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Austin Energy lays out strategy but does not tout entering competition

Friday, February 11, 2000 by

It's too soon to decide, and Legislature may tweak rules before competition starts

The electric utility owned by the City of Austin is in great shape and its rates just became more competitive because a potential future competitor just raised its rates. That's the nub of the 20-minute presentation delivered to the City Council last night by Chuck Manning, general manager of Austin Energy.

What was supposed to be a public hearing to allow citizens to comment on Austin Energy's strategic direction in light of the passage of the state's Electric Utility Restructuring Act (EURA) last June was pretty much a bust. Only two citizens availed themselves of the opportunity, despite a front-page article in yesterday's Austin American-Statesman about the hearing. The public hearing offered the first peek at results of seven months of intensive review by a strategic planning team that assessed how Austin Energy may fare under EURA ( In Fact Daily Jan. 31).

Manning said he had just received word that City Public Service (CPS), the utility owned by the City of San Antonio, was raising its residential rates 4.3 percent and industrial rates 4.83 percent. This is significant because CPS has long had the lowest rates and CPS serves as a key benchmark for Austin Energy. Still, the residential customers of Austin Energy who consume 1,000 kilowatt-hours of electricity in a month would pay about $5 more a month than CPS customers using the same amount, even after CPS raises rates 4.3 percent ($67.57 vs. $62.60).

Where Austin Energy excels is with the City of Austin having invested so much in energy conservation over the past two decades, its average bills are the lowest in the state. "Austin Energy must remain an environmental and conservation leader," Manning said. He noted that Austin's commitment to conservation and environmental programs has positioned Austin Energy to meet new environmental and air-quality standards, the cost of which would be significant.

The dividends the electric utility pays the city–in the form of a transfer of profit to bolster the city's general fund–has kept Austin's property tax the lowest among major cities of the state.

Austin Energy promises to reevaluate its rates as other utilities and new energy providers offer new pricing structures. The City Council long ago set a goal to lower Austin Energy's rates. Toward than end, the utility has over the last few years accumulated a debt management fund of $211 million, and uses that money to pay cash instead of racking up new debt. For example, Manning tells In Fact Daily that he expects to bring forward next month a contract to purchase a new 100 megawatt power plant to help meet peak loads, and intends to pay cash instead of financing it. (He said the city owns land that is remote from residential areas and has the necessary zoning for a power plant.)

Manning painted a picture of competition than encompasses more than a fight for customers. He said enrollment in engineering schools is down 50 percent nationwide, meaning Austin Energy will experience competition for human resources to run the utility. (In reality, the utility has for years been struggling to prevent a brain drain of key employees. See In Fact No. 99, June 1997.)

Investor-owned utilities (IOUs) are required to lower electric rates 6 percent when retail competition begins Jan. 1, 2002, and must sell generating facilities if their share is greater than 20 percent of the market.

Municipally owned utilities (MOUs) are not required to enter retail competition but may opt to do so after January 2002; if they do, the decision is irrevocable, Manning said. If the city enters competition it may sell power outside Austin Energy's traditional market area but other utilities may then offer power to Austin Energy's customers.

IOUs must unbundle services, meaning they must split generation, transmission and distribution functions into separate independent units, with a code of conduct governing relations between these entities so that no competitive advantage is gained over other utilities. MOUs are not required to unbundle services or sell generating assets.

"One thing that will become obvious over the next two years is the need for public education," Manning said, noting the topic of deregulation is one of the "least well understood."

Manning said Austin Energy is not making a recommendation at this point on whether the council should opt to enter competition. The study concludes, in fact, "There is significant value in Austin Energy remaining a community owned utility." A big unknown, however, lies in the fact that the Texas Legislature may make changes to EURA before the January 2002 starting date for retail competition.

The vision for the utility, Manning said, is "Austin Energy will be an exceptional community owned utility through our relentless ('a lot of work went into choosing that one word,' he said) commitment to our customers and our community."

Longtime energy activist Paul Robbins raised the specter of IOUs skirting the bars that limit market share of generation to 20 percent, and using predatory pricing to grab Austin Energy's customers if the City Council should opt for competition. "Some large utility…could sell below cost, put us out of competition and there's nothing we could do about it," he said. "Just because it's immoral doesn't mean it's illegal…We will not be able to compete against a product that's unfairly priced, no matter how good we are," Robbins said.

At the request of Mayor Pro Tem Jackie Goodman, Manning replied to Robbins, saying there was an anticompetitive provision in EURA so a utility can't use low prices "and drive others out of business." Goodman asked that the pertinent parts of the bill be furnished to the council with a lay person's explanation.

Robbins noted Austin Energy's goal of continuing to be an environmental leader but said he's not satisfied with the city's situation. Based on the recently updated edition of The Austin Environmental Directory that he publishes, Robbins said conservation efforts over the past two decades has saved energy use per-square-foot, "but the use per-person is up 33 percent since the energy crisis. We're not doing enough and we need to do more." He suggested that energy conservation by commercial customers be increased to historical levels, for starters.

Council Member Daryl Slusher asked if Austin Energy had made a decision to opt in or opt out of competition, and Manning replied, "No, and we're not sending anything to the council to change."

Council Member Gus Garcia followed up, saying while no decision had been made to opt in or out of competition, "We're preparing the utility to compete?" To which Manning responded, "That is correct." Garcia added, "At the appropriate time we'll make that decision."

Slusher summed up the city's situation, saying, "When I first got on the council there was a 'Chicken Little, sky-is-falling' mentality on the council, and we now have a very healthy utility. The bond houses have affirmed we have a healthy utility. I congratulate you for that," he said to Manning.

Goodman also thanked City Manager Jesus Garza for the status report. "Some people were real suspicious of what you were doing," she said, referring without saying so to Robbins' vocal criticism of the strategic planning that has been going out of the public eye.

"I will urge them to continue to meet in secret," quipped Garza.

Bradley Settlement details emerge but environmental groups not weighing in yet

Save Our Springs Alliance just got complete copy of agreement

The public got more details Thursday on the agreement between the City of Austin and the city's longtime bogeyman, Gary Bradley, but only one citizen spoke at the public hearing. Casey Dobson of Scott Douglas & McConnico, who has represented the city in negotiation over the future of the 3,076 acres of land in southern Travis and northern Hays County, said the most important right the city has gained is a groundwater deed from Bradley and others covered by the agreement. Dobson said the deed was not in the city's original term sheet, but is "a very significant add-on."

Under the agreement, Dobson said, Bradley would be able to use water from existing and future wells "solely for the purpose of watering the golf course on Spillar Ranch. What is the significance of that? To develop you have to have water." But the city will have a deed granting it "the exclusive right of exploring, investigating, conducting geologic, hydrogeologic and geophysical surveys and tests, drilling, operating… producing and owning groundwater," according to the draft deed. Bradley would be prevented from drilling any new wells into the Edwards Aquifer, Dobson said.

Dobson also told the council, "The golf course (developers) were very accommodating to the city's desires. We fairly radically redesigned the golf course."

Following the hearing, Nancy McClintock, manager of the Environmental Resource Division of the Watershed Protection Department, told In Fact Daily she was happy to be entering a new phase of negotiations with Bradley. Thus far, she said, the negotiations have been "gritty. We didn't stop negotiating until we had something potentially supportable by the council."

McClintock said developers have agreed to an irrigation management plan, which includes rules on when, and how much the recreation area will be watered, amount of fertilizers allowed, and a monitoring plan to make sure the agreement is being honored. In addition, she said, the agreement calls for pest management through the least toxic pesticides available and application only when needed, rather than preemptively.

In addition to monitoring wells, the golf course managers will be required to monitor Bear Creek, which runs through the Spillar Ranch, and a number of springs to be identified by the city, she said. The environmental manager said designers of the course had originally planned to put three holes within 50 feet of Bear Creek. The city persuaded the planners to move those greens as far as possible, McClintock said, with the closest now being 100 feet from the stream. She said there will be monitoring wells in the meadow between the greens and the creek. If there is an increase in contaminants, she said, the city would require corrective action. For example, she said, "If there's a 20 percent increase in nutrient levels, then they must (respond with) a 20 percent decrease in fertilizer levels."

Dobson said the agreement provides for a dispute resolution process in case of disagreement between the city and the golf course after the agreement is signed.

Robert Singleton, the lone citizen to speak at last night's public hearing, complained that the agreement would lock in all regulations as they now exist–not just those pertinent to land use. "You're preauthorizing exemptions for what might be enacted later," Singleton said. Since the agreement does not limit the types of regulations that might not be applied to the Bradley properties in the future, Singleton said, there is the possibility that the city may unintentionally exempt those properties from future ordinances dealing with noise, nuisance or animals, for example.

The Save Our Springs Alliance (SOSA), which has assembled a task force to study the agreement and make suggestions, sent an e-mail to its members to notify them of the hearing. "The SOS Alliance will not participate in tonight's hearing because the city has only just now provided a complete copy of the agreement for our team to review. We feel it would be imprudent to comment before we have even had a meaningful opportunity to review the proposal," SOSA attorney Grant Godfrey wrote.

Dobson told the council he has been working with some members of SOSA on the complicated deal and promised to make all parts of the agreement available on the city's web site as soon as possible. Council will hold another hearing on the matter Feb. 17 and March 2, and is scheduled to vote on the agreement March 9.

The council held its first public hearing last night on the proposed limited-purpose annexation of Edwards Crossing, Spillar Ranch and Pfluger Ranch, with final action on the annexations also scheduled for March 9. A zoning case for the land to be annexed has been initiated and is also scheduled to be made final on March 9.

LCRA completes public input for EIS on Dripping Springs water line

Decision on how to conduct environmental impact statement expected within 10 days

The Lower Colorado River Authority completed its third and final meeting yesterday in a public involvement process to determine how to conduct an Environmental Impact Statement (EIS) for the pipe line to deliver treated surface water to Dripping Springs.

Robert Cullick, executive manager of communications and corporate strategy, said a total of 15-20 people participated in the three meetings. While the number was small, the organizations represented included most stakeholders. Cullick said attendees included individual landowners, members of Take Back Texas, and the environmental groups Save Barton Creek Association and Save Our Springs Alliance. Hays County groups included the Hays County Water Planning Partnership and Greater Dripping Springs Planning Partnership. A member of State Representative Terry Keel's staff attended, as did a staff member from Hays County government. Plus the Barton Springs/Edwards Aquifer Conservation District and Dripping Springs Water Supply Corp.

Cullick said the LCRA is now putting together the pros and cons of the three possible paths identified for conducting the EIS. (See In Fact Daily Feb. 3.) He said the agency would likely decide which course of action to take "within 10 days, probably."

The criteria for the choice, he said, is which path would generate the highest quality study, which would be most efficient in terms of resources, and which would provide the most solid information upon which to act. "No matter what decision we make someone will probably be unhappy and take us to court, so it's a matter of picking the best path to get solid answers," Cullick said.

Two of the three possible paths involve hiring a consultant to do the EIS. If one of those paths is chosen, Cullick said, the LCRA will again consult with stakeholders for the purpose of getting input on the criteria for selecting the consultant.

Design phase starting to route new sewer infrastructure through Zilker Park

Long awaited improvements in wake of South Austin Outfall’s demise

The City Council voted yesterday to amend a contract to get preliminary engineering work done on one of the most politically sensitive segments of the city's wastewater system: the elimination of overloading of the Robert E. Lee Road Interceptor by rerouting flows from the Barton Creek Lift Station through a new force main. The tentative route of the force main will cut through Zilker Park, from the Lift Station located in the parking lot at Barton Springs Pool, cross Barton Creek south of Barton Springs Road, and connect to an existing 30-inch wastewater main between the creek and Robert E. Lee Road. The scope of work also calls for rehabilitation of the Robert E. Lee Road Interceptor to address corrosion and possible structural defects.

This job is a direct descendant of ongoing work in this area's sewer system in the wake of canceling the infamous South Austin Outfall Relief Main Project. That project would have taken the Barton Creek Lift Station out of service and boosted the capacity of the sewer system to serve areas over the environmentally sensitive aquifer. Environmentalists said the project would unleash harmful development, and both the Save Our Springs Legal Defense Fund and Save Barton Creek Association filed lawsuits. Although the city had already awarded a $3 million construction contract for the project, after the election of Jackie Goodman and Brigid Shea to the council in 1993 it was canceled. (See In Fact No. 65, October 1996.)

When canceling the Outfall, the council also ordered a study of sewage needs in the area, encompassing 8,630 acres. That engineering study was done by Espey Huston & Associates. The study monitored flows in the area's sewer system and laid the groundwork for a consensus-building process in which the cities of Rollingwood and West Lake Hills eventually got approval for wholesale sewer service from the City of Austin. The capacity to those cities was restricted because of the limited capacity of the Barton Creek Lift Station.

In the new work approved by the council, PBS&J (successor to Espey Huston) is to engineer and assess the environmental impact of conceptual alternatives, to include public involvement and community meetings, and prepare a report including recommendations for implementation.

The council voted 5-0 with Mayor Kirk Watson absent and Council Member Gus Garcia off the dais to authorize an additional $162,410 for this new work, bringing the total contract to $597,354.

Free the press… Jennifer Gale, perennial candidate for public office, continues to use the city's Channel 6 venue to complain about the lack of press coverage of Gale's latest effort to run for mayor. Yesterday at the City Council meeting, Gale's target of choice was the Austin American-Statesman and, just for good measure, the Austin Chronicle. Starting with the Statesman, Gale said, "This paper has no intention of covering the mayor's race except with bias." Gale accused the Chronicle of failing to do a balanced job of covering the Place 4 council contest last year (in which Gale placed eighth in a field of nine and Beverly Griffith easily won reelection without a runoff). "We live in a city where you have to be well off to get any kind of press coverage," Gale said…The Entrepreneurs' Association was awarded a proclamation for its 11th anniversary yesterday. Co-founder Jan Triplett used the occasion to invite all to the Heavy Hitter Dinner Feb. 24, in which Central Texas' companies that made Inc. magazine's list of 500 fastest growing businesses will be honored. She said this year's local crop of owners includes the first African American and only third woman. The five firms are Catapult Systems Corp., Lone Star Direct, Paramount Computer, Rainbow Analysis Systems Group, and Zephyr Environmental. For more info, call 933-1983 or visit

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