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MODEL STAFF REPORT <br />The City, along with 150 other cities served by Atmos Energy Mid -Tex Division <br />( "Atmos" or "Company "), is a member of the Atmos Cities Steering Committee ( "ACSC "). On <br />April 14, 2008, Atmos filed with the City an application to increase natural gas rates pursuant to <br />the Rate Review Mechanism ( "RRM ") tariff approved by the City earlier this year. The <br />Company's April RRM filing seeks a $33.5 million rate increase. The City worked with ACSC <br />to analyze the schedules and evidence offered by Atmos to support its request to increase rates. <br />The Ordinance and attached tariff approving rates that will increase the Company's revenues by <br />$20 million effective October 1, 2008, are the result of negotiation between ACSC and the <br />Company to resolve issues raised by ACSC during the review and evaluation of ACSC's RRM <br />filing. The monthly bill impact for the average residential customer is $0.81. The ACSC <br />Executive Committee recommends that all ACSC cities adopt the ordinance implementing the <br />rate change. <br />RRM Background: <br />The RRM tariff was approved by cities as part of the settlement agreement to resolve <br />Atmos' 2007 rate increase case. Atmos' rate request represents the first filing pursuant to the <br />three -year trial project known as the RRM process. The RRM process was created <br />collaboratively by the Steering Committee and Atmos as an alternative to the GRIP surcharge <br />process. The RRM process allows for a more comprehensive rate review and annual adjustment <br />that will function as a substitute for future GRIP filings during the three -year trial period <br />specified by the tariff. <br />There are two components to the RRM adjustment. The prospective component adjusts <br />rates for known and measurable changes in O &M and net plant investment. Atmos and ACSC <br />agreed to cap changes to expenses and invested capital at no more than five percent. The true up <br />component evaluates whether the Company has over or underrecovered its earnings for the <br />previous year. For purposes of the RRM true up component, Atmos' rate of return on equity and <br />its capital structure are frozen to avoid the parent company from manipulating the overall rate of <br />return. Costs expressly prohibited from recovery through the RRM include first class air -fare, <br />travel, meals or entertainment for employee's spouse, alcohol, sports events, entertainment, arts <br />and cultural events, sponsorship of sports, arts or cultural events, and social club membership <br />dues. <br />Purpose of the Ordinance: <br />The purpose of the Ordinance is to approve rate tariffs (Attachment A) that reflect the <br />negotiated rate change pursuant to the RRM process. The Ordinance also approves the <br />Company's proof of revenues (Attachment B), a required part of the RRM filing. <br />As a result of the negotiations, ACSC was able to reduce the Company's requested $33.5 <br />million RRM increase by more than 35 percent. Approval of the Ordinance will result in rates <br />that implement a $20 million increase in Atmos' revenues effective October 1, 2008. <br />Atmos RRM Ordinance Staff Report <br />