How will Austin Energy’s proposed rate changes impact Texas solar customers?

AUSTIN (KXAN) — Local musician Sarah Sharp sings every week at a downtown jazz club, but she still remembers her first gigs in Austin: working at Fresh Plus Grocery in Hyde Park and Z’Tejas on West Sixth Street more than 20 years ago.

Local musician Sarah Sharp said she thinks investing in solar panels will stabilize her utility costs, “if all goes as planned.” (KXAN Photo/Chris Nelson)

“My half of the rent was $415 a month,” she laughed. “I’ve tried to have a really positive attitude and roll with it and accept that change is just the fact of life, but it’s getting a little bit out of hand. It’s getting harder and harder to keep a positive attitude on the rapid growth and the cost and the things that we are losing — like our music venues and our beloved restaurants.”

Over the last few years, certain changes have made her feel like she is in “survival mode,” in more ways than one. She said described being worried about climate change, losing faith in the state’s power grid after last year’s winter storm and feeling alarmed about what seems like an ever-climbing utility bill. In search of some stability, she began researching the costs and benefits of solar panels for her home. She decided to install some and believes, if everything goes as planned, she will be able to “lock-in” her electric costs — even if others’ rates go up.

“It’s kind of primal,” she said. “To be able to have a predictable, steady payment and wanting to do what I can for the earth… and wanting to have some help in the situations where we can’t count on our own grid.”

But now, some changes Austin Energy has proposed for the solar program have Sharp worried about whether her panels will give her the consistency she was looking for.

Looking forward, or backward

On a sunny day, people with solar panels on their roofs are generating energy not just for their own houses or businesses, but enough for some to go back into the electric system that powers other homes and businesses. During darker hours, though, these homes may use some power from Austin Energy.

So, solar customers’ bills will reflect charges for any power usage and credit back for the energy they generated. That amount is calculated by the utility’s Value of Solar rate.

As a part of its ongoing retail rate review process, Austin Energy wants to adjust the way the Value of Solar gets calculated.

The utility announced earlier this year it would be seeking to increase the base rate for electric service from $10 to $25 per month for customers, as well as trying to restructure the tiered system they use to charge customers based on how much energy they conserve. Austin Energy said these changes — along with the Value of Solar proposal — are necessary to cover the increasing cost of providing service.

Tim Harvey, Customer Renewable Solutions Manager for the utility, said the three specific changes proposed for the solar calculation will make it “more accurate.”

First, Austin Energy wants to change the way it calculates what are called “avoided costs.” Basically, this is the price the utility would have paid to produce the same power itself or purchase it from another source, but instead, it is received by solar customers’ power generation.

Currently, Austin Energy’s avoided cost methodology is forward-looking, using forecasts and projections to “try to grab those values ​​from the future and bring them into present day,” Harvey said. The proposal aims to look at market data from the previous year to calculate the avoided costs. Harvey said the proposed method would rely on measurable data instead of predictions.

“Both ways, both methodologies, have value and can be correct,” he said. “It could be more accurate to look in the backwards, the rearview mirror on it, so to speak, because we can measure what happened in the past. We can’t really do that for the future.

Energy consultant Karl Rábago, however, compares the new methodology to someone clocking a runner’s average time for a 26-mile marathon by only looking at one mile.

  • Read more about Austin energy’s proposed changes here

Rábago served as Austin Energy’s Vice President for Distributed Energy Services back in 2006 and helped create the original Value of Solar tariff. He believes the forward-looking approach they designed treats customers more like a long-term investment for the utility, rather than a wholesale energy generator.

“What’s the price based on the fact that they’re installing a 25-year resource? Today’s Austin Energy is treating them like a commodity, like they’re just in a spot market — where if they happen to make electricity this year, they might not make electricity next year. They’re giving them only the short-term price,” he said.

To put it another way, he said, “If Austin Energy wanted to build or contract for a solar farm, they wouldn’t pay for it one year at a time, they would put it on the books as a long-term asset with 25 or more years of usable service.”

Rábago filed testimony against Austin Energy’s proposals in the ongoing case over the rate increase, along with other consumer advocates.

The Sierra Club, Public Citizen and Solar United Neighbors filed testimony claiming that the new formula ignores other resources provided by local solar customers, including avoided air pollution, benefits to the local economy and avoided distribution capacity costs. According to the document, they call the changes “unjust, unreasonable, and discriminatory” towards solar customers.

Austin Energy disagrees. Harvey said they ran an analysis using the proposed methodology and came out with a higher Value of Solar, at $.0991/kWh — compared to the analysis they ran using the other, future-looking methodology which came out to $.095/kWh . For context, the current value is $.097/kWh.

He said they would assess any market changes on a yearly basis, but wouldn’t necessarily change the rate every year.

“If it goes down, then we can talk about doing a rolling average and what looks like,” he said.

  • Read more testimony filed in the rate case here

Still, the possibility of variability concerns several consumer advocates, including Bill Oakey. He has worked on several utility rate cases over the years and has been following affordability issues in Austin since the 1980s. He sat on the Electric Utility Commission for several years and now writes a blog called Austin Affordability.com.

While he didn’t file testimony in this case, he believes the changes will make it more difficult for solar customers to plan ahead, which could discourage people from investing and committing to solar.

“The problem is that the rate is going to be variable, and so there is no guarantee of what it’s going to be,” Oakey told KXAN.

He said he’s concerned about anything that might hinder interest and accessibility for solar projects.

Tim Harvey, Customer Renewable Solutions Manager for Austin Energy, talks to KXAN. (KXAN Photo/Chris Nelson)

“The bottom line is that we need to be able to get from point A to point B, and just think about what point B might be 10 years from now, 15 years from now. We might have 15 to 20% of the population, both business and residential, using solar panels and storage batteries. If that were to happen, Austin Energy would need to learn to grow backwards,” Oakey explained.

He is critical of the reason behind Austin Energy’s proposed larger rate increase, urging the utility to eye a business plan that anticipates selling less power — as more customers conserve and trend toward energy-efficient patterns.

Harvey, however, insists the utility is not “defunding solar.”

“We’re not trying to cost-signal people to stop adopting solar. You know, quite the opposite. It’s the values ​​going up, we’re intending to just pass through the benefits to the customers who are producing energy. But there can and probably will come a day where solar-hosting capacity is an issue that we’ll have to address. We’ll look to other utilities to find out what best practices are because there are other utilities that are further along the adoption curve than we are today.

Other changes

According to the utility, another key piece of its proposal is to shift the recovery method for solar energy transactions with customers.

Currently, the Value of Solar expenses are recovered through the Power Supply Adjustment (PSA) charge. It has proposed recovering something called Societal Benefits through a different charge — the Customer Benefit Charge (CBC). The move would increase the CBC while decreasing the PSA, and Harvey said this “increases transparency” for customers.

“So, we’re breaking out the environmental values, we’re calling them societal benefits now,” he said. “By breaking those out, we’re able to show the public, you know how we come to that calculation.”

Harvey acknowledged some concerns about this shuffle, for example, the fact that certain commercial customers do not pay the CBC charge.

Testimony filed by Sierra Club, Public Citizen and Solar United Neighbors states, “the utility effectively creates an uneconomic subsidy in which customer [solar] generators are required to subsidize other non-solar customers (especially large users of electricity) and the utility. Whenever customer-generators are forced to subsidize other customers, they will be less likely to invest in solar generation, frustrating policy and economic goals for the community.”

Rábago voiced a different concern about this switch. He argues that by recovering the Societal Benefits through the CBC, the utility could “starve” other energy efficiency programs that are funded by the CBC.

“They are making those non-utility resources fight for themselves for an ever-decreasing slice of pie,” he said.

He is particularly alarmed by the third change proposed by Austin Energy, which involves adding a new, third value to the Value of Solar calculation, called the Policy Driven Incentive (PDI). This incentive would ultimately be provided to solar customers “for a fixed term and at a fixed amount” based on the customers’ power production and other factors — but would adjust annually — according to a written statement by utility officials.

Solar panels on an Austin rooftop (KXAN Photo/ Chris Nelson)
Solar panels on an Austin rooftop (KXAN Photo/ Chris Nelson)

Harvey explained it as “a proposal” to meet with the community and interested parties “to help inform our incentive solutions, so that we can meet policy-driven goals.

Those goals include having 200 megawatts of solar from Austin Energy customers — about twice as much as exists today, according to Harvey.

“We want to get there in the most effective and easy way possible for customers, and also the most cost-efficient way,” he said.

Rábago, however, argues that the need for an incentive is an indicator that the Value of Solar itself may not be compensating customers fairly. He told KXAN that was his intention, when he helped craft the original tariff.

“That having a price set on value would create the holy grail: a self-sustaining market. A market where installers could figure out what things were worth; they could make the sales proposition to customers; the customers would feel they were getting a reasonable payback — that their investment in the community, as well as of course themselves, was going to be respected for a long time.”

Sharp said, whatever the methodology, she hopes the utility chooses to prioritize customers’ goals.

“We’re just trying to do our part. Quit making it so damn hard. It’s ridiculous,” she said.

What’s next

On Friday, an Independent Hearing Examiner released its recommendations for the rate review.

These recommendations will be sent to the Electric Utility Commission and, eventually, City Council for review before further votes this fall.

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