City Council voted unanimously Thursday to allow CPS Energy to negotiate a $500 million borrowing agreement with banks.
CPS Energy estimates it has more than $1 billion in costs related to February’s winter storm. In order to maintain its financial health without shocking its customers with high bills, the utility wants the ability to borrow up to $500 million from a consortium of banks. The utility’s board of directors approved the action earlier this month.
CPS President and CEO Paula Gold-Williams told Council members Thursday that while she understood the responsibility of taking on such a large debt, without it, the utility would face future obstacles when looking for outside financial assistance.
“There are entities in Texas that are failing because of this event,” she said. “There are entities that are going bankrupt. There are customers that are being abandoned and given … huge bills and then those companies are going bankrupt.”
Financial institutions expect the City of San Antonio to be prudent and use the “right financial tools” to continue providing power to customers, Gold-Williams said.
“I believe if we do not get this approval today, it will change the opinion of the financial community that lends San Antonio money, that lends CPS Energy money, and will put [us] in doubt, because what is the alternative? The alternative is to use up all our resources to pay all our bills, these exorbitant bills,” she said before the vote. “We will have difficulty fighting the fight and the likelihood that we will have the financial resources to continue operations becomes in jeopardy.”
Thursday’s approval does not mean CPS Energy will immediately go out and take on $500 million in debt, City Manager Erik Walsh said.
“This item provides authorization to access this liquidity if it is ultimately needed by CPS Energy,” he said.
CPS Energy has other credit lines to help pay the high costs associated with the winter storm, said Gary Gold, the utility’s chief financial officer; the $500 million would only be tapped into if necessary. CPS Energy currently has just under $5.8 billion in outstanding debt, Gold said.
Neither Gold nor Gold-Williams specified which banks CPS Energy is looking to seek financing from.
CPS Energy currently estimates the total cost of the winter storm hovers at $1.02 billion, Gold-Williams said, about $670 million of which comes from fuel costs. But she stressed that the utility is still looking for an estimate on what Council members dubbed “legitimate” costs.
“That is ongoing,” she said. “We’re working through that to validate all the costs that we have received.”
Gold-Williams said she believes the true cost that should be borne by CPS Energy is a “fraction” of what fuel prices were during the winter storm. Think about filling a car’s gas tank, she suggested.
“Let’s assume gas is about $3,” she said. “What we ended up with is a gallon of gas instead of costing $3 is probably costing somewhere between $350 to … $400 a gallon. And so then you fill up your tank and then you’re going to pay $6,000 to $7,000 for the tank of gas, and that’s why we think this is so egregious.”
Councilman John Courage (D9) said he supported the motion in order to allow the utility to provide service without interruption.
“It’s going to be a while before we can assess the total that we owe, but I understand the idea of maintaining liquidity so that we can continue to operate,” he said.
Gold-Williams said CPS Energy anticipates having and sharing an estimate of what fuel costs should have been by next week; the utility hired a consultant to look at pricing during other disasters.
City Council also voted Thursday to support a resolution that pledges to protect CPS Energy customers from “unlawful, unconscionable or illegitimate charges” related to the winter storm. City Council also pledged to work with its state legislative delegation on solutions and support CPS Energy in legal action against the Electric Reliability Council of Texas (ERCOT).
CPS Energy is a financial supporter of the San Antonio Report. For a full list of business members, click here.