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Expert outlines AE cost-of-service recovery options

Tuesday, March 29, 2016 by Jack Craver

As City Council deliberates over changing electricity rates, it is tasked not only with deciding how much to change rates for residential and commercial customers of the city-owned utility but with deciding whether the city should change the way it charges for power.

On Monday, the Council Austin Energy Utility Oversight Committee – which comprises every Council member – listened as an out-of-town expert who was invited to address the committee described a number of ways in which Austin Energy could allocate the costs of service among its different classes of customers.

But determining which class should pay what is only part of the challenge, explained Mark Beauchamp, president of Utility Financial Solutions, a Michigan-based consulting firm. Classes of customers have historically been determined by grouping together those with similar usage patterns, but increasingly there are wide variations in use among customers in the same class.

“With energy efficiency and with solar, what we’re seeing is that the residential customers are no longer alike,” he said.

Beauchamp broached what he conceded was the controversial subject of raising the flat residential “customer charge,” which is currently $10 a month for residential customers. That charge is aimed at recovering the fixed costs borne by the utility, including those for billing and customer service as well as the installation, operation and maintenance of meters.

“Traditionally in our industry, customer charges have been held artificially low,” he said, although he noted that AE is better than most utilities at recovering such fixed costs.

In the proposed rate changes that AE submitted in January, the utility argued that the current customer charge recovers only about a quarter of the fixed costs that the utility incurs for residential ratepayers. AE did not propose increasing the charge for residential customers, but it noted that a future increase might be one of several appropriate ways to raise needed revenue.

“We proposed to leave the customer charge the same in year one and to allow the dialogue to occur to see where the community wants to see the customer charge go after year one,” Mark Dreyfus, AE’s vice president of regulatory affairs and corporate communications told the Austin Monitor.

Another idea that was floated at the meeting, and that is likely to garner opposition from consumer groups, is charging residential customers partially based on their peak demand, which is typically assessed based on the 15-minute period of the month when a customer’s electricity use is highest. While Council members did not say much in response to the presentation, Kaiba White, an energy policy specialist for Public Citizen, a public interest group, was in attendance and voiced some concerns in an interview with the Monitor after the meeting.

While commercial customers are already subject to demand charges, residential customers would likely find such a policy confusing, White explained. “It’s more complex, so you’re going to have a lot of people getting bills higher than normal and not understanding why,” she said, predicting that responding to the customer complaints would take up time and resources for the utility.

“It’s also not necessarily the issue at hand, which is trying to get people to decrease their usage during peak demand time,” which is typically around 6 p.m. for residential customers, she added.

A better pricing model, White said, would be one that encourages people to reduce their energy consumption during the busiest times of the day by making it cheaper to use energy at low-demand hours. Doing the laundry at 10 p.m. would be cheaper than at 6 p.m., for instance.

The less the cost is tied to overall energy consumption, she said, the less control low-income customers have in keeping their utility bills low. Meanwhile, AE’s proposal – in which the connection between consumption and cost may be less apparent to residential consumers – could obscure the financial benefits of efficiency efforts and green technologies, such as home weatherization and solar panels, making them less attractive and defeating the purpose of a peak-demand-based rate change.

Birds_on_the_wire.jpg: Tomascastelazoderivative work: Colin (This file was derived from Birds on the wire.jpg:) [CC BY-SA 3.0], via Wikimedia Commons.

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