More than 100,000 Austin Energy customers hit by billing errors from $55 million IBM system

Feb. 18, 2012

By Marty Toohey
Austin American-Statesman Staff

A malfunctioning bill collection system has created problems for more than 100,000 Austin Energy customers since October, according to estimates of the city-owned utility.

Roughly 1 in 4 customers has experienced a problem with the system, which the city is paying IBM $55 million to build and operate. Austin Energy executives say issues keep cropping up even as others are resolved and blame IBM, an assessment the company does not dispute.

Some customers went months without receiving a utility bill. Others have been charged multiple times. Still others were unable to pay their bill online or were told that payments had been rejected when they actually went through. In some cases, businesses that owed about $3,000 were charged $30,000 or even $300,000.

Austin Energy chose to contact individual customers it suspected were affected, rather than sound a general alarm, partly to avoid the possibility that its customer assistance center could be overwhelmed.

Among the first customers who dealt with the problems was Nancy Davis, 57, who opened her October utility bill and discovered, to her surprise, that Austin Energy no longer considered her poor.

Puzzled, Davis began asking why her discount had been canceled and needed a month’s worth of sometimes contradictory explanations before figuring out what happened. It turned out Davis needed to sign a standard form she never received, probably because it was among the thousands of letters Austin Energy mailed without a home address because of a glitch.

"I probably made a dozen calls before I figured this out. What if I hadn’t been willing to do all that?" said Davis, who is waiting for Austin Energy to refund $82.

Austin Energy is now withholding $3.8 million in payments still owed to IBM, saying the money will not be paid until such situations are no longer occurring regularly. The city contends IBM screw-ups have cost it at least $8 million.

In correspondence with city officials, IBM does not dispute the city’s assessment. The company has promised to rectify the situation several times since the system went live, only to see more problems emerge.

Thus far, the city has paid IBM $33 million of the $38 million for building and installing the system; the contract also calls for the city to pay IBM $17 million to operate the system for five years.

Under questioning by City Council Member Kathie Tovo at a January meeting, Austin Energy General Manager Larry Weis said the problems are being resolved and often occur when a utility changes billing systems. Yet in a letter he sent days earlier to IBM, Weis wrote that city officials "are as disappointed as IBM to see that the number and impact of issues continues to grow, instead of the expected decrease."

"In short, the City of Austin cannot properly operate its utilities," Weis wrote in an earlier letter to Sam Palmisano, then-CEO of IBM and now its board chairman. "My concern is the lack of progress in identifying the root cause and, frankly, the pace and quality of response from IBM."

Frank Kern, an IBM vice president, wrote in response, "I want to assure you that the IBM team is equipped to handle the issues that typically arise in complex billing solutions like the one at Austin Energy, and we intend to meet IBM’s contractual commitments … in the January timeframe."

Austin is not the only Central Texas-based government to have problems with IBM.

In 2006, the state hired IBM to merge the data centers of 28 agencies into two streamlined and secure facilities, at an expected cost of $863 million. IBM was supposed to complete the project in December 2009 but it is still far from finishing, according to the state, which is in the process of replacing the company.

The City Council approved spending up to $58.5 million in May 2009 to hire IBM. The company was to replace a billing system that was nearly a decade old. Austin Energy executives said the old system, although sound, was antiquated and incapable of new customer-assistance options, such as choosing what time of the month to pay a bill.

The old system was also incapable of taking advantage of new electric smart meters that radio back regular reports on energy use. The utility is installing them to adapt to a more conservation-minded world.

Austin Energy officials viewed the $55 million system as a good investment – reasoning that smart metering is an inevitability for which the utility must prepare – even though the utility was absorbing annual losses in the tens of millions of dollars, causing it to dip into reserves that are now nearly exhausted.

The new billing system handles more than just electricity. Austin Energy is also responsible for collecting all the fees on the monthly bill: electricity, water, trash and recycling, and drainage.

The billing system is the vehicle with which Austin collects about $2 billion annually.

Ernie Stromberger, who lives in the Highland Hills neighborhood in Northwest Austin, said his water meter reading was higher than usual in December despite having turned off his sprinkler system.

When a crew confirmed Stromberger’s reading, he was told it would be some time before the situation was corrected "because they are swamped with requests for adjustments due to problems with the new automated system." The situation was corrected a week later.

The problems come at a particularly inopportune time for Austin Energy.

The utility is proposing its first increase in base rates in 17 years. But even as Austin Energy asks for a 12.5 percent increase that would be concentrated on homes and small businesses, critics counter that the utility is not running efficiently.

Another criticism is that Austin Energy’s increase would fall too hard on the poor and people who use relatively little electricity.

Austin Energy is proposing to add a flat, $22-a-month fee. The idea is that the fee will ensure Austin Energy makes enough money to operate the grid, even if customers cut back on the amount of electricity they use. With the pressure to sell electricity to its customers alleviated, Austin Energy can then promote conservation without worry that it could starve itself of the money it needs to stay in business, according to the proposal.

Critics respond that the fee is regressive and question whether Austin Energy’s proposal to double its low-income assistance spending to $8 million would do enough to offset the higher monthly bills – a concern exacerbated when low-income customers such as Davis disappear from the rolls.

"When they lost those account numbers, how many people were dropped who weren’t added back? How many of them will give up and not keep pushing for answers?" Davis said. "I feel like I didn’t really start to get answers until I started telling them that if my rates go up and they don’t fix this, I will not vote for anyone with incumbent behind their name."

J.J. Gutierrez, Austin Energy’s vice president for customer care, said she does not think large numbers of low-income customers were dropped from the system, adding that any customers who have been should call the utility’s customer assistance hotline.

"We will do whatever we can to address any customer concerns," Gutierrez said.

The problems between Austin Energy and IBM go back at least three years, according to city correspondence.

In a letter sent a week ago to IBM, Austin Energy Chief Information Officer Alan Claypool writes that two separate contracts have gone awry.

The smaller project involves converting an old inventory management system to IBM software. In the recent letter, Claypool notes that in October 2010, IBM twice failed to provide a working system, causing a two-month delay.

"More than a year later, the city is still suffering from serious, continuing issues in getting the system running and … has lost $1 million," Claypool wrote.

Problems with the new billing system have cost Austin Energy $7 million in lost revenue, staffing and other expenses, Claypool wrote – and those problems did not emerge overnight.

The system was supposed to be up and running by April 2011, but the launch date was pushed back at IBM’s request.

In several emails in the two months around the October start date, Claypool described the project to his IBM counterparts using phrases such as "serious concern over the quality," "severely disappointed," "subpar performance," "gravely concerned," "remedial level errors" and "seemingly endless failures and crashes by our IBM ‘partners.’"

Gutierrez pointed to one example she considers representative of the project’s difficulties. She said IBM initially used servers that lacked the computing power to handle the billing system. The system itself was obviously strained in testing, she said; when the new billing website was activated, the system started crashing.

Gutierrez said IBM has since upgraded to more powerful servers. But myriad problems persist, she said, and new ones are cropping up.

"It’s not like these are keying errors," Austin Energy spokesman Ed Clark said. "These are systemic issues that have to be fixed by a computer programmer."

In response to American-Statesman inquiries, IBM issued a statement Friday that said only, "IBM is working with Austin Energy to resolve the issue as quickly as possible."

Austin Energy did not send out widespread notice or notify the City Council of the extent of the problems.

Weis said the utility preferred to directly contact customers it suspected were affected. He said one concern was that customers who had not been affected would overwhelm the utility’s call center.

Tovo, the council member who questioned Weis in January about the extent of the problems, said she had received about a dozen complaints but had not been alerted that more than 100,000 customers have been affected, even after asking about it.

"Certainly, if anywhere near that number of people have been affected, we need to be having a discussion and informing the public," she said. "And we need to make sure these issues get resolved."

mtoohey(at)statesman.com; 445-3673

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