Item 6AM E M O R A N D U M
September 15, 2010
To:
Shana Yelverton, City Manager
From:
Sharen Jackson, Finance Director
nd
Subject:
Ordinance No. 984, 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;
extending the RRM process for two cycles and adopting a new
RRM tariff; ratifying the settlement agreement, including cost
recovery for a steel service line replacement program; 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. 984.
Background
Information:
The City, along with 148 other cities served by Atmos
Energy Mid-Tex Division ("Atmos"), is a member of the
Atmos Cities Steering Committee ("ACSC"). On March 15,
2010, 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 $70.2
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 and to ratify a Settlement Agreement (“Attachment
C”) recommended by the ACSC Executive Committee. The
Settlement Agreement authorizes an extension of the RRM
process, in modified form to eliminate the true-up
component, for an additional two annual filings. The
agreement also addresses the Atmos steel service line
replacement program and authorizes current cost recovery.
As a result of the negotiations, ACSC was able to reduce the
Company's requested $70.2 million RRM increase to $27
million. Approval of the Ordinance will result in the
implementation of new rates that increase the company’s
revenues effective October 2010. The monthly bill impact for
the average residential customer will be a $1.40 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 $70.2
million increase requested by Atmos, ACSC consultants
agree that the Company can justify an increase in revenues
of $21 million. The agreement on $27 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
Strategic Link:
F1 Adhere to financial management principles and budget
Citizen Input/
Board Review:
Public Hearing scheduled for October 5, 2010.
Legal Review:
Ordinance prepared by ACSC attorneys, Lloyd Gosselink
Rochelle & Townsend, P.C.
Alternatives:
Deny Ordinance
Supporting
Documents:
Ordinance No 984
Tariff (Attachment A)
Proof of Revenues (Attachment B)
Settlement Agreement (Attachment C)
Staff
Recommendation:
Approve Ordinance No. 984
ORDINANCE NO. 984
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 THIRD
RATE REVIEW MECHANISM (“RRM”) 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 MID-TEX’S PROOF
OF REVENUES; EXTENDING THE RRM PROCESS FOR
TWO CYCLES AND ADOPTING A NEW RRM TARIFF;
RATIFYING THE SETTLEMENT AGREEMENT,
INCLUDING COST RECOVERY FOR A STEEL SERVICE
LINE REPLACEMENT PROGRAM; 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 approximately 148 similarly situated cities served by
Atmos Mid-Tex that have joined together to facilitate the review of and response to natural gas
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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 a 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 15, 2010, Atmos Mid-Tex filed with the City its third
application pursuant to the RRM tariff to increase natural gas base rates by approximately $70.2
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 Mid-Tex’s RRM filing by
designating a Settlement Committee made up of ACSC representatives, 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 an increase over current rates of $21 million; and
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WHEREAS, Atmos Mid-Tex has commenced a program to replace steel service lines
based on a relative leak repair risk analysis; and
WHEREAS, the Steering Committee has entered a Settlement Agreement (“Attachment
C” to this Ordinance) with Atmos Mid-Tex to: (1) increase base rate revenues by $27 million; (2)
extend the RRM process, with modifications for an additional two cycles and to thereafter
require the filing of a system-wide Statement of Intent rate case on or before June 1, 2013; and
(3) in the interim to allow current recovery of incremental direct costs of the steel service line
replacement program in rates set via this ordinance and in future RRMs; 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 $27 million; and
WHEREAS, the attached tariffs implementing new rates and Atmos Mid-Tex’s 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 Third
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.
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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 the existing rates for natural gas service provided
by Atmos Mid-Tex are unreasonable and new tariffs and Atmos Mid-Tex’s 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 ratemaking expenses of
the ACSC Cities in processing the Company’s rate application.
Section 4. That the Settlement Agreement, attached as Attachment C, which includes in
addition to resolution of the Third RRM: (1) extension of a modified RRM process; (2)
requirement that Atmos Mid-Tex file a system-wide Statement of Intent rate case on or before
June 1, 2013; and (3) current recovery of incremental direct costs for a steel service line
replacement program, is hereby ratified.
Section 5. That to the extent any resolution or ordinance previously adopted by the
Council is inconsistent with this Ordinance, it is hereby repealed.
Section 6. 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 7. 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.
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Section 8. 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 Third 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 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 October 1, 2010.
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 1862, 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.
PASSED AND APPROVED this __________ day of ___________________, 2010.
_________________________________
Mayor
ATTEST:
__________________________________
City Secretary
APPROVED AS TO FORM:
___________________________________
City Attorney
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