Suburban Austin Energy customers may get legislative help outside of city limits

Austin Energy, the eighth largest publicly-owned electric utility in the country, serves electric power to nearly half of Travis County and the city of Austin. However, the cost to AE customers may not be allocated evenly between residents in and outside Austin’s city limits.

State Rep. Paul Workman, R-Austin, whose Travis County constituents mostly fall just outside of Austin, introduced four house bills Feb. 1 related to AE: House Bill 1458, which involves the agency’s governance; HB 1459, which restricts how Austin can spend AE profits; HB 1460, which allows groups to challenge AE rates; and HB 1461, which involves transferring service for out-of-city customers to surrounding electric cooperatives.

“All of these bills are related to affordability,” Workman said. “The cost of living in and around the city of Austin is increasing, and the city continues to go in the wrong direction when it comes to making it affordable for residents.”

Mark Dreyfus, vice president of regulatory affairs and corporate communications at AE, said he does not believe Workman’s bills are needed to address any problems with the city or Austin Energy. He said rates are fair and reasonable for all AE customers.

Lack of a voice

AE is managed by the Austin City Council, but only 50 percent of the utility’s service area pertains to customers within Austin, Dreyfus said.

Residents in the cities of Bee Cave, Buda, Cedar Park, Del Valle, Lakeway, Manchaca, Manor, Mustang Ridge, Pflugerville, Rollingwood, Sunset Valley and West Lake Hills receive electric services from AE but cannot vote in Austin elections and therefore are not represented, Workman said.

“Under the current model, most of my constituents have no voice in what is going on,” he said. “It has been an ongoing problem, and we don’t think a $300 million company should be run by a city council.”

House Bill 1458 would establish an independent board to assume power from Austin City Council, Workman said. One of the bill’s goals is getting voices onto the board that represent customers outside of Austin, he said.

Workman said the model proposed in his bill is designed around City Public Service Energy in San Antonio, a utility governed by board members, representing different geographical locations, and the mayor.

Pedernales Electric Cooperative, which delivers energy to areas directly west of AE, is one of more than 900 energy cooperatives in the country that is customer owned and governed, PEC CEO John Hewa said.

Divided into districts, PEC is managed by a board of directors with a representative from each, he said.  Every customer has the opportunity to vote in PEC elections.

“Our model ensures every one of our members has a voice,” Hewa said.

West Lake Hills Mayor Linda Anthony said the area’s lack of representation when it comes to setting electric rates with AE was a hot topic during the 2015 legislative session.

Dreyfus said AE will operate under whichever governing environment Austin City Council sets.

Funding city of Austin projects

Austin Energy’s profits are placed into the city of Austin’s general fund, Workman said. City Council has the ability to spend that money on projects that are not energy related, and out-of-city customers are not seeing the benefits of these projects, he said.

Brian Thompto, Steiner Ranch Neighborhood Association chairman, said residents in Steiner Ranch for years have been concerned about Austin’s ability to utilize energy bills to pay for things not in the scope of service.

“The reality is the city’s general fund goes to more than energy-related projects,” he said.

Workman proposed placing a 12-percent cap on the amount of AE revenue that could be transferred to Austin’s general fund. The proposal would also require that these funds only be used for expenses related to the utility, he said.

Hewa said cooperatives are not for profit, and members see returns when there are positive margins.

“There is a lot of reinvestment into PEC’s infrastructure to keep it capable of growth,” he said. “Beyond those investments, our members benefit from our good margins and see those returns in capital credits on their bill. We don’t need to take a penny more than we need to keep the co-op healthy.”

Hewa said capital credits have always set cooperatives apart from city-owned utilities, but depending on demographics and other circumstances, the city model can be effective as well.

“It’s not an easy model to run and requires a lot from our staff and board of directors,” he said. “That work delivers a high level of customer satisfaction.”


Establishing fair rates

Historically, Thompto said AE’s rate structure negatively impacted homeowners who disproportionately aligned with customers west of the city–who may have larger homes and use more energy than city consumers.

“Austin Energy has shown a track record of not being a fair provider to the customers that [reside] outside of the city,” he said.

Dreyfus said he believes AE rates are reasonable, and the utility works hard in collaboration with customers to bring them the best value.

Last summer, AE signed an agreement with the Public Utility Commission of Texas as well as Homeowners United in Rate Fairness, a consumer organization that has represented customers outside of the city since a rate protest in 2012.

AE agreed to set lower rates for out-of-Austin customers compared to rates of Austin residents, Dreyfus said. Based on the agreement, he said out-of-city energy users save $5 million annually compared to city users.

“The organization that represented our customers outside the city signed onto our rate structure,” Dreyfus said. “That speaks volumes and shows we really worked to address the concerns.”

However, AE still uses a tiered system in which customers who use more energy pay more than average and low-energy users, Dreyfus said.

“For very large energy users, they’ll see higher rates [with AE] than [with other utilities], but average energy user have a lower rates [with AE],” he said.  “The homes [outside of the city] are larger. They have lower rates than those in the city, but may have higher bills because of how much energy they use.”

PEC customers are charged a flat rate that does not change based on consumption, Hewa said.

“In Lakeway, some residents are served by AE and others by PEC,” Workman said. “There are areas where homes on the Austin Energy side of a street are paying 30 percent more than those on the PEC side. It’s about affordability for those residents. Out-of-city customers are paying a premium.”

Groups of customers can more easily challenge a rate by requesting a rate review by the PUC if legislation is approved, he said.

“When HURF and the PUC were successful and AE had to renegotiate its rate structure, that ultimately told us a number of the concerns we have [are warranted],” Thompto said.    

Workman said another way to solve this problem would be to transfer service for out-of-Austin customers to bordering cooperatives. LTW-2017-03-50-2b

Is a change in territory feasible?

AE has been serving the same area since 1975, when the PUC officially assigned AE’s territory, Dreyfus said. Since then, AE has occasionally exchanged small parts of its territory with neighboring cooperatives that may be able to better serve a new customer.

Workman’s bill would require AE to transfer customers outside of the Austin city limits to PEC in the west, and Bluebonnet Electric Cooperative in the east.

Workman said he believes the shift would lower electric bills for customers who live outside the city, and further give a voice to those who currently are not represented by the city of Austin.

“A significant change in our service territory like this would be very costly to for the remaining customers in Austin and for the customers in Bluebonnet and PEC,” Dreyfus said. “I don’t believe it would be in the best interest of our customers and the industry as a whole.”

Dreyfus said if services were to be transferred, AE would expect to be compensated for lost investments the utility and its customers have made to improve infrastructure over time, which is not accounted for in Workman’s bill.

“Infrastructure is a life-long asset,” he said. “The value of those resources would be very high.”

Hewa said PEC’s board of directors has not yet taken an official stance on Workman’s proposals.

Customer preference for electric providers would likely come down to cost, Thompto said.

“If PEC is offering lower rates and a structure that would be more fair, I think the majority of customers would switch if given the choice.”