Freescale, Samsung snub Austin Energy contracts,

Firms to pay more, but likely plan to negotiate later.

The Austin City Council voted Thursday to offer Austin Energy’s two largest customers a nine-year rate contract that allows them to shave roughly 3 percent off their energy bills over what they otherwise would pay beginning in December.

On Friday, those two customers — Samsung Austin Semiconductor and Freescale Semiconductor — decided to play hardball and reject that offer, choosing instead to pay more money but not be locked into a long-term contract. This raises the possibility of negotiating for better terms later.

Combined, the two tech firms pay between $90 million and $100 million to Austin Energy annually, according to a spokesman for the two firms.

“Our council passed a ‘take it or leave it’ offer that would lock Sam- sung and Freescale into uncompetitive pricing well in excess of the City Council’s stated affordability goal,” according to a statement by Catherine Morse, Samsung’s general counsel and John Holmes, Freescale’s vice president of legal. “We are astounded that the city would abuse its energy monopoly in the region without any meaningful attempt to honor their own energy affordability commitments.”

These two companies are referring to a previously set affordability goal that limits rate increases to no more than 2 percent a year. And they argue that Austin Energy’s industrial customers already pay higher rates than the state average.

But Council Member Kathie Tovo noted that these two companies have been aware since May they could be rolled on to a more expensive rate structure. Tovo said the council’s offer was a better deal than the existing tariff that other large industrial customers pay. And she didn’t agree that Austin Energy’s rates were out of line compared to other utilities. “Our rates are very fair and competitive,” she said.

The City Council had to vote on new rates for Samsung and Freescale because their contracts were set to expire at the end of November. These contracts, which had received a sixmonth extension last May, included rates set 15 years ago.

The new tariff offered to Samsung and Freescale is called “P4” and was created just for customers who use at least 20 megawatts of electric power at a time, enough to power 15,000 to 20,000 homes. Though these rates are slightly higher than what the two tech firms had been paying, they are discounted from what the firms will pay when their contracts expire in late November. At that time, the tech firms will roll on to the existing industrial tariff known as “P3.”

There are two reasons Samsung and Freescale might be able to work out a better deal in the next year-and-a-half than they can right now. The utili- ty is about to embark on a big study of the rates it charges all of its customers, and whether it matches up with the true cost of providing that service. That process should finish in fall 2016.

And then there’s the 2017 Texas legislative session. It’s no secret that in the past legislators have considered partial deregulation of Austin Energy as a way to curb rate increases. That’s a fate that Austin Energy and the City Council want to avoid.

The rates that Austin Energy’s large industrial customers pay are lower than what residential or small businesses pay. But Austin Energy argues that it makes sense to offer lower rates to customers like Samsung and Freescale that use a consistent amount of energy yearround because they are cheaper to service than, for instance, large residential subdivisions that would use an equivalent amount of electricity.