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Commission warns city on Austin Energy non-utility expenditures

Wednesday, August 17, 2011 by Bill McCann

Is the City of Austin using Austin Energy as its own version of an ATM?


This week the advisory Electric Utility Commission (EUC) once again came out strongly against the City Council’s use of millions of dollars of Austin Energy funds to fund non-energy programs – especially the city’s Economic Growth and Redevelopment Services Office.


And for the second time this year the EUC has raised warning flags that continued use of Austin Energy as a cash cow potentially could get it into trouble with the Texas Public Utility Commission (PUC).


The latest warning by the EUC came Monday as the seven-member advisory group, which is appointed by the City Council, considered Austin Energy’s proposed $1.2 billion fiscal year 2012 budget. That budget not only includes a $103 million transfer to the city’s general fund to help pay for such things as police, fire and parks, it also includes roughly $40 million in funds considered Austin Energy’s share of supporting various city departments. It also includes paying for nearly the entire $9.9 million budget of the Economic Growth and Redevelopment Services Office.


EUC members argue that funding economic development – as well as other non-energy programs and services – with Austin Energy revenues is a bad business practice and one that could affect the financial health of the utility in the long run. 


It is not the first time they have made that argument. In fact, the EUC has passed resolutions each year since 2007 calling for the City Council to remove from Austin Energy’s operating budget those expenses that fund city programs not directly related to the utility’s business. But those resolutions have fallen on deaf ears, EUC members say. In February, the EUC – recognizing that the utility faced a possible rate fight down the road – passed a resolution that included a warning about future Texas Public Utility Commission scrutiny of Austin Energy’s expenditures.


An overriding concern is directly related to Austin Energy’s base rates, which are currently under review for the first time in 17 years. Following a public review and decision process, the City Council is expected to vote on new rates late this year or early next year. Rates will go up, but the question will be how much and which customer classes will bear the brunt of the increases. Right now, utility officials say they will need an 11 to 12 percent increase in revenues to meet the utility’s operating needs.


Austin Energy customers living in the city have the recourse of voting for – or against – City Council members, but customers who live outside the city have no such recourse. Under state law, however, customers living outside of Austin can appeal a rate change by filing a petition with the Texas Public Utility Commission, a step that would likely trigger a formal rate case that would take many months and cost hundreds of thousands of dollars or more.  In a rate case, Austin Energy’s entire budget would be subject to line-by-line scrutiny.


“There could easily be hell to pay by the PUC,” Electric Utility Commission Member Stephen Smaha told the EUC meeting on Monday. Smaha said he thought the EUC had reached agreement with staff aides to City Council members last year for the city to begin removing non-energy programs from the Austin Energy budget.  “But we didn’t see that in this budget.”


“We need to find a way to get the City Council’s attention,” said Commission Member Bernie Bernfeld.


Commission members pointed out that 55 City of Austin employees, including 46 from economic development and nine who were moved out of Austin Energy last year to other departments, would continue to be funded by Austin Energy, even though they would not be accountable to utility officials.


Austin Energy General Manager Larry Weis said he understood the concerns of EUC members, but said it has been a long-time city policy to fund some non-energy programs from utility revenues. Weis indicated that utility staff received direction from city management to maintain the status quo for the 2012 budget.


“I know it’s an issue with the commission, but our staff is in a difficult position because it’s not our decision,” Weis said.


EUC members emphasized that they were not intending to attack the utility staff on the issue, but wanted to make sure that senior city management and council members understood their concerns.


In the end, the EUC voted to recommend approval of the 2012 budget, but to zero out funding for the economic development office and use that savings to replace funds that were cut from energy conservation and to bolster a repair and replacement fund used for extensions, additions and improvements to the city electric system.


“This is not a vote against economic development, but a vote on how it is funded,” said Commissioner Michael Webber.


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