Do you feel that Austin Energy needs a rate case at this time? Why or why not.
No, AE has failed to justify a rate increase. Also, the timing of this rate case is poor because beginning December 2010 AE no longer dispatches its own resources or sets its own prices. That is now done by ERCOT. In the rate case AE filed it theoretically used a 2009 test year but in fact it forecast expenses out into the future but failed to match revenues for the corresponding period. Instead AE adjusted 2009 revenues downward. This mis-match overstates the need for a rate increase by inflating expenses while understating revenues. When questioned about this AE stated it didn’t know what future revenues would be. However, we know revenues from sales to other utilities will not be zero because AE has made and will continue to make sales to other utilities from electricity generated by AE’s power plants in excess of what its own customers will use.
If AE feels it needs a rate increase it should re-file using 2011 as a test year. That would be one complete year under ERCOT; there would be no reason to mix projected expenses with understated revenues.
I also disagree with AE’s request to collect a fixed delivery charge from residential customers. AE has always collected the distribution costs on a per kwh basis. Shifting these costs to a fixed charge overcharges small use residential customers and undercharges large use residential customers. That is the opposite of giving correct pricing signals to encourage conservation.
AE is framing the rate case as “residential customers are not paying their fair share.” Do you agree with this as a broad statement of fact?
I do not think that the framing of the residential customers not playing their freight is accurate. AE has selected a production cost allocator that allocates more costs to residential customers. AE has used an allocation method that is not used at the PUC. The residential rate advisor, who was hired by AE in this case, has calculated that the method requested by AE shifts 20% more costs to residentials than the BIP method he recommends. AE chose a method which is slanted towards giving large commercial users the best deal. There are other, better ways that are more equitable. I recommend the BIP method recommended by the residential rate advisor. In the alternative, the 12CP model would also be a fairer approach.
The AE proposal shifts costs away from large commercial customers to residential, small commercial and non-profit customers such as churches and schools. AE’s Dec 19th filing shows that 89% of this rate increase falls on residential customers.
I am also concerned about the 16% increase in the fuel charge that AE recently announced it was implementing effective January 2012. AE did not seek approval. Apparently there is no process and no oversight of AE’s increasing its fuel factor. This needs to be changed. There is no transparency in their fuel factor change. AE provided no calculations, reasons, need, etc.
Bear in mind that natural gas prices are the lowest they have been in years. The price of gas is commonly used as a proxy for fuel costs. So why is the fuel factor going up? The broad brush reasons given in the memo were:
– The outage at Fayette (one of the cheapest resources) in August;
– An extended outage at STP right now which is still out;
– The Biomass facility; and
– The Webberville solar project.
These four reasons were mentioned but no dollar-amounts given. Why are there outages? Are there any management issues? I have questioned the process to the Council. AE needs to answer to City Council or their representatives and needs to actually prove their need for an increase in the fuel factor. Simply announcing an increase is unacceptable.
Do you have any other concerns?
I am very concerned that Austin Energy is over-reaching so much on this rate case that they will bring further scrutiny from the Legislature in terms of de-regulating AE. A 16% fuel increase plus the rate increase AE is requesting will cause rate shock. Although AE talks about this rate increase as 12% average increase, that is deceptive. Some customers will receive rate increases of over 30% while other classes will receive rate decreases. The types of customers hurt the most will be those who conserve and are low use customers. This outcome is attributable to the fixed charges and increased customer charge. Also customers like churches with varying usage will be hurt by this proposal. Those benefiting are the highest use customers. This is the opposite of the goal of conservation that the city has adopted.
AE has14 special contract rates – below cost rates – for the largest commercial customers. AE is losing $20 to $30 million annually on these customers. The contracts end in 2015. And at that time AE has said they will bring them up to cost.
I would not like to see AE deregulated. This is a valuable asset to the city. The city makes significant money from AE. An increase really isn’t justified. I believe AE’s request is over reaching. Drawing this kind of legislative scrutiny is a risk that should be taken seriously.
If you were on the council what would you do with this proposal?
What I’d like to see the Council members do is to tell Austin Energy to re-file using an actual 2011 test year. I believe the Council should direct AE to use the BIP method to allocate production costs. In the alternative, Council could direct AE to use the 12 CP method. Also, I think Council should tell AE it will not adopt a fixed delivery charge or increase the customer charge. I would like to see the Council tell AE to tighten its belt and refile a simpler and better proposal using the 2011 actual expenses and revenue.
Barbara Day
Barbara Day is Councilmember Kathy Tovo’s new appointee to the EUC. She practiced regulated utility law for more than 25 years and has experience with hundreds of rate cases. She is currently retired and serves as a private citizen advocate.
