G-07-10-11-12A1 - 10/11/2007 ORDINANCE NO. 6f-off- -(0- l(- 12 I
AN ORDINANCE OF THE CITY COUNCIL OF THE CITY OF
ROUND ROCK, TEXAS, DENYING THE RATE INCREASE
PROPOSED BY THE ATMOS ENERGY CORPORATION, MID-TEX
DIVISION; AUTHORIZING PARTICIPATION IN A COALITION OF
CITIES KNOWN AS ATMOS TEXAS MUNICIPALITIES ("ATM");
AUTHORIZING THE HIRING OF LAWYERS AND RATE EXPERTS;
REQUIRING THE REIMBURSEMENT OF MUNICIPAL RATE CASE
EXPENSES; FINDING THAT THE MEETING COMPLIED 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 September 20, 2007, to increase its
system-wide, annual revenue requirement, by approximately $51 . 9
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, Atmos has provided very limited explanation for
its increase in rates; and,
WHEREAS, Atmos is seeking to significantly increase rates
for low-use residential customers by raising the customer charge
and by lowering the charge for the consumption of gas; and,
WHEREAS, Atmos has had five rate increases in the last
three years and Atmos just finished its last general rate case on
August 14 , 2007, at the Railroad Commission of Texas; and,
WHEREAS, Atmos is seeking to increase rates for many of the
cost items which were recently rejected by the Commission; and,
0:\wdox\0RDINANC\07101'_A1.WPD/
WHEREAS, in order to maximize the efficient use of
resources and expertise in reviewing, analyzing and investigating
Atmos Energy' s request for a $51 . 9 million increase in rates it
makes sense to coordinate the City' s efforts with a coalition of
similarly situated municipalities; and,
WHEREAS, a coalition of municipalities, known as the Atmos
Texas Municipalities ( "ATM") has been active in gas utility
ratemaking proceedings; and,
WHEREAS, the City will join with other cities participating
in ATM and, through a steering committee, coordinate the hiring
and direction of legal counsel and consultants working on behalf
of ATM and the City; Now Therefore,
BE IT ORDAINED BY THE CITY COUNCIL OF THE CITY OF ROUND
ROCK, TEXAS:
I.
Section 1 . That the findings set out in the preamble to this
ordinance are hereby in all things approved and adopted.
Section 2 . That the City hereby denies Atmos' request to
increase rates and in support thereof finds that:
a) Atmos is requesting an increase in rates, in part,
based upon adjustments to its cost of service which
were recently rejected by the Railroad Commission of
Texas;
b) the Statement of Intent fails to provide sufficient
information to justify the requested increase in rates;
c) the requested increase in rates puts more of the cost
for the base rate increase on low-use residential
2
customers who often are in the worst position to absorb
such cost increases; and,
d) the request asks that a rate mechanism to be
implemented which provides a disincentive to reducing
costs and becoming more productive or efficient.
Section 3 . That the City is authorized to join with other
cities in a coalition of cities known as the Atmos Texas
Municipalities ("ATM" ) with the understanding that the steering
committee of ATM provide direction and guidance to the lawyers
and consultants who are representing said cities .
Section 4 . That the City employs Jim Boyle and Alfred
Herrera as special counsel to represent the City with regard to
the requested increase in rates by Atmos before local and state
regulatory authorities and any court of law, and authorizes
special counsel to employ such rate experts as are recommended by
the ATM Steering Committee.
Section 5 . That the City hereby authorizes that Special
Counsel take such actions as are appropriate, whether in court or
before any regulatory authority, to prohibit Atmos from charging
for expenses which are not reasonable and necessary, or capital
expenditures which have not been prudently incurred, or rates
which are not just and reasonable.
Section 6 . That the City, in coordination with the Steering
Committee, shall review the invoices of the lawyers and rate
experts for reasonableness before submitting the invoices to
Atmos Energy for reimbursement .
3
Section 7 . That Atmos Energy shall reimburse the City,
through the designated city representative for the Steering
Committee, for the reasonable costs of attorneys and consultants
and expenses related thereto, upon the presentation of invoices
reviewed by the Steering Committee.
Section 8 . That the City Secretary shall notify Atmos Energy
of this resolution by sending a copy of same to Ms . Barbara
Myers, Atmos Energy Corporation, 5420 LBJ Freeway, Suite 1824,
Dallas, Texas 75240 and ATM shall be notified by sending a copy
of this resolution to Mr. Jim Finley, City Attorney for the City
of Longview by fax to 903 .239 . 5539 .
Section 9 . That 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 .
Section 10 . That this ordinance shall become effective from
and after its passage.
II.
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
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
4
discussed, considered and formally acted upon, all as required by
the Open Meetings Act, Chapter 551, Texas Government Code, as
amended.
NN D ADOPTED �
READ and APPROVED^on first reading this the day
of 05' 66e�N— 2007 .
READ, APPROVED and ADOPTED on second reading this the
day of 2007 .
i
NY WEL Mayor
ATT: City of Round Rock, Texas
CHRISTINE R. MARTINEZ, City Secre ry
5
DENIAL OF ATMOS ENERGY RATE
INCREASE REQUEST
BACKGROUND
On September 20, 2007, Atmos Energy Corporation ("Atmos" or "Atmos Energy")
filed a rate filing package with the City Secretary to increase rates by
approximately $52 million. According to Atmos, the average residential customer
will see an increase of$1.57/month while the average small commercial customer
will see an increase of $9.21/month. Atmos has asked for a profit guarantee
mechanism to be implemented which could push rates even higher for those
customers. This increase is in addition to future GRIP increases in rates.
The current rate case was filed within five weeks after completion of the last rate
case at the Railroad Commission. In that case, Atmos requested an increase of$59
million. The Railroad Commission awarded $4.8 million of that request. Atmos
got less than 10% of what it requested.
Much of what is being requested by Atmos in the current proceeding was rejected
by the Commission in the case that concluded on August 14, 2007.
Cities are given only 35 days to act on rate requests under Texas law; failure to act
within that time period means that the requested increase goes into effect by
operation of law. Since Atmos filed the current rate case on September 20, 2007,
the City must act by October 25 2007
ATMOS TEXAS MUNICIPALITIES ("ATM")
The Alliance of Atmos Texas Municipalities ("ATM") has been an active
participant in proceedings at the Railroad Commission of Texas ("RCT") since the
mid-90s. In 2002, ATM took the lead in filing Motions to Dismiss GUD Docket
No. 9304' and GUD Docket No. 9292.2 The RCT Commissioners agreed with
1 ATM's Motion to Dismiss, Statement of Intent of TXU Lone Star Pipeline to Establish an Integrity and Safety
Assessment for Recovery of Pipeline Assessment and Management Expenses and Class Location Charges,GUD
Docket No. 9304(June 24,2002).
1
ATM and dismissed both of these cases.3 The Applications dealt with statewide
surcharges sought by TXU Pipeline. The surcharges would have been imposed on
TXU Gas Distribution residential and commercial customers. ATM sought
municipal rate case expenses for both proceedings.4 The Commissioners entered
an order in GUD Docket No. 9335 granting ATM's request.5
ATM also played a major role in the disallowance of the costs related to the
removal and replacement of Poly 1 Pipe in TXU's most recent general rate case.
This was the largest adjustment in the last general rate case for TXU Gas. The
adjustment removed more than $130 million from rate base. TXU Gas was sold to
Atmos Energy in October 2004.
ATM was also very active in the recently concluded general rate case of Atmos
Energy, GUD Docket No. 9670. Atmos requested an increase of$57 million, but
was awarded an increase of $4.8 million. This is less than 10% of the requested
amount. The case was about more than increasing revenues, but it was also about
who would pay for the base rate costs of Atmos. ATM led the effort to prevent
low income and fixed income customers from being unfairly charged for the base
rate costs of the Atmos system.
ATM was very active at the Capitol this last session. ATM opposed legislation
which would have made it difficult for small and medium-sized cities to participate
at the Railroad Commission. The ATM lobbying team donated all of its time and
expenses to the coalition.
In the case currently pending before the City, rate experts will be selected based
upon recommendations of Special Counsel. The City will need to designate a
person to participate with the Steering Committee.
DENIAL OF RATE INCREASE IS MOST APPROPRIATE AT THIS TIME
2 ATM's Motion to Dismiss,Statement of Intent of TXU Lone Star Pipeline to Establish Rates, GUD Docket No.
9292(April 17,2002).
3 GUD Docket No. 9604, Order of Dismissal, GAS UTIL. BULL. NO. 706 at 13-14 (August 26, 2002); GUD
Docket No. 9292,Order of Dismissal,GAS UTIL.BULL.NO. 702 at 3(June 25,2002).
a Petition of the Association of TXU Municipalities for Recover of Rate Case Expenses Related to GUD Docket
Nos. 9292 and 9304,GUD Docket No. 9335(September 6,2002).
s GUD Docket No. 9335,Final Order,GAS UTIL.BULL.NO. 716 at 5-7(January 27,2003).
2
The requested increase in rates should be denied. There are a number of reasons
why this is appropriate. In part, it is appropriate to deny the rate request because:
❖ Atmos is requesting an increase in rates based upon several adjustments
to its cost of service which were recently rejected by the Railroad
Commission of Texas;
❖ The requested design of the rates puts more of the cost of gas utility
operations on low-use residential customers who often are in the worst
position to absorb such cost increases;
❖ The request asks that a rate mechanism to be implemented which
provides a disincentive to reducing costs and becoming more productive
or efficient; and
❖ Atmos is requesting an 11% return on equity which is excessive.6
RECOMMENDATION
ATM recommends that the requested increase in rates and revenue requirement by
Atmos Energy be denied in all respects. Under the Gas Utility Regulatory Act,
municipalities are to be reimbursed for their reasonable rate case expenses.
6 In March 2007, the Railroad Commission set Atmos' return at 10%. This was before the recent interest rate
reduction by the Federal Reserve Board.
3
Atmos Energy Corporation
--TM Mid-Tex Division C �/
energy 3110 North 135
Round Rock,Texas 78681 S'Fp�g
Tel: 512-310-3805
Fax:512-310-3819
Randy Hartford Randy.hartford@,AtmosEnergy.com
Manager, Public Affairs
September 20, 2007
Honorable Mayor Nyle Maxwell
City Of Round Rock
221 E Main St
Round Rock, TX 78664
Re: Atmos Energy Mid-Tex Division Rate Case
Dear Mayor Maxwell:
In October 2004, Atmos Energy began providing natural gas service to the citizens of Round
Rock. We recognize and appreciate the partnership we have developed with the city council
and its staff to invest in this community where we live, work and raise our families. The filing
that accompanies this letter represents another opportunity for us to partner together and invest
in this community. Together, we need to examine and evaluate the cost and revenues necessary
to deliver natural gas service to the residential, commercial and industrial customers of Round
Rock.
This process is a necessary part of striving to create a healthy business environment and a
healthy community. We request that you give equal consideration to the fiscal health of our
company as we begin this dialogue.
Atmos Energy is proud of the important role we play in Round Rock. We are an efficient
company with operating costs per customer that are among the lowest of any gas utility in
Texas. We offer great value to our customers with rates that are also among the lowest in Texas
and service that is safe and reliable.
Currently, the Mid-Tex Division is only earning four cents on every dollar we invest. As with
most businesses, we continue to face increased operating costs, and we must increase rates to
continue to be healthy. Therefore, our request in this process is for the city to approve the
company's proposed rates by passing the attached ordinance. The request can also be approved
by operation of law if the city takes no action within 35 days of its filing. In turn, Atmos
Energy will agree to the following:
• The company agrees that if, on appeal,the Railroad Commission establishes final rates
that are different than the rates requested by the company in its Statement of Intent filed
September 20, 2007, the company will implement these rates in your city within 30 days
of the date the Commission's order becomes effective.
/ATMOS
energy
• The company agrees not to seek to recover the rate case expenses associated with this
filing from customers in your city.
If this offer is not acceptable, Atmos Energy requests that the city suspend the filing. This will
provide the city with more time to review the filing and for the company to respond to the city's
questions. I want you to have all the information you need to feel comfortable in understanding
the company's rate request. Please do not hesitate to ask me any questions you have and give
me the opportunity to address your concerns. In addition, we plan to host information meetings
at locations around the state over the next couple of months to provide everyone engaged in this
process the opportunity to fully understand this filing. Please let me know if you would like to
attend one of these meetings.
Natural gas has been a valued energy source for decades by your citizens as they heat their
homes and cook their meals. We share your concern that it continues to be a good value for
consumers. That is why we endeavor to keep our rates low and only propose increases when
necessary.
This increase in rates is only $1.57 per month for a residential customer using 6 Mcf and $9.21
per month for a commercial customer using 30 Mcf.
This letter will hopefully begin a dialogue between us about our product, rates, customer service
and our company. I cannot emphasize strongly enough that we want to hear from you—what
your interests are and if there are additional ways we can partner together.
Thank you for your service and the opportunity we've been given to provide your community
with natural gas. We look forward to serving Round Rock and continuing a strong partnership
with you.
Sincerely,
Randy Hartford
DATE: October 4, 2007
SUBJECT: City Council Meeting - October 11, 2007
ITEM: 12A1. 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:
Atmos Energy has filed a general rate case with the City that approximates a
monthly increase, in cost by $1.57 for a residential customer using 6 Mcf (1000 cubic
feet) and $9.21 for a commercial customer using 30 Mcf.
-Fun=:
Cost: N/A
Source of funds: N/A
Outside Resources: None
Background Information•
The City has original jurisdiction in this matter and may accept the increase, deny it
or suspend it for further study. If the City accepts the rate or takes no action, the
rates will go into effect on October 25, 2007. If the increase is denied, it will be
appealed to the Railroad Commission for hearing. Staff recommends denying this
rate increase and intends to contest elements of the increase if appealed to the
Railroad Commission. Atmos has had five rate increase requests in the last three
years and completed it last general rate case on August 14, 2007 at the Railroad
Commission.
Public Comment: N/A