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City council approves Austin Energy pass-through rates to help reduce impact to customers

The increased rate will be spread over the next three years.

AUSTIN, Texas — The Austin City Council on Thursday approved new pass-through rates for Austin Energy's Power Supply Adjustment (PSA) and Regulatory Charge, a move that aims to help meet rising costs in the electricity industry while also reducing the impact on customers' bills.

According to Austin Energy, the new rate in the PSA reduces that impact by spreading the needed increase over the next three years.

"Combining that change with an increase in the Regulatory Charge, an Austin Energy residential customer who uses a system average of 860 kWh in a month could see an increase of about $15 to their monthly electric bill. These changes go into effect Nov. 1," the city utility said in a press release.

Officials noted that costs recovered through the PSA and Regulatory Charge are set by the energy market, the Electric Reliability Council of Texas (ERCOT) and the Public Utility Commission (PUC).

"These charges collect only what the utility pays for the production and purchase of wholesale energy, as well as regulatory and transmission fees," Austin Energy reported.

However, some Austin natives like Toga Pendrake, an apprentice electrician, say these hikes will have disproportionate effects.

"Any price hike is going to affect the people who have the least, the most," said Pendrake.

He said hikes like these add to the problem he's already experiencing in his hometown.

"I was born and raised in Austin, Texas, and I'm having a harder and harder time finding a place to stay. Every year it gets harder," Pendrake said.

Matt Mitchell with Austin Energy and city leaders say, as a public power utility, it's important customers feel like they're in the loop.

"Transparency is important. I mean, I think anyone wants to know what they're being charged and why. And there are a lot of different ways to approach not only energy consumption but charging for energy," said Mitchell.

Due to the summer heat wave, the utility said it saw an "extraordinary rise" in ERCOT market costs. As a result, Austin Energy experience much higher congestion costs in transporting power through the ERCOT system. This was also exacerbated by high natural gas prices. The utility noted that other utilities across the country are also still experiencing similar power and commodity price shocks.

“We know that any rate increase impacts our customers, so we always strive to keep costs low by operating as efficiently as possible,” said Austin Energy General Manager Jackie Sargent. “The escalating cost of energy production and transmission poses a substantial challenge to power providers everywhere, including Austin Energy. We will continue to work with Council to find strategies that help protect ratepayers from rate shock to the greatest extent possible.”

Austin Energy said it under-recovered $104 million in power supply adjustment costs this past year.

"Today, council voted to recover those costs over a three-year period, reducing the immediate rate impact to customers," Austin Energy said in the release. "Rather than the typical residential bill rising by $17.55 as originally proposed, the extended recovery period brings the monthly bill increase down to $12.85."

Austin Energy noted that beyond this under-recovery, the PSA rate is also set to recover ongoing increased expenses for the upcoming year. Most of the PSA rate increase reflects these ongoing costs.

According to the utility, the primary factors for the increase were:

  • Natural gas prices for electricity production were higher this fiscal year than in any previous fiscal year since 2008. August prices this year were 106% higher than last year and 288% higher than in August of 2020.
  • Transmission congestion costs were higher than any previous year. Just like roads, there is limited capacity on ERCOT system transmission lines. When more power is generated, the more expensive it can be to move that power across the state.
  • ERCOT has become more conservative in its operations since Winter Storm Uri. This is leading to increased costs throughout the system. The ERCOT Independent Market Monitor estimates these costs have amounted to more than $1.5 billion for the first two-thirds of fiscal year 2022.
  • Last fiscal year, Council set the PSA at a level below ongoing costs to reflect the revenues earned by our generation fleet during Winter Storm Uri. That revenue has been fully returned to customers.

Meanwhile, the Regulatory Charge is increasing by $2.45 a month for the typical residential customer.

"The Regulatory Charge recovers Austin Energy’s costs paid to ERCOT for transmission and other regulatory fees and charges," the release states. "Transmission costs are based on Austin Energy’s roughly 4% share of the ERCOT market and determined by the Public Utility Commission of Texas. The Regulatory Charge needs to increase to meet the expenses of rising wholesale transmission costs."

Austin Energy said it will continue working to protect customers from the effects of a changing market and economy.

"Our unique and diverse generation portfolio limits the impact of cost volatility from any one fuel or generation source," Austin Energy said. "We work on a 24/7 basis to monitor and find the most efficient and cost-effective alternatives in keeping with our community’s values and priorities."

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