Here’s a look at the last 3 elected Mayors of Austin on 3 metrics for managing the City’s electric utility (Austin Energy) over the course of city budgets they were responsible for, from the time they arrived on the job until they left/leave (Voters will decide May 12 if they want Lee another 3 years).

It is clear that during the tenure of both Kirk Watson and Will Wynn, Austin’s electric rates improved relative to the Texas average, extra savings were socked away into utility reserve accounts, and renewable energy installations ramped up dramatically.

The trends under Lee Leffingwell show sharply different trends to date.

Some of the reasons for this are beyond Lee’s control (e.g. falling natural gas prices), but some items are controllable (e.g. Austin Energy’s priorities for spending) and certainly how the City communicates with the public on these important issues is a responsibility of the Mayor.

If interested in how the numbers above were calculated, review the links below:

Improvement in Electric Rate: Austin -vs-Texas

Money added to AE Financial Reserves

How much Renewable Energy installations Grew

Reviewing the details shows that FY2007 was a particularly good year for Austin Energy. Starting in 2008 (3 months after the start of Austin’s 2008 fiscal year) Marc Ott took over as City Manager. Since that time circumstances for Austin have changed, both in the economy, and how the city has responded.

Austin has faced tough times before. Mayor Kirk Watson & City Manager Jesus Garza faced challenges in dealing with the movement toward electric deregulation in the late 1990′s and the tech crash in the early 2000′s. Austin Energy underwent significant austerity measures at that time and survived those events stronger than before.

At the beginning of the 2008 economic crash, Austin Energy was in the midst of an enormous spending spree — literally billions committed toward spending on fuel and hedging contracts, coal plant upgrades, new gas plants, infrastructure like a new call center and billing system, and a $2.3 Billion “wood burner”contract widely opposed in the community including by Leffingwell mayoral opponent Brigid Shea (letter from 2008  is attached) .

The following summary compares Will Wynn’s last city budget to the latest by Lee Leffingwell.   As the changes between Austin Energy’s 2012 and 2009 budgets show, while overall utility spending has continued at a very high level, selective cuts have been made, primarily to programs which reduce utility revenue by reducing customer’s bills.

Energy Efficiency and Rooftop Solar appear to be lower priorities for Austin now than in the past.

While past accomplishments have deservedly earned Austin a reputation among the greenest of cities, what’s the straight scoop about the City’s current standing and trajectory on being green?

The following is a lengthy email exchange with the Austin Environmental Democrats regarding claims made in their endorsement flyer.

RESPONSE TO AUSTIN ENVIRONMENTAL DEMOCRATS

Dear Ted, Mary Ann and Austin Environmental Democrats:

Yesterday I received a mailer from your group endorsing Lee for Mayor (attached). I appreciate your group’s mission and your efforts to encourage Austinites to vote. However, I believe several of the bullets on the mailer are inaccurate. Voters should support any candidate they choose, but endorsing organizations should strive to be as factual as possible.

Thank you for replying and encouraging media review of your organization’s statements.

I have reviewed the back up for your statements. A lot of the problem stems from outdated info and the lag factor in current realities impacting a community’s reputation. It is true that Austin historically has been a leader in renewable energy and has earned a national reputation for green power leadership, but Austin’s leadership has declined substantially in recent years. I am copying a few leaders in the environmental community who may be able to weigh in on the accuracy of your claims and the accuracy of my comments.

I am a former Austin Energy employee, renewable energy consultant for 25 years & have chaired and served on City Task Forces related to Austin Energy. Comments re: the mailer are below.

“Austin will be the biggest city in the country to divest from a municipally-owned coal plant”
This statement seems “pants on fire” wrong for multiple reasons.

(1) Austin has taken no definitive action to divest from coal; Council has simply passed a resolution (attached) to study issues related to a possible future commitment to divest.

(2) San Antonio announced in 2011 they will close their Deely coal plant by 2018… San Antonio is a “bigger city” than Austin and has already taken definitive action to close “a municipally-owned coal plant”

(3) While divesting from Fayette is contentious locally (because of perceptions it is expensive to do so), it is not at all uncommon across the U.S. to divest from coal plants. More than 250 coal-fired generating units across the country are scheduled to retire — most are owned by big private utilities retiring coal plants primarily for economic reasons. This list of coal plant closures also shows San Antonio’s Deely plant.

(4) Underscoring that quitting coal can be in Austin’s economic best interest, a few related items:

• Coal Use in ERCOT down 30% in January – Due to lower marginal costs, wind, solar & efficient gas plants (while gas fuel is cheap) all dispatch before old coal plants.
• San Marcos contracts for Wind & Gas to LOWER future electric bills San Marcos is a wholesale customer of LCRA (which has a lot of coal in its mix) that recently signed a supplemental contract with NextEra that is expected to reduce San Marcos customers’ electric bills 1% to 3.5%. NextEra’s power plant fleet in Texas is 54% gas & 46% wind with no “baseload” coal or nuclear resources.

“Austin Energy is the #1 seller of green power in the nation”
This is incorrect, but often misquoted. There are many entities that sell far more green power than Austin both in regulated & de-regulated electric markets across the U.S.

Even when we focus on the sub-set of national green power sales that are VOLUNTARY and use TEXAS renewable resources, the most recent rankings (for 2009) show Austin Energy ranked # 5.

Texas Voluntary Renewable Energy for 2009 (MWh)

#1 CPS Energy (San Antonio) – 1,652,436
#2 FPL Energy (NextEra) – 1,104,836
#3 Community Energy – 1,102,046
#4 Reliant Energy – 954,889
#5 Austin Energy – 817,212
SOURCE: ERCOT REC Report data released May, 2011.

For many years, Austin Energy did rank #1 in Texas on this list (e.g. 2005-2007) but it has dropped in more recent years.

The essential caveats for Austin Energy’s claim to be #1 are that the comparison be limited to a “voluntary retail rate” offered by a “regulated utility”. In that category Austin Energy has a string of nine consecutive #1 national rankings. However, that run is likely to end later this month when the 2011 rankings are released by NREL, since Austin Energy kicked a lot of customers off GreenChoice last year (I was one of them).

The GreenChoice program is a bellwether for changes in the City’s attitudes on environmental policy. For years Austin’s GreenChoice program offered customers an outstanding value (GreenChoice was lower cost than AE’s conventional electric rate & offered the best customer value among all green rates in the country). Then about 2008 there were severe changes in the pricing structure for GreenChoice that have made it among the most expensive electric rate offerings in Texas. Go here for detail on GreenChoice.

One of the perverse aspects of Austin Energy’s rate proposal is that GreenChoice residential customers must pay for upgrades to extend the life of the Fayette Coal plant the same as customers who depend on coal to supply their power (even if a GreenChoice customer doesn’t want to extend the life of the Fayette coal plant, they don’t have a choice about paying for it.)

“Webberville is one of nation’s largest solar farms”
True. This was an outgrowth of a 2003 action (when Will Wynn was mayor) establishing a “Goal for Solar” of 30 MW by 2010. The project came on a little late to satisfy the 2010 goal, and because of the delay, Austin could have re-negotiated or re-bid a more competitive solar price, at least $50 million cheaper than the $250 million deal. (Note CPS Energy is completing a 30 MW solar project now with the same solar developer (Sun Edison) reported to be at a price about 10% to 20% cheaper than Austin’s Webberville project.)

“City Buildings are powered 100% by Clean Energy”
True. This was a recommendation dating back to the 1998 Sustainable Energy Task Force that I chaired. While it is good the City is leading by example, it would have been better had the City acted sooner before the GreenChoice price premium was modified to be expensive.

Biomass: a major difference between Lee & Brigid
My observation from closely tracking Austin Energy — both as a member of the 2009 Generation Resource Planning Task Force and since — is that Lee has largely deferred to city staff on electric issues and has endorsed more spending on smokestack technologies (coal plant upgrades, new gas plants, extensive gas fuel hedging, biomass) rather than on more cost effective efficiency & wind power (efficiency incentive funding is down 16% since Lee became mayor & Austin missed the scheduled addition of 200 MW of wind power last year and ended up having to buy a lot of very expensive replacement power from the ERCOT market in 2011)

My perception is that Lee thinks clean energy is more expensive than dirty energy and that “environment” and “economic development” are competing city interests. I think Brigid has a much better handle than Lee on utility issues in general, and especially on how affordability, environment, and economic growth can align together in Austin.

The 2008 “wood burner” contract illustrates this difference well, as Brigid was among the group of environmental leaders that tried to talk Lee & Council out of that $2.3 Billion deal (letter is attached), but to no avail.

Thank you for your interest in this discussion. Hopefully we can find agreement on what constitutes accurate information on these issues.

Mike Sloan
512-731-8740 (m)

EMAIL FROM AUSTIN ENVIRONMENTAL DEMOCRATS TO MEDIA

On 5/6/12 1:24 PM, “Austin Environmental Democrats” wrote:

Dear Politicfact Editor,
Gardner Selby’s auto response recommended I forward this to the politifact email address.

Dear Michael and Adam,
As I am doing this, I want to share the email chain below with you as well. Austin Environmental Democrats did a postcard mailing Friday supporting Mayor Leffingwell and the other incumbents. They were all endorsed by our membership on April 3rd.

We believe that Austin has an enviable environmental record and is a leader in the areas discussed below.

I am President of the Austin Environmental Democrats (AED). Mary Ann Neely is our Treasurer. AED is a chapter of Texas Environmental Democrats and was restarted this spring after being dormant for several years. The organizing committee includes Ken Flippen, Celia Isreal, Austin Adams, Jeb Boyt. AED quickly garnered more than 100 dues paying members and had its first monthly meeting yesterday. Council Member Chris Riley was our speaker. We intend AED to be a strong voice for environmental protection and leadership in Austin and in the Democratic Party. And we believe reelecting the current Mayor and Council incumbents is the best way to continue Austin’s environmental leadership.

Feel free to contact me if you have any questions, at austinenvirodems@gmail.com but please copy ted@legaldigest.com . or call me at 512-657-5414.

Best, Ted Siff

On Sun, May 6, 2012 at 12:09 PM, Ted Siff wrote:
Hello Mike,

Thanks for contacting us regarding our AED mailer, and we’d welcome the opportunity to get fact-checked in the Statesman. We believe the Mayor & City Council have a strong environmental record, and we’d welcome any additional media attention. I’m including Gardner Selby in this whole email chain to hopefully interest him in this story.

Overall, we believe this report from Sustain Lane backs up our claim that Austin is the Clean Energy Capital of the World. http://www.sustainlane.us/articles/cleantech.jsp
Austin
San Jose
Berkeley
Pasadena
Boston
I’ve also listed more context below regarding each bullet point in our mailer.

Also, I hope you’ll follow Austin’s suggestion and sign the petition to keep environmentalists on the Democratic Executive Committee. It’s important that environmentalists have a seat at the table, and I hope that your environmental activism extends beyond municipal elections.

While we may disagree on who is the best choice for mayor, I look forward to working with you in the future to continue Austin’s environmental leadership.

Thanks,
Ted Siff, President

Austin Environmental Democrats
512-657-5414

“Austin Energy is the #1 seller of green power in the nation.”
The Austin Business Journal reported this fact on May 9, 2011.
http://www.bizjournals.com/austin/news/2011/05/09/austin-energy-top-green-power-seller.html?ana=RSS&s=article_search&utm_source=feedburner&utm_medium=feed&utm_campaign=Feed%3A+bizj_austin+%28Austin+Business+Journal%29

“Webberville is one of the nation’s largest solar farms.”
The first sentence of Statesman story on December 21, 2011 reads, “One of the country’s biggest solar arrays is now lighting up Austin.”
http://www.statesman.com/news/local/webberville-solar-array-begins-producing-power-2046802.html

“Austin will be the biggest city in the country to divest from a municipally-owned coal plant.”
The Sierra Club’s Beyond Coal campaign has been touting this fact in their house party presentations, and given that Cyrus has been working hard on this campaign, I trust that the Sierra Club knows what they’re talking about.
You mention San Antonio, but I’m sure you’re aware that San Antonio will still use coal power, even after they move beyond coal the Dealy coal plant.
While Denver and other cities in the Northwest are also going coal-free, they didn’t own a municipally-owned coal plant. Therefore, Austin’s divestment from Fayette stands out as significant achievement. While there have been smaller cities like Shelby, OH.
You also mention that Austin’s divestment from Fayette is not finalized. That’s true, and we didn’t make the claim that it’s a done deal. That’s why the statement is written in the future tense, “will be”, and not in the past tense. Mayor Leffingwell and City Council have unanimously pledged to move beyond coal, and we look forward to working with the Sierra Club to hold City Council accountable to their pledge.
http://action.sierraclub.org/site/MessageViewer?em_id=221461.0&dlv_id=190059

“City buildings are powered by 100% clean energy.”
The Statesman on September 20, 2011 reported that Austin was moving its buildings to green energy.
http://www.statesman.com/news/local/today-austin-becomes-an-all-green-municipal-operation-1889084.html?printArticle=y

On Sun, May 6, 2012 at 10:19 AM, Austin Adams wrote:

Hi Mike. Ted and Mary Ann started the Austin Environmental Dems chapter and work independently of the Texas Environmental Dems (TED), which I chair. The SDEC of the state Democratic party has been trying to remove TED from the body since its formation around six years ago because they didn’t want a flood of “issues” based caucuses applying for admission. This has always been a threat, but the ante got upped significantly in the last nine months as the Rules Committee of the SDEC began an earnest push to change party rules to explicitly bar “issues based” caucuses from being on the SDEC. In light of this, I’ve been encouraging the formation of city/regional chapters of the group in order to show that we are active regionally and we now have active chapters in Houston, Austin, Dallas, San Antonio, and Corpus Christi. On an up note, the vote on the rule change was taken at last weekend’s SDEC meeting and was voted down by a slim margin, so we’re in the clear for the moment, but the people on the SDEC who wanted the rule change aren’t going to give up and will likely be taking another bite at the apple in the near future. Most likely at the state convention in June. There’s an online petition that I’ve created to voice your oppostion to kicking TED off of the SDEC which I’d greatly appreciate your signing and sharing with your networks.

https://docs.google.com/spreadsheet/viewform?formkey=dDc0WWdUanN1LTFWUWxjbWNZZlZBZ2c6MQ

I’ve cc’d the AED email address, which Ted and Mary Ann created for the group, so I’ll let you guys discuss any issues you have with their mailer.

Thanks, Austin

———- Forwarded message ———-
From: Mike Sloan
Date: Sun, May 6, 2012 at 8:52 AM
Subject: FW: Austin Environmental Democrats
To: txenvironmentaldems@gmail.com
Cc: Austin EcoNetwork , Cyrus Reed , Luke Metzger

Thanks Luke…. I found txenvironmentaldems@gmail.com as an address for Austin Adams.

Ted Siff & Mary Ann Neely are listed as leaders for the local group, but there is no email or phone contact info I can find on their website.

Do any of you have info on how I may contact them.

Mike

—— Forwarded Message
From: Luke Metzger
Date: Sat, 5 May 2012 23:51:00 -0500
To: Cc: Cyrus Reed , Karen Hadden , Tom Smitty Smith , christopher searles , Bee Moorhead , Robin Schneider

Subject: Re: Austin Environmental Democrats

Yes, I know them and I’m sure they’d want to know of their errors. Its run by Austin Adams I think.

I’d also contact Gardner Selby at Politifact at the statesman.

On May 5, 2012, at 4:02 PM, Mike Sloan wrote:
Austin Environmental Democrats
Do any of you know this group, and do you think they would want to know if they are saying things that are not accurate.

I got a mailer today from this group endorsing Lee Leffingwell that made some claims that seem incorrect.

One was that “Austin will be the biggest city in the country to divest from a municipally-owned coal plant”… This struck me as wrong for a few reason. One being other cities including San Antonio have already committed to shutting down coal plants & two, I did not think Austin had done anything more than agree to study a possible date for divestiture.

They also say that “Austin Energy is the #1 seller of green power in the nation” which also is not true…. Austin last year ranked #5 in voluntary green power sales just in Texas… They have been #1 in sales of a voluntary renewable energy retail rate among regulated utilities for 9 years in a row, but they will almost certainly lose that ranking when the 2011 rankings are out. I suspect some of you also got booted off GreenChoice last year. Green Choice sales may have gone down — not up — and GreenChoice is among the most expensive electric rates now available in Texas & will be the most expensive rate if the proposed rate increase goes through.

Please advise if I should contact someone.

Mike

—— End of Forwarded Message

In an unexpected and powerful move this morning, Council-members Laura Morrison and Kathie Tovo announced a counter-proposal today that takes the sting out of the Austin Energy rate increase and replaces it with sanity, simplicity and fairness. (The full text of their press release appears below this post.)

Morrison’s background and master’s in “Disaster Preparedness” may have come in handy as she calmly announced the new approach, designed to move the discussion away from Austin Energy’s proposal and onto something more coherent.

Calling it an “interim” rate increase, the two are recommending a system-wide increase of 3.5% across the board and would allow up to a year for the council to study and sort out the mountain of questions left on the table by Austin Energy’s management team before deciding on a more permanent rate strategy. (see here for an overview of some of these questions.)

Their plan would provide a still whopping $35 million to AE’s coffers this year but far less than AE’s poorly justified request for $126 Million. The Morrison/Tovo plan would eliminate the special discount proposed for those customers outside the city limits. It was unclear whether the 3.5% increase would also apply to the largest corporate customers who’s sweetheart rate contracts do not expire til 2015. Some citizens have suggested that large corporations be asked to voluntarily comply with the suggested increase as the rest of the community must, but the council member’s did not include that suggestion themselves.

The AE management proposal, which called for a rate increase three times larger at 12.5 percent and which put the heaviest rate burden on the poor while allowing large corporations to skate, has been vehemently rejected by virtually every environmentalist, consumer advocate, church and small businesses in town. Members of the Council’s Energy Utility Commission had a split vote. See here for the EUC Chair’s explanation of the vote.

AE management had not responded by noon today but it was clear to many that their latest proposal was destined to get pounded by citizen critics again at tonight’s hearing and was likely to be just as dead on arrival as the previous version was last month.

Immediate reactions from those attending the Morrison/Tovo press conference were generally positive. Paul Robbins, considered by many to be Austin’ pre-eminent energy analyst and consumer advocate called today’s proposal “more of an increase than I hoped, but still I’m good with it.” Tom “Smitty” Smith of Public Citizen, Cyrus Reed of the Sierra Club, Josh Houston of the faith association Texas Impact, Carol Biedrzycki of Texas ROSE, PowerSmack founder Mike Sloan of Virtus Energy, and Andy MacFarlane of Data Foundry representing a large business perspective, all gave the concept a preliminary thumbs up.

It is not clear whether Morrison and Tovo will be able to get the two more votes needed to clinch a victory for their plan. Councilmember Bill Spelman had his own suggestion in the works but has not indicated what his next step will be as yet. Rumor at city hall indicated that Sheryl Cole was possibly interested but awaiting more details. Mayor Leffingwell and Councilmembers Riley and Martinez gave no clues as to their thinking.

The Austin City Council is supposed to give policy oversight to Austin Energy. However, since AE was unable to deliver a rate game-plan that was even remotely acceptable to the Austin community, it was only a matter of time before someone on the Council had the courage to lead the city forward in a more positive and equitable direction.

PowerSmack will post additional perspectives and details as they become available. If you want to weigh in to the Council, go to http://www.austintexas.gov/department/city-council to find email and phone contact info.

_______________________________________________________
FOR IMMEDIATE RELEASE
February 9, 2012
Contact: Barbara Rush: (512) 925-2271 – Morrison’s Office
Contact: Shannon Halley (512) 565-0257 – Tovo’s Office

Council Members Morrison and Tovo Propose Alternative to Austin Energy’s Rate Increase

As a short-term measure to replace Austin Energy’s current proposal of a 12% system-wide rate increase, today, Council Members Laura Morrison and Kathie Tovo proposed an interim 3.5% system-wide rate increase.

Morrison and Tovo were joined at the news conference by consumer advocates who have voiced concerns that Austin Energy’s current 12% rate proposal will negatively impact affordability for Austin ratepayers.

Council Member Morrison said, “We’ve heard from the community loud and clear that the Austin Energy rate proposal will have too much impact on ratepayers—especially our families, our small businesses, and our faith community, all of whom would experience very high rate increases. It’s important that we work to keep Austin an affordable city to live in, especially in these difficult economic times.”

If Council approves the 3.5% interim increase in March 2012, it would go into effect in June 2012 and be in place for approximately one year. “We are thoroughly committed to the financial health of Austin Energy,” said Council Member Kathie Tovo. “However, we must adopt a rate structure that balances the utility’s financial health with our commitment to keep Austin affordable for all the people who live and work here.”

The Morrison and Tovo interim rate proposal would meet Austin Energy’s goal of getting an increase in place before the summer months so that the city’s utility can remain financially secure and sound. During the interim, the financial status of Austin Energy will be carefully reviewed quarterly by the City Council.

Delaying a year will give Council time to the make informed policy decisions that will help guide Austin Energy to craft a rate proposal that is more equitable and has less impact on Austin ratepayers.

In addition, their proposal does not include discounted rates for non-Austin residents, because Morrison and Tovo believe a discounted rate for one set of customers would be unfair to Austin ratepayers.

Representatives for a broad range of businesses and interest groups have shared their thoughts with City Council regarding the electric rate increase proposed by Austin Energy. Here are the views of a few.

Coalition for Clean Affordable Reliable Energy (CCARE)

CCARE Letter to City Council Feb. 7. CCARE says that Austin Energy’s updated proposal is “a step in the right direction”and that it supports the AED cost allocation methodology. However, CCARE expresses concern about fuel charges and says “The city and utility must learn to do more with less…”

Homeowners United for Rate Fairness (HURF)

HURF Letter to Council. Jan. 12, 2012. HURF has been opposed to the proposed rate increase for many stated reasons, perhaps chief among them is “taxation without representation” for having rates that support a full General Fund Transfer to the City of Austin despite the fact these out-of-city ratepayers also must support local city services. HURF’s most recent letter, Feb. 9, 2012, expresses appreciation for the recommendation of a rate discount for customers outside the City, but continues its opposition to the progressive rate structure included in AE’s rate proposal.

Data Foundry

Data Foundry – Hearing Comments Feb 9, 2012. Data Foundry, a large data center that uses a lot of electricity, feels the rate increase requested by Austin Energy is too much, too soon.  They “believe that the proposal offered by Council members Morrison and Tovo this morning will give us time to discuss the items that have been left outstanding.”

This Thursday at 6 PM at City Hall Chambers, the second public hearing on Austin’s electric rate increase is taking place in front of the Austin City Council. People concerned with fair rates and funding for environmental programs are urged to attend. City Hall Chambers is downtown at the corner of Lavaca and Cesar Chavez. The garage entrance for free parking (on Council-meeting days) is on the left side of Lavaca. It is likely that food will be available for those attending. (Organizers are working on the food option now.)

Picture Credit: John Dolley

In the face of overwhelming criticism from environmentalists, consumer watchdogs, low-income advocates, and churches, Austin Energy, Austin’s municipal utility, has come up with a “compromise” proposal. Some aspects of this proposal are arguably worse than the original.

1. New Out of City Rate – One of the worst parts of the new proposal is the creation of a separate electric rate for people living outside of Austin. Austin’s profit from the electric utility goes to the City’s General Fund which funds city services such as street building and maintenance, police, fire, and emergency medical services. Many people living outside the City feel that they should not pay this profit because they do not live here and do not reap the benefits. Austin Energy feels that by appeasing this sentiment, the out-of-city ratepayers will not petition for deregulation of Austin’s municipal utility in the upcoming session of the Legislature. There are numerous problems with the logic here.

• There is no large municipal utility in Texas that has a separate rate structure for out-of-city ratepayers.

• The ability to profit from a utility has ample legal precedent in Texas.

• No private utility (gas, cable, phone, investor-owned electric utility) goes without a profit. In Austin, the profit generally goes to things like street maintenance. In a private utility, the profit often goes to maintain pension funds and buy sports cars.

• Many out-of-city ratepayers commute to Austin for work, education, or cultural activities, and use Austin’s city services while they are here.

• Perhaps most importantly, the proposal will cause wealth flight, creating another reason to drive people to live outside of Austin and promote more urban sprawl.

• Perhaps most ironically, the proposal will not stop deregulation proponents. These people are free-market zealots, and they will not stop their attacks on Austin and other Texas cities based on this appeasement policy.

2. Too Much Money – The new proposal still asks for the same amount of money, though the increase is divided into two phases. About 2/3 of the increase will occur in 2012. The last third will be in 2014. This amounts to a 20% overall increase on residential ratepayers, a 10 to 22% increase for small businesses, and new rates for churches that will increase rates for some of them by over 50%.

The rate increase might be lowered by tremendous amounts by strategies such as reducing: 1) unnecessary cash funding; 2) reserves; and 3) decommissioning of old power plants. Several knowledgeable people have suggested the increase is inflated by as much as 50 to 80%.

3. Not Enough Funding for Clean Energy – Supporters for Renewable Energy and Energy Efficiency were out in force at the first hearing in January, asking for Austin to follow San Antonio’s lead and fund more clean energy programs.

Webberville Solar Project

And Austin’ Energy’s proposed new rate structure would line-item clean energy funding on the bill, making it vulnerable to criticism from fiscal conservatives who do not care about the environment. Contrast this to another cost for the utility, executive salaries.

It cost every residential ratepayer at least $1.27 a month to fund the 131 Austin Energy employees that make over $100,000 a year. Curiously, you don’t see the utility proposing to highlight their salaries on a monthly bill statement. Why should environmental programs be singled out and treated differently?

4. Attacks on Low-Income Ratepayers and Conservation – The altered rate proposal still exacts huge rate increases on low-volume consumers, most of whom are in low income brackets. The customer fee will still be a high $22 whether or not you use a single kilowatt hour. The new proposal gives 200 kwh “free” with minimum fee. However, exclusive of the electricity, it means an effective increase from a $6 a month customer charge to $18 a month. This is $144 a year extra for nothing.

Looking at it another way, a household using 300 kwh a month (roughly 15% of customers) will pay 14¢ per kwh. A McMansion using 4,000 kwh (roughly 4% of customers) a month will pay 13¢ a kwh. In order to encourage conservation, the rates need to be more steeply tiered than they are now.

5. The Class War – Austin Energy refuses to run a rate design model that treats residential ratepayers well. This model has been run by others, however, and has shown that more of the cost of any proposed rate increase should be borne by large commercial customers.

6. No Champion for Small Ratepayers – The rate process has lacked balance because there is no independent Consumer Advocate that can speak on behalf of residential and small business customers. Instead, Austin Energy has hired a “Residential Rate Adviser” that is accountable to the utility. This is the equivalent of a lawyer in a court case hiring their oppositions counsel. This is another example of the lack of fairness in this rate making process.

The Bottom Line

Since there is no Consumer Advocate to speak on our behalf, consumer watchdogs, environmental activists, and churches have become the de facto Consumer Advocates in opposition to this alarming rate proposal. Some of us are proposing a small (2%) interim rate increase while the problems described here are reassessed.

We need your help! Please come to the hearing and support fair rates and clean energy.

Since we are being ignored by a tone-deaf utility, we need to speak loudly to the Council.

Again, democracy is not a spectator’s sport. Come and be heard.

Paul Robbins
Paul Robbins is a long-time consumer advocate and editor of the Austin Environmental Directory

Please Come to Electric Rate Public Hearing This Thursday

Austin Energy’s latest “revised” proposal does nothing to reduce the utility’s spending, reduce fixed charges for residential customers, stop the shifting of costs from industrial to residential customers, and keep a rate design that rewards energy conservation and low usage. The $22 in fixed customer charges is still in place for this year. The 200 kWh of electricity that is included does next to nothing to soften the impact of the high charges.

And in a new and shocking twist, the new plan includes the “Leffingwell Subsidy,” which provides a 6.1% discount for out-of-city ratepayers. This would exacerbate the existing problem of Austin citizens paying for growth, instead of growth paying for itself. And on top of that, Austin Energy just last year signed a 10 year agreement to pay a 3% franchise fee to several suburban communities served by the utility. No other municipal utility in Texas offers an out-of-city ratepayer subsidy. The Austin Energy service area is twice the geographic size of Austin. Providing an electric rate discount would stifle future annexation strategies and set up a war with developers over inside versus outside Austin building plans. It would lead to a serious erosion of our tax base. One more nail in the coffin of unaffordability for Austinites!

Come out to the public hearing and tell Mayor Leffingwell that we reject his plan, and ask the rest of the City Council to turn it down flat. There is some support on the City Council for a delay in the rate case to allow for better analysis of the facts and time to prepare a fair and equitable plan. That’s what Austin Energy customers deserve.

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.”

The proposed electrical rate hike is bringing out a lot of Austin Energy’s (AE) dirty little secrets.

The utility has been bleeding red ink for five years, but the only solution offered was to raise rates. Why was cutting the budget to size not an option?

With energy costs falling throughout the state, why has AE’s revenue requirement skyrocketed?

What goes into the excessive mandatory annual general fund transfer?

What answers to these questions are hidden in the hugely redacted management audit report copyrighted by Navigant Consulting to avoid public review and analysis? (Austin Energy paid a consulting firm $281,000 for an in-depth review of its finances and operations.)

Why did AE declare a mid-year “dividend” in mid-summer due to higher than anticipated revenues attributable to the brutal summer heat and transfer $4 million to the city general fund, only to turn around and raise fuel charges in January?

The upcoming council review and subsequent vote on an impending electric utility rate increase gives the City Council a unique opportunity to right some decades-old fiscal transgressions and implement a whole new business model for AE.

For decades the City Council has looked upon AE as a cash cow, used to avoid property tax increases and fund extravagant programs and personnel. Austin has a Champagne appetite, but a beer budget.

The rate case is an opportunity for the city council to clean up the utilities non-utility related expenditures by biting the bullet and placing those expenditures where they belong — in the general fund budget — instead of ducking a tax increase. The council has a choice—sock it to the public via higher utility rates, or sock it to them in the form of higher tax rates. Truth be told, a tax rate increase would probably have less effect on the small home owners and no effect on the school districts or churches or outside-the-city-limits customers.

The council has an opportunity to drastically lower the GFT and additional budget transfers from the ‘cash cow.” (some $156m); revisit the council indebtedness reserve mandate from 2X to 1.25X; enter more wisely into some of the alternate fuel choices (a $2.3 billion Biomass? 16.5 cent/kWh solar? C’mon guys, really?). AE is not immune from guilt, but how guilty we may never know if we can’t see the $281,000 publicly-funded audit report. Poor hedging decisions? Chilled water district boondoggle? Questionable timing on capital improvements?

AE currently sets aside 9.1% of revenues to fund an annual general fund transfer fee (GFT) to the city general fund. The 9.1% ‘dividend’ is put into the budget calculation on the top line, as the first expenditure. Most businesses figure their profit margin from the bottom line.

Sometimes you win, sometimes you lose, sometimes it rains. Think about that for a while. … (Bull Durham).

Almost no one, except maybe the federal government, sets the budget first and then tries to scare up the revenues. That’s one area where I agree with consumer advocate Bill Oakey, this is “upside down and backwards.”

AE’s GFT fee has increased from $70M in 2002 to $105M proposed 2012 – 5%/year. In addition to this year’s $105-plus million, the utility also transfers some $50 million in “city support services” and economic development. AE‘s non GFT transfers to city increased 89% over the last ten years ten years ($27M in 2002 to $51M proposed 2012) – 8.9%/year.

The City Council’s use of $156 million of AE’s revenues for non-utility purposes is unreasonable. The Austin Electric Utility Commission (EUC) has repeatedly cautioned the City Council that continued reliance on the utility as a “cash cow” could cause problems at the Texas Public Commission, should AE’s new rates be appealed. The EUC also says that excessive spending of AE’s money on non-utility items is a bad practice that could affect the long-term financial health of the utility.

It is often said that transferring AE’s revenues to the City’s operating budget, and assigning non-utility costs to AE, are analogous to the dividends paid by investor-owned utilities. In actuality, there is no resemblance between the two.

Most investor-owned utilities pay dividends according to profitability, which is why some pay no dividends at all. However, although AE has accumulated operating deficits totaling $245 million since 2008, hundreds of millions of the utility’s dollars have been spent for non-utility purposes.

AE’s transfers and assigned costs represent 15 percent of its gross revenues. However, the dividends of investor-owned utilities average less than 5 percent (e.g., El Paso Electric – 2.5%, Center Point Energy – 3.9 %).

Plainly, the excessive use of AE funds for non-utility purposes is a major factor behind the proposed rate increase. The need for the current increase, and future increases, will be significantly alleviated when the City Council adopts a narrower transfer policy that is more consistent with dividend policies in the private sector, and absorbs the lion’s share of the GFT into the general fund budget.

The viability of AE’s proposed rate plan hinges on the accuracy of the utility’s calculations and projections. However, history indicates that management’s ability to make credible forecasts is problematical.

In 2008, for example, management projected a FY 2009 operating deficit of $27 million, but the ultimate shortfall was $77 million–almost 200 percent more than estimated. In 2009, a deficit of $11 million was forecast for FY 2010, but the actual number was $68 million. More recently, a shortfall of $52 million was estimated for FY 2011, but the final number was only $6.5 million.

AE’s estimated revenue requirement has been closely studied by numerous parties, including utility attorneys, rate consultants hired by the City and members of the City’s own Electric Utility Commission. Without exception, all of the parties concluded that the revenue requirement is excessive and should be reduced by amounts ranging from $14 million to $100 million.

During the past five years, statewide average residential electric rates fell by 14 percent. During the same period, the bills of AE’s residential customers increased by 15 percent. If the proposed rate increase is adopted, residential customers’ bills will have increased by 25 to 45 percent at a time when rates elsewhere in the state are declining.

Some immediate recommendations:

• Limiting rate increases and meeting affordability goals go hand-in-hand. The Council adopted a 2%/year budget increase and goal for AE rates to remain in the bottom 50% statewide.
• Limit/reduce funds transfers (GFT and non GFT) to COA – ($97M in 2002 to $156M proposed 2012) – 61% increase or 6.1%/year
• Eliminate non Electric Utility functions from AE budget
o Economic Development – $9.9M (identify non electrical portion)
o CMO environmental sustainability office – $1.1M
o Street Lighting – $6.1M
o Admin Support – $17M (identify non electrical portion)
o IT – $5.1M (identify non electrical portion)
• Reduce debt service coverage (current/proposed 2.27X) to minimum required by AE bond requirements
o AE bond requirements are 1.25
o City Council Policy is 2.0
• Reduce % of CIP funded by cash (current/proposed 50%) to a lower level
o Council policy allows levels as low as 35%.
o Tighten capital justification/approval process – only approve construction that is absolutely necessary
o Take advantage of low interest rates to fund more CIP with debt – but only if necessary
• Use longer horizon (current/proposed 3 year) to establish strategic reserves
o Five year is reasonable

John Sutton
Sutton is Assistant Vice President of the Texas Guaranteed Student Loan Corporation and is the energy representative for the Building Owners and Managers Association. He served as a member of Austin’s Generation Resource Planning Task Force in 2009 and is a board member of CCARE.

Powersmack recognizes the intense controversy around the proposed Austin Energy rate increase and has asked a diverse set of local contributors to comment on it. We have also linked to other bloggers and media outlet coverage for comprehensive perspective.

Here are a few highlights of the opinions expressed.. click on the contributors name to read the full post.

“AE has failed to justify a rate increase..” EUC member Barbara Day, voting against it.

“We can have an economically healthy utility or reach our energy conservation goals, but not both.” EUC Chair Phillip Schmandt, voting for it.

“This proposal is upside down and backwards.” Bill Oakey, consumer advocate and former EUC member, opposed.

” Almost no one, except maybe the federal government, sets the budget first and then tries to scare up the revenues. That’s one area where I agree with Bill Oakey, its “upside down and backwards.” John Sutton, Building Owners Management Association, supportive of the methodology.

“For the first time in decades ( this proposal) puts a lopsided rate burden on poor and middle class residential customers, small businesses, churches and schools while letting its largest industrial customers skate.” Robin Rather, Collective Strength, opposed.

What local media outlets say:

STATESMAN: Austin Energy unveils final rate-increase proposal
“Austin Energy now needs $126 million more in annual revenue to balance its books and replenish dwindling reserves…”

CHRONICLE: Beside the Point: ‘Mission of Affordability’
“…if ever there was a time for the council to listen to its constituents – from grassroots activists to clergy to poor people to small-business owners – it’s right now.”

AUSTIN ECONETWORK: Electric Rate Public Hearing – A Primer, by Paul Robbins. “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.

The public hearing on Austin Energy’s Rate Proposal is Thursday, Jan. 12, at 6pm at City Hall.

Austin public hearings can be monitored by live video link.

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.

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.