Friday, May 22, 2015 by Tyler Whitson

Council extends large energy contracts

Following extensive deliberation, City Council voted Thursday to extend long-term contracts for Austin Energy’s two largest customers for six months and permanently revise the way the utility calculates rates for a third major customer.

The move effectively keeps rates for Samsung and Freescale Semiconductor lower than they would be if the contracts were to expire at the end of this month. It also creates a new tariff that reduces rates for customers that own their own electrical substations, a category into which only Cypress Semiconductor currently falls.

Council voted on May 7 to approve an ordinance on first reading that would have benefited as many as 15 customers and would have cost the utility about $8 million. The ordinance Council ultimately approved was essentially a stripped-down version of the original.

Council voted unanimously in favor of the measure, with the exception of Council Members Leslie Pool and Delia Garza, who were absent.

Council also voted on a second ordinance that would have covered the remaining customers, but it failed.

Austin Energy spokesperson Robert Cullick told the Austin Monitor that the budget impact of the ordinance as passed would be less significant than the original, but would still represent the “lion’s share” of that cost.

Austin Energy General Manager Larry Weis told Council that the losses would not be passed on to other customers, although they would decrease the amount of revenue that the utility would be able to invest into its reserve funds.

According to an Austin Energy fact sheet, these funds are in need of a $400 million boost.

Council also passed another ordinance on second reading that consists of the six-month extensions from the original ordinance for the primary facilities of St. David’s HealthCare and Seton Healthcare Family. These facilities are St. David’s North Austin Medical Center and Seton Medical Center, respectively.

Council will consider that ordinance on third – and final – reading at its next meeting on Thursday. Representatives for the hospitals were not able to provide the Monitor with exact figures for the budget impacts of those extensions.

Roger Wood, chair of the Coalition for Clean, Affordable and Reliable Energy, a group that represents many of Austin Energy’s large industrial customers, requested that Council approve the full ordinance that would have applied to all 15 customers.

Wood argued that industrial customers that do not get contract extensions will begin paying on average between $79 and $89 per megawatt hour for energy from the utility and asserted that the average rates for other Texas cities fall between $45 and $50 per megawatt hour.

Wood released a statement after the vote. “CCARE is appreciative of the council extending contracts for Samsung and Freescale, and for passing the transmission rate for Cypress,” he wrote. “However we are extremely disappointed that the city council did not treat all other contract customers the same as the State of Texas, and believe that the action council took today was not illustrative of fair practices for the contract customers of Austin Energy.”

Council passed two-year contract extensions for the state of Texas and the University of Texas last December.

Council Member Greg Casar, who made the motion to approve the ordinance applying to the three customers, told the Monitor that he could not support the ordinance that would have applied to all 15 customers.

“I think there was clear consensus with the Council that the three large industrial users were just a different animal,” Casar said, “and that in the (2012) rate case, Austin Energy did plan on having some sort of special rates that really consider the size of those specific users, and so it was not a major diversion from our plans.

“I understand that rates are high, but the question today was not about whether rates were too high or not but whether or not we should continue basically millions of dollars in utility rate breaks for some of our largest corporate users,” Casar concluded.

Texas Senate Bill 1945, filed by Sen. Troy Fraser (R-Horseshoe Bay), was likely on the minds of many Council members as they considered action on the contracts. The bill could give large Austin Energy customers or groups of customers a path to break from the utility and buy power on the deregulated market, essentially opening the door for deregulation.

Casar acknowledged the work that he said Mayor Steve Adler and Sen. Kirk Watson (D-Austin) have put into advocating for the Legislature to allow Council an opportunity to address issues related to Austin Energy and its rates.

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Key Players & Topics In This Article

Austin City Council: The Austin City Council is the body with legislative purview over the City of Austin. It offers policy direction, while the office of the City Manager implements administrative actions based on those policies. Until 2012, the body contained seven members, including the city's Mayor, all elected at-large. In 2012, City of Austin residents voted to change that system and now 10 members of the Council are elected based on geographic districts. The Mayor continues to be elected at-large.

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.

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