HomeMy Public PortalAboutSeptember 5, 2023 Rate Recommendation Report1
RATE RECOMMENDATION REPORT
of
THE RATE COMMISSION OF THE
METROPOLITAN ST. LOUIS SEWER DISTRICT
to the
BOARD OF TRUSTEES OF THE
METROPOLITAN ST. LOUIS SEWER DISTRICT
upon the
WASTEWATER AND STORMWATER RATE CHANGE PROPOSAL
September 5, 2023
BLACK & VEATCH MANAGEMENT CONSULTING, LLC, RATE CONSULTANT,
AND LASHLY & BAER, P.C., LEGAL COUNSEL,
TO THE RATE COMMISSION OF THE
METROPOLITAN ST. LOUIS SEWER DISTRICT
THIS IS THE REPORT REQUIRED BY THE CHARTER PLAN AND HAS
BEEN ADOPTED BY A MAJORITY OF THE RATE COMMISSION
DELEGATES IN ACCORDANCE WITH CHARTER PLAN, § 7.280(f).
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TABLE OF CONTENTS
INTRODUCTION....................................................................................................................... 3
EXECUTIVE SUMMARY ....................................................................................................... 4
BACKGROUND ...................................................................................................................... 11
Metropolitan St. Louis Sewer District ............................................................................ 11
The Rate Commission ....................................................................................................... 12
Appointment ...................................................................................................................... 13
Rate Commission’s Operational Rules ........................................................................... 15
Rate Commission’s Procedural Schedule ....................................................................... 15
Rate Commission’s Proceedings ...................................................................................... 16
Statutory Construction ..................................................................................................... 20
CRITERIA FOR RECOMMENDATION ............................................................................ 21
First Criteria: Whether the Rate Change Proposal is necessary to pay interest and
principal falling due on bonds issued to finance assets of the District ................................ 22
Second Criteria: Whether the Rate Change Proposal is necessary to pay the
costs of operation and maintenance ....................................................................................... 39
Third Criteria: Whether the Rate Change Proposal provides for funds in such
amounts to cover emergencies and anticipated delinquencies ............................................. 46
FACTORS FOR RECOMMENDATION ............................................................................. 53
First Factor: Whether the Rate Change Proposal, and all portions thereof, “is
consistent with constitutional, statutory or common law as amended from time to
time” .......................................................................................................................................... 54
Second Factor: Whether the Rate Change Proposal, and all portions thereof,
“enhances the District’s ability to provide adequate sewer and drainage systems and
facilities, or related services” .................................................................................................. 83
Third Factor: Whether the Rate Change Proposal, and all portions thereof, “is
consistent with and not in violation of any covenant or provision relating to any
outstanding bonds or indebtedness of the District” .............................................................. 91
Fourth Factor: Whether the Rate Change Proposal, and all portions thereof,
“impair[s] the ability of the District to comply with applicable Federal or State laws
or regulations as amended from time to time” .................................................................... 104
Fifth Factor: Whether the Rate Change Proposal, and all portions thereof,
“considers the financial impact on all classes of ratepayers in determining a fair and
reasonable burden” ................................................................................................................ 112
EXHIBIT A – Analysis from the Rate Commission Consultant and analysis of
modified debt service coverage ratio and the impact of phasing in surcharges ............... 143
EXHIBIT B – Resolution of the Rate Commission regarding NFL settlement funds ..... 152
MINORITY REPORTS ........................................................................................................ 155
PROCEEDINGS INDEX ...................................................................................................... 165
ABBREVIATIONS & ACRONYMS ................................................................................... 174
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INTRODUCTION
The Wastewater Rate Change Proposal (“Rate Change Proposal”) of the Metropolitan St.
Louis Sewer District (the “District”) was presented to the Rate Commission on March 24, 2023.
In order to conduct this proceeding with utmost expedition, consistent with procedural
fairness to the parties, the Rate Commission adopted a Procedural Schedule in accordance with its
Operational Rules to provide for the advance submission of written testimony, the conduct of
technical conferences, a prehearing conference, discovery procedures, public hearings, and the
filing of post-hearing briefs. See Charter Plan of the Metropolitan St. Louis Sewer District
(hereinafter “Charter Plan”), § 7.280(e). The Missouri Industrial Energy Consumers (“MIEC”)
filed an application to intervene, but the application was filed out-of-time and was objected to by
the District. Ultimately, MIEC was allowed to intervene, but only on a limited basis. More
specifically, it was not allowed to intervene so as to participate in discovery or to submit testimony
of its own.
The record of these proceedings may be found online at the Metropolitan St. Louis Sewer
District website under “About Us”, and then “Rate Commission.” All of the written testimony,
exhibits, document requests and responses, transcripts of testimony, legal memoranda, and other
materials contained therein (“Rate Setting Documents”) have been admitted into evidence and
discussed and considered by the Rate Commission Delegates for the purpose of making the
findings and determinations contained in this Report. These proceedings (the “Proceedings”) are
incorporated herein by reference.
The Rate Commission’s Report to the Board of Trustees (the “Board”) of the District is
due within 165 days of receipt of the Rate Change Proposal, or September 5, 2023. See Charter
Plan, § 7.280(f).
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This is the Report required by the Charter Plan and has been adopted by a majority of the
Rate Commission Delegates. See Charter Plan, § 7.280(f).
EXECUTIVE SUMMARY
The District’s Rate Change Proposal1 was presented to the Rate Commission on March 24,
2023.
As to wastewater, the proposal sets forth the District’s proposal to use a combination of
means, including issuing 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 50. In 2018, an amendment to the Consent Decree was
agreed to, providing an additional five years for the District to complete its Consent Decree
obligations. See Ex. MSD 50A. In 2023, the Consent Decree was amended to allow the District to
replace two wastewater storage tunnels with a single storage tunnel. See Ex. MSD 1, pgs. 9-2 – 9-
3; see also Ex. MSD 50B.
1 This summary of the Rate Setting Documents does not purport to be complete and
reference is made to the full text of the Rate Setting Documents for a complete recital of
the terms of the rate changes proposed by the District.
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For wastewater, 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 charge revenues,2 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. 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 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, Table 7-3 and Table 7-4.
As to stormwater, District stormwater revenue is presently derived from: (1) the District’s
2-cent property tax used to fund stormwater regulatory services; and (2) the District’s 10-cent
property tax used to fund stormwater operation and maintenance services (funded through Prop
S). See Ex. MSD 1, p. 5-1. Funding is also available to certain OMCI subdistricts for stormwater-
related projects within their boundaries. Id. at p. 5-4. The Stormwater Rate Change proposal
would provide a source of funding for flooding and erosion control throughout the District. Id. at
p. 5-1.
2 The phrase “wastewater user charge revenues” is used interchangeably with “rate
revenues” throughout this Report.
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The Stormwater Rate Change is not designed to address operation and maintenance, but
rather capital projects only. See Ex. MSD 3A, p. 2, ll. 3-7. Section 3.020(20) of the Charter Plan
limits the amount of taxes that the District can levy for operations and maintenance to 10 cents on
the hundred dollars of assessed valuation.
The Stormwater 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 per 1,000 square feet of imperious
area. See Ex. MSD 1, p. 5-6.
The District intends to spend 50% of the revenue on capital projects on a prioritized basis
District-wide. Thirty percent of the revenue would be distributed to the municipalities and St.
Louis County. Another 10% will be spent on stormwater capital projects in designated
Environmental Justice Areas, and the remaining 10% would be spent on projects identified with
the assistance of an area-wide advisory committee, such as a special representative committee of
the Municipal League of Metro St. Louis. See Ex. MSD 1, pgs. 5-9 – 5-10.
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First Criteria: Whether the Rate Change Proposal provides the funds necessary to
pay interest and principal falling due on bonds issued to finance assets of the District. See
Charter Plan, § 7.040.
The Rate Commission, after discussion and consideration of all of the facts and
circumstances disclosed in the record and presented in these Proceedings, finds and determines
that the Rate Change Proposal to fund the Wastewater CIRP with a combination of bond and cash
financing provides for the funds necessary to pay principal and interest falling due on revenue
bonds previously authorized and the additional $750 million in revenue bonds proposed to be
issued.
Alternatively, if voter approval is not obtained for future bond financing, the Rate
Commission, after consideration of all of the facts and circumstances disclosed in these
Proceedings, finds and determines that the Rate Change Proposal to fund the Wastewater CIRP
with a combination of existing bond and cash financing provides for the funds necessary to pay
principal and interest falling due on the revenue bonds previously issued as authorized in prior
proceedings to finance the CIRP.
The Rate Commission, after discussion and consideration of all of the facts and
circumstances disclosed in the record and presented in these Proceedings, finds and determines
that the Rate Change Proposal to fund Stormwater Capital Improvements provides the funds
necessary3 to pay principal and interest falling due on bonds issued to finance assets of the District.
3 In essence, this factor is not applicable to stormwater in this case, due to the absence of any
stormwater bonds.
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Second Criteria: Whether the Rate Change Proposal provides the funds necessary to
pay the costs of operation and maintenance. See Charter Plan, § 7.040.
The Rate Commission, after discussion and consideration of all of the facts and
circumstances disclosed in the record and presented in these Proceedings, finds and determines
that the Rate Change Proposal provides the funds necessary to pay the costs of operation and
maintenance.
Third Criteria: Whether the Rate Change Proposal provides the necessary funds to
pay such amounts as may be required to cover emergencies and anticipated delinquencies.
See Charter Plan, § 7.040.
The Rate Commission, after discussion and consideration of all of the facts and
circumstances disclosed in the record and presented in these Proceedings, finds and determines
that the Rate Change Proposal provides for funds in such amounts as may be required to cover
emergencies and anticipated delinquencies.
First Factor: Whether the Rate Change Proposal “is consistent with constitutional,
statutory or common law as amended from time to time.” See Charter Plan, § 7.270.
The Rate Commission, after discussion and consideration of all of the facts and
circumstances disclosed in the record and presented in these Proceedings, finds and determines
that the Rate Change Proposal is consistent with constitutional, statutory, and common law, as
amended from time to time.
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Second Factor: Whether the Rate Change Proposal “enhances the District’s ability to
provide adequate sewer and drainage systems and facilities, or related services.” See Charter
Plan, § 7.270.
The Rate Commission, after discussion and consideration of all of the facts and
circumstances disclosed in these Proceedings, finds and determines that the Rate Change Proposal
enhances the District’s ability to provide adequate sewer and drainage systems and facilities, or
related services.
Third Factor: Whether the Rate Change Proposal “is consistent with and not in
violation of any covenant or provision relating to any outstanding bonds or indebtedness of
the District.” See Charter Plan, § 7.270.
The Rate Commission, after discussion and consideration of all of the facts and
circumstances disclosed in the record and presented in these Proceedings, finds and determines
that the Rate Change Proposal is consistent with and not in violation of any covenant or provision
relating to any outstanding bonds or indebtedness of the District.
Fourth Factor: Whether the Rate Change Proposal “impair[s] the ability of the
District to comply with applicable Federal or State laws or regulations as amended from time
to time.” See Charter Plan, § 7.270.
The Rate Commission, after discussion and consideration of all of the facts and
circumstances disclosed in the record and presented in these Proceedings, finds and determines
that the Rate Change Proposal does not impair the ability of the District to comply with applicable
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federal or state laws or regulations as amended from time to time during this Rate Change Proposal
cycle.
Fifth Factor: 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.
The Rate Commission, after discussion and consideration of all facts and circumstances
disclosed in the record and presented these Proceedings, finds and determines that the Rate Change
Proposal considers the financial impact on all classes of ratepayers in determining a fair and
reasonable burden.
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BACKGROUND
Metropolitan St. Louis Sewer District
Article VI, § 30(a) of the Missouri Constitution has authorized “[t]he people of the city of
St. Louis and the people of the county of St. Louis … to establish a metropolitan district or districts
for the functional administration of services common to the area included therein …”. Mo. Const.
art. VI, § 30(a). At a special election on February 9, 1954, the freeholders adopted and the voters
of the City of St. Louis and St. Louis County approved the Charter Plan (as amended on November
7, 2000, June 5, 2012 and April 6, 2021) creating the Metropolitan St. Louis Sewer District. The
Charter Plan establishing the District has been held to be constitutional. State on inf. Dalton v.
Metro. St. Louis Sewer Dist., 275 S.W.2d 225 (Mo. banc 1955).
The District is “a body corporate, a municipal corporation, and a political subdivision of
the state, with power to … act as a public corporation within the purview of [the] Plan, and shall
have the powers, duties, and functions as herein prescribed.” See Charter Plan, § 1.010. The
Missouri Constitution provides that upon the adoption of the Charter Plan, it “shall become the
organic law of the territory therein defined, and shall take the place of and supersede all laws,
charter provisions and ordinances inconsistent therewith relating to said territory.” Mo. Const. art.
VI, § 30(b). As explained by the Missouri Supreme Court, “[t]he apparent intent is to give the
freeholders, with the approval of the voters, power to do whatever the Legislature could ordinarily
do with respect to the creation, organization and authority of such a district.” Dalton, 275 S.W.2d
at 228.
As such, the Charter Plan is similar to legislation, and thus, the District has only such
powers as are delegated to it by the Charter Plan, or as may properly be implied from the nature
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of the duties imposed. State on inf. McKittrick v. Wymore, 132 S.W.2d 979, 987-988 (Mo. banc
1939).
To determine whether a certain action of the District is authorized by the Charter Plan, it
must be construed to further the intent of the voters. Centerre Bank of Crane v. Dir. of Revenue,
744 S.W.2d 754, 759 (Mo. banc 1988). Intent must be ascertained by examining the plain language
of the Charter Plan reviewed as a whole. Staley v. Dir. of Revenue, 623 S.W.2d 246, 248 (Mo.
banc 1981).
It is clear that authorization was provided to residents in St. Louis City and County to
establish a metropolitan sewer district, Mo. Const. art. VI, § 30(a), and that authorization was
provided by the voters of St. Louis City and County to authorize the activities which carry out the
intent expressed and implied from the Charter Plan, including the establishment of the Rate
Commission.
The Rate Commission
The Rate Commission was established by amendments to the Charter Plan, approved by
the voters at a general election on November 7, 2000, to “represent commercial-industrial users,
residential users and other organizations interested in the operation of the District, including by
way of example but not by way of limitation, organizations focusing on environmental issues,
labor issues, socio-economic issues, community-neighborhood organizations and other nonprofit
organizations.” See Charter Plan, § 7.230. The Rate Commission shall review and make
recommendations to the Board regarding proposed changes in wastewater, stormwater, and tax
rates. See Charter Plan, § 7.040. Specifically, upon receipt of a Rate Change Notice from the
District, the Rate Commission is to recommend to the Board changes in a wastewater, stormwater,
or tax rate necessary to pay (i) interest and principal falling due on bonds issued to finance assets
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of the District; (ii) the 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 is, pursuant to
§ 7.270 of the Charter Plan, 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.
Appointment
On October 13, 2022, the District enacted Board Ordinance No. 16014, as required by
§ 7.230 of the Charter Plan, and designated the Rate Commission Representative Organizations.
The Ordinance designated: Associated General Contractors of Missouri, the City of Florissant, the
City of Ladue, Education Plus, Engineers Club of St. Louis, Greater St. Louis Labor Council,
Home Builders Association of St. Louis, League of Women Voters of Metro St. Louis, Missouri
Coalition for the Environment, Missouri Industrial Energy Consumers, Mound City Bar
Association, Municipal League of Metro St. Louis, North America’s Building Trade Unions, St.
Louis Realtors, and the St. Louis Council of Construction Consumers. Each of these Organizations
designated an individual to serve as a Rate Commission Delegate and notified the Rate
Commission. The Delegates currently comprising the Rate Commission are:
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Commission Delegates Representing
Leonard Toenjes Associated General Contractors of Missouri
Matt Muren St. Louis Realtors
Bill Clarke The Engineers’ Club of St. Louis
Ryan Barry St. Louis Council of Construction Consumers
Mickey Croyle League of Women Voters of Metro Saint
Louis
Celestine Dotson4 Mound City Bar Association
Jim Faul North America’s Building Trade Unions
Brad Goss Home Builders Association of Greater St.
Louis
Lou Jearls City of Florissant
Steve Mahfood Missouri Coalition for the Environment
Patrick Moynihan Greater St. Louis Labor Council
Lloyd Palans City of Ladue
Mark Perkins Municipal League of Metro St. Louis
John L. Stein Missouri Industrial Energy Consumers
Paul Ziegler Education Plus
Under the Charter Plan, the Board is to identify the Rate Commission Representative
Organizations for a term of years determined by the Board. See Charter Plan, § 7.230. Each Rate
Commission Representative Organization selected by the Board shall have the right to designate a
Rate Commission Delegate to the Rate Commission for a term of six years or the completion of
4 The Mound City Bar Association initially designated Lisa Savoy as its delegate to the Rate
Commission. The Rate Commission was notified that Ms. Dotson would be substituted for
Ms. Savoy as Mound City Bar Association’s delegate, in accordance with § 7.230(b) of the
Charter Plan. Ms. Dotson was sworn in on August 1, 2023.
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any unexpired terms. See Charter Plan, § 7.240. This section further provides that “the Board shall
designate organizations within the District to succeed such Rate Commission Representative
Organization, provided, however, that each Rate Commission Representative Organization shall
serve until its successor shall be appointed and qualified.” See Charter Plan, § 7.240. Nothing bars
a Rate Commission Representative Organization from being named to successive terms. See
Charter Plan, § 7.240.
Rate Commission’s Operational Rules
On August 16, 2001, under the authority of §§ 7.250 and 7.280(e) of the Charter Plan, the
Rate Commission adopted Operational Rules, Regulations and Procedures as amended on March
21, 2002, April 16, 2003, March 2, 2007, January 18, 2008, March 7, 2011, March 4, 2015, and
February 26, 2018, to govern the activities of the Rate Commission. On March 4, 2019, the Rate
Commission adopted its Restated Operational Rules, Regulations and Procedures of the Rate
Commission of the Metropolitan St. Louis Sewer District. On February 21, 2023, the Rate
Commission amended its Restated Operational Rules (herein “Operational Rules”) to govern the
activities of the Rate Commission.
Rate Commission’s Procedural Schedule
On March 24, 2023, the Rate Commission, under the authority of § 7.280(e) of the Charter
Plan and pursuant to § 3(5) of the Operational Rules, adopted a Procedural Schedule for the
Consideration of a Wastewater and Stormwater Rate Change Notice.
Under the Charter Plan, the Rate Commission must issue its Rate Recommendation Report
to the Board and the public no later than 165 days after receipt of a Rate Change Notice. See
Charter Plan, § 7.280(f). Accordingly, the Rate Commission Report for the Wastewater and
Stormwater Rate Change Proposal is due no later than September 5, 2023.
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Rate Commission’s Proceedings
Under procedural rules adopted by the Rate Commission, any person who would be
affected by the Rate Change Proposal has an opportunity to submit an application to intervene in
the rate change proceedings. An Application to Intervene was submitted by MIEC on May 11,
2023. However, it was submitted out of time and the District objected to the late application. On
May 30, 2023, the Rate Commission voted on MIEC’s Application to Intervene. See Ex. MSD 82,
pgs. 70-77. The Application was granted in part and denied in part. Id. More specifically, MIEC
was not allowed to intervene for purposes of participating in discovery or submitting its own
testimony. Id.
On March 24, 2023, the District submitted to the Rate Commission prepared Direct
Testimony of the following individuals in support of the 2023 Wastewater Rate Change Proposal:
Richard L. Unverferth, Bret A. Berthold, Marion M. Gee, Tim R. Snoke, Bethany Pugh, William
Stannard, Thomas A. Beckley and William Zieburtz.
On April 4, 2023, the Rate Commission submitted its First Discovery Request to the
District. On April 14, 2023, the District filed its Responses to that discovery.
On April 7, 2023, the Rate Commission submitted its Second Discovery Request to the
District, which the District responded to on April 17, 2023.
On April 14, 2023, the Rate Commission submitted its Third Discovery Request to the
District, which the District responded to on April 20, 2023.
On April 26 and April 27, 2023, a Technical Conference was held on the record regarding
the Rate Setting Documents and the Direct Testimony filed with the Rate Commission by the
District. The purpose of the Technical Conference was to provide the District an opportunity to
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answer questions propounded by members of the Rate Commission; and by Lashly & Baer, Legal
Counsel to the Rate Commission.
On May 1, 2023, the Rate Commission submitted its Fourth Discovery Request to the
District, which the District responded to on May 11, 2023.
On May 11, 2023, MIEC submitted its Application to Intervene Out of Time, to which the
District responded on May 15, 2023.
On May 12, 2023, the Rate Commission submitted Rebuttal Testimony of its Rate
Consultants Anna White and Pamela Lemoine.
On May 15, 2023, the District submitted its First Discovery Request to the Rate
Commission, to which the Rate Commission responded on May 18, 2023.
On May 18, 2023, the Rate Commission submitted its Fifth Discovery Request to the
District, which the District responded to on May 24, 2023.
On May 30, 2023, a Technical Conference was held on the record regarding the rebuttal
testimony filed by the Rate Commission. The purpose of the Technical Conference was to provide
the District, members of the Rate Commission, and Lashly & Baer, Legal Counsel to the Rate
Commission, with an opportunity to ask questions of the Rate Commission’s rebuttal witnesses.
Further, during the Technical Conference, the Rate Commission, after hearing from both MIEC
and the District, voted on MIEC’s pending Application to Intervene. MIEC’s Application to
Intervene was granted in part and denied in part. MIEC was granted leave to intervene for the sole
purpose of cross-examining witnesses on surrebuttal testimony.
On June 15, 2023, the Rate Commission submitted its Sixth Discovery Request to the
District, which the District responded to on June 26, 2023. The District submitted its Supplemental
Response to the Rate Commission’s Sixth Discovery Request on July 5, 2023.
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On June 21, 2023, the District submitted Surrebuttal Testimony of Richard L. Unverferth,
and Thomas Beckley.
On July 5, 2023, the District submitted a Supplemental Information Packet to the Rate
Commissions regarding Fluidized Bed Incinerators.
On July 10, 2023, a third Technical Conference was held on the record to allow questioning
of the surrebuttal testimony submitted by the District. No other parties submitted surrebuttal
testimony.
On August 1, 2023 a pre-hearing conference was held on the record to provide statements
of the District and Counsel to the Rate Commission and to answer questions of the Rate
Commissioners.
On August 7, 2023, Prehearing Conference Reports were submitted by the District and the
Rate Consultant and Legal Counsel to the Rate Commission. Further, on August 7, 2023, MIEC
submitted Comments to the Rate Commission during the public hearing.
Ratepayers who did not wish to intervene were permitted to participate in a series of on-
the-record public hearings conducted in 14 sessions beginning on June 21, 2023, and concluding
on August 7, 2023. Specifically, public hearing sessions were held as follows:
Date Location Address Time
June 21, 2023 Creve Coeur City Hall 300 North New Ballas Road
St. Louis, MO 63141
7:00 p.m.
June 22, 2023 Brentwood City Hall 2348 South Brentwood Blvd.
Brentwood, MO 63144
6:00 p.m.
June 26, 2023 Bridgeton City Hall 12355 Natural Bridge Road
Bridgeton, MO 63044
7:00 p.m.
June 28, 2023 Kirkwood City Hall 139 S. Kirkwood Road
Kirkwood, MO 63122
7:00 p.m.
June 29, 2023 Chesterfield City Hall 690 Chesterfield, Parkway
West
Chesterfield, MO 63017
7:00 p.m.
July 19, 2023 North County Recreation
Center
2577 Redman Ave.
St. Louis, MO 63136
6:00 p.m.
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July 20, 2023 Ballwin City Hall 1 Government Ctr.
Ballwin, MO 63011
7:00 p.m.
July 25, 2023 Thomas Dunn Learning
Center
3113 Gasconade St.
St. Louis, MO 63118
6:00 p.m.
July 26, 2023 St. Simon the Apostle
Catholic Church
11011 Mueller Rd.
St. Louis, MO 63123
6:00 p.m.
July 27, 2023 St. Louis County Department
of Public Health
6121 N. Hanley Rd.
Berkeley, MO 63134
3:00 p.m.
July 29, 2023 O’Fallon Park Recreation
Complex
4343 W. Florissant Ave.
St. Louis, MO 63115
9:30 a.m.
August 2,
2023
Fenton City Hall 625 New Smizer Mill Rd.
Fenton, MO 63026
7:00 p.m.
August 7,
2023
Metropolitan St. Louis
District
2350 Market Street
St. Louis, MO 63103
9:00 a.m.
(online
streaming)
Public Notice regarding these Proceedings was published via postings to the Rate
Commission section of the District’s website at www.msdprojectclear.org/ratecommission. This
Notice contained the time, dates and location of each of the public hearings. In addition, the Rate
Commission utilized a webpage, Twitter, Facebook and other social media in an effort to increase
public involvement.
The public hearing session on August 7, 2023 was held for the purpose of (1) receiving
into evidence any prepared testimony previously submitted to the Commission subject to any valid
objections, together with the discovery responses and transcripts of the Technical Conferences; (2)
permitting the Rate Commission members or those designated by the Rate Commission to ask
questions regarding any issue addressed by the prepared testimony or any other element of the
Proposed Rate Change; and (3) permitting closing statements by the District, any person who has
been permitted to intervene, and Legal Counsel for the Rate Commission.
During the Proceedings, Exhibits and Discovery Requests and Discovery Request
Responses were introduced and on August 7, 2023, were admitted into evidence. These documents,
together with the transcripts of testimony, written testimony, and certain other materials, may be
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found at https://msdprojectclear.org/about/rate-commission/2023-rate-proposal/ and the
Proceedings Index may be found at the end of the Report.
The findings and determinations contained in this Report were considered at public
meetings of the Rate Commission and adopted by Resolution of the Rate Commission on August
25, 2023.
Statutory Construction
The primary rule of construction of terms found in the Charter Plan is to ascertain the intent
from the language used, to give effect to that intent if possible, and to consider the words used in
their plain and ordinary meaning. See Hampton v. Hampton, 17 S.W.3d 599, 602 (Mo. App. W.D.
2000). Under traditional rules of statutory construction, the word’s dictionary definition supplies
its plain and ordinary meaning. See Hoffman v. Van Pak Corp., 16 S.W.3d 684, 688 (Mo. App.
E.D. 2000). The courts are without authority to read into a statute an interpretation that is contrary
to the intent made evident by giving the language employed in the statute its plain and ordinary
meaning. See Mo. Dept. of Pub. Safety v. Murr, 11 S.W.3d 91, 96 (Mo. App. W.D. 2000). Only
when the statute is ambiguous, or when it leads to an illogical result, may courts look past the plain
and ordinary meaning of the statute. Id. To determine if a statute is unambiguous, “the standard is
whether the statute’s terms are plain and clear to one of ordinary intelligence.” See Wolff Shoe
Co. v. Dir. of Revenue, 762 S.W.2d 29, 31 (Mo. banc 1988).
21
CRITERIA FOR RECOMMENDATION
The Rate Commission is to review and make recommendations to the Board regarding
proposed changes in wastewater, stormwater or tax rates necessary to pay (i) interest and principal
falling due on bonds issued to finance assets of the District; (ii) the costs of operation and
maintenance; and (iii) such amounts as may be required to cover emergencies and anticipated
delinquencies. See Charter Plan, § 7.040.
22
First Criteria: Whether the Rate Change Proposal provides the funds necessary to
pay interest and principal falling due on bonds issued to finance assets of the District.
WASTEWATER
It is the District’s position that its Rate Change Proposal is necessary to pay the interest
and principal due on bonds issued or to be issued, to finance assets of the District. See Ex. MSD
75, p. 133, ll. 1-7.
The District’s Wastewater Rate Change Proposal presents a rate increase to generate an
approximately 7.25% increase in revenues to finance approximately $1.65 billion in needed
improvements during FY 2025 through FY 2028. See Ex. MSD 1, pp. ES-1 – ES-2. The District’s
CIRP is the primary driver of the District’s financial plan, representing approximately three-fifths
of anticipated expenditures during the rate cycle. See Ex. MSD 1, p. 4-15. The largest components
of the CIRP over this period will be capital investment related to capacity improvements in the
wastewater system, and sewage sludge incineration. Id. The CIRP includes improvements
necessary to comply with the Consent Decree, with permit and regulatory requirements outside of
the Consent Decree, and with asset management renewal at the treatment plants. Id.
The District proposes to finance these improvements by a combination of rate revenue and
debt financing.5 See Ex. MSD 1, p. 4-17. The District intends to use approximately $584 million
in rate revenue (approximately 35.4% of the total CIRP) with the remainder of the CIRP financed
by a combination of available fund balances, grants and contributions, annual interest income,
loans from the SRF, and existing and additional bonding authority. See Ex. MSD 1, pgs. 4-16 – 4-
5 The Rate Change Proposal relies upon certain assumptions with respect to conditions,
events, and circumstances that may occur in the future. Although considered reasonable,
some of these anticipated conditions, events and financial circumstances may not occur
resulting in potential differences in revenues and costs than currently projected.
23
18. A typical metered residential customer contributing 5 Ccf of wastewater each month will
experience a rate increase of approximately 7.2% each year from FY 2025 through FY 2028. See
Ex. MSD 1, p. ES-6. The District intends to seek voter authorization prior to FY 2025 for an
additional $750 million of additional wastewater revenue bonds. See Ex. MSD 1, pp. ES-2 and 4-
25. If the voters do not approve additional bonding authority, the District will need to finance the
CIRP with 100% cash financing once its existing bonding authorization has been depleted. See
Ex. MSD 1, p. 7-1. If voters do not approve additional bonding authority, then rates would increase
by approximately 37% in FY 2025, increase by approximately 35% in FY 2026, decrease by
approximately 20% in FY 2027, and increase by approximately 5% in FY 2028. Id.
Revenue Bonds
The District was formed on February 9, 1954, when voters in the City of St. Louis and a
portion of St. Louis County approved the Charter Plan to provide a metropolitan-wide system of
stormwater treatment and facilities for the collection, treatment, and disposal of sewage. The
Charter Plan was amended on November 7, 2000, June 5, 2012 and April 6, 2021. The District’s
powers are set out in the Charter Plan, which provides:
Section 3.020. Powers of the District. – the District established under the
provisions of this Plan shall have power:
…
To meet the cost of acquiring, constructing, improving, or extending all or any part
of the sewer or drainage facilities and systems: (a) through the expenditure of any
funds available for that purpose; (b) through the issuance of bonds for that purpose,
payable from taxes to be levied and collected by the District; (c) through the
issuance of bonds for that purpose, payable from special benefit assessments levied
and collected by the District; (d) from the proceeds of special benefit assessments
or bills evidencing such assessments; (e) from any other funds which may be
obtained under any law of the state or of the United States for that purpose; (f) from
the proceeds of revenue bonds, payable from the revenues to be derived from the
operation of sewerage and drainage facilities and systems of the entire District …
as may be set forth in propositions submitted at elections in the District … from
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time to time called and held to authorize the issuance of such revenue bonds; or (g)
from any combination of any or all such methods of providing funds.
See Charter Plan, § 3.020(15) (emphasis added).
The Charter Plan requires an annual budget, an explanatory budget message, and a general
appropriation ordinance conforming with the budget. See Charter Plan, § 7.130. The budget shall
provide a complete financial plan for the budget year for all District and subdistrict funds, and
shall include the following:
(1) Estimated revenues to be actually received from all sources during the
budget year, together with a comparative statement of revenues for the two
years next preceding, itemized by year, fund, and source.
(2) Proposed expenditures, including projected expenses included in the Rate
Commission’s budget as provided in Section 7.260, recommended by the
Executive Director for the budget year, together with a comparative
statement of expenditures for the two years next preceding, itemized by
year, fund, activity, and object.
(3) The amount required for the payment of interest, amortization, and
redemption charges on the debt of the District or any subdistrict.
(4) A general budget summary.
(5) A list of capital projects.
In no event shall the total amount of proposed expenditures for the budget year
from any fund exceed the estimated revenues to be actually received plus any
unencumbered balance or less any deficit estimated for the beginning of the budget
year.
See Charter Plan, § 7.130 (emphasis added).
At the end of each fiscal year, the “unexpended and unencumbered parts of all
appropriations shall revert to the funds from which appropriated.” See Charter Plan, § 7.050.
Upon approval by the Board of Trustees, the Executive Director may transfer any unencumbered
appropriation balance or portion thereof from one classification of expenditure to another. See
Charter Plan, § 7.150. The District’s authority to issue revenue bonds requires the approval of
the voters of the District. Specifically, the Charter Plan provides:
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No general obligation bonds, except bonds for refunding, advance refunding,
extending, or unifying the whole or any part of valid bonded indebtedness, shall be
issued without the assent of the voters of the District … in the number required by
Article VI, § 26(b) of the Constitution of Missouri (as amended from time to time),
voting at an election to be held for that purpose. No revenue bonds payable from
the revenues to be derived from the operation of any or all sewer and drainage
systems and facilities of the District … except bonds for refunding, advance
refunding, extending, or unifying the whole or any part of revenue bonds, shall be
issued without the assent of a simple majority of the voters of the District … voting
at an election to be held for that purpose. Notwithstanding anything herein to the
contrary, the District is expressly authorized to issue District-wide general
obligation and revenue bonds.
See Charter Plan, § 7.170 (emphasis added).
Subject to these restrictions, the District has the authority to issue revenue bonds.
The Missouri Supreme Court has expressly recognized this authority, stating, “[t]he other
powers objected to, namely, … incurring debts, … issuance of tax anticipation warrants, … and
issuance of bonds, … are essential powers of such district.” See State on inf. Dalton v, 275 S.W.2d
at 231. The Court further found that, “[w]ithout the power to incur debts and issue bonds,
adequate drains, sewers and disposal plants could not be constructed. However, in the exercise of
this power, the District is subject to the financial limitations imposed by the Constitution on all
government subdivisions.” Id.
Outstanding Revenue Bonds
Revenue bonds do not rely upon the general credit or tax money of the District and do not
constitute indebtedness of the District within the limitations of § 7.190 of the Charter Plan or
Article VI, § 26(b) of the Missouri Constitution. Under the authority of § 250.120.1, RSMo, once
the voters have approved revenue bonds, the District has authority to raise wastewater and
26
stormwater rates to pay principal and interest on the bonds and to meet the costs6 of maintenance
and operation of the facilities.
On April 22, 2004, the Board of Trustees issued its first Districtwide revenue bonds under
the terms of a Master Bond Ordinance. See Ex. MSD 15. Section 6.1 of the Master Bond
Ordinance requires the District to operate its sanitary sewer system (the “System”) on a revenue
producing basis and at all times to prescribe, fix, maintain, and collect rates, fees, and other
charges for the services, facilities, and commodities furnished by the System fully sufficient at
all times to pay annual operation and maintenance (“O&M”) expense, provide a reasonable
operating reserve, produce net revenues in each fiscal year equal to at least 1.25 times the Debt
Service Requirement on all Senior Bonds currently outstanding and 1.15 times the Debt Service
Requirement on all Bonds then outstanding, and accumulate sufficient funds to meet the costs of
major renewals, replacements, repairs, additions, betterments, and improvements to the System
to keep it in good working condition. See Ex. MSD 15, § 6.1.
Additional senior revenue bonds were issued in 2006, 2008, 2010, 2011, 2012, 2013,
2015, 2016, 2017, 2018, 2019, 2020, 2021 and 2022. See Ex. MSD 1, p. 4-18. Supplemental
Bond Ordinances authorized by the Board of Trustees relating to additional revenue bond issues
include the same covenants contained in the Master Bond Ordinance. See Exs. MSD 16-49. The
principal remaining on all of the District’s senior revenue bonds issued to date is approximately
$1.32 billion as of June 30, 2022. See Ex. MSD 1, p. 4-18. The District has also participated in
multiple subordinate series of revenue bonds issued under the Missouri SRF loan program. See
Ex. MSD 1, p. 4-18. The total amount of principal remaining on all of the District’s SRF loans
6 District “costs” are based on various levels of estimates.
27
issued as of June 30, 2022 is approximately $477.8 million, with an additional $125 million issued
early in FY 2023. See Ex. MSD 1, p. 4-18.
A consideration in measuring the adequacy of District revenues is the provision of
sufficient debt service coverage to meet the actual debt service paid to the bondholders on the
senior revenue bonds and on the SRF loans. Line 26 of Table 4-10 in the District’s Rate Change
Proposal sets out the forecasted debt service coverage of the senior revenue bond debt service,
i.e., the ratio of net revenue to total senior revenue bond debt service for each year of the study
period. See Ex. MSD 1, p. 4-25, and Table 4-10. Line 28 of Table 4-10 sets out the debt service
coverage of the combined senior revenue bond and SRF debt service (i.e., the ratio of net revenue
to total debt service) for each year of the study period. Id. As noted above, current wastewater
revenue bond covenants require the District to provide debt service coverage equal to at least
125% (>1.25x) of the annual principal and interest payments on all senior revenue bonds, and
115% (>1.15x) of the combined annual principal and interest payments on all wastewater senior
revenue bonds and all SRF loans. See Ex. MSD 1, p. 4-25.
On May 18, 2022, Moody’s Investors Services assigned a credit rating of Aa1 to the
District's revenue bond obligations. See Ex. MSD 52. On May 16, 2022, Standard & Poor’s
Rating’s Service assigned its “AAA” rating to the District’s Series 2022B wastewater system
improvement and refunding revenue bonds and affirmed its “AAA” rating on the District’s
existing wastewater system revenue debt. See Ex. MSD 51, p. 2. The rating agencies have each
noted that the District’s current high credit rating could be compromised if projected debt service
coverage falls below the 1.25x and 1.15x targeted levels. See Exs. MSD 51 and 52; see also Ex.
MSD 3H, p. 4, ll. 15-23.
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Proposed Revenue Bonds
The District worked with its financial advisor “to develop a financing plan for the Rate
Change Proposal that, combined with proposed revenues and operating expenses, is consistent
with maintaining AA bond ratings based on similar issuers and feedback from the District’s rating
agencies.” See Ex. MSD 3H, p. 4, ll. 15-23. Tim Snoke, Secretary-Treasurer for the District,
testified that the 1.25x and 1.15x targeted levels are minimum levels to avoid defaulting on the
debt and that in order to maintain the District’s high credit ratings, the Rate Change Proposal was
designed to maintain a senior debt service coverage ratio of at least 2.5x and a total debt coverage
ratio of at least 1.8x over the Rate Change Proposal period. See Ex. MSD 1, p. 4-25; see also Ex.
MSD 3H, p. 7, ll. 8-14. The net operating revenues and debt service totals projected in the Rate
Change Proposal and Rate Model show that the proposed rates are expected to be sufficient to
meet these targeted ratios. See Ex. MSD 70A, No. 3.
The District’s CIRP projects are primarily funded by the issuance of senior revenue bonds
and SRF loans, while the smaller remaining work is on a cash-funded basis (Pay As You Go).
See Ex. MSD 1, p. 4-15; see also Ex. MSD 3H, p. 3, ll. 14-22. Debt financing of the majority of
the CIRP allows the financing burden to be appropriately shared by both present and future users
benefiting from the wastewater system improvements. See Ex. MSD 3H, p. 3, ll. 23-24; p. 4, ll.
1-10. Capital improvements routinely incurred each year as determined by the District’s
comprehensive asset management program are more appropriately financed with Pay As You Go
revenue generated from annual wastewater service revenue. See Ex. MSD 1, p. 4-17.
New senior revenue bonds with a total par value of $507.4 million and $133.1 million in
additional SRF loans are expected to be issued between FY 2025 and FY 2028 to provide funding
for the CIRP. See Ex. MSD 1, p. 4-17. This will require the District to obtain voter approval for
29
authorization of $750 million of additional debt financing prior to FY 2025. Id. at p. 4-25. The
District’s proposal assumes $43 million of the SRF loan proceeds in FY 2025 and $30 million
per year for 2026, 2027 and 2028. See Ex. MSD 3H, p. 8, ll. 11-24; and Ex. MSD 75, p. 111, ll.
8-19. Cash financing of capital improvements from annual revenues is expected to total $584
million of the total CIRP between FY 2025 and FY 2028. See Ex. MSD 1, p. 4-18. At the time
the Rate Change Proposal was submitted, the District anticipated receiving grants and
contributions of $3 million between FY 2025 and FY 2028. Id.7
The projected amortization of future revenue bond issues, as determined by PFM
Financial Advisors LLC (“PFM”), the District’s financial advisor, is based on current market
conditions and certain assumptions regarding future market conditions. See Ex. MSD 1, p. 4-19.
Proposed revenue bond issues will be governed by supplemental bond ordinances incorporating
the bond covenants set forth in the Master Bond Ordinance. Generally, future senior revenue
bonds are assumed to have a 30-year term and an annual coupon rate of 5.0%. See Ex. MSD 1,
p. 4-19; see also Ex. 3H, p. 7, ll. 8-20. Future SRF loans issued to fund the CIRP are expected to
have 20-year terms and a net effective annual interest and administration cost of below 3% per
year. See Ex. MSD 1, p. 4-19; and Ex MSD 3H, p. 9, ll. 20-23. In addition to the interest cost of
future debt, the District will incur issuance costs with each senior revenue bond issue and SRF
loan, and be required to maintain a debt service reserve fund for the senior revenue bonds. The
issuance costs for senior revenue bonds are estimated at 1.0% of the total issuance amount. See
Ex. MSD 1, p. 4-19; see also Ex. MSD 3H, p. 7, ll. 8-20. Issuance costs for SRF loans are expected
7 In response to the Rate Commission’s First Discovery Request, the District advised that
the source of grants and contributions was $5 million in funding from the American Rescue
Plan Act to be applied towards the construction of the Normandy Sanitary Relief Project.
See Ex. MSD 68A, No. 7.
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to be 0.65% of the total SRF loan amount. See Ex. MSD 1, p. 4-19; see also Ex. MSD 3H, p. 9,
ll. 20-24.
Based on these assumptions, the total annual debt service during the forecast period for
existing debt and future proposed debt is expected to increase from $123.9 million in FY 2022 to
$205.6 million in FY 2028. See Ex. MSD 1, p. 4-19.
The Missouri Supreme Court has specifically held that the issuer of revenue bonds for the
O&M of a sewage system has the authority to raise water and sewage rates, not only to pay
principal and interest on revenue bonds issued for the purpose of construction of a water treatment
plant and water transmission lines, but also to meet the cost of maintenance and operation of the
physical plan itself. See Oswald v. City of Blue Springs, 635 S.W.2d 332, 333-34 (Mo. banc
1982). Moreover, once the voters have approved the bonds, such increases may be made without
again submitting the increase to the voters. Id. at 334. Under Oswald, approval of the Rate Change
Proposal is not required to meet existing bond covenant requirements on revenue bonds
previously authorized by the voters.
Missouri State Revolving Fund
The “Missouri Clean Water Law” is designed to meet the requirements of the Federal
Clean Water Act of 1987 (the “Act”); 33 U.S.C. §§ 125-1376. See § 644.011, RSMo. It also
establishes the Missouri Clean Water Commission (the “Commission”), which is required to
adopt rules and regulations to enforce the powers and duties of Chapter 644 and the Act. See
§§ 644.021, 644.026, RSMo. The Missouri Code of State Regulations sets forth the general
requirements for the implementation of Title VI of the Act, which authorizes the administrator of
the EPA to make capitalization grants to states to fund financial assistance programs authorized
by Title VI of the Act. See 10 CSR 20-4.021.
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The Missouri State Revolving Fund Program is a partnership between the EPA and the
Missouri Department of Natural Resources (the “Department”), and provides subsidized low
interest rate loans to qualifying applicants.
In Missouri, the Clean Water State Revolving Fund Program consists of the Water and
Wastewater Loan Fund (“WWLF”) and the Water and Wastewater Revolving Loan Fund
(“WWRLF”) and those accounts secured by funds from the WWLF and the WWRLF. 10 CSR
20-4.040(2)(P). The SRF is subject to the requirements, restrictions, and eligibilities placed on
the SRF by the Act. Id. The SRF also funds the State Direct Loan Program (“Direct Loans”). See
10 CSR 20-4.041.
The Department may make Direct Loans by purchasing the general obligation bonds,
revenue bonds, short-term notes or other acceptable obligations of any qualified applicant for the
planning, design, and/or construction of an eligible project. See 10 CSR 20-4.041(1). These loans
shall not exceed the total eligible project cost. Id.
Direct Loans are funded from SRF loan repayments of federal capitalization grants. See
10 CSR 20-4.041(3). The Department purchases the revenue bonds, general obligation bonds, or
other acceptable debt obligations from the recipient no later than six months following the initial
operation of the facilities constructed by the project or by the closing deadline contained in the
construction loan agreement, whichever is earlier. See 10 CSR 20-4.041(8). In addition, the
Department may require the recipient to include those assurances and clauses in the loan
agreements and bond resolutions as deemed necessary to protect the interest of the state. Id.
Under the Direct Loan Program, the bonds, notes or other debt obligations shall be fully
amortized in no more than 20 years after initiation of operation and the payment frequency shall
be no less than annually with the first payment no later than one year after the initiation of
32
operation. See 10 CSR 20-4.041(9). Repayment of principal shall begin no later than one year
after initiation of operation and if at any time during the loan period the facility financed through
a Direct Loan is sold, either outright or on contract for deed, to an entity other than a political
subdivision of the state, the loan becomes due and payable upon transfer. Id.
As noted above, the Rate Change Proposal assumes $43 million of SRF loan proceeds in
FY 2025 and $30 million per year for FY 2026-FY 2028. See Ex. MSD 3H, p. 8, ll. 11-24; and
Ex. MSD 75, p. 111, ll. 8-19.
Cash/Debt Ratio and Debt Service Coverage
Under the Rate Change Proposal, the CIRP debt to equity funding mix for FY 2025 to FY
2028 is approximately 60% debt to 40% equity. See Ex. MSD 3I, p. 4, ll. 2-14. This ratio includes
both revenue bonds and any SRF obligations of the District. Id.
Pamela Lemoine, Rate Consultant to the Commission, testified that: (i) the District’s
proposed issuance of revenue bonds and SRF loans to finance a substantial portion of the CIRP is
a sound capital financing approach; and (ii) financing the CIRP from a mix of long-term debt and
cash financing is reasonable, and helps spread the cost of improvements by allowing future
customers receiving the benefit of the improvements to help pay for the improvements. See Ex.
RC 78, p. 12, ll. 17-23; p. 13, ll. 1-2. In addition, bond rating agencies favorably view a meaningful
balancing of debt to cash financing of a utility’s capital program. Id. at p. 13, ll. 2-4. Ms. Lemoine
testified that she believes that the District’s proposal of approximately 40% cash financing is
consistent with the 25% to 30% cash financing of capital that is deemed an industry accepted best
practice. Id. at p. 13, ll. 4-11.
When asked how the debt service coverage targets were developed, Bethany Pugh stated
that “[p]rojected minimum coverage targets of 2.5x [senior debt service] and 1.8x [combined debt
33
service] have been identified as the optimal coverage levels needed to maintain high AA-level
bond ratings, thereby ensuring cost effective market access for the District’s large capital
program.” See Ex. MSD 3I, p. 5, ll. 6-10. The Commission’s Rate Consultant, Ms. Lemoine,
considers the District’s policy to maintain senior debt service coverage of 2.5x or greater and total
debt service coverage of 1.8x or greater a valid and important metric, particularly in light of the
District’s current and anticipated future heavy debt profile. See Ex. RC 78, p. 23, ll. 12-16.
Pamela Lemoine observed that the District’s Rate Change Proposal requires substantial
additional debt to be incurred over a short period of time, with the issuance of new debt in FY
2025 through FY 2028 and beyond in order to continue to fund the projects required by the Consent
Decree. See Ex. RC 78, p. 13, ll. 22; p. 14, ll. 1-3. While the District’s proposal provides for debt
service coverage well over the minimum required by the District’s bond covenants, the District’s
proposal indicates projected debt service coverage declining to the District’s minimum policy level
for All Debt of 1.8x by FY 2026. Id. at p. 13, ll. 22; p. 14, ll. 1-6. Given that the Rate Change
Proposal results in debt service coverage reaching the District’s minimum policy levels by FY
2026, Ms. Lemoine expressed concern that any unforeseen impact to revenue generation and/or
expenditures relative to the assumptions used in the development of the Rate Change Proposal
could pose a risk of coverage levels dropping lower than the District’s minimum policy level. Id.
at p. 13, ll.22; p. 14, ll. 1-14.
Ms. Lemoine noted in her testimony that there is even greater concern given that the
District’s Rate Change Proposal includes an assumption that the District will obtain approval for
a two-year delay in completion of projects in the latter part of the Consent Decree project schedule.
Id. at p. 14, ll. 15-17. She pointed out that Mr. Unverferth, in his testimony at the Technical
Conference for Direct Testimony, stated that the delayed projects relate to a CSO tunnel along
34
River Des Peres. Id. at p. 14, ll. 17-19; see also Ex. MSD 75, p. 25, ll. 11-25. Ms. Lemoine
recognized that if the District is not successful in receiving authorization for the delay, there could
be a risk that debt service coverage could be reduced compared to that projected in the Rate Change
Proposal. See Ex. RC 78, p. 15, ll. 1-7. She further noted that if the District is not successful in
obtaining approval for the two-year delay, the District will need to manage finances carefully in
FY 2028, in order to meet desired fund balances and debt service coverage, and propose higher
revenue increases in the next rate proposal. Id. at p. 15, ll. 8-21.
Intervenor MIEC submitted comments8 stating that the level of debt service coverage
proposed in the Rate Change Proposal “is simply too expensive to place on customers [while] at
the same time asking customers to pay big rate increases to support a continued elevated level of
capital expenditures.” See Ex. MIEC 107, p. 2. Further, 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 utilit y 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.” Id. at 3.
After these comments were made at the public hearing, the Rate Commission requested
additional information from the District and the Rate Consultants as to the effect on the rates if in
fact the debt service coverage was changed to 1.6x and/or the funding was changed to a ratio of
approximately 70% debt and 30% other sources. Additional documents in response to this request
were produced and provided to the Rate Commission during deliberations. These documents are
attached to this Report as Exhibit A.
8 The MIEC comments were submitted in connection with the final public hearing. Neither
the District nor the Rate Commission’s Rate Consultant have had an opportunity to respond
to the comments.
35
In sum, the Rate Consultant believes that the two topics are intertwined, and it is really the
debt service coverage that drives the debt/cash ratio. The debt/cash ratio becomes an outcome of
the debt service coverage rate. The Rate Consultant noted that 1.6x debt service in 2027 would
cause the rates to drop precipitously at that time, and would generate a negative outlook. The Rate
Consultant also noted that the actual impact on ratepayers would be minimal.
It is the position of the Rate Commission that the cash/debt mix is appropriate (particularly
because it is driven by the debt service coverage ratio) to pay the interest and principal falling
due on bonds issued to finance assets of the District, and meets the standard set forth in the Charter
Plan. Similarly, the Rate Commission finds that the debt service coverage ratio reached in the
Rate Change Proposal is appropriate to provide funds necessary to pay the interest and principal
falling due on the bonds issued and to be issued by the District, and thus meets the requirements
set forth in the bonds.
The Rate Commission believes that the evidence introduced in this Proceeding supports
a finding that the Wastewater Rate Change Proposal is necessary to pay interest and principal
falling due on bonds issued to finance assets of the District.
STORMWATER
There are no outstanding bonds to fund the stormwater capital improvements and none are
proposed. The Rate Proposal for the Stormwater Capital Program does not contemplate the use of
any debt. See Ex. MSD 74, p. 223, ll. 18-24; see also Ex. MSD 70A, p. 7. Any bond covenants of
the District “would not relate to this Stormwater Capital Program.” See Ex. MSD 74, p. 224, ll. 1-
7.
Marion Gee, Director of Finance for the District, testified that the District did not consider
using debt financing to fund the Stormwater Capital Improvement and Replacement Program
36
(“CIRP”). See Ex. MSD 74, p. 216, ll. 14-17. Mr. Gee noted that “given the size of the program,
an issuance of debt really would not be feasible.” Id. at p. 216, ll. 20-21. Further since many of the
proposed projects in the CIRP would be on private property, the use of tax-exempt bond financing
could “potentially” be restricted or limited. Id. at 217, ll. 4-11.
Brian Hoelscher, Executive Director of the District, testified that the ad valorem
stormwater tax for residential property and the impervious surface charge for non-residential
property were calculated based on the amount that customers could afford. See Ex. MSD 74, p.
91, ll. 6-25. The District based the Stormwater CIRP on the amount of money it anticipated it
would collect, rather than from a comprehensive assessment of stormwater flooding and erosion
needs. Id. at p. 92, ll. 1-12. Since the CIRP is based on the amount anticipated to be collected from
rate revenue, the District’s position is essentially that bond financing would not be appropriate, as
its goal is to spend what it can based on revenue collected.
The Rate Consultants agreed with the District’s decision not to utilize debt financing for
the Stormwater CIRP. Rate Consultant Anna White testified that “it seems reasonable to cash
finance the stormwater CIRP.” See Ex. MSD 77, p. 13, ll. 3-4. Ms. White noted that using debt
financing for stormwater “would likely reduce the amount [of bond financing] available for
wastewater and potentially impact District’s ability to fund the proposed wastewater CIRP fully.”
Id. at p. 13, ll. 2-3
The Rate Commission finds, based on the record in these Proceedings, that the issuance of
debt would not meaningfully reduce the burden on ratepayers, because the Stormwater Capital
Program was designed to raise an amount of revenue that residents and businesses could most
likely afford, and to expend those funds on capital projects, rather than by determining the amount
of funding needed and calculating a rate for residents and businesses to raise the needed revenue.
37
The issuance of debt would limit the amount of funds available for capital projects without
providing meaningful relief from the amount of the tax/rate. The Rate Commission further finds
that the use of debt in this Rate Change Proposal could reduce the District’s capacity to issue new
debt for the Wastewater CIRP, and to meet its obligations under the Consent Decree for future rate
change proposals.
THE RATE COMMISSION, AFTER DISCUSSION AND CONSIDERATION OF
ALL OF THE FACTS AND CIRCUMSTANCES DISCLOSED IN THESE
PROCEEDINGS, FINDS AND DETERMINES THAT THE RATE CHANGE PROPOSAL
TO FUND THE WASTEWATER CAPITAL IMPROVEMENT AND REPLACEMENT
PROGRAM WITH A COMBINATION OF BOND AND CASH FINANCING PROVIDES
FOR THE FUNDS NECESSARY TO PAY PRINCIPAL AND INTEREST FALLING DUE
ON REVENUE BONDS PREVIOUSLY AUTHORIZED AND THE ADDITIONAL $750
MILLION IN REVENUE BONDS PROPOSED TO BE ISSUED.
ALTERNATIVELY, IF VOTER APPROVAL IS NOT OBTAINED FOR FUTURE
BOND FINANCING, THE RATE COMMISSION, AFTER CONSIDERATION OF ALL
OF THE FACTS AND CIRCUMSTANCES DISCLOSED IN THESE PROCEEDINGS,
FINDS AND DETERMINES THAT THE RATE CHANGE PROPOSAL TO FUND THE
WASTEWATER CAPITAL IMPROVEMENT AND REPLACEMENT PROGRAM WITH
A COMBINATION OF EXISTING BOND AND CASH FINANCING PROVIDES FOR
THE FUNDS NECESSARY TO PAY PRINCIPAL AND INTEREST FALLING DUE ON
THE REVENUE BONDS PREVIOUSLY ISSUED AS AUTHORIZED IN PRIOR
38
PROCEEDINGS TO FINANCE THE CAPITAL IMPROVEMENT AND
REPLACEMENT PROGRAM.
THE RATE COMMISSION, AFTER DISCUSSION AND CONSIDERATION OF
ALL OF THE FACTS AND CIRCUMSTANCES DISCLOSED IN THE RECORD AND
PRESENTED IN THESE PROCEEDINGS, FINDS AND DETERMINES THAT THE
RATE CHANGE PROPOSAL TO FUND STORMWATER CAPITAL IMPROVEMENTS
PROVIDES THE FUNDS NECESSARY9 TO PAY PRINCIPAL AND INTEREST
FALLING DUE ON BONDS ISSUED TO FINANCE ASSETS OF THE DISTRICT.
9 As noted on page 7, this factor is inapplicable to stormwater since no stormwater bonds are
contemplated.
39
Second Criteria: Whether the Rate Change Proposal provides the funds necessary
to pay the costs of operation and maintenance.
WASTEWATER
The District’s current wastewater rate structure consists of monthly service charges and
volume charges applicable to all District customers. The monthly service charges include a billing
and collection charge and a system availability charge. A volume charge is assessed to all
customers based on their respective water usage. Water usage information is provided by
customers’ respective water provider on either a metered or unmetered basis. All non-residential
customers are also assessed a compliance charge and extra strength charges where applicable.
Non-residential customers are assessed one of five tiered compliance charges based on the amount
of wastewater inspection and testing needed to comply with current regulations. Extra strength
surcharges are applied to monitored non-residential customers generating excess biochemical
oxygen demand (“BOD”), chemical oxygen demand (“COD”), and total suspended solids (“TSS”).
See Ex. MSD 1, p. 4-1.
A summary of the District’s financial plan, showing projected wastewater revenues and
wastewater revenue requirements for the forecast period, is presented in Table 4-10 of Exhibit
MSD 1. Table 4-10 depicts wastewater user charge revenue required in order to balance the
revenue requirements through FY 2028. See Ex. MSD 1, Table 4-10. The increase shown for
each year was selected based on consideration of three principal criteria:
(i) Total revenue necessary to meet cash requirements for normal wastewater
operations. This includes consideration of a one-month lag in the receipt of
additional user charge revenue from increased rates;
(ii) Annual increases in wastewater revenues available to cash finance a portion of the
wastewater utility related major capital improvements; and
40
(iii) Wastewater revenue required to meet certain financial metrics, based on
comments from the District’s rating agencies, including debt service coverage
levels and strong liquidity position over the Rate Proposal period.
See Ex. MSD 1, p. 4-23. Total wastewater Revenue is projected to be $475.8 million in FY 2024
and increase to $608.6 million in FY 2028. See Ex. MSD 1, Table 4-10.
Wastewater Operating Reserve. The operating reserve is a balance maintained to
accommodate fluctuations in annual revenues and expenditures. The District has a minimum
operating reserve target equal to 60 days of annual operating expenses. The existing revenue bond
covenants require the District to maintain a minimum balance equal to 45 days of O&M expense.
The District’s self-imposed 60-day minimum provides a buffer to allow for potential timing
issues involved with funding requirements, provides increased operational flexibility, and helps
support future bond ratings. Figure 4-5 in the Rate Change Proposal presents the estimated
balance in the wastewater operating reserve throughout the forecast period. See Ex. MSD 1, p. 4-
20. The wastewater operating reserve is projected to exceed the minimum balance throughout the
forecast period.
Customer Accounts. The District’s ratepayers are classified into three customer classes:
single family, multi-family and non-residential. See Ex. MSD 1, p. 4-3. The District’s wastewater
revenue reflects the assessment of the specific rate components for each customer class. Id.
The historical and projected average number of wastewater customers served by the
District are provided in Figure 4-1 and Table 4-2 of Exhibit MSD 1. As indicated in Table 4-2, the
number of total customer accounts increased by an average of 0.15% per year between FY 2018
and FY 2022. See Ex. MSD 1, p. 4-3. Based on this trend, the number of customer accounts is
projected to increase by 0.24% annually throughout the forecast. Id.
41
Projected Wastewater Revenues. Estimated revenues for FY 2025 through FY 2028 use
FY 2024 approved rates. See Ex. MSD 1, p. 4-8. The District’s historical wastewater revenue for
FY 2022 is based on actual rates, customer account and usage data. Id. Projected revenue from
wastewater user charges is based on projected customer demands and the rates approved through
FY 2024 (revenue in FY 2025-FY 2028 assumes no changes in the approved rates for FY 2024).
Id. The wastewater user charge revenue under existing rates would decrease from $468.2 million
in FY 2024 to a projected $454.0 million in FY 2028. Id. This change is due to a combination of
key factors: the impact of economic conditions, projected fluctuations in excess strength
wastewater revenue due to more extensive pre-treatment programs and projected changes in
wastewater volume consistent with historical trends. Id. As customer volumes continue to decline
over the projection period, the revenue would be expected to decline as well. Id.
Wastewater O&M Expense. Operation and Maintenance (O&M) Expenses are the
reasonable and necessary current expenses of the District paid or accrued in operating and
maintaining the Wastewater System. Id. at p. 9-6. On April 22, 2004, the Board of Trustees issued
revenue bonds under the terms of a Master Bond Ordinance which obligated the District to
provide revenues sufficient to fund 100% of the expenses of O&M and for the accumulation of a
reasonable operating reserve. See Ex. MSD 15, § 6.1.1.
The revenue needed to support the District’s wastewater system must be sufficient to meet
its cash requirements. The District’s operating revenue requirements consist of the following: (i)
total wastewater system O&M expenses; (ii) expenditures for routine capital improvements; (iii)
components of the CIRP funded directly from revenues; (iv) wastewater revenue bond debt
service; and (v) a minimum 60-day operating reserve. See Ex. MSD 1, p. 4-12.
42
A summary of projected wastewater O&M expense for FY 2022 through FY 2028 is
presented in Table 4-6 of Exhibit MSD 1. Future wastewater O&M expense is projected to
increase from $185.8 million in FY 2022 to $237.7 million in FY 2028. See Ex. MSD 1, p. 4-12.
Bret Berthold testified on behalf of the District that wastewater services are comprised of
the effective collection, transport, and treatment of wastewater within the District and that this
requires the operation and maintenance of over 6,300 miles of sanitary and combined sewers, over
270 pump stations, and 7 wastewater treatment plants. See Ex. MSD 3F, p. 2, ll. 2-6. He further
testified that the purpose of the District’s wastewater O&M program is to maintain the wastewater
system in a proactive and efficient manner that meets all State and Federal regulatory requirements
and minimizes disruptions to customers. Id. at p. 2, ll. 7-10. Mr. Berthold testified that within the
collection system and pump stations groups, the O&M program is focused around the requirements
of the Capacity Management, Operations, and Maintenance (CMOM) program within the Consent
Decree (CD); that within the collection system this requires proactive cleaning, inspecting, and
rehabbing of pipe to assure adequate capacity; that pump stations and force mains are regularly
inspected and maintained with the inspection frequency being based on the criticality of the asset;
and that in the treatment plants, asset management consists of performing equipment maintenance
and repairs based on criticality to assure permit and regulatory issues are met. Id. at p. 2, ll. 21-25;
p. 3, ll. 1-6. He further testified that Federal and State requirements make operation and
maintenance mandatory; that the CMOM program required by the Consent Decree requires that
minimum maintenance and performance standards be met in the collection system and pump
stations, or penalties may be incurred; and that proper O&M within the plants is required to meet
the obligations outlined in each wastewater treatment plant permit. Id. at p. 3, ll. 7-12.
43
Some capital projects are also funded in the O&M budget. Such projects typically consist
of expenditures that do not result in a new District asset. See Ex. MSD 1, p. 4-13. In general, these
projects include infrastructure repairs, watershed planning, rainfall data gathering, and streamflow
sampling, which are all required to maintain existing assets. Id. Due to the nature of these projects,
they are ineligible for bond or SRF funding; therefore, they are budgeted as operating expenses.
Id. In this rate cycle, one such significant expense is for the fluidized bed incinerator projects used
to dispose of solids as part of the treatment process. Id. at p. 4-38. These projects are required to
meet regulatory requirements. See Ex. RC 78, p. 15, ll. 13-16.
Mr. Berthold testified that in his opinion “the rate change proposal is necessary to pay the
cost of [O&M].” See Ex. MSD 75, p. 47, ll. 5-8. Mr. William Stannard, Rate Consultant to the
District, reached the same conclusion also testifying that the rate change for wastewater “is
necessary to pay the cost of [O&M].” Id. at p. 133, ll. 19-25; p. 134, ll. 1-8. It is the District’s
position that the Rate Change Proposal provides the funding necessary to, among other things,
“continue adequate O&M in the collection systems, pump stations, and wastewater treatment
plants.” See Ex. MSD 1, p. 4-41.
A significant component of O&M costs in this rate cycle relate to the incinerator projects
at the Bissell and Lemay Treatment facilities. See Ex. MSD 82, p. 106, ll. 1-6. The District
estimated10 the cost of the fluidized bed incinerator projects at $951,200.00. See Ex. MSD 83B, p.
4. The District states that these projects are necessary to replace aging infrastructure, comply with
10 On July 13, 2023, while the Rate Commission was evaluating this Rate Change Proposal,
the District’s Board of Trustees approved Ordinance No. 16090, appropriating
$101,000,000.00 for construction of the Bissell and Lemay Fluidized Bed Incinerator
projects, and awarding a contract for same to Kokosing/Plocher, LLC for such project. The
Ordinance states that the District intends to request supplemental appropriations for a total
project amount of $900,000,000.00 through FY 2028 for these projects.
44
air emissions standards, improve air quality, to avoid operating NPDES permit violations, and to
comply with Consent Decree modifications. See Ex. MSD 83B1, p. 22.
Pamela R. Lemoine, Rate Consultant to the Rate Commission, found that the O&M
escalation factors and debt financing assumptions used in the projections of annual O&M
expenditures and debt service, respectively, are reasonable. See Ex. RC 78, p. 5, ll. 14-16. She
further found that the cash flow and debt service coverage analyses presented in the District’s
Rate Change Proposal will provide funds necessary to, among other things, meet the annual O&M
expenditures and the minimum levels of annual O&M reserves. Id. at p. 5, ll. 17-23. She testified
that the District’s projected costs to provide wastewater service and complete anticipated capital
projects required under the Consent Decree appear to be reasonable and are projected to provide
the District with adequate funding to maintain the financial health of the utility. Id. at p. 9, ll. 5-
11. The District has proposed wastewater rates based on cost of service principles that are
commonly used in the industry, as outlined in the Water Environment Federation’s Manual of
Practice No. 27, “Financing and Charges for Wastewater Systems.” Id. at p. 9, ll. 11-16.
No evidence was presented to suggest that the District’s Rate Change Proposal would not
provide the funds necessary to pay the costs of O&M.
STORMWATER
District stormwater revenue is presently derived from: (1) the District’s 2 -cent property
tax used to fund stormwater regulatory services; and (2) the District’s 10-cent property tax used
to fund stormwater operation and maintenance services (funded through Prop S). See Ex. MSD
1, p. 5-1. Funding is also available to certain OMCI subdistricts for stormwater-related projects
within their boundaries. Id. at p. 5-4. The Stormwater Rate Change proposal would provide a
source of funding for flooding and erosion control throughout the District. Id. at p. 5-1.
45
The Stormwater Rate Change is not designed to address operation and maintenance, but
rather capital projects only. See Ex. MSD 3A, p. 2, ll. 3-7. Section 3.020(20) of the Charter Plan
limits the amount of taxes that the District can levy for operations and maintenance to 10 cents
on the hundred dollars of assessed valuation.
The revenue generated from the Stormwater Capital Program is not going to fund
anything in the District’s public storm sewer system. See Ex. MSD 74, p. 87, ll. 25; p. 88, ll. 1-
4. Brian Hoelscher testified on behalf of the District that “[i]f we have a public storm sewer
system that discharges to a creek or a stream and that discharge is causing erosion … we’ll make
that part of O&M because that’s part of our public storm sewer system causing that problem. If
there’s none of those around and we have an erosion problem along the creek, that will be funded
by this program.” Id. at p. 88, ll. 5-13. Otherwise, anything involving the public storm sewer
system is going to be funded out of the existing O&M property tax. Id. at p. 88, ll. 14-18.
The Rate Commission finds that the record in these Proceedings is clear that Stormwater
Capital Program is intended only for capital projects. As such the costs of operations and
maintenance are adequately provided by other revenue sources.
THE RATE COMMISSION, AFTER DISCUSSION AND CONSIDERATION OF
ALL OF THE FACTS AND CIRCUMSTANCES DISCLOSED IN THESE
PROCEEDINGS, FINDS AND DETERMINES THAT THE RATE CHANGE PROPOSAL
PROVIDES THE FUNDS NECESSARY TO PAY THE COSTS OF OPERATION AND
MAINTENANCE.
46
Third Criteria: Whether the Rate Change Proposal provides the necessary funds to
pay such amounts as may be required to cover emergencies and anticipated delinquencies.
WASTEWATER
Proposed Wastewater Capital Funding. The Rate Change Proposal presents the District’s
proposed use of $43 million of debt financing pursuant to its existing $500 million debt financing
authority; up to an additional $670 million of additional debt under a new $750 million debt
authorization; and $585 million in cash financing to fund its wastewater CIRP through FY 2028.
See Ex. MSD 3H, p. 2, ll. 3-9. The Proposed Rate Change is projected to provide the funding
necessary “to allow the District to operate and maintain its systems and make necessary capital
improvements to meet the commitments of the Consent Decree and comply with existing permit
regulations. In addition, it provides the funds needed to continue adequate O&M in the collection
systems, pump stations, and wastewater treatment plants.” See Ex. MSD 1, p. 4-41.
The District proposes to finance the required capital improvements by a combination of
wastewater user charge revenues, available fund balances, senior revenue bond proceeds, WIFIA
loans, Missouri Clean Water SRF loan proceeds, grants and contributions, and interest income.
See Ex. MSD 1, p. 4-17.
Proposed Wastewater O&M Funding. The District’s current wastewater rate structure
consists of monthly service and volume charges applicable to all District customers. The monthly
service charges include a billing and collection charge and a system availability charge. A volume
charge is assessed to all customers based on their respective water usage, which information is
provided by customers’ water providers on either a metered or unmetered basis. All non-residential
customers are also assessed a compliance charge and extra strength charges where applicable.
Non-residential customers are assessed one of five tiered compliance charges based on the amount
47
of inspection and testing of wastewater needed to comply with current regulations. Extra strength
surcharges are applied to monitored non-residential customers generating excess BOD, COD, and
TSS. See Ex. MSD 1, p. 4-1.
Days Cash on Hand. Days Cash on Hand (“DCOH”) is a liquidity metric that measures an
entity’s ability to meet short-term needs and contingencies. DCOH is calculated by dividing cash
and relatively liquid investments by operating expenses (less depreciation) and then dividing by
365 days. See Ex. MSD 3I, p. 6, ll. 2-7. Bethany Pugh, Managing Director at PFM (the District’s
financial advisor) testified that during the proposed rate period (FY 2025-FY 2028), the District
intends to proactively manage DCOH exclusive of long-term unrestricted investment to a
minimum of 550 days. Id. at p. 6, ll. 8-12.11
Wastewater Operating Reserve. The operating reserve is a balance maintained to
accommodate fluctuations in annual revenues and expenditures. The existing revenue bond
covenants require the District to maintain a minimum balance equal to 45 days of O&M expense.
See Ex. MSD 1, p. 4-20. The District has a minimum operating reserve target equal to 60 days of
annual operating expenses. Id. The self-imposed 60 days minimum provides a buffer to allow for
potential timing issues involved with funding requirements, provides increased operational
flexibility, and helps support future bond ratings. Id. Figure 4-5 in the Rate Change Proposal
presents the estimated end of year balance in the wastewater operating reserve throughout the
forecast period. Id. The graphic demonstrates that the wastewater operating reserve is projected to
exceed the minimum balance throughout the forecast period. Id.
11 In response to the Rate Commission’s Fourth Discovery Request, the District stated that it
“plans to proactively manage the level of short-term investments to meet a minimum of
500 DCOH throughout the FY25-FY28 rate cycle.” See Ex. 73A, No. 18. The District
claims that the 500 DCOH target is within the range of other issuers in the District’s rating
category. Id.
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Wastewater Cash Balances. Available cash balances are a very important element of a
wastewater utility’s financial plan. See Ex. RC 78, p. 24, ll. 3-7. Adequate fund balances are
necessary to ensure adequate working capital and funds for unanticipated events. Id. As shown, in
Figure 4.5 of the District’s Rate Change Proposal, the District projects the Wastewater Operating
Reserve will be at or above the District’s target of 60 days of O&M in all years of the projection
period. See Ex. MSD 1, Figure 4.5; and Ex. RC 78, p. 24, ll. 3-15. Table 4-10 of the District’s Rate
Change Proposal further indicates that at the end of FY 2028 there will be a balance of $41.3
million in Operating Reserves, equating to approximately 60 days of O&M expenses. This is
consistent with the targets of other wastewater utilities and provides the District with adequate
working capital to provide for any unanticipated expenditures or emergencies. See Ex. RC 78, p.
24, ll. 3-15.
Collection of Unpaid Wastewater Charges. The District, as a public sewer district created
and authorized pursuant to constitutional authority, may discontinue service and place a lien upon
a customer’s property for unpaid sewer charges. This lien will have priority and be enforced in the
same way as taxes are levied for state and county purposes. See § 249.255, RSMo.
The District may “establish by ordinance a schedule or schedule of rates, rentals, and other
charges, to be collected from all the real property served by the sewer facilities of the District …
and to collect or enforce collection of all such charges.” See Charter Plan, § 3.020 (16).
In 1957, the Board of Trustees of the District adopted an Ordinance providing that:
Whenever a sewer service charge has been delinquent for more than sixty days the
Executive Director may cause a notice of lien for non-payment thereof to be filed
in the Office of the Recorder of Deeds within and for the City of St. Louis or St.
Louis County, as the case may be. Such notice of lien shall state the amount of the
delinquent sewer service charge, and shall properly describe the p roperty against
which such lien is asserted. Upon the filing of such notice, such sewer service
charge shall be and become a lien upon the real property served to the amount of
49
such delinquent bill, and shall have priority over all other liens except taxes, deeds
of trust then of record, and prior judgments.
District Ordinance 138 (June 24, 1957).
The District has the authority to impose and enforce a lien upon the real property of a
customer for the failure to pay sewer charges. See St. Louis Inv. Prop., Inc. v. Metro. St. Louis
Sewer Dist., 873 S.W.2d 303 (Mo. App. E.D. 1994). The Missouri Revised Statutes provides that
should a public sewer district place a lien upon a customer’s property for unpaid sewer charges,
the lien shall have priority and be enforced in the same manner as taxes levied for state and county
purposes. See § 249.255.1, RSMo. Prior to 1991 and the enactment of Section 249.255, no
Missouri Statute or District ordinance gave the District’s sewer liens priority over deeds of trust.
St. Louis Inv. Prop., Inc., 873 S.W.2d at 307. Pursuant to Section 249.255, District liens are applied
prospectively and do not have priority over deeds of trust recorded prior to the enactment of §
249.255.1 on May 29, 1991. See Gershman Inv. Corp. v. Duckett Creek Sewer Dist., 851 S.W.2d
765, 769 (Mo. App. E.D. 1993). However, any liens imposed after 1991 have the same priority
and are enforced in the same manner as taxes levied for state and county purposes. See § 249.255.1,
RSMo.
Customer Assistance Charges. The District provides a 50% discount on wastewater charges
for low-income residential customers participating in the District’s Customer Assistance Program
(“CAP”) based on established District policy. See Ex. MSD 1, p. 4-37. The current customer
participation is approximately 4,200 customer accounts or 1% of the District’s total number of
single family and multi-family (up to 6 units) ratepayers. Id. Figure 4-8 shows the historical 5-year
trend in the program. Id.
The first CAP rate was adopted by the Board of Trustees in 1993 by Ordinance 9031. Id.
at p. 4-38. Since that time numerous changes have been made to the program to remain current
50
with the changing demographics of District ratepayers. Id. Current policy defines CAP eligibility
as residential customers with household income for the previous year less than 200% of the most
recent Health and Human Services poverty guidelines by household size and less than 250% for
disabled individuals or those ages 62 or older. See Ex. MSD 1, p. 4-38. The District expanded
the eligibility criteria to include Multi-Family residential customers residing in Multi-Family
housing consisting of six units or less. In November 2014, the District Board of Trustees approved
a one-time 50% reduction in any outstanding service charges for those accepted into the program.
These changes were made to assist the District’s continued efforts to increase the number of
customers participating in the program. Considerable focused outreach efforts are also a
significant component of promoting the CAP program. Id. The cost impact of the District’s
current CAP on a typical single family residential customer not eligible for assistance and
discharging 5 Ccf per month of wastewater is expected to be about $0.23, or 0.37% per month of
the District’s FY 2025 wastewater service charge revenue. Id. The impact of the change in
eligibility requirements is expected to increase participation in subsequent years as the District
continues to actively promote this program and increase the number of qualified low-income
customers. Id. The Rate Commission encourages the District to make every possible effort to
inform the public of the availability of the CAP program and the services it provides.
The Rate Change Proposal has been set to achieve minimum debt coverage ratios of 2.5x
(senior bonds) and 1.8x (total bonds), a minimum DCOH target of 500 to 550 days, and a
minimum Operating Reserve of 60 days. See Ex. MSD 3H, p. 7, ll. 8-20; see also Ex. MSD 73A,
p. 8. A bad debt provision equal to the projected base charge and volume charge revenue growth
from FY 2025 to FY 2028 has been applied to the FY 2023 bad debt expense budget to
51
compensate for a potential decrease in the collection rate due to rate increases. See Ex. MSD 3G,
p. 5, ll. 1-6.
The District’s testimony was that the rate change for wastewater is necessary to pay such
other amounts as may be required to cover emergencies and anticipated delinquencies. See Ex.
MSD 75, p. 134, ll. 9-18.
There was no evidence presented that the District’s Rate Change Proposal would not
provide the funds necessary to cover emergencies and anticipated delinquencies. The Rate
Commission believes that the evidence introduced in this Proceeding supports a finding that the
Rate Change Proposal provides the funds necessary to pay such amounts as may be required to
cover emergencies and anticipated delinquencies.
STORMWATER
Marion Gee testified on behalf of the District that the Stormwater Capital Fund isn’t
designed to cover emergencies and anticipated delinquencies. See Ex. MSD 74, p. 218, ll. 6-14.
The District targets an operating reserve equal to 240 days of Stormwater O&M expense in the
existing regulatory and Districtwide O&M Stormwater funds. See Ex. MSD 1, p. 5-3. However,
there is no minimum fund balance proposed for the Stormwater Capital Fund. See Ex. MSD 74, p.
218, 15-19. Since this is a capital fund, “it’s not intended for [emergencies and anticipated
delinquencies].” Id. at p. 218, ll. 6-14. Under the Charter Plan, “the only requirement is that the
fund has to have a positive fund balance.” Id. at p. 219, ll. 24-25; p. 220, ll. 1-2. If unplanned or
unexpected cost increase or expenses arise, “[t]here’s always the ability if we need to do some
kind of fund transfer, we could do that as well.” Id. at p. 220, ll. 9-15.
The Rate Consultants agree that it is not strictly necessary to establish a minimum fund
balance. However, Rate Consultant Anna White testified that a minimum fund balance “is
52
appropriate to allow the ability to accommodate unforeseen circumstances with projects underway
without relying on borrowing from other Stormwater or Wastewater funds.” See Ex. RC 77, p. 14,
ll. 20-23. She suggested that the District consider a minimum fund balance of 3-6 months. Id. at p.
15, ll. 8-9.
The Rate Commission finds that the record in these Proceedings is clear that the
Stormwater Rate Change Proposal is designed solely to fund capital projects, and that the
establishment of a minimum fund balance would only reduce the amount of revenue available to
fund capital projects. Further the Rate Commission finds that the District would have the ability
to account for emergencies and anticipated delinquencies through fund transfers.
THE RATE COMMISSION, AFTER DISCUSSION AND CONSIDERATION OF
ALL OF THE FACTS AND CIRCUMSTANCES DISCLOSED IN THESE
PROCEEDINGS, FINDS AND DETERMINES THAT THE RATE CHANGE PROPOSAL
PROVIDES FOR FUNDS IN SUCH AMOUNTS AS MAY BE REQUIRED TO COVER
EMERGENCIES AND ANTICIPATED DELINQUENCIES.
53
FACTORS FOR RECOMMENDATION
Any Rate Change recommended to the Board of Trustees by the Rate Commission is to be
accompanied by a statement of the Rate Commission that the proposed Rate Change, and all
portions thereof:
(1) is consistent with constitutional, statutory or common law as amended from time to
time;
(2) enhances the District’s ability to provide adequate sewer and drainage systems and
facilities, or related services;
(3) is consistent with and not in violation of any covenant or provision relating to any
outstanding bonds or indebtedness of the District;
(4) 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
(5) considers the financial impact on all classes of ratepayers in determining a fair and
reasonable burden.
See Charter Plan, § 7.270.
54
First Factor: Whether the Rate Change Proposal, and all portions thereof, “is
consistent with constitutional, statutory or common law as amended from time to time.”
The First Factor that must be addressed in the Rate Commission’s recommendation to the
Board of Trustees is whether the Rate Change Proposal is “consistent with constitutional, statutory
or common law as amended from time to time.” See Charter Plan, § 7.270(1). The District’s
position is that the Rate Change Proposal is necessary for it to comply with the Consent Decree,
and other laws, including the Clean Water Act.
The Rate Commission’s Rate Consultant, when asked how the Rate Commission should
make that determination, stated that the “[t]he Rate Commission should evaluate Charter Plan
authority, environmental improvement agency regulations, constitutional, and statutory
provisions, and applicable case law.” See Ex. RC 78, p. 7, ll. 9-13.
The Charter Plan does not define the terms or phrases contained within the First Factor.
When words are not defined in a statute, the words are usually attributed their plain and ordinary
meaning. See Sermchief v. Gonzales, 660 S.W.2d 683, 688 (Mo. banc 1983). Similarly, undefined
words and phrases utilized in the Charter Plan should be given their plain and ordinary meaning.
The commonly understood meaning of words is derived from the dictionary. See Buechner v.
Bond, 650 S.W.2d 611, 613 (Mo. banc 1983).
Merriam-Webster’s Dictionary defines “consistent” as “marked by agreement:
compatible .” See “Consistent.” Merriam-Webster.com12 Dictionary, Merriam-Webster.
Black’s Law Dictionary defines “constitutional law” as “the body of law deriving from the
U.S. Constitution and dealing primarily with governmental powers, civil rights, and civil liberties.”
12 https://www.merriam-webster.com/dictionary/consistent. Last accessed June 23, 2023.
55
See Black’s Law Dictionary, p. 331 (8th ed. 2004). See also “Constitutional law.” Merriam-
Webster.com13 Legal Dictionary, Merriam-Webster (“a body of statutory and case law that is based
on, concerns, or interprets a constitution”).
Next, “statutory law” is “the body of law derived from statutes rather than from
constitutional or judicial decisions.” See Black’s Law Dictionary, p. 1452 (8th ed. 2004). See also
“Statutory law.” Merriam-Webster.com14 Legal Dictionary, Merriam-Webster, (statutory law is
“the law that exists in legislatively enacted statutes especially as distinguished from common
law”).
Further, according to Black’s Law Dictionary, “common law,” as distinguished from
statutory law created by the enactment of legislatures, is the body of law derived from judicial
decisions rather than from statutes or from constitutions. See Black’s Law Dictionary, p. 293 (8th
ed. 2004).
Missouri defines “common law” as:
The common law of England and all statutes and acts of parliament made prior to
the fourth year of the reign of James the First, of a general nature, which are not
local to that kingdom and not repugnant to or inconsistent with the Constitution of
the United States, the constitution of this state, or the statute laws in force for the
time being….
See § 1.010, RSMo.
Finally, according Black’s Law Dictionary, the word “amend” means to change, correct,
or revise. See Black’s Law Dictionary, p. 89 (8th ed. 2004). See also “Amend.” Merriam-
13 https://www.merriam-webster.com/legal/constitutional%20law. Last accessed June 23,
2023.
14 https://www.merriam-webster.com/legal/statutory%20law. Last accessed June 23, 2023.
56
Webster.com15 Dictionary, Merriam-Webster (which includes the following definition: “to alter
especially in phraseology”).
This First Factor appears in almost identical fashion in § 7.300 of the Charter Plan, which
indicates that the Board of Trustees shall accept a Rate Commission Report unless it finds that the
report “is contrary to constitutional, statutory or common law as amended from time to time.” See
Charter Plan, § 7.300(b)(1). This factor is not further defined or explained.
As such, this factor must be interpreted in its plain and ordinary meaning pursuant to the
rules of statutory construction. Consequently, to interpret the phrase, “is consistent with
constitutional, statutory or common law as amended from time to time” with respect to the Rate
Commission’s rate recommendation means to ensure that any recommended rate comports with
all existing and relevant federal and statutory provisions.
Authority
The District is “a body corporate, a municip al corporation, and a political subdivision of
the state, with power to … act as a public corporation within the purview of this Plan, and shall
have the powers, duties, and functions as herein prescribed.” See Charter Plan, § 1.010. The
Missouri Constitution provides that upon the adoption of the Charter Plan, it “shall become the
organic law of the territory therein defined, and shall take the place of and supersede all laws,
charter provisions and ordinances inconsistent therewith relating to said territory.” Mo. Const. art.
VI, § 30(b). As explained by the Missouri Supreme Court, “[t]he apparent intent is to give the
freeholders, with the approval of the voters, power to do whatever the Legislature could ordinarily
do with respect to the creation, organization and authority of such a district.” State on inf. Dalton,
275 S.W.2d at 228.
15 https://www.merriam-webster.com/dictionary/amend. Last accessed June 23, 2023
57
As such, the Charter Plan is similar to legislation, and thus, the District has only such
powers as are delegated to it by the Charter Plan, or as may properly be implied from the nature
of the duties imposed. State on inf. McKittrick v. Wymore, 132 S.W.2d 979, 987-988 (Mo. banc
1939).
Section 3.020(16) of the Charter Plan provides that the District shall have the power to
“establish by ordinance a schedule or schedules of rates, rentals, and other charges, to be collected
from all the real property served by the sewer facilities of the District, whether public or private…”.
See Charter Plan, § 3.020(16). More specifically, Section 3.020(16) of the Charter Plan provides:
Section 3.020. Powers of the District. – The District established under the
provisions of this Plan shall have power:
…
(16) To establish by ordinance a schedule or schedules of rates, rentals, and other
charges, to be collected from all the real property served by the sewer
facilities of the District, whether public or private, and to prescribe the
manner in which and time at which such rates, rentals, and charges are to
be paid, and to change such schedule or schedules from time to time as the
Board may deem necessary, proper, or advisable, and to collect or enforce
collection of all such charges. Such schedule or schedules may be based
upon any classifications or sub-classifications which the Board may
determine to be fair and reasonable, whether similar or dissimilar to those
hereinafter enumerated and which are or shall be established by ordinance,
including but not limited to: (a) the consumption of water on premises
connected with such facilities, taking into consideration commercial,
industrial, and agricultural use of water; (b) the number and kind of
plumbing fixtures connected with such facilities; (c) the number of persons
served by such facilities; or (d) any combination of the factors enumerated.
Any such rates, rentals, or other charges against public property shall be
paid out of the general treasury of the public body, agency, corporation, or
authority owning such property.
See Charter Plan, § 3.020(16) (emphasis added).
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WASTEWATER
The District Rate Change Proposal will continue the District’s practice of charging rates
for wastewater service for metered user based on the consumption of water, and, for unmetered
customers, based on the number and kind of plumbing fixtures connected with the District’s sewer
facilities. See Ex. MSD 3E, p. 5, ll. 16-21.
The District proposes to finance required capital improvements by a combination of
wastewater user charge revenues, available fund balances, senior revenue bonds, WIFIA loans,
Missouri SRF loans, grants and contributions, and interest income. See Ex. MSD 1, p. 4-17. The
Rate Change Proposal presents the District’s proposed use of $43 million of debt financing
pursuant to its existing $500 million debt financing authority, up to an additional $670 million of
additional debt under a new $750 million authorization, and $585 million in cash financing to fund
its wastewater CIRP 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. See Ex. MSD
3H, p. 2, ll. 3-9; and Ex. MSD 1, p. 4-41.
In the event the District voters do not authorize new bonds to finance the CIRP, the District
proposes cash financing in order to comply with the terms of the Consent Decree. The financial
analysis supporting the development of the District’s alternative cash financing rate is described
in Ex. MSD 1, § 7.1, Figure 7.1, and Tables 7-1 through 7-4.
Revenue Bonds. As stated in the Background section of this Report and repeated here, the
District was formed on February 9, 1954, when voters in St. Louis City and a portion of St. Louis
County approved the Charter Plan to provide a metropolitan-wide system for the collection,
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treatment, and disposal of sewage. The Charter Plan was amended on November 7, 2000, June 5,
2012, and April 6, 2021.
The District’s powers related to the issuance of bonds include the following:
Section 3.020. Powers of the District. – The District established under the
provisions of this Plan shall have power:
…
(15) To meet the cost of acquiring, constructing, improving, or extending all or
any part of the sewer or drainage facilities and systems: (a) through the
expenditure of any funds available for that purpose; (b) through the issuance
of bonds for that purpose, payable from taxes to be levied and collected by
the District; (c) through the issuance of bonds for that purpose, payable
from special benefit assessments levied and collected by the District; (d)
from the proceeds of special benefit assessments or bills evidencing such
assessments; (e) from any other funds which may be obtained under any
law of the state or of the United States for that purpose; (f) from the proceeds
of revenue bonds, payable from the revenues to be derived from the
operation of sewerage and drainage facilities and systems of the entire
District … as may be set forth in propositions submitted at elections in the
District … from time to time called and held to authorize the issuance of
such revenue bonds; or (g) from any combination of any or all such methods
of providing funds.
See Charter Plan, § 3.020(15) (emphasis added).
The Charter Plan requires an annual budget, an explanatory budget message, and a general
appropriation ordinance conforming with the budget. See Charter Plan, § 7.130. The budget shall
provide a complete financial plan for the budget year for all District and subdistrict funds, and
shall include the following:
(1) Estimated revenues to be actually received from all sources during
the budget year, together with a comparative statement of revenues
for the two years next preceding, itemized by year, fund, and source.
(2) Proposed expenditures, including projected expenses included in the
Rate Commission's budget as provided in Section 7.260,
recommended by the Executive Director for the budget year,
together with a comparative statement of expenditures for the two
years next preceding, itemized by year, fund, activity, and object.
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(3) The amount required for the payment of interest, amortization, and
redemption charges on the debt of the District or any subdistrict.
(4) A general budget summary.
(5) A list of capital projects.
In no event shall the total amount of proposed expenditures for the budget
year from any fund exceed the estimated revenues to be actually received
plus any unencumbered balance or less any deficit estimated for the
beginning of the budget year.
See Charter Plan, § 7.130 (emphasis added).
At the end of each fiscal year, “the unexpended and unencumbered parts of all
appropriations shall revert to the funds from which appropriated.” See Charter Plan, § 7.050. Upon
approval by the Board of Trustees, “the Executive Director may transfer any unencumbered
appropriation balance or portion thereof from one classification of expenditure to another.” See
Charter Plan, § 7.150.
The District’s authority to issue revenue bonds requires the approval of the voters of the
District. Specifically, the Charter Plan provides:
No general obligation bonds, except bonds for refunding, advance refunding,
extending, or unifying the whole or any part of valid bonded indebtedness, shall be
issued without the assent of the voters of the District … in the number required by
Article VI, § 26(b) of the Constitution of Missouri (as amended from time to time),
voting at an election to be held for that purpose. No revenue bonds payable from
the revenues to be derived from the operation of any or all sewer and drainage
systems and facilities of the District … except bonds for refunding, advance
refunding, extending, or unifying the whole or any part of revenue bonds, shall be
issued without the assent of a simple majority of the voters of the District … voting
at an election to be held for that purpose. Notwithstanding anything herein to the
contrary, the District is expressly authorized to issue District-wide general
obligation and revenue bonds.
See Charter Plan, § 7.170 (emphasis added).
Subject to the above restrictions, the District has the authority to issue revenue bonds.
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The Missouri Supreme Court has expressly recognized this authority, stating, “[t]he other
powers objected to, namely, … incurring debts, … issuance of tax anticipation warrants, … and
issuance of bonds, … are essential powers of such district.” State on inf. Dalton, 275 S.W.2d at
231. The Court continued, “[w]ithout the power to incur debts and issue bonds, adequate drains,
sewers and disposal plants could not be constructed. However, in the exercise of this power, the
District is subject to the financial limitations imposed by the Constitution on all government
subdivisions.” Id.
Clean Water Act and Consent Decree
The Rate Commission has also considered whether the Rate Change Proposal is consistent
with the Clean Water Act and the District’s Consent Decree.
Section 204(b) of the Water Pollution Control Act of 1972, as amended in 1977, commonly
known as the “Clean Water Act,” specifies conditions relating to charges for wastewater service.
See 33 U.S.C. § 1283. Implementation of the Clean Water Act and approval of a system of user
charges by the EPA has generally resulted in a simple, uniform, flat commodity or volumetric
charge for all customers, regardless of billable volume, effluent strengths, load factor, peaking
characteristics, or other considerations. Acceptable exceptions have included a surcharge system
for high effluent strength discharges and assignment of the cost of the industrial pretreatment
program to the participants.
The EPA has adopted rules and regulations regarding user charges. These rules and
regulations are incorporated in Part 35 of Title 40 of the Code of Federal Regulations. User
Charges are those levied on users of treatment works for their proportionate shares of the cost of
O&M (including interim replacement) of the treatment works. 40 C.F.R. § 35.2005 (52). Treatment
works consist of all facilities used for the collection, transmission, storage, treatment, and disposal
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of wastewater. 40 C.F.R. § 35.2005 (49). If the wastewater utility is to be eligible for federal grants,
it must demonstrate compliance with the following user charge requirements as part of the rate
design process:
● Rates must result in the distribution of the cost of O&M of all treatment works within the
grantee’s jurisdiction. Distribution must be in proportion to each user or user class
contribution to the total wastewater loading of the treatment works.
● Rates must generate sufficient revenues to offset the cost of all treatment works O&M
expense.
● Each user who discharges pollutants to the treatment works causing increased costs will
pay for such increased costs.
● Grantee must apportion O&M costs associated with the treatment and disposal of I/I to
users on the basis of the allocation of all other operations, or a system that includes
consideration of flow volume of the users, land area of the users, or the number of
connections to the users.
See 40 C.F.R. § 35.2140.
On June 11, 2007, the United States of America, acting at the request and on behalf of the
Administrator of the EPA, and the State of Missouri by the authority of the Attorney General of
Missouri, filed a claim in the United States District Court for the Eastern District of Missouri
against the Metropolitan St. Louis Sewer District captioned United States of America and the State
of Missouri and the Missouri Coalition for the Environment Foundation v. The Metropolitan St.
Louis Sewer District, for injunctive relief and civil penalties alleging: unpermitted discharges from
combined sewer system; violation of the proper O&M condition in the District’s NPDES permits;
violation of the backup power condition in the District’s NPDES permits; violation of the bypas s
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prohibition condition in the District’s NPDES permits; violation of the noncompliance reporting
condition in the District’s NPDES permits; failure to submit long-term CSO control plan pursuant
to Part D.1 of the District’s NPDES permits and Clean Water Act § 308 Request; and violation of
the general criteria special condition in the District’s NPDES permits.
On July 15, 2011, the District entered into a 23-year, $4.7 billion Consent Decree program
with the EPA, the State of Missouri, and the Missouri Coalition for the Environment Foundation.
This program requires the District to make investments in the wastewater system to eliminate
sanitary sewer overflows and combined sewer overflows, and helps reduce the risk of flooding of
customer properties. See Ex. MSD 50. The current estimated CIRP needs are presented in Figure
4-3 and Table 4-7 of Exhibit MSD 1 for FY 2023 through FY 2028. The total CIRP project cost
for the next 4-year rate cycle period, FY 2025 through FY 2028, is $1.65 billion. See Ex. MSD
3E, p. 2, ll. 15-17. The largest component of the CIRP over this period will be capital investments
related to capacity improvements in the wastewater system, and sewage sludge incineration. See
Ex. MSD 1, p. 4-15. Additional needs include other improvements to comply with the consent
decree, with regulatory requirements outside of the Consent Decree, and with asset management
renewal at the treatment plants. Id.
In 2018, an amendment to the Consent Decree was agreed to, providing an additional five
years for the District to complete its Consent Decree obligations. See Ex. MSD 50A. In 2023, the
Consent Decree was amended to allow the District to replace two wastewater storage tunnels with
a single storage tunnel. See Ex. MSD 1, pgs. 9-2 – 9-3; see also Ex. MSD 50B. The projects which
comprise the wastewater CIRP are set forth in Appendix 8.2.2 of the Rate Change Proposal. See
Ex. MSD 1, pgs. 8-17 – 8-37; and Ex. MSD 3E, p. 2, ll. 13-14.
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Fines or penalties for the District’s failure or inability to meet the Consent Decree or other
regulatory requirements are clearly defined within the Consent Decree and applicable statutes and
regulations. See Ex. 3E, p. 2, ll. 24-25; p. 3, ll. 1-3. Failure to meet requirements imposed at the
Federal and State levels would be extremely burdensome financially and would directly hamper
or even thwart the District’s efforts. See Ex. MSD 1, p. 4-42. The Clean Water Act provides for
penalties up to $50,000 per violation, per day. Id. The Consent Decree also outlines stipulated
penalties ranging from $500 to $4,000 per day, depending upon the type and length of
noncompliance. Id.; see also Ex. MSD 50, pp. 64-69.
Missouri Constitution
In 1980, Missouri voters approved Article X, §§ 16-24 of the Missouri Constitution (the
“Hancock Amendment”). The Hancock Amendment purports to shield taxpayers against the
government’s ability to increase the tax burden above that borne by the taxpayers on November 4,
1980. See Zweig v. Metro. St. Louis Sewer Dist., 412 S.W.3d 223, 231 (Mo. banc 2013) (Ex. MSD
3B3). Specifically, the first sentence of the Hancock Amendment states:
Property taxes and other local taxes … may not be increased above the limitations
specified herein without direct voter approval as provided by this constitution….
See Mo. Const. art. X, § 16. This provision is implemented by § 22(a), which provides:
[P]olitical subdivisions are hereby prohibited from levying any tax, license or fees,
not authorized by law, charter or self-enforcing provisions of the constitution when
this section is adopted or from increasing the current levy of an existing tax, license
or fees, above that current levy authorized by law or charter when this section is
adopted without the approval of the required majority of the qualified voters….
See Mo. Const. Art. X, § 22(a) (emphasis added).
The District states that the Rate Change Proposal is consistent with constitutional, statutory
or common law as amended from time to time. See Ex. MSD 1, p. 4-40; see also Ex. MSD 75, p.
8, ll. 2-20. In fact, the current Rate Change Proposal is factually similar to the rate increase upheld
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by the Missouri Court of Appeals in Missouri Growth Association v. Metropolitan St. Louis Sewer
District, 941 S.W.2d 615 (Mo. App. E.D. 1997). Specifically, for property with a water meter, the
bill is calculated using a base charge in addition to usage-based rates. For property without a water
meter, the bill is calculated using a base charge in addition to estimated usage-based rates based
on the number of rooms, baths, showers and water closets in a property.
Further, in Missouri Growth Association, 941 S.W.2d 615, the Missouri Court of Appeals
held that the District’s wastewater service charges were user fees, not taxes, and therefore rate
increases did not require voter approval pursuant to Article X, Section 22(a) of the Missouri
Constitution (the Hancock Amendment).
“The structure of the wastewater charge contained in the Proposed Wastewater Rate
Change is the same as that approved in the Missouri Growth decision.” See Ex. MSD 1, p. 4-41;
see also Ex. MSD 75, p. 8, ll. 2-20.
The District’s Rate Change Proposal states that:
[t]he District’s current [Wastewater] rate structure consists of base service charges
and volume charges applicable to all MSD customers. The base service charges
include a billing and collection charge and a system availability charge. The volume
charge is assessed to all customers based on their respective water usage. Billing
data is provided by the customers’ respective water providers on either a metered
or unmetered basis. All non-residential customers are also assessed one of five
tiered compliance charges based on the amount of inspection and testing of
[wastewater] needed to comply with current regulations and extra strength charges
where applicable. Extra strength surcharges are applied to monitored non-
residential customers generating excess biochemical oxygen demand (BOD),
chemical oxygen demand (COD), and total suspended solids (TSS).
See Ex. MSD 1, p. 4-1. “The volume from unmetered residential customers is likewise measured
in Ccf as determined based upon estimates of indoor water usage per fixture and the number of
rooms within these properties, referred to as attributes throughout the Proposal. Billable
[wastewater] volumes for all metered residential customers are determined based on water used
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during the period best equated to contributed [wastewater] volume. [The District] defines its best
equated period as a 90-to-92 day period of water usage between December and March of the
preceding winter period. This period most closely reflects the water entering the [District’s]
[wastewater] system by avoiding spring and summer water usage for activities such as lawn
sprinkling and the filling of swimming pools.” See Ex. MSD 1, p. 4-5.
In the Missouri Growth case, the court described the District’s rate setting methodology as
follows:
Under the new and current form of billing, all customers are charged a $.37 billing
and collection charge, a $3.72 system availability or ‘readiness to serve’ charge,
and a volume charge of $.99 per 100 cubic feet of customer contributed wastewater.
Wastewater volume is determined in one of two ways, depending upon whether or
not the customer has a water meter. For customers who have water meters, the
volume charge is based on the water usage shown on their home meters. Metered
water usage for single-family residential customers is based on the “best equated
period,” which is a period of water usage between November and April when the
amount of outdoor water usage is at a minimum. This minimizes the chance of
customers being charged for water used for outdoor purposes since the water used
outdoors does not enter MSD’s sewer system. Since all non-residential customers
including both commercial and multi-family users have water meters, they are also
billed on this basis of usage.
…
For non-metered customers, the volume charge is based on water consumption
figures based on the number of rooms and fixtures on their property. These water
consumption measures used in determining water usage for metered and non-
metered customers are laid out in MSD’s Charter (Plan) and have already been
approved by the voters.
941 S.W.2d at 618-619. The court of appeals held that “these two methods of measuring
wastewater usage for metered and non-metered customers have both been specifically approved
by the voters in MSD’s Charter (Plan), Article 3, § 3.020(16). Therefore, the charge bears a direct
relationship to the services provided.” Id. at 624.
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The current Rate Change Proposal is factually and structurally similar to the rate increase
already held to be a “true” user fee by the Missouri Court of Appeals in Missouri Growth.
It is the District’s position that the Wastewater Rate Change Proposal is consistent with
constitutional, statutory, and common law as amended from time to time. Further, any rate increase
resulting from revenue bond proposals would be approved by the voters, as required by the
District’s Charter Plan. Finally, no evidence was presented during the Proceedings that the
Wastewater Rate Change Proposal is not in compliance with constitutional, statutory or common
law as amended from time to time.
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 per 1,000 square feet of
imperious area. See Ex. MSD 1, p. 5-6. The District testified that the proposed Stormwater Capital
Tax and the impervious surface charge are consistent with the law. See Ex. MSD 3B, p. 1, ll. 24;
p. 5, ll. 9-11. As required by the Hancock Amendment, Art. X, §§ 16-24 of the Missouri
Constitution, the District intends to seek voter approval of both the residential ad valorem
stormwater tax and the impervious surface charge for non-residential property. See Ex. MSD 1, p.
5-8.
Residential Ad Valorem Property Tax
Section 3.020(20) of the Charter Plan grants the District authority to “levy, assess, and
collect taxes on all taxable property within the District or a subdistrict, as the case may be;
provided, that the rate of taxation for purposes of operation and maintenance shall not exceed ten
cents on the hundred dollars assessed valuation.”
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The District submitted a legal memorandum regarding the legal authority to assess the ad
valorem tax solely from residential properties, which has been admitted into the record. See Ex.
MSD 3B1. The memorandum notes that Article X, § 4(a) of the Missouri Constitution provides
that “real property” is a distinct “class” of taxable property. See Ex. MSD 3B1, p. 1. Article X,
§ 4(b) designates “residential property” as a distinct and recognized subclass of real property.
Article X, § 3 of the Missouri Constitution provides that “[t]axes may be levied and
collected for public purposes only, and shall be uniform upon the same class or subclass of subjects
within the territorial limits of the authority levying the tax.” The District’s memorandum notes that
“[c]ase law provides that the ‘requirements of the uniformity clause are met when taxes are
(1)’uniform;’ (2) ‘upon the same class or subclass of subjects;’ (3) ‘within the territorial limits;’
(4) ‘of the authority levying the tax.’’ Armstrong-Trotwood, LLC v. State Tax. Comm’n, 516
S.W.3d 830, 835-36 (Mo. banc 2017) (quoting MO. CONST. art. X, § 3).” See Ex. MSD 3B1, p. 1.
No party has submitted testimony arguing that the residential ad valorem tax (or the
assessment of such a tax only to residential real property) would violate the Missouri Constitution,
so long as voter approval is obtained. Legal counsel to the Rate Commission has conducted its
own research and analysis to advise the Rate Commission during deliberations. Legal counsel to
the Rate Commission finds that the case law and conclusions in Ex. MSD 3B1 submitted by the
District to be accurate, as set forth herein.
Section 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
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storm water runoff from such person’s property does not flow, or is not otherwise conveyed, to a
sewer maintained by such district.” If this statute is applicable to the residential ad valorem
property tax, then the rate would not in fact be consistent with statutory law.
It is the District’s position that § 204.700 is invalid and void because: (i) it is an
unconstitutional special law in violation of Article III, § 4016 of the Missouri Constitution; (ii) the
bill enacting this statute violated the single-subject requirement in Article III, § 23 of the Missouri
Constitution; (iii) and the statute conflicts with the Charter Plan and is thus, preempted. See Ex.
MSD 74, p. 31, ll. 1-11.
The applicability of § 204.700 was considered during the 2018 Stormwater Rate Change
Proceeding, the report for which is included in the record. See Ex. MSD 6, pgs. 72-74. In the Rate
Commission’s 2018 Rate Recommendation Report, it was noted that the District’s $0.10 O&M ad
valorem property tax is currently being imposed on properties that § 204.700 purports to exempt
from stormwater taxes and fees. See Ex. MSD 6, p. 74. There is no evidence that a ratepayer has
ever challenged this current imposition as being prohibited by § 204.700.
No party has submitted testimony countering the District’s argument that § 204.700, is
unconstitutional and/or preempted by the District’s Charter Plan. In advising the Rate
Commission, legal counsel to the Rate Commission agrees with the District’s conclusion that
§ 204.700, conflicts with the Charter Plan and would be preempted, since the Charter “take[s] the
place of and supersede[s] all laws, charter provisions and ordinances inconsistent therewith
16 Legal counsel to the Rate Commission believes that § 204.700, RSMo would likely not be
an unconstitutional special law under the new test announced by the Missouri Supreme
Court in City of Aurora v. Spectra Communications Group, LLC, 592 S.W.3d 764, 780
(Mo. banc 2019), which now requires only that a distinction among classes be supported
by a rational basis. However, other legal arguments proposed by the District remain
available as discussed herein.
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relating to said territory.” Art. VI, § 30(b), Mo. Const. Inasmuch as § 3.020(20) of the Charter Plan
grants the District authority to “levy, assess, and collect taxes on all taxable property within the
District…,” a statute, such as § 204.700, that purports to exempt certain property within the District
(and only property within the District) from taxation would conflict with, and be superseded by ,
§ 3.020(20) of the Charter Plan.
Further, legal counsel to the Rate Commission agrees that the bill enacting § 204.700,
arguably violates the single-subject requirement in Article III, § 23 of the Missouri Constitution,
which requires that “[n]o bill shall contain more than one subject which shall be clearly expressed
in its title….”
Non-Residential Impervious Surface Charge
The District submitted testimony that the impervious surface charge for non-residential
property is valid because it will be submitted to the voters and is authorized under § 3.020(16) of
the Charter, which provides that the District is authorized to “establish by ordinance a schedule or
schedules of rates, rentals, and other charges, to be collected from all the real property served by
the sewer facilities of the District, whether public or private….” See Ex. MSD 3B, p. 2; ll. 9-13;
See also Ex. MSD 3B2, p. 4.
It is the District’s position that the impervious surface charge is a rate or a charge under
§ 3.020(16) of the Charter, as opposed to a tax authorized under § 3.020(20). While the District is
permitted to both levy taxes and assess rates or charges, the distinction is important here as
governmental entities and non-profits are exempt from taxation, but not from rates, charges, or
user fees. If the impervious surface charge were determined by a court to be a tax, governments
and non-profits could arguably be exempt. See Ex. MSD 74, p. 39, ll. 6-11.
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“Rate” and “charge” are not defined in the Charter Plan. See Ex. MSD 74, p. 32, ll. 23-25.
In the wastewater context, the District testified that wastewater payments to the District are “rates”
or “charges” based on (depending whether a property is metered or unmetered), the number of
rooms/bathrooms, or water usage. Id. at p. 33, ll. 1-8. The District testified that the service from
the District that would be charged to non-residential property would be “the amount of impervious
area that they have on their property.” Id. at p. 33, ll. 19-20. “The amount of impervious area on a
property increases the amount of runoff from a property. And the amount of runoff from a property
can be a basis for determining the size of the system.” Id. at p. 34, ll. 9-13.
It is the District’s position that the impervious surface charge is best characterized as a
“rate or charge because it is a variable charge based on the amount of impervious area on a
property. It is neither based on a valuation [as taxes would be] or on some specific benefit conferred
or received [as a special assessment under §3.020(21) of the Charter (Plan) would be].” See Ex.
MSD 3B2, pgs. 4-5. “[B]ecause the stormwater capital rate is not an ad valorem property tax (or
really any defined tax) and because it falls within the District’s power to establish charges and
rates on all property, ‘whether public or private,” the exemption from taxation given to properties
owned by non-profit and governmental entities should not apply….” Id. at p. 5.
Several courts have analyzed whether a payment demanded by a governmental entity is a
tax (which requires voter approval) or a user fee – analogous to a “rate” or “charge” (which does
not require voter approval). In these cases, the analysis centers on whether voter approval for the
payment is required by the Art. X, § 22(a) of the Missouri Constitution (commonly known as the
“Hancock Amendment”). The Hancock Amendment “does not prohibit a political subdivision
from charging an individual user a fee in exchange for rendering a service to that user, so long as
this charge is not simply a tax by another name.” Zweig v. Metro. St. Louis Sewer Dist., 412
72
S.W.3d at 226. In these cases, courts look at several factors to determine whether a fee is actually
a tax, including: (1) when the fee is paid; (2) who pays the fee; (3) whether the amount of the fee
affected by the level of goods or services provided to the fee payer; (4) whether the government is
providing a service or good; and (5) whether the activity has historically and exclusively be en
provided by the government. See Arbor Inv. Co., LLC v. City of Hermann, 341 S.W.3d 673, 684-
685 (Mo. banc 2011). These are referred to as the Keller17 factors. A previous impervious surface
charge proposed by the District was struck down by the Missouri Supreme Court in Zweig, infra,
because the District did not obtain voter approval.
For this stormwater rate change proposal, the District has concluded that, because voter
approval is being sought by the District, the Keller factors – and the cases analyzing whether a
charge is a user fee or a tax – are not relevant. See Ex. MSD 3B2, pgs. 1-2. The District testified
that it “did not evaluate [the impervious surface charge] against the Five Keller factors.” See Ex.
MSD, p. 36, ll. 7-9. The District testified that the Keller factors are not relevant to determining
whether the impervious surface charge is a fee or rate instead of a tax. Id. at p. 36, ll. 12-18.
There are no court decisions indicating whether a court would ignore the Keller factors
(and the line of cases interpreting them) if the impervious surface charge is approved by the voters
17 Keller v. Marion Cnty. Ambulance Dist., 820 S.W.2d 301, 303 (Mo. banc 1991). In Zweig,
the Missouri Supreme Court stated that: “‘No specific criterion is independently
controlling; but, rather, the criteria together determine whether the charge is closer to being
a ‘true’ user fee or a tax denominated as a fee.’ From the outset, therefore, the Court sought
to ensure that the Keller criteria were viewed not as constitutional litmus tests to be applied
with scientific rigor, but merely as relevant considerations that can point toward a proper
classification.” Zweig, 412 S.W.3d at 233 (internal citations omitted). “‘[C]onsideration of
the Keller factors is a necessary step, but the purpose of their use is not because an
arithmetic score will be determined that decides whether the particular charges in question
pass or fail but rather is to assist the courts in determining the ultimate issue of whether the
charge is a user fee or a disguised tax.’” Id. (internal citations omitted).
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and was subsequently challenged as being a tax rather than a rate or charge. If it is determined that
the Keller factors do not apply, the Rate Commission’s legal counsel believes that there is a strong
argument that the District has authority under its Charter Plan to implement an impervious surface
charge, as set forth in the memorandum provided by the District18. See Ex. MSD 3B2.
Zweig
The Missouri Supreme Court’s decision in Zweig v. Metropolitan St. Louis Sewer District,
must be considered in addressing the District’s authority to charge a fee or charge based on
impervious area. In 2007, the District recommended and subsequently implemented a stormwater
fee based on impervious area. In Zweig, the Court held that the District violated Art. X, § 22(a) of
the Missouri Constitution by implementing the new stormwater fee based on impervious area
without voter approval. The Court determined it was a tax requiring voter approval, as opposed to
a user fee which would not require voter approval. Id. at 227. Although the District plans to submit
the impervious surface charge to the voters, and thus no Hancock Amendment issue will exist, any
impervious charge contemplated by the District should still discuss the opinion of the Missouri
Supreme Court in Zweig.
In discussing the method for calculating the stormwater charge, the Zweig Court explained
that the District’s ability to fund its activities is limited and quotes Art. VI, § 30(b) of the Missouri
Constitution, as follows: “[t]he plan shall provide for the assessment and taxation of real estate …
giving due regard to other provisions of this constitution.” Zweig, 412 S.W.3d at 229. The Court
states in a footnote: “Ratepayers do not challenge MSD’s authority to levy the stormwater user
18 If a court, however, decides the Keller factors do apply, and determines that the impervious
surface charge is actually a tax, legal counsel to the Rate Commission believes that the
charge would likely be inapplicable to governmental entities and may be inapplicable as to
non-profits.
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charge under the Plan or section 30(b) of the constitution. The only claim in this case – and the
only issue decided here – is whether section 22(a) prohibits MSD from levying this stormwater
user charge without prior voter approval.” Id. at n. 2.
It is not clear whether the Court in the Zweig footnote was actually alluding to the
possibility that the stormwater charge is unauthorized under the Missouri Constitution and/or the
District’s Charter. However, given the Court’s characterization of the impervious area charge as a
property tax, there exists at least a question that a court could consider any stormwater charge
based on the amount of impervious area – as opposed to the value of the property – to be
noncompliant with Art. X, § 4(b) of the Missouri Constitution.19
The District has stated that it received a legal opinion from outside legal counsel indicating
the impervious surface charge is consistent with the law. See Ex. MSD 74, p. 43, ll. 7-16. The
District provided two summaries of the legal opinions received by the District. See Ex. MSD 3B1
and 3B2. Additionally, the Rate Commission was provided with a list of case citations referred to
in its confidential opinion. See Ex. MSD 73A, p. 2.
The District could also argue that it is empowered under its Charter to enact a tax not
specifically contemplated or authorized by Missouri statutes. In Neuner v. City of St. Louis, 536
S.W.3d 750, 764 (Mo. App. E.D. 2017), the court held that the City of St. Louis was empowered
under its charter to levy a payroll tax, though no such tax had been specifically authorized by
19 Article X, § 4(b) of the Missouri Constitution, states that residential and agricultural
property “shall be assessed for tax purposes at its value or such percentage of its value as
may be fixed by law for each class and for each subclass.” However, commercial,
industrial, and all other real property “shall be taxed only to the extent authorized and at
the rate fixed by law for each class and subclass, and the tax shall be based on the annual
yield and shall not exceed eight percent thereof.” Section 7.310 of the Charter Plan
provides that “[a]ll District and subdistrict taxes levied shall be based upon the assessed
valuation of lands and other taxable tangible property in the District or a subdistrict….”
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statute. “We hold the City’s exercise of taxing power pursuant to Article VI, Section 19(a) is
consistent with the general assembly granting the taxing power to the City under Article X, Section
1. Appellants have failed to meet their burden of proving the City exceeded its constitutional
authority in enacting the Payroll Tax Ordinance and have not shown that the ordinance is
inconsistent with Constitution or limited or denied by the Constitution, by statute, or by the City’s
charter.” Id. “Because Article VI, Section 19(a) is the expressed will of the people in Missouri
regarding the power of charter cities there is no need for the representatives of the people to
authorize the power to tax pursuant to Article X, Section 1.7 This does not render Article X,
Section 1 moot or meaningless however. The general assembly must still grant the power to tax to
all non-charter cities in Missouri.” Id.
The District, like the City of St. Louis, operates under a charter established in accordance
with the Missouri Constitution. Under Neuner, the District could similarly argue that, under its
Charter, it is authorized to impose a tax not specifically authorized by statute, and thus, may assess
a “tax” based on a property’s impervious surface.
No party has submitted testimony challenging the District’s authority to collect an
impervious surface charge. Rate Consultant Anna White testified that impervious area is
commonly used throughout the country to determine stormwater rates. See Ex. RC 77, p. 18, ll.
15-16. “Based on the most recent Black & Veatch Stormwater Survey, 87% of the 73 respondents
indicated the basis for calculating the user fee is impervious area.” Id. at p. 18, ll. 21-23.
Governments and Non-Profit Non-Residential Property
Article X, § 6 of the Missouri Constitution provides that “[a]ll property, real and personal,
of the state, counties and other political subdivisions … shall be exempt from taxation; … and all
property, real and personal, not held for private or corporate profit and used exclusively for
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religious worship, for schools and colleges, for purposes purely charitable, for agricultural and
horticultural societies, or for veterans’ organizations may be exempted from taxation by general
law.” Emphasis added. The General Assembly has exercised the authority granted by Art. X, § 6
by enacting § 137.100(5), RSMo, which provides that “[a]ll property, real and personal, actually
and regularly used exclusively for … purposes purely charitable and not held for private or
corporate profit,” shall be “exempt from taxation for state, county or local purposes.”
The record contains a legal opinion from the District explaining the District’s rationale for
charging the impervious surface charge to non-residential property owned by governments and
non-profits. See Ex. MSD 3B2. The Charter Plan “supersedes conflicting laws” inconsistent
therewith relating to the District’s territory. See State on Inf. of Dalton, 275 S.W.2d at 228. The
District has argued that, if it were determined that the impervious surface charge was actually a
tax, then non-profits may not be exempt because the tax exemption for non-profits derives from
§137.100(5), RSMo as opposed to the Missouri Constitution. See Ex. MSD 3B2, p. 5. “Therefore,
the District could contend that, because the non-profit exemption is statutory in nature, and under
the cases cited above, the statute is superseded within the District if it is inconsistent with MSD’s
Charter.” Id. at p. 6.
Similarly, the District argued that while governmental entities are exempt from taxation by
the Missouri Constitution, that exemption does not extend to rates, rentals, and charges, which the
District characterizes the impervious surface charge as. Id. at p. 7. The Charter Plan “shall take the
place of and supersede all laws, charter provisions and ordinances inconsistent therewith relating
to said territory.” Art. VI, § 30(b), Mo. Const. “When ‘two statutory provisions covering the same
subject matter are unambiguous standing separately but are in conflict when examined together, a
reviewing court must attempt to harmonize them and give them both effect.’” Earth Island Inst. v.
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Union Elec. Co., 456 S.W.3d 27, 33 (Mo. banc 2015). “When two provisions are not irreconcilably
inconsistent, both must stand even if ‘some tension’ exists between them.” Turner v. Sch. Dist. of
Clayton, 318 S.W.3d 660, 667 (Mo. banc 2010). “If that harmonization is impossible, the general
statute must yield to the statute that is more specific.” City of Clinton v. Terra Found., Inc., 139
S.W.3d 186, 189 (Mo. App. W.D. 2004). The Rate Commission’s legal counsel agrees that the
Charter Plan, applicable only to the District’s service area, would be the more specifically
applicable law, as opposed to § 137.100, which applies throughout the state.
Different Funding Mechanisms for Residential and Non-Residential Property
The District proposes to utilize different methods to collect funds from residential and non-
residential property: an ad valorem tax for residential property and an impervious surface charge
for non-residential property. The legal opinion submitted by the District notes that the Constitution
does not require a “taxing authority to levy its tax on all classes or subclasses.” Legal counsel to
the Rate Commission agrees that the District is not prevented from setting a tax rate for one
subclass of real property (residential property), and assessing a different rate20 (including a rate of
$0) to other subclasses. In Dean Taylor Cadillac-Olds, Inc. v. Thompson, 871 S.W.2d 5, 7 (Mo.
App. E.D. 1993), the court of appeals stated:
There is no absolute requirement of uniformity in taxation. Uniformity of taxation
does not require that all potential subjects of taxation be taxed, nor does it mean
universal taxation. The only requirement is that the taxation of all subjects within a
particular class be uniform. ‘Uniform’ refers to the measure, gauge or rate of the
tax. A municipality has the power to divide a taxable class into a number of
subclasses and tax each subclass differently. Such a taxing scheme does not violate
the constitutional requirement of uniformity where all substantially similarly
situated persons are subjected to the same burden. (internal citations omitted).
20 Notably, cities in St. Louis County (and the City of Gladstone, Missouri) are authorized to
set different tax rates for residential property and other classes of real property. See
§ 137.115, RSMo. Further, § 137.115.5(1) sets forth a different assessment rate for
different subclasses of real property.
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Thus, the District has legal authority to assess an ad valorem tax to residential property without
assessing the same tax to other subclasses of real property.
Proposed Expenditure Plan
The District intends to spend 50% of the revenue on capital projects on a prioritized basis
District-wide. Thirty percent of the revenue would be distributed to the municipalities and St.
Louis County. Another 10% will be spent on stormwater capital projects in designated
Environmental Justice Areas, and the remaining 10% would be spent on projects identified with
the assistance of an area-wide advisory committee, such as a special representative committee of
the Municipal League of Metro St. Louis. See Ex. MSD 1, pgs. 5-9 – 5-10.
Environmental Justice areas are “areas identified through Missouri state guidelines.” See
Ex. MSD 1, p. 8-79. “A qualified census tract (QCT) is defined under the Internal Revenue Code
as any census tract which is designated by the Secretary of Housing and Urban Development
(HUD) … in which 50 percent or more of the households have an income which is less than 60
percent of the area median gross income (AMGI) for the year, or which has a poverty ra te of at
least 25 percent.” Id. The Missouri Department of Natural Resources considered this term in
prioritizing projects under the American Rescue Plan Act (“ARPA”). Id. at p. 8-79 – 8-80. As to
the expenditures in Environmental Justice areas (Id. at p. 8-79 – 8-81), Brian Hoelscher testified
that “MSD is being watched, asked, questioned by our regulators in a much more aggressive way
than we ever have in the past. We had Environmental Justice provisions in our Consent Decree
that we signed in 2011 based on whatever the Environmental Justice was at the time.” See Ex.
MSD 74, p. 105, ll. 8-14. Further, under ARPA, one “of [the] factors that made it possible or really
bumped up your score was to do the work in Environmental Justice areas.” Id. at p. 105, ll. 21-23.
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The Charter Plan does not specify how capital projects must be prioritized, or how the
District’s funds are expended by the Executive Director and District staff. The District’s Board of
Trustees is empowered by § 1.020 of the Charter Plan to “enact District ordinances, adopt budgets,
determine policies, and appoint the Executive Director, who shall execute the ordinances and
administer the government of the District and all subdistricts. The powers of the District shall be
exercised in the manner prescribed in this Plan, or, if not prescribed herein, in such manner as may
be prescribed by the Board.” The District is required by § 7.260 of the Charter Plan to “submit to
the Board an annual budget request of the Rate Commission’s projected reasonable and necessary
expenses….” The District’s budget shall include “[e]stimated revenues,” “proposed expenditures”,
the “amount required for the payment of interest, amortization, and redemption charges on the debt
of the District,” a “general budget summary,” and a “list of capital projects.” See § 7.130 of the
Charter Plan. A public hearing must be held at least 21 days prior to the Board’s adoption of a
budget “in order to obtain public comment on the proposed budget.” See § 7.140 of the Charter
Plan. Appropriations, budgets and rates are all approved by the District’s Board of Trustees by
ordinance. See Charter Plan §§ 7.140, 7.300.
The District’s proposal to – rather than spend all the revenue on a prioritized basis District-
wide – spend 50% on District-wide projects, 30% on municipal grant funding, 10% on capital
projects in Environmental Justice Areas, and 10% according to a steering committee raises the
question of whether the proposed expenditure plan (and the distribution of funding) complies with
applicable law.
Public funds must be expended for a public purpose. See State ex rel. Wagner v. St. Louis
Cnty. Port Auth., 604 S.W.2d 592, 596 (Mo. banc 1980). Article VI, § 23 of the Missouri
Constitution prohibits a political subdivision from “lend[ing] its credit or grant[ing] public money
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or thing of value to or in aid of any corporation, association or individual, except as provided in
this constitution.” This provision is “not violated simply because incidental benefits may accrue
to private interests. ‘Furthermore, determination of what constitutes a public purpose is primarily
for the legislative department and it will not be overturned unless found to be arbitrary and
unreasonable.’” State ex rel. Jardon v. Indus. Dev. Auth. of Jasper Cnty., 570 S.W.2d 666, 674
(Mo. banc 1978) (internal citations omitted). “‘If the primary object of a public expenditure is to
subserve a public municipal purpose, the expenditure is legal, notwithstanding it also involves as
an incident an expense, which, standing alone, would not be lawful. But if the primary object is
not to subserve a public municipal purpose, but to promote some private end, the expense is illegal,
even though it may incidentally serve some public purpose.’” St. Louis Cnty. v. River Bend Estates
Homeowners’ Ass’n, 408 S.W.3d 116, 138 (Mo. banc 2013) (internal citations omitted). “‘The
consensus of modern legislative and judicial thinking is to broaden the scope of activities which
may be classified as involving public purpose.’ ‘[I]f the primary purpose of the act is public, the
fact that [incidental] special benefits may accrue to some private persons does not deprive the
government action of its public character[.]’ The burden of establishing that a governmental
entity’s stated public purpose is arbitrary and unreasonable rests with ‘the party making the
claim.’” Swallow Tail, LLC v. Missouri Dep’t of Conservation, 522 S.W.3d 309, 315 (Mo. App.
W.D. 2017) (internal citations omitted).
Court decisions indicate that decisions by local governments as to how to expend public
dollars, and whether an expenditure has a valid public purpose is a legislative decision. See Neuner
v. City of St. Louis, 536 S.W.3d 750, 766 (Mo. App. E.D. 2017). “It has long been the rule in
Missouri that disputes over the propriety of a municipality’s legislative findings are to be resolved
by application of the ‘fairly debatable’ test. Under that test, we will not substitute our discretion
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for that of a legislative body, and review of the reasonableness of legislative action ‘is confined to
a determination of whether there exists a sufficient showing of reasonableness to make that
question, at the least, a fairly debatable one; if there is such, then the discretion of the legislative
body is conclusive.’” Great Rivers Habitat All. v. City of St. Peters, 246 S.W.3d 556, 562 (Mo.
App. W.D. 2008) (internal citations omitted). Further, the Missouri “Supreme Court has explained
the policy underlying this rule:
Out of proper respect for the role of co-equal branches of government, this Court
has consistently refused to second-guess local government legislative factual
determinations that a statutory condition is met unless there is a claim that the city’s
decision is the product of fraud, coercion, or bad faith, or is arbitrary and without
support in reason or law.
Id. (internal citations omitted). “The ‘fairly debatable’ test may also be justified as flowing
naturally from a well-recognized presumption: because the validity of legislative enactments is
presumed, uncertainties about their reasonableness ‘must be resolved in the government’s favor.’”
Id. (internal citations omitted). “In order to overcome this presumption, it must be shown that no
such uncertainty exists – that the challenged action is not ‘reasonably doubtful or even fairly
debatable.’” Id. (internal citations omitted).
While the allocation of funds collected from the ad valorem stormwater tax and the
impervious surface charge implicate some critical public policy considerations, there is no specific
requirement in the Missouri statutes or constitution (or the District’s Charter Plan) that the funds
be expended on a District-wide prioritized basis, or that the District needs to allocate its funds in
any particular manner. So long as there is a valid public purpose to the proposed expenditures, the
District has the legal authority to expend the funds generated through the proposed Stormwater
Capital Program in any manner it determines appropriate pursuant to the terms of the Charter.
Court decisions indicate that a court would defer to the legislative determinations of the District’s
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Board of Trustees in adopting ordinances approving a Rate Change Proposal and adopting a
budget, including proposed capital expenditures, unless the determinations by the Board of
Trustees that valid public purposes are served by the expenditures are not only incorrect, but are
not even “fairly debatable.”
No evidence was by any party during these proceedings – either with regard to wastewater
or stormwater – asserting that the Rate Change Proposal would not be consistent with
constitutional, statutory, and common law, as amended from time to time.
THE RATE COMMISSION, AFTER DISCUSSION AND CONSIDERATION OF
ALL OF THE FACTS AND CIRCUMSTANCES AND THE RECORD PRESENTED IN
THESE PROCEEDINGS, FINDS AND DETERMINES THAT THE RATE CHANGE
PROPOSAL IS CONSISTENT WITH CONSTITUTIONAL, STATUTORY, AND
COMMON LAW, AS AMENDED FROM TIME TO TIME.
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Second Factor: Whether the Rate Change Proposal, and all portions thereof,
“enhances the District’s ability to provide adequate sewer and drainage systems and
facilities, or related services.”
The Second Factor that must be addressed in the Rate Commission’s recommendation to
the Board of Trustees is that the Rate Change Proposal “enhances the District’s ability to provide
sewer and drainage systems and facilities, or related services.” See Charter Plan, § 7.270(2). The
District’s position is that the Rate Change Proposal looking forward will enhance the District’s
ability to provide adequate sewer and drainage systems and facilities, and related services and
will provide the funds “necessary to allow the District to operate and maintain its systems and
make necessary capital improvements to meet the commitments of the Consent Decree and
comply with existing permit regulations.” See Ex. MSD 1, p. 4-41; see also Ex. MSD 75, p. 48,
ll. 5-9.
The Rate Commission’s Rate Consultant, when asked how the Rate Commission should
make that determination, stated that the “[t]he Rate Commission should consider the record in this
proceeding, including the District’s Rate Proposal and related exhibits as well as the testimony of
its staff and any intervenors, to determine if the District’s proposal enhances its ability to provide
adequate sewer and drainage systems and facilities, or related services” See Ex. RC 78, p. 7, ll.
14-20.
The terms “adequate sewer and facilities” appear in part in § 1.010 of the Charter Plan,
which reads, “In the interest of the public health and for the purpose of providing adequate sewer
and drainage facilities within the boundaries herein defined … there is hereby established a
metropolitan sewer district…”. See Charter Plan, § 1.010 (emphasis added).
84
These terms appear again in § 7.300 of the Charter Plan, which provides that the Board of
Trustees shall accept a Rate Commission Report unless it finds that the report “substantially
impairs the District’s ability to provide adequate sewer and drainage systems and facilities or
related services to the point where public health or institutional safety may be jeopardized.” Id. at
§ 7.300(b)(2) (emphasis added).
Similar language may be found in the Operational Rules of the Rate Commission indicating
that the District shall submit to each member of the Commission direct testimony that may explain
“how the Proposed Rate Change will enhance the District’s ability to provide adequate sewer and
drainage systems and facilities, or related services.” See Operational Rules, § 3(4)(b) (emphasis
added).
The Charter Plan requires the Rate Commission to state whether the Proposed Rate
Changes “enhances” the District’s ability to provide “adequate” sewer and drainage systems and
facilities. See Charter Plan, § 7.270(2). Neither the Charter Plan nor the Operational Rules,
however, define the term “enhance.” To interpret the meaning of undefined words used in a statute,
the words are usually attributed their plain and ordinary meaning. See Sermchief v. Gonzales, 660
S.W.2d at 688. The commonly understood meaning of words is derived from the dictionary. See
Buechner v. Bond, 650 S.W.2d at 613. Black’s Law Dictionary defines “enhanced” as “made
greater; increased.” Black’s Law Dictionary, p. 570 (8th ed. 2004). Merriam Webster’s Dictionary,
defines “enhance” to mean (“to increase or improve in value, desirability, or attractiveness”). See
“Enhance.” Merriam-Webster.com21 Dictionary, Merriam-Webster, According to Black’s Law
Dictionary, the word “adequate” means legally sufficient. See Black’s Law Dictionary, p. 40 (8th
21 https://www.merriam-webster.com/dictionary/enhance. Last accessed June 23, 2023.
85
ed. 2004). See also “Adequate.” Merriam-Webster.com22 Dictionary, Merriam-Webster (adequate
means “sufficient for a specific need or requirement”).
Since these terms are not defined in the Charter Plan, they must be interpreted in
accordance with their plain and ordinary meaning. Doing so simply transforms the question into
whether the Rate Change Proposal improves or increases the District’s ability to provide adequate
services and systems throughout the metropolitan district.
WASTEWATER
A summary of the financial plan showing projected wastewater revenues and wastewater
revenue requirements for the District during the forecast period is presented in Table 4-10 of
Exhibit MSD 1, p. 4-24. Line 1 of Table 4-10 demonstrates projected wastewater user charge
revenue that is required in order to balance the revenue and revenue requirements through FY
2028. See Ex. MSD 1, p. 4-23. The magnitude of the increase shown for each year was selected
based on consideration of the following principal criteria:
(1) Total revenue necessary to meet cash requirements for normal [wastewater]
operations. This includes consideration of a one-month lag in the receipt of
additional user charge revenue from increased rates;
(2) Annual increases in [wastewater] revenues available to cash finance a portion of
the [wastewater utility] related major capital improvements; and
(3) [Wastewater] revenue required to meet certain financial metrics, based on
comments from the District's rating agencies, including debt service coverage
levels and strong liquidity position over the Rate Proposal period.
See Ex. MSD 1, p. 4-23. Total revenue is projected to be $467.0 million in FY 2023 and increase
to $608.6 million in FY 2028. Id. at p. 4-25.
22 https://www.merriam-webster.com/dictionary/adequate. Last accessed June 23, 2023
86
Table 4-10 shows the estimated net revenue remaining after deducting wastewater O&M
expenses from total wastewater revenues. See Ex. MSD 1, pgs. 4-24 and 4-25. Anticipated debt
service requirements on senior revenue bonds and SRF and direct loans will require the District to
obtain additional revenue bond authorization in the amount of $750 million before the start of FY
2025. Id. The District’s existing wastewater rates have been in effect since July 1, 2022, and the
approved rates for FY 2024 will go into effect on July 1, 2023. Id. at p. 4-1.
On July 15, 2011, the District entered into a 23-year, $4.7 billion Consent Decree program
with the EPA and the Missouri Coalition for the Environment Foundation. See Ex. MSD 50. The
Consent Decree was amended in 2018, providing an additional five years for the District to
complete its obligations. See Ex. MSD 50A. In 2023 dollars, the Consent Decree will cost
approximately $7.2 billion. See Ex. MSD 75, p. 20, ll. 15-18. Through the end of FY 2024, the
District’s planned expenditures are $3,054,290,580. See Ex. MSD 73A, p. 9. The District
anticipates spending an additional $4,084,624,000 (in 2023 dollars). Id.
The Consent Decree program requires the District to make investments in the wastewater
system to, among other things, eliminate sanitary sewer overflows and combined sewer
overflows; and help reduce the risk of flooding to customer properties. See Ex. MSD 3E, p. 3,ll.
18-22. The estimated CIRP needs for the next six years are presented in Figure 4-3 and Table 4-
7 of Exhibit MSD 1, p. 4-16, for FY 2023 through FY 2028. The total CIRP project cost for the
next four year rate cycle (FY 2025 – FY 2028) is projected to be $1.65 billion. See Ex. MSD 1,
p. 4-15. The largest component of the CIRP over the next rate cycle will be capital investments
related to capacity improvements in the wastewater system, and sewage sludge incineration. Id.
Additional needs include other improvements necessary to comply with the Consent Decree,
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permit and regulatory requirements outside of the Consent Decree, and with asset management
renewal at the treatment plants. Id.
Wastewater revenues “must at least be sufficient to finance the [wastewater] utility’s
O&M expense, routine annual capital improvements and debt service costs on existing and
proposed senior revenue bonds and [SRF] loans, while maintaining an adequate operating reserve
and complying with all revenue bond debt service coverage requirements. Annual revenues or
existing reserve funds can also be used to finance the [wastewater] utility’s major capital
improvement program. Figure 4-6 [in the Rate Change Proposal] presents the estimated financial
plan of the [wastewater] enterprise, which shows that annual [wastewater] revenues under
existing rates are not sufficient to meet the total revenue requirements of the [wastewater] utility
during the forecast period without future revenue increases.” See Ex. MSD 1, p. 4-21.
The District represents that the four-year wastewater CIRP, totaling approximately $1.65
billion for FY 2025 through FY 2028 “presents a reasonable projection of the future construction
program.” See Ex. MSD 1, p. ES-1; see also Ex. 3E, p. 2, ll. 15-17. The wastewater CIRP provides
a “listing, schedule, and cost of needed repairs, additions, and improvements to the wastewater
system to maintain the system in operating order and to ensure the system operates in a manner
that complies with all State and Federal Regulatory requirements and the Consent Decree.” See
Ex. MSD 3E, p. 2, ll. 3-7. “The CIRP is needed to provide the project identification, planned fiscal
year and anticipated annual costs23 associated with system improvements. This will then provide
the basis for required annual revenue and resources needed to plan, design, and construct these
improvements.” See Ex. MSD 3E, p. 2, ll. 8-12. The wastewater CIRP for this rate cycle is set
23 The Commission notes that although the CIRP often refers to “costs,” the testimony in
these Proceedings indicates the “costs” are really various levels of estimated costs.
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forth in Appendix 8.2.2 of Ex. MSD 1, pp. 8-17 through 8-37. See also Ex. MSD 3E, p. 2, ll. 13-
14.
Mr. Unverferth testified that all of the wastewater CIRP projects are necessary and that
nearly 98% of the CIRP is made up of projects required to meet the Consent Decree or other
regulatory requirements. See Ex. MSD 3E, p. 2, ll. 18-19; p. 3, ll. 16-18. He further testified that
each one of the wastewater treatment plants has a permit with the Missouri Department of Natural
Resources in order to comply with water quality standards and that “in order to keep those plants
up and running, included in the CIRP … are projects … to either upgrade, rehabilitate, repair
anything necessary at those plants in order to keep our treatment processes working.” See Ex.
MSD 75, p. 14, ll. 19-25; p. 15, ll. 1-9.
STORMWATER
The Stormwater Capital Program would be a new program for the District to address
flooding and erosion within its boundaries. Brian Hoelscher testified that the District has authority
under its charter to address stormwater flooding and erosion, and there is public support for the
District doing so. See Ex. MSD 3A, p. 3, ll. 7-9. Mr. Hoelscher testified that “[a]s a result of public
requests regarding flooding and erosion issues as well as other public input, we have concluded
that our customers should have the opportunity to vote on whether MSD should provide this
additional service.” Id. at p. 3, ll. 14-17. Section 1.010 of the Charter Plan provides that the District
was established “for the purpose of providing adequate sewer and drainage facilities within the”
District. Section 3.020(1) of the Charter Plan gives the District the authority to “maintain, operate,
reconstruct, and improve the same as a comprehensive sewer and drainage system, and to make
additions, betterments, and extensions thereto….”
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Mr. Hoelscher testified that to obtain voter approval, the District determined that “we
would need to charge no more than $2 per month for any kind of stormwater service.” See Ex.
MSD 74, p. 79, ll. 1-4. The Stormwater Capital Fund (derived from both the ad v alorem tax on
residential property and the impervious surface charge on non-residential property) would not be
utilized for projects in the public storm sewer system. Id. at p. 88, ll. 1-4. The public storm sewer
system is comprised of “the manholes, inlets, [and] fully-paved channels…. What’s not part of the
public storm sewer system … are creeks and streams.” Id. at p. 86, ll. 7-19. Work funded under
the Stormwater Capital Program will not typically become an asset of the District. Id. at p. 90, ll.
15-25.
Mr. Hoelscher also testified that the Stormwater Rate Change Proposal would not improve
the stormwater sewer system. Id. at p. 96, ll. 11-16. “What it will do is it will address flooding and
erosion issues that are caused by the amount of runoff that everybody is contributing to the local
area. Erosion is caused by additional flows. Flooding is caused by additional flows. This would
allow the ability to take those problems in the entire area and address them.” Id. at p. 96, ll. 15-23.
The Rate Consultants did not provide testimony as to whether the District is authorized or
obligated to undertake a stormwater capital program.
It is the position of the Rate Commission that the evidence presented in the Proceedings
indicates that the Rate Change Proposal will enhance the District’s ability to provide adequate
services, and no party has presented any evidence to the contrary.
THE RATE COMMISSION, AFTER DISCUSSION AND CONSIDERATION OF
ALL OF THE FACTS AND CIRCUMSTANCES DISCLOSED IN THESE
PROCEEDINGS, FINDS AND DETERMINES THAT THE RATE CHANGE PROPOSAL
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ENHANCES THE DISTRICT’S ABILITY TO PROVIDE ADEQUATE SEWER AND
DRAINAGE SYSTEMS AND FACILITIES, OR RELATED SERVICES.
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Third Factor: Whether the Rate Change Proposal, and all portions thereof, “is
consistent with and not in violation of any covenant or provision relating to any outstanding
bonds or indebtedness of the District.”
The Third Factor to be addressed in the Rate Commission’s recommendation to the Board
of Trustees is whether the Rate Change Proposal is “consistent with and not in violation of any
covenant or provision relating to any outstanding bonds or indebtedness of the District.” See
Charter Plan, § 7.270(3). The District’s position is that the “Proposed Wastewater Rate Change is
consistent with all outstanding bonds and indebtedness and will not cause the District to violate
any provision or covenants related to said bonds or indebtedness. Examples of provisions and
covenants are requirements to provide revenue to cover O&M expenses, to provide reasonable
Revenue Fund reserves, to produce Net Operating Revenues sufficient to meet minimum Debt
Service Requirements, and to make all required payments into Debt Service Reserve Accounts.”
See Ex. MSD 1, p. 4-41.
The Rate Commission’s Rate Consultant, when asked how the Rate Commission should
determine if this factor is met, stated the following:
Such a determination requires an analysis of the record in this proceeding, including
the covenants or provisions contained in the resolutions or ordinances and bond
documents or other documents issuing any such obligations. The Rate Commission
can determine that this condition is met by examining the District’s Rate Proposal
as well as the testimony of its staff.
See Ex. RC 78, p. 8, ll. 1-5.
The Charter Plan states that the Board of Trustees shall accept a Rate Commission Report
unless it finds, in addition to other factors, that the report “is contrary to or in violation of any
covenant or provision relating to any outstanding bonds or indebtedness of the District.” See
Charter Plan, § 7.300(b)(3). The Operational Rules provide that the District shall submit to each
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member of the Commission any and all direct testimony that may be required to fully demonstrate
and explain, “whether and to what extent the Proposed Rate Change is necessary to enable the
District to comply with any covenant or provision relating to any outstanding bonds or
indebtedness of the District, together with a specific quantification of the amount of the Proposed
Rate Change that is necessary for such purposes ”. See Operational Rules, § 3(4)(c) (emphasis
added).
Neither the Charter Plan nor the Operational Rules defines “consistent with” or “not in
violation of.” In such circumstances, words are usually given their plain and ordinary meaning.
See Sermchief v. Gonzales, 660 S.W.2d at 688. The commonly understood meaning of words is
derived from the dictionary. See Buechner v. Bond, 650 S.W.2d at 613.
Merriam-Webster’s Dictionary defines the term “consistent” as “marked by agreement:
compatible.” See “Consistent.” Merriam-Webster.com24 Dictionary, Merriam-Webster.
Further, a “violation” is defined as “an infraction or a breach of the law; a transgression.”
See Black’s Law Dictionary, p. 1600 (8th ed. 2004). See also “Violation.” Merriam-Webster.com25
Dictionary, Merriam-Webster (a violation is an “ “infringement, transgression”).
An analysis of the language used in the Third Factor; namely whether the Rate Change
Proposal “is consistent with and not in violation of any covenant or provision relating to any
outstanding bonds or indebtedness of the District,” simply asks whether the Rate Change Proposal
complies with provisions relating to any outstanding bonds or indebtedness of the District.
24 https://www.merriam-webster.com/dictionary/consistent. Last accessed June 23, 2023.
25 https://www.merriam-webster.com/dictionary/violation. Last accessed June 23, 2023.
93
WASTEWATER
The District proposes to finance the required capital improvements by a combination of
wastewater user charge revenues, available fund balances, senior revenue bonds, WIFIA loans,
Missouri SRF loans, grants and contributions, and interest income. See Ex. MSD 1, p. 4-17. More
specifically, as to its major components, the Rate Change Proposal presents the District’s proposed
use of $43 million additional debt financing remaining on its existing $500 million debt financing
authorizations, up to an additional $670 million of additional debt under a new $750 million
authorization, and $585 million in cash financing to fund its wastewater CIRP through FY 2028,
and to satisfy the requirements of the Consent Decree. See Ex. MSD 3H, p. 2, ll. 3-9.
Outstanding Revenue Bonds. Revenue bonds do not rely upon the general credit or tax
money of the District and do not constitute indebtedness of the District within the limitations of
§ 7.190 of the Charter Plan or Article VI, § 26(b) of the Missouri Constitution. Once the voters
have approved revenue bonds, the District has authority to raise wastewater and stormwater rates
to pay principal and interest on the bonds and to meet O&M costs of the facilities. See
§ 250.120.1, RSMo.
As previously stated, on April 22, 2004, the District issued its first Districtwide revenue
bonds under the terms of a Master Bond Ordinance. See Ex. MSD 15. Section 6.1 of the Master
Bond Ordinance requires the District to operate its System on a revenue producing basis and at
all times to prescribe, fix, maintain, and collect rates, fees, and other charges for the services,
facilities, and commodities furnished by the System fully sufficient at all times to pay annual
O&M expense, provide a reasonable operating reserve, produce net revenues in each fiscal year
equal to at least 1.25 times the Debt Service Requirement on all Senior Bonds currently
outstanding and 1.15 times the Debt Service Requirement on all Bonds then outstanding, and
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accumulate sufficient funds to meet the costs of major renewals, replacements, repairs, additions,
betterments, and improvements to the System to keep it in good working condition. See Ex. MSD
15.
Additional senior revenue bonds were issued in 2006, 2008, 2010, 2011, 2012, 2013,
2015, 2016, 2017, 2018, 2019, 2020, 2021 and 2022. See Ex. MSD 1, p. 4-18. Supplemental
Bond Ordinances authorized by the Board of Trustees relating to additional revenue bond issues
include the same covenants. See Exs. MSD 18-49. The principal remaining on all of the District’s
senior revenue bonds issued to date is approximately $1.32 billion as of June 30, 2022. See Ex.
MSD 1, p. 4-18. The District has also participated in multiple subordinate series of revenue bonds
issued under the Missouri SRF loan program. Id. The total amount of principal remaining on all
of the District's SRF loans issued to date is approximately $477.8 million as of June 30, 2022,
with an additional $125 million issued early in FY 2023. Id.
A consideration in measuring the adequacy of District revenues is the provision of
sufficient debt service coverage to meet the actual debt service paid to the bondholders on the
senior revenue bonds and on the SRF loans. As noted previously, current wastewater revenue
bond covenants require the District to provide debt service coverage equal to at least 125%
(>1.25x) of the annual principal and interest payment on all senior revenue bonds and 115%
(>1.15x) of the combined annual principal and interest payment on all wastewater senior revenue
bonds and all SRF loans. See Ex. MSD 1, p. 4-25 and Table 4-10; and Ex. MSD 3H, p. 7, ll. 8-
20.
The District’s “outstanding revenue bonds are being repaid according to an amortization
schedule established when the bonds were issued from revenue collected from wastewater user
charges. FY23 wastewater net revenue is expected to be approximately 3x FY23 senior debt
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service costs and 2x FY23 total debt service costs.” See Ex. MSD 3H, p. 7, ll. 2-7. As to the
District’s outstanding revenue bonds, debt service coverage targets have been met. This is also
evidenced by the fact that rating agencies give the District high marks. More specifically, Moody’s
Investors Services assigned a credit rating of “Aa1” to the District’s revenue bond obligations on
May 18, 2022. See Ex. MSD 52. On May 16, 2022, Standard & Poor’s Rating Service assigned its
“AAA” rating to the District's Series 2022B wastewater system improvement and refunding
revenue bonds and affirmed its “AAA” rating on the District’s existing wastewater system revenue
debt. See Ex. MSD 51, p. 2.
Proposed Revenue Bonds. The District worked with its financial advisor “to develop a
financing plan for the Rate Change Proposal that, combined with proposed revenues and
operating expenses, is consistent with maintaining AA bond ratings based on similar issuers and
feedback from the District’s rating agencies.” See Ex. MSD 3H, p. 4, ll. 15-23. The District
believes that the “combination of the proposed rate increases and the use of debt as outlined in
the Rate Change Proposal will allow the District to maintain strong credit ratings, commensurate
with a AA-rated utility revenue credit.” See Ex. MSD 3H, p. 5, ll. 1-9.
Under the Rate Change Proposal, the District’s CIRP projects are primarily funded by the
issuance of senior revenue bonds and SRF loans while the smaller remaining work is on a cash-
funded basis (Pay As You Go). See Ex. MSD 1, p. 4-17; see also Ex. MSD 3H, p. 3, ll. 14-22.
Debt financing of the majority of the CIRP allows the financing burden to be appropriately shared
by both present and future users benefiting from the wastewater system improvements. See Ex.
MSD 3H, p. 3, ll. 23-25; p. 4, ll. 1-10. Capital improvements routinely incurred each year as
determined by the District’s comprehensive asset management program are more appropriately
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financed with Pay As You Go revenue generated from annual wastewater service revenue. See
Ex. MSD 1, p. 4-17.
New senior revenue bonds with a total par value of $507.4 million and $133.1 million in
additional SRF loans are expected to be issued between FY 2025 and FY 2028 to provide CIRP
funding. See Ex. MSD 1, p. 4-17. This will require the District to obtain voter approval for
authorization of $750 million of additional debt financing prior to FY 2025. The District’s
proposal assumes $43 million of the SRF loan program proceeds in FY 2025 and $30 million
each year from FY 2026 through FY 2028. Total senior revenue bonds, SRF loans and WIFIA
bonds are expected to finance approximately 60% of the four-year CIRP costs. See Ex. MSD 1,
p. 4-17.
The projected amortization of future revenue bond issues determined by PFM, the
District's financial advisor, is based on current market conditions and certain assumptions
regarding future market conditions. See Ex. MSD 1, p. 4-19. Proposed revenue bond issues will
be governed by supplemental bond ordinances incorporating the bond covenants set forth in the
Master Bond Ordinance. Table 4-10 in the Rate Change Proposal sets out the forecasted debt
service coverage of the senior revenue bond debt service, i.e., the ratio of net revenue to total
senior revenue bond debt service for each year of the study period, and the debt service coverage
of the combined senior revenue bond and SRF debt service (i.e., the ratio of net revenue to total
debt service) for each year of the study period. See Ex. MSD 1, p. 4-25; and Table 4-10.
Generally, future senior revenue bonds are assumed to have a 30-year term and an annual
coupon rate of 5.0%. See Ex. MSD 1, p. 4-19; see also Ex. MSD 3H, p. 7, ll. 8-20. Future SRF
loans issued to fund the CIRP are expected to have 20-year terms and a net effective annual
interest and administration cost of below 3% per year. See Ex. MSD 1, p. 4-19; and Ex. MSD
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3H, p. 9, ll. 20-23. In addition to the interest cost of future debt, the District will incur issuance
costs with each senior revenue bond issue and SRF loan, and be required to maintain a debt
service reserve fund for the senior revenue bonds. The issuance costs for senior revenue bonds
are estimated at 1.0% of the total issuance amount. See Ex. MSD 3H, p. 7, ll. 8-20. Issuance costs
for SRF loans are expected to be 0.65% of the total SRF loan amount. See Ex. MSD 1, p. 4-19;
see also Ex. MSD 3H, p. 9, ll. 20-24.
Based on these assumptions, the total annual debt service during the forecast period for
existing debt and future proposed debt is expected to increase from $123.9 million in FY 2022 to
$205.6 million in FY 2028. See Ex. MSD 1, p. 4-19.
The Missouri Supreme Court has specifically held that the issuer of revenue bonds for the
O&M of a sewage system has the authority to raise water and sewage rates, not only to pay
principal and interest on revenue bonds issued for the purpose of construction of a water treatment
plant and water transmission lines, but also to meet the cost of maintenance and operation of the
physical plant itself. See Oswald v. City of Blue Springs, 635 S.W.2d 333-334. Moreover, once
the voters have approved the bonds, such increases may be made without again submitting the
increase to the voters. Id. at 334. Under Oswald, approval of the Rate Change Proposal is not
required to meet existing bond covenant requirements on revenue bonds previously authorized
by the voters.
Missouri State Revolving Fund. The “Missouri Clean Water Law” is designed to meet the
requirements of the Federal Clean Water Act of 1987 (the “Act”). See 33 U.S.C. §§ 125-1376.
See also § 644.011, RSMo. It also establishes the Missouri Clean Water Commission (the
“Commission”), which is required to adopt rules and regulations to enforce the powers and duties
of Chapter 644 and the Act. See §§ 644.021, 644.026, RSMo. The Missouri Code of State
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Regulations sets forth the general requirements for the implementation of Title VI of the Act,
which authorizes the administrator of the EPA to make capitalization grants to states to fund
financial assistance programs authorized by Title VI of the Act. See 10 CSR 20-4.021.
The Missouri State Revolving Fund Program is a partnership between the EPA and the
Missouri Department of Natural Resources (the “Department”), and provides subsidized low
interest rate loans to qualifying applicants.
In Missouri, the Clean Water State Revolving Fund Program consists of the Water and
Wastewater Loan Fund (“WWLF”) and the Water and Wastewater Revolving Loan Fund
(“WWRLF”) and those accounts secured by funds from the WWLF and the WWRLF. 10 CSR
20-4.040(2)(P). The SRF is subject to the requirements, restrictions, and eligibilities placed on
the SRF by the Act. Id. The SRF also funds the State Direct Loan Program (“Direct Loans"). See
10 CSR 20-4.041. The Department may make Direct Loans by purchasing the general obligation
bonds, revenue bonds, short-term notes or other acceptable obligations of any qualified applicant
for the planning, design, and/or construction of an eligible project. See 10 CSR 20-4.041(1).
These loans shall not exceed the total eligible project cost. Id. Direct Loans are funded from SRF
loan repayments of federal capitalization grants. See 10 CSR 20-4.041(3). The Department
purchases the revenue bonds, general obligation bonds, or other acceptable debt obligations from
the recipient no later than six months following the initial operation of the facilities constructed
by the project or by the closing deadline contained in the construction loan agreement, whichever
is earlier. See 10 CSR 20-4.041(8). In addition, the Department may require the recipient to
include those assurances and clauses in the loan agreements and bond resolutions as deemed
necessary to protect the interest of the state. Id.
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Under the Direct Loan Program, the bonds, notes or other debt obligations shall be fully
amortized in no more than 20 years after initiation of operation and the payment frequency shall
be no less than annually with the first payment no later than one year after the initiation of
operation. See 10 CSR 20-4.041(9). Repayment of principal shall begin no later than one year
after initiation of operation and if at any time during the loan period the facility financed through
a Direct Loan is sold, either outright or on contract for deed, to an entity other than a political
subdivision of the state, the loan becomes due and payable upon transfer. Id.
Effect of Rate Change Proposal. Wastewater revenues must at least be sufficient to
finance the wastewater utility’s O&M expense, routine annual capital improvements and debt
service costs on existing and proposed senior revenue bonds and SRF loans, while maintaining
an adequate operating reserve and complying with all revenue bond debt service coverage
requirements. See Ex. MSD 1, p. 4-21. Annual revenues or existing reserve funds can also be
used to finance the wastewater utility’s major capital improvement program. Id.
It is the District’s position that the proposed rate change is necessary to: (1) meet the level
of cash balances and resulting bond coverage ratios required through FY 2028 to minimize a
possible deterioration in the District’s bond rating; (2) to generate sufficient revenue to fund the
CIRP required to comply with the Consent Decree; and (3) to meet the District’s debt service
obligations. It is the District’s further position that the Rate Change Proposal is consistent with,
and not in violation of any covenant provision related to the bonds. See Ex. MSD 75, p. 97, ll.
25; p. 98, ll. 1-7.
The District’s Wastewater Financial Plan shows that the proposed rates are expected to be
sufficient to cover operating expenses, maintain an adequate reserve, and fund the CIRP through
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FY 2028, while maintaining debt coverage ratios above the minimums. See Table 4-10 in Ex. MSD
1.
Further, Section 6.7 of the Master Bond Ordinance requires that “[n]one of the facilities or
services afforded by the System will be furnished to any user without a reasonable charge being
made therefor.” See Ex. MSD 15, p. A-42. The Rate Change Proposal does not propose that any
service be provided for free. See Ex. MSD 1.
Tim Snoke, Secretary-Treasurer for the District, testified that the Rate Change Proposal is
consistent with and not in violation of any covenant or provision relating to any outstanding bonds
or indebtedness of the District. See Ex. MSD 3H, p. 8, ll. 2-9. He testified that examples of such
provisions and covenants are requirements to provide revenue to cover O&M expenses, to provide
reasonable Revenue Fund reserves, to produce Net Operating Revenues sufficient to meet
minimum Debt Service Requirements, and to make all required payments into Debt Service
Reserve Accounts. Id.
The District’s senior lien bond debt service coverage is projected to be 3.0x in FY 2024,
3.4x in FY 2025, 3.1x in FY 2026, and 2.9x in FY 2027 and FY 2028. See Ex. MSD 1, p. 4-24.
Total debt service coverage is projected to be 1.9x in FY 2024, 2.1x in FY 2025, and 1.8x in FY
2026, FY 2027, and FY 2028. Id. This compares to bond covenant minimum debt service
requirements of 1.25x and 1.15x above net annual revenues for senior debt service and total debt
service, respectively. See Ex. MSD 1, pgs. 4-24 and 4-25. Further, the projected debt service
coverage exceeds the District’s objective to maintain senior debt service coverage of at least 2.50x
over the Rate Change Proposal period. Id. The projected debt service coverage for FY 2024 and
2025, also exceeds the District’s objective to maintain total debt coverage ratio of at least 1.8x.
However, starting in FY 2026, the projected total debt service coverage ratio, while exceeding
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minimum debt service requirements under the bonds, falls to the District’s self-imposed
minimum ratio of 1.8x. The Rate Commission’s rate consultant has expressed some concern that
there is no cushion, stating that “given that the Rate Proposal results in debt service coverage
reaching the District’s minimum policy levels by FY 2026, any unforeseen impact to revenue
generation and/or expenditures relative to the assumptions used in the development of the Rate
Proposal could pose a risk of coverage levels dropping lower than the District’s minimum policy
level.” See Ex. RC 78, p. 13, ll. 22-23; p. 14, ll. 1-14.
Cash Financing. In the event that the voters of the District do not approve an additional
$750 million in bond financing for a portion of the CIRP, the District proposes cash financing in
order to comply with the terms of the Consent Decree.
Table 6-1 in the Rate Change Proposal presents projected wastewater bills based on the
authorization of $750 million in revenue bonds. The typical customer bill of 5 Ccf per month is
shown on line 3, with the dollar increase and annual percentage change shown directly beneath.
Table 7-4 presents the same information with the assumption of no further bond authorization.
The alternative rates to finance the entire CIRP without new bond authorization are
presented in Table 7-3 of Ex. MSD 1. Due to a significant non-recurring expense, the rates in this
alternative scenario increase sharply in FY 2025 and FY 2026, before decreasing. See Ex. MSD
1, p. 7-1. More specifically, this scenario requires a 37% increase in rate revenue in FY 2025, a
35% increase in FY 2026, a 20% decrease in FY 2027 and 5% increases per year in FY 2028 and
beyond. See Ex. MSD 1, p. 7-1. The typical single family customer bill throughout the Rate
Change Proposal timeframe is presented in Table 7-4 and shows the impact of not using debt
financing for the CIRP beyond what has already been authorized. See Ex. MSD 1, p. 7-1.
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It is the District’s position that the Rate Change Proposal is consistent with and not in
violation of any covenant or provision relating to any outstanding bonds or indebtedness of the
District. There is no evidence in the record to the contrary.
STORMWATER
There are no outstanding bonds to fund the stormwater capital improvements and none are
proposed. The Rate Proposal for the Stormwater Capital Program does not contemplate the use of
any debt. See Ex. MSD 74, p. 223, ll. 18-24; see also Ex. MSD 70A, p. 7. Any bond covenants of
the District “would not relate to this Stormwater Capital Program.” See Ex. MSD 74, p. 224, ll. 1-
7.
Marion Gee testified that the District did not consider using debt financing to fund the
Stormwater CIRP. See Ex. MSD 74, p. 216, ll. 14-17. Mr. Gee noted that “given the size of the
program, an issuance of debt really would not be feasible.” Id., at ll. 20-21. Further since many of
the proposed projects in the CIRP would be on private property, the use of tax-exempt bond
financing could “potentially” be restricted or limited. Id. at 217, ll. 4-11.
Brian Hoelscher testified that the ad valorem stormwater tax for residential property and
the impervious surface charge for non-residential property were calculated based on the amount
that customers could most likely afford. See Ex. MSD 74, p. 91, ll. 6-10. The District based the
Stormwater CIRP on the amount of money it anticipated it would collect, rather than from a
comprehensive assessment of stormwater flooding and erosion needs. Id. at p. 92, ll. 1-12. Since
the CIRP is based on the amount anticipated to be collected from rate rev enue, the District’s
position is essentially that bond financing would not be appropriate, as its goal is to spend what it
can based on revenue collected.
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The Rate Consultants agreed with the District’s decision not to utilize debt financing for
the Stormwater CIRP. Rate Consultant Anna White testified that “it seems reasonable to cash
finance the stormwater CIRP.” See Ex. MSD 77, p. 13, ll. 3-4. Ms. White noted that using debt
financing for stormwater “would likely reduce the amount [of bond financing] av ailable for
wastewater and potentially impact District’s ability to fund the proposed wastewater CIRP fully.”
Id. at p. 13, ll. 2-3
There was no testimony offered by any of the participants that the Stormwater Capital
Program would, if enacted, be inconsistent with or in violation of any covenant or provision
relating to any outstanding bonds or indebtedness of the District.
The Rate Commission finds that since the Stormwater Rate Change Proposal is a revenue
generating proposal and does not envision debt, it would not affect the debt side of the balance
sheet. As a result, the Rate Commission finds it appropriate to support the conclusion that the
Stormwater Rate Change Proposal is consistent with and not in violation of any covenant or
provision relating to any outstanding bonds or indebtedness of the District.
THE RATE COMMISSION, AFTER DISCUSSION AND CONSIDERATION OF
ALL OF THE FACTS AND CIRCUMSTANCES DISCLOSED IN THE RECORD AND
PRESENTED IN THESE PROCEEDINGS, FINDS AND DETERMINES THAT THE
RATE CHANGE PROPOSAL IS CONSISTENT WITH AND NOT IN VIOLATION OF
ANY COVENANT OR PROVISION RELATING TO ANY OUTSTANDING BONDS OR
INDEBTEDNESS OF THE DISTRICT.
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Fourth Factor: Whether the Rate Change Proposal, and all portions thereof,
“impair[s] the ability of the District to comply with applicable Federal or State laws or
regulations as amended from time to time.”
The Fourth Factor that must be addressed in the Rate Commission’s recommendation to
the Board of Trustees is whether the Rate Change Proposal “impair[s] the ability of the District to
comply with applicable Federal or State laws or regulations as amended from time to time.” See
Charter Plan, § 7.270(4). The District’s position is that the Rate Change Proposal “is necessary to
provide the District with the funds necessary to address the aging wastewater system and resulting
wet weather impact.” See Ex. MSD 1, p. 4-41. “The District is regulated by the [Missouri
Department of Natural Resources] to ensure compliance with the requirements established under
the Clean Water Act. Id. at p. 4-42. Failure to comply with the Clean Water Act and/or the Consent
Decree “would be extremely burdensome financially and could directly hamper or even thwart the
efforts of the District.” Id.
The Rate Commission’s Rate Consultant, when asked how the Rate Commission should
make that determination, testified as follows:
The Rate Commission should consider the record in this proceeding, including the
testimony provided by District staff and others, including any intervenors, to
determine whether the District’s Rate Proposal impairs the ability of the District to
comply with applicable Federal or State laws or regulations. This is accomplished
by evaluating the District’s Rate Proposal to determine whether the proposed rates
are projected to provide the District with sufficient revenues to operate the utility
in compliance with applicable Federal or State laws or regulations and to provide
sufficient revenue to allow the completion of capital projects necessary to meet
Consent Decree obligations while maintaining current assets.
See Ex. RC 78, p. 8, ll. 6-17.
The Charter Plan further states that the Board of Trustees of the District shall accept a Rate
Commission Report unless it finds that the report “fails to meet an existing or new standard
105
contained in applicable Federal or State laws or regulations as amended from time to time.” See
Charter Plan, § 7.300(b)(4). The same language appears in the Operational Rules indicating that
the District shall submit to each member of the Commission direct testimony that may be required
to explain “whether and to what extent the Proposed Rate Change is necessary to enable the District
to comply with applicable Federal or State laws or regulations as amended from time to time….”
See Operational Rules, § 3(4)(d) (2023).
The phrase “does not impair”, however, is not defined. Unless otherwise defined, words
used in a statute are usually attributed their plain and ordinary meaning. See Sermchief v.
Gonzales, 660 S.W.2d at 688. The commonly understood meaning of words is derived from the
dictionary. See Buechner v. Bond, 650 S.W.2d at 613.
“Federal law” means the United States Constitution, all federal statutes and treaties
promulgated by Congress, and all federal regulations promulgated by federal agencies, and “state
law” means state constitutions, state statutes and regulations, and the concept of state common law
tort actions. See Gorton v. American Cyanamid Co., 533 N.W.2d 746 (Wis. 1995), cert. denied
516 U.S. 1067 (1996).
As such, an interpretation of the plain and ordinary meaning of the phrase “does not impair
the ability of the District to comply with applicable Federal or State laws or regulations” would
require the Rate Commission to propose a rate that complies with all relevant federal, state, and
local laws and regulations. The dictionary definition of “impair” means “[t]o diminish the value
of.” See Black’s Law Dictionary, p. 767 (8th ed. 2004). See also “Impair.” Merriam-
Webster.com26 Dictionary, Merriam-Webster (to impair means “to diminish in function, ability,
or quality: to weaken or make worse”).
26 https://www.merriam-webster.com/dictionary/impair. Last accessed June 23, 2023.
106
Pursuant to the Charter Plan, the District has the authority to propose or recommend a
change in wastewater rates, stormwater rates and tax rates or change the structure of any of the
foregoing. See Charter Plan, § 7.040.
WASTEWATER
Capital Improvement and Replacement Program
The District’s CIRP is the primary driver of the District’s financial plan, representing
approximately three-fifths of anticipated expenditures during the rate cycle (FY 2025-FY 2028).
See Ex. MSD 1, p. 4-15. The largest components of the CIRP over this period will be capital
investment related to capacity improvements in the wastewater system, and sewage sludge
incineration. Id. The CIRP includes improvements necessary to comply with the Consent Decree,
with permit and regulatory requirements outside of the Consent Decree, and with asset
management renewal at the treatment plants. Id.
The CIRP “provides a listing, schedule, and cost of needed repairs, additions, and
improvements to the wastewater system to maintain the system in operating order and to ensure
the system operates in a manner that complies with all State and Federal Regulatory requirements
and the [Consent Decree].” See Ex. MSD 3E, p. 2, ll. 3-7. “The CIRP is needed to provide the
project identification, planned fiscal year and anticipated annual costs associated with system
improvements. This will then provide the basis for required annual revenue and resources needed
to plan, design, and construct these improvements.” See Ex. MSD 3E, p. 2, ll. 8-12. The wastewater
CIRP for this rate cycle is set forth in Appendices 8.2.2, 8.2.3, and 8.2.4 of Ex. MSD 1, pp. 8-17
to 8-41. The CIRP consists of approximately $1.65 billion in improvements during the rate cycle,
FY 2025 through FY 2028. See Ex. MSD 3E, p. 2, ll. 15.
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Consent Decree
On June 11, 2007, the United States of America, acting at the request and on behalf of the
Administrator of the EPA, and the State of Missouri by the authority of the Attorney General of
Missouri, filed a claim in the United States District Court for the Eastern District of Missouri
against the District captioned United States of America and the State of Missouri v. The
Metropolitan St. Louis Sewer District, for injunctive relief and civil penalties alleging: unpermitted
discharges from combined sewer system; violation of the proper O&M condition in the District’s
NPDES permits; violation of the backup power condition in the District’s NPDES permits;
violation of the bypass prohibition condition in the District’s NPDES permits; violation of the
noncompliance reporting condition in the District’s NPDES permits; failure to submit long-term
CSO control plan pursuant to Part D.1 of the District’s NPDES permits and Clean Water Act § 308
Request; and violation of the general criteria special condition in the District’s NPDES permits.
On July 15, 2011, the District entered into Consent Decree with the EPA and the Missouri
Coalition for the Environment Foundation. See Ex. MSD 50. The Consent Decree initially required
the District to, over a 23-year period, make $4.7 billion in investments in the wastewater system
to ensure it has adequate capacity and is properly maintained (Asset Management), to eliminate
sanitary sewer overflows (SSO), to eliminate, reduce, and control combined sewer overflows
(CSO), and to reduce the risk of flooding in the combined sewer area (Cityshed). See Ex. MSD 1,
p. 4-15; see also Ex. MSD 3E, p. 3, ll. 16-22. This multi-decade Consent Decree effort is estimated
to cost approximately $7.2 billion (in 2023 dollars), with approximately $2.5 billion appropriated
from FY 2013 through the end of FY 2022. See Ex. MSD 1, p. 4-15; see also Ex. MSD 3E, p. 3,
ll. 22-24.
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In 2018, an amendment to the Consent Decree was agreed to, providing an additional five
years for the District to complete its Consent Decree obligations, and rescheduling a number of
major CSO tunnels to later years. See Ex. MSD 50A. The Consent Decree was amended again in
2023 to allow the District to replace two wastewater storage tunnels with a single storage tunnel.
See Ex. MSD 50B.
The projects in the CIRP which are required by the Consent Decree are set forth in
Appendix 8.2.2 of the Rate Change Proposal. See Ex. MSD 1, pp. 8-17 to 8-37. The District’s Rate
Change Proposal includes an assumption that the District will obtain approval for a two-year delay
in completion of projects in the latter part of the Consent Decree project schedule. See Ex. MSD
78, p. 14, ll. 15-17. If the two-year delay is not granted, the District would manage expenses with
available revenues rather than request a revised or additional rate increase in FY 2028. Id. at p. 15,
ll. 1-4. However, if the two-year delay is not granted, Ms. Lemoine noted that “there could be a
risk that debt service coverage could be reduced compared to that projected in the Rate Proposal,”
or rate increases would be higher than anticipated in FY 2029 through FY 2032. Id. at p. 15, ll. 4-
7.
Non-Consent Decree Regulatory Requirements
The projects in the CIRP which are not required by the Consent Decree, but are required
due to other regulatory requirements, are set forth in Appendix 8.2.4 of Ex. MSD 1, pp. 8-39 to 8-
41. For example, the fluidized bed incinerator projects are designed, among other things, to comply
with federal and state air quality standards. The estimated cost of the fluidized bed incinerator
projects is $951,200.00. See Ex. MSD 83B, p. 4. The District states that these projects are
necessary to replace aging infrastructure, comply with air emissions standards, improve air quality,
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to avoid operating permit violations, and to comply with Consent Decree modifications. See Ex.
MSD 83B1, p. 22.
The District testified that it is essential to replace the incinerators because new regulations
enacted in 2016 would render the District’s facilities non-compliant under the next permit renewal
cycle. See Ex. MSD 75, p. 24, ll. 9-25.
All other projects in the CIRP (those not required for regulatory compliance or Consent
Decree compliance) are set forth in Appendix 8.2.3 of the Rate Change Proposal, Ex. MSD 1, p.
8-38.
Administration of the Federal Clean Water Act has been delegated to the Missouri
Department of Natural Resources (“MDNR”) by the EPA. See Ex. MSD 1, p. 4-42. The District
is regulated by the MDNR to ensure compliance with the requirements established under the Clean
Water Act. Id. Failure to meet the requirements imposed at the Federal and State levels would be
extremely burdensome financially and could directly hamper or even thwart the efforts of the
District. Id. Fines and/or penalties for failing to comply with the Consent Decree or failing to meet
regulatory deadlines are clearly defined within the Consent Decree and applicable statutes and
regulations. See Ex. MSD 3E, p. 2, ll. 24; p. 3, ll. 1-3. For example, the Clean Water Act provides
for penalties up to $50,000 per violation per day. See Ex. MSD 1, p. 4-42. The Consent Decree
outlines stipulated penalties ranging from $500 to $4,000 per day depending upon the type and
length of noncompliance. Id.; see also Ex. MSD 50, pp. 64-68.
Richard Unverferth, Director of Engineering for the District, testified that 98% of the
projects in the CIRP are required to meet the Consent Decree or other regulatory requirements.
See Ex. MSD 3E, p. 3, ll. 16-18. He testified that both the scope and timing of the projects shown
in the CIRP are designed to meet system needs, defined regulatory schedules and schedules
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required by the Consent Decree. See Ex. MSD 2E, p. 2, ll. 20-23. He testified that any delays could
result in fines or penalties due to system failure or inability to meet Consent Decree or other
regulatory deadlines. See Ex. 3E, p. 2, ll. 24-25; p. 3, ll. 1-3.
Susan Myers, general counsel for the District, testified that the Wastewater Rate Change
Proposal does not impair the ability of the District to comply with applicable federal or state laws
or regulations as amended from time. See Ex. MSD 75, p. 9, ll. 4-9. Rather, she testified that in
her opinion, failure to approve the Wastewater Rate Change Proposal would jeopardize the
District’s ability to comply with federal and state law. See Ex. MSD 75, p. 9, ll. 10-14. More
specifically, she testified that the proposed wastewater rates “will support the legal obligations that
the District is under. The biggest one [being] the Consent Decree.” See Ex. MSD 75, p. 9, ll. 15-
18. However, she also noted that the District is “at risk of penalties beyond the Consent Decree”
should the Rate Change Proposal not be approved, including penalties under the Clean Water Law
if the District is out of compliance. See Ex. MSD 75, p. 9, 11. 19-25; p. 10, ll. 1-2.
The proposed rate change is “necessary to meet legal requirements imposed upon the
District.” See Ex. MSD 1, p. 4-42. “Failure to construct mandated projects or properly maintain
existing lines and facilities exposes the District to the possibility of immediate and direct legal and
financial consequences.” Id.
It is the position of the Rate Consultant that the projects within the CIRP are appropriate.
Further, the Rate Commission believes that the evidence presented in the record indicates that the
Rate Change Proposal does not impair the ability of the District to comply with applicable federal
and state laws or regulations as amended from time to time during this Rate Change Proposal cycle.
Rather, the Rate Commission believes that the District’s ability to comply with applicable federal
and state laws and/or regulations will be impaired without the proposed rate change.
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STORMWATER
Susan Myers testified on behalf of the District that the Stormwater Rate Change Proposal
will not impact the District’s obligations under the Consent Decree. See Ex. MSD 74, p. 28, ll. 19-
22. The Rate Consultants did not submit testimony regarding the impact of the Stormwater Rate
Change Proposal on the District’s obligations under the Consent Decree. There was no testimony
offered by any of the participants that the Stormwater Rate Change Proposal, if adopted, would
impair the ability of the District to comply with the Consent Decree, or any other applicable
Federal or State laws or regulations, as amended from time to time.
THE RATE COMMISSION, AFTER DISCUSSION AND CONSIDERATION OF
ALL OF THE FACTS AND CIRCUMSTANCES DISCLOSED IN THESE
PROCEEDINGS, FINDS AND DETERMINES THAT THE RATE CHANGE PROPOSAL
DOES NOT IMPAIR THE ABILITY OF THE DISTRICT TO COMPLY WITH
APPLICABLE FEDERAL AND STATE LAWS OR REGULATIONS AS AMENDED
FROM TIME TO TIME DURING THIS RATE CHANGE PROPOSAL CYCLE.
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Fifth Factor: Whether the Rate Change Proposal, and all portions thereof, “considers
the financial impact on all classes of ratepayers in determining a fair and reasonable burden.”
Pursuant to the Charter Plan, the Fifth Factor to be addressed in the Rate Commission’s
recommendation to the Board of Trustees is 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(5). This provision of the Charter Plan was amended by the voters at an
election on April 6, 2021. Prior to this amendment, this factor required the Rate Commission to
consider whether the Rate Change Proposal “imposed a fair and reasonable burden on all classes
of ratepayers.” See Ex. MSD 74, p. 97, ll. 14-19. Brian Hoelscher testified that, post-amendment,
the inquiry under this factor is whether “each class has been considered in determining if it’s a fair
and reasonable” proposal. Id. at p. 99, ll. 3-11.
The Commission’s Rate Consultant, when asked how the Rate Commission should make
that determination, testified as follows:
The Rate Commission should determine whether the District’s Rate Proposal
considers the financial impact on all classes of ratepayers in determining a fair and
reasonable burden by considering the record in this proceeding, including the
District’s submittal and the testimony of its staff and any intervenors, and
evaluating to the extent feasible the District’s use of reasonable allocation factors
to apportion costs among cost-causative components, aligned with industry-
accepted practices and guidelines.
See Ex. RC 78, p. 8, ll. 18-23; p. 9:, ll. 1-3.
The Charter Plan does not define the terms or phrases utilized in this criteria. As such, the
words used in this section of the Charter Plan, like undefined words used in statutes, are to be
given their plain and ordinary meaning. See Sermchief v. Gonzales, 660 S.W.2d at 688. The
commonly understood meaning of words is derived from the dictionary. See Buechner v. Bond,
650 S.W.2d at 613.
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According to Black’s Law Dictionary, the term “fair” is defined as “impartial; just;
equitable; disinterested. Free of bias or prejudice.” See Black’s Law Dictionary, p. 673 (8th ed.
2004). See also “Fair.” Merriam-Webster.com27 Dictionary, Merriam-Webster (“marked by
impartiality and honesty: free from self-interest, prejudice, or favoritism”).
“Reasonable” is defined as, “fair, proper, or moderate under the circumstances.” See
Black’s Law Dictionary, p. 1293 (8th ed. 2004). See also “Reasonable.” Merriam-Webster.com28
Dictionary, Merriam-Webster (being in accordance with reason; not extreme or excessive).
Similar language to that contained in this Fifth Factor can be found in § 7.300 of the Charter
Plan, which indicates that the Board of Trustees shall accept a Rate Commission Report unless it
finds that the report “imposes an unfair or excessive burden on one or more classes of ratepayers.”
See Charter Plan, § 7.300(b)(5).
Further, similar language also appears in the Operational Rules of the Rate Commission,
which states that the District shall submit to each member of the Commission information related
to direct testimony that may explain “why the Proposed Rate Change set forth in the Rate Change
Notice is necessary, fair and reasonable,” and “how the Proposed Rate Change considers the
financial impact on all classes of ratepayers in determining a fair and reasonable burden, including
whether and how cost of service considerations, cost causation principles, customer impact data,
economic development considerations, environmental effects and other factors have or have not
been factored into such determination.” See Operational Rules, §§ 3(4)(a) and 3(4)(e) (2023).
The District’s rates and rate models have been exhaustively reviewed by the courts in
Zweig v. Metro. St. Louis Sewer Dist., 412 S.W.3d 223; Ring v. Metro. St. Louis Sewer Dist., 969
27 https://www.merriam-webster.com/dictionary/fair. Last accessed June 23, 2023.
28 https://www.merriam-webster.com/dictionary/reasonable. Last accessed June 23, 2023.
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S.W.2d 716 (Mo. banc 1998), overruled by Zweig, 412 S.W.3d 223; Missouri Growth Ass. V.
Metro. St. Louis Sewer Dist., 941 S.W.2d 615; Beatty v. Metro. St. Louis Sewer Dist., 914 S.W.2d
791 (Mo. banc 1995), overruled by Zweig, 412 S.W.3d 223; and Beatty v. Metro. St. Louis Sewer
Dist., 867 S.W.2d 217 (Mo. banc 1993). However, none of the cases have considered whether the
rates charged by the District are fair and reasonable.
On several occasions, Missouri courts have discussed whether a rate is fair or reasonable
in utility rates cases where a class of ratepayers alleged that the Public Service Commission
(“PSC”) approved unlawfully discriminatory rates. For instance, in State of Missouri at the
Relation of Nancy Dyer and J. Raymond Dyer v. Pub. Serv. Comm’n., 341 S.W.2d 795, 796 (Mo.
1960), the PSC approved a schedule of rates which allowed for higher percentage increases in
electric utility rates for residential and commercial customers than for industrial customers. In
Dyer, the rate for residential customers was increased by 8.6%, while the rate for industrial
customers was increased by 5.5%. Id. at 799. The PSC found that the higher increase, imposed
upon residential and commercial customers rather than industrial customers, was due to larger
capital expenditures, such as the use of air conditioning, installation for hundreds of miles of
heavier wires and transformers, and higher labor costs, incurred on behalf of the residential
customers. Id. As such, the Court found that the rates were fair and no unlawful discrimination had
occurred.
Several months later, the Missouri Supreme Court heard R.P. Smith, et al. v. Pub. Serv.
Comm’n., 351 S.W.2d 768 (Mo. 1961). In this case, the PSC approved an order which allowed
electric utility rates to be increased a greater percentage for commercial than residential customers.
Id. at 771. The Missouri Supreme Court affirmed the PSC’s order and found that the fact that there
was a larger increase applied to one class as opposed to another does not alone indic ate that the
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rate is unfair or unreasonable. Id. Further, the Court found that there is no discrimination where a
reasonable classification has a direct correlation to the differences in the situation of the customers
or the furnishing of the services whereby valid reasons exist to justify the imposition of varying
rates. Id.
Factors which supported the differential increase included the fact that the demand from
industrial users is often high, the use is often occasional or inconsistent, and the use is often for
only a portion of the day or a short duration during the year. Id. at 772. With this, the maintenance
of the facilities to meet variable and often demanding loads was unprofitable to the utility. Id. As
such, the rates were increased disproportionately to the disfavor of industrial customers to account
for such costs. The Court stated that because there was a larger increase applied to one class as
opposed to another does not alone indicate that the rate is unfair or unreasonable or that
discrimination occurred. Id. at 771. Further, the Court found that there is no discrimination where
a reasonable classification has a direct correlation to the differences in the situations of the
customers or the furnishing of the services whereby valid reasons exist to justify the imposition of
varying rates. Id. This increase, consequently, was held to be a reasonable one. Id. at 772-773.
However, in State of Missouri ex rel. DePaul Hosp. School of Nursing v. Public Service
Comm’n., 464 S.W.2d 737, 740 (Mo. App. 1970), the Missouri Court of Appeals found the PSC’s
order approving a rate to be unlawfully discriminatory. In this case, the evidence demonstrated
that the respondent was charged a substantially higher rate for the operation of its nursing home
than others similarly situated who received a substantially lower rate, known as the hotel-motel
rate. The court found that “arbitrary discriminations alone are unjust, but if the difference in rates
be based upon a reasonable and fair difference in conditions which justify a different rate, it is not
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unjust discrimination.” Id. at 740 (quoting State ex rel. City of St. Louis v. Pub. Serv. Comm’n.,
36 S.W.2d 947, 950 (Mo. 1931) (emphasis added)).
In State of Missouri ex rel. City of Oak Grove, et al. v. Pub. Serv. C omm’n., 769 S.W.2d
139 (Mo. App. W.D. 1989), the Missouri Court of Appeals found the PSC’s order, which allowed
a telephone company to provide extended area service in one metropolitan area when it was not
provided in other suburban exchanges approximately the same distance from the central exchange,
to be “lawful and reasonable.” Id. at 141. In this case, the court held that discrimination does not
exist merely because the distance between a central exchange and service complainant’s exchange
is approximately the same. Id. at 143. The court reasoned that the PSC was entitled to take into
account factors such as population density and gross territory area when making these
determinations. Id.
The PSC regulates telephone and telegraph companies (§ 392.200, RSMo) and gas,
electric, water, heating and sewer companies (§§ 393.130, 393.140, RSMo). Generally, the PSC
uses the standard “just and reasonable” in determining whether a proposed rate is valid.
The standard of review for telephone and telegraph companies provides that “all charges
made and demanded by any telecommunications company for any service rendered or to be
rendered in connection therewith shall be just and reasonable and not more than allowed by law
or by order to decision of the commission.” See § 392.200, RSMo (emphasis added).
The standard of review for gas, electric, water and sewer corporations provides that the
PSC has the power to “determine and prescribe the just and reasonable rates and charges thereafter
to be in force of the service to be furnished, notwithstanding that a higher rate or charge has
heretofore been authorized by statute, and the just and reasonable acts and regulations to be done
and observed.” See § 393.140(5), RSMo (emphasis added).
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The PSC’s role in the electric utility resource planning “shall be to provide the public with
energy services that are safe, reliable and efficient, at just and reasonable rates, in a manner that
serves the public interest.” See 4 CSR 240-22.010(2) (emphasis added).
Whether a rate in effect at any given time is “just and reasonable” depends upon many facts
and only can be determined after a rather extended investigation and study. See State of Missouri
ex rel. Laclede Gas Co. v. Pub. Serv. Comm’n., 535 S.W.2d 561 (Mo. App. 1976). A reasonable
rate is a question of fact, calling for the exercise of common sense and sound judgment, not bound
by any hard and fast rule, nor limited to any general formula. State ex rel. Office of Pub. Counsel
v. Pub. Serv. Comm’n., 367 S.W.3d 91, 107 (Mo. App. S.D. 2012); see also State ex rel. Associated
Natural Gas Co. v. Pub. Serv. Comm’n., 706 S.W.2d 870, 880 (Mo. App. W.D. 1985); Ark. Power
& Light Co. v. Pub. Serv. Comm’n, 736 S.W.2d 457, 462 (Mo. App. W.D. 1987).
No writer whose views on public utility rates command respect purports to find a
single yardstick by sole reference to which rates that are reasonable or socially
desirable can be distinguished from rates that are unreasonable or adverse to the
public interest. A complex of tests of acceptability is required, just as would be the
case with the tests of a good automobile, a good income-tax law, or a good poem.
State ex rel. City of Lake Lotawana v. Pub. Serv. Comm’n, 732 S.W.2d 191, n.1 (Mo. App. W.D.
1987) (quoting J. Bonbright, Principles of Public Utility Rates 67 (1961)).
In Laclede Gas, the Missouri Court of Appeals analyzed the issue of just and reasonable
rates when the gas company argued that its existing approved rates were so unreasonably low as
to be confiscatory. 535 S.W.2d at 569. Laclede argued that the rates must be sufficient to produce
a fair return on the property. Id. The court determined that “[e]very utility does have an undoubted
constitutional right to such a fair and reasonable return, and thus is a continuing right which does
not cease after beginning rates are initially determined.” Id. The court found that whether the rates
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in effect are just and reasonable depends upon many facts and can only be determined after rather
extended investigation and study. Id. at 570.
The United States Supreme Court has analyzed the standard of “just and reasonable rates”
under the Natural Gas Act in two relevant cases. See Fed. Power Comm’n. v. Nat. Gas Pipeline
Co., 315 U.S. 575 (1942); Fed. Power Comm’n. v. Hope Nat. Gas Co., 320 U.S. 591 (1944). In
Natural Gas Pipeline, the Court, in determining whether the rate was just and reasonable, stated:
The Constitution does not bind rate-making bodies to the service of any single
formula or combination of formulas. Agencies to whom the legislative power has
been delegated are free, within the ambit of their statutory authority, to make the
pragmatic adjustments which may be called for by particular circumstances. Once
a fair hearing has been given, proper findings made and other statutory
requirements satisfied, the courts cannot intervene in the absence of a clear
showing that the limits of due process have been overstepped. If the commission’s
order, as applied to the facts before it and viewed in its entirety, produces no
arbitrary result, our inquiry is at an end.
315 U.S. at 586.
The Supreme Court provided further guidance in Hope Natural Gas, when it stated that
rates cannot be made to depend upon the fair value, which is the end product of the process of rate-
making and not the starting point, when the value of the going enterprise depends on earnings
under whatever rates may be anticipated. 320 U.S. at 601. The Supreme Court further provided
that under the statutory standard that natural gas rates shall be “just and reasonable,” the result
reached, and not the method employed, is controlling. Id. At 602. If the total effect of the natural
gas rates fixed by the Federal Power Commission cannot be said to be unjust and unreasonable,
judicial inquiry under the Natural Gas Act is at an end. Id.
WASTEWATER
The District’s position is that the Rate Change Proposal complies with this factor because
the “District’s cost of service analysis … reflects that the proposed rate adjustments by customer
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class closely aligns with the cost to provide wastewater services to each customer class.” See Ex.
MSD 1, p. 4-42.
Ratepayer Financial Impact
At public hearings, the Rate Commission heard from ratepayers and consumer advocates
as to the need to address ratepayer financial impact. See Ex. MSD 109. The District provides a
50% discount on wastewater service charges for low-income residential customers. See Ex. MSD
1, p. 4-37. The District’s CAP guidelines are contained in Table 4-19 of Ex. MSD 1, p. 4-38.
Current policy defines eligibility as residential customers with household income of less than
200% of the most recent federal poverty guidelines by household size, and less than 250% for
disabled individuals, or those ages 62 or older. See Ex. MSD 1, p. 4-38.
The Consumers Council of Missouri noted that other local utilities, including Spire,
Missouri-American Water, and Ameren are all imposing significant rate increase. See Ex. RC 96,
p. 1. The Consumers Council suggests that the District’s CAP “consider the energy burdens of
customers in determining the amount of assistance.” Id. The Council “also encourages MSD to
create an outreach program so that ratepayers and community agencies are aware of the elements
of such a program and applications for assistance can be quickly processed.” Id. at pgs. 1-2.
The Rate Commission considered the potential rate impact on ratepayers already facing
multiple utility rate increases, and believes that the District should consider expansion of existing
assistance programs. Further, the Rate Commission recommends that the District take a leading
role in the establishment of a task force on utility ratepayer financial impact issues, including other
entities and impacted parties within the District’s service areas, to consider issues relating to utility
ratepayer financial impact, such as expansion of metering at a reduced cost to assist individuals in
older homes – particularly in St. Louis City, where the number of rooms and bathrooms determines
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rates, rather than usage – to allow individuals to reduce their utility costs, and such as the
opportunity to access funds from the City of St. Louis and St. Louis County, Missouri from the
NFL settlement, as set forth in the Resolution approved by the Rate Commission, attached to this
report as Exhibit B.
Cost of Service Analysis
The factor that must be considered here is whether the Rate Change Proposal “considers”
the financial impact on all classes of ratepayers in determining a fair and reasonable burden. The
Rate Commission has determined that the District has done so.
The District’s current wastewater rate structure consists of monthly service and volume
charges applicable to all District customers. The monthly service charges include a billing and
collection charge and a system availability charge. A volume charge is assessed to all customers
based on their respective water usage, which is provided by customers’ respective water providers
on either a metered or unmetered basis. A typical metered residential customer contributing 5 Ccf
of wastewater each month will experience a rate increase of approximately 7.2% each year from
FY 2025 through FY 2028. See Ex. MSD 1, p. ES-6. While the rate increases are higher than in
the past, there is no big spike in rates as there has sometimes been in previous rate cycles.
All non-residential customers are also assessed a compliance charge and extra strength
charges where applicable. See Ex. MSD 1, p. 4-1. Compliance charges are based on the amount of
inspection and testing of wastewater needed to comply with current regulations. Id. “Extra strength
surcharges are applied to monitored non-residential customers generating excess biochemical
oxygen demand (BOD), chemical oxygen demand (COD), and total suspended solids (TSS).” Id.
The District’s position is that its cost of service analysis reflects that the proposed rate
adjustments by customer class closely aligns with the cost to provide wastewater services to each
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customer class. See Ex. MSD 1, p. 4-42. The District’s position is supported by the comparison of
revenue under the proposed rates to the cost of service set forth in Table 4-20 to the Rate Change
Proposal. See Ex. MSD 1, p. 4-40. Thomas Beckley testified that the basic principle in a cost-of-
service analysis is to achieve general fairness in the recovery of costs from various classes of
customers. See Ex. MSD 3K, p. 4, ll. 10-12; see also Ex. MSD 1, p. 4-25. The approach used in
the District’s Rate Change Proposal is based on the principles endorsed by the Water Environment
Federation (WEF), which allows the District to demonstrate rates have not been set in an arbitrary
manner and one class of customer is not subsidizing another to an unjustifiable extent, or in a
manner that is not approved and supported by the District. See Ex. MSD 1, p. 4-25 – 4-26; and Ex.
MSD 3K, p. 4, ll. 12-16. Thomas Beckley testified that the Rate Change Proposal considers the
financial impact on all classes of ratepayers in determining a rate and reasonable burden. See Ex.
MSD 75, p. 147, ll. 13-25; p. 148, ll. 1-10. For example, he testified that the Rate Change Proposal
examines factors for the different class of customers, such as I/I volume versus connection. Id. It
also considers how the financial structure of the proposal impacts its customers.
The District is proposing system wide revenue increases from rates from FY 2026 through
FY 2028. See Ex. RC 78, p. 27, ll. 5-8. The impact on typical wastewater bills is shown in Table
6-1 of Ex. MSD 1, p. 6-2. Rates will steadily increase over the rate cycle, rather than increasing
dramatically from one year to another.
Combination of Bonding and PAYGO Approach
Mr. Tim Snoke, Secretary-Treasurer for the District, testified that “[u]sing a combination
of bonding and PAYGO provides several benefits versus a PAYGO only approach.” See Ex. MSD
3H, p. 3, ll. 23-24; p. 4, ll. 1-10. More specifically, he testified that “[a] combined approach allows
projects to be built and put into service more quickly and/or with less significant rate impact in the
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near term” and that “[c]ustomers receive the public benefit sooner, while both current and future
users of the project receive its benefits and pay for its use.” Id. at p. 4, ll. 5-7. In considering the
financial impact on all classes of ratepayers, Mr. Snoke testified that under a PAYGO only
approach, only current ratepayers pay for the projects, but all future constituents receive the
benefit. Id. at p. 4, ll. 7-8. Further, Mr. Snoke testified that “[a] combined approach is … considered
to be the more prudent financial practice by rating agencies and within the business and finance
communities.” Id. at p. 4, ll. 8-10.
The District is currently seeking additional debt authorization because the use of such debt
financing allows the District to fund “large near-term capital improvements while moderating the
rate increases imposed on customers.” See Ex. MSD 3H, p. 5, ll. 10-15. The District considered
the fact that the use of PAYGO only financing would require significantly higher rate increases
through FY 2028. Id.
The Commission’s Rate Consultant agreed that financing the CIRP from a mix of long-
term debt and cash financing (PAYGO) “is reasonable and helps spread the cost of improvements
over a longer term, allowing future customers receiving the benefit of the improvements to help
pay for the improvements.” See Ex. RC 78, p. 12, ll. 17-23; p. 13, ll. 1-2. The Consultant also
testified that “bond rating agencies favorably view a meaningful balancing of debt financing and
cash financing of a utility’s capital program.” Id. at p. 13, ll. 2-4.
Debt-Cash Mix of CIRP Funding / Debt Service Coverage Ratio
The District’s Rate Change Proposal provides that the CIRP will be funded through a ratio
of approximately 60% debt and 40% other sources, primarily PAYGO (35%). See Ex. MSD 3H,
p. 3, ll. 14-17; and Ex. MSD 75, p. 91, ll. 16-20. Bethany Pugh testified that the historical debt to
equity ratio is approximately 70%/30% from FY 2004 to FY 2022. See Ex. MSD 3I, p. 4 ll. 9-12.
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This ratio includes both revenue bonds and any SRF obligations of the District. Id. at p. 4, ll. 12-
14. The District’s position is that the historical 70/30 ratio is an average, not a norm, and that
“funding for previous proposals has ranged from 90% /10% to 60%/40%.” See Ex. MSD 71A, No.
10. Further, the District represents that as its “debt burden has grown, the revenues necessary to
provide for the required debt service coverage in order to maintain AA -category ratings has
increased.” Id. It is the District’s position that the “debt to equity ratio in the Rate Change Proposal
is a function of the amount of cash generated from coverage.” Id. Tim Snoke, the District’s
Secretary-Treasurer, testified that the 60/40 debt to equity ratio is not a policy decision, but is “a
function of how much cash is being generated from coverage and what the size of the capital plan
is.” See Ex. MSD 75, p. 93, ll. 18-21.
The Commission’s Rate Consultant, Pamela Lemoine, testified that the District’s proposed
capital financing plan, which includes approximately 35% cash funding of the CIRP, “is consistent
with similar financial best practices used by other peer wastewater utilities and provides a
reasonable mix of cash and debt financing.” See Ex. RC 78, p. 5, ll. 7-10. Ms. Lemoine
acknowledged that “[t]he projected cash financing exceeds the District’s historical cash versus
debt funding mix of 30%/70% and meets the District’s desired funding mix of 40% / 60%.” See
Ex. RC 78, p. 13, ll. 7-9. Ms. Lemoine believes this level of cash financing “is consistent with the
25% to 30% cash financing of capital that is deemed an industry accepted best practice and is in
practice in other peer utilities.” See Ex. RC 78, p. 13, ll. 9-11.
The Rate Commission finds that the debt/cash ratio of 60/40 (as opposed to 70/30) is
appropriate, particularly as it is a by-product of the District’s target DSC ratio of 1.8x for total
bonds.
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The District’s debt agreements require a minimum senior bond debt [service] coverage
(“DSC”) ratio of 1.25x and a minimum total bond debt [service] coverage ratio of 1.15x. See Ex.
MSD 3H, p. 7, ll. 8-11. To maintain the District’s high credit ratings, the Rate Change Proposal
has been set to achieve a minimum DSC of 2.5x for senior bonds and 1.8x for total bonds. Id. at
p. 7, ll. 12-14.
Bethany Pugh testified on behalf of the District that the financial planning model “assumed
the District managed its financial obligations to maintain AA category credit ratings.” See Ex.
MSD 3I, p. 4, ll. 6-7. She testified that “[p]rojected minimum coverage targets of 2.5x (senior lien
bonds) and 1.8x (inclusive of subordinate obligations) have been identified as the optimal coverage
levels needed to maintain high AA-level bond ratings, thereby ensuring cost effective market
access for the District’s large capital program. See Ex. MSD 3I, p. 5, ll. 6-10.
Rate Consultant Pamela Lemoine testified that the “District’s policy to maintain senior
debt service coverage (DSC) of 2.5x or greater and total debt service coverage of 1.8x or greater
is a valid and important metric, particularly in light of the District’s current and anticipated future
heavy debt profile.” See Ex. RC 78, p. 23, ll. 2-16. She concluded that “[t]he District’s DSC policy
is consistent with rating agency expectations,” which consider strong debt service coverage
important for a highly rated utility. See Ex. RC 78, p. 23, ll. 16-17. For example, Moody’s Investor
Service notes that one of the District’s credit strengths is “healthy liquidity and debt service
coverage.” See Ex. MSD 52, p. 1. One thing they have listed as a factor that could lead to a
downgrade is a “narrowed liquidity or debt service coverage.” Id. at p. 2.
Intervenor MIEC submitted comments29 stating that the level of debt service coverage
proposed in the Rate Change Proposal “is simply too expensive to place on customers [while] at
29 The MIEC comments were submitted in connection with the final public hearing.
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the same time asking customers to pay big rate increases to support a continued elevated level of
capital expenditures.” See Ex. MIEC 107, p. 1. Further, 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 utilit y to access capital to
support its infrastructure investments, but do so at lower rates than that proposed by MSD Staff in
previous rate cases. Id. at 2
Notwithstanding Intervenor MIEC’s comments, the Rate Commission believes that
decreasing the DSC could jeopardize interest rates and bonding capacity for future rate cycles.
Since there are still eleven years left to complete the Consent Decree, such a decrease could
negatively impact the District for years to come.
The Rate Commission requested additional information from the District and the Rate
Consultants as to the effect on the rates if in fact the debt service coverage was changed to 1.6x
and/or the funding was changed to a ratio of approximately 70% debt and 30% other sources.
Additional documents in response to this request were produced and provided to the Rate
Commission during deliberations. These documents are attached to this Report as Exhibit A.
In sum, the Rate Consultant believes that the two topics are intertwined, and it is really the
debt service coverage that drives the debt/cash ratio. The debt/cash ratio becomes an outcome of
the debt service coverage rate. The Rate Consultant noted that 1.6x debt service coverage in 2027
could result in a decrease in proposed rates, but could potentially generate a negative outlook from
one or more of the municipal credit rating agencies. The Rate Consultant also noted that residential
ratepayers could potentially see a decrease of up to $1 per month on monthly wastewater bills in
FY 2025, or about 1.3%. The impact on non-residential ratepayers would be roughly similar in the
percentage decrease.
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Infiltration/Inflow
Infiltration and inflow (“I/I”) is a phrase referring to the entry of extraneous flows into a
collection system. “Infiltration is the name for flows from groundwater sources while inflow is a
reference to water entering sewers as a result of storm events. Infiltration and inflow occur in all
sewer systems, entering through a variety of potential entry points including manholes, pipe
appurtenances, private laterals, and pipe defects. Infiltration and inflow consume system capacity
and must be managed and treated, resulting in costs to the system.” See Ex. MSD 3L, p. 1, ll. 23-
24; p. 2, ll. 1-6.
The District estimates that I/I is approximately 62.4% of the total wastewater flow reaching
the treatment plants on an annual basis. See Ex. MSD 3J, p. 4, ll. 22-24; p. 5, ll. 1-3. In the 2019
rate case, I/I was estimated to be approximately 59.4%. See Ex. MSD 3J, p. 5, ll. 4-7. Mr. William
Stannard, Rate Consultant to the District, testified that the estimated 62.4% figure was “a
reasonable estimate of the amount of [I/I] that will occur at that time.” See Ex. MSD 75, p. 138, ll.
13-23. The District’s cost of service analyses have consistently used I/I allocation percentages of
40 percent to customers and 60 percent to volume since the 2007 Wastewater Rate Change
Proceedings. See Ex. MSD 3J, p. 6, ll. 1-19. William Stannard testified on behalf of the District
that “the amount of I/I costs to be recovered directly from wastewater service charges is assigned
to customer classes on the premise that 40 percent of the total cost is distributed on the basis of the
number of customers within each class, with the remaining 60 percent allocated on the basis of
contributed wastewater volume.” Id. at p. 6, ll. 14-19.
As a part of the 2019 wastewater Rate Change Proceeding, the Rate Commission found
that the proposed 40% customer/ 60% volume I/I ratio that the District proposed was supported by
the record, but recommended the District undertake a new I/I allocation study prior to the next rate
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proposal. Accordingly, the District retained the services of Stantec Consulting Services Inc.
(“Stantec”) to undertake an I/I study. Stantec issued a report dated October 10, 2022. See Ex. MSD
66. William Zieburtz, the Utility Rate Consultant for Stantec, testified that the District requested
that it examine the District’s allocation and recovery of costs related to I/I between customer and
volumetric charges. See Ex. MSD 3L, p. 1, ll. 17-22.
Mr. Zieburtz further testified that the manner in which the District’s rate structure recovers
costs associated with I/I is consistent with the methodology used by other wastewater utilities. See
Ex. MSD 3L, p. 2, ll. 7-10. More specifically, he testified that “wastewater system managers rely
on a variety of approaches to address the allocation of [I/I] costs,” and that while “there are a
variety of approaches and outcomes reflecting differences in system needs, policy objectives, and
engineering judgments, wastewater systems often rely on an allocation of [I/I] costs that reflects
both the number of customer connections by class and contributed wastewater volumes by class.”
Id. at p. 2, ll. 10-15.
Stantec analyzed data on I/I volumes in the District’s wastewater system and on the
District’s current approach to allocate I/I costs in the development of user charges. Stantec
considered ten different allocation approaches. See Ex. MSD 66. These I/I cost allocation
approaches were evaluated and compared with the I/I cost allocation processes of thirteen large
wastewater utilities. Id.; see also Ex. MSD 3L, p. 2, ll. 16-21. After completing its evaluation,
Stantec did not recommend any changes to the current allocation of 40% of I/I costs based on
customer connections and 60% based on contributed wastewater volume. See Ex. MSD 3L, p. 2,
ll. 22-24; p. 3, ll. 1-2. Stantec’s recommendation to keep the 60/40 allocation was based on several
factors, including the following: First, that there is no approach allowing a direct measurement of
I/I into the District’s system. Second, that none of the alternative approaches was able to generate
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an allocation of inherently higher quality than the District’s current allocation. Third, that many
different allocation approaches, measurements, and customer class allocation results are consistent
with fundamental utility objectives to achieve sufficient, stable, and sustainable revenue generation
and equitable cost recovery. Fourth, that Stantec had not observed or identified a material change
in the District’s systems or in the implications of I/I volumes and characteristics since the previous
rate proceedings suggesting a need for any change in the allocation of I/I costs. See Ex. MSD 3L,
p. 2, ll. 22-24; p. 3, ll. 1-13. In summary, Stantec concluded that “the current practice [the District]
was following is consistent with industry standard procedures, and that there was no better way to
allocate these costs than is currently being done.” See Ex. MSD 75, p. 120, ll. 3-7.
Based on the results of the I/I Allocation Study the District commissioned, it is the position
of the Commission’s Rate Consultant that the “allocation approach used by the District is
reasonable.” See Ex. RC 78, p. 25, ll. 9-18. The Consultant noted that the Stantec report included
a broad range of approaches for allocating I/I between the Customer and Volume components and
that these approaches resulted in allocations ranging from 0% to 70% to the Customer component.
Id. at p. 25, ll. 11-13. The Rate Consultant further found that while not all utilities develop an
allocation methodology based on an analysis of the system, for those that do, certain of the
approaches identified by Stantec are more common than others, which are based on a distribution
of the gravity sewers within the District’s system. Id. at p. 25, ll. 13-16. Of those approaches, the
District’s allocation of 40% to Customer and 60% to volume falls within the range of those
approaches. Id. at p. 25, ll. 16-18.
As such, the Rate Commission believes that the I/I allocation proposed in the Rate Change
Proposal is supported by the record, and reasonable.
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Extra Strength Surcharges
The Rate Change Proposal includes a significant increase in extra strength surcharges.
Extra strength surcharges are applied to monitored non-residential customers generating excess
BOD, COD, and TSS. See Ex. MSD 1, p. 4-1. Extra strength surcharges are applied to wastewater
loadings that exceed normal strength limits of 300 mg/l for suspended solids, 300 mg/l for BOD,
or 600 mg/l for COD. See Ex. MSD 1, pgs. 4-38 – 4-39.
In FY 2026 through FY 2028, the District is proposing surcharge rates to increase annually
on an “across-the-board basis,” with the increase being based on the overall wastewater revenue
increase. See Ex. RC 78, p. 6, ll. 1-6; p. 27, ll. 5-8. This is different than in past rate proceedings.
In past proceedings, the District increased surcharge rates based on cost-of-service in the first year
of the rate period and increased rates by a projected annual average increase in total O&M in years
two through four. See Ex. RC 78, p. 27, ll. 9-13. Because a significant portion of the District’s
budget reflects capital cost, this has contributed to the surcharge rates “falling behind” cost of-
service and contributed to larger increases required in year one of the subsequent rate period. Id.
at p. 27, ll. 13-16. In this Rate Change Proposal, 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. Id. at
p. 27, ll. 16-17. 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.
The cost-of-service analysis indicates a significant increase in the surcharge rates for BOD,
COD, and TSS. See MSD Ex. 1, p. 4-39; see also Ex. MSD 3K, p. 8, ll. 17-21. The District is
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proposing a 105.0% increase in the surcharge rate for TSS, and a 17.9% increase in the surcharge
rates for BOD and COD, which are higher than the system-wide increase of 7.5% for FY 2025.
See Ex. RC 78, p. 26, ll. 1-4.
As set forth in the Rate Change Proposal and as testified to by Tom Beckley on behalf of
the District, this increase is caused by several factors. Most significantly, the capital cost allocated
to these functional categories increased substantially due to the District’s new fluidized bed
incinerator projects. See Ex. MSD 1, p. 4-39; see also Ex. MSD 3K, p. 8, ll. 21-24. CIRP projects
that are designed to address TSS, BOD, and COD and therefore allocated to the TSS, BOD, and
COD cost components will cause a disproportionate impact on surcharge rates compared to other
rate components, in order to recover such costs on a cost-of-service basis. Additionally, units of
service for extra strength BOD and COD decreased by 15% and TSS decreased by 13% from FY
2018 through FY 2022. See Ex. MSD 1, p. 4-39. This results in fewer units of service upon which
to recover costs allocated to BOD and TSS, which results in a higher unit cost. See Ex. RC 78, p.
26, ll. 17-19. These factors result in an increase in rates that is larger than other rate components.
See Ex. MSD 1, p. 4-39; see also Ex. MSD 3K, p. 8, ll. 17-24.
The Commission’s Rate Consultant recommended that “due to the increase in all surcharge
rates compared to the system-wide revenue increase, but most specifically the significant increase
in TSS of 105% of the existing rate, the District … consider ‘phasing-in’ the surcharge rates over
at least a two-year period.” See Ex. RC 78, p. 27, ll. 20-23; p. 28, ll. 1. The Rate Consultant
testified, that “[p]hasing-in the increases, at least for TSS, 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.” See Ex. RC 78, p. 28, ll. 1-3. The Rate
Consultant further testified that “[s]uch a phase-in would require the District to adjust other rate
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components, including the Base Charges, Volume Charges, and Compliance Charges, to provide
full revenue recovery.” Id. at p. 28, ll. 3-5.
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.
Intervenor MIEC submitted comments stating that the District “is shifting the cost
responsibility in its wastewater revenue requirement from fixed monthly meter charges to
volumetric charges.” See Ex. MIEC 107, p. 2. Michael Gorman states that the District proposes30
to “reduce the billing and collection 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….” Id. at pgs. 2-3. MIEC proposes that the billing charge not
be decreased in the first year of the projected rate change period, and that the increase in other
charges “be moderated to reflect a reduced increase….” Id. at p. 3.
The Rate Commission analyzed the impact of phasing in the Extra Strength surcharges
over a two year period. The Rate Consultant provided the Rate Commission with analysis of the
30 Mr. Gorman’s analysis appears to relate to the District’s 2019 Rate Change Proposal, rather
than the 2023 Rate Change Proposal.
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impact on rates for non-residential ratepayers if the surcharges were phased in. The Rate
Consultant’s analysis is included in Exhibit A. The analysis showed that phasing in the surcharges
would provide only modest relief for nonresidential ratepayers.
The Rate Commission believes that the Extra Strength surcharge increase is supported by
the record and is timely and appropriate as proposed (rather than phased-in over two years).
STORMWATER
The District’s position is that the Rate Change Proposal complies with this factor because
the “ad valorem property tax rate of 7.45 cent per hundred dollars assessed valuation was
determined to be the maximum amount that the residential customers would reasonably support
for stormwater capital projects. This will generate approximately $19.3 million per year in
revenue…. In addition, the use of property valuation in determining the share of revenue to be
provided by each individual residential customer will allow those who reside in lower valued
properties to have a smaller annual payment.” See Ex. MSD 1, p. 5-9.
As to the impervious surface charge for non-residential properties, the District contends
that this charge would consider the financial impact on all classes of ratepayers, in that it collects
an adequate amount of revenue ($14.8 million per year) to account for the percentage of non -
residential customers in the District. Id. at p. 5-9, p. 5-6.
Finally, the District states that the program expenditure goals address this factor. The
District intends to spend 50% of the revenue on capital projects on a prioritized basis District -
wide. Thirty percent of the revenue would be distributed to the municipalities and St. Louis
County. Another 10% will be spent on stormwater capital projects in designated Environmental
Justice Areas, and the remaining 10% would be spent on projects identified with the assistance of
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an area-wide advisory committee, such as a special representative committee of the Municipal
League of Metro St. Louis. See Ex. MSD 1, pgs. 5-9 – 5-10.
Rate Consultant Anna White testified that the Rate Change Proposal does consider the
financial impact on all classes of ratepayers. She testified that:
• “The proposed rate structure recognizes distinct customer classes, where the customers
are grouped into residential and non-residential classes based on the classifications
provided by the City and County Assessor’s Offices.”
• The “typical cost of $3.09 per month, as a component of the total cost to customers for
providing all stormwater services, is a fair and reasonable burden.”
• “A potential typical monthly cost of $2.00 or $3.00 as proposed by the District seems
a fair and reasonable burden based on the survey results.”
• “Using the ratio of the total impervious area of non-residential parcels divided by the
total impervious area of residential parcels, the District determined a proportionate
amount of revenue to recover from non-residential customers. This method allows
revenue to be recovered fairly from each customer class. Therefore, the non-residential
customers are not subsidizing the residential class, which would directly increase the
burden on non-residential customers.”
See Ex. RC, 77, p. 9, ll. 10-22; p. 10, ll. 1-18. However, Ms. White testified as to certain aspects
she considered to be not equitable. She testified that:
The proposed Stormwater Capital Tax will charge customers based on their
property’s value, which is not related to the property’s burden on the stormwater
system. Under the proposed Stormwater Capital Tax, two single-family properties
with the amount of square footage of impervious area and lot size in different parts
of the service area will pay a different amount for stormwater service, due only to
a difference in property value and not due to the level of service received. Second,
there is the potential for a residential and non-residential property not being treated
consistently and similarly. For example, two properties (one residential and one
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non-residential) with the same amount of impervious area will pay a different
amount; or a non-residential parcel with no impervious area will not pay any
stormwater capital charge, while a residential parcel with no impervious area will
pay the stormwater capital tax.
See Ex. RC 77, p. 19, ll. 20-23; p. 20, ll. 1-9.
Proposed Expenditure of Stormwater Revenue
The District intends to spend 50% of the revenue on capital projects on a prioritized basis
District-wide. Thirty percent of the revenue would be distributed to the municipalities and St.
Louis County. Another 10% will be spent on stormwater capital projects in designated
Environmental Justice Areas, and the remaining 10% would be spent on projects identified with
the assistance of an area-wide advisory committee, such as a special representative committee of
the Municipal League of Metro St. Louis. See Ex. MSD 1, pgs. 5-9 – 5-10.
The Rate Commission, after review of the record, supports the formula proposed by the
District for the expenditure of stormwater revenue. The Rate Commission believes that devoting
a portion of the revenues to a municipal grant program recognizes that priorities differ throughout
our region. While the District’s cost/benefit analysis has worked well in the past for its projects,
reserving a significant portion the revenue for municipal grants recognizes the important role that
local elected officials have in determining priorities in their communities. A project that may not
score highly under the District’s prioritization process may hold higher importance to a particular
community. Local elected officials may have a better sense of the impact a particular project will
have on their community than District staff. Reserving a portion of the stormwater revenues for
municipal grants, and entrusting local elected officials to determine how best to spend the revenue
to address stormwater (and allowing them to save their revenue over several years to fund larger
projects, or to collaborate with neighboring communities) is appropriate in light of the different
needs of the communities throughout the District’s service area.
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Similarly, the Rate Commission believes that reserving a portion of the revenues for an
area-wide advisory committee would be an effective mechanism to identify regional priorities, and
to include stakeholders throughout the region in deciding how best to address flooding and erosion.
This would provide a means to consider projects that would likely be too large to be funded through
municipal grants, that may affect more than one community within the District, and that may not
otherwise score highly in the District’s prioritization process.
Finally, the Rate Commission finds that devoting a portion of the revenue to stormwater
capital projects in Environmental Justice areas is appropriate under this factor. Environmental
Justice areas are “areas identified through Missouri state guidelines.” See Ex. MSD 1, p. 8-79. “A
qualified census tract (QCT) is defined under the Internal Revenue Code as any census tract which
is designated by the Secretary of Housing and Urban Development (HUD) … in which 50 percent
or more of the households have an income which is less than 60 percent of the area median gross
income (AMGI) for the year, or which has a poverty rate of at least 25 percent.” Id. The Missouri
Department of Natural Resources considered this term in prioritizing projects under ARPA. Id. at
p. 8-79 – 8-80. Brian Hoelscher testified that “MSD is being watched, asked, questioned by our
regulators in a much more aggressive way than we ever have in the past. We had Environmental
Justice provisions in our Consent Decree that we signed in 2011 based on whatever the
Environmental Justice was at the time.” See Ex. MSD 74, p. 105, ll. 8-14. Further, under ARPA,
one “of [the] factors that made it possible or really bumped up your score was to do the work in
Environmental Justice areas.” Id. at p. 105, ll. 21-23.
The Rate Commission believes that devoting funding to Environmental Justice areas will
begin to address inequalities which have festered in our region over generations. Environmental
Justice is the fair treatment of all people, regardless of race, color, national origin, or income with
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respect to the development, implementation, and enforcement of environmental laws, regulations,
policies and finance. Funding such projects will mitigate distrust in communities which have
historically been disenfranchised, and which did not receive adequate funding to remediate
environmental problems in their communities.
Therefore, the Rate Commission finds and determines that the District’s proposed
expenditure plan considers the financial impact on all classes of ratepayers in determining a fair
and reasonable burden.
Municipal Grant Program
The District intends to expend 30% of the revenue generated from the stormwater
taxes/charges on a municipal grant program. 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. Id. at 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.” Id.
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
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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.
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, and submitted a potential grant program allocation Ex.
MSD 91. The District does not wish to use a competitive selection process and prefers to give
municipalities some discretion to set priorities for themselves.
The Rate Commission supports the District’s decision to allocate thirty percent of the
generated stormwater funds to a municipal grant program. However, members of the Rate
Commission recognize that grouping municipalities solely by population to determine grant
eligibility could pose problems, including that doing so:
(i) does not take into account the actual stormwater needs of each community;
(ii) does not consider the cost/benefit of each project;
(iii) could lead to arbitrary classifications and divisions of communities31;
(iv) that the smallest municipalities by population may lack the appropriate staff and
infrastructure to adequately assess and plan for their stormwater needs; and
31 For instance, certain communities, such as Dellwood and Ellisville would miss eligibility
for additional funds through a higher classification by only a few residents. See Ex.
MSD73D, p. 1.
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(v) the size of grants ($30,000) for the smallest municipalities by populations could be
inadequate to address stormwater problems which may extend beyond the
boundaries of a particular municipality.
The Rate Commission recommends that the District modify the proposed grant program to account
for factors other than population, such as:
(i) the amount of impervious area in a community,
(ii) the extent to which a community has done long-term planning for stormwater
needs,
(iii) whether the municipality has engaged in an appropriate cost-benefit analysis;
(iv) whether a community has municipal or third-party funding available; and/or
(v) the degree to which a municipality has considered collaborative or
intergovernmental cooperation to address stormwater needs.
The Rate Commission suggests that the District also consider equalizing funding availability over
a period of years, such that communities may receive different amounts each year (depending on
their needs), but would receive equal funding over a longer period of time. In sum, the Rate
Commission recommends that the District seek input from the Municipal League of Metro St.
Louis and other interested parties and develop a municipal grant program that considers these
factors in addition to population.
OMCI Subdistricts
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
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
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testimony, it was noted that some municipalities will 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 Rate Commission supports the District’s proposal to reset the OMCI subdistrict tax
rates to zero. Inasmuch as certain communities within OMCI District will be eligible for less
revenue under a municipal grant program, the Rate Commission believes it is appropriate to permit
individual OMCI subdistricts to later decide whether to levy a tax for stormwater within their
boundaries.
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. 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 [on-site] 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
would lead to lost revenue. Id. at p. 5, ll. 13-14. However, Richard Unverferth testified that the
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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.” Id. at p. 6, ll. 11-17.
Rate Consultant Anna White recommended a credit program to help mitigate the impact
on large non-residential customers. Id. at p. 20, ll. 10-12.
The Rate Commission, after consideration of the record, believes that the District should
include a credit program along the lines proposed by Mr. Unverferth in order to ensure that the
Rate Change proposal adequately considers the financial impact on all classes of ratepayers in
determining a fair and reasonable burden.
Vacant Non-Residential Property
Under the Rate Change Proposal, the District would not assess the impervious surface
charge 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 “[t]he 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.
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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
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. Id. at 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.” Id. at 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.” Id. at p. 5, ll. 1-2.
The Rate Commission, after consideration of the record, supports the District’s decision
with regard to not imposing the impervious surface charge to vacant non-residential property, and
that not doing so is consistent with the requirement that the Rate Change Proposal considers the
financial impact on all classes of ratepayers in determining a fair and reasonable burden.
Conclusion
The Rate Commission further finds that the Rate Change Proposal considers the financial
impact on all classes of ratepayers in determining a fair and reasonable burden.
However, the Rate Commission considered the potential rate impact on ratepayers already
facing multiple utility rate increases, and believes that the District should consider expansion of
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existing assistance programs. Further, the Rate Commission recommends that the District take a
leading role in the establishment of a task force on utility ratepayer financial impact issues,
including other entities and impacted parties within the District’s service areas, such as expansion
of metering at a reduced cost to assist individuals in older homes – particularly in St. Louis City,
where the number of rooms and bathrooms determines rates, rather than usage – to allow
individuals to reduce their utility costs, and such as the opportunity to access funds from the City
of St. Louis and St. Louis County, Missouri from the NFL settlement, as set forth in the Resolution
approved by the Rate Commission, attached to this report as Exhibit B.
THE RATE COMMISSION, AFTER DISCUSSION AND CONSIDERATION OF
ALL FACTS AND CIRCUMSTANCES DISCLOSED IN THESE PROCEEDINGS, FINDS
AND DETERMINES THAT THE RATE CHANGE PROPOSAL, AND ALL PORTIONS
THEREOF, CONSIDERS THE FINANCIAL IMPACT ON ALL CLASSES OF
RATEPAYERS IN DETERMINING A FAIR AND REASONABLE BURDEN.
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EXBHIBIT A
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EXHIBIT B
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MINORITY REPORTS
COMMISSIONERS GOSS, PALANS, STEIN, AND TOENJES SUBMIT THIS
MINORITY REPORT REGARDING THE DISTRICT’S DEBT SERVICE COVERAGE
REQUIREMENT
We respectfully dissent from the majority’s decision with respect to the debt service
coverage ratio proposed by the District. The District proposes to target minimum debt service
coverage targets of 2.5x for senior debt service and 1.8x total debt service in order to maintain its
high credit rating. While that is a laudable goal, it is evident from the public hearings and testimony
received by the Rate Commission during these proceedings that ratepayers are struggling to keep
up with rate increases being imposed by the District and other public utilities.
The District could provide some rate relief (both to residential and nonresidential
ratepayers) with a lower debt service coverage target of 1.6x. While there may be some benefits
of more conservative debt service coverage targets, those benefits must be weighed against the
financial impact on ratepayers due to the higher rates necessary for the District to maintain the
2.5x/1.8x targets.
The opinions of the Rate Consultant regarding an inability to meet bond covenants are
entirely conjecture, as are those of District, concerning what might occur four years hence. Further,
the comments are not supported by the evidence. It is apparent from the District’s evidence, and
that of our own Rate Consultant, who evaluated alternative debt service coverage scenarios, that
all of the formulas keep the debt service ratio at or above 1.6x, which is the coverage that the
underwriters require. There is a cost to being overly conservative, and in this case, the cost is being
borne by those who are least able to afford it in our population. As such, this overly conservative
policy places an unfair burden on certain classes of ratepayers within the District.
We believe the District should consider lower debt service coverage targets to provide
some much-needed relief to ratepayers, who may otherwise struggle to keep up with ongoing
utility rate increases. We believe the District can provide this rate relief while maintaining good
bond ratings that will not inhibit the District’s ability to borrow during this rate cycle and beyond.
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COMMISSIONERS JEARLS, PALANS, AND STEIN, AND SUBMIT THIS MINORITY
REPORT REGARDING THE APPROPRIATE ALLOCATION OF
INFILTRATION/INFLOW COSTS
We respectfully dissent from the majority’s decision with respect to the appropriate
allocation of Infiltration/Inflow (“I/I”) costs.
The District relies upon a study commissioned after the last Rate Change Proposal to
allocate 40% of the I/I costs to ratepayers based on the number of customers and 60% based on
customer contributed wastewater volume. This study, performed by Stantec, relies on flawed
assumptions. While the 40/60 ratio may be appropriate in other jurisdictions, such a ratio is
inappropriate for the District, in part because part of the District’s service area is a combined
sewer/stormwater system. In those portions of the District, stormwater is literally invited into the
wastewater system, resulting in a higher proportion of I/I attributable to ratepayers. While a 40/60
or 50/50 ratio may be industry-standard or a reasonable allocation in other systems, the individual
attributes of the District’s service area must be considered. Because the District is partially a
separate stormwater/wastewater system and partially a combined system, industry-standard
approaches and assumptions applicable to entirely separate systems are not applicable here.
Moreover, the manual “Financing and Charges for Wastewater Systems” as far back as
1984 clearly stated: “[t]o the extent that I/I entry points cannot be determined, their costs are a
general system problem that is probably best related to both customer class flows and to the number
of customers, with more emphasis placed on the number of customers. Additional customers
increase the land area and density of the collection system, increasing the potential for I/I.”
Emphasis added. The current allocation does precisely the opposite.
We believe that the District should allocate a higher percentage of I/I to the customer
portion, and a lower percentage to the volume portion, and adjust its methods of recovering those
costs accordingly.
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COMMISSIONERS PALANS AND STEIN SUBMIT THIS MINORITY REPORT
REGARDING THE PHASING-IN OF EXTRA STRENGTH SURCHARGE INCREASES
We respectfully dissent from the majority’s decision in support of not phasing in the
proposed increases in extra strength surcharges. These surcharges will have a significant impact
on industrial users throughout the District. That impact will drive up costs on businesses, and that
impact will ultimately be felt by residents throughout the District.
The majority’s conclusion that the surcharge increases should not be phased in ignores the
Rate Consultant’s recommendation that “due to the increase in all surcharge rates compared to the
system-wide revenue increase, but most specifically the significant increase in TSS of 105% of
the existing rate, the District [should] … consider ‘phasing-in’ the surcharge rates over at least a
two-year period.” See Ex. RC 78, p. 27, ll. 20-23; p. 28, ll. 1. The Rate Consultant testified, that
“[p]hasing-in the increases, at least for TSS, would mitigate any potential ‘rate shock’ that could
accelerate industrial customers to additional pre-treatment or other operational changes that would
reduce the District’s revenues further.” See Ex. RC 78, p. 27, ll. 20-23; p. 28, ll. 1-5.
While the District claims that phasing in these increases would require residential
customers to absorb increased costs, Tom Beckley testified that phasing in the surcharges would
only cost typical residential ratepayers an additional $0.11 per month. This modest impact to
residential ratepayers is outweighed by the dramatic impact on industrial users if the District does
not phase in these increases.
We urge the District to consider phasing-in the extra strength surcharges over at least a
two-year period.
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COMMISSIONERS PALANS AND STEIN SUBMIT THIS MINORITY REPORT
REGARDING: (I) THE STORMWATER RATE CHANGE PROPOSAL BEING
CONSISTENT WITH CONSTITUTIONAL, STATUTORY, OR COMMON LAW, AS
AMENDED FROM TIME TO TIME; (II) THE STORMWATER RATE CHANGE
PROPOSAL IMPAIRING THE ABILITY OF THE DISTRICT TO COMPLY WITH
APPLICABLE FEDERAL OR STATE LAWS OR REGULATIONS, AS AMENDED
FROM TIME TO TIME; AND (III) THE STORMWATER RATE CHANGE PROPOSAL
FAILING TO CONSIDER THE FINANCIAL IMPACT ON ALL CLASSES OF
RATEPAYERS IN DETERMINING A FAIR AND REASONABLE BURDEN.
We respectfully dissent from the majority’s decisions: (i) that the stormwater rate change
proposal, and all portions thereof, is consistent with constitutional, statutory, or common law, as
amended from time to time; (ii) that the stormwater rate change proposal will not impair the ability
of the District to comply with applicable federal or state laws or regulations, as amended from time
to time; and (iii) that the stormwater rate change proposal considers the financial impact on all
classes of ratepayers in determining a fair and reasonable burden. These findings relate to factors
1, 4, and 5, respectively, listed in Section 7.270 of the District’s Charter Plan.
Factor 1
Factor 1 requires the Rate Commission to consider if a rate change proposal , and all
portions thereof, is consistent with constitutional, statutory or common law, as amended from time
to time. The record fails to support a statement by the Rate Commission that the stormwater rate
change proposal is consistent with applicable law in at least three respects: (1) the rate change
proposal imposes different rate charges upon residential and nonresidential customers; (2) the
different funding mechanisms for residential and nonresidential customers raise “fairness”
questions which impact the Fifth Factor of the District’s Charter Plan; and (3) the allocation and
prioritization methodology presented is arbitrary, discriminatory, subjectively created, and based
upon population as opposed to stormwater remediation priority and/or needs, which impacts the
Fifth Factor of the District’s Charter Plan.
For the reasons that follow, the District has failed to sustain its burden of proof that the
proposed stormwater rate change proposal satisfies this criteria;
The stormwater rate change proposal imposes different stormwater rate charges upon
residential and nonresidential customers, i.e., an ad valorem property tax levied on residential
customers and an impervious area-based charge levied on nonresidential customers. See Ex. MSD
1. The District has failed to provide adequate support for its assumption that it may lawfully charge
non-residential ratepayers based on their impervious surface while imposing an ad valorem tax on
residential customers.
In support of its position that this proposed stormwater rate change is consistent with
constitutional, statutory or common law, the District relied upon the testimony of its general
counsel, Susan Myers. Ms. Myers testified that she relied upon the written opinion of the District’s
outside legal counsel in reaching her conclusion that the proposed stormwater rate change “is
consistent with constitutional, statutory or common law….” However, Ms. Myers declined to
provide a copy of the written legal opinion issued by the District’s outside legal counsel which she
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relied upon, although it was requested that she do so. Ms. Myers also declined to provide the Rate
Commission with a copy of the legal opinion she relied upon subject to confidentially safeguards
pursuant to a Protective Order approved by the Rate Commission’s Presiding Officer, consistent
with the Rate Commission’s Operational Rules, or otherwise. Further, the District’s outside legal
counsel did not appear before the Rate Commission to testify or identify the scope of the opinion,
whether the opinion addressed any (or all) three areas of concern identified, supra, or whether the
opinion was based upon a reasonable degree of professional certainty.
In response to a discovery request directed by the Rate Commission to the District, the
District stated, “[t]he District is not aware of a Missouri court or tribunal opinion (or a
court/tribunal from another state) that has authorized a stormwater rate charge for residential
ratepayers based on an ad valorem property tax, and a rate/charge based on impervious area for
non-residential ratepayers”. See Ex. MSD 73A, p. 5. As such, this is a case of first impression.
Because the District failed and/or declined to provide a written copy of the opinion issued by its
outside legal counsel, the District’s evidence on this subject is based solely upon hearsay, i.e., a
third-party statement made by the District’s outside legal counsel offered for the truth of the matter.
As a result, the Commission cannot evaluate the legal analysis, the nature or the scope of the
opinion, and/or whether the rate change proposal is consistent with law.
Section 7, Subsection (f) of the Rate Commission’s Operational Rules provides that “any
person who fails to answer relevant questions regarding their testimony … or provide other
information properly requested … shall be subject to having their testimony disregarded by the
Commission.” As a result of the foregoing, Ms. Myers’ testimony must be disregarded. The
District failed to sustain its burden of proof that the proposed stormwater rate change, and all
portions thereof, “is consistent with constitutional, statutory or common law as amended from time
to time.” The Rate Commission cannot make a recommendation to the Board of Trustees that the
stormwater rate change proposal is consistent with constitutional, statutory or constitutional law
based upon this record.
Factor 4
Factor 4 requires the Rate Commission to consider if a rate change proposal impairs the
ability of the District to comply with applicable federal or state laws or regulations as amended
from time to time. As set forth above, under Factor 1, because the Rate Commission cannot
evaluate the legal analysis and/or whether the stormwater rate change proposal, and all portions
thereof, is consistent with law, the Commission cannot make a finding under Factor 4, that the
stormwater rate change proposal “does not impair the ability of the District to comply with
applicable Federal or State law or regulations as amended from time to time.”
Factor 5
Factor 5 requires the Rate Commission to consider if a rate change proposal, and all
portions thereof, “considers the financial impact on all classes of ratepayers in determining a fair
and reasonable burden.” The District failed to sustain its burden of proof for the following reasons:
The District proposes to allocate revenues collected for stormwater capital improvements
as follows: (1) 50% allocated to Districtwide projects prioritized by MSD’s current benefit/cost
(B/C) ratio; (2) 30% allocated as municipal grants based upon population; (3) 10% allocated to
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identified Environmental Justice areas of the District using the B/C ratio for prioritization; and (4)
10% allocated in consultation with a “Districtwide steering committee.” See Ex. MSD 1, p. 5-9 –
5-10. Unused funds from the 30% municipal grant program “will be made available for projects
in the Districtwide program (i.e., the 50% portion allocated pursuant to the B/C ratio) or the
Environmental Justice program as appropriate.” See Ex. MSD 3C, p. 6, ll. 1-3. Until presenting
this rate change proposal, the funding allocation for stormwater capital improvements is (and has
always been) based upon a Districtwide B/C ratio which utilizes a “MSD score sheet” which
assigns problem points and solution points based upon factors such as structural flooding, roadway
flooding, etc. The current prioritization policy of capital projects within the District based upon
the B/C ratio and “MSD scoresheet” is fair, objectively determined, and has been consistently
applied for many years to prioritize stormwater capital improvement projects Districtwide.
In lieu of retaining the current, objective allocation prioritization of stormwater capital
improvement projects Districtwide based upon B/C ratios, the proposed rate change allocation
retains 50% of dedicated stormwater revenues allocated pursuant to B/C ratios, with the remaining
50% of dedicated stormwater revenues allocated pursuant to “municipal population” (30%),
“Environmental Justice” (10%) and as may otherwise be allocated via a Districtwide “steering
committee” (10%). The allocation of revenues now proposed is characterized as a “policy
decision” made by MSD staff “to allocate grants based upon a municipality’s population based in
ranges of population”, “Environmental Justice” and via a Districtwide “steering committee.”
However, allocation of public funds dedicated for stormwater remediation is not akin to socialized
medicine. Although creative in concept, the proposed allocation methodology is arbitrary,
discriminatory, subjectively created, based upon population as opposed to stormwater remediation
priority and/or needs, and fails to consider the financial impact on all classes of ratepayers. See
Ex. MSD 84A, p. 1, ll. 16-18.
If approved, the stormwater rate proposal would generate $34 million annually, dedicated
to stormwater capital projects Districtwide. While 50% of the stormwater proceeds remains
“earmarked” for stormwater capital projects based upon the long-standing B/C ratio, the remaining
50% is dedicated to: (i) municipalities based on population groupings (i.e., not based upon
stormwater capital projects); (ii) “Environmental Justice,” based upon socio-economic
determinations (i.e. not based upon stormwater capital projects); and (iii) a Districtwide “steering
committee,” based upon undetermined criteria (i.e. not based upon stormwater capital projects).
Although MSD is currently the sole stormwater utility Districtwide, this allocation proposal
empowers 88 municipalities to disburse $17 million annually based upon population groupings,
environmental justice and a steering committee. Simply stated, this is not good, prudent business
management for dedicated stormwater capital expenditures.
The stormwater rate change proposal presented to the Rate Commission: (a) is a subjective
allocation of stormwater revenue; (b) is not “policy;” (c) has not previously served as an MSD
revenue allocation methodology or “policy;” (d) is an improper methodology for expenditure of
dedicated public stormwater funds; and (e) has never been presented to and/or approved by the
District’s Board of Trustees. In contrast, the long-standing MSD stormwater remediation
prioritization “policy” is (and has always been) based upon B/C ratios – which prioritize capital
projects benefiting the most people at the least cost on a Districtwide basis.
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Furthermore, the existing stormwater capital funding methodology includes an OMCI
property tax by which affected municipal service areas receive 50% reimbursement of the OMCI
property tax collected within such municipality to be expended by that municipality for its
stormwater remediation projects. Stormwater funding for capital improvements within the District
is currently limited to funding received from seven OMCI taxing sub-districts that are active and
collecting revenue of approximately $10 million per year. These taxing districts are watershed
based, and the funds collected in them must be spent within their respective watersheds. See Ex.
MSD 3C, p. 5, ll. 6-9.
Under the proposed stormwater rate change proposal OMCI tax reimbursements will
terminate, and 30% of stormwater revenues will be allocated as “municipal grants” based upon
ranges of population. Specifically, this means that the following municipalities will actually
receive less funds than they currently receive and spend for stormwater remediation within their
municipalities under their existing 50% OMCI property tax reimbursement, to wit: (1) Florissant,
(2) Kirkwood, (3) Creve Coeur, (4) Clayton, (5) Richmond Heights, (6) Des Peres, (7) Ladue, (8)
Olivette, (9) Brentwood, (10) Berkeley, (11) Frontenac, and (12) Green Park. See Ex. MSD 73D.
This termination of OMCI tax reimbursements adversely impacts over 10% of the total population
within the District, Id., and creates a disincentive for residents within the 12 adversely impacted
municipalities to support the proposed rate change.
The District posits that the proposed municipal grant program “is modeled on the successful
OMCI taxing district grant program for municipalities that has been implemented by the District
over the past few years.” See Ex. MSD 1, Appendix 8.18; see also Ex. MSD 84A, p. 1, ll. 9-11.
Emphasis added. The reason for so-called “success” is that affected municipal service areas receive
50% reimbursement of the OMCI property tax collected within that municipality to be expended
within that municipality for its specific stormwater remediation projects. This OMCI
“reimbursement” is now being taken away from twelve municipalities, supra, and a new allocation
policy is substituted based solely on population and socio-economic factors, as opposed to
stormwater remediation and/or watershed-based needs.
In response to concerns raised during the rate change proposal hearings that twelve
municipalities actually receive less funds under this rate change proposal than under existing 50%
OMCI reimbursements, the District filed an amended allocation proposal (See Ex. MSD 91)
pursuant to which four of the twelve municipalities identified in Ex. MSD 73D would now receive
more than under current OMCI 50% reimbursement allocations (i.e., Florissant, Berkeley,
Frontenac and Green Park), yet eight of the twelve municipalities (i.e., Kirkwood, Creve Coeur,
Clayton, Richmond Heights, Des Peres, Ladue, Olivette and Brentwood) representing an aggregate
population of nearly 110,000 residents continue to receive less than under current OMCI 50%
allocations. This financial impact is not “fair” and “reasonable.”
Another example – the City of Ladue – small in size (8.55 square miles), small in
population (8,989 residents), yet large in stormwater remediation needs ($113 million) – currently
receives $310,206 in annual OMCI reimbursements. Under the proposed allocation methodology
the City of Ladue will receive a $100,000 annual stormwater grant (i.e., a 68% reduction of
stormwater reimbursements), while the cities of Twin Oaks, Huntleigh, Westwood, Kinloch,
Bellerive Acres, Glen Echo Park, Country Life Acres and Champ with combined population of
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1,833 residents, and currently receiving no annual OMCI reimbursements, will receive $240,000
in annual stormwater grants. This rate change proposal is not a “fair and reasonable burden on all
classes of ratepayers”!
In response to this inequity, the District “expressed openness” to permitting OMCI
subdistricts that may wish to continue to levy a tax to do so. See Ex. MSD 74, p. 124, ll. 19-20.
But doing so only exacerbates the inequity. OMCI subdistricts that elect to continue to receive
OMCI tax reimbursements are then “double taxed,” i.e., once for the stormwater rate change as
currently proposed, and once more for re-activating OMCI tax reimbursements within their
respective municipality. This is not “fair” and “reasonable.”
The stormwater rate change proposal allocation cannot and should not be subjectively set
upon “municipal grants based on population,” “Environmental Justice” or upon consultation with
a “Districtwide steering committee.” To the contrary, allocation and prioritization standards must
be objective, measurable, fair and consistently applied – namely, preserving the existing B/C ratios
as utilized as a matter of “policy” for many years.
The District has identified approximately 550 stormwater remediation projects within the
entire District (consisting of 520 square miles) having a total capital remediation cost of
approximately $700 million, exclusive of flooding experienced in 2022. By means of comparison,
please note that the City of Ladue, with an area of 8.55 square miles (i.e., 1.6% of the entire District
area), has total capital remediation needs of $113 million (i.e., 16% of the total Districtwide
remediation costs) as determined by an engineering study completed over seven years ago. The
District’s 550 stormwater capital remediation projects are based upon “customer complaints”
periodically called into MSD. The $700 million capital remediation cost is based upon MSD staff’s
“estimate,” is “conceptual in nature,” and based upon “very little engineering analysis.” Assuming
arguendo the accuracy of the District’s estimated stormwater remediation costs, collection of
stormwater revenues at the rate of approximately $34 million each year as currently proposed will
require in excess of twenty years’ time to materially address stormwater capital projects within the
District without regard to increased costs of materials, labor and inflationary impact.
Based upon this evidentiary record, the public interest and the need to effectively address
stormwater remediation requirements Districtwide, the Board of Trustees must consider and
approve a fair and equitable allocation methodology – not an arbitrary 50% allocation based upon
municipal population groupings, “Environmental Justice,” and a “steering committee” – to
encourage and incentivize third-party funding to increase the sources and uses of funds available
to remediate all flooding and erosion issues within the District while retaining the existing B/C
priority methodology. Such incentives might include an equitable adjustment to the relative
priority of capital projects associated with third-party contributions. By way of example, $10
million of third-party funds contributed as a 50% “match” adjustment to priority of capital projects
when added to $34 million annual stormwater revenues to be realized under the current rate
proposal generates $44 million of proceeds for dedicated stormwater projects within the District
annually while preserving $10 million of the District’s dedicated resources for funding stormwater
projects for communities unable to provide a 50% “match.”
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By this example, $10 million annual contribution of third-party funds, when added to the
$34 million annual stormwater revenues proposed under the current rate proposal, generates $880
million over twenty years to address the currently estimated $700 million capital remediation costs
Districtwide. Such a concept was presented and recommended to the District’s Board of Trustees
in the Rate Commission’s 2018 stormwater rate change proposal recommendation, and is
consistent with the current OMCI taxing district grant program which returns 50% reimbursement
of the OMCI property tax collected within that municipality for stormwater projects within that
municipality. See Rate Recommendation Report to the Board of Trustees, August 9, 2018, pgs.
19-51.
There is an opportunity to accelerate resolution and remediate flooding and erosion
Districtwide by incentivizing third-party contributions. It is in the public interest that the Board of
Trustees address stormwater remediation Districtwide in a fair, meaningful, objective and
consistent manner. This stormwater rate change proposal as presented falls well short of that goal.
For the foregoing reasons, the District failed to sustain its burden of proof. The newly coined
“policy based proposal” now advocated fails to consider “the financial impact on all classes of
ratepayers in determining a fair and reasonable burden” – which must be objectively determined
and consistently applied.
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RESPECTFULLY SUBMITTED THIS FIFTH DAY OF SEPTEMBER, 2023, BY THE
RATE COMMISSION OF THE METROPOLITAN ST. LOUIS SEWER DISTRICT
Leonard Toenjes Lou Jearls
Matt Muren Stephen Mahfood
Bill Clarke Patrick Moynihan
Ryan Barry Lloyd Palans
Mickey Croyle Mark Perkins
Celestine Dotson Jack Stein
Jim Faul Paul Ziegler
Brad Goss
OF COUNSEL
LASHLY & BAER, P.C. BLACK & VEATCH
Lisa O. Stump MANAGEMENT CONSULTING, LLC
Brian J. Malone Ms. Anna White
714 Locust Street 11401 Lamar Avenue
St. Louis, Missouri 63101 Overland Park, Kansas 66211
(314) 621-2939 – Telephone (913) 458-3025 – Telephone
(314) 621-6844 – Fax (913) 458-3579 – Fax
Attorneys for The Rate Commission of BURNS & MCDONNELL
the Metropolitan St. Louis Sewer District ENGINEERING COMPANY, INC.
Ms. Pamela Lemoine
425 South Woods Mill Road, Suite 300
Chesterfield, Missouri 63017
(314) 336-6320 – Telephone
Rate Consultants for The Rate Commission
of the Metropolitan St. Louis Sewer District
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2023 Rate Change Proceeding
INDEX
Exhibit MSD 1 Rate Change Proposal Document
Exhibit MSD 1A Rate Change Notice Cover Memo to Rate Commission
Exhibit MSD 2 Rate Change Public Notice
Exhibit MSD 3 Cover Memo to Rate Commission Secretary- Direct Testimony
Submission
Exhibit MSD 3A Direct Testimony – Brian Hoelscher – Stormwater
Exhibit MSD 3B Direct Testimony – Susan Myers – Stormwater
Exhibit MSD 3B1 Legal Rationale for Constitutionality of Residential Ad Valorem
Tax Component
Exhibit MSD 3B2 Legal Rationale for Charging the Proposed Stormwater Capital
Rate
Exhibit MSD 3B3 William Zweig vs. MSD Decision
Exhibit MSD 3C Direct Testimony – Rich Unverferth – Stormwater
Exhibit MSD 3D Direct Testimony – Marion Gee – MSD – Stormwater
Exhibit MSD 3E Direct Testimony – Rich Unverferth – MSD – Wastewater
Exhibit MSD 3F Direct Testimony – Bret Berthold – MSD – Wastewater
Exhibit MSD 3G Direct Testimony – Marion Gee – MSD – Wastewater
Exhibit MSD 3H Direct Testimony – Tim Snoke – MSD – Wastewater
Exhibit MSD 3I Direct Testimony – Bethany Pugh – PFM – Wastewater
Exhibit MSD 3J Direct Testimony – William Stannard – RFC – Wastewater
Exhibit MSD 3K Direct Testimony – Tom Beckley – RFC – Wastewater
Exhibit MSD 3L Direct Testimony – William Zieburtz Stantec – Wastewater
Exhibit MSD 4 Civil Service Rules and Regulation April 2021
166
Exhibit MSD 5 2018 Stormwater Rate Proposal
Exhibit MSD 6 2018 Rate Commission Recommendation Report- Stormwater
Exhibit MSD 7 2019 Wastewater Rate Proposal
Exhibit MSD 8 2019 Rate Commission Recommendation Report- Wastewater
Exhibit MSD 9 FY 2023 Operating Budget Document
Exhibit MSD 10 FY 2023 CIRP Budget Document
Exhibit MSD 11 FY 2024 Preliminary Operating Budget Document
Exhibit MSD 12 FY 2024 Preliminary CIRP Budget Document
Exhibit MSD 13 2022 Annual Comprehensive Financial Report (ACFR)
Exhibit MSD 14 2022 Popular Annual Financial Report (PAFR)
Exhibit MSD 15 Bond Master Ordinance 11713
Exhibit MSD 16 Supplemental Bond Ordinance 11736
Exhibit MSD 17 Supplemental Bond Ordinance 11986
Exhibit MSD 18 Supplemental Bond Ordinance 12179
Exhibit MSD 19 Supplemental Bond Ordinance 12332
Exhibit MSD 20 Supplemental Bond Ordinance 12755
Exhibit MSD 21 Supplemental Bond Ordinance 12937
Exhibit MSD 22 Supplemental Bond Ordinance 13024
Exhibit MSD 23 Supplemental Bond Ordinance 13025
Exhibit MSD 24 Supplemental Bond Ordinance 13183
Exhibit MSD 25 Supplemental Bond Ordinance 13327
Exhibit MSD 26 Supplemental Bond Ordinance 13465
Exhibit MSD 27 Supplemental Bond Ordinance 13521
167
Exhibit MSD 28 Supplemental Bond Ordinance 13731
Exhibit MSD 29 Supplemental Bond Ordinance 13763
Exhibit MSD 30 Supplemental Bond Ordinance 14225
Exhibit MSD 31 Supplemental Bond Ordinance 14312
Exhibit MSD 32 Supplemental Bond Ordinance 14567
Exhibit MSD 33 Supplemental Bond Ordinance 14571
Exhibit MSD 34 Supplemental Bond Ordinance 14572
Exhibit MSD 35 Supplemental Bond Ordinance 14835
Exhibit MSD 36 Supplemental Bond Ordinance 15077
Exhibit MSD 37 Supplemental Bond Ordinance 15098
Exhibit MSD 38 Supplemental Bond Ordinance 15265
Exhibit MSD 39 Supplemental Bond Ordinance 15311
Exhibit MSD 40 Supplemental Bond Ordinance 15312
Exhibit MSD 41 Supplemental Bond Ordinance 15350
Exhibit MSD 42 Supplemental Bond Ordinance 15495
Exhibit MSD 43 Supplemental Bond Ordinance 15546
Exhibit MSD 44 Supplemental Bond Ordinance 15601
Exhibit MSD 45 Supplemental Bond Ordinance 15602
Exhibit MSD 46 Supplemental Bond Ordinance 15746
Exhibit MSD 47 Supplemental Bond Ordinance 15906
Exhibit MSD 48 Supplemental Bond Ordinance 16015
Exhibit MSD 49 Supplemental Bond Ordinance 16016
Exhibit MSD 50 MSD Consent Decree
168
Exhibit MSD 50A Second Material Amendment to Consent Decree (June 22, 2018)
Exhibit MSD 50B Third Material Amendment to Consent Decree (January 17, 2023)
Exhibit MSD 50C MSD Combined Sewer Overflow Long-Term Control Plan (LTCP)
Exhibit MSD 50C1 2013 Update (LTCP) – Supplement 1
Exhibit MSD 50C2 2013 Update (LTCP) – Supplement 2
Exhibit MSD 50C3 2015 Update (LTCP) – Modifications A and B
Exhibit MSD 50C4 2015 Update (LTCP) DNR Approval Letter
Exhibit MSD 50C5 2018 Update (LTCP) Supplement 3
Exhibit MSD 50D MSD Sanitary Sewer Overflow Control Master Plan Executive
Summary
Exhibit MSD 51 Standard & Poor’s Rating Report 2022
Exhibit MSD 52 Moody’s Rating Report 2022
Exhibit MSD 53 Ordinance 15669 – Wastewater User Charge
Exhibit MSD 54 Ordinance 15048 – Sewer Use Ordinance
Exhibit MSD 55 Map of Constructed SSO & CSO
Exhibit MSD 56 FY22 Annual Diversity Report Presentation
Exhibit MSD 57 Ordinance 13796 & 14776 – Pension Plan
Exhibit MSD 58 Ordinance 13795 – Defined Contribution Plan
Exhibit MSD 59 NACWA 2021 Survey
Exhibit MSD 60 Rate Model (Excel)
Exhibit MSD 61 Rate Model Guide – Wastewater
Exhibit MSD 62 Levee District Agreements
Exhibit MSD 63 Customer Assistance Program (CAP) Ordinance 14867
Exhibit MSD 64 Revised Stormwater Policy
169
Exhibit MSD 65 Attribute Study
Exhibit MSD 66 Inflow and Infiltration Study
Exhibit RC 67 Resolution Adopting Procedural Schedule
Exhibit RC 68 Rate Commission’s First Discovery Request to MSD
Exhibit MSD 68A MSD’s Response to Rate Commission’s First Discovery Request
Exhibit MSD 68B 2022B Official Bond Statement
Exhibit MSD 68C Extra Strength Surcharge Billings FY20 to FY22
Exhibit MSD 68D Unmetered Account Billings March 2023 (Excel File)
Exhibit MSD 68E MOAM Amendment & Intergovernmental Cooperation Agreement
between MSD & City of Arnold
Exhibit MSD 68F Stormwater Parcel Count, Lot Size, and Impervious Area
Exhibit MSD 68G OMCI Tax Collections FY13 through YTD FY23
Exhibit MSD 68H Consent Decree Project Costs
Exhibit MSD 68I WW Capital Projects prior to April 2023
Exhibit MSD 68J WW Capital Projects not prior to April 2023
Exhibit MSD 69 Elaine Laura’s letter regarding unmetered water & sewer billings
Exhibit MSD 69A MSD response to Elaine Laura’s letter
Exhibit RC 70 Rate Commission’s Second Discovery Request to MSD
Exhibit MSD 70A MSD’s Response to Rate Commission’s Second Discovery
Request
Exhibit MSD 70B WW Bill Comparison with MHI Information
Exhibit MSD 70C Review of Inventory Management Process
Exhibit MSD 70D Review of Construction Management & Design Invoices –
Contracts – June 2021
Exhibit MSD 70E Review of Division of Environmental Compliance
170
Exhibit MSD 70F Process Review of DEC Industrial Pretreatment – August 2022
Exhibit MSD 70G Plant-Pump Cybersecurity Audit Report – April 2019
Exhibit MSD 70H Review of Active Construction Contracts – 9-2018
Exhibit MSD 70I Review of Project Accounting 03-2020
Exhibit MSD 70J Review of CMOM Program 2020
Exhibit MSD 70K Review of the District’s Safety Program – November 2022
Exhibit MSD 70L Review of the Construction Change Order Process – March 2022
Exhibit MSD 70M Wastewater CIRP Website Note
Exhibit MSD 70N Stormwater CIRP Website Note
Exhibit MSD 70O Prioritization Worksheet
Exhibit MSD 70P Prioritization Worksheet Guidelines
Exhibit MSD 70Q MSD Stormwater Facility Planning Final Report 2010
Exhibit MSD 70R Stormwater Price Point Research
Exhibit RC 71 Rate Commission’s Third Discovery Request to MSD
Exhibit MSD 71A MSD’s Response to Rate Commission’s Third Discovery Request
Exhibit MSD 71B Demand Factor Growth Rate Calculations – Website Note
Exhibit MSD 71C MSD Insurance Requirements
Exhibit MSD 72 RC Technical Conference 4-26-23 MSD Opening Statement
Exhibit RC 73 Rate Commission’s Fourth Discovery Request to MSD
Exhibit MSD 73A MSD’s Response to Rate Commission’s Fourth Discovery Request
Exhibit MSD 73B Regulatory Projects
Exhibit MSD 73C OMCI Grant Guidance
Exhibit MSD 73D Grant Revenue
171
Exhibit MSD 73E CIRP Regulatory – OMCI
Exhibit MSD 73F Storm CIRP w/priority
Exhibit MSD 73G SMP PH 1 TM’s
Exhibit MSD 73H SMP PH 2 TM’s
Exhibit MSD 73I SMP-2018
Exhibit MSD 73J SMP TM 11
Exhibit MSD 73K FBI CIRP
Exhibit MSD 73L Stantec Infiltration and Inflow Data Summary Report
Exhibit MSD 74 Transcript of Technical Conference for District Testimony – April
26, 2023
Exhibit MSD 75 Transcript of Technical Conference for District Testimony – April
27, 2023
Exhibit MIEC 76 Application to Intervene
Exhibit MSD 76A MSD’s Response to the MIEC Application to Intervene
Exhibit RC 77 Anna White Rebuttal Testimony
Exhibit RC 78 Pamela Lemoine Rebuttal Testimony
Exhibit RC 79 Black & Veatch 2021 Stormwater Utility Report Final
Exhibit MSD 80 MSD’s First Discovery to Rate Commission
Exhibit RC 80A Rate Commission’s Response to MSD’s First Discovery Request
Exhibit RC 80B BV inflated costs consent decree analysis
Exhibit RC 81 Rate Commission’s Fifth Discovery Request to MSD
Exhibit MSD 81A MSD’s Response to Rate Commission’s Fifth Discovery Request
Exhibit MSD 81B 2023 Compliance Charge Tiers
Exhibit MSD 81C Geodatabase File – Website note
172
Exhibit MSD 82 Transcript of Technical Conference for Rebuttal Testimony – May
30, 2023
Exhibit RC 83 Rate Commission’s Sixth Discovery Request to MSD
Exhibit MSD 83A MSD’s Response to Rate Commission’s Sixth Discovery Request
Exhibit MSD 83B MSD’s Supplemental Response to the Rate Commission’s Sixth
Discovery Request
Exhibit MSD 83B1 MSD’s Supplemental Information Packet
Exhibit MSD 84 Formal Submission of Surrebuttal Testimony
Exhibit MSD 84A Surrebuttal Testimony Rich Unverferth
Exhibit MSD 84B Surrebuttal Testimony Thomas Beckley
Exhibit MSD 85 Transcript of Public Hearing – June 21, 2023
Exhibit MSD 86 Transcript of Public Hearing – June 22, 2023
Exhibit MSD 87 Transcript of Public Hearing – June 26, 2023
Exhibit MSD 88 Transcript of Public Hearing – June 29, 2023
Exhibit MSD 89 Transcript of Public Hearing – June 28, 2023
Exhibit MSD 90 The District’s Prehearing Conference Summary – August 1, 2023
Exhibit MSD 91 Stormwater Grant Program Potential Allocations
Exhibit MSD 82 Transcript of Technical Conference for Surrebuttal Testimony –
July 10, 2023
Exhibit RC 93 MSD Rate Commission Webpage Containing Dates – Times –
Locations of Public Hearing Sessions
Exhibit RC 94 Social Media Comments Received by Public Relations Committee
Exhibit RC 95 Emails Received by Public Relations Committee
Exhibit RC 96 Letter received by Public Relations Committee from Consumers
Council of Missouri
Exhibit MSD 97 MSD’s Pre-Hearing Conference Report
173
Exhibit RC 98 Voicemail Transcriptions June 15-30
Exhibit RC 99 Illinois American Water letter to MSD – June 29, 2023
Exhibit MSD 100 MSD’s Closing Statement
Exhibit RC 101 Rate Commission’s Pre-Hearing Conference Report
Exhibit RC 102 Voicemail Transcription Received by Public Relations Committee
Exhibit RC 103 Emails Received by Public Relations Committee
Exhibit RC 104 Customer Letter Received by Public Relations Committee
Exhibit MSD 105 Transcript of Public Hearing – July 25, 2023
Exhibit MSD 106 Transcript of Public Hearing – July 19, 2023
Exhibit MIEC 107 Comments of Michael P. Gorman
Exhibit MSD 108 Transcript of Prehearing Conference – August 1, 2023
Exhibit MSD 109 Transcript of Public Hearing – August 7, 2023
Exhibit MSD 110 Transcript of Public Hearing – July 20, 2023
Exhibit MSD 112 Transcript of Public Hearing – July 27, 2023
174
2023 Rate Change Proceeding
ABBREVIATIONS & ACRONYMS
AWWA American Water Works Association
AWWARF American Water Works Association Research Foundation
Board Metropolitan St. Louis Sewer District Board of Trustees
BOD Biochemical Oxygen Demand
Ccf Hundred (100) cubic feet (about 748 gallons)
CD Consent Decree
CIRP Capital Improvement and Replacement Program
City City of St. Louis
CMOM Capacity, Management, Operation and Maintenance
COD Chemical Oxygen Demand
County St. Louis County
CSO Combined Sewer Overflow
CIP Capital Work In Progress
District Metropolitan St. Louis Sewer District (MSD)
EPA The United States Environmental Protection Agency
FY Fiscal Year (July 1 – June 30)
HHS Health and Human Services
I/I Infiltration/Inflow
mg/l milligrams per liter
mgd million gallons per day
MIEC Missouri Industrial Energy Consumers
MDNR Missouri Department of Natural Resources
MSD Metropolitan St. Louis Sewer District (District)
MWWC Missouri Wastewater Coalition
NACWA National Association of Clean Water Agencies
NPDES National Pollutant Discharge Elimination System
O&M Operation and Maintenance
OM&R Operation, Maintenance and Replacement
OMCI Operation, Maintenance and Construction Improvement
PAYGO Pay-As-You-Go
175
PFM PFM Financial Advisors LLC
Raftelis Raftelis Financial Consultants Inc.
SRF State Revolving Loan Fund
SSO Sanitary Sewer Overflow
SS Suspended Solids
TSS Total Suspended Solids
WEF Water Environment Federation
WIFIA Water Infrastructure Finance and Innovation Act
WWLF Water and Wastewater Loan Fund
WWRLF Water and Wastewater Revolving Loan Fund