To: Mark R. Hafner, City Manager
From: Carolyn Nivens, Director of Administrative Services | Human Resources
Subject:
Title
Consider an ordinance approving a tariff authorizing an annual rate review mechanism (“RRM”) as a substitution for the annual interim rate adjustment process defined by Section 104.301 of the Texas Utilities Code, and as negotiated between Atmos Energy Corp., Mid-Tex Division (“Atmos Mid-Tex” or “Company”) and the Steering Committee of Cities served by Atmos; requiring the Company to reimburse cities’ reasonable ratemaking expenses; adopting a savings clause; determining that this ordinance was passed in accordance with the requirements of the Open Meetings Act; declaring an effective date; and requiring delivery of this ordinance to the Company and legal counsel for the Steering Committee.
Action Requested:
City Council consideration of an ordinance approving a tariff authorizing an annual rate review mechanism as a substitution for the annual interim rate adjustment process requiring the Company to reimburse cities’ reasonable ratemaking expenses and declaring an effective date.
Background:
The City of Keller, along with 171 other Mid-Texas Cities served by Atmos Energy Corporation, Mid-Tex Division (“Atmos Mid-Tex” or “Company”) is a member of the Steering Committee of Cities Served by Atmos (“Cities”). In, 2007, the Cities and Atmos Mid-Tex settled a rate application filed by the Company pursuant to Section 104.301 of the Texas Utilities Code for an interim rate adjustment commonly referred to as a GRIP filing (arising out of the Gas Reliability Infrastructure Program legislation). That settlement created a substitute rate review process, referred to as Rate Review Mechanism (“RRM”), as a substitute for future filings under the GRIP statute.
Since 2007, there have been several modifications to the original RRM Tariff. The Ordinance that resolved the Company’s application under the RRM Tariff in 2017 also terminated the existing RRM Tariff and required a renegotiation of the terms of the tariff. Negotiations have taken place over the past several months, and have resulted in a revised RRM Tariff that has been agreed to by the Company. The Cities’ Executive Committee has recommended acceptance of the revised RRM Tariff, which is attached to the Ordinance as Exhibit A.
Budget Impact:
Not Applicable.
Financial Considerations:
The RRM Tariff on which the 2017 rates were based allowed a rate of return on equity of 10.50%. The revised RRM Tariff reduces that to 9.8%. The revised RRM Tariff also captures the reduction in federal income tax rates from 35% to 21%, and should result in a rate reduction effective by mid-March, 2018. Prior RRM tariffs allowed Cities only three months to review the Company’s filing. The new revised Tariff expands that time period by two months. New applications by the Company should be made on or about April 1 of each year, with new rates effective October 1. A rate order from the Railroad Commission in an Atmos Texas Pipeline rate case adopted the position of Cities with regard to incentive compensation related to Atmos’ Shared Services Unit that reduced allowed expenses, and that reduced level of expenses will be applicable under the new RRM Tariff.
Citizen Input/Board Review:
Not Applicable
Legal Review:
Proposed Ordinance has been reviewed and submitted by the Atmos Cities Steering Committee (ACSC) Executive Committee and its general counsel at Lloyd Gosselink, Rochelle & Townsend. The proposed Ordinance has been reviewed by the City Attorney’s Office.
Alternatives:
City Council has the following alternatives:
- Approve as submitted
- Approve with changes
- Denial
Council Action:
The ASCS Executive Committee and its designated legal counsel recommend that all member cities approve the ordinance approving the revised RRM Tariff, which is attached to the Ordinance.