Texas ratepayers are on the hook for at least $10.1 billion in debt that was incurred during the deadly February 2021 storm and they will be paying off much of that debt for the next 30 years. Making matters worse, the surcharges added to consumers’ bills to repay that debt will come on top of soaring electricity rates. (More on that in a moment).
During the storm, wide swaths of Texas were hit by blackouts. Prices for both electricity and natural gas soared during the crisis. Dozens of lawsuits have been filed against gas and electricity providers and against ERCOT, the state’s electric grid operator. The litigation will likely take years to resolve. But whatever the outcome of the litigation, it’s readily apparent that Texas consumers will have to repay at least $10.1 billion in debt related to the storm and the state’s mismanagement of its most important energy network.
Before going further, let me be clear: the $10.1 billion figure is my figure. I calculated it from publicly available sources. To my knowledge, it has not been reported by any other media outlet. Further, that number may be too low. Much depends on the outcome of the bankruptcy of Brazos Electric Cooperative, which lost some $1.8 billion during the storm. Furthermore, CPS Energy, San Antonio’s municipally owned gas-and-electric utility, is contesting some $585 million in costs that it incurred during the storm.
Nevertheless, my analysis shows that at least $6.7 billion in bonds have already been issued – or will be issued — to pay for costs incurred by utilities during the storm. In addition, ERCOT has withheld some $3 billion from market participants to account for the money it is still owed by various counterparties, including Brazos and other electricity providers. Finally, CPS has added another $450 million in debt to its balance sheet.
Here is the breakdown of the $6.7 billion in bond debt:
In June, the state of Texas issued $2.2 billion in bonds that will be used to pay off some of the debt that was incurred by electric utilities.
In February, as Llewelyn King reported in these pages, Rayburn Country Electric Cooperative “closed on Texas’ first cooperative securitization bond, arising out of Winter Storm Uri.” The coop will pay off the $908 million bond by adding surcharges to its members’ monthly bills until 2049.
Last year, the city of Denton issued about $140 million in bonds to cover its losses due to the storm. That debt will be paid off over 30 years.
That gas utilities also suffered big losses during Uri. Some $3.4 billion in securitized debt will be issued by the state to cover those losses. The utilities with the biggest losses include Atmos EnergyATO +2.6% ($2 billion), CenterPoint ($1.1 billion), and TGS, ($197 million).
It must be recalled that the $10.1 billion figure only represents the face value of debt that must be paid back. The final cost to ratepayers of the bond issuances and debt will be substantially higher than that sum when accounting for interest payments over 30 years.
These new costs are hitting ERCOT ratepayers at the same time that electricity rates in the state are going up. In June 2021, according to data published on the Public Utility Commission of Texas website, retail rates for customers in North Texas who consumed 1,000 kilowatt-hours per month, were paying about 11.5 cents per kilowatt-hour. In June 2022, those same consumers were paying 26.2 cents per kilowatt-hour, or 2.3 times the price 12 months earlier. (To be clear, electricity pricing in Texas is arcane. Retail contracts are currently available to consumers with prices lower than the ones on the PUC website. For instance, a residential customer in Houston can get electricity contracts for as low as 15 cents per kilowatt-hour. For more, see powertochoose.org.)
Furthermore, ERCOT could be held liable in some of the litigation for losses incurred by people and businesses during the storm. Although ERCOT has been claiming it has sovereign immunity, a state appeals court ruled in February that it does not have immunity. If ERCOT is hit by legal judgments requiring it to pay damages to plaintiffs, there’s no doubt that consumers, or Texas taxpayers, will be stuck with the bill.
Two decades ago, when the Texas electric grid was — in the words used by the late Enron CEO, Ken Lay, “restructured” — politicians promised that ratepayers were going to benefit. In 1999, then-governor George W. Bush held a press conference during which he said the recently concluded legislative session delivered “the most far-reaching deregulation” of electricity “of any state in this United States“ and that it would “mean lower electric rates for people all across the spectrum.”
That hasn’t happened. Instead, the restructuring of the Texas electricity market resulted in the near-collapse of the ERCOT grid in February 2021. Nor is the situation getting better. Instead, as Brent Bennett, Katie Tahuahua, and Mike Nasi of the Texas Public Policy Foundation, noted in a new report, the Texas grid is being overwhelmed by heavily subsidized wind and solar. In addition, the Texas grid is ever-more-reliant on natural gas-fired generators at the very moment when gas prices are soaring.
In short, last year’s disaster and the ensuing tsunami of costs related to it, are resulting in vastly higher electric rates for Texans all across the spectrum. And consumers will be paying higher prices for the state’s mismanagement of its electric grid for the next 30 years.
NOTE: I corrected this piece on August 25 to clarify the electricity pricing numbers published by the PUC as the original article overstated the price changes. I did so by deleting a few sentences and adding the paragraph in parentheses pointing to powertochoose.org.
