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Austin Energy cost analysis shows need for increased charges

Wednesday, April 27, 2011 by Michael Kanin

Preliminary results from an Austin Energy study have revealed a startling gap between the base rate that the utility charges and the costs it incurs providing the services included in that amount.


Austin Energy General Manager Larry Weis told the City Council yesterday the utility would need to charge $33.01 a month for customer service and equipment for Austin Energy to break even on the deal. Austin Energy customers currently pay only $6 a month for what it calls the “customer charge.”


Still, Weis assured Council members that he wouldn’t be calling for a $27 hike in that monthly figure. “I think the discussion we will have is ‘What is the right monthly charge for customers?’” he said. “Thirty-three dollars is probably not the answer, but what should it be?”


Weis’ presentation also included a five-year financial forecast, in which he projected a $53.1 million loss for Austin Energy through the end of the 2011 calendar year. That figure includes as much as $12 million for the controversial demolition contract for the Holly Street Power Plant.


Mayor Pro Tem Mike Martinez compared the situation to the one at Capital Metro. “For 20 years we didn’t have any type of methodology for reviewing our fare increases, and for 20 years, we built up 33,000 customers who were riding for free,” he said. “We literally went to 50 cents per trip, and it was – you know, you were destroying this community … I think that’s what we’re going to go through.”


He then asked Weis how the utility had fallen so far behind in its pricing. “How did we get to this point of such a discrepancy?” he asked.


Weis noted that when the utility recalculated its rates in 1994, it used a fuel adjustment charge to make up for costs incurred by adding new fuels. That method left the charge that the utility assesses for fuel absorbing costs that might have otherwise been included in the customer charge.


“That avoided having to come to you, go through all this, and do the exercise,” Weis told the Council.


Council Member Bill Spelman wondered if the redesign of Austin Energy’s rate structure could incentivize more power use. He noted that the charge increase could be fairly dramatic and that, as such, it could cause the utility to charge less per kilowatt-hour. “It seems to me that’s going to give people provocation to use more kilowatt hours,” he suggested.


Weis acknowledged that such things happen. He pointed out that other utilities include the first 500KW hours in their base rate.


The last overhaul of Austin Energy’s rates came in 1994. Since then, no major adjustments have been made in the utility’s pricing. Mayor Lee Leffingwell pointed out that ratepayers could expect to see an increase of between 12 and 15 percent in their Austin Energy bills. He also reminded his colleagues that the Council had approved a goal of keeping rate increases at two percent per year or less.


As part of his presentation, Weis also suggested Council re-examine rates annually. Such an action could expose the utility to the difficulties of a rate case every year, should a customer who lives outside Austin decide to petition the Texas Public Utility Commission for a review of that action.


The utility is currently preparing to redesign its rates and to defend against any challenge to that effort.

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