Austin Energy Contemplates Costs, Considers Customers

Last week Austin Energy formally recommended to the city council that it begin planning for the 2012 rate case that we’ve known about for some time. A confluence of circumstances, including workforce issues, new transmission, rising fossil fuel costs and decreases in revenue this past year have made what will be Austin Energy’s first base rate increase in 15 years (!) a real necessity. 

At this point only a few of the costs are known or even quantifiable, particularly the transmission and fossil fuel costs to the system. In looking at Austin Energy’s report, the cost for new transmission to bring more wind to Texas will be less – about 0.7¢/month for the average customer in 2015. If fossil fuel prices don’t increase more than they have over the past six years, the General Fund Transfer costs associated with fossil fuels might be only 0.4¢/kWh by 2015. Of course, that’s assuming that Austin Energy stays smart and doesn’t put too many more eggs in the fossil fuel basket.

The rate increase doesn’t really have a direct relationship with Austin Energy’s forward-looking generation plan because rates are based on historical costs, not future costs. Still, in recognition of increased conventional utility costs, Austin Energy has developed an investment plan that will use zero fuel sources such as wind, solar and energy efficiency to contain future costs.  Some people discuss Austin Energy’s plan by comparing it to our current costs, as if by doing nothing we will ensure that gas prices won’t rise 300 percent again and Texas power prices remain at their lowest point since 2001. The comparison to current costs is important as a place marker, but I think it’s more informative to look at what could happen down the road if Austin Energy makes no changes.

As our analysis shows under a “business as usual” scenario, following the historical trends of the last 10 years, average residential power prices in Austin could increase another $60 per month excluding carbon costs. This is due largely to an increasing dependency on fossil fuels and buying electricity on the Texas deregulated marketplace. Similar proposals to “save money” would only do so in the near term at the expense of future exposure to volatile fossil fuel and deregulated market prices.   

The Austin Generation Task Force – whose members include Austin’s business, environmental, and industrial communities – acknowledged those risks in a milestone vote last week. The board voted unanimously on several recommendations to the city council, including increasing energy efficiency goals, and developing a solar market in Texas to bring at least 300 MW of distributed solar to the city by 2020. While members couldn’t come to an agreement on a specific quantity for Austin Energy in 2020, all members strongly reaffirmed Austin’s commitment to a solar goal.

All of this is to say that it’s important to keep future plans in the perspective of future costs, and avoid the trap of comparing them to present costs. Most forecasters acknowledge that as our economy recovers, the price of oil and natural gas will resume its upward climb. With carbon regulation sure to happen one way or another, the cost of coal will increase as well, leading to an overall increase in fossil fuel prices for a utility that already shells out plenty for those fuels. Energy efficiency and renewable energy have a proven track record of saving Austin customers money over time, even if they have some upfront costs.

I commend Austin Energy both for its clean energy leadership and its recognition that to save customers from dangerously high future costs, some upfront investment is needed.