Title
Consider/Discuss/Act on an Ordinance Approving a Settlement Agreement Between Atmos Mid-Tex and the Steering Committee of Cities Adopting Adjusted Rate Tariffs
Summary
MEETING DATE: August 16, 2011
DEPARTMENT: City Manager’s Office
CONTACT: Aretha Harvey, Assistant to the City Manager
Mark Houser, City Attorney
RECOMMENDED CITY COUNCIL ACTION:
• Approve passage of settlement agreement ordinance.
ITEM SUMMARY:
• The City, along with approximately 154 other cities served by Atmos Energy Mid-Tex Division (“Atmos Mid-Tex” or “Company”), is a member of the Atmos Cities Steering Committee (“ACSC” or “Steering Committee”). On or about April 1, 2011, Atmos Mid-Tex filed with the City an application to increase natural gas rates pursuant to the Rate Review Mechanism (“RRM”) tariff approved by the City as part of the settlement of the Atmos Mid-Tex 2007 Statement of Intent to increase rates. This is the fourth annual RRM filing.
• The Atmos Mid-Tex RRM filing sought a $15.7 million rate increase. The City worked with ACSC to analyze the schedules and evidence offered by Atmos Mid-Tex to support its request to increase rates. The Ordinance and attached rate and RRM tariffs are the result of negotiations between ACSC and the Company to resolve issues raised by ACSC during the review and evaluation of ACSC’s RRM filing. The Ordinance resolves the Company’s RRM filing by authorizing supplemental revenue of $6.6 million to be recovered through the customer charge component of rates to cover direct incremental costs associated with a steel service line replacement program approved as part of last year’s rate adjustment. All other relief requested by Atmos Mid-Tex is denied.
• During the time that the City has retained original jurisdiction in this case, consultants working on behalf of ACSC cities have investigated the support for the Company’s requested rate increase. While the evidence does not support the $15.7 million increase requested by the Company, ACSC consultants agree that the Company can justify an increase in revenues of $6.6 million, a result consistent with Cities’ approval of a steel service line replacement program last year. The agreement on $6.6 million is a compromise between the positions of the parties.
• The Settlement Agreement of 2010 which included an extension of the RRM process, included an allowance for recovery of direct costs, excluding overheads, of the steel service line replacement program. Current year recovery factors of $00.15 for residential customers and $00.41 for commercial customers per month were authorized last year. The 2010 Settlement Agreement contemplated that the steel service line replacement program would be adjusted annually, but shall be capped at $00.44 cents for residential customers and $1.22 for commercial customers. The increase in this case is consistent with the caps contemplated last year for the steel service line replacement program, and nothing more.
• Furthermore, the Settlement Agreement approved in 2010 contemplated that incremental revenues to cover future steel service line replacement costs would be recovered through customer charges. Consistent with that approach, the $6.6 million in additional revenues to be recovered following passage of the Ordinance is accomplished by increasing customer charges.
• The tariffs to be approved by the Ordinance set monthly customer charges at $7.50 and $16.75 for residential and commercial customers, respectively.
• The commodity portion of the commercial rate will decline slightly from existing rates.
• Rates cannot change and the Settlement Agreement with Atmos Mid-Tex cannot be implemented without passage of rate ordinances by cities. No related matter is pending at the Railroad Commission. The purpose of the Ordinance is to approve rate tariffs (“Attachment A”) that reflect the negotiated rate change pursuant to the RRM process and to ratify a Settlement Agreement recommended by the ACSC Settlement Committee and Executive Committee.
• The alternative to a settlement of the RRM filing would be a contested case proceeding before the Railroad Commission on the Company’s current application, would take several months and cost ratepayers millions of dollars in rate case expenses, and would not likely produce a result more favorable than that to be produced by the settlement.
• Approval of the Ordinance will result in the implementation of new rates that increase Atmos Mid-Tex’s revenues effective September 1, 2011.
BACKGROUND INFORMATION:
• The RRM tariff was approved by ACSC Cities as part of the settlement agreement to resolve the Atmos Mid-Tex 2007 system-wide rate filing at the Railroad Commission. Atmos Mid-Tex’s current action represents an extension to the three-year trial project known as the Rate Review Mechanism (“RRM”) process. The RRM process was created collaboratively by ACSC and Atmos Mid-Tex as an alternative to the legislatively authorized GRIP surcharge process. ACSC opposed GRIP because it constituted piecemeal ratemaking, did not allow any reasonableness review, and did not allow participation by cities or recovery of cities’ rate case expenses. The RRM process has allowed for a more comprehensive rate review and annual adjustment as a substitute for GRIP filings during the three-year trial period specified by the tariff.
• In 2010, under pressure from the Railroad Commission to establish a comprehensive program to replace service lines that contain steel which is subject to corrosion and leaks, ACSC worked with Atmos Mid-Tex to establish a risk based approach to steel service line replacement that accomplishes the following goals:
1. Replace all service lines throughout the Mid-Tex Region with the highest degree of risk within two years;
2. Coordination between ACSC city members and Atmos Mid-Tex to minimize disruption of rights of way without compromising safety;
3. To minimize and spread the rate impact on customers of the replacement program, the service lines with little relative risk of leaks should be replaced over a 10-year period; and
4. Current recovery of incremental (above and beyond normal maintenance and repair addressed in RRM proceedings) direct (excluding Atmos Mid-Tex overheads) cost of service line replacement should be permitted as an adder to customer charges.
• Fulfillment of these goals in the 2010 case led to $00.15 and $00.41 added to residential and commercial customer charges, respectively. The annual customer charge adder to cover the steel service line replacement program may not exceed $00.44 and $1.22 for residential and commercial customers, respectively, prior to the entry of a Final Order in the next system-wide Statement of Intent rate proceeding.
FINANCIAL SUMMARY:
• N/A
BOARD OR COMMISSION RECOMMENDATION:
• N/A