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Wild Card: Austin Energy and the PUC

Shadow of PUC hovers over Austin Energy and city budget

By Michael King, Fri., Feb. 22, 2013

Council spent most of the last year deciding on a rate increase now under review at the PUC.
Council spent most of the last year deciding on a rate increase now under review at the PUC.
Photo by Jana Birchum

Discussing the FY2014 city budget, the mayor and several City Council members mentioned the uncertainty facing the city's municipally owned electric utility, Austin Energy. The state Legislat­ure, currently in session, has periodically considered "deregulating" the public utility – a bureaucratic euphemism for privatization – and while there's no immediate threat on the horizon, decades of legislative meddling have put city officials on seasonal alert.

A more imminent threat – or promise, depending on your perspective – is the AE rate case currently pending before the state Public Utility Commission. In the wake of last year's first major rate revision in 17 years, suburban rate payers filed the case with the PUC in hopes of derailing both the increased rates and the "tiered" system which encourages conservation and favors lower-use residential customers. More generally, the claim targets AE's role in underwriting a range of city programs through a proportional general funds transfer, as well as other spending, most specifically its support for the Economic Growth and Redevelopment Services Office, on the logic that EGRSO is closely intertwined with AE's mission of selling electricity.

Nominally, the PUC has jurisdiction over only out-of-city customers – roughly 50,000 of the utility's 400,000 customers – but its eventual ruling, expected later this year, could have a major effect on the utility's operations, as well as the city's overall budget (utility transfers, including AE, account for roughly 20% of the city's general funds revenue). And the early buzz from the PUC staff reports have not been encouraging; a consultant's analysis reportedly blasted the new rates as both far too high and inequitably structured and suggested that many of the city programs underwritten by the utility's fund transfer are unjustifiably remote from its central mission of providing electricity. AE will respond to the PUC reports later this month, an administrative judge will make a recommendation, and the PUC itself will issue a ruling this summer.

The shadows of the PUC and the Legislature have weighed heavily on recent City Council discussions about both budgeting and AE governance. Last week, despite vocal public opposition, Council took the first steps toward creating an independent, appointed AE governing board that would run ongoing operations, while major policy decisions would remain with Council. A final decision on that issue will come later this year, although the first Council vote to prepare the option was unanimous. Austin state Sen. Kirk Watson has filed legislation that would facilitate the transition; it's not clear whether that might head off another legislative attempt at privatization.

Ed Van Eenoo, the city's chief budget officer, acknowledged that the PUC rate case is a "wild card that we don't normally have to deal with, that could have implications beyond the electric utility." But he was cautiously optimistic that any PUC action would not dramatically damage the city's reliance upon its publicly owned asset.

"The general fund transfer is currently $105 million," Van Eenoo said, "somewhere in the neighborhood of 15% of our general revenue. It's a significant amount of money. That said, it would be highly unlikely that there would be a significant change to that. The general fund transfer is representative of what a private utility would normally gain in terms of a profit; that profit, in a publicly owned utility, remains with the citizens, and is available to provide benefits to the citizens at large instead of landing in the pockets of shareholders, and that's the benefit of a publicly owned utility. I'm not aware of a publicly owned utility that doesn't have a transfer amount.

"It would be a hugely significant blow to the city's ability to provide basic police, fire, and emergency medical services, parks and libraries – all those services would be impacted if that amount were reduced significantly."

Among the many other uncertainties facing the Council in the next budget year – most prominently, the real but still fragile economic recovery – the prospect of a negative PUC decision will provide plenty of anticipatory concern.

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