Austin Energy Proposes to Cut Rates Overall by $17M Annually

by | Jan 7, 2016

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In the first public step of a year-long rate review process, the Austin, Texas-owned electric utility – Austin Energy, serving nearly 450,000 ratepayers – on December 15 said it could cut its revenues by $17 million a year without reductions to reliability.

That would equal a 2.7 percent rate decrease, the utility told the Austin City Council, which will consider the case by mid-summer 2016 and is likely to impose new rates by next fall.

This step kicks off what we believe will be a transparent, open process for reviewing the city’s electric utility revenue needs,” commented Austin City Manager Marc Ott.

Ups and downs

“We’re on an unsustainable path,” warned Mark Dreyfus, the director of Regulatory Affairs and Government Affairs at the utility, at the city council meeting. He said there is now a $56 million gap between what residential customers are paying in their electric bills and what it actually costs to deliver service to them, according to a report in the Austin American-Statesman.

What has gone awry? The utility said that it relies on hot weather and peak usage to recover the costs of its infrastructure. However homeowner usage has dropped in recent years – from 964 kilowatt-hours (kWh) a month in 2009, to about 900 kWh/month last year.

Therefore, when the utility’s budget was last reviewed in 2012, its reserves had been depleted, and the council approved an extra $71 million a year from ratepayers to balance the books.

But, as it turned out, that amount was too much, according to Austin Energy CFO Mark Dombroski, who will become the utility’s interim general manager on January 1.

“We are seeing record growth in population and employment,” he explained. “That both adds costs and increases the number of people among whom we can spread fixed costs of running a utility. It’s a balancing act, but all told, [now] we can afford to reduce rate revenues by $17 million and meet council goals.”

Outgoing Austin Energy General Manager Larry Weis said he was pleased that the utility had recovered financially enough in the past five years to begin to feather back the rate increase that was necessary in 2012, when he first arrived in Austin. “Our financial reserves are recovering,” said Weis, who is leaving for a similar position in Seattle, Washington.

Redistributing the wealth

City council policy calls for a review of rates every five years.  The 2012 rate review used cost information from 2009, so Austin Energy will use information from 2014 as the basis for developing new rates. The 2016 rate review will take into account the utility’s increased financial stability as well as other fundamental changes in Austin Energy’s operating environment.

A city council appointed 11-member Electric Utility Commission will provide policy recommendations based on public input. The Electric Utility Commission will:

  • Provide opportunities for members of the public to offer opinions on the rate review process, and the commission will synthesize those thoughts for the City Council.
  • Review Austin Energy’s proposal, the Impartial Hearing Examiner’s recommendation, and council’s draft rate ordinance, and will provide recommendations to the Austin City Council.

Interested community members can participate in the process in a formal or informal way. An independent representative for residential and small business customers was to have been appointed in December, but that process has been delayed.

Separate from the rate-setting discussion next year is the fuel charge – which is calculated on an annual basis and comprises the actual cost of fuel, such as coal or natural gas, as well as any profits or losses from selling the power it generates to the Electric Reliability Council of Texas (ERCOT). According to the Austin American-Statesman, city officials said they are forecasting the fuel charge to go down next year, mostly due to low gas prices.

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