Texas’ Rayburn Electric Is First Co-op To Securitize Uri Debt; Still Expected To Sue

The week of Feb. 7 history was made in Rockwall, Texas. But there was no jubilation: No hats were tossed into the air, no champagne corks popped.

Instead, there was a sense of it is what it is. Rayburn Country Electric Cooperative, Inc., a nonprofit electric generation and transmission utility with four distribution member companies, closed on Texas’ first cooperative securitization bond, arising out of Winter Storm Uri a year earlier.

The bond for $908 million, and rated by Moody’s as Aaa (fs), shoulders the debt incurred by Rayburn and its 229,000 customers as a result of the extraordinary prices allowed by the state’s public utility commission and charged by the Electric Reliability Council of Texas (ERCOT) for what power was available during the Winter Storm Uri.

That storm layered Texas in ice and snow and freezing temperatures for five days, from Feb. 17-22. It also left, according to official counts, 246 people dead – either from freezing to death or from related accidents, such as carbon monoxide poisoning from gasoline generators operated indoors, or fires that got out of hand.

During the height of the freeze, ERCOT ordered electric load shedding by utilities, including Rayburn, and left more than 5 million Texans in the frigid cold and the dark.

Gas Failure Crux of Catastrophe

Many of the state’s 324 generation plants suffered some weather disability, but it was weather-induced failure in the gas supply —the principal fuel in Texas’ generating mix — that was at the crux of the catastrophe. What gas there was available went for stratospheric prices; and last summer gas companies, like Energy Transfer, reported earnings in the billions.

David Naylor, president and CEO of Rayburn, told me that in five days of Uri, the utility spent three years’ worth of its power supply budget. The PUCT allowed electricity prices to rise to $9,000 a kilowatt hour, and kept them there longer than necessary, according to the electric utilities in the state.

Rayburn reserves the right to sue and may do so, Naylor told me.

Other regions, from the Gulf Coast to Canada, were affected by Uri but didn’t suffer as badly as Texas.

In a statement, Naylor said, “Alongside our members and with thanks to policymakers, we are proud to be the first to leverage a law crafted to assist our members by mitigating the impact of egregious charges levied in the middle of a crisis. This financing goes a long way in supporting our communities as we continue to seek recovery and resolution of unjust charges from Winter Storm Uri.”

Clinton Vince, chair of the U.S. energy practice at Dentons, the globe-circling law firm, told me, “We are very pleased that our client Rayburn Country Electric Cooperative was able to successfully complete a first-of-its-kind, $908-million securitization with a Moody’s rating of Aaa (sf) to minimize the severe impact on its customers, resulting from outrageous invoices sent by ERCOT for a five-day period during Winter Storm Uri last February 3.

“This securitization will allow Rayburn to avoid bankruptcy and to proceed as a fully viable utility while shielding its customers from the rate shock that ERCOT’s bills would have caused.”

It is anticipated that many other utilities in Texas, big and small, will be taking the securitization road. Securitization means that customers will still pay, but their indebtedness will be spread out over many years — in Rayburn’s case, until 2049.

The sad matter of Uri and the Texas grid points up both a weakness in the market in the state which, unlike other states, has no mechanism for guaranteeing reserve capacity, and the asymmetry between gas suppliers and utilities. The latter are regulated by the PUCT, and the former are lightly regulated by the Texas Railroad Commission with regard to things like drilling rigs and don’t have the electric utilities’ public service obligations.

Securitization Is Political Solution

Meeting last summer, the Texas Legislature passed the securitization law but didn’t provide any other relief for the utilities in the state. It did, though, mandate that the utilities weatherize but made no such demands on the gas industry — another example of the asymmetry with their utility customers.

Put more simply, there is one set of rules for the utilities in Texas and another for the oil and gas interests, which are politically powerful in the state and revered by the political establishment.

After the gas industry declared huge profits, it also rewarded politicians with campaign funds: the largest was $1 million from Energy Transfer boss Kelcy Warren to Texas Gov. Greg Abbott’s re-election fund. Energy Transfer made $2.4 billion off Uri, according to published reports.