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Home My Public Portal AboutExhibit MSD 98A - MSD Response to Second Discovery Request of Interveners Missouri Industrial Energy ConsumersExhibit MSD 98A BEFORE THE RATE COMMISSION OF THE METROPOLITAN ST. LOUIS SEWER DISTRICT APRIL 27, 2015 SECOND 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: MAY 7, 2015 Metropolitan St. Louis Sewer District 2350 Market Street St. Louis, Missouri 63103 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 27, 2015 SECOND 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 27, 2015 Second 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"). APRIL 27, 2015 SECOND DISCOVERY REQUEST OF INTERVENERS MISSOURI INDUSTRIAL ENERGY CONSUMERS Metropolitan St. Louis Sewer District Response 1. Did MSD consider the issuance of "green bonds" in order to satisfy any portion of its anticipated revenue requirements? If MSD did consider the issuance of green bonds, please explain the decision not to pursue issuance of the same. RESPONSE: There is currently no standard definition for what constitutes a "green bond" but the term can apply to bond issuances specifically used to finance environmentally friendly projects. It is currently a self -designation and use of the term is largely unregulated. The District has made no determination whether or not green bonds will be used to satisfy any portion of its revenue requirements. Green bonds do not presently provide discernable pricing benefits to tax-exempt bond issuers so are not material to the Rate Proposal discussion. There is nothing in the Rate Proposal that limits the District's ability to evaluate the economic viability of issuing green bonds at any point in the future. 2. Did MSD analyze whether any of its proposed issuances and capital projects would qualify to meet green bond principle standards? Please explain. RESPONSE: See answer to Question 1. 3. At the technical conference, Mr. Unverferth testified (at page 58 of the transcript) that "sewer assets or collection systems assets such as pipes or tunnels, you would hope that you're getting somewhere around 100 year life." Is MSD of the belief that the maturity of bonds should match the useful lives of the assets for which the bonds are used to finance? Please explain why or why not. RESPONSE: The District believes that long-lived assets should generally be financed with long-term debt as long as the cost of financing is appropriate. MSD's debt policy (Exhibit MSD 43, page 11, "Term of Debt") limits the final maturity of bonds to 30 years from the date of issuance. MSD assets have a variety of useful lives and MSD believes that the 30 year maximum plus some PAYGO funding generally allows for an appropriate balance between long-term affordability and spreading the costs of the assets across the lives of the assets and the users of those assets. 4. Please estimate the expected useful operating lives of the major wastewater and storm water assets being developed in MSD's CIRP during FY17-FY20. RESPONSE: Sewer pipes and rehabilitations are generally assumed to have useful lives of 50 years. Tunnels have an estimated life of 100 years. Pump station parts and structural features have estimated lives ranging from 7 — 25 years. 5. Is it possible for MSD to issue bonds longer than the proposed 30-year maturity bonds? Please explain. RESPONSE: Per MSD's Debt Policy (Exhibit MSD 43), "The weighted average maturity of the debt issue will not exceed the useful life the project(s) to be financed. Final maturity of the bonds will not exceed 30 years from the date of issuance. " 6. Did MSD to consider bonds with maturities exceeding 30 years? If your answer is "no," please explain why not. If the answer is "yes," please explain why MSD is not proposing to issue bonds with terms exceeding 30 years. RESPONSE: Bonds with maturities exceeding 30 years are not standard and not currently allowed by MSD's debt policy. The Rate Proposal does not assume a future change in debt policy. An evaluation of whether or not bonds with maturities greater than 30 years make sense in a given market environment can be conducted prior to debt issuance. The Rate Proposal appropriately considers conservatively financing the CIRP with a mix of instruments that have proven to be available to it historically and that are within the confines of its existing policies. 7. Are you aware of any other water or sewer districts that have issued bonds with maturities that exceed 30 years in the last five years? If your answer is "yes," please provide the following: the issuer of the bonds; the maturity of the bonds; the amount issued; and the coupon rate. RESPONSE: Using the market information database Ipreo MuniAnalytics, we have identified 4,105 total water and sewer revenue bonds sold between January 1, 2010 and May I, 2015, of which 46 (1.1%) had final maturities of 33 years or greater. We have identified a final maturity of 33 years as being substantially greater (more than 10%) than a 30 year maturity. Only one of those maturities exceeds 40 years in term. 9 of the 46 issuances were sold with final maturities 39 or 40 years after the sales date. The remaining 36 issuances had final maturity dates 33-36 years after the sales date. In Exhibit MSD 98B, Water/Sewer Credits with Maturities of 33 Years or Greater, we have listed the issues that have terms of maturity of 33 years or greater, showing the issuer, maturity date, principal amount issuers term of maturity, rate type and whether taxable or tax-exempt. As there are multiple coupon rates, reflecting multiple maturities for most of the issues reflected, we have not incorporated the coupon rate. Unfortunately, an average coupon rate is not readily available on this database. Respectfully submitted, /KA( Susan M. Myers METROPOLITAN ST. LOUIS SEWER DISTRICT 2350 Market Street St. Louis, Missouri 63103 Tel: (314) 768-6366 Fax: (314) 768-6279 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 7th day of May, 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 f/L Oa - Susan M. Myers, General Co e1 METROPOLITAN ST. LOUIS SEWER DISTRICT 2350 Market Street St. Louis, Missouri 63103 smyers@stlmsd.com Tel: (314) 768-6366 Fax: (314) 768-6279 6