! 1017 CITY OF AUSTIN. TEXAS MINUTES OF THE CITY COUNCIL CITY OF AUSTIN, TEXAS Special Meeting September 10, 1974 4:00 Ρ.Μ. Electric Auditorium 301 West Avenue 14 The meeting was called to order with Mayor Butler presiding. Roll Call: Present: Councilmen Binder, Dryden, Friedman, Handcox, Lebermann, Mayor Butler, Mayor Pro Tem Love Absent: None Mayor Butler announced that this was a Special Called Meeting of the City Council for the purpose of a Work Session for discussion on proposed 1974-75 Operating Budget and discussion on proposed flat electric rate. PROPOSED LINEAR OR STRAIGHT LINE (FLAT) ELECTRIC RATE Councilman Friedman presented to the Council his recommendations for a linear or straight line electric rate for all users in the City of Austin Electric utility system. He stated that the effect of the proposed rate would be 1) to encourage electricity conservation and 2) eliminate the need for a water and wastewater rate increase as proposed in the 1974-75 budget by raising the level of the linear rate. Presently, a linear rate of 1.83 cents per kilowatt hour (plus a fuel cost adjustment) would be required to generate the same amount of revenue as the old electric rate plus the 17.8 per cent increase in January, 1974, instituted at EBASCO's recommendation. Eliminating the proposed water and wastewater rate increase would require a linear rate of 2.17 cents per kilowatt hour (plus a fuel cost adjustment--currently 1.112 cents per KWH) for electric service, plus the existing water and wastewater rate to generate the total utility revenue projected in the 1974-75 budget. The basic attempt of Councilman Friedman's proposal was to ease utility costs of the individual resident: homeowner, apartment or duplex dweller. The City Manager called on Mr. R. L. Hancock, Electric Utility Director, who summarized a report which had been distributed to the Council entitled, "Impact of Straight Line Electric Utility Rate," dated September 4, 1974. Mr. Hancock stated that the City of Austin electric utility system was a proprietary September 10, 1974 1018 = CITY OF AUSTIN, TEXAS function and should be operated through sound business management. As a monopoly, the system was subject to the usual regulatory controls on monopolies. In Texas, regulatory control was vested first in the city councils, with appeals to the State regulating bodies or the courts, whichever was appropriate. The ultimate determination in a utility rate case historically had been made on cost of service plus a reasonable profit. EBASCO had prepared a cost of service study for the City of Austin to determine the actual cost of extending service to the various classes of customers within the system. Mr. Hancock stated that the rate of service study had been adjusted for the 17.8 percent increase implemented in January, 1974, to determine the rate of return for each class of user served by the system. The rate of return by class had also been tabulated if a straight line rate were adopted plus a .34 cent per kwh kicker. The following data were presented showing the City of Austin electric utility rates of return for various classes of Customers and the ratio of rates of return by class to the residential class customer. Ratio of Rates of Return to Residential Class Customer Present Rate SL Rate & .34c kwh Rates of Return Present SL Rate & Rate .34¢ kwh Class Customer (%) (%) (Ratio) (Ratio) Residential 9.9 8.5 1.0 1.0 All Electric 10.9 21.9 1.1 2.6 General Service 24.2 34.5 2.4 4.1 Large General Service 15.4 53.0 1.6 6.2 ! Mr. Hancock stated that usually the rate of return on general service customers was about twice the rate of return on residential customers because of the greater risk involved. Under the proposed straight line rate, the rate of return on general service would be over four times the rate of return on residential customers. For large general service customers the rate of return would be over six times the rate of return on residential customers. Mr. Hancock presented the following figures to support the fact that the capital component of unit cost for residential consumers is higher than the unit cost for the so called commercial and industrial consumers. September 10, 1974 CITY OF AUSTIN, TEXAS 1019 Class of Service Percentage of Rate Base Value Percentage Contribution to System Peak Percentage of kwh Residential 57.0 54.69 35.49 All Electric 5.4 5.06 6.02 General Service 26.2 32.51 41.60 Commercial Space Conditioning 2.3 2.90 3.54 Large General Service 1.8 2.40 4.10 Other (Water & Wastewater Pumping, 7.3 2.44 9.25 Traffic Signals, Municipal Buildings) NOTE: Calculations based on test year ending June 30, 1973. The Rate Base Value refers to the percentage of dollars in the system dedicated to each class of customer. Fifty-seven per cent of the Rate Base in the system was dedicated to the residential class customer to yield 35.49 per cent of the system's total energy. Thirty per cent of the Rate Base in the system was dedicated to the general service, commercial space conditioning and large general service classes to yield 49 per cent of the system's energy. The percentage contribution to system peak is the percentage of system capability on peak dedicated to service the various classification of customers. For the residential class customers 54.59 per cent of the system capacity is required for only 35.5 per cent of the system energy. For the general service, commercial space conditioning and large general service class customers, 37.8 per cent of the system capacity is required for 49.2 per cent of the system energy. Mr. Hancock then presented data on the impact of the straight line rate on typical customers in the system, based on June, 1974 data. : September 10, 1974 1020 = CITY OF AUSTIN, TEXAS- PERCENT CHANGE IN BILLS FOR TYPICAL CONSUMERS IN VARIOUS CLASSES CURRENT RATES COMPARED TO STRAIGHT LINE RATE Increase in RESIDENTIAL (87,500 customers) Small Usage Medium Usage Large Usage ALL-ELECTRIC (7,600 customers) Small Usage Medium Usage Large Usage GENERAL SERVICE NON-DEMAND (8,600 customers) Current Bills (%) Decrease In Current Bills (%) 16.78 2.44 6.73 29.22 31.48 38.70 Small Usage 34.11 Medium Usage 27.49 Large Usage 2.41 GENERAL SERVICE DEMAND (2,600 customers) Small - Poor Load Factor Moderate Load Factor 27.50 1.08 Good Load Factor 18.59 Medium Poor Load Factor 16.87 Moderate Load Factor 19.89 Good Load Factor 43.75 Large Poor Load Factor 5.50 Moderate Load Factor 4.04 Good Load Factor 58.89 LARGE GENERAL SERVICE (3 customers) Moderate Load Factor Good Load Factor 68.00 80.75 NOTES: Applicable to June, 1974 billings, fuel adjustment under each rate is $.00692 per kwh Number of customers in each class is rounded to June data. Straight line rate includes .34c/kwh adjustment. September 10, 1974 _ CITY OF AUSTIN, TEXAS 1021 Relating that data to typical customers in the system, Mr. Hancock presented the following examples of how a straight line rate would affect those customers. Numbers in parentheses indicate a decrease. BILL COMPARISON OF TYPICAL ACTUAL CUSTOMERS FOR MONTH OF JUNE, 1974 (Includes Fuel Adjustment of .6924) DESCRIPTION OF CUSTOMER Retailer - Small Retailer - Large CHANGE (%) (2.58) 42.42 Nursing Home - Small (4.29) Nursing Home - Large Low Cost Housing - Small 38.99 29.02 Low Cost Housing Large 53.41 Hospital 50.50 Doctor's Office (22.48) Apartment Complex - Small (8-10 units) Apartment Complex Large (200-300 units) (5.29) 43.81 Lounge (20.30) Package Store 12.20 (8.93) (27.59) Architect Office Law Office Public Office Building Private Office Building Restaurant - Small Restaurant - Large Public Utility Public Utility Grocery - Small Grocery-Large 50 Largest Customers 54.06 47.53 (21.37) 44.70 30.93 69.35 (9.76) 46.74 60.66 _ CITY OF AUSTIN, TEXAS September 10, 1974 1022 Regarding the public utilities, which were identified as Southern Union Gas Company and Southwestern Bell Telephone Company, Mayor Butler stated that those two utilities would recover the electric rate increase from the consumer (of their products and services). Councilman Friedman asked Mr. Hancock if, in making the comparison between actual billing and proposed straight line billing, had he used the same gas pass through (fuel adjustment) figure. He noted that earlier there had been mentioned a figure of about .6 cent which was less than the 1.1 cents being referred to. Mr. Hancock stated that the figures were based on the June billing of .692 cent fuel adjustment and that that figure had been applied to both rates consistently. The 1.1 cent figure was for the August billing. Mr. Hancock then presented data comparing Austin's electric utility competitive position with other electric utilities, both within and outside the State. He presented the following information: COMPARISON OF RESIDENTIAL BILLS as of August 1, 1974 KWH CONSUMPTION 1200 1900 3000 4000 Houston Light & Power $26.81 $40.22 $61.30 $80.45 Pedernales 26.83 39.01 58.15 75.55 Bluebonnett 27.58 39.76 58.90 76.30 Texas Power & Light 28.92 41.94 62.40 81.00 Dallas Power & Light 29.16 39.54 60.70 83.01 Austin-All Electric 31.31 46.13 69.43 90.61 Arizona Public Service 34.12 50.56 75.08 97.26 Gulf States Utilities 35.23 51.56 77.22 100.55 Central Power & Light 35.90 52.95 79.74 104.10 City Public Service 37.14 57.46 89.39 118.42 Austin Straight Line Rate 37.37 59.17 93.42 124.56 Austin-Resid. Current 38.23 58.01 89.08 117.33 Florida Power Corp. 41.82 63.69 98.07 129.32 Boston Edison 61.01 95.31 149.21 198.21 NOTE: Straight line rate includes .34c/kwh adjustment. September 10, 1974 1023 =CITY OF AUSTIN, TEXAS COMPARATIVE BILLS GENERAL SERVICE, DEMAND BILLING As of August 1, 1974 Including Fuel Adjustment Small Medium Large UTILITY Poor Good Poor Good Poor Good Load Load Load Load Load Load Factor Factor Factor Factor Factor Factor | Austin-Current Rt. $126.00 $293.00 $518.86 $1345.07 $2296.66 $6154.98 City of Austin Straight Line Rate 93.00 342.00 435.00 1866.00 2177.00 9330.00 Round Rock (Texas Power & Light) 122.00 272.00 470.00 1094.00 1904.00 4084.00 Dallas (Dallas Power & Light) 105.00 242.00 444.00 1038.00 1881.00 4499.00 San Antonio 118.00 286.00 465.00 1248.00 2121.00 5504.00 Pedernales Co-op 77.00 248.00 443.00 1300.00 2041.00 5708.00 Houston 86.00 179.00 360.00 810.00 1665.00 3883.00 Bluebonnet Co-op 81.00 269.00 446.00 1314.00 2059.00 6038.00 NOTE: Straight Line Rate includes .34c/kwh adjustment. COMPARATIVE BILLS - LARGE DEMAND CUSTOMERS As of August 1, 1974 Including Fuel Adjustment Moderate Good Load Factor Load Factor Austin-Current Rate $58,618.32 $ 75,178.16 Austin-Straight Line Rate $93,300.00 $127,.510.00 Round Rock (Texas Power & Light) $41,029.00 $ 51,039.00 Dallas (Dallas Power & Light) $37,584.00 $ 46,838.00 San Antonio $56,885.00 $ 72,318.00 Pedernales Co-op $58,268.00 $ 75,648.00 Houston $33,251.00 $ 39,577.00 Bluebonnet Co-op $62,648.00 $ 81,678.00 NOTE: Straight Line Rate Includes .34c/kwh adjustment. CITY OF AUSTIN, TEXAS- September 10, 1974 1024 Mr. Hancock noted that the crossover point between the current residential rate and the straight line rate was between 1200 kwh and 1900 kwh and after fuel adjustments was 1400 kwh for August. After that point, the straight line rate was higher. Mr. Hancock then presented data on the general service, demand customer and stated that with the straight line rate this customer and the most serious problem. He examined data for small, medium and large customers with poor and good load factors and compared those figures to San Antonio and Round Rock. He indicated that Austin's competitive position would be poor in relation to those cities. For the large demand customers, the situation was further amplified. The moderate load factor customer's rate in Austin would be 127 per cent higher than in Round Rock and 64 per cent higher than in San Antonio. The good load factor customer's rate in Austin would be 150 per cent higher than in Round Rock and 76 per cent higher than in San Antonio. Summarizing his presentation, Mr. Hancock made the following points: 1. The proposed rate would place the City rates for General Service demand billed customers too high compared to rates charged by other utilities. 2. It would remove from General Service rates the demand billing which is an effective deterrent to careless demand management by General Service customers. 3. Austin electric consumers have experienced rapid and dramatic electric increases. Currently, the increase is 100% with the fuel situation indicating continued increases. The straight line rate would unduly increase these rate increases. 4. The cost reduction to non-demand General Service customers would remove a conservation stimulus as would the removal of demand billing within the General Service rates. 5. The high rate for Large General Service customers would preclude any new "IBM's", "Motorola's", "Texas Instruments", "Glastron's", "Economy Furniture's", "IRS's", "VA's", etc. from locating in the Austin area, including the potential for new ad valorem taxes associated with such new consumers. 6. High electric rates relative to gas rates would result in the diversion of an electric source to a gas source, resulting in a further reduction in revenue, ultimately requiring an additional upward adjustment in electric rates. 7. Large consumers would give serious consideration to the utilization of on-site generation, thus removing an important and significant source of revenue, resulting in an ultimate increase in the electric rates. 8. Some consumers would undoubtly refuse to pay the increase and there by test the proposed increase in the courts. 9. The proposed rates would deviate from the universally accepted philosophy of each class consumer paying for the cost of extending electrical service to that class consumer, plus a reasonable profit for the owner of the system, and would deviate from the principle applied by the Council for Southern Union Gas and Southwestern Bell Telephone. CITY OF AUSTIN. TEXAS September 10, 1974 1025 46 of the 48 contiguous states have regulatory bodies; none have adopted straight line rates that apply to all classes of customers as a unit. The City Manager then called on the City Attorney to brief the Council regarding certain legal aspects of the proposed straight line rate. Mr. Don Butler, the City Attorney, made the following points: 1. Based on the evidence he had seen, found it difficult to justify increasing electricity costs by ten to eleven million dollars. 2. Felt that Austin's position before the Railroad Commission would be effectively destroyed if electric rates were increased arbitrarily, The City had argued that it should not be forced to use more fuel oil (through reduction of Austin's natural gas curtailment priority) because of the impact on the Austin consumer, who already was faced with a much higher utility bill. 3. Straight line rates had not been litigated in Texas, but in states where they had been, those rates had been discarded years ago because they were discriminatory and did not equitably spread the costs across the classes of customers. He could not find any regulatory agency, nor had he talked to any recognized utility authority who would recommend any type of level rate across class lines. Michigan had recently adopted a level rate for residential users only, but in that case, air conditioning probably was not a serious factor, as it was in Austin. : 4. If Austin discarded the cost of service yardstick to regulate rates (the only yardstick used for the past 50 or 60 years), what would be the City's yardstick when Southern Union and Southwestern Bell asked for another rate increase? 5. Increasing the price of electricity to the State of Texas might affect Austin's position regarding upcoming legislation which seemed likely to create a State utilities commission. Austin might lose its exempt status (which was being proposed for muncipally owned systems and electric co-ops). He was also concerned about the effect that any adoption of a different standard of utility regulation would have on Austin's position in regulating private utilities. Most of the proposed bills allowed that option to the larger cities, but Austin might lose that right. 6. Adopting the straight line rate could create problems with Bergstrom Air Force Base, which received its electricity from Austin. The contract with Bergstrom was a special one and had to be renegotiated. From his dealings with some Federal rate people, the City Attorney felt that they would not be receptive to some type of rate that would increase Bergstrom's rate to the extent being discussed. If they were not, then a wide loophole would be left in the system. 7. Southern Union Gas Company had the same type of rate schedule as Austin (declining rate for large users) and would be appearing before the Council on September 12, 1974, requesting a rate increase. The City Attorney wondered what standard would be applied for Southern Union's rates. Adopting the straight line rate for electric utility and another rate for gas utility, which were often competitive, could cause come of Austin's better customers to switch to natural gas, probably to the great detriment of the electric utility system. September 10, 1974 1026 CITY OF AUSTIN, TEXAS i Mayor Butler stated that the (straight line) plan obviously shifted the load even worse than it was now from the water and wastewater onto the electric utility, and would increase the existing water and wastewater deficit by about 10% million dollars. Many of the users in Austin's 400 plus miles of electrical service did not receive water and wastewater service. The Mayor asked the City Attorney if those customers not receiving water and wastewater could be charged for those services under the electric utility or would two rates be necessary. The City Attorney stated that it would be difficult to justify two different rates inside and outside (the City) for electricity because the City did have a distribution system out there to service the people. Cities had gotten by with the practice on water and wastewater rates, but he knew of no electric utility system which had made the distinction and gotten away with it. He thought that San Antonio had considered the idea, but had discarded it. The City Attorney questioned the City's being able to justify the rate more on the basis of its being an overall increase. Both utilities should stand on their own two feet. The electric utility system rates should be set on the basis of its valuation of its property and the necessary rate of return to take care of expenses, fuel costs, retirement of debt and return a reasonable profit on the stockholders' or owners' equity. Councilman Friedman stated that another alternative might be to adopt the 1.83 cent kwh (straight line) charge and let the water and wastewater rate increase be discussed on its own without talking about generating the extra revenue. He then requested Mr. Hancock to prepare the following combination of utility bills: 1. Total utility bill with the projected water and wastewater increase. 2. Total utility bill without the projected water and wastewater increase, but with the 2.34 level rate on electricity. 3. Total utility bill with the 1.83 level rate and with the projected water and wastewater increase. 4. Compare what that generates now plus how much the individual water and wastewater classes would be paying in addition to their electric bill and the percentage of increase. Mr. Hancock stated that it would be difficult to quantify, but if the .34 cent kicker were eliminated, he estimated that the percentage increase shown on the charts would be 10 to 15 percent less. The City Manager stated that some breakouts on a per cestomer level basis would be provided in connection with the proposed water and wastewater rates that would give an indication as to how individual customers would be affected. He felt, as did Mr. Hancock and Mr. Butler, that the figures should be kept separate so that the utilities stood on their own feet and so that the revenues attributed to both systems could be accounted for and recorded properly. Mayor Butler pointed out that one serious implication of the straight line plan was that the City could lose its EPA (Environmental Protection Agency) grant money by not making the water and wastewater utilities freestanding. _ CITY OF AUSTIN, TEXAS September 10, 1974 1027 Councilman Friedman stated that one of the things that had to be looked at was whether or not those utilities had to be freestanding or just have separate user charges to show that the department would not lose money. It might not if there were extra money coming in from the electric utility to shift over. Mayor Butler read the following EPA requirement regarding a grant for a wastewater treatment facility: "The entity must adopt or will adopt a system of charges that assure each recipient of waste treatment services within the applicant's jurisdiction will pay its proportionate share of the costs of operation or maintenance, including the replacement of any waste treatment service provided by the City." The City Manager stated that Austin currently had received two EPA grants whereby the City was obligated to institute user charges sufficient to support the operation of the system. The City could not qualify for future grants unless the system was placed on a self-supporting basis. Councilman Binder asked what had happened to the flat rate report that had been requested from EBASCO last May. The City Manager stated that no increase in electrical rates was proposed in the 1974-75 budget and that he had had no reason to bring back a report to Council asking for an adjustment or increase in those rates. He would be happy to get Mr. Sharkey of EBASCO back to Austin if the Council wished to talk to him further. Councilman Binder stated that he had had a study of the EBASCO report going on and would make those results public when the study was complete. He did not know what direction the results would take, but would follow whatever direction it led. Councilman Binder then read several selections from the Minutes, dating back to 1964, dealing with the setting of utility rates to attract industry. He felt that in the past, the setting of rates had been treated as a policy matter by the City Council and that it should be a policy matter today. He indicated that he would be bringing some information back in the near future bearing on the matter. Councilman Lebermann asked Councilman Binder if he was asking for information which would indicate what the Council could do as well as could not or should not properly do. Councilman Binder responded that he was not asking for that today. Mayor Butler asked both Councilmen Binder and Friedman if they were proposing the change, would they be having some consultants or expert witnesses to tell the Council that it was good. Councilman Friedman responded that it was not a question of having consultants tell whether the plan was good or bad. He felt that the additional figures to be supplied by Mr. Hancock and Councilman Binder's report would indicate that in addition to somewhat of a savings for many Austin citizens there were implications to the future because electricity was no longer cheap and abundant. He was puzzled about the talk of switching to an alternative utility such as gas.. If the gas company had the gas to accommodate the people who were switching over, why couldn't Austin get some of the gas for its utility. The City Attorney stated that the reason the gas was available to the gas company was that they were at the top of the curtailment priority while the City of Austin was near the bottom. CITY OF AUSTIN, TEXAS September 10, 1974 1028 Councilman Dryden asked Mr. Hancock approximately how many hours had been spent on research and how many people had worked on the information which Mr. Hancock had presented to the Council today. Mr. Hancock stated that he coule not answer specifically. The data had been accumulated over an extended period of time, but most of the time during the past week had been spent on the presentation. Councilman Dryden felt that the time had come to get on with something else. He did not believe that Mr. Hancock and his Department would give incorrect information to the Council. He stated that electricity should be left as it was and hoped that another increase would not be required. Mayor Butler stated that as he understood it, the larger users were the ones doing the best job of conserving électricity, while the residential users were the ones doing the worst job. Mr. Hancock stated that it was hard to quantify, but that his Department was convinced that the demand customers in general were doing a much better demand management and conservation effort than the non-demand customers. The general service classification customers may have done a better conservation effort because they had more to do with; however, there had been a conservation effort on the part of residential users. Mr. Hancock felt that the 100 per cent increase in the City's electric rates was the greatest possible stimulus to conservation. 1974-75 PROPOSED BUDGET The Council discussed the budgets of the following departments: Fire Department Councilman Dryden asked the City Manager about using money in the Fire Department's budget to operate the Emergency Medical Service (EMS) as had been discussed previously. The City Manager stated that EMS had not been budgeted in the Fire Department, but would be recommended to the Council, probably as a special fund, on the day that the budget was adopted. Urban Transportation Councilman Binder noted that contractual services were up about 60 per cent. Building Inspection The Mayor noted that personnel were about stable in the Department. Public Works Councilman Binder asked about the 24 additional employees requested. Mr. Reuben Rountree, Director of Public Works, stated that the additional request involved a re-organization of Streets and Bridges to give more efficient and better service. Mr. John German, Assistant Director, explained the type of work the additional employees would be doing. Councilman Handcox asked if it would be possible to transfer employees from other departments to fill some of the needs, and Mr. German said yes. Health Department September 10, 1974 1029 CITY OF AUSTIN, TEXAS Councilman Lebermann asked the City Manager if the Health Department and other departments charged with enforcing new ordinances, such as the industrial waste and septic tank ordinance and the creek ordinance, had sufficient personnel to enforce the ordinances. He wanted to be sure that there was no reluctance to add personnel where needed. The City Manager stated that in his opinion the budget had included sufficient personnel to enforce the various ordinances. Parks and Recreation The Mayor Pro Tem asked if the City or Aqua Festival paid for any overtime in connection with that event and was told by the City Manager that the City paid for the overtime. The Mayor Pro Tem also asked how much of the total amount contributed by the City for Aqua Festival involved overtime. The City Manager stated that a breakdown was not now available, but that the figures could be furnished. For the Parks and Recreation Department, about $800 of the $6,500 spent on Aqua Festival involved overtime. Office of Bicentennial Affairs Libraries Councilman Binder asked what was the justification for the Bookmobile that runs outside the City. Mr. David Earl Holt, Director of Libraries, circulated an Agreement between the City and the County dated 1951, whereby the City had agreed to provide library services to the County. There were 15 bookmobile stops outside the City included in a run, which cost the City $6,300 per year. Eliminating the County stops would not necessarily save money. There was some discussion regarding the use of the City's libraries by people not residing in Austin and the possibility of charging those people a use fee. Mayor Pro Tem Love inquired about the proposed contract between the City and Austin Community College, and whether or not the $50,000 contribution by ACC could be used to reduce a proposed library increase of $76,000. Mr. Holt stated that the $76,000 was for three new branch libraries: Northwest Hills, Model Cities and Rosewood-Zaragosa Center. The $50,000 from ACC would add little to the City's operation. INVITATION TO ATTEND MEETING Mayor Pro Tem Love noted that the Council had been invited to attend a meeting by a private organization to discuss the budget on the evening of September 11, 1974, at 7:00P.M. The Council was not obligated to attend, but the City Clerk had posted a public notice of the meeting to avoid any problem with the Open Meetings Law. ! =CITY OF AUSTIN, TEXAS September 10, 1974 1030 WORK SESSION ON BUDGET The Council agreed to meet at 3:00P.M., Tuesday, September 17, 1974, (later changed to 9:00 A.M., Wednesday, September 18, 1974) to hold the final work session on the 1974-75 budget. The Mayor suggested that anyone who had any proposals, additions, deletions or renovations to the budget should present them to the Council at that time. ATTEST: ADJOURNMENT The Council adjourned at 6:15 P.M. Grace Mon City Clerk Mayor