Un-FAIR Deal

Corporate Customers Demand Cheaper Energy


illustration by Doug Potter
It's cryptic. It's complex. It's the electric industry, and with deregulation now considered a certainty, it's a Chinese puzzle that will perplex. Should we sell off our city's most valuable asset and raise taxes to make up the difference? Or keep our electric utility, and risk losing customers to competition? To help the masses better make that decision, the council is considering launching an education campaign to learn us about the effects that deregulation may have on our breadwinner, the Electric Utility Department (EUD). The Electric Utility commission says we need to shell out nearly $700,000 for the deliberative polling necessary to get the word out to all of us customer/owners.

But considering the council's fanged wrangling over every EUD penny, the poll could be a tough sell. And considering that government education tends toward propaganda -- the last, conducted so voters would move the airport to Manor, came off like a classic brainwash attempt -- the idea will face resistance from skeptics like Councilmember Daryl Slusher. But there'll be no debate on the enormity of issues to grapple, in the event of a possible May ballot item that could ask voters questions such as whether to sell the utility or whether it should be run by a council-appointed board.

Capitalizing on this mood of uncertainty are four of Austin's beloved corporations -- Advanced Micro Devices, IBM, Texas Instruments, and Motorola -- who together form the Federation of Austin's Industrial Ratepayers (FAIR). FAIR, together with the other two corporations in its EUD industrial rate customer class -- Seton Hospital and Applied Materials -- are EUD's biggest customers, contributing 9% of annual revenues. Because of the industrial customers' preferred status, FAIR usually gets what it bitches for, and, as acronyms go, FAIR has to be one of the most iffy. Since the group's formation 10 years ago, it's won three rate reductions, and been snubbed only once. Although FAIR members pay just over half of what residents do -- 4.5cents per kilowatt hour versus 7.5cents -- they're pressuring the council for a $21 million handout. It would come in the form of cheaper electric rates, $4.2 million a year over five years, during which time they promise to remain faithful EUD customers. Without a contract, FAIR threatens to light out for the open market as soon as deregulation becomes a reality.

To no one's shock, EUD staff such as the ever-conservative director John Moore are catering to every FAIR whim. When the group set a Jan. 1 deadline, staff recommended prompt approval. The council was expected to concur in December. But eternal Electric Utility Commissioner Shudde Fath brought her rare blend of common sense and expertise to the table. She noted that with the rate break, the Selfish Six may get electricity for less than the cost of production. EUD staff couldn't contradict because -- get this -- they didn't know the production costs. "A business person doesn't go out and sell a product unless they know what it costs to make," reasons Fath.

With that in mind, Jackie Goodman requested a cost-of-service study at the December council meeting, and a unanimous council complied. Her resolution proposed two formulas as the basis. One is "Average and Excess Four Coincident Peak" (AE). AE is the industry standard and has been used by the EUD to determine cost of service. AE samples four days of the year -- the hottest day from the four hottest months. Fath says the AE figures are misleading, creating false high annual figures for residents, who use more energy to cool their homes in the hot summer months. On the other hand, the AE figures create false low annual numbers for private corporations, according to Fath, which often use air conditioning and/or heating throughout the year to control climates for computers and office buildings. These misleading numbers mean that the Selfish Six get a better deal, while residential customers get a worse one.

That's probably why FAIR prefers AE over the second formula Goodman requested, called probability of dispatch (POD). POD looks at every hour of the year, providing a far more accurate picture of how much electricity each rate class is using. "It's the closest thing to the truth we have," says Fath, who believes that, if used, it would result in more favorable rates for residents. She says it could also reveal that with the new rates, FAIR will pay less than what it costs the EUD to produce FAIR members' electricity.

Though the Electric Utility Commission recommended the POD formula over AE in 1994, Councilmember Gus Garcia, who was to implement it, never got the job done. Garcia, who doesn't recall exactly what stopped him, explains that uncertainty over deregulation probably caused the delay. Thus, the EUD doesn't know how to do POD, and contracted the cost-of-service study out to Management Applications Consulting (MAC). According to Fath, MAC official Gary Goble had promised to complete the POD study by mid-January. Fath relayed the news to the council, and they voted that the two studies be returned by the January 16 council meeting for a vote on the (un)FAIR deal. But when staff negotiated MAC's contract (which the council did not see because it cost less than $10,000), the deadline was set for February -- too late for the vote. (Staff did not notify the council of the altered schedule until after MAC signed the contract.)

So, despite the fact that only the AE figures will be ready in time, City Manager Jesus Garza scheduled the next vote for January 30. Garza says that staff will use the AE study -- in other words, Goodman's resolution and POD be damned.

Because FAIR chair Ed Adams has threatened to take the deal off the table if the council delays until February, Goodman is ready to vote without POD. Though she admits that POD is more accurate, and though she passed a resolution to use it, she now says it's irrelevant to the decision, and that market averages and the AE study will suffice. Asked why she wasted time calling for a delay in the first place, Goodman responded, "Because I love Shudde Fath. I've known her for years and I'll do anything for her." (Never mind that POD may produce more accurate numbers favorable to us small-time users.)

The AE report is also in question now that bulldog attorney W. Scott McCollough, who was hired by the city to represent residential ratepayers, has raised a stink. The numbers were not accurate, McCollough says, and the city is now recalculating its AE report, based on McCollough's suggestions. It will be done in time for the January 30 councilmeeting. According to Diversified Utilities Consultants, the consultant McCollough took it upon himself to hire (at the city's expense), the EUD uses a diluted version of AE -- the result of an agreement reached between FAIR and the city in 1994 -- to calculate industrial costs. "It's just not logical, or legal," McCollough says, adding that he ordered Diversified Utilities to also recalculate AE according to the EUC's recommended 1994 formula, not the EUD's diluted numbers. Those calculations found that under the current proposed rate break deal, FAIR will pay rates 8% to 14% below the cost of production, McCollough says: "Even under (AE) this deal is a loser." If the POD formula is used, he suspects, the numbers will be worse.

But perhaps the greatest argument against FAIR is that deregulation has a snowball's chance in hell of passing this legislative session. The Public Utility Commission has already suggested that deregulation not be a hasty endeavor. And even if FAIR members get their contract, can they be trusted to honor it? In November, consumer advocates discovered a pre-filed legislative bill, initiated by a group of which FAIR is a member, that would have exempted the industrial ratepayers from honoring the proposed contract. The slippery clause was removed, but who knows what other bills will be filed, and passed, to exempt FAIR from other terms of the contract. A state lobbyist close to the situation sums up the situation nicely: "This whole thing is a charade. There's no real benefit to the city."

Also last week: Garcia initiated a 60-day review of Mayor Bruce Todd's anti-homeless person ordinance, officially known as the encampment ordinance. It turned a year old earlier this month, and Garcia, who voted for it, questions its effectiveness. "How many people were arrested?" he asks. "If all we did was jail them, it didn't do any good."

Coming up: The council set a date for a public hearing on Slusher's proposal to close half the Southwest Parkway to protect the aquifer. The public hearing will be at 7pm, Monday, Feb. 3, at Covington Elementary in Southwest Austin. The location was selected by the mayor to ensure a vocal majority opposes the closure. At a previous meeting, Todd noted that it took only two councilmembers to call a public hearing. Like an assertive toddler on the verge of a tantrum, the 47-year-old mayor demanded: "I want to go to Covington, and I am."

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