Austin Energy and the EGRSO: EUC Chairman Schmandt weighs in

For those in Austin who don’t know, the EGRSO (the Economic Growth and Redevelopment Services Office… I had to look it up too) gets a substantial portion of its funding from the municipally-owned utility Austin Energy. What does this office do? From its city website:

[The EGRSO] implements the City of Austin Economic Development Policy as directed by the Austin City Council.

Essentially, the office provides grants and loans of city funds or services in order to promote economic development. Among its awardees are Facebook, LegalZoom, Heliovolt, Friday Night Lights, and the Home Depot Austin Technology Center.

Recently, the Electric Utility Commission voted unanimously to cut AE’s funding of the EGRSO, citing the fact that AE faces tough budget choices inside its own walls. Commissioner Shudde Fath wrote in the Business Journal that AE can no longer be the city’s cash cow.

EUC Chairman Phillip Schmandt released a statement on the matter yesterday:

I applaud EGRSO and its programs.  There are many great ideas in EGROS’ $10 Million budget.

But not every great idea should be funded with government money.

And more to the point, not every great idea should be funded from utility bills paid by our hard working customers who are struggling to make ends meet every month.

As a utility customer, I expect my utility company to be a careful steward of the money I pay to it.  There is no better economic incentive than a well run utility with low rates.

I would be much more sympathetic towards Austin Energy’s funding of EGRSO if Austin Energy controlled the spending of EGRSO.  If that were the case, Austin Energy, with its citizen oversight, could ensure that the monies were spent to promote Austin Energy’s generation and conservation plans recently approved by Council.

But the opposite is true.  Austin Energy provides the money, while EGRSO spends it.  No one at Austin Energy has oversight over the budget or can trim its growth.   As a result, EGRSO’s budget, with over 45 FTEs, has almost doubled since 2006- 2007 and its personnel has increased by 25% — while other departments  and our public safety units experience cuts and hiring freezes.

And meanwhile Austin Energy operates at a deficit and will soon need to raise its rates.

For three straight years, the Electric Utility Commission has considered EGRSO’s claims that it provides a benefit to the utility and the EUC has concluded that Austin Energy should spend less on EGRSO or have greater control over its spending.  This year the EUC escalated its recommendations by voting against the entire EUC budget on the grounds of lack of effective oversight and control over EGRSO.  I ask that you listen to your citizen advisors, who this year spoke unanimously (6-0) on this issue.

There are two reasons why this year it is so important to remove EGRSO from Austin Energy’s budget.

First,  if the rate case will be in 2012, then the 2011 budget will be the test budget on which future rates are based.  In the name of preserving Austin as an affordable city, EGRSO should be removed from Austin Energy’s budget.

Second,  Austin Energy is rethinking its business model,  The City Council recently approved spending tens of millions of dollars on consultants that will help Austin Energy wean itself from the old business model based on volumetric sales of energy.  EGRSO’s justification for its existence is based entirely on that old business model.  We should not have one city department spending tens of millions of dollars in furtherance of one mission while another city department spends tens of millions of dollars trying to abandon that mission.  That is folly.

The fact that EGRSO’s reports to Council and the EUC do not even recognize this fundamental conflict only serves to highlight how far adrift EGRSO personnel have strayed from the mission of their sponsoring agency.

We cannot expect Austin Energy’s new business model to emerge in the future whole cloth from thin air and to be seamlessly implemented.  Instead, that transition will require many incremental steps, the bulk of which will be painful.  This is one of them.

It is a poison to government to anoint one department to spend money without being accountable to those who provide the money.  Austin Energy ratepayers have no effective oversight over EGRSO.  And that structure of unchecked governance is, my friends, a bad idea – even if someone thinks the EGRSO’s budget contains some good ideas.

Budget choices are always tough. This will be an interesting one to watch in the next few weeks as city council adopts its 2011 budget.


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