Favorable market conditions have put CPS Energy significantly ahead of its early financial projections for its fiscal year, the utility’s officials told the board of trustees Monday.
Despite high inflation and supply chain issues, CPS Energy’s year-to-date net income was $82.3 million as of the end of July — $93 million over CPS Energy’s forecast, which predicted a loss of $10.7 million.
However, the additional revenue doesn’t change plans for a rate increase scheduled for the utility’s next fiscal year, staff said. CPS Energy has been in a cash crunch since 2020 primarily due to customers who have fallen behind on paying their bills, first as a result of the pandemic and then by persistent inflation.
While the utility’s financial position has been steadily improving as it continues to get more delinquent customers onto payment plans, the utility needs a more secure means of ensuring future financial stability, said Cory Kuchinsky, CPS Energy’s chief financial officer.
“[Different] … elements of our business are kind of all hitting at the same time from a revenue perspective, and that’s been really positive for us,” Kuchinsky said. “While that is really great this year as part of the one-time revenues that we can use to bridge us to next year — it’s highly volatile. You can’t bank on it.”
Additional revenue
Lower fuel costs have resulted in lower fuel revenue than CPS Energy was projecting, but that has been offset by higher electric sales, Kuchinsky said.
Natural gas costs are down significantly this summer over 2022. The high cost of natural gas last summer resulted in CPS Energy customers’ bills being up roughly 30% from the previous year. Bills were so high the city ended up giving customers of the municipally owned utility a rebate.
This summer’s extremely hot temperatures resulted in high market prices, which increased CPS Energy’s wholesale revenue above what was planned, Kuchinsky said.
CPS Energy also earned $9 million in net income from property sales and from a Federal Emergency Management Agency reimbursement for pandemic-related expenses, Kuchinsky said.
The utility has also been able to save money this year through lower plant servicing costs and by refinancing some of its bonds, Kuchinsky said.
The utility has continued to whittle down past-due accounts from $207.6 million in October 2022 to $172 million at the end of July, said DeAnna Hardwick, CPS Energy’s chief customer strategy officer. That represents 195,000 delinquent accounts, she added — 187,000 of which are residential customers.
CPS Energy has enrolled 151,000 past-due accounts in installment plans, representing $126 million that it hopes will be paid.
The coming rate increase
CPS Energy’s last rate increase — its first in eight years — was 3.85%, approved by the City Council in January 2022 and enacted two months later. To avoid the full rate increase of 10.6% the utility would have needed, CPS Energy in late 2021 settled on a multi-year plan that relied on two future rate increases of about 5.5% each — one early next year, the other in early 2026.
It’s uncertain whether CPS Energy will ask for a rate increase of precisely that size.
Trustee John Steen said it will be hard to convince the City Council it should look with favor upon a 5.5% base-rate increase when 20% of CPS Energy’s residential customers are past due. He added that CPS Energy told credit-rating agencies to expect a rate increase of that amount this year.
Asked if 5.5% is indeed a hard number, Kuchinsky told reporters Monday it could still change, calling it a “proxy” to help guide the utility’s credit-rating agencies.
“The agencies understand we meant that we are getting back into a routine with the community to come to them for regular rate increases,” he said.
CPS Energy is a financial supporter of the San Antonio Report. For a full list of business members, click here.
