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05-A TXU Gas Rate Inc. Request DRAFT ORDINANCE NO. AN ORDINANCE OF THE CITY COUNCIL OF THE CITY OF PARIS, PARIS, TEXAS, DENYING TXU GAS COMPANY'S REQUEST TO CHANGE RATES INSIDE THE CITY LIMITS OF THE CITY OF PARIS, AS 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; PROVIDING AN EFFECTIVE DATE; 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 Paris, Paris, Texas ("City"), a Statement of Intent to change gas rates in all municipalities within the Company's statewide gas utility system effective Jurle 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 the 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, WI-I~REAS, ACC and TXU jointly endorse the City's denial of the Company's rate application pending before the City; and, 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; NOW, THEREFORE, BE IT ORDAINED BY THE CITY COUNCIL OF THE CITY OF PARIS, PARIS, TEXAS: Section 1. That the findings set out in the preamble to this ordinance are hereby in all things approved. Section 2. That 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 den/ed pursuant to agreement with the Company; and is therefore den/ed in all respects. Section 3. That the costs incurred by the City in reviewing the Company's application be promptly reimbursed by the Company. Section 4. That this Ordinance shall become effective immediately from and after its passage, as the law and charter in such cases provide. 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. That 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 Paris, Paris, Texas, on this the 14th day of July, 2003. Curtis Fendley, Mayor ATTEST: Mattie Cunningham, City Clerk APPROVED AS TO FORM: Larry W. Schenk, City Attorney LLOYD, GOSSELINK, BLEVINS, ROCHELLE, BALDWIN & TOWNSEND, P.C. ATTORNEYS AT LAW 111 CONGRESS AVENUE TELEPHONE (512) 322-5800 SUITE1800 Mr. Gay's Direct Line: (512)322-5875 TELECOPIER (512)472-0532 AUSTIN, TEXAS 78701 Ernail: ggay~lglawfirm.com www. lglawfirm.com CONFIDENTIAL ATTORNEY-CLIENT COMMUNICATION MEMORANDUM TO: 123 Cities Allied In Opposition To TXU Gas FROM: Geoffrey M. Gay on behalf of your Steering Committee DATE: July 3, 2003 RE: Status Of Case; Need To Adopt Ordinance Denying Rate Relief To TXU Gas Last Friday, June 27, 2003, was the effective date of the new gas rates proposed by TXU in its statewide rate filing. Your city suspended the effective date, authorized the joining of a coalition of cities working under the direction of a Steering Committee~ and authorized the filing of an intervention in the proceeding on TXU's rate application pending at the Railroad Commission (RRC), GUD No. 9400. For ease of identification in GUD No. 9400, the 123 cities that passed the suspension resolution recommended by the Steering Committee and joined the coalition chaired by Jay Doegey, City Attorney of Arlington, are being referred to as Allied Coalition of Cities (ACC). Attached please find a current listing of all cities that have authorized participation in the ratemaking process. Pleadings are on file at the RRC to intervene each of the 123 cities as part of ACC. There are 1.4 million customers on the TXU Gas system. Residents of ACC members total approximately 870,000 or approximately 63% of all TXU gas customers. If the City of Dallas (with about 234,433 customers) decides to join ACC, your coalition will be speaking on behalf of nearly 80% of all customers and reflecting more than 80% of total sales volumes. ~ Your Steering Committee members are: Jay Doegey, Arlington; Chester Nolen, Cleburne; Nick Fehrenbach, Don Knight and Amy Bock, Dallas; Tom Akins, Denison; Margaret Somereve and John Boyle, Farmers Branch; Van James and Steve Williams, Flower Mound; Danny Reed, Fort Worth; Cathy Cnnningham, Irving; Diane Wetherbee and John Gilliam, Piano; John Gayle and Carolyn House, Snyder; Dale Cheatham, The Colony, Art Pertile, Waco; and Bok Sokoll and Janet Adkins, Waxahachie. 1668\09~9400~nmo030703gmg There is another group of cities, referred to as Association of TXU Municipalities (ATM), represented by Jim Boyle and Monte Akers, involved in the RRC proceeding. ATM has 46 members, mostly small cities. The number of residents of ATM cities is about 9% of total customers and they consume about 6% of the gas sold on the system. During the period of time that cities were considering whether to deny or suspend TXU's application, my office negotiated concessions from TXU regarding development of a procedural schedule for RRC proceedings. As this statewide case is the flint of its kind with many controversial and difficult issues, it is unlikely that Cities' case could be thoroughly developed within the traditional 185 day time frame. We successfully negotiated an agreement from the Company to extend the Commission jurisdiction from 185 days to 300 days; in return, ACC agreed that the Cities would expedite the process of getting RRC jurisdiction over city action by expediting denials that could be appealed. Having worked out that agreement with TXU, it is now appropriate for the members of the coalition that I represent to pass ordinances denying the Company's application. I have revised the denial ordinance TXU previously asked you to pass. It is attached to this memo and should be placed before your council at the earliest convenient time. I had several Steering Committee members ask that I include findings of fact to justify denial. The Steering Committee then directed that such findings be included with this package. I have included a list of proposed f'mdings which are also reflected in the ordinance. I have carefully structured the findings to address generic issues so that we can avoid premature release of issues being pursued by your consultants. Your consultants were selected to tap the strengths of several different firms. A three- phased approach is being used to develop your positions. Phase 1 was used to evaluate issues and potential consultants. Phase 2 is the discovery and development phase that we are in currently. A six-hour meeting was held in my office on July 1st with the various consultants to share ideas and issues. Phase 2 will continue through the end of August. Phase 3 will focus on development of testimony and re-evaluation of preliminary decisions as to who should testify. Your consultants and witnesses consist of several members from R.J. Covington Consulting, Steve Hill (on rate of return), Steve Andersen (on class cost allocation and rate design), Connie Cannady and 4MP, consisting of former TXU employees. The first preheating conference at the RRC in GUD No. 9400 will occur on Monday, July 14, 2003. 1668\09~9400~mmoO30703gmg GUD NO. 9400 PARTICIPATING CITIES IN THE ALLIED COALITION OF CITIES Abilene Everman N. Richland Hills Addison Fairview Ovilla Allen Farmers Branch Palestine Alvarado Farmersville Parker Angus Fate Paris Argyle Flower Mound Pecan Hill Arlington Forest Hill Petrolia Athens Fort Worth Plano Bedford Frisco Ponder Bellmead Gainesville Pottsboro Bells Grand Prairie Putnam Benbrook Grapevine Red Oak Blossom Haltom City Richardson Blue Ridge Harker Heights Richland Hills Bowie Haskell Robinson Brownwood Haslet Rockwall Bryan Henrietta Rowlett Burkburnett Highland Park Sachse Burleson Highland Village Saginaw Caddo Mills Honey Grove San Angelo Carrollton Howe Seagoville Celina Hurst Sherman Cleburne Irving Snyder Clyde Justin Southlake College Station Kaufman Stamford Colleyville Kennedale Stephenville Comanche Kerrville Sulphur Springs Coppell Killeen Sweetwater Corinth Lancaster The Colony Corral City Lewisville Throckmorton Crandall Lincoln Park Trophy Club Crowley Little Elm University Park Dalw. Gardens Malakoff Vernon Denison Mansfield Waco DeSoto McKinney Watauga Duncanville Megargel Waxahachie Early Mesquite Westworth Vilge. Eastland Midlothian White Settlement Edgecliff Village Murphy Wichita Falls Ennis Nocona Woodway Euless Northlake Wylie 1668\09~9400~mmo030703 gmg Alice Pinalto From: Gall Johle [gjohle~lglawfirm.com] Sent: Thursday, July 03, 2003 2:32 PM To: Alan Hein (E-mail); Andy Fontenot (E-mail); Ann Honza (E- mail); Anthony "Biff" Johnson (E-mail); Art Pertile (E-mail); Barbara Alavarado (E-mail); Betty McMenamy (E-mail); Bill Atkinson (E-mail); Bill Davison (E-mail); Bill Flannery (E- mail); Bill Lindley (E-mail); Bill Lindsay (E-mail); Bill Sullivan (E-mail); Billy Campbell (E-mail); Bo Bass (E- mail); Bob Livingston (E-mail); Carolyn House (E-mail); Cary K. Conklin (E-mail); Cathy Anderson (E-mail); Cathy Cunningham (E-mail); Chad Beach (E-mail); Charles Boswell (E-mail); Charles Rowland (E-mail); Charlie Shear (E-mail); Chester Nolen (E-mail); Chuck Barnett (E-mail); Claude King (E-mail); Clayton Chandler (E-mail); Clinton Bit-tick (E-mail); Codi Delcambre (E-mail); Collin Boothe (E- mail); Curtis Snow (E-mail); Dale Cheatham (E-mail); Daniel W. Parker (E-mail); Danny Reed (E-mail); David Geesiin (E-mail); David Hall (E-mail); David Maddox mail); David Miller (E-mail); David Vestal (E-mail); Diane Rasor (E-mail); Diane Wetherbee (E-mail); Don Postell (E- mail); Don Wilson (E-mail); Donna Anderson (E-mail); Donna Welsh (E-mail); Frances Slater (E-mail); Gary Butts (E-mail); George Patterson (E-mail); George Purefoy (E- mail); George Staples (E-mail); Gerry Boren (E-mail); Greg Vick (E-mail); Greg Wilmore (E-mail); Gus Pappas (E- mail); Harvey Cargill Jr. (E-mail); James B, Baugh (E- mail); James Blystone (E-mail); ]ames R, Hogan (E-mail); James W. Quin (E-mail); Janet Adkins (E-mail); Jay Doegey (E-mail); Jeff ]ones (E-mail); Jim Berzina (E-mail); Jim Landan (E-mail); Jim Murray (E-mail); Jim Witt (E-mail); Jimmie McClure (E-mail); Joe Hennig (E-mail); Joe LaBeau (E-mail); Joe Pence (E-mail); John Daniel (E-mail); John Gayle (E-mail); John Gilliam (E-mail); John Godwin (E- mail); Judy Bell (E-mail); Judy Graves (E-mail); .lulie Couch (E-mail); Karin Herrmann (E-mail); Ken Heerman (E-mail); Ken Lane (E-mail); Ken Pfeifer (E-mail); Ken Seale (E- mail); Kent Austin (E-mail); Kent Cagle (E-mail); Kerry Lacy (E-mail); Larry Robinson (E-mail); Larry Schenk (E- mail); Lee Roy George (E-mail); Leonard Martin (E-mail); Loretta Getchell (E-mail); Lynn Nunns (E-mail); Marc Maxwell (E-mail); Margaret Somereve (E-mail); Margaret Ward (E-mail); Hark A, Kaiser (E-mail); Mark Tsraelson (E- mail); Mary Kay Fischer (E-mail); Mary Kaye Moore (E- mail); Mary O. Daly (E-mail); Matthew Boyle (E-mail); Melisa Leal (E-mail); Michael Cosentino (E-mail); Michael ! To: Hitt (E-mail); Michael 3. Savoie (E-mail); Michael Land (E- mail); Michael Malone (E-mail); Mike Castro (E-mail); Mike Slye (E-mail); Minnie Walker (E-mail); Nan Stanford (E- mail); Odis Dolton (E-mail); Pat Chesser (E-mail); Patricia Stack (E-mail); Pete Eckert (E-mail); Peter Phillis (E-mail); R. C. Fletcher (E-mail); Randy Moravec (E-mail); Rhett Clark (E-mail); Richard Torres (E-mail); Robert S. Sparkman (E-mail); Robert Sokoll (E-mail); Roger Carlisle (E-mail); Ron Hutchison (E-mail); Ron Patterson (E-mail); Ronald Whitehead (E-mail); S. G. "Scooter" Radcliffe (E- mail); Sam Watson (E-mail); Scott Albert (E-mail); Scott Campbell (E-mail); Scott Holaway (E-mail); Scott Wall (E- mail); Sharon Elam (E-mail); Sharon Hicks (E-mail); Shawna Cortez (E-mail); Shelli Siemer (E-mail); Stan Wilkes (E-mail); Stephen W. McCullough (E-mail); Steve Bacchus (E-mail); Steve Williams (E-mail); Steven Carpenter (E-mail); Steven McKay (E-mail); Susan K. Thorpe (E-mail); Thomas Caffall (E-mail); Tom Adams (E- mail); Tom Akins (E-mail); Tom Hart (E-mail); Van 3ames (E-mail); Vicki Faulkner (E-mail); Virginia Blevins (E-mail); Yousry Zakhary (E-mail) Subject: GUD No. 9400 mmo030702gmg memo to 124 par. Attached is a memo from Geoffrey Gay, a list of participating cities, a draft ordinance, and proposed findings supporting denial of TXU's request to increase rates for natural gas. <<mmoO30702gmg memo to 124 participating cities re status of case.doc>> Gall Johle gjohle@lglawfirmcom Lloyd, Gosselink, Blevins, Rochelle, Baldwin & Townsend, P.C. 111 Congress Avenue, Suite 1800 Austin, Texas 78701 (512) 322-5800 phone (512) 322-5877 direct (512) 472-0532 fax If you would like more information about the firm, please visit our website at www.lglawfirm.com. 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Thank you. 2 ORDINANCE AN ORDINANCE OF THE CITY OF ., TEXAS, DENYING TXU GAS COMPANY'S REQUEST TO CHANGE RATES IN THIS MUNICIPALITY, AS A PART OF THE COMPANY'S STATEWlDE 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 ("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 NOW, THEREFORE, BE IT ORDAINED BY THE CITY COUNCIL OF THE CITY OF ~ 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 , Texas, on this the __. day of _, 2003. APPROVED: ATTEST: APPROVED AS TO FORM: City Attorney 1668\09~9400~mmoO30703gmg 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 re~urn on investment are the lowest in many years, T×U 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. 1668\09~9400~nmo030703gmg 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~mmoO30703gmg