09 Jan Electric Rate Public Hearing – A Primer

Austin Electric Rates 101

At 6 PM this Thursday, January 12, at City Hall Chambers, there will be an extremely important public hearing on proposed increases to rates for Austin's municipal electric utility, Austin Energy.  The proposal has direct impacts on the affordability of this city and the future of clean energy in Austin.  

I urge you to attend and speak out against this outrageous proposal, as well as support increased funding for Austin's clean energy programs that promote energy efficiency and conservation.

City Hall Chamber is at 301 W. 2nd Street.  Free parking for City Council meetings is available in the  garage below.  Enter the garage from the entrance on Lavaca Street.

The Basics

Electric rate cases generally tend to be slugfests.  Huge amounts of money are at stake, and various constituencies often fight each other over how increases are allocated and the programs that are funded.  There are often 4 battles going on simultaneously.

1. The Class War – Electric rates are apportioned between rate classes (Residential, Small Commercial, Large Commercial, Industrial, etc.).  In almost all electric utilities, large industrial customers pay less per kilowatt hour than small residential customers.  The question is, how much more?  Various rate making methods allocate greater and lesser costs to each class.

In Austin Energy's proposal, the utility has chosen a rate making method that is very unfriendly to residential customers.  

$71 million (56%) of the proposed $127 million total rate increase is proposed to be paid for by the Residential class, even though residential customers use only about 35% of overall consumption.   Residential customers will see an increase of about 20% in their bill to pay for this.

2. Disputes of Costs Within Classes – Some utilities have "progressive" rate structures that are favorable to low-income people and encourage conservation.  In this approach, the more you use, the more you pay per kilowatt hour.  Currently, Austin has a mildly progressive rate structure.

Other utilities have a "regressive" rate structure that rewards volume purchases.  In this approach, the more you use, the less you pay per kilowatt hour.  

Energy use generally tracks income.  The more you earn, the more you use.  The analysis in this chart matches Census income by zip code with average electric consumption by zip code.  The highest quarter of customers make $88,000 per household.  They use almost twice as much electricity as customers in the lowest quarter, who make only $37,000 in income.

In Austin Energy's rate increase proposal, it has switched to a regressive rate.  The utility proposes huge fixed monthly charges whether or not you use one watt of power.  Currently the customer charge is $6 per month.  The proposal will take it to $22 per month.  Almost all of the proposed $71 million rate increase in the residential sector will be paid for by this increased monthly customer charge.  

Though there are higher kilowatt hour charges for the very highest users in the current rate proposal, these prices pale compared to what they could be if the $22 customer charge were reallocated.

Currently Austin's monthly customer fee is in line with the other large municipal utilities in Texas.  The new proposal will make Austin the highest by a huge margin.

3. All Classes Against the Utility – Advocates for different rate classes who normally battle each other over how a proposed rate increase will be allocated will often agree to oppose the overall amount of the increase.

Utilities often pad what they ask for hoping to get what they really need in negotiations.  In Austin Energy's proposal, more than half of the money in the rate increase has been disputed by the utility's opponents. This unneeded money is seen in overstated financial reserves, overcollection of debt, and transfers to fund economic development, which is not a function related to providing electricity.

4. Funding for Clean Energy and Low-Income Households

Many utilities have "Community Benefit Charges"  that fund energy efficiency programs, renewable energy, and bill payment assistance for the poor.  Questions that arise in rates and budgets include how adequate the funding is, and how it will be collected.

Austin has one of the longest running energy efficiency programs in the country, starting in 1982.  Austin also had one of the first photovoltaic rebate programs in the U.S., beginning in 2004.  In recent years, there has been concern among environmentalists that funding for these program have not kept up with demand.  

In addition, there is concern about an Austin Energy proposal to break these program costs out as line items on the bill.  This discriminates against green programs by calling them out as atypical and not part of the regular cost of the utility.  While the majority of Austin's population is generally supportive of these programs, during times of economic stress, fiscal conservatives will seize on these line-item charges as a unnecessary and costly.

To give you a good example of the problems with this approach, Austin Energy has 131 staff members who make over $100,000 per year.  If this money was apportioned by the volume, the average Austin residential customer would pay $1.27 per month for their collective salaries.  Having a line item for "Executive Salaries" would create resentment from a certain percentage of the population.  And tellingly, you don't see Austin Energy proposing this as a line item on the bill.  Why should environmental programs be treated any differently?

Customer assistance programs that write down a certain amount of bills for low income customers have historically been underfunded.  And Austin Energy''s rate increase proposal also calls them out as a line item on the bill.

Who's on Your Side

In rate cases of this kind, it is typical for a Consumer Advocate for the Residential and Small Commercial classes to be hired to independently assess the merits of a proposal.  It is assumed that large Commercial and Industrial class customers can afford money to pay their own experts, but small customers need a publicly funded advocate.  

Unfortunately for us, the utility hired a " Rate Advisor" that ultimately works for them.  There is no independence, and the rate process has suffered as a result.  

Instead, the people supporting fair rates and Community Benefit Charges are totally on the outside.  The environmental and consumer groups that are the real Consumer Advocates are the Austin Tenants Council, Gray Panthers of Texas, Public Citizen, Sierra Club, Texas Legal Services Center. and Texas ROSE (Ratepayers Organization to Save Energy).  

Be Heard

We urge you to speak up for fair rates and green programs at this Thursday's Council meeting.  Remember: 6 PM at Council Chambers.  

Austinites have nationally known environmental programs because of involved citizens who know that Democracy is not a spectator's sport.  

Light food will be provided for hearing attendees.

Paul Robbins is an environmental activist and consumer advocate.  He has been active in energy issues since 1977.

image by John Dolley