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Austin Energy reveals cost-of-service findings

Tuesday, December 22, 2015 by Tyler Whitson

As the city begins to re-examine its electric rate structure for the first time since 2012, Austin Energy staff revealed the preliminary results of its internal cost-of-service analysis at an Electric Utility Commission meeting on Dec. 14.

In short, Austin Energy staff found that rates for its residential and small commercial classes of customers are below the cost of providing service, while rates for its larger classes – particularly the midsize commercial class, which includes office buildings, large retail spaces, restaurants, grocery stores, schools, health care providers and others – are above their cost of service.

“Let me start with the really good news,” Mark Dreyfus, Austin Energy vice president of regulatory affairs and corporate communications, told City Council at a second briefing on Dec. 15. “Our financial recovery means that we’re collecting sufficient revenue that we believe that we can pass back $17 million in base rate revenue back to our customers.”

Base rate revenue covers operations and maintenance, infrastructure, capital and debt recovery and differs from the pass-through revenue that recovers costs such as purchased power.

“We have $17 million to give back to our customers, but our imbalance is far greater than that $17 million,” Dreyfus continued. “This is the issue that I think will involve the greatest discussion and the need for creative solutions as we go into our more formal process later this year.”

Austin Energy has determined that the residential class is $56 million below its cost-of-service while the midsize commercial class is $43 million above its cost-of-service.

Commissioner Shudde Fath noted at the EUC meeting that the level of imbalance varies based on the production cost allocation method Austin Energy uses to analyze rates. One alternative, the base intermediate peak method, paints a far more favorable picture for residential customers than the 12-month coincident peak method favored by Austin Energy staff.

This issue and several others will likely be revisited throughout the cost-of-service and rate-review process that will continue into the early summer. The proceedings will involve an impartial hearings examiner and are supposed to involve a consumer advocate for residential and small commercial customers.

The advocate’s role and the timing of its participation in the process are unclear because the sole bidder for the contract to fulfill that role, Oxford Advisors LLC, has been disqualified by the Purchasing Office for allegedly violating the city’s anti-lobbying ordinance and is now protesting that disqualification.

Austin Energy staff plans to brief the EUC on its rate design recommendations on Jan. 25 and the Austin Energy Utility Oversight Committee on Jan. 28. Proceedings before the impartial hearings examiner are scheduled to begin in late January, and Austin Energy staff hopes to receive final direction from Council in late June in order to set new rates for Oct. 1.

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