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Item 9BCity of Southlake, Texas MEMORANDUM December 29, 2004 TO: Billy Campbell, City Manager FROM: Sharen Elam, Director of Finance, Ext. 1713 SUBJECT: Resolution No. 05 -002, Authorizing the City's intervention before the Railroad Commission of Texas regarding the filing of a gas cost prudence review by Atmos Energy Corporation, formerly TXU Gas Company; designating a representative of the City to serve on a steering committee; and requiring reimbursement of reasonable legal and consultant expenses Action Requested: City Council approval of Resolution No. 05 -002, Authorizing the City's intervention before the Railroad Commission of Texas regarding the filing of a gas cost prudence review by Atmos Energy Corporation, formerly TXU Gas Company; designating a representative of the City to serve on a steering committee; and requiring reimbursement of reasonable legal and consultant expenses Background Information: The City recently received notice from, Atmos Energy Corporation (formerly TXU Gas Company) of the filing at the Railroad Commission of a three -year gas cost prudence review. This filing is one in a series of triennial filings required by the Commission as part of the Final Order in Gas Utilities Docket (GUD) No. 8664, TXU's city gate gas rate case decided in 1997. The purpose of the filing requirement is to allow a periodic review of the prudence of TXU's gas purchases. TXU's Gas Cost Review documentation as to its purchasing practices, as well as the actual amount and cost of gas purchases for the period of November 1, 2000, to October 31, 2003, was filed at the Commission on September 24, 2004, and was assigned GUD No. 9530. The sale of TXU's gas utility operations to Atmos was completed on October 1, 2004, and notice to customers of the filing of GUD No. 9530 was approved on November 5, 2004 The hearings examiner assigned to the docket ordered Atmos to begin mailing notices to all cities served by the former TXU Gas Distribution - Transmission by November 9, 2004. The filing on or about September 24, 2004 (GUD No. 9530) for a gas cost prudence review of $2.2 billion in previously incurred and billed gas costs. These costs are twice the cost of gas purchases included in TXU's filing for the previous three -year period. This is despite the fact that one of the representations made by TXU to settle the last prudence review was that it had renegotiated a gas purchase contract for an expected benefit to ratepayers of over $20 million. Testimony included with this filing indicates that over half of all gas supply purchases during this three -year period were made on the spot market. Billy Campbell, City Manager December 29, 2004 When TXU made its last three -year prudence review filing many of the same cities who participated in GUD NO. 9400 intervened in that docket jointly and were ultimately successful in achieving a settlement of all issues with TXU. TXU also reimbursed the cities; expenses. The attached resolution will ratify the intervention filed on behalf of the City of Arlington, appoint Sharen Elam as the City's representative on a Cities Steering Committee, and require Atmos /TXU Gas to reimburse the City any reasonable costs associated with the participation in GUD No. 9530 or any subsequent proceeding. Financial Considerations: The resolution requires reimbursement of legal and consultant expense from Atmos. Steering Committee will cover the initial expenses. Citizen Input/ Board Review: N/A Legal Review: The City Attorney has reviewed the ordinance. Alternatives: Approve or deny proposed resolution Supporting Documents: Resolution No. 05 -002 Billy Campbell, City Manager December 29, 2004 RESOLUTION NO. 05 -002 A RESOLUTION BY THE CITY OF SOUTHLAKE, TEXAS AUTHORIZING INTERVENTION BEFORE THE RAILROAD COMMISSION OF TEXAS IN GAS UTILITIES DOCKET (GUD) NO. 9530; AUTHORIZING PARTICIPATION WITH OTHER CITIES SERVED BY ATMOS ENERGY CORPORATION, FORMERLY KNOWN AS TXU GAS COMPANY, IN ADMINISTRATIVE AND COURT PROCEEDINGS INVOLVING A GAS COST PRUDENCE REVIEW RELATED TO A FILING MADE IN SEPTEMBER OF 2004 AS REQUIRED BY THE FINAL ORDER IN GUD NO. 8664; DESIGNATING A REPRESENTATIVE OF THE CITY TO SERVE ON A STEERING COMMITTEE; REQUIRING REIMBURSEMENT OF REASONABLE LEGAL AND CONSULTANT EXPENSES WHEREAS, the City Council of the City of Southlake, Texas is a customer of Atmos Energy Corporation, formerly known as TXU Gas Company, (Atmos /TXU Gas) and a regulatory authority with an interest in the rates and charges of Atmos /TXU Gas; and WHEREAS, Atmos /TXU Gas made a filing at the Railroad Commission of Texas on or about September 24, 2004, now docketed as GUD No. 9530, for a gas cost prudence review of $2.2 billion in previously incurred and billed gas costs; and WHEREAS, the filing made by Atmos /TXU Gas was required by the terms of the Final Order of the Railroad Commission in GUD No. 8664; and WHEREAS, ratepayers of Atmos /TXU Gas, including the City of Southlake, and its residents would be entitled to a pro rata portion of a refiind associated with any costs found to have been unreasonable; and WHEREAS, the City of Southlake and its residents could benefit from coordination with other Cities in a review of the reasonableness of the gas costs of Atmos /TXU Gas and the joint participation in the Railroad Commission proceedings and any subsequent litigation or appeal related to those gas costs; and WHEREAS, the reasonable costs associated with the participation of Cities in this ratemaking proceeding are reimbursable from the Company. Billy Campbell, City Manager December 29, 2004 THEREFORE BE IT RESOLVED BY THE CITY COUNCIL OF THE CITY OF SOUTHLAKE, TEXAS THAT: Intervention is hereby authorized in GUD No. 9530 and /or any successor docket at the Railroad Commission of Texas. 2. The City is authorized to cooperate with other Cities within the Atmos /TXU Gas system and hereby designates Sharen Elam as a representative to a Cities' Steering Committee that shall direct the efforts of counsel and consultants and the course of settlement and /or litigation before the Railroad Commission or of an appeal to any court regarding any matter related to the gas cost prudence review filing made by Atmos /TXU Gas in 2004. Atmos /TXU Gas shall promptly reimburse the City's reasonable costs associated with the City's participation in GUD No. 9530 or any subsequent proceeding. Signed this day of , 2004. Mayor ATTEST: