CC MEETING: May 19, 2015
DATE: May 12, 2015
TO: Leonard Martin, City Manager
FROM: Ashley D. Mitchell, Administrative Services Director
Title
Consider An Ordinance Approving A Negotiated Settlement Between The Atmos Cities Steering Committee ("ACSC") And Atmos Energy Corp., Mid-Tex Division ("Company") Regarding The Company's 2014 And 2015 Rate Review Mechanism Filings; Approving A Settlement Agreement With Attached Rate Tariffs And Proof Of Revenues; Declaring Existing Rates To Be Unreasonable; Adopting Tariffs That Reflect Rate Adjustments Consistent With The Negotiated Settlement; Finding The Rates To Be Set By The Settlement Tariffs To Be Just And Reasonable And In The Public Interest; Requiring The Company To Reimburse ACSC's Reasonable Ratemaking Expenses; Determining That This Ordinance Was Passed In Accordance With The Requirements Of The Texas Open Meetings Act; Adopting A Savings Clause; Declaring An Effective Date; And Requiring Delivery Of This Ordinance To The Company And The ACSC's Legal Counsel.
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BACKGROUND:
The City, along with other similarly situated cities served by Atmos Energy Corp., Mid-Tex Division ("Atmos Mid-Tex" or "Company"), is a member of the Atmos Cities Steering Committee ("ACSC"). The RRM Tariff was adopted by the City as an alternative to the Gas Reliability Infrastructure Program ("GRIP"), the statutory provision that allows Atmos to bypass the City's rate regulatory authority to increase its rates annually to recover capital investments. In February 2014, Atmos Mid-Tex filed its second annual filing under the Rate Review Mechanism ("RRM") Tariff, seeking an increase of $45.7 million. Although ACSC attempted to reach a settlement with the Company as it had in past years, the wide differences between the Company and ACSC's consultants' recommendations made a compromise impossible. On the recommendation of the ACSC Executive Committee and ACSC's legal counsel, the City in 2014 adopted a Resolution denying the requested rate increase.
The Company appealed the City's denial to the Railroad Commission of Texas ("Commission"), and revised its requested increase to $43.8 million. A hearing was held on the Company's appeal on September 3, 2014. On April 28, 2015, the Commission's Hearings Examiner issued his Proposal for Decision ("PFD") in the Company's appeal of the City's denial of the 2014 RRM rate increase. This PFD was not favorable to ACSC, but did recommend a reduction of approximately $860,000 to the Company's adjusted 2014 filing.
While the parties were waiting for the PFD from the Hearings Examiner in the appeal of the 2014 RRM filing, on February 27, 2015, Atmos Mid-Tex filed with the City another rate increase request under the RRM Tariff, seeking additional revenues in the amount of $28.762 million (total system) or $24.0 million (affected cities). The City worked with ACSC to analyze the schedules and evidence offered by Atmos Mid-Tex to support its 2015 request to increase rates. The Ordinance and attached Settlement Agreement and tariffs are the result of negotiation between the Mid-Tex Executive Committee and the Company to resolve issues raised by ACSC during the review and evaluation of Atmos Mid-Tex's filing. The recommended Settlement Agreement also requires Atmos to abate its appeal of the City's rejection of the 2014 RRM rate increase pending approval by all ACSC cities of the Settlement Agreement. The Agreement requires Atmos to give the City the benefit of the adjustments to the 2014 rate increase recommended by the PFD.
RRM Background:
The RRM tariff was originally approved by ACSC Cities as part of the settlement agreement to resolve the Atmos Mid-Tex 2007 system-wide rate filing at the Railroad Commission. In early 2013, the City adopted a renewed RRM tariff for an additional five years. This is the third RRM filing under the renewed tariff. The RRM tariff and the process implementing that tariff were created collaboratively by ACSC and Atmos Mid-Tex as an alternative to the legislatively-authorized GRIP surcharge process. ACSC has opposed GRIP because it constitutes piecemeal ratemaking, does not allow any review of the reasonableness of Atmos' expenditures, and does not allow participation by cities or recovery of cities' rate case expenses. In contrast, the RRM process has allowed for a more comprehensive rate review and annual adjustment as a substitute for GRIP filings. ACSC's consultants have calculated that had Atmos filed its 2015 case under the GRIP provisions, it would have received additional revenues from ratepayers of approximately $10 million.
Purpose of the Ordinance:
The purpose of the Ordinance is to approve the Settlement Agreement and the resulting rate change under the RRM tariff. As a result of the negotiations, the Executive Committee was able to reduce the Company's requested $28.8 million rate increase for Mid-Tex cities to $21,962,784. When added to the settlement of the 2014 RRM filing and the adjustments recommended by the PFD, the Company will receive total additional annual revenues of $65.7 million. Because the 2014 rates have been in effect since June 1, 2014, the increase to currently-billed rates is $21 million. Approval of the Ordinance will result in rates that implement an increase in Atmos Mid-Tex's revenues effective June 1, 2015.
Reasons Justifying Approval of the Settlement Agreement:
While the 2015 RRM system-wide filing exceeded $28 million, a comparable GRIP filing would have been in excess of $38 million. ACSC has negotiated a reduction to the 2015 filing of approximately $6 million. Therefore, the 2015 RRM result is approximately $16 million better for ratepayers within municipal limits than ratepayers within Environs.
ACSC counsel is convinced that the Proposal for Decision ("PFD") by Railroad Commission Examiners in the 2014 RRM appeal will not improve if we file Exceptions and Replies to Exceptions. Counsel recommends action to avoid the PFD becoming a final order that would serve as precedent in future rate proceedings.
The token benefit to ratepayers authorized in the PFD to the 2014 appeal has been incorporated into the Settlement Agreement.
Atmos will file its formal withdrawal of its 2014 appeal only after all ACSC members approve the Settlement Agreement.
The alternative to approval of the Settlement Agreement would be another contested case hearing on appeal of the 2015 filing, implementation of interim rates on June 1, 2015 at the full value of the Company's request (or $6 million higher than proposed by the Settlement) and continuation of the 2014 appeal with resulting rate case expenses borne by ratepayers.
FINANCIAL IMPLICATIONS:
The Ordinance and Settlement tariffs approve rates that will increase the Company's revenues by $65.7 million for the Mid-Tex Rate Division, effective for bills rendered on or after June 1, 2015. The monthly residential customer charge will be $18.60. The consumption charge will change from $0.08819 per Ccf to $0.09931 per Ccf. The monthly bill impact for the typical residential customer consuming 60 Ccf will be an increase of $1.14 (about a 1.59% increase in the base bill). The typical commercial customer will see an increase of $2.69 or 0.96%.
STAFF RECOMMENDATION/ACTION DESIRED:
The ACSC Executive Committee, ACSC legal counsel and consultants, and staff recommend adoption of the Ordinance approving the negotiated Settlement Agreement resolving both the 2014 and the 2015 RRM filings, and implementing the rate change.