Resolution - City Manager: Consider a resolution approving the settlement agreement between the cities of Amarillo, Lubbock, Dalhart, and Channing, and Atmos Energy Corporation, regarding the Atmos Application to Increase Rates, filed with the City on September 30, 2020.
Item Summary
On about September 30, 2020 Atmos Energy Corporation ("Atmos" or "Company") filed a Statement of Intent to increase rates within the incorporated areas of the cities of Amarillo, Lubbock, Dalhart and Channing (collectively the "Cities" or "ALDC") in its West Texas Division. Atmos sought an increase of approximately $8.3 million in revenue; this equates to an increase in annual revenue of about 7.7% including the cost of gas and approximately 10.8% excluding the cost of gas. Atmos proposed an effective date of November 4, 2020, for its increased rates.
Atmos's application represents its first general rate case since 2012 (GUD No. 10174). Prior to this filing, Atmos sought annual increases in rates pursuant to the Gas Reliability Infrastructure Program ("GRIP"). However, Atmos has filed the maximum number of GRIP filings it is authorized to make pursuant to state law, and thus, to the extent Atmos seeks to increase it rates, it must do so in a general rate case.
PRIOR CITY ACTION
The City has previously adopted a resolution suspending Atmos's proposed effective date of the rate increase from November 4, 2020 to February 2, 2021. Atmos has since agreed to a further extension of that deadline to June 1, 2021. Through the City's prior resolution, it has also required Atmos to reimburse the City for its reasonable expenses incurred in assessing the merits of Atmos's rate increase request, authorized the retention of Herrera Law & Associates, PLLC as Special Counsel, and authorized the City's participation in a coalition of cities comprised of Amarillo, Lubbock, Dalhart and Channing (collectively referred to as the "Cities" or "ALDC".
DESCRIPTION OF SETTLEMENT
The key terms of the settlement agreement are as follows:
A rate increase of about $4.55 million, which is approximately 55% of Atmos's requested $8.3 million increase.
The new rates will be effective for service rendered on and after June 1, 2021.
Recognition in rates of the decrease in the federal corporate income tax rate from 35% to 21% pursuant to the Tax Cuts and Jobs Act of 2017 ("TCJA").
Atmos's actual capital structure comprised of 58.8% equity and 41.2% long-term debt.
Atmos's cost of long-term debt of 4.29%.
An overall rate return of 7.35% (also known as its "weighted cost of capital").
Agreement regarding several aspects Atmos is to employ in its future "GRIP" filings, including the capital structure of 58.8% equity and 41.2% long-term debt, a cost of long-term debt of 4.29%, and an overall rate of return of 7.35%.
Reduction in the customer charge for all rate classes, including a reduction from $27.67 to $15.00 for the Residential rate class and from $200.59 to $50.00 for the Public Authority rate class.
Reimbursement of the cities' rate case expenses in the amount of $115,950.50
The change in revenues and rate design as a result of the settlement is shown in the following table:
Customer Class
Current
Settlement
Current Revenues
Settlement Revenues
Change in Revenues
Percentage Change in Revenues
Amarillo, Channing & Dalhart
Residential
Customer Charge
$27.67
$15.00
$21,963,399
$11,906,432
Consumption Charge
$0.09205
$0.32946
$4,544,238
$16,264,474
Total Class Revenue
$26,507,637
$28,170,906
$1,663,269
6.3%
Commercial
Customer Charge
$69.02
$50.00
$4,953,727
$3,588,617
Consumption Charge
$0.11056
$0.19071
$2,530,632
$4,365,203
Total Class Revenue
$7,484,359
$7,953,820
$469,461
6.3%
Industrial and Transportation
Customer Charge
$808.18
$525.00
$199,620
$129,675
Consumption Charge
$0.12386
$0.14422
$811,514
$944,910
Total Class Revenue
$1,011,134
$1,074,585
$63,450
6.3%
Public Authority
Customer Charge
$200.59
$50.00
$716,964
$178,714
Consumption Charge
$0.11796
$0.26346
$498,166
$1,112,639
Total Class Revenue
$1,215,130
$1,291,353
$76,223
6.3%
Total Amarillo, Channing & Dalhart
$36,218,260
$38,490,663
$2,272,403
Lubbock
Residential
Customer Charge
$27.67
$15.00
$22,310,074
$12,094,366
Consumption Charge
$0.11738
$0.40078
$4,939,235
$16,864,427
Total Class Revenue
$27,249,309
$28,958,793
$1,709,485
6.3%
Commercial
Customer Charge
$69.02
$50.00
$5,031,064
$3,644,642
Consumption Charge
$0.10640
$0.19856
$2,118,541
$3,953,548
Total Class Revenue
$7,149,605
$7,598,190
$448,585
6.3%
Industrial and Transportation
Customer Charge
$808.18
$525.00
$360,448
$234,150
Consumption Charge
$0.08426
$0.11225
$552,698
$736,297
Total Class Revenue
$913,146
$970,447
$57,300
6.3%
Public Authority
Customer Charge
$200.59
$50.00
$479,053
$119,411
Consumption Charge
$0.13740
$0.24975
$516,181
$938,254
Total Class Revenue
$995,233
$1,057,665
$62,432
6.3%
Total Lubbock
$36,307,294
$38,585,096
$2,277,802
TOTAL ALDC
$72,525,554
$77,075,759
$4,550,205
FINAL ACTION AND RECOMMENDATION
ALDC's Special Counsel and consultants are of the opinion that the Settlement Agreement is a reasonable result and believe that the outcome is well within the range of likely outcomes from a fully litigated proceeding, helps minimize rate case expenses materially, while at the same time resulting in just and reasonable rates. In short, ALDC's special counsel and consultants believe the Settlement is a sound result and recommend approval of the Settlement Agreement and its resulting rates.
The Settlement Agreement, if approved, is to be appended to the Resolution approving the Settlement Agreement, as "Attachment A." Attachment A includes several exhibits to the Settlement Agreement in which the actual rates and tariffs are presented, along with a "proof of revenues" that shows that at the new rates, and based on the numbers of customers and their usage as presented in Atmos Energy's rate-filing package, produce the agreed-to increase in revenue.
Further, approval of the settlement means that Atmos would not submit an appeal of the City's decision to the Railroad Commission of Texas ("RCT"), thereby concluding the matter with regard to in-city rates entirely at the City level. An approval by the City brings certainty with regard to the terms and conditions of the Settlement Agreement.
The City must take action on with regard to the Settlement Agreement by June 1, 2021 If the City is unable to take action by June 1, 2021 please contact Mr. Alfred R. Herrera, the Cities' Special Counsel, to make arrangements with Atmos for a later approval date.
Fiscal Impact
Fiscal impact is based upon the customer type and usage as described in the Item Summary.