As San Antonio readies for another winter season, CPS Energy officials assured the utility’s board members Monday that the company has made “steady progress” in its winterization efforts.
The utility, which is still dealing with the impacts of February’s Winter Storm Uri, has been preparing for the upcoming winter by making plant improvements, improving load shedding capacity, collaborating with the San Antonio Water System, updating its emergency preparedness plans, and establishing better communications, Chief Grid Optimization and Resiliency Officer Paul Barham told trustees Monday.
During her CEO’s report, outgoing President and CEO Paula Gold-Williams revealed that one of CPS Energy’s credit rating agencies, S&P Global, affirmed the utility’s A-plus rating this week, but gave the utility a negative outlook, in part based on statewide uncertainty stemming from the winter storm.
But the credit rating agency also noted the utility’s governance risk is “more pronounced” because of recent executive turnover, including Gold-Williams’ plan to resign, and warned that the San Antonio City Council’s support of a rate increase to shore up CPS Energy’s finances would be “an important credit factor.”
CPS Energy’s Chief Financial Officer Cory Kuchinsky told reporters the utility asks the city council to keep its credit rating in mind when making decisions around rate increases.
The electric utility also received a negative outlook last year, in part due to a petition drive by environmental and social justice groups looking to close the utility’s two remaining coal-fired units by 2030.
Barham’s presentation to CPS Energy’s trustees on the winterization efforts was broad, touching briefly on CPS Energy’s infrastructure, operations, communications, and policy efforts, but with few specifics. Trustees, too, kept their questions high level, asking if CPS Energy would fare better should another winter storm like Uri hit this winter.
“If you make the assumption that we have another Uri … and we did our job like you’re talking about here, but the rest of the state didn’t … could we handle that?” outgoing Trustee Ed Kelley asked.
CPS Energy is definitely in better shape should a similar event occur, Barham told Kelley, but said part of that answer also depends on the preparation of utilities across the state.
“If every utility isn’t pulling their weight in that event, then either the [Texas] grid doesn’t make it, or the other utilities are ultimately picking up that slack,” Barham said.
In the wake of February’s freeze, the municipally owned utility received recommendations from the city’s Committee on Emergency Preparedness, which was formed to address communications failures and other issues.
Of the 37 recommendations made by the committee, none have been completed. Barham told trustees that 24 are in progress and the rest have begun. CPS Energy’s senior director of corporate communications later said several will be done by this winter.
“I think we are doing a lot of things in the right way to make sure that we are much more prepared for the winter 2022,” Gold-Williams said, “but we do understand the concerns that customers have.”
Those include a desire for better communications from CPS Energy, that the blackouts did not feel fair or equitable across the city, that SAWS and CPS Energy were not coordinating well with each other, and that customers will get charged for unfair price gouging, Barham’s presentation noted.
The utility continues to fight $550 million of the $1 billion it was charged in fuel costs during the freeze; the other $450 million has been deemed “legitimate” and will be loaded onto customers over the next 25 years, starting next year.
The winter storm is not the primary driver behind the rate increase CPS Energy desperately needs, according to a presentation Gold-Williams ultimately pulled from the board agenda Monday.
During her CEO report, Gold-Williams said the utility has already reduced tightened the projected 10.6% rate increase down to 8%. She said she pulled the rate presentation because leadership continues to whittle that number down.
CPS Energy’s Chief Financial Officer Cory Kuchinsky told reporters they/he hopes to have a more concrete, lower estimate for the board next month. The 10.6% figure has always been an estimate, he reminded, while forecasted income projections are getting more concrete.
“We wanted to prepare the community so we started the conversation early,” Kuchinsky said. “As time passes, things get sharper.”
The search for a new president and CEO to replace Gold-Williams will not affect the potential rate increase or next year’s projected budget, Kuchinsky said.
However, S&P Global’s outlook for CPS Energy notes the utility remains exposed to credit risk “because of recent turnover at senior leadership positions while the utility is simultaneously seeking a rate increase.”
“We understand the utility’s CEO recently announced plans to resign in early 2022, following the COO’s resignation earlier this month, and the chief legal officer was replaced in June,” S&P Global Ratings credit analyst Scott Sagen stated in his report. “While CPS Energy indicated the CEO’s recent announcement should not delay its rate increase process, the recent turnover reflects the need for stability among senior leadership positions as the utility navigates its operational, financial, and legal challenges.”
The utility will brief the city’s Municipal Utilities Committee Tuesday on the status of the recommendations from the emergency preparedness committee, and its ongoing disconnection plans.
CPS Energy is a financial supporter of the San Antonio Report. For a full list of business members, click here.
Correction: The spelling of a CPS Energy executive’s name has been updated.