City Council’s Austin Energy gravy train must be stopped
Few Austin Energy customers are aware that their monthly electric bills include a mandatory city of Austin surcharge. The surcharge is unnoticed because it is hidden in the utility’s rates.
The surcharge is imposed in the form of money the City Council takes from the utility — and its customers — to spend on things that have nothing to do with utility service. This year, the council will extract $155 million from AE ratepayers — a whopping 17 percent of the utility’s non-fuel revenues — and spend it for non-utility purposes.
Much of this enormous sum is allocated for standard city services. However, a significant portion pays for pet political projects, like parades and sickle cell research — and subsidies.
Speaking of subsidies, AE customers pay almost half of the $2.8 million cost of council members’ salaries and travel expenses — and half of the city manager’s $8 million budget. Are we to believe that these officials spend half their time on utility issues?
The utility also pays an $8.8 million subsidy to the city’s economic development department. Though Austin’s official goal is to reduce energy consumption, this department’s mission is to recruit new energy-consuming businesses. The city’s own electric utility commission has long demanded that the subsidy be abolished.
City officials also say that AE’s transfers are akin to dividends paid by investor-owned utilities. In reality, utility sector dividends are closer to 5 percent than the 17 per- cent extracted from Austin Energy.
Questionable financial decisions are part of a pattern of poor policy decisions by council members who have no operational utility experience. One prominent example: a $2.3 billion city contract for a wood-fueled generator that sits idle because its power is too expensive for AE to use. The huge cost of this white elephant is embedded in AE’s rates.
Because of another council policy, AE is burdened by overdue customer bills totaling $86 million — an amount that is ballooning by $1.3 million per month. Under utility best practices, payments are due within 16 days, but Austin offers payout plans for as long as three years.
Austin Energy’s high rates are the result of many factors, including expensive renewable energy mandates. However, the unrelenting use of the utility’s money for non-utility purposes is the main driving force behind AE’s inflated rates.
Excessive rates have many consequences, including the obvious one that AE’s customers are paying too much. Nearby Round Rock is served by competitive utilities that don’t spend 17 percent of their revenues on non-utility items. That’s why summer residential rates for 1,500 watts in Round Rock are 30 percent lower than AE’s.
Since the City Council has depleted AE’s reserves and other resources, it can’t afford to offer competitive rates to the utility’s big industrial customers. These companies are the source of thousands of good-paying jobs, but unaffordable rates may very well deter them from expanding.
Two years ago, the council enacted the biggest rate increase in Austin Energy’s history. Funding the transfers was a main reason for the increase. Without them, the increase could have been cut by half or more.
Despite commitments to making Austin more affordable, ongoing rate increases continue. Promises to keep Austin Energy’s rates below comparable state averages have been abandoned.
Are city officials amenable to normalizing Austin Energy by reducing transfers? No, they say, because — with no mention of cutting the city’s $3.5 billion budget — property tax increases would be needed to recoup the lost funds. It is curious that tax increases are suddenly controversial, since the council has increased property tax collections by 35 percent over the past five years.
Under pressure from the state Legislature, city officials are talking about making cosmetic changes to Austin Energy’s governance to emulate San Antonio’s CPS Energy. CPS Energy is run like a business, not the City Council’s piggy bank. Until AE is governed by an independent, qualified board with a stand-alone budget, nothing will change.
As yet, there is no sign council members will wake up before Austin Energy is deregulated by the Legislature — which it ultimately will be — and the era of “free” $155 million transfers comes to an abrupt end.