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HomeMy WebLinkAboutItem 05 - Atmos GRIP Increase DenialRate Schedule Char a per Month Rate'R — Residential Sales $0.59 Rate C — Commercial Sales $1.48 Rate I — industrial Sales $28.90 Rate T -- Transportation $28.90 and that allocation was set under the last full rate proceeding. However, in this filing they are trying to increase the cost factor for certain services that they charge to the GRIP. This is inconsistent and unjustified in the filing. Based on these findings, there are $3.4 million in ineligible expenses being charged to the GRIP. The table below depicts the original rate request, the rates if the expenses are disallowed and the difference between the two rates. Rate Schedule Charge per Revised Difference Month Charge per Month Rate R — Residential $0.59 $0.57 ($0.02) Sales Rate C — Commercial $1.48 $1.44 ($0.04) Sales Rate I — Industrial $28.90 $28.07 ($0.83) Sales Rate T — $28.90 $28.07 ($0.83) Transportation Based on this information, staff recommends that you approve the attached resolution which denies the 2006 GRIP Rate Increase. The Utility Committee has reviewed this item and concurs with staff's recommendation. If the Council chooses to go forward with the denial, Atmos will have the opportunity to appeal the increase to the Railroad Commission. sm August 30, 2007 (2:32PM) Lloyd Aosselink ATTORNEYS AT LAW Ms. Doyle's Direct Line: (512) 322-5820 Email: kdoyle@lglawfirm.com MEMORANDUM TO: All Atmos Mid -Tex Gas Cities FROM: Geoffrey Gay Kristen Doyle DATE: August 7, 2007 RE: Atmos GRIP 4 Filing By law, all cities that suspended the effective date of the GRIP 4 surcharge must take final action on or before September 13, 2007. (Attached to this communication is a list of cities that have provided suspension resolutions to our office.) After review of Atmos Mid-Tex's GRIP filing for the 2006 rate year, we recommend that Atmos Cities Steering Committee (ACSC) cities adopt the attached resolution denying the requested surcharge on or before September 13, 2007. ACSC's rate consultant, Karl Nalepa, has identified approximately $3.4 million in expenses that are inconsistent with the statute and/or the Railroad Commission's order in the Company's most recent rate case. As discussed in the attached report, some of the inappropriate expenses included by the Company are expenses related to furniture and office fixtures. Atmos Mid -Tex has acknowledged that the Commission has excluded furniture expenses from the GRIP surcharge, and has removed some of the furniture and fixture expense from the current filing. The filing offers no explanation why any furniture or fixture expense remains part of the GRIP surcharge. In addition, Mr. Nalepa has identified expenses included in the surcharge that occurred prior to 2006, and are thus ineligible for inclusion in the 2006 GRIP surcharge. The ACSC Executive Committee has recommended that all ACSC members pass resolutions indicating support for legislative change to the GRIP statute to ensure fairness for ratepayers and eliminate piecemeal ratemaking for any change in invested capital. The denial resolution includes language consistent with the Executive Committee's recommendation. As always, if you have any questions regarding anything we send to you or need additional information, please feel free to contact us. Attachments: List of ACSC Cities Suspending GRIP 4 Surcharge Model Resolution Denying GRIP 4 Surcharge Model Staff Report Karl Nalepa's Report Regarding GRIP 4 Surcharge 2557\02\sent to cities\mmo07O8O7kpf Lloyd GOSselink Blevins Rochelle & Townsend, P.C. RJC August 3, 2007 MEMOTO: Geoffrey Gay, Kristen Doyle, Georgia Crump FROM: Karl Nalepa SUBJECT: Atmos Energy Mid Tex 2006 GRIP Review On May 31, 2007, Atmos Energy Mid Tex (Atmos or Company) filed its latest request for an interim rate adjustment for calendar year 2006 under the Gas Reliability Infrastructure Program (GRIP). The Company's proposed increase to current customer or meter charges is summarized in Table 1: Table 1 Rate Schedule Char e per Month Rate R — Residential Sales $0.59 Rate C — Commercial Sales $1.48 Rate I — Industrial Sales $28.90 Rate T — Transportation $28.90 RJ Covington Consulting (RJC) has reviewed this GRIP filing and has confirmed that Atmos has removed certain costs that were disallowed by the Texas Railroad Commission (RRC) in Atmos' most recent rate proceeding! However, RJC has identified several other items which we believe are inappropriate to be recovered from ratepayers through this interim rate adjustment. Costs Removed The costs removed by Atmos in this filing consistent with the RRC order in the most recent rate proceeding are summarized in Table 2: Table 2 Adjustment Amount Remove SSU 2006 Additions for Ancillary $ (107,520) E ui ment office furniture Remove Mid -Tex 2006 Additions for Ancillary (100,317) Equipment (artwork, office furniture, equipment) .Adjustment for Changes in SSU Cost Centers (2,764,894) 2006 Overhead Allocations to Mid-Tex3 i GUD No. 9670, Order on Rehearing, June 13, 2007. 2 Workpaper/Schedule A R.J. Covington Consulting, LLC (512) 331-4949 11044 Research Boulevard, Suite A-325 Fax: (512) 331-5743 Austin, Texas 78759 www.RJCovington.com August 28, 2007 Reduction of Mid -Tex 2006 Capitalized (20,718,589) Overheads to 13.5% Misc. Remove Direct Expense Account Costs Included (254,511) in SSU 2006 Additions (see Table 3 for details) Total Remove Direct Expense Account Charges (26,130) Included in Mid -Tex 2006 Additions see Table 3 Entertain. Remove Expense Account Charges within SSU (219,956) Overheads Included in Mid -Tex 2006 Additions -Expense see Table 3 Allocated Remove Expense Account Charges within (235,404) Business Unit Overheads Included in Mid -Tex 51,818 2006 Additions see Table 3) 2,134 Total 1 $ 24,427,321 The amount of capitalized expense removed from the filing, detailed by type of expenditure,4 is shown in Table 3: Table 3 Additional Adjustments While Atmos did remove significant categories of costs disallowed by the Order in GUD 9670, it still included other costs that should be removed. These costs are summarized in Table 4: Table 4 Project Number Description Meals & Misc. Other Personal Travel Total Mid -Tex Lodging Entertain. Expenses Expenses Vehicle -Expense _(Capital) Allocated SSU 243,162 119,196 51,818 11,916 2,134 224,832 653,059 254,511 Direct Mid -Tex 10,986 9,210 0 2,545 1,095 2,294 26,130 26,130 Direct SSU 333,567 505,954 395,624 10,967 0 654,093 585,196 219,956 Overhead Mid -Tex 45,445 51,369 13,987 4,551 49,139 70,913 235,404 235,404 Overhead Additional Adjustments While Atmos did remove significant categories of costs disallowed by the Order in GUD 9670, it still included other costs that should be removed. These costs are summarized in Table 4: Table 4 Project Number Description Amount 080.19238 Purchase and install $46,638 telecommunication and security system for the Hillsboro Service Center 080.19239 Purchase and install $48,267 telecommunication and security system for the Gainesville Service Center 3 1203 - Amarillo Customer Support Center, 1210 - Waco Customer Support Center, 1904 - Dallas Performance Plan, 1908 - Dallas Supplemental Executive Benefits Pian 4 Response to ACSC 1-5. August 28, 2007 080.19806 Purchase furniture for the Boyd Jacility $147,382 010.11055 Purchase computer equipment — hardware & software $555,187 ADMIN 080 retirement Asset transfer from Atmos Pipeline & Storage to Mid -Tex $1,964,272 Adjustments General Office $140,756 Adjustments Customer Service $493,791 Total $3,396,293 Project 080.19238 According to Atmos' response to ACSC 1-12, this project is actually to purchase furniture and fixtures for the Hillsboro Service Center. Atmos has removed similar costs and hasn't shown why these particular costs remain in the filing. Project 080.19239 According to Atmos' response to ACSC 1-12, this project is actually to purchase furniture and fixtures for the Gainesville Service Center. Atmos has removed similar costs and hasn't shown why these particular costs remain in the filing. Project 080.19806 Atmos has removed similar furniture purchases, and hasn't shown why these particular costs should remain in the filing. Project 0 10. 11055 According to Atmos' response to ACSC 1-23, this project relates to the purchase of computer equipment allocated to Mid Tex. The project was described as items purchased during the Mid Tex integration. While no invoices were provided, the acquisition of Mid Tex occurred in October 2004, with the transition occurring through 2005 - at least a year prior to the 2006 GRIP year. Based on the description of the assets, these purchases were made prior to the GRIP test year and should be removed. Project ADMIN 080 This project involves the transfer of existing assets from Atmos Pipeline to Mid -Tex. First, these plant costs were incurred prior to the GRIP test year, and are therefore ineligible under the GRIP statute.5 Second, even if the costs should be included, they represent the cost of retirement. Transferring an asset that is no longer used and useful to Mid -Tex just so its customers can bear the cost of retirement is not reasonable. s TEX UTIL CODE § 104.301 (b). August 28, 2007 Adjustments to General Office and Customer Service According to Atmos' responses to ACSC 1-28 and 31, Atmos claims adjustments to General Office and Customer Service plant in the amounts of $140,756 and $493,791, respectively, for a total adjustment of $634,547. This adjustment is the result of the change in the shared services allocations factors between 2005 and 2006. The 2005 factors for General Office and Customer Service were 36.95% and 48.50%, while the 2006 factors were 36.88% and 49.02%. Atmos revised the allocation factors based on changes in the component factors for 2006.6 This raises the question of whether allocation factors can be revised under GRIP. All other factors (such as return, depreciation, taxes, and class allocations) are fixed until the next full rate proceeding, so it would be reasonable to expect that the factors used to allocate shared services expenses also be fixed from the last proceeding. Results Removing these additional categories of costs results in a reduction to 2006 net plant investment of $3.4 million. Applying this reduction to the rates as proposed by Atmos yields the revised charges reflected in Table 5: Table 5 Rate Schedule Revised Charge per Month Difference Rate R — Residential Sales $0.57 ($0.02) Rate C — Commercial Sales $1.44 $0.04) Rate I — Industrial Sales $28.07 ($0.83) Rate T — Transportation $28.07 ($0.83) Atmos also proposed a revised methodology to calculate ad valorem taxes based on actual 2006 tax payments due to the recent changes in property tax law. If this alternative methodology is adopted, property -related taxes are reduced by $67,368, and the interim adjustment is reduced by a further $0.01 for commercial customers and $0.16 for industrial and transportation customers. The adjustment is too small to materially affect residential customers. Let me know if you have any questions. 6 Response to ACSC 1-6. ' TEX UTIL CODE § 104.301 (d). 4 A RESOLUTION OF THE CITY COUNCIL OF THE CITY OF GRAPEVINE, TEXAS, DENYING THE REQUEST OF ATMOS ENERGY CORP., MID-TEX DIVISION, FOR AN ANNUAL GAS RELIABILITY INFRASTRUCTURE PROGRAM (GRIP) RATE INCREASE IN THIS MUNICIPALITY, AS A PART OF THE COMPANY'S STATEWIDE GAS UTILITY DISTRIBUTION SYSTEM; SUPPORTING STATUTORY REFORM OF THE TEXAS GRIP STATUTE, FINDING THAT THE MEETING AT WHICH THIS RESOLUTION IS PASSED IS OPEN TO THE PUBLIC; AND PROVIDING FOR NOTICE OF THIS RESOLUTION TO ATMOS ENERGY CORP., MID-TEX DIVISION AND THE CITY'S LEGISLATIVE DELEGATION AND PROVIDING AN EFFECTIVE DATE WHEREAS, the City of Grapevine, Texas ("City") is a gas utility customer of Atmos Energy Corp., Mid -Tex Division ("Atmos Mid -Tex" or "the Company"), and a regulatory authority with an interest in the rates and charges of Atmos Mid -Tex; and WHEREAS, Atmos Mid -Tex made filings with the City and the Railroad Commission of Texas ("Railroad Commission") on or about May 31, 2007, proposing to implement interim rate adjustments ("GRIP rate increases"), pursuant to Texas Utilities Code § 104.301, on all customers served by Atmos Mid -Tex, effective July 30, 2007; and WHEREAS, the Gas Reliability Infrastructure Program (GRIP) statute approved in the 2003 Regular Session of the 78th Legislature changes 100 years of Texas law and allows a natural gas utility to implement annual surcharges for increases in investment without having to account for the offsetting decreases in costs or increases in revenue experienced by the utility; and WHEREAS, Texas is the only state out of the twelve states served by Atmos that has a GRIP statute that allows for piecemeal recovery for any change to invested capital; and WHEREAS, Atmos has implemented four GRIP surcharges and collected more than $20 million in GRIP surcharges from customers since the utility acquired the TXU Gas system in 2004; WHEREAS, the City supports the statutory reform of the GRIP statute to ensure fairness to ratepayers and to eliminate piecemeal recovery for any change to invested capital; and WHEREAS, Atmos Mid -Tex was recently granted a rate increase as a result of its filing in GUD No. 9670, in which the Final Order was only signed on March 29, 2007; and WHEREAS, in GUD No. 9670, it was determined that Atmos Mid -Tex had inappropriately included certain expenditures in its prior GRIP rate increases for rate years 2003, 2004, and 2005; and WHEREAS, the City, as a regulatory authority, suspended the July 30, 2007, effective date to examine this latest GRIP filing to determine its compliance with the Texas Utilities Code and Railroad Commission final order in the most recent Atmos Mid - Tex rate case; and WHEREAS, the City has joined with other cities to review the Company's filing, said coalition being known as Atmos Cities Steering Committee ("ACSC"); and WHEREAS, the consultant hired by Steering Committee has reviewed the GRIP surcharge application and has issued a final report finding that the Company has included millions of dollars of expenses in the current GRIP surcharge that are inconsistent with the Texas Utilities Code and Railroad Commission final order in the most recent Atmos Mid -Tex rate case and not related to ensuring the safety and reliability of the system; and WHEREAS, counsel for the Steering Committee, upon review of the Company's filing and the consultant's report, recommends finding that the Company's proposal is unjustified and unreasonable; and WHEREAS, ratepayers of Atmos Mid -Tex, including the City and its residents, will be adversely impacted by the proposed GRIP rate increases. NOW, THEREFORE, BE IT RESOLVED BY THE CITY COUNCIL OF THE CITY OF GRAPEVINE, TEXAS: Section 1. That the Company's GRIP rate increase request is found to be unreasonable and inconsistent with the Texas Utilities Code and Railroad Commission final order in GUD 9670, Atmos Mid -Tex most recent rate case, and is therefore denied in all respects. Section 2. This resolution shall become effective immediately from and after its passage, as the law and charter in such cases provide. Section 3. That the City hereby advocates statutory reform of the Texas GRIP statute to ensure fairness to ratepayers and to eliminate piecemeal recovery for any change to invested recovery. RES. NO. 2 Section 4. That the City calls upon its state representatives and senator to support legislation in the 81St Regular Session of the Texas Legislature that would reform the Texas GRIP statute to ensure fairness for ratepayers and eliminate piecemeal recovery for any changes to invested capital. Section 5. That it is hereby officially found and determined that the meeting at which this resolution is passed is open to the public as required by law and that public notice of the time, place and purpose of said meeting was given as required. Section 6. A copy of this resolution, constituting final action on the Company's application, be forwarded to the following: Mr. Charles R. Yarbrough, II Atmos Energy Corporation 5420 LBJ Freeway, Suite 1800 Dallas, Texas 75240 Lloyd Gosselink Blevins Rochelle & Townsend c/o Geoffrey Gay P.O. Box 1725 Austin, Texas 78767-1725. Section 7. A copy of the resolution shall be sent to the elected lawmakers representing the City's interests in the Texas House and Senate. PASSED AND APPROVED BY THE CITY COUNCIL OF THE CITY OF GRAPEVINE, TEXAS on this the 4th day of September 2007. AI ATTEST: RES. NO. 3 APPROVED AS TO FORM: RES. NO.