an 9 average of 370 million gallons a day and that 10 is -- that's a little hard to visualize, but 11 if you think about a box the size of a 12 football field, and the height of the arch, 13 that's about the volume of wastewater it 14 takes that flows through our treatment plants 15 each and every day. 16 We also operate almost 3,000 miles 17 of storm sewers, and that's not part of the 18 wastewater system at all. We will talk a 19 little bit more about that in just a second. 20 We presented, in May, a wastewater 21 rate change proposal that covers wastewater 22 rates only. We are not including in that 23 proposal anything about the storm water 24 rates. We instituted an impervious charge in 25 2008, which was struck down by court, and now 0 Page 10 96605 msd hearing 08 18 11 11 1 it is in litigation on appeal, so, because of 2 that pending litigation, our rate proposal 3 doesn't deal with storm water at all, that 4 storm water rate at all. we presented a 5 four-year rate plan that would involve a rate 6 increase on July 1 of 2012, and every year 7 after that through July 1 of 2015, with no 8 additional increases projected until after 9 that June of 2016 date, so an annual increase 10 over four years. 11 In the current average, the single 12 family rate is $28.73. I would point out 13 that everybody's bill is individually 14 calculated. what determines your wastewater 15 bill is your winter quarter water 16 consumption. we get water data from all the 17 water providers in St. Louis city and county, 18 and we calculate wastewater bills based on 19 the water use in the winter quarter. The 20 reason we use winter quarter water 21 consumption is we don't want to be billing 22 for watering lawns and washing cars and 23 things, so winter quarter is judged to be the 24 most accurate reflection of what's actually 25 going to the sewers. 0 Page 11 96605 msd hearing 08 18 11 12 1 There are a number of drivers for 2 this rate change proposal, and I'm going to 3 elaborate on some of them and just touch on a 4 few others. 5 First, regulatory requirements. 6 I'm going to talk a lot about that. There's 7 an increased use of debt financing. we are 8 proposing the use of revenue bond financing 9 in this proposal to try to mitigate the rapid 10 increase of sewer rates, and of course, with 11 that debt financing, comes interest payments 12 that become necessary. There's a small loss 13 of customer base in 14 st. Louis city and county. There is 15 declining water usage, primarily 16 conservation, and then there are also 17 economic conditions that are present today 18 that haven't existed before. 19 The rate change proposal is for 20 our fiscal year is 2013 through 2016 and 21 would include a little over a billion dollars 22 in capital improvements, to be funded with 23 $945 million dollars of bond financing. All 24 bond proceeds would be used for capital 25 improvements. we would not use debt 0 Page 12 96605 msd hearing 08 18 11 13 1 financing for day-to-day operations. 2 During that same period of time, 3 we are estimating an operations and 4 maintenance expenditure of $634 million 5 dollars and $359 million dollars of debt 6 service. That includes debt service on 7 previously -issued revenue bonds, as well as 8 the bonds we are projecting. 9 I want to spend a little time 10 about the regulatory requirements because 11 that is really the driver of this rate 12 increase. MSD was sued by the federal 13 government and the state of Missouri for 14 alleged violations of the Clean water Act in 15 2007. For the last four years, we have 16 mediated a settlement agreement to that 17 lawsuit, and that settlement agreement is now 18 published in the form of a document called 19 the Consent Decree. 20 Some major features of this 21 settlement agreement include a 23 -year 22 compliance schedule, an estimated cost of 23 $4.7 billion dollars, and that is in today's 24 dollars. A sanitary sewer overflow 25 elimination program, a combined sewer 0 Page 13 96605 msd hearing 08 18 11 14 1 overflow abatement program, and I'm going to 2 talk more about both of those here in a 3 minute. Additional sewer system maintenance 4 and repair to try and alleviate basement 5 backups and separate sewer overflows and 6 asset management, or asset reinvestment. If 7 we don't continue to invest in the assets 8 that are buried in the ground, at the end of 9 23 years, and we spend this money, we will 10 find ourselves back this the very same boat 11 because the sewer system continues to age and 12 continues to require investment. 13 so let me back up a little bit to 14 these first two -- or the sanitary sewer 15 overflow elimination and combined sewer 16 overflow abatement. I think the next slide 17 will help me. Let met just point out that, 18 if you want to comment on the Consent Decree, 19 you can view the Consent Decree on the 20 Department of Justice website, and there's a 21 link to that site that's shown on this slide, 22 www.stlmsd.com. when you get to our website, 23 it's very straightforward to get to theirs, 24 and you can view the Consent Decree, and you 25 can see how to comment on that Consent 0 Page 14 96605 msd hearing 08 18 11 15 1 Decree. 2 By commenting tonight, you will be 3 providing valuable information for the Rate 4 Commission, but that does not automatically 5 become a comment to the Justice Department if 6 you want to comment on the Consent Decree, 7 itself, and they have very specific 8 procedures for that commenting. You have 9 until September 9 to comment on the consent 10 Decree on that website. 11 This is not meant to be an eye 12 test. You should have a handout that was 13 available when you came in. I'm going to try 14 and walk you through this a little bit and 15 explain what separate sanitary sewer 16 overflows are and combined sewer overflows. 17 So this is a map of our service 18 area. The green -shaded area is the combined 19 sewer system. That's all of the city of 20 St. Louis and 22 neighboring municipalities, 21 including Clayton, Maplewood, and a number of 22 other near communities. That combined sewer 23 system is one of the larger ones in the 24 country, and again, storm water and 25 wastewater flow in one set of pipes. 0 Page 15 96605 msd hearing 08 18 11 16 1 on that map, there's little green 2 dots along the river Des Peres and along the 3 Mississippi River, right in here and along 4 here. There's 199 little green dots that 5 represent combined sewer overflows. 6 when it rains hard, the capacity 7 of the sewer system is overwhelmed, and there 8 are 199 locations where a mixture of storm 9 water and wastewater discharge to those water 10 bodies. The clean water Act says you don't 11 have to eliminate those overflows, but you do 12 have to abate them, so we have been 13 developing a program called a Long -Term 14 Control Plan that is now part of the Consent 15 Decree to eliminate or reduce the effects of 16 the combined sewer overflows. That program 17 has an estimated cost of $2 billion dollars 18 and for the overflows on the river Des Peres, 19 Million creek and the tributaries of those 20 waters will go from, approximately, 50 events 21 a year where it rains that causes overflows, 22 down to about four. 23 The overflows on the Mississippi 24 River are being addressed through the use of 25 green infrastructure. That is a somewhat 0 Page 16 96605 msd hearing 08 18 11 17 1 newer technique where you're eliminating 2 impervious areas that causes runoff, 3 constructing vegetated areas to help hold 4 water, and the whole idea of a green 5 infrastructure is to hold water back from the 6 sewer system, so it doesn't rapidly rush to 7 the system and then cause overflows, so rain 8 barrels, rain gardens, which is a garden 9 designed to hold water, vegetated swell 10 areas, porous pavement that is designed to 11 hold water and not just let it just run off 12 rapidly are all examples of green 13 infrastructure, and in our consent Decree, we 14 have a $100 million dollar earmark for green 15 infrastructure work in the north side of the 16 city to try and get at overflows in that 17 fashion. 18 outside of that green shaded area 19 is the separate sewer area. Separate sewers 20 are the designs that occurred predominantly 21 after world war II. This is a separate 22 wastewater system, and it is not designed to 23 carry a lot of storm water, but what happens 24 over time with separate sewers is they 25 develop imperfections that allow rain water 0 Page 17 96605 msd hearing 08 18 11 18 1 and ground water to enter the sewer, take up 2 capacity. There's also the problem of homes 3 being inappropriately connected to that 4 sanitary sewer system with storm water, 5 downspout connections, foundation drains, 6 window wells, and basements that get 7 connected inappropriately. All those 8 features introduce storm water to a system 9 that's not designed to carry storm water, and 10 that creates basement backups and sanitary 11 sewer overflows, so all those red dots you 12 see on that map, totaling a little over 200, 13 are sanitary sewer overflows, and they are 14 all illegal by the clean water Act, and they 15 have to be eliminated. 16 what's not shown on these maps are 17 basement backups, and we have chronic 18 basement backups in some areas that really 19 are caused by what z have been talking about, 20 too much rain water being in a system and 21 causing backups, so all of those -- all of 22 those issues, overflows into streams from the 23 combined system, overflows into creeks and 24 the separate system basement backups are 25 meant to be addressed by the Consent Decree. Page 18 96605 msd hearing 08 18 11 19 1 we are proposing capital 2 improvements in a schedule that's shown here, 3 an average of about $250 million dollars a 4 year in capital improvements. I want to 5 point out that this is a summary of the 6 annual expenditure, but there's a lot of 7 detail that's been provided to the Rate 8 commission about what is behind these 9 numbers, and it's certainly detailed and 10 that's available to the public, so there's a 11 long list of construction projects, both 12 design and construction, that flow into these 13 numbers. 14 These are not generalities that 15 we're asking the Rate Commission to look at. 16 There's specific projects with cost estimates 17 behind them. There's also operating costs 18 that play a role in our rates. our operating 19 costs are relatively stable, starting out at 20 about $134 million dollars of this past year 21 and escalating at a four- to five percent 22 inflation rate. Those numbers with the 23 asterisk are years where you have higher than 24 normal escalation of operating costs, and 25 those are related to wastewater maintenance 0 Page 19 96605 msd hearing 08 18 11 20 1 activities and other projects that are sort 2 of transient in nature that wouldn't reoccur. 3 A little bit about wastewater 4 rates around the country. The blue bars show 5 the MSD average residential bill, and then 6 the red line is the National association of 7 Clean Water agency's average of a survey they 8 perform routinely on sewer rates, and you can 9 see that, nationally, a very similar thing is 10 happening. A lot of regulatory requirements 11 forcing rise in capital improvements, system 12 reinvestment, and subsequently, rates going 13 up. Our proposal raises the average 14 residential bill from $28.73 over these four 15 years up to $47.05, and that is a really 16 steep increase. We know that, and you can 17 see the dollar amounts associated each year 18 with those increases. But this is what is 19 necessary to get at what we're being required 20 to do. 21 I want to show you sort of some 22 bookends. On the left side is the proposal 23 we have made to the Rate Commission, and it 24 is the combination of a cash and debt 25 financed capital program that is weighted 0 Page 20 0 96605 msd hearing 08 18 11 1 heavily to borrowed money and a billion 2 dollars of capital improvements shows the 3 average residential sewer bills that I have 4 already spoken about. 5 on the right side is sort of the 6 opposite view where you cash finance the 7 capital program, don't use any debt, and 8 these are meant to sort of bracket the 9 extremes. There's an infinite number of 10 potential places to be in the middle of these 11 two ideas. A cash finance approach would 12 have no bonds, still have a billion dollars 13 of capital improvement, and the rate impact 14 is dramatic. we go from $28.73 to $73.35 all 15 at once to cash finance or about a quarter 16 billion dollars of improvements each and 17 every year. 18 The right side is not our 19 proposal, but it is meant to show the effect 20 of using debt -to -finance capital 21 improvements. After that initial rate shock, 22 you have a much smaller rise in rates. 23 That's really an inflationary rise, but we 24 believe that the increase of this nature all 25 at once is more than customers can tolerate. Page 21 21 96605 msd hearing 08 18 11 22 1 The right side does have the advantage of 2 being the lowest cost overall because you 3 don't pay interest, but the left side 4 recognizes the fact that we're building 5 assets with long lives and paying those over 6 longer period of time, so you have a 30 -year 7 bond, which makes more sense for that kind of 8 an investment, than a cash finance approach. 9 I will wrap up by talking about 10 what our next steps are. Our Rate commission 11 will make a recommendation to the Board of 12 Trustees in October of this year. The board 13 has the charge, then, of reviewing the rate 14 report, and they can't do anything with it 15 for a 45 -day waiting period, and ultimately, 16 has to review the rate report from the Rate 17 Commission in the context of requirements in 18 our charter. There are five tests that have 19 to be satisfied. If those tests are 20 satisfied, then the charter requires our 21 board to implement the recommended rate. The 22 board could -- the earliest it could do that 23 is in December of '11. we would anticipate, 24 if the use of debt is involved, and we 25 believe it would be, that there would be a Page 22 96605 msd hearing 08 18 11 23 1 voter referendum on the use of debt in the 2 spring. 3 In Missouri, the use of debt 4 financing by municipal government requires 5 voter approval. After that election, the 6 board would then adopt a final rate based on 7 the outcome of the election, and the first 8 water rate change under our proposed plan 9 would be July 1 of 2012. Again, it remains 10 to be seen what the Rate Commission provides 11 in its rate report. Everything I have talked 12 about tonight is just the report we have 13 presented initially as a rate proposal. 14 I'm available to answer questions 15 at the discretion of the chair. I would say 16 that we have a number of staff here tonight. 17 You may be here for something in addition to 18 rates, and if there are questions that we can 19 help you with, be it service or billing or 20 some other matter, we are here to do that as 21 well. 22 MR. STEIN: Thank you, 23 Mr. Theerman. we are now going to entertain 24 comments from the audience, and I will call 25 upon those who have signed up to comment in 0 Page 23 96605 msd hearing 08 18 11 24 1 the order in which they signed up. 2 I think Lance LeComb is going to 3 bring the microphone to you, so that you can 4 speak from your place. The first person I 5 have is Jane Fagas. Is that correct? 6 MS. FAGAS: Yes. Thank you very 7 much. While the residential people are going 8 to pay, I would like to know if corporations 9 are being asked to contribute, also, to this 10 increase. Since they do -- some of them 11 put their chemicals in our water, in our 12 treatment plants. Thank you. 13 MR. THEERMAN: I'm going to try to 14 answer questions kind of as we go. Yeah. 15 The rate proposal would affect all the 16 customers, commercial, industrial and 17 residential. We do a lot of work at MSD, 18 just for your information, on industrial 19 pretreatment and monitoring industries, so if 20 you're aware of something you have seen, we 21 would like to know about it. For the most 22 part, commercial, industrial customers are 23 good actors, and they follow the rules, but 24 we are always willing to investigate 25 something that you may be aware of. 0 Page 24 96605 msd hearing 08 18 11 25 1 MR. STEIN: Any other comments 2 from Ms. Fagas? Thank you very much. We 3 appreciate your participation. 4 The next one I have is Joann 5 Klevorn (phonetic), if I've got that right. 6 MS. KLEVORN: That's right. 7 MR. STEIN: Thank you. 8 MS. KLEVORN: well, what I would 9 like to say is everything is just going up 10 right now, you know, and like us people, some 11 of us here that, you know, we are retired, 12 and we are on a fixed income, and we just 13 think about because I've got -- phones are 14 going to go up on me, and the electric is 15 going up, and the gas is going up. 16 Everything is going up, except my Social 17 Security, and I was just wondering what they 18 think about that, you know. I mean, I live 19 in just a regular home, and luckily, I have 20 never had my basement flood, but I know 21 there's parts of St. Ann that did have their 22 floods back there because you are building 23 some kind of plant there now. I think it's 24 towards up near Highway 70, something to do 25 with the wastewater. Page 25 96605 msd hearing 08 18 11 26 1 MR. THEERMAN: We are building a 2 large storage tank to hold water and keep 3 overflows from happening. That's going on in 4 St. Ann right now. 5 MS. KLEVORN: So I'm thankful my 6 basement has never been flooded, but I'm just 7 wondering about people trying to keep up with 8 all these bills and everything, and you know, 9 maybe if it's going to be even a big increase 10 of $20 more a month than everybody, that's 11 kind of a -- especially if everything else is 12 going up. I know it's not just your fault, 13 but I just think, if you take that into 14 consideration, so. . . Thank you. 15 MR. THEERMAN: One thing I really 16 should have mentioned is there is a low 17 income and a fixed income assistance program 18 in our rates. For those that qualify, the 19 rates can be reduced for customers that have 20 constraints like that. If you would like 21 more information on that before you leave, we 22 can make sure you get that. 23 MR. STEIN: Thank you very much. 24 The next card I have is from L. Sheridan 25 Clark. 0 Page 26 96605 msd hearing 08 18 11 27 1 MR. CLARK: Thanks for the 2 opportunity. Most of my questions have 3 already been answered by our opening speaker. 4 My question has to do with the dual mandate 5 that you covered on the abatement portion of 6 your presentation. In your advertised letter 7 concerning these meetings, there is a 8 sentence in the second paragraph which says 9 that the proposal for the wastewater -- this 10 proposal is for wastewater only. 11 MR. THEERMAN: Yes, sir. 12 MR. CLARK: And then there's a 13 separate part of the question that says a 14 court ruling last July compelled Metropolitan 15 Sewer District to return to an inequitable 16 system of taxes for storm funding, so 17 therefore, it's not included, but your 18 presentation said that a good number of 19 projects concerning the dual capacity of the 20 storm and the sewer will be fixed at the same 21 time. Am I correct in that? 22 MR. THEERMAN: Yeah, and I think I 23 understand your question. The -- in our 24 business, it's sometimes pretty difficult to 25 separate or define where wastewater ends and Page 27 96605 msd hearing 08 18 11 28 0 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 1 storm water starts in our combined sewer 2 system because storm water is mixed with 3 wastewater. we 4 so this program 5 improvements is 6 some exemptions 7 the streets and of improvements water rate, but treat it all as wastewater, of combined sewer a wastewater program with , like where inlets occur on connect to that. Those kinds are managed through the storm the major pipes, themselves, and certainly, the sewage overflows that occur are treated as a wastewater problem and dealt with in the wastewater rate. In the county where you have two systems that storm water system that exists separate from the wastewater system is entirely funded by the storm water rate, and that's not part of this proposal. MR. CLARK: of my question, then, Commission, will they okay. The second part is this Rate come back to the property owners and stakeholders with another request for storm sewer rate increases that will come back to us, whether a municipal charge or city tax or a property tax 25 increase? In other words, if you're fixing Page 28 96605 msd hearing 08 18 11 29 1 one part of the problem, you can't very well 2 not fix the other part of the problem, so if 3 you're going to correct and take care of this 4 large area, you're going to have to have 5 programs that take care of the storm sewer 6 program, so do we foresee an increase in 7 property taxes to take care of that portion 8 of it? 9 MR. THEERMAN: The storm water 10 rate was changed to an impervious charge in 11 2008. That charge was struck down by a court 12 last summer and is in appeal. It's possible 13 that we would -- MSS would present to the 14 Rate Commission an alternative rate at some 15 point in the future, but we don't believe we 16 will, until we exhaust our appeal 17 opportunities, so at present, storm water is 18 being funded through a series of taxes that 19 have existed for years. we had eliminated 20 those taxes that we voluntarily rolled them 21 back when we implemented the other approach. 22 when the other approach was judged 23 inappropriate, we then reinstituted those 24 taxes as a temporary measure, so the answer 25 to your question is maybe. It could be that Page 29 96605 msd hearing 08 18 11 30 1 appeal goes our way, and then the impervious 2 charge is reimposed. It could be that the 3 appeal doesn't, and we are going to need to 4 go back to our Rate Commission and seek a 5 different funding mechanism for storm water. 6 MR. CLARK: I did take a look at 7 some of the numbers that are in the budget 8 for the next couple of years, and there is 9 money in the storm sewer numbers, but it 10 doesn't look like it's going to be adequate, 11 so z foresee an increase, and it would be 12 helpful to all concerned if there is a 13 potential per rate increase on the storm 14 sewer side that we have an idea, so my 15 question is can you folks come up with any 16 forecast for the real cost of fixing the 17 storm sewer at the same time we are fixing 18 the waste issue? 19 MR. THEERMAN: We think that the 20 rate we had in place, the impervious charge, 21 if it's reimposed, will be adequate. You can 22 go back on your bills. The average customer 23 during the period where we had that 24 impervious charge was paying three or four 25 dollars a month in storm water charges, 0 Page 30 96605 msd hearing 08 18 11 31 1 depending on how much impervious area they 2 had on their property. If, instead, we can't 3 use that approach because we are not 4 successful on appeal, we are going to have to 5 craft a new rate and have to go back through 6 our Rate Commission to get it approved, so it 7 would be very similar to this situation. We 8 would be doing public hearings on storm water 9 and try to arrive at a new rate. 10 MR. CLARK: I think you covered 11 that one. I do have a second question, and 12 this has to do with the forecast and the 13 accumulation of numbers that you have 14 submitted to the Rate commission. we all 15 know what's happening in the economy, the 16 prospect of inflation, all these sort of 17 things manifest themselves into increased 18 costs. If I were to go back 10 or 15 years, 19 I would say that the projects in the metro 20 St. Louis area have not done well when it 21 comes to the public. I can cite the Eagleton 22 Courthouse, that was kind of a disaster. I 23 can cite the county jail. That was a real 24 mess engineering wise. We can look at the 25 Bi-State Metro System, which is totally -- Page 31 96605 msd hearing 08 18 11 32 1 was way over budget. My point is how 2 confident can the Rate commission be with the 3 numbers you provided them? Have they been 4 audited by outside firms not related to the 5 district? Have they been looked at by 6 engineers that are not in a bid? That's my 7 question. How confident can they be? 8 MR. THEERMAN: Do you want me to 9 answer that or do you want to take that? 10 MR. STEIN: I will let you go 11 first. 12 MR. THEERMAN: The Rate Commission 13 process includes the Rate Commission having 14 its own rate consultant, so they have their 15 own consultant, not someone that works 16 directly with the district, to look at our 17 rate proposal and test it. we also provide a 18 lot of information about our performance, and 19 all of that is being vetted and discussed in 20 these Rate Commission technical sessions. I 21 can tell you that, over the last eight years, 22 MSD has done a billion dollars in 23 improvements, and during that time -- our 24 actual delivered cost of construction is less 25 than our appropriations. we are actually Page 32 96605 msd hearing 08 18 11 33 1 getting projects done on time and a little 2 under budget, about three or four percent 3 under budget. so we are willing to prove it 4 up based on our performance. The Rate 5 Commission has, at its disposal, consultants 6 to help with that. 7 MR. STEIN: I would just add to 8 that, from the perspective of the Rate 9 Commission, that you should all be aware that 10 we are not the exact equivalent of the State 11 Public service Commission. we do not have a 12 large, full-time staff of engineers, 13 accountants and attorneys that can delve into 14 the rate increases that you see from Ameren 15 and Mcclay Gas, etc. we are constrained in 16 terms of the time we have to look at these 17 proposals, and much of the work we do is to 18 determine if the allocation of costs is 19 accurate in terms of, you know, which user 20 classes should pay which percentage of the 21 proposed cost. we do not have the resources 22 at the Rate Commission level to delve deeply 23 into the capital costs projections by the 24 district and to make judgments as to whether 25 those estimates are accurate. That is the 0 Page 33 96605 msd hearing 08 18 11 34 1 responsibility that largely falls on the 2 staff and the Board of Trustees. Thank you, 3 sir. 4 The next person I have is Marion 5 Howells. 6 MS. HOWELLS: Thank you. This is 7 not a question about rates, just there is a 8 project planned for runoff water erosion 9 behind my house on Appalachian Trail, and I 10 just wondered if you had any information on 11 when that might occur? It's been 12 propositioned for, at least, a year, so. 13 MR. THEERMAN: I can't answer your 14 question, but this gentleman over here with 15 his hand up is our director of engineering, 16 and I guarantee you, if he can't answer your 17 question, we will get back to you on an 18 answer to your question. 19 MS. HOWELLS: Thank you. 20 MR. STEIN: The next card I have 21 is from Gene Konerman? Did I get that right? 22 MR. KONERMAN: Hello. This is 23 only about the rate or the whole thing about 24 the company? We can talk about some 25 different issues or just the rate? Page 34 96605 msd hearing 08 18 11 35 1 MR. STEIN: This is a hearing, 2 specifically, to get your comments about the 3 rate change proposal that was given to the 4 Rate Commission earlier this spring. 5 MR. KONERMAN: I live in Jetson 6 Manor in Chesterfield. Last year the energy 7 company did some work on my neighbor's 8 property. They came with big trucks and a 9 small truck. As they dug over, they did 10 something with the soil. I don't know what 11 they did, probably the pipe was broke, and 12 that was, like, November. It was a little 13 bit cool weather already, and I came back 14 from my work. I saw everything was done. 15 They left the equipment. They left. The 16 next morning I wake up. I saw the crew over 17 there. They are sitting in a big truck. The 18 truck was running and -- I come back at three 19 o'clock. They are still running the truck 20 and sitting there. Then around five o'clock 21 some guy came over because they left. So are 22 we talking about -- talking about increasing 23 rate on a lot of stuff, but whose job -- who 24 supervises them to do this kind of work? I 25 do have commercial property in St. Louis Page 35 96605 msd hearing 08 18 11 36 1 county. I called because the water was 2 draining crooked on one side of the storm. 3 called, like, five months ago and explained 4 it to the representative what needs to be 5 done. After two months, it is still the 6 same. where is the service? I can't do 7 nothing because your pipe is down. I don't 8 want to mess with that pipe. So you have to 9 provide -- where is the service? You are 10 talking increasing, increasing, increasing. 11 where is the service? I just gave you two 12 examples that I know. 13 MR. THEERMAN: A couple things. 14 our Director of operations, John Sprague, is 15 here, and he can get some information from 16 you about what you experienced because it's 17 his staff that is doing maintenance on the 18 system, and he will want to know about that. 19 if you're calling about a storm water issue,. 20 we have had to trim back our storm water 21 service while this lawsuit is progressing 22 because we are falling back on taxes that are 23 inadequate, so part of what you're 24 experiencing is that I believe, but without 25 us talking about your specific case and Page 36 96605 msd hearing 08 18 11 37 1 getting your address, that's about the best I 2 can do up here. 3 MR. STEIN: Thank you. Are there 4 any other individuals who somewhere indicated 5 an interest in commenting tonight? 6 PUBLIC MEMBER: I don't need a 7 microphone. what is the MSD credit rating, 8 and what is the expected bond interest rate 9 that you anticipate? 10 MR. THEERMAN: Current bond rating 11 is Triple A or Double A Plus, depending on 12 the rating company. So we get excellent 13 rates. we use a combination of our own 14 issued revenue bonds and what's called State 15 Revolving Fund, which is a heavily subsidized 16 wastewater program from EPA that provides 17 very low interest rates, so our current 18 revenue bonds have sold in the neighborhood 19 of four to five percent, and our SRF-funded 20 bonds are three and a half, something like 21 that. Those SRF bonds are somewhat limited, 22 so you have more of the higher interest than 23 the SRF. 24 PUBLIC MEMBER: One last question, 25 if I may. what are the legal consequences if 0 Page 37 96605 msd hearing 08 18 11 38 1 the bond issues are not voted on? 2 MR. THEERMAN: Well, MSD is -- the 3 legal consequences of MSD about not doing the 4 program is enforcement by the Department of 5 Justice, so you know, it's in the region's 6 interest to try to find a way to get this 7 done. of course, that's what we're trying to 8 do the best job of. I guess I would add that 9 we are not the only city in this boat. This 10 is a nationwide issue with most major 11 metropolitan areas coming under enforcement 12 action. Afterwards, if you would like to 13 talk some more about it, I would be glad to. 14 MS. SMITH: What is the State 15 Revolving Fund? 16 MR. STEIN: Would you please 17 identify yourself for the -- 18 MS. SMITH: I'm Kathleen 19 Logan -Smith, Executive Director of the 20 Coalition for the Environment. Is the SRF 21 part of the clean Water Act? 22 MR. THEERMAN: Well, it's part of 23 the EPA budget. I'm not remembering if it 24 is. I don't know. 25 CARL: Let me help you out on Page 38 96605 msd hearing 08 18 11 39 1 that. The SRF came about in the mid 1980's. 2 Prior to that, the Clean Water Act was passed 3 in 1972. '72 to about '86 we worked under a 4 grant funding program for quite a number of 5 years. When the federal government 6 experienced the budget programs, their budget 7 problems in the 60's and 80's, we had new 8 federalism, and they started a series of 9 state -revolving loan funds. The earlier 10 programs were subsidized with grants, but 11 those grants ran out somewhere around '90, 12 '92, and so the allotment each year is part 13 of the budget for EPA, and it's about $50 14 billion nationally. That trickles to about 15 $30 million statewide of new money each year. 16 The rest is repaid money for the whole state 17 of Missouri, of which we get about 300. 18 MR. THEERMAN: Can you keep in 19 mind he's talking about a pool of loans that 20 are revolving, so that billion dollars, for 21 the post part, is tied up in loans and is 22 being paid back over time by sewer districts, 23 like MSD, so there's a billion dollar pool, 24 but most of it is spoken for. It's already 25 loaned out. Page 39 96605 msd hearing 08 18 11 40 1 MR. STEIN: This is your last 2 opportunity to ask any questions. Ma'am? 3 MS. WHITNEY: I'm Gene Whitney, 4 Chesterfield resident, and I wanted to ask -- 5 I read on-line that you have to charge more 6 now because people are using less water, and 7 so, because you charge by how much people 8 use, you're getting less money, so it's good 9 to conserve water. Do you plan to come up 10 with, like, a different way to charge people 11 eventually? Because, I mean, it doesn't 12 really fit with where we are headed. I just 13 wanted to ask that. It's kind of 14 philosophical, but I don't think it's dollars 15 and cents, apparently. 16 MR. THEERMAN: when people useless 17 water, it affects their personal sewer bill 18 and water bill, for that matter. It reduces 19 that bill, but you start looking at the 20 aggregate, the whole region. As people 21 reduce water, it lowers costs of utilities 22 that are variable costs, like pumping costs, 23 but there's a lot of costs that aren't 24 variable, that don't change, and therefore, 25 as people use less water, the rates have to 0 Page 40 96605 msd hearing 08 18 11 41 1 go up to recover the revenue that gets lost, 2 and that is a dilemma, you're right. There 3 was an account recently very similar to that 4 in another state where they were talking 5 about that as well. You might -- while water 6 use has declined, the amount of water we are 7 treating is actually more variable than that 8 because so much of what we treat is impacted 9 by rain events, so again, the water that's 10 leaking into our system, the water that's 11 dealt with in a combined system are somewhat 12 rain dependent, and so users conserve, and 13 they help their individual bill, but in the 14 aggregate, it's a little different, a little 15 harder to get at. 16 PUBLIC MEMBER: A quick follow-up. 17 Is there any -- I mean, I guess this is 18 probably a dumb question, but is there any 19 way to cut costs, you know? 20 MR. THEERMAN: well, there is, and 21 MSD, like a lot of utilities around the 22 country, has done just that. We are -- we 23 instituted programs where we have cut staff, 24 trained people on multiple functions, 25 implemented new technology. In the old days, 0 Page 41 96605 msd hearing 08 18 11 42 1 in our sewerage treatment plants, we used to 2 staff for the energy, not the norm. We 3 trimmed -- over 10 years ago, we trimmed our 4 staffs. 5 we have some of the most efficient 6 treatment wastewater plants in the country. 7 we are implementing work in the collections 8 system that we used to outsource, but we have 9 determined that we can do it cheaper than 10 outsourced companies. We brought it 11 in-house, and it brought savings. we 12 implemented new business technology in-house 13 to try and be more efficient and do things 14 with fewer people, and we are doing all the 15 same things that private sector companies do 16 to try and trim their bills we have 17 modified our pension, which is fairly unusual 18 for a public entity, so new employees at MSD 19 have a 401-K style pension, rather than a 20 fixed, defined benefit pension, so all those 21 things have happened. 22 MR. STEIN: Okay. Anyone else? If 23 not, I would ask if any of the rate 24 commissioners have any questions or comments 25 this evening. 0 Page 42 96605 msd hearing 08 18 11 43 1 seeing none, I would like to thank 2 everyone for their participation this 3 evening. The next public hearing will be 4 conducted this saturday, August 20 at 9 a.m. 5 at the Cliff Cave Branch Library, so if you 6 have any other questions that have come up 7 after you leave here tonight, you can come 8 back Saturday. 9 Thank you all very much. This 10 hearing is concluded. 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 0 Page 43 96605 msd hearing 08 18 11 44 1 STATE OF ILLINOIS) 2 COUNTY OF MCLEAN )sS 3 4 I, Holly A. Schmid, a Notary 5 Public in and for the county of McLean, DO 6 HEREBY CERTIFY that pursuant to agreement 7 between counsel there appeared before me on 8 August 18, 2011, at the office of city Hall 9 in chesterfield, Missouri, this public 10 hearing touching upon the matter in 11 controversy was taken by me in shorthand and 12 afterwards transcribed upon the typewriter 13 and said hearing is herewith returned. 14 15 16 17 HOLLY A. SCHMID 18 Notary Public -- CSR 19 084-98-254587 20 21 22 23 24 25 0 Page 44