06-C Denying Atmos request for GRIP rate increase
AGENDA INFORMATION SHEET
PURPOSE: Atmos Mid-Tex filed its third surcharge request under the Gas Reliability
Infrastructure Program ("GRIP") statute, seeking to add additional surcharges on top of the 2003
and 2004 GRIP surcharges already approved by the Railroad Commission. The 2005 surcharges
are $0.51 on all residential customers, $1.75 for commercial customers, and $78.47 for industrial
customers. If this third surcharge were to be approved, the total amount of surcharges resulting from
the GRIP statute would be $1.09/month for residential customers, $3.68/month for commercial
customers, and $151.96/month for industrial customers. The ordinance denies the 2005 surcharge
request on the grounds that it does not comply with the law and is not reasonable, and also because
it is duplicative of the Company's Statement of Intent filing for the same period of time.
BACKGROUND: GRIP is piecemeal rate-making and would be illegal under traditional rate-
making in the public interest. Atmos persuaded the legislature in 2003 to make an exception to the
prohibition against piecemeal rate-making to encourage increased investment in distribution pipe
by allowing prompt recovery despite the possibility that increased revenues and declining costs
would more than offset increased investment.
OBSERVATION: The following problems have been identified in this filing: (i) the capital
structure and component costs used by Atmos do not represent Atmos Energy's costs, but are
proxies based on TXU Gas' circumstances; (ii) the rate base amounts used show enormous and
unexplained increases over the amounts in both 2003 and 2004 that are not shown to be reasonable;
and (iii) the Statement ofIntent filed today with the Commission and the Cities also includes Atmos'
2005 investment, making the 2005 GRIP filing unnecessary and creating the potential for double-
counting and double-recovery for this investment.
Once the GRIP surcharge is in place, it is updated annually until the next general rate case;
however, that next case can be delayed by the Company for more than five years. On May 31,2006,
the Company filed a Statement ofIntent to increase its rates with the Railroad Commission and the
Cities. The test year used for that filing is the calendar year ending December 31, 2005, which is
the same period of time covered by this latest GRIP filing. Thus, the capital investment made by
Atmos during 2005 is the subject oftwo proceedings - this GRIP filing and the Statement ofIntent.
Because the 2005 capital investment will be reviewed in the Statement of Intent filing, the GRIP
filing for 2005 is superfluous, duplicative, and unnecessary.
Explanation of "Be It Resolved" Para~raphs:
2. This paragraph sets out the finding that the Company's request is unreasonable,
duplicative, and unnecessary.
3. This paragraph authorizes participation in a Steering Committee and coordinated
control over legal counsel and consultants.
4. This paragraph notifies the Company that the City expects reimbursement of its
expenses associated with its review of the filing.
r"
5. This paragraph authorizes the City to intervene in the Company's appeal of the
ordinance to the Railroad Commission and in any related litigation.
6. This paragraph provides for an immediate effective date.
7. This paragraph cites conformance with the Open Meetings Act.
8. 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.
RECOMMENDED ACTION: That the ordinance be passed and approved.
STAFF CONTACT: Tony Williams, City Manager and Gene Anderson, Director of Finance.
COUNCIL DATE: To be considered at regular City Council Meeting on Monday, June 12,2006.
r"
DRAFT
F:ATTORNEY\ORDWORK\CURREN1\ A TMOS - Model Ordinance Denying GRIP
June 1, 2006
ORDINANCE NO.
AN ORDINANCE OF THE CITY COUNCIL OF THE CITY OF PARIS,
TEXAS, DENYING THE REQUEST OF ATMOS ENERGY CORP., MID-TEX
DIVISION, FOR AN ANNUAL GAS RELIABILITY INFRASTRUCTURE
PROGRAM (GRIP) RATE INCREASE IN THIS MUNICIPALITY, AS A
PART OF THE COMPANY'S STATEWIDE GAS UTILITY DISTRIBUTION
SYSTEM; APPROVING COOPERATION WITH OTHER CITIES WITHIN
THE ATMOS ENERGY CORP., MID-TEX DIVISION DISTRIBUTION
SYSTEM AS PART OF THE ATMOS CITIES STEERING COMMITTEE
(ACSC); AUTHORIZING ACSC TO HIRE LEGAL AND CONSULTING
SERVICES AND TO NEGOTIATE WITH THE COMPANY AND DIRECT
ANY NECESSARY LITIGATION; AUTHORIZING INTERVENTION AS
PART OF ACSC IN ANY APPEAL OF THE CITY'S ACTION TO THE
RAILROAD COMMISSION; PROVIDING A REQUIREMENT FOR A
PROMPT REIMBURSEMENT OF COSTS INCURRED BY THE CITY;
FINDING THAT THE MEETING AT WHICH THIS ORDINANCE IS
PASSED IS OPEN TO THE PUBLIC AS REQUIRED BY LAW; AND
PROVIDING FOR NOTICE OF THIS ORDINANCE TO ATMOS ENERGY
CORP., MID-TEX DIVISION; MAKING OTHER FINDINGS AND
PROVISIONS RELATED TO THE SUBJECT; AND PROVIDING FOR AN
EFFECTIVE DATE.
WHEREAS, on or about March 30, 2006, Atmos Energy Corp., Mid- Tex Division, (the
"Company") filed with the City a request for an annual gas reliability infrastructure program
("GRIP") rate increase for customers on the Company's statewide gas utility system to be effective
May 30, 2006; and
WHEREAS, the City has exclusive original jurisdiction to evaluate the Company's request
as it pertains to the distribution facilities located within the City, pursuant to Texas Utilities Code
SS 102.001 (b) and 103.001; and
WHEREAS, it is reasonable for the City to cooperate with other cities in a coalition of cities
in opposition to the Company's filing at the Railroad Commission ("Commission"), said coalition
being known as Atmos Cities Steering Committee ("ACSC"), in any appeal of the cities' actions to
the Commission; and
WHEREAS, the Gas Utility Regulatory Act ("GURA") grants local regulatory authorities
the right to intervene in rate proceedings filed at the Railroad Commission; and
WHEREAS, the Texas Utilities Code S 103.022 provides that costs incurred by the City in
rate-making activities are to be reimbursed by the regulated utility; and
WHEREAS, counsel for ACSC, upon review ofthe Company's filing and upon consultation
with various consultants, recommends finding that the Company's proposal is unjustified and
unreasonable; and
WHEREAS, the Company has publicly stated that it will receive substantial profit in 2005
and that its expenses are substantially below those on which the GUD No. 9400 rates it is charging
were based; and
WHEREAS, the Company's GRIP request fails to account for growth in numbers of
customers, thereby undercounting the revenues it will receive from its proposed GRIP rate increase;
and
WHEREAS, the Company's GRIP request fails to recognize that GUD No. 9400 rates
included profit based on TXU Corporation's capital structure rather than Atmos Energy Corp.'s
current capital structure, which justifies a lower rate of return; and
WHEREAS, under the provisions of 9 104.301 of GURA, the interim rate adjustment is
subject to true-up in a general rate case filed within five years of the effective date of the interim rate
surcharge; and
WHEREAS, the Company has, on May 31, 2006, filed a Statement ofIntent to increase its
distribution rates on a system-wide basis, using calendar year ending December 31,2005, as its test
year; and
WHEREAS, the capital investment made by Atmos during 2005 will be reviewed in the
Statement ofIntent filing, making the 2005 GRIP filing superfluous, duplicative, and unnecessary;
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's GRIP rate increase request is found to be unreasonable,
superfluous, duplicative, and unnecessary, and is therefore denied in all respects.
Section 3. That the City is authorized to cooperate with other Cities within the Company's
Distribution System that have formed ACSC to hire and direct legal counsel and consultants,
negotiate with the Company, make recommendations to the City regarding reasonable rates, and to
direct any necessary litigation associated with an appeal of a rate ordinance and the rate case filed
at the Commission.
Section 4. That the costs incurred by the City in reviewing the Company's GRIP request
shall be promptly reimbursed by the Company.
Section 5. That the City is authorized to intervene in any appeal of the City's action filed
at the Commission and any related litigation, and to participate in any such appeal or litigation as
a member of ACSC.
Section 6. This Ordinance shall become effective immediately from and after its passage,
as the law and charter in such cases provide.
Section 7. 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.
Section 8. That a copy of this ordinance, constituting final action on the Company's
application, be forwarded to the following:
Richard T. Reis
Atmos Energy Corporation
5420 LBJ Freeway, Suite 1800
Dallas, Texas 75240
Lloyd Gosselink Blevins Rochelle & Townsend
c/o Geoffrey Gay
P.O. Box 1725
Austin, Texas 78767-1725.
Section 9. That this ordinance shall become effective from and after its date of passage.
DUL Y PASSED and APPROVED by the City Council of the City of Paris, Paris, Texas,
on this the 12th day of June, 2006.
Richard Manning, Mayor
ATTEST:
Janice Ellis, City Clerk
APPROVED AS TO FORM:
John D. Lestock, Assistant City Attorney