Paying the Gas Bill…for the Next 16 Years

Paul Robbins, Editor, Austin Environmental Directory

There Be Pirates!

Starting October 1 of this year, Texans homes and small commercial businesses that use natural gas for heating, water heating, and cooking will begin to pay a huge surcharge on the fuel they purchase. The surcharge (some would call it tribute) of $1.11 per thousand cubic feet (MCF), will increase fuel costs by 21%. (This assumes a four-year average of Residential gas bills in Texas from 2019 to 2022). This is an overall increase of about $51.  This annual charge might last until the year 2039, 16 years from now.

Given the fuel-cost percentage of the overall bill, the surcharge will increase overall gas utility expenses for the average Texas home by about 8%. (Again, this uses the average bill from 2019 to 2022.)

This surcharge is meant to pay $3.5+ billion “securitization” bond to finance the exorbitant fuel costs charged by gas supply companies and traders during Winter Storm Uri.

Most Texans reading this will recall the cruel frigid storm in mid-February.  Many Texas cities set new records for the number of hours at or below freezing. Between February 14-19, 2021, there were 771 daily records or ties of records for lowest minimum daily temperatures at 194 Texas weather stations.

The extreme weather was layered onto failure of the natural gas and electricity supplies. This was caused by lack of preparation for the storm, as well as skimping on winterizing the infrastructure that would make energy supplies and generators more resilient to cold weather.

To add to the calamity, Texas was shipping Liquefied Natural Gas overseas at the same time its own people were freezing.

At one point, almost 40% of customers on the ERCOT (Texas) grid were without electricity.

As many as 978 deaths were caused by the storm. The Perryman Group estimated $195 billion to $295 billion due to property damage, lost income from business closures, and crop losses.

The desperate effort to secure adequate supplies of natural gas for heating and power plants caused prices to soar to unbelievable levels. Typical gas prices in Texas at the time soared from an average of $3 to $4 per Million BTUs to as high as $400. There were reports of prices in Oklahoma as high as $1,200.

Gas Cost Per Million BTUs in February 2021

Paying these astronomical costs in real time would have been too onerous, so the Texas Legislature passed a bill that essentially mortgages (at rates exceeding 5.1%) these billions of dollars over as long as 16 years.

The number of years might decrease depending on the growth of gas customers. The more growth, the more customers and consumption that can be used to increase payments and reduce the time needed to retire these bonds. However, this higher cost may have the opposite effect by reducing the competitiveness of the fuel.

Some environmentalists want to stop all new natural gas hookups to reduce global warming. In response, the Texas Legislature passed a law forbidding cities within the state to do this. It is ironic that this surcharge helps the cause of reducing gas hookups. The environmentalists here do not have to raise a finger. In this case, the gas industry is its own worst enemy.

Assigning Blame

Pipeline Companies

Two companies that reported incredible profits after the storm included Energy Transfer and Kinder Morgan. Their Texas intrastate pipelines are scantly regulated, and they sold gas they had placed in storage at huge markups. Energy Transfer reportedly made $2.4 billion, and Kinder Morgan made about $1 billion, as a result of desperate price escalations.

Another pipeline company, Energy Product Partners, made about $250 million from the crisis.

Energy Traders

Traders also made a killing (no pun intended).

Petroleum giant BP reportedly made about $1 billion from the opportunity, greatly boosting its quarterly profits from other energy sales and services to a total of $2.6 billion.

The Australian company Macquarie Group made about $234 million. The trading arms of Goldman Sachs and Bank of America also reportedly did well. Goldman was estimated to have cleared about $200 million from this crisis of opportunity, though some of this may have been lost due to utility defaults and bankruptcies.

Gas Utilities

The major gas utilities in Texas, most notably Atmos, CenterPoint, and Texas Gas Service, will be quick to defend themselves by saying they do not make a profit on any fuel they sell. Fuel, to them, is a pass-through cost. They will lay blame on the companies that made these profits.

However, these gas utilities are charged with buying affordable and adequate supplies of fuel. In this sense, they failed, and their customers are paying for their mistakes.

The Texas Legislature

The Legislature never made a successful effort to claw back the excess profits made by the gas industry. There was a bill drafted in the 2023 session to use surplus money in the state budget to pay for this debt. However, it could not gain support.

The Legislature has also never enabled Residential gas customers to buy their own supplies on the open market. It seems strange that while Texas has deregulated most electric customers in ERCOT to purchase their electricity competitively, they are not allowed the same ability with gas service.

Larger Texas Commercial and Industrial customers have this ability, where the gas utility becomes a common carrier for lower-cost fuel procured elsewhere.

Nationwide, almost 20% of gas utility customers have customer choice programs. The percentage of customer choice participants in Georgia and Ohio exceed 80%.

Had customer choice been in effect in Texas during Winter Storm Uri, would it have made a difference in price and reliability?  I cannot say with certainty. But any company that intended to stay in business should have had firm contracts, and an extra incentive to prepare for extreme weather.

In the spring of 2022, Austin Energy began a proceeding to raise rates.  Among other things, the utility intends to raise most Residential bills by jaw dropping amounts: 18 to 84%, depending on the consumption level.

Below is testimony that presented in the proceedings against these bill increases.

Testimony of Paul Robbins

Austin Energy Rate Case

July 15, 2022

1. Austin Energy (AE) New Proposed Residential Rate Does Not Benefit Customers With Low-Incomes.

Austin Energy has proposed a new Residential rate structure.  By the utility’s point of view, it is required to maintain fiscal integrity.  By critics’ standards, including this intervener, it is draconian to the point of cruelty.  The only shared opinion between these polarities is that it is radically different from the current one.

In an effort to make the rate more acceptable, Austin Energy has made the claim that its new rate actually helps low-income customers.  On p. 23 of “Austin Energy Residential Base Rates 2022 Review Process,” presented in April and May of this year to various stakeholders in the Community, AE included a chart (Exhibit 1) that was intended to display that ratepayers enrolled in the Customer Assistance Program low-income discount program have slightly more consumption than average AE customers.

When I questioned Mark Dombrowski, Chief Financial & Administrative Officer of the utility during the June 13 rate hearing, he stated that CAP was used as a proxy for all poor ratepayers in Austin.

However, CAP only represents about 7% of AE Residential customers (7% is documented in Exhibit 1).  Households at 200% of the poverty level, the target for CAP participants, represent about 28% of households in the City of Austin (Exhibit 2).

More contradictory is that during discovery, Austin Energy provided me with data that quantifies how much average electricity is consumed per zip code by house type (single family, multiunit housing, and apartments) for all Residential customers in 2020.  (Exhibit 3 and Exhibit 3 Worksheet.). Matching this consumption to income data in the American Community Survey of the U.S. Census proves an entirely different outcome: consumption tracks income (Exhibit 4).

When I asked Mark Dombrowski why this data was not used instead of the more limited CAP data during rebuttal, he replied that the zip code data was not granular enough since it did not include housing type.

When I informed him that this was erroneous during questioning on June 13, and again asked why the larger dataset of consumption was not used, he had no cogent response.

When I asked him during Rebuttal Discovery what effect this radical restructuring of rates would have on low-income people, he referred me to Table 8-B, p. 133, and 8-D, page 135 in the Base Rate Filing Package showing a range of very small increases to actual bill savings for customers enrolled in the Customer Assistance Program (Exhibit 5).  But he failed to note that the reductions were almost entirely due to increased discounts in the CAP program.

2. Continuing CAP Enrollment Problems

Due to a history of problems in the CAP automatic enrollment procedure, some of the people who are enrolled in CAP are not poor.  Between 2014 and 2020, I have repeatedly proven that some wealthy customers are being enrolled in a program meant to serve customers at or below 200% of the poverty level.

I would have gathered evidence specific to this rate case.   However, the City of Austin supported a state law that passed in 2021 restricting the flow of information that was formerly provided to me, so it is currently not possible to search out further waste.

Suffice to say that if large, more expensive homes and homes with wealthier customers are averaged into the CAP roles, consumption will be higher, and Austin Energy figures showing CAP enrollees as consuming more energy will not be completely reflective of low-income consumption.  Mark Dombrowski admitted this during Direct on July 13, 2022.

Austin Energy, to my knowledge, has never done its own publicly-available study of potentially undeserving customers, instead responding (usually defensively) my criticism.

Below is a photo of the home owned by a customer receiving the CAP discount in 2020 at another property that they own.  Note the tennis court in the bottom left corner.

Enrolling large and expensive homes in CAP distorts the argument that CAP participants have higher consumption than average customers.

The name of the owner of this home came from a Public Information Request made to the City of Austin in 2020.  Austin Energy refused to provide an updated version for this rate case, hence my Special Motion to Compel from July 11, 2022.

3. Austin Energy Using Misleading Benchmarks Comparing Residential Rates

On Table 10-A, p. 152, of AE’s Rate Base Filing Package (Exhibit 6), the utility showed a (supposed) peer group of utilities which have high customer charges similar to the one it proposes.  This is an attempt to normalize its draconian position on rates.

However, Austin Energy’s real peer group is Texas municipal utilities.  While the City of Georgetown meets this criteria, note that Georgetown has not generated its own electricity since W.W.II.

All of the other Texas municipal utilities prioritize affordable access to Residential electric service, and have much lower customer charges.  The chart below (Exhibit 7) lists monthly charges for the larger Texas municipal utilities as of June 20, 2022.  As compared, Austin is very close to the average.

To my knowledge, none of these utilities are facing bankruptcy or credit downgrades because they have lower monthly charges than Austin’s proposed rates.

4. Austin Energy is Increasing CAP Subsidy to Compensate for Radical Rate Restructuring

The utility proposes a $6.1 million, 73% increase in the overall program discount given to them.  This will increase pass-through costs of the Community Benefit Fund (Exhibit 8).  Adjusting for 2021 Residential consumption and the In-City CAP charge, this would increase Residential Bills by $11.15 per year per customer on top of the rate increase already proposed for the 93% of Residential customers who will pay for it (Exhibit 9).  This is tantamount to a hidden rate increase, but since it will be paid as a pass-through cost, it does not show as one.

But as stated in Point 1, many customers absorbing this CAP increase are, ironically, also low- or moderate-income.  Even though they are poor, they do not receive the discount.

5. Austin Energy Uses Faulty Analysis to Justify Radical Rate Restructuring

By using an analysis that shows an astounding trend of new efficiency in newer Residential customers (Exhibit 10 and Exhibit 11), Austin Energy attempts to justify the need to create a much more regressive rate structure in order to collect adequate revenue.

There are several problems with this analysis, however.

• The analysis does not account for customers who have their HVAC needs met with a central system, such as downtown condos and homes with shared geothermal loops. (Exhibit 10.)

• The study does not consider that customers in older dwellings will also become more efficient over time. While a new home has its appliances (e.g., HVAC, refrigerators) immediately installed to national appliance standards, older homes will install appliances with higher standards when their older machines are replaced.

• Austin Energy has not discussed how consumption in rental units in the study might be influenced by consumption through the customers enrolled in the Continuous Service Program (also known as the Multifamily Partners Program). (Exhibit 12.)

6. Austin Energy Seeks to Eliminate Its Progressive Residential Rates

The City of Austin has encouraged a culture of energy conservation since the 1980s.  Between 1982 and 1997, a separate City department was in charge of programs related to energy efficiency retrofits, the energy building code, and the green builder program.  In 1997, these programs were merged into Austin Energy.

These programs, combined with progressive electric rates that discourage use, have resulted in the lowest Residential consumption of any major utility in ERCOT.  However, recent positions and actions by the utility question its commitment to energy efficiency.

According to the annual Energy Information Agency 861 report, in 2020, Austin Energy’s average consumption of 10,212 Kwh was 25% lower than the ERCOT average.  Only 1% of ERCOT’s 9.6 million Residential customers had lower average consumption than Austin.

While Austin Energy has had some type of progressive Residential rate structure since 1981, it began its steeply progressive 5-tier system in 2013.  Since then, there has been a profound drop in consumption of 13%.  (This is not weather normalized.)

While some amount of this can be attributed to the three other efficiency strategies previously cited, or attributed to increase efficiency of federal appliance standards, some of it can be attributed to price elasticity of electric costs that drive consumption down.

Eliminating the progressive rate structure that Austin Energy currently employs will discourage energy conservation.

Price elasticity is an established principle of rate making.  Any number of national and international studies confirm its merits.  Below is one chart from a recent report by the Energy Information Administration.  Note that the longer elasticity continues, the more energy savings will accrue from it.  This is because instead of just short-term modified behavior, efficient appliances and structural energy retrofits are more likely to occur.

Austin Energy has disparaged the progressive rates as a “brutal price signal to focus on conservation” because it allegedly prevents it from collecting enough revenue.

Austin Energy has tried to dismiss price elasticity in its Base Rate Filing Package.  In Table 7-14 on p. 92 (Exhibit 13), Austin Energy displays a graph attempting to show that price elasticity is irrelevant to Austin’s situation.

However, in response to a directed question to Mark Dombrowski on July 13, 2022, he admitted that this chart did not include monthly fees, fuel costs, regulatory charges, and the Community Benefits Fund.  Since these costs profoundly alter what customers really pay, they would alter the conclusions had the methodology been adjusted.

7. Growth and Increased Cost

In 2014, the Austin City Council passed an ordinance mandating that Austin Energy collect 100% of its costs for serving new customers.  This ordinance actually led to a rate decrease in 2016.

However, Austin Energy is partially justifying its rate increase because of increased expenditures for growth to the system.

During rebuttal (Exhibit 14), Mark Dombrowski stated that while new customers were being charged full cost for connecting to the system, new customers were exempt from larger improvements to the general electric system.

If this is correct, then it shows a double standard between Austin’s water and electric utilities.

Attached is an excerpt from the “Water and Wastewater Impact Fee Reports” from the Austin Water Utility for 2018 (Exhibit 15).  (Note that “Exhibit A” appears in the evidence, and is not part of the numerical sequencing of this presentation.)

The study shows pumps stations, transmission mains, reservoirs, water treatment plants, and other infrastructure common to all water customers is part of the capital recovery fees.  Capital Recovery Fees are similar in many respects to CIAC in electric systems.

8. Biomass Plant Savings

It has yet to be determined if the biomass plant will be included in base rates.

If it is included, there are 2 potential points of savings this intervener has identified.

The first is a longer amortization period.  The Nacogdoches power plant will be amortized over a 20-year life, including 10.25 more years with Austin Energy as its owner.  Power plants are typically designed for 30 years.  Extending the amortization by another 5 years (to a total 25-year life) will save about $11.8 million a year.  This assumes current balance and current 1.52% interest (inferred from evidence).  This does not consider times coverage.  (Exhibit 16.)

The second is to reduce taxes paid to local governments.  Austin Energy is a tax-exempt entity.

Taxes in 2021 totaled over $1.4 million (Exhibit 17).

9. Customer Assistance Program (CAP)

Austin Energy has experienced chronic and long-standing problems with its discount program for the poor since it was implemented in 2013.  Some ratepayer money is being misspent by awarding discounts to the wrong customers through its profoundly flawed automatic enrollment program.  This has repeatedly led to documented and embarrassing revelations of Austin Energy customers with documented high-property wealth being on the CAP roles.

Austin utilities spend about $2.8 million a year administering this program.  Austin Energy’s share of this is about $1.3 million, and it is paid for in base rates (Exhibit 18 and Exhibit 18 Worksheets 1 and 2).

If some percentage of this is proven to be going to people who are not poor (above the target market of 200% of the poverty level), then the base revenue expenditures are imprudent.  Current base expenditures should be repaid by the utility to the ratepayers, and future expenditures should be disallowed in base rates.

Austin Energy has hidden information that can assist in documenting these continued problems.  It is my understanding that at the Public Utility Commission, “protective orders” can be made to gather confidential information that will not be made public.  However, this utility is intentionally constricting information, possibly because it continues to be embarrassing to them.

By my own admission, this is not the most expensive item in this rate case.

Yet there are two reasons why I continue working on this issue.  First, this represents money being taken away from the poor.

There could be thousands of CAP customers above 200% of poverty that are receiving discounts. 

If 10% of expenditures are found to be invalid, that is about $830,000 in electric utility discounts that are taken away from people that need them (refer to Exhibit 8) as well as $130,000 in wasted electric utility administration (refer Exhibit 18).  It is even more with wasted water and drainage utility discounts.

The other reason is that I expect more from public servants than acting like bureaucrats.  After 8 years, Austin Energy will not correct the problems in this program.  The rate case might provide some latitude in getting corrections.  Austin Energy employees who are misapplying funds are hiding behind their civil service protections to continue to administer this program in a clumsy, inefficient manner.  As an activist, I refuse to validate this kind of behavior.

The Judge can assist in this endeavor if he will grant the Special Motion I made for this on July 11.

If I can send this information to a data firm that collects information on income and household size, it will be an easy and inexpensive way to learn if CAP is sending money to people with higher income levels.  This information will not be made public, only the summaries.

Austin Energy could have done this on its own, but remains remarkably disinterested.

This concludes my testimony.

I appreciate your attention.

 

Audit: Austin Energy didn’t check eligibility for some in bill discount program

KXAN INVESTIGATIONS

by: David Barer, Tahera Rahman

Feb 23, 2022

AUSTIN (KXAN) – City auditors found Austin Energy did not ensure more than two dozen customers were eligible to receive utility discounts through the city’s Customer Assistance Program, which is meant to serve low-income residents, according to a recently released special report.

Robbins, a local environmental activist and city utility critic, has been critical of the CAP program for years and has written reports about what he describes as flawed eligibility criteria.

“I’m very disappointed in Austin Energy and the way they are running the program,” Robbins said. “Their business model is how much money can you give away, not how much money can you give away to people that are deserving of the assistance.”

“There could be 1000s of people that are undeserving that make over 200% of poverty that are getting poor people’s money.”

Auditors to look at Austin Energy’s customer assistance program

Is imagining a “progressive” natural gas utility even possible?

Or are these fossil-fuel marketing companies locked into a fossilized business model?

Below is a recent news story about huge gas utility rate hikes in Austin, but it is followed by a summary articulating a better way.

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Gas companies seek interim rate hikes

The Austin Monitor, Friday, April 23, 2021 by Jo Clifton

The three companies that supply natural gas to Austin residential and commercial customers are each seeking a rate increase under the Gas Reliability Infrastructure Program, or GRIP. City Council acted on April 8 and again on Thursday to temporarily suspend implementation of those increases. However, the increases are likely to take effect after a short period of review because of the way the utility law is written.

Texas Gas Service, which serves the majority of Austin customers, is seeking an interim rate increase of about $10.7 million from customers in the sprawling area between Bayou Vista and Beaumont to Austin.

CenterPoint Energy is seeking an additional $44.7 million in its South Texas Division, and Atmos Energy Corporation is seeking an interim rate increase of more than $111 million, according to documentation filed with the city. All three companies are requesting rate increases under the GRIP statute to reimburse themselves for money spent in 2020, mostly to replace old pipe, according to Larry Graham, manager of regulatory affairs for Texas Gas Service.

Each company has filed documentation to show why they should be allowed to charge more within 45 days of their filing. The amounts are based on their 2020 expenditures and are technically subject to City Council approval.

However, as Rondella Hawkins, the city’s telecommunications and regulatory affairs officer, explains, GRIP is not a typical rate increase. She told the Austin Monitor via email that a Texas Supreme Court ruling concluded that the GRIP statute provides only for “a ministerial review of the utility’s findings to ensure compliance” with state law and Railroad Commission rules. She pointed out that the rate increases allowed under GRIP will be subject to review during their next comprehensive rate review.

Consumer advocate Paul Robbins protested at both the April 8 Council meeting and Thursday’s meeting, telling Council if the increase for Texas Gas Service is approved, the amount received by the company will have increased 25 percent since 2019.

Graham said Robbins “makes conjectures that are unfounded, and his math is wrong and his conclusions are wrong.”

According to its filing, TGS proposes to increase the customer charge from the current $16 a month to $18.38 a month. Commercial customers, who now pay $53.33 a month, will see an increase of $10.06 to $63.39.

Graham said his company has the vast majority of customers in the Austin area, while Atmos has around 10,000 and CenterPoint fewer than 1,000.

Documentation provided by Atmos Energy shows the current residential customer charge is $26.45 per month. With a rate increase of $4.55, that monthly charge goes to $31.

CenterPoint currently charges $22.59 per month and proposes an increase of $2.33, for a new rate of $24.92.

Contrary to what Hawkins said, Robbins says Council should “give the Resource Management Commission or another city commission the ability to review all aspects of the gas utility. The increased oversight will over time create a better chance for fairer rates.” In addition, Robbins suggests that Council adopt a resolution indicating that it wants to ask for bids from competing utilities “when the gas company’s franchise begins renegotiation two years from now.”

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A Gas Company That Cares About Consumers and the Environment

Progressive Gas Rates: Currently, Texas Gas Service (TGS) has a regressive rate structure, where the more you pay, the less you pay per unit.  A progressive gas company should use progressive rate structures, where the more you use, the more you pay per unit.  These new rates can be accomplished with low monthly service charges and tiered rates for consumption.

The lower a monthly service charge is, the more money that will be charged from actual consumption.  This encourages conservation, while at the same time helping the poor, who generally use less energy.

In 2020, I reviewed the rates of the largest gas companies in the U.S.; 26 out of 32 regional or state tariffs reviewed had a monthly service charge lower than TGS-Austin.  Some were only lower by a small amount, but 7 were less than half of the TGS-Austin charge.

In 2020, the TGS monthly charge was twice as high as CPS Energy in San Antonio.  Given the similarity in climate, this seems a good benchmark for Austin to follow.

Another thing that a progressive gas company would do is charge a higher price for higher blocks of use, or tiers.  Both Austin Energy and Austin Water have 5 tiers, where each block of higher consumption is charged more per unit than the last.  TGS, by contrast, has flat rates, where each unit of energy costs the same.

Large gas companies that have progressive tier charges include: SoCalGas, Pacific Gas & Electric, and Southwest Gas in California; Southwest Gas in Arizona (for low-income ratepayers); and Spire Energy in Missouri (in summer months).

Low-Income Bill Assistance: It is common for gas utilities in the states of California, New York, and Massachusetts to have monthly discounts or lower gas rates for low-income customers.  Our neighbors at CPS Energy in San Antonio also have low-income discounts for gas service.  Austin utilities (electric, water, drainage) have discounts and emergency assistance amounting to about $30 million a year.  However, TGS-Austin will only be spending about $100,000 this year.

Capital Recovery Fees: Connecting new customers in a growing city costs a considerable amount of money.  Who pays for it, the new customer, or existing customers?  At Austin Energy and Austin Water, new customers are charged full hook-up costs.  At TGS, it may be as low as 10%.  After Austin’s electric and water utilities began collecting full costs, both of them lowered their rates.

Clean Energy Research: While electric utilities are using wind and solar cells and retiring coal plants to lower their carbon emissions, natural gas utilities currently have little chance to reduce carbon emissions other than energy efficiency and more efficient gas mains.

Currently, most renewable gas sources are profoundly expensive.  However, some gas progressive companies are investing in research and development for a cleaner, safer utility.

SoCalGas, which serves much of Southern California, spent over $16 million in 2020 on Research and Development.  About 80% of this money was related to clean energy and energy efficiency.  The remainder was related to efficient operations that lower bills, including better prevention of gas leaks common in everyday operation.  In 2020, there were 386 active projects.

Most R&D funds are leveraged with other partners at about a 7 to 1 ratio.  These partners include the National Renewable Energy Laboratory, the California Energy Commission, and the Gas Technology Institute.

Good Management of Energy-Efficiency Programs: Energy conservation is usually a good thing for ratepayers and the environment.  However, a considerable amount of TGS-Austin conservation funds are spent for equipment that will cost more than the gas it is saving.  To some extent, these conservation funds are being used as a glorified marketing program.

A BETTER DIRECTION: Negotiations on the TGS-Austin franchise – its license to operate – will begin in the near future.  Austin should seek bids from competing gas utilities that will better reflect our community values.