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FY2013 - FY2016 Rate Proposal Summary Overview1 of 6 2013-2016 RATE PROPOSAL FY 2013-2016 SUMMARY (Updated December 2012) Key Highlights • In June 2007, the State of Missouri and the United States Environmental Protection Agency (EPA) filed a lawsuit against MSD over the status of sewer overflows in MSD’s wastewater collection system. The State of Missouri and EPA were later joined by the Missouri Coalition for the Environment. • In August 2011, EPA announced a settlement agreement that calls for MSD to spend an estimated $4.7 billion over the next 23 years to address over 350 sewer overflows in our community. (This settlement was approved by the United States Federal Court in April 2012.) • The issue of overflows has been a significant focus of MSD’s work for many years. As an example, from 1992 to 2011, MSD spent $2.5 billion to eliminate over 350 overflows. Today, work to address sewer overflows and improve water quality continues in the form of a multi-decade, multi-billion dollar capital construction program that was begun in 2003. • Since 2003, MSD has utilized a combination of rate increases and bond issuances to finance its work to address overflows and rehabilitate the wastewater collection and treatment system. In July 2003, the average monthly single-family wastewater bill was $13.97. Today, that same bill is $31.34. The issuance of bonds has been used to minimize rate increases over that time period. Much like a home mortgage allows a large investment to be paid for over many years, the bonds have kept rates lower than they would have been had MSD used a “pay-as-you-go” approach. • • On May 10, 2011, MSD staff presented a proposal to our Rate Commission recommending customer wastewater rate increases to help fund more than $1 billion in needed wastewater system improvements between Fiscal Years 2013 and 2016 (July 1, 2012 to June 30, 2016). After a process that included multiple public hearings, the Rate Commission recommended to the Board of Trustees a proposal that consisted of a series of smaller rate increases combined with bond financing to pay for the needed work.. The Board approved the proposal in December 2011. The proposal took effect on July 1, 2012, the specifics of which were to be determined by voter approval of bond financing. • MSD presented to area voters a ballot initiative that authorized the issuance of $945 million in bonds to help finance the next phase of work to address sewer overflows. Listed as Proposition Y on the June 2012 ballot, this initiative passed with 85% approval. The first round of bonds was issued in August 2012. 2 of 6 The upcoming rate schedule is: Date of Increase Average Monthly Bill, Single-Family $ Increase % Increase Current $ 31.34 July 1, 2013 $ 34.72 $ 3.38 10.8% July 1, 2014 $ 38.55 $ 3.83 11.0% July 1, 2015 $ 43.67 $ 5.12 13.3% TOTAL = $14.94 52.0% About MSD Formed in 1954, the Metropolitan St. Louis Sewer District (MSD) is the governmental agency that provides wastewater and stormwater management services for all of St. Louis City and approximately 80 percent of St. Louis County. Comprised of 79 separate sewer systems that have been incorporated into one entity over the last several decades, MSD services just under 415,000 single-family residential, multi- family residential, and commercial/industrial accounts. The sewer system MSD manages today is one of the largest and most complex systems in the United States. In terms of wastewater sewers alone, MSD manages the 4th largest system in the nation. To give some perspective on what “4th largest” means for our community, consider that MSD’s wastewater system is approximately the same size as the wastewater system in Los Angeles, California. Although the two systems are approximately the same size – as measured in miles of wastewater sewer pipe – system upgrades and operational costs in Los Angeles are shared by over 5 million residents versus approximately 1.3 million in St. Louis. Overall, MSD maintains approximately 6,700 miles of sewers that handle wastewater. Within MSD’s service area are two distinct sewer systems that handle wastewater: A combined sewer system that handles both wastewater and stormwater within the same sewer pipe; and a separate, stand alone, sanitary sewer system that is designed to handle only wastewater within the sewer pipe. Depending on what part of MSD’s service area you live in, you are either served by a combined sewer system or a separate sewer system. This labyrinth of sewers leads to seven wastewater treatment plants that treat a combined average of 370 million gallons of wastewater per day. In addition to sewers that in some way handle wastewater, MSD maintains almost 3,000 miles of sewers that handle only stormwater and are not a part of the wastewater collection and treatment system. Why are improvements to our sewer system and associated rate increases necessary? During dry weather, MSD treats 100 percent of all wastewater at its treatment plants. However, throughout MSD’s service area, there are hundreds of points where a combination of rainwater and 3 of 6 wastewater discharges into local waterways from the sewer system during moderate to heavy rainstorms. These sewer overflow points act as relief valves when too much rainwater enters the sewer system, and without them, our community could experience thousands of basement backups and/or extensive street flooding. (Even with these overflows points, basement backups can number in the hundreds during particularly heavy rains.) Depending on where sewer overflows are located within MSD’s system, they are classified as combined sewer overflows --or-- constructed separate sewer overflows. Many of these overflows are a legacy of the way our wastewater systems were first built starting in the 1850s. In June 2007, the State of Missouri and the United States Environmental Protection Agency (EPA) filed a lawsuit against MSD over the status of these overflows. The State of Missouri and EPA were later joined by the Missouri Coalition for the Environment. Though most overflows predate the District’s creation in 1954, they are still MSD’s responsibility and efforts to address the issue must be completed. The issue of overflows has been a significant focus of MSD’s work for many years. As an example, from 1992 to 2011, MSD spent approximately $2.5 billion to eliminate over 350 overflows. Today, MSD’s work to address the 350-plus sewer overflows that remain continues in the form of a multi-decade, multi- billion dollar capital construction program that was begun in 2003. Different from past capital programs, our current effort is addressing our community’s wastewater collection and treatment capabilities on a system wide basis, rather than carrying out system improvements one section at a time. This program is a mammoth undertaking that will benefit St. Louisians – and our environment – for generations to come. Beyond the issue of overflows, our wastewater system is also just old, with the oldest sections dating to the 1850s. For example, we still have sewers in downtown St. Louis that are partially made of wood. In St. Louis County, we have sewers that were installed decades ago using outdated practices. On average, sewer pipe is expected to last 100 years. That means every year MSD should be replacing at least 1 percent of its total sewer pipes. How has this work been paid for and what are the financing plans for the future? Since 2003, MSD has utilized a combination of rate increases and bond issuances to finance its work to address overflows and rehabilitate our wastewater collection and treatment system. In July 2003, the average monthly single-family wastewater bill was $13.97. Today, that same bill is $31.34. The issuance of bonds has been used to minimize rate increases over that time period. Much like a home mortgage allows a large investment to be paid for over many years, the bonds have kept rates lower than they would have been had MSD used a “pay-as-you-go” approach. To issue bonds, MSD must receive approval from voters residing within its service area. As set through a public Rate Commission process, MSD expenditures from July 1, 2012, through June 30, 2016, are scheduled to be capital projects valued at $972 million, $658 million for operational costs, and debt service of $312 million. The Rate Commission is an independent body within the MSD organization that reviews proposed rate increases. Composed of 15 member organizations representing a broad cross section of MSD customers and our St. Louis community, the Rate Commission utilizes a system based on many of the same procedures employed by the Missouri Public Service Commission and is meant to give the public a voice in setting MSD’s rates. The Rate Commission process includes multiple technical and public hearings where customers have an opportunity to provide feedback on rate proposals. Current Rate Commission organizations are: • Associated General Contractors (AGC) • Cooperating School Districts 4 of 6 • Greater St. Louis Labor Council • Home Builders Association of Greater St. Louis • League of Women Voters of Saint Louis • Missouri Botanical Garden • Missouri Coalition for the Environment • Missouri Industrial Energy Consumers • Regional Chamber & Growth Association (RCGA) • St. Louis Council of Construction Consumers • St. Louis County Municipal League • St. Phillip’s Lutheran Church • The Engineers’ Club of St. Louis • West County Chamber of Commerce A Rate Commission seat was held by The Human Development Corporation of Metropolitan St. Louis. However, that organization ceased operations in 2011. Historically, MSD’s rates have been below the national average. Since 2003, when systematic rate increases first began, MSD’s rates have been at or slightly below the national average, as calculated by the National Association of Clean Water Agencies. If bond financing is continued, MSD expects that rates will continue to remain near the national average. MSD Rate History vs. National Association of Clean Water Agencies (NACWA) national average 0 10 20 30 40 50 2000 2002 2004 2006 2008 2010 2012 2014 2016Residential Bill -$/Mo. Fiscal Year Historic and Projected Residential Bills (8 Ccf/month) MSD RATES = BLUE BARS vs. NACWA AVERAGE = RED LINE MSD clearly recognizes that even during the best of times, rate increases are never welcome news. MSD further recognizes that these are economic times not seen in several generations and that many in our community are struggling to make ends meet. To assist those struggling with their bills, MSD has in place a Low Income Assistance Program for qualified low-income, elderly, and disabled customers. Recently this program has been expanded to include tenants and reach a portion of the St. Louis community previously ineligible for this assistance. Qualified customers receive a rate reduction equal to 50 percent of the current charges on their monthly sewer bill. Is there a choice about if this work should be done? The regulatory requirements that must be met for the operation of wastewater collection and treatment systems are laid out in or derived from the Federal Clean Water Act of 1972. Accordingly, for several years now, EPA has been taking enforcement action against communities across the country to address sewer overflows. As an example of this policy, the following graphic highlights EPA’s focus on 5 of 6 municipalities with large combined sewer systems. There are 201 of these large combined sewer systems nationwide. Through September 30, 2011, EPA has taken enforcement action against 71 of these municipalities. (Note: This graphic does not include information on enforcement actions taken against smaller combined systems or stand-alone separate sewer systems.) SOURCE: "Keeping Raw Sewage and Contaminated Stormwater Out of Our Nation." United States Environmental Protection Agency. N.p., 2012. Web. 16 Mar 2012. <http://www.epa.gov/compliance/data/planning/initiatives/2011sewagestormwater.html>. Given the above information and the goals of the Clean Water Act, there is no choice about if this work should be done. Rather, it is a question of how quickly it is accomplished. Since December 2008, MSD has been in mediation with the State of Missouri, the United States Federal Government, and the Missouri Coalition for the Environment over the lawsuit first filed against MSD in June 2007 by the State and Federal Governments and later joined by the Coalition. In August 2011, EPA announced a settlement agreement that calls for MSD to spend a minimum of $4.7 billion over the next 23 years to address sewer overflows in our community. The work to be done includes the construction of 6 of 6 sewers, deep tunnels for storage, surface storage tanks, high rate treatment facilities, pump stations, green infrastructure, and other improvements required to meet regulatory requirements. When complete – and aside from sustaining or creating tens of thousands of local jobs – this work will help protect our natural environment and local population from a combination of rainwater and sewage that is discharged into area waterways during moderate to heavy rains – a discharge that can annually measure in the billions of gallons. The agreement was finalized by the United States Federal Court on April 27, 2012. However, the State of Missouri was not a party to the settlement agreement. So that the case could be finalized, the Court declared the State of Missouri a defendant for the final disposition of the case. Some within the St. Louis community have called for this agreement to be reopened and negotiated further, based on the large cost and a perceived lack of overall water quality improvement that would be realized. MSD does not disagree with the motivation behind these arguments. However, our situation is no different than other large metropolitan areas across the United States, many of which have also entered into similar agreements with the Federal Government - agreements which, in spite of current economic conditions, are still in effect. Furthermore, delaying the agreement could mean a delay in relief for customers who suffer basement backups, and put off further reinvestment in a sewer system that is decades old and in need of rehabilitation or replacement. Delays that would occur while overflows continue to discharge a combination of rainwater and sewage into local waterways when it rains – waterways that run through the backyards of local neighborhoods, past playgrounds and schools, and other areas frequented by our entire community. While $4.7 billion is a large number by any standard, MSD believes it has reached the best agreement possible. When the lawsuit was first filed in 2007, the standard length of time for these agreements was 15 to 18 years. The length of these agreements has been the primary factor behind sewer rate increases across the country - the shorter the timeframe, the faster rates must increase to pay for improvements. MSD was able to negotiate a 23-year agreement. Additionally, when MSD was first sued in 2007, it was believed the cost to meet current regulatory requirements would be $6 billion. By negotiating alternative solutions to sewer overflows, the projected cost to meet these requirements has decreased to $4.7 billion. In short, MSD believes that all parties to the lawsuit have worked hard and showed great understanding to reach an agreement that continues to ensure the public’s health and safety, protects our St. Louis area waterways from unnecessary sewer overflows, and allows for robust investment in our region’s infrastructure and local economy.