Table of Contents. Page Witness Background and Experience General Matters Major Wastewater Rate Changes Wastewater Revenue...

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1 MSD Exhibit No. MSD H 0 Rate Change Proceeding WILLIAM STANNARD Direct Testimony Metropolitan St. Louis Sewer District February, 0 Table of Contents Page Witness Background and Experience... General Matters... Major Wastewater Rate Changes... Wastewater Revenue... Wastewater Revenue Requirements... Wastewater Financial Plan... Wastewater Cost of Service... Wastewater Rate Adjustments... Major Stormwater Rate Changes... Stormwater Revenue... Stormwater Revenue Requirements... Stormwater Financial Plan... Rate Model...

2 Witness Background and Experience Q Please state your name and business address. 0 0 A. My name is William Stannard and my business address is, 0 Main Street, Kansas City, Missouri, 0, wstannard@raftelis.com Q. By whom are you employed and in what capacity. A. I am President and Chief Executive Officer (CEO) of Raftelis Financial Consultants, Inc. (RFC) and have 0 years of experience providing financial and management consulting services to municipally owned utilities throughout the United States and Canada. RFC was established in in Charlotte, North Carolina to provide environmental and management consulting services to public and private sector clients. RFC is a national leader in the development of water, wastewater, and stormwater rates and employs 0 consultants providing financial and management consulting services to municipal utilities throughout the United States and Canada. As President and CEO of RFC I am responsible for management, operation, economic and financial matters for our firm. I have served as an expert witness in rate litigation matters in federal and state courts and before arbitration panels and state public service commissions. Q. Please describe your educational background and work experience. A. I obtained a Bachelor of Science, Business Administration and a Bachelor of Science, Civil Engineering from Kansas State University in. I joined RFC in 00 after a -year consulting career at Black & Veatch where I was head of the firm s management consulting division. I have extensive experience in the development of ordinances and financial procedures for complying with the Clean Water Act and the Safe Drinking Water Act, comprehensive cost of service studies, bond feasibility reports, project financial feasibility analyses, organizational and management reviews, and utility 0 Rate Change Proceeding MSD Exhibit No. MSD H

3 0 0 competitiveness studies. During my career I have conducted more than 0 water, wastewater, and stormwater financial planning, cost of service and rate studies. I have also prepared more than 00 consulting engineers reports/financial feasibility studies in support of more than $ billion of water and wastewater revenue bonds. Q. Are you a registered Professional Engineer? A. Yes, I am a registered Professional Engineer in the states of Kansas, Ohio, Massachusetts, and Michigan. Q. Do you belong to any professional organizations or committees? A. Yes. I am a member of the American Water Works Association where I serve as Chair of AWWA's Management and Leadership Division, a Trustee of AWWA s Technical & Education Council, and a past-chair of AWWA s Finance, Accounting and Management Controls Committee. I am a member of the Water Environment Federation where I previously served as the Chair for the Task Force responsible for the development of the Manual of Practice No., Financing and Charges for Wastewater Systems. I also authored a chapter entitled, "Selecting the Optimal Capital Financing Plan and Pricing Structure," for the Fourth Edition of the industry guidebook, Water and Wastewater Finance and Pricing: The Changing Landscape. I am an emeritus member of the Kansas State University College of Engineering Advisory Council and have been listed in Best Lawyers in America Directory of Expert Witnesses and Who s Who in Science and Engineering. Q. Have you previously testified before the Rate Commission of the St. Louis Metropolitan Sewer District? A. Yes. I testified as the Rate Consultant to the Rate Commission in the 00, 00 and 0 Rate Change Proceedings. 0 Rate Change Proceeding MSD Exhibit No. MSD H

4 Q. Please describe your role in this proceeding? A. The scope of my assignment in this proceeding is as Project Director for RFC's assistance to the District in preparing the Rate Change Proposal which recommends means of financing MSD's wastewater and stormwater activities for fiscal years ending June 0, 0 (FY) through June 0, 00 (FY0). As project Director, I provided leadership and direction to our team of consultants engaged in this work for the District, as well as technical advice during the conduct of our work. 0 0 General Matters Q. What requirements are you aware of that any proposed changes in wastewater, stormwater or tax rates by the District must meet? A. Pursuant to Section.00 of the Charter Plan of the District any proposed changes in wastewater, stormwater or tax rates must be necessary to pay (i) interest and principal due on bonds issued or to be issued to finance assets of the District, (ii) the costs of operation and maintenance, and (iii) such other amounts as may be required to cover emergencies and anticipated delinquencies. Q. How is it determined whether the District s Rate Change Proposal is necessary? A. This determination begins with the development of the District s Comprehensive Financial Plan which is a major component of the rate Change Proposal. As the rate Consultant to the District, our work included the development of this Financial Plan in collaboration with District Staff and the District s other consultants. The forecasts set forth in the Rate Change Proposal form the foundation of the level of revenues needed to achieve the District s operational and capital investment objectives. The Rate Commission will examine the District s projected revenue requirements to insure that 0 Rate Change Proceeding MSD Exhibit No. MSD H

5 0 0 such revenue requirements are necessary and reasonable to meet the District s near term financial needs, that such revenue requirements do not overstate the District s near term financial needs, and that such revenue requirements are being recovered in a fair and equitable manner. Q0. What criteria are used to assess the Rate Change Proposal? A. In accordance with Section.0 of the Charter Plan of the District, the Rate Change Proposal, and all portions thereof, must: () be consistent with constitutional, statutory or common law as amended from time to time; () enhance the District s ability to provide sewer and drainage systems and facilities, or related services; () be consistent with and not in violation of any covenant or provision relating to any outstanding bonds or indebtedness of the District; () not impair the ability of the District to comply with applicable Federal or State laws or regulations as amended from time to time; and () impose a fair and reasonable burden on all classes of ratepayers. Q. How should it be determined if the Rate Change Proposal is consistent with constitutional, statutory or common law as amended from time to time? A. In the past legal counsel has advised that issues concerning Charter Plan authority, environmental laws and regulations, constitutional and statutory provisions and case law should be evaluated. Q. How should it be determined whether the Rate Change Proposal enhances the District s ability to provide adequate sewer and drainage systems and facilities, or related services? A. The Rate Change Proposal should be assessed as to whether it enhances the District s 0 Rate Change Proceeding MSD Exhibit No. MSD H

6 0 0 ability to provide adequate sewer and drainage systems and facilities, or related services. This can be done by examining the District s submittal as well as the testimony filed in support of the Rate Change Proposal by the District, the Rate Commission's Rate Consultant testimony and advice as well as the testimony provided by interveners. Q. How should it be determined if 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? A. Such a determination requires an analysis of covenants or provisions contained in the resolutions or ordinances issuing any such outstanding bonds or indebtedness. It may be determined that this condition is met by examining the District s submittal as well as the testimony filed in support of the Rate Change Proposal by the District. Q. How should it be determined whether the 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? A. It may be evaluated whether the Rate Change Proposal impairs the ability of the District to comply with applicable Federal or State laws or regulations on the basis of testimony provided by District staff and by others, including interveners. Q. How should it be determined if the Rate Change Proposal imposes a fair and reasonable burden on all classes of ratepayers? A. Whether the rate change imposes a fair and reasonable burden on all classes of ratepayers may be determined by examining the Rate Change Proposal and the testimony filed in support of the District's Rate Change Proposal as well as information provided by the Commission's Rate Consultant, and other parties, including the interveners. 0 Rate Change Proceeding MSD Exhibit No. MSD H

7 0 Q. In the context of utility rate setting, what do the words fair and reasonable mean to you? A. In the context of utility rate setting, the word fair means to me that rates recover revenues from customer classes in relation to the costs incurred in providing utility services to those customer classes and be free from self-interest, prejudice or favoritism. In the context of utility rate setting, the word reasonable means to me that the revenue requirements upon which the rates are based reflect an appropriate level of funding to enable the utility to provide adequate and sustainable service and support the financial health of the utility. Q. Do you believe the Rate Change Proposal meets these criteria? A. Yes. 0 Major Wastewater Rate Changes Q. What are the major wastewater rate changes contained in the Rate Change Proposal? A. For wastewater we are proposing rates in FY that reflect the results of the cost of service analysis for that year and which will be discussed later in my testimony. The proposed waster rates for FY through FY0 are approximately 0.%. The resultant impacts vary among the various rate and charges of the District as determined in the cost of service analysis and discussed later in my testimony. Overall the Rate Change Proposal does not contain any changes to the current wastewater rate structure as was the case with the 0 Rate Change Proposal which included the implementation of a tiered compliance charge. 0 Rate Change Proceeding MSD Exhibit No. MSD H

8 0 Q. What are the major drivers of the rate change? A. The largest factor in the requested rate change is the District's CIRP expenditures, which as discussed in the testimony of Richard Unverferth, are driven by the District's Consent Decree requirements. The District intends to fund the CIRP to the extent possible with debt while maintaining coverage requirements that will maintain their existing debt rating, as discussed in the testimony of Tim Snoke and Bethany Pugh. To a lesser extent the rate change is also a result of inflation in the operating and maintenance budget, additional operating and maintenance expense, and a projected decrease in both customers and contributed volumes over the period covered by the Rate Change Proposal. 0 Wastewater Revenue Q0. How was wastewater revenue projected in the Rate Change Proposal? A. Projected wastewater revenue is based in part on an analysis performed by The Vertex Group for the District and discussed in Appendices.. and.. of the Rate Change Proposal that projects number of customers and contributed volumes over the period of FY through FY0. The projected number of customers and contributed volumes information is shown in the Rate Change Proposal in Table -, which includes projected accounts by customer class, and Table -, which includes projected contributed volumes by customer class. Based on this information projected revenues under the District s approved FY rates for the period of FY through FY0 is shown in Table - while other revenues for the District are shown in Table -. Table - was developed in conjunction with District Staff based on past experience and projected trends of each revenue line item. 0 Rate Change Proceeding MSD Exhibit No. MSD H

9 0 Q. Were any other changes made that affect the District's projected revenue? A. The District bills unmetered customers, which consist of most residential customers in the City of St. Louis, using attributes of their property. These attributes are each room, each water closet, each bath and each separate shower. The usage assigned to each attribute was determined several decades previously based on data provided by the City of St. Louis used to bill these customers for their water consumption. It was determined that these attributes and the usage associated with them should be reexamined, and Vertex performed a statistical analysis as described in Appendix.. that determined a reduction of usage associated with unmetered customers attributes would be appropriate, and that reduction has been implemented in the proposed FY rates in the Rate Change Proposal. Q. What is your opinion of the forecast of customers and contributed volumes? A. Based on my past experience with the District, my experience with other urban utilities throughout the United States, and general trends in wastewater flows throughout the United States I believe the forecasts are reasonable. 0 Wastewater Revenue Requirements Q. What are the components of the District s wastewater revenue requirements? A. The District s wastewater revenue requirements arise from three basic needs, O&M expense, capital expense, and funding of reserves. Capital expense can further be broken down between debt service requirements, which is the payment of debt used to fund capital projects, and use of internally generated funds or cash funded capital, which is also sometimes referred to as PAYGO capital, short for Pay As You Go. 0 Rate Change Proceeding MSD Exhibit No. MSD H

10 0 Q. Do the wastewater expenses included any costs that should be allocated to stormwater? A. During the course of the analysis wastewater and stormwater costs are separated. For O&M expense each item in the budget is allocated to wastewater or stormwater based on an analysis of the activities of each department. In total this results in approximately % of O&M costs being allocated to wastewater and % of the O&M costs being allocated to stormwater in FY. Q. How are wastewater O&M expenses projected over the period of the Rate Change Proposal? A. The District Finance Staff under the direction of Janice Zimmerman identified appropriate inflation factors for the various items in their budget. Appendix.. provides a discussion of the major assumptions and how they were determined for inflation. The inflation rates used are shown in the table below. Cost Category FY FY FY FY FY0 General Inflation Rate.0%.%.%.0%.0% Personnel.%.%.%.%.% Health Insurance.%.%.%.0%.% Dental Insurance.%.%.%.%.% Vision 0.0% 0.0% 0.0% 0.0% 0.0% Pension.% 0.0% 0.0% 0.0% 0.0% Electric.%.%.%.%.% Natural Gas.%.%.%.%.% Other Utilities.0%.0%.0%.0%.0% Bond & Liability Insurance.0%.0%.0%.0%.0% Ash Hauling.0%.0%.0%.0%.0% Applying these inflation rates to the District's adopted FY budget results in the projected wastewater O&M expense shown in Table - of the Rate Change Proposal. In addition the District provided forecasts of additional O&M required beyond inflationary increases, which is shown on Line of Table -. The Capital Funded in the O&M Budget and Capitalized Internal Labor were provided by District Staff. 0 Rate Change Proceeding MSD Exhibit No. MSD H

11 0 0 Q. How are the District s wastewater CIRP requirements projected over the period of the Rate Change Proposal? A. The District provided wastewater capital improvement and replacement program (CIRP) requirements to be included in the financial planning and rate model. The figures provided by the District include adjustments for the timing of the actual cash needs as discussed in Appendix... The amount of the CIRP is inflated in FY through FY0 based on an analysis of regional Engineering News Record construction cost index data. The resultant cash requirements for the CIRP are shown in Table - of the Rate Change Proposal while additional detail on the District s overall CIRP can be found in Appendix.. Q. How does the District propose to fund the wastewater CIRP over the period of the Rate Change Proposal? A. The District and its financial advisor, PFM, provided a financing plan for the District s wastewater CIRP as discussed in the testimony of Bethany Pugh. A summary of the overall mix of debt and cash is shown in Table - of the Rate Change Proposal. Q. How are the District s wastewater debt service requirements determined in the Rate Change Proposal? A. Wastewater debt service requirements for all existing and proposed debt were provided by the District s financial advisor, PFM as discussed in the testimony of Bethany Pugh. Q. How are the District s wastewater reserve requirements determined in the Rate Change Proposal? A. The District has a minimum operating reserve target equal to 0 days of annual operating expenses. The existing revenue bond covenants require the District to maintain a minimum balance equal to days of operation and maintenance expense. The District 0 Rate Change Proceeding 0 MSD Exhibit No. MSD H

12 has determined that it is prudent to target a 0 day minimum which provides a buffer to allow for potential timing issues involved with funding requirements, provide increased operational flexibility, and helps support future bond ratings. 0 Wastewater Financial Plan Q0. How are the overall wastewater revenue increases necessary over the Rate Change Proposal period determined? A. Based on the projected revenues under existing rates and the District s revenue requirements the financial planning and rate model can be used to determine the level of wastewater revenue increases to meet the District s financial objectives. Based on discussions with District Staff as well as the District s FA it was determined that the driving factor in determining rate increases is the District s desire to maintain a Senior Debt Coverage level of., as discussed in the Testimony of Tim Snoke and Bethany Pugh. Based on this goal and the desire to provide a smooth program of rate increases over the Rate Change Proposal period it was determined that an annual average revenue increase of approximately 0% will be necessary to meet the forecasted revenue requirements. The District s Wastewater Financial Plan is shown on Table -0. As can be seen in Table -0 the District s senior debt coverage level declines to. in FY0 with the proposed revenue increases. 0 Wastewater Cost of Service Q. What is a cost of service analysis? A. The basic principle in a cost of service analysis is to achieve general fairness in the recovery of costs from various classes of customers. The approach used in this Study is 0 Rate Change Proceeding MSD Exhibit No. MSD H

13 0 0 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. Q. What period was analyzed for the cost of service analysis? A. A cost of service analysis typically identifies a single test year to be used as the basis of the analysis. For this analysis the projected expenses for the first year of the Rate Change Proposal period, FY are used. It is common for non-regulated utilities to use a projected test year, as compared to regulated utilities which are often required by the applicable regulatory body to use an historical test year with allowances for known and measurable changes. Q. How are O&M costs assigned or distributed to functions in the cost of service analysis? A. The O&M costs were assigned or distributed to functional categories based on factors developed with available data, District Staff, and generally accepted industry practices, and were then reviewed to ensure the appropriate factors were applied. For example, operating costs for the customer service center were assigned to customer service and billing; costs for operating the treatment plants were assigned to treatment; and collection costs were assigned and distributed between collection and conveyance. General and administrative cost elements are allocated based on the weighted average allocation of the direct costs. A summary of the functionalized O&M costs is shown in Table - of the Rate Change Proposal. 0 Rate Change Proceeding MSD Exhibit No. MSD H

14 0 0 Q. How are capital costs assigned or distributed to functions in the cost of service analysis? A. Capital costs (debt service requirements and rate-funded capital) are assigned or distributed based on an analysis of the District s fixed assets. The estimated test year FY plant investment consists of plant in service as of June 0, 0, and the estimated costs of proposed capital improvements to be placed in service through the FY test year. Total plant investment, on an original cost less accumulated depreciation basis, is assigned to functional cost components reflecting the function of the assets.. Test year plant investment in WW facilities on an original cost less depreciation value basis is projected to total $. billion in FY. The functionalization of total plant investment is also used as the basis to allocate total routine capital improvements. A summary of the functionalized capital costs is shown in Table - of the Rate Change Proposal. Q. How are the functionalized costs then used in the cost of service analysis? A. The functionalized costs are next allocated to their cost components in accordance with how the facilities are designed. In this step of the cost of service process, costs are apportioned to the functional cost drivers of: Volume - costs related to the volume of wastewater flow received by the wastewater system such as the portion of the collection and conveyance systems necessary to handle average volumes of the wastewater system. Capacity - costs related to the peak flow of the system, in other words facilities sized not just to meet typical volumes, but peak volumes, including preliminary treatment at the wastewater treatment plants as well as the portion of the collection and conveyance systems necessary to meet peak flows. 0 Rate Change Proceeding MSD Exhibit No. MSD H

15 0 0 Compliance - Cost associated with compliance for the District's pretreatment program for commercial customers, specifically a portion of the costs of the Environmental Compliance Division of the Engineering Department. Wastewater strength - Costs associated with treatment of the strength components of wastewater flow, including primary and secondary treatment at the wastewater treatment plants. Customer and billing - Costs associated with providing service to customers regardless of their flows or other demands, including customer service and some regulatory services he separation of costs into functional cost components provides a means for distributing such costs to the various cost drivers on the basis of respective responsibilities for each particular type of service. A summary of this analysis is shown in Table - of the Rate Change Proposal. Q. How are the costs allocated to customer classes? A. The total cost responsibility for each customer class is determined by developing wastewater system unit costs of service for each cost component and applying these unit costs to the respective service requirements of each customer class. In accomplishing this, each customer class is allocated a share of volume, capacity, strength and customer costs for which it is responsible. The unit cost of service represent the cost of providing a unit of each cost component, volume, capacity, strength, and customer and billing, to each customer regardless of their other characteristics. Each customer class pays the same for each service they receive, though they may receive different amounts of each service, which is the basis for different costs by customer classes. In other words, differences in costs between customers is based on a fair and equitable determination of the cost of providing specific 0 Rate Change Proceeding MSD Exhibit No. MSD H

16 0 0 services and those differences in cost are a result in different levels of service and not different pricing for the same service levels. Customers are divided into customer classes that represent a particular type of service requirement or load on the system. The residential customer class includes residents living in single family and multi-family dwellings. The non-residential class includes all customers not included in the residential class such as commercial, government, industrial etc. Wastewater strengths in excess of the normal wastewater strength thresholds, which are contributed by a portion of the non-residential class, are segregated into a separate surcharge customer group. The determination of customer class responsibility for costs of service requires that the customer classes be allocated a portion of the volume, capacity, strength and customer costs of service according to their respective service requirements. Service requirements or units of service for the respective customer classes are shown in Table - of the Rate Change Proposal. Q. How is the inflow/infiltration amount determined? A. Infiltration/inflow (I/I) includes flow entering the sewer system from illegal roof and foundation drains, groundwater infiltration through sewer service pipe and main joints and stormwater runoff or inflow from the combined sewer system. We examined and analyzed historic treatment plant and billed consumption data as well as recognizing the District's improvements to the interceptors delivering wastewater to the treatment plants and estimated that District-wide I/I is approximately 0% of the total wastewater flow reaching the treatment plants on an annual basis. This is a decrease in the percentage of I/I and reflects the improvements that the District has made in the interceptors transporting flow to the wastewater treatment plants. 0 Rate Change Proceeding MSD Exhibit No. MSD H

17 0 Q. How is responsibility for I/I determined? Each customer class should bear its proportionate share of the costs associated with I/I, as the WW system must be adequate to convey and process the total wastewater flow. The amount of I/I to be recovered directly from wastewater service charges is assigned to customer classes on the premise that 0 percent of the total is distributed on the basis of the number of customers within each class, with the remaining 0 percent allocated on the basis of contributed wastewater volume. These percentages are based on independent engineering studies completed in January 00 by CDM and presented in the February 00 Wastewater and Stormwater Rate Change Proposal. The results of this study were reviewed and are still considered reasonable. This reallocation of I/I costs can be seen in Table - of the Rate Change Proposal. Q. How do District s existing rates compare to the cost of service analysis? A. The results of the cost of service analysis are summarized in Table - and show the amount that each class as a whole is being under-recovered by relative to the District s revenue requirements for FY. While there are varying impacts among customer classes, they do not vary significantly from the overall revenue increase of 0.% which indicates that on the whole there should not be significant differential impacts to customers from the cost of service rate adjustments. 0 Wastewater Rate Adjustments Q0. How are the cost of service rate adjustments determined? A. Based on the units costs calculated in the cost of service analysis as shown on Table - of the Rate Change Proposal we can develop proposed rates that are cost of service based and will provide an equitable recovery of costs from the District s customer classes. 0 Rate Change Proceeding MSD Exhibit No. MSD H

18 These rates are presented in Table - of the Rate Change Proposal. Q0. Are these proposed rates fair and equitable? A. A comparison of the revenues generated under the proposed rates to the calculated cost of service is shown in Table - of the Rate Change Proposal, and as is indicated by the percent difference in the far right column, the proposed rates over- or under-recover the allocated costs of each customer class by a relatively small amount, which is a strong indication that they will yield a fair and equitable recovery of the District s revenue requirements from the various customer classes. 0 Major Stormwater Rate Changes Q. What are the major stormwater rate changes contained in the Rate Change Proposal? A. The Rate Change Proposal includes changes in the property tax levies charged by the District, eliminating the differential rates charged to various properties across the District and replacing them with a more uniform structure of tax levies. This details of this change are discussed in the testimony of Brian Hoelscher. 0 Stormwater Revenue Q. How was stormwater revenue determined? A. We worked with District Staff to analyze billing data, tax information, and other revenue data to determine the amount of stormwater revenue generated under existing tax rates as well as projected revenue under proposed tax rates. A summary of the stormwater revenues is shown in Table - of the Rate Change Proposal. 0 Rate Change Proceeding MSD Exhibit No. MSD H

19 0 0 Stormwater Revenue Requirements Q. What are the components of the District s stormwater revenue requirements? A. The District s stormwater revenue requirements arise from three basic needs, O&M expense, capital expense, and funding of reserves. Unlike the wastewater revenue requirements, stormwater does not have any debt outstanding nor does the District intend to issue any debt, so the capital expense revenue requirements arise only from capital projects funded from cash (i.e., PAYGO). Q. How are stormwater O&M expenses projected over the period of the Rate Change Proposal? A. The District identified appropriate inflation factors for the various items in their budget, as discussed in Appendix.. as well as my answer to Question, which results in the projected stormwater O&M expense shown in Table - of the Rate Change Proposal. In addition the District provided forecasts of additional O&M required beyond inflationary increases, which is shown on Line of Table -. The Capital Funded in the O&M Budget and Capitalized Internal Labor were provided by District Staff. Q. How are the District s stormwater CIRP requirements projected over the period of the Rate Change Proposal? A. The District provided stormwater capital improvement and replacement program (CIRP) requirements to be included in the financial planning and rate model. The figures provided by the District include adjustments for the timing of the actual cash needs as discussed in Appendix... The amount of the CIRP is inflated in FY through FY0 based on an analysis of regional Engineering News Record construction cost index data. A summary of the resultant cash requirements for the CIRP are shown in Figure -. 0 Rate Change Proceeding MSD Exhibit No. MSD H

20 0 Q. How does the District propose to fund the stormwater CIRP over the period of the Rate Change Proposal? A. The District will fund the stormwater CIRP from cash generated through stormwater fees and taxes. The District has indicated to me that they do not intend to issue debt to finance the stormwater CIRP. Q. How are the District s stormwater reserve requirements determined in the Rate Change Proposal? A. The District has a minimum operating reserve target equal to 0 days of annual operating expenses. The 0 day minimum provides a buffer to allow for the timing of tax receipts relative to its fiscal year period while protecting from potential timing issues involved with funding requirements and providing operational flexibility. Stormwater Financial Plan Q. Does the proposed tax levy provide sufficient funding for the stormwater utility? A. Based on the projected levels of stormwater O&M expense, CIRP, and reserve requirements, the District s stormwater operations will have sufficient funding over the forecast period as shown in Table - of the Rate Change Proposal. 0 Rate Model Q0. Have you developed a rate model as the basis of the analysis you have described in this testimony? A. We have worked with MSD Finance Staff to develop a comprehensive financial planning, cost of service and rate model that underpins the analyses described in my testimony as well as throughout the Rate Change Proposal. The District is the owner of 0 Rate Change Proceeding MSD Exhibit No. MSD H

21 that model and will be providing electronic versions of the model to the Rate Commission as well as any intervener who requests it. Q. Does this conclude your direct testimony in this matter? A. Yes 0 Rate Change Proceeding 0 MSD Exhibit No. MSD H