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Item 6AM E M O R A N D U M February 27, 2018 To: Shana Yelverton, City Manager From: Sharen Jackson, Chief Financial Officer Subject: Approve Ordinance No. 1188, 2nd Reading, Adoption of New RRM Tariff for Atmos Mid-Tex Division. Action Requested: Approval of Ordinance 1188 Background Information: The purpose of this item is to seek City Council approval of the new RRM Tariff for Atmos Mid-Tex Division (“Atmos”).  March 1, 2017, Atmos filed an application seeking a rate increase. The City, along with over 150 other cities served by Atmos, is a member of the Atmos Cities Steering Committee (“ACSC”). This group of cities worked on a settlement agreement with Atmos regarding the rate increases.  On June 2, 2017, City Council approved Ordinance 1172 the negotiated settlement agreement between the ACSC Executive Committee and Atmos to resolve issues identified during the review and evaluation of Atmos’ 2017 rate increase application.  Ordinance 1172 that resolved Atmos’ rate request also terminated existing Rate Review Mechanism (“RRM”) Tariff and required a renegotiation of the terms of that Tariff.  Negotiations have taken place over the past several months, and have resulted in a revised RRM Tariff that has been agreed by the Atmos. The ACSC Executive Committee has recommended acceptance of the revised RRM Tariff. o The proposed New RRM Tariff:  Reduces Atmos allowed rate of return on equity from 10.50% to 9.8%; Page 2 of 2  Captures the reduction in federal income tax rates from 35% to 21% and should result in a rate reduction effective by mid-March 2018;  Expands the time cities have to review future rate filings to five months (previous Tariff only allowed three months) The ACSC Executive Committee and ACSC legal counsel recommend that all cities adopt the ordinance approving the New RRM Tariff. Financial Considerations: None Strategic Link: B2: Collaborate with select partners to implement service solutions Citizen Input/ Board Review: Public hearing scheduled March 20, 2018 Legal Review: Lloyd Gosselink Rochelle & Townsend, P.C. prepared the ordinance. Alternatives: Deny the ordinance which would result in another contested case hearing. Supporting Documents: Ordinance 1188 New Tariffs (Attachment A) Staff Recommendation: Approval of Ordinance 1188 1 ORDINANCE NO. 1188 AN ORDINANCE OF THE CITY COUNCIL OF THE CITY OF SOUTHLAKE, TEXAS, APPROVING A TARIFF AUTHORIZING AN ANNUAL RATE REVIEW MECHANISM (“RRM”) AS A SUBSTITUTION FOR THE ANNUAL INTERIM RATE ADJUSTMENT PROCESS DEFINED BY SECTION 104.301 OF THE TEXAS UTILITIES CODE, AND AS NEGOTIATED BETWEEN ATMOS ENERGY CORP., MID-TEX DIVISION (“ATMOS MID-TEX” OR “COMPANY”) AND THE STEERING COMMITTEE OF CITIES SERVED BY ATMOS; REQUIRING THE COMPANY TO REIMBURSE CITIES’ REASONABLE RATEMAKING EXPENSES; ADOPTING A SAVINGS CLAUSE; DETERMINING THAT THIS ORDINANCE WAS PASSED IN ACCORDANCE WITH THE REQUIREMENTS OF THE OPEN MEETINGS ACT; DECLARING AN EFFECTIVE DATE; AND REQUIRING DELIVERY OF THIS ORDINANCE TO THE COMPANY AND LEGAL COUNSEL FOR THE STEERING COMMITTEE. WHEREAS, the City of Southlake, 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 and similarly-situated Mid-Tex municipalities created the Steering Committee of Cities Served by Atmos to efficiently address all rate and service matters associated with delivery of natural gas; and WHEREAS, the Steering Committee formed an Executive Committee to direct legal counsel and to recommend certain specific actions to all aligned Mid-Tex Cities through resolution or ordinance; and WHEREAS, pursuant to the terms of a November 2007 agreement between the Steering Committee and Atmos Mid-Tex that settled the Company’s interim rate filing under Section 104.301 of the Texas Utilities Code (a “GRIP” rate case), the Steering Committee and the Company collaboratively developed a Rate Review Mechanism (“RRM”) Tariff, ultimately 2 authorized by the City in 2008, that allows for an expedited rate review process as a substitute for the GRIP process; and WHEREAS, the City has kept some form of a RRM Tariff in place until 2017 when it adopted an ordinance approving an RRM Tariff filing settlement and specifically calling for termination of the existing RRM Tariff and negotiation of a replacement RRM Tariff following the Railroad Commission’s decision in a then-pending Atmos Texas Pipeline case (GUD No. 10580); and WHEREAS, the Steering Committee’s Executive Committee has recently approved a settlement with the Company on the attached RRM Tariff that contains certain notable improvements, from a consumer perspective, over the prior RRM Tariff, including a reduced rate of return on equity, acceptance of certain expense adjustments made by the Railroad Commission in the Order in GUD No. 10580, and the addition of two months to the time for processing a RRM Tariff application; and WHEREAS, the RRM Tariff contemplates reimbursement of Cities’ reasonable expenses associated with RRM Tariff applications; and WHEREAS, the Steering Committee’s Executive Committee recommends that all Steering Committee member cities adopt this ordinance and the attached RRM Tariff; and WHEREAS, the attached RRM Tariff is just, reasonable and in the public interest, NOW, THEREFORE, BE IT ORDAINED BY THE CITY COUNCIL OF THE CITY OF SOUTHLAKE, TEXAS: Section 1. That the findings set forth in this Ordinance are hereby in all things approved. Section 2. That the attached RRM Tariff re-establishing a form of Rate Review Mechanism is just and reasonable and in the public interest, and is hereby adopted. 3 Section 3. That Atmos Mid-Tex shall reimburse the Cities’ reasonable expenses associated with adoption of this Ordinance and the attached RRM Tariff and in processing future RRM Tariff applications filed pursuant to the attached tariff. Section 4. That to the extent any resolution or ordinance previously adopted by the City 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 this Ordinance shall be interpreted as if the offending section or clause never existed. Section 7. That this Ordinance shall become effective from and after its passage. Section 8. That a copy of this Ordinance shall be sent to Atmos Mid-Tex, care of Chris Felan, Vice President of Rates and Regulatory Affairs, Atmos Energy Corporation, Mid-Tex Division, 5420 LBJ Freeway, Suite 1862, Dallas, Texas 75240, and to Geoffrey Gay, General Counsel to Mid-Tex Cities, at Lloyd Gosselink Rochelle & Townsend, P.C., 816 Congress Avenue, Suite 1900, Austin, Texas 78701. PASSED AND APPROVED this day of , 2018. Mayor 4 ATTEST: APPROVED AS TO FORM: City Secretary City Attorney ATMOS ENERGY CORPORATION MID-TEX DIVISION RATE SCHEDULE: RRM – Rate Review Mechanism APPLICABLE TO: ALL CITIES IN THE MID-TEX DIVISION AS IDENTIFIED IN EXHIBIT A TO THIS RATE SCHEDULE EFFECTIVE DATE:Bills Rendered on and after 04/01/2018 PAGE: 7 Exhibit A ACSC Cities Abilene Cleburne Frost Lincoln Park Addison Clyde Gainesville Little Elm Albany College Station Garland Lorena Allen Colleyville Garrett Madisonville Alvarado Colorado City Grand Prairie Malakoff Angus Comanche Grapevine Mansfield Anna Commerce Groesbeck Mckinney Argyle Coolidge Gunter Melissa Arlington Coppell Haltom City Mesquite Aubrey Copperas Cove Harker Heights Midlothian Azle Corinth Haskell Murphy Bedford Crandall Haslet Newark Bellmead Crowley Hewitt Nocona Benbrook Dalworthington Gardens Highland Park North Richland Hills Beverly Hills Denison Highland Village Northlake Blossom Denton Honey Grove Oak Leaf Blue Ridge Desoto Hurst Ovilla Bowie Draper Hutto Palestine Boyd Duncanville Iowa Park Pantego Bridgeport Eastland Irving Paris Brownwood Edgecliff Village Justin Parker Buffalo Emory Kaufman Pecan Hill Burkburnett Ennis Keene Petrolia Burleson Euless Keller Plano Caddo Mills Everman Kemp Ponder Canton Fairview Kennedale Pottsboro Carrollton Farmers Branch Kerens Prosper Cedar Hill Farmersville Kerrville Quitman Celeste Fate Killeen Red Oak Celina Flower Mound Krum Reno (Parker County) Centerville Forest Hill Lake Worth Rhome Cisco Forney Lakeside Richardson Clarksville Fort Worth Lancaster Richland Frisco Lewisville Richland Hills ATMOS ENERGY CORPORATION MID-TEX DIVISION RATE SCHEDULE: RRM – Rate Review Mechanism APPLICABLE TO: ALL CITIES IN THE MID-TEX DIVISION AS IDENTIFIED IN EXHIBIT A TO THIS RATE SCHEDULE EFFECTIVE DATE:Bills Rendered on and after 04/01/2018 PAGE: 8 River Oaks Temple Roanoke Terrell Robinson The Colony Rockwall Trophy Club Roscoe Tyler Rowlett University Park Royse City Venus Sachse Vernon Saginaw Waco Sansom Park Watauga Seagoville Waxahachie Sherman Westlake Snyder Westover Hills Southlake Westworth Village Springtown White Settlement Stamford Whitesboro Stephenville Wichita Falls Sulphur Springs Woodway Sweetwater Wylie