The Austin City Council approved a settlement agreement Friday that grants a discount to Austin Energy customers who live outside the city limits.

The settlement eliminates the top two tiers of Austin Energy's new five-tier billing structure for out-of-town customers. The city’s offer will ultimately forfeit $5.75 million in revenue per year, which is money customers who live outside of the city of Austin will now keep. However, those customers will still pay the monthly $10 fixed fee.

Mayor Lee Leffingwell said a settlement is the best option for Austin taxpayers. Without the agreement, the city could have been involved in a costly legal battle.

"The settlement is much better," Leffingwell said. "Frankly I was surprised at how good it is."

However, the settlement is somewhat disappointing to conservationists like Tom Smith, the director of Public Citizen Texas. But he, too, voiced his general support.

"While we are giving up some in terms of rates for people who live outside the city, overall we are preserving things that have made Austin Energy great," he said.

The Customer Assistance Program, which helps low-income customers afford their electricity, will be preserved, under the settlement. Also untouched are the utility's solar rebate program and renewable energy initiatives.

"I think a lot of people in the community--even those who might have been seen to be on the opposite side of this--have seen the value in us going ahead and settling this case," Smith said.

Smith said out-of-town customers caught a lucky break--one that would be harder to get from a private power provider.

"People outside the city would be forced to pay the same amount of profit to that for-profit utility as people inside the city," Smith said.

Out-of-town Austin Energy customers initially filed the complaint because a portion of their bill goes to fund city services only available within Austin city limits.

Now, Austin Energy must revamp its billing system to account for the different rate plans. If the judge overseeing the case approves the settlement, the new rates will go into effect on June 1.