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State consumer office refutes Austin Energy calculations in rate case

Tuesday, February 12, 2013 by Michael Kanin

The division of the state Public Utility Commission charged with representing residential customer interests in utility rate cases delivered more than 200 pages of scathing written testimony Friday in the pending Austin Energy rate case.


In it, three experts called on behalf of the Office of Public Utility Counsel offer detailed criticisms of a host of AE calculations and other actions associated with the utility’s 2012 rate increase. They range from an echo of the often-heard criticism of Austin Energy’s funding for the city’s Economic Growth and Development Services Office (EGRSO) to a rejection of the share of city costs placed on the utility.


All told, the consumer counsel’s office recommends the reduction of the rate requirement determined by Austin Energy’s test year by more than $91 million —which is $20 million greater than the rate increase approved by the City Council. That reduction would leave the utility in a deep hole.


The offices of Mayor Lee Leffingwell and Council Member Kathie Tovo – perhaps the most vocal critic of the utility’s rate increase during Council deliberations – declined comment. Austin Energy spokesperson Ed Clark also declined comment, citing the ongoing nature of the case.


This summer, Council members approved an Austin Energy rate increase that more directly attached rates to energy use, comes with a fee for low-income assistance (among other items), and raises the utility’s customer charge from $6 to $10 a month. With the action, Council unanimously erased nearly two decades of rate stagnation that had substantially reduced the utility’s fiscal balance. (See In Fact Daily, June 8, 2012.)


It wasn’t without controversy. A prolonged process complete with hours of AE-focused work sessions and heated debate over what, exactly, the utility would need fiscally to survive stretched throughout spring and early summer. It also provided ample opportunity for independent consumer advocates, business interests, and other parties to weigh in on the issue.


Even so, a challenge of the rates from ratepayers who live outside Austin city limits – and are therefore theoretically unrepresented by the current AE governing body — Austin’s City Council – was inevitable.


A group of suburban ratepayers calling itself Homeowners United for Rate Fairness (HURF), led by Dick Brown, filed a petition for the Public Utility Commission’s review of the rate increase in August. “HURF asserts that the rates as adopted by Austin Energy are not just and reasonable and are unreasonably preferential, prejudicial, and discriminatory as applied to the residents HURF represents,” it read.


Since, there have been more than three hundred additional filings in the case. Many of these are procedural. Some, like the written testimony offered by the Office of Public Utility Counsel, are not.


The issue of whether AE ratepayers should support the city’s economic development efforts goes back long before the 2012 rate debate. As it has for many years, the utility will offer the large majority of the office’s FY2013 funding. It will amount to more than $11.4 million.


Forensic accountant and CEO of SiEnergy, June Dively, testified on behalf of the consumer advocates. She argued that Austin Energy’s support of the city’s economic growth office was not reasonable. Worse, Dively suggested that the utility’s EGRSO funding was not allowable under state utility regulations.


“(It) does not meet the requirement…that requires expenses to be reasonable and necessary to provide service to the public,” Dively wrote. “None of the activities listed…relate to the operations or maintenance of the utility.”


She concluded that “reasonable and necessary (Austin Energy) costs” associated with the utility’s support of economic growth are “$0.”


Dively also disputed the costs allocated to Austin Energy allocated from other City of Austin departments. “(T)he (City of Austin) is effectively double charging AE for the efforts of the employees that have been dedicated to AE,” Dively argues.


“Many consumers have questioned whether Austin Energy should be paying for a lot of expenses for the entire city,” Public Citizen’s Tom “Smitty” Smith told In Fact Daily late Monday. “We may disagree on the size of the haircut but we do think it’s appropriate to discuss whether some of these expenses should be charged to (Austin Energy’s) customers.”


Among further recriminations, Dively also called the utility’s $105 million transfer to the city’s general fund “excessive and…unreasonable.” She suggests that a “just and reasonable” figure for the transfer would be just over $87 million.


William Marcus, an economist with JBS Energy offered a ten-point overview of issues with Austin Energy’s rate accounting. These points were deeply critical of the utility’s use of the four coincident point method of cost allocation. Marcus also suggested that the Public Utility Commission reject the new $10 customer charge.


“To encourage conservation and give customers control over their bills, the Commission should reject Austin Energy’s increase in the customer charge to $10 and should instead either freeze the customer charge at $6 or adopt a more moderate increase to $7.50 (which would reduce the customer charge revenue by about $10 million),” Marcus wrote.


Council members are set to kick-off a debate over the governance of Austin Energy on Thursday. A potential change to a CPS Energy-style independent governing body could relieve some pressure from the Texas legislature on the utility but there is no guarantee that Council will vote for such a change.


Parties in the rate case are headed for a March 1 pre-case hearing. The actual case is scheduled for March 4 through 8.

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