FINANCIAL PLAN PREVIEW FISCAL YEAR 2020 I N T R O D U C T I O N B Y : Paula Gold-Williams President & CEO P R E S E N T E D B Y : Gary Gold VP,

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1 FINANCIAL PLAN PREVIEW FISCAL YEAR 2020 I N T R O D U C T I O N B Y : Paula Gold-Williams President & CEO P R E S E N T E D B Y : Gary Gold VP, Accounting January 28, 2019 A p p r o v a l R e q u e s t e d

2 AGENDA EXECUTIVE SUMMARY FINANCIAL PLANNING PROCESS FY 2020 BUDGET PROPOSAL CUSTOMER GROWTH SOURCES & USES OF REVENUE OPERATING & MAINTENANCE (O&M) CAPITAL & FINANCING PLAN KEY FINANCIAL METRICS NET INCOME TRENDS & DRIVERS REQUEST FOR APPROVAL 2

3 WE ARE A BUSINESS OWNED BY THE COMMUNITY! We run CPS Energy like a business while always thinking about our customers who pay bills every month. We will continue to be SA s Energy Experts, keeping safety & security top priorities. We will make improvements every year to help ensure success. We understand our fiduciary role. We responsibly operate our community owned assets. 3

4 CITY OF SAN ANTONIO GROWTH ( 1 ) San Antonio continues to be a magnet for economic & population growth. San Antonio s metro growth rate has climbed consistently for the last few years The 2017 increase of 24,208 represents an average of 66 people per day The San Antonio area is preparing for a 1.1 million population increase by the year 2040 (1) Source dated May 24,

5 ACCOMMODATING GROWTH, PROMOTING EFFICIENCY & CUTTING COSTS This is how we save our customers money & add value. 5

6 ACCOMMODATING GROWTH WITHOUT COMPROMISE We ve managed growth and continue to meet our customers needs. Our customers are more engaged & we offer more tools & resources at the best value. 6

7 Total Call Volume % Service Level CUSTOMER SERVICE IMPROVEMENTS 1,400,000 1,200,000 1,000, , , CY SVC Level Customer Sat % % , , % % 82-0 Res Customer Sat Quarter by Calendar Year Total Call Volume Average Service Level (% of calls answered within 30 seconds) Via our People First focus, we have driven significant improvements for our customers in access, tools, programs, staffing, quality & service. 7

8 SAVING YOU MONEY Operational cost savings result in not seeking rate increases for 5 years, which saves customers money. 8

9 FINANCIAL PLANNING PROCESS Generation Resource = Load (Demand) + Reserve Margin Customer Growth (Electric & Gas Sales) Regulatory Costs (TCOS, ERCOT) Fuel Cost (gas, coal, nuclear, renewables) Generation Resource Plan FORECAST INPUTS Market Power Prices Wholesale price, revenue & margin Interest Rates WE DEPLOY AN ANNUAL UPDATE PROCESS Historical & current year performance 5-year detailed planning by business unit 25-Year Long Range Plan Year 1 will be presented to Board for approval (outer years are refreshed in subsequent planning cycles, so they are considered preliminary & subject to change) A robust long range planning process is essential for long-term resource planning & yields budget targets, financial metric performance, & revenue support requirements. 9

FY 2020 BUDGET PROPOSAL 1a - Operating Expenses- Non Fuel O&M 1b - Operating Expenses- (Fuel, Regulatory Fees) 2 - Debt Requirements from Revenue 3 - R&R 6% of Revenue 4 - City Payment 5 - R&R

10 FY 2020 BUDGET PROPOSAL 1a - Operating Expenses- Non Fuel O&M 1b - Operating Expenses- (Fuel, Regulatory Fees) 2 - Debt Requirements from Revenue 3 - R&R 6% of Revenue 4 - City Payment 5 - R&R Remaining Deposit $155.9 $399.1 $99.4 $343.9 FY 2020 Uses of Revenue Total $2,599.0M a 1b Numbered by flow of funds $673.7 $927.0 ($ in millions) The order of uses of revenue is determined by Bond Ordinance in order to: (1a/b) Maintain operations to provide reliability to our customers (2) Repay debt used to finance new initiatives & infrastructure improvements (4) Transfer funds to the City of San Antonio s General Fund that benefit our community (3/5) Retain a portion of the revenue to save for future system & customer growth & new strategic initiatives that increase customer satisfaction ($ in millions) Estimate FY 2019* Budget FY 2020 Capital $653.5 $765.4 Non-Fuel O&M $621.6 $673.7 CPS ENERGY S TOTAL ANNUAL FUNDING REQUIREMENTS = $2,599.0M 1a = Expanded Mgmt. Responsibility; 1b Fuel = Ops / ESMO / EPSC Governance (Pass Thrus); = Capital Program Related. * Latest Estimate includes 9 Months Actual & 3 Months Estimate. In addition, it includes JT Deely write-off & financing plan to pay down debt. ** Excludes AFUDC & gross of customer contributions. 10

11 GOVERNANCE/APPROVAL OF BUDGET COMPONENTS Budget Component Fuel Purchases Debt Issuance R&R Additions City Payment Governance Governed by Procurement Policy, with material fuel purchases approved by the Board Bond Issuances approved by the Board & Council Governed by the bond ordinance Approved monthly by the Board Approval Non-Fuel O&M Budget approval annually by the Board Today Capital Budget approval annually by the Board Today The Board of Trustees has oversight of the components of the planned Uses of Revenue through policy & various other approvals. 11

12 % Growth MWh/Customer ANNUAL ELECTRIC CUSTOMER GROWTH RATES Historical Current* Proposed Projected** 5.0% 4.0% 3.0% 2.0% 1.0% 0.0% FY 2.3% % 2.4% % 2.1% Total Electric Customer Growth Avg Annual Residential Usage (MWh/Cust) ** 12.5 Electric Sales Growth Strong local population growth that drives customer growth, partially offset by our continued success in achieving STEP goals & energy efficiency improvements, results in moderate sales volume growth. * Latest Estimate includes 9 Months Actual & 3 Months Estimate. In addition, it includes JT Deely write-off & financing plan to pay down debt. ** To be refreshed in subsequent planning cycles. 12

13 % Growth MCF/Customer ANNUAL GAS CUSTOMER GROWTH RATES Historical Current* Proposed Projected** 5.0% 4.0% 3.0% 2.0% % 0.0% 1.2% 1.0% 1.4% 0.7% 1.1% FY Total Gas Customer Growth Avg Annual Residential Gas Usage Distribution Gas Sales Growth Customer growth provides for additional sales; however, weather also significantly impacts gas sales year-to-year. * Latest Estimate includes 9 Months Actual & 3 Months Estimate. In addition, it includes JT Deely write-off & financing plan to pay down debt. ** To be refreshed in subsequent planning cycles. 13

PROJECTED FY 2020 REVENUE REQUIREMENTS Projected FY 2020 Revenues = $2,599.0M Distribution Gas Revenue $171.9M (7%) Per Flow of Funds, Uses of Revenue must equal Sources of Revenue.

14 PROJECTED FY 2020 REVENUE REQUIREMENTS Projected FY 2020 Revenues = $2,599.0M Distribution Gas Revenue $171.9M (7%) Per Flow of Funds, Uses of Revenue must equal Sources of Revenue. Wholesale Electric Revenue $144.6M (6%) City Payment $343.9M R&R (13%) Remain. Deposit $99.4M (4%) Debt Requirements from Revenue $399.1M (15%) Operating Expenses - Non Fuel O&M $673.7M (26%) Operating Expenses - (Fuel, Reg. Fees) Operating $927.0M (36%) Expenses $1,600.7M (62%) Non-Operating Revenue $35.0M (1%) R&R Remaining Deposit $99.4M (4%) Retail Electric Revenue $2,247.5M (86%) 14

15 SOURCES OF REVENUE $ in millions $3,000 $2,500 $2,494.1 Historical Current* Proposed Projected** $2,624.4 $2,786.8 $2,599.0 $2,661.1 $2,000 $1,500 $1,000 $500 $0 FY Retail Electric Revenue Distribution Gas Revenue Wholesale Electric Revenue Non-Operating Revenue Fiscal Year * ** Retail Electric Revenue $2,138.8 $2,221.6 $2,281.4 $2,247.5 $2,310.3 Distribution Gas Revenue Wholesale Electric Revenue Non-Operating Revenue Total Sources Revenues $2,494.1 $2,624.4 $2,786.8 $2,599.0 $2,661.1 * Latest Estimate includes 9 Months Actual & 3 Months Estimate. In addition, it includes JT Deely write-off & financing plan to pay down debt. ** To be refreshed in subsequent planning cycles. 15

16 USES OF REVENUE $ in millions $3,000 $2,500 $2,494.1 Historical Current* Proposed Projected** $2,624.4 $2,786.8 $2,599.0 $2,661.1 $2,000 $1,500 $1,000 $500 $0 FY Operating Expenses Debt Requirements from Revenue R&R 6% of Revenue City Payment R&R Remaining Deposit Fiscal Year * ** Operating Expenses $1,490.9 $1,587.9 $1,637.9 $1,600.7 $1,649.9 Debt Requirements from Revenue R&R 6% of Revenue City Payment R&R Remaining Deposit Total Revenues = Costs $2,494.1 $2,624.4 $2,786.8 $2,599.0 $2,661.1 * Latest Estimate includes 9 Months Actual & 3 Months Estimate. In addition, it includes JT Deely write-off & financing plan to pay down debt. ** To be refreshed in subsequent planning cycles. 16

17 $ in millions OPERATING & MAINTENANCE EXPENSES $1,800 $1,600 $1,400 $1,200 $1,000 $800 $600 $400 $200 $0 FY $1,490.9 Historical Current* Proposed Projected** $1,587.9 $1,637.9 $1,600.7 $1, Non Fuel O&M Electric Fuel Expense Distribution Gas Regulatory/Other Fiscal Year Non Fuel O&M $601.8 $581.0 $621.6 $673.7 $682.9 Electric Fuel Expense Distribution Gas Regulatory/Other Total $1,490.9 $1,587.9 $1,637.9 $1,600.7 $1,649.9 Management remains keenly focused on operating cost reductions & efficiencies as our system continues to grow. * Latest Estimate includes 9 Months Actual & 3 Months Estimate. In addition, it includes JT Deely write-off & financing plan to pay down debt. ** To be refreshed in subsequent planning cycles. * ** 17

18 $ in millions CAPITAL PLAN $800 $600 $661.7 Historical Current* Proposed Projected** $558.4 $653.5 $765.4 $644.1 $400 $200 $0 FY Customer Engagement, Security & Safety, JBSA, Other Legal & Administrative, * Real Estate & HQ Project Enterprise Information Technology Operations Fiscal Year * ** Operations $537.3 $469.5 $489.5 $487.2 $519.9 Distribution & Transmission Power Generation & STP Gas, CDP & ESMO Enterprise Information Technology Legal & Administrative, Real Estate & HQ Project Customer Engagement, Security & Safety, JBSA, Other *** CPS Energy Total $661.7 $558.4 $653.5 $765.4 $644.1 * Latest Estimate includes 9 Months Actual & 3 Months Estimate. ** To be refreshed in subsequent planning cycles. *** Increase from prior year primarily driven by the acquisition of Joint Base San Antonio infrastructure. 18

19 CAPITAL FINANCING PLAN $ in millions $800 Historical Current* Proposed Projected** $700 $600 $500 $ % 38.6% 47.9% 57.8% 52.5% $300 $200 $100 $0 FY 48.7% 61.4% 52.1% 42.2% 47.5% Funded with Debt Funded with Cash Fiscal Year * ** Funded with Debt $328.1 $350.4 $340.3 $322.7 $306.1 Funded with Cash $333.6 $208.0 $313.2 $442.7 $338.0 Gross Construction Total $661.7 $558.4 $653.5 $765.4 $644.1 Balanced Debt & Cash Funding for the capital program is essential for achieving the goal of reducing the Debt to Capitalization. * Latest Estimate includes 9 Months Actual & 3 Months Estimate. In addition, it includes JT Deely write-off & financing plan to pay down debt. ** To be refreshed in subsequent planning cycles. 19

20 NET INCOME FORECAST $ in millions $150 $100 Historical Current* Projected $89 $139 Opportunities will be evaluated throughout next year to ensure improved performance: - Additional wholesale revenues - Cost reductions - Deferred spend - Financing Plan optimization $50 $0 ($50) FY $39 Target Mitigations = $15M ($39) Unmitigated Mitigated ** $2 $17 We are also focusing on FY CPS Energy has driven operational efficiencies & managed risk to meet financial metric expectations. FY 2020 will be challenging, but we are confident sound strategies can yield improved performance. Looking ahead, FY 2021 currently showing a net loss. * Latest Estimate includes 9 Months Actual & 3 Months Estimate. In addition, it includes JT Deely write-off & financing plan to pay down debt. ** To be refreshed in subsequent planning cycles. 20

21 $ in millions FY 2020 NET INCOME DRIVERS Outstanding FY 2019 wholesale performance $175.0 $150.0 $ $74.7 Financial Markets down in CY 2018; impacts Pension & OPEB in FY 2020 $125.0 $100.0 $75.0 $50.0 -$52.1 Increase in interest rates plus new debt Normal weather assumed in FY 2020 Impact of Deely Write-Off Target Mitigations = $15M $25.0 $0.0 -$16.0 -$18.2 +$24.6 +$2.1 $17.1 -$25.0 -$50.0 * FY 2019 Net Income Wholesale Non Fuel O&M Interest Expense Retail Depreciation & Other FY 2020 Unmitigated Net Income FY 2020 Mitigated Net Income Management will monitor the operational & financial environment & implement mitigations to improve net income. * Latest Estimate includes 9 Months Actual & 3 Months Estimate. In addition, it includes JT Deely write-off & financing plan to pay down debt. 21

22 KEY FINANCIAL METRICS Adjusted Debt Service Coverage (> = 1.5 target) Days Cash on Hand (> = 150 Days target) Historical Current * Proposed Projected ** Fiscal Year Unmitigated 2020 Mitigated Debt / Capitalization (< = 60% target) 62.2% 61.8% 62.4% 63.0% 62.9% 63.6% Cash generated in FY 2019 from strong wholesale performance will be used to support financial metrics. Additional mitigations will be developed & implemented during FY * Latest Estimate includes 9 Months Actual & 3 Months Estimate. In addition, it includes JT Deely write-off & financing plan to pay down debt. ** To be refreshed in subsequent planning cycles. 22

REQUEST FOR APPROVAL Requesting Board Approval of Capital & Non-Fuel O&M Budget for FY 2020.

23 REQUEST FOR APPROVAL Requesting Board Approval of Capital & Non-Fuel O&M Budget for FY The FY 2020 year proposed budget will support our People First focus that will benefit our community & meet our commitments, including: Top tier safety, reliability, & environmental performance Investment in customer facing functions & security Meeting customer growth while continuing Infrastructure Modernization Projects Maintaining & strengthening key financial metrics will remain an important focus for management during FY FY FY ($ in millions) 2019* 2020 Capital $653.5 $765.4 Non-Fuel O&M $621.6 $673.7 Total Uses of Revenue $2,786.8 $2,599.0 * Latest Estimate includes 9 Months Actual & 3 Months Estimate. In addition, it includes JT Deely write-off & financing plan to pay down debt. 23

24 Thank You

FY 2019 MONTHLY FINANCIAL UPDATE AS OF APRIL 30, PRESENTED BY: Gary Gold VP Accounting & Assistant Treasurer May 21, 2018 Informational Update

FY 2019 MONTHLY FINANCIAL UPDATE AS OF APRIL 30, 2018 PRESENTED BY: Gary Gold VP Accounting & Assistant Treasurer May 21, 2018 Informational Update TABLE OF CONTENTS FINANCIAL HIGHLIGHTS ACTUAL YTD RESULTS