By Bill Oakey – November 22, 2022
We’re into the final stretch of the Austin Energy rate case. All of the official legal parties have made their recommendations. The Electric Utility Commission could not agree on everything, so they made a partial recommendation. But guess what…Everybody so far has overlooked the one big question that still begs to be answered…
What Happened to the Huge, Un-Budgeted Surplus From the Summer Heatwave???
If you just sit back and think about it for a moment, the request for a rate increase just doesn’t add up. In fact, it makes no sense at all. And yet, whole groups of people have completely overlooked the obvious – Why do we need an electric rate increase, when Austin Energy made more money from mid-May through mid-September, than in any other summer season in all of Austin’s history? And that goes back to 1839, when the City of Austin was founded.
I have raised that issue before on this blog. How it has managed to escape more attention is strange and mystifying. One could ask a few more obvious questions:
1. Why is Austin Energy the only electric utility in Central Texas asking for a rate increase?
2. The revenue windfall from the historic heatwave was not predicted, and was not part of Austin Energy’s budget. Their budget was approved by the City Council in August 2021. So, why was the utility allowed to spend a historic surplus, without asking the City Council for amendments to their budget?
3. Since the rate increase under discussion is an increase in the base rates, shouldn’t the public be told how much un-budgeted base revenue came in from the summer heatwave? It is quite reasonable to assume that it runs into the tens of millions of dollars. And, it could easily have a material impact on the $35.7 million revenue request for the rate increase.
4. If Austin Energy has already spent that money, without City Council budgetary approval, then what did they spend it on?
5. Does the City Council have a formal process for City department to make budget amendment requests? If so, how often is that process overlooked and not enforced?
A Disturbing History Lesson About Austin Energy and the Ratepayers’ Money
I have followed Austin electric rate cases for 39 years, since 1983. I served on the City Electric Utility Commission from 1985 through 1990. During that time, I researched and unraveled some fascinating financial scenarios. But none compares with the twisted tale that you are about to read. I am not smart enough to make this up. The whole thing is true, and I still have the newspaper archives that tell part of the crazy adventure.
Let’s travel back in time to the late 1980’s, when the Electric Utility Commission met at the Electric Building Auditorium on West Avenue. Before it was rebranded as Austin Energy, it was simply called the Electric Utility Department. At the Commission meetings back in those days, we had more than a few dramatic rate battles.
Shudde Fath was a founding member of the Commission, and she was my mentor. It was Shudde who pioneered Austin’s conservation-based rate design. It was first implemented in 1981, and it served as a highly respected national model. This year, unfortunately, it is being threatened by Austin Energy’s radical new rate design recommendation. Ironically, the formal rate case hearings this year were held in the honorary Shudde Fath Conference Room.
So, back to the history lesson…One night at a Commission meeting, we were presented with a report that focused on a legal dispute over a coal contract for one of our power plants. The report explained that this contract allowed Austin to purchase coal on the spot market, if the market price dipped below the contract price. So, our utility exercised that option, and started purchasing the cheaper coal.
The coal contractor sued the City, claiming that we did not have the right to purchase the cheaper, spot market coal. So, the Electric Dept. presented our Commission with a report, detailing how the electric rates were impacted by the price of coal and the legal dispute. Our utility decided to continue collecting the full contract price for the coal. We were told that the difference between the contract price and the cheaper spot market price was being deposited into an escrow account. Thus, if the coal contractor won the legal case, we could pay off their claim from escrow funds. But, if Austin won the lawsuit, we would be able to keep the extra money.
Shudde Fath and I kept copies of the financial reports that were included in our meeting packets. I carefully observed the growing amounts of the clearly labeled, “Escrow Ending Balance.” By the time the lawsuit was finally settled, the escrow balance had climbed to $43 million. During this same time period, President Ronald Reagan, John Poindexter and Oliver North were accused of violating an act of Congress, by diverting large sums of money to the Nicaraguan Contras. I happened to notice that the total amount involved was less than the $43 million in our Electric Utility coal contract escrow account.
Finally, at one of our evening Commission meetings, it was announced that Austin had won the legal case with the coal contractor. Therefore, we would be able to keep the $43 million that was in the escrow account. So, I made a motion that this money should be credited back to the ratepayers on their electric bills.
Suddenly, I noticed what looked like a huddle in the middle of a football field. The top executives of the Electric Utility Dept. scrambled to prevent us from taking a vote on my motion. One of the financial officials took a seat in front of our Commissioners. He asked us to please postpone the motion until our next monthly meeting. He said they needed more time to consider the administrative impact of distributing the $43 million.
We agreed to the delay. Very soon after that, the issue landed in the lap of the City Council. City Finance Director, Virginia Rutledge stood before the Council. She performed the most artful and creative dog and pony show that I have ever beheld. I used to have it all preserved on a VHS tape, but it eventually gave way to more important music concert. The gist of her presentation was that distributing the $43 million back to the ratepayers would cause “too much of a cash flow problem,” and she recommended against doing it at that time.
Then, the entire issue blew up in the news media. Everyone began asking, “What really happened to that $43 million. Why couldn’t the Electric Department simply withdraw it from the escrow account, and credit it back to the ratepayers?” If I had known then what I found out later, that would have been one heck of a news story!
Instead, Mayor Frank Cooksey came forward with an ideal solution. He recommended that the City hire not one, but two outside auditing firms, to review the financial records of the Electric Utility Dept. This, we were told, would get to the bottom of the mystery surrounding that big chunk of money.
So, Shudde Fath and I decided to make an appointment with one of the auditing firms, Coopers and Lybrand. We took our latest copy of the financial report, that showed the escrow ending balance of $43 million. We wanted to ensure that the auditors looked into what happened to that money, and whether it was available to be credited back to the ratepayers. They told us that they would need to check with the City first. It would be up to whichever manager had been assigned to oversee their audit.
Well, about three weeks went by, and Shudde and I never heard back from the auditors. So, I called them to check on our request. They said they were not allowed to include our request, because the manager overseeing the audit determined that it was outside the scope of the audit. Then, I asked who that manager was. It turned out to be the City Finance Director, Virginia Rutledge. That gave me a queasy feeling. Could it be that the fox was guarding the henhouse?
The next thing we heard was that both auditing firms had completed their work. The results would be aired on the 6:00 PM local TV news. Lo and behold, both auditing firms gave the Electric Utility Dept. a clean bill of health. They each concluded that “The $43 million was properly posted to the deferred fuel revenue column in the financial statements. That is in full compliance with Generally Accepted Accounting Principles.” Very well, indeed. It was a spectacularly perfect whitewash. The auditors were never asked to investigate what happened to the money, or how much of it had been spent.
The news medial dropped the story at that point. Nothing we said could convince them that the real issue had not been resolved. So, we all went about our lives and moved on. The issue was the farthest thing from my mind about three years later, when I walked out of a West Austin restaurant after lunch. The current Mayor, Lee Cooke, walked up to me with a friendly smile. “Hi there, Mr. Oakey, how are you doing?” “Just fine, Mayor,” I responded. “Hey, I have a question for you. Did you ever find out what happened to that $43 million?”
The Mayor didn’t even hesitate. I was totally unprepared for what he said that day. “Well, Mr. Oakey, I think you can be pretty sure that the money found its way over to cover the deficit at Brackenridge Hospital.”
Those of us who took on volunteer positions at various times over the years, all have our favorite stories to tell. This one never made it into the news. It was all water under the bridge, as the old saying goes. But at least I can say that I graduated from the School of Hard Knocks. Sometimes, I unleash my emotions on this blog. But my motto when dealing with public officials is, “Walk softly and carry a big memory stick.” Try to let the facts speak for themselves. That doesn’t always work. Sometimes, what seems like the most blatantly obvious questions never get asked, and never get answered.
Like…Hey guys…What happened to that unprecedented windfall revenue surplus from the record summer heatwave? It was never budgeted and never approved for spending by the City Council. So, how much was it anyway, and where did it get spent?
Perhaps someday, a future Mayor will whisper the answers to somebody. Then, at least one other fortunate soul will know the full and complete truth.