BILL OAKEY : ENVIRONMENT | Austin Energy’s rate case debacle: A stunning management failure

By Bill Oakey | The Rag Blog | August 12, 2022

This article first appeared in Austin Affordability and was cross-posted to The Rag Blog. It applies especially to the citizens of Austin but it might just strike home wherever you live.

Listen to Bill Oakey and Roger Baker discuss these and related issues Friday, August 12, 2-3 p.m. CDT, on KOOP 91.7-FM in Austin or stream it on koop.org. Just click the “Listen Live” link at the upper left.

Austin’s values turned upside down

A fiction writer couldn’t make this stuff up. Austin Energy wants to raise rates because you and I and our neighbors have become too energy efficient. Their plan would multiply the fixed monthly customer charge by 2 1/2 times, from $10 to $25. Why? Because “the current rate design is not as efficient as the customers, causing the revenue to be unable to keep up with costs.” That’s what Austin Energy’s vice-president of finance, Rusty Maenius, told the Community Impact newspaper last month.

And it gets worse. The new rate design would overturn the conservation-centered policy that Austin’s environmental icon, Shudde Fath pioneered and the City adopted in 1981. (See Page 6). This system is called inclining block rates. We currently pay less per kWh when we conserve and use less electricity. The big users in larger homes pay more per kWh, on a graduated scale, as their usage goes up. The new plan would do the exact opposite. Why? Because the utility’s current rate structure is “not as efficient as the customers”…Wow! Are you kidding me??

Oh my, how things can change! My dear friend, Shudde Fath was my mentor, when we served together on the City Electric Utility Commission in the 1980’s. I conserved and saved money, thanks to her rate design. In 2016, our City honored Shudde on her 100th birthday. Here is a photo of…uh…Austin Energy…presenting her with a birthday plaque. You can click the link and see this on Austin Energy’s Twitter feed.

A parade of rate increases

Now, back to June, two months ago. A bond downgrade report from the Fitch bond rating service says, “Austin Energy expects additional base rate increases will be necessary, to improve the utility’s operating cash flows, etc. on a sustained basis.” But, as my recent blog postings here and here point out, multiple rate increases won’t guarantee revenue stability. They will simply push customers to rush toward efficiency measures that will reduce electricity sales even faster than before.

Fun and games in the current rate case

In rate cases, Austin Energy uses a “test year” to illustrate their revenue deficiency, and justify a rate increase. This time, that test year just happens to be 2021, during the COVID pandemic. Many offices across the city were still closed, while people worked from home. New COVID variants kept people from going out as often. Just imagine all of those office buildings, theaters, restaurants, hotels, bars, shopping centers, etc. that didn’t use a lot of electricity. In addition, there was less electricity usage before, during, and after Winter Storm Uri.

Whether that wildly abnormal year’s revenues and costs were adequately adjusted to reflect normal conditions was a big issue in numerous legal briefs flying back and forth. (See Page 3). Austin Energy’s notorious, hard-nosed lack of transparency was on full display. But get this:! In the years immediately before the 2021 test year, their revenues were positive (for crying out loud!).

You can learn more by slogging through the appendices in the utility’s rate filing package. But you might find it less agonizing to have your own appendix taken out, while being fully awake during the surgery.

Looming penalties for solar users

Here comes another Holy Cow Moment! This quote comes from one of those cringe-worthy rate package appendices. “Some staff expressed concern over Austin Energy’s Value of Solar (VOS) pricing scheme, stating the current VOS structure is unsustainable, if commercial customers continue to adopt on-site solar and reduce their peak demand charges.” (Appendix 2.1.1, Page 408). (Gulp!)

Residential solar credits are threatened as well. Kaiba White, with Public Citizen, published an opinion piece against the rate proposal in the Austin Chronicle. Here is his statement. “While the new Value of Solar tariff would be a slight !increase in the first year, it would change – potentially by a lot – each year. The new tariff also doesn’t accurately reflect the benefits that rooftop solar provides to the utility and our community. A volatile Value of Solar rate, or one that undervalues local solar energy, could put the brakes on adoption of solar at homes and businesses.” (Ouch!)

The big climate and energy bill in Congress

The U.S. Senate passed the sweeping climate and energy efficiency bill on Sunday. The House will pass it later this week. We would all love to celebrate! It is projected to save eligible families $1,800 per year on their electric bills. The whole purpose is to cause utilities to generate and sell less electricity. But, Austin Energy is clearly not prepared for that. They desperately need a new direction and a new business model.

Instead, their incompetent planning, tone-deaf excuses, and heartless approach to rate design would stick us with sky-high bills next year. Especially during the summer. We simply can’t let that happen!

Let’s ask the City Council to take a stand!

This isn’t the same responsive city staff that we worked with when I served on the Electric Utility Commission back in the 1980’s. If raising base rates and reducing solar credits is the only solution Austin Energy has to offer, then we the people need to vigorously protest to our Mayor and City Council. After the rate hearing is completed, they should:

1. Carefully study the recommendations from all sides.

2. Demand answers to all the information requests from the parties, that Austin Energy refused to comply with.

3. Raise developer fees for new utility customers. The CIAC, Contributions In Aid of Construction, should be modeled after the much better policy used by Austin Water. That is a proper way to increase revenues.

4. Enshrine Shudde Fath’s legacy by making her signature achievement on rate design permanent. Adopt its framework and general parameters into the City Code.

5. Establish senior discounts for all of the monthly customer charges on our utility bills. Make a bold statement, for once and for all, that our longterm resident still matter, and that we still belong, in the affordability-challenged “New Austin.”

6. Put the electric rate increase on hold. Let the summer heat windfall revenues buy some time. Time for the City Council and the public to engage in open discussions – about how Austin’s biggest asset, our publicly-owned electric utility, can best meet the realities of a new, carbon-reduced energy future.

7. Examine the monthly “Community Benefit Charge”  that we all pay for home solar and other efficiency programs. How much and how fast would it grow, as the adoption of solar and other technologies rapidly accelerates?

8. Ask every participant in the rate case to submit their best ideas to make Austin Energy more cost-effective and more accountable. Ask the City Manager to adopt those suggestions.

9. Develop near, mid, and long term planning scenarios with Austin Energy. Compare our current “Rate Increases Chasing Declining Revenues” business model with better alternatives. Examine modern utility systems in Europe and elsewhere. Prepare comparison charts and graphs, extending from now into the future. Bring in a variety of experts. Create an innovative plan. Consider hosting a national conference right here. Let Austin lead the way on this!

10. In your planning, make sure that Austin never has to cut back on home and business solar buyback credits. Please think about what might happen in the future. What if most of the customers get to solar, before Austin Energy finds a sustainable plan? Help them now!

[Bill Oakey writes the blog Austin Affordability. As a retired accountant and former member of Austin’s Electric Utility Commission, he has won and lost electric rate battles since 1983. Bill is also an art photographer and music history adventurer.]

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