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MEMORANDUM
June 13, 2006
TO: Shana Yelverton, City Manager
FROM: Sharen Jackson, Finance Director
SUBJECT: Ordinance No. 896, I5t Reading, Deny the request of Atmos Energy Corporation
for an annual gas reliability infrastructure program (GRIP) rate increase within
the City of Southlake
Action Requested: Approval of Ordinance No, 896
Background
Information: Atmos filed its third surcharge request under the GRIP statue, seeking to add
additional surcharges on top of the 2003 and 2004 GRIP surcharges already
approved by the Railroad Commission. The 2005 surcharges are $0.51 on all
residential customers, $1.75 for commercial customers and $78.47 for
industrial customers. If this third surcharge were to be approved, the total
amount of surcharges resulting from the GRIP statue would be $1.,09 /month
for residential customers, $3.68 /month for commercial customers, and
$151,96 /month for industrial customers. The ordinance denies the 2005
surcharge request on the grounds that it does not comply with the law and is
not reasonable, and also because it is duplicative of the Company's Statement
of Intent filing for the same period of time.
The following problems have been identified in this filing:
1. The capital structure and component cost used by Atmos do not
represent Atmos Energy's costs, but are proxies based on TXU Gas;
circumstances.
2. The rate base amounts used show enormous and unexplained increases
over the amounts in both 2003 and 2004 that are not shown to be
reasonable.
3. The Statement of Intent filed with the Commission and the Cities also
includes Atmos' 2005 investment, making the 2005 GRIP filing
unnecessary and creating the potential for double - counting and double -
recovery for this investment.
Once the GRIP surcharge is in place, it is updated annually until next general
rate case; however, that next case can be delayed by the Company for more
than five years. On May 31, 2006, the Company filed a Statement of Intent to
increase its rates with the Railroad Commission and the Cities, The test year
used for that filing is the calendar year ending December 31, 2005, which is
the same period of time covered by this latest GRIP filing, Therefore, the
capital investment made; by Atmos during 2005 is the subject of two
proceedings -this GRIP filing and the Statement of Intent. Because the 2005
Shana Yelverton, City Manager
,June 13, 2006
capital investment will be reviewed in the Statement of Intent filing, the GRIP
filing for 2005 is duplicative and unnecessary.
Financial
Considerations: Ordinance No. 896 requires any cost incurred by the City in reviewing Atmos
GRIP request shall be promptly reimbursed by the Company.
Citizen Input/
Board Review: None required
Legal Review: The steering committee attorney prepared the ordinance.
Alternatives: Approve or deny.
Supporting
Documents: Ordinance No. 896
Staff
Recommendation: Approve Ordinance No. 896
ORDINANCE NO. 896
AN ORDINANCE 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; APPROVING COOPERATION WITH OTHER CITIES
WITHIN THE ATMOS ENERGY CORP., MID -TEX DIVISION
DISTRIBUTION SYSTEM AS PART OF THE ATMOS CITIES
STEERING COMMITTEE (ACSC); AUTHORIZING ACSC TO HIRE
LEGAL AND CONSULTING SERVICES AND TO NEGOTIATE WITH
THE COMPANY AND DIRECT ANY NECESSARY LITIGATION;
AUTHORIZING INTERVENTION AS PART OF ACSC IN ANY APPEAL
OF THE CITY'S ACTION TO THE RAILROAD COMMISSION;
PROVIDING A REQUIREMENT FOR A PROMPT REIMBURSEMENT
OF COSTS INCURRED BY THE CITY; FINDING THAT THE MEETING
AT WHICH THIS ORDINANCE IS PASSED IS OPEN TO THE PUBLIC
AS REQUIRED BY LAW; AND PROVIDING FOR NOTICE OF THIS
ORDINANCE TO ATMOS ENERGY CORP., MID -TEX DIVISION.
WHEREAS, on or about March 30, 2006, Atmos Energy Corp., Mid -Tex Division, (the
"Company") filed with the City a request for an annual gas reliability infrastructure program
( "GRIP ") rate increase for customers on the Company's statewide gas utility system to be
effective May 30, 2006; and
WHEREAS, the City has exclusive original ,jurisdiction to evaluate the Company's
request as it pertains to the distribution facilities located within the City, pursuant to Texas
Utilities Code §§ 101001(b) and 103.001; and
WHEREAS, it is reasonable for the City to cooperate with other cities in a coalition of
cities in opposition to the Company's filing at the Railroad Commission ( "Commission "), said
coalition being known as Atmos Cities Steering Committee ( "ACSC "), in any appeal of the
cities' actions to the Commission; and
WHEREAS, the Gas Utility Regulatory Act ( "GURA ") grants local regulatory authorities
the right to intervene in rate proceedings filed at the Railroad Commission; and
WHEREAS, the Texas Utilities Code § 103.022 provides that costs incurred by the City
in ratemaking activities are to be reimbursed by the regulated utility; and
WHEREAS, counsel for ACSC, upon review of the Company's filing and upon
consultation with various consultants, recommends finding that the Company's proposal is
unjustified and unreasonable; and
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WHEREAS, the Company has publicly stated that it will receive substantial profit in
2005 and that its expenses are substantially below those on which the GUD No. 9400 rates it is
charging were based; and
WHEREAS, the Company's GRIP request fails to account for growth in numbers of
customers, thereby undercounting the revenues it will receive from its proposed GRIP rate
increase; and
WHEREAS, the Company's GRIP request fails to recognize that GUD No. 9400 rates
included profit based on TXU Corporation's capital structure rather than Atmos Energy Corp,'s
current capital structure, which justifies a lower rate of return; and
WHEREAS, under the provisions of § 104.301 of GURA, the interim rate adjustment is
subject to true -up in a general rate case filed within five years of the effective date of the interim
gate surcharge; and
WHEREAS, the Company has, on May 31, 2006, filed a Statement of Intent to increase
its distribution rates on a system -wide basis, using calendar year ending December 31, 2005, as
its test year; and
WHEREAS, the capital investment made by Atmos during 2005 will be reviewed in the
Statement of Intent filing, making the 2005 GRIP filing superfluous, duplicative, and
unnecessary;
NOW, THEREFORE, BE IT ORDAINED 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, superfluous, duplicative, and unnecessary, and is therefore denied in all respects.
SECTION 2, That the City is authorized to cooperate with other Cities within the
Company's Distribution System that have formed ACSC to hire and direct legal counsel and
consultants, negotiate with the Company, make recommendations to the City regarding
reasonable rates, and to direct any necessary litigation associated with an appeal of a rate
ordinance and the rate case filed at the Commission.
SECTION 3. That the costs incurred by the City in reviewing the Company's GRIP
request shall be promptly reimbursed by the Company.
SECTION 4. That the City is authorized to intervene in any appeal of the City's action
filed at the Commission and any related litigation, and to participate in any such appeal or
litigation as a member of ACSC.
SECTION 5, This Ordinance shall become effective immediately from and after its
passage, as the law and charter in such cases provide.
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SECTION 6. That it is hereby officially found and determined that the meeting at which
this Ordinance 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 7, A copy of this ordinance, constituting final action on the Company's
application, be forwarded to the following:
Richard T. Reis
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.
DULY PASSED and approved by the City Council of the City of , Texas,
on this the day of , 20W
APPROVED:
ATTEST:
APPROVED AS TO FORM:
City Attorney
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