Ord 1978-053 - Laserfiche WebLink

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9 I At the present rate levels and after making the appropriate adjustments to the test year as discussed earlier, Entex earned a 4.09% rate of return on its fair value rate base and a 9.88% return on book common equity, -"hich is inadequate by any current test. Although the Company feels it is entitled to an 8% rate of return on fair value, it is requesting only 7.5%. However, the 7.5% amount results in a return of approximately 30% on book common equity of the San Marcos distribution system. In Docket No. 710 which involved the Beaumont distribution system of Entex, the Railroad Commission stated that the return on in,- vested capital (original cost) must be considered as a check on the return to the fair value rate base. In that particular case it allowed a 17.6% return on book common equity. I The most difficult role in a rate proceeding is to determine the rate of return which will assure confidence in the Company's finan- cial integrity, allow it to maintain and support its credit, and enable it to attract the capital necessary for the proper discharge of its public duties. In attempting to determine a fair and reasonable return on the fair value rate base, we have relied primarily on the concepts employed by the Commissions in the Beaumont case of Entex, as well as the 17.6% level on book value of common equity used as a test in the case. Using the 17.6% as a guide, we adopted a 5.55% rate of return which produces 17.5% on book common equity. Cost of Service Clause The Company is requesting an adjustment clause to adjust rates each year to track after-the-fact changes in costs per customer of each calendar year over the preceeding calendar year. This adjustment would include the operating expenses and depreciation, but would exclude the cost of gas, gross receipts taxes, income taxes and .