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Expert raises concerns about Austin Energy expenses

Friday, September 23, 2011 by Bill McCann

An expert rate consultant to Austin Energy has recommended that the utility take a hard look at its revenue requirements – the basis for its proposed electric rate increase – because some of the numbers may be vulnerable if the rate case ends up at the Public Utility Commission of Texas (PUC).


Gary Goble, who has more than 30 years experience as a utility consultant and regulator, raised several technical questions about Austin Energy’s revenue requirements—the money needed to run the utility—at a meeting of the advisory Electric Utility Commission (EUC) this week. This was the EUC’s second of four scheduled public meetings on Austin Energy’s proposed rate increase before the EUC makes recommendations to the City Council later this fall.


Goble told the commission he was concerned that, based on his initial review of the documents, Austin Energy “has not fully supported the level of its proposed rate increase” and might not be able to meet state standards to justify some costs listed in its revenue requirements.


Those comments support what some EUC members have been saying. Following Goble’s presentation, the seven-member commission unanimously passed a resolution requesting that Austin Energy officials meet with Goble to answer his questions and bring back to the commission any unresolved issues.


Goble also drew favorable reaction from EUC members when he recommended that the city exclude fuel and purchased-power costs when calculating Austin Energy’s transfer of money to the city’s general fund. The transfer currently exceeds $100 million a year to help the city pay for its general operations such as police and fire. EUC members have been arguing for years against including fuel and purchased-power costs in calculating the transfer because such costs can fluctuate greatly and make the transfer amounts unpredictable.


An Austin Energy official said later he was confident that utility analysts could answer most, if not all, of Goble’s concerns. “If you listened closely to the discussion, it was mostly questions and we did not have an opportunity to respond,” Mark Dreyfus, Austin Energy’s director of regulatory and government affairs and lead staffer on the rate case, told In Fact Daily. “We think that once we sit down with him, we can answer the questions he raised or at least point out where we may differ because we are following city policies.”


Dreyfus added, “If this (rate case) goes to the PUC, we understand that it will take a lot of work and certain standards will need to be met. We will do everything we need to do to meet them.”


In late August, Austin Energy released details of its rate package, including revenues needed to pay the costs of expanding, operating and maintaining the city-owned electric system and the rates needed to cover those costs. Austin Energy has built its case for higher rates on the conclusion that it needs $1.136 billion a year in revenues to do its job – $131 million more than what current rates generate.


Meanwhile, consumer advocates and EUC members have questioned whether the $1.136 billion figure is too high and whether it could withstand scrutiny at the state Public Utility Commission if the proposed rates were appealed. Under state law, Austin Energy customers living outside the city have the right to petition the state agency to review new rates imposed on them. This would open up Austin Energy’s books to detailed scrutiny, which would take many months and cost hundreds of thousands of dollars.


In his presentation, Goble, who did his review as part of a contract the utility has for a residential rate advisor, raised a number of issues, including those relating to future capital improvement expenditures, administrative and general expenses, and several special funds that Austin Energy has on its books.


For example, in documents related to administrative and general expenses – those support services that do not directly involve generating or transmitting electricity – Goble said he found that the utility’s costs are more than $100 higher per customer per year than the average investor-owned utility in Texas.


Later, Goble told In Fact Daily that Austin Energy’s documents showed that administrative and general expenses are $254 per customer per year. This compares to $145 that the average Texas investor-owned utility spends, he said.


“I recognize that Austin Energy provides a lot of programs that IOUs (investor-owned utilities) do not provide, but they need to look at it. It’s too high,” he said.


Goble also pointed out that the utility has a number of operating funds, including emergency and contingency reserve funds and a rate stabilization fund.  “I recognize that these funds have been established by city policy, but if this ends up at the PUC there will need to be justification and rationality for them beyond the fact that they are city policy,” Goble said. “It is going to take some number crunching to substantiate that these (funds) are fair and reasonable. “


He added: “I have no doubt that some of my questions will be answered. Some may be bookkeeping issues. They have a lot of good, qualified people over there (at Austin Energy). But my job was to look at the numbers to determine if they appear reasonable and if there is support for them and to ask questions when I saw a potential problem. Hopefully, they can answer them.”

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