Title
Consider/Discuss/Act on a Resolution Denying the Gas Utility Rate Increase Requested By Atmos Energy Corp., Mid-Tex Division Under the Second Rate Review Mechanism Filing
Summary
MEETING DATE: June 3, 2014
DEPARTMENT: Financial Services
CONTACT: Rodney Rhoades, Chief Financial Officer
RECOMMENDED CITY COUNCIL ACTION:
• Approve the resolution.
ITEM SUMMARY:
• This resolution finds that Atmos Energy Corp., Mid-Tex Division (Atmos Mid-Tex) was unable to justify the appropriateness or the need for the increased revenues requested in the second 2014 Rate Review Mechanism (RRM) filing, and that existing rates for natural gas service provided by Atmos Mid-Tex are just and reasonable.
• Atmos Mid-Tex shall reimburse the reasonable ratemaking expenses of the Atmos Cities Steering Committee (ACSC) Cities in processing the Atmos Mid-Tex’s RRM application.
• In the event Atmos Mid-Tex 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 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 participating in the appeal of this and other ACSC City rate actions resulting from the 2014 RRM filing.
BACKGROUND INFORMATION:
• The City of McKinney, Texas is a gas utility customer of Atmos Mid-Tex, and a regulatory authority with an interest in the rates and charges of Atmos Mid-Tex.
• 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.
• Pursuant to the terms of the agreement settling Atmos Mid-Tex’s 2007 Statement of Intent to increase rates, ACSC Cities and Atmos Mid-Tex 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 Gas Reliability Infrastructure Program (“GRIP”) process instituted by the Legislature.
• The City took action in 2008 to approve a Settlement Agreement with Atmos Mid-Tex resolving Atmos Mid-Tex’s 2007 rate case and authorizing the RRM tariff.
• In 2013, ACSC and Atmos Mid-Tex negotiated a renewal of the RRM tariff process for an additional five years.
• The City passed an ordinance renewing the RRM tariff process for the City for an additional five years.
• The RRM renewal tariff contemplates reimbursement of ACSC Cities’ reasonable expenses associated with RRM applications.
• On or about February 28, 2014, Atmos Mid-Tex 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.
• 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 Atmos Mid-Tex’s RRM filing.
• ACSC attorneys and consultants have concluded that Atmos Mid-Tex is unable to justify a rate increase of the magnitude requested in the RRM filing.
• ACSC’s consultants determined Atmos Mid-Tex is only entitled to a $19 million increase, approximately 42% of Atmos Mid-Tex’s request under the 2014 RRM filing.
• Atmos Mid-Tex levels of operating and maintenance expense have dramatically risen without sufficient justification.
• Atmos Mid-Tex 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.
• Atmos Mid-Tex requested a drastically high level of medical expense that is unreasonable and speculatively based upon estimates.
• ACSC and Atmos Mid-Tex were unable to reach a compromise on the amount of additional revenues that Atmos Mid-Tex should recover under the 2014 RRM filing.
• The ACSC Executive Committee, as well as ACSC’s counsel and consultants, recommend that ACSC Cities deny the requested rate increase.
• Atmos Mid-Tex’s current rates are determined to be just, reasonable, and in the public interest
FINANCIAL SUMMARY:
• Other reasonable legal and consultant expenses are reimbursable from Atmos Mid-Tex.