Austin Energy deregulation bill sent to Senate

A bill that could have major implications for Austin Energy and the city budget passed its first hurdle in the Texas House on Tuesday and now goes to the Senate floor. It could give certain Austin Energy customers the ability to break away from the utility and buy energy on the deregulated market.

The Senate Committee on Natural Resources & Economic Development passed Senate Bill 1945 on a six-vote majority, with Sen. Judith Zaffirini (D-Laredo) casting the sole opposing vote.

Senators Kel Seliger (R-Amarillo), Juan “Chuy” Hinojosa (D-McAllen) and Carlos Uresti (D-San Antonio) submitted their votes in writing after the Senate Committee on Natural Resources and Economic Development adopted Senate Bill 1945. Seliger voted in favor of the bill, while Hinojosa and Uresti voted against it.

Sen. Troy Fraser (R-Horseshoe Bay), who filed the bill and chairs the committee, said in a public hearing before the vote that the bill is “not a mandate of competition” but rather a “review of the appeal process” for customers who are unsatisfied with their rates.

However, Karen Kennard, interim intergovernmental relations officer for the city, told City Council last month that the bill could eventually have the same effect as deregulating Austin Energy, in that it could unravel “the entire customer base of the utility.”

The bill would allow heavy-usage customers or groups of customers in the city to petition the Public Utility Commission for a rate review. Austin Energy would have an opportunity to respond, and the PUC would review the rates in question and decide whether they are “just and reasonable” or consistent with comparable deregulated rates.

If the PUC decides that the rates do not adhere to these criteria, it can set new rates or allow the customer or group to purchase power on the deregulated market and pay Austin Energy solely to use its transmission and distribution infrastructure.

Fraser said he is concerned about the impact of Austin Energy’s rates on its customers and the amount of money the city requires the utility to contribute annually to the city budget, which is about $155 million in the current fiscal year.

Mayor Steve Adler testified that the impact of the bill on the city would be “devastating” and asked the committee to give the new Council the opportunity to address affordability concerns before allowing the Legislature to take action.

“My understanding is that to move quickly in this way would leave us in a fairly chaotic and unpredictable place,” Adler said, adding that such a move could affect Austin Energy’s bond ratings.

Mark Zion, executive director of the Texas Public Power Association, said that deregulation is “a decision that can cost millions and take a long time.”

Sen. Kirk Watson (D-Austin), a former mayor of Austin, said that he shared many of Fraser’s concerns but argued that it would be better to address the issue on the local level. The committee gave Watson the opportunity to address the issue though he is not a member.

Adler pointed out that the current Council, which directs Austin Energy and is often referred to as its “board of directors,” did not set the current rates. Ten of the 11 current Council members have only been in office since January, he added, following a historic election.

When asked by Zaffirini if the city would be able to take enough action to resolve concerns about the utility and its rates before the next legislative session, Adler responded confidently in the affirmative. “The message, again, is very loud and very clear that we need to take a look at the business model that the City of Austin and Austin Energy is running,” he said.

The previous Council allowed Austin Energy to raise its rates for the first time in 18 years in October 2012, after setting affordability goals in 2011. Those goals require that the utility not raise all-in rates by more than 2 percent in a given fiscal year and keep its rates in the lower 50 percent of comparable utilities in the state.

Austin Energy Vice President of Regulatory Affairs Mark Dreyfus said that fluctuations in the price of natural gas in recent years have contributed to the utility’s rate issues.

“We now are at or slightly above the state average on rates for commercial and industrial customers, but I believe that we remain below the state average in rates for residential customers, and it is a significant challenge for us,” Dreyfus said. “We are dedicated to resolving that.”

Representatives of two of Austin Energy’s largest customers, Samsung and Freescale Semiconductor, also testified at the meeting, raising cost concerns. They are among a set of customers who have contracts, drafted before the rate increase, that are set to expire next month.

Adler said the city is “going to have to enter into new contracts.”

Dreyfus explained that Austin Energy is having ongoing discussions about developing a new tariff for its large industrial customers. “We’re hoping to move forward on that in the next few weeks,” he said.

Austin Energy representative Robert Cullick told the Austin Monitor that such a change would be akin to having those customers — which use power on a more consistent basis than most others — shop at Sam’s Club rather than Wal-Mart and park in a reserved spot near the entrance.

This story has been updated since it was originally published, and corrected due to an editing error.