By Bill Oakey and Robin Rather, Jan. 12, 2012.
What on earth possessed Austin Energy to believe it could magically talk the Council into a huge rate increase that for the first time in decades puts a lopsided rate burden on poor and middle class residential customers, small businesses, churches and schools while letting its largest industrial customers skate?
Do the AE executives, with their ridiculously convoluted powerpoint charts think they are “ the smartest guys in the room” a la ENRON and that nobody else understands what they are doing as they kiss off important consumer protection and affordable rates in order to subsidize their largest corporate accounts?
Surely this Council will have nothing to do with such treachery. Or will it? This Thursday, January 12th at 6pm, the Council will take up the matter and reveal whether it has the backbone to reject the proposal in total or will rubberstamp themselves into infamy.
Before the council votes on this or any other rate increase proposal, AE should be asked to answer the following fundamental questions:
1. What exactly is causing AE’s “sudden” revenue shortfall and why didn’t its management pro-actively seek ways to prevent it altogether or nip it in the bud? Natural gas prices are at their lowest point ever. Wind prices are at their lowest prices ever. Last year was the hottest year on record meaning AE should have cleaned up in revenues. So what is the core problem leading to ask for an enormous rate increase? Is it …
a) Overly generous special rate deals with its largest industrial customers who are locked into money-losing sweetheart contracts for several more years and are only paying a fraction of their actual cost?
b) “Hedging” on fuel costs and losing their shirt?
c) Huge cost overruns on scrubbers for the toxic, water hogging Fayette coal plant that it should get out of anyway?
d) Sky-high costs with no offsetting revenue for the mysterious “Chiller Districts”?
e) Operational malfunctions at Fayette and STP?
f) Poor Management Decisions in general and especially poor fiscal discipline?
g) A dysfunctional organizational culture that simply doesn’t know how to keep costs and rates low anymore?
or is it All of the Above?
Some will automatically blame Austin Energy’s renewable energy strategy but since that currently accounts for such a small portion of the AE fuel mix there is no way that is the core of this sizeable problem. The much larger issues of expensive investment in fossil fuel sources, a lack of financial discipline and runaway operational costs are the more likely culprits but no one knows for sure because Austin Energy is the least transparent agency in town.
2. Why hasn’t AE aligned its costs with revenues? Why hasn’t it substantially CUT BACK its costs instead of just “assuming” it can increase its prices willy-nilly? AE has given this question lip service in public meetings but not actually shown any substantial details.
3. Why can’t AE live within the 2% per year rate increase cap that the Council already approved last year? Has this kind of predictable and equitable rate strategy been fully explored?
4. Why isn’t there any serious, detailed public analysis into AE’s sudden Christmas “lump of coal” increase in its fuel charge — netting it an “instant” $60 million dollars for no clearly defined reason?
5. Why didn’t AE release the full results of a Navigant report, allegedly “copyrighted”, ordered by City Manager Marc Ott in 2010? What conclusions about AE structural issues, management-level decision-making and fiscal operations did the report call into question?
6. What progress has been made on AE’s need to re-invent its business model to ensure its viability during the anticipated innovation and decentralization of energy, which has been compared to the innovation that happened after mainframe computers gave way to personal computers? What is AE’s long-term 21st century vision and how does this rate increase help strengthen the utility AND the community in the coming years?
We urge the Council-members to focus on these “big picture” questions while insisting that AE dramatically streamline its own costs before it will even consider any rate increase. The Council should quickly and completely nix this approach and force AE to come back with a plan that respects its own ratepayers and that actually makes economic, moral and political sense.
BELT TIGHTENING? This charts shows how Austin Energy’s operational costs skyrocketed just as the economy was tanking. Instead of cutting back and aligning costs to revenues, they spent their reserves down to unprecedented levels (dashed orange line below). Was that necessary? Was that smart? And what alternatives were considered so that this rate hike could be minimized?
SOURCE: Austin Energy, Final Recommendation on Electric Rates, Dec. 14, 2011, page 9.
Bill Oakey
Bill Oakey is a consumer advocate, former member of the City Electric Utility Commission, and writer for the blog, “Affordable Energy for Austin.”
Robin Rather
Rather is a longtime Austin environmentalist and CEO of Collective Strength, a research and planning firm.
