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Council presses Austin Energy for details of proposed new building

Tuesday, June 24, 2014 by Beth Cortez-Neavel

Austin Energy staff walked through their proposed plan to build a high-priced East Austin headquarters Monday morning. The proposed plan has come under criticism by City Council members and commercial real estate brokers, who are worried about the added burden to the taxpayers and the high cost of construction.


The plan, budgeted at $58.9 million, would include office space, a call center, public meeting space, a parking garage, walk-in customer service, a bus route and a potential rail line route to meld with the city’s East Riverside Corridor plan. The goal, Austin Energy General Manager Larry Weis told the Council’s Committee on Austin Energy Monday, is to reduce the carbon footprint and build an energy efficient building to the highest green building standards.


The idea behind building instead of leasing space began in 2011 when Weis said a lease contract with the city came up over office space at 811 Barton Springs Road. Questions arose at that time about the cost of the lease, versus buying a building. “We took that as direction to figure out another way around this,” Weis said.

Weis put forward three proposed square footage plans: 120,000 sq. ft. would cost $40.7 million at $339 per sq. ft. and cost $146.2 million total with financing over a 30-year period; A 150,000 sq. ft. structure would cost $48.9 million at $326 per sq. ft. for a total cost of $178.9 million; and, a 180,000 sq. ft. building – Austin Energy’s preferred plan – would meet future growth needs and cost $58.9 million at $326 per sq. ft. for $215.2 million with financing. Weis said a lease renewal of 30 years would cost $297.5 million. The largest square footage could save the utility $82.3 million.


Currently Austin Energy pays $1.9 million in annual lease costs for 107,000 sq. ft. of building space at two different locations and owns 126,000 sq. ft. that was paid off in 2007. According to Austin Energy, building versus leasing space could save money because the space would not be subject to lease escalations.


When Council Member Sheryl Cole pressed officials as to why approving building plans was needed now, Weis said it was time sensitive. The current lease on Barton Springs Road will end in September 2017, and if a new headquarters is to be ready for move-in by that time a contractor needs to be chosen and construction needs to begins as soon as possible, Weis said.


Lease renewals have increased 65 percent annually, and Austin Energy does not want to extend the lease past 2017, but can look into renegotiating the lease if they need more time to approve the building plans.


Cole said it was fine that Austin Energy would ultimately save money, but she was concerned about the impact on the customer. Weis said there would not be any customer rate impact, which means pricing for services would not increase because of the plans.


“I’m assuming we’re going to issue bonds that eventually have to be repaid with customer revenues and that’s going to have a customer impact,” Cole said. “But the question really is about the time period between now and the five years when you’re showing a return on the investment from not having to make the lease payment. I’m trying to figure out… how imminent is it that you do this right now,” she said.


At a June 10 work session, Council Member Bill Spelman was concerned that the decision-making process was not clear enough, despite his comment that the utility company was making a “reasonable set of decisions.”


Spelman voiced his concerns for the process yet again.


“I think they’re making a good case that building a building will be cheaper in the long run,” Spelman said. “But people have been asking why the price per square footage is costing so much.”


Austin Energy facility manager Vince McGlone said that the $326 per sq. ft. price tag is not out of line with other City of Austin building costs, especially because the building would be in a location where certain construction standards must be met. Spelman asked for a breakdown of the costs


“If you’re trying to negotiate a low price you don’t start off by saying… and we’ll pay for at least $326 per square foot, because that’s kind of asking people who’d be willing to build for $380 per square foot to hike it up a little bit,” Spelman said.


Council members were not able to pose all of their questions due to time constraints, and will resume discussion of the plan at today’s work session.

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