(Community Matters) I’ve never spent much time understanding the economics of Austin Energy – know our mayor plans to do so. It’s important that our city utilities are positioned to respond to market realities and continue best serving Austin residents & other customers. I certainly don’t oppose the equivalent of dividend transfers and believe transparent allocations are the prerogative of the council & city manager – just not sure there is transparency nor that we’re not handicapping the utilities.
Explainer: The Austin Energy-CoA funds transfer
The Explainer takes a deeper look at stories we have been following. This week, we tackle the annual transfer from Austin Energy to the City of Austin’s General Fund.
The annual transfer of what has historically been many millions of dollars in cash from the coffers of Austin Energy to those just across the river at City Hall is typical of publicly owned utilities, whether those who live outside the city yet pay Austin Energy for their electricity like to think so or not. This sometimes causes legislators to look at Austin Energy as a problem rather than a top-rated utility.
And sometimes it causes City Council — which is charged with governing the utility to benefit ratepayers as well as the city as a whole — to squirm.
The transfer, as Jo Clifton wrote in these pages last week, is “like a dividend payment to the taxpayers.”
That is how it is presented officially, too. From an Austin Energy spreadsheet that outlines the transfer: “As a municipally-owned electric utility, Austin Energy provides a return to its owner. This payment to the City of Austin is comparable to profits made at investor-owned electric utilities. The return (known as the General Fund Transfer) helps fund other City services such as Police, Fire, EMS, Parks and Libraries. General Fund Transfers are common among municipally-owned utilities.”
The transfer is about 12 percent of that average, with a ceiling of $105 million.
As the city explains in an official document, “Prior to the new rates, Austin Energy calculated the General Fund Transfer by taking a three-year average of the past two years’ actual total revenues plus the total revenue projected for the following year. The transfer was about 9.1 percent of that average.” But it included fuel costs. Fuel costs are no longer part of the calculation, which lowers the amount of the transfer. Fuel costs are simply passed through to customers and therefore do not represent profit.
The city cannot seem to get away from funding multiple general government expenses (see the above linked Clifton story) with Austin Energy dollars. Indeed, it is a long-running problem, one that was highlighted back in 2012 as the city began the process of its then-long-overdue rate change.
As this reporter wrote at the time:
Steve Smaha, who was a member of the city’s Electric Utility Commission at the time, cited an algorithm used by city management to allocate each city department’s contribution to operating costs. “In many cases I examined, the allocation method employed for each category just so happened to maximize the contribution from AE, whether or not AE was utilizing those services; it was quite an amazing degree of coincidence,” he wrote in an email.
“For example, AE paid a very large share of the city’s lobbying budget, despite having its own separate lobbying staff and not (to my knowledge) making much use of the city’s lobbying office. Lobbying the Legislature on utility matters is pretty specialized, and AE has its own staff in this area. Similarly, AE paid a very large portion of maintenance for city buildings, in addition to paying for such services for all of its own buildings.”
Smaha proceeded to examine the larger picture.
“I suppose someone in the City Manager’s office could conclude the current level of transfer is ‘fair,’ but then those cross-subsidies certainly reduce the need to make tough choices about services or increasing taxes to fund city services,” he continued. “Policy decisions like that occur ‘above my pay grade’; I’m an unpaid volunteer on the EUC.”
Smaha and two of his colleagues would resign their Electric Utility Commission positions a year later amid frustrations with the utility’s governance structure. The 2012 discussion centered around $38 million in administrative CoA costs funded by the utility.
Though Clifton reported Wednesday that the figure was down to $20 million for FY2014, she also noted that “according to calculations by Austin Energy staff, the amount the utility has paid into the general fund has grown by 30 percent over the past 10 years. That number includes the general fund transfer. In 2006, Austin Energy paid $118,904,000 into the general fund, including the transfer. That number has grown to $154,972,000 for the current fiscal year. It is projected to grow to $158,806,000 in FY2016.”
More stats, released in the form of a memo: The utility pays for 44.7 percent of the mayor and Council’s $2.84 million budget; it also covers 44.7 percent of the city’s main Communications and Public Information Office budget, despite the fact that Austin Energy has its own Public Information Office; it seems as if the utility was effectively doubled-billed for city auditor costs as well.
All this in the face of the matter that, as Clifton wrote, Council froze the AE transfer at $105 million back in 2012. Long-serving Electric Utility Commissioner Shudde Fath, who has been on that body since its formation in 1977, told Clifton that “because it benefits everybody except Austin Energy,” the transfer has remained in place. She then offered sitting Council an invitation:
“I can’t even remember a Council member taking an interest in it. It’s like they don’t want to know this. They have to look at the formula and key in on some logical parameters for the allocation. This new Council has a golden opportunity to fix it,” Fath told Clifton.
That, or someone at the Capitol might — as they say — fix it for them.
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