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Austin Energy lays out fund transfer options at Council work session

Thursday, March 22, 2012 by Michael Kanin

Austin Energy officials gave Council members an array of proposals for changing the way the utility transfers money to the city’s general fund on Wednesday. Though no direct action was taken, both Mayor Pro Tem Sheryl Cole and Mayor Lee Leffingwell indicated that they would support a change in how at least the base transfer figure – currently set at 9.1 percent – is calculated.


The development came as part of the second in a series of 11 workshops designed to help Council Members make a host of complicated policy decisions that will ultimately help determine a figure for an Austin Energy rate hike. The Council members’ discussion took place against the backdrop of concerns from rate payers who live outside the city limits that their bills contain too much in terms of a contribution to City of Austin services.


In addition to the general fund transfer, Austin Energy pays for a number of other items that are not directly related to the utility business. All told, Austin Energy says it is paying the city $158.5 million for the current fiscal year.


Council members made it clear that they should be able to justify the portion of electric rates that suburbanites pay for in-town services. “We really (need) to get a feel for these services that we are providing,” Cole said. “How reasonable (is) it to just presume that people that aren’t using any of those services – I think that information could be helpful for us.”


On Monday, In Fact Daily first reported that Austin Energy paid for roughly $38 million in city administrative costs in fiscal year 2011. Though Assistant City Manager Robert Goode, who serves as a liaison between city management and the utility, insisted that the figure was fairly calculated, at least one member of the Electric Utility Commission believes otherwise. “I suppose someone in the City Manager’s office could conclude the current level of transfer is ‘fair,’ but then those cross-subsidies certainly reduce the need to make tough choices about services or increasing taxes to fund city services,” Steve Smaha wrote in an email. (See In Fact Daily, March 19.)


The $38 million transfer and a host of other costs were revealed in documents sent to out-of-city ratepayer group Homeowners United for Rate Fairness, or HURF, as part of a public information request. HURF is intent on proving that out-of-city rate payers’ contributions to the City of Austin’s general fund via their electric bills are unfair. When the Austin City Council eventually adopts the new rates, this argument could serve as a centerpiece in an appeal to the Public Utility Commission.


On Wednesday, city staff provided evidence that could justify both the base, 9.1 percent general fund transfer – which amounted to $105 million in FY2011 – and the assorted other monies Austin Energy sent to city coffers for various items. The transfers totaled roughly $155 million in FY2011.


Staff argued that both the base transfer and the method that the city uses to calculate it were normal procedures for municipally owned utilities. They suggested that the same was true for Austin Energy’s financial support of the city’s Economic Growth and Redevelopment Services Office, as well as the funds that the utility sends along for support of administrative services.


Still, city financial staff offered Council a set of alternatives that, if approved, would reconfigure how some of the transfers are calculated. They suggested that the base transfer rate of 9.1 percent of utility revenue be raised to 12 percent – but that the 12 percent only cover non-fuel funds. The current 9.1 percent model includes money that the utility collects from customers to pay for fuel costs. That fee is currently set as a pass-through; Austin Energy recoups only that direct figure, and makes no profit from its fuel charge. As such, when the city includes fuel in its general fund transfer calculations, the utility effectively hands over a portion of revenue that is not profit.


The 12 percent model would correct that and in the process, argue it’s proponents, turn the utility’s general fund transfer into a better reflection of the true costs of growth. The actual percentage is higher than the current transfer rate. However, without the fuel charge included in the figure, the transfer would eventually produce the same figure as the 9.1 percent base transfer approved for the city’s FY2012 budget. This is the proposal that drew vocal support from Cole and Leffingwell.


This version of the base general fund transfer would also come with a $105 million floor. Current figures indicate that 12 percent wouldn’t rise to $105 million for a few years. “It seems to me like your recommendation on the 12 percent begins a gradual, acceptable phase out of the fuel charge (being included in the transfer calculations),” said Leffingwell. “I think (that) is very important because right now what we’re doing is taking…9.1 percent of something that we don’t have.”


Another staff recommendation would set the city’s EGRSO out as a separate city department, and spread some of its funding out over more divisions than just the city’s two major utilities. That plan would also look to find new sources of funding for the city’s cultural arts divisions.


Council Member Kathie Tovo said that she had “grave concerns” about the idea of “parceling out” the cultural arts programs. “I think it’s a key element of our economic growth and redevelopment services and I would want to see it continue to be funded at the same level – and I think that will be a real challenge” under this proposal, she continued.

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