06-A Denying request by Atmos under GRIP filing
[8JAction
CITY OF PARIS, TEXAS
CITY COUNCIL AGENDA REQUEST
MEETING DATE: I August 27,2007
D Discussion Dlnformation DRefer to:
SUBMITTED BY:
I Gene Anderson, Finance Director
DESCRIPTION:
This resolution denies the request by Atmos Mid-Tex made under its fourth GRIP
filing on May 31,2007. It also indicates the City's support for statutory changes to
the Texas GRIP statute to ensure fairness for ratepayers and to eliminate
piecemeal ratemaking for any change in invested capital.
BACKGROUND INFORMATION:
GRIP is piecemeal ratemaking and would be illegal under traditional ratemaking
that is in the public interest. In 2003 the legislature made an exception to the
prohibition against piecemeal ratemaking to encourage increased investment in
transmission and distribution pipe by allowing prompt recovery of investment.
despite the possibility that increased revenues and declining expenses could more
than offset increased investment. Unfortunately. GRIP filings have included costs
unrelated to infrastructure improvements. Pursuant to its statutory authority. the
City suspended the effective date of this surcharge in order to evaluate the filing.
determine whether the filing complies with the law. and if unlawful, to determine
what course to pursue. The Atmos Cities Steering Committee's rate consultant has
identified approximately $3.4 million in expenses included in the GRIP surcharge
request that are inconsistent with the statute and/or the Railroad Commission's
order in GUD 9670 (the rate case initiated by ACSC that revealed inappropriate
expenditures in previous GRIP surcharges). Atmos has recently received a rate
increase of $5 million and should be collecting sufficient revenues to earn its
allowed return without the necessity of a surcharge to recover incremental costs.
LEGAL REVIEW:
I~
MANAGER'S RECOMMENDATION:
;2e~
Draft
f:allomeylresworklcurrentlA TMOS Denial Res 2007
August 22, 2007
RESOLUTION NO.
A RESOLUTION OF THE CITY OF PARIS, TEXAS, DENYING THE
REQUEST OF A TMOS 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;
SUPPORTING STATUTORY REFORM OF THE TEXAS GRIP
STATUTE, FINDING THAT THE MEETING AT WHICH THIS
RESOLUTION IS PASSED IS OPEN TO THE PUBLIC; AND.
PROVIDING FOR NOTICE OF THIS RESOLUTION TO ATMOS
ENERGY CORP., MID- TEX DIVISION AND THE CITY'S LEGISLATIVE
DELEGATION.
WHEREAS, the City of Paris, Texas ("City") is a gas utility customer of Atmos Energy
Corp., Mid- Tex Division ("Atmos Mid- Tex" or "the Company"), and a regulatory authority with
an interest in the rates and charges of Atmos Mid- Tex; and,
WHEREAS, Atmos Mid-Tex made filings with the City and the Railroad Commission
of Texas ("Railroad Commission") on or about May 31, 2007, proposing to implement interim
rate adjustments ("GRIP rate increases"), pursuant to Texas Utilities Code S 104.301, on all
customers served by Atmos Mid- Tex, effective July 30, 2007; and,
WHEREAS, the Gas Reliability Infrastructure Program (GRIP) statute approved in the
2003 Regular Session of the 78th Legislature changes 100 years of Texas law and allows a
natural gas utility to implement annual surcharges for increases in investment without having to
account for the offsetting decreases in costs or increases in revenue experienced by the utility;
and,
WHEREAS, Texas is the only state out of the twelve states served by Atmos that has a
GRIP statute that allows for piecemeal recovery for any change to invested capital; and
WHEREAS, Atmos has implemented four GRIP surcharges and collected more than $20
million in GRIP surcharges from customers since the utility acquired the TXU Gas system in
2004;
WHEREAS, the City supports the statutory reform of the GRIP statute to ensure fairness
to ratepayers and to eliminate piecemeal recovery for any change to invested capital; and,
WHEREAS, Atmos Mid- Tex was recently granted a rate increase as a result of its filing
in GUD No. 9670, in which the Final Order was only signed on March 29, 2007; and,
WHEREAS, in GUD No. 9670, it was determined that Atmos Mid- Tex had
inappropriately included certain expenditures in its prior GRIP rate increases for rate years 2003,
2004, and 2005; and,
WHEREAS, the City, as a regulatory authority, suspended the July 30, 2007, effective
date to examine this latest GRIP filing to determine its compliance with the Texas Utilities Code
and Railroad Commission final order in the most recent Atmos Mid- Tex rate case; and,
WHEREAS, the City has joined with other cities to review the Company's filing, said
coalition being known as Atmos Cities Steering Committee ("ACSC"); and,
WHEREAS, the consultant hired by Steering Committee has reviewed the GRIP
surcharge application and has issued a final report finding that the Company has included
millions of dollars of expenses in the current GRIP surcharge that are inconsistent with the Texas
Utilities Code and Railroad Commission final order in the most recent Atmos Mid- Tex rate case
and not related to ensuring the safety and reliability of the system; and,
WHEREAS, counsel for the Steering Committee, upon review of the Company's filing
and the consultant's report, recommends finding that the Company's proposal is unjustified and
unreasonable; and,
WHEREAS, ratepayers of Atmos Mid- Tex, including the City and its residents, will be
adversely impacted by the proposed GRIP rate increases.
- NOW, THEREFORE, BE IT RESOLVED BY THE CITY COUNCIL OF THE
CITY OF PARIS, TEXAS:
Section 1.
things approved.
That the findings set out in the preamble to this resolution are hereby in all
- Section 2. That the Company's GRIP rate increase request is found to be
unreasonable and inconsistent with the Texas Utilities Code and Railroad Commission final
order in GUD 9670, Atmos Mid- Tex most recent rate case, and is therefore denied in all
respects.
Section 3. This Resolution shall become effective immediately from and after its
passage, as the law and charter in such cases provide.
Section 4. That the City hereby advocates statutory reform of the Texas GRIP statute
to ensure fairness to ratepayers and to eliminate piecemeal recovery for any change to invested
recovery.
Section 5. That the City calls upon its state representatives and senator to support
legislation in the 81 sl Regular Session of the Texas Legislature that would reform the Texas
GRIP statute to ensure fairness for ratepayers and eliminate piecemeal recovery for any changes
to invested capital.
Section 6. That it is hereby officially found and determined that the meeting at which
this Resolution 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 7. A copy of this Resolution, constituting final action on the Company's
application, be forwarded to the following:
Charles R. Yarbrough, II
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 8. A copy of the resolution shall be sent to the elected lawmakers
representing the City's interests in the Texas House and Senate.
DUL Y PASSED and approved by the City Council of the City of Paris, Texas, on this
the 27th day of August, 2007.
Jesse James Freelen, Mayor
ATTEST:
Janice Ellis, City Clerk
APPROVED AS TO FORM:
W. Kent McIlyar, City Attorney
STAFF REPORT
ON ATMOS MID-TEX GRIP DENIAL RESOLUTION
Purpose of the Resolution:
Atmos Mid- Tex filed its fourth surcharge request under the Gas Reliability Infrastructure
Program ("GRIP") statute, seeking to implement monthly surcharges of $0.59 (average residential
customers), $1.47 (average commercial customers), and $28.74 for industrial customers. The
resolution denies Atmos Mid- Tex's 2006 surcharge request on the grounds that it does not comply
with the law and is not reasonable. The resolution also indicates the City's support for statutory
changes to the Texas GRIP statute to ensure fairness for ratepayers and to eliminate piecemeal
rate making for any change in invested capital.
What is GRIP?
GRIP is piecemeal ratemaking and would be illegal under traditional ratemaking that is in the
public interest. Atmos, TXU Gas, and other gas utilities persuaded the legislature in 2003 to make an
exception to the prohibition against piecemeal ratemaking to encourage increased investment in
transmission and distribution pipe by allowing prompt recovery of investment, despite the possibility
that increased revenues and declining expenses could more than offset increased investment.
Unfortunately, utilities have used the GRIP filings to include other costs unrelated to infrastructure
improvements. GRIP surcharges are reconciled in a general rate case that the utility may not file for
another five years.
Did the Leeislature Address the GRIP Statute in the Recent Leeislative Session?
The GRIP statute violates fundamental standards of regulatory ratemaking because it
eliminates a basic aspect of fairness for ratepayers that has been part of the ratemaking process for
decades. During the most recent legislative session, the Senate Business and Commerce Committee
unanimously approved a bill that would have repealed the GRIP statute, largely in response to the
abuses of the GRIP surcharge by Atmos Mid-Tex. However, by the end of the session, the gas utility
lobby was successful in killing meaningful reform and the legislation died.
It is important to start building support for legislative reform of the GRIP statute now. Issues
regarding utility ratemaking and GRIP surcharges are very technical and can be difficult to
effectively communicate during the heat of a legislative session. Cities can build on the effective
information campaign that started in the recent session that recently concluded and prepare for the
next session by communicating with the legislators about this GRIP filing. The Executive
Committee has recommended that ACSC members adopt a resolution supporting legislative changes
to protect natural gas ratepayers and opposing GRIP surcharges. This denial resolution includes that
information and will be forwarded to the City's legislative delegation.
Page I
Observations on the Filin~
Pursuant to its statutory authority, the City suspended the effective date of the Company's
surcharge request to evaluate the filing, determine whether the filing complies with law, and if
unlawful, to determine what further strategy to pursue. Review of the Company's surcharge request
is particularly important given that the City, as part of the Atmos Cities Steering Committee, initiated
a rate case (GUD No. 9670) in which the Railroad Commission determined that Atmos had included
inappropriate expenditures in its previous GRIP surcharges for rate years 2003, 2004, and 2005. But
for the investigation by the Cities, through ACSC, the impropriety of these expenditures and of their
inclusion in the GRIP surcharges, would not have been exposed, and the refund of $2.5 million
would not have been ordered.
ACSC's rate consultant, Karl Nalepa, has identified approximately $3.4 million in expenses
included in the 2006 GRIP surcharge request that are inconsistent with the statute and/or the Railroad
Commission's order in GUD 9670. For example, the Company's surcharge request is based in part
on inappropriate expenses related to furniture and office fixtures. The Commission excluded
furniture expenses from the Atmos Mid- Tex GRIP surcharge in GUD 9670. The Company
acknowledges this and has removed some of the furniture and fixture expense from the current filing.
The filing offers no explanation why any furniture or fixture expense remains part of the GRIP
surcharge. In addition, Mr. Nalepa has also identified expenses included in this surcharge request
that occurred prior to 2006, and are thus ineligible for inclusion in the 2006 GRIP surcharge. Finally,
Atmos Mid- Tex has just received a rate increase of approximately $5 million and should be
collecting sufficient revenues to earn its allowed return without the necessity for a surcharge to
recover incremental investment.
NOTE: IT IS CRITICAL THAT ALL CITIES PASS THE RESOLUTION TO DENY ON OR
BEFORE SEPTEMBER 13, 2007.
Explanation of "Be It Resolved" Para~raphs:
1. This paragraph sets out the finding that the Company's request is unreasonable, and
inconsistent with Railroad Commission precedent and the statute.
2. This paragraph provides for an immediate effective date.
3. This paragraph states the City's support for legislative reform of the GRIP statute to
ensure fairness to ratepayers and to eliminate piecemeal recovery for any change in invested capital.
4. The paragraph requests the City's legislative delegation to support legislation in the
8Pt Regular Session of the Texas Legislature that would reform the GRIP statute to ensure fairness
for ratepayers and eliminate piecemeal recovery for any change to invested capital.
5. This paragraph cites conformance with the Open Meetings Act.
6. 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.
Page 2
CITY SUSPENSION RESOLUTIONS
Suspending Atmos' System-Wide Rate Increase
(GRIP 4)
1. Abilene
2. Addison
3. Allen
4. Alvarado
5. ~gus
6. Arlington
7. Bedford
8. Bellmead
9. Benbrook
10. Blue Ridge
11. Bowie
12. Boyd
13. Bridgeport
14. Brownwood
15. Burkburnett
16. Burleson
17. Carrollton
18. Cedar Hill
19. Celeste
20. Celina
21. Cleburne
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CITY SUSPENSION RESOLUTIONS
Suspending Atmos' System-Wide Rate Increase
(GRIP 4)
22. Clyde
23. College Station
24. Colleyville
25. Colorado City
26. Comanche
27. Coppell
28. Corinth
29. Corral City
30. Crandall
31. Crowley
32. Denison
33. DeSoto
34. Duncanville
35. Eastland
36. Edgecliff Village
37. Emory
38. Ennis
39. Everman
40. Fairview
41. Farmers Branch
42. Farmersville
43. Fate
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CITY SUSPENSION RESOLUTIONS
Suspending Atmos' System-Wide Rate Increase
(GRIP 4)
44. Flower Mound
45. Forest Hill
46. Fort Worth
47. Frisco
48. Frost
49. Gainesville
50. Garland
51. Garrett
52. Grapevine
53. Haltom City
54. Harker Heights
55. Haskell
56. Haslet
57. Heath
58. Hewitt
59. Highland Park
60. Highland Village
61. Honey Grove
62. Hurst
63. Iowa Park
64. Irving
65. Justin
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CITY SUSPENSION RESOLUTIONS
Suspending Atmos' System-Wide Rate Increase
(GRIP 4)
66. Kaufman
67. Keene
68. Keller
69. Kemp
70. Kennedale
71 Kerrville
72. Killeen
73. Krum
74. Lakeside
75. Lake Worth
76. Lancaster
77. Lewisville
78. Lincoln Park
79. Little Elm
80. Malakoff
81. Mansfield
82. McKinney
83. Mesquite
84. Midlothian
85. Murphy
86. Newark
87. Nocona
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CITY SUSPENSION RESOLUTIONS
Suspending Atmos' System-Wide Rate Increase
(GRIP 4)
88. North Richland
Hills
89. N orthlake
90. Ovilla
91. Palestine
92. Pantego
93. Paris
94. Pecan Hill
95. PIano
96. Pottsboro
97. Prosper
98. Red Oak
99. Richardson
100. Robinson
lOt. Rockwall
102. Roscoe
103. Rowlett
104. Sachse
105. Saginaw
106. San Angelo
107. Seagoville
108. Sherman
109. Snyder
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CITY SUSPENSION RESOLUTIONS
Suspending Atmos' System-Wide Rate Increase
(GRIP 4)
110. Southlake
111. Stamford
112. Stephenville
113. Sulphur Springs
114. Sweetwater
115. The Colony
116. Trophy Club
117. Tyler
118. University Park
119. Vernon
120. Waco
121. Watauga
122. Waxahachie
23.W Westlake
124. Whitesboro
125. White Settlement
126. Wichita Falls
127. W oodway
128. Wylie
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August 3, 2007
MEMO TO:
FROM:
SUBJECT:
Geoffrey Gay, Kristen Doyle, Georgia Crump
Karl Nalepa
Atmos Energy Mid Tex 2006 GRIP Review
On May 31,2007, Atmos Energy Mid Tex (Atmos or Company) filed its latest request
for an interim rate adjustment for calendar year 2006 under the Gas Reliability
Infrastructure Program (GRIP). The Company's proposed increase to current customer or
meter charges is summarized in Table 1:
Rate Schedule Charge per Month
Rate R - Residential Sales $0.59
Rate C - Commercial Sales $1.48
Rate I - Industrial Sales $28.90
Rate T - Transportation $28.90
Table 1
RJ Covington Consulting (RJC) has reviewed this GRIP filing and has confirmed that
Atmos has removed certain costs that were disallowed by the Texas Railroad
Commission (RRC) in Atmos' most recent rate proceeding.) However, RJC has identified
several other items which we believe are inappropriate to be recovered from ratepayers
through this interim rate adjustment.
Costs Removed
The costs removed by Atmos in this filing2 consistent with the RRC order in the most
recent rate proceeding are summarized in Table 2:
Adjustment Amount
Remove SSU 2006 Additions for Ancillary $ (107,520)
Equipment (office furniture)
Remove Mid- Tex 2006 Additions for Ancillary (100,317)
Equipment (artwork, office furniture, equipment)
.Adjustment for Changes in SSU Cost Centers (2,764,894)
2006 Overhead Allocations to Mid- Tex
Reduction of Mid- Tex 2006 Capitalized (20,718,589)
Overheads to 13.5%
Remove Direct Expense Account Costs Included (254,511 )
in SSU 2006 Additions (see Table 3 for details)
Remove Direct Expense Account Charges (26,130)
Included in Mid-Tex 2006 Additions (see Table 3)
Remove Expense Account Charges within SSU (219,956)
Overheads Included in Mid- Tex 2006 Additions
(see Table 3)
Remove Expense Account Charges within (235,404)
Business Unit Overheads Included in Mid- Tex
2006 Additions (see Table 3)
Total $ (24427321)
Table 2
1 GUD No. 9670, Order on Rehearing, June 13,2007.
2 Workpaper/Schedule A
August 15,2007
3The amount of capitalized expense removed from the filing, detailed by type ofexpenditure,4 is shown in Table 3:
Meals & Total Mid- Tex
Entertain Misc. Other Personal Travel (Capital Allocate
Lodging Expenses Expenses Vehicle Expense ) d
SSU 243,162 119,196 51,818 11,916 2,134 224,832 653,059 254,511
Direct
Mid-Tex 10,986 9,210 0 2,545 1,095 2,294 26,130 26,130
Direct
SSU 333,567 505,954 395,624 10,967 0 654,093 585,196 219,956
Overhea
d
Mid- Tex 45,445 51,369 13,987 4,551 49,139 70,913 235,404 235,404
Overhea
d
Table 3
Additional Adjustments
While Atmos did remove significant categories of costs disallowed by the Order in GUD
9670, it still included other costs that should be removed. These costs are summarized in
Table 4:
Table 4
Project Number Description Amount
080.19238 Purchase and install $46,638
telecommunication and security
system for the Hillsboro Service
Center
080.19239 Purchase and install $48,267
telecommunication and security
system for the Gainesville
Service Center
080.19806 Purchase furniture for the Boyd $147,382
Facility
010.11055 Purchase computer equipment - $555,187
hardware & software
ADMIN 080 Asset transfer from Atmos $1,964,272
(retirement) Pipeline & Storage to Mid- Tex
Adjustments General Office $140,756
Adjustments Customer Service $493,791
Total $3 396 293
Project 080.19238
31203 - Amarillo Customer Support Center, 1210 - Waco Customer Support Center, 1904 - Dallas
Performance Plan, 1908 - Dallas Supplemental Executive Benefits Plan
4 Response to ACSC 1-5.
2
August 15,2007
According to Atmos' response to ACSC 1-12, this project is actually to purchase
furniture and fixtures for the Hillsboro Service Center. Atmos has removed similar costs
and hasn't shown why these particular costs remain in the filing.
Project 080.19239
According to Atmos' response to ACSC 1-12, this project is actually to purchase
furniture and fixtures for the Gainesville Service Center. Atmos has removed similar
costs and hasn't shown why these particular costs remain in the filing.
Project 080.19806
Atmos has removed similar furniture purchases, and hasn't shown why these particular
costs should remain in the filing.
Project 010.11055
According to Atmos' response to ACSC 1-23, this project relates to the purchase of
computer equipment allocated to Mid Tex. The project was described as items purchased
during the Mid Tex integration. While no invoices were provided, the acquisition of Mid
Tex occurred in October 2004, with the transition occurring through 2005 - at least a year
prior to the 2006 GRIP year. Based on the description of the assets, these purchases were
made prior to the GRIP test year and should be removed.
Project ADMIN 080
This project involves the transfer of existing assets from Atmos Pipeline to Mid-Tex.
First, these plant costs were incurred prior to the GRIP test year, and are therefore
ineligible under the GRIP statute.5 Second, even if the costs should be included, they
represent the cost of retirement. Transferring an asset that is no longer used and useful to
Mid- Tex just so its customers can bear the cost of retirement is not reasonable.
Adjustments to General Office and Customer Service
According to Atmos' responses to ACSC 1-28 and 31, Atmos claims adjustments to
General Office and Customer Service plant in the amounts of$140,756 and $493,791,
respectively, for a total adjustment of $634,547. This adjustment is the result of the
change in the shared services allocations factors between 2005 and 2006. The 2005
factors for General Office and Customer Service were 36.95% and 48.50%, while the
2006 factors were 36.88% and 49.02%. Atmos revised the allocation factors based on
changes in the component factors for 2006.6 This raises the question of whether
allocation factors can be revised under GRIP. All other factors (such as return,
5 TEX UTIL CODE ~104.301 (b).
6 Response to ACSC 1-6.
3
August 15,2007
depreciation, taxes, and class allocations) are fixed until the next full rate proceeding,7 so
it would be reasonable to expect that the factors used to allocate shared services expenses
also be fixed from the last proceeding.
Results
Removing these additional categories of costs results in a reduction to 2006 net plant
investment of $3.4 million. Applying this reduction to the rates as proposed by Atmos
yields the revised charges reflected in Table 5:
Rate Schedule Revised Charge per Month Difference
Rate R - Residential Sales $0.57 $0.02
Rate C - Commercial Sales $1.44 $0.04
Rate I - Industrial Sales $28.07 $0.83
Rate T - Transportation $28.07 $0.83
Table 5
Atmos also proposed a revised methodology to calculate ad valorem taxes based on
actual 2006 tax payments due to the recent changes in property tax law. If this alternative
methodology is adopted, property-related taxes are reduced by $67,368, and the interim
adjustment is reduced by a further $0.01 for commercial customers and $0.16 for
industrial and transportation customers. The adjustment is too small to materially affect
residential customers.
Let me know if you have any questions.
7 TEX UTIL CODE ~ 104.301 (d).
4