Austin Energy’s proposed electric rate plan under scrutiny

Last week’s meeting of Austin Energy’s Public Involvement Committee (PIC) offered a sneak preview of what the utility, the City Council’s advisory Electric Utility Commission – and eventually the Council itself – can expect to hear this summer and fall from various customer groups about new electric rates currently under study. And, given many of the comments made by PIC members last week, the listeners will be getting an earful.

Not surprisingly, representatives of the various customer classes on the PIC spoke in favor of measures that would most benefit their customer group. Low-income advocates supported discounts for low-income residential customers. Those supporting energy-efficiency advocated measures that would help send the proper price signals to encourage more energy conservation and solar energy use. Business representatives backed cost-of-service calculations that would be most beneficial to larger customers, while residential representatives supported a methodology that would most benefit house and apartment dwellers. 

Representatives of several customer groups, including large businesses, schools and residents living outside Austin, urged Austin Energy to take a hard look first at where the utility might further cut its budget before raising rates. Some PIC members representing customers outside of Austin even suggested eliminating the utility’s return to the general fund, which provides more than $100 million a year to help pay for city services, such as parks, libraries, police and fire – and is similar to the rate of return charged by private utilities to benefit stockholders. 

Several recommended gradual rate increases rather than jolting customers with big increases all at once. A few also noted with disappointment that they initially thought the PIC was going to play a larger role in developing new rates that it ultimately did.

After listening to comments from PIC members, Austin Energy General Manager Larry Weis observed: “Everybody wants the best deal for their rate class that they can get, but another rate class will have to pay for it.” Later he added: “I am hopeful as we go forward that we realize that we are all in this together.” Weis also defended the utility’s budget, saying that while the utility continues to grow, it has not added any new employees in three years.

The PIC is a 14-member group of volunteers selected by Austin Energy in January as part of the utility’s plans to change its basic rates for the first time in 17 years. It represents a variety of customer groups, including residents, churches, nonprofits, small and large business, school and state facilities. 

The PIC has met over several months to hear presentations from officials from Austin Energy and its consultant R.W. Beck and to provide feedback. The committee’s last official meeting was June 1, but one corporate participant has indicated there will be an effort to keep the PIC alive.

“We plan to keep the PIC meetings going, bring in some experts and keep the pressure on,” said frequent Austin Energy critic Andy MacFarlane in an e-mail to In Fact Daily. MacFarlane is business development manager for Data Foundry and an alternate PIC member. “It shouldn’t be hard to get the 2,000 signatures from ETJ (extra-territorial jurisdiction) AE customers to get the PUC (Public Utility Commission of Texas) involved. That’s the ultimate destination for this proceeding,” he wrote. Among other things, MacFarlane has accused Austin Energy of failing to provide detailed technical documentation of its work. 

Austin Energy has determined that it needs $1.1 billion in base revenues to operate annually (using 2009 as a “test” year.) That would mean a revenue shortfall of $119 million, or almost 12 percent, based on current rates. Therefore, the utility is looking to increase revenues by 12 percent to eliminate the shortfall.

That does not mean an across-the-board increase of 12 percent for all customer classes, however. In fact, some customer types might see little or no increase while others might face increases more than 20 percent, depending on a number of factors. 

Customers are not created equal. Residential customers, for example, represent by far the largest number and are spread all over the area, requiring more lines and meters and bills than say a large industrial facility. So residences are more expensive to serve. But rates are much more complex than simply determining how much it costs to serve the different customers. Austin Energy is factoring other important considerations such as its low-income customers and its priority on promoting energy efficiency.

Nevertheless, a key to developing new rates for various customer classes is an analysis of cost of service. This analysis has been under way for months. It is likely to be a major area of disagreement between residential and business representatives as the rate review proceeds. Austin Energy has expressed support for a methodology that results in the lowest cost to serve residential customers of the three methodologies being considered. But business customers are advocating the other approaches, which are more favorable to them.

One area of general agreement among PIC members, however, was that low-income customers should get some kind of help to soften the impact of rate increase on them. 

In urging Austin Energy to consider low-income Austinites, PIC member Beth Atherton of Caritas of Austin and One Voice Central Texas, said that 30 percent of the community is currently experiencing poverty. Both Atherton and Deacon Ron Walker of the Catholic Diocese of Austin suggested the possibility of gradual rate increases to ease the rate shock.

PIC member Bob Wittmeyer, a rate design expert hired by Austin Energy to assist residential customers, proposed that Austin Energy collect $1 from every residential customer a month and 65 cents per megawatt-hour from business customers. The funds could generate almost $9.7 million, enough to provide a $25 discount monthly to the city’s 32,300 qualifying low-income households, he said.

Barry Dreyling of Spansion, Inc, representing large industrial, warned that there may be some real rate shock in store for smaller businesses. He challenged Austin Energy to tighten its budget “like everyone else is doing.”

Wesley Perkins of Round Rock Independent School District, which gets part of its power from Austin Energy, had similar advice about budget cutting. “We have been five months in this (PIC) process and not one time has the cost of Austin Energy been addressed,” he said. “In Round Rock we are charged with cutting 16 percent of our non-labor and 12 percent of our labor to meet budget reductions and we are committed to doing that,” he continued. “I can’t conceive of a business process to look at rates without first looking at cost reductions.”

Perkins also took a shot at Austin Energy’s annual transfer to the general fund, saying that the utility’s shortfall essentially could be eliminated by eliminating the utility’s general-fund transfer, which essentially is a “tax and should not be applied to school districts,” he argued.

Steve Jones, city manager of Lakeway and representing customers outside of Austin, agreed. “For us it is a tax also,” he said. “People outside Austin who pay it do not get the benefit.”

John Dorgan, co-owner of two businesses and an alternate for small business interests, criticized the overall process involving the PIC. “We have spent six months looking at Austin Energy’s perspective on rates,” he said. “We represent interested parties in the communities but we haven’t spent time on who these parties are and how the (electric rate) options might affect the parties.” 

The current schedule calls for Austin Energy to present proposed new rates to the Electric Utility Commission on Sept. 1.The commission will hold several public sessions in September and October before presenting its recommendations to the City Council for consideration. The Council is scheduled to review the rates in November and December and approve them in time to take effect in early 2012.

The rate issue might not end there, however. While the Austin City Council has jurisdiction over electric rates of customers inside the city, under state law the Public Utility Commission of Texas has jurisdiction over rates of customers living outside the city. Ratepayers living outside a municipality can appeal to the PUC if they can garner 10,000 valid signatures or 5 percent of the total ratepayers outside the city, whichever figure is smaller. Austin Energy estimates it has about 45,000 ratepayers living outside the city, including residents of Westlake Hills, Rollingwood, Pflugerville, Cedar Park, Mustang Ridge, Lakeway, Sunset Valley, and Bee Caves, as well as customers in unincorporated areas of Travis County. So in this case roughly 2,250 valid signatures would be needed to trigger a PUC rate review.

An appeal would mean, in effect, that Austin Energy would have to file with the PUC a rate case that not only would open the new rates to PUC and ratepayer scrutiny but all of its revenues and expenses as well.