City OKS $500M boost for CPS

Need for more borrowing ability after storm cited

The City Council on Thursday extended a lifeline to CPS Energy, approving $500 million in financing for the utility to draw on as it fights the $1 billion in charges it racked up during last month’s winter storm.

CPS officials said they’ll tap the funding only if necessary. But CEO Paula Gold-williams said that without the extra borrowing capacity, the utility would have been in “jeopardy.”

“We are facing a disaster right now,” Gold-williams said. “If we can’t have access to the financial markets and come through with a plan that works, then we really can’t maintain operations.”

As Texas froze the week of Feb. 14, CPS bought wholesale power and natural gas — both scarce commodities at the time — at astronomical prices.

The city-owned utility has gone to court to challenge part of its storm-related debt. Last week, CPS sued the Electric Reliability Council of Texas, accusing the state’s power grid operator of keeping the wholesale price of electricity at the maximum level — $9,000 per megawatt-hour — for 32 hours too long.

CPS owes more than $300 million for its power purchases.

The utility is also scouring its natural gas bills to determine whether any of its suppliers engaged in price-gouging. It owes about $670 million for gas.

Numerous gas wellheads and pipelines froze during the storm, and icy roads slowed shipments of the fossil fuel. With gas suddenly scarce and utilities feverishly bidding for it, prices exploded. CPS at times paid 100 times more for gas than it did before the freeze.

Without having to issue new debt, CPS currently has enough to pay the debt in full, with about $1.5 billion in existing borrowing capacity and cash on hand.

But the extra $500 million gives CPS the ability to absorb new expenses if another emergency arises.

“What is the alternative? The alternative is to use up all our resources, pay all our bills — these exorbitant bills,” Gold-williams said. “And the likelihood that we will have the financial resources to continue operations becomes in jeopardy.”

The additional financing also is expected to help CPS stay in credit rating agencies’ good graces.

CPS sells bonds to pay for new power plants and other major

capital projects. Fitch Ratings, Moody’s Investors Service and Standard & Poor’s rate the utility’s credit worthiness; the lower the credit rating, the more interest CPS has to pay on its debt.

The utility maintains strong credit ratings, even after a Fitch downgrade two weeks ago. To keep them, CPS has to keep enough cash on hand to fund at least 150 days of operations.

A bill that would force the Texas Public Utilities Commission, which oversees ERCOT, to “reprice” wholesale electricity sold at sky-high prices during the storm cleared the Texas Senate on

Monday. But the legislation has apparently died in the House.

Meanwhile, officials at the Texas Railroad Commission, the state regulator of oil and gas companies, have said the commission can’t address prices in the natural gas industry.

During Thursday’s council meeting, city officials excoriated the Railroad Commission.

“It is their view that they have no jurisdiction over natural gas pricing,” City Attorney Andy Segovia said. “Obviously, in a situation like this, if you’re not working toward a solution, you’re part of the problem.”

Gold-williams said some of the utility’s natural gas suppliers sold at “moderated” rates during the winter storm but that others didn’t.

“Every utility across the state was just fighting to get fuel to keep people warm . ... That fight for people ended up being this bidding up,” she said. “There was no intervention, no consideration from the broad industry.”