Texas city-run and rural electric firms face bailout over storm crisis

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.

EMERGENCY FUNDING

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.

LIMITED OPTIONS

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.

Texas grid operator made $16 billion price error during winter storm- Watchdog

ERCOT kept market prices for power too high for more than a day after widespread outages ended late on Feb. 17, Potomac Economics, the independent market monitor for the Public Utility Commission of Texas, which oversees ERCOT, said in a filing.

“In order to comply with the Commission Order, the pricing intervention that raised prices to VOLL (value of lost load) should have ended immediately at that time (late on Feb. 17),” Potomac Economics said.

“However, ERCOT continued to hold prices at VOLL by inflating the Real-Time On-Line Reliability Deployment Price Adder for an additional 32 hours through the morning of February 19,” it said, adding the decision resulted in $16 billion in additional costs to ERCOT’s markets.

The findings of Potomac Economics were reported first on Thursday by Bloomberg and the Texas Tribune.

Separately, rating agency Moody’s Investors Service downgraded ERCOT by one notch from A1 to Aa3 and revised the grid operator’s credit outlook to “negative” on Thursday.

On Wednesday, ERCOT’s board ousted chief executive Bill Magness, as the fallout continued from a blackout that left residents without heat, power or water for days.

The mid-February storm temporarily knocked out up to half the state’s generating plants, triggering outages that killed dozens and pushed power prices to 10 times the normal rate.

Many of ERCOT’s directors have resigned in the last week and the head of the state’s Public Utility Commission, which supervised ERCOT, resigned on Monday.

Texas electric industry financial crisis to grow as more costs surface

The Texas electricity market faces “insurmountable distress” as more gas and service bills come due, power industry officials said on Thursday at a hearing into financial fallout from the state’s February blackout.

High prices for emergency fuel and power saddled the companies that sell, transmit and generate electricity in the state with about $47 billion in storm-related costs. Those costs have led to one bankruptcy and put two retail providers out of business in the state.

Consumers facing bills for broken water pipes and food losses will see higher prices as costs get passed down through rate increases or fewer choices in providers, officials said. Future spending on weather defenses and grid linkages could add billions of dollars to the recovery. San Antonio’s city-owned utility expects about $1 billion in extra costs.

“The market is facing a financial crisis and it’s a very severe financial crisis,” Catherine Webking, executive director of an industry lobby group told state lawmakers at a hearing in Austin on Thursday. “You’ll see more and more financial distress that is insurmountable,” as bills for natural gas and financial collateral come due in coming weeks, she testified.

Vistra Corp., one of the largest utilities in Texas, forecast that buying natural gas at high prices triggered by the storm and selling power at fixed-rate prices will cut its profit by between $900 million and $1.3 billion, Vistra senior vice president Bill Quinn testified.

GAS SHORTAGES

Vistra’s power plants ran between 20% and 30% below capacity because of a lack of natural gas, Quinn said. “Getting gas to them was a challenge,” he said, noting all four of the utility’s gas providers could not meet their fuel commitments.

On Wednesday, grid operator Electric Reliability Council of Texas (ERCOT) disclosed 12 energy companies and two municipal utilities were overdue on $2.21 billion for power and services during February.

Part of the deficit was covered by tapping internal grid accounts, but the rest eventually will be passed along to all grid users, straining those that have covered their initial bills, an official said.

ERCOT has little means to cover the charges, said Kenan Ogelman, the grid’s vice president for commercial operations. It collects money from suppliers and pays generators, typically in four days. Texas may have to consider providing a financial backstop during future emergencies, he said in response to a question.

“This event has demonstrated some consideration for a grid instrument,” Ogelman said. Multi-billion dollar service charges have led to collateral calls on top of the fuel bills. The short period to pay both has led to “cascading concerns,” he said.

The decision to hold power rates high to keep power plants running even after the emergency passed was management judgment, he said. “In hindsight, it would look like that wasn’t needed. In real-time it looked like it was needed,” Ogelman said.

ERCOT normally uses a bid system to set prices but officials decided to set a $9,000 per megawatt hour charge that was about 450 times the price before the storm. It held at that $9,000 level for about 90 hours, leading to 10s of billions of dollars in charges over five days.

The state Public Utility Commission (PUC) on Friday is expected to vote on a proposal to claw back some charges for standby power and other services that were not provided. It could save grid users about $1.5 billion, Carrie Bivens, the state’s independent market adviser told the PUC in a letter on Thursday. She previously estimated the storm would push up state-wide power costs by $47 billion.

Mitsubishi unit Eneco to supply wind power to Amazon in Europe: Nikkei

apanese trading company Mitsubishi Corp will enter an agreement to provide Amazon.com Inc’s European facilities with renewable energy through its Dutch unit, Eneco, the Nikkei business daily reported on Monday.

An offshore wind farm to be built by Eneco and due to come online in 2023 will supply 130 megawatts (MW) per year to multiple Amazon facilities, including its European data centre, the Nikkei said.

The move comes as Japanese trading houses are increasingly focusing on cleaner energy as they join a global shift away from coal and other fossil fuels.

Amazon, which delivers about 10 billion items a year and has a massive transportation and data center footprint, has faced protests from environmental activists and pressure from its employees to take action on climate change. It has vowed to be net carbon neutral by 2040.

Last July, a consortium between Eneco and Royal Dutch Shell, won a zero-subsidy tender to build a 750 MW wind farm in the North Sea off the coast of the Netherlands.

Eneco plans to start operating the new wind warm in 2023 and 130 MW of the total power will be reserved for Amazon, the Nikkei said.

Mitsubishi declined to comment on the deal, while Amazon was not immediately available for comment.

Mitsubishi, along with Japanese utility Chubu Electric Power Co Inc, bought Eneco last year in a deal valuing the Dutch energy firm at 4.1 billion euros ($4.9 billion).

($1 = 0.8308 euros)

By: Reuters

Energy prices to rise for millions of households

Energy prices will rise for millions of people across the UK in April, at a time when finances are squeezed.

Regulator Ofgem said the price cap for default domestic energy deals would be raised to cover suppliers’ extra costs.

The typical gas and electricity customer is likely to see their bill go up by £96 to £1,138 a year.

Charities say the timing is a “double whammy”, coming at a time when the government’s Covid-related support schemes are due to be wound down.

Ofgem said rising wholesale costs were behind the increase, adding that the existence of the price cap meant households saved £100 a year, and they could also switch to a better deal.

Jonathan Brearley, chief executive of the regulator, said:  “Energy bill increases are never welcome, especially as many households are struggling with the impact of the pandemic. We have carefully scrutinised these changes to ensure that customers only pay a fair price for their energy. 

“As the UK still faces challenges around Covid-19, during this exceptional time I expect suppliers to set their prices competitively, treat all customers fairly and ensure that any household in financial distress is given access to the support they need.”

Who is affected?

The price cap, set twice a year by the regulator, affects 11 million households in England, Wales and Scotland who have never switched suppliers or whose discounted deals have expired. Northern Ireland sets its own cap.

That accounts for about half of all UK households. The remainder are on so-called fixed deals, which will not be affected.

The cap for prepayment meter customers will go up by £87  to £1,156, affecting four million customers.

The caps set the prices that suppliers can charge for each unit of energy, but that does not mean there is a limit to how much people can pay. The more gas and electricity you use, the higher the bill.

Extra layers

Lyn Clark
image captionLyn Clark says she has put on extra layers

Lockdown life means Lyn Clark, like so many others, has been spending a lot more time at home. Her energy bills have been rising as a result.

“I’m trying not to switch on heaters in the rooms that are not being used,” she said.

While prices are capped on default tariffs, the amount people pay in total is likely to have risen during more time at home.

Mrs Clark said she had been doing her best to keep the costs down.

“I find myself putting on extra layers,” she said. “I also go for a walk each lunchtime to make sure I’m warmer.”

Are people struggling to pay?

In October, Ofgem lowered the price cap by £84, but it has now more than reversed that with the rise scheduled for April.

The extra allowance for suppliers to raise prices is the result of greater costs on the wholesale markets.

It also includes an allowance to charge an extra £24 a year to cover bills that have not been paid. Ofgem said a further delay in recouping these costs would only create greater costs next winter.

Charities point out that raising prices for everyone on these tariffs is likely to increase the number of people unable to pay.

Citizens Advice said its research in December indicated that 2.1 million households were behind on their energy bills, a rise of 600,000 compared with before the pandemic.

It was concerned that the planned removing of assistance for recipients of universal credit, as well as other government financial support schemes being wound down, meant there were serious worries over debt.

IPPs to withdraw electricity services in coming days

The Independent Power Producers and Bulk Distributors will withdraw its services in the coming days, a situation that could trigger power cuts, popularly called dumsor.

Joy Business has a letter from the IPPs to Ghana Grid Company Limited with the Energy Minister and the Electricity Company of Ghana in copy.

The letter to GRIDCo said the action has become necessary as it demands ECG and government to settle at least 80% of its indebtedness worth $1 billion, in a matter of urgency.

It concluded that the respective Central Control Rooms of the IPPs are expected to communicate with the GRIDCo’s System Control Center for the potential shutdown.

Government exposure to IPPs

Though government has settled some of the debts to the IPPs, it still owe the power producers some substantial amount of money. 

The debt stood at about $1.4 billion in June 2020 but government has settled some and have been making bullet payment of subsequent power costs.

Already, government has settled the one billion dollar legacy debt owed bulk oil distributors through cash and bond.

The Energy Sector Support Levy Act was passed in 2015 and has since mobilized some revenue which has been used to settle debts owed Bulk Oil Distributors and some IPPs.

Source: Joy Business