Austin Energy defends demand charge for small biz

Shudde Fath, the legendary advocate for ratepayers, wants Austin Energy to change the way it charges certain small businesses for their electricity.

In a January letter to Mayor Steve Adler and City Council members, the longtime member of the Electric Utility Commission wrote that she hoped that the utility would roll back a change from 2012 that expanded the number of small businesses that are subject to a “demand” charge. Prior to 2012, only commercial customers that hit a peak usage of more than 20 kilowatts were subject to such a charge. After the 2012 rate review, however, the threshold was lowered to 10 kW.

Fath thinks that such small commercial users – like residential customers – shouldn’t be subject to a demand charge.

“I urge you to change the 10 kW threshold back to 20 kW and thereby welcome these small, local businesses to use electricity as needed to serve their customers, with no worry about incurring a demand charge in addition to their kilowatt-hour consumption charge,” she wrote.

At a Monday meeting of the Austin Energy Utility Oversight Committee, AE officials acknowledged that the demand charge had hit some small businesses particularly hard immediately following the change, but highlighted a number of measures the utility had put in place to lower their utility bills and mitigate the “rate shock” experienced.

First, instead of assigning customers to classes based on their single highest hour of usage during the summer, AE now bases it on the average of its peak hours in each of the four summer months. Thus, a business whose peak was 8 kW in June, July and August but 12 kW in September is put in the smallest commercial customer “S1” class and is not subject to a demand charge.

That change resulted in 1,300 commercial customers becoming exempt from the demand charge.

Another measure, the “20 percent load factor floor,” is aimed at helping businesses whose energy consumption is inconsistent – or “peaky” in industry parlance – and therefore have low load factors, which is a measure of the efficiency of energy use. The lower the load factor, the higher the bill, except that customers with load factors under the 20 percent floor are granted a sort of amnesty in which their load factor is considered 20 percent.

Rusty Maenius, director of finance for AE, told the committee that the load factor floor was the most important change the utility has made for the benefit of small commercial customers. Typical beneficiaries include dental offices, florists, small houses of worship and auto repair shops, he said. In one example of a bill he showed to the committee, the load factor floor reduced a customer’s bill by a third.

In addition, AE is trying through various programs to help small businesses reduce their energy consumption by putting in place more efficient appliances and advising them on practices that can lower their bills.

For instance, “Maybe if you’ve got a kiln, you shouldn’t crank up your AC at the same time,” explained Mark Dreyfus, AE vice president of regulatory affairs and corporate communications, in an interview. “Maybe that printing press has an old motor, and we could help you with your motor.”

Such practices, he said, were consistent with the utility’s goal of getting customers to better manage their energy consumption.

The Austin Independent Business Alliance, which represents small local companies, is also on board with the current system, he said. Rebecca Melancon, executive director of AIBA, could not be reached for comment Thursday.

Reached by phone Thursday, Fath declined to elaborate on AE’s response to her criticism but stood by her position that AE should revert to its former thresholds for the demand charge. She added that she liked that the load factor floor had reduced bills for some customers but said she would have more questions and comments on the issue in the near future.

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