Austin Energy’s proposed rate increase garners speculation

13 percent rate hike stirs mixed feelings among users

Seventeen years without increasing its base rate has left Austin Energy with a $131 million shortfall, prompting a 13 percent systemwide rate increase that the utility says is necessary to make ends meet. Opponents, however, believe the increase burdens residential customers in favor of industrial and commercial users.

As fuel costs have risen over the years, customer bills have been riddled with increasing power supply charges used to meet the utility’s growth, said Larry Weis, general manager of Austin Energy. The rate redesign will bring power supply charges to zero and embed the cost within the new rates.

Although a rate redesign was brought up nearly a decade ago, and while the utility has been operating at a loss for years, it was not until AE presented its Resource, Generation and Climate Protection Plan last year that the utility felt it necessary to increase rates in order to meet the city’s growth and need, Weis said.

“We want each customer [segment] to stand on its own and pay its cost of service to try to impede any complaints that these rates aren’t fair,” he said.

If the public discussion and Austin City Council approval process goes as the utility hopes, implementation of the new rates may occur as early as January.

The residential segment

According to AE’s cost-of-service study, the residential customer segment makes up $107 million of the $131 million revenue deficit, urging the need for a 28.7 percent increase in the residential class.

AE has outlined four increased rate options for residential users that will be considered by City Council. Depending on usage and which option is chosen, the rates will change a residential customer’s bill by as much as 60 percent or as little as 5 percent.

In comparison, commercial and industrial users, depending on usage, face a change as high as 22 percent or as low as 1 percent.

Nineteen of AE’s large industrial users have fixed rates that have been under contract since 2007 and will not end until 2015, Austin Energy spokesman Ed Clark said. These 19 users are classified by their use of 3 megawatts or more of energy at any given time. A megawatt is 1,000 kilowatts; the average house uses about 6 kilowatts of energy at any given time.

Even if the rate redesign was implemented in January 2012, the utility would have a $30 million deficit for the 2011–12 fiscal year, a $75 million deficit for the 2012–13 fiscal year, and ultimately would not break even until 2016, Clark said. Until the 19 large industrial user contracts expire in 2015, they account for $20 million of the deficit every year. Their rates would then be raised in 2015 to meet the $20 million needed.

Market evolution defers old methods

Electric Utility Commission member Linda Shaw joined the commission in 1994, the moment the commission began a lengthy series of meetings concerning the last rate redesign.

Shaw said as more utilities become deregulated across the state, the competitive market rises, resulting in sales and buying of electricity based more on who has the lowest price and not the best long-term goal.

“If you charge too much for your energy, if you put it out there to sell and it costs you more than what the market bears—you can’t sell your idle generation,” Shaw said.

In the past, AE has paid for expansion with cash, but recently the utility has had to borrow more and more.

“We have gotten to the point we don’t have cash to do those things; we have to borrow,” Weis said. “Cost of transmission has gone up and a piece of a copper wire has gone up. All of these costs have gone up significantly. We have not addressed that and that is why it’s time.”

The Electric Utility Commission can only give guidance to the City Council and has no hand in the final decision. Shaw expects that the rate redesign will not pass through City Council smoothly, however, and it might be appealed to Texas’ Public Utility Commission.

“There has already been some inclinations [by the Public Involvement Committee] that they feel rates are not fair,” Shaw said. “It will be appealed to the PUC, which, of course, would examine everything.”

The public’s perception

Carol Biedrzycki, executive director of Texas Ratepayers’ Organization to Save Energy, said her group sent a letter to City Council, signed by 22 citizens representing 13 groups, outlining their disapproval of the rate redesign.

Biedrzycki said the rate increase is being allocated disproportionately to residential customers and was formed to reward the industrial class.

Weis said 60 percent of AE’s customer base uses less than 1,000 kilowatt hours per month and are paying $6 a month for a customer charge. The monthly charge may increase from $6 to a value as high as $30 or as low as $10 for the various residential options.

“This huge customer charge … also disproportionately impacts low-income customers who can least afford the rate increase,” Biedrzycki said. AE’s Nov. 5, 2010, affordability study analyzed the residential electricity burden felt by customers from 2006 to 2008.

Customers with homes that fell under 50 percent of the federal poverty threshold, with a family of four income limit of $10,514 per year, paid 39.3 percent of their income per year on their electric bill. In contrast, customers in the 51 percent to 100 percent threshold, who make $21,027 per year, paid 10.5 percent of their income per year on their electric bill.

The study details the burden for several thresholds, including homes that make $105,135 per year and that pay only 2.3 percent of their income on their electric bill. The results made researchers wonder at what level does any utility-related burdens begin to affect public policy.

“A number of observers have used 6 percent as a potential normative threshold upon which households paying above this amount are faced with electricity burden,” the study said. “Below 150 percent of the poverty threshold, households experience a very high electricity burden and perhaps what a reasonable observer would suggest is deserving of public policy intervention.”

Going forward

The Electric Utility Commission will meet on Oct. 3 and 17, after which the rate redesign and the commission’s recommendations will go to the City Council in November and December. Approval of the rate redesign may be as soon as early December with implementation by January.

Apparent dissatisfaction of the rate redesign suggests that the rate redesign will likely reach the PUC before being adopted. If so, Austin Energy’s goal of a January 2012 implementation may drift even further.