(Reuters) – Financial strains on city-owned Texas utilities, rural electric co-ops and the grid operator have sparked calls for state aid and prompted private equity firms to make plans aiming to set multi-billion dollar fees.
The state’s electricity costs rose about 10 times their usual value, to around $ 47 billion, during a week-long cold snap that destroyed nearly half of its power plants . The accusations drove one co-op out of business and left two dozen others with bills they will struggle to pay without outside help.
Several private equity firms are in talks with the Texas power grid operator to provide financial support, four people familiar with the talks told Reuters.
The grid acts as a clearinghouse, collecting from electricity distributors, including municipalities and cooperatives, and paying off generators typically within four days. When faults occur, it spreads the shortfall among other network users, adding pressure to those who are able to pay their own bills.
It is still unclear what form this funding would take and whether Texas officials would accept an offer from private equity firms. The buyout companies would likely provide a loan or bond that would cover the Electric Reliability Council of Texas (ERCOT) short-term cash needs, the sources said.
ERCOT spokesperson Leslie Sopko declined to comment on the funding options being considered.
He was uncertain whether the private equity negotiations would lead to a deal. Dialogue was hampered by a power vacuum left by high-level departures to ERCOT and the state regulator, some people said. There are also disputes over whether the state could use its emergency funds to bail out suppliers.
Rating agencies warn that in the absence of a government financial bailout, significant borrowing will be required. Rayburn Electric, a North Texas co-op that serves 225,000 customers, said its weekly electricity costs have increased more than 900 times. Residential customers who normally pay $ 150 a month face bills of over $ 3,200 without some reduction, CEO David Naylor said.
Taking money from private equity and infrastructure funds would be an alternative to a state-led bailout. Another would be for ERCOT to sell future fee-backed bonds, delaying an immediate cash call.
San Antonio’s municipal utility, the country’s largest, owes about $ 1 billion for gas and electricity purchased during the storm. The company – CPS Energy – said it plans to seek funding of $ 500 million and may consider future legal remedies to recover some of those costs.
Credit rating companies have warned of downgrades of dozens of rural power cooperatives and municipal utilities that have unpaid debt, measures that would increase the cost of their future debt.
“It could be politically difficult and it could be difficult to increase tariffs to recover these costs,” said Dennis Pidherny, managing director of Fitch Ratings.
Texas electricity regulators on Friday vetoed demands from private electricity providers and a recommendation by the state’s market advisor to waive tariffs and fees collected in error.
But officials may need to take a different approach when it comes to municipal suppliers and rural cooperatives, officials said, due to their numbers and influence. The two groups have more than 3.5 million combined customers in the state, according to a Reuters tally.
“I don’t think we want a wave of municipal bankruptcies,” said National Senator Nathan Johnson (D-Dallas). “At a minimum, we will have to find a way to lengthen the period during which losses can be written off or recovered. At least. “
One of the state’s largest utilities, Vistra Corp, on Friday recommended that any state bailout for groups include a provision breaking municipal suppliers’ lock on supplying their communities.
Reporting by Jennifer Hiller in Houston, David French in New York and Karen Pierog in Chicago; Editing by Gary McWilliams in Houston and Diane Craft in New York