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Home My Public Portal AboutExhibit RC 114 - Rate Commission Fifth Discovery Request to MSD June 3, 2015BEFORE THE RATE COMMISSION OF THE METROPOLITAN ST. LOUIS SEWER DISTRICT FIFTH DISCOVERY REQUEST ISSUE: WITNESS: SPONSORING PARTY: DATE PREPARED: Lashly & Baer, P.C. 714 Locust Street St. Louis, Missouri 63101 WASTEWATER AND STORMWATER RATE CHANGE PROCEEDING METROPOLITAN ST. LOUIS SEWER DISTRICT RATE COMMISSION June 3, 2015 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 FIFTH DISCOVERY REQUEST OF THE RATE COMMISSION Pursuant to §§ 7.280 and 7.290 of the Charter Plan of the Metropolitan St. Louis Sewer District (the "Charter Plan"), Operational Rule 3(2) and Procedural Schedule §§ 1, 17 and 18 of the Rate Commission of the Metropolitan St. Louis Sewer District ("Rate Commission"), the Rate Commission requests additional information and answers from the Metropolitan St. Louis Sewer District ("District") regarding the Rate Change Proposal dated February 26, 2015 (the "Rate Change Proposal"). The District is requested to amend or supplement the responses to this Discovery Request, if the District obtains information upon the basis of which (a) the District knows that a response was incorrect when made, or (b) the District knows that the response, though correct when made, is no longer correct. The following Discovery Requests are deemed continuing so as to require the District to serve timely supplemental answers if the District obtains further information pertinent thereto between the time the answers are served and the time of the Prehearing Conference. 2 FIFTH DISCOVERY REQUEST 1. In response to Question 14 of the Third Discovery Request of the Rate Commission, the District states that: Ordinance No. 13856, adopted June 12, 2014, approved the current tax rates for general administration that is used for regulatory compliance (Section Two), operation and maintenance of existing public stormwater facilities (Section Three), and for the OMCI subdistricts (Sections Four through Twenty -One). Please identify the zone in which each of the following OMCI subdistricts is located: Coldwater Creek Trunk Subdistrict, Gravois Creek Trunk Subdistrict, Maline Creek Trunk Subdistrict, Watkins Creek Trunk Subdistrict, Subdistrict No. 88 (Fountain Creek, Subdistrict No. 89 (Loretta -Joplin), Subdistrict No. 342 (Clayton -Central), Subdistrict No. 366 (University City Branch of River des Peres Stormwater Subdistrict), Subdistrict No. 367 (Deer Creek Stormwater Subdistrict), Subdistrict No. 369 (Sugar Creek), Subdistrict No. 448 (Missouri River — Bonfils), Subdistrict No. 449 (Meramec River Basin — M.S.D. Southwest), Subdistrict No. 453 (Shrewsbury Branch of River des Peres), Subdistrict No. 454 (Seminary Branch of River des Peres), Subdistrict No. 455 (Black Creek), Subdistrict No. 1 of the River des Peres Watershed (Creve Coeur-Frontenac Area), Subdistrict No. 4 of the River des Peres Watershed (North Affton Area) and Subdistrict No. 7 of the River des Peres Watershed (Wellston Area). RESPONSE: 2. The Stormwater CIRP Project List in the Rate Change Proposal identifies projects scheduled for completion in FY2017 through FY2023. See Exhibit MSD Appendix 7.5.2. Figure 5-2 in the Rate Change Proposal describes the Stormwater Capital Improvement & Replacement Program for FY2015 through FY2020. In response to Question 10 of the Third Discovery Request of the Rate Commission, the District states: 3 Projects identified within the Rate Changes proposal and within each zone (Red, Yellow, Green) were prioritized by planning the projects with the highest benefit cost ratio project within each Zone independently based on funding availability. Generally the projects identified in Green and Yellow zones have equal benefit cost ratios. Generally the projects within the Red Zone have a higher cost benefit ratio than those being done in the Green and Yellow zones. There are no projects to be completed in the Red zone with a lower benefit cost ratio than the Green and Yellow zones. Please identify each CIRP project to be completed (a) (i) in the Red Zone, (ii) the Green Zone, and (iii) the Yellow Zone; and (b) in each OMCI subdistrict. RESPONSE: 3. In response to Question 6 of the Fourth Discovery Request of the Rate Commission, the District states that its CIRP financing plan is built to achieve a certain balance of PAYGO and debt financing and to maintain AA -category ratings based on expectations communicated by the rating agencies in their rating reports. Please describe in detail the "expectations" communicated by each of the rating agencies in their rate reports. RESPONSE: 4. In response to Question 4 of the Fourth Discovery Request of the Rate Commission, the District states that: The District and its financial advisor used experience and statements from the rating agencies in developing the funding plan for the District in an effort to maintain AA -category ratings. With respect to the financial planning model, debt capacity is based on several interdependent variables such as amount of revenues, amount of operating expenses, desired debt to PAYGO ratios and capital improvement plan amounts and spending timing. As any one of these ratios change, debt capacity is impacted. Please identify (a) the source of each of the "statements from the rating agencies" relied upon to "maintain AA -category ratings"; (b) each of the "several interdependent variables"; and (c) state 4 for each of July 1, 2017, and June 30, 2020, the following criteria: (i) debt ratio to operating income; (ii) debt ratio to operating revenue; (iii) annual debt service coverage; (iv) total outstanding long-term debt per customer; (v) total outstanding long-term debt per capita; and (vi) projected long-term debt per customer; (vii) the projected total debt per capita; (viii) days of cash on hand; (ix) days of working capital; (x) individual average monthly residential bill ($); (xi) individual average annual bill as % Median Household Income (MHI); and (xii) average annual projected rate increases (%). RESPONSE: 5. In response to Question 16 of the Fourth Discovery Request of the Rate Commission, the District states that: The US Census Bureau reports that the MHI (Median Household Income) for St. Louis City (2009-2013) is $34,582 and St. Louis County (2009-2013) is $58,910. Approximately 21% of MSD customers live in the City and 79% live in the County. These data correspond to a weighted average MHI of $53,801 for the MSD service area. Assuming no increase in these MHI values, the wastewater bills as a percentage of MHI on July 1, 2017, would be 1.11% if the $900 million bonds were authorized and 1.65% without bond authorization. Please state the average wastewater bill as a percentage of MHI on June 30, 2020, (a) if the $900 million bonds were authorized; and (b) if the $900 million bonds were not authorized. RESPONSE: 6. The Stormwater Rate Change Proposal states that: The District is proposing, and will seek voter approval, to assess a District -wide SW tax to replace the current SW O&M Tax and flat rate charges. The proposed District -wide tax rate is $0.10 per $100 of assessed property value. The subdistrict specific OMCI taxes will be eliminated as part of this Rate Proposal as well; however, the regulatory tax will remain in place. (emphasis added.) 5 See Section 5.4, Proposed Funding Methods, p. 5-9, MSD Ex. 1. In response to Questions 1, 4, 5, 6, 11, 12, 13, and 14 of the First Discovery Request of Home Builders Association of St. Louis and Eastern Missouri, the District states that: To clarify, the District is not proposing any changes in the rate or structure of the $0.0197 ad valorem property tax used to fund regulatory needs nor in the OMCI ad valorem property taxes, therefore the Rate Commission is not tasked with reviewing or making recommendations to these rates. MSD is submitting for review and recommendation a proposal to eliminate the $0.24/$0.18 per month stormwater charge and the $0.0682 ad valorem property tax collected in the District's original boundaries to provide operations and maintenance for the public stormwater system located in the District's original boundaries. MSD is also submitting for review and recommendation a proposal to institute a $0.10 ad valorem property tax on all properties in the District boundaries for the operation and maintenance of the public stormwater system District -wide with any remaining revenues to be used for projects to address stormwater issues District - wide. (emphasis added.) These statements are contradictory. According to these additional statements in the Discovery Response, the statement in the Rate Change Proposal is not correct. Please restate as an addendum to the Rate Change Report Section 5.4, Table 5.1 and Table 5.3 and other provisions as necessary to reflect the Rate Change Proposal. RESPONSE: 7. In response to Question 7 of the First Discovery Request of Home Builders Association, the District states the District's rate consultant, Raftelis Financial Consultants (RFC), has determined that [the use of ad valorem taxes to fund stormwater improvements and services] is fair and equitable. William Stannard, the President and CEO of Raftelis Financial Consultants, testified that whether the Rate Change Proposal is fair and reasonable should be determined by examining the Rate Change Proposal and the testimony filed in support of the District's Rate Change Proposal as well as information provided by the Commission's Rate 6 Consultant, and other parties, including the Interveners. See Direct Testimony of William Stannard, Ex. MSD 3H, p. 5, 11. 18-23. The Rate Consultant and consultants for each of the Interveners have testified that the use of ad valorem taxes to fund stormwater services is not equitable. See Rebuttal Testimony of Pamela R. Lemoine, Ex. RC 101, p. 20, 11. 4-10; Michael P. Gorman, Ex. MIEC 102, p. 23, 11. 12-18; p. 24, 11. 1-25; Michael Boerding, Ex. HBA 103, p. , 11. 96-125. Please (a) provide any analysis prepared by Raftelis Financial Consultants which determines that the Stormwater Rate Change Proposal is (i) fair and reasonable and (ii) fair and equitable; (b) provide copies of any memorandum, report, work paper, summary, analysis, or schedule that supports these conclusions; and (c) describe the rationale for such conclusions. RESPONSE: 8. Susan M. Myers states in Direct Testimony that the Rate Change Proposal (including the Stormwater Rate Change Proposal) imposes a fair and reasonable burden on all classes of ratepayers. See MSD Ex. 3B, p. 4, 11. 6-8. The District states in response to Question 13 of the First Discovery Request of the Rate Commission that when the Rate Change Proposal was developed, the District retained the same methodology as used since 1993. No prior Rate Change Proposal has included the levy of a tax to support stormwater services. Please (a) describe the analysis that was performed to determine that the Stormwater Rate Change Proposal imposes a fair and reasonable burden on all classes of ratepayer; (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: 7 9. Susan M. Myers states in Direct Testimony that the Rate Change Proposal (including the Stormwater Rate Change Proposal) is consistent with constitutional, statutory or common law as amended from time to time. See MSD Ex. 3B, p. 5,11. 22-24. The District states in response to Question 14 of the First Discovery Request of the Rate Commission that it analyzed Article VI Section 30(b) of the Constitution and Section 3.020(20) of the Charter Plan along with Article X Section 22(a) of the Constitution when developing the Stormwater Rate Change Proposal. Please state (a) whether Zweig v. Metro. St. Louis Sewer Dist., 412 S.W.3d 223 (Mo. 2013) (en bane) was analyzed specifically in determining whether to utilize an ad valorem tax or impervious area fee; and (b) whether the District believes there is any legal impediment to the use of a voter approved impervious area fee to fund stormwater improvements and services. RESPONSE: 10. In response to Question 7 of the First Discovery Request of Home Builders Association, the District states that an ad valorem property tax used to operate and maintain the public stormwater system within its municipal boundaries is fair and equitable because the use of property taxes to fund services and the maintenance of infrastructure is allowed under the Missouri Constitution and is used by MSD and other municipal entities in the area to pay for these kinds of services. Please identify (a) each such provision of the Missouri Constitution authorizing the use of a tax levy to pay for stormwater services; and (b) each municipal entity using property taxes to pay for stormwater services. RESPONSE: 8 11. In response to Question 7 of the First Discovery Request of Home Builders Association, the District states that an ad valorem property tax used to operate and maintain the public stormwater system within its municipal boundaries is fair and equitable since the use of an alternative funding method, such as impervious area, may result in fewer people participating in funding these services compared to an ad valorem taxing method based on recent Missouri Supreme Court decisions and State Legislation. Please identify (a) the recent Missouri Supreme Court decisions and State Legislation to which reference is made; and (b) identify those persons who would not be subject to (i) an impervious area charge; and (ii) an ad valorem tax to fund stormwater services. RESPONSE: 12. In response to Question 7 of the First Discovery Request of Home Builders Association, the District states that an ad valorem property tax used to operate and maintain the public stormwater system within its municipal boundaries is fair and equitable because the use of an alternative funding method, such as impervious area, would cost the ratepayers approximately $950 thousand/per year more to operate and maintain than an ad valorem taxing method. 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: 9 13. Has the District, or any entity engaged by the District, conducted a poll or survey of voter attitudes concerning additional stormwater improvements and services, to be undertaken by the District, or funding mechanisms which might be utilized to pay for such additional stormwater improvements and services within the last five years? If so, please provide a copy of the results of such poll or survey. RESPONSE: Respectfully submitted, Lisa O. Stump LASHLY & BAER, P.C. 714 Locust Street St. Louis, Missouri 63101 Tel: (314) 621-2939 Fax: (314) 621-6844 10 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; Susan Myers, Counsel for the Metropolitan St. Louis Sewer District; Brad Goss, Counsel for Intervener Home Builders Association of St. Louis & Eastern Missouri; and Brandon Neuschafer and Diana Vuylsteke, Counsel for Intervener Missouri Industrial Energy Consumers on this 3rd day of June, 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. Brad Goss Smith Amundsen, LLC 120 South Central Avenue, Suite 700 St. Louis, MO 63105-1794 bgoss@salawus.com Mr. Brandon W. Neuschafer Ms. Diana M. Vuylsteke Bryan Cave LLP 211 N. Broadway, Suite 3600 St. Louis, MO 63102 bwneuschafer@bryancave.com dmvuylsteke@bryancave.com Lisa O. Stump 11