FINANCIAL PLAN PREVIEW - CPS Energy...Jan 28, 2019 · 5-year detailed planning by business unit Historical & current year performance 25-Year Long Range Plan 1 2 –5 6 –25 Year

FINANCIAL PLAN PREVIEWFISCAL YEAR 2020

INTRODUCTION BY:Paula Gold-Williams

President & CEO

PRESENTED BY:Gary Gold

VP, Accounting

January 28, 2019

Approva l Reques ted

2

AGENDA• EXECUTIVE SUMMARY

• FINANCIAL PLANNING PROCESS

• FY 2020 BUDGET PROPOSAL

• CUSTOMER GROWTH

• SOURCES & USES OF REVENUE

• OPERATING & MAINTENANCE (O&M)

• CAPITAL & FINANCING PLAN

• KEY FINANCIAL METRICS

• NET INCOME TRENDS & DRIVERS

• REQUEST FOR APPROVAL

3

WE ARE A BUSINESS OWNED BY THE COMMUNITY!• We run CPS Energy like a business

while always thinking about our customers who pay bills every month.

• We will continue to be SA’s Energy Experts, keeping safety & security top priorities.

• We will make improvements every year to help ensure success. We understand our fiduciary role.

• We responsibly operate our community owned assets.

3

CITY OF SAN ANTONIOGROWTH (1)

San Antonio continues to be a magnet for economic & population growth.

• San Antonio’s metro growth rate has climbed consistently for the last few years

• The 2017 increase of 24,208 represents an average of 66 people per day

• The San Antonio area is preparing for a 1.1 million population increase by the year 2040

(1) Source – https://www.texastribune.org/2018/05/24/texas-census-san-antonio-tops-national-list-population-houston-growth/dated May 24, 2018 4

https://www.texastribune.org/2018/05/24/texas-census-san-antonio-tops-national-list-population-houston-growth/

5

ACCOMMODATING GROWTH, PROMOTING EFFICIENCY & CUTTING COSTS

This is how we save our customers money & add value.

ACCOMMODATING GROWTH WITHOUT COMPROMISE

6

We’ve managed growth and continue to meet our customers’ needs. Our customers are more engaged & we offer more tools & resources at the best value.

7

CUSTOMER SERVICE IMPROVEMENTS

74

45

77

85

91 92

0

10

20

30

40

50

60

70

80

90

100

-

200,000

400,000

600,000

800,000

1,000,000

1,200,000

1,400,000

% S

ervic

e L

evel

Tota

l C

all

Volu

me

Quarter by Calendar Year

Total Call Volume

Average Service Level (% of calls answered within 30 seconds)

Via our People First focus, we have driven significant improvements for our customers in access, tools,

programs, staffing, quality & service.

Res Customer Sat

CYSVC Level

Customer Sat

2015 61% 75

2016 78% 78

2017 87% 79

2018 91% 82

8

Operational cost savings result in not seeking rate

increases for 5 years, which saves customers money.

SAVING YOU MONEY

FINANCIAL PLANNING PROCESS

Generation Resource = Load (Demand) + Reserve Margin

• Customer Growth (Electric & Gas Sales)• Regulatory Costs (TCOS, ERCOT)• Fuel Cost (gas, coal, nuclear, renewables)• Generation Resource Plan

• Market Power Prices• Wholesale price, revenue & margin• Interest Rates

FORECAST INPUTS

WE DEPLOY AN ANNUAL

UPDATE PROCESS

5-year detailed planning by business unit

Historical & current year performance

25-Year Long Range Plan

1 2 – 5 6 – 25

Year 1 will be presented to Board for approval (outer years are refreshed in subsequent planning cycles, so they are considered preliminary & subject to change)

A robust long range planning process is essential for long-term resource planning & yields budget targets, financial metric performance, & revenue

support requirements.

9

FY 2020 BUDGET PROPOSAL

The order of uses of revenue is determined by Bond

Ordinance in order to:

• (1a/b) Maintain operations to provide reliability to our customers

• (2) Repay debt used to finance new initiatives & infrastructure

improvements

• (4) Transfer funds to the City of San Antonio’s General Fund that

benefit our community

• (3/5) Retain a portion of the revenue to save for future system &

customer growth & new strategic initiatives that increase customer

satisfaction

* Latest Estimate includes 9 Months Actual & 3 Months Estimate. In addition, it includes JT Deely write-off & financing plan to pay down debt.** Excludes AFUDC & gross of customer contributions.

CPS ENERGY’S TOTAL ANNUAL FUNDING REQUIREMENTS = $2,599.0M ◦ 1a = Expanded Mgmt. Responsibility; ◦ 1b Fuel = Ops / ESMO / EPSC Governance (Pass Thrus); ◦

2+3+5 = Capital Program Related.

FY 2020 Uses of Revenue Total $2,599.0M

Numbered by flow of funds

($ in millions)

Budget

($ in millions)FY

2019*

FY

2020

Capital $653.5 $765.4

Non-Fuel O&M $621.6 $673.7

Estimate

$673.7

$927.0

$399.1

$155.9

$343.9

$99.4 1a - Operating Expenses-

Non Fuel O&M

1b - Operating Expenses-

(Fuel, Regulatory Fees)

2 - Debt Requirements

from Revenue

3 - R&R 6% of Revenue

4 - City Payment

5 - R&R Remaining

Deposit

1a

1b2

3

5

4

10

11

The Board of Trustees has oversight of the components of the planned Uses of Revenue through policy & various other approvals.

GOVERNANCE/APPROVAL OF BUDGET COMPONENTS

Budget

Component Approval

Fuel PurchasesGoverned by Procurement Policy, with material fuel

purchases approved by the Board ✓

Debt Issuance Bond Issuances approved by the Board & Council ✓R&R Additions Governed by the bond ordinance ✓City Payment Approved monthly by the Board ✓Non-Fuel O&M Budget approval annually by the Board Today

Capital Budget approval annually by the Board Today

Governance

Electric Sales Growth – Strong local population growth that drives customer growth, partially offset by our continued success in achieving STEP goals & energy efficiency improvements, results in moderate sales volume growth.

* Latest Estimate includes 9 Months Actual & 3 Months Estimate. In addition, it includes JT Deely write-off & financing planto pay down debt.** To be refreshed in subsequent planning cycles.

ANNUAL ELECTRIC CUSTOMER GROWTH RATES

Historical Current* Projected**Proposed

2.3%2.0%

2.4%2.1% 2.1%

13.4 13.4

13.3

13.112.9

12.5

12.6

12.7

12.8

12.9

13.0

13.1

13.2

13.3

13.4

13.5

0.0%

1.0%

2.0%

3.0%

4.0%

5.0%

2017 2018 2019 2020 2021

Total Electric Customer Growth Avg Annual Residential Usage (MWh/Cust)

FY

12

**

MW

h/C

usto

mer

% G

row

th

1.2%1.0%

1.4%

0.7%

1.1%

26.5

28.1

31.4

29.429.0

24.0

25.0

26.0

27.0

28.0

29.0

30.0

31.0

32.0

0.0%

1.0%

2.0%

3.0%

4.0%

5.0%

2017 2018 2019 2020 2021

Total Gas Customer Growth Avg Annual Residential Gas Usage

Distribution Gas Sales Growth – Customer growth provides for additional sales; however, weather also significantly impacts gas sales year-to-year.

ANNUAL GAS CUSTOMER GROWTH RATES

FY

13


* Latest Estimate includes 9 Months Actual & 3 Months Estimate. In addition, it includes JT Deely write-off & financing planto pay down debt.

** To be refreshed in subsequent planning cycles.

% G

row

th

MCF/C

usto

mer

14

Operating Expenses

$1,600.7M (62%)

Projected FY 2020 Revenues = $2,599.0M

PROJECTED FY 2020 REVENUE REQUIREMENTS

R&R Remain. Deposit $99.4M (4%)

Retail Electric Revenue

$2,247.5M (86%)

Distribution Gas Revenue $171.9M

(7%)

Wholesale Electric Revenue $144.6M

(6%)

Non-Operating Revenue

$35.0M (1%)

Operating Expenses - Non

Fuel O&M $673.7M (26%)

Operating Expenses - (Fuel,

Reg. Fees) $927.0M (36%)

Debt Requirements from Revenue

$399.1M (15%)

City Payment $343.9M (13%)

R&R Remaining

Deposit $99.4M (4%)

Per Flow of Funds, Uses of Revenue

must equal Sources of Revenue.

$2,494.1 $2,624.4

$2,786.8 $2,599.0 $2,661.1

$0

$500

$1,000

$1,500

$2,000

$2,500

$3,000

2017 2018 2019 2020 2021

Retail Electric Revenue Distribution Gas Revenue Wholesale Electric Revenue Non-Operating Revenue

$ in m

illions

SOURCES OF REVENUE

15




FY

Fiscal Year 2017 2018 2019 2020 2021

Retail Electric Revenue $2,138.8 $2,221.6 $2,281.4 $2,247.5 $2,310.3

Distribution Gas Revenue 168.5 179.8 169.9 171.9 186.1

Wholesale Electric Revenue 166.9 198.9 304.7 144.6 133.2

Non-Operating Revenue 19.9 24.1 30.8 35.0 31.5

Total Sources Revenues $2,494.1 $2,624.4 $2,786.8 $2,599.0 $2,661.1

* **

$2,494.1 $2,624.4

$2,786.8 $2,599.0 $2,661.1

$0

$500

$1,000

$1,500

$2,000

$2,500

$3,000

2017 2018 2019 2020 2021

Operating Expenses Debt Requirements from Revenue R&R 6% of Revenue City Payment R&R Remaining Deposit

$ in m

illions

USES OF REVENUE

16




FY

Fiscal Year 2017 2018 2019 2020 2021

Operating Expenses $1,490.9 $1,587.9 $1,637.9 $1,600.7 $1,649.9

Debt Requirements from Revenue 395.1 397.7 416.3 399.1 436.1

R&R 6% of Revenue 149.6 157.5 167.2 155.9 159.7

City Payment 324.5 338.5 359.3 343.9 353.3

R&R Remaining Deposit 134.0 142.8 206.1 99.4 62.1

Total Revenues = Costs $2,494.1 $2,624.4 $2,786.8 $2,599.0 $2,661.1

* **

$1,490.9$1,587.9

$1,637.9 $1,600.7$1,649.9

$0

$200

$400

$600

$800

$1,000

$1,200

$1,400

$1,600

$1,800

2017 2018 2019 2020 2021

Non Fuel O&M Electric Fuel Expense Distribution Gas Regulatory/Other

$ in m

illions

Management remains keenly focused on operating cost reductions & efficiencies as our system continues to grow.

OPERATING & MAINTENANCE EXPENSES

17




FY

Fiscal Year 2017 2018 2019 2020 2021

Non Fuel O&M $601.8 $581.0 $621.6 $673.7 $682.9

Electric Fuel Expense 741.3 837.6 858.7 775.0 789.8

Distribution Gas 72.8 83.0 66.8 70.3 82.1

Regulatory/Other 75.0 86.3 90.8 81.7 95.1

Total $1,490.9 $1,587.9 $1,637.9 $1,600.7 $1,649.9

* **

* Latest Estimate includes 9 Months Actual & 3 Months Estimate. ** To be refreshed in subsequent planning cycles.*** Increase from prior year primarily driven by the acquisition of Joint Base San Antonio infrastructure.

CAPITAL PLAN

18

$661.7

$558.4

$653.5

$765.4

$644.1

$0

$200

$400

$600

$800

2017 2018 2019 2020 2021

Customer Engagement, Security & Safety, JBSA, Other Legal & Administrative, Real Estate & HQ ProjectEnterprise Information Technology Operations


FY

Fiscal Year 2017 2018 2019 2020 2021

Operations $537.3 $469.5 $489.5 $487.2 $519.9

Distribution & Transmission 307.0 264.1 317.2 309.0 311.4

Power Generation & STP 113.0 101.1 91.8 107.4 126.7

Gas, CDP & ESMO 117.3 104.3 80.5 70.8 81.8

Enterprise Information Technology 48.5 35.3 33.7 53.2 48.0

Legal & Administrative, Real Estate & HQ Project 45.7 20.7 68.2 90.0 27.4

Customer Engagement, Security & Safety, JBSA, Other 30.2 32.9 62.1 135.0 48.8

CPS Energy Total $661.7 $558.4 $653.5 $765.4 $644.1

*

***

$ in m

illions

***

48.7% 61.4% 52.1% 42.2% 47.5%

51.3%38.6%

47.9%57.8%

52.5%

$0

$100

$200

$300

$400

$500

$600

$700

$800

2017 2018 2019 2020 2021

Funded with Debt Funded with Cash

FY

Balanced Debt & Cash Funding for the capital program is essential for achieving the goal of reducing the Debt to Capitalization.

$ in m

illions

CAPITAL FINANCING PLAN

19


* Latest Estimate includes 9 Months Actual & 3 Months Estimate. In addition, it includes JT Deely write-off & financing plan to pay down debt.** To be refreshed in subsequent planning cycles.

Fiscal Year 2017 2018 2019 2020 2021

Funded with Debt $328.1 $350.4 $340.3 $322.7 $306.1

Funded with Cash $333.6 $208.0 $313.2 $442.7 $338.0

Gross Construction Total $661.7 $558.4 $653.5 $765.4 $644.1

* **

20

NET INCOME FORECAST


$39

$89

$139

$2

$17

($39)($50)

$0

$50

$100

$150

2017 2018 2019 2020 2020 2021

Opportunities will be evaluated throughout next year to ensure improved performance:- Additional wholesale revenues- Cost reductions- Deferred spend- Financing Plan optimization

**

Target Mitigations = $15M

Unmitigated MitigatedFY

$ in m

illions

Historical Current* Projected

CPS Energy has driven operational efficiencies & managed risk to meet financial metric expectations. FY 2020 will be challenging, but we are confident sound strategies can yield

improved performance. Looking ahead, FY 2021 currently showing a net loss.

We are also focusing on

FY 2021.

$138.5

$17.1

+$24.6 +$2.1

-$74.7

-$52.1

-$16.0 -$18.2

-$50.0

-$25.0

$0.0

$25.0

$50.0

$75.0

$100.0

$125.0

$150.0

$175.0

FY 2019

Net Income

Wholesale Non Fuel

O&M

Interest

Expense

Retail Depreciation

& Other

FY 2020

Unmitigated

Net Income

FY 2020

Mitigated

Net Income

21

Management will monitor the operational & financial environment & implement mitigations to improve net income.

Outstanding FY 2019

wholesale performance

FY 2020 NET INCOME DRIVERS

Financial Markets down in CY 2018; impacts Pension & OPEB in FY 2020

Increase in interest rates plus new debt

Normal weather

assumed in FY 2020

Impact of Deely Write-Off

Target Mitigations

= $15M

$ in m

illions

* Latest Estimate includes 9 Months Actual & 3 Months Estimate. In addition, it includes JT Deely write-off & financing plan to pay down debt.

*

Current*


KEY FINANCIAL METRICS

Cash generated in FY 2019 from strong wholesale performance will be used to support financial metrics. Additional mitigations will be developed &

implemented during FY 2020.

22

Historical Proposed Projected**

Fiscal Year 2017 2018 20192020

Unmitigated

2020

Mitigated2021

Adjusted Debt Service

Coverage

(> = 1.5 target)

1.72 1.76 1.90 1.64 1.68 1.51

Days Cash on Hand

(> = 150 Days target)195 211 188 193 198 166

Debt / Capitalization

(< = 60% target)62.2% 61.8% 62.4% 63.0% 62.9% 63.6%

23

REQUEST FOR APPROVAL

The FY 2020 year proposed budget will support our People First focus that will benefit our community & meet our commitments, including:

• Top tier safety, reliability, & environmental performance• Investment in customer facing functions & security• Meeting customer growth while continuing Infrastructure Modernization Projects

Maintaining & strengthening key financial metrics will remain an important focus for management during FY 2020.

Requesting Board Approval of Capital & Non-Fuel O&M Budget for FY 2020.

($ in millions)FY

2019*

FY

2020

Capital $653.5 $765.4

Non-Fuel O&M $621.6 $673.7

Total Uses of Revenue $2,786.8 $2,599.0* Latest Estimate includes 9 Months Actual & 3 Months Estimate. In addition, it includes JT Deely write-off & financing plan to pay down debt.

Thank You

Documents

FINANCIAL PLAN PREVIEW - CPS Energy...Jan 28, 2019 · 5-year detailed planning by business unit Historical & current year performance 25-Year Long Range Plan 1 2 –5 6 –25 Year