HomeMy Public PortalAboutExhibit RC 101- Rate Commission Pre-Hearing ConferenceBEFORE THE RATE COMMISSION OF THE
METROPOLITAN ST. LOUIS SEWER DISTRICT
For Consideration of a )
Stormwater &Wastewater Rate Change )
Proposal by the Rate Commission of the )
Metropolitan St. Louis Sewer District )
PREHEARING CONFERENCE REPORT OF
BLACK & VEATCH, RATE CONSULTANT,
AND LASHLY & BAER, P.C.,
LEGAL COUNSEL TO THE RATE COMMISSION
Black & Veatch and Lashly & Baer, P.C., as Rate Consultant and Legal Counsel,
respectively, to the Rate Commission of the Metropolitan St. Louis Sewer District (“Rate
Commission”), respectfully submit this Prehearing Conference Report regarding the Stormwater
and Wastewater Rate Change Proposal (“Rate Change Proposal”) submitted to the Rate
Commission by the Metropolitan St. Louis Sewer District (the “District”) on March 24, 2023, Ex.
MSD 1.
The Rate Commission is to determine whether the Rate Change Proposal or any Alternative
Proposal meets the criteria for recommendation contained in §§ 7.040 and 7.270 of the Charter
Plan.
The Prehearing Conference Report is to identify, define, resolve or settle the issues raised
by the prepared testimony and to describe the participant’s position, if any, on each of the criteria
and factors for recommendation.
THE DISTRICT RATE CHANGE PROPOSAL
Wastewater
The District’s Rate Change Proposal was presented to the Rate Commission on March 24,
2023. It sets forth the District’s proposal to use a combination of means, including issuing
Exhibit RC 101
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additional revenue bonds and increasing wastewater user charges, to fund its Capital Improvement
and Replacement Program (“CIRP”) for Fiscal Year (“FY”) 2025 through FY 2028; to provide the
funds needed to comply with regulatory requirements relating to deficiencies in the District’s
wastewater system, including sewers, pump stations, and treatment plants; and to satisfy the
requirements of the Consent Decree in the matter captioned United States of America, the State of
Missouri and the Missouri Coalition for the Environment Foundation vs. the Metropolitan St.
Louis Sewer District. On July 15, 2011, the District entered into a Consent Decree program with
the United States Environmental Protection Agency (the “EPA”), the State of Missouri and the
Missouri Coalition for the Environment Foundation obligating the District to invest $4.7 billion
(in 2010 dollars) over a 23-year period in activities described in the Consent Decree (“Consent
Decree”). See Ex. MSD 37.
The proposed wastewater rate increases to fund the CIRP are set forth in Table 4-18 of the
Rate Change Proposal. See Ex. MSD 1, p. 4-36. The estimated CIRP for the rate cycle FY 2025
through FY 2028 is approximately $1.65 billion. See Ex. MSD 1, p. 4-15. The District proposes
to finance the required capital improvements by a combination of wastewater user charg e
revenues, available fund balances, senior revenue bonds, Water Infrastructure Finance and
Innovation Act (“WIFIA”) loans, Missouri State Revolving Fund (“SRF”) loans, grants and
contributions, and interest income. See Ex. MSD 1, p. 4-17. To adequately fund the CIRP, the
District proposes wastewater rate increases averaging 7.25% per year over the rate cycle. See Ex.
MSD 1, p. ES-2. In order to meet its projected debt obligations under this proposal, the District
will be required to obtain an additional bond authorization in the amount of $750 million before
the start of FY 2025. See Ex. MSD 1, p. 4-25. The impact of the Rate Change Proposal upon
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wastewater rates, if principally funded by bond financing, is described in Ex. MSD 1, p. 4-36,
Table 4-18.
In the event that voters of the District do not approve additional bond financing for the
CIRP, the District proposes cash financing in order to comply with the terms of the Consent
Decree. The impact of the Rate Change Proposal upon wastewater rates, if principally funded by
cash financing, is described in Ex. MSD 1, p. 7-4 and Table 7-3.
Stormwater
For stormwater, the Rate Change Proposal proposes to add: (1) for residential property
within the District, an ad valorem property tax of $0.0745 per $100 of assessed valuation; and (2)
for non-residential property, an impervious surface charge of $1.05 pe r 1,000 square feet of
imperious area. See Ex. MSD 1, p. 5-6. The Stormwater Rate Change Proposal would fund only
capital improvement projects, rather than operations and maintenance, which are financed through
an existing 10-cent property tax, and regulatory expenses, which are funded through an existing 2-
cent property tax. The stormwater ad valorem property tax and impervious surface charge would
collectively generate approximately $34 million annually to finance these capital improvements,
with the residential tax generating approximately $19.3 million per year, and the non-residential
impervious surface charge generating approximately $14.8 million per year. See Ex. MSD 1, p. 5-
6. The District intends to seek voter approval for both the ad valorem property tax and the
impervious surface charge. See Ex. MSD 1, p. 5-8.
STANDARD FOR RECOMMENDATION
Upon receipt of a Rate Change Notice from the District, the Rate Commission is to
recommend to the District’s Board changes in a wastewater, stormwater, or tax rate necessary to
pay: (i) interest and principal falling due on bonds issued to finance assets of the District; (ii) the
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costs of operation and maintenance; and (iii) such amounts as may be required to cover
emergencies and anticipated delinquencies. See Charter Plan, § 7.040.
Any change in a rate recommended to the Board by the Rate Commission pursuant to
§ 7.270 of the Charter Plan is to be accompanied by a statement of the Rate Commission that the
proposed rate change: (i) is consistent with constitutional, statutory, or common law as amended
from time to time; (ii) enhances the District’s ability to provide adequate sewer and drainage
systems and facilities, or related services; (iii) is consistent with and not in violation of any
covenant or provision relating to any outstanding bonds or indebtedness of the District; (iv) does
not impair the ability of the District to comply with applicable Federal or State laws or regulations
as amended from time to time; and (v) considers the financial impact on all classes of ratepayers
in determining a fair and reasonable burden. See Charter Plan, § 7.270.
The Prehearing Conference Report is to identify, define, resolve or settle the issues raised
by the prepared testimony and to describe the participant’s position, if any, on each of the criteria
and factors for recommendation. See Ex. RC 67, p. 8.
The issues raised by the prepared testimony1 relate primarily to the criteria set forth in
§ 7.270(v) of the Charter Plan – whether the Rate Change Proposal considers the financial impact
on all classes of ratepayers in determining a fair and reasonable burden.
The Rate Commission, in its Rate Recommendation Report, will be required to provide
affirmative support that its rate recommendation meets each of the criteria. Although the issues
1 At the Prehearing conference on August 1, 2023, we identified as a potential issue the Fluidized Bed
Incinerators, the timing/costs of construction of the incinerators, and the methodology of treating bio -solids,
to be considered herein and in the Rate Commission’s final report. The District has since info rmed us that
the Board of Trustees has already approved an ordinance to authorize a contract for the work on the Fluidized
Bed Incinerators. Thus, whether these projects are appropriate is less salient of an issue than it would be if
those projects were directly tied to the Rate Change Proposal. We do not intend to address these projects in
the Rate Recommendation Report unless the Rate Commission requests that we do so.
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herein are discussed primarily in the context of compliance with § 7.270(v), the issues may also
affect the discussion of compliance with the other factors and criteria in §§ 7.040 and 7.270.
EXTRA STRENGTH SURCHARGES
The Rate Change Proposal includes a significant increase in wastewater extra strength
surcharges. See Ex. MSD 1, p. 4-36; pgs. 4-38–4-39. Extra strength surcharges are applied to
wastewater loadings that exceed normal strength limits of 300 mg/l for suspended solids and 300
mg/l for Biological Oxygen Demand (“BOD”) or 600 mg/l for Chemical Oxygen Demand
(“COD”). See Ex. MSD 1, pgs. 4-38–4-39. The Rate Change Proposal notes that the significant
increase is driven primarily by the capital cost associated with the District’s fluidized bed
incinerators, and the fact that “units of service for extra strength BOD and COD decreased by 15%
and TSS [Total Suspended Solids] decreased by 13% from FY 2018 through FY 2022. These
factors result in an increase in rates that is larger than other rate components.” See Ex. MSD 1,
pgs. 4-39.
The District intends to adjust the extra strength surcharge rates to cost of service, rather
than phasing-in the increase over a period of time. It is the District’s position that it is appropriate
to set rates based on cost of service, rather than phase-in the increases. Mr. Thomas Beckley
testified that if “the proposed rate increases … are phased-in rather than congruent with the timing
of the proposed rate changes, other customers not subject to those extra strength surcharges,
including residential customers will bear a greater portion of those costs which will create a
subsidy by those customers to the extra strength customers.” See Ex. MSD 84B, p. 1; ll. 6-10.
It is the Rate Consultant’s position that the District should strongly consider phasing in the
surcharge rates over at least a two-year period. See Ex. RC 78, pg. 27, ll. 23; p. 28; ll. 1-2. Ms.
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Pamela Lemoine notes that the TSS increase is 105% of the existing rate. See Ex. RC 78, pg. 27,
ll. 22. She states that phasing-in such increases “would mitigate potential ‘rate shock’ that could
accelerate industrial customers to additional pre-treatment or other operational changes that would
reduce the District’s revenues further. Such a phase-in would require the District to adjust other
rate components, including the Base Charges, Volume Charges, and Compliance Charges, to
provide full revenue recovery.” See Ex. RC 78, pg. 28, ll. 1-5.
Mr. Beckley responded at the surrebuttal technical conference that a phase-in approach
would result in other customers subsidizing extra strength surcharge customers by approximately
$1.2 million, with $750,000 of such cost being borne by residential customers. See Ex. MSD 84B,
p. 1, ll. 10-12. In the surrebuttal technical conference, Mr. Beckley noted that this translates to
approximately an additional $0.11 per month for typical residential ratepayers. See Ex. MSD 92,
p. 62, ll. 20-25; p. 63, ll. 1-5. Mr. Beckley noted that the District made a decision to limit the
impact on residential bills, rather than requiring residential ratepayers to bear the burden of the
increase. See Ex. MSD 92, p. 65, ll. 3-4, 14-19.
STORMWATER GRANT PROGRAM
The Stormwater Rate Change Proposal, consisting of an ad valorem tax on residential
properties, and an impervious surface charge for non-residential properties, is anticipated to
generate approximately $34 million per year. See Ex. MSD 1, p. 5-6. The District intends to spend
50% of the revenue on stormwater capital projects Districtwide on a prioritized basis, a goal of
providing 30% of the revenues to the municipalities as grants, a goal of spending 10% of the
revenues on capital projects in designated Environmental Justice areas, and 10% of the revenues
on projects identified by the District and an area-wide advisory committee, such as a special
committee of the Municipal League of Metro St. Louis. See Ex. MSD 1, pgs. 5-9–5-10.
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The 30% to be used as municipal grants was a topic of discussion during technical
conferences of the Rate Commission. The District proposes to group municipalities based on
population into 7 groups. See Ex. MSD 1, p. 8-83. The smallest municipalities would be eligible
for grants of $30,000 annually, while the most populated municipalities would be eligible for
$300,000 annual grants. See Ex. MSD 1, p. 8-83. Typical eligible projects and proposed groupings
of municipalities are set forth in Section 8-18 of Ex. MSD 1.
The Rate Consultant testified that the District’s goal to allocate 30% of the revenues for
municipal grants was appropriate. See Ex. RC 77, p. 15, ll. 10-17. However, Ms. Anna White
stated that using population to determine a municipality’s eligibility for grants has the result of
favoring bedroom communities, at the expense of municipalities with lots of impervious area and
commercial uses. See Ex. RC 77, p. 15, ll. 10-17. She states that the “District should consider a
methodology based on a blend of both population and impervious area for allocating grant funding
to municipalities.” See Ex. RC 77, p. 15, ll. 10-17.
The District responded that it made the decision to allocate grants based on population
because it is “a more simplistic and commonly used approach to the grant allocation. We found
that population and income level are common models for government grant allocation….
Distribution by population plus impervious area … was never considered. This type of allocation
would require considerable and sometimes complex calculation for 89 municipalities, St. Louis
County and the City of St. Louis.” See Ex MSD 84A, p. 1, ll. 19-25; p. 2, ll. 1-3. The District
further expressed at the prehearing conference that using impervious area to determine grant
eligibility could create an incentive to retain and add impervious area.
As part of the Stormwater Rate Change Proposal, the existing OMCI subdistricts with a
current tax assessment would have their tax rates set to zero, with the remaining fund balances to
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be used to plan, design, and construct needed capital improvements within such district, until the
funds are depleted. See Ex. MSD 3C, p. 7, ll. 16-19. During the technical conference for direct
testimony, it was noted that some municipalities may receive less revenue through the proposed
grant program than they currently receive through their OMCI districts. See Ex. MSD 74, p. 132,
ll. 17-25; p. 133, ll. 1-2. The District expressed openness to permitting some of these OMCI
subdistricts that may wish to continue to levy a tax to do so. See Ex. MSD 74, p. 124, ll. 19-20.
The District stated at the prehearing conference that it is open to making modifications to
the proposed grant program so long as the changes are consistent with the District’s goals as
identified in the Rate Change Proposal. The District does not wish to use a competitive selection
process and prefers to give municipalities some discretion to set priorities for themselves.
STORMWATER CREDIT PROGRAM
The Rate Change Proposal presented to the Rate Commission did not include a credit
program. The Rate Consultant recommended that the District consider implementing such a
program to mitigate the business impact on large non-residential customers. Ms. Anna White
testified that a “credit program can be a component of the non-residential stormwater charge….
The program would offer non-residential customers an opportunity to reduce their stormwater fee
by implementing an onside best management practice structure to control volume and peak flow
reduction of stormwater and water quality.” See Ex. RC 77, p. 20, ll. 10-16.
The District testified that it “chose not to propose credit for stormwater BMP’s with its
program for several reasons. With the proposed rate structure being a combined property tax
(residential) and impervious area-based charge (non-residential), and the inability to provide for
partial or full ‘tax credit’, the District would be unable to equitably allow for stormwater credits
for both classes of customers.” See Ex. MSD 84A, p. 5, ll. 9-13. Additionally, such a program
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would lead to lost revenue. See Ex. MSD 84A, p. 5, ll. 13-14. However, Richard Unverferth
testified that the District “would support implementation of a 50% credit program of captured
impervious area for detention basins managing stormwater quantity when sized for the MSD
regulatory volume criteria…. This program would apply to non-residential customers only.” See
Ex. MSD 84A, p. 6, ll. 11-17.
STORMWATER CAPITAL RATE – VACANT NON-RESIDENTIAL PROPERTY
Under the Rate Change Proposal, the District would not assess the stormwater capital rate
to vacant non-residential property with no impervious surface. Vacant residential property would
be subject to the ad valorem stormwater tax. It is the Rate Consultant’s position that the District
should consider assessing the stormwater capital rate to vacant non-residential property. Ms. Anna
White testified that “The District has only included parcels with visual improvements. It excluded
parcels with no impervious area features that may have surfaces such as compacted dirt that restrict
infiltration and therefore, still contribute stormwater runoff. Excluding these types of improved
vacant land parcels completely from stormwater billing could potentially impact the equity of cost
recovery, as these types of improved vacant land also contribute some level of stormwater runoff,
especially during high intensity wet weather events. Rather than completely exclude such parcels
from impervious area determination, the District could have considered estimating an effective
impervious area by applying a reasonably low runoff factor to the parcel lot size.” See Ex. RC 77,
p. 19, ll. 10-18.
The District did not consider assessing vacant non-residential properties, primarily due to
the administrative burdens associated with developing and assessing an “effective” impervious
area rate for such properties. “For many reasons – including cost to administer and implement,
simplicity and objectivity, ability for our customers to better understand, and because additional
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runoff beyond that occurring naturally is a direct function of impervious area – the District decided
then to base the stormwater user charge solely on the amount of impervious area on a property.”
See Ex. MSD 84A, p. 2, ll. 19-23. Mr. Unverferth noted that there are approximately 32,000 non-
residential parcels, of which 4,400 are vacant. See Ex. MSD 84A, p. 4, ll. 8-10. “Performing
effective impervious area calculations, along with the potential for customer appeals and on-site
validations on 4,400 or possibly 32,000 parcels would be unduly burdensome and add
disproportionate cost to the administration of the program. It is estimated to require a minimum of
2-3 FTEs to coordinate, validate, and effectively manage this implementation.” See Ex. MSD 84A,
p. 4, ll. 12-16. Additionally, he noted that the District has “found that even explaining impervious
area measurements to be challenging, and this is far more technical to address with customers.”
See Ex. MSD 84A, p. 5, ll. 1-2.
LEGAL AUTHORITY FOR AND FAIRNESS OF PROPOSED RATES
The Rate Commission is required to include in its Rate Recommendation Report a
statement as to whether the Rate Change Proposal “is consistent with constitutional, statutory, or
common law as amended from time to time….” As to wastewater, while increases in rates are
proposed, the District is not proposing to meaningfully alter the methodology (for both metered
and non-metered customers) from what was found to be permissible in Missouri Growth Ass’n v.
Metro. St. Louis Sewer Dist., 941 S.W.2d 615, 624 (Mo. App. E.D. 1997). The District has
authority under § 3.020(16) of the Charter Plan to “establish by ordinance a schedule of rates,
rentals, and other charges, to be collected from all the real property served by the sewer facilities
of the District.”
Similarly, the District has authority under § 3.020(16) to “levy, assess, and collect from all
taxable property within the District….” The District is proposing an ad valorem tax on residential
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property to fund stormwater capital projects. See Ex. MSD 1, p. 5-9. While the Charter (Plan)
provides authority for such a tax, the District will need to consider the applicability of § 204.700,
RSMo.
Section 204.700, RSMo provides that “[n]o person who owns real property that is used for
residential purposes within the boundaries of any district created under Section 30 of Article VI of
the Missouri Constitution shall be assessed any fee, charge, or tax for storm water management
services if the district does not directly provide sanitary sewer services to such property and if the
storm water runoff from such person’s property does not flow, or is not otherwise conveyed, to a
sewer maintained by such district.” If valid, this statute would prohibit the District from assessing
the ad valorem stormwater tax on those properties within the District that do not have sanitary
sewer service from the District, and that do not generate runoff that flows or is conveyed to the
District’s sewers.
During the 2018 Stormwater Rate Change proceeding, it was the District’s position that
this statute is an invalid special law in violation of Art. III, § 40 of the Missouri Constitution, that
the bill enacting this statute violated the single-subject requirement in Art. III, § 23 of the Missouri
Constitution, and that the statute conflicts with the Charter (Plan), and is, thus, preempted. Ms.
Myers testified that the District’s position remains that § 204.700 is unconstitutional and is
preempted by the Charter (Plan). See Ex. MS 74, p. 31, ll. 2-14.
In 2018, the Rate Commission considered the applicability of § 204.700, and concluded in
its Rate Recommendation Report, that the stormwater charge at issue in that Rate Change
Proceeding was consistent with constitutional, statutory, and common law, as amended from time
to time. See Ex. MSD 6, p. 74.
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Under the Stormwater Rate Change Proposal, non-residential property would be charged
based on the amount of impervious surface on their property. See Ex. MSD 1, p. 5-9. This would
be a new charge, and a new service to be performed by the District. Impervious surface charges
have been proposed in previous rate cycles. The District cites to § 3.020(16) of the Charter Plan to
“establish by ordinance a schedule of rates, rentals, and other charges,” as authority to collect and
charge an impervious surface charge. The impervious surface charge poses several questions for
the Rate Commission to consider in its Rate Recommendation Report.
The District intends to seek voter approval for the impervious surface charge for non-
residential property (as well as the ad valorem tax for residential property). See Ex. MSD 74, p.
17, ll. 2-4. This will remove the legal issue which led to the invalidation of a previous impervious
surface charge proposed by the District in Zweig v. Metro. St. Louis Sewer Dist., 412 S.W.3d 223,
236 (Mo. banc 2013). In Zweig, the Missouri Supreme Court ruled that the impervious surface
charge proposed by the District was not a user fee, but was a tax that must be approved by the
voters under the Hancock Amendment, Art. X, §§ 16-24 of the Missouri Constitution.
It is the District’s position that because it intends to seek voter approval of the impervious
surface charge, the Keller2 factors – which courts use to evaluate whether a charge or remuneration
to a political subdivision is a user fee or a tax – are not relevant. Ms. Susan Myers testified that if
the impervious surface charge were later determined to be a tax, the impervious surface charge
would likely not apply to government properties and non-profits, even if voter approval were
obtained. See Ex. MSD 74, p. 39; ll. 6-11. Government property is exempt from taxation by Art.
X, § 6 of the Missouri Constitution, while property owned by non-profits is exempt by
§ 137.100(5), RSMo.
2 Keller v. Marion Cnty. Ambulance Dist., 820 S.W.2d 301, 304 (Mo. banc 1991).
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The differing funding mechanisms proposed by the District for residential and non-
residential properties also raise some fairness questions which bear on the fifth factor in the Charter
(Plan); whether the Rate Change Proposal “considers the financial impact on all classes of
ratepayers in determining a fair and reasonable burden.” See Charter Plan, § 7.270. For instance,
a vacant residential property with no impervious surface would be subject to the ad valorem
property tax, while a vacant non-residential property with no impervious surface would not be
subject to the stormwater capital rate. See Ex. RC 77, p. 19, ll. 10-15. A large residential property
with lots of impervious area would likely pay less than a commercial property with similar
dimensions and impervious area. See Ex. RC 77, p. 19, ll. 20-23; p. 20, ll. 1-9. A non-profit
residential property would not be subject to the ad valorem property tax, while non -profit
commercial property would be subject to the impervious surface charge. See Ex. MSD 92, p. 68,
15-24.
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Respectfully submitted,
LASHLY & BAER, P.C.
By /s/ Lisa O. Stump
Lisa O. Stump
Brian J. Malone
714 Locust Street
St. Louis, Missouri 63101
Tel: 314-621-2939
Fax: 314-621-6844
Email: lostump@lashlybaer.com
Email: bmalone@lashlybaer.com
BLACK & VEATCH
Ms. Anna White
11401 Lamar Avenue
Overland Park, Kansas 66211
Tel: 913-458-3025
Fax: 913-458-3579
Email: whiteam@bv.com
BURNS & MCDONNELL
Ms. Pamela Lemoine
425 S. Woods Mills Road, Suite 300
Chesterfield, Missouri 63017
Tel: 314-336-6320
Fax: 314-682-1600
Email: pam.lemoine@1898andco.com
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CERTIFICATE OF SERVICE
The undersigned certifies that a copy of the foregoing was sent by electronic transmission
to Stephanie DeJarnette, Office Associate Senior, Metropolitan St. Louis Sewer District; Susan
Myers, Counsel for the Metropolitan St. Louis Sewer District, and Diana Plescia, Counsel for
Intervenor Missouri Industrial Energy Consumers, on this 7th day of August, 2023.
Ms. Stephanie DeJarnette
Office Associate Senior
Metropolitan St. Louis Sewer District
2350 Market Street
St. Louis, MO 63103
sdejarnette@stlmsd.com
Ms. Susan Myers
General Counsel
Metropolitan St. Louis Sewer District
2350 Market Street
St. Louis, MO 63103
smyers@stlmsd.com
Ms. Diana Plescia
Curtis, Heinz, Garrett & O’Keefe, P.C.
130 S. Bemiston Ave., Suite 200
Clayton, Missouri 63105
dplescia@chgolaw.com
/s/ Brian J. Malone
Brian J. Malone