HomeMy WebLinkAboutOrdinance 7678 ORDINANCE NO.
AN ORDINANCE AMENDING ORDINANCE NO. 7401 BY PROVIDING
FOR TEMPORARY RATES PENDING CITY COUNCIL ACTION ON THE
MAJOR RATE INCREASE REQUESTED BY LONE STAR GAS COMPANY
AND CLARIFYING THE EFFECTIVE DATE FOR ANY ADJUSTMENTS
AUTHORIZED AND PROVIDING AN EFFECTIVE DATE.
WHEREAS, the City Council as the Regulatory Authority before
whom Lone Star's general rate increase request is pending, may,
within its discretion, under Section 43(d) of Article 1446(c)
(Public Utility Regulatory Act) , Revised Civil Statutes, fix tem-
porary rates for any period of suspension as ordained by Ordinance
No. 7660; NOW THEREFORE,
BE IT ORDAINED BY THE CITY COUNCIL OF THE
CITY OF FORT WORTH, TEXAS:
SECTION 1.
That until the City Council acts on the facts to be adduced
during the course of the hearing upon the pending general and
major rate application filed by Lone Star Gas Company on October 31,
1977, and fixes a new rate schedule, the following rates are deter-
mined to be fair, just and reasonable and Section 2 of Ordinance
No. 7401 accordingly, should be and the same is hereby amended so
that hereafter the same shall read and be as follows:
"SECTION 2.
"For all gas consumed on and after January 1, 1978 and billed
on and after February 1, 1978, all persons, firms, corporations or
_associations of persons engaged in the business of furnishing, dis-
tributing or delivering natural gas to residential and commercial
consumers in the City of Fort Worth are hereby authorized to charge
for-said service in accordance with the following schedules:
"A.
For Service Exclusive of Consumption for Air Conditioning Purposes
"First 1,000 cu, ft. (1 Mcf) or fraction thereof $ 3.0051
"All additional consumption at per Mcf rate of $ 2.5051"
The foregoing rates recognize a return to the Fort Worth
Distribution System of $1.2170 on the first Mcf and a $ .7170 on
all additional Mcf. Additionally, the foregoing rates recognize
a base gate rate of $1.4883 (gas cost $1.1802 + transmission
cost of service $.3081) established by the Railroad Commission
in GUD 683 and a Gas Cost Adjustment (without any out-of-period
adjustments) of $ .2998 as reported December 15 1977.
"B.
"For Consumption for Air Conditioning Purposes
" (1) For quantities of natural gas less than 8,000 cubic feet con-
sumed by residential customers using gas for air conditioning pur-
poses during billing periods between the meter reading dates in May
and October of each year, the rates prescribed in Section 2A of this
Ordinance shall be charged.
" (2) For quantities of natural gas in excess of 8,000 cubic feet con-
sumed by residential customers using gas for air conditioning purposes
during billing periods between the meter reading dates in May and
October:
" (a) 1978, the rates shall be 95/ of the rate shown in Section 2A
of this Ordinance.
" (b) 1979 and subsequent years the rates shall be the rate shown in
Section 2A of this Ordinance.
" (3) For quantities of natural gas separately metered and consumed by
commercial customers for air conditioning purposes during billing per-
iods between the meter reading dates in May and October of each year,
the rate shall be that shown in B(2) above.
" (4) For quantities of natural gas not separately metered and con-
sumed by commercial customers for air conditioning purposes during
billing periods between the meter reading dates in May and October
of each year, the rate shall be that shown in B(2) above applied to
volumes computed as follows:
June 8 Mcf per nominal ton installed capacity*
July 9 Mcf "
August 9 Mcf "
September 8 Mcf "
October 5 Mcf "
*Installed capacity shall mean name-plate capacity of the plant
normally and regularly used for maximum conditions and does not in-
clude standby or unused facilities. The Mcf so computed shall not
exceed 95% of the total monthly consumption. All gas consumed in
excess of the quantities determined above shall be billed in accord-
ance with Section 2A of this ordinance.
"Special Provisions and Adjustments
" (1) No gas bill will be rendered to any residential or commercial
consumer served under the above rates not consuming any gas during
any monthly billing period, except that where customer's only use of
gas service is for an outdoor grill and/or a fireplace starter, the
rate specified for the initial increment of consumption (the 1000 cu.
ft. rate step) in paragraph 2A of this ordinance, shall constitute a
minimum monthly bill.
" (2) Bills are due and payable when rendered and if not paid within
20 days of the date shown on the bill as the 'present meter reading'
date or the 'for service through' date, subjects the customer to im-
mediate termination of gas service unless they have made other payment
arrangements with the Company. Restoration of service is subject to
the Company's reasonable regulations and charges as authorized in
paragraph C(4) below.
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" (3) The above rates are applicable to each residential and commercial
consumer per meter per month or for any part of a month for which gas
is used at the same location.
"(4) In addition to the aforesaid rates, Company shall have the right
to collect such reasonable charges as are necessary to conduct its
business and to carry out its reasonable rules and regulations in effect.
A current copy of such charges shall be filed with the Consumer Protec-
tion Division of the City of Fort worth.
" (5) The amount of each monthly bill computed at the above rates shall
be subject to the following adjustments -
"PROVIDED, the City Council takes no action to suspend, modify or
defer such adjustment after being advised thereof and prior to its taking
effect under the provisions of paragraph C(6) below; and
"PROVIDED further that the Company shall credit to current resi-
dential and commercial customers any amount collected pursuant to the
adjustment authorization hereinafter set out which is subsequently de-
termined to be excessive, invalid or unreasonable by order of the Texas
Railroad Commission or by final judgment of a court:
" (a) Plus or minus the amount of any increase or decrease, re-
spectively, above or below the City Gate Charge recognized herein as
being $ 1.7881 per Mcf (Base Gate Rate of $1.4883 per Mcf as recognized
by the Texas Railroad commission in GUD No. 683 plus a GCA effective
December 20 , 1977, calculated under the terms of GUD No. 588, without
out-of-period adjustments, of $.2998 per Mcf) . Such increase or de-
crease being either:
"i. An amount expressed in dollars or cents per Mcf
specified and authorized by the Texas Railroad Commission which is
neither pending protest nor being litigated in the courts; or
"ii. An amount expressed in dollars or cents per Mcf
computed and arrived at utilizing the Purchased Gas Cost Adjustment
Rule as contained in and promulgated by Exhibit 'A' to the Texas
Railroad Commission Order in GUD No. 588 dated June 30, 1975, and only
costs for gas actually purchased during the preceding calendar month
('Basing Period' as that term is used in said Exhibit 'A' ) .
" (b) Plus an amount equivalent to the proportionate part of any
new tax or increased tax, or any other governmental imposition, rental,
fee or charge (except State, County, City and special district ad
valorem taxes and taxes on net income) levie-d, assessed or imposed
subsequent to January 1, 1978, upon or allocable to the Company's
distribution operation by any new or amended law, ordinance or con-
tract.
" (6) No adjustment as contemplated by paragraphs C(5) (a) and (b) above
shall become effective until the first of the month following the
Company's written advice to the City Manager of its intention to make
such adjustment and in no event in less than ten (10) days following
receipt of such advice. Upon receipt of such advice, the City Manager
shall apprise the City Council thereof and make any recommendation he
deems appropriate in the premises for the Council's consideration and
and appropriate action. If the Council authorizes such a change in
-3-
rates either by inaction or by specific authorization, the adjust-
ment authorized may become effective as to gas used and consumed
after the effective date as herein specified. The authorization
for adjustments herein contained notwithstanding, NO ADJUSTMENT
RESULTING IN A RATE INCREASE MAY EVER BE APPLIED RETROACTIVELY,
VIZ. TO GAS ALREADY USED AND CONSUMED.
" (7) Failure of the Company to apply any adjustment shall not con-
stitute a waiver of the Company's rights from time to time, or at
any time, to make any adjustment authorized, in whole or in part,
in any subsequent monthly bill that may be applicable to such bill."
SECTION 2.
That as hereinabove amended, Ordinance No. 7401 shall remain
in full force and effect.
SECTION 3.
That this ordinance and the amendments to Ordinance No. 7401
herein ordained shall take effect on and after the date of passage
and publication as required by law.
APPROVED AS TO FORM AND LEGALITY:
r
City Attorney
ADOPTED: 04-c�. it Go
EFFECTIVE:
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INFORMAL REPORT TO CITY COUNCIL MEMBERS No. 3053
"„PT[PFO
`of�fORT�, To the Mayor and Members of the City Council December 16, 1977
V�S
Subject: LONE STAR GAS COMPANY INTERIM RATE
[t3
On December 13, 1977, the City Council was presented with a draft ordinance
amending Ordinance 7401 by providing temporary rates pending City Council
action on the major rate increase proposed by Lone Star Gas Company. The
draft ordinance provided for an effective reduction of $.0478 per Mcf in
the burner tip rate approved in Ordinance 7401. The ordinance also provided
for recognition of Texas Railroad Commission Order GUD 683 except for a
5p surcharge contained in that order. The effect of the draft ordinance
would be to set an effective first Mcf rate of $3.0048 and all other Mcf
rate of $2.5048 to become effective on a date to be determined by the City
Council. Since November 1, 1977, the effective rate in Fort Worth for the
first Mcf has been $2.9556 and all other Mcf are at $2.4556 each (based
on September 1977 gas costs).
The staff recommends that the City Council approve a rate structure based on
GUD 683 as proposed in the draft ordinance of December 13. However, analysis
of the rate request filed by Lone Star Gas Company on October 31, 1977, as
amended, appears to provide a basis for amending even further the burner tip
rate set by Ordinance 7401. Lone Star has provided to the City information
that approximately 78 percent of the Rate Base for the Fort Worth System is
in the City of Fort Worth (see attachment A). Based on Ordinance 7401, this
means the City of Fort Worth has a Rate Base of 78 percent of $33,145,546 or
$25,853,526. Therefore, the authorized earnings in the City of Fort Worth
for Lone Star under ordinance 7401 would be $1,939,014 (7.5y of $25,853,526).
The following is a calculation of the potential reduction in the burner tip
rate:
Earnings reported by Lone Star for the System
(Exhibit 4 Revised) (See Attachment B) $2,976,014
Assume that 85.8% of System earnings are City
of Fort Worth (based on ratio of revenue in City
to revenue in the System) (See Attachment C) $2,553,526
Rate of return in City of Fort Worth 9.88%
($2,553,526 a $25,853,536)
Authorized return in City (7.5y of $25,853,526) $1,939,014
Net Earnings in City in excess of Authorized
Amount $ 614,133
ISSUED BY THE CITY MANAGER FORT WORTH, TEXAS
-INFORMAL REPORT TO CITY COUNCIL MEMBERS No.3053- Page 2
4M(,P T(q(O
;oF40Rl�o To the Mayor and Members of the City Council December 16, 1977
TaxAy Subject: LONE STAR GAS COMPANY INTERIM RATE
Revenue reduction required to reduce earnings to
authorized amount (Adjusted for franchise, street
rental and Federal Income Tax effect at .48882) $1,257,133
Rate per Mcf (15,997,005 Mcf sold in City) excess
over requirements $.0786 each
Based on this analysis the staff recommends that the Council reduce the
increment between the base gate rate and the burner tip rate recognized
in ordinance 7401 by the $.0786 per Mcf. By taking this action, the Council
will be finding that an increment of $1.217 above the base gate rate of
$1.4883 as found in GUD 683 is adequate for the first Mcf and that an incre-
ment of $.717 is adequate for all additional Mcf. If the Council wishes to
adjust the burner tip rate by this amount ($.0786) rather than the $.0478
per Mcf originally contained in the draft ordinance of December 13, 1977,
the effect would be a rate of $2.974 per Mcf for the first Mcf of consumption
and a rate of $2.474 for each additional Mcf of consumption (recognizing
only October gas costs). This recommendation is based entirely on data sub-
mitted by Lone Star Gas Company which have not been adjusted by the staff.
Another approach to determining a possible change in the burner tip rate
might be made on the basis of revenues rather than earnings. Although the
staff does not recommend this approach it is presented for your information.
The staff is of the opinion that it would be difficult to defend this approach
if it were challenged. The following tabulation uses the revenue approach
to estimate a possible reduction:
Ordinance 7401 Test Year Revenue (1975) $57,067,958
Increase in Revenue Authorized by Ordinance 7401
to bring earnings to a fair rate 5,333,458
Total Revenue Authorized #7401 $62,401,416
Actual System Revenue Realized (12 months ended
6/30/77) $70,313,688
Excess Revenue Collected in System over authorized
by Ordinance 7401 $ 7,912,272
ISSUED BY THE CITY MANAGER FORT WORTH,TEXAS
.INFORMAL REPORT TO CITY COUNCIL MEMBERS No.3053- Page 3
,.p.`"•a
yo�,fORT,�, To the Mayor and Members of the City Council December 16, 1977
"rexPys Subject: LONE STAR GAS COMPANY INTERIM RATE
Due to the Gas Cost Adjustment policy in ordinance 7401 as much as 85%
of increases in revenue for bone Star may be attributed to a pass through
of gas costs on which there is no profit. In the twelve months ended
6/30/77 Lone Star had an increase of $7,046,834 in gas costs over the
estimate used in developing ordinance 7401. If we assume that 85 percent
of the increased gas cost is included in the $7,912,272 of excess revenue
collected, the balance of $1,922,463 of excess revenue over authorized
might be caused by higher rate than necessary. It cou.l.d also result
from cold weather or new business or other reasons. If it is the result
of higher rates the excess is $.096 per Mcf based on sales of '20,003,604
Mcf in the Residential and Commercial category in the Fort Worth system.
The draft ordinance presented to the Council on December 13 gave recognition
to the cost of gas in the month of October 1977. The City has subsequently
received November's gas cost statement and before the end of December the
Council will have to act upon Lone Star's request for a GCA in January
based on November gas costs, if the subject is not addressed in setting a
temporary rate. The Council may want to use November gas costs in the
new ordinance and make the ordinance effective with the first billing
cycle in February, 1978. To do so the Council would choose to recognize
the November gas costs effective with January 1 consumption and make this
a part of the new ordinance. If this is done, the burner tip rate would
be $3.0051 for the first Mcf and $2.5051 for all additional Mcf utilizing
the full reduction of $.0786 per Mcf described above or an increment of
$1.217/$.717,above the base gate rate. To prevent the potential back
charge from accumulating to an undesirable level the staff recommends
this course of action to the Council. The weather is so much warmer
this heating season that Lone Star earnings may already be impacted to
a significant degree and it would be undesirable to impair their ability
to purchase gas.
The full rate case presently being conducted will provide a clear picture
for the Council of what the rates should be. In the meantime, adoption
of the proposed amendment to Ordinance 7401 setting interim rates at
either $2.974 based on October gas costs or $3.0051 based on November
gas costs appears to be a responsible course of action based solely on
information provided by Lone Star.
Summary
The staff finds that the earnings of Lone Star Gas Company in Fort Worth
for the twelve months ended June 30, 1977, were probably in excess of the
authorized rate by some $.0786 per Mcf of Residential or Commercial con-
sumption. It is recommended that the City Council recognize GUD 683 as the
ISSUED BY THE CITY MANAGER FORT WORTH,TEXAS
INFORMAL REPORT TO CITY COUNCIL MEMBERS No. 3053- page 4
„hPTigfJ
oFfORT 9 To the Mayor and Members of the City Council December 16, 1977
xTfxPy�
Subject: LONE STAR GAS COMPANY INTERIM RATE
e is
basis for gas costs in Fort Worth and amend Ordinance 7401 to reflect a
reduction of $0.0786 per Mcf in the burner tip rate. The staff also
recommends that November gas costs be recognized in the amendment to
Ordinance 7401.
The effect of these actions would be to set a burner tip rate of
$3.0051 for the first Mcf and $2.5051 per' Mcf for all additional Mcf to
become effective with January 1978 consumption and February 1978 billings.
If the Council chose to continue setting gas rates under Ordinance 7401
and GUD 588 the comparable rate would be $3.0242 and $2.5242.
If additional information is required, it will be supplied upon request.
Respectfully su itted,
R. N. Line �'�
City Manager
RNL:j c
Attachments -3
ISSUED BY THE CITY MANAGER FORT WORTH,TEXAS
INF DRMAL REPORT TO CITY COUNCIL MEMBERS No. 3046
December 12 1977�E FORT�A To the Mayor Members of the City Council
3�
� xAg� Subject: LONE STAR GAS GCA POLICY
Id7l
During the Council meeting of November 29, 1977, there were some questions
raised about the proposed GCA for Lone Star Gas Company for December. Due
to the shortness of time available the Council did not have time for a full
discussion of the issues involved. To assist the Council I asked the Director
of Finance to prepare a written report to me of the background material and
his recommendations in the matter. His report is attached for your informa-
tion.
It should be pointed out that I do not necessarily agree with his suggestion
about transferring the primary responsibility for utility regulation to the
Department of Law. An alternative approach would be to create a separate
division of Utility Regulation as existed at one time and staff it as neces-
sary and place it under the Assistant City Manager for Finance. If this were
to be done I would recommend that at least two positions be created and staffed.
One staff member should be educated and experienced in utility rules and regu-
lation and one should be educated and experienced in economics and finance.
If additional information is desired, it will be supplied upon request.
Re ectfully subm- ed,
R. N. Line �-
City Manager
MM:ms
Attachment
ISSUED BY THE CITY MANAGER FORT WORTH,TEXAS-
INTER-OFFICE CORRESPONDENCE
TO Mr. R. N. Line DATE December 9 1977
City Manager
FROM Morris C Marson TIME
Assistant City Manager/Finance
SUBJECT ].ONE STAR GAS GCA FOR DECEMBER, 1.972..
Since the explanation I presented about the December GCA was not very
clear, I am writing this memo to you to more fully describe my concern
with the approach taken in the ordinance presented to and adopted by
the Council.
The basic ordinance governing the GCA question is Ordinance No. 7401
adopted by the Council on August 9, 1976. The ordinance and the M&C
(G-3133) recommending the ordinance, were prepared in detail by the
Department of Law, and very explicitly identified the authorized City
Gate Pate to be $1.3010 per Mcf. In addition, Lone Star was authorized
to adjust the GCA for additional current period gas costs unless the
Council took action to suspend, modify or defer such adjustments.
On February 22, 1977 the Council was requested by one of its members
to modify the proposed March GCA and continue it at the February level.
The Department of Law was asked to comment about this proposed modifica—
tion. Following are certain relevant quotations from the comments made
by the Department of Law:
"The relevant statute in this matter is'Article 6058, Revised Civil
Statutes, which provides as follows:
'Art. 6058. Appeal from city control.
'When a city government has ordered any existing rate reduced,
the gas utility affected by such order may appeal to the Com—
mission by filing with it on such terms and conditions as
the Commission may direct, a petition and bond to review the
decision, regulation, ordinance, or order of the city, town
or municipality. Upon such appeal being taken the Commission
shall set a hearing and may make such order or decision in
regard to the matter involved therein as it may deem just
and reasonable. The Commission shall hear such appeal de
novo.
In discussing the specific proposal, the following additional comments
were made:
"Adoption of the attached proposal is within the Council's 'sound
discretion' from a legal standpoint. However, the following are
matters that should be considered:
Continued
Mr. R. N. Line
December 9, 1977
114. To defer gas costs which the company is clearly entitled to
recover pending outcome of an inquiry of unknown duration
based upon suspicion or surmise would not seem to be exer—
cising the 'sound discretion' which the Council should exer—
cise in this matter. It would most assuredly invite Lone Star's
appeal to TRC for relief and the City of Fort Worth stands
to lose much more in having the Railroad Commission tinkering
with our gas rates than we can hope to gain.
"5. In any event, prudence would dictate that Lone Star be given
an opportunity to present its views, position, figures or
what have you prior to the Council taking any action on the
proposal.
"Finally, I would sound a note of caution from the consumer's view—
point. To defer payment of a gas bill during a period when gas
costs are rising as rapidly as they are, with no substantial basis
to believe the bill is not justly due and therefore will not have
to ultimately be paid, is to gamble on the weather and other factors
equally imponderable. It borders on recklessness."
The Council did, however, adopt the proposal submitted and "froze" the
GCA at the February level and directed that an analysis be made of Lone
Star's operating results. The February GCA rate of $.2570 per Mcf was
continued until June 1, 1977, at which time it was increased to $.3289
per Mcf based on the cost of gas purchased in April and the provisions
of Ordinance No. 7401. For July the GCA was reduced to $.3059 per Mcf
based on the cost of gas in May and. Ordinance No. 7401.
On July 14, 1977 the staff proposed in Informal Report No. 2943 that
the Council take appropriate action to eliminate the GCA section of
Ordinance No. 7401 until Lone Star was able to equalize rates in the
Fort Worth system. In the Pre-Council session on July 19, 1977, other
personnel suggested that the pass—through GCA be continued at $.3059
per Mcf through August 1977, and that an ordinance be prepared elimin—
ating the GCA clause from Ordinance No. 7401. An M&C was prepared (M&C
0-3516) containing these recommendations and adopted by the Council
on July 26, 1977.
Some of the discussion on July 19, 1977 and July 26, 1977 centered around _
the impact of an order issued on July 5, 1977 by the Texas Railroad Com—
mission regarding Gas Utilities Docket No. 683. The GUD 683 order changed
the base gate rate of the GUD 588 order and made the new base gate rate
$1.4883 per Mcf exclusive of any out—of—period adjustments. The order
also provided for the pass-through of out—of—period adjustments on an
averaging formula so that it will not exceed three cents per Mcf except
Continued
Mr. R. N. Line
December 9, 1977
all out-of-period costs have to be collected within six months. The
order also provides for interest to accrue at 9 percent on unrecovered
gas cost balances due the Company.
In addition, the CUD No. 683 order authorizes Lone Star to collect a
five cent surcharge per Mcf until they recover uncollected gas costs
accrued since January 9, 1977 to the date of the order. The total amount
to be recovered by Lone Star in the City of Fort Worth under this pro-
vision is in excess of $407,000. To date, none of this amount has been
paid.
The adoption of M&C G-3516 on July 26, 1977 had the effect of not only
disallowing the five cent surcharge authorized in CUD 683, but also
disallowed a $.0597 per Mcf gate rate increase authorized by GUD 683.
It is my understanding that the City of Fort Worth was denied a rehearing
on GUD 683 by the Texas Railroad Commission and subsequently appealed
the order to the District Court of Travis County. It is not possible
to predict the outcome of this,appeal, but it could possibly result
in the City being ordered to pay $.0597 per Mcf for all gas consumed
in Fort Worth since July 5, 1977, in addition to the $407,000 accrued
since January 9, 1977.
On August 30, 1977, M&C C-3556 presented three alternatives to the Council
relative to the September pass-through. To continue under CUD 588, the
pass-through would have been $.3276 per Mcf. Lone Star had requested
under GUD 683 a pass-through of $.4373. Councilwoman Shirley Johnson pro-
posed a pass-through of $.2789 per Mcf based on a revision of the base
gate rate authorized by Ordinance 7401. After discussion and observations
from the Department of Law, the Council voted to continue the pass-through
at $.3059 per Mcf in September which meant that for another month the
City was denying the increase authorized in GUD 683.
On September 15, 1977, I prepared Informal Report No. 3000 for your
signature suggesting that we agreed that the $.3059 be continued, which
we thought was the position of the Department of Law. (Our personal
recommendation to you, however, was that the GCA be eliminated until
a new rate structure was established or until the issue was settled as
to whether or not the City can deny the GCA authorized by the TEC.)
Unfortunately, I did not clear Informal Report No. 3000 with the Depart-
ment of Law and the City Attorney and he wrote you (with a copy to Council-
woman Shirley Johnson and to me) on September 19, 1977, explaining why
it would not be wise to continue the GCA at $.3059 and indicating that
the Department of Law was concerned with the $.3059 approved for August
and September. Certain relevant portions of the memo are quoted below:
. .So that the Department's position may be clear, let me point
out the following:
Continued
Mr. R. N. Line
December 9, 1977
"a. The 'freeze' of the proposed August pass—through at the July
level of 30.590 per Mcf was recommended by Mr. Matson to en—
courage Lone Star to bring its rates in the surrounding com—
munities more nearly in line with Fort Worth rates (IR #2943
of 7/14/77 and M&C G-3516 of 7/26/77). The Department of Law
supplied the barest kind of a basis for denying a pass—through
of the 2.540 per Mcf.(which was the portion of the proposed
increase for August attributable to increase in the weighted
average cost of gas) by protesting all (not merely the out—of—
period adjustments) of the costs reported in the June Gas
Cost Statement to the Railroad Commission (GUD #1153). Realis—
tically we must expect that at the very least deferral of
this 2.540 per Mcf x July consumption by Fort Worth residential
and commercial customers will have to be paid at sometime
in the future.
'Ib. The continuation of the 'freeze' in the GCA at the July level
of 30.590 for the month of September resulted from a compro—
mise between a pass-through of 32.76¢ per Mcf (listed as Lone
Star alternate on M&C G-3556 of 8/30/77) which the Department
recommended and the proposal to make an adjustment in the
.Base Gate Rate recognized by Fort Worth Ordinance No. 7401
and with such calculation allow a GCA of only 27.98¢ per Mcf.
The Council's action in making this compromise deferred an
additional 2.170 per Mcf x August consumption of Fort Worth
residential and commercial customers which we must realis—
tically expect will have to be paid at sometime in the future.
"With the Supreme Court's comments in mind from the Alvin Case
[(Railroad Commission v. Houston National Gas Corporation, 289
S.W.2d 559, 562 (Tex.1956).], i.e.,
'Utility rates as rules of conduct are prospective only and
do not in any manner involve an 'adjudication' of rights aris—
ing from a 'past' controversy.'
"I see no prospect of avoiding payment of these gas costs which
we specifically recognize in our rate ordinance No. 7401, and regard—
less of the current and ongoing audit of Lone Star's books by Arthur
Young or any possible decrease in rates in the future as a conse—
quence thereof. Until Ordinance No. 7401 and the rates specified
therein are modified, we are going to have to live with that Ordi—
nance and the rates therebyestablished.
Continued
Mr. R. N. Line
December 9, 1977
"There is yet one other factor that deferral of these legitimate
gas costs from summer consumption/billing and payment do not take
into account and that is the higher usage customers in July and
August (those who have gas air conditioning) are the ones that
are getting the biggest break out of this deferral and the ultimate
cost thereof in the form of a surcharge will be borne by others
in the cold winter/high heating usage months.
"With all the foregoing in mind and particularly considering the
approach of cold weather/high gas consumption by residential and
commercial customers, I feel it would be less than prudent to set
the October GCA at anything less than 31.650 per Mcf (see marginal
computations on attachment 2)."
(The 31.651 per Mcf figure was subsequently changed to 32.28¢ per
Mcf by an Interoffice Correspondence from Arthur Petersen to you
with a copy to Mrs. Shirley Johnson, R. H. Aughinbaugh and me.)
Based on this IOC and discussion, the Council voted on September 27,
1977 to ser the GCA at $.3228 per Mcf for October. On October 25, 1977,
the Council approved M&C G-3613 setting the November GCA at $.3588 based
on the reasons cited in the IOC quoted above. In effect, both in October
and November the Council continued the pass—through based on GUD 588
and denied the costs as authorized in GUD 683. During the past two months
we have been giving serious consideration to the possible effect of
these actions in setting the GCA each. month. As you are aware, there
are strong indications now that we will have. to pay back $210,515.67
as a result of the GCA "freeze" covering March, April, May 1977. In
addition, we may have to pay $407,000 under GUD 683 we have not allowed
to this time, plus $.0597 x the Mcf consumed since GUD 683 was issued
on July 5, 1977, and based on the previous comments of the City Attorney,
the gas costs disallowed in August and September may have to be paid.
With these facts in mind, we discussed a possible solution with a repre—
sentative of the Department of Law and a City Council member.
Our concern was with the size of the potential backcharge we are building.
Our input into the process was not based on legal considerations, but
on the financial considerations. With the information provided to us
by Lone Star and reviewed by Arthur Young & Company, it appears that
our base burner tip rate in Fort Worth may be too high. By extrapolation.
of the financial results for the Fort Worth system during the twelve
months ended 6-30-77, it appears that.earnings of Lone Star Gas inside
the city limits of Fort Worth may be greater than the 7-1/2 per cent
authorized .by Ordinance No. 7401. My suggestion, which I thought was
agreed to by Mrs. Johnson and Mr. Petersen, was that we have new finan—
cial findings that indicate the burner tip rate could be lowered and
still produce a 7-1/2 percent return to Lone Star within the city limits.
Continued
Mr. R. N. Line
December 9, 1977
My estimates are that we could lower the burner tip rate some 10 to
15 cents per Mcf and still not lower the earnings rate below an appro—
priate level, if we authorize Lone Star Gas to charge the GCA each month
in accordance with GUD 683 except for the-5 cent surcharge.
The amount of potential back recovery under the 5 cent surcharge author—
ized in GUD 683 is already established and nothing we do will change
that amount. We do incur a potentially larger surcharge each month by
denying the 5.97 cents per Mcf authorized under. GUD 683. If the Council
authorizes the GCA in accordance with GUD 683, we should in effect freeze
the potential back recovery at its present level. If the City wins the
appeal on GUD 683, our citizens could be entitled to a refund under
my proposal. If we lose, my proposal should have the effect of holding
the potential deficit we might be required to pay at its present amount.
Keep in mind that under our GCA practice since July, we have been in—
creasing the potential surcharge each month.
The net effect of what I proposed can be illustrated as follows:
Present Burner Tip Rate 1st Mcf $2.5968
GCA Adopted for .December .3588
Charge for 1 Mcf of .gas $2.9556
All other Mcf would be at $2.4556 each
New Burner Tip Rate based on new findings
(lot reduction) $2.4968
GCA under GUD ,683 (excluding 5¢ surcharge) .4558
Charge for 1 Mcf of gas $2.9526
All other Mcf would be at $2.4526
Under this proposal, the net gas cost to Lone Star customers remains
the same and yet their potential liability for backcharges is probably
frozen at its present level. I:n addition, we have accepted the Texas
Railroad Commission order while we are appealing it. If Lone Star Gas
wants to challenge our new burner tip rate, they will have to prove
that our findings were in error or the process followed was not legal.
Our analysis of their operating results for.the twelve months ended
6-30-77 indicate that it would be difficult to prove that our findings
are in error or that confiscation will result. I am not qualified to
evaluate the impact my recommendation would have on any litigation in
which we are presently involved; therefore, you may want to ask the
Department of Law for their comments..
Continued
Mr. R. N. Line
December 9, 1977'
I recommend that we notify Lone Star, .Gas of our intent to change the
burner tip rate authorized in Ordinance No. 7401. After conducting a
public hearing and reviewing the financial data available, I believe
the Council can legally find a burner tip rate of 10 to 15 cents lower
than at present is adequate to give Lone Star a fair rate of return
within the City of Fort Worth. Ordinance No. 7401 could then be modified
to reflect these new findings and authorize a GCA in accordance with
CUD 683 excluding that 5 cent surcharge.
I apologize for not being able to explain this more clearly to the Council
in the public meeting and to Mrs. Johnson and Mr. Petersen when we met.
As you see, it is a complex subject and it was obvious that I did not
make myself clear in the public meeting. I believe this confusion indi-
cates that the Council should take action to assign all utility .regulation
to the Department of Law since it seems most of the issues are legal
and not financial. Such an action would insure that a similar misunder-
standing over departmental responsibilities would not occur in the future.
The Department of Law could use consultants to assist them in the event
a financial issue rather than a legal question was ever involved in a
rate case. An alternative would be to hire an economist and assign him
to the Department of Law to assist in utility regulation.
I will be happy to meet with. you and anyone else to explain any details
not made clear in this IOC, if you desire
140RRI C. MATSON
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