HomeMy Public PortalAboutExhibit MSD 75 - Transcript of Technical Conference for District Testimony - April 27, 2023Page 1
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·4· ·STORMWATER AND WASTEWATER RATE COMMISSION
·5· · · · · · · ·2350 MARKET STREET
·6· · · · · · ·SAINT LOUIS, MO 63103
·7· · · · · · · · ·APRIL 27, 2023
·8· · · · · ·(COMMENCING AT 9:30 a.m.)
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Exhibit MSD 75
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·1· · · · · · · · · · · · · INDEX
·2· · · · · · · · · · · · · · · · · · · · · · · · · ·PAGE
·3· ·Roll Call
·4· ·Questions by the Rate Commission:
·5· ·Susan Myers· · · · · · · · · · · · · · · · · · · · 6
· · ·Rich Unverferth· · · · · · · · · · · · · · · · · ·13
·6· ·Bret Berthold· · · · · · · · · · · · · · · · · · ·42
· · ·Marion Gee· · · · · · · · · · · · · · · · · · · · 51
·7· ·Tim Snoke· · · · · · · · · · · · · · · · · · · · ·86
· · ·Bethany Pugh· · · · · · · · · · · · · · · · · · ·104
·8· ·William Zieburtz· · · · · · · · · · · · · · · · ·118
· · ·William Stannard· · · · · · · · · · · · · · · · ·132
·9· ·Thomas Beckley· · · · · · · · · · · · · · · · · ·145
10· ·Adjournment· · · · · · · · · · · · · · · · · · · 157
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13· · · · · · · · · · · · · ·EXHIBITS
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15· ·EXHIBIT· · · · · · · DESCRIPTION· · · · · · · · PAGE
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17· · · · · · · · ·(No exhibits proffered.)
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·1· ·STORMWATER AND WASTEWATER RATE COMMISSION
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·8· · · · STORMWATER AND WASTEWATER RATE COMMISSION
·9· ·taken via on April 27, 2023 between the hours
10· ·of 9:30 a.m. and 5:00 p.m. in the city of St.
11· ·Louis, State of Missouri, before Colin Wallis,
12· ·Certified Court Reporter, within and for the
13· ·State of Missouri.
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·1· · · · · · · · · A P P E A R A N C E S
·2· · · · · · ·RATE COMMISSION:
·3· · · · · · ·Leonard Toenjes, Chair
· · · · · · · ·Matt Muren, Vice-Chair
·4· · · · · · ·Bill Clarke, Secretary
· · · · · · · ·Paul Ziegler
·5· · · · · · ·Patrick Moynihan
· · · · · · · ·Brad Goss
·6· · · · · · ·Stephen Mahfood
· · · · · · · ·Jack Stein
·7· · · · · · ·Lisa Savoy
· · · · · · · ·Mark Perkins
·8· · · · · · ·Ryan Barry
· · · · · · · ·Lou Jearls
·9· · · · · · ·Mickey Croyle
· · · · · · · ·Lloyd Palans
10· · · · · · ·Jim Faul
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12· · · · · · ·RATE COMMISSION COUNSEL:
13· · · · · · ·Lisa Stump
· · · · · · · ·Brian Malone
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15· · · · · · ·General Counsel:
16· · · · · · ·Susan Myers
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22· ·REPORTED BY:
23· ·Mr. Colin Wallis
· · ·Lexitas Legal
24· ·711 North Eleventh Street
· · ·St. Louis, Missouri, 63101
25· ·(314) 644-2191
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·1· · · · · · · ·*· ·*· ·*· ·*· ·*
·2· · · · · · ·P R O C E E D I N G S
·3· · · · CHAIRMAN TOENJES:· Good morning, everyone.
·4· ·We will resume our meeting of the Metropolitan
·5· ·St. Louis Sewer Division Rate Commission, and
·6· ·we will start the proceedings today with roll
·7· ·call.· Mr. Secretary?
·8· · · · MR. CLARKE:· Okay, thank you.· Leonard
·9· ·Toenjes?
10· · · · CHAIRMAN TOENJES:· Present.
11· · · · MR. CLARKE:· Lou Jearls?
12· · · · MR. JEARLS:· Here.
13· · · · MR. CLARKE:· Lloyd Palans?
14· · · · MR. PALANS:· Present.
15· · · · MR. CLARKE:· Paul Ziegler?
16· · · · MR. ZIEGLER:· Present.
17· · · · MR. CLARKE:· Pat Moynihan?
18· · · · MR. MOYNIHAN:· Present.
19· · · · MR. CLARKE:· Brad Goss?· Stephen Mahfood?
20· · · · MR. MAHFOOD:· Here.
21· · · · MR. CLARKE:· Jack Stein?
22· · · · MR. STEIN:· Present.
23· · · · MR. CLARKE:· Lisa Savoy?· Mark Perkins?
24· · · · MR. PERKINS:· Present.
25· · · · MR. CLARKE:· Ryan Barry?· Mickey Croyle?
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·1· · · · · · ·MS. CROYLE:· Present.
·2· · · · · · ·MR. CLARKE:· Matt Muren.
·3· · · · · · ·MR. MUREN:· Present.
·4· · · · · · ·MR. CLARKE:· Jim Faul?· Bill Clarke.· I'm
·5· · · · here.· We got a quorum.
·6· · · · · · ·CHAIRMAN TOENJES:· Thank you,
·7· · · · Mr. Secretary.· Based on our proceedings
·8· · · · yesterday, I believe we are now ready to begin
·9· · · · our work on the wastewater rate change.
10· · · · Ms. Myers, are you ready to proceed?· Please
11· · · · come forward and we will issue the oath of
12· · · · office.· Ms. Myers, if you will take the oath
13· · · · please.
14· · · · · · · · · ·(Susan Myers sworn.)
15· · · · · · ·CHAIRMAN TOENJES:· Thank you, Ms. Myers.
16· · · · Mr. Malone, do you have any questions on behalf
17· · · · of the Rate Commission for Ms. Myers?
18· · · · · · ·MR. MALONE:· I do.
19· · · · · · ·CHAIRMAN TOENJES:· Please proceed.
20· ·QUESTIONS BY MR. MALONE:
21· · · · Q· · Ms. Myers, as we discussed yesterday, you
22· ·are general counsel for the Metropolitan Sewer
23· ·District; correct?
24· · · · A· · Yes, I am.
25· · · · Q· · And how long have you held that position?
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·1· · · · A· · Since 2011.
·2· · · · Q· · Okay.· And in this rate-change proceeding,
·3· ·you didn't submit any direct testimony for
·4· ·wastewater but since we have -- since there's a
·5· ·requirement that we establish the factors and
·6· ·criteria under the charter, some of which fall under
·7· ·the legal domain, I'm going to need to ask you some
·8· ·questions to get some information into the record.
·9· · · · A· · That's fine.
10· · · · Q· · Okay.· Was there a particular reason you
11· ·didn't submit direct testimony for wastewater since
12· ·you have in previous wastewater proceedings?
13· · · · A· · Yes, this year the District thought it
14· ·would be more helpful to the Commission to put all
15· ·five factors and our explanation with those factors
16· ·into the actual proposal, so that the Commission
17· ·could see them in order and see them with the
18· ·explanation right there.
19· · · · · · · · · In the past, we have had the criteria
20· ·split up amongst other number of folks' testimony,
21· ·so we thought this would be more helpful.· I guess
22· ·it's turning out not to be that helpful; but,
23· ·anyway, I still like the format that we have in the
24· ·proposal.· The fact that we have to testify is
25· ·something we didn't think about when we went that
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·1· ·route.· So, that's the only reason.
·2· · · · Q· · Okay.· Is it the District's position with
·3· ·regard to wastewater that the proposed rate change
·4· ·is consistent with constitutional and statutory
·5· ·common law as amended from time to time?
·6· · · · A· · Yes, it is.
·7· · · · Q· · Can you briefly explain why?
·8· · · · A· · As it states in the proposal, the
·9· ·wastewater user charge is consistent with section
10· ·3.020(16) of the MSD charter.· It's also consistent
11· ·with the Missouri Growth case, which the site is in
12· ·the proposal.· The Missouri Growth case is a 1997
13· ·Court of -- Missouri Court of Appeals case that held
14· ·the MSD's wastewater service charges were user fees,
15· ·not taxes, and, therefore, rate increases did not
16· ·require voter approval pursuant to the Missouri
17· ·Constitution, the Hancock Amendment.· The wastewater
18· ·rate that we are proposing here today follows the
19· ·same methodology as the rate that was part of the
20· ·1997 court case.
21· · · · Q· · Okay.· Can you please explain to the Rate
22· ·Commission whether and to what extent the wastewater
23· ·rate change proposal will affect or impact the
24· ·District's compliance with the Consent Decree?
25· · · · A· · The wastewater rate proposal supports the
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·1· ·work that is required under the Consent Decree, and
·2· ·it also supports the legal obligations that the
·3· ·District has.
·4· · · · Q· · Okay.· Is it your opinion as the
·5· ·District's general counsel that the wastewater rate
·6· ·change proposal does not impair the ability of the
·7· ·District to comply with applicable federal or state
·8· ·laws or regulations as amended from time to time?
·9· · · · A· · Correct.
10· · · · Q· · Okay.· In your opinion, would failure to
11· ·approve the wastewater rate change proposal
12· ·jeopardize the District's ability to comply with
13· ·federal and state law?
14· · · · A· · Yes, definitely.
15· · · · Q· · Can you explain why?
16· · · · A· · As I said earlier, the wastewater rates
17· ·will support the legal obligations that the District
18· ·is under.· The biggest one is the Consent Decree.
19· · · · Q· · Is the District at risk of penalties
20· ·beyond the Consent Decree should it not approve this
21· ·rate change proposal?
22· · · · A· · Yes, we are subject to the Clean Water
23· ·Law, as I had stated yesterday, and there are
24· ·penalties in that law that if you are out of
25· ·compliance, and also there are penalties embedded in
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·1· ·our Consent Decree if we do not meet certain
·2· ·requirements in the Consent Decree.
·3· · · · Q· · Is any failure to comply with federal law,
·4· ·would that result in a penalty under the Consent
·5· ·Decree?
·6· · · · A· · State that again.
·7· · · · Q· · Would any penalty under federal law, for
·8· ·failure to comply with the federal law, violate the
·9· ·terms of the Consent Decree?
10· · · · A· · Yes.
11· · · · Q· · Okay.· Does the wastewater rate change
12· ·proposal consider the financial impact on all
13· ·classes of rate payers in determining a fair and
14· ·reasonable burden?
15· · · · A· · I'm going to defer to Marion for that
16· ·response.
17· · · · Q· · Thank you.
18· · · · A· · Uh-huh.
19· · · · Q· · I think you touched on this earlier, but
20· ·are metered users in single-family homes still
21· ·billed on the best equated period as described in
22· ·the Missouri Growth case?
23· · · · A· · Yes, they are, and I will defer to Marion
24· ·for more specific questions about that.
25· · · · Q· · Okay.· Is that true of multi-family homes
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·1· ·as well, or is that a Marion question?
·2· · · · A· · That's a Marion question.
·3· · · · Q· · Okay.· Is an explanation of the best
·4· ·equated period, is that best left to Marion as well?
·5· · · · A· · Yes.
·6· · · · Q· · And I think you stated earlier that
·7· ·Section 3.020 Subsection 16 of the Charter Plan is
·8· ·relied on by the District to establish and charge
·9· ·rates?
10· · · · A· · Correct.
11· · · · Q· · Is the -- does the authority under the
12· ·charter differ for billing methods for metered and
13· ·non-metered users, or is it both under that
14· ·subsection?
15· · · · A· · It's both under that subsection.
16· · · · Q· · And that's true for establishing different
17· ·rates for residential and nonresidential and for
18· ·single-family versus multi-family?
19· · · · A· · Yes.
20· · · · Q· · And I believe that's all the questions I
21· ·have at this time.
22· · · · A· · Thank you.
23· · · · · · ·CHAIRMAN TOENJES:· Thank you, Ms. Myers.
24· · · · Are there any questions for Ms. Myers from
25· · · · members of the Rate Commission?· Mr. Palans.
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·1· ·QUESTIONS BY MR. PALANS:
·2· · · · Q· · Good morning, Ms. Myers.
·3· · · · A· · Good morning.
·4· · · · Q· · Unlike the testimony that you offered
·5· ·yesterday, you do not provide any legal memorandum
·6· ·for our presentation -- your presentation this
·7· ·morning vis-à-vis wastewater; correct?
·8· · · · A· · That's correct.
·9· · · · Q· · Did you obtain an opinion of counsel with
10· ·respect to the legality of the wastewater proposal?
11· · · · A· · We did not.
12· · · · Q· · And what is the reason you did not?
13· · · · A· · The reason we did not is because we have
14· ·not changed the methodology for the wastewater rate
15· ·since it was litigated in the '90s, and, so, we have
16· ·continued -- we work very hard to keep that
17· ·methodology consistent with what was approved by the
18· ·Missouri Growth case.
19· · · · Q· · So, you're relying on case law precedent
20· ·to support the fact that this proposal is legal and
21· ·enforceable?
22· · · · A· · Correct.
23· · · · · · ·MR. PALANS:· Thank you.· I have no further
24· · · · questions.
25· · · · · · ·CHAIRMAN TOENJES:· Thank you, Mr. Palans.
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·1· · · · Are there any further questions for Ms. Myers
·2· · · · from any members of the Rate Commission?· Are
·3· · · · there any questions from legal counsel or --
·4· · · · Mr. Malone?· Thank you, Mr. Malone.· I would
·5· · · · believe that Ms. Myers's testimony is completed
·6· · · · then.· Ms. Myers, would you like to call your
·7· · · · next witness?
·8· · · · · · ·MS. MYERS:· Yes, the District's next
·9· · · · witness -- uh, I can't talk today, next witness
10· · · · is Rich Unverferth.
11· · · · · · ·CHAIRMAN TOENJES:· Before you get
12· · · · comfortable, Rich, let's have you take the
13· · · · oath.
14· · · · · · · ·(Rich Unverferth is sworn.)
15· · · · · · ·CHAIRMAN TOENJES:· Mr. Malone, do you have
16· · · · questions for Mr. Unverferth?
17· · · · · · ·MR. MALONE:· I do.
18· ·QUESTIONS BY MR. MALONE:
19· · · · Q· · Good morning, Mr. Unverfeth.
20· · · · A· · Good morning.
21· · · · Q· · Do you have your testimony that you
22· ·submitted in this proceeding with you today?
23· · · · A· · Yes, I do.
24· · · · Q· · Can you explain to the Rate Commission
25· ·what your position with the District is?
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·1· · · · A· · I am the Director of Engineering.· I've
·2· ·been in this position just under ten years, been
·3· ·with the District for 36 years.
·4· · · · Q· · Okay.· And can you -- your testimony is
·5· ·primarily focused on the CIRP; correct?
·6· · · · A· · That is correct.
·7· · · · Q· · And can you tell the Commission what the
·8· ·total cost of the wastewater CIRP is?
·9· · · · A· · The wastewater CIRP presented in the rate
10· ·proposal is approximately $1.65 billion for the
11· ·fiscal years '25 through '28.
12· · · · Q· · Okay.· And with regard to your direct
13· ·testimony, referring to page 2, there's a question
14· ·that states, "Are all the wastewater projects
15· ·necessary?"· And your response is, "Yes, almost
16· ·entirely pursuant to the Consent Decree or
17· ·regulatory requirements."
18· · · · A· · That is correct.
19· · · · Q· · And then on page 3, you state that the
20· ·wastewater CIRP is almost entirely required to
21· ·comply with the Consent Decree or other regulatory
22· ·requirements.· Can you explain what you mean by
23· ·regulatory requirements?
24· · · · A· · Each one of the wastewater treatment
25· ·plants has a permit with the Missouri Department of
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·1· ·Natural Resources in order to comply with water
·2· ·quality standards of the completion of treatment, so
·3· ·in order to keep those plants up and running,
·4· ·included in the CIRP as regulatory projects are
·5· ·projects at those wastewater treatment plants to
·6· ·either upgrade, rehabilitate, repair anything
·7· ·necessary at those plants in order to keep our
·8· ·treatment processes working.· So, we do have
·9· ·projects identified in the CIRP to do that work.
10· · · · · · · · · In addition, there are projects, we
11· ·refer to as non-CD projects and non-regulatory, but
12· ·those are also asset but we do not have a permit.
13· ·There's a number of floodwalls along the --
14· ·floodwall pumping stations along the floodwall on
15· ·the Missouri River that MSD is responsible to
16· ·operate and maintain based on agreements signed when
17· ·they were built with the Corps of Engineers.· We're
18· ·in the process, over a number of years, to
19· ·systematically rehab these pump stations that were
20· ·built in the '70s.· And, so, we do include funding
21· ·to do that.
22· · · · · · · · · There is a requirement by the Corps
23· ·of Engineers that we do -- when those were built, to
24· ·maintain those, but we don't refer to those as
25· ·regulatory requirements.· There's some additional
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·1· ·work to a digestor and generator at the Missouri
·2· ·River Treatment Plan that isn't specifically
·3· ·regulatory.
·4· · · · Q· · Okay.· So 1.6 -- of the 1.6 billion, is it
·5· ·for the CIRP total?
·6· · · · A· · Correct.
·7· · · · Q· · Okay.· And how much -- how much of that is
·8· ·for non-con Consent Decree?
·9· · · · A· · 35 million.
10· · · · Q· · Okay.· Is there anything else besides
11· ·Consent Decree in that regulatory --
12· · · · A· · That -- that's the three components.
13· · · · Q· · Okay.· And in the wastewater CIRP, there
14· ·are several projects with the project type
15· ·unallocated versus the other wastewater projects
16· ·with the "Project type: Wastewater".· These seem to
17· ·be appraisal services or bender services related to
18· ·rainfall runoff response or water quality
19· ·documentation.· Can you explain how those projects
20· ·are funded?
21· · · · A· · Those are -- those are funded from the
22· ·wastewater rate.· Those are for support services,
23· ·primarily from my division in the actual performance
24· ·of the projects themselves.· Either they're support
25· ·or planning, which is the water -- some of the flow
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·1· ·monitoring projects like that.· And then there's the
·2· ·projects -- I'm drawing a blank here.· The appraisal
·3· ·services for the acquisition of easements for
·4· ·sanitary relief and combined sewer projects.· I'm
·5· ·trying to think of the -- I don't have a
·6· ·comprehensive list sitting in front of me.· I'd have
·7· ·to pull that up.
·8· · · · Q· · Okay.· I refer you to page 4 of your
·9· ·testimony, there's a reference to green
10· ·infrastructure solutions and city-shed projects.
11· ·Are those required as part of the Consent Decree?
12· · · · A· · Yes, they are.· Both have commitments per
13· ·the expenditures of $230 million over the life of
14· ·the Consent Decree to address combined sewer area
15· ·flooding, primarily in the City of St. Louis and
16· ·north portions of the county, and the Green
17· ·Infrastructure program is to reduce combined sewer
18· ·overflow to the Mississippi River to River Des
19· ·Peres.· There's a commitment of $100 million over
20· ·the life of Consent Decree for reducing combined
21· ·sewer overflow through the construction of Green
22· ·Infrastructure and another $25 million commitment in
23· ·the River Des Peres area until such time we do some
24· ·of the major improvements in those areas.
25· · · · Q· · Okay.· And also on page 4 of your
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·1· ·testimony, you make reference to asset renewal
·2· ·projects.
·3· · · · A· · Yes, those are the projects I referred to
·4· ·earlier.· Asset renewal with regard to our pumping
·5· ·stations, we categorize as Consent Decree.· In the
·6· ·Consent Decree, there's a CMOM Program, which
·7· ·requires us to operate and maintain both our
·8· ·collections systems and all of our pumping stations
·9· ·and our force main.· So, a lot of our pump, we have
10· ·over 280 pumping stations throughout the District,
11· ·that some were inherited, some were built with
12· ·development, but just as the floodwall pumping
13· ·stations I referred to earlier, a lot of them were
14· ·built in the '60s and '70s, so we systematically do
15· ·inspection on those, and we identify projects to
16· ·rehabilitate those pumping stations over a period of
17· ·time and upgrade force mains, where we have problems
18· ·with force mains.
19· · · · Q· · Okay, so those would fall, since they're
20· ·under the Consent Decree, those wouldn't be related
21· ·to -- those wouldn't be other regulatory, I guess;
22· ·correct?
23· · · · A· · Correct.
24· · · · Q· · Okay.· And the CIRP also includes some
25· ·asset management projects that include
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·1· ·rehabilitation projects.· How does that compare with
·2· ·projects that would be undertaken as part of the O&M
·3· ·budget?
·4· · · · A· · Could you repeat that?
·5· · · · Q· · So, the projects that are listed in the
·6· ·CIRP as "Assess management", are those different
·7· ·than the projects you undertake as part of the O&M
·8· ·budget?
·9· · · · A· · Yes, those are larger projects that --
10· ·that give -- they get assessed through our CMOM
11· ·project in our treatment plants.· And they're
12· ·identified in their larger projects that are not
13· ·completed within the operating budget.
14· · · · Q· · Okay.· Could you give an example of some
15· ·of those?
16· · · · A· · It would be a large piping project at one
17· ·of the plants where we've got old piping that needs
18· ·to be replaced that's leaking, is probably the
19· ·easiest example.· Or equipment that has reached the
20· ·end of its usefulness and we can replace the
21· ·equipment.· We have in place -- what I call -- what
22· ·we call a monetized prioritization for that type of
23· ·equipment.· In other words, we do an assessment; it
24· ·goes into a prioritization tool.· Obviously, there's
25· ·always work you could do, so we don't just -- if
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·1· ·there's a project, we do it; we weigh it against
·2· ·other projects.· So, we do a prioritization and try
·3· ·to -- obviously, our primary priority with the CIRP
·4· ·is the Consent Decree, so there's always work to do
·5· ·at our treatment plants.· We try to prioritize that
·6· ·work.
·7· · · · Q· · Okay.· And with regard to the Consent
·8· ·Decree, in response to a discovery request as part
·9· ·of this proceeding, the District stated that the
10· ·cost of completion and compliance of the Consent
11· ·Decree as of 2019 was 6 billion in 2018 dollars. I
12· ·believe that was the first discovery request;
13· ·correct?
14· · · · A· · That is correct.
15· · · · Q· · Okay.· And I understand the cost today in
16· ·response to the request, the District stated 7.2
17· ·billion in 2023 dollars.
18· · · · A· · Correct.
19· · · · Q· · Is that increase due to solely inflation
20· ·and bringing this to 2023 dollars, or there are
21· ·other new projects or updated cost estimates that
22· ·drove that increased total cost?
23· · · · A· · It's a combination of both.
24· · · · Q· · Okay, can you --
25· · · · A· · Inflationary, and I couldn't specifically,
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·1· ·off the top of my head, tell you which projects, but
·2· ·it would have been those projects that I talked
·3· ·about just now.· The asset management-type projects
·4· ·that would have been identified over that period of
·5· ·time.
·6· · · · Q· · So, would that be the flood wall projects
·7· ·you referenced earlier?
·8· · · · A· · No, those -- those we have programmed
·9· ·systematically.· It would be the asset management at
10· ·the treatment plans: piping projects, equipment
11· ·replacement, switchgear replacement, things like
12· ·that at plants.
13· · · · Q· · Okay.· Is that the District's position
14· ·that the proposed wastewater rate change would
15· ·enhance the District's ability to provide sewer and
16· ·drainage systems at facilities and related services?
17· · · · A· · Yes, it will allow us to complete the
18· ·Consent Decree requirements that we have.· It allows
19· ·us to fund, obviously, our operations and programs
20· ·both for engineering and operations; it provides us
21· ·the ability to meet our regulatory compliance
22· ·requirements and, obviously, maintain the assets we
23· ·have.
24· · · · Q· · Okay.· Are there other metrics or criteria
25· ·that the District uses to determine if it will
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·1· ·enhance its ability to provide adequate sewer
·2· ·drainage and related services?
·3· · · · A· · I'm going to defer to Bret Berthold.
·4· ·There are a number of things that he tracks in
·5· ·meeting those requirements.· Particularly, a number
·6· ·of overflows, thing like that.· I'm sorry, Bret
·7· ·Berthold is the Director of Operations.
·8· · · · Q· · Thank you.· Can you please explain how the
·9· ·District is taking measures to ensure that the cost
10· ·of constructing and maintaining District facilities
11· ·and providing related services is being occurred in
12· ·a reasonable and efficient manner?
13· · · · A· · We're continually looking -- when we first
14· ·undertook the Consent Decree, we hired consultants
15· ·to cover the design of certain areas to avoid having
16· ·to procure that.· In other words, try to create
17· ·efficiencies since procurement of those design
18· ·services.· We do the same thing in other areas, such
19· ·as our flow-metering operations.· We have looked at
20· ·both internal and external and determined it was
21· ·more cost effective to do that from an external
22· ·perspective.· We are always looking at the, you
23· ·know, how we design projects and combining projects
24· ·together in certain areas for bidding purposes to
25· ·try to reduce bidding costs.
Page 23
·1· · · · Q· · I see.· And turning back to your direct
·2· ·testimony on page 6, you discuss future regulatory
·3· ·requirements and the upcoming total phosphorus
·4· ·rules.· Are those rules in effect yet?
·5· · · · A· · We -- those will be -- we're in the middle
·6· ·of redoing our permits at our wastewater treatment
·7· ·plants, and it's been indicated to us that those
·8· ·will be a new requirement in our next permit, so we
·9· ·program those in this rate cycle.
10· · · · Q· · Okay.· So, when will that permit be
11· ·applicable?
12· · · · A· · I think it's in 2025.· Bret -- Bret
13· ·Berthhold may be able to answer those permit
14· ·renewals.
15· · · · Q· · Okay, thank you.· And is any of that --
16· ·are there other regulations that you categorize as
17· ·future regulatory requirements that have been
18· ·included in the CIRP or accounted for in the CIRP?
19· · · · A· · Not in the CIRP.· In the operating budget,
20· ·we're going to be required to do some additional
21· ·testing for an emerging contaminant referred to as
22· ·PFOS.· Our permit will include a requirement to
23· ·monitor per that emerging contaminant both -- be
24· ·handled by the Department of Environment Compliance
25· ·laboratory staff, so it's this additional testing of
Page 24
·1· ·wastewater that we are already do, so it's minimal
·2· ·as part of the operating budget.
·3· · · · Q· · Okay.· Is it your testimony that the
·4· ·District is not aware, aside from the total
·5· ·phosphorus rules and the PFOS, are there any other
·6· ·future regulatory requirements that the District
·7· ·anticipates prior to fiscal year 2029?
·8· · · · A· · Not prior to 2029.
·9· · · · Q· · All right.· And there is -- in the CIRP,
10· ·there are some projects associated with the
11· ·incinerators.· Can you explain what kind of work the
12· ·District anticipates performing on the incinerators?
13· · · · A· · It's going to be a total replacement and
14· ·put in new technology with fluidized bed insulations
15· ·at the current combustible incinerators, and
16· ·included in that, is dewatering -- dewatering and
17· ·distribution of the solids that are left over from
18· ·the treatment process.· It's a complete replacement
19· ·of that system.
20· · · · Q· · Why is the District proposing that this be
21· ·done during this rate cycle?
22· · · · A· · There was some new regulation in 2016
23· ·pertaining to the incinerators that would make our
24· ·incinerators under the next renewal cycle
25· ·non-compliant.· They're currently in compliance now,
Page 25
·1· ·but we had to move this into the schedule to have
·2· ·these completed.
·3· · · · Q· · Okay.· And during a preceding
·4· ·presentation, Brian Hoelscher made reference to a
·5· ·two-year delay in the combined sewer overflow
·6· ·components of the Consent Decree.· That wasn't on
·7· ·the record, so I would like now that we're on the
·8· ·record here, if you could explain what that two-year
·9· ·delay is for and why that's being requested or going
10· ·to be requested.
11· · · · A· · I figured it's probably a discussion
12· ·regarding the financial plan either by Marion,
13· ·primarily with regard to the two-year delay and its
14· ·impact with the overall rate, but what it did is we
15· ·have in the Consent Decree schedule with the
16· ·increased cost of the incinerators that we found, it
17· ·was going to impact the later few years of the rate
18· ·proposal with regard to our CSO tunnel along River
19· ·Des Peres and potentially could create a spike in
20· ·the rates the last two years.· So, as part of the
21· ·rate proposal, we chose to delay the start of that
22· ·tunnel until the next rate cycle.· With that, it
23· ·would move our end-date or our last CSO tunnel up to
24· ·the end of the Consent Decree 2039 and still meet
25· ·our overall Consent Decree date.· We had made some
Page 26
·1· ·adjustments with two other tunnels with our last
·2· ·rate -- I'm sorry, with our last Consent Decree
·3· ·modification to combine two tunnels into one, and
·4· ·we're going to be completing it in 2037; and,
·5· ·basically, this pushes the end back to 2039 of those
·6· ·two -- of that one tunnel.
·7· · · · Q· · Okay, so does this two-year delay impact
·8· ·the ability of the District to comply with the
·9· ·Consent Decree?
10· · · · A· · It does not.
11· · · · Q· · Okay.· And the District hasn't submitted a
12· ·request for a Consent Decree modification for this
13· ·two-year delay, has it?
14· · · · A· · We have not.
15· · · · Q· · Can you briefly describe the process the
16· ·District would need to go through to make such a
17· ·request?
18· · · · A· · I can't refer back to you -- it's a
19· ·process through of our legal department making a
20· ·request through the EPA Region 7 office for a change
21· ·in one of the -- it would not change -- it would,
22· ·basically, change some start dates.
23· · · · Q· · Okay.· And when would the District
24· ·anticipate, I guess, knowing if this modification
25· ·would be approved?
Page 27
·1· · · · A· · The plan right now is to have the
·2· ·discussion with them later this year.
·3· · · · Q· · Okay.· And what would be the impact on the
·4· ·rate if the District is not able obtain this
·5· ·modification?
·6· · · · A· · I would defer to Marion Gee on that
·7· ·question.
·8· · · · Q· · Okay.· And if the District can obtain a
·9· ·modification, would that impact the CIRP in this
10· ·rate cycle?
11· · · · A· · It would not.
12· · · · · · ·MR. MALONE:· I think that's all the
13· · · · questions I have.
14· · · · · · ·CHAIRMAN TOENJES:· Thank you, Mr. Malone.
15· · · · Are there any questions from any of the rate
16· · · · commissioners?· Mr. Palans.
17· ·QUESTIONS BY MR. PALANS:
18· · · · Q· · Thank you.· Mr. Unverferth, you mentioned
19· ·the two-year delay on the combined sewer overflow
20· ·project.· Are there any other projects that are
21· ·anticipated to be delayed during the performance of
22· ·the Consent Decree?
23· · · · A· · None that I'm aware of.
24· · · · Q· · And in response to counsel's question and
25· ·the response to your discovery request, you indicate
Page 28
·1· ·that the cost of the Consent Decree was 6 billion
·2· ·dollars in 2018 dollars, inclusive of past and
·3· ·future expenses, and the cost of the Consent Decree
·4· ·is 7.2 billion dollars in 2023 dollars, including
·5· ·past and future expenses; correct?
·6· · · · A· · That is correct.
·7· · · · Q· · Do you know how much has been spent thus
·8· ·far by the District in compliance with the Consent
·9· ·Decree?
10· · · · A· · I thought we had answered that.· Let me
11· ·look here real quick.· We -- I thought I provided
12· ·that.· I know I have seen it.· I may have to get
13· ·back to you on that.· I know we have it on what our
14· ·expenditures to date are compared to what's
15· ·considered past and what's considered future.
16· · · · Q· · Do you know how much will remain to be
17· ·spent at the conclusion of this rate cycle in 2028
18· ·to comply with the Consent Decree?
19· · · · A· · I don't believe we've done that
20· ·calculation.· We would have to do that.
21· · · · Q· · Okay.· My colleague advises me that this
22· ·multi-decade effort, and that is your response to
23· ·question 15 in Exhibit 3-D, the multi-decade effort
24· ·is estimated to cost approximately 7.2 billion
25· ·dollars in 2023 dollars, with approximately two and
Page 29
·1· ·a half billion appropriated through fiscal year
·2· ·2022.· Again, my question is: how much will remain
·3· ·to be spent to comply with the Consent Decree at the
·4· ·conclusion of this rate cycle in 2028?
·5· · · · A· · So, assuming we appropriate everything
·6· ·that we have listed, you would add 1.65 to -- 7.2
·7· ·minus 2.5 and 1.65; that would be the difference.
·8· · · · Q· · What is that number?· I'm not --
·9· · · · A· · Yeah.· We may have to have Marion provide
10· ·that under his testimony, because I am forgetting --
11· ·we have two current years remaining, so it's not the
12· ·simple math that I thought it might be.
13· · · · Q· · Yeah, my -- my questions are and my focus
14· ·is: at the conclusion of this rate cycle in 2028, we
15· ·have 11 years to comply with the Consent Decree, and
16· ·wanted to know and perhaps Mr. Gee can provide that
17· ·information for us, how much more we have to spend
18· ·to comply with the Consent Decree at the conclusion
19· ·of this rate cycle, okay?
20· · · · A· · We can provide that.
21· · · · · · ·MR. PALANS:· Thank you.· I have no further
22· · · · questions.
23· · · · · · ·CHAIRMAN TOENJES:· Thank you, Mr. Palans.
24· · · · Mr. Mahfood?
25· ·QUESTIONS BY MR. MAHFOOD:
Page 30
·1· · · · Q· · This is probably something I ought to know
·2· ·but is the cost of the incinerator, the project, is
·3· ·that included in this $7.2 billion figure, or is
·4· ·that outside of that figure?
·5· · · · A· · It is outside of that figure.
·6· · · · · · ·MR. MAHFOOD:· Okay, I just wanted to make
·7· · · · sure that was on the record.
·8· · · · · · ·CHAIRMAN TOENJES:· Any questions from any
·9· · · · other rate commissioners for --
10· · · · · · ·MR. JEARLS:· Yes, Mr. Chairman.
11· · · · · · ·CHAIRMAN TOENJES:· Yes, Mr. Jearls?
12· ·QUESTIONS BY MR. JEARLS:
13· · · · Q· · Some of my questions from yesterday, since
14· ·we're on wastewater, and I want to thank
15· ·Mr. Volchair for bringing me up to speed on a few
16· ·items, but, Mr. Unverferth, question 19, how are --
17· ·"What steps are you taking to reduce program costs?"
18· ·Most of those steps are in the design and bidding
19· ·stages, that type of thing, a little bit of planning
20· ·there, but, again, the I&I is 62, 64 percent of the
21· ·wastewater budget, and that's a sizable number.
22· · · · · · · · · So, when you prioritize projects, how
23· ·much do you allocate for -- well, first off, I guess
24· ·to prioritize projects that you and the Operation
25· ·and Maintenance Program and Engineering and then
Page 31
·1· ·maybe one or two other -- maybe Marion gets involved
·2· ·to see if we can pay for these things, but, you
·3· ·know, how much do you allocate for the reduction of
·4· ·I&I in the operation and maintenance of --
·5· · · · A· · First, the I&I quotation in the rate
·6· ·proposal where it's 62 percent, understand that
·7· ·includes the combined sewer stormwater into that.
·8· ·So, if you take that out and just concentrate on the
·9· ·sanitary sewer system and the contribution of the
10· ·I&I, actually, it's part of the Consent Decree, the
11· ·removal of inflow and infiltration in our system was
12· ·the priority in the first ten years of the Consent
13· ·Decree.· The majority of our work that we did, which
14· ·includes the lining of sewers for vent infiltration,
15· ·the removal of private sources to the sanitary
16· ·system was a priority for us, but what we did is if
17· ·we had -- we created a model on cost-effectiveness
18· ·because in order to look at it cost to treat
19· ·stormwater getting into the system versus -- and
20· ·I'll use an example of, like, a basement garage.· In
21· ·other words, in order to eliminate someone's -- in
22· ·other words, to eliminate that inflow source, you
23· ·would have to eliminate somebody's garage or put in
24· ·a pumping station or add storm-sewer systems.
25· · · · · · · · · So, we had a knee in the curve that
Page 32
·1· ·was created, based on cost effectiveness and then
·2· ·it's kind of twofold.· The second fold was removing
·3· ·that I&I prevented us from having to do or reduce
·4· ·the sizing of future relief projects where we did
·5· ·not have the capacity, was causing overflows or
·6· ·back-ups, so we did have -- in other words, once we
·7· ·do the I&I removal, there's a flow monitoring of the
·8· ·system.· We determine whether the system has
·9· ·capacity.· So, those were a priority in the first
10· ·ten years, and we will -- we have seen reductions
11· ·and seen savings in that area.
12· · · · Q· · Okay.· And, well, the reason I ask is
13· ·partly in a testimony by William Stannard, who is
14· ·chairman of the board of your financial consultants.
15· ·He mentioned in his report that -- let's see if I
16· ·can find it again.· That the current I&I rate for
17· ·the District is 59.4 percent, and then he goes on to
18· ·say that you spent a significant amount of money, or
19· ·in his words, or significant investments in this
20· ·infrastructure to reduce combined sewer flows and
21· ·separate sewer overflows and precipitation,
22· ·rainwater, snowfall is a big factor.
23· · · · · · · · · In other words, you spent a lot of
24· ·money on it, but he projects the I&I factor to go up
25· ·from 59.4 to 62.4.· So, in other words, it sounds
Page 33
·1· ·like, from what I'm reading, is that you're spending
·2· ·a lot of money and you're not gaining any ground at
·3· ·all.· You're actually losing ground as far as I&I,
·4· ·which is 56 percent of the total budget of MSD.· So,
·5· ·I got a little -- you know, got a concern --
·6· · · · A· · Right.
·7· · · · Q· · -- that we're going -- it's not going to
·8· ·get any better.
·9· · · · A· · Yeah, Mr. Stannard is scheduled to
10· ·testify, and I know he's planning on answering that
11· ·question, but it has to do more with the combined
12· ·sewer system, we are reducing that overflow by
13· ·capturing the overflow, as opposed to going to the
14· ·creek, so that's why your I&I number will go up
15· ·overall; because it includes that combined sewer
16· ·number.· In the sanitary sewer system, we are
17· ·removing overflow -- we're removing I&I to bring
18· ·this system to a service level that prevents
19· ·overflows from the system and prevents basement
20· ·backup, but even with that, you're still having
21· ·that -- a portion of that is still getting to the
22· ·system.· But it's not going out to creeks and
23· ·streams, and it's not going in the basements and
24· ·homes.
25· · · · Q· · But it's still water that you've got to
Page 34
·1· ·treat.
·2· · · · A· · Yeah, correct.
·3· · · · Q· · It's got to go through the correct
·4· ·treatment, so you're collecting it on purpose and
·5· ·treating it?
·6· · · · A· · In the combined sewer area, yeah.
·7· · · · Q· · I understand you can't get rid of all of
·8· ·it, but it looks like we're losing ground.
·9· · · · A· · It isn't -- I look at it from the separate
10· ·standpoint, it's not going -- or from an overall
11· ·water quality standpoint, it's not going into the
12· ·rivers and streams.
13· · · · · · ·MR. JEARLS:· I can see from the water
14· · · · quality point, yeah.· That's all I have.
15· · · · · · ·CHAIRMAN TOENJES:· Thank you, Mr. Jearls.
16· · · · Any other -- Ms. Croyle?
17· ·QUESTIONS FROM MS. CROYLE:
18· · · · Q· · On the last page, 7, the last sentence, I
19· ·assume that you're going to be -- in order to meet
20· ·the bacterial virus and the dissolved oxygen
21· ·criteria, the virus and the bacteria can easily be
22· ·done with PCR, which is fairly inexpensive testing,
23· ·and you've done that with the Covid treatment, so I
24· ·assume that's what you're planning on doing?
25· · · · A· · Could you repeat the question on the -- on
Page 35
·1· ·the longterm control plan?
·2· · · · Q· · Right.· The concern with having to do the
·3· ·bacterial virus and dissolved oxygen and the
·4· ·bacterial and the virus could easily be done with
·5· ·PCR tests?
·6· · · · A· · Yeah, I mean, we have -- there are limits
·7· ·in our permits and water quality requirements within
·8· ·those streams that we're required to meet.· We do
·9· ·regular monitoring to provide that information.· If
10· ·it doesn't meet that, then, obviously, it becomes
11· ·listed in there and there's some requirement to try
12· ·to bring that within the regulatory compliance.· So,
13· ·the plan at the completion of the longterm control
14· ·plan primarily in CSOs would be to meet that water
15· ·quality criteria for whichever the receiving stream,
16· ·whether it would be the Mississippi or River Des
17· ·Peres in our case.
18· · · · Q· · At least the technology makes it easier.
19· · · · A· · Yes.
20· · · · · · ·CHAIRMAN TOENJES:· Are there any other
21· · · · questions for Mr. Unverferth from any of the
22· · · · rate commissioners?
23· · · · · · ·MR. GOSS:· Mr. Chairman?
24· · · · · · ·CHAIRMAN TOENJES:· Yes, go ahead,
25· · · · Mr. Goss.
Page 36
·1· ·QUESTIONS BY MR. GOSS:
·2· · · · Q· · I just had one question.· Mr. Unverferth,
·3· ·you and I had talked yesterday about your biosolid
·4· ·program at the plant for the incinerator.· Could you
·5· ·talk a little bit about that and what your plans are
·6· ·for the future in respect to that?
·7· · · · A· · Mr. Goss is referring -- he mentioned
·8· ·yesterday about potential for energy recovery with
·9· ·the new incinerators.· The District, I explained to
10· ·him, the District did -- when we did our original
11· ·biosolid -- excuse me, biosolid study in the early
12· ·2010s, we looked at the potential of having energy
13· ·recovery in association with the incinerator and
14· ·looked at the cost benefit of providing that.· We
15· ·did another analysis as we moved into the final
16· ·design and found, at the current time, it was not
17· ·cost effective to proceed with that; but we didn't
18· ·want to leave out the potential for future energy
19· ·recovery.· It would have -- at least at the time,
20· ·our estimates increased the cost of that project by
21· ·about 20 percent.· So, if you look at the cost of
22· ·what we're going at, you add 20 percent to that and
23· ·not necessarily have good payback.· I indicated to
24· ·him that we do have a technical memorandum on that
25· ·that I would be happy to share with him.
Page 37
·1· · · · · · ·MR. GOSS:· Thank you.
·2· · · · · · ·MR. MAHFOOD:· Thank you, Mr. Goss.· Mr.
·3· · · · Mahfood?
·4· ·QUESTIONS BY MR. MAHFOOD:
·5· · · · Q· · Rich, could you share that technical
·6· ·memorandum with the Commission?
·7· · · · A· · Yes.· Our plan, I think, is we'll have
·8· ·a -- we'll gather all things required and we'll
·9· ·include that.
10· · · · · · ·MR. MAHFOOD:· Okay, thank you.
11· · · · · · ·CHAIRMAN TOENJES:· Any further questions
12· · · · for Mr. Unverferth?
13· ·QUESTIONS BY CHAIRMAN TOENJES:
14· · · · Q· · I have a couple, Rich, since we're on the
15· ·incinerator project.· I had somebody ask me --
16· ·you're using the fluidized bed method, you said.
17· ·Somebody -- and I know I'm not an engineer.· Thermal
18· ·hydrolysis, apparently, is another plan for an
19· ·incinerator-type thing.· Is that -- I understand
20· ·there's one in Kansas City, this thermal hydrolysis
21· ·plant.· What is that?· And was that something you
22· ·took a look at or not, or are you sort of the view
23· ·that --
24· · · · A· · Uh --
25· · · · Q· · I had a ratepayer ask me about it, and I
Page 38
·1· ·thought I need to bring it up here.
·2· · · · A· · Well, I am -- I am an engineer, and I
·3· ·don't think I can answer that, because I am not an
·4· ·incinerator expert.· But I -- and I do not have the
·5· ·original report, but we did look at what the other
·6· ·alternatives could be to the fluidized bed and,
·7· ·obviously, that's what we chose so I would have to
·8· ·go back and look at that.· But I -- I am aware of
·9· ·the Kansas City -- their biosolid plans that
10· ·utilizes that method.
11· · · · Q· · Would anyone at the District have any
12· ·information about that that would provide us some,
13· ·you know, I think --
14· · · · A· · Yeah --
15· · · · Q· · -- that we want to make the best use of
16· ·resources that are available, so I just -- I don't
17· ·know if anyone else here would have some information
18· ·about that, but I'd sure like to --
19· · · · A· · Yeah, my guess is it's in the original
20· ·biosolid analysis that we did on how we were dealing
21· ·with the biosolids.· I will look at -- if it's in
22· ·that report, we'll provide that report.
23· · · · Q· · I appreciate that.· To follow-up a little
24· ·on Mr. Palans' question, what percentage of the
25· ·Consent Decree work do you think is completed now?
Page 39
·1· · · · A· · We've completed -- we've got two major
·2· ·milestones in the combined sewer area.· Obviously,
·3· ·the two larger combined sewer area tunnels along
·4· ·River Des Peres and then along the tributaries to
·5· ·River Des Peres, another tunnel to capture CSOs.
·6· ·So, I would say, on the CSO side, you know, maybe
·7· ·we've completed about 10 percent of the combined
·8· ·sewer overflow.· On the sanitary sewer side, at the
·9· ·end of calendar year 2023, the Consent Decree
10· ·required us to have 85 percent of our sanitary sewer
11· ·overflows in our area streams removed.
12· · · · · · · · · Happy to report that we plan to meet
13· ·to that milestone.· There are still -- by the end of
14· ·2023, they'll still be -- I think the numbers in the
15· ·10s of overflows.· Those are sanitary relief
16· ·projects that had required earlier projects.· So, on
17· ·the sanitary sewer overflow side, I would say we're
18· ·probably closer to 80 to 90 percent complete.· In
19· ·other words, originally, the District had -- we --
20· ·just pointing it out, we had over 230 when we
21· ·started the Consent Decree, and we'll be less than
22· ·20 at the end of 2023.
23· · · · Q· · So, you feel like you're pretty well on
24· ·track with the Consent Decree work?
25· · · · A· · Correct.· We've -- and we've seen it in a
Page 40
·1· ·performance of our sewer system, and I think I
·2· ·referred to it earlier, you know, we have dashboards
·3· ·that measure our overflows.· Mr. Berthold gives
·4· ·regular report on overflows, water backups in the
·5· ·systems, things like that to our board on either an
·6· ·annually or a semiannual basis.· So, we see it with
·7· ·the -- with the performance of our system as well.
·8· · · · Q· · My last question has to do with the
·9· ·floodwall pumps.· You're maintaining the floodwall
10· ·pumps with money that's collected for wastewater and
11· ·not stormwater; am I correct?
12· · · · A· · That is correct.
13· · · · Q· · That is --
14· · · · A· · These -- they serve a dual purpose, those
15· ·storm -- excuse me.· The floodwall pumping stations
16· ·both act as our combined sewer overflow inceptors as
17· ·well.· In other words, when the river comes up, we
18· ·put down a gate and we have to pump our wastewater
19· ·system, you know, we have to intercept spill --
20· ·intercept our wastewater.· Those are combination
21· ·systems, so we prevent the flood water from coming
22· ·in and it doesn't inundate our wastewater system.
23· ·And it's -- when the river is down and it's dry,
24· ·then we're intercepting without the use.· So, in
25· ·other words, it serves a dual purpose.
Page 41
·1· · · · · · ·CHAIRMAN TOENJES:· Thank you.· Mr.
·2· · · · Mahfood?
·3· ·QUESTIONS BY MR. MAHFOOD:
·4· · · · Q· · Sorry to come back at you.
·5· · · · A· · That's all right.
·6· · · · Q· · I'm going to go back to the incineration
·7· ·issue just because I know a number of us have
·8· ·already been asked questions by our various
·9· ·constituencies about the whole incinerator choice
10· ·and process.
11· · · · · · · · · Would it be possible, along with the
12· ·technical documents, to just do kind of a basic
13· ·summary for us, because we're probably going to need
14· ·in our -- and I can tell you, in our public hearings
15· ·of the -- how the incinerator was chosen in the
16· ·first place and its technology and then following up
17· ·with what the Chairman just asked, why we chose
18· ·fluidized bed, just something that gives us some
19· ·handle on that process so we can respond as we go
20· ·forward.
21· · · · A· · Yeah, I am sure we have something like
22· ·that we prepared for our own public engagement. I
23· ·will -- we will provide that.· I think there's an
24· ·opportunity for rebuttal testimony and perhaps that
25· ·might be a good spot for it.
Page 42
·1· · · · · · ·MR. MAHFOOD:· Okay, thank you.
·2· · · · · · ·CHAIRMAN TOENJES:· Any other questions for
·3· · · · Mr. Unverferth?· Mr. Malone, do you have
·4· · · · further questions for Mr. Unverferth?
·5· · · · Ms. Myers?· Thank you, sir.
·6· · · · · · ·THE WITNESS:· Thank you.
·7· · · · · · ·MS. MYERS:· The District will call our
·8· · · · next witness.· He is Bret Berthold.· He is the
·9· · · · Director of Operations.
10· · · · · · · · (Bret Berthold is sworn.)
11· · · · · · ·CHAIRMAN TOENJES:· Ms. Stump, do you have
12· · · · questions for the witness on behalf of the Rate
13· · · · Commission?
14· · · · · · ·MS. STUMP:· I do have a few and good
15· · · · morning, everyone.
16· · · · · · ·CHAIRMAN TOENJES:· Please proceed.
17· ·QUESTIONS BY MS STUMP:
18· · · · Q· · Good morning, Mr. Berthold.· Can you
19· ·summarize for the Rate Commission what your position
20· ·with the District is?
21· · · · A· · Of course.· I'm the Director of
22· ·Operations.· I've been the Director for about four
23· ·and a half years now.· What falls under my purview
24· ·is all the treatment plants, the pump stations, the
25· ·collection system operations, as well as some
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·1· ·support services such as our warehousing group, our
·2· ·asset management group, our customer care group,
·3· ·which answers the telephone when someone has a
·4· ·problem, as well as our fleet repair group.
·5· · · · Q· · And I see you have your testimony in front
·6· ·of you.· It seems to be focused mainly on the
·7· ·operations and maintenance of the wastewater system;
·8· ·correct?
·9· · · · A· · Correct.
10· · · · Q· · You state in your testimony that the O&M
11· ·program for the District is focused around the CMOM
12· ·program within the Consent Decree.· Can you please
13· ·describe what that program is?
14· · · · A· · Yes, so in the Consent Decree the CMOM
15· ·program, which is the Capacity Management Operations
16· ·and Maintenance Program, addresses the -- how we
17· ·take care of the collection system.· So, that is our
18· ·inspection, our repair program that addresses the
19· ·collection system.
20· · · · Q· · You say that is within the Consent Decree.
21· ·So, is it legally required for the District to have
22· ·this program?
23· · · · A· · Yes.· It is.· Within the Consent Decree
24· ·there's a large section that covers the CMOM
25· ·program.· We have a number of metrics and milestones
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·1· ·that we have to meet on an annual basis or a
·2· ·five-year cycles, six-year cycles, ten-year cycles
·3· ·to make sure that we're inspecting and repairing
·4· ·things in a timely manager.
·5· · · · Q· · And a CMOM program activities include:
·6· ·work like rehabbing a pipe to ensure adequate
·7· ·capacity.· Is there any of this work that's included
·8· ·in the CIRP as a capital project?
·9· · · · A· · Yes, there is a small funding mechanism.
10· ·We have some infrastructure repair dollars.· That
11· ·is, we find large defects in our system.· They're
12· ·really too big for my department to fix, so they'll
13· ·be turned over to Rich's group, and Rich will
14· ·execute a project to go out and repair that sewer or
15· ·replace a manhole or something like that.
16· · · · Q· · And how -- and how much of that would you
17· ·say there is?
18· · · · A· · I think each calender year or fiscal year
19· ·it's 7 or $8 million annually.· I would have to go
20· ·check that for you.
21· · · · Q· · And then when you have a project like
22· ·that, that gets moved over to the CIRP or from those
23· ·funds, does it -- we talked -- we talked yesterday,
24· ·we'll be talking later about the list of projects in
25· ·the CIRP.· Where does that -- if you identify
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·1· ·something through the CMOM program, where does that
·2· ·go within the CIRP?
·3· · · · A· · It goes through a couple places.· It could
·4· ·to -- we have several contracts there for lining
·5· ·sewers, which is the "cure it in place" pipe method
·6· ·of putting a plastic liner within the pipe, so if we
·7· ·can -- if the project is such that we can do that,
·8· ·it'll be turned over and one of our contractors
·9· ·there will perform that.· If it's a -- if the entire
10· ·sewer has to be replaced from manhole to manhole or
11· ·whatever the case may be, it typically falls in a
12· ·different bucket of money.
13· · · · Q· · And, again, we're talking about these
14· ·projects are all going to still be required by the
15· ·Consent Decree?
16· · · · A· · They are.· As we go out and inspect our
17· ·system and rate our -- and put a condition rating on
18· ·our pipes, if the rating is bad enough, we -- there
19· ·is language in the CMOM program Consent Decree that
20· ·says we have to fix the project or the problem
21· ·within one calendar year.· So, as soon as we
22· ·identify the problem, the clock starts ticking.· And
23· ·we follow up on that and make sure it either gets
24· ·lined or repaired, and then we report those in our
25· ·annual report to the EPA and the Coalition for the
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·1· ·Environment.
·2· · · · Q· · Thank you.· In your testimony, you state
·3· ·that the CMOM activities has resulted in downward
·4· ·trends in basement backups.· Can you explain that a
·5· ·little bit more, please?
·6· · · · A· · Sure.· So, when we, prior to the Consent
·7· ·Decree and during the first portion of Consent
·8· ·Decree, we probably -- well, we didn't probably.· We
·9· ·had way higher numbers of basement backups as we
10· ·measure them.· Currently, right now, we're down at
11· ·about, I think, 2.4 or, no, it's -- I don't have
12· ·that number right in front of me.· While we've seen
13· ·those, we've come down the curve and we're kind of
14· ·on the knee of the curve right now.· But the number
15· ·of basement backups that are occurring on an annual
16· ·basis have drastically decreased.· And it's due to
17· ·all the inspection and repair work and construction
18· ·work that we've been doing.
19· · · · Q· · If the proposed rate change is approved,
20· ·does the District have any specific goals or targets
21· ·regarding the basement backups or dry water
22· ·overflows?
23· · · · A· · There's some specific goals listed in the
24· ·CMOM program that we strive to meet, so that's what
25· ·our goal is.· And those are the larger service level
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·1· ·goals that are listed there.
·2· · · · Q· · Okay, just a couple questions going back
·3· ·to the charter and the requirements of the Rate
·4· ·Commission is going to have to find.· It is in
·5· ·your -- is it your opinion that the rate change
·6· ·proposal is necessary to pay the cost of operation
·7· ·and maintenance?
·8· · · · A· · Yes, it is.
·9· · · · Q· · Can you explain that a little bit?· Why
10· ·that's --
11· · · · A· · Yes, sure.· So, in the collection system
12· ·side of the world, I need to be able to meet the
13· ·requirements of my CMOM program, which means I have
14· ·to have a staff that is capable of going out and
15· ·performing all the inspections and repairs that are
16· ·required by the CMOM program in the timeframes that
17· ·are listed in the CMOM plan.
18· · · · · · · · · From the treatment plants and pump
19· ·stations side of the world, it's all related to our
20· ·regulatory permits and NPDES permits, those are the
21· ·National Pollution Discharge Elimination System
22· ·permits that the Missouri Department of Natural
23· ·Resources issues us.· So, to be in compliance with
24· ·those, I need to be able to operate and maintain all
25· ·my -- all pump stations and treatment plants.
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·1· · · · Q· · And you believe the rate change proposal,
·2· ·the wastewater rate change proposal part, is in the
·3· ·amount necessary and adequate for you to do so?
·4· · · · A· · Yes.
·5· · · · Q· · And will the wastewater rate change
·6· ·proposal enhance the District's ability to provide
·7· ·sewer and drainage systems and facilities or related
·8· ·services?
·9· · · · A· · Yes.
10· · · · Q· · And what -- when you say yes, what kind of
11· ·metric parts do you use to make that determination?
12· · · · A· · I jotted down a few.· We have a very nice
13· ·dashboard where we track these things.· We measure
14· ·all kinds of metrics and performance indicators on
15· ·all aspects of -- in the operations department.
16· ·Some of the bigger ones, the more service level
17· ·ones, are on-time response.· So, when a customer
18· ·calls in with an issue, how fast are we getting out
19· ·there to service our customer.· Our goal is to
20· ·have -- be on-site within four hours of receiving
21· ·the telephone call.· Typically, on a day like today,
22· ·where it's not raining, we're out there within an
23· ·hour or a two.· If it's pouring down rain and
24· ·getting lots of phone calls, it's usually longer.
25· · · · · · · · · Some of the others we track are water
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·1· ·backups or overflows, we track down everything to a
·2· ·technical level, too, where we're, actually, making
·3· ·sure that our crews are efficient out there.· So, if
·4· ·I'm assigning my crews to go out and do manhole
·5· ·inspections for the day, I have certain goals for
·6· ·them to meet to make sure we're hitting what we have
·7· ·to.· We also monitor on time p.m. compliance, you
·8· ·know, I could go on and on.· If you have time, I'd
·9· ·love to show you the dashboard and everything we
10· ·track.
11· · · · Q· · Is the dashboard a public document, or is
12· ·that an internal document?
13· · · · A· · It's an internal document that we
14· ·developed.· It's based on the information that we
15· ·pull out of our MaxMo work order management system
16· ·and use that to track all of our work.
17· · · · Q· · Okay.· Just give me one second, I want to
18· ·see what else was thrown to you when I was not here.
19· ·It looks like just -- I believe Mr. Malone maybe had
20· ·a discussion with Mr. Unverferth about the TP rules,
21· ·total phosphorus rules.
22· · · · A· · Yes, I shot off a quick e-mail.· It was
23· ·with regard to our permits.· And the expiration date
24· ·of our permits.
25· · · · Q· · Okay.
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·1· · · · A· · If you would, I'll just reference the
·2· ·e-mail I just got.
·3· · · · Q· · Sure.
·4· · · · A· · So our seven treatment plants all have
·5· ·NPDES permits that are currently expired.· But we
·6· ·applied for renewal prior to the 180-day deadline,
·7· ·which was in June of 2022, and by doing so, what it
·8· ·did was it retained our permit coverage under our
·9· ·current permits, okay?· The reason they're expired
10· ·is the state is just very backlogged with getting
11· ·their permits done.· What we've been told is that we
12· ·should have new permits come January 1st of 2024,
13· ·and these permits are typically on a five-year
14· ·cycle.
15· · · · · · ·MS. STUMP:· Okay, thank you.· I have no
16· · · · further questions.
17· · · · · · ·CHAIRMAN TOENJES:· Thank you, Ms. Stump.
18· · · · Do any of the Rate commissioners have any
19· · · · questions for Mr. Berthold?· Mr. Jearls.
20· ·QUESTIONS BY MR. JEARLS:
21· · · · Q· · Just a quick question.· On the basement
22· ·backups down 70 percent from historical levels, does
23· ·that include the backflow prevention devices on
24· ·sanitary sewer lines?
25· · · · A· · Well, we have to install a lot of backflow
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·1· ·preventers through our program there.· It's very
·2· ·difficult to track whether a basement backup would
·3· ·have occurred, you know, we put the SSP in to
·4· ·prevent a backup.· So, if a sewer gets surcharged
·5· ·and the SSP works properly, then we're not having a
·6· ·water backup in the customer's home.
·7· · · · · · ·MR. JEARLS:· That's all I have.
·8· · · · · · ·CHAIRMAN TOENJES:· Thank you, Mr. Jearls.
·9· · · · Any of the other rate commissioners have
10· · · · questions for Mr. Berthold?· Mr. Malone or
11· · · · Ms. Stump, any further questions?· Ms. Myers?
12· · · · Thank you, Mr. Berthold.
13· · · · · · ·MR. BERTHOLD:· Thank you.
14· · · · · · ·CHAIRMAN TOENJES:· Call your next witness.
15· · · · · · ·MS. MYERS:· The District's next witness
16· · · · will be Marion Gee.· He's our Director of
17· · · · Finance.
18· · · · · · · · · ·(Marion Gee sworn.)
19· · · · · · ·CHAIRMAN TOENJES:· Thank you, Mr. Gee.
20· · · · Ms. Stump, do you have questions for Mr. Gee?
21· ·QUESTIONS BY MS. STUMP:
22· · · · Q· · I do.· Mr. Gee, you have your testimony on
23· ·wastewater in front of you?
24· · · · A· · I do.
25· · · · Q· · Great.· Good morning by the way.
Page 52
·1· · · · A· · Good morning.
·2· · · · Q· · It looks like your testimony seems to be
·3· ·focused primarily on the financing of the wastewater
·4· ·rate change, correct?
·5· · · · A· · That is correct.
·6· · · · Q· · On page 3, you talk about inflation
·7· ·allowances used in the rate change proposal.· Can
·8· ·you please explain what those are?
·9· · · · A· · Yes, I can.· So, as you can imagine our
10· ·capital program drives the majority of our overall
11· ·budget expenditures.· So, we want to make sure we
12· ·were appropriately adjusting for inflationary
13· ·pressures that may be happening so that we have an
14· ·accurate financial plan.· So, in the rate change
15· ·proposal, there's a section, I believe it's in the
16· ·appendix, that provides information regarding the
17· ·inflationary factors that we adjust it, so typically
18· ·for engineering, there's documents such as or
19· ·resources like the Engineering News Record that
20· ·provides information with respect with what you
21· ·believe what inflationary measures would impact our
22· ·capital program.· So, we use that information to
23· ·update our costs.· We also look at, on the operating
24· ·budget side of things, like, information from the
25· ·Federal Reserve with respect to changes in the CPI.
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·1· ·We use that information also to adjust the numbers
·2· ·that are in the financial plan.· But, again, you can
·3· ·find detailed information regarding those
·4· ·inflationary adjustments in the appendix.
·5· · · · Q· · I believe, according to your testimony, if
·6· ·anyone is looking for it, 8.11?
·7· · · · A· · That is correct.
·8· · · · Q· · Thank you.· And do you believe then, I
·9· ·assume, that, in your opinion, are these
10· ·inflationary rates that you're using are reasonable?
11· · · · A· · Yes, I believe they are.
12· · · · Q· · And why do you reach that conclusion?
13· · · · A· · Well, I believe that the information,
14· ·again, is prepared by a host of experts, the Federal
15· ·Reserve is certainly the appropriate source for
16· ·potential inflationary adjustments related to the
17· ·CPI, so we use that information.· As I mentioned
18· ·before, we use that information that is gathered by
19· ·the Engineering News Record to help adjust for our
20· ·numbers in our capital program, so we rely on those
21· ·experts and utilize that information to adjust our
22· ·numbers.
23· · · · Q· · And is the way that you're using inflation
24· ·allowances in the proposal consistent with how you
25· ·use them in the past --
Page 54
·1· · · · A· · It is.
·2· · · · Q· · -- rate proposals?· Thank you.· Okay, on
·3· ·page 4, you discuss customer impact data and how
·4· ·that has been factored into the rate change
·5· ·proposal.· Could you please explain what you mean by
·6· ·customer impact data?
·7· · · · A· · Sure.· So, any time we come before the
·8· ·Rate Commission to present a rate change proposal,
·9· ·we're always concerned about the impact on customers
10· ·and that could be, you know, affordability is
11· ·certainly one aspect of that.· So, with respect to
12· ·how we factored that into the rate change proposal
13· ·as I identified in my testimony, one of the things
14· ·that we look at is the use of debt financing versus
15· ·cash financing for our capital program.
16· · · · · · · · · Obviously, if you cash finance that
17· ·requires more money to be generated earlier, which
18· ·means that your rates are going to be higher.· One
19· ·way of looking at this if you're buy a home and the
20· ·home costs $300,000 and you pay cash for it,
21· ·obviously, you got to have that cash upfront and you
22· ·have to have the resources for that, as opposed to
23· ·it's more affordable for a typical person if you
24· ·spread that out over a 20 or 30-mortgage.· We look
25· ·at the same things here at MSD, and we balance that
Page 55
·1· ·between our cash financing portion of our capital
·2· ·program versus the amount of debt that we're going
·3· ·to incur and by doing that, it helps to make the
·4· ·rates more affordable.
·5· · · · · · · · · Also, for the capital program, you're
·6· ·also looking at spreading the cost of that program
·7· ·amongst those customers that are going to benefit.
·8· ·So, you look at how much a current customer paid
·9· ·versus if it's a long-term asset that you're paying
10· ·for, and you want to make sure you spread that over
11· ·so that future customers will also bear their share
12· ·of that burden.
13· · · · · · · · · In addition, there are a couple of
14· ·studies that we had done that I referenced in my
15· ·report -- or, I'm sorry, my testimony.· We had an
16· ·attribute study, which was provided to the Rate
17· ·Commission as Exhibit MSD 65.
18· · · · · · · · · What the attribute study entailed is
19· ·we look at the volume that is assigned to unmetered
20· ·customers, and we want to make sure that the rates
21· ·that those folks are paying are appropriate based on
22· ·their contributed water volumes.· I also referenced
23· ·an I&I study that was completed, and you'll hear
24· ·more about that later on today when our
25· ·representative, that prepared the study, testifies.
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·1· ·But basically that has to do with I&I that we
·2· ·allocate to our volume charges and also to our
·3· ·customer charges.· So, we want to make sure that is
·4· ·appropriate as well.· And, so, by doing so, again,
·5· ·what our goal is is to make sure that our rates are
·6· ·appropriately paid by those customers that are
·7· ·generating the costs.
·8· · · · Q· · Thank you for that explanation.
·9· · · · A· · Sure.
10· · · · Q· · In the question, when you use the term
11· ·"customer impact data", that's just kind of a
12· ·general term.· There's not like a list of things
13· ·that go -- that determine what customer impact data
14· ·is?
15· · · · A· · Well, there's a -- there's a host of
16· ·different things that we look at --
17· · · · Q· · Okay.
18· · · · A· · -- to determine the impact on customers.
19· ·But, ultimately, you know, I think what our
20· ·customers would tell you that they're concerned
21· ·about is the amount that they're paying.
22· · · · Q· · Okay.· Also on page 4, you discuss ad
23· ·valorem tax revenues in the wastewater program.
24· ·Could you explain the use -- their use within the
25· ·program?
Page 57
·1· · · · A· · Well, I think the question had to do with
·2· ·are we going to use tax revenues to finance any --
·3· · · · Q· · Correct.
·4· · · · A· · -- of the wastewater program.
·5· · · · Q· · Correct.
·6· · · · A· · And my answer to that was, no, we don't
·7· ·have taxes that are currently dedicated to the
·8· ·wastewater program.
·9· · · · Q· · And some of the record, why does the
10· ·District not consider using ad valorem property
11· ·taxes for wastewater as a component of the rate
12· ·change proposal?
13· · · · A· · Well, as mentioned earlier, our -- we try
14· ·and make sure that we do not change our rate
15· ·structure and stay in compliance, I think it's the
16· ·Missouri Growth Association's case, so we opted not
17· ·to use taxes for that purpose.· Also, with
18· ·wastewater charges, in my opinion, it is more
19· ·appropriate to use a user fee because they're better
20· ·allocating the cost to those customers that are
21· ·actually using that service, as opposed to a general
22· ·tax, which may not have any direct bearing on the
23· ·level of service that's being providing to that
24· ·customer.
25· · · · Q· · And I know this is in the testimony, but
Page 58
·1· ·I'd like to get it on the record, too.· So, what are
·2· ·the sources that the District is proposing for
·3· ·wastewater services?
·4· · · · A· · Well, we have a wastewater user charge
·5· ·that we're proposing.
·6· · · · Q· · Okay.· And how does the District estimate
·7· ·bad debt for each fiscal year?· What factors are
·8· ·considered?
·9· · · · A· · So, we look at historically what our bad
10· ·debt has been and in my testimony in response to
11· ·that, I provide the percentages during the past --
12· ·or, I'm sorry, the percentages that we projected out
13· ·that we're going to use for bad debt expenses.· So,
14· ·we calculate, let's say, 3 or $4 million a year that
15· ·we incur in bad debt expenses historically.
16· · · · · · · · · We then look at the amount, the rate
17· ·increase, that we're projecting over the next four
18· ·fiscal years, so we take that rate percent and
19· ·increase that -- use that to increase the amount
20· ·that we would expect.· So, for instance, just to
21· ·make this simple, if it was -- we had historically
22· ·occurred $3 million of bad debt expenses and we were
23· ·asking for a 10 percent rate increase, we would
24· ·increase that $3 million to 3.3 million.· So, we
25· ·would apply the same percentage that we were asking
Page 59
·1· ·for in terms of the rate adjustment to the actual --
·2· ·or I should say, the historic amount that we
·3· ·incurred for bad debt expenses.
·4· · · · Q· · And is the manner you're it in this
·5· ·proposal consistent with how you did it in 2018?
·6· · · · A· · It is.
·7· · · · Q· · And previous to that also?
·8· · · · A· · Well, I can only -- I have only
·9· ·participated in one rate commission proceeding that
10· ·pertained to wastewater back in 2019, but prior to
11· ·that, I would not be able to testify that that was
12· ·exactly done.· It was done -- it's my understanding
13· ·that what -- it has been consistently done that way.
14· · · · Q· · And down later on page 5 now, besides
15· ·wastewater O&M, what do the wastewater user charges
16· ·fund?· Can you repeat your answer and kind of expand
17· ·on that a little bit?
18· · · · A· · Sure.· So, obviously, when we collect our
19· ·wastewater fees, we have various expenses that those
20· ·fees go to support.· One is our operation and
21· ·maintenance programs.· Second, would be any debt
22· ·service that we're paying, which is principal and
23· ·interest payments on our bonds.· And then our
24· ·capital program that has previously been testified
25· ·regarding is also supported by those fees.
Page 60
·1· · · · Q· · Did you say necessary reserves?
·2· · · · A· · Well, I would include that in our O&M and
·3· ·our capital programs.· We do have some reserves
·4· ·built into -- like, for debt services, for instance,
·5· ·those include some reserves that are funded when we
·6· ·issue bonds or have issued bonds in the past.· But,
·7· ·yes, to answer your question, those fees do support
·8· ·reserves as well.
·9· · · · Q· · But the reserves is included in with the
10· ·other factors -- I mean, it's included in with your
11· ·debt service or the --
12· · · · A· · Right, they're going to be included in the
13· ·appropriate fund.
14· · · · Q· · Not a separate --
15· · · · A· · Correct.
16· · · · Q· · Okay.· I want to talk a minute about water
17· ·attribute audits.· Can you tell me the last time a
18· ·water attribute audit was completed to confirm the
19· ·assigned billing attributes for each customer?
20· · · · A· · Yes, we just had one that was completed
21· ·last year: 2022.· It's actually listed -- it was
22· ·provided to the Rate Commission as an Exhibit. I
23· ·don't have the Exhibit number on me.· MSD Exhibit
24· ·Number 65.
25· · · · Q· · Thank you.· How frequently does the
Page 61
·1· ·District receive calls regarding incorrect attribute
·2· ·information?
·3· · · · A· · That's not really something that we know
·4· ·here.· So, I would be guessing here, and I don't --
·5· ·as an accountant, I don't really like to do that
·6· ·when it comes to numbers.· But I will say that I am
·7· ·not aware of a large number of phone calls that we
·8· ·get relating to that.· If we're overbilling
·9· ·somebody, trust me we're going to get a phone call.
10· ·If we're under billing, we're probably not going to
11· ·get a phone call.
12· · · · Q· · Does a customer have an ability to appeal
13· ·their assigned attributes?
14· · · · A· · Correct.· And let me explain where we get
15· ·that data is from City Water.· All our unmetered
16· ·customers are City Water customers, and, so, we have
17· ·a contract with City Water to provide that data to
18· ·us.· So, we're relying on information that they
19· ·provide.· So, if a customer wants to appeal that,
20· ·they would go to City Water and ask them to come and
21· ·do an inspection.· And that sometimes will occur if
22· ·a customer makes an adjustment, remodels their home
23· ·and it reduces the number of rooms or they take out
24· ·a bathroom or something, typically, it's probably
25· ·enlarging the home -- but, in any event, they would
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·1· ·go to City Water, request an inspection, once that
·2· ·inspection is completed, we would get an update from
·3· ·City Water and we would adjust our attributes
·4· ·accordingly for that customer.
·5· · · · Q· · And given that there are data issues
·6· ·estimating fixture usage, has the District ever
·7· ·considered a flat monthly rate for unmetered
·8· ·residential customers?
·9· · · · A· · Not since I've been here.· It's not
10· ·something we discussed.
11· · · · Q· · So, you're not aware -- and you're not
12· ·aware of anything before you were here?
13· · · · A· · No, I am not.· But I will tell you I don't
14· ·think -- in my professional opinion, that would be
15· ·the best way of billing unmetered customers. I
16· ·think the attributes provide some indication as to
17· ·the amount of water usage that they're incurring, so
18· ·if we were to charge everybody, let's say, $40 a
19· ·month for wastewater, you would be charging someone
20· ·that lives in a home that's, you know, a one-person
21· ·house the same that you would be charging somebody
22· ·that is a the house that may have ten occupants.
23· ·So, in my opinion, that doesn't really necessarily
24· ·tie to their contributed water volume, and I
25· ·personally don't think it would be an appropriate
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·1· ·way to bill.
·2· · · · Q· · Thank you.· On page 4-17 of the Exhibit,
·3· ·Table 4-6.
·4· · · · A· · Okay, I'm sorry, where are you?
·5· · · · Q· · On page 4-17 of the rate change proposal.
·6· ·Exhibit -- Table 4-6, row 6, you show "Capitalize
·7· ·labor as a revenue source."
·8· · · · A· · Okay.· Let's make sure we have this.
·9· · · · Q· · Okay.
10· · · · A· · I'm looking at table 4-8 on page 4-17 of
11· ·the rate change proposal.· Is that what you're
12· ·referring to?
13· · · · Q· · Hold on.· Okay, table 4-8, row 6, you show
14· ·"Capitalize labor as a revenue source."· Are
15· ·capitalized labor costs included in the CIRP project
16· ·costs?
17· · · · A· · They are.· They are included in the
18· ·capital budget.
19· · · · Q· · And then, to confirm, you have just shown
20· ·row 6 to offset the transfer of capitalized labor
21· ·out of O&M.· Is that why that's there?
22· · · · A· · Correct.· So, the way that works is all of
23· ·our labor is budgeted in our operating budget.· We
24· ·then assign a portion of that to the capital
25· ·project.· So, we take it out of operating, we put it
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·1· ·as a source of funds in the capital program, but
·2· ·it's also in uses of funds.· So, where we end up, is
·3· ·that the overall internal labor appears as a use of
·4· ·funds in the capital program, which is something
·5· ·that is a generally accepted accounting principle.
·6· ·So, we are actually, in order to comply with
·7· ·accounting standards, we would need to do that so
·8· ·that our assets are appropriately valued.
·9· · · · Q· · Thank you.· I'm sorry, I'm flipping back
10· ·now to your testimony.· On page 3, question 8, you
11· ·indicate that in fiscal year '21 and '22 the
12· ·District extended 95.4 percent of the operating
13· ·budget.· What level of expenditure does the District
14· ·expect for fiscal year '23?
15· · · · A· · For '23, right now, we're tracking at
16· ·about 2.2 percent of our budget will be remained.
17· · · · Q· · Okay.
18· · · · A· · So, we would expect to spend about 97.8,
19· ·so roughly 98 percent of the budget.
20· · · · Q· · Okay.· And then the development of the
21· ·wastewater financial plan, what level of expenditure
22· ·did the District assume?
23· · · · A· · I'm sorry, can you repeat that question?
24· · · · Q· · In the development of the wastewater
25· ·financial plan, what level of expenditure did the
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·1· ·District assume?
·2· · · · A· · Per the capital program or for --
·3· · · · Q· · O&M.
·4· · · · A· · Okay, so our O&M doesn't impact the
·5· ·capital plan, so I'm not -- I just want to make sure
·6· ·I understand the question.
·7· · · · Q· · Okay.· Go ahead.· How much did you just
·8· ·prepare for the operating budget, how much of the --
·9· ·what level of expenditure did you assume?
10· · · · A· · So, whenever we prepare the operating
11· ·budget, we're going to assume that we're going to
12· ·spend 100 percent of it.
13· · · · Q· · Okay.· Can you give us the total amount,
14· ·and I think we've talked about this a little bit
15· ·already today, but the total amount spent to date to
16· ·comply with the Consent Decree?
17· · · · A· · Sure.· So, as I indicated in one of the
18· ·responses that we provided, we are estimating that
19· ·the total cost of the Consent Decree in 2023 dollars
20· ·is 7.2 billion.· We have appropriated 2 and a half
21· ·billion dollars.
22· · · · Q· · Total cost spent to date is 7.2 --
23· · · · A· · No, the 7.2 is the overall estimate.· In
24· ·2023 dollars, 7.2 billion in 2023 dollars is what we
25· ·expect to spend on the Consent Decree in total.· And
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·1· ·that includes things that we've spent in the past as
·2· ·well.
·3· · · · Q· · So, how much would be spent under the rate
·4· ·change proposal?
·5· · · · A· · Some of the rate change proposal for FY25
·6· ·through '28, we will spend roughly another
·7· ·$600 million that relates to Consent Decree-related
·8· ·programs.
·9· · · · Q· · And, again, I think -- but then how much
10· ·again would that lead to be spent for the remainder
11· ·of the time the District is subject to the Consent
12· ·Decree?
13· · · · A· · Okay, so for 2023 and 2024, which are
14· ·fiscal years that are not, obviously, included in
15· ·the rate change proposal, we'll spend another 1.5
16· ·billion is what we're estimating to spend.· After
17· ·the end of the FY28 fiscal year, which is until the
18· ·rate cycle ends that we're asking for approval for,
19· ·we would spend roughly another $2.6 billion.· We
20· ·would have that much remaining.
21· · · · Q· · Okay.· I want to go back to the charter on
22· ·a couple of things that have been referred by you.
23· · · · A· · Okay.
24· · · · Q· · In your opinion, does the rate change
25· ·proposal provide adequate funds for emergencies and
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·1· ·delinquencies?
·2· · · · A· · Yes, I believe it does.
·3· · · · Q· · And how does the District define
·4· ·emergencies under that --
·5· · · · A· · It would be any kind of unbudgeted items,
·6· ·particularly with our capital program that would
·7· ·occur that we're not, you know, anticipating like a
·8· ·major break in a sewer main that's going to cause
·9· ·significant amounts of -- so, that would be an
10· ·emergency.· Something we would have to get fixed to
11· ·protect, you know, public safety or public health.
12· · · · Q· · And then, in your opinion, does the rate
13· ·change proposal consider the financial impact on all
14· ·classes of ratepayers in determining a fair and
15· ·reasonable burden?
16· · · · A· · Yes, I believe it does.
17· · · · Q· · And could you explain a little bit why you
18· ·believe that?
19· · · · A· · Yes, so in a rate change proposal, itself,
20· ·so we, basically, we start off with revenue needs
21· ·for the wastewater water program.· We do take those
22· ·wastewater needs -- we go through a process of,
23· ·basically, assigning costs to particular customer
24· ·classes.· And, so, what I would refer you to is in
25· ·table 4-20 of the rate change proposal, which is
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·1· ·Exhibit MSD 1, so table 4-20 can be found on page
·2· ·4-40 of the rate change proposal; and, basically,
·3· ·you see the revenue needs by customer class and what
·4· ·the revenue -- I'm sorry, what the projected revenue
·5· ·through the rates would be if we were to get the
·6· ·rates improved that we're asking for; and those
·7· ·rates closely align with the cost to provide service
·8· ·to those customers.
·9· · · · Q· · Okay.· Mr. Malone had asked Ms. Myers a
10· ·question from the Missouri Growth case about are
11· ·metered users in single-family homes still billed
12· ·based on the best equated period?
13· · · · A· · Yes, they are.
14· · · · Q· · And also multi-family?
15· · · · A· · It depends on the size of the
16· ·multi-family.· Most multi-family residential
17· ·properties, if they're greater than four units,
18· ·they're going to have a meter, so we would bill them
19· ·depending on the size.· If it's a large apartment
20· ·complex, we typically get monthly meter readings.
21· ·Those customers are not billed based on best equated
22· ·measure.· They're billed based on their water
23· ·volume.· There are some smaller units that opt to
24· ·have their bill based on the best equated method,
25· ·which we would do.
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·1· · · · Q· · And I don't know this is a question for
·2· ·you, but it's been brought up before, or not but
·3· ·where is the District, and I know that a lot of the
·4· ·residents have brought up the issue about the City,
·5· ·and I know you all are based on whatever the City
·6· ·Water is doing, where -- does the District have
·7· ·discussions with them about moving to metered?
·8· · · · A· · Uh --
·9· · · · Q· · Are we opening up a huge can?· I'm just --
10· · · · A· · It's not something --
11· · · · Q· · I think they're going to get a lot of
12· ·questions from the public about that, too, so --
13· · · · A· · It's not something that's within our
14· ·purview.
15· · · · Q· · Yes.
16· · · · A· · We do not have the ability to require the
17· ·City to install meters, and, so, I had talks with
18· ·their water department about their plans to do that,
19· ·you know, I've had discussions at this point in
20· ·time -- I'm not aware of any plans that they have to
21· ·install meters.· But, again, it's not anything that
22· ·MSD can control.
23· · · · Q· · Thank you.· Let's talk for a minute --
24· ·Brian had asked Ms. Unverferth some questions about
25· ·the two-year delay that's in the CIRP.· I think the
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·1· ·questions that are left for you are what is the
·2· ·impact on rates if the District is not able to
·3· ·obtain the modification?
·4· · · · A· · It would be no impact on the current
·5· ·four-year rate cycle.· We would, basically, manage
·6· ·the rates that we're asking, even if that was not
·7· ·approved during this four-year rate cycle.
·8· · · · Q· · Can you explain that a little bit more
·9· ·about what you mean by manage the rates?
10· · · · A· · The rates, if I'm recalling, FY28 is the
11· ·only fiscal year that would be impacted by that
12· ·two-year shift, and I think that drops the rate by
13· ·like 1 percent, instead of the 6 percent that we're
14· ·asking for.· I believe it's 6 and a half, somewhere
15· ·around there.· With that change that we implemented,
16· ·it actually -- a two-year delay reduced that rate by
17· ·1 percent.
18· · · · · · · · · So, we feel like that we would be
19· ·able to manage our costs so that we would not be
20· ·coming back, asking the Rate Commission, you know,
21· ·for a rate adjustment that fiscal year.· Then we
22· ·would still be able to comply with the Consent
23· ·Decree requirements and build the incinerators as
24· ·well.
25· · · · Q· · Even without the modifications -- even
Page 71
·1· ·if --
·2· · · · A· · I'm sorry?
·3· · · · Q· · Even if the parties do not agree to the
·4· ·modification of the Consent Decree?
·5· · · · A· · Right.· In that FY25 through '28
·6· ·fiscal-year period, no.· Obviously, there would be
·7· ·an impact during the next rate cycle that we would
·8· ·have to soon consider if we did not get that
·9· ·modification completed or approved.
10· · · · Q· · Thank you very much.
11· · · · A· · Sure.
12· · · · · · ·MS. STUMP:· I have no further questions.
13· · · · · · ·CHAIRMAN TOENJES:· Thank you, Ms. Stump.
14· · · · Questions for Mr. Gee from the rate
15· · · · commissioners?· Mr. Jearls?
16· ·QUESTIONS BY MR. JEARLS:
17· · · · Q· · Yes, just briefly on the attribute.· Let
18· ·me pull mine up again here.· The four attributes we
19· ·look at are: rooms, water closet, baths and separate
20· ·showers, and I noticed on page 6.5 of the proposal
21· ·you looked at the rates of 50 some odd major cities.
22· · · · · · · · · Do they have, basically, the same --
23· ·do they use same attributes?· Did you do any kind of
24· ·study of any additional or other attributes that
25· ·might be considered?
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·1· · · · A· · So, that particular bill comparison is
·2· ·something Raftelis, our financial consultant
·3· ·calculated for us, so I would defer back -- request
·4· ·that that question be deferred to them.· But, in
·5· ·general, it's the methodology that was approved by
·6· ·the Missouri Growth Association, and what we have
·7· ·done is we looked at, irrespective of what -- how
·8· ·the customers are being billed, we try to equate
·9· ·that to a common CCF usage, so that table actually
10· ·provides you with information regarding what a
11· ·customer would pay if they use 6 CCFs, 15, or I
12· ·think it was 100.· And we calculate what the rates
13· ·would be for those various systems or Raftelis
14· ·calculated that, and we provide -- or we compare
15· ·given those volumes.· You can pay an incinerator
16· ·rate model as well.· Actually, I would refer you to
17· ·page 6.3 of the rate change proposal.· It provides
18· ·some information as to what the CCFs would be for a
19· ·typical unmetered customer; but with respect to the
20· ·overall calculation, I would defer to Raftelis to
21· ·provide information as to how they compile that
22· ·data.
23· · · · Q· · Yeah, the one thing about table 6.2 that
24· ·kind of jumped out was in fiscal year 2025, we had a
25· ·negative actual decrease.
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·1· · · · A· · That is correct.· That was the result of
·2· ·the attribute study.· So, the attribute
·3· ·study actually revealed that the usage for those
·4· ·unmetered customers that contributed volumes they
·5· ·were assigned was, in general, I think about
·6· ·14 percent less.· And, so, we factored that into the
·7· ·rates that were being assessed.
·8· · · · Q· · Okay.· The only other question I had was:
·9· ·you got a widower in a three-story house with five
10· ·water closets, and, you know, she doesn't do laundry
11· ·once a month or a week maybe.· Is there any
12· ·adjustment for her, you know, that --
13· · · · A· · There's not.· It would be extremely
14· ·different in groups for us to try to determine how
15· ·many people are in a household, which is why we use
16· ·attributes, which is a commonly acceptable method of
17· ·unmeted customers.· Now, if that widow or for that
18· ·matter, any other customer, they always have the
19· ·ability to obtain and have a meter installed if they
20· ·feel financially that would be a benefit to them.
21· · · · · · ·MR. JEARLS:· Okay.· That's all I have.
22· · · · · · ·CHAIRMAN TOENJES:· Thank you, Mr. Jearls.
23· · · · There is a question online.
24· · · · · · ·MR. PERKINS:· Yes, Mr. Chair, are you
25· · · · referring to me?· This is Mark Perkins.
Page 74
·1· · · · · · ·CHAIRMAN TOENJES:· Yes, Mr. Perkins.
·2· ·QUESTIONS BY MR. PERKINS:
·3· · · · Q· · Okay, thank you.· I just had a question or
·4· ·two.· One, I just wanted to clarify then, Mr. Gee,
·5· ·the discussion regarding the remaining long-term
·6· ·obligations under the Consent Decree.· I think you
·7· ·tried to clarify those remaining obligations, but
·8· ·just so I understand it, though, to clarify after
·9· ·FY28 and after this cycle, there will be,
10· ·approximately, an estimated 2.6 billion in remaining
11· ·obligations; is that correct?
12· · · · A· · That is correct.· And those are, again, in
13· ·2023 dollars, so I want to make sure I emphasize
14· ·that, because that, certainly, can grow depending on
15· ·inflation adjustments.
16· · · · Q· · Okay, thank you.· And then in follow up, I
17· ·realize that this exercise is for the next four
18· ·years, this rate cycle, but I expect that the staff
19· ·also looks out further than that with regard to
20· ·longer-term projections, because 2038 or 2039 is,
21· ·you know, not all that far off.· Then it is expected
22· ·that the -- we would expect to see rates that
23· ·continue kind on a similar trajectory in another
24· ·four years based on the remaining obligations as
25· ·well as other capital needs, or is that something
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·1· ·that MSD hasn't looked at?
·2· · · · A· · We do look out further than the current
·3· ·rate years -- four-year rate cycle.· Actually, that
·4· ·information is contained in the rate model that we
·5· ·provided to the Rate Commission.
·6· · · · Q· · Okay.
·7· · · · A· · I believe it's MSD Exhibit 60, if I'm not
·8· ·mistaken.· But it's not hosted on our internet site.
·9· ·It was actually e-mailed directly to each of the
10· ·Rate Commission members.
11· · · · Q· · Okay, thank you.· I'll take a look at
12· ·that.· And then just one other question.· You
13· ·were -- because of the two-year delays being sought
14· ·as a result of the incinerator work that needs to be
15· ·done, that, as I understand it, you didn't think
16· ·that we would see -- we would or we would not see an
17· ·impact assuming that delay is approved on the
18· ·subsequent rate cycle?
19· · · · A· · Actually, what I indicated is, we're
20· ·moving forward assuming that it would be approved,
21· ·but if it's not, we would live with the rate
22· ·adjustments that we are currently asking for.· So,
23· ·if it's not approved, obviously, that would mean
24· ·that there are additional capital expenditures that
25· ·we incur in the rate cycle.· So, we would need to
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·1· ·manage our budgets to account for that without
·2· ·asking for a change in the four-year rates that we
·3· ·are requesting the Rate Commission evaluate.
·4· · · · · · ·MR. PERKINS:· Okay, thank you very much.
·5· · · · That's all of my questions.
·6· · · · · · ·CHAIRMAN TOENJES:· Thank you, Mr. Perkins.
·7· · · · Questions from the other rate commissioners?
·8· · · · Mr. Clark?
·9· ·QUESTIONS FROM MR. CLARK:
10· · · · Q· · I'm just back on the attribute deal.· I've
11· ·got unmetered friends who want to know why they pay
12· ·more than the guy in the county.· I'm just looking
13· ·at comparison of the average customer and the
14· ·executive summary pages 6 and 7, basically, by CCF
15· ·is what considered an average customer in the meted
16· ·area, which is, basically, outside the City of St.
17· ·Louis, and yet 6 CCF is what is considered average
18· ·in the City.
19· · · · · · · · · There's always a big question what is
20· ·average -- do we have any idea if the attributes for
21· ·the metered customers are similar to the attributes
22· ·that are being assumed for the unmetered and any
23· ·idea why the average customer is just a little bit
24· ·different?
25· · · · A· · Well, we had the attribute study done, as
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·1· ·far as back as we actually contracted to receive
·2· ·data for the -- I think execute our building system
·3· ·provider actually performed the study on our behalf.
·4· ·They obtained data from, I think it was Equifax, one
·5· ·of the crediting reporting agencies that had
·6· ·attribute data.· And we tried to match that data up
·7· ·with the metered customers into comparisons.· And as
·8· ·you would expect in some cases, you have customers
·9· ·that are in homes of similar attributes but their
10· ·water volumes could be different and that,
11· ·obviously, has to do with the number of occupants
12· ·that are in the home, influences that how they use
13· ·water, obviously, influences that.
14· · · · · · · · · So, to answer your question why
15· ·unmetered would be higher than metered, if you are
16· ·an unmetered customer and, let's say, your toilet is
17· ·leaking, what's your incentive to repair that?
18· ·Basically, none.· You're going to get charged the
19· ·exact same amount.· So, I think, and certainly
20· ·that's not all of it, but there is no incentive for
21· ·an unmetered customer to conserve water.· And, so,
22· ·it's not, you know, unusual that you would see that
23· ·particular group of customers have an average that's
24· ·higher than somebody that is metered.
25· · · · · · ·MR. CLARKE:· I fully understand. I
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·1· · · · thought I had to ask the question.· Thank you.
·2· · · · · · ·CHAIRMAN TOENJES:· Thank you, Mr. Clark.
·3· · · · There's another question online.
·4· · · · · · ·COMMISSIONER FAUL:· Yes, thank you, this
·5· · · · is Mr. Faul.· I would like to point out as well
·6· · · · that I recall to kind of buttress the point
·7· · · · that Mr. Gee just made that in my previous time
·8· · · · on the board, more than once individuals would
·9· · · · come us to about the metered versus unmetered
10· · · · portion, and at least on one if not more
11· · · · occasions, the person coming to us was a
12· · · · landlord, and their concern was the high rate
13· · · · that they were usually paying for their rental
14· · · · property because it was unmetered but had said
15· · · · that they didn't want to raise rent.· So,
16· · · · that's something else I remember being a
17· · · · concern, is if the District is subsidizing
18· · · · landlord renting and costs by changing the
19· · · · system or not having the meter, so there's a
20· · · · lot more -- I remember there being a lot that
21· · · · goes into this unmetered issue, unfortunately.
22· · · · · · ·CHAIRMAN TOENJES:· Thank you, Mr. Faul.
23· · · · Any other questions for Mr. Gee?· Mr. Palans.
24· ·QUESTIONS BY MR. PALANS:
25· · · · Q· · Yes, Mr. Gee, I think you pegged the
Page 79
·1· ·number that's necessary to comply with the Consent
·2· ·Decree at the end of this cycle at $2.6 billion; is
·3· ·that correct?
·4· · · · A· · That's correct.
·5· · · · Q· · And that's an 11-year period at the end of
·6· ·this cycle that will take us through the performance
·7· ·and terms of the Consent Decree, right?
·8· · · · A· · That's correct.
·9· · · · Q· · Eleven years at $2.6 billion, get into
10· ·more into two zeros, I have a difficult time, that's
11· ·200 -- that's over $230 million a year, isn't it?
12· · · · A· · That would be about right, yeah.
13· · · · Q· · And, so, with $2.6 billion remaining to be
14· ·expended at the end of this cycle, given the
15· ·$7.2 billion that we're estimating to complete the
16· ·costs required to comply with the Consent Decree,
17· ·that means that we will have spent approximately
18· ·$4.6 billion to date to comply with the Consent
19· ·Decree, correct?
20· · · · A· · Through the end of FY28.
21· · · · Q· · '28, yes.· And the information provided
22· ·indicates that the cost -- the estimated cost of
23· ·compliance in 2019 was $6 billion, right?
24· · · · A· · Correct.
25· · · · Q· · And the end --
Page 80
·1· · · · A· · In 2018 dollars.
·2· · · · Q· · And today, it's $7.2 billion, correct?
·3· · · · A· · Correct --
·4· · · · Q· · So, it went up 20 percent in this cycle,
·5· ·from 6 billion to $7.2 billion, right?
·6· · · · A· · It went up from 2018 dollars to 2023
·7· ·dollars.
·8· · · · Q· · It went up 20 percent?
·9· · · · A· · Correct.
10· · · · Q· · Is that a result of what?· Inflation,
11· ·increased construction costs, what's the reason for
12· ·that increase of costs?
13· · · · A· · I think it's a combination of both.· We're
14· ·seeing, unfortunately, inflationary pressures on the
15· ·bids that we're receiving for projects.· And, so,
16· ·yes, it's definitely a combination of, you know, you
17· ·have inflation and there's a host of other issues
18· ·that go into that, but primarily inflation.
19· · · · Q· · If you were to look historically from the
20· ·inception of the Consent Decree to the current time,
21· ·can you draw a conclusion as to the approximate
22· ·inflationary increased construction costs that would
23· ·have escalated the cost of compliance?
24· · · · A· · We certainly could go back and look
25· ·historically what CPI has been and what the
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·1· ·inflationary factors that I alluded to earlier.· We
·2· ·have not done that.· Obviously, our focus has been
·3· ·on this current rate change proposal.
·4· · · · Q· · If you were -- do you believe that a
·5· ·five-percent annual increase and a combination of
·6· ·inflationary costs, increased construction costs,
·7· ·delays, unforeseen circumstances, do you believe
·8· ·that's a reasonable number to use?
·9· · · · A· · I don't know.· I would have to look at the
10· ·data.· I think that the numbers that we have
11· ·provided to the Commission for the next four-year
12· ·rate cycle certainly are reasonable.
13· · · · Q· · And do you believe that a $236 million
14· ·expenditure over the remaining 11 years at the
15· ·conclusion of this cycle is something that is
16· ·feasibly possible for the District to fund?
17· · · · A· · Obviously, that's going to depend on a
18· ·number of factors.· We more than likely are going to
19· ·have rate adjustments in order to do that.· So, if
20· ·ultimately those rate adjustments are not approved,
21· ·then no.· But I don't anticipate that we would want
22· ·to do anything that would jeopardize our ability to
23· ·comply with the Consent Decree.· But I certainly
24· ·expect that going forward, we're going to need rate
25· ·adjustments to complete that Consent Decree work.
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·1· · · · Q· · Just in terms of costs and finance, as I
·2· ·understand the financial reporting, your finance
·3· ·department prepares an annual comprehensive
·4· ·financial report as of the end of the fiscal year?
·5· · · · A· · Yes, sir, that's correct.
·6· · · · Q· · And that fiscal year is a June 30 fiscal
·7· ·year?
·8· · · · A· · That's correct.
·9· · · · Q· · Who is the District's audit firm?
10· · · · A· · CliftonLarsonAllen is our current audit
11· ·firm.
12· · · · Q· · Is there any analysis conducted or has
13· ·there been an analysis conducted to determine if the
14· ·District might uncover ways to reduce its costs by
15· ·reduction of discretionary spending?
16· · · · A· · Our auditors are not tasked with doing
17· ·that.· Our auditors opine on the financial
18· ·statements that we publish, if those are fairly
19· ·presented in accordance with the county principles,
20· ·but that is not part of an external audit.· That's
21· ·not something that they would do now.· Now, I
22· ·mentioned yesterday that we do have an internal
23· ·audit firm that goes out and looks, you know,
24· ·anything from our contracting procedures and change
25· ·orders that we get on bids, and those audits have
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·1· ·been provided to the Commission, some of them as
·2· ·Exhibits.
·3· · · · Q· · But do you agree that to the extent that
·4· ·the District might be able to reduce its cost for
·5· ·greater efficiencies that those savings could be
·6· ·redirected for use in funding or supporting
·7· ·financing of capital projects or providing
·8· ·additional capacity to fund or finance additional
·9· ·capital?
10· · · · A· · Obviously, any savings that we generate we
11· ·would utilize to help fund our capital project or if
12· ·there are other things that we need to do on our
13· ·operations side, we would do that.
14· · · · Q· · Has the District ever historically done
15· ·any study to determine whether there are savings to
16· ·be obtained through discretion spending?
17· · · · A· · We actually internally, as part of our
18· ·budgeting process, we look at -- particularly --
19· ·well, actually on the O&M side and the capital side,
20· ·if there are discretionary items that could be
21· ·avoided, we typically would do that.· I am not aware
22· ·of -- again, we have internal audits that are done
23· ·that kind of dive into some of this as well, but,
24· ·ultimately, it's the responsibility of the
25· ·management here to make sure that if we have
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·1· ·discretionary items in our budget, that they are
·2· ·needed.
·3· · · · · · ·MR. PALANS:· Thank you.
·4· · · · · · ·CHAIRMAN TOENJES:· Thank you, Mr. Palans.
·5· · · · Other questions for Mr. Gee?
·6· ·QUESTIONS BY CHAIRMAN TOENJES:
·7· · · · Q· · I have one question.· I know that as a
·8· ·result of this unmetered question and the public
·9· ·comment that was received at a prior meeting that a
10· ·letter was sent to the Board of Aldermen.· Is that
11· ·part of the record of these proceedings?
12· · · · A· · That has been posted as an Exhibit on the
13· ·website, so, yes, it is.
14· · · · Q· · Thank you.· I just want to make sure that
15· ·was part of the record.· And I know that you have
16· ·absolutely no way of knowing this, but I did see
17· ·that St. Louis City Water is talking about, the
18· ·Board of Aldermen is talking about an increase in
19· ·the water rates, have you had any internal
20· ·discussions about the impact that could have on the
21· ·customer factors you mentioned earlier?
22· · · · A· · I have -- I wouldn't think an increase
23· ·would necessarily impact the attributes that they're
24· ·reporting.· They're going to have to -- obviously,
25· ·if there's an increase, they're going to pay more.
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·1· ·But their increases don't necessarily relate to any
·2· ·increases that we would have.· Now, if they were
·3· ·going to do some kind of a study of attributes, do
·4· ·some kind of sampling or something like that, which
·5· ·I've not heard that they're anticipating doing that,
·6· ·if we were to do some kind of inspection, perhaps
·7· ·that could lead to an increase in the number of
·8· ·attributes that they're currently billing for, but,
·9· ·again, I don't know if that's part of their plans.
10· · · · Q· · I guess I wonder if that would impact the
11· ·percentage of issues you would have with what you
12· ·used to call the resistance factor.
13· · · · A· · I do not know, to be honest with you.
14· · · · · · ·CHAIRMAN TOENJES:· Thank you.· Ms. Stump,
15· · · · Mr. Malone?· Do you have any other questions
16· · · · for Mr. Gee?
17· · · · · · ·MS. STUMP:· No.
18· · · · · · ·CHAIRMAN TOENJES:· Ms. Myers for Mr. Gee?
19· · · · Mr. Gee, thank you.
20· · · · A· · Thank you.
21· · · · · · ·CHAIRMAN TOENJES:· I see sandwiches are
22· · · · there, and I see it's 11:25.· I suggest we take
23· · · · a break until high noon, and we will resume at
24· · · · high noon.
25· · · · · ·(Wherein, a lunch recess was taken.)
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·1· · · · · · ·CHAIRMAN TOENJES:· Let's begin the
·2· · · · session.· And, Ms. Myers, we'll ask you to call
·3· · · · your next witness.
·4· · · · · · ·MS. MYERS:· The Districts calls Tim Snoke;
·5· · · · he is MSD's Secretary Treasurer.
·6· · · · · · · · · (Tim Snoke is sworn.)
·7· · · · · · ·CHAIRMAN TOENJES:· Thank you, Mr. Snoke.
·8· · · · Ms. Stump, do you have questions for the
·9· · · · witness?
10· · · · · · ·MS. STUMP:· I do, thank you.
11· · · · · · ·CHAIRMAN TOENJES:· Please proceed.
12· ·QUESTIONS BY MS. STUMP:
13· · · · Q· · Can you summarize a little bit for the
14· ·Rate Commission what your profession with the
15· ·District is?
16· · · · A· · Yep, I'm the secretary-treasurer of the
17· ·District.· I've been employed as such since 2014.
18· · · · Q· · What does your job entail?
19· · · · A· · On the treasury side, I'm responsible for
20· ·banking and safeguarding of the money and
21· ·responsible for debt issuance and management for
22· ·investments.· For our banking operations, the
23· ·internal audit also reports up through me, as does
24· ·information governance.· I have some positions on
25· ·the secretarial side that deal more with records
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·1· ·and -- information governance.· Also, I'm the
·2· ·primary contact for Sunshine Law and the keeper of
·3· ·records for the District as well.
·4· · · · Q· · Thank you.· And your testimony in
·5· ·wastewater issues seems to be focused on financing
·6· ·and debt service?
·7· · · · A· · Correct.
·8· · · · Q· · All right.· Let's talk a little bit about
·9· ·the CIRP and how that's going to be financed, which
10· ·you discussed on page 2 of your testimony.· We
11· ·know -- we've already established in the proposal
12· ·that the total is 1.56 billion, right?
13· · · · A· · Correct.
14· · · · Q· · Can you rate that out for us a little bit
15· ·on how that all will be financed?· Because it may be
16· ·me but when I look at this question 7, my math is
17· ·not -- I'm missing something.
18· · · · A· · Sure.· If we go to, I think, I think it's
19· ·table 4.8 in the rate proposal, which is Exhibit 1
20· ·on page 4.17, where you got the Construction Fund
21· ·Flow.· Okay, sorry, thank you.· There are lines
22· ·there, lines 2, 3 and 4 are all bond-related lines.
23· ·And, so, if you were to sum those for fiscal year
24· ·'25 through '28, you'd get a total -- a beginning
25· ·total for bonds, I think I explained in my testimony
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·1· ·also, that a portion of the 1.56 that will be funded
·2· ·in this cycle is coming from debt.· This actually is
·3· ·going to be issued or closed in fiscal year '24.
·4· · · · Q· · Okay.· Can we slow down just a little bit.
·5· · · · A· · Sure.
·6· · · · Q· · Okay.· So let's talk about that first.
·7· ·So, we have -- you do say in your testimony that
·8· ·there's 43 million in -- presently authorized,
·9· ·correct?
10· · · · A· · We expect that at the end of this rate
11· ·cycle, there will still be 43 million of debt
12· ·authorization remaining on the existing
13· ·authorizations.
14· · · · Q· · Okay.· So, that would go to a part of the
15· ·1.65 billion that we're using to finance --
16· · · · A· · Yes.
17· · · · Q· · Okay.· All right, thanks.· Now, then,
18· ·let's talk about the debt you're going to issue.
19· · · · A· · So, the debt that will be issued, we're
20· ·expecting to have what we call revenue bond, senior
21· ·bonds, those are capital market bonds, when we go
22· ·out to large investors like, you know, banks,
23· ·investment banks and sell bonds, so that's the
24· ·revenue bonds proceeds and the revenue bond premium
25· ·on line 2 and 3 on that table 4.8.
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·1· · · · Q· · Okay.· So, that is approximately --
·2· · · · A· · That looks like about 500 million on the
·3· ·revenue bonds proceeds line.· So, that would be the
·4· ·borrowing amount, maybe a little bit over that.· And
·5· ·then another -- looks like, you know, 130 million
·6· ·that includes the -- excuse me.· 43 million on the
·7· ·SRF and with the proceeds.
·8· · · · Q· · Okay.· So, how does that correspond to the
·9· ·70 million of additional debt proceeds that you're
10· ·talking about in your answer to number 7?
11· · · · A· · Let me check my answer to number 7.· Or
12· ·actually out of the 43 million that we assume to be
13· ·remaining on the 500 million, the 670 should be the
14· ·sum of the -- excuse me.· The revenue bond proceeds.
15· ·So, we have 370, that's a little over -- okay, hold
16· ·on.· One second.· Well, it should be -- so, we have
17· ·the far amount of the revenue bonds, which is --
18· ·looks like it's a little bit over 500 million.· The
19· ·SRF and with the proceeds, which gets us to roughly
20· ·6, and this says 670, you know what, off the top of
21· ·my head, I don't know -- I'd have to go back and --
22· ·I have to go back to our sheets and look at that.
23· · · · Q· · Okay, we can follow up in writing --
24· · · · A· · Add that together -- yes --
25· · · · Q· · Yeah --
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·1· · · · A· · -- we can follow up on that.
·2· · · · Q· · So, that should be the bond proceeds,
·3· ·that -- the 670 all goes to that.· And then the
·4· ·remaining is from cash, correct?
·5· · · · A· · Yes, so there will be use of cash and then
·6· ·also, like I said, there are some bond agreements
·7· ·that we expect to finalize in this rate cycle, but
·8· ·it really will be drawn upon in the next rate cycle,
·9· ·which would be reflected in the year-end balance.
10· ·That's why there's such a large balance at the end
11· ·of fiscal year '24 in the construction fund.
12· · · · Q· · Can you explain that a little?· So, that's
13· ·not in either of the other --
14· · · · A· · So, is using debt authorizations --
15· · · · Q· · But it's not in the 43 million or the
16· ·670 million?
17· · · · A· · It is factored into getting to the
18· ·43 million.
19· · · · Q· · Okay.· So, we have 43 million, 670 million
20· ·and then the rest is cash?
21· · · · A· · And the rest is cash.
22· · · · Q· · Should that equal the 1.65 billion?
23· · · · A· · If you include the amount of debt that, as
24· ·I said, we're issuing in fiscal year '24 as well,
25· ·that will be used to fund -- so, you've got --
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·1· ·you've got construction fund balance, we'll call
·2· ·that the debt that is issued in this cycle that will
·3· ·fund projects in future cycles, and the debt
·4· ·issuance and the cash should equal the 1.65.· We
·5· ·could put that together -- it's supposed to, and it
·6· ·will.
·7· · · · Q· · That's where -- I just wanted to know is
·8· ·it just me or if it's -- so the cash, though, you're
·9· ·project is 585 million?
10· · · · A· · Correct.· That is -- so -- it looks like
11· ·that is what we're calling the PAYGO funding.
12· · · · Q· · Right.· Okay.· I'm going to work on my
13· ·math later and if we --
14· · · · A· · Yeah, we can put together -- we can put
15· ·together a schedule.
16· · · · Q· · All right.· So, on -- when we -- whatever
17· ·numbers when we get to the 1.65 billion, that's
18· ·going to be 60 percent bond and 40 percent cash?
19· · · · A· · That would be roughly right, 60 percent
20· ·bond, 40 percent cash.
21· · · · Q· · And how did the District decide that this
22· ·ratio of cash-to-debt financing was appropriate?
23· · · · A· · So, the 60 -- the PAYGO debt is more of an
24· ·outcome; it's not a policy decision.· So, it really
25· ·comes more from the other factors that go into --
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·1· ·putting together a rate proposal.· So, for example,
·2· ·debt service coverage is a big part of that.· So,
·3· ·we're assuming total debt -- we're proposing total
·4· ·debt service coverage of 1.8 times.· So, that's what
·5· ·that means is that net revenue, which is operating
·6· ·revenue less operating expenses, needs to be 1.8
·7· ·times debt service cost, debt services principle and
·8· ·interest.
·9· · · · · · · · · So, if you were to go back, say, 15
10· ·years ago and we had $25 million years of debt
11· ·service, 1.8 times that would be a total of
12· ·45 million.· So, we would have wanted to collect
13· ·45 million, essentially, above operating expenses.
14· ·25 of that would have gone to debt service.· The
15· ·remaining 20 million is cash that's generated from
16· ·rates that can go to PAYGO.· So, that 20 million as
17· ·a percentage of your capital plan depends on the
18· ·size of the capital plan.· So, the $200 million
19· ·capital plan, you're funding 10 percent of that with
20· ·cash.· If it's 100 million, you're funding 20
21· ·percent.
22· · · · · · · · · The best for today we have
23· ·130 million roughly as a starting point of debt
24· ·service.· At the 1.8 coverage, now, you're
25· ·collecting over 200 million than operating expenses,
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·1· ·so you've got -- you've got a much bigger number.
·2· ·So, you're over 200 million, let's say, you're
·3· ·collecting 80, 90 million of cash just to hit your
·4· ·coverage.· So, we don't -- so, if you look at that
·5· ·as a percentage of what your capital plan is and
·6· ·that kind of determines your cash funding -- so,
·7· ·that's a simple -- it's kind of a simple way to go
·8· ·through it.
·9· · · · · · · · · As we go through this rate cycle,
10· ·we're continuing to add debt, so that number we need
11· ·to collect is going to continue to grow.· So, we
12· ·generate more and more cash.· We've been borrowing
13· ·since 2004, so every cycle we're going to be
14· ·generating more and more cash that can be used for
15· ·PAYGO.· So, then it becomes a function of how much
16· ·cash you're generating above operating expenses and
17· ·above debt expense and what the size of the capital
18· ·plan is.· So, the 60/40 is not a policy decision.
19· ·We don't decide we want to 80/20, 60/40.· It's a
20· ·function of how much cash is being generated from
21· ·coverage and what the size of the capital plan is.
22· · · · Q· · But you could adjust the capital plan if
23· ·you wanted to --
24· · · · A· · Well, just a capital plan you have to make
25· ·sure it complies with the Consent Decree --
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·1· · · · Q· · Correct, correct.
·2· · · · A· · -- so I cannot say that we can adjust the
·3· ·capital plan because I think the project --
·4· · · · Q· · But that would, in fact, change the
·5· ·percentages?
·6· · · · A· · Correct.
·7· · · · Q· · Yeah.· Okay, tell me about the SRF loans.
·8· ·How does that play into the financing?
·9· · · · A· · Sure, SRF are loans from the State.· That
10· ·is kind of a competitive process.· So, the State
11· ·puts together an intended use plan every year.· So,
12· ·they take applications from all of the entities that
13· ·want a clean water loan fund from them, and I'm not
14· ·sure exactly how they rank them, but, generally,
15· ·we've been fortunate to get a large allocation. I
16· ·think we are the largest user of SRF funds in the
17· ·state.
18· · · · · · · · · Generally, those are 20-years loans.
19· ·And they work a little bit different than the senior
20· ·bonds.· With the capital mark loans and you borrow
21· ·from the capital markets, you're getting all those
22· ·funds at once, so you have the entire amount
23· ·outstanding all at once.· So, you start paying
24· ·interest on the entire amount all at once.· That can
25· ·be offset -- you can invest the proceeds you're not
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·1· ·using immediately, so there is some offset there.
·2· · · · · · · · · But the SRF loans are more of a draw.
·3· ·So, we may close on a loan today, let say it's
·4· ·30 million loan and use that loan over the next two
·5· ·years.· So, if you're only paying interest on the
·6· ·amounts we draw to reimburse project costs so --
·7· ·it's a little bit cheaper to use those out front
·8· ·because you don't have the full cost of the entire
·9· ·loan upfront.· Also, the loan rate is subsidized, so
10· ·you're getting, basically, paying a 30 percent of
11· ·what market rate would be.
12· · · · · · · · · Now, because you have a compressed
13· ·timeline, you're looking at 20 years instead of --
14· ·typically, we're doing 30 years for the senior
15· ·loans.· Your principal payments are more compressed.
16· ·You have higher principal payments, so the actual
17· ·annual cost, average cost, isn't that much
18· ·different.· But you do have some savings on the
19· ·front end because you don't have the full amount
20· ·outstanding immediately.· There's a lot of savings
21· ·on the back end because there's ten extra years that
22· ·you're not paying any debt service costs.
23· · · · Q· · And how much are you assuming for this
24· ·rate change?
25· · · · A· · We're assuming 30 million a year.
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·1· · · · Q· · And on page 10 of your testimony in
·2· ·talking about the loans, you reference an
·3· ·uncertainty of future federal funding associated
·4· ·with the SRF program.· Can you tell us about that?
·5· ·On line 10 under question 30.
·6· · · · A· · So, the State Revolving Fund Loan is a
·7· ·revolving fund loan.· It also gets federal
·8· ·subsidizations, so the Federal government puts the
·9· ·money into that.· That money can be variable. I
10· ·know -- right now, I don't think we expect that to
11· ·go away; but if, for example, entities in Missouri
12· ·are not using the fund then the government may
13· ·reduce the amount of subsidy and the amount of money
14· ·that is input into the Missouri fund, it may go to
15· ·other states, for example.· There is always some
16· ·risk of sequestration or something or the federal
17· ·government could be reduced because, you know, of
18· ·debt ceiling or policy, even a decision, so there's
19· ·always uncertainty with the SRF program.
20· · · · · · · · · It's been a good source for us.· When
21· ·the state publishes the rules, they want to allocate
22· ·only a certain amount to large districts; we're one
23· ·of the few in the state.· So, we tend to -- have
24· ·tended to get more than they say they would give to
25· ·large districts, and I think that's just a function
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·1· ·of lack of competition in the state right now, but
·2· ·that could always change.· We cannot forecast with
·3· ·real accuracy how much we'll get in the future from
·4· ·the state program.
·5· · · · Q· · Okay, thank you.· Switching gears a little
·6· ·bit, if the voters do not approve the additional
·7· ·debt issuance, how much will the rates increase
·8· ·beyond what's in the rate change proposal?
·9· · · · A· · That's in Section 7, maybe.· The part of
10· ·the rate proposal -- that is a section called
11· ·Alternate Proposed Wastewater Rates.
12· · · · Q· · I can't find it.· Would you give us a
13· ·page?
14· · · · A· · Yeah, I will.· I think there is a
15· ·financial plan -- just the page number?· Okay, so
16· ·7-5 -- Page 7-5, Table 7.4, looks at the wastewater
17· ·bills under a no-bonds alternative.· There's on line
18· ·5, there's the percent increase.· In fiscal year
19· ·'25, it looks like the increase would be about 35
20· ·percent.· Also, in fiscal year '26, a reduction of
21· ·20 percent in fiscal year '27 and an increase of
22· ·five percent in fiscal year '28.· That would be the
23· ·cost of having to collect and pay for the projects
24· ·only through wastewater user charges.
25· · · · Q· · Thank you.· Going back to the Charter, do
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·1· ·you believe the rate change proposal is necessary to
·2· ·enable the District to comply with any covenant or
·3· ·provision relating to outstanding bonds or
·4· ·indebtedness?
·5· · · · A· · Yes, I believe the rate change proposal is
·6· ·consistent, not in violation of any covenant
·7· ·provision related to the bonds.
·8· · · · Q· · Do you believe it's necessary to enable
·9· ·the District to comply?
10· · · · A· · The collection of these rates with these
11· ·assumptions is necessary, at least to hit the goals
12· ·that we have here.· We have -- so we -- Section 6,
13· ·Article 6 of our Master Bond Indenture, which is the
14· ·Exhibit 15, has our covenants.· Our proposal is set
15· ·to achieve levels higher than minimal, which would
16· ·be in a default level.· So, rates lower than what
17· ·we're proposed here still may not violate the debt
18· ·agreements.· But they would certainly -- could
19· ·restrict our ability to comply with the Consent
20· ·Decree, which could be a violation actually of the
21· ·debt agreements, as well as pressure our rate, which
22· ·could lead to higher bonding costs.
23· · · · Q· · If you look just at the debt agreement, is
24· ·there a point, and what is that point, at which we
25· ·would be in default?
Page 99
·1· · · · A· · From a rate covenant standpoint, we're
·2· ·required to cover all O&M expenses, and we are
·3· ·required to cover debt service expense at 1.25 of
·4· ·senior debt expense and 1.15 of total debt expense.
·5· ·Below that, it would be a default.
·6· · · · Q· · Thank you.· If the District occurs
·7· ·additional debt as part of the proposal, is the
·8· ·District's ability to rely on debt funding for
·9· ·future rate proposals limited?
10· · · · A· · I don't think it is limited.· I think as
11· ·long we are assessing rates that will support the
12· ·O&M and the debt service in a reasonable coverage
13· ·that we will have access to the debt markets in
14· ·general.
15· · · · Q· · On page -- on page 4 in your testimony,
16· ·you state that, "The rating agencies have all noted
17· ·that the District's current credit rating could be
18· ·compromised if projected senior debt coverage fell
19· ·below the projected levels."
20· · · · A· · Yes.
21· · · · Q· · Can you explain that a little?· Is that
22· ·what we were just talking about or --
23· · · · A· · Sure.
24· · · · Q· · -- is that different?
25· · · · A· · So, Exhibits 51 and 52, are the most
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·1· ·recent reports from the rating agencies, and in
·2· ·there they talk -- they mention things that could
·3· ·pressure the District's ratings.· So, you know, for
·4· ·example, in Exhibit 51, which is the Rating Report
·5· ·from S&P, at the bottom of page 3, the S&P note
·6· ·said, "Our expectation is that management will
·7· ·diligently monitor rates on an annual basis to
·8· ·ensure coverage levels do not fall below targeted
·9· ·levels."· And there's similar language in the
10· ·Moody's one, so that is -- those are Exhibits, and
11· ·you can read their comments there.
12· · · · Q· · That's what you're referring to when you
13· ·make that statement?
14· · · · A· · Yes.
15· · · · Q· · And then on page 11, you go through some
16· ·other financial contributions or grants that the
17· ·District could possibly obtain.· Can you summarize
18· ·that and discuss that a little bit with us?
19· · · · A· · Yeah, usually engineering has been more
20· ·involved in the grant process, but grants are tough
21· ·for us to come by because we're a large district.
22· ·Generally speaking, grants have been for lower
23· ·income areas and we tend to get looked as a district
24· ·on a whole, which is overall not a low income area.
25· ·We do have some small grants from the American
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·1· ·Rescue Plan, but those are, obviously, a one-time
·2· ·thing from that program.· It's only about 3 million
·3· ·in this rate cycle.
·4· · · · · · · · · We do work extensively with the Corp
·5· ·of -- Army Corps of Engineers, and we get some
·6· ·funding through them.· Honestly, I think Rick could
·7· ·answer questions about that program better, but we
·8· ·do routinely look for opportunities for grants.
·9· ·They're just -- they're just limited.
10· · · · Q· · Okay, thank you.· I think that's all -- I
11· ·came in late, is Bethany going to be here to --
12· · · · A· · Bethany is online.
13· · · · Q· · Okay, so she's going to fully be available
14· ·to testify and -- all right, then I do not have any
15· ·more questions.
16· · · · A· · Okay.
17· · · · · · ·CHAIRMAN TOENJES:· Thank you, Ms. Stump.
18· · · · Are there questions from any of the rate
19· · · · commissioners for Mr. Snoke?· Mr. Jearls.
20· ·QUESTION BY MR. JEARLS:
21· · · · Q· · Just a quick one.· Page 11, line 20, "The
22· ·District also maintains state and federal lobbying
23· ·activities."· How much money is spent yearly on
24· ·lobbying efforts?
25· · · · A· · We believe it's roughly 55,000 annually at
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·1· ·the state level and 65,000 at the federal.
·2· · · · · · ·MR. JEARLS:· Thank you.· That's all I
·3· · · · have.
·4· · · · · · ·CHAIRMAN TOENJES:· Thank you, Mr. Jearls.
·5· · · · Are there other questions for Mr. Snoke?
·6· · · · Anything online?
·7· ·QUESTIONS BY MR. PERKINS:
·8· · · · Q· · This is Mark Perkins, I just have one
·9· ·question.· Back on page 7.5 of the proposal, where
10· ·the typical wastewater bills under no bond
11· ·alternative, where you have in FY25 and FY26 fairly
12· ·substantial rate increases of 35 percent.· I would
13· ·expect that -- does that include billing in a,
14· ·presumably, much more significant bad debt element
15· ·of that?
16· · · · A· · It does not.· It assumes the same bad debt
17· ·level.
18· · · · · · ·MR. PERKINS:· Okay.· I would expect that
19· · · · would probably change, but, again, I know it's
20· · · · an alternative that you'll have to probably
21· · · · consider further if there is a -- if it were to
22· · · · fail.· That's all I have got.
23· · · · · · ·CHAIRMAN TOENJES:· Thank you, Mr. Perkins.
24· · · · Other questions from the rate commissioners?
25· · · · Ms. Stump?
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·1· · · · · · ·MS. STUMP:· I had a follow-up question.
·2· · · · · · ·CHAIRMAN TOENJES:· Sure.
·3· · MS. STUMP:
·4· · · · Q· · For the record, are the SRF or WIFIA loans
·5· ·included in the bond authorization or outside of
·6· ·that authorization?
·7· · · · A· · They are included in the authorization.
·8· · · · Q· · Thank you.· And in this scenario, assuming
·9· ·no additional bond authorization, did you assume the
10· ·same level of SRF or WIFIA loans?
11· · · · A· · We assumed that we would use up the
12· ·existing bond authorization and then not have
13· ·anymore.· So, we would use bonds to the extent that
14· ·currently existing authorization is used up and then
15· ·no more bonds after that.
16· · · · Q· · Okay, thank you.
17· · · · · · ·CHAIRMAN TOENJES:· Ms. Myers, do you have
18· · · · any questions for the witness?
19· · · · · · ·MS. MYERS:· I do not.
20· · · · · · ·CHAIRMAN TOENJES:· Mr. Snoke, thank you
21· · · · very much.
22· · · · · · ·MR. SNOKE:· Thank you.
23· · · · · · ·MS. MYERS:· The District's next witness is
24· · · · Bethany Pugh.· She's a managing director with
25· · · · PFM Financial Consultant.· She's going to be
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·1· · · · online.· So, we'll have her sworn in and then
·2· · · · we'll get started.· Bethany, we're going to
·3· · · · have you sworn and then get started with the
·4· · · · testimony.
·5· · · · · · ·CHAIRMAN TOENJES:· I don't think you can
·6· · · · --
·7· · · · · · ·MS. PUGH:· Okay.
·8· · · · · · · · ·(Bethany Pugh sworn in.)
·9· · · · · · ·CHAIRMAN TOENJES:· Can you see her?
10· · · · · · ·MS. STUMP:· Can she see me?
11· · · · · · ·CHAIRMAN TOENJES:· I think there's a
12· · · · camera --
13· · · · · · ·MS. STUMP:· That's why I was figuring out
14· · · · where I should be looking at.
15· · · · · · ·CHAIRMAN TOENJES:· Yeah, yeah.· Go ahead,
16· · · · Ms. Stump, if you have questions for Ms. Pugh.
17· ·QUESTIONS BY MS. STUMP:
18· · · · Q· · Yeah, but I just didn't know if she was
19· ·looking at my back or what.· Thank you, Ms. Pugh.
20· ·Can you describe and summarize for the Rate
21· ·Commission what your role with the District in this
22· ·rate change proposal is?
23· · · · A· · Sure, we serve as financial advisers,
24· ·municipal advisers is actually the technical term,
25· ·we're a regulated industry in the context of
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·1· ·providing financial advice to state and local
·2· ·governments.
·3· · · · · · · · · So, we assist in developing the
·4· ·financial plans, which is sort of the debt execution
·5· ·plan in the context of things like: the amount of
·6· ·borrowing; reviewing and affirming the
·7· ·appropriateness of the amount of PAYGO; recommended
·8· ·debt service coverage targets to hit; the
·9· ·recommended amount of liquidity in context of credit
10· ·rating and market access goals and considerations
11· ·for the District; so, our role is really financial
12· ·planning and modeling; assistance with debt
13· ·transaction management, so reviewing of financial
14· ·documents; assisting in the credit ratings process
15· ·rate; assisting negotiating on the District's behalf
16· ·with investment banks in the context of setting the
17· ·interest rates on the publically offered debt of the
18· ·District; and continuing to monitor the District's
19· ·debt for opportunities for refinancing or other
20· ·economic savings opportunities in assisting with the
21· ·ongoing relationships with the credit rating
22· ·agencies.· Among other considerations, those are the
23· ·main ones.
24· · · · Q· · Great, thank you.· And you filed testimony
25· ·on behalf of the District, which is MSD Exhibit 31.
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·1· ·Do you have that with you or available?
·2· · · · A· · Yes.
·3· · · · Q· · Okay.
·4· · · · A· · I do.
·5· · · · Q· · Super.· I just want to ask some questions
·6· ·on that.· First, I want to talk a little bit about
·7· ·cash versus debt.· On page 4, you state, "This
·8· ·compares to a historical debt-to-equity ratio
·9· ·approximating 70/30 from FY04 to FY22."· I think it
10· ·was my recollection that in 2009 it was 60/40, so
11· ·I'm just trying to figure how we get to 70/30
12· ·historically.
13· · · · A· · So, each time we go through this process,
14· ·we update our calculation.· Again, starting from
15· ·2004 through whatever period of fiscal years,
16· ·complete fiscal year that we have, we do that
17· ·calculation.· So, the number very well in 20 --
18· ·yeah, from 2004 through 2009, if that is what you
19· ·said or if you were talking about '19.
20· · · · Q· · '19 is what I was --
21· · · · A· · Okay, yeah.
22· · · · Q· · Okay.
23· · · · A· · Yeah, was that in 2019, adding another
24· ·four years or three years: '20, '21 and '22 changes
25· ·that calculation.
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·1· · · · Q· · Okay.· So, it's historically now 70/30.
·2· ·And then, also, I think on page 3, you in question
·3· ·5, you say, "The District currently has a AAA or
·4· ·AA-level rating."· So, I'm wondering if you could
·5· ·elaborate a little bit on why the District concluded
·6· ·that a debt-to-equity ratio of 60/40 is appropriate
·7· ·in the current rate proposal to maintain the
·8· ·District's ratings?
·9· · · · A· · So, the critical components in terms of
10· ·the credit ratings, as stated by the credit ratings
11· ·and as Tim noted, the most recent reports for two of
12· ·the three agencies that rates some of the District's
13· ·bonds are -- are incorporated as Exhibits.
14· · · · · · · · · The key metrics that they look at
15· ·are -- among others and definitely a robust and
16· ·qualitive analysis, but in terms of quantitative
17· ·metrics that are part of their analysis, the key
18· ·metrics are: debt service coverage, which Tim Snoke
19· ·noted in his testimony, so that's the amount of net
20· ·revenues generated divided by the amount of debt
21· ·service, both in the context of the senior lien
22· ·revenue bonds, but also in the context of all of the
23· ·District's obligations, which include SRF loans,
24· ·WIFIA and other debt instruments.
25· · · · · · · · · So, part of the consideration for
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·1· ·credit ratings, and, to be clear, AAA rating and AA1
·2· ·or AA+ depending upon the particular rating agency
·3· ·are the first and second highest potential ratings
·4· ·that an entity can have, to maintain those level of
·5· ·ratings, there are certain expectations as it
·6· ·relates to the amount of debt service coverage that
·7· ·an entity should have and should plan to have going
·8· ·forward.· And, again, noted in both -- noted in the
·9· ·ratings reports that are provided as Exhibits.
10· · · · · · · · · The other metric is -- relates to
11· ·fund balance or the dollars available to respond to
12· ·unexpected increases or unexpected changes with
13· ·respect to operational needs or in the context of
14· ·capital needs.· So, we are developing and working
15· ·with the District to develop a financing plan to
16· ·determine the amount of capital that should be
17· ·funded with debt versus funded with cash, those are
18· ·some of the metrics that we are considering.· And as
19· ·Tim noted, the more debt you issue or the District
20· ·issues in order to generate a level of coverage, the
21· ·amount of cash that is generated automatically
22· ·increases as you issue more debt.
23· · · · · · · · · So, the amount of cash available to
24· ·fund capital automatically increases just the
25· ·function or result of the other targeted metrics
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·1· ·that are really a result from the District's
·2· ·objective of maintaining high credit ratings in
·3· ·order to not just ensure market access, but to
·4· ·ensure market access at a fairly low cost of capital
·5· ·on a relative basis.
·6· · · · Q· · Thank you.· On page 6 now of your
·7· ·testimony, in question 11, you describe Days Cash on
·8· ·Hand as a liquidity metric that is important to
·9· ·allow the District to maintain its current rating
10· ·with rating agencies.· And you state that, "The
11· ·District intends to proactively manage Days Cash on
12· ·Hand, exclusive of long-term unrestricted
13· ·investment, to a minimum of 550 days."· So, what is
14· ·the District's current and projected Days Cash on
15· ·Hand?
16· · · · A· · That's a great question.· I don't actually
17· ·have handy, like, the fiscal year 2022 Days Cash on
18· ·Hand numbers.· I actually can pull for you -- I
19· ·don't have that right in front of me that I can pull
20· ·for you.· So, Moody's is one of the credit rating
21· ·agencies that actually calculates these metrics and
22· ·provides comparison of these metrics across the
23· ·various entities that they rate.
24· · · · · · · · · Their calculation is going to be a
25· ·little bit different than the District's
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·1· ·calculation, and that's just the function of sort of
·2· ·the proprietary calculation.· Just bear with me a
·3· ·moment.· I can -- I can -- I'm going to come back to
·4· ·the first part of your question momentarily.· Could
·5· ·you please restate for me again the second part of
·6· ·your question?
·7· · · · Q· · My question was: what is the District's
·8· ·current and projected Days Cash on Hand?· And we can
·9· ·follow up with a written request if this is
10· ·something you would prefer to --
11· · · · A· · If you wouldn't mind, that would be --
12· ·that would be wonderful.· I think the part of the
13· ·art versus science with respect to the projections
14· ·is that things like budget numbers, where the
15· ·District historically outperforms the budget i.e.
16· ·meaning the expense -- operating expenses, other
17· ·expenses never -- or don't exceed the budgetary
18· ·amount, so there is -- things like that will come
19· ·into play in terms of projected Days Cash on Hand
20· ·versus what the actual Cash on Hand ends up being in
21· ·every year.
22· · · · · · · · · So, there's -- the point of my
23· ·statement was to say -- in the context of saying the
24· ·District will manage, take into consideration those
25· ·nuances that happen during the course of a four-year
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·1· ·rate cycle.· It's the District's objective to
·2· ·realize actual when it's all said and done at the
·3· ·end of any given fiscal year to have Days Cash on
·4· ·Hand approximately 550 a day.
·5· · · · Q· · Thank you.· Let me just look through and
·6· ·see if I have -- I have one more question --
·7· · · · A· · Okay.
·8· · · · Q· · -- about SRF.· In your testimony, you
·9· ·indicate that SRF borrowings are projected to be
10· ·43 million in fiscal year '25 and 30 million per
11· ·year thereafter.· Can you explain how the projected
12· ·total SRF borrowings were projected, what you based
13· ·that on?
14· · · · A· · Yes, and Tim spoke to this in his
15· ·testimony as well, in terms of we don't know in
16· ·advance the amount of capacity that the state will
17· ·have specific to dedicate to -- to MSD, so we try to
18· ·use conservative yet historically reasonable numbers
19· ·or levels in our projections.
20· · · · · · ·MS. STUMP:· Okay, thank you.· I have no
21· · · · further questions.
22· · · · · · ·CHAIRMAN TOENJES:· Thank you, Ms. Stump.
23· · · · Questions from the rate commissioners for
24· · · · Ms. Pugh?· Mr. Palans.
25· ·QUESTIONS BY MR. PALANS:
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·1· · · · Q· · Thank you, Mr. Chairman.· Ms. Pugh, on
·2· ·page 4 of your Direct Testimony, question 8, "Q:
·3· ·What interest rates were assumed?"· And your
·4· ·statement, to mitigate interest rate risks
·5· ·associated with future instances, your firm added
·6· ·additional spreads to the yields, assuming ranging
·7· ·from approximately 0.5 percent for fiscal '25 to
·8· ·0.75 for the projected bond issuances in fiscal '26
·9· ·and '27.· Do you see that?
10· · · · A· · Yes.
11· · · · Q· · My question is, I think all of us are
12· ·aware of the -- I will call it -- I use the word
13· ·"disruption" in the financial sector between the
14· ·Fed, the pressures on the Fed to increase rates and
15· ·inflation, everything we read about in the
16· ·newspapers, and my question is, and I think your
17· ·testimony is dated March 24, we're in April 27, so
18· ·we've got a little bit more bad news that we are
19· ·experiencing in the intervening month; is that still
20· ·an accurate assessment of the assumed interest rate
21· ·range for that applicable period?
22· · · · A· · Yeah, I don't think -- I mean, we can --
23· ·we could refresh these numbers every day as you
24· ·know, because the market has changed or changes on a
25· ·daily basis and reflects a lot of volatility. I
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·1· ·think while we do not claim and certainly don't know
·2· ·what the future is going to hold in terms of
·3· ·interest rate projections, given where we were in
·4· ·the scale from a historical perspective, we feel the
·5· ·cushion, if you will, at this point in time is
·6· ·appropriate.
·7· · · · Q· · Thank you.· And with regard to the
·8· ·$750 million proposed debt financing, new debt
·9· ·financing that the District is proposing, what is
10· ·the maturity of that debt?
11· · · · A· · So, the debt that is assumed to be senior
12· ·lien revenue bond debt, has a 30 year amortization,
13· ·which means that depending upon the year of issuance
14· ·assumed, principal would amortize or debt service
15· ·would be for a period of 30 years.· So, for example,
16· ·if we issued debt in 2024, probably we would have
17· ·principal one year out, so 2025 through 2054, 30
18· ·years of principal amortization.
19· · · · Q· · And given the, I'll use -- I continue to
20· ·use the word "disruption" in the financial
21· ·marketplace, do you think it's likely or unlikely
22· ·that we may see the financial markets reducing the
23· ·maturity of debt such that the amortization period
24· ·for $750 million borrowing would be 25 years or 20
25· ·years?· Is that something that would be on your
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·1· ·radar screen?
·2· · · · A· · I mean, the amount of the term of debt is
·3· ·something that the District controls within, you
·4· ·know, State of Missouri and other statutory
·5· ·requirements, so the determination whether to do 20,
·6· ·25 or 30 for the most part is a policy
·7· ·consideration.· I don't see there being in the
·8· ·challenge of a market-access perspective -- or from
·9· ·a market-access perspective of 20, 25, 30 or longer,
10· ·frankly, as it relates to the District.
11· · · · Q· · No, I'm just commenting on what I've
12· ·personally seen, and I've seen banks collapse the
13· ·maturity period in order to increase the
14· ·amortization and accelerate the repayment in this
15· ·market, and what you're saying is that you have not
16· ·experienced that in the public finance market?
17· · · · A· · So, I think hearing you explain that
18· ·context, you're perhaps talking about scenarios
19· ·where there's a default on the debt; and there are
20· ·certain bondholder rights and if its bank-held debt,
21· ·the ability to accelerate that debt or make payable
22· ·upon an event of default.· Those types of
23· ·considerations are a thing, but I -- we don't
24· ·anticipate the District going into default, so
25· ·that's sort of a non -- non-relevant to this
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·1· ·conversation, if I'm understanding your question
·2· ·correctly.
·3· · · · Q· · I'm not talking about it in the context of
·4· ·a default.· I'm talking about it in the context of a
·5· ·refinancing.· I've seen refinancing of existing
·6· ·debts with maturity collapsing, and I'm just
·7· ·wondering in this market, is that something that you
·8· ·are anticipating or have seen?
·9· · · · A· · Well, historically, the District --
10· ·which -- so, first of all, refunding debt, again,
11· ·would be totally within the District's purview.
12· ·Investors cannot, again, unless there are some
13· ·specific events, which I don't anticipate, could not
14· ·require the District to shorten the amount of the
15· ·term of its debt, so any choice that the District
16· ·would pursue to refund debt would likely be, which
17· ·historically been the case, for economic savings or
18· ·some other policy or, you know, administrative
19· ·objective of the District.· So, the District would
20· ·be in total control within the context of federal
21· ·tax law and other constrains.· It wouldn't likely be
22· ·able to extend the debt too much, but in terms of
23· ·shortening it, that would be a complete district
24· ·policy consideration.· Again, if I'm understanding
25· ·your question correctly.
Page 116
·1· · · · · · ·MR. PALANS:· I don't have any other
·2· · · · questions.
·3· · · · · · ·CHAIRMAN TOENJES:· Thank you, Mr. Palans.
·4· · · · Other questions for Ms. Pugh?· Any folks
·5· · · · online?· Ms. Stump, Mr. Malone?
·6· · · · · · ·MS. STUMP:· I do have one follow up
·7· · · · question.
·8· · · · · · ·CHAIRMAN TOENJES:· Please come up to the
·9· · · · microphone.· Or if you have a microphone there,
10· · · · go ahead.
11· ·QUESTIONS BY MS. STUMP:
12· · · · Q· · Ms. Pugh, one follow-up question.· We were
13· ·talking about the cash on hand, Days Cash on Hand
14· ·numbers.
15· · · · A· · Uh-huh.
16· · · · Q· · You talked about a minimum of 550 days.
17· ·In the rate -- in table 4.10, which is the
18· ·Wastewater Financial Plan, there's -- in the
19· ·operating reserve, there's a target there of 60 days
20· ·O&M.· I just kind of want to clarify why that's
21· ·different?
22· · · · A· · So, the operating reserve is sort a of --
23· ·similar to Tim's example about what the bond
24· ·documents require in terms of coverage, it's sort of
25· ·a minimum level, the actual targeted level or policy
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·1· ·level target that the District has in order to
·2· ·maintain higher -- the high quality rating which the
·3· ·District has had and tends to maintain during this
·4· ·rate cycle, requires significantly more than 60 Days
·5· ·Cash on Hand.· So, one is a requirement; the other
·6· ·is a policy target to achieve the District's
·7· ·objectives in terms of high credit ratings and
·8· ·optimal market access.
·9· · · · · · ·MS. STUMP:· Okay, thank you.
10· · · · · · ·CHAIRMAN TOENJES:· Ms. Myers, do you have
11· · · · any questions for Ms. Pugh?
12· · · · · · ·MS. MYERS:· I do not.
13· · · · · · ·CHAIRMAN TOENJES:· Ms. Pugh, thank you
14· · · · very much.
15· · · · · · ·MS. PUGH:· Thank you.
16· · · · · · ·CHAIRMAN TOENJES:· I appreciate your
17· · · · testimony today.
18· · · · · · ·MS. PUGH:· Thank you.
19· · · · · · ·MS. MYERS:· The District's next witness
20· · · · will be William Zieburtz.· He is with Stantec
21· · · · Consulting Services, and he also will be
22· · · · online.
23· · · · · · ·CHAIRMAN TOENJES:· I believe we need
24· · · · Mr. Zieburtz to take the oath.
25· · · · · · ·MS. MYERS:· Correct.
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·1· · · · · · · · (William Zieburtz sworn.)
·2· · · · · · ·CHAIRMAN TOENJES:· Thank you,
·3· · · · Mr. Zieburtz.· Ms. Stump, do you have questions
·4· · · · for Mr. Zieburtz?
·5· ·QUESTIONS BY MS. STUMP:
·6· · · · Q· · I do.· Good afternoon, Mr. Zieburtz.· My
·7· ·name is Lisa Stump; I'm one of the attorneys for the
·8· ·Rate Commission.
·9· · · · A· · Okay.
10· · · · Q· · Can you summarize for the Rate Commission
11· ·what your role with the District is with respect to
12· ·this proposal?
13· · · · A· · My role was to speak to the allocation of
14· ·costs associated with infiltration and inflow
15· ·between the customer and volumetric billing
16· ·determinants.
17· · · · Q· · Right, and it's my understanding that you
18· ·and your firm undertook a study.· Can you tell us
19· ·about your study, please?
20· · · · A· · Yes.
21· · · · Q· · Summarize it a little bit.
22· · · · A· · Yes, absolutely.· Excuse me.· We reviewed
23· ·technical and asset data regarding the occurrence of
24· ·infiltration and inflow in the MSD system at present
25· ·and in the past.· And based on that, we evaluated
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·1· ·different ways to allocate these costs between these
·2· ·two fundamental billing characteristics: the
·3· ·customer count and volumetric usage in the future.
·4· ·We created 10 different allocation paradigms and
·5· ·evaluated whether or not any of those would produce
·6· ·a result that was of inherently higher quality than
·7· ·the current allocation paradigm being used by MSD.
·8· ·We concluded that none of the analytic procedures we
·9· ·could come up with were inherently higher quality,
10· ·so our ultimate recommendation was that MSD maintain
11· ·its current allocation of 40 percent to customer and
12· ·60 percent to volume.
13· · · · Q· · And that's based on really just because
14· ·you tried other ones that you didn't feel were any
15· ·better?
16· · · · A· · Yes, we tried a half dozen, roughly,
17· ·allocation procedures that were sort of classical
18· ·approaches, including the way that MSD is currently
19· ·allocating these costs, a couple of different
20· ·approaches that I don't know have been tried before
21· ·that were geospatial and linked to the location of
22· ·different types of customers and different assets,
23· ·and while we could derive different allocations
24· ·based on any of these alternative approaches, none
25· ·of them measures infiltration and inflow.· None of
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·1· ·them -- they are all an attempt to use some kind of
·2· ·a proxy.
·3· · · · · · · · · So, our conclusion was that the
·4· ·current practice MSD was following is consistent
·5· ·with industry standard procedures, and that there
·6· ·was no better way to allocate these costs than is
·7· ·currently being done.
·8· · · · Q· · Okay, thank you.· In your testimony -- do
·9· ·you have your testimony available?
10· · · · A· · Yes.
11· · · · Q· · Okay.· You -- there's a question that
12· ·asked for the manner in which MSD's rate structure
13· ·recovers associated with infiltration and inflow,
14· ·whether it's consistent with methodology used by
15· ·other wastewater utilities.· You answered yes.· Can
16· ·you describe the methodology that MSD uses?
17· · · · A· · When we -- when -- when we allocate I&I
18· ·costs, it is generally not based upon a series of
19· ·calculations.· So, as we typically will talk about
20· ·methodology and rate practice, we are talking about
21· ·a series of allocations that we can explore and
22· ·document and show.· But with regard to I&I, the
23· ·allocation is more typically a number that has been
24· ·come up with by the involved parties over time and
25· ·that isn't a function of measured or even estimated
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·1· ·flows.· So, I think I could -- I still think yes is
·2· ·the right answer, but it focuses more on the result
·3· ·on the -- on the 40 percent allocation to customer
·4· ·as opposed to a methodology, per say.
·5· · · · Q· · So, there's not really a set methodology
·6· ·is what you're saying?
·7· · · · A· · That is correct.
·8· · · · Q· · Okay.· Your report, for those of you
·9· ·following along, is MSD Exhibit 66, and in Section 2
10· ·of that, you indicate that contributed sanitary flow
11· ·has historically been represented by the water usage
12· ·data MSD utilizes in it wastewater billing process.
13· · · · · · · · · Since wastewater usage data includes
14· ·water used for such purposes as irrigation and fire
15· ·protection, which does not directly return to the
16· ·sewer system, wouldn't the use of water usage data
17· ·to represent contributive volumes overstate the
18· ·contributive volumes and understate I&I?
19· · · · A· · I am not at the moment recalling the
20· ·details of the nature of the water usage data and
21· ·the estimates of infiltration and inflow that we
22· ·compared in that instance.· But those two things,
23· ·those two kinds of usage, if not returned to the --
24· ·would not be returned to the sewer and they would
25· ·tend to push the results in the direction that you
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·1· ·indicated.· But I think then in our detailed
·2· ·technical analysis, which was, I think, essentially
·3· ·a separate report connected to our report, our
·4· ·technical analysts were comfortable with the -- with
·5· ·that historical data.· So, I think that as we look
·6· ·back at the relative proportions of I&I through the
·7· ·years, we were comfortable in believing that we had
·8· ·a rational dataset from which to -- on which to base
·9· ·our rate analysis.
10· · · · Q· · Okay, thank you.· And we can follow up --
11· ·we'll follow up in writing if we decide we need more
12· ·information.
13· · · · · · · · · For Option 3 in Section 3.2.3, it
14· ·says, "Each fee collection system with a minimum
15· ·8-inch line."· Could you explain why you chose 8 for
16· ·the minimum pipe size for the entire system, whether
17· ·than 8 for the separate system and 12 for the
18· ·combined system as discussed in 8.2.1?
19· · · · · · · · · And I guess if the analysis were
20· ·updated to reflect the distinction between the two
21· ·systems, would you expect the directional impact on
22· ·the allocation -- what you would expect the impact
23· ·on the allocation of I&I to be?
24· · · · A· · I'm not sure that I would be prepared to
25· ·answer that second question without reading again --
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·1· ·a slow way what we had done.· But I can definitely
·2· ·answer the former.· The former we looked at the
·3· ·8-inch diameter as useful because it is so
·4· ·consistently associated with the collection system
·5· ·function, from which much I&I traditionally is
·6· ·determined to come.· So, the 8 inch ties us to
·7· ·the -- that core collection system function, which
·8· ·has generally -- often been used in a general sense
·9· ·to attempt come up with an allocation to the
10· ·customer billing factor.
11· · · · Q· · All right, thank you.· And the various
12· ·options, was the multi-family residential considered
13· ·a residential or nonresidential customer type?
14· · · · A· · A residential customer type.
15· · · · Q· · Thank you.· So, we've talked about your
16· ·recommendation that MSD continue with the 40/60, 40
17· ·customer, 60 volume allocation.· I guess I'd like to
18· ·know, in your opinion, does the use of this
19· ·percentage consider the financial impact on all
20· ·classes of ratepayers?
21· · · · A· · I would say that the allocation is an
22· ·attempt to reflect the sources, the phenomena of I&I
23· ·and to distribute those costs to customers in an
24· ·appropriate way.· I don't know that I would say that
25· ·considers -- that it considers the classes.· The
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·1· ·classes wind up bearing a cost as a result of that
·2· ·decision, but it's certainly not a decision that a
·3· ·utility typically makes by focusing on impacts to
·4· ·customer classes.· It's usually more of a front end
·5· ·decision to try to reflect the nature of the I&I
·6· ·phenomena.
·7· · · · Q· · So, do you think that the impact on all
·8· ·classes is fair?
·9· · · · A· · I would say --
10· · · · Q· · Do you think that?
11· · · · A· · I apologize.· I spoke over you.
12· · · · Q· · No, I spoke over you.· Using that
13· ·percentage, do you think the impact on all classes
14· ·of customers is fair?
15· · · · A· · I would say yes in the sense that we use
16· ·that term in municipal water and wastewater rate
17· ·practice.· Our focus on fairness has to do with a
18· ·lining cost recovery with the different class
19· ·impacts on utility costs.· And, so, I would
20· ·definitely say that it is a fair allocation.
21· · · · · · ·MS. STUMP:· Thank you.· I have no further
22· · · · questions at this time.
23· · · · · · ·CHAIRMAN TOENJES:· Thank you, Ms. Stump.
24· · · · Any rate commissioners have any questions for
25· · · · Mr. Zieburtz?· Mr. Stein?
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·1· ·QUESTIONS BY MR. STEIN:
·2· · · · Q· · Thank you, Mr. Chairman.· This is going to
·3· ·be a long setup, so bear with me.· As I understand
·4· ·the way the District is set up, there are
·5· ·essentially two systems.· The eastern portion of the
·6· ·system is a combined sewer system.· The western
·7· ·portion of the system is a separate sewer system.
·8· · · · · · · · · In the separate sewer system, the
·9· ·District has made and continues to make significant
10· ·efforts to get extraneous flows in -- stormwater
11· ·coming in through cracks in the sewer pipes through
12· ·unsealed manholes through seepage, et cetera, and
13· ·they've done that through lining sewers through
14· ·sealing manholes through eliminating roof leaders
15· ·from homes, et cetera.· So, at the end of day, if we
16· ·have a perfect separate sewer system, all the
17· ·stormwater goes over the surface into creeks and
18· ·streams that do not enter MSD treatment facilities.
19· · · · · · · · · In the eastern portion of the
20· ·District, we have a historical combined sewer
21· ·system.· That's the way it's designed, and the
22· ·District's efforts are to capture as much of that
23· ·stormwater runoff that is coming in and to keep it
24· ·into the combined sewer system and to avoid
25· ·overflows to streams and rivers and make sure that
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·1· ·all of that captured flow, whether it's contributed
·2· ·flow or storm flow eventually goes to a treatment
·3· ·facility.· Everybody follow me there to that point?
·4· · · · A· · Yes.
·5· · · · Q· · The historical methodologies that you
·6· ·quote look at splitting the infiltration inflow
·7· ·between contributed flow, which is the flow that we
·8· ·all put in the sewer, whether it's sanitary waste or
·9· ·processed waste versus the infiltration and inflow,
10· ·which, as I indicated, is the stuff that's coming in
11· ·through leaks in the sewers, connections through
12· ·roofs and drains, et cetera.
13· · · · · · · · · If -- if we look at this in -- in the
14· ·sense that we have two fundamentally different sewer
15· ·systems, should we not have two fundamentally
16· ·different sewer rates?· It seems to me in the
17· ·combined sewer area, there is a factor there that
18· ·stands out that we're ignoring and that is flow that
19· ·is related to impervious area.· That is a factor the
20· ·District has a great deal of information on that's
21· ·collected over the last 20 years.
22· · · · · · · · · And it would seem to me, to be
23· ·worthwhile looking at in the combined sewer area an
24· ·infiltration inflow allocation that would be based
25· ·on customer connections, on contributed flow and
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·1· ·impervious area.
·2· · · · · · · · · As an example, let's take in that
·3· ·combined sewer area, two 5-acre pieces of ground.
·4· ·One is a 5-acre strip mall that has been abandoned.
·5· ·It is parking lot and roofs, there's no contributed
·6· ·flow coming in.· But when it rains, all that rain
·7· ·comes off the top of those roofs and payment and
·8· ·into the combined sewer.
·9· · · · · · · · · Across the street is a dairy that has
10· ·1,000 gallons a day of processed flow.· It's got a
11· ·roof, parking lot, et cetera of five acres.· As we
12· ·look at the data, the infiltration and inflow in
13· ·that combined sewer is greater than 50 percent of
14· ·the total flow going into the treatment plan.· But,
15· ·in this case, this dairy over here is paying through
16· ·its rate for not only it's process waste, it's
17· ·100,000 gallons a day, but it's paying for all the
18· ·rainfall that's coming off of its property, whereas
19· ·its neighbor across the street contributing the same
20· ·amount of rainfall to the combined sewer system is
21· ·paying zero.
22· · · · · · · · · So, I'm looking for an answer here as
23· ·to where the equity exists in that, and why we could
24· ·not add impervious area to that calculation in the
25· ·combined sewer area.
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·1· · · · A· · Say that again.· I'm sorry, I'm hearing
·2· ·some feedback.· Is it -- may I respond?
·3· · · · Q· · Okay.· It's your response.
·4· · · · · · ·CHAIRMAN TOENJES:· Yes, go ahead.
·5· · · · A· · I would say it is -- it is somewhat rare
·6· ·for a rate analytic process to recommend
·7· ·differentiation with a certain area to create
·8· ·separate rate environments for different
·9· ·geographies.· And while we didn't in detail analyze
10· ·that split, I would suspect that it would be a very
11· ·rare circumstance where that level of rate
12· ·differential would make sense.· MSD manages broad
13· ·responsibilities for sanitary sewer flow and
14· ·stormwater management across a broad area with, I
15· ·think, seven treatment plants and great complexity,
16· ·with doing old assets and capacity considerations,
17· ·growth considerations, changing technologies, and
18· ·while the difference in the two sides as you
19· ·described is not -- is not an artifact, it's real,
20· ·it's real at the moment.· And it is in some sense
21· ·maybe going too far for a customer in one area
22· ·versus another to receive that service from MSD for
23· ·essentially forever as the MSD continues to serve
24· ·that area and a new customer on and on and on
25· ·through the decades and even the centuries.
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·1· · · · · · · · · The way that the system is laid out
·2· ·now is ultimately not as important as attempting to
·3· ·reflect that customer classes proportional impact on
·4· ·costs over time.· So, I wouldn't expect -- I think
·5· ·would be hard to find an example that would follow
·6· ·that paradigm, and it would be hard for me to think
·7· ·that would lead us to think that would be a
·8· ·beneficial way to go.
·9· ·QUESTIONS BY MR. STEIN:
10· · · · Q· · But could it be done?
11· · · · A· · Any calculation could be done, I am sure.
12· ·There's always a way to calculate something.
13· · · · Q· · Thank you.
14· · · · · · ·CHAIRMAN TOENJES:· Anything else,
15· · · · Mr. Stein?
16· · · · · · ·MR. STEIN:· That's it.
17· · · · · · ·CHAIRMAN TOENJES:· Mr. Faul, I believe you
18· · · · have a question.· You have your hand up.
19· ·QUESTIONS BY MR. FAUL:
20· · · · Q· · I do, thank you.· Yeah, there is always a
21· ·way to calculate something.· Whether or not that
22· ·calculation is accurate is a different question. I
23· ·have a question.
24· · · · · · · · · In your review for, you know, for
25· ·your presentation and testimony, did you review or
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·1· ·as of part it, try to review the MSD Charter?
·2· · · · A· · I do not specifically recall.
·3· · · · Q· · Okay, because I guess the question I was
·4· ·getting to, if you don't recall -- you don't recall
·5· ·looking at the Charter to see such a differential or
·6· ·additional funding mechanism between two properties
·7· ·just as was inquired by is even allowed under the
·8· ·Charter.· Do you recall looking at that at all or --
·9· · · · A· · I apologize.· I missed just a few words,
10· ·such as is in the Charter, right before that.
11· · · · Q· · Oh, whether or not the Charter even allows
12· ·for such a differential in a --
13· · · · A· · Oh.
14· · · · Q· · -- the services as the previous
15· ·commissioner was asking about.
16· · · · A· · Right, I did not review the Charter to see
17· ·if such a differential would be allowed at all.
18· · · · · · ·MR. FAUL:· Okay, that's all I have.· Thank
19· · · · you.
20· · · · · · ·CHAIRMAN TOENJES:· Thank you, Mr. Faul.
21· · · · Are there other commissioners that have
22· · · · questions for Mr. Zieburtz?· Mr. Jearls?
23· ·QUESTIONS BY MR. JEARLS:
24· · · · Q· · Yes. Mr. Stannard on page 6 of your
25· ·testimony, you mentioned 10 alternatives are
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·1· ·presented in Figure 4 of your report.· Where can I
·2· ·find that Figure 4?· Does anybody know?
·3· · · · A· · I don't think I have the attachment number
·4· ·here.
·5· · · · · · ·MR. JEARLS:· Okay, I'm sorry.· Wrong --
·6· · · · wrong fellow.
·7· · · · A· · I thought you were just flattering me.
·8· · · · · · ·CHAIRMAN TOENJES:· Anything else,
·9· · · · Mr. Jearls?
10· · · · · · ·MR. JEARLS:· No, I am done.
11· · · · · · ·CHAIRMAN TOENJES:· Thank you.· Any --
12· · · · Ms. Stump, do you have any questions for
13· · · · Mr. Zieburtz?
14· · · · · · ·MS. STUMP:· I do not.
15· · · · · · ·CHAIRMAN TOENJES:· Ms. Myers?
16· · · · · · ·MS. MYERS:· I do not.
17· · · · · · ·CHAIRMAN TOENJES:· Mr. Zieburtz, thank
18· · · · you.
19· · · · · · ·THE WITNESS:· Thank you.
20· · · · · · ·CHAIRMAN TOENJES:· I appreciate your
21· · · · testimony today.· Rate Commission will take a
22· · · · break until 1:15.
23· · · · · ·(Wherein, a short recess was taken.)
24· · · · · · ·CHAIRMAN TOENJES:· We'll reconvene.· And
25· · · · Ms. Myers, will you prepare to call your next
Page 132
·1· · · · witness?
·2· · · · · · ·MS. MYERS:· Yes, our next witness is
·3· · · · William Stannard with Raftelis.
·4· · · · · · ·CHAIRMAN TOENJES:· Mr. Stannard, will you
·5· · · · take the oath, please.
·6· · · · · · ·(Mr. William Stannard is sworn.)
·7· · · · · · ·CHAIRMAN TOENJES:· Ms. Stump, do you have
·8· · · · questions for Mr. Stannard?
·9· ·QUESTIONS BY MS. STUMP:
10· · · · Q· · I do, thank you.· Good afternoon,
11· ·Mr. Stannard.
12· · · · A· · Good afternoon.
13· · · · Q· · Can you summarize for the Rate Commission
14· ·with your role the District is in this rate change
15· ·proposal?
16· · · · A· · My role was as part of the project team
17· ·for Raftelis as a rate consultant to the District to
18· ·provide technical advice, as well as overall -- what
19· ·the project manager -- Mr. Beckley is the project
20· ·manager, so I was more the project director
21· ·providing technical advice and assistance as needed
22· ·to the technical team.
23· · · · Q· · And your testimony seems to be focused on
24· ·I&I and pollutant strength loadings pretty much.
25· · · · A· · Yes.
Page 133
·1· · · · Q· · Thank you.· I'm going to back to the
·2· ·Charter a little bit first and just say, do you
·3· ·believe that this rate change proposal for
·4· ·wastewater is necessary to pay the interest and
·5· ·principal due on bonds issued or to be issued to
·6· ·fiance assets of the District?
·7· · · · A· · Yes, it is.
·8· · · · Q· · Can you explain a little bit why?
·9· · · · A· · The financial plan has been discussed
10· ·previously by Mr. Snoke and Mr. Gee.· Those
11· ·forecasts of the necessary revenue needs to meet the
12· ·debt service requirements of debt that is
13· ·outstanding as well as debt that is planned to be
14· ·issued as reflected in the overall determination of
15· ·revenue needs and revenue requirements, and the
16· ·rates are established to recover these projected
17· ·revenue needs in accordance with those -- the
18· ·requirement payments.
19· · · · Q· · And do you believe that the rate change
20· ·for wastewater is necessary to pay the cost of
21· ·operation and maintenance?
22· · · · A· · Yes, I do.
23· · · · Q· · Give me a couple sentences.
24· · · · A· · Oh.· In the operation and maintenance of
25· ·the system as part of the annual budgeting process
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·1· ·of the District and part of their responsibility --
·2· ·a critical component of their responsibility is to
·3· ·adequately operate and maintain the facilities and
·4· ·ensure that they're in good working order and
·5· ·repair.· And this reflects the revenues that will be
·6· ·necessary to achieve their budgetary expenditures,
·7· ·both currently as well as forecasted during the
·8· ·period.
·9· · · · Q· · And, finally, do you believe that the rate
10· ·change for wastewater is necessary to pay such other
11· ·amounts as may be required to cover emergencies and
12· ·anticipated delinquencies and why?
13· · · · A· · Yes, again, as reflected in the financial
14· ·plan into the components of delinquencies and
15· ·payments are part of the projected revenue
16· ·requirement and reflected in the rate calculation,
17· ·that they -- those -- this will comply with that
18· ·requirement.
19· · · · Q· · Thank you.· And in your testimony, do you
20· ·have that front of you, on page 5, beginning on page
21· ·5, you state that the District has consistently used
22· ·an allocation of I&I for 40 percent to customers and
23· ·60 to volume since the 2007 wastewater rate change
24· ·proceedings.· And I know we discussed this a little
25· ·bit with Mr. Snoke and with the previous consultant,
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·1· ·but you've been around the I&I for this District for
·2· ·a long time, so I'd like for your opinion a little
·3· ·bit on how -- on describing how the 46 allocation
·4· ·was determined?
·5· · · · A· · In the basis for that allocation is
·6· ·currently included in rate case testimony.· It goes
·7· ·back to the time when we were the consultant for the
·8· ·Rate Commission.· This is my sixth rate case with
·9· ·MSD, the first three being with -- as rate
10· ·consultant to the Commission.· The most recent three
11· ·as being rate consultant to the District, but that
12· ·methodology came out of the Camp, Dress, McKee study
13· ·at the time and then was utilized by the rate
14· ·consultant at the time to develop the 40 percent
15· ·allocated to customers and 60 percent distributed to
16· ·customer classes based on relative contributed
17· ·wastewater volume.· That's the basis for that, and
18· ·it's certainly in -- I believe the last rate
19· ·proceeding was an issue of discussion which prompted
20· ·the District retaining Stantec to undertake a study
21· ·to examine alternatives or options to confirm rate
22· ·the 40/60 is an appropriate allocation.
23· · · · Q· · And we just discussed that, didn't we?
24· · · · A· · Yeah, with Mr. Zieburtz, yes.
25· · · · Q· · So, now the infiltration and inflow is
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·1· ·projected to be 62.4 percent of the total wastewater
·2· ·treatment flow reaching treatment plans; is that
·3· ·correct?
·4· · · · A· · Yes, that's what's included in the rate
·5· ·model and in the forecast.
·6· · · · Q· · Why did this increase from the 2019
·7· ·estimate of 59.4 percent?
·8· · · · A· · Two elements that impacted that.· One, is
·9· ·that Stantec had recommended that whether than using
10· ·a three-year historical view of determining what
11· ·portion of the total flow received at the treatment
12· ·plan relative to the contributed wastewater that
13· ·comes from customers using a three-year average,
14· ·they recommended a five year average.· So, part of
15· ·it is going to a five-year average, and the other
16· ·thing is the -- during that five-year period, we did
17· ·have some elevated river levels in a couple of those
18· ·years.· So, that has an impact as well because
19· ·there's many sources of infiltration and inflow to
20· ·the system.· More than just can be easily identified
21· ·or -- but the increased river elevation, which is
22· ·related also to rainfall, increased rainfall during
23· ·periods will increase that flow.
24· · · · · · · · · At the same time, the customer
25· ·contributions are declining.· They're going down.
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·1· ·The total flow at the treatment plant is, even if it
·2· ·stayed the same, that delta would grow.· So, there's
·3· ·multiple reasons why it increased a bit, but also
·4· ·coupled with the fact the District has done a lot of
·5· ·work on dealing with combined sewer overflow and
·6· ·reducing the amount that's overflowing, so that
·7· ·initially will result in more flow getting to the
·8· ·treatment plant.
·9· · · · · · · · · So, that's another element that's
10· ·increasing that flow, but counter that, they've been
11· ·doing a lot work in reducing the amount of
12· ·infiltration and inflow coming from individual
13· ·properties or within rehabilitating manholes, trying
14· ·to reline sewers and then eliminating area drains
15· ·and roof leaders and maybe even foundational drains
16· ·from some customers.
17· · · · · · · · · But one of the challenges we still
18· ·have is the total length of customer service
19· ·laterals, those lines that go through the customer's
20· ·home from the District's sewer, which are a private
21· ·property.· We don't have control of those, and there
22· ·may be in many systems in my experience, there's
23· ·been as many miles of those customer service
24· ·laterals as there are miles of sewers that are the
25· ·utility's responsibility.· And those are things that
Page 138
·1· ·as they age, they become more deteriorated.
·2· · · · · · · · · I know personally from my own
·3· ·experience, my home that was built in the early
·4· ·'40s, it was a vitrified clay pipe that essentially
·5· ·was collapsing and I had -- I had to replace that.
·6· ·So, until people actually would get and can do that
·7· ·and individuals can do that, that will be a
·8· ·continued source of infiltration and inflow at an
·9· ·individual customer level.
10· · · · Q· · Sorry, I just went through the experience
11· ·of ours also.
12· · · · A· · Oh.
13· · · · Q· · Through our own expense.· So, back to the
14· ·62.4 percent, it is your testimony that this is a
15· ·reasonable --
16· · · · A· · Yes, because what we did, we looked at the
17· ·five-year average ending in 2022 or projecting out
18· ·to '24, so I said that's the five-year average and
19· ·we don't know what rainfall will be in '24, 25, '26
20· ·and 27, but we know that the basic assumption is
21· ·that 62 and a half, 62.4 percent will be a
22· ·reasonable estimate of the amount of infiltration
23· ·and inflow that will occur at that time.
24· · · · Q· · And I think you talked a little bit about
25· ·this in talking about things that the District was
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·1· ·doing, but is the District taking steps to reduce
·2· ·the 62.4 percent?
·3· · · · A· · To the extent that they can and certainly
·4· ·from the standpoint -- and a lot has been done on
·5· ·the -- to eliminate the sewer system, the separating
·6· ·sewer overflows.· Those elements they have been
·7· ·doing but until we -- as we continue and complete
·8· ·the combined sewer overflow elimination that will
·9· ·have an opposite increase in the -- that percentage,
10· ·potentially.· But there's so many other components:
11· ·currently improving the collection system, improving
12· ·and rehabilitating manholes and getting rid of leaky
13· ·sewers through lining of those sewers will have a
14· ·positive impact.· But it will take time for that to
15· ·happen.· So, maybe over four years, when we look at
16· ·that average again, hopefully, it will start to show
17· ·a declining trend.
18· · · · Q· · Thank you.· Let's talk the pollutant
19· ·strength cost recovery for a minute.· Can you
20· ·explain for the Rate Commission what this is?
21· · · · A· · One of the -- the principal reason we have
22· ·wastewater treatment is to eliminate pollutions that
23· ·is inherent with wastewater, both sanitary
24· ·wastewater as well as industrial wastewater.· The
25· ·two major components that are regulated and really
Page 140
·1· ·are the components of pollution are: total suspended
·2· ·solids and biochemical oxygen demand.· And
·3· ·biochemical oxygen demand is a measure of the impact
·4· ·that organic wastewater will have on dissolved
·5· ·oxygen in a receiving water.· And, so, the higher
·6· ·the BOD, biochemical oxygen demand, the higher that
·7· ·is, the bacteria that feeds on that, those organic
·8· ·materials, will deplete the oxygen in the rivers and
·9· ·adversely affect the health of those receiving
10· ·waters.
11· · · · · · · · · So, those are what controlled -- is
12· ·controlled, so the system is designed to remove
13· ·suspended solids and BOD.· So, those are the two
14· ·major cost components we have, along with
15· ·contributed volume.· So, the main criteria that is
16· ·shown in the calculation of the rate -- the rate
17· ·study, the cost service analysis, that Mr. Beckley
18· ·will be able to describe in more detail, allocates
19· ·cost in volume capacity, which is a volume-related
20· ·component but also BOD and suspended solids.
21· · · · Q· · And maybe it's for Mr. Beckley, but how do
22· ·those actually effect the rates?
23· · · · A· · There are two components in the rate.· So,
24· ·as the costs are allocated and the costs -- and one
25· ·of the key components of the cost that we have is
Page 141
·1· ·the fluidized bed incinerator.· That was a new --
·2· ·increased cost due that's included in the revenue
·3· ·requirement of the utility and that is entirely
·4· ·related to dealing with the biosolids at the
·5· ·wastewater plants.· And those are essentially
·6· ·related to suspended solids and BOD.· So, those were
·7· ·the upward pressure on those two cost components.
·8· · · · · · · · · Now, we don't trick -- generally,
·9· ·most customers are treated uniformly having the same
10· ·strength but there's a different strength for the
11· ·surcharge customers.· So, we have some of our
12· ·industrial customers that are significant enough
13· ·that they are individually monitored for their waste
14· ·streams so we can determine how much BOD and
15· ·suspended solids they discharge.· They pay an
16· ·additional amount above the threshold, which I
17· ·believe is around 300 million milligrams per liter.
18· ·So to the extent that they're discharging a thousand
19· ·milligrams per liter, they won't pay just the same
20· ·as the homeowner.· They'll pay more because of that
21· ·extra strength that they're discharging to the
22· ·system.· And that's a way to recover those costs.
23· · · · · · · · · So, as the costs go up, we recover
24· ·more.· There's an impact on the surcharge rate but
25· ·also how those costs -- a portion of those costs
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·1· ·that are in the sanitary discharge rate for
·2· ·residential and commercial non-monitored commercial
·3· ·and multi-family customers.
·4· · · · Q· · When you say non-monitored commercial, are
·5· ·you talking about if they're monitored, they're in
·6· ·the surcharge?
·7· · · · A· · It would be -- say, the surcharge
·8· ·customers are monitored and everyone else that's a
·9· ·commercial customer that's not monitored, may have
10· ·higher strength but they're not -- they're not
11· ·charged more.· Say a restaurant, for example.
12· · · · Q· · So, everyone other than the surcharge
13· ·customers pay the same?
14· · · · A· · They pay the same --
15· · · · Q· · Are charged the same?
16· · · · A· · They're charged the same volumetric rate,
17· ·yes.
18· · · · Q· · And do you think that that's a fair way of
19· ·doing it?
20· · · · A· · Yes, it is.· It's common.· It's the most
21· ·common method in the United States for utilities
22· ·around the country.· Some are examining alternatives
23· ·to recognize that maybe some non-monitored customers
24· ·should charge -- should pay more but -- we're under
25· ·a challenge because it's not -- there's not a lot of
Page 143
·1· ·data to support that, so some places will just
·2· ·assume a certain level of strength.· California is
·3· ·fairly common to segment all the customers what I
·4· ·always call the SIC, Standard Industrial
·5· ·Classification, it's a new -- new acronym now.· But
·6· ·will apply a different strength for each of those.
·7· ·So, restaurants, for example, say, well, there are
·8· ·600 milligrams per liter.· They would pay a higher
·9· ·rate but it's -- it's starting to -- it's starting
10· ·to -- we're seeing more systems doing that, but it's
11· ·still a minority of the systems are making that
12· ·distinction.
13· · · · Q· · So, when you say "minority" is that like
14· ·20 percent?· Or is that --
15· · · · A· · I'd say less --
16· · · · Q· · -- 40 percent?· Less than 40 --
17· · · · A· · I would say less than 20 percent are doing
18· ·that.
19· · · · Q· · And, to your knowledge, has the District
20· ·looked at that at all?
21· · · · A· · Not to my knowledge.
22· · · · · · ·MS. STUMP:· I have no further questions.
23· · · · · · ·CHAIRMAN TOENJES:· Thank you, Ms. Stump.
24· · · · Mr. Jearls, do you have a question for
25· · · · Mr. Stannard?
Page 144
·1· ·QUESTIONS BY MR. JEARLS:
·2· · · · Q· · Yes, I do.· And I thought you were going
·3· ·to have Mr. Zieburtz respond now that I have got the
·4· ·right guy.· On page 6, you review a study by the
·5· ·last guy, Zieburtz, Stantec, about the ten
·6· ·alternative studies that he did for I&I; and I was
·7· ·just wondering where -- you say the results of the
·8· ·ten alternatives presented in Figure 4 of Stantec's
·9· ·report, I just -- where is Figure 4.· Do you have
10· ·that somewhere or does he have it?· Should I go
11· ·back --
12· · · · A· · I think we have to go to the Stantec
13· ·Report.
14· · · · Q· · Okay.
15· · · · A· · And it's included in that report.
16· · · · · · ·MR. JEARLS:· Okay, so that's not online?
17· · · · It is online or is it -- oh, okay.· That was --
18· · · · if it's online I can find it, if that is where
19· · · · it's at.· Okay.· That's all I have at this
20· · · · time, thank you.
21· · · · · · ·MR. STANNARD:· That was a lot easier than
22· · · · I thought it was going to be.
23· · · · · · ·MR. JEARLS:· Yeah, I just wanted to see
24· · · · the report.
25· · · · · · ·MR. STANNARD:· That might have been a
Page 145
·1· · · · better question for Zieburtz.
·2· · · · · · ·MR. JEARLS:· I thought it was.
·3· · · · · · ·CHAIRMAN TOENJES:· Are there any other
·4· · · · rate commissioners with questions for
·5· · · · Mr. Stannard?
·6· · · · · · ·MR. JEARLS:· Exhibit 66, I think that's
·7· · · · on -- that's online but --
·8· · · · · · ·CHAIRMAN TOENJES:· Yeah.· Ms. Stump, Mr.
·9· · · · Malone any questions for Mr. Stannard?
10· · · · Ms. Myers?· Mr. Stannard, thank you.
11· · · · · · ·MR. STANNARD:· Thank you.
12· · · · · · ·MS. MYERS:· The District's final witness
13· · · · will be Tom Beckley.· He's also with Raftelis.
14· · · · · · · ·(Mr. Thomas Beckley sworn.)
15· · · · · · ·CHAIRMAN TOENJES:· Thank you, Mr. Beckley.
16· · · · Mrs. Stump?
17· ·QUESTIONS BY MS. STUMP:
18· · · · Q· · Thank you.· Good afternoon, Mr. Beckley.
19· · · · A· · Good afternoon, Lisa.
20· · · · Q· · Can you summarize for the Rate
21· ·Commissioner what your role with the District is
22· ·with respect to this rate change proposal?
23· · · · A· · Sure, I'm project manager for the Raftelis
24· ·team, and we are the consultant to the Commission
25· ·providing them services related to setting the rates
Page 146
·1· ·and the cost of service analysis.
·2· · · · Q· · Thank you.· And do you have your testimony
·3· ·with you?
·4· · · · A· · I do.
·5· · · · Q· · Super.· On page 3 in question 8, you state
·6· ·that the amount of the CIRP is inflated in FY25
·7· ·through FY28 based on analysis of Regional
·8· ·Engineering News record construction costs index
·9· ·data.
10· · · · A· · Yes.
11· · · · Q· · Can you explain that statement, please?
12· · · · A· · Sure, the engineering estimates are done
13· ·in a set year dollars.· So, they're done, I believe,
14· ·in FY23 dollars off the top of my head.· And so when
15· ·we look -- well, how much dollars is that
16· ·project actually going to cost FY25, '26, '27, '28,
17· ·they need to be inflated based on what the inflation
18· ·and construction will be.· So, we use Engineering
19· ·News Records, probably the most recognized general
20· ·construction and inflation data, then we actually
21· ·use a region specific -- one specific to this region
22· ·in St. Louis as this --
23· · · · Q· · What type of study was specific to this
24· ·region?· You mean --
25· · · · A· · The collection data.
Page 147
·1· · · · Q· · Okay.
·2· · · · A· · E&R collects data specific to this region.
·3· ·It's not just -- it's not -- so it doesn't include
·4· ·New York --
·5· · · · Q· · Got it.
·6· · · · A· · It doesn't include California, for
·7· ·example.
·8· · · · Q· · Thank you.· With respect to the cost of
·9· ·service analysis, you testified stating that, "The
10· ·goal is to achieve general fairness in the recovery
11· ·of costs from various classes of customers."
12· · · · A· · Yes.
13· · · · Q· · Is it your opinion that the rate change
14· ·proposal considers the financial impact of all -- on
15· ·all classes of ratepayers in determining a rate and
16· ·reasonable burden?
17· · · · A· · Yes.
18· · · · Q· · Can you explain how that does this?
19· · · · A· · It examines factors for the different
20· ·class of customers to accomplish that, such as, you
21· ·know, the amount of inflow infiltration volume
22· ·versus connection, which recognizes, you know,
23· ·difference -- differences in customer classes.· If
24· ·there's large commercial customers who contribute a
25· ·lot more volume than the number of connections they
Page 148
·1· ·have.· And then it also examines strength as
·2· ·Mr. Stannard talked about, and that's a component
·3· ·this assures customer classes are paying their
·4· ·appropriate share.
·5· · · · · · · · · Although at the end of day, as Mr.
·6· ·Stannard also just explained, we have the same rate
·7· ·for the commercial versus industrial.· There are
·8· ·differences in the base versus volume charges that
·9· ·help the rate structure address those class
10· ·differences.
11· · · · Q· · In your cost of service analysis, only
12· ·fiscal year '25 was used; is that correct?
13· · · · A· · We used a test year of fiscal year '25,
14· ·which is what the District has historically done.
15· ·There are different approaches that can be used.
16· ·You can use multiple test years.· We could have done
17· ·test years for '25, '26, '27, '28 projecting out
18· ·what we believe the test years will like look like.
19· ·But what has been done since before we were
20· ·consulted to the Commission and we continued to do,
21· ·is use that single test year, so the fiscal year '25
22· ·test year is about -- you know, we're in fiscal year
23· ·'23 now, so we're looking ahead two years.· We set
24· ·the rates and for the following three years, we do
25· ·what are called across-the-board increases, which is
Page 149
·1· ·basically saying, well, the District needs seven and
·2· ·a half percent more revenue in FY26 versus '25, so
·3· ·we'll raise the rates by seven and a half percent
·4· ·against all the charges for the District.
·5· · · · · · · · · And really, to some extent, that just
·6· ·recognizes the fact that everything we do is
·7· ·projections.· You know, if we project out the test
·8· ·year for the next four years, it is not going to be
·9· ·100 percent accurate.· So, it's trying not to, as I
10· ·like to put you, you know, you can -- you can to try
11· ·make a distinction that really doesn't exist.· You
12· ·know, you can try to put too fine a point on things.
13· · · · Q· · And is the way the District does it, is
14· ·that a common way?
15· · · · A· · Yes.· It's pretty common to use a single
16· ·test year.· There are some, I would say it's a
17· ·minority, small percentage will use multiple test
18· ·years but more -- more common is just to use the
19· ·same test and then do across the board like the
20· ·District does.
21· · · · Q· · Thank you.· On page 8, you state the
22· ·results of the cost of service, quote, "Show the
23· ·amount by which each class as a whole is being under
24· ·recovered relative to the District's revenue
25· ·requirements for fiscal year '25."· Can you explain
Page 150
·1· ·that for me, please?
·2· · · · A· · Well, that's an analysis that we typically
·3· ·do when we do a cost service study like this, which
·4· ·is to look, say, here's how much revenue we would
·5· ·generate in '25 if we charged the same rates in '25.
·6· ·But in our case, we have '24 approved rates, but if
·7· ·we charge the '24 approved rates in '25, we would
·8· ·be -- we not recover enough money to meet the
·9· ·revenue requirements that we project in '25, and
10· ·then you can examine the differences between the
11· ·classes and where that under recovery is coming
12· ·from.
13· · · · Q· · Thank you.· A couple other questions. I
14· ·think you're going be to able tell that they didn't
15· ·come from me.
16· · · · · · · · · In -- in MSD 68-A, question 10, page
17· ·5, the District indicates the volume was projected
18· ·based on an analysis of the trend and total volume
19· ·in past years, but in the demand tab of the rate
20· ·model, you separately project customer accounts at
21· ·various rates depending on a customer class.
22· · · · · · · · · Did you conduct an analysis of volume
23· ·per customer for the historical data?· And if so,
24· ·does the resulting volume per customer by class in
25· ·the current rate model reflect the historical volume
Page 151
·1· ·per customer?· Want me to read it again?
·2· · · · A· · I have to --
·3· · · · Q· · You want to submit it in writing?
·4· · · · A· · I would suggest you submit that in
·5· ·writing --
·6· · · · Q· · Okay.
·7· · · · A· · -- to make sure that I can answer that as
·8· ·accurately as possible.
·9· · · · Q· · Okay, thank you.· And then can you explain
10· ·the rationale for projecting annual decreases in
11· ·both TSS and BOD/COD extra strength loadings
12· ·starting in fiscal year 2024 at 6.2 percent and
13· ·escalating to decreases of 12.3 by fiscal year 2032?
14· · · · A· · So, that was primarily based on an
15· ·analysis the District has done that we kind of --
16· ·that we reviewed as part of this project.· And it's
17· ·the historical trend.· When we look at the past 10
18· ·years, surcharge volumes have been decreasing at
19· ·what I could characterize as a fairly significant
20· ·rate, the percentages that you mentioned.· So, it
21· ·matches what we have seen over a 10-year period, so
22· ·it's not even a very short period, because, quite
23· ·frankly, that was a concern is -- it's -- it has a
24· ·big impact, especially on surcharge rates.· The
25· ·volumes have been -- that's -- not, well, they are
Page 152
·1· ·volumes as well, but the loadings have been
·2· ·decreasing.
·3· · · · Q· · But the fiscal year '22-'23 data indicates
·4· ·an increase of 13.54 percent in TSS and an increase
·5· ·of 3.68 increase in BOD/COD extra strength.
·6· · · · A· · I have to look see what caused that. I
·7· ·know there were some Covid things that caused --
·8· · · · Q· · Oh.
·9· · · · A· · -- some short-term impacts in recent
10· ·years.· You know, even in '22 -- you know, '22 is
11· ·the fiscal year starting July 1, 2021, so there were
12· ·still Covid impacts in the, you know, that were
13· ·occurring at those times.
14· · · · · · ·MS. STUMP:· Okay, thank you.· If we need
15· · · · to follow up in writing, we will.· I have no
16· · · · further questions.
17· · · · · · ·CHAIRMAN TOENJES:· Thank you, Ms. Stump.
18· · · · Questions from any of the rate commissioners
19· · · · for Mr. Beckley?
20· ·QUESTIONS BY CHAIRMAN TOENJES:
21· · · · Q· · Mr. Beckley, I have one question.
22· ·Mr. Stannard mentioned the Standard Industrial
23· ·Classifications as a new model.· Is that a -- is it
24· ·a new model, and is it a model that is gaining
25· ·traction?· Is it something that you see the trend
Page 153
·1· ·will continue to grow or is this --
·2· · · · A· · I don't recall him saying it was a new
·3· ·model.· It was model that I'm aware of.· I have seen
·4· ·utilities that have -- that use it.· I'm not aware
·5· ·in the 22 years I've been doing this, any new
·6· ·utilities going to that model, but there is
·7· ·certainly as he mentioned, California does it.· We
·8· ·did a little bit of work with ALCOSAN at one point,
·9· ·which is the Allegheny County Sanitary Authority,
10· ·where they were looking at something like that.· And
11· ·they eventually decided to discard the idea.· But I
12· ·would not say it's something that is growing.· It is
13· ·something that exists.· It's not unreasonable, you
14· ·know, hey -- basically, it says, hey, a bakery will
15· ·generate this much waste versus a dry cleaner versus
16· ·a laundry mat.· It looks at different loading but it
17· ·does heavily depend on estimates of what the
18· ·loadings are.
19· · · · · · · · · And, ultimately, there is a
20· ·pretreatment program and in a lot of cases, you
21· ·know, a lot of those places are supposed to have
22· ·intercepters or grease intercepters or something
23· ·else that limits those loadings onto the system
24· ·anyway.· And you're acknowledging really that
25· ·they're not doing what they're supposed to if you
Page 154
·1· ·say, well, they're contributing higher volumes -- or
·2· ·higher loads, and it's like in some cases, well,
·3· ·they shouldn't be.
·4· · · · Q· · What's the current method for determining
·5· ·whether I'm in or out of that program?
·6· · · · A· · That would be much a better question
·7· ·for -- for Bret, right?· Just how do people get
·8· ·in -- it would have to do with the tiers, I mean.
·9· ·Well, I think you're talking about whether or not we
10· ·monitor them, right?
11· · · · Q· · Correct.
12· · · · A· · Whether or not they're monitored, is
13· ·whether they're tier -- well --
14· · · · Q· · We'll submit it in writing.
15· · · · A· · Because, ultimately, that's what you're
16· ·getting at, is how they get into the different tiers
17· ·or compliance tiers.
18· · · · · · ·CHAIRMAN TOENJES:· Right.· Are there any
19· · · · other questions for Mr. Beckley from any of the
20· · · · other rate commissioners?· Anyone online?
21· · · · Ms. Stump?· Ms. Myers?· Are there any other
22· · · · matters before the Rate Commission before we
23· · · · consider a motion to adjourn?· I believe our
24· · · · next meeting is scheduled for May 30 at
25· · · · 9:30 a.m.
Page 155
·1· · · · MS. MYERS:· There may be some public
·2· ·hearings.
·3· · · · CHAIRMAN TOENJES:· Ms. Croyle, go ahead.
·4· · · · MS. CROYLE:· We may have some public
·5· ·hearings.· Those schedules are coming out, but
·6· ·they're trying to get them set up, so there may
·7· ·be some before May 30.
·8· · · · CHAIRMAN TOENJES:· So, we would like for
·9· ·all the rate commissioners to watch for you and
10· ·communications from Mr. -- Mr. LaCombe to be on
11· ·point.· We're working on it.· We'll have dates
12· ·shortly.
13· · · · MR. PALANS:· Mr. Chairman?
14· · · · CHAIRMAN TOENJES:· Mr. Palans.
15· · · · MR. PALANS:· I have the microphone.· My
16· ·understanding is that the May 30 and May 31
17· ·dates are dedicated to Rate Commission Rebuttal
18· ·Testimony.· In the past, we've had intervenors
19· ·that have offered such rebuttal testimony.· We
20· ·do not have any intervenors joining us in this
21· ·rate proposal.· So, my question is: what kind
22· ·of rebuttal testimony are we thinking about
23· ·here?
24· · · · CHAIRMAN TOENJES:· It's only the 30th that
25· ·would be a presentation from our rate
Page 156
·1· ·consultants based on the information that we
·2· ·have obtained over the last couple of days,
·3· ·plus questions promulgated by the District.
·4· · · · MS. STUMP:· Correct.· They will be filing
·5· ·their written testimony.
·6· · · · CHAIRMAN TOENJES:· So, in summary, between
·7· ·now and May the 30th we will receive the
·8· ·testimony from our rate consultants.· There may
·9· ·be several public hearings, and then we will
10· ·reconvene on the 30th with the total testimony.
11· · · · MS. STUMP:· Correct.· And the only thing
12· ·is we will be submitting another Discovery
13· ·request.
14· · · · CHAIRMAN TOENJES:· Ms. Croyle?
15· · · · MS. CROYLE:· Yes, Public Affairs would
16· ·also appreciate if we're going to be sending
17· ·out information from lands that they're
18· ·developing, on the public hearings, trying to
19· ·get it out to our networks.· So, if you have
20· ·networks that you could e-mail the information,
21· ·please do that to spread the word and encourage
22· ·people to participate.
23· · · · CHAIRMAN TOENJES:· Yes, since everyone on
24· ·the Rate Commission is representing an
25· ·organization, distribution of those -- that
Page 157
·1· · information to the organization you represent
·2· · or entity you represent would be most helpful.
·3· · · · ·MS. CROYLE:· Also, your church or
·4· · religious organizations also are useful.
·5· · · · ·MR. GOSS:· Commissioner Croyle, you passed
·6· · that already onto our representative that's
·7· · participating -- okay, just wanted to make
·8· · sure.
·9· · · · ·CHAIRMAN TOENJES:· Any other matters
10· · before the Rate Commission before we adjourn?
11· · I believe one of the highest honors that any
12· · rate commissioner can ascend to is to be the
13· · first to make a motion to adjourn.
14· · · · ·MR. STEIN:· So motioned.
15· · · · ·CHAIRMAN TOENJES:· Thank you, Mr. Stein.
16· · Is there any discussion on the motion?
17· · · · ·MR. GOSS:· None.
18· · · · ·CHAIRMAN TOENJES:· All in favor signify by
19· · saying aye.
20· · · · · · · · ·(Multiple ayes.)
21· · · · ·CHAIRMAN TOENJES:· Opposed?· Abstained?
22· · We are adjourned until 9:30 on May the 30th.
23· ·(The Commission was adjourned at 1:49 p.m.)
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·1· · · · · · · · ·CERTIFICATE OF REPORTER
·2· · · · ·I, Colin Wallis, do hereby certify that the
·3· ·record was taken by me to the best of my ability and
·4· ·thereafter reduced to typewriting under my
·5· ·direction; that I am neither counsel for, related
·6· ·to, nor employed by any of the parties to the action
·7· ·in which this record was taken, and further that I
·8· ·am not a relative or employee of any attorney or
·9· ·counsel employed by the parties thereto, nor
10· ·financially or otherwise interested in the outcome
11· ·of the record.
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16· · · · · · · ______________________________
17· · · · · ·Within and for the State of Missouri
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