Item #5 - Austin Energy Residential Rates Presentation — original pdf

Backup

Austin Energy 2022 Base Rate Review Joint Committee on Sustainability Mark Dombroski Chief Financial Officer October 26, 2022 © 2022 Austin Energy Austin Energy 2022 Base Rate Review Introduction to the Base Rate Review https://austinenergy.com/ae/rates/2022-base-rate-review 2 Austin Energy 2022 Base Rate Review Only Two Base Rate Changes Since 1994 2013: 6.4% increase 1994 – 2013 2013 - 2017 2017 - 2023 1994 – 2013: No change for nearly 20 years 2017: 6.7% decrease Austin Energy’s Proposed Base Rate Increase for 2023 is 5.6% 3 Austin Energy 2022 Base Rate Review Base Rates Are Used to Recover Fixed Costs – Not the Cost of the Electricity Supplies & Equipment Tree Trimming Principal + Interest Payments Employees General Fund Transfer Information Technology Excluded: • Power Supply Cost • Customer Assistance Program • Energy Efficiency Programs • Streetlights • Transmission-related Costs • District Energy and Cooling 4 Austin Energy 2022 Base Rate Review Recovering Fixed Costs at a Variable Energy Rate (kWh) is the Challenge This drives base costs Customer growth drives increased infrastructure investment and higher operating costs. Steady Customer Growth This drives base revenues Relatively Flat Sales 20% 18% 16% 14% 12% 10% 8% 6% 4% 2% 0% 2014 2015 2016 2017 2018 2019 2020 2021 Customers Energy Use (kWh Sales) Not Adjusted for Weather Source: Fund Summary Statements 2014-2021 5 Austin Energy 2022 Base Rate Review Commercial Customers Continue to Subsize the Residential Customers $30.1 $18.4 $12.4 $7.2 Above cost of service $(24.0) Below cost of service $0.0 -$40.0 $(35.7) $40.0 $20.0 $0.0 -$20.0 $ f o s n o i l l i M -$60.0 -$80.0 $(70.2) Austin Energy Residential Secondary 1 Secondary 2 Secondary 3 Primary 1 Primary 2 Primary 4 Transmission Transmission 2 Streetlighting Current Rates Proposed Rates Data presented in Comparison of Cost of Service, Current Base Rates, and Proposed Base Rates, Schedule G-10.2 Austin Energy Base Rate Review 2022 6 Austin Energy 2022 Base Rate Review Timeline of Major Events for the Base Rate Review Process Key Events Release of Austin Energy Base Rate Proposal and Cost of Service Model to the Public Eight Public Outreach Meetings (Virtual and In-Person) Two Technical Conferences for Intervenors Discovery Period Three-Day Conference with Impartial Hearings Examiner Impartial Hearings Examiner’s Report City Council Work Session Electric Utility Commission – testimony allowed City Council - Public Hearing – testimony allowed City Council Work Session and Austin Energy Utility Oversight Commission Austin Energy Utility Oversight Commission – invited testimony from AE, IHE, ICA, all base rate participants November 9, 2022 Austin City Council Regular Meeting, Public Hearing, and Vote on Base Rates – testimony allowed December 1, 2022 New Base Rates Effective Dates April 18, 2022 April 19 – May 12, 2022 May 5 and 18, 2022 April 18 – June 8, 2022 July 13 – 15, 2022 September 9, 2022 November 1, 2022 November 14, 2022 November 15, 2022 November 29, 2022 ≈90-days after adoption 7 Austin Energy 2022 Base Rate Review Assumptions Used in Policy Recommendations 8 Austin Energy 2022 Base Rate Review Assumptions in the Joint Sustainability Committee Recommendation on Austin Energy Residential Rates WHEREAS, proposed changes to Austin Energy’s Residential electric rate structure threaten further progress in energy efficiency by dramatically removing price signals to conserve; and WHEREAS, since low-income utility customers generally use less energy than average customers, changing Austin’s progressive electric Residential rate structure that discourages consumption will make bills more burdensome to the lower and moderate income residents; and WHEREAS, Austin Energy has made a proposal in its current rate case to completely replace the current progressive rate structure with one that rewards more consumption; and WHEREAS, Austin Energy’s current $10 per month Customer Charge is on par with other Texas municipal utilities and the proposed $25 per month Customer Charge would be an outlier compared to other Texas municipal utilities; 9 Austin Energy 2022 Base Rate Review When Consumers Use Less, They Can Reduce Their Variable Costs Car Cost (Fixed) Fuel Cost (Variable) Base Rate Cost (Fixed) Power Supply Cost (Variable) Efficiency or Conservation Measure Take the bus to work and drive fewer miles Efficiency or Conservation Measure Turn the thermostat up to consume fewer kWh Impact Same car cost but less fuel cost Impact Same base rate cost but less power supply cost 10 Austin Energy 2022 Base Rate Review Energy Efficiency and Conservation are Driving Reduction in Electric Use The typical U.S. household now uses more air conditioning, appliances, and consumer electronics than ever before. However, average annual site energy use per home has declined. The reasons for this decline include: • Improvements in building insulation and materials • Improved efficiencies of heating and cooling equipment, water heaters, refrigerators, lighting, and appliances • Population migration to regions with lower heating— and thus lower total energy—demand https://www.eia.gov/energyexplained/use-of-energy/homes.php The decline in average household site energy consumption has offset the increase in the number of homes overall, resulting in relatively flat residential sector energy consumption since the mid-1990s 11 Austin Energy 2022 Base Rate Review Trend in Residential Consumption: All Homes are Becoming More Energy Efficient Single Family Multi-Family Overall, 1123 kWh 1 4 1 1 , 5 4 1 1 , 8 6 1 1 , 8 8 1 1 , 9 6 0 1 , 5 1 0 1 1 4 9 1 5 8 2 5 7 9 5 6 L L I B R E P H W K 1,400 1,200 1,000 800 600 400 200 0 2 1 0 2 e r P L L I B R E P H W K 1,200 1,000 800 600 400 200 0 4 5 6 2 1 0 2 e r P Overall, 613 kWh 8 3 5 2 1 5 8 5 5 1 3 5 2 9 4 4 1 5 4 5 4 4 9 3 6 3 3 2 1 0 2 3 1 0 2 4 1 0 2 5 1 0 2 6 1 0 2 7 1 0 2 8 1 0 2 9 1 0 2 0 2 0 2 2 1 0 2 3 1 0 2 4 1 0 2 5 1 0 2 6 1 0 2 7 1 0 2 8 1 0 2 9 1 0 2 0 2 0 2 YEAR RESIDENCE BEGAN SERVICE YEAR RESIDENCE BEGAN SERVICE Figure 7-9: Consumption per Premise by Year of Initiation of Service, Single-Family v. Multi-Family Austin Energy Base Rate Review 2022, page 85, published April 18, 2022 12 Austin Energy 2022 Base Rate Review Residential Summer Consumption Patterns Dramatically Changed Between 2009 and 2021 Tier 1 Tier 2 Tier 3 Tier 4 Tier 5 Bills with less than 1,500 kWh increased by 78%, while bills greater than 1,500 kWh decreased by 12%. s l l i B l a i t n e d i s e R f o s d n a s u o h T 400 350 300 250 200 150 100 50 0 250 500 750 1000 1250 1500 1750 2000 2250 2500 2750 3000 3250 3500 3750 4000 Monthly Energy Use in Kilowatt Hours FY 2009 FY 2021 13 Austin Energy 2022 Base Rate Review Bunching Analysis: Elasticity of Demand for Electricity The Theory: Customers respond to tiered prices by reducing consumption. 10.81 ¢ 9.31 ¢ 7.81 ¢ If customers responded to tiered pricing signals, they would “bunch” at the top of a tier to avoid moving into the next tier. s l l i B 250 200 450 400 350 300 150 100 50 0 5.83 ¢ 2.8 ¢ 100 600 1100 1600 2100 2600 3100 3600 Monthly kWh Figure 7-13: Hypothetical Bill Frequency Histogram under Hypothetical “Bunching” Austin Energy Base Rate Review 2022, page 91, published April 18, 2022 14 Austin Energy 2022 Base Rate Review Bunching Analysis: Elasticity of Demand for Electricity The Reality: Customers do not respond to tiered prices(1). 11.00 ¢ 11.40 ¢ 9.10 ¢ 8.00 ¢ Customers smoothly crossed 145,000 Customers over tiers with no “bunching” at the top. Indicating they were not responding to tiered pricing signals. 4.0% 3.5% 3.0% s l l i B f o % 2.5% 2.0% 1.5% 1.0% 0.5% 0.0% 3.30 ¢ 4 9 9 9 9 9 1 4 9 9 2 4 9 9 3 4 9 9 Actual Rates Figure 7-14: Actual Residential Bill Frequency Histogram, kWh per Month, using 2013 – 2016 Billing Data Austin Energy Base Rate Review 2022, page 92, published April 18, 2022 (1) Figure represents a population of 145,000 customers with continuous service who resided in single-family residences within the City of Austin from 2013 through 2016. Tier pricing reflects summer base rates approved in the 2012 Base Rate Review. 15 Austin Energy 2022 Base Rate Review Reduction in Residential Consumption Nearly Identical for Both 3-Tiered and 5-Tiered Pricing • Residential customers outside the City of Austin have seen a similar reduction in the average kWh per month as customers inside the City of Austin • Outside the City of Austin, customers use 3 tiers rather than 5 tiers of pricing • Indicates the number of tiers does not directly contribute to reduced energy consumption h W k e g a r e v A n i e g n a h C d e x e d n I 105 100 95 90 85 80 75 2012 2013 2014 2015 2018 2019 2020 2021 2016 2017 Fiscal Year Inside COA Outside COA Figure 7-12: Indexed Trends in Average kWh Energy Consumption, Inside-City v Outside-City Residential Customers, 2021 to 2021 Austin Energy Base Rate Review 2022, page 89, published April 18, 2022 16 Austin Energy 2022 Base Rate Review Tiered-Based Rates and Social Policy • The concept of progressive and regressive rates is inspired by tax policy and not utility rate making. A progressive tax imposes a lower tax rate on lower-income consumers. In contrast, a regressive tax is imposed uniformly, resulting in lower-income consumers using a larger portion of their income for tax. • Utility fees and charges are not taxes. A tax has the primary purpose of raising revenues for a governmental entity. A utility recovers the cost of providing a commodity from consumers. • Tiered rates are “income blind” and apply to all customers. All customers have kWh sold in Tier 1 and receive a heavy subsidy from commercial customers and residential customers with sales in higher tiers, regardless of income level. All customers with kWh sold to them in Tiers 4 and 5 subside sales in Tiers 1 and 2, regardless of income level. 17 Austin Energy 2022 Base Rate Review 5-Tiered Structure Disproportionately Recovers Costs from Our Vulnerable Customers • • • On average, in FY 2020 CAP customers used 11.1% more energy than non-CAP 39.6% of our CAP customers are billed at the higher tiered rates, while only a 29.4% of non-CAP customers are in those tiers Some high-income households do not use much electricity, and some low-income households use a lot 36.2% 36.9% 34.3% 23.5% 23.6% 16.3% 14.2% 9.8% Tier 1 Tier 2 Tier 3 Non-CAP Tier 4 CAP Figure 7-29: Proportion of Consumption in Each Tier Under Current Rates, CAP v. Non-CAP Residential Customers, FY2020 Austin Energy Base Rate Review 2022, page 107, published April 18, 2022 3.3% 1.8% Tier 5 18 Austin Energy 2022 Base Rate Review Lower Income does not Always Translate to Lower Consumption: Unintended Consequences 2020 Monthly kWh Consumption Boxplot 78701 78724 78701 (Downtown) 78724 (Northeast) • $448k (median housing value) • $147k (median housing value) • $122k (household median • $50k (household median income) • 0.2% (CAP) income) • 21.9% (CAP) • 78% (Bachelor or higher) • 15% (Bachelor or higher) • 1.6 (household size) • 3.7 (household size) • $3.4m (revenue) • $10.7m (revenue) • $66 (average bill) • $102 (average bill) • 18.4% Single Family • 74.4% Single Family • 26.3% Built post-December • 19.4% Built post-December 2014 2014 1600 1400 1200 1000 800 600 400 200 0 25th percentile 75th percentile Figure 7-30: Comparison of Income-Related Demographics, Census Data, Zip Codes 78701 and 78724 Austin Energy Base Rate Review 2022, page 108, published April 18, 2022 19 Austin Energy 2022 Base Rate Review Residential Consumption, Customer Charges, and Tiered Base Rates for Texas Utilities Utility Customer Charge (1) Number of Tiers (1) Average Consumption 2020 (kWh) (2) Reduction In Average Residential Consumption Between 2013-2020 (2) Lubbock(3) $8.07 San Marcos $10.25 Bluebonnet Co-op $22.50 CPS Energy $9.10 New Braunfels $17.06 Pedernales Co-op $22.50 Austin Energy $10.00 One One One One One One Summer adder >600kWh 5 Inside City 3 Outside City Georgetown $24.80 One 959 917 1,225 1,099 1,209 1,209 851 860 0.00% -2.00% -4.00% -6.00% -8.00% -10.00% -12.00% (1) (2) (3) Respective published tariffs as of September 19, 2022 Energy Information Administration Form 861 Data for Calendar Year 2020, published October 2021 Lubbock Power and Light was not located in ERCOT in 2021 20 Austin Energy 2022 Base Rate Review Inside City of Austin Residential Rate Structure and Pricing Comparison $10.00 Customer Charge Price per kWh Current kWh (1) Below Cost of Service Below Cost of Service 2.801 Tier 1: 0-500 kWh 5.832 Tier 2: 501-1000 kWh Approximately Cost of Service 7.814 Tier 3: 1001 – 1500 kWh Above Cost of Service 9.314 Tier 4: 1501 – 2500 kWh Above Cost of Service 10.814 Tier 5: > 2500 kWh $25.00 Customer Charge Price per kWh Proposed kWh (1) Below Cost of Service 3.633 Tier 1: 0-300 kWh Approximately Cost of Service 4.133 Tier 2: 301-1200 kWh Above Cost of Service 4.633 Tier 3: > 2500 kWh Total Total (1) kWh represents Test Year 2021 weather normalized sales as used in the Austin Energy Base Rate Proposal 2,193,948,158 1,024,259,393 374,842,802 193,880,427 68,248,112 3,855,178,893 1,443,616,801 1,970,938,514 440,623,577 3,855,178,893 As a % 56.9% 26.6% 9.7% 5.0% 1.8% As a % 37.4% 51.1% 11.4% 21 Austin Energy 2022 Base Rate Review Austin Energy and the Joint Sustainability Committee Have Shared Goals • Encourage and incentivize energy efficiency and conservation • In FY 2023, the Customer Energy Services budget was increased from $45 million to $47 million • The single largest increase in Fy 2023was in the solar budget, increasing from $3 million to $6 million • In FY22, Austin Energy Green Building partnered with Austin Housing and Planning department to ensure more than 66% of the multifamily projects and 18% of the single-family homes were in SMART housing developments. Austin Energy Green Building is holistically addressing sustainability, helping customers save not only on their energy bills, but also helping to reduce water use and promote healthier buildings • Customers who use more energy will continue to see higher bills • Austin Energy proposes to maintain 3-tiered pricing in base rates • Customers who conserve energy will continue to enjoy lower power supply costs • Recovering fixed costs from a fixed charge (Customer Charge) helps to ensure new customers are paying their share of system growth • Low-income customers on CAP can be protected from base rate increases • Customer Charge is waived from CAP customers and 10% on the remainder of the bill • Recognized that CAP customers tend to have slightly higher consumption than non-CAP • Auto-enrollment plus greater community outreach can expand participation in the program 22 ©2019 Austin Energy. All rights reserved. Austin Energy and the Austin Energy logo and combinations thereof are trademarks of Austin Energy, the electric department of the City of Austin, Texas. Other names are for informational purposes only and may be trademarks of their respective owners.