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
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
Historical Current* Projected**Proposed
* 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
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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
Historical Current* Projected**Proposed
* 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.
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
Historical Current* Projected**Proposed
* 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.
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
Historical Current* Projected**Proposed
* 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.
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
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$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
Historical Current* Projected**Proposed
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
Historical Current* Projected**Proposed
* 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
* **
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NET INCOME FORECAST
* 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.
$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*
* 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.
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