05-A Atmos Energy Rate Ord - Laserfiche WebLink

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AGENDA INFORMATION SHEET PROJECT: Ordinance finding that the existing natural gas distribution rates of Atmos Mid- Tex should be reduced, ordering Atmos Energy Corp., Mid-Tex Division, to reduce its existing rates within the City, adopting specific new rates R, T & C and ordering all rates, service charges, and tarifflanguage not inconsistent with Attachment 1 to the ordinance to remain operative except that all GRIP surcharges shall immediately cease. BACKGROUND: Late in 2005, seventy-six Texas cities served by Atmos Mid- Tex determined that Atmos should be required to establish the reasonableness of its current rates. The "show cause" resolutions required Atmos to file by December 31, 2005, support for its current rates. Atmos filed schedules with the cities, which have been reviewed by the cities' consultants. In addition, the cities' consultants requested additional information from Atmos. As a result of their analysis of the filing and the additional information, the cities' consultants have issued a report finding that Atmos' current rates are excessive and should be reduced. RECOMMENDED ACTION: Overview of Consultants' Report: 1. Rate of Return. Atmos' filing used the same rate of return approved in GUD No. 9400, based upon the capital structure and component costs ofTXU Gas. Atmos' filing does not reflect the change in ownership; Atmos' capital structure is markedly different from TXU Gas, and the rate of return should be adjusted. 2. Rate Base. Atmos has allocated plant assets to Mid- T ex that did not come from TXU when Atmos purchased the system, and that may already be included in the rates of customers served by other Atmos operating units. Additionally, Atmos has failed to recognize the accumulated deferred income taxes and investment tax credits that were on the books of TXU when the assets were acquired, resulting in a loss by ratepayers of the benefits of the deferrals. As a result, Atmos' rate base should be reduced by $185 million. 3. Depreciation Expense. A service unit was removed from rate base, but Atmos has not reduced its depreciation expense associated with this removal. As a result, Atmos' depreciation expense should be reduced by $3.1 million. 4. Operating Expenses. Atmos has improperly adjusted its operation and maintenance expenses, resulting in a reduction of$35.8 million to these expenses. 5. Service Charge Revenue. Atmos has not included service charge revenues to reduce its revenue requirements. These revenues need to be accounted for, and reduce Atmos' base rate revenue requirements by $927,576. As a result of these adjustments, Atmos' revenue requirement should be reduced by $73.5 million from that reflected in its show cause filing, and by $34.7 million below the revenue requirement approved in GUD No. 9400. The rates recommended by the cities' consultants are a