06-A Denying request by Atmos under GRIP filing

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STAFF REPORT ON ATMOS MID-TEX GRIP DENIAL RESOLUTION Purpose of the Resolution: Atmos Mid- Tex filed its fourth surcharge request under the Gas Reliability Infrastructure Program ("GRIP") statute, seeking to implement monthly surcharges of $0.59 (average residential customers), $1.47 (average commercial customers), and $28.74 for industrial customers. The resolution denies Atmos Mid- Tex's 2006 surcharge request on the grounds that it does not comply with the law and is not reasonable. The resolution also indicates the City's support for statutory changes to the Texas GRIP statute to ensure fairness for ratepayers and to eliminate piecemeal rate making for any change in invested capital. What is GRIP? GRIP is piecemeal ratemaking and would be illegal under traditional ratemaking that is in the public interest. Atmos, TXU Gas, and other gas utilities persuaded the legislature in 2003 to make an exception to the prohibition against piecemeal ratemaking to encourage increased investment in transmission and distribution pipe by allowing prompt recovery of investment, despite the possibility that increased revenues and declining expenses could more than offset increased investment. Unfortunately, utilities have used the GRIP filings to include other costs unrelated to infrastructure improvements. GRIP surcharges are reconciled in a general rate case that the utility may not file for another five years. Did the Leeislature Address the GRIP Statute in the Recent Leeislative Session? The GRIP statute violates fundamental standards of regulatory ratemaking because it eliminates a basic aspect of fairness for ratepayers that has been part of the ratemaking process for decades. During the most recent legislative session, the Senate Business and Commerce Committee unanimously approved a bill that would have repealed the GRIP statute, largely in response to the abuses of the GRIP surcharge by Atmos Mid-Tex. However, by the end of the session, the gas utility lobby was successful in killing meaningful reform and the legislation died. It is important to start building support for legislative reform of the GRIP statute now. Issues regarding utility ratemaking and GRIP surcharges are very technical and can be difficult to effectively communicate during the heat of a legislative session. Cities can build on the effective information campaign that started in the recent session that recently concluded and prepare for the next session by communicating with the legislators about this GRIP filing. The Executive Committee has recommended that ACSC members adopt a resolution supporting legislative changes to protect natural gas ratepayers and opposing GRIP surcharges. This denial resolution includes that information and will be forwarded to the City's legislative delegation. Page I