Item 16: Quarterly Financial Report — original pdf

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Item 16 Austin Energy Quarterly Financial Report 1st Quarter FY 2022 (October - December) John Davis AE Director of Finance - Budget February 14, 2022 © 2018 Austin Energy Disclaimer Certain information set forth in this presentation contains forecasted financial information. Forecasts necessarily involve known and unknown risks and uncertainties, which may cause actual performance and financial results in future periods to differ materially from any projections of future performance. Although the forecasted financial information contained in this presentation is based upon what Austin Energy management believes are reasonable assumptions, there can be no assurance that forecasted financial information will prove to be accurate, as actual results and future events could differ materially from those anticipated in such forecasts. In addition, this presentation contains unaudited information and should be read in conjunction with the audited Annual Comprehensive Financial Reports for the City of Austin, which was published on March 18, 2021: https://assets.austintexas.gov/financeonline/downloads/comprehensive_annual_financial_report/comprehensi ve_annual_financial_report_2020.pdf 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 Generally compliant with all financial policies. Contingency and Capital Reserve balances below minimums but total cash above minimum of $480m. $ 359 Million Revenues Operating revenues at December are 6% over budget due to increased Power Supply Revenue. Working Capital decreased $118M primarily due to funding CIP and decreased margins. Austin Energy is meeting our target AA S&P bond rating. $344 Million Expenses Operating expenses are 18% over budget due to higher Power Supply costs and timing of customer care expenses. Declining Average Consumption – Lagging energy sales hamper cost recovery. This information is unaudited and should be read in conjunction with the audited Comprehensive Financial Reports for the City of Austin, when published on https://assets.austintexas.gov/financeonline/downloads/comprehensive_annual_financial_report/comprehensive_annual_financial_report_2020.pdf 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 Partial Compliance Partial Compliance Full Compliance Actual 1.7x DSC Requirement is 2.0x DSC Contingency and Capital Reserve balances are below minimums but total cash above minimum of $480m 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 AA Standard & Poor’s Global Ratings 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 190 Days Actual 1.7 Actual -5.8% Actual 54% 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 Full Compliance Since 2019 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, 2021 $127.4 $107.4 $ f o s n o i l l i M $160 $140 $120 $100 $80 $60 $40 $20 $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 12 Actual to Budget Analysis Budget Based Operating Expenses Fiscal Year Through December 31, 2021 $120 $114.1 $100 $96.2 $ f o s n o i l l i M $80 $60 $40 $20 $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 on www.austintexas.gov/financeonline/finance/main.cfm Reports for the City of Austin, when published 13 Actual to Budget Analysis Budget Based Fund Summary Fiscal Year Through December 31, 2021 Variance to Budget Variance to Prior Year Favorable (Unfavorable) Favorable (Unfavorable) Millions of $ Actual Budget Amount % Amount % Operating Revenues Operating Expenses Operating Income (Loss) Interest Revenue Debt Service Administrative Support General Fund Economic Development CTM Fund Income (Loss) Before Transfers Voluntary Utility Assistance Fund Other City Transfers Internal Transfers / CIP Excess (Deficiency) of Revenues $359 344 $15 0 (42) $(27) (7) (29) (2) (3) 0 (0) (16) ($84) $338 291 $47 1 (41) $7 (7) (29) (2) (3) 0 (0) (16) ($50) 21 (53) ($32) (1) (1) ($34) 0 0 0 0 0 0 6% (19%) (70%) (62%) (0.9%) (507%) 0% 0% 0% 0% 0% 0% (0) ($34) (0%) (67%) Prior Year Actual $319 277 $42 1 (39) $4 (8) (29) (2) (3) 0 (1) (15) ($54) 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 $40 (67) (27) (1) (3) ($31) (0) 1 0 0 0 1 (1) ($30) 12% (24%) (67%) (59.3%) (6%) (840%) 9% 0% (12%) 15% 0% 25% (2.8%) (54%) 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, 2021 Type of Financing Type of Project 25% 31% 44% Cash Debt Contributions in Aid of Construction Distribution District Cooling Transmission Joint Projects General Substations Power Production $0 $50 $100 $150 Millions of $ FY 2022 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 2021 $2,173 Difference between Load Zone And Power Supply Costs $1.8B or 86% $307 ($13) ($55) ($390) ($1,408) Load Zone Owned Assets Contracted Assets GreenChoice ® and Value of Solar Bilateral and Hedging Net Power Supply 19 $2,500 $2,000 $1,500 $1,000 s n o i l l i M $ $500 $0 ($500) ($1,000) ($1,500) ($2,000) t s o C e u n e v e R Austin Energy Quarterly Financial Report Financial Statements 20 $ in Millions Assets Cash Current Assets Capital Assets Long-Term Assets Balance Sheet Snapshot Dec 2020 Dec 2021 Capital Reserve $70m $404 279 2,941 2,153 $286 327 3,027 2,319 Power Supply Stabilization $110m Contingency Reserve $108m Working Capital and Reserves $574m Working Capital $286m Total Assets $5,777 $5,959 Liabilities and Fund Equity Current Liabilities $231 $262 Long-term Liabilities 3,206 3,319 Deferred Inflow of Resources Retained Earnings Total Liabilities & Fund Equity 488 595 1,852 1,783 $5,777 $5,959 $99 $77 $63 $120 $100 $80 $60 $40 $20 $0 $37 $13 1QTR 2021 2QTR 2021 3QTR 2021 4QTR 2021 1QTR 2022 Commercial Paper Program Limits: Tax Exempt $200m Taxable $100m $300m 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 Income Statement $ in Millions 12 Months Ending 12/31/2020 12/31/2021 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 Debt Capital Ratio $943 421 368 767 284 ($55) $118 (112) ($49) 2.0 53% $958 354 300 806 282 ($76) $123 (114) ($67) 1.7 54% Average Number of Customers Total Sales in Gigawatt Hours 513,860 524,998 3,022 3,139 2.2% 3.9% 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 FYTD 2021 FYTD 2022 FYTD 2021 FYTD 2022 $ in Millions12/31/202012/31/2021ChangeCash$404 $286 ($118)Accounts Receivable (net)118111 (7)Non-PSA Under-Recoveries228 26 Debt Service1213 1 Contingency Reserve108108 - Power Supply Stabilization Reserve110110 - Capital Reserve7070 - Nuclear Decommissioning Reserve 237 242 5 Other Restricted Assets229191 (38)Other Assets 1,546 1,773 227 Capital Assets2,9413,027 86 Total Assets5,7775,959182Other Current Liabilities141172 31 Power Supply Over-Recovery375 72 Non-PSA Over-Recoveries1917 (2)Revenue Bonds2,0861,991 (95)Commercial Paper1399 86 Other Long-Term Liabilities1,6631,822 159 Retained Earnings 1,852 1,783 (69)Total Liabilities and Fund Equity5,7775,959182Comparative Statement of Net PositionAustin Energy Quarterly Financial Report Market and Industry Analysis $ $ $ Customer Growth Plant Investment Increased Costs and Marginal Load Growth Obligation to serve coupled with customer growth drives increasing costs. 23 Customer Growth and Energy Sales are Disconnected Commencing from Test Year 2014 20% 18% 16% 14% 12% 10% 8% 6% 4% 2% 0% This drives costs Steady Customer Growth This drives revenue Relatively Flat Sales 2014 2015 2016 2017 2018 2019 2020 2021* Customers Unaudited Energy - kWh Sales Not Adjusted for Weather 24 Obligation to serve compels investment $2.1 billion in new plant from FY2014 to FY2021 Distribution Power Plant Support Services Transmission Other Substations TOTAL $673 M $569 M $300 M $237 M $211 M $ 99 M $ 2.1 B Source: CIP Budget and Planning. 25 Despite Customer Growth… Marginal increases in energy sales aren’t enough Base Rate Costs v. Non-Pass Through Revenue $1,000,000,000 $900,000,000 $800,000,000 $700,000,000 $600,000,000 $500,000,000 $400,000,000 $300,000,000 $200,000,000 $100,000,000 $0 B a s e r a t e d e c r e a s e 2014 2015 2016 2017 2018 2019 2020 CYE 2021 Revenues Costs More customers does not equal more energy sales or base revenue. • Since 2014 , Austin Energy needed 2% increase in energy sales to breakeven • On a weather normalized basis, Austin Energy averaged less than half of that. 26 C&I Avg Consumption Declining Commercial Sales Per Customer FY20 C&I Base Revenue l s e a S H W M l a u n n A 160 155 150 145 140 135 130 125 120 115 35% Variable Revenue 65% Fixed Revenue 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 Historical (MWh) Weather Normalized (MWh) Linear (Weather Normalized (MWh)) Source: FY2021 Financial Forecasting presentation. 27 Residential Customers Are More Energy Efficient Residential Sales Per Household Why is Average kWh/Residential Customer Declining? • Energy efficiency gains in building materials, lighting, HVAC, appliances and motors • Transitory move to newer and/or smaller living spaces • Austin Energy’s significant and long- term community investment in energy efficiency programs (over $35 million budgeted for FY2022) l s e a S H W M l a u n n A 12.50 12.00 11.50 11.00 10.50 10.00 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 Historical (MWh) Weather Normalized (MWh) Linear (Weather Normalized (MWh)) Source: FY2021 Financial Forecasting presentation. 28 Lagging Residential Sales Jeopardize Cost Recovery and Stability Too few kWh sales to support rising costs FY20 Residential Base Revenue • 82% of residential base revenue is collected on kWh sales. Customer Charge, 18% Energy Charge, 82% • Over reliance on energy sales for revenue creates instability for customers’ bills and AE’s revenue. • Base revenue pays increasing fixed costs such as debt service, non-PSA contractuals, GFT and cash for construction: costs that do not vary with energy sales. • Cost recovery is jeopardized as average residential consumption declines. • The residential rate design from 2012 is not tenable today. 29 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.