Natural Gas and Coal Power Revenues Fuel City’s Budget Wish List

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Bill Magness, CEO of state grid operator Electric Reliability Council of Texas, speaks to CPS Energy board members at their September 2019 meeting.

Courtesy / Vincent McDonald, CPS Energy

Bill Magness, CEO of state grid operator Electric Reliability Council of Texas, speaks to CPS Energy board members at their September 2019 meeting.

Sales of power derived from natural gas and coal are funding expansions of the City’s services, including a new police station on the South Side, financial help for those facing eviction, and a doubling in funding for the annual Martin Luther King Jr. Day March, according to City and CPS Energy officials.

At their September board meeting on Monday, officials at the the municipally owned electric and gas utility discussed a strong year selling power on the state grid after a long, hot summer during which its natural gas and coal plants performed well. While its main business involves retail energy sales to San Antonio, CPS Energy also makes money by selling wholesale power to other parts of the state.

“Our plants performed exceptionally well during the summer,” said Gary Gold, CPS Energy’s vice president of accounting. “They were running to protect our customers, provide power for our customers, and with the extra available power that our plants produced, we were able to sell that power into the wholesale market and recognize some additional gains.” 

The benefits to the City budget were clear-cut earlier this month, when City officials said additional revenue from CPS Energy will help City offer a small property tax exemption for homeowners, as well as contributions to an institute for Mexican American civil rights.

Even in normal years, CPS Energy contributes significantly to the City’s budget – nearly $334 million in CPS Energy’s current fiscal year.

The City’s reliance on these funds highlights the challenges of moving away from fossil fuels to more variable wind and solar generation, which can’t always be timed to produce power when prices on the electricity market are highest. CPS Energy has nearly 3,400 megawatts of natural gas generation and 1,350 megawatts of coal capacity, compared to capacity of just over 1,000 megawatts of wind and nearly 550 megawatts of large-scale solar. It also has about 1,035 megawatts of nuclear power. One megawatt can power about 200 homes on a Texas summer day. 

In February, CPS Energy’s financial officers were making dismal predictions of the utility’s financial performance, predicting it would end its fiscal year with only $2.1 million in net revenue. That was down from nearly $124 million in wholesale revenue last fiscal year, when CPS Energy used such funding to help pay down $130 million in debt.

But now, officials are predicting the utility will end the year with $110.5 million in net revenue. That’s largely the result of $64 million in wholesale sales onto the state grid, far ahead of the $9 million in such sales projected only a month ago, Gold said.

However, the financial windfall comes with a tough tradeoff. CPS Energy’s coal and natural gas plants are among the largest sources of pollution in the San Antonio area, where federal regulators have said that air quality no longer meets health standards. They’re among also the largest regional sources of greenhouse gas emissions, which climate scientists say are driving longer, hotter summers in Texas, among other effects. 

The bumper month for CPS Energy’s power sales coincided with a hot August and tight energy reserves around the state. For about two hours each on Aug. 13 and 15, the price of electricity sold on the Texas grid reached the cap of $9,000 per megawatt-hour, according to the Electrical Reliability Council of Texas, or ERCOT, the state’s grid operator. 

“The challenge in the summer in Texas, where we are air conditioning-driven for our demand … is to make sure we have a lot of power on our system,” Bill Magness, ERCOT CEO, said during a visit to CPS Energy’s board meeting on Monday. “Some of that power may not run that many more times of the year besides in the summer, when the demands are highest.”

Despite having what Magness said was the tightest-ever gap between electricity demand and reserve supply in ERCOT history, Texans were able to get through the summer with no planned outages that could result when demand outpaces supply. ERCOT did trigger emergency conservation alerts twice in August.

Other Texas utilities fared far less well under such spiking prices. Austin Energy, for example, will be raising its average customers’ bills 1.5 percent, or $1.33 per month, starting on Nov. 1. CPS Energy, meanwhile, has managed to stave off rate increases for six years. 

The hot weather and high prices also ended up providing an unexpected windfall to the City of San Antonio when officials wanted it most – during the City’s budgeting process for fiscal year 2020. The City received $7.8 million more than expected in CPS Energy wholesale revenues last month, City Manager Erik Walsh said.

That’s allowed the City to fund 23 of 35 requests made by City Council members, though they also put away $2 million in savings for fiscal year 2021 and almost $1.5 million “in a policy reserve for a topic City Council will be discussing later on in the year,” Walsh said Monday.  

“The majority of that money was directed towards one-time, extraordinary-type expenses,” Walsh said. “It certainly isn’t something we can count on on an annual basis.” 

CPS Energy trustee Janie Gonzalez said at the meeting that she hopes San Antonio residents understand that the revenue the utility generates goes back to the City, as well as the maintaining the utility’s own assets. 

“It’s not just benefiting us, it goes back to our community,” Gonzalez said. “City Council has input in how they are good stewards of that money. Our job is just to make sure that, operationally, we’re doing what we need to do.” 

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