During Texas' catastrophic blackout in February, the cost of electricity and natural gas shot through the roof.
Those price spikes helped gas suppliers, banks and power generators make billions, but many are still owed money. It is a debt so staggering that state lawmakers have stepped in to craft a bailout for companies and institutions unable to pay.
But some worry the solution they’ve found could reward negligence from some companies that owe money, or criminality from others that are still waiting for payment — all while punishing the very utility customers who suffered in the freeze.
That solution is called “securitization.” It is a way of quickly paying back banks, natural gas suppliers and power generators that sold energy at the height of the crisis and are still owed money. Utility ratepayers would ultimately have to foot the bill, and securitization would lock them into slowly paying off that debt over decades — with interest.
That is accomplished by turning the debt into low-interest bonds guaranteed by the state. The money needed to pay back those bonds would be tacked on to ratepayers' monthly bills.
Does that sound complicated? Attorney Jim Boyle, the former Public Counsel for the Public Utility Commission of Texas, said it helps to think of securitization as a way of turning all that debt into something like a payment plan.
“There used to be a guy that sold appliances at 41st and Guadalupe Street,” Boyle said “He had this slogan: ‘it's not money… it's just a little bit a month.’ It gets like that with securitization.”
But Boyle and others say that once the payment plan is set up, it could commit ratepayers to paying companies that should never be paid — and bailing out others that might not deserve it all.
“The problem with securitization is you reward those who were negligent, you reward those who didn't hedge, you reward those who didn't winterize,” Boyle said. “You reward a lot of bad actors through securitization.”
At its worst, critics say, bailing out companies and public institutions like the Electric Reliability Council of Texas through securitization could “paper over” wrongdoing that led to the blackout. They argue that would increase the likelihood of another blackout in the future.
But despite that risk, University of Houston energy economist Ed Hirs says state officials would rather ignore any flaws in the Texas energy market than have a full accounting of what happened in the freeze.
"They say they don't want the companies to go bankrupt,” Hirs said. “No, what they really don't want to have happen is these companies in bankruptcy filing federal subpoenas to go into the books to see how [energy buyers] got gamed in the situation.”
The high price of natural gas during the blackout is one example of what people like Boyle and Hirs are worried about.
As gas supplies plummeted and demand surged during the freeze, the price of gas jumped to 300 times its typical cost. That brought windfall profits for some gas suppliers. But some power generators and utilities that paid those high prices — like CPS, San Antonio's city-owned utility, and Vistra, one of the country's largest private power generators — believe they were the victims of price gouging and market manipulation.
Boyle said it is a bad idea for state officials to guarantee payments to gas suppliers that are owed money by securitizing the debt while questions of market manipulation remain unresolved.
Others agree.
“Before you add up the total that’s going to be paid back [through securitization], there’s got to be a really strong look at how much of that is legit. Was anybody in that market manipulating it?” asked Ronald Lehr, a former chair of the Colorado Public Utility Commission who now consults on securitization.
Lehr said securitization legislation should also include assurances that the payment plans offer ratepayers the best possible terms, something critics say the Texas bills do not do.
“You need to control the transactions because there's a lot of incentives for the utilities and their favored investment banks to rip off,” he said. "That's just what they do."
But, Boyle said, there is no such accounting process in securitization bills being considered by lawmakers.
“There’s just very little review,” he said. “Particularly in the gas securitization bill, [there is] no opportunity for any consumer advocate to come in or someone representing the customers in general."
The Office of Public Utility Counsel, which Boyle led in the 1980s, is set up to represent the interests of consumers at the Public Utility Commission of Texas.
Boyle believes that office should have been more involved in the debate over the current securitization proposals.
“They should be involved. They should be over there at the Capitol in the middle of these things. And giving the ratepayer perspective,” he said.
The Office of Public Utility Counsel did not respond to a request for comment Monday.
Money owed to natural gas companies is just one form of blackout-related debt lawmakers are hoping to securitize this session.
A separate bill would securitize debt owed by Texas electric cooperatives in mostly rural areas, some of which declared bankruptcy after the freeze due to high natural gas and electricity prices.
Another would securitize the massive debt owed by the Electric Reliability Council of Texas, the state’s grid operator, to companies from which it purchased energy during the freeze.
That proposal would allow ERCOT’s debt to be gradually repaid by companies like electric utilities and power generators that buy and sell electricity in Texas. Those businesses would, in turn, pass the cost on to their ratepayers.
Proponents say that bill will save companies from bankruptcy and stabilize Texas deregulated electric market. Critics say it amounts to a bailout for the grid operator that many believe failed to prepare properly for extreme weather and was partly responsible for the power crisis.
That mismanagement “really is not a problem for ERCOT,” Ed Hirs said. “Because they can write a blank check on the consumer's pocketbook.”
Many of those who support securitization agree that it is not an ideal solution. State Rep. Chris Paddie, R-Marshall, the author of Securitization Bill HB 4492, told the House State Affairs Committee that “none of us want to increase fees or taxes," in a hearing earlier this session.
But Paddie and others say the alternative could be disastrous. They say the amount of debt arising from the blackout is so staggering that it could sink Texas' energy market and possibly lead to a cascading financial crisis if not acted on by lawmakers.
Securitization, Paddie argued while laying out a separate securitization bill this session, is also a way of reducing the impact on consumers by preventing the debts utilities incurred from immediately being passed on to ratepayers all at once.
But Jim Boyle said the stakes are too high to “rush” the process through within months of the blackout.
Once blackout debt is securitized, “it's baked in,” he said. “You can't unwind it.”
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