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09-E Atmos Energy Suspension AGENDA INFORMATION SHEET PROJECT: Suspension of Interim Rate Adjustment Proposed by Atmos/TXU Gas. BACKGROUND: . Atmos/TXU Gas made a filing (Distribution GRIP filing) at the City and with other cities served by Atmos/TXU Gas in December, 2004, notifying the cities of its intent to increase its distribution rates to all customers effective February 15, 2005, pursuant to Texas Utilities Code Section 104.301, because of investments Atmos/TXU Gas allegedly made in calendar year 2003. . Atmos/TXU Gas made a filing (Pipeline GRIP filing) at the Railroad Commission of Texas (RRC) on or about December 17, 2004, now docketed as GUD No. 9560, notifying the RRC of its intent to increase its city gate and transportation rates to all customers, also effective February 15, 2005, pursuant to Texas utilities Code Section 104.301, because of investments Atmos/TXU Gas allegedly made in calendar year 2003. . In its filings, Atmos/TXU Gas claims that net investment infrastructure throughout the former TXU service areas increased in 2003 by a total of $43.5 million. If calculated in compliance with the GRIP statute, this claimed increase would be in addition to the $70 million in annual plant investment included in the GUD No. 9400 rates. Atmos/TXU Gas is therefore claiming that investment in plant increased by over sixty percent (60%) during 2003. . The proposed GRIP rate increases would increase annual revenues for Atmos/TXU Gas by $8.5 million. These increases are in addition to the $11.5 million annual increase approved by the RRC in GUD No. 9400, and also in addition to the $10.1 million recovery sought by Atmos/TXU Gas for rate case expenses related to GUD No. 9400. . Atmos/TXU Gas has publicly stated that it expects to experience annual cost savings of at least $40 million over the costs included in rates approved in GUD No. 9400 and said savings are likely to greatly exceed the annual revenue requirement associated with any reasonable increases in invested capital that form the basis of the requested GRIP rate increases. . Atmos Energy Corporation has announced a twenty percent increase in profits for its fiscal year ended September 30, 2004, and projects further increases in profits in 2005. DESCRIPTION: The attached resolution will suspend the implementation of the proposed GRIP rate increases within the City, appoint as the City's representative on a Cities' Steering Committee, authorize intervention in any RRC or court proceedings related to the proposed GRIP rate increases, and require Atmos/TXU Gas to reimburse the City reasonable costs associated with the City's review of the GRIP rate increase filings or participation in any subsequent proceeding. RECOMMENDATION: Approve a resolution suspending an interim rate adjustment (GRIP rate increase) proposed by Atmos Energy Corporation, formerly TXU Gas Company (Atmos/TXU Gas); authorizing participation in a steering committee to review the proposed rate increase and recommend further action related to the proposed rate increase; designating a representative of the City to serve on the steering committee; authorizing intervention in any proceedings related to the proposed rate increase; and requiring reimbursement of reasonable legal and consultant expenses. STAFF CONTACT: City Manager Tony Williams, City Attorney Larry W. Schenk; City Finance Director Gene Anderson. ADDITIONAL MATERIALS: Resolution and other supporting materials are attached. DRAFT F:ALICEIRESWORKICURRENTI ATMOS Suspension Res December 30. 2004 RESOLUTION NO. A RESOLUTION OF THE CITY COUNCIL OF THE CITY OF PARIS, PARIS, TEXAS, SUSPENDING THE PROPOSAL BY ATMOS- ENERGY CORP. TO IMPLEMENT INTERIM GRIP RATE ADJUSTMENTS FOR GAS UTILITY INVESTMENT IN 2003; AUTHORIZING PARTICIPATION WITH OTHER CITIES SERVED BY ATMOS- ENERGY CORP., MID- TEX DIVISION, IN A REVIEW AND INQUIRY INTO THE BASIS AND REASONABLENESS OF THE PROPOSED RATE ADJUSTMENTS; AUTHORIZING INTERVENTION IN ADMINISTRATIVE AND COURT PROCEEDINGS INVOLVING THE PROPOSED GRIP RATE ADJUSTMENTS; DESIGNATING A REPRESENTATIVE OF THE CITY TO SERVE ON A STEERING COMMITTEE; REQUIRING REIMBURSEMENT OF REASONABLE LEGAL AND CONSULTANT EXPENSES; MAKING OTHER FINDINGS AND PROVISIONS RELATED TO THE SUBJECT; AND PROVIDING AN EFFECTIVE DATE. WHEREAS, the City of Paris, Paris, Texas ("City") and/or its residents are gas utility customers of Atmos- Energy Corp., Mid- Tex Division, ("Atmos Mid- Tex" or "the Company") and the City is 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") in December, 2004, proposing to implement interim rate adjustments ("GRIP Rate Increases") pursuant to Texas Utilities Code § 104.301 on all customers served by Atmos Mid-Tex; and, WHEREAS, Atmos Energy Corporation has reported a twenty percent increase in profits for its fiscal year ended September 30, 2004, and projects further increases in profits in 2005; and, WHEREAS, in May, 2004, the Railroad Commission entered its Final Order in GUD No. 9400 authorizing a rate increase that will provide additional annual revenues of$I1.5 million for Atmos Mid-Tex; and WHEREAS, Atmos Mid- Tex has projected that it will experience annual cost savings of at least $40 million over the costs included in rates approved in GUD No. 9400 and said savings are likely to greatly exceed the annual revenue requirement associated with any reasonable increases in invested capital that form the basis of the proposed GRIP rate increases; and, WHEREAS ratepayers of Atmos Mid- Tex, including the City and its residents, will be adversely impacted by the proposed GRIP Rate Increases; and, WHEREAS, the City of Paris and its residents could benefit from coordination with other cities served by Atmos Mid- Tex ("Cities") in a review ofthe reasonableness ofthe proposed GRIP Rate Increases and joint participation in any proceedings at the Railroad Commission related to the proposed GRIP Rate Increases; and, WHEREAS, the reasonable costs associated with the participation of Cities in this rate proceeding are reimbursable from Atmos Mid-Tex; NOW, THEREFORE, BE IT RESOLVED BY THE CITY COUNCIL OF THE CITY OF PARIS, PARIS, TEXAS: Section 1. That the findings set out in the preamble to the resolution are hereby in all things approved. Section 2. That the February 15, 2005, effective date of the GRIP Rate Increase proposed by Atmos Mid- Tex is hereby suspended to permit adequate time to review the proposed increases, analyze all necessary information, and take appropriate action related to the proposed increases. Section 3. That the City of Paris is authorized to cooperate with other Cities to create and participate in a Steering Committee to hire and direct legal counsel and consultants, to negotiate with the Company, to make recommendations to the City regarding the proposed GRIP Rate Increases, and to direct any administrative proceedings or litigation associated with the proposed GRIP Rate Increases. Section 4. That the City of Paris is authorized to intervene in any administrative proceedings or litigation associated with the proposed GRIP Rate Increases, including GUD No. 9560, the Company's proposed GRIP rate increase for its pipeline system filed at the Railroad Commission. Section 5. That the City of Paris hereby designates a City's Steering committee that shall direct the efforts of counsel and consultants. as a representative to Section 6. That Atmos Mid-Tex shall promptly reimburse the City's reasonable costs associated with the City's activities related to the proposed GRIP Rate Increases. Section 7. That this resolution shall be effective from and after its date of passage. PASSED AND APPROVED this 10th day of January, 2005. Curtis Fendley, Mayor ATTEST: Sherian Dixon, Assistant City Clerk APPROVED AS TO FORM: Larry W. Schenk, City Attorney . . 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 the GOD No. 9530 intervention resolution. There are at least six separate Atmos/TXU Gas proceedings pending right now and, in an effort to help you keep all of them straight, tomorrow we will be forwarding a chart showing all of the pending dockets with subject matter descriptions and status updates. We are attaching several documents that we hope will be of assistance. The first is a form suspension resolution that also authorizes participation in a steering committee and intervention in the companion GRIP docket (GUD No. 9560) for Atmos' pipeline system already on file at the RRC. We have also prepared a model staff report for use in your agenda packages. A copy of the cover letter used by Atmos to make its filings with the cities is also included. Lastly, we compiled a one-page outline of the significant provisions of the GRIP statute. Please don't hesitate to contact us if you have any questions about this or any of the other Atmos dockets or about the city's participation. Betsy Todd (512) 322-5831 btodd@lglawfirm.com Geoffrey Gay (512) 322-5875 ggay@lglawfirm.com Attachments: Form Suspension Resolution Model Staff Report Copy of Atmos Cover Letter Outline of GRIP Provisions 1668\ II \mmoO41220 2 Gas Reliability Infrastructure Program (G. R. I. P.) Texas Utilities Code § 104.301 - Interim Adjustment for Changes in Investment What is it? . Rate adjustment that allows utilities to recover additional invested capital without filinJ! a full rate case Who can use it? . Gas utility with new invested capital not already included in existing rates But onlv ¡futility has filed rate case in last two years . What customers are affected and how? . All customers Applied to monthly customer charge or initial block rate Allocated among customer groups in same manner as current rates (GUD No. 9400) . . How is adjustment amount calculated? . Intended to capture new investment costs in excess of nonnal plant replacement due to . agmg Cannot include annual investment anticipated and included in existing rates as depreciation expense Costs that can be included are return (profit) on investment, depreciation expense and certain taxes Factors used to calculate costs must be the same as those reflected in order, ordinance or settlement agreement approving current rates . . . What is required of utility? . Tariff or rate schedule must be filed with appropriate regulatory authority (City and/or Railroad Commission) 60 days before proposed implementation date . Notice to all affected customers must be provided within 45 days of filing with regulatory authority . After implementation, utility must file the following infonnation annually: - Reports describing all new investments and retired plant - Costs, need and customers benefited by the new investment must be stated - Annual earnings monitoring report showing earnings in past year - If earnings are more than 75 basis points (.75%) above currently approved rate of return, utility must explain why earnings are not just unreasonable . Adjustment must be recalculated annually . Full rate case must be filed no later than five and one-half (5V2) years after implementation What is role of cities? . Within 60 days after filing, a city may suspend implementation of proposed adjustment Until incremental increase in rates has been reviewed as part of a full rate case, regulatory authority may disallow adjustment and order utility to refund any amounts collected Regulatory authority may open inquiry under Texas Utilities Code § 104.151 and set new rates if rates are found to be unreasonable . . 1668\12\Handout