Item 7- Staff Briefing AE FY26 Financial Forecast — original pdf

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Austin Energy FY2026 Five-Year Financial Forecast Rusty Maenius Acting Deputy General Manager of Business Services May 12, 2025 © Austin Energy Item 7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 City of Austin’s audited Annual Comprehensive Financial Reports. 2 Agenda Current Status Challenges Proposal 2026 Five-Year Forecast Fund Summary and Key Performance Indicators 3 Austin Energy Historical Performance Finances have begun to stabilize Finances Are Better…But Not Great 4 o i t a R 4.0 3.5 3.0 2.5 2.0 1.5 1.0 0.5 - (0.5) Key Financial Metrics 213 170 164 117 94 250 200 150 100 50 - h s a C s y a D FY21 FY22 FY23 FY24 CYE 2025 $ in millions Net Income/(Loss) Total Cash and Reserves Debt Service Coverage Operating Margin Debt to Capital Days Cash on Hand Target FY21 FY22 FY23 FY24 (57) 617 1.9 -5% 54% 213 (22) 445 2.0 0% 55% 117 (29) 395 2.4 2% 56% 94 25 599 2.4 11% 57% 170 2.5 10% < 50% > 200 Days CYE 2025 61 639 2.4 12% 57% 164 5 Significant Challenges Ahead Current Finances Can Not Meet or Sustain the Path Forward Structurally Imbalanced Rates Revenues under current rates insufficient to cover rising costs. Slower Load Growth Forecast Decreased job growth highly correlated to slower load growth, reducing previously forecasted revenue growth. Inflation Drives Costs Higher Inflation in the electrical sector persists and is far higher than overall inflation. O&M increases outpace rates. System Investments Are Required Higher capital investment required to meet near-term and long-term needs, even without factoring in needs of Resource Generation Plan and Resiliency Plan. 6 Structural Imbalance Under Current Rates Failure to Adjust Rates Creates Budgetary Shortfalls $90M Shortfall Millions $2,150.0 $2,100.0 $2,050.0 $2,000.0 $1,950.0 $1,900.0 $1,850.0 $1,800.0 $1,750.0 Fcast 2026 Fcast 2027 Fcast 2028 Fcast 2029 Fcast 2030 Total Costs Total Revenue 7 System Energy Sales Slower Job Growth Decreases Revenue by ~$10M Energy Sales (MWh) Compounded Annual Growth Rates: 2019 - 2024(Normalized) 0.9% 2025 - 2030 1.3% 16000 15500 15000 14500 14000 13500 13000 12500 12000 11500 FY2024 14,072 GWh FY2025 CYE 13,973 GWh FY2030 14,868 GWh 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 Sales FY26 Forecast Historical Weather Normalized Sales FY25 Forecast 8 Inflation’s Impact Rising Costs Pressure Cashflow 199% 176% 76% 16% 14% 200% 180% 160% 140% 120% 100% 80% 60% 40% 20% 0% 2021 2022 2023 2024 Pad Mounted Transformer Single Phase Pole URD residential conductor Producer Price Index (PPI) Consumer Price Index (CPI) 9 O&M Expenses Outpacing Base Revenues • O&M increased at 5% compound annual growth rate. • O&M is paid from base revenue. • Over the period, base rates increased only once at 2% in 2024. $600,000,000 $500,000,000 $400,000,000 $300,000,000 $200,000,000 $100,000,000 $0 O&M Increased 17% Over 3 Years Expenses Growing Faster Than Base Revenues 5% Compound Annual Growth Rate* 2021 2022 2023 2024 10 What’s the Right Level of Investment? Ratio: Capital Expense / Depreciation Expense Plant Age* FY2021 FY2022 FY2023 FY2023 Austin Energy 112% 86% 105% 20 yrs Pedernales Electric Co-op Bluebonnet Electric Co-op 195% 149% 196% 4 Yrs 229% 263% 323% Not Rated LCRA 431% 256% 428% 15 Yrs *Note: Includes all plants in service including production, transmission, distribution and general plant. 11 Cost Pressures are Industry-Wide Nationwide and Statewide, Utilities are Raising Rates UNITED STATES TEXAS • Both PG&E (about $40 per customer) and SCE • Central Texas Electric Cooperative raised ($32) increased rates in 2024 revenues by 11.23% • ConEd in New York raised bills by 12% over • PEC raised residential rates by 4.4%,including a three years. $10/month Customer Charge increase. • Duke Energy raised residential bills by 13% in • Denton raised average residential rates by more the Carolinas, and base rate increases of $262M in Florida and almost $400M in Indiana. • Colorado Springs approved a 6.5% increase for each year from 2025 to 2029. than $30/month. • CPS raised rates by 4.25%, effective 2/1/2024. • New Braunfels Utilities raised rates by 4.8% in 2024 and will raise an additional 5.9% in 2025. 12 How Does Austin Energy Address Its Challenges? Create Long-Term Financial Plan to Support Operations and Minimize Rate Impact 5% Annual Base Rate Increases Directly Recover GFT in Regulatory, EES and SAL Rates* Prudent Cost Management $3 per month impact to the typical residential customer or approximately 2.5% overall bill increase. Offset by other rate adjustments that reduce the overall residential bill. Allows for costs to be recovered where the costs are caused, consistent with ratemaking principles, and accounts for pass-throughs outpacing base rates’ ability to keep up. Prudent cost management and finance structure, balancing the needs of the utility and customer bill impact. *General Fund Transfer (GFT); Energy Efficiency Services (EES); Service Area Lighting (SAL). 13 Growing Pass-Through Disparity Pressures Base Rates Proposal Cures Systemic Misalignment Regulatory Charge vs. Base Revenue Growth Indexed to 2013 3.50 3.00 2.50 2.00 1.50 1.00 0.50 - 2013 2017 2021 2025 2029 Base Rate Revenues Regulatory Charges 2.99 1.41 Proposed solution: Include the General Fund Transfer (GFT) as a recoverable component of Energy Efficiency Services (EES), Service Area Lighting (SAL) and Regulatory rates. As these pass-throughs increase, the associated GFT will be self-funding, freeing up necessary base rates to meet utility’s needs. 14 Recent Financial Actions Taken 2024 – 2025 Reduced Costs and Rebuilt Cash Reserves • Reduced O&M by $60M • Increased debt funding of CIP • Use PSA over-recovery to fund Power Supply Reserve • Acquired $100M letter of credit for power market collateral • Managed power supply costs 15 Components of Austin Energy’s Power Supply Adjustment FY2023 FY2024 1600 mm 1400 mm 1318 1200 mm 1000 mm 800 mm 600 mm 400 mm 200 mm mm -200 mm -400 mm -600 mm 559 647 542 68 33 2 3 $ -82 -130 -19 -20 -2 -57 -20 Load Cost -465 Owned Asset Net Revenue Contracted Asset Net Revenue GreenChoice and VOS Bilateral Hedging Financial Hedging CRR Hedging Net PSA Cost Disclaimer: Accounting data and ERCOT settlements are subject to change. Default uplifts, resettlement and true-up cycles, and CRR Auction Revenue distribution alter these results. Close I data are the closest basis for the results shown. 16 Rate Proposal Supports Financial Stability Current base revenues require annual 5% increase and GFT recovery in pass-through rates Impact of Forecasted Proposal Millions $2,300 $2,250 $2,200 $2,150 $2,100 $2,050 $2,000 $1,950 $1,900 $1,850 $1,800 $1,750 $1,700 $1,650 Fcast 2026 Fcast 2027 Fcast 2028 Fcast 2029 Fcast 2030 Total Costs Proposed Revenues Current Revenues Note: Pass-throughs consist of Regulatory, Energy Efficiency Services (EES) and Service Area Lighting (SAL) 17 Proposal Achieves Stable Residential Bills Austin Energy has enacted four 5% reductions to the Power Supply Adjustment in FY2025. This creates a year-over- year reduction to the customer’s bill, despite this year’s base rate increase of 5%, or about $3/month. Further adjustments to Pass-Through charges are not factored in. $130.00 $120.00 $110.00 $100.00 $90.00 $80.00 Austin Energy Typical Ratepayer Electric Utility Bill Typical Monthly Bill Change 121.96 116.27 119.21 122.30 125.55 128.96 FY25 Current FY26 Proposed FY27 Projection FY28 Projection FY29 Projection FY30 Projection 20.0% 15.0% 10.0% 5.0% 0.0% (5.0%) (10.0%) 18 Fund Summary and Key Performance Indicators 19 Austin Energy Forecast Fund Summary 5% Annual Base Rate Increase and GFT in Pass-Through Rates Millions of $ Beginning Balance Revenues/Transfers In Requirements: Operating Expenses Power Supply Expenses Debt Service CIP (Cash Transfer) General Fund Transfer Support Transfers AE Reserve Transfers Total Requirements Excess (Deficiency) Ending Balance FY2025 Budget FY2026 Forecast FY2027 Forecast FY2028 Forecast FY2029 Forecast FY2030 Forecast $285.9 1,856.5 $256.1 1,940.0 $236.9 2,021.8 $238.0 2,121.9 $238.3 2,207.8 $238.6 2,322.4 851.4 514.5 175.8 98.4 125.0 71.7 49.5 919.4 527.7 193.4 102.1 139.0 77.5 0.0 919.5 538.4 216.4 62.0 147.0 82.5 55.0 964.0 549.2 221.9 51.7 150.0 87.8 97.0 1,002.2 1,010.2 555.2 236.8 48.8 153.0 93.5 118.0 561.0 236.8 51.6 155.0 99.7 208.0 $1,886.3 $1,959.1 $2,020.8 $2,121.6 $2,207.5 $2,322.3 (29.8) $256.1 (19.2) $236.9 1.1 $238.0 0.3 $238.3 0.3 $238.6 0.1 $238.7 Note: Pass-throughs consist of Regulatory, Energy Efficiency Services (EES) and Service Area Lighting (SAL). 20 Forecasted Key Financial Metrics Summary 5% Annual Base Rate Increase and GFT in Pass-Through Rates Target Projected FY2025 Forecast FY2026 Forecast FY2027 Forecast FY2028 Forecast FY2029 Forecast FY2030 Operating Margin 10% 12% 10% 13% 16% 17% 20% Net Income (Millions of $) $61.1 $33.7 $70.6 $100.9 $117.3 $206.7 Quick Ratio > 1.5 2.4 2.1 2.0 2.0 1.9 1.8 Days Cash on Hand 200 Days 164 Days 149 Days 154 Days 169 Days 186 Days 225 Days Debt Service Coverage > 2.5 2.4 Debt to Capital < 50% 57% 2.2 57% 2.3 57% 2.4 56% 2.4 55% 2.8 53% Cash & Reserves $800M $639M $618M $646M $735M $834M $1,020M Note: Pass-throughs consist of Regulatory, Energy Efficiency Services (EES) and Service Area Lighting (SAL). 21 Austin Energy Forecast CIP Summary Millions of $ Budget FY2025 Forecast FY2026 Forecast FY2027 Forecast FY2028 Forecast FY2029 Forecast FY2030 Total 2026-2030 Distribution $159.1 $159.1 $119.5 $106.6 $96.9 $98.9 $581.0 Distribution Substation Transmission 26.9 56.0 30.9 65.0 34.4 32.2 39.1 42.1 178.7 102.2 115.5 123.0 128.0 533.7 Electric Service Delivery $242.0 $255.0 $256.1 $254.3 $259.0 $269.0 $1,293.4 Power Production $34.2 $35.4 $18.6 Joint Projects District Cooling General 13.5 25.8 86.3 13.5 12.5 28.7 12.3 37.0 6.7 $9.6 16.3 36.0 3.6 $9.6 13.5 25.0 3.3 $10.0 $83.2 13.5 69.1 3.0 3.3 113.5 45.6 Total $401.8 $345.1 $330.7 $319.8 $310.4 $298.8 $1,604.8 22 ©Austin Energy. 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