2 0 1 4 / 2 0 1 5 C P S E N E R G Y

A N N U A L R E P O R T

IOT

NVI

NAO

N

he utility industry is

experiencing a major

evolution as new technologies,

increased regulations and

changing customer expectations

converge – impacting not only the way

we do business, but also our strategic

outlook for years to come. In this rapidly

changing environment, we are proud

to be recognized as an innovative

leader in the industry for our forward-

thinking approach and public/private

partnerships. We continue to proactively

embrace change and leverage new

technologies to create programs and

partnerships that bring value to our

customers and community stakeholders.

The year 2014 was a period of solid

performance for us. We expanded our

diverse energy portfolio with additional

commitments to affordable clean power.

Currently, 54 percent of our generation

comes from low- or non-carbon-

emitting energy sources. We also have

the most solar generation capacity in

Texas, and we rank seventh in the nation

L E T T E R F R O M T H E C E O

for installed solar power. In addition,

this past year we were recognized by

the Pew Charitable Trusts and Cogent

Reports for leadership in renewable

energy development and proudly serving

as “a customer champion.”

We continue to adopt the latest

technologies to improve operational

efficiencies and reliability and to expand

our customers’ options and experiences.

In 2014, we launched our Smart Grid

Initiative that will help strengthen our

top-tier electric reliability rating. With

this state-of-the-art infrastructure, our

customers will have immediate access to

more information, giving them the tools

to better manage their energy use.

As an integral part of the community,

our New Energy Economy (NEE)

partnerships have brought leading-edge

technology and economic development

to our community with an impact of more

than 500 jobs created and an economic

benefit of more than $800 million annually.

Our commitment to customer

satisfaction has driven the development

of innovative programs. This past

year, we created a new field-based

community engagement team to

strengthen our grass-roots customer

outreach efforts. In addition, we’re pleased

that our Casa Verde weatherization

program reached a milestone of providing

valuable energy improvements to more

than 10,000 customers.

Furthermore, our team members

pledged a record-setting $1 million to

our annual United Way campaign and

contributed nearly 14,000 volunteer hours

to assist local non-profit organizations.

Our successes and milestones

throughout the year and our ability to be

an innovative industry leader is due to the

hard work and commitment of our team

members, our Board of Trustees’ vision

for the future, and the staunch support of

our Greater San Antonio community.

> > C P S E N E R G Y I S P R O U D T O B E R E C O G N I Z E D

A S A N I N N O V A T I V E L E A D E R I N T H E I N D U S T R Y

F O R O U R F O R W A R D - T H I N K I N G A P P R O A C H

A N D P U B L I C / P R I V A T E P A R T N E R S H I P S . < <

-Doyle N. Beneby

Our commitment to customer satisfaction

is driving technology enhancements and

new ways of doing business at

CPS Energy. We strive to provide

exceptional service to more than 1 million

gas and electric customers every day.

In 2014, we created a field-based

community engagement team to

strengthen our customer outreach

through grass-roots efforts and

take a more proactive approach

to customer service.

Embedded in the group is the mobile

Customer Response Unit (CRU), a

distinctive hybrid model of customer

service. The CRU works directly with

customers with unique needs using a

case management style. Extra time,

coordination and attention was given

to 400 cases in six short months after

the CRU activated, allowing greater

efficiency among customer service

representatives who respond to more

than 4 million requests annually.

The community engagement

group increased awareness of and

D E L I V E R I N G C U S T O M E R C O M M I T M E N T

>> WE STRIVE

TO PROVIDE

EXCEPTIONAL

SERVICE TO

OUR 772,000

ELECTRIC AND

337,000 GAS

CUSTOMERS

EVERY DAY. <<

650

I n 2 014 , t h e

C u s t o m e r Re s p o n s e U n i t

e n g a g e d w i t h c u s t o m e r s a t

o u t r e a c h e v e n t s .

O U R C U S T O M E R R E S P O N S E U N I T T A K E S F A C E - T O - F A C E S E R V I C E D I R E C T L Y T O C U S T O M E R S T H R O U G H O U T O U R C O M M U N I T Y .

O U R C U S T O M E R S E R V I C E R E P R E S E N T A T I V E S D E L I V E R E D A D V I C E , O P T I O N S A N D A S S I S T A N C E D U R I N G 4 . 1 M I L L I O N U N I Q U E C U S T O M E R E X P E R I E N C E S L A S T Y E A R .

enrollment in assistance programs,

and engaged customers about energy

efficiency and safety at 650 outreach

and intake events. With an existing

Casa Verde weatherization team

under its umbrella, the group hit a

major milestone of providing energy-

saving improvements to more than

10,000 customers. The Casa Verde

weatherization program is helping our

customers save an average of $350 a

year on their energy bills.

In 2014, our Board of Trustees, and

subsequently the San Antonio City

Council, approved a late-fee waiver

for our low-income seniors. More

than 6,400 seniors are expected to

immediately benefit from the waiver,

saving them a cumulative total of

about $88,000. It complements

several other assistance programs,

including ones for burned military

veterans, low-income families with

children, the disabled, and those facing

temporary hardships. Additionally,

we provide a minimum of $1 million

annually to the Residential Energy

Assistance Partnership (REAP) bill

payment assistance program.

New commitments to our

customers coupled with ongoing

energy efficiency efforts under the

Save for Tomorrow Energy Plan (STEP)

are creating time, energy and bill

savings. More than 17,000 customers

took advantage of rebates through

a robust program that incentivized

customers to replace energy inefficient

refrigerators, air conditioning units,

and emissions-blowing mowers, while

adding solar panels, tree canopy,

and attic insulation. In 2014,

customers reduced energy use by

138 megawatts (MW) through STEP.

Our customers play a strong role in

making decisions that will improve our

entire community. And, we believe it’s

important to make their choices easy.

That’s what we’re committed to, and

that’s what we’ll do because

CPS Energy works for you.

THROUGH OUR SAVE FOR

TOMORROW ENERGY

PLAN, CUSTOMERS

REDUCED ENERGY USE

BY 138 MEGAWAT TS .

> > O U R C ASA V E R D E W E AT H E R I Z AT I O N

P R O G R A M H I T A M A J O R M I L E STO N E O F

P R OV I D I N G E N E R GY SAV I N G S TO M O R E T H A N

10,000 CUSTOMERS . < <

O U R A C C O U N T M A N A G E M E N T T E A M W O R KS C L O S E L Y W I T H C O M M E R C I A L C L I E N T S T O H E L P T H E M I N C R E A S E E N E R G Y E F F I C I E N C Y A N D M A N A G E P O W E R U S A G E .

E M P OW E R I N G O U R T E A M

Because much of our future

success depends on maintaining a

skilled and diverse workforce, we have

placed a renewed focus on talent

development, rolling out initiatives

such as EmpowerU, CPS Energy

University, talent development teams

and a job rotation program.

EmpowerU offers a new and

different kind of talent development

opportunity to team members,

who have consistently ranked

opportunities for growth and

development as a top priority. In

spring 2014, EmpowerU attendees

heard from Ed Whitacre, who led

AT&T for 17 years before coming out of

retirement to successfully lead General

Motors out of bankruptcy. He urged the

crowd to take risks, “If you don’t take

risks, you lose,” he said. “If you’re always

in defensive mode, you lose.”

Our team members have the

opportunity to expand their

knowledge and skills by serving

on talent development teams that

include our employees and those from

partnering companies like Rackspace,

OCI Solar Power, Joint Base

San Antonio (JBSA) and H-E-B. These

collaborative teams work on mutually

beneficial projects, allowing members

to learn firsthand about the other

companies’ cultures and processes.

> > O U R T E A M M E M B E R S HAVE

THE OPPORTUNIT Y TO EXPAND

THEIR KNOWLEDGE A N D S K I L L S

BY S E R V I N G ON TA L E N T

D E V E LO P M E N T T E A M S .<<O N E C P S E N E R G Y T A L E N T D E V E L O P M E N T T E A M

P A R T N E R E D W I T H H - E - B T O E X C H A N G E I D E A S A N D P R O C E S S E S .

O U R J B S A T E A M I S W O R K I N G W I T H M I L I T A R Y B A S E S T O I N C R E A S E E N E R G Y C O N S E R V A T I O N A N D I M P L E M E N T R E N E W A B L E E N E R G Y O P T I O N S .

>> ALL INTERNAL TRAINING NOW

FALLS UNDER ONE ORGANIZATION –

C P S E N E R GY U N I V E R S I T Y . < <

Additionally, 70 managers attended a four-day

Leadership Development Program at Our Lady of the

Lake University, and more than a dozen executives

completed the Rice University Jones School of

Business Accelerated Development Program that is

designed to help prepare leaders for the transition to

general management.

In-house training is another vital component

to ensuring our team members’ success. Prior

to realigning in the past couple of years,

multiple training areas co-existed throughout

the Company. Now, all internal training

falls under one organization – CPS Energy

University. The new structure allows for

better integration, and the University has

added more courses to help prepare team

members transition into new areas or

leadership roles. This was especially

advantageous as more than 100

team members were promoted, as

a cascading effect of our Voluntary

Retirement Incentive Program, under

which 280 team members elected

to retire in 2014. Team members

had been requesting a retirement

incentive program, and leadership

listened – taking the time to

carefully plan and execute the

program while maintaining

business continuity and top-

tier performance.

C P S E N E R G Y U N I V E R S I T Y U T I L I Z E S S T A T E - O F - T H E - A R T T R A I N I N G E Q U I P M E N T T O E N H A N C E E M P L O Y E E S ’ T E C H N I C A L S K I L L S .

INVESTING IN TECHNOLOGY & PARTNERSHIPS

Utilities can fight the disruptive

changes facing the energy industry or

continually innovate to stay relevant

and create value out of emerging and

new technologies.

Led by President and CEO Doyle

Beneby, we have embraced the latter

path and are committed to deploying

new technologies to create programs

and partnerships that bring value to

collaborate with companies on new

ways to utilize the grid by supporting

transformational products and

services like micro-grids, big-data

analytics and battery storage.

In 2014, we developed two new

solar programs with the aim of

radically increasing the amount of

solar power in our region. While

San Antonio already ranks seventh in

> > W E ’ V E D E V E L O P E D

T W O N E W S O L A R

P R O G R A M S W I T H T H E

A I M O F R A D I C A L LY

I N C R E A S I N G T H E

AMOUNT OF SOL AR

P OW E R I N O U R

R E G I O N . < <

500J O B S T H U S F A R .

O U R P A R T N E R S H I P S W I T H C L E A N E N E R G Y

C O M P A N I E S H A V E C R E A T E D M O R E T H A N

our customers without risking

our hard-earned and enviable

financial status.

“The world is changing. We are

facing a low-carbon, interconnected

future where innovation will be key,”

Beneby said recently at a gathering of

traditional and new energy companies

in San Antonio.

The companies were invited

to partner with us on a “Grid of

the Future” project, part of our

$290 million Smart Grid Initiative,

launched in 2014 to upgrade our

grid infrastructure with 21st century

communications technology. Once

complete, the smart grid will boost

efficiency and reliability, while

offering customers more control over

the power they consume. We will

C L E A N E N E R G Y P A R T N E R S H I P S , L I K E M I S S I O N S O L A R , H A V E H A D E C O N O M I C B E N E F I T S O F M O R E T H A N $ 8 0 0 M I L L I O N A N N U A L L Y I N O U R C O M M U N I T Y .

the nation for solar power, thanks to

our utility-scale projects, we wanted

to increase access to solar power

for those customers who cannot

afford the still-high upfront costs of

rooftop systems, or who don’t have

qualifying roofs.

Our community solar program will

allow customers to buy a share of a

1-MW site located on land in

our territory. They’ll see a credit on

their bill for the power that share

generates. Our rooftop program will

include installation of solar panels on

residential and non-profit commercial

rooftops – at no cost to them – in

exchange for a “hosting” fee for

the use of the rooftop. Under both

programs, we will partner with

private companies and buy the

output from the panels.

These kinds of partnerships pave

the way to a future where our

customers have increasing choice and

flexibility in the ways they consume

and manage energy, and build on

the existing partnerships that have

contributed to making us an

industry leader.

Our NEE initiative, for example,

continues to reap benefits for our

community. According to the 2014

economic impact report from

Dr. Steve Nivin of St. Mary’s University,

our partnerships with more than a

half dozen clean-energy-related

companies have directly created

more than 500 jobs thus far. Add

indirect and induced jobs, and the

total soars to more than 2,600 jobs.

With the multiplier effect, Nivin found

economic benefits of more than

OUR NEW ENERGY ECONOMY INITIATIVE

HAS CREATED ECONOMIC BENEFITS OF

MORE THAN $800 MILLIONANNUALLY.

$800 million annually.

These impressive and impactful

efforts attract organizations like

Advanced Energy Economy, which

invited our CEO/President onto its

board after co-hosting a private

CEO think tank event with us in June

of 2013, and the federal Advanced

Research Projects Agency-Energy

(ARPA-E) which invited our

CEO/President to speak at its

Energy Innovation Summit earlier this

year, along with the likes of Energy

Secretary Ernest Moniz and

former U.S. Treasury Secretary

Henry Paulson.

While our profile as an innovative

industry leader grows, our primary

focus will always remain on our

customers. That means using

technology and partnering with

innovative and like-minded companies

in an effort to produce safe, affordable

and reliable power.

>> T H E S M A RT G R I D W I L L B O O ST

E F F I C I E N C Y A N D R E L I A B I L I T Y ,

WHILE OFFER ING OUR CUSTOMERS

M O R E C O N T R O L OV E R T H E

P OW E R T H E Y CO N S U M E. <<

C P S E N E R G Y P U T S S M A R T M E T E R S T H R O U G H A R I G O R O U S T E S T I N G P R O C E S S B E F O R E B E I N G I N S T A L L E D .

As members and active participants of

Greater San Antonio’s vibrant community,

our proud and dedicated team members

provide or support a multitude of

critical services.

We focus on contracting with locally

owned businesses when possible to

strengthen our value to our community.

Last year, we awarded nearly

$6.5 million in contracts to veteran-

owned businesses, and for the

past three years, we’ve hosted

the Veteran Symposium & Expo

to help veteran entrepreneurs

connect directly with procurement

organizations and business partners.

Another way we’re ensuring our

community’s needs are met is through

our commitment to the United Way

of San Antonio and Bexar County, and

in 2014 our generous team members

demonstrated a million ways to give.

For the first time ever, employee

and retiree contributions and

fundraising for the annual United Way

campaign surpassed the $1 million

S T R E N G T H E N I N G O U R C O M M U N I T Y

>> FOR THE FIRST

TIME EVER, OUR

ANNUAL UNITED

WAY CAMPAIGN

SURPASSED THE

$1 MILLION

THRESHOLD. <<

threshold. We’re also strengthening

our community and cultivating

tomorrow’s leaders through

educational investments. We reached

a new level of participation in the San

Antonio Youth Literacy Reading Buddy

program, with more than 100 team

C P S E N E R GY E M P LOY E E V O LU N T E E R S C L E A N U P AT T H E R O N A L D M C D O N A L D H O U S E .

O U R T E A M M E M B E R S S U P P O R T T E C H N O L O G Y E D U C A T I O N B Y S E R V I N G A S J U D G E S F O R A L A M O - F I R S T R E G I O N A L R O B O T I C S C O M P E T I T I O N .

I N 2 014 , T E A M M E M B E R S

V O L U N T E E R E D N E A R LY 14,000

HOURS TO A S S I ST L O C A L

C H A R I T I E S A N D N O N - P R O F I T S .

> > > > > > > > > > > > > > > > > > > > > > > > > > >

>>>>>>>>>>>>>>>>>>>>>>>>>>>members helping second graders

improve their reading skills. Our team

members mentor youth at risk of not

graduating, as well as top students

interested in engineering and technical

fields. In 2014, we co-sponsored

the Alamo-FIRST Regional Robotics

Competition, the largest K-12

robotics competition in the United

States. Each year, we partner with

the San Antonio Hispanic Chamber

to sponsor the CORE4 STEM Expo,

to bring greater awareness to and

generate interest in the Science,

Technology, Engineering and Math

(STEM) fields.

Through our high school mentoring

and internships programs, we’ve

awarded nearly $700,000 in

scholarships and encouraged students

to attend college. Because education

is one of our top priorities, we

included an educational investment

component in the agreements we’ve

forged with our NEE partners. From

2011 (when we began our NEE

initiative) to date, these agreements

have culminated in an impressive

$13.3 million commitment from our

partners to local education.

Another way we support our

community is by “lending a hand.”

In 2014, our team members

volunteered nearly 14,000 hours

to assist local charities and non-

profit organizations, and helped

with community projects like the

Salvation Army Angel Tree Program

and Communities in Schools Stuff the

Bus school supply drive, as well as our

own Kids’ Fish event benefitting the

youth at Boysville. > > O U R N E W E N E R G Y

E C O N O MY PA R T N E R S H AV E

C O M M I T T E D $13 . 3 M I L L I O N

T O L O C A L E D U C A T I O N . <<

W E H A D M O R E T H A N 10 0 E M P L O Y E E S H E L P I N G S E C O N D G R A D E R S I M P R O V E T H E I R R E A D I N G S K I L L S .

WE’VE AWARDED NEARLY

$700,000IN SCHOLARSHIPS.

Solar panels produced in San Antonio

now bring renewable power to local

homes and businesses. The increasing

number of solar farms in and around our

area, combined with the development of

the partnerships and resources to create

the elements of each farm, demonstrate

our commitment to provide our

customers with affordable

clean energy.

In September, Mission Solar

Energy LLC opened the doors to

the only solar cell and module

manufacturing facility in Texas. Today,

nearly 300 employees build solar

panels at the new plant. It is the

first and only company in America to

commercially manufacture N-type

solar panels, an advanced technology

that produces electricity more

efficiently than conventional modules.

These modules, paired with new dual-

axis sun tracker technology, are part

of a 5.5-MW solar farm that is the

latest addition to a growing fleet of

renewable energy projects.

B U I L D I N G O U R C O M M I T M E N T T O C L E A N E N E R GY

>> CPS ENERGY

HAS 134 MW

OF SOLAR

GENERATION

CAPACITY –

THE MOST

IN TEXAS. <<

500MW

B y 2 0 1 7 ,

c o m m e r c i a l a n d

r e s i d e n t i a l a r r a y s

i n a n d a r o u n d

S a n A n t o n i o w i l l

t o t a l n e a r l y

o f r e n e w a b l e e n e r g y .

A L A M O 3 S O L A R F A R M

M I S S I O N S O L A R E N E R G Y

generation fleet – tops nationally

among municipal utilities.

In 2014, we also added a second

methane-gas-to-electricity plant

that turns decomposing landfill waste

into clean energy.

Demand response, or the voluntary

curtailment of energy use during

periods of high energy demand,

has become a popular energy

conservation tool for our customers.

In 2014, more than 110,000

customers conserved electricity

through the use of CPS Energy-

sponsored programmable thermostats

and energy management systems

in their homes. Businesses,

including schools, hotels, hospitals

and manufacturing facilities,

either enrolled or expanded their

participation, accounting for more

than 83 MW of savings – enough to

power at least 21,000 homes.

Thanks to commercial and industrial

demand response initiatives, nearly

2 million pounds of carbon were

curtailed in 2014. Today, 54 percent

of our generation comes from low- or

non-carbon-emitting energy sources.

In addition to renewables, energy

efficiency and demand response, we

continue to focus on low-carbon

fuels like natural gas – increasing gas

generation by 17 percent in 2014 –

to meet more of our base-generation

needs and reach our target of

65 percent low- or non-carbon-

emitting resources by 2020. When

the Environmental Protection Agency

(EPA) proposed its Clean Power

Plan last June, we were already

on an aggressive path to diversify

our generation fleet to low-carbon

generation resources. We believe

these efforts will help the state

of Texas meet emission reduction

targets that are likely to be mandated

in the future by the EPA.

N E A R LY 2 MILLION

P OUNDS O F C A R B O N

WAS C U RTA I L E D T H R O U G H

CO M M E R C I A L A N D I N D U ST R I A L

D E M A N D R E S P O N S E I N I T I AT I V E S .

Through power purchase

agreements with a number of

solar farm operators, we now have

134 MW of solar generation

capacity – the most in Texas. More

than 300 MW of utility scale sun

power are still in development. By

2017, our commercial and residential

arrays in the San Antonio area and

around Texas will total nearly

500 MW of renewable energy capacity.

Renewable power is integral to

providing more environmentally

friendly generation alternatives to

our customers. In addition to solar,

we are purchasing power from more

than 1,000 MW of wind generation

capacity that complements our

O U R C O M M I T M E N T T O T H E E N V I R O N M E N T W A S R E C O G N I Z E D W I T H A 2 014 N O R T H A M E R I C A N G R E E N F L E E T A W A R D .

54P E R C E N TO F O U R G E N E R AT I O N

CO M E S F R O M LOW -

O R N O N - C A R B O N -

E M I T T I N G S O U R C E S .

F O R T H E F I S C A L

Y E A R E N D E D

J A N U A RY 31,2015,

W E M A D E

PAY M E N T S TO

T H E C I T Y O F

SAN ANTONIO OF

$336M I L L I O N .

BUILDING ON OUR FINANCIALSTRENGTH

Because of our financial integrity

and fiscal responsibility, our customers

continue to benefit from the lowest

electric and natural gas rates among

the 10 largest cities across

the country.

In 2014, we were pleased to

announce the elimination of a base

rate increase request that had been

projected to take effect in February

2016. Several factors allowed us

to eliminate the proposed base rate

increase, including lower debt costs,

stronger than expected electric

sales, and operational and process

improvements being implemented

across the entire Company.

Additionally, we carried out several

prudent financial transactions during

the fiscal year. In July 2014, we issued

$200 million of junior lien bonds to

fund capital projects to strengthen our

strength. We continue to maintain

solid credit ratings on our senior lien

bonds from all three major credit

ratings agencies: AA+ by Fitch Ratings,

Aa1 by Moody’s Investors Service,

and AA by Standard & Poor’s

Ratings Services.

In February 2014, we executed

an agreement with Exelon and

other parties that resulted in the

termination of the 2001 lease/

leaseback arrangement related to

our Spruce Unit 1 power plant. This

growing system. In November 2014,

we issued $262.5 million of 2014

junior lien refunding bonds, proceeds

from which were combined with the

$37.3 million premium associated

with the new bonds and used to

refund the $294.6 million par value

of senior lien bonds issued in 2005.

This refunding resulted in a net

present value debt service savings of

$36 million, to be realized over the

next six years. In December 2014,

we remarketed $47.1 million of the

2012A junior lien variable-rate bonds,

which reduced outstanding debt

by approximately $1 million. And in

January 2015, we issued a total of

$250 million in junior lien refunding

bonds and used the proceeds to

refund $250 million of the 2003

junior lien variable-rate bonds, which

eliminated a requirement for third-

party liquidity support.

The successful execution of these

transactions was attributed primarily

to our high credit ratings and financial

D O W N T O W N S A N A N T O N I O

termination transaction resulted in a

net non-cash gain of approximately

$43 million that was reported as a

special item on our Statements of

Revenues, Expenses and Changes in

Net Position.

For the fiscal year ended January 31,

2015, we made payments to the

City of San Antonio, of $336 million.

This practice carries on our long-

standing commitment of making this

important payment to the City of

San Antonio.

EXECUTIVELEADERSHIP TEAM

Left to Right:

Jelynne LeBlanc BurleyGroup Executive Vice President &

Chief Delivery Officer

Cris EugsterGroup Executive Vice President &

Chief Generation & Strategy Officer

Doyle N. BenebyPresident & Chief Executive Officer

Paula Gold-WilliamsGroup Executive Vice President -

Financial & Administrative

Services, Chief Financial

Officer & Treasurer

Carolyn ShellmanGroup Executive Vice

President & General

Counsel

B O A R D O F T R U S T E E S

CITIZENS ADVISORY COMMIT TEE

Katrina Glavan-HeiseChair & Member at Large

Corina Castillo-JohnsonVice Chair & District 10 Representative

Kyle LindseyMember at Large

Michael MoczygembaMember at Large

Pilar PinillaMember at Large

Klaus WeiswurmMember at Large

Esther De LeonDistrict 1 Representative

William B. JohnsonDistrict 2 Representative

Lulu AvituaDistrict 3 Representative

George Britton Jr.District 4 Representative

Andy CastilloDistrict 5 Representative

Alvaro RodriguezDistrict 6 Representative

Roger PlasseDistrict 7 Representative

Robert RomeoDistrict 8 Representative

Ram KhattiDistrict 9 Representative

Nora ChávezBoard Chair

Not Pictured: Mayor Ivy Taylor Mayor & Ex-Officio Member

Edward KelleyVice Chair

Derrick HowardTrustee

Dr. Homer GuevaraTrustee

> > > > > > > > > > > > > > > > > > > > > > >

>>>>>>>>>>>>>>>>>>>>>>>

R E P O RT O F M A N AG E M E N T

F I N A N C I A L S T A T E M E N T S A V A I L A B L E O N L I N E A T :C P S E N E R G Y . C O M

-Doyle N. Beneby

President & Chief Executive Officer

-Paula Gold-Williams

Group Executive Vice President - Financial &

Administrative Services, Chief Financial Officer &

Treasurer

April 22, 2015

F I N A N C I A L S

he FY 2015 financial audit

was successful. Based on

procedures they conducted,

our external auditors, Baker

Tilly Virchow Krause, LLP; Garza,

Preis & Co., L.L.C.; and Robert J.

Williams, CPA, issued an unmodified

opinion indicating that our financial

statements were found to be free of

reporting deficiencies.

The audited basic financial

statements were prepared by our

Management Team in conformity with

accounting principles generally accepted

in the United States of America, and

the statements are presented fairly

in all material respects. We have also

prepared other financial information

presented in the annual report and

have ensured that it is consistent

with information in the audited

financial statements.

Our Management Team maintains

accounting, financial reporting and

administrative internal controls designed

to provide reasonable assurance that

the financial information is relevant,

reliable, and accurate and that assets

are appropriately accounted for and

adequately safeguarded. These controls

are supported by formal policies and

procedures readily communicated

throughout our Company. Additionally,

CPS Energy has an internal audit

function that assists in evaluating the

adequacy and effectiveness of the

control environment.

CPS Energy’s independent Board of

Trustees is responsible for reviewing

and accepting both the audited

financial statements and Management’s

Discussion and Analysis (MD&A). The

Board of Trustees, primarily through

two of their members who comprise

the Audit Committee, ensures

our Management Team fulfills our

responsibilities for financial reporting.

The Board of Trustees also approves the

engagement or reappointment of the

external auditors.

The Audit Committee meets

regularly with our Management Team,

and with the internal and external

auditors, to discuss internal control and

financial reporting issues and to ensure

each party is properly discharging its

responsibilities. The Audit Committee

reviews the audited financial statements

and the external auditors’ report and

considers the statements for review and

acceptance by all members of the Board.

CPS Energy’s external auditors

have audited the financial statements

in accordance with auditing standards

generally accepted in the United States

of America. They performed procedures

to obtain audit evidence deemed

sufficient and appropriate to provide a

basis for their opinion on the fairness

of the audited financial statements.

In support of the external auditors’

procedures, our Management Team

provided them full and free access to our

accounting records.

T H R E E - Y E A R H I G H L I G H T S // U N A U D I T E D

APPLICATION OF REVENUEF I S C A L Y E A R E N D E D J A N U A R Y 3 1

o p e r at i o n & m a i n t e n a n c e

d e bt r e q u i r e m e n ts & o t h e r i n t e r e st

c i t y paym e n t

r e pa i r a n d r e p l a c e m e n t a cc o u n t

2015 2014 2013

TOTAL REVENUE F I S C A L Y E A R E N D E D J A N U A R Y 3 1

( I N B I L L I O N S )

e l e c t r i c g as n o n o p e r at i n g

$2.7

2015 2014 2013

$2.5$2.3

2.4 2.2 2.0

0.2 0.2 0.20.1 0.1 0.1

60%63% 61%

15%15% 18%

12%12% 13%

13% 10% 8%

T H R E E - Y E A R H I G H L I G H T S // U N A U D I T E D

NEW CONSTRUCTION EXPENDITURESF I S C A L Y E A R E N D E D J A N U A R Y 3 1

( I N M I L L I O N S )

n u c l e a r

g e n e r at i o n & st r at e gy

c o a l

t r a n s m i s s i o n & d i st r i b u t i o n

p u r c h as e d p ow e r - r e n e wa b l e s p u r c h as e d p ow e r - o t h e r

g as

a l l o t h e r

$532

148

286

98

$437

281

40

$859

546

269

44

116

2015

2015

2014

2014

2013

2013

ELECTRIC GENERATION & OTHER POWERF I S C A L Y E A R E N D E D J A N U A R Y 3 1

25%

42%

19%

11%

24%

41%

18%

11%

3%

25%

43%

20%

9%3%6%

Includes the acquisition of the Rio Nogales combined-cycle natural gas electric generating plant.

T H R E E - Y E A R H I G H L I G H T S // U N A U D I T E D

ELECTRIC SALES

GAS SALES

F I S C A L Y E A R E N D E D J A N U A R Y 3 1

F I S C A L Y E A R E N D E D J A N U A R Y 3 1

( I N M I L L I O N M W H )

( I N M I L L I O N M C F )

31.929.3 28.7

9.5

9.3 9.2

12.2

25.7

11.7

14.0

10.8

25.4

14.6

21.4

8.6

12.8

12.3 12.2

10.2 7.7 7.3

2015

2015

2014

2014

2013

2013

r e s i d e n t i a l c o m m e r c i a l & o t h e r w h o l e s a l e

r e s i d e n t i a l c o m m e r c i a l & o t h e r

COMPARISON OF RESIDENTIAL ELECTRIC

AND GAS BILLS FOR THE 10 LARGEST

U.S. CITIES 1 // F Y 2 014 - 2 015

CPS Energy is the nation’s largest municipally owned natural gas and electric company, providing service to

772,000 electric and 337,000 natural gas customers in the Greater San Antonio area. With our AA+ credit

rating, one of the best in the industry, we offer best in class reliability and the lowest rates among the top 10

largest U.S. cities. We recognize our role as a community partner and are continuously focused on job creation,

economic development and educational investment. Powered by our people, our investment in the community is

demonstrated through our team members’ generosity in giving $1 million to United Way. We are also committed

to investing in clean energy. CPS Energy is the number one wind energy buyer among the nation’s municipally

owned utilities and number one in Texas for solar generation. For more information, visit cpsenergy.com .

about cps energy

2

2

Monthly average for 12 months ended January 2015 based on 1,000 kWh and 5 mcf.

The e lec tr ic amounts used for Dal las and Houston are an average of a l l res ident ia l e lec tr ic providers in the ir area.

1

2

D E S I G N B Y C P S E N E R G Y C O R P O R A T E C O M M U N I C A T I O N S

P H O T O G R A P H Y B Y L O U I E P R E C I A D O

P . O . B O X 1 7 7 1 S A N A N T O N I O , T X 7 8 2 9 6 • C P S E N E R G Y . C O M