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State considering generating its own power

Thursday, January 20, 2011 by Josh Rosenblatt

As Austin Energy prepares to raise rates for the first time in 16 years, one of its biggest customers is considering the possibility of jumping ship and striking out on its own.


According to Jorge Ramirez, deputy executive director of the Texas Facilities Commission, the organization that manages most of the state’s properties, the state is considering the possibility of ending its partnership with Austin Energy and building its own combined heat and power plant (CHP) to supply electricity to the Capitol Complex, the downtown campus on which the State Capitol sits.


In response to Austin Energy’s impending rate increases, the state commissioned a feasibility study on the power plant proposal last year, and the results, which will be released officially on Friday, show that such a move would make “financial sense” for the state.


“We’re just trying to figure out what’s best for taxpayers for the state to manage its utility bills,” Rivera said. “The study is saying building our own facility would make financial sense. The question is would it make more financial sense to partner with the city. That remains to be answered, but if it makes more financial sense, by all means, that’s the direction we would head.”


The study, conducted by the Houston Advanced Research Center (HARC), works on the assumption that Austin Energy’s rates will go up 3 percent annually. “Everyone knew rate increases were looming,” said Rivera. “Unfortunately we don’t know what those rate increases are and we won’t know until January 2012. But they had to make an assumption for the study, and 3 percent was a safe, conservative assumption.”


According to Rivera, the study claims that the CHP project would pay for itself within 10 years. Still, he is quick to point out that the state hasn’t made any decisions, nor is it looking to end its relationship with Austin Energy. Rather, the Texas Facilities Commission is simply trying to figure out which plan makes the most financial sense going forward.


“All ideas are on the table, including teaming up with the city,” Rivera said. “They are potential partners.”


Rivera went on to say that the nature of a potential partnership between the state and Austin Energy could take many forms. AE could build and manage the CHP, for example; the state could build the facility and let AE manage it; or the utility could both build and own the facility and simply sell energy to the state.


Last week, Terry Keel, executive director of the Texas Facilities Commission, wrote a letter to State Senator Kirk Watson claiming that the state of Texas is “vulnerable” to the impending Austin Energy rate increase and that it would therefore be advisable for the Texas Legislature to consider “implementing a plan that would lead to autonomous electric generation capability for all state agency operations in the Capitol Complex.”


According to Keel’s letter, utility costs for all of its facilities total approximately $20 million a year. Those costs represent nearly 50 percent of the commission’s general revenue budget, and approximately 90 percent of that amount is “attributable to state facilities in the Austin area,” particularly the Capitol Complex.


And though the state of Texas has noted that Austin Energy’s rates are the lowest in the state for state facilities, Keel’s letter indicates concern at the Texas Facilities Commission about the size of the impending hike. “By some estimates, the increases could total as much as 50 percent over the next ten years,” he writes.


Austin Energy Public Information Officer Ed Clark told In Fact Daily that the utility would do whatever it can to ensure that rates remain affordable for the state of Texas, which already has the lowest rate in the city.


“When we have our rate increase, it is yet to be determined to what degree that rate increase will be allocated to the different customer classes,” Clark said. “So it’s not to say the state’s rates won’t go up, but it is to say that we absolutely intend to be very competitive for the state of Texas because they are an extremely large user.”


The problem for the Texas Facilities Commission is that they answer to the Texas State Legislature, and the legislature has to come up with a budget, eventually, whether in a regular session or a subsequent special session. Since nobody knows what the state’s rate increase is going to be, the commission is advising the legislature to at least consider different energy arrangements. 


Keel’s letter “was not meant as a kick in the pants (to Austin Energy), but it’s this agency’s responsibility to manage state facilities,” said Texas Facilities Commission Portfolio Manager and Public Liaison Aundre Dukes. “We have to keep the legislature informed on the status of facilities and the cost. The rate increase will be a huge unknown.”


In a letter sent yesterday to Keel, Mayor Lee Leffingwell wrote that Austin Energy has agreed to conduct and fund a preliminary feasibility study for a combined heat and power plant.


Apart from its commitment to the state, Austin Energy has a longstanding commitment to conserving energy. A combined heat and power plant would serve that goal by reducing the amount of energy the city needs to produce through other methods.


“I want to assure you that Austin Energy will continue to work closely with your agency to provide the State of Texas and the Capitol Complex with reliable power at affordable, competitive rates,” the Mayor wrote.

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