HomeMy WebLinkAbout1977-01-24 Special Meeting• •
• MINUTES - SPECIAL MEETING
OF THE
LA PORTE CITY COMMISSION, LA PORTE, TEXAS
JANUARY 24, 1977
7:00 P.M.
MEMBERS OF THE COMMISSION PRESENT: J. J. Meza, Mayor,
Commissioners Bill Love, I. J. Kibodeaux, Virginia Cline,
and Tom Simons.
MEMBERS OF THE COMMISSION ABSENT: None..
OTHER CITY OFFICIALS PRESENT: Larry L. Broussard, Director of
finance; Betty Blackmon, Assistant City Clerk; Knox Askins,
City Attorney; H. F. Freeman, Chief of Police; Royal Shepherd,
Assistant Public Works Director; Stanley Sherwood, Parks and
Recreation Director.
•
OTHER CITY OFFICIALS ABSENT: Margie Goyen, City Clerk; Joe
Sease, Fire Chief; D. R. McLaughlin, Fire Marshall.
OTHERS PRESENT: Weldon Randall of Entex, Inc., Bob McCanse
of Entex, Inc., also Bill Hines, Richard de Saenz and Tom
Boyette of Entex, Inc.
PRESIDING: Mayor Meza.
+ + +
1. CALL TO ORDER - Mayor Meza called the meeting to order.
+ + +
• 2. INVOCATION - The invocation was given by Mayor Meza.
+ + +
•
Special Meeting 1/24/77 2
• 3. CONSIDER ENTEX RATE INCREASE APPLICATION - The rate
increase was discussed in depth by the City Commissioners,
the Mayor and our City Attorney with the representatives
of Entex, Inc.
Mr. Knox Askins, City Attorney stated that in the interest
of the people of the City of La Porte he thought the City
should ask for a rate hearing.
Motion by Commissioner Simons seconded by Commissioner
Kibodeaux in favor of Ordinance calling a hearing on the
statement of intent filed by Entex, Inc. Motion carried
by the following vote:
AYES: Commissioners Love, Kibodeaux, Cline and Simons.
NAYS: None.
+ + +
4. ANY OTHER BUSINESS TO COME BEFORE THE COMMISSION
COMMISSIONER CLINE - would like to have the La Porte
• Independent School District representated at the workshop
on January 26, 1977, at 7:00 P.M. Letter will be hand
delivered to Robert Williams with this invitation to
attend the workshop on this joint election.
DIRECTOR OF PUBLIC WORKS - New lease for Welfare Office
with no increase in rent. Motion by Commissioner Simons
seconded by Commissioner Cline in favor of the lease.
renewal. Motion carried by the following vote:
AYES: Commissioners Love, Kibodeaux, Cline and Simons.
NAYS: None.
PUBLIC WORKS DIRECTOR - Cost estimate to Southern Pacific
for water and sewer, $214,115.00.
COMMISSIONER KIBODEAUX - Motion by Commissioner Kibodeaux
to adjourn to executive session, seconded by Commissioner
Simons. Motion carried by the following vote:
AYES: Commissioners Love, Kibodeaux, Cline and Simons.
NAYS: None.
The meeting recessed at 9:30 P.M.
• The meeting reconvened at 9:55 P.M.
Special Meeting 1/24/77
• Motion by Commissioner Simons seconded by Commissioner
Love to promote Royal Shepherd to Director of Public
Works. Motion carried by the following vote:
AYES: Commissioners Love, Kibodeaux and Simons
NAYS: Commissioner Cline.
Motion By Commissioner Simons seconded by Commissioner
Love to pay the expenses incurred by Lou Lawler in
attending the election seminar in Denton. Motion
carried by the following vote:
AYES: Commissioners Love, Kibodeaux, Cline and Simons.
NAYS: None.
The meeting adjourned at 9:24 P.M.
•
Betty Blac on, Assistant ity Clerk
Passed and Approved this the
7th day of February, 1977.
J. J. Meza, Mayor
3
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P. O. BOX 2628, HOUSTON, TEXAS 77001
Mayor and City Officials
City of La Porte
124 S. 2nd Street
La Porte, TX. 77571
December 27, 1976
Re: Statement of Intent to Change Rates
Gentlemen:
Entex is providing high quality natural gas service to
your city while at the same time maintaining the lowest
practical rates. As a matter of fact, we have not filed for
a change in rates in your city since 1968, other than a flow
through of the cost of purchased gas. We have determined
that our existing rates do not provide a fair return on the
adjusted value of the invested capital in our Texas Coast
Division and, therefore, that a rate revision is necessary.
We have reviewed the billings to our customers and our costs
of providing gas service in our Texas Coast Division and
• have concluded that the current "minimum bill" is inadequate
and should be revised. We are asking for a similar revision
in rates in forty two cities we serve in our Texas Coast
Division.
Accordingly, Entex files this Statement of Intent with
attached Rate Schedule P.-337-1 and Rate Schedule SC-337-1,
containing the proposed revisions in our Schedules of Rates
applicable in La Porte. The changes made by this filing are
shown in italics on the rate schedules. As you will note,
this revision includes changes in the first rate block of
the Net Monthly Rate and in the Minimum Monthly Bill.
Please note that these revised rates will not be billed to
our customers until May 1, 1977. The Purchased Gas Adjust-
ment Provision has been modified to conform with modern
clauses used in other Entex Divisions. In addition, a
clause has been added permitting annual adjustments for
changes in the costs of service.
The effect of these new rate schedules is to increase
the Company's revenues by $70,788 per year. These increases
affect residential, small commercial, and large volume
customers. Entex serves approximately 2655 customers under
the residential classification, approximately 237 customers
under the small commercial classification and approximately 25
customers under the large volume classification. Entex's
total 1975 revenues for all of its Texas divisions were
$152,463,836.22 (as shown on p. 33 of its annual report to
the Railroad Commission of Texas). These proposed adjust-
1 •
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•
ments will increase the aggregate revenues less than two and
one-half percent and therefore, do not constitute a "major
change" as said term is defined in Section 43(b) of the
Public Utility Regulatory Act of 1975.
If you desire any additional information concerning
this filing, I will be glad to supply it for you.
Very truly yours,
~ ~ . ~~ ~~.
ward E. Bell
Vice President and
Texas Coast Division Manager
HEB/cg
•
•
•
APPLICATION OF SCHEDULE
ENTEX, INC.
RATE SHEET
RESIDENTIAL SERVICE
RATE SCHEDULE NO. 8-337-1
•
This schedule is applicable to consumers receiving gas for uses usual in a home through a
single meter serving a single family dwelling and its related structures. Natural gas
supplied hereunder is for the individual use of the customer at one point of delivery and
shall not be resold or shared with others.
NET MONTHLY RATE
First 400 cubic feet or less $2.00 ~
Next 2,600 @ .123 per 100 cubic feet
Next 3,000 @ .110 "
Next 10,000 @ .090 " "
Over 16,000 @ .055 "
$.049 per 100 cubic feet of gas over 6,000 cubic feet allowable in each of the billing months
of May through October, inclusive.
Effective May 1, 1977, the charge for the first 400 cubic feet or Zess shall be $4.00.
MINIMUM MONTHLY BILL $2.00 net
Effective May 1, 1977, the minimum monthly bill shall be $4.00 net.
PAYMENT
• The above net monthly rates will apply to all bills paid by date indicated on bill. For
bills not paid by indicated date, gross rates shall apply, which rates shall be the above
net rates plus ten percent (10%), not to exceed $3.00.
PURCHASED GAS ADJUSTMENT PROVISION
The above net monthly rate per unit sold is predicated upon a price of gas purchased for
resale hereunder of 38.3¢ per Mcf. To the extent that Entex's price of gas to be purchased
(adjusted to correct any prior variations from actual costs) for resale hereunder increases
or decreases, said net monthly rate shaZ2 be adjusted up or dorm to reflect (i) changes in
such cost of gas per unit sold and (ii) changes in gross receipts taxes resulting from such
increases or decreases in the net monthly rate. r^or purposes of calculating said adjustment,
it shall be proper for Entex to determine its cost of gas from its several suppliers and the
gross receipts taxes to be paid on the basis of a logical geographical area.
If Enter receives any refunds of any increased cost of purchased gas that have been passed
on xnder this provision, a refund shall be made to conswners served by this rate schedule.
COSTOF SERVICE ADJUSTMENT PROVISION
ArmuaZZy, effective arith all bills rendered after May 1, 1978, the above net monthly rate
siuzZZ be adjusted upward or do~n~ard for increases or decreases in the cost of providing gas
service (including depreciation but excluding cost of gas, gross receipts taxes, income taxes
and return) for the previous year ended December 31 above or below such cost incurred in the
second prior calendar year. These annual adjustments shall be cumulative. The operating
expenses used in this computation shall be those reported to the Railroad Commission of Texas
in the annual report of Enter, Inc. A computaticr. shall be made of the amount of such increase
Dr decrease applicable to each customer in the Texas Coast Division, and the net monthly rate
set fortn above shall be adjusted upraard or dormmard to reJZect such change in the cost of
providing gas service.
• Service under this schedule shall be furnished in accordance with the Company's General Rules and Regulations.
Issufn 12-27-76 Effective: 02-O1-77
Transmittal 2 superseding original transmittal.
",
' ~ ENTER, INC.
RATE SHEET
COMMERCIAL SERVICE
RATE SCHEDULE NO. SC-337-1
APPLICATION OF SCHEDULE
This schedule is applicable to consumers using gas for purposes other than residential
whose consumption in any month is less than 150,000 cubic feet. When a customer uses in
excess of 150,000 cubic feet in any month, the consumer shall be billed on the applicable
large volume rate schedule. Natural gas supplied hereunder is for the individual use of
the customer at one point of delivery and shall not be resold or shared with others.
NET MONTHLY RATE
First 400 cubic feet or less $2.25
Next 8,600 @ .133 per 100 cubic feet
Next 11,000 @ .110 " "
Next 10,000 @ .075 " "
Over 30,000 @ .060 "
Effective May 1, 1977, the charge for the first 400 cubic feet or Zess shall be $4.50.
MINIMUM MONTHLY BILL $2.25 net
Effective May 1, 1977, the minimum monthly bill shall be $4.50 net.
PAYMENT
The above net monthly rates will apply to all bills paid by date indicated on bill. For
bills not paid by indicated date, gross rates shall apply, which rates shall be the above
net rates plus ten percent (10%), not to exceed $5.00.
PURCHASED GAS ADJUSTMENT PROVISION
The above net monthly rate per unit sold is predicated upon a price of gas purchased for
resale hereunder of 38.3¢ per Mef. To the extent that Entex's price of gas to be purchased
(adjusted to correct any prior variations from actual costs) for resale hereunder increases
or decreases, said net monthly rate shall be adjusted up or doom to reflect (i) changes in
such cost of gas per unit sold and (ii) changes in gross receipts taxes resulting from such
increases or decreases in the net monthly rate. For purposes of calculating said adjustment,
it shall be proper for Entex to determine its cost of gas from its several suppliers and the
gross receipts taxes to be paid on the basis of a logical geographical area.
If Entex receives any refunds of any increased cost of purchased gas that have been passed
on under this provision, a refund shall be made to consumers served by this rate schedule.
COST OF SERVICE ADJlSTMENT PROVISION
Amtually, effective ari th aZZ bills rendered after h9ay 1, 1978, the above net monthly rate
shall be adjusted upward or do~,mmard for increases or decreases in the cost of providing
" gas service (including depreciation but excluding cost of gas, gross receipts taxes, iraeome
taxes and return) for the previous year ended December 3I above or beZors such cost incurred
in the second prior calendar year. These annual adjustments shall be cumulative. The oper-
ating expenses used in this computation shall be those reported to the Railroad C.ommissi.on
of Texas in the annual report of Entex, Inc. A_ computation shall be .made of the amount of
such increase or decrease applicable to each custcmtr ir. the Texas Coast Division, and the
net monthly rate set forth above shall be adjusted upt~ard or dor,»voard to reflect such change
in the cost of providing gas service.
Service under this schedule shall be furnished in accordance with the Company's General Rules and Regulations.
~ssueo 12-27-76 Effective: 02-O1-77
Transmittal 2 superseding original transmittal.
•
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•
Schedule C
. ENTEX, INC.
TEXAS COAST DIVISION
STATEMENT OF OPERATIONS
FOR TWELVE MONTHS ENDED JUNE 30, 1976
Adjustment.
j for Rate
Per Books (1) Increase Adjusted
Operating Revenues
Gas Sales $31,994,208 $ 1,943,169 $33,937
377
Forfeited Discounts 386,949 -O- ,
386
949
Other Operating Revenues 167,506 ~ -0- ,
167
506
Total Operating Revenues $32,548,663 $ 1,943,169 ,
$34,491,832
Operating Revenue Deductions
Operating Expenses
Gas Purchases $23,442,228 -0- $23,442
228
Distribution Operating Expenses 1,259,242 -0- ,
1,259
242
Distribution Maintenance Expenses 912 815 -0- ,
912
815
~ Customer Accounting and Collection ,
1 Expenses
ew Business Expenses 1,222,654
376
831 -0-
0 1,222,654
administrative and General Expenses , -
- 376,831
~ and Donations 998,582 -0- 998
582
~ Total Operating Expenses $28,212,352 -0- ,
$28,212,352
Depreciation $ 934,566 -0- $ 934
566
Taxes Other Than Income 1,184,895 $ 39,252 ,
1,224,147
Total Operating Revenue Deductions $30,331,813 $ 39,252 $30,371,065
Operating Income before Income Taxes $ 2,216,850 $ 1,903,917 $ 4,120
767
Income Taxes 766,380 913,881 ,
1,680,261
Net Operating Income $ 1,450,470 $ 990,036 $ 2,440,506
Rate of Return on Adjusted Value of
Invested Capital $35,280,060 4.11% 6.92%
(l~mbined operation of Entex aad Houston Natural Gas Corporation for those ro
p perties
acquired from Houston Natural Gas Corporation.
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DAVID F. ~~1~EBB
Director
Department of Public Service
- Mayor Rowe Holmes
-City of Shore Acres
619 Shai-~e Acres Blvd.
. _ La feff~; Texas 77571
Dear Mayor Holmes:
FRED HOFHEINZ, MAYOR
HousroN, TEXAS 77001
January 7, 1977
CITY COUNCILMEN
LARRY MCKASKLE
JUDSON ROBINSON,~R.
LOUIS MACEY
HOMER L. FORD
FRANK O. MANCUSO
~IM WESTMORELAND
FRANK E. MANN
~OHNNY GOYEN
CONTROLLER
LEONEL J. CASTiLLO
Since you first called me approximately two weeks ago regarding the
Entex case, I have had the opportunity to read the materials, and we have
conversed once more regarding them. As I promised you at that time, my
staff and I have made further investigations into the materials.
As you know, today is my last day as Director of the Department of
Pub'i~ Service of the City of Houston. I will be returning to the private
practice of law in the near future.
However, I have directed Mr. James Watkins, our Chief Rate Analyst,
and h1s. Jer Mardis, our Utility Coordinator, to undertake independent
analyses of the Entex submission to the City of Shore Acres. I am pre-
suming that this submission is the same, or substantially identical, to the
presentations made to the other 41 cities in the Entex Texas Coast Division.
As you will see from the attached copies of those analyses by members
of our City of Houston staff, there are many questions which. in our opinion
should be raised by your city before accepting the Entex proposal.
I have also enclosed a brief memo from Ms. Jer P1ardis which discusses
~"major" and "minor" changes under Section 43 of the Public Utility Regulatory
Act. If you and/or members of ,your City Council want to hold a hearing on the
matter, it would be our suggestion that you turn this over to your City Attorney
for further review. You and your City Attorney should also be advised that
Section 24 of the Public Utility Regulatory Act, Article 1446(c) permits your
•
a
ck}•
O~
HOUSTON
~;
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Mayor Holmes #. 2,
January 7, 1977
city to hire outside legal counsel, accountants, engineers and other
necessary rate expertise and charge these expenses back to the yutility.
Normally, in our experience, and from what we understand from ~~.,~aller
cities as well, these expenses added to the utility's overal~i operating
expenses are very minimal, and well worth the expert analysis, which
usually results in the Company resolving its rate demands at a much
lower°fi~ure than originally proposed.
T'~~e Company claims that the cost adjustment clause is necessary to
coripeate the Company for increases in the cost of providing service.
Here ~~+ey posit that it is reasonably certain that a change of rates will
be needed every year, and so it is to the benefit of the customer, the
regulatory authority, and the Company to provide for it without an
expensive proceeding. This is only possible if there are some checks
put on the adjustment and unless adjustment is based on a reasonable
formula. There is no check on this adjustment; the manner in which it
is calculated is not reasonable.
Further a general rate base, rate of return and rate structure or
review by a city at least every two years in these rapidly changing
ti~,~r~ of energy policy and usage would be well advised in my opinion
as a utilities regulator.
If you have any further questions, please do not hesitate to contact
me by telephone or mail. We will be glad to answer any questions about
this particular rate case and/or the Public Utility Regulatory Act,
Article 1446(c).
Best wishes to you and your City Council in Shore Acres.
Sincerely,
V
~ avid F. Webb, Director
Department of Public Service
City of Houston
DF4J/1 m
cc: Mayor Fred Hofheinz
cc: City Attorney John Dewey
Lake Jackson, Texas (per request)
t -,~.,~
..
CITY OF HOUSTON
~~
INTER OFFICE CORRESPONDENCE
Mr. David F. Webb, Director
Department of Public Service
FROM Jer Mardis
DATE January 6, 1977
SueJECT Major Changes, Section 43
1) A major change is defined as an increase in rates which would increase
the a roc egate revenues of the applicant more-than the greater of
$100,_000,_OOO or ~ 1/2%, not including charges in rates allowed to go
;n~c~ effect by the regulatory authority (the City Council) or made by the
utili~~ by order of the regulatory authority after hearings held upon
r~oti ce ~~~o the public.
2) ~f the change is not major, no affected person complains and the City
Council does not call for a hearing on its own motion, then no hearing
Need be held and no other action taken for the rates to go into effect
after the 35-day notice is up. (The utility must give the City Council
notice of a change in rates at least 35 days before the rates are to go
into effect.)
• 3) If the change is not major, the City Council may allow the rates to go into
effect before the end of the 35-day notice period (for good cause shown).
It may prescribe conditions under which the change is allowed; the change
'~ ^~~~:j~ct to suspension under subsection d.
4) if tIe change is not major but an affected person complains or the City
Council calls for a hearing on its own motion, then a hearing must be held
'.after reasonable notice before the rates can go into effect. This must be
done within 30 days of the effective date of the change.
5) If the change is major, a hearing must be held. If no affected person
complains before the expiration of 45-days after the notice is filed, then
the hearing can be an informal one. From the information submitted from
Entex, it is impossible to determine if the change is major or minor,
and the safer and more certainly lawful course under the P.U.A. Act would
seem to be to treat Entex's application as a major change and to hold a
~- hearing.
•
' ~ • •
CITY OF HOUSTON
INTER OFFICE CORRESPONDENCE
~o Mr. David F. Webb, Director FROM James R. Watkins
Department of Public Service
DATE January 6, 1977
Sus~ECT Entex at Shoreacres
In reading the letter to honorable Mayor and City Officials from Entex pertaining
to an application for a rate increase, I note the letter states that in order to
help understand the necessity fora rate increase they are making the following
information available:
1. Inflationary pressures continue to force upward the price of various goods
and services which we must buy. Exhibit 1 shows that inflation has been a
problem through the post war era but especially since the late 60's. Al-
though the current rate of inflation is down somewhat, my thoughts--the
current rate of inflation is down somewhat and we have had inflation since
the post war era, especially since the late 60's. How in the world did the
company manage to survive? Are they telling us that they are using cost
data from those years to justify a rate increase today and that they sur-
vived all through those years without a rate increase? Entex has increased
wages of virtually all of its employees each year for the past eleven (11)
years. Are we using an eleven (11) year rate base period in this case?
Why go back eleven (11) years? Eleven (11) years ago very few circumstances
i were pertinent to today's circumstances. Rates are made for the future.
What happened to the increased efficiency resulting from the merger of com-
bining of the Houston Natural Gas distribution system with Entex? This
question is more relevant than what happened eleven (11) years ago.
3. Company is claiming that they have maintained a high level of service
despite inflationary pressures. Customers there may have some opinions on
this point.
4. They claim that inflation has resulted in continuous yearly increases in
investment per customer. So what? Isn't this about true of everything?
I see no real information here.
5. The cost of money has increased dramatically over the past ten (10) years.
What has happened to the cost of money in the last four (4) years? Ac-
cording to my~memory the prime interest rate was approdching 12% about
four (4) years ago and now I understand it is going down and back near
6% again. Perhaps it is time for Entex to consider possible refinancing.
6. The Company claims its rate of return is 4%. Of course I have no way to
.dispute this since I do not know anything about what is behind the numbers
that go to make the figure. I notice no details are given for the claimed
rate base. The Company purportr to be attempting to bargain with the Council
by claiming that they are asking for less than they are really entitled to
and that they are willing to forego this difference in order to get a speedy
• settlement. This is an attempting appeal but could be dangerous.
•• Mr. David F. Webb
•
- 2 - ~ January 6, 1977
7. They are asking that the rate design be substantially as proposed. Of
course there again I have not seen the details.
8. The rate schedule includes the clause which each year would adjust rates
to compensate for the increase of providing services. This is on top of
the monthly cost of gas. adjustments.
The following statement is of utmost interest. "It is now appearing clearly estab-
lished that wages-and other expenses will increase regularly at a rate which will
require annual adjustments in our rates to our customers". I shall like to
challenge that statement and ask them how they know what the future holds when it
comes to wage rates, prices, etc.? Companies should not be allowed to plan and
anticipate additional and continued inflation. •
9. Number nine (9) states that no action on
sary for these rates to go into effect.
now not yet made a full rate study. Undo
ment to that effect. -They indicate that
which they are proposing,,is unacceptable
;?are a rate study. Of course, they mean
tTrey are entitled to.
the part of the city is neces-
Presumably the. company has of
~r nine (9) they make the state-
if this uniform change,
to the city they-will then pre-
the full return they think
10. The Company indicates further horse trading by offering to make the
effected date May 1, after the cold weather is over in order to avoid
placing the increase in effect during cold winter months.
Further I do not think much of this horse trading approach because this whole
• approach here is to ask fora cost plus arrangement whereby Entex can automatically
pass on their increases and maintain who knows what level of earnings. In effect
they are advocating to do away with the old fishing license theory of regulations.
Under this theory a company is given a set of rates and told to go and do the best
they can with these rates, that if they are efficient they should make money and if
they are inefficient they may in fact lose money. Naturally, a small town or
village who does not have competent staff to keep constant surveillance over the
company's operations may be at a major disadvantage under an arrangement in the
nature proposed.
SUMMARY:
• •
1) Cost of capital may be in a downward swing.
2) l:ittl:e or no information is given on how the Company's purported adjusted
value rate base was derived.
3) It is.unlikely that there has been a sharp decline in the rate of return in
the last 18 months. How have they survived?
4) Utilities should not be given the liberty requested in this application by
Entex--- especially small towns.
J RW/ tmt
Respectfully submitted,
~~, .
~r~ i 11 ~1/~Z- ~ ~ ~ L ,r
:` ames R. Watkins, Rate Analyst
Department of Public Service
~~ •
.,
~.
Mr. David F. Webb, Director
Jerlyn P~ardis, Utility Coordinator
Department of Public Service
•
SUMMARY
January 6, 1977
Preliminary analysis of Entex applica-
tion for rate increase to the City
Council of Shoreacres, Texas, and
other Texas cities.
My primary objection to this package is the lack of information provided to
the City Council. Better and more specific data, presented in a manner easy
to understand, is needed before a decision should be made on how to proceed.
I would not permit any rates to go into effect on the basis of this package
without a formal hearing if I were a councilman in one of the cities involved.
COMMENTS
In accordance with my philosophy of cost-based rates, I tentatively favor an
increase in the minimum monthly bill if the cost justifies such increase.
However, I believe that the minimum monthly bill should conform entirely to
the theory that is presented later in the package and not just partially con-
form. Further, I believe if the rate structure is to be changed and the mini-
mum monthly bill is to be increased, then the rate structure should be made
an entirely flat one and not continue to be a declining block structure. I
will not go into the arguments for the flat structure here, because I believe
you are familiar with them.
Before commenting on the purchased gas adjustment provision in detail, I will
need to study it further. I would also like to see a formula and an exmaple
of how the provision is to work. I will note, however, that there is no pro-
vision for filing this adjustment or its calculation with the City Council for
approval or disapproval. Also, there is no provision for refunding over-
collections.
The cost of service adjustment provision is unacceptable in its present form.
The Council has no option to approve or disapprove this adjustment, and the
adjustment and calculations are not filed with the Council. Also, the expenses
and revenues involved will be those reported to the Railroad Commission of
Texas; these, of course, will be prepared by Entex. Under Entex's proposed
cost of service adjustment, it appears that no one reviews the adjustment
and no one approves it other than the Company. I think this is an oversight
which needs to be corrected by requiring regular reports to the City Council
with the adjustment subject to disapproval.
On the various reasons that Entex gives to justify its increase and the various
charts presented as supportive evidence of these reasons, I will comment indi-
vidually.
•
'~ •
Mr. Davi d F. L~ebb -2- January 6, 1977
• 1) Inflati~
prices"
see the
creases
believe
gyn. The graphic representation
from the U. S. Department of L
relationship between increases
that Entex has experienced. I
the two necessarily correlate.
of this is based on "all consumer
abor Consumer Price Index. I don't
in all consumer prices and in-
am no statistician, but I do not
2) Entex has increased wages for almost all of its employees for the last
eleven years. It does not say what percentage wages and salaries con-
tributed to its over-all increases in expenses, so I do not see the reason
for introducing this chart.
3) The third reason is that Entex has not had a rate increase in many cities
since 1968, and that between 1968 and 1976 there has been a nationwide
inflation of prices of 63% while Entex has experienced an increase of
33% in operating expense per customer. Again, I do not see any necessary
correlation between increases in the consumer index and increases in
Entex's expense per customer. Increases in total Company expenses would
be more useful information to have.
4) Entex has had during the past two years an increase in the average in-
vestment per customer in the Texas Coast Division from $224 to $287.
Again, I do not see the relevance the increase in gross plant per cus-
tomer has in a discussion of a rate case.
5) Next is the increase in the cost of money. Their financing does not
• come 100% from A-rated utility bonds, so the chart is not representative.
For example, capital also comes from loans and the sale of stocks (both
common and preferred).
6) Entex presents a statement of operations for the Texas Coast Division for
the twelve months ended June 30, 1976. According to Entex, their rate of
return on adjusted value of invested capital Hras 4.11% as of June 30.
No information is presented on how their fair value rate base is computed.
Further, they state that unadjusted book revenues and expenses would show
a 6.9% return on the fair value rate base after the proposed uniform ad-
justment had been in effect 72 months but that knov~rn increases in expenses
since June 30 would prevent rate of return reaching this 6.92%. There is
no way to check this with the information presented.
I do not find anywhere a figure representing the percentage increase,
either for Shoreacres or the entire Division, and no figures giving the
dollar increase for the entire Division. All we see is the net operating
income anticipated after i2 months of the increase. Again, I would like
numbers.
As an aside, Entex's return on common equity is approximately 25% at this
time. This is considerably higher than most utility companies; for example,
Houston Lighting & Power Company now has a return on common of about 14-1/2%.
•
Mr. David F. Webb -3- January 6, 1977
7) This reason states that the props ed rates should be accepted as they are
in order to be fair to the customers. I cannot accept the statements
made here both because I do not think the rate structure gives accurate
economic signals to users and because of talks with architects about the
relative efficiencies of gas and electric appliances.
8) The Company asserts that the adjustment clause is necessary to compensate
the Company for increases in the cost of providing service. Again, this
clause is not reasonable unless there are some checks put on the adjust-
ment and unless the adjustment is based on a reasonable formula.
9) The Company claims that the City Council need not take any action to have
these rates go into effect. Here Entex offers to prepare and present a
rate study only on the basis of the distribution system serving that
particular city.
Under Section 22 of the PUR Act, a municipality may consider a public
utility`s revenues and return on investment in non-exempt areas when
fixing rates and charges. (Under Section 24 the assistance to the gov-
erning body need not necessarily be made during a rate hearing.)
10) The statement is made here that the increase was deliberately designed
to minimize the impact on customers this winter, because it will not go
into effect until May 1, 1977. It would also be to Entex's advantage
to not have any more complaints about rates and bills this winter.
• Respectfully submitted,
[.'' ~~""
Jerlyn Mardis, Utility Coordinator
Department of Public Service
JER:kt
•