This story has been updated.
Recent fights over how to spend surplus revenue from CPS Energy have ended in tears, the censure of one council member and others abstaining from budget votes. Next year, some members of the San Antonio City Council would like a different approach.
The city owns CPS Energy and receives 14% of the utility’s revenue, most of which goes into the city’s General Fund, which pays for most municipal functions and city services.
But after two years of unexpectedly high utility revenue — and dramatic council debates about how to spend it — council members are considering automatically reinvesting some of that money into the utility’s resiliency and reliability efforts.
Council would have some oversight as to how CPS Energy uses the money, which would be directed toward infrastructure improvements and maintenance for those goals.
“Whenever we have a quote-unquote windfall, us scrapping at the table is seen, very honestly, by the community as selfish,” Councilwoman Melissa Cabello Havrda (D6) said Wednesday at the council’s Governance Committee meeting. “We cannot continue to claim that we’ve been caught off guard.”
That proposal comes as CPS Energy anticipates raising its rates in 2025 and 2027.
Cabello Havrda filed a Council Consideration Request in September requesting the city explore giving some of the money it receives from CPS Energy back to the utility to help stave off future rate increases. Specifically, she suggested reducing the city’s 14% cut of CPS Energy’s revenue to 11% or 12% percent to avoid rate increases.
CPS Energy officials say the utility would need a more secure pipeline of money to take rate increases off the table, and city officials say they’d have to cut city services to accommodate that kind of revenue loss.
In a presentation to the council’s Governance Committee Wednesday, however, the city’s chief financial officer, Ben Gorzell, suggested a revised proposal for allocating unexpected extra CPS Energy revenue, which fluctuates from year to year.
The city’s current financial policy mandates that City Council be consulted on how to spend CPS Energy money if it’s considered out of the ordinary or one-time in nature — which amounted to roughly $20 million this year.
Just days before the 2024 budget was to be approved, council members directed part of those funds to a controversial reproductive health fund that caused one councilman, Marc Whyte (D10), to abstain from the budget vote. Anti-abortion groups filed a lawsuit Tuesday to stop the fund’s implementation.
“The spectacle of us playing Hungry Hungry Hippos this last time around, with such short notice. … I think that’s bad way of creating policy,” Councilman Manny Pelaez (D8) said Wednesday.
Last year the council was left to debate a windfall of $75 million from the utility, most of which was returned to CPS Energy ratepayers in a rebate based on their July energy bills.
Mayor Ron Nirenberg championed that approach amid many heated debates about other spending priorities and criticism that the rebate plan gave the most money to individuals and businesses that need it least. City officials later pointed to the move to help stop a bill in the state Senate that sought to prohibit cities from transferring revenue from municipally owned utility companies to their General Fund.
“There has been in the past a lot of misunderstanding about how the revenue mix works,” Nirenberg said in an interview Wednesday. “In an ideal world, the more predictability we have with volatile CPS energy revenue, the less confusion there might be at the Legislature.”
Going forward, Gorzell suggested changing the city’s financial policy.
Rather than debating excess revenue every year, he proposed that if one-time revenue exceeds 10% of what the city expected to receive from CPS Energy, anything above that 10% would automatically be redirected back to resiliency projects.
Eighty percent of the redirected money would go back to CPS Energy for one-time projects. The other 20% would go toward the city’s new Resiliency, Energy Efficiency and Sustainability (REES) fund, created in 2022 for the city to fund green initiatives.
That approach would allow the council to contribute to utility’s resiliency and reliability efforts without committing money needed for the General Fund, he said, while also accounting for significant volatility in the nature of the surplus revenue.
Surplus funds were exceptionally high 2022 due to a hot summer and again in 2023 because CPS Energy was able to sell the electricity it produced onto the state’s power grid during periods of high energy demand.
To put it in perspective, Gorzell said Wednesday, in the past 20 years the city has had roughly $137.6 million in surplus CPS Energy revenue that would have qualified for redirection under new proposal. Of that, $61.1 million of that would have been from last two fiscal years.
Cabello Havrda said the revised revenue proposal met her intended goals.
“The ultimate argument for this change is to make CPS more reliable for the people we represent, investing in our own utility and keeping rates affordable,” she said. “I don’t know what could be a more compelling case than that.”
Other Governance Committee members wanted more guarantees about how CPS Energy would use the money.
“For instance, they’re coming to us with some additional requests for software” as part of the next rate increase. … “Would that be considered resilience? Who decides?” said Councilwoman Adriana Rocha Garcia (D4).
City Manager Erik Walsh said discussions with CPS Energy haven’t progressed that far.
“The expectation would be that [CPS Energy] would use [the money] on one-time resiliency and reliability type projects that will undoubtedly have to be reported to the City Council on the use of those dollars and how it impacts the potential of future rates,” Walsh said.
Cabello Havrda, Nirenberg, Pelaez and Councilman John Courage (D9) voted in favor of advancing the proposal to the full council. Rocha Garcia abstained.
Wednesday’s vote moved the recommendation to the full council at its next budget goal-setting session this spring.
Without weighing in on the optics of past revenue windfall fights, Nirenberg said he wanted City Council to have as much discretion over General Fund revenue as possible to be responsive to citizens’ needs. But this plan, he added, could help address some immediate needs, while still allowing a future council the flexibility to revisit it.
“It’s pretty clear that when we have access to revenue related to what’s happening on the energy grid and what’s happening with our own community, we want to address the issue that caused it,” Nirenberg said. “I do feel comfortable with saying that a portion of that is going to go back to CPS Energy with discussions in council about how it’s going to bolster reliability and resiliency.”
CPS Energy is a financial supporter of the San Antonio Report. For a full list of business members, click here.
