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R-13-06-27-F1 - 6/27/2013RESOLUTION NO. R -13-06-27-F1 A RESOLUTION BY THE CITY OF ROUND ROCK, TEXAS ("CITY"), APPROVING AND ADOPTING RATE SCHEDULE "RRM — RATE REVIEW MECHANISM" FOR ATMOS ENERGY CORPORATION, MID-TEX DIVISION TO BE IN FORCE IN THE CITY FOR A PERIOD OF TIME AS SPECIFIED IN THE RATE SCHEDULE; ADOPTING A SAVINGS CLAUSE; DETERMINING THAT THIS RESOLUTION WAS PASSED IN ACCORDANCE WITH THE REQUIREMENTS OF THE TEXAS OPEN MEETINGS ACT; DECLARING AN EFFECTIVE DATE; MAKING OTHER FINDINGS AND PROVISIONS RELATED TO THE SUBJECT; AND REQUIRING DELIVERY OF THIS RESOLUTION TO THE COMPANY. WHEREAS, the City of Round Rock, 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, the City is a regulatory authority under the Gas Utility Regulatory Act ("GURA") and under § 103.001 of GURA has exclusive original jurisdiction over the rates, operations and services of Atmos Mid -Tex within the municipality; and WHEREAS, the City as a member of the coalition of cities served by Atmos Mid -Tex known as the Atmos Texas Municipalities ("ATM"); and WHEREAS, the City previously approved a Rate Review Mechanism ("RRM") Tariff that allows for an alternative, negotiated rate review process to facilitate annual changes in gas utility rates reflective of Atmos Mid-Tex's annual system -wide cost of providing service in lieu of an interim rate adjustment through a legislatively -constructed Gas Reliability Infrastructure Program ("GRIP"); and WHEREAS, the RRM process permits City review of requested rate changes and provides for a review of Atmos Mid-Tex's total cost of service on an annual basis; and O \wdox\SCCInts\0112\1304\MUNICIPAL\00277039.DOCX WHEREAS, the initial RRM tariff expired in 2011; and WHEREAS, ATM, through its Special Counsel in conjunction with experts retained on behalf of ATM, negotiated with Atmos Mid -Tex to develop a new RRM process that would annually adjust rates in lieu of rate adjustments through annual GRIP filings or full rate cases at the Railroad Commission; and WHEREAS, the renewal of the RRM process may avoid costly rate case litigation; and WHEREAS, ATM's legal counsel recommend ATM member cities approve the negotiated RRM; and WHEREAS, the attached Rate Schedule "RRM — Rate Review Mechanism" ("RRM Tariff') provides for a reasonable rate review process that is to be utilized in lieu of GRIP filings; and WHEREAS, the attached RRM Tariff as a whole is in the public interest, Now Therefore BE IT RESOLVED BY THE CITY COUNCIL OF THE CITY OF ROUND ROCK, TEXAS THAT: Section 1. That the findings set forth in this Resolution are hereby in all things approved. Section 2. That the City Council finds that the RRM Tariff, which is attached hereto and incorporated herein as "Attachment A," is reasonable and in the public interest, and from the effective date of this Resolution is in force and effect in the City. Section 3. That to the extent any resolution or Resolution previously adopted by the City Council is inconsistent with this Resolution, it is hereby repealed. Section 4. That the meeting at which this Resolution was approved was in all things conducted in strict compliance with the Texas Open Meetings Act, Texas Government Code, Chapter 551. pjl Section 5. That if any one or more sections or clauses of this Resolution is judged to be unconstitutional or invalid, such judgment shall not affect, impair or invalidate the remaining provisions of this Resolution and the remaining provisions of the Resolution shall be interpreted as if the offending section or clause never existed. Section 6. That this Resolution shall become effective from and after its passage. Section 7. That a copy of this Resolution shall be sent to Atmos Mid -Tex, care of Christopher Felan, Vice President of Rates and Regulatory Affairs, Atmos Energy Corporation, 5420 LBJ Freeway, Suite 1600, Dallas, Texas 75240 and to Mr. Alfred R. Herrera, Herrera & Boyle, PLLC, 816 Congress Avenue, Suite 1250, Austin, Texas 78701. The City Council hereby finds and declares that written notice of the date, hour, place and subject of the meeting at which this Resolution was adopted was posted and that such meeting was open to the public as required by law at all times during which this Resolution and the subject matter hereof were discussed, considered and formally acted upon, all as required by the Open Meetings Act, Chapter 551, Texas Government Code, as amended. RESOLVED this 27th day of June, 2013. ATTEST: GCA , (� SARA L. WHITE, City Clerk 3 A AN MCGRAW, Mayor City of Round Rock, Texas ATTACHMENT A RATE REVIEW MECHANISM (RRM) BILLS RENDERED ON AND AFTER OCTOBER 15, 2013 Last Annual Effective Date: June 1, 2017 ATMOS ENERGY CORPORATION MID-TEX DIVISION EXHIBIT "A» RATE SCHEDULE: RRM — Rate Review Mechanism ALL AREAS IN THE MID-TEX DIVISION EXCEPT THE CITY OF DALLAS APPLICABLE TO: CUSTOMERS EFFECTIVE DATE: Bills Rendered on and after October 15, 2013 PAGE 1 OF 6 I. Applicability Applicable to Residential, Commercial, Industrial, and Transportation tariff customers in the Mid -Tex Division of Atmos Energy Corporation ("Company") except such customers within the City of Dallas. This Rate Review Mechanism ("RRM") provides for an annual adjustment to the Company's Rate Schedules R, C, I and T ("Applicable Rate Schedules"). Rate calculations and adjustments required by this tariff shall be determined on a System -Wide cost basis. II. Definitions "Test Period" is defined as the twelve months ending December 31 of each preceding calendar year. The "Effective Date" is the date that adjustments required by this tariff are applied to customer bills. The annual Effective Date is June 1. The 2013 filing Effective Date is October 15, 2013. Unless otherwise noted in this tariff, the term "Final Order" refers the final order issued by the Railroad Commission of Texas in GUD 10170. The term "System -Wide" means all incorporated and unincorporated areas served by the Company. "Review Period" is defined as the period from the Filing Date until the Effective Date. The "Filing Date" is as early as practicable but no later than March 1 of each year with the exception of 2013, which shall have a Filing Date of July 15, 2013. The last annual Effective Date is June 1, 2017. III. Calculation The RRM shall calculate an annual, System -Wide cost of service ("COS") that will be used to adjust applicable rate schedules prospectively as of the Effective Date. The annual cost of service will be calculated according to the following formula: COS=OM + DEP+ RI +TAX+ CD-ADJ Where: OM = all reasonable and necessary operation and maintenance expenses from the Test Period adjusted for known and measurable items and prepared ATMOS ENERGY CORPORATION MID-TEX DIVISION RATE SCHEDULE: RRM — Rate Review Mechanism ALL AREAS IN THE MID-TEX DIVISION EXCEPT THE CITY OF DALLAS APPLICABLE TO: CUSTOMERS EFFECTIVE DATE: Bills Rendered on and after October 15, 2013 PAGE 2 OF 6 consistent with the rate making treatments approved in the Final Order. Known and measurable adjustments shall be limited to those changes that have occurred prior to the Filing Date. OM may be adjusted for atypical and non-recurring items. Shared Services allocation factors shall be recalculated each year based on the latest component factors used during the Test Period, but the methodology used will be that approved in the Final Order. DEP = depreciation expense calculated at depreciation rates approved by the Final Order. RI = return on investment calculated as the Company's pretax return multiplied by rate base at Test Period end. Rate base is prepared consistent with the rate making treatments approved in the Final Order, except that no post Test Period adjustments will be . permitted. Pretax return is the Company's weighted average cost of capital before income taxes. The Company's weighted average cost of capital is calculated using the methodology from the Final Order including the Company's actual capital structure and long term cost of debt as of the Test Period end (adjusted for any known and measurable changes) and the return on equity from the Final Order. However, in no event will the percentage of equity exceed 55%. Regulatory adjustments due to prior regulatory rate base adjustment disallowances will be maintained. Cash working capital will be calculated using the lead/lag days approved in the Final Order. With respect to pension and other postemployment benefits, the Company will record a regulatory asset or liability for these costs until the amounts are included in the next annual rate adjustment implemented under this tariff. Each year, the Company's filing under this Rider RRM will clearly state the level of pension and other postemployment benefits recovered in rates. TAX = income tax and taxes other than income tax from the Test Period adjusted for known and measurable changes occurring after the Test Period and before the Filing Date, and prepared consistent with the rate making treatments approved in the Final Order. CD = interest on customer deposits. ADJ = Downward adjustment to the overall, System -Wide test year cost of service in the amount of $3,000,000.00, adjusted by a percentage equal to the total percentage increase in base -rate revenue sought pursuant to this tariff. IV. Annual Rate Adjustment ATMOS ENERGY CORPORATION MID-TEX DIVISION RATE SCHEDULE: RRM — Rate Review Mechanism APPLICABLE TO: ALL AREAS IN THE MID-TEX DIVISION EXCEPT THE CITY OF DALLAS CUSTOMERS EFFECTIVE DATE: Bills Rendered on and after October 15, 2013 PAGE 3 OF 6 The Company shall provide schedules and work papers supporting the Filing's revenue deficiency/sufficiency calculations using the methodology accepted in the Final Order. The result shall be reflected in the proposed new rates to be established for the effective period. The Revenue Requirement will be apportioned to customer classes in the same manner that Company's Revenue Requirement was apportioned in the Final Order. For the Residential Class, 40% of the increase may be recovered in the customer charge. The increase to the Residential customer charge shall not exceed $0.50 per month in any given year. The remainder of the Residential Class increase not collected in the customer charge will be recovered in the usage charge. The Company will forgo any change in the Residential customer charge with the first proposed rate adjustment pursuant to this tariff. For all other classes, the change in rates will be apportioned between the customer charge and the usage charge, consistent with the Final Order. Test Period billing determinants shall be adjusted and normalized according to the methodology utilized in the Final Order. V. Filing The Company shall file schedules annually with the regulatory authority having original jurisdiction over the Company's rates on or before the Filing Date that support the proposed rate adjustments. The schedules shall be in the same general format as the cost of service model and relied -upon files upon which the Final Order was based. A proof of rates and a copy of current and proposed tariffs shall also be included with the filing. The filing shall be made in electronic form where practical. The Company's filing shall conform to Minimum Filing Requirements (to be agreed upon by the parties), which will contain a minimum amount of information that will assist the regulatory authority in its review and analysis of the filing. The Company and regulatory authority will endeavor to hold a technical conference regarding the filing within ten (10) calendar days after the Filing Date. The 2013 Filing Date will be July 15, 2013 A sworn statement shall be filed by an Officer of the Company affirming that the filed schedules are in compliance with the provisions of this Rate Review Mechanism and are true and correct to the best of his/her knowledge, information, and belief. No testimony shall be filed, but a brief narrative explanation shall be provided of any changes to corporate structure, accounting methodologies, allocation of common costs, or atypical or non- recurring items included in the filing. VI. Evaluation Procedures The regulatory authority having original jurisdiction over the Company's rates shall review and render a decision on the Company's proposed rate adjustment prior to the ATMOS ENERGY CORPORATION MID-TEX DIVISION RATE SCHEDULE: RRM — Rate Review Mechanism APPLICABLE TO: ALL AREAS IN THE MID-TEX DIVISION EXCEPT THE CITY OF DALLAS CUSTOMERS EFFECTIVE DATE: Bills Rendered on and after October 15, 2013 PAGE 4 OF 6 Effective Date. The Company shall provide all supplemental information requested to ensure an opportunity for adequate review by the relevant regulatory authority. The Company shall not unilaterally impose any limits upon the provision of supplemental information and such information shall be provided within seven (7) working days of the original request. The regulatory authority may propose any adjustments it determines to be required to bring the proposed rate adjustment into compliance with the provisions of this tariff. The regulatory authority may disallow any net plant investment that is not shown to be prudently incurred. Approval by the regulatory authority of net plant investment pursuant to the provisions of this tariff shall constitute a finding that such net plant investment was prudently incurred. Such finding of prudence shall not be subject to further review in a subsequent RRM or Statement of Intent filing. During the Review Period, the Company and the regulatory authority will work collaboratively and seek agreement on the level of rate adjustments. If, at the end of the Review Period, the Company and the regulatory authority have not reached agreement, the regulatory authority shall take action to modify or deny the proposed rate adjustments. The Company shall have the right to appeal the regulatory authority's action to the Railroad Commission of Texas. Upon the filing of an appeal of the regulatory authority's order relating to an annual RRM filing with the Railroad Commission of Texas, the regulatory authority having original jurisdiction over the Company's rates shall not oppose the implementation of the Company's proposed rates subject to refund, nor will the regulatory authority advocate for the imposition of a third party surety bond by the Company. Any refund shall be limited to and determined based on the resolution of the disputed adjustment(s) in a final, non -appealable order issued in the appeal filed by the Company at the Railroad Commission of Texas. In the event that the regulatory authority and Company agree to a rate adjustment(s) that is different from the adjustment(s) requested in the Company's filing, the Company shall file compliance tariffs consistent with the agreement. No action on the part of the regulatory authority shall be required to allow the rate adjustment(s) to become effective on June 1. To the extent that the regulatory authority does not take action on the Company's RRM filing by May 31, the rates proposed in the Company's filing shall be deemed approved effective June 1. (2013 filing RRM rate will be effective October 15, 2013 if no action is taken). Notwithstanding the preceding sentence, a regulatory authority may choose to take affirmative action to approve a rate adjustment under this tariff. In those instances where such approval cannot reasonably occur by May 31, the rates finally approved by the regulatory authority shall be deemed effective as of June 1. To defray the cost, if any, of regulatory authorities conducting a review of the Company's annual RRM filing, the Company shall reimburse the regulatory authorities on a monthly basis for their reasonable expenses incurred upon submission of invoices ATMOS ENERGY CORPORATION MID-TEX DIVISION RATE SCHEDULE: RRM — Rate Review Mechanism ALL AREAS IN THE MID-TEX DIVISION EXCEPT THE CITY OF DALLAS APPLICABLE TO: CUSTOMERS EFFECTIVE DATE: Bills Rendered on and after October 15, 2013 PAGE 5 OF 6 for such review. Any reimbursement contemplated hereunder shall be deemed a reasonable and necessary operating expense of the Company in the year in which the reimbursement is made. A regulatory authority seeking reimbursement under this provision shall submit its request for reimbursement to the Company no later than August 1 of the year in which the RRM filing is made and the Company shall reimburse regulatory authorities in accordance with this provision on or before August 30 of the year the RRM filing is made. To the extent possible, the provisions of the Final Order shall be applied by the regulatory authority in determining whether to approve or disapprove of Company's proposed rate adjustment. This Rider RRM does not limit the legal rights and duties of a regulatory authority. Nothing herein shall abrogate the jurisdiction of the regulatory authority to initiate a rate proceeding at any time to review whether rates charged are just and reasonable. Similarly, the Company retains its right to utilize the provisions of Texas Utilities Code, Chapter 104, Subchapter C to request a change in rates. The provisions of this Rider RRM are implemented in harmony with the Gas Utility Regulatory Act (Texas Utilities Code, Chapters 101-105). The annual rate adjustment process set forth in this tariff shall remain in effect during the pendency of any Statement of Intent rate filing. VII. Reconsideration, Appeal and Unresolved Items Orders issued pursuant to this mechanism are ratemaking orders and shall be subject to appeal under Sections 102.001(b) and 103.021, et seq., of the Texas Utilities Code (Vernon 2007). VIII. Notice Notice of each annual RRM filing shall be provided by including the notice, in conspicuous form, in the bill of each directly affected customer no later than forty-five (45) days after the Company makes its annual filing pursuant to this tariff. The notice to customers shall include the following information: a) a description of the proposed revision of rates and schedules; b) the effect the proposed revision of rates is expected to have on the rates applicable to each customer class and on an average bill for each affected customer; ATMOS ENERGY CORPORATION MID-TEX DIVISION RATE SCHEDULE: RRM — Rate Review Mechanism APPLICABLE TO: ALL AREAS IN THE MID-TEX DIVISION EXCEPT THE CITY OF DALLAS CUSTOMERS EFFECTIVE DATE: Bills Rendered on and after October 15, 2013 PAGE 6 OF 6 c) the service area or areas in which the proposed rates would apply; d) the date the annual RRM filing was made with the regulatory authority; and e) the Company's address, telephone number and website where information concerning the proposed rate adjustment be obtained. City of Round Rock ,RWND ROCK TEXAS wxrosc. vvvon rxosrram Agenda Item Summary Agenda Number: FA Title: Consider a resolution approving and adopting Rate Schedule "RRM - Rate Review Mechanism" for Atmos Energy Corporation. Type: Resolution Governing Body: City Council Agenda Date: 6/27/2013 Dept Director: Cheryl Delaney, Finance Director Cost: $0.00 Indexes: Attachments: Resolution, ExhibitA Text of Legislative File 13-461 In 2008 the Atmos Texas Municipalities (ATM) approved the initial Rate Review Mechanism (RRM) for the Mid -Tex Division of Atmos Energy ("Atmos"). That RRM was in effect from 2008 and expired at the end of 2011. The RRM provides the ATM cities a process for reviewing Atmos' cost of service on an annual basis and is a substitute to the legislatively approved interim rate process at the Commission known as the Gas Reliability Infrastructure Program ("GRIP"). During 2011, ATM, through the law firm of Herrera & Boyle, PLLC and rate consultants retained on behalf of ATM, participated in a series of negotiations with representatives from Atmos Energy with the goal of arriving at a revised RRM. Those discussions had a deadline of December 31, 2011, but the ATM and Atmos Energy were not able to reach a new agreement on a revised RRM. In 2013 the firm of Herrera & Boyle, with the assistance of expert consultants, engaged in negotiations with Atmos regarding the implementation and design of a new RRM. The negotiations resulted in a revised RRM that captures many of the decisions made by the Railroad Commission in GUD No. 10170. The RRM provides the City a meaningful opportunity to annually review Atmos' expenses and investments, whereas a GRIP filing focuses only on the incremental change in investments. Note by approving the RRM this resolution, it would not impact rates at this time, but would instead establish the parameters of future RRM filings that Atmos would make beginning in July, 2013. Going forward, new rates would result from collaboration between Atmos and the cities it serves. Any changes in actual charges that Atmos and its cities agree to would be approved in future resolutions. In the first year of the RRM (2013), Atmos would file its request under the RRM on July 15, 2013 with new rates going into effect on October 15. In subsequent years, the filing would City of Round Rock Page 1 Printed on 612512013 Agenda Item Summary Continued (13-461) take place by March 1 with new rates going into effect on June 1 of that year. All customers would be notified of each new RRM filing by bill insert. The RRM would be in effect for a four-year period (2013-2017). ATMOS TEXAS MUNICIPALITIES The Atmos Texas Municipalities ("ATM") group was organized by a number of municipalities served by Atmos; the City is a member of the ATM coalition of cities. The law firm of Herrera & Boyle, PLLC (through Mr. Alfred R. Herrera) has previously represented the ATM in rate cases involving Atmos. ATM's Special Counsel and its consultants believe that the results of the negotiated RRM would provide the City a better opportunity to control the outcome of interim rate reviews over the next several years. Absent this agreement, the City will be exposed to annual GRIP filings that it will have almost no ability to review or influence. Staff recommends approval. City of Round Rock Page 2 Printed on 612512013