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100 Municipal Drive .Trophy Club, Texas 76262
To: Mayor and Town Council
From: Steve Norwood, Town Manager
CC: Leticia Vacek, Town Secretary
Mike Erwin, Finance Manager
Re: Atmos Rate Settlement
Town Council Meeting, Tuesday, September 22, 2020
Agenda Item:
An ordinance of the Town Council of the town of Trophy Club, Texas, approving a negotiated
settlement between the Atmos Cities Steering Committee ("ACSC") and Atmos Enery Corp., Mid -
Tex Division regarding the company's 2020 rate review mechanism filings; 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's 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 the ordinance to the company and the ACSC's legal counsel.
Explanation:
The City, 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 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).
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 most recent
iteration of an RRM Tariff was reflected in an ordinance adopted by ACSC members in 2018. On
or about March 31, 2020, 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, 2019, entitled it to additional system -wide revenues of $141.2 million. Application of the
standards set forth in ACSC's RRM Tariff required Atmos to reduce its request to $136.3 million,
$98.7 million of which would be applicable to ACSC members. ACSC's consultants concluded that
the system -wide deficiency under the RRM regime should be $111.5 million instead of the
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claimed $136.3 million. The amount of the $111.5 million deficiency applicable to ACSC members
would be $80.8 million.
After the Company reviewed ACSC's consultants' report, ACSC's Executive Committee and the
Company negotiated a settlement whereby the Company would receive an increase of $90
million from ACSC Cities, but with a two -month delay in the Effective Date until December 1,
2020. This should save ratepayers approximately $9 million such that the case is functionally
equivalent to ACSC's consultants' recommendation of $80.8 million.
The Executive Committee recommends a settlement at $90 million. The Effective Date for new
rates is December 1, 2020. ACSC members should take action approving the Resolution before
November 1, 2020.
PROOF OF REVENUES
Atmos generated proof that the rate tariffs attached to the Resolution will generate $90 million
in additional revenues from ACSC Cities. That proof is attached as Attachment 1 to this Staff
Report. ACSC consultants have agreed that Atmos' Proof of Revenues is accurate.
BILL IMPACT
The impact of the settlement on average residential rates is an increase of $5.15 on a monthly
basis, or 9.9 percent. The increase for average commercial usage will be $15.48 or 6.56 percent.
A bill impact comparison is attached as Attachment 2.
SUMMARY OF ACSC'S OBJECTION TO THE UTILITIES CODE SECTION 104.301 GRIP PROCESS
ACSC strongly opposed the GRIP process because it constitutes piecemeal ratemaking by ignoring
declining expenses and increasing revenues while rewarding the Company for increasing capital
investment on an annual basis. The GRIP process does not allow any review of the
reasonableness of capital investment and does not allow cities to participate in the Railroad
Commission's review of annual GRIP filings or allow recovery of Cities' rate case expenses. The
Railroad Commission undertakes a mere administrative review of GRIP filings (instead of a full
hearing) and rate increases go into effect without any material adjustments. In ACSC's view, the
GRIP process unfairly raises customers' rates without any regulatory oversight. In contrast, the
RRM process has allowed for a more comprehensive rate review and annual evaluation of
expenses and revenues, as well as capital investment.
RRM SAVINGS OVER GRIP
While residents outside municipal limits must pay rates governed by GRIP, there are some cities
served by Atmos Mid -Tex that chose to remain under GRIP rather than adopt RRM. Additionally,
the City of Dallas adopted a variation of RRM which is referred to as DARR. When new rates
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become effective on December 1, 2020, ACSC residents will maintain a slight economic monthly
advantage over GRIP and DARR rates. See Attachment 3.
The Legislature's GRIP process allowed gas utilities to receive annual rate increases associated
with capital investments. The RRM process has proven to result in a more efficient and less costly
(both from a consumer rate impact perspective and from a ratemaking perspective) than the
GRIP process. Given Atmos Mid-Tex's claim that its historic cost of service should entitle it to
recover $141.2 million in additional system -wide revenues, the RRM settlement at $90 million
for ACSC Cities reflects substantial savings to ACSC Cities. ACSC's consultants produced a report
indicating that Atmos had justified increased revenues for ACSC Cities of at least $81 million.
Settlement at $90 million (equivalent to $81 million with a two -month delay) is fair and
reasonable. The ACSC Executive Committee consisting of city employees of 18 ACSC members
urges all ACSC members to pass the Resolution before November 1, 2020. New rates become
effective December 1, 2020.
Explanation of "Be It Ordained" Sections:
This section approves all findings in the Resolution.
2. This section adopts the RRM rate tariffs and finds the adoption of the new rates to be
just, reasonable, and in the public interest.
3. This section makes it clear that Cities may challenge future costs associated with gas leaks
like the explosion in North Dallas or the evacuation in Georgetown.
4. This section finds that existing rates are unreasonable. Such finding is a necessary
predicate to establishment of new rates. The new tariffs will permit Atmos Mid -Tex to
recover an additional $90 million from ACSC Cities.
5. This section approves an exhibit that establishes a benchmark for pensions and retiree
medical benefits to be used in future rate cases or RRM filings.
6. This section approves an exhibit to be used in future rate cases or RRM filings regarding
recovery of regulatory liabilities, such as excess deferred income taxes.
7. This section requires the Company to reimburse the City for expenses associated with
review of the RRM filing, settlement discussions, and adoption of the Resolution
approving new rate tariffs.
8. This section repeals any resolution or ordinance that is inconsistent with the Resolution.
9. This section finds that the meeting was conducted in compliance with the Texas Open
Meetings Act, Texas Government Code, Chapter 551.
10. This section is a savings clause, which provides that if any section is later found to be
unconstitutional or invalid, that finding shall not affect, impair, or invalidate the remaining
provisions of this Resolution. This section further directs that the remaining provisions of
the Resolution are to be interpreted as if the offending section or clause never existed.
11. This section provides for an effective date upon passage. December 1, 2020 represents a
two month delay in the Effective Date established by the RRM tariff.
12. This section directs that a copy of the signed Resolution be sent to a representative of
the Company and legal counsel for ACSC.
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Attachments:
Attachment #1— Proof of Revenues
Attachment #2 — Bill Impact
Attachment #3 — RRM Monthly Savings over GRIP and DARR Rates
Exhibit A — Mid -Tex Tariffs
Exhibit B — Mid -Tex 2020 Benchmark for Pensions and Retiree Benefits
Exhibit C- Mid -Tex 2020 Schedule for Amortization for Regulatory Liability
Recommendation:
Staff recommends approval of Resolution No.2020-15 as presented.
Town Council Approval:
Mayor C. Nick Sanders or designee
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TOWN OF TROPHY CLUB
RESOLUTION NO. 2020-15
A RESOLUTION OF THE TOWN COUNCIL OF THE TOWN OF
TROPHY CLUB, TEXAS, APPROVING A NEGOTIATED
SETTLEMENT BETWEEN THE ATMOS CITIES STEERING
COMMITTEE ("ACSC") AND ATMOS ENERGY CORP., MID-TEX
DIVISION REGARDING THE COMPANY'S 2020 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 RESOLUTION 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 RESOLUTION TO THE COMPANY AND THE
ACSC'S LEGAL COUNSEL.
WHEREAS, the Town of Trophy Club, Texas ("Town") is a gas utility customer of
Atmos Energy Corp., Mid -Tex Division ("Atmos Mid -Tex" or "Company"), and a regulatory
authority with an interest in the rates, charges, and services of Atmos Mid -Tex; and
WHEREAS, the Town is a member of the Atmos Cities Steering Committee
("ACSC"), a coalition of similarly -situated cities served by Atmos Mid -Tex ("ACSC Cities")
that have joined together to facilitate the review of, and response to, natural gas issues
affecting rates charged in the Atmos Mid -Tex service area; and
WHEREAS, ACSC and the Company worked collaboratively to develop a Rate
Review Mechanism ("RRM") tariff that allows for an expedited rate review process by
ACSC Cities as a substitute to the Gas Reliability Infrastructure Program ("GRIP")
process instituted by the Legislature, and that will establish rates for the ACSC Cities
based on the system -wide cost of serving the Atmos Mid -Tex Division; and
WHEREAS, the current RRM tariff was adopted by the Town in a rate ordinance
in 2018; and
WHEREAS, on about March 31, 2020, Atmos Mid -Tex filed its 2020 RRM rate
request with ACSC Cities based on a test year ending December 31, 2019; and
WHEREAS, ACSC coordinated its review of the Atmos Mid -Tex 2020 RRM filing
through its Executive Committee, assisted by ACSC's attorneys and consultants, to
resolve issues identified in the Company's RRM filing; and
WHEREAS, the Executive Committee, as well as ACSC's counsel and
consultants, recommend that ACSC Cities approve an increase in base rates for Atmos
Mid -Tex of $90 million applicable to ACSC Cities with an Effective Date of December 1,
2020; and
WHEREAS, ACSC agrees that Atmos plant -in-service is reasonable; and
WHEREAS, with the exception of approved plant -in-service, ACSC is not
foreclosed from future reasonableness evaluation of costs associated with incidents
related to gas leaks; and
WHEREAS, the two month delayed Effective Date from October 1 to December 1
will save ACSC ratepayers approximately $9 million off new rates imposed by the
attached tariffs (Exhibit A), the impact on ratepayers should approximate the reasonable
value of the rate filing found by the ACSC Consultants' Report, which was $81 million;
and
WHEREAS, the attached tariffs (Exhibit A) implementing new rates are consistent
with the recommendation of the ACSC Executive Committee, are agreed to by the
Company, and are just, reasonable, and in the public interest; and
WHEREAS, the settlement agreement sets a new benchmark for pensions and
retiree medical benefits (Exhibit B); and
WHEREAS, the settlement agreement establishes an amortization schedule for
regulatory liability prepared by Atmos Mid -Tex (Exhibit C); and
WHEREAS, the RRM Tariff contemplates reimbursement of ACSC's reasonable
expenses associated with RRM applications;
NOW, THEREFORE, BE IT RESOLVED BY THE TOWN COUNCIL OF THE
TOWN OF TROPHY CLUB, TEXAS:
Section 1. That the findings set forth in this Resolution are hereby in all things
approved.
Section 2. That, without prejudice to future litigation of any issue identified by
ACSC, the Town Council finds that the settled amount of an increase in revenues of $90
million for ACSC Cities represents a comprehensive settlement of gas utility rate issues
RES. 2020-15
affecting the rates, operations, and services offered by Atmos Mid -Tex within the
municipal limits arising from Atmos Mid-Tex's 2020 RRM filing, is in the public interest,
and is consistent with the Town's authority under Section 103.001 of the Texas Utilities
Code.
Section 3. That despite finding Atmos Mid-Tex's plant -in-service to be
reasonable, ACSC is not foreclosed in future cases from evaluating the reasonableness
of costs associated with incidents involving leaks of natural gas.
Section 4. That the existing rates for natural gas service provided by Atmos Mid -
Tex are unreasonable. The new tariffs attached hereto and incorporated herein as Exhibit
A, are just and reasonable, and are designed to allow Atmos Mid -Tex to recover annually
an additional $90 million from customers in ACSC Cities, over the amount allowed under
currently approved rates. Such tariffs are hereby adopted.
Section 5. That the ratemaking treatment for pensions and retiree medical
benefits in Atmos Mid-Tex's next RRM filing shall be as set forth on Exhibit B, attached
hereto and incorporated herein.
Section 6. That subject to any future settlement or decision regarding the balance
of Excess Deferred Income Tax to be refunded to ratepayers, the amortization of
regulatory liability shall be consistent with the schedule found in Exhibit C, attached hereto
and incorporated herein.
Section 7. That Atmos Mid -Tex shall reimburse the reasonable ratemaking
expenses of the ACSC in processing the Company's 2020 RRM filing.
Section 8. That to the extent any resolution or ordinance previously adopted by
the Council is inconsistent with this Resolution, it is hereby repealed.
Section 9. That the meeting at which this Resolution was approved was in all
things conducted in strict compliance with the Texas Open Meetings Act, Texas
Government Code, Chapter 551.
Section 10. That if any one or more sections or clauses of this Resolution is
adjudged to be unconstitutional or invalid, such judgment shall not affect, impair, or
invalidate the remaining provisions of this Resolution, and the remaining provisions of the
Resolution shall be interpreted as if the offending section or clause never existed.
Section 11. That consistent with the Town Ordinance that established the RRM
process, this Resolution shall become effective from and after its passage with rates
authorized by attached tariffs to be effective for bills rendered on or after December 1,
2020.
Section 12. That a copy of this Resolution shall be sent to Atmos Mid -Tex, care
of Chris Felan, Vice President of Rates and Regulatory Affairs Mid -Tex Division, Atmos
Energy Corporation, 5420 LBJ Freeway, Suite 1862, Dallas, Texas 75240, and to
RES. 2020-15
Geoffrey Gay, General Counsel to ACSC, at Lloyd Gosselink Rochelle & Townsend, P.C.,
816 Congress Avenue, Suite 1900, Austin, Texas 78701.
PASSED AND APPROVED BY THE TOWN COUNCIL OF THE TOWN OF TROPHY
CLUB, TEXAS, BY A VOTE OF L;T TO ON THIS THE 2 AY SEPTEMBER,
2020.
C. Nick Sanders, Mayor
Town of Trophy Club, Texas
ATTEST:
V
4tibia Vacek, TRM4/CMC/MMC
Town Secretary/RMO
AS TO FORM:
I DA-vid Dodd 111, Town Attorney
own of Trophy Club, Texas
RES. 2020-15