Come This Winter: Part 2

Courtesy Pixabay

Come This Winter – Part 2: Austin Retail Rate Shock

All Politics (and Price Gouging) Are Local

This is the second article in a series detailing energy utility bill increases that affect everything from household budgets to the world economy.

In This Story…

Texas Gas Service Cost Increases
Austin Energy Cost Increases

Domestic U.S. natural gas prices have been driven to extreme levels because the fuel now competes in overseas markets through Liquefied Natural Gas (LNG) shipments. The extreme price Austinites pay is collected through the bills of the local retail companies.

Almost all gas customers in the Austin region are served by Texas Gas Service. In 2021, the utility served about 245,000 customers in Central Texas, 92% of them in Austin. Some 96% of these customers were Residential. TGS is an example of what will probably occur this winter throughout Texas.

In 2021, about 530,000 customers in Travis and southern Williamson County were served by Austin Energy. About 86% of these customers live inside the Austin city limits; and about 90% were Residential.

Texas Gas Service Cost Increases

Shutterstock, Carolina K. Smith MD

Between 2020 and 2022, the average annual Residential TGS bill rose from about $442 per household to $712, a 61% increase. (This assumes the average gas fuel cost in the first 10 months of 2022.)

Based on historical trends and expected price escalations, I forecast that between 2020 and 2023, the average TGS bill will rise to between $792 and $868, as much as a 96% increase.

TGS customers are being hit with a three-flanked attack on their bills: a huge fuel cost increase; past due bills from Winter Storm Uri; and a non-fuel related rate increase for the “hard costs” of running the utility such as transmission mains, compressors, buildings, and employees.

The first reason for increases, fuel-costs, is largely caused by LNG exports previously discussed in the first story. These compete with the price of domestic fuel.

The second reason is a “securitization” pass-through charge that will be levied in early 2023 because of the high scarcity pricing that took place during Winter Storm Uri in February 2021. During a period of about 3 days, energy traders bid up the spot price of gas from its normal cost of $3-4 per MCF to over $100. Some spot costs shot up to $1,200.

The cost was so enormous that Texas gas utilities are planning to amortize the debt over a period of years. Statewide, securitization costs will amount to about $3.4 billion for the legalized piracy that took place in about 3 days.

Though no firm terms have been established, a reliable estimate places the cost per Texas Residential gas utility customer at about $5 a month for the next 10 years.

Texas Residential gas customers will be paying about $5 extra per month for about 10 years to compensate for about 3 days of scarcity pricing that took place during Winter Storm Uri in 2021.

This cost can also be at least partially attributed to LNG. As detailed in the earlier series “While Texas Froze,” Gulf Coast LNG terminals shipped huge volumes of LNG overseas while 40% of customers in the Electric Reliability Council of Texas (ERCOT) service area were without power. About half of these customers could have kept their lights on had the fuel stayed in Texas. And much, if not all, of the scarcity pricing for gas utility use that took place during Winter Storm Uri would have likely been eliminated.

The third reason is the escalating cost of the gas delivery system itself. This includes the hard costs, such as transmission mains, compressors, buildings, and employees. Rate increases that do not include fuel costs have escalated by 144% between 2009 and 2022, while inflation in this time period was only 40%.

Between 2020 and 2022, rates have gone up by about $40 each year, for a total of 26%. Based on the pattern, rates could climb another 5% next year.

TGS officials will be quick to defend the company, protesting that it does not profit directly from gas fuel sales. The fuel is a pass-through cost. However, this does not exonerate the company from obtaining the lowest price possible for consumers (while still maintaining quality).

In this regard, TGS has seemingly disappointed consumers by: 1) not lobbying on a national level to curb LNG exports in safety or price emergencies; 2) obtaining enough fuel to avoid most/all of the scarcity pricing during Winter Storm Uri.

At least one reason for the gas company’s large bill increases is the seeming lack of public-interest scrutiny. The City of Austin owns both its electric and water utilities. They are subject to constant City Council oversight, as well as scrutiny by volunteer citizen review boards (the Electric Utility Commission and the Water and Wastewater Commission) that advise Council on policy. So there is at least some public accountability.

The privately-owned gas company, however, is given much looser rein. The City is technically the primary regulator (though rate cases can be appealed to the Texas Railroad Commission). The City also grants the company its “franchise” (license) to operate and make a profit.

However, the City agency that (supposedly) regulates TGS, the Office of Telecommunications and Regulatory Affairs, has been largely ineffectual in leveraging these powers.

This has harmed a range of issues. These include limiting rate increases, creating adequate programs for aid to the poor with their bills, and preventing the misspending of energy conservation funds on glorified marketing.

Moreover, there is no citizen advisory board that has responsibility to research issues of policy and advise Council on them.

Austin Energy Cost Increases

Austin Energy’s Sand Hill natural gas power plant. © Al Braden

Austin Energy’s customers are also being harmed by three factors: a huge fuel cost increase; a smaller increase in the cost of regulation; and a non-fuel related rate increase for hard costs, including the power plants, transmission lines, buildings, and employee salaries.

Pass-through fees, also known as riders, are added to the hard costs, or rates. Currently these pass-through fees make up over half of Austin’s bills, and the largest fee is for fuel. Fuel-related increases will boost the average Residential bill by 15%, $157 a year – beginning November 1. A noticeable part of this is due to the increase in natural gas costs.

While the fuel increase may be entirely justifiable, Austin Energy has not allowed enough transparency to prove it.

This author attempted to find the cost of fuel for months, and the utility hid it, claiming it was competitive. Not only has the utility released such information in the past, but some of the information that it refused to disclose was actually posted on the Internet.

Layered on to this fuel increase, regulatory fees paid to run the ERCOT grid have also gone up, in part to pay for increased reliability measures implemented after Winter Storm Uri. These regulatory increases will raise Residential bills by another 3%, $30 a year.

The total for pass-through costs alone is staggering. But to add insult to injury, Austin Energy wants to raise its rates, particularly for Residential consumers.

Again, rate increases are the utility’s “hard costs.” Austin Energy claims that due to growth and inflation, a 13%, $136 a year Residential rate increase for the average customer is required. And it proposes to revise the rate structure, which will severely impact customers with low electric consumption, who often have the least income.

If Austin Energy gets its requests, Residential electric utility bills will go up by 31% in 2023.

Since 1981, Austin Energy has levied progressive rates, where the less you use, the less you pay per unit (kilowatt hour). But currently the utility proposes a radical change to regressive rates, where the less you use, the more you pay per unit. Under the new rate proposal, the average Residential customer will receive a $136 increase. However, a customer that uses 3 times the average will see a $556, 13% decrease.

Austin Energy proposes to change its progressive rates to regressive rates, where the less you use, the more you pay per unit. Data from Austin Energy.

And since many consumers with low electric use are in lower income brackets, Austin Energy’s rate proposal will have them bear the brunt of this rate increase. This is being proposed to increase the utility’s cash flow.

Austin Energy Residential Consumption by Income Level. Electric use data from Austin Energy. Income from U.S. Census.

If all of this was not enough weight, the proposed rate increase falls almost entirely on the Residential class. Austin Energy currently proposes a base rate revenue increase of $35.7 million. But it wants to increase rates for the Residential class by $46.2 million even though Residential customers only use about a third of the utility’s total energy. The utility would instead grant lower rate increases or rate decreases to most other Commercial and Industrial customers.

Almost all of Austin Energy’s proposed rate increase in 2022 is intended to fall on the Residential class.

The bottom line for Residential customers who have both Austin Energy and Texas Gas Service connections is a combined 2023 bill of over $400 more than they paid in 2022, and a minimum of almost $700 more than they paid in 2020.

This lost discretionary income will only exacerbate inflation. The estimated loss to the Austin region between 2022 and 2023 is $173 to $191 million just for the Residential customers.

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This is the second article in a series on how utility bills are dramatically rising locally, statewide, and around the world.

Robbins is an environmental activist and consumer advocate who has lived in Austin for almost five decades. He is editor of the Austin Environmental Directory, a sourcebook of environmental issues, products, services, and organizations in Central Texas. The publication has been offered free to the public since 1995, and can be accessed free online.

Thanks to Tony Switzer and Gail Vittori for reviewing this story.

Continue to Part 3: Austin Energy’s Biased Rate Case ->