MSD Technical Conference for Surrebuttal June 7, 2018

Transcription

1 MSD Technical Conference for Surrebuttal June 7, 2018

2 MSD TECHNICAL CONFERENCE FOR SURREBUTTAL June 7, 2018 Dawn M. Bloemker, CSR, RPR, CCR Illinois CSR License No Missouri CCR License No. 1039

3 Page 2 1 I N D E X O F E X A M I N A T I O N 2 WITNESS: BRIAN HOELSCHER 3 Examination By Mr. Palans...24 Examination By Mr. Brockmann Examination By Mr. Mahfood...64 Examination By Mr. Stein Examination By Mr. Goss...71 Examination By Mr. Beckmann Examination By Mr. Goss...85 Examination By Mr. Palans Examination By Ms. Stump WITNESS: RICH UNVERFERTH 9 Examination By Mr. Goss...97 Examination By Mr. Palans Examination By Ms. Stump Examination By Mr. Mahfood WITNESS: HENRIETTA LOCKLEAR 13 Examination By Mr. Neuschafer Examination By Ms. Stump WITNESS: MARION GEE 16 Examination By Mr. Palans Examination By Mr. Stein Examination By Mr. Beckmann Examination By Mr. Palans Examination By Mr. Stein Examination By Mr. Neuschafer

4 Page MSD TECHNICAL CONFERENCE FOR SURREBUTTAL MSD TECHNICAL CONFERENCE FOR SURREBUTTAL, 7 with witnesses produced, sworn, and examined on June 7, 2018, between the hours of 9:09 a.m. and 8 12:35 p.m. on that day, at the Metropolitan Sewer District, 2350 Market Street, St. Louis, Missouri , before Dawn M. Bloemker, Illinois Certified Shorthand Reporter, Missouri Certified Court Reporter, 10 and Registered Professional Reporter. 11 A P P E A R A N C E S 12 COMMISSIONERS: 13 Mr. Russell Hawes, Chairman 14 Mr. Gerald Beckmann Mr. Lloyd Palans 15 Mr. Brad Goss Mr. John Stein 16 Mr. Paul Brockmann Mr. Steve Mahfood 17 Mr. Chan Mahanta Ms. Mickey Croyle 18 COUNSEL: 19 Ms. Lisa O. Stump 20 Lashly & Baer 714 Locust Street 21 St. Louis, Missouri REPRESENTED: Rate Commission 22 Mr. Brian Malone 23 Lashly & Baer 714 Locust Street 24 St. Louis, Missouri REPRESENTED: Rate Commission 25

5 Page 4 1 Appearances (cont'd) 2 Mr. Brandon W. Neuschafer Bryan Cave Leighton Paisner, LLP N. Broadway, Suite 3600 St. Louis, Missouri REPRESENTED: Missouri Industrial Energy Consumers 5 Ms. Susan Myers Metropolitan Sewer District Market Street St. Louis, Missouri REPRESENTED: Metropolitan Sewer District 8 ALSO PRESENT: 9 Ms. Pamela Lemoine, Consultant to the Rate Commission 10 Black & Veatch Swingley Ridge Road, Suite Chesterfield, Missouri Ms. Nicole Young Lion CSG Olive Street St. Louis, Missouri WITNESSES: 15 Mr. Brian Hoelscher 16 Mr. Richard Unverferth Ms. Henrietta Locklear 17 Mr. Marion Gee

6 Page 5 1 IT IS STIPULATED AND AGREED by and between 2 all parties that the MSD TECHNICAL CONFERENCE FOR 3 SURREBUTTAL may be taken in shorthand by Dawn M. 4 Bloemker, an Illinois Certified Shorthand Reporter, 5 Missouri Certified Court Reporter, and Registered 6 Professional Reporter, and afterwards transcribed into 7 typewriting by agreement of all parties and the 8 witness. 9 * * * * * 10 (The following has been transcribed 11 from an audio recording.) 12 MR. HAWES: It's 9:09 a.m., and I'd like to 13 call the meeting of the Rate Commission of the 14 Metropolitan St. Louis Sewer District to order. This 15 is the 2018 Stormwater Rate Change Proceeding. 16 My name is Russell Hawes, and I am the 17 vice-chairman of the Rate Commission of the 18 Metropolitan St. Louis Sewer District and will serve 19 as chair of this proceeding. 20 Mr. Stein, may we have a roll call, please. 21 MR. STEIN: Mr. Beckmann? 22 MR. BECKMANN: Present. 23 MR. STEIN: Mr. Brockmann? 24 MR. BROCKMANN: Present. 25 MR. STEIN: Mr. Bresnan?

7 Page 6 1 Ms. Croyle? 2 MS. CROYLE: Present. 3 MR. STEIN: Mr. Goss? 4 MR. GOSS: Present. 5 MR. STEIN: Mr. Hawes? 6 MR. HAWES: Present. 7 MR. STEIN: Mr. Jones? 8 Mr. Mahanta? 9 MR. MAHANTA: Present. 10 MR. STEIN: Mr. Mahfood? 11 MR. MAHFOOD: Here, yes. 12 MR. STEIN: Mr. Palans? 13 MR. PALANS: Present. 14 MR. STEIN: Mr. Ratzki? 15 Mr. Schoedel? 16 Mr. Stein is present. 17 Mr. Toenjes? 18 Mr. Ziegler? 19 Mr. Chairman, we have a quorum. 20 MR. HAWES: Thank you, Mr. Stein. 21 "The Charter Plan of the District was 22 approved by the voters of St. Louis and St. Louis 23 County at a special election on February 9, 1954." 24 MS. STUMP: Mr. Hawes? 25 MR. HAWES: Yes, ma'am.

8 Page 7 1 MS. STUMP: Perhaps we should address the 2 procedural issue before you get to read that 3 statement. 4 MR. HAWES: Okay. 5 MS. STUMP: Is that okay with you? 6 MR. HAWES: That's fine. 7 MS. STUMP: Everyone is aware we do not have 8 a court reporter at this time. There is one that will 9 be coming hopefully at some point this morning. The 10 Rate Commissions operational rules require that these 11 technical conferences be held on the record. So in 12 order to proceed, I would ask for the Rate Commission 13 to make a motion to waive that requirement until the 14 court reporter gets here and vote on that. 15 It is my understanding that this is being 16 recorded on audio, so the court reporter will take the 17 audio of the meeting and transcribe what occurs. 18 Should we proceed without the court reporter, it will 19 be very important that you speak into the microphone 20 so that the audio will pick it up, and I would like 21 for the record also to have Ms. Myers and 22 Mr. Neuschafer comment if they have any objection to 23 such a motion. 24 MR. NEUSCHAFER: This is Brandon Neuschafer. 25 I have no objection.

9 Page 8 1 MS. MYERS: And this is Susan Myers. I have 2 no objection. 3 MS. STUMP: Okay. Mr. Palans? 4 MR. PALANS: How long are we waiting for the 5 court reporter? When will they arrive? 6 (Inaudible) 7 MR. PALANS: Is the recording audio 8 equipment reliable? 9 (Inaudible) 10 MR. PALANS: Have you been able to take 11 transcripts? Has a court reporter (Inaudible) 13 Because my experience -- my experience with 14 recordings has been very mixed, and that's my only 15 concern if we are -- even with a recording, we are not 16 able to get an accurate transcript. 17 MS. STUMP: Well, I mean the Rate 18 Commission's option is to wait until the court 19 reporter gets here, or I suppose another option would 20 be to adjourn and do it tomorrow. 21 (Inaudible) 22 COMMISSIONER: Second that motion. 23 MR. HAWES: Motion second. 24 Discussion on that? 25 COMMISSIONER: My only concern is like if

10 Page 9 1 the court reporter can't make an accurate transcript, 2 then this public hearing isn't going to be proper, I 3 don't believe. We can -- we're supposed to have a 4 transcript of this hearing, and I'm not -- that 5 doesn't inspire confidence when you tell me that well, 6 you don't -- you haven't -- you had a court reporter 7 transcribe from these audios, so I don't really know. 8 COMMISSIONER: (Inaudible) play back for us 9 right now (inaudible) this morning? Is that possible? 10 MR. HAWES: I would think maybe. Is it 11 possible? I don't know if we have playback 12 capabilities here. That's the only thing. We 13 probably have recording capabilities, but not 14 necessarily (Inaudible) 16 MS. STUMP: I guess the other thing is, 17 would it be possible to -- I mean, could we get any 18 sort of timeline from the court reporter? 19 (Inaudible) 20 MS. STUMP: Okay. 21 (Inaudible) 22 MS. STUMP: Okay. So the information that 23 Ms. Belleville [phonetic] just provided to me is that 24 they still don't have a court reporter for us yet, and 25 they are going down their list, so they may not.

11 Page 10 1 COMMISSIONER: May I make a suggestion, if 2 you think it's appropriate, of a motion that we 3 adjourn for 30 minutes to see what the timing will be 4 to have a court reporter present? 5 MR. HAWES: But we have a motion and a 6 second already on the floor, on the table. I think we 7 need to determine that. 8 (A short break was taken, and a new 9 recording began.) 10 MR. HAWES: Very good. Okay. We have a 11 motion and second on the table. Is there any further 12 discussion regarding what has been heard and the 13 quality of the recording? 14 COMMISSIONER: Mr. Chairman, I would just 15 like to ask if we have any update on the -- when the 16 court reporter will be arriving. 17 MS. STUMP: We do. The District just 18 informed me that they have a court reporter, and we're 19 anticipating 45 minutes probably. Well, no later than 20 10:30 then. 21 COMMISSIONER: Are we still in discussion? 22 MR. HAWES: Yes. 23 COMMISSIONER: Then I would suggest that we 24 wait 45 minutes in order to have a record that is 25 consistent with the records that we have made here

12 Page 11 1 before; that we not rely upon a recording, a tape 2 recording; and that this proceeding be adjourned for 3 45 minutes to allow the court reporter to appear and 4 transcribe this. 5 COMMISSIONER: I have [inaudible] another 6 one has to leave [inaudible] quorum. 7 MR. HAWES: That is consideration, 8 certainly. 9 [Inaudible] 10 MR. HAWES: So we'll lose our quorum at 11 12:30. I'm not sure that we could get the whole thing 12 in between now and 12:30 starting at 10:30 or starting 13 now, for that matter. It's undetermined. 14 COMMISSIONER: I don't know who schedules 15 the court reporter. I don't know where the slip 16 occurred. I'm not pointing fingers at anybody, but I 17 am not prepared to go forward unless we have a record 18 that is consistent with the record that we have made 19 here before. 20 MR. HAWES: Further discussion? Any further 21 thoughts? Is 10:30 -- that's a suggestion. 22 We do have a question on the table, however, 23 so we can vote on that question. I'm going to call 24 the question right now. 25 The motion was to proceed with audio

13 Page 12 1 recording and then transcribe from that at such time 2 as the court reporter can do so -- or at such time 3 that that transcription can be made. 4 COMMISSIONER: One other question. 5 MR. HAWES: Uh-huh. 6 COMMISSIONER: Any indication of how long 7 would we need today? [Inaudible] 8 MR. HAWES: Ms. Stump, do you have any idea 9 how long MS. STUMP: Depends on how many questions 11 everyone has. I mean, I think I was originally 12 thinking we would be done by lunchtime, but I still 13 think that's a possibility, certainly. And if we, I 14 think, regardless whether we start now or whether we 15 start at 10:30, I think it's important for everyone 16 involved to respect that we may lose a quorum at 12:30 17 regardless, too. 18 COMMISSIONER: Lisa, do you have any opinion 19 or legal guidance for the Rate Commission as to 20 whether this system of recording will be adequate and 21 will meet the requirements of our own rules? 22 MS. STUMP: I think it will. It says the 23 rules say -- it's actually the procedural schedule requires that they have the technical conferences be 25 held on the record. That has been interpreted as

14 Page 13 1 having a court reporter. 2 I think there's a question as to whether 3 that even necessarily requires a court reporter. But 4 I mean, that's the way it's been interpreted. So I 5 think, certainly, when you -- if the Rate Commission 6 proceeds and votes to starts with audio, the Rate 7 Commission has the authority to waive the requirements 8 of their procedural schedule even if a court reporter 9 is technically required. 10 I do feel like listening to that audio that 11 a court reporter could pick up -- I think it's going 12 to be important, and I -- if we proceed with just the 13 audio, I would like the Chair to allow me some 14 discretion to enforce the fact that everyone is 15 speaking into a microphone so that we do have a good 16 recording. 17 COMMISSIONER: I just -- I just Mr. Chairman, I just don't want to have the 19 proceedings of the Commission be subject to challenge 20 later on, and so that's why I'm looking for the 21 guidance of Counsel. 22 If you're telling us you're not concerned 23 with that and we can proceed and we meet our 24 procedural requirements, then that's important to me. 25 MS. STUMP: I am. Because it's not the

15 Page 14 1 Charter or anything that requires them to have the 2 court reporter. It's our procedural schedule which 3 requires them to be on the record which would be 4 subject to interpretation what that is anyway. 5 But I do think it's important to try to be 6 consistent, but we're really talking before -- once we 7 get through a lot of the procedural happenings of this 8 morning, hopefully, the court reporter will be shortly 9 in time for still the first witness, but I don't have 10 a legal concern with it, should you vote to do so. 11 MR. HAWES: I might suggest the 12 redistribution of microphones. I see an unused mic 13 down there and people without mics in front of them. 14 MS. STUMP: Right. 15 MR. HAWES: So that would probably be a 16 consideration. 17 COMMISSIONER: Can I ask a question? If we 18 lose a quorum at some point at 12, 12:30 today and we 19 still have witnesses, what happens? 20 MR. HAWES: We cannot vote at that point. 21 MS. STUMP: I think we would still proceed 22 with the technical conference because the whole idea 23 is, too, that the other Rate Commissioners who aren't 24 will have an opportunity to review the transcript. 25 I do want -- to your question,

16 Page 15 1 Commissioner Goss, Brian just pointed out to me that 2 actual -- in court proceedings, the court rules allow 3 the reporter to do a transcript from recorded -- from 4 proceedings that were recorded by means of an 5 electronic sound recording. So in actual court 6 proceedings, that's allowed so that would be 7 consistent with what we were doing here this morning. 8 MR. GOSS: Thank you. 9 MR. HAWES: All right. I'm going to call 10 for a vote. 11 (There was simultaneous speaking.) 12 MR. HAWES: Okay. Everybody's got a mic in 13 front of them now? We're all good. Okay. 14 We will call for the vote. All those in 15 favor, aye? 16 COMMISSIONER: Aye. 17 COMMISSIONER: Aye. 18 COMMISSIONER: Aye. 19 COMMISSIONER: Aye. 20 MR. HAWES: All opposed? 21 COMMISSIONER: Aye. 22 COMMISSIONER: Aye. 23 COMMISSIONER: Roll call, Mr. Chairman. 24 MR. HAWES: We can roll call it. 25 MS. STUMP: Mr. Stein?

17 Page 16 1 MR. STEIN: Mr. Beckmann? 2 MR. BECKMANN: Aye. 3 MR. STEIN: Mr. Brockmann? 4 MR. BROCKMANN: No. 5 MR. STEIN: Ms. Croyle? 6 MS. CROYLE: Aye. 7 MR. STEIN: Mr. Goss? 8 MR. GOSS: Aye. 9 MR. STEIN: Mr. Hawes? 10 MR. HAWES: Aye. 11 MR. STEIN: Mr. Mahanta? 12 MR. MAHANTA: Aye. 13 MR. STEIN: Mr. Mahfood? 14 MR. MAHFOOD: Aye. 15 MR. STEIN: Mr. Palans? 16 MR. PALANS: No. 17 MR. STEIN: Mr. Stein is the yea. Have 18 seven yeas. 19 MR. HAWES: Thank you. The motion passes. 20 MS. STUMP: Correct. 21 MR. HAWES: "The Charter Plan of the 22 District" -- we'll move to the technical conference 23 for surrebuttal. 24 "Charter Plan of the District was approved 25 by the voters of St. Louis and St. Louis County at a

18 Page 17 1 special election on February 9, 1954, and amended at a 2 general election on November 7, The amendment 3 of the Charter Plan established the Rate Commission to 4 review and make recommendations to the District 5 regarding changes in wastewater rates, stormwater 6 rates, and rates proposed by the District. 7 "The Charter Plan requires the Board of 8 Trustees of the District to select organizations to 9 name delegates to the Rate Commission to ensure a fair 10 representation of all users of the District's 11 services. The Rate Commission representative 12 organizations are to represent commercial-industrial 13 users, residential users, and other organizations 14 interested in the operation of the District, including 15 organizations focusing on environmental issues, labor 16 issues, socioeconomic issues, community-related 17 organizations and other nonprofit organizations. 18 "The Rate Commission currently consists of 19 representatives of the Associated General Contractors 20 of St. Louis, St. Louis County Municipal League, 21 Lutheran Senior Services, St. Louis Council of 22 Construction Consumers, Greater St. Louis Labor 23 Council, Missouri Botanical Garden, League of Women 24 Voters of Metro St. Louis, Home Builders Association, 25 Mound City Bar Association, North County Incorporated,

19 Page 18 1 Missouri Coalition for the Environment, the City of 2 Ladue, Engineers Club of St. Louis, Missouri 3 Industrial Energy Consumers, and Education Plus. 4 "Upon receipt of a Rate Change Notice from 5 the District, the Rate Commission is to recommend the 6 Board of Trustees changes in wastewater, stormwater, 7 or tax rate necessary to pay interest and principal 8 falling due on bonds issued to finance assets of the 9 District; the costs of operation and maintenance; and 10 such amounts as may be required to cover emergencies 11 and anticipated delinquencies. 12 "Further, any change in a rate recommended 13 to the Board of Trustees by the Rate Commission is to 14 be accompanied by a statement that the proposed rate 15 change is consistent with constitutional, statutory, 16 or common law as amended from time to time; enhances 17 the District's ability to provide adequate sewer and 18 drainage systems and facilities or related services; 19 is consistent with and not in violation of any 20 covenant or provision relating to any outstanding 21 bonds or indebtedness of the District; does not impair 22 the ability of the District to comply with applicable 23 Federal or State laws and regulations as amended from 24 time to time; and imposes a fair and reasonable burden 25 on all classes of ratepayers.

20 Page 19 1 "The Rate Commission receives -- received a 2 Rate Change Notice from the District on February 26, Under procedural rules adopted by the Rate 4 Commission, any person affected by the Rate Change 5 Proposal had an opportunity to submit an application 6 to intervene in these proceedings. An application to 7 intervene has been filed under the Missouri Industrial 8 Energy Consumers. This application has been deemed 9 granted. 10 "The Rate Commission originally had until 11 June 26, 2018, to issue its report on the proposed 12 Rate Change Notice to the Board of Trustees of the 13 District. The Rate Commission requested an additional days to issue its report, and on May 1, 2018, the 15 District Board of Trustees granted the Rate 16 Commission's request. The Rate Commission now issues 17 its report on or before August August 10, [as read]. 19 "On February 26, 2018, the District 20 submitted to the Rate Commission prepared direct 21 testimony of Brian L. Hoelscher, Susan M. Myers, 22 Richard L. Unverferth, Marion M. Gee, Thomas A. 23 Beckley, and Henrietta Locklear. 24 "On March 12, 2018, The Rate Commission 25 submitted its first discovery request of the District.

21 Page 20 1 On March 22, 2018, the District files its responses. 2 On March 19, 2018, the Rate Commission submitted its 3 second discovery request to the District, to which the 4 District responded on March 29, "On April 4, 2018, a Technical Conference 6 was held on the record regarding the Rate Setting 7 Documents and the direct testimony filed with the Rate 8 Commission by the District. The purpose of the 9 Technical Conference was to provide the District an 10 opportunity to answer questions propounded by members 11 of the Rate Commission; then by any Intervener; and 12 finally by Lashly & Baer, Legal Counsel to the Rate 13 Commission. 14 "On April 10, 2018, the Rate Commission 15 submitted its third discovery request to the District, 16 to which the District responded on April 20, On 17 April 18, 2018, Intervenor Missouri Industrial Energy 18 Consumers submitted its first discovery request to the 19 District, to which the District responded on April 27, "On May 2, 2018, the Rate Commission 22 Consultant and Intervenor Missouri Industrial Energy 23 Consumers submitted rebuttal testimony. 24 "On May 17, 2018, a Technical Conference was 25 held on the record regarding the rebuttal testimony by

22 Page 21 1 the Intervenor and the Rate Consultants. 2 "On May 20, 2018, Intervener Missouri 3 Industrial Energy Consumers submitted its second 4 discovery request to the Rate Commission, to which the 5 Rate Commission responded on May 30, "On May 21, 2018, the Rate Commission 7 submitted its fourth discovery request to the 8 District, to which the District responded on May 31, "The Technical Conference will be held on 11 the record regarding the surrebuttal testimony of 12 representatives of the District. Each person 13 submitting surrebuttal testimony shall answer 14 questions propounded by members of the Rate 15 Commission, the Intervenor, and finally by our Legal 16 Counsel. 17 "Ratepayers who do not wish to intervene 18 will be permitted to participate in a series of 19 on-the-record public hearing sessions which begin on 20 May 8, "Who is here on behalf of the Metropolitan 22 St. Louis Sewer District?" 23 MS. MYERS: Susan Myers. 24 MR. HAWES: "Who is here on behalf of the 25 Missouri Industrial Energy Consumers?"

23 Page 22 1 MR. NEUSCHAFER: Brandon Neuschafer. 2 MR. HAWES: "All present are Pamela Lemoine 3 of Black & Veatch, consultant to the Rate Commission; 4 Nicole Young of Lion CSG; and Lisa Stump and Brian 5 Malone of Lashly & Baer, Legal Counsel to the Rate 6 Commission. 7 "Under the Rate Commission's Operational 8 Rules, no person shall be required to answer questions 9 for a total period of more than three hours, and the 10 time shall be divided among all of the participants 11 desiring to ask questions. Following questions by 12 members of the Rate Commission, I will attempt to 13 allocate the time equally among the participants and 14 our legal counsel. 15 "To the extent that the District, the 16 Intervener, or Legal Counsel has not completed the 17 questions at the expiration of that person's allotted 18 time, and to the extent the time remains, such person 19 will be permitted to propound additional questions 20 until the three hours has expired." 21 "Are there any procedural matters?" 22 MS. STUMP: Mr. Chair? I just do want to 23 make a comment procedurally. Ms. Myers has requested 24 that the witnesses testify in an order different than 25 their testimony was submitted. Specifically, she

24 Page 23 1 would like for Mr. Hoelscher to go first, then 2 Mr. Unverferth and then Ms. Locklear and then Mr. Gee, 3 based on just the issues that are being discussed. 4 And I indicated that I did not object to 5 that as long as she would continue to make those 6 witnesses available should, for instance, a 7 commissioner have a question of Mr. Hoelscher after 8 talking to Mr. Gee, for instance. 9 MR. HAWES: Very good. Thank you, 10 Ms. Stump. 11 Are there any questions from the -- or 12 concerns from the Rate Commission regarding that 13 procedural matter? 14 Okay. We are fine with that. All right. 15 Then we are ready to begin the proceedings. 16 Ms. Myers, do you -- please -- sorry. 17 "If there are no further procedural matters, 18 Ms. Myers, are you ready to present those persons for 19 whom you filed surrebuttal testimony on behalf of the 20 District?" 21 MS. MYERS: Yes, we are. 22 MR. HAWES: Please proceed. 23 * * * * * 24 BRIAN HOELSCHER, 25 having been duly sworn, testifies as follows:

25 Page 24 1 * * * 2 MR. HAWES: Ms. Myers, please proceed. 3 MS. MYERS: He's available for questions -- 4 MR. HAWES: Okay. All right. Very good. 5 MS. MYERS: -- regarding his surrebuttal 6 testimony. 7 MR. HAWES: All right. Does any member of 8 the Rate Commission have questions for Mr. Hoelscher? 9 Mr. Palans. 10 MR. PALANS: Thank you, Mr. Chairman. 11 EXAMINATION 12 BY MR. PALANS 13 Q. Mr. Hoelscher, we're here today because both 14 the District and our Commission, Rate Commission, 15 share a common goal, and that goal is to remediate or 16 fix the flooding and erosion problems within our 17 district. I would like to talk to you a little bit 18 today about where we've been, where we are, and where 19 we're going, and set the stage of where we are on the 20 record, as I understand it, and confirm my 21 understanding. 22 I would like, first, to talk about the size 23 and the scope of the capital projects that we're 24 trying to fix or remediate. The Stormwater Rate 25 Proposal identifies 483 projects to address flooding

26 Examination of Brian Hoelscher By Mr. Palans Page 25 1 and erosion issues within the district at a proposed 2 cost of $562 million. 3 Assuming approval of the Stormwater Rate 4 Proposal with $30 million per year revenue, the record 5 is that it would take at least 30 years to remediate 6 the 483 scheduled projects. Is that your 7 understanding? 8 A. Close. I would call it 483 issues that 9 we've identified with a cost. I wouldn't call them 10 all projects. There are issues that have been 11 reported to us. 12 Q. Is it your testimony that it will take 13 approximately 30 years to address these 483 issues? 14 A. I think -- yes. I think I said that's a 15 good estimate, yes. 16 Q. And the testimony is that the $562 million 17 CIRP budget for capital projects is, in the quoted 18 words, "conceptual in nature"; correct? 19 A. Yes. 20 Q. And it's in fiscal 2018 dollars; correct? 21 A. Correct. 22 Q. It's not in 2048 dollars. It's dollars. 24 A. Correct. 25 Q. And the proposal is based upon a record that

27 Examination of Brian Hoelscher By Mr. Palans Page 26 1 reflects a minimal amount of detailed information 2 regarding geotechnical conditions, utility relocation 3 requirements, easement requirements, and other 4 site-specific issues that have the potential to 5 significantly affect the project's eventual 6 construction cost; is that correct? 7 A. That's correct. 8 Q. Mr. Unverferth previously testified that 9 these $562 million CIRP budgeted projects represent 10 conceptual costs based upon a "minimal amount of 11 detailed information," and were "formulated without 12 doing much engineering." 13 And I'm relying upon Mr. Unverferth's 14 testimony at the Technical Conference on April 4, Is that your understanding, also? 16 A. Yes. 17 Q. In fact, your prior testimony at that 18 hearing was that the $562 million capital improvement 19 costs represents, "Taking every issue that was out 20 there and doing a very quick analysis"; correct? 21 A. Correct. 22 Q. Rough estimates is the word you used to 23 describe it; is that right? 24 A. Yes. 25 Q. And you also said that engineering may be

28 Examination of Brian Hoelscher By Mr. Palans Page 27 1 spent a few minutes looking at each project; correct? 2 A. Correct. 3 Q. These conceptual costs do not include 4 easement acquisition costs, do they not? 5 A. I believe the conceptual costs are supposed 6 to estimate all total project costs including 7 easements. 8 Q. Just bear with me just a second. 9 A. I don't believe there's an individual line 10 item for that, but the conceptual cost with the 11 contingencies is supposed to be reflective of the 12 total cost of the program as best as we can guess. 13 Q. Your testimony on page 109 of MSD Exhibit in response to a question, the District talks about 15 conceptual and preliminary design costs do not take 16 into consideration easement acquisition costs. 17 Your response, "No. What we do is, once we 18 program a project, we take a look at -- we estimate 19 how many easements we may need for all the projects 20 identified throughout a current fiscal year and then 21 we put a dollar amount on that and put that within 22 that particular year. In other words, a conceptual 23 cost at that time do not include easement acquisition 24 costs." 25 Was that your testimony?

29 Examination of Brian Hoelscher By Mr. Palans Page 28 1 A. When did I make that test- -- it sounds like 2 something Mr. Unverferth responded to. I -- is that 3 my testimony? 4 Q. Yes, sir. 5 A. That would be correct for the detail 6 estimate at the time that we're doing the project and 7 we're pricing the rate of [inaudible] required 8 easements. The general conceptual estimates for 9 projects that are 25 years out, there's a contingency 10 built into them for things we can't identify. My 11 understanding is easement costs would be in there, as 12 best we could tell at the time. 13 Q. And also in MSD's response to the 14 Commission's third discovery request, MSD Exhibit 37-A 15 states: "The 562 million conceptual estimate would 16 increase in cost due to inflation." 17 Is that your understanding? 18 A. For inflation it could cause an increase in 19 cost, yes. 20 Q. And inflation means that the cost of 21 materials, the cost of engineering, and the cost of 22 labor would likely increase as the cost of these CIRP projects occur over the 30-year period; 24 right? 25 A. So yes. You would see an increase if your

30 Examination of Brian Hoelscher By Mr. Palans Page 29 1 sole point of consideration is inflation, yes. 2 Q. And also affecting that -- affecting these CIRP projects could be additional erosion; 4 correct? 5 A. There's a lot of things. Additional erosion 6 projects also can "cost of program will very likely go 7 down." Prior to cleaning or -- cleaning up and 8 reevaluating the outstanding stormwater projects, I 9 think, is part of the 2008 impervious area. We had an 10 estimate of a billion dollars in stormwater projects 11 at the time. We've reevaluated and got knocked down 12 to the current So it can go up; it can go down. It's a 14 very flexible number. There's a lot of other things 15 other than just inflation that can impact what the 16 total need as perceived by our residence would be in 17 the future. 18 Q. Well, we identified erosion as affecting the 19 cost -- could -- it could affect the cost increase; 20 correct? 21 A. Correct. As well as -- as well as 22 development which may -- outside of MSD's program 23 which may make the problem go away and result in no 24 cost to MSD. 25 Q. And additional flooding could affect the

31 Examination of Brian Hoelscher By Mr. Palans Page 30 1 cost; correct? 2 A. And redevelopment can then lower the cost; 3 correct. It can go up or down for any of these. 4 Q. And the deterioration of a project over the 5 years could affect the cost; correct? 6 A. Correct. 7 Q. And you mentioned any new or additional 8 developments or construction projects affecting 9 certain properties may adversely impact the cost 10 associated with those projects? 11 A. Or inadvertently and actually reduce the 12 cost. 13 Q. You previously testified, and I believe the 14 record reflects, that these projects, these 483 CIRP 15 projects are based upon stormwater complaints received 16 by the District; correct? 17 A. Correct. 18 Q. And, in fact, Mr. Unverferth's surrebuttal 19 testimony today, which is MSD 56, in Question 1, lines 20 8 through 10, Mr. Unverferth states that "MSD receives 21 'hundreds of calls annually from MSD customers 22 requesting assistance in dealing with flooding and 23 erosion issues. There's a public expectation that MSD 24 respond to these issues.'" 25 Correct?

32 Examination of Brian Hoelscher By Mr. Palans Page 31 1 A. Correct. 2 Q. And as for the amount of the proposed 3 stormwater rate requested, Mr. Unverferth testified 4 previously that this Stormwater Rate Proposal is based 5 upon what "MSD believes its customers will pay in lieu 6 of addressing a more detailed study to size the scope 7 of the problem." 8 Do you remember that testimony? 9 A. Yes. 10 Q. Do you agree with it? 11 A. So I think what Rich was trying to convey is 12 that for us to do a more detailed analysis of what 13 people feel exist today would require the expenditure 14 of funds that don't currently exist. So -- so I can you repeat the statement? I don't have it in 16 front of me. 17 Q. The statement in the record is, quote, MSD 18 believes its customers will pay -- I'm sorry. Strike 19 that. 20 Mr. Unverferth testified that this 21 Stormwater Rate Proposal is based upon what "MSD 22 believes its customers will pay in lieu of addressing 23 a more detailed study to size the scope of the 24 problem." 25 A. So I think the first part of

33 Examination of Brian Hoelscher By Mr. Palans Page 32 1 Mr. Unverferth's statement is really, really 2 important. This whole discussion becomes somewhat 3 moot if we don't get any positive vote for a rate. So 4 I think that was the issue that Mr. Unverferth was 5 conveying, that that is just as much of an important 6 part of what the size of the program would be as to 7 what we believe the current backlog and data is of the 8 issues that we think we may address in the future. 9 Q. And in fact, no detailed study of these 10 issues, these 483 issues was made, was it? 11 A. For this program, as I think has been 12 testified in both District experts and the Rate 13 Commission's experts for a program this size, it would 14 be not prudent and not a good use of the ratepayers' 15 moneys to do detailed analysis and detailed projects 16 for -- analysis for projects that are that far out in 17 the future. 18 Q. I didn't ask you whether it would be prudent 19 or not. I'm merely asking you if this was not based 20 on detailed study? 21 A. Right. And I believe I answered the 22 question the way I wished to. 23 Q. Okay. Very good. In terms of a detailed 24 study, I would like to share with you some information 25 that we learned in my municipality.

34 Examination of Brian Hoelscher By Mr. Palans Page 33 1 We performed a detailed study in stormwater 2 remediation and erosion and we engaged in an 3 engineering firm, the HR Green professional 4 engineering firm which performed a stormwater 5 assessment within our municipality, and the result of 6 that study identified 55 remediation projects having a 7 remediation cost of $113 million. That was a detailed 8 study. 9 Are you aware of the study that was 10 performed within my municipality? 11 A. If your municipality shared those results 12 with us, which I think the City of Ladue does, yes, we 13 would be aware of them. 14 Q. So just comparing my little municipality's 15 study on stormwater assessment, our study identified sites whereas the District has identified projects. Our municipality sized those projects, and it cost them $113 million. And the 19 District has sized this project within the entire 20 district at $562 million. 21 So my little municipality identified about 22 2 percent of the number of projects that the District 23 identified and our cost to remediate those projects is 24 about 20 percent of what the District identified to 25 remediate within a 520-square mile area.

35 Examination of Brian Hoelscher By Mr. Palans Page 34 1 So let me go back, if I might, and ask you. 2 If a detailed study were performed on these projects, do you think that detailed study would 4 size this problem much larger than the $562 million 5 currently under conceptual estimate? 6 A. It could be it is larger, or it could be 7 smaller. I would caution not knowing the exact 8 details of Ladue study based on our experience with 9 other municipalities. There are municipalities who 10 look to solve stormwater problems and wouldn't 11 necessarily either fall under the priority or the 12 purview of MSD. I'm just going on past experience 13 where MSD projects get added into other stormwater 14 concerns when the municipality feels it important to 15 them. 16 So without knowing the details of Ladue's 17 program, which I'm not privy to, I just can't imagine 18 the idea of scaling up Ladue's program to be 19 representative of MSDs. I just don't know that that 20 would be appropriate to do. 21 Q. I'm not trying to scale up Ladue's program 22 to MSD's. I'm merely pointing out that when a 23 detailed assessment was made, the actual costs are far 24 in excess of the project per dollar amount that the 25 District has identified?

36 Examination of Brian Hoelscher By Mr. Palans Page 35 1 A. And I understand that that's what Ladue 2 would tell you in MSD's case when it comes to actual 3 execution of projects. Projects can also go down in 4 cost, or they can disappear by the time we're ready to 5 do detailed work. It happens both ways throughout the 6 district boundaries. 7 Q. I would like to ask you, based upon our 8 record and what we have and all these factors that 9 we've talked about with regard to reliability and the 10 sizing and scope of the problems within the district 11 and the conceptual costs, the minimal amount of 12 detailed information, formulated without doing much 13 engineering, rough estimates, and I'm using words in 14 the record to identify them. 15 Made without regard to impact on 16 inflationary costs for materials, labor, engineering, 17 being performed over the next 30-year period, while 18 the District is receiving hundreds of complaints from 19 customers annually. A rate proposal based on what the 20 District believes the public would support in lieu of 21 a detailed study to size the scope of the problems. 22 Further erosion and flooding and deterioration over 23 the next 30 years which may materially increase and 24 adversely impact the size and scope of these projects. 25 I would like to ask, in your opinion, the

37 Examination of Brian Hoelscher By Mr. Palans Page 36 1 CEO of this district, how reliable is the likelihood 2 that THIS $562 million sizing will remediate or fix 3 all flooding and erosion problems within the district 4 today or over the next 30-year? 5 A. There's a chance that it will. Again, as we 6 expressed -- and one I would take issue with, I think 7 you were quoting or stating as a fact that asking the 8 public to pay for this in lieu of a detailed study. 9 That isn't the District's intent. I believe there was 10 a statement like that. 11 I believe that -- emphatically believe that 12 the size of the program that we're proposing, knowing 13 the scope and breadth of the potential issues and the 14 scope and breadth of the severity of the potential 15 issues and what MSD is proposing, is absolutely the 16 right proposal to put in front of the voters in order 17 to start addressing this issue on day one. 18 Q. I'm not disputing what you believe is the 19 right thing to put in front of the voters. My 20 question was -- and I think you answered it -- that 21 there's a chance that the $562 million based upon the 22 conceptual nature, lack of detail study, all the 23 plethora of all of these factors, there's a chance 24 that the $562 million will remediate all the 25 stormwater problems in the district.

38 Examination of Brian Hoelscher By Mr. Palans Page 37 1 A. There's a chance it will; there's a chance 2 it won't. The same as Ladue's program. There's a 3 chance the dollars you identified may address all the 4 problems. There's a chance the dollars you identified 5 will not. I think that's the nature of the stormwater 6 program. 7 Q. You are a betting man. Would you put your 8 money on the bet that it will solve the problem? 9 A. I am a betting man, and this isn't something 10 to bet on. It's too important to the ratepayers. I 11 think it's important we give them the opportunity to 12 decide to address this -- whether or not to address 13 this in a way they find affordable and that makes 14 sense so we can start relieving the issues that folks 15 are bearing with with regard to stormwater issues. 16 Q. Mr. Hoelscher, I don't disagree with you. I 17 think we need -- I think we need support of a program. 18 My question is the sizing and scope of the problem. 19 If I want to know, will $562 million 20 fix the problem? And I haven't heard in confidence 21 that it will. 22 A. So my answer was, it may or may not when we 23 did -- and I'll go back to the impervious rate as an 24 example. In 2008, we thought there were a billion 25 dollars' worth of problems based on current data we

39 Examination of Brian Hoelscher By Mr. Palans Page 38 1 have. Stormwater moves. It moves district-wide. It 2 moves for a lot of the reasons you stated. It moves 3 for a lot of other reasons, in that things get taken 4 care of outside of MSD's activities. 5 Do we feel that that's an appropriate amount 6 to offer to allow the voters to vote on that will 7 address these problems at a reasonable rate based on 8 everything we know? Yes, I do. 9 Q. I would like to talk to you about the 10 prioritization of projects. It's been a subject of 11 discussion that we've had in the past. And I believe 12 that the 483 CIRP stormwater projects were identified 13 in MSD Exhibit 41-F. 14 As we understand from the testimony and 15 documents that have been produced, these capital 16 projects are prioritized based upon cost benefit 17 rating system; is that correct? 18 A. Yes. 19 Q. And the rationale for that rating system is 20 that the higher priority projects are scheduled sooner 21 in the project than lower priority projects; correct? 22 A. That's the purpose of the prioritization 23 system, yes. 24 Q. And the District, as I understand, typically 25 prepares a rolling five-year block of projects for

40 Examination of Brian Hoelscher By Mr. Palans Page 39 1 completion, and it updates that annually; correct? 2 A. Correct. 3 Q. And as I understand the record, you -- and I 4 mean you, the District -- you look at a problem and 5 you take into account the severity of the problem, how 6 often it occurs, whether it's flooding to a home, a 7 structure, or a roadway. If so, it gets more points 8 under the system than if it's merely some water 9 sitting in somebody's yard; is that correct? 10 A. All those instances you indicated have a 11 different benefit value, yes. 12 Q. And I personally like to call this 13 prioritization system the scorecard. So the scorecard 14 in my -- do you use that term internally "MSD 15 scorecard" at all? 16 A. We can in the future. I am -- it's a 17 perfectly acceptable method Q. Okay. 19 A. -- of terminology. 20 Q. Okay. And the District's factors comprising 21 the scorecard or scoring system which forms the basis 22 for that scorecard has been written and reviewed over 23 the years by experts, and that's as indicated in MSD 24 response to the fourth discovery request of the 25 Commission; is that correct?

41 Examination of Brian Hoelscher By Mr. Palans Page 40 1 A. Yes. 2 Q. And this prioritization system was upgraded 3 by MSD and Parsons. Who's Parsons? 4 A. Parsons Water & Infrastructure, a large 5 national consultant firm. 6 Q. So it was upgraded by MSD and Parsons in , as I understand, to reflect the various problem 8 categories; correct? 9 A. If that's what the, again, if that's what 10 the answer was in the discovery request, then yes. 11 Q. And the prioritization system as described 12 in MSD 30-J and 30-K -- and that's a prioritization 13 schedule that you provided -- was established as part 14 of the 2010 report, and it's a system you currently 15 use; correct? 16 A. Yeah. I believe so. And if that was our 17 answer, then yes, that's correct. 18 Q. And you agree as stated in the District's 19 position as set forth in the response to the current 20 discovery request from the Commission -- it's 21 Interrogatory 12 or Request No that the 22 prioritization system or scorecard used for these 23 capital projects and prioritizing these projects is 24 fair and equitable; correct? 25 A. Yes.

42 Examination of Brian Hoelscher By Mr. Palans Page 41 1 Q. Because it's a written procedure 2 consistently implemented; correct? 3 A. Correct. 4 Q. And it's intended to provide the greatest 5 benefit for the court -- greatest benefit for the 6 cost; correct? 7 A. Correct. 8 Q. And it was developed by qualified experts in 9 the field of stormwater engineering and consistent 10 with industry practice; correct? 11 A. Correct. 12 Q. So in your opinion is this prioritization 13 system fair? 14 A. Yes. 15 Q. Is it defensible? 16 A. Yes. 17 Q. Is it objective? 18 A. Yes. 19 Q. Does it work? 20 A. Yes. And it has worked for those areas that 21 we've been working on these type of projects within 22 those areas where we were collecting taxes to do these 23 projects. 24 Q. We've talked about where we've been and 25 where we are with respect to the adequacy of assessing

43 Examination of Brian Hoelscher By Mr. Palans Page 42 1 size and scope or prioritization. Now I would like to 2 talk about where we're going. 3 We said at the outset that we're all here 4 because we share a common goal, and that is to fix or 5 remediate all the floodings and erosion problems 6 within the district. And we want to fix or remediate 7 these problems within the district as soon as 8 possible. Do you agree that that's why we're here 9 today? 10 A. As soon as -- I want to alleviate them as in as quick of a manner as the public decides is 12 appropriate -- that is appropriate to spend on that 13 particular program. 14 Q. So we have 483 capital projects, and they 15 have been prioritized under the MSD scorecard with 16 budgeted costs aggregating $562 million; correct? 17 A. We've identified issues of that amount, yes. 18 Q. And the timeline to remediate all these 19 projects is approximately 30 years; correct? 20 A. Just with a quick simple math calculation, 21 yes. 22 Q. With a proposed stormwater rate, which if 23 approved, will generate $30 million revenue each year; 24 correct? 25 A. Yes.

44 Examination of Brian Hoelscher By Mr. Palans Page 43 1 Q. With regard to the source of funds, there 2 are no external borrowings; right? 3 A. Correct. 4 Q. There's no third-party funding; right? 5 A. There may be, on occasion, we have 6 third-party funding that comes in. That's possible 7 it'll provide additional funds to pursue the programs. 8 There are occasions where that occurs. 9 Q. And Mr. Unverferth previously testified and I quote him -- and this is in reference to 11 MSD Exhibit 36, the April 4 transcript. "This lack of 12 funding to address stormwater remediation has been 13 around a long time. Some projects have been here over years." 15 Do you recall that testimony? 16 A. Yes. 17 Q. Given the lack of funding and the District's 18 limited resources to address the stormwater 19 remediation needs, do you believe it would be a good 20 policy decision on the part of the District to 21 encourage third-party funds to contribute to the 22 remediation problem? 23 A. Yes. 24 Q. If third-party funds were encouraged to be 25 invested in stormwater capital projects, affected

45 Examination of Brian Hoelscher By Mr. Palans Page 44 1 projects could be completed faster; correct? 2 A. More projects could be done in a given year. 3 I guess that means faster. Yes. 4 Q. And the use of third-party funds would 5 encourage third-party partners within the district to 6 help us remediate our stormwater problems, would they 7 not? 8 A. Yes. I assume it would, yes. 9 Q. And the use of third-party funds could 10 supplement the available resources that the District 11 has; correct? 12 A. Well, I would take your term of "teaming" 13 being they could also solve the problems at the same 14 time that MSD is solving the problems invariably, 15 except in rare instances, outside sources of funding 16 have a different priority system, different set of 17 standards by which they want to have their money 18 spent. 19 So I think anything we can do to team 20 together and make sure those are done at the same time 21 to solve those problems quicker would be better. 22 Q. In your surrebuttal testimony today in your 23 very first answer you state: "The MSD Charter, 24 Exhibit MSD 4, provides broad powers to the District 25 to ensure, 'adequate stormwater drainage throughout

46 Examination of Brian Hoelscher By Mr. Palans Page 45 1 the district.'" 2 Do you agree that's your testimony? 3 A. Yes, sir. 4 Q. And you cite Article 3, Section 3.020(1) of 5 the Charter for this position; correct? 6 A. Correct. 7 Q. And we agree that we don't have adequate 8 stormwater drainage throughout the district today. 9 That's why we're here; correct? 10 A. Correct. 11 Q. In your second answer in MSD No. 54, your 12 surrebuttal, you go on to reference Article 3 of the 13 Charter, Section 3.020(2) which empowers the District 14 to "Provide an effective and advantageous means for 15 ensuring within the district with adequate stormwater 16 drainage and to take, 'any and all such steps as the 17 Board may deem necessary and proper to effect the 18 purposes hereof.'" 19 Is that correct? 20 A. Correct. 21 (The following was transcribed from the 22 live proceedings.) 23 Q. (By Mr. Palans) With respect to third-party 24 funding and your response to Question 3 of your 25 surrebuttal, you state: "In an effort to be fair and

47 Examination of Brian Hoelscher By Mr. Palans Page 46 1 reasonable to all classes of ratepayers, MSD has 2 always been receptive to teaming with other entities 3 in the full or partial outside funding of stormwater 4 projects." 5 Right? 6 A. Correct. 7 Q. And these individuals, other entities the 8 District might team with, would include individuals; 9 yes? 10 A. Yes. 11 Q. Municipalities; yes? 12 A. Yes. 13 Q. Homeowner associations; yes? 14 A. Yes. 15 Q. Nonprofits; yes? 16 A. Yes. 17 Q. As well as public or private companies; 18 correct? 19 A. Correct. 20 Q. And all of these entities should be 21 encouraged to remediate, assist the District in 22 contributing funds to address our problems; correct? 23 A. They should be encouraged to team with the 24 District so that the expenditure of the dollars by any 25 of these entities can make things go faster and get

48 Examination of Brian Hoelscher By Mr. Palans Page 47 1 things completed. 2 Q. You go on to state in Question 3 response: 3 "In calculating the cost of a project and determining 4 the benefit cost ratio, cost shall always be the cost 5 to complete the project regardless of the source of 6 funding." 7 And that's your testimony; correct? 8 A. Yes, sir. 9 Q. I would like to explore that a little bit 10 with you. In the Rate Commission's fourth discovery 11 request to the District which was MSD 50(a). The Rate 12 Commission asked you to "Explain how the contribution 13 of private funding would affect a project score in the 14 District's prioritization system. 15 "For example, if a project score projects a 16 cost to the District of $15 million and a third month 17 party proposed to provide $10 million to reduce the 18 District's cost to $5 million, how would the project's 19 priority be affected?" 20 And your response was: "See rebuttal of 21 Brian L. Hoelscher, Exhibit 54." 22 Right? 23 A. I don't have it in front of me, but I trust 24 that you're reading it properly. 25 Q. And your surrebuttal that I referenced a