Austin Energy scrutiny likely to continue, even with Legislature gone

During the legislative session that recently came to a close, Austin Mayor Steve Adler promised Texas lawmakers that their complaints about Austin Energy would not be forgotten when they left town and the imminent threat of unfriendly new laws had passed.

Now that legislators have scattered to various corners of the state, the question is whether upcoming discussions Austin City Council members have promised will be enough for the influential constituencies — some of which are pushing lawmakers to keep a close eye on Austin Energy over the next two years.

“There will be work done over the interim. Work is already starting,” Tony Bennett, president of the Texas Association of Manufacturers, told the American-Statesman. “We do not believe the City Council will address our concerns on its own.”

During the legislative session, which ended June 1, state Sen. Troy Fraser introduced a proposal that would have exposed Austin’s city-owned electric utility to deregulation. Fraser said he had the votes to have the proposal sent to Gov. Greg Abbott. But the Horseshoe Bay Republican was also clear that his bill was intended to call Austin city officials’ attention to complaints he and others have with the operation of Austin Energy. Adler appeared to placate Fraser after saying the two shared similar concerns, and the senator, whose district extends into Austin, let the proposal die.

The situation was a vivid example of tension between liberal Austin and the mostly conservative lawmakers who convene here every two years. Fraser does not plan to seek re-election, but he will remain in office another two years – raising the possibility of continued, intense scrutiny. State Rep. Paul Workman, a West Austin Republican, has also filed bills that would have curtailed Austin Energy spending.

Austin Energy critics consider such scrutiny necessary. Critics of Fraser, meanwhile, have pushed for the Austin City Council to resist his influence, which Sierra Club anti-coal organizer Dave Cortez called “putting a legislative gun to Austin’s head” instead of letting the city’s elected officials make decisions.

The stakes to Austin Energy, and to power-intensive customers that drive Austin’s economy, are huge. The utility provides one of every nine dollars the city spends on roads, parks, police and other “general services.” That $100-plus million transfer is considered equivalent to what investors earn from a privately owned utility. But if Austin Energy is deregulated, and customers do indeed choose another provider, the city budget stands to lose much of that transfer.

Companies such as Samsung, Freescale Semiconductor and Cypress Semiconductor are also complaining that, when special contracts negotiated years ago expire, their rates will rise well above what they could find on the open market. With the threat of legislative intervention hanging over Austin Energy, the City Council decided to extend the contracts of the three largest customers, as well as deals for the main St. David’s and Seton hospital facilities – leaving many other large customers upset that they did not receive similar treatment.

Even the “big three” – Cypress, Freescale and Samsung – only got a six-month contract extension. And they face a delicate situation. Catherine Morse, Samsung’s Austin-area general counsel, has in public hearings carefully avoided suggesting that deregulating Austin Energy would be good. A legislative analysis suggested that if Austin Energy were deregulated, it stood to lose many important customers, which in turn could hinder the utility’s ability to operate, increasing the likelihood of service interruptions – which could cost a company such as Samsung millions.

Fraser’s proposal would allow any group of customers that collectively use more than 25 million kilowatt-hours in a year — about what is consumed by 5,000 homes, four Wal-Marts, or a large manufacturer, Fraser has said — to appeal a rate increase to the state’s Public Utility Commission. Such businesses are not now allowed to do that.

Under Fraser’s proposal, the Public Utility Commission could allow dissatisfied customers to get their electricity from another electric provider. That would break Austin Energy’s state-sanctioned monopoly, a change some city officials say could jeopardize its ability to pay off the poles and wires it built to serve those customers.

Austin Energy says that its current rate structure, adopted in 2012, is based on charging customers close to the actual cost of delivering power to them. But when customers appealed the rate increase to the state’s Public Utility Commission, experts hired by the commission concluded Austin Energy was charging more than was appropriate. The commission ultimately did not rule on the differing conclusions because the case was settled.

That settlement meant the commission also did not rule on the $50 million to $70 million in Austin Energy spending that has little if anything to do with electric service. That $50 million-plus is in addition to the $100 million-plus transfer and has critics complaining of a “stealth tax” paid by Austin Energy customers who live outside the city.

Rates — and whether large companies are asking typical Austin residents to subsidize them, as Austin City Council Member Greg Casar has said — are not the only issue likely to remain under scrutiny. Adler has said he thinks Austin residents have been clear that they prefer to keep Austin Energy under the direct supervision of the City Council, instead of an independent board, as is the case with San Antonio’s city-owned utility CPS Energy.

Fraser has said he would prefer Austin create such a board.

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