HomeMy Public PortalAboutOctober 17, 2011 Rate Recommendation ReportRATE RECOMMENDATION REPORT
❑f
THE RATE COMMISSION OF THE
METROPOLITAN ST. LOUIS SEWER DISTRICT
to the
BOARD OF TRUSTEES OF THE
METROPOLITAN ST. LOUIS SEWER DISTRICT
upon the
WASTEWATER RATE CHANGE PROPOSAL
OCTOBER 17, 2011
RAFTELIS FINANCIAL CONSULTANTS, INC., RATE CONSULTANT,
AN❑ LASIILY & BAER, P.C., LEGAL COUNSEL,
TO THE RATE COMMISSION OF THE
METROPOLITAN ST. LOUIS SEWER DISTRICT
TABLE OF CONTENTS
INTRODUCTION 2
EXECUTIVE SUMMARY 3
BACKGROUND 9
METROPOLITAN ST. LOUIS SEWER DISTRICT 9
THE RATE COMMISSION 10
APPOINTMENT 11
RATE COMMISSION'S OPERATIONAL RULES 13
RATE COMMISSION'S PROCEDURAL SCHEDULE 13
RATE COMMISSION'S PROCEEDINGS 14
PROPOSALS 28
The District's Proposal "8
Intervenor MIEC's Proposal 34
Intervenor BJH's Proposal 35
Intervenor Robert A. Mueller's Proposal 36
Intervenors AARP and CCM's Proposal 36
The Rate Consultant's Proposal 36
RATE COMMISSION RECOMMENDATION 37
CRITERIA FOR RECOMMENDATION 38
First Criteria: Whether the Rate Change Proposal is necessary to pay interest
and principal falling due on bonds issued to finance assets of the District? 39
Second Criteria: Whether the Rate Change Proposal is necessary to pay the costs
of operation and maintenance? 56
Third Criteria: Whether the Rate Change Proposal is in such amounts as may be
required to cover emergencies and anticipated delinquencies? 71
FACTORS FOR RECOMMENDATION 81
First Factor: "Is consistent with constitutional, statutory or common law as
amended from time to time" 81
Second Factor: "Enhances the District's ability to provide adequate sewer and
drainage systems and facilities, or related services" 103
Third Factor: "Is consistent with and not in violation of any covenant or
provision relating to any outstanding bonds or indebtedness of the District" 107
Fourth Factor: "Does not impair the ability of the District to comply with
applicable Federal or State laws or regulations as amended from time to time" 121
Fifth Factor: "Imposes a fair and reasonable burden on all classes of ratepayers" 129
RECOMMENDATIONS 170
MINORITY REPORTS 172
ATTACHMENT A 179
PROCEEDINGS INDEX i80
INTRODUCTION
The Wastewater Rate Change Proposal of the Metropolitan St. Louis Sewer District (the
"District") was presented to the Rate Commission on May 10, 2011.
The Rate Commission initiated certain proceedings in order to provide for the advance
submission of written testimony, the conduct of three technical conferences, a prehearing
conference, discovery procedures, public hearings, and the filing of post -hearing briefs with
procedural fairness to the parties. See Charter Plan of the Metropolitan St. Louis Sewer District
(hereinafter "Charter Plan"). § 7.280. Missouri industrial Energy Consumers ("MIEC"); Barnes
Jewish Hospital ("Bin"); Covidien; Robert A. Mueller, AARP, and Consumers Council of
Missouri ("CCM") intervened and participated in these proceedings. The record of these
proceedings is contained in the computer disk delivered with this Report. All of the written
testimony, exhibits, document requests and responses, transcripts of testimony, legal
memoranda, and other materials contained therein have been admitted into evidence and
considered by the Rate Commission Delegates for the purpose of making the findings and
determinations contained in this Report. These proceedings (the "Proceedings") are incorporated
herein by reference.
The Rate Commission's Report to the Board of Trustees (the "Board") of the District is
due within 120 days of receipt of the Rate Change Proposal, or September 6, 2011, unless the
Board of Trustees shall upon application of the Rate Commission extend the period for one
additional 45 -day period. The Rate Commission submitted a request for such an extension on
June 14. 2011, and on June 29. 2011. the Board of Trustees approved an extension of the period
to October 21, 2011. See Charter Plan, § 7.290(f).
2
This is the Report required by the Charter Plan and has been adopted by a majority of the
Rate Commission Delegates. See Charter Plan, § 7.280(f).
EXECUTIVE SUMMARY
The District's Rate Change Proposal' was presented to the Rate Commission on May 10,
2011. The Rate Change Proposal presents the District's proposed use of $945,000,000 in bond
financing and $171,000,000 in cash financing to fund its Capital Improvement and Repairs
Program (CIRP) through FY2016; to provide the funds needed to comply with regulatory
requirements relating to deficiencies in the District's wastewater system, including sewers, pump
stations, and treatment plants; and to satisfy the requirements of the Consent Decree in the matter
captioned United States of America and the State of Missouri vs. the Metropolitan St. Louis
Sewer District (See Report, pp. 20-27).
The District proposes to finance the required capital improvements by a combination of
wastewater user charge revenues, available fund balances, revenue bond proceeds, Missouri
Clean Water State Revolving Fund loan proceeds, potential commercial paper proceeds, grants
and contributions, other operating revenues, and interest income. The impact of the Rate Change
Proposal upon wastewater rates, if principally funded by bond financing, is described in the
following table.
This summary of the Rate Setting Documents does not purport to be complete and reference is
made to the full text of the Rate Setting Documents or a complete recital of the terms of the rate
changes proposed by the District.
3
Comparison of Existing and Proposed 1laste►►ater hates
Proposed Wastewater Charges
Effective July 1
Type of Monthly Charge
(per Bill)
Existing
FY2012 (1)
FYI013
F\'2014
EV2015
11/2016
Base Charge
Billing & Collection
Charge
5 2.611
$ 2.65
$ 3.25
$ 3.45
$ 3.60
$ 3.70
System Availability
Charge
8.80
9.20
10.00
11.50
13.41)
15.75
Total Base Service
Charge
$ 1).40
$ 11.85
$ 1125
$ 14.95
$ 17.00
$ 19.45
Compliance Charge (2)
lJnitomi Compliance
Charge
$ 31.95
-
-
-
Proposed Tiered
Compliance Charge:
Tier I
$ 23,110
$ 16,0(1
$ 9.0(1
$ 2.35
Tier 2
-
$ 40.25
$ 42.60
$ 44.05
$ 45.35
Tier 3
-
$ 85.70
$ 90.65
$ 93.80
$ 96,55
Tier4
-
$ 125.65
$ !32,9
$ 137.50
$ 141.55
Tier 5
-
$ 165.611
$ 175.20
$ 181.20
$ 186,65
Volume Charge
Metered - $/Cef
$ 2.(12
5 2.1 1
$ 2.39
$ 2.7-
$ 3.07
$ 3.45
Linmetercd
Each Room
$ 1.32
$ 1.38
$ 1.55
$ 1.77
$ 2.00
$ 2.24
Each Water Closet
4.93
5.15
5.83
6.44
7,4'9
8.42
Each Bath
4.11
4.30
4.86
5.53
6.24
7.01
Each Separate Shower
4.11
4.3[1
4.86
5.53
6.24
7.01
Extra Strength Surcharges -
$Itnn (2)
Suspended Solids > 300
ing/I
$ 222.62
$ 231.35
S 231.35
$ 231,68
$ 257.18
$ 205.68
DOD > 300 ing11
596.72
620.14
620.14
620.14
652.14
673.30
COD > 6[10 mg/I
298.36
310.07
310.07
310.07
326.07
336.05
Typical Residential Bill -
5/Bill (3)
User Charge Portion
$ 24.28
$ 26.19
$ 27.56
$ 29.87
$ 32.75
$ 34.76
Capital Charge Portion
1.26
2.54
4.81
6.84
8.81
12.29
Total
5 27.56
$ 28.73
$ 32.37
$ 36.71
$ 41.56
$ 47.05
Ccf- Hundred Cubic Feet
mg/1- milligram per liter
(1) Final rate increase of Rate Change Plan approved April 20118.
(2) Applieahle only to nonresidential customers.
(3) Based ❑n contributed wastewater volume ❑I' 8 Cc(' per month.
4
In the event that the voters of the District do not approve bond financing for the CIRP,
the District proposes cash financing in order to comply with the terms of the Consent Decree.
The financial analysis supporting the development of the alternative cash financing rate is
contained in Tables G-1 through K-10 in Ex. MSD 18Z. These tables correspond to the same
tables in Ex. MSD 4A for a CIRP, if principally funded by bond financing. The impact of the
Rate Change Proposal upon wastewater rates, if principally funded by cash financing, is
described in the following table:
5
A
B
C
f -
E
I
F
G j 1f
308 File: FY2013PAYGoRtates. DRAFT - For Rate Commission Review
3(19 CRATES - Comparison of Rates dune 27.2011 10:06 a.m.
310
311 Table 3-21
312 Comparison of Existing and Proposed Wastewater Rates
3553_ I ] I
314 1 }
315 Line
f.
317 N. .Typc.nf Monlhiy Charge
319
320 *Base Charge. • Ji.'(3i11 1 _
321 1 1 Billing& Collection Charge
322 2 i System Availability Charge
324 3 1 Total Base (Rcsidentia!) Service Charge {
325 _ 1 i
i
326 Compliance Charge - 54301 (h)
327 4 Tier 1 I 1
338 5 fE Tier 2
329 6 1 Tier 3
330 7 ' Tier
331 8 1 Tier 5
332
333 :Total Notuesidrntial Service Charge
334 Tier l
335 TiC72
336 - Tier 3
337 Tier4 j
338 i Tier S
1
339
��
340 'Volume Charge
341 _ 9 Metered - SiCcf _
342 (Jmnetered - S/B(11
343 _.111 Each Room
744 11 Each Water
3.75 12 I Each Bath
3466 13 1 Each Sepantte Shower
347
348 [Extra Strengih Sun:ha ges - S'tnn (h}
349 14 SuspenJed Solids over 300 mgl1
350 15 I 110❑ over 300 titg,.1
351 16 . CODover600 mg+1 I_
r}52
35.1 Typical Residential Bill - S,'Bill (c)
354 r 17 User Charge Portion •
355 _ j8 1 Capital Charge Portion I
357 19 Total j
158 E
359 Ccr • Hundred Cubic Feet
361} mg'I -milligram per liter
Ver 111
K -S
:tiler -125
Proposed Waateaeter ('barges
-1
Esicling i ?011 I 20.1.2.(a) , 21113 1 2014 2015 2,11{,
L( K-1 K-! C K-1 # K 1 i
{
2.60 •
8 2.60 2.65 ` 3.25 3.45 360 3.10
8 84 8.10r1 . . 9.29 I 26.50 f 26.60 26 R0 ' 27.10
11.40 11.40 11,85 29.75 _ 3{1.015 3{1.44] ;q g!}
i
_ 30.85 ?(1.85 3195 23.181 16.[10 9.06 2.35
30.85 311 R5 31.95 40.30 42.70 ' 44.200} I 45.55
30.85 30 85 31 uS 85.811 I 90.91) 1 94.211 • 91.0555
30 45 : 30.85 31.95 : 125-90 i• 133.30 1 138.1{1 142_3et
30.85 . . 30 85 , 31.95 1 165.80 1 175 65 1 181.95 187 5[20
i 1 . - --
1.
42.25 ! 42.25 43.8{1 52.75 46.1{5' ;3.155
42_25 42.25 _ 43.8tr 70 05 72.75E ?x.35
12.25 42.25 43,8{ . .. 1 15.55 ' _ .. 120.95 124 fin 127.85
4125 • __ 42.25 ' 43 80 • 155.55 t 163.35 I 113.10
42.25 42.25 1 43.80. • 195-55 205.70 212 355 213.30
2.1)2. _____ 2.14_1 2.11 .. .
I
1.320 1.32 1 1-3R
4.93 4.91 I - _ 5.15 --.
4,11 4.11 1 430
4.11 4,11 4.3(1
222.62 _ 222.62.. - 231-35
596 72 596.72 620.14
298.36 298,36 ! 310-07
26.311' 24.28 • 2tr.I9
1-26 1.26 ! 2.54
27.56 '
27.56E 28.73
5.45 1
39-40
705/f1,
I f,1f, 50 I
5,45 5.45 !
3.55 3.55 355 355
13.30E 13.30 13.30 I 13 ++1
11.08 1 .11,08 11118 ` 11.08
11.08' 11.08 11.08 11 OR
L 1
267.35 l 267 35 _ 267.35 - 267.35
685.94 ' 6$5.94 h85 94 - 685 94
342.97 _ 342.47 . 342.9 7 : 342.9 7
37.29 . ..
36116)
3071 i
42.94
73.35E 73.65
33,41 1 _ 35 31
40.59 1. 305.04
74,0H1 I. 74 40455
361 (a) 2012 approved rates to hr effective July 1. 1011
L 4
362 (b) Applicable only to non-residential customers. - 1
363 tc1 Based on contributed wastewater volume o1 8 Ccrper month.
364 Low Incutno impact cm Typical Re idental Bit1 S'Cvf $0.031 SO 039 - ' .. ¶0.108 ; 50.126 1 50.154 ' 501 174
363 I Annual Percentage lru:reasc in Typical Residential Bill 0.00%. 4.25°x, 155,31%' 0.41%' 0.48%i 0.54':'0
6
368
A I B ! C 1 n I L r I 1 n
366
File: FY2413PAYGORates.
DRAFT - For Rate Commission Review Ver la
367 COIVIR - Comparison of 011i&R Rates June 27, 2011 10:06 a.nt. K-9
1 1
Comparison of Existing and Proposed User Charges
(OM&R Portion of Rates)
369
370
371
372
373
375
377
378
379
380
382
383
384
386
387
388
389
390
391
392
393
394
395
396
397
398
399
400
401
f .ine 1
14o. 'Type of Monthly Charge
402
403
405
406
407
408
Base Charge-!Sll3ill `
1 1 Billing & Collection Charge--
2 System Availability Charge
3 [ Tota1 Base (1Lesidenlial) Service Charge _
4 !Tier l Compliance Charge - $IBi11 (a)
5 [Total Tier 1 Nonresidential Service Charge
Volume Charge
6 Metered - $JC•cf
linmetered
7 Each Room -
8 Each Water Clo el
9 I Each Bath'
10 - Each Separate Shower
Extra Strength Surcharges - $/ion (a)
11 I Suspended Solids over 300m/1
12 1 BCD over 300 Stroll `
13 COI) over 600 ingll 4.._
Typical Residential pill - S/Bill (b)
14 User Charge Portion
15 Capital Charge Portion
IS Total
Ccf-13und.red Cubic Feet
•
mgll - milligram per liter
Existing
2.60
8.80
Proposed User Charges
2011
2.60
8-80
11.40 11.40
30.85 30.85
4 42.25 I 4.25
2.42 2.02.1(
1.32
4.93
4.11
4.11- L
132
4.93
4.11._.
4.11 •
2012 2013
IC -6 K-6
2.65
6.41
9.06 15.13
31.95 . 23.00
41.01
3.25
11.88
38.13
1.57 2.77
1.03 F r- 1.83
3.86 6.86
3.22 5.72
3.72
5.72
222.62.E _222.62 178.05
596.72 596.72 515.70
298.36 T 298.36 257.85
26.30r
1.26
27.56 27.56 28.73
290.66
692.86
346.43
409 (a) [Applicable only 10 nonresidential customers.
(b) Based on contributed wastewater volume of 8 Ccf per month.
411
410
26.30 1
1.26
1._
26.19 37.29
.
2.54 ; .. 36.06
7
`� 13 1 C 1 --} E 1 1 I G
I tt
412
_
File: FY2013PAYGORates. DRAFT - For Rate Commission Review
Ver la
413
CVC - Component Volume Charges June 27, 2011 10:06 a.m.
K-10
414.1-22
r)(.-6 ` f
r
415
j
i Volume
416
Volume Charge Components i ' _
I_ Charge
418
i
$/Ccf
419
.
i Volume Component
4.90
420
, •
Wastewater Strength Components i
421
_ - _
BUU i 175 parts/1,000,000 parts x 6.240 1hs Ccf / 2,000 lbeJton x $685.94/ton =
0.37
422
SS _ _ 220 parts/1,000,000 parts x 6.240 lbs/Ccf / 2,000 lbsrton x $267.35/ton =
0.18
'
•
424
Tolat Volume Charge } 1 I
5 A5
The Rate Commission, after consideration of all of the facts and circumstances disclosed
in the Proceedings, finds and determines that the Rate Change Proposal is necessary to pay (i)
interest and principal falling due on bonds issued to finance assets of the District; (ii) the costs of
operation and maintenance: and (iii) such amounts as may be required to cover emergencies and
anticipated delinquencies. See Charter Plan. § 7.040.
The Rate Commission, after consideration of all of the facts and circumstances disclosed
in the Proceedings. finds and determines that the Rate Change Proposal, and all portions thereof:
(i) is consistent with constitutional, statutory and common law as amended from time to time; (ii)
enhances the District's ability to provide adequate sewer and drainage systems and facilities, or
related services; (iii) is consistent with and not in violation of any covenant or provision relating
to any outstanding bonds or indebtedness of the District; (iv) does not impair the ability of the
District to comply with applicable Federal or State laws or regulations as amended from time to
time; and (v) imposes a fair and reasonable burden on all classes of ratepayers. See Charter Plan
§ 7.270.
8
BACKGROUND
Metropolitan St. Louis Sewer District
Article VI § 30(a) of the Missouri Constitution has authorized "The people of the city of
St. Louis and the people of the county of St_ Louis . . . to establish a metropolitan district or
districts for the functional administration of services common to the area included therein . . . ."
Mo. Const. art. VI, § 30(a). At a special election on February 9, 1954, the freeholders adopted
and the voters of the City of St. Louis and St. Louis County approved the Charter Plan (as
amended on November 7, 2000) creating the Metropolitan St. Louis Sewer District ("District").
The Charter Plan establishing the District has been held to be constitutional. State on inf. Dalton
v. Metro. St. Louis Sewer Dist., 275 S.W.2d 225 (Mo. 1955) (en bane).
The District is a body corporate, a municipal corporation, and a political subdivision of
the state, with power to . . . act as a public corporation within the purview of the Plan, and shall
have the powers, duties, and functions as herein described. Charter Plan, § 1.010. The Missouri
Constitution provides that upon the adoption of the Charter Plan, it "shall become the organic
law of the territory therein defined, and shall take the place of and supersede all laws, charter
provisions and ordinances inconsistent therewith relating to said territory." Mo. Const. art. VI, §
30(h). As explained by the Missouri Supreme Court, "[t]he apparent intent is to give the
freeholders, with the approval of the voters, power to do whatever the Legislature could
ordinarily do with respect to the creation, organization and authority of such a district." Dalton,
275 S.W.2d at 228.
As such, the Charter Plan is similar to legislation, and thus, the District has only such
powers as are delegated to it by the Charter Plan, or as may properly he implied from the nature
9
of the duties imposed. State on inf. McKittrick v. Wyinore, 132 S.W.2d 979, 987-88 (Mo. 1939)
(en bane).
To detennine whether a certain action of the District is authorized by the Charter Plan, it
must be construed to further the intent of the voters. Centerre Bank of Crane v. Dir. of Revenue,
744 S.W.2d 754, 759 (Mo. 1988) (en bane). Intent must be ascertained by examining the plain
language of the Charter Plan reviewed as a whole. Staley v. Dir. of Revenue, 623 S.W.2d 246,
248 (Mo. 1981) (en bane).
It is clear that authorization was provided to residents in St. Louis City and County to
establish a metropolitan sewer district, Mo. Const. art. VI, § 30(a), and that authorization was
provided by the voters of St. Louis City and County to authorize the activities which carry out
the intent expressed and implied from the Charter Plan, including the establishment of the Rate
Commission.
The Rate Commission
The Rate Commission was established by the amendments to the Charter Plan approved
by the voters at a general election on November 7, 2000, to represent commercial -industrial
users, residential users and other organizations interested in the operation of the District,
including by way of example but not by way of limitation. organizations focusing on
environmental issues, labor issues, socio-economic issues, community -neighborhood
organizations and other nonprofit organizations. See Charter Plan §7.230. The Rate
Commission shall review and make recommendations to the Board regarding proposed changes
in wastewater, stormwater rates, and tax rates. Specifically, upon receipt of a Rate Change
Notice from the District, the Rate Commission is to recommend to the Board changes in a
wastewater, storniwater, or tax rate necessary to pay (i) interest and principal falling due on
10
bonds issued to finance assets of the District; (ii) the costs of operation and maintenance; and
(iii) such amounts as may he required to cover emergencies and anticipated delinquencies. See
Charter Plan, § 7.040.
Any change in a rate recommended to the Board by the Rate Commission pursuant to §
7.270 of the Charter Plan is to be accompanied by a statement of the Rate Commission that the
proposed rate change (I) is consistent with constitutional, statutory, or common law as amended
from time to time; (ii) enhances the District's ability to provide adequate sewer and drainage
systems and facilities, or related services; (iii) is consistent with and not in violation of any
covenant or provision relating to any outstanding bonds or indebtedness of the District; (iv) does
not impair the ability of the District to comply with applicable Federal or State laws or
regulations as amended from time to time; and (v) imposes a fair and reasonable burden on all
classes of ratepayers.
Appointment
On December 9, 2010, the District enacted Board Ordinance No. 13182, as required by §
7.230 of the Charter Plan, and designated the Rate Commission Representative Organizations.
The Ordinance designated: Associated General Contractors of St. Louis, Cooperating School
Districts, The Engineers' Club of St. Louis, Greater St. Louis Labor Council, Home Builders
Association of Greater St. Louis, The Human Develop. Corp. of Metro. St. Louis, League of
Women Voters, Missouri Botanical Garden, Missouri Coalition for the Environment, Missouri
Industrial Energy Consumers, Regional Chamber & Growth Association, St. Philip's Lutheran
Church, St. Louis Council of Construction Consumers, St. Louis County Municipal League, and
West County Chamber of Commerce. Each of these Organizations designated an individual to
11
serve as a Rate Commission Delegate and notified the Rate Commission_ The Delegates
currently comprising the Rate Commission are:
DELEGATE REPRESENTING
Nancy Bowser League of Women Voters
Paul Brockmaun Missouri Botanical Garden
Ida Casey St. Philip's Lutheran Church
Brad Goss Home Builders Association of Greater St. Louis
Glenn Koenen West County Chamber of Commerce
George Liyeos St. Louis County Municipal League
Mike O'Connell Greater St. Louis Labor Council
Torn Post Cooperating School District
Eric Schneider Regional Chamber & Growth Association
John L. Stein Missouri Industrial Energy Consumers
Leonard Toenjes Associated General Contractors of St. Louis
George D. Tomazi The Engineers' Club of St. Louis
Mike Seidel St. Louis Council of Construction Consumers
Ralph Wafer Missouri Coalition for the Environment
Vacant The Human Develop. Corp. of Metro_ St. Louis
Under the Charter Plan, the Board is to identify the Rate Commission Representative
Organizations for a term of years determined by the Board. Charter Plan, § 7.230. Each Rate
Commission Representative Organization selected by the Board shall have the right to designate
a Rate Commission Delegate to the Rate Commission for a term of six years or the completion of
any unexpired terms. Id. at § 7.240. This section continues, "Prior to the expiration of a Rate
Commission Representative Organization's term, the Board of Trustees shall designate
organizations within the District to succeed such Rate Commission Representative
12
Organization." Id. at § 7.240. Nothing bars a Rate Commission Organization from being named
to successive terms. Id.
Rate Commission's Operational Rules
On August 16, 2001, and under the authority of §§ 7.250 and 7.280(e) of the Charter
Plan, the Rate Commission adopted Operational Rules, Regulations and Procedures as amended
on March 21, 2002, April 16, 2003, March 2, 2007, January 18, 2008, and March 7, 2011, to
govern the activities of the Rate Commission.
Rate Commission's Procedural Schedule
On May 10, 201 I, the Rate Commission, under the authority of § 7.280(e) of the Plan and
pursuant to § 3(3) of the Operational Rules, adopted a Procedural Schedule for the Consideration
of a Wastewater Rate Change Notice. On July 8, 2011, the Rate Commission adopted a Revised
Procedural Schedule for Consideration of the Wastewater Rate Change Notice. Additional
addenda to the Procedural Schedule were approved on August 2, 2011 and September 6, 2011.
Under the Charter Plan, the Rate Commission must issue its Rate Recommendation
Report to the Board and the public no later than 120 days after receipt of a Rate Change Notice.
Charter Plan, § 7.280(f). As a result, the Recommendation Report for the Wastewater Rate
Change would be due September 6, 2011. Section 7.280[t), however, allows the Board, upon
application of the Rate Commission, to extend the period of time for the issuance of the Rate
Conunission Report for one additional 45 day period. By correspondence dated June 14, 2011,
the Rate Commission made such application to the Board, asking the deadline to be extended
until October 21, 2011. The Board granted the request for an extension on June 29, 2011, and
the Rate Commission Report is now due October 21, 2011.
13
Rate Commission's Proceedings
Under procedural rules adopted by the Rate Commission, any person who would be
affected by the Wastewater Rate Change Proposal has an opportunity to submit an application to
intervene in the rate change proceedings. Applications to intervene were originally granted for:
(i) Missouri Industrial Energy Consumers ("MIEC"); (ii) Barnes Jewish Hospital ("BJH"); (iii)
Covidien; and (iv) Robert A. Mueller.
On May 13, 2011. the District submitted to the Rate Commission prepared Direct
Testimony of Jeffrey L. Theexman, Susan M. Myers, Brian L. Hoelscher, Jonathan Sprague,
Janice M. Zimmerman, Karl J. Tyminski and Keith D. Barber.
On May 26, 2011, the Rate Commission submitted its Discovery Request to the District.
On June 7, 2011, the District filed its Responses and on June 10, 2010, the District filed an
Amendment to its Responses. On September 16, 201 I, the District filed its Additional Response
to Question 14 of the Rate Commission's First Discovery Request.
On June 7, 2011, Intervenor MIEC submitted its Discovery Request to the District. On
June 17, 2011, the District filed its Responses.
On June 13, 2011, a Technical Conference was held on the record regarding the Rate
Setting Documents and the Direct Testimony filed with the Rate Commission by the District.
The purpose of the Technical Conference was to provide the District an opportunity to answer
questions propounded by members of the Rate Commission; then by any Intervenor; and finally
by Lashly & Baer. Legal Counsel to the Rate Commission.
On June 24, 2011, the Rate Commission submitted its Second Discovery Request to the
District. On July 8, 2011, the District filed its Responses.
14
On July 1, 2011, Intervenor MIEC submitted its Second Discovery Request to the
District On July 1 1, 2011, the District filed its Responses, and on July 12, 2011 the District
tiled an Amendment to its Responses.
On July 13, 2011, Intervenor MIEC submitted its Third Discovery Request to the District.
On July 20, 2011, the District filed its Responses.
On July 15, 2011, Intervenor Robert A. Mueller submitted his Discovery Request to the
District. On July 22, 2011, the District filed its Responses.
On July 15, 2011, Intervenor BJH submitted its Discovery Request to the District. On
July 25, 2011, the District tiled its Responses, and on August 1, 2011, the District filed an
Amendment to its Responses.
On July 15, 2011, AARP and CCM tiled applications to intervene and on August 2, 2011,
those subsequent applications were granted.
On July 18, 2011, Rebuttal Testimony of Michael P. Gorman was submitted by
Intervenor MIEC.
On July 18, 2011, Rebuttal Testimony of William Stannard was submitted on behalf of
the Rate Commission.
On July 18, 2011, Rebuttal Testimony of Billie LaConte was submitted on behalf of
Intervenor BJH.
On July 20, 2011, Intervenors M1EC, BJH and Robert Mueller filed a Motion to Compel
Discovery Responses from the District, and on July 27, 2011, the District filed a Response in
Opposition.
On July 22, 2011, Intervenor MIEC submitted its Fourth Discovery Request to the
District, and on July 28, 2011, the District filed its Responses.
15
On July 28, 2011, the District submitted its Discovery Request to the Rate Commission.
On August 8, 201 1, Raffelis Financial Consultants, Inc., consultant to the Rate Commission filed
its Response.
On July 28, 2011, the District submitted its Discovery Request to Intervenor MIEC. On
August 8, 2011, Brubaker & Associates, Inc., consultant to MIEC filed its Response.
On July 28, 2011, the District submitted its Discovery Request to Intervenor BJH. On
August 15, 2011, Drazen Consulting Group, Inc., consultant to BJH. filed its Response.
On August 2, 2011. the Rate Commission directed the District to file an electronic copy
with formulas intact of the Rage Change Proposal (the Electronic Report) by August 10, 2011.
On August 5, 2011, the District submitted its Second Discovery Request to Intervenor
BJ1-I, and on August 15, 2011, Billie LaConte, consultant to BJH, filed a Response.
On August 5, 2011, the District submitted its Second Discovery Request to the Rate
Commission, and on August 15, 2011, William Stannard, consultant to the Rate Commission,
filed a Response.
On August 5, 2011, the District filed its Second Discovery Request to Intervenor MIEC,
and on August 15, 2011, Michael Gorman, consultant to MIEC, filed a Response.
On August 8, 2001. a Technical Conference was held on the record regarding the
Rebuttal Testimony. The purpose of the Technical Conference was to provide the Consultants
to the Intervenors and the Rate Commission to respond to questions propounded by members of
the Rate Commission. the District, the other Intervenors, and Legal Counsel.
On August 10, 2011, the Rate Commission submitted a letter with a Confidentiality and
Non -Disclosure Agreement regarding the Electronic Report prepared by Black & Veatch. On
August 17, 2011, the Intervenors filed a Response to the Rate Comnmission's version of the
I6
Confidentiality and Non -Disclosure Agreement. On August 19, 2011, the District tiled a
Response to Intervenors' Response. On August 22, 2011, the Rate Commission submitted a
letter with a revised Confidentiality and Non -Disclosure Agreement.
On August 11, 2011, Intervenor BJH submitted its Second Discovery Request to the
District, and on August 22, 201 1, the District filed its Response.
On August 19, 2011, the Rate Commission submitted its Third Discovery Request to the
District, and on August 29, 2011, the District filed its Response.
On August 19, 2011, Surrebuttal Testimony of Jeffrey Theennan, Janice Zimmerman,
Brian Hoelscher, Jeanne Vanda and Jonathan Sprague was submitted on behalf of the District.
On August 25, 2011, the District filed its Amendment to Surrebuttal Testimony of Janice
Zimmerman.
On August 19, 2011, Surrebuttal Testimony of Michael Gorman was submitted on behalf
of Intervenor MIEC.
On August 19, 2011, Surrebuttal Testimony of Billie LaConte was submitted on behalf of
Intervenor BJH.
On August 24, 2011, Intervenor MIEC submitted its Fifth Discovery Request to the
District, and on September 8, 201 1, the District filed its Response.
On August 29, 2011, Intervenor BJH submitted its Third Discovery Request to the
District, and on August 30, 201 1, the District filed its Response.
On September 9, 2011, Intervenor BJH filed its Fourth Discovery request to the District,
and on September 19, 201 1, the District filed its Response.
On September 16, 2011, the Rate Commission filed its Fourth Discovery Request to the
District, and in September 26, 2011, the District hied its Response.
17
On September I6, 2011, the Rate Commission filed Supplemental Testimony of Thomas
Beckley, Intervenor BJH filed Supplemental Testimony of Billie LaConte, and Intervenor MIEC
filed Supplemental Testimony of Michael P. Gorman.
On September 22, 2011, the District tiled Responsive Testimony of Keith Barber and
Brian Hoelscher.
On September 26, 2011, a Technical Conference was held on the record regarding the
Supplemental Testimony on the Electronic Model and Responsive Testimony on the Electronic
Model.
On September 27, 2011, Intervenors AARP and CCM filed Prehearing Conference
Summaries.
On September 28, 2011. a Prehearing Conference for the purpose of identifying any
issues raised by the Rate Setting Documents and the prepared testimony previously submitted.
On September 28, 2011, Raftelis Financial Consultants and Lashly & Baer, P.C., the
District, Intervenors MIEC, BJH and Robert Mueller filed Prehearing Conference Summaries.
On September 28, 2011, the Rate Commission filed its Filth Discovery Request to the
District, and on October 5, 2011, the District filed its Response.
On October 5, 2011. the District. Lashly & Baer. P.C.. Intervenors MIEC, BJH, Robert
Mueller, AARP and CCM filed Prehearing Conference Reports.
Ratepayers who did not wish to intervene were permitted to participate in a series of on -
the -record public hearings conducted in five sessions beginning on August I6, 2011, and
concluding on October 6, 2011. A Public Notice regarding these Proceedings was published in
the St. Louis Post -Dispatch and in the St. Louis American. These Notices contained the time.
dates and location of each of these conferences and hearings.
Public Notice regarding the Rate Change Proposal was published by the District in the St.
Louis American on May 12-14, 2011, and again on May 20-22, 2011, and the St. Louis Business
Journal on May 13, 2011. The District also published the Public Notice in several other St.
Louis area local papers. The Public Notice contained the time, dates and location of each of the
technical conferences and hearings.
Similarly, Public Notice regarding these Proceedings was published in the St. Louis Post -
Dispatch on May 20, 23, and 24, 2011 and in the Si. Louis American on May 26, 2011, by the
Rate Commission. This Notice contained the time, dates and location of each of the conferences
and hearings. A Revised Public Notice was published in the St. Louis Post -Dispatch on July 20,
21 and 22, 2011 and in the St. Louis American on July 21, 2011.
An additional public hearing session was held on October 6, 2011, for the purpose of (I )
receiving into evidence any prepared testimony previously submitted to the Commission subject
to any valid objections, together with the discovery responses and transcripts of the technical
conferences; (2) permitting the Rate Commission members or those designated by the Rate
Commission to ask questions regarding any issue addressed by the prepared testimony or any
other element of the Proposed Rate Change; and (3) permitting closing statements by the
District, any person who has been permitted to intervene, and Legal Counsel for the Rate
Commission_
A second Revised Public Notice adding an additional Public Hearing on October 6, 2011,
was published in the St. Louis Post -Dispatch on September 8, 9 and 12, 2011 and in the St. Louis
American on September 8, 2011. Under the Procedural Schedule adopted by the Rate
Commission, as amended, the MSD Rate Commission had until October 21, 2011, to review and
19
make a recommendation to the MSD Board of Trustees as to whether the proposed rates should
be approved, not approved or modified with suggested changes and then approved.
During the Proceedings, Exhibits and Discovery Requests and Discovery Request
Responses were introduced and on October 6, 2011, were admitted into evidence. These
documents, together with the transcripts of testimony, written testimony, and certain other
materials, are contained in the computer disk delivered with this Report and the Proceedings
Index may be found at the end of the Report.
The findings and determinations contained in this Report were considered at public
meetings of the Rate Commission on October 6, 14, and 17, 2011, and adopted by Resolution of
the Rate Commission on October 17, 2011.
The Manual
Often in these Proceedings reference is made to "The Manual." "Financing and Charges
for Wastewater Systems" (2005) (the "Manual') was prepared in accordance with recognized
engineering principles and practices in general use by wastewater utility management, municipal
officials, engineers, accountants, and others concerned with financing and establishing charges
for wastewater service. it is a practice manual prepared by the Financing and Charges for
Wastewater Systems Task Force of the Water Environment Federation. The 2005 Manual
replaces and substantially expands the previous 1984 guidance on wastewater utility financing.
The Manual illustrates the various ways of allocating costs and developing rates and charges that
reasonably and equitably reflect the cost of service.
The Consent Decree
On June 11, 2007, the United States of America, acting at the request and on behalf of the
Administrator of the United States Environmental Protection Agency, and the Slate of Missouri
20
by the authority of the Attorney General of Missouri, tiled a claim in the United States District
Court for the Eastern District of Missouri against the Metropolitan St. Louis Sewer District
captioned United States of America and the State of Missouri v. The Metropolitan St. Louis
Sewer District, Civil Action No. 4:07 -CV -01120, for injunctive relief and civil penalties
alleging: unpermitted discharges from combined sewer system; violation of the proper operation
and maintenance condition of the District's National Pollutant Discharge Elimination System
(NPDES) permits; violation of the backup power condition in the District's NPDES permits;
violation of the bypass prohibition condition in the District's NPDES permits; violation of the
noncompliance reporting condition in the District's NPDES permits; failure to submit a Long
Term Combined System Overflow (CSO) Control Plan pursuant to Part al of the District's
NPDES permits and Clean Water Act (CWA) § 308 Request; and violation of the general criteria
special condition in the District's NPDES permits.
The United States of America and the State of Missouri requested that the Court:
• Order a permanent injunction enjoining the District from any and all ongoing and future
violations of the CWA by ordering compliance with the Act;
• Order a permanent injunction directing the District to take all steps necessary to come
into permanent and consistent compliance with the prohibition on unpermitted discharges
contained in Section 301(a) of the CWA;
• Order a permanent injunction directing the District to take all steps as are necessary to
prevent or minimize the imminent and substantial risk to human health posed by
pollutants (raw sewage) originating in its publically owned treatment works in
accordance with Section 504(a) of the CWA, 33 U.S.D. § 1364(a);
?1
" O r d e r a p e r m a n e n t i n j u n c t i o n d i r e c t i n g t h e D i s t r i c t t o t a k e a l l s t e p s n e c e s s a r y t o a c h i e v e
p e r m a n e n t a n d c o n s i s t e n t c o m p l i a n c e w i t h C W A a n d t h e r e g u l a t i o n s p r o m u l g a t e d
t h e r e u n d e r , a n d a l l t e r m s a n d c o n d i t i o n s o f i t s N P D E S p e r m i t s ;
" O r d e r a p e r m a n e n t i n j u n c t i o n r e q u i r i n g t h e D i s t r i c t t o s u b m i t a n d i m p l e m e n t a f u l l a n d
c o m p l e t e L o n g T e r m C o m b i n e d S y s t e m O v e r f l o w C o n t r o l P l a n i n c o m p l i a n c e w i t h
S e c t i o n 3 0 8 ( a ) o f t h e C W A , 3 3 U . S . C . � 1 3 1 8 ( a ) , a n d t h e p e r m i t c o n d i t i o n ( P a r t D . 1 ) o f
t h e D i s t r i c t ' s P e r m i t s f o r t h e B i s s e l l P o i n t a n d L e m a y W a s t e W a t e r T r e a t m e n t F a c i l i t i e s
( W W T F s ) ;
" A w a r d a j u d g m e n t a s s e s s i n g c i v i l p e n a l t i e s a g a i n s t t h e D i s t r i c t a n d i n f a v o r o f t h e U n i t e d
S t a t e s , n o t t o e x c e e d $ 2 7 , 5 0 0 p e r d a y f o r e a c h v i o l a t i o n o f t h e C W A w h i c h o c c u r r e d
b e t w e e n J a n u a r y 3 0 , 1 9 9 7 a n d M a r c h 1 4 , 2 0 0 4 , a n d n o t t o e x c e e d $ 3 2 , 5 [ x ( } p e r d a y f o r
e a c h v i o l a t i o n o f t h e C W A w h i c h o c c u r r e d o n o r a f t e r M a r c h 1 5 , 2 0 0 4 ;
" O r d e r t h e D i s t r i c t t o m i t i g a t e t h e e f f e c t s o f e a c h o f i t s v i o l a t i o n s ;
" A w a r d t h e U n i t e d S t a t e s i t s c o s t s a n d d i s b u r s e m e n t s ; a n d
" G r a n t s u c h o t h e r a n d f u r t h e r r e l i e f ' a s t h i s C o u r t d e e m s a p p r o p r i a t e .
S e e E x . M S D I 1 A 2 9 , P e t i t i o n , p p . 2 3 - 2 4 .
O n S e p t e m b e r 2 1 , 2 0 0 7 , t h e D i s t r i c t f i l e d i t s A n s w e r a n d A f f i r m a t i v e D e f e n s e s i n c l u d i n g
c o u n t e r c l a i m s a g a i n s t t h e S t a t e o f M i s s o u r i a l l e g i n g ( i ) t h a t p u r s u a n t t o S e c t i o n 3 0 9 ( c ) o f t h e
C W A t h a t t h e S t a t e o f M i s s o u r i i s l i a b l e f o r t h e p a y m e n t o f a n y j u d g m e n t o r e x p e n s e s i n c u r r e d
a s a r e s u l t o f c o m p l y i n g w i t h a n y j u d g m e n t e n t e r e d a g a i n s t t h e D i s t r i c t ; a n d ( i i ) t h a t t h e S t a t e o f
M i s s o u r i h a s a n e q u i t a b l e d u t y t o i n d e m n i f y t h e D i s t r i c t f o r i t s c o s t s o f d e f e n s e a n d c o m p l i a n c e
w i t h a n y j u d g m e n t i n c l u d i n g t h e p a y m e n t o f f i n e s a n d p e n a l t i e s . S e e E x _ M S D 1 8 H ,
C o u n t e r c l a i m .
2 2
On September 12, 2008, the Court found that the District's affirmative defenses and
counterclaims based on the Hancock Amendment must be dismissed. See Ex. MSD 18117,
Counterclaim. The judgment of the District Court was affirmed on appeal by the United States
Court of Appeals for the Eighth Circuit. See Ex. MSD 18118, Counterclaim.2
On June 29, 2011, the Board of Trustees adopted an ordinance to enter into a settlement
with the United States and the intervenor, the Missouri Coalition for the Environment. The State
of Missouri will not be a party to the Consent Decree. See Ex. MSD 14, Opening Statement of
Susan Myers, and Ex. MSD 23, Journal of the Meeting of the Board.
A "Detail Sheet" submitted to the Board of Trustees on June 9, 2011, purports to describe
the major Consent Decree components and includes a 23 -year schedule to achieve compliance
with the Clean Water Act. The District estimates the capital program required to achieve
compliance with the Consent Decree will cost $4.7 billion in 2011 dollars, including certain
remaining master planning work as well as design and construction of remedial measures
required to achieve compliance; implementation of the District's CSO Long Term Control Plan
recently approved by the State of Missouri; use of green infrastructure in abating CSO
discharges; a Capacity, Management, Operations and Maintenance program designed to manage
the collection system and progress reporting. See Ex. MSD 11A32, EPA Consent Decree
Authorization.
The District has stated that the Consent Decree components include the following
elements:
• Implementation Schedule - Requires an implementation schedule of 23 years from the
date of approval by the State of Missouri of the CSO Long Term Control Plan, which
The tiling papers and briefs may be found at Ex. MSD 18H through MSD 18116.
23
addresses sewer overflows and other issues in the combined sanitary sewer system. For
the work in the sanitary and combined collection system and in the wastewater treatment
plants, the District estimates the cost of complying with the Consent Decree at $4.7
billion in 2011 dollars.
• Early Elimination Projects - Requires the completion of sanitary sewer projects that will
allow for the elimination of 50 specific constructed Sanitary Sewer Overflow ("SSO")
Outfalls within the sanitary sewer system by December 31, 2012.
• SSO Master Plan - Requires the submission by December 31, 2013, of an SSO Master
Plan that includes an extensive Sewer System Evaluation Survey (SSES), Hydraulic
Modeling, and Capacity Analysis of the Sanitary Sewer System. The Master Plan will
identify Remedial Measures and Elimination Projects aimed at removing all constructed
SSO Outfalls, known SSOs, Waste Water Treatment Plants (WWTP) bypassing within
the Sanitary Sewer System, and reducing reoccurring Building Backups.
• Remedial Measures - Requires the completion of the Remedial Measures and
Elimination projects identified in the SSO Master Plan in accordance with the schedule,
which includes the removal of 85% of the constructed SSO Outfalls, and the goals of
eliminating all other known SSOs by no later than December 31, 2023, and all remaining
constructed SSO Out falls by December 31, 2033.
• CMOM Program - Requires the District to continue its development and implementation
of a Capacity, Management, Operations, and Maintenance Program (CMOM) that
includes detailed performance goals for the prioritization, cleaning, inspection. and
rehabilitation of the entire sewer system. Program also includes continued
implementation of District Fat's Oils, and Grease Program (FOG), the development and
24
implementation of Private Inflow and Infiltration Reduction Program, Building Backup
Response Plan, and a Non -Capacity Related SSO Response Plan. The CMOM Program
is aimed at preventing overflows and building backups.
• Cityshed Mitigation Program — Requires the commitment of a regular annual program to
mitigate the effects of wet weather surcharging and overland flooding of the combined
sewer system (Citysheds), with an anticipated expenditure of $230 Million over the life
of the Consent Decree.
• Combined Sewer Overflow (CSO) Long Term Control Plan (LTCP) — Requires the
construction and implementation of CSO Control Measures in accordance with the
requirements and schedule in the approved CSO LTCP and Consent Decree, On June 1,
2011, the State of Missouri approved Chapter 11 "Selected Plan", Chapter 12 "Green
Infrastructure Program", and Appendix Q "MSD's Green Infrastructure Program" of the
Metropolitan St. Louis Sewer District's Combined Sewer Overflow Long -Term Control
Plan (LTCP) Update Report, dated February 2011. The projects in the LTCP will be
completed 23 years atler the LTCP approval by the State of Missouri.
• CSO Post Construction Monitoring Program — Requires the implementation of a Post
Construction Monitoring Program upon completion of CSO Control Measures to validate
performance of CSO Control Measures in the approved CSO LTCP and CD.
• CSO Green Infrastructure Program — Requires the commitment of $100 Million to
implement a five-year pilot Green Infrastructure Program as part of the approved CSO
LTCP, aimed at using green infrastructure to reduce combined sewer overflow volumes
in the combined sewer areas in both St. Louis City and St. Louis County and impact the
CSO overflows into the Mississippi River.
25
" C o n s e n t D e c r e e R e p o r t i n g - R e q u i r e s s i g n i f i c a n t a n d c o n t i n u o u s d e t a i l e d r e p o r t i n g a n d
t r a n s p a r e n c y o n a l l a c t i v i t i e s i d e n t i f i e d a b o v e , a s w e l l a s r e p o r t i n g o n p r o g r e s s i n
a c h i e v i n g t h e o v e r a l l g o a l s o f t h e C o n s e n t D e c r e e i n e l i m i n a t i n g a n d r e d u c i n g s e w e r
s y s t e m o v e r f l o w s w i t h i n t h e D i s t r i c t .
" S u p p l e m e n t a l E n v i r o n m e n t a l P r o j e c t ( S E P ) - R e q u i r e s t h e D i s t r i c t t o s p e n d $ 1 . 6 m i l l i o n
d o l l a r s f o r a S E P p r o g r a m w i t h i n f i v e y e a r s t o i m p l e m e n t a S e w e r C o n n e c t i o n & S e p t i c
' r a n k C l o s u r e P r o g r a m f b r l o w - i n c o m e r e s i d e n t s . T h i s p r o g r a m w i l l i n c l u d e ( a ) t h e
i n s t a l l a t i o n o f a s e w e r s e r v i c e l i n e ( i . e . l a t e r a l ) a n d p u b l i c s e w e r l i n e i f n e e d e d t o t h e
h o m e s o f p a r t i c i p a t i n g p r o p e r t y o w n e r s , r e m o v a l a s n e e d e d o f t h e i r s e p t i c t a n k f r o m
o p e r a t i o n a n d ( b ) t h e r e p l a c e m e n t , r e h a b i l i t a t i o n , o r r e p a i r a s n e c e s s a r y o f p r i v a t e l a t e r a l
l i n e s .
" C i v i l P e n a l t y - R e q u i r e s p a y m e n t b y t h e D i s t r i c t w i t h i n 3 0 d a y s o f t h e e f f e c t i v e d a t e o f
t h e C o n s e n t D e c r e e t o t h e U n i t e d S t a t e s a s u m e q u a l t o $ 1 , 2 0 0 , 0 0 0 . 0 0 a s a c i v i l p e n a l t y .
" S t i p u l a t e d P e n a l t i e s - R e q u i r e s t h e D i s t r i c t t o r e m a i n s u b j e c t t o l i a b i l i t y t o t h e U n i t e d
S t a l e s f o r s t i p u l a t e d p e n a l t i e s i f t h e D i s t r i c t f a i l s t o m e e t c e r t a i n s p e c i f i e d r e q u i r e m e n t s
o u t l i n e d i n t h e C o n s e n t D e c r e e .
" C o a l i t i o n f o r t h e E n v i r o n m e n t - R e q u i r e s p a y m e n t b y t h e D i s t r i c t t o t h e C o a l i t i o n o f
$ 1 1 6 , 0 5 0 . 0 0 t o b e u s e d t o f u n d p r o j e c t s a t t h e R i v e r d e s P e r e s C o a l i t i o n a s d e t e r m i n e d b y
j o i n t a g r e e m e n t b e t w e e n t h e D i s t r i c t a n d t h e R i v e r d e s P e r e s C o a l i t i o n a n d t o p r o v i d e
e n g i n e e r i n g a n d s c i e n c e s u p p o r t a t t h e I n t e r d i s c i p l i n a r y E n v i r o n m e n t a l C l i n i c .
S e e E x . M S D 1 1 A 3 2 , E P A C o n s e n t D e c r e e A u t h o r i z a t i o n .
2 6
On August 4, 2011, the Consent Decree became a public record and the District made the
Consent Decree available to the Rate Commission and the Intervenors. See Ex. MSD 49A, Final
Consent Decree.
Statutory Construction
The primary rule of construction of terms found in the Charter Plan is to ascertain the
intent from the language used, to give effect to that intent if possible, and to consider the words
used in their plain and ordinary meaning. Hampton v. Hampton, 17 S.W.3d 599, 602 (Mo. Ct.
App. 2000). Under traditional rules of statutory construction, the word's dictionary definition
supplies its plain and ordinary meaning. Hoffinan v. Van Pak Corp., 16 S.W.3d 684, 688 (Mo.
Ct. App. 2000). The courts are without authority to read into a statute an interpretation that is
contrary to the intent made evident by giving the language employed in the statute its plain and
ordinary meaning. Mo. Dept. of Pub. Safety v. Murr, 11 S.W.3d 91, 96 (Mo. Ct. App. 20{l0).
Only when the statute is ambiguous, or when it leads to an illogical result, may courts look past
the plain and ordinary meaning of the statute. Id. To determine if a statute is unambiguous, "the
standard is whether the statute's terms are plain and clear to one of ordinary intelligence." Wolff
Shoe Co. v. Dir. of Revenue, 762 S.W.2d 29, 31 (Mo. 1988) (en bane).
27
PROPOSALS
The District's Proposal
The District's Proposal3, which was presented to the Rate Commission on May 10, 2011.
The Rate Change Proposal presents the District's proposed use of $945,000,000 in bond
financing and $171,000,000 in cash financing to fund its Capital Improvement and Repairs
Program (CIRP) through FY2016 to provide the funds needed to comply with regulatory
requirements relating to deficiencies in the District's wastewater system, including sewers, pump
stations, and treatment plants, and to satisfy the requirements of the Consent Decree.
The District proposes to finance the required capital improvements by a combination of
wastewater user charge revenues, available fund balances, revenue bond proceeds. Missouri
Clean Water State Revolving Fund loan proceeds, potential commercial paper proceeds. grants
and contributions, other operating revenues, and interest income. The impact of the Rate Change
Proposal upon wastewater rates, if principally funded by bond financing, is described in the
following table.
3 This summary of the Rate Setting Documents does not purport to be complete and reference is
made to the full text of the Rate Setting Documents or a complete recital of the terms of the rate
changes proposed by the District.
28
Type of Monthly Charge
Bill)
Existing
Proposed
Wastewater Charges
Effective July 1
FY2012 (1)
FY2013
FY2014
FY2015
FY2016
,per
Base Charge
Billing & Collection
Charge
$ 2.60
5 2.65
5 3.25
5 3.45
$ 3.60
$ 3.70
System Availability
Charge
8.80
9.20
10.00
11.50
13.40
15.75
Total Base Service
Charge
S 11.40
$ 11.85
5 13.25
5 14.95
5 17.00
5 19.45
Compliance Charge (2)
Uniform Compliance
Charge
', 30.85
$ 31.95
-
-
-
-
Proposed Tiered
Compliance Charge:
Tier 1
-
5 23.00
$ 16-00
$ 9.011
$ 2.35
Tier 2
-
$ 40.25
5 42.6€]
5 44.05
5 45.35
Tier 3
-
5 85.70
$ 90.65
5 93.80
$ 96.55
Tier 4
-
-
5 125.65
5 132.95
5 137,50
$ 141.55
Tier S
$ 165.60
5 175.20
5 181.20
5 186.65
Volume Charge
Metered - Wet'
ilmnetered
5 2.02
$ 2.11
5 2.39
$ 2.72
$ 3.1}7
$ 3,45
Each Room
$ 1.32
$ 1.38
$ 1.55
$ 1.77
5 2.011
5 2.24
Each Water Closet
4.93
5.15
5.83
6.64
7.49
8.42
Each Bath
4.11
4.30
4.86
5.53
6.24
7.01
Each Separate Shower
4.11
4.30
4.86
5.53
6.24
7.01
Extra Strength Surcharges -
ti/ton (2)
Suspended Solids > 300
ing/I
5 222.62
5 231.35
5 231.35
5 231.68
$ 257.18
$ 265.68
BOD > 300 mg/1
596.72
620.14
620.14
620.14
652.14
673.30
COD > 6,00 ntg11
298.36
310,07
310.07
310.07
326.117
336,65
Typical Residential Bill -
$143ill (3)
User Charge Portion
5 24.28
5 26.19
$ 27,56
$ 29.87
5 32.75
34.76
Capital Charge Portion
1.26
2.54
4.81
6.84
8.81
12.29
Total
y
$ 27.56
$ 28.73
$ 32.37
$ 36.71
$ 41.56
$ 47.05
Ccf - Hundred Cubic Feel
mg/1 - milligram per liter
( I) Final rate increase of Rate Change Plan approved April 20€18.
(2) Applicable only to nonresidential cuslomers.
(3) Based on contributed wastewater volume of 8 Ccf per month.
29
In the event that the voters of the District do not approve bond financing for the CIRP in
order to comply with the terms of the Consent Decree, the ❑istrict proposes cash financing. The
financial analysis supporting the development of the alternative cash financing rate is contained
in Tables G -I through K -l0 in Ex. MSD 18Z. These tables correspond to the same tables in Ex.
MSD 4A for a bond financed CIRP. The impact of the Rate Change Proposal upon wastewater
rates, if principally funded by cash financing, is described in the following table:
30
AI B1 C
n 1 1. 1 F 1 r: I if
308 File: E1'2013PAYGORa1es. DRAFT - Flu Rate Commission Review
309 CRATES • Coin tl wrlbon of Rater Jove 27.2011 111:06 R.ru.
310,
,31 1,
312
Table 3-21
Ver la
K-2
XFcrl25
Comparison of Existing and Proposed Wastewater Rates
313
314
315 Line
317 Nu. ;Type of A4amhly Charge
319 fi
3� rpaw Clutr e_-5'11111 __
321 _ I St Billing . Coil cctiou Char u
322 2 Sysrer Availability Charge
324 3
325
326
327 4 Tier 1 I
328 _ 5 Tier2
329 _ 6 Tier 3
13(1 7 Tier 4
331 8 1 Tier 5
Total Base i Resith rial) Service Charge
Compliance Charge - 5.'8111(h}
333 _ 'Total Norueeitferuial Service C'hurgn
334 Thor I
335 _ Tier
336 1 ier 3
337 1 Tier
338 ; Ticr5
3-391
340 iVolusncCltargc
341 9 Metered - 5/Cct'
312 r tanmererad_ 5i3iill
343 10 Each Room
344 _11 Each Water Clo>,et
345 12 _ Each Hath
346 13 Each Sepanstc Shower
347
348
349 I4.
350 15
351 16
352
353
Extra Strtngdi Surcharges - $(tore (bl
$uspendct1 Suiirlanver 3.00 mg/l -
BOi1 over 300 tngiI
COD over 6510 mg! j
Typical Re`i is;nlia1 Bill -yaill lc)
354 17 User Charge Pani,lrt '
355 18 Capilnl Chitrge Portion
357 19 } Total
358
359 _ Ccf • Hundred Cubic feet
361] marl, milligram per liter
Proposers Wastewater (Imp
F..ieting 2011 I 2012 (.t) 21113 2014 2015 1 2016 ,
K -I K:1 I K-1
] K-1. ji. K-1 _II K -I
• 1. . .
2.60 1 2,60 x.65 3.25 3.43 3.60 F 3.310
8.80 8.311 4_?l1 I 26.50 ; 26.60 1 21,80 • 27,111
11.40 11.40 ; 11.$5 _. 29.75 .. _ 30.05 30.40 ? .- 30 71
30.85
30.85
30.'15
30 25
30-155
30.83 1
30 85
39.85
30.85
39.85
42.25 42.25
42.25 4
_ ?.25
41.15 { 42.25
.42_.25 42.25 '_
42.25 42.25 I
132
31.95
31.95 I
31.95
31.'95 ;
.31.95 1
23.181
40.30
85.811 I
125.80 •
165.80 s
16.00 !
42.70
90.90 f
133-30 '}
175.(,5 1 .
9.00
4420
94.20
138.10
18115
43.80 ' 52.75 ' 416-05 39.40 Y
43.811 70 05 72.75 j 74 60
43.84 115.55 120,'$ _ 124.60
- 43.80' 1531.55 . .. 163351 168.51]
43.$0F 195.55 265.70 212.35
r
3I
t SdSrl
_
1 5.45 5.45 5.45_
2.35
45.55
97.05
142.311
187.50
3315
76.35
127.85
173.10
218.311
1.32 1.38 ..i...1 3.53-:
3,55 MS
4.43I. 4.93 _ _ 5.1 i 13.30 13.31) 13.30 13.30
4.11 4 11 4.30 , 11.08 I I.UR I l A18 11.08
4.11 I 4.11 4.30 1 1...08 11.08 11.08 11 0.8
_F - - - ---1 ...._.
222 63 222.62- 231.35 F. 267.35 267.35 i 26715 I 267.35
596 72 596.72 _ _ _620.14 685.94 685.94 485 94 635.94
298.36 , 298.36 I 3.16.07 342.97: 342!97. 342.97' 34� 97
I
26.30 ' - 24.28 . 26.19 ._ 37.29 - 30 71 1 33.41 i 35.31
1.26 5,36 I 2.54 i 35.116 42.44 I 4U-39 1 39.44
27.56 ' 27.56 ` 28.73 73.35: . 73.65 i 74.110 1 74.10
I
361 la] 2012 approved rates .to be et-TrtI ive 3uly 1 3011
362 (b) Applicable only to non-reaidcntial cusluuxrs.
363 lc) Based on canrrihuted vs•aiiewatcr volume or 8 Ccf per month. _
364 l.ow lupine impact on Typical Residential 13111: 3'Ccf 50.1131 50.039 50.108
363 Annual Percentage Increase in Typical Rrsidcniial 0.(10%1 4.25 155.31%'
50.126 ;
0.11%-
0i54
0.4941
50.174
0.54%
31
A l B G 1 1] E r 1 Ci 1 t
366 File: FY2O13PAYGORates. DRAFT - For Rate Commission Review Ver la
367 COMR - Comparison of ❑M&R Rates June 27, 2011 14:06 a.m. K-9
368 r
369
370
371
372
373 Line 1 -
Comparison of Existing and Proposed User Charges
(OM&R Portion of Rates)
375 No. ['l'ype of Monthly Charge
J
377
378 Base Charge -
379 1 : Billing & Collection Charge_
380 2 System Availability Charge
382 3 Total Base (Residential) Service Charge
383
384 4 'Tier 1 Compliance Charge - S/ il1(a) I
386 5 Total Tier 1 Nonresidential Service Charge
387
388 . Volume Charge .
389 6 ` Metered - Stecf.
390 __U_ nmetcred - 1;/Bill
391 7 1 Each Room _._..
392 8 Each Water Closet
393 9 4 Each Bath1
394 10 -Each Separate Shower _._
395
396 Extra Strength Surcharges - $iton (a)
397 11 suspended Solids over 300 mail 222.62 ,
398 12 BOD over 300 moil _ 596.72 1
399 13 COD over 600 nigil fi 298.35
4011 I
_...
401 Typical Residential Bill - S/Bill (b) {
402 14 User Charge Portion - 26.30 `
403 15 Capital Charge Portion I 1.26
405 16 Total . - ! 1 - 27.56
,
406 E _..1
407 Ccf - Hundred Cubic Feet _ 1 +
408 mgil - milligram per liter
409 (a) !Applicable nnly to nonresidential customers.
410 (b) Based on contributed wastewater volume of 8 Ccf per month.
..
411 1
Proposed User Charges
Existing 2011 2012 2013
K 1 K-6 i K-6
It '
2,60 2,60 2.651 3.7.5
8.80 8 80 6.41 11.88
11.40 i 11.40 9.06 13.13
30.85 `s
42.251
2.02
1.32-1
4.11
_411.1._
30.85
42.25
1.32
4.93
4_11 L -
1222.62 L
596.72
298.36
31.95
4I.01
1.57
23.00
38.13
2.77
1.f13 1.83
3.51F 6.861
3.22 , 5.72
3.22 5.72
178,i15..I 290.66
515.70 692.86
257.85 346.43
26.30 26.19 37.29
1.26 2.54 36.06
27.56 - .28.73 73.35
32
412
413
414
415
416
x418
419
420
421
422
424
425
Al 13 1 C f 1) 1 E 1 F 1 G 1 H
File: FY2013PAYGORates. DRAFT - For Rate Commission Review Ver la
CVC - Con Rpm) Volume Charges June 2712011 10:06 a.m. K -1D
-2 !K-6
V olutne
j Volume Charge Components! ! Charge
I 1 $ CCf
F 1
!Volume Component 4.90
Wastewater Strength Components .: i
1 BUD 1175 parts/ 1,000,000 parts x 6,240 lbs/Ccf / 2,000 lbslton x 1685.941ton a r 0.37
I SS 220 parts11,000,O00 parts x 6,240 thsfCcf12,000 ths'tan x $267.35/ton = I 0.18
Total Volume Charge . I . - .. 5.45
33
ALTERNATIVE PROPOSALS
INTERVENOR MIEC
Intervenor Missouri Industrial Energy Consumers ("MIEC") recommends that the rate
increase be awarded for one year (or two years, at the most) at the rate of 9.6 % rather than the
District proposed 11-12%. See Ex. MIEC 113. 1'rchearing Conference Report. MIEC
recommends that if in fact the Rate Commission approves the four-year District Rate Change
Proposal, it should modify the District's proposed rate increase to reduce the proposed increases
of over 60%, or $128.8 million dollars, to 49%, or $105.6 million dollars, for the next four years.
See Ex. MIEC 89, Supplemental Testimony of Michael Gorman.
In addition, MIEC recommends:
• That the use of a cash expenditure method is more accurate than the appropriation
method proposed in the District Rate Change Proposal;
• That while Treasury bond interest rates may increase, the municipal bond yield
spread will likely contract and yields will either hold steady or possibly decline;
• That the 30 -year bond interest rate of 5.5% is substantially overstated and
recommends reducing the rate to 4.65%;
• That the District makes an unsupported assumption that its O&M expense should
include an annual base inflation factor of 3% for routine capital improvement and that
it should be reduced to 2.25%;
• That the District's C1RP budget should be reduced by approximately 10% to adjust
for the fact that the District's estimates of the CIRP are highly uncertain and the
current cost projections are not reliable;
34
" T h a t t h e D i s t r i c t ' s b a d d e b t e x p e n s e i s b a s e d o n a h i g h l y a b n o r m a l f a c t o r o f 3 . 9 6 %
a n d r e c o m m e n d s u s i n g a n o r m a l f a c t o r o f 3 . 1 8 % ; a n d
" T h a t i t i s n o t r e a s o n a b l e t o a s s u m e t h a t D i s t r i c t s a l e s w i l l c o n t i n u e t o d e c l i n e . R a t h e r ,
a n i n c r e a s e i n e c o n o m i c a c t i v i t y w i l l m o r e l i k e l y p r o d u c e a n i n c r e a s e i n s a l e s a n d
r e v e n u e a t c u r r e n t r a t e s .
I N T E R V E N O R B J F I
I n t e r v e n o r B a r n e s J e w i s h H o s p i t a l ( " B i l l " ) r e c o m m e n d s t h a t t h e D i s t r i c t ' s p r o p o s e d
l e v e l o f f u n d i n g i s t o o f a r r e a c h i n g i n t i n i e f r a m e t o p e r f o r m t h e w o r k n e e d e d a s i t i s p r e s e n t l y
k n o w n . T h u s , t h e D i s t r i c t s h o u l d u s e a r a t e i n c r e a s e a s s u m p t i o n o f o n l y 8 . 5 % f o r t h e f i r s t y e a r o f
t h e r a t e p r o p o s a l p e r i o d ( F Y 2 0 1 3 ) r a t h e r t h a n t h e D i s t r i c t ' s p r o p o s e d 1 1 - 1 2 % a n n u a l i n c r e a s e
a n d d e t e r m i n e t h e r a t e s f o r t h e r e m a i n i n g p e r i o d F Y 2 0 1 4 F Y 2 0 1 6 a t a l a t e r h e a r i n g . S e e E x .
B i l l 1 1 1 , P r e h e a t i n g C o n f e r e n c e R e p o r t .
I n a d d i t i o n , B J H r e c o m m e n d s :
" T h a t c a s h e x p e n d i t u r e i s m o r e a c c u r a t e t h a n t h e a p p r o p r i a t i o n m e t h o d a n d r e s u l t s i n a
s o m e w h a t l o w e r i n c r e a s e ;
" T h a t t h e D i s t r i c t s h o u l d l o w e r t h e r e v e n u e b o n d i s s u a n c e a m o u n t f r o m 5 8 0 5 m i l l i o n
t o 5 7 2 7 m i l l i o n o v e r t h e r a t e p e r i o d a n d m a i n t a i n t h e S t a t e R e v o l v i n g L o a n p r o c e e d s
a s s h o w n i n t h e D i s t r i c t R a t e C h a n g e P r o p o s a l ;
" T h a t O & M e x p e n s e s h o u l d i n c r e a s e b y 1 3 % e a c h y e a r , e x c l u d i n g R a t e C o m m i s s i o n
c o s t , A d d i t i o n a l O & M c o s t , C i v i l S e r v i c e C o m m i s s i o n c o s t , a n d G r o u p I n s u r a n c e
C o s t , a l l o f w h i c h s h o u l d i n c r e a s e t h e s a m e a s p r o p o s e d i n t h e D i s t r i c t R a t e C h a n g e
P r o p o s a l ;
3 5
" T h a t t h e D i s t r i c t s h o u l d u s e a b a d d e b t e x p e n s e e s c a l a t o r o f 3 % p e r y e a r r a t h e r t h a n
t h e D i s t r i c t p r o p o s e d 3 . 9 6 % ; a n d
" T h a t t h e D i s t r i c t ' s c u s t o m e r c o u n t w o u l d r e m a i n r e l a t i v e l y t h e s a m e t h r o u g h o u t t h e
r a t e p e r i o d . U s a g e w o u l d d e c l i n e b y 0 . 7 6 % b y F Y 2 0 1 3 , a n d t h e n r e m a i n t h e s a m e
t h r o u g h F Y 2 0 1 6 .
I N T E R V E N O R R O B E R T A . M U E L L E R
i n t e r v e n o r R o b e r t A . M u e l l e r c o n c u r s a n d s u p p o r t s t h e f i n d i n g s o f f a c t a n d
r e c o m m e n d a t i o n s o f t h e o t h e r I n t e r v e n o r s . S e e E x . R M 1 1 4 , P r e h e a r i n g C o n f e r e n c e R e p o r t .
I N T E R V E N O R S A A R P A N D C O N S U M E R S C O U N C I L O F M I S S O U R I
I n t e r v e n o r s A A R P a n d C C M r e c o m m e n d t h a t t h e p r o p o s e d r a t e i n c r e a s e b e a p p r o v e d f o r
o n l y t h e f i r s t y e a r , F Y 2 0 1 3 . S e e E x . A A R P - C C M 1 1 5 , P r e h e a r i n g C o n f e r e n c e R e p o r t .
I n a d d i t i o n , A A R P a n d C C M r e c o m m e n d :
" T h a t t h e a d j u s t m e n t s p r e s e n t e d i n t h e t e s t i m o n y o f B J H e x p e r t M s . L a C o n t e a n d
M I E C w i t n e s s M r . G o r m a n b e i m p l e m e n t e d ;
" T h a t a m o r e r e a s o n a b l e i n f l a t i o n f a c t o r o f 2 . 2 5 % a s o p p o s e d t o 3 % u s e d i n t h e
D i s t r i c t R a t e C h a n g e P r o p o s a l ; a n d
" T h a t a d j u s t m e n t s b e m a d e t h a t w o u l d c o r r e c t t h e b u d g e t s f o r t h e C I R P , w h i c h w e r e
o v e r s t a t e d b y a p p r o x i m a t e l y 1 0 % .
T H E R A T E C O N S U L T A N T
T h e R a t e C o n s u l t a n t c o n c u r s w i t h t h e D i s t r i c t R a t e C h a n g e P r o p o s a l e x c e p t t h e R a t e
C o n s u l t a n t r e c o m m e n d s 1 ) t h a t t h e D i s t r i c t R a t e C h a n g e P r o p o s a l b e c o m p l e t e d o n a c a s h f l o w .
r a t h e r t h a n a p p r o p r i a t i o n , b a s i s , r e s u l t i n g i n a n i n c r e a s e o f 8 . 9 % i n F Y 2 0 1 3 , f o l l o w e d b y
i n c r e a s e s o f 1 2 . 6 % . 1 1 . 7 % a n d 1 3 . 2 % i n F Y 2 0 1 4 , F Y 2 0 1 5 a n d F Y 2 0 1 6 , r e s p e c t i v e l y ; 2 ) t h a t
3 6
there be a restructuring of debt in the District Rate Change Proposal, so that there are interest
only payments, thereby resulting in increases of 8.5%, 11.5%, 11.3% and 11.6% in FY 2013, FY
2014, FY 2015 and FY 2016, respectively; 3) that the District review and consider its choice of
inflation rates and provide more transparency; and 4) that the effect of the change in the
District's pension plan be incorporated into the District's rate model and the District Rate
Change Proposal be adjusted as appropriate.
RATE COMMISSION RECOMMENDATIONS
The Rate Commission, after consideration of all facts and circumstances disclosed in
these Proceedings, finds and determines that a Rafe Change Proposal which (i) uses cash flow
financing for the C[RP, (ii) structures debt amortization on an interest only basis, (iii) reflects
some decrease in the inflation rates for operation and maintenance expenses, (iv) does not
include the utilization of a 3% annual increase for wages, salaries and overtime, and (v) reflects
the change from the defined benefit to a defined contribution plan imposes a fair and reasonable
burden on all classes of ratepayers.
The following data from Attachment A to the Report reflects the effect of most of these
changes on the rate:4
Fiscal Rate L&13
Year Report 1,2,3&4
Revenue Increases (Table 3-11)
2012 4.3% 4.3%
2013 11.0% 7.5%
2014 12.0% 9.2%
2015 12.0% 10.3%
2016 12.0% 12.3%
+ These numbers do not include the impact of Rate Commission's recommendation that there be
some decrease in the inflation rates used to calculate operation and maintenance costs.
37
Rate Increases (Table 5-6 for 8Ccf/month)
2012 4.2% 4.2%
2013 12.7% 9.3%
2014 13.4% 11.0%
2015 13.2% 11.4%
2016 13.2% 13.2%
'typical Residential Bills (Table 5-6 for
8Ccf/month)
2012 $28.73 $28.73
2013 $32.37 $31.39
2014 $36.71 $34.85
2015 $41.56 $38.81
2016 $47.05 $43.93
Change in Residential Bills from Rate
Report ("fable 5-6 for 8Ccflmonth)
2012 $0.00 $0.00
2013 $0.00 ($0.98)
2014 $0.00 ($1.86)
2015 $0.00 ($2.75)
20I6 $0.00 ($3.12)
CRITERIA FOR RECOMMENDATION
The Rate Commission is to review and make recommendations to the Board regarding
proposed changes in wastewater, stormwater or tax rates necessary to pay (i) interest and
principal falling due on bonds issued to finance assets of the District; (ii) the costs of operation
and maintenance; and (iii) such amounts as may be required to cover emergencies and
anticipated delinquencies. See Charter Plan, § 7.040.
38
First Criteria: Whether the Rate Change Proposal is necessary to pay interest and
principal falling due on bonds issued to finance assets of the District?
The Rate Change Proposal presents the District's proposed use ❑f $945,000,000 in bond
financing and $171,000,000 in cash financing to fund its Capital Improvement and Repairs
Program (CIRP) through FY2016 to provide the funds needed to comply with regulatory
requirements relating to deficiencies in the District's wastewater system, including sewers, pump
stations, and treatment plants, and to satisfy the requirements of the Consent Decree.5
The District proposes to finance the required capital improvements by a combination of
wastewater user charge revenues, available fund balances, revenue bond proceeds, Missouri
Clean Water State Revolving Fund loan proceeds, potential commercial paper proceeds, grants
and contributions, other operating revenues, and interest income. See Table 3-9, Ex. MSD 1,
Rate Change Proposal.
The use of $945,000,000 ❑f additional debt will increase the District's total outstanding
debt to $1,720,000,000. The District expects to continue using debt as the major component of
CIRP funding until debt financing is no longer financially prudent. See Ex. MSD 9E, Tyminski
Direct Testimony, p. 3, IL 8-14.
Utilization of debt financing allows the District to fund large near term capital
improvements while moderating the rate increases imposed on customers. In contrast, use of
$ The Rate Change Proposal relies upon certain assumptions with respect to conditions, events,
and circumstances that may occur in the future. Although considered reasonable, some of these
anticipated conditions, events and circumstances may not occur resulting in potential differences
in revenues and costs than currently projected. For example, lower revenues could result from a
greater decrease in the customer base than currently anticipated while higher than anticipated
inflation rates would place upward pressure on operation and maintenance costs. Sec Ex. MSD
1, Rate Change Proposal, § 1.2.
39
cash financing would require significantly higher rate increases through FY 2016. See Id., p. 3,
11. 22-24; p. 4, II. 1-2.
By debt financing a portion of the major capital improvements that are of a nom -recurring
nature, the financing burden is appropriately shared by both present and future users of the
facilities who will benefit from the improvements. For those capital improvements that tend to
be routinely incurred each year for normal replacements (i.e., extensions and minor
improvements), these costs are reasonably financed annually from current wastewater service
revenue. See Ex. MSD 1, Rate Change Proposal, § 3.5.4.
The Rate Change Proposal provides summary calculations and conclusions underlying
the bond funding proposal in the Rate Model Tables provided as Exhibit MSD 4 and Exhibit
MSD 5 and detailed calculations used within the Rate Model as Exhibit MSD 4A,
Routine capital improvements to be financed as capital outlay costs (500 accounts) are
projected to increase from $2,387,600 in 2011 to $2,770,900 in 2016. The District used an
annual rate of inflation of 3%. See Ex. MSD 1, Rate Change Proposal, § 3.5.2. The Wastewater
Plant Investment and Other Capital Costs are as follows: Collection System - $1,213,469,000;
Treatment Facilities - $746,780,000. See Ex. MSD 1, Rate Change Proposal, Table 3-13.
In order to finance the major capital improvements scheduled for 2013 through 2016, the
District seeks to issue revenue bonds in the total aggregate amount of $805,000.000 and
additional Missouri Clean Water State Revolving Fund loans in the total aggregate amount of
$140,000,000 to avoid larger wastewater rate increases on a cash financed basis. See Ex. MSD
1, Rate Change Proposal, § 3.5.4.
Charter Requirements
The Charter Plan authorizes the use of debt financing in order:
40
* * *
To provide for the bon -owing of money in anticipation of the collection of taxes
and revenues for the fiscal year. The amount of such loans shall at no time
exceed ninety per cent of the estimated collectible taxes and revenues for the year
yet uncollected.
To meet the cost of acquiring, constructing, improving, or extending all or any
part of the sewer or drainage systems: (a) through the expenditure of any funds
available liar that purpose; (b) through the issuance of bonds for that purpose.
payable from taxes to be levied and collected by the District; (c) through the
issuance of bonds for that purpose, payable from special benefit assessments
levied and collected by the District; (d) from the proceeds of special benefit
assessments or bills evidencing such assessments; (e) from any other funds which
may be obtained under any law of the state or of the United States for that
purpose; (f) from the proceeds of revenue bonds, payable from the revenues to be
derived from the operation of sewerage and drainage facilities and systems of the
entire District - - . as may be set forth in propositions submitted at elections in the
District . . . from time to time called and held to authorize the issuance of such
revenue bonds; or (g) from any combination of any or all such methods of
providing funds.
* * *
See Charter Plan, §§ 3.020 (14) and (15) (emphasis added).
The District's authority to issue general obligation or revenue bonds requires the
approval of the voters of the District. Specifically, the Charter Plan provides:
No general obligation bonds, except bonds for refunding, advance refunding,
extending, or unifying the whole or any part of valid bonded indebtedness, shall
be issued without the assent of the voters of the District . . . in the number
required by Article VI, § 26(b) of the Constitution of Missouri (as amended from
time to time), voting at an election to be held for that purpose. No revenue bonds
payable from the revenues to be derived from the operation of any or all sewer
and drainage systems and facilities of the District . . . except bonds for refunding,
advance refunding, extending, or unifying the whole or any part of revenue
bonds, shall be issued without the assent of a simple majority of the voters of the
District . . . voting at an election to be held for that purpose. Notwithstanding
anything herein to the contrary, the District is expressly authorized to issue
District -wide general obligation and revenue bonds.
41
See Charter Plan, § 7.170. Thus, under the Charter Plan, the District may issue general
obligation bonds or revenue bonds only upon assent of the voters and in the case of general
obligation bonds, upon the majority described in Article V1, § 26(b) of the Missouri
Constitution.
Subject to these restrictions, the District has the authority to incur debt. The Missouri
Supreme Court has expressly recognized this authority, stating, "The other powers objected to,
namely, . . . incurring debts, . . . issuance of tax anticipation warrants, . . . and issuance of bonds,
. . . are essential powers of such district." State on inf. Dalton v. Metro. St. Louis Sewer Dist..
275 S.W.2d 225, 231 (Mo. 1955) (en bane). The court continued, "Mahout the power to incur
debts and issue bonds, adequate drains, sewers and disposal plants could not be constructed.
However, in the exercise of this power, the District is subject to the financial limitations imposed
by the Constitution on all government subdivisions." Id.
General Obligation Bonds
Both the Charter Plan and the Missouri Constitution provide that the District may not
issue general obligation bonds in an amount that, together with the existing indebtedness of the
District, exceeds five percent of the value of taxable, tangible property in the District. The
District is comprised of all of the City of St. Louis and a substantial portion of the County of St.
Louis.
According to the Collector's Office of St. Louis County, the assessed valuation of
taxable, tangible property in the District in St. Louis County as of July 1, 2011, is approximately
$22.9 billion. See Ex. L&B 104. St. Louis County Assessment Roll. The Deputy Assessor in St.
Louis City has certified that as at June 24, 2011, the assessed valuation of taxable, tangible
property in the City of St. Louis is approximately $4.6 billion. See Ex. L&B 105. City of St.
42
Louis Total Assessment Values. Five percent of the value of taxable, tangible property in the
District is approximately $1,375,000,000. Thus, under the Charter Plan and the Missouri
Constitution, the District may not issue general obligation bonds in an amount that together with
the existing indebtedness of the District exceeds $1,375,000,000. The District has no general
obligation bonds currently outstanding, and the Rate Change Proposal does not seek
authorization for the issuance of general obligation bonds.
Outstanding Revenue Bonds
The Missouri Constitution and Charter Plan limitations on the level of general obligation
bonds do not expressly apply to revenue bonds. Revenue bonds do not rely upon the general
credit or tax money of the sovereign and they are not indebtedness within the limitations of the
Missouri Constitution. Under the authority of Mo. Rev. Stat. § 250.120.1 (2000), once the voters
have approved revenue bonds, the District has authority to raise wastewater and stormwater rates
to pay principal and interest on the bonds and to meet the costs of maintenance and operation of
the facilities.
On April 22, 2004, the Board of Trustees issued revenue bonds under the terms of a
Master Bond Ordinance.
Section 6.1 of the Bond Ordinance (Ex. MSD 11K) requires the District to operate the
System on a revenue producing basis and at all times to prescribe, fix, maintain, and collect rates,
fees, and other charges for the services, facilities, and commodities furnished by the System fully
sufficient at all times to pay annual operation and maintenance expense, provide a reasonable
operating reserve, produce net revenues in each fiscal year equal to at least 1.25 times the Debt
Service Requirement on all Senior Bonds currently outstanding and 1.15 times the Debt Service
Requirement on all Bonds then outstanding and accumulate sufficient funds to meet the costs of
43
major renewals, replacements, repairs, additions, betterments, and improvements to the System
to keep it in good working condition. In addition, Section 3.020(16) of the Charter requires the
District to establish fair and reasonable schedules of charges and Section 7.130 of the Charter
requires a balanced budget.
Supplemental Bond Ordinances authorized by the Board of Trustees relating to additional
revenue bond issues include the same covenants. See Exs. MSD 11L through 11V, Bond
Ordinances., and Ex. MSD 11B, Response to First Discovery Request of Rate Commission.
Question 3.
The District has currently outstanding $682.980,70(} of the $775,000,000 in revenue
bonds previously authorized by the voters of the District. The District intends to issue the
balance of the authorized revenue bonds by 2012. The District's debt service requirements on
currently outstanding debt are included in the District's revenue requirements. See Ex. MSD 1.
Rate Change Proposal, § 3.5.5.
Principal and interest payments on existing revenue bonds are repaid by annual
wastewater system revenue as required by the bond covenants. The projected level of net
wastewater revenues (wastewater revenue less operation and maintenance expense) decreases
from about 4.2 times the 2011 annual debt service obligation on wastewater revenue bonds to
about 2.4 times the 2015 annual debt service obligation_ This significant decrease in debt service
coverage is due to increases in net wastewater revenues being exceeded by annual increases in
debt service costs. This coverage level exceeds the 1.25 minimum requirement required by the
District's bond covenants. See Ex. MSD 9F, Keith Barber Direct Testimony, p. 19, 11.2-10.
Moody's assigned a credit rating of Aa2 to the District's revenue bond obligations on
(date unknown, presumably January 2010). See Ex. MSD 16M, Moody's Credit Rating Report.
44
Fitch Ratings assigned a rating of AA+ on January 6, 2010 to the District's revenue bond
obligations. See Ex. MSD 16N, Fitch Credit Rating Report. Standard & Poor's assigned a rating
of AA+ on January 1 1, 2010 to the District's revenue bond obligations. See Ex. MSD 16L, S&P
Credit Rating Report. In each case, the rating agency reviewed the District's financial operations
by considering the various coverage ratios. In each case, the District's results exceeded the
coverage required by the Master Bond Ordinance and the Fitch reported medians.
The Missouri Supreme Court has specifically held that the issuer of revenue bonds for the
operation and maintenance of a sewage system had the authority to raise water and sewage rates,
not only to pay principal and interest in revenue bonds issued for the purpose of construction of a
water treatment plant and water transmission lines, but also to meet the cost of maintenance and
operation of the physical plan itself. See Oswald v. City of Blue Springs, 635 S.W.2d 332 (Mo.
1982) (en bane) at 333-34. Moreover, once the voters have approved the bonds, such increases
may be made without again submitting the increase to the voters. Id. at 334.
Under Oswald, approval of the Rate Change Proposal (Ex. MSD 1) is not required to
meet existing bond covenant requirements on revenue bonds previously authorized by the voters.
See also Ex. MSD 11B, Response to First Discovery Request of Rate Commission, Question 27.
Proposed Revenue Bonds
The Rate Change Proposal is designed to generate debt service coverages for proposed
revenue bonds consistent with rating agencies' expectations for "AA" rated large metropolitan
wastewater systems. In addition, the District is seeking to maintain a strong liquidity position.
See Ex. MSD 9E, Karl Tyminski Direct Testimony, p. 4, II. 13-19.
Debt financing, while more expensive than cash funding because of the interest
component of the annual debt service payment, allows for a reasonable alignment of costs across
45
generations, i.e., more of those benefiting from or using the asset pay the cost. In addition to
improving equity between generations of ratepayers, debt funding may allow for the construction
of assets sooner than would occur if all of the cash had to he accumulated before beginning
construction. See the Water Environmental Federation (WEF) Manual of Practice No. 27 titled
"Financing and Charges for Wastewater Systems," p. 60.
The District Rate Change Proposal for wastewater rates includes rate adjustments in each
of the next four fiscal years, but significantly less than those that would result in a Pay -As -You -
Go basis. Specifically, the Proposed Rate Change over the next four years will produce
increases in a typical residential bill of approximately 13% in each fiscal year.
All parties concur with the District Rate Change Proposal to seek authorization from the
voters within the District to issue bonds to finance the CIRP during the period FY 2013 through
FY 2016.
Proposed revenue bond issues will he governed by supplemental bond ordinances
incorporating the bond covenants set forth in the Master Bond Ordinance.
Proposed revenue bonds are assumed to have 30 -year maturities and an annual interest
rate of 5.5% for fiscal years 2011 [sic] through 2016. Issuance costs are estimated to be 1.4% of
the principal amount and the anticipated bond reserve requirement is assumed to be equal to the
maximum annual principal and interest payment. See Ex. MSD 9F, Keith Barber Direct
Testimony, p. 19, 11. 13-23: p. 20, 11. 1-2.
Any commercial paper obligations are assumed to have an annual interest rate of 5.0%
and an issuance cost of $25,000 per issue. Commercial paper obligations, however, are not
expected to be issued. See Id., p. 1 9,11. 13-23; p. 20, II. 1-2.
4(
Missouri State Revolving Fund
The "Missouri Clean Water Law" is designed to meet the requirements of the Federal
Clean Water Act of 1987 (the "Act"). 33 U.S.C. §§ 125-1376. See Mo. Rev. Stat. § 644.011
(2000). It also establishes the Missouri Clean Water Commission (the "Commission"), which is
required to adopt rules and regulations to enforce the powers and duties of Chapter 644 and the
Act. Mo. Rev. Stat. §§ 644.021, 644.026 (2000). The Missouri Code of State Regulations sets
forth the general requirements for the implementation of Title V1 of the Act, which authorizes
the administrator of the Environmental Protection Agency (the "EPA") to make capitalization
grants to states to fund financial assistance programs authorized by Title VI of the Act. See 10
CSR 20-4.021.
The Missouri State Revolving Fund Program is a partnership between the EPA and the
Missouri Department of Natural Resources (the "Department"), and provides subsidized low
interest rate loans to qualifying applicants.
In Missouri, the Clean Water State Revolving Fund Program ("SRF") consists of the
Water and Wastewater Loan Fund ("WWLF") and the Water and Wastewater Revolving Loan
Fund ("WWRLF") and those accounts secured by funds from the WWLF and the WWRLF. 10
CSR 20-4.040(2)(P). The SRF is subject to the requirements, restrictions, and eligibilities placed
on the SRF by the Act. Id. The SRF also funds the State Direct Loan Program ("Direct
Loans"). 10 CSR 20-4.041.
The Department may make Direct Loans by purchasing the general obligation bonds,
revenue bonds, short-term notes or other acceptable obligations of any qualified applicant for the
planning, design, and/or construction of an eligible project. 10 CSR 20-4.041(1). These loans
shall not exceed the total eligible project cost. Id.
47
Direct Loans are funded from SRF loan repayments of federal capitalization grants. 10
CSR 20-4.041(3). The Department purchases the revenue bonds, general obligation bonds, or
other acceptable debt obligations from the recipient no later than six months following the initial
operation of the facilities constructed by the project or by the closing deadline contained in the
construction loan agreement, whichever is earlier. 10 CSR 20-4.041(8). In addition, the
Department may require the recipient to include those assurances and clauses in the loan
agreements and bond resolutions as deemed necessary to protect the interest of the state. Id.
Under the Direct Loan Program, the bonds, notes or other debt obligations shall be fully
amortized in no more than 20 years after initiation of operation and the payment frequency shall
be no less than annual with the first payment no later than one year alter the initiation of
operation. 10 CSR 20-4.041(9). Repayment of principal shall begin no later than one year after
initiation of operation and if at any time during the loan period the facility financed through a
Direct Loan is sold, either outright or on contract for deed, to an entity other than a political
subdivision of the state, the loan becomes due and payable upon transfer. Id.
The Fiscal Year 2012 Clean Water State Revolving Fund Intended Use Plan for the
Missouri SRF Program has been approved. See Ex. MSD I 1 W. The Clean Water SRF Loan
section defines the terms for the SRF program. While the Federal government has reduced the
funding for all SRF state programs, the District anticipates receiving a $25 to $35 million share
of Missouri SRF funds on an annual basis. See Ex. MSD 1 1 B, Response to First Discovery
Request of Rate Commission, Question 7.
Proposed SRF loans are assumed to have an interest/administration fee of 2.5% with 20
year maturities. Issuance costs are estimated to be 0.65% of the principal amount. See Ex. MSD
9F, Barber Direct Testimony, p. 19, II. 13-23: p. 20, I1. 1-2.
48
A copy of the June 15, 2011 drafi of the Black & Veatch Feasibility Report is provided as
Exhibit MSD 18Y. The most recent due diligence questionnaire from the Missouri Department
of Natural Resources is provided as Exhibit MSD i 8A2. Question III of the Exhibit details the
use of funds from a direct SRF Loan. There is a fixed and a variable cost component. Footnote
(3) of Question III requires that 0.6% applies fund program cost. The fee of bond counsel is 5.85
per $5,000 bond. Financial advisory fees are fixed at $15,000 and out-of-pocket expenses are set
at $1,000. On a $35,000,00(1 issue this would breakdown as follows: Program cost $210,000,
bond counsel $5,950, financial advisor $15,000 and out of pocket $1,000. These costs total
$231,95(1 or .66%. The $15,000 financial advisory fee is negotiable and may range from $10,000
to $25,000, depending on the complexity of the transaction. See Ex. MSD 18A, Response to
Second Discovery Request of Rate Commission, Question 17(c).
Effect on District Rate Change Proposal
It is the District's position that a 13% annual increase(' in the proposed rate change is
necessary to reflect:
• the level of cash balances and resulting bond coverage ratios required through FY2016 to
minimize a possible deterioration in the District's bond rating,
• the generation of sufficient revenue to fund the CIRP required to address the Consent
Decree, and
• the District's debt service obligations.
The District's senior lien bond debt service coverage is projected at 2.34 in FY2016
while total debt service coverage is projected at 1.66. Pledged revenues for fiscal year 2016 will
provide 1.92 coverage of projected maximum senior lien debt service and 1.40 coverage of
The actual schedule of projected rates is included on page 31 of this Report.
49
projected maximum total debt service. See Ex. MSD 9E, Karl Tyminski Direct Testimony, p. 2,
11. 8-23. The District has projected ratios for minimum projected debt service coverage on senior
lien debt of 2.3 and on all outstanding debt of I.6. See Ex. MSD 1, Rate Change Proposal,
Tables 3-11. See also Ex. MSD 1 I B, Response to First Discovery Request of Rate Commission,
Question 2.
Minimum debt service coverage on senior and junior lien bonds is projected to be 2.20
and 1.50, respectively. This compares to bond covenant minimum debt service requirements of
1.25 and 1.15 above net annual revenues respectively. See Ex. MSD 1 I B, Response to First
Discovery Request of Rate Commission, Question 2; and Ex. MSD 11K, Master Bond
Ordinance. § 6.1.
A minimum level of net revenues, is also required to comply with the Maximum Annual
Debt Service Requirement (additional bonds test) and Debt Service Requirement (annual rate
covenant debt service coverage). See Ex. MSD II K, Master Bond Ordinance, §§ 5.3.1 and 6.1.2
respectively. The District's projections to meet the minimum debt service requirements in 2016
require net revenues to he at least $130,808,000 for the additional bonds test on total debt and
$119,825,000 for the annual rate covenant debt service requirement. Net revenue for 2016 under
the 2012 proposed rates, however, is only $51,324,500. Part of the Rate Change Proposal is
required to meet minimum debt service coverage requirements. See Ex. MSD 11B, Response to
First Discovery Request of Rate Commission, Question 27.
The level of cash balances and bond coverage ratios reflected in the Rate Change
Proposal are based on guidance provided by PFM, the District's bond financial advisory firm.
The District's debt service obligations are determined by existing bond ordinances and future use
50
of debt based on the structure of these ordinances. See Ex. MSD 18A, Response to Second
Discovery Request of Rate Commission, Question 9.
Fitch publishes annually a report that discusses a comprehensive list of metrics related to
financial performance, debt security and debt burden. By definition, the median statistic
indicates that half of the credit population has statistics higher than the metric and half of the
credit population has statistics lower than the metric. The senior lien debt coverage metric is 2.3
times for "AA" credits and 2,6 times for "AAA" credits. All -in coverage is I.9 times for "AA"
credits and 2.1 times for "AAA" credits. Additional bonds tests are generally not considered a
metric but the District's 2004 Master Resolution requires 1.25 times maximum debt service for
senior lien bonds, and 1.15 times, levels considered adequate, but must be viewed in the context
of other credit metrics. See Ex. MSD 67A, Response to MIEC Data Request, Request # 5-3.
The District's coverage ratios generally exceed the medians contained in the January 18,
2011 Fitch 2001 Water and Wastewater Medians.
Coverage and Financial Performance/Cush and Balance Ear WL Midwest Northeast Southeast Southwest All
Sheet Considerations C'redils
Three -Year Historical Average Senior Lien ADS Coverage 3.0 2.7 2,0 13 3.0 2.7
Senior Lien ADS Coverage 2.8 2.0 1.7 2.0 2? 2.1
Minimum Projected Senior Lien ADS Coverage I.9 2-0 1.8 l.7 19 1.8
Threw -Year I historical Average All -1n ADS Coverage 2.7 2.0 1.4 2.1 13 2.3
All -In ADS Coverage 1.8 1.3 1.3 I.7 1,8 1.7
Minimum Projected All -1n ADS Coverage 1,6 1.3 1.3 1.5 1.5 1.5
Days Cash on Hand 339 52 236 357 289 328
Days of Working Capital 397 160 150 3(12 322 331
See Ex. MSD 11C, Fitch Ratings, Appendix C.
Rating Category
Coverage and iH innndal Performance/Cash and Balance Sheet AAA AA A All Credits
Considerations
Tlirce-Year t-listorical Average Senior Lien ADS Coverage 3.1 2.7 2.0 2.7
Senior risen ADS Coverage 2.6 2.3 1.8 2.3
51
Minimum Projected Senior Lien ADS Coverage 2.0 1.8 1.5 1.8
Three -Year h istorical Average All -1n ADS Coverage 2.( 2.3 2.0 2.3
All -In ADS Coverage 2.1 1.9 1.8 1.9
Minimum Projected All -1n ADS Coverage 1.8 1.5 1.5 1.5
Days Cash on }land 625 292 231 328
Days of Working Capital 532 330 123 331
See Ex. MSD 11C, Fitch Ratings, Appendix F.
By the end of fiscal year 2012, the District intends to have issued all of its current debt
authorization of $775,000.000 in revenue bonds. Cumulative cash financing will be
approximately $824,500,000 for a total capital improvement related expenditure of
$1,599,500,000 and a resulting cumulative debt financing percentage of 48.5% of total capital
financing. Future cumulative debt financing percentages are calculated by adding Lines 2, 3. and
4 of Table 3-9 to prior cumulative debt and dividing by the sum of total application of funds,
Line 13 of Table 3-9 and prior cumulative capital expenditures. The projected debt financing
percentages during fiscal years ending June 30, 2013 — 2016 are 55.9%, 60.8%, 63.5% and
64.1%, respectively. See Ex. MSD 1, Rate Change Proposal, Table 3-9.
The District's outstanding debt at the end of FY2012 is expected to he $775,000,000.
The issuance of an additional $945.000,000 wilt result in an outstanding total debt of
$1,720,000,000. The additional $945,000,000 will then represent 55% of the total outstanding
debt. The annual debt service requirement resulting from existing and proposed debt is expected
to increase from $38.404.300 in 2011 to $111,467,300 in 2016. See Ex. MSD 1, Rate Change
Proposal, § 3.5.5 and Table 3-10.
The percentages of Capital Improvement Projects expected to be debt financed as
reported in the Fitch 201 l Water and Wastewater Medians are:
52
West
Midwest
Northeast
Southeast
Southwest
All Credits
37%
78%
50%
60%
46%
49%
See Ex. MSD 11C, Fitch Ratin,s, Appendix C.
Rating C'ategoiy
Capital Demands and Debt Policies
Total Outstanding Long -Term Debt Per Customer
Total Outstanding Long -Perm Debt Per Capita
Projected Debt Per Customer— Year Five
AAA AA
1,223
375
1,524
1,502
410
1,831)
A
7,341
563
2,175
All Credits
1,527
425
1,877
Projected Debt Per Capita - Year Five 471 532 599 531
See Ex. MSD 11C, Fitch Ratings, Appendix F.
The Rate Consultant testified that the District's coverage ratios generally exceed the
medians contained in the January 18, 2011 Fitch 2001 Water and Wastewater Medians. The
District has projected ratios for debt service coverage on senior lien debt of 2.54 and on all
outstanding debt of 1.66 for the four year period. The District's outstanding debt at the end of
FY 2012 is expected to be $775,000,000. The issuance of an additional $945,000,000 will result
in an outstanding total debt of $ I,720,000,000. The additional debt will then represent 55% of
the total outstanding debt. The annual debt service requirement resulting from existing and
proposed debt is expected to increase from $38,404,300 in 2011 to $11I,467,300 in 2016. See
Ex. MSD I, Rate Change Proposal, § 3.5.5 and Table 3-10.
The Rate Consultant believes that the relative proportion of debt and cash financing of
the C1RP proposed by the District is reasonable. The District's annual revenue requirements to
be met by its rate revenues include operation and maintenance expenses, debt service, cash
financing of the C'IRP and contributions to fund balances. The debt service coverage generated
by the District will be used for cash financing of the CIRP and the contributions to fund
balances. As such, a reduction in bonds to be issued for finding the CIRP will result in an
53
increase in the annual cash financing required and increase the required rate increases.
Increasing the amount of bonds issued to finance the CIRP will reduce the cash financing
requirement but increase the annual debt service and the coverage levels necessary to be
generated, which would exceed the cash needed to fund the CIRP and the contributions needed
for fund balances.
It is Intervenor MIEC's position that municipal bond market spreads relative to Treasury
bonds have been large since the financial market turmoil that occurred in 2008 and that Treasury
bond interest rates are forecasted to increase relative to current rates. MIEC states that such
increase in Treasury bond rates; however, will likely reflect a recovery in the economy with a
normalization of yield spreads between Treasury bonds and municipal bonds. it is further
MIEC's position that while Treasury bond interest rates may increase, the municipal bond yield
spread will likely contract and yields will either hold steady or possibly decline. See Ex_ MIEC
63, Surrehutlal Testimony of Michael P. Gorman. p. 7, I1. 17-22; p. 8, 11. 1-3.
Cash Financing
In the event that the voters of the District do not approve bond financing for a portion of
the CIRP, the District proposes cash financing in order to comply with the terms of the Consent
Decree. The financial analysis supporting the development of the alternative cash financing rate
is contained in Tables G-1 through K-10 in Ex. MSD 18Z. These tables correspond to the same
tables in Ex. MSD 4A for a bond financed CIRP.
The Rate Commission, after consideration of all of the facts and circumstances
disclosed in these Proceedings, finds and determines that the Proposed Rate Change to
fund the CIRP with a combination of bond and cash financing provides for the funds
necessary to pay principal and interest falling due on the 5775,000,000 revenue bonds
54
previously issued, and funds necessary to pay the principal and interest falling due on the
$945,000,000 revenue bond issues proposed to be issued to finance the CIRP.
Alternatively, if voter approval is not obtained for future bond financing, the Rate
Commission, after consideration of all of the facts and circumstances described in these
Proceedings, finds and determines that the record in these Proceedings supports a finding
that funding the CIRP through cash basis financing will provide funds necessary to pay the
principal and interest falling due on the $775,000,000 revenue bond issue authorized in
prior proceedings to finance the CIRP.
55
Second Criteria: Whether the Rate Change Proposal provides the funds necessary
to pay the costs of operation and maintenance?
The Rate Change Proposal presents the District's proposed use of $945,000,000 in bond
financing and $171,000,000 in cash financing to fluid its C1RP through FY 2016 to provide the
funds needed to comply with regulatory requirements relating to deficiencies in the District's
wastewater system including sewers, pump stations and treatment plants and to satisfy the
requirements of the Consent Decree.
The District proposes to finance the required capital improvements by a combination of
wastewater user charge revenues, available fund balances, revenue bond proceeds. Missouri
Clean Water State Revolving Fund loan proceeds, potential commercial paper proceeds, grants
and contributions, other operating revenues, and interest income. See Ex. MSD I, Rate Change
Proposal, Table 3-9.
Operation and Maintenance Expense
Estimated incremental operation and maintenance costs are shown on Page D -13a of
Exhibit MSD 4 and are segmented by estimated costs for additional personal services, supplies.
utilities, and contractual services. Costs for projects included in the time period covered by the
Rate Change Proposal include costs to operate and maintain new disinfection facilities as well as
secondary treatment expansion at the Missouri River treatment plant. These costs were inflated
to projected cost levels based on inflation factors presented on Page 2-3 of Exhibit MSD 1 to
The Rate Change Proposal relies upon certain assumptions with respect to conditions, events,
and circumstances that may occur in the future. Although considered reasonable, some of these
anticipated conditions, events and circumstances may not occur resulting in potential differences
in revenues and costs than currently projected. For example, lower revenues could result from a
greater decrease in the customer base than currently anticipated while higher than anticipated
inflation rates would place upward pressure on operation and maintenance costs. See Ex. MSD
I. Rate Change Proposal, § 1.2.
56
derive costs shown on Page D-30 of Exhibit MSD 4 and on Line 20 in Table 2-1 of Exhibit MSD
I. See Ex. MSD 11B, Response to First Discovery Request of Rate Commission, Question 18.
Wastewater revenue requirements include (1) total wastewater related operation and
maintenance expenses; (2) expenditures for routine and major capital improvements met directly
from wastewater revenues; (3) total wastewater system debt service (consisting of principal and
interest payments); and (4) provision for an adequate operating reserve. See Ex. MSD 9F, Direct
Testimony of Keith D. Barber, p. 13, 11. 11-14.
On April 22, 2004, the Board of Trustees issued revenue bonds under the terms of a
Master Bond Ordinance which obligated the District to provide revenues sufficient to fund 100%
of the expenses of operation and maintenance and for the accumulation of a reasonable operating
reserve. See Ex. MSD 11K, Master Bond Ordinance, § 6.1.1. The total cumulative increase in
normal operation and maintenance expense over the 2012 expense amount is $23,337,800 (Ex.
MSD 1, Rate Change Proposal, Table 3-1 I, Line 16). The total increase in operation and
maintenance expense during the same period for additional expenses related to proposed
regulatory related facilities is $17,698,800 (Ex. MSD 1, Rate Change Proposal, Table 3-11, Line
17) for a total increase of $40,675,600. This amount exceeds the $36,233,300 of additional
revenue provided by the currently approved wastewater rates without allowing for additional
operating reserve deposits. The District asserts that Rate Change Proposal will he required to
meet increased operation and maintenance expenses. See Ex. MSD 11B, Response to First
Discovery Request of Rate Commission, Question 27.
Table 3-11 shows the additional revenue required to meet total wastewater revenue
requirements. Specific wastewater rate increases may vary by individual charge components.
When applied to their respective units of service, the revenue produced by the proposed
57
wastewater rates will achieve the necessary average increase in total system revenue. See Ex.
MSD 9F, Direct Testimony of Keith D. Barber, p. 22, 11.3-18.
The proposed wastewater revenue increases will produce increases in a typical residential
bill of approximately 13% in each of fiscal years 2013 through 2016. These increases will meet
all annual operating requirements and provide cash financing of major capital improvements
ranging from about $32 to $56 million per year. See Id., p. 22. 11. 3-18.
Cost increases due to inflation for the District's wastewater revenue projections are based
on the following annual percentage increases:
Wages, Salaries and Overtime 2011-2016 3.0%
Personnel Services and Benefits 2011 3.5%
2012-20I6 3.0%
Group Insurance 2011-2015 10%
2016 6.0%
Supplies, including Chemicals 2011 3.5%
2012-2016 3%
Electric and Gas 2011-2012 3.5%
2013 3%
2014-2016 5.5%
Contractual Services 2011-2012 3.5%
2013 3%
2014-2016 4,5%
Bond and Liability Insurance 2011-2016 5%
Capital Outlay 2011-2012 3.5%
2013-2016 3.0%
Pension 2011 8.4%
2012 9.3%
2013 10.2%
Except group insurance and pension.
58
2014
2015-2016
11.4%
5.0%
The District asserts that these future inflation allowances are consistent with prior
inflation rates experienced by the District and the overall long-term Consumer Price Index for
Urban Consumers. See Ex. MSD 9F, Direct Testimony of Keith D. Barber, p. 14, Il. 20-23; p.
15, 11. 1-11.
The Rate Change Proposal presents a comparison of the projected cost impact on typical
residential customers with those of other wastewater utilities. See Ex. MSD 1, Rate Change
Proposal, § 5.5. Part of the cost impact is attributed to the expected influence of price inflation.
See Ex. MSD 1, Rate Change Proposal, Figure 5.1 and Ex. MSD 9F, Direct Testimony of Keith
D. Barber, p. 14, 11. 20-23; p. 15, 11. 1-11. According to the District, the projected residential
bills are comparable to those of other wastewater utilities. See Ex. MSD 11B, Response to First
Discovery Request of Rate Commission, Question 15; Ex. MSD 4, Rate Model Tables, pages D-
14 through D i 9 and E-14 through E-19); Ex. MSD 4, Rate Model Tables, pages D-2 through D-
7); and Ex. MSD 11B, Response to First Discovery Request of Rate Commission, Question 17.
Projected wastewater operation and maintenance costs are shown in Table 3-7 of the Rate
Change Proposal.`'
The Rate Change Proposal summarizes the projected escalation rates on page 2-3. A
comparison of the projected rates to the District's actual experience over the period of FY 2006
through FY 2010 and it is shown in Exhibit Rate Commission I B. These figures were taken from
Schedule D-7 of Exhibit MSD 4A, however, and differ substantially from the District response to
Question 1(c) of the Rate Commission's Second Discovery Request, Exhibit MSD I SA. See Ex.
LAB 30, Rebuttal Testimony of William a Stannard, p. 13, 11. 3-25; p. 14, 11. 1-i 1.
59
Personnel Costs
Personnel services and benefits and group insurance on a combined basis increased at a
rate of .98% in FY 2006 through FY 2010, but the District is projecting an increase at a rate of
4.56% to 6.52% over their forecast period. This increase appears to be in part due to Other Post -
Employment Benefit expenses, which are being escalated by 10% a year, though that escalation
rate is not listed on page 2-3 of the Rate Change Proposal, Exhibit MSD I. The escalation rate
does appear to be shown in the summary of inflation factors in rows 13 through 31 of the Waste
Water Operation and Maintenance worksheet in Exhibit MSD 4a, but does not correctly
reference the 130 code used for this item later in the same exhibit. Rather, it is included with the
122 coded Group Insurance in the summary. See Ex. L&B 30, Rebuttal Testimony of William
G. Stannard, p. 13, 11. 3-25; p. 14, 11. 1-1 I .
The Response to the Rate Commission's Second Discovery Request. Exhibit MSD 18A,
states the 2011 Operating Budget was prepared prior to the changes in the District's plan from a
defined benefit to a defined contribution plan and does not reflect the associated impacts. See
Response to Q. 1(e). During the First Technical Conference, Jan Zimmerman testified that the
change in the pension plan was adopted to reduce the District's pension costs. See Ex. MSD 17,
Transcript of June 13, 2011 Technical Conference. The effect of this change in the District
pension plan should be incorporated into the District's rate model and the Rate Change Proposal
adjusted as appropriate. See Ex. L&B 30, Rebuttal Testimony of William G. Stannard, p. 12, 11.
8-20.
The District Rate Change Proposal contemplates pay increases for employees over the
rate period (3% for wages, salaries and overtime). Ex. MSD I, Rate Change Proposal. p. 2-3.
An examination of the agreements with its employees reveals that the District does not have a
60
contractual obligation to increase pay of its employees. Each of the Memoranda of
Understanding (MOLL) with the American Federation of State, County & Municipal Employees,
the Bricklayers, the Electricians, the Operating Engineers, and Machinists, and the United
Wastewater Workers is for a term ending June 30, 2013, providing that (a) incremental pay
increases are not guaranteed; (b) pay increases are subject to changes in the Memorandum of
Understanding; and (c) the District reserves the right to make changes to the pay plan and
incremental pay increases as outlined in Civil Service Rules and Regulations and as directed by
the Board. See Ex. MSD 18C, Memorandum of Understanding between the District and the
American Federation of State, County & Municipal Employees Local 410, Articles XXXV and
XXXVI; Ex. MSD 18D, Bricklayers Local 1 of Missouri, the Electricians Local No. 1, the
International Union of Operating Engineers (Hoisting) Local No. 1 and Machinists District No,
9, Article XXXI, Schedule B -Wage Provisions,; and Ex. MSD 18B, Memorandum of
Understanding between the District and the United Wastewater Workers Association, a division
of Service Employees International Union Local 1, Articles XXXV and XXXVI.
The City of St. Louis and St. Louis County initiated in 2008 mandatory furloughs;
elimination of shift differential pay; reduction of vacation and holiday pay; suspension of across-
the-board pay increases, longevity step increases, and merit pay increases. See Ex. L&B 106,
August 28, 201 I letter of Garry W. Earls, Chief Operating Officer of St. Louis County, and Ex.
L&B 107, August 31, 2011 letter of D. Samuel Dotson, Director of Operations of the City of St.
Louis.
During the same period, the annual salary and wage increases approved by the MSD
Board of Trustees for FY2007 through FY2012 are as follows:
61
FY2007 3.00%
FY2008 4.10%
FY2009 4.00%
FY201 0 4.00%
FY20 l l 0.00%
FY2012 2.50%
See Ex. MSD 62A, Response of Jan Zimmerman to the Rate Commission Third Discovery
Request, Question 4(d). The historical annual percentage increases, 2006 through 2011, for each
expense category requested is provided in the table below:
Expanse
FY03
FY07
FY09
FY09
FY10
5-Yr Avg
Free - Fr SO
Actual
FY11
8!30111
Rele
Proposal
5110111
Rate Proposal
vs
FY11Actual
Weges. Salaries and Overeater
Personnel Services
(wi0 group insurance & pension)
14%
14.1%
4.396
2 4%
7.9%
12.0%
8.3%
9.4%
5.5%
187%.
8.1% (1)
10 7% (2)
•3 0% (3)
-9.9% (4)
3.0%
5.5%
6.0%
3.5%
•a atCrFes ono oYe 5n 5 reR84ls varfae a use of av rne.
(2) 5 year average fn Personnel Services primarily reflects use of temporary he during the 2 year implemertalion of the Oracle Financial System
(3) Decrease in FY11 actual wages. salaries and overtime reflects salary and hiring freeze.
(4) Decrease In FY11 actual personnel services cost reflects the reduction of temporary help associated with the completion of Implementation of the Oracle 5rrencla!
system.
See Ex. MSD 62A, Response of Jan Zimmerman to the Rate Commission Third Discovery
Request, Question 4(a)(i).
Other Expenses and Inflation Rate
The District's projected inflation for electric and gas is noticeably greater than historic
levels. Historically all utilities (which includes water and all other utilities) have increased by
.90% while the District is projecting that gas and electric, which are a majority of all utility costs,
will increase by 3.5% in FY2012, 3.0% in FY2013, and 5.5% in FY20I4 through FY2016. The
District has not provided any reference to planned rate increase from their electric and gas
providers, nor has it provided any information regarding negotiation of longer term electric
power contracts. See Ex_ L&13 30, Rebuttal Testimony of William G. Stannard, p. 13, 11. 3-25; p.
l4, 1I. 1-11.
62
The majority of the District's operation and maintenance expenses consist of a
combination of expenses impacted by more specific inflation indices such as the energy and fuel
components of the Consumer Price Index (CPI), the Producer Price Index (PPI) and construction
and operational supply cost indices published by the Engineering News -Record (ENR). Other
operation and maintenance expenses are primarily impacted by factors other than inflation like
investment market conditions, actuarial traits of the District work force, and short term historical
trends of District actual expenses. The District's operation and maintenance expense inflation
rates are based on a composite of inflation indices specific to the type of cost. The inflation
assumptions used for contractual services, machinery and equipment parts, chemical supplies,
operational construction and building costs and energy costs are based on indices closely related
to these expenses. The actual inflation assumptions used by the District also take into account
short term historical actual cost trends which reflect operational efficiencies and result in
projections lower than the individual inflation indices. These variances represent a conservative
projection of operation and maintenance expenses as these categories represent 46% of the
District's total operation and maintenance projected change. See Ex. MSD 60B, Surrehuttal
Testimony ofJanice M. Zimmerman, p. 2, 1. 23; p. 3, 11. 1-6, 9-16; p. 4, 11. 1-2.
63
Comparison of O&M Int. allot] irldlcolois
❑&M Expenses
liltlalion indices
Rate Proposal
Inflation Rale
Assumption
4-Yr Avg
Inflation
Indices
Variance
pare Atop
vs Indices]
MSD Basis
MIEC
A-Yr Avg
Oasis (1)
Wages. Salaries & C1her !disc
Personnel Costs
2.40%
CPI.0
3.00%
1.64%
1.30%
2010 CPI -U U.S. Bureau or Labor and Statistics March 731 I
Pension Plan teals
2.40%
CPI•U
7 20%
7.90%
0.00%
Short -lens Mslcric:rl InvesInrenl Markel Conduit -ins
Projected Staff Actuarial Trails
Employee Medical & Dental insure'
2.40%
CPE-U
9.00%
9.00%
0.00%
Picieded Staff Actuarial Traits
Band & Liability Insurance
2.49%
CP1-U
5.00%
5.00%
0.00%
Short-term ltislortcal hieeslrnenl Merkel Conditions
Contractual Services
2.•30%
CPl-U
4.50%
4.50%
0 00%
2010 PPI: 4.5%
Machinery & Equipment Parts
2.40%
CPI -U
3.00%
3.30%
-0.30%
March 2011 ENR Material Cosi Index- 3 3%
Operational CensbucLfon end
Building Supplies
2.49%
CPI -U
3.00%
3.80%
-0.80%
Mardi 2011 ENR Construction & Building Cost hide x: 9.5%
Chemical Suaplies
2.40%
CPI -Li
3.00%
4.50%
-1.50%
2010 PPI. 4.546
General Supplies
2.40%
CPI -U
3.00%
1.64%.
1.36%
2010 CPI -U U.S- Bureau of Leber and Statistics Match 7011
Enurgy Ulililios
2.40%
CPI -U
4.70%
7.1001
-2.40%
2010 CPI Energy index fur Si. Louis: 7.1%
Real Property
2.40%
CPt-U
3.00%
1.64%.
1.36%
2010 CPI -U U.B. Bureau Of Labor end Statistics March 2011
Average Imitation Rate
2.40% J
4 46%
4.55%
FUR = F1lair enrrnn Newa-Renard
CPI•U = Consurner Price Index Alt Urban Customers PPE = Producer Price Index
11 j Based on Ole Mayen 10. 2011 Blue Chip rndicerors report
See Ex. MSD 68, Amendment to Janice M. Zimmerman Suirebuttal Testimony, p. 3.
Routine capital improvements to be financed as capital outlay costs (500 accounts) are
projected to increase from $2,387,600 in 2011 to $2,770,900 in 2016. The District used an
annual rate of inflation of 3%. See Ex. MSD I, Rate Change Proposal, § 3.5.2.
The District states that the inflation assumptions used for contractual services, machinery
and equipment parts, chemical supplies, operational construction and building costs and energy
costs are based on indices more closely related to these expenses than the Consumer Price index
(CPI) used by Intervenor MIEC. The District states that several District O&M expenses are
unrelated to inflation and are based on short-term historical trends for investment market
conditions. Further. the District provides that its use of more closely correlated indices and
projections provide a reasonable assumption as to the future O&M inflation expense.
It is Intervenor MIEC's position that the District makes an unsupported assumption (with
no justification at all) that its O&M expense should include an annual base inflation factor of 3%
for routine capital improvements. MIEC asserts that the C i'I is generally the best measure for
64
adjusting payments to consumers when the intent is to allow consumers to purchase at today's
prices, a market basket of goods and services, including housing costs, equivalent to one that
they could purchase in an earlier period.
M1EC asserts that as supported by independent sources, the District's assumption is
overstated and should be reduce to 2.25%. See Ex. MIEC 29, Michael Gorman Rebuttal
Testimony. MIEC states that the total impact from this reduction is a decline in projected O&M
expense levels of approximately $16 million between the period 2012 thorough 2016. Id.
Moreover, MIEC asserts that the District unnecessarily increased the General Counsel expense in
year 2011 through 2016 without adequate justification. MIEC recommends growing the General
Counsel expense at the rate of general inflation, this adjustment further reduces the District's
projected O&M expenses by $G_3 million between 2012 through 2016. Id.
Intervenor BJH proposes that O&M expense should increase by 2.3% each year,
excluding Rate Commission cost, Additional O&M cost, Civil Service Commission cost, and
Group Insurance Cost, all of which should increase the same as proposed in the District Rate
Change Proposal. This assertion is based on the average CPI from FY 2006 -FY 2012 at 2.3%.
See Ex. MSD 18G, MSD Inflation Trend Analysis. In the second year, BJH recommends
lowering the increase to 5% for Other Post Employment Benefit (OPEB) cost and Pension cost,
recognizing that the District has switched from a defined benefit pension plan to a defined
contribution pension plan.
Intervenors AARP and CCM concur with a more reasonable inflation factor of 2.25% as
opposed to 3% used in the District Rate Change Proposal. See Ex. BJH 88, Billie LaConte
Supplemental Testimony; Ex. MIEC 29, Michael Gorman Rebuttal Testimony; and Ex. MIEC
63, Michael Gorman Surrebuttal Testimony. Intervenor Robert Mueller concurs and supports the
65
findings of fact and the recommendations of the other Intervenors. See Ex. RM 114, Prehearing
Conference Report.
It is the Rate Consultant's position the District should review and look closer at its choice
of rates and provide more transparency. The Rate Consultant has not proposed any specific
inflation rate.
Inflation has been defined as a process of continuously rising prices or equivalently, of a
continuously falling value of money. See U.S. Bureau of Labor Statistics (CPI). Various
indexes have been devised to measure different aspects of inflation. The Consumer Price Index
(CPI) measures inflation as experienced by consumers in their day-to-day living expenses; the
Producer Price Index (PP1) measures inflation at earlier stages of the production process: the
Employment Cost Index (ECI) measures it in the labor market; the Bureau of Labor and
Statistics (BLS) International Price Program measures it for imports and exports; and the Gross
Domestic Product Deflator (GDP Deflator) measures inflation experience by both consumers
themselves as well as governments and other institutions providing goods and services to
consumers.
It is Intervenor M1EC's position that the District's CIRP budget should be reduced by
approximately 10% to adjust for the fact that the District's estimates of the CIRP arc highly
uncertain and the current cost projections are not reliable. MIEC points to Mr. Hoelscher's
testimony that, because of the economic conditions, the District received bids for capital work
that "in some cases was 40% below traditional costs." See Ex. MSD 9B. Direct Testimony of
Brian Hoelscher. Therefore, additional funds were available which were used to complete
contingency projects beyond the original program budget. ld_ In light of this situation. MIEC
66
asserts that the District is overstating its budget for projects, sometimes up to 40%. In short,
ratepayers have already paid more for projects that, in actuality, cost much less.
Intervenors AARP and CCM concur with Mr. Gorman's recommended adjustments that
would correct the budgets for the CIRP, which were overstated by approximately 10%. See Ex.
MIEC 89, Michael Gorman Supplemental Testimony.
The Rate Consultant believes that the District should update the District Rate Change
Proposal to reflect the adopted FY 2012 budget as well as include the adjustments to pension
expenses related to the new adopted plan in place of the previous plan. While there is a lack of
clarity in some of the assumptions used by the District for inflation factors, that in itself does not
make them unreasonable. The assumptions used by the District do not appear unreasonable to
the Rate Consultant and are similar to assumptions they have used for similar municipal utility
clients when projecting expenses as part of recent projects_
Routine capital improvement costs are met from annual revenues and are based on a
projection of the capital outlay expenditures budgeted for fiscal year 2011. Historical and
projected routine capital improvement costs on Line 22 in Table 2-1 of the Rate Change
Proposal. Routine capital costs projected for the wastewater utility are found on Line 22 of
Table 3-7 and are approximately 82% of total routine capital costs for FY2013. Other capital
costs met from annual revenues include the cash financed portion of major capital improvements.
These costs are typically based on funds available and the District's desired level of debt
financing. The CIRP anticipates 17.5% of the major capital improvement costs for the six -year
period will be met from annual wastewater revenues on a Pay -As -You -Go basis. See Ex. MSD
I. Rate Change Proposal, Table 3-9; and Ex. MSD 9F, Direct Testimony of Keith a Barber, p.
15,11. 13-23.
67
Available cash fund balances are an important element of a wastewater utility to ensure
adequate working capital and funds for unanticipated events. See Ex. MSD 4A, Schedule G-16.
Schedule G -1[i presents the forecasted fund balance summary. The ❑istrict rate proposal
forecasts that at the end of FY 2016 there will be a balance of $5,018,200 in the Operating Fund
plus $28,414,500 in the Operating Reserve, for a total of $33,432.700. In terms of days of
operation and maintenance expenses, this total is equivalent to about 75 days and a number that
is consistent with the targets of other wastewater utilities and the metrics used by the bond rating
agencies. See Ex. L&B 30, Rebuttal Testimony of William G. Stannard, p. 13.11. 3-25; p. 16, II.
4-11.
Environmental Compliance Charge
The existing system of wastewater charges imposes a uniform charge on all non-
residential customers regardless of the costs involved to monitor their respective facilities. The
proposed system of charges develops proposed charges based on the relative cost to serve five
non-residential customer groups. See Ex. MSD 11B, Response to First Discovery Request of
Rate Commission, Question 1 1 .
Tiered compliance charge customers by facility name are identified on Exhibit MSD
18W. This intirrrnation was developed in response to a request from The St. Louis Council of
Construction Consumers and considered at a June 17, 2011 meeting with Council members. This
list represents all facilities defined as Tier 2 or above. Meeting attendees were informed that
commercial facilities not on the list represent Tier I customers. Approximately 94% of all
commercial facilities monitored by the District's ❑epartment of Environment Compliance are
defined as Tier 1 customers. The information used to determine the allocation of environmental
68
compliance monitoring costs is provided as Exhibit MSD 18X. See Ex. MSD 18A, Response to
Second Discovery Request of Rate Commission, Question 14.
Low Income Assistance Program
The Water Quality Act of 1987 states that:
A system of user charges which imposes a lower charge for low-income
residential users (as defined by the Administrator) shall be deemed to he a user
charge system meeting the requirements of clause (A) of this paragraph if the
administrator determines that such system was adopted after public notice and
hearing.
The District's first low-income rate was adopted by the Board of Trustees in 1993 by Ordinance
9031. The District's current policy defines low-income credit eligibility as residential customers
that qualify for home energy assistance through the state's Division of Family Services. See Ex.
MSD 7, Rate Recommendation Report adopted by the Rate Commission on March 21, 2008, p.
54.
In January 2011, the District expanded its low income program for customers who do not
have the ability to pay their sewer bills to include tenants and multi -unit properties with up to six
units. The Low Income Assistance Program discounts the customer's monthly bill by 50% upon
the payment of the other 50%. There are currently approximately 1,901) customers in the
program. See Ex. MSD 11B, Response to First Discovery Request of Rate Commission,
Question 53.
Expenses related to maintaining the Low -Income Assistance Program are not separately
identified in the Rate Change Proposal (Exhibit MSD 1). The revenue credit expected to he
provided to qualified low-income customers is projected to increase from $360,000 in 2013 to
$579,700 in 2016 (Ex. MSD 4, Rate Model Tables, Page B-14). This estimate includes assistance
69
to low-income multifamily customers that increases from $32,900 in 2013 to $85,900 in 2016.
See Ex. MSD I 1B, Response to First Discovery Request of Rate Commission, Question 54.
Cash Financing
In the event that the voters of the District do not approve bond financing for the CIRP,
the District proposes cash financing in order to comply with the terms of the Consent Decree.
The financial analysis supporting the development of the alternative cash financing rate is
contained in Tables G -1 through K -1[i in Ex. MSD 1SZ. These tables correspond to the same
tables in Ex. MSD 4A fora bond financed C1RP.
The Rate Commission, after consideration of all of the facts and circumstances
disclosed in these Proceedings, finds and determines that the Rate Change Proposal
provides for the funds necessary to pay the costs of operation and maintenance.
70
Third Criteria: Whether the Rate Change Proposal is in such amounts as may he
required to cover emergencies and anticipated delinquencies?
The Rate Change Proposal presents the District's proposed use of $945,000,000 in bond
financing and $171,000,000 in cash financing to fund its CIRP through FY 2016 to provide the
funds needed to comply with regulatory requirements relating to deficiencies in the District's
wastewater system including sewers, pump stations and treatment plants and to satisfy the
requirements of the Consent Decree_°
The District proposes to finance the required capital improvements by a combination of
wastewater user charge revenues, available fund balances, revenue bond proceeds, Missouri
Clean Water State Revolving Fund loan proceeds, potential commercial paper proceeds, grants
and contributions, other operating revenues, and interest income. See Ex. MSD I, Rate Change
Proposal, Table 3-9.
Currently it is District policy to bill in arrears for wastewater services. The District bills
one month in arrears. The practice of billing in arrears results in less than a full 12 months of
billings under new rates in a given 12 -month period following the effective date of the rate
increase.
Billing lag is the delay In the receipt of increased revenues attributable to a rate increase.
A one month billing lag (1/12 or 8.3 percent) is assumed in the Rate Change Proposal. See Ex.
MSD 9F, Direct Testimony of Keith D. Barber, p. 22, 11.20-21.
10 The Rate Change Proposal relies upon certain assumptions with respect to conditions, events,
and circumstances that may occur in the future. Although considered reasonable, some ❑f these
anticipated conditions, events and circumstances may not occur resulting in potential differences
in revenues and costs than currently projected. For example, lower revenues could result from a
greater decrease in the customer base than currently anticipated while higher than anticipated
inflation rates would place upward pressure on operation and maintenance costs. See Ex. MSD
1, Rate Change Proposal,§§' 1.2.
71
Working Capital
The median number of days of working capital for utilities with an AAA bond rating is
532 days. This median value drops to 330 days for utilities with an AA bond rating. See Ex.
MSD 11C, Fitch, Inc. publication "2011 Water and Wastewater Medians." For fiscal year
operating costs of $172,855,000 (Ex. MSD 1, Rate Change Proposal, Table 3-11, Lines 16, 17
and 27), the District would require total working capital of $251.942,000 and $156,280,000 to
match the median number of days of working capital for each respective bond rating. Fund
balances projected for 2016 total approximately $213.5 million which is between the two median
values. See Ex. MSD 4, Rate Model Tables, Work Paper G-16. This includes approximately
$5,000,000 in operating funds, $28.4 in the operating reserve, $38,000,000 in capital funds,
591.400.000 in the revenue bond reserve, $6,100,000 in emergency funds, and $44,600,000 in
the P&I accounts. See Ex. MSD 1 I B, Response to First Discovery Request of Rate
Commission, Question 19.
As of February 28, 2011, Days Cash on Hand is estimated at 485 days. (This calculation
also includes balances of operating cash to fund the CIRP.) See Ex. MSD 9E, Tyminski Direct
Testimony, p. 4, II. 13-19. The availability of this cash provides some security for possible
customer resistance. If billable wastewater volume decreases due to customer resistance, these
funds could be available to bridge revenue shortfalls at the potential consequence of lower bond
ratings and higher debt costs on future bond issues. See Ex. MSD 11A Al. District's Debt
Management Policy. p. 14, which allows for periodic adjustments of cash -on -hand for liquidity
purposes.
72
Short -Tenn Debt
Under the authority of § 3.020(13) of the Charier Plan, the Board has specific authority to
incur debt. If the debt is short term and does not exceed 90% of annual revenues and does not
affect the rate levied, no further action is required.
Specifically, § 3.020(14) of the Charter Plan provides:
To provide for the borrowing of money in anticipation of the collection of taxes
and revenues for the fiscal year. The amount of such loans shall at no time
exceed ninety per cent of the estimate collectible taxes and revenues for the year
yet uncollected. The Board shall determine by ordinance the amount and terms of
such loans, and the Executive Director shall execute and issue warrants of the
District for all money so borrowed to the lenders thereof as evidence of such
loans and of the terms of the District's obligation to repay the same. Immediately
before their delivery to such lenders, such warrants shall be registered in the
office of the Director of Finance of the District and, upon delivery, shall also be
registered in the office of the Secretary -Treasurer of the District. Such warrants so
issued and registered in connection with such loans shall have preferences and
priority in payment from the date of their registration by the Secretary -Treasurer
over all warrants subsequently issued.
Charter Plan, § 3.020(14). Thus, the District has the authority to incur short-term debt if
necessary to cover emergencies and anticipated delinquencies.
Operating Reserve
The Rate Change Proposal assumes an operating reserve equal to 60 days of operating
costs, for operation and maintenance expenses (general ledger accounts 100 -- 400) and routine
annual capital costs (general ledger account 500). An allowance for capital outlays or routine
annual capital costs is included because these costs are also an annual operating expense funded
from annual revenues. See Ex. MSD 9F, Direct Testimony of Keith D. Barber, at p. 20, 1l. 7-12.
The District believes that additional funding available due to higher revenues or lower
costs would be expected, by the regulatory authorities, to be used to cash finance additional
capital projects. A potential increase in cash would also allow the District to reduce the
73
proposed bonding level and the associated long-term debt service costs. Conversely, lower
revenues or higher operation and maintenance and/or construction costs would require the
District to either increase the proposal bonding level and associated debt service costs or
generate more cash on a cash financing basis in order to meet the conditions of the Consent
Decree.
Bad Debt Allowances
Adjustments for bad debt allowances are included in Table 2-3 of the Rate Change
Proposal (Ex. MSD I) and cash balances maintained in the operating reserve and outer cash
reserves could be available to address emergency situations on a short-term basis if required.
The District's actual had debt expense and write-offs for Fiscal Years 2006 through 2010
is provided in the following table.
Fiscal Year
Actual Bad
Debt
Actual Write
-Offs
Year -End Bad
Debt Balance
2006
$ 3,160,972
$ 1,249.286
$ (27,358,586
2007
$ 4,193,703
$ 1,560,904
$ (32,939,693)
2008
$ 5,161,982
$ 1,495,764
$(36,361,784)
2009
$ 9,678.495
$ 2,257,786
$ (41,945,955)
2010
$10,187,508
$2,038,625
$ (51,856,057)
2011 "
$ 9,134,359
$ 2,049,432
$ ( 56,359,216)
"2011 is thru April 30, 2011.
See Ex. MSD 1 1 B, Response to First Discovery Request of Rate Commission, Question 51; and
Ex. MSD 11A33, Aged Receivables Report.
During fiscal year 201 1 the District has undertaken procedures to address more of its
delinquencies in a timely manner. Initiated as a pilot program from January 2011 through July
2011, the District contacts customers less than 120 days delinquent to give then/ the option to
make a payment or payment airangements. The District has contracted with collection agencies
to collect commercial and residential accounts greater than 120 days delinquent. The collection
74
plan requires the collection agencies to collect at least the current charges for the account as well
as a percentage of the past due amount. The District has contracted with three law firms to
collect commercial and residential accounts greater than 120 days delinquent. If a law firm's
collection attempts are unsuccessful, court judgments against the owner of the property are
sought, and Writs of Execution, wage or asset garnishment and cash box levies are utilized to
collect the debt. See Ex_ MSD 11B, Responses to First Discovery Request of Rate Commission,
Question 53.
MIEC takes the position that the District's projected bad debt expense represents a larger
percentage of its revenues in the forecast period than that which had actually occurred in the
past, and is also significantly higher than other Missouri utilities that serve customers in the
District's service territory. The District's 2011 bad debt expense — as a percentage of total sales
revenue — is greater than Laclede Gas, Missouri -American Water Company's St. Louis District,
and Ameren Missouri Electric Operations. While some of these service areas do not exactly
overlap the District, they all either include the District's service territory or are adjacent to it.
The average District had debt factor used by MIEC — an average of 2006-2010 — is 3.18%, still
much higher than other regional utility factors. According to M1EC, the District's proposal to
inflate its actual had debt factor to 3.96% from 3.18% for its rate forecast is not reasonable. See
Ex. MIEC 63, Surrebuttal Testimony of Michael P. Gorman, p. 13,11. 1-14,11. 18-24; p. 14, 11. I-
3, 11. 8-10.
Entbrcement of Bill Collection
The District, as a public sewer district created and authorized pursuant to constitutional
authority, may discontinue service and place a lien upon a customer's property for unpaid sewer
75
charges. This lien will have priority and be enforced in the same way as taxes are levied for state
and county purposes. See Mo. Rev. Stat. § 249.255 (2001).
The District may "establish by ordinance a schedule or schedule of rates, rentals, and
other charges, to be collected from all the real property served by the sewer facilities of the
District . . . and to collect or enforce collection of all such charges." See Charter Plan, § 3.020
(16).
In 1957, the Board of Trustees of the District adopted an Ordinance providing that:
Whenever a sewer service charge has been delinquent for more than sixty days
the Executive Director may cause a notice of lien for non-payment thereof to be
filed in the Office of the Recorder of Deeds within and for the City of St. Louis or
St. Louis County, as the case may he. Such notice of lien shall state the amount of
the delinquent sewer service charge, and shall properly describe the property
against which such lien is asserted. Upon the filing of such notice, such sewer
service charge shall be and become a lien upon the real property served to the
amount of such delinquent bill, and shall have priority over all other liens except
taxes, deeds of trust then of record, and prior judgments.
District Ordinance 138 (June 24. 1957).
Commercial and residential accounts are referred to one of four collection agencies when
such accounts become 105 or 135 days delinquent, respectively. Accounts are referred to a
second collection agency if the payments received by the collection agency over a six-month
period do not equal the current monthly charges plus 18% of the balance at the time of analysis.
Accounts are referred to one of three law firms if the payments received over a six month
period by the second collection agency do not equal the current monthly charges plus 18% of the
balance at the time of analysis. When the District refers accounts to law firms, a lien is filed on
the associated property if the account balance individually or in aggregate by owner is at least
$500. See Ex. MSD 18K, Lien Placements by Month FY 2009 and FY 2010.
76
The law firms receive a sum equal to 16% of collections plus court costs and expenses
which are then posted to the customer's account for repayment to the District. See Ex. MSD
18M, REP 1416; Ex. MSD 18N, Contracts with John G. Heimos, Attorney at Law; Ex. MSD
180, Contract with The Gusdorf Law Firm; Ex. MSD 18P, Contract with Kramer and Frank, PC.
See Ex. MSD 18L, Settlement Guidelines. See Ex. MSD 18K, Lien Placements by Month FY
2009 and FY 2010. See also Ex. MSD 18A, Response to Second Discovery Request of Rate
Commission, Question 7.
The District has the authority to file liens on properties with accounts greater than 90
days delinquent. See Ex. MSD 181, Ordinance 13021, Section 8; Ex. MSD 181, Delinquent
Accounts and Billing Adjustment Procedure.
Due to legal restrictions or rejected legislative action, the District has no authority to
implement shut-off cooperation with the region's water providers, Writs of Execution, Lien
Sales, Foreclosures, Cash Box Levies, or Credit Reporting and Inclusion of delinquent balances
on annual Real Estate Tax bills. See Ex. MSD 18A, Response to Second Discovery Request of
Rate Commission, Question 8.
The District has the authority to impose and enforce a lien upon the real property of a
customer for the failure to pay sewer charges. See St. Louis Inv. Prop., Inc. v. Metro. St. Louis
Sewer Dist., 873 S.W.2d 303 (Mo. Ct. App. 1994). Specifically, Section 249.255 of the
Missouri Revised Statutes provides that should a public sewer district place a lien upon a
customer's property for unpaid sewer charges, the lien shall have priority and he enforced in the
same manner as taxes levied for state and county purposes. Mo. Rev. Stat. § 249.255.1 (2000).
Prior to 1991 and the enactment of Section 249.255, no Missouri Statute or MSD ordinance gave
MSD sewer liens priority over deeds of trust. St. Louis Inv. Prop., Inc., 873 S.W.2d at 307.
77
Pursuant to Section 249.255, MSD liens are applied prospectively and do not have priority over
deeds of trust recorded prior to the enactment of Section 249.255 on May 29, 1991. See
Gcrshtnan Inv. Corp. v. Duckett Creek Sewer Dist., 851 S.W.2d 765. 769 (Mo. Ct. App. 1993).
However, any liens imposed after 1991 have the same priority and are enforced in the same
manner as taxes levied for state and county purposes. See Mo. Rev. Stat. § 249.255.1 (2000).
There are currently 18,952 accounts valued at $24.3M eligible for lien placement. See
Ex. MSD 11B. Response to First Discovery Request of Rate Commission, Question 53.
A resistance factor recognizes that some metered customers can reasonably be expected
to react to the higher wastewater charges by cutting back on their level of water use and thus
wastewater service. Wastewater charges are typically designed for the full rate increase
indicated but with the expectation that actual revenue received will be less than projected billed
revenue due to the potential customer reactions. The resistance factor provides a compensating
revenue adjustment for these potential reactions. See Ex. MSD 7. Rate Recommendation Report
adopted by the Rate Commission on March 21, 2008, at p. 64
The water and wastewater industry rate manuals recognize resistance to higher rates as
an important factor to be considered in rate design. For example. the 1984 wastewater rates
manual states:
One final consideration in rate design is customer resistance. Resistance
generally occurs when there has been a significant increase in rates and a
conscious effort is made by those using the service to conserve. Although
customer resistance does not usually last long. it should be recognized as it
can result in a decrease in the level of revenue anticipated to be received
from the new rates. If wastewater charges are based on metered water use,
an increase in water rates may also adversely affect the wastewater
utility's revenue.
78
Financing and Chartres for Wastewater Systems, published by the Water Environmental
Federation, p. 58 (1984).
It is considered reasonable to expect some customers to reduce their billable wastewater
volume when faced with a one-time 155% increase in their wastewater bill (see Table 3-24 of
Ex. MSD 1). This expected result of reduced billable volume due to increased costs is generally
referred to as Price Elasticity. See the AWWA Manual MI titled "Principles of Water Rates,
Fees, and Charges," Chapter 21.
Increased balances to be available for the CIRP to provide greater liquidity and maintain
the District's bond rating could be available to make up potential revenue shortfalls caused by
temporary customer resistance to the higher wastewater rates. See Ex. MSD 9F, Direct
Testimony of Keith D. Barber, at p. 7, II. 16-23.
The District did not consider a resistance factor for the 13% annual revenue increases
required to provide wastewater revenues issued the bond financed alternative. The financial
advisors of the District, however, did recommend that higher cash balances be maintained to
enhance the District's bond rating. See Ex. MSD 9F, Direct Testimony of Keith Barber, p. 7, 11.
12-16.
Cash Financing
In the event that the voters of the District do not approve bond financing for the CIRP in
order to comply with the terms of the Consent Decree, the District proposes cash financing. The
financial analysis supporting the development of the alternative cash financing rate is contained
in Tables G-1 through K-10 in Ex. MSD 18Z. These tables correspond to the same tables in Ex.
MSD 4A for a bond financed CIRP.
79
The Rate Commission, after consideration of all of the facts and circumstances
disclosed in these Proceedings, finds and determines that the Rate Change Proposal
provides for funds in such amounts as may he required to cover emergencies and
anticipated delinquencies.
80
FACTORS FOR RECOMMENDATION
Any Rate Change recommended to the Board of Trustees by the Rate Commission is to
he accompanied by a statement of the Rate Commission that the proposed Rate Change, and all
portions thereof:
I) is consistent with constitutional, statutory or common law as amended from
time to time;
2) enhances the District's ability to provide adequate sewer and drainage systems
and facilities, or related services;
3) is consistent with and not in violation of any covenant or provision relating to
any outstanding bonds or indebtedness of the District;
4) does not impair the ability of the District to comply with applicable Federal or
State laws or regulations as amended from time to time; and
5) imposes a fair and reasonable burden on all classes of ratepayers.
Charter Plan, § 7.270.
First Factor: "Is consistent with constitutional, statutory or common law as amended
from time to time"
'Mc Charter does not define the terms or phrases utilized as the criteria governing the
rate. As such, to interpret the meaning of words used in a statute, usually the words are
attributed their plain and ordinary meaning. Sennchief v. Gonzales, 660 S.W.2d 683, 688 (Mo.
1983) (en hanc). Similarly, an interpretation of words in their plain and ordinary meaning can be
performed on the words and phrases utilized in the Charter Plan. The commonly understood
meaning of words is derived from the dictionary. Bueclmer v. Bond, 650 S.W2d 611, 613 (Mo.
1983) (en bane).
81
Webster's Dictionary defines "consistent" as "fixed, firm, solid: holding together."
Webster's Dictionary 390 (2d ed. 1979).
Black's Law Dictionary defines "constitutional law" as "the body of law deriving from
the U.S. Constitution and dealing primarily with governmental powers, civil rights, and civil
liberties." Black's Law Dictionary 331 (8th ed. 2004). See also Webster's Dictionary 391 (2d
ed. 1979) (constitutional is "of or pertaining to, or inherent in the constitution of a person or a
thing").
Next, "statutory law" is "the body of law derived from statutes rather than from
constitutional or judicial decisions." Black's Law Dictionary 1452 (8th ed. 2004). See also
Webster's Dictionary 1778 (2d ed. 1979) (statutory law is "fixed, authorized or established by
statute").
Further, according to Black's Law Dictionary, "common law," as distinguished from
statutory law created by the enactment of legislatures, is the body of law derived from judicial
decisions rather than from statutes or from constitutions. Black's Law Dictionary 293 (8th ed.
2004).
With this, Missouri defines "common law" as:
The common law of England and all statutes and acts of parliament made prior to
the fourth year of the reign of James the First, of a general nature, which are not
local to that kingdom and not repugnant to or inconsistent with the Constitution of
the United States, the constitution of this state, or the statute laws in force for the
time being . . . .
Mo. Rev. Stat. §1.010 (2000).
Finally, according Black's Law Dictionary the word "amend" means to change, correct.
or revise. Black's Law Dictionary 89 (8(h ed. 2004). See also Webster's Dictionary 57 (2d ed.
1979) (to amend means to change for the better: improve).
82
This first factor appears in identical fashion in § 7.300 of the Charter, which indicates
that the Board of Trustees shall accept a Rate Commission Report unless it finds that the report
"is contrary to constitutional, statutory or common law as amended from time to time." Charter
Plan, § 7.300(b)(1). However, this factor is not further defined or explained.
As such, this factor must be interpreted in its plain and ordinary meaning pursuant to the
rules of statutory construction. Consequently, to interpret the phrase, "is consistent with
constitutional, statutory or common law as amended from time to time" with respect to the Rate
Commission's rate recommendation means to ensure that any recommended rate comports with
all existing and relevant federal and statutory provisions.
The District is a body corporate, a municipal corporation, and a political subdivision of
the state, with power to act as a public corporation. Charter Plan, § 1.010.
Public Service Commission's jurisdiction, supervision, powers, and duties extend to
sewer systems, their operations, and to persons and corporations owning, leasing, operating, or
controlling them. Mo. Rev. Stat. § 386.250(4) (2000). However, municipal corporations, such
as the District, are not subject to the ratemaking process of the Public Service Commission.
Instead, courts of equity have equitable jurisdiction to prevent municipal corporations from
enforcing "charges that are clearly, palpably and grossly unreasonable." Shepherd v. City of
Wentzville, 645 S.W.2d 130, 133 (Mo. Ct. App. 1982) (internal citation omitted).
Pursuant to the District's Charter, the District has the authority to propose or recommend
a change in wastewater rates, stormwater rates and tax rates or change the structure of any of the
tbregoing. Charter Plan, § 7.040.
In State on inf. Dalton v. Metropolitan St. Louis Sewer District, the court found that the
original method of taxation adopted by the District was in violation of Article X, Section 3 of the
83
Missouri Constitution, which provides that "Waxes . . . shall be uniform upon the same class of
subjects with the territorial limits of the authority levying the tax." 275 S.W.2d 225 (Mo. 1955)
(en hanc). The court held that this provision prohibited taxing real estate and tangible personal
property for the general purposes and general obligations of the entire District at a different rate
on its valuation in various parts of the District. Id. Thus, the court found that the method used to
tax under this plan was unconstitutional because the property tax in the County was in excess of
that in the City. The court further held that the apportionment of the amounts to be collected for
the general purposes of the entire District between the City and the County without any standards
whatever would be invalid against Article X, Section 3. "Sec. 3, Art. X is a recognition of the
principle of equality and uniformity of taxation required by the equal protection clause of the
Fourteenth Amendment of the Federal Constitution which `imposes a limitation upon all powers
of the state which can touch the individual or his property, including among them that of
taxation.' Id. at 234 (internal citation omitted).
The court found that while a classification may he made in tax legislation, it must be a
reasonable classification and there can be no discrimination between taxable subjects, including
property that belongs to the same class. Id. Thus, it held that the determination of property of
the same value and in the same district based on whether it is located in the city or the county is
not a reasonable basis for classification for taxation. Id. Finally, the court held that the District
could make a valid apportionment on the basis of assessed valuation which would produce a
uniform tax on all tangible property iii the District. Thus, the Plan itself was not
unconstitutional, just the method used under this set of facts for apportioning the tax. Id. The
District subsequently corrected the matter.
84
The Rate Change Proposal presents the District's proposed use of $945,000,000 in bond
financing and $171,000,000 in cash financing to fund its Capital Improvement and Repairs
Program (CIRP) through FY2016 to provide the funds needed to comply with regulatory
requirements relating to deficiencies in the District's wastewater system, including sewers, pump
stations, and treatment plants, and to satisfy the requirements of the Consent Decree.'
The District proposes to finance the required capital improvements by a combination of
wastewater user charge revenues, available fund balances, revenue bond proceeds, Missouri
Clean Water State Revolving Fund loan proceeds, potential commercial paper proceeds, grants
and contributions, other operating revenues, and interest income. See Ex. MSD 1, Rate Change
Proposal, Table 3-9.
In the event that the voters of the District do not approve bond financing for the C1RP in
order to comply with the terms of the Consent Decree, the District proposes cash financing. The
financial analysis supporting the development of the alternative cash financing rate is contained
in Tables G-1 through K-10 in Ex. MSD 18Z. These tables correspond to the same tables in Ex.
MSD 4A for a bond financed CIRP.
The Rate Change Proposal relies upon certain assumptions with respect to conditions, events,
and circumstances that may occur in the future. Although considered reasonable, some of these
anticipated conditions, events and circumstances may not occur resulting in potential differences
in revenues and costs than currently projected. For example, lower revenues could result from a
greater decrease in the customer base than currently anticipated while higher than anticipated
inflation rates would place upward pressure on operation and maintenance costs. See Ex. MSD
1, Rate Change Proposal, § 1.2.
85
Clean Water Act and Consent Decree
Section 204(b) of the Water Pollution Control Act of 1972. as amended in 1977,
commonly known as the "Clean Water Act," specifies conditions relating to charges for
wastewater service. See 33 U.S.C. § 1283.
Implementation of the Clean Water Act and approval of a system of user charges by the
Environmental Protection Agency (the "EPA") has generally resulted in a simple, uniform, flat
commodity or volumetric charges for all customers, regardless of billable volume, effluent
strengths, load factor, peaking characteristics, or other considerations, Acceptable exceptions
have included a surcharge system for high effluent strength discharges and assignment of the
cost of the industrial pretreatment program to the participants.
The EPA has adopted rules and regulations regarding user charges. These rules and
regulations are incorporated in Part 35 of Title 40 of the Code of Federal Regulations.
User Charges are those levied on users of a treatment works for their proportionate shares
of the cost of operation and maintenance (including interim replacement) of the treatment works.
40 C.F.R. § 35.2005 (52). Treatment works consist of all facilities used for the collection,
transmission, storage, treatment, and disposal of wastewater. 40 C.F.R. § 35.2005 (49). If the
wastewater utility is to be eligible for federal grants, it must demonstrate compliance with the
following user charge requirements as part of the rate design process:
• Rates must result in the distribution of the cost of operation and maintenance of all
treatment works within the grantee's jurisdiction. Distribution must be in proportion to
each user or user class contribution to the total wastewater loading of the treatment
works.
86
' R a t e s m u s t g e n e r a t e s u f f i c i e n t r e v e n u e s t o o f f s e t t h e c o s t o f a l l t r e a t m e n t w o r k s o p e r a t i o n
a n d m a i n t e n a n c e e x p e n s e .
" E a c h u s e r w h o d i s c h a r g e s p o l l u t a n t s t o t h e t r e a t m e n t w o r k s c a u s i n g i n c r e a s e d c o s t s w i l l
p a y f o r s u c h i n c r e a s e d c o s t s .
" G r a n t e e m u s t a p p o r t i o n o p e r a t i o n a n d m a i n t e n a n c e c o s t s a s s o c i a t e d w i t h t h e t r e a t m e n t
a n d d i s p o s a l o f I I I t o u s e r s o n t h e b a s i s o f t h e a l l o c a t i o n o f a l l o t h e r o p e r a t i o n s , o r a
s y s t e m t h a t i n c l u d e s c o n s i d e r a t i o n o f f l o w v o l u m e o f t h e u s e r s , l a n d a r e a o f t h e u s e r s , o r
t h e n u m b e r o f c o n n e c t i o n s t o t h e u s e r s .
S e e 4 0 C . F . R . 3 5 . 2 1 4 0 .
T h e D i s t r i c t ' s p o s i t i o n i s t h a t t h e D i s t r i c t R a t e C h a n g e P r o p o s a l i s n e c e s s a r y f o r i t t o
c o m p l y w i t h t h e C l e a n W a t e r A c t a n d w i t h t h e C o n s e n t D e c r e e . A " D e t a i l S h e e t " s u b m i t t e d t o
t h e B o a r d o n J u n e 9 , 2 1 1 1 I , p u r p o r t s t o d e s c r i b e t h e m a j o r C o n s e n t D e c r e e c o m p o n e n t s a n d
i n c l u d e s a 2 3 - y e a r s c h e d u l e t o a c h i e v e c o m p l i a n c e w i t h t h e C l e a n W a t e r A c t . T h e D i s t r i c t
e s t i m a t e s t h e c a p i t a l p r o g r a m r e q u i r e d t o a c h i e v e c o m p l i a n c e w i t h t h e C o n s e n t D e c r e e w i l l c o s t
$ 4 . 7 b i l l i o n i n 2 0 1 1 d o l l a r s , i n c l u d i n g c e r t a i n r e m a i n i n g m a s t e r p l a n n i n g w o r k , a s w e l l a s d e s i g n
a n d c o n s t r u c t i o n o f r e m e d i a l m e a s u r e s r e q u i r e d t o a c h i e v e c o m p l i a n c e ; i m p l e m e n t a t i o n o f t h e
D i s t r i c t ' s C S C ) L o n g T e r m C o n t r o l P l a n r e c e n t l y a p p r o v e d b y t h e S t a t e o f M i s s o u r i ; u s e o f g r e e n
i n f r a s t r u c t u r e i n a b a t i n g C S O d i s c h a r g e s ; a C a p a c i t y , M a n a g e m e n t , O p e r a t i o n s a n d M a i n t e n a n c e
r o g r a m d e s i g n e d t o m a n a g e t h e c o l l e c t i o n s y s t e m a n d p r o g r e s s r e o r t i n T ' 2
p �� Y ' p ' g p b " -
' z T h e d e t a i l s o f t h e C o n s e n t D e c r e e a n d i t s c o m p o n e n t s a r e d i s c u s s e d o n p a g e s 2 0 - 2 7 o f t h i s
R e p o r t .
8 7
Hancock Amendment
Whether funded by bond or cash financing, the wastewater revenues must he levied in
accordance with Article X, § 22 of the Missouri Constitution (the "Hancock Amendment")
which prohibits any political subdivision from levying any tax, license or fee, not authorized by
law, charter or self -enforcing provisions ❑f the constitution without the approval of the required
majority of qualified voters. Mo. Const. art. X, § 22.
The Missouri Supreme Court has rejected the contention that all fees, whether user fees
or tax -fees, are subject to the Hancock Amendment. Keller v. Marion County Ambulance Dist..
820 S.W.2d 301 (Mo. 1992) (en bane). See also Arbor Lily. Co., LLC v. City of Hermann, 341
S.W.3d 673 (Mo. 201 1) (en bane) (city utility rates did not constitute "fee" increase within
meaning of the Hancock Amendment, requiring voter approval); Mullenix St. Charles Prop., L.P.
v. City of St. Charles, 983 S.W.2d 550, 561 (Mo. Ct. App. 1998) (Hancock Amendment applies
only to revenue increases that are in fact tax increases, whether labeled as taxes, licenses, or
fees). Revenue increases, which are in fact fees for services rendered in connection with specific
services, ordinarily are not taxes unless the object of the requirement is to raise revenue to be
paid into the general fund of government. Mullinex St. Charles Prop., L.P., 983 S.W.2d at 561_
"Fees or charges prescribed by law to be paid by certain individuals to public officers for
services rendered in connection with a specific purpose ordinarily are not taxes . . . unless the
❑bject of the requirement is to raise revenue to be paid into the general fund of the government to
defray customary governmental expenditures rather than compensation of public officers for
particular services rendered." Keller, 820 S.W.2d at 303-04.
88
In Keller, the court looked to the principles of statutory construction to give effect to the
intent of the voters who adopted the Hancock Amendment. Id. at 302. The court determined
that:
If the people of Missouri intended to prohibit localities from increasing a source
of revenue without voter approval, a general term like "revenue" or "revenue
increase" could have been used. Instead, the people of Missouri characterized
"fees" in § 22(a) as an alternative to a "tax." This characterization suggests that
what is prohibited are fee increases that are taxes in everything but name. What is
allowed are fee increases which are "general and special revenues" but not a
"tax."
Id. at 303.
The Keller court held that raising fees paid for municipally -provided services or goods do
not need to he submitted to the voters each time they are raised, because revenue measures that
operate to compensate a political subdivision for benefits supplied are not taxes and do not run
afoul of the Hancock Amendment. Id. at 305.
In addition, the court articulated a five -factor test to be applied in determining whether a
revenue increase by a local government is an increase in a "tax, license or fee" that requires voter
approval under the Hancock Amendment:
1) When is the fee paid? — Fees paid subject to the Hancock Amendment are
likely to be paid on a periodic basis while fees not subject to the Hancock
Amendment are likely due to be paid only on or after a provision of a good or
service to the individual paying the fee.
2) Who pays the fee? — A fee subject to the Hancock Amendment is likely to he
blanket -billed to all or almost all of the residents of the political subdivision
while a fee not subject to the Hancock Amendment is likely to be charged
only to those who actually use the good or service for which the fee is
charged.
3) Is the amount of the fee to he paid affected by the level of goods or services
provided to the fee payer? — Fees subject to the Hancock Amendment are less
likely to depend on the level of goods or services provided to the fee payer
89
while fees not subject to the Hancock Amendment are likely to be dependent
on the level of goods or services provided to the fee payer.
4) Is the government providing a service or good? — if the government is
providing a good or service, or permission to use government property, the fee
is less likely to be subject to the Hancock Amendment. If there is not a good
or service being provided or someone unconnected with the government is
providing the good or service, then any charge required by and paid to a local
government is probably subject to the Hancock Amendment.
5) Has the activity historically and exclusively been provided by the
government? — If the government has historically and exclusively provided
the good, service, permission or activity, the fee is likely subject to the
Hancock Amendment. If the government has not historically and exclusively
provided the good, service. permission or activity, then any charge is probably
not subject to the Hancock Amendment.
Keller, 820 S.W.2d at 311, n.10. The court has characterized these criteria as "helpf=ul" in
"examining charges denominated as something other than a tax." ld. It has specified that "no
specific criterion is independently controlling; but rather, the criteria together determine whether
the charge is closer to being a `true' user fee or a tax denominated as a fee." Id. In determining
whether a fee is a user fee or a tax -fee, the court held that the language of the Amendment
required the "courts to examine the substance of a charge, in accordance with this opinion, to
determine if it is a tax without regard to the label of the charge." Id. at 305. "Where an
application of the Keller factors creates genuine doubt as to whether the charges constitute a 'tax.
license or fee' covered by the Hancock Amendment, we resolve the uncertainty in favor of
requiring voter approval." Avanti Petroleum, Inc. v. St. Louis County, 974 S.W.2d 506. 511
(Mo. CL App. 1988), This test has been consistently applied post Keller to determine whether
revenue increases are subject to the Hancock Amendment.
In Beatty v. Metropolitan St. Louis Sewer District, the Supreme Court found that the
District's fees were taxes and thus subject to voter approval under the Hancock Amendment.
90
867 S.W.2d 217 (Mo. 1993) (en bane). In Beatty, the District imposed a flat fee for sewer
service for residential property. The amount of the fee remained the same no matter how much
waste a residential customer sent into the system. Nonresidential customers paid a base charge
plus a charge measured by the volume of waste the property added to the system. Nearly all of
the property owners within the District received the District sewer charges. Failure to pay a
sewer charge resulted in a lien against real property by operation of law. The District issued
revenue bonds and increased its sewer charges to meet debt service on the bonds and to operate
and maintain the sewer system. The District imposed these increased charges without voter
approval. Id. at 281.
The court examined the Keller five -factor test to determine that the District charges were
taxes subject to the Hancock Amendment. In analyzing the first factor, the court determined that
it weighed in favor that the fee was a tax. It rejected the District's argument that the sewer
charges were payments for services rendered by the District to the sewer customer and were thus
goods or services under the first factor. Rather, the court rotund that the first factor dealt with
timing and since the fee was imposed on and paid on a periodic — quarterly basis, it indicated that
it was a tax. Id. at 220.
With respect to the second factor, the court found in favor of the District because only
those persons who actually use the District's service paid the charge. The court recognized that
only 9,000 of the 420,000 parcels of real estate were not subject to the District charges, however,
only those persons who actually received services paid the fees.
For the third factor, whether the amount of fee is affected by the level of services
provided, the court rejected the District's argument that the third factor supported the charges as
fees rather than taxes. The District argued that its charges, though admittedly uniform, reflected
61
the estimated, average use of a residential customer and thus the District's services as to
nonresidential customers bore a direct relationship to the amount of service received. Id. at 221.
The court rejected the District's argument because if it were correct, "every tax, license, or fee
would appear more like a user fee than an Article X, Section 22(a) tax. An economist could
easily construct a model to show that any fee government collects is based on the `estimated,
annual' use of governmental services by a taxpayer." Thus, the court concluded that the third
factor weighed in favor of the landowner. Id.
The court concluded that the District prevailed on the fourth factor because it clearly
provided a service in return for a direct payment, unlike a general tax, which is paid without
relation to any specific service provided by the government. Id. Finally, the court concluded
that the fifth factor was inconclusive given the mix of public and private entities that have
supplied sewer services historically. Id_
As a result, the court concluded that the application of the Keller test to the facts of this
case provided no clear answer as to the nature of the District charges. Therefore, the court
concluded that "[w]here, as here, genuine doubt exists as to the nature of the charge imposed by
local governmental, we resolve our uncertainty in favor of the voter's right to exercise the
guarantees they provided for themselves in the constitution" Id. Thus, the District's charges
were subject to Article X, Section 22 and could not be increased without prior voter approval.
In Missouri Growth Association v. Metropolitan St. Louis Sewer District, the Missouri
Court of Appeals analyzed a 1993 Ordinance of the District to determine whether the District's
increased sewer service charge thereunder was a "user fee" and thus not a "tax" subject to the
constitutional amendment. 941 S_W.2d 615 (Mo. Ct. App. 1997). The court relied on the five -
point Keller test to determine that the sewer charges were not subject to the Hancock
92
Amendment. In analyzing the first factor, the court rejected the Association's argument that
because the District's fee was charged regularly, it was more like a tax than a fee. Id. at 623.
The court found that the user charges were charged monthly only after the sewer service was
provided. "Although this charge is billed periodically, payment is due only on or after provision
of a good or service, making it more like a user fee than a tax." Id.
The court found that the second factor indicated that the charges are fees rather than
taxes. Only those individuals who actually used the District's service paid the charge. It found
that "approximately 75,000 properties within the District's boundaries do not receive sewer
charge bills because they use septic tanks, the water is turned oft, or the buildings have either
been torn down, unimproved, or have not yet been constructed." Id. Thus, the service factor was
resolved in favor of the District.
The court also found that factor three weighed in favor of the District. The court
concluded that the evidence indicated that unlike the 1992 residential user charges, the District's
1993 user charges were not uniform flat charges. Rather, the 1993 charges were based on a new
study that determined an individual customer's water usage. "While all customers are charged
$.37 for billing and collection and $3.72 for system availability, customers are also charged by
individual consumption. Customers are charged $.99 per 100 cubic feet of contributed
wastewater volume." Id. at 623-24. The court explained:
For customers who have water meters, the consumed volume is determined by
their metered water usage. Flowever, under Ordinance No. 9029, if the customer
proves that a portion of the water measured by the meter does not enter the
wastewater system, the District is authorized to determine the percentage of the
water shown by the water meter which enters the District's wastewater system.
For non -metered customers, the consumed volume charge is determined by using
water consumption figures based on the number of rooms and fixtures on their
property. Under Ordinance No. 9029, however, a user of non -metered residential
property may request the installation of a meter. Furthermore, these two methods
93
of measuring wastewater usage for metered and non -metered customers have
both been specifically approved by the voters in the District's Charter (Plan),
Article 3 § 102(16).
Id.
Thus the court concluded that the sewer charge bore a direct relationship to the services
provided and factor three weighed in favor of the District. Id. at 624. The court also concluded
that the fourth factor weighed in favor of the District because the District was providing a
service. Id. Finally, it determined that the fifth factor of whether this service was historically
and exclusively been provided by the government remained inconclusive. Id. Thus, since four
out of five of the Keller factors weighed in favor of the District, the court determined that the
sewer charges were more classified as a user fee and not a tax subject to the Hancock
Amendment. Id.
In Missouri Growth and Beatty, the Court of Appeals in 1997 and the Supreme Court in
1993 came to opposite conclusions regarding whether the District sewer fees were taxes for the
purposes of the Hancock Amendment. While both courts used the Keller factors to determine
whether the fees were subject to the Hancock Amendment, the Court of Appeals in Missouri
Growth distinguished Beatty by finding that the factual circumstances related to the District user
fees had changed. With respect to factors two and four, both courts agreed that the fee was not a
tax because only the residents that used the service were charged and the District was providing a
service. However, they disagreed on the application of the first and third factors.
With respect to the first factor — fees subject to the Hancock Amendment are likely due to
be paid on a periodic basis while fees not subject to the Hancock Amendment are likely due to be
paid only on or after provision of a good or service to the individual paying the fee - the court in
Missouri Growth found that the District fees were more like user fees than taxes. It determined
94
that although the user fees were billed periodically, the fee was paid "on or after the provision of
the good or service." Missouri Growth, 941 S.W.2d at 623. The court found that the 1993 user
fees were charged monthly "only after the sewer service [was] provided" making it more like a
user fee than a tax. Id.
In Beatty, the court had interpreted the first factor to be concerned with merely timing
and did not relate to whether the political subdivision provided a service but rather the regularity
with which the fee was paid. Beatty, 867 S.W.2d at 220. The District argued that the charges
were payments for services rendered to the sewer customer but did not argue that they were paid
only after the service was provided. The court rejected the District's argument and found that
because the fees were imposed on a periodic quarterly basis, they were more like a tax than a
user tee and thus subject to the Hancock Amendment. Id.
With respect to the third factor — whether the amount of the fee to be paid is affected by
the level of goods or services provided to the fee payer — the Missouri Court of Appeals in
Missouri Growth found that the sewer charge bore a direct relationship to the service provided
and thus factor three weighed in favor of the District. The court concluded that the evidence
indicated that unlike the 1992 residential charges in Beatty, the 1993 charges at issue in this case
were not uniform flat charges. Rather they were based on a new study that determined an
individual customer's water usage. The fees were based on the individual consumption and
customers were charged $_99 per 100 cubic feet of contributed wastewater volume. Missouri
Growth, 941 S.W.2d at 623-624.
In Beatty, the amount of the fee remained the same no matter how much waste a
residential customer sent into the system. The District argued that although the fee was
admittedly uni form, it reflected the estimated, average use a residential customer made of the
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District's services and bore a direct relationship to the amount of service received. Beatty, 867
S.W.2d at 221. The court rejected this argument because, if correct, every tax, license, or fee
would appear more like a user fee than an Article X, Section 22(a) tax. Id.
The Missouri Court of Appeals distinguished the facts in Missouri Growth from Beatty
for factors one and three to find that the District fees were more like user fees than taxes because
the fees were paid on a monthly basis rather than a quarterly basis and were paid only after the
service was provided. 1# further found that there was a direct relationship to the level of service
or good provided by the District because the fees were based on an individual customer's water
usage. Thus, the fees charged in Missouri Growth were more like user fees than taxes and
therefore were not subject to the Hancock Amendment.
In Ring v. Metropolitan St. Louis Sewer District, the Missouri Supreme Court addressed
the issue of whether a refund of monies could be made to taxpayers once an ordinance is ruled
unconstitutional for violating the Hancock Amendment. 969 S.W.2d 716 (Mo. 1998) (en bane).
This case was a follow-up to the court's ruling in Beatty, 914 S.W.2d 79I (Mo. 1995) (en bane).
In Beatty, although the Missouri Supreme Court found that the District violated the Hancock
Amendment by raising taxes without a vote of the people, it held that only persons who actually
sued to recover the increase in wastewater fees could recover their overpayment. Beatty,
however, left open the question of whether a class action is the proper procedure by which the
District taxpayers who paid the unconstitutional wastewater fee increase could recover their
overpayment. R.. ing, 969 S.W.2d at 717.
Upon announcement of the decision in Beatty, a group of the District individual and
corporate wastewater fee payers filed a class action against the District "to enforce Article X,
Section 22(a) of the Missouri Constitution" and to obtain a declaration and order "that each
96
member of the class is entitled to prompt restitution of the amount by which his or her payment
of any . . . charges exceed the amount lawfully charged . . . [and tor] attorney's fees and
expenses and other appropriate relief" The general rule is well -settled that a political
subdivision need not refund a tax voluntarily paid, but illegally collected. Id. at 718. Thus, in
order for the District to be held liable to those who paid the unconstitutional fee increase, there
must be a waiver of sovereign immunity and the persons claiming a refund or credit for illegally
paid taxes must have complied with the terms of the waiver of sovereign immunity or have paid
the tax involuntarily. Plaintiffs' petition did not assert that the members of the class paid the
increased wastewater fee involuntarily. ld.
The court assumed for the purpose of this opinion that Section 139.031 of the Missouri
Revised Statutes was the exclusive waiver of sovereign immunity. The District argued that
plaintiffs failed to protest their fee payments and did not commence an action against the
collector in a timely manner as required by Section 139.031. Plaintiffs argued that the right to a
money judgment was essential to enforce Article X, Section 22(a) and that the court must infer
or imply that Article X, Section 23 acts as a waiver of sovereign immunity when a political
subdivision collects a tax increase in violation of Article X, Section 22(a). The court found that
the enforcement of the right to be free of increases in taxes that the voters do not approve in
advance may be accomplished in two ways:
First, taxpayers may seek an injunction to enjoin the collection of a tax until its
constitutionality is finally determined. Second, if a political subdivision increases
a tax in violation of [A]rticle X, [S]ection 22(a), and collects that tax prior to a
final, appellate, judicial opinion approving the collection of the increase without
voter approval, the constitutional right established in [A]rticle X, [S]ection 22(a)
may be enforced only by a timely action to seek a refund of the amount of the
unconstitutionally -imposed increase.
97
Id. at 718-19. Although not deciding the case on the merits, the court held generally that Article
X, Section 23, operated as a waiver of sovereign immunity and permitted taxpayers to seek a
refund of increased taxes previously collected by a political subdivision in violation of Article X,
Section 22(a). Id. at 719.
Most recently, the Supreme Court discussed the Hancock Amendment in Arbor Inv. Co..
LLC v. City of Hermann, holding that the city's utility charges were fees, not taxes. 341 S.W. 3d
673 (Mo. 201 1) (en bane). In Hermann, the failure to pay a city utility hill resulted in the service
being cut off, just as a private utility terminates service when payment is not made. Id. at p. 677.
As a result, the municipal charge more closely resembled a user fee than a tax as it results in a
cutoff of utility service, not a lien. Id.
The court applied the Keller test and determined four of the factors weighed in favor of
the city and that the charges were fees not taxes. Id. at p. 678-79. In applying the first factor, as
in Beatty, Hermann's utility fees were paid at periodic monthly intervals, but like Keller, the hills
were sent out only for service that had already been provided by the time the bill was sent. Id. at
p. 683-84. Therefore, since the payment was due only after provision of service it was more like
a user fee than a tax and the first factor was found in favor of Hermann. Id.
The second factor regarding who pays the fee, the few residents in Hermann not
receiving any services to their properties did not pay any utility fees, only those who received
natural gas service were charged. Id. at p. 684. As a result, the second factor was found in favor
of Hermann. Id. Similarly, the court found the third factor in favor of Hermann, where the
amount of the customer's bill depends on the amount of electricity, gas and water used. Id. at p.
684-85. The court held that fees dependent on the level of goods or services provide to the fee
payer are not subject to the Hancock Amendment. Id. al p. 685.
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The fourth factor regarding whether the government is providing a service was
determined in favor of Hermann. hi. Since the city was providing the service and had been
doing so for a number of years, the fees were not subject to the Hancock Amendment. Id.
The fifth and final factor regarding historical activity was found in favor of plaintiff and
against Hermann. Id. Since the government had historically and exclusively provided the
service, it was likely a fee subject to the Hancock Amendment. Iii. The court ultimately held
that while no one factor is dispositive and different factors may have more or less importance in
a particular case, such a heavy weighing of factors in favor of Hermann supports the finding that
the charges were fees, not taxes and therefore not subject to the Hancock Amendment. Id.
The court in Hermann observed that Keller suggests that when a political subdivision
provides a service in exchange for a fee, the charge for that service is ordinarily left to the
elected local leadership. The court cautioned, however, that Hancock is not meant to displace
user fees which fall outside its definition of "taxes." The court noted:
This is not to say that it would not be relevant if a charge were so excessive as to
be effectively unrelated to the service being provided. To the contrary, this would
be relevant to the fourth Keller factor of whether a service is being provided for
the fee. If the fee is so exorbitant that it cannot be said to bear a reasonable
relationship to the service, at least that excess amount cannot be said to be paid
for the service itself. Here, from the state auditor's report from 2003 and from the
other audits submitted below for other years, it is evident that the 10 -percent gross
receipts surcharge or tax on the utilities themselves made up the majority of the
sums transferred. Only the additional, although still substantial, transfers of
monies actually received by the utility from customers are at issue here. Nowhere
is it alleged, however, much less has evidence been presented, that this in excess
of what other municipal utilities charge, or of what would be a reasonable sum to
compensate for the loss of revenue that a private utility otherwise would he
paying the city as a franchise or similar fee. There simply has been no showing
that the amount charged is so excessive as not to constitute the provision of a
service or good in return for the amounts paid. Whether the amount charged
otherwise is appropriate or inappropriate as a matter of public policy is a matter
for the voters and their elected representatives, not the courts.
99
Id. at p. 687.
Any rate increase resulting from revenue bond proposals would be approved by the
voters, and thus, clearly in compliance with the Hancock Amendment. The District's Rate
Change Proposal, however, contains rate increases which will not be approved by the voters.
Wastewater revenues must be at least sufficient to finance the wastewater utility's
operation and maintenance expense, routine annual capital improvements, and debt service costs
on existing and proposed bonds and loans, while maintaining an adequate operating reserve and
complying with all revenue bond debt service coverage requirements. Ex. MSD 1, Rate change
Proposal, CDM and Black & Veatch, "Wastewater and Stonnwater Rate Proposal," at 3-16 (Feb,
2007). The District's current wastewater revenues are not sufficient to meet these requirements.
Id. Thus, the Rate Change Proposal projects the increased revenue necessary for the next five
years and has proposed rate increases to meet these projections. The wastewater charges will
include a base service charge in addition to volume charges calculated per room, per bath, per
separate shower and per water closet. Id. at 3-38.
The Keller test is applicable to determine whether the wastewater rate increase is a
revenue increase that requires voter approval under the Hancock Amendment. The current
wastewater rate increase is factually similar to the rate increase in Missouri Growth. Under the
first factor of the Keller test, the wastewater charges are billed monthly, after the sewer service
has been provided. The Missouri Court of Appeals found in Missouri Growth that the monthly
wastewater charges were more like user lees than taxes because customers were pilled after the
provision of a service. 941 S.W.2d 615, 623 (Mo. Ct. App. 1997).
The second factor indicates that the wastewater charges are fees rather than taxes. The
courts in both Beatty and Missouri Growth found that only those individuals who use the
I 00
District's services pay the sewer charges. Properties within the District that use septic tanks,
have the water turned oft, or have unimproved or unconstructed buildings are not subject to the
sewer charges. Thus, since only those property owners that use the District's services are billed
by the District, the second factor of Keller indicates the sewer charges are not taxes subject to the
Hancock Amendment.
The third factor of Keller also indicates that the wastewater charges are fees rather than
taxes. The amount of the fee is directly affected by the level of services provided. For property
with a water meter, the bill is calculated using a base charge in addition to usage -based rates.
For property without a water meter, the bill is calculated using a base charge in addition to
estimated usage -based rates based on the number of rooms, baths, showers and water closets in a
property. Each property may be subject to a different sewer charge depending on usage. Ex.
MSD I, Rate Change Proposal, CDM and Black & Veatch, "Wastewater and Stonnwater
Proposal," at 3-7 (Feb. 2007). This is very similar to the charges in Missouri Growth, where
customers were charged by individual consumption. 941 S.W.2d at 624. The court concluded
that the sewer charge bore a direct relationship to the services provided, so factor three weighed
in favor of the charges not requiring voter approval under the Hancock Amendment. Id_
The fourth factor is likely to weigh in favor of classifying the charges as a fee rather than
a tax subject to the Hancock Amendment. The courts in both Beatty and Missouri Growth
determined that the District provided a service in return for a direct payment. The same
reasoning applies to the current wastewater charges.
Whether the ti tTh factor weighs in favor of the wastewater charges being subject to the
Hancock Amendment is less clear. Missouri courts have not definitively stated whether sewer
services are historically provided by the government. The courts in Beatty and Missouri Growth
both stated that the fifth factor was inconclusive due to the mix of public and private entities that
have provided sewer services in the past. The Missouri Court of Appeals in Larson v. City of
Sullivan determined that sewer services were historically provided by the city. 92 S.W.3d 128,
133 (Mo. CL App. 2003). On the other hand, in Mullinix St. Charles Properties v. City of St.
Charles, the Missouri Court of Appeals stated that water and sewer services had not been
historically provided by the government. 938 S.W.2d 550, 562 (Mo. Ct. App. 1998). Each
jurisdiction is likely to have a different determination, and the courts have been unable to
determine a clear decision for the fifth Keller factor for the St. Louis area.
Four out of five factors weigh toward the wastewater charges being classified as tees that
are not subject to the Hancock Amendment. Thus, voter approval should not be required for
cash funding of the wastewater rate increase.
The Rate Commission believes that the record in this Proceeding supports a finding that
the Rate Change Proposal, whether principally funded by bond or cash financing, satisfies the
requirements of the Consent Decree and the Hancock Amendment, and thus, is consistent with
constitutional, statutory, or common law as amended from time to time.
The Rate Commission, after consideration of all of the facts and circumstances
disclosed in the Proceedings, finds and determines that the Rate Change Proposal is
consistent with constitutional, statutory or common law as amended from time to time.
102
Second Factor: "Enhances the District's ability to provide adequate sewer and
drainage systems and facilities, or related services"
The Charter does not define the terms or phrases utilized as the criteria governing the
rate. As such, to interpret the meaning of words used in a statute, usually the words are
attributed their plain and ordinary meaning. Sermchief v. Gonzales, 660 S.W.2d 683, 688 (Mo.
1983) (en bane). Similarly, an interpretation of words in their plain and ordinary meaning can be
performed on the words and phrases utilized in the Charter Plan. The commonly understood
meaning of words is derived from the dictionary. Buechner v. Bond, 650 S.W.2d 611, 613 (Mo.
1983) (en bane).
Black's Law Dictionary defines "enhanced" as "made greater; increased." Black's Law
Dictionary 570 (8111 ed. 2004). See also Webster's Dictionary 603 (2d ed. 1979) (to enhance
means to rise, increase or make greater).
This second factor appears in part in Section 1.010 of the Charter and reads, "In the
interest of the public health and for the purpose of providing adequate sewer and drainage
facilities within the boundaries herein defined . . . there is hereby established a metropolitan
sewer district . . . ." Charter Plan, § 1.010 (emphasis added).
This second factor appears again in a similar fashion in Section 7.300 of the Charter,
which indicates that the Board of Trustees shall accept a Rate Commission Report unless it finds
that the report "substantially impairs the District's ability to provide adequate sewer and drainage
systems and facilities or related services to the point where public health or institutional safety
may be jeopardized." id. at § 7.300(h)(2).
Further, similar language can he found in the Operational Rules, Regulations and
Procedures of the Rate Commission whereby the District shall submit to each member of the
103
Commission information related to direct testimony that may explain "how the Proposed Rate
Change will enhance the District's ability to provide adequate sewer and drainage systems and
facilities, or related services." See Operational Rules, Regulations and Procedures of the Rate
Commission of The Metropolitan St. Louis Sewer District, § 3(2)(b) (2011).
However, while the language of this second factor appears throughout the Charter and the
Operational Rules, neither the phrase nor the terms therein are defined_ Consequently, this factor
may be interpreted in accordance with its plain and ordinary meaning. An analysis of this
second factor in its plain and ordinary meaning which reads, "enhances the District's ability to
provide adequate sewer and drainage systems and facilities or related services" would be to
ensure that the proposed rate improves the District's ability to provide adequate services and
systems throughout the metropolitan district.
The District's position is that some rate increase is needed to enhance the District's
ability to provide adequate sewer facilities and services. The C1RP will provide environmental
compliance while maintaining affordable wastewater rates.
The Rate Change Proposal presents the District's proposed use of $945,000,000 in bond
financing and $171,000,000 in cash financing to fund its CIRP through FY 2016 to provide the
funds needed to comply with regulatory requirements relating to deficiencies in the District's
wastewater system including sewers, pump stations and treatment plants and to satisfy the
requirements of the Consent Decree. i;
" The Rate Change Proposal relies upon certain assumptions with respect to conditions, events,
and circumstances that may occur in the future. Although considered reasonable, some of these
anticipated conditions, events and circumstances may not occur resulting in potential differences
in revenues and costs than currently projected. For example, lower revenues could result from a
greater decrease in the customer base than currently anticipated while higher than anticipated
104
The District proposes to finance the required capital improvements by a combination of
wastewater user charge revenues, available fund balances, revenue bond proceeds, Missouri
Clean Water State Revolving Fund loan proceeds, potential commercial paper proceeds, grants
and contributions, other operating revenues, and interest income. See Table 3-9, Ex. MSD 1,
Rate Change Proposal.
The Proposed Rate Change will provide the funds needed to continue the District's CIRP
and the delivery of wastewater operation and maintenance services. Ex. MSD 9B, Brian
Hoelscher Direct Testimony, p. 2, II. 5-7. The CIRP is designed to meet the anticipated
regulatory requirements and schedules for the period FY 2011 through FY 2016. Id. at p.2, IL
20-21. The key components of the CIRP include addressing sanitary sewer overflows (SSOs) in
the separate sanitary sewer system, combined sewer overflows (CSCs) in the combined sewer
system, the impacts of surcharging combined sewers in Citysheds located within the County and
the City of St. Louis, mandatory upgrades to the treatment plants, and projects to provide
infrastructure renewal and to address other capacity issues within the entire collection system as
part of a comprehensive Asset Management Program. Id. at p. 5, 11. 22-23, p. 6,11. 1-4.
The District asserts that the CIRP is necessary to meet the requirements in the Consent
Decree. Ex. MSD 1 1 0, Prehearing Conference Report, p. 3. Mr. Theerman testified that all
projects in the Rate Change Proposal are required to comply with the State and Federal
Regulations. Ex. MSD 9, Jeffrey Theerman Direct Testimony, p. 9. Mr. Theerman further
testified that there is no slack period in the next 23 years to play catch-up on projects. Ex. MSD
91, Surrebuttal Testimony Transcript, p. 6, 11. 22-23. The Rate Change Proposal is designed to
inflation rates would place upward pressure on operation and maintenance costs. See Ex. MSD
1, Rate Change Proposal, * 1.2.
105
execute projects that are ready to move forward and providing the necessary resources to
continue the process of developing and designing projects has the effect of stacking the SSG and
CSO programs on top of each other to a larger degree than is prudent. Id. at p. 7, 11. 13-17.
The Rate Change proposal not only enhances the District's ability to provide services, but
is necessary. Ex. MSD 9B, Brian Hoelscher Direct Testimony, p. 3, 1. 14. Jeff Theerrnan stated,
the infrastructure will crumble around us and disappear if we do not invest in it. Ex. MSD 120,
Public Hearing and Conference Transcript, p. 51, 11. 15-17.
There is no testimony in the Proceedings indicating that the Rate Change Proposal will
not enhance the District's ability to provide adequate services, and no party has presented such a
position.
Cash Financing
In the event that the voters of the District do not approve bond financing for the CIRP,
the District proposes cash financing in order to comply with the terms of the Consent Decree.
The financial analysis supporting the development of the alternative cash financing rate is
contained in Tables G-1 through K-10 in Ex. MSD 18Z. These tables correspond to the same
tables in Ex. MSD 4A fbr a bond financed CIRP.
The Rate Commission determines that the record in this Proceeding supports a finding
that the Rate Change Proposal enhances the District's ability to provide adequate sewer and
drainage systems and facilities, or related services.
The Rate Commission, after consideration of all of the facts and circumstances
disclosed in these Proceedings, finds and determines that the Rate Change Proposal
enhances the District's ability to provide adequate sewer and drainage systems and
facilities, or related services.
106
Third Factor: "Is consistent with and not in violation of any covenant or provision
relating to any outstanding bonds or indebtedness of the District"
The Charter does not define the terms or phrases utilized as the criteria governing the
rate. As such, to interpret the meaning of words used in a statute, usually the words are
attributed their plain and ordinary meaning. Semichief v. Gonzales, 660 S.W.2d 683, 688 (Mo.
1983) (en bane). Similarly, an interpretation of words in their plain and ordinary meaning can be
performed on the words and phrases utilized in the Charter Plan_ The commonly understood
meaning of words is derived from the dictionary. Buechner v. Bond, 650 S.W.2d 611, 613 (Mo.
1983) (en bane),
Webster's Dictionary defines the term "consistent" as "fixed, firm, solid; holding
together." Webster's Dictionary 390 (2d ed. 1979).
Further, a "violation" is "an infraction or a breach of the law; a transgression." Black's
Law Dictionary 1600 (8th ed. 2004). See also Webster's Dictionary 2040 (2d ed. 1979) (a
violation is a breach or infringement).
Language from this third factor can be found in § 7.300 of the Charter, which indicates
that the Board of Trustees shall accept a Rate Commission Report unless it finds that the report
"is contrary to or in violation of any covenant or provision relating to any outstanding bonds or
indebtedness of the District." Charter Plan, § 7.300(b)(3).
Further, this language appears in the Operational Rules, Regulations and Procedures of
the Rate Commission whereby the District shall submit to each member of the Commission
information related to direct testimony that may explain, "whether and to what extent the
Proposed Rate Change is necessary to enable the District to comply with any covenant or
provision relating to any outstanding bonds or indebtedness of the District, together with a
107
specific quantification of the amount of the Proposed Rate Change that is necessary for such
purposes." See Operational Rules, Regulations and Procedures of the Rate Commission of The
Metropolitan St. Louis Sewer District, § 3(2)(c) (2011).
Again, while this language appears in the Charter and the Operational Rules, it is not
defined or explained. As a result. an interpretation of this phrase in its plain and ordinary
meaning may be performed. An analysis of the language "is consistent with and not in violation
of any covenant or provision relating to any outstanding bonds or indebtedness of the District"
would require the rate commission to recommend a rate only if it complies with any provisions
relating to any outstanding bonds or indebtedness that the District must honor.
The Rate Change Proposal presents the District's proposed use of $945,000,000 in bond
financing and $171,000,000 in cash financing to fund its Capital Improvement and Repairs
Program (CIRP) through FY2016 to provide the funds needed to comply with regulatory
requirements relating to deficiencies in the District's wastewater system, including sewers, pump
stations, and treatment plants, and to satisfy the requirements of the Consent Decree."
The District proposes to finance the required capital improvements by a combination of
wastewater user charge revenues, available fund balances, revenue bond proceeds, Missouri
Clean Water State Revolving Fund loan proceeds, potential commercial paper proceeds, grants
14 The Rate Change Proposal relies upon certain assumptions with respect to conditions, events,
and circumstances that may occur in the future. Although considered reasonable, some of these
anticipated conditions. events and circumstances may not occur resulting in potential differences
in revenues and costs than currently projected. For example, lower revenues could result from a
greater decrease in the customer base than currently anticipated while higher than anticipated
inflation rates would place upward pressure on operation and maintenance costs. See Ex, MSD
1, Rate Change Proposal, Section 1.2.
108
and contributions, other operating revenues, and interest income. See Table 3-9, Ex. MSD 1,
Rate Change Proposal.
The District proposes to finance the required capital improvements by a combination of
wastewater user charge revenues, available hind balances, revenue bond proceeds, Missouri
Clean Water State Revolving Fund loan proceeds, potential commercial paper proceeds, grants
and contributions, other operating revenues, and interest income. See Ex. MSD 1, Rate Change
Proposal, Table 3-9.
The use of $945,000,000 of additional debt will increase the District's total outstanding
debt to $I,720,000,000. The District expects to continue using debt as the major component of
CIRP funding until debt financing is no longer financially prudent. See Ex. MSD 9E, Tyminski
Direct Testimony, p. 3, 11. 8-14.
Utilization of debt financing allows the District to fund large near term capital
improvements while moderating the rate increases imposed on customers. In contrast, use of
Pay -As -You -Go financing would require significantly higher rate increases through FY 2016.
See Ex. MSD 9E, Tyminski Direct Testimony, p. 3, 11, 22-24; p. 4,11. 1-2.
By debt financing a portion of the major capital improvements that are of a non -recurring
nature, the financing burden is appropriately shared by both present and future users of the
facilities who will benefit from the improvements. For those capital improvements that tend to
be routinely incurred each year for normal replacements (i.e., extensions and minor
improvements), these costs are reasonably financed annually from current wastewater service
revenue. See Ex. MSD 1, Rate Change Proposal, §3.5.4.
109
The Rate Change Proposal provides summary calculations and conclusions underlying
the bond funding proposal in the Rate Model Tables provided as Exhibit MSD 4 and Exhibit
MSD 5 and detailed calculations used within the Rate Model as Exhibit MSD 4A.
Routine capital improvements to be financed as capital outlay costs (500 accounts) are
projected to increase from $2,387,600 in 2011 t❑ $2,770,900 in 2016. The District used an
annual rate of inflation of 3%. See Ex. MSD 1, Rate Change Proposal, Section 3.5.2. The
Wastewater Plant Investment and Other Capital Costs are as follows: Collection System -
$1,213,469,000; Treatment Facilities - $746,780,000. See Ex. MSD 1, Rate Change Proposal,
Table 3-13.
In order to finance the major capital improvements scheduled for 2013 through 2016. the
District seeks to issue revenue bonds in the total aggregate amount of $805,000,000 and
additional Missouri Clean Water State Revolving Fund loans in the total aggregate amount of
$140,000,000 to avoid larger wastewater rate increases on a cash -financed basis. See Ex. MSD
1, Rate Change Proposal, § 3.5.4.
Outstanding Revenue Bonds
On April 22, 2004, the Board ❑f Trustees issued revenue bonds under the terms of a
Master Bond Ordinance.
Section 6.1 of the Bond Ordinance (Ex. MSD 11K) requires the District to operate the
System on a revenue producing basis and at all times to prescribe, fix, maintain, and collect rates,
fees, and other charges for the services, facilities, and commodities furnished by the System fully
sufficient at all times to pay annual operation and maintenance expense, provide a reasonable
operating reserve, produce net revenues in each fiscal year equal to at least 1.25 times the Debt
Service Requirement on all Senior Bonds currently outstanding and 1.15 times the Debt Service
110
Requirement on ail Bonds then outstanding and accumulate sufficient funds to meet the costs of
major renewals, replacements, repairs, additions, betterments, and improvements to the System
to keep it in good working condition. In addition, Section 3.020(16) of the Charter requires the
District to establish fair and reasonable schedules of charges and Section 7.130 of the Charter
requires a balanced budget.
Supplemental Bond Ordinances authorized by the Board of Trustees relating to additional
revenue bond issues include the same covenants. See Exs. MSD I I L through 11V, Bond
Ordinances; Ex. MSD I 1 B, Response to First Discovery Request of Rate Commission, Question
3.
The District has currently outstanding $682,980,700 of the $775,000,000 in revenue
bonds previously authorized by the voters of the District. The District intends to issue the
balance of the authorized revenue bonds by 2012. The District's debt service requirements on
currently outstanding debt are included in the District's revenue requirements. See Ex. MSD I,
Rate Change Proposal, § 3.5.5.
Principal and interest payments on existing revenue bonds are repaid by annual
wastewater system revenue as required by the bond covenants. The projected level of net
wastewater revenues (wastewater revenue less operation and maintenance expense) decreases
from about 4.2 times the 2011 annual debt service obligation on wastewater revenue bonds to
about 2.4 times the 2015 annual debt service obligation. This significant decrease in debt service
coverage is due to increases in net wastewater revenues being exceeded by annual increases in
debt service costs. This coverage level, however, is above the 1.25 minimum requirement
required by the District's bond covenants. See Ex. MSD 9F, Keith Barber Direct Testimony, p.
19, I l . 2-10.
1 1 1
Moody's assigned a credit rating of Aa2 to the District's revenue bond obligations on
(date unknown, presumably January 2010). See Ex. MSD 16M, Moody's Credit Rating Report.
Fitch Ratings assigned a rating of AA+ on January 6, 2010 to the District's revenue bond
obligations. See Ex. MSD I6N, Fitch Credit Rating Report. Standard & Poor's assigned a rating
of AA+ on January 1 1, 2010 to the District's revenue bond obligations. See Ex. MSD 16L, S&P
Credit Rating Report. In each case, the rating agency reviewed the District's financial operations
by considering the various coverage ratios. In each case, the District's results exceeded the
coverage required by the Master Bond Ordinance and the Fitch reported medians.
The Missouri Supreme Court has specifically held that the issuer of revenue bonds for the
operation and maintenance of a sewage system had the authority to raise water and sewage rates,
not only to pay principal and interest in revenue bonds issued for the purpose of construction of a
water treatment plant and water transmission lines, but also to meet the cost of maintenance and
operation of the physical plan itself. See Oswald v. City of Blue Springs, 635 S.W.2d 332 (Mo.
1982) (en bane) at 333-34. Moreover, once the voters have approved the bonds, such increases
may be made without again submitting the increase to the voters. Id. At 334.
Under Oswald. approval of the Rate Change Proposal (Exhibit MSD 1) is not required to
meet existing bond covenant requirements on revenue bonds previously authorized by the voters.
See also Ex. MSD 11B, Response to First Discovery Request of Rate Commission, Question 27.
Proposed Revenue Bonds
The Rate Change Proposal is designed to generate debt service coverages for proposed
revenue bonds consistent with rating agencies expectations for "AA" rated large metropolitan
wastewater systems. In addition, the District is seeking to maintain a strong liquidity position.
See Ex. MSD 9E, Karl Tyminski Direct Testimony, p. 4, 11. 13-19.
112
Debt financing, while more expensive than cash funding because of the interest
component of the annual debt service payment, allows for a reasonable alignment of costs across
generations, i.e., more of those benefiting from or using the asset pay the cost. In addition to
improving equity between generations of ratepayers, debt funding may allow for the construction
of assets sooner than would occur if all of the cash had to be accumulated before beginning
construction. See the Water Environmental Federation (WEF) Manual of Practice No. 27 titled
"Financing and Charges for Wastewater Systems," p. 60.
Proposed revenue bond issues will be governed by supplemental bond ordinances
incorporating the bond covenants set forth in the Master Bond Ordinance.
Proposed revenue bonds are assumed to have 30 -year maturities and an annual interest
rate of 5.5% for fiscal years 2011 {sic] through 2016. Issuance costs are estimated to be 1.4% of
the principal amount and the anticipated bond reserve requirement is assumed to be equal to the
maximum annual principal and interest payment. See Ex. MSD 9F, Keith Barber Direct
Testimony, p. 19, 11. 13-23; p. 20, 11. 1-2.
Proposed SRF loans are assumed to have an interest/administration fee of 2.5% with 20
year maturities. Issuance costs are estimated to be 0.65% of the principal amount. See Ex. MSD
9F, Bather Direct Testimony, p. 19,11. 13-23; p. 20,11. 1-2.
A copy of the most recent draft of the Black & Veatch Feasibility Report is provided as
Exhibit MSD 18Y. The most recent due diligence questionnaire from the Missouri Department
of Natural Resources is provided as Exhibit MSD 18A2. Question III of the Exhibit details the
use of funds from a direct SRF Loan. There is a fixed and a variable cost component. Footnote
(3) of Question III requires that 0.6% applies fund program cost. The fee of bond counsel is 5.85
per $5,007 bond. Financial advisory fees are fixed at $15,000 and out-of-pocket expenses are set
113
at $1,000. On a $35,000,000 issue this would breakdown as follows: Program cost $210,000,
bond counsel $5,950, financial advisor $15,000 and out of pocket $1,000. These costs total
$231,950 or .66%. The $15,000 financial advisory fee is negotiable and may range from $10,000
to $25,000, depending on the complexity of the transaction. See Ex. MSD 18A, Response to
Second Discovery Request of Rate Commission, Question I 7(c).
Any commercial paper obligations are assumed to have an annual interest rate of 5.0%
and an issuance cost of $25,000 per issue. Commercial paper obligations, however, are not
expected to be issued. See Ex. MSD 9F, Keith Barber Direct Testimony, p. 19, 11, 13-23; p. 20,
II. 1-2.
It is the District's position that a 13% annual increase$ in the proposed rate change is
necessary to reflect:
• the level of cash balances and resulting bond coverage ratios required through FY2016 to
minimize a possible deterioration in the District's bond rating,
• the generation of sufficient revenue to fund the CIRP required to address the Consent
Decree, and
• the District's debt service obligations.
The District's senior lien bond debt service coverage is projected at 2.34 in FY2016
while total debt service coverage is projected at 1.66. Pledged revenues for fiscal year 2016 will
provide ] .92 coverage of projected maximum senior lien debt service and I.40 coverage of
projected maximum total debt service. See Ex. MSD 9E, Karl Tyminski Direct Testimony, p. 2,
IL 8-23.
"The actual schedule of projected rates is included on page 31 of this Report.
114
Minimum debt service coverage on senior and junior lien bonds is projected to be 2.2 and
1.5, respectively. This compares to bond covenant minimum debt service requirements of 125
(1.25) and 115% (1.15) above net annual revenues respectively. See Ex. MSD 11B, Response to
First Discovery Request of Rate Commission, Question 2; and Ex. MSD 11K, Bond Master
Ordinance, Section 6.1.
The District has projected ratios for minimum projected debt service coverage on senior
lien debt of 2.3 and on all outstanding debt of 1.6. See Table 3-11 of Exhibit MSD 1. Exhibits
MSD 1 l D through 1 l] provide additional information. See also Ex. MSD 11B, Response to
First Discovery Request of Rate Commission, Question 2.
A minimum level of net revenues, is also required to comply with the Maximum Annual
Debt Service Requirement (additional bonds test) and Debt Service Requirement (annual rate
covenant debt service coverage). See Ex. MSD 11K, Master Bond Ordinance, §§5.3.1 and 6.1.2
respectively. The District's projections to meet the minimum debt service requirements in 2016
require net revenue to be at least $130,808,000 for the ensuing year additional bonds test on total
debt and $119,825,000 for the annual rate covenant debt service requirement.Net revenue for
2016 under the 2012 proposed rates, however, is only $51,324,500. Part of the Rate Change
Proposal is required to meet minimum debt service coverage requirements. See Ex. MSD 11B,
Response to First Discovery Request of Rate Commission, Question 27.
The level of cash balances and bond coverage ratios reflected in the Rate Change
Proposal are based on guidance provided by PFM, the District's bond financial advisory firm.
The District's debt service obligations are determined by existing bond ordinances and future use
debt based on the structure of these ordinances. See Ex. MSD 18A, Response to Second
Discovery Request of Rate Commission, Question 9.
115
Fitch publishes annually a report that discusses a comprehensive list of metrics related to
financial performance, debt security and debt burden. By definition, the median statistic
indicates that half of the credit population has statistics higher than the metric and half of the
credit population has statistics lower than the metric. The senior lien debt coverage metric is 2.3
times for "AA" credits and 2.6 times for "AAA" credits. All -in coverage is 1.9 times for "AA"
credits and 2.1 times for "AAA" credits. Additional bonds tests are generally not considered a
metric but the District's 2004 Master Resolution requires 1.25 times maximum debt service for
senior lien bonds, and 1.15 times, levels considered adequate, but must he viewed in the context
of other credit metrics. See Ex. MSD 67A, Response to MIEC Data Request, Request #5-3.
The District's coverage ratios generally exceed the medians contained in the January I8,
2011 Fitch 2001 Water and Wastewater Medians.
Coverage and Financial Performance/Cash and Balance Far West Midwest Natheag; Southeast , outitwe.l 611
Sheet Considerations Credits
Three -Year Historical Average Senior Lien ADS Grveiage 3.0 2.7 2.9 2.3 3.0 2.7
Senior Lien ADS Coverage 2.8 2.0 1.7 2.0 2.2 2.1
Minimum Projected Senior Lien ADS Coverage 1.9 2.0 1.8 1.7 1.9 1,8
Three -Year Historical Average All -In ADS Coverage 2.7 2.0 1.4 2.1 2.3 2.3
All -in ADS Coverage 1.8 1.3 1.3 1.7 1.8 1.7
Minimum Projected All -In ADS Coverage 1.6 1.3 1.3 1.5 1.5 1.5
Days Cash on Hand 339 52 236 357 289 328
Days of Working Capital 397 160 150 302 322 331
See Ex, MSD 11C, Fitch 2011 Water and Wastewater Medians, Appendix C.
Rating Category
Coverage and Financial Performance/Cash and Balance Sheet AAA AA All Credits
Considerations
Three -Year Historical Average Senior Lien ADS Coverage 3.I 2.7 2.0 2.7
Senior Lien ADS Coverage 2.6 2.3 1.8 2.3
Minimum Projected Senior Lien ADS Coverage 2.0 1.8 1.5 1 .8
Three -Year Historical Average All -In ADS Coverage 2.6 2,3 2.0 2.3
116
All -1n ADS Coverage ?.1 1.9 1.8 1.9
Minimum Projected AlI-In ADS Coverage 1.8 1.5 1.5 1.5
Days Cash on Hand 625 292 231 328
Bays of Working Capital 532 330 123 331
See Ex. MSD 11C, Fitch 2011 Water and Wastewater Medians, Appendix F.
The mix of cash financing and debt financing should balance concerns regarding the
affordability of rates and charges as well as the impact of debt burdens on ratepayers. See Ex.
MSD 11A 1, District's Debt Management Policy, dated March 22, 2004, at p. 3. By the end of
fiscal year 2012, the District will have issued all of its current debt authorization of $775,000,000
in revenue bonds. Cumulative cash financing will be approximately $824,500,000 for a total
capital improvement related expenditure of $1,599,500,000 since 2004 and a resulting
cumulative debt financing percentage of 48.5% of total capital funding_ Future cumulative debt
financing percentages are calculated by adding Lines 2, 3, and 4 of Table 3-9 to prior cumulative
debt and dividing by the sum of total application of funds, Line 13 of Table 3-9 and prior
cumulative capital expenditures. The projected debt financing percentages during fiscal years
ending June 30, 2013 — 2016 are 55.9%, 60.8%, 63.5% and 64.1%, respectively. See MSD Ex.
1, Rate Change Proposal, Table 3-9 Wastewater Capital Improvement Program Financing, line
15.
The District's outstanding debt at the end of FY2012 is expected to be $775,000,000.
The issuance of an additional $945,000,000 will result in an outstanding total debt of
$1,720,000,000. The additional $945,000,000 will then represent 55% of the total outstanding
debt. The annual debt service requirement resulting from existing and proposed debt is expected
to increase from $38,404,300 in 2011 to $111,467,300 in 2016. See Section 3.5.5 and Table 3-
10 of the Wastewater Rate Proposal.
I17
The percentages of Capital Improvement Projects expected to be debt financed as
reported in the Fitch 2011 Water and Wastewater Medians are:
West
Midwest
Northeast
Southeast
Southwest
All Credits
37%
78%
50%
60%
46%
49%
See Ex. MSD 11C, Fitch 201 I Water and Wastewater Medians, Appendix C.
Rating Category
Capital Demands and Debt Policies
Total Outstanding Long -Tenn Debt Per Customer 1,223 1,502 2,341
Total Outstanding Long -Term Debt Per Capita 375 410 563
Projected Debt Per Customer— Year Five 1,524 1,8311 2,175
Projected Debt Per Capita — Year Five 471 532 599 531
AAA AA
A
All Credits
1,527
475
1,877
See Ex. MSD I IC, Fitch 2011 Water and Wastewater Medians, Appendix F.
It is MIEC's position that municipal bond market spreads relative to Treasury bonds have
been large since the financial market turmoil that occurred in 2008; that Treasury bond interest
rates are forecasted to increase relative to current rates; and that increases in Treasury bond rates,
however, will likely reflect a recovery in the economy with a normalization of yield spreads
between Treasury bonds and municipal bonds. It is MIEC's position that while Treasury bond
interest rates may increase, the municipal bond yield spread will likely contract, and municipal
yields will either hold steady or possibly decline. See Ex. MIEC 63, Surrebuttal Testimony of
Michael P. Gorman, p. 7, 11. 17-22; p. 8, 11. 1-3.
Other Contractual Obligations
The District has entered into a number of office equipment and technology leases
(collectively, the "Leases") over varying periods as follows:
I18
MO Sec. of
State Filing
Date
11/14/2005
Vendor Name
Clune & Company, LC
03/03/2008 CIT Technology Financing
Services, Inc.
08/20/2008 CIT Technology Financing
Services, Inc.
Lease Property Description
DesignJet 1055CM plus A -E size
36"
Specific equipment listed by serial
number, plus all other types of
office equipment and products,
computers, security systems and
other items of equipment
Duration
of Lease
Unknown
Unknown
Konica Minolta BIZHUB 1050; Unknown
Konica Mionolta C6500; plus all
other types of office equipment
and products, computers, security
systems and other items of
equipment
04/27/2010 Rudd Equipment Company Hitachi ZX200 Hydraulic Unknown
Excavator
07/11/2011 United Rentals (North
America), Inc.
Equipment described in Customer Unknown
# 436967, Equipment # 1222061,
Qty: I, lnvoice/Seq# 94310422-
001, Make: SKYJACK, Model:
5JI1I4632, Description: SCISSOR
30'-35' ELEC 46-48
See Ex. L&B 103, Missouri UCC Search completed September 1, 2011_ None of these
obligations limit the District's ability to propose a rate increase and none include provisions
requiring compliance with negative covenants regarding rates.
The District has certified that it is not in default on any of its debt obligations. See Ex.
MSD 85B, Certification.
119
Cash Financing
In the event that the voters of the District do not approve bond financing for a portion of
the CIRP, the District proposes cash financing in order to comply with the terms of the Consent
Decree. The financial analysis supporting the development of the alternative cash financing rate
is contained in Tables 0-1 through K-lU in Ex. MSD 18Z. These tables correspond to the same
tables in Ex. MSD 4A for a bond financed CIRP.
The Rate Commission believes that the record in this Proceeding supports a finding that
the terms of the Master Bond Ordinance as Supplemented and the other contractual obligations
of the District are consistent with and not in violation of any covenant or provision relating to
any outstanding bonds or indebtedness of the District.
The Rate Commission, after consideration of all of the facts and circumstances
disclosed in these Proceedings, finds and determines that the Rate Change Proposal to fund
the CIRP with the use of $945,000,000 in revenue bonds and $171,000,000 in cash financing
is consistent with and not in violation of any covenant or provision relating to any
outstanding bonds or indebtedness of the District.
Alternatively, if voter approval is not obtained for future bond financing, the Rate
Commission, after consideration of all of the facts and circumstances described in these
Proceedings, finds and determines that the Proposed Rate Change proposal to fund the
CIRP through cash basis financing will provide funds necessary to pay the principal and
interest falling due on the $775,000,000 revenue bond issue authorized in prior proceedings
to finance the CIRP.
120
Fourth Factor: "Does not impair the ability of the District to comply with applicable
Federal or State laws or regulations as amended from time to time"
The Charter does not define the terms or phrases utilized as the criteria governing the
rate. As such, to interpret the meaning of words used in a statute, usually the words are
attributed their plain and ordinary meaning. Sennchief v. Gonzales, 660 S.W.2d 683, 688 (Mo.
1983) (en banc). Similarly, an interpretation of words in their plain and ordinary meaning can be
performed on the words and phrases utilized in the Charter Plan. The commonly understood
meaning of words is derived from the dictionary. Buechner v. Bond, 650 S.W.2d 611, 613 (Mo.
1983) (en banc).
The dictionary definition of "impair" means "[t]o diminish the value of." Black's Law
Dictionary 767(8th ed. 2004). See also Webster's Dictionary 910 (2d ed. 1979) (to impair means
a diminution or decrease).
Further, "federal law" includes the United States Constitution, all federal statutes and
treaties promulgated by Congress, and all federal regulations promulgated by federal agencies,
and "state law" includes state constitutions, state statutes and regulations, and the concept of
state common law tort actions. Gorton v. American Cyanamid Co., 533 N.W.2d 746 (Wis. 1995),
cert. denied 516 U.S_ 1067 (1996).
This fourth factor appears in a similar fashion in Section 7.300 of the Charter, which
indicates that the Board of Trustees of the District shall accept a Rate Commission Report unless
it finds that the report "fails to meet an existing or new standard contained in applicable Federal
or Stale laws or regulations as amended from time to time." Charter Plan, § 7.300(b)(4).
Moreover, this language appears in the Operational Rules, Regulations and Procedures of
the Rate Commission whereby the District shall submit to each member of the Commission
121
information related to direct testimony that may explain "whether and to what extent the
proposed Rate Change is necessary to enable the District to comply with applicable federal or
State laws or regulations as amended from time to time . . . ." Ex. L&B B, Operational Rules,
Regulations and Procedures of the Rate Commission of The Metropolitan St. Louis Sewer
District, § 3(2)(d) (2002).
The language of this third factor appears again in both the Charter and Operational Rules.
However, this phrase is not defined or explained. As such, an interpretation of the plain and
ordinary meaning of the language "does not impair the ability of the District to comply with
applicable Federal or State laws or regulations" would require the rate commission to propose a
rate that complies with all relevant federal, state, local laws and regulations.
The Rate Change Proposal presents the District's proposed use of $945,000,000 in bond
financing and $171,000,000 in cash financing to fund its Capital Improvement and Repairs
Program (CIRP) through FY2016 to provide the funds needed to comply with regulatory
requirements relating to deficiencies in the District's wastewater system, including sewers, pump
stations, and treatment plants, and to satisfy the requirements of the Consent Decree. '6
The District proposes to finance the required capital improvements by a combination of
wastewater user charge revenues, available fund balances, revenue bond proceeds, Missouri
Clean Water State Revolving Fund loan proceeds, potential commercial paper proceeds, grants
16 The Rate Change Proposal relies upon certain assumptions with respect to conditions, events,
and circumstances that may occur in the future. Although considered reasonable, some of these
anticipated conditions, events and circumstances may not occur resulting in potential differences
in revenues and costs than currently projected, For example, lower revenues could result from a
greater decrease in the customer base than currently anticipated while higher than anticipated
inflation rates would place upward pressure on operation and maintenance costs. See Ex. MSD
1, Rate Change Proposal, Section 1.2.
pa
and contributions, other operating revenues, and interest income. See Ex. MSD 1, Rate Change
Proposal, Table 3-9.
In the event that the voters of the District do not approve bond financing for the CIRP in
order to comply with the terms of the Consent Decree, the District proposes cash financing. The
financial analysis supporting the development of the alternative cash financing rate is contained
in Tables G-1 through K -I0 in Ex. MSD 18Z. These tables correspond to the same tables in Ex.
MSD 4A fora bond financed CIRP.
Clean Water Act
Among the environmental laws enacted by Congress through which the Environmental
Protection Agency (the "EPA") carries out its efforts is the 1948 Federal Water Pollution Control
Act (also known as the "Clean Water Act"). The Clean Water Act is the basic structure for
regulating discharges of pollutants into waters of the United States. The EPA may issue an order
to any person or company who violates the Clean Water Act. The order may impose a civil
penalty plus recovery of any economic benefit of noncompliance and may also require correction
of the violation. Any person discharging a pollutant into the waters of the United States must
comply with the Clean Water Act. Any "person" is defined as "an individual, corporation,
partnership, association, state, municipality, commission, or political subdivision of a state, or
any interstate body." Clean Water Act, Section 502; 33 U.S.C. § 1362.
Under Section 309 of the Clean Water Act, penalties for violating a permit or not having
a permit to discharge into waters of the United States may be up to $25,000 per violation per day.
Clean Water Act, Section 309; 33 U.S.C. § 1319. The Act provides that when the Administrator
of the EPA (the "Administrator"), authorized to administer the Clean Water Act, finds a violation
of the Act, he shall notify the person in alleged violation and such State of the violation. Id. If
123
the Administrator finds that the State's failure to enforce permit conditions or the State has not
commenced appropriate enforcement actions, the Administrator shall issue an order requiring
such person to comply with such sections of the Act, or he shall bring a civil action. Id. A copy
of any order issued shall be sent by the Administrator to the State in which the violation occurred
and other affected States. Id.
The Administrator is authorized to commence a civil action for appropriate relief,
including a permanent or temporary injunction, for any violation for which he is authorized to
issue a compliance order under the Act. Id. Any action brought under Section 309 of the Act
shall be brought in the district court of the United States for the district in which the defendant is
located or resides or is doing business. Id.
Any person who negligently violates the Act or any permit condition issued by the
Administrator or by a State or negligently introduces any pollutant or hazardous substance into a
sewer system or publicly owned treatment works shall be punished by a fine of not less than
$2,500 nor more than $25,000 per day of the violation. Clean Water Act, Section 309; 33 U.S.C.
§ 13I9. Any person who knowingly violates the Act or any permit condition or knowingly
introduces pollutants into a sewer system or public treatment works shall be punished by a fine
of not less than $5,000 nor more than $50,000 per day of violation. Id. Lastly, any organization
that knowingly violates the Act or any permit conditions shall, upon conviction, be subject to a
fine of not more than $1,000,000. ld.
Any person who violates the Act or any permit condition or violates an order issued by
the Administrator shall be subject to a civil penalty not to exceed $25,000 per day for each
violation. Id_ Before issuing an order assessing a civil penalty under the Act, the Administrator
124
shall provide public notice of and reasonable opportunity to comment on the proposed issuance
of such order. Id.
An order issued under Section 309 shall become final 30 days after its issuance unless a
petition for judicial review is filed or a hearing is requested. Id. If any person fails to pay an
assessment of a civil penalty after the order becomes final or after a court in an action for judicial
review has entered a final judgment in favor of the Administrator, the Administrator shall request
the Attorney General bring a civil action in an appropriate district court to recover the amount
assessed. Id.
The Missouri Department of Natural Resources
The "Missouri Clean Water Law" is designed to meet the requirements of the Clean
Water Act and establishes the Clean Water Commission of the State of Missouri (the
"Commission"), which is required to adopt rules and regulation to enforce the powers and duties
of Chapter 644 of the Missouri Revised Statutes. See Mo. Rev. Stat. §§ 644.011 (2000), 644.021
(Supp. 2009), 644.026 (2000). The Missouri Clean Water Law provides discretionary authority
to the Director of the Missouri Department of Natural Resources (the "Director") with regard to
enforcement. Mo. Rev. Stat. § 644.076 (Supp. 2009). The Director may cause investigations to
be made upon the request of the Commission or upon the receipt of information concerning
alleged violations of any term or condition of any permit. Mo. Rev. Stat. § 644.055.1 (2000).
The provisions prohibiting discharge are included in the "Statement of Policy" only. Mo.
Rev, Stat. § 644.011 (2000). It is the policy of the State of Missouri to provide "that no waste be
discharged into any waters of the state without first receiving the necessary treatment or other
corrective action to protect the legitimate beneficial use of such waters and meet the requirement
of the Federal Water Pollution Control Act as amended by [the Clean Water Act of 1977]." Id.
125
While that may be the policy of the State with respect to discharges, it is clear that the Director
has discretion in enforcement. Id.; Mo. Rev. Stat. § 644.016 (Supp. 2009). If, in the opinion of
the Director, the investigation discloses a violation, then the Director attempts to eliminate the
violation by conference, conciliation, or persuasion. Mo. Rev. Stat. § 644M56.2 (2000).
It is unlawful for any person to cause or permit any discharge of water contaminants in
Missouri in violation of the Missouri Clean Water Law. Mo. Rev. Stat. § 644.076 (Supp. 2006).
Any "person" is defined as "any individual, partnership, copartnership, firm, company, public or
private corporation, association, joint stock company, trust, estate, political subdivision, or any
agency, board, department, or bureau of the state or federal government, or any other legal entity
whatever which is recognized by law as subject of rights and duties." Mo. Rev. Stat. §
644.0 16(14) (Supp. 2009). In the event the Commission or the Director determines that any
provisions of the Missouri Clean Water Law, or permits issued by the Commission or Director,
or any other provision which the state is required to enforce pursuant to any federal water
pollution control act, is being or is in imminent danger of being violated, the Commission or
Director may cause a civil action to be instituted in any court of competent jurisdiction for the
injunctive relief to prevent any such violation or further violation or for the assessment of a
penalty not to exceed S10,000 per day for each day the violation occurs. Mo. Rev. Stat. §
644.076 (Supp. 2009).
A suit may be brought in any county where the defendant's principal place of business is
located or where the water contaminant or point source is located at the time the violation
occurred, by the Missouri Attorney General or a prosecuting attorney. Id. Any offer of
settlement to resolve a civil penalty shall be negotiated in good faith through conference,
conciliation and persuasion. Id. "Conference, conciliation and persuasion" is:
126
A process of verbal or written communications consisting of meetings, reports,
correspondence or telephone conferences between authorized representatives of
the department and the alleged violator. The process shall, at a minimum, consist
of one offer to meet with the alleged violator tendered by the department [of
natural resources]. During any such meeting, the department and the alleged
violator shall negotiate in good faith to eliminate the alleged violation and shall
attempt to agree upon a plan to achieve compliance.
Mo. Rev. Stat. § 644.016(3) (Supp. 2009).
In addition to any other remedy provided by law, upon determination by the Director that
a provision of the Missouri Clean Water Law has been violated, the Director may issue an order
addressing an administrative penalty upon the violator. Mo. Rev. Stat. § 644.079 (2000); 10
C.S.R. 20-3.101. An administrative penalty shall not be imposed until the Director has sought to
resolve the violations through conference, conciliation and persuasion and shall not be imposed
for minor violations_ Id. If the violation is resolved through conference, conciliation and
persuasion, no administrative penalty shall be assessed unless the violation has caused, or has the
potential to cause, a risk to human health or to the environment, or has caused or has potential to
cause pollution, or was knowingly committed, or is defined by the EPA as other than minor. Id.
The amount of the administrative penalty assessed per day of the violation for each violation
shall not exceed the amount of the civil penalty specified in Section 644.076 of the Missouri
Revised Statutes. Id.
The Consent Decree
The District's position is that the District Rate Change Proposal is necessary for it to
comply with the Clean Water Act and with the Consent Decree. A "Detail Sheet" submitted to
the Board on June 9, 2011, purports to describe the major Consent Decree components and
includes a 23 -year schedule to achieve compliance with the Clean Water Act. The District
estimates the capital program required to achieve compliance with the Consent Decree will cost
127
$4.7 billion in 201 1 dollars, including certain remaining master planning work, as well as design
and construction of remedial measures required to achieve compliance; implementation of the
District's CSO Long Tenn Control Plan recently approved by the State of Missouri; use of green
infrastructure in abating CSO discharges; a Capacity, Management, Operations and Maintenance
program designed to manage the collection system and progress reporting."
The Rate Commission believes that the record in this Proceeding supports a finding that
the Rate Change Proposal will provide funds necessary to comply with the Consent Decree.
The Rate Commission makes no finding or determination with respect to the ability of the
District to meet future changes in laws or regulations.
The Rate Commission, after consideration of all of the facts and circumstances
disclosed in these Proceedings, finds and determines that the Rate Change Proposal to fund
the CIRP with the use of $945,000,000 in revenue bonds and $171,000,0{10 in cash financing
does not impair the ability of the District to comply with applicable Federal and State laws
or regulations as amended from time to time.
Alternatively, the Rate Commission, after consideration of all of the facts and
circumstances disclosed in these Proceedings, finds and determines that the Rate Change
Proposal to fund the CIRP through cash financing does not impair the ability of the
District to comply with applicable Federal and State laws or regulations as amended from
time to time.
" The details of the Consent Decree and its components are discussed on pages 21-27 of this
Report.
128
Fifth Factor: "Imposes a fair and reasonable burden on all classes of ratepayers"
The Charter does not define the terms or phrases utilized as the criteria governing the
rate. As such, to interpret the meaning of words used in a statute, usually the words are
attributed their plain and ordinary meaning. Sermchief v. Gonzales, 660 S.W.2d 683, 688 (Mo.
1983) (en bane). Similarly, an interpretation of words in their plain and ordinary meaning can be
performed on the words and phrases utilized in the Charter Plan. The commonly understood
meaning of words is derived from the dictionary. Buechner v. Bond, 650 S.W.2d 611, 613 (Mo,
1983) (en bane).
According to Black's Law Dictionary, the term "fair" is defined as "impartial; just;
equitable; disinterested. Free of bias or prejudice." Black's Law Dictionary 673 (8th ed. 2004).
See also Webster's Dictionary 658 (2d ed. 1979) (fair is honest, open, just and equitable).
"Reasonable" is defined as, "fair, proper, or moderate under the circumstances." Black's
Law Dictionary, 1293 (8th ed. 2004). See also Webster's Dictionary 1502 (2d ed. 1979)
(reasonable is equitable, tolerable and not excessive).
Similar language of this fifth factor can be found in Section 7.300 of the Charter, which
indicates that the Board of Trustees shall accept a Rate Commission Report unless it finds that
the report "imposes an unfair or excessive burden on one or more classes of ratepayers." Charter
Plan, § 7.300(b)(5).
Further, this language appears in the Operational Rules, Regulations and Procedures of
the Rate Commission whereby the District shall submit to each member of the Commission
information related to direct testimony that may explain "why the Proposed Rate Change is
necessary, fair and reasonable" and "why the burden imposed on each class of ratepayers by the
Proposed Rate Change is fair and reasonable, including whether and how cost of service
129
considerations, cost causation principles, customer impact data, economic development
considerations, environmental effects and other factors have not been factored into such
determination." Operational Rules, Regulations and Procedures of the Rate Commission of The
Metropolitan St. Louis Sewer District, §§ 3(2)(a) and 3(2)(e) (2002). However, neither of these
provisions are defined nor explained.
The District's rates and rate models have been exhaustively reviewed by the courts in
Ring v. Metropolitan St. Louis Sewer District, 969 S.W.2d 716 (Mo. 1998) (en bane): Missouri
Growth Association v. Metropolitan St. Louis Sewer District, 941 S.W.2d 615 (Mo. Ct. App.
1997); Beatty v. Metropolitan St. Louis Sewer District, 914 S.W.2d 791 (Mo. 1995) (en bane);
and Beatty v. Metropolitan St. Louis Sewer District, 867 S.W.2d 217 (Mo. 1993) (en bane). But
none of the cases have considered whether the rates charged by the District are fair and
reasonable.
On several occasions, Missouri courts have discussed whether a rate is fair or reasonable
in utility rates cases where a class of ratepayers alleged that the Public Service Commission
approved unlawfully discriminatory rates. For instance, in State of Missouri at the Relation of
Nancy Dyer and J. Raymond Dyer v. Public Service Commission. the PSC approved a schedule
of rates which allowed for higher percentage increases in electric utility rates for residential and
commercial customers than for industrial customers. 341 S.W.2d 795 (Mo. 1961). In this case,
the rate for residential customers was increased 8.6% while the rate for industrial customers was
increased 5.5%. Id. at 799. The PSC found that the higher increase, imposed upon residential
and commercial customers rather than industrial customers, was due to larger capital
expenditures such as the use of air conditioning, installation for hundreds of miles of heavier
wires and transformers, and higher labor costs, incurred on behalf of the residential customers.
130
Id. As such, the court found that the rates were fair and no unlawful discrimination had
occurred.
Several months later, the Missouri Supreme Court heard R.P. Smith, et al. v. Public
Service Commission. 351 S.W.2d 768 (Mo. 1961). In this case, the PSC approved an order
which allowed electric utility rates to be increased a greater percentage for commercial than
residential customers. Id. at 771. The Missouri Supreme Court affirmed the PSC's order and
found that the fact that there was a larger increase applied to one class as opposed to another
does not alone indicate that the rate is unfair or unreasonable. Id. Further the Court found that
there is no discrimination where a reasonable classification has a direct correlation to the
differences in the situation of the customers or the furnishing of the services whereby valid
reasons exist to justify the imposition of varying rates. Id.
Factors which supported the differential increase included the fact that the demand from
industrial users is often high, the use is often occasional or inconsistent, and the use is often for
only a portion of the day or a short duration during the year. Id. at 772. With this, the
maintenance of the facilities to meet variable and often demanding loads was unprofitable to the
utility. Id. As such, the rates were increased disproportionately to the disfavor of industrial
customers to account for such costs. The Court stated that because there was a larger increase
applied to one class as opposed to another does not alone indicate that the rate is unfair or
unreasonable or that discrimination occurred. Id. at 771. Further, the Court found that there is
no discrimination where a reasonable classification has a direct correlation to the differences in
the situations of the customers or the furnishing of the services whereby valid reasons exist to
justify the imposition of varying rates. Id. This increase, consequently, was held to be a
reasonable one.
13i
However, in State of Missouri, ex rd. DePaul Hospital School of Nursing v. Public
Service Commission, the Missouri Court of Appeals found the PSC's order approving a rate to
be unlawfully discriminatory. 464 S.W.2d 737, 740 (Mo. Ct. App. 1971). In this case, the
evidence demonstrated that the respondent was charged a substantially higher rate for the
operation of its nursing home than others similarly situated who received a substantially lower
rate, known as the hotel -motel rate. The court followed the opinion of State ex rel. City of St.
Louis v. Public Service Commission which states. "[1]t was said that arbitrary discriminations
alone are unjust, but if the difference in rates he based upon a reasonable and fair difference in
conditions which justify a different rate, it is not unjust discrimination." Id. at 740 (citing State
ex rel. City of St. Louis v. Public Service Commission, 36 S.W.2d 947, 950 (Mo. 1931)
(emphasis added)).
In State of Missouri ex rel. City of Oak Grove, Missouri, et al. v. Public Service
Commission, the Missouri Court of Appeals found the PSC's order, which allowed a telephone
company to provide extended area service in one metropolitan area when it was not provided in
other suburban exchanges approximately the same distance from the central exchange, to he
"lawful and reasonable." 769 S.W.2d 139, 141 (Mo. Ct. App. 1989). In this case, the court held
that discrimination does not exist merely because the distance between a central exchange and
service complainant's exchange is approximately the same. ld. at 143. The court reasoned that
the PSC was entitled to take into account factors such as population density and gross territory
area when making these determinations. Id.
The PSC regulates telephone and telegraph companies (Mo. Rev. Stat. § 392.200) and
gas, electric, water, heating and sewer companies (Mo. Rev. Stat. §§ 393.130, 393.140).
132
Generally, the PSC uses the standard "just and reasonable" in determining whether a proposed
rate is valid.
The standard of review for telephone and telegraph companies provides that "all charges
made and demanded by any telecommunications company for any service rendered or to be
rendered in connection therewith shall be just and reasonable and not more than allowed by law
or by order to decision of the commission." Mo. Rev. Stat. § 392.200 (Supp. 2006) (emphasis
added).
The standard of review for gas, electric, water and sewer corporations provides that the
PSC has the power to "determine and prescribe the just and reasonable rates and charges
thereafter to be in force of the service to be furnished, notwithstanding that a higher rate or
charge has heretofore been authorized by statute, and the just and reasonable acts and regulations
to be done and observed." Mo. Rev. Stat. § 393.140 (2000) (emphasis added).
The PSC's role in the electric utility resource planning "shall be to provide the public
with energy services that are safe, reliable and efficient, at just and reasonable rates, in a manner
that serves the public interest." 4 CSR 240-22.010 (emphasis added).
Whether a rate in effect at any given time is "just and reasonable" depends upon many
facts and only can be determined after a rather extended investigation and study. Laclede Gas
Co. v. Pub. Serv. Comm'n, 535 S.W.2d 561 (Mo. Ct. App. 1976). A reasonable rate is a
question of fact, calling for the exercise of common sense and sound judgment, not bound by any
hard and fast rule, nor limited to any general formula. State ex rel. Southwestern Bell Tele. Co.
v. Pub. Serv. Comm'n, 233 S.W. 425, 431 (Mo. 1921) (en bane) (rv'd on other grounds).
No writer whose views on public utility rates command respect purports to find a
single yardstick by sole reference to which rates that are reasonable or socially
desirable can be distinguished from rates that are unreasonable or adverse to the
133
public interest. A complex of tests of acceptability is required, just as would be
the case with the tests of a good automobile, a good income-tax law, or a good
poem.
See State ex rel. City of Lake Lotawana v. Pub. Serv. Comm'n, 732 S.W.2d 191, n.1 (Mo. Ct.
App. 1987).
In Laclede Gas, the Missouri Court of Appeals analyzed the issue of just and reasonable
rates when the gas company argued that its existing approved rates were so unreasonably low as
to be confiscatory. 535 S.W.2d at 569. Laclede argued that the rates must be sufficient to
produce a fair return on the property. Id, The court determined that "je]very utility does have an
undoubted constitutional right to such a fair and reasonable return, and thus is a continuing right
which does not cease after beginning rates are initially determined." Id.
The court found that whether the rates in effect are just and reasonable depends upon
many facts and can only be determined after rather extended investigation and study. Id. at 570.
The United States Supreme Court has analyzed the standard of "just and reasonable
rates" under the Natural Gas Act in two relevant cases. Fed. Power Comm'n v. Nat. Gas
Pipeline Co., 315 U.S. 575 (1942); Fed. Power Comm'n v. Hope Nat. Gas Co., 320 U.S. 591
(1944). In Natural Gas Pipeline, the Court in determining whether the rate was just and
reasonable stated:
The Constitution does not bind rate -making bodies to the service of any single
formula or combination of formulas. Agencies to whom the legislative power has
been delegated are free, within the ambit of their statutory authority, to make the
pragmatic adjustments which may be called for by particular circumstances. Once
a fair hearing has been given, proper findings made and other statutory
requirements satisfied, the courts cannot intervene in the absence of a clear
showing that the limits of due process have been overstepped. If the
commission's order, as applied to the facts before ii and viewed in its entirety.
produces no arbitrary result, our inquiry is at an end.
134
Id. at 586. It provided further guidance in Hope Natural Gas, when it stated that rates cannot be
made to depend upon the fair value, which is the end product of the process of rate -making and
not the starting point, when the value of the going enterprise depends on earnings under whatever
rates may be anticipated. 320 U.S. at 601. It further provided that under the statutory standard
that natural gas rates shall be "just and reasonable," it is the result reached and not the method
employed that is controlling. Id. at 602. if the total effect of the natural gas rates fixed by the
Federal Power Commission cannot be said to be unjust and unreasonable, judicial inquiry under
the Natural Gas Act is at an end. Id.
Standing requires that a party seeking relief have a legally cognizable interest in the
subject matter and that such party has a threatened or actual injury. E. Mo. Laborers Dist.
Council v. St. Louis County, 781 S.W.2d 43, 46 (Mo. 1989) (en bane). The right of a taxpayer,
on behalf of such party and other taxpayers similarly situated, to bring an action to enjoin the
illegal expenditure of public funds cannot be questioned. Id. However, the mere filing of a
lawsuit does not automatically confer standing on a taxpayer. Id. In Eastern Missouri Laborers,
the court determined that:
In order to maintain a suit, taxpayers need not prove their taxes will increase
because of the alleged expenditure. The impact on the taxpayer is presumed. A
taxpayer who may be compelled to pay the assessment, or who has contributed to
the sum jeopardized, is considered to have sufficient interest to enjoin the illegal
act.
Id. Therefore, the court set up the following test to determine whether a taxpayer has standing:
Absent fraud or other compelling circumstances, to have standing a taxpayer
must be able to demonstrate a direct expenditure of funds generated through
taxation, or an increased levy in taxes, or a pecuniary loss attributable to the
challenged transaction of a municipality.
135
Id. at 47. Thus, the court held that public policy demands a system of checks and balances
whereby taxpayers can hold public officials accountable for their acts. Id. The standing of a
taxpayer to sue is not to enable a private redress, but to benefit the public. Querry v. State
Highway & Transp. Comm'n, 60 S.W.3d 630 (Mo. Ct. App. 2001).
Missouri courts, however, have not always held that persons have taxpayer standing
when a direct connection between the alleged illegality and the outlay of public funds cannot be
shown. See "Taxpayer Standing in Missouri", Thomas C. Albus, 54 J. Mo.S. 199 (1998). In
Finley v. Missouri Health Facilities Review Committee, the Missouri Court of Appeals did not
find taxpayer standing because the only funds expended were general operating funds, which the
committee would have expended regardless of the challenged action. 904 S.W.2d I (Mo. Ct.
App. 1995). Plaintiff, a convalescent and retirement home, challenged the health facilities
review committee's issuance of a certificate of need. which allowed a nursing home in the same
community to replace intermediate care facility beds with skilled nursing facility beds. Id. at 2.
Plaintiff argued that it had taxpayer standing because it contributed to public funds used to
support the activities of the review committee. Id. at. 3. The court rejected plaintiff's argument
and found that it did not have taxpayer standing because the only expenses which the committee
incurred were general operating expenses, which would be incurred regardless of the challenged
action. Id. Thus, the court concluded that the committee's action did not impact the direct
expenditure of public funds of the nature sufficient to establish taxpayer standing. Id.
The Rate Change Proposal proposes the use of $945,000,000 in bond financing and
171,000,000 in cash financing to fund its CIRP through FY20I 6; to provide the funds needed to
comply with regulatory requirements relating to deficiencies in the District's wastewater system,
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including sewers, pump stations, and treatment plants; and to satisfy certain requirements of the
Consent Decree between the District and the Environmental Protection Agency ("EPA").'s
The District proposes to finance the required capital improvements by a combination of
wastewater user charge revenues, available fund balances, revenue bond proceeds, Missouri
Clean Water State Revolving Fund loan proceeds, potential commercial paper proceeds, grants
and contributions, other operating revenues, and interest income. See Ex. MSD 1, Rate Change
Proposal. The impact of the District Rate Change Proposal on wastewater rates if principally
funded by bond financing is set forth in Tables 1-1 — 1-3 of Exhibit MSD 1, Rate Change
Proposal.
In the event that the voters of the District do not approve bond financing for the CIRP in
order to comply with the terms of the Consent Decree, the District proposes cash financing. The
financial analysis supporting the development of the alternative cash financing rate is contained
in Tables G-1 through K-10 in Ex. MSD 18Z. These tables correspond to the same tables in Ex.
MSD 4A for a bond financed CIRP.
It is the District's position that the District Rate Change Proposal and CIRP have been
carefully developed and the District Rate Change Proposal allows the Rate Commission to meet
the requirements of the Charter. Ex. MSD 110, Preheating Conference Report, p.3. The District
states that the C1RP is necessary to meet the requirements in the Consent Decree and comply
with the Clean Water Act. ld. A "Detail Sheet" submitted to the Board of Trustees on June 9,
" The Rate Change Proposal relies upon certain assumptions with respect to conditions, events,
and circumstances that may occur in the future. Although considered reasonable, some of these
anticipated conditions, events and circumstances may not occur resulting in potential differences
in revenues and costs than currently projected. For example, lower revenues could result from a
greater decrease in the customer base than currently anticipated while higher than anticipated
inflation rates would place upward pressure on operation and maintenance costs. See Ex. MSD
1, Rate Change Proposal, Section 1.2.
137
2011, purports to describe the major Consent Decree components and includes a 23 year
schedule to achieve compliance with the Clean Water Act. The District states that if the Consent
Decree requirements are not met, the District will be subject to the cost of stipulated penalties as
outlined in the Consent Decree.
LENGTH OF DISTRICT RATE CHANGE PROPOSAL
The District Rate Change Proposal is for the period of FY 2013 through FY 2016. It is
the District's position that given the conditions in the Consent Decree, a four year rate cycle
provides the optimal combination of clarity of the CIRP and regulatory requirements. Ex. MSD
1 10, Prehearing Conference Report, p. 4-5. This approach affords the District a greater ability to
recognize and adjust to trends which will affect future rate proposals. Id. The four year rate
cycle also demonstrates sound financial security and a positive credit consideration for bond
investors; and limits the public funds spent on additional rate proceedings. Id. at p. 7-9.
The District noted that originally it had a five year proposal, but later reduced it to four
years. Id, p. 4. The District states that this will allow it to make a rate proposal with better
information and less long-term assumptions than with a five year rate proposal. Id.
It is Intervenor BJH's position that the District's proposed level of funding is too far
reaching in timeframe to perform the work needed as it is presently known. Ex. BJH II I,
Prehearing Conference Report, p. 2. Rate increases for FY 2014 -FY 2016, based on a CIRP
schedule that is not finalized and has not been fully approved by the EPA is premature. Ex.
MSD 90, Transcript of September 6, 2011 Surrebuttal Testimony, p. 134. B.11 -I recommends that
the Rate Commission approve only the portion of the rate increase that can be determined to be
fair and reasonable with the information available at this time, and revisit the remainder of the
rate increase request when the Sanitary Sewer Overflow (SSO) Control Master Plan is in its near
138
final form. Ex. BJH 1 1 1, Prehearing Conference Report, p. 2. BJH asserts that the District
should use a rate increase assumption of only 8.5% for the first year of the rate proposal period
(FY 2013) rather than the District's proposed 1 1-12% annual increase and determine the rates
for the remaining period FY 2014 -FY 2016 at a later hearing. Ex. BJH 88, Billie LaConte
Supplemental Testimony, p. 3.
Intervenor MIEC agrees with BJI-1 on the one year issue. MIEC states that while the
District's estimated costs for FY 2013 are reasonably measureable, the CIRP costs are not known
at this time, especially since the District has yet to prepare the SS0 Plan that needs to be
submitted to the EPA by December 31, 2013. Ex. MIEC 113, Prehearing Conference Report, p.
3. The SSD Plan will provide a schedule of specific projects for the elimination of many
overflows; however, according to Mr. Hoelscher during the surrebuttal technical conference, a
draft of the SS❑ Plan is not available. See Ex. MSD 90, Transcript of September 6, 2011
Surrehuttal Testimony. Thus, it is MIEC's position that it is unfair and places an unreasonable
burden on the District's ratepayers for the Board to approve a rate increase based upon an SS0
Plan which has not been reviewed by the Rate Commission, much less drafted. Ex. MIEC 113,
Prehearing Conference Report, p. 10. MIEC further states that the rate increase should only be
for one year due to the current economic conditions, the levels of had debt expense and that the
amount of customer sales are relatively unknown at this time. MIEC recommends that the rate
increase be awarded for one year (or two year, at the most) at the rate of 9.6% rather than the
District proposed 12%. Id. at p. 3.
MIEC also notes that the District's failure to timely disclose information required in the
Consent Decree settlement document and its failure to disclose the details underlying the Black
& Veatch electronic model clearly raise questions with regard to the accuracy of the District's
139
entire filing. Ex. MIEC 29, Michael Gorman Rebuttal Testimony, p. 23 and Ex. MIEC 63,
Michael Gorman Surrebuttal Testimony, p. 19. Based upon these transparency issues alone,
MIEC argues the Rate Commission should recommend only a one year rate increase.
MIEC recommends that if in fact the Rate Commission approves the four year Rate
Change Proposal, it should modify the District's proposed rate increase to reduce the proposed
increases of over 60%, or $128.8 million dollars, to 49%, or $105.6 million dollars, for the next
four years. Ex. MIEC 89, Michael Gorman Supplemental Testimony, p. 4. Thus it is MIEC's
position that the proposed adjustments result in a series of increases of 9.6% in each of the four
years instead of the 11-12% increases that the District originally proposed. Ex. MIEC 113,
Prehearing Conference Report, p. 9.
The District states that a shorter rate proposal will affect the bond rating agencies'
perception of the District. Ex. MSD 110, Prehearing Conference Report, p. 7-8. Specifically,
once rating levels are established, the rating analysts look for consistency in financial
performance moving forward. Id. at p. 7. In addition, the effect of a less than tour year rate
change would significantly impact the District's revenue by reducing the amount available from
bond funding. 1d. at p. 10-11.
The District asserts that unlike the shorter rate proposal recommended by MIEC and
8.11.1, the current District Rate Change Proposal period of FY 2013-EY 2016 enhances the
District's ability to meet the initial milestones contained in the Consent Decree. Id. at p. 5. The
duration of the District Rate Change Proposal coincides exactly with expected approval of the
SSD Control Master Plan. Id. In December 20I3, when the information becomes final, the
District will begin development of its next rate proposal, which will include this additional
information. Id. at p. 6. According to the District, a one year rate proposal would only result in
140
the District bringing back to the Rate Commission next year a proposed FY 2013 -FY 2016
project list with the same projects as are currently listed for this District Rate Change Proposal.
Id.
According to the District, a less than four year rate change cycle hinders the Rate
Commission from complying with sections 7.270(2)-(4) of the Charter and would also come at a
significant cost to the District's ratepayers. Id. at p. 1 1. Traditionally, the rate proceedings
expense to the ratepayers has been approximately $800,000 in contracted expenses, not including
the cost of District staff time. ld. at p. 9.
The Rate Consultant recognizes that a shorter proposal would result in increasingly
accurate assumptions; however, the Rate Consultant is concerned with the time and expense
associated with more frequent rate change proposals and believes that these two factors must be
balanced. Cite The Rate Consultant does not believe that the District's use of a four year plan in
the District Rate Change Proposal is unreasonable given the expense of the Rate Change
Proceedings and its historical use of five year rate change proposals.
Intervenors AARP and CCM concur and support the other Intervenors' recommendation
that the proposed rate increase he approved for only the first year, FY 2013. Ex. AARP/CCM
113, Prehearing Conference Report. AARP and CCM note that the Consent Decree contains
much greater specificity about the projects that would be required through FY 2013, than it does
about investments over the following four years of the plan. Ex. MSD 108, Transcript of
September 28, 2011 Prehearing Conference, p. 53. Intervenor Robert Mueller concurs and
supports the findings of fact and recommendations of the other Intervenors. See Ex. RM 114,
Prehearing Conference Report.
141
The Rate Commission determines that the record in this Proceeding supports a finding
that a Rate Change Proposal of four years is reasonable and results in rates which impose a fair
and reasonable burden on all classes of ratepayers.
CIRP FINANCING
(a) Appropriation Versus Cash Flow Financing
The District Rate Change Proposal was developed on an appropriation basis. As such,
the contract price of a project is assumed appropriated at the time the contract is awarded. Karl
Tyminski has stated that most projects are appropriated (or encumbered) at the time they are
approved by the Board, except large multi -year projects where the District would sometimes use
a phased appropriation over time. Ex. MSD 9E, Karl Tyminski Direct Testimony, p. 134. Mr.
Tyminski further stated that with respect to the encumbrances in a larger project, it is possible to
encumber on an annualized basis to spread the expenses over time but it is much more difficult
for a series of smaller projects because of their nature and number and when such projects are
initiated. Id.
The actual expenditure of these appropriations occurs over the life of the project. This
timing mismatch results in annual variance fluctuations over and under the proposed annual
appropriations. Or, as described by Mr. Tyminski, a series of projects are constantly moving in
and out of that program or forward and back in the program. Ex. MSD 9E, Karl Tyminski Direct
Testimony, p. 135-6. Brian Hoelscher testified, "economic conditions created additional funds
which could be used to complete projects beyond the original program budget." See Ex. MSD
9B, Brian Hoelscher Direct Testimony. p. 5.
Of the 53 projects scheduled for fiscal year 2013, 21 of the projects are expected to
require more than twelve months to complete and none will require more than 24 months.
142
Projects over twelve months are assumed to have 60% of the costs expended in the first fiscal
year with the remaining 40% expended in the following fiscal year.
According to the District, if too much revenue is collected, the District will move forward
and expedite the Consent Decree compliance -related work or continue the CIRP with reduced
use of debt in future years.
The Charter Plan provides that at the end of each fiscal year, the unexpended and
unencumbered parts of all appropriations shall revert to the funds from which appropriated. See
Charter Plan §7.050. Whether unexpended or unencumbered, the funds will not have been
applied to the CIRP and the imbedded cost of the 40% unexpended portion has resulted in a
charge borne by the ratepayers. A comparison of cash flow basis rather than the current
appropriation basis shows that the District will appropriate over the period from FY 2013 to FY
2016 (after adjusting for inflation) an excess of nearly $44 Million. See Ex. MSD 18A4,
Summary of CIRP Costs Cash Flow v. Appropriation.
A potential concern of the appropriation of funds prior to approval by the Board for
multi -year projects is the risk of issuing more bonds, issuing bonds earlier or allowing bonds to
remain outstanding longer than is otherwise reasonably necessary to accomplish the
governmental purposes of the bonds. Indeed, nearly $44 million to fund the CIRP will be carried
over to the next Rate Period. Under Internal Revenue Service regulations, this over -issuance
may result in special yield and expenditure restrictions.
State or local bonds are taxable arbitrage bonds if the issuer has used an abusive arbitrage
device, which is an action that, among other things, has the effect of overburdening the tax-
exempt bond market. Reg. §1.148-10(a)(1) and (a)(2)(ii).
143
An action overburdens the tax-exempt bond market if it results in issuing more bonds,
issuing bonds earlier, or allowing bonds to remain outstanding longer than is otherwise
reasonably necessary to accomplish the governmental purposes of the bonds, based on all the
facts and circumstances. Reg. § 1.148-10(a)(4)
Factors evidencing an over -issuance include the issuance of an issue the proceeds of
which are reasonably expected to exceed by more than a "minor" portion the amount necessary
to accomplish the governmental purposes of the issue, or an issue the proceeds of which are, in
fact, substantially in excess of the amount of sale proceeds allocated to expenditures for the
governmental purposes of the issue. Reg. § 1.148-100)(4).
The Rate Consultant believes that the District Rate Change Proposal should include
financing of the CIRP on a forecasted cash flow, rather than appropriation, basis. As evidenced
in Exhibit MSD 86B, this would result in revenue increases of 8.9% in FY 2013, followed by
increases of 12.6%, 11.7% and 13.2% in FY 2014, FY 2015 and FY 2016, respectively. See
MSD Ex. 86B, C1RP Cash vs. Appropriation.
Intervenor BJH suggests that the cash expenditure is more accurate than the appropriation
method and results in a somewhat lower increase. Ex. BJH 64, Billie LaConte Surrebuttal
Testimony, p. 3. It is BJH's position that if the District uses a cash expenditure basis, its
proposed rate increase for the rate period could be lowered by 3% per year. Id. at p. 4. By
switching to a cash expenditure basis and modifying its growth and inflation assumptions, these
changes would increase the rate by only 8.5% per year versus the 11-12% increases that the
District has suggested, while still meeting the requirements under the Consent Decree agreed to
by the District. Id. at p. 6.
144
Intervenor MIEC agrees with BM and its recommendation for the use of a cash
expenditure method rather than the appropriation method proposed in the District Rate Change
Proposal. Ex, M1EC 113, Prehearing Conference Report, p. 8. Intervenors AARP and CCM
have not filed testimony with respect to this issue. Intervenor Robert Mueller concurs and
supports the findings of fact and recommendations of the other Intervenors. See Ex. RM 1 14,
Prehearing Conference Report.
The effect of using cash flow, rather than appropriation, on the proposed rates, is set forth
in Attachment A as Scenario 1. In sum, the effect of Scenario i is as follows:
Fiscal Rate L&B
Year Report 1
Revenue Increases (Table 3-11)
2012 4.3% 4.3%
2013 11.0% 8.9%
2014 12.0% 12.6%
2015 12.0% 11.7%
2016 12.0% 13.2%
Rate Increases (Table 5-6 for 8Ccf/month)
2012 4.2% 4.2%
2013 12.7% 10.7%
2014 13.4% 14.1%
2015 13.2% 13.0%
2016 13.2% 14.1%
Typical Residential Bills (Table 5-6 for
8Ccflmonth)
2012 $28.73 $28.73
2013 $32.37 $31.81
2014 $36.71 $36.28
2015 $41.56 $41.00
2016 $47.05 $46.79
Change in Residential Bills from Rate
Report (Table 5-6 for 8Ccflmonth)
2012 $0.00 $0.00
2013 $0.00 ($0.56)
2014 $0.00 ($0.43)
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2015 $0.00 ($0.56)
2016 $0.00 ($0.26)
The Rate Commission determines that the record in this Proceeding supports a finding
that the use of appropriation financing of the C1RP in the Rate Change Proposal results in rates
which do not impose a fair and reasonable burden on all classes of ratepayers.
The Rate Commission determines that cash flow financing of the C1RP in the Rate
Change Proposal does result in rates which impose a fair and reasonable burden on all classes of
ratepayers.
(b) Qualifying for Credit Rating
In order to finance the major capital improvements scheduled for FY 20I3 through FY
2016, the District seeks to issue additional revenue bonds in the total aggregate amount of
$805,000,000. Under the authority of Section 250.120 RSMo., once the voters have approved
revenue bonds, the District has the authority to raise rates to pay principal and interest on the
bonds and to meet the costs of maintenance and operation of the facilities.
The District Rate Change Proposal is designed to generate debt service coverage for
proposed revenue bonds consistent with rating agencies' expectations for "AK' rated large
metropolitan wastewater systems. Ex. MSD 110, Prehearing Conference Report, p. 10. Under
certain financial conditions lower investment grade bond ratings may not provide access to
credit. Id. at p. 11. It is the District's position that a 13% annual increase in the proposed rate
change is necessary to reflect that level of cash balances and resulting bond coverage ratios
required through FY 2016 to minimize a possible deterioration in the District's bond rating. Id.
The District's senior lien bond debt service coverage is projected at 2.34 for FY 2016
while total debt service coverage is projected at 1.66. This compares to bond covenant minimum
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debt service requirements of 1.25 and 1.15 above net annual revenues respectively. See Ex.
MSD 11B, Response to First Discovery Request, Question 2; and Ex. MSD 11B and Ex. MSD
11K, Bond Master Ordinance. At a minimum, the District has projected debt service coverage
on senior and total lien bonds to be 2.3 and 1.6, which still exceed the bond covenant minimum
debt service requirements. See Ex. MSD 11K, Master Bond Ordinance, §§ 5.3.1 to 6.1.2.
A minimum level of net revenues is also required to comply with the Maximum Annual
Debt Service Requirement (additional bonds test) and Debt Service Requirement (annual rate
covenant debt service coverage), The District's projections to meet the minimum debt service
requirements in 2016 require net revenues to be at least $130,808,000 for the additional bonds
test on total debt and $119,825,000 for the annual rate covenant debt service requirement. Net
revenue for 2016 under the 2012 proposed rates, however, is only $51,324,500. Part of the
District Rate Change Proposal is required to meet minimum debt service coverage requirements.
See Ex. MSD 11B, Response to First Discovery Request, Question 27.
The level of cash balances and bond coverage ratios reflected in the District Rate Change
Proposal are based on guidance provided by PFM, the District's bond financial advisory firm.
The District's debt service obligations are determined by existing bond ordinances and future use
of debt based on the structure of these ordinances. See Ex. MSD 18A, Response to Second
Discovery Request, Question 9.
Fitch publishes annually a report that discusses a comprehensive list of metrics related to
financial performance, debt security and debt burden. The latest edition of these medians is
shown in Exhibit MSD 67H. By definition, the median statistic indicates that half of the credit
population has statistics higher than the metric and half of the credit population has statistics
lower than the metric. The projected senior lien debt coverage metric is 1.8 times for "AA" rated
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bonds, while total (or "all -in" as used in the Fitch report) projected coverage is 1.5 times for
"AA" rated bonds. Additional bonds tests are generally not considered a metric but the District's
2004 Master Resolution requires 1.25 times maximum debt service for senior lien bonds, and
1.15 times, levels considered adequate, but must be viewed in the context of other credit metrics.
See Ex. MSD 67A, Response to MIEC Data Request, Request #5-3.
The Rate Consultant testified that the District's coverage ratios generally exceed the
medians contained in the January 18, 2011 Fitch 2001 Water and Wastewater Medians. See Ex.
MSD 11C, Fitch 2011 Water and Wastewater Medians. The District has projected ratios for debt
service coverage on senior lien debt of 2.54 and on all outstanding debt of 1.66 for the four year
period. The District's outstanding debt at the end of FY 2012 is expected to be $775,000,000.
The issuance of an additional $945,000,000 will result in an outstanding total debt of
$1.720,000,000. The additional debt will then represent 55% of the total outstanding debt. The
annual debt service requirement resulting from existing and proposed debt is expected to
increase from 538.404,300 in 2011 to $I l 1,467,300 in 20I6. See Section 3.5.5 and Table 3-10 of
the Wastewater Rate Proposal.
The Rate Consultant believes that the relative proportion of debt and cash financing of
the CIRP proposed by the District is reasonable. Cite The District's annual revenue
requirements to be met by its rate revenues include operation and maintenance expenses, debt
service, cash financing of the CIRP and contributions to fund balances. The debt service
coverage generated by the District will be used for cash financing of the CIRP and the
contributions to fund balances. As such, a reduction in bonds to be issued for funding the C1RP
will result in an increase in the annual cash financing required and increase the required rate
increases. Increasing the amount of bonds issued to finance the CIRP will reduce the cash
148
financing requirement but increase the annual debt service and the coverage levels necessary to
be generated, which would exceed the cash needed to fund the CIRP and the contributions
needed for fund balances.
It is Intervenor MIEC's position that municipal bond market spreads relative to Treasury
bonds have been large since the financial market turmoil that occurred in 2008 and that Treasury
bond interest rates are forecasted to increase relative to current rates. Ex. MIEC 63, Michael
Gorman Surrebuttal Testimony, p. 7. MIEC states that such increase in Treasury bond rates;
however, will likely reflect a recovery in the economy with a normalization of yield spreads
between Treasury bonds and municipal bonds. Id. It is further MIEC's position that while
Treasury bond interest rates may increase, the municipal bond yield spread will likely contract
and yields will either hold steady or possibly decline. Id. at p. 8.
Intervenors BJH, AARP and CCM have not filed testimony with respect to this issue.
Intervenor Mr. Mueller concurs and supports the findings of fact and the recommendations of the
other Intervenors. See Ex. RM 114, Prehearing Conference Report.
The Rate Commission determines that the record in this Proceeding supports a finding
that the debt coverage ratios in the Rate Change Proposal are adequate in order to maintain the
current credit rating and result in rates which impose a fair and reasonable burden on all classes
of ratepayers.
(c) Bond Interest Rates and Structuring of Debt Service
The District projects that it will issue over $857 million of incremental revenue bonds to
finance the CIRP. The District assumes that the revenue bond issuance will he amortized over
30 years. The District assumes a 5.5% interest rate for all bonds anticipated to be issued over the
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four years of the District Rate Change Proposal. Ex. MSD 9F, Keith Barber Direct Testimony,
p. 19-20. The District's total outstanding debt consists of revenue bonds.
The District's outstanding debt at the end of FY 2012 is expected to be $775,000,000.
The issuance of an additional $945,000,000 will result in an outstanding total debt of
$1,720,000,000. The additional $945,000,000 will then represent 55% of the total outstanding
debt. See Ex. MSD 1, Rate Change Proposal, § 3.5.5 and Table 3-10. The annual debt service
requirement resulting from existing and proposed debt is expected to increase from $38,404,300
in 2011 to $111,467,300 in 2016. Id.
It is Intervenor MIEC's position that the 30 -year bond interest rate of 5.5% is
substantially overstated. MIEC recommends reducing the 30 -year bond debt interest expense to
4.65%, which was the highest interest rate projection that the District was able to provide any
evidence to support in this rate proceeding. Ex. MIEC 89, Michael Gorman Supplemental
Testimony, p. 3; and Ex. MSD 90, Transcript of September 6, 2011 Surrebuttal Testimony, p. 50.
It is MIEC's position that a debt interest expense of 4.65% will still overstate the debt service
cost of new revenue bond issuances during the forecast period. Ex. MIEC 89, Michael Gorman
Supplemental Testimony, p. 3-4.
It is Intervenor BJH's position that the District should lower the revenue bond issuance
amount from $805 million to $727 million over the rate period and maintain the State Revolving
Loan proceeds as shown in the District Rate Change Proposal. Ex. BJH 64, Billie LaConte
Surrebuttal Testimony, p. 5.
Intervenors HARP and CCM support the adjustments presented in the testimony of BJH
expert Ms. LaConte and MIEC witness Mr. Gorman. See Ex. BJH 88, Billie LaConte
Supplemental Testimony: Ex. MIEC 29, Michael Gorman Rebuttal Testimony; and Ex. M1EC
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63, Michael Gorman Surrehuttal Testimony. Intervenor Mr. Mueller concurs and supports the
findings of fact and the recommendations of the other Intervenors. See Ex. RM 114, Prehearing
Conference.
The District Rate Change Proposal contemplates equal payments of principal and interest.
Historically, however, District bond amortization has included periods of payments of interest
only. The District's financial advisor testified that there will in fact be some years of interest
only payments for the proposed debt financing.
The Rate Consultant believes that the District should assume that any new debt will have
interest only payments during the period covered by the Rate Proposal. This change would result
in revenue increases of 8.5%, 11.5%, 11.3% and 11.6% in FY 2013, FY 2014, FY 2015 and FY
2016, respectively, as shown in Exhibit MSD 86C.
The effect of restructuring the debt service on senior bonds to reflect interest only
payments is set forth in Attachment A as Scenario 2, which is as follows:
Fiscal Rate L&B
Year Report 2
Revenue Increases (Table 3-11)
2012 4.3% 4.3%
2013 11.0% 8.5%
2014 12.0% 11.5%
2015 12.0% 11.3%
2016 12.0% 11.6%
Rate Increases (Table 5-6 for 8Ccflinonth)
2012 4.2% 4.2%
2013 12.7% 10.4%
2014 13.4% 12.9%
2015 13.2% 12.5%
2016 13.2% 12.6%
Typical Residential Bills (Table 5-6 for
8Ccf/rnonth)
2012 $28.73 $28.73
151
2013 $32.37 $31.73
2014 $36.71 $35.83
2015 $41.56 $40.32
2016 $47.05 $45.4!
Change in Residential Bills from Rate
Report ('fable 5_6 for 8Ccf/month)
2012 $0.00 $0.00
2013 $0.00 ($0.64)
2014 $0.00 ($0.88)
2015 $0.00 ($1.24)
2016 $0.00 ($1.64)
The Rate Commission determines that the record in this Proceeding supports a finding
that the use of the 5.5% interest rate as described in the Rate Change Proposal results in rates
which impose a fair and reasonable burden on all classes of ratepayers.
The Rate Commission determines that the record in this Proceeding supports a finding
that structuring the debt in the Rate Change Proposal with payments of principal and interest
does not result in rates which impose a fair and reasonable burden in all classes of ratepayers.
The Rate Commission determines that the record in this Proceeding supports a finding
that structuring the debt with interest only payments results in rates which impose a fair and
reasonable burden on all classes of ratepayers.
OPERATION AND MAINTENANCE
(a) Inflation Rate
In 2004, the District's Board issued revenue bonds to fund 100% of its then Operation
and Maintenance (O&M) expense and for the accumulation of a reasonable operating reserve.
Ex. MSD 1 1K, Bond Master Ordinance, § 6. I.1. The total cumulative increase in normal O&M
expense over the FY 2012 amount is $23,337,800. Ex. MSD 1, Rate Change Proposal. Table 3-
1, Line I6. The total increase in O&M expense during the same period for additional expenses
related to proposed regulatory related facilities is $17,698,800, for a total increase of
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$40,675,600. Ex. MSD 1, Rate Change Proposal, Table 3-11, Line 17. This amount exceeds the
$36,233,300 of additional revenue provided by the currently approved wastewater rates without
allowing for additional operating reserve deposits. The District Rate Change Proposal will be
required to meet increased O&M expenses. See Ex. MSD 11 B, Response to First Discovery
Request of Rate Commission, Question 27.
The District's O&M expense inflation rates are based on a composite of inflation indices
specific to the type of cost. The District's cost increases due to inflation for the District's
wastewater revenue projections are based on the following annual percentage increases:
Wages, Salaries and Overtime 2011-2016 3.0%
Personnel Services and Benefits ' 9 2011 3.5%
2012-2016 3.0%
Group Insurance 2011-2015 10%
2016 6.0%
•
Supplies, including Chemicals 2011 3.5%
2012-2016 3%
Electric and Gas 2011-2012 3.5%
2013 3%
2014-2016 5.5%
Contractual Services 2011-2012 3.5%
2013 3%
2014-2016 4.5%
Bond and Liability Insurance 2011-2016 5%
Capital Outlay 2011-2012 3.5%
2013-2016 3.0%
Pension 2011 8.4%;
2012 9.3%
`' Except group insurance and pension.
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2013 10.2%
2014 1L4%
2015-2016 5.0%
MSD Director of Finance, Janice Zimmerman testified that the inflation variances
represent a conservative projection of O&M expense as these categories represent 46% of the
District's total O&M projected change.
Routine capital improvements to be financed as capital outlay costs (500 accounts) are
projected to increase from $2,387,600 in 2011 to $2,770,900 in 2016. See Ex. MSD 1, Rate
Change Proposal, § 3.5.2. The District used an annual rate of inflation of 3%. Id.
The District states that the inflation assumptions used for contractual services, machinery
and equipment parts, chemical supplies, operational construction and building costs and energy
costs are based on indices more closely related to these expenses than the Consumer Price Index
(CPI) used by Intervenor MIEC. Ex. MSD 110, Prehearing Conference Report, p. 26. The
District states that several District O&M expenses are unrelated to inflation and are based on
short-tenn historical trends for investment market conditions. Id. at p. 29. Further, the District
provides that its use of more closely correlated indices and projections provide a reasonable
assumption as to the future O&M inflation expense. Id.
It is Intervenor MIEC's position that the District makes an unsupported assumption (with
no justification at all) that its O&M expense should include an annual base inflation factor of 3%
for routine capital improvements. Ex. MIEC 113, Prehearing Conference Report, p. 6. M1EC
asserts that the CPI is generally the best measure for adjusting payments to consumers when the
intent is to allow consumers to purchase at today's prices, a market basket of goods and services.
154
including housing costs, equivalent to one that they could purchase in an earlier period. Ex.
M1EC 29, Michael Gorman Rebuttal Testimony, p. 10.
MIEC asserts that as supported by independent sources, the District's assumption is
overstated and should he reduce to 2.25% Id. MIEC states that the total impact from this
reduction is a decline in projected O&M expense levels of approximately $16 million between
the period 2012 thorough 2016. Id. Moreover, MIEC asserts that the District unnecessarily
increased the General Counsel expense in year 2011 through 2016 without adequate justification.
id. MIEC recommends growing the General Counsel expense at the rate of general inflation, this
adjustment further reduces the District's projected O&M expenses by $6.3 million between 2012
through 2016. Id. at p. 11.
Intervenor BJH proposes that O&M expense should increase by 2.3% each year,
excluding Rate Commission cost, Additional O&M cost, Civil Service Commission cost, and
Group Insurance Cost, all of which should increase the same as proposed in the District Rate
Change Proposal. Ex. BJH 64, Billie LaConte Surrebuttal Testimony, p. 5. This assertion is
based on the average CPI from FY 2006 -FY 2012 at 2.3%. Id. In the second year, BJH
recommends lowering the increase to 5% for Other Post Employment Benefit (OPEB) cost and
Pension cost, recognizing that the District has switched from a defined benefit pension plan to a
defined contribution pension plan. Ex. BJH 88, Billie LaConte Supplemental Testimony, p. 2-3.
The Rate Consultant believes that the District should carefully consider the projected
inflation rates and provide more transparency. Ex. L&B 30, William Stannard Rebuttal
Testimony, p. 13. For example, the District's projected inflation for electric and gas is
noticeably greater than historic levels. Historically all utilities (which includes water and all
other utilities) have increased by .90% while the District is projecting that gas and electric, which
155
are a majority of all utility costs, will increase by 3.5% in FY 2012, 3.0% in FY 2013, and 5,5%
in FY 2014 through FY 2016. Id. at p. 14. The Rate Consultant testified that the District has not
provided any reference to planned rate increases from their electric and gas providers, nor has it
provided any information regarding negotiation of longer term electric power contracts. Id. The
Rate Consultant has not proposed any specific inflation rate.
Intervenors AARP and CCM concur with a more reasonable inflation factor of 2.25% as
opposed to 3% used in the District Rate Change Proposal_ See Ex. Bill 88, Billie LaConte
Supplemental Testimony; Ex. MIEC 29, Michael Gorman Rebuttal Testimony; and Ex. M1EC
63, Michael Gorman Surrebuttal Testimony. Intervenor Robert Mueller concurs and supports the
findings of fact and the recommendations of the other Intervenors. See Ex. RM 114, Prehcaring
Conference Report.
The Rate Commission finds and determines that the inflation rates for operation and
maintenance used in the Rate Change Proposal generally overstate the best estimate of such
inflation rates and will not result in rates which impose a fair and reasonable burden on all
classes of ratepayers.
(b) Expense Costs
(i) Pension
Personnel services and benefits and group insurance on a combined basis increased at a
rate of 0.98% in FY 2006 through FY 2012, but the District is projecting an increase at a rate of
4.56 to 6.52% over their forecast period. This increase appears to be in part due to OPEB
expenses, which are being escalated by 10% a year, though that escalation rate is not listed in the
District Rate Change Proposal. The Rate Consultant believes the District should relook at this.
156
The Response to the Rate Commission's Second Discovery Request states that the
District's 2011 Operating Budget was prepared prior to the changes in the District's plan from a
defined benefit to a defined contribution plan and does not reflect the associated impacts. See
Response to Question 1(e), During the First Technical Conference, Jan Zimmerman testified
that the change in the pension plan was adopted to reduce the District's pension costs. See Ex.
MSD 17, Transcript of June 13, 2011 Technical Conference.
It is the Rate Consultant's position that the effect of this change in the District's pension
plan should be incorporated into the District's rate model and the District Rate Change Proposal
should he appropriately adjusted. Fx. L&B 30, William Stannard Rebuttal Testimony, p. 12.
The effect of including the change in Pension Plan on the proposed rate change is set
forth in Attachment A as Scenario 3, which reflects the following:
Fiscal Rate L&B
Year Repon 3
Revenue Increases (Table 3-11)
2012 4.3% 4.3%
2013 11.0% 10.8%
2014 12.0% 11.9%
2015 12.0% 12.0%
2016 12.0% 11.9%
Rate Increases (Table 5-6 for 8Ccflmonth)
2012 4.2% 4.2%
2013 12.7% 12.4%
2014 13.4% 13.4%
2015 13.2% 13.1%
2016 13.2% 13.1%
Typical Residential Bills (Table S-6 for
8Ccflmonth)
2012 $28.73 $28.73
2013 $32.37 $32.29
2014 $36.71 $36.63
2015 $41.56 $41.43
2016 $47.05 $46.87
157
Change in Residential Bills from Rate
Report (Table 5-6 for 8Ccflmonth)
2012 $0.00 $0.00
2013 $0.00 ($0.08)
2014 $0.00 ($0.08)
2015 $0.00 ($0.13)
2016 $0.00 ($0.18)
The Rate Commission determines that the record in this Proceeding supports a finding
that including the effect of the change from a defined benefit to a defined contribution pension
plan in the Rate Change Proposal will result in rates which impose a fair and reasonable burden
on all class of ratepayers.
(ii) Wages
The District Rate Change Proposal contemplates pay increases for employees over the
rate period (3% for wages, salaries and overtime). See Ex. MSD 1, Rate Change Proposal,
§ 3.4.2. An examination of the agreements with District employees reveals that the District does
not have a contractual obligation to increase pay of its employees.
In 2009, St. Louis County enacted a wage freeze and prohibited merit pay increases for
all employees since that time. See Ex. L&B 106, Letter from County Executive Dooley. Since
October 2008, there have been no across the board pay increases in the City of St. Louis. See
Ex. L&B 107, Letter from City Mayor Slay. Further, the City initiated mandatory furloughs for
FY 2010 and FY 2011; eliminated shift differential pay for firefighters; reduced vacation and
holiday pay for firefighters; and suspended longevity step increases for police officers and
firefighters. Id.
The effect of not including the 3% annual inflation increase for wages, salaries and
overtime is set forth in Attachment A as Scenario 4, which is as follows:
158
Fiscal Rate L&B
Year Report 4
Revenue Increases (Table 3-11)
2012 4.3% 4.3%
2013 1 I.0% 8.6%
2014 12.0% 12.4%
2015 12.0% 11.6%
2016 12.0% I 1.7%
Rate Increases (Table 5-6 for $Ccf/month)
2012 4.2% 4.2%
2013 12.7% 10.4%
2014 13.4% 13.8%
2015 13.2% 13.0%
2016 13.2% 12,8%
Typical Residential Bills (Table 5-6 for
8Ccflmontl►)
2012 $28.73 $28.73
2013 $32.37 $31.73
2014 $36.71 $36.10
2015 $41.56 $40.79
2016 $47.05 $46.0I
Change in Residential Bills from Rate
Report (Table 5-6 for 8Ccflmonth)
2012 $0.00 $0.00
2013 $0.00 ($0.64)
2014 $0.00 ($0.61)
2015 $0.00 ($0.77)
2016 $0.00 ($1.04)
The Rate Commission determines that the record in this Proceeding supports a finding
that the use of a 3% increase per year for employee wages, salaries and overtime in the Rate
Change Proposal does not result in rates which impose a fair and reasonable burden on all classes
of ratepayers.
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(iii) Total Budget
It is Intervenor MIEC's position that the District's CIRP budget should be reduced by
approximately 10% to adjust for the fact that the District's estimates of the CIRP are highly
uncertain and the current cost projections are not reliable. Ex. MIEC 113, Prehearing
Conference Report, p. 7. MIEC points to Mr. Hoelscher's testimony that, because of the
economic conditions, the District received bids for capital work that "in some cases was 40%
below traditional costs." See Ex. MSD 9B, Brian Hoelscher Direct Testimony. Therefore,
additional funds were available which were used to complete contingency projects beyond the
original program budget. Id. In light of this situation, MIEC asserts that the District is
overstating its budget for projects, sometimes up to 40%. Ex. MIEC 113, Prehearing Conference
Report, p. 8. In short, ratepayers have already paid more for projects that, in actuality, cost much
less. Id.
MIEC asserts that by including overstated cost estimates in the District Rate Change
Proposal, the District will have a reduced incentive to manage costs. Id. at 4. MIEC states that
this is unacceptable. Id. If sewer rates spike dramatically, especially in this economic climate,
businesses could re-evaluate their decision to maintain offices and plants in the St. Louis area.
Id. Due to the uncertainty of the CIRP program, the budget. and the associated inflation with the
CIRP, MIEC recommends the District reduce the CIRP estimated expenses by 10%.
Intervenors AARP and CCM concur with Mr. Gorman's recommended adjustments that
would correct the budgets for the CIRP, which were overstated by approximately 10%. See Ex.
MIEC 89, Michael Gorman Supplemental Testimony. Intervenor Mr. Mueller concurs and
supports the findings of fact and the recommendations of the other Intervenors. See Ex. RM
114, Prehearing Conference Report.
160
The Rate Consultant believes that Rate Change Proposal should reflect the adopted FY
2012 budget as well as include the adjustments to pension expenses related to the new adopted
plan in place of the previous plan. Ex. L&B 30, William Stannard Rebuttal Testimony, p. 12.
While there is a lack of clarity in some of the assumptions used by the District for inflation
factors, that in itself does not make them unreasonable. Id. at p. 13. The assumptions used by
the District do not appear unreasonable to the Rate Consultant and are similar to assumptions
they have used for similar municipal utility clients when projecting expenses as part of recent
projects. Id.
The Rate Commission determines that the record in this Proceeding supports a finding
that the C1RP budget in the Rate Change Proposal is reasonable and results in rates which
impose a fair and reasonable burden on all classes of ratepayers.
(c) Bad Debt Expense
The District has assumed that bad debt provisions will increase steadily over the four year
District Rate Change Proposal period as rate increases overtake the efficacy of the enhanced
collection efforts. The District states that when examining the District's bad debt provision, it
should be noted that the District does not have the ability to incent payment through shut off of
water services. Service shut off is the strongest collection tool available to water utilities. The
District states that the lack of this tool must be considered by the Rate Commission. Without the
ability to shut off water service there is no way to shut off sewer service without causing health
and safety issues for the community and incurring a great cost. MSD Executive Director, Jeff
Theerman testified at the Preheating Conference on September 28, 2011 that while the Missouri
Revised Statutes do allow a sewer district to contract with any water corporation to terminate
water services to any customer premises for nonpayment of a sewer bill, the City of St, Louis is
161
exempt from such provision. See Mo. Rev. Stat. §§ 393.015-.016 (Supp. 2009). St. Louis
County is also exempt from this provision when its population is more than one million
inhabitants. Id. Further, Mr. Theerman testified that water companies are hesitant to enter into
such agreements because they do not like to turn off water service to paying customers. See Ex.
MSD I08, Prehearing Conference Transcript, p. 27.
The District Rate Change Proposal assumes the level of the bad debt provision will
decrease in FY 20I2 and FY 2013 due to the initial impact of the more aggressive collection
efforts implemented in FY 2011. The District states that while the enhanced collection efforts
will be in place in an attempt to address delinquent customer bills through FY 2016, it is
anticipated that bad debt will rise later in the rate cycle due to the impact of the proposed rate
increases.
It is Intervenor MIEC's position that bad debt expense is substantially overstated. MIEC
states that the bad debt expense should reflect the normalized historical levels of customers'
failure to pay their bills. Ex. MIEC 1 1 3, Prehearing Conference Report, p. 7. From the period
2006 to 2010, the District's actual bad debt expense is represented with a factor of approximately
3.18% of the actual total wastewater revenue billings. See Ex. MIEC 29, Michael Gorman
Rebuttal Testimony, p. 16. It is MIEC's position that the District's expense is based on a highly
abnormal factor of 196%. MIEC recommends using a normal factor of 3.18% (a number still
much higher than other Missouri utility companies) to reflect historical actual debt expense, a
new enhanced collection procedure now implemented by the District to improve the abnormal
level of debt expense experienced in the economic recession, and the projection that the
economy will improve over the next four years while rates are in effect. Ex. MIEC 63, Michael
Gorman Surrebuttal Testimony, p. 13-14. Moreover, as the MIEC's review of the electronic
162
model uncovered, the District should have reflected a decrease (instead of an increase) in the bad
debt expense in 2013. Ex. MSD 9B, Brian Hoelscher's Direct Testimony, p. 5.
Intervenor BJH's position is that the District should use a bad debt expense escalator of
3% per year rather than the District proposed 3.96%. Ex. BJH 64, Billie LaConte Surrebuttal
Testimony, p. 4.
Intervenors AARP and CCM support the adjustments of MIEC, as they correct excessive
bad debt expense assumptions. See Ex. BJH 88, Billie LaConte Supplemental Testimony; Ex.
MIEC 29, Michael Gorman Rebuttal Testimony; and Ex. MIEC 63, Michael Gorman Surrebuttal
Testimony. AARP and CCM support the adjustments contained in the testimony of BJH witness
Ms. LaConte and MIEC witness Mr. Gorman. Id. Intervenor Mr. Mueller concurs and supports
the findings of fact and the recommendations of the other Intervenors. See Ex. RM 114,
Prehearing Conference Report.
The Rate Consultant's position is that the District's use of bad debt expense in the
District Rate Change Proposal is not unreasonable. Ex. L&B 30, William Stannard Rebuttal
Testimony, p. 15.
The Rate Commission determines that the record in this Proceeding supports a finding
that the bad debt expense included in the Rate Change Proposal is reasonable under the
circumstances.
The Rate Commission determines that the record in this Proceeding supports a finding
that the operation and maintenance expenses included in the Rate Change Proposal, after 1)
consideration of the change from a defined benefit to a defined contribution pension plan, 2)
some decrease in the inflation rates for operation and maintenance expenses and 3) not including
163
the utilization of a 3% annual increase for wages, salaries, and overtime, will result in rates
which impose a fair and reasonable burden on all classes of ratepayers.
WATER USAGE LEVELS/BILLED VOLUME
As part of the District Rate Change Proposal, the District has provided assumptions for
the future billed volume and water usage. The assumptions are based on two factors. First,
nationwide water consumption rates are decreasing and second, water conservation efforts for
both residential and non-residential efforts is a major factor which contributes to a steady decline
in billed volume for water usage at water and wastewater utilities nationwide. The District
proposes that the Rate Commission should appropriately consider this trend and adopt the
assumption given by the District in the District Rate Change Proposal.
The District Rate Change Proposal includes a forecast of a decline in wastewater usage
during the forecast period FY 2011 through FY 2016. Specifically, it is projected to decrease
approximately 1.9% during this period, based on historical data. See Table 3-1 of MSD 1, Rate
Change Proposal.
The District Rate Change Proposal projects the number of metered customers to decrease
nearly 0.2% from 348,200 in 2011 to 347,600 in 2016 and the number of unmetered customers is
projected to decrease nearly 2.3% from 77,400 in 2011 to 75,600 in 2016, The total number of
customer accounts is expected to decrease at an average rate of 0.1% per year throughout the six -
year study period. See Ex. L&B 30, William Stannard Rebuttal Testimony, p. 1 1. The projected
change in the number of customers is based on the historical trend in customer accounts between
2006 and 2010.
The District's experience of declining contributed wastewater volumes is consistent with
wastewater utilities throughout the United States. This decline is due to several factors,
164
including conservation awareness by customers, enhanced efficiency of appliances and plumbing
fixtures, and the recent economic slowdown. The Rate Consultant believes the District's
forecast of continued declines in contributed wastewater volumes is reasonable. See Ex. L&B
30, Rebuttal Testimony of William G. Stannard, p. 11, 11. 19-23.
In households across the U.S., water usage is declining slowly but steadily; a trend that is
expected to continue for the next 15 years or even more. See American Water, Exh. L&B 80,
cover page. A 2010 study by the Water Research Foundation concluded that "a pervasive dcline
in household consumption has been determined at the national and regional levels." As reported
in Journal AWWA, the study, which tracked trends in hosuehold water use in North America
over the past 30 years, found that "a household in the 2008 billing year used 11,678 gallons less
water annually [an approximate I3 percent decline] than an identical household did in 1978. Id.
This finding is supported by American Water's experience, which serves approximately
5 million people in more than 30 states and parts of Canada. The company reported in its 2010
Annual Report a declining trend in residential water usage for all of its regulated states to be in
the range of 0.5 to 2 percent annually over the last ten years. Id.
Background - Flow rates from different appliances
Type of
Use
Pre-
Regulatory
Flow'
New Regulatory Standards and Flows
WaterSense I
ENERGY STAR
Current
Specification+
New Standard
(maximum)
Federal Standard
Year
Effective
Tcilals
3.5 gpf
1.6 gpf
U S Energy
Policy Act
1994
1.28 gpc
Clolhca
washers •
41 gpl
i 14.6 WFl
Estimated 26.6 gpl
19.5 Wfi
Energy independence8
SecuutyAct of 2007
20 11
Estimated 22.4 gla!
18.0 WFI
lto
S r�els
2.75 gpm
2.5 gpm at 80 psi
U S Energy
Policy Act
1994
No specification
Faucets"'
2.75 m
9P
2.5 gpm at 80 psi
(i.5 913n11
118. Energy
Policy Act
1694
t.3 gpm 0160 PSI
Dish -washers
14.0 gpc
6.5 gpc for standard;
4.5 gpc for compact
Energy Independence 8
$ecur±tyAm c12007
2010 4.0
5.8 gpc far standard:
gpc for compact
S:,arta !yp 1aLtakof4tWa:arU C r-. n kit]. r;•chers,. 200f
A� e*age dstgnalea aal• pn s ee r sac ens a sse r f,ctcr Sc:aGa:CJlahon6 r
• Reg itazn+eai,,nyirn si 2 5 gpm ai 51 cc, but lavatory faucets available all 5 gem'easarw rsee calc.+lacana •
• Saurce-ngy..w•ra.epa gav . ifersaraa, onomfp:.zvr4.eneraysrar.yo,we:eites
See Ex. L&B 80, American Water, p. 3, Figure 3.
The District's experience in declining wastewater volumes during the period 2001 to
2010 has exceeded 2% on an average basis.
Total Contributed
Volume
Percent Change
2001
85,898,356
2002
83,193,224
-3.15%
2003
81,623,436
-1.89%
2004
79,908,896
-2.10%
2005
74,464,277
-6.81%
2006
80,9I 5,821
8.66%
2007
78,510,321
-2.97%
2008
77,882,010
-0.80%
2009
73,779,503
-5.27%
2010
70,834,707
-3.99%
AVERAGE
78,701,055
-2.12%
2001-2005 data from Ex. MSD 4 of 2007 Rate Filing: 2006-2010 data from Ex. MSD 4a.
The Rate model calculates estimated revenues by applying the District's current rate
schedule to projections of customers and billed wastewater volume based on historic annual
trends. All other revenues are projected based on prior levels with adjustments for any expected
changes. Unencumbered balances are not projected by the District, however, they are projected
in the rate model for purposes of estimating interest income. End of year encumbrances are
equal to the amount of encumbrances at the beginning of the year plus appropriations made for
the current fiscal year less payments to the various contractors or venders related to those prior
166
encumbrances or current appropriations during the year. See Ex. MSD I 8A, Response to Second
Discovery Request of Rate Commission, Question 10.
Intervenor MIEC suggests that economic activity within the service territory suggests that
economic activity has bottomed out and will likely improve during the period rates will be in
effect. Ex. MIEC 29, Michael Gorman Rebuttal Testimony, p. 8. Hence, MIEC believes it is not
reasonable to assume that District sales will continue to decline. Rather, an increase in economic
activity will more likely produce an increase in sales and revenue at current rates. Ex. MIEC 63,
Michael Gorman Surrebuttal Testimony, p. 9. MIEC believes it more reasonable to assume that
as the economy recovers, increased usage by customers will recover, at which point those
customers will again start making discretionary investment in water conservation equipment. Id.
at p. 10. The MIEC consultant testified that this will have the dual impact of increasing sales
relative to the 2011 depressed level, but again show a decline in use per customer as those
customers reap the benefit of those discretionary water conservation appliance investments. Id.
According to the MIEC consultant, it is simply not rational to expect that sales will decline due
to harsh economic times, but customers would make discretionary investment to reduce water
consumption. Id. It is MIEC's position that the forecast should include increased revenues.
MIEC asserts that the total impact of this adjustment is over $1 million per year in revenue at the
current rates. See Ex. MIEC 63, Michael Gorman Surrebuttal Testimony, p. 9.
It is the Rate Consultant's opinion that the District's long term reduction in water
consumption used for wastewater billing is consistent with the experience of wastewater utilities
throughout the United States, and as such, agrees with the District. The Rate Consultant believes
the District's forecast of continued decline in contributed wastewater volumes is not
unreasonable. See Ex. L&B 30, William Stannard Rebuttal Testimony, p. 11.
167
It is BJH's position that the District's customer count would remain relatively the same
throughout the rate period. Ex. BJH 88, Billie LaConte Supplemental Testimony, p. 2. Usage
would decline by 036% by FY 2013, and then remain the same through FY 20I6. Id. Intervenors
AARP and CCM have not filed testimony with respect to this issue. Intervenor Mr. Mueller
concurs and supports the findings of fact and the recommendations of the other Intervenors. See
Ex. RM 1 14, Prehearing Conference Report.
The Rate Commission determines that the record in this Proceeding supports a finding
that the wastewater usage levels and volumes assumed in the District Rate Change Proposal are
reasonable and will result in rates which impose a fair and reasonable burden on all classes of
ratepayers.
The Rate Commission, after consideration of all facts and circumstances disclosed in
these Proceedings, finds and determines that a Rate Change Proposal which (i) uses
appropriation financing for the CIRP, (ii) structures debt amortization with payments of
both principal and interest, (iii) includes overstated inflation rates for operation and
maintenance expenses, (iv) includes a 3% annual increase for wages, salary and overtime,
and (v) does not reflect the change from the defined benefit to a defined contribution plan
does not impose a fair and reasonable burden on all classes of ratepayers.
The Rate Commission, after consideration of all facts and circumstances disclosed in
these Proceedings, finds and determines that a Rate Change Proposal which (i) uses cash
flow financing for the C1RP, (ii) structures debt amortization on an interest only basis, (iii)
reflects some decrease in the inflation rates for operation and maintenance expenses, (iv)
does not include the utilization of a 3% annual increase for wages, salaries and overtime,
168
and (v) reflects the change from the defined benefit to a defined contribution plan imposes
a fair and reasonable burden on all classes of ratepayers.
169
RECOMMENDATIONS
During these Proceedings, the Rate Commission faced two matters relating to
transparency which are of great concern to the Rate Commission.
The inability of the Rate Commission, its Rate Consultant, the Intervenors, and their Rate
Consultants (the "Participants") to have prompt access to the Black & Veatch Electronic Model
upon which the Rate Change Proposal was based unnecessarily delayed, impeded and made
more costly the Rate Change Proposal. The Rate Commission recommends that the Board of
Trustees, as part of any selection process for a Rate Consultant to the District for any future rate
change proposal, require that all Electronic Models he made immediately available to
Participants upon the execution of simple nondisclosure requirements.
The Rate Change Proposal was based primarily on the Consent Decree. The
unavailability of the Consent Decree to the Rate Commission and the Participants at the time of
the issuance of the Rate Change Notice required a substantial duplication of effort when the
Consent Decree did become publicly available and made more costly the Rate Change Proposal.
The Rate Commission recommends for future Rate Change Proposals the Board of Trustees
require that any document which constitutes an essential element upon which the Rate Change
Proposal purports to comply he immediately available to the Participants, or alternatively that a
Rate Change Notice not be issued until such document is available.
The Rate Commission wishes to comment on the District's bad debt calculations and
processes. The District has assumed that the level of bad debt will decrease in FY 2012 and FY
2013 due to the initial impact of the more aggressive collection efforts implemented in FY 2011.
The District has assumed that provisions for bad debt expense will then increase steadily over the
four year Rate Change Proposal. The Rate Commission is concerned that the more aggressive
170
collection procedures will not result in the reduction of delinquent customer accounts. For
example, the ❑istrict does not have the ability to shut off water services for the failure to pay
sewer bills. The Rate Commission recommends that the Board of Trustees aggressively pursue
legislative solutions or other remedial measures.
171
MINORITY REPORTS
COMMISSIONERS KOENEN, LIYEOS, SCHNEIDER, SEIDEL, AND STEIN SUBMIT
THIS MINORITY REPORT REGARDING THE TERM OF THE RATE CHANGE
PROPOSAL
We must respectfully dissent from the majority decision that the Rate Change
Proposal of four years is reasonable and results in rates which impose a fair and
reasonable burden on all classes of ratepayers. We believe a term of less than four years
would be reasonable.
Our decision is based on the following factors:
I) As of the date ❑f this Report, the Consent Decree has not yet been approved by
the Court. A shorter terni would allow for a new rate change proposal once the Consent
Decree is approved, which will provide more certainty in evaluating the capital plan and
rate proposal.
2) The SSO Control Plan on which the Consent Decree is based will not be
submitted to the EPA until December 2013. 'Ile SSO Plan will provide a schedule of
projects, however, the District testified that a draft of the SSO Plan is not available. It
places an unreasonable burden upon ratepayers to fund a plan which has not been drafted,
much less approved. As noted by the District's financial advisor, the filing of the rate
change notice "is premature."
3) With the current economic conditions, it is too difficult to accurately predict
levels of bad debt expense and lie amount of customer sales. Similarly, it is difficult to
predict what the correct inflation factors will be to utilize in the Rate Change Proposal. It
I72
places an unreasonable burden upon the ratepayers to cover what may be overstated cost
estimates over the four year period.
4) The District presented no independent authority to support its position that a
shorter rate would impair the District's ability to issue bonds. Ms. Zimmerman is the only
witness to address the issue, relying solely on conversations with the District's financial
advisor. When the District's financial advisor, Ms. Vanda, testified, she provided no
support for this position.
5) The Rate Consultant stated that other utilities frequently impose new rates
annually. By inference, a two-year or three-year rate would not be unreasonable.
We believe that although a shorter rate change proposal will result in additional
costs related to the rate review process, this cost is greatly outweighed by the ability to
provide accurate projections upon which rate increases are based. It is our opinion that
shortening the time of the rate period allows the District to better predict future costs, and
increase the ability to impose rates which are in fact fair and reasonable.
173
COMMISSIONERS KOENEN, SCHNEIDER, SEIDEL, STEIN AND TOENJES SUBMIT
THIS MINORITY REPORT REGARDING THE INTEREST RATE USED IN THE
RATE CHANGE PROPOSAL
We respectfully dissent from the majority decision that the use of the 5.5% interest
rate as described in the Rate Change Proposal results in rates which impose a fair and
reasonable burden on all classes of ratepayers. We believe that a rate of 4.65% would be
reasonable.
The ❑istrict assumes, and the majority supports, a 5.5% interest rate for all bonds
anticipated to be issued over the four years of the Rate Change Proposal. We believe that
the bond interest rate of 5.5% is substantially overstated. The District and its consultants
offered no support for a bond rate in excess of 4.65%. We believe that Intervenors
presented reliable evidence of lower interest rates, and thus we recommend that a rate of
4.65% be used. Such a rate will still overstate the debt service cost of new revenue bond
issuances during the forecast period. Fx. MIEC 89, Michael Gorman Supplemental
Testimony, p.3-4.
174
COMMISSIONER TOMAZI SUBMITS THIS MINORITY REPORT REGARDING THE
EXPENSE INFLATION RATES USED IN THE RATE CHANGE PROPOSAL
I respectfully dissent from with the majority's conclusion that the expense inflation
rates utilized in the Districts' operation and maintenance calculations are overstated and
that the use of these expense inflation rates will not result in rates which impose a fair and
reasonable burden upon all classes of ratepayers.
The Rate Change Proposal contains the District's operation and maintenance
expense inflation rates which are based on a composite of inflation indices specific to the
type of expense. I find that the District's statements that it used indices and projections
more closely correlated to historical trends for specific types of expense to be persuasive.
The Intervenors proposed a composite inflation rate 2.25%. The Rate Commission
provided no alternative, I believe that the expense inflation rates proposed in the Rate
Change Proposal represent the best estimates that can be made at this time.
I believe that the record in the Proceedings supports a finding that the expense
inflation rates used in the Rate Change Proposal result in rates which impose a fair and
reasonable burden on all classes of ratepayers.
175
COMMISSIONERS TOMAZI AND O'CONNELL SUBMIT THIS MINORITY REPORT
REGARDING USE OF WAGE AND SALARY INCREASE IN RATE PROPOSAL
We respectfully dissent from the majority decision that a 3% increase per year for
employee wages, salaries and overtime over the four year term of the Rate Change
Proposal would not result in rates which impose a fair and reasonable burden on all classes
of ratepayers.
The District Rate Change Proposal contemplates pay increases for employees over
the rate change period of 3% annually in combined wages, salaries and overtime. In
calculating the Rate Change Proposal, the majority supports the elimination of this
increase in the calculations for each of the four years.
We recommend as an alternative that the Rate Change Proposal provide for no
increase in combined wages, salaries and overtime for calendar years 2012 and 2013 and
contemplate utilizing a 3% pay increase for calendar years 2014 and 2015.
176
COMMISSIONERS LIYEOS AND STEIN SUBMIT THIS MINORITY REPORT
REGARDING THE AMOUNT OF THE CIRP BUDGET USED IN THE RATE CHANGE
PROPOSAL
We respectfully dissent from the majority decision that the record in (his
Proceeding supports a finding that the CIRP budget in the Rate Change Proposal is
reasonable and results in rates which impose a fair and reasonable burden on all classes of
ratepayers. We believe that the CIRP budget should be reduced by 10% in order to result
in reasonable rates.
Our decision is based on testimony that the estimates used in the CIRP are highly
uncertain and the current cost projections are not reliable. See Ex. MIEC 113, Prehearing
Conference Report, p.7. The District has an obligation to closely manage costs and budgets
in order to make the rate proposal fair and equitable to the ratepayers. Intervenor MIEC
points out Mr. Hoelscher's testimony that, because of the economic conditions, the District
received bids for capital work that "in some cases was 40% below traditional costs." Ex
MSD 9B, Brian Hoelscher Direct Testimony. As a result of the uncertainty of the CIRP
program, the budget, and the associated inflation of the CIRP we believe it would be
reasonable to reduce the CIRP budget by 10%.
177
Respectfully submitted, this 17`x' day of October, 2011, by the Rate Commission of the
Metropolitan St. Louis Sewer District.
Nancy Bowser
Paul Brockman
Ida Casey
Brad Goss
Glenn Koenen
George Liyeos
Mike O'Connell, Ill
LASHLY & BAER, P.C.
John Fox Arnold
Lisa O. Stump
Kathryn B. Forster
714 Locust Street
St. Louis, Missouri 63101
(314) 621-2939 — Telephone
(314) 621-6844 — Fax
Attorneys for The Rate Commission
Metropolitan St. Louis Sewer District
Tom Post
Eric Schneider
Mike Seidel
John L. Stein
Leonard Toenjes
George D. Tomazi
Ralph Wafer
OF COUNSEL
RAFTEL1S FINANCIAL CONSULTANTS,
INC.
William Stannard
Thomas Beckley
3013 Main Street
Kansas City, Missouri 64108
(816) 285.9020 — Telephone
(816) 285-9021 — Fax
of the Rate Consultant for The Rate Commission of
the Metropolitan St. Louis Sewer District
178
ATTACHMENT A*
Alternative Scenarios Requested by Lashly & Baer
Fiscal Rate L I(l3 I .413 1.&13 [ L&B L&B L&B
Year Report 1 ? 3 4 l&2 1,2&3 1,2,3&4
Revenue increases (Table 3-11)
2012 4.3% 4.3% 4.3% 4.3% 4.3% 4.3% 4.3% 4.3%
2013 11.0% 8.9% 8.5% 10.8% 8.6% 8.5% 8.5% 7.5%
2014 12.0% 12.6% 11.5% 11.9% 12.4% 10.0% 9.5% 9.2%
2015 12.0% 11.7% 11.3% 12.0% 11.6% 10.8% 10.9% 10.3%
2016 12.0% I3.2% 1I.6% 1I.9% 11.7% 12.8% 12.8% 12.3%
Rate Increases (Table 5-6 for 8Ccfintonth)
2012 4.2% 4.2% 4.2% 4.2% 4.2% 4.2% 4.2% 4.2%
2013 12.7% 10.7% 10.4% 12.4% 10.4% 10.4% 10.4% 9.3%
2014 13.4% 14.1% 12.9% 13.4% 13.8% 11.7% 11.2% 11.0%
2015 13.2% 13.0% 12.5% 13.1% 13.0% 11.7% 11.9% 11.4%
2016 13.2% 14.1% 12.6% 13.1% 12.8% 13.7% 13.8% 13.2%
Typical Residential Bills (Table 5-6 for 8Ccflmonth)
2012 $28.73 $28.73 $28.73 $28.73 $28.73 $28.73 $28.73 $28.73
2013 $32.37 $31.81 $31.73 $32.29 $31.73 $31.73 $31.73 $31.39
2014 $36.71 $36.28 $35.83 $36.63 $36.10 $35.43 $35.27 $34.85
2015 $41.56 $41.00 $40.32 $41.43 $40.79 $39.59 $39.46 $38.81
2016 $47.05 $46.79 $45.41 $46.87 $46.01 $45.02 $44.89 $43.93
Change in Residential Bills from Rate Report ('Table 5-6 for
8Ccflmonth)
2012 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00
2013 $0.00 ($0.56) ($0.64) ($0.08) ($0.64) ($0.64) ($0.64) ($0.98)
2014 $0.00 ($0.43) ($0.88) ($0.08) ($0.61) ($1.28) ($1.44) ($1.86)
2015 $0.00 ($0.56) ($1.24) ($0.13) ($0.77) ($1.97) ($2.10) ($2.75)
2016 $0.00 ($0.26) ($1.64) ($0.18) ($1.04) ($2.03) ($2.16) ($3.12)
1.&B 1 - Use cash flow rather than appropriations basis for C1RP. Shift bonds as required.
L&B 2 - Restructure debt service on senior bonds to reflect interest only payments.
L&B 3 - Switch from Defined Benefits to Defined Contribution Pension Plan.
L&B 4 - Eliminate 3°/o annual inflation increase for wages, salaries and overtime.
*Does not reflect any adjustments for reductions in the rates of inflation for the operation and
maintenance expenses discussed at pp. 152-156.
179
METROPOLITAN ST. LOUIS SEWER DISTRICT
2011 WASTEWATER RATE CHANGE PROPOSAL
RECORD OF PROCEEDINGS INDEX
Ex. No. Description Disk No.
MSD I MSD Wastewater Rate Change Proposal 1
MSD 1 A Cover Letter from Jeffrey Theerman to Board of Trustees 1
MSD 1B Cover Letter from Jeffrey Theerman to Rate Commission 1
MSD 2 MSD Public Notice 1
MSD 3 Rate Proposal Summary 1
MSD 4 Rate Model Tables 1
MSD 4A Detailed Calculations and Comments ].
MSD 5 Rate Mode] Formulas 1
MSD 6 2007 Rate Commission Recommendation Report 1
MSD 7 2008 Rate Commission Recommendation Report 1
MSD 8 FY12 Operating Budget Document 1
MSD 8A FY12 CIRP Budget Document I
MSD 9 Direct Testimony ofJeffrey Theerman, MSD 1
MSD 9A Direct Testimony of Susan Myers, MSD ]
MSD 9B Direct Testimony of Brian Hoelscher, MSD I
MSD 9B1 CIRP Project List I
MSD 9C Direct Testimony of Jonathan Sprague. MSD I
MSD 90 Direct Testimony of Jan Zimmerman, MSD 1
Ex. No. Description Disk No.
MSD 9E Direct Testimony of Karl Tyminski, MSD 1
MSD 9F Direct Testimony of Keith Barber. Black & Veatch 1
MSD 9G Formal Submission Cover Memo to Nancy Bowser
RC 10 Missouri Industrial Energy Consumers Intervenor Application 1
RC 1 OA Mr. Robert Mueller Intervenor Application 1
RC 10B Covidien Intervenor Application 1
RC IOC Barnes -Jewish Hospital Intervenor Application 1
L&B 11 Discovery Request of Lashly & Baer to MSD 5/26/11 1
L&B 11A Cover Letter to Nancy Bowser 1
MSD 11B MSD Response to Discovery Request of Lashly & Baer 1
MSD I IC Fitch 2011 Water and Wastewater Medians
MSD 11D Fitch District of Columbia Water & Sewer 2010-10-15......... 1
MSD 11E Fitch Honolulu Wastewater System 2010-10-25 1
MSD 11F Moody Honolulu Wastewater System 2010-10-15 1
MSD HG Moody Northeast Ohio Regional Sewer 2010-11-2 1
MSD 111-1 S&P District of Columbia Water & Sewer 2010-10-12 1
MSD 111 S&P Honolulu Wastewater System 2010-10-14 1
MSD 11.1 S&P Northeast Ohio Regional Sewer 2010-11-1 1
MSD 1 I K Bond Master Ordinance 11713 1
MSD 11L Supplemental Bond Ordinance 11736 1
MSD 11M Supplemental Bond Ordinance 11986 1
MSD 11N Supplemental Bond Ordinance 12 179 1
2
Ex. No.
MSD 110
MSD 1 113
MSD 11Q
MSD 11R
MSD 11S
MSD 11T
MSD I l U
MSD I IV
MSD I 1 W
MSD I 1 k
MSD 1 I Y
MSD 1 i Z
MSD 1 l Al
Description Disk No.
Supplemental Bond Ordinance 12332 1
Supplemental Bond Ordinance 12343 1
Supplemental Bond Ordinance 12755
Supplemental Bond Ordinance 12771
Supplemental Bond Ordinance 12937
Supplemental Bond Ordinance 13024
Supplemental Bond Ordinance 13025
Supplemental Bond Ordinance 13183
Approval of the State Fiscal Year 2012 Clean Water State Revolving Fund
Intended Use Plan
Intergovernmental Cooperation Agreement between MSD
and City of Arnold
Federal Requirements as of 4/19/94
1993 Black & Veatch Final Report on Alternative Rate Structures
District's Debt Management Policy
MSD 11.A2 2009 CAFR
MSD l 1 A3 2010 CAFR
MSD I1A4
MSD 11A5
MSD 11A6
MSD 11A7
MSD 11A8
2009 MSD Budget
2010 MSD Budget
2009 MSD CIRP Budget Supplement
2010 MSD CIRP Budget Supplement
Resolution #2780 CIRP FY 2009
MSD I 1 A9 Resolution #2834 CIRP FY 2010
3
Ex. No. Description Disk No.
MSD 11A10 CIRP Project Listings 2006-20] 0 1
MSD 11A 11 SKME Priority Ranking
MSD 11 A 12 Memo on Evaluation of Staffing Levels for Watershed Consultant Program
MSD 1 1A13 NACWA 2008 Survey
MSD 1 I A 14 MSD In -sources Flow Metering Program PPT
MSD I 1 Al 5 System Wide Cleaning Program PPT
MSD 11A16
MSD t 1 A17
MSD 11A18
MSD 11A19
MSD I 1 A20
MSD 1 1 A21
MSD 1IA22
MSD 11A23
MSD 11A24
MSD 11A25
MSD 11A26
MSD 11 A27
MSD 11A28
MSD 11 A29
Collection Services Audit December 2009 1
Real Estate Acquisition and Relocation Assistance Programs
Review FY 2010 1
Corporate Claims Management Inc, Review March 2010 1
Emergency Repairs Review FY 2010 April 2010 1
Miscellaneous Revenue Review December 2010 1
1
Review of IT General Computing Controls Pump Station & Treatment Plant
Process FY2011
Independent Auditors' Report and Financial Statements Employee's
Pension Plan Dec. 2009 1
Agreed Upon Procedures Report Schedule of Net Pledged Revenue
June 2010 1
Schedule of Project Expenditures Under Resolutions 2533, 2808,
and 2889 June 2010 1
Independent Auditors' Report on Federal Awards June 2010 1
Engineering Time and Materials Contract Review February 2011 1
Effective Utility Management Self -Assessment Final Report March 2011 1
Independent Auditors' Report and Financial Statements June 30.2010
US and State of Missouri's Petition Filed June 11. 2007 t
4
Ex. No. Description Disk No.
MSD 11A30 Coalition For the Environment's Motion to Intervene 1
MSD 11A31 Resolution #2232 1
MSD 11A32 EPA Consent Decree Authorization to Sign Board of Trustees
Agenda Detail Sheet 1
MSD 11A33 MSD Aged Receivable Report Fiscal Years 2006-2011 1
MSD 11A34 MSD Volumes Billed FY 2011 1
MIEC/BJH 12 MIEC/BJH June 8. 2011 Proposal to revise Rate Commission
Procedural Schedule 2
L&B 12A L&B June 8.2011 Letter to Rate Commission Re: MIEC/BJH
Proposal to change Procedural Schedule 2
MSD 13 MSD Response Amendment to L & B 5/26/11 Discovery Request 2
MSD 14 MSD Opening Statement Rate Commission Technical Conference
6/13/11 2
MIEC 15 Discovery Request of MIEC to MSD 6/7/11 2
MSD 16 MSD Response to 617111 Discovery Request of MIEC 2
MSD 16A Bond Buyer 25 -Year Revenue Bond Index 2
MSD 16B Force Main Business Case 2
MSD ] 6B 1 Stormwater Work Reallocation 2
MSD 16C Five Year Project Plan by New 2010 Categories 2
MSD 16D Infrastructure Listing - WW and Storm Sewer 2
MSD 16E 2008 CAFR 2
MSD 16F Map of Contructed SSO & CSO 2
MSD 16G Excerpt from 3/7/07 Direct Testimony given by Randy Hayman
MSD 16G1 2002 Wastewater Rate Change Proposal 2
5
Ex. No. Description Disk No.
MSD 16H 2008 Operating Budget 2
MSD 16I 2008 CIRP Supplemental Budget 2
MSD 16.1 2011 Operating Budget 2
MSD 16K 2011 CIRP Supplemental Budget 2
MSD 16L S&P Credit Rating Report 2
MSD 16M Moody's Credit Rating Report 2
MSD 16N Fitch Credit Rating Report 2
MSD 160 April 2011 Finance Committee Minutes 2
MSD 16P 2006 CAFR 2
MSD 16Q 2007 CAFR 2
M S ❑ 16R 2006 Annual Audit 2
MSD 16S 2007 Annual Audit 2
MSD 16T 2008 Annual Audit 2
MSD 16U 2009 Credit Rating Presentation 2
MSD 16V Series 2010B Preliminary- Offering Statement 2
MSD 16W Due Diligence Questionnaire Direct Loans Draft 2
MSD 16X Due Diligence Questionnaire Direct Loans Assignments 6/16/09 2
MSD 16Y MDNR User Charge Presentation 9/9/09 2
MSD 162 SRF Hearing for Digester Rehab 2
MSD 16A1 SRF Public Hearing 9/15.09 2
MSD 16A2 Federal Funding Earmarked for SRF 2
MS 16A3 Article from The Source Utility Enterprise Management 2
6
Ex. No. Description Disk No.
MSD 16A4 SRF Loan Application MO River Secondary Expansion 10/12/09
MSD 16A5 2009 Completed Application
MSD 16A6 Completed 2009 Ec Recovery App MO River Digester
MSD 16A7 Completed 2009 Ec Recovery Applications MSD
MSD I 6A8 MSD Energy Loan Submittal May 2011
MSD 16A9 Communications WRDA Requests
MSD 16A10 Cross Reference of Materials to Rate Proposal
MSD 16A1 1 Survey of Typical Monthly Wastewater Bills 50 Largest Cities 2
MSD 16A 12 All Muni Bond 2
MSD 16A13 Fund Balance Report 2
MSD 16A14 Wet Weather Study 2
MSD 16A15 Low Income Brochure 2
MSD 17 Transcript of June 13, 2011 Technical Conference 2
L&B 18 Second Discovery Request of Lashly & Baer to MSD 6/24/11 3
MSD 18A MSD Response to Second Discovery Request of Lashly & Baer 3
MSD 18B MOU - United Wastewater Workers Association 3
MSD 18C MOU - American Federation of State, County and Municipal Employees
Local 410 3
2
MSD 18D MOU - Bricklayer Local I of Missouri, Electricians Local 1.
International Union of Operating Engineers Hoisting Local 513,
Machinists District 9 3
MSD 18E Personnel Services Increase Per Year 3
MSD 18F Ordinance 13180 - Defined Contribution Plan 3
7
Ex. No.
MSD 18F1
MSD 18F2
MSD 18F3
MSD 18F4
MSD 18F5
MSD 18F6
MSD 18F7
MSD 18G
MSD 18H
MSD 18H1
MSD 181-12
MSD 18H3
MSD 18H4
MSD 18H5
MSD 18H6
MSD 18H7
MSD 18H8
MSD 181
MSD 18J
MSD 18K
MSD 18L
Description Disk No.
Ordinance 13181 - Pension Plan 3
United Healthcare -- Medical 3
Ameritas — Dental
MetLife — Life
Tri-Star Benefit Systems Inc
Liberty Mutual - Long -Term Disability
Civil Service Rules and Regulation July 2007
MSD Inflation Trend Analysis
US District Court Counterclaim Filed 9/21/2007
US District Court Counterclaim Filed 11/20/2007 Document 25
US District Court Counterclaim Filed 11/20/2007 Document 26
US District Court Counterclaim Filed 11/20/2007 Document 28
US District Court Counterclaim Filed 3/10/2008
US District Court Counterclaim Filed 3/24/2008
US District Court Counterclaim Filed 4/3/2008
US District Court Counterclaim Filed 9/12/2008
US District Court Counterclaim Filed 8/30/2009
Ordinance 13021
Delinquent Accounts & Billing Adjustments Procedures
Lien Placements by Month FY2009 and FY20] 0
Settlement Guidelines
3
3
3
3
3
3
3
3
3
3
3
3
3
3
3
3
3
MSD 18M Collection Law Services RFP 1416 3
8
Ex. No.
MSD 18N
MSD 180
MSD 18P
MSD 18Q
MSD 18R
MSD 185
MSD 18T
MSD 18U
MSD 18V
MSD 18W
MSD 18X
MSD 18Y
MSD 18Z
MSD 18A1
MSD 18A2
MSD 18A3
MSD 18M
MSD 18A5
MSD 19
Description Disk No_
Contract with Heimos 3
Contract with Gusdorf 3
Contract with Kramer & Frank 3
Comparison of Delinquency Rates to Comparable Sewer Districts 3
Effect of Lack of High Impact Collection Methods 3
Delinquency Aging FY06-FY 11 3
Project Encumbrance Balance FY 2010 3
Current Status of 2008 Rate Proceeding C1RP Project 3
Schedule of Proposed CIRP on a Cash -Flow Basis 3
Tiered Compliance Charge Customers by Facility Name 3
Engineering Cost Allocations (2010 Actual Costs) 3
Feasibility Study 3
Tables G-1 through K-10 3
Bond Buyer Extract of Use of Debt by Water and Sewer Utilities 3
State Direct Loan Due Diligence Request Form 3
Direct Testimony Questions — Revision 3
Summary of CIRP Costs Cash Flow vs. Appropriation 3
Milliman 9/2/10 Letter - MSD Employees' Pension Plan 5
Second Discovery Request of MIEC to MSD 7/1/11 3
MIEC 19A MIEC Discovery Request 1-1 and 2-1 7/6/11 Letter to
MSD General Counsel 3
MSD Response to Second Discovery Request MIEC 3
Percent Recovery of Compliance Charge Revenue by Tier 3
MSD 19B
MSD 19C
9
Ex. No. Description Disk No.
MSD 19D
MSD 19E
L&B 20
BJH 21
L&B 22
MSD 23
MIEC 24
MSD 24A
MSD 24B
MSD 24C
MSD 24D
MSD 24D1
RAM 25
MSD 25A
MSD 25B
MSD 25C
BJH 26
MSD 26A
MSD 26B
AARP 27
Table 3-17 3
Amendment to Questions 2-6 and 2-7 of MSD Response to Second Discovery
Request of MIEC 3
Letter to MSD Board -Rate Commission Review of Consent Decree 3
MIEC Discovery Request 1-1 and 2-1 Letter to
MSD General Counsel from BJH 3
Letter to MSD Board - Request for Rate Commission Proceeding
45 Day Extension
Journal of the Meeting of the MSD Board of Trustees 6/29/11
Approval of Extension
Third Discovery Request of MIEC to MSD 7/13/11
MSD Response to Third Discovery Request of MIEC
Black & Veatch 7/28/2010 Contract
Black & Veatch 7/11/2011 Contract
Black & Veatch 7/28/10 Contract Work Papers
Black & Veatch 7/11/11 Contract Work Papers
Discovery Request of Robert A. Mueller to MSD 7/15/11
MSD Response to Discovery Request of Robert A. Mueller
MSD Monthly Bill Comparison
CSO Long -Term Control Plan June 1.2011 Letter from DNR
Discovery Request of Barnes -Jewish Hospital to MSD 7/15/11
MSD Response to Discovery Request of Barnes -Jewish Hospital
MSD Legal Expense Breakdown
Application to Intervene by AARP
10
a
3
3
3
3
a
3
3
3
3
3
3
_l
3
Ex. No. Description Disk No.
CCM 28 Application to Intervene by CCM 3
MIEC 29 MIEC Rebuttal Testimony (Michael P. Gorman) 7/I8/11 3
L&B 30 RC Rebuttal Testimony (William Stannard) 7/18/11 3
BJH 31 B1H Rebuttal Testimony (Billie LaConte) 7/18/11 3
L&B 32 Rate Commission Response to Application to intervene by
AARPandCCM 3
MSD 33 MSD Response to MIEC Legal Counsel - MIEC 7/6/11 Letter 3
MSD 34 MSD Response to BJH Legal Counsel - BJH 7/12/11 Letter 3
MIEC 35 Intervenor's Motion to Compel Discovery Responses
fromMSD7/19/11 3
MIEC 36 Fourth Discovery Request of MIEC to MSD 7/22/11 3
MSD 37 Alternative Proposal to Intervenor's Motion to Compel 7/27/11
Letter to L&B 3
MSD 38 Alternative Proposal to Intervenor's Motion to Compel 7/27/11
Letter to BJH 3
MSD 39 Alternative Proposal to Intervenor's Motion to Compel 7/27/Il
Letter to MIEC 3
MSD 40 Alternative Proposal to Intervenor's Motion to Compel 7/27/11
Letter to R Mueller 3
MSD 41 MSD Response In Opposition to Missouri Industrial Energy Consumers'
and Barnes -Jewish Hospital's and Mr. Robert A. Mueller's Motion To Compel
Discovery Responses from Metropolitan St. Louis Sewer District 3
MSD 41A Exhibits Associated with Exhibit MSD 4I
MSD 41B Prior Rate Proceeding Comparison Re: Rate Commission 8/2/11 Meeting 3
MSD 41C Total of 2003 and 2008 Cumulative Implemented Rate Proposals
vs. Actuals Re: Rate Commission 8/2/11 Meeting 3
lI
Ex. No.
MSD 42
L&B 42A
MSD 43
BJH 43A
BJH 43B
MSD44
MIEC 44A
MIEC 44B
MIEC 44C
MIEC 44D
MIEC 44E
MIEC 44F
MIEC 44G
MIEC 45
MSD 46
MSD 47
MSD 47A
L&.B 48
L&B 48A
MSD 49
Description Disk No.
MSD First Discovery Request to Rate Commission 7/29/11 3
Rate Commission Response to MSD First Discovery Request 3
MSD First Discovery Request to BJH 7/29/11 3
BJH Response to MSD First Discovery Request. 3
Attachment A to BJH Response to MSD First Discovery Request 3
MSD First Discovery Request to MIEC 7/29/11 3
MIEC Response to MSD First Discovery Request 3
Attachment MSD-MIEC 1-1 3
Attachment MSD-MIEC 1-7 3
Attachment MSD-MIEC 1-6 3
Attachment MSD-MIEC 1-8 3
Attachment MSD-MIEC 1-12a 3
Attachment MSD-MIEC 1-14 3
Intervenors' Response to Alternative Proposal to Motion to Compel 3
3
BJH First Discovery Request to MSD — MSD's Response Amendment
to Question #2
Black & Veatch Memo in Support of MSD Opposition to
Motion to Compel 3
Black & Veatch Memo of MSD Support -K. Barber Affidavit 3
Lashly & Baer Letter to Rate Commission 7/28/11 Re:
Rate Commission 8/2/11 Meeting 3
Rate Commission Draft Resolution re: Motion to Compel 8/2/11 3
MSD Supplemental Response to the Second Discovery Request of the
Rate Commission 8/4/11 3
12
Ex. No.
MSD 49A
MSD5O
MSD 50A
MSD 51
BJH 51A
MSD 52
L&B 52A
MSD 53
MIEC 53A
MSD 54
L&B 55
BJH 56
MSD 56A
MSD 57
MIEC 58
MIEC 58A
MIEC 58B
MIEC 58C
MIEC 58D
MSD 59
Description Disk No.
Final MSD Consent Decree 3
MSD Supplemental Response to Second Discovery Request
of MIEC 814111 3
Supplemental CIRP Project List 3
MSD Second Discovery Request to BJH (Billie S. LaConte) 815111 3
BJH Response to MSD Second Discovery Request 3
MSD Second Discovery Request to Rate Commission
(William Stannard) 8/5/11 3
Rate Commission Response to MSD Second Discovery Request 3
MSD Second Discovery Request to MIEC (Michael Gorman) 815111 3
MIEC Response to MSD Second Discovery Request 3
Federal Register Notice and Letter from MSD General Counsel 8/10/11 3
8/10/11 Letter re: Black & Veatch Confidentiality & Non -Disclosure
Agreement 3
Second Discovery Request of BJH to MSD 8111111 3
MSD Response to BJH Second Discovery Request 3
Transcript of Second Technical Conference 8/8/11 3
Toenjes Correspondence re: Intervenors' Response to
Rate Commission's version of Confidentiality & Non -Disclosure
Agreement 8/17/11 3
Exhibit A ._ 3
Exhibit B 3
Exhibit C 3
Exhibit D 3
MSD Response to Intervenor's Letter Dated 8117/11 4
13
Ex. No. Description Disk No.
MSD 60 MSD Formal Submittal Document of Surrebuttal Testimony 8/19/11 4
MSD 60A Surrebuttal Testimony of Jeffrey Theerman, MSD 4
MSD 60B Surrebuttal Testimony of Jan Zimmerman, MSD 4
MSD 60C Surrebuttal Testimony of Brian Hoelscher, MSD 4
MSD 60D Surrebuttal Testimony of Jeanne Vanda, PFM 4
MSD 60E Surrebuttal Testimony of Jonathan Sprague. MSD 4
MSD 61 Transcript of 8/16/11 Public Hearing 4
L&B 62 Third Discovery Request of Rate Commission to MSD 8/19/11 4
MSD 62A MSD Response to Rate Commission Third Discovery Request 4
MSD 62B RC Projections vs. Actual/Planned Appropriations 4
MSD 62C Proposed FY 2012 Budget to Rate Proposal Table 2-1 4
MSD 62D MSD General Counsel Department Expenses FY09, FY 10 & FY 11 4
MSD 62E MSD General Counsel Detailed Expenses per Rate Proposal 4
MSD 62F Milliman 8126111- MSD Employees' Pension Plan Cost Statement 4
MSD 62G Ordinance 13182 4
MSD 62H Ordinance 13234 4
MSD 621 St. Louis County Municipal League Appointment Letter 4
MSD 62J Home Builders Association Appointment Letter 4
MSD 62K St. Louis Council of Construction Consumers Appointment Letter 4
MSD 62L League of Women Voters of St. Louis Appointment Letter 4
MSD 62M Missouri Botanical Garden Appointment Letter 4
MSD 62N Cooperating School Districts Appointment Letter 4
14
Ex. No. Description
MSD 620
MSD 62P
MSD 62Q
MSD 62R
MSD 62S
MSD 62T
MSD 62U
MSD 62V
MSD 62W
MSD 62X
MSD 62Y
MSD 62Z
MSD 62A1
MSD 62A2
MSD 62A3
MIEC 63
BJH 64
L&B 65
MIEC 66
MIEC 67
MSD 67A
The Human Development Corporation Appointment Letter
Engineers Club of St. Louis Appointment Letter
Regional Chamber & Growth Association Appointment Letter
Building & Construction Trades Council Appointment Letter
West County Chamber of Commerce Appointment Letter
Missouri Industrial Energy Consumers Appointment Letter
Associated General Contractors Appointment Letter
St. Philip's Lutheran Church Appointment Letter
Exhibit Number 62W Not Used
MSD Rate Commission Representative Organizations
Appendix A 4/12/2011 MMD Scales
Appendix B 08-25-2011 MMD Scales
Appendix C Bond Buyer 25 Year Revenue Bond Index ...
Appendix D 20 Year Go Rates
Appendix E MMD AAA 25 Year Maturity by Quarter
MIEC Surrebuttal Testimony (Michael Gorman) 8/19/11
BJH Surrebuttal Testimony (Billie LaConte) 8/19/1]
Toenjes Letter re: Black & Veatch Confidentiality & Non -Disclosure
Agreement 8/22/1]
Intervenor's Response to Toenjes 8/22/l 1 Letter re: Black & Veatch
Confidentiality & Non -Disclosure Agreement
Fifth Discovery Request of MIEC to MSD 8/2411 I
MSD Response to MIEC Fifth Discovery Request
15
Disk No.
4
4
4
4
4
4
4
4
4
4
4
4
4
4
4
4
4
4
4
4
Ex. No. Description Disk No.
MSD 67B Jan Zimmerman Surrebuttal Inflation Rate MIEC Comparison
Insert Format 8118111 4
MSD 67C Jan Zimmerman Surrebuttal Inflation Rate MIEC Comparison
Data File 8118111 4
MSD 67D MMD GO - Treasury Spread Charts 4
MSD 67E PFM Data Request TOC 9/2/11 4
MSD 67F Pricing Analyses Credit Spreads 4
MSD 67G Revenue Bond Detail 4
MSD 67H Fitch Water Wastewater Medians 2011 4
MSD 671 Pricing Analyses 4
MSD 67J Pricing Analyses MMD-Treasury Spreads 4
MSD 67K MSD TIC Calculations 4
MSD 67L MSD TIC Calculations - Excel Version 4
MSD 67M Pricing Analyses MMD-Treasury Spreads 4
MSD 67N Credit Presentations 4
MSD 670 Finance Committee Reports 4
MSD 67P Asset Management Reports 4
MSD 68 Amendment to MSD Surrebuttal Testimony (Janice M. Zimmerman)
Question #8 4
L&B 69 Toenjes Letter Re: Possible Revised Procedural Schedule 8/24/11 4
BJH 70 Third Discovery Request of BJH to MSD 8/26/11 4
MSD 70A MSD Response to BJH Third Discovery Request 4
BJH 71 Executed Confidentiality & Non -Disclosure Agreement (Billie LaConte) 4
16
Ex. No. Description Disk No.
MIEC 72 Intervenor's Response to Toenjes 8/24/11 Letter Re: black & Veatch
Confidentiality & Non -Disclosure Agreement 4
L&B 73 Executed Confidentiality & Non -Disclosure Agreement (William Stannard) 4
MIEC 74 Executed Confidentiality & Non -Disclosure Agreement (Michael Gorman) 4
MIEC 75 Executed Confidentiality & Non -Disclosure Agreement (James Collins) 4
MIEC 76 Executed Confidentiality & Non -Disclosure Agreement (Chris Walters) 4
MSD 77 Transcript of August 18, 2011 Public Hearing 4
MSD 78 Transcript of August 20, 2011 Public Hearing 4
MSD 79 MMD GO Spread to 30 -Year U.S. Treasury 4
L&B 80 American Water White Paper -Declining Residential Water Usage 4
L&B 81 L&B Total Contribution Volume Actual Trend 4
MIEC 82 Executed Confidentiality & Non -Disclosure Agreement
(Jeremy Hagemeyer) 4
L&B 83 Second Addendum to Procedural Schedule 916111 4
BJH 84 Fourth Discovery Request of BJH to MSD 9/9/11 4
MSD 84A MSD Response to BJH Fourth Discovery Request 4
MSD 85 MSD Additional Response to Question 14 of Rate Commission
First Discovery Request 4
MSD 85A L&B Letter dated 9/2/11 4
MSD 85B Certification 4
L&B 86 Fourth Discovery Request of Rate Commission to MSD 9/16/11 4
MSD 86A MSD Response to Rate Commission Fourth Discovery Request 4
MSD 86B CIRP Cash vs Appropriation 4
MSD 86C Bond Interest Payment Only 4
17
Ex. No. Description Disk No.
MSD 86D
L&B 87
BJH 88
BJH 88A
MIEC 89
MSD 90
MSD 91
MSD 92
MSD 93
MSD 94
MSD 94A
MSD 94B
AARP 95
CCM 96
L&B 97
MSD 98
MIEC 99
BJH 100
L&B 101
MSD l Ol A
RM 102
Bond Interest 6.0% & 6.5% 4
Rate Commission Supplemental Testimony (Thomas Beckley) 4
BJH Supplemental Testimony (Billie LaConte) 4
Schedule BSL-1 to Supplemental Testimony of Billie LaConte 4
MIEC Supplemental Testimony (Michael P Gorman) 4
Transcript of September 6.201 2011 Surrebuttal Testimony 4
Transcript of September 7, 2011 Surrebuttal Testimony 4
Transcript of August 72, 2011 Public Hearing 4
Transcript of August 24, 2011 Public Hearing 4
MSD Responsive Testimony Regarding Supplemental Testimony 9122/11 4
MSD Responsive Testimony (Keith Barber) 4
MSD Responsive Testimony (Brian Hoelscher) 4
Prehearing Position Statement of AARP 4
Prehearing Position Statement of the Consumers Council of Missouri 4
Prehearing Conference Summary of Raftelis Financial Consultant and
Lashly 8: Baer 4
['rehearing Conference Summary of MSD 4
Prehearing Position Statement of MIEC 9128/11 4
Prehearing Conference Statement of BM 9/28/11 4
Fifth Discovery Request of Rate Commission to MSD 9/28/11 4
MSD Response to Rate Commission Fifth Discovery Request 4
Prehearing Conference Position Statement of Robert Mueller 9/28111 4
18
Ex. No. Description Disk No.
L&B 103 Missouri UCC filings for Debtor MSD, Search conducted 9/1/11 4
L&B 104 St. Louis County Assessment Roll, certified as of 7/1111 4
L&B 105 Email from Deputy Assessor John Gilbert 6124111 Re: City of St. Louis
Total Assessment Values 4
L&B 106 Letter from County Executive Charlie Dooley 8/26/11 Re: St. Louis
County Government Personnel Costs 4
L&B 107 Letter from Mayor Francis Slay 8/31.11 Re: City of St. Louis Government
Personnel Costs 4
MSD 108 Transcript of September 28, 2011 Prehearing Conference 4
MSD 109 Submittal of Exhibit Index as of October 4, 2011 4
MSD 110 MSD Prehearing Conference Report 4
B 1 H 1 1 1 BJH Prehearing Conference Report 4
L&B 112 Lashly & Baer Prehearing Conference Report 4
MIEC 113 MIEC Prehearing Conference Report 4
RM 114 Robert Mueller Prehearing Conference Report 4
AARP/CCM 115 AARP & CCM Prehearing Conference Report 4
MSD 116 Final Public Hearing 10/6/11 MSD Presentation 4
TF 117 Municipal League -Tim Fischeserr Water Quality 4
BJH 118 BJH Addendum to Prehearing Conference Report 4
MSD 119 Transcript of September 26, 2011 Public Hearing 4
MSD 120 Transcript of September 26. 2011 Technical Conference 4
MSD 121 Submittal of Final Exhibit Index 10/6/11 4
19