San Antonio Express-News (Sunday)
Texans facing winter storm’s hidden costs
Anyone who has walked under or near high-voltage power lines has heard them crackle and hum. Thanks to the February freeze — and Texas’ free market energy system — that noise will likely end up costing Texas taxpayers millions of dollars.
The sound is line-loss — electricity that disappears into the air during its trip through power lines, like water evaporates as it flows through canals. Typically, its cost is an afterthought. Yet the astronomical price Texas regulators set for electricity during February’s deep freeze meant the cost of the nonexistent power quickly ballooned into huge bills.
In February 2020, line-loss charges cost Harris County about $17,000. This February, the cost exceeded more than a half-million dollars, a 2,800 percent increase. In Tarrant County, the evaporated electricity charges jumped nearly 6,000 percent — from $5,000 in February 2020 to more than $300,000 for the same month in 2021.
“It’s a breath-taker,” said Tarrant County Judge Glen Whitley, chairman of the Public Power Pool, a cooperative that buys electricity for about 100 gov
ernment agencies.
Call them the hidden taxpayer costs of the winter storm. Everyone agrees storm-related power price surges will cost Texans billions of dollars, much of it paid out over years of higher rates. But no one has totaled all the ways, large and small, that residents will pay for the event.
Publicly funded state agencies needing to keep the lights and heat on during the freeze racked up huge bills. In February 2020, the Texas Department of Criminal Justice, which operates the state’s prisons, paid about $1.2 million for natural gas. This February, the cost soared to nearly $8.5 million.
The University of Texas at Austin paid $940,000 for gas in February 2020. In 2021: $3.65 million.
Last month, state legislators passed laws to help companies borrow billions of dollars to pay for storm-inflated power costs and bill ratepayers over time to pay it back. Yet well before that, many Texas cities that own public utility companies already had been forced to scrounge up additional millions to cover gas and electric bills hugely inflated by the storm-caused shortages.
Outside of Dallas, Denton borrowed $140 million. Georgetown, just north of Austin, borrowed $48 million to cover the cost of providing electricity to its residents during the freeze. Ratepayers will have to cover that, as well as a projected $5 million in interest and costs over the term of the loan.
Other cities dipped into their savings accounts to pay for the storm-inflated power costs, depleting reserve funds. Garland siphoned millions from its rainy day account. Weatherford, a small city outside Fort Worth, drew down $13.7 million.
Wherever the money came from, eventually it will be repaid by local residents, said Steve Moffitt, vice president of Schneider Engineering, a Boerne-based company working with municipal utility companies across the state to find the extra money. “At the end of the day, it has to come from customers somewhere,” he said.
The small city of Hearne borrowed $1.9 million to cover costs incurred by its publicly owned electric utility company. Ratepayers will pay off the debt over the next 10 years, said City Manager John Naron.
“Usually if we get a $2 million loan, we’re fixing streets, the sewage system, street lights,” he said.
“Now we’re borrowing $2 million and getting nothing for it.”
Nearly $50 billion in a week
When the dust cleared on the biennial legislative session that ended June 1, one thing was clear. Although it was ordinary Texans who suffered when the freeze hit four months ago — millions were left shivering in the dark for days; hundreds died — it is also ordinary Texans who would foot much of the bill, said Tim Morstad, associate director of AARP Texas.
“Consumers are being forced to prop up the system that failed us,” he said.
Energy prices spiked during the storm for several reasons. Frozen natural gas facilities — some of which appear to have failed to properly weatherize their equipment — created a shortage that sent prices soaring. Some electricity generation companies that appear to have inadequate weather protection also froze.
Generators dependent on scarce natural gas to make electricity shuddered to a halt. With production plunging, the state’s electricity grid operator, the Electricity Reliability Council of Texas — ERCOT — cranked up the price of electricity, hoping to draw more power to the grid, and then kept it high for days.
The magnitude of the financial fallout is difficult to digest. Experts estimate that based on the sky-high prices, nearly $50 billion worth of electricity was consumed in Texas during the one-week storm — 250
times the normal cost, said Beth Garza, an energy analyst for R Street who from 2014 to 2019 was ERCOT’s independent market monitor, which serves as a watchdog over the electricity market.
Companies that had gas and electricity to sell cashed in on a windfall. Some Wall Street investors made millions, too.
For those forced to buy gas and electricity during the height of the freeze, it was expensive at best, catastrophic at worst. Brazos Electric Power Cooperative, the state’s largest and oldest member-owned electric company, declared bankruptcy after racking up about $2 billion in charges when its generators failed.
To spare ratepayers the financial pain of getting hit with giant utility bills all at once, state lawmakers last month passed several laws to help the biggest losers borrow money and pay it back over time. The laws are complex, and analysts and companies said they are still deciphering how they will be used.
Pending high-stakes legal battles over the storm’s giant bills add more uncertainty to the final tab. “There are a zillion contractual disputes underway right now,” said Garza, pointing out that those, too, will end up costing companies — and their customers — giant legal fees.
Still, analysts projected the taxpayer tab would come to roughly between $7 and $9 billion. Yet that doesn’t include numerous other hidden costs.
A spokesman for the Texas
comptroller’s office said the agency had not been asked to tally the total costs to state agencies forced to purchase power at inflated costs in February. But a survey shows that for those required to stay open, energy costs soared.
The University of Texas-Southwestern’s gas bill ballooned nearly 20-fold, from less than $400,000 in January to about $7.1 million in February.
Much bigger additional costs were incurred in local pockets across Texas by municipal utilities. In March, Hearst Newspapers detailed the millions of dollars’ worth of inflated bills that publicly owned gas companies were struggling to pay after buying at storm prices.
Most were in small Texas cities that suddenly needed to come up with $1 million or $2 million — a pittance in the big picture but an enormous challenge to local gas customers who will have to pay it back. And not all the bills were small. Corpus Christi will borrow $35 million to cover extraordinary storm expenses owed by its residentowned gas utility. City ratepayers will cover it.
$700M in extra charges
CPS Energy, the San Antonio public utility company that is the state’s largest, racked up nearly $700 million in extra natural gas charges. It is suing its suppliers, alleging price gouging. In the meantime, the company has hinted that local ratepayers may have to cover the tab over the next 25 years.
“I think it’s unconscionable,” CPS President and CEO Paula GoldWilliams recently told the San Antonio Express-News Editorial Board. “I think people would have never assumed that during a declared disaster at the state and federal level we’d see these types of prices.”
Compared with the public gas companies, municipal electric utilities saw even larger bills. Several borrowed to cover the extraordinary costs.
Storm ‘ate up’ budget
New Braunfels needed a $100 million loan to cover the costs of keeping the lights and heat on for its residents. That’s more than the city’s entire utility billings for a year, said spokeswoman Melissa Krause: “One winter storm ate up our entire year’s budget.” Ratepayers will repay it over time through small rate hikes, she said.
Kerrville will borrow about $25 million, said Mike Wittler, general manager for the city’s public utility company. He said the city would most likely sell bonds to raise the money, with ratepayers repaying it over the next few years.
Robstown, a small city outside Corpus Christi, owns both a gas and electric utility company. In a normal February, locals pay about $470,000. This year, the bill approached $7 million.
The town recently took out a 10year $7.5 million loan from Frost Bank to cover the extra costs, said Roy Gutierrez, the city’s utilities superintendent. “Eventually, it’s the ratepayers who have to take care of it,” he said.
Russell Keene, a longtime lobbyist who has worked with investorowned and municipal gas and electricity companies, estimated the public companies incurred more than a billion dollars “that will largely have to be paid off by their ratepayers. While most municipal utilities are conservatively managed, no one could have foreseen the magnitude of these charges,” he said.
Back at the Public Power Pool, Whitley said members had locked in electricity rates with long-term contracts, so consumed-power charges didn’t soar during the storm. Yet suppliers charged the co-op real-time rates for the linelosses — evaporated power — causing the normally tiny bill to spike.
In all, member’s taxpayers were charged about $3.6 million for electric power that literally vanished into thin air. Whitley said over 50 members were protesting the charges. The pool’s main electricity supplier has offered to spread out the charges to soften the blow.