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Item 6AM E M O R A N D U M July 28, 2009 To: Shana Yelverton, City Manager From: Sharen Jackson, Finance Director nd Subject: Ordinance No. 959, 2Reading, Approve 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; declare existing rates to be unreasonable; requiring the company to reimburse cities’ reasonable rate-making expenses; adopt 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; approve Atmos' proof of revenues; adopt a savings clause; determine that this ordinance was passed in accordance with the requirements of the Texas Open Meetings Act; declare an effective date; and require delivery of this ordinance to the company and the steering committee’s legal counsel. Action Requested: Approval of Ordinance No. 959. Background Information: The City, along with 150 other cities served by Atmos Energy Mid-Tex Division ("Atmos"), is a member of the Atmos Cities Steering Committee ("ACSC"). On March 6, 2009, Atmos filed with the City an application to increase natural gas rates pursuant to the Rate Review Mechanism ("RRM") tariff. The Atmos’ March RRM filing sought a $20.2 million rate increase. The City worked with ACSC to analyze the schedules and evidence offered by Atmos to support its request to increase rates. 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 current Gas Cost Recovery (“GCR”) tariff to allow Atmos 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 percent. Approval of the Ordinance will result in rates that implement a $2.6 million increase in Atmos' revenues effective August 1, 2009. The monthly bill impact for the average residential customer will be $0.15 increase. 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 Atmos’ requested rate increase. While the evidence does not support the $20.2 million increase requested by Atmos, 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 would be a contested case proceeding before the Rail Road Commission on Atmos’ current application, would take several months and cost ratepayers millions of dollars in rate case expenses and would not likely produce a request 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. Financial Considerations: None Citizen Input/ Board Review: Public Hearing scheduled for August 4, 2009. Legal Review: Ordinance prepared by ACSC attorneys, Lloyd Gosselink Rochelle & Townsend, P.C. Alternatives: Deny Ordinance Supporting Documents: Ordinance No 959 Tariff (Attachment A) Proof of Revenues (Attachment B) Staff Recommendation: Approve Ordinance No. 959 ORDINANCE NO. 959 AN ORDINANCE OF THE CITY COUNCIL OF THE CITY OF SOUTHLAKE, 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 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 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 Atmos RRM Ordinance 1 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 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 Atmos RRM Ordinance 2 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 SOUTHLAKE, TEXAS: 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. Atmos RRM Ordinance 3 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. Atmos RRM Ordinance 4 PASSED AND APPROVED on first reading this _____ day of _________________, 2009. ___________________________ Mayor ATTEST: __________________________ City Secretary PASSED AND APPROVED ON second reading this _____ day of _________________, 2009. __________________________ Mayor ATTEST: __________________________ City Secretary APPROVED AS TO FORM: __________________________ City Attorney Atmos RRM Ordinance 5