CPS Energy Likely Won’t Raise Rates This Year, Despite Tightening Finances

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The CPS Energy Board meeting on Monday September 25, 2017.

Scott Ball / Rivard Report

The CPS Energy board of trustees.

CPS Energy customers will probably not pay more for electricity and gas in 2019, even though the utility’s net income is projected to drop to a level one board member called “not acceptable.”

The utility’s board of trustees on Monday approved key pieces of a budget slightly under $2.6 billion for CPS Energy’s 2020 fiscal year, which starts on Friday and ends Jan. 31, 2020.

In large part because of the closure of the Deely coal-fired power plant and stock market volatility that affects the utility’s retirement contributions, CPS Energy’s management expects net income to drop from $139 million in fiscal year 2019 to $2 million in fiscal year 2020. Net income was $89 million in fiscal year 2018 and $39 million in fiscal year 2017.

The projected $137 million drop prompted board member Ed Kelley, a former USAA executive, to say CPS Energy must soon raise electric and natural gas rates.

“Guys, we’ve got to turn this thing around or we’re going to fly into the ground,” Kelley said at the meeting. “We’re going to have to have a rate increase. Period.”

Unlike the San Antonio Water System, which in the recent past has tended to raise water and sewer rates every year, CPS Energy customers have paid the same rates for electricity and gas since 2013.

In an interview after the meeting, CPS Energy President and CEO Paula Gold-Williams said she wants to be sure the utility has exhausted every possible option before hiking its customers’ bills.

“We think we owe it to our customers in terms of affordability,” Gold-Williams said. “Our customers, we understand that they have their own budgets…they have to buckle down and they have to do their own sourcing of what they’re going to do or not going to do, and we wouldn’t exclude ourselves from the same kind of discipline.”

In the meeting, Gold-Williams told Kelley the utility’s management would look for ways to cut costs and bring in more revenue. The utility’s management hopes to bring up net income to around $17 million by the end of fiscal year 2020, said Gary Gold, vice president of accounting.

Gold-Williams told the Rivard Report she had thought the utility would need to raise its rates last fiscal year. CPS Energy makes most of its money selling electricity to its San Antonio customers but also generates revenue selling wholesale electricity onto the state grid.

Gold-Williams said officials estimated wholesale sales would only generate around $50 million in revenue. Instead, CPS Energy brought in $304 million in wholesale revenue, which allowed the utility to pay down some of its debts.

“The market provided,” Gold-Williams said. The difference going into this year, she said, is that the utility doesn’t have the Deely plant.

Closing the more than 40-year-old coal plant eliminated a source of millions of tons of harmful air pollutants and climate change-accelerating carbon dioxide, but it also means CPS Energy’s financial margins will be tighter this year.

“Deely had that extra capacity that was available,” Gold-Williams said. “But the challenge with Deely is that it was a much older unit, and we were going to have to do a lot of maintenance.”

In fact, one of Deely’s two units would have been down for maintenance during some critical hot summer months, she said.

“It just wasn’t going to have an opportunity to do the same thing, even if we kept it open,” she said. “It’s time to move on.”

Moving on could mean a rate increase in fiscal year 2021, which would begin Feb. 1, 2020. Current projections indicate CPS Energy will lose $39 million in that fiscal year without a rate increase, Gold said.

Utility officials expect to make a little less than $75 million less in wholesale revenues in fiscal year 2020, Gold said. The utility is also grappling with $52.1 million in additional expenses for its employee retirement plans because financial markets were down in the 2018 calendar year, Gold said.

Kelley praised the utility’s leadership for reducing cost and seizing revenue opportunities, but said after more than five years of no increase, “the chickens are coming home to roost.” He said board members and management would need to carefully monitor budgets month-by-month to ensure they’re making progress.

“They’ve done everything you can possibly do, but we’re a growing company with a growing customer base and growing costs,” Kelley said.

 

6 thoughts on “CPS Energy Likely Won’t Raise Rates This Year, Despite Tightening Finances

  1. As CPS is forced to abandon low price natural gas for wind and solar prices will rise inexorably. We might as well get ready to reap what the progressives are sowing.

  2. There is a missing component to this article, which is that CPS needs to invest in solar and wind harnessing and storage in order to keep costs down over the long term and to be profitable into the next decades. Wind and solar have become cheaper than natural gas in China and India. Why? Because they invested in harnessing and storing the energy. We have to move forward and stop trying to cling to natural gas and raising prices for overburdened working people. Ed Kelley is wrong for suggesting that increasing rates is the only way forward. One large wind turbine could power our city on it’s own.

  3. I agree with Robert. SA has been putting a lot of money into expensive wind energy. The extra cost has been voluntary but eventually, all users will be forced to pay for it. How about a new coal-fired plant? Cheapest source around. Ha, guess that won’t fly even though our coal plants are super-clean compared to anyone else’s. Too bad for me that San Antonian’s are all so rich that they keep voting in people to promote so-called progressive policies which end up costing everyone dearly down the road.

  4. There are several missing components in your post. In India, the cost of producing electricity from solar/wind is cheaper than producing it from coal , but not natural gas. Part of this is due to an increase in the price of coal. Now, when you throw in the cost of storage, coal is cheaper. Coal will continue to be the primary source of energy production in India for 30 years. By then, the country will mostly go to natural gas which is cheaper, and environmentally friendly. Presently, the nation gets 20% of its energy from solar and wind, mostly home solar units. The rest mostly comes from coal.

    The largest wind turbine can produce 216,000 kw in 24 hours, if the wind blows constantly. On a day like today, San Antonio will consume more than 4,000 mega watts in an hour. So I don’t think your one turbine idea will work out very well.

  5. Everything I read says that wind and solar are now cheaper than coal and natural gas, and are getting cheaper every year.

    The problem with CPS delaying a rate increase until next year is that it will compound the burden on ratepayers already facing a more than 20% rate increase next year from SAWS for Vista Ridge. Ratepayers will face a huge double hit.

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