Austin Energy’s has a 5 page annual report. The 2009 annual report became publicly available on Saturday afternoon (March 20) and the Public Hearing for discussion is March 22. Below are some observations gleaned from information in the report.
DISCUSSION
1) Are Austin Energy’s Fuel Charges currently too high?
Using either of two ways to estimate AE’s fuel charge, it appears that AE is charging more than it needs to.
1) According to the annual report, customers consumed 2.1 billion kWh in 2009. Using and the current average fuel factor charged by AE of 3.635 cents per kWh, one can estimate that Austin Energy collected about $440 million from electric customers during FY2009.
In contrast, the annual report says that the actual total fuel cost was only $309 million in 2009 (excluding hedging and ERCOT fees).
This suggests customers were charged $131 million more last year than the actual cost of fuel. This works out to about $130 during 2009 for the typical residential electric customer.
2) A second way of looking at this is to examine the “Fuel Cost Average”, which presumably factors in all actual costs including hedging and ERCOT fees. The FY2009 system average fuel cost of 3.371 cents/kWh is 7.2% less than the rates customers were charged for fuel (3.635 cents/kWh).
This overcharge whould have resulted in an over-collection of about $32 million during 2009 for fuel charges, or about $32 for the typical residential electric customer.
2) What is Fuel Hedging and what is its impact on customer bills?
Fuel hedging is basically insurance that helps stabilize fuel costs and has been used as a risk management tool by Austin Energy for several years. Sometimes it’s helpful, sometimes it is not.
While the “competitive matters” resolution identifies fuel price hedging as something to keep confidential, the apparent impact of hedging programs on customers’ bills suggests a public explanation is warranted.
It’s not possible from information thus far made publicly available by AE to pinpoint the cost of the current hedging program, but it appears to be on the order of as much as $100 million for FY2009. (Excess charges about fuel cost of $131 million - 31 million in apparent overcharges = about $99 million for hedging and ERCOT fees; ERCOT fees should be a minor portion of that total).
And if AE is not lowering fuel charges to customers for 2010, it suggests we are locked into “hedges” for many months or years into the future. A reasonable question for customers to ask, is how long is the City locked-in at our current fuel charges?
A second major policy discussion about hedging is whether the focus should be on “financial hedges” or “physical hedges” such as fuel diversification. Austin Energy appears to hedge largely through “financial hedges”, which are essentially bets between the City and investors about what the future prices of fossil fuel will be.
During FY2009, the other side seems to have won the bet, which sent up to $100 million collected from local customers to investors somewhere (likely outside Austin). When losing with this type of hedge, there is nothing to show for it in terms of physical assets, cleaner air, or local jobs. In contrast, another approach to hedging against high natural gas prices is through a “physical hedge” that invests in local solar installations. Yet Unfortunately, Austin’s new “Performance Based Incentive” solar program, which is replacing the commercial solar rebate program, is only funded at $100,000 this year.
$100 million into the new solar program would result in more than 70 MW of new local solar capacity that would reduce expenditures for natural gas fuel for decades to come, as well as reduce emissions of carbon and toxic pollution, reduce utility water consumption, and support many hundreds of jobs in the community.
Moreover, if 70 MW of new peaking solar capacity were installed this year, it would obviate a large portion of the $66 million being invested into 100 MW of new peaking natural gas plants in 2010.
3) Why inconsistency in reported Natural Gas resources?
More explanation would be helpful to reconcile differences in the reporting of natural gas resources between this annual report (27.8%) and the Jan. 28, 2010 presentation to city council by Roger Duncan on the generation plan (11%). (The discrepancy may be related to treatment of Power Purchased from the Market, which is significantly lower in the annual report (9.7%) than in recent presentation to City Council (19%).)
This issue is significant in that Austin continues to make long-term investment to own new natural gas plants (including 2 new units in 2010) even though the gas plants Austin now own seem to run very little . (If production from 1,450 MW of existing AE-owned natural gas plants = 11% of 12.1 billion kWh = 1.33 billion kWh, equivalent to a a capacity factor of 10.6%, suggest that Austin’s existing gas plants are not generating power the equivalent of about 90% of the time.)
