Atmos Energy is asking Dallas for $18.3 million gas rate hike to pay for aging pipes

Atmos Energy is asking Dallas officials to approve another gas rate increase for customers that would raise the company’s revenues by $18.3 million a year. The company says it already spent that money last year to replace pipelines and better detect leaks.

The Dallas-based utility, which operates in eight states, wants to hike gas rates by 9.4% — or $5.48 for the average resident — a month, according to a council memo. City staffers could still negotiate the rate before they recommend one to the council in May.

If the Dallas City Council rejects the hike, Atmos Energy would set the rate by June 1 and appeal the decision to the Railroad Commission of Texas, which ultimately sets the rate and has regulatory power over gas lines.

Atmos Energy has been under scrutiny over its aging pipelines after a natural gas explosion in northwest Dallas in February 2018 killed a 12-year-old girl.

The company says it eliminated more than 16,000 leaks during the last fiscal year, which ended in September, through “permanent replacement or repair” of pipeline in its mid-Texas region that includes the Dallas-Fort Worth area, according to its 2020 Dallas Annual Rate Review filing.

Last year, the City Council denied the $10.1 million rate increase Atmos Energy requested, but the state ultimately approved a slightly lower rate, said Elizabeth Reich, the city’s chief financial officer. The company was granted an $8.5 million rate hike, according to Atmos Energy.

Chris Felan, Atmos Energy’s vice president of rates and regulatory affairs, said Monday the company poured millions on pipeline replacements last year. Atmos Energy spent more than $200 million in Dallas for its infrastructure repairs, according to the annual rate review filing.

“We’ve accelerated the pace of replacement,” Felan said Monday. “We have crews in every area of the city trying to replace the aging infrastructure.”

A Dallas Morning News investigation in 2018 found that more than two dozen homes across North and Central Texas have blown up since 2006 because of leaking natural gas. Nine residents died, and 22 others were badly injured.

Council member Jennifer Staubach Gates, who heads the council’s Government Performance and Financial Management Committee, said Monday that the council should consider whether it can negotiate a lower rate, as opposed to ceding the decision to the state.

The city has limited control over the rate Atmos Energy sets. If the council rejects the rate, Atmos Energy still implements the rate it requested by June 1 unless the state decides to decrease it.

Atmos Energy has more than 1.7 million customers in its mid-Texas region, which includes the Dallas-Fort Worth area. Residential gas sales revenues were down last fiscal year, to $1.73 billion from $1.92 billion, according to the company’s annual report.

Updates to its aging pipelines are important, Gates said.

“We want to make sure that we allow Atmos to be able to replace their infrastructure,” Gates said.

But council member Lee Kleinman isn’t convinced approving the increase would lead to pipeline improvements.

Kleinman said the city’s role is to protect residents from unwarranted price hikes, and he believes Atmos Energy prioritizes paying dividends. Even when the city has approved the rates in the past, he said the company didn’t replace the aging infrastructure it should have.

“That appears to be a low priority to them, and they’re constantly looking for excuses not to keep the infrastructure up to date,” Kleinman said. “At some point their board is going to understand that it’s more important to provide safety to the community than dividends to their stockholders.”

Felan said the dividends are important because the infrastructure improvements require capital.

“Our dividend payout is among the lowest in the industry,” Felan said.

Atmos Energy’s net income totaled $328.8 million, according to its annual report. Shareholders’ equity spiked to $5.75 billion in September 2019 from $3.46 billion in September 2016.

The National Transportation Safety Board is still investigating the February 2018 gas explosion. The family is seeking $1 million in damages.

Company officials in Atmos Energy’s annual report said the litigation “will not have a material adverse effect on our financial condition, results of operations or cash flows.” The company is insured for liabilities but will be responsible for the first $1 million of each incident.

City staffers plan to brief the the council on May 6, Reich said in a council memo. Dallas’ deadline to decide on the rate hike is May 29.