HomeMy WebLinkAboutItem 11 - Steering Committee TXU GasITEM #
MEMO TO: HONORABLE MAYOR AND MEMBERS OF THE CITY COUNCIL
FROM: ROGER NELSON, CITY MANAGER
MEETING DATE: JUNE 18, 2002
SUBJECT: RESOLUTION TO PARTICPATE IN STEERING COMMITTEE
OF CITIES SERVED BY TXU GAS
RECOMMENDATION:
City Council approve a resolution authorizing the City of Grapevine to participate in the
Steering Committee of Cities to intervene in TXU Lone Star Pipeline (TXU LSP) rate
filing at the Railroad Commission (GUD 9304).
FUNDING SOURCE:
The City of Grapevine will not incur any costs for participation in this process since TXU
Gas, according to state law, is required to reimburse the cities for any expenses related
to a rate review.
BACKGROUND:
On May 8th, 2002, TXU Lone Star Pipeline (TXU LSP), a division of TXU Gas, filed a
statement of intent with the Railroad Commission (GUD 9304). The new filing is a
request to establish a monthly fee to recover future "unpredictable" expenses associated
with implementation of a pipeline integrity and safety assessment (ISA) program. LSP
proposes that the initial assessment be set at 2.05 cents per Mmbtu and that the
monthly surcharge will remain in effect for, at least, a decade. While the immediate cost
to residential customers will represent only $1.25-$2.50 per year, the greater concern for
cities rests in the precedent a surcharge mechanism sets for future implementation of
`automatic' pass through of costs. It is important to note that the language LSP uses to
describe the charge as an "initial" assessment and the reference to "unpredictable"
expenses should be an indication that higher charges could be requested in the future.
The surcharge, if approved, will impact more than 1.4 million residential and commercial
customers (as well as industrial and transportation customers) that purchase TXU gas.
Please read the attached letter from Geoffrey Gay, the consultant that has worked for
the Steering Committee in previous rate cases, who recommends the cities oppose this
form of piecemeal ratemaking and intervene in the case. Mr. Gay's memo makes
June 12, 2002 (1:05PM)
reference to LSP's first surcharge filing, the Northside Pipeline (GUID 9292); the City
Council passed a resolution to intervene in that case on May 7 th 2002.
The Staff recommends participating in the Steering Committee in order to intervene in
this filing.
MYL
June 12, 2002 (1:05PM)
Cuo q3o�
RESOLUTION NO.
A RESOLUTION OF THE CITY COUNCIL OF THE CITY OF
GRAPEVINE, TEXAS AUTHORIZING INTERVENTION IN
GAS UTILITIES DOCKET 9304 AT THE RAILROAD
COMMISION; AUTHORIZING PARTICIPATION IN A
STEERING COMMITTEE WITH OTHER CITIES SERVED
BY TXU AND REQUIRING REIMBURSEMENT FROM TXU
LONE STAR PIPELINE OF CITIES REASONABLE RATE
CASE EXPENSES AND PROVIDING AN EFFECTIVE
DATE
WHEREAS, TXU Lone Star Pipeline (LSP) filed a statement of Intent with the
Railroad Commission (designated as GUD 9304) on May 8th, 2002 requesting authority
to establish a monthly fee to recover future, unpredictable expenses associated with
implementation of a pipeline integrity and safety assessment (ISA) program; and
WHEREAS, the requested surcharge in GUD 9304 will have an immediate
impact of $1.25 to $2.50 annually per residential customer, with the potential for much
higher increases in the future becoming automatic once the surcharge mechanism is
approved and becomes a precedent for automatic pass through of costs associated with
a pipeline safety cost recovery program; and
WHEREAS, Cities served by TXU have a history of cooperation in gas rate
matters and such cooperation in GUD 9304 will be efficient and cost effective in
evaluating whether the proposed pipeline integrity and safety assessment program is
reasonable and necessary, and whether associated costs should be recovered in
piecemeal ratemaking through a surcharge; and
WHEREAS, pursuant to Utilities Code § 103,023, municipalities have standing to
intervene in this case; and
WHEREAS, pursuant to Utilities Code § 103.022, municipalities are entitled to
reimbursement of their reasonable costs of participation.
NOW, THEREFORE, BE IT RESOLVED BY THE CITY COUNCIL OF THE CITY
OF GRAPEVINE, TEXAS:
Section 1. That the City Council of the Grapevine, Texas authorizes the City
Manager or his designee to represent the City on the Steering Committee of affected
cities (hereinafter called "Steering Committee") and authorizes the Steering Committee
of which the City is participating member, to retain legal counsel and engage
consultants, and to intervene on behalf of the City in related dockets and appeals.
Section 2. That the Steering Committee formed to oversee this effort on behalf
of cities is authorized to take all reasonable steps before the Railroad Commission and
before the Courts as may be necessary in an appeal of a Commission Order.
Section 3. That LSP is hereby directed to promptly pay cities' rate case
expenses as they are incurred.
Section 4. That the City Secretary shall cause copies of this resolution to be
sent to the TXU representative:
Autry Warren, Rate Manager
TXU Gas Distribution
1601 Bryan Street
Dallas, TX 75201-3402
And to:
Jay B. Doegey
City Attorney
City of Arlington
PO Box 231
Arlington, TX 76004-0231
For forwarding to the Steering Committee.
Section 5. That this resolution shall become effective from and after the date
of its passage.
PASSED AND APPROVED BY THE CITY COUNCIL OF THE CITY OF
GRAPEVINE on this the 18th day of June, 2002,
ATTEST:
RES. NO. 2
APPROVED AS TO FORM:
RES. NO.
hightFAX
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LLOYD GOSSELINK B
LEVINS, ROCHELLE,
BALDWIN & TOWNSEND, P.C.
ATTORNEYS AT LAW
111 CONGRESS AVEN UE TELEPHONE (512) 322-5800
SUITE 1800 Mr. Gay's Direct Line: (5 12) 322-5875 TELECOPIER (512) 472-0532
AUSTIN, TEXAS 78701 Email: ggay@Iglaw$rm.com www.iglawfirm.com
NIEMORAINrDUYI
TO: Cities Served by TXU Gas
FROM: Geoffrey N1. Gay
DATE: May 9, 2002
RE: New TXU LSP Rate Filing
TXU Lone Star Pipeline (LSP) filed a second statewide surcharge case on May 8, 2002.
The new filing is a request to establish a monthly fee to recover future "unpredictable" expenses
4. associated with implementation of a pipeline integrity and safety assessment (ISA) program.
LSP proposes that the initial assessrhont be set at 2.05 cents per MMBtu and that the monthly
surcharge remain in effect for at least a decade. While the immediate impact will only be about
$1.25 to $2.50 per year per residential customer, TXU's care in describing an "initial"
assessment and the alleged unpredictable nature of expenses should signal that much higher
charges will be requested in the future, once the surcharge mechanism is approved. Success by
TXU in this case may be particularly problematic for Cities and their residents if TXU attempts
to use this pipeline safety cost recovery mechanism as precedent for a future automatic pass
through of costs associated with a program to replace all iron clad or bare steel pipe as a safety
precaution.
The two pending LSP surcharge
governing ratemaking in the public interest.
reasonable, as well as necessary, historic
ratemaking, recovery of estimated future c
been extraordinarily rare. While the North.
it is likely that LSP's current rates are ad
these projects.
cases are contrary to long established principles
Under Texas lav, cost recovery is to be based upon
and recurring costs. Authorization for piecemeal
,sts or recovery of costs of incomplete'projects has
ide pipeline and the ISA'may be necessary projects,
quate to cover the future expenses associated with
This new filing, like the Northside surcharge case, involves ratemaking and Cities' costs
are reimbursable from TXU. The Company is requesting authorization to recover all rate case
expenses through a six-month surcharge. Cities will move to dismiss the case and argue that all
rate case expenses should be borne by TXU shareholders who control the management who
proposed to abandon the ratemaking process defined by statute and agency rules. Zn
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The filing of this case may actually work against TXU's interest by adding credibility to
Cities' argument in a motion to dismiss the Northside pipeline case that the proposed surcharge
methodology is TXU's new approach to ratemaking, not a situation presenting extraordinary
circumstances that compel a disregard for cost of service ratemaking in the public interest.
There are approximately 1.4 million residential and commercial customers who purchase
gas from TXU. This case will also impact industrial and transportation customers, and thus the
rate case expenses will be spread over an enormous number of units of gas in any given six-
month period. Assuming 120 million billing units over a six-month period, if each unit is
surcharged a penny it would yield approximately $1.2 million. Even if Cities lose a motion to
dismiss and the case is litigated, it is unlikely that rate case expense recovery would cost the
average residential consumer more than a quarter (25}.
The fact that TXU LSP has now filed two different surcharge cases in a month suggests
that the Company realized that it could not justify an overall rate increase even if construction
work in progress (CWP) for the Northside Pipeline and a reasonable level of pipeline safety
costs were included in a comprehensive rate filing. If the Railroad Commission will not dismiss
the surcharges cases, I may suggest to the Cities that we switch from a defensive to an offensive
posture and petition the RRC to reduce LSP's rates and to consolidate the ttivo surcharge cases
into one rate case.
As for now, I recommend that all Cities served by TXU Gas intervene in this new
proceeding (GUD No. 9304) along With the Northside Pipeline case (GUD No. 9292). In fact, if
your city has not yet passed a resolution authorizing intervention in the Northside Pipeline
matter, you may want to amend your resolution to authorize intervention in both GUD Nos. 9292
and 9304.
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