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Six weeks out from controversial base rate review hearings, Austin Energy proposes yet another rate hike

Tuesday, October 4, 2022 by Kali Bramble

Despite the welcome relief of cooler temperatures, there appears to be no end in sight for Austin Energy’s woes, as the utility tackles yet another unpopular rate change.

As the base rate review case approaches City Hall, Austin Energy has announced that its annual revision of pass-through rates could mean another hike in energy rates come November. With significant changes to base rates also pending, City Council opted to postpone the matter to its Oct. 13 meeting for further discussion.

Chief Financial Officer Mark Dombroski stopped by Council’s work session last week to break down proposed changes to the power supply adjustment, explaining that skyrocketing natural gas prices, an unusually hot summer and continuing fallout from Winter Storm Uri all contributed financial pressures. Austin Energy’s current proposal would set the rate at 4.917 cents per kilowatt hour, a 71 percent increase from last year that would amount to $17.55 per month for the average residential consumer of 860 kWh.

“After Winter Storm Uri we generated a significant amount of revenue because our generation was up and running during a majority of the storm,” Dombroski said. “We returned that revenue to the customers last year when we set the rate, which dropped it significantly below what the market price was. Between May and October we expect to have a significant under-recovery. So not only do we have to make up for the $100 million that power supply costs increased last year, but we have to then pass on that under-recovery to customers for next year.”

Unlike base rates, which are set to cover fixed costs like infrastructure and employee salaries, the power supply tariff is designed to capture the cost of energy purchased from ERCOT, fuel to power generators and renewables like wind and solar via the city’s power purchase agreements. Austin Energy says that last year’s post-Uri rate and an increasingly volatile energy market have left the utility scrambling to manage a significant under-collection, which they project will reach $77 million by the end of October. Complicating matters is a pending bankruptcy case between ERCOT and Waco’s Brazos co-op, which has tied up millions more in revenue owed to Austin Energy that the utility is unlikely to see for several years. As a result, Austin Energy says the total figure under-collected will be closer to $104.2 million.

While Austin Energy says it will need to amend the under-collection to remain financially solvent, Dombroski reminded Council that setting the power supply tariff is fully under its jurisdiction. Dombroski presented several alternative options, including a gradual three-year implementation period that would soften the increase to 52 percent, or $12.85 on the average residential bill. Eliminating the under-recovery with outside funding could also lower the increase to just 42 percent, or $10.49 per month, though this would require a reworking of the city budget passed in August.

With a 150 percent increase to fixed monthly charges already on the table in the base rate review case, Council says it plans to explore all options.

“The real challenge here is that this is coming forward at the same time as the base rate proposal, and so with the understanding that these are separate processes, we as policymakers can’t look at it that way,” Council Member Kathie Tovo said. “We’re going to have to look at it together because those proposed increases are going to hit the same ratepayers who we represent … I think in light of this necessary increase, we have to reevaluate the rate proposal.”

Photo from freeimageslive.co.uk – gratuitThis story has been changed since publication to correct the percent the base rate will increase under the current proposal and to clarify the origin of the other (pass-through rate) increase.

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