Electric rate plan: Who’d pay less?
Austin Energy proposal would lower rates for top users — but utility says that’s the poor, not the rich.
Conventional wisdom says that Austin Energy’s plan to raise the price of its base electricity rate saddles poor residents with higher bills to help buy down rates for those who use more energy.
There’s just one problem with that: Being poor doesn’t necessarily mean you use less energy.
“Tier 1 is me,” Austin Mayor Steve Adler said of the lowest base electric rate. A millionaire through his law career, Adler calls a downtown condo — filled with hyperefficient appliances — home. That means he doesn’t use much power, even in the summertime.
Many low-income Austinites aren’t so lucky. While Austin Energy doesn’t collect information about all of its customers’ incomes, an analysis by the utility found that customers on its low-income assistance program saw their energy usage soar from the utility’s cheapest energy tiers to some of its most expensive as Austin baked in summer heat.
Why? Adler and some advocates for the poor say that many of these families live in older, less energy-efficient homes, or they might be renters who don’t have a say in whether the home is weatherized or an inefficient air conditioner is replaced.
So as Austin Energy asks for a residential rate revision it says it needs in order to improve its financial stability, it has encountered the age-old questions that
bedevil all political decisions: Who should pay less? And who should pay more?
A balancing act
This balancing act between high and low users on the residential side is the final front as the Austin City Council heads toward a vote, potentially as early as Monday, on Austin Energy’s proposal.
The council vote and the fight over residential rates follows a deal the city utility struck with some of its biggest customers, including Samsung Austin Semiconductor and NXP Semiconductors, which will cut Austin Energy’s revenues by $42.5 million annually by reducing rates.
Much of the savings, about $36.5 million, is dedicated to cutting rates for many commercial and industrial users, who have long complained Austin Energy was charging them far too much. An additional $1 million will go to cutting electric bills for small businesses.
The remaining $5 million will go toward reducing residential rates. Austin Energy plans to use that money to:
Combine its summer and regular electricity rates into one consistent set of rates used year-round.
Significantly reduce the upper-tier rates it charges customers who use larger amounts of electricity.
Increase the rate it charges for its lowest tier, the base charge paid by all customers.
The billion-dollar utility says the changes are important to improve its financial health by making it less dependent on hot weather — and cashing in on large spikes in electricity use — to pay the bills. Under Austin Energy’s current rates, the utility’s only consistently profitable months are in the summer, executives told the council last week.
While Austin Energy’s proposal would save the average customer some money, the low-end Tier 1 user would pay an extra $3.50 annually, according to the latest figures in a proposal that has evolved over the past few weeks.
The politics of increasing the base rate are fraught with complications, largely due to the way the utility’s residential rate structure works.
How the tiers work
Currently, Austin Energy has five different pricing tiers for residential customers.
The rate per kilowatt hour increases in a steplike fashion: The first 500 kilowatt-hours are priced at the Tier 1 rate; the second 500 kilowatt-hours used are priced at the higher Tier 2 rate; and so on.
Proponents of this structure have long argued it helps promote conservation by dramatically increasing the cost of power for those who use the most, providing an incentive for people to weatherize their homes and buy more efficient air conditioners and appliances.
Adding further complexity to the system, each of those tiers has a special, higher rate during the summer. (There is also a discount program to assist low-income families.)
While Austin Energy’s plan to switch to consistent yearround rates has generated little controversy, its plan to cut prices for the upper tiers but increase it for the first tier — flattening the rate structure — has been controversial.
Activists have charged that the proposal undermines the conservation-driven nature of the rate structure, and they’ve argued that it’s a giveaway to richer customers on the backs of the poor ones. The theory here: Poor people use far less electricity than rich people, because they can’t afford it.
“Study after study shows that low-income people use less energy,” said Paul Robbins, a longtime utility activist. “It is almost biblical in its stature; it’s just assumed in this industry.”
Austin Energy suggests otherwise
Robbins says his own analysis of electricity use by ZIP code, when paired with income data from the U.S. Census Bureau, bears him out.
But a measure the utility came up with — which examined the energy consumption habits of customers registered for its low-income bill discount program — contradicts Robbins’ finding, at least in part.
Instead of looking at a yearly average, as Robbins did, the utility examined electric usage for two months: April 2015 and August 2015, which represented Austin’s two seasons — hot and not. And in August, energy usage among these poorer households surged, sending them into the utility’s expensive, high-usage tiers (albeit with the discounts provided to those low-income customers).
Indeed, low-income households in the utility’s customer assistance program, known as CAP, made up the majority of the households in Austin Energy’s third and fourth highest-rate tiers in August, even though they account for less than 10 percent of the utility’s total customers.
Adler said the utility’s math makes sense, since poorer customers often live in older homes with less energy efficient air conditioners and appliances.
Even so, Council Members Delia Garza, Greg Casar and Ann Kitchen asked Austin Energy executives in a variety of ways last week if it would be possible for them to forgo the Tier 1 increase.
Adler eventually joined that call as well, asking utility executives to study the matter before Monday’s hearing.
“Voting for a rate increase for some people — even though not most people — for some people, we can vote that away and still take the incremental step towards where it is they want to go,” Adler said.