Item 10: Q1FY20 Financial Report — original pdf

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Item 10 Austin Energy Quarterly Financial Report 1st Quarter FY 2020 (October – December 2019) Stephanie Koudelka Principal Accounting Manager February 10, 2020 © 2018 Austin Energy I t e m 1 0 Disclaimer This information is unaudited and should be read in conjunction with the audited Comprehensive Annual Financial Reports for the City of Austin, when published on: http://austintexas.gov/service/current-comprehensive-annual-financial-report 2 QUARTERLY Financial Report Agenda Executive Summary Financial Policy Compliance Financial Performance Measures Actual to Budget Analysis Financial Statements Market and Industry Analyses 3 Austin Energy Quarterly Financial Report Executive Summary 4 Executive Summary Substantially compliant with all financial policies. Capital Reserve balance below minimums but total cash above minimum of $414m. $ 328 Million Revenues Operating revenues exceed forecast by 2% due to higher base revenue primarily due to higher than normal temperatures. Balance sheet is liquid and adequately capitalized. Cash balances are stable through the first quarter. Meeting financial metrics supporting AA credit rating. Received credit upgrade from Fitch Ratings in May 2019. $284 Million Expenses Operating expenses exceed forecast by 1% primarily due to higher power supply costs. Effective energy efficiency initiatives have reduced average residential consumption. Customer consumption has evolved but our rate structures have not, which creates unintended consequences. This information is unaudited and should be read in conjunction with the audited Comprehensive Financial Reports for the City of Austin, when published on www.austintexas.gov/financeonline/finance/main.cfm 5 Austin Energy Quarterly Financial Report Financial Policy Compliance 6 Financial Policy Compliance Financial policies are memorialized and adopted by ordinance each year during the budgeting process Compliance Debt Reserves Operating Non-Compliance Debt Policies Reserves Policies Operating Policies Full Compliance Partial Compliance Full Compliance Capital Reserve balance below minimums but total cash above minimum of $414m This information is unaudited and should be read in conjunction with the audited Comprehensive Financial Reports for the City of Austin, when published on www.austintexas.gov/financeonline/finance/main.cfm 7 Austin Energy Quarterly Financial Report Financial Performance Measures 8 Financial Performance Measures Standard & Poor’s Global Ratings AA Achieved November 2018 Excessive Liquidity Coverage Efficiency Leverage Deficient Days Cash on Hand Debt Service Coverage Ratio Operating Margins Debt to Capitalization Minimum > 150 Days Minimum > 2.0 Minimum > 10% Minimum < 50% Actual 228 Days Actual 2.8 Actual 6% Actual 51% Excludes General Fund Transfer This information is unaudited and should be read in conjunction with the audited Comprehensive Financial Reports for the City of Austin, when published on www.austintexas.gov/financeonline/finance/main.cfm 9 Austin Energy’s Affordability Goal has Two Metrics Financial Performance Measures Compliance Affordability Competitiveness Non-Compliance Affordability Metric Competitiveness Metric Full Compliance Since 2013 Non-Compliance Since 2016 Maintain system average rates at or below 2% annual compound growth rate that began October 2012. Maintain an average annual system rate in the lower 50% of all Texas utilities serving residential, commercial and industrial customers as measured by published data from the Energy Information Administration (EIA) Form 861. This information is unaudited and should be read in conjunction with the audited Comprehensive Financial Reports for the City of Austin, when published on www.austintexas.gov/financeonline/finance/main.cfm 10 Austin Energy Quarterly Financial Report Actual to Budget Analysis 11 Actual to Budget Analysis Budget Based Operating Revenues Fiscal Year Through December 31, 2019 $ f o s n o i l l i M $160 $140 $120 $100 $80 $60 $40 $20 $0 Billed Base Power Supply Regulatory Transmission Miscellaneous Community Benefit Actual Budget This information is unaudited and should be read in conjunction with the audited Comprehensive Financial Reports for the City of Austin, when published on www.austintexas.gov/financeonline/finance/main.cfm 12 Actual to Budget Analysis Budget Based Operating Expenses Fiscal Year Through December 31, 2019 $ f o s n o i l l i M $100 $90 $80 $70 $60 $50 $40 $30 $20 $10 $0 Actual Budget This information is unaudited and should be read in conjunction with the audited Comprehensive Financial This information is unaudited and should be read in conjunction with the audited Comprehensive Financial Reports for the City of Austin, when published Reports for the City of Austin, when published on www.austintexas.gov/financeonline/finance/main.cfm 13 Actual to Budget Analysis Budget Based Fund Summary Fiscal Year Through December 31, 2019 Variance to Budget Favorable (Unfavorable) Variance to Prior Year Favorable (Unfavorable) Millions of $ Actual Budget Amount % Amount % Operating Revenues Operating Expenses Operating Income (Loss) Interest Revenue Debt Service Income (Loss) Before Transfers Administrative Support General Fund Economic Development CTM Fund Other City Transfers Internal Transfers / CIP $328 $321 284 $44 4 (37) $11 (7) (28) (2) (3) (0) 281 $40 3 (37) $6 (7) (28) (2) (3) (0) Excess (Deficiency) of Revenues (25) $(54) (25) $(59) Prior Year Actual $321 292 $29 4 (24) $9 (7) (28) (2) (2) (0) (52) (82) 2% (1%) 10% 10% 0% 68% 0% 0% 0% 0% 0% 0% 7% $7 (3) $4 $5 1 0 0 0 0 0 0 0 $5 $7 8 $15 0 (13) $2 0 0 0 0 27 (28) 2% 3% 55% 0% (57%) 25.2% (2%) (1%) (6%) 0% 51% 33% (1) (11%) This information is unaudited and should be read in conjunction with the audited Comprehensive Financial Reports for the City of Austin, when published on www.austintexas.gov/financeonline/finance/main.cfm 14 Actual to Budget Analysis Actual to Budget Retail Energy Sales ) h w G ( s r u o H t t a w a g i G 1,600 1,400 1,200 1,000 800 600 400 200 0 Actual Budget This information is unaudited and should be read in conjunction with the audited Comprehensive Financial Reports for the City of Austin, when published on www.austintexas.gov/financeonline/finance/main.cfm 15 Actual to Budget Analysis Actual to Budget Non-Power Supply Revenues $ f o s n o i l l i M $100 $90 $80 $70 $60 $50 $40 $30 $20 $10 $0 Actual Budget This information is unaudited and should be read in conjunction with the audited Comprehensive Financial Reports for the City of Austin, when published on www.austintexas.gov/financeonline/finance/main.cfm 16 Actual to Budget Analysis Actual to Budget Power Supply $ f o s n o i l l i M $50 $45 $40 $35 $30 $25 $20 $15 $10 $5 $0 Actual Cost Budget PSA Revenue This information is unaudited and should be read in conjunction with the audited Comprehensive Financial Reports for the City of Austin, when published on www.austintexas.gov/financeonline/finance/main.cfm 17 Capital Improvement Plan Summary Actual to Budget Analysis Fiscal Year Through December 31, 2019 Type of Financing Type of Project $9.2 $20.2 $25.0 Cash Debt Contributions in Aid of Construction Distribution District Cooling Transmission Joint Projects General Substations Power Production $0 $20 $80 $100 $60 $40 Millions of $ FY 2020 Spend Plan Year-to-Date This information is unaudited and should be read in conjunction with the audited Comprehensive Financial Reports for the City of Austin, when published on www.austintexas.gov/financeonline/finance/main.cfm 18 Power Supply Adjustment Cost Components Twelve Months Ending December 2019 $655 Difference between Load Zone And Power Supply Costs - $240M or 37% $415 $44 $10 ($19) Load Zone ($275) Owned Assets Contracted GreenChoice ® Bilateral Assets and Value of Solar and Hedging Net Power Supply 19 s n o i l l i M $ $800 $600 $400 $200 $0 ($200) ($400) t s o C e u n e v e R Austin Energy Quarterly Financial Report Financial Statements 20 Balance Sheet Snapshot $ in Millions Assets Cash Current Assets Capital Assets Long-Term Assets Dec 2018 Dec 2019 $417 252 2,587 1,420 $424 282 2,972 1,835 Capital Reserve $70m Power Supply Stabilization $109m Working Capital and Reserves $709m Working Capital $424m Contingency Reserve $106m Total Assets $4,676 $5,513 Liabilities and Fund Equity Current Liabilities $196 211 Long-term Liabilities 2,208 2,950 Deferred Inflow of Resources Retained Earnings Total Liabilities & Fund Equity 389 453 1,883 1,900 $4,676 $5,513 $233 $248 $266 $300 $250 $200 $150 $100 $50 $0 $50 $27 1QTR 2019 2QTR 2019 3QTR 2019 4QTR 2019 1QTR 2020 Commercial Paper Program Limits: Tax Exempt $200m Taxable $75m $275m This information is unaudited and should be read in conjunction with the audited Comprehensive Financial Reports for the City of Austin, when published on www.austintexas.gov/financeonline/finance/main.cfm 21 GAAP Financial Summary Comparative Statement of Net Position $ in Millions 12/31/2018 12/31/2019 Change Income Statement $ in Millions 12 Months Ending 12/31/2018 12/31/2019 Cash Accounts Receivable (net) Power Supply Under-Recovery Non-PSA Under-Recoveries Debt Service Contingency Reserve Power Supply Stabilization Reserve Capital Reserve Nuclear Decommissioning Reserve Other Restricted Assets Other Assets Capital Assets Total Assets Other Current Liabilities Power Supply Over-Recovery Non-PSA Over-Recoveries Revenue Bonds Commercial Paper Other Long-Term Liabilities Retained Earnings Operating Revenues Power Supply Revenues Power Supply Expenses Non-Power Supply Expenses Depreciation Expense Operating Income/(Loss) Other Revenue (Expense) General Fund Transfer Net Income/(Loss) Debt Service Coverage $838 Debt Equity Ratio $951 464 459 697 166 $93 $45 (109) $29 2.8 44% $966 489 449 686 234 $86 $41 (110) $17 3.4 51% Average Number of Customers Total Sales in Gigawatt Hours 489,645 502,781 3,010 3,254 $417 103 0 2 8 103 105 68 223 127 933 2,587 $4,676 $144 22 21 1,228 233 1,145 1,883 $424 112 19 0 11 106 108 70 231 107 1,354 2,972 $5,514 $124 0 46 50 1,924 1,470 1,900 $7 9 19 (2) 3 3 3 2 8 (20) 421 385 (20) (22) 25 696 (183) 325 17 Total Liabilities and Fund Equity $4,676 $5,514 $838 Q1 2019 Q1 2020 Q1 2019 Q1 2020 This information is unaudited and should be read in conjunction with the audited Comprehensive Financial Reports for the City of Austin, when published on www.austintexas.gov/financeonline/finance/main.cfm 22 Austin Energy Quarterly Financial Report Residential Customer Energy Consumption Observations 23 Customer Consumption Drives Rate Design 5-Tiered Rates Energy Efficient Homes Stability in Customers’ Bills Equitable Recovery Austin housing is trending towards smaller, denser, multi-family energy efficient homes which do not consume energy in the higher 5-tiers requires steep pricing changes which results in large energy burdens during the summer months and puts cost recovery at tiers risk for Austin Energy Recovery of costs through volumetric charges exposes some of our most vulnerable customers to higher priced tiers while subsidizing smaller, denser, multi- family energy efficient homes 24 Housing Construction at a 13-Year High Travis County Residential Building Permits (Jan. 2003 -Dec. 2019 rolling 12-month total) 22,000 20,000 18,000 16,000 14,000 12,000 10,000 8,000 6,000 4,000 2,000 0 n a J - 3 0 0 2 n a J - 4 0 0 2 n a J - 5 0 0 2 n a J - 6 0 0 2 y a M p e S y a M p e S y a M p e S y a M p e S y a M p e S y a M p e S y a M p e S y a M p e S y a M p e S y a M p e S y a M p e S y a M p e S y a M p e S y a M p e S y a M p e S y a M p e S y a M p e S n a J - 9 0 0 2 n a J - 0 1 0 2 n a J - 1 1 0 2 n a J - 2 1 0 2 n a J - 3 1 0 2 n a J - 4 1 0 2 n a J - 5 1 0 2 n a J - 6 1 0 2 n a J - 7 1 0 2 n a J - 8 1 0 2 n a J - 9 1 0 2 n a J - 7 0 0 2 n a J - 8 0 0 2 Total Single Multi 25 Urban Environment Transition Multi-family homes are becoming more prevalent in Austin Energy’s service territory FY 2009 Housing Mix FY 2018 Housing Mix Single- family, 51.2% Multi-family, 48.8% Single- family, 49.6% Multi-family, 50.4% 26 Trend in Residential Consumption All homes are becoming more energy efficient All Residences Overall, 842 kWh 1 8 8 2 4 8 0 0 7 9 7 6 3 5 6 4 3 6 6 2 6 4 8 4 1 2 4 I L L B R E P H W K 1,200 1,000 800 600 400 200 0 I L L B R E P H W K 1,200 1,000 800 600 400 200 0 Single Family Overall, 1084 kWh 8 9 0 , 1 6 9 0 , 1 9 0 1 , 1 5 3 1 , 1 1 1 0 , 1 2 5 9 4 6 8 0 1 7 3 2 7 2 1 0 2 3 1 0 2 4 1 0 2 5 1 0 2 6 1 0 2 7 1 0 2 8 1 0 2 9 1 0 2 2 1 0 2 e r P YEAR RESIDENCE BEGAN SERVICE 2 1 0 2 3 1 0 2 4 1 0 2 5 1 0 2 6 1 0 2 7 1 0 2 8 1 0 2 9 1 0 2 2 1 0 2 e r P YEAR RESIDENCE BEGAN SERVICE I L L B R E P H W K 1,200 1,000 800 600 400 200 0 Multi-Family Overall, 609 kWh 3 4 6 2 1 0 2 e r P 8 2 5 3 0 5 8 4 5 1 1 5 9 9 4 0 7 4 7 7 3 6 3 3 2 1 0 2 3 1 0 2 4 1 0 2 5 1 0 2 6 1 0 2 7 1 0 2 8 1 0 2 9 1 0 2 YEAR RESIDENCE BEGAN SERVICE Average consumption per bill for FY 2019 for customers inside City of Austin 27 Tiered Rates and Revenue Stability 76% of residential consumption inside the City of Austin is sold below our cost to serve • • • Austin Energy adopted a 5-tiered residential block structure in 2013 and set the rates for tiers 1 and 2 below cost of service while tiers 4 and 5 are significantly above cost Consumption in tiers 4 and 5 has decreased 14% since 2012 Declining average consumption aggregates energy sales into the lower tiers jeopardizing Austin Energy’s ability to recover costs 100% 80% 60% 40% 20% 0% FY2021 Residential Tier Distribution Above Cost Below Cost 76% of sales 61% of revenue 12% of sales 21% of revenue 30% 31% 50% 26% Tier 1 Tier 2 18% 14% 12% Tier 3 8% Tier 4 7% 4% Tier 5 kWh % Energy Charge Revenue % 28 Customer Energy Burden Weather and tiered volumetric pricing impact bill stability and affordability Customer Charge Tier 1 Weather driven increase Tiered pricing driven increase FY 2020 Base rate charges only for inside City of Austin non-CAP customer Fixed costs ≈ $39.00 $24.00 $14.00 $10.00 $92.17 $39.07 $29.10 $14.00 $10.00 59% of the increase is associated with tiered pricing 41% of the increase is associated with higher consumption due to weather 5 0 0 KWH - S P RIN G 1 ,5 0 0 KWH - S UM M E R 29 5-tiered structure disproportionately recovers costs from our vulnerable customers Inequality of Recovery FY 2018 Annual Residential Tier Frequency Inside City of Austin Customers Only 36.3% 36.4% 38.4% • • • On average, in FY 2018 CAP customers used 15% more energy than non-CAP 35% of our CAP customers are billed at the higher tiered rates, while only a 27% of non- CAP customers are in those tiers Some high income households do not use much electricity, and some low income households use a lot 25.8% 21.2% 16.1% 12.8% 9.0% Tier 1 Tier 2 Tier 3 Non-CAP Bills Tier 4 CAP Bills 2.1% 1.8% Tier 5 30 Guiding Principles for Establishing Retail Rates Austin Energy will need to balance various guiding principles during our next rate review • Ensuring equitable and fair cost sharing • Providing price stability and predictability • Simplifying our customers’ experience • Protecting our vulnerable customers • Encouraging energy efficiency and conservation 31 Confidential & Proprietary ©2018 Austin Energy. All rights reserved. Austin Energy and the Austin Energy logo and combinations thereof are trademarks of Austin Energy, the electric department of the City of Austin, Texas. Other names are for informational purposes only and may be trademarks of their respective owners.