1982-08-25 Special Called Meeting

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Date Subject: ~ator's page 6 8/18/82 HLbcP RATE INCREASE ~~fini#iats 4 of -__ • ADDITIONAL REVENUE REQUIREMENTS i Based on invested capital (rate base) of $3,953,996,000, arate of return of 12.73%, and revenue requirements of $3,529,921,000 (see Winkelmann, Schedule I), HLdtP has an additional revenue requirement of $181,561,000. OTHER LSSUES Street Lights HL&P has proposed a change in its street light tariff, which will greatly benefit the ratepayer and the public-at-large. The Company has effectively eliminated the present charge for installation, which has ranged from $350-$850 per street light, payable by the customer. In addition, the Company has decreased the rates pertaining to high pressure sodium lights to make this efficient light more economical to use. These changes will facilitate the Department's master plan to install approximately 12,000 street lights within the City. Lead-lag Study Pursuant to Council's request in its 1981 order concerning HLEcP's 1981 rate application, the Company performed alead-lag study through Arthur Anderson & Company to determine the actual working capital allowance which should be allowed in the rate base for the test year ending March 31, ~ 1982. Working capital is required to fund the timing difference between the payment of operating .costs and the receipt of customer revenue. The "formula approach" utilized presently by HL&P and the PUC adopts a 45-day lag period for determining working capital needs, which represents 1/8 times operation and maintenance expenses, less any prepayments and materials/supplies charged to operation and maintenance. The purpose of the special lead-lag study was to determine the method most favorable to the ratepayer. The result is that the formula method in this case saves the ratepayer more than $2 million annually. Because the study itself costs approximately $70,000 annually, and the results are unfavorable to the ratepayer, we recommend the continuation of the "1/8 formula approach" until changes in HL~CP's operational procedure indicate otherwise. Cogeneration In simple terms, cogeneration is the ability of a company to produce electricity as a by-product of its normal operation. Such electricity can be used for internal purposes or sold to someone else, ems., HLdcP. Because HLbcP's massive construction program is directly related to customer demand, in particular the industrial customers, we recommend that HLdcP be directed to evaluate and determine cogeneration potential in the Houston area and aggressively seek to develop power through such sources. If such opportunity and capability is developed, the result will be a reduced need for new plants and excessive capital expenditures, which would in turn stabilize the rates now paid by the consumer. Fuel Adjustment Clause The Public Service .Department has received numerous complaints about the fuel adjustment clause on the customer's bill, which allows the pass-through of certain costs associated with the .purchase of fuel. by HLacP. Although we have had inadequate time for a thorough analysis of the appropriateness of the fuel adjustment clause for this proceeding, the Public Service Department intends to undertake such an analysis on behalf of the ratepayer. One reason for the clause is that it n~