CPS Energy customers won’t see their rates go up this year after the utility made 70 times more in net revenue than originally expected.
However, financial signs are pointing to a likely need for a rate increase in 2021, according to utility officials.
At their January meeting Monday, CPS Energy’s board of trustees adopted a $2.6 billion budget for its 2021 fiscal year, which runs from this February through January 2021. The municipally owned electric and gas utility’s leadership believe CPS Energy can keep its net revenues in the positive for another year.
As the largest city-owned utility of its kind in the U.S., CPS Energy has 854,000 electricity customers, 356,000 gas customers, and manages $11 billion in assets.
Monday’s meeting showed how far the utility has come financially over the past year. At this time in 2019, revenue projections were dismal for CPS Energy’s fiscal year 2020, which ends Friday. After the closure of its Deely coal plant and thanks to stock market volatility, officials had anticipated ending the year with $2.1 million in net revenue, a plummet from the previous year’s $139 million
Instead, CPS Energy is ending this fiscal year at nearly $145 million in net revenue, largely the result of a successful year selling power onto the state grid. With tighter-than-ever margins between electricity supply and demand leading to soaring power prices, CPS Energy earned nearly $67 million more than expected in wholesale revenue.
The utility also generated $33 million more than budgeted in local electricity and gas sales and garnered another nearly $43 million in savings through refinancing its debts and cutting costs.
“It was the work of the entire organization that allowed us to be successful like that,” said Gary Gold, CPS Energy’s vice president of accounting, at the meeting.
The question now is whether CPS Energy can do it again. On Tuesday, executives presented the utility’s outlook for its 2021 fiscal year. The utility is expecting to reach Feb. 1, 2021, with only $3.9 million in net revenue.
Keeping that number from dropping into the negative will take even more work than last year. CPS Energy leaders expect to pour an extra nearly $30 million into maintaining its aging fleet of power plants to make sure its plants are running during summer price spikes.
There’s also a chance those prices will spike less often, with the Electric Reliability Council of Texas, the state’s grid operator, forecasting more supplies coming onto the grid across the state.
The potential for financial variability is making some officials wary.
“We are really putting Paula and her team in a tough situation here,” Trustee Ed Kelley said at the meeting. “If [revenue is] going to go 70x up, it might could go 70x down.”
However, CPS Energy officials are still planning to avoid a rate increase in the near-term, as they have since 2013. CPS Energy currently charges residential customers an $8.75 monthly fixed charge and 6.9 cents per kilowatt-hour, plus an extra 1.9 cents per kilowatt-hour for usage over 600 kilowatt-hours during the high-demand months of June through September.
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Under its current rate structure, CPS Energy expects to collect $2.2 billion in local electricity revenue, $183 million in local gas revenue, and $194 million in wholesale electricity revenue. It’s also expecting “nonoperating revenue” to spike to $53 million, approximately $22 million more than last year, as a result of selling some of its excess properties as it moves into a new downtown headquarters.
On Monday, board members voted to sell CPS Energy’s customer service center at 7000 San Pedro Ave., known as its Northside Customer Service Center. The utility did not disclose the buyer or a sale price, as the sale is not yet final.
In all, CPS expects to net just over $21 million from its property sales this fiscal year, according to budget projects. That funding, along with wholesale power sales and savings from refinancing debt, are expected to keep revenue at $3.9 million by next February.
However, the financial outlook for its fiscal year 2022 is looking less rosy.
With widening margins on the state grid and an increasing likelihood of plants down for maintenance, the utility is currently projecting reaching February 2022 with a near $63 million loss. Other financial metrics, such as days cash on hand and the amount of money in its repair fund, are expected to shrink by then, as well.
That likely signals a rate increase on the horizon in 2021 (what the utility calls its 2022 fiscal year). The rate increase will likely involve some political wrangling, with San Antonio Mayor Ron Nirenberg pushing for a first-ever rate advisory committee to offer a detailed look at electricity and gas rates.
Board members briefly discussed the rate advisory committee briefly on Monday before Nirenberg said they’d take it up again a future meeting, likely in February. Before moving on, Gold-Williams asked whether the committee is supposed to replace the CPS Energy board or tell utility officials how to run CPS Energy.
“That’s not the intent,” Nirenberg replied, comparing his proposed committee to the San Antonio Water System’s Rate Advisory Committee, which has been meeting since September to come up with recommendations on how to structure SAWS rates.
Officials also touched on the future of the utility’s solar and energy efficiency programs. On Thursday, City Council is set to vote on a $70 million extension of those programs for one year while local leaders grapple with how much the utility should spend on efficiency over the coming decade.