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Ord 48 Determining the General Natural Gas Rates ORDINANCE NO. 48 AN ORDINANCE FIXING AND DETMUN'ING THE GENERAL SERVICE RATE TO BE CHARGED FOR SALES OF NATURAL GAS TO RESIDENTIAL AND COMMERCIAL CONSUMERS WITHIN THE TOWN LIMITS OF WESTIAKE , DENTON COUNTY AND TA3RP7.ITT COUNTY, TEXAS, AND PROVIDING FOR THE MANNER IN WHICH SUCH RATE MAY BE CLANGED, ADJUSTED AND AMENDED. BE IT ORDAINED BY THE BOARD OF ALDERMEN OF THE TOWN OF WESTIAKE, TEXAS: SECTION 1. Effective with the first gas bills rendered from and after thirty (30) days from the date of final passage of this ordi- nance, the maximum general service rate for sales of natural gas ren- dered to residential and commercial consumers within the town limits of Westlake by Lone Star Gas Company, a Texas corporation, its successors and assigns, is hereby fixed and determined as follows: First 1,000 cu. ft. or fraction thereof $2.444 Gross; $2.20 Net Next 3,000 cu. ft. @ $1.256 per Mcf Gross; 1.13 per Mcf Net Next 6,000 cu- ft- @ 1.133 per Mcf Gross; 1.02 per Mcf Net Next 15,000 cu. ft- @ 1.044 per Mcf Gross; .94 per Mcf Net Next 75,000 cu. ft. @ .978 per Mcf Gross; .88 per Mcf Net All Over IOO,OOO cu. ft. @ .944 per Mcf Gross; .85 per Mcf Net No gas bill will be rendered to any residential or commercial consumer served under the above rate not consuming any gas during any monthly bill- ing period. ADJUSTMEUTS The amount of each net monthly bill computed at the above -stated rates shall be subject to the following adjustments: Plus or minus the amount of any increase or decrease, respectively, above or below the 42.5 cents per Mcf level in the intracompany city gate charge as authorized by the Railroad Commission of the State of Texas or other regulatory body hav- ing jurisdiction for gas delivered to Lone Star Gas Company's distribution system for sale to residential and commercial consumers where such changes are caused by increases or decreases in the cost of gas purchased by the Company; plus an amount equivalent to the proportionate part of any new tax, or increased tax, or any other governmental imposition, rental, fee or charge (except state, county, city and special district ad valorem taxes and taxes on net income) levied, assessed or imposed subsequent to April 1, 1972, upon or allocable to the Company's distribution operations, by any new or amended law, ordinance or contract. Each gross monthly bill shall be adjusted pro- portionately. Company, at its option, may forego the application of any adjustment if such adjustment would result in an increase in the monthly bill.; however, failure of Company to apply any adjustment shall not con- stitute a waiver of Company's right from time to time, or at any time, to make any adjustment, in whole or in part, in any subsequent current monthly bill that may be applicable to such bill. Net rate shall apply to all bills paid within ten days from monthly billing date; gross rate shall be applicable thereafter. The above rate is applicable to each residential and commercial consumer per meter per month or for any part of a month for which gas is used at the same location. In addition to the aforesaid rates, Company shall have the right to collect such reasonable charges as are necessary to conduct its business and to carry out its reasonable rules and regulations in effect. SECTION 2. The rate set forth in. Section 1 may be changed and amended by either the Town or Company furnishing ga.s in the manner pro- vided by law. Service hereunder is subject to the orders of regulatory bodies having jurisdiction, and to the Company's Rules and Regulations currently on file in the Company's office. SECTION 3. It is hereby found and determined that the meeting at which this ordinance is passed is open to the public, as required by Texas law, and that advance public notice of the tzme, place and purpose of said meeting was given, and that this rate ordinance is in compliance with the applicable general criteria issued by the Price Commission under the Economic Stabilization Act of 1970, as amended.. PASSED AND APPROVED on this the 22nd day of May , A.D. 19 72. ATTEST: r A. L. Odom, Secretary IXA, 1-15': G. H. Harmon, Jr., Mayor Town of Westlake , Texas -2- STATE OF TEXAS § COUNTY OF DENTON § COMM OF TARRANT § I, A. L. ODOM , Secretary of the Town of estla,ke .,Denton Coun and Tarrant County Texas, hereby certify that the above and foregoing is a true and correct copy of an ordinance passed and approved by the Board of Aldermen of the Town of Westlake at a regular session held on the 22nd day of May , 19 72 , as it appears of record in the Minutes of said Board, of Aldermen in Book 2 , page WITNESS MY HAND AND SEAL OF SAID TOWN, this the 22nd day of May . , A.D. 19 72 j r A. L. Odom, Secretary Town of Westlake , Texas -3- LONE STAR GAS COMPANY EXHIBIT 1 WESTLAXE, TEXAS DISTRIBUTION SYSTEM ORIGINAL COST LESS ACCUMULATED PROVISION FOR DEPRECIATION AT DECEMBER 31, 1971 Accumulated Original Line Original Provision For Cost Less No. Cost Depreciation Depreciation Distribution Plant 1 Mains $163 997 71 $22 022 27 $141 975 44 2 Services 11 689 83 1 569 76 10 120 07 3 Meters 3 211 66 431 27 2 780 39 4 Meter Installations 360 00 48 34 311 66 5 House. Regulators 1 052 78 141 37 911 41 6 House Regulator Installations 303 00 40 69 262 31 7 Total Distribution Plant 180 614 98 24 253 70 156 361 28 8 General Plant Allocated 2 500 74 904 80 1 595 94 9 Total $183 115 72 $25 158 50 $157 957 22 Line No. . LONE STAR GAS C014PANY WESTLAKE, TEXAS DISTRIBUTION SYSTEM REPRODUCTION COST NEW LESS ADJUSTMENT FOR AGE AND CONDITION AT DECEMBER 31, 1971 Adjustment Reproduction For Age And Cost New Condition EXHIBIT 2 Reproduction Cost New Less Adjustment Distribution Plant 1 Mains $136 922 73 $20 538 41 $116 384 32 2 Services 10 333 98 1 550 10 8 783 88 3 Meters 4 665 56 699 83 3 965 73 4 Meter Installations 443 53 66 53 377 00 5 House Regulators 1 012 60 151 89 860 71 6 House Regulator Installations 316 00 - 316 00 7 Total Distribution Plant 153 694 40 23 006 76 130 687 64 8 General Plant Allocated 1/ 2 500 74 904 80 1 595 94 0 1/ Per Books Total $156 195 14 $23 911 56 $132 283 58 LONE STAR CAS C014PANY EXHIBIT 3 WESTLAKE, TEXAS DISTRIBUTION SYSTEM FAIR VALUE RATE BASE AT DECEMBER 31, 1971 Original Cost Reproduction Line Less Accum. Cost New Less No. Prov. For Depr, Adlustment Fair Value Distribution Plant Total 157 957 22 132 283 58 147 687 77 9 Construction Work in Progress 1 Mains $141 975 44 $116 384 32 $1.31 738 99 2 Services 10 120 07 8 783 88 9 585 59 3 Meters 2 780 39 3 965 73 3 254 53 4 Meter Installations 311 66 13 377 00 90 337 80 5 House Regulators 95 911 41 860 71 891 13 6 House Regulator Installations 262 31 316 00 283 79 7 General Plant Allocated 1 595 94 1, 595 94 1 595 94 8 Total 157 957 22 132 283 58 147 687 77 9 Construction Work in Progress 135 34 135 34 135 34 10 Retirement Work in Progress (3 28) (3 28) (3 28) 11 Contributions in Aid of Constr.. (83 75) - (50 25) 12 Working Capital 1 161 37 1 161 37 1 161 37 13 Total $159 166 90 $133 577 Ol $148 930 95 Line No. LONE STAR GAS COMPANY EXHIBIT 4 WESTLAKE, TEXAS DISTRIBUTION SYSTEM REVENUES, EXPENSES, NET INCOME AND ADJUSTMENTS FOR KNOWN CHANGES TWELVE MONTHS ENDED DECEMBER 31, 1971 Per Books Adjusted 29 Provision For Federal Income Tax 30 Net Operating Income 31 Return on Rate Base of $ 148 930.95 $(2 553 06) $(2 239 11) (1.71%) (1.50%) Revenues 1 Residential Gas Sales $14 791.75 $16 015 32 2 Commercial Gas Sales 87 92 98 05 3 Industrial Gas Sales - - 4 Total Gas Sales 14 879 67 16 113 37 5 ' Other Gas Revenues 323 75 323 75 6 Total Revenues 15 203 42 16 437 12 Expenses Gas Purchased 7 Residential 5 502 15 6 280 28 8 Commercial 34 11 39 82 9 Industrial - - 10 Company Used - - 11 Unaccounted For 412 93 423 90 12 Total Gas Purchased 5 949 19 6 744 00 13 Distribution Operations - Labor 765 77 790 09 14 Distribution Operations - S & E 343 45 343 45 15 Distribution Maintenance - Labor 456 68 471 18 16 Distribution Maintenance - S & E 242 08 242 08 17 Customer Accounts -- Labor 697 98 720 15 18 Customer Accounts -- S & E 426 82 441 91 19 Sales Expense - Labor 301 88 311 47 20 Sales Expense - S & E 221 52 221 52 21 Admin. and General - Labor 461 50 470 76 22 Admin. and General - S & E 674 98 677 11 23 Uncollectible Accounts 71 07 71 07 24 Taxes Other Than Federal Income 1 004 60 1 032 48 25 Merchandise Revenue - Net (240 22) (240 22) 26 Provision for Depreciation 6 379 18 6 379 18 27 Total Expenses (Excluding Federal Income Tax) 17 756 48 18 676 23 28 Net Income Before Federal Income Tax (2 553 06) (2 239 11) 29 Provision For Federal Income Tax 30 Net Operating Income 31 Return on Rate Base of $ 148 930.95 $(2 553 06) $(2 239 11) (1.71%) (1.50%) LONE STAR GAS COMPANY EXHIBIT 5 WESTLAKE, TEXAS DISTRIBUTION SYSTEM DETAIL OF ADJUSTMENTS TO REVENUES AND EXPENSES Adjustment No. 1 - Annualization of 6-1/2% General Wage Increase Effective July 16, 1971 $ 162 55 Distribution Operations - Labor $ 24 32 Distribution Maintenance - Labor $ 14 50 Customer Accounts - Labor $ 22 17 Sales Expense - Labor $ 9 59 Administrative & General - Labor 9 26 Administrative & General - Supplies and Expenses $ 2 13 Total Expenses $ 81 97 Provision for Federal Income Tax $ (39 35) Adjustment to Net Income $ (42 62) Adjustment, No. 2 - City Gate Gas Cost Adjustment Residential Gas Purchased $ 162 55 Commercial Gas Purchased 1 03 Company Used Gas $ - 70 Unaccounted For $ 10 97 Total Purchases $ 174 55 Provision for Federal Income Tax 83 78 Adjustment to Net Income $ (90 77) 4djustment No. 3 - Normalize Weather Residential Gas Sales $ 1 223 57 Commercial Gas Sales 10 13 Total. Gas Sales $ 1 233 70 Residential Gas Purchased $ 615 58 Commercial Gas Purchased 4 68 Taxes Other Than Federal Income 24 67 Provision for Federal Income Tax 282 61 Total Expenses and Federal Income Tax $ 927 54 Adjustment to Net Income $ 306 16 Adjustment No. 4 - Annualize Increase in Postal Rate, Effective May 16, 1971 Customer Accounts - Supplies and Expenses $ 15 09 Provision for Federal Income Tax (7 24) Adjustment to Net Income $ (7 85) Adjustment No. 5 - Giving Effect to FICA Tax Base Increase Effective. January 1, 1972 Taxes Other Than Federal Income $ 3 21 Provision for Federal Income Tax _(1.54) Adjustment to Net Income $ (1 b7) LONE STAR GAS COMPANY WESTLAKE, TEXAS DISTRIBUTION SYSTEM REVENUE DEFICIENCY Line No. EXHIBIT 6 1 Rate Base at December 31, 1971 $ 148 930 95 2 Rate of Return X 8% 3. Net Operating Income Required (Line 1 X Line 2) $ 11 914 48 4 Adjusted Net Operating Income 2/ 6 335 14 5 Net Operating Income Deficiency (Line 3 Less Line 4) $ 5 579 34 6 Ratio Incremental Net Income to Incremental Revenue l/ .50960 7 Increase in Revenue Required (Line 5 : Line 6) $ 10 948 47 8 Increase in Revenue Required as Per Cent of Residential. and Commercial Actual Revenue Excluding Air Conditioning Sales 68.99% 9 Approximate Increase in Revenue Resulting From Proposed Rate $ 1 586 98 10 Increase in Revenue Resulting From Proposed Rate as Per Cent of Residential and Commercial Revenue Excluding Air Conditioning Sales 10..00% l/ Incremental Revenue 1..00000 Incremental Occupation Tax - Incremental Street and Alley Rental .02000 Incremental Taxable Income .98000 Incremental Federal Income Tax at 48% .47040 Incremental Net Operating Income .50960 2/ Adjusted To Reflect Negative Federal Income Tax, if any LONE STAR GAS COMPANY APPLICATION TO THE TOWN OF WESTIAKE' TEXAS FOR APPROVAL OF COMPANY'S PROPOSED RESIDENTIAL AND COMMERCIAL RATE SCHEDULE FOR NATURAL GAS SERVICE TO THE HONORABLE MAYOR AND BOARD OF ALDERMEN TOWN OF WESTLAKE, TEXAS Gentlemen: Lone Star Gas Company, throughout its long period of service to the people of Texas, has had as a matter of first concern the neces- sity of providing dependable gas service at reasonable prices to all of our customers. In order to secure the large amount of capital which is required to meet the ever-growing demand for natural gas service, at the lowest cost to the consumer, we must earn a fair return upon the fair value of our property. Since 1969, when the Company last requested rate relief, vir- tually all of our costs have increased. To cite just a few examples, a half -ton service truck that cost $2,835 in 1968 costs $3,205 today, an increase of 13.1%; a loader tractor with side boom that cost $36,050 in 1968 costs $41,457 today, a 15% rise; a truck/trailer that cost $21,500 in 1968 now costs $28,038, a substantial 30.4% increase. The price of 4 -inch distribution line pipe has increased since 1968 by 21.5%. In order to retain and attract qualified employees, it has been necessary to give wage increases totaling 11.3% in the last two. years. The cost of borrowed money reached a high of 9 3/4% in 1970, and the Company's latest borrowing was at the rate of 7.5% in 1971. The Company's weighted average interest cost on all borrowed money in- creased 17% in this three-year period. The most substantial increase, of course, is in the cost of purchased gas. Because of the advantages of gas as a clean -burning source of energy, the demand for natural gas is great. Due to Lone Star's careful advance planning, there is an adequate supply of gas for Lone Star customers (unlike the situation in some parts of the nation where a gas shortage exists). Lone Star Gas Company, like most other gas utility companies, buys a large part of its gas from independent pro- ducers. Lone Star must be able to meet the prices offered to producers by other pipeline companies, including interstate pipelines, in order to continue to maintain its present adequate supply of gas for the people and industries of Texas. The cost of this gas has increased. While Lone Star is still purchasing gas under some contracts that were made in the 50's at a price of approximately 15C per 1,000 cubic feet, we must purchase new gas at today's prices, which sometimes exceed 30G per 1,000 cubic feet. This is part of our cost of preparing for the future. To continue to protect our consumers, we must pay the competi- tive price. The cost of purchased gas is reflected as an expense of the Company in the city gate rate or intracompany charge by the Transmission Division to the Distribution Division, which is fixed by the Railroad Commission. -2- On March 3, 1972, the Texas Railroad Commission granted adop- tion of the Gas Cost .Adjustment Rule that was requested by Lone Star Gas Company after full hearings participated in by representatives of many of the cities which we serve. This order authorized the intracom- pany "city gate" charge for gas sold to residential and commercial cus- tomers to be adjusted for changes in the cost of gas purchased by Lone Star. When the cost of gas is increased or decreased, the cost of gas at the city gate will be increased or decreased by 65% of the change in the purchase price. This calculation is made every six months, and Lone Star must ftle a certified statement covering such costs with the Texas Railroad Commission and furnish a copy to each incorporated city. or town which it serves. Unless this gas cost data is contested within thirty days, it will go into effect as part of the authorized intracompany charge. It should be realized that nn increase in the amount of the authorized intracompany city gate charge does not result in any revenue to the Company until it: is put in effect in the distribution rates for the cities and towns served. Therefore, this rate application also carries an adjustment to cover any increase or decrease i.r, gas purchase expense. Pone Star filed its applications for gas cost adjustments at the Railroad Commission and now with the cities we serve, because of the accelerating price that none Star must pay for gas and the regulatory -3- lag that has restricted capital necessary to find new gas supplies for its customers. In the findings in the above-mentioned Railroad Commis- sion proceedings, the Commission stated, "the adoption of gas cost ad- justment rules requested by Lone Star Gas Company is a proper regulatory practice. The Commission further finds that due to the rapidly spiral- ing cost of gas and the effect of regulatory lag, such relief will bene- fit both Lone Star and the cities, towns, and villages it serves." The gas -cost -adjustment clause will permit the Company to compete for gas, and it will save money for the cities in legal costs in connection with frequent gate rate hearings before the Texas Railroad Commission and city governing bodies. It should be noted that gas cost adjustments are not new, and their, advantages have been recognized in some thirty- four other states. Existing rates for gas sold by Lone Star to all cus- tomers in Oklahoma and to industrial customers in Texas have for many years contained gas -cost -adjustment clauses. There are seventy-two towns in Lone Star's gas distribution system in Texas which currently have gas cost adjustments. Most electric utility companies that operate in Texas have fuel cost adjustments in their rates. Lone Star's gas purchase cost, when related to total operating expenses, is twice as high as the percentage relationship between fuel cost and total operating expenses in the case of an electric utility. As a result of the recent proceedings and the subsequent filing of our certified cost of gas, the Railroad Commission has -4- authorized Lone Star to increase its intracompany charge by 1.1C, from 41.40 to 42.50 per Mcf. This increase is reflected in the data presented to you in the attached schedules. The Price Commission has expressly endorsed the allowance of gas cost adjustments, since they are totally cost -oriented and do not contribute to inflationary expectations. In view of our increased expenses, we must request this in- crease in rates which is needed immediately to maintain our standards of service, to obtain sufficient capital to permit necessary facility expansion, and to meet the ever-growing demand for gas. With this in- crease, natural gas will still be the most economical source of energy for home or business. In view of the national policy to combat inflation, we are limiting our request for increased rates to a maximum of ten percent of the present average rate in those towns and cities which have a greater deficiency. In making this request, the Company has considered the gen- eral criteria which are applicable to municipalities as regulatory bodies under the provisions of Price Commission Regulations, Section 300.16a. (1) The increase is cost -justified and does not reflect future inflationary expectations. (2) The increase is the minimum required to assure con- tinued, adequate and safe service or to provide for necessary expansion to meet future requirements. (3) The increase will achieve the minimum rate of return needed to attract capital at reasonable costs and not to impair the credit of the public utility. (4) The increase does not reflect labor costs in excess of those allowed by Price Commission policies. (5) The increase takes into account expected and obtain- able productivity gains, as determined under Price Commission policies. (6) The procedures of the regulatory agency provide for reasonable opportunity for participation by all interested persons, or their representatives, in its proceedings. These cost -oriented increases fully comply with the above criteria. While we have increased productivity on a per employee basis, this is reflected in the data for the base year 1971. In requesting as prompt action as possible by your honorable body, we submit herewith the following seven exhibits. Exhibit 1: Original Cost Less Accumulated Provision for Depreciation. Exhibit 2: Reproduction Cost New Less Adjustment for Age and Condition. Exhibit 3: Fair Value Rate Base. Exhibit 4: Revenue, Expenses and Net Operating Income Adjusted for Known Changes. Exhibit 5: Detail of Adjustments of Revenue and Expenses. Exhibit 6: Revenue Deficiency. Exhibit 7: Proposed Residential and Commercial Rate Ordinance, We respectfully present this application and request that you place it on the agenda of your next open meeting for consideration and passage of the proposed rate ordinance. Sincerely yours, LONE STAR GAS COMPANY S 7 BYDate Presented Presented anager -6-