HomeMy Public PortalAboutExhibit MSD 94A - MSD Response to First Discovery Request of Intervener MIECExhibit MSD 94A
BEFORE THE RATE COMMISSION OF THE
METROPOLITAN ST. LOUIS SEWER DISTRICT
APRIL 10, 2015 FIRST DISCOVERY REQUEST
OF INTERVENERS MISSOURI INDUSTRIAL ENERGY CONSUMERS
Metropolitan St. Louis Sewer District Response
ISSUE: WASTEWATER AND STORMWATER RATE
CHANGE PROCEEDING
WITNESS: METROPOLITAN ST. LOUIS SEWER DISTRICT
SPONSORING PARTY: RATE COMMISSION
DATE PREPARED: APRIL 20, 2015
Metropolitan St. Louis Sewer District
2350 Market Street
St. Louis, Missouri 63103
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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
APRIL 10, 2015 FIRST DISCOVERY REQUEST
OF INTERVENERS MISSOURI INDUSTRIAL ENERGY CONSUMERS
Metropolitan St. Louis Sewer District Response
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 (b)(i) and (ii)
of the Rate Commission of the Metropolitan St. Louis Sewer District ("Rate Commission"), the
Metropolitan St. Louis Sewer District ("District") thereby responds to the Rate Commission
April 10, 2015 First Discovery Request of Interveners Missouri Industrial Energy Consumers for
additional information and answers regarding the Rate Change Notice dated February 26, 2015
(the "Rate Change Notice").
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APRIL 10, 2015 FIRST DISCOVERY REQUEST
OF INTERVENERS MISSOURI INDUSTRIAL ENERGY CONSUMERS
Metropolitan St. Louis Sewer District Response
1. Referring to Exhibit MSD-1, Table 4-7 - Wastewater Capital Improvement and
Replacement Program, please provide a variance report, comparing budget to actual capital
expenditures for each line on the table during fiscal years ("FY") 2011 through 2014 in
electronic format with all formulas intact. Please provide a detailed explanation for the
difference in projected versus actual for each item.
RESPONSE:
For the period FYI1 through FY14, actual capital appropriations were 9 percent under budget.
The comparison is with Table 3-8 "Wastewater Capital Improvement and Replacement
Program" on page 3-14 from the 2011 Rate Change Proposal. The following spreadsheet has
been provided for the rate period FY11-FY14, See Exhibit MSD 94B — CIP Variance FYII -
FY14.
Analyzing the difference between projected versus actual for each 1 able 4-7 category is
complicated due to a number of factors. Four of the categories were not in use in 2011 when
Table 3-8 was developed. These categories are: Asset Management -Capacity, Asset
Management -Renewal, Districtwide, and Other. These four categories were generally part of
the "Asset Management" line on Table 3-8. Also, the SSO master planning process and
negotiations with EPA to establish the Consent Decree were still ongoing in 2011. The 2011 list
was preliminary and did not reflect the final categorization of projects. Since the completion of
those items (Consent Decree entered into in April, 2012, and SSO Master Plan approval in May
2014) projects have been re -categorized based on a better understanding of their conceptual
scope and our obligations under the Consent Decree. To better show this variance the new
categories have been subtotaled into the Asset Management category.
The variance upward in the Asset Management category reflects the post CD emphasis on the
early rehabilitation of the sewer system required by the CMOM program and the emphasis on
removal of wet weather flows from the sanitary sewer system. Additionally, the re -
categorization of projects from the SSO category added to this variance.
There was an insignificant variance in the City shed category.
The CSO category tracked slightly under due to project savings, project timing, and delay of the
Maline Creek CSO reduction project to request a modification from EPA.
The Sanitary Sewer Overflow category was impacted by the re -categorization of projects to only
reflect projects actually removing or facilitating removal of constructed or known SSOs, thus
moving projects reducing wet weather flows to the Asset Management Capacity category. All
planned and Early Action projects and SSO removals occurred on schedule during this period.
The Treatment Plant category tracked slightly higher due to the inclusion of a number of repair
and replacement projects at a number of the treatment plants to allow them to operate in
compliance with existing permits. The design of the Bissell and Lemay Scrubber modifications
was initiated in FY14. More details of this project are provided in question 2 of this request.
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2. Referring to Exhibit MSD-1, Table 4-7 - Wastewater Capital Improvement and
Replacement Program, please provide a description of any change in the Projected Needs in FY
2015 and FY 2016 filed in this Rate Change Proposal versus the amounts budgeted for FY 2015
and FY 2016 filed in the 2011 Rate Change Proposal. Please provide a detailed explanation for
changes to budgeted items.
RESPONSE:
For the period FY15 and FY16, projected capital appropriations anticipated in this Rate Change
Proposal are approximately 4 percent under the amounts filed in the 2011 Rate Change
Proposal. The comparison is with Table 3-8 "Wastewater Capital Improvement and
Replacement Program" on page 3-14 from the 2011 Rate Change Proposal. The following
spreadsheet has been provided for the rate period FY15 and FY16, See Exhibit MSD 94C - CIP
Variance FY15-FY16.
Again, analyzing the difference between the projections in the 2011 versus the new Rate Change
Proposal for each category is complicated due to a number of factors. Four of the categories
were not in use in 2011 when Table 3-8 was developed. These categories are: Asset
Management -Capacity, Asset Management -Renewal, Districtwide, and Other. These four
categories were generally part of the "Asset Management" line on Table 3-8. Also, the SSO
master planning process and negotiations with EPA to establish the Consent Decree were still
ongoing in 2011. The 2011 list was preliminary and did not reflect the final categorization of
projects. Since the completion of those items (Consent Decree entered into in April, 2012, and
SSO Master Plan approval in May 2014) projects have been re -categorized based on a better
understanding of their conceptual scope and our obligations under the Consent Decree. To
better show this variance the new categories have been subtotaled into the Asset Management
category.
The significant variance upward in the Asset Management category reflects the post CD
emphasis on the early rehabilitation of the sewer system required by the CMOM program and
the emphasis on removal of wet weather flows from the sanitary sewer system. Additionally, the
re -categorization of projects from the SSO category added to this variance. This variance was
also impacted by the expediting of projects and the favorable bids being received for system
rehabilitation to remove wet weather flows from the public system.
There was minor variance in the City shed category reflecting the progress of system
improvements to allow for completion of buyouts of flood prone properties and acquisition of
easements.
The CSO category tracked under due to project timing and delay of the Maline CSO reduction
construction project to allow for the completion of design of approved modifications to original
control measures at this location. Additionally the CSO Gingras Creek control measure was re -
categorized to the Sanitary Sewer Overflow category as the project addresses both CSO and SSO
systems. The final project appropriation for this project was well under projections.
The Sanitary Sewer Overflow category was impacted by the re -categorization of projects to only
reflect projects actually removing or facilitating removal of constructed or known SSOs, thus
moving projects reducing wet weather flows to the Asset Management Capacity category. All
planned SSO removals will occur within current schedules.
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Treatment Plant appropriations are projected to be higher during FY15 and FY16. Nearly half
of this increase was due to incinerator scrubber replacement projects at the Lemay and Bissell
wastewater treatment plants in FY15. The incinerator scrubber replacement was required by a
new air quality regulation during the rate period Additional expenses include various needed
improvements at the Lemay, Coldwater, Lower Meramec, and Missouri plants to keep these
plants in compliance with regulatory operating permits.
3. Referring to Exhibit MSD-1, Table 4-8 — Capital Improvement and Replacement
Program Financing Plan, please provide a variance analysis for each line on the table with
projected sources and projected uses of funds versus actual sources and uses of funds from fiscal
years 2011 through 2014 in electronic format with all formulas intact. Please provide a detailed
explanation for the difference in projected versus actual for each line item.
RESPONSE:
A detailed explanation of the variances has been provided as Exhibit MSD 94D - CIRP
Financing Plan FY11-FY14 Variance Analysis.
4. For each category of capital improvement program, please identity the long-term
capital improvement program for each category which is needed to respond to the EPA mandated
programs as part of the Consent Decree agreement between MSD and the EPA. For each system
retrofit required by the EPA, please identify the following:
a. Planned capital budget by year up until the retrofits are completed.
b. Identify the time period MSD has available to make the system retrofits to
remain in compliance with its agreement with the EPA.
c. Please explain MSD's system plan in the event it must extend the capital
program in order to successfully comply with all system improvements and modifications to
comply with the EPA mandates.
RESPONSE:
(a) This information has been provided as Exhibit MSD 594E Consent Decree CIP FY17-
FY34. A review of the 2011 capital program budget for CD related activities versus 2017-34
projections indicates an overall program increase. This increase can be attributed to several
factors. These factors being: inflationary impacts from 2011 to 2016, the inclusion of contracted
program management resource costs not included in original project only projections, and the
CD requirement for removal of wet weather flows from the sanitary sewer system. In 2011 the
SSO master planning process and negotiations with EPA to establish the Consent Decree were
still ongoing. (Consent Decree entered into in April, 2012, and SSO Master Plan approval in
May 2014). The agreement provides specific limits on wet weather flows from the sanitary
system tributary to the combined sewer system and to wastewater treatment plants. This
requirement increased program costs specific to the rehabilitation of the public and private
system to remove significant sources of wet weather inflow and infiltration. The District does
anticipate this investment will reduce future costs related to increasing the capacity of the
system, either by project elimination or system storage reduction, these costs are not known at
this time.
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(b) The time period available for MSD to complete work required for MSD to remain in
compliance with each category of the agreement with EPA can be found in the following
documents:
• Asset Management Capacity — See Exhibits .MSD 4 / and 471t — MSD Consent Decree,
Section V.F and MSD Sanitary Sewer Overflow Control Master Plan. These documents
provide the time period project listing for ensuring system capacity, and project
milestones to remain in compliance with the agreement between MSD and the EPA.
• Asset Management Renewal— Capacity, Management, Operations, and Maintenance
Program Plan (CMOM) - See Exhibits MSD 47 — MSD Consent Decree, Section V.G.
This document provides the program requirements and service levels required to remain
in compliance for the life of the agreement between MSD and the EPA.
• City shed - See Exhibits MSD 47 — MSD Consent Decree, Section V.M. This document
provides the time period and project expenditures required over the life of the agreement
between MSD and the EPA to remain in compliance.
• Combined Sewer Overflow (CSO) — See Exhibits MSD 47 and 47A — MSD Consent
Decree, Section VI and MSD Combined Sewer Overflow Long Term Control Plan,
Section VI and Appendix D. These documents provide the time period, .project listing for
CSO Control Measures, and project milestones to remain in compliance with the
agreement between MSD and the EPA.
• Districtwide - These are continuous Districtwide activities in support of Consent Decree
and Regulatory requirements and remain in place for the life of the agreement between
MSD and the EPA.
• SSO - See Exhibits MSD 47 and 47B — MSD Consent Decree, Section V.F and MSD
Sanitary Sewer Overflow Control Master Plan. These documents provide the time
period, project listing for ensuring system capacity and SSO removals, and project
milestones to remain in compliance with the agreement between MSD and the EPA.
• Treatment Plants - See Exhibits MSD 47 and 47B — MSD Consent Decree, Section V.F
and MSD Sanitary Sewer Overflow Control Master Plan. These documents provide the
time period, project listing of treatment plant capacity projects, and project milestones to
remain in compliance with the agreement between MSD and the EPA.
(c) MSD fully intends to complete all system improvements and modifications required by the
Consent Decree, and does not anticipate extending the capital program. In the event that MSD
identifies the need to extend the capital program, paragraphs 61, 62 and 136 of the Consent
Decree, Exhibit MSD 47, provide the method for which MSD could seek such modification.
5. Please provide a detailed description of MSD's management plan for increased
capital expenditures in FY17 through FY20. Please provide a detailed description of MSD's
plans for the following:
a. Assurance that it is able to enter into qualified contracts to meet an
increased construction program as forecasted by MSD.
b. MSD's plan to ensure that it has qualified inspectors and engineers on
staff to ensure contractors are complying with the detailed specifications of the system retrofits.
c. A complete description of performance failure requirements MSD is
requiring on contractors to ensure that any system improvements that are not designed according
to MSD specifications will be the responsibility of contract failure and not MSD and its
customers.
d. Please provide an estimate of the maximum capital program that MSD can
effectively manage each year.
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e. Please identify the accounting standards MSD will put in place to ensure
that the expenditures it makes to contractors and third -party vendors meet those vendors'
requirements to make system improvements and retrofits in line with MSD's need for such
improvements to comply with EPA mandates.
RESPONSE:
(a) As stated in Rich Unverferth's direct testimony. See MSD Ex. 3C, p.4, Il. 8-18. MSD has
secured the services of contracted resources for design services to augment District staff to meet
an increased construction program as forecasted by MSD. The following provides this plan:
• The District follows the Missouri Law (RSMo Section 8.285 to 8.291) regarding
the procurement of professional design services. A summary of the law has been
attached as Exhibit MSD 94F — Qualifications -Based Selection Method. Accordingly,
MSD follows a Consultant Selection Policy/Procedure to coincide with the Missouri Law.
A copy of the current policy is attached as Exhibit MSD 94G — MSD Consultant Selection
Policy.
• An evaluation was done in 2010 as to the design resources needed to accomplish
the increased program due to the pending Consent Decree. Based on that evaluation the
District implemented the Watershed Consultant approach to increased design load The
Watershed Consultants teams were structured to complete all the design related to a
specific geographic area (watersheds) or to execute specific large tunnel and facility
projects. The Watershed Consultants teams were structured to work closely with MSD
staff with oversight and input from the appropriate design and construction management
personnel. The Watershed Consultant teams have design, construction and public
relations expertise as well as the management structure to handle large portions of the
District's design workload
• In FY12 the District engaged the Watershed Consultant services of Jacobs
Engineering Group to execute all the design work related to the Lower and Middle RDP
CSO Controls.
• In FY12 the District engaged the Watershed Consultant services of Parsons
Water and Infrastructure to execute all the design work related to the Deer Creek
watershed.
• In FY13 the District engaged the Watershed Consultant services of Burns and
McDonnell Engineering to execute all the design work related to the Lemay watershed,
excluding the Deer Creek watershed.
• In FY13 the District engaged the Watershed Consultant services of AMEC
Environmental & Infrastructure to execute all the design work in the Bissell, Coldwater,
Missouri, and Meramec watersheds.
• In FY15 the District engaged the Watershed Consultant services of HDR
Engineering to execute the design work related to the RDP Tributaries, Upper RDP CSO
Controls & Lower Meramec improvements.
• The Watershed Consultant approach has addressed the increased design demands
created by the expanded program. Attached is Exhibit MSD 94H — Total Design, which
is a graph of the total design workload related to the expanded program related to the
Consent Decree. Design needs will peak in FY16 and then begin to drop off in later
years of the program.
• Annually as part of the budgeting process, the staffing requirements for each
program management group are evaluated to determine if any staff adjustments are
required in response to the changing nature of the Capital Program.
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(b) As stated in Rich Unverferth's direct testimony, See MSD Ex. 3C, p.4, 11. 8-18, MSD has
secured the services of contracted resources for construction management services to augment
District staff Details are provided below and corresponding organizational structure is
provided as Exhibit MSD 941 — MSD Construction Management Organization.
• In FY13 the District engaged the services of Shannon & Wilson, Associates to
perform Construction Management and Inspection Services (CM Services) for certain
tunneling projects to be constructed as part of the Consent Decree and to provide any
additional construction -related support to the District as required. Shannon & Wilson
was chosen utilizing the District's Qualification Based Selection (QBS) process in
compliance with Missouri state law.
• In FY14 the District engaged the services of Black and Veatch, Inc. to perform
CM Services for certain tunneling projects to be constructed as part of the Consent
Decree and to provide any additional construction -related support to the District as
required. Black & Veatch was chosen utilizing the District's QBS process in compliance
with Missouri state law.
• In FY14 the District engaged the services of Kennedy Associates, Inc. (KAI) to
perform CM Services for major facility projects such as storage tanks, pump stations and
wastewater treatment plant improvement projects to be constructed as part of the
Consent Decree and to provide any additional construction -related support to the
District as required. KAI was chosen utilizing the District's QBS process in compliance
with Missouri state law.
• In FY15, the Construction Management Division underwent reorganization and
the addition of a second program management group to ensure adequate oversight of the
CM Services contracts as well as work performed by MSD field personnel. This
reorganization plan included the hiring of additional staff to perform CIPP project
inspection.
• Annually as part of the budgeting process, the staffing requirements for each
program management group are evaluated to determine if any staff adjustments are
required in response to the changes in the Capital Program. In addition, the CM
Services scope of work for each consultant team is evaluated and the appropriate funding
amounts are including in the Capital Construction budget to ensure adequate, qualified
CM Services support.
(c) The District has controls built into their procedures and documents to facilitate the
quality of the design work we are receiving and to control risk Attached as Exhibit MSD 94J -
MSD Watershed Consultant Contract, is a sample contract that was used for the procurement of
the design services listed above. Special attention should be given to the sections hi -lighted.
Specifically Section 5.4 dealing with the structure of these design contracts and how
performance is dealt with. Also Section 8.2 that deals with the insurance requirements related to
error and omission claims. Finally Article 21 that deals with items specific to the Consent
Decree.
(d) The maximum annual Capital Improvement Program currently anticipated is
approximately $430 million, the District currently has in place the design and construction
management resources to manage this program. Resources will be adjusted accordingly to
manage each year based on design needs, type of construction activities and annual expenditures
anticipated.
(e) Pay applications related to contractors are approved by MO management and contractor
prior to processing in Oracle. In general, invoices are processed with best practices using a
3-way match process for internal control. Once invoices are matched, payments are processed
and approved through our warranting process, payment is normally made within three business
days of receipt within Accounting.
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6. Referring to Exhibit MSD1, Table 4-8 — Capital Improvement and Replacement
Program Financing Plan, please provide a variance analysis of the projected sources and uses of
funds in FY 2015 and FY 2016 filed in this Rate Change Proposal versus the projected sources
and uses of funds in FY 2015 and FY 2016 filed in the 2011 Rate Change Proposal in electronic
format with all formulas intact. Please provide a detailed explanation for each line item.
RESPONSE:
A detailed explanation of the variances has been provided as Exhibit MSD 94K - CIRP
Financing Plan FY15-FY16 Variance Analysis.
7. Please provide all credit reports pertaining to MSD issued by Standard & Poor's,
Moody's and Fitch over the last two years.
RESPONSE:
See Exhibits MSD 48 - Standard & Poor's Rating Report, MSD 49 - Moody's Rating Report, &
MSD 50 - Fitch Rating Report, are a complete set of credit rating reports issued on MSD over
the last two years.
8. At the Technical Conference on April 8, 2015, Mr. Richard Unverferth testified
that contractors are subject to a prequalification process to demonstrate that they have the
capability to perform the work for which they are bidding. Please identify and provide copies of
the District's contractor prequalification policies and procedures, including, but not limited to,
the District's policies and procedures for reviewing and confirming information submitted to by
contractors.
RESPONSE:
The following document is being provided as Exhibit MSD 94L MSD Prequalifacation
Procedures Contractors.
9. Please identify the interest rates tor current senior and subordinated bonds, as well
as the projected interest rates for future senior and subordinated bonds.
RESPONSE:
The amortization schedules for existing and proposed debt are listed in the rate model, in the tab
titled `Debt'. A summary of interest rates and true interest costs (TIC) on existing bonds are
hereby provided in Exhibit MSD 94M - Summary of Outstanding Bond Issues. A summary of
interest rates and TICs on planned bonds are hereby provided in Exhibit MSD 94N- Summary of
Proposed Bond Issues.
10. Please identify whether and how MSD will ensure that, if the actual annual spend
for FY17-2020 is below the projected spend, any difference will be used to accelerate projects
required under the Consent Decree.
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RESPONSE:
The District will ensure that if actual annual spending within a fiscal year is below the
projections, remaining funds will be used to accelerate projects. Within a given fiscal year,
construction projects, when bic, may come in under budget. As well, projects may be delayed
due to permitting, easement acquisition or other unknown issues. When this occurs, there is
unused funding in the Capital Program. This unused funding can be reallocated to allow
additional construction projects to proceed during the fiscal year, if other projects planned in
future fiscal years are ready to be bid. These potential projects are identified in the annual
capital improvement budget as Contingency Projects and are approved and adopted by the MSD
Board of Trustees as part of the annual budget process. The District has been performing this
procedure since the 2009 budget year. Regardless of project acceleration, any remaining funds
within a given fiscal year are carried over to the following year for future projects.
11. At the Technical Conference on April 8, 2015, Mr. William Stannard indicated
that there is additional supporting data and analysis on which the Vertex forecasts included in the
Rate Proposal at Appendices 7.1.2 and 7.1.3 were based. Please provide a copy of such
additional supporting data and analyses.
RESPONSE:
Additional supporting data to support appendices 7.1.2 and 7.1.3 has been provided as Exhibit
MSD 940 - MSD Trends and Demographics.
12. At the Technical Conference on April 8, 2015, and in his prepared testimony, Mr.
William Stannard indicated he relied on his experience with other urban utilities throughout the
United states to support his conclusions on projections for number of customers and volume of
flow per customer. Please provide copies of all utility forecasts and trends in wastewater flows
for the other urban utilities that were considered in reaching this conclusion.
RESPONSE:
Raftelis Financial Consultants works with utilities across the United States in rate setting,
financial planning, and bond issuance support studies that are all dependent upon a projection
of customer accounts and billable flows. Many utilities have seen reductions in per capita water
and wastewater consumption over the past 5-10 years, including MSD. Reductions in
consumption have been attributed to increased prevalence of high efficiency appliances and low
flow fixtures as well as a broader acceptance of a general conservation ethos.
The included attachment, see Exhibit MSD 94P - Urban Water Consumption Data, presents data
we have gathered from a variety of urban utilities showing historical and forecasted trends in
water consumption and the number of accounts served. In addition, we have included a
summary of the previous 9 years of customer data for MSD which demonstrates relatively stable
customer accounts, but average annual reductions in billable flows of 3.4%.
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13. Please provide an explanation of how costs for common wastewater and storm
water costs are allocated between MSD's wastewater and storm water costs of service.
RESPONSE:
The allocation factors used to allocate common costs between wastewater and storm water were
developed based upon input provided by MSD Staff based on their understanding of the design
and operational requirements of the wastewater and stormwater systems. The allocations of
costs between wastewater and stormwater are detailed in the electronic rate model on
worksheets "OM-Funct'; "OM-Alloc'; "Plant-Funct'; and "Plant Alloc".
Respectfully submitted,
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usan M. Myers
METROPOLITAN ST. LOUIS SEWER DISTRICT
2350 Market Street
St. Louis, Missouri 63103
Tel: (314) 768-6366
Fax: (314) 768-6279
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CERTIFICATE OF SERVICE
The undersigned certifies that a copy of the foregoing was sent by electronic transmission
to Janice Fenton, Office Associate Senior, Metropolitan St. Louis Sewer District; Lisa Stump,
Counsel for the Rate Commission; Brad Goss, Counsel for Intervener Home Builders
Association of St. Louis & Eastern Missouri, and Brandon Neuschafer, Counsel for Intervener
Missouri Industrial Energy Consumers on this 20th day of April, 2015.
Lisa O. Stump, Esq.
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
Brandon W. Neuschafer
Bryan Cave, LLP
211 N. Broadway, Suite 3600
St. Louis, MO 63102
John.kindschuh@bryancave.com
Susan M. Myers, General Counse
METROPOLITAN ST. LOUIS SEWER DISTRICT
2350 Market Street
St. Louis, Missouri 63103
smyers@stlmsd.com
Tel: (314) 768-6366
Fax: (314) 768-6279
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