06-A Denying request by Atmos under GRIP filing

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Observations on the Filin~ Pursuant to its statutory authority, the City suspended the effective date of the Company's surcharge request to evaluate the filing, determine whether the filing complies with law, and if unlawful, to determine what further strategy to pursue. Review of the Company's surcharge request is particularly important given that the City, as part of the Atmos Cities Steering Committee, initiated a rate case (GUD No. 9670) in which the Railroad Commission determined that Atmos had included inappropriate expenditures in its previous GRIP surcharges for rate years 2003, 2004, and 2005. But for the investigation by the Cities, through ACSC, the impropriety of these expenditures and of their inclusion in the GRIP surcharges, would not have been exposed, and the refund of $2.5 million would not have been ordered. ACSC's rate consultant, Karl Nalepa, has identified approximately $3.4 million in expenses included in the 2006 GRIP surcharge request that are inconsistent with the statute and/or the Railroad Commission's order in GUD 9670. For example, the Company's surcharge request is based in part on inappropriate expenses related to furniture and office fixtures. The Commission excluded furniture expenses from the Atmos Mid- Tex GRIP surcharge in GUD 9670. The Company acknowledges this and has removed some of the furniture and fixture expense from the current filing. The filing offers no explanation why any furniture or fixture expense remains part of the GRIP surcharge. In addition, Mr. Nalepa has also identified expenses included in this surcharge request that occurred prior to 2006, and are thus ineligible for inclusion in the 2006 GRIP surcharge. Finally, Atmos Mid- Tex has just received a rate increase of approximately $5 million and should be collecting sufficient revenues to earn its allowed return without the necessity for a surcharge to recover incremental investment. NOTE: IT IS CRITICAL THAT ALL CITIES PASS THE RESOLUTION TO DENY ON OR BEFORE SEPTEMBER 13, 2007. Explanation of "Be It Resolved" Para~raphs: 1. This paragraph sets out the finding that the Company's request is unreasonable, and inconsistent with Railroad Commission precedent and the statute. 2. This paragraph provides for an immediate effective date. 3. This paragraph states the City's support for legislative reform of the GRIP statute to ensure fairness to ratepayers and to eliminate piecemeal recovery for any change in invested capital. 4. The paragraph requests the City's legislative delegation to support legislation in the 8Pt Regular Session of the Texas Legislature that would reform the GRIP statute to ensure fairness for ratepayers and eliminate piecemeal recovery for any change to invested capital. 5. This paragraph cites conformance with the Open Meetings Act. 6. This paragraph directs that a copy of the signed ordinance be sent to a representative of the Company and a representative of the coalition of cities. Page 2