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Expect lengthy, lively Austin Energy rate discussion

Thursday, June 7, 2012 by Michael Kanin

A last minute flurry of action at City Hall has produced a series of possible amendments before City Council takes the undoubtedly controversial action on how to raise Austin Energy rates for the first time in 18 years.


The most notable of these new wrinkles is a revision to the proposed rate tiers to lower the rates for low-volume residential customers and raise rates for the next highest group of residential customers. 


Among the host of other possible amendments: The codifying an examination of the utility’s reserve policies and cost efficiencies; adjustments to community benefits and fuel charges so they require Council approval; a pitch to revisit the topic of off-system sales to reduce Austin Energy’s revenue requirement by $3.5 million; a call for the charge associated with the utility’s low-income assistance program to be applied volumetrically instead of through a flat fee; and, an attempt to extend eligibility for the assistance program while employing a new automatic enrollment program.


At least one of the provisions, the call to apply the low-income assistance program fee volumetrically, may not have sufficient support for passage. Moreover, its inclusion in the new rate structure –  should it be approved – could scuttle the attempt to pass Austin Energy rate changes on all the required three readings for the new rates to take effect. At least five Council Members must vote for the new structure, which will include a rate increase, for the measure to pass today. If there are not five votes for any motion or set of motions, any action on the rate hike will be scheduled for a second reading next week.


The amendments come from Council Members Laura Morrison and Kathie Tovo. They, along with Council Member Mike Martinez, have been critical of many aspects of the proposed rate structure, including the bottom line figure of the utility’s revenue requirement.


The current proposal calls for an increase in the utility’s revenue by $71 million annually. That works out to a roughly 10 percent increase on average, according to Austin Energy figures, under a moderate-tier system for average residential customers. 


At the Council’s regular work session on Tuesday, Mayor Lee Leffingwell continued to express his concern that some of the details of the tier structure may need reworking. Though he acknowledged that the utility had responded to some of his worries, he remained interested in not raising the rates of customers in the first tier – the one most designed to promote energy conservation. Leffingwell also hoped to keep increases in the remaining tiers at a total spread no greater than 15 percent – all while adhering to the utility’s revenue requirements.


“(This) is so that we don’t have a situation of getting people at certain times of the year in a very high tier and thus having a very high electric bill for that month,” he said.


Morrison also took a few minutes to explore the basic details of the Austin Energy rate resolution that she and her colleagues would vote on. Austin Energy General Manager Larry Weis spelled it out. “There are three pieces to the rate increase and we’re asking for one of them now,” Weis said. “There’s the $71 million, there’s the $25 million for revenue from the (large) contract (customers) that come off (their contracts in 2015), and there’s a $10 million piece that…would be associated with the second phase of a retail rate increase.


“What we’re asking for now is for the $71 (million) specifically,” he continued. “But (we’re) also identifying for our work (moving) forward that that was based on a $106 million revenue requirement.”


The $106 million remains the key figure. That is the amount that the utility believes is necessary for it to begin to replenish its reserves. Some Council members do not agree. The wording of the resolution allows for a vote that would theoretically lead to the authorization of $106 million, but also calls for a close examination of the utility’s costs and reserves that is designed to determine whether Austin Energy truly needs a second rate increase. Council members may hope that such a structure would diminish the chances of a second Public Utility Commission challenge in 2014, should rates go up again. 


Morrison also pressed Weis on a 2 percent rate increase cap that is set to go into effect sometime soon. “It’s my understanding that we were talking about (implementing) that after the rate case,” she said. “Does that mean after the rate case in 2014 or 2012?”


“In order to meet the climate protection plan and the generation plan goals that we have, frankly I can’t let 2014 get in the way, because we have to go to work,” replied Weis.


Also on Tuesday, Council members heard again from veteran Electric Utility Commissioner Shudde Fath. In her latest missive, Fath questioned the cost allocation method used by the utility to arrive at its rate model. “It is unconscionable that you support (the method), which is not based on cost causation and which penalizes all residential and small commercial customers,” she wrote. She noted that residential customers, which comprise 89 percent of all ratepayers, will suffer a 14 percent rate increase while small commercial customers face an 18 percent increase under the proposal the Council will vote on Thursday.


Fath added that the method used by the utility dates from the 1920s. “Please know that you will disappoint almost all Austin citizens upon learning of these unfair and unjustified rate increases,” she concluded.

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