Being a taxpayer and affordability advocate can be a frustrating pursuit. What if I learn something so shocking that nobody believes it? The answer is this – I refuse to give up! After slicing and dicing numbers throughout a 35-year accounting and auditing career, I know a thing or two about numbers. Check this out, and you can easily understand why I find it so shocking.
Simple Math Question – What Is $2.44 Billion Divided By $350 Million?
Answer: $2,440,000,000 / $350,000,000 = 6.9
That rounds off to 7.
Now, let’s put that number 7 into perspective. Let’s turn that simple math problem into a word problem: How many years would it take, if AISD spread their $2.44 billion into annual bond elections of $350 million each?
The answer is 7 years.
Why did I choose the annual figure of $350 million? Because, during the election that voters are deciding right now, the City of Austin has a $350 million bond on the ballot for affordable housing. That is the highest amount we have ever had at one time for affordable housing. The taxpayer impact might not be too shocking, just for that amount alone.
But, what if we had a $350 million dollar bond election every year, for 7 years in a row? Would that make you a little bit uncomfortable, as a taxpayer? Well, get this folks – AISD is asking for 7 times that $350 million – right now…all at once…this year!
And, we are being told that the taxpayer impact is nothing to worry about – just a one-penny increase in the debt service portion of their tax rate.
But, let’s keep something else in mind here. AISD has a smaller tax base than the City of Austin. That means that there are fewer taxpayers to share the burden. Haven’t we heard a few people say that we are in an “affordability crisis?” That tiny one-penny tax impact that AISD advertises may be true in the first year or two, as a small, initial amount of bonds are sold, But, you can’t finance $2.44 billion throughout the life of all the bonds, without raising taxes much higher within a few short years.
Now, let’s put this whole thing into perspective. ACC has a $770 million bond issue on the ballot. How many $350 million chunks are being put to the voters all at once, stacked on top of each other…this year…right now…in the current election?
1. City of Austin – 1 $350 million chunk
2. ACC: $770 million – over 2 $350 million chunks
3. AISD: $2.44 billion – 7 $350 million chunks
Total = $3.5 billion – 10 $350 million chunks
What Can We Do If This Message Is Ignored, And All of the Bonds Pass?
I have a good solution in mind. Public officials and other influential folks could conceivably work with AIISD to evaluate the taxpayer impact, going forward. Maybe they could spread out the issuance of these bonds over a longer period of time. I would suggest that they reach an agreement on a specific timetable for issuing the bonds, to spread out and soften the taxpayer impact. They could review several different scenarios, and decide on a feasible and sensible approach, that does not severely impact affordability for homeowners, renters and businesses.
$3.5 billion is the highest amount by far, for any bond election in Central Texas history. And it is about to flash right by, with hardly a whisper from anybody. I could not resist speaking out about this. Numbers don’t lie. But, they have been known to stare people in the face, and jolt them awake. That happens to me all the time. Right now, it means that I need a nice, hot cup of coffee. Have a nice day, and don’t forget to pay your utility bill…
The big $2.44 billion AISD bond proposition on the ballot will cost taxpayers many times more than the one penny per $100 valuation that they have publicized. They skirted around the law with a crazy loophole. State law requires them to publicize the tax impact on a $100,000 home. So, technically, that is what they did. The estimated tax rate impact would be one cent, if you take the $100,000 home value and subtract the $40,000 homestead exemption. That leaves just $60,000 as the valuation to apply the tax rate to.
Well, that’s misleading, because the median home taxable valuation in Austin is over $500,000. And the $40,000 homestead exemption applies to the whole taxable value. So, $500,000 minus $40,000 leaves $460,000 to apply the tax rate increase to! $460,000 is over 7 times higher than $60,000. So, the tax impact on the owner of an average home is at least 7 times higher than what the voters have been told!
Voters just need to keep this in mind. The greater Austin area has never had a $2.44 billion bond issue in its entire history. We have had many smaller bond issues that have raised taxes more than one penny per $100 evaluation. So, how is it possible that this one could be so different? How could the taxpayer impact be so small?
The Answer Is Simple – It Can’t!
This information was provided to me over the weekend, by former Travis County Tax Assessor-Collector, Bill Aleshire. AISD officials have some explaining to do. They need to be called onto the public carpet and held accountable. The full cost to the taxpayers is required under the spirit of the law. Taxpayer advocates have already met with lawmakers, including Senator Paul Bettencourt, to ensure that the gaping loophole is tightly sewn up, during the next Legislative session in January.
Using such a loophole to deceive voters is shameful, and reflects poorly on AISD’s Board of Trustees – or should I say, Board of Mistrustees? Check it out. Go to the AISD website. Under the heading, “2022 Bond,” Click on “Voter Information Documents.”
On the first page, in Item number 7, AISD states that the estimated tax increase on a $100,000 home is only $6.00. But they subtracted the $40,000 homestead exemption. That means that they are only using $60,000 to do the tax increase calculation.
For an accurate and honest message to the voters, AISD should have show us what the estimated new tax would be on a median-value home, at over $500,000. The tax amount will probably be higher in the first couple of years, because of the steep rise in interest rates. And AISD did not publish what the tax impact would be in later years, as more bonds are gradually sold.
Austin Community College (ACC) has a $770 million bond on the ballot. Their taxpayer impact is estimated at $5.00 on a $500,000 home for the first five years, and $25 per year for each year thereafter. You can easily see that AISD’s estimate for $2.44 billion in bonds is wildly understated. Here is the link for ACC.
The Total Amount of Bonds On the Ballot Adds Up to $3.56 Billion!
Any way you slice it, this is an extraordinary, historic event for the Austin area. And yet, it has flashed before our eyes with barely anyone noticing. And early voting started Monday. Any of you who are over 65 or disabled won’t be hit as hard. But everyone else should buckle up, and prepare for some severe property tax shock, along with a triple dose of electric rate shock, which starts at one minute past midnight on Halloween night…
The saddest part of all this is that AISD really needs the school upgrades and repairs that the bonds would fund. Voters will need to make some difficult choices. AISD should help them by immediately clarifying the misleading information, with clear, simple, full and complete facts. And do that as soon as possible.
What Happens In School When Somebody Misbehaves?
Several AISD officials should be summoned to the nearest principal’s office. A designated teacher should smack each one of them with a ruler…See photos below:
The first time that I spoke with Linda Guerrero, one thing stood out right away. Everything she says comes straight from the heart. She’s as down to earth as they come. Her values are the Austin values that so many of us remember and cherish, and want to hold onto. Those values, like family-friendly, affordable park events, sensible neighborhood and environmental protections, and our quality of life now face daunting threats and challenges.
Kathie Tovo has been our strongest and smartest advocate for many years in District 9. Now, her vacant seat is up for grabs. It is a seat that powerful, big-money special interests would love to take over. We simply can’t let that happen! Having Linda Guerrero down at City Hall would be like having your favorite neighbor or best friend as a City leader. There would be no invisible wall between you and her, when you sit down in her office. With typical politicians, you can walk out of a meeting, and never quite know what to expect or believe. People who have known and worked with Linda throughout her many years of public service will tell you that her passion for Austin is real. We need to do whatever it takes to get her elected. This blog enthusiastically endorses her, and you should too.
Linda Guerrero – The District 9 Affordability Candidate
Linda’s Background Is Hard to Beat
We don’t need a new Council Member who arrived a couple of years ago, and suddenly decided to run. With Linda, we’ll be getting a lifelong Austinite with a stellar record of public service. Here’s her list of distinguished accomplishments:
Chair, Austin Environmental Commission Chair, Austin Parks Board Co-Chair, I-35 Coalition Member, City Bond Oversight Commission Vice Chair, Austin Downtown Commission Executive Officer, Hancock Neighborhood Assn. Member, South Central Waterfront Overlay Commission School Teacher (28 years), AISD
Linda is the daughter of Roy G, Guerrero, a longtime employee at Austin Parks and Recreation, with a long list of honored accomplishments. You can visit the 363 acre South Austin park that was named after him. Linda certainly takes after her dad, and then some. So, you might be wondering, where does she stand on affordability?
Linda Is Ready to Turn Affordability From Words Into Action
I looked up the 2023 Austin City Budget and did a document search for the word, “affordability.” The results showed 1000+ occurrences. It has become one of the most popular buzzwords at City Hall these days. But, there is one big problem – Where are the concrete plans to make Austin more affordable? The Budget certainly doesn’t offer a clue. Taxes, fees and utility bills are soaring to record levels. Inflation is at a 40 year high. Rents and property taxes are unbearable. Who has offered any sort of comprehensive plan for affordability?
Linda takes affordability seriously, and recognizes the need to address it head-on. She understands that long term residents are some of the hardest hit. We are the ones who paid our taxes, worked hard at our jobs, and volunteered, to give Austin the prized quality of life that makes it so special. And yet, we see our neighborhoods being turned into destination opportunities for big investors, from California and New York, to Dubai and beyond. Unless the City brings a balance of diversity to the table, we could see neighborhoods filled with nothing but wealthy residents, no on-site parking, and little to no drainage protections for surrounding areas.
Linda embraces the study, published in the journal, “Urban Studies” that debunks the myth about high density neighborhood development. Instead of making housing more affordable, the data shows that it only makes housing more expensive in desirable areas. It doesn’t take a rocket scientist to figure out that Austin developers would simply build more luxury units per lot, if the gates were thrown open for higher density. All you have to do is try a Google search for phrases such as, “high density more affordable,” “high density affordable housing.” or “missing middle housing more affordable,” etc. You won’t find a single example on our particular planet. You can read about the study in this Bloomberg article. And download the study by Googling it.
Linda believes in practical, pragmatic solutions. She wants to work with all sides, to approach the complex issues with diligence and fairness. She has a proven record of doing exactly that. In terms of affordability, she told me that she is open to considering senior discounts for some City services. She would like to see more family-friendly, affordable events at Austin parks. Too often we see park events designed for VIP’s, with elitist, Cadillac prices. That’s fine for the tech engineers and startup founders, who can afford to casually tap out those payments on their phones. But what about the rest of us?
I get choked up when I mourn the loss of the wonderful, free Zilker Garden Festival that was held every year. Community non-profits gathered on the grounds to sell plants and flowers. Did you notice that I used the word, “community?” Austin has lost a lot of its old fashioned community spirit. Linda has not forgotten that spirit. It is big part of the fabric of her being.
It stayed in draft form through March 2020, when the pandemic hit. Then, the regular meetings of the committee came to a screeching halt. Ever since then, both the committee and the strategic plan have been tucked away in the virtual equivalent of mothballs. Linda has told me that she would like to bring the strategic plan out of hibernation. That would be a very tall order for sure. I would be pleased if the City Council put it on the agenda, and identified certain initiatives that could be formally adopted and put into action. Take a look at this one:
Initiative 3: Government Efficiency
The committee members saw the possible opportunity to improve collaboration between government jurisdictions with a discussion on perhaps eliminating duplication in services between agencies for potential cost savings. With that in mind the Committee identified the following outcome.
Outcome 1: Identify all Costs for Residents (Taxes, Bills, & Fees) and calculate cumulative impact on affordability
Identify all costs for residents (taxes, bills and fees).
Calculate cumulative impact on affordability.
Establish a Cumulative Affordability Goal that identifies cost-reduction opportunities by consolidating services, contracts, and/or benefits.
Objective: Develop a consolidated list that identifies possible cost-reduction opportunities; for example in facilities maintenance contracts, healthcare services, public safety services and capital projects.
Can Affordability Be Ripped Away From Theoretical Hyperbole, and Thrust Into the Amazing Realm of Actual Reality?
I recommend that we work like hell to elect Linda Guerrero, and give her a chance to try! You can go to her website and sign up to volunteer. And go to this link to make a donation. Linda checks all the other boxes that neighborhood and environmental progressives want, to replace the incomparable Kathie Tovo. If you live in District 9, send in your mail-in ballot, if you haven’t already. Or vote early, starting on Monday. Contact your neighbors, fellow workers, friends and social media outlets. Let’s carry Linda over the threshold and into a magnificent victory!
A Poem for Linda
The special interests have lots of gall They dominate the dealings at City Hall Now we have a chance to blunt their rambling Linda Guerrero will send them scrambling
We have ideas that we’d like to discuss And we can count on Linda to fight for us Her practical approach will help with mobility And, wow, she’s a champion for affordability!
Like a scientist who gets high on quasars and quarks Linda is passionate about our parks They’ve become a cash enterprise for entrepreneurs Linda wants more of them to be mine and yours
Developers ask for too much high density Linda wants to slow down that propensity Would it make housing affordable? Well, probably not They would just build more luxury units per lot
Before they’re given a neighborhood to trample Let’s ask for some proof, with a concrete example If there’s a place on earth where that myth is reality Let’s try out their model with impartiality
Until then, you can hardly blame the skeptics Linda will insist on hard facts and metrics We’re all going to miss our loyal Kathie Tovo The best one to replace her is Linda Guerrero!
A Fun Song for Linda
“Linda” – Jan & Dean, 1963. Originally recorded by Ray Noble in 1946
Over the weekend, the Statesman’s metro columnist, Bridget Grumet absolutely nailed the issue of Austin Energy’s surprise rate shock announcement. This blog has recommended a periodic adjustment of the fixed fuel charges on our bills. The Statesman column endorses that concept. But a future reform may not help us anytime soon.
The big question is, what can the City Council do to soften the extreme rate shock that will accompany the proposed 71% surge in the Power Supply Adjustment and the 24% increase in the Regulatory Charge? I have two ideas that may make a big difference.:
1. The City Council should consider a 25 year loan to finance the fuel cost increase. This would be similar to what San Antonio CPS did after last year’s winter storm. Their customers will pay it back monthly, with a small fee of just over a dollar per month. A loan would at least recover Austin Energy from the big financial hole that they dug themselves into, by not asking to change the Power Supply Adjustment early in the summer.
2. The City should contact Congressman Lloyd Doggett, to explore options for Federal assistance. The Inflation Reduction Act may have some provisions for helping cities and states pay for shoring up electrical grids. Any other potential Federal grants should also be explored. The City should also ask State officials about potential assistance from the State.
Here is the Statesman column on this topic:
Austin American-Statesman, October 9, 2022
Grumet: Austin Energy shouldn’t wait a year to catch up on fuel costs
One way or another, we’re going to pick up the tab.
The only question is how much of a wallop this will pack on our monthly Austin Energy bills — and whether the city-owned utility will take common-sense steps to avoid hitting customers with such wild spikes in the future.
“To have such an extreme change happen so quickly, that has got to be something we can better control,” Mayor Steve Adler told me Friday.
A few weeks ago, Austin Energy proposed significantly raising the fuel charges and regulatory fees on our utility bills, amounting to about a $20 increase on the typical resident’s monthly bill.
It was a startling announcement, considering the City Council normally tweaks these fees once a year with little fanfare. Last year’s adjustment to the fuel charges and regulatory fees knocked a whopping 4 cents off the average resident’s monthly bill.
This year is different. Natural gas has been at its highest prices since 2008. Buying electricity has also grown more expensive, as the state has taken steps to shore up the power grid to try to prevent a repeat of the disaster we experienced in the 2021 winter freeze. These rising costs are unavoidable expenses for Austin Energy — which means they must, in some way, get passed on to us as customers.
“In May, things just seemed to explode here in ERCOT,” Austin Energy Chief Financial Officer Mark Dombroski told me, referring to the congestion on the state power grid. “We had a really hot summer; we had all the supply problems and a huge demand. I’m not sure anyone really saw … all those things coming together back when we set the (fuel charges for customers) in November of ❜21.”
OK. But here’s the maddening part. Costs have been surging for months. Utility executives could see that back in May and June. Yet it wasn’t until September that they proposed raising fees on customers to recoup those costs. By then Austin Energy needed to dig itself out of a deep financial hole — meaning a steeper price hike for all of us.
The problem is that Austin Energy adjusts its fuel charges for customers only once a year, providing an annual reckoning to catch up on whatever happened with the utility’s own fuel expenses over the past 12 months.
The goal behind this policy was to keep customers’ bills stable. But in a way, this practice has the opposite effect: Waiting months to revise fees, allowing the deficits to pile up, means customers face an even bigger spike by the time the annual recalculation occurs.
Consider this analogy: Say you’re used to spending $100 a week for your groceries. But then prices jump around a bit, and some weeks it costs $2 more to get what you need. Or $5 more. Or $7 more.
Would you rather pay as you go, handing those extra bucks to the cashier as you check out? Or would you put those extra weekly charges on your credit card, where they add up to a couple of hundred bucks by the end of the year, and only then do you come up with a plan to pay off that debt over the next 12 months?
Option B is what Austin Energy is doing right now with our once-a-year fuel adjustments.
It doesn’t have to be this way. Our neighbors in San Antonio have a city-owned utility that adjusts the fuel charge on customers’ billsevery month to keep up with market conditions. Yes, that means bills fluctuate a bit from month to month. But that spares customers the kind of annual jolt facing Austinites now.
I asked Dombroski whether Austin Energy would consider adjusting the fuel charges more often. He said he’s open to the idea, but doing so would require the City Council to update its ordinances on how fuel charges are set.
Adler told me he wants to hear a couple of things when Austin Energy officials meet with the council this week.
For starters, the mayor has asked the utility to offer a different proposal instead of the roughly $20-a-month fee hike for residential customers that was designed to recoup costs within one year.
Adler said he wants to see a more gradual adjustment in fees “over a three-year period of time, in a way that doesn’t hurt our bond rating, but that provides some softening of this extreme change.”
And then the mayor wants the utility to address the question: “How do we know this isn’t going to happen again?” That will require a plan that’s more proactive than simply waiting once a year to adjust fees.
We can’t stay on a path where this kind of sticker shock happens. For one thing, the hit to residential customers under Austin Energy’s current proposal might be greater than $20 some months. Austin Affordability blogger Bill Oakey recalculated his bill for July — a sweltering month when he kept the thermostat at 80 degrees in his 1,400-square-foot home — and the proposed charges would have added $34 to that bill, for example.
Meanwhile, as my colleague Bob Sechler reported, Austin Energy’s current proposal to raise fuel charges and other fees could cost small restaurants around $455 a month extra, while department stores and small hotels could see monthly bills increase by about $1,800. Large industrial consumers could face millions of dollars in rising costs over the span of a year.
And these fees are all separate from the proposed overhaul of Austin Energy’s base rates that I’ve been writing about recently. Those proposed changes, which are also likely to drive up bills for many residents, are slated to come before the council in November.
So how could Austin Energy prevent another year of runaway fuel charges? Adjusting the fees monthly would be one approach. Or the utility could recommend adjustments only when market prices have moved beyond a certain threshold. Or perhaps the utility needs to keep more robust cash reserves on hand to better absorb fluctuating expenses, Adler said.
It’s hard to predict what will happen with fuel prices and the power grid in the coming year. And really, that’s the point. Austin Energy doesn’t have a crystal ball, either. It needs a better mechanism to ensure customers don’t get clobbered by a massive price correction that arrives only once a year.
Grumet is the Statesman’s Metro columnist. Her column, ATX in Context, contains her opinions. Share yours via email at firstname.lastname@example.org or via Twitter at @bgrumet. Find her previous work at statesman.com/news/columns.
For the past several months, Austin Energy has been paying extremely high fuel costs and ERCOT regulatory charges from its own funds. They have not been collecting pass-through payments from customers to recover those costs. This has left them with a whopping $796 million in unrecovered cash. The utility now has only enough cash on hand to last 120 days.
Last week at a City Council work session, Austin Energy offered a few options to resolve their impending cash shortage. In normal times, they would do an annual adjustment to the monthly pass-through charges on customer bills. But a 71% spike in power supply costs and a 24% jump in regulatory charges threaten to put residents and businesses in a bind, possibly starting on November 1st. But, the City is now scrambling to try to find an alternate solution.
Here Is An Idea for the City to Consider
Certain other Texas utilities took out long term loans to cover high fuel charges associated with last year’s winter storm. San Antonio’s public utility did that. Their customers will be paying a small monthly charge for 25 years, to cover a large fuel cost debt. Austin Energy should explore a similar option to resolve their unrecovered costs. Even though interest rates are high right now, the utility could probably refinance the loan at a later date. They could try to estimate how long the higher than normal costs might continue, and borrow enough money to get through that abnormal period.
Unleashing the sky-high Power Supply Adjustment and Regulatory Charge all at once would hinder ratepayers in ways that other cities have already seen firsthand. Check out this news article and this one.
Borrowing the money is a better option. Perhaps there actually is a rabbit hiding in a hat somewhere down at City Hall. And it’s just waiting to be pulled out.
Just days ago, Austin Energy dropped a big bombshell on the City Council. All summer long, the utility has been paying out big bucks to cover sky-high high fuel costs. These were caused by the worldwide spike in the cost of natural gas, combined with the artificially high capped prices for gas that the Texas Legislature set for gas sold through the ERCOT grid market. In addition, our utility has been paying for their share of higher charges to help fortify the power grid.
Austin Energy Has Racked Up $796 Million In Unrecovered Costs
Most utilities throughout Texas have already been passing those higher costs on to their customers, through monthly charges on their electric bills. But Austin Energy dug themselves into a big financial hole. They relied on their usual practice of only adjusting the fuel and regulatory customer charges once per year. Our moment of reckoning will come at one minute past midnight on Halloween night – unless the City can pull a rabbit out of a hat.
Heads Are Rolling at City Hall
The proposed 71% increase in the monthly Power Supply Adjustment Charge and its companion 24% hike in the Regulatory Charge have heads rolling and emotions reeling at City Hall. The City Council was asked to vote on it, with no public input and only a few days’ notice. The new target date for action is next Thursday. As this blog pointed out, the electric bill impact, when projected onto summer bills, will be higher than the base rate increase that has been under City review since April. And, I predicted the fuel-related rate shock back on July 21st.
Now, the City Council is scrambling to try to find an alternate solution. Austin Energy brought this problem on themselves. There is no law that says they have to wait each year until November to reset those pass-through charges. But that’s where we are right now. According to the American-Statesman, the utility has enough cash on hand to last just 120 days, which is 30 days less than usual. The implications are wide-ranging, and quite intriguing on a number of levels.
At last week’s City Council work session, Austin Energy floated the option of phasing in the higher pass-through charges over a longer period of time. But the utility said it does not have the cash to cover that option. They would “need assistance from the City.” Of course, we know that the City gets its money from the taxpayers – you and me. And the little matter of that other base rate increase still has to be sorted out.
I have repeatedly called for the City Council to utilize the numerous revenue opportunities identified by the rate case participants to wipe out that base rate increase. I have recommended a10-step plan for the City Council to change the timing of adjusting pass-through charges, eliminating the base rate increase, and moving Austin Energy toward a modern, conservation-based business model.
Austin Businesses Are Up In Arms Over The New Price Hikes
If you think you and your neighbors might have trouble paying these higher bills, just take a look at some of the numbers quoted by the business community. These only count the new pass-through charges, without the potential base rate increase. The American-Statesman has reported that convenience stores and small restaurants would pay about $455 more per month, or $5,500 more per year. Department stores and small hotels would pay $1,800 more per month, or $22,000 more per year. Large industrial users, like semiconductor manufacturers, could see increased costs into the millions of dollars. All of the business organizations have called for a delay in the fee increases, and some sort of phased-in approach. But Aladdin’s lamp would probably be needed to conjure up the money for that.
What Will Become of the Windfall Summer Heatwave Revenues?
One of my biggest fears is that those will be very quietly swept under the rug. Few people besides me are even talking about that subject. Those whom I have asked to raise the issue to Austin Energy have been given vague answers, accompanied by fuzzy math. I’ve heard statements like, “It costs a lot to generate all that extra energy.” Well, yes, but when every customer in the system generates record volumes of sales, the base revenue that rolls in from historic triple-digit temperatures would have to be extraordinary. So, again I ask, what will become of that huge un-budgeted surplus? See this blog piece and this one for more details.
It is tempting to take an educated guess. Austin Energy is cash-strapped right now, because of the $796 million hole from not collecting the pass-through fuel and regulatory charges. The summer base revenue surplus might well be used to help plug that hole. Then sometime next year, after the customers pay back all the pass-through charges, the summer base revenue surplus will bubble back up to the surface. Then, it could sit comfortably in the budget – without anyone in the community remembering that it existed. I just can’t help wondering if that’s the plan…
Once upon a very long time ago, Time Magazine listed Austin as one of the most affordable cities in the country. I can attest to that, since my rent for a one-room efficiency in a house at 1904 Nueces was $120 per month, with all utilities paid. I moved into that place in 1971.
The burgeoning live music scene kept me out most nights, and the price of admission was next to nothing. A six pack of beer cost $1.50. I had been collecting records since the age of 5, so going to the live music shows, and meeting some of the performers was very exciting. I was never one to sit on the sidelines.
My favorite singer in the mid-seventies was Loretta Lynn. The news broke this morning that she has passed away, at the age of 90. Getting to meet her in person is one of my fondest Austin memories. It started in a very unexpected way. In the spring of 1976, I bought a copy of her autobiography, Coal Miner’s Daughter. In the middle of the book, I read about three sisters in a town called Wild Horse, Colorado. They started Loretta’s fan club. Then they built it into the International Fan Club Organization.
On a crazy whim, I picked up the phone and called Directory Assistance. They put me through to the sisters’ home, and we chatted for a good while. They invited me to come to Nashville for the annual Fan Fair event. I just needed to buy a $35 ticket, fly out there, and the sisters would introduce me to Loretta Lynn. It was all kinds of fun! After I got back home, arrangements were made for me to interview Loretta for a cover story in Country Song Roundup magazine. (Click to enlarge photos).
I was terribly nervous on the evening of the interview. She was doing a show and dance at the Silver Dollar dance hall. I was told to come outside to her bus, during the intermission. Well, I pushed open a side door and quickly set off the fire alarm! The club manager came over and took care of that. At Loretta’s bus, her road manager gave me a warning. He said I could talk to her about anything, except for one topic that was strictly off-limits.
Loretta had set up and performed at a charity fundraiser, for the children who lived in Butcher Holler, Kentucky where she grew up. The proceeds would go into an education fund, that would give the kids a chance to improve their lives and get good jobs after graduation. But a group of parents filed a lawsuit. They wanted to claim the money for themselves. That story was strictly forbidden from any news coverage.
In 1977, the very next year, a set of lucky circumstances put me on a chartered jet, with the stars of a big country music festival, at a town outside London. I chatted with Loretta on the plane and visited her backstage.
The next time I saw Loretta was at her house in Hurricane Mills, Tennessee. She allowed me to take pictures of several rooms for a magazine article. I can tell you that the homemade peach cobbler in her backyard was the best I ever tasted!
Back home in Austin, I was only a few years away from the launch of a new TV series called “Austin City Limits.” Those were unforgettable times. Marty Robbins could not remember one of my favorite songs of his from the early 60’s. I’m a pretty bold guy, but when he asked if I could sing a few lines to jog his memory, I politely declined.
Loretta Lynn was an amazing person. She put up with an abusive husband, letting the drama play out in a series of number one hits. She broke ground with controversial songs about birth control, and whatever else she felt needed to be said. In person, she was as down to earth as you can get. My favorite of her Austin shows took place where I first met her, at the Silver Dollar. The crowd had moved close to the stage, when somebody requested a song. She hollered out, “Well I know I’ll forget some of the words to that one. But, what the heck. I’ll get rid of the plans for the rest of the show. You all can pick the songs. Let’s just enjoy our time together and have some fun.” And indeed we did!
You may have heard about the new skyrocketing fuel charges and regulatory charges coming soon to your electric bills. These unwelcome shocks could begin as soon as the stroke of midnight on Halloween night. The City Council has little choice but to approve the recommendation from Austin Energy. But, they are not at all happy about the short notice given to them. The news hard to swallow – a 71% increase in the monthly Power Supply Adjustment Charge, and a 24% increase in the Regulatory Charge. This is in addition to the controversial base rate increase plan that is still undergoing City review.
Readers of this blog will recall that I predicted the fuel charge rate shock, back on July 21st. But Austin Energy did not send their memo to the City Council until September 21st. Mayor Steve Adler said this to City Manager, Spencer Cronk at last Tuesday’s Council work session, “There has to be a different and better way for us to deal with this situation.” Mayor Pro Tem Alison Alter complained that the details are too complex to explain to the folks in her district. So, the City Council voted to delay voting on the new charges for two weeks.
Get Ready for a Double-Whammy Wallop!
The war in Ukraine touched off a worldwide surge in the cost of natural gas. Many Texas utilities adjust their fuel charges every month. So, their customers saw the higher fuel prices throughout the summer. Austin Energy only changes the Power Supply Adjustment charge once per year, starting in November.
In addition to the war-related gas prices, the ERCOT power grid was pushed to its limits over the summer. Austin Energy must purchase some of its gas-generated power at the exorbitant ERCOT bid prices. The special-interest backed Texas Legislature gave a sweet gift to the oil and gas industry, with far and away the highest price caps for gas in the entire country. The last legislative session saw those price caps lowered from outlandishly outrageous to simply unconscionably exorbitant. The Legislature also agreed to shore up the grid, but we will be the ones paying for that, with higher regulatory charges on our bills.
The Bill Impact Will Be Worse Than $20 For Many of Us – And Worse Than the Proposed Base Rate Increase!
Austin Energy has publicized an impact to the average customer, using only 860 kWh, of $20 per month. Let’s suppose that we have another triple-digit heat spell next July. Below are the calculations that you can use to see the difference in your own July bills. I challenge every City Council member and their staff to do these calculations on their July bills. Here’s what it looks like on my bill for the period ending July 11th. My living unit in a triplex has 1,439 square feet, and I kept my thermostat at or slightly above 80. I used 1,478 kWh of electricity.
New Power Supply Adjustment 1,478 kWh X .04917 = $72.67 Current Power Supply Adjustment 1,478 kWh X .02877 = $42.52 Difference = $30.15
New Regulatory Charge 1,478 kWh X .01495 = $22.10 Current Regulatory Charge 1,478 kWh X .01206 = $17.82 Difference = $4.28
Total Difference From Both $30.15 + $4.28 = $34.43
If your place is at or above 1,400 square feet, and you kept your thermostat below 80 in July, then you should run the numbers to see your bill impact. It won’t be pretty.
We Need Senior Discounts for All Utility Customer Charges
On May 22, this blog issued a proposal for broad-based senior discounts, across several City departments. There is now a new urgency to adopt discounts on each of the customer charges on our utility bills. I recommend 50% senior discounts on the electric, water, wastewater and solid waste services customer charges. Those should be put in place as soon as possible, even if it requires complex reviews or proceedings.
Austin’s longterm residents are being squeezed to the max by inflation, high rents and property taxes, and high utility bills. We seldom get the attention from City Hall that is bestowed upon developers and recruitment efforts for new residents moving to luxury high rises. We’re the ones who established Austin’s reputation and high quality of life.
The City Council Should Consider These Actions and Reforms
1. I challenge every City Council Member and their staff to run the above calculations on their own July bills.
2. Move Austin Energy to a monthly or bi-monthly change in the Power Supply Adjustment and Regulatory Charges, to minimize rate shock. Consider a two or three month rolling average.
3. Require Austin Energy to report their net cash position to the Austin Energy Utility Oversight Committee on a quarterly basis. This will keep the City Council in the loop on unexpected shortfalls or surpluses.
4. Put the proposed base rate increase on hold. Conduct a series of meetings with rate case participants and community experts, to identify revenue options and other strategies to wipe out the increase.
5. Get to the bottom of the big mystery surrounding Austin Energy’s huge windfall revenue surplus, from the summer heatwave. It has to be the highest seasonal surplus in their history, given the long series of record-breaking triple-digit temperatures. Insist that Austin Energy produce fiscal year-to-date budgeted vs. actual base rate revenues. Austin Energy asked for a bass rate increase of $48 million in April. The summer surplus started in mid-May. They could not have budgeted for the unforeseen record-breaking summer bills, So, how much is the surplus, and where is that money now? The public deserves to know the full story.
6. Pass a City Council resolution that clarifies Austin’s policy goals on conservation, adoption of customer-based solar and other conservation-related technologies, and climate change mitigation. Include mandates for Austin Energy not to adopt policies, rate designs or customer charges that discourage conservation. or hinder progress on climate change mitigation.
7. Take on the challenge of helping Austin Energy find and implement a modern, innovative business model. They need to recognize that selling less electricity is a positive outcome, and should be a core element of their mission. They should not attempt to discourage conservation. Nor should they try to counter its impact with new fees and a parade of base rate increases. The market for customer-based solar, battery storage and other technologies is expanding by the day.
8. Review the entire scope of Austin Energy’s well-documented resistance to public transparency. Determine precisely which, if any, of Austin Energy’s operational and contractual records should be considered “proprietary,” and thus hidden from public scrutiny. Adopt a firm, enforceable policy, describing a complete, detailed list of any such items. Require by written policy the full public disclosure of all other types of records, requested by anyone, now and in the future. Austin Energy is owned by the citizens of Austin.
Review all of the information requests that were either rejected outright or not answered to the satisfaction of the current rate case participants. Hold City Council executive sessions with Austin Energy, to compel full responses to any of those information requests identified as “proprietary.” As Austin Energy’s Board of Directors, the City Council should have full authority to see and review all records, including any deemed “proprietary.” Compel Austin Energy to release the non-proprietary information to all the rate case participants, and to the City Council.
9. Austin Energy, their stakeholders and the City Council should review the best established European business models. And they should meet with the leadership of the National Conference of State Legislatures (NCSL). They have published a report on conservation-based business models.
10. Establish 50% senior discounts for each of the monthly customer charges on our utility bills – electric, water, wastewater and solid waste.
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.