Item 5- Memo District Energy and Cooling System — original pdf

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M E M O R A N D U M TO: Mayor and City Council THROUGH: Jon Fortune, Deputy City Manager FROM: Stuart Reilly, Interim General Manager, Austin Energy DATE: May 15, 2025 SUBJECT: District Energy and Cooling System Review ____________ The purpose of this memorandum is to provide an update on Austin Energy’s District Energy and Cooling (DEC) system and inform you of an upcoming review of potential options for the system to grow and effectively meet new development needs in the future. The driver for this DEC system review is finding innovative ways to achieve the best environmental outcomes for our community and serve new customers. BACKGROUND The DEC system was established in FY 2001 to shift electric load off-peak and to provide an energy efficient alternative to traditional air conditioning systems in suitable areas. Instead of each building having a separate cooling system, DEC chills water at night and pumps this water through a network of underground pipes to cool large buildings. The DEC system is a valuable resource to the Austin community because it uses energy at night to chill water that is used for cooling during the heat of the day, which shifts energy usage to lower demand times and reduces the peak demand needs of Austin Energy. Fostering growth of the DEC system therefore reduces the need for additional summer peak generation needed to support customers. The DEC system operates in four districts, downtown, the Domain, ACC Highland, and Mueller, serving 73 customers under contract. It provides environmental benefits by being an alternative to individual air conditioning systems and is an attractive option for developers seeking to make the most of their buildable square footage, while receiving an efficient and reliable way to meet their cooling needs. With the rapid pace of growth in Austin, the DEC system is in need of expansion in order to meet customer needs or risk continued new development that is not capable of coming online to receive district cooling service. As such, Austin Energy has proposed looking at ways the system can grow and flourish, providing more environmental benefits, and more energy efficiency benefits, and continuing to reduce our summer peak demand needs – enhancing sustainability and affordability for all customers. PAGE: DATE: SUBJECT: 2 of 2 May 15, 2025 District Energy & Cooling System Review UPCOMING ASSESSMENT Following City Council feedback from last year, Austin Energy recognized the need for additional information to address questions from City Council and stakeholders. To support the process of developing a comprehensive review of the DEC system, Austin Energy is engaging the City of Austin’s third-party financial consultant, Public Financial Management (PFM), to conduct an assessment of potential options for the future of DEC. The deliverable from PFM will be a report that examines financial and business information and details potential pathways for future growth. Options to be reviewed by PFM include but are not limited to expansion by Austin Energy; leveraging expansion opportunities by transitioning to another existing City department or establishing a standalone department; engaging in a Public Private Partnership; and growth via sale of the system to a third-party. In addition, through its assessment, PFM will make any other recommendations or provide additional options that it identifies through the course of its analysis. The goal of this assessment, and any future pathways identified, will be to ensure the DEC system not only continues but also adds to its existing developmental, environmental, and customer benefits. By doing so, we hope that PFM can assist us in determining the best way to respond to demand for this service. Given the rapid pace of growth in the City, this review will provide essential insights to guide decisions on the most effective options for expanding the system and extending its benefits to new customers and areas across the City. Balancing the expansion of the system and its environmental benefits with the financial health of Austin Energy, is central to determining viable options. NEXT STEPS PFM’s work will begin in the coming days and a report is targeted for completion by October 1, 2025, after which the results will be presented to City Council. Austin Energy remains committed to identifying the most effective long-term solution that supports customers, employees, the DEC system, the City of Austin, and our environment. We will continue to coordinate and communicate with DEC customers as we advance this analysis and report process. Most importantly, I want to recognize Austin Energy employees of the DEC system. This team provides environmentally-friendly service to customers, operating an outstanding system that has been internationally-recognized. I would also like to thank these team members for their input as we work to continue and expand DEC’s important mission. Should you have any questions or concerns, please contact Ken Snipes, Vice President of Power Production, Austin Energy at ken.snipes@austinenergy.com or 512-322-6054. cc: T.C. Broadnax, City Manager Erika Brady, City Clerk Corrie Stokes, City Auditor Mary Jane Grubb, Municipal Court Clerk Judge Sherry Statman, Municipal Court CMO Executive Team Department Directors