City Council adopts Austin Energy pass-through rates effective Nov. 1, spreads cost recovery over three years to reduce impact to ratepayers

October 13, 2022

To help meet rising costs in the electric industry while reducing the impact to customers’ bills, Austin City Council approved new pass-through rates for Austin Energy’s Power Supply Adjustment (PSA) and Regulatory Charge. The new rate in the PSA reduces the bill impact to customers by spreading the needed increase over the next three years. Combining that change with an increase in the Regulatory Charge, an Austin Energy residential customer who uses a system-average of 860 kWh in a month could see an increase of about $15 to their monthly electric bill. These changes go into effect Nov. 1.

Costs recovered through the PSA and Regulatory Charge are set by the energy market, ERCOT and the Public Utility Commission. These charges collect only what the utility pays for the production and purchase of wholesale energy, as well as regulatory and transmission fees.

Over the peak summer months, Austin Energy saw an extraordinary rise in ERCOT market costs. Like other ERCOT utilities, Austin Energy has experienced substantially higher congestion costs in transporting power through the ERCOT system, exacerbated by the highest natural gas prices seen since 2008. Utilities throughout the country are experiencing similar power and commodity price shocks.

“We know that any rate increase impacts our customers, so we always strive to keep costs low by operating as efficiently as possible,” said Austin Energy General Manager Jackie Sargent. “The escalating cost of energy production and transmission poses a substantial challenge to power providers everywhere, including Austin Energy. We will continue to work with Council to find strategies that help protect ratepayers from rate shock to the greatest extent possible.”

Power Supply Adjustment Changes

Austin Energy under recovered $104 million in power supply adjustment costs this past year. Today, Council voted to recover those costs over a three-year period, reducing the immediate rate impact to customers. Rather than the typical residential bill rising by $17.55 as originally proposed, the extended recovery period brings the monthly bill increase down to $12.85.

Beyond the under recovery, the PSA rate is also set to recover ongoing increased expenses for the coming year. The majority of the PSA rate increase reflects these continuing costs.

Primary factors for the PSA increase:

  • Natural gas prices for electricity production were higher this fiscal year than in any previous fiscal year since 2008. August prices this year were 106% higher than last year and 288% higher than August of 2020.
  • Transmission congestion costs were higher than any previous year. Just like roads, there is limited capacity on ERCOT system transmission lines. When more power is generated, the more expensive it can be to move that power across the state.
  • ERCOT has become more conservative in its operations since Winter Storm Uri. This is leading to increased costs throughout the system. The ERCOT Independent Market Monitor estimates these costs have amounted to more than $1.5 billion for the first two-thirds of fiscal year 2022.
  • Last fiscal year, Council set the PSA at a level below ongoing costs to reflect the revenues earned by our generation fleet during Winter Storm Uri. That revenue has been fully returned to customers.

Regulatory Charge Changes

The Regulatory Charge is increasing by $2.45 a month for the typical residential customer.

The Regulatory Charge recovers Austin Energy’s costs paid to ERCOT for transmission and other regulatory fees and charges. Transmission costs are based on Austin Energy’s roughly 4% share of the ERCOT market and determined by the Public Utility Commission of Texas. The Regulatory Charge needs to increase to meet the expenses of rising wholesale transmission costs.

Austin Energy’s Efforts to Insulate Customers from Price Volatility

Austin Energy is working to shield its customers from the effect of changing economic and market circumstances. Our unique and diverse generation portfolio limits the impact of cost volatility from any one fuel or generation source. We work on a 24/7 basis to monitor and find the most efficient and cost-effective alternatives in keeping with our community’s values and priorities.