Item 4ECity of Southlake, Texas
M E M O R A N D U M
TO: Shana Yelverton, City Manager
FROM: Sharen Jackson, Director of Finance
SUBJECT:RESOLUTION NO. 07-055, 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.
__________________________________________________________________________
Action Requested:
Approval of Resolution No. 07-055.
Background
Information:
The law mandates that a Gas Reliability Infrastructure Program (GRIP)
surcharge request cannot become effective until sixty days following the filing.
The effective date may be suspended by a city. On July 17, 2007 City Council
approved Resolution No. 07-043 suspending the effective date of the
Company's surcharge request to evaluate the filing, determine whether the
filing complies with law, and if unlawful, to determine what further strategy to
pursue. This is particularly important given that the Atmos Cities Steering
Committee (ACSC) initiated a rate case (GUD No. 9670) in which it was
determined that Atmos had included inappropriate expenditures in its previous
GRIP surcharges for rate years 2003, 2004, and 2005. If Cities, through
ACSC, and other interveners, not investigated the filings to determine the
impropriety of these expenditures and of their inclusion in the GRIP
surcharges, this would not have been exposed, and the refund of $2.5 million
would not have been ordered.
ACSC’s rate consultant has identified approximately $3.4 million in expenses
included in the 2006 GRIP surcharge request that are inconsistent with the
statute and/or the Railroad Commission's order in GUD 9670. For example,
the Company’s surcharge request is based in part on inappropriate expenses
related to furniture and office fixtures. The Commission excluded furniture
expenses from the Atmos Mid-Tex GRIP surcharge in GUD 9670. The
Company acknowledges this 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,
our consultant has also identified expenses included in this surcharge request
that occurred prior to 2006, therefore ineligible for inclusion in the 2006 GRIP
Shana Yelverton, City Manager
September 12, 2007
Page 2
surcharge. Finally, Atmos Mid-Tex has just received a rate increase of
approximately $5 million and should be collecting sufficient revenues to earn
its allowed return without the necessity for a surcharge to recover incremental
investment.
Atmos Mid-Tex filed its fourth surcharge request under the Gas Reliability
Infrastructure Program (“GRIP”) statute, seeking to implement monthly
surcharges of $0.59 (average residential customers), $1.47 (average
commercial customers), and $28.74 for industrial customers. The resolution
denies Atmos Mid-Tex's 2006 surcharge request on the grounds that it does not
comply with the law and is not reasonable. The resolution also indicates the
City's support for statutory changes to the Texas GRIP statute to ensure
fairness for ratepayers and to eliminate piecemeal ratemaking for any change
in invested capital.
Financial
Considerations:
No immediate financial consideration. Historically, the Steering Committee
which is funded with membership dues will cover the cost of legal and
consultant fees then reimbursed pending final determination. City Council
approved Resolution No. 07-043 in July 2007 which requested reimbursement
of any reasonable legal and consultant ratemaking costs from Atmos.
Citizen Input/
Board Review:
None required
Legal Review:
Legal counsel (Lloyd Gosselink) for ACSC
Alternatives:
Approve or deny
Supporting
Documents:
Resolution No. 07-055
Staff
Recommendation:
Approval of Resolution No. 07-055
RESOLUTION NO. 07-055
A RESOLUTION OF THE CITY OF SOUTHLAKE, 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.
WHEREAS, the City of Southlake, 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
th
2003 Regular Session of the 78 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
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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”);
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;
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
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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 SOUTHLAKE, 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.
SECTION 4. That the City calls upon its state representatives and senator to support
st
legislation in the 81 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:
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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.
DULY PASSED and approved by the City Council of the City of ____________, Texas,
on this the ______ day of __________, 2007.
APPROVED:
____________________________________
ATTEST:
____________________________________
APPROVED AS TO FORM:
_____________________________
City Attorney
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