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Res 2302 3/6/1979RESOLUTION NO. (1 1_.9 RESOLUTION EMPLOYING A CONSULTANT TO ANALYZE THE LONE STAR GAS COMPANY RATE REQUEST. BE IT RESOLVED BY THE BOARD OF ALDERMEN OF THE CITY OF WICHITA FALLS, TEXAS, THAT: The proposal of Bill R. McMorries and Associates, Inc. to analyze the Lone Star Gas Company Rate Request dated January 23, 1979, is hereby accepted, and the City Manager is authorized to execute a contract employing such consultant for this work, for a fee of $16, 500. 00 . PASSED AND APPROVED this the 6th day of March, 1979. MAYOR ATTEST: City Clerk PROPOSAL FOR REVIEW OF RATE INCREASE FOR LONE STAR GAS COMPANY RECEIVED IN UT' CLERK'S OFFICE TO: Honorable Mayor, City Aldermen, City Management and Staff City of Wichita Falls, Texas By •--•- i GENTLEMEN: We appreciate your request concerning our firm to perform engineering services for evaluating the merits of a rate increase requested by Lone Star Gas Company. PROPOSED SERVICE We propose to perform our work to conform with the following general outline: 1. Review the data which Lone Star Gas Company submits and prepare a list of additional information and data- which will 'i be needed and request same from the Gas Company. 2. Determine the reasonable operating expenses and revenue. A. Local Service Revenue. Review and determine the amount for local service revenue and miscellaneous revenue that should be included. Analyse the customers by class of service with the corresponding charges and determine the increased revenue from proposed rate increase. We will request the company make available to us records of revenue for past years so we may ascertain whether the test year is a typical year. A review will be made to see if an adjustment for weather is necessary or whether an adjustment should be made to year end level of customers . B. Operating and Maintenance Expenses. Determine the amount of expenses, by accounts, that should be included in cost of service . ^n analysis shall be made of expenses claimed for contributions, advertising, legislative advocacy, and rate case. Expenses allocated from division or region shall be checked for reasonableness . C. Depreciation Expense. Compare depreciation rates used on various equipment and plant for reasonability and calculate actual depreciation allowable. Determine if the same rates and amounts used on customer expenses are the same as those used in determining the actual federal income tax liability. Review accrued depreciation and weighted or average age, by accounts, on plant and equipment. Rill R. McMorries & Associates, Inc. r D. Income Tax. Review and calculate the income tax liability. Determine the proper interest expense and investment credit allocated to the City. Determine the income tax liability applicable for rate making purpose. E. Proforma Adjustments to Expenses and Income. Review these accounts for accuracy and determine if proper allocations have been made and if such proforma adjustments are reasonable. 3. Determine Rate .Jesse. A. Original Cost. Ascertain the original cost, accrued book depreciation, proforma adjustments to accrued depreciation, working capital, materials and supplies, construction work in progress, contributions-in-aid, and advances from customers on contruction projects. An analysis will be made of liability & property insurance reserves. B. Current Cost New. Ascertain the current cost new amounts to be used for mains, services, meters, regulators, buildings, vehicles, furniture and fixtures and other items. C. Reasonable Balance. Ascertain the proper balance to use between Original Cost Less Accrued Depreciation and Current Cost New Less Adjustment For Both Age and Condition. D. Adjustment for Age and Condition. Ascertain the proper adjustment to current cost new to reflected depreciation accumulated todate. 4. Determine Rate of Return. Analyse the capital structure showing various debt capital (both long and short term) , interest costs, preferred stock, and equity capital. Determine the proper rate of return and cost of capital for this rate application. Investigate what other companies of like risk are earning on their capital. 5. Work and Study Sessions. Report to the City' s staff, Manager, and Council our findings and recommendation on adjusted value rate base, reasonable operating expenses and revenues, cost of capital and rate of return, and revenue requirements we consider to be proper. Develop at least 3 alternative rate schedules to meet revenue requirements: one, to include a "Customer Charge" and a single step con- sumption rate; one, to include a minimum consumption rate for 1 MCF and a single step consumption rate thereafter; and, one to include a minimum consumption rate Ifni, for 1 MCF and two other steps for consumption thereafter. V Rill R. McMorrics & Associates, Inc. 6. Final Report. We agree to furnish to the City twenty (20) copies of the final report from the Engineer, CPA, and Economist. 7. Charges for Service. Charges for these studies are to be based upon she per diem basis set forth in Exhibit "A" attached. Direct expense such as telephone calls, meals, lodging, printing, and transportation shall be at direct cost with no markup. The principal personel assigned to this rate case are as follows:I Engineering: Mr. Bill R. McMorries, P.E. Mr. Andy Lyle, P.E.. Mr. i‘obert A. Buie, Senior Engineering Technician. Accounting: Mr. Wayne E. Brown, C.P.A. , Pampa Economist: Dr. Jack Hopper, Austin if 8. Limit of Charges. It is hereby agreed that the charges for these studies, including all expenses, up thru the City Council jurisdiction Olevel shall not exceed $16 , 500 . 00 . Periodic payment will be made 6..-,.{i upon invoice monthly up to the maximum. 9 . Extension of Service. ifill It is hereby agreed that in the event of an appeal from the City Council ' s findings to the Railroad Commission that Mr. McMorries, Mr. Brown, and Dr. Hopper will be available to assist the City (if the City desires) on the same per diem charge basis outlined in Exhibit "A" . r AGREED TO THIS V DAY OF MARCH 1979 . CITY OF WICHITA MCMORRIES & ASSOCIATES , INC. IP t BY 6 i t BY 4- ) PA h, c-L.- President ATTESTED: ATTESTED: II _ ' ice i Imo: /! C(:: -.._ems t t...) Secretary_. I I Rill R. McMorries & Associates, Inc. u • EXHIBIT "A" PROFESSIONAL FEES FOR RATE CASE ANALYSIS Engineering (Rate Base) Consultants- Bill R. McMorries, P.E. 50.00 HR L. D. Burns, P.E. 50.00 Staff 32.00 Accounting (Revenue and Expenses) Wayne Brown, C.P.A. 50.00 Bill R. McMorries, P.E. 50.00 Staff 27.00 Financial Rate of Return) Dr. Jerry Miller, Economist 40.00 Dr. Jack Hopper, Economist 50.00 Computer Programming (Data Processing) Programmer 32.00 Staff 20.00 Miscellaneous Airfare, Lodging, Food, Telephone, Computer Time, Printing, etc. @ direct cost, no multiplier) Rill R. 1V1c Marries & Associates, inc.