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HomeMy WebLinkAboutMinutes City Council - 11/02/1973 - SpecialMINUTES .CITY OF CORPUS CHRISTI, TEXAS SPECIAL COUNCIL MEETING November 2, 1973 3:00 P.M. PRESENT: Mayor Pro Tem James T. Acuff Commissioners: Rev. Harold T. Branch City Manager R. Marvin Townsend Thomas V. Gonzales City Attorney James R. Riggs Ricardo Gonzalez City Secretary T. Ray Kring J. Howard Stark Mayor Pro Tem James T. Acuff 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 Southwestern Bell Telephone Company for a rate adjustment. City Manager Townsend explained the procedure to be followed; read the Charter provisions governing requests for a utility rate increase; and set the framework for conducting this hearing. He pointed out that the rate making process differs from the Central Power & Light request in that in the case of the Telephone Company, the Council will be dealing with the local exchange portion of the plant and revenues derived from that exchange. He stated the Council is in the position of determining the fair value and production of the local exchange and what is the fair rate of return that will provide adequate inflow of capital into the Company to allow for growth and expansion, to determine their actual expenses, and if that rate of return is actually being developed. Mr. Ron Maples, District Manager of Southwestern Bell Telephone Company, presented the request, reading from a statement which he filed with the City Secretary. He referred to a letter from Arthur Young & Company, Accounting Firm, dated April 26, 1973, reporting their independent examination of the 1972 Corpus Christi Metropolitan Exchange operating results upon which this request is based. He explained that this is basically a re -statement of their request presented last August for an overall increase of $2.5 million in annual revenues or a little more than $1.2 million after taxes. He pointed out that the Arthur Young & Company examined financial records and confirms that the Company's report of operating results were prepared from accounts and records maintained in accordance with the uniform system of accounts for telephone companies. provided by the Federal Communications Commission. He stated that all these documents have been furnished the Council and Staff. He also pointed out that since the first appearance in August, the Company had cooperated fully in responding to all the City Staff's requests for additional data. Minutes Special Council Meeting November 2, 1973 Page 2 Mr. Maples listed reasons for the request for an upward adjustment in local telephone rates as follows: inflation, increasing the cost of materials, and higher salaries; growth and cost of raising capital dollars, having spent some $28.8 million during 1970 through 1972 for improved services, and an anticipated expansion program through 1973 of some $37.4 million; influence on geography, resulting from tropical storrn damages which have a definite detrimental impact on financial results. Mr. Maples summarized the data which has been furnished the Council stating that between 1969 and 1972, Southwestem Bell's investment per telephone rose from $467 to $584 which was an increase of $116 per telephone or a jump of about 25 percent; that during that same period, the income per telephone dropped from $11.16 to $11.05 which was a decrease of 11 cents per telephone; that as a result, the telephone company's return on the fair value of its property deteriorated in that 3 -year period by some 64 percent, and these figures take into account the telephone rate increase of 1971. Mr. Maples stated the officials of Southwestern Bell wish this request were not necessary, but feel their case is strong, and have no alternative but to seek rate relief in order to protect the City's telephone service. City Manager Townsend made a brief presentation of the Staff's position stating that he had furnished the Council with documents and data of calculations in support of the Staff's conclu- sions. He discussed monthly telephone rates, dates of last increase, and total calling scope of 30 major Texas cities, itemizing business flat rates, residential 1 -party and 2 -party rates. Mr. Charles Daley, Assistant Director of Finance, presented a report, with exhibits, covering the various procedures and factors taken into consideration in arriving at a fair rate increase for Southwestern Bell Telephone Company. He stated the Company has requested a rate increase of approximately 21.5% of exchange revenues which would result in a dollar increase of approximately $2,503,000. He pointed out that the last rate increase was granted in 1971 and provided for an increase of approximately 12.09%. Mr. Daley listed the factors taken into consideration as follows: Capitalization Ratio and Rate of Return; Fair Value of Exchange plant in Service; and Computation of Fair Rate of Return. He described the rate schedule and effect of the recommended rate increase, stating that of the three methods used, Method One requiring additional revenues of $1,846,497 is recommended; the rate schedule proposed in Exhibit 7 provides for additional revenges of $1,833,720 or an increase of 15.76% of local service revenues. He 1.1111. •tes Special Council Meeting November 2, 1973 Page 3 explained that although this amount is some $13,000 less than computed, it is determined to be fair as revenues were not annualized. He stated the recommended rate adjustment is reflected in Exhibit 6 and results in an adjusted rate of return for the 1972 test year of 8.98% on a fair value rate base of $36, 576, 919. Mr. Daley made a detailed explanation of Exhibits Nos. 1 through 9 of the Staff calculations of the Company's operations for year ending December 31, 1972, including (1) Capitalization Ratio and Rate of Return; (2) Cost of Borrowed Capital; (3) Common Stock Equity; (4) Computation of Fair Value of Exchange Plant in Service; (5) Computation of Fair Value Rate Base and Required Increase in Exchange Revenues by Various Methods; (6) Pro Forma Income Statement Giving Effect to Adjustments and Rate Increase; (1) Rate Schedule and Effect of Rate Increases Based on Telephones at December 31, 1972; (8) Provisions for Hurricane Losses and Additional Financing; and (9) Comparison of Rates - Texas' Thirty Largest Cities. Mr. Daley and City Manager Townsend responded to questions from the Council regarding the various schedules. Mr. Townsend explained the Company's method for calculating depreciation of losses in averages, and methods for maintenance of accounts. He stated the new rate structure recommended provides various percentage increases for the separate services provided by the Company on Exhibit #7. The residential one-party basic rate will increase from $6.20 to $6.90 per month, or 11.3 percent; residential the two-party/basic rate will increase from $5.00 to $5.35, or 7 percent; the business flat rate will increase from $15.25 to $17.70, or 16 percent. He stated the recommendation is based on extensive staff study of the Company's financial picture with a base year of 1972, and the staff has concluded that this is the maximum reasonable increase recognizing the Company's need for a strong reserve for natural disasters and known cost increases. He pointed out that the recommended rates on residential and business telephones are substantially less than called for by the Company's original request of lost August, which by comparison is 11.3 percent against 23.4 percent for one-party residential phones and 16 percent compared with a requested 22.9 percent for the basic business rate. He pointed out that the Staff had not questioned charges for miscellaneous services which included connection charges and $1.00 per month for unlisted numbers. Mr. Maples explained that the higher connection charge is necessary because of a more mobile population and changes in connections are more frequent. He stated the Company expects approximately one-half of the some 8000 unlisted number customers to drop that status if the new es Special Council Meeting November 2, 1973 Page 4 charge is added, but that the charge is needed because of the extra bookkeeping and other costs. He stated the Company's position was that all of the consumers should not be charged for this special type service. Mr. Maples stated his company had worked diligently with the Staff for the past two and one-half months and expenses are being added each day; that there are some areas of disagree- ment with the Staff's conclusions as discussed by Mr. Daley, but it is important to his Company to make immediate adjustments. He stated if the amount of money as stated by Mr. Daley and Mr. Townsend is agreed upon by the City Council, the Company would like to "give it a try" and would accept the compromise proposal. Mr. Maples was questioned if the compromise proposal would mean that the Company would be back before the Council in a few months for another increase. Mr. Maples stated they were making difficult concessions, but felt the Company could live with the recommended increase longer than that and did not anticipate another request in the near future. No one in the audience spoke for or against the rate increase request. Motion by Stark, seconded by Ricardo Gonzalez and passed, that the hearing be closed. Motion by Stark, seconded by Ricardo Gonzalez and passed, that the. Staff be authorized to draft an ordinance in accordance with Method No. 1, of Mr. Daley's presentation, and as recommended by City Manager Townsend. City Attorney Riggs stated he had received the report and recommendation by the City Manager, Finance Director and Assistant Finance Director this afternoon and had not had an opportunity to thoroughly study the proposal and planned to submit written questions to Mr. Maples. Mr. Townsend assured the Council that there were no basic issues involved in the City Attorney's questions and these questions could be cleared up before the final reading of the ordinance. He stated that Mayor Luby and Councilman Lozano would be furnished with all the documents which have been presented and made a part of this hearing. Mayor Pro Tem Acuff stated that all the material would be studied by the Council before final approval of the ordinance. It was noted that a stenographic transcript of this hearing can be made upon request and placed on file in the office of the City Attorney. There being no further business to come before the Council, the Special Meeting was adjourned at 6:40 p.m., November 2, 1973.