Financial woes for CPS worsening
Customers’ unpaid bills continue rising, nearing $210M
CPS Energy’s cash crunch is worsening as customers’ pastdue bills near $210 million — a total that’s continuing to increase months after executives said the issue would be resolved by the end of the year.
About 215,000 ratepayers — nearly a quarter of all CPS customer accounts — are at least 30 days behind on their bills and collectively owed $207 million in October, the city-owned utility reported this week.
The increases come after a summer of record-high temperatures led to record utility bills — a period during which the utility largely suspended disconnections of customers with past-due accounts. Those are among the reasons the situation is more persistent than CPS officials expected and raising concerns among credit rating agencies and the utility’s trustees.
In board meetings this year, trustee John Steen has had several testy exchanges with CPS executives over why the past-due balance has continued increasing after trustees were told early this year the problem would be resolved quickly.
“A few meetings ago, my remarks were decried by someone sitting at the dais as ‘harping,’ ” he said Tuesday, referring to CEO Rudy Garza’s response to questions he raised about the lingering issue during a September board meeting.
“Everything else CPS does depends on being on firm financial footing. We the trustees must protect the organization’s financial status,” said Steen, a lawyer and former Texas secretary of state. “So, with all due respect, I intend to keep harping on these matters.”
CPS executives didn’t respond to Steen’s comments during a
board meeting this week.
Roots in the pandemic
The issue is not a new one. Late bill balances began mounting early in the pandemic when CPS suspended its usual practice of shutting off power to customers who fell behind on their bills.
For months, utility officials have said resuming disconnections this year would spur customers to pay up or enter a payment plan. But CPS couldn’t cut off power to past-due customers for much of the sizzling summer because it doesn’t disconnect during heat advisories. When temperatures fell, however, it suspended service to 12,000 customers. Even so, the past-due balance has increased by nearly $50 million since June.
The late bills have continued to stack up despite CPS directing $20 million it was granted by the American Rescue Plan Act to pay off some delinquent accounts this fall.
The average past-due customer owes CPS about $900, three times higher than the average delinquent balance in 2019, before the pandemic. Of the 215,000 delinquent accounts, CPS considers about 45,000 inactive — people who have moved away or businesses that have closed. The utility will write off the debt those accounts have.
CPS now is facing tough choices to get customers to pay up. Though it held off on disconnections during December in 2019, CPS said it will continue disconnecting overdue accounts this month, except just before and after major holidays.
“We’re increasing our collection as well as disconnection activities,” said Deanna Hardwick, vice president of customer strategy. “If a customer is out of power, we will make sure we can connect them with a payment plan, help them make a payment to get turned back on.”
Customers have faced recordhigh utility bills this year amid elevated natural gas prices and searing temperatures that drove households to crank their air conditioning more often.
Other financial hits
The unpaid bills come on top of other financial hits for CPS. It has paid $372 million more for fuel this year — primarily natural gas — than it expected because of higher prices. During the warm months from April through September, the average San Antonio household paid 32 percent more for electric and gas service than a year earlier, according to CPS data.
The costly bills have helped put more CPS ratepayers in arrears. At the start of the year, CPS budgeted $10 million for unpaid debt but now expects bad debt to hit $70 million because of delinquent accounts.
As a result of higher costs and unpaid bills, the utility’s cash reserves are dwindling. CPS is spending $6.2 million each day for operating expenses, but it budgeted to spend less than $5 million daily, Chief Financial Officer Cory Kuchinsky said.
At the end of October, CPS had 138 days worth of cash on hand. That’s less than the 150 days worth that credit rating agencies want it to hold. Kuchinsky, however, has said the utility’s cash reserves will be adequate by the end of the year.
The rating agencies gauge CPS’ financial health as a signal to investors of how likely it is to pay back its bonds. Bondholders fund about 60 percent of the utility’s capital spending each year, so a credit downgrade would likely force CPS to spend millions more in interest payments each year.
Two of the three major rating agencies recently raised some concerns about CPS’ growing delinquent accounts.
CPS began charging higher rates in March, but the utility’s officials have said they plan to put in place even larger rate hikes in 2024 and 2026 to maintain CPS’ finances. In recent years, CPS typically spent just more than $390 million on annual debt payments, but the utility expects to spend $435 million on debt this year and more than $470 million next year, in part to pay off bills for natural gas it bought at exorbitant prices during Winter Storm Uri last year.
In a November note, S&P Global Ratings maintained a negative outlook for CPS in part because of “the utility’s rising delinquent account balances trend.” With ratepayers already having a hard time paying their bills, it could be difficult for CPS to enact the future rate increases it says are necessary, S&P analysts warned.
“Rate affordability pressures could worsen, as evidenced by increased delinquent account balances that could frustrate (CPS’) projected rate increase plans,” the analysts wrote.
On top of that, several CPS power plants broke down during the summer heat, so CPS wasn’t able to generate much excess power to sell onto the grid, and the utility collected $30 million less in revenue than it expected as a result.
That is “cash not coming in the door that was expected,” Kuchinsky said.
CPS still has healthy finances overall, and it expects to post a $51 million profit this year — but that’s a decline from the $77 million profit CPS expected to generate this year. CPS uses whatever money it has left over after paying the city to fund power plant investments and other capital spending.
Moody’s, another rating agency, said last month that “days cash on hand below management’s target of 150 days” could lead to a credit downgrade.
“Put it all together, and I see storm clouds on the horizon,” Steen said. “Customers are financially stressed.”