G-06-09-14-10B1 - 9/14/2006ORDINANCE NO. ' 040-9—/14'168i0
AN ORDINANCE DENYING THE RATE INCREASE PROPOSED BY
THE ATMOS ENERGY CORPORATION, MID-TEX DIVISION;
REQUIRING THE REIMBURSEMENT OF MUNICIPAL RATE CASE
EXPENSES; FINDING THAT THE MEETING COMPLIES WITH THE
OPEN MEETINGS ACT; MAKING OTHER FINDINGS AND
PROVISIONS RELATED TO THE SUBJECT; AND DECLARING AN
EFFECTIVE DATE
WHEREAS, Atmos Energy Corporation - Mid -Tex Division
("Atmos") filed a Statement of Intent with the City of Round Rock
Texas ("City") on May 31, 2006 to increase its system -wide, annual
revenue requirement, by approximately $73 million; 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 Atmos' rates, operations, and
services of a gas utility within the municipality; and
WHEREAS, the original effective date for the Atmos rate
increase request was July 5, 2006, the City has suspended the
effective date for the City to take final action until October 3,
2006; and
WHEREAS, the City, acting in concert with other cities known
as the Atmos Texas Municipalities ("ATM"), has employed rate
experts to review the testimony, schedules, workpapers and other
documents provided by Atmos in its Statement of Intent and in
response to discovery requests; and
(n;PFDesktop`,:.ODMA; WORLDOX'O:/Wdox/ORDWANC/060914B1.WPD, rmc
WHEREAS, the City's rate experts have reviewed thousands of
pages of the books and records of Atmos and the review is on-going;
and
WHEREAS, based upon the review of the rate experts the
request to increase rates should be denied.
BE IT ORDAINED BY THE CITY COUNCIL OF THE CITY OF ROUND
ROCK, TEXAS THAT:
PART 1. FINDINGS
(A) On May 31, 2006, Atmos filed a rate filing package with
the City based on a test year ending December 31, 2005, seeking to
increase rates by $73 million with a proposed effective date of
July 5, 2006 which was suspended to October 3, 2006.
(B) Based on Company -provided information, Atmos' proposal
would result in an average monthly increase per customer within the
City as follows:
Residential - $4.02 or approximately 5.36%
Commercial - $17.16 or approximately 5.25%
Industrial - $7.10 or approximately .21%
(C) The City has exclusive original jurisdiction under the
Gas Utilities Regulatory Act, Texas Utilities Code §103.001 to
evaluate Atmos' proposed rate increase.
(D) The City has joined a coalition of cities, known as Atmos
Texas Municipalities ("ATM").
(E) ATM has hired experts to evaluate and make
recommendations regarding the proposed rate increase.
2
(F) While ATM's experts will not conclude their investigation
until September 15, 2006, based on current information, they
recommend that Atmos is not entitled to an increase in rates.
(G) These experts have determined that the rate increase
proposed by Atmos is not just and reasonable based on the
following:
The request seeks an excessive rate of return of 11.50;
the request artificially decreases debt and increases
equity;
the request seeks excessive levels of infrastructure
adjustments for its Gas Reliability Infrastructure
Program ("GRIP"); and
the request proposes a radical change in rate design for
residential customers, which promotes waste of natural
gas and shifts costs to low use customers.
(H) The 11.5% rate of return proposed by Atmos is 135 basis
points more than the 10.12% rate of return considered to be
reasonable in Atmos' most recent rate case before the Georgia
Public Service Commission.
(I) Atmos' proposal treats some of its debt (at a cost of 5%
to 6%) as equity (at a cost of 9% to 10.5%), artificially inflating
the cost of equity and thereby increasing the overall return on
investments and making the rate increase request considerably
larger than justified.
(J) Contrary to the plain language and intent of the Gas
Utilities Regulatory Act, Texas Utilities Code §104.301, some of
the GRIP adjustments proposed by Atmos have nothing to do with
capital investment for infrastructure improvements related to
safety and reliability. Instead GRIP adjustments include the
3
purchase of new computers, office furniture, signage for trucks and
other vehicles and telecommunications systems.
(K) Atmos has proposed a rate design that unjustly shifts
costs of the proposed increase to low use residential customers by
increasing the residential customer charge and base rate cost for
the first 3 Mcf of usage. In turn, Atmos has proposed to
dramatically decrease the cost of gas above 3 Mcf thereby promoting
consumption and waste of a finite natural resource as demonstrated
in the chart below.
RESIDENTIAL RATES
Charge
Current
Proposed
% Increase
Customer
Charge GRIP
Adjustments
Total
0 - 1.5 Mcf
1.5 - 3 Mcf
Total
$9.00
0.58
$13.50
0
41%
57%
$9.58
$1.239/Mcf
$1.239/Mcf
$13.50
$3.546/Mcf
$0.346/Mcf
$2.478
$3.892
(L) The failure of Atmos to provide cost information related
to assets of TXU Gas Company prior to the acquisition by Atmos on
October 1, 2004, has made it difficult to analyze the components
and reasonableness of the requested costs and expenses.
(M) The meeting at which this ordinance was approved was in
all things conducted in strict compliance with the Texas Open
Meetings Act, Texas Government Code, Chapter 551.
4
PART 2. Based upon the foregoing findings the rate increase
proposed by Atmos and filed with the City on May 31, 2006, is denied.
PART 3. Atmos is directed to reimburse all municipal rate case
expenses incurred by the City in relation to the filing.
PART4. A copy of this ordinance shall be sent to Mr. Richard Reis,
Atmos Energy Corporation, 5420 LBJ Freeway, Suite 1800, Dallas,
Texas 75240 and to Mr. Jim Finley, City Attorney, City of Longview,
Texas, at fax number 903-239-5539.
PARTS. This ordinance shall become effective from and after its
passage.
READ and APPROVED on first reading this the
day of , 2006.
��f�RI AD, APPROVED pand
�/ DA�DOPTED on reading this the
/4i " day of `'`�/it U`�/(J 006
T ST:,
CHRISTINE R. MARTINEZ, City Secret
5
y
L, ayor
f Round Rock, Texas
DATE: September 6, 2006
SUBJECT: City Council Meeting - September 14, 2006
ITEM: 10.B.1. Consider an ordinance denying the rate increase proposed by the Atmos
Energy Corporation. (First Reading)
Department: Administration
Staff Person: David Kautz, Assistant City Manager/CFO
Steve Sheets, City Attorney
Justification:
Rate experts have reviewed testimony, schedules, workpapers and other documents provided by
Atmos and have determined that the rate increase is not just and reasonable based on the
following:
The request seeks an excessive rate of return of 11.5%
The request artificially decreases debt and increases equity.
The request seeks excessive levels of infrastructure adjustments for its Gas Reliability
Infrastructure Program (GRIP)
The request proposes a radical change in rate design for residential customers, which
promotes waste of natural gas and shifts costs to low use customers.
Funding:
Cost: N/A
Source of funds: N/A
Outside Resources: Jim Boyle, Attorney
Background Information:
The City joined a coalition of cities known as the Atmos Texas Municipalities (ATM). ATM hired
rate experts to evaluate and make recommendations regarding the Atmos rate filing. The original
effective date for the Atmos rate increase request was July 5, 2006 and the City has suspended
the effective date for the City to take final action until October 3, 2006.
Public Comment: N/A