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Austin Energy reports better-than-expected quarterly results

Wednesday, October 31, 2012 by Michael Kanin

Austin Energy officials presented Council members Tuesday with a better-than-expected picture of the utility’s third-quarter revenues and, if their estimates hold, the utility could finish the fiscal year, which ended Sept. 30 with a balance of $87.4 million more than it budgeted for the period.

 

Though Council members didn’t exactly give the news a cold reception, there was some question about why the utility staff had been so far off with their fiscal predictions. Austin Energy’s Senior Vice President of Finance Ann Little explained that the improved earnings report was thanks chiefly to the region’s growth in industrial, commercial and residential customers and warmer-than-predicted weather.

 

Little presented the figures as part of a Council work session that included Austin Energy’s scheduled briefing on its fiscal third quarter ending June 30 financial results. The proceedings also included further discussions about the role of the coal-fired Fayette Power Plant in the city’s future generation plans.

 

During contentious rate hike discussions this summer, Austin Energy officials said the utility needed a $71 million increase in revenues to stay solvent. As a result, Council approved a 7 percent rate hike that went into effect Oct. 1. As part of that process, Council Members Mike Martinez, Kathie Tovo, and Laura Morrison argued unsuccessfully for a reduction in the utility’s $71 million revenue increase. (See In Fact Daily, May 18, 2012.)

 

After hearing of the unexpected jump in Austin Energy revenues in the third quarter, Tovo raised the specter of that discussion. “I was just reflecting on the difficult discussion we had about lowering the revenue requirement by like three or four million dollars,” Tovo said. “To see the actuals coming in tens of millions of dollars beyond what was anticipated is a surprise.”

 

Tovo then asked utility staff if they had taken the area’s growth portion of the revenue equation in to account as part of the rate-making discussions. Little responded that the numbers could even out by year end.

 

In other fiscal Austin Energy news, Little reported that Austin Energy ratepayers will see an average quarter-cent per kilowatt (KW) hour reduction in the fuel charge portion of their utility bills. The drop took effect this month. 

 

Council also continued to lay out the groundwork for a coming debate over whether they should instruct Austin Energy to sell its portion of the Fayette coal plant. Mayor Lee Leffingwell asked if the Electric Reliability Council of Texas (ERCOT) – the state’s grid operator – could order Austin Energy to increase generation at the Fayette plant beyond the restrictive goals put in place through the utility’s generation plan.

 

Austin Energy General Manager Larry Weis responded that it could. “We’ll try to optimize it to make sure we meet our CO2 (carbon dioxide) goals, but we’re not going to do anything … that (doesn’t) support the reliability of ERCOT,” said Weis.

 

Local environmental activists have been critical of a potential sale of the Fayette plant. Though that act would remove carbon emissions generated by Austin Energy, there is no guarantee that the operator that purchases the city’s share of the plant would shut it down – or even run it at the lower capacity than Austin does, they argue.

 

There is also no indication that Austin’s partner in the Fayette operation, the Lower Colorado River Authority, has any inclination to shutter its portion of the facility. On top of all of that, if the facility or some portion of it is simply mothballed, ERCOT could demand that the plant go online (or increase its generation) should the state’s energy grid fall short of needed power generation.

 

There are also questions about whether Austin Energy could replace Fayette’s steady generating capacity (classified by ERCOT as a baseload source of power thanks to its reliable fuel source) with anything other than natural gas generation, since alternative energy sources such as solar and wind are not always available. However, activists have also cautioned the utility from banking too much on currently low but historical volatile natural gas prices to replace the Fayette operation.

 

Further complicating all of this: Austin Energy officials have said that it appears likely that asset acquisitions made to offset generation losses from the abandonment of the city’s portion of Fayette would “likely require a base rate increase.”

 

Council members did not immediately dwell on that fact Tuesday. Austin Energy remains tethered to Council-mandated restrictions on the percentage of a rate increase (under 2 percent annually) as well as a stipulation that the utility rank in the bottom half of Texas energy operations in terms of affordability.

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