City to consider selling its district cooling system

City Manager T.C. Broadnax has notified City Council that staff will be seeking approval during the July 18 meeting to hire J.P. Morgan Securities LLC to provide “strategic advice about the potential sale of Austin Energy’s district cooling system.”

The system provides chilled water to help air conditioners efficiently cool large buildings occupied by thousands of people downtown.

Broadnax wrote in a memo to Council, “With the consultant’s help, we will determine the range of interest and value before taking next steps.” The Electric Utility Commission is scheduled to consider the item at its meeting Monday.

The agenda item states, “This entire process will take approximately 9-12 months to complete. If offers are favorable and a sale of the system is deemed worthy of proceeding, that transaction will be separate and will require further City Council approval.”

The utility’s district cooling system operates four plants: two downtown, one in the Domain and one at Mueller. District cooling uses electricity to chill water during nighttime hours when there is less demand for electricity. This reduces peak energy demand and improves the system’s overall efficiency.

The downtown chilling plant system, named the Paul Robbins District Cooling Plant after the well-known local environmentalist, began operating in 2001.

The Austin American-Statesman reported in 2019 that it cost Austin Energy $22 million to pump cold water through a network of pipes to fuel downtown air conditioning units. The 68 downtown customers paid $25 million for the service, generating a $3 million profit, the Statesman said. Data on Austin Energy’s overall profit from all of its cooling systems was not available on Monday.

According to the memo, “The district cooling system is separate from Austin Energy’s core electric system, and a potential sale of these assets would have no impact on providing electric service to our more than half a million customers. We are proud of the district cooling system – it is efficient, it benefits the environment, and serves customers well.”

However, the memo states that in addition to providing opportunities for further growth, “The sale could improve Austin Energy’s ability to provide clean, affordable, reliable energy to customers by paying off debt and freeing up capital dollars for grid enhancements. Currently, the district cooling system’s capacity needs substantial investment to continue to grow at a pace that is needed for Austin. Austin Energy is financially limited in its ability to maintain and improve the core electric system while also growing district cooling to its full potential.”

Robbins was not pleased with the possibility that the city might sell all or part of its district cooling system. He pointed to Article II, Section 7 of the Austin City Charter, which says in part, “the Council shall have no power to and shall not … sell, convey, or lease all or any substantial part of the facilities of any municipally owned public utility, provided that the Council may lease all or a substantial part of such facilities to any public agency of the State of Texas if the qualified voters of the city authorize such lease” in an election.

Robbins agreed that the important point of that section is the word “substantial.”

Doug Greco, a candidate for mayor, wrote on X (formerly Twitter), “Why are Mayor & City wanting to privatize one of its best energy efficiency and climate protection programs (District Energy and Cooling system) and give J.P. Morgan Securities a big cut of the proceeds? Privatizing AE has been a Republican priority.” There is no indication at this point that Mayor Kirk Watson or any Council member is in favor of this project.

According to documents related to the July 18 meeting, “J.P. Morgan Securities LLC (JPM) will act as the financial advisor to facilitate this complex process and provide strategic advice, analysis, and other support to navigate this potential sale. … JPM will be compensated on a percentage fee basis if a sale is completed. Any expenses for other agreements will be paid from existing budgets subject to reimbursement from any sale proceeds.”

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