San Antonio could send money back to CPS Energy in windfall years

Utility still expected to propose another rate increase within the year

SAN ANTONIO – A proposal to stave off future CPS Energy rate increases by taking a smaller cut of its revenues has evolved into a smaller-scale plan to send money back to the utility only when its revenues far exceed estimates.

City staff say the idea won’t prevent a rate increase, but it could mean those increases are smaller than they would be otherwise.

Council members voted in early 2022 to raise the base gas and electric rates by 3.85%, and the utility has said it plans additional increases for its 2025 and 2027 fiscal years, which run February through January.

It’s unclear when the utility will propose the FY 2025 rate increase.

“We are still evaluating and aligning on the exact amount of the rate increase with our regulator and owner, the city of San Antonio,” a utility spokeswoman said in an emailed statement Wednesday. “We do anticipate to have rate increases on a more regular basis going forward. Without more frequent and incremental rate increases, our ability to address infrastructure, resiliency, growth, technology and security, as well as retaining and hiring employees while remaining financially healthy will be at risk.”

As the owner of CPS Energy, the City of San Antonio gets 14% of its gross revenues as a payment in lieu of taxes (PILOT) -- one of its single, largest funding sources. In FY 2024 alone, the city expects to collect $421 million from the gas and electric utility.

Shortly before the city council voted on the FY 2024 budget last month, Councilwoman Melissa Cabello Havrda (D6) floated an idea to take only 11% or 12% -- roughly $60 million or $90 million.

In a subsequent council consideration request, she suggested that the utility could improve its resiliency and that a rate increase could be avoided for at least five years.

In a presentation to the council’s Governance Committee on Wednesday, though, city Chief Financial Officer Ben Gorzell indicated the original idea had significant hurdles.

He said the utility would need long-term, recurring support to stave off a rate increase, and Cabello Havrda’s plan might not be enough anyway.

When CPS Energy pitched its previous rate increase, it used “placeholders” of 5.5% for the planned increases in its 2025 and 2027 fiscal years. While stressing those numbers were based on older forecasts, Gorzell said increases of that size would bring CPS Energy another $110 million each.

Sending $90 million back to CPS each year “would not fully offset that one (FY 2025 increase), nor would it begin to address the one in 2027,” he told committee members.

However, losing that much money would blow a hole in the city’s $1.6 billion general fund budget and could require discussions about cutting entire city programs or departments.

Instead, he suggested an alternative plan, which Cabello Havrda supported.

In years when the PILOT payments are 10% or higher than the city originally budgeted -- as has happened the past two budget years -- it will split the extra money above the 10% mark between CPS Energy and itself.

The majority of those windfall funds, 80%, will go toward CPS Energy resiliency and reliability projects, and the other 20% will be put into the city’s Resiliency, Energy Efficiency, & Sustainability (REES) fund.

Though Gorzell confirmed this plan would not guarantee the utility won’t ask for a rate increase in the future, he said it could affect how much the utility requests.

Had the policy been in place the past two years, Gorzell said, the city would have had $61.1 million to distribute -- or about $48.9 million for CPS Energy and $12.2 million for the REES Fund.

“And I mentioned the fact that in some cases -- not all, but in some cases -- it would mean that CPS is also generating additional revenue. So you take those elements, and you roll them into a rate case in the future, it could have some potential impact,” Gorzell told reporters after the meeting.

Cabello Havrda said she felt “fantastic” about the plan and noted that her goals had been “reliability and affordability.”

“At this point, any reduction in a proposed rate increase is still a win. It’s still less money that our ratepayers have to look at,” she told reporters.

“Even if it’s half a percentage point, I think it matters.”

The long-term benefits of shoring up the utility’s resiliency would benefit the community, too, she said.

Though the policy would not be adopted until the fall of 2024 when the city council passes the next budget, City Manager Erik Walsh said city staff would incorporate it within the early budget work session in April.

“Between now and then, I mean, like beginning next week or this week, we need to go talk to the rest of the council members. Obviously, this has been a high profile issue, and I think we ought to I think we ought to do that posthaste,” Walsh said.

About the Authors:

Garrett Brnger is a reporter with KSAT 12.

Before starting at KSAT in August 2011, Ken was a news photographer at KENS. Before that he was a news photographer at KVDA TV in San Antonio. Ken graduated from San Antonio College with an associate's degree in Radio, TV and Film. Ken has won a Sun Coast Emmy and four Lone Star Emmys. Ken has been in the TV industry since 1994.