City Considers Selling District Cooling System

City Manager TC Broadnax informed the City Council that staff would seek approval at the July 18 meeting to hire JP Morgan Securities LLC to provide “strategic advice on the potential sale of Austin Energy’s district cooling system.”

The system provides chilled water to help air conditioners efficiently cool large buildings occupied by thousands of people in the city center.

Broadnax wrote in a memo to the board: “With the assistance of the consultant, we will determine the range of interests and value before taking next steps.” The Electric Utilities Commission is scheduled to consider that item at its meeting Monday.

The agenda item states: “This entire process will take approximately 9 to 12 months. If the offers are favorable and a sale of the system is deemed worthy of completion, that transaction will be separate and will require further approval by City Council.”

The company’s district cooling system operates four plants: two in downtown, one in the Domaine and one in Mueller. District cooling uses electricity to cool water during nighttime hours when electricity demand is lower. This reduces peak energy demand and improves overall system efficiency.

The downtown cooling system, named the Paul Robbins District Cooling Plant after the famous local environmentalist, began operating in 2001.

THE Austin American-Statesman In 2019, Austin Energy reported that it cost $22 million to pump cold water through a network of pipes to power air conditioning units downtown. The 68 downtown customers paid $25 million for the service, generating a profit of $3 million, the report said. Statesman Data on Austin Energy’s overall profit from all of its cooling systems was not available Monday.

According to the memo, “the district cooling system is separate from Austin Energy’s main electric system, and a potential sale of these assets would have no impact on the provision of electric service to our more than half a million customers. We are proud of the district cooling system: it is efficient, it is good for the environment and it serves customers well.”

However, the memo states that in addition to providing additional growth opportunities, “the sale could enhance Austin Energy’s ability to provide clean, affordable and reliable energy to customers by repaying debt and freeing up funds for grid improvements. Currently, district cooling capacity requires substantial investment to continue growing at the pace needed for Austin. Austin Energy is financially constrained in its ability to maintain and improve the baseload power system while expanding district cooling to its full potential.”

Robbins was not thrilled about the possibility that the city could sell all or part of its district cooling system. He pointed to Article II, Section 7 of the Austin City Charter, which states in part that “the Council shall have no power and shall not … sell, convey or lease all or a substantial part of the facilities of a municipally owned public utility, provided that the Council may lease all or a substantial part of such facilities to any public agency of the State of Texas if the qualified voters of the City authorize such lease” in an election.

Robbins agreed that the important point of this section was the word “substantial.”

Mayoral candidate Doug Greco wrote on X (formerly Twitter): “Why do the Mayor and City want to privatize one of their best energy efficiency and climate protection programs (District Energy and Cooling System) and give JP Morgan Securities a big cut of the profits? Privatizing AE has been a Republican priority.” There is no indication at this point that Mayor Kirk Watson or any City Council member is in favor of the plan.

According to documents from the July 18 meeting, “JP Morgan Securities LLC (JPM) will act as financial advisor to facilitate this complex process and provide strategic advice, analysis and other support to complete this potential sale. … JPM will be compensated on a percentage basis if a sale is completed. All expenses related to other deals will be paid from existing budgets, subject to reimbursement from sale proceeds.”

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