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<br />A TMOS RESOLUTIONS <br /> <br />The two gas utility matters before you today deal with two different components of a <br />typical customer bill. The gas bill customers receive has two general categories of charges: the <br />cost of gas used; and the cost of service for getting the gas to the customer. The resolution <br />related to Gas Utilities Docket No. 9530 (Gas Cost Prudence Review) deals with the cost of <br />gas component of the bill. The cost of gas is not set in advance, but rather is subject to market <br />conditions. The utility, however, is charged with the responsibility of making reasonable and <br />prudent purchases based on those market conditions. The utility is not allowed to add any mark- <br />up or profit to the cost of gas actually paid by the utility, and the utility's purchases may be <br />examined periodically to determine whether only reasonable costs have been passed on to <br />consumers. Since 1997, TXU Gas (now Atmos Mid-Tex) has been required by the Railroad <br />Commission to submit proof every three years that its purchasing practices have been prudent <br />and that only reasonable costs have been charged to customers. GUD No. 9530 is the filing <br />covering TXU's gas purchases for 2001 through 2003. If the Commission determines that <br />unreasonable costs have been charged to customers during those years, refunds may be ordered <br />that would affect every customer of the utility. Without the cities' intervention, the utility's <br />purchase practices may not be properly examined. <br /> <br />The second resolution deals with Atmos' notice of intent to implement a new type of rate <br />increase, called a GRIP increase, that applies to the second component of a gas bill, the cost of <br />service charge. The cost of service is the component of the bill that is set in advance by the cities <br />or the Railroad Commission. The rates Atmos is currently charging were approved by the <br />Railroad Commission over the cities' objection just seven months ago (May 2004) and gave <br />Atmos an $11.5 million annual revenue increase over what previous rates were producing. Now <br />Atmos is using the newly enacted GRIP statute in an effort to increase its annual revenues by <br />another 8.5 million. <br /> <br />Cost of service rates are designed to recover the utility's operating costs (operation and <br />maintenance, general and administrative, taxes, etc.) and also include the utility's approved <br />profits (return) on its investment in the system. With this GRIP filing, Atmos is attempting to <br />increase the profit component of its cost of service rates due to claimed increases in capital <br />investment in its utility system in calendar year 2003, substantially above 2002 investment <br />levels. The unique aspect of the GRIP procedure is that the Company is not required to include <br />information in its filing as to whether its other operating costs have decreased, thereby resulting <br />in profits above what were allowed to be included in its currently authorized rates. Atmos' <br />current rates are designed to recover $98 million in annual profits. Atmos has stated publicly <br />that its operating costs for 2005 will be as much as $45 million less than TXU's for operating the <br />same system, resulting in additional profits in that amount. If so, Atmos should not be allowed <br />to impose another $8.5 million rate increase on customers, but Atmos should be required to <br />reduce its rates to avoid over-earning. Atmos has also stated that it plans to file for another <br />GRIP increase in April of this year. Under the GRIP statute, unless the cities intervene, Atmos <br />can continue to impose these increases without disclosing its full cost information for five and <br />one-half years after its fIrst GRIP increase. The cities' only remedy is to suspend <br />implementation of the GRIP increase and require the utility to disclose sufficient information to <br />determine whether another rate increase so soon after the May 2004 increase is justified. This <br />second resolution suspends the planned implementation of the GRIP increase. <br />