Summer heat surge caused $115M overspend at Austin Energy

High energy usage brought on by months of severe summer heat caused Austin Energy to spend far more than the utility forecast through the end of the last fiscal year, with a forthcoming rate increase likely to help restore its cash reserves.

At Tuesday’s meeting of City Council’s Austin Energy Utility Oversight Committee, AE representatives explained how dramatically increased usage and higher congestion costs caused in part by the shutdown of the Decker Creek Power Station resulted in the utility spending $115 million more than budgeted through the conclusion of the fiscal year that ended in September.

Stephanie Koudelka, AE’s director of finance, said the financial models had been behaving normally through May, but extreme heat beginning in June caused usage to far exceed forecasts. That resulted in higher peak energy costs and a prolonged period of “under recovery” in which local customers’ bills weren’t bringing in enough money to cover AE’s costs.

As a result, AE had only $395 million in cash reserves instead of the $520 million recommended to allow the utility to operate for 150 days.

Koudelka said that since temperatures have lowered, AE has been able to return to moderate over-recovery on a month-to-month basis. At the end of November, the shortfall stood at $80 million, with a 5 percent rate increase expected soon to help bring financials back in line before next summer.

“As you know, we had a very hot summer this year, which resulted in elevated market prices as well as some pretty material congestion costs that we incurred over the fiscal year,” she said. “We had a 5 percent increase in October, and again in December to start making some headway to recover these costs. We have seen some over-recovery in the last couple of months and we just came out with our results for November and we are still materially under-recovered, but we’ve made some headway.”

Council Member Alison Alter pointed out that the financial shock of this summer follows a similar period of under-recovery last year.

“The numbers with the $115 million is where we were at the end of September, at the end of the fiscal year, right after the extra-hot summer,” Alter said. “And you’re saying at this point in time in December we’re at $80 million rather than at $115 million. So we’re trending in the right direction. But nonetheless, over the course of the calendar year, despite the changes that we made last December and the other increases, we went backwards for the year because we were at 107 under-recovered before.”

Answering a question about the role congestion costs play in the price increases for energy, AE General Manager Bob Kahn said the city has seen an increase of about $100 million per year – from $20 million to $120 million – following the closure of the Decker plant. The increase comes from the reduction in locally produced energy and the need to direct energy into the Austin market from elsewhere across lines that are typically near maximum transmission capacity.

Interim City Manager Jesús Garza said the complex market dynamics of energy generation, demand and transmission makes it difficult to find an easy answer for situations that cause budget overruns.

“This is a really complex issue. And it’s not one where you could say, if I do this, I’m going to have this result,” he said. “We understand how many variables we have to solve for in terms of simultaneously to achieve the health for this utility, which, as you indicate, our days of cash on hand are off our policy. We need to get that back to policy. And there’s just not one easy answer to this.“

Photo made available through a Creative Commons license.

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