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Despite added revenue, Austin Energy remains in red for 2011

Friday, November 4, 2011 by Michael Kanin

Even though the hottest summer in Texas history brought in additional revenues for Austin Energy – $15.7 million more than the utility had projected for August and September – it was still not enough to put the utility in the black.

 

On Thursday, the utility’s CFO Elaine Hart told Council that Austin Energy’s total retail revenue for fiscal year 2011 was nearly $40 million above estimate; that leaves the utility with a projected loss of $6.5 million. Still, that is far better than the initial projected loss of $51.9 million, Hart said.

 

“We really do have a revenue problem,” Austin Energy General Manager Larry Weis told the council. “We really do need a rate change, and we need to restructure the rates.”

 

The Austin Energy presentation came as part of the utility’s quarterly report to Council. Weis also explored his organization’s progress on its pending rate adjustment, and highlighted some clear movement on its efforts to employ more renewable sources of energy generation. He said he hopes Council will approve the rate increase at the end of January, which would put the first adjusted bills in the mail by early April.

 

Hart broke the additional sales down for Council members. Originally the utility expected to bring in $37.2 million for August 2011 and $3.4 million for September of the same year. Instead, they collected $44.3 million and $12.7 million, respectively. Hart called the additional revenue a “significant improvement.”

 

But if Council does not enact the rate hike, Austin Energy forecasts it will have a $75 million deficit the end of fiscal year 2012.

 

Hart also used the utility’s careful approach to debt load and other financial policies to illustrate the relative health of the organization. Mayor Pro Tem Sheryl Cole picked up on the apparent contradiction. “I think it’s confusing sometimes for you to give a presentation focusing on how strong the utility is because of our financial policies, our debt rating, our debt-to-equity rating, our strategic reserves, and still understand why we are considering a rate case,” she suggested.

 

In response, Hart reminded the Council that the utility hadn’t seen a rate increase in 17 years, and that the organization had “run deficits” over the past four budget cycles. “Our operating margin has declined every year for the last 10 years…I didn’t focus on those (fiscal measures) that are negative and those are the primary reason that we need a rate review,” she said.

 

Hart also hinted at some of what the utility learned through the Pecan Street Project. “We’re really looking to redesign our rates to be a little more modern,” she added.

 

Council Member Laura Morrison pressed Weis on potential issues with a fixed rate for the utility. She attempted to compare the debate over the adoption of a fixed fee portion of the Austin Water Utility’s new rates to what might be coming down the pike for Austin Energy. “In the end, what we adopted (for Austin Water Utility) was an interim fixed fee with direction to go back and help us get a recommendation on a tiered fixed fee based on the amount of usage of the resources,” she says. “It seems to me that…several of the considerations in trying to move in that direction are analogous here.”

 

Weis, who has considerable experience in the water business, noted that water utilities and electric utilities were “two different businesses.” He added that he would prefer that Austin Energy charge some amount not based on electric use. “We’ve got a lot of volumetric costs in there anyway,” he said.

 

But the utility has a number of costs – for poles, wires, and the employees who must climb the poles in order to fix those wires, for example – that all customers must pay for. It does not matter whether the user has a small bill or a large bill. All customers share the responsibility for those costs.

 

Morrison also asked that Austin Energy look into establishing a connection fee for new users. Weis told Council members that he believes that such a charge is possible, and that the utility would study the idea. Still, he declined to include the discussion of a new connection charge in the coming rate case.

 

“It’s independent (of the rate case),” Weis told In Fact Daily after the hearing. “But the point is that if there’s additional sources of revenue from other parts of our operation then we should look at that, and I’m doing that.”

 

Weis’ testimony wasn’t all about adding charges. When asked by Council Member Kathie Tovo about the reported hefty impact of a rate increase on the Austin Independent School District, Weis said that the utility would work to offer the schools a price break.

 

Weis said he would have a lot more to say about rates when he comes back to Council for a work session in mid-December.

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