More than two years of disputes, hours-long meetings and political threats came to a weary end Friday with the Austin City Council settling an appeal of Austin Energy’s recent rate increase.
The council unanimously approved a deal that will give most of the 50,000 Austin Energy customers outside the city a discount on their electric rates. In exchange, Homeowners United for Rate Fairness, a coalition of suburban customers, agreed to drop the appeal it filed with the state’s Public Utility Commission. The rate increase took effect in October, and the discount will kick in June 1. Customers in Austin won’t get the break.
“I think we’ve … work(ed) out a compromise where everyone gave a little something and everyone got a little something,” Roger Borgelt, a lawyer handling the suburban customers’ case, told the council during a special meeting. It was the rare time — perhaps reflective of everyone’s desire put the debates behind them — that council members didn’t discuss a proposal on the dais.
The main change for suburban customers is that their rates will be less steeply “tiered” than Austin residents. Austin Energy now has a five-tiered rate structure — unique in Texas — that charges progressively higher rates as electricity use rises. The idea is to encourage conservation by giving customers a “price signal” to reduce electric use.
Austin Energy agreed to essentially eliminate the top two tiers for homes outside the city, along with slightly tweaking the three remaining tiers. Now, any suburban home using more than 1,000 kilowatt hours in a month will pay no more than 9.325 cents per kilowatt hour.
According to a Homeowners’ United analysis, the change means a home using 1,000 kilowatt hours a month — about the average an Austin Energy home uses per month over the course of a year — will save about 54 cents a month. An energy-hungry home that uses about 3,000 kilowatt hours a month would save $22.58 a month.
Environmental activists weren’t happy with the terms, but Tom “Smitty” Smith, head of the Texas branch of Public Citizen, said it was best for the council to settle rather than allow the appeal to drag on toward an uncertain resolution by the Public Utility Commission as lawyers fees accumulated.
“This preserves the most innovative things Austin Energy is doing: energy efficiency, renewables, its customer assistance program,” Smith said.
Fellow environmental activist Paul Robbins took a dimmer view, noting that no other city-owned utility in Texas offers its customers outside city limits a discount.
“This is nothing but special treatment for a select set of customers who have gamed the system,” Robbins said. “It is nothing but welfare for the rich.”
The Public Utility Commission must still sign off on the deal, though the city and Homeowners United expect the commission will have no objections.
Not all suburban customers are happy, either. Larry Fox, who lives just west of Austin, said “the most important issue appears to have been sidestepped,” referring to the $100 million Austin Energy transfers annually to city coffers to pay for general services such as roads, police and parks, plus the $50 million to $100 million (depending on the estimate) the utility spends every year on other activities unrelated to electricity.
Because of the transfer — which is a common practice among city-owned utilities around the country — and other spending, “nonresidents are artificially lowering real estate taxes for many Austinites,” Fox said.
The long-running saga of the rate increase can actually be traced back 18 years. That was the last time Austin Energy raised its base rates. In late 2009, after years of often-understated suggestions from Austin Energy executives that the utility should raise its rates, then-General Manager Roger Duncan bluntly told the council during a public meeting the utility would go broke without an increase. Some of the public was confused by this assertion because rates had actually risen in conjunction with the price of coal, natural gas and other fuels; it was only the portion of the rates that pays for wires, poles, trucks and staff that hadn’t risen.
Meeting after public meeting followed as Austin Energy gathered public input that various interest groups complained was discarded while Austin Energy crafted its new, complicated rate structure. The increase was, on average, 8 percent, but the effect on individual customers varied wildly. Austin Energy determined homes had been paying less than the cost of their electric service, leading the utility to skew the increase heavily toward homes rather than businesses — a conclusion consumer advocates said was unjustified.
Austin Energy also instituted a new policy of charging businesses not just for the electricity they use, but also for the demand they put on the grid during peak time (usually the hottest part of the day). This has irked many small business owners. James McLane, a Southwest Austin dentist, used a third more electricity in January 2013 than he did in January 2012, but saw his bill rise more than three-fold, from $205.22 to $690.67.
“It doesn’t matter how much electricity I use, the one time I hit that peak puts me over the top. It’s the most expensive 15 minutes of my month,” McLane said. “They came out and determined there’s not a whole lot I can do” in terms of energy efficiency improvements.
Customers such as McLane had no further recourse when the City Council approved the rates last year. But the affair has been messy enough that the council decided last month to transfer oversight of Austin Energy to an independent board of public-power experts. Meanwhile, suburban customers made good on threats to appeal to the Public Utility Commission, and months of legal wrangling followed.
In a sense, the settlement brings the debate over the suburban customers full circle. Austin Energy General Manager Larry Weis had suggested giving them a discount as part of the new rate structure. It was mainly an acknowledgement of the clout suburban customers can wield through their ability to appeal to the Public Utility Commission, as well as their influence with state legislators often leery of Austin’s environmental initiatives.
The council rejected the idea of giving suburban customers a discount — and then, after a year and more than $1 million spent on lawyers and consultants, the council approved a similarly sized discount.