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Consider adopting Ordinance No. 3245 approving a negotiated resolution 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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BACKGROUND:
The City of Farmers Branch, along with approximately 164 other cities served by Atmos Energy Mid-Tex Division, is a member of the Atmos Cities Steering Committee (“ACSC”). On or about July 15, 2013, Atmos Mid-Tex filed with an application with the City to increase natural gas rates pursuant to the Rate Review Mechanism (“RRM”) tariff renewed by the City in June 2013 as a continuation and refinement of the previous RRM rate review process. This is the first annual RRM filing under the renewed RRM tariff.
The Atmos Mid-Tex RRM filing sought a $22.7 million rate increase system-wide based on an alleged test-year cost of service revenue deficiency of $25.7 million. 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 tariffs are the result of negotiations between ACSC and Atmos Mid-Tex to resolve issues raised by ACSC during the review and evaluation of Atmos Mid-Tex’s RRM filing.
The Ordinance resolves Atmos Mid-Tex’s RRM filing by authorizing additional revenues to Atmos Mid-Tex of $16.6 million system-wide. For purposes of comparison, this negotiated result is about $11 million less than what ACSC’s consultants calculated that Atmos would have been entitled to if Atmos had filed a case under the Gas Reliability Infrastructure Program (“GRIP”) rather than an RRM case. The settlement is expected to increase the average residential customer’s bill by approximately $0.74 per month. An Average Bill Comparison of base rates has been prepared for residential, commercial, industrial, and transportation customers.
The ACSC Executive Committee and ACSC legal counsel recommend that all ACSC Cities adopt the Ordinance implementing the rate change.
The RRM tariff was originally 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. In June 2013, the City adopted a renewed RRM tariff for an additional five years. Atmos Mid-Tex’s July 2013 filing was made pursuant to the renewed RRM tariff.
The RRM tariff and the process implementing that tariff were created collaboratively by ACSC and Atmos Mid-Tex as an alternative to the legislatively-authorized GRIP surcharge process. ACSC has opposed GRIP because it constitutes piecemeal ratemaking, does not allow any review of the reasonableness of Atmos’ expenditures, and does not allow participation by cities or recovery of cities’ rate case expenses. In contrast, the RRM process has allowed for a more comprehensive rate review and annual adjustment as a substitute for GRIP filings. ACSC’s consultants have calculated that had Atmos filed under the GRIP provisions, it would have received additional revenues from ratepayers in excess of $28 million.
DISCUSSION:
Rates cannot change without the adoption of rate ordinances by cities. No related matter is pending at the Railroad Commission. The purpose of the Ordinance is to approve rates (shown on “Attachment A” to the Ordinance) that reflect the negotiated rate changes pursuant to the RRM process and to ratify the recommendation of the ACSC Executive Committee.
As a result of the negotiations, ACSC was able to reduce Atmos Mid-Tex’s requested $22.7 million RRM increase to $16.6 million. Approval of the Ordinance will result in the implementation of new rates that increase Atmos Mid-Tex’s revenues effective November 1, 2013.
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 $22.7 million increase requested by the Company, ACSC’s consultants agree that the Company can justify an increase in revenues of some lesser amount. The agreement on $16.6 million is a compromise between the positions of the parties.
The alternative to a resolution of the RRM filing would be a GRIP filing by the Company, based upon the Railroad Commission’s decision in the 2012 rate case. A GRIP filing would entitle Atmos Mid-Tex to receive more than $28 million in additional revenues, with ACSC being precluded from reviewing the reasonableness of the GRIP filing. The ACSC Executive Committee recommends that ACSC members take action to approve the Ordinance authorizing new rate tariffs.
For the first annual filing under the revised RRM tariff, the Company agreed to forgo any change to the residential customer charge. Therefore, for the 2013 RRM, the result of the filing will not increase the residential customer charge, and the entirety of the increase to the residential class will be applied to the commodity (natural gas consumption) component of rates.
RECOMMENDATION:
City Administration recommends adopting Ordinance No. 3245 approving a negotiated resolution 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.
ACTIONS:
1) Motion to adopt Ordinance No. 3245 approving a negotiated resolution between the Atmos Cities Steering Committee and Atmos Energy Corp., Mid-Texas Division, that adopts new natural gas rates for the City of Farmers Branch.
2) Motion to deny Ordinance No. 3245 approving a negotiated resolution between the Atmos Cities Steering Committee and Atmos Energy Corp., Mid-Texas Division, that adopts new natural gas rates for the City of Farmers Branch.
3) Motion to modify to meet the needs of the Council.
4) Motion to table the issue for further study or take no action.
ATTACHMENTS:
1. Frequently Asked Questions Regarding ACSC and the RRM Process
2. Ordinance No. 3245 and Atmos Mid-Tex Tariffs