HomeMy WebLinkAboutMinutes City Council - 03/01/1973 - SpecialMINUTES
CITY OF CORPUS CHRISTI, TEXAS
SPECIAL COUNCIL MEETING
March 1, 1973
10:00 A.M.
PRESENT:
Mayor Ronnie Sizemore
Mayor Pro Tem Chas. A. Bonniwell
Commissioners:
Roberto Bosquez
Rev. Harold T. Branch
Thomas V. Gonzales
Gabe Lozano, Sr.
J. Howard Stark
City Manager R. Marvin Townsend
City Attorney James R. Riggs
City Secretary T. Ray Kring
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Mayor Sizemore called the meeting to order in the Council Chamber of the City
Hall and stated the purpose of the special meeting was to continue the recessed public hearing
on the request of Central Power and Light Company for a rate increase, which hearing was
opened December 13, 1972 and subsequently reconvened on January 3, 1973, January 31,
1973, and further recessed to March 1, 1973. He explained the procedure to be followed.
City Manager Marvin Townsend stated this hearing was set specifically for the
purpose of allowing interested persons to seek clarification and information, and respond to
the City's rate consultant, Dr. John Langum's report made orally January 31, 1973, and
written summary of that report which has been furnished to City Attorney Riggs and the
Council. He suggested that comments be limited to response to that report.
City Attorney Riggs noted that at the hearing on January 31, Dr. Langum filed
his 72 -page report on which he made oral comments, and stated he would later file a
written narrative summation of that report which he has done. Mr. Riggs introduced that
document to be marked Exhibit #3 for the record. Also Mr. Riggs stated that Court Reporter
Gerald Owens had completed transcripts of all previous meetings, had certified to same,
and that these transcripts are on file in the office of the City Attorney, and copies are in
the hands of the City Council.
Mr. David Perry, attorney representing the Corpus Christi Consumers' Associa-
tion, asked that it be noted that during the December 13, 1972 hearing he had filed with
the Council a prepared narrative report on behalf of the Corpus Christi Consumers Associa-
tion and asked that it be made a part of the record. The Council, City Secretary, and
attorney for Central Power & Light were furnished additional copies.
Mr. H. K. Howard, attorney for Central Power & Light Company, presented
the case of the Company. He stated he had not previously received a copy of Mr. Perry's
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Special Council Meeting
March 1, 1973
Page 2
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report. In addressing the Council he stated he had represented Central Power &
Light Company for twenty years, and had never known this Company to take an unreason-
able stand on any issue. He disagreed with four major aspects of Dr. Langum's Report,
but stated they were in agreement that Central Power & Light Company should remain a
strong AA Company. He stated the one area in which he assumed they were all in agree-
ment was that consideration would be based on decisions rendered in the Alvin Case.
He stated the four major aspects of Dr. Langum's report in which they do not agree are:
(1) the area of projected revenues and operating expenses as shown in his report; (2)
amount of projected interest necessary to service CPL's interest bearing expenses;
(3) fair rate base; and (4) his recommendation that two percent increase overall is
adequate. Mr. Howard stated they are of the opinion that Dr. Langum, in arriving at
this conclusion, had departed from the Alvin Case.
Mr. Howard explained procedures for presenting their case and stated they
would follow the ground rules set forth by City Manager Townsend, and that their case
would be presented in two parts: (1) questions directed to Dr. Langum relative to
the four areas of disagreement; and (2) presentation of witnesses. Mr. Howard cross-
examined Dr. Langum at length referring to his 72 -page report marked Exhibit #2 in an
attempt to show that his recommendation, based on mathematical calculations for a two
percent rate increase, was too low. He stated they are in agreement with Dr. Langum's
Report as to the Company's actual revenues and expenses, but disagree on his method
of calculating the "fair value" of the plant on which he arrived at his estimations
and recommendation.
Following Mr. Howard's cross-examination of Dr. Langum's report, procedural
ussues were discussed after which Mayor Sizemore recessed the hearing at 11:45 a.m.
The hearing was reconvened at 1:45 p.m., and it was agreed that Mr. Perry
would be allowed to present his case at this time.
Mr. Perry complimented Dr. Languor on his presentation. He cross-examined
Dr. Langum on his method of calculations and sought to show that the Company's return on
commony equity is greater than that of most other utilities and higher than what is needed
to attract investment capital. Mr. Perry questioned Dr. Langum on what would be the lowest
return the Company could earn and still attract investment capital. Dr. Langum did not
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Special Council Meeting
March 1, 1973
Page 3
quote an exact figure but stated a substantial reduction below 15 percent would create prob-
lems for the Company, and that two percent rate increase he is recommending would be
adequate for the next two or three years, but that a rise in inflation would change the entire
picture because the Company's operating expenses in cost of fuel and borrowed money would
rise. Mr. Perry completed his cross-examination of Dr. Langum at 3:50 p.m., after which
the Council questioned both Mr. Perry and Dr. Langum regarding points raised.
Attorney Howard introduced the following witnesses:
Mr. V. A. McElfresh, Senior Vice President of the Utility Consulting Firm of
H. Zinder & Associates, Inc., and Manager of the Dallas Office of this Firm. He pre-
sented the Council with a copy of his experience and qualifications, and stated that he
had been a principal witness in the Alvin Case. Mr. McElfresh challenged Dr. Langum's
calculations and method of estimating the "fair value" of the plant and revenues of the
be
Company. He stated that detailed calculations prepared by the Company would/more relia-
ble, and that the calculated "fair value" of the System should be some $537 million as
compared to Dr. Langum's calculated "fair value" of $463 million. He pointed out on a
chart items which he stated should not be deducted from the rate base, and filed a copy of
this chart showing return at present rates and revenue deficiencies, determined in accord-
ance with accepted regulatory standards in the State of Texas taken from data contained
in Dr. Langum's Exhibit #2. He stated this Exhibit is ample justification for approval for
the increase in rates proposed by the Company.
Mr. McElfresh was questioned by Mr. Perry, City Attorney Riggs, City Mana-
ger Townsend, and the Council, after which the hearing was recessed at 5:30 p.m.
Mayor Sizemore reconvened the meeting at 7:30 p.m.
Mr. Howard resumed his presentation of the Company's case and called Mr.
John H. Wills to testify. Mr. Wills stated that at the time of his retirement in late 1970,
he was Editor of the First National Bank of Boston and Moody's Investors Service in New
York City, and that he was a graduate of Massachusetts Institute of Technology with a
Bachelor of Science Degree in Engineering Administration. He presented the Council
with a copy listing his educational background and experience. Mr. Wills addressed his
comments to environmental changes: (1) business outlook for 1973; (2) cost of living
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Special Council Meeting
March 1, 1973
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increase and recent devaluation of the U.S. Dollar; (3) expanded demands for funds on part
of business and customers and increased rates; and (4) international exchange markets and
unsettled stock market. He distributed to the Council a document marked Exhibit 01 showing
calculation of average "fair value" rate base using Dr. Langum's method and Texas Low method
for 1972 and 1973, marked Exhibit II; CPL computation of allowable return for 1973, Exhibit
HI; CPL rate of return on book value of average common equity and fixed charge coverage in
1973; Exhibit IV; and rate of return on common equity of operating electric utilities in
Texas, 1963 to 1972, taken from Dr. Langum's Report.
A lengthy discussion followed relative to the alleged inconsistency of figures
furnished by Central Power & Light Company over the period of September, 1972 to the
present time. Mr. Howard explained that since September, 1972, when the Company
applied for a rate increase, numerous estimates have been furnished to the City and that
intervening months have changed some of these estimates and figures. The Council asked
for definite figures with which to compare against those submitted by Dr. Langum.
The Council and Staff questioned Mr. Wills at length as to his opinion of
projected inflationary index; basis for decisions of the Texas Railroad Commission; Corpus
Christi as compared to other comparable size cities; and Exhibits presented by Mr. Wills.
Mr. Perry cross-examined Mr. Wills as to his qualifications and his involve-
ment in rate -making decisions; on what basis he made his report; whether or not he
recommended investment in other companies; evaluation of rating agencies with respect
to bonds and stocks; and figures to show that CPL has had a problem of earning a "fair
rate" of return in 1972 or any time in recent years.
Mr. Wills stated the request for a 6 percent rate increase is well within the
range of reasonableness under Texas Law based on the Company's estimation and judg-
ment that these estimates will be supported by inflationary trends which he had pointed
out, and respectfully recommended that the requested increase be granted.
Mr. Howard introduced Mr. S. B. Denton, Director of Administration
Service of Central Power & Light Company. Mr. Denton stated his qualifications, having
been employed by Central Power & Light Company for 19 years as Director of Adminis-
tration Department since 1969. He stated the purpose of his testimony would be to
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Special Council Meeting
March 1, 1973
Page 5
compare differences in the Company's projections in extreme accuracy, and investigations
they have made vs. the simple mathematical calculations of projections which Dr. Langum
has made in his report and exhibits and to show effects of these differences. He read his
report and spoke from a chart pointing out discrepancies and errors in Dr. Langum's report.
He stated Dr. Langum had made an overstatement of over one million dollars and an under-
statement of about two million dollars, and that the result of this would suggest a rate
increase of some nine million based on test year 1972 instead of the recommended 3.1
million.
Mr. Denton was questioned at length by the Council, Staff and Mr. Perry,
particularly as to figures furnished by the Company and the method by which the figures were
computed.
Mr. Howard introduced Mr. Charles A. Larson, Senior Consultant from
Washington, D.C. Mr. Larson filed for the record a copy of his educational background
and list of his experience which he felt qualified him to testify in this case. He presented
a chart showing incremental cost of production, transmission and distribution per dollar
Kilowatt in years 1960, 1965, 1970, and projected to 1975. He filed his written statement
and the Chart for record after which he was questioned by Mr. Perry, Staff, and Council.
Mr. Howard introduced Mr. William A. Cockburn, Secretary -Treasurer of
Central Power & Light Company. Mr. Cockburn stated orally his qualifications, having
been employed in the Treasury Department of the Company for 21 years, and that his
duties in that capacity had been to seek to raise funds to finance new construction. He
pointed out some of the companies included in Dr. Languor's report which have already
been downgraded to single "A" by Moody's or Standard & Poors; mentioned companies
whose present ratings may not be maintained without additional rate increases; and
companies listed in Dr. Langum's report that are subject to be downgraded of their pres-
ent bond rating. He read a prepared statement of his comments which he filed for record.
He stated Central Power & Light is aware of the downward trend and unless something is
done to reverse that trend, their AA rating will not be maintained.
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Special Council Meeting.
March 1, 1973
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Following a brief recess at 2:30 a.m., Mayor Sizemore reconvened the meeting
with all members of the Council, who had been intermittently absent during the course of the
hearing, present.
City Attorney Jim Riggs called Dr. John K. Langum, the City's Rate Consultant,
to state his position in regard to the evidence and testimony presented by Central Power and
Light Company's witnesses.
Dr. Langum, in a one-hour testimony, responded to points raised by Central
Power & Light Company's witnesses, after which he concluded that he would "submit to the
Council that his judgments made in his 70 -page Report, and subsequent written Summary of
that Report furnished January 31, 1972, are proper and correct, and that he would not
change one iota of that report." Dr. Longum responded to questions raised by the Council,
Staff, Central Power & Light witnesses, and Mr. Perry.
Mr. David Perry made a summary presentation of the case of Consumers Asso-
ciation, prefacing his remarks by complimenting the Council for conducting a "most fair
and complete" hearing. He also complimented Dr. Langum for his knowledge in his field.
He concluded his one-hour long statement by stating that he still maintains that the burden
is on the Company to show by clear and convincing evidence the value of its property and
amount and character of expenses and revenues, stating that the only thing that had been
made clear in this case was that "nothing had been made clear"; that three sets of con-
flicting figures and reports had been submitted to further confuse the issue; that -it hod
been made clear that Central Power & Light Company had been making a tremendous
rate of profit compared to other comparable companies in the country in the last ten
years, and that, in his opinion, the rate should not be increased but that a decrease is
in order. Mr. Perry alleged that the Company had made threats of blackouts in this
area if the increase is not granted.
Mr. Howard stated his Company definitely had not made threats of blackouts
in this territory and that Mr. John Wills had been the only witness who had based his
comments on the Alvin Case. He stated the Company is not following the usual pattern
of asking for a larger amount of increase with the intention of settling for less, but had
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Special Council Meeting
March 1, 1973
Page 7
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asked for the absolute minimum to reverse the downward trend and to obtain the needed funds
for bond financing. He respectfully requested that the requested increase be granted.
Mayor Sizemore recessed the hearing at 4:45 a.m. during which time the
Council held a brief Workshop meeting.
Mayor Sizemore reconvened the meeting and stated the Council had been
polled and it had been agreed that the Council had enough information and sur -rebuttals
were not needed. He stated the City Manager will make a recommendation to be on next
week's agenda. He thanked those who participated in this hearing and assured everyone
that the Council would do what in their opinion is right.
Motion by Stark, seconded by Bonniwell and passed, that the hearing be closed.
There being no further business to come before the Council, the meeting was
adjourned at 4:50 a.m., March 2, 1973.