Title
Consider/Discuss/Act on a Resolution of the City Council of the City of McKinney, Texas, Approving a Negotiated Settlement Between the Atmos Cities Steering Committee (“ACSC”) and Atmos Energy Corp., Mid-Tex Division Regarding the Company’s 2023 Rate Review Mechanism Filing; Declaring Existing Rates to Be Unreasonable; Adopting Tariffs That Reflect Rate Adjustments Consistent With the Negotiated Settlement; Finding the Rates to Be Set by the Attached Settlement Tariffs to Be Just and Reasonable and in the Public Interest; Approving an Attachment Establishing a Benchmark for Pensions and Retiree Medical Benefits; Requiring the Company to Reimburse ACSC’s Reasonable Ratemaking Expenses; Determining That This Resolution Was Passed in Accordance With the Requirements of the Texas Open Meetings Act; Adopting a Savings Clause; Declaring an Effective Date; and Requiring Delivery of This Resolution to the Company and the ACSC’s Legal Counsel
Summary
COUNCIL GOAL: Operational Excellence
MEETING DATE: August 15, 2023
DEPARTMENT: City Manager’s Conference
CONTACT: Trevor Minyard, Director of Strategic Services
RECOMMENDED CITY COUNCIL ACTION:
• Approval of the resolution.
ITEM SUMMARY:
• On or about March 31, 2023, the Company filed a rate request pursuant to the Rate Review Mechanism (“RRM”) Tariff adopted by Atmos Cities Steering Committee (“ACSC”) members. The Company claimed that its cost-of-service in a test year ending December 31, 2022, entitled it to additional system-wide revenues of $165.9 million.
• Application of the standards set forth in ACSC’s RRM Tariff reduces the Company’s request to $156.1 million, $113.8 million of which would be applicable to ACSC members. After reviewing the filing and conducting discovery, ACSC’s consultants concluded that the system-wide deficiency under the RRM regime should be $130.9 million instead of the claimed $156.1 million.
• After several settlement meetings, the parties have agreed to settle the case for $142 million. This is a reduction of $23.9 million to the Company’s initial request. This includes payment of ACSC’s expenses. The settlement also includes an additional $19.5 million for the securitization regulatory asset expenses related to Winter Storm Uri. This was previously approved by the Texas Legislature and Railroad Commission. The Effective Date for new rates is October 1, 2023. ACSC members should act approving the Resolution/Ordinance before September 30, 2023.
BACKGROUND INFORMATION:
• The City, along with 181 other Mid-Texas cities served by Atmos Energy Corporation, Mid-Tex Division (“Atmos Mid-Tex” or “Company”), is a member of the Atmos Cities Steering Committee (“ACSC”). In 2007, ACSC and Atmos Mid-Tex settled a rate application filed by the Company pursuant to Section 104.301 of the Texas Utilities Code for an interim rate adjustment commonly referred to as a GRIP filing (arising out of the Gas Reliability Infrastructure Program legislation). That settlement created a substitute rate review process, referred to as Rate Review Mechanism (“RRM”), as a substitute for future filings under the GRIP statute.
• Since 2007, there have been several modifications to the original RRM Tariff. The most recent iteration of an RRM Tariff was reflected in an ordinance adopted by ACSC members in 2018.
FINANCIAL SUMMARY:
• Atmos generated rate tariffs attached to the Resolution/Ordinance will generate $142 million in additional revenues. Atmos also prepared a Proof of Revenues supporting the settlement figures. ACSC consultants have agreed that Atmos’ Proof of Revenues is accurate.
• The impact of the settlement on average residential rates is an increase of $6.47 monthly, or 7.31%. The increase for average commercial usage will be $24.72 or 5.19%. Atmos provided bill impact comparisons containing these figures.
BOARD OR COMMISSION RECOMMENDATION:
• N/A