AUSTIN ENERGY RATE REVIEW
May 22, 2013
Presentation to LPPC Rates Group
Austin Energy Overview
Municipally-owned Electric Utility
Located in Austin, TX
Mission Statement:
To deliver clean,
affordable, reliable
energy and excellent
customer service.
City Department reports to
Austin City Manager
Integrated Utility with Generation,
Transmission & Distribution
2
Austin Energy Overview
• Total Customers Served ~ 420,549
• Total Generation Capacity ~ 3,247.6 MW
• Gas, Coal, Nuclear, Renewables
• Total Substations ~ 72
• Total Transmission miles ~ 619
• Total Distribution miles ~ 11,363
• Overhead ~ 5,451
• Underground ~ 5,912
3
Austin Energy Service Area Map
Austin
Energy’s
service area
covers 437
square miles
– 206 sq mi
(47%) in City of
Austin
– 231 sq mi
(53%) in Travis
and Williamson
Counties
4
Electric Reliability Council of Texas
•Operates within the State of Texas
•Exempt from significant FERC oversight
•Manages flow of electric power to 23 million Texas
customers
•85% of the state's electric load
•First independent system operator (ISO) in US
•One of nine ISOs in North America
•Manages Wholesale Generation market
•Ensures Transmission Grid Reliability
•Oversees the Retail Market
5
Reasons for Rate Increase
•System growth 1994 to 2010
• Revenue - 2.1X
• Energy Sales - 1.7X
• Customer Count - 1.4X
• Infrastructure Assets - 2.6X
•Last system rate increase in 1994 - 18 years
•Evolving business and market structure
• Deregulation
• Wholesale markets
• Reliability Standards
•Financial deterioration by 2009
• Cash reserves declining
•Realized need to increase rates by 2006
•Began internal preparations in 2010
6
7
Kilowatt-Hour Sales History - % Change Year to Year
Retail kWh Sales - % Change Year over Year
Spring 2007
forecast
defers rate
increase to
2011.
10%
Spring 2008
forecast defers
rate increase to
October 1, 2012.
Percent change from Previous Fiscal Year
8%
6%
Spring 2006
forecast
shows need
for 2010 rate
increase.
4%
Spring 2010
forecast
shows rate
increase by
October 1,
2012.
2%
0%
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
Economic Growth & Hot Weather
2003
2004
2005
2006
2007
2008
2009
2010
Recession & Slow
Recovery
-2%
1993 – 2000 Average annual kWh growth of 6%
-4%
2011
Dot Com
Bust
9/11/2001
Recession
2001 – 2011 Average annual kWh growth of 2%
Austin Energy Game Plan
Strategy:
•Develop Goals and Objectives
•What did AE hope to achieve
•What community values to incorporate
•Create Rate Design Principles
•Framework for discussion
•Deployment
•Multi-pronged approach
•Timeline
8
Balancing Goals & Objectives
•AE Rate Review Objectives
•Ensure long term financial strength
•Improve fixed cost recovery
•Align rate design with strategic plan
•Update rate structures
•Establish fair rates
•City of Austin Community Goals
•Distributed Generation
•Demand Side Management Targets
•Customer Assistance Programs
•Affordability Goals
9
10
Multi-Pronged Approach
Not only increase revenues but also:
•Unbundle Costs
•Fixed cost recovery
•Restructure customer classes from 24 to 9 classes
•Move classes to COS, +/- 5%
•Enhance cost recovery
•40% of retail costs recovered with Pass Through
Charges
11
Unbundled Costs
Austin Energy’s Fixed Costs Challenge: Cost Structure and Cost Recovery
FY2009 Actual Expenses
FY2009 Customer Revenues
22% Fixed
Revenues
43%
Variable
Costs
78%
Variable
Revenues
57%
Fixed
Costs
TY Revenues with New Rates
27% Fixed
Revenues
73%
Variable
Revenues
12
Restructuring Customer Classes
#Classes
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
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Old Customer Class
Residential
Churches
General Service Non-Demand
Sports Lighting
Water and Wastewater
Other City
General Service Demand
Primary Service
State GS Non-Demand
State GS Demand
School Districts GS Demand
Contract Demand
Contract Demand TOU
Primary Service
Transmission Service
State Large Primary Service
State LPS TOU
State Primary Service
Contract LPS
Contract LPS TOU
Contract Transmission Service
Street Lighting &Traffic Signals
Security Lighting
#Classes
1
2
3
4
5
6
7
8
9
New Customer Class
Residential
Secondary Voltage LT 10 kW
Secondary Voltage 10-50 kW
Secondary Voltage GT 50 kW
Primary Service LT 3 MW
Primary Service 3-20 MW
Primary Service GT 20 MW
Transmission Service
Lighting
Sports Lights
Highway Lighting
Security Lights
Service Area Street Lights
13
Pass Through Charges
Pass Through Charges (40% of total retail costs)
•Power Supply Adjustment
•Fuel, Purchased Power, Net Energy Sales
•Regulatory
•Retail Transmission costs, ERCOT Admin Fees less
Congestion Revenue Rights (CRRs)
•Community Benefit
•Customer Assistance Program (CAP)
•Service Area Street Lighting
•Energy Efficiency Programs
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Customer Discounts
•Customer Assistance Program (CAP)
•Low Income Bill Assistance
•No customer charge
•No CAP charge
•10% discount
•Free Weatherization (annual $ limit)
•Houses of Worship
•c/kWh upper cap
•Demand charges on weekdays only
•Independent School Districts
•10% discount
15
Original Timeline
Rate Study
Step 1:
Revenue
Requirement
Rate Study
Step 2:
Cost of
Service
Rate Study
Step 3:
Rate Design
September 2010 – November 2011
Step 4:
Public Review of
Preliminary Rate
Proposals at Electric
Utility Commission
Step 5:
Council
Review of Final
Rate Proposal
Step 6:
Implement
New Rates
December 2011 – January 2012
•16-month initial timeline extended
•Council requested 12 workshops to discuss
specific issues, January-May, 2012
•Rates appealed to PUCT in August, 2012
•AE filed RFP with PUCT November, 2012
•Appeal Settled March, 2013
•PUCT approved May, 2013
16
Actual Timeline
Step 1:
Step 2:
Step 3:
Step 4:
Rate Study
- Rev Req
- COS
- Rate
Design
Public
Review of
Preliminary
Rates
Council
Review
Implement
New
Rates
Sept 2010 to Nov 2011
Step 5:
Step 6:
Step 7:
PUCT
Appeal
&
Filing
PUCT
Final
Order
Inside &
Outside
Rates
Dec 2011 to Oct 2012
Nov 2012 to June 2013
2 Years and 10 Months
17
Rate Case Issues
•Cash Flow Method for Return
•Cash Reserve Funds
•Non-nuclear Decommissioning Fund
•GFT and City Shared Services
•Street Lights as Community Safety Issue
•Residential Low Income Discount (CAP)
•Outside customers reduced to State-wide levels by PUCT
•Residential Rate Design
•5 Tier Inclining Block Rates
•Lowest tier is priced below COS
•Production Demand Allocation
18
Final Outcomes
•AE requested 13% increase to EUC and 12.5%
increase to City Council
•Austin City Council approved 7% system rate
increase
•PUCT Appeal Settled: 6.4% system rate increase
•$6M Revenue reduction
•Inside-Outside rates (1st time in AE history)
•3 Tier Residential rate structure
•CAP reduced to State-wide levels by PUCT
•AE was not successful in recovering higher level of
fixed costs from Residential customers
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Lessons Learned
•Don’t wait too long between rate increases
•Financial policy to prepare COS at least every 5 years
•Inefficient process: Practice makes perfect
•Regular smaller increases = Less customer push back??
•Extensive labor requirements
•Public Relations:
•Data & message consistency is critical
•Negative press
•Reprioritizing work flow
•Learning curve after 18 years of no change
•Internally established Rates Department to prepare data annually
•Decision Makers requested significant education
•Included public process to get feedback on customer preferences
•Future rate processes will include an Administrative Law Judge
•Council discussing AE’s governance structure
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Q&A
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