San Antonio Express-News (Sunday)
Lower payment from CPS Energy to city touted
Every year, CPS Energy gives 13 percent of its revenue to the city of San Antonio — which is part of the price of being a cityowned utility.
This year, CPS’ contribution of $361 million makes up 27 percent of the city’s $1.36 billion general fund.
But with CPS preparing to raise rates, City Council can lower the amount the utility has to pay the city to ease the impact of increasing energy bills on San Antonio households — if the council wants to.
Thousands of CPS ratepayers are struggling to catch up on their electricity bills after the utility resumed disconnections for nonpayment in October. And the utility has said for months it needs to raise customer rates to upgrade its systems and fund growth across the city.
On top of that, CPS ratepayers will likely be charged as much as $2 extra in their monthly bills for the next 25 years after CPS paid $418 million for pricey power and natural gas it bought during the winter freeze in February.
“One of the ideas floated is, ‘Well, we should look at the 13 percent of (CPS’) revenue that the city is getting,’ ” said Derek Roberts, chief of staff for District 9 Councilman John Courage, “and maybe look at reducing that to chip away at that (winter storm) liability.”
Cutting the city’s take from CPS’ revenues by 1 percent would save the utility more than $34 million this year — which would perhaps mean a smaller rate increase next year.
Kicking in
The payment to the city is a kind of return on investment to the owner — San Antonio taxpayers — after the city bought CPS in 1942. Since 2016, it has paid the city on average $343 million annually.
The utility is obligated to pay up to 14 percent of its revenue to the city, but CPS has paid the city 13 percent of its revenue over the past five years.
Those CPS payments are one of three main revenue sources — along with sales and property taxes — that allow the city to pay firefighters, fix streets and provide other basic municipal services.
“I consider it in lieu of a tax,” District 1 Councilman Mario Bravo said. “Collecting that there (at about 13 percent) keeps our property taxes lower and allows us to deliver more services to the community.”
CPS hasn’t always paid 14 percent, or even 13 percent, of its revenue into the city’s coffers.
In the 1970s, after natural gas markets were deregulated nationally, gas prices exploded and City Council opted to lower its take from CPS’ revenue to 11.5 percent. However, in the 1980s, when oil prices crashed and wrecked the city’s finances, council pushed its take from CPS back up to 14 percent to shore up the city’s budget.
“There’s very clear historic precedent for the city not taking the full 14 percent,” said Heywood Sanders, a professor of public administration at the University of Texas at San Antonio, who broached the idea of lowering CPS’ payment to the city in a recent San Antonio Current column.
“And that precedent would seem to me to be particularly relevant now — in a situation where CPS faces this huge increase in energy costs,” he said.
City staff have offered some help.
CPS recently paid the $418 million in fuel costs from the winter storm, and in January will seek approval from its board of trustees and City Council to package the debt into a so-called regulatory asset. Ratepayers will then pay an extra dollar or two every month to pay off that debt.
But as residents pay that charge every month, it will ap
pear on paper as CPS Energy collecting higher revenue, even though that revenue will go out the door to cover the stormrelated debt.
And since the city collects a percentage of CPS revenues, the city in theory would reap a windfall if CPS Energy’s revenues rise because of the debt payments.
So the city has said it will not collect a payment from the revenue used to pay off the debt, a decision CPS has said will save the utility nearly $100 million over the 25-year payoff period.
“They don’t have to do that,” said Cory Kuchinsky, CPS Energy’s chief financial officer. “This is another way of helping our customers out.”
But that move stops short of cutting the city’s take from CPS’
revenue.
Roberts, Courage’s chief of staff, said he didn’t think a majority of council would go reducing the city payment from CPS.
Bravo said he’s worried such a move would mean the city either has to significantly cut spending on services or boost property taxes.
Sanders, however, argues the city’s finances are in a strong enough position to support cutting the amount it takes from CPS’ revenue.
City staff predicted that sales tax revenue would plummet following the pandemic-induced economic crash last year, but consumer and business spending in the city has bounced back stronger than expected.
As recently as May, city staff
had projected the city would bring in $319 million in sales tax revenue in 2022. But in the budget adopted in September, city staff expected $337 million to be generated through the sales tax next year.
And property tax revenue has grown in recent years as real estate development has boomed citywide and property valuations have risen. Property tax revenues have increased by 29 percent over the past five years, but the city’s total budget has grown just 19 percent.
“So the city is in a much better revenue situation than it was previously, and the extra money from the (federal government) provides an extra cushion as well,” Sanders said, referring to federal stimulus funding.
Bravo said CPS should look to cut more of its costs before City Council considers lowering what it collects from the utility. And he wasn’t sure that reducing ratepayers’ energy bills by cutting the city payment would help lower-income households more than additional spending on services would.
But with a rate hike all but certain, Sanders said the city is in a prime position now to offset at least a portion of any bill increases passed down to households by CPS.
“The city is in a position to have a serious conversation about the CPS portion of the revenue stream,” Sanders said.