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Austin Energy pitches Council to restore its cash reserves

Wednesday, August 6, 2014 by Michael Kanin

Austin Energy officials pressed Austin City Council members Tuesday to allow the utility to reconfigure its cash holdings to allow it to fill a series of neglected reserve funds. The move, according to utility representatives, would better position the utility for lower interest rates when it sells bonds — and could save the city millions when Austin Energy borrows money.

“Our immediate goal is to try to get the reserve emergency filled, which we’ve done,” said Austin Energy General Manager Larry Weis, who then underscored the importance of the reserves to the three major ratings agencies (S & P, Moody’s and Fitch).

Though the action is set for a vote as part of Council’s extensive Thursday agenda, what appeared to be a majority of Council members — Kathie Tovo, Laura Morrison, Bill Spelman and Mayor Pro Tem Sheryl Cole — favored pushing any action off until after they and their colleagues could debate the general policy implications around the reconfiguration.

Morrison referred to the extended 2012 Council debate over what then became the utility’s first-rate increase in roughly two decades. She suggested that the past discussion might do much to inform whether and how she and the rest of Council might address the utility’s reserve policies.

“What I’d like to suggest is that we need to do this sort of deep dive into the reserve policy … questions that we have left on the table,” Morrison said.

As part of his presentation, Weis showed Council members a slide that illustrates current utility reserve positions, as well as fund minimums according to current policy. According to the chart, the utility’s working capital fund would drop by $30 million, but would stay $12 million over its proscribed $60 million minimum.

The utility would move the $30 million from the cash fund to beef up the utility’s Strategic Reserve-Contingency Fund, intended for use in a power-purchasing emergency. That fund would rise from $27 million to $57 million, but would still be well short of the $80 million policy minimum.

Despite Weis’ proposed action, three of Austin Energy’s reserve funds would remain empty: Its repair and replacement reserve, its non-nuclear decommissioning reserve, and its strategic reserve for rate stabilization. Weis told the Monitor that the utility could use the strategic stabilization fund to offset such cost increases as the rise in the pass-through fuel charge that raised Council member interest during Thursday’s budget hearing. (See Austin Monitor, Aug. 1)

According to Weis, another key reserve metric, the number of days worth of operating cash on hand, also remains low. That figure — utility officials argue that it should be at 122 days — is currently at 54.

Weis told Council members that adherence to the current policies could well allow for better bond ratings down the line. He implied that a coming phone conversation with Moody’s would be a good time to address the situation, though he later conceded that the ratings agencies regularly monitor the utility.

Indeed, Council members appear more willing to delve into deeper policy questions — including, presumably, the weight of full reserves versus larger community needs — later. That could well take place when they meet as a committee of the whole to discuss Austin Energy issues.


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