HomeMy Public PortalAboutExhibit MIEC 107- Comments of Michael P. GormanBEFORE THE
RATE COMMISSION OF
THE METROPOLITAN ST. LOUIS SEWER DISTRICT
2023 Stormwater and Wastewater
Rate Change Proceeding
Comments of
Michael P. Gorman
On behalf of
Missouri Industrial Energy Consumers
August 7, 2023
Project 11437
Exhibit No.:
Witness:
Type of Exhibit:
Sponsoring Party:
Date Comments Prepared:
Michael P. Gorman
Comments
Missouri Industrial Energy Consumers
August 7, 2023
Exhibit MIEC 107
Michael P. Gorman
MIEC Comments
Page 1
BRUBAKER & ASSOCIATES, INC.
I am here representing MIEC, which is a consortium of large industrial customers of the
MSD.
MIEC’s participation in MSD rate matters spans back more than 20 years.
1. MIEC was involved in rate matters at the very beginning of the Consent
Decree, advising the Rate Commission on the merits and the weaknesses of
MSD Staff’s recommended rate changes. Based on this involvement, MIEC
believes we have been instrumental in supporting the Rate Commission’s
decision to reduce the Staff’s requested rate increases in virtually every rate
filing it has made for the last 20 years.
2. We believe in those Rate Commission decisions, MSD’s proposed rate
increases have consistently been reduced anywhere from 10% to 40% of
what the MSD Staff proposed in each of those rate filings.
3. Despite those rate adjustments, MSD has successfully built out its
infrastructure improvements to meet its Consent Decree obligations as well
as take on additional capital expenditure programs. All of this has been done
with MSD maintaining strong credit standing, and maintaining strong access
to external capital to fund these large capital improvements.
MSD Staff’s proposed increases in wastewater cost of service and wastewater
rates in this proceeding are excessive.
1. MSD’s proposed four-year rate increase will adjust user charge revenues by
about 15.7%. This increase in revenue is higher than necessary, even to
support the level of capital investment included in the filing. The proposed
change in rates will maintain debt service coverage ratios and senior revenue
facilities in excess of 2.57x over the forecast period. On total debt, the debt
service coverage ratio will stay in excess of 1.81x. This level of debt service
coverage is simply too expensive to place on customers at the same time
asking customers to pay big rate increases to support a continued elevated
level of capital expenditures.
2. This reduction in revenue increase will lower the burden on customers by
approximately $20 million a year, and lower the increase in rates over the
four-year time period from the MSD-proposed 15.7% in user revenues, down
to around 11.0%.
3. This reduction in revenue, with no modification in capital spend or projected
operating expense, will provide MSD with a debt service coverage ratio that is
consistently above 1.7x.
4. This reduced debt service coverage ratio is above the minimum debt service
coverage ratio found reasonable by the Rate Commission in MSD’s last
several rates cases of 1.6x.
Michael P. Gorman
MIEC Comments
Page 2
BRUBAKER & ASSOCIATES, INC.
5. It is also noted by Standard & Poor’s (Exhibit MSD 51 at page 5) as a
constructive minimum rate-setting objective, and will support MSD’s financial
integrity within sound rate-setting practices consistent with MSD’s prior rates
cases.
6. In this case, as it did in the last case, MSD is proposing to change its financial
metrics in setting its prospective revenue requirement. MSD witness Bethany
Pugh states in this case that MSD is proposing to change its debt and pay-
as-you-go financing in this case to 60% use of debt and 40% pay-as-you-go
financing. This compares to the historical financing structure of 70% debt
and 30% pay-go financing. MSD is also proposing in this case to increase its
minimum total debt service coverage ratio to 1.8x. (Ms. Pugh’s Direct
Testimony, Exhibit MSD 3I, at 4-5). These are the same positions advocated
by MSD Staff in prior rate cases, that were ultimately not accepted by the
Rate Commission in setting rates.
7. In the Rate Commission’s August 16, 2019 rate recommendation report, at
page 8 the Commission noted with respect to a Fifth Factor, “Whether the
rate change proposal imposes a fair and reasonable burden on all classes of
customers, that the Commission would continue to embrace a minimum debt
service coverage of 1.6x”
The rate setting practices used in MSD prior rate cases, which included a
minimum debt service coverage of 1.6x, has maintained strong financial
integrity and credit standing of the utility, has allowed the utility to access
capital to support its infrastructure investments, but do so at lower rates than
that proposed by MSD Staff in the previous rate cases.
Staff proposes the same excessive increase in rates to produce an excessive
debt service coverage in this case. The Rate Commission should reject the
increase in debt service coverage in this case as being inconsistent with
managing rate affordability in this case, just as it has done in previous MSD
rate cases.
8. Attached is an outline of revisions to the District’s wastewater rate change
proposal reflecting an adjusted increase in user charge revenues to a growth
of 11.0% compared to the District’s projections included in Section 3 of its
Executive Summary in Table ES-1, Wastewater Financial Plan, Exhibit
MSD 7.
MSD’s Proposed Change in Rates is Imbalanced
MSD is shifting the cost responsibility in its wastewater revenue requirement from fixed
monthly meter charges to volumetric charges. This shift unjustifiably shifts cost
responsibility to large business users and away from smaller low-volume users.
Table ES-2, Exhibit MSD 7 at ES-4. Specifically, the District’s base charge component
of the bill is significantly impacted by a proposal to reduce the billing and collection
Michael P. Gorman
MIEC Comments
Page 3
BRUBAKER & ASSOCIATES, INC.
charge in fiscal year 2021 to $5.11 from the $7.38 that this Rate Commission approved
in MSD’s last rate case. Reducing this charge necessitates MSD to increase its
volumetric charges in order to replace the revenue that would have otherwise been
collected through this meter charge, and instead must be collected through volumetric
charges going forward. The effect of this charge is to reduce costs to residential
customers and increase costs to MSD business customers.
In a similar regard, MSD’s proposal to increase its extra strength surcharges burdens
business customers to the benefit of non-business customers. Table ES-2 to the
District’s rates shows increases in extra strength surcharges in the first year of this rate
application ranging from 10.6% up to 26.7%.
The proposed spread of the increase in revenue approved by this Rate Commission
should be more equitable and balanced in adjustments to rates. To accomplish this, we
recommend the following:
1.“Billing and Collection” charges should not be decreased in the first year of the
projected rate change period. Rather these charges should increase like all of
the other MSD rates.
2.The increase in all charges – Billing, compliance, volume and extra strength
charges – should be moderated to reflect a reduced increase in revenue
requirement as described earlier, and a phase-in to extra strength surcharge will
moderate in the impacts on customer of this rate increase.
Exhibit MIEC 107
SECTION 3- EXECUTIVE SUMMARY
Table ES-I - Wastewater Financial Plan FY 2019 FY 2020 FY 2021 FY 2022 FY 2023 FY 2024 21-24 Subtotal
Pro'ected Projected
FY2019 FY2020 FY2021 FY2022 FY2023 FY 2024 FY21 -FY24
Revenue Subtotal
I. User Charge Revenue 399,900,957$ 440,937,370$ 455,267,835$ 470,064,039$ 485,341,120$ 501,114,707$ 1,924,767,939$
Other Miscelaneous Revenue
2. Investment Income 5,745,874$ 1,782,267$ 1,760,505$ 1,536,209$ 1,013,022$ 908,837$ 5,218,573$
3. Other Pledged Revenue 6,133,500$ 6,145,500$ 6,157,620$ 6,169,861$ 6,182,225$ 6,194,712$ 24,704,418$
Subtotal: Other Miscellaneous Revenue 11,879,374$ 7,927,767$ 7,918,125$ 7,706,070$ 7,195,247$ 7,103,549$ 29,922,991$
5. Total: Wastewater Pledged Revenue 411,780,331$ 448,865,137$ 463,185,960$ 477,770,109$ 492,536,367$ 508,218,256$ 1,954,690,930$
% Change 10.2% 9.0% 3.2% 3.1% 3.1% 3.2%
Expenditures
Operating Expenses
General Fund Operating Expenses (166,758,032)$ (168,795,383)$ (173,226,505)$ (177,237,606)$ (183,355,453)$ (188,431,423)$ (722,250,987)$
7. Other Operating Expenses (10,940,068)$ (11,909,340)$ (18,205,135)$ (14,814,330)$ (15,462,081)$ (15,242,414)$ (63,723,960)$
8. Subtotal: Operating Expenses (177,698,100)$ (180,704,723)$ (191,431,640)$ (192,051,936)$ (198,817,534)$ (203,673,837)$ (785,974,947)$
Net Revenue Available for Debt & Capital 234,082,231$ 268,160,414$ 271,754,320$ 285,718,173$ 293,718,833$ 304,544,419$ 1,168,715,983$
Non-Operating Expenses
Debt Service and Other Indebtedness
Senior Revenue Bond Debt Service (Accrued)
Existing (77,962,008)$ (78,123,917)$ (78,198,040)$ (77,923,075)$ (78,185,172)$ (78,085,875)$ (312,392,161)$
Proposed -$ (1,768,719)$ (7,752,066)$ (16,336,137)$ (28,971,401)$ (46,983,372)$ (100,042,976)$
Subtotal: Senior Revenue Bond Debt Service $(77,962,008)$ (79,892,636)$ (85,950,106)$ (94,259,212)$ (107,156,573)$ (125,069,247)$ (412,435,137)$
SRF & Direct Loan Debt Service (Accrued)
Existing (37,673,555)$ (37,741,217)$ (37,911,613)$ (39,182,514)$ (39,176,322)$ (39,257,083)$ (155,527,532)$
Proposed -$ (4,037,431)$ (6,550,664)$ (8,600,935)$ (10,644,268)$ (12,688,281)$ (38,484,148)$
Subtotal: SRF & Direct Loan Debt Service (37,673,555)$ (41,778,648)$ (44,462,277)$ (47,783,449)$ (49,820,590)$ (51,945,364)$ (194,011,680)$
Subtotal: Debt Service & Other Indebtedness (115,635,563)$ (121,671,284)$ (130,412,383)$ (142,042,661)$ (156,977,163)$ (177,014,611)$ (606,446,817)$
Cash-Financed Capital (Paygo)(126,904,316)$ (128,408,441)$ (167,479,944)$ (156,464,655)$ (127,083,792)$ (129,043,836)$ (580,072,227)$
Non-recurring Projects or Studies (5,382,019)$ (6,417,237)$ (5,966,508)$ (6,570,748)$ (6,691,362)$ (6,953,319)$ (26,181,938)$
Contributions to Reserves -$ -$ -$ -$ -$ -$ -$
Subtotal: Non-Operating Expenses (247,921,898)$ (256,496,962)$ (303,858,835)$ (305,078,064)$ (290,752,317)$ (313,011,766)$ (1,212,700,982)$
Total: Wastewater Expenditures (425,619,998)$ (437,201,685)$ (495,290,475)$ (497,130,000)$ (489,569,851)$ (516,685,603)$ (1,998,675,929)$
% Change 19.9% 2.7% 13.3% 0.4% -1.5% 5.5%
Annual Surplus/(Defcit) (1)(13,839,667)$ 11,663,452$ (32,104,515)$ (19,359,891)$ 2,966,516$ (8,467,347)$ (43,984,999)$
Combined Operating Reserve
Beginning Balance (2)96,033,178$ 82,193,511$ 93,856,963$ 61,752,448$ 42,392,557$ 45,359,073$
Ending Balance (2)82,193,511$ 93,856,963$ 61,752,448$ 42,392,557$ 45,359,073$ 36,891,726$
Actual Debt Service
Senior Revenue Bonds 77,935,244$ 79,198,047$ 84,601,804$ 92,758,308$ 104,256,721$ 121,961,866$
SRF Loans 37,412,561$ 40,862,151$ 43,951,772$ 46,876,749$ 49,407,006$ 51,541,465$
Total: Debt Service 115,347,805$ 120,060,198$ 128,553,576$ 139,635,057$ 153,663,727$ 173,503,331$
Debt Service Coverage (3)
Senior Revenue Bonds (4)3.00 3.39 3.21 3.08 2.82 2.50
Total Debt (5)2.03 2.23 2.11 2.05 1.91 1.76
(1) Negative number indicates a need to drawdown the operating reserve
(2) Includes funds set aside for a minimum operating reserve equal to 60 days of operating exenses
(3) Adjusted for actual debt service
(4) The Bond Ordinance requires net revenue to equal or exceed 1.25x actual senior len debt service
(5) The Bond Ordinance requires net revenue to equal or exceed 1.15x total actual debt service
ES-3
Metropolitan St. Louis Sewer District
WASTEWATER RATE CHANGE PROPOSAL