Tag Archives: Austin City Council

Benefits For Utility Solar Customers Threatened, As Climate Change Dramatically Worsens

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 But electric utilities are stifling progress, with outdated business models, and plans that would slow the transition to customer-based solar.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 Neighbors recently 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.”

This looms over the surfers at California beaches and throughout that state. Check out this alarming message from a California pro-solar organization:

“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).

Holy cow!

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.

Check out these related blog pieces:

1. Electric Utilities and Power Grids Are At a Critical Crossroads
2. Can Austin Energy Learn to Grow Backwards?
3. KXAN’s Outstanding Web Article On Austin Energy’s Solar Shortcomings

Musical Accompaniment for This Blog Piece:

1. ”Surfin’ U.S.A.” – The Beach Boys
2. ”California Dreaming” – The Mamas and the Papas. (Original album photo, before the toilet was covered up. The grammatically incorrect apostrophes were not removed)
3. “California Sun” – The Rivieras
4. “San Francisco (Be Sure To Wear Flowers In Your Hair)” – Scott McKenzie
5. ”All Shook Up” – Elvis Presley
6. ”Big Bad John” – Jimmy Dean, 1961 #1 hit, original uncensored version, with “hell” at the end
7. ”Big Bad John” – Jimmy Dean, clean version

San Antonio Could Double Their Windfall Utility Revenues – Let’s Do That Here!

By Bill Oakey, September 12, 2022

San Antonio City Council member, Mario Bravo, has set an example that we should follow here in Austin. He is proposing to use part of their $75 windfall from high summer electric bills for a variety of wonderful programs that will protect the utility and help consumers. His plan is much better than giving ratepayers a one-time rebate of $22 to $29. Here’s the kicker in Council Member Bravo’s proposal. It would allow San Antonio to apply for Federal matching funds, to DOUBLE the amount of the revenues!

Let’s Double Down On This Opportunity!

This is a game-changer that changes my recommendation for Austin. I have asked each of the pro-consumer participants in Austin Energy’s rate case to make a list of the revenue options they have identified in their filing briefs. Let’s use those revenues to wipe out the rate increase. Then, let’s follow Council Member Bravo’s example. But first, we need Austin Energy to release their fiscal year to date Budgeted vs. Actual revenues. Bravo for Mr. Bravo!

The Texas Longhorns almost beat Alabama on Saturday. Let’s give them and the rest of the City a big win in the rate case. It is 4th down, and we’re just inches from the goal line. We can score a full consumer victory. And then get the extra dollars to sweeten the deal! Here is the San Antonio news story:

Let’s invest CPS revenue in real solutions to high energy bills

 
 
 

Due to an extremely hot summer, CPS Energy’s contributing revenue came in at $75 million over the city’s 2022 budget, and the city proposed returning some of that money to customers as a discount on their October bills. While a bill rebate after a summer of high bills sounds good at first, taking a closer look at where the money goes, we see how it could cost residents a chance at real solutions and savings.

In the city’s proposed rebate plan, the average residential bill would get a $29 rebate, and many would get even less. Half of my District 1 residents would get less than $22. Commercial customers would account for nearly half of the $42.5 million returned to customers, and residents and businesses outside of San Antonio would also get a significant amount.

This is a bad deal for San Antonio residents, and it’s why I’m proposing we invest some of this extra revenue to help protect residents from future high energy bills and prepare for more extreme weather.

As a city-owned utility, CPS Energy is owned by San Antonio residents. As owners, we now get a return on your investment every year with up to 14% of all CPS Energy revenue going into your city’s annual budget to help pay for your sidewalks, libraries, police and firefighters, parks, and more.  

What about CPS Energy customers who aren’t San Antonio residents and therefore aren’t owners of CPS Energy? Under the current proposal, $12 million would go to residents and businesses outside of San Antonio.  

There is also a huge corporate welfare component to this rebate proposal. Commercial customers will receive almost $20 million, with one corporation alone receiving close to $1 million.

I didn’t run for office so that I could transfer wealth from our city to corporations and residents outside of San Antonio. Fortunately, some council members have developed an alternative proposal which includes the following:

  1. Create safe community spaces for extreme weather events and emergencies: Install backup power in public buildings for when the electric grid goes down. These buildings will serve as public cooling centers during heat waves and heating centers during freezing weather, as well as distribution sites for emergency supplies.
  2. Protect low-income residents against future high energy bills: Weatherize and install energy efficiency upgrades to help reduce energy waste. The Department of Energy has found that weatherizing a home saves $372 per year on average. This will also reduce the peak electricity load on our utility, which then saves all CPS Energy customers on future bills.
  3. Reduce urban heat and flooding: Plant trees in the hottest parts of our city to provide shade and cool our city down by up to 9° F on hot days.  Also, plant trees that can absorb up to 4,000 gallons of water per year near drainage basins where we have flooding problems. 
  4. Add funds to a program to help prevent our most vulnerable CPS Energy customers from having their electricity cut off. This applies to low-income customers who are senior citizens, disabled, have small children in their homes, or require critical-care equipment. 

The timing for this proposal is just right to achieve more for every dollar we invest. The federal government just passed the $700 billion Inflation Reduction Act, which includes $1.5 billion for tree planting and $1.9 billion to reduce urban heat island hot spots. Passing our proposal allows us to demonstrate that San Antonio is serious about doing this work and allows us to apply matching funds for the federal grants, allowing us to double or triple our investments.

The only reason we have this additional city revenue is because this summer heat wave has been brutal. We can expect to see summers like this and possibly even hotter going forward. Corporate welfare and rebates to people outside of San Antonio are a bad idea and do nothing to help address our future extreme weather and electricity grid challenges. Let’s invest these revenues, which could be doubled or tripled through federal grants, to protect our community against future extreme weather and associated high energy bills.

Update:

San Antonio has decided to allocate $42.5 million of the surplus for customer rebates. The rebates will be optional, as explained in this article.

KXAN’s Outstanding Web Article On Austin Energy’s Solar Shortcomings

By Bill Oakey, September 11, 2022

You can’t get through a day in Austin now without seeing or hearing commercials about solar, home generators, etc. The boom is on. But Austin Energy’s rate proposal lacks the vision to carry us into the much-needed transition away from traditional carbon-emitting, centralized power plants.

Kudos to KXAN’s Avery Travis, who is spearheading a series of in-depth reports on a complicated issue. It’s time for a pause – to form a consensus among concerned citizens, local experts, the City Council and the good folks at Austin Energy who keep the lights on. No City recognizes the value of innovation better than Austin, Texas. We must make it happen!

Read the Austin solar article below. Then do yourself a favor, and bring a group of friends to the early show at the Elephant Room on Tuesdays, at 315 Congress Ave. You are about to meet Sarah Sharp…

INVESTIGATIONS

How will Austin Energy’s proposed rate changes impact solar customers? Consumer advocates concerned

Posted:

AUSTIN (KXAN) — Local musician Sarah Sharp sings every week at a downtown jazz club, but she still remembers her first gigs in Austin: working at Fresh Plus Grocery in Hyde Park and Z’Tejas on West Sixth Street more than 20 years ago.

Local musician Sarah Sharp said she thinks investing in solar panels will stabilize her utility costs, "if all goes as planned."
Local musician Sarah Sharp said she thinks investing in solar panels will stabilize her utility costs, “if all goes as planned.” (KXAN Photo/Chris Nelson)

“My half of the rent was $415 a month,” she laughed. “I’ve tried to have a really positive attitude and roll with it and accept that change is just the fact of life, but it’s getting a little bit out of hand. It’s getting harder and harder to keep a positive attitude on the rapid growth and the cost and the things that we are losing — like our music venues and our beloved restaurants.”

Over the last few years, certain changes have made her feel like she is in “survival mode,” in more ways than one. She said described being worried about climate change, losing faith in the state’s power grid after last year’s winter storm and feeling alarmed about what seems like an ever-climbing utility bill. In search of some stability, she began researching the costs and benefits of solar panels for her home. She decided to install some and believes, if everything goes as planned, she will be able to “lock-in” her electric costs — even if others’ rates go up.

“It’s kind of primal,” she said. “To be able to have a predictable, steady payment and wanting to do what I can for the earth… and wanting to have some help in the situations where we can’t count on our own grid.”

But now, some changes Austin Energy has proposed for the solar program have Sharp worried about whether her panels will give her the consistency she was looking for.

Looking forward, or backward

On a sunny day, people with solar panels on their roofs are generating energy not just for their own houses or businesses, but enough for some to go back into the electric system that powers other homes and businesses. During darker hours, though, these homes may use some power from Austin Energy.

So, solar customers’ bills will reflect charges for any power usage and credit back for the energy they generated. That amount is calculated by the utility’s Value of Solar rate.

As a part of its ongoing retail rate review process, Austin Energy wants to adjust the way the Value of Solar gets calculated.

The utility announced earlier this year it would be seeking to increase the base rate for electric service from $10 to $25 per month for customers, as well as trying to restructure the tiered system they use to charge customers based on how much energy they conserve. Austin Energy said these changes — along with the Value of Solar proposal — are necessary to cover the increasing cost of providing service.

Tim Harvey, Customer Renewable Solutions Manager for the utility, said the three specific changes proposed for the solar calculation will make it “more accurate.”

First, Austin Energy wants to change the way it calculates what are called “avoided costs.” Basically, this is the price the utility would have paid to produce the same power itself or purchase it from another source, but instead, it is received by solar customers’ power generation.

Currently, Austin Energy’s avoided cost methodology is forward-looking, using forecasts and projections to “try to grab those values from the future and bring them into present day,” Harvey said. The proposal aims to look at market data from the previous year to calculate the avoided costs. Harvey said the proposed method would rely on measurable data instead of predictions.

“Both ways, both methodologies, have value and can be correct,” he said. “It could be more accurate to look in the backwards, the rearview mirror on it, so to speak, because we can measure what happened in the past. We can’t really do that for the future.

Energy consultant Karl Rábago, however, compares the new methodology to someone clocking a runner’s average time for a 26-mile marathon by only looking at one mile.

Rábago served as Austin Energy’s Vice President for Distributed Energy Services back in 2006 and helped create the original Value of Solar tariff. He believes the forward-looking approach they designed treats customers more like a long-term investment for the utility, rather than a wholesale energy generator.

“What’s the price based on the fact that they’re installing a 25-year resource? Today’s Austin Energy is treating them like a commodity, like they’re just in a spot market — where if they happen to make electricity this year, they might not make electricity next year. They’re giving them only the short-term price,” he said.

To put it another way, he said, “If Austin Energy wanted to build or contract for a solar farm, they wouldn’t pay for it one year at a time, they would put it on the books as a long-term asset with 25 or more years of usable service.”

The Sierra Club, Public Citizen and Solar United Neighbors filed testimony claiming that the new formula ignores other resources provided by local solar customers, including avoided air pollution, benefits to the local economy and avoided distribution capacity costs. According to the document, they call the changes “unjust, unreasonable, and discriminatory” towards solar customers.

Austin Energy disagrees. Harvey said they ran an analysis using the proposed methodology and came out with a higher Value of Solar, at $.0991/kWh — compared to the analysis they ran using the other, future-looking methodology which came out to $.095/kWh. For context, the current value is $.097/kWh.

He said they would assess any market changes on a yearly basis, but wouldn’t necessarily change the rate every year.

“If it goes down, then we can talk about doing a rolling average and what that looks like,” he said.

Still, the possibility of variability concerns several consumer advocates, including Bill Oakey. He has worked on several utility rate cases over the years and has been following affordability issues in Austin since the 1980s. He sat on the Electric Utility Commission for several years and now writes a blog called Austin Affordability.com.

While he didn’t file testimony in this case, he believes the changes will make it more difficult for solar customers to plan ahead, which could discourage people from investing and committing to solar.

“The problem is that the rate is going to be variable, and so there is no guarantee of what it’s going to be,” Oakey told KXAN.

He said he’s concerned about anything that might hinder interest and accessibility for solar projects.

“The bottom line is that we need to be able to get from point A to point B, and just think about what point B might be 10 years from now, 15 years from now. We might have 15 to 20% of the population, both business and residential, using solar panels and storage batteries. If that were to happen, Austin Energy would need to learn to grow backwards,” Oakey explained.

He is critical of the reason behind Austin Energy’s larger proposed rate increase, urging the utility to eye a business plan that anticipates selling less power — as more customers conserve and trend toward energy-efficient patterns.

Harvey, however, insists the utility is not “defunding solar.”

“We’re not trying to cost-signal people to stop adopting solar. You know, quite the opposite. It’s the values going up, we’re intending to just pass through the benefits to the customers who are producing energy. But there can and probably will come a day where solar-hosting capacity is an issue that we’ll have to address. We’ll look to other utilities to find out what best practices are because there are other utilities that are further along the adoption curve than we are today.

Other changes

According to the utility, another key piece of its proposal is to shift the recovery method for solar energy transactions with customers.

Currently, the Value of Solar expenses are recovered through the Power Supply Adjustment (PSA) charge. It has proposed recovering something called Societal Benefits through a different charge — the Customer Benefit Charge (CBC). The move would increase the CBC while decreasing the PSA, and Harvey said this “increases transparency” for customers.

“So, we’re breaking out the environmental values, we’re calling them societal benefits now,” he said. “By breaking those out, we’re able to show the public, you know how we come to that calculation.”

Harvey acknowledged some concerns about this shuffle, for example, the fact that certain commercial customers do not pay the CBC charge.

Testimony filed by Sierra Club, Public Citizen and Solar United Neighbors states, “the utility effectively creates an uneconomic subsidy in which customer [solar] generators are required to subsidize other non-solar customers (especially large users of electricity) and the utility. Whenever customer-generators are forced to subsidize other customers, they will be less likely to invest in solar generation, frustrating policy and economic goals for the community.”

Rábago voiced a different concern about this switch. He argues that by recovering the Societal Benefits through the CBC, the utility could “starve” other energy efficiency programs that are funded by the CBC.

“They are making those non-utility resources fight for themselves for an ever-decreasing slice of pie,” he said.

He is particularly alarmed by the third change proposed by Austin Energy, which involves adding a new, third value to the Value of Solar calculation, called the Policy Driven Incentive (PDI). This incentive would ultimately be provided to solar customers “for a fixed term and at a fixed amount” based on the customers’ power production and other factors — but would adjust annually — according to a written statement by utility officials.

Solar panels on an Austin rooftop (KXAN Photo/ Chris Nelson)
Solar panels on an Austin rooftop (KXAN Photo/ Chris Nelson)

Harvey explained it as “a proposal” to meet with the community and interested parties “to help inform our incentive solutions, so that we can meet policy-driven goals.

Those goals include having 200 megawatts of solar from Austin Energy customers — about twice as much as exists today, according to Harvey.

“We want to get there in the most effective and easy way possible for customers, and also the most cost-efficient way,” he said.

Rábago, however, argues that the need for an incentive is an indicator that the Value of Solar itself may not be compensating customers fairly. He told KXAN that was his intention, when he helped craft the original tariff.

“That having a price set on value would create the holy grail: a self-sustaining market. A market where installers could figure out what things were worth; they could make the sales proposition to customers; the customers would feel they were getting a reasonable payback — that their investment in the community, as well as of course themselves, was going to be respected for a long time.”

Sharp said, whatever the methodology, she hopes the utility chooses to prioritize customers’ goals.

“We’re just trying to do our part. Quit making it so darn hard. It’s ridiculous,” she said.

What’s next

On Friday, an Independent Heading Examiner released its recommendations for the rate review.

These recommendations will be sent to the Electric Utility Commission and, eventually, City Council for review before further votes this fall.

Musical Accompaniment By Sarah Sharp:

1. “Your Girlfriend Hates Me”
2. “You Were Always On My Mind”
3. “Morning”
4. “Songwriters Across Texas Podcast”

Why Haven’t We Been Told Whether Austin Energy Has A Windfall Revenue Surplus?

By Bill Oakey – September 8, 2022

On August 14th, this blog asked the City to evaluate whether the historic summer heatwave will raise enough of a budget surplus to nullify the need for an Austin Energy rate increase. That was over 3 weeks ago. There has been no response from City Hall, or from the Utility. I first raised this question in a July 22nd KXAN News broadcast. Since then, we have learned several new factors that make that case stronger than ever.

City Officials Should Answer These Important Questions?

1. What is the revenue status now in Austin Energy’s current budget?

As pointed out in my August 14th blog post, San Antonio’s City-owned utility announced a $75 million budget surplus. Their City Council has held work sessions on how best to utilize those funds. Just yesterday, San Antonio City Manager, Erik Walsh, discussed the options in an on-air interview with KSAT-TV. A rebate to customers is being considered.

2. Where, and at what time will the Hearings Examiner deliver his recommendation on the rate increase?

His report is due tomorrow. But where and when is that supposed to take place? Austin Energy published a procedural timeline, but it does not address that question. When I asked one of the prominent participants in the rate case, I was told that they have not been given that information. This is a perplexing and frustrating lack of transparency!

3. What impact will a budget revenue surplus have on the rate 

Let’s hope that the City Council will ask Austin Energy immediately for a current estimate of their fiscal year to date “budget vs. actual” revenue status. They should have been able to conduct the same type of revenue and spending option evaluation that San Antonio has been doing for the past month. If not, somebody should tell us why not.

We already know that accounting errors identified by the Independent Consumer Advocate have been accepted by Austin Energy. This caused them to lower their rate case revenue requirement from $48.2 million to $35.7 million. (See pp. 1-2). At this point, the current budget status should be an essential part of reviewing the Hearing Examiner’s recommendation.

4. Does Austin Energy have the opportunity to improve its bond ratings, based on new revenue estimates, along with the diligent and excellent recommendations by all of the rate case participants? The picture is much better now than it was at the beginning of the summer. The best outcome would avoid the need for ongoing rate increases.

This blog has raised a whole host of other questions. And, there are more to come. Stay tuned. I remain optimistic that the Austin community can come together, and ultimately end up in a better place. If we get onto the right path, we can be a leader in the country’s quest to obtain affordable clean energy, while setting achievable goals to combat climate change.

A Fun Thing to Think About

What about the other Central Texas utilities? A friend asked me about Pedernales Electric Coop. It got me to wondering. Won’t all of these utilities have summer windfall revenues? Bluebonnet and what-all. They don’t hesitate to raise rates when financial woes strike them. But now they are awash with boatloads of unanticipated surpluses. Is it executive bonus time at champagne galas? Or, do their customers deserve a billing credit or a rate decrease? This question should apply from Buda, Kyle and Dripping Springs to Pflugerville, Round Rock, Cedar Park and Georgetown. Maybe even San Marcos and Bastrop.

I don’t have time to look into it. But, maybe somebody should.

Will The Real Cost Of Service Please Stand Up

By Bill Oakey – September 7, 2022

A Trip Back to the Mid-1980’s

In the summer of1985, I took a seat behind a nameplate on the City’s Electric Utility Commission. This was my first meeting as its newest member. City Council Member, George Humphrey had appointed me. This followed a fun adventure that concluded on a happy note the year before. It began in 1983, when I read a newspaper headline that the City had approved a whopping 20% electric rate increase.

During my lunch hour that day, I left the accounting office where I worked, and walked over to City Hall. For the next three weeks or so, I stayed up late in bed, scrutinizing the City Budget by lamplight. How could such a huge rate increase even be possible? One lucky night, I hit the jackpot. It was all right there, in a single “magic sentence.” It said that the 20% rate increase “is based, in part, on the successful passage of the lignite bonds in the November bond election.”

Well, the City Budget was adopted in late September, to take effect on October 1st. Thanks to Max Nofziger’s “Austinites for Clean Energy” activist campaign, the lignite coal bonds failed, by a margin of 61% to 39% (See Prop. 2). I did some other Budget calculations, and came up with a proposal to cut the rate increase by half, down to 10%. The Electric Utility Commission accepted it, and made the recommendation to the City Council. The 10% reduction became official at the City Council meeting on April 12, 1984. (See Page 3, Electric Rate Ordinance).

“Cost of Service” Emerges As a Rate Case Lynchpin

At my first meeting on the Electric Utility Commission, I was introduced to a whole new world of confusing jargon. We met at the old Electric Building Auditorium at 301 West Avenue. At each meeting, we received agenda packets stuffed with papers and documents. It wasn’t long before we found ourselves embroiled in a major rate case. That was my initiation into the mystical and mysterious realm of “cost of service.” A more formal name for it is “cost allocation.”

Don’t get scared off! Don’t quit reading! I will make this simple and painless, even fun…

People Just Love to Play With Words

I quickly learned that phrases used by City Staff should not be taken at face value. One should always ask questions and do research. “Cost of service” is based upon a specific model, and there are many different models. The rate cases in the mid-1980’s featured intense battles between consumer advocates and industrial ratepayers. Cost of service always took center stage..

Here’s the bottom line on the different models. The industrial ratepayers favored an antiquated model, that some say dates back to the jazz age – when you could buy an Edition phonograph, or one made by the Victor Talking Machine Company. That model lumps all the power plants together. Then it assigns the cost allocation to each class of customers.

That model is simplistic, flawed and unfair. Industrial power comes primarily from expensive power generation sources that are used 24/7. Residential power comes primarily from cheaper generators, and used during peak hours of the day. Consumer advocates prefer a modern, sophisticated model, that allocates cost based on numerous factors, including types of power generation, time of year, hours of the day, etc.

Even Gary Hart Didn’t Change Models

We often debated those 1980’s rate cases in a packed City Council chambers. One of those lively public hearings happened during the 1987 primaries for the next year’s Presidential election. Gary Hart was the Democratic front runner, to take on George H.W. Bush. But Hart was in a heap of trouble over a mistress, a model caught nestled in his arms, on a boat named “Monkey Business.”

I argued to the City Council that that the Electric Utility should not switch to the industrial ratepayers’ favorite cost of service model. To attempt a bit of humor, I said “Even Gary Hart didn’t change models.” He at least appeared to remain loyal to his one favorite mistress, Donna Rice.

Fast-Forward to 2022 – It’s Business As Usual

Here we are folks, over 35 years later, and we’re still stuck with business as usual. The Electric Utility Department has rebranded as Austin Energy. The funky, stacked Independent Condos Tower now stands where the Electric Building Auditorium used to be. The iconic “Katz’s Never Kloses” deli, down the street at 6th and Rio Grande, got gentrified into oblivion several years ago. But, the very same electric cost of service models are once again being tossed about in this year’s rate case.

    

The Graphics That Should Steal the Show

With online research, it’s exhilarating to turn over a rock and discover a gold nugget. These images come courtesy of the Regulatory Assistance Project, as presented to the Rate Design Subcommittee of the National Association of Regulatory Utility Commissioners in 2020 (Section 4, Pages 22-23). These were identified as Best Practices. Click each image to enlarge it:

One of the “old ways,” shown in both graphics, is Austin Energy’s current method, the 12CP Model. In their final rate filing brief, the TIEC, Texas Industrial Energy Consumers, endorsed their same, worn-out 1987 model. Here is a statement from their brief, “TIEC’s witness, Jeffry Pollock, recommends the Average & Excess Demand (AED)-4CP allocation method, which has been consistently used for Texas utilities under PUCT jurisdiction for decades (their italics).” (See Page 3 from their brief). But, Texas has also had horrifying child foster care conditions for many years. Both are unacceptable.

The City’s Independent Consumer Advocate has this to say about cost of service, “The BIP methodology represents a more reasonable approach to allocating production demand costs than the 12CP or the A&E-4CP methods. The BIP is a method which more reasonably balances the interests of AE’s customer base by recognizing both reliability and economics. Furthermore, BIP recognizes the prevalence of meeting ERCOT loads…” (See Page 26).

In 2011, Austin Energy held a rate review, which included a Residential Rate Advisor. The Advisor’s report contains extensive justification for adopting the BIP cost of service model. Here is the statement in the Executive Summary: (See Page ES-1):

Cost Allocation Methodology

My Suggestion – Base-Load Intermediate Peaking – (BIP) method be applied, as it is consistent with the Electric Reliability Council of Texas (ERCOT) deregulated market design and use of facilities.

Austin Energy Recommendation – Average and Excess Demand (AED) method applied, as it is commonly, but not uniformly, used in regulated markets.

Impact – The AED method approach leads to 20 percent higher rates for residential and small business customers, and 30 percent lower rates for large businesses.

Wow…!!

A Positive Final Note

Here is an update on an aging model that I mentioned. Donna Rice is doing quite well, and she’s making a positive contribution to society. For many years, she has been working to promote a safer Internet for children. She heads an organization called Enough Is Enough.

Musical Accompaniment for This Blog Piece:

”People Just Love To Play With Words” – Men at Work, From the album, Business As Usual, which was Number One for 15 weeks in 1982 and 1983.

Austin Energy Projected $19 Million Revenue Surplus For 2021

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.


Electric Utilities and Power Grids Are At a Critical Crossroads

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

Austin Energy’s Charts – A Sobering Reality Comes Home

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

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

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