Title
Consider approving Resolution No. 2025-150 approving a negotiated settlement between the Atmos Cities Steering Committee and Atmos Energy Corp., Mid-Tex Division, that adopts new natural gas rates for the City of Farmers Branch; and take appropriate action.
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REQUESTER:
Public Works Department
BACKGROUND:
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.
The most recent iteration of an RRM Tariff was reflected in an ordinance adopted by ACSC members in 2018. On or about April 1, 2025, the Company filed a rate request pursuant to the RRM Tariff adopted by ACSC members. The Company claimed that its cost-of-service in a test year ending December 31, 2024, entitled it to additional system-wide revenues of $245.2 million. Application of the standards set forth in ACSC’s RRM Tariff reduces the Company’s request to $225.6 million, $163.5 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 $185.6 million instead of the claimed $245.2 million. After several settlement meetings, the parties have agreed to settle the case for $205.6 million. This is a reduction of $20 million from the Company’s initial request. This includes payment of ACSC’s expenses. The Effective Date for new rates is October 1, 2025. ACSC members should take action to approve the Resolution before October 1, 2025.
Atmos generated rate tariffs attached to the Resolution that will generate $205.6 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 $7.83 on a monthly basis or 9.27 percent. The increase for average commercial usage will be $25.73 or 6.56 percent. Atmos provided bill impact comparisons containing these figures.
ACSC strongly opposed the GRIP process because it constitutes piecemeal ratemaking by ignoring declining expenses and increasing revenues while rewarding the Company for increasing capital investment on an annual basis. The GRIP process does not allow any review of the reasonableness of capital investment and does not allow cities to participate in the Railroad Commission’s review of annual GRIP filings or allow recovery of Cities’ rate case expenses. The Railroad Commission undertakes a mere administrative review of GRIP filings (instead of a full hearing), and rate increases go into effect without any material adjustments. In ACSC’s view, the GRIP process unfairly raises customers’ rates without any regulatory oversight. In contrast, the RRM process has allowed for a more comprehensive rate review and annual evaluation of expenses and revenues, as well as capital investment.
DISCUSSION:
The Legislature’s GRIP process allowed gas utilities to receive annual rate increases associated with capital investments. The RRM process has proven to be more efficient and less costly (both from a consumer rate impact perspective and from a ratemaking perspective) than the GRIP process. Given Atmos Mid-Tex’s claim that its historical cost of service should entitle it to recover $245.2 million in additional system-wide revenues, the RRM settlement at $205.6 million for ACSC members reflects substantial savings to ACSC cities. Settlement at $205.6 million is fair and reasonable. The ACSC Executive Committee, consisting of City employees of 18 ACSC members, urges all ACSC members to pass the Resolution before October 1, 2025. New rates become effective October 1, 2025.
DISTRICT:
Citywide
POSSIBLE COUNCIL ACTION:
1. I move to approve Resolution No. 2025-150 as presented.
2. I move to approve Resolution No. 2025-150 with modifications.
3. I move to table the issue for further study or take no action.
ATTACHMENT(S):
1. Resolution No. 2025-150
2. Atmos RRM FAQ’s