Thursday, September 24, 2015 by Tyler Whitson

Debate heats up over solar energy contracts

There is a solar energy tug-of-war taking place at City Hall.

Amid calls from solar advocates for the city to quickly procure 600 megawatts of utility-scale solar energy, Austin Energy will propose to City Council at an Oct. 1 meeting that it take smaller steps and authorize 200 to 300 megawatts’ worth of solar contracts by the end of 2017.

Aside from Council and Austin Energy, there are two other major actors in the fray.

On one hand, the city’s Electric Utility Commission is urging Council to consider all 600 MW, whether by entering into contracts or constructing its own projects. On the other, a business, public institution and nonprofit interest group called the Coalition for Clean, Affordable, Reliable Energy – also known as CCARE – is asking Council to “slow down” and not jump on the full 600 MW.

The battle stems, partially, from the fact that the previous Council included a clause in the Austin Energy Resource, Generation and Climate Protection Plan to 2025 – which it adopted in December – stating that the utility “will contract for up to (600 MW of utility-scale solar energy) by 2017, if available and affordable.”

Austin Energy staff solicited contract bids from solar developers earlier this year and received proposals this summer with the lowest offers the utility has ever received, with some below $40 per megawatt hour. Those bids will eventually expire.

In addition to recommending in August that Austin Energy put forward a plan for the city to enter into all 600 MW of solar contracts by the end of 2017, the EUC recommended in a 10-1 vote on Monday that Council approve Austin Energy’s more modest proposal.

Commissioner Mary Katherine Stout cast the opposing vote, citing concerns about the impact the proposed procurement could have on electric rate affordability for Austin Energy customers.

The city’s Resource Management Commission approved the same item on a 9-0 vote on Sept. 15.

Acting on the EUC’s recommendation in August, the Austin Energy Utility Oversight Committee – which consists of the full Council – indicated that it wanted staff to come up with plans by Oct. 1 that involve procuring all 600 MW of solar energy by the end of 2016 and, alternatively, the end of 2017.

Council made the request official at a meeting on Sept. 17.

CCARE Chair Roger Wood responded in a memo to Mayor Steve Adler and Council on Tuesday. “We are very concerned at the speed with which the City Council is proposing to move forward with the purchase of 600 MW of solar; despite objections from its professional staff,” he wrote, arguing that moving too fast on the procurement would negatively impact affordability.

Austin Energy staff estimates that the 200- to 300-MW contracts would increase 2017 monthly bills for residential customers by 28 cents, or slightly more than a quarter of a percent, while a customer running a small office would see his or her bill go up by 31 cents, or a little less than a quarter of a percent.

“The agreements are projected to increase the Power Supply Adjustment by up to 1% during the first four years of the agreement, with neutral to slightly positive impacts in later years,” wrote Austin Energy staff. “The rate impact of this action is expected to be within affordability limits.”

Austin Energy uses the power supply adjustment to recover the fuel and power supply costs it incurs in serving its customers. The city’s self-imposed affordability goals dictate that bills for all classes of customers should increase by no more than 2 percent in any given year and that the utility’s rates should remain within the bottom 50 percent of all Texas utilities.

Vice Chair Karen Hadden raised concerns that the recommendation does not go far enough and motioned that the body adopt an additional resolution recommending that Council also purchase whatever is necessary to reach 600 MW of utility-scale solar, provided that it is “cost-effective.”

Hadden argued that the commission should be clear in order to expedite the process and make sure that the city can take advantage of the 30 percent federal solar Investment Tax Credit that drops to 10 percent for projects that aren’t online by the end of 2016. “If they’re going to act, they need to do it now, so we don’t lose out on that tax advantage,” she said.

“I think Council will make the decision, but if they see something that gets presented that they really like, I’d like for them to feel able to take action on Oct. 1 and not wait,” Hadden continued. “What I’m afraid of is that if we send just an approval for 200 to 300 megawatts, someone on Council assumes we’re happy, we’re done.”

Commissioners Cary Ferchill and Brent Heidebrecht argued that the commission has already made its position clear and that the proposed resolution would be unnecessary.

“For what it’s worth, I’ve met with the mayor about this very issue. I’ve met with several of the City Council members about this issue. No one’s confused at that level as to what the plan is,” said Ferchill.

“They’re expecting to get a plan that gets to 600 megawatts as directed in our last recommendation,” Ferchill continued. “And they also understand very well that time is burning and that there are some limitations to the ability to accept these offers.”

Heidebrecht called the Investment Tax Credit issue a “red herring,” arguing that it should not be a deciding factor in Council’s decision. “There’s ways around the ITC reduction,” he said.

That motion ultimately failed with only the support of Hadden and Chair Michael Osborne.

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Key Players & Topics In This Article

Austin City Council: The Austin City Council is the body with legislative purview over the City of Austin. It offers policy direction, while the office of the City Manager implements administrative actions based on those policies. Until 2012, the body contained seven members, including the city's Mayor, all elected at-large. In 2012, City of Austin residents voted to change that system and now 10 members of the Council are elected based on geographic districts. The Mayor continues to be elected at-large.

Austin Energy: As a municipally-owned electric utility, Austin Energy is a rarity in the largely deregulated State of Texas. It's annual budget clocks in at over $1 billion. The utility's annual direct transfer of a Council-determined percentage of its revenues offers the city a notable revenue stream.

Austin Energy Utility Oversight Committee: The Austin City Council committee on Austin Energy was created in May 2013 to provide oversight of the city's electric utility. It's creation was marked by political maneuvering that ultimately resulted in a committee comprised of every member of the Austin City Council.

Electric Utility Commission: The advisory body charged with oversight of Austin Energy, the City of Austin's municipally-owned electric utility.

Resource Management Commission: A commission that reviews and advises the city council on renewable energy technologies.

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