HomeMy Public PortalAboutExhibit MIEC 105A - MIEC Response to First Discovery Request of MSDWastewater and Stormwater Rate Change Proceeding — 2015
Response of Intervenor MIEC to MSDS First Discovery Requests
BEFORE THE RATE COMMISSION
OF THE METROPOLITAN ST. LOUIS SEWER DISTRICT
For Consideration of a Wastewater
and Stormwater Rate Change Proposal
by the Rate Commission of the Metropolitan
St. Louis Sewer District
RESPONSES OF INTERVENOR MIEC TO THE FIRST DISCOVERY
REQUESTS OF THE METROPOLITAN ST. LOUIS SEWER DISTRICT
Pursuant to §§ 7.280 and 7.290 of the Charter Plan of the Metropolitan St. Louis Sewer
District (the "Charter Plan"), Operational Rule 3(5) and Procedural Schedule § 17 of the Rate
Commission of the Metropolitan St. Louis Sewer District ("Rate Commission"), the Intervenor
Missouri Industrial Energy Consumers ("MIEC") hereby responds to the May 18, 2015, First
Discovery Requests from the Metropolitan St. Louis Sewer District ("MSD").
DISCOVERY REQUEST
1. Michael P. Gorman states in Rebuttal Testimony that he is recommending
maintaining the bad debt provision equal to 1.0% of wastewater bills. See MIEC
Ex. 102, p. 6, 11. 10-11. Please (a) describe the analysis that was performed to reach
this conclusion; (b) provide copies of any memorandum, report, work paper,
summary, analysis, or schedule that supports this conclusion; and (c) describe the
rationale for such conclusion.
RESPONSE:
a) Several factors were considered in support of this adjustment. First, MSD's
Popular Annual Financial Report Fiscal Year Ending June 30, 2014 (Exhibit
MSD 26) supports the conclusion that Provision for Doubtful Accounts has been
declining. Mr. Gorman measured the average of Provision for Doubtful Accounts
as a percentage of Wastewater User Charges ("Doubtful Account Factor ") over
a 5-year, 4-year, 3-year and 2-year basis. As shown on Attachment 1, the 5 year
average Doubtful Account Factor is 1.6%, and there is a material decline in the
Doubtful Account Factor in more recent data. In the 4-year, 3-year and 2-year
averages, the Doubtful Accounts factor declines to 1.0%, 0.4% and -0.9%,
respectively. The proposal to reduce MSD's Doubtful Account Factor from the
1.5% proposed by MSD to 1.0% is based on this improvement in collections.
Second, an improvement in the Doubtful Account Factor has been targeted by
MSD, and MSD has increased collection costs to reduce its bad debt provision.
As noted by MSD in its Popular Annual Financial Report in the footnotes of its
Income Statement on page 14, "Operating expenses increased due to upgrading
the billing and collection system [..1". Hence, MSD customers are paying more
1
in O&M expense to reduce the doubtful accounts expense. This increased
collection activity has resulted in a lower Doubtful Account Factor. See Exhibit
MSD 25, Comprehensive Annual Financial Report, Fiscal Year Ending June 30,
2014, page viii.
b) Please see Attachment 1 for the analysis supporting the conclusion that 1%
growth is appropriate.
c) See response to (a) above.
2. Michael P. Gorman states in Rebuttal Testimony that According to a February 2015
Moody's Analytics report for the St. Louis area, the number of new single-family
housing permits is expected to more than double..... See MIEC Ex. 102, p. 11,11. 14-
20. Please provide copies of the February 2015 Moody's Analytics report for the St.
Louis area.
RESPONSE: MIEC directs MSD's attention to Attachment 2.
3. Given that Michael P. Gorman provided similar testimony regarding economic
conditions and the effect of those conditions on the Districts sales (Exhibit-MIEC-29,
2011 Rate Case, beginning on line 16 of page 9) in the District's 2011 Rate Case,
please provide a detailed variance analysis of your recommendations to the District's
actual experience as shown in Tables 4-2 and 4-3 of the Rate Change Proposal,
Exhibit MSD1.
RESPONSE: In MSD's last rate case, and in this rate case, it made projections of
number of customers and volume sales over the forecast period. In the last case, Mr.
Gorman commented on the reasonableness and support MSD relied on for its
forecast in the last case. In this case, Mr. Gorman also reviewed MSD's forecast for
number of customers and volume sales. The testimony in this case and in the last
case both addressed MSD's projection for number of accounts and volume sales over
the forecasted wastewater rate change period. The issue in this case is similar to the
last case because MSD's financial plan forecast makes the same projections.
In this case, Mr. Gorman relied on MSD's support for its projections for a modest
decline in per account volume. However, Mr. Gorman took issue with MSD's one-
time abnormally large projected volume decline in FY17.
MSD's large projected volume decline in FY17 was related to its estimated decline in
use for unmetered customers. For metered customers, MSD's projection was for a
0.4% decline on average for all metered customers over time. Again, Mr. Gorman
did not take issue with this part of MSD's projected wastewater volume.
For a significant decline in unmetered customers' use in FY17, Mr. Gorman
examined MSD's evidence as well as all corroborating evidence to gauge whether or
not MSD's projected decline in unmetered customers' wastewater volume in FY17
2
was reasonable. He concluded that it was not reasonable based on information
contained in MSD's filing, and information made public by the City of St. Louis
Water Division.
Contrary to its revenue projections, MSD's filing does not reflect a substantial
decline in an assumed wastewater volume in O&M expenses. Specifically, MSD's
electric utility pumping cost and wastewater utility treatment utility expense are
projected to increase in FY17 versus FY16 by the same escalator used in years
beyond FY17. If MSD's projections for a significant decline in the volume for
unmetered customers were accurate, it would have also projected a decline in
wastewater pumping and wastewater treatment expenses. Electric utility expense and
treatment expense would decline with lower volumes because of reduced electric
pumping and chemical expense. MSD did not reflect this reduction in wastewater
volume pumping and treatment expense in FY17 over FY16.
Accordingly, MSD's proposed adjustment in revenue was not corroborated by its
assumed increase in electric power expense needed to operate pumps to move the
same amount of wastewater volume in FY17 as moved in FY16 — there was no
assumed reduced volume. MSD simply cannot have it both ways -- a reduction in
volume sales, but no reduction in the cost of pumping and treating a reduced volume.
Second, the City of St. Louis Water Division, the entity that provides water services to
MSD's unmetered customers, has not projected a significant decline in total pumped
water across its sales classes.
As shown on Attachment 3, the City of St. Louis Water Division measured actual
gallons of water pumped ranging from 46.6 billion gallons in 2012, down to 44.9
billion gallons in 2013, and an increase to 45.1 billion gallons in 2014. The City of
St. Louis Water Division measured a decline in sales to metered water customers over
this time period. The City of St. Louis Water Division measured a decline to metered
customers but a small increase in the numbers of unmetered customers in 2014. Flat
amount of water pumped and a small increase in the number of unmetered customers
imply no change in volume use for unmetered customers.
The City of St. Louis Water Division's measurements of a small increase to flat
amounts of gallons of water pumped, with a consistent decline in water use by
metered customers, suggest that water use by non -metered customers is either flat or
increasing during the period 2012-2014. Hence, this water sales data refutes MSD's
projection of a significant decline in wastewater volume in FY17 relative to FY16 for
unmetered customers.
4. Michael P. Gorman states in Rebuttal Testimony that he believes that MSD has
overstated the annual decline in both the number of customers, and contributed
wastewater volumes, and its projections should be revised. See MIEC Ex. 102, p. 12,
11. 2-3. Please (a) describe the analysis that was performed to reach this conclusion;
(b) provide copies of any memorandum, report, work paper, summary, analysis, or
schedule that supports this conclusion; and (c) describe the rationale for such
conclusion.
3
RESPONSE: Mr. Gorman takes issue with MSD's projected decline in number of
customers over the forecast period, because independent market research suggests that
the St. Louis area economic conditions will improve materially over the forecast period,
and the number of single and multi family new structures are projected to double over
the forecast period relative to the last several years.
Further, MSD's own projections suggest that the loss of number of customers is slowing
and may be soon ending. Exhibit MSD 1 at page 4-4 shows that MSD actually added
customers in FY14 which was a significant change in the trend of declining number of
accounts for years since FY08, the year the U.S. economy and financial markets entered
into a recession. While MSD was only projecting a slight decline in number of customer
accounts over the forecast period, based on this more pessimistic outlook for economic
activity in MSD's service territory, the projection is unfounded.
Mr. Gorman's analysis relies on independent economic sources as a reasonable
indicator to support an outlook of the number of MSD accounts over the forecast period.
If the permits for new single and multi family housing turn out to be accurate, MSD could
be adding accounts over this forecast period rather than losing accounts as MSD has
projected MIEC 's position is therefore reasonable.
5. Michael P. Gorman states in his rebuttal testimony that MSD's adjustment to the
usage per unit values for unmetered properties are unjustified and should remain at
the current usage levels. Please a) describe the analysis that was performed to reach
this conclusion, b) provide copies of any memorandum, report, workpapers, summary
analysis or schedules that supports this conclusion, and c) describe rationale for such
conclusion.
RESPONSE: Please see the response to Discovery Request No. 3 above.
6. Michael P. Gorman states in Rebuttal Testimony that by decreasing both the number
of billable units and the fixture usage per unit values shown in Table 5, MSD could
be significantly overstating the decline in unmetered wastewater volumes. See MIEC
Ex. 102, p. 16, 11. 1-3. Please (a) describe the analysis that was performed to reach
this conclusion; (b) provide copies of any memorandum, report, work paper,
summary, analysis, or schedule that supports this conclusion; and (c) describe the
rationale for such conclusion.
RESPONSE: Mr. Gorman took issue with MSD's projections simply because MSD was
estimating use for unmetered customers and applying the MSD consultant's judgment to
modify the existing expected use for unmetered customers. As described in response to
Discovery Request No. 3 above, these estimates simply are not corroborated by a review
of other assumptions MSD has made in its filing concerning wastewater pumping and
treatment expense. MSD's projection of significantly reduced volume in FY17 is also
inconsistent with a reasonably stable amount of pumped water by the City of St. Louis
Water Division to meet customer water demands. Stable water volumes contradict
4
MSD's projections for reduced water volumes. More details of this analysis are provided
in response to Discovery Request No. 3 above.
7. Michael P. Gorman states in Rebuttal Testimony that he believes a reasonable and
conservative projection for escalation in utility expenses is 3.0% every other year.
See MIEC Ex. 102, p. 20, 11. 11-12. Please (a) describe the analysis that was
performed to reach this conclusion; (b) provide copies of any memorandum, report,
work paper, summary, analysis, or schedule that supports this conclusion (including
but not limited to a copy of the Ameren Investor Presentation: "Powering Growth"
MUFG Spring Utility Day, April 1, 2015 as referred to on p. 19, 11. 19 of said
testimony); and (c) describe the rationale for such conclusion.
RESPONSE: As outlined in Mr. Gorman's testimony, he reviewed presentations made
by Ameren Corporation concerning Ameren Missouri's projected increases in its rate
base during the forecast period. Mr. Gorman used Ameren Corporation's projections to
estimate increases to Ameren Missouri's electric rates over the forecast period. Mr.
Gorman also reviewed settlement proceedings for Laclede Gas Company ("Laclede"),
and reviewed Laclede's infrastructure system replacement surcharge ("ISRS") filing to
estimate the increase in gas delivery charges over this time period. Please see the
referenced documents provided in Attachments 4 through 7.
8. Michael P. Gorman states in Rebuttal Testimony that he proposes to change the
escalator for Late Charge Revenue from 1.0% used by MSD up to the percent
increase in bills proposed in this rate filing. See MIEC Ex. 102, p. 22,11. 4-5. Please
(a) describe the analysis that was performed to reach this conclusion; (b) provide
copies of any memorandum, report, work paper, summary, analysis, or schedule that
supports this conclusion; and (c) describe the rationale for such conclusion.
RESPONSE: The rationale is described in Mr. Gorman's testimony at the referenced
page. There, he notes that MSD states that the late charges are based on a percentage of
outstanding balance. Hence, as MSD rates increase, its bills increase and the principle
balances of unpaid bills will increase. Therefore, the increased late charge fees should
be tied to changes in wastewater rates and changes to MSD wastewater customer bills
because these increases will increase the balances to which a charge is applied.
9. Michael P. Gorman states in Rebuttal Testimony that MSD has failed to provide any
justification for assessing stormwater charges based on uniform assessed property
value tax across its service territory. See MIEC Ex. 102, p. 23, 11. 14-15. Please (a)
describe the analysis that was performed to reach this conclusion; (b) provide copies
of any memorandum, report, work paper, summary, analysis, or schedule that
supports this conclusion; and (c) describe the rationale for such conclusion.
RESPONSE: Mr. Gorman reached his conclusion based on his understanding that
property values are not related to the cost of providing stormwater service. Rather,
5
stormwater service is impacted by stormwater investments to a community, impervious
surfaces by customers within the community, and other factors that would describe
MSD's cost of providing stormwater service. Property values are simply not a
component of this cost causation, and therefore are not a reasonable means of allocating
the cost of stormwater service across customer classes.
10. Michael P. Gorman states in Rebuttal Testimony that stormwater capital should not
be uniform across all of MSD's service territory. See MIEC Ex. 102, p. 24, 11. 8-9.
Please (a) describe the analysis that was performed to reach this conclusion; (b)
provide copies of any memorandum, report, work paper, summary, analysis, or
schedule that supports this conclusion; and (c) describe the rationale for such
conclusion.
RESPONSE: See the response to Discovery Request No. 9. Further, it is MIEC's
understanding that stormwater services are different across the service territory such
that MSD's cost of stormwater service is not the same for all communities.
Dated: May 28, 2015
Respectfully submitted,
BRYAN C VE LLP
By:
Di. a M. Vuylsteke, #42419
Br. don W. Neuschafer, #53232
211 N. Broadway, Suite 3600
St. Louis, Missouri 63102
Telephone: (314) 259-2543 (Diana)
Telephone: (314) 259-2317 (Brandon)
Facsimile: (314) 259-2020
dmvuylsteke@bryancave.com
bwneuschafer@bryancave.com
ATTORNEYS FOR MIEC
6
CERTIFICATE OF SERVICE
The undersigned certifies that a copy of the foregoing was sent by electronic transmission
to the following on this llth day of May, 2015.
Ms. Janice Fenton
Office Associate Senior
Metropolitan St. Louis Sewer District
2350 Market Street
St. Louis, MO 63103
jfenton@stlmsd.com
Ms. Susan Myers
General Counsel
Metropolitan St. Louis Sewer District
2350 Market Street
St. Louis, MO 63103
smyers@stlmsd.com
Mr. John Fox Arnold
Lashly & Baer, P.C.
714 Locust Street
St. Louis, MO 63101
j farnold@lashlybaer.com
Ms. Lisa O. Stump
Lashly & Baer, P.C.
714 Locust Street
St. Louis, MO 63101
lostump@lashlybaer.com
Mr. Brad Goss
Smith Amundsen, LLC
120 South Central Avenue, Suite 700
St. Louis, MO 63105-1794
bgoss@salawus.com
7