A member and former chair of CPS Energy’s board of trustees criticized the utility’s spending on efforts to reduce its customers’ energy use, sparking a discussion that got to the root of the challenges the utility faces over the coming decades.
At the municipally owned electric and natural gas utility’s April board meeting on Monday, board member Ed Kelley told the board that he began serving in 2011 with “the charge of running this like a business.”
“We’ve got to at some point recognize this is a business and not a social agency,” Kelley said. “If we’re a social agency, I don’t want to be on this board. I’m on enough charitable boards.”
Kelley was commenting on efforts to cut San Antonio’s energy consumption as part of CPS Energy’s Save For Tomorrow Energy Plan, or STEP. First announced in 2009, the $849 million plan is aimed at reducing its customers’ energy demand by 771 megawatts by 2021, an amount roughly akin to what could be supplied by a new coal or natural gas plant.
On Tuesday, the board voted to spend another $34.3 million on top of an original $123.6 million over three years budgeted for energy efficiency and weatherization programs, both major components of STEP.
Saying that “we need to complete this cycle,” Kelley voted with other board members to approve the eight-month extension through Jan. 31, 2020, with two contractors, CLEAResult and Franklin Energy. But he framed the spending as akin to the work of a “social entity.”
“Tell me, what business would spend $850 million to run their customers off?” said Kelley, a retired president and CEO of USAA Real Estate. “Our plants generate revenue that provides cash flow to support the business. So if we keep doing this kind of stuff, we’ll be a great Santa Claus, and people are going to love us, but guess what, we’ll take ourselves out of business. And if you look at our financial numbers, we’re headed in the wrong direction.”
Janie Gonzalez, founder and CEO of WebHead and CPS Energy’s newest board member, called the utility a “social enterprise that generates profit as well as … community and compassion.”
“At the end of the day, really our opportunity to leverage the great capacity that we have is going to be the modernization of our products and services,” Gonzalez said. “We cannot continue to just rely only on our traditional, our successful ways of generating income.”
Rick Luna, CPS Energy’s interim director of technology and product innovation, said the STEP program will likely hit the 771-megawatt goal roughly a year early and under the $849 million budget.
The program accompanied CPS Energy’s decision to build a new coal-fired unit, Spruce 2, at a time when other energy companies were moving away from coal.
CPS Energy’s coal and natural gas plants are the largest stationary sources of air pollution in Bexar County, both for greenhouse gases and for emissions that contribute to asthma and other chronic lung conditions, according to state and federal data.
Asked whether he believes that the Earth’s climate is warming rapidly as a result of human activity, Kelley said in an interview after the meeting that he’s “read a lot of reports on both sides of it.”
“I don’t think there’s any question we’re getting warming,” Kelley said. “But is it because of human activity or normal activity?”
Kelley’s remarks came in the context of declining revenues from CPS Energy selling power onto the grid after the closure of its Deely coal-fired units at the end of December. The utility has also not raised its rates since 2013.
Last year, CPS Energy saw net income of $139 million. This year’s budget projection dropped that to a little more than $2 million in net income, though CPS Energy officials have recently revised that up to $12.5 million because of lower interest costs and better margins from selling power onto the state grid. Its executives are still hoping to find a way to generate an additional $15 million in net income this fiscal year.
After Deely’s closure, they’ll have fewer plants to help them do so. With all its plants running during a hot summer where statewide demand broke previous records, CPS Energy brought in an unusually high $304 million in wholesale revenue in its last fiscal year. CPS Energy President and CEO Paula Gold-Williams has said that the Deely units would have increasingly been down for maintenance and not performed as well in coming years.
During the meeting, Kelley also said that STEP could lead bond rating agencies to view CPS Energy more negatively. He also discussed the role of CPS Energy in the City’s budget, making up a projected $363 million of the City’s current $1.26 billion budget.
In response, Gold-Williams said that STEP and other initiatives have “given us flexibility in the future.”
“The rating agencies are paying attention the complexity of the issues that you have mentioned, but they are also looking at how we are solving the problems of the future,” Gold-Williams said.
San Antonio Mayor Ron Nirenberg, a board member in his official capacity, said that CPS Energy’s business is “not just about the bottom line.”
“If it was, we could be creating dividends,” he said. “While some could see the City payment as a dividend, that’s going to police and fire and paving streets. So there’s a balance that we have to strike, and we have to be guided as a publicly owned company by the priorities of the public citizen.”
The future of programs like STEP are relevant as CPS Energy grapples with conflicting visions for its future.
Last year, its officials announced its Flexible Path that involves generating 50 percent of its energy from renewable sources by 2042, with the remainder coming from natural gas, nuclear, coal, and future technologies they’re hoping will emerge over the coming decades.
But that’s incompatible with a vision put forward in San Antonio’s City-led Climate Action and Adaptation Plan, which calls for CPS Energy to abandon all greenhouse gas-emitting power sources by 2050.
Gold-Williams, Nirenberg, and Gonzalez did not specifically mention the climate or the effect of air pollution on public health in their remarks at the meeting.
Chrissy Mann, a senior campaign representative for environmental group Sierra Club’s Beyond Coal campaign, was listening to Kelley’s statements in the audience at the meeting. Afterward, she said in an email that CPS Energy must consider how its decisions affect its customers’ bills, public health, and the climate.
“To be clear, coal is a long-term loser and STEP was a very smart move,” she continued.
“If CPS Energy is a private company that is here just to make money on the backs of ratepayers, then they should just go ahead and enter the market like Luminant or NRG without the benefits of a service territory monopoly and guaranteed rate recovery on City Council approved rates.”
Kelley said he sees his role as primarily about keeping energy in San Antonio reliable and affordable.
“At the end of the day, we want the light to come on and we don’t want to have to pay exorbitant prices for it,” Kelley said in the interview. “That’s the way I see my job.”