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Austin Energy consumer advocate racks up higher bill than authorized

Tuesday, May 1, 2012 by Michael Kanin

Austin Energy officials informed members of the Austin City Council on Monday morning that, no matter how they act on the utility’s new rate structure, the organization will still need at least $71 million in additional revenue over the first phase of rate hikes in order to remain financially stable.

 

Under direction from Council, utility officials ran five scenarios that adjusted the level of funding for various Austin Energy reserves, as well as the ratio of debt-to-cash that the utility uses to finance capital projects. But that did not change the overall picture, utility staff said.

 

More details about the utility’s revenue requirements are expected this morning, when the Council’s Audit and Finance Committee is set to accept the City Auditor’s evaluation of those figures.

 

Some Council members expressed what seemed to be something between surprise and frustration at Austin Energy’s position. But that was not the only surprise. Just before the meeting closed, Council members dove into the costs associated with the recent hiring of consumer advocate Paul Chernick to act on behalf of rate-payers during the deliberations. Chernick, who was hired March 29, has since racked up a bill of more than $76,000, according to Assistant City Attorney Andy Perny.

 

That figure far exceeds the initial $52,000 limit placed on his work. In addition to the funds that would compensate him for work already completed, Chernick asked the city for at least an additional $17,000, and $13,000 more should Council members expect him to appear at work sessions. The figures assume a conclusion of the debate on rate issues on June 7.

 

“I am surprised by that figure, and staggered by it,” said Council Member Kathie Tovo.

 

Assistant City Manager Robert Goode told Council members that Chernick’s contract included a provision that stipulated that he return to Council with a request for additional funds if he exceeded the original contract limit. When asked why this hadn’t happened, Goode was frank. “We had that provision but that did not occur,” he said.

 

Council members voted 5-0 to limit Chernick to an additional $44,000 over what the original contract laid out. That figure includes $20,000 that will cover Chernick’s work moving forward. Mayor Lee Leffingwell and Council Member Mike Martinez were both off the dais for the vote.

 

In addition, Council members specifically limited Chernick’s meetings with external interested parties to 10 hours of involvement. Council Members Laura Morrison and Tovo each argued that Chernick’s involvement with the rate case had been valuable – for Morrison, that specifically includes his efforts with advocates from various sectors who are attempting to influence the Council’s final rate decisions.

 

Still, Perny told Council Members that a significant piece of Chernick’s time – and therefore the cost associated with the consultant – came thanks to his work with citizens’ groups. “A lot of it is just more time than he expected meeting with outside activists and concerned citizens and Council members,” Perny said. “This is Austin: I guess that he wouldn’t be the first person that’s underestimated the amount of time and budget involved in a process like this.”

 

Morrison proposed the 10-hour limit.

 

Council members asked Austin Energy to reexamine its revenue requirement after it made adjustments to raise the debt portion of the debt-to-cash ratio it uses to make major purchases and subtracted from various reserve funds used to offset rate volatility. Morrison seemed flummoxed by the idea that, despite significant adjustments to these figures, the utility’s rate requirement would remain fairly steady.

 

“I don’t know how it could still be $71 (million) after we said let’s look at a scenario where we’ve shifted the debt-equity ratio,” said Morrison.

 

“I guess I’m confused,” Morrison added later. “We’re looking at changing the revenue requirement based on policy changes, but I’m hearing you guys say we can’t change the revenue requirement.”

 

Both Austin Energy General Manager Larry Weis and utility Vice President of Finance and Corporate Services Ann Little did their best to explain. Weis used the example of a request from Council to examine the concept of lowering contributions to the utility’s rate stabilization fund. “Does that lower the revenue requirement? Yes it does,” he said. “But that also impacts some other efforts…like the cash that we need to have. It’s really all-encompassing.”

 

“The critical piece is, can the utility survive and for how long on the minimum needs?” Little asked. “It’s just a matter of time before something unusual will happen.”

 

As part of the morning’s discussion, Council members also discussed increasing participation in the utility’s low income assistance program.

 

Currently, according to Austin Energy officials, about 38 percent of those eligible for the Customer Assistance Program are participating. Tovo called for raising that number to 100 percent of those eligible.

 

Council members also approved preliminary direction to staff to examine adding more public-assistance programs to its list of databases that it scours for Austinites that would be eligible for Austin Energy’s low-income assistance program. Spelman pointed out the obvious.

 

“Going from 38 percent to 100 percent…is going to be a very big change all by itself,” he said. “If we’re going from 38 percent of one number to 100 percent of a much larger number – or somewhat larger number” would be another challenge.

 

Though some Council members are intent on cutting what they can from the utility’s revenue requirement, any increase in such programs as the organization’s low-income assistance effort – among other things – may prevent them from achieving that goal. The city’s bond counsel has also said there is the potential of damage to the utility’s high bond ratings, should Council members take too much from its coffers.

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