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Min 05/14/1991 683 Wichita Falls, Texas Memorial Auditorium Building May 14, 1991 Items 1 & 2 The City Council of the City of Wichita Falls, Texas, met in called session on the above date in the Council Room of the Memorial Auditorium Building at 8: 30 o'clock a.m. , with the following members present. Michael Lam Mayor David Farabee - Terrance E. Loughry - Angus Thompson - Paul Hughes - Councilors J. W. Martin - Don Kirkham - James Berzina City Manager Gregory Humbach City Attorney Wilma J. Thomas City Clerk The invocation was given by Mayor Lam. A proclamation was presented for Buddy Poppy Week by Mayor Lam. Item 3 - - - - - - - Mayor Lam explained that the purpose of this meeting is for a work session and public hearing on Lone Star Gas rate request. Willard Townsend, Regional Director for Lone Star Gas Company explained that he will be available to answer any questions which may be brought during the deliberation. They are now requesting a percentage increase, which is a compromise of 56 percent of their original request. Mrs. Ozuna opposed the proposed gas rate increase. Vernal Huffines, with Mathis, West, and Huffines Certified Public Accountants, noted that Lone Star Gas has requested additional revenues from commercial and residential customers. It is the Council ' s job to determine whatever kind of rate increase the gas company is due. Keith Reed, Partner with Reed, Stowe, and Company in Dallas, presented a series of transparencies for the Council' s review. He stated their intent is not to become argumentative, but to present their findings. The position of the consultant is that rates should be set on all classes of the distribution system. The position of Lone Star Gas is based on residential and commercial class revenue requirements. He presented a methodology of allocating all customers . They believe GURA Sections 5. 03 and 5. 06 should be adhered to, and look at all rates. There were also differences of opinion between Lone Star Gas and Reed and Stowe on the construction work in progress. Working capital also showed a difference of opinion. He noted various kinds of cash generated by user fees, taxes, etc. , that are in existing rates and collected monthly from the ratepayers. In general, they have no objections to rate case expenses being refunded to them as an expense. They feel it should be based on the total company operations. 684 Item 3 cont'd. Investment tax credits were also discussed with the difference of opinion between Lone Star Gas and Reed and Stowe. Trending, operation, and maintenance expenses were for the test year ended June 30, 1990 . For the twelve months ended December 31, 1990, those expenses have gone down, rather than increasing. Mr. Reed noted that Lone Star Gas is a surrogate of ENSEARCH. Lone Star does not have a capital structure. The cost of equity, or common stock earnings, was recommended for adoption at 12. 5 percent. They believe cost allocation should be to all customers on the system; not just residential and commercial. The number of customers has nothing to do with total volume. Half should be on volume, and half on peak. Transportation, military and industrial has to be included in total revenue to determine operating income. On a system-wide basis the Company' s earnings are $88,000 deficient. They believe they should be allowed to earn this much more. You try to recover from the persons who cause this expense. They recommend that they be granted $97,000 for recovery of customer cost of service and miscellaneous service charges, and that there be no increase in gas sales rates. Mayor Lam asked for clarification of the 69 percent increase on industrial customers subsidizing residential and commercial customers, as noted in Dallas. It was explained that commercial and residential customers are being asked to subsidize the industrial customer, according to their allocations. Industrial customer rates are set exactly the same way in every city in Texas. In the Wellington and Stephenville rate cases, no person representing Stephenville made any presentation before the Railroad Commission. The hearing was held by the staff of the Railroad Commission on behalf of Stephenville. The same thing happened with the City of Wellington. In this case it was unique that the hearing examiner made a statement that the staff does not have the assistance of a rate analyst from the Railroad Commission staff. Councilor Hughes asked about the service charges of $97, 000. Mr. Reed stated they find no fault with these figures. It leaves them in a reasonably competitive position. Councilor Martin mentioned allocation of investment of industrial sales and transportation. Mr. Reed stated that Lone Star ' s methodology is heavily weighted toward the number of customers. They believe it should be based on volume. Councilor Loughry asked questions pertaining to the consultant' s opinion of whether Lone Star Gas would be successful before the Railroad Commission, and who would pay the cost. Mr. Reed had no opinion on success or failure, but noted the expense is a cost of doing business, whether they win or not. Mr. Reed noted there is a 30-day time frame for the Company to make their decision on whether to go to the Railroad Commission, if their request is denied at the local level. The process begins all over at the Railroad Commission. Nothing is used which has been presented here or by the Company. It can also be appealed out of the Railroad Commission to the Travis County District Court. 685 Item 3 cont'd. Mr. Berzina asked about a pure industrial rate situation. Mr. Reed explained that any specific rate increase would have to come back before this body. There is a difference between pure industrial and transporation charges. If we don' t get the issues decided by some rate commission, they in fact become law, which could be a problem in the future. The number of dollars is not so much in dispute, but the methodology. Willard Townsend stated there are some differences in figures. Incorporated cities in Texas have the regulating authority, and the Railroad Commission is the appeal. The City has the right to regulate rates, except for transporatation charges. On working capital, Mr. Reed stated they pay for 74 percent of their gas. Mr. Townsend stated they pay for over 90 percent of their gas. He also mentioned the test cases which caused a rebate to their customers. He stated the Seaboard method has never been accepted by the Railroad Commission. Ninety percent of their industrial customers and volumes are located outside the City of Wichita Falls. They invest almost one million dollars in capital in this system per year. Most of it is downtown, and not going to industrial customers. The transportation contracts are on file with the Railroad Commission. They would be willing to accept $394 ,000 , which is 56 percent of their request. They believe they can get this amount at the Railroad Commission. Mayor Lam asked about a 69 percent increase in industrial rates. He stated that Lone Star has no intention of going up on industrial rates. Councilor Farabee noted that the consultant stated that the Railroad Commission looks at total and overall. He said in the Wellington case it was by fact and figure. This would give them 56 percent of their request. Mr. Townsend stated he was not familiar with the Stephenville case. Councilor Farabee asked Mr. Townsend what would happen if this body would only allow $97,000. Mr. Townsend stated he would recommend that it be appealed to the Railroad Commission. He stated their shortfall is $400,000, based on the Wellington case. The $97, 000 is part of the $702,000 which they requested. It would also be a part of the $394 ,000 if they compromised. He stated ENSEARCH owns three companies. It is not purely a gas company. They want to change the structure to a straight rate, rather than a winter/summer rate. The more they sell, the cheaper it can be for their customers. It would throw most of the increase to the summer when sales are low. He stated that the process of the Railroad Commission is 185 days. Councilor Thompson explained that he drew the conclusion in a previous conversation with him that the rate request was generated because we had lost several large customers, like Sprague. Mr. Townsend stated that was not his intent. He was just saying they face the same economic situations that all other companies do. Other discussion continued on projected growth at Sheppard AFB, and what effect it would have on future requests. Mr. Townsend explained that he could not say when they would be back to the Council or what would cause it. Mr. Townsend requested favorable consideration of his request. 686 Item 4 ORDINANCE NO. 50-91 AN ORDINANCE FIXING AND DETERMINING A GENERAL SERVICE RATE TO BE CHARGED FOR SALES OF NATURAL GAS TO RESIDENTIAL AND COMMERCIAL CONSUMERS IN THE CITY OF WICHITA FALLS, WICHITA COUNTY, TEXAS; PROVIDING FOR THE MANNER IN WHICH SUCH RATE MAY BE CHANGED, ADJUSTED, AND AMENDED; PROVIDING FOR THE RECOVERY OF CURRENT RATE CASE EXPENSE; PROVIDING FOR A SCHEDULE OF SERVICE CHARGES; PROVIDING FOR A MAIN LINE EXTENSION RATE; DECLARING AN EMERGENCY; AND FINDING AND DETERMINING THAT THE MEETING AT WHICH THIS ORDINANCE WAS PASSED WAS OPEN TO THE PUBLIC AS REQUIRED BY LAW Moved by Councilor Hughes that Ordinance No. 50-91 be passed, denying the rate increase, and accepting the reasonable service charge request. Motion seconded by Mayor Lam. Councilor Martin stated he is not in favor of the 56 percent proposed by Lone Star, but something less than that. Councilor Thompson noted that he leans toward the motion made, stating Mr. Townsend indicated yesterday he would not be willing to compromise for less than 56 percent. Councilor Kirkham favored a smaller increase than 56 percent, stating he does not think the service charge request would be enough. The motion carried by the following vote. Ayes: Mayor Lam, Councilors Farabee, Thompson, and Hughes Nays: Councilors Loughry, Martin, and Kirkham The City Council recessed at 10: 20 a.m. , and reconvened at 10: 40 a.m. Mayor Lam noted Councilor Hughes ' birthday. Item 5 The City Council recessed into executive session at 10: 42 a.m. , according to article 6252-17, Section 2(e) and (f) , VACS. The meeting reconvened at 11: 30 a.m. , and immediately adjourned. PASSED AND APPROVED this the lay of 1991. Zlc 4aelLa4m, DT9—yo!r� ATTEST: JLz�, /L Wilma J. T omas, CMC/AAE City Clerk