Some public power debt issuers operating in Texas may be shielded from the volatility that experts expect to occur this summer in the state's wholesale power market.
Following the announced retirement of 4,200 MW of coal-fired capacity in the fall of 2017, a December 2017 Electric Reliability Council of Texas analysis predicted that the wholesale power market would experience tight capacity through 2022, which sent forward power prices spiking to record levels. The grid operator warned in March that during the upcoming summer, reserve capacity could fall below the level that triggers high prices and rotating outages.
But analysts say that for some companies that operate their own power plants, incremental generation revenue could offset higher purchased power costs.
"Public power issuers within ERCOT predominantly own generation assets, even if issuers rely, to some extent, on purchased power to service the balance of load," a March 28 note from Fitch Ratings said. "Therefore, issuers should be somewhat insulated from higher prices. Issuers with more dependence on purchased power will likely recover rising costs on a timely basis, given their local rate autonomy, but higher power purchases could strain liquidity and margins for the most exposed systems."
According to S&P Global Market Intelligence data, of the 59 municipal electric utilities operating in ERCOT, eight own generating capacity. In 2016, those eight entities delivered 39.4 million MWh to customers, or 83.3% of the region's total retail sales volume delivered by municipal utilities. That year, nearly all municipal utilities operating their own generation had some volume of wholesale power purchases, with half purchasing a greater volume of electricity than they delivered to their retail customers and three of eight producing more of their own power than they purchased.