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ORDINANCE N0.257
AN ORDINANCE OF THE CITY OF KENNEDALE, 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 Kennedale ("City"), a Statement of Intent to change gas rates in all municipalities
within the Company's statewide gas utility system effective June 27, 2003;
WHEREAS, the City has previously extended the effective date of the Company's rate
filing;
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;
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;
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;
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;
WHEREAS, ACC and TXU jointly endorse the City's denial of the Company's rate
application pending before the City;
WHEREAS, counsel for ACC, upon review of the Company's filing and upon
consultation with various consultants, recommends findings that the Company's proposal is
unjustified and unreasonable; and
G:\City Council\ORDINANCES\Ordinance No. 257.doc (9/4/03)
NOW, THEREFORE, BE IT ORDAINED BY THE CITY COUNCIL OF THE CITY
OF KENNEDALE, TEXAS:
SECTION 1. 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 2. The costs incurred by the City in reviewing the Company's application be
promptly reimbursed by the Company.
SECTION 3. This Ordinance shall become effective immediately from and after its
passage, as the law and charter in such cases provide.
SECTION 4. 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 5. A copy of this ordinance, constituting final action on the Company's
application, 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.
DULY PASSED and approved by the City Council of the City of Kennedale, Texas, on
this the 11th day of September 2003.
,,~„~~~~~„~,,,,, APPROVED:
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Vim: ~ ~.~c~~= Mayor, Mark S. Wrig
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APPROVED AS TO FORM:
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Wayne K. Olson, City Attorney
G:\City Council\ORDINANCES\Ordinance No. 257.doc (9/4/03)
PROPOSED FINDINGS SUPPORTING DENIAL OF TXU'S
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, TXLJ 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 TXLJ 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.
G:\City Council\ORDINANCES\Ordinance No. 257.doc (9/4/03)
4. Revenue requirements should be reduced rather than increased. Cities have
provided consistent and more than fair rate relief to TXLJ 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 fling should be denied pursuant to agreement with the Company.
Cities and TXLJ 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.
G:\City Council\ORDINANCES\Ordinance No. 257.doc (9/4/03)