San Antonio’s chief financial officer has a plan to reinvest CPS Energy profits back into the utility to help stave off future rate increases.
For a variety of reasons, the city-owned energy utility has brought in unusually high profits over the past two years. At the same time, its leaders have continued asking to raise the rates of its customers, who should theoretically be benefiting from the company’s success.
While that dynamic has rankled everyone from conservatives in the state Legislature to the city’s prospective mayoral hopefuls, it has so far proven difficult to solve.
CPS Energy shares 14% of its revenue with the city — the equivalent of a private company sharing its profits with its shareholders — which accounts for roughly a quarter of the city budget.
But unexpectedly high profits in the past two years generated about $135 million beyond what was needed for the city budget. During the 2024 budget much of that year’s surplus was chopped up for pet projects at the 11th hour, even as council members knew rate hikes were coming down the pipeline.
A similar situation involving Austin Energy last year drew warning shots from members of the Texas Legislature, one of whom filed Senate Bill 1110, which would have ended cities’ ability to transfer profits from municipally owned utilities to their budgets if the utility is seeking a rate increase.
Locally, the optics of divvying up CPS Energy’s windfall led Councilman Manny Pelaez (D8) to compare his colleagues to the children’s game Hungry Hungry Hippos and Councilwoman Melissa Cabello Havrda (D6) to propose a drastic cut in the city’s share of the revenue.
In an interview Thursday, Ben Gorzell, the chief financial officer, said using windfall money to stop rate increases is more complicated than it sounds. Specifically, it involves meshing an inconsistent revenue source with a business that needs to plan for the long term.
Still, as council members gathered to set their goals for the coming year’s budget this week, Gorzell arrived with an idea he believes can take the first step in that direction.
On Wednesday he presented a proposal to cap revenue the city collects when CPS Energy makes money selling energy onto Texas’ wholesale market, known as off-system sales. Last year, those sales accounted for $28 million of the city’s $61 million surplus.
When CPS Energy revenue exceeds what the city has budgeted, Gorzell said, it should look at off-system sales separate from the total revenue share. It should collect no more than $10 million above the budgeted amount of off-system sales revenue, and reinvest the rest in capital projects that CPS Energy would otherwise pay for through rate increases.
Under this plan, Gorzell said the city would have socked away $4.9 million so far this year for rate hike mitigation. While that’s hardly enough to stop CPS Energy leaders from coming back to council for their next anticipated hike, it’s something he thinks has big potential to grow in the coming years.
“[Off-system sales] is a new piece that has really kind of evolved over the last six months,” Gorzell said.
“As CPS adds additional capacity, as you look at the tightness in the ERCOT market over the next several years, there’s going to be a lot of opportunity for them to earn additional wholesale or off-system sales revenue,” he added.
A respected messenger
Debates over how to spend excess CPS Energy revenue have been some of the most impassioned discussions council has experienced in the past two years.
In 2022 the city accumulated a windfall due primarily to high bills from an unusually hot summer. Without presenting the idea ahead of time, City Manager Erik Walsh unveiled a budget proposal that fall that included plans to give $50 million of the surplus revenue back to ratepayers as a rebate on a future bill.
The idea was panned by a majority of the council members, who said the money should have been focused on helping the people who need it most. But without agreement on an alternative, Walsh said he had no choice but to include the plan in the final budget.
Gorzell, who played a key role in talking state leaders out of Senate Bill 1110, has long been a trusted voice among members of the council.
Despite their many concerns about ensuring that CPS Energy uses the money properly, Walsh told reporters Thursday that he’d heard enough agreement to include Gorzell’s brainchild in the formal budget proposal this fall.
As they convened for a larger budget-planning discussion Thursday, council struggled to find agreement on how to approach a budget surplus from traditional CPS Energy revenue.
Councilwoman Phyllis Viagran (D3) and Councilman Jalen McKee-Rodriguez (D2) urged the city to invest in its own programs to help constituents lower their energy bills. Meanwhile, others suggested the city has to trust CPS Energy to spend the money appropriately.
But Gorzell said after the meeting that his plan would reduce the likelihood there’s any money to fight over.
That prospect seemed to relieve Pelaez, and others who worry the city needs to keep CPS Energy out of the Legislature’s crosshairs.
Correction: This story has been updated to correctly refer to the city’s surplus totals.
