City Council puts off decision on electric rate increase

Feb. 22, 2012

By Marty Toohey
Austin American-Statesman Staff

The Austin City Council probably won’t decide any time soon how much to raise electric rates.

Austin Energy executives had requested the council vote by March 1, saying that after more than a year of public debate, the city-owned utility needs a decision on new rates or it will have to either put needed construction projects on hold or begin borrowing to make ends meet.

But at a special Wednesday meeting, council members spent nearly four hours debating whether they need another three months or another six months before taking a vote – and finally, as a compromise, the council approved a schedule that included no dates at all.

Council members also discussed approving a "short-term" rate increase some time soon to stanch Austin Energy’s financial bleeding while they untangle numerous issues – but council members said they needed much more information from the utility before deciding how much added revenue it really needs.

The council might iron out some of those details at its March 1 meeting – or not.

"We can always extend this thing," said Mayor Lee Leffingwell, who has said the council should take as long as needed to come to a decision – even if that decision comes after May, when he and three other council members are up for re-election.

Austin Energy is proposing to raise rates an average of 8.7 percent this year and another 3.8 percent in 2014. But the increase would not hit all classes of customers equally.

A consultant hired by the utility concluded that many medium-to-large businesses for years have been paying far more than the actual cost of serving them electricity, which led Austin Energy to propose that homes and small businesses bear much of the increase. Residential customers would see an increase of more than 20 percent once the new rates are fully phased in.

Austin Energy General Manager Larry Weis said the utility needs a vote some time in March to have the new rates in place by summer, when the utility collects much of its revenue.

The proposal has generated criticism from all sides, leaving council members wary. At Wednesday’s meeting, a unanimous council directed the city auditor to investigate whether Austin Energy really needs the added revenue it says it does. City Auditor Ken Mory said the audit could be finished by late April.

The council discussion then turned to a dueling set of proposals. Council members Mike Martinez, Laura Morrison and Kathie Tovo suggested the council take six months unraveling the various aspects of the complicated rate increase, such as how much money the utility needs and how to apportion an increase among various classes of customers.

They also suggested a 3.5 percent interim increase while those questions are answered.

"I just feel with the complexity of these issues," a shorter schedule "is far too aggressive," Martinez said.

Weis said 3.5 percent would not be nearly enough to cover the utility’s immediate expenses. He also noted that the utility cannot implement a 3.5 percent across-the-board increase; a dozen or so large, industrial companies have special contracts that cannot be altered until 2015, so everyone else would actually see a rate increase of nearly 6 percent.

"It does not bring in enough revenue. … We’re as lean as we can be without putting off certain (large construction) projects," Weis said, adding that those projects are needed for the growing utility.

Council Member Sheryl Cole proposed the council make a final decision in late May. Cole’s proposal doesn’t specify whether the council needs to approve a short-term increase; she said it may be necessary and said the council should not wait six months before arriving at a final decision.

"Under either scenario … we have to do something," Cole said. "I just don’t want us to be mealy mouthed with each other or the public about the tough choices we face."

mtoohey(at)statesman.com; 445-3673

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