BEFORE THE GEORGIA PUBLIC SERVICE COMMISSION - DOC

					                     BEFORE THE GEORGIA PUBLIC SERVICE COMMISSION


IN RE: ATMOS ENERGY CORPORATION’S                     )
NOTICE OF FILING OF INCREASED RATES                   )
FOR NATURAL GAS SERVICE                               ) No. 20298-U
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______________________________________________________________________________
       PETITION OF ATMOS ENERGY CORPORATION FOR REHEARING,
                 RECONSIDERATION AND ORAL ARGUMENT
______________________________________________________________________________

         Pursuant to Georgia Public Service Commission Rule 515-2-1-.08, Atmos Energy

Corporation (“Atmos” or “Company”) hereby respectfully requests that the Commission rehear

and reconsider its November 17, 2005 ruling and subsequent Order of November 21, 2005, in the

above-captioned docket and schedule oral argument of this petition. Atmos reserves the right to

supplement this Petition with additional grounds and arguments should the Commission issue an

order in this case after the date of this filing. The Commission’s November 17, 2005, ruling and

Order of November 21, 2005, contains errors of fact and law, and is arbitrary and capricious. As

a result, the ruling fails to provide Atmos with a just and reasonable return sufficient to enable

the Company to operate successfully, maintain its financial integrity, attract capital, or

compensate its investors for the risk assumed. The Commission’s ruling should therefore be

reversed.




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       I. SUMMARY.

         The Commission’s decision lowers the Company’s rates. The Commission’s decision

appears to grant the Company a revenue increase of approximately $345,506, but in reality it

lowers rates by approximately $307,000.


         The following is a summary of the impact of the Commission’s decision for each of the

various components:


         •         Previously un-quantified change in WNA from 30 year normal to 15 year normal

-- The Company’s use of a 15 year weather normal more closely matches the customer’s billings

to the weather that is actually occurring and to provide appropriate calculations for the associated

decoupling mechanism. This change was wholly accepted by Adversary Staff. In doing so,

normalized revenue at current rates was reduced as a result of changing degree days. While

having no impact upon the revenues the Company will receive or the amount of the rates

Company will bill customers, a portion of the Company’s requested increase resulted from this

change. The Commission’s decision reduces rates and, calculated on an equivalent basis, will

produce less revenue than the Company’s current rates and WNA by approximately $653,000.

The Commission took the benefit of this issue while denying the associated cost of the

decoupling mechanism.


         •         Depreciation – The Company requested a $375,134 increase in overall

depreciation expense. The “depreciation issue” has been falsely characterized as being worth

$1,268,922.00 million. Of the Company’s requested net increase, $353,940 is related to the

Company’s requested Equal Life Group treatment.




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         •         Bad Debt – The Commission’s decision ignores Georgia law. In this case, the

Company’s treatment has a dollar impact of $280,115.


         •         Rate of Equity – The Commission granted AGL 10.9% in its recent filing. The

Commission granted Atmos a 10.125% ROE in this filing ignoring the fact that Atmos has

higher risk. The difference to Atmos is about $350,000.


         •         Decoupling Modification to WNA - This is a zero dollar issue. The Company is

proposing a clear, auditable, transparent method for assuring that the customer pays only the

ordered rate. No more, no less.


         •         Modification to Pipe Replacement Plan – The Commission’s denial of the

proposed modifications to the Pipe Replacement Plan is based purely on a flawed interpretation

of the Georgia Alternative Rate Plan Statute and Advisory Staff’s recommendation that the

regulatory lag currently existing be preserved.


         •         Allowances for Increases in Future Operation and Management Costs – The

unidentified cost savings imputed by the Commission’s decision which are only achievable by

eliminating personnel. Atmos currently has no plans to do this. The Commission’s denial of

future increases negatively impacts the Company’s filing by $368,137.


         •         GTI -- The Company’s request for $119,000 in GTI funding was denied despite

the undisputed evidence in the record.


         •         Reporting Requirements - The unduly burdensome requirements imposed by the

Commission’s decision will cost the Company an additional $221,250 for which no allowance

was made.

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         •         Margin Loss Recovery Rider -- There is no evidence in the record to support the

erroneous conclusions upon which this Commission has based its decision to eliminate

Company’s margin loss adjustment rider which was previously recommended by Staff and

approved by this Commission. The issue was not among those identified in the procedural order

governing this docket.




      II. THE COMMISSION HAS ADOPTED ARBITRARY AND CAPRICIOUS
          DEPRECIATION RATES BASED ON UNORTHODOX METHODOLOGIES
          WHICH ARE INCONSISTENT WITH THE COMMISSION’S OWN RULES
          AND ACCEPTED ACCOUNTING PRINCIPLES.

         The Company proposed new depreciation rates for both its Georgia operations and shared

services division based on recent depreciation studies performed by Don Roff of Deloitte &

Touche, LLP at the direction of Company. Mr. Roff’s studies developed depreciation rates

which would decrease depreciation expense for the Company’s Georgia operations by $127,701

and increase the amount of shared services division depreciation expense allocated to Georgia by

$502,835. Overall, Mr. Roff’s depreciation rates resulted in a net increase of $375,134 in the

Company’s total depreciation expense. The Commission denied recovery of even this modest

increase.

         Adversary Staff proposed to disallow any change to the Company’s shared services

depreciation rates without performing any analysis to determine if Mr. Roff’s rates were

appropriate. The Commission adopted Adversary Staff’s position, which resulted in a $502,835

reduction to the Company’s proposed depreciation expense.           In addition, the Commission

erroneously adopted the Average Life Group (ALG) methodology as opposed to the Equal Life

Group (ELG) methodology proposed by Company which resulted in a further reduction in


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depreciation expense of $353,940. The Commission’s erroneous treatment of cost of removal

and other errors discussed below resulted in an additional reduction to depreciation expense of

$415,720. The Commission’s decision reduced the Company’s proposed depreciation expenses

by a total of $1,272,495. The Commission’s decision is flawed in numerous respects.

         (1)       The Commission has violated its own regulatory accounting Rule 515-3-1-.10,

which requires Atmos to retain its records in conformity with FERC system of accounts. FERC

system of accounts requires Atmos to record the actual “book costs of gas plant retired” less the

net salvage value of the same plant retired. Atmos followed the Commission’s regulatory

accounting rule. The Commission, by adopting Adversary Staff’s recommendation, has violated

its own Rule 515-3-1-.10. In failing to follow its own rule, the Commission has improperly

commingled regulatory accounting with financial accounting. Such action by the Commission

denies the Company’s due process rights to a fair hearing as guaranteed by the 1983 Georgia

Constitution, Article I, Section I, Paragraph I.

         (2)       The Commission has violated regulatory accounting rules with respect to net

salvage, which can be found in the Uniform System of Accounts (USOA). The rules provide a

definition of net salvage and go on to state that the utility will keep such records of property and

property retirements, and notes that such records will reflect the percentage of salvage and cost

of removal for property retired from each account, or subdivision thereof, for depreciable gas

plant. The approach adopted by the Commission violates the instructions in the USOA and

denies Company’s due process rights to a fair hearing as guaranteed by the 1983 Georgia

Constitution, Article I, Section I, Paragraph I.

         (3)       The Commission’s decision in this case contains numerous errors in calculations

which make such rates adopted by this Commission unusable.


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         (4)       The Commission, by adopting Staff’s witness King’s recommendations, has

significantly underestimated total lifetime removal costs by divorcing retirements from actual

removal costs (ignoring costs and effect).

         (5)       The Commission, by its decision, has incorrectly imputed net salvage allowances

and deferred recovery of net salvage to future generations of customers. The Commission has

adopted calculations which produce results that are impossibly low. With the exception of

Pennsylvania and certain rate settlements in Georgia, no other regulatory commission has

adopted the Commission’s unorthodox methodology.

         (6)       The definition of depreciation accounting states that depreciation accounting is a

process of cost allocation, not of valuation. The Commission’s approach to net salvage relies on

valuation principles and therefore violates generally accepted accounting principles with respect

to depreciation accounting. This is improper and inappropriate.

     III. THE COMMISSION HAS EXCEEDED ITS STATUTORY AUTHORITY IN
          DENYING THE RECOVERY OF THE GAS COSTS PORTION OF BAD DEBT
          THROUGH THE PGA.

         The Commission adopted Advisory Staff’s recommendation to deny Atmos’ proposal to

recover through the PGA the gas costs portions of those actual amounts the Company writes off

as uncollectible. The Commission’s denial of this proposal is in direct contradiction of the

Georgia Gas Supply Plan Statute, O.C.G.A. § 46-2-26.5 (the “Statute”). The Commission has

failed to apply the Statute as written and has therefore exceeded the authority delegated to it by

the Georgia legislature. See Sawnee Elec. Membership Corp. v. Georgia Pub. Serv. Comm’n,

273 Ga. 702, 544 S.E.2d 158, 162 (Ga. 2001) (holding that the PSC exceeded its authority by

refusing to apply the plain language of a statute).

         The Statute specifically prohibits the Commission from disallowing recovery through the

PGA of “any purchased gas costs which are incurred by a gas utility in accordance with a gas
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supply plan which was in effect pursuant to the provisions of this Code section at the time such

costs were incurred. . . .” absent a finding of fraud or willful misconduct. O.C.G.A. § 46-2-

26.5(l). The legislature, therefore, has eliminated Commission discretion on this point: if the

costs Atmos proposed to recover are purchased gas costs incurred pursuant to an approved gas

supply plan, then the Commission must permit those costs to be recovered through the PGA.

Sawnee Elec. Membership Corp., 544 S.E.2d at 162.

         The legislature specifically defined the term “purchased gas costs” within the Statute, and

the Commission is bound to apply that legislative definition. See In re C.N.W., 274 Ga. 765, 560

S.E.2d 1, 2-3 (Ga. 2002) (holding that a statute must be interpreted in accordance with

legislatively-provided definitions, regardless of how the same terms may be defined in caselaw

or used in everyday parlance). The Statute defines “purchased gas costs” as “all costs incurred

by a gas utility for the purpose of acquiring gas delivered to its system in order to supply its firm

customers. . . .” O.C.G.A. § 46-2-26.5(a)(7). The Statute then proceeds to give an illustrative

list of the types of costs that would fit that definition. The legislature provided the following

examples of the types of costs it was referring to as “purchased gas costs”:

         (1) “the costs incurred in purchasing gas from sellers”;

         (2) “the costs incurred in transactions involving the rights to buy and sell gas”:

         (3) “the costs incurred in gathering gas for transportation to the gas utility”;

         (4) “the costs incurred in transporting gas to the facilities of the gas utility”;

         (5) “the costs incurred in acquiring and using gas storage service for others,
         including the costs of injecting and withdrawing gas from storage”; and

         (6) “all charges, fees, and rates incurred in connection with such purchases,
         rights, gathering, storage, and transportation.”

O.C.G.A. § 46-2-26.5(a)(7). Atmos’ proposal was to recover the actual amounts it pays to its

suppliers for the gas delivered to its customers, no more and no less. The amounts Atmos is

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seeking to recover through the PGA, i.e., the amounts the Company pays to its gas suppliers, are

most certainly “costs incurred by a gas utility for the purpose of acquiring gas delivered to its

system,” and therefore fit the statutory definition of “purchased gas costs” which must be

included within the PGA. Those amounts are also “costs incurred in purchasing gas from

sellers,” “costs incurred in transactions involving the rights to buy and sell gas,” and “charges,

fees, and rates incurred in connection with such purchases.” As such, the costs Atmos is

requesting to recover through the PGA fall squarely within both the definition of purchased gas

costs under the Gas Supply Plan Statute, and several of the illustrative examples given within the

Statute.

         The Advisory Staff recommendation adopted by the Commission urged denial of Atmos’

proposal because the Statute does not specifically reference “uncollectibles” within the listed

examples of the types of costs that fit the definition of “purchased gas costs.” (Advis. Staff Rec.

§ 13.) The fact that the legislature did not specifically reference uncollectibles in the Statute is

immaterial because the definition within the Statute undoubtedly encompasses all costs incurred

in purchasing gas, which would necessarily include purchased costs that are not reimbursed by

consumers. Advisory Staff’s position would be reasonable only if the list provided in the Statute

were exclusive. The legislature removed all doubt on this point, clarifying that the list is

illustrative, not exclusive, by prefacing the list with the phrase “including, without limitation.”

See Lowdry v. McDuffie, 269 Ga. 202, 496 S.E.2d 727, 731 (Ga. 1998) (holding that the phrase

“including, but not limited to” within a statute clearly connotes the examples following are not

exclusive). Advisory Staff’s interpretation renders that phrase meaningless.

         The position of Adversary Staff and CUC, which was also endorsed by Advisory Staff,

was that although the amounts Atmos pays its gas suppliers are certainly “purchased gas costs”


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at the time they are incurred, they are no longer “purchased gas costs” if Atmos is not successful

in obtaining reimbursement for those costs from the customer, and must write those amounts off

as uncollectible. The position that the determination of whether costs are “purchased gas costs”

and therefore recoverable under the Statute is dependent upon whether the customer pays the bill

is illogical. The Statute grants Atmos the right to recover its gas costs, not merely the right to

bill those costs to the customer. See O.C.G.A. § 46-2-26.5(e) (providing that the adjustment

factors “shall be set at levels appropriate to account for underrecoveries or overrecoveries

during the preceding recovery year”); O.C.G.A. § 46-2-26.5(i) (requiring utilities to file

proposed revisions to the adjustment factors “based on actual unrecovered purchased gas costs

in order that the revenues to be recovered pursuant to such rate during the remainder of the

current recovery year shall equal, as nearly as possible, the gas utilities unrecovered purchased

gas costs . . . .”) (emphasis added). It is clear that the legislature intended the PGA to provide a

mechanism for the Company to recover, as accurately as possible, 100% of the costs it incurs in

procuring gas for its customers, no more, no less. The Commission’s decision in this case is

contrary to that legislative goal, and contrary to the unequivocal language of the Statute.

         The Advisory Staff recommendation adopted by the Commission also argued that Atmos’

proposal would dilute the Company’s incentive to collect on customer bills. The proof offered

by Atmos in this docket established that these arguments are not well supported, and have in fact

been rejected by the number of other state commissions who have authorized recovery of gas

costs portions of bad debt through PGA-type mechanisms within the past few years. In Georgia,

however, the legislature has already made the policy determination on the issue, and has done so

in unequivocal terms. Therefore, the policy arguments put forth by Advisory Staff and adopted

by the Commission are irrelevant. Regardless of whether the Commission agrees that permitting


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recovery of all gas costs, including those that are written off, is good regulatory policy, Atmos is

nonetheless entitled to recovery of those costs pursuant to the terms of the Georgia Gas Supply

Statute. See Sawnee Elec. Membership Corp. v. Georgia Pub. Serv. Comm’n, 273 Ga. 702, 544

S.E.2d 158, 162 (Ga. 2001) (holding that the PSC may not avoid the effect of a statute by

applying a strained construction which results in a perversion of the legislative intent). That

Statute requires that the Commission grant Atmos’ proposal to recover 100% of its gas costs

through the PGA, including those gas costs that cannot be collected from its customers. The

Commission’s decision to the contrary is therefore arbitrary and capricious and should be

reversed.

     IV. THE COMMISSION’S DECISION REGARDING THE AUTHORIZED RATE
         OF EQUITY IS BASED ON FLAWED ASSUMPTIONS AND
         METHODOLOGY, AND IS INCONSISTENT WITH PREVIOUS
         COMMISSION DECISIONS.

         The Commission has adopted Advisory Staff’s recommendation awarding the Company a

rate of equity of 10.125%, a rate which is, inexplicably, even lower than the original 10.375%

cost of equity the Commission awarded earlier this year to Atlanta Gas Light (“AGL”), which

was eventually increased by stipulation in the AGL case to 10.9%. The Commission’s decision

in this docket cannot be reconciled with its decision in the AGL case, nor with the large amount

of undisputed evidence from both Company and Staff witnesses in both this docket and the

recent AGL case that AGL, as a pipes-only distribution company, has a lower investment risk

that any other traditional gas distribution company, including Atmos. As Dr. Murry explained in

his rebuttal testimony in this docket, Staff witness Richard LeLash stated that AGL’s “overall

risk is among the lowest or, is actually the lowest, in the gas distribution utility industry.”

(Murry Rebuttal p. 4.) As Staff witness LeLash explained, AGL has none of the risk associated

with gas procurement, billing and collection responsibility, customer migration, and declining

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usage that traditional gas distribution companies, like Atmos, have. (Id.) As Dr. Murry testified,

Atmos is a company engaged in a higher risk business than AGL, and with a lower common

equity ratio. (Id.) The proof is undisputed that Atmos has a higher risk than AGL. As Staff

witness LeLash recognized, AGL’s lower risk must be reflected by a lower rate of equity than

that of traditional gas distribution companies like Atmos.              (Id.)   Advisory Staff’s

recommendation makes no mention of the overwhelming and undisputed evidence that Atmos is

higher risk, and thus, is entitled to a higher rate of equity than AGL. By awarding Atmos a lower

return than AGL, the Commission has, without explanation, failed to recognize that risk

differential. The Georgia Administrative Procedures Act requires that findings of fact shall be

based exclusively on the evidence and on matters officially noticed. O.C.G.A. Section 50-13-

13(a) (9). The Commission’s decision in this case is not supported by the evidence and violates

the requirements of Georgia law.

         The inconsistency between the Commission’s decisions in the AGL case and this docket

provides conclusive proof that the extremely low rate of return adopted by the Commission in

this case fails to provide Atmos with a return that will compensate investors for the risk assumed.

As such, the Commission’s decision violates the standards set forth by the U.S. Supreme Court

in Bluefield Water Works & Improvement Co. v. Public Service Comm’n of West Virginia, 262

U.S. 679, 692-93, 43 S.Ct. 675 (1923) and FPC v. Hope Natural Gas Co., 320 U.S. 591, 605, 64

S.Ct. 281 (1944).

         Although the Commission’s failure to compensate Atmos for the risk of its operations is

conclusive evidence, standing alone, to require reversal of the Commission’ decision, there are

numerous other fatal flaws in the Advisory Staff’s cost of equity recommendation adopted by the

Commission.          Advisory Staff’s recommendation adjusted both experts’ cost of equity


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computations, but made no corrections for, nor any mention of, the numerous substantial errors

in Adversary Staff witness Hill’s computations identified in Dr. Murry’s rebuttal testimony,

including the fact that only two of the eleven companies Mr. Hill selected as comparable met his

own criteria. (Murry Rebuttal p. 8.) Advisory Staff ignores, as Mr. Hill did, that Mr. Hill’s own

calculations demonstrated that the average cost of capital for the gas distribution companies Mr.

Hill selected as comparable to Atmos was 10.95%. (Murry Rebuttal p. 6.) Advisory Staff

accepted Mr. Hill’s analysis as a base from which he made certain adjustments, but made no

corrections for these and other substantial errors which render Mr. Hill’s analysis devoid of any

reliable analytical support.    Advisory Staff’s recommendation, and correspondingly, the

Commission’s adoption of that recommendation, is therefore clearly erroneous and must be

reversed.

         These errors and the Commission’s failure to compensate Atmos for its business risk

aside, there exists a third flaw in Advisory Staff’s recommendation that like the previous errors,

requires reversal of the Commission’s decision standing alone. Advisory Staff did not merely

review and make adjustments to the analyses performed by Mr. Hill and Dr. Murry. Instead,

Advisory Staff performed at least two types of cost of equity analyses which were not performed

at all by the Company or Adversary Staff witnesses.              Advisory Staff recites in its

recommendation that Advisory Staff calculated Atmos’ cost of equity using the Gordon Growth

Model and Market-to-Book Ration methods, respectfully. (Advis. Staff Rec., § 2, at third page

and Exhibit 2.) Neither Mr. Hill nor Dr. Murry performed these analyses, and there is no

explanation provided within Advisory Staff’s recommendation of how Advisory Staff reached

the conclusions stated for these two analyses. Atmos has been substantially prejudiced and

deprived of the opportunity to cross-examine or provide rebuttal testimony as to these


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computations, in violation of the Company’s due process rights. Atlanta Gas Light Co. v.

Georgia Pub. Serv. Comm’n, 152 Ga. App. 366, 262 S.E.2d 628, 633 (Ga. Ct. App. 1979)

(holding that an administrative agency must confine itself to the record before it and afford the

parties the opportunity to contest and cross-examine the material forming the basis of the

Commission’s decision); see also O.C.G.A. § 50-13-15 (parties must be notified of the material

noticed by the Commission, including any staff memoranda or data, and the parties shall be

afforded an opportunity to contest the material so noticed); see generally 2 Am.Jur.2d

Administrative Law § 444 (noting the universal rule that, for reasons as fundamental as due

process, an agency may not base its decision on evidence or information outside the record.) The

Georgia Administrative Procedures Act requires that findings of fact shall be based exclusively

on the evidence and on matters officially noticed. O.C.G.A. Section 50-13-13(a) (9). By having

gone outside the evidence the Commission’s decision is illegal and denies Atmos minimum due

process as guaranteed by the 1983 Georgia Constitution, Article l, Section l, Paragraph l.

      V. THE COMMISSION’S DENIAL OF THE COMPANY’S PROPOSED
         MODIFICATIONS TO THE WNA TO DECOUPLE REVENUES FROM
         VOLUMES IS ARBITRARY AND CAPRICIOUS.

         The Commission’s decision to adopt Advisory Staff’s recommendation to deny both the

Company’s proposal to refresh the BL and HSF factors in the WNA formula each year, and the

proposed mechanism to decouple revenues from volumes is not well-founded. Advisory Staff

rejected both proposals based on the argument that “it is not appropriate to have self adjusting

cost items outside of a base rate proceeding.” (Advis. Staff Rec. § 12.) Obviously, Advisory

Staff’s policy of permitting ratemaking only through base rate cases is not the policy of the

Commission, as evidenced by the Commission’s adoption of numerous such mechanisms in the

past, including the Company’s existing Pipeline Replacement Program surcharge and Purchased

Gas Adjustment Rider, among others. That discrepancy aside, the proposed modifications to the
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WNA are not cost adjustment mechanisms, they are merely mechanisms to enable the Company

a reasonable opportunity to achieve its authorized revenue requirement despite the undisputed

and inevitable decline in customer usage the Company will continue to experience. Refreshing

the customer usage factors will ensure that the current WNA formula will not over- or under-

compensate for weather-related usage variations by utilizing the most accurate and up-to-date

information available. The Commission’s failure to do so undermines the precision of the WNA

adjustment, inviting equal risk to the Company and customers.

         Neither Advisory Staff nor Adversary Staff disputed the evidence the Company presented

demonstrating that residential consumption will continue to decline in the future at a rate of

approximately 9 CCF (100 standard cubic feet) per year due to factors other than weather. The

Company has presented undisputed proof that it will continue to experience declining volumes

during the period of time the rates set in this case will be in effect beyond fluctuations due to

weather. The Company also has repeatedly indicated its willingness both to discuss different

forms of decoupling mechanisms, including a mechanism similar to the one recently adopted by

the North Carolina Public Utilities Commission for Piedmont Gas, and to use a portion of the

revenues from a decoupling mechanism to develop a conservation program in cooperation with

CUC and Commission Staff. In addition, the Company has offered to discuss crafting a program

to provide financial assistance for weatherization efforts, or to provide rebates to make higher

efficiency appliances more affordable, both of which would provide immediate, tangible benefits

for Georgia residents, specifically those with low-income. The Commission’s decision not only

forecloses the opportunity for such a conservation program in Georgia, it also provides no

mechanism to allow the Company to compensate for the future decline in its revenues it will

undoubtedly experience, and therefore does not afford Atmos a reasonable opportunity to meet


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its authorized revenue requirement. Such rates do not pass constitutional muster. See Atlanta

Gas Light Co. v. Georgia Pub. Serv. Comm’n, 152 Ga. App. 366, 262 S.E.2d 628, 631 (Ga. Ct.

App. 1979) (holding that constitutional substantive due process standards demand that the

Commission set rates at a level that will allow the utility to meet its authorized revenue

requirement). Accord, Georgia Power Co. v. Georgia Pub. Serv. Comm’n, 231 Ga. 339, 201

S.E.2d 423 (Ga. 1973). The entire system of public utility regulation in this country is founded

on the principle that utilities have entered into a regulatory compact in which they undertake the

obligation to serve and to commit capital to the public service in exchange for a constitutionally

guaranteed right to rates that give them a reasonable opportunity to meet their costs of service

and earn a reasonable return on their investment. See Smyth v. Aymes, 169 U.S. 466, 18 S.Ct.

418 (1898); Munn v. Illinois, 94 U.S. 113 (1876). Atmos has been denied that opportunity by the

Commission’s decision. See Sawnee Elec. Membership Corp. v. Georgia Pub. Serv. Comm’n,

273 Ga. 702, 544 S.E.2d 158, 162 (Ga. 2001) (holding that the PSC exceeded its authority by

refusing to apply the plain language of a statute).

     VI. THE COMMISSION’S DENIAL OF THE COMPANY’S PROPOSED
         MODIFICATIONS TO THE PIPELINE REPLACEMENT PROGRAM
         SURCHARGE IS NOT WELL FOUNDED.

         The Commission’s denial of the proposed modifications roll-in to base rates of the

portion of the Company’s Pipeline Replacement Plan (“PRP”) surcharge accumulated through

the test year was based exclusively on Advisory Staff’s argument that the roll-in would eliminate

the regulatory lag provided for in the original Commission order establishing the surcharge.

Advisory Staff’s argument that a roll-in would be outside the original PRP order is circular. The

Company’s proposal was that the Commission modify the existing surcharge to affect the roll-in,

which the Commission certainly has the authority to do based on the record evidence in this

docket. Moreover, the original PRP order contemplated the surcharge would be rolled-in to base
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rates at the conclusion of the program, so a roll-in of amounts accumulated thus far is certainly

not inconsistent with the previous order. Advisory Staff’s position that the roll-in proposal

should be rejected because it lessens regulatory lag is not well-founded. Regulatory lag is

sometimes inevitable, but preserving regulatory lag is certainly not an appropriate regulatory

goal. See MGTC, Inc. v. Public Service Com’n of Wyoming, 735 P.2d 103, 104 (Wyo. 1987)

(noting that avoidance of regulatory lag is advantageous); see also Montana Dakota Utilities Co.

v. Public Service Com’n of Wyoming, 847 P.2d 978, 981 (Wyo. 1993) (same); Attorney General

v. Public Service Com’n, 546 N.W.2d 266 (Mich. Ct. App. 1996) (noting that “[r]egulatory lag is

a common problem in the field of utility regulation”); Citizens’ Utility Bd. v. Public Service

Com’n, 190 Wis.2d 469, 528 N.W.2d 91 (Wis. Ct. App. 1994) (Table) (stating that public service

commission should take steps to minimize the negative effects of regulatory lag). The original

PRP order simply established a mechanism for the Company to recover pipeline replacement

costs; it in no way, either in “spirit” or “letter,” conditioned that recovery on a two-year

regulatory lag.

         The Advisory Staff reasoning regarding the proposed cost recovery modification to the

PRP surcharge is equally as flawed. Advisory Staff argued, without citation of authority, that

granting the Company’s proposed modifications would violate the Alternative Rate Plan Statute,

O.C.G.A. §46-2-23.1, which sets up specific requirements for the granting of “alternative rate

plans.” Advisory Staff’s interpretation of the Alternative Rate Plan statute is contrary to Georgia

law, O.C.G.A §46-2-23.1, and such interpretation is equally flawed as its interpretation of the

Georgia Gas Supply Statute discussed above.          In recommending denial of the Company’s

proposal to recover the gas costs portions of bad debt through the PGA, Advisory Staff insists

that uncollectibles do not fall within the definition of “purchased gas costs” provided in the


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Georgia Gas Supply Statute, O.C.G.A. § 46-2-26.5, because uncollectibles are not mentioned

among the list of illustrative examples of costs following the provided definition.

         Like the Gas Supply Statute, the Alternative Rate Plan Statute provides a definition of

alternative rate plans followed by an illustrative list of the types of plans which meet the

provided definition. If the Advisory Staff had used the same reasoning it applied to the Gas

Supply Statute, it would have quickly concluded that Atmos’ proposed modifications did not

constitute an alternative rate plan because the modifications are not in any way mentioned among

the illustrative list. However, as discussed above, Advisory Staff’s reading of the Gas Supply

Statute ignores the fact the list, like the list contained in the Alternative Rate Plan Statute, is

prefaced with the phrase, “including, without limitation.” As in the case of the Gas Supply Plan

Statute, it is the definition itself which must be examined.

         The Alternative Rate Plan Statute defines an alternative rate plan as “a method of

establishing just and reasonable rates and charges for a gas company by performance based

regulation without regard to methods based strictly on cost of service, rate base, and rate of

return.” The statute continues to give some specific examples of such performance based

regulation, including earnings sharing, price caps, price-indexing formulas, ranges of authorized

rates of return, and suspension of regulatory requirements. Atmos’ proposal to expand the one-

sided PRP earnings review process to examine both cost decreases, as it does now, and costs

increases is in no way the type of performance based regulation referred to within the statutory

definition of alternative rate plan. Adversary Staff witness Lane Kollen confirmed as much

during cross-examination. (Trans. pp. 744-46.) Under Atmos’ proposal, the Company’s rates

are still set based strictly on cost of service, rate base and rate of return. There is no earnings

sharing, no price caps, no price-indexing formula, no ranges of authorized rates of return, and no


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suspension of regulatory requirements. The Company’s proposal is not an alternative rate plan,

and the Commission decision to the contrary is inconsistent with the Alternative Rate Plan

Statute, and thus beyond the Commission’s authority.

         The Company’s proposal will make the PRP process more transparent and more

consistent. Currently, the Company’s PRP surcharge calculation takes into account only those

costs changes resulting from pipe replacements, and does not consider whether other costs have

changed and thus added to or offset the pipe replacement costs. It is a well-established principle

that regulatory agencies should endeavor to examine the totality of the circumstances when

setting rates. Georgia Power Co. v. Georgia Pub. Serv. Comm’n, 231 Ga. 339, 201 S.E.2d 423,

425 (Ga. 1973). This principle recognizes that an analysis that focuses exclusively on only part

of the costs or revenues can give an inaccurate picture and result in confiscatory rates. A. Finkl

& Sons Co. v. Illinois Commerce Comm’n, 620 N.E.2d 1141, 1147 (Ill. Ct. App. 1993); National

Fuel Gas Distrib. Corp. v. Pennsylvania Pub. Utility Comm’n, 464 A.2d 546, 567 (Pa. 1983). In

the past several years, Louisiana, Mississippi, Alabama, Oklahoma and South Carolina have all

implemented adjustment mechanisms similar to the Company’s proposal in this case.             For

Georgia, the Company’s proposal would make the surcharge calculation and review more

accurate, and thus more equitable for both the Company and the ratepayers.

         At the November 3 hearing, Staff counsel’s questioning of Company witness Tom

Petersen seemed to indicate Staff was still unclear as to precisely how the Company’s proposed

PRP modifications would be implemented. The Company had hoped to engage in substantive

discussions with Staff on this issue at the planned November 10 settlement conference, and

continues to remain open to discussing revisions to the Company’s proposal to address Staff

concerns, including, for example, the addition of a true-up mechanism.


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    VII. THE COMMISSION’S DENIAL OF ALL ALLOWANCES FOR INCREASES
         IN FUTURE OPERATION AND MANAGEMENT COSTS WILL HAVE A
         NEGATIVE IMPACT ON THE GEORGIA RATEPAYERS.

         The Commission adopted Advisory and Adversary Staffs’ recommendations to disallow

$355,890 of cost increases which relate to escalation of the Company’s operating and

management (“O&M”) costs due to inflation. Advisory and Adversary Staff did not dispute that

these cost increases will occur, yet the rates set by the Commission’s decision make no provision

for the recovery of those cost increases. Rates which do not permit the Company to meet its

costs of maintaining the requisite level of services in Georgia are confiscatory and violative of

substantive due process of law. See Georgia Power Co. v. Georgia Pub. Serv. Comm’n, 231 Ga.

349, 201 S.E. 2d 423 (Ga. 1973). The Commission’s adoption of Advisory and Adversary

Staff’s recommendation to disallow any projected increases in the Company’s future O&M costs

will force the Company to continually examine the way it does business in Georgia to find new

ways to cut operation costs. The Advisory and Adversary Staffs’ recommendations, however,

included no explanation as to how the Company might achieve such cost savings, nor has the

Commission provided any guidance on how such savings could be achieved. By refusing to

make any allowance for increases in operating, maintenance, administrative, liability insurance,

or construction costs, the Commission has left the Company with no choice but to decrease those

costs in other ways. If the Company is unable to achieve the cost savings the Commission has

summarily determined will be possible, the rates set in this proceeding will be, on their face,

inadequate and insufficient. A substantial portion of the Company’s operating costs are labor

costs or costs tied in some way to labor, so one of the options the Company may be forced to

consider is reducing the number of employees it has in Georgia, which will in turn impact the

level of service the Company is able to provide. This is apparent in the fact that Advisory Staff’s

recommendation adopted by the Commission also ignores the fact that most of the technology
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investments the Company has made have resulted in higher service to customers, and not

necessarily lower operating costs for the Company. Direct labor costs for the Company in

Georgia make up approximately 43% of the Company’s O&M expense. As the Company’s costs

other than labor are substantially fixed, the most logical way to achieve the savings the

Commission has imputed to the Company is to reduce labor costs. The Commission’s decision

in this case should consider all these impacts resulting from the policy reflected in the

disallowance of operating costs increases.

  VIII. THE COMMISSION’S DENIAL OF THE COMPANY’S GTI FUNDING
        REQUEST IS UNFOUNDED AND UNSUPPORTED BY EVIDENCE.

         The Commission’s oral decision adopted Advisory Staff’s recommendation, which

denied Atmos the ability to recover in rates its dues to the Gas Technology Institute (GTI)

attributable to its Georgia operations. The evidence presented indicates that GTI has a history of

conducting numerous research and development activities that provide benefits to ratepayers.

The basis for the Commission’s refusal to authorize Atmos’ request for research and

development funding with GTI is unreasonable and unsupported by the evidence. Neither

Adversary Staff nor CUC offered rebuttal testimony on this issue and Company’s testimony is

uncontradicted.

         Moreover, the Commission’s order does not even contain a finding regarding the

Company’s GTI request, in violation of the requirements of the Georgia Administrative

Procedures Act, O.C.G.A. § 50-13-17. As such, Atmos reserves the right to supplement this

petition with additional arguments should the Commission issue a subsequent order.




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     IX. THE COMMISSION’S REFUSAL TO PERMIT THE COMPANY TO
         RECOVER THE INCREASED COSTS IT WILL INCUR AS A RESULT OF
         THE EXPANDED REPORTING REQUIREMENTS IMPOSED BY THE
         RULING IS ARBITRARY AND CAPRICIOUS.

         The Commission’s decision has imposed upon the Company additional reporting

requirements which are greater than the Company has in any other jurisdiction, and which would

essentially require that the Company compile monthly the same information contained in the

Minimum Filing Requirements for a rate case, including the making and explanation of all

ratemaking adjustments. As the evidence presented by the Company showed, the Commission’s

decision will require Atmos to hire additional staff in order to comply with the new reporting

requirements. The additional cost to Atmos was estimated to be $221,250. There is no evidence

that the Company’s projected cost increases will not occur, or that the Company’s projection is

in any way inaccurate. The Advisory Staff recommendation makes no mention of the additional

costs to the Company, but adopts Adversary Staff’s additional reporting requirements in full,

including the requirement for all ratemaking adjustments. The Commission’s denial of the

Company’s right to recover the costs it will incur as a direct result of the Commission’s decision

is arbitrary and capricious. See Atlanta Gas Light Co. v. Georgia Pub. Serv. Comm’n, 152 Ga.

App. 366, 262 S.E.2d 628 (Ga. Ct. App. 1979) (holding that rates must be set to permit the utility

to recover its costs of service).

      X. THE COMMISSION’S RULING REVERSING ITS PREVIOUS ORDER
         ESTABLISHING THE MARGIN LOSS RECOVERY RIDER HAS DENIED
         THE COMPANY ITS DUE PROCESS RIGHTS.

         The Commission has never adopted uniform procedural rules for conducting public

hearings. In each docket, a Procedural and Scheduling Order is issued, in part, to comply with

the minimum due process requirements established by the Georgia legislature as set forth in




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O.C.G.A. § 50-13-13. A Procedural and Scheduling Order was entered and revised twice in this

matter, the last revised Order being entered July 22, 2005.

         The Administrative Procedures Act, O.C.G.A. § 50-13-13(2)(D), requires the

Commission to give notice of the issues involved in the case. This Commission attempts to

comply with the procedural due process requirements set forth in the Georgia Administrative

Procedures Act by stating the issues involved on Page 6 of its July 22, 2005, Order. While the

Commission did refer to possible modification of the Pipeline Replacement Rider, no such issue

was listed by the Commission in its Order that remotely pertained to eliminating the Margin Loss

Recovery Rider previously authorized by this Commission in Docket No. 13031-U on December

4, 2001. Adversary Staff had no intention of eliminating the margin loss recovery because they

recommended approving Company’s request to shift the recovery of margin loss to base rates.

The issue only came up in Steven Ruback’s testimony presented on behalf of CUC. O.C.G.A. §

50-13-13 requires reasonable notice of the issues involved be given prior to the hearing. The

Georgia Court of Appeals, in reference to the Administrative Procedures Act, O.C.G.A. § 50-13-

13(2)(D), has held that a notice must state the issues involved, Georgia Public Service

Commission, et al. vs. Alltel Georgia Communications, 244 Ga. App. 645, 646 (2000). Further, a

federal district court decision which specifically addresses notice mandated by minimum due

process requirements established by the Georgia Administrative Procedures Act holds that

adequate time is required to be provided between the notice and the hearing so that the evidence

could be confronted. James O. Smith, III vs. Commissioner of the Georgia Department of Public

Safety, 673 F. Supp. 446, headnote (3), (1987). The Commission’s elimination of Company’s

Margin Loss Recovery Rider previously approved in Docket No. 13031-U without having given

prior notice that such would be an issue in the hearings, violates its own Procedural and


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Scheduling Order of July 22, 2005. The Commission by its failure to give Company notice

relative to its Margin Loss Recovery Rider has also violated the Georgia Administrative

Procedures Act, O.C.G.A. §§ 50-13-13(a)(1) and 50-13-13(2)(D) which is a denial of

Company’s procedural due process rights guaranteed by the 1983 Georgia Constitution, Article I,

Section I, Paragraph I, as well as, the Fifth and Fourteenth Amendments to the United States

Constitution.

         Commission’s elimination of Company’s Margin Loss Recovery Rider is especially

egregious because such action is based upon erroneous assumptions of new load growth or

throughput. (Ruback Direct, p. 620, lines 10-12 and p. 621, line 5.) To the contrary, the

evidence is uncontradicted that “the gas industry as a whole is experiencing declining usage per

customer and Atmos Energy’s Georgia service area is no exception.” (Test. of Gary L. Smith,

Trans. p. 191, line 14, Exhibit A-28.) Even Adversary Staff witness, Michael J. McFadden,

agreed and testified that he believed the Company’s forecasted decline in customers is

reasonable. (Trans. p. 1091, line 3.) There is no evidence in the record to support the erroneous

conclusions of Mr. Ruback upon which this Commission has based its decision to eliminate

Company’s margin loss adjustment rider which was previously recommended by Staff and

approved by this Commission.

     XI. CONCLUSION.

         The Commission’s November 17, 2005 ruling contains errors of fact and law, and is

arbitrary and capricious. As such, Atmos respectfully requests that the Commission rehear and

reconsider its decision and schedule oral argument on this Petition.



         Respectfully submitted this 28th day of November, 2005.

                                                     HULSEY, OLIVER & MAHAR, LLP
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200 E.E. Butler Parkway           By:________________________________
P.O. Box 1457                           Julius M. Hulsey
Gainesville, GA 30503
(770) 532-6312
(770) 531-9230 (facsimile)

                                  BAKER, DONELSON, BEARMAN,
                                  CALDWELL & BERKOWITZ, P.C.

1800 Republic Centre              By:_________________________________
633 Chestnut Street                     Misty Smith Kelley
Chattanooga, TN 37450-1800
(423) 209-4148
(423) 752-9549 (facsimile)

                                  ATTORNEYS FOR ATMOS ENERGY
                                  CORPORATION




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                            GEORGIA PUBLIC SERVICE COMMISSION
                                    STATE OF GEORGIA


IN RE: ATMOS ENERGY CORPORATION’S                     )
NOTICE OF FILING OF INCREASED RATES                   )
FOR NATURAL GAS SERVICE                               ) No. 20298-U
                                                      )
                                                      )
                                                      )
                                                      )
                                                      )
                                                      )

         I, Julius M. Hulsey, an attorney for Atmos Energy Corporation hereby certify that I have

this date furnished a copy of the foregoing PETITION OF ATMOS ENERGY CORPORATION

FOR REHEARING, RECONSIDERATION AND ORAL ARGUMENT by hand delivering a

copy of same addressed to the following:

           Jeannette Mellinger                        Jamie Barber
           Consumers’ Utility Counsel Division        Georgia Public Service Commission
           Governor’s Office of Consumer Affairs      244 Washington Street, S.W.
           47 Trinity Avenue, S.W., Suite 414-H       Atlanta, GA 30334
           Atlanta, GA 30334
           Victoria Taylor                            Philip Smith
           Georgia Public Service Commission          Georgia Public Service Commission
           244 Washington Street, S.W.                244 Washington Street, S.W.
           Atlanta, GA 30334                          Atlanta, GA 30334

           Nancy Tyer
           Georgia Public Service Commission
           244 Washington Street, S.W.
           Atlanta, GA 30334

         This ______ day of November, 2005.

                                                     ____________________________________
                                                     Julius M. Hulsey
200 E. E. Butler Parkway
P.O. Box 1457
Gainesville, GA 30503
(770) 532-6312
(770) 531-9230 (facsimile)

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