Item 8 AE Quarter 4 Financial Update — original pdf

Backup

Item 8 Austin Energy Quarterly Financial Report 2nd Quarter YTD March 2022 John Davis Austin Energy Director of Finance May 9, 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 14, 2022: http://finance.austintexas.gov/web/controller/annual_comprehensive_financial_report/annual_comprehensive _financial_report_2021.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. $ 707 Million Operating revenue at March is 6% over budget primarily due to an increase in power supply revenue. Operating Revenue Working Capital decreased $226M primarily due to funding CIP, decreased margins and the Power Supply adjustment rate reduction due to Winter Storm Uri. Austin Energy is meeting our target AA S&P bond rating. $(786) Million Expenses w/transfers Operating expenses including transfers are 7% over budget primarily due to higher power supply and power production expenses. Austin Energy’s ‘AA’ credit rating is among the highest in the industry. The financial and operational health of the utility impacts future credit evaluations. This information is unaudited and should be read in conjunction with the audited Comprehensive Financial Reports for the City of Austin, when published on http://finance.austintexas.gov/web/controller/annual_comprehensive_financial_report/annual_comprehensive_financial_report_2021.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 Non-Compliance Debt Reserves Operating 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 2016 Excessive Deficient Liquidity Coverage Efficiency Leverage Days Cash on Hand Debt Service Coverage Ratio Operating Margins Debt to Capitalization Minimum > 150 Days Minimum > 2.0 Minimum > 10% Minimum < 50% Actual 150 Days Actual 1.7 Actual -4.8% Actual 55% 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 Non-Compliance Affordability Competitiveness 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 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 12 Actual to Budget Analysis Budget Based Operating Revenues Fiscal Year Through March 31, 2022 $239.3 $206.5 $ f o s n o i l l i M $350 $300 $250 $200 $150 $100 $50 $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 13 Actual to Budget Analysis Budget Based Operating Expenses Fiscal Year Through March 31, 2022 $220.7 $186.0 $ f o s n o i l l i M $250 $200 $150 $100 $50 $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 14 Actual to Budget Analysis Budget Based Fund Summary Fiscal Year Through March 31, 2022 Variance to Budget Favorable (Unfavorable) Millions of $ Actual Budget Amount % Operating Revenues Operating Expenses Operating Income (Loss) Interest Revenue Debt Service Income (Loss) Before Transfers Administrative Support General Fund Economic Development CTM Fund Voluntary Utility Assistance Fund Other City Transfers Internal Transfers / CIP Excess (Deficiency) of Revenues $707 604 $103 1 (68) $36 (14) (57) (5) (6) (1) (1) (31) $667 556 $111 2 (67) $46 (14) (57) (5) (6) (1) (1) (31) ($79) ($69) $40 (48) ($8) (1) (1) ($10) 0 0 0 0 0 0 (0) ($10) 6% (9%) (7%) (57%) (1%) (21%) 0% 0% 0% 0% 0% 0% (0%) (14%) 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 Power Supply Adjustment Analysis $ f o s n o i l l i M $55 $50 $45 $40 $35 $30 $25 $20 $15 $10 $5 $0 Actual Cost Budget Cost 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 16 Capital Improvement Plan Summary Actual to Budget Analysis Fiscal Year Through March 31, 2022 Type of Project 36% of Spend Plan Type of Financing 33% 22% 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 17 Power Supply Adjustment Cost Components Twelve Months Ending March 2022 $578 Difference between Load Zone And Power Supply Costs $133M or 23% $445 $68 ($13) ($28) Load Zone ($160) Owned Assets Contracted Assets GreenChoice ® and Value of Solar Bilateral and Hedging Net Power Supply 18 $700 $600 $500 $400 s n o i l l i M $ $300 $200 $100 $0 ($100) ($200) t s o C e u n e v e R Austin Energy Quarterly Financial Report Financial Statements 19 Balance Sheet Snapshot Comparative Statement of Net Position Capital Reserve $71m $ in Millions Cash Other Current Assets Operating Reserves Nuclear Decommissioning Reserve Other Restricted Assets Capital Assets Other LT Assets & Deferred Outflows Total Assets and Deferred Outflows Other Current Liabilities Revenue Bonds Commercial Paper Other LT Liabilities & Deferred Inflows Retained Earnings Total Liabilities, Deferred Inflows, and Fund Equity 3/31/2022 3/31/2021 $234 $461 299 273 289 288 242 239 265 277 3,012 2,922 1,672 1,501 6,013 5,961 217 158 2,007 2,104 118 37 1,905 1,835 1,766 1,827 6,013 5,961 Power Supply Stabilization $110m Working Capital and Reserves $523m Working Capital $234m Contingency Reserve $108m $140 $120 $100 $80 $60 $40 $20 $0 $118 $99 $77 $63 $37 2QTR 2021 3QTR 2021 4QTR 2021 1QTR 2022 2QTR 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 20 $ in Millions 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 Income Statement Summary Over (Under) Recovery ($ in millions) 71 Income Statement 12 Months Ending 3/31/2022 3/31/2021 $972 $947 80 60 40 20 - (20) (40) 296 244 764 284 ($49) $117 (113) ($45) 2.1 54% 508 454 815 283 ($72) $125 (114) ($61) 1.7 55% 16 (8) (2) (34) Power Supply (29) Regulatory Community Benefit FY22 YTD Activity March 2022 Balance Average Number of Customers 526,436 516,340 Sales in Gigawatt Hours 6,236 5,940 2% 5% FYTD 2022 FYTD 2021 FYTD 2022 FYTD 2021 Residential Commercial/Industrial Residential Commercial/Industrial 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 Austin Energy Quarterly Financial Report Market and Industry Analysis Relationship between Austin Energy Operations and its Credit Ratings 22 Capital Project Funding Commercial Paper (CP) Bonds: Refunding of CP Bonds: Refunding of Bonds • CP is unsecured, short-term debt • City of Austin Treasury maintains $500M limit for AE and Water • CP is utilized to fund capital projects • Issued for both taxable and non-taxable financing • Bonds are used to refund CP on a periodic basis (every 2-3 years) • Bonds are secured by the revenues of the utility • Long-term debt (up to 30 years) • Both taxable and non- taxable bonds are issued • Bonds are used to refund prior issued debt, when financially feasible • Used to lower debt costs • Available when a bond becomes “callable” 23 Credit Rating Agencies Austin Energy Engages Three Major Agencies Credit Rating Agency Fitch Inc. Default/Highest Risk-----------------------------------------------Highest Credit Quality Rate Range D, C, CC, CCC, B, BB , BBB, A, AA, AAA + or – indicates strength or weakness in the assigned rating Austin Energy’s Rating & Outlook AA / Negative Moody’s B3, B2, B1, Ba3, Ba2, Ba1 ,Baa3, Baa2, Baa1, A3, A2, A1, Aa3, Aa2, Aa1, Aaa Aa3 / Stable Standard & Poor’s D, C, CC, CCC, B, BB , BBB, A, AA, AAA + or – indicates strength or weakness in the assigned rating AA / Negative High-Yield or “Junk” Investment Grade 24 Standard and Poor’s Credit Opinion May 7, 2021 Credit Strengths Credit Challenges • Customer growth of 7.3% over the past three years has supported maintaining coverage metrics and limited the need for rate increases. • Historically robust liquidity and reserves relative to normal weather conditions, including available contingency, power supply stabilization, and capital reserves and undrawn taxable commercial paper (CP). • Favorable operational profile, including its diversified generation resource mix of coal, gas, and efficient nuclear for base load that proved to be resilient during the extreme winter weather event in February 2021. • Growing residential customer base that is not concentrated in revenues from its principal customers and benefits from the Austin metropolitan statistical area's (MSA) deep employment base. • Debt needs over the next five years to fund 50% of its $1 billion capital improvement plan (CIP) will increase annual debt service requirements and will likely require revenue enhancements to maintain strong coverage levels. • Current power supply plans to cease operations at Decker unit 2 in October 2021 and its share of the Fayette Power Project by year-end 2022, which introduces additional price risk in the ERCOT market by reducing the firming attributes of dispatchable resources while increasing reliance on intermittent resources. • governance risk is heightened given that the environment in which Austin Energy operates increasingly requires stronger liquidity, proactive planning, hedging, and financial flexibility, which could be costly, versus most utilities in other regions where these risks are lower. 25 Impact of Credit Rating on Customers AA Rating vs. BBB Rating 17% reduction in total borrowing costs On a single $300M bond issuance, customers avoid $43.7M in interest expense over 30-years Credit Ratings are an Important Indicator of Management & Governance Austin Energy’s credit ratings are assigned by agencies based on their analysis of the credit risks associated with business and regulatory risks, financial risks, management and governance quality, and ability to service debt. Austin Energy’s current investment-grade ratings allow our customers to have lower bills. A rating downgrade would result in higher costs to borrow money and higher bills for our customers. $300 s n o i l l i M $250 $200 $150 $100 $50 $- 0 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 AA Rates Interest Cost BBB Rates Interest Cost 26 Direct Benefits of Credit Rating Reduced Costs, Improved Liquidity, Lower Customer Bills • Favorable credit rating results in less costly debt • Easier access to markets • Recruiting tool for personnel • Improved terms & conditions with vendors • Lower cash collateral requirements for energy trading 27 Current Debt Levels Outstanding Bonds and Commercial Paper Austin Energy currently has $2.007 billion of long-term debt* plus $118 million in short-term Commercial Paper debt. * Amount includes accrued interest, unamortized issuance cost, premium/discount. Commercial Paper $118.2M Long Term Debt $2,007.0M 28 Electric Utility System Revenue Bond Debt Service 180,000,000.00 160,000,000.00 140,000,000.00 120,000,000.00 100,000,000.00 80,000,000.00 60,000,000.00 40,000,000.00 20,000,000.00 - Principal Interest 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.