Perspective on electric rate issue

AUSTIN (KXAN) — Editor's note: Here is a perspective on the electric rate hike issue pending before the Austin City Council from a graduate student at the Lyndon B. Johnson School of Public Affairs. The LBJ school is a co-sponsor of a mayoral debate with KXAN on Monday.

In 1995, Newt Gingrich was the first Republican speaker of the House in over 40 years, George W. Bush was in his first year in public office and Ben White Boulevard was nearing completion.

A loaf of bread was about $1.15, a dozen eggs was $1.16, gasoline cost approximately $1.09 a gallon and oil was trading at $18.20 a barrel.

For a resident, Austin Energy charged 3.55 /kWH (first 500 kWh), for small businesses 4.64 /kWH (all kWh), and 1.5 /kWh (all kWh) to larger businesses for their energy needs.

The only things that remain the same today are Austin Energy’s prices.

KXAN co-sponsoring a mayoral debate Monday

At a recent City Council meeting, Austin Energy presented a plan to raise its energy rates for the first time in 17 years. Austin Energy is one of the largest municipally owned utilities in the country.

The plan includes a base rate of $22, and an overall 8.7 percent increase in rates this year, and an overall 3.8 percent increase in 2015, to offset current operating deficits.

The plan also includes a proposed cap on transfers from Austin Energy to the city’s General Fund. According to Larry Weis, Austin Energy’s general manager, the utility needs $126 million more in annual revenue to balance its books and replenish dwindling reserves.

Many of the proposed rate increases are predicted to hit residential customers. According to the Austin American-Statesman, residents can expect to see their monthly electric bills rise 14 percent, and pay about $16 more per month, on average.

For many low-income and fixed-income residents, the rate increase could strain their finances as more money is needed to pay for electricity, especially senior citizens during the summer.

Renters, could in theory, see their monthly bills raised higher than the proposed average, especially if landlords have not installed energy saving appliances and equipment, such as insulation, to decrease energy consumption.

Opponents of the rate increase believe that the new base rates will discourage residential customers from conserving energy.

With a base rate of $22 minimum, opponents feel customers will be disinclined to conserve energy, as their bills can be no less than $22.

Also, many opponents feel the rate increases are unfair to residents, who will see a higher rate increase, as opposed to large businesses, such as offices, large retail stores, and hotels, which will only see a rate increase between 3 percent and 6 percent.

“These proposed modifications seeks to provide a transition that will assist all customers, provide fairness between customer groups, while ensuring the financial health of the utility,” Weis said

In addition to the rate increase, Austin Energy proposes capping transfers to the General Fund at the current transfer amount of $105 million.

This money is used by the city to pay for streetlights, police, libraries, parks, and other services.

To assist low-income customers, Austin Energy has proposed doubling its low income assistance fund from $3.1 million to $7.2 million, by recommending a $1/month charge on residential bills, and 65 /MWh for commercial customers.

Supporters of the rate hike argue that rates have been too low for too long. With an economic boom in the late 1990s and mid 2000s, revenues and expenditures have been relatively balanced.

Yet, over the last three years, Austin Energy has had budget deficits of $75 million in fiscal year 2009, $86 million in FY 2010, and $6 million in FY 2011.

Although the operating deficit was significantly lower in 2011, this was due to higher than usual energy usage because of a hotter than normal summer in Austin. Austin Energy predicts a $75 million deficit for the current fiscal year.

Also, growth in energy sales has slowed since the late 1990s, from an average of 5.8 percent growth to 1.5 percent growth. Austin Energy predicts energy sales growth between 1 percent and 2 percent going forward.

With the predicted sluggish growth, Austin Energy feels it is best to increase rates to meet current financial obligations, including payments to the General Fund.

Even if the rate increases are enacted, the Environmental Defense Fund argues that Austin Energy prices still will be lower than rates found in competitive regions of the Electric Reliability Council of Texas. These figures do not account for a proposed rate increase in ERCOT by 2015.

As of March 1, the City Council has reached no conclusion on the proposed rate increase. The council has decided to continue studying the issue, including holding 11 public meetings, before a planned vote on May 24.

However, in today’s circumstances, when city expenditures are growing faster than revenues, many are wondering how best to proceed with Austin Energy’s proposed rate increase.

If the city’s revenue from Austin Energy is to be capped, then obviously the city will have to look for additional revenues elsewhere, including but not limited to higher taxes and fees or decreased services.

But with utility rates perhaps on the rise, will citizens accept higher taxes and fees?

Charles Maddox is a member of Citizens for Local and State Service, or CLASS, which is an LBJ School student organization dedicated to bringing more attention to involvement in local communities.


 

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