Texas city-run and rural electric firms face bailout over storm crisis

By Jennifer Hiller, David French, & Karen Pierog, Reuters

(Reuters) – Financial strains on Texas city-owned utilities, rural electric cooperatives and the grid operator has spurred calls for state aid and lured private equity firms into plans to fix multi-billion-dollar charges.

The state’s power costs jumped by roughly 10 times the usual, to about $47 billion, during a week-long cold snap that took down nearly half of its power plants. The charges have driven one co-op into bankruptcy and left two dozen others facing bills they will be hard-pressed to cover without outside help. 

Several private equity firms have been in talks with the operator of the Texas electric grid to provide it financial support, four people familiar with the talks told Reuters.

The grid acts as a clearing house, collecting from electric marketers including municipals and co-ops and paying generators usually within four days. When defaults occur, it spreads the shortfall to other grid users, adding pressure to those able to pay their own bills.

Emergency Funding

It remains unclear what form this funding would take and whether Texas officials would agree to an offer from private equity firms. The buyout firms would likely provide a loan or bond which would cover the near-term cash needs of the Electric Reliability Council of Texas (ERCOT), the people said.

ERCOT spokeswoman Leslie Sopko declined comment on financing options under consideration.

It was unclear whether the private equity talks would yield any agreement. The dialogue has been hampered by a power vacuum left by top-level departures at ERCOT and the state regulator, some of the people said. There are also disputes over whether the state could use its emergency funds bail out providers.

Rating agencies are warning that, absent a government financial rescue plan, significant borrowing will be needed. Rayburn Electric, a north Texas co-op that serves 225,000 customers, said its weekly power costs soared more than 900 times. Residential customers that normally pay $150 per month face more than $3,200 bills without some reduction, Chief Executive David Naylor said.

Limited Options

Taking money from private equity and infrastructure funds would be one alternative to a state-led bailout. Another would be for ERCOT to sell bonds backed by future fees, delaying an immediate cash call.

San Antonio’s municipal utility, the largest in the country, owes about $1 billion for gas and electricity purchased during the storm. The company – CPS Energy – has said it plans to seek $500 million in financing and may consider future legal remedies as a way to recover some of those costs.

Credit ratings firms warned of downgrades on dozens of rural electric co-ops and municipal utilities that have outstanding debt, moves that would raise their future debt costs.

“It could be politically challenging and it could be difficult to raise rates to recover these costs,” said Dennis Pidherny managing director at Fitch Ratings.

Texas power regulators on Friday vetoed requests by private electric providers and a recommendation by the state’s market adviser to rescind rates and fees mistakenly levied.

But officials may have to take a different tack when it comes to municipal providers and rural co-ops, officials said, because of their number and clout. The two groups have more than 3.5 million customers in the state combined, a Reuters tally shows.

“I don’t think we want a wave of municipal bankruptcies,” said state Senator Nathan Johnson, (D-Dallas). “At a minimum we’re going to have to find a way to stretch out the time period over which losses can be amortized or recovered. At a minimum.”

One of the state’s largest utilities, Vistra Corp, on Friday recommended any state bailout for the groups include a provision breaking the municipal providers’ lock on supplying their communities.

Sen. Nathan Johnson: We need to expand Medicaid in Texas now

Public opinion now supports the shift, and there’s federal money to pay for it.

By Nathan Johnson | Dallas News

The conventional political wisdom has been the same for Republicans and Democrats: Don’t say Medicaid expansion. I suppose that explains the nervous chuckling I used to hear when I kept giving the same answer to different questions: How can we help our millions of uninsured citizens? Expand Medicaid. What can we do to stimulate the Texas economy? Expand Medicaid. How do we raise state revenue without raising taxes? Expand Medicaid.

Much has changed in the past few years. Medicaid expansion is now politically popular in Texas, and a time-tested success across the nation. But the political inertia persists, and Texas remains one of only 14 states that haven’t implemented some form of Medicaid expansion.

COVID-19 brings a new urgency to the matter. Medicaid expansion would not only provide care to those most in need but would also help us combat the contagion and provide powerful economic stimulus when we need it more than ever.

It’s time for Gov. Greg Abbott to use his executive authority to expand Medicaid in Texas, now.

Consider the need even before COVID-19. Among the 50 states, Texas has the highest number and percentage of uninsured citizens. Some 1.5 million of the uninsured fall into the expansion gap, earning too much to qualify for Medicaid but too little to qualify for federal insurance subsidies. Their lack of access to health care harms all of us, by increasing the burden of uncompensated care, driving up health care costs, overcrowding emergency rooms, and lowering the state GDP. On the fiscal side, starting next year Texas stands to lose billions of (our own) federal tax dollars when our current non-expansion deal expires and new federal regulations drastically undercut the patchwork system we use to pay for indigent health care.

In contrast, numerous studies have shown that expansion states have seen improved health, increased use of primary care, decreased use of emergency care, lower smoking rates, higher employment rates, improved family financial stability and sustained operation of rural hospitals. On the fiscal side, economist Ray Perryman estimates that expansion would bring about $8 billion into the Texas economy annually, increase gross state product by $29.4 billion over just the first two years, generate a 331% return on investment over 10 years, and have a net positive effect on the state budget.

The COVID-19 crisis has magnified both the needs and the benefits associated with expansion. Workers in the service sector have lost their jobs and as a result lost their insurance. Many among our essential workforce — front-line health care workers, grocery store clerks, drivers and many others — have never been able to afford health coverage in the first place. We should all take pride in providing them with access to care. Meanwhile, social restrictions aimed at protecting life and preserving hospital capacity show the need to accelerate deployment of telemedicine services, and to be able to track, treat, quarantine and isolate. Medicaid expansion serves these ends.

As the 37th state to expand Medicaid, Texas wouldn’t be venturing into uncharted territory. In fact many Republican-led states have expanded Medicaid. Indiana did under then-Gov. Mike Pence. Ohio, Arizona, Indiana and others were able to use expansion to reform and improve their existing Medicaid programs, adding conservative favorites such as health savings accounts, behavior incentives and changes to delivery systems.

There’s no avoiding the expansion conversation any longer. It can’t be brushed aside by saying, “I’m waiting for a block grant.” The Trump administration just offered block grants. (Many, including me, believe that a block grant isn’t the best vehicle, but it’s still Medicaid expansion.)

And early conservative questions and doubts have been answered and dispelled by the positive results in the 36 other states that expanded Medicaid by standard means. Although differences between states do matter, the federal government has made clear that Texas will enjoy unprecedented flexibility in crafting a plan that accommodates its unique needs.

Supporting expansion now is not flip-flopping; it is altering strategy in response to better information and different circumstances. Today we have overwhelming public and business support, successful conservative models, greater flexibility, an even higher level of need, profound urgency and, as part of the federal COVID-19 crisis response, billions of federal dollars that can be employed to ensure that Medicaid expansion in Texas is a fiscal and health care success.

Only the governor can expand Medicaid immediately. Successful implementation over the long term, however, will require both Republicans and Democrats to recognize that Medicaid expansion is a vital and effective means to address our most urgent economic and health care challenges. And that it’s OK to say it.

Nathan Johnson is a Democrat representing Dallas in the Texas Senate. He wrote this column for The Dallas Morning News.