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HomeMy WebLinkAboutItem 06 - TXU Proposed Gas RatesMEMO TO: FROM: MEETING DATE: SUBJECT: RECOMMENDATION: HONORABLE MAYOR AND MEMBERS OF THE CITY COUNCIL ROGER NELSON, CITY MANAGER / tfl AUGUST 19, 2003 ORDINANCE TO DENY TXU PROPOSED GAS RATES City Council to approve an ordinance to deny the TXU Gas proposed rates filed in May, 2003. FUNDING SOURCE: The City of Grapevine has joined the Allied Coalition of Cities (ACC) from the TXU service area to retain consultants for review of the rate case filing. The city will not incur any immediate costs for this process. BACKGROUND: On May 23, 2003, TXU Gas Company filed a rate case with the City of Grapevine. The case, which was filed in cities throughout the TXU gas distribution system, is intended to consolidate rates statewide and represents an unprecedented, comprehensive endeavor. The City Council approved a resolution to suspend the effective date of the new rates on June 20th. The resolution also authorized the staff to work with the coalition of cities in order to work through the initial review process. The City of Grapevine joined the Allied Coalition of Cities (ACC), a group of over 120 cities. The ACC recently retained a team of consultants for the review and analyses required of the case. Geoffrey Gay, as the lead attorney for ACC, negotiated and agreed to an extended procedural schedule with TXU. Based on that agreement, he recommends ACC cities approve an ordinance denying the rates and making findings relative to the merits of the case. (See Attached Ordinance and Findings Sheet) The approval of this ordinance will move the case, GUD No. 9400, through procedural process at the Railroad Commission (RRC). TXU supports the denial of the rates as the company expected that the merits of the case would be argued before the Commission. The staff will provide updates throughout the proceedings at the RRC. Given the comprehensive nature of the case, staff has been advised these proceedings will likely require the entire 300 -day timeline established between the cities and TXU. August 12, 2003 (10:43AM) 0 The Staff and the City Attorney recommend approval of the ordinance. myl August 6, 2003 (2:18PM) AN ORDINANCE OF THE CITY OF GRAPEVINE, TEXAS, DENYING TXU GAS COMPANY'S REQUEST TO CHANGE RATES IN THIS MUNICIPALITY, AS A PART OF THE COMPANY'S STATEWIDE GAS UTILITY SYSTEM; PROVIDING A REQUIREMENT FOR A PROMPT REIMBURSEMENT OF COSTS INCURRED BY THE CITY; FINDING THAT THE MEETING AT WHICH THIS ORDINANCE IS PASSED IS OPEN TO THE PUBLIC AS REQUIRED BY LAW; AND PROVIDING FOR NOTICE OF THIS ORDINANCE TO TXU GAS COMPANY WHEREAS, on or about May 23, 2003, TXU Gas Company (the "Company") filed with the City of Grapevine ("City"), a Statement of Intent to change gas rates in all municipalities within the Company's statewide gas utility system effective June 27, 2003; and WHEREAS, the City has previously extended the effective date of the Company's rate filing; and WHEREAS, the City has exclusive original jurisdiction to evaluate the Company's Statement of Intent as it pertains to the distribution facilities located within the City, pursuant to Texas Utilities Code §§ 102.001(b) and 103.001; and WHEREAS, the Texas Utilities Code § 103.022 provides that costs incurred by the City in ratemaking activities are to be reimbursed by the regulated utility; and WHEREAS, the City is participating with a coalition of over 120 other Cities in opposition to the Company's filing at the Railroad Commission, said coalition being known as Allied Coalition of Cities ("ACC"), in GUD No. 9400 pending at the Commission; and WHEREAS, ACC and the Company have reached a procedural agreement regarding the schedule for processing GUD No. 9400 that includes TXU's concession to allow one hundred fifteen (115) additional days to process the rate case and ACC's commitment that member Cities expedite the process of getting city action appealed to the Commission; and WHEREAS, AGC and TXU jointly endorse the City's denial of the Company's rate application pending before the City; and WHEREAS, upon review of the Company's filing and consultation with counsel for ACC and various consultants, the City finds that the Company's proposal is unjustified and unreasonable. NOW, THEREFORE, BE IT ORDAINED BY THE CITY COUNCIL OF THE CITY OF GRAPEVINE, TEXAS: Section 1. That all matters stated in the preamble are hereby found to be true and correct and are incorporated herein by reference as if copied in their entirety. Section 2. The Company's Statement of Intent to change gas rates within the City, as part of the Company's statewide gas utility system, is found to be unreasonable because: (a) TXU's requested return on equity is excessive, generating more than 86% of the requested increase in rates; (b) the basis for TXU's proposed consolidations (of regional distribution systems and of pipeline costs with distribution costs) has not been established; (c) the City's jurisdiction to increase pipeline rates has not been established and, therefore, the proposed pipeline cost increases should be disallowed; (d) revenue requirements should be reduced rather than increased; and (e) the TXU filing should be denied pursuant to agreement with the Company; and is therefore denied in all respects. Section 3. The costs incurred by the City in reviewing the Company's application be promptly reimbursed by the Company. Section 4. This Ordinance shall become effective immediately from and after its passage, as allowed by law. Section 5. That it is hereby officially found and determined that the meeting at which this Ordinance is passed is open to the public as required by law and that public notice of the time, place and purpose of said meeting was given as required. Section 6. A copy of this ordinance, constituting final action on the Company's application, shall be forwarded to the appropriate designated representative of the Company within 10 days as follows: Autry L. Warren, Director Gas Regulatory, TXU Business Services, 1601 Bryan Street, Dallas, Texas 75201-3402. PASSED AND APPROVED BY THE CITY COUNCIL OF THE CITY OF GRAPEVINE, TEXAS, on this the 19th day of August, 2003. ORD NO. 2 MAJ-04001VAM ATTEST: PROPOSED FINDINGS SUPPORTING DENIAL OF TXU'S y REQUEST TO INCREASE RATES FOR NATURAL GAS 1. TXU's requested return on equity is unreasonable. By far, the largest cost component of the Company's request for a rate increase is associated with rate of return on equity. At a time when interest rates are at the lowest point in decades and investors' expectations for return on investment are the lowest in many years, TXU proposes to increase its return dollars from gas operations by $60,255,075 (86.7 percent of the total rate increase). Such request is irrational in light of national economic conditions and outrageous in light of the fact that TXU Corporation recently wrote off more than $4 billion in shareholder equity related to poor or imprudent management of European Operations. Any increase in current return dollars is unjustified. 2. The basis for proposed consolidation has not been established. The Company's filing fails to prove that it is reasonable and necessary to incorporate the pipeline cost of service into the distribution cost of service and to consolidate various regional distribution systems into a single statewide system. 3. The City's jurisdiction to increase pipeline rates has not been established and, therefore, the proposed pipeline cost increase should be disallowed. The Railroad Commission has always exercised exclusive original jurisdiction over pipeline costs, while municipalities have exclusive original jurisdiction over gas distribution rates. With this filing, TXU has incorporated pipeline costs in excess of those previously approved by the Commission into the proposed distribution rate to be considered by the City, and all such pipeline costs should be disallowed. 4. Revenue requirements should be reduced rather than increased. Cities have provided consistent and more than fair rate relief to TXU over the past five years. This case should be thoroughly reviewed at the Railroad Commission from the perspective that current revenue requirements are excessive and that revenues should be reduced rather than increased by $70 million as proposed by TXU. The proposed consolidations should result in cost savings, not cost increases. 5. The TXU filing should be denied pursuant to agreement with the Company. Cities and TXU have reached a procedural agreement for development of a thorough rate hearing and consideration by the Railroad Commission. That agreement calls for TXU to extend Commission jurisdiction from 185 days to 300 days in exchange for Cities taking prompt action at the local level to allow perfection of all appeals before development of the case commences at the Commission. 1668\09\9400\mmo030703gmg