Texas city-run and rural electric firms face bailout over storm crisis
By Jennifer Hiller, David French, & Karen Pierog, Reuters
(Reuters) – Financial strains on Texas city-owned utilities, rural electric cooperatives and the grid operator has spurred calls for state aid and lured private equity firms into plans to fix multi-billion-dollar charges.
The state’s power costs jumped by roughly 10 times the usual, to about $47 billion, during a week-long cold snap that took down nearly half of its power plants. The charges have driven one co-op into bankruptcy and left two dozen others facing bills they will be hard-pressed to cover without outside help.
Several private equity firms have been in talks with the operator of the Texas electric grid to provide it financial support, four people familiar with the talks told Reuters.
The grid acts as a clearing house, collecting from electric marketers including municipals and co-ops and paying generators usually within four days. When defaults occur, it spreads the shortfall to other grid users, adding pressure to those able to pay their own bills.
It remains unclear what form this funding would take and whether Texas officials would agree to an offer from private equity firms. The buyout firms would likely provide a loan or bond which would cover the near-term cash needs of the Electric Reliability Council of Texas (ERCOT), the people said.
ERCOT spokeswoman Leslie Sopko declined comment on financing options under consideration.
It was unclear whether the private equity talks would yield any agreement. The dialogue has been hampered by a power vacuum left by top-level departures at ERCOT and the state regulator, some of the people said. There are also disputes over whether the state could use its emergency funds bail out providers.
Rating agencies are warning that, absent a government financial rescue plan, significant borrowing will be needed. Rayburn Electric, a north Texas co-op that serves 225,000 customers, said its weekly power costs soared more than 900 times. Residential customers that normally pay $150 per month face more than $3,200 bills without some reduction, Chief Executive David Naylor said.
Taking money from private equity and infrastructure funds would be one alternative to a state-led bailout. Another would be for ERCOT to sell bonds backed by future fees, delaying an immediate cash call.
San Antonio’s municipal utility, the largest in the country, owes about $1 billion for gas and electricity purchased during the storm. The company – CPS Energy – has said it plans to seek $500 million in financing and may consider future legal remedies as a way to recover some of those costs.
Credit ratings firms warned of downgrades on dozens of rural electric co-ops and municipal utilities that have outstanding debt, moves that would raise their future debt costs.
“It could be politically challenging and it could be difficult to raise rates to recover these costs,” said Dennis Pidherny managing director at Fitch Ratings.
Texas power regulators on Friday vetoed requests by private electric providers and a recommendation by the state’s market adviser to rescind rates and fees mistakenly levied.
But officials may have to take a different tack when it comes to municipal providers and rural co-ops, officials said, because of their number and clout. The two groups have more than 3.5 million customers in the state combined, a Reuters tally shows.
“I don’t think we want a wave of municipal bankruptcies,” said state Senator Nathan Johnson, (D-Dallas). “At a minimum we’re going to have to find a way to stretch out the time period over which losses can be amortized or recovered. At a minimum.”
One of the state’s largest utilities, Vistra Corp, on Friday recommended any state bailout for the groups include a provision breaking the municipal providers’ lock on supplying their communities.