Item 3 - TGS Memo 2025 Statement of Intent to Change Gas Utility Rates — original pdf

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Mr. Brocato’s Direct Line: (512) 322-5857 Email: TO: FROM: DATE: RE: M E M O R A N D U M City of Austin Thomas Brocato Samantha Miller July 3, 2025 Texas Gas Service Company’s 2025 Statement of Intent to Change Gas Utility Rates Within the Incorporated Areas of the Central-Gulf, West North, and Rio Grande Valley Service Areas Overview of Application On June 30, 2025 Texas Gas Service Company (“TGS” or “Company”) a Division of ONE Gas, Inc. filed a Statement of Intent to Change Gas Utility Rates within the Incorporated Areas of the Central-Gulf, West North, and Rio Grande Valley Service Areas (Application) pursuant to Subchapter C of Chapter 104 of the Gas Utility Regulatory Act in all municipalities exercising original jurisdiction within the incorporated service areas and at the Railroad Commission of Texas (“Commission”). The proposed effective date for new rates is August 19, 2025. Below is a summary of the key components of the filing: • • • • • • TGS is seeking to increase its revenues by $41.1 million, which is an increase of 7.07% including gas costs, or 9.83% excluding gas costs. TGS currently has four service areas in Texas. In its application TGS is seeking to consolidate all service areas into a single statewide jurisdiction served by TGS. The Company’s proposed rates for all customers are based on the systemwide cost of providing service to customers throughout the entirety of Texas. The estimated change in rates would result in small residential customers’ average monthly bill, including cost of gas, of $48.82 per month, and large residential customers average monthly bill, including cost of gas, of $74.30. For the Central Gulf Service Area, the impact of this change would be an increase of $3.94 per month for small residential customers, and a decrease of $2.99 per month for large residential customers. For West North Service Area, the impact of this change would be an increase of $10.38 per month for small residential customers, and an increase of $14.64 per month for large residential customers. For the Rio Grande Valley Service Area, the impact of this change would be a decrease of $13.71 for small residential customers, and a decrease of $4.59 for large residential customers. Currently, Central Gulf Service Area rates consist of a $21.36 per month customer charge and $0.87646 Ccf volumetric rate for small residential customers. Under TGS’s proposed rate change, the customer charge will increase to $29.50 per month and the volumetric rate July 3, 2025 Page 2 • • • • • will decrease to $0.67553 Ccf. Similarly, the large residential customers will see an increase to their current customer charge of $33.36 per month to $39.50 per month, and a decrease to their current volumetric rate of $0.46737 Ccf to $0.31189 Ccf. Additionally, the estimated change in rates would result in small commercial class average monthly bill, including cost of gas, of $114.67 per month, and large commercial customers average monthly bill, including cost of gas, of $676.72 per month. For the Central Gulf Service Area, the impact of this change would be an increase of $7.11 per month for small commercial customers, and a decrease of $63.01 for large commercial customers. For the West North Service Area, the impact of this change would be a decrease of $2.80 per month for small commercial customers, and an increase of $87.46 per month for large commercial customers. For the Rio Grande Valley Service Area, the impact of this change would be a decrease of $45.26 per month for small commercial customers, and a decrease of $59.41 per month for large commercial customers. TGS requests an expansion to its contribution to the Share the Warmth program. Currently, for contributions to the Share the Warmth program, TGS agreed to match customer contributions. Through this agreement, in 2024 TGS contributed $200,000 to the Share the Warmth program. These contributions were not recovered from customers. TGS is now proposing to increase that contribution to $2 million per year which will be recovered from customers in base rates. In addition to the $2 million contribution, TGS is also requesting $120,000 for a donation management platform, $104,000 for a new employee to manage the program, and $60,000 for outreach about the program. In total, TGS will recover $2,284,000 from base rates for the Share the Warmth program. Additionally, TGS requests the creation of a Customer Assistance Residential Rate Schedule Pilot Program for qualifying customers. This program will allow up to 30,000 active qualifying customers to receive service at a reduced customer charge and volumetric rate. This reduction is approximately 25% lower than TGS’s proposed rates. However, the customer will still be responsible for the full cost of any associated rate schedules or riders such as the Cost of Gas Clause, PIT Rider or Rate Case Expense Rider. TGS is requesting $343,000 for a third-party contractor to administer the website and application process, $104,000 for a new employee to manage the program, and $60,000 for outreach. In total, TGS will recover $507,000 from base rates for the Customer Assistance Residential Rate Schedule Pilot Program. TGS is also requesting: (1) approval of new depreciation rates for direct and division distribution and general plan within its service areas; (2) a finding that the expenses for COVID-19 that are contained in regulatory assets authorized by the Commission are reasonable, necessary, and accurate; (3) a prudence determination for capital investment made in Texas through December 31, 2024; (4) approval of the form of notice for the proposed Rate Schedule Pipeline Integrity Testing (“PIT”); and (5) approval to recover the reasonable rate case expenses associated with this filing through a surcharge on rates. Since TGS is requesting consolidation of all its service areas, the Company will need to withdraw its existing tariffs to reflect the new TGS rates and/or related changes necessary to reflect consolidation. The Company’s new proposed tariff includes: (1) a new Customer Assistance rate design and related schedule; (2) revisions to the Rules of Service and T- Terms to include new definitions; (3) revisions to the Cost of Gas clause for consistency July 3, 2025 Page 3 with all Company areas of service; and (4) combining the Commercial, Industrial, Public Authority and Compressed Natural Gas rate on the Transportation Schedule into one Transportation rate and adding a new Electric Generation rate design and rate schedule. Process: City Action and Consolidation at the Railroad Commission As mentioned above, TGS filed its Application with municipalities exercising original jurisdiction within the incorporated service areas. Cities with original jurisdiction over gas rates and services within city limits have the authority to pass a suspension resolution which extends the time to take final action by 90 days from the originally proposed effective date. TGS’s proposed effective date is August 19, 2025. Thus, the City of Austin has until August 19, 2025, to act suspending the effective date. This will move the effective date to November 17, 2025. The City of Austin will have until November 17, 2025, to take final action. We will provide cities with updates as the Application proceeds and will provide cities with a resolution directing them to take final action on the Application. TGS has also filed a concurrent application with the Commission. Like cities with original jurisdiction, the Commission has the ability to suspend the effective date. However, the Commission may suspend the effective date by 150 days. If the Commission suspends to the full effective date, the effective date will be January 16, 2026. Although the Commission has suspended the effective date for the Application before it, cities with original jurisdiction must still take final action on the Application by the 90-day suspended effective date – November 17, 2025. If a city’s final action is to deny the Application as an unreasonable increase, TGS will file an appeal of the denial with the Commission. The proceeding at the Commission as well as appeals of city denials are eventually consolidated into one docket to be processed by the Commission. Systemwide rates will be implemented based on the outcome of the single proceeding before the Commission. TGS Cities’ Consultants and Issue Overview The City of Austin is a member of a city coalition known as Cities Served by Texas Gas Service Company (TGS Cities). TGS Cities is made up of municipalities located within the Central-Gulf and Rio Grande Valley Service Areas. TGS Cities is coordinating with other city groups to allocate issues, reduce costs and not duplicate effort. TGS Cities has retained three consultants to complete an evaluation of the Application. These consultants include Kyra Coyle with NewGen Strategies & Solutions, LLC, Mark Garrett with Garrett Group LLC, and Clarence Johnson. With help from our consultants, TGS Cities will examine the following issues: - Revenue Requirement o Rate Base (or Invested Capital) o Whether TGS’s overall, combined revenue requirement, on a systemwide basis, of $458.8 million for the 12-month period ending December 31, 2024 is reasonable. - Regulatory Assets o Whether the expenses for COVID-19 booked as regulatory assets are reasonable, necessary, and accurate. - Rate of Return/Return on Equity/ Capital Structure July 3, 2025 Page 4 o Whether TGS’s requested Rate of Return of 8.02% based on a capital structure of 40.08% debt and 59.92% equity, a cost of debt of 4.45%, and an ROE of 10.40% is reasonable. - Proposed Tariff Changes/New Programs o Review of all new tariffs and any revisions to current tariffs related to the consolidation of the service areas. - Rate Design/Cost Allocation - Consolidation of Service Areas - Rate Case Expenses Conclusion Currently, TGS Cities, TGS and all other intervening parties have not discussed a procedural schedule. However, parties will likely agree upon a technical conference in late July or early August, and settlement discussions will likely begin in late-August. As the proceeding moves forward, we will continue to keep the City of Austin and other cities in the TGS Cities coalition informed on any major updates.