R-02-08-08-11A1 - 8/8/2002RESOLUTION NO. R- 02- 08- 08 -11A1
WHEREAS,on May 8, 2002 TXU Lone Star Pipeline (TXU LSP) filed a
request at the Railroad Commission of Texas, GUD Docket No. 9304, to
increase directly the rates of TXU LSP Customers and indirectly the
rates of residential and commercial customers of TXU Gas residing
within the City of Round Rock (City) and within other cities served
by TXU Gas, and
WHEREAS, TXU LSP is seeking to impose a surcharge related to
expenditures for pipeline integrity and safety at an estimated cost
of at least $15 million per year; and
WHEREAS, the City is a regulatory authority under the Gas
Utility Regulatory Act (GURA); and
WHEREAS, the City has a fiduciary responsibility to its
citizen -gas customers to insure that the rates charged by public
utilities do not exceed what is reasonable or necessary; and
WHEREAS, the evaluation of TXU LSP's Application to Increase
Rates requires the specialized expertise of lawyers and consultants
who regularly practice before the Railroad Commission of Texas; and
WHEREAS, pursuant to GURA, Section 103.022 a municipality is
entitled to reimbursement of its reasonable rate case expenses.
BE IT RESOLVED BY THE CITY COUNCIL OF THE CITY OF ROUND ROCK,
TEXAS :
. :DUMP \WORLDOX \0: \WDOX \RESOLVII \R OP 08A1 .WPD /xm
Section 1. That the findings set out in the preamble to this
resolution are hereby in all things approved.
Section 2. The City is authorized to intervene at the Railroad
Commission or in Court with regard to any matters at issue in GUD
Docket No. 9304.
Section 3. The City is authorized to join with other cities to
form a steering committee of cities served by TXU Gas at the city
gate in order to coordinate the efforts to ensure that ratepayers are
not charged more than what is reasonable and necessary. The coalition
of cities is known informally as the Association of TXU
Municipalities (ATM).
Section 4. Subject to the right to terminate employment at any
time, the City of Round Rock hereby authorizes the Law Offices of Jim
Boyle, PLLC to act as legal counsel and to work with the experts
approved by the steering committee, as outlined in a Letter of
Engagement attached hereto as Exhibit "A ".
Section 5. The City, in coordination with the steering
committee, shall review the invoices of its consultants for
2
reasonableness before submitting such invoices for reimbursement
pursuant to Section 103.022 of GURA.
Section 6. That this resolution shall become effective from and
after its passage.
The City Council hereby finds and declares that written notice
of the date, hour, place and subject of the meeting at which this
Resolution was adopted was posted and that such meeting was open to
the public as required by law at all times during which this
Resolution and the subject matter hereof were discussed, considered
and formally acted upon, all as required by the Open Meetings Act,
Chapter 551, Texas Government Code, as amended
RESOLVED this 8th day of August, 2002.
ATTEST:
CHRISTINE R. MARTINEZ, City Secreta
3
WELL, Mayor
of Round Rock, Texas
Jim Boyle
Kate Sanford
Jaime Slaughter
Rick Guzman
•awc..; aamrmr;t.Ve, r e sarzd sy.;.rwe.
Mr. Robert L. Bennett, Jr.
City Manager
City of Round Rock
221 E. Main Street
Round Rock, TX 78664
LAW OFFICES OF
JIM BOYLE, PLLC
July 11, 2002
1441 44)
qU
1005 Congress, Suite 550
Austin, Texas 78701 -2491
(512) 474-1492
FAX: (512) 474 -2507
www.jimboylelaw.com
Re: Letter of Engagement for GUD Docket No. 9304, Statement of Intent of TXU
Lone Star Pipeline to Establish and Integrity and Safely Assessment and
Management Expenses and Class Location Changes
Dear Bob:
Thanks for taking the time to meet with me on Tuesday. I am enclosing an engagement
letter. We will try to keep you posted on what is happening in this case. Please contact me
whenever you need more information.
Sincerely yours,
✓�-
Boyle
EXHIBIT
Alt
Jim Boyle
Kate Sanford
Jaime Slaughter
Rick Guzman
• sn.drf.{ .udo.�.i..,r e.mr/�,ISV•:d;,da.
Mr. Robert L. Bennett, Jr.
City Manager
City of Round Rock
221 E. Main Street
Round Rock, TX 78664
LAW OFFICES OF
JIM BOYLE, PLLC
July 25, 2002
1005 Congress, Suite 550
Austin, Texas 78701 -2491
(512) 474-1492
FAX: (512) 474-2507
www.jimboylelaw.com
Re: Letter, of Engagement for GUD Docket No. 9304, Statement of Intent of TXU Lone
Star Pipeline to Establish and Integrity and Safely Assessment and Management
Expenses and Class Location Changes
Dear Mr. Bennett:
The Law Offices of Jim Boyle, PLLC agrees to represent the City of Round Rock in the above
referenced matter on an hourly fee basis, which will be structured as follows: Jim Boyle, $195/hour;
Kate Sanford, $195 /hour; Rick Guzman, $180/hour; and Jaime Slaughter, $170/hour. Pursuant to §
103.023 of the Gas. Utility Regulatory Act (GURA) TXU Lone Star Pipeline will be expected to
reimburse the City for all the expenses incurred in connection with this engagement, including
attorney's fees, travel costs, long distance telephone charges, copying expense, fax expense,
document preparation charges, and any other charges, both direct and indirect, attributable to the
above referenced proceeding so long as there is not a finding that any such costs or expenses are not
found to be reasonable.
In the pending GUD Docket No. 9292, the following cities joined together and informally
called themselves the Association of TXU Municipalities (ATM).
Bonham Emory Somerville
Bowie Frost Venus
Bryan Gatesville Walnut Springs
Cisco Greenville West
Coleman Hamilton
Commerce Lampasas
Copperas Cove Lone Oak
Corsicana Longview
Denton McGregor
Dublin Pflugerville
It is expected that the vast majority of these cities will participate in GUD Docket No. 9304. The
Cities of Gatesville, Commerce, Somerville and Pflugerville have already intervened in this
proceeding.
Further, the 1991 amendments to the Texas State Bar Act require that all attorneys
practicing law notify their clients of the existence of the grievance process. Briefly, the State Bar
of Texas investigates and prosecutes professional misconduct committed by Texas attorneys.
Although not every complaint against or dispute with a lawyer involves professional misconduct,
the State Bar Office of General Counsel will provide you with information about how to file a
complaint. For more information, please all 1 -800- 932 -1900. This is a toll -free telephone call.
If this correctly sets out our agreement as you understand it, please sign this letter and
return it to me for our files. If you would like to discuss the matter with me first, or ask
questions, please feel free to call me at (512) 474 -1492.
Very truly yours,
LAW OFFICES OF JIM BOYLE
1005 Congress Ave., Suite 550
Austin, Texas 78701
APPROVED AND ACCE
DATE: August 2, 2002
SUBJECT: City Council Meeting — August 8, 2002
ITEM: 11.A.1. Consider a resolution authorizing intervention at the Railroad
Commission of Texas in the TXU Lone Star Pipeline's request to
increase residential and commercial gas rates.
Resource: Steve Sheets, City Attorney
History: On May 8, 2002, TXU Lone Star Pipeline (TXU) filed a request with the Texas
Railroad Commission which, if granted, would increase the rates of gas customers
in the City of Round Rock. A coalition of cities has been formed called the
Association of TXU Municipalities (ATM). The purpose of ATM is to evaluate
TXU's request, and to protest same, if it is necessary to ensure that the City's
ratepayers are not charged more than the amount that is reasonable and necessary.
This resolution will authorize the City to join ATM and the hiring of the Law
Offices of Jim Boyle, PLLC to represent it as legal counsel.
Funding: To be reimbursed from TXU Lone Star Pipeline
Cost: N/A
Source of funds: N/A
Outside Resources: Bob Bennett and Steve Sheets
Impact/Benefit: Prevent rate increases which are unreasonable and unnecessary.
Public Comment: N/A
Sponsor: N/A
RAILROAD COMMISSION OF TEXAS
GAS SERVICES DIVISION
PIPELINE SAFETY SECTION
PERMIT TO OPERATE PIPELINE
Austin, Texas, February 29, 2000
t,wa
Permit No. 00578
FLUID TRANSPORTED
TXU LONE STAR PIPELINE Crude: Crude FWS:
ATTN ALVIN LA GRENADE Condensate: Gas FWS:
301 S HARWOOD Gas XXX
DALLAS TX 75201 Products
Other
This is to certify that TXU LONE STAR PIPELINE has
complied with 16 TAC Sec. 3.65 of the Commission Rules and
Regulations governing pipelines in accordance with the Natural
Resources Code Sec. 81.051 and is granted this permit by the
Commission to operate the following line or lines located at:
ANDERSON ARCHER ATASCOSA BANDERA
BAYLOR BELL BOSQUE BRAZOS
BROWN BURLESON BURNET CALLAHAN
CHEROKEE CHILDRESS CLAY COKE
COLEMAN COLLIN COLLINGSWORTH COMANCHE
** Counties continued on page 2
PERMIT AMENDED TO REFLECT THE REMOVAL OF APPROXIMATELY 95.2 MILES
OF PIPE IN DALLAS, TARRANT, AND WILLIAMSON COUNTIES TRANSFERRED
TO TXU GAS DISTRIBUTION, SYSTEMS C, D, AND L.
This permit is valid until the operating ownership of such line
or system changes, or until extensions or other physical changes
are made in the line or system. (See Instructions on Form T -4.)
BY
RAILROAD COMMISSION OF TEXAS
Form T -4A (Rev. 4/99)
LINE NAME
SIZE
LENGTH
Mile(s)
FROM
TO
COUNTY
QUAD NAME
L (Soul
12.02
7229 +00
78
C C C C C C CC C C C CC
O 0 0 0 0 0 0 0 0 0 0 0 0
N N N CO N N N N N CO N N CO
E E E E E E E E E E E E E
m m m m m m m m m m m 2 W
Hutto, Round Rock
L(2nd)
5.34
0 +00
282 +11
Hutto
L21
4.29
0 +00
226 +56
Hutto
L20
3.77
0 +00
199 +15
Round Rock, Georgetown
L20 -1
2.27
0 +00
120 +04
Round Rock, Georgetown
L40
10.8
0 +00
568 +21
Round Rock, Leander
L40 -2
3.21
0 +00
169 +61
Round Rock
L40 -2 -1
1.24
0 +00
65 +67
Round Rock
L40 -2 -2
0.7
0 +00
37 +18
Round Rock
L40 -3
0.0003
0 +00
0 +02
Round Rock
L40-4
1.57
0 +00
83 +39
Leander, Jollyville
L40-5
0.005
0 +00
0 +30
Leander
L40-6
0.005
0 +00
0 +30
Leander
TXU LONE STAR PIPELINE-PERMIT # 00578
TRANSMISSION LINES
Pipelines Transferred to TXU Gas Distribution
TOTAL (Miles): 45.2203
RECEIVED
R.R.C. OF TEXAS
F EB 18 2000
GAS SERVICES DlvIa'
AUSTIN, TX
TXU Pipeline Integrity & Safety Surcharge
• TXU Lone Star Pipeline (TXU LSP) requests a
surcharge to be imposed on residential, commercial
and industrial customers for Pipeline Integrity &
Safety.
• TXU is requesting a surcharge for costs to be
incurred in the future.
• TXU fails to match Integrity & Safety costs with
revenues or with expenses whose costs are
decreasing.
• Dangerous precedent to allow increase for one cost
area without examining other costs and expenses.
• Railroad Commission recently dismissed another
surcharge proceeding because TXU sought to recover
costs for a project which was not yet used and useful
in supplying gas service to the public.
STATEMENT OF INTENT OF
TXU LONE STAR PIPELINE TO
ESTABLISH AN INTEGRITY AND
SAFETY ASSESSMENT FOR
RECOVERY OF PIPELINE
INTEGRITY ASSESSMENT AND
MANAGEMENT EXPENSES AND
CLASS LOCATION CHANGES
GUD DOCKET NO. 9304
MOTION TO DISMISS
The Association of TXU Municipalities (ATM) files this motion to dismiss TXU
Lone Star Pipeline's (TXU LSP) statement of intent to establish an annual supplemental
rate. TXU LSP proposes to recover the costs of pipeline testing and repair and class
location changes, including installation of new class location pipe, through an annual
incremental rate adjusted each year over a 10 -year period.
This application represents vintage piecemeal ratemaking not authorized by law.
Instead of pursuing this case, once it has some experience with safety assessment
programs, TXU LSP should file a statement of intent to increase its rates, include in
that filing all the Company's costs and revenues, and include the safety compliance
costs as known and measurable rate year costs. It may then be reasonable for the
Commission to order annual cost reviews, similar to what TXU propose here, to apply
a true -up mechanism.
To capture the costs for class location, TXU LSP should do what it has always
been required to do-- replace the pipe where necessary and recover costs in a rate case.
No special rate treatment has been accorded the utility with respect to class location
changes in the past, and none should be now. The Railroad Commission of Texas
(Commission) should dismiss this application because it contravenes the Commission's
own decisions against annual rate adjustments and it violates the law.
1
§
§
BEFORE THE
RAILROAD COMMISSION
OF TEXAS
1 Direct Testimony of Marc E. Rothbauer at 5.
2 Direct Testimony of Michael TheBerge at 11 -12.
'Direct Testimony of Jeffrey Knight at 20.
I.
BACKGROUND
TXU LSP filed this application in Docket No. 9304 on May 8, 2002 to recover
costs related to its compliance with the requirements of Commission rule 16 Texas
Administrative Code (TAC) §8.101 effective April 30, 2001. Under the rule, operators
of intrastate transmission and gathering lines subject to the requirements of 49 Code of
Federal Regulations (CFR) 192 were to file, by February 1, 2002, a plan for
compliance indicating whether they would use a risk -based analysis or a prescriptive
plan. In its Pipeline Integrity Assessment and Management Program (PIAM), TXU
LSP selected certain pipelines that would be subject to the risk -based program and
others that would be subject to the prescriptive plan.' In addition, TXU LSP includes
in the rate class location pipe changes under 49 CFR 192.5.
The application contemplates an annual integrity and safety assessment (ISA)
supplemental rate to be paid by all customers with gas consuming equipment at an end -
use location physically attached to TXU LSP's pipeline system or the system of a Local
distribution company that is physically attached to TXU LSP's pipeline system. It
would also be paid by transportation customers who sell gas to these entities and by
local distribution companies. It would not apply to non - native transportation volumes
passing through the system for redelivery to other, downstream, pipeline systems.'
TXU LSP anticipates it will recover $2.05 per MMBtu producing annual
revenues of $4,115,407 the first year, or a 3.7% increase in the total annual revenues
of the Company. For class location changes, TXU LSP's capital investment is
projected by the Company to be between $3 million and $8 million annually on which
a rate of retum will be recovered in the cost of service each year. As ATM
understands the request, TXU LSP will seek a one -time surcharge to recover costs for
2002 and a supplemental monthly rate based on projected costs for the 12 months of
2003. In November of each of the 10 years of these rates, TXU LSP proposes to
2
implement a review period in which parties with standing would be permitted to
challenge any of the Report Period ISA- related costs for the specified period. TXU
LSP proposes that any challenge be specific and subject to a prima facie showing that
there is cause for review as opposed to blanket protests lacking specific foundation.
After that review period expires, TXU LSP wants the Commission to issue an order
finding that those costs are not subject to future challenges.'
II.
VIOLATION OF PRIOR COMMISSION DECISIONS
The Commission has already addressed the issue of annually adjusting rates and
rejected that rate treatment. In GUD No. 9145 - 9148, the Administrative Law Judge
(ALJ) discussed the request by TXU Gas Distribution (TXU GD) to recover on a
piecemeal basis a Plant Investment Cost Adjustment (PICA) and a Cost of Service
Adjustment Clause (COSA) and recommended denial. The Commission agreed that the
proposed rates violated Texas Utilities Code' §104.102 and that the PICA and COSA
were devised to avoid legislative rate mandates. The argument by the Company in that
case, which the ALJ and the Commission rejected, is similar to the one used by TXU
LSP in this case: There, TXU argued, "By avoiding a yearly major rate case both the
Company and the ratepayers benefit."' Here, TXU LSP states: "It is appropriate to
afford the costs of these programs rate treatment independent of the normal ratemaking
process because they are non - discretionary and because they are not readily predictable
with respect to either the timing or the level of expenditures." In Docket No. 9145-
9148, the ALJ reasoned as follows:
Simply stated, PICA is not the mechanism to increase rates that is
authorized by statute. There is no mechanism provided by the Texas
4 Direct Testimony of Michael TheBerge at 8 -9.
' Appeal of TXU Gas Distribution from the Action of the City of Dallas, City of University Park, and the
Town of Highland Park Texas and the Statement of Intent Filed by TXU Gas Distribution to Increase
Rates Charged in the Environs of the City of Dallas, GUD Docket Nos, 9145 -9148, Final Order Nov. 20,
2000.
6 Gas Utility Regulatory Act, TEX. UTIL CODE ANN. 11 101.001- 105.051 (Vemon 1998 and Supp.
2002)(GURA).
TXU Gas Distribution, Reply Brief in GUD No. 9145 -9148 at 82.
3
Utilities Code to avoid a rate case when a utility desires to increase rates.
Further, it may not be any more efficient than the statement of intent
process. The result may be a full inquiry into rates by a regulatory
authority once a year. Finally, while there is a statutory mechanism to
suspend rates in the event a statement of intent is filed, there is no
discussion by the Applicant addressing the procedures for reviewing the
COSA and PICA adjustment before it is applied.'
That reasoning applies here, as well. For example, because TXU LSP proposes to
adjust costs each year, this case could similarly result in a yearly rate case. TXU LSP
proposes a procedure for totaling ISA costs before the rate is applied each year, but as
that procedure is structured, parties protesting the costs would have the burden of
proving rates are unreasonable. This shifts the burden of proof from the utility to the
customers in violation of GURA §104.008.
Unless TXU LSP submits all its expenses and revenues in a full rate proceeding,
the Commission cannot know whether current revenues are sufficient to recover
proposed costs, or whether any of the proposed maintenance costs are captured in
current rates. These are the dangers inherent in piecemeal ratemaking. Therefore, the
rate treatment proposed here is as unacceptable as that proposed in Docket No. 9145
and could result in rates in excess of costs and unsupported by a revenue requirement.
VIOLATION OF GURA AND CASE LAW
A. The Statement of Intent represents piecemeal ratemaking contrary to law
and policy.
TXU LSP seeks rate approval without meeting its burden of proof under the
GURA rate - setting requirements to show that the rates it proposes are just and
reasonable. GURA § 104.102 states:
(a) A gas utility may not increase its rates unless the utility files a
statement of intent with the regulatory authority that has original
jurisdiction over those rates...
(c) The statement of intent must include:
$ GUD Docket Nos. 9145 -9148, Proposal for Decision at 110, (Oct. 10, 2000).
4
(1) proposed revisions of tariffs and schedules;
(2) a detailed statement of:
(A) each proposed increase;
(B) the effect the proposed increase is expected to have on
the revenues of the utility;
(C) each class and number of utility consumers affected;
and
(D) any other information required by the regulatory
authority's rules and regulations.
The Commission's procedural rule 7.5 tracks sections A through D of § 104.102
requiring that the statement of intent to change rates include the effect of the change on
the revenues of the utility. TXU LSP's application reflects no overall revenue effect.
GURA prevents a gas utility from charging, collecting, or receiving a rate for
utility service except as provided within that subtitle.' Gas utility rates are to be set by
the Commission by establishing
the utility's overall revenues at an amount that will permit the utility a
reasonable opportunity to earn a reasonable retum on the utility's
invested capital used and useful in providing service to the public in
excess of its reasonable and necessary operating expenses.
A fundamental principle of ratemaking is that regulated utilities are entitled to rates
which allow them to collect total revenues equal to their cost of service. Cost of
service is defined as the sum total of (a) reasonable operating expenses, (b) depreciation
expense, (c) taxes, and (d) a fair and reasonable retum." Section 104.055 of GURA,
for example, requires that the net income of the company be used to establish just and
reasonable rates. This section adds:
For that purpose, "net income" means the total revenues of the gas
utility from gas utility service less all reasonable and necessary expenses
related to that gas utility service."
TXU LSP's application constitutes a request to set rates in a piecemeal fashion without
considering all revenues or all reasonable and necessary expenses.
9 GURA Chapter 104, Subchapter A, §104.002.
° GURA §104.051 (emphasis added).
11 Suburban Utility Corporation v. Public Utility Commission of Texas, 652 S.W.2d 358,362 (Tex. 1983).
12 GURA §104.055(a) (emphasis added).
5
State agencies are creatures of statute and have no inherent authority. They may
exercise only those specific powers conferred upon them by law in clear and express
language, and no additional authority will be implied by judicial construction. An
agency, by implication, should have such authority as may be necessary to fulfill a
function or perform a duty placed expressly in the agency by the legislature. The
agency may not, however, erect and exercise what really amounts to a new power or
one that contradicts the statute, no matter that the new power is viewed as being
expedient for administrative purposes. " Nothing in GURA permits the Commission to
establish rates on an incremental or piecemeal basis. Acting within its authority under
GURA, the Railroad Commission may not establish a rate to recover operation and
maintenance and capital costs outside a general rate case.
B. TXU LSP's proposed incremental rate ignores the requirements under
GURA to set rates based on test year data.
Rates are set by regulatory commissions based on test year data. Under GURA
§101.003(16), "test year" is defined as the most recent 12 months, beginning on the
first day of a calendar or fiscal year quarter, for which operating data for a gas utility
are available. The Commission has the discretion to consider expenditures that will
occur in the future if such consideration will assist the Commission in making the test
year representative of known future costs. This exception is applied only where there
are known and measurable changes to the historic test year costs and revenues, changes
that the regulatory authority may allow only where attendant impacts on all aspects of
the utility's operations can be, with reasonable certainty, identified, quantified, and
matched."
13 Sexton v. Mount Olivet CemeteryAss'n, 720 S.W.2d 129 (Tex.App. -- Austin 1986 writ red n.r.e.).
14 See Humble Oil & Refining Co. v. Railroad Commission, 128 S.W.2d 9 (1939).
15 See the Railroad Commission of Texas Gas Services Division Natural Gas Rate Review Handbook
published November 1999 at Chapter III, Section I A. (page 15) (hereafter "Rate Review Handbook ").
The same is true for cases brought before the Public Utility Commission of Texas under § 11,003 (20) of the
Public Utility Regulatory Act, TEx, UTIL CODE ANN. §§ 11.001 - 63.063 (Vemon 1998 & Supp.
2002)(PURA).
16 City of El Paso v. Public Utility Commission of Texas, 883 S.W.2d 179, 188 (Tex. 1994).
" Central Power and Light Company /Cities ofAlice, et al v. Public Utility Comm 'n, 36 S.W.3d 547, 563
(Tex.App - -Austin 2000, review denied).
6
TXU LSP could easily file a full rate case and based on its ISA- related costs
expended in the test year project a reasonable cost for compliance in the future rate
years. That is the approach sanctioned by law. To set the rate as proposed in this
application, would establish a precedent for piecemeal rate litigation.
C. Part of TXU LSP's Statement of Intent violates the rule against retroactive
ratemaking.
TXU LSP proposes a July 1, 2002 effective date which is subject to suspension
for an additional 150 days under GURA §104.107(a)(2). ATM does not agree that the
§104.107 suspension period applies in this case; however, if this case is not dismissed,
a final order may issue around the end of November 2002. TXU LSP asks that a
surcharge be established to recover all the costs incurred under the ISA and class
location changes for the period from July 1, 2002 to the final order.
It is well settled that the Commission lacks authority to make new rates
retroactive to a date prior to issuance of a final rate order. The rule against
retroactive ratemaking requires that when setting rates the Commission cannot adjust
for past losses or gains to either the utility, consumers, or particular classes of
consumers. Even though using an historical test year to calculate costs, the rule
requires that the Commission adjust those data with a view toward the utility's
experience in the coming year." In reviewing an Ohio complaint statute, Justice
Frankfurter found that the statute gave the Commission power to prescribe rates
prospectively only and would not allow the Ohio Commission to set rates for sales from
the transmission company to the utility retroactively to the initiation of the rate
proceeding. Relying on that Supreme Court case, courts have rejected claims that
commissions may set rates in a final order retroactive to the date of the initiation of the
rate proceeding as TXU LSP claims here.'
18 See Public Utility Commission v. GTE Southwest, Inc. 901 S. W.2d 401, 405 -408 (Tex. 1995).
19 The Ghost of Regulation Past: Current Applications of the Rule Against Retroactive Ratemaking in
Public Utility Proceedings, 199 U ILL L REV. 983, 997 & 1009 -1012.
2° Public Utility Commission v. United Fuel Gas Co., 317 U.S. 456, 464 (1943).
21 See Pacific Telephone & Telegraph Co. v. Public Utility Commission, 401 P.2d 353 (Cal. 1965)
reversing that part of a rate reduction order mandating refunds from the beginning of a commission
7
Only under extreme circumstances have rates been set with retroactive effect.
For example, in a 1983 Lone Star Gas case, the Court found the Commission did not
abuse its discretion in setting a particular effective date prior to the final order in part to
account for regulatory lag. That decision applied to pre - September 1983 law, which
was changed under GURA to require prospective application of rates. Certain utility
accounting determinations have allowed recovery of past costs. Those are
extraordinary events permitted generally when the utility's financial integrity is at
stake.' TXU LSP provides no evidence that the assurance of recovery of the PIAM
and class location costs are necessary to ensure the financial integrity of the Company.
Thus, this rate application contains no evidence to suggest that TXU LSP is entitled to
any extraordinary rate relief.
The prohibition against retroactive ratemaking is founded on the premise that
ratemaking is a legislative function of an administrative agency and, like all legislation,
is generally prospective only.' In a Houston Natural Gas case, the court based its
opinion on the legislative function of rate setting and found:
Utility rates as rules of conduct are prospective only and do not in any
manner involve an `adjudication' of rights arising from a `past'
controversy. It is true that the fixing of rates requires a study of existing
and past facts, but the rate as promulgated is not `res adjudicata' of any
fact so studied. Therefore our primary concern in this type of case is to
examine, construe, and apply existing legislation.
investigation into the rates of a telephone company; Public Utility Commission v. General Telephone Co.,
777 S.W.2d 827, 830 (Tex.Ct. App. 1990, writ dismissed w.o.j. 1991) concluding that the commission did
not have authority to set rates retroactively to a date after the start of the proceeding but within the
suspension period.
22 Railroad Comm 'n v. Lone Star Gas Co., 656 S.W.2d 421, 423 -424 (Tex. 1983). Section 26 of PURA
granted appellate jurisdiction to the Commission to "fix such rates as the municipality should have fixed in
the ordinance form which the appeal was taken." The Texas Supreme Court construed that to give the
Commission the authority to make the rate effective retroactively. Section 26 has since been amended to
prohibit such a result. See PURA §33.054(b) and 33.055(a) requiring prospective application of rates from
the date of the applicable conunission order.
23 Id. at 201 -204 applied to deferred accounting treatment for costs where the financial integrity standard
was applied.
24 GURA §104.053(d).
25 Southwestern Bell, Etc. v. Public Util. Comm 'n, 615 S.W.2d 947, 953 (Tex.Civ.App -- Austin 1981 writ
refused n.r.e.).
26 Railroad Commission v. Houston Natural Gas Corp., 289 S.W.2d 559, 562 (Tex. 1956).
8
Section 104.110(b) of GURA states that rates established in the rate order "shall be
observed thereafter until changed as provided by this subtitle." The prohibition against
retroactive ratemaking restrains a utility commission from setting future rates to allow a
utility to recoup past losses or to refund to consumers excess utility profits.'
In the instant case, if the Commission permits rate recovery, the rate established
must also be prospective in nature and applied to capture costs occurring during the rate
year (the time frame in which the rates are actually collected). TXU LSP must base its
proposed rates on past cost data adjusted for known and measurable changes, but it
cannot pull specific costs from prior periods, not already included in an existing rate,
and pile those onto the prospective rate. That would be illegal retroactive ratemaking.
Moreover, while the Commission is not obliged to approve any incremental rate for
TXU LSP, it is certainly not obliged to approve a surcharge of past costs outside a
regulatory scheme that contemplates that kind of cost recovery. TXU LSP's request for
a rate to collect 2002 expenditures should be denied.
CLASS LOCATION
Class location is a classification given to a one -mile section of pipeline based on
the population density within an area 220 yards on either side of the centerline of the
pipeline section. If the population density increases, under federal regulations adopted
by the Commission, TXU LSP may be required to change the size or kind of pipe.
TXU LSP proposes to include, in the ISA, costs for replacing pipe in areas of
population growth. TXU LSP has been required to perform this kind of upkeep /pipe
replacement as a continuing operation of its business. This work is unrelated to the
new safety assessment rules upon which this statement of intent is based.
Consequently, at a minimum, any costs related to class location should be removed
from this case and considered only in a full rate proceeding. In addition to the reasons
27 State v. Public Utility Comm'n, 883 S.W. 2d 190, 199 (Tex. 1994).
9
IV.
provided above related to safety assessments, ATM provides the following basis for
dismissing class location changes from this petition.
A. TXU LSP failed to provide any evidence that it will incur class location
changes during the rate year, 2003.
TXU LSP provided no evidence that class location changes will occur in 2003,
the rate year. Mr. Knight testified it is not possible to predict which pipelines will
experience a class location change. He then stated he expects one to three projects a
year but provided no studies or analyses to support that statement, and he conceded in
some years there may be no segment changes. The evidence does not meet any
standard of proof to support projected costs. Moreover, TXU LSP wants to include in
rate base and recover a return in this ISA rate on $4.365 million of class location costs
expended in 2002. The Commission cannot approve rate treatment for these costs
because to so do would amount to retroactive ratemaking. Consequently, the
Commission should not approve any class location costs in this proceeding.
B. The rate request cannot be granted because the class location pipe changes
are not currently used and useful for the provision of gas transportation
service.
GURA §104.051 requires the Commission to establish the utility's overall
revenues at an amount that will permit the utility a reasonable opportunity to eam a
reasonable return on the utility's invested capital used and useful in providing service to
the public. As a general rule, only assets that are used and useful in providing service
may be included in a utility's rate base.
A utility's rates must be set so as to produce revenues equal to the sum of two
amounts: (1) the utility's reasonable and necessary operating expenses, including taxes
28 Knight Direct Testimony at 19 -20.
29 Cities for Fair Utility Rates v. Public Utility Comm 'n of Texas, 924 S.W. 2d 933, 935 (Tex. 1996), which
found that capital additions are not considered used and useful until the construction has been completed
and the plant placed in service. See also City ofAmarillo v. Railroad Comm 'n of Texas, 894 S.W.2d 491,
500 (Tex. App. -- Austin 1995 writ denied); Texas Utilities Electric So. v. Public Utility Comm 'n, 881
S.W.2d 387, 409 (Tex.App. -- Austin 1994, affirmed in relevant part 935 S.W.2d 109 (Tex. 1996).
10
and depreciation, and (2) a reasonable return on invested capital that is used and useful
in rendering service to the public. The Texas Supreme Court has held:
A utility's cost of constructing a facility for use in providing service is
ordinarily not an operating expense; obviously, until the facility is
completed, there is nothing to operate. Rather, the cost of constructing a
new facility, like the purchase price of an existing facility, is an
investment of capital in an asset to be used in the future. As such, it
must be included in a utility's rate base, but not until the facility has
become "used and useful in rendering service to the public ". "Used
and useful" refers to "such property as has been acquired ... in good
faith and held for use in the reasonably near future in order to enable [a
utility] to supply and furnish adequate and uninterrupted ... service."
Lone Star Gas Co. v. State, 137 Tex. 279, 153 S.W.2d 681, 698 (1941).
Historically, a facility under construction has not been considered used
or useful in providing service until it actually becomes operational. In
this view, construction costs are not included in rate base until
construction is complete.
TXU LSP proposes that new class location pipeline will be included as invested
capital on which the Company will earn a 12.30% retum. Because of the incremental
nature of the proposed rate, the related costs will be recovered before the pipeline is in
operation. Consequently, the rate treatment proposed by TXU LSP violates the used
and useful standard. TXU LSP claims there may be more growth in the corning years
than there has been in the past. But these are not extraordinary costs, and if class
location changes will truly be experienced on a continuing and regular basis, to recover
those costs in rates, TXU LSP should file a statement of intent for a full rate case.
V. CONCLUSION
This statement of intent calls for incremental piecemeal ratemaking and does not
represent the kind of rate review available to the Commission and the utility under the
law. It also includes an element of cost recovery requiring retroactive rate setting
generally rejected by courts. Finally, it includes class location changes that are not part
of Rule 8.101 and for which the utility has routinely been responsible in the past. None
3° Cities for Fair Utility Rates at 935 (emphasis added).
11
of these issues should be considered on an incremental basis. Doing so would open the
door to future ratemaking processes in clear violation of the law. Because the
Commission lacks jurisdiction under law to consider these rate applications, ATM
requests the Commission dismiss this proceeding and require TXU LSP to file a
statement of intent for full rate review.
Respectfully submitted,
CERTIFICATE OF SERVICE
Law Offices of Jim Boyle, PLLC
1005 Congress Avenue, Suite 550
Austin, Texas 78701
512- 474 -1492 Telephone
512- 474 -2507 Facsimile
By:
Kathleen Sanford
State Bar No. 01625400
ksanford @jimboylelaw. com
I hereby certify that a true and correct copy of the foregoing document was
transmitted by fax and/or regular, first class mail on this 24t day of June 2002 to the
parties of record.
Kathleen Sanford
12
Jim Boyle
Kate Sanford
Jaime Slaughter
Rick Guzman
• 9mrdCe+tu4 Ad•irurvri.laa. S Basd of Legal slpiellmnm
Dear Bob:
LAW OFFICES OF
JIM BOYLE, PLLC
liE
July 11, 2002
‘Ai
L 12uc
1005 Congress, Suite 550
Austin, Texas 78701 -2491
(512) 474 -1492
FAX: (512) 474 -2507
www.jimboylelaw.com
Mr. Robert L. Bennett, Jr.
City Manager
City of Round Rock
221 E. Main Street
Round Rock, TX 78664
Re: Letter of Engagement for GUD Docket No. 9304, Statement of Intent of TXU
Lone Star Pipeline to Establish and Integrity and Safely Assessment and
Management Expenses and Class Location Changes
Thanks for taking the time to meet with me on Tuesday. I am enclosing an engagement
letter. We will try to keep you posted on what is happening in this case. Please contact me
whenever you need more information.
Sincerely yours,
Boyle
'. .
Jim Boyle
Kate Sanford
Jaime Slaughter
Rick Guzman
• Band op4a1Sperial me
Mr. Robert L. Bennett, Jr.
City Manager
City of Round Rock
221 E. Main Street
Round Rock, TX 78664
Dear Mr. Bennett:
LAW OFFICES OF
JIM BOYLE, PLLC
July 25, 2002
1005 Congress, Suite 550
Austin, Texas 78701 -2491
(512) 474-1492
FAX: (512) 474 -2507
www.jimboylelaw.com
Re: Letter of Engagement for GUD Docket No. 9304, Statement of Intent of TXU Lone
Star Pipeline to Establish and Integrity and Safely Assessment and Management
Expenses and Class Location Changes
The Law Offices of Jim Boyle, PLLC agrees to represent the City of Round Rock in the above
referenced matter on an hourly fee basis, which will be structured as follows: Jim Boyle, $195/hour;
Kate Sanford, $195 /hour; Rick Guzman, $180 /hour; and Jaime Slaughter, $170 /hour. Pursuant to §
103.023 of the Gas Utility Regulatory Act (GURA) TXU Lone Star Pipeline will be expected to
reimburse the City for all the expenses incurred in connection with this engagement, including
attorney's fees, travel costs, long distance telephone charges, copying expense, fax expense,
document preparation charges, and any other charges, both direct and indirect, attributable to the
above referenced proceeding so long as there is not a finding that any such costs or expenses are not
found to be reasonable.
In the pending GUD Docket No. 9292, the following cities joined together and informally
called themselves the Association of TXU Municipalities (ATM).
Bonham Emory Somerville
Bowie Frost Venus
Bryan Gatesville Walnut Springs
Cisco Greenville West
Coleman Hamilton
Commerce Lampasas
Copperas Cove Lone Oak
Corsicana Longview
Denton McGregor
Dublin Pflugerville
It is expected that the vast majority of these cities will participate in GUD Docket No. 9304. The
Cities of Gatesville, Commerce, Somerville and Pflugerville have already intervened in this
proceeding.
Further, the 1991 amendments to the Texas State Bar Act require that all attorneys
practicing law notify their clients of the existence of the grievance process. Briefly, the State Bar
of Texas investigates and prosecutes professional misconduct committed by Texas attorneys.
Although not every complaint against or dispute with a lawyer involves professional misconduct,
the State Bar Office of General Counsel will provide you with information about how to file a
complaint. For more information, please all 1- 800- 932 -1900. This is a toll -free telephone call.
If this correctly sets out our agreement as you understand it, please sign this letter and
return it to me for our files. If you would like to discuss the matter with me first, or ask
questions, please feel free to call me at (512) 474 -1492.
APPROVED AND ACCE
Very truly yours,
LAW OFFICES OF JIM BOYLE
1005 Congress Ave., Suite 550
Austin, Texas 78701
Mayor
Nyle Maxwell
Mayor Pro -tem
Tom Nielson
Council Members
Alan McGraw
Carrie Pat
Scot Knight
Isabel Gallahan
Gary Coe
City Manager
3bert L Bennett, jr.
City Attorney
Stephan L. Sheets
ROUND ROCK, TEXAS
PURPOSE. PASSION. PROSPERITY
August 29, 2002
Mr. Jim Boyle
Law Offices of Jim Boyle, PLLC
1005 Congress, Suite 550
Austin, TX 78701 -2491
Dear Mr. Boyle:
The Round Rock City Council approved Resolution No. R- 02- 08 -08-
11A1 at their regularly scheduled meeting on August 8, 2002. This
resolution approves the Letter of Engagement for GUD Docket No. 9304,
Statement of Intent of TXU Lone Star Pipeline to Establish and Integrity
and Safely Assessment and Management Expenses and Class Location
Changes.
Enclosed is a copy of the resolution and agreement for your files. If you
have any questions, please do not hesitate to contact Steve Sheets at
255 -8877.
Sincerely,
aillat;yutA
Christine R. Martinez
City Secretary
Enclosure
CITY OF ROUND ROCK 221 East Main Street • Round Rock, Texas 78664
Phone: 512.218.5400 • Fax: 512.218.7097 • Voice: 1.800.735.2988 • L800.735.2989 TDD • www.ci.round- rock.tx.us