The clock is winding down to a potentially devastating wrong-headed decision by the City Council. Austin Energy has not backed down from its terribly misleading crusade for a third round of rate shock. This round will slam seniors and small businesses hard, two constituencies that have not been considered in the alleged “compromise” negotiations, playing out at City Hall.
The Only Thing Being Compromised Is The City’s Credibility
Austin Energy’s revenues exceeded expenses for every month except January, during the fiscal year that ended September 30th. And yet, they say they need to more than double the customer charge, raise base rates and upend the rate design, because of declining energy sales. What?? I couldn’t sell that argument to a fifth grader. So, why is the City Council buying it? The time for softball discussions of this crazy case is over. We need to think about an organized citizen backlash. Here is a summary of what we are up against:
1. A double-dose of rate shock that took effect November 1st – 71% increases in fuel charges, and 24% increase in regulatory charges. These will be spread gradually over 3 years, with this year alone costing the “average customer” $15.00 per month. It will be much higher in the summer month for 3 bedroom or larger homes. These are unavoidable charges, made worse by Austin Energy not warning the City Council. Not until they ponied up tens of millions of dollars, that now must be made up by us, on our bills.
2. A third dose of rate shock that cannot be justified with Austin Energy’s own data. The City Council has apparently swallowed every lame argument that Austin Energy has thrown at them. Try to make some logical sense out of this:
One: A sky-high customer charge and radical rate design shift, that will penalize small users, as they try to conserve. Austin Energy claims that electricity sales have declined, so they need to increase non-sales revenue. But wait…Their own charts don’t back up that claim. Then, adding fuel to their misinformation campaign, they sold more electricity in their entire history, during the record triple-digit summer heatwave. Instead of using that un-budgeted surplus to head off the rate increase, they spent the money without telling the City Council. They did it without following City policy and requesting a budget amendment.
Two: At an Austin Energy oversight meeting this week, the City Council deliberated over a supposed “compromise” solution. This could lead to a $4.00, $6.00 or higher increase in the monthly customer charge. Why? For the same false claim that electricity sales are declining. Revenues actually exceeded expenses for every month except January, in the fiscal year that ended September 30th.
Three: At the same oversight meeting, Austin Energy made another outrageously dubious claim. They want to reduce the number of rate tiers, once again to bring in more money while taking away the customers’ incentive to conserve. To explain this, Austin Energy boldly stated that lower rates for small users of electricity does NOT encourage conservation. Where is the national study to back up that claim. Do Austin environmentalists support that claim? Nobody on the City Council spoke up to challenge it.
Austin Energy Is Clearly Not Serving the Public Interest
That’s the bottom line here, folks. It’s sad to say. But, when you see a spade, and you know it’s a spade, you might as well call a spade a spade. Our City Council appears poised to roll over and hand Austin Energy some sort of “compromise” deal. They may become the only major utility in Texas to deviate from the standard $10.00 monthly customer charge. And our nationally recognized conservation-based rate structure could be weakened. The fate of our solar buyback program is also at risk. And why isn’t anybody talking about the pain that a third dose of rate shock would inflict upon Austin’s struggling small businesses? I will be contacting many of them, and sharing this blog piece.
The Format for the Rate Proceedings Is Grossly Unfair
Every meeting where the City Council invited Austin Energy and the rate case parties to speak, Austin Energy was given the lion’s share of speaking time. The rate case parties were not given a chance to counter the arguments presented by the utility. The entire process is nowhere near as fair as the hearings before the Texas Public Utility Commission. Our impartial Hearings Examiner was paid from Austin Energy’s budget. We must reform that process, when the new Mayor and City Council take office in January!
We Can Mount a Citizen Backlash in the New Year
We will have a new Mayor and several new Council Members in January. This impending turkey of a rate case decision can be revisited, with a six-month end date attached to whatever bad rate decision that this City Council makes. I’m convinced that every individual neighborhood association, and a well-organized coalition of small business owners will rally behind the fight for transparency, integrity and accountability for the electric utility that we the people own.
I am not surprised by what happed yesterday with the City Council and Austin Energy. After all, a good sales pitch can be hard to resist. The odds are pretty good that snake oil, if it were cleverly packaged in souvenir bottles with an antique logo, might sell pretty well. Heck, you could probably sell them in a gift shop on Congress Avenue.
But, when it comes to something serious, like our electric bills, we should all pay careful attention to what’s inside the package that we are being sold. Otherwise, we could easily be sold down the river.
So, How Can We Un-Snooker the City Council?
The answer is pretty simple. Just let the numbers do the talking. I like to talk, but I would be willing to sit still without uttering a single word, if we could just get the right set of numbers. So, let me try this, and let’s see how it goes…
Dear Friends On the Austin City Council,
Most of you know me pretty well. I don’t have a reputation for making up things that are not true. I try to ensure that my research produces accurate information. If I make an honest mistake, I will accept responsibility for it, and correct it promptly. You probably know that I have successfully challenged Austin electric rates in the past. I was appointed to the Electric Utility Commission, after getting the City Council to cut a 20% rate increase in half, in April 1984. In between music events and art shows, I have been following electric rate cases for 39 years. So, I know more than just a little bit about them.
Here is my simple challenge for you in the current rate case. Stop listening to me, and all of the other competing voices. Ask for a few sets of numbers, and then let those numbers do the talking. Please do that, and I promise that this whole confusing matter will be put to rest.
These Are the Numbers That You Need to Ask For
For each proposed rate increase scenario, ask Austin Energy to provide residential customer bill examples for the following consumption amounts and timeframes:
1. 860 kWh (the average customer amount) in a typical winter month
2. 1000 kWh in a typical winter month
3. 1500 kWh in a typical winter month
4. 2000 kWh in a typical winter month
5. The same four examples in a typical July
6. The same four examples, using July, 2022 data
7. Try to get some estimated bill impacts for typical small business ratepayers. Those folks are still trying to recover from pandemic-related financial losses. They need your compassion, and the best possible diligence that you can provide.
Of course, every individual customer has different conditions in their home that will affect their energy usage. But any examples are better than no examples at all. You folks on the City Council could offer your own electric bills, or the bills of people on your staffs. The point of this exercise is to demystify the actual impact of whatever rate increase that you consider. Will a triple-dose of rate shock give most of us a $30 monthly bill increase, or will it be significantly higher for a 3 bedroom home, especially in another summer heatwave?
Please ask for those sets of numbers, and take a good, hard look at them. Don’t pass a highly controversial rate increase, without knowing up front how it will impact the community. Thank you for your time and consideration.
On a Lighter Note, Here’s the Lowdown On Snookering
Here’s the official definition by Merriam-Webster. Click to enlarge the images.
The transitive verb describes what has befallen our City Council.
And a lesson can be learned from the noun definition.
Don’t be snookered on your Christmas gift purchase of professional snooker balls. You can get them for less than the full retail price of $452.03.
My view of this rate case is simple and straightforward – It’s a matter of many people involved not seeing the forest for the trees! I look at it like this:
1. Austin Energy asked for a base rate increase back in April.
2. They asked to increase the monthly customer charge by 2 1/2 times, to $25.00. No other major utility in the State has done that! Shouldn’t that raise a huge red flag? Why are people saying that we should “compromise” with a $12.00 customer charge? $10.00 is standard throughout the State.
3. Austin Energy wants to upend our conservation-based rate design, that dates back to 1981. Why would we want to do that? Reducing the incentive to conserve would jeopardize the City’s adopted Climate Equity Plan. A “compromise,” to reduce the rate tiers from 5 to 4 might only reduce our conservation incentives by 20% or so. But why cut back on conservation at all?
4. Austin Energy said they need a base rate increase because of declining energy sales. But their own charts, presented to the City Council at the very beginning, don’t back up that claim. The only years where costs exceeded revenues were 2020 and 2021. Well, duh, we had a 100-year pandemic and a highly unusual winter storm. Of course less energy was sold, but only in those two years.
5. Now, here’s the clincher. In 2022, this year, Austin Energy sold more electricity from mid-May through mid-September, than in any other summer season in their entire history. And, they are still insisting that they need a rate increase? What’s up with that?? Well, apparently, they spent that huge summer surplus, without a required budget amendment being approved by the City Council. The public deserves to know the base revenue amount of that surplus, and how those un-budgeted funds were spent.
6. Austin Energy sprang a last-minute surprise on the City Council in late October. We got a double dose of rate shock for fuel and regulatory charges on Halloween at midnight.
7. One final important note – The so-called $15 increase in the “average” customer’s bill for the fuel and regulatory charges is mythical. It is only that low if you use 860 kWh per month. Try going that low in a 3-bedroom house in the sweltering July heat. So, obviously, if the City Council approves a third round of rate shock, be careful with the “average user” cost estimate. It might be as lowball as another $15.00. Well, for starters, even $30.00 more per month is tough to swallow during an affordability crisis. So, just imagine the actual, much higher costs for a 3-bedroom homeowner, in every neighborhood across the City!
This Is Not Rocket Science…
It just requires you to stand back and look at that big forest in front of you. Don’t get bogged down in all of those confusing trees. No other Central Texas electric utility is asking for radical, controversial changes to their rate structure. And they are not asking for a base rate increase. They are getting along just fine, with the historic summer heatwave providing a nice revenue cushion.
What Austin Energy does badly need is a big reality check. Austin’ hard-working residents and small business owners deserve much better transparency and accountability. Because, after all, we are the folks who own Austin Energy!
For the past several months, consumer advocates have tried to break through Austin Energy’s transparency barrier, for details on the huge revenue surplus that the utility earned from the historic summer heatwave. The critical question is how much un-budgeted base revenue did they reel in, from mid-May through mid-September? The public still has never been told. And yet, Austin Energy wants the City Council to approve a conservation-busting, highly controversial base rate increase, as soon as this week. We simply can’t let that happen! Our hard-working families and small business owners deserve a better solution.
Where Was the Required Budget Amendment?
Austin City policy requires departments to seek City Council approval, by way of a budget amendment, if they want to significantly raise or lower their annual budget. Austin Energy has routinely complied, as recently as late September. But there is no visible record of any budget amendment request to spend the surplus summer base revenue. We are talking about tens of millions of dollars, from the biggest and longest triple-digit heatwave in Austin history. It is conceivably possible that the utility did request a budget amendment. But, if so, it was done at a low-profile meeting, and it left no online tracks.
A Google search for “Austin Energy” “budget amendment” shows only these two recent results:
1. Sept. 29, 2022 – Budget amendment to increase monthly electric charges related to fuel and ERCOT expenses. This was the double-dose of rate shock that hit at midnight on Halloween.
Back on July 22nd, I suggested on the 6:00 PM KXAN-TV News, that the summer surplus should wipe out the need for a rate increase. It is time for City officials to finally explain why San Antonio’s public utility gave nearly $50 million back to their ratepayers from their summer surplus, while Austin Energy kept the money and asked for a rate increase. No other Central Texas utility has asked for a rate increase. And the vast majority of large Texas utilities maintain a standard $10 monthly customer charge. Austin citizens, who literally own Austin Energy, deserve much better transparency, and the more prudent financial management, in the face of record inflation and our affordability crisis.
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…
By Bill Oakey, September 13, 2022, Revised September 15, 2022
We are now witnessing the worst wildfires, heatwaves, drought, severe flooding and strongest hurricanes than ever before, worldwide. But electric utilities are stifling progress, with outdated business models, and plans that would slow the transition to customer-based solar. This blog piece is dedicated to everyone out there who cares passionately about meeting climate change goals.
Do Non-Solar Customers “Subsidize” Solar Customers?
No! No! No! No! No!!!
That is a dangerous question to even ask. If we travel down that road, we will seriously jeopardize our chances of saving the planet. Ratepayers who can’t afford solar are eligible for a host of other energy-efficiency programs. Major utilities from Austin to California have fallen into the “subsidy” trap. Their conventional thinking is couched in terms of dollars. How do the dollars flow up, down and around the customers – between customer classes, and within customer classes? Austin Energy has a Value of Solar buyback program, that could be weakened in the current rate case. “Value,” when placed next to “solar” deserves a much broader perspective than just the dollar impact on energy sales. Subsidization should be taken out of the equation.
In the 1950’s, when Elvis Presley first started swiveling his hips, it made good sense for utilities to think of rate setting strictly in terms of dollars. Ratemaking, like sausage-making could be reduced to a simple, defined recipe. Jimmy Dean found that out, when he left the music business to become a sausage king. But today, we cannot afford conventional thinking about the value of solar. Not if we care about mitigating climate change!
How Do “Subsidies” Creep Into Austin Energy’s Solar Planning?
It’s not a pretty picture. Prior to our current rate case, Austin Energy hired a firm, NextGen Strategies and Solutions, to evaluate their current Value of Solar payment structure, and recommend potential improvements. Here is a quote from that report, following their statement that there are two options available:
“To be clear, either approach if conducted in a transparent and well‐informed manner may be acceptable and appropriate for Austin Energy. However, to the extent the amount paid to customers through VOS credits exceeds the direct economic savings to Austin Energy, the VOS credit will result in non‐PV customers subsidizing PV customers. Further, to the extent a subsidy exists, as PV penetration increases, so shall the subsidy. At some point the subsidy may reach a magnitude that is not acceptable to policymakers. In recognition of this situation, it may be helpful for Austin Energy to consider the following policy questions:
1. Should non‐PV customers subsidize PV customers and, if so, by how much and for how long? 2. Can Austin Energy achieve its distributed renewable energy goals with a VOS credit that is solely based on embedded cost avoidance/savings? 3. How should achieving Austin Energy’s distributed renewable energy goals be balanced with minimizing PV customer subsidies?”
Subsidy, Subsidize, Ad Nauseam…
There are subsidies throughout our economic system. Austinites who pay property taxes subsidize big corporations, who get tens of millions in tax abatements – for the privilege of creating high tech jobs. This has touched off waves of income inequality, massive gentrification and an affordability crisis. Where is the “Strategies Inc.” report to address that problem?
In Austin, big downtown skyscrapers are often assessed at well below market value, for property taxing purposes. The City filed a lawsuit, to put commercial taxpayers on an equal footing with homeowners. The lawsuit went nowhere. Movie theaters subsidize the multi-billion-dollar Hollywood film industry. Theaters survive by charging outlandish prices for popcorn and candy. Subsidies are everywhere.
Austin Energy hasn’t explicitly stated that substantial fee increases to reduce the subsidy effect are factored into their future solar planning. But it’s on their radar. And, their proposed rate plan calls for evaluating the Value of Solar calculation every year. If customers begin to see a weakening of the credits, they may not want to wait long enough for a solar investment to break even. Solar contractors try to help new customers figure out their break even timeframe.
The Perils of the Community Benefits Charge
Austin Energy wants to move the service charge for energy efficiency programs, including solar, to the “Community Benefits Charge.” We can see a complex web of cross-subsidization with that. But there’s a much bigger problem. I like to think in terms of getting from Point A to Point B. At Point B, perhaps 15% of Austin homes and businesses will have solar panels and battery storage. Then add modern home generators, to get through power outages. We could call 20% saturation Point C, and so on. That would push the customer benefits charge to unsustainable levels. Austin Energy could not hope to recover all their lost electricity sales through fixed monthly customer charges and reduced solar benefits. Or a parade of base rate increases. I’ll say it again – Old business models won’t work forever. Utilities will need to adapt, and learn to “grow backwards.” Centralized electric utilities will gradually shrink.
The Net Energy Metering “Reform Movement”
Climate change mitigation is being threatened nationwide by so-called “net metering reforms.” Reducing solar benefits and adding new fees for solar customers is the opposite of reform. Sadly, utilities now find themselves ill-prepared to absorb the cost impact of the historic climate and energy bill, passed by Congress. Solar United Neighborsrecently published this dire warning about fixed monthly customer charges, and new fees for solar customers:
”Utilities are attempting to restructure electricity bills so that more of each bill is made up of these charges. These fees directly affect how much of your bill you can reduce through solar generation, efficiency upgrades, and conservation. They discourage efficiency and limit homeowners’ ability to save money by producing a portion of their own power through solar. Some utilities propose to more than double the fixed charges for ratepayers.”
“Previously, the California Public Utilities Commission released its proposed decision on December 13th, 2021. The proposal contains provisions that (among other things) reduce compensation for solar energy sent to the grid, add new monthly fees to the electricity bills of future solar owners, and reduce the amount of time people on Net Energy Metering (NEM) 1.0 and NEM 2.0 can receive bill credits under those programs.”
Wow! This is California, where climate change has unleashed the worst wildfires, chronic severe drought and a devastating summer heatwave. Fortunately, their Public Utilities Commission has since voted to put that proposal on ice for one year. The plan would slash solar benefits by as much as 80%. Perceived “unfair subsidies” are one of the driving forces behind it. Understandably, climate change activists are all riled up. And, hey, think about this. It’s not totally about the subsidies. Utilities will sell more carbon-generated electricity, and make more money when they reduce solar benefits. (Duh)!
It’s not just residential solar customers who could see their benefits cut here. In Austin Energy’s final rate case filing brief, I discovered this startling sentence:
“Some staff expressed concern over Austin Energy’s Value of Solar (VOS) pricing scheme, stating the current VOS structure is unsustainable, if commercial customers continue to adopt on-site solar and reduce their peak demand charges.” (See Appendix E. Sec. 2.1.1., Pg. 408).
A Stalled Proposal and a Hopeful Parting Note
The rate case explains why one of my proposals hit a brick wall. I wanted Austin to lead the nation in a push to put solar panels on big-box retail stores. The idea came from a wonderful study as reported by CNN. It outlines the huge carbon reduction gains that we would see if all big-box retailers and shopping malls nationwide built solar rooftops. City Council Member, Ann Kitchen told me in two meetings this spring that she would seek a response from Austin Energy about my proposal. I’ve heard nothing about it since. So, now the challenge is to stop Austin Energy and other utilities from reducing solar benefits.
Let’s support the environmentalists’ call for a comprehensive study of best practices, to craft a new Value of Solar policy. It needs to put climate change front and center. Let’s try to steer Austin Energy in a positive direction, away from the nostalgic 50’s and 60’s, and into a climate-conscious future. My next blog piece may inspire some hope. New utility business models are being developed. I will explore them with two fascinating published reports.
San Antonio City Council member, Mario Bravo, has set an example that we should follow here in Austin. He is proposing to use part of their $75 windfall from high summer electric bills for a variety of wonderful programs that will protect the utility and help consumers. His plan is much better than giving ratepayers a one-time rebate of $22 to $29. Here’s the kicker in Council Member Bravo’s proposal. It would allow San Antonio to apply for Federal matching funds, to DOUBLE the amount of the revenues!
Let’s Double Down On This Opportunity!
This is a game-changer that changes my recommendation for Austin. I have asked each of the pro-consumer participants in Austin Energy’s rate case to make a list of the revenue options they have identified in their filing briefs. Let’s use those revenues to wipe out the rate increase. Then, let’s follow Council Member Bravo’s example. But first, we need Austin Energy to release their fiscal year to date Budgeted vs. Actual revenues. Bravo for Mr. Bravo!
The Texas Longhorns almost beat Alabama on Saturday. Let’s give them and the rest of the City a big win in the rate case. It is 4th down, and we’re just inches from the goal line. We can score a full consumer victory. And then get the extra dollars to sweeten the deal! Here is the San Antonio news story:
Let’s invest CPS revenue in real solutions to high energy bills
Due to an extremely hot summer, CPS Energy’s contributing revenue came in at $75 million over the city’s 2022 budget, and the city proposed returning some of that money to customers as a discount on their October bills. While a bill rebate after a summer of high bills sounds good at first, taking a closer look at where the money goes, we see how it could cost residents a chance at real solutions and savings.
In the city’s proposed rebate plan, the average residential bill would get a $29 rebate, and many would get even less. Half of my District 1 residents would get less than $22. Commercial customers would account for nearly half of the $42.5 million returned to customers, and residents and businesses outside of San Antonio would also get a significant amount.
This is a bad deal for San Antonio residents, and it’s why I’m proposing we invest some of this extra revenue to help protect residents from future high energy bills and prepare for more extreme weather.
As a city-owned utility, CPS Energy is owned by San Antonio residents. As owners, we now get a return on your investment every year with up to 14% of all CPS Energy revenue going into your city’s annual budget to help pay for your sidewalks, libraries, police and firefighters, parks, and more.
What about CPS Energy customers who aren’t San Antonio residents and therefore aren’t owners of CPS Energy? Under the current proposal, $12 million would go to residents and businesses outside of San Antonio.
There is also a huge corporate welfare component to this rebate proposal. Commercial customers will receive almost $20 million, with one corporation alone receiving close to $1 million.
I didn’t run for office so that I could transfer wealth from our city to corporations and residents outside of San Antonio. Fortunately, some council members have developed an alternative proposal which includes the following:
Create safe community spaces for extreme weather events and emergencies: Install backup power in public buildings for when the electric grid goes down. These buildings will serve as public cooling centers during heat waves and heating centers during freezing weather, as well as distribution sites for emergency supplies.
Protect low-income residents against future high energy bills: Weatherize and install energy efficiency upgrades to help reduce energy waste. The Department of Energy has found that weatherizing a home saves $372 per year on average. This will also reduce the peak electricity load on our utility, which then saves all CPS Energy customers on future bills.
Reduce urban heat and flooding: Plant trees in the hottest parts of our city to provide shade and cool our city down by up to 9° F on hot days. Also, plant trees that can absorb up to 4,000 gallons of water per year near drainage basins where we have flooding problems.
Add funds to a program to help prevent our most vulnerable CPS Energy customers from having their electricity cut off. This applies to low-income customers who are senior citizens, disabled, have small children in their homes, or require critical-care equipment.
The timing for this proposal is just right to achieve more for every dollar we invest. The federal government just passed the $700 billion Inflation Reduction Act, which includes $1.5 billion for tree planting and $1.9 billion to reduce urban heat island hot spots. Passing our proposal allows us to demonstrate that San Antonio is serious about doing this work and allows us to apply matching funds for the federal grants, allowing us to double or triple our investments.
The only reason we have this additional city revenue is because this summer heat wave has been brutal. We can expect to see summers like this and possibly even hotter going forward. Corporate welfare and rebates to people outside of San Antonio are a bad idea and do nothing to help address our future extreme weather and electricity grid challenges. Let’s invest these revenues, which could be doubled or tripled through federal grants, to protect our community against future extreme weather and associated high energy bills.
San Antonio has decided to allocate $42.5 million of the surplus for customer rebates. The rebates will be optional, as explained in this article.
You can’t get through a day in Austin now without seeing or hearing commercials about solar, home generators, etc. The boom is on. But Austin Energy’s rate proposal lacks the vision to carry us into the much-needed transition away from traditional carbon-emitting, centralized power plants.
Kudos to KXAN’s Avery Travis, who is spearheading a series of in-depth reports on a complicated issue. It’s time for a pause – to form a consensus among concerned citizens, local experts, the City Council and the good folks at Austin Energy who keep the lights on. No City recognizes the value of innovation better than Austin, Texas. We must make it happen!
Read the Austin solar article below. Then do yourself a favor, and bring a group of friends to the early show at the Elephant Room on Tuesdays, at 315 Congress Ave. You are about to meet Sarah Sharp…
AUSTIN (KXAN) — Local musician Sarah Sharp sings every week at a downtown jazz club, but she still remembers her first gigs in Austin: working at Fresh Plus Grocery in Hyde Park and Z’Tejas on West Sixth Street more than 20 years ago.
“My half of the rent was $415 a month,” she laughed. “I’ve tried to have a really positive attitude and roll with it and accept that change is just the fact of life, but it’s getting a little bit out of hand. It’s getting harder and harder to keep a positive attitude on the rapid growth and the cost and the things that we are losing — like our music venues and our beloved restaurants.”
Over the last few years, certain changes have made her feel like she is in “survival mode,” in more ways than one. She said described being worried about climate change, losing faith in the state’s power grid after last year’s winter storm and feeling alarmed about what seems like an ever-climbing utility bill. In search of some stability, she began researching the costs and benefits of solar panels for her home. She decided to install some and believes, if everything goes as planned, she will be able to “lock-in” her electric costs — even if others’ rates go up.
“It’s kind of primal,” she said. “To be able to have a predictable, steady payment and wanting to do what I can for the earth… and wanting to have some help in the situations where we can’t count on our own grid.”
But now, some changes Austin Energy has proposed for the solar program have Sharp worried about whether her panels will give her the consistency she was looking for.
Looking forward, or backward
On a sunny day, people with solar panels on their roofs are generating energy not just for their own houses or businesses, but enough for some to go back into the electric system that powers other homes and businesses. During darker hours, though, these homes may use some power from Austin Energy.
So, solar customers’ bills will reflect charges for any power usage and credit backfor the energy they generated. That amount is calculated by the utility’s Value of Solar rate.
As a part of its ongoing retail rate review process, Austin Energy wants to adjust the way the Value of Solar gets calculated.
The utility announced earlier this year it would be seeking to increase the base rate for electric service from $10 to $25 per month for customers, as well as trying to restructure the tiered system they use to charge customers based on how much energy they conserve. Austin Energy said these changes — along with the Value of Solar proposal — are necessary to cover the increasing cost of providing service.
Tim Harvey, Customer Renewable Solutions Manager for the utility, said the three specific changes proposed for the solar calculation will make it “more accurate.”
First, Austin Energy wants to change the way it calculates what are called “avoided costs.” Basically, this is the price the utility would have paid to produce the same power itself or purchase it from another source, but instead, it is received by solar customers’ power generation.
Currently, Austin Energy’s avoided cost methodology is forward-looking, using forecasts and projections to “try to grab those values from the future and bring them into present day,” Harvey said. The proposal aims to look at market data from the previous year to calculate the avoided costs. Harvey said the proposed method would rely on measurable data instead of predictions.
“Both ways, both methodologies, have value and can be correct,” he said. “It could be more accurate to look in the backwards, the rearview mirror on it, so to speak, because we can measure what happened in the past. We can’t really do that for the future.
Energy consultant Karl Rábago, however, compares the new methodology to someone clocking a runner’s average time for a 26-mile marathon by only looking at one mile.
Rábago served as Austin Energy’s Vice President for Distributed Energy Services back in 2006 and helped create the original Value of Solar tariff. He believes the forward-looking approach they designed treats customers more like a long-term investment for the utility, rather than a wholesale energy generator.
“What’s the price based on the fact that they’re installing a 25-year resource? Today’s Austin Energy is treating them like a commodity, like they’re just in a spot market — where if they happen to make electricity this year, they might not make electricity next year. They’re giving them only the short-term price,” he said.
To put it another way, he said, “If Austin Energy wanted to build or contract for a solar farm, they wouldn’t pay for it one year at a time, they would put it on the books as a long-term asset with 25 or more years of usable service.”
The Sierra Club, Public Citizen and Solar United Neighbors filed testimony claiming that the new formula ignores other resources provided by local solar customers, including avoided air pollution, benefits to the local economy and avoided distribution capacity costs. According to the document, they call the changes “unjust, unreasonable, and discriminatory” towards solar customers.
Austin Energy disagrees. Harvey said they ran an analysis using the proposed methodology and came out with a higher Value of Solar, at $.0991/kWh — compared to the analysis they ran using the other, future-looking methodology which came out to $.095/kWh. For context, the current value is $.097/kWh.
He said they would assess any market changes on a yearly basis, but wouldn’t necessarily change the rate every year.
“If it goes down, then we can talk about doing a rolling average and what that looks like,” he said.
Still, the possibility of variability concerns several consumer advocates, including Bill Oakey. He has worked on several utility rate cases over the years and has been following affordability issues in Austin since the 1980s. He sat on the Electric Utility Commission for several years and now writes a blog called Austin Affordability.com.
While he didn’t file testimony in this case, he believes the changes will make it more difficult for solar customers to plan ahead, which could discourage people from investing and committing to solar.
“The problem is that the rate is going to be variable, and so there is no guarantee of what it’s going to be,” Oakey told KXAN.
He said he’s concerned about anything that might hinder interest and accessibility for solar projects.
“The bottom line is that we need to be able to get from point A to point B, and just think about what point B might be 10 years from now, 15 years from now. We might have 15 to 20% of the population, both business and residential, using solar panels and storage batteries. If that were to happen, Austin Energy would need to learn to grow backwards,” Oakey explained.
He is critical of the reason behind Austin Energy’s larger proposed rate increase, urging the utility to eye a business plan that anticipates selling less power — as more customers conserve and trend toward energy-efficient patterns.
Harvey, however, insists the utility is not “defunding solar.”
“We’re not trying to cost-signal people to stop adopting solar. You know, quite the opposite. It’s the values going up, we’re intending to just pass through the benefits to the customers who are producing energy. But there can and probably will come a day where solar-hosting capacity is an issue that we’ll have to address. We’ll look to other utilities to find out what best practices are because there are other utilities that are further along the adoption curve than we are today.
According to the utility, another key piece of its proposal is to shift the recovery method for solar energy transactions with customers.
Currently, the Value of Solar expenses are recovered through the Power Supply Adjustment (PSA) charge. It has proposed recovering something called Societal Benefits through a different charge — the Customer Benefit Charge (CBC). The move would increase the CBC while decreasing the PSA, and Harvey said this “increases transparency” for customers.
“So, we’re breaking out the environmental values, we’re calling them societal benefits now,” he said. “By breaking those out, we’re able to show the public, you know how we come to that calculation.”
Harvey acknowledged some concerns about this shuffle, for example, the fact that certain commercial customers do not pay the CBC charge.
Testimony filed by Sierra Club, Public Citizen and Solar United Neighbors states, “the utility effectively creates an uneconomic subsidy in which customer [solar] generators are required to subsidize other non-solar customers (especially large users of electricity) and the utility. Whenever customer-generators are forced to subsidize other customers, they will be less likely to invest in solar generation, frustrating policy and economic goals for the community.”
Rábago voiced a different concern about this switch. He argues that by recovering the Societal Benefits through the CBC, the utility could “starve” other energy efficiency programs that are funded by the CBC.
“They are making those non-utility resources fight for themselves for an ever-decreasing slice of pie,” he said.
He is particularly alarmed by the third change proposed by Austin Energy, which involves adding a new, third value to the Value of Solar calculation, called the Policy Driven Incentive (PDI). This incentive would ultimately be provided to solar customers “for a fixed term and at a fixed amount” based on the customers’ power production and other factors — but would adjust annually — according to a written statement by utility officials.
Harvey explained it as “a proposal” to meet with the community and interested parties “to help inform our incentive solutions, so that we can meet policy-driven goals.
Those goals include having 200 megawatts of solar from Austin Energy customers — about twice as much as exists today, according to Harvey.
“We want to get there in the most effective and easy way possible for customers, and also the most cost-efficient way,” he said.
Rábago, however, argues that the need for an incentive is an indicator that the Value of Solar itself may not be compensating customers fairly. He told KXAN that was his intention, when he helped craft the original tariff.
“That having a price set on value would create the holy grail: a self-sustaining market. A market where installers could figure out what things were worth; they could make the sales proposition to customers; the customers would feel they were getting a reasonable payback — that their investment in the community, as well as of course themselves, was going to be respected for a long time.”
Sharp said, whatever the methodology, she hopes the utility chooses to prioritize customers’ goals.
“We’re just trying to do our part. Quit making it so darn hard. It’s ridiculous,” she said.