Energy Central-News Article

Jan. 23—CPS Energy trustees approved

a plan

Monday to end the era of coal-fired electricity generation in San Antonio within five years — and will now begin planning a pair of 5.5 percent rate increases to make it a reality.

The 4-1 approval capped a years-long process to map out the city's energy future and improve its chances of avoiding a replay of the devastating loss of power it suffered during a winter storm two years ago.

"The fact is, San Antonio is ending the use of coal no later than 2028," said Mayor Ron Nirenberg, who's also a CPS trustee. "I don't think that's a statement that we thought we would've been making at this point."

Trustee John Steen was the lone "no" vote, saying he was concerned about saddling customers with higher rates and opposed to the utility piling up more debt.

The plan, which calls for generating more electricity from natural-gas fired power plants and solar farms, was selected from 21 possible generation mixes examined by CPS staffers and a Rate Advisory Committee of 21 residents. Their broad goal was finding a way to shut down the city-owned utility's coal-fired J.K. Spruce plant, a major source of air pollution, while ensuring the lights will stay on during spells of extreme cold or heat.

The plan the utility's executives eventually picked and trustees approved Monday calls for CPS to

shut down the Spruce plant

— which in

2021 emitted nearly 8 million tons of carbon dioxide

— and two other aging gas plants by 2029 while adding nearly 2,200 megawatts of natural gas capacity and nearly 1,100 megawatts of solar generation.

One megawatt is roughly enough to power 200 homes on a summer day. CPS today operates about 550 megawatts of solar capacity.

Falls short on climate

While closing the Spruce plant — the city's largest single source of power — marks a long-sought victory for environmentalists, the utility plans to convert one of its two units to run on natural gas, which burns more cleanly than coal but produces potent methane emissions. In part because the plan maintains gas-fired power plants for decades to come, it is unlikely to reduce CPS' emissions enough to achieve the city climate plan's goal of decarbonizing San Antonio by 2050.

But each of the top nine portfolios CPS executives examined would require novel forms of energy — such as hydrogen or long-duration energy storage technologies — to meet the city's climate change goals. And under Portfolio 2, which was approved Monday, CPS officials have maintained that future development of cleaner-generation technology will enable them to change course in the years ahead, accelerating their move to cleaner generation.

As hydrogen production costs decline, for example, CPS could blend in zero-carbon hydrogen at its gas plants to reduce the intensity of emissions. It also might add carbon capture technology to make its gas plants net-zero emissions. And although the plan calls for running gas-fired plants until 2065, CPS CEO Rudy Garza said the utility could shutter the plants sooner than that.

Jimmy Perkins, a former professor of public health at the University of Texas, said he was troubled by such a nebulous approach to long-term emissions performance.

"The current request to approve Portfolio 2 with empty promises to change it in some future way without modeling is, frankly, an insult" to the planning process, he said.

Other options studied called for CPS to close its gas plants by the mid-2030s and rely more on wind and solar power and battery storage. The second-best option CPS staffers identified — Portfolio 9 — was apparently less expensive to put in place and would have reduced emissions more than Portfolio 2.

But CPS staffers and Nirenberg have argued that other alternatives — with greater reliance on renewables — could leave CPS without enough of its own power supply and force it to face volatile prices on the state's wholesale power market, where most of the power is generated by gas- and coal-fired power plants, anyway.

Cost concerns

In stating his opposition to the plan, Steen said he didn't want to saddle CPS with additional costs as it continues court battles over $360 million in bills for expensive natural gas it bought during the 2021 winter storm. He also cited the fact CPS customers owe the utility more than $200 million in unpaid late bills, and that the utility approved $70 million in annual spending last year on its energy efficiency program called STEP.

But costs were going up regardless what CPS decided Monday. In order to keep the Spruce 1 coal unit running past 2027, for example, CPS would have had to spend $150 million to install environmental controls at the site.

Converting the larger Spruce 2 coal unit to instead run on natural gas will cost the utility about $50 million, Garza said. That will allow CPS to reduce emissions from Spruce 2 but keep it producing power and making money for CPS, which still owes hundreds of millions of dollars on the facility. It opened Spruce 2 in 2010.

Portfolio 2 will slash CPS' emissions significantly in the years ahead, though less than other portfolio options. In 2021, CPS emitted just over 900 pounds of carbon dioxide for every megawatt-hour of electricity its plants generated, up from nearly 800 pounds in 2020. Under Portfolio 2, the utility's emissions are projected to decline to 518 pounds per megawatt-hour by 2030.

The plan will also bring CPS more in line with the power mix across the rest of the statewide grid.

From October 2021 through October 2022 — the most recent data CPS has provided — 24 percent of the power it generated came from coal, while just 12 percent came from renewable sources. Natural gas contributed 31 percent of the energy in San Antonio during that time, more than any other source.

By comparison, just 17 percent of the energy generated on the power grid operated by the Electric Reliability Council of Texas in 2022 came from coal-fired power plants, while wind and solar contributed 31 percent. Natural gas was the most widely used fuel, contributing 43 percent of the energy generated in ERCOT.

Rate increases

With its power generation plan set, CPS will next address the cash crunch it's experiencing largely as a result of $200 million of unpaid bills that customers owe the utility. Its expenses have also been higher in part because of increases in the price of natural gas over the past year.

CPS has told credit rating agencies — which gauge the utility's financial health and determine the interest rate it pays on debt — that it plans to address its cash shortfall and reduce debt by raising customers' rates by 5.5 percent a year from now, and by 5.5 percent again in early 2026.

CPS implemented a rate increase early last year of 3.85 percent, which added about $5 to the average San Antonio households' monthly CPS bill. But San Antonio ratepayers also saw their utility bills rise dramatically last year as record-high summer temperatures, costly natural gas prices and the elevated rates combined to push up the average San Antonio households' bill by 32 percent last summer compared with a year earlier.

"The inability, or unwillingness, to implement planned rate increases would likely pressure CPS Energy's rating, a risk that is amplified by a more stressed economic environment," Fitch Ratings analysts wrote last week, a nod to the fact City Council must approve rate hikes.

The higher rates CPS is poised to charge in the years ahead will translate to a windfall for the city of San Antonio. As the owner of CPS, the city typically collects 13 percent of the utility's top-line revenue — usually about $355 million each year.

After CPS boosts its revenue by lifting rates, the city would likely bring in from $80 million to $115 million more cash annually, according to Fitch Ratings.

diego.mendoza-moyers@express-news.net

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