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Austin Energy offers up heavily modified electric rate proposal

Friday, February 3, 2012 by Bill McCann

Reeling from opposition by the public and City Council members to a proposed increase in electric rates, Austin Energy officials on Thursday revealed a modified proposal that they hope will be more palatable to ratepayers, while still improving the utility’s financial position.  


But the proposal – which includes phasing in the rate increase to soften its impact, freezing the utility’s transfer to the city’s General Fund, and giving suburban residential ratepayers a 6.1 percent price break – drew many questions from the Council and criticism from some consumer advocates.


Lanetta Cooper, attorney for the Texas Legal Services Center, told In Fact Daily she needed to take a look at the detailed rate plan. “But it appears that residential ratepayers in the city are going to be the whipping boy in this rate case.” She was particularly upset by the plan to give a discount to suburban residential ratepayers. “The utility appears to be trying to buy off these ratepayers. It is very inappropriate and will get the utility in a quagmire of political chaos.”


Another longtime activist, Paul Robbins, was equally critical, telling In Fact Daily:  “In some ways this proposal is even worse than the first one. It not only continues to charge ratepayers high fixed fees, it now is going to give an advantage to wealthy suburban ratepayers.”


Austin Energy General Manager Larry Weis gave a rundown on the modified rate plan, saying: “Our staff has looked at this really hard and we believe we have the right recommendations on the table.”


Here are key provisions of the modified proposal:


·       Instead of seeking a $126 million increase in revenues right away, as proposed in December, the utility would seek an increase of $88 million now and a $38 million increase starting in October 2014.


·       This two-step increase would result in the utility imposing an 8.7 percent systemwide average rate increase this year and a 3.8 percent increase in October 2014, rather than a 12.5 percent increase now. The phase-in would be carried out by deferring money needed to replenish the utility’s reserve funds until 2015. The effect on residential customers would be an average increase of about 13 percent in the first phase, rather than 20 percent immediately, as initially proposed.


·       The new plan would cap the annual transfer from the utility to the city’s General Fund at the current level of $105 million. Those transfers are used to help pay for such things as parks operations, police and fire, and help keep property taxes significantly lower than they otherwise would be.


·        The new plan would give a 6.1 percent discount on the monthly bills of residential ratepayers living outside the city to account for about two-thirds of what those customers pay to the city as their share of the General Fund  transfers.  Suburban residential ratepayers have frequently made the claim of taxation without representation because, through their electric rates, they say they help pay for city services they do not receive, but do not have a vote in electing the City Council, which makes the final decisions on rates and budgets.


·       The $12 customer charge and a new $10 electric delivery charge in the December proposal would remain in the modified proposal, making the new minimum monthly bill $22. But the first 200 kilowatt-hours used would be included in the customer charge each month, reducing the impact of the fixed charges on customers using small amounts of power, according to the utility. The current customer charge, and minimum monthly bill, is $6. The proposed doubling of the customer charge and the new electric delivery charge have been major sticking points with consumer groups, especially those concerned about low-income ratepayers.


·       Under the modified plan, the utility would drop the demand charge and electric delivery charge for small worship facilities and small businesses with less than 10 kilowatts of peak demand. This would help soften the rate increase for those customers.


Council members, struggling at times to understand the complexities of the rate package, asked numerous questions, particularly about the proposed cap on the General Fund transfer and the discount to residential suburban ratepayers.


Acknowledging the complexities, Mayor Lee Leffingwell said: “We are not talking about a simple rate change here. We are talking about a complete change in how Austin Energy does business.” 


Leffingwell also wondered aloud whether the Council would be in a position to approve a rate increase by March, when utility officials say they would like a decision in order to get new rates into effect by the summer. They estimate it would take about 90 days to get the rates into the billing system. There had been speculation months ago that the Council might not make a decision on the rates until after the scheduled May Council election.


Council Member Laura Morrison asked Weis how the utility arrived at a figure on the amount of discount to give to ratepayers living outside the city.


Weis responded that it is common practice for cities to charge franchise fees of 3 percent. So rather than give the suburban residential ratepayers a 9.1 percent discount – which is the percentage of customer bills that goes to the General Fund transfer – the decision was to make the number 6.1 percent, with the remainder serving in effect as a franchise fee for those ratepayers. Weis also said that the discount would not apply to commercial or industrial customers outside the city.


Mayor Pro Tem Sheryl Cole drilled in on the discount issue, asking Weis whether the discount offer to suburban residential ratepayers would appease them. She was referring to the fact that residential ratepayers living outside the city, by state law, have the right to appeal a rate increase to the Public Utility Commission of Texas (PUC). City of Austin residents do not.


A group of residential customers living outside the city formally organized last month for a possible petition drive to take the case to the PUC. There also has been talk that some legislators might seek to have Austin Energy open to competition, which could significantly affect the utility’s operations.


Weis said he could not predict what might happen. But he added later: “We have been hearing from those customers for some time that they did not want to pay for the General Fund transfer and we are trying to address this.”


Dick Brown, one of the leaders of the group of suburban residential customers, told In Fact Daily last night that the group has not had time to study Austin Energy’s new proposal in detail. “But at first blush it looks like they have taken a major step forward in acknowledging the concerns of outside residential ratepayers,” Brown said. “At the same time, the new proposal continues to contain a progressive rate structure,” he said. “And that continues to be a big concern for us.”


Among other things, the phase-in would allow the utility, working with City Manager Marc Ott, to assess the reserve fund levels, the capital improvements program, various fees charged by the utility, as well as the General Fund transfer, according to Weis.


The rate issue could come up again Tuesday (Feb. 7) at the Council’s regular work session. The Council also has scheduled a public hearing on the rate proposal at its Feb. 9 meeting.

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