HomeMy WebLinkAboutOrdinance 6784 ORDINANCE NO.
AN ORDINANCE REGULATING RATES AND CHARGES FOR LOCAL
EXCHANGE TELEPHONE SERVICE FURNISHED BY SOUTHWESTERN
BELL TELEPHONE COMPANY; REPEALING ALL PREVIOUS ORDI-
NANCES PRESCRIBING RATES AND CHARGES FOR TELEPHONE
SERVICE IN THE CITY OF FORT WORTH; AND NAMING AN
EFFECTIVE DATE.
WHEREAS, the Southwestern Bell Telephone Company has
filed an application with the City Council of the City of
Fort Worth to increase its rates within the City of Fort
Worth; and,
WHEREAS, the City Council of the City of Fort Worth, after
public hearing and after due deliberation and consideration
of all of the facts involved in such application, now finds
that the proposed schedule of rates prescribed in this ordi-
nance will provide the Company a fair rate of return upon
the fair value of its property devoted to the service of the
public and make available sufficient additional revenues to
enable the Company to continue to provide for the expanding
telephone communication needs of the citizens of the City of
Fort Worth; NOW, THEREFORE,
BE IT ORDAINED BY THE CITY ODUNCIL OF THE CITY OF FORT
WORTH, TEXAS:
SECTION 1.
Southwestern Bell Telephone Company is authorized to place
in effect the following schedule of rates for local exchange
telephone service in the Fort Worth Zone and in the first
and second tier zones of the Fort Worth Metropolitan Exchange,
said rates to be placed in effect on the 1,1'4b day of
FeL P(,Za ry 1973, or as soon thereafter as may
be appropriate for billing purposes.
Class of Service Monthly Rate
Fort Worth and First Tier Zone:
One Party Business-Flat Rate $21.23
Business Extension -Flat Rate 2.10
One Party Business-Measured Rate 12.40 (a)
Business Extension-Measured Rate 1.25
One Party Residence-Flat Rate 7.33
Two Party Residence-Flat Rate 4.90
Residence Extension-Flat Rate 1.40
Commercial PBX Trunks-Flat Rate 37.15
Commercial PBX Stations-Flat Rate 2.10
Residence PBX Trunks-Flat Rate 12.82
Residence PBX Stations-Flat Rate 1.40
Hotel, Measured PBX Trunks- (Guarantee) (b)
Hotel, Measured PBX Stations 1.25
Semi-Public (coin) 8.49
Semi-Public Extension (coin) 1.50
Semi-Public Extension (non-coin) 1.00
(a) Includes 100 outgoing local messages,
others 7¢ each.
(b) Minimum local message revenue guarantee
at 7j6 each equal to one party business
flat rate service.
Class of Service Monthly Rate
Second Tier Zones:
One Party Business-Flat Rate $22.73
Business Extension-Flat Rate 2.10
One Party Residence-Flat Rate 8.83
Two Party Residence-Flat Rate 5.65
Residence Extension-Flat Rate 1.40
Commercial PBX Trunks-Flat Rate 39.77
Commercial PBX Stations-Flat Rate 2.10
Semi-Public (coin) 9.09
Semi-Public Extension (coin) 1.50
Semi-Public Extension (non-coin) 1.00
Rates and charges for miscellaneous services and equip-
ment shall remain as heretofore established provided,
however, that Southwestern Bell Telephone Company shall
have the right to file from time to time with the
City Secretary and the Director of Public Utilities
different tariff rates and charges for such miscellaneous
services and equipment, such different tariff rates and
charges to become effective 30 days after filing unless
otherwise ordered by the City Council.
SECTION 2.
All ordinances heretofore passed by the City Council of
the City of Fort Worth establishing rates and charges for
telephone service are hereby repealed as of the effective
date of the rates authorized in Section l above.
SECTION 3.
Nothing in this ordinance contained shall be construed
now or hereafter as restricting, limiting or modifying in
any manner the right, power and authority of the City under
the Charter of the City of Fort Worth, the Constitution and
laws of the State of Texas and of the United States to regu-
late the rates and charges of Southwestern Bell Telephone
Company for local exchange telephone service within the City
of Fort Worth.
APPROVED AS TO FORM AND LEGALITY:
City Attorney
ADOPTED by the City Council of the City of Fort Worth,
Texas, on the / r day of J-ml,,, -r, ,f A. D. 1973.
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CITY OF FORT WORTH, TEXAS -�+ � _:. ■�� ��
FINANCE DIRECTOR
CITY HALL
January 10, 1973 FORT WORTH, TEXAS 76102
335-7211 AREA CODE / 817
Mr. R, N. Line
City Manager
City of Fort Worth
Dear Mr. Line:
Attached to this letter is an analysis of the request of Southwestern Bell
Telephone Company for an increase of $8,500,000 in revenues for the Fort Worth
Exchange, The analysis is based on information provided by the Company and
reviewed by the staff.
It is recommended that the Company be authorized an increase of $6,.584,000 in
revenues rather than the $8,500,000 requested, This increase will provide the
Company a rate of return of 7.93 per cent on net book cost.
To generate such an increase it is recommended that the following basic rate
changes be approved:
Present Rate Company Request Recommendation
Two-party residence $ 4.90 $ 5.00 $ 4,90
One-party residence 6,35 8.00 7.33
Private business line 18,00 22,45 21.23
The details of other rate changes and the complete analysis are included in the
attached report, Work papers developed during the analysis are available for
review and discussion at your convenience,
Respectfully submitted,
M. Co Matson
Assistant City Manager
for Finance
MGM/bi4
Attachment
ANALYSIS OF TELEPHONE COMPANY- RATE REQUEST
TABLE OF CONTENTS
PAGE
UTILITY RATE REGULATION RESPONSIBILITIES I-1
Telephone Rate Regulation in Texas
Responsibility of City Council
Responsibility of Telephone Company
ANALYSIS OF RATE REQUESTS II-1
Factors in Rate Making
Determining the Numbers
FINANCIAL REPORT III-1
Annual Earning Comparison
Expense Analysis
Net Plant in Service
SERVICE LEVELS IV-1
Rate Structure
Service Measurements
CONCLUSION AND RECOMMENDATIONS V-1
Rate Base
Rate of Return
Revenue Requirements
PROPOSED RATE SCHEDULE VI-1
ILLUSTRATIONS
FACING PAGE
Annual Comparison III-1
Statement of Value of Property III-4
Basic Rate Schedules VI-1
I-1
I. UTILITY RATE REGULATION RESPONSIBILITIES
The City Council of Fort Worth has been presented with an
application by the Southwestern Bell Telephone Company (Company) , for
an increase in rates to be charged for local telephone service. The
staff has been assigned responsibility for analyzing this request and
presenting recommendations to the Council for action.
TELEPHONE RATE
REGULATION IN TEXAS
To understand the responsibility of the City Council in the
application for a rate increase, it is desirable to review the overall
process. There are three areas of telephone rates, and in Texas each is
regulated separately:
(a) Long Distance Interstate Rates
The Federal Communication Commission (FCC) regulates all interstate
long distance telephone rates. They use the original cost of equipment
less accrued book depreciation as the rate base. Such a rate base is
referred to as net book cost in this report. In arriving at the net
book cost of equipment used, a reasonable separation is made by FCC on the
equipment installed in Fort Worth to divide it properly between local and
long distance service.
(b) Long Distance Intrastate Rates
Long distance rates on calls made within the State of Texas
are not regulated but the Company does file the rates with the State
Legislature. There has been no action taken by the Legislature in recent
years, therefore, for all practical purposes intrastate toll rates are
unregulated except by business judgment.
I-2
(c) Local Telephone Rates
The setting of local rates is the responsibility of the City
Council. Court decisions in Texas have determined that the rate base for
local service is the "fair" value of property used or useful in rendering the
service. This means that in addition to separating the local equipment into
toll and local categories the Council must also decide the "fair" value of
the equipment used in local service. Texas is one of 13 states using "fair"
value while 37 states use original cost as a measure of rate base.
RESPONSIBILITY OF
CITY COUNCIL
The responsibilities of the Council are prescribed by the laws of
Texas, which have been interpreted by various court decisions and
ordinances of the City of Fort Worth.
There are three actions available to the Council regarding the
requested rate increase:
• Approve the requested rate increase as submitted by
the Company,
• Reject the requested rate increase and leave the
rates as presently authorized.
• Approve a rate increase different from the one
requested by the Company.
RESPONSIBILITY OF
TELEPHONE COMPANY
After filing a written request with the City Council as pre-
scribed by law, the Company is required to provide the City with infor-
mation on which to base the decision. The books of record of the Company
may be examined in detail by the City and physical inspections may be
1-3
made of all property and operations. These examinations and inspections
may be made by either City staff members or consultants engaged by the
City for this specific task.
After the City has acted on the request the Company may choose
to appeal the decision, if it does not appear to be fair. If relief is
not obtained from the Council, the Company could leave the City Council
and go to the local District Court with an appeal. Such action would be
predicated on the assumption that the rates approved by the Council were
confiscatory, which would make the Council's action unconstitutional.
II. ANALYSIS OF RATE REQUEST II-1
To analyze the current request for a rate increase a determin-
nation of the factors to be considered must be made and then a careful
study to quantify the factors must be completed.
FACTORS IN RATE MAKING
There are three major factors to be determined in analyzing a
request from the Telephone Company for an increase in rates. Careful
determination of these factors is required to provide a sound basis
upon which to reach a decision as to whether or not a rate increase is
justified and if an increase is justified, how much it should be.
(a) Fair Value of Property Devoted to Public Service
In determining "fair" value there are three elements for con-
consideration. Only one of the elements is not subject to individual
opinion and that is the "Original Cost of the Property". The three
elements are:
• Original cost of the property
• Replacement cost new of the property
• Present physical condition of the property
11-2
The "fair" value of the property in Texas is generally conceded
to be a reasonable balance between the original and replacement cost, new;
adjusted for present age and condition. The concept of "fair", however,
applies equally to the consumer as well as to the company -and therefore
any attempt by utility companies to heavily weight "fair"- value toward
replacement cost new is entirely unwarranted.
(b) Revenue and Expenses Allowable in Rate Making
There are several problems in determining the revenues and
expenses allowed in rate setting. The first consideration is to select
a test year and ensure that expenses and revenue are matched in that test
year. The second major task is to separate revenue and expenses between
long distance and local. And finally it is necessary to determine whether
or not the numbers as presented are accurate and reasonable. In the
request under consideration the year 1971 has been selected as the test
year.
(c) Fair Rate of Return
The last question to be determined is based on 'the findings
of the previous two factors. It is the question of whether or not the
Company is earning a fair rate of :return. While- there, is some subjective
judgment involved in the first two, the last factor, is' almost completely
subjective. Texas law provides guidance to the extent that the rate of
return for local service has to be high enough to, attract ample capital
II-3
for continued operation and it cannot exceed eight percent in any case.
Unfortunately with such a broad guideline the Council is put into a very
subjective decision-making process. The standard practice is to review
what other regulatory agencies are doing and attempt to follow what appears
to be generally accepted practice modified by the Council's judgment as to
what is reasonable in our specific case.
DETERMINING
THE NUMBERS
A detailed audit of the books of the Company would require an
extensive time period, a large staff, and significant expenditures or the
engagement of consultants. The approach selected by the staff in this case
was to review the accounting procedures followed by the Company and then attempt
to relate work done by other regulatory bodies to these procedures. If the
procedures appear to be sound and other reviewers have reached the same
conclusion, it would appear to be reasonable to reach decisions based on
the information gathered from the Company.
(a) Internal Revenue Service (IRS)
The Company prepares a financial statement in accordance with
IRS procedures and this statement is consolidated with the parent corpor-
ation and filed with IRS. As such the books of the Company are audited by
IRS on a regular basis. The numbers used by the staff in their analysis
have been correlated with the numbers used for reporting to the IRS.
(b) Federal Communication Commission
American Telephone and Telegraph Company, the parent of
Southwestern Bell, has been reviewed by the FCC twice in the past 23 months
in conjunction with rate cases. This means that the FCC has studied the
separation procedures followed by the Company to divide the equipment
between interstate toll and local service. Since the FCC allows a rate of
II-4
return for toll service of 8-1/2 to 9 percent on net book cost, it
would be logical for the Company to place as much equipment as reasonable
in the toll category and thus remove it from local service and reduce the
rate base for local service.
(c) Public Accountants Report
The Company is audited annually by certified public accountants
who express an opinion as to the fairness of the Company's financial state-
ments and review the appropriateness of the separation procedures.
(d) Other Regulatory Groups
The Company is being reviewed by other major cities in Texas at
the present time and several have recently completed their reports. Each
of the cities completing their reports, (including those cities using
outside consultants) have accepted the separation procedures followed by
the Company. The separation procedures used by the Company in Fort Worth
are those prescribed by law and published in the National Association of
Regulatory and Utility Commissioners (NARUC) - FCC manual.
(e) Conclusion
The numbers used in Section III of this report appear to be fair
and reasonable based on a review of the procedures followed by the Company
considered in the framework of the review conducted by others having com-
patible interests with the City.
Facing Pg. III-1
ANNUAL COMPARISONS
1971 1970 1969
REVENUES
1. Local Service $43,783,473 $39,343,522 $36,462,504
2. Miscellaneous 3,825,490 3,585,256 3,277,435
3. Uncollectibles 73,104 675,048 57,679
4. TOTAL REVENUES $47,535,859 $42,861,730 $39,682,260
OPERATING EXPENSES
5. Maintenance $ 9,045,791 $ 8,926,606 $ 7,866,214
6. Depreciation (Original Cost-Average) 8,826,514 8,181,575 7,330,291
7. Traffic 1,932,034 1,658,749 1,371,378
8. Commercial 4,087,068 3,411,074 3,015,449
9. General Office 1,221,514 1,134,006 1,071,276
10. Other 3,873,462 2,976,768 2,670,115
llo Gross Receipts Payments-City of Fort Worth 535,041 477,340 464,395
12, Reimbursement Payment-City of Fort Worth 257,147 238,669 232,198
13. Ad Valorem Taxes 2,134,622 2,000,296 1,811,520
14. Other Taxes (Except Federal Income) 2,061,336 1,817,463 1,634,968
15. TOTAL EXPENTSES $33,974,529 $30,822,546 $27,467,804
16, OPERATING INCOME(4 minus 15) $13,561,330 $12,039,184 $123,214,456
17. Annualized Changes - (Income) Expenses 1,413,114 (1,042,394) (190,762)
18. Federal Income Tax Estimated 4,631,287 4,253,152 5,241,078
19, NET INCOME $ 7,516,929 $ 8,8282426 $ 72164,140
Value of Property Devoted to Exchange $136,367,386 $125,822,535 $112,899,557
Operations (Net Book Cost)
Rate of Return 5.51% 7.03% 6.35%
I.II. FINANCIAL REPORT III_l
In developing a recommended rate structure for the Company, it is
necessary to analyze both the operating results and the statement of net
plant in service. The operating profit divided by the value of the net plant
in service yields the rate of return for the Company. Adjustments of the rate
of return can then be made by performing the same calculation with proposed
new operating profit figures. After the required profit is determined that.
will yield a reasonable rate of return, a rate structure can then be developed
that will yield the required profit.
ANNUAL EARNINGS
COMPARISON
On the facing page is a three year summary of operating results
for the Company in the Fort Worth Exchange as reported by the Company. These
figures are based on actual accounting records maintained by the Company for
internal accounting and control and are consistent with the records maintained
for IRS purposes. The Expenses have been separated between local and long
distance in accordance with the principles described �_n the NARUC-FCC
Separations Manual, Line item 17 "Annualized Changes" is an adjustment
made each year to reflect changes on an annual basis that occurred during the
year and thus were not in actual effect for the full twelve months. Such
adjustments are made to insure that the test year represents a full twelve
months of experience on a basis comparable to other years. In 1971 the
adjustment is an increase in expense primarily as the result of the labor
contract signed in the middle of the year. In 1970 and 1969 the adjustment
is a reduction in expense because of dropping of the surtax and an increase
in revenue due to the rate increase granted by the Council.
Based on these Company numbers the rate of return on Net Book Cost
has varied between 7.03 percent and 5.51 percent. At the conclusion of the
high year of 1970, the City Council granted the Company only 62 percent of a
requested rate increase, Even with the granted partial increase in 1971
III-2
the return on investment dropped over 20 percent compared to 1970 results,
Thus it appears that the intent of the Council at that time was thwarted
through cost increases occurring in 1971. A major cost increase occurred
in July of 1971 when the Company signed a new wage contract which increased
annualized labor costs by over $5,000,000.
EXPENSES ANALYSIS
In reviewing the earnings picture it is necessary to examine the
expenses incurred to determine whether or not they are allowable and reason-
able. Certain categories of expenses are frequently examined by regulatory
bodies.
(a) Contributions
During the test year of 1971 the Company gave $68,175 to charitable
institutions. Such contributions are generally expected by the community and
the Company appears to be acting responsibly in making such contributions.
(b) Advertising Expenses
During the test year of 1971 the Company spent $128,400 on adver-
tising. Many suggestions are received from various sources that such expenses
should not be allowed since supposedly the Company does not have any compe-
tition. At the same time it should be mentioned that a certain portion of
the revenue of the Company from special equipment and services is probably
directly attributable to the advertising expenditure. In addition, the
Company also includes revenue and profit from directory sales in calculating
its rate of return. It seems reasonable to assume that directory sales are
probably aided by advertising. Nevertheless, the final decision of whether
or not to allow the advertising expense is a business judgment decision for
the Council to make.
(c) Club Dues for Employees
During the test year of 1971 the Company spent $5,387 on club dues
for various personnel. Such expenses are normally paid by businesses for
III-3
employees where it is considered to be a part of their job responsibilities
to participate in such activities.
(d) Unusual Expenses
During the test year of 1971 the Company paid $252,887 to General
Telephone Company for completing local calls originating in the MetroPlan
territory. Agreement to make this payment did not have prior approval of
the City Council and as such may be considered as a non-allowable cost.
Facing Pg. III-4
STATEMENT OF VALUE OF PROPERTY
DEVOTED TO EXCHANGE OPERATIONS
CURRENT ORIGINAL
PHYSICAL PROPERTY COSTS COSTS
1. Land and Buildings $ 19,419,553 $ 13,073,439
2. Central Office Equipment 76,668,652 59,432,814
3. Station Equipment 45,621,460 36,316,250
4. Pole Lines 6,480,201 4,188,009
5, Aerial Cable 29,998,856 16,842,039
6. Underground Cable 20,633,011 14,665,970
7. Buried Cable 13,118,122 10,698,090
8. Aerial Wire 669,991 641,914
9. Underground Conduit 15,265,019 9,264,333
10� General Equipment 4,047,591 3,455,390
11. TOTAL TELEPHONE PLANT IN SERVICE $231,922,456 $170,578,248
12. Cash Working Capital $ 475,580 $ 475,580
13. Material and Supplies 1,070,713 13,070,713
14, TOTAL PROPERTY DEVOTED TO
EXCHANGE OPERATIONS $233,468,749 $172,124,541
15o Less Depreciation Reserve $ 21,096,782 $ 34,2105,862
16. FAIR VALUE OF PROPERTY DEVOTED TO NET BOOK
EXCHANGE OPERATIONS COST DEPRECIATED
NOT LESS THAN $200,400,000* $137,913,679
*In determining the Fair Value of the property there has been taken into
consideration the current cost of the property, the original cost of
the property, the actual physical condition of the property, any
obsolescence which exists in the property, present economic conditions
and changes therein since the property was constructed, and all other
elements which might affect the present worth of the property. The
preceding is a signed statement by a Company officer.
III-4
NET PLANT IN SERVICE
The Company has provided information to the Council reporting the
value of the Net Plant In Service. An analysis of the information must be
made to determine the fair value of the Net Plant In Service to use as a
rate base.
(a) Fair Value - Company
On the facing page is the "Statement of Value of Property Devoted
to Exchange Operation" as reported by the Company. The footnote describes
the basis on which the Company developed the fair value figure.
(b) Net Book Cost Depreciated
In the column headed "Original Cost" the Company has provided
information about the original cost of the same equipment. These numbers
are based on the actual accounting records maintained for IRS purposes.
(c) Physical Size of Plant
The table below lists comparable figures prepared by the Company
for the past three years to show how the exchange plant is being enlarged.
1969 1970 1971
Net Book Cost $113,928,276 $127,125,014 $137,913,679
Fair Value Claimed by Company 157,700,000 180,100,000 200,400,000
No, of Telephones 432,154 451,716 465,496
Investment per Telephone $330 $353 $370
(d) Cost of Money
The Company is in an industry that requires large amounts of capital
for successful operation. The primary source of capital is through the sale
of debentures. Since 1967 the Company has sold five debentures with interest
ranging from 6.81 to 8.78 percent. Adding these sales to existing debt the
Company now has an embedded debt cost of 6.17 percent. The Company has to
primarily use debt for capital since the earnings rate of return is not
III-5
sufficient to attract equity investors in large amounts. The existing
equity owners and the lenders to the Company are entitled to reasonable
earnings by the Company to make their investments prudent.
IV-1
IV. SERVICE LEVELS
In analyzing the request for a rate increase there are factors
to be considered other than the financial results. The adequacy of service
provided is a major consideration in determining a fair rate of return.
In view of the monopolistic position held by the Company great care must be
exercised to insure that profits are not increased by a reduction in service
levels or that the Company abuses customers because of their unique position.
RATE STRUCTURE
To compare quality of service it is first desirable to establish
a price comparison between similar cities. After prices are established
then a comparison of service levels may be made. The price comparisons
normally are made on the three basic services of one party residence, two
party residence, and business service. Rates for these services in selected
cities for which service statistics are available are as follows:
Fort Sant
Worth Dallas1 Antonio Houston
Private Residence 6.35 7.33 6.40 6.30
Two Party
Residence 4.90 4.90 4.90 5.10
Business Line 18.00 21.23 17.75 17.50
lApproved December, 1972 not in effect yet.
2Rate increase presently being sought in these cities.
SERVICE MEASUREMENTS
A group of statistics designed to measure the quality of telephone
service has been developed. The statistics measure response time for assis-
tance as well as customer reports of equipment malfunction. A comparative
IV-2
listing of major statistics indicate that Fort Worth receives better than
average service. The statistics selected for this analysis are as follows :
o Toll & Assistance - % of calls requiring over 10 seconds to
answer. Indicates customer's ability to get service from
operators.
o Dialtone - % of calls waiting over 3 seconds for dialtone.
Indicates capacity of central office equipment.
o Installation (regular) - % of regular installations requiring
over 5 days to complete. Indicates responsiveness to customer
requests for regular service.
o Installation (special) - % of special installations requiring
over 14 days to complete. Indicates responsiveness to customer
requests for special service.
o Trouble Reports - Number of trouble reports per 100 telephones
per month. Indicates quality of mechanical equipment by
measuring indicated malfunctions.
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JJ O r I cd a) O .,4 H ,C
w U ra P rs+ x x a m r�
Toll & Assistance 10.0 10.5 9.8 10.7 12.8 9.7 10.5 10.5 10.5 9.9 15.0
Dialtone .6 1.3 .9 .5 .9 .3 1.4 1.5 1.2 .5 2,6
Installation(regular) 18 20 4 4 5 3 22 23 19 8 20
Installation(special) 28 39 25 17 26 15 41 31 19 19 40
Trouble Reports 5.6 7.0 6.1 4.7 7.0 5.1 9.0 4.3 6�3 5.1 M
In the table above it can be seen that Fort Worth service is significantly
better than the average as well as being better than most comparable cities.
In each case the lower numbers represent better service than the higher
numbers.
V-1
V. CONCLUSIONS AND RECOMMENDATIONS
The preceding material describes the background for the con-
clusion and recommendations included in this section of the report. It
is believed by the staff that the recommendations are logical in spite
of the subjective nature of much of the analytical process. Due to the
sheer volume and complexity of the Company records a great deal of
reliance has been put on procedures and reviews by other interested
regulatory groups in reaching the conclusions presented.
RATE BASE
The Company has claimed a "fair value" rate base of $200,400,000
based on their appraisal of the current cost of the property devoted to
Exchange operations. The net book cost (original cost less depreciation)
of the property is $136,367,386. In addition the Company has claimed
$1,070,713 of materials and supplies allocated to local inventory and
$475,580 of cash working capital devoted to the Fort Worth Exchange. It
is estimated, however, that these last two items are not valid items for
inclusion in the rate base because of the company practice of billing in
advance for services. At any point in time the Company probably has more
customer advance payments on hand than.the $1,546,293 claimed for inventory
and cash working capital.
In 1970 the Council and the Company approved a recommendation
of the staff that the "fair" value rate base for the Company was
$120,500,000. At that time the net book cost base was $112,899,557.
Since that time the Company has placed into service a gross additional
value of $40,000,000 to the Exchange and charged depreciation of
$17,000,000 against operating revenue. Also during the same period
V-2
$11,600,000 of plant has been retired from service. Based on these
changes in plant investment and using the 1969 "fair" value approved
by the Council of $120,500,000 it is the conclusion of the staff that
present "fair" value for the test year of 1971 is $150,200,000 rather
than the $200,400,000 claimed by the Company.
RATE OF RETURN
It is recommended that the Council disallow the following
items of expense charged to the test year:
Gross After Tax
Payment to General Telephone,
as previously explained $252,887 $121,386
Adjustment for change in
FICA effective 1-1-721 since
it is not a part of the test
year 17,943 9030
Net Increase in Operating Income $270,830 $130,716
On the basis of these adjustments the Net Operating Income for 1971 would
be $7,647,645. Applying this earnings figure to a net book cost of
$136,367,386 produces a return on investment of 5.61%. Based on "fair"
value it produces a return of 5.09%. In 1970 the Council approved a rate
of 7.08% on "fair" value.
REVENUE REQUIREMENTS
To generate the same 7.08 return today would require additional
revenues of $6,209,871 compared to the $8,500,000 requested by the Company.
The City of Dallas recently granted a rate increase on various classes of
telephone service that will provide a 13.85% total gross revenue increase
v-3
to the Company. The same percentage increase in Fort Worth would require
additional revenue of $6,584,000. It is recommended that the Council
authorize an increase of $6,584,000 effective with the Company meeting
Federal Price Commission requirements. Such an increase will permit the
Company to earn 7.20% on "fair" value and 7.93% on net book cost of their
investment in the Fort Worth Exchange, The Federal Communications
Commission recently authorized the Company to earn up to 9% on net book
cost and the City of Dallas after extensive and detailed analysis approved
a rate of return of 7.6% on "fair" value.
Facing Pg. VI-1
BASIC RATE SCHEDULE
Estimated Annual
Basic Rate Schedule Revenue Increase r
Proposed Proposed
Present SWB City
Class of Service Rate Rate Rate Company City
Central & First Tier:
FB-1 Business $18.00 $22.45 $21.23 $1,124,390 $ 816,130
SP-1 Semi-Public .47/day 9.00 8.49 361,256 341,672
MB-1 Measured
Business 10.00 13.00 12.40 72,360 57,888
FR-1 One Party
Residence 6.35 8.00 7.33 3,639,656 2,161,734
FR-2 Two Party
Residence 4.90 5.00 4.90 6,953 -
Hotel Trunks 18.00 22.45 21.23 15,753 11,434
Hotel Stations 1.00 1.00 1.25 - 18,204
Commercial Trunks 27.00 39.29 37.15 674,868 557,356
Commercial Stations 2.05 2.05 2.10 - 23,370
FB-Ext. Business
Extension 2.05 2.05 2.10 - 16,879
NB-Ext. Measured
Bus. Ext. 1.00 1.00 1.25 - 2,178
Coinless B-Ext. 1.00 1.00 1.00 - -
FR-Ext. Res. Ext. 1.35 1.35 1.40 - 70,437
Second Tier:
FB-1 19.50 23.95 22.73 25,098 18,217
SP-1 .52/day 9.60 9.09 7,325 6,923
FR-1 8.05 9.50 8.83 104,243 56,075
FR-2 5.65 5.75 5.65 791 -
Commercial Trunks 29.25 41.91 39.77 304 252
Commercial Stations 2.05 2.05 2.10 - 19
FB-Ext. 2.05 2.05 2.10 - 381
Coinless B-Ext. 1.00 1.00 1.00 - -
FR-Ext. 1.35 1.35 1.40 - 2,316
Total Basic Service Revenue Increase $6,032,997 $4,161,471
VI-1
VI. PROPOSED RATE SCHEDULE
The Company originally requested an increase of $8,500,000.
To produce such an increase the rates shown under "Proposed Southwestern
Bell Rate" in the table on the facing page were requested. To produce
the $6,584,000 recommended by the staff, the rates under "Proposed City
Rate" are required. Charges other than the ones shown are filed as
required with the City, and there is a 30-day waiting period before they
become effective. During the 30-day period the Council may disapprove
any rate change that does not appear to be fair.
For many years the rates for basic service in Dallas and.Fort
Worth have been uniform. The common identity of the area along with the
obvious economies to the Company make this a desirable practice. The
"Proposed City Rate" column reflects the same rate structure approved in
Dallas in December, 1972.
F UNE City of Fort Worth, Texas
DOBBS Mayor ayo U and IVd Council Communication
on"Am
DATE REFERENCE SUBJECT: Request from Southwestern Bell PAGE
� ta. NUMBER Telephone Company for Rate 1
1/15/73 G-2132 Increase Iof
On November 29, 1972, Southwestern Bell Telephone Company filed a request
with the City Council for an increase in revenue of $8,500,000 in the Fort
Worth Exchange. The Council requested that the staff analyze this request
and submit a recommendation.
Attached to this Mayor and Council Communication is the report of the staff
analyzing the request. The staff recommends a total revenue increase of
13.85 per cent spread across the entire rate structure. For many years the
Cities of Fort Worth and Dallas have worked together on requests from the
Telephone Company. The close economic relationship of the two cities appears
to justify the two cities having similar rates, and the attached report
recommends that the practice be continued.
The Dallas City Council has approved an increase of 13.85 per cent and the
rate structure shown in the attached report. The Federal Price Commission
is now making a determination of when the rates are to become effective in
Dallas. Regulations of the FPC are not clear as to whether or not the
Telephone Company is required to wait 60 days after approval by the Council
before implementing the increase. The attached letter from Southwestern
Bell states that it will comply with the regulation of the Economic
Stabilization Act of 1970 before implementing any rate increase in Fort
Worth.
Recommendation
It is recommended that the Council accept the attached report and adopt
the proposed ordinance granting an increase of $6,584,000 in annual revenues
to Southwestern Bell Telephone Company for the Fort Worth Exchange and
establishing the rate schedules shown.
It is recommended that the Council authorize the rates to be implemented
60 days after adoption by the Council or prior to that time if the Federal
Price Commission indicates that its regulations have been satisfied prior
to that time.
RNL:ms
Attachments
SUBMITTED BY: DISPOSITION B UNCIL: I PRO ED BY
PR VED ❑ OTHER (DESCRIBE)
�• 1l I�l "IETARY
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DA/T`
CITY :MANAGER �XW