GreenChoice

The following material was prepared during summer 2009 while Austin Energy was considering changes to it GreenChoice “Batch 6″ product offering.  Austin City Council acted to lower the price premium substantially, but did not address structural issues that result in GreenChoice customers still paying a full share for fossil fuel power plants.

THE BASICS

The following animation hits the highlights for why Austin Energy’s GreenChoice program became overpriced, and why it’s good news the utility intends to fix it.

BACKGROUND

Austin’s GreenChoice has been America’s most successful utility green energy program over the past 10 years. But today things are changing. Due to a sharp price increase by Austin Energy (AE), the latest “batch” of green has not sold well at all. In order to remedy the situation, AE administrators are proposing changes to the pricing of Batch 6, and City Council is expected to vote on the suggested alterations on August 20. The following news stories from the Austin-American Statesman, the New York Times and others discuss the recent turmoil surrounding AE’s GreenChoice program, which emerged from ideas originally developed by Austin’s Sustainable Energy Task Force in 1997 and shaped further by rules adopted by the Public Utility Commission of Texas in 1998.

• Austin-American Statesman: “Austin’s Clean Energy Program Costing More, Selling Less”
• Austin-American Statesman: “All Austinites May Soon Shoulder Extra Green Energy Costs”
• New York Times: “Largest Green-Power Program Stumbles

A chart summarizing all GreenChoice batches is available here and is shown below.

OUR OBSERVATIONS

Wind Power Is cost competitive in Texas: Recent articles suggest that green power is much more expensive than conventional power, but that is simply not true. Here are the facts:

• A recent report by the Department of Energy points out that Texas wind power is cost competitive.
• The Public Utility Commission of Texas says “Wind generation has had the impact of reducing wholesale and retail prices of electricity.”
• Throughout the Texas grid, investors have more interest in developing wind power than any other type of new power plant.
• Austin Energy’s former Chief Operations Officer Mike McCluskey explicitly said that wind is the cheapest resource in a town hall meeting in 2009 (see video below). The opinion that wind is the cheapest resource is likewise reflected in AE response to blog inquiry on February 27, 2009.
• Analysts hired to evaluate future generation scenarios for Austin Energy were tasked with identifying what future energy mix would have the “lowest bill impact” for consumers – and it includes more renewable energy (34 percent) than City Council’s current goal (30 percent) for the year 2020.

Why have Austin’s green rates become the most expensive in Texas? And why is the demand for AE’s high priced GreenChoice so low right now? We think there are two main reasons:

• Austin Energy Overcharges Customers for Batch 6: For the first time in the history of the GreenChoice program, Batch 6 includes a substantial new “Risk Premium” that is currently far in excess of actual wind-related charges. This new charge was intended to cover “congestion costs” and amounts to $40 per month for a residential green customer. In contrast, the project on which GreenChoice Batch 6 is based — the Hackberry wind farm northeast of Abilene — has had extremely low congestion levels during Jan.-May 2009, likely less than $1 per green customer.
• GreenChoice Customers Are Subsidizing Coal Power and Gas Plants: Under Austin’s current rate design, Austin Energy customers pay the exact same base rate (in addition to the GreenChoice premium) as all other customers of the utility. Consequently, a big chunk of their money goes towards conventional fossil fuel power as Austin Energy uses base rate revenues to maintain and expand its existing generation portfolio – which consists primarily of nuclear, coal and gas. GreenChoice customers exclusively have been paying for green power.

RATE REFORM: A GOOD DEVELOPMENT

PowerSmack applauds Austin Energy for its interest in reforming its renewable energy program design.

Rate Reform Is Necessary: Austin Energy’s core business is selling power from the coal, nuclear and natural gas plants it already owns. Programs such as energy efficiency, rebates for rooftop solar and supply contracts for renewable energy compete against that core business. Austin needs to reform its business model and rate structure so that it does not prioritize burning fossil fuel over efficiency and clean renewable energy.

Voluntary Green Rates Can Continue to Play a Role: If Austin’s renewable energy development is dictated by a portfolio goal alone (if the Council’s renewables goal is treated as a cap) then a voluntary rate does not provide any surplus environmental benefit. But if the biases now favoring fossil fuel use can be removed from Austin’s rates, Green Rates can help drive additional renewable energy use and environmental benefits for Austin.

Austin Energy has a Dream Team of highly capable green leaders, yet Austin’s antiquated business model hampers their ability to move the utility in a direction that reflects our community’s ideals and goals. PowerSmack agrees that the time is ripe for reform.

EXPERT PANEL – GREEN POWER

This section launches an online conversation on Green Power issues related to Austin with national and state experts. If you would like to submit a question for our experts, please submit it through our contact form. Here are our experts and the initial set of questions that have been asked:

Blaine Collison, EPA	Blaine Collison, Green Power Partnership, Environmental Protection Agency. Blaine is the Director of the U.S. Environmental Protection Agency’s Green Power Partnership, a national voluntary green purchasing program that includes more than 1,100 partners. These organizations span all sectors of the economy and together purchase more than 16 billion kWh of green power annually.
Gürcan Gülen, CEE	Gürcan Gülen, Center for Energy Economics (CEE), Bureau of Economic Geology, University of Texas. Gürcan is a Senior Energy Economist at CEE. He has been evaluating the Texas RPS program and federal RPS developments for SECO. The Center has produced a “Guide to Electric Power in Texas” and reports on competitive markets.
Ed Holt, consultant	Ed Holt, President of Ed Holt & Associates, Inc. Ed has been an independent consultant on renewable energy policy and programs for 14 years. He advises government agencies, utilities and non-profits on green power programs, and was one of the earliest to recognize the potential of voluntary markets to help achieve environmental goals.
Jennifer Martin, CRS	Jennifer Martin , Center for Resource Solutions in San Francisco, California. As CRS’ Deputy Director Jennifer oversees the Green-e Energy and Green-e Climate certification programs. Green-e Energy certifies the majority of voluntary renewable energy sales nation-wide and verified over 24 million MWh in voluntary renewable energy transaction in 2008.
Karl Rábago, Austin Energy	Karl Rábago, Karl R. Rábago, Distributed Energy Services, Austin Energy. Karl has worked at the intersections of energy, the environment and markets for twenty years. He has championed green power and other voluntary market initiatives from inside business, government and civil society in the United States and overseas.
Mike Sloan, VERA	Mike Sloan – MODERATOR. Mike is a former employee of Austin’s electric utility who later served as chairman of the task force that developed Austin’s GreenChoice concept (1997-1998). He also led the regional wind trade association (WindCoalition.org) that helped Texas become America’s #1 Wind State.

Below is the initial set of questions posed to panelists with a link to responses posted as they are received.

1. In general, is green power becoming harder to sell relative to traditional power sources? Read related news coverage or see how our experts answer the question.
2. Are green power premiums rising throughout the U.S. and/or are energy companies discontinuing green power options? Read related news coverage or see how our experts answer the question.
3. What does it mean nationally — if anything — if national leader Austin is seen as faltering in selling green power? Read related news coverage or see how our experts answer the question.
4. What are your insights on the philosophy of structuring green rates relative to regular rates for a monopoly utility ? see how our experts answer the question.