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HomeMy WebLinkAboutMinutes City Council - 07/02/1973 - SpecialMINUTES CITY OF CORPUS CHRISTI, TEXAS SPECIAL COUNCIL MEETING July 2, 1973 2:00 P.M. PRESENT: Mayor Jason Luby Mayor Pro Tem James T. Acuff Commissioners: Rev. Harold T. Branch Thomas V. Gonzales Ricardo Gonzalez Gabe Lozano, Sr. J. Howard Stark City Manager R. Marvin Townsend City Attorney James R. Riggs City Secretary T. Ray Kring Mayor Jason Luby called the meeting to order in the Council Chamber of the City Hall and stated the purpose of the special meeting was to hold a public hearing on the request of Central Power & Light Company for a rehearing requesting that Ordinance No. 11392, approved by the City Council on the 21st day of March, 1973, be set aside, repealed and held for naught. City Manager R. Marvin Townsend explained that the motion for rehearing was filed pursuant to Article VIII, Section 7 of the City Charter, on the basis that the Company claims that the charges fixed by Ordinance No. 11392 will not permit the Company to earn a reason- able return upon the fair value of its property, and further requesting that a new ordinance be enacted or an amendment to said Ordinance No. 11392, which will establish rates and charges sufficient to allow a reasonable return upon the fair value of this Company's property. Mr. Townsend explained that the Motion for Rehearing Document was submitted over the signature of Mr. H. K. Howard and Wm. R. Brown, attorneys representing Central Power & Light Company. Central Power & Light Company's Motion for Rehearing was entered into the Records as an exhibit and made a part of the Transcript of this hearing on file in the office of the City Attorney. Mr. Townsend announced procedures for this hearing, stating the Company representatives would be allowed to present their statements supporting their Motion for Rehearing; the City's Consultant, Dr. H. K. Langum, would make comments in response to the Motion for Rehearing; it would then be appropriate for those interested persons in the audience to speak and the discus- sions to be closed by the Company. He explained that there had not been adequate time for study of new material submitted for reconsideration of the decision which was reached prior to passage of Ordinance No. 11392. He pointed out that since this hearing is in the nature of a request for re -hearing, cross-examination should not be allowed. • Minutes Special Council Meeting July 2, 1973 Page 2 Mr. David Perry, attorney for Corpus Christi Consumers Association, stated he was in agreement with Mr. Townsend with regard to procedure, but anticipated he would want to ask some questions in regard to new information the Company will submit, but that he did not wish to comment on information previously submitted to the Council. He requested that he be furnished any material which had been made available to the Staff and Council. Mr. Townsend explained that documents listing all Central Power & Light Company Properties were delivered to his office Thursday of last week and these documents have not been mode available to the Council but will be presented during this meeting. He emphasized that the only issue before the Council at this time is the Motion for Rehearing. Mr. Wm. R. Brown, attorney for Central Power & Light Company, explained that the material of which Mr. Townsend referred is a land appraisal in the form of a report, and that all material which will be presented at this hearing is in substantiation of material presented at the original hearing. He stated the Company has no witnesses on hand for this hearing. Mr. Brown presented figures to support Central Power & Light Company's claim that the Council's findings in Ordinance No. 11392 that the rate base of $463,612,460 is erroneous, and basically presented arguments contending that the. City's rate expert had not followed Texas Law in arriving at the recommendation for a 2 percent rate increase. He stated the matter for the Council's consideration is whether or not Dr. Langum's recommended adjustments are correct under Texas Law. He stated the basic and fundamental portion of Dr. Langum's rate determining approach is inconsistent with Texas Law. He questioned his use of 1972 average figures to arrive at a fair value rate base rather than year end figures as of December 31, 1972, stating the year end approach is required by law. He questioned his use of book equity figures based on the Company's stocks and bonds in figuring the fair rate value. He stated that four of the ten other Texas Power Companies Dr. Langum used to compare profits should not have been used because they are not comparable, that they either do not have generating plants or have facilities outside the city in question. He stated the remaining six companies in the State have an average return of 5.94 percent based on 1972 figures and would receive a 6.34 percent return if the full 6 percent rate increase were given. Mr. Brown stated the real issue at this time is whether the position the City has taken will stand up in court, is a legal matter, and one which • Minutes Special Council Meeting July 2, 1973 Page 3 the City Attorney should decide. Dr. John K. Langum, Rate Consultant, defended his methods in arriving at hos decision that a 2 percent rate increase was adequate. He stated his procedures were supported by the courts in a decision involving the Alvin Case. He stated that before he began his series of investiga- tions, he had inquired of the City Attorney as to the laws in the State of Texas and had been referred to this case. Dr. Langum pointed out two basic issued involved, (1) what is the fair value of the Company's property, and (2) what is the lowest composite percentage rate that will secure adequate investment capital. He made a lengthy presentation of these two issues stating the Alvin Case contained many references to attraction of capital, and he considered Central Power & Light Company's ability to attract capital investments on important factor in determining the fair rates under Texas Law. With reference to information prsented by Central Power & Light Company, Dr. Langum stated the Company had greatly and vastly understated its revenues; that they had submitted figures showing a 1972 year end revenue increase of one-third of one -percent over the previous yeor, and based on previous years, the figure should be about 5 to 5-1/2 percent. He stated the Company's ability to attract capital was demonstrated by a February 1973 Stock Sale by the Southwest Company (its parent company), pointing out that it was well received by investors. He stated that following the original hearing he had recommended that the Company merited no increase at all, but in terms of the Alvin decision, he hod made further inve:>tigations, and based on that supplementary information, he had been influenced to recommend the two percent increase, and that is still his recommendation as being reasonable and fair. Dr. Languor was quest°soned as to whether or not he would revise his figures due to the rapid inflation of 1973, and he stated that last winter when he made his calculations, he had anticipated considerable inflation in 1973; that his conclusions were not based entirely on price levels, and would not change his recommendation on that basis but still maintains the two percent increase is adequate and correct. Mr. Brown commented that the cost of fuel is increasing at the rate of 65 cents to 70 cents per million BTU's; that the fuel clause in the ordinance is ambiguously written and not in agreement with what was intended and should be clarified to eliminate the necessity of a public hearing every time the cost of fuel increases. City Manager Townsend and City Attorney Riggs agreed that this section of the ordinance should be clarified. • Minutes Special Council Meeting July 2, 1973 Page 4 Mr. David Perry, attorney representing the Corpus Christi Consumer's Association, alleged that Central Power & Light Company's figures had been inconsistent, changed and shifted throughout the entire hearing procedures. He stated that the Company had been over- charging its customers under the provisions of the ordinance approved in March of 1973 establish- ing the two percent rate increase; that the Company had been permitted under the ordinance to charge customers for fuel cost increases and has been illegally charging customers for fuel costs incurred about 20 cents and below 22.38. Mr. Perry pointed out that as part of the new informa- Hon presented by the Company were appraisals of The Company's real estate values which included a Nueces County appraisal to boost its claim that it needed a rate increase in order to gain a fair value return on its investment. He pointed out that the Company had rendered its Nueces County real estate tax at $795,958 and since property is rendered on a basis of market value, this would indicate a market value of about $2.2 million. Mr. Perry disagreed with Mr. Brown that there were no fact issues involved in this hearing, but only law issues. He stated that throughout these proceedings, there has been no clear and convincing evidence presented by the Company to support its request as provided in the City Charter that the burden of proof rests on the utility company. Mr. Perry maintained, as he has throughout the hearings, that the Company is entitled to no increase not even the two percent ah-eady granted. He alleged that new information is being submitted without witnesses to support the information, staling it is possible the Company does not want witnesses questioned with regard to the inconsistencies and changes in the Company's position. He stated the Company's attitude toward the expertise of Dr. Langum was significant in that they had established in the beginning that they were familiar with his background and considered him to be well qualified as a consultant,, and had now decided that he no longer qualified as an outstanding expert in this field and his conclusions should be discarded. Mr. Perry emphasized that the Company's common stock was at a premium and had been "snapped up" by investors without an increase, and in his opinion the Company still has the burden of proving to the Council that they cannot secure their investment for adequate capital. He stated this is an attempt to mislead the Council into doing something that both the Council and the Company know cannot be supported either by facts or economics. With reference to the fuel clause in the ordinance, Mr. Perry stated the City Attorney should be authorized on behalf i r Minutes Special Council Meeting July 2, 1973 Page 5 of the citizens of Corpus Christi to go into court and recover the excessive charge the Company has collected. He stated the Council is being pressured by threats of law suits but he believes the position the Council took when it passed the ordinance in March would stand up in court., and further stated he would be surprised if the courts would support the two percent already granted. Mr. Perry stated he did not agree with the City Manager's interpretation of the ordi- nance relative to conflicting parts which will have to be corrected by the Council, that the City Staff understood that the ordinance had conflicting parts and the charge over 20 cents was proper. He stated he did not think it proper for the Staff to make changes in the ordinance, and questioned the City Manager's ability to practice law. Mr. George Steward, representing himself, stated he had lived in Corpus Christi for 15 years, moved from a small house to a larger one, and that his electric bills had remained substantially the same, while most all other costs have increased, and felt the company had acted in a responsible way. He stated he is in the business of selling securities and disagreed with some of Mr. Perry's statements regarding the Company's sale of bonds. He stated it was his opinion that the City runs the risk of trying to economize but will cost more in the end. Mayor Pro Tem Acuff stated he felt issues brought in these hearings are outstanding evidence that we need a State Utilities Commission to make decisions the Council is being asked to make, and feels sure the Company would agree, and would recommend that repre- sentatives be asked to put this in the Constitution. Mr. Brown stated he still was of the opinion that Dr. Langum was a man of great know- ledge, is respected and admired by the Company, but cannot agree with him on Texas Laws on which Dr. Langum does not claim to be an expert. He stated he disagreed with him on his equation of the Company's deferred tax accounts, and are in error as to the 1972 year end levels. Mr. Brown was questioned extensively by the Council relative to some definitions of utility rate terminology such as appraisals, taxation, rate of return, common equity, etc. No one else appeared to be heard relative to the foregoing rate increase request. Motion by Acuff, seconded by Stark and passed, that the hearing be recessed to be reconvened July 3, Regular Meeting. There being no further business to come before the Council, the Special Meeting was recessed at 6:25 p.m., July 2, 1973.