Subject: FYI....Risk Mangaement/ potential base rate changes behind Ohio Gas Utilities
From: [email-masked]
To: [email-masked]
Cc: [email-masked], [email-masked], [email-masked], [email-masked], [email-masked], [email-masked], [email-masked], [email-masked], [email-masked]
Date: Tue, 11 Apr 2000 06:29:00 -0700 (PDT)

Introduction
Yesterday afternoon I met with executives from Columbia of Ohio, the Ohio 
Manufacturers Association and Honda of America Manufacturing and discussed a 
property tax bill that COH, EOG, Ohio's Counties and the schools wish to 
introduce tomorrow through the Senate Ways and Means Committee.  They are 
expecting their sponsors to be Senators Blessing and Motley.  They may also 
concurrently introduce the bill through the House Public Utilities Committee 
through Chair Lynn Olman or David Goodman.  Columbia expects the first 
hearing to be May 2nd.  

When asked why the hurry...COH is in litigation concerning disparate 
treatment as it relates to taxes (they are currently in the Ohio appellate 
and believes if this bill goes forward they will be able to reach settlement 
with regards to the litigation before the court of appeals).  The Judge is 
expected to come out with a ruling in May.  However,  if this legislation 
looks promising Columbia may very well reach settlement with the 
counterparties on the litigation prior to the courts ruling.  (I believe the 
counterparty is the Ohio schools)

I asked who they have discussed the bill with at this point and where they 
felt each party stood.  Columbia said they have talked with Senator Finan 
(President of the Senate) (no problem of course), Rob Tongren, Ohio's 
Consumers Counsel (but they haven't met with the OCC staff to go over the 
detailed analysis of impacts based on revenue class), they have sent a copy 
over to the PUCO, Cinergy (who didn't think they had a problem) took it back 
for review, the IEU (Industrial Endusers of Ohio)  said they weren't overly 
pleased but didn't say they would get in the way, the counties and the 
schools.  They have not discussed this with DP&L.  COH and EOG do not play 
well in the sandbox with DP&L and didn't feel they needed to give them a 
heads up.  COH also met with the Department of Taxation.  Although the Tax 
Department did not have any particular concerns as of yet they were concerned 
about what the electric utilities would want to do in light of what the gas 
utilities would have as a result.

The Bill
The bill only addresses property tax which is based on rate base revenues.  
It does not address gross receipts tax.  At first glance and after my 
follow-up discussions with Columbia I would say that the bill does not have 
any disparate treatment between transporting customers and those on system 
supply. Any tax or corresponding base rate reduction would be treated the 
same for sales and transport.  With that said , there is a base rate impact 
on different classes of customers and each utility will be effected 
differently due to the fact that they customers contribution to base rates 
revenues and allocation methodologies.  Below please find the impacts as 
suggested by Columbia:

Rate Class	Columbia of Ohio (total yearly $ impact)	East Ohio Gas
		new rate per mcf 	Cinergy
			Do not have Cinergy numbers as the computations were not provided
Residential	 decrease ($.67) per year	increase $.1532/mcf	increase
Commercial/GTS	increase $9.59 per year	increase $.0892/mcf for usage of up to 2000 
mcf per year	COH wasn't sure but felt it would most likely be an increase
Industrial/LGTS	increase $2,937.91 per year	decrease (industrials that use over 
2000 mcf over what they are currently contributing
		but a rate of $.0650	decrease 
Large Industrials with whom Columbia has flexed its distribution rates to 
$.25/LGTS	increase: none
	Columbia will flex their rates down to $.13 to compensate for the tax 
increase so the impact is zero	$.02/mcf for flexed rate customers	decrease

Columbia of Ohio and East Ohio Gas represent roughly 80 % of the states gas 
volumes.  Rough estimate:  with the reduction in the property tax rate from 
88% to 25% this represents approximately $34 million dollars to Columbia 
based on their 1994 case in which their base rates were set and their tax 
obligation was roughly $53 million approx.)Section VIII of the bill discussed 
the corresponding reductions in base rates that will be made and discussed 
the allocation.  
If and when the legislation goes through,  COH and EOG would file schedules 
with the PUCO.  If the bill is passed as written the rate reductions would be 
effective 1/1/01 and the tax would become effective 7/1/01.

For risk management and deal structuring purposes we will want to watch the 
bill carefully, as any changes made to allocation methodologies could have an 
impact on our business going forward.   In addition,  the bill originally has 
language that address the gross receipts tax on commodity in Ohio and we will 
want to make sure the utilities do not change their mind and insert gross 
reciepts language back in.

I will be sending the supporting documents to Howard Petricoff, Dayem 
Khandker, Dennis Benevides, and Paul Tate.  If you do not receive a copy of 
the bill or the computation sheets and would like a copy, please give me a 
call and I will send them.