Ord. 0392 1978-11-27ORDINANCE NO. 392
AN ORDINANCE OF THE CITY OF PEARLAND, BRAZORIA.AND HARRIS COUNTIES,
TEXAS, PRESCRIBING AND APPROVING RATES TO BE CHARGED BY HOUSTON
LIGHTING & POWER COMPANY IN THE CITY OF PEARLAND, TEXAS; PROVIDING
FOR AN EFFECTIVE DATE FOR SUCH RATE SCHEDULES; PROVIDING CONDITIONS
UNDER WHICH SUCH RATE SCHEDULES MAY BE CHANGED, MODIFIED, AMENDED
OR WITHDRAWN; CONTAINING FINDINGS AND PROVISIONS RELATED TO THE
SUBJECT; REPEALING ANY OTHER ORDINANCE OR PART OR PARTS THEREOF
WHICH MAY BE IN CONFLICT HEREWITH; PROVIDING AN EFFECTIVE DATE;
A SEVERABILITY CLAUSE; AND CONTAINING OTHER PROVISIONS RELATING
TO THE SUBJECT.
WHEREAS, on July 14, 1978, Houston Lighting & Power Company filed with
the City of Pearland, a request for an increase in rates to be charged within
the City in the amount of $174.9 million per annum on a system -wide basis, an
increase of approximately 12.6%; and
WHEREAS, the City suspended the effective date of such proposed rate
increase for 120 days beyond August 21, 1978; and
WHEREAS, the City Council having considered the Company's rate increase
at a public hearing is of the opinion that such request is excessive; and
WHEREAS, the City Council is of the opinion that a lesser increase in
rates should be approved for the Company; and
WHEREAS, the City Council finds that the revenues approved by the Public
Utility Commission of Texas, pursuant to final order entered in Docket No. 2001
styled RE: The application of Houston Lighting $ Power Company for authority
to change rates, will assure rates which are just and reasonable to both
customers and the Company, NOW, THEREFORE,
BE IT ORDAINED BY THE CITY COUNCIL OF THE CITY OF PEARLAND, TEXAS:
Section 1. That an increase in the rates of Houston Lighting & Power
Company for electricpower and energy sold within the City of Pearland, Texas,
are hereby approved and establishedin accordance with the rates prescribed by
the Public Utility Commission of Texas, pursuant to Final Order entered in Public
Utility Commission Docket No. 2001, on November 20, 1978, a copy of which order
is attached hereto and made a part of this ordinance for all purposes as
Exhibit;"A". Suchrates, as are approved in accordance herewith, are those under
which said Company shall be authorized to render electric service and to collect
charges from its customers for the sale of electric power and energy within the
corporate limits of the City of Pearland, Texas, until such time as said rate
schedules may be changed, modified, amended or withdrawn, with the approval of
the City Council.
Section 2. That the Company shall file a revised tariff and establish
rates with the City in accordance with the conclusions, findings of facts, and
conclusions of law contained in Final Order under Docket No. 2001 so as to
generate revenues not greater than those prescribed in Docket No. 2001 and on
a total systemwide operating basis.
Section 3. That the Company shall, within 5 days from the final approval
of rates and tariffs by the Public Utility Commission of Texas in Docket No. 2001,
file with the City a revised Schedule of Rates and Tariffs identical to those
rates and tariffs approved by said Commission in Docket No. 2001. Said rates
and tariffs shall become effective within the City on the day following the
filing thereof and such revised and approved rates and tariffs shall be charged
by the Company for electricity consumed after said effective date and may not
be charged for electricity consumed prior to such date.
Section 4. That the Schedules of Rates and Tariffs shall be subject
to a monthlyadjustment for changes in fuel costs calculated according to the
formula made effective by the Public Utility Commission of Texas pursuant to
its Order in the aforesaid Docket No. 2001. That the monthly adjustment for
changes in cost of service shall be discontinued.
.. -
Section 5. That the action of the City Council of the City of Pearland,
Texas enacting this ordinance constitutes, on the date of its final passage, a final
determination of rates for sale of electric power and energy by Houston Lighting &
Power Company within the City of Pearland, Texas in accordance with Section 43(e) of
the Public Utility Regulatory Act of the State of Texas.
Section 6. Nothing contained in this ordinance shall be construed now or
hereafter as limiting or modifying, in any manner, the right and power of the City
under the law to regulate the rates and charges of Houston Lighting $ Power Company.
Section 7. All existing ordinances, parts of ordinances, or code provisions
orpartsof code provisions, in conflict herewith are hereby repealed only to the
extent of such conflict. Ordinances 329 and 329-1, and all attached schedules and
riders thereto, heretofore passed, approved and adopted by the City Council of the
City:of Pearland, Texas, are hereby expressly repealed.
Section 8. Should any section, sub -section, sentence, provision, clause or
phraseof this ordinance be held invalid for any reason, such invalidity shall not
render invalid any other section, sub -section, sentence, provision, clause or phrase
of this ordinance, and the same are declared severable for this purpose.
Section 9. This ordinance shall be effective and be in full force and
effect after its passage and approval upon second and final reading.
PASSED AND APPROVED on First Reading by the City Council of the City of
Pearland, Texas, this 13th day of November, 1978.
ATTES
`-City Secretary
AS AMENDED
PASSED AND APPROVED/On Second and Final Reading by the City Council of the
City of Pearland, Texas, this <7 day of f "�c--t1978.
MAYOR
-ATTEST
City Secretary,
EXHIBIT "A"
DOCKET NO. 2001
RE: THE APPLICATION OF HOUSTON X
LIGHTING & POWER COMPANY FOR X
AUTHORITY TO CHANGE RATES X
FINAL ORDER
PUBLIC UTILITY COMMISSION
Procedural Statement
OF TEXAS
On July 14, 1978, Houston Lighting & Power Company (HL&P) filed an
application for authority to change rates in its unincorporated areas. The effect of
this application and similar applications filed with municipalities exercising original
jurisdiction over HL&P would be an increase in systemwide base rates of
.4235,158,606, calculated by adding the $174,528,039 stated by HL&P in its original
application and $60,630,567 which represents its proposed bringing forward into
base rates of costs that would otherwise be recovered through its cost of service
adjustment clause (TR 147-48). A prehearing conference was held on July 31, 1978,
at which various preliminary matters relating to final hearing herein were resolved.
At said conference and subsequent thereto, intervenor status was granted to the
following entities:
1. The combined cities of Baytown, Houston, Lake Jackson, and the Texas
Municipal League on behalf of those member cities served by HL&'
representing ratepayers in their respective cities;
2. Chambers County, Texas;
3. The Association of Community Organizations for Reform Now
(ACORN);
4. Armco, Inc.;
5. Dow Chemical Company;
6. St. Regis Paper Company; ,
7. Stauffer Chemical Company;
8. United States Steel Corporation;
9. Coastal Industries Group composed of Monsanto Company; Air Products
& Chemicals, Inc.; E. I. DuPont deNemours & Company; Anheuser-
Busch, Inc.; Celanese Chemical Company; Crown Central Petroleum
Corporation; Diamond Shamrock Corporation; Olin Corporation;
Pennwalt Corporation; Reynolds Metals Company; Rohm & Haas Texas,
Inc.; Shell Oil Company; Soltex Polymer Corporation; Union Carbide
Corporation; and U. S. Industrial Chemicals Company;
10. Community Public Service Company.
At the prehearing conference, the proposed effective date of the rate change
was suspended for 120 days pursuant to art. 1446c, Section 43(d), V.A.C.S. The
hearing on the merits was convened on September 18, 1978, and recessed until
October 3, 1978. The hearing was adjourned on October 16, 1978.
After public hearing, the Commission, based upon the evidence, the law and
matters officially noticed, makes the following conclusion, supported by the
following Findings of Fact and Conclusions of Law:
Conclusion
•
Based upon the test year presented, HL&P has a revenue deficiency of
$129,475,421 and should be allowed to adjust its_present rates as set out below to
reflect the cost of service and to produce the revenues required to eliminate such
deficiency. The underlying Findings of Fact and Conclusions of Law supporting this
conclusion are as follows:
Findings of Fact
1. Jurisdiction. HL&P is an investor -owned electric utility operating
under a Certificate of Convenience and Necessity issued by the
Commission. The Commission has jurisdiction to consider the matters
presented in this docket.
2. Original Cost. The original cost of electric plant of HL&P, as of
March 31, 1978, including plant construction completed but not
classified, is $2,553,461,151 as claimed by the company and as shown on
Staff Exhibit 16 (Exhibit B-2, p. 1), which amount the Commission finds
to be reasonable. The corresponding provision for accumulated
depreciation, proposed by the company, $464,717,626, is increased by
$10,478,371 to $475,195,997 to properly reflect the recovery of dollars
attributable to increased depreciation by HHL&P from its customers on a
monthly basis. Staff Exhibit 17, pages 10-12 (as amended).
3. Invested Capital. The invested capital of HL&P is $2,175,513,603,
which is calculated in the following manner:
Net Electric Plant in Service
Construction Work in Progress
and Nuclear Fuel in 'Process
Plant Held for Future Use
Working Capital
Deferred Federal Income Taxes
Reserves for Property Insurance
and Injuries
Customer Deposits and Advances
Unamortized Pre -Job Development
Investment Tax Credits
(FOF#2) $2,078,265,154
(FOF#4 & 5)
(FOF#6)
(FOF#7)
(FOF#8)
(FOF#8)
(FOF#8)
179,155,839
4,228,089
93,920,373
(135,941,462)
(8,481,655)
(25,379,298)
(10,253,437)
$2,175,513,603
4. Construction Work in Progress. The amount of $156,287,426 allowed
for construction work in progress (CWIP) consists of forty (40%) percent
of the cost of the projects set forth in Schedule C of the HL&P Rate
Filing Package. The Commission finds that this amount should be
allowed in invested capital in order that HL&P's financial integrity will
be maintained due to the capital intensive nature of the electric
industry and in order that it remain capable of attracting the large
amounts of additional capital necessary to continue its program of
construction of new generation facilities capable of both meeting the
future energy demands of its customers and utilizing more abundant
fuels than natural gas or oil. Staff Exhibit 16, page 5.
5. Nuclear Fuel in Process. Nuclear fuel in process represents forty
(40%) percent of the amount claimed by HL&P, excluding $8,919,321,
which represents funds advanced by HL&P to Conoco in connection with
a joint exploration project. Noting that Federal Power Commission
Order No. 561 (February 2, 1977) allows electric utilities to accrue an
allowance for funds. used during construction (AFUDC) on nuclear fuel
in process, this Commission finds that the inclusion of nuclear fuel in
process is subject to the same standards for inclusion in rate base as
construction work in progress under the Public Utility Regulatory Act,
Section 41(a). With respect thereto, it is determined that the inclusion
of $22,868,413 of nuclear fuel in process is necessary to maintain the
financial integrity of HL&P on an ongoing basis, since the utility's
participation in two separate nuclear power projects will require the
expenditure of significant amounts of additional capital. Staff Exhibit
16, page 4.
(FOF#8)
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6. Plant Held for Future Use. In Southwestern Bell Telephone Company
v. Public Utility Commission of Texas, S.W. 2nd (Tex.
1978), the Supreme Court mandated that this Commission specifically
set forth criteria in evaluating plant held for future use as a potential
component in rate base. The inclusion of such plant in rate base will
therefore be limited to that plant which is not considered by HL&P to
be "excess property to be sold," and which is currently scheduled to be -
placed in service within ten (10) years from date hereof, which period of
time the Commission finds to be reasonable in this case. Staff Exhibit
10.
7. Working Capital. Working capital in the amount of $93,920,73 is
included in invested capital which represents an amount sufficient to
allow HL&P to meet its normal business needs. Said allowance includes
$18,220,105 for materials and supplies, $51,492,308 for fuel stock,
$4,045,698 for prepayments, and $20,162,262 as cash working capital
The above levels of materials and supplies and prepayments constitute a
thirteen month average of said items, while fuel stock is based upon
year end levels, since fuel oil increased throughout the test period.
Cash working capital is computed as one -eighth of adjusted operation
and maintenance expenses excluding prepayments, fuel expense and
materials and supplies as expensed during the test year. Rate Filing
Package, Schedule G1 and Staff Exhibit 16 (Exhibit B-2, page 2 of 2).
8. Deferred Federal Income Taxes, Reserves for Property Insurance and
Injuries, Customer Deposits and Advances, and Unamortized Pre -Job
Development Investment Tax Credits. Deferred federal income taxes
in the amount of $135,941,462, reserves for property insurance and
injuries in the amount of $8,481,655, customer deposits and advances in
the amount of $25,379,298, and .unamortized pre -job development
investment tax credits in the amount of $10,253,437 are excluded from
invested capital, since each such item represents funds either supplied
by ratepayers or for which there are no related capital costs. Staff
Exhibit No. 17B (Exhibit- B-2, page 1).
9. Affiliated Companies. Houston Lighting & Power Company, Utility
Fuels, Inc. (UFI), and Primary Fuels,- Inc. (PFI) are wholly owned
subsidiaries of Houston Industries, Inc. (HII) with HL&P accounting for
approximately 9896 of HII consolidated assets and 99% of HII common
stock equity. Houston Industries, Inc. files a consolidated return for tax
purposes.
10. Affiliate Transactions. There have been no transactions between
HL&P and PFI. UFI was incorporated to acquire and deliver fuels to
HL&P generation facilities. To date the only transactions between
HL&P and UFI are: (1) UFI has contracted to sell and deliver coal to
the W. A. Parish generation facilities, and (2) HL&P has provided UFI
with uranium to be resold to a third party, which uranium will be
returned in kind to HL&P and for which UFI is paying interest to HL&P
based upon the value of the uranium sold. The Commission finds that
the agreement for sale and delivery of coal to the W. A. Parish units is
reasonable, and further that the uranium transfer by HL&P to UFI is
equitable provided that said interest rate is not less than the prime rate
charged by banks in Houston, Texas.
11. Net Current Cost. The net current cost of plant of HL&P is
$3,070,100,000, as computed by the Staff and reflected in Staff Exhibit
No. 12 (Lee Exhibit 31). The Handy -Whitman Index is used as the most
appropriate method of trending utility plant to determine current cost.
W. A. Parish Generating Unit No. 6 is included in the determination of
current cost based upon its original cost as of March 31, 1978. The
original cost of land is used, as proposed by the Staff. The current cost
of the company's total plant in service is $4,298,100,000. The
methodology proposed by the Commission Staff, set out in Staff Exhibit
No. 12, in trending a theoretical reserve is the most appropriate means
of determining the adjustment for age and condition, which the
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Commission finds to be $1,228,000,000, as shown on Staff Exhibit No. 12
(Lee Exhibit 3). The adjustment for age and condition and depreciation
expense, including accumulated depreciation on original cost as
proposed by the Staff, is consistent with each other inasmuch as each is
calculated on a straight line basis and estimate a useful service life
from the date the plant is placed in service. Accordingly, deduction of
the adjustment for age and condition from the current cost of plant in
service results in a net current cost amount of $3,070,100,000.
12. Adjusted Value of Invested Capital. The adjusted value of invested
capital used and useful in rendering service to the public is
$2,500,339,515 which is composed of the following elements:
Net Plant - Original Cost
(see FOF #2)
Percentage . Mix
Net Plant - Current Cost
(see FOF #11)
$2,078,265,154
67.25% $1,397,633,316
3,070,100,000
32.7596 1,005,457,750
Construction Work in Progress
and Nuclear Fuel in Process
Plant Held for Future Use
Working Capital
Deferred Federal Income Taxes
Reserve for Property Insurance and
Injuries
Customer Deposits and Advances
Unamortized Pre -Job Development
Investment Tax Credits
Adjusted Value of Invested Capital
(FOF#4 & 5)
(FOF#6)
(FOF#7)
(FOF#8)
(FOF#8)
(FOF#8)
(FOF#8)
179,155,839
4,228,089
93,920,373
(135,941,462)
(8,481,655)
(25,379,298)
(10,253,437)
$2,500,339,515
The percentage mixes applied to original and current cost of plant are
as computed by the Staff in Staff Exhibit No. 13 (Exhibit WEA-12).
These percentages adequately reflect inflation, quality of service,
service area growth rate and the need to attract new capital, as
required by art. 1446c, Sec'. 49(a), V.A.C.S.
13. Capitalization.. The capitalization of HL&P at the end of the test
year, adjusted to reflect all known and measurable changes, as shown on
Staff Exhibit 13 (Exhibit WEA-11), is derived as follows:
a. Long term debt of $1,233,000,000, representing 48.30 percent of
total capital, with an, embedded cost of 7.34 percent;
b. Preferred stock of $213,945,340, representing 8.35 percent of
total capital, with an embedded cost of 8.10 percent;
c. Common stock equity of $988,700,474, representing 38.58 percent
of total capital, upon which a reasonable rate of return is 13.80
percent.
d. Job development investment tax credits of $122,344,443,
representing 4.77 percent of total capital, upon which a
reasonable rate of return of 10.02 percent is allowed.
f4. Cost of Capital. The adjusted capitalization and weighted cost of
capital to HL&P is as follows:
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Source
Long Term Debt`.
Preferred Stock
Common Stock
Job Development
Investment Tax Credit 122, 344, 443
Component
Percent Component . Weighted
Amount of Total Cost Average Cost
Totals
$1,238,000,000
213,945,340
988,700,474
48.30% 7.34% 3.54%
8.35% 8.10% .68%
38.58% 13.80% 5.32%
4.77% 10.02% .48%
$2,562,990,257 100.00% 10.02%
15. Debt. The annual interestrequirement on long term debt capital is
$90,869,200 representing a cost of 7.34% on 48.30% of HL&P's
capitalization structure resulting in a weighted average cost of 3.54%.
16. Preferred Stock. The annual dividend requirement on preferred stock
is $17,329,573 representing a cost of 8.10% on 8.35% of HL&P's
capitalization structure resulting in a weighted average cost of .68%.
17. Return on Equity Capital. The annual return allowed on equity
capital of 13.8% on 38.58% of HL&P's capitalization structure is fair
and reasonable and is sufficient to assure confidence in the financial
integrity of HL&P so as to maintain its credit and to attract additional
capital and is comparable to those returns of similar companies having
comparable risk and results in a weighted average cost of 5.32%.
18. Investment Tax Credit. HL&P is allowed to earn the composite cost
of capital of 10.02% on the unamortized job development investment
tax credit in the amount of $122,344,443. No reduction in rate base has
been made by this amount or for any portion of said unamortized
investment tax credit.
19. Bond Rating. The return on common equity permitted herein will
result in a pre-tax times interest coverage of 3.78 which would support
the bond rating of HL&P, thus indicating that the company will continue
its ability to attract capital at the lowest ultimate cost to -the
ratepayer. The amount of allowance for funds used during construction
as a percentage of earnings for common equity is 13.73%, which is
reasonable under the circumstances of this case.
20. Return on Adjusted Value of Invested Capital. A reasonable return on
the adjusted value of invested capital is 8.718%. Such a rate will not
yield more than a fair return on the adjusted value of invested capital,
as required by art. 1446c, Sec. 45(a), V.A.C.S.
21. Cost of Service. The adjusted cost of service and revenue
requirement of HL&P for the test period is $1,435,345,489 and is
composed of the following elements:
Fuel
Depreciation
Operation and Maintenance Expenses
Taxes other than Federal Income Taxes
Federal Income Taxes
Amortization of Cancellation Charges
Interest on Customer Deposits
Return
$ 751,191,669
87,229,379
184,959,877
67,619,017
125,763,255
278,424
317,405
217,986,463
Total Cost of Service $1,435,345,489
22. Fuel. The company's. test period fuel expense of $755,782,086 is
decreased by $4,590,417, resulting in a total fuel expense of
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•
$751,191,669 to properly recognize an increase of $2,381,794 in total
kwh sales as of the end of the test period, and a decrease of $6,972,211
in kwh sales due to the weather normalization adjustment by the
Commission herein. Rate Filing Package, Schedule N-3.1, page 2.
23. 'Depreciation. HL6cP's current composite depreciation rate is 3.20
percent and is composed of the following elements:
Gas/Oil 2.61%
Coal 2.63%
Other 5.0%
Production Composite 2. 98%
Transmission 2.77%
Distribution 3. 28%
General 5.56%
System Composite 3.20%
The companyhas proposed that the gas/oil production depreciation rate
be increased from 2.61 percent to 4.10 percent in order to reflect the
anticipated early retirement of various gas/oil generation units in 1996,
which is the termination date of HL&P's Exxon gas contract. The
Commission finds that there is insufficient evidence at this time to
conclude that oil, as a boiler fuel, will be unavailable after 1996 either
because of scarcity or prohibition by law. The Commission further finds
that service lives of thirty (30) years proposed by Staff witness Lee for
accounts 355 (poles and fixtures), 365 (overhead conductors and
devices), and 368 (line transformers) are reasonable and proper. Staff
Exhibit 12, page 7. The above adjustments, hereby adopted by the
Commission, produce the following functional depreciation rates:
Gas/Oil 3.266%
Coal 2.857%
Other 5.00096
Production Composite 3.460%
Transmission 2.892%' .
Distribution 3.737%
General 5.453%
System Composite 3.605%
24. Operation and Maintenance Expenses. A reduction in the amount of
$8,311,255 to HL&P's proposed operation and maintenance expenses of
$193,271,132 is reasonable, as set out below, and results in an allowable
total of $184,959,877. The specific adjustments are as follows:
a. A reduction in the company's proposed level of wages in the
amount of $513,044 to reflect: (1) HL&P's initial overstatement
of that portion of wages attributable to the monthly payment of
supplemental retirement checks (Staff Exhibit 16, page 7); and (2)
an overage in the utility's projected level of overtime expense.
The Commission finds that the use of a five year average of
overtime as a percentage of base wages is reasonable, however,
the exclusion of any year from said average because of abnormal.
results must be based upon known events or occurrences in said
year which skewed those results.
b. A reduction of $497,889 of employee benefit expense, since
increases in the administrative portion of such expense is more
properly a function of increases in the number of employees than
increases in the level of wages. Staff Exhibit 16, pages 7 and 8.
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c. A reduction of $92,033 in legal fees from cost of service, since
such fees were expended for legislative advocacy. Staff Exhibits
9and9A.
d. A reductionof $283,663 for nonrecurring legal expenses
associated with litigation between HL&P and Westinghouse
Electric Corporation involving the delivery of uranium for use at
the South Texas Nuclear Project. The Commission finds that
given the nature of this litigation and the magnitude of said fees,
the most appropriate means of recovery is the amortization of
such fees over a five-year period.
e. A reduction in rate case expense of $32,338 which constitutes the
amount expended by HL&P for an observed depreciation study.
The Commission finds that the cost of the observed depreciation
study in this docket is excessive in comparison with other
reasonably accurate methodologies for determining an adjustment
for age and condition of plant. Staff Exhibit 16, pages 8 and 9.
f. A reduction of $951,226 in "other" operation and maintenance
expenses, since there is insufficient evidence in the record to
conclude that HL&P's proposed increase in the test year level of
expenses is reasonable (TR 1284-85).
g•
A- reduction of $400,000 in the amount of HL&P's proposed
property insurance reserve accrual. Noting that HL&P has not
charged any losses against said reserve for seventeen (17) years
and that the current level of said reserve will effectively provide
more than $15,000,000 of loss protection, the Commission finds
that annual increases of $100,000 to the current level of the
reserve are reasonable and proper.
h. A reduction in uncollectibles of $93,155, in city franchise fees of
$2,938,323, and in the Public Utility Commission• assessment of
$2,509,584 to reflect a reclassification of the Public Utility
Commission assessment from Operation and Maintenance expenses
to other taxes, and the reduced cost of service for HL&P as set
forth in this Order.
25. Taxes other than Federal Income Taxes. The Commission finds that
an adjustment to HL&P's proposed expense for taxes other than federal
income taxes of $66,316,662 in the amount of $1,302,355 should be
made, resulting in an allowable expense of $67,619,017. The adjustment
made reflects a reclassification of the Public Utility Commission
Assessment to taxes other than federal income taxes. Additional
differences from the company's proposal result from the lower revenue
requirement determined herein.
26. Federal Income Taxes. An adjustment of $49,835,364 to the
company's claimed federal income tax expense of $175,598,619 is found
to be proper, resulting in an allowable expense of' $125,763,255. The
adjustment generally reflects the tax effects of changes in the cost of
service of HL&P as set forth herein.
27.
Amortization of Cancellation Charges. The Commission finds that
1-HL&P's proposed amortization of cancellation charges associated with
the discontinuance of the Allen's Creek No. 2 Nuclear Unit is
unreasonable, in that no return should be earned on the unamortized
portion of such charges. The Commission therefore finds that HL&P is
permitted to recover said $1,392,120 in charges over five years at the
rate of $278,424 per annum.
28. Return. A reasonable•return of $217,986,463 is permitted in H-L&P's
cost of service as such is a fair and reasonable amount.
29. Weather Normalization. The Commission finds that test period base
revenues of HL&P were overstated by $4,058,387 because of atypical
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weather experienced within the utility's service area during the test
year ended March 31, 1978. Said amount is equal to one-half of the
adjustment proposed by HL&P and is determined to be reasonable in this
proceeding, since the normalization procedure used .bythe company
herein is not as fully developed as alternative methodologies adopted in
other Commission proceedings.
30. Revenue Deficiency. The Commission finds the test year cost of
service or revenue requirement of $1,435,345,489 will permit HL&P to
recover its operating expenses together with a reasonable return on its
invested capital, as required by art. 1446c, Sec. 39, V.A.C.S. HIS&P's
recovery of revenues from the fuel adjustment clause and sources other
than base rates is $760,126,816. The base rate revenue requirement of
HL&P is $675,,218,673. Adjusted test period base rate revenues for
HL&P are $545,743,252. This amount also reflects an adjustment for
kilowatt hour sales due to the weather normalization adjustment
discussed above. The revenue deficiency of HL&P for the test period is
$129,475,421. "
31. Cost of Service Allocation. To allocate production facilities for this
proceeding, HL&P has proposed utilization of the Loss of Load
Probability Method (LOLP), which is a variation of the peak
responsibility allocation methodology. Noting that the allocation
factors derived from said method are similar to the results obtained
from other traditionally accepted methodologies, the Commission finds
the LOLP method to be reasonable for use in this proceeding. Staff
Exhibit 15 (Exhibit GLG-2). The Commission likewise finds that the
methodologies proposed by. HL&P for allocating transmission,
distribution, and general plant are fair and reasonable.
32. Revenue Requirement by Customer Class. The Commission finds that
the company shall file revised rates to reasonably reflect the following
relative rates of return by customer class.
Customer Class Target Relative Return
Residential . 70
Miscellaneous General Service 1.27
Large General Service 1.02
LOSA 1.47
'LOSB 1.23
Public Utility 1.00
Contract Service 794 1.89
Street Lighting .16
33. Fuel Adjustment Clause. The Commission further. finds that the
volatility in the price of fuel requires that a cost of fuel adjustment be
allowed HL&P in order to protect the financial integrity of the
company. The fuel adjustment clause in the tariff shall provide for a
fuel adjustment for the actual fuel consumed in generating each
kilowatt hour of electricity sold and for the fuel component of each
kilowatt hour of purchased power bought and resold. The Commission
additionally finds that said fuel adjustment clause shall recognize the
line loss differentials between customer groups as recommended by the
Staff, the company, and various intervenors herein. The use of such a
clauseis conditioned on the elimination of all handling, storage, and
transportation costs directly incurred by HL&P. Further the clause
shall include neither revenue related taxes nor gains or losses on the
sale of fuel and must otherwise comply with the Commission's
Substantive Rules. The above notwithstanding, HL&P is hereby allowed
to recover through its .fuel adjustment clause the full cost of economy
energy purchased pursuant to a sale between HL&P and another electric
utility. Substantive Rules of the Public Utility Commission of Texas,
Sec. 052.02.03.033(b)(4).
34. Cost of Service Adjustment Clause. The proposed continuance by
HL&P of a cost of service adjustment clause as previously authorized by
the City of Houston and various other cities served by HL&P is found to
be unreasonable by the Commission. Denial of said proposal is
consistent with sound regulatory practice in various respects including:
(1) Implementation of such an adjustment clause is contradictory to the
Commission's intention to move toward a more cost -based rate design;
(2) Full recovery of the expenses set forth in the clause would require.
fourteen months from date of incurrence, while regulatory lag before
.the Commission has generally been less than five months; and (3) The
record in this proceeding clearly reflects that investors do. not expect
the continuance of the cost of service adjustment clause.
35. Rate Structure. In general, the rate structures proposed by HL&P are
based on sound rate -making principles and are compatible with the rate.
design philosophy adopted by the Com mission in earlier cases, and such
rate structures are sufficient, equitable, consistent in application to
each class of customers, are not unreasonably preferential, prejudicial
or discriminatory, and will produce the proportionate part of the
required revenues to eliminate HL&P's revenue deficit. As a result, the
final rates filed in compliance with this Order shall be structured as
proposed with the following exceptions:
a. Customer charges as hereinafter set forth are found to be fair and
equitable to those classes affected thereby:
(1) A $4.50 customer charge for both rural and urban residential
ratepayers which is to include 30 kwh of energy..
(2) A $9.30 customer charge for all miscellaneous general
service customers which will provide no energy usage.
(3) A $25.00 customer charge for all existing direct current
service customers which likewise will provide no energy
usage.
b. The Commission further finds that the definition of peak months
as proposed by HL&P' is improper, and that the peak months for
billing purposes shall include June through October in order to
reflect customer consumption from blay through September.
c. In accordance with the National Energy Act recently passed by
Congress, the Commission finds that all off-peak usage by
residential consumers be priced lower than the rate for peak
usage, and that HL&P, as proposed, provide recognition of the
difference in costs between high and low volume, off-peak,
residential customers by implementing a two block off-peak
residential rate.
d. With regard to the measurement of on -peak kva and off-peak kva
for industrial customers, HL&P shall continue to measure such
energy demand upon fifteen (15) minute periods of maximum use.
e. The Commission finds that the rates charged by HL&P to Dow
Chemical Company for interruptible service shall be equal to
eighty (80%) percent of the firm rates charged by the company
under its amended tariff as filed herein.
36. Additional Rate Design Analyses. Given the relatively low reserve
margin that lIL&P has currently and expects to have through 1985 and
further noting the large industrial load served by the utility, the
Commission finds that •HL&P shall undertake comprehensive studies
which address the following- issues:
a. The potential for increased application of interruptible and/or
curtailable rates to its industrial customers,
•
b. The design of marginal cost based rates for such customers, and
c. A cost/benefit analysis of interruptible rates.
Conclusions of Law
1. The Commission has jurisdiction over the subject matter in this case
pursuant to art. 1446c, Secs. 16, 37, 43, V.A.C.S.
2. The intervenor cities have a justiciable interest as regulators, and all
other intervenors have a justiciable interest in this proceeding, in that
each represents a different class of customer and is concerned as to
issues of unreasonable discrimination, if any, of rates as between
classes of customers.
3. HL&P has the burden of proof to establish its revenue deficiency under
its present rates and the amount of such revenue deficiency which will
be collected under its proposed rates, pursuant to art. 1446c, Sec. 40(b),
V.A.C.S.
4. HL&P has proven that it has a revenue deficiency of $129,475,421 in the
test year.
5. The present rates for service in the unincorporated areas and in any
cities served by HL&P over which this Commission has original
jurisdiction are insufficient to provide HL&P .with the revenues
approved in this Order and should be adjusted to conform to the rates
established herein for each class of ratepayers.
6. The rates prescribed in this Order will allow HL&P to recover its
operating expenses with a reasonable return on its invested capital
pursuant to the requirements of art. 1446c, Sec. 39, V.A.C.S.
7. The rate of return granted herein is sufficient to assure confidence in
the financial soundness of HL&P and is adequate, under efficient -and
economical management, t'o maintain and support its credit and enable
it to raise the money necessary for the proper discharge of its public
duties; is comparable to those returns of other similar companies having
comparable risk; and is sufficient to assure confidence in the financial
integrity of HL&P so as to maintain its credit and to attract capital.
(Federal Power Commission v. Hope Natural Gas Company, 320 U. S.
591, 88 L. Ed. 333; and Bluefield Water Works and improvement Co. v.
Public Commission of West Virginia, 262 U. S. 679, 67 L. Ed. 1176.)
8. The Commission has the authority and duty to set proper rates in all
instances whether such action requires increasing, decreasing, or
changing the rate pattern with respect to any or all rates contained in
the proposed tariff, regardless of whether the rates in the proposed
tariff are different from old rates or not, and no prior' notice by the
Commission to the applicant is required for such action.
9. The rate design as set out in the Findings of Fact is reasonable and non-
discriminatory and shall be adopted in this Order.
Order
NOW THEREFORE, :it is hereby ORDERED that HL&P shall file a revised
tariff in accordance with the conclusion, findings of facts, and conclusions of law
herein sufficient to generate revenues not greater than those prescribed in this
Order. Such tariff shall be filed in two (2) copies with the Commission Filing Clerk
within fifteen (15) days from the date this Order is signed and rendered, and HL&P
shall furnish a copy thereof to all groups of intervening parties herein. Party
intervenors must notify the Commission staff in writing, with a copy to HL&P of
any disagreements with the revised tariff within five (5) days after receipt thereof.
The Commission staff shall have twenty (20) days from the date of such filing of
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the revised tariff to review it for approval or rejection. The tariff shall be deemed
to be approved and shall become effective upon the expiration of twenty (20) days
after filing or sooner upon notification by the Commission Secretary. In the event
of rejection, HL&P shall be notified and a copy sent to all groups of the intervening
parties herein by the Commission Secretary, and IiL&P shall have fifteen (15)
additional days to file an amended tariff and the same procedure shall be repeated
herein. The revised and approved rates shall be charged by HL&P for electricity
consumed after the tariff approval date and may not be charged for electricity
consumed prior to such date. This Order isdeemed to be final on the date of its
effectiveness either by operation of this Order or by notification by the
Commission Secretary, whichever occurs first.
All motions, requests, applications and requests for Findings of Fact and
Conclusions of Law not expressly granted herein are denied for want of merit.
RENDERED AND SIGNED AT AUSTIN, TEXAS, on this the day of
, 1978.
PUBLIC UTILITY COMMISSION OF TEXAS
SIGNED:
• GEORGE IVI. COWDEN
SIGNED:
SIGNED:
ATTEST:
PHILIP F. RICKETTS
COMMISSION SECRETARY
AND DIRECTOR OF HEARINGS
GARRETT MORRIS
ALAN R. ERWIN
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