Utility Reporter

Atmos pitches one-of-a-kind rate structure

Council to review plan; benefits to customers unclear

Published: Sunday, October 21, 2007 ELLIOTT BLACKBURN AVALANCHE-JOURNAL

Atmos Energy wants Lubbock residential customers to pay rates like no one else in the state.

The City Council will consider Thursday a new rate structure utility officials touted last week as fairer and more conservation-minded.

The plan’s direct benefits to customers were unclear last week. Some will pay less, some more, though officials said the changes are not an overall rate increase or reduction. City and utility officials believe the new system will cut legal costs and make rates easier to set.

The proposal frees the company to encourage and invest in conservation programs for its customers, spokesman Dan Alderson said. The proposal also frees Atmos from what national trends and the company’s own annual reports call a revenue loser, shifting Lubbock customers out of one unpopular rate system and into a pilot program that could become a model for other markets in the state.

Customers pay Atmos for the fuel they use, but that’s not where Texas gas utilities earn their money. Companies are not allowed to make a profit purchasing gas at one price and selling it to customers at a higher price.

Atmos instead attaches a delivery fee per unit of gas sold to its customers. Residents who use more gas pay more to Atmos, compensating the utility for delivering all that fuel and tying utility profits to the amount of the commodity sold.

Current trends show it’s a losing relationship. Customers began moving into newer, better-insulated homes and adopting more-efficient appliances that need less gas. High cost for the fuel can further discourage its use, according to the federal Energy Information Administration, which projects residential natural gas consumption to drop through the next 10 to 15 years.

A decade of annual shareholder reports describing residential volumes in West Texas show similar trends. Atmos as a whole has increased total residential use since 1997, but home consumption in the region that includes Lubbock has fallen steadily.

Utility operations that once accounted for 65 to 85 percent of Atmos’ consolidated net income accounted for just 36 percent in 2006, according to that year’s annual report.

Untying revenue from the amount of gas the company sells makes the utility’s income more stable. Atmos would “be absolutely where we need to be, from a revenue standpoint,” if all its customers moved into the flat-rate proposed in Lubbock, said Gary Gregory, Atmos West Texas division president.

“We’re still able to make the money we need to operate and encourage our customers to continue to save,” Gregory said.

The system proposed by Atmos and city staff changes what individual customers pay but does not raise any more money than the utility can make today, both sides said. Rates do not change for commercial or industrial customers.

An estimated 48,000 customers in January would begin paying a lower customer fee and a higher rate per unit of gas the customer uses, according to Atmos. Another 18,000 would pay a new flat rate to the company and pay no delivery fee for the amount of gas they purchase. The utility would recommend to each customer what it considers the best plan, but residents could choose and change which option they want once a year.

Benefits for customers were hazy last week. Some customers will pay more and others less. Customers under plan B, supporters argued, can more easily plan their bills, while customers under plan A pay smaller flat fees and are encouraged to cut down on the amount of gas they use. But the program runs counter to traditional conservation rate plans, which charge customers who use the most of a commodity higher rates. The plan insulates high-use customers with a flat fee and puts the conservation encouragement on bills that are already low.

Under the proposal, Atmos secures a stable stream of revenue and replaces a rate called the Gas Reliability Infrastructure Program that proved unpopular throughout the state.

The company caught a black eye during a recent requested increase after administrative-law judges found Atmos included improper expenses – including thousands of dollars of expensive hotel stays and luxury goods – in its justification for an increase from Dallas-area customers.

Hearings on proposed GRIP payments from 66 West Texas cities will move forward before the state’s Railroad Commission next month, but Lubbock vanished off that list earlier this fall. Instead, the company and the city wrote to commissioners. Both sides sought more time to negotiate an arrangement that would “establish new GRIP benchmarks and … negate the necessity of filing the 2006 GRIP filing.”

Both city and utility officials felt the plan avoided expensive litigation in Austin before the commission if the proposed system works as intended, a cost that ratepayers and taxpayers cover. City staff instead would review Atmos ledgers each year to ensure the company is not earning more than it should.

That element piqued the interest of the city of Amarillo, which backed out of informal talks with the utility on a similar rate program during the legislative session but continues to follow the proposal, city finance director Dan Frigo said.

“The cost of the case has almost been as much as the rate increase,” Frigo said. “I don’t think that anybody’s doing anybody any favors with something like that.”

Lubbock also would receive a $43,000 direct contribution to a city program that better insulates older, less-efficient homes for lower-income families, an expense that, for the first time, would not affect the utility’s long-term bottom line.

“I’m really positive on it,” said Mayor David Miller. “We’ve been working on this for almost a year now to literally revolutionize the rate structure for natural gas in Lubbock and perhaps the state.”

Mayor Pro Tem Jim Gilbreath and Councilman Floyd Price had no opinion on the program last week. Councilman John Leonard wasn’t sold – remaining council members could not be reached for comment.

The program does not provide enough benefits to residents, Leonard said, and he considered the plan an attempt to circumvent local control and allow Atmos to pass through more costs.

“I just think it’s something that only benefits their company,” Leonard said. “I need to see more benefit to the user as well as the benefits it’s going to give Atmos.”