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State energy expert to study Austin Energy governance options

Thursday, July 26, 2012 by Michael Kanin

Austin City Manager Marc Ott has hired former state electric grid chief Bob Kahn to compile a report examining governance options for Austin Energy.


When completed, Kahn’s report – which will feature discussions with multiple former Austin Energy General Managers – will represent city management’s perspective on a potential structural change that could put the utility under the control of an independent board.


Kahn, who previously served as CEO of the Electric Reliability Council of Texas (ERCOT), is expected to complete the report in late August. The report will be forwarded to members of the Austin City Council and its advisory panel, Electric Utility Commission.


The timing of the report’s completion is important because City Council must decide by Aug. 16 whether to place an Austin Energy governance question on this November’s general election ballot. Thus, it appears Council members may have to make a decision without Kahn’s input.


Members of the Council function as a de facto board of directors for the city-owned utility. In addition to adding a flavor of electoral politics to the already complicated world of running an electric utility, Council governance of Austin Energy allows for rate challenges from utility customers who live outside of the city’s limits and therefore don’t have direct representation at the highest level of utility decision-making. There is some opinion that an immediate step toward forming an independent governing board to run the utility would play well at the state Legislature, especially coming after City Council’s unpopular decision last month to approve a rate hike.


Texas law allows the Council to hold a charter election to shift the way the utility is governed to an independent board. The board could take the form of San Antonio’s CPS Energy, the utility owned by the City of San Antonio that is governed not by San Antonio’s City Council but by an independent five-member board that includes the city’s mayor.


While CPS Energy’s board has wide authority, the San Antonio City Council maintains final say over rate increases, eminent domain decisions and bond sales.


Austin could move in that direction, as other municipalities have, but there are other approaches the city could explore. For example, Greenville, Texas also employs a five-member board to govern the utility, with its mayor serving in an ex officio capacity, but the Greenville Electric Utility System‘s board maintains control over rate increases and bond sales.


Under this model, the utility also “provides a PILOT (payment in lieu of taxes) to the City, supports the City of Greenville Economic Development Board with 1% of adjusted gross revenues, and transfers an additional 3% of adjusted gross revenues to the City annually,” according to its website.


Kahn, who also has previously served as a deputy General Manager for Austin Energy, told In Fact Daily that he would cast a wide net in his efforts, including providing alternate governance models for the utility.


Of course, implementing a change in governance all depends on the results of a charter election. On Monday, Austin’s Electric Utility Commission voted to urge Council members to put a basic thumbs-up-or-down question about a change in governance on the 2012 ballot.


This came on the heels of endorsements from Austin Mayor Lee Leffingwell and State Senator Kirk Watson (D-Austin), both of whom favor switching Austin Energy’s governance to an independent board. Watson will likely find himself in the position of defending the utility from another deregulation attempt when the Legislature meets again in January.

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