G-05-05-12-10B1 - 5/12/2005ORDINANCE NO. " - 05- 067-"g - %Cf3
AN ORDINANCE OF THE CITY OF ROUND ROCK, TEXAS,
DENYING ATMOS ENERGY CORPORATION'S REQUEST FOR AN
ANNUAL GAS RELIABILITY INFRASTRUCTURE PROGRAM
ADJUSTMENT IN THIS MUNICIPALITY; PROVIDING A
REQUIREMENT FOR 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; PROVIDING FOR NOTICE OF THIS
ORDINANCE TO ATMOS ENERGY CORPORATION; AND
PROVIDING FOR A SAVINGS CLAUSE AND REPEALING
CONFLICTING ORDINANCES OR RESOLUTIONS.
WHEREAS, on or about December 17, 2004 the Atmos Energy
Corporation's Mid -Tex Division ("Atmos") filed an application with
the City to increase gas rates for its Gas Reliability
Infrastructure Program ("GRIP") pursuant to Section 104.301 of the
Gas Utility Regulatory Act ("GURA" or "Act"), and
WHEREAS, the City has joined with other municipalities in a
coalition of cities known as Atmos Texas Municipalities ("ATM"),
and
WHEREAS, ATM has employed experts to examine the GRIP filing
by Atmos and make a recommendation to the ATM Cities, and
WHEREAS, on January 27, 2005, the City by Resolution No.
R -05-01-27-9E1 suspended the effective date of the GRIP adjustment
until May 15, 2005, and
WHEREAS, after examining the law and undertaking an
investigation of the GRIP filing by ATM's consultants, the
consultants recommend that the GRIP adjustment sought by Atmos be
denied as set forth in the consultants report, attached hereto and
incorporated herein as Exhibit "A", Now Therefore
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BE IT ORDAINED BY THE COUNCIL OF THE CITY OF ROUND ROCK,
TEXAS:
I.
That all of the above premises are found to be true and
correct and are incorporated into the body of this Ordinance as if
copied in their entirety.
II.
That Atmos' request for a GRIP adjustment within the City be
denied in all respects.
III.
That The costs incurred in reviewing and investigating the
merits of Atmos' application for a GRIP adjustment within the City
be promptly reimbursed by Atmos.
IV.
That this Ordinance shall become effective after its passage.
V.
That the City Secretary is hereby directed and authorized to
forward a copy of this ordinance, constituting final action on
Atmos' application to Mr. Richard Reis, Atmos Energy Corporation,
300 South St. Paul Street, 8th Floor, Dallas, Texas 75201.
VI.
A. All ordinances, parts of ordinances, or resolutions in
conflict herewith are expressly repealed.
B. The invalidity of any section or provision of this
ordinance shall not invalidate other sections or provisions
2
thereof.
C. The City Council hereby finds and declares that written
notice of the date, hour, place and subject of the meeting at which
this Ordinance was adopted was posted and that such meeting was
open to the public as required by law at all times during which
this Ordinance 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.
Alternative 1.
By motion duly made, seconded and passed with an affirmative
vote of all the Council members present, the requirement for
reading this ordinance on two separate days was dispensed with.
READ, PASSED, and ADOPTED on first reading this ' day
L
of CC -1 _, , 2005.
Alternative 2.
READ and APPROVED on first reading this the day of
, 2005.
READ, APPROVED and ADOPTED on second reading this the
day of , 2005.
WELL ayor
City of Round Rock, Texas
ATTEST:
C / t .±r2l »C . 10.)) "70i
--
CHRISTINE R. MARTINEZ, City Secretary']
3
Jim Boyle *
Carole Vogel
* Board Certilied, Administrative Law
Texas Board ofLegal Specialization
April 27, 2005
EXHIBIT "A"
1005 Congress, Suite 550
Austin, Texas 78701
LAW OFFICES OF (512) 474-1492
FAX: (512) 474-2507
JIM BOYLE, PLLC
e-mail :jboyle@ jimboylelaw.com
Atmos Texas Municipalities (ATM)
RE: Report on Atmos Energy Corp. Mid -Tex Division Application for
Municipal Approval of the Annual Gas Reliability Infrastructure Program
Rate Adjustment For the Company's Distribution System.
Introduction.
This report summarizes the recommendations and actions required resulting from the
review and rate consultant analysis of the Atmos Energy Corporation Mid -Tex Division
("Company" or "Distribution") interim annual rate request filed with each municipality in the
Company's Texas Service Area. The Company's rate request was made with each city on or
about December 17, 2004. Cities have suspended the rates and must take action by May 15,
2005. Based on our review of the case and recommendations made by the consultant, we
recommend that the Company's request be denied. A draft ordinance has been attached for
your convenience.
As discussed in the following pages, (i) the Company has failed to support its request,
(ii) the Company does not qualify for an interim rate adjustment, and (iii) the Company's
GRIP request is substantially overstated in that the interim rates include relocations, previously
disallowed plant, failure to document investment increases, and designs rates on a mismatch
between average customers and year-end investment. The requested interim rate increase
should be denied.
The Interim Rate Increase Request.
On or about December 17, 2004, the Atmos Energy Corp., Mid -Tex Division
("Company" or "Distribution") filed with each municipality in the Company's service area a
request for an interim rate increase. Interim rate requests for annual Gas Reliability
Infrastructure Program ("GRIP") adjustment are authorized by the Texas Utilities Code
Section 104.301.
Pursuant to Section 104.301, a gas utility that has filed a rate case within the preceding
two years may file a tariff or rate schedule that provides for an interim GRIP rate adjustment
in the utility's monthly customer charge or initial block rate to recover the cost of changes in
the utility's investment levels from year to year. In this rate filing, the Company asserts that
Atmos Energy Corporation is a successor in interest to TXU Gas Company as a result of the
October 1, 2004 purchase of TXU Gas Company assets. The Company claims that the TXU
Gas Company May 23, 2003 rate case filed in all Cities and docketed as GUD 9400 meets the
statutory requirement (that the utility file a case in the preceding two years) for this GRIP
interim rate request.
00085791
Pagel of 8
The Company's schedules and analyses conclude that the net system -wide distribution
investment levels for the twelve months ending December 31, 2003 have increased by
$32,518,365, necessitating an annual interim rate increase of $6,691,224.' The resulting
impact on customer monthly rates and charge is shown in the following table:
Rate Class / Meter Charges
Current
Charge
Proposed
Increase
Proposed
Rate
Residential R
$9.00
$0.31
$9.31
Commercial C
$15.50
$0.84
$16.34
Industrial / Transport I&T
$150.00
$26.85
$176.85
The Company Is Not Eligible For An Interim Rate Adjustment Under GRIP.
A. Introduction.
The Company simply does not meet the statutory requirements of the GRIP statute.
The Company bases its interim rate increase request on the GUD No. 9400 Final Order. That
case was not brought and or filed by Atmos or any of its affiliates, but rather by TXU Gas
Company ("TXU"). Atmos is not the successor in interest to TXU, but rather the company is
only a purchaser of some of TXU's assets and operations. Neither Atmos, nor any of its
affiliates have filed a rate case within two years of the GRIP filing. Therefore, the Company
does not meet the threshold requirement necessary for a GRIP rate adjustment
B. Atmos Fails To Meet The Basic Requisite Requirements to Avail Itself to
Interim Rates Under the GRIP Statute.
A key or fundamental prerequisite to the employment of the GRIP interim rate
adjustment that is the subject of these proceedings is that if a "...gas utility... has filed a rate
case under Subchapter C within the preceding two years [it] may file with the regulatory
authority a tariff or rate schedule that provides for an interim adjustment in the utility's
monthly customer charge or initial block rate to recover the cost of changes in the investment
in service for gas utility services.' The Company's request asserts that Atmos' most recent
rate case for the area is GUD No. 9400.
C. The Purchase of TXU Gas Assets Does Not Make Atmos a Successor in
Interest Eligible to Rely on GUD No. 9400.
The Company's "Notification of Merger Transaction" ("Application") to the Railroad
Commission GUD No. 9555 describes the purchase of TXU Gas Company L.P. assets as
follows:
Pursuant to an Agreement and Plan of Merger dated June 17,
2004, as amended effective October 1, 2004 (the "Agreement"),
TXU Gas merged with LSG Acquisition Corporation ("LSG"), a
wholly-owned subsidiary of Atmos. Both TXU Gas and LSG
survived the merger. As a result of the merger, TXU Gas
' Company filing Schedule A.
2 GURA §104.301(a)
Page 2 of 8
received consideration of approximately $1.905 billion and
retained certain Excluded Assets and Retained Liabilities (as
defined in the Agreement). LSG acquired by merger all other
assets and liabilities held by TXU Gas immediately prior to the
merger. Immediately thereafter, LSG merged with and into its
ultimate parent entity, Atmos, with Atmos being the survivor.
As stated in the Application, TXU Gas is not a formal reporting entity under Texas
Utilities Code §102.051 because the transaction does not constitute a sale of assets and because
LSG was not a gas utility at the time of the transaction.
Atmos did not acquire TXU Gas Company; in fact, TXU Gas Company continues to
exist today as part of the TXU companies. LSG was not a utility when it acquired the assets
of TXU Gas and LSG does not exist since it merged into Atmos. A different utility with
different costs and operations, i.e. Atmos, owns these former TXU Gas assets and any claims
that Atmos is the successor in interest to TXU Gas are not correct.
Atmos fails to meet the basic statutory requirements, i.e., the filing of a rate case under
Subchapter C within the preceding two years. TXU Gas Company filed a rate case in Docket
No. 9400, not Atmos. TXU Gas Company L.P. still exists; Atmos did not purchase the
Company or its equity. Instead, Atmos purchased some and not all of the assets and none of
the equity of TXU Gas L.P., Atmos should not be allowed to stand in the shoes of TXU gas,
they are different companies.
Page 3 of 8
The Company has Included Relocation Costs in the GRIP Request, which is Contrary to
the Commission's Rules for GRIP Requests
The 76th Legislature enacted the Relocation Statute to allow a gas utility to recover the
costs of relocating a facility at the behest of a governmental entity.' The Relocation Statute
specifically provides that it applies to:
A gas utility's costs of relocating a facility to accommodate
construction or improvement of a highway, road, street, public
way, or other public work by or on behalf of the United States,
this state, a political subdivision of this state, or another entity
having the power of eminent domain that are not reimbursed by a
source other than as provided by this section.
This statute became effective September 1, 1999 and was amended by the 77`h
Legislature in 2001. In 2003, the 78th Legislature enacted the GRIP Statutes, which allows gas
utilities to adjust their rates on an interim basis for changes in investment. The Legislature did
not repeal the Relocation Statute when it enacted the GRIP Statute. Thus, two statutes related
to recovery for post-test year changes in investment are currently in effect. The Relocation
Statute, which is specific, deals only with recovery for the relocation of facilities to
accommodate governmental entities. The GRIP Statute, which is broader, covers all change in
investment.
The Commission never adopted any rule related to the Relocation Statute, but it did
adopt a rule under the GRIP Statute. In its GRIP Rule, the Commission was explicit that
projects recoverable under the Relocation Statute were not recoverable under the GRIP Rule.6
The rule provides in pertinent part that:
The amount by which the gas utility may adjust its rate upward
or downward using the interim rate adjustment for each calendar
year is based on the difference between the value of the gas
utility's invested capital for the preceding calendar year and the
value of the invested capital for the calendar year preceding the
calendar year; except for a gas utility's first interim rate
adjustment application following a rate case and except for
amounts that can be collected by the utility under Texas
Utilities code, §104.112. (Emphasis added.)'
The Commission allowed TXU in Statement of Intent Filed by TXU Gas Company to
Change Rates in the Company's Statewide Gas Utility System, Docket No. 9400 to recover
relocation costs in the rate case instead of through the Relocation Statute. However, the
situation regarding the GRIP Rule is different. There are no provisions in the Commission's
rules or PURA governing rate case proceedings that specifically prohibit recovery of
relocation costs. This is not the case with the GRIP Rule.
3 GURA §104.112.
4 GURA §104.112(a).
GURA § 104.301.
6 R.R.C. Rule 7.7101.
7Id. at (f)(3).
Page 4 of 8
Municipalities maintain exclusive original jurisdiction over the rates, operations and
services of a gas utility within the municipality, but such regulation is not unfettered. The
municipal regulation is subject to the limitations imposed by the Gas Utility Regulatory Act
("GURA")8 which includes the Railroad Commission's rulemaking authority under GURA §
104.001(b). Thus, in reviewing and establishing rates filed pursuant to the GRIP statute, the
municipality must recognize that the Commission has established a rule addressing this matter
as noted above.
As noted above, the Commission's GRIP Rule is explicit in denying recovery of
relocation costs under the GRIP Rule. The language in the GRIP Rule is unequivocal that
Atmos may not include relocation costs as part of its interim rate adjustment under GRIP.9
For this reason, any adjustments for costs related to relocating facilities to accommodate
construction covered by the Relocation Statute must be rejected.
The Rate Consultant has Concluded that the Company's Filing Fails to Justify the
Proposed Interim GRIP Increase.
The rate consultant, Mick Arndt has found additional errors in the Company's GRIP
request. Such errors include; (i) adjustments based on previously disallowed plant (POLY 1),
(ii) mismatch between average customer meters and year end plant, and; (iii) failure to support
and document investment increases. The rate consultant has concluded that the "... Company
has failed to justify its proposed distribution interim increase."
For all of the above reasons, we recommend to the ATM Cities that the Company's
interim GRIP rate increase request be denied.
8 GURA §103.001.
9 R.R.C. Rule 7.710(f)(3).
Page 5 of 8
MEMORANDUM
TO: ATM Cities
FROM: Michael L. Arndt
DATE: April 27, 2005
RE:
Introduction
MICHAEL L. ARNDT
ARNDT & ASSOCIATES
3602 S. W. Zona Circle
Ankeny, Iowa 50021
(515) 964-8902
Atmos Energy Corporation
Railroad Commission of Texas
Infrastructure Program Rate Adjustment
On December 17, 2004, Atmos Energy Corporation ("Atmos" or "Company) Mid -Tex
Division filed applications with each city in the Texas service area including each Atmos
Texas Municipalities ("ATM")10 city pursuant to the Gas Reliability Infrastructure Program
("GRIP") statute. The application was for an annual GRIP rate adjustment applicable to
distribution customers in the municipal service areas.
The Company's GRIP filings seek interim distribution rate adjustments based on the
difference between the values of invested capital as of December 31, 2003 and the values of
invested capital as of December 31, 2002, as approved by the Commission in GUD No. 9400.
Mid -Tex Division's GRIP application seeks an increase in distribution rates of $6,691,224."
The purpose of this memorandum is to analyze Company's GRIP application for the
ATM cities.
Plant Relocation Costs
Plant relocation costs for gas utilities are the costs of relocating gas facilities (e.g.,
mains, service lines, etc.) to accommodate construction or improvements. The construction or
improvements generally relate to highway, road, street, public way or other public works.
Most of the plant relocation projects occur in areas with high growth and generally increase
economic activities within that area.
On September 1, 1999, TEX UTIL. CODE Section 104.112, Surcharge to Recover
Relocation Costs, was approved and became effective. Section 104.112 applies to a gas
utility's costs of relocating a facility to accommodate construction or improvements of a
10
The Atmos Texas Municipalities include Balch Springs, Bandera, Belton, Burnet, Caldwell, Celina, Clifton,
Coleman, Copperas Cove, Corsicana, Crowley, Denton, Dublin, Electra, Fredericksburg, Frost, Gatesville,
Goldthwaite, Granbury, Greenville, Groesbeck, Hamilton, Hickory Creek, Hillsboro, Lampasas, Lexington,
Llano, Lometa, Longview, Mart, McGregor, Mexia, Pflugerville, Ranger, Riesel, Round Rock, San Saba,
Seymour, Somerville, West, and Whitney.
Atmos Energy Corporation, Mid -Tex Division's GRIP filing, Schedule A, line 12
Page 6 of 8
highway, road, street, public way, or other public work by or on behalf of the United States,
Texas, a political subdivision of Texas or another entity having the power of eminent domain
that are not reimbursed.
Section 104.112 provides that a gas utility may recover its unreimbursed relocation
costs through a surcharge on gas volumes sold and transported to customers in the service area
where the relocation occurred. Section 104.112 allows the surcharge to be recovered over a
three-year period.
The benefits of Section 104.112 are many. First, Section 104.112 allows gas utilities
to recover plant relocation costs from the customers who benefit from the plant relocations.
Many of the relocations are in areas of high growth and the relocations provide for increased
economic activities. Customers in low growth areas should not be required to pay for
expensive relocations, which provide economic benefits to other areas. Second, since the
Section 104.112 surcharge is a visible cost to customers, the gas companies and parties
causing the plant relocation costs should be more inclined to cooperate in order to fully plan
facility relocations. This should result in lower costs and greater efficiencies. Third, Section
104.112 results in greater review of the relocation projects on an individual project basis.
Review of the individual projects on a local level should improve regulatory oversight and
should result in lower costs.
Since its enactment in September 1999 to date, the Company has never used the
surcharge provisions granted in Section 104.112.12 The Company's failure to utilize the
provisions contained in Section 104.112 has resulted in increased unreimbursed plant
relocation costs and increased rate base, return and depreciation requirements in this
proceeding. The Company has provided no studies or analyses to support its failure to utilize
Section 104.112.13 The Company's failure to utilize Section 104.112 increases costs and has
caused harm to ratepayers who have been subsidizing plant relocation costs of others. The
Company has not demonstrated in this proceeding that it is appropriate to spread these costs
system wide as opposed to utilizing the mechanisms of Section 104.112. It is my
recommendation that such costs not be recovered on a system wide basis through the GRIP
application but rather only through the application of Section 104.112.
Additional Poly 1 Adjustments
In Docket No. 9400, the Commission disallowed approximately $88.211 million of
plant costs related to the Company's polyethylene 3306 pipe ("Poly 1"). As shown on
Workpaper/Schedule A, lines 1,2 and 5, the Company has recognized the $88.211 million of
Poly 1 disallowances. In addition, however, the Company has proposed $10,646,065 of
additional adjustments to accumulated depreciation which were not made in Docket No. 9400
(see Company Workpaper/Schedule A, lines 9-14).
The Company's proposed $10.646 million of additional Poly 1 adjustments to
accumulated depreciation were not allowed in Docket No. 9400 and should not be allowed the
Company's GRIP filing.
Customer/Meter Levels
12 Company responses to ATM 1-5, 1-22 and 3-2
13 Company responses to ATM 1-4 and 1-23
Page 7 of 8
As shown on Schedule B of the Company's GRIP distribution and pipeline filings, the
Company has used average 2003 customer and meter counts to determine the changes in the
customer/meter charges from the GRIP filings.14
Since the Company's GRIP filings recognize plant additions through December 2003, it
is necessary to recognize customer/meter growth through December 2003 to achieve proper
matching of net investment and customer/meter levels.
The Company was asked to provide the monthly number of customers/meters by
distribution and pipeline rate schedule for the period December 2002 to date.15 The Company
failed to provide this information.
Other Issues
The Company's GRIP filings contain significant increases in distribution and pipeline
plant investments. For example, FERC Accounts 301-303, Intangible Plant, increased
$2,992,783 or 75.28% in 2003. The Company's filing contains no explanation
of why these large increases are reasonable and necessary.
Conclusion
Based on my review of the Company's GRIP filings, the Company has failed to justify
its proposed distribution interim rate increases.
14 The distribution numbers for customers/meters are shown on Schedule B, lines 22-24, and the changes in
customer/meter charges are shown in Schedule A, lines 21-23. The pipeline numbers for customers/meters are
shown on Schedule B, lines 21-22, and the changes in customer/meter charges are shown in Schedule A, lines 20-
21.
15 Company responses to ATM 2-2 and 2-7
Page 8 of 8
DATE: May 6, 2005
SUBJECT: City Council Meeting - May 12, 2005
ITEM: 10.B.1. Consider an ordinance denying Atmos Energy Corporation's request for
an annual gas reliability infrastructure program rate increase. (First
Reading)
Department: Administration
Staff Person: David Kautz, Assistant City Manager/Chief Financial Officer
Justification:
Proper rate case procedures and methodology, which is the intent of this action will benefit all
residential and commercial gas customers in our city.
Funding:
Cost: Not determinable at this time.
Source of funds: Costs for rate case expenses are reimbursed by Atmos Energy.
Outside Resources: Jim Boyle, Attorney
Background Information:
In January, the Council suspended a gas company rate increase request until May 15th to allow
time to review the reasons for the increase. The City also joined an alliance of cities and hired
experts to review the rate requests.
Findings of the experts indicate that the rate increase is not adequately supported and should be
denied.
Public Comment: NA