Electricity companies in Texas require a multi-billion dollar bailout to prevent bankruptcies and market trouble following last February’s failure of the power grid. That’s the message being sent by lawmakers in the Texas House, who have supported a bill calling for a new charge to fund approximately $2.5 billion in financial support for struggling electricity providers. The Senate is expected to adopt the measure soon.
The proposal, known as HB4492, was passed by the Texas House earlier this month. It includes a surcharge for electricity companies, which would pass this on to ratepayers through their power bills. Lawmakers would not say how high the charge would be but indicated it could last for over a decade. The revenue from the charge will buy bonds to cover the debts of electricity companies that can’t be repaid. A new entity called the Texas Electric Securitization Corp. would manage these funds.
Advocates for the charge, which was supported by a vote of 129 to 15 in the House, say it’s necessary to prevent several companies from going bankrupt.
Brazos Electric Power Cooperative provides just one example of this threat. The rural cooperative supplies electricity to 1.5 million customers. Brazos Electric declared bankruptcy due to debts totaling $1.8 billion to the Electric Reliability Council of Texas (ERCOT). ERCOT is the entity that manages the power grid.
Rayburn Country Electric Cooperative, a not-for-profit that supplies electricity to four distributors in northeast Texas, also petitioned ERCOT in early May to stop requesting and collecting invoice payments for the period during the February storm.
The main source of the debts was the spike in electricity prices during the February storm. Over 30 gigawatts of power generation fell off the grid due to the inability of natural gas power plants and wind turbines to continue operating in cold temperatures. In turn, this caused power prices to rise up to $9,000 per kilowatt-hour, the maximum allowed by ERCOT. Electricity providers paid these high prices for several days to purchase power from power generators.“This is a financial crisis, and it’s a big one,” explains James Schaefer, a senior managing director at investment bank Guggenheim Partners. “You’ve got to free the system. It’s horrible that a bunch of folks have to pay, but it’s a system-wide failure. If you let a bunch of folks crash, it’s not a good look for your state.”