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Austin Energy files response to testimony in PUC rate case

Monday, February 25, 2013 by Michael Kanin

Austin Energy’s response to rate case testimony that questions its basic fiscal needs and calculations is a detailed, sometimes brusque refutation of the filings offered by its opponents.


Over hundreds of pages, key utility personnel – including Director of Regulatory and Government Affairs Mark Dreyfus and CFO Ann Little – join current City Of Austin (and former Austin Energy) CFO Elaine Hart in defending nearly every aspect of their rate design. This extends from the accounting methods employed by the utility, to the annual nine percent transfer it makes to the city’s general fund. City bond counsel Bill Newman also writes a defense of the utility’s high bond standards.


In general, Dreyfus found key faults with much of the critical testimony. “(They) ignored the premise that AE is a municipally owned utility (or MOU) that operates according to distinct accounting and taxing policies and practices, and that as an MOU, AE reflects community priorities,” he wrote in direct testimony to the administrative law judges presiding over the case.


The utility did, however, concede a small point. In testimony filed Friday with the rebuttals, hired AE counsel Lane Kollen agreed to limit rate case expense recovery to costs incurred in deliberations before the Austin City Council. That action excludes the figures associated with the rate appeal to the Public Utility Commission – a reduction of roughly $700,000.


Meanwhile, other intervenors joined the utility in defense of rate case issues raised by representatives of Homeowners United for Rate Fairness (or HURF), the Office of Public Utility Counsel, and Public Utility Commission staff. Westlake United Methodist Church sounded off on commission staff suggestions that the discount offered to houses of worship under new Austin Energy rates be rescinded. The Texas Legal Services Center and Texas ROSE – whose representatives testified against several points of the rate increase when it came before Council – defended the utility’s customer assistance program.


The action was all triggered by a petition filed by HURF. It was an expected response from Austin Energy ratepayers who live outside of Austin city limits, who felt that the rate increase proposed by the utility – $91 million spread over two segments, $71 million immediately and the full amount by 2015 – was too large.


Other parties, including the Office of Public Utility Counsel and Data Foundry, subsequently joined the proceedings as intervenors. (See In Fact Daily, Feb. 12 and 14.)


Much of the utility’s response was focused on fighting the testimony of Marilyn Fox, a former rate maker and current consultant with experience stretching back to the 1980s, and June Dively, a forensic accountant. Fox’s testimony – on behalf of the non-City of Austin customers – was broadly critical of many portions of Austin Energy’s rate making, including the utility’s revenue requirement and the five-tiered block rate structure it eventually settled on for residential rates.


Dively – there on behalf of the Office of Public Utility Counsel – hammered away at the utility’s accounting methods and its cost of service conclusions, among other issues. With the former, Dively argued against the utility’s use of the cash flow method. The latter, she said, was off in such a way that it affected the utility’s underlying revenue requirement – to the tune of well over $116 million.


In her direct testimony response, Little was blunt. She echoed Dreyfus’ notion that Fox and Dively didn’t understand the basic nature of Austin Energy’s position. Dively is the CEO of SI Energy, a natural gas distribution company. She has worked in the natural gas industry since 1994, according to the company website.


While I have disagreements with the specific disallowances proposed by Ms. Fox and Ms. Dively as detailed below, they appear to fundamentally misunderstand the nature of ratemaking for municipally owned utilities that own generation, specifically the application of components of the cash flow method,” Little wrote.


For her part, Hart defended the utility’s transfer to the city’s general fund – a $105 million figure that Commission staff argued could be reduced by more than $30 million. Contrary to a suggestion from Dively, Hart argues that the utility “has provided ample evidence that the (general fund transfer) is reasonable.”


Hart also defended the long-controversial notion that Austin Energy should be responsible for the bulk of the funding for the city’s Economic Growth and Redevelopment Services Office (or EGRSO).


“I believe that removal of EGRSO from the cost of service is unreasonable,” Hart wrote. “EGRSO benefits Austin Energy ratepayers through programs for economic development, urban regeneration, small business development, cultural arts, music industry, and international and emerging technology.”


Newman chimed in to counter suggestions from Commission staff that the utility’s debt service ratio was too demanding on its bottom line, and that the figure could be increased to reduce Austin Energy’s revenue requirement. Newman offered an argument that he turned to during rate deliberations in front of City Council.


“When properly understood, it is clear that AE required the rate increase at issue in this case simply to maintain its credit ratings and to position it for future upgrades to its ratings,” Newman wrote. “The rating agencies’ evaluation of the new rates in November of 2012 supports this conclusion.”


Newman also directly refuted the notion that the utility was simply padding its rating. “As this testimony will demonstrate, the rate increase does not represent an effort by AE to obtain as high a credit rating as possible while ignoring other relevant factors,” he continued. “Instead, the rate increase was necessary to avoid a downgrade.”


On Wednesday, the Texas Legal Services Center and Texas ROSE filed testimony that defended the portion of the utility’s rate increase that is associated with low-income assistance provided as part of Austin Energy’s Customer Assistance Programs. In it, consumer affairs consultant Barbara Alexander refutes the notion offered in earlier testimony from Commission staff that the charge associated with Austin Energy customer assistance is unreasonable.


Alexander is succinct in her conclusion. “The method of cost recovery is reasonable,” she wrote. “I recommend that the PUC approve Austin Energy’s expanded CAP programs and the method of cost recovery included in the June 2012 Ordinance.”


Dreyfus also defended the program. In his testimony, Dreyfus notes that he “strenuously disagrees” with the conclusions of commission rate analyst Kristin Cavin – who offered a range of recommendations about the charge for the customer assistance programs, including their disallowance.


“I find Ms. Cavin’s recommendation to be bizarre, entirely without merit, and in direct opposition to widely-accepted policy in the state,” Dreyfus wrote.


Westlake United Methodist Church intervened to argue that a cap on electric rates for houses of worship implemented by Council after the utility switch those facilities to a commercial rate structure is “legal and appropriate.”


Commission staff argued that the cap should not apply, that houses of worship return to residential rates, and that the waiver of weekend demand charges – a factor that would reduce those facilities’ bills considerably – was unwarranted.


Engineering consultant James Daniel offered direct testimony on behalf of the church that gave nine specific refutations of the PUC staff’s position. Put simply, Daniel argued that their “opposition to AE’s rates applicable to houses of worship is not supported by the facts.”


It’s all set for a hearing during the first week of March.

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