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Alternative plan for Austin Energy rate hike falls short

Friday, March 2, 2012 by Michael Kanin

Late Thursday night, Council rejected an effort by members Laura Morrison, Kathie Tovo, and Mike Martinez to set an interim Austin Energy rate hike equal to $35 million in new revenue over the next year. Austin Energy officials had argued that the plan would have put the utility in a precarious financial position.

 

However, Council members did approve an ambitious schedule of work sessions designed to lead to policy decisions that could have direct bearing on a long-term Austin Energy rate solution. If all continues according to plan, Council will hold 11 work sessions over the next seven weeks, with a final rate decision set for May 24.

 

The schedule includes a public hearing at the Lakeway City Hall on April 14. That hearing would provide non-City of Austin ratepayers a chance to make their case, although some of those customers have already been quite vocal about their objections to Austin Energy’s transfers to the city’s general fund.

 

Council Member Mike Martinez, who worried about the time crunch involved, provided the lone no vote to the work plan and rate setting date.

 

Council deliberations took place under a shadow cast by a frankly worded report from Austin Energy about what the utility argues are the potentially dire consequences of an inadequate rate increase. In it, Austin Energy General Manager Larry Weis drew hard lines about what the utility believes it needs.

 

“An immediate $71 million rate increase is necessary for the utility to maintain ‘reserve neutrality’ at this time, with an additional $31 million increase required in October 2014 to resolve Austin Energy’s financial challenges,” Weis wrote. “Austin Energy further concludes that an immediate $102 million increase with an increase of $25 million beginning in 2015 for existing contract customers will fully resolve Austin Energy’s financial challenges to the satisfaction of the bond rating agencies.”

 

The utility further warned Council Members that the Morrison-Tovo-Martinez plan would leave it roughly $78 million short in its operating fund by June 2013. “Insufficient cash leaves the utility vulnerable to financial risks from unplanned events such as power plant outages, fluctuating power market costs, volatile fuel prices, regulatory costs, natural disasters, and environmental impacts such as water curtailment,” the report read. “Lack of cash could create the need to borrow additional funds at added cost to ratepayers.”

 

Still, critics continued to doubt the utility’s ability to accurately calculate its needs. Texas ROSE executive director Carol Biedrzycki summed up the feelings of many. “I am skeptical that Austin Energy needs as much money as it says it does,” she said.

 

Utility officials maintain that poor cash metrics would also bring down bond ratings. This serves as something of a trump card. “A downgrade in the utility’s credit rating would increase costs (and thus rates) for our customers over the long term,” according to the memo.

 

Weis’ memo also expressed concern over a Morrison-Tovo-Martinez call to reset the year on which the utility bases its rate projections. If, as Morrison, Tovo, and Martinez wanted, the utility used 2011 instead of 2009 as its test year, Weis predicted there would be significant costs. “In planning for developing a new proposal using a 2011 test year, Austin Energy anticipates that 10 to 12 weeks will be required for the effort,” he said. “Since the audited financials will not be available until late April, the utility believes that this analysis could be completed and presented to Council no sooner than July 2012.”

 

Austin Energy estimates that the cost of such an effort could approach $200,000. However, under questioning, Weis suggested that the utility could tweak the 2009 numbers without having to completely remodel its cost-of-service estimates.

 

The defeat of the Morrison-Tovo-Martinez plan could indicate that there is enough support to pass a plan from Council Member Bill Spelman. The Spelman plan, if it stays as is, would drop a set of fixed monthly fees from $22 to $15. It would also offer concessions to the religious community, which worries that the Austin Energy proposal would have a severe impact on houses of worship.

 

Indications are that some form of Spelman’s plan could cover Austin Energy’s needs and satisfy a majority of the Council. Either way, Council Members will have the next seven weeks to hash it out.

 

Editor’s note: Aides to Morrison and Tovo strongly objected to the use of the word defeat when describing the vote. Instead, they suggest that the passage of two of four of the provisions included in the original resolution signal a victory for the plan. They insist that the focus of the plan was to win time for a more through vetting of policies attached to the Austin Energy rates.

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