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AE to Council: Cut commercial customers’ rates

Tuesday, January 26, 2016 by Jo Clifton

Mark Dreyfus, Austin Energy’s vice president of Regulatory Affairs & Corporate Communications, told City Council on Monday that the utility’s proposed new rates are a “good news story.” The utility’s proposal seeks to reduce base electric rates by $17.4 million – with commercial customers getting all of the reduction.

The utility is also recommending adjustments in the residential rate design that will mean some customers will see increases in their bills and others will see reductions. Additionally, Austin Energy is recommending eliminating the difference between summer and winter rates. What those changes will look like on a residential electric bill will depend largely on how much energy a household uses and whether it uses it in the summer or the winter, Dreyfus said.

Dreyfus noted that the utility will also be recommending reductions in the regulatory charge and the power supply adjustment, previously known as the fuel charge. That adjustment will help residential customers.

The utility is not proposing any changes to the controversial Customer Assistance Program, which is supposed to help low-income consumers pay their bills. Consumer advocate Paul Robbins has pointed out that at least some program participants are not low-income customers.

Austin Energy spokesman Robert Cullick said the utility’s rate study found that customers in the highest rate tiers used about 13 percent of the electricity but paid about 26 percent of the overall cost of providing electricity. People in Tiers 4 and 5 “substantially subsidized Tiers 1, 2 and 3,” he explained. “And so we wanted to flatten those tiers so that people would be closer to their cost of service.”

People who use 500 kilowatt hours or fewer per month have always paid less than the cost of generating and delivering their electricity. That will not change in the new rate schedule, Cullick said. He said the utility is not recommending that people in the lowest category of use pay the full cost of their service, because it would be “a tremendous burden” on them.

Cullick pointed out that there is no way to know a person’s income by how much energy they use. For example, he said, a single person in a high-energy apartment who goes out to work every day and does not use much electricity until he comes home in the evening could be in the lowest energy-use category but make $80,000 a year.

Residential customers as a group are paying $53 million less than the cost of providing their service.

Dreyfus provided a chart analyzing the bills of eight particular Austin Energy customers without identifying any of the customers. The numbers assume the proposed base rate adjustments and the forecasted changes to the regulatory and fuel charges. For example, one customer using 416 kWh would see an increase of $1.43 per month; a second customer in Tier 2 using 751 kWh would see a monthly reduction of $.90.

A Tier 3 customer using 1,087 kWh whose home is heated with gas would see a $5.26 reduction. A Tier 5 customer whose home is heated with electricity and uses 3,732 kWh would see her bill reduced by $11.85.

The utility is recommending continuing the existing discount – which amounts to $2.8 million annually – for the eight independent school districts within its service area, according to Dreyfus. He said that Austin Energy is also recommending a discount for military bases, which will cost an estimated $95,000 per year.

The utility is further recommending continuation of the $5.75 million discount for customers outside the city. That discount was adopted in 2013 as a result of a rate case brought by some non-Austin residents.

The state of Texas has a contract that will conclude in May 2017. Dreyfus said Austin Energy plans to propose continued rates for the state when that contract is done.

Commercial customers who have what is called a “high peak” but otherwise do not use a lot of electricity will save about $7 million, Dreyfus said, but the burden for recouping that revenue will be shifted to other customers.

Austin Energy is also recommending that all commercial customers who receive a discount receive the same discount of 20 percent off of base rates.

On the other hand, the utility expects to discontinue the discount for houses of worship. This type of discount is no longer common within the state, Dreyfus noted.

It was unclear Monday how much time Council will allocate to study the rates. A group of businesses and consumer advocates had requested a longer timeline than the one laid out by Austin Energy in order to use the new rates in considering the city’s budget for 2017. Mayor Pro Tem Kathie Tovo is proposing that Council hold three or four work sessions in February so that everyone understands the complexities of rate setting.

One big problem for the utility and Council is the Purchasing Office’s decision to disqualify Oxford Advisors LLC, the only remaining bidder to be an independent consumer advocate. City Purchasing Officer James Scarboro told Council on Monday that the independent hearings examiner sided with city staff and that Oxford’s disqualification was upheld.

Scarboro told Council that his office could issue another Request for Proposal for independent consumer advocate candidates, but he noted that there were only two bidders on the previous RFP and one had withdrawn because of a possible conflict of interest, leaving only Oxford. In response to questions from Council, Scarboro said if staff issued another RFP, it would likely take 60 to 90 days to bring the new consumer adviser on board. He said he could not guarantee that there would be any more applicants the third time around, either.

Although some Council members had expressed disappointment over the selection of Oxford prior to its disqualification, it seems fairly unlikely that another professional adviser will seek the job. Mayor Steve Adler noted that it was important to move quickly to get a consumer advocate so that the rate case could move forward.

The Purchasing Office will now consult with Austin Energy on the next steps for finding a consumer advocate.

Photo by Arthur Tress, 1940-, Photographer (NARA record: 1100153) (U.S. National Archives and Records Administration) [Public domain], via Wikimedia Commons

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