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Council approves Austin Energy rate increase

Friday, June 8, 2012 by Michael Kanin

The Austin City Council unanimously approved a comprehensive redesign of Austin Energy’s rates Thursday night that will raise the electric bills for all residential and most commercial customers for the first time since 1994.


The 7-0 vote – coming after two years of hard work and fiscal worry at the utility – sends a strong signal to the public, the Legislature and the Public Utility Commission about the appropriateness of rate hike and the resulting improvement in the utility’s financial picture. 


The proposal was based on one put forth by Council Members Bill Spelman and Chris Riley and Mayor Pro Tem Sheryl Cole. And after a series of amendments from Council Members Laura Morrison and Kathie Tovo, as well as an addition from Mayor Lee Leffingwell, the resulting document came with input from across the dais – and, according to Morrison, from across the community.


“There is no doubt that this rate change that we’re looking at here has the imprint of our community on it,” Morrison said from the dais.


The bottom line: residential customers will pay rates based on how much electricity they use, with those who use the least paying the least. For example, those who use up to 1,250 kilowatt hours each month will pay 8 percent to 9 percent more for electricity. Customers who average between 2,501 and 3,000 kilowatt hours a month could see a rate jump of 23 percent. These are two of the five tiers of rates that are being implemented to promote energy conservation. Austin Energy’s presentation on Thursday didn’t spell out specific rates for the other tiers.


Electric bills also will come with a fee for the utility’s low-income assistance program, street lighting, and energy conservation that will be based on each household’s volumetric usage of electricity. That tweak came on a motion from Tovo. The vote on that amendment was 6-1, with Leffingwell opposed. The Mayor pointed out that low usage did not necessarily correlate with low income households.


In addition, Austin Energy will increase the monthly fixed fee it charges all customers (called a customer charge) to $10 from $6. The fee is designed to counter some of the revenue instability that comes with the volumetric portion of the rates. (Spelman said the $10 fixed fee is more-or-less an inflation-adjusted version of the $6 which was adopted in 1994.)


The proposal aims to correct what has been a worsening financial situation for the utility. The lack of a rate adjustment for the past 18 years has left Austin Energy having to dig deep into its reserve funds to make up for missing revenue. The result has left it somewhat cash-strapped, and losing money daily. Its financial advisors have publicly worried that the utility’s bond rating might well be downgraded.


Under the new proposal, Austin Energy will see a $71 million increase of its more than $1 billion in annual revenue through at least 2014. The resolution also preserves the idea that the utility may need as much as a $106 million revenue boost above its current bottom line that could be completed at a later date, depending on the results of a review of the utility’s reserve requirements and budget.


At the end of the hearing, Spelman tacked on a series of provisions that will, among other actions, review rates every five years, hire a consumer advocate for that process and contemplate bringing in a hearings examiner to offer detailed assistance in vetting any future rate adjustments made by Council members. He also attached a motion that will have the city-owned utility report fuel charge calculations within 30 days of an adjustment to that billing item.


Council members also voted unanimously to approve a separate item directing City Manager Marc Ott and Austin Energy General Manager Larry Weis to assist the city’s Electric Utility Commission in studying the various kinds of boards that manage Texas public utilities. Leffingwell said that he strongly supports the resolution and emphasized that he would like Austin Energy to emulate the model of San Antonio’s municipally owned utility, CPS Energy.


After the hearing, Ott summed it up for In Fact Daily. “It’s been a very long journey obviously,” he said. “I think we’re all pleased to have taken the first step to ensure the financial viability of Austin Energy …(18) years without dealing with this issue is far too long. I think our financial advisors said that the last time they were here. Council did an excellent job of engaging; it was a lot of hard work for them as it was for us.”


Public Citizen’s Tom “Smitty” Smith also expressed some satisfaction. “We got a lot done tonight,” Smith told In Fact Daily. “We have annual reviews of many of the critical programs and retroactive review of the fuel charge where a lot of the bad stuff has been buried over the years. The Council reaffirmed that they want to become a world-class leader in terms of efficiency and renewables.”


Weis told In Fact Daily without hesitating that the utility had received enough of an increase it needed to keep Austin Energy fiscally sound. “I commend the Council for all the work they put into this,” he said. “They have gotten a hell of an education, frankly. “


“No public official wants to raise customer bills, as evidenced by 18 years since our last rate case, I am very pleased that Council on a 7-0 vote concluded a deliberative process that concluded with a solid rate design that is in the best interest of the utility and the community,” Cole said via email. “We have taken the steps to deliver affordable, clean, and reliable energy to our ratepayers.”


Spelman said in an email: “Austin came together tonight to make the best of a difficult situation. Years of hard work have led to a significantly reduced rate increase; nation-leading programs for low-income customers, renewable energy, and energy conservation; and most importantly, a financially-stable electric utility that can continue to affordably serve its community and customers far into the future.”

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