Monday, March 19, 2012 by Michael Kanin

City administrative costs weigh on Austin Energy’s budget

Austin Energy’s contribution to a host of City of Austin administrative costs totaled just over $38 million in fiscal year 2011. Though that figure was rumored to be high, no specific numbers have been published until now.

 

Electric Utility Commission member Steve Smaha told In Fact Daily that he believes that figure is “unreasonably high right now.” In an email which came in response to an inquiry by In Fact Daily, Smaha was direct. “If one looks at the history of those numbers going back to the 1990’s, one sees that the administrative transfers increased significantly around 2001,” he wrote.

 

“My understanding is that city government asked AE management for a major temporary increase in those transfers to make up for a drop in City revenues from sales taxes due to the dot-com crash and other economic effects at that time. Though it was supposed to be a temporary increase in allocations to AE, it was never rolled back.”

 

The details emerged as the result of a public information request filed by Homeowners United for Rate Fairness, or HURF. The group is made up of out-of-city Austin Energy ratepayers who argue that they shouldn’t have to pay for the portion of their Austin Energy bills that go to fund Austin programs. “It’s sort of like a microcosm of why you don’t want to run a city on an energy company this way,” HURF’s executive director Mark Farrar told In Fact Daily.

 

All told, Austin Energy sent at least $155 million to the City of Austin in fiscal year 2011. That includes about $105 million that the utility transferred directly to the city’s general fund. The transfer equals the 9.1 percent that is considered due back to Austinites as shareholders of the utility. While the general fund transfer declined slightly from fiscal year 2010 to 2011, the transfer plus extra expenses were slightly more than the $154 million that the city took from the utility in fiscal year 2010.

 

In addition to the general fund transfer, Austin Energy sent funds for a host of programs. In 2011, these included $38.375 million for city services including over $6 million for the Information Systems Department and $6 million to Public Works for city street lights. Nearly half of the money — roughly $15 million – went to city administrative support.

 

Farrar pointed to a lengthy document – the City of Austin’s Cost Allocation Plan – included in the request. According to an introduction included in the Cost Allocation plan, it is a city document used to “identify as close as possible” the cost of certain city departments, and from what source those departments collect their funding.

 

The utility’s general fund transfer has been controversial for in-city ratepayers as well. Some argue that a reduction in the transfer amount could also reduce the overall rate increase.

 

EUC Member Smaha cited an algorithm used by city management to allocate each city department’s contribution to operation costs. “In many cases I examined, the allocation method employed for each category just so happened to maximize the contribution from AE, whether or not AE was utilizing those services; it was quite an amazing degree of coincidence,” he wrote.

 

“For example, AE paid a very large share of the city’s lobbying budget, despite having its own separate lobbying staff and not (to my knowledge) making much use of the city’s lobbying office. Lobbying the Legislature on utility matters is pretty specialized, and AE has its own staff in this area. Similarly, AE paid a very large portion of maintenance for city buildings, in addition to paying for such services for all of its own buildings.”

 

Smaha then turned to the bigger picture. “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,” he continued. “Policy decisions like that occur ‘above my pay grade’; I’m an unpaid volunteer on the EUC.”

 

Assistant City Manager Robert Goode, who serves as the liaison between management and  Austin Energy, defended the allocation. “The amount city departments provide for administrative services is determined with careful consideration and uses a method applied to all departments which we believe appropriately allows departments to contribute to needed city services,” he said.

 

This will hardly be the final word on the subject as ratepayers from outside the city continue to insist that money from their utility bills should not be contributing so much for many city government services that may or may not benefit non-City of Austin residents. For example, according to HURF, Austin Energy paid $909,000– or 38 percent — of the 2009 budget for the Mayor and Council. As the group says in a letter shared with In Fact Daily, “common sense points to the improbability that the mayor and council dedicated almost 40 percent of their time and resources to supervising the utility, especially considering its present situation.”

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