Line extension fees could bring utility significant revenue

Austin Energy General Manager Larry Weis told members of the Electric Utility Commission Monday that, by not recouping the cost of line extensions, the utility may be leaving a significant amount of revenue on the table.

 

“I’ve been very candid in saying, as we’ve gone through the (rate case) and everything that, ‘yeah it is a significant amount of revenue that could be recovered,’” Weis said.

 

Weis is set to bring the matter to the Council’s Austin Energy Committee. He noted that, for the utility to properly examine the issue, they would likely have to retain a consultant to perform a study. He also called for a clear policy definition of the percentage of extension fees that the utility should seek to recoup.

 

Weis has suggested that such matters are better left to Council members. The Council’s committee is set to debate the roles of utility governance at its first meeting on August 13.

 

Line extensions are as they sound: The furthering of electric service to new areas or facilities. Some argue that by not recouping extensions fees, Austin Energy allows existing customers to pay for new development.

 

Electric Utility Commissioners tackled the subject at the behest of veteran utility watcher and long-time commission member Shudde Fath. Along with the item, Fath brought her colleagues a history lesson.

 

Fath told the group that, up until the late 1980s, the utility did in fact collect fees for line extensions. However, with the advent of deregulation – and the coming of competition for a small portion of the Austin Energy service area – the utility ended that policy.

 

“My best memory (is that) we have a 10 square mile service area up north around, I think central north (Austin). It overlapped with what was then Texas Power and Light and now I guess is Oncor,” she said. “I remember…(utility staff) saying we can’t compete because they either didn’t charge anything out of Dallas, or they charged less (for line extensions).”

 

Austin Energy’s current service area is 437 square miles.

 

Weis confirmed that account. “Shudde is exactly right,” he said. “We have a couple of employees who are out at (Austin Energy’s) St. Elmo (Service Center) who were here at the time – and you are exactly right, that is the same thing they told me.”

Weis noted that the issue is not unique to Austin. “As you know, I worked in California prior to (coming) here,” he said. “When deregulation happened there everybody also got rid of their line extension fees because they wanted to be competitive.”

 

Fath conceded that the utility could not look to collect 100 percent of its line extension costs. Commission Vice Chair Karen Hadden tried to push Weis toward an acceptable number.

 

“It would be really great to hear your recommendations,” she said. “To me…50 percent sounds kind of reasonable.”

 

Weis did not offer a direct answer. He then raised another point. “There is another variable that comes in to play…The contracting community and the development community is used to working the way that we do,” he said. “So assuming that, what will happen is that the (line extension) cost will be picked by the lot or the developer or somebody,” he said. “Every time I’ve been through a line extension policy uplift, there has been interest in the development community about that issue.”

 

The utility has proposed a $100 connection fee in its FY2014 budget. Fath called that “chicken feed” in comparison to what it might otherwise collect if it could develop a more robust formula for line extension collections.

 

The line extension policy question will return to the Electric Utility Commission after Council deals with the issue.