Austin Energy and city officials are working to finalize a pair of rate increases that will affect the utility's customers for years to come. Council has recently been considering options to reduce the "rate shock" area residents, businesses and others are in line for, although significant adjustments are still coming.
AE's base rate, covering its maintenance and operations, comes up for revision on a five-year basis and has been under public review since the spring. The utility has proposed an increase that would add more than $15 to the typical resident's monthly bill, and a final base rate will be set in November or December after further deliberation.
Separately, recently announced changes to regulatory and pass-through charges covering other utility expenses are up for council approval Oct. 13 and would go into effect Nov. 1. The proposal comes after an unusually hot summer, disruptions in global energy markets and factors related to the Texas power grid combined to leave AE with more than $100 million in various new costs that must be recovered in the near future. The new pass-through charges can be revised every year and were announced in mid-September at around a proposed $20 monthly increase for residents.
Council members have expressed concern both with the short review time frame and the effect of that jump stacked with the looming base rate hike. However, AE officials said delaying a decision on the pass-through increase into November would cost between $750,000 to $1 million per day, leaving council to decide how to handle the change before next month.
“This is a hard one because this is a shock to ratepayers, which is why we have to spend a lot of time figuring out how we’re not in this place again," Mayor Steve Adler said. "At the same time, it’s money that we’re losing, and we have to stop the hemorrhaging. So we have to act, and this is money we’ve already paid that we have to pay back. So even though it’s not good, it’s necessary at some level.”
3-year plan recommended
AE's Chief Financial Officer Mark Dombroski previously presented several options the city could take and Oct. 11 endorsed an approach that would spread the utility's cost recovery over three years. Under that plan, the average resident—one using 860 kWh per month—would see their power bill rise more than 35% from $84.56 to $114.37 each month through late 2025.
If council opted to instead complete all recovery over just one year as AE originally proposed, residents' average monthly bills would rise more than 40% to $119.07. That amount would drop to $112.01 beginning next November after recovery is complete. Dombroski said the three-year plan would bring AE almost $35 million per year to address its underrecovered costs.
Dombroski also presented estimates on the effects that commercial customers would feel once a new rate is in place. For example, a small business, such as a fast-food restaurant, could see its annual power bill increase more than 18% under the three-year option versus 24% with a one-year cost recovery. Larger facilities such as hospitals could see costs grow by 24.6% through the three-year plan or nearly 33% in just one year.
“We believe [gradual recovery] is something that we can do, provides a small amount of relief for our customers next year, although we recognize the economic burden that energy costs have on our customers," Dombroski said.
While recommending the extended option, Dombroski also said the plan does carry more risk for AE and that further adjustments could come if conditions on the Texas grid and in the worldwide energy market remain volatile.
Although the pass-through issue remained in focus Oct. 11, the estimates shared by Dombroski also included the utility's proposed base rate increase that has yet to be finalized. A few council members said they still aim to reduce that charge before approving it later this fall as well, so actual increases in 2023 may end up slightly lower than those projected as of this month.
Regardless of the outcome, officials generally expressed reluctance to saddle residents and business owners with further costs while stating that some move on the pass-through charges is necessary.
“None of us wants to take this action and raise these rates, but we’ve expended these costs," Mayor Pro Tem Alison Alter said.
The outcome of this fall's billing increase could also lead to a shift in how future adjustments are handled. Proposals from council during the Oct. 11 work session included a change that would have AE revisit pass-through charges every few months rather than on an annual basis to better respond to market conditions—although some noted that could bring the potential downside of added uncertainty for customers. Adler also asked city management to consider changes to AE's reserve policies to help offset similar issues in the future.
