If the near collapse of the Texas power grid during February’s severe winter freeze is among the bad memories that you’d like to forget, don’t look too closely at your utility bills in the coming years.
State regulators are in the initial stages of considering $3.6 billion in potential borrowing to help natural gas utilities cope with massive costs incurred during the crisis and $2.1 billion to help electricity providers — money that will be recouped from their ratepayers over time.
The borrowing for electricity providers might not have an impact on rates in the Austin area, however, because providers can opt out of the plan if they’re content to handle their storm-related debts through other means or were able to manage the crisis without incurring huge bills.
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Austin Energy has declined to say if it intends to take part in the plan, although the city-owned utility with more than half a million customers is widely expected to opt out because it previously has estimated that it earned $54 million in net revenue during the emergency. Power-generating plants operated by Austin Energy mostly held up during the freeze and continued to pump energy into the state’s electricity grid.
The two other largest electricity providers in Central Texas, Pedernales Electric Cooperative and Bluebonnet Electric Cooperative, told the American-Statesman recently that they aren’t intending to take part in the $2.1 billion borrowing plan either.
Still, ratepayers of all three local providers could feel the sting of other storm-related debts incurred on the state’s interconnected power market.
The Electric Reliability Council of Texas, the manager of the grid, is seeking up to $800 million in separate borrowing from the state’s rainy-day fund, mainly for financial liabilities left by companies that exited the deregulated Texas market entirely in the wake of the crisis.
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How much more can Texans expect to pay?
The burden of financing and paying back that borrowing will be spread throughout the ERCOT system. It’s uncertain at this point how individual electricity providers might handle those costs, so the potential impact on monthly power bills is unknown.
Overall, the potential storm-related borrowing — totaling a combined $6.5 billion — is intended to shore up the financial stability of the state’s electricity market and to blunt what otherwise would be dramatic monthly increases in utility bills for some consumers to cover expenses racked up on their behalf.
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State Sen. Kelly Hancock, who had a lead role in crafting legislation that authorizes the borrowing, said natural gas prices soared so high during the storm that the owners of many small business probably would have been forced into bankruptcy if required to pay their tabs all at once.
Natural gas utilities have so far been required to absorb the costs without passing them on to consumers, while awaiting a relief plan from the state.
“This spreads it out month to month” over a period of years, said Hancock, R-North Richland Hills. “It was going to hit consumers at a level that would have been very devastating.”
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But others view the huge amount of potential borrowing for expenses that accumulated during the storm as a symptom of a broken system that has yet to undergo the major overhaul it needs.
“It would be one thing if (the money) was buying us more security and stability so we could be confident going forward,” said Tim Morstad, associate state director of the consumer advocacy group AARP Texas.
“But let’s be clear: This money — billions — is not hardening the system (and) it’s not making the grid more reliable,” Morstad said. “It’s just (helping) one company pay another company for something that happened back in February while we were all freezing without power.”
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Action by the legislature
So-called securitization of the storm-related debts — in which they’ll be paid off through sales of specially created bonds, with financing that possibly stretches out as long as three decades — was authorized as part of a series of measures approved by the Legislature in May that are aimed at bolstering the power grid in the wake of the February crisis.
Many power generation plants and natural gas wells and pipelines across the state failed or were shut down amid the frigid temperatures and blizzard conditions, contributing to extended blackouts and playing roles in dozens of deaths and millions of dollars in property damage.
The shortages of electricity and natural gas also drove up prices for the commodities and resulted in huge bills racked up on behalf of consumers, as some utilities tried to meet demand by buying on spot markets.
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By design, the deregulated Texas electricity market relies on financial incentives to prompt generators to deliver more power to the grid in times of soaring demand. But sky-high prices had little impact in February — aside from socking some ERCOT participants with huge bills — because nearly half the state’s generation capacity had been knocked offline by the weather or other problems, such as an inability to access enough natural gas to operate.
The price of wholesale electricity on the ERCOT power grid rocketed from about $25 per megawatt-hour to the state-mandated cap of $9,000. Spot prices for natural gas, meanwhile, shot up from $2.50 per million British thermal units typically to nearly $400 during the emergency.
Consumer impacts from the Texas freeze
The state’s process of securitizing the massive amount of debts stemming from those high prices is still in its early stages, but some consumer impacts already are becoming clear.
Eleven natural gas utilities — including Texas Gas Service, CenterPoint Energy and Atmos Energy, which serve customers in the Austin metro area — are seeking to have the state securitize a combined $3.6 billion in storm-related expenses.
Average residential customers of those utilities would pay an extra $5.10 a month initially — or $61.20 a year — if the entire sum is deemed to have been “reasonable and necessary” by the Texas Railroad Commission and is financed over a decade, according to an analysis conducted for the utilities, although the study also noted that the amount could vary based on length of financing, interest rates and other factors.
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Without securitization, the extra charge would average $44.77 a month if the costs are recovered over a single year — or $537.24 for the full year for average residential customers, the analysis says.
Regulated gas utilities such as CenterPoint, Texas Gas Service and Atmos earn their money through distribution fees, not by selling natural gas at markups. Instead, they simply pass their gas costs through to end consumers.
“Securitization is a much more affordable option” for customers than if they had to pay expenses from the crisis all at once, said Jason Ryan, a CenterPoint senior vice president.
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But “we share the frustration that our customers have over these costs, (and) we have been actively pursuing claims against our gas suppliers where we believe we have them,” Ryan said.
He said CenterPoint is still seeking redress from some of its natural gas suppliers related to potentially unreasonably high charges and other issues during the crisis — and may end up filing lawsuits. Any money eventually recouped through the effort will be credited to customer accounts, he said.
In the interim, however, Ryan said CenterPoint has little choice but to participate in the $3.6 billion gas-related securitization, of which about $1.1 billion is attributable to expenses incurred by CenterPoint on behalf of its customers.
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As for the potential $2.1 billion ERCOT-related securitization, a controversy recently has arisen as to whether the legislation authorizing it allows companies to participate — and pass their storm costs on to consumers — even if their losses in certain operations during the storm were offset by profits elsewhere in their businesses.
Twenty state senators, including Hancock, recently signed a letter to the Texas Public Utility Commission saying the answer is no. The senators wrote that the intent of the securitization bill was to use so-called “netting” — in which a company’s storm-related profits would be subtracted from its storm-related debts — to calculate the amount of debts that can be shunted to consumers. Lt. Gov. Dan Patrick, who presides over senate, has sent a similar letter to the utility commission.
The utility commission is scheduled to hold hearings on the potential securitization next week.
Since Austin-area electricity providers are expected to opt out of the securitization, however, the issue might not have an impact on local electric rates. Hancock said the opt-out provision in the measure authorizing the $2.1 billion securitization is specifically intended to make sure electricity providers that performed relatively well during the crisis aren’t forced to end up subsidizing providers that didn’t.
“Those that managed this well, we didn’t want them to pay the price for those that managed it poorly,” Hancock said.
He also said he expects the amount of the separate ERCOT-related borrowing from the rainy-day fund to come in under the $800 million maximum that’s allowed.
Regardless, Austin environmental activist and consumer advocate Paul Robbins said the main problem in Texas is that “institutionalized piracy” is tolerated when it comes to overall energy markets.
“I understand why they are doing (the overall storm-related borrowing) and I realize how onerous it would be to ask ratepayers to pay these costs all at once,” Robbins said. “But they should never have been charged the costs to begin with.”