Item 11- Recommendation 20260309-011 Budget FY26-27 — original pdf

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ELECTRIC UTILITY COMMISSION RECOMMENDATION Date: March 9, 2026 Subject: Recommendations on AE Budget and Potential Rate Increases Motioned By: Seconded By: Recommendation Recommendation against increasing Austin Energy rates for residential customers in FY 2027 and instead beginning a rate case process with FY 2025-26 as a test year, and recommendations for meeting certain Austin Energy Resource, Generation and Climate Protection Plan goals through the annual 26-27 budget process. Description of Recommendation to Council The Electric Utility Commission recommends that further increases in residential rates, including to the fixed monthly charge, should be handled through a rate case, similar to the one implemented in 2022. Austin City Council should begin Austin Energy’s rate case process in 2026 to better keep Austin Energy budgets aligned with costs, while ensuring that rates are justified for all customer classes and that rate design aligns with established policy priorities. As a first step, Austin Energy should conduct an assessment of its costs and revenues, using 2025 as a test case year. The City Council should direct the City Manager to initiate the process of hiring a consumer advocate to represent residential customers in the rate case and should initiate the hiring of an independent hearing examiner to preside over the rate case. In addition, the Electric Utility Commission recommends that City Council ensure there is sufficient staff and programmatic money allocated in the Austin Energy budget to meet the goals established in the Austin Energy Resource, Generation and Climate Protection Plan to 2035, approved by the city council in 2024. Specifically, the FY 2027 budget should ensure that Austin Energy remains or gets on pace to meet its goals related to energy efficiency, local solar, local storage, renewable energy and transmission upgrades to increase its import capacity. Rationale: Austin Energy has an important mission to serve its customers with affordable, clean and reliable energy. The FY 2027 budget and tariffs should maintain the affordable rates approved by City Council in late 2022 and preserve the basic tenets of the rate design approved. In addition, City Council has adopted an ambitious but achievable Resource, Generation and Climate Protection Plan and the budget should reflect that plan. 1 of 3 Item 11 20260309-011 The appropriate amount for the monthly Customer Charge for residential customers and the price differentiation between the residential rate tires were hotly contested issues in the last Austin Energy rate case, in 2022. Austin Energy proposed increasing the residential Customer Charge from $10 per month to $25 per month and proposed reducing the tiered rates from five to three tiers and flattening the price differentials between them. The Independent Consumer Advocate and nearly all other parties to the rate case opposed this proposed increase on the grounds that it was inequitable and would reduce the incentive to conserve energy. Several Austin City Council members also raised similar concerns. As a result, the final decision approved by the Austin City Council was to phase in an increase to $15 per month over the course of three years. The remaining revenues were to be collected in the volumetric rates, which were spread out across four rate tiers. Despite this rate increase, Austin Energy has continued to raise rates through the annual budget and tariff updates. In 2026, as part of the proposed budget, Austin Energy requested and received a 5% increase in base rates in FY 2026 - including the increase in the Customer Charge from $15 to $16.50 (a 27 percent increase) with the remainder of the increase all going to the first tier. Both of these changes reduce the value of conserving energy and discourage energy efficiency investments and behavior changes by customers. Austin Energy is now contemplating a similar request in FY 2027 to increase overall rates by 5%., including an increase in the Customer Charge. Changes in rate design should be handled through a future rate case, not through the annual budget process, which offers very little transparency or opportunity for meaningful involvement by customers. Given that Austin Energy has requested increases to base rates as part of the budget process every year since the last rate case, it appears that scheduling rate cases at a more frequent interval than once every five years would be appropriate. However, even staying on the five-year cycle is currently at risk. The first step in this process is a cost of service study, which typically is conducted the year before the rate case. Thus, we recommend that Austin Energy begin an assessment of the 2025 year as a test year for a rate case, and that the evidentiary rate case process begin no later than January of 2027. This process, which was adopted by previous iterations of the Austin City Council, allows customers of all types the power of discovery and testimony in accordance with City of Austin custom. This process also mirrors the process used to evaluate utility rate requests at the Public Utility Commission of Texas, and was established in part to reassure state lawmakers that Austin Energy is operating with sufficient oversight and in the best interests of customers. Austin Energy has been implementing the Austin Energy Resource, Generation and Climate Protection Plan to 2035. However, in order to continue to make progress toward meeting the goals in the plan, Austin Energy should assure that the budget – including the Community Benefit Charge - is sufficient to make progress in meeting the goals, including the goals to save 975 MW of cumulative energy by 2027; install at least 125 MWs of battery storage by the end of 2027; achieve at least 205 MWs of local solar by the end of 2027 and serving 70% of our load with renewable energy by the end of 2030. Austin Energy should also continue to assure the budget includes provisions to increase local transmission capacity to increase reliability, reduce congestion costs and bring more power into our service area. Vote For: 2 of 3 Against: Abstain: Absent: Attest: [Staff or board member can sign] 3 of 3