Rate differences key in bid to revamp CPS Energy

Last summer, CPS Energy asked residential customers to keep their air conditioning set no lower than 78 degrees to avoid straining the power grid.

But some ratepayers, mindful of their household budgets, didn’t need to be asked. For them, the formula is simple: The more electricity they use, the higher their monthly bills will be.

The same formula holds for the city-owned utility’s business customers — but with one crucial difference.

The more electricity they use, the lower the rate they pay. For homeowners and renters, their rate remains the same no matter how much power they use.

That difference is at the heart of an ongoing dispute between CPS and the environmental and community activists behind the Recall CPS petition, an effort to shake up the utility’s governance.

CPS charges its nearly 760,000 residential customers an $8.75 monthly service fee and a flat rate of just under 7 cents for each kilowatt-hour of power they use. The average San Antonio household uses just over 1,100 kilowatt-hours monthly.

For the utility’s roughly 90,000 commercial and industrial customers, the rates vary, depending on the size of the business. In addition to a monthly service charge, they pay between 3 and 7 cents per kWh.

After using a certain amount of power, that charge declines. Small businesses, for example, pay about 7 cents per kWh until they use 1,600 kilowatt-hours. At that point, they pay 3.3 cents per kWh.

A larger business would see its kWh charge knocked down from 4.2 cents to 3.9 cents after using 200 kilowatt-hours.

CPS’ rate structure, however, is more complex than just the charge per unit of energy.

Larger businesses also pay what’s called a demand charge. If a midsize manufacturer demands a maximum of 200 kilowatts of energy at any given moment to run its factory, CPS charges the manufacturer $10 per each kilowatt of demand.

Demand charges make up a significant portion of the electricity bill for larger companies.

The rates that residential and commercial customers pay increase during the summer months.

Burden on residents?

Recall CPS proponents say the utility’s rate structure doesn’t encourage businesses to cut back their electricity usage.

“It’s extremely unfair and inequitable,” said Dee-Dee Belmares, an organizer at the watchdog organization Public Citizen who is leading the Recall CPS petition. “The heaviest users, which are large industrial customers, should pay their fair share of the rates. We should not give them incentives for using more electricity.”

Other utilities, including the San Antonio Water System and Austin Energy, take the opposite approach to rates. In Austin, a resident who uses 500 kilowatt-hours pays 2.8 cents per kWh. After the resident goes over 500 kilowatt-hours, the utility charges them 5.8 cents.

That’s what CPS President and CEO Paula Gold-Williams describes as “penalty rates” that, if adopted here, could make San Antonio “the most expensive city to do business in” in Texas.

“As much as environmental responsibility is increasingly a very important thing ... what (customers) still say is, ‘Don’t shock me in this process. Keep my bills affordable. Make sure my power is reliable,’” Gold-Williams said. “But nobody says, ‘Give me a penalty rate for the energy I use.’”

Organizers of the Recall CPS petition are looking to replace the utility’s board of trustees with City Council members to make CPS more accountable to ratepayers.

The goal, Belmares said, is for customers to have more say over the utility’s operations and to shift more of the cost away from low-income residents to the businesses and households that consume the most power.

By doing that, they say, CPS could end power disconnections for financially struggling customers and accelerate the adoption of more renewable energy.

Business leaders have blasted the reform effort, which they say would increase the price of electricity for companies and residents. And that, they say, could stunt job creation in San Antonio and make it harder for the utility to finance upgrades.

CPS “has been an important economic development tool that our community has used to bring thousands of jobs to San Antonio,” said Richard Perez, president and CEO of the San Antonio Chamber of Commerce.

Recall CPS opponents also point out that when CPS seeks a rate hike, it has to convince its trustees and then make its case to the City Council, a process that can take months. That gives businesses time to plan for the increases.

“How our utilities are being run, and how they project rate increases and how that gets through the pipeline through City Council — it’s all done in a manner with a lot of logic, a lot of time, a lot of energy spent, and every major stakeholder in this city gets involved,” said Patrick Garcia, president of Division Laundry, a commercial laundry business.

CPS officials, who can’t take a position for or against the Recall CPS petition, say businesses in San Antonio already pay more than their fair share.

CPS’ commercial customers make up about 10 percent of the utility’s customer base, according to the Energy Information Administration, which publishes data on all U.S. electric utilities. But they contribute 48 percent of the utility’s electric sales revenue.

Residents, meanwhile, make up 90 percent of CPS’ customers and contribute about 50 percent of sales revenue.

Yet businesses use more power than residents — and they pay a lower rate per unit of power.

According to the EIA, CPS residential customers paid 10.7 cents per kWh on average last year, or about $118 for electricity each month last year on average. That excludes what they pay for natural gas service.

Business customers on average used about 10 times more power per month last year than residents. And they paid 8.8 cents per unit of power — almost 20 percent less per kWh than residents, according to the EIA.

“Our municipally owned utilities are certainly a competitive advantage and one part of a comprehensive set of assets that make San Antonio an attractive place to grow a business,” said Tom Long, chief development officer at the San Antonio Economic Development Foundation and a former CPS executive. “CPS Energy is a crucial part of our toolkit.”

Utilities across the U.S. charged commercial customers on average 10.4 cents per kWh in 2019, a rate nearly 17 percent higher than what CPS charges business customers.

“Eighty-nine percent of the businesses in San Antonio are small to medium-sized — 100 employees or less — so these businesses are the backbone of our economy,” said Rey Chavez, president of the San Antonio Manufacturers Association. “If there was a big change (in CPS’ electricity rates), they would vote with their feet and leave, or they would start cutting jobs.”

Residential customers of CPS pay some of the lowest rates among customers of Texas’ major utilities. On average, households in San Antonio paid almost $20 less per month for electricity than the average residential customer of the other large utilities across Texas, according to EIA data.

Even so, the disparity between what businesses and residents in San Antonio pay has animated the movement against CPS.

Uprooting the board

Activists are calling to disband CPS’ current five-member board, which is made up of four appointees and Mayor Ron Nirenberg.

Belmares said a board run by the City Council would likely restructure the utility’s rates and commit to shutting down CPS’ coal-fired Spruce power plant units by 2030.

The two-unit Spruce coal plant each day emits over 11 tons of nitrogen oxides, the compounds that react to form ozone and acid rain. By 2023, the coal plant alone will contribute nearly 10 percent of the total annual nitrogen oxide emissions in the San Antonio area, according to the Alamo Area Council of Governments.

CPS has continued operating the Spruce coal units as the utility introduces more energy from wind and solar power.

The utility finished building the second Spruce unit in 2010 at a cost of $1 billion, and Gold-Williams said a rough estimate suggested closing the coal units ahead of schedule could raise monthly bills by nearly $20.

“As far as going green, you’ve got to have a little bit of business sense and realistic approach to that,” said Klaus Weiswurm, chairman of ITM, a high-tech manufacturing company based in Schertz. “You have infrastructure you’re still paying off, and you can’t just mothball that or turn it off.”

The coal plant keeps rates low for residents and businesses, Perez said.

The petition’s backers are “upset because CPS is not moving fast enough to get coal out of its portfolio,” said Perez, the chamber CEO. “But coal has been part of the portfolio because coal is cheap. And guess what? Our rates are cheap.”

Supporters of the Recall CPS campaign, however, argue that CPS has not provided sufficient information to show how closing the coal plant would affect rates.

“We’ve been asking this for years ... for them to show us the economic data, and we have yet to see it,” Belmares said. “The heart of all of this is transparency. CPS Energy is not being transparent.”

The uncertainty over CPS’ future is a red flag for credit ratings agencies.

Fitch Ratings — which is owned by the Hearst Corp., the parent company of the San Antonio Express-News — recently downgraded its outlook for CPS from stable to negative.

The agency is concerned that a board run by elected leaders who could be ousted by voters would not be willing to raise their constituents’ rates, even if CPS needed a rate increase to cover costs.

“Who is it on City Council that is skilled at managing a public utility company?” Weiswurm said. “The city owns CPS, and if you mess with its formula too much and you put the wrong people in charge, it’s not quick and easy to come back from there.”

Fitch and other credit ratings agencies said the petition’s reforms could make CPS’ governance less stable and potentially lead them to downgrade the utility’s credit rating. That would ultimately make it costlier for CPS to sell bonds to finance power plant repairs and other projects.

“Any time you introduce this much uncertainty, this much friction, this much disconnection, I think it makes investors nervous,” Gold-Williams said.

Among all public power utilities in the U.S. with more than 50,000 customers, 77 percent are governed by a board of directors rather than a city council, according to the American Public Power Association.

As the petitioners gather signatures, CPS officials are considering creating a rate advisory committee — something the petition calls for.

In January, Nirenberg asked CPS to establish the committee “to review the design of the utility’s current and future rate structures and fees.”

The committee would feature community members who would meet publicly with CPS to discuss rate setting, the rate structure and on the utility’s sources of power generation.

Gold-Williams has said she supports the development of a rate advisory committee, though board Trustee Ed Kelley has voiced strong opposition to it.

Perez and other business leaders have recently shifted their stance to support the RAC, after spending months arguing it was unnecessary.

“We want it to be advisory in nature, and ultimately, it’s up to the professionals at CPS Energy and the board to make the decision to move forward with a rate increase,” he said. “We’ve pivoted a little bit, and we are now supportive with those caveats.”

Recall CPS organizers wouldn’t say how many signatures they’ve secured for the petition so far. The group needs 20,000 signatures by the end of the year. If they reach that threshold, the charter amendment would go on the city’s May ballot.

“Being on the ground and actually talking to people about this campaign, our messaging about rates, the Spruce coal plant — that’s resonating with voters,” Belmares said. “We’re having absolutely no problems getting people to sign the petition .”

If the measure goes to voters, business leaders say they’ll fight it.

“(CPS’) rates right now are among the lowest in any large city in Texas. They have affordability programs right now, today, so if you can’t pay, for certain income households, they will help you. They haven’t cut anyone’s power off,” Perez said. “What more do they need to prove?” diego.mendoza-moyers

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