SAN ANTONIO – San Antonio City Council members appear to be on board with a plan to return money to CPS Energy when the utility’s payments to the city far exceed expectations.
Though city staff say this could help shrink the size of future CPS rate hikes, it’s not clear by how much.
Over the course of Wednesday and Thursday, council members were briefed on a pair of possible policies for handling CPS Energy payments. Following a Thursday budget goal-setting session, top city staff said they had heard enough support from council members to move ahead with both policies.
THE CITY’S CUT
As the owner of CPS Energy, the City of San Antonio gets 14% of most of its revenues as a payment in lieu of taxes (PILOT) — one of the city’s single, largest funding sources. In FY 2024 alone, the city originally projected it would collect $421 million from the gas and electric utility.
However, energy sales to other power companies on the open market, hot temperatures, and high fuel prices can all cause CPS Energy revenues to spike. That, in turn, boosts what the utility pays the city.
For two straight years, unexpected windfalls from CPS Energy revenue left city leaders scrambling to figure out how to spend the money.
In 2022, the council sent $50 million back to CPS Energy customers — mostly in the form of bill credits. In 2023, an unexpected $21.6 million from CPS Energy near the end of the budget process allowed council members to cram a variety of pet projects into the final version of the budget.
City CFO Ben Gorzell said having a policy in place to deal with the windfalls would help smooth things out.
“We’re trying to turn the peaks and valleys here into the slight bumps and dips in the road,” he told council members Thursday.
SMOOTHING IT OUT
The city already has a policy for dealing with extra CPS Energy revenue. Anything up to 10% higher than the city’s projections gets rolled into the normal budget process. Anything above 10% gets a council discussion before it’s spent.
However, with CPS Energy in the middle of a series of expected rate increases, council members in October discussed ways to kick money back to the utility in hopes of mitigating the need for any increases.
City staff discouraged an idea by Councilwoman Melissa Cabello Havrda (D6) to drastically cut how much the city receives from CPS Energy. Instead, in an alternative plan supported by Havrda, they suggested slightly modifying the city’s financial policies.
Staff suggested keeping the 10% variance as a trigger. But instead of having council determine how to spend the extra money each time, it would be automatically split between CPS Energy and the city.
The majority of those windfall funds, 80%, would go toward CPS Energy resiliency and reliability projects, and the other 20% will be put into the city’s Resiliency, Energy Efficiency, & Sustainability (REES) fund.
At the time, there wasn’t a clear consensus from council members whether to follow through with it, so staff punted the discussion until this spring.
In the meantime, the council passed the second CPS Energy rate hike in as many years. Though the increase was lower than originally expected, council members came just one vote shy of going even further, voting 5-6 to cut the 4.25% increase down to 2.125%.
TWO-PRONGED APPROACH
Now, city staff have returned with a tweaked, two-pronged approach.
First, any PILOT payments above $10 million that come from selling extra power to other utilities on the grid, known as “off system sales,” will be set aside.
That money could be used to cover any shortfall if the rest of the PILOT payments come in lower than expected. Otherwise, it would be kicked back to CPS Energy to use on capital projects like the ones helping drive the need for a rate increase.
The second prong is the same idea that staff floated in October — an 80/20 split of extra revenue above 10% — but excluding the “off system sales” from the calculations.
Gorzell told reporters there are a “large number” of “resiliency and reliability” projects driving the utility’s need for further rate increases. So sending CPS Energy money for that purpose would also presumably help cut into its need for an increase.
Asked how much the two policies could actually contribute to shrinking future rate increases, Gorzell said it would depend on how much gets sent back. He said there was “a lot of opportunity” with the cap on off-system sales.
“I mean, if that bucket’s filling up on our side, that means that the other side of that is happening on the CPS side, too,” he told reporters.
COUNCIL REACTIONS
Several council members on Thursday were skeptical of the second approach dealing with windfalls above 10%.
However, City Manager Erik Walsh believed after the conversation, “we got consensus with some tweaks.”
Some council members asked the city to adjust the proposed 80/20 split to be more in favor of the REES fund, or to perhaps even add other recipients into the mix, such as Metro Health. They also wanted assurances on how CPS Energy would use its share of the money.
Councilman Jalen McKee-Rodriguez (D2) also dismissed the idea that sending back a portion of the windfall payments would do much to affect future rate increases.
“I’m less interested at this point in mitigating that because we can give them all the money and they’re still going to say, ‘We need more,” McKee-Rodriguez said.
Councilman Manny Pelaez (D8), who is running for mayor in 2025, supported the idea, partially framing it as a way to defend against state government attempts to wrest control away from the city.
“Without mincing words, there’s bad people (in Austin) who are intent on snatching away a utility from us and giving that utility to companies out of New York — companies that have no intent of reinvesting in our community.”
A bill filed in the Texas Legislature last session would have prohibited city-owned utilities, like CPS Energy, from transferring money to the city’s general fund if it would result in a rate increase. The legislation was filed by a state senator whose district borders Austin and appeared to be targeted at Austin Energy.
The bill ultimately never left committee.
Mayor Ron Nirenberg, who is also a member of the CPS Energy Board of Trustees, called the plan a measured approach but also reassured council members that they could scrap it if needed.
“In the event that we set a policy today and we’ve reached the 10% threshold, and you don’t like what that means for the budget going forward, we can always create a variance, essentially, in the policy,” Nirenberg said. “But I do think it’s a good message to send about our intents of these additional funds, as was discussed about the concern in Austin.”
Halfway through the year, the city will already be kicking at least $5 million back to CPS Energy since it had already hit the new, $10 million on off system sales in January.
Though the city has already collected $18.5 million more from CPS Energy than it expected this year, Gorzell said the city does not believe it will hit the 10% mark.