2005-131S:\OUR DOCUMENTS\GAS\TXU Gas\Ordinances-Resolutions\GRIP.doc
ORDINANCE NO.
AN ORDINANCE OF THE CITY OF DENTON, TEXAS DENYING ATMOS ENERGY
CORPORATION'S REQUEST FOR AN ANNUAL GAS RELIABILITY INFRASTRUCTURE
PROGRAM ADJUSTMENT IN THIS MUNICIPALITY; PROVIDING A REQUIREMENT
FOR PROMPT REIMBURSEMENT OF COSTS INCURRED BY THE CITY; FINDING
THAT THE MEETING AT WHICH THIS ORDINANCE IS PASSED IS OPEN TO THE
PUBLIC AS REQUIRED BY LAW; PROVIDING FOR NOTICE OF THIS ORDINANCE TO
ATMOS ENERGY CORPORATION; AND PROVIDING AN EFFECTIVE DATE.
WHEREAS, on or about December 17, 2004 the Atmos Energy Corporation's Mid-Tex
Division ("Atmos") filed an application with the City of Denton, Texas ("City") to increase gas
rates for its Gas Reliability Infi'astmcture Program ("GRIP") pursuant to Section 104.301 of the
Gas Utility Regulatory Act ("GURA" or "Act"); and
WHEREAS, the City has exclusive original jurisdiction to evaluate Atmos'. application to
increase rates for its GRIP, pursuant to Texas Utilities Code Sections 102.001(b) and 103.001
and other applicable provisions of the law; and
WHEREAS, on or about February 1, 2005, the City Council passed Resolution No.
R2005-004 suspending the effective date of the proposed GRIP adjustments by Atmos Energy
and the tariffs related thereto until May 15, 2005; and
WHEREAS, the City has joined with other municipalities in a coalition of cities known
as Atmos Texas Municipahties ("ATM"); and
WHEREAS, ATM has employed experts to examine the GRIP filing by Atmos and make
a recommendation to the ATM Cities; and
WHEREAS, the City has suspended the effective date of the GRIP adjustment until May
15, 2005; and
WHEREAS, after examining the law and undertaking an investigation of the GRIP filing
by ATM's consultants, the consultants recommend that the GRIP adjustment sought by Atmos
be denied as set forth in the attached report; and
WHEREAS, a public hearing was conducted on May 3, 2005 before the enactment of
this Ordinance at which interested parties were given a full opportunity for public comment on
Atmos' GRIP filing; NOW, THEREFORE,
THE COUNCIL OF THE CITY OF DENTON HEREBY ORDAINS:
SECTION 1. Atmos' request for a GRIP adjustment within the City be denied in all
respects.
S:\OUR DOCUMENTS\GAS\TXU Gas\Ordinances-Resolutions\GRIP.doc
SECTION 2. The costs incurred in reviewing and investigating the merits of Atmos'
application for a GRIP adjustment, including all rate case expenses, within the City be promptly
reimbursed by Atmos.
SECTION 3. This Ordinance shall become effective immediately from and after its
passage, as the law and charter in such eases provide.
SECTION 4. That it is hereby officially found and determined that the meeting at which
this Ordinance is passed is open to the public as required by law and that public notice of the
time, place and purpose of said meeting was given as required.
SECTION 5. That the City Secretary is hereby directed to forward a copy of this
Ordinance, constituting final action on Atmos' application to Mr. Richard Reis, Atmos Energy
Corporation, Mid-Tex Division, 300 South St. Paul Street, 8th Floor, Dallas, Texas 75201.
PASSED AND APPROVED this the ~ day of ~'/'/cT_X,~~
2005. /~ t7
EULINE BROCK, MAYOR
ATTEST:
JENNIFER WALTERS, CITY SECRETARY
APPROVED AS TO LEGAL FORM:
EDWIN M. SNYDER, INTERIM CITY ATTORNEY
BY:
MICHAEL L. ARNDT
ARNDT & ASSOCIATES
3602 S. W. Zona Circle
Ankeny, Iowa 50021
(515) 964-8902
TO: ATM Cities
FROM: Michael L. Arndt
DATE: April 27, 2005
Atmas Energy Corporation
Railroad Commission of Texas
Infrastructure Program Rate Adjustment
Introduction
On December 17, 2004, Atmos Energy Corporation CAtmos" or "Company) Mid-Tex
Division filed applications with each city in the Texas service area including each Atmos Texas
Municipalities ("ATM")TM city pursuant to the Gas Reliability Infrastructure Program ("GRIP")
statute. The application was for an annual GRIP rate adjustment applicable to distribution
customers in the municipal service areas.
The Company's GRIP filings seek interim distribution rate adjustments based on the
difference between the values of invested capital as of December 31, 2003 and the values of
invested capital as of December 31, 2002, as approved by the Commission in GUD No. 9400.
Mid-Tex Division's GRIP application seeks an increase in distribution rates of $6,691,2247~
The purpose of this memorandum is to analyze Company's GRIP application for the
ATM cities.
Plant Relocation Costs
Plant relocation costs for gas utilities are the costs of relocating gas facilities (e.g.,
mains, service lines, etc.) to accommodate construction or improvements. The construction or
The Atmos Tex~s Municipalities include Balch Springs, Bandera, Belton, Bumet, Caldwell, Celina, Clifton,
Coleman, Copperas Cove, Corsicana, Crowley, Denton, Dublin, Electra, Fredericksburg, Frost, Gatesville,
Goldthwaite, Granbury, Greenville, Groesbeck, Hamilton, Hickory Creek, Hillsboro, Lampasas, Lexington,
Llano, Lometa, Longview, Mart, McGregor, Mexia, Pflugervflle, Ranger, Pdesel, Round Rock, San Saba,
Seymour, Somerville, West, and Whitney.
Atmos Energy Corporation, Mid-Tex Division's GP,.!? filing, Schedule A, 1/ne 12
improvements generally relate to highway, road, street, public way or other public works.
Most of the plant relocation projects occur in areas with high growth and generally increase
economic activities within that area.
On September 1, 1999, TEX UTIL. CODE Section 104.112, Surcharge to Recover
Relocation Costs, was approved and became effective. Section 104.112 applies to a gas
utility's costs of relocating a facility to accommodate construction or improvements of a
highway, road, street, public way, or other public work by or on behalf of the United States,
Texas, a political subdivision of Texas or another entity having the power of eminent domain
that are not reimbursed.
Section 104.112 provides that a gas utility may recover its unreimbursed relocation
costs through a surcharge on gas volumes sold and transported to customers in the service area
where the relocation occurred. Section 104.112 allows the surcharge to be recovered over a
three-year period.
The benefits of Section 104.112 are many. First, Section 104.112 allows gas utilities to
recover plant relocation costs from the customers who benefit from the plant relocations.
Many of the relocations are in areas of high growth and the relocations provide for increased
economic activities. Customers in low growth areas should not be required to pay for
expensive relocations, which provide economic benefits to other areas. Second, since the
Section 104.112 surcharge is a visible cost to customers, the gas companies and parties causing
the plant relocation costs should be more inclined to cooperate in order to fully plan facility
relocations. Tins should result in lower costs and greater efficiencies. Third, Section 104.1 I2
results in greater review of the relocation projects on an individual project basis. Review of
the individual projects on a local level should improve regulatory oversight and should result in
lower costs.
Since its enactment in September 1999 to date, the Company has never used the
surcharge provisions granted in Section 104.112.~2 The Company's failure to utilize the
provisions contained in Section 104.112 has resulted in increased unreimbursed plant
relocation costs and increased rate base, return and depreciation requirements in this
proceeding. The Company has provided no studies or analyses to support its failure to utilize
Section 104.112.~ The Company's failure to utilize Section 104.112 increases costs and has
caused harm to ratepayers who have been subsidizing plant relocation costs of others. The
Company has not demonstrated in this proceeding that it is appropriate to spread these costs
system wide as opposed to utilizing the mechanisms of Section 104.112. It is my
recommendation that such costs not be recovered on a system wide basis through the GRIP
application but rather only through the application of Section 104.112.
Company responses to ATM 1-5, 1-22 and 3-2
Company responses to ATM 1-4 and 1-23
Additional Pol¥ 1 Adjustments
In Docket No. 9400, the Commission disallowed approximately $88.211 million of
plant costs related to the Company's polyethylene 3306 pipe ("Poly 1"). As shown on
Workpaper/Schedule A, lines 1,2 and 5, the Company has recognized the $88.211 million of
Poly 1 disallowances. In addition, however, the Company has proposed $10,646,065 of
additional adjustments to accumulated depreciation which were not made in Docket No. 9400
(see Company Workpaper/Schedule A, lines 9-14).
The Company's proposed $10.646 million of additional Poly 1 adjustments to
accumulated depreciation were not allowed in Docket No. 9400 and should not be allowed the
Company's GRIP filing.
Customer/Meter Levels
As shown on Schedule B of the Company's GRIP distribution and pipeline filings, the
Company has used average 2003 customer and meter counts to determine the changes in the
customer/meter charges from the GRIP flings.tn
Since the Company's GRIP filings recognize plant additions tkrough December 2003, k
is necessary to recognize customer/meter growth tkrough December 2003 to achieve proper
matching of net investment and customer/meter levels.
The Company was asked to provide the monthly number of customers/meters by
distribution and pipeline rate schedule for the period December 2002 to dnte.~ The Company
fa'fled to provide this information.
Other Issues
The Company's GRIP filings contain significant increases in distribution and pipeline
plant investments. For example, FERC Accounts 301-303, Intangible Plant, increased
$2,992,783 or 75.28 % in 2003. The Company's filing conta'ms no explanation
of why these large increases are reasonable and necessary.
Conclusion
Based on my review of the Company's GRiP ~ings, the Company has failed to justify
its proposed distribution interim rate increases.
The distribution numbers for customers/meters are shown on Schedule B, lines 22-24, and the changes in
customer/meter charges are shown in Schedule A,/roes 21-23. The pipeline numbers for customers/meters are
shown on Schedule B, lines 21-22, and the changes in customer/meter charges are shown in Schedule A, lines 20-
21.
~5 Company responses to ATM 2-2 m~d 2-7