Texas public power utilities, cooperatives assess financial fallout after storm

The March 1 bankruptcy announcement by Brazos Electric Power Cooperative Inc., a large generation and transmission cooperative in Texas, could be a harbinger of additional grim disclosures by cooperatives and public power utilities following an Arctic freeze that caused widespread blackouts.

But even Texas cooperatives and public power utilities that were not impacted as badly as Brazos Electric are taking steps to manage liquidity and reevaluate resource planning.

The cold front that swept through Texas the week of Feb. 15 sent temperatures plummeting and catapulted wholesale market prices to the Electric Reliability Council Of Texas Inc.'s grid-wide cap of $9,000/MWh, exposing public power authorities and electric cooperatives to prices hundreds of times higher than normal.

Those that could avoid the exponentially elevated prices for much of the storm were able to make it through the crisis relatively unscathed.

"If you were a utility that had some of its own generation and a coal pile on hand, this was sort of a, 'Boy, there by the grace of God go I' sort of event," according to John Godfrey, senior government relations director at the American Public Power Association. "If you were not like that, I think that the energy prices and the gas prices may have had a fairly significant effect."

Some cooperatives had to spend close to their entire annual budget over a few days, such as Brazos Electric, which received a $1.8 billion bill from ERCOT. Fitch on March 1 downgraded Brazos Electric to D following its Chapter 11 filing.

"To put some of the increased power costs into perspective, some utilities are facing increased electricity and natural gas procurement costs from just last week that are more than all of their purchase power costs from the most recent fiscal year," explained Scott Sagan, associate director of municipal and cooperative utilities at S&P Global Ratings.

During the crisis, Rayburn Country Electric Cooperative Inc. purchased market power while real-time wholesale prices were at their ceiling. The co-op has since needed to fully draw on its $250 million syndicated line of credit and has now also entered into a yearlong, $300 million bilateral line of credit.

S&P Global Ratings subsequently placed Rayburn Country co-op's A- issuer credit rating on CreditWatch with negative implications. Fitch Ratings has placed all municipal utilities and electric cooperatives operating within ERCOT on Rating Watch Negative.

"These higher costs have triggered Fitch's concerns regarding funding requirements and liquidity in the near term, and cost recovery and the potential for increased financial leverage over the medium term for its rated issuers," the rating agency wrote in a Feb. 24 research note.

Just north of Dallas-Fort Worth, the city of Denton's municipal electric utility spent $207 million Feb. 16-19 to buy electricity from ERCOT, an amount equal to roughly 90% of its annual budget. The city's council has since voted to allow the utility to borrow up to $300 million to keep it afloat following the storm, according to a report by the Denton Record-Chronicle.

Denton city spokesperson Ryan Adams said Feb. 26 that it would likely take several months to assess the full financial impact.

"It's difficult at this point to gauge the full financial impact," Adams wrote in an email to S&P Global Market Intelligence. "There are currently many unknowns, including what support or relief might be available from state or federal resources."

Pedernales Electric Cooperative Inc. CFO Randy Kruger told S&P Global Market Intelligence that the co-op buys a significant portion of its load from the Lower Colorado River Authority, or LCRA.

Kruger said Pedernales was exposed to some of the $9,000/MWh wholesale market cap price because of curtailments of the LCRA's generation fleet, requiring the utility to go to the market for that power.

"What we saw in this particular weather event, is even [the LCRA was] exposed to having some generation offline," Kruger said. "And so one of the one of the questions we're gonna have internally as we debrief and [consider] lessons learned from the storm is, do we need to start thinking more about weather hedging? Do we need to think about other current types of fixed price contracts?"

For now, Pedernales has conducted a "rough, rough estimate" of the related financial impacts and believes that it has "sufficient liquidity to manage through any of the ultimate impacts," Kruger added.

"We won't be impacted the way some of these folks [at other co-ops], who were just basically just having to buy in the wholesale market at $9,000 a megawatt hour" for longer periods of time, he explained.

Among other municipal utilities, City Public Service of San Antonio, which operates as CPS Energy, is reportedly looking to decelerate its shift to clean power, according to a recent report by the San Antonio Express-News, and it could opt to invest in a new natural gas-fired plant instead of battery storage. CPS Energy is reportedly still evaluating the total cost incurred from the winter storm and whether it will seek federal or state aid. A CPS spokesperson said no one at the utility was available to speak on the matter by Feb. 26.

The American Public Power Association, the industry's trade group, has written to the Federal Energy Regulatory Commission seeking help for customers and their utilities.

"Unfortunately, similar stories abound throughout the Midwest, south-central, and other regions most severely impacted by the storm, bringing into question how many of these communities will be able to purchase needed gas throughout the remainder of the winter, let alone the rest of the year," the American Public Power Association said in a Feb. 19 letter, noting that the issue compounds the existing health and economic crises in the U.S. "Without relief, these high prices will be passed directly to consumers, with many customers anticipated to face monthly bills hundreds or possibly thousands of dollars more expensive than usual."