HomeMy WebLinkAboutItem 05 - ATMOS Rate Review Mechanism Settlement ITEM EM it ��Jl
MEMO TO: HONORABLE MAYOR AND MEMBERS OF THE CITY COUNCIL
FROM: BRUNO RUMBELOW, CITY MANAGER 13/ .
MEETING DATE: AUGUST 12, 2009
SUBJECT: ATMOS RATE REVIEW MECHANISM SETTLEMENT 2009
The City, along with 150 other cities served by Atmos Energy Mid-Tex Division ("Atmos Mid-
Tex" or "Company"), is a member of the Atmos Cities Steering Committee ("ACSC" or
"Steering Committee"). On March 6, 2009, Atmos Mid-Tex filed with the City an application
to increase natural gas rates pursuant to the Rate Review Mechanism ("RRM") tariff
approved by the City as part of the settlement of the Atmos Mid-Tex 2007 Statement of
Intent to increase rates.
The Atmos Mid-Tex March RRM filing sought a $20.2 million rate increase. The City worked
with ACSC to analyze the schedules and evidence offered by Atmos Mid-Tex to support its
request to increase rates. The Ordinance and RRM tariff are the result of negotiation
between ACSC and the Company to resolve issues raised by ACSC during the review and
evaluation of ACSC's RRM filing. The Ordinance and RRM tariffs approve rates that will
increase the Company's revenues by $2.6 million effective for bills rendered on or after
August 1, 2009. The monthly bill impact for the average residential customer will be a $0.15
increase (about a 0.22% increase in the total bill).
RRM Background:
The RRM tariff was approved by ACSC Cities as part of the settlement agreement to resolve
the Atmos Mid-Tex 2007 rate increase case. Atmos Mid-Tex's current action represents the
second filing pursuant to the three-year trial project known as the RRM process. The RRM
process was created collaboratively by ACSC and Atmos Mid-Tex as an alternative to the
GRIP surcharge process. The RRM process allows for a more comprehensive rate review
and annual adjustment that will function as a substitute for future GRIP filings during the
three-year trial period specified by the tariff.
There are two components to the RRM adjustment. The prospective component adjusts
rates for known and measurable changes in O&M and net plant investment. Atmos Mid-Tex
and ACSC agreed to cap changes to expenses and invested capital at no more than 5%.
The true-up component evaluates whether the Company has over or underrecovered its
earnings for the previous year. For purposes of the RRM true-up component, the Atmos
Mid-Tex rate of return on equity and its capital structure are frozen to avoid the parent
company from manipulating the overall rate of return. Costs expressly prohibited from
recovery through the RRM include first-class air fare, travel, meals or entertainment for an
employee's spouse, alcohol, sports events, entertainment, arts and cultural events,
sponsorship of sports, arts or cultural events, and social club membership dues.
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Purpose of the Ordinance:
The purpose of the Ordinance is to approve rate tariffs ("Attachment A") and Proof of
Revenues ("Attachment B") that reflect the negotiated rate change pursuant to the RRM
process. In addition to the RRM tariffs, the Ordinance also approves a revision to the Atmos
Mid-Tex current Gas Cost Recovery ("GCR") tariff to allow the Company to recover certain
hedging costs associated with natural gas futures through the GCR tariff.
As a result of the negotiations, ACSC was able to reduce the Company's requested $20.2
million RRM increase by more than 70%. Approval of the Ordinance will result in rates that
implement a $2.6 million increase in Atmos' revenues effective August 1, 2009.
Reasons Justifying Approval of the Negotiated Resolution:
During the time that the City has retained original jurisdiction in this case, consultants
working on behalf of ACSC cities have investigated the support for the Company's requested
rate increase. While the evidence does not support the $20.2 million increase requested by
the Company, ACSC consultants agree that the Company can justify a slight increase in
revenues. The agreement on $2.6 million is a compromise between the positions of the
parties.
The alternative to a settlement of the RRM filing would be a contested case proceeding
before the Railroad Commission of Texas ("RRC") on the Company's current application,
would take several months and cost ratepayers millions of dollars in rate case expenses and
would not likely produce a result more favorable than that to be produced by the settlement.
The ACSC Executive Committee recommends that ACSC members take action to approve
the Ordinance authorizing new rate tariffs.
The City Council Utility committee and staff recommend approval.
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ORDINANCE NO.
AN ORDINANCE OF THE CITY COUNCIL OF THE CITY
OF GRAPEVINE, TEXAS, ("CITY") APPROVING A
NEGOTIATED RESOLUTION BETWEEN THE ATMOS
CITIES STEERING COMMITTEE ("ACSC" OR "STEERING
COMMITTEE") AND ATMOS ENERGY CORP., MID-TEX
DIVISION ("ATMOS MID-TEX" OR "COMPANY")
REGARDING THE COMPANY'S RATE REVIEW
MECHANISM FILING IN ALL CITIES EXERCISING
ORIGINAL JURISDICTION; DECLARING EXISTING
RATES TO BE UNREASONABLE; REQUIRING THE
COMPANY TO REIMBURSE CITIES' REASONABLE
RATEMAKING EXPENSES; ADOPTING TARIFFS THAT
REFLECT RATE ADJUSTMENTS CONSISTENT WITH
THE NEGOTIATED SETTLEMENT AND FINDING THE
RATES TO BE SET BY THE ATTACHED TARIFFS TO BE
JUST AND REASONABLE; APPROVING ATMOS' PROOF
OF REVENUES; ADOPTING A SAVINGS CLAUSE;
DETERMINING THAT THIS ORDINANCE WAS PASSED IN
ACCORDANCE WITH THE REQUIREMENTS OF THE
TEXAS OPEN MEETINGS ACT; DECLARING AN
EFFECTIVE DATE; AND REQUIRING DELIVERY OF THIS
ORDINANCE TO THE COMPANY AND THE STEERING
COMMITTEE'S LEGAL COUNSEL
WHEREAS, the City of Grapevine, Texas ("City") is a gas utility customer of
Atmos Energy Corp., Mid-Tex Division ("Atmos Mid-Tex" or " Company"), and a
regulatory authority with an interest in the rates and charges of Atmos Mid-Tex; and
WHEREAS, the City is a member of the Atmos Cities Steering Committee
("ACSC" or "Steering Committee"), a coalition of more than 150 similarly situated cities
served by Atmos Mid-Tex that have joined together to facilitate the review and response
to natural gas issues affecting rates charged in the Atmos Mid-Tex service area (such
participating cities are referred to herein as "ACSC Cities"); and
WHEREAS, pursuant to the terms of the agreement settling the Company's 2007
Statement of Intent to increase rates, ACSC Cities and the Company worked
collaboratively to develop the Rate Review Mechanism ("RRM") tariff that allows for an
expedited rate review process controlled in a three year experiment by ACSC Cities as
a substitute to the current GRIP process instituted by the Legislature; and
WHEREAS, the City took action in 2008 to approve a Settlement Agreement with
Atmos Mid-Tex resolving the Company's 2007 rate case and authorizing the RRM Tariff;
and Avow
WHEREAS, the 2008 Settlement Agreement contemplates reimbursement of
ACSC Cities' reasonable expenses associated with RRM applications; and
WHEREAS, on or about March 6, 2009, Atmos Mid-Tex filed with the City its
second application pursuant to the RRM tariff to increase natural gas rates by
approximately $20.2 million, such increase to be effective in every municipality that has
adopted the RRM tariff within its Mid-Tex Division; and
WHEREAS, ACSC Cities coordinated its review of Atmos' RRM filing and
designated a Settlement Committee made up of ACSC representatives and assisted by
ACSC attorneys and consultants to resolve issues identified by ACSC in the Company's
RRM filing; and
WHEREAS, the Company has filed evidence that existing rates are
unreasonable and should be changed; and
WHEREAS, independent analysis by ACSC's rate expert concluded that Atmos
Mid-Tex is able to justify a slight rate increase over current rates; and
WHEREAS, the Steering Committee has advocated in other proceedings that
Atmos Mid-Tex hedge natural gas futures in order to mitigate the volatility of natural gas
prices, which are a flow through to customers; and
WHEREAS, the ACSC Executive Committee, as well as ACSC lawyers and
consultants, recommend that ACSC members approve the attached rate tariffs
("Attachment A" to this Ordinance), which will increase the Company's revenue
requirement by $2.6 million; and
WHEREAS, the attached tariffs implementing new rates and Atmos' Proof of
Revenues ("Attachment B" to this Ordinance) are consistent with the negotiated
resolution reached by ACSC Cities and are just, reasonable, and in the public interest;
and
WHEREAS, it is the intention of the parties that if the City determines any rates,
revenues, terms and conditions, or benefits resulting from a Final Order or subsequent
negotiated settlement approved in any proceeding addressing the issues raised in the
Company's RRM filing would be more beneficial to the City than the terms of the
attached tariff, then the more favorable rates, revenues, terms and conditions, or
benefits shall additionally accrue to the City; and
WHEREAS, the negotiated resolution of the Company's RRM filing and the
resulting rates are, as a whole, in the public interest.
NOW, THEREFORE, BE IT ORDAINED BY THE CITY COUNCIL OF THE CITY
OF GRAPEVINE, TEXAS:
ORD. NO. 2
Section 1. That the findings set forth in this Ordinance are hereby in all things
approved.
Section 2. That the City Council finds that the existing rates for natural gas
service provided by Atmos Mid-Tex are unreasonable and new tariffs and Atmos' Proof
of Revenues, which are attached hereto and incorporated herein as Attachments A and
B, are just and reasonable and are hereby adopted.
Section 3. That Atmos Mid-Tex shall reimburse the reasonable rate making
expenses of the ACSC Cities in processing the Company's rate application.
Section 4. That to the extent any resolution or ordinance previously adopted by
the Council is inconsistent with this Ordinance, it is hereby repealed.
Section 5. That the meeting at which this Ordinance was approved was in all
things conducted in strict compliance with the Texas Open Meetings Act, Texas
Government Code, Chapter 551.
Section 6. That if any one or more sections or clauses of this Ordinance is
adjudged to be unconstitutional or invalid, such judgment shall not affect, impair or
invalidate the remaining provisions of this Ordinance and the remaining provisions of
the Ordinance shall be interpreted as if the offending section or clause never existed.
Section 7. That if the City determines any rates, revenues, terms and conditions,
or benefits resulting from a Final Order or subsequent negotiated settlement approved
in any proceeding addressing the issues raised in the Company's RRM filing would be
more beneficial to the City than the terms of the attached tariff, then the more favorable
rates, revenues, terms and conditions, or benefits shall additionally accrue to the City.
Section 8. That the Company's Gas Cost Recovery tariff is revised to permit
recovery of certain costs associated with hedging natural gas futures.
Section 9. That this Ordinance shall become effective from and after its passage
with rates authorized by attached Tariffs to be effective for bills rendered on or after
August 1, 2009.
Section 10. That a copy of this Ordinance shall be sent to Atmos Mid-Tex, care
of David Park, Vice President Rates and Regulatory Affairs, at Atmos Energy
Corporation, 5420 LBJ Freeway, Suite 1800, Dallas, Texas 75240, and to Geoffrey Gay,
General Counsel to ACSC, at Lloyd Gosselink Rochelle & Townsend, P.C., P.O. Box
1725, Austin, Texas 78767-1725.
ORD. NO. 3
APPROVED:
ATTEST:
APPROVED AS TO FORM:
ORD. NO. 4