CPS Energy faces a potential $81 million loss if it does not impose a rate increase for customers.
CPS Energy faces a potential $81 million loss if it does not impose a rate increase for customers. Credit: Bonnie Arbittier / San Antonio Report

New estimates show CPS Energy customers could see an increase of up to 10.6% on their monthly bills after the utility’s proposed rate increase takes effect this fall, officials said Monday.

The utility’s top officials broke down the multitude of issues driving CPS Energy’s need for a rate increase during the board’s regularly scheduled board meeting Monday. Beyond a need for technology and security improvements both within CPS Energy and across its service area, the utility also faces a reduction in its aging workforce and an obligation to replace aging infrastructure over the next five to 10 years, officials said.

These issues have only been magnified by the coronavirus pandemic and February’s winter storm, which have hurt the utility’s bottom line, said CPS Energy’s Chief Financial Officer Cory Kuchinsky. And San Antonio’s exponential growth places further strain on CPS Energy as it looks to keep pace with an expanding service area, he said.

Saddled with roughly $110 million in past-due bills and $1 billion in fuel costs from Winter Storm Uri, CPS Energy’s latest estimates show the utility’s monthly rate increase could be between 9.6% and 10.6%, Kuchinsky said.

The average CPS Energy customer would pay approximately $10 to $15 more in their monthly bill, Kuchinsky said. CPS Energy is working to bring those totals and the rate hike down by connecting struggling customers to financial resources, as well as fighting the winter storm costs in court, he added.

“We’ve had a decade … of cost control, but at this point, a rate request is going to be critical to supporting our daily operations,” Kuchinsky said. “Recognize we are continuing to work [that] down best we can.”

A rate increase is the only way the utility will turn a profit next year, he said; without one, CPS Energy can expect an $81.9 million loss next fiscal year, he said. A 9.6% to 10.6% increase would generate about $76 million in profit, according to Kuchinsky’s presentation.

CPS Energy officials first announced the looming need for a rate increase in May. The utility expects board approval by the “end of summer,” CEO Paula Gold-Williams said. The rate hike would then need approval by the City Council to go into effect.

The utility’s last rate increase of 4.25% went into effect in 2014. The utility has tried to avoid a rate increase over the past seven years, but its funding needs have grown dire, Gold-Williams said.

One of the major issues facing the utility is the immediate need for a new enterprise resource planning (ERP) system, a software system that allows the utility to organize its in-house communications, data, and tracking functions.

CPS Energy’s current ERP system was procured in 1998, and the 22-year-old program is set to permanently retire in 2027. Because it takes an estimated five years to switch to a new system, CPS Energy must begin the transition next year to meet the 2027 deadline, said Chief Information Officer Vivian Bouet.

It cost roughly $70 million to purchase an ERP in 1998 and will take more than $100 million for a new system, Bouet said.

Like most utilities, CPS Energy faces the ongoing threat of cyberattacks. Investments in the utility’s physical and digital defense must be made in the coming years as attacks become more frequent and new federal regulations loom, Chief Operating Officer Fred Bonewell said.

CPS Energy is set to lose between 30% and 50% of its 3,000-member workforce in the next five years, with one out of every two employees becoming eligible to retire by 2026, Chief Administrative Officer Lisa Lewis said. Already the utility’s workforce is at a 20-year low, and CPS Energy will need to be willing to spend more to bring in new talent, Lewis said.

“Between the needs for new positions and the retirements, we will need to hire more than 1,000 new team members in the next five years, and this is what we are building into our budget,” Lewis said. “People account for about half of our operations budget annually, and they are the linchpin to our success.”

Aging infrastructure such as poles, wires, and transformers — some of which are close to 50 years old — also need to be replaced. With the costs of materials such as lumber, copper, and steel up 100% amid the pandemic, replacing this infrastructure will be more costly than it would have been just a year ago, said Paul Barham, chief grid optimization and resiliency officer.

Keeping up with the city’s growth will require additional material purchases, Barham said. CPS Energy has seen its customer base grow 17% since 2014 and has had a 136% increase in subdivision applications since 2017. With pressure to move toward cleaner sources of fuel such as solar and wind, CPS Energy must also invest in its future, said Frank Almaraz, chief power, sustainability, and business development officer.

Climate change promises more severe weather in the coming decades, so building resiliency into the local grid will be an investment in the future, Barham said.

“We’ve been very focused on cost efficiency and effectiveness, asking teammates to do more looking for opportunities to save money and to be efficient,” he said. “We cannot fund our reliability resiliency efforts into the future that way.”

Disclosure: CPS Energy is a financial supporter of the San Antonio Report. For a full list of business members, click here.

Lindsey Carnett

Lindsey Carnett is the general assignment reporter for the San Antonio Report.