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Res 160-82 9/21/1982RESOLUTION NO. /647--442 RESOLUTION APPROVING AND AUTHORIZING THE CITY MANAGER TO EXECUTE AN AGREEMENT WITH JOE M. NALL & ASSOCIATES, INC. FOR PERFORMANCE OF AN ANALYSIS OF THE RECENT LONE STAR GAS COMPANY RATE INCREASE REQUEST. BE IT RESOLVED BY THE BOARD OF ALDERMEN OF THE: CITY OF WICHITA FALLS, TEXAS, THAT: That certain agreement, a copy of which is attached hereto, between the City of Wichita Falls and Joe M. Nall & Associates, Inc. for performance of an analysis of the recent Lone Star Gas Company rate increase request, is hereby approved, and the City Manager is authorized to execute the same for the City of Wichita Falls. PASSED AND APPROVED this the 21st day of September, 1982 . M A Y O R ATTEST: 42-41-2it4' LAVOWtort-i ' City Clerk MUNICIPALITY WORK ORDER DATE: September 1, 1982 CLIENT: City of Wichita Falls Mr. Stuart A. Bach, City Manager ADDRESS: Stcr P.O. Box 1431 Wichita Falls, Texas 76307 PROJECT: , Gas Rate Analysis and Recommendation JMN Job No. 20-82-GC SCOPE OF SERVICES: To provide expert assistance to the City of Wichita Falls in analyzing the Lone Star Gas Company's request for rate relief in furnishing domestic gas service. These services are to be provided at the direction of the City Manager and shall include, but not 'be limited to: Analyses of the applications and requests of Lone Star Gas Company for the determination of the proper rate base, revenues and expenses, and rate of return that should be utilized in determining fair and equitable charges for domestic gas consumption in Wichita Falls. , The Consulting Engineer's findings and recommendations shall be set forth in a written letter-type report to the City of Wichita Falls within a reasonable period of time not to exceed ten weeks after all necessary underlying records, documents and other information supplied by the Gas Company to the City of Wichita Falls have been reviewed by the Consultant. If the Gas Company will submit their meter consumption record for 12 months on computer tape, then all rate structures recommended will be block analyzed to assure coverage of revenue requirements. The Consulting Engineer shall make available to the City expert witness with con- siderable experience in gas utility rate making to present testimony. BILLING AND ACCOUNTING DATA: For services rendered, the Client shall pay Joe M. Nall & Associates, Inc. , Con- sulting Engineers, upon submission of monthly invoices, an amount equal to the actual hours of services furnished multiplied by the product of the Consulting Engineer's " :_4. established hourly salary cost. This expense shall come from current revenue or from taxes which the municipality agrees to levy for the purpose of paying the same or from the utility requesting change in the rate ordinance. In addition, the Client shall reimburse the Consulting Engineer each month at cost for all out-of-pocket expenses directly chargeable to the work. " The work of this agreement will be accomplished in accordance with the Standard Fee Schedule at a fee and expense limit not to exceed $14,899.00 without prior author- ization from the City in the form of a signed amendment of extension of the work order. APPROVED FOR: City of Wichita Falls APPROVED FOR: Joe M. Nall & Associates, Inc. BY: BY: le y-yf P esident DATE: 4F ayr w F Page 6 of "6 Pages n ilk Summary of Proposed Natural Gas Rate Study City of Wichita Falls The scope of the services would include a determination of: A. The reasonableness of local service revenues, operating and main- tenance expenses, allocations of division and/or regional expenses, depreciation expenses claimed and the rates and schedules applied to same, income tax liabilities claimed, interest expenses and in- vestment tax credits and other relevant income and expense items. B. The reasonableness of application of proper allocations, on a pro forma basis, to expenses and income. C. A reasonable rate base upon consideration of original cost, working capital , construction work in progress, current cost new, reason- i ,'. ableness balances, adjustments for age and condition and other per- a' tinent factors pertaining to used and useful plant in service. D. A reasonable rate of return based upon debt capital costs, interest costs, equity capital and other pertinent factors pertaining to the Gas Utility' s financial integrity. E. The revenue requirements and recommended rates and rate structures needed to meet those requirements. Study Requirements The ability of the gas system to meet its near term financial obligations will require an individual determination in five study areas: 1. Reasonable operating expenses incurred and revenues being provided under known conditions with present rates. 1' a) Determine the reasonableness of local service revenues, operat- ing and maintenance expenses, allocations of division and/or regional expenses, depreciation expenses claimed, income tax liabilities claimed, interest expenses and investment tax credits; and b) Check the allocations to expenses and income and determine if the application is proper and reasonable. 2. Value of the Company' s property used and useful in providing gas service. w a) Find the plant's original cost and depreciation; Paae 3 of 6 Pages Agenda Item No. 10.c. b) Determine the plant's current cost, age and conditions; and c) Develop the allowance for working capital and make other rate base adjustments. 3. Sufficient rate of return to allow Company to compete in money market and to avoid confiscatory rates. a) Find the imbedded interest rate on debt and on preferred stock; and b) Determine a fair percent allowance for the equity portion of Invested Capital . 4. Specific rate schedules for various classes of service. a) Find the cost of service requirements by functional class, b) Determine the needed rate structure, and c) Analyze both step and flat rate structures, d) Recommend the necessary rates to meet the revenue require- ments of each class, e) Verify the tax and gas cost adjustment factors. 5. Level of gas service being furnished. a) Investigate the operational efficiency and determine if pru- dent measures are followed; and b) Determine if the maintenance program carried out by the utility is both frugal and in the best interest of the con- sumer. Cost of Service Allocations For a test year, provide cost and service characteristics,estimated to be representative for a period to be covered by the initial revenue adjustment. 1. Estimate on the basis of recorded customer use data, the relative responsibility of each customer class for system capacity, quantity of service taken, and customer elements based upon local experience and conditions. 2. Distribute the cost of service to be allocated to functional cost components to the various customer classes on the basis of relative responsibility of each class for service provided as determined. 2. Page 4' . of 6 _ Pages Agenda Item No. 10.c. r, r ilhilf 3. Estimate the revenue under existing schedule of rates anticipated from each customer class. Compare such revenue with the distrib- uted functional cost of service and determine the adjustment in revenue for each class required to equitably recover total cost of service from the respective classes. Rate Schedule Construction For the representative test year for which cost of services studied and allocated: 1. Construct a schedule of rates for gas service which will produce the revenue required and equitably place the burden of cost on each customer class and consumption group. Design of the rate schedule would include consideration of the rate structure and unit cost of service. The equity of each rate and the revenue produced would be documented. 2. Varify the reasonable application of the systems gas cost adjust- ments based on their own estimates of use in advance. Miscellaneous Fees and Charges r,,. Based on current policies and procedures and cost: 1. Review the current fee for appliance service, gas light service, air conditioning service, and yard line repair and replacement service. Recommend a level of fee to reflect current conditions or discontinue them, but in no instance allow these services to be subsidized by other fees. 2. Consider the desirability of removing the Gas Main Extension Rate with recommended safeguard to the over building of gas plant. Comparisons of Typical Bills for Gas Service Make comparisons for typical bills for gas service. 1. Comparison of typical bills for gas service under the existing schedule of rates with bills which would result from the schedule of rates derived in this rate study. 2. Obtain schedules of rates for gas service which are currently in effect in other cities with conditions similar to those of Wichita Falls. Make comparisons of typical bills for gas service in other cities with bills under Wichita Falls existing schedule of charges and with bills that would result from schedule of rates derived in this rate study. 3. Page 5 of 6 Pages Agenda Item No. 10.c.