Financial forecasts call for utility rate increases
Thursday, April 29, 2010 by Michael Kanin
As anticipated, both of the city’s major utilities need to raise more money as a result of rising costs and projected budget shortfalls.
Under a scenario discussed at yesterday’s special called meeting of the City Council, Austin Energy customers can expect to pay less than a dollar a month more in the coming year as a result of fees imposed on the utility by the State of Texas. Those fees are projected to increase each year through 2015.
For its part, the Austin Water Utility (AWU) could hike its fees by nearly three-dollars on average for each of the next five years. The preliminary forecast for 2011 is $2.73 for the average residential customer.
All told, the various increases, including a projected $4.32 rise in monthly property tax costs, add $8.19 a month more for the owner of a median-priced Austin home with average monthly utility bills. The median value for 2009 was $187,878 but the number is expected to drop slightly in 2010.
The news came as the office of Chief Financial Officer Leslie Browder wrapped up two days worth of presentations on the city’s economic position (see In Fact Daily, April 22, 2010). Though Austin — and Texas in general — remains in a much more favorable position than other municipalities across the United States, grim numbers still stared out from staff presentations.
For Austin Energy, this would mean an operating loss of $76.8 million in 2010. If left unchecked, that number could balloon, under a model where the city builds its own power generation facilities, to $95.8 million by 2015. In so doing, it would produce a sixth consecutive loss year, a result that would eat into the reserves the utility had been able to set aside in better times.
By 2015, that reserve fund would be nearly $230 million in the red. In the process, Austin Energy’s debt service coverage number would fall below 1.5. Because that figure is part of the formula that bond ratings agencies use to calculate their grades, a dip below that line could negatively affect Austin Energy bonds.
A model whereby the city purchases its power wasn’t quite as dire. Still, in that case, the utility would lose enough money to result in a reserve loss of $107 million by 2015.
Whether the city decides to engage in further purchase power agreements or build its own plants is a decision that will face Council members down the line. The first in what will ultimately be a series of answers to that question will come as the city’s current wind power agreements expire.
Austin Energy Interim General Manager Robert Goode called the situation an “unsustainable condition.” To remedy it, he suggested a range of short-term corrective measures. These included a reduction in capital improvement expenditures; Goode suggested the city could look into allowing for some slack in its maintenance schedule and passing on the cost of the state’s transmission rider to customers.
The transmission rider proposed for FY2011 is $0.82 cents for a residential customer using 1,000-kilowatt hours.
Further increases could also happen in the coming years. However, Austin Energy must develop a rate case, get City Council approval and then most likely, defend those rates before the Public Utility Commission.
In any case, Austin Energy will press forward in that direction. In July or August, Goode hopes to go before the City Council with a contract for a consultant that would aid in a re-evaluation of the utility’s rate structure.
“The utility is at a crossroads with the business model and the rate structure,” Goode said.
AWU’s numbers are less dramatic. Still, a revenue shortfall is now projected to be in the $30-$35 million dollar range for 2010. Without a rate increase, that figure could swell to $109 million in 2015.
As a result, the utility is calling for a 4.5 percent rate hike in 2011, 2012, and 2014, a 5.5 percent rate hike in 2013, and a 2.5 percent rate hike in 2015. It estimates that this will cost the average ratepayer about $3 a month. However, as AWU continues to phase out the subsidy currently paid by its commercial and large volume customers, those percentages and related costs may go up for residential users. The Council must approve any rate increase.
At the meeting, the Council also heard financial reports for Austin-Bergstrom International Airport, the Austin Convention Center and Palmer Events Center, the Solid Waste Services (SWS) Department, the Drainage Utility Fund, and the Transportation Fund.
Residential users should expect to see a $1.74 rise in fees associated with the Transportation Fund over the next five fiscal years. Commercial users would pay an extra $8.69.
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