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City gears up for energy cost-of-service study

Tuesday, July 7, 2015 by Tyler Whitson

As the city prepares to study how much it costs to run Austin Energy in order to have new electric rates ready for the fall of next year, there are many questions ahead. City Council and staff discussed what the study process might look like in a June 25 meeting of the Austin Energy Utility Oversight Committee.

The major points that Council members raised involved the role that an independent consumer advocate and the Electric Utility Commission will play in the rate-review process and how Council might reconsider the way that Austin Energy supports the city budget.

Mark Dreyfus, vice president of regulatory affairs and corporate communications at Austin Energy, told Council that the advocate will represent consumers during what many would consider a complicated legal proceeding that will take place as part of the rate review.

“We bring in an expert in utility law and process and policymaking with deep consumer experience, and that person has the resources to participate in the hearings proceeding in a more formalized way,” Dreyfus explained.

City staff has released an online solicitation for a potential consumer advocate that will close on Monday. At that point, Dreyfus said, a panel comprising city staff will review the proposals and make a recommendation, which will go to the Electric Utility Commission for feedback and then to Council for final selection.

Mayor Steve Adler suggested that Austin Energy staff consider hiring two advocates – one for customers living in the city and one for customers living outside the city.

“It may be that their interests are not always aligned in the process,” Adler said. “If we’re trying to get a robust hearing on those issues so we address them, it might be something that would be worth considering.”

Adler did not ask for a response to his suggestion from utility staff.

Council settled a rate case with Austin Energy customers living outside of the city in March 2013, after overhauling its rates in October 2012 for the first time in 18 years. In addition, Council adopted a policy in 2012 that requires a rate review at least every five years.

Adler also suggested that Council consider restructuring the procedure by which the city allocates revenue generated by Austin Energy to the city budget every year.

“One of the things that I’ll want to talk about is moving to a model that looks like the CPS (Energy) model in San Antonio, where the owners of Austin Energy, the residents … get paid a dividend as any owner of a company would, and then we look at only maintaining those transfers which very clearly are appropriate transfers to be made, which would represent third-party expenses that Austin Energy would otherwise incur and which they would incur through the city of Austin,” said Adler.

In 2012, Council froze the annual $105 million General Fund transfer – sometimes called a dividend – that Austin Energy sends to the city budget. The amount that the utility pays to the city in support services has continued to increase since then, however.

The development has prompted criticism and likely inspired two bills filed last spring in the 84th Texas legislative session that, if successful, would have limited the city’s authority to manage the utility.

The comments mirror similar ones Adler made in April.

Mayor Pro Tem Kathie Tovo and Council Member Leslie Pool also requested that Austin Energy ensure that the Electric Utility Commission be involved in the rate-review process. The commission passed a resolution on June 15 requesting that Council make sure it is involved in the cost-of-service process.

“I think that it’s clear that we will engage with them throughout the process, that they’ll have a number of opportunities to be involved from front to back and (that) that resolution will be satisfied,” said Dreyfus.

A recent Austin Energy press release points out that the city’s undertaking of a cost-of-service study “does not mean rates will increase” and that “a study needs to be conducted even if rates are lowered or restructured for possible implementation in Fall 2016.”

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