Austin seeks a new blueprint for power utilities

AUSTIN, Texas -- When they loaded solar panels on their roofs in a new planned community here, Joe Zabreznik, Ashley Fisher and Leila Melhem were not trying to overturn a century-plus of electric utility practices and policies in the United States.

No less may be at stake, however, as the Pecan Street Project unfolds in Austin's Mueller neighborhood.

Backed by a $10.4 million Smart Grid grant from the Department of Energy, the project will test whether Austin Energy --the city's municipal power company -- can manage a fundamental shift in how it operates.

Instead of selling an ever-expanding supply of electrons, the power industry's historic goal, Austin Energy will experiment with a radically different business model. This one promotes energy efficiency and conservation, and renewable and distributed generation, seeking to meet climate goals while still remaining profitable.

In the process, Austin officials believe they are creating a model for the nation in how green energy development can be accelerated.

"This isn't a smart grid project. This is going way beyond that," said Roger Duncan, former general manager of Austin Energy and now board president of the Pecan Street Project, an eclectic nonprofit consortium that includes the utility, the University of Texas, the Environmental Defense Fund and the Austin Chamber of Commerce. The project draws its name from a landmark downtown neighborhood.

"Technologies are developing that are starting to integrate the major energy systems of utilities, buildings, the transportation sector and communications. That's going to fundamentally change the way people generate, use and think about energy. There are a lot of elements of this project dealing with that bigger picture," Duncan said.


The project will seek 1,000 residential and 75 commercial volunteers to try out a wide range of clean energy pilot projects. Some will experiment with versions of new smart meter billing systems for electricity customers aimed at encouraging electricity conservation through time-based rates. Some customers will get smart appliances tied to the grid. There will be household connections for plug-in hybrid vehicles that allow them to take power from and return it to the grid, and measure the strain on nearby transformers. Other experiments will test how native landscaping can conserve water -- another municipal priority -- and study which kinds of solar power installations are most effective.

The goal is to create a new template for the utility. Instead of trying to boost revenues through electricity sales, Austin Energy may be able to shift customers to a flat monthly electricity fee that remains constant however much electricity the customer uses over some period of time. The utility could profit if its energy conservation and efficiency programs reduce the electricity it has to generate or buy for its customers, said Brewster McCracken, executive director of the Pecan Street Project and a former member of Austin's City Council.

'This is doable'

It will take years to learn whether Austin's plan delivers the climate and economic benefits its creators hope for, McCracken acknowledged.

But whether Austin becomes a national model or not, it has already put itself in the front of clean energy development, officials say.

"Austin Energy was radically ahead of the curve," McCracken said. Its Green Choice program in 1999 was the nation's first that permitted customers to purchase wind power or other clean energy sources, he said. Its energy conservation building codes were a forerunner of the U.S. Green Building Council's Leadership in Energy and Environmental Design, or LEED, green building certification program, officials add. In 2000, it began offering subsidies to customers who purchased rooftop solar units.

And it extended a welcome to plug-in hybrid vehicle manufacturers, saying it would work with them to create recharging stations. Efficiency and conservation programs employed between 1982 and 2006 shaved Austin's demand for peak electric power by a total of 700 megawatts -- eliminating the need for a new power plant, the utility says.

"They probably don't want to admit this out loud, but many of the things Austin pioneered are being adopted by other locations and utilities," said Jim Marston, the Austin-based head of the Environmental Defense Fund's energy policy program and a director of the Pecan Street Project.

Through its local rebate payments, the utility has supported some 1,000 solar power unit installations on residences and commercial buildings, totaling 4 megawatts of capacity. The rebates have been so successful that Austin Energy had to scale them back. The program has hit its budget limit this year and is currently closed to new applications.

Leila Melhem and her husband purchased a 7.8-kilowatt solar unit at the beginning of last summer, getting a $4.50-per-watt payment from Austin Energy. "It provides two-thirds of our electricity," she said.

Joe Zabreznik put 12.4 kilowatts of solar panels on his family's house, divided between south- and west-facing roofs.

"I have not had an electricity bill since I put it in, in December," he said, although that may not hold true in the summer. The system's price tag was $53,000. Even though Austin Energy had cut its rebate to $3.50 per watt by then, the local and federal rebates slashed his expense, he said. "It cost me seven grand, and that is paid back in five and a half years" by energy savings, he projected.

By the time Ashley Fisher and her husband invested in solar units, at the end of last year, the Austin Energy rebate was down to $2.50 a watt. They went ahead just the same.

The Mueller development, a "green" project on the site of Austin's former municipal airport, has attracted many residents interested in clean energy, said Melhem, a University of Texas law student. "We thought it was a unique opportunity to have this big piece of land so near downtown, and also because of the emphasis on being green."

"There are a couple of ways of thinking about it when you are jumping into alternative energy sources," said Zabreznik, who corralled some neighbors to buy solar units together, in a block.

A database programmer who now is a stay-at-home dad, Zabreznik added, "It's great for the environment and it's interesting. But I don't think we would have so much interest in solar if at the time it hadn't been such a good deal. ... As soon as people started seeing paybacks of six or seven years, they thought this is doable."

As the Pecan Street Project took shape last year, Fisher and others decided they wanted to take part. "I was interested in contributing to the understanding of energy uses in a community. People are very happy to be a part of that," said Fisher, an environmental planner.

Front-runner or exception?

A key to Austin Energy's out-front position on renewable power and energy efficiency is simply its status as a municipal utility in a progressive community, whose board of directors is controlled by the Austin City Council, McCracken said. That creates a fast track for implementing new energy policies -- as long as the city's voters continue to support them.

Investor-owned utilities have more complex interests. Some major power companies that own coal or nuclear generation are fighting congressional proposals for national renewable energy standards. Those mandates could require them to import wind or solar power from distant sources as Austin Energy did with its Green Power program.

The state's capital, where bumper stickers and T-shirts implore "keep Austin weird," often seems like a political outlier in red state Texas. Economists at the conservative Texas Public Policy Foundation in Austin keep up a running critique of renewable energy subsidies and rebates.

And wind power may not seem such a bargain if new supplies of natural gas from Texas' shale deposits make gas generators more competitive. The challenges of managing the complex integration of wind and solar power, and millions of transactions between utilities and their customers' smart meters, are unprecedented, experts say. All of this could cloud the Pecan Street vision.

Austin Energy's atypical status raises the question of whether Austin will indeed be the front-runner in the movement toward new clean energy policies.

Marston said Austin's interests are not that different from those of investor-owned power companies. The city of Austin receives about 15 percent of the utility's revenues, which the city cannot do without. "Just because the profits go to the city budget as opposed to shareholders doesn't change the fact that both of them need to make money. They are a little less focused on having to report profits every quarter. But Austin Energy has to make a profit, or we lay off police and firefighters," he said.

But Austin Energy's ties to the city administration create more scope for action, he added. The city is likely to exceed federal air quality limits next year, he said. "One of the ways to skin that cat is doing environmental dispatch" of generation. Normally, dispatchers schedule power plants to run based on their operating costs, with the lowest cost first, then the next, and so on. "If you include the cost of air pollution in your dispatch decisions, maybe deploy more renewable resources" when high ozone levels are forecast, he said. Because the city is responsible for water supply as well as electricity, it is easier to promote policies that conserve both, he added.

New models for a new century?

University of Texas professors and students will be deeply involved in the various clean energy experiments run by the Pecan Street Project. "We have these brilliant engineers and scientists" at the university, said Isaac Barchas, who heads a technology incubator program for entrepreneurs at the university. "The Pecan Street Project gives them a commercial focus for their work," he said.

Barchas and McCracken stress that the program's value as a model depends on the care with which the experiments are run and recorded. "What's the economic impact going to be? We don't have big deployments of solar that generate that data. If solar is too expensive and it's going to stay too expensive for a long time, that drives policies," Barchas said.

"We can be a model for how you can have a highly energy-efficient and renewable-based electric utility," said Duncan. "Showing how it's done is key. For those utilities that do want to pursue it, what we're providing is very valuable. That doesn't mean we can persuade or force other utilities to follow that model. There are good models right now that aren't being followed by other utilities."

McCracken maintains that Austin and its municipal utility are at the front of trends that the rest of the industry will be driven to follow sooner or later -- compelled by new opportunities that renewable energy and smart grid technologies create, and eventually by climate policy imperatives.

McCracken puts it this way: "The advantages of solar [in the Southwest] are such that in a plausible scenario, in five, 10 or 15 years, customers will be able to have solar power on roof and batteries, and will be able to go off the grid 60 percent of the time." But although utilities will lose that revenue, they will still have to maintain the grid at a 100 percent level for the times that solar and wind power isn't available. "That comes close to a nuclear scenario for utilities," McCracken said.

"There are people in the utility world who look at the advances that are happening in solar, and they see the utilities as the newspapers of the next decade. We've got a 10-year warning. We have to figure out a different business model."

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