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Council facing tough decisions on Austin Energy charges

Wednesday, October 12, 2022 by Jo Clifton

Facing an increasing deficit in its collections for fuel costs to run Austin Energy, City Council must quickly make a decision about increasing the power supply adjustment that all customers pay.

The matter is on this week’s Council agenda. While some members may wish to put off a decision that will increase customers’ bills, Tuesday’s Council work session discussion made clear that Austin Energy needs to raise more money and that postponing a decision will only make things worse.

Council Member Leslie Pool, who is chair of Council’s Austin Energy oversight committee, and Mayor Steve Adler started the conversation. Pool was attending a transportation conference in Seattle, so she attended Tuesday’s meeting virtually.

She explained that Austin Energy must collect money to pay for its energy supply, including natural gas, as well as other costs imposed by the Public Utility Commission and ERCOT, which operates the statewide electric grid. As Adler noted, the utility does not have any choice about paying those bills.

Pool pointed out that Austin Energy is not unique in facing increased power supply charges, saying, “Ratepayers across the state are seeing these increases.”

One of the problems Austin Energy is facing relates back to Winter Storm Uri. At the time of the storm, the utility was able to sell power to other utilities at a time when prices were very high. However, the Brazos Electric Cooperative filed for bankruptcy protection, raising questions about how much of the $104 million the co-op owes to Austin Energy the city will be able to recover.

During a presentation at the work session, Mark Dombroski, chief financial officer for Austin Energy, told Council that the utility has received a settlement offer in the bankruptcy case. He said he would be discussing that during the executive session. However, whatever the amount being offered, it will not cover the entire deficit.

Dombroski showed Council a chart illustrating the utility’s costs for power versus its collections over the past year. In July, Austin Energy collected about $50 million for power supply adjustment charges. Yet the utility’s actual cost for that month was more than $93 million. Cost exceeded collections for every month this year starting in April.

The utility has proposed an amendment to its Fiscal Year 2022-23 operating budget to appropriate an additional $111 million in power supply adjustment revenues and to make a corresponding $111 million increase in operating requirements. Austin Energy has proposed a power supply adjustment of 4.917 cents per kilowatt hour, an increase of 71 percent above the current charge. That would amount to $17.55 per month for the average residential customer using 860 kWh.

Adler’s amendment proposed that Council ask the city manager for options for power supply adjustment rates to help reduce customer price shock and smooth revenue volatility for Austin Energy. For example, Council could decide to spread out collection of its power supply adjustment charges over a three-year period. That would reduce bills for the utility’s customers on a monthly basis, but not very much. Council Member Chito Vela said he would prefer to make up the difference within the next year, not knowing what lies ahead.

One option Council will be considering is changing how Austin Energy decides what to charge customers in fuel supply adjustments. Under current regulations, the utility only changes its power supply adjustment once a year. However, if the utility were able to make those changes more quickly, the amount customers must pay would not increase at the same rate. Council Member Kathie Tovo said she was prepared to bring forward an amendment to city regulations allowing Council to change the power supply adjustment every three months.

Austin Energy provides the city’s General Fund with money to help operate departments that do not provide their own revenues. As a result, the utility’s reserves are not as robust as they would be if Austin Energy kept more of that money.

Adler also asked City Manager Spencer Cronk to bring back to Council a budget amendment in December that would direct into Austin Energy’s reserve fund any increase in the General Fund transfer that the city receives as a result of increasing the base rate charged to customers over the next three years.

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