Halloween will not be the scariest time for Austin Energy customers this year. The very next day, November 1st, the new monthly Power Supply Adjustment Charge will kick in. This will spike by a whopping 71%. But that’s only Part 1 of the post-Halloween shock. Part 2 features a 24% increase in the monthly Regulatory Charge. Austin Energy estimates that the “average customer,” using only 860 kilowatt hours per month will see a $20 increase every single month. But it will be significantly higher during the hot summer months. If you live in a house with more than a couple of rooms, that $20 monthly increase could easily be into the $30’s or higher.
Here are the changes to these charges:
Power Supply Adjustment Current Rate: .02877 New Rate: .04917
Regulatory Charge Current Rate: .01206 New Rate: .01495
On my bill ending this July 11, I used 1,478 kWh. And that’s with the thermostat rarely set below 80. The Power Supply Adjustment and the Regulatory Charge combined totaled up to $60.34. Under the new rates, that total would climb to $94.77. That’s an increase of $34.43. Imagine what that might look like next summer, if the City Council approves the base rate increase that they are considering. The increase in the customer charge alone would add another $15.00. The battle to curtail that rate increase is continuing, with consumer advocates talking and corresponding daily. Wish us the best of luck!
The fuel changes are partly driven by the scandalous, legalized ERCOT price gouging that all Texans were hit with during the 2021 winter storm. The price of natural gas has spiked all over the world, since the war in Ukraine began. The heatwave has pushed the ERCOT grid to its limits. So, the gas producers can take advantage of the exorbitant price caps set by the Texas Legislature. When those folks claimed that they “fixed the grid,” they lowered the gas price cap to only an egregiously outrageous level, instead of the previous outlandishly astronomical level. Austin Energy burns gas for some of its own gas power plants, but must rely on ERCOT bid prices during peak periods.
These new fixed charge increases will come on top of our soaring summer bills from the worst heatwave in Austin history. In a period of record high inflation and skyrocketing property tax appraisals. This adds a new urgency to fight the base rate increase. Take the time to send an email to each member of the City Council. Ask them to pay close attention to the experts who testified during the rate case. There are plenty of well-articulated strategies to offset the need for a rate increase. Share this blog piece with your friends and social media.
Use These One-Click Links to Email Every City Council Member:
By Bill Oakey, September 20, 2022, Revised September 21, 2022
I will cut right to the chase. Austin Energy’s rate review and hearings that began this spring should never have happened. This week, the various parties that filed their legal briefs will sit down for their first post-hearing meeting, to try to reach a negotiated settlement. In their squeaking chairs, they’ll be splitting hairs over revenue requirements, cost of service and which customer class is “subsiding” which other. All of this begs one fundamental question. Should Austin Energy even be asking to raise rates, because “their rate design is not as efficient as their customers?”
The answer is no. In my 39 years of following Austin electric rate cases, I have never seen anything as convoluted, challenging and fascinating as this one. As this adventure winds down to a close, our City Council must grapple with several indisputable facts:
1. Not selling as much electricity is a positive outcome, and should become a stated goal in our quest to halt carbon-based power generation, and meet our City’s climate change goals.
2. Long before now, Austin Energy should have been compelled to tell the City Council and their customers how much of a budget surplus they have acquired from the biggest summer revenue windfall in their history. Just 76 miles from here, San Antonio has decided to give their utility’s customers refund credits for $42.5 million of their $75 million revenue surplus. Why are we facing a deadline in a rate case, without knowing whether Austin Energy will even need to cover the perceived shortfall that prompted the rate review? We could actually double the amount of our surplus, with Federal matching funds, under guidelines in the new Federal climate and energy legislation. Then we could use revenues identified in the rate hearings to wipe out the need for a rate increase.
3. Austin Energy’s own data, presented early in the rate review, shows that revenues exceeded expenditures every year, up until fiscal year 2020. The 100 year pandemic and the extraordinary 2021 winter storm made both of those years anomalies. Yet, Austin Energy’s charts paint those years as proof of a new trend of declining electricity sales. Compounding that fallacy is their August 2020 memo to the City Council, which projected a $19 million revenue surplus for 2021. In addition, 2021 brought a milder than normal summer. So there is no “known and measurable” evidence that there is a new trend of declining revenues going forward.
4. Raising base rates and manipulating rate designs in ways that discourage conservation is a completely backwards approach. It would boost utility revenues, to the detriment of climate change mitigation. Penalizing solar customers with unpredictable buyback rates would only make matters worse. All of these high costs would drive more affluent residents and businesses toward alternatives, at an accelerating pace over time. A Community Benefits Charge will eventually rise to unsustainable levels, as customer adoption of solar gradually climbs to 10%, 15%, 20% etc. of the city’s population. Utilities without a viable plan will be left with declining revenues, as their customers require less of their power.
The Root of the Problem Is a Broken Business Model
Ask yourself these basic questions. If you owned a business – any business – would you hire people to go out in the community, and offer your customers incentives to use less of your product? Would you put links on your website, offering rebates to customers who install things that get them out of your business altogether, part of the time? And finally, would you offer to pay them a special rate, if they give back any unused portion of your product? And you agree to put that unused product on the market, so that your competitors can sell it.
If you did those things, how long do you think you could stay in business? Well, suppose that your community grows very fast every year. Perhaps you can add enough new customers to keep the business going. But what happens when those things that customers install to get out of your business become so affordable and so attractive, that they explode in the marketplace?
Suppose that your business is regulated by your state or your city. You could tell your regulator that you are losing money, because you’re not selling enough of your product. Ask them for permission to raise your base prices, and increase the add-on fees. Even though the demand for that product is falling. And, because you did such a great job helping customers get less of your business, that demand is projected to keep falling, at an accelerating rate. Would your price increases keep you afloat, or would they just drive away your customers faster than ever?
Welcome to the electric utility business! You just acquired a hornet’s nest of a messy dilemma. And, the Federal government just passed landmark legislation to help thousands of families use less electricity. Climate change goals are so critical that you need to aggressively support selling less electricity from carbon-based power plants. Now you need to look for a way out of the dilemma. You need to start planning to move in a new direction – as expeditiously as possible.
New utility business models are being developed and implemented, both here and very successfully in Europe. Utilities should consider the new practices outlined in a 2019 report by the National Conference of State Legislatures. It is worth noting that nobody from Texas appears to have leadership roles in this organization – yet.
The NCSL Report Lays It All On the Line
This report begins with an all-too-familiar theme that has been hiding in plain sight for too long. Here are a few excepts from the Overview:
”Energy efficiency is an appealing option for state policymakers looking to lower energy costs, reduce air pollution and promote local economic growth. Utilities also recognize the benefits that energy efficiency can provide for ratepayers—such as lower utility bills, increased system reliability, reduced greenhouse gas emissions and increased customer satisfaction. When implemented on a large scale, energy efficiency measures may take the place of new power plants and transmission and distribution projects, reducing utility expenditures and risk while lowering costs.”
”Although energy efficiency can be a substitute for new power plants and power lines, it can lower utility earnings under traditional utility business models.”
“The current energy landscape is rapidly changing, with increased demand for clean energy, growing amounts of customer-sited energy generation and new distributed energy resource technologies. While efficiency is seen as a resource that lowers energy demand and increases productivity, the traditional utility business model creates substantial financial disincentives for utilities looking to develop these programs. As a result, many states are exploring and establishing policies that motivate cost-effective efficiency investments.”
Here is another excerpt that leads into the heart of the report:
“At least 44 states and Washington, D.C. have established utility revenue incentives for energy efficiency through decoupling mechanisms, lost-revenue adjustment mechanisms (LRAMs) and performance incentives. The next three tabs explore these approaches in detail and include state policy maps and summary tables.”
The Handwriting Is On the Wall
Utilities, including Austin Energy, need short term, midterm and long term strategies. Technology marches on. American ingenuity will inspire entrepreneurs in the marketplace to deliver what utility customers want. That train has already left the station. It’s better to hop onboard than to be left behind – wondering why people don’t like the idea of higher electric rates. After a brutal summer heatwave, in a period of record inflation and a housing affordability crisis.
By Bill Oakey, September 13, 2022, Revised September 15, 2022
We are now witnessing the worst wildfires, heatwaves, drought, severe flooding and strongest hurricanes than ever before, worldwide. But electric utilities are stifling progress, with outdated business models, and plans that would slow the transition to customer-based solar. This blog piece is dedicated to everyone out there who cares passionately about meeting climate change goals.
Do Non-Solar Customers “Subsidize” Solar Customers?
No! No! No! No! No!!!
That is a dangerous question to even ask. If we travel down that road, we will seriously jeopardize our chances of saving the planet. Ratepayers who can’t afford solar are eligible for a host of other energy-efficiency programs. Major utilities from Austin to California have fallen into the “subsidy” trap. Their conventional thinking is couched in terms of dollars. How do the dollars flow up, down and around the customers – between customer classes, and within customer classes? Austin Energy has a Value of Solar buyback program, that could be weakened in the current rate case. “Value,” when placed next to “solar” deserves a much broader perspective than just the dollar impact on energy sales. Subsidization should be taken out of the equation.
In the 1950’s, when Elvis Presley first started swiveling his hips, it made good sense for utilities to think of rate setting strictly in terms of dollars. Ratemaking, like sausage-making could be reduced to a simple, defined recipe. Jimmy Dean found that out, when he left the music business to become a sausage king. But today, we cannot afford conventional thinking about the value of solar. Not if we care about mitigating climate change!
How Do “Subsidies” Creep Into Austin Energy’s Solar Planning?
It’s not a pretty picture. Prior to our current rate case, Austin Energy hired a firm, NextGen Strategies and Solutions, to evaluate their current Value of Solar payment structure, and recommend potential improvements. Here is a quote from that report, following their statement that there are two options available:
“To be clear, either approach if conducted in a transparent and well‐informed manner may be acceptable and appropriate for Austin Energy. However, to the extent the amount paid to customers through VOS credits exceeds the direct economic savings to Austin Energy, the VOS credit will result in non‐PV customers subsidizing PV customers. Further, to the extent a subsidy exists, as PV penetration increases, so shall the subsidy. At some point the subsidy may reach a magnitude that is not acceptable to policymakers. In recognition of this situation, it may be helpful for Austin Energy to consider the following policy questions:
1. Should non‐PV customers subsidize PV customers and, if so, by how much and for how long? 2. Can Austin Energy achieve its distributed renewable energy goals with a VOS credit that is solely based on embedded cost avoidance/savings? 3. How should achieving Austin Energy’s distributed renewable energy goals be balanced with minimizing PV customer subsidies?”
Subsidy, Subsidize, Ad Nauseam…
There are subsidies throughout our economic system. Austinites who pay property taxes subsidize big corporations, who get tens of millions in tax abatements – for the privilege of creating high tech jobs. This has touched off waves of income inequality, massive gentrification and an affordability crisis. Where is the “Strategies Inc.” report to address that problem?
In Austin, big downtown skyscrapers are often assessed at well below market value, for property taxing purposes. The City filed a lawsuit, to put commercial taxpayers on an equal footing with homeowners. The lawsuit went nowhere. Movie theaters subsidize the multi-billion-dollar Hollywood film industry. Theaters survive by charging outlandish prices for popcorn and candy. Subsidies are everywhere.
Austin Energy hasn’t explicitly stated that substantial fee increases to reduce the subsidy effect are factored into their future solar planning. But it’s on their radar. And, their proposed rate plan calls for evaluating the Value of Solar calculation every year. If customers begin to see a weakening of the credits, they may not want to wait long enough for a solar investment to break even. Solar contractors try to help new customers figure out their break even timeframe.
The Perils of the Community Benefits Charge
Austin Energy wants to move the service charge for energy efficiency programs, including solar, to the “Community Benefits Charge.” We can see a complex web of cross-subsidization with that. But there’s a much bigger problem. I like to think in terms of getting from Point A to Point B. At Point B, perhaps 15% of Austin homes and businesses will have solar panels and battery storage. Then add modern home generators, to get through power outages. We could call 20% saturation Point C, and so on. That would push the customer benefits charge to unsustainable levels. Austin Energy could not hope to recover all their lost electricity sales through fixed monthly customer charges and reduced solar benefits. Or a parade of base rate increases. I’ll say it again – Old business models won’t work forever. Utilities will need to adapt, and learn to “grow backwards.” Centralized electric utilities will gradually shrink.
The Net Energy Metering “Reform Movement”
Climate change mitigation is being threatened nationwide by so-called “net metering reforms.” Reducing solar benefits and adding new fees for solar customers is the opposite of reform. Sadly, utilities now find themselves ill-prepared to absorb the cost impact of the historic climate and energy bill, passed by Congress. Solar United Neighborsrecently published this dire warning about fixed monthly customer charges, and new fees for solar customers:
”Utilities are attempting to restructure electricity bills so that more of each bill is made up of these charges. These fees directly affect how much of your bill you can reduce through solar generation, efficiency upgrades, and conservation. They discourage efficiency and limit homeowners’ ability to save money by producing a portion of their own power through solar. Some utilities propose to more than double the fixed charges for ratepayers.”
“Previously, the California Public Utilities Commission released its proposed decision on December 13th, 2021. The proposal contains provisions that (among other things) reduce compensation for solar energy sent to the grid, add new monthly fees to the electricity bills of future solar owners, and reduce the amount of time people on Net Energy Metering (NEM) 1.0 and NEM 2.0 can receive bill credits under those programs.”
Wow! This is California, where climate change has unleashed the worst wildfires, chronic severe drought and a devastating summer heatwave. Fortunately, their Public Utilities Commission has since voted to put that proposal on ice for one year. The plan would slash solar benefits by as much as 80%. Perceived “unfair subsidies” are one of the driving forces behind it. Understandably, climate change activists are all riled up. And, hey, think about this. It’s not totally about the subsidies. Utilities will sell more carbon-generated electricity, and make more money when they reduce solar benefits. (Duh)!
It’s not just residential solar customers who could see their benefits cut here. In Austin Energy’s final rate case filing brief, I discovered this startling sentence:
“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.” (See Appendix E. Sec. 2.1.1., Pg. 408).
A Stalled Proposal and a Hopeful Parting Note
The rate case explains why one of my proposals hit a brick wall. I wanted Austin to lead the nation in a push to put solar panels on big-box retail stores. The idea came from a wonderful study as reported by CNN. It outlines the huge carbon reduction gains that we would see if all big-box retailers and shopping malls nationwide built solar rooftops. City Council Member, Ann Kitchen told me in two meetings this spring that she would seek a response from Austin Energy about my proposal. I’ve heard nothing about it since. So, now the challenge is to stop Austin Energy and other utilities from reducing solar benefits.
Let’s support the environmentalists’ call for a comprehensive study of best practices, to craft a new Value of Solar policy. It needs to put climate change front and center. Let’s try to steer Austin Energy in a positive direction, away from the nostalgic 50’s and 60’s, and into a climate-conscious future. My next blog piece may inspire some hope. New utility business models are being developed. I will explore them with two fascinating published reports.
San Antonio City Council member, Mario Bravo, has set an example that we should follow here in Austin. He is proposing to use part of their $75 windfall from high summer electric bills for a variety of wonderful programs that will protect the utility and help consumers. His plan is much better than giving ratepayers a one-time rebate of $22 to $29. Here’s the kicker in Council Member Bravo’s proposal. It would allow San Antonio to apply for Federal matching funds, to DOUBLE the amount of the revenues!
Let’s Double Down On This Opportunity!
This is a game-changer that changes my recommendation for Austin. I have asked each of the pro-consumer participants in Austin Energy’s rate case to make a list of the revenue options they have identified in their filing briefs. Let’s use those revenues to wipe out the rate increase. Then, let’s follow Council Member Bravo’s example. But first, we need Austin Energy to release their fiscal year to date Budgeted vs. Actual revenues. Bravo for Mr. Bravo!
The Texas Longhorns almost beat Alabama on Saturday. Let’s give them and the rest of the City a big win in the rate case. It is 4th down, and we’re just inches from the goal line. We can score a full consumer victory. And then get the extra dollars to sweeten the deal! Here is the San Antonio news story:
Let’s invest CPS revenue in real solutions to high energy bills
Due to an extremely hot summer, CPS Energy’s contributing revenue came in at $75 million over the city’s 2022 budget, and the city proposed returning some of that money to customers as a discount on their October bills. While a bill rebate after a summer of high bills sounds good at first, taking a closer look at where the money goes, we see how it could cost residents a chance at real solutions and savings.
In the city’s proposed rebate plan, the average residential bill would get a $29 rebate, and many would get even less. Half of my District 1 residents would get less than $22. Commercial customers would account for nearly half of the $42.5 million returned to customers, and residents and businesses outside of San Antonio would also get a significant amount.
This is a bad deal for San Antonio residents, and it’s why I’m proposing we invest some of this extra revenue to help protect residents from future high energy bills and prepare for more extreme weather.
As a city-owned utility, CPS Energy is owned by San Antonio residents. As owners, we now get a return on your investment every year with up to 14% of all CPS Energy revenue going into your city’s annual budget to help pay for your sidewalks, libraries, police and firefighters, parks, and more.
What about CPS Energy customers who aren’t San Antonio residents and therefore aren’t owners of CPS Energy? Under the current proposal, $12 million would go to residents and businesses outside of San Antonio.
There is also a huge corporate welfare component to this rebate proposal. Commercial customers will receive almost $20 million, with one corporation alone receiving close to $1 million.
I didn’t run for office so that I could transfer wealth from our city to corporations and residents outside of San Antonio. Fortunately, some council members have developed an alternative proposal which includes the following:
Create safe community spaces for extreme weather events and emergencies: Install backup power in public buildings for when the electric grid goes down. These buildings will serve as public cooling centers during heat waves and heating centers during freezing weather, as well as distribution sites for emergency supplies.
Protect low-income residents against future high energy bills: Weatherize and install energy efficiency upgrades to help reduce energy waste. The Department of Energy has found that weatherizing a home saves $372 per year on average. This will also reduce the peak electricity load on our utility, which then saves all CPS Energy customers on future bills.
Reduce urban heat and flooding: Plant trees in the hottest parts of our city to provide shade and cool our city down by up to 9° F on hot days. Also, plant trees that can absorb up to 4,000 gallons of water per year near drainage basins where we have flooding problems.
Add funds to a program to help prevent our most vulnerable CPS Energy customers from having their electricity cut off. This applies to low-income customers who are senior citizens, disabled, have small children in their homes, or require critical-care equipment.
The timing for this proposal is just right to achieve more for every dollar we invest. The federal government just passed the $700 billion Inflation Reduction Act, which includes $1.5 billion for tree planting and $1.9 billion to reduce urban heat island hot spots. Passing our proposal allows us to demonstrate that San Antonio is serious about doing this work and allows us to apply matching funds for the federal grants, allowing us to double or triple our investments.
The only reason we have this additional city revenue is because this summer heat wave has been brutal. We can expect to see summers like this and possibly even hotter going forward. Corporate welfare and rebates to people outside of San Antonio are a bad idea and do nothing to help address our future extreme weather and electricity grid challenges. Let’s invest these revenues, which could be doubled or tripled through federal grants, to protect our community against future extreme weather and associated high energy bills.
San Antonio has decided to allocate $42.5 million of the surplus for customer rebates. The rebates will be optional, as explained in this article.
You can’t get through a day in Austin now without seeing or hearing commercials about solar, home generators, etc. The boom is on. But Austin Energy’s rate proposal lacks the vision to carry us into the much-needed transition away from traditional carbon-emitting, centralized power plants.
Kudos to KXAN’s Avery Travis, who is spearheading a series of in-depth reports on a complicated issue. It’s time for a pause – to form a consensus among concerned citizens, local experts, the City Council and the good folks at Austin Energy who keep the lights on. No City recognizes the value of innovation better than Austin, Texas. We must make it happen!
Read the Austin solar article below. Then do yourself a favor, and bring a group of friends to the early show at the Elephant Room on Tuesdays, at 315 Congress Ave. You are about to meet Sarah Sharp…
AUSTIN (KXAN) — Local musician Sarah Sharp sings every week at a downtown jazz club, but she still remembers her first gigs in Austin: working at Fresh Plus Grocery in Hyde Park and Z’Tejas on West Sixth Street more than 20 years ago.
“My half of the rent was $415 a month,” she laughed. “I’ve tried to have a really positive attitude and roll with it and accept that change is just the fact of life, but it’s getting a little bit out of hand. It’s getting harder and harder to keep a positive attitude on the rapid growth and the cost and the things that we are losing — like our music venues and our beloved restaurants.”
Over the last few years, certain changes have made her feel like she is in “survival mode,” in more ways than one. She said described being worried about climate change, losing faith in the state’s power grid after last year’s winter storm and feeling alarmed about what seems like an ever-climbing utility bill. In search of some stability, she began researching the costs and benefits of solar panels for her home. She decided to install some and believes, if everything goes as planned, she will be able to “lock-in” her electric costs — even if others’ rates go up.
“It’s kind of primal,” she said. “To be able to have a predictable, steady payment and wanting to do what I can for the earth… and wanting to have some help in the situations where we can’t count on our own grid.”
But now, some changes Austin Energy has proposed for the solar program have Sharp worried about whether her panels will give her the consistency she was looking for.
Looking forward, or backward
On a sunny day, people with solar panels on their roofs are generating energy not just for their own houses or businesses, but enough for some to go back into the electric system that powers other homes and businesses. During darker hours, though, these homes may use some power from Austin Energy.
So, solar customers’ bills will reflect charges for any power usage and credit backfor the energy they generated. That amount is calculated by the utility’s Value of Solar rate.
As a part of its ongoing retail rate review process, Austin Energy wants to adjust the way the Value of Solar gets calculated.
The utility announced earlier this year it would be seeking to increase the base rate for electric service from $10 to $25 per month for customers, as well as trying to restructure the tiered system they use to charge customers based on how much energy they conserve. Austin Energy said these changes — along with the Value of Solar proposal — are necessary to cover the increasing cost of providing service.
Tim Harvey, Customer Renewable Solutions Manager for the utility, said the three specific changes proposed for the solar calculation will make it “more accurate.”
First, Austin Energy wants to change the way it calculates what are called “avoided costs.” Basically, this is the price the utility would have paid to produce the same power itself or purchase it from another source, but instead, it is received by solar customers’ power generation.
Currently, Austin Energy’s avoided cost methodology is forward-looking, using forecasts and projections to “try to grab those values from the future and bring them into present day,” Harvey said. The proposal aims to look at market data from the previous year to calculate the avoided costs. Harvey said the proposed method would rely on measurable data instead of predictions.
“Both ways, both methodologies, have value and can be correct,” he said. “It could be more accurate to look in the backwards, the rearview mirror on it, so to speak, because we can measure what happened in the past. We can’t really do that for the future.
Energy consultant Karl Rábago, however, compares the new methodology to someone clocking a runner’s average time for a 26-mile marathon by only looking at one mile.
Rábago served as Austin Energy’s Vice President for Distributed Energy Services back in 2006 and helped create the original Value of Solar tariff. He believes the forward-looking approach they designed treats customers more like a long-term investment for the utility, rather than a wholesale energy generator.
“What’s the price based on the fact that they’re installing a 25-year resource? Today’s Austin Energy is treating them like a commodity, like they’re just in a spot market — where if they happen to make electricity this year, they might not make electricity next year. They’re giving them only the short-term price,” he said.
To put it another way, he said, “If Austin Energy wanted to build or contract for a solar farm, they wouldn’t pay for it one year at a time, they would put it on the books as a long-term asset with 25 or more years of usable service.”
The Sierra Club, Public Citizen and Solar United Neighbors filed testimony claiming that the new formula ignores other resources provided by local solar customers, including avoided air pollution, benefits to the local economy and avoided distribution capacity costs. According to the document, they call the changes “unjust, unreasonable, and discriminatory” towards solar customers.
Austin Energy disagrees. Harvey said they ran an analysis using the proposed methodology and came out with a higher Value of Solar, at $.0991/kWh — compared to the analysis they ran using the other, future-looking methodology which came out to $.095/kWh. For context, the current value is $.097/kWh.
He said they would assess any market changes on a yearly basis, but wouldn’t necessarily change the rate every year.
“If it goes down, then we can talk about doing a rolling average and what that looks like,” he said.
Still, the possibility of variability concerns several consumer advocates, including Bill Oakey. He has worked on several utility rate cases over the years and has been following affordability issues in Austin since the 1980s. He sat on the Electric Utility Commission for several years and now writes a blog called Austin Affordability.com.
While he didn’t file testimony in this case, he believes the changes will make it more difficult for solar customers to plan ahead, which could discourage people from investing and committing to solar.
“The problem is that the rate is going to be variable, and so there is no guarantee of what it’s going to be,” Oakey told KXAN.
He said he’s concerned about anything that might hinder interest and accessibility for solar projects.
“The bottom line is that we need to be able to get from point A to point B, and just think about what point B might be 10 years from now, 15 years from now. We might have 15 to 20% of the population, both business and residential, using solar panels and storage batteries. If that were to happen, Austin Energy would need to learn to grow backwards,” Oakey explained.
He is critical of the reason behind Austin Energy’s larger proposed rate increase, urging the utility to eye a business plan that anticipates selling less power — as more customers conserve and trend toward energy-efficient patterns.
Harvey, however, insists the utility is not “defunding solar.”
“We’re not trying to cost-signal people to stop adopting solar. You know, quite the opposite. It’s the values going up, we’re intending to just pass through the benefits to the customers who are producing energy. But there can and probably will come a day where solar-hosting capacity is an issue that we’ll have to address. We’ll look to other utilities to find out what best practices are because there are other utilities that are further along the adoption curve than we are today.
According to the utility, another key piece of its proposal is to shift the recovery method for solar energy transactions with customers.
Currently, the Value of Solar expenses are recovered through the Power Supply Adjustment (PSA) charge. It has proposed recovering something called Societal Benefits through a different charge — the Customer Benefit Charge (CBC). The move would increase the CBC while decreasing the PSA, and Harvey said this “increases transparency” for customers.
“So, we’re breaking out the environmental values, we’re calling them societal benefits now,” he said. “By breaking those out, we’re able to show the public, you know how we come to that calculation.”
Harvey acknowledged some concerns about this shuffle, for example, the fact that certain commercial customers do not pay the CBC charge.
Testimony filed by Sierra Club, Public Citizen and Solar United Neighbors states, “the utility effectively creates an uneconomic subsidy in which customer [solar] generators are required to subsidize other non-solar customers (especially large users of electricity) and the utility. Whenever customer-generators are forced to subsidize other customers, they will be less likely to invest in solar generation, frustrating policy and economic goals for the community.”
Rábago voiced a different concern about this switch. He argues that by recovering the Societal Benefits through the CBC, the utility could “starve” other energy efficiency programs that are funded by the CBC.
“They are making those non-utility resources fight for themselves for an ever-decreasing slice of pie,” he said.
He is particularly alarmed by the third change proposed by Austin Energy, which involves adding a new, third value to the Value of Solar calculation, called the Policy Driven Incentive (PDI). This incentive would ultimately be provided to solar customers “for a fixed term and at a fixed amount” based on the customers’ power production and other factors — but would adjust annually — according to a written statement by utility officials.
Harvey explained it as “a proposal” to meet with the community and interested parties “to help inform our incentive solutions, so that we can meet policy-driven goals.
Those goals include having 200 megawatts of solar from Austin Energy customers — about twice as much as exists today, according to Harvey.
“We want to get there in the most effective and easy way possible for customers, and also the most cost-efficient way,” he said.
Rábago, however, argues that the need for an incentive is an indicator that the Value of Solar itself may not be compensating customers fairly. He told KXAN that was his intention, when he helped craft the original tariff.
“That having a price set on value would create the holy grail: a self-sustaining market. A market where installers could figure out what things were worth; they could make the sales proposition to customers; the customers would feel they were getting a reasonable payback — that their investment in the community, as well as of course themselves, was going to be respected for a long time.”
Sharp said, whatever the methodology, she hopes the utility chooses to prioritize customers’ goals.
“We’re just trying to do our part. Quit making it so darn hard. It’s ridiculous,” she said.
The announcement should come as no surprise. Austin Energy’s windfall revenues from the historic summer heatwave are considered “post test year data” in the parlance of traditional utility ratemaking procedures. But that doesn’t stop the City Council from adopting my proposal to scrap the rate increase. They should stuff some of the mountains of rate case filing documents into the recycle bin. But, as mentioned in this blog, there is plenty of material in those papers to guide the Council toward permanent, progressive and meaningful reforms.
Here is a summary statement by the IHE, Impartial Hearing Examiner. (See Page 7).
”The IHE recommends approval of a substantial portion of AE’s revenue requirement, cost allocation methods, and VoS. Besides rate design, these are the basic elements that facilitate AE’s duty to remain financially stable. AE presented well-reasoned arguments based on ratemaking principles, City and Financial policies, and its status as a non-profit MOU. Where the IHE departs from AE’s Base Rate Package is rate design. Although certain participants challenge whether AE is correct on its cost concerns, AE is focused on assigning cost recovery to those customers who create the costs and moving from declining energy sales to better recover demand costs.”
“The IHE agrees with certain participants, particularly the ICA, who express concern over potential rate shock. AE’s proposal to increase the customer charge from $10 to $25 may not result in rate shock for certain AE customers. However, the IHE is concerned that, for those customers who are vulnerable to rate shock and yet ineligible for CAP (as it is currently designed), AE’s proposed increases may exacerbate a known affordability problem in Austin. As a result, the IHE recommends that AE’s proposed rate design and targeted customer assistance programs like CAP be revisited by AE and the participants.”
What’s the Bottom Line?
In my view, the IHE did a very thorough analysis. Wading through it is cumbersome, however, because his conclusions for each piece of the rate package are scattered throughout the document. There is no convenient breakdown listed in a single place. The best part is the recommendation that Austin Energy’s controversial rate design should be revisited. But most of his conclusions ultimately just rubber-stamped Austin Energy’s. Their rate recommendations are hampered by antiquated methodologies, an outdated business model, and the urgent need to combat climate change.
Even without those concerns, Austin Energy’s own documents defeat the logic of a rate increase. A revealing 2020 memothat they sent to the City Council, combined with a set of their own charts paint a clear picture – There is no compelling trend that points to declining revenues.
Stay tuned, as the long, tedious but invigorating process winds down to a full consumer victory!
On August 14th, this blog asked the City to evaluate whether the historic summer heatwave will raise enough of a budget surplus to nullify the need for an Austin Energy rate increase. That was over 3 weeks ago. There has been no response from City Hall, or from the Utility. I first raised this question in a July 22nd KXAN News broadcast. Since then, we have learned several new factors that make that case stronger than ever.
City Officials Should Answer These Important Questions?
1. What is the revenue status now in Austin Energy’s current budget?
As pointed out in my August 14th blog post, San Antonio’s City-owned utility announced a $75 million budget surplus. Their City Council has held work sessions on how best to utilize those funds. Just yesterday, San Antonio City Manager, Erik Walsh, discussed the options in an on-air interview with KSAT-TV. A rebate to customers is being considered.
2. Where, and at what time will the Hearings Examiner deliver his recommendation on the rate increase?
His report is due tomorrow. But where and when is that supposed to take place? Austin Energy published a procedural timeline, but it does not address that question. When I asked one of the prominent participants in the rate case, I was told that they have not been given that information. This is a perplexing and frustrating lack of transparency!
3. What impact will a budget revenue surplus have on the rate
Let’s hope that the City Council will ask Austin Energy immediately for a current estimate of their fiscal year to date “budget vs. actual” revenue status. They should have been able to conduct the same type of revenue and spending option evaluation that San Antonio has been doing for the past month. If not, somebody should tell us why not.
We already know that accounting errors identified by the Independent Consumer Advocate have been accepted by Austin Energy. This caused them to lower their rate case revenue requirement from $48.2 million to $35.7 million. (See pp. 1-2). At this point, the current budget status should be an essential part of reviewing the Hearing Examiner’s recommendation.
4. Does Austin Energy have the opportunity to improve its bond ratings, based on new revenue estimates, along with the diligent and excellent recommendations by all of the rate case participants? The picture is much better now than it was at the beginning of the summer. The best outcome would avoid the need for ongoing rate increases.
This blog has raised a whole host of other questions. And, there are more to come. Stay tuned. I remain optimistic that the Austin community can come together, and ultimately end up in a better place. If we get onto the right path, we can be a leader in the country’s quest to obtain affordable clean energy, while setting achievable goals to combat climate change.
A Fun Thing to Think About
What about the other Central Texas utilities? A friend asked me about Pedernales Electric Coop. It got me to wondering. Won’t all of these utilities have summer windfall revenues? Bluebonnet and what-all. They don’t hesitate to raise rates when financial woes strike them. But now they are awash with boatloads of unanticipated surpluses. Is it executive bonus time at champagne galas? Or, do their customers deserve a billing credit or a rate decrease? This question should apply from Buda, Kyle and Dripping Springs to Pflugerville, Round Rock, Cedar Park and Georgetown. Maybe even San Marcos and Bastrop.
I don’t have time to look into it. But, maybe somebody should.
In the summer of1985, I took a seat behind a nameplate on the City’s Electric Utility Commission. This was my first meeting as its newest member. City Council Member, George Humphrey had appointed me. This followed a fun adventure that concluded on a happy note the year before. It began in 1983, when I read a newspaper headline that the City had approved a whopping 20% electric rate increase.
During my lunch hour that day, I left the accounting office where I worked, and walked over to City Hall. For the next three weeks or so, I stayed up late in bed, scrutinizing the City Budget by lamplight. How could such a huge rate increase even be possible? One lucky night, I hit the jackpot. It was all right there, in a single “magic sentence.” It said that the 20% rate increase “is based, in part, on the successful passage of the lignite bonds in the November bond election.”
Well, the City Budget was adopted in late September, to take effect on October 1st. Thanks to Max Nofziger’s “Austinites for Clean Energy” activist campaign, the lignite coal bonds failed, by a margin of 61% to 39% (See Prop. 2). I did some other Budget calculations, and came up with a proposal to cut the rate increase by half, down to 10%. The Electric Utility Commission accepted it, and made the recommendation to the City Council. The 10% reduction became official at the City Council meeting on April 12, 1984. (See Page 3, Electric Rate Ordinance).
“Cost of Service” Emerges As a Rate Case Lynchpin
At my first meeting on the Electric Utility Commission, I was introduced to a whole new world of confusing jargon. We met at the old Electric Building Auditorium at 301 West Avenue. At each meeting, we received agenda packets stuffed with papers and documents. It wasn’t long before we found ourselves embroiled in a major rate case. That was my initiation into the mystical and mysterious realm of “cost of service.” A more formal name for it is “cost allocation.”
Don’t get scared off! Don’t quit reading! I will make this simple and painless, even fun…
People Just Love to Play With Words
I quickly learned that phrases used by City Staff should not be taken at face value. One should always ask questions and do research. “Cost of service” is based upon a specific model, and there are many different models. The rate cases in the mid-1980’s featured intense battles between consumer advocates and industrial ratepayers. Cost of service always took center stage..
Here’s the bottom line on the different models. The industrial ratepayers favored an antiquated model, that some say dates back to the jazz age – when you could buy an Edition phonograph, or one made by the Victor Talking Machine Company. That model lumps all the power plants together. Then it assigns the cost allocation to each class of customers.
That model is simplistic, flawed and unfair. Industrial power comes primarily from expensive power generation sources that are used 24/7. Residential power comes primarily from cheaper generators, and used during peak hours of the day. Consumer advocates prefer a modern, sophisticated model, that allocates cost based on numerous factors, including types of power generation, time of year, hours of the day, etc.
Even Gary Hart Didn’t Change Models
We often debated those 1980’s rate cases in a packed City Council chambers. One of those lively public hearings happened during the 1987 primaries for the next year’s Presidential election. Gary Hart was the Democratic front runner, to take on George H.W. Bush. But Hart was in a heap of trouble over a mistress, a model caught nestled in his arms, on a boat named “Monkey Business.”
I argued to the City Council that that the Electric Utility should not switch to the industrial ratepayers’ favorite cost of service model. To attempt a bit of humor, I said “Even Gary Hart didn’t change models.” He at least appeared to remain loyal to his one favorite mistress, Donna Rice.
Fast-Forward to 2022 – It’s Business As Usual
Here we are folks, over 35 years later, and we’re still stuck with business as usual. The Electric Utility Department has rebranded as Austin Energy. The funky, stacked Independent Condos Tower now stands where the Electric Building Auditorium used to be. The iconic “Katz’s Never Kloses” deli, down the street at 6th and Rio Grande, got gentrified into oblivion several years ago. But, the very same electric cost of service models are once again being tossed about in this year’s rate case.
The Graphics That Should Steal the Show
With online research, it’s exhilarating to turn over a rock and discover a gold nugget. These images come courtesy of the Regulatory Assistance Project, as presented to the Rate Design Subcommittee of the National Association of Regulatory Utility Commissioners in 2020 (Section 4, Pages 22-23). These were identified as Best Practices. Click each image to enlarge it:
One of the “old ways,” shown in both graphics, is Austin Energy’s current method, the 12CP Model. In their final rate filing brief, the TIEC, Texas Industrial Energy Consumers, endorsed their same, worn-out 1987 model. Here is a statement from their brief, “TIEC’s witness, Jeffry Pollock, recommends the Average & Excess Demand (AED)-4CP allocation method, which has been consistently used for Texas utilities under PUCT jurisdiction for decades (their italics).” (See Page 3 from their brief). But, Texas has also had horrifying child foster care conditions for many years. Both are unacceptable.
The City’s Independent Consumer Advocate has this to say about cost of service, “The BIP methodology represents a more reasonable approach to allocating production demand costs than the 12CP or the A&E-4CP methods. The BIP is a method which more reasonably balances the interests of AE’s customer base by recognizing both reliability and economics. Furthermore, BIP recognizes the prevalence of meeting ERCOT loads…” (See Page 26).
In 2011, Austin Energy held a rate review, which included a Residential Rate Advisor. The Advisor’s report contains extensive justification for adopting the BIP cost of service model. Here is the statement in the Executive Summary: (See Page ES-1):
Cost Allocation Methodology
My Suggestion – Base-Load Intermediate Peaking – (BIP) method be applied, as it is consistent with the Electric Reliability Council of Texas (ERCOT) deregulated market design and use of facilities.
Austin Energy Recommendation – Average and Excess Demand (AED) method applied, as it is commonly, but not uniformly, used in regulated markets.
Impact – The AED method approach leads to 20 percent higher rates for residential and small business customers, and 30 percent lower rates for large businesses.
A Positive Final Note
Here is an update on an aging model that I mentioned. Donna Rice is doing quite well, and she’s making a positive contribution to society. For many years, she has been working to promote a safer Internet for children. She heads an organization called Enough Is Enough.
On August 27, 2020 Austin Energy sent a memo to the City Council, announcing the results of a routine rate review. This statement appears in the memo, “The cost‐of‐service study indicates that Austin Energy’s current base rates produce an approximately $19 million revenue surplus.” (See Page 2, 3rd paragraph). The surplus could come in fiscal year 2021. But future uncertainties led them to question the surplus. Among those were the impact of the pandemic and the planned 2022 exit from the coal-burning Fayette Power Plant. However, Austin Energy has been unable to reach an agreement with LCRA to relinquish our share of that plant.
Here is the strange irony of the projected $19 million 2021 surplus. Austin Energy presented its current rate review to the City Council this past April. At that time, the utility suddenly decided that their financial picture was much worse. Indeed, there were revenue shortfalls in 2020 and 2021, because of the pandemic and the winter storm. But Austin Energy’s charts in the April presentation describe an alleged trend that does not yet exist.
The chart below shows costs outpacing revenues in 2020 and 2021. They attribute that to falling kWh sales of electricity. And they depict this as a proven trend that will hurt their revenues going forward. That reasoning is clearly faulty. Their own projections indicate the opposite trend, as shown in the same chart. You can see that from 2014 to 2019, there were revenue surpluses. Had it not been for the pandemic and the other anomalies, their projected surpluses would likely have continued into 2021.
We have every reason to believe that Austin Energy is seeing a historic revenue windfall this summer, because of the heatwave. San Antonio has already publicized their $75 million surplus. You can add to that the accounting errors discovered by the City’s Independent Consumer Advocate. And a boatload of other solid recommendations, produced from the hard work and sweat of the other rate case participants. (Thank you Paul Robbins, Lanetta Cooper, Cyrus Reed, Clarence Johnson and many other good folks)!
This blog will soon show even more examples of cost-saving opportunities and needed reforms at Austin Energy, for the City Council to consider. When the Hearings Examiner announces his recommendation early next month, I will repeat a better suggestion to the City Council. Study all of the good ideas from the rate case. Then, gather up all of the papers that recommended a rate increase, and gleefully toss them into the recycle bin.
On August 16th, President Biden signed the landmark climate and energy bill. It provides $60 billion for clean energy manufacturing, $9 billion for home energy efficiency rebates, and a decade of tax credits for homeowners who participate. But there is one huge problem. Some U.S. utilities are already losing money because of “too much energy efficiency” for their customers. New Mexico’s utility is fighting a brand new solar program, that was approved by their State Legislature.
Three of California’s utilities have routinely raised rates because of declining sales. (See P. 9, Table 1.8). Thankfully, the state may delay a controversial plan to cut back solar credits by up to 80%, and impose a monthly fee on solar customers. This is framed as an income inequality issue. But it’s misguided, because of their devastating, climate-induced wildfires and extreme drought.
Austin Energy is planning both rate increases and solar credit cutbacks to cover declining revenues. They say that they are not selling enough electricity. And yet, reducing the usage of electricity generated from fossil fuels is critically necessary, in order to save the planet. Just this week, we learned some bad news about the Fayette Coal plant, which Austin Energy co-owns with another utility. It has made #10 on the list of the worst-polluting power plants in the country.
All utilities should have planned for the upward curve of 5%, 10%, 20%, etc. of customers living in highly efficient offices and dwellings. And they should have planned for the growth of customers expecting to sell excess energy back to the utilities. (Although at some future time, utilities may need less of that unused power).
Here in Texas, we live with the fear that our independent electric power grid will fail, throwing us into life-threatening blackouts. If that were to happen, the special interests who control the politically-run ERCOT grid management agency would reap millions of dollars in profits. The system is set up to reward oil and gas producers during weather emergencies. Utilities that purchase fuel to run some of their power plants are forced to pay exorbitant prices in the ERCOT-controlled market. The alleged rationale for this is to incentivize the utilities to build more power plants, to meet growing demand. And yet, State and Federal reviews, following 2011 Texas blackouts didn’t lead to either fixing the grid or construction of enough power plants. Texans remain at risk, even as our state continues to grow and prosper.
The special interests who made huge financial gains multiplied their profits through lucrative Wall Street investments. The then-chairman of the Texas Public Utility Commission was caught on tape, promising to protect those profits. Meanwhile, San Antonio’s municipal utility went heavily into debt. Their customers will be paying back over $400 million through a special fee, for the next 25 years. Several electricity retailers were driven into bankruptcy. So, in order to help “fix the grid,” our legislators responded. They lowered the maximum allowable rate for ERCOT sales from $9,000 per megawatt hour to $5.000 – still highly outrageous.
Summer Heatwaves Pose an Even Bigger Risk
In May of last year, the New York Times ran a story with this headline – “A New, Deadly Risk for Cities in Summer: Power Failures During Heat Waves.” Consider this stunning paragraph from the article:
“Power failures have increased by more than 60 percent since 2015, even as climate change has made heat waves worse, according to the new research published in the journal Environmental Science & Technology. Using computer models to study three large U.S. cities, the authors estimated that a combined blackout and heat wave would expose at least two-thirds of residents in those cities to heat exhaustion or heat stroke.”
A Major 2016 Report On U.S. Power Grids Deserves Attention
“The Grid: The Fraying Wires Between Americans and Our Energy Future,” by Gretchen Bakke, Ph.D. is highly recommended reading. It’s an eye-opening examination of how the system works, and the various challenges that we face. Consider this paragraph from Page 3 of the introduction. Add 6 years to the 25 year ages quoted below, since 2016 was six years ago:
”More than 70 percent of the grid’s transmission lines and transformers are twenty-five years old; add nine years to that and you have the average age of an American power plant. According to the industry expert Peter Asmus, we rely on twice as many power plants as we actually need because of “the massive inefficiencies built into this system.” As a result, significant power outages are climbing year by year, from 15 in 2001 to 78 in 2007 to 307 in 2011.”
One fascinating takeaway from the report is that our power grids were not designed to efficiently transport modern clean energy, such as wind and solar. Rapidly emerging battery storage holds the promise of filling that gap. Check out this webpage from the investment banking firm, RBC Capital Markets. One of the biggest barriers is surmounting the thorny required regulatory processes.
Don’t Celebrate the New Federal Energy Benefits Too Soon
President Biden’s success on the climate and energy bill brings Texans some hope for ratepayer relief. However, Austin Energy may spoil the party, as we try to celebrate the newly-promised benefits. They have filed for a base rate increase. One local newspaper quoted them as stating, “Our rate design is not as efficient as the customers.” (See 6th paragraph). The new rate design would discourage conservation for both small and big users of electricity. And the utility told the Fitch bond rating service that “additional rate increases will be necessary” to improve cash flows. (“See Analytical Conclusion,” 2nd paragraph).
The current rate proposal also calls for weakening the methodology used to calculate the Value of Solar buyback credits for residential solar customers. Public Citizen has published their objections. (See third paragraph from the bottom). And, buried deep within the Appendices of Austin Energy’s rate filing brief, comes the threat of cutbacks to the Value of Solar credits for businesses. (See Appendix E. Sec. 2.1.1., Pg. 408). It says, “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.” This disturbing signal runs counter to the City’s adopted climate change goals.
After a Summer From Hell, Bid the Rate Increase a Fond Farewell!
But, hanging over all of this like a dark shroud, is that looming question – How will the utilities cope with the big revenue losses that will accompany the promises of customer financial relief and a greener planet? With advancing technology, eventually hundreds, and then thousands of customers might be able to generate more electricity than they need. Or at least, a significant percentage of what they need. At that point, the size and role of centralized utilities will change forever. Maybe utilities should be allowed to enter some non-traditional markets, not directly related to utilities.
The Future Is Coming Faster Than You Think
I will close with a parting thought for you regular folks, reading this in your living rooms. Picture yourself relaxing in an easy chair, with a cold beer on a blazing hot summer afternoon. You have solar panels on your roof, and a backup storage battery. You flip on the TV and see a special announcement. Your city is going into rolling blackouts within 24 hours.
Well, what if you could reach for your phone? Suppose somebody invented an app, just for this occasion? The app lets you select which rooms in your home to give priority for backup power, when the blackouts come. Are you thinking that this is somebody’s visionary dream for 10 years into the future?
Well, it’s not. There are several options available for you to do it right now. Not everyone will be able to afford these options right away. But check out this sample ad, and this one, along with another one for a phone app. Then, go back to that cold beer that I distracted you from. And don’t forget to pay your electric bill!
Blog Writer’s Note: I am a retired accountant and longtime Austin affordability advocate. As a former member of the City’s Electric Utility Commission, I have been involved with electric rate cases for the past 39 years.