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05-A Atmos Energy Rate Ord AGENDA INFORMATION SHEET PROJECT: Ordinance finding that the existing natural gas distribution rates of Atmos Mid- Tex should be reduced, ordering Atmos Energy Corp., Mid-Tex Division, to reduce its existing rates within the City, adopting specific new rates R, T & C and ordering all rates, service charges, and tarifflanguage not inconsistent with Attachment 1 to the ordinance to remain operative except that all GRIP surcharges shall immediately cease. BACKGROUND: Late in 2005, seventy-six Texas cities served by Atmos Mid- Tex determined that Atmos should be required to establish the reasonableness of its current rates. The "show cause" resolutions required Atmos to file by December 31, 2005, support for its current rates. Atmos filed schedules with the cities, which have been reviewed by the cities' consultants. In addition, the cities' consultants requested additional information from Atmos. As a result of their analysis of the filing and the additional information, the cities' consultants have issued a report finding that Atmos' current rates are excessive and should be reduced. RECOMMENDED ACTION: Overview of Consultants' Report: 1. Rate of Return. Atmos' filing used the same rate of return approved in GUD No. 9400, based upon the capital structure and component costs ofTXU Gas. Atmos' filing does not reflect the change in ownership; Atmos' capital structure is markedly different from TXU Gas, and the rate of return should be adjusted. 2. Rate Base. Atmos has allocated plant assets to Mid- T ex that did not come from TXU when Atmos purchased the system, and that may already be included in the rates of customers served by other Atmos operating units. Additionally, Atmos has failed to recognize the accumulated deferred income taxes and investment tax credits that were on the books of TXU when the assets were acquired, resulting in a loss by ratepayers of the benefits of the deferrals. As a result, Atmos' rate base should be reduced by $185 million. 3. Depreciation Expense. A service unit was removed from rate base, but Atmos has not reduced its depreciation expense associated with this removal. As a result, Atmos' depreciation expense should be reduced by $3.1 million. 4. Operating Expenses. Atmos has improperly adjusted its operation and maintenance expenses, resulting in a reduction of$35.8 million to these expenses. 5. Service Charge Revenue. Atmos has not included service charge revenues to reduce its revenue requirements. These revenues need to be accounted for, and reduce Atmos' base rate revenue requirements by $927,576. As a result of these adjustments, Atmos' revenue requirement should be reduced by $73.5 million from that reflected in its show cause filing, and by $34.7 million below the revenue requirement approved in GUD No. 9400. The rates recommended by the cities' consultants are a reduction from both the montWy customer charge and the commodity rate established in GUD No. 9400. DESCRIPTION: Explanation of "Be It Ordained" Paraeraphs: 1. A public hearing on the proposed rate ordinance was held on April 24, 2006. At that time, Atmos and interested members ofthe public were given the opportunity to address the Council on the proposed rate ordinance. 2. Atmos' filing and its responses to requests for additional information, as analyzed by the cities' consultants, failed to show that its existing rates were just or reasonable, thus triggering the need for the City to take action to ensure that the regulated utility's rates are just and reasonable. 3. The rates in Attachment "A" are those rates recommended by the Cities' consultants that will meet the requirements of the Gas Utility Regulatory Act ("GURA"). That is, the rates will produce revenues for Atmos that will permit Atmos a reasonable opportunity to earn a reasonable return on its invested capital, but will not yield more than a fair return. 4. The rates ordered by the City will be effective immediately. GRIP surcharges will cease immediately. The GRIP statute contemplates that the investment associated with such surcharges will be reviewed for reasonableness and prudence in subsequent rate cases, and the surcharges will cease thereafter. 5. It is expected that Atmos will appeal the rate ordinance to the Railroad Commission. The City will intervene in that appeal in conjunction with the Atmos Cities Steering Committee. A full hearing on the merits of Atmos' appeal will be held at the Commission. It is expected that the hearing will take place later this year. 6. GURA requires the utility to reimburse the City for its reasonable costs associated with the City's activities related to the show cause proceeding. STAFF CONTACT: Director of Finance Gene Anderson and City manager Tony Williams COUNCIL DATE: To be considered at City Council Regular Meeting on Monday, April 24, 2006. DRAFT F:attorney\ordwork\currentlAtmos Rate Ordinance April 5, 2006 ORDINANCE NO. AN ORDINANCE FINDING THAT THE EXISTING NATURAL GAS DISTRIBUTION RATES OF ATMOS MID-TEX SHOULD BE REDUCED; ORDERING ATMOS ENERGY CORP., MID-TEX DIVISION, TO REDUCE ITS EXISTING RATES WITHIN THE CITY; ADOPTING SPECIFIC NEW RATES R, T & C AND ORDERING ALL RATES, SERVICE CHARGES AND TARIFF LANGUAGE NOT INCONSISTENT WITH ATTACHMENT 1 TO REMAIN OPERATIVE EXCEPT THAT ALL GRIP SURCHARGES SHALL IMMEDIATELY CEASE; ORDERING ATMOS MID-TEX TO REIMBURSE THE CITY FOR ITS REASONABLE COSTS INCURRED IN THIS SHOW CAUSE AND ANY RELATED RATEMAKING PROCEEDINGS OR APPEALS OF SAID PROCEEDINGS; AUTHORIZING THE ATMOS CITIES STEERING COMMITTEE TO ACT ON BEHALF OF CITY AND INTERVENE IN ANY PROCEEDINGS BEFORE ADMINISTRATIVE OR JUDICIAL BODIES; REQUIRING DELIVERY OF THIS RESOLUTION TO THE COMPANY AND LEGAL COUNSEL; AND ORDAINING OTHER PROVISIONS RELATED TO THE SUBJECT MATTER HEREOF. WHEREAS, the City of Paris, Texas (City) is a regulatory authority under the Gas Utility Regulatory Act ("GURA") and has original jurisdiction over the gas utility rates of Atmos Energy Corp., Mid- Tex Division (the "Company"); and WHEREAS, the City has the authority under SS 103.001 and 104.151, GURA, to initiate a proceeding to determine whether the existing rates of a gas utility are unreasonable or in any way in violation of any provision of law; and WHEREAS, the City previously authorized participation with the Atmos Cities Steering Committee (ACSC); and WHEREAS, on October 24, 2005, the City ordered the Company to show cause regarding the reasonableness of its existing natural gas distribution rates within the City; and WHEREAS, the Company filed its rate filing package with the City on or about December 31,2005; and WHEREAS, the City's representatives obtained additional information from the Company through written requests for information; and WHEREAS, the City's consultants and representatives through cooperative efforts under the direction of the ACSC have reviewed the rate filing package and responses to information 1668\14\Rate Ord\ord060330kpd Rate Ord requests and have made a recommendation to the City regarding the rates to be charged by the Company within the City; and WHEREAS, on April 24, 2006, a public hearing was held, at which time the Company was given an opportunity to address the City Council regarding its current rates; and WHEREAS, GURA ~ 104.151(a) provides that if a regulatory authority, on its own motion or on complaint by an affected person, after reasonable notice and hearing, finds that the existing rates of a gas utility for a service are unreasonable or in violation of law, the regulatory authority shall enter an order establishing the just and reasonable rates to be observed thereafter, and serve a copy of the order on the gas utility; and WHEREAS, GURA ~ 104.151(b) provides that the rates thus ordered by the regulatory authority constitute the legal rates of the gas utility until changed as provided by GURA; and WHEREAS, after affording reasonable notice and hearing to the Company, it is the City's opinion that the Company's current rates are not reasonable; and WHEREAS, based upon such hearing, the briefing of staff, and the consultants' findings, the City has made a determination of the reasonableness of the existing rates of the Company, and has determined just and reasonable rates to be hereafter observed and enforced for all services of the Company within the City; NOW, THEREFORE, BE IT ORDAINED BY THE CITY COUNCIL OF THE CITY OF PARIS, PARIS, TEXAS: Section 1. That the findings set out in the preamble to this ordinance are hereby in all things approved. Section 2. That the Company was given reasonable notice of the hearing held on April 24, 2006, and the Company had a reasonable opportunity to show to the City that its rates were just and reasonable. Section 3. reasonable. That the Company failed to show that its existing rates are just or Section 4. That the rates set forth on Attachment "A" to this Ordinance, which attachment shall be incorporated herein as if it were fully set forth herein, are just and reasonable rates: a. The rates set forth in Attachment "A" establish the Company's overall revenues at an amount that will permit the Company a reasonable opportunity to earn a reasonable return on its invested capital used and useful in providing service to the public in excess of the Company's reasonable and necessary operating expenses, in compliance with GURA ~ 104.051; and 1668\14\Rate Ord\ord060330kpd Rate Ord 2 b. The rates set forth in Attachment "A" do not yield more than a fair return on the adjusted value of invested capital used and useful in providing service to the public, in compliance with GURA S 104.052. Section 5. That the Company shall immediately begin charging the rates set forth on Attachment "A" hereto, and shall, pursuant to GURA S 104.301, immediately cease the imposition and collection of all Gas Reliability Infrastructure Program ("GRIP") surcharges. Section 6. That the existing rates, service charges and tariff language not inconsistent with Section 4 and Attachment A shall remain operative. Section 7. That the City is authorized to intervene in any appeal of the City's action filed at the Railroad Commission of Texas and to otherwise participate in any litigation associated with the Company's rates charged in the City, in conjunction with the ACSC. Section 8. That the Company shall promptly reimburse ACSC for ratemaking costs associated with the City's activities related to the show cause proceeding, including appeals to the Railroad Commission or Courts, in accordance with GURA ~103.022. Section 9. That a copy of this Ordinance shall be sent to the Company, care of Richard T. Reis, at Atmos Energy Corporation, 5420 LBJ Freeway, Suite 1800, Dallas, Texas 75240, and to Geoffrey Gay, legal counsel to ACSC, at Lloyd Gosselink, P.O. Box 1725, Austin, Texas 78767-1725. Section 10. That this Ordinance shall become effective immediately from and after its passage, as the law and charter in such cases provide. Section 11. That it is hereby officially found and determined that the meeting at which this Ordinance is passed is open to the public as required by law and that public notice of the time, place and purpose of said meeting was given as required. DULY PASSED and approved by the City Council of the City of Paris, Texas, on this the 24th day of April, 2006. Curtis Fendley, Mayor ATTEST: Janice Ellis, City Clerk APPROVED AS TO FORM: John D. Lestock, Assistant City Attorney 1668\14\Rate Ord\ord060330kpd Rate Ord 3 Attachment A Atmos Energy Corp., Mid-Tex Division Ordered Rates Ordered Line No. Rate R - Summary Rates 1 Customer Charge $ 7.50 2 3 Block 1 Commodity Rate (0-3 Met) $ 1.1915 per Met 4 Block 2 Commodity Rate (over 3 Met) 0.9415 per Met 5 6 Average Monthly Bill (6 Met without Gas Cost) $ 14.72 per Month 7 8 Average Monthly Bill (6 Met with Gas Cost) $ 34.75 per Month 9 10 11 Ordered 12 Rate C - Summary Rates 13 14 Customer Charge $ 12.50 15 16 Block 1 Commodity Rate (0-30 Met) $ 0.7417 per Met 17 Block 2 Commodity Rate (30-350 Met) $ 0.4917 per Met 18 Block 3 Commodity Rate (Over 350 Met) $ 0.2417 per Met 19 20 Average Monthly Bill (30 Met without Gas Cost) $ 36.76 per Month 21 22 Average Monthly Bill (30 Met with Gas Cost) $ 136.78 per Month 23 24 25 Ordered 26 Rate T - Summary Rates 27 28 Customer Charge $ 300.00 29 30 Block 1 Commodity Rate (0-1,500 MMBtu) $ 0.4977 per MMBtu 31 Block 2 Commodity Rate (Next 3,500 MMBtu) $ 0.3477 per MMBtu 32 Block 3 Commodity Rate (Next 45,000 MMBtu) $ 0.1977 per MMBtu 33 Block 4 Commodity Rate (Over 50,000 MMBtu) $ 0.0477 per MMBtu 34 35 Average Monthly Bill (300 MMBtu without gas cost) $ 475.07 per Month 36 37 Average Monthly Bill (300 MMBtu with gas cost) $ 1,474.93 per Month 1668\14\Rate Ord\ord060330kpd Rate Ord 4