Austin Energy agrees to rate deal with businesses, consumer advocates

Eighteen of the 26 advocacy groups, businesses and individuals who signed up to intervene in the ongoing Austin Energy rate review have signaled support for a compromise with the utility. The deal would lower electricity rates for both residential customers and businesses for the next five years.

Thomas Brocato, an outside legal counsel for Austin Energy, announced the proposed settlement at Monday’s meeting of the Austin Energy Utility Oversight Committee, a panel every member of City Council sits on.

The meeting, which was scheduled to begin at 9 a.m., didn’t kick off until 1 p.m. Not only did bad weather and illness mean that Council members were even tardier than usual, but Council Member Sheri Gallo, the committee chair, decided to postpone the meeting until after lunch upon learning that a number of the intervenors were hastily preparing a settlement.

The proposed settlement is largely a compromise between the original proposal AE submitted in January and the one proposed by John Coffman, the independent consumer advocate hired by the city to represent the interests of residential customers and small businesses.

The settlement proposes cutting base electricity rates by $42.5 million. In apparent deference to the cost-of-service study done by AE, which concluded that big businesses were paying far more in rates than it cost the utility to provide them service, the great majority of that reduction will be allocated to large commercial and industrial rate classes.

But in response to pleas from the consumer advocate that part of the reduction be shared with average Austinites, residential customers will get a $5 million reduction, and the smallest class of commercial customers will get a $1 million cut.

“There’s something in here for everyone in the community,” said Mark Dreyfus, AE vice president of regulatory affairs and corporate communications. “It benefits all of our customers.”

Coffman emphasized in his remarks to Council members that he disagreed with AE’s finding that residential customers are paying far less than what it costs the utility to provide them service. He pointed out that the cost-of-service study his team conducted, using a different method, found that residential customers were actually paying more than they owed. In fact, the consumer advocate found that all customer classes were “above cost-of-service,” and he recommended rate cuts for all classes.

Also signing onto the settlement were Samsung and NXP. The two companies, which had intervened jointly in the rate review and proposed a massive $218 million rate reduction, are by far the utility’s biggest customers and claim to account for 10 percent of its revenue. Under the settlement, a $5.5 million rate reduction will be applied to the customer class to which NXP and Samsung belong exclusively.

The settlement, which Dreyfus said he hoped would be signed and presented to Council by Monday, will include a provision that bars any of the signatories from appealing the enacted rates to the state Public Utility Commission or taking any other legal action to block their implementation.

Indeed, the settlement was largely shaped by the fear that Samsung, NXP or other major business interests would drag the city through a cumbersome legal battle if they felt spurned by the conclusion of the rate review.

“By reaching a settlement, we are reducing the risk that someone would appeal the decision to the Public Utility Commission,” said Coffman in an interview with the Austin Monitor after the meeting.

The risk may have been reduced, but it certainly has not been eliminated. A representative for Data Foundry, which had previously proposed a whopping $264 million rate reduction, said that the settlement was a “thumb in the eye” to the midlevel commercial class to which the company belongs. Scott McCullough, who served as Austin’s consumer advocate during the 1996 rate review, noted that the impartial hearing examiner overseeing the rate review, Judge Alfred Herrera, had recommended a far greater reduction for such customers.

“We will seek relief,” he said, suggesting the city may have to brace for legal action.

Public Citizen and Sierra Club, which also intervened in the rate review jointly, will not be supporting the settlement, either. Kaiba White, a policy analyst for Public Citizen, reiterated both groups’ support for a deal that would begin retiring the debt associated with the Fayette coal plant, which the current settlement does not propose doing.

Environmental activist Paul Robbins, who has hounded AE over its management of the Customer Assistance Program – which he says inappropriately doles out millions of dollars to well-to-do customers – registered his vehement opposition to the settlement. It neglects much-needed changes to the CAP program and continues an economically unjustifiable discount to out-of-city customers, he said.

The only strong indication of support or opposition to the settlement from the Council dais came from Mayor Steve Adler, who made clear he was inclined to support it.

“A lot of people worked really hard to deliver rate relief,” the mayor later said in a Facebook post. “No one thought we could do it. Today, it got done. Congratulations to Austin Energy, Samsung, NXP and all the other ratepayers who worked together to accomplish this important agreement.”

Photo by tpsdave made available through a Creative Commons license.

The Austin Monitor’s work is made possible by donations from the community. Though our reporting covers donors from time to time, we are careful to keep business and editorial efforts separate while maintaining transparency. A complete list of donors is available here, and our code of ethics is explained here.