Item 4ICITY OF
SOUTHLAKI
Item 41
MEMORANDUM
May 28, 2014
To: Shana Yelverton, City Manager
From: Sharen Jackson, Chief Financial Officer
Subject: Resolution No. 14-029, Denying Atmos Energy Corp., Mid -Tex
Division requested rate change
Action
Requested: Approval of Resolution No. 14-029, Denying Atmos Energy
Corp., Mid -Tex Division ("Atmos") requested rate change.
Background
Information: The City, along with over 160 other cities served by Atmos,
is a member of the Atmos Cities Steering Committee
("ACSC"). On February 28, 2014, Atmos filed with the City
an application to increase natural gas rates pursuant to the
Rate Review Mechanism ("RRM") tariff. The filing sought a
$45.7 million rate increase system -wide based on an alleged
test -year cost of service revenue deficiency of $49 million.
The estimated base rate impact for a residential customer
would be an increase of 9.41 %.
ACSC engaged attorneys and consultants to review Atmos
rate increase. During the review, the consultants determined
the evidence does not support the $45.7 million increase
requested however the consultants agree Atmos can justify
an increase in revenues of a much lesser amount closer to
$19 million.
ACSC and Atmos have engaged in some settlement
discussions but both parties are too far apart in their
positions to reach a compromise. Rates cannot change
without the adoption of rate ordinances by cities.
The purpose of the resolution is to deny the rate increase
requested by Atmos. Under the RRM tariff, Atmos may
appeal the rate decision of the cities to the Railroad
Commission; such appeal must be filed within thirty (30)
days of the City action. The resolution also authorizes the
City to participate as a party to the appeal in conjunction with
the ACSC, and requires Atmos to reimburse the City for its
rate case expenses associated with the City's review of the
RRM filing, and with the appeal of the City's denial of the
rate increase.
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The ACSC Executive Committee and ACSC legal counsel
recommend all member cities to adopt a resolution denying
the requested rate increase and participate in Atmos' appeal
of this decision at the Railroad Commission.
Financial
Considerations: Atmos will reimburse the cities for their reasonable rate case
expenses. Legal counsel and consultants approved by
ACSC will submit monthly invoices that will be forwarded to
Atmos for reimbursement. No individual city incurs liability
for payment of rate case expenses by adopting a denial
resolution.
Citizen Input/
Board Review: None required
Legal Review: Lloyd Gosselink Rochelle & Townsend, P.C. prepared the
resolution.
Alternatives: Approve or deny resolution
Supporting
Documents: Resolution No. 14-029
Staff
Recommendation: Approval of Resolution No. 14-029
RESOLUTION NO. 14-029
A RESOLUTION OF THE CITY COUNCIL OF THE CITY
OF SOUTHLAKE, TEXAS, DENYING THE RATE
INCREASE REQUESTED BY ATMOS ENERGY CORP.,
MID-TEX DIVISION UNDER THE COMPANY'S 2014
ANNUAL RATE REVIEW MECHANISM FILING IN ALL
CITIES EXERCISING ORIGINAL JURISDICTION;
REQUIRING THE COMPANY TO REIMBURSE CITIES'
REASONABLE RATEMAKING EXPENSES PERTAINING
TO REVIEW OF THE RRM; AUTHORIZING THE CITY'S
PARTICIPATION WITH ATMOS CITIES STEERING
COMMITTEE IN ANY APPEAL FILED AT THE
RAILROAD COMMISSION OF TEXAS BY THE
COMPANY; REQUIRING THE COMPANY TO
REIMBURSE CITIES' REASONABLE RATEMAKING
EXPENSES IN ANY SUCH APPEAL TO THE RAILROAD
COMMISSION; DETERMINING THAT THIS
RESOLUTION WAS PASSED IN ACCORDANCE WITH
THE REQUIREMENTS OF THE TEXAS OPEN MEETINGS
ACT; ADOPTING A SAVINGS CLAUSE; AND REQUIRING
DELIVERY OF THIS RESOLUTION 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"), a
coalition of approximately 164 similarly situated cities served by Atmos Mid -Tex that have
joined together to facilitate the review of and response to natural gas issues affecting rates
charged in the Atmos Mid -Tex service area; 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
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process controlled in a three-year experiment by ACSC Cities as a substitute to the current Gas
Reliability Infrastructure Program ("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, in 2013, ACSC and the Company negotiated a renewal of the RRM tariff
process for an additional five years; and
WHEREAS, the City passed an ordinance renewing the RRM tariff process for the City
for an additional five years; and
WHEREAS, the RRM renewal tariff contemplates reimbursement of ACSC Cities'
reasonable expenses associated with RRM applications; and
WHEREAS, on or about February 28, 2014, the Company filed with the City its second
annual RRM filing under the renewed RRM tariff, requesting to increase natural gas base rates
by $45.7 million; and
WHEREAS, ACSC coordinated its review of Atmos Mid-Tex's RRM filing through its
Executive Committee, assisted by ACSC attorneys and consultants, to investigate issues
identified by ACSC in the Company's RRM filing; and
WHEREAS, ACSC attorneys and consultants have concluded that the Company is unable
to justify a rate increase of the magnitude requested in the RRM filing; and
WHEREAS, ACSC's consultants determined the Company is only entitled to a $19
million increase, approximately 42% of the Company's request under the 2014 RRM filing; and
WHEREAS, the Company would only be entitled to approximately $31 million if it had a
GRIP case; and
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WHEREAS, the Company's levels of operating and maintenance expense have
dramatically risen without sufficient justification; and
WHEREAS, the Company has awarded its executives and upper management increasing
and unreasonable levels of incentives and bonuses, expenses which should be borne by
shareholders who received a 23% total return on investment in 2013; and
WHEREAS, the Company requested a drastically high level of medical expense that is
unreasonable and speculatively based upon estimates; and
WHEREAS, ACSC and the Company were unable to reach a compromise on the amount
of additional revenues that the Company should recover under the 2014 RRM filing; and
WHEREAS, the ACSC Executive Committee, as well as ACSC's counsel and
consultants, recommend that ACSC Cities deny the requested rate increase; and
WHEREAS, the Company's current rates are determined to be just, reasonable, and in the
public interest.
NOW, THEREFORE, BE IT RESOLVED BY THE CITY COUNCIL OF THE CITY
OF SOUTHLAKE, TEXAS:
Section 1. That the findings set forth in this Resolution are hereby in all things approved.
Section 2. That the City Council finds that Atmos Mid -Tex was unable to justify the
appropriateness or the need for the increased revenues requested in the 2014 RRM filing, and
that existing rates for natural gas service provided by Atmos Mid -Tex are just and reasonable.
Section 3. That Atmos Mid -Tex shall reimburse the reasonable ratemaking expenses of
the ACSC Cities in processing the Company's RRM application.
Section 4. That in the event the Company files an appeal of this denial of rate increase to
the Railroad Commission of Texas, the City is hereby authorized to intervene in such appeal, and
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shall participate in such appeal in conjunction with the ACSC membership. Further, in such
event Atmos Mid -Tex shall reimburse the reasonable expenses of the ACSC Cities in
participating in the appeal of this and other ACSC City rate actions resulting from the 2014 RRM
filing.
Section 5. That the meeting at which this Resolution 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 Resolution is adjudged to
be unconstitutional or invalid, such judgment shall not affect, impair, or invalidate the remaining
provisions of this Resolution and the remaining provisions of the Resolution shall be interpreted
as if the offending section or clause never existed.
Section 7. That a copy of this Resolution shall be sent to Atmos Mid -Tex, care of Chris
Felan, Manager of 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.
RESOLVED this day of , 2014.
ATTEST:
City Secretary
Mayor
APPROVED AS TO FORM:
City Attorney
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