16 Nov Is Austin Energy’s new GM mischaracterizing the costs of clean electricity?

Disclaimers: i) I like Larry Weis – a lot. I feel he’s a straight shooter and a strong leader, with a refreshing approach to City governance and utility management. I think he’s a pro. ii) I don’t expect Larry or any other person to see the world exactly the way I do. iii) I don’t know everything there is to know about electricity. But my understanding is clean electricity is coming down in costs rapidly, while dirty’s going up. iv) Without dialogue and productive communication, there is no community. v) Larry and I are both drummers. BUT….

Report: Larry Weis/Austin Energy Affordability Presentation 11/15/10

Mr. Weis presented to The Electric Utlity Commission (EUC) last night, re: Austin Energy’s research on how its costs affect rate payers — aka "affordability." Research shown included comparisons of Austin’s bills to other markets in Texas in 2008, 2010, and a vision for how future utility costs might increase customer bills.

To me, Mr. Weis’s focal point was actually this: achieving Austin Energy’s renewable generation goals by 2021 will increase AE revenue needs about 35% over the next 10 years. Mr. Weis said "revenue increases" equate more or less directly to "customer bill increases." By comparison, Larry showed that over the last nine years (2000-2009) customer bill increases averaged out to aprox. 27%, or 2.7% per year. In order to achieve the goals of Austin Energy’s current Generation Plan, Austin’s bills might need to increase 3.5% each year (2011-2020).

My concern was Larry’s repeated characterization of "renewables" as increasing revenue needs. Not staff costs, debt costs, or any other costs.** There was no discussion of cutting costs to achieve climate protection and local clean job growth goals. Renewables got the blame. Mike Sloan, I’m sure, has many points of contrast here. It looks to me like Larry is ready to push back on Austin’s renewable energy goals.

There was no detail regarding Mr. Weis’s perspective on future cost trends in any of Austin’s electricity generation strategies: efficiency, wind, solar, nukes, coal, biomass, or gas. Just a blanket statement from the leader about renewables increasing costs… Additionally, Mr. Weis did not explain how he arrived at the 35% number.

##

Comparisons:

Austin’s customer classes were extremely competitive with the rest of the state in 2008 (not a surprise). In 2010 we’re in the top tier of competitiveness though no longer #1, relative to the rest of the state (also not a surprise). There was no discussion about future expectations.

Finally, and overall:

Back in May Austin Energy was tasked with creating an affordability matrix before beginning implementation of its Generation Plan. Larry said, "I don’t know what an Affordability Matrix is." This is unfortunately a familiar theme coming from AE staff, and that remark seemed acceptable to everyone on the EUC even after months of vigorous outreach from stakeholders to Mr. Weis and City Council about what the community wants from said matrix.

He did make it clear he plans to present affordability benchmarking updates and projections annually, similar to what was shown last night, which is a great step. These updates will include five year forecasts (i’m assuming of revenue needs and bill increases).

Still missing: 

There’s no annual affordability goal. Many in the community have joined together around the idea that AE should set an annual goal on customer bill increases: business likes predictability, consumers like limits on bill increases.

I think a key explanation as to why that piece is still missing is many inside the utility strongly believe AE cannot talk about financial goals until it finishes its current cost of service study and implements new rates. AE has not increased or redesigned its rates since 1994. Time to complete this research and redesign: 2 years (process begins in 2011).

Wrap Up: 

Mr. Weis was brought on during an exceptionally difficult time at the utility. On one hand, the institution is going into the red, not collecting enough revenue. On another, the energy industry is more volatile than ever and disruption is eminent, though unpredictable. On another, the utlity and the City have numerous systemic issues to mature out-of. And of course on another, there’s global warming, Austin’s dirty coal plant, and all the other health & environmental concerns related to electricity generation that need immediate remediation. All of these things must be dealt with while simultaneously "keeping the lights on" for our growing and bustling community.

Mr. Weis is a brilliant guy who’s taken on a heck of a task. As AE struggles back into the black it looks to me like smarter rate design is the priority AE will build its future on. With this in mind significant program changes might begin in 2013, unless stakeholders become more influential. 

##

**There was no discussion of cutting costs, nor discuss of any other possible solutions to new revenue needs. Glaringly, the biomass plant(s) were shown to be the most significant portion of new revenue needs and new electricity production. There was no recommendation about using or losing biomass.