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Austin Energy’s proposed rate increase running into trouble

Tuesday, January 17, 2012 by Bill McCann

Pressure is mounting against Austin Energy’s proposed electric rate increase and could begin to boil over at a City Council work session today.


In recent days Mayor Lee Leffingwell came out against the rate increase. Meanwhile, a group of Austin Energy residential ratepayers living outside the city has formally organized for a possible fight at the Public Utility Commission of Texas (PUC) over the rate package. Unlike Austin Energy ratepayers living in the city, the 45,000 to 50,000 residential customers living in the suburbs can appeal a rate change to the PUC, triggering an extensive – and expensive – review.


The group, Homeowners United for Rate Fairness, incorporated last week and also sent to the City Council a five-page letter listing its reasons for opposing the rate proposal. One of the group’s leaders is Dick Brown, an influential, semi-retired legislative lobbyist who in the past successfully pushed legislation affecting Austin’s ability to control development in the Barton Springs watershed outside the city. Brown’s name has been mentioned frequently as a key player in a possible rate fight at the PUC.


“The whole rate process has been an extraordinary display of incompetence,” Brown told In Fact Daily. “It’s been like taking a car with a flat tire, and instead of fixing the tire they are trying to redesign the whole car.”


The Homeowners United group joins a long list of individuals and organizations opposing all or part of the proposed rate package, which would increase rates an average of about 12 percent systemwide. But the way the rates are structured, residential customers using small amounts of power monthly and those using large amounts, including many suburbanites, would face much higher increases.


At a lengthy public hearing last week, the Council got an earful from critics, including advocates for low-income residents and renters, and from environmentalists and those advocating energy efficiency and solar energy.


The Council will hold a special work session today at 10am at City Hall to discuss the proposed rate package and its impact on various customer groups. Members of the Council’s advisory Electric Utility Commission are scheduled to participate.


The uprising over rates clearly has gotten the attention of the Council, which makes the ultimate decision over any rate changes. Several Council members, including Leffingwell, have raised concerns about the size and impact of the rate increase. Leffingwell devoted his latest blog to spell out his reasons for opposing the rates, as currently proposed.


In his blog posted on Sunday, Leffingwell agreed with many of the complaints by critics, including concerns raised by ratepayers living outside the city. A major complaint from suburban ratepayers is that a huge amount of money that Austin Energy collects in rates – $178 million  by one estimate – is used by the city to boost its general operating fund or for other non-utility purposes. Therefore, suburban ratepayers say they help subsidize city services that they do not receive. Critics estimate that 15 percent of every monthly bill paid by out-of-city customers is diverted for purposes other than operating the utility.


“As we weigh a rate adjustment that would impact all customers it’s the appropriate time to also weigh options for more fairly serving the interests of non-resident customers,” Leffingwell stated.


Austin Energy officials have defended the proposed rate package as being necessary to the future financial integrity of the utility and to encourage energy conservation. They have said repeatedly they were well aware that a rate appeal to the PUC was a possibility. Therefore, they believe the rate package has been made consistent with PUC policies and decisions and will withstand scrutiny. They also have pointed out that the PUC in the past has backed transfers from city-owned utilities to a city’s general operating funds.


Following hearings last fall, the Electric Utility Commission voted to support Austin Energy’s rate package. Because of the package’s complexity, the EUC ended up voting on 27 separate issues. About 12 of the votes were unanimous, but a few key points, including the choice of rate design, drew a split 4-3 vote. The biggest critic of the rates on the EUC has been Barbara Day, an appointee of Council Member Kathie Tovo, who also has expressed concern about the current rate proposal.


The EUC has issued several warnings to the Council in recent years that certain non-utility costs included in current and proposed electric rates – such as funding the city’s economic development office – could cause the utility problems. But the Council – which makes the final decisions on the utility’s budget and rates – did not heed those warnings.


The emergence of formal opposition by Austin Energy’s suburban residential ratepayers puts additional pressure on the Council to look more closely at what it really costs to operate the utility.


Under state law, only the suburban residential customers can appeal a rate change to the PUC.  The presumption is that residents of a city can vote to elect – or reject – a city’s elected leaders who make the final determination on rates. Since suburban residents cannot vote in a city’s elections, state law gives them an opportunity to appeal. But they must obtain on a petition the valid signatures of 5 percent of the residential ratepayers living outside the city.


With an estimated 45,000 to 50,000 Austin Energy residential ratepayers living outside the city, roughly 2,500 valid signatures would be needed to force an appeal, according to opponents, who would have 45 days after the Council approved new rates to get the signatures. 


Opponents think there are plenty enough upset suburbanites out there to allow them to trigger the appeal, unless there are major changes to the current rate proposal. A successful appeal would mean Austin Energy’s books would be scrutinized by the PUC to determine whether the rate package is fair and reasonable. The case could take months and cost the utility at least hundreds of thousands of dollars for experts and lawyers. 


The Homeowners United letter to the Council included a list of 10 objections, including lack of confidence in Austin Energy’s calculations and projections; the continued “subsidy” of Austin’s city operations by suburban ratepayers; excessive transfers of funds from the electric utility to city operations; overstated revenue requirements by Austin Energy; and a rate structure that is “complex and punitive.”  The group’s web site, , has more details.


Meanwhile, the Travis County Water Control and Improvement District 1, which serves half a dozen communities near and along Lake Travis including Steiner Ranch and Apache Shores, has delivered its own warning to the Council. A letter from District 17 General Manager Deborah Gernes, dated Dec. 8, said that while a rate increase is needed, the current proposal on the table is excessive. If the rate increase is approved in its current form, District 17 will join its customers in filing a protest with the PUC, Gernes warned.


“Austin Energy claims that they have not raised rates since 1994; however, they have raised fuel charges by 28 percent,” Gernes states in the letter. “By their own admission, Austin Energy has been negligent in seeking gradual reasonable increases over the last 17 years. Now it appears they will attempt to make this deficit up all at once. This practice sets a bad precedent, is clearly unfair, and is bad public policy.”


Of course, Austin Energy does not make the ultimate decision about how often to seek a rate increase. It is up to the Council to make those decisions and current Council Members can look back at their predecessors and accuse them of failing to take action sooner, when it might have been less painful. 


Leffingwell, along with Council Members Sheryl Cole, Mike Martinez and Bill Spelman are all running for re-election in May. There has been considerable speculation about whether Council would postpone considering the rate increase until after that May election. Austin Energy officials have warned that they are losing money and can not afford to wait that long for additional funding.

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