On heels of election, City Council resumes debate over proposed electric rate increase

May 14, 2012

By Marty Toohey

With the city election behind them, Austin City Council members on Monday resumed debating how much to raise electric rates.

Three council members unveiled a proposal for raising rates that is similar to what Austin Energy had previously proposed but had changes that satisfied some critics, including an environmental group and church advocates. Chris Riley, Sheryl Cole and Bill Spelman — the latter two having been re-elected Saturday — said their proposal is the smallest increase possible that would keep the utility’s finances from collapsing.

"This is a terrible time for an increase. I wish we could wait another year or two before proposing higher electric rates, but we can’t," Spelman said. He said the average home’s electric rate would rise 8 percent under the complicated new rate structure, adding about $8 to a monthly bill. Larger homes would see a bigger rate increase.

Council Members Laura Morrison and Kathie Tovo quickly objected to the proposal because they said it too closely mirrors Austin Energy’s plan, which they consider flawed, an assessment still shared by some environmental activists and consumer advocates.

Tovo said the proposal unveiled Monday accepts too many assumptions she still considers questionable, noting that a consumer advocate recently hired to review the utility’s rate proposal has raised doubts that Austin Energy needs as much money as it is requesting. Morrison said that if council members were willing to push the decision until after the election to conduct a thorough review, they should finish the review, which includes two work sessions this week and a period to ask more questions before a June 7 vote.

"I’m disappointed they circumvented the process that we unanimously endorsed," Morrison said. "There are still important questions to be answered about the numbers. I don’t think we should be assuming these things are certain."

The fate of the proposal, which will need at least four votes to pass, probably lies with Mayor Lee Leffingwell and Council Member Mike Martinez, neither of whom could be reached for comment Monday.

Austin Energy’s rates have risen through the years to keep pace with the price of the fuels used to generate electricity, but the city-owned utility has not increased its base rate since 1994. In fall 2009, then-General Manager Roger Duncan told the City Council the utility was about to run out of money unless it raised rates. Once a cash cow that operated with surpluses in the tens of millions of dollars, Austin Energy has exhausted almost all but its emergency reserves to cover deficits of $76 million in 2009 and $86 million in 2010.

The utility’s proposal in December to raise rates 12.5 percent drew an outcry, partly because the additional $126 million the utility was asking for would come mostly from homes and small businesses. A consultant hired by the utility determined that homes have been paying far less than the actual cost of delivering them electricity, shifting the cost onto larger businesses.

After the outcry, Austin Energy proposed in February splitting the increase into two parts: raising rates 8.7 percent this spring, with another 3.8 percent increase in 2014. The utility asked the council to vote by spring to keep it from having to borrow money and add long-term costs.

But with the Saturday election looming — voters returned all four incumbents to office — and an unpopular proposal before them, council members decided to take until now to sort through the numerous and complicated issues, including how to apportion the increase among various types of customers.

Morrison and Tovo, meanwhile, became increasingly skeptical of the utility’s arguments, while Cole and Spelman became increasingly convinced the utility was on the right track.

When the debate resumed Monday, Spelman said at a news conference that electric rates need to balance a variety of interests and "the utility tried to strike that balance and failed."

Among the main points of his alternative: a flat monthly charge of $10, not $22; an examination of whether the management structure should change, for instance by having utility policy set by an appointed board instead of directly by the City Council; and a requirement that Austin Energy to provide more proof about its needs before getting any additional increase in 2014.

As they spoke, Cole, Riley and Spelman were flanked by representatives from several groups who said their concerns had been addressed, including the Environmental Defense Fund and several advocates for low-income customers and churches. Churches would be spared an average increase approaching 80 percent, Spelman said, and instead see one closer to 18 percent.

"All things considered, (the new proposal) is about as good as it could get," said Bee Moorhead, executive director of Texas Impact, an advocacy group representing churches across the state.

Others said problems remained.

"This is basically what Austin Energy proposed, and what they proposed was flawed," said Carol Biedrzycki, executive director of Texas Ratepayers’ Organization to Save Energy. "Our consumer advocate had concerns and recommendations that have been swept under the rug."

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