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.

Coronavirus: Texas and other states ease rules despite warnings

Texas will lift its mask requirement and allow businesses to reopen at full capacity next week, Governor Greg Abbott has announced.

A woman receives a Covid vaccine in Jim Hogg County, Texas
image captionStates across the US have started to ease Covid-19 restrictions, causing concern among health officials

“It is now time to open Texas 100%,” the Republican said on Tuesday.

Texas is the largest US state to end its mask mandate. Mr Abbott has faced criticism from his party over the measure, which was imposed last July.

But the administration of US President Joe Biden has made it clear coronavirus restrictions are still necessary.

The announcement in Texas came as similar rules were lifted in other states, including Michigan, Louisiana, and Mississippi, which also ended its mask mandate.

The roll-out of vaccinations against Covid-19 has boosted confidence in a return to pre-pandemic life in the US.

On Tuesday, President Biden said the US was on track to have enough vaccines for every adult in the country by the end of May.

Yet the wave of reopenings has put states at odds with the Biden administration and its senior health officials, who have reacted with dismay to the relaxation of coronavirus measures at a precarious time in the pandemic.

On Monday the director of the US Centers for Disease Control and Prevention (CDC) warned of a “potential fourth surge of cases” if the country lapsed into complacency.

Covid-19 data shows that, while infections and deaths have declined in recent weeks, they are still at high levels relative to other countries.

In total, the US has recorded more than 28 million infections and 516,000 deaths related to Covid-19, according to data collated by Johns Hopkins University.

What did the Texas governor announce?

Mr Abbott issued an executive order that rescinded most of the coronavirus measures he imposed earlier in the pandemic.

The new executive order, which is to take effect on 10 March, lifts all mask requirements and forbids local authorities from penalising residents who do not wear a face covering. 

It removes all restrictions on businesses in counties without a high number of Covid-19 patients in hospital.

Greg Abbott (file picture)
image captionMr Abbott has been under pressure to lift the restrictions

“Too many Texans have been sidelined from employment opportunities,” Mr Abbott said in a speech at the Chamber of Commerce in the city of Lubbock. “Too many small business owners have struggled to pay their bills. This must end.”

He said that with increased vaccinations and improved treatment for Covid-19, the state was “in a far better position now”.

But, he added, “Covid has not suddenly disappeared”. Following weeks of decline, coronavirus infections and related deaths are creeping up again in Texas, data from the Covid Tracking Project showed.

Texas has recorded more than 43,000 deaths related to Covid-19, the third-highest state toll in the US.

Texas puts White House relations to the test

Angelica Casas, reporting from San Antonio, Texas

Governor Abbott’s announcement was no surprise to Texans. After all, the state’s pandemic response has been political from the start.

The state’s Republican leadership favoured former President Donald Trump’s relatively relaxed approach to imposing restrictions. But that created tension with local officials in the state’s major cities, which all lean Democrat.

It was control of the disease vs control of the economy. Mask requirements vs maintaining personal liberties. And when the surges came, state politicians were more reactive than proactive.

A year later, not much has changed. The state’s death toll and current case rate are still among the highest in the US. That’s why critics say Governor Abbott’s decision does not follow the science.

So the decision will be a test to the state – but also to Mr Abbott’s relationship with President Biden, who has addressed the pandemic with more urgency than his predecessor.

What about other US states?

Individual states are in charge of public health policy in the US. At the start of the coronavirus pandemic, most introduced restrictions on businesses and travel.

About 35 required face coverings to be worn in public places – either or outdoor – although enforcement of these mask mandates has been patchy.

With cases and deaths falling sharply in recent weeks, several states have begun easing the restrictions.

Shortly after Mr Abbott’s announcement, Mississippi Governor Tate Reeves said he would do the same in an even shorter time frame.

“Starting tomorrow, we are lifting all of our county mask mandates and businesses will be able to operate at full capacity without any state-imposed rules,” Mr Reeves said.

Health experts have warned that the pandemic was far from over and cases could pick up if curbs were lifted too soon.

President Joe Biden speaks about the administration's response to the coronavirus pandemic at the White House in Washington
image captionPresident Biden has urged Americans to remain vigilant against the threat of the virus

President Biden – in contrast with his predecessor Mr Trump – has made fighting the virus a priority for his administration.

On Tuesday, Mr Biden said he was upbeat about reaching his goal of delivering 100 million Covid-19 vaccine doses in his first 100 days in office, but urged Americans to remain vigilant in wearing masks and observing social distancing.

“Today’s announcements are a huge step in our effort to beat this pandemic,” Biden said in a televised statement from the White House. “But I have to be honest with you. This fight is far from over.”

How has Covid affected the US?

  • The 28.7 million total confirmed US infections is nearly double that of second-highest India (11 million) and Brazil (10.5 million), according to Johns Hopkins University research
  • But the US ranks ninth in terms of deaths per 100,000 population, behind countries such as the UK and Italy
  • At least 90,000 more Americans are expected to have died with the virus by 1 June, an Institute for Health Metrics and Evaluation (IHME) projection says. By late May, the virus will kill around 500 Americans per day – down from approximately 2,000 now
  • Hospital admission rates have fallen sharply since January
  • The growing number of new variants, which could spark further outbreaks, remains a concern