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Austin Energy now backs full collection of line extension costs

Wednesday, May 21, 2014 by Bill McCann

Taking a cue from City Council members, Austin Energy has shifted its position and now supports recovering the full costs of extending power lines to new customers starting in October.

Utility officials plan to take the new proposal to the Council Committee on Austin Energy for consideration next week.

Austin Energy officials publicly announced the proposed policy change at a meeting of the advisory Electric Utility Commission on Monday. The commission previously went on record urging the Council to support 100-percent cost recovery and reiterated that position this week.

For many years the utility has subsidized the costs of extending new lines in its electric rates. That has raised the hackles of members of the utility commission and others who have complained that ratepayers have been subsidizing growth by millions of dollars a year. Some Council members indicated support for a change in policy, prompting the utility last year to recommend recovering 75 percent of the costs over a five-year phase-in period. Utility officials argued that the 75 percent figure was fair and comparable to the policies of other utilities in the region.

But that was not good enough for commission members, including long-time activist Shudde Fath, who successfully pushed for a commission resolution last November urging the Council to impose full cost recovery starting Oct. 1, the beginning of the fiscal year. That resolution, which was approved unanimously by the commission, also included a provision recommending exempting certain low-income housing. 

In mid April, Fath followed up with a letter urging Council members to get Austin Energy to plan for full cost recovery. In her letter, Fath pointed out that the utility had collected hook-up fees to recover costs from 1981 until the mid-1990s when the Council voted to abolish the fees. Had those fees not been abolished for 18 years, “probably those missing multi-million dollar revenues would have made the contentious 2012 rate increase unnecessary,” she wrote.

Two weeks later the Council discussed the issue at a work session after Council Members Kathie Tovo, Laura Morrison and Mike Martinez proposed a resolution calling for full cost recovery of new electric line extensions, with an exception for certain affordable housing. Tovo said the change would be consistent with the Council’s action increasing fees for water and wastewater line extensions beginning this past January. 

The Council took no immediate action on the power-line proposal, postponing it until June. But the Council discussion got Austin Energy’s attention.

At Monday’s Electric Utility Commission meeting, Tommy Nylec with Austin Energy’s electric service delivery department discussed the utility’s latest proposal. Charges will be based on all construction costs incurred by the utility, including labor and material, under the new proposal, Nylec said. Existing jobs will be exempted if received before the proposed Oct. 1 start date, he said.

Nylec said utility staff had met with a number of stakeholders, including real estate and builder groups. Those groups had raised concerns about the new charges, he said, including affordability concerns due to costs being passed on to the end users, and concerns about moving growth outside the city.

Indeed, Roger Borgelt, representing the Real Estate Council of Austin, showed up at Monday’s utility commission meeting to register opposition. He warned that the added costs under the proposal would hit small urban infill projects the hardest and could have the effect of driving growth out of Austin Energy territory. Under questioning from commissioners, Borgelt estimated that the cost-recovery plan would add $1,000 to $2,000 to the cost of a house. Borgelt’s involvement seems ironic because he represented a group that complained to the Texas Public Utility Commission about rates paid by non-city residents. Eventually, that group settled with Austin Energy for a reduced rate for residential ratepayers outside the city.

Nylec said based on his experience, the added cost would vary greatly depending on the type of project and its location. But he agreed that costs could be in the $2,000 range or higher.

Austin Energy currently budgets about $20 million a year to cover the cost of new service delivery.  If the council approves the new full-recovery policy, there would be no immediate impact on electric rates, but it would have a future impact, Austin Energy officials said.

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