Monday, November 16, 2015 by Tyler Whitson

Samsung, Freescale reject new energy tariff terms

Samsung Austin Semiconductor and Freescale Semiconductor – Austin Energy’s largest customers – have rejected the contract terms of a new tariff that City Council unanimously passed on Thursday.

Catherine Morse and John Holmes, representing Samsung and Freescale, respectively, issued a statement on Friday. “After several hours in executive session and without public debate, our Council passed a ‘take-it or leave-it’ offer that would lock Samsung and Freescale into uncompetitive pricing well in excess of the City Council’s stated affordability goal,” they wrote.

Trey Salinas, who represents a business, public institution and nonprofit interest group called the Coalition for Clean, Affordable, Reliable Energy, released the statement on behalf of the two companies – both of which are CCARE members – and not the interest group as a whole.

“Under the current terms, we will not sign that contract,” Salinas told the Austin Monitor on Saturday.

The new “P4” tariff applies only to customers that use at least 20 megawatts of power at a time – enough to power 15,000 to 20,000 homes, according to Austin Energy – and have a load factor of at least 85 percent, meaning that they consume power on a very consistent basis. Samsung and Freescale are the only Austin Energy customers that meet these criteria.

In order to take advantage of the tariff when their 15-year-old contracts expire at the end of this month, Samsung and Freescale would have to sign nine-year contracts with Austin Energy. Their rates would be higher than what they pay now but about 3 percent lower than what they would otherwise pay without a contract on the less-specialized “P3” tariff.

Morse and Holmes noted that they had hoped Council would pass a “compromise” that would have allowed their companies to continue negotiating new contracts with the city past the expiration dates of their existing contracts.

“We believe that given time and with the benefit of the upcoming rate case, we could develop long term contracts with competitive pricing and terms that could be acceptable to all parties. Unfortunately, the measure passed by the City Council does not offer that,” wrote Morse and Holmes.

After Council returned from a closed meeting to discuss the item prior to its vote on Thursday, Austin Energy General Manager Larry Weis said that utility staff recommended moving forward with the “original posted language,” which is what ultimately passed. “There were some revisions submitted, but ultimately we feel like that’s the best recommendation,” he said.

Austin Energy spokesman Carlos Cordova told the Monitor in an email on Friday that there was no alternative language that was “made public” and declined to provide a response from the utility to Samsung and Freescale’s statement.

Samsung and Freescale contend that rates under the tariff are out of compliance with Council’s affordability goals, which state 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.

Salinas referred to a Sept. 23 Austin Energy presentation that states that the utility “is no longer meeting its Competitive Measure of being in the lower 50% of Texas Rates.”

Mayor Pro Tem Kathie Tovo told the Monitor on Friday why she ultimately supported the tariff, even after she and several other Council members pulled it from the proposed Fiscal Year 2015-16 budget for further review.

“After lengthy discussions … I became comfortable that there were characteristics that were particular to these customers that made this a very reasonable tariff from the perspective of the utility,” Tovo said.

“These customers are certainly very valued Austin Energy customers; we’re fortunate to have them in Austin,” she continued. “I believe that Austin Energy staff worked really hard to come up with a tariff that is fair, that is reasonable, that recognizes that we value these companies’ business, that is also fair from the perspective of the utility.”

There were several other large industrial customers with long-term contracts that expired in May, and most of them were rolled into Austin Energy’s previously existing rate tiers, including the “P3” tariff. One such customer, Cypress Semiconductor, fell into a new tier for customers that have their own electrical substations.

Council also extended long-term contracts in May for the main facilities of St. David’s HealthCare and Seton Healthcare Family – which provide uncompensated care for low-income residents – but those contracts are set to expire this month unless Council takes additional action.

Greg Hartman, who is Seton’s president for external affairs, provided a comment to the Monitor on Friday. “We want to keep working with Austin Energy,” he said. “We know there’s a lot of folks trying to figure out what a better rate structure could be and how to adjust some things, so we’re going to be right in the middle of that paying attention, and we hope we can solve this.”

Hartman was referring to the formalized cost-of-service study that the city will be taking up in earnest next year with the intent to restructure rates for all customers to better reflect the cost of providing energy to each customer class in time for next fall.

CCARE members, including Samsung, Freescale and Seton, will likely be lobbying heavily during this process for a rate structure that they believe is more fair.

Hartman also responded to the fact that Seton did not qualify for a special tariff. “We’d prefer not to just carve up something for us individually – we’d like to have something that is good for the entire community,” he said.

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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.

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