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Study: City has many options for governing Austin Energy

Friday, September 14, 2012 by Michael Kanin

Austin City Council members have considerable flexibility in designing an independent board to oversee Austin Energy, according to study commissioned by the city to investigate options for governing its electric utility.


However, the study from energy consultant Bob Kahn also revealed that few other Texas municipally-owned utilities offer dedicated board seats to ratepayers who reside outside of the city limits of the municipality.


Austin Energy faces a challenge from some of its ratepayers who live outside Austin’s boundaries, and these ratepayers are ready to fight Austin Energy’s rate hike that is scheduled to go into effect Oct. 1. State law allows for such a challenge because Austin Energy’s ratepayers who live outside of city limits are not technically represented by a member of Austin’s City Council – the entity that serves as Austin Energy’s rate-decision-making body.


According to Council Member Bill Spelman, Kahn’s report is an initial step of what could be a lengthy process of establishing an independent governing board for Austin Energy. “This report is the first step in what I originally envisioned to be a two-year process,” he told In Fact Daily. “We need to look at who’s in charge of what, who sits at the table, what’s the relationship between AE and the rest of the city generally. This gives us an idea for what kinds of answers are available for all those questions.”


Austin City Manager Marc Ott hired Kahn, an ex-chief executive of ERCOT (Electric Reliability Council of Texas), to compile the report. Kahn surveyed 10 municipally-owned utilities in Texas and seven in other states. Kahn found a wide variety of governing options, including at least one board that holds the authority to both set rates and issue bonds. However, that board – which belongs to the City of Greenville and its Electric Utility System – seems to be something of an outlier for a much smaller utility.


Another board – the City of Lubbock’s Lubbock Power and Light  determines the amount of the utility’s transfer to the city’s general fund, which is unusual among independent Texas municipally-owned utility governing bodies surveyed by Kahn.


Kahn also spoke with four past Austin Energy general managers. All four agreed that a host of Austin Energy operations, including Human Resources, fleet operations and accounting,  should be separated from city operations. The ex-GMs also agreed that the utility should be managed by an independent board, and that the board should “contain a member from outside the city limits.”


And, Kahn interviewed former City Manager Jesus Garza, who also favors creating an independent board. Kahn’s report said Garza suggested “that given the exiting environment the City Council operates in today . . . Council should give serious consideration of creating a board.” Kahn also wrote that Garza called for the new independent board to have a representative from outside Austin’s city limits, and that  the board “would strengthen the utility.”


The idea of an Austin Energy governing body that would be independent of the Austin City Council is nothing new, the report noted, and as In Fact Daily has reported. Indeed, the idea that separating the utility from Council politics might be best for all involved dates back at least as far as the 1990s (see In Fact Daily, June 4, 2012).


The issue gained traction again at Spelman’s prodding in the wake of the protracted discussion Council members had earlier this year over Austin Energy rate increases. A ballot question that would have allowed voters to weigh in on whether the utility should be governed by an independent board died at Council, with Spelman off the dais recovering from recent surgery (see In Fact Daily, August 15, 2012).


In addition to their appeal of Austin Energy’s rate increase, out-of-town ratepayers are rumored to be gearing up for an effort that would call for the electric deregulation of Austin electricity at the Capitol during this coming session of the Legislature starting in January. Such an effort could bring difficulties to Austin Energy. 


If it is true that Austin would have to ask voters for permission to set up a new board via a City Charter election, that probably could not happen before 2015.


Voters are being asked to approve 11 amendments to the charter this November and the charter prohibits charter elections within two years after an amendment has been approved. Therefore, it seems unlikely that Council could ask voters to OK another amendment of any kind before 2014. However, since the first Tuesday in November of 2014 is just two days shy of being exactly two years after this year’s election, there could not be another charter election until May or November of 2015.


If that happens, the charter vote would come more than 20 years after Council members in 1994 instructed the city’s Electric Utility Commission and the city manager to work together to come up with a set of governance options for Austin Energy. That was followed by a series of public discussions in 1996 and a blue-ribbon panel’s recommendation that the utility needed an independent board. Nothing happened.


Three years later, Council members passed another resolution that suggested that the city “may” begin a process that could end in a ballot question about Austin Energy governance. Again, nothing happened. Since then, Electric Utility commissioners have taken two separate actions, one in 2002 and one this year, that urged Council members to move toward a charter election to settle the governance question.

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