EUC majority defends proposed AE rates at Council work session

With Austin Energy’s proposed rate increase facing a barrage of criticism, the City Council sought out the expertise of its advisory Electric Utility Commission Tuesday and got considerable support for the rate package.

 

Rather than delve into their own positions on rates, as some observers had expected, Council members spent nearly all of the two and one-half hour work session listening to and questioning EUC members who have been immersed in the issue for months. Many of the questions came from Council Member Kathie Tovo.

 

The seven-member EUC held a series of hearings last summer and fall, and submitted its recommendations at the end of October. The EUC ended up voting on 27 separate issues related to the rate package, with 21 of the votes unanimous or 6-1. The EUC was split 4-3 on a few key issues, however.

 

Four of the commissioners who spoke at the work session generally favored the proposed rate package, including increases in fixed charges, which they said were critical for the utility to maintain financial stability, while making energy efficiency a priority. Two other EUC members, Shudde Fath and Barbara Day, raised a number of objections about the rate package. Day, Tovo’s EUC appointee, was the primary critic.

 

The majority four – Chairman Philip Schmandt, Stephen Smaha, Michael Webber and Bernie Bernfeld – made their case for the utility moving to what Webber termed the “new business model.” 

 

This new model includes fixed charges and energy-efficiency riders on bills, Webber said. These charges help the utility stay financially sound while encouraging customers to use energy efficiently, he said. “It is going to be cheaper in the long run because you will avoid new power plants,” he added.

 

“The older model makes us bankrupt and I’m pretty sure this isn’t working,” Webber said, adding that the trick to setting fixed charges is to find a compromise to allow the utility to recover costs, and not discouraging customers from conserving energy.

 

Fixed charges proposed by Austin Energy have been a big issue with consumer groups concerned that the charges would slam residential customers, especially those who are not big power users. The current customer charge is $6 a month on bills. It covers such things as billing and customer service costs.

 

The utility has proposed raising the customer charge to $12 to help cover a larger portion of the actual costs, and adding a separate $10 monthly fee to help cover the cost of delivering power. This $22 would be billed no matter how much power a customer used each month. (The utility earlier had proposed a $15 customer charge, but dropped it to $12, the figure the EUC majority had recommended.) 

 

Consumer groups have been fighting the charges, saying they are not only unfair, but work against the city’s energy conservation goals.

 

One of the critics of the charges has been EUC member Day, who, via telephone during the work session, said the proposed charges are too high, and certainly should not be doubled at a time when technology is helping to bring billing and related costs down.

 

“Austin Energy is simply seeking a source of fixed income and a source of money,” Day said, adding that the proposed fixed charges are regressive and send the wrong signal to customers on conservation.

 

Day also argued that much of the proposed rate increases – and therefore much of the controversy – could be resolved if the utility took a harder look at the revenue that it really needs to operate the utility. She suggested that Austin Energy recalculate its revenue requirement, using 2011 as a test year, instead of 2009, because it is more accurate, in part because the utility has switched to the nodal energy market since 2009.

 

While the majority of EUC members generally supported Austin Energy’s revenue requirement, some did raise questions about the city transferring funds from the utility to the general fund and for other purposes, such as paying the cost of the city’s economic development office. 

 

In addition to transferring about $100 million a year to the general fund to help fund city services like police, parks and fire protection, the utility transfers another roughly $50 million to $70 million to cover other costs, according to EUC member Smaha. These totals are not only double the national average for utility transfers, they have been increasing 5 to 10 percent a year, Smaha said.

 

One of the effects, Smaha said, is that Austin Energy’s reserve funds have been drawn down and revenues have been running 10 percent less than expenses.

 

Council Member Mike Martinez was quick to come to the defense of the transfers, saying that they represent the benefit of the city owning its utility. “They (the transfers) pay for critical city services,” Martinez said.

 

In an interview later, Austin Energy General Manager Larry Weis praised Schmandt, Smaha, Webber and Bernfeld for their comments.

 

“I hope people were listening to them,” Weis told In Fact Daily. “They have been studying this subject for years and they get it.”

 

At the same time, he said Day “made several inaccurate statements,” including some that have been previously answered and discredited. For one thing, he said, it would be impossible to use 2011 as the test year. The only year that has been fully audited has been 2009 because it takes well over a year to complete an audit after the books are closed out, he said.

 

Weis also said that the kinds of questions and concerns currently being raised are what can be expected during a rate process.

 

“What we are seeing is very typical,” he said. “Meanwhile, we have a generation plan and other goals, and to achieve those goals we have to have a rate design like this, with tiered rates and fixed charges. Innovative utilities around the country are doing this.”

 

Weis said he also is looking into the issue raised by suburban residential customers upset that in their rates they are paying for city services for which they do not benefit. 

 

“We are working on a solution and will discuss it at the appropriate time,” he added. “My job is to find solutions.”

 

At the end of Tuesday’s work session Mayor Lee Leffingwell said the Council would hold a second public hearing on rates on Feb. 2. The first public hearing on Jan. 12 lasted more than 5 hours.