Item 11 3rd Quarter Financial Report — original pdf

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Item 11 Austin Energy Quarterly Financial Report 3rd Quarter FY 2022 (April - June) Adam McInroy AE Director of Finance August 8, 2022 © 2022 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 Debt policies. AE is in partial compliance with its financial Service Coverage is below 2.0x. Contingency and capital reserve balances are also below minimums, but total cash is above the minimum of $480m1. $1.1 Billion Operating Revenue Operating revenue for June FYTD is 11% over budget, primarily due to increases in usage, base revenue, and power supply revenue due to hot weather. Working capital decreased by $159m year over year, primarily due to scheduled margins, decreased funding of CIP, and the reduction in Supply the adjustment rate due to Winter Storm Uri. recovered Power $(1.2) Billion Expenses w/transfers Operating expenses for June FYTD including transfers are 10% over budget, primarily due increases in power supply and power production expenses due to hot weather. Austin Energy is meeting its target S&P bond rating of AA, but financial metrics show this to be at risk. Fitch has downgraded its rating for Austin Energy’s credit, from AA to AA-. 1. The policy framework considers a minimum of 150 days cash, with daily rate of cash expense measured at the time of budgeting. 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 Policy Monitoring Financial policies are 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 1.9x DSC Policy minimum is 2.0x DSC and Contingency Capital Reserve balances are below minimums but total cash above minimum of $480m1 1. The policy framework considers a minimum of 150 days cash, with daily rate of cash expense measured at the time of budgeting. 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 7 Austin Energy Quarterly Financial Report Financial Performance Measures 8 Ratings Monitoring AE has held a AA rating from Standard & Poor’s Global Ratings (S&P) since November 2018, but this rating is at risk given current financial metrics. 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 141 Days Actual 1.9 Actual -2.8% Actual 55% Daily expense here uses trailing twelve month actuals 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 http://finance.austintexas.gov/web/controller/annual_comprehensive_financial_report/annual_comprehensive_financial_report_2021.pdf 9 Monitoring AE’s Affordability Goal and Its Metrics 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, industrial customers as measured by published data from the Energy Information Administration (EIA) Form 861. commercial and 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 10 Austin Energy Quarterly Financial Report Actual to Budget Analysis 11 Actual to Budget Analysis: Consumption 1,345 1,184 ) 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 http://finance.austintexas.gov/web/controller/annual_comprehensive_financial_report/annual_comprehensive_financial_report_2021.pdf 12 Actual to Budget Analysis: Power Supply Adjustment $65.4 $44.6 s n o i l l i m $ $ 70 60 50 40 30 20 10 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 http://finance.austintexas.gov/web/controller/annual_comprehensive_financial_report/annual_comprehensive_financial_report_2021.pdf 13 Actual to Budget Analysis: Revenue Budget Based Operating Revenues Fiscal Year Through June 30, 2022 414 324 s n o i l l i m $ 500 400 300 200 100 0 Billed Base Power Supply Regulatory Transmission District Cooling 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 http://finance.austintexas.gov/web/controller/annual_comprehensive_financial_report/annual_comprehensive_financial_report_2021.pdf 14 Actual to Budget Analysis: Expense Budget Based Operating Expenses Fiscal Year Through June 30, 2022 381 288 s n o i l l i m $ 400 350 300 250 200 150 100 50 0 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 15 Actual Budget Power Supply Adjustment Cost Components Twelve Months Ending June 2022 $800 $743 Difference between Load Zone And Power Supply Costs: $256m or 34% $487 s n o i l l i m $ $600 $400 $200 $0 ($200) ($400) t s o C e u n e v e R $21 ($14) ($41) ($222) Load Zone Owned Assets Contracted Assets GreenChoice ® and Value of Solar Bilateral and Hedging Net Power Supply 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 16 Actual to Budget Analysis: Fund Summary Budget Based Fund Summary Fiscal Year Through June 30, 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 $1,137 931 $206 2 (109) $99 (21) (86) (7) (9) (1) (2) (40) ($67) $1,025 823 $202 3 (108) $97 (21) (86) (7) (9) (1) (2) (40) ($69) $112 (108) $4 (1) (1) ($2) 0 0 0 0 0 0 (0) $2 11% (13%) 2% (28%) (1%) (3%) 0% 0% 0% 0% 0% 0% 0% 4% 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 17 Capital Improvement Plan Summary Actual to Budget Analysis Fiscal Year Through June 30, 2022 Type of Project 53% of Spend Plan Type of Financing 23% 29% 49% 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 http://finance.austintexas.gov/web/controller/annual_comprehensive_financial_report/annual_comprehensive_financial_report_2021.pdf 18 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 6/30/2022 6/30/2021 $222 $381 292 291 289 288 245 240 292 172 3,004 3,054 1,685 1,525 6,029 5,951 302 181 1,971 2,070 145 63 1,849 1,839 1,762 1,798 6,029 5,951 Power Supply Stabilization $111m Working Capital and Reserves $511m Working Capital $222m Contingency Reserve $108m $160 $140 $120 $100 $80 $60 $40 $20 $0 $145 $118 $99 $77 $63 3QTR 2021 4QTR 2021 1QTR 2022 2QTR 2022 3QTR 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 http://finance.austintexas.gov/web/controller/annual_comprehensive_financial_report/annual_comprehensive_financial_report_2021.pdf 20 Income Statement Summary Income Statement 12 Months Ending 6/30/2022 6/30/2021 $995 $949 $ 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 568 513 813 281 ($44) $123 (114) ($35) 1.9 55% 309 255 769 287 ($53) $119 (113) ($47) 2.1 54% Pass-Through Over (Under) Recovery ($ in millions) 16 16 (2) (6) (27) 40 20 - (20) (40) (60) (80) (100) (89) Power Supply Regulatory Community Benefit FY22 YTD Activity June 2022 Balance Average Number of Customers 528,321 518,305 Sales in Gigawatt-hours 9,663 8,991 2% YOY change 8% YOY change 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 http://finance.austintexas.gov/web/controller/annual_comprehensive_financial_report/annual_comprehensive_financial_report_2021.pdf 21 Austin Energy Quarterly Financial Report Market and Industry Analysis Credit Ratings and Fitch Rating Action 22 Credit Ratings for Austin Energy Credit ratings provide: • Independent opinions on creditworthiness • Assessment of debt issuances’ relative likelihood of default Credit ratings affect: • Cost of new debt • Pricing for Power Purchase Agreements • Collateral and credit terms in contracts S&P Fitch Current Rating by Agency1 • AA • Outlook Negative • Upcoming review September 2022 • S&P rating at AA is AE’s internal strategic planning goal • AA- • Outlook Stable • June 2022 rating action Moody’s • Aa3 • Outlook Stable • December 2021 periodic review 1. Ratings are shown for three of the ten nationally recognized statistical ratings organizations. 23 Fitch Rating Action June 2022 Action Summary Rating Action • Downgraded from AA to AA- • Moved to Stable Outlook Agency’s Inputs and Assumptions • 7.6%, or $48m, base rate increase in January 2023 • 0.6% annual growth in sales • $1.1bn CIP funded ~50/50 Agency’s Assessment rate revenues • Elevated leverage • Weaker operating cash flows driven primarily by lower base • Elevated operating risk for ERCOT utilities • Base rate increase results in projected improvement in cash flows/leverage 24 Future Ratings Management Austin Energy’s ability to manage its ratings is affected by factors within Council influence and by factors outside of Council’s control. Factors that could lead to lower ratings (downgrades) include: • Continued elevated leverage • Weakened financial profile resulting from sustained inflation pressures • Unanticipated costs as Austin Energy transitions power portfolio • Increased risks in the energy sector • Increased risks in the ERCOT region’s operations or finances • Increased risks to the US or regional economy Factors that could lead to improved ratings (upgrades) include: • Improvement in cash flows • Projected decline in leverage • Improvement in ERCOT reliability or financial stability 25 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.