Tuesday, March 3, 2015 by Tyler Whitson

Council debates deregulation of Austin Energy

When it comes to Austin Energy, there is one word that always stirs up debate. That word is “deregulation.”

City Council held a policy workshop with Austin Energy management, stakeholders and policy advocates Monday on the myriad issues associated with the public utility. The conversation touched several times on the merits of Austin Energy’s current status versus what it would look like if the city opted to deregulate it.

Council Member Don Zimmerman was the only speaker on his side of the dais who advocated for the change, while the rest either spoke in favor of Austin Energy’s public ownership or steered clear of the topic altogether. The majority of the other speakers who commented said the utility should remain public, though some advocated for a new type of oversight system.

Zimmerman expressed doubts that he or the rest of Council would be able to gain the expertise needed to make informed policy decisions about Austin Energy. “It’s so complicated, it could be a full-time job by itself,” he said. “I would love to get this offloaded from the Council and give consumer choice. Let them choose what energy company they would like.”

Council Member Leslie Pool countered that public ownership helps to ensure accountability and transparency in the many decisions the utility makes.

“I maintain that it is entirely appropriate and civically responsible for the city to maintain control over Austin Energy,” Pool said. “Government doesn’t choose its customers. We serve everybody, and if this were to go to a private entity, that might not always be the case.”

University of Texas Energy Institute Research Fellow Roger Duncan said that he has advocated in the past for Austin Energy to have a publicly elected, independent board of directors. The previous Council started looking into creating an independent governing board in 2013, but ultimately did not make the shift.

“I think Austin Energy should remain a public utility,” said Duncan, who was formerly a Council member and Austin Energy general manager. “The daily management of that is too complicated for the current management structures.”

President of Lee Energy Partners Milton Lee, also a former Austin Energy general manager, suggested that Council create an appointed, independent board. Its primary responsibilities, he said, would include approving rate adjustments, approving or issuing revenue bonds, approving the use of eminent domain for capital projects and appointing future board members.

“I would suggest, before you make a fatal move toward going all the way to the other side and saying to sell Austin Energy, there’s other steps that you could take to still govern this public entity, and you still would have local control to do that,” Lee said. “If you went the other way and ultimately sold this, it would be irrevocable,” he added, calling the utility a “gem.”

Though Austin Energy is a public utility, it has operated for years in a deregulated market that the Electric Reliability Council of Texas manages. The utility generates power, sells it into a grid that covers about three-quarters of the state and buys it back at competitive prices.

At the time of deregulation, in 2002, the Texas Legislature exempted public electric utilities from forced deregulation, but gave them the choice to opt in. Austin Energy spokesperson Robert Cullick told the Austin Monitor that no cities have opted in to deregulation since then, though the Nueces Electric Cooperative chose to do so. A cooperative is an alternative type of public utility.

That all could change, Cullick continued, at the legislature’s discretion. “It could, with just a stroke of the pen and a few word changes, require cities and co-ops to opt in,” he said.

Austin Energy General Manager Larry Weis pointed out prior to the deregulation discussion that the utility’s operating budget for the current fiscal year is $1.44 billion, or about one-third of the city budget. Austin Energy transfers about $105 million of that budget to the city’s general fund.

Cullick said that if the city chose to deregulate the utility, it would be able to sustain a transfer to the general fund of about 35 percent of what it currently provides. “To make up $70 million would require a significant cut in services or a very significant tax increase,” he said.

Austin Energy, Cullick added, would also sell off its power assets and become “the company that operated the wires behind your house — just the transmission and distribution system.”

According to Texas law, the “municipal governing body or a body vested with the power to manage and operate a municipally owned utility has the discretion to decide when or if the municipally owned utility will provide customer choice … by adoption of an appropriate resolution of the governing body.”

Photo by Peter Craine [CC BY-SA 2.0], via Wikimedia Commons

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Key Players & Topics In This Article

Austin Energy: As a municipally-owned electric utility, Austin Energy is a rarity in the largely deregulated State of Texas. It's annual budget clocks in at over $1 billion. The utility's annual direct transfer of a Council-determined percentage of its revenues offers the city a notable revenue stream.