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Austin Energy amends initial proposal at base rate review conference, but critics say it’s not enough

Tuesday, July 26, 2022 by Kali Bramble

As the grid works overtime to absorb record-breaking heat, the battle over energy prices continues.

Austin Energy met face-to-face with stakeholders earlier this month with its proposal to raise and restructure rates, citing mounting revenue gaps threatening the utility’s finances. The three-day hearing consisted of hours of cross examination, with interest groups disputing the case from multiple angles.

“Austin Energy has lost a combined $90 million in the past two years … and just two weeks ago Fitch credit ratings downgraded Austin Energy from an AA to an AA minus,” attorney Thomas Brocato said. “Despite customer growth, revenue growth is hampered by outdated rate designs that rely too heavily on energy sales, particularly in the residential class. Accordingly, Austin Energy proposes moving these classes closer to the cost of service.”

Hoping to appease backlash, Austin Energy led the conference announcing a new proposed revenue requirement of $35.7 million, a 25 percent decrease from its initial $48.2 million figure. Still, industrial and residential consumer groups argued that the sweeping increase to base utility charges poses undue risks to Austin’s economy.

Texas Industrial Energy Consumers, NXP Semiconductors, Data Foundry, Sierra Club, Solar United Neighbors, and an independent consumer advocate group quibbled over details, but agreed that Austin Energy had inflated revenue gaps, failing to account for the full impact of Winter Storm Uri in its test year. From there opinions splinter, with differing approaches both toward calculating revenue requirements and allocating costs among residential and industrial customers.

Particularly contentious is the utility’s proposal to increase its fixed monthly charge from $10 to $25, a shift that residential consumer advocates warn would disproportionately impact lower-income users and those who consume the least energy.

“We find the impact here, particularly on the smallest users, is dramatic … so much so that I’m not sure the information Austin Energy provided to the public was quite preparing them,” independent consumer advocate John Coffman said. “The impact on the residential class as proposed would be 17.6 percent, not the 7 percent number systemwide … this is rate shock.”

Adding fuel to the fire was an argument that emerged between the independent consumer advocate team and lawyers with Texas Industrial Energy Consumers, a coalition that represents the state’s largest commercial energy users. Experts from the two camps sparred over competing approaches to cost allocation, with industrial advocates pushing a method based on peak demand in summer months, and residential advocates proposing a base-intermediate-peak method tracking yearlong use patterns. 

Of course, beneath this dispute over methodology was a battle between consumer classes and which should bear the cost. Both methodologies differ from the 12-month coincident peak method used in Austin Energy’s original proposal.

Another battle coalesced around efficiency, with the independent consumer advocate team and Sierra Club noting that the flattening of Austin Energy’s current 5-tier rate structure into three tiers would undermine efforts to encourage energy conservation. Along with recovering revenue predominantly via fixed monthly fees, stakeholders worry that financial incentives to cut back would be practically imperceptible. 

Also of concern was Austin Energy’s proposed restructuring of the value of solar tariff, which provides rebates to customers with solar panels. More complex and prone to volatility, some worry the new formula would dissuade further investment in renewables, and betray customers already committed to the program. In light of failed promises to close the Fayette power plant by the end of 2022, conservationists voiced suspicion over Austin Energy’s commitment to meeting the demands of the 2030 Resource, Generation and Climate Protection Plan.

“I don’t think there’s any doubt that Austin Energy is truly a leader when it comes to environmental activism, bold progressive policy and excellence in efficiency, distributed generation and solar power,” Sierra Club conservation director Cyrus Reed said. “But oddly in this case, Austin Energy steps back from this leadership role … proposing an outrageous increase in customer charges … that violates policies of affordability … sends the message that dollars are more important than the environment … and abandons the existing solar program … that is one of Austin Energy’s crown jewels.”

Participants in the base rate review process will give closing briefs this Thursday, while Austin Energy will have the chance to make its final case on Tuesday, Aug. 9. From there, the independent hearing examiner will take a month to review evidence, returning with recommendations for City Council on Sept. 9, which will gear up to discuss the case in November.

Those interested in keeping up with the proceedings can find more information here.

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