A shift in how CPS Energy will gauge its performance drew sharp criticism from Trustee John Steen during a special board meeting Monday as he expressed concern about the utility’s financial health.
CPS Energy staff presented the financial and other metrics it will try to reach during its current fiscal year at the special board meeting on the utility’s strategic plan. The utility’s 2024 fiscal year started Feb. 1 of this year.
While the utility met 10 of its 16 targeted metrics in fiscal year 2023, its failure to meet the remaining six, including several financial targets, drew criticism from Steen in April. For months, he has voiced concerns about the utility’s credit rating as it continues to face a shortage of cash.
Steen disagreed with some targets being changed without board approval, although the changes don’t require trustees’ OK. He argued the municipally owned utility should continue to strive to beat industry standards, rather than lowering the bar.
“Because long-established goals aren’t being reached, the goalposts are simply being moved closer — and this is how our company begins to slide into mediocrity,” Steen said.
The utility has been in a cash crunch since 2020 primarily due to customers who have fallen behind on paying their bills, first as a result of the pandemic and currently by persistent inflation. If those debts are viewed unfavorably by the credit rating agencies, rating downgrades would increase the utility’s borrowing costs, which would ultimately be borne by customers.
Last year, just two weeks after securing its first rate increase in eight years, CPS Energy had its credit rating downgraded by Moody’s Investors Service, although it also changed CPS Energy’s outlook from negative to stable.
Earlier this year, the utility’s chairwoman Janie Gonzalez told the San Antonio Report she felt that some of the metrics CPS Energy has used historically were no longer in line with the utility’s strategic objectives.
Following staff presentations Monday, Steen drew attention to two target revisions regarding the utility’s financials: how many days of cash on hand CPS Energy should have at the end of the fiscal year and what percentage it should stay below for debt capitalization.
Days cash on hand is how many days a company can continue to pay its operating expenses without any new revenue. Debt capitalization measures a company’s total amount of outstanding debt as a percentage of its total capitalization.
Last fiscal year, CPS Energy tried to make sure it had at least 170 days of cash on hand, and stayed below 61.7% for its debt capitalization. It ended the year with 166 days of cash on hand and a debt capitalization of 61.8%. According to Monday’s presentation, the utility is setting its new goal for days cash on hand to 150, and its new debt capitalization goal at below 65%.
“I’m generally disappointed at where the fiscal year 2024 targets have been set,” Steen said. “At a previous meeting, I noted that last fiscal year management failed to meet six of our 10 Tier 1 metric targets. … I’d hoped management would take this as a challenge to try even harder and perform better in fiscal year 2024 — but unfortunately, the initial result was to lower the expectations.”
CPS Energy staff and Gonzalez disagreed with Steen’s concerns and said the shift in metrics is to bring CPS Energy more in line with industry standards. Gonzalez’s position was backed by CPS Energy staff, who reiterated that changing the metrics doesn’t indicate the utility is less financially sound.
During the presentation, CPS Energy President and CEO Rudy Garza said the utility is looking for ways to expand its revenue sources.
“We’re going to have to figure out how to diversify our revenue base so it’s not all coming from our customers,” Garza said.
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