To: Mark R. Hafner, City Manager
From: Sarah Hensley, Administrative Services Manager
Subject:
Title
Consider an ordinance approving a negotiated settlement between the Atmos Cities Steering Committee (“ACSC”) and Atmos Energy Corp., Mid-Tex Division regarding the company’s 2019 Rate Review Mechanism filing; 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 attached settlement tariffs to be just and reasonable and in the public interest; approving an attached exhibit establishing a benchmark for pensions and retiree medical benefits; approving an attached exhibit regarding amortization of regulatory liability; 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.
Action Requested:
City Council consideration of an ordinance approving a negotiated settlement between the Atmos Cities Steering Committee (“ACSC”) and Atmos Energy Corp., Mid-Tex Division, regarding the company’s 2019 rate review mechanism filings; declaring existing rates to be unreasonable; finding the rates to be set by the settlement tariffs to be just and reasonable and in the public interest; and declaring an effective date.
Background:
The City of Keller, along with 171 other Mid-Texas cities served by Atmos Energy Corp., Mid-Tex Division (“Atmos Mid-Tex” or “Company”), is a member of the Atmos Cities Steering Committee (“ACSC”). In 2007, ACSC 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), the statutory provision that allows Atmos to bypass the City’s rate regulatory authority to increase its rates annually to recover capital investments. 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. The RRM Tariff has been modified several times, most recently in 2018.
On or about April 1, 2019, the Company filed a rate request pursuant to the RRM Tariff adopted by ACSC members. The Company claimed that its cost-of-service in a test year ending December 31, 2018 entitled it to additional system-wide revenues of $70 million. Application of the standards set forth in ACSC’s RRM Tariff required Atmos to reduce its request to $54 million, $39.3 million of which would be applicable to ACSC members. ACSC consultants concluded that the system-wide deficiency under the RRM regime should be $38.7 million instead of the claimed $54 million. After review of the consultants’ report, the Company offered to settle for a system-wide increase of $35.4 million from ACSC cities.
Atmos generated proof that the rate tariffs attached to the proposed Ordinance will generate $35.4 million in additional revenues from ACSC cities. ACSC consultants have agreed that Atmos’ Proof of Revenues is accurate.
The ACSC Executive Committee recommends a settlement at this amount. The Effective Date for new rates is October 1, 2019. ACSC members should take action approving the ordinance before the end of September.
Financial Impact:
Reasonable rate case expenses are reimbursed to the Steering Committee by the Company. No individual municipality incurs liability for payment of rate case expenses by adopting the proposed RRM Ordinance.
The impact of the settlement on average residential rates is an increase of $2.05 on a monthly basis, or 3.7 percent. The increase for average commercial usage will be $6.18 or 2.31 percent.
Citizen Input/Board Review:
Not Applicable
Legal Review:
The 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.
Alternatives:
City Council has the following alternatives:
- Approve as submitted
- Approve with changes
- Denial
Council Action:
The ACSC Executive Committee and its designated legal counsel and consultants recommend that all member cities approve the resolution with its attachments approving the negotiated rate settlement resolving the 2018 RRM filing, and implementing the rate change.