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.
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
Great post, Bill. I also suspect that this might also involve a paradigm shift in the way municipalities prepare their operating budgets each year, and how their City Councilmembers review and ultimately approve them.