Monthly Archives: August 2022

Austin Energy Projected $19 Million Revenue Surplus For 2021

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By Bill Oakey, August 29, 2022

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.


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Electric Utilities and Power Grids Are At a Critical Crossroads

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By Bill Oakey, August 25, 2022

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.

But, the energy generation landscape is changing rapidly. Elon Musk builds a line of Powerwall Batteries, and he hopes to become a tough competitor in the retail electricity market. He has also partnered with a builder in Austin to build homes with solar panels and batteries included.

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).

I recently made a proposal to the Austin City Council, to push for big-box retailers to install rooftop solar panels. This followed a revealing CNN investigative report, that outlines the enormous carbon emission reductions that such a plan would yield. Because of Austin Energy’s “not selling enough electricity” problems, my proposal landed with a dull thud. And yet, a Washington Post special series details the horrifying devastation that awaits the Colorado River reservoirs, that supply Arizona, Nevada and California with water.

The Texas Power Grid Is Fraught With Problems

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.

During the 2021 Texas winter storm, ERCOT used a $9,000 per megawatt hour price cap, that was 250-300 times higher than the normal market rate. It generated $50 billion in electricity sales during the single week of the storm. That’s more than the entire annual budgets of Austin, San Antonio, Dallas and Houston, combined!

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!

A good solution for Austin can be found in my recent blog piece. It makes a reasonable case that the City Council should cancel the rate increase, because Austin Energy will gain windfall summer revenues, their highest in history, thanks to the heatwave. San Antonio CPS is considering using their $75 million In surplus revenues to issue billing credits to customers.

When Two Worlds Collide – What Will Happen?

News reports about power grid problems, heatwaves and utility rate increases have led to one predictable result. American entrepreneurship has stepped up to the plate. This summer, we have seen a wave of sales promotions for solar panels and batteries. Then…BOOM…Congress passed a historic energy bill that promises $1,800 in annual energy savings for eligible families. This news article offers a clear breakdown of the climate bill’s benefits.

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.

Musical Accompaniment for This Blog Piece:

1. “Blackout” – Aviva
2. “Heat Wave” – Martha & The Vandellas
3. “Windfall” – Rick Nelson
4. “The Battery Song” – Mark Cummings
5. “I Just Want To Celebrate” – Rare Earth
6. “I Don’t Want To Spoil The Party” – The Beatles
7. “Storms Never Last” – Waylon Jennings
8. “Wichita Lineman” – Glen Campbell
9. “When Two Worlds Collide” – Jim Reeves
10. “The Night The Lights Went Out In Georgia” – Vicki Lawrence

Can Austin Energy Learn To Grow Backwards?

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By Bill Oakey – August 17, 2022

Austin Energy and every other major electric utility in America should rethink what their primary mission is. Achieving that mission will require a new model that is contrary to every other business model out there. Here are just a few of the required elements of that upside down, but critically important model:

1. The primary goal is to provide a product that everyone needs. The utility must deliver it with guaranteed reliability.

2. The next most important goal is to convince the customers to stop buying as much electricity from the utility. This will be true until fossil fuels are eliminated from the system. This goal is important, because the survival of our planet depends on it.

3. The number of utility employees who spend 40 hours per week trying to make that second goal happen will probably grow. They will offer rebates to customers, and provide services to help them become more energy efficient, and less dependent on the utility.

4. The number of employees who spend 40 hours per week doing other operating functions will gradually shrink.

5. From the first year that a utility started operating, the number of full time employees has always continued to grow. Now, they will have to learn to grow backwards. Some of the workers will see their career paths change, as they transition to other jobs elsewhere.

6. If a utility is located in a rapidly growing city, the challenge will be much greater. The cost of providing electricity to new customers is expensive. The need to sell less of it every year will complicate the utility’s financial stability.

7. The country is moving away from fossil fuels in electric power generation. That process needs to accelerate, if we hope to combat climate change. Utilities need to establish clear strategies and achievable timeframes, for ending their usage of fossil fuel power plants.

8. Today, some percentage of fossil fuel power generation is still needed, to ensure electric service reliability. Especially during extreme weather events. But, eventually, clean energy and battery storage will replace fossil fuels. Utilities need to aggressively pursue clear pathways to get to that point, as quickly as possible.

9. For the foreseeable future, electric utilities will send generated and stored clean energy across power lines to their customers. So, their businesses will not fade away anytime soon. But, in that environment, they will be competing against themselves. Because private businesses will provide those same technologies to a growing number of customers. It is anybody’s guess as to what sort of balance will evolve between those competing interests.

10. Setting the rates that customers pay for diminishing quantities of electricity will become one of the biggest challenges. The rate design should not discourage conservation. It should not incentivize, either directly or indirectly, the increased sales of electricity generated from fossil fuels.

Can Austin Energy Meet These Challenges?

Earlier this year, they moved into a modern, $150 million headquarters in the Mueller neighborhood. The $30 million proceeds from the sale of their old building on Barton Springs Road was not included in the calculations during the electric rate hearings. The City Council has the opportunity to utilize at least part of those funds to mitigate the proposed rate increase.

Within the walls of that elaborate new building, Austin Energy needs to reassess their future plans. They won’t be outgrowing this new building, like they did with the Town Lake Center. Instead, they will eventually be able to share space with other tenants. Someday, perhaps, it could even become a museum. Future tourists could visit it to learn what it was like, back in the days when electric utilities were run by centralized authorities.

But, in the next few months, Austin Energy and the City Council have some tough decisions to make. Moving backwards in business thinking is not the established norm. Try to imagine how you would react if an old fashioned door to door salesman rang your doorbell. The person looked at you with an engaging smile. And these words came out of their mouth…

“Hello. I’m here representing a local business. You are one of our best long time customers. Today, I have a special offer. I’m here to help you stop buying so much of our product. It is costing you too much money. With our new program, you’ll be able to buy much less of our product. In fact, we will pay you a bonus each month, if you can make more of our product on your own than what you need.”

That is not the way that normal businesses operate. And yet, electric utilities will have to find a way to survive financially in that upside down, backwards kind of environment. Big changes are coming pretty fast. It would be futile to fight the transition by raising rates too much, and cutting back the solar buyback credits.

A very small rate increase may become necessary in the short term. It might even be worthwhile to consider variable rates that fluctuate, according to weather extremes. Or, perhaps summer windfall revenues could be held in reserve, to be used during future periods when milder weather drives down electricity sales.

The Ball Is In the City Council’s Court

One thing appears certain. Austin Energy is on the wrong road right now. The City Council must protect an asset that transfers $125 million annually to the City’s General Fund. In the coming years, that amount will probably gradually shrink.

I implore the City Council to think of 2022 as the most important turning point in Austin Energy’s history. They should take advantage of the wealth of expertise that lies within the rate hearing’s filing briefs from all sides. The City Council should do more than just read the materials. They should engage with the diverse group of participants, Austin Energy and the public. Business as usual would be the easiest way out. But, Austin deserves so much better.

Austin Energy’s New $150 Million Headquarters

Musical Accompaniment and Other References:

1. “Walk Out Backwards” – Bill Anderson
2. “Wrong Road Again” – Crystal Gayle
3. “The Times They Are A-Changin’” – The Byrds
4. “The Curious Case of Benjamin Button”  – Movie
5. “The Incredible Shrinking Man” – Movie

Austin Energy’s Charts – A Sobering Reality Comes Home

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By Bill Oakey – August 16, 2022

It’s funny how things can come full circle. Sometimes you embark on a journey that winds in confusing directions. Then you find yourself back at the beginning. Something deadpan simple slaps you in the face. And you go, “Oh my gosh, it was right there all along! How did I miss it?”

Flashback to April 5th, Earlier This Year

Austin Energy presented its Base Rate Review to the Utility Oversight Committee. This is the Mayor and the entire City Council. Tap or click each picture to enlarge it. Then hit the Back arrow in your browser, to return to this page.

Justification for a Base Rate Increase

On the first chart, you will notice that revenues exceeded costs in every year, except 2020 and 2021. The chart is intended to show a trend – that Austin Energy is losing money in the current timeframe.

But, put down your mask if you are holding one. Remember what started in 2020 – the pandemic. Businesses were closed that year. People stayed home. All those offices, stores, restaurants, theaters and hotels used a lot less electricity. Then came 2021. The pandemic lingered, although people started going out later that year. But don’t forget the big winter storm. Industrial customers were ordered to power down before the storm. They were not allowed to come fully back up, until days after the storm. Electricity was cut off for most of the City during the storm. Then, we had a milder than normal summer. So, there is no extreme trend that extends into this year and next year. No reasonable assumption that steep future revenue declines will persist.

The Chart That Nails the Big Challenge

It amplifies the message from their Vice President of Finance, “Our rate design is not as efficient as our customers.” Think what that means. It’s a clear signal that their business model has not kept pace with their own conservation goals. A whole division of Austin Energy assists homeowners and businesses with weatherization and transition to solar panels. Within 10 or 15 years, solar panels and storage batteries will proliferate exponentially. How does the utility plan to meet that inevitable challenge? Especially now that the President has signed the historic climate change and energy bill?

Many other U.S. utilities are following the same two-pronged approach – raise base rates, and reduce solar buyback credits to customers. But that will only backfire. It’s hilarious to watch a cat try to chase its tail. Chasing revenue declines with rate increases is just as futile, but without the humor. Customers will adopt solar faster than ever, and the next rate increase will guarantee the same reaction. Here is the chart:

One more note on this chart before moving on. New customers do add to infrastructure costs. But consumer advocates recommend that Austin Energy adopt the more comprehensive capital recovery fees for developers, that Austin Water uses. The City should streamline and reduce developer permitting fees, to offset this change.

Higher Rates for Small Users, and Lower Rates for the Biggest Users

This final chart shows the unfairness and climate change unworthiness of Austin Energy’s rate proposal. Raising rates for struggling apartment renters, especially during record inflation and sky-high summer bills seems unfair. Summers will probably trend hotter in the future. Giving favorable rates to folks in large, expensive homes makes little sense. These rate design changes would discourage conservation at both ends of the usage spectrum.

What this chart proves is that our current rate design has worked exactly as intended. It has driven down the usage of electricity, and pushed Austin closer to carbon-free electric generation. It’s time for the City Council to work with Austin Energy and other experts to seek solutions. We need a new business model that is financially viable, and maintains our admirable progress on climate change goals. Here is the chart:

Read This Poem, and Use the Email Links to Contact the City Council

I’m not accusing them of evil duplicity
It’s true they’re not selling as much electricity
But somewhere deep down into their soul
They should have realized, hey that’s our goal

Climate change affects every part of the nation
And we’re trying to fight it with energy conservation
Take pity on us when we try to conserve
A rate increase is not what we deserve!

This happened a while back with Austin Water
We’re stuck like chickens on their way to slaughter
But this time we’re all going to unite
And stand up for what we know is right!

Thank goodness we own our municipal utility
Or this could end with nothing but futility
Our elected leaders down at City Hall
Have the power to fix this, for once and for all

We’re been through a summer that’s hotter than hell
So they can bid the rate increase a fond farewell
Just like I suggested back in late July
Those windfall revenues will help them get by

One More Good Laugh – Cat Chasing Its Tail

Use These One-Click Links to Email Every City Council Member:

Ask them to do 3 things – Keep our current, successful rate design. Improve our Value of Solar buyback program, instead of weakening it. Accept my recommendation to use the windfall revenues from the historic summer heatwave to cancel the rate increase.

Mayor Steve Adler steve.adler@austintexas.gov
1. District 1 – Natasha Harper-Madison natasha.madison@austintexas.gov
2. District 2 – Vanessa Fuentes vanessa.fuentes@austintexas.gov
3. District 3 – Sabino “Pio” Renteria sabino.renteria@austintexas.gov
4, District 4 – Jose “Chito” Vela chito.vela@astintexas.gov
5. District 5 – Ann Kitchen ann.kitchen@austintexas.gov
6. District 6 – Mackenzie Kelly mackenzie.kelly@austintexas.gov
7. District 7 – Leslie Pool leslie.pool@austintexas.gov
8. District 8 – Paige Ellis paige.ellis@austintexas.gov
9. District 9 – Kathie Tovo kathie.tovo@austintexas.gov
10. District 10 – Mayor Pro Tem Alison Alter alison.alter@austintexas.gov

San Antonio Vindicates Plan to Halt Austin Energy’s Rate Increase

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By Bill Oakey, August 14, 2022

On July 22nd on the KXAN-TV News, I made a public call for the City to ditch Austin Energy’s rate increase. At that time, my idea faced long odds of succeeding. But as a retired accountant and former member of Austin’s citizen Electric Utility Commission, I vowed to stay in the battle until we can raise the flag of victory.

News From San Antonio Sparks an Exciting Ray of Hope!

Late last week, financial officials in San Antonio announced a huge, $75 million budget surplus, thanks to windfall revenues from soaring summer electric bills. Just as I figured, Austin now has a wonderful opportunity to quell the anxieties of our ratepayers. In San Antonio, one option being considered is to offer one-time refunds, in the form of credits to customers’ October bills. Here in Austin, we should be able to call off or postpone the entire rate increase.

The City’s Independent Consumer Advocate Personally Agrees

While clarifying this as a personal opinion, rather than an official statement from his team’s rate filing brief, Clarence Johnson gave me permission to share this quote from an email to me: “I agree with your position that the rate increase could be postponed until post test year actual data becomes available.  My reasoning is simply this: ICA’s review indicated that the proposed rate increase should have been $6 M, which is much smaller than the (Austin Energy’s) original request or rebuttal request.”

It’s All About the Rate Design, With Winners and Losers

Above all else, we must oppose Austin Energy’s radical rate design change. What I did not know until recently is that the out-of-city ratepayers would walk away with the big grand prize. The vast majority of those customers live in large to very large, expensive homes. The current rate design keeps those customers paying into the highest rate tiers on the five-tier scale. This provides a conservation incentive. On average, outside city customers use 86% more electricity than inside city customers. (See pg. 43). Under Austin Energy’s new plan, those people would see generous discounts on their bills. (See pp. 42-44). All while struggling Austin apartment renters and low to moderate income folks would bear the brunt of the rate increase. So much for affordability and narrowing the economic divide!

Past history shows us another, somewhat political motive for gifting the non-city ratepayers with lower bills. Even though they enjoy Austin’s amenities, these folks don’t pay City taxes. And whenever they object to our electric rates, they appeal them to the Texas Public Utility Commission, or even to the Legislature. Austin Energy’s new rate design might just keep them quiet and happy. What a sad situation!

Austin Energy Versus “Too Much Customer Efficiency”

The new rate plan would create a seismic shift in Austin Energy’s pricing structure. Raising the monthly residential customer charge from $10.00 to $25.00 would reset annual base revenues unrelated to electricity sales to over $140 million. ($25.00 X 467,291 customers X 12 months). This shift would be a short-sighted, self-defeating approach – to address sales declines that are due to solar panels and other efficiency options that homeowners and businesses are adopting at a rapidly accelerating pace.

The utility’s future plans call for enlarging that shift, in addition to reducing solar buyback credits. (See “Looming Penalties for Solar Users” here). That’s a pretty bleak picture. Especially in light of the big climate and energy bill that the President will sign this week. And AISD’s upcoming bond election, that would provide solar rooftops and other energy efficiency upgrades for the schools.

My previous blog piece and radio interview address the climate change / electric utility dilemma that also threatens other cities and states across the country.

Let’s Call the Whole Thing Off

Here are four major factors that support postponing or canceling Austin’s rate increase:

1. The Independent Consumer Advocate (ICA) in the rate case reviewed Austin Energy’s books, and found two accounting errors, totaling $12.5 million. Austin Energy accepted those reductions, bringing the revenue deficiency down, from $48.2 million to $35.7 million. (See pp. 1-2).

2. The ICA cites several instances where Austin Energy used future cost assumptions. Some of those do not meet the requirement for being known and measurable. And using future costs, combined with past test year revenues violates the matching rule in standard rate-making procedures. After adjusting out those costs and the accounting errors, the  ICA concluded that the revenue deficiency should be only $6.5 million. (See pp. 5-8).

3. The City should raise more utility revenue by increasing the Contributions in Aid of Construction (CIAC) fees, charged to developers for connecting new customers. It should be revised to the same standards used for Austin Water’s capital recovery fees. (See pg. 9).

4. The City Council should follow San Antonio’s example. A comparison of budgeted to actual base rate revenues from October 2021 through this summer will reveal a large surplus. That, in combination with the other factors shown above, should send the rate increase to the scrap heap. (Oops…to the recycle bin)!

See my full list of 10 recommendations for the Austin City Council at the bottom of my previous blog piece.

I would encourage the City to bring in outside experts and consult with all the participants in the rate case. Austin Energy needs a fresh new start, with full transparency and lots of public engagement. We, the people are its owners. Our elected City Council is the board of directors. Let’s remake this valuable asset into a utility that always honors equity and fairness. And one that is innovative and forward-looking, with respect to the changing customer-efficiency landscape.

Heartfelt thanks to my good friends and the Independent Consumer Advocate, who traveled the long and winding road to their final filing briefs in the rate case!

Musical Accompaniment for This Blog Piece:

1. “Let’s Call the Whole Thing Off” – Harry Connick Jr., from “When Harry Met Sally”
2. “Sad Situation” – Tracy Nelson & Mother Earth
3. “San Antonio Rose” – Asleep at the Wheel
4. “Home In San Antone” – Willie Nelson
5. “Across The Alley From The Alamo” – Bob Wills
6. “I’ll Be Your San Antone Rose” – Dottsy
7. “The Long And Winding Road” – The Beatles

Austin Energy’s Rate Case Debacle – A Stunning Management Failure

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By Bill Oakey – August 8, 2022

Update: Listen to my Rag Radio interview from Friday, August 12th, in the permanent archives.

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 $10.00 to $25.00. 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 when we conserve and use less electricity. The big users in larger homes pay more. The new plan, with the $25 customer charge and fewer rate tiers, socks it to the small users and reduces bills for big users in fancy houses. 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. Discuss them in executive session, if necessary.

3. Raise developer fees for new utility customers. The CIAC, Contributions In Aid of Construction (See pg. 9), 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. Reject Austin Energy’s plan to modify the Value of Solar credits for rooftop solar customers. Conduct a study and adopt best practices for Value of Solar, as outlined here. (See pp. 20-28). Do not exempt any high load factor customers from the Community Benefit Charge or Energy Efficiency Charge. (See pp. 29-36).

7. Approve the BIP cost allocation model (See pp. 22-26) recommended by the Consumer Advocate in the rate case. Ask every participant to submit their best ideas, to make Austin Energy more cost-effective and more accountable. Ask the City Manager to adopt those suggestions.

8. 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.

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!

Please share this blog link with your friends, neighbors, email lists, social media and civic organization membership, etc. And ask each person to share it widely, as well.

Use These One-Click Links to Email Every City Council Member:

Mayor Steve Adler steve.adler@austintexas.gov
1. District 1 – Natasha Harper-Madison natasha.madison@austintexas.gov
2. District 2 – Vanessa Fuentes vanessa.fuentes@austintexas.gov
3. District 3 – Sabino “Pio” Renteria sabino.renteria@austintexas.gov
4, District 4 – Jose “Chito” Vela chito.vela@astintexas.gov
5. District 5 – Ann Kitchen ann.kitchen@austintexas.gov
6. District 6 – Mackenzie Kelly mackenzie.kelly@austintexas.gov
7. District 7 – Leslie Pool leslie.pool@austintexas.gov
8. District 8 – Paige Ellis paige.ellis@austintexas.gov
9. District 9 – Kathie Tovo kathie.tovo@austintexas.gov
10. District 10 – Mayor Pro Tem Alison Alter alison.alter@austintexas.gov

Opposing Forces Up The Ante On Climate Change / Electric Utility Dilemma

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By Bill Oakey, August 3, 2022

I have written about the big conundrum facing Austin Energy and other utilities. As their own employees help homeowners and businesses become more energy efficient, the utilities find themselves wanting to raise rates, because they’re not selling enough electricity. Austin Energy has forecast the potential need for more than one rate increase. And as I’m writing this, a dear friend is preparing for contractors to install solar panels on her roof. A 10 kilowatt battery to store excess energy comes with her package.

It’s easy to see how rate increases to shore up lost utility revenues will backfire. The contractor that is helping my friend will boost their advertising, as will the others in that business. Utilities will find that chasing revenue deficits with successive rate increases could send them into a death spiral. Climate change is the trigger here. It drives summer electric bills to historic high levels. That pushes businesses and residents to go solar, and employ every other efficiency measure they can find.

This daunting dilemma looks to get worse, because of a series of circumstances that have yet to be widely recognized. That’s why I’m making a push to alert the news media and the Austin City Council, as well as Congressman Lloyd Doggett.

Big Changes May Come to the Texas Power Grid

I was jolted awake this morning by a shocking article in the Texas Tribune. Come to find out, there is plenty of West Texas wind energy available. But ERCOT, the Texas grid management agency, has ordered a lot of the wind turbines to be shut down this summer. Why? Because there aren’t enough transmission lines to deliver the cheap wind power to big cities like Dallas, Houston and Austin. The Texas Public Utility Commission is working on a solution (we hope)! Two recent grid assessment reports cited in the Tribune article highlight the many shortcomings in the grid system. Three entities will collide over what response follows those reports – public interest groups, special interest groups and politicians. The problems can be fixed, if the solutions aren’t nixed. The future of your bill rests on political will.

There is reason for hope. From the Tribune article comes two profound statements. “This month, the PUblic Utility Commission formed a task force to develop a pilot program next year that would create a pathway for solar panels and batteries on small-scale systems, like homes and businesses, to add that energy to the grid. The program would make solar and batteries more accessible and affordable for customers, and it would pay customers to share their stored energy to the grid as well.”

And this comment from John Hensley, with the American Clean Power Association. “Storage is the real game-changer because it can really help to mediate and control a lot of the intermittency issues that a lot of folks worry about when they think about wind and solar technology. So being able to capture a lot of that solar that comes right around noon to [1 p.m.] and move it to those evening periods when demand is at its highest, or even move strong wind resources from overnight to the early morning or afternoon hours.”

How Can the Utilities Stay In Business, As Efficiency Drains Revenues?

That’s the big challenge that demands to be addressed. I submit that, above all, it should be discussed and resolved out in the open. Our local leaders, our Congressmen and women, and the public should all be granted a seat at the table. If we stay in the background and hope for the best, nothing good may come of it. With or without Congressional passage of the current climate bill, future legislation will probably happen. Utilities may need to completely rethink their business models. Austin would be an ideal place to host a major conference on resolving the dilemma.

One thing is certain. All utilities will be generating and selling a lot less energy in the years to come. That’s a good thing for progress on climate change. But utilities must not be allowed to charge unreasonable rates, and cut back credits for end users who generate and store their own energy. For now, Austinites are staring down a terribly flawed rate increase proposal. That calls for a poem:

The folks at Austin Energy are way out of touch
They simply don’t care about us very much
In a fancy new building that cost $150 million
They wrestle with a budget of a couple gazillion

Amongst them is a band of renegade abusers
Who want to raise rates for the smallest users
While the Austin economy sees poverty expansion
They would lower the rates for a big, sprawling mansion

Pardon me if I be so bold
But their rate increase should be put on hold
From the month of May to the end of September
They’ll make more money than anyone can remember

The City needs time to assess the situation
And we’re in a recession with high inflation
My idea might be met with a blanket rejection
But there’s an upcoming City Council election

We need transparency, reason and fairness
And a whole lot more public awareness
This is a time for all hands on deck
We and our neighbors should protest like heck!

Musical Accompaniment for This Blog Piece:

  1. “Blowing in the Wind” – Peter, Paul & Mary
  2. “Wind Beneath My Wings” – Bette Midler
  3. “Candle in the Wind” – Elton John
  4. “Catch the Wind” – Donovan
  5. “Summer Wind” – Frank Sinatra

The Big Electric Utility And Climate Change Dilemma – And How To Solve It

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By Bill Oakey, August 1, 2022

Electric Utilities Can’t Make a Profit

It’s simple economics. If homes and businesses get too energy efficient, the utilities can’t sell enough electricity. And yet, most offer home weatherization programs, and credits for rooftop solar panels. These utilities have whole divisions that do nothing but promote energy conservation, and they directly help customers achieve energy efficiency.

But now, many utilities find themselves facing a potential death spiral. Here in Austin, rapid growth requires expanding the utility services. City regulations do not require enough developer fees to cover all the costs associated with adding new customers. In addition, homes and businesses have become more energy efficient. As a result, Austin Energy has been losing money. They are not selling enough electricity throughout the year. Their solution is a hefty base rate increase. Austin Energy’s revenue bonds were downgraded to AA- in June. They told the Fitch bond rating service that additional rate increases, beyond this one, may be necessary.

The Utility Death Spiral Is Easily Explained

Austin Energy faces a daunting dilemma that they share with other utilities across the country. Rate increases as an ongoing business strategy will almost certainly backfire. They will push builders, homeowners and businesses to implement energy efficiency solutions at an accelerating pace. Businesses that sell solar panels have already stepped up their advertising. It’s easy to see that a whole series of rate increases, each followed by similar market responses, would drive the utility into a death spiral.

Within the next ten years, Austin residents and businesses will have a significantly lower demand for purchased power than they have today. We will always need electric utilities. As connected customers, we are assured of reliable service, assuming that the power grid holds up. But, future declines in electricity sales are inevitable. So, it is imperative for Austin Energy to find a new direction, and change their business model. Their very survival depends on it. If they don’t get it right, the City will face an additional, ominous revenue shortfall. Austin Energy’s transfer to the General Fund will have to be reduced.

If Utilities Try to Wage a Battle Against Technology, They Will Lose. And the Country’s Climate Change Efforts Will Suffer

I recently wrote a blog piece about an incredibly exciting climate change opportunity. CNN did a major study on the potential benefits of large-scale rooftop solar installations at big-box retail stores. Read that piece to get all the details.

But, the big dilemma comes back to bite us again. What if every Walmart, Home Depot, Lowes, big warehouse and distribution center across the country put solar panels on their rooftops? What if Austin put one on their massively expanding convention center? Austin Energy and the other utilities would sell a lot less electricity. And yet, we’d be addressing climate change. Severe drought, intense hurricanes, wildfires, epic flooding and West Coast water shortages might finally begin to subside. Further mitigation will become possible, once battery storage technology gets more efficient and affordable.

Some Utilities Are Pushing Back Against Solar Panel Credits

The seriousness of the utility profit / climate change dilemma is laid out in a disturbing article from NBC News, published in May. Utilities in some states are reducing their solar energy buyback rates. Austin Energy’s solar buyback program could be weakened, as part of their new rate proposal. The Sierra Club and Public Citizen are intervening in the case, to protect solar-use customers. In Mississippi and other places, utilities are telling their State regulators that maximum buyback benefits are no longer economically viable for them. The most stunning example is California, where drought and wildfires are prevalent. A battle over huge reductions in solar buyback rates has been raging there since January. Governor Gavin Newsom should step in and defend solar credits.

Utilities Need to Embrace Declining Electricity Sales

The pushback by utilities against technologies that help their customers is a major threat to national climate change efforts. The outdated utility business models are as dangerous to the environment and the planet as fossil fuels and carbon emissions. To put it quite simply, gradually selling less electricity over time must become one of the utilities’ primary goals. How to make that happen, while keeping the utilities in stable financial condition is the challenge.

Maybe the U.S. Congress Can Help

Congress is poised to pass a historic climate change bill this week. Funding will be available for energy efficiency programs and infrastructure improvements on a large scale. I have requested an appointment with Congressman Lloyd Doggett, during the August recess. One of the topics I would like to discuss is the daunting dilemma that is described here. Maybe Congress could    facilitate a series of discussions among climate scientists, utility company executives, State regulators and business strategy experts. They could task them with studying the dilemma and finding ways to resolve it. Our utilities need to counteract the death spiral, before it’s too late.

A First Step Toward the Solution

We only need to look at the frightening condition of the Colorado River to “get it” about climate change. A recent Washington Post report highlights the West Coast lakes that are drying up. The Austin City Council should stop Austin Energy’s rate increase proposal dead in in its tracks. And they should insist on maximum solar panel credits. The revenue windfall from the historic summer heatwave will buy some valuable time. With innovative planning and a fresh new approach, our city could shine a light on the rest of the nation. We should turn the daunting dilemma into an exciting opportunity for positive change.

A note about the author of this blog: I am a longtime affordability activist, with nearly 40 years of experience observing and participating in electronic utility rate cases.