Officials from the public power communities of San Antonio and Austin, Texas, recently voiced opposition to proposed legislation that would prevent municipalities from transferring revenue to their general fund from a public power utility if the transfer would result in a deficit for the utility or a rate increase for customers.
At issue is Texas Senate Bill 1110, which would also prevent public power utilities from including these general fund transfers as part of the utility’s cost of service study.
The Texas Senate Business and Commerce Committee on March 21 held a hearing on the legislation where a number of witnesses voiced opposition to the measure.
The prohibition on transfers proposed in the bill would be contrary to standard practices in the electric utility industry, said Mark Dombroski, Deputy General Manager and Chief Financial and Administrative Officer at Austin Energy.
“All electric utilities compensate their owners,” Dombroski said. “Municipal electric utilities make a general fund transfer to the city. Co-ops pay capital credits to their members. Investor-owned utilities pay dividends to their shareholders.”
He noted that Austin Energy returns a portion of its revenue to the community to reinvest. The utility’s general fund “is set according to a strict numeric formula established in 2012.” The formula “provides stability to the city and to the creditors by ensuring that rising costs or wholesale market volatility do not increase the transfer amount.”
Dombroski also noted that according to data from the Texas Public Utility Commission, Austin Energy’s rates are lower than the competitive market average and the utility’s latest AA- bond rating from Standard & Poor’s is well above the industry average.
“Competitively lower rates and high creditworthiness are evidence of our sound financial policies and prudent management,” he said. The legislation “would undermine our ability to prudently operate our electric utility and return that value to our community and customers as we have done for over 125 years.”
Also testifying in opposition to the bill was Ed Van Eenoo, CFO for the City of Austin.
He said at the hearing that over the past 10 years the city has seen funding from the general fund transfer grow by less than 1% on average, while Austin Energy’s wage and employee benefits costs over that same period have grown at much faster rates. “The point being that the general fund transfer has not been the primary driver” of the growth in Austin Energy’s budget.
“The transfer does, however, add stability and diversity to the city’s sources of revenue, which is viewed positively by bond rating agencies and allows the city to fund crucial general fund services while helping us to maintain a tax rate significantly lower than that of other major Texas cities.”
Ben Gorzell, Chief Financial Officer for the City of San Antonio, who also serves as the city’s Supervisor of Public Utilities, also testified in opposition to the bill. San Antonio is served by public power utility CPS Energy.
He said that the legislation would require significant cuts to city services and/or tax increases “and upend a municipal utility model that has benefited the San Antonio community for more than 80 years.”
Those benefits, he noted, include reliable gas and electric service, competitive rates, a transparent governance model and a financial return that supports a lower property tax burden and funds basic services for the residents of San Antonio.
Gorzell also noted that “this past year the city chose to give back $50 million to CPS Energy ratepayers to soften the impact of the extreme heat, high natural gas prices and high inflation” experienced this past summer.