Guest Post – from Al Braden
Mayor Steve Adler brought together solar supporters, Council Members, industrial and business interests, rate payer advocates, environmentalists and Austin Energy staff on a compromise resolution adding 600 MW of West Texas utility solar to the Austin portfolio. Included are 450 MW of Power Purchase Agreements (PPA’s) by the end of 2016 and 150 MW more to be owned by the city by 2019. The vote on the Mayor’s amendment at the October 15th Council meeting was 8-2-1 included 288 MW just approved on October 1st.
This decision represents the confluence of many threads:
• Austin’s 2014 Generation Task Force recommended closing Austin’s aging Decker natural gas powered steam boilers and replacing them with 600 MW solar.
• The Austin Energy Generation Plan adopted in December 2014 incorporated the goal for 600 MW additional utility scale solar to be installed in 200 MW blocks to be installed when affordable – by or before 2025 – in addition to the 30 MW Webberville Plant already operational and the 150 MW solar PPA already under construction in West Texas by Recurrent Energy.
• The Electric Utility Commission (EUC), led by Michael Osborne, sensed a real market opportunity in early 2015 and pressed Austin Energy to obtain solar bids.
• Solar prices are at their lowest level ever. Of the bids received, the lowest batch was reported to be about 3.8¢ per KWH and the second batch averaged 4.2¢ per KWH. These beat the reported 4.9¢ purchased just a year ago in the Recurrent project and compare very favorably to the Austin Energy’s average cost of generation in the 4.6¢ to 4.8¢ range.
• To qualify for a 30% federal investment tax credit (ITC), solar installations must be completed by 2016.
• Councilors and citizens groups continued to push for affordable renewable energy that could reduce greenhouse gas emissions and ozone while provide a hedge against future gas prices hikes.
Council Member Delia Garza led the charge with a resolution for 550 MW of solar (EUC’s recommendation) to be contracted from the best available bids. That resolution had strong support from Mayor ProTem Tovo and Council Members Pool, Kitchen and Casar. Council Members Houston, Renteria and Troxclair support solar but expressed their concerns about anything that would impact rates. Council Member Zimmerman continues to express reservations about renewable energy.
• Council Member Gallo, Chair of the Austin Energy Utility Oversight Committee wants Austin to own it’s solar plants so that, as she says, future generations will get the benefit of free energy when the plants are paid for.
• Many Industrial and large commercial users support renewable energy and are Green Choice customers but were wary of anything that would raise rates after a recent round of Power Supply Adjustment (PSA) driven rate increases caused by gas prices.
From these threads, Adler worked through many meetings to find the sweet spot for agreement – ultimately a PSA increase of 1% or less. Since the solar PPA contracts are at fixed rates, they can be anticipated to hold down rates after a couple years as market rates increase – especially with the projected increases in natural gas, which drives the Texas electric market.
To increase expert citizen input, both the Electric Utility Commission (EUC) and Resource Management Commission (RMC) were briefed on the actual contract details in executive session. As previously reported, the EUC, led by Michael Osborne, recommended that the best 250 MW in additional contracts be approved for a total of 550 MW under the 30% ITC and to be completed by 2016. RMC rallied around a proposal by Commissioner Cyrus Reed, who recommended that contracts be approved under a 1% PSA cap. That figure was later negotiated with developers to be 450 MW total. The balance of the 600 MW was pushed out 3 years to allow Austin Energy to build and own 150 MW solar plant in West Texas. That ownership appealed to Council Member Gallo, while the 1% cap gave confidence to many that the short-term rate impact would be minimal – and within city guidelines.
Consideration of the plan began with Council Member Garza’s motion for 550 MW – then amended by Adler. His amendment:
“To move forward with a plan to procure 400 to 450 MW of utility scale solar generation now and maintain an approximate 1% cap, authorize the City Manager to negotiate and execute additional contracts for up to 450 MW inclusive of the 288 MW recently authorized and timely solicit bids to build or purchase at least 150 MW to be online by the end of 2019, consistent with our values, risks and revenue impacts.”
To support his compromise, Adler led a 20-minute discussion of his views on energy decisions going forward, the need for better understanding of the ‘truths’ and better collaboration to in reaching citywide agreements on our energy future. I transcribe his remarks here:
Mayor Adler, “I want to explain what I’ve done here. This debate with respect to energy and rates is a very challenging task in this council.
Our values as a city and our heritage are at issue.
Also difficult to find a common set of truths. We have a lot of people give us a different set of facts, which we should believe to move foreword. It seems as if the facts should be susceptible of objective determination. Thus far, that has eluded us in some pretty crucial elements. My hope is that coming out of this process we can have some kind of ‘truth finding’ process.
For example, Michael Osborne today, who I respect, brought up one of those issues – and it’s whether we run our gas plants out of merit. If you believe we run our gas plants out of merit, you can believe there is a link between how much we buy solar and how much we run our gas plants. If you don’t believe we run our gas plants out of merit, but only run our gas plants in merit, then the decision to buy solar is an independent variable and not associated with the gas plant. We’d make a decision to run a gas plant only if it makes money. If it makes money, we run it. If it doesn’t’ make money, we wouldn’t run it. Whether we bought solar would not impact that question.
I put that on a list of multiple issues that we need to find out what are the truths. And where the truths are in dispute, we can point to why the truths are in dispute. I have an amendment that I believe gets us to the best consensus of our community’s minds and talents with respect to the question that is before us.
I argued a couple weeks ago that we shouldn’t be concerned with megawatt totals, except aspirationally in terms of goals because the megawatt totals in any specific incident would be dependent on what the specific terms would be. We should focus on values, risk and on revenue.
Recognizing that solar has a value to this city – whether solar would immediately start making money, or whether it would be out in the future – we had our professional staff tell us. I asked Mr. Weis if he was confident signing contracts if the impact on revenue did not exceed 1% for any of the classes of users. He stepped forward and said that he was comfortable with that.
That started again a community conversation because people are on both sides of that issue. Also talked to CCARE and other users who said they would no oppose going to a 1% limit reflecting Austin’s values. It’s not certain that rates will go up 1%. It’s entirely possible in the next few years that bills will go down because of what’s happening and what’s happening with solar. That’s a percent increase over whatever it would have been but for this action. So I hope it’s not discussed or reported as a 1% increase because it very probably may not be.
I was pleased to see that the Sierra Club has come in looking at the various options – recognizing that there were more options that could be accepted – but the one they pointed at was the same one that kept us with that same 1% cap. That same 1% cap was endorsed by the Resource Management Commission in the work that they did as well. That seems to be the number that both sides look at and say that is the best working of our values and our potential and our risk on rates.
Consistent with that, I asked staff to go back, because two weeks ago, that break fell at the 288 MW level. We sent our staff back to negotiate and we said, “See if you can negotiate harder, do whatever magic you can do and see how much additional solar you can get and keep us at or below that cap.”
For most classes of users, it falls materially below that 1%. That have come back with contracts – and much to our surprise – we were able to get additional contracts on top of the record breaking 288 MW that would keep us below that cap. Our professional staff has found another 150 MW that fit within that parameter. Consistent with conversations we had with CCARE, conversations we had with our staff, that gets to that number [450 MW].
The narrow decision is whether we buy this plan – there’s a potential 1% increase.
This decision does not impact whether we buy a gas plant as has been proposed, and studied by Navigant. This decision is an independent variable to that.
Whether or not we buy a gas plant – as I sit on the dais – depends on whether or not it meets our values as a city and whether we make money or loose money with the building of a plant. As I sit here now, I tell you that I am suspect, based on the numbers I’ve seen, that someone could build a gas plant – and capitalize it – and still make money. But I’m not prejudging the question, I’ll wait till I see the report that’s coming back and then we’ll have that conversation.
This does also not decide the question of whether we use our gas plants out of merit – or not – again not an issue that is before us.
It is also not the issue of whether we’re going to buy more solar in the future – because clearly we are. We are now reaching a place where solar is becoming less expensive. It’s becoming the way of the future. It’s true that Mr. Buffett has recognized this and gone out and bought solar. I would point out that Mr. Buffett is only buying 1/3rd of the amount that we would be buying if we entered into this contract today. So we are outdoing Mr. Buffett!
We are clearly leading that charge. I have asked staff timely to go out and get bids so that by the end of 2018 [amended to 2019] we will have gone out and constructed and built our own plant. That would allow us to have the conversation about whether we build or whether we purchase. I think that’s really important. If you look at the chart that Mr. Robbins gave us – those lines were the same – buying right now with the 30% or building our own [later].
That’s a real important difference between those two charts. They come out at the same place – but the most significant difference to me is if we buy that plant and we own it, the very top part of that bar graph was the money that we had available for transfer or to pay our rate payers as dividends and our citizens as owners of that plant. And I believe that in the future the money we can have to pay dividends or transfers to the staff is critical. If you purchase the power, that is something that goes to those owners. If we buy it ourselves, we can pay to ourselves. I think we’re going to find that to be critically important.
And then finally, I look at how this fits within the context of the conversations we’re having with rate payers across the city in all classes. This does not decide that question. This is a potential increase over one component. It’s relatively small compared to what we ask our rate payers to pay. We have a much larger issue to tackle and that’s going to be the whole rate paying issue. We’re not deciding that today, but it is looming large.
We have classes of rate payers who can’t pay their bills and that is a problem. We have large commercial and industrial customers who indicate to us that by their calculations, their rates are going up by 30% over last year and that the percentage of rates that they pay compared to similarly placed users are extraordinarily high and as such that we are not meeting our affordability goals of being in the bottom 50% or increasing no more than 2%.
We’re going to have to address that as part of this year and this rate case. Which is why I’m recommending a 1% cap at this point. But we’re going to have to look at cutting costs, cutting expense and improving efficiencies as part of the rate case that we’re about to go through that looms large.
And finally, I think we’ve gotten a clear indication from the legislature that this is not a question that we’re studying ourselves, but it is a question that is being looked at in a larger place and I think that we always need to be aware that one of the best ways that we have for us to further our city’s values is for us to own our electric utility. We dodged a bullet in this past legislative session and it is important that we maintain control over out utility. And I believe that it is important to say that we came in with a resolution that was directed by our professional staff but also leaders of the environmental community and members of the business community – that we are being responsive to their concerns that they raise at the state level.
So for all of those reasons, I make this motion, for one of the ways I believe for us to lower rates is to follow our professional staff’s advice, that while there may be a short term rate increase, that we will be making money form these two purchases today. Even if we don’t make the money is years 2 through 4, in years 4 to 25 this is one of the ways we will be lowering rates for all our classes of users.
I think we need to take a second with today’s vote to recognize that with the 150 MW in the Recurrent deal that’s yet to be built, and the 288 MW already approved – and with the 140 or 150 MW that we would be approving by this amendment, we will have 3 times the amount of solar installed by the rest of the state in 2014 – double the capacity in the state at the end of last year – and enables Austin to lead for sustainability and renewable energy sources in a way that is responsible.”
The vote: Eight Hands Up For Solar!
Community environmental activists surround Brandi Clark Burton, Mayor Adler’s Senior Policy Advisor who played such an instrumental role in bringing the community together for this historic resolution.
