Recommendation on Austin Energy Rates. Agenda item #7 — original pdf

Backup

Joint Sustainability Committee Recommendation on Austin Energy Rates 20260722-007 Date: July 22, 2026 Subject: Recommendation on Austin Energy Rates Motioned By: Seconded By: Recommendation Recommendation to delay any Austin Energy rate increase until after a rate case process that includes a consumer advocate and full opportunity for customers to formally engage in the process. Description of Recommendation to Council The Joint Sustainability Committee recommends that the City Council refrain from increasing Austin Energy rates until after a rate case process, similar to the process implemented in 2016 and 2022. The Austin City Council should begin the public portion of Austin Energy’s rate case process in 2027 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. In preparation, the Austin City Council should ensure that Austin Energy conducts an assessment of its costs and revenues. 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 2027, with the goal of approving new rates in 2027 that are fair for all customers. Rationale: Following a challenge of Austin Energy rates to the Public Utility Commission of Texas (PUCT) in 2012, the City Council established a process for evaluating proposed rate changes that is similar in many ways to the process used by the PUCT. The purpose of utilizing this rate case process is to ensure that rate increases are justified, demonstrate that Austin Energy is operating with sufficient oversight and in the best interests of customers, and better ensure that rates will hold up to scrutiny by the PUCT and state lawmakers. Austin Energy has requested and received base rate increases outside of the established rate case process, has now requested another 5% increase and has stated that it plans to request 5% increases for the coming four years. These significant rate increases each year are a threat to affordability. It is also possible that any rate increase that is needed is being caused more by one customer class than another, which would make the 5% increase applied to all customer classes unfair. The appropriate amount for the monthly Customer Charge for residential customers, the break points for the residential rate tiers, 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. 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 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. Changes in based rate amounts and 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, Council should schedule a rate case as soon as possible. The first step in this process is to start the hiring process for an independent hearing examiner and a residential and small commercial consumer advocate, followed by a cost of service study, which typically is conducted the year before the rate case. The evidentiary rate case process allows customers of all types the power of discovery and opportunity to provide expert testimony. Vote For: Against: Abstain: Absent: Attest: [Staff or board member can sign]