City Council discusses Austin Energy utility rate hikes

AUSTIN, Texas - Electricity bills are going up in Austin. Essentially, that’s already been decided.

On Tuesday, during a work session, city council members tried to figure out how to minimize the impact on family budgets.

"This is a hard one, right. Because this is, this is, a shock to ratepayers," said Mayor Steve Adler.

The coming shock is the result of a supply and demand gap. Simply put, the current rate customers pay is not covering the cost for the fuel that power plants need to generate electricity.

"One of the hottest summers in Austin history happened. We had a 14% increase in usage form our customers. We also saw a 108% spike in prices for natural gas. And War in Ukraine is driving that market volatility as well," said AE Spokesperson Matt Mitchell.

For the past several months, Austin Energy has been spending money to make up the fuel cost gap and wants to recover what’s been spent.

"Austin Energy uses its cash reserves to pay for the cost of energy over the course of the summer and recoups those fees by way of a Rate Adjustment every November," said Mitchell.

Writing it off, according to Mitchell, is not a viable option because AE is a publicly owned utility. He went on to say that depletion of cash reserves would put the utility in a difficult financial position and hinder its ability to provide reliable energy. 

To close the summer fuel cost gap, and address what’s paid going forward, Mark Dombroski, Chief Financial Officer with Austin Energy offered two rate hike options.

• Option 1: An average residential customer could see a $20 a month increase for the next 12 months.
• Option 2: Lowering the cost to $15 a month by spreading it out over a three-year period.

Commercial rates are also going up.

"The huge jump is really the base rate. So to me that’s where Option 2 is what I'm going to support," said Austin Council member Kathie Tovo District 9.

A formal vote on the rate hike will come Thursday, but the outcome is far from settled.

"I'm really torn, honestly. My sense would be to get it over with, honestly. Just because we don’t know what’s happening with the economy with the Feds raising interest rates, we could be in a worse economic situation next year," said District 4 council member Jose "Chito" Vela.  

That dark economic forecast was acknowledged by Austin Energy.

"We recognize for our customers it’s a huge economic burden, and we are trying to share some of that risk, with them on the short term through Option 2, so we can recommend Option 2, report back to you, but it doesn’t come without a risk," said Dombroski.

To address the risk, council members may give Austin Energy the authority to make small rate adjustments in years when there is similar market volatility.

If the gap rate hike is approved Thursday, it would take effect Nov. 1. At that point, the council will start discussing a proposal to increase the base rate for electric bills with a vote set for December. 

A wildcard in all this is the Brazos Electric Power co-op which owes Austin Energy almost $30 million, recovering some of that could trigger a rebate debate.