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. . LLOYD GOSSELINK BLEVINS ROCHELLE & TOWNSEND, P.C. ATTORNEYS AT LAw 111 CONGRESS AVENUE SUITE 1800 AUSTIN, TEXAS 78701 TELEPHONE (512) 322-5800 TELECOPIER (512) 472-0532 www.lglawfirm.com 711 NORTH CARANCAHUA SUITE 700 CORPUS CHRISTI, TEXAS 78475 TELEPHONE (361) 654-3200 TELECOPIER (361) 654-3203 www.lglawfirm.com MEMORANDUM TO: FROM: DATE: Allied Coalition of Cities/TXU Cities Steering Committee Betsy Todd and Geoffrey Gay December 21, 2004 URGENT: A TMOS 2003 GRIP FILING - SUSPENSION ACTION NEEDED RE: PRIVILEGED LA WYER-CLIENT COMMUNICA TION Representatives from about twenty-five cities met on short notice in Arlington last Thursday to discuss a plan of action in response to the GRIP filings last week by Atmos Energy Corporation, Mid- Tex Division, formerly TXU Gas Company ("Atmos Mid- Tex" or "Atmos"). The filings at all cities served by Atmos Mid- Tex and at the Railroad Commission of Texas ("RRC") were made pursuant to the GRIP legislation that was passed last session (now codified at Texas Utilities Code § 1 04.30 1). The GRIP filings notified cities and the RRC of Atmos' plans to implement two separate GRIP rate increases (distribution and pipeline) over and above the rates approved by the RRC for the company in May of this year in GUD No. 9400. If the GRIP increases planned by Atmos are implemented, the company will recover $8.5 million in annual revenues from this surcharge alone, in addition to the $11.5 million revenue increase allowed in GUD No. 9400. Atmos is also currently seeking recovery of over $10 million in rate case expenses related to GUD No. 9400 and, on Wednesday of last week, the RRC examiners recommended that Atmos be allowed to recover the entire $10.1 million. Atmos has requested that all cities either allow the proposed GRIP increases to take effect on February 15,2005, as proposed, or to deny the request as soon as possible. ATMOS HAS NEGLECTED TO INFORM CITIES OF A THIRD, AND MUCH MORE APPROPRIATE OPTION: SUSPENSION OF THE PROPOSED RATE INCREASES. Denying Atmos' proposal is likely to have the ultimate effect of approving it. Denial would allow Atmos to appeal the city's action to the RRC, which enacted a GRIP procedural rule just last week. Discussions during that rulemaking indicated that the RRC is likely to push these filings through to approval with little, if any, opportunity for review by the cities. It is, therefore, essential that the cities affected by Atmos' GRIP filings take the action we fought for when the GRIP legislation was being considered by the legislature: SUSPENSION of any GRIP proposals to determine if the utility was using the GRIP provisions to earn excessive profits. From everything we know about Atmos' current earnings picture, implementation of the proposed GRIP rate increases will allow substantial over-earning by the utility. To be effective, suspension action must be taken by the cities before February 15, 2005; if possible, please place this item on a council agenda in early to mid-January. Until this resolution is passed, we expect Atmos representatives to apply substantial pressure to get cities to either approve or deny the increases so that the necessary city review can effectively be avoided. Note that the GRIP authorizing legislation does not specify a time period for suspension by Cities and thus the draft resolution we are forwarding with this memo does not include a specific end date for the suspension period. Please note that the GRIP filings are different from the gas cost prudence review docket (RRC GUD No. 9530) that we notified you about several weeks ago. Some of you have already forwarded the intervention resolution for that docket to your councils and we are beginning to receive the approved resolutions. The attached suspension resolution related to the GRIP filings must be passed in addition to 1668\ II \mmoO41220 1