January 7, 2021 – We proactively validated our bonds in court to protect all our customers from potential future energy bill shock associated with higher borrowing costs if bondholders could not rely on our existing debt and business structures.
Just over 78 years ago, our community decided that it wanted to control its energy future and the best way to do that was for the City of San Antonio to buy the local power company. Enriched by many years of dedicated service and deep industry experience, CPS Energy’s mission is to serve everyone in Greater San Antonio. The municipal utility understands that it has been entrusted with the responsibility to construct, operate, and manage energy generating assets. San Antonio’s homegrown utility also knows that it must stay focused on Customer Affordability and Reliability, 24/7/365. Power generation assets are primarily funded by borrowing funds much in the same way that a person pursues a mortgage to buy a house or a loan to buy a car. In turn, borrowing funds allows all utilities to spread costs over multiple years, which saves its customers money (out-of-pocket costs) each month.
Since CPS Energy has been well run for decades, our company can borrow funds at low rates, which again translates to lower operating costs and lower customer bills. It benefits both our customers and our lenders for CPS Energy to maintain Financial Responsibility and stability. In exchange for loaning us money at low rates, bondholders need assurance that our debt is not exposed inappropriately to ambiguity and/or uncertainty. The lower the risk and threat to the stability of our operations, the lower the interest rates we will receive, which in turn benefits our customers. Unfortunately, the charter petition directly contributed to a “Negative Outlook” from national credit rating agency Fitch that required CPS Energy to take prompt action to remove uncertainty from the marketplace.
Consequently, on November 12, 2020, CPS Energy initiated a legal proceeding under Chapter 1205 of the Texas Government Code to protect all customers by assuring our debt investors that the commitments we have made to them, in exchange for their low interest rates, are valid and enforceable. On December 7, 2020, the court ruled in our favor and entered a judgment holding that our contractual obligations to our debt investors are valid and enforceable. In addition to keeping bills low for customers, this gives debt investors assurance that their investment with us is sound and it provides rating agencies the assurance that we are working to protect these investments.
Notice of the trial was published in local newspapers on Nov. 18, 19 and 20, and Nov. 25, 26, and 27. Per the applicable statute, any such trial is handled on an expedited basis. The trial was open to the public via Zoom or the court’s livestream and occurred on Dec. 7, 2020. The trial was held via videoconference and all participants, including the judge and the court’s personnel, appeared via Zoom.
Such an action is available to any political subdivision that issues public securities (i.e. bonds and other debt); through it a court of law can appropriately validate the contract with the debt investors and the related ordinances. This prudent proceeding is not uncommon for public securities.
Concern Expressed by Ratings Agencies:
October 16, 2020 – THREE CREDIT AGENCIES AFFIRM CPS ENERGY’S BOND RATINGS; S&P AND MOODY’S REFLECT STABLE OUTLOOK; FITCH CHANGES OUTLOOK FROM STABLE TO NEGATIVE
- Excerpt from Recent Fitch Report:
Petition to Revise Governance and Management Structure
- A recent petition was proposed by a local coalition of citizens that would revise the governance and management structure of the utility, as well as institute certain carbon reduction and rate policies. The petition would effectively replace the current board with a board comprised of city council members and replace the President and CEO with a director appointed by the newly comprised board. The petition also mandates the shutdown of the Spruce coal facility by 2030.
- Fitch views the proposed governance change as a potential asymmetric additive risk consideration as it would likely result in additional political pressure on the utility and could constrain the utility’s rate-setting ability or operational decisions.
Through it all, we remain committed to improving the environment:
- We closed 2 older coal units in 2018, 15 years ahead of schedule.
- We have invested in wind for 20 years, which helps Texas be #1 in this energy technology in the nation.
- We have invested in solar energy for eight years and San Antonio is now #1 in the state and #5 in the nation.
- We manage a successful, nationally award-winning energy efficiency and conservation program called, the Save for Tomorrow Energy Plan, STEP. Through this program, we avoided building a large fossil fueled power plant between the 2012 and 2020 timeframe.
- To date, through the continued implementation of our many Environmentally Responsible initiatives, we have significantly reduced our air emissions, even though San Antonio’s population has continued to grow. More information about our cumulative Environmental Sustainability & Stewardship successes can be found on our website.
- We are taking meaningful steps toward full carbon neutrality by 2050, which aligns directly to our Board’s endorsement of the City of San Antonio’s Climate Action & Adaptation Plan (CAAP) and the Paris Climate Agreement.
- Every action we take is effectively balanced across our six Guiding Pillars of Customer Affordability, Reliability, Safety, Security, Resiliency, and Environmental Responsibility.