FINANCIAL PLAN PREVIEW FISCAL YEAR 2019 PRESENT E D BY Gary Gold VP - Accounting April 30, 2018 A p p r o v a l R e q u e s t e d
TABLE OF CONTENTS • Financial Planning Process • FY 2019 Budget Proposal Customer Growth • Revenue • Use of Revenue • Operating & Maintenance Expenses • Capital & Financing Plan • Key Financial Metrics • 2
FINANCIAL PLANNING PROCESS Generation Resource = Load (Demand) + Reserve Margin • • Electric and Gas Sales Market Power Prices • • Regulatory Costs (TCOS, ERCOT) Wholesale Price, Revenue & Margin • • Fuel Cost (gas, coal, nuclear) Financing Plan / Interest Rates • Generation Resource Plan FORECAST INPUTS WE DEPLOY AN ANNUAL UPDATE 5-year detailed planning by business unit PROCESS Historical & current year 25-Year Long Range Plan performance 1 2 – 5 6 – 25 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 and yields budget targets, financial metric performance, and revenue support requirements. 3
FY 2019 BUDGET PROPOSAL ($ millions) $108.4 1a - Operating Expenses- 5 • CPS Energy’s total budget is reflected in the Uses of Non Fuel O&M Revenue as defined by Bond Ordinance. $617.2 1b - Operating Expenses- $345.9 (Fuel, Regulatory Fees) • Requesting the CPS Energy Board of Trustees to 4 1a provide approval of the FY 2019 Budget: $159.7 2 - Debt Requirements 3 from Revenue • Capital Budget = $688.4 million • Non-Fuel O&M Budget = $617.2 million $421.5 3 - R&R 6% of Revenue $1,008.8 • Management is focused on all elements of the 2 4 - City Payment budget, for the benefit of our customers. 1b 5 - R&R Remaining Deposit Historical Budget FY FY FY ($ in millions) 2018 AB 2018* 2019 FY 2019 Uses of Revenue Total $2,661.5M Capital (**) $700.0 $558.0 $688.4 Numbered by flow of funds Total Non-Fuel O&M $620.2 $581.0 $617.2 CPS ENERGY’S TOTAL ANNUAL FUNDING REQUIREMENTS = $2,661.5M ◦ 1a = Expanded Mgmt. Responsibility; ◦ 1b Fuel = Ops / ESMO / EPSC Governance (Pass Thrus); ◦ 2+3+5 = Total Capital Funding ESMO = Energy Supply & Market Operations 4 * FY 2018 Actual results are unaudited EPSC = Energy Portfolio Strategy Committee ** Excludes interest during construction and gross of customer contributions
GOVERNANCE / APPROVAL OF BUDGET COMPONENTS Budget Governance / Approval Component Governed by Procurement Policy, with material fuel Fuel Purchases purchases approved by the Board Debt Issuance Bond Issuances approved by the Board R&R Additions Governed by the bond ordinance City Payment Approved monthly by the Board Non-Fuel O&M Budget approval annually by the Board Capital Budget approval annually by the Board The Board of Trustees has oversight of the components of the planned Uses of Revenue through policy & various other approvals 5
ANNUAL ELECTRIC CUSTOMER GROWTH RATES 4.0% Historical Budget 3.0% 2.0% 2.5% 2.3% 2.2% 1.0% 2.0% 0.0% FY 2016 2017 2018* 2019 Fiscal Year 2016 2017 2018* 2019 Electric Customers Residential Customers (YTD Average) 687,431 704,446 719,838 736,289 Avg Residential Usage (MWh/Cust) 13.8 13.4 13.4 13.3 Non-Residentail Customers (YTD 90,654 91,822 92,753 93,761 Average) Avg Non-Residential Usage (MWh/Cust) 136.7 139.2 137.6 136.7 Electric Sales TWh 21.9 22.2 22.4 22.6 Electric Sales Growth – Driven by local population growth, offset by the continued success of our conservation STEP program. 6 * FY 2018 Actual results are unaudited
ANNUAL GAS CUSTOMER GROWTH RATES 4.0% Historical Budget 3.0% 2.0% 1.0% 1.2% 1.1% 1.0% 0.8% 0.0% 2016 2017 2018* 2019 FY Fiscal Year 2016 2017 2018* 2019 Gas Customers Total Gas Customers (YTD Average) 337,400 341,397 344,649 348,584 Avg Gas Usage (MCF/Cust) 70.8 64.6 68.3 70.6 Gas Sales BCf 23.9 22.0 23.5 24.6 Distribution Gas Sales Growth – While customer growth in the short term is comparable to last year, we anticipate a longer term rebound as population levels rise and we pursue a strategy to grow our gas business. 7 * FY 2018 Actual results are unaudited
SOURCES OF REVENUE Historical Budget $3,000 $2,720.6 $2,661.5 $2,624.4 $2,514.7 $2,494.1 $2,500 $ in millions $2,000 $1,500 $1,000 $500 $0 2016 2017 2018 AB 2018* 2019 FY Retail Electric Revenue Distribution Gas Revenue Wholesale Electric Revenue Non-Operating Revenue Fiscal Year 2016 2017 2018 AB 2018* 2019 $2,274.8 $2,221.6 $2,263.9 Retail Electric Revenue $2,098.1 $2,138.8 Distribution Gas Revenue 174.4 168.5 210.3 179.8 188.0 214.1 198.9 186.3 Wholesale Electric Revenue 223.4 166.9 21.4 24.1 23.3 Non-Operating Revenue 18.8 19.9 Total Sources Revenues $2,514.7 $2,494.1 $2,720.6 $2,624.4 $2,661.5 8 * FY 2018 Actual results are unaudited
USES OF REVENUE Historical Budget $3,000 $2,720.6 $2,661.5 $2,624.4 $2,514.7 $2,494.1 Total Uses are $2,500 projected to increase $ in millions $2,000 $37.1M, or 1.41%. $1,500 Additional increases in $1,000 operating $500 expenses will Includes CPS/STP be offset by O&M and Fuel $0 FY lower R&R. /Regulatory items 2016 2017 2018 AB 2018* 2019 Operating Expenses Debt Requirements from Revenue City Payment R&R 6% of Revenue R&R Remaining Deposit Fiscal Year 2016 2017 2018 AB 2018* 2019 $1,718.2 $1,587.9 $1,626.0 Operating Expenses $1,484.7 $1,489.7 Debt Requirements from Revenue 379.8 395.1 406.0 397.7 421.5 350.6 338.4 345.9 City Payment 320.5 324.5 R&R 6% of Revenue 150.9 149.6 163.2 157.5 159.7 R&R Remaining Deposit 178.8 135.2 82.6 142.9 108.4 Total Revenues = Costs $2,514.7 $2,494.1 $2,720.6 $2,624.4 $2,661.5 9 * FY 2018 Actual results are unaudited
OPERATING & MAINTENANCE (O&M) EXPENSES Historical Budget $2,000 $1,718.2 $1,800 $1,626.0 $1,587.9 $1,484.7 $1,489.7 $1,600 The increase $1,400 in O&M $ in millions $1,200 expenses is $1,000 spread throughout $800 the $600 categories. $400 $200 $0 FY 2016 2017 2018 AB 2018* 2019 Electric Fuel Expense Distribution Gas Regulatory/Other Non Fuel O&M Fiscal Year 2016 2017 2018 AB 2018* 2019 Non Fuel O&M $570.7 $598.9 $620.2 $581.0 $617.2 Electric Fuel Expense 770.0 741.3 899.9 837.6 829.9 Distribution Gas 75.5 72.8 106.0 83.0 85.0 Regulatory/Other 68.5 76.8 92.1 86.3 93.9 Total $1,484.7 $1,489.7 $1,718.2 $1,587.9 $1,626.0 Management remains keenly focused on operating cost control. 10 * FY 2018 Actual results are unaudited
CAPITAL PLAN Budget Historical $800 $700.0 $688.4 $700 $660.4 $615.9 $558.0 $600 $ in millions Financial & Other $500 Security & Safety Office $400 Legal & Administrative Office Customer Engagement Office $300 EIT $200 Operations Office $100 $0 FY 2016 2017 2018 AB 2018* 2019 Fiscal Year 2016 2017 2018 AB 2018* 2019 Customer Engagement Office $5.5 $6.8 $13.2 $12.6 $18.5 Operations Office $492.4 $537.4 $538.4 $469.5 $530.0 Distribution & Transmission 260.8 307.0 286.7 284.5 294.9 Power Generation 139.1 113.0 140.9 80.7 100.0 Gas, CDP & ESMO 92.5 117.3 110.7 104.3 89.6 JBSA 45.5 EIT 78.5 48.5 66.4 35.3 45.1 Legal & Administrative Office 13.9 45.7 54.6 20.7 71.2 Security & Safety Office 24.0 19.9 13.3 21.2 18.6 Financial & Other 1.6 2.1 14.2 -1.3 5.1 CPS Energy Total (Excluding AFUDC) $615.9 $660.4 $700.0 $558.0 $688.4 11 * FY 2018 Actual results are unaudited
CAPITAL FINANCING PLAN (Excluding AFUDC) Historical Budget $800 $700.0 $688.4 $660.4 $700 $615.9 $558.0 $600 31.6% $ in millions 49.4% $500 50.5% 37.2% 55.4% $400 $300 68.4% $200 62.8% 50.6% 49.5% 44.6% $100 $0 FY 2016 2017 2018 AB 2018* 2019 Funded with Debt Funded with Cash and CIAC Fiscal Year 2016 2017 2018 AB 2018* 2019 Funded with Debt $274.8 $326.9 $478.8 $350.4 $348.1 Funded with Cash and CIAC $341.1 $333.5 $221.2 $207.6 $340.3 Gross Construction Total $615.9 $660.4 $700.0 $558.0 $688.4 Over time balanced Debt & Cash Funding for the capital program is essential for achieving the goal of reducing the Debt to Capitalization ratio below 60%. 12 * FY 2018 Actual results are unaudited
KEY FINANCIAL METRICS Historical Budget Fiscal Year 2016 2017 2018 AB 2018* 2019 Adjusted Debt Service Coverage 1.87 1.72 1.61 1.76 1.64 (> = 1.5 target) Days Cash on Hand 203 197 172 211 199 (> = 150 Days) Debt / Capitalization 63.7% 62.2% 62.8% 61.8% 62.2% (< = 60%) Management’s approved budget in FY 2018 was outperformed as a result of strong stewardship. The same diligent effort will be made in FY 2019. 13 * FY 2018 Actual results are unaudited
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