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MSD Exhibit No. MSD 3K
2023 Wastewater Rate Change Proceeding
THOMAS A. BECKLEY
Direct Testimony
Metropolitan St. Louis Sewer District
March 24, 2023
Table of Contents
Page
Witness Background and Experience ............................................................................................................. 1
Wastewater Revenue ............................................................................................................................................ 2
Wastewater Revenue Requirements ................................................................................................................ 3
Wastewater Financial Plan ................................................................................................................................. 3
Wastewater Cost of Service ............................................................................................................................... 4
Wastewater Rate Adjustments.......................................................................................................8
Direct Testimony of Thomas A. Beckley, Raftelis March 24, 2023
2023 Wastewater Rate Proceeding 1 MSD Exhibit No. MSD 3K
Witness Background and Experience 1
Q1 Please state your name and business address. 2
A. Thomas A. Beckley, 3013 Main Street, Kansas City, Missouri, 64108, 3
tbeckley@raftelis.com 4
Q2. By whom are you employed and in what capacity. 5
A. I am a Vice President with Raftelis Financial Consultants, Inc. (Raftelis). Raftelis provides 6
financial and management consulting services to municipally owned utilities throughout 7
the United States and Canada. Raftelis was established in 1993 in Charlotte, North 8
Carolina to provide environmental and management consulting services to public and 9
private sector clients. Raftelis is a national leader in the development of water, wastewater, 10
and stormwater rates and employs 140 consultants providing financial and management 11
consulting services to municipal utilities throughout the United States and Canada. As 12
Vice President at Raftelis I am the Office Lead of our Kansas City, Missouri office and 13
serve as project manager on engagements for clients throughout the Midwest region of the 14
United States. 15
Q3. Please describe your educational background and work experience. 16
A. I obtained a Bachelor of Science in Naval Architecture and Marine Engineering from Webb 17
Institute in 1995; a Master of Business Administration from the A.B. Freeman School of 18
Business in 2000; and a Master in Public Administration from the University of Kansas in 19
2008. I joined Raftelis in 2000 and since that time have served over 100 clients on a variety 20
of financial and management consulting engagements for municipal water, wastewater, and 21
stormwater utilities throughout the United States. 22
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Direct Testimony of Thomas A. Beckley, Raftelis March 24, 2023
2023 Wastewater Rate Proceeding 2 MSD Exhibit No. MSD 3K
Q4. Have you previously participated in Rate Commission Proceedings of The 1
Metropolitan St. Louis Sewer District (District or MSD)? 2
A. Yes. Raftelis served as Consultant to the Rate Commission in the 2007, 2008, and 2011 3
Rate Change Proceedings and Consultant to the District in the 2015, 2018, and 2019 Rate 4
Change Proceedings. I was the Lead Consultant for Raftelis in 2007, 2008, and 2011 and 5
Project Manager for Raftelis for the 2015, 2018, and 2019 Rate Commission Proceedings. 6
Q5. Please describe your role in this proceeding? 7
A. The scope of my assignment in this proceeding is as Project Manager for Raftelis’ 8
assistance to the District in preparing the Wastewater Rate Change Proposal which 9
recommends means of financing MSD’s wastewater activities for fiscal years ending June 10
30, 2025 (FY25) through June 30, 2028 (FY28). As Project Manager I provide leadership 11
and direction to our team engaged in this work for the District as well as technical advice 12
during the conduct of our work. 13
Wastewater Revenue 14
Q6. How was wastewater revenue based on current rates projected in the Wastewater 15
Rate Change Proposal? 16
A. The projected number of customers by customer class is shown in the Wastewater Rate 17
Change Proposal in Table 4-2, and the projected contributed volumes by customer class 18
are shown in Table 4-3. Based on this information, projected revenues for the period of 19
FY25 through FY28 using the District’s current approved FY24 rates are shown in Table 20
4-4, while other wastewater revenues for the District are shown in Table 4-5. Table 4-5 21
was developed in conjunction with District Staff based on past experience and projected 22
trends of each revenue line item. 23
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Direct Testimony of Thomas A. Beckley, Raftelis March 24, 2023
2023 Wastewater Rate Proceeding 3 MSD Exhibit No. MSD 3K
Wastewater Revenue Requirements 1
Q7. What are the components of the District’s wastewater revenue requirements? 2
A. The District’s wastewater revenue requirements arise from three basic needs: Operation 3
and maintenance expense (O&M), capital expense, and funding of reserves. Capital 4
expense can further be broken down between debt service requirements (which is the 5
payment of debt used to fund capital projects) and use of internally generated funds or cash 6
funded capital (which is also sometimes referred to as PAYGO capital, short for Pay As 7
You Go). 8
Q8. How are the District’s wastewater CIRP requirements projected over the period of 9
the Wastewater Rate Change Proposal? 10
A. The District provided wastewater CIRP requirements to be included in the financial 11
planning and rate model. The figures provided by the District include adjustments for the 12
timing of the actual cash needs as discussed in Appendix 8.1.2. The amount of the CIRP 13
is inflated in FY25 through FY28 based on an analysis of regional Engineering News 14
Record construction cost index data. The resultant cash requirements for the CIRP are 15
shown in Table 4-7 of the Wastewater Rate Change Proposal while additional detail on the 16
District’s overall CIRP can be found in Appendices 8.2.2, 8.2.3, and 8.2.4. 17
Wastewater Financial Plan 18
Q9. How are the wastewater rate increases determined over the Wastewater Rate Change 19
Proposal period? 20
A. Based on the projected revenues under existing rates and the District’s wastewater revenue 21
requirements, the financial planning and rate model can be used to determine the 22
wastewater rate increases needed to meet the District’s financial objectives. Based on 23
discussions with District Staff as well with as the District’s Financial Advisor, it was 24
Direct Testimony of Thomas A. Beckley, Raftelis March 24, 2023
2023 Wastewater Rate Proceeding 4 MSD Exhibit No. MSD 3K
established that the driving factor in determining revenue requirements and, therefore, rate 1
increases is the District’s objective to maintain a Total Debt Coverage level of 1.8, as 2
discussed in the Testimony of Tim Snoke. Based on this goal and the desire to provide 3
relatively consistent rate increases over the Wastewater Rate Change Proposal period, the 4
proposed rate increases are calculated to meet the forecasted revenue requirements. The 5
District’s Wastewater Financial Plan is shown on Table 4-10. As can be seen in Table 4-6
10, the District’s total debt coverage level declines to 1.8 in FY28 with the proposed 7
revenue increases. 8
Wastewater Cost of Service 9
Q10. What is a cost-of-service analysis? 10
A. The basic principle in a cost of service analysis is to achieve general fairness in the recovery 11
of costs from various classes of customers. The approach used in this Study is based on 12
the principles endorsed by the Water Environment Federation (WEF), which allows the 13
District to demonstrate rates have not been set in an arbitrary manner and one class of 14
customer is not subsidizing another to an unjustifiable extent, or in a manner that is not 15
approved and supported by the District. 16
Q11. What period was analyzed for the cost-of-service analysis? 17
A. A cost-of-service analysis typically identifies a single test year to be used as the basis of 18
the analysis. For this analysis the projected expenses for the first year of the Wastewater 19
Rate Change Proposal period (FY25) are used. It is common for non-regulated utilities to 20
use a projected test year, as compared to regulated utilities which are often required by the 21
applicable regulatory body to use an historical test year with allowances for known and 22
measurable changes. 23
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Direct Testimony of Thomas A. Beckley, Raftelis March 24, 2023
2023 Wastewater Rate Proceeding 5 MSD Exhibit No. MSD 3K
Q12. How are O&M costs assigned or distributed to functions in the cost-of-service 1
analysis? 2
A. The O&M costs were assigned or distributed to functional categories based on factors 3
developed with available data, District Staff, and generally accepted industry practices, and 4
were then reviewed to ensure the appropriate factors were applied. For example, operating 5
costs for the customer service center were assigned to customer service and billing; costs 6
for operating the treatment plants were assigned to treatment; and wastewater collection 7
costs were assigned and distributed between collection and conveyance. General and 8
administrative cost elements are allocated based on the weighted average allocation of the 9
direct costs. A summary of the functionalized O&M costs is shown in Table 4-12 of the 10
Wastewater Rate Change Proposal. 11
Q13. How are capital costs assigned or distributed to functions in the cost-of-service 12
analysis? 13
A. Capital costs (debt service requirements and rate-funded capital) are assigned or distributed 14
based on an analysis of the District’s fixed assets. The estimated test year FY25 plant 15
investment consists of plant in service as of June 30, 2022, and the estimated costs of 16
proposed capital improvements to be placed in service through the FY25 test year. Total 17
plant investment, on an original cost less accumulated depreciation basis, is assigned to 18
functional cost components reflecting the function of the assets. The functionalization of 19
total plant investment is also used as the basis to allocate total routine capital 20
improvements. A summary of the functionalized capital costs is shown in Table 4-12 of 21
the Wastewater Rate Change Proposal. 22
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Direct Testimony of Thomas A. Beckley, Raftelis March 24, 2023
2023 Wastewater Rate Proceeding 6 MSD Exhibit No. MSD 3K
Q14. How are the functionalized costs then used in the cost-of-service analysis? 1
A. The functionalized costs are next allocated to their cost components in accordance with 2
how the facilities are designed. In this step of the cost of service process, costs are 3
apportioned to the functional cost drivers of: 4
• Volume - Costs related to the volume of wastewater flow received by the wastewater 5
system such as the portion of the collection and conveyance systems necessary to handle 6
average volumes of the wastewater system. 7
• Capacity - Costs related to the peak flow of the system, in other words facilities sized 8
not just to meet typical volumes, but peak volumes, including preliminary treatment at the 9
wastewater treatment plants as well as the portion of the collection and conveyance systems 10
necessary to meet peak flows. 11
• Compliance – Costs associated with compliance for the District’s pretreatment 12
program for non-residential customers, specifically a portion of the costs of the 13
Environmental Compliance Division of the Engineering Department. 14
• Wastewater strength - Costs associated with treatment of the strength components 15
of wastewater flow, including primary and secondary treatment at the wastewater treatment 16
plants. 17
• Customer and billing - Costs associated with providing service to customers 18
regardless of their flows or other demands, including customer service and some regulatory 19
services. 20
The separation of costs into functional cost components provides a means for distributing 21
such costs to the various cost drivers on the basis of respective responsibilities for each 22
particular type of service. A summary of this analysis is shown in Table 4-13 of the 23
Wastewater Rate Change Proposal. 24
Direct Testimony of Thomas A. Beckley, Raftelis March 24, 2023
2023 Wastewater Rate Proceeding 7 MSD Exhibit No. MSD 3K
Q15. How are the costs allocated to customer classes? 1
A. The total cost responsibility for each customer class is determined by developing 2
wastewater system unit costs of service for each cost component and applying these unit 3
costs to the respective service requirements of each customer class. In accomplishing this, 4
each customer class is allocated the share of volume, capacity, compliance, strength, and 5
customer costs for which it is responsible. 6
The unit cost of service represents the cost of providing a unit of each cost component, 7
volume, capacity, compliance, strength, and customer and billing, to each customer 8
regardless of their other characteristics. Each customer class pays the same unit cost for 9
each service they receive, though they may receive different amounts of each service, 10
which is the basis for different costs by customer classes. In other words, differences in 11
costs between customers are based on a fair and equitable determination of the cost of 12
providing specific services and those differences in cost are a result of different levels of 13
service and not different pricing for the same service levels. 14
Customers are divided into customer classes that represent a particular type of service 15
requirement or load on the system. The residential customer class includes residents living 16
in single family and multi-family dwellings. The non-residential class includes all 17
customers not included in the residential class such as commercial, government, industrial, 18
etc. Wastewater strengths in excess of the normal wastewater strength thresholds, which 19
are contributed by a portion of the non-residential class, are segregated into a separate 20
surcharge customer group. 21
The determination of customer class responsibility for costs of service requires that the 22
customer classes be allocated a portion of the volume, capacity, compliance, strength, and 23
customer costs of service according to their respective service requirements. Service 24
Direct Testimony of Thomas A. Beckley, Raftelis March 24, 2023
2023 Wastewater Rate Proceeding 8 MSD Exhibit No. MSD 3K
requirements or units of service for the respective customer classes are shown in Table 4-1
14 of the Wastewater Rate Change Proposal. 2
Q16. How do the District’s existing rates compare to the cost-of-service analysis? 3
A. The results of the cost-of-service analysis are summarized in Table 4-17 and show the 4
amount by which each class as a whole is being under-recovered relative to the District’s 5
revenue requirements for FY25. While there are varying impacts among customer classes, 6
they do not vary significantly from the overall proposed rate increase, which indicates that 7
on the whole there should not be significant differential impacts to customers from the cost-8
of-service rate adjustments. 9
Wastewater Rate Adjustments 10
Q17. How are the cost-of-service rate adjustments determined? 11
A. Based on the unit costs calculated in the cost-of-service analysis as shown on Table 4-15 12
of the Wastewater Rate Change Proposal, the District can develop proposed rates that are 13
cost of service based and will provide an equitable recovery of costs from the District’s 14
customer classes. These rates are presented in Table 4-18 of the Wastewater Rate Change 15
Proposal. 16
Q18. Why are the wastewater strength surcharges for biochemical oxygen demand (BOD), 17
chemical oxygen demand (COD), and total suspended solids (TSS) increasing greater 18
than the overall rate increases? 19
A. The cost of service analysis indicates a significant increase in the surcharge rates for BOD, 20
COD, and TSS. This increase is caused by associated costs increasing at a greater than 21
average rate, in part because of the new incinerator project. The rate for TSS is also 22
impacted by a continued decrease in the total units of service for that component. In total, 23
these factors result in the increase in the rates that is larger than other rate components. 24
Direct Testimony of Thomas A. Beckley, Raftelis March 24, 2023
2023 Wastewater Rate Proceeding 9 MSD Exhibit No. MSD 3K
A comparison of both the units of service and total allocated costs for both operating and 1
maintenance costs and capital costs allocated to strength is shown in the table on the next 2
page for the 2021 Test Year contained in the previous proposal and the 2025 Test Year 3
contained in this rate proposal. 4
5
Q19. Does this conclude your direct testimony in this matter? 6
A. Yes, it does. 7
TSS BOD TSS BOD
Pollutants (lbs)
Normal Strength Contributed 104,957,814 76,332,962 95,704,021 89,301,248
Extra Strength Contributed 13,556,960 13,650,240 8,767,929 10,250,276
I&I 55,832,001 5,583,200 55,565,769 5,556,577
Total 174,346,775 95,566,402 160,037,719 105,108,101
Costs
Operating 14,220,557 22,424,147 19,800,023$ 30,274,583$
Capital 13,107,315 20,464,046 34,556,333 24,740,288
Revenue Offset (313,421) (198,535)
Total 27,327,872$ 42,888,193$ 54,042,935$ 54,816,336$
Unit Cost 0.1567$ 0.4488$ 0.3377$ 0.5215$
Rate per ton 313.49$ 897.56$ 675.38$ 1,043.05$
% Change 115.4% 16.2%
Surcharge Comparison 2021 Test Year 2025 Test Year