Title
Consider approving Resolution No. 2014-037 denying Atmos Energy Corporation, Mid-Tex Division's requested rate increase with an effective date of June 1, 2014 and take appropriate action.
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BACKGROUND:
The City, along with approximately 164 other cities served by Atmos Energy Mid-Tex Division (“Atmos Mid-Tex” or “Company”), is a member of the Atmos Cities Steering Committee (“ACSC”). On or about February 28, 2014, Atmos Mid-Tex filed with the City an application to increase natural gas rates pursuant to the Rate Review Mechanism (“RRM”) tariff renewed by the City in 2013 as a continuation and refinement of the previous RRM rate review process. This is the second annual RRM filing under the renewed RRM tariff.
The Atmos Mid-Tex RRM filing sought a $45.7 million rate increase system-wide based on an alleged test-year cost of service revenue deficiency of $49 million. Of the total amount requested, almost $37 million is attributable to the affected cities. The City worked with ACSC to analyze the schedules and evidence offered by Atmos Mid-Tex to support its request to increase rates. Although a good faith attempt was made by ACSC to reach a compromise with Atmos Mid-Tex, an agreement was not reached. In the absence of an agreement, the ACSC Executive Committee and ACSC’s legal counsel have recommended that ACSC members adopt the attached Resolution denying the rate increase request.
The RRM tariff was adopted by the City as an alternative to the Gas Reliability Infrastructure Program (“GRIP”), the statutory provision that allows Atmos to bypass the City’s rate regulatory authority to increase its rates annually to recover capital investments. In past years, cities have been able to reach a compromise with Atmos to reduce the rate impact from the requested RRM increases, and these compromises have also been lower than the rates that Atmos would have been entitled to under the GRIP filing. In this case, the Company would have been entitled to an increase from GRIP of no more than $31.5 million. The magnitude of the requested increase under the 2014 RRM filing, and the wide differences between it and the ACSC consultants’ recommendations made a compromise much more difficult and ultimately impossible. The Company demanded more than it would be entitled to if it had filed a GRIP case. For this reason, the ACSC Executive Committee and ACSC legal counsel recommend that all ACSC Cities adopt the Resolution denying the requested 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 early 2013, the City adopted a renewed RRM tariff for an additional five years. This is the second RRM filing under the renewed tariff. This filing was made by agreement less than one year after the first filing in order for the RRM rate-setting process to hereafter use a calendar year as the test period.
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 of approximately $31.5 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 Resolution is to deny the rate increase requested by Atmos. Under the RRM tariff, Atmos may appeal the rate decision of the cities to the Railroad Commission; such appeal must be filed within thirty (30) days of the City action.
The RRM tariff also allows Atmos to implement its requested rates effective June 1 while any appeal at the Commission is pending, subject to refunds based upon the outcome of the appeal. This would represent a monthly increase of approximately $2.02 for the average residential customer, subject to any refund if the Commission reduces the rates implemented by Atmos. The actual impact will be slightly less than $2.02 for most residential customers because the Company has indicated it will not appeal and thus concedes several of the issues raised by Cities. The Resolution also authorizes the City to participate as a party to the appeal in conjunction with the ACSC, and requires the Company to reimburse the City for its rate case expenses associated with the City’s review of the RRM filing, and with the appeal of the City’s denial of the rate increase.
The RRM tariff constrains the annual increase in the residential customer charge to no more than $0.50. The current $17.70 customer charge will be increased to $18.22 per month with the addition of an energy conservation program surcharge of $0.02. The current $17.70 customer charge for unincorporated area customers will become $20.32 per month because all of the increase associated with a GRIP filing, which is applicable to all customers not covered by a RRM tariff, is placed on the customer charge. However, the commodity charge for unincorporated residential service will be less than one-half of the commodity charge for residents of incorporated areas-$0.04172 per Ccf vs. $0.08998 per Ccf.
A comparison of rates and rate impact of what Atmos initially proposed in its RRM filing is reflected as follows:
Residential:
Current Bill - 48.09
New Bill - 50.11
Difference - 2.02
New Customer Charge - $18.22
New Commodity Charge - $0.08998 Ccf
Base Rate Increase - 9.41%
Commercial:
Current Bill - 254.85
New Bill - 260.91
Difference - 6.06
New Customer Charge - $38.85
New Commodity Charge - $0.07678 Ccf
Base Rate Increase - 9.59%
Industrial:
Current Bill - 4,680.30
New Bill - 4,837.10
Difference - 156.80
New Customer Charge - $675.00
New Commodity Charge - declining block
Base Rate Increase - 9.70%
Transportation:
Current Bill - 2,836.84
New Bill - 2,993.64
Difference - 156.80
New Customer Charge - $675.00
New Commodity Charge - declining block
Base Rate Increase - 9.70%
However, Atmos has indicated that it will not appeal all issues raised by Cities and thus the impact should be slightly less than what is reflected in the above chart. A precise impact statement cannot be presented until after the Company’s appeal is filed.
Consultants working on behalf of ACSC Cities have investigated the Company’s requested rate increase. While the evidence does not support the $45.7 million increase requested by the Company, ACSC’s consultants agree that the Company can justify an increase in revenues of a much lesser amount-namely, an increase of only $19 million. The Executive Committee authorized a settlement value considerably above the consultants’ recommendation but it was insufficient to meet the Company’s expectation. The Company and ACSC Cities were too far apart in their positions to reach a compromise, and rather than granting a partial increase that the Company will not accept, the option remaining is to deny the rate increase request in its entirety, and participate in the Company’s appeal of this decision at the Railroad Commission.
RECOMMENDATION:
City Administration recommends approving Resolution No. 2014-037 denying Atmos Energy Corporation, Mid-Tex Division's requested rate increase with an effective date of June 1, 2014.
ACTIONS:
1) Motion to approve Resolution No. 2014-037 denying Atmos Energy Corporation, Mid-Tex Division's requested rate increase with an effective date of June 1, 2014.
2) Motion to deny Resolution No. 2014-037 denying Atmos Energy Corporation, Mid-Tex Division's requested rate increase with an effective date of June 1, 2014.
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. Resolution No. 2014-037
2. Frequently Asked Questions Regarding ACSC and the RRM Process