GEUS having to help pay ERCOT's bills, planning to use short term financing to clear up deficit

Mar. 12—ERCOT, which manages the majority of the electrical grid in the State of Texas, is facing billions in unpaid bills related to the winter storm in February and GEUS, the local electric utility system, is on the hook for part of the deficit.

The GEUS Board of Trustees conducted a public hearing Thursday night, where General Manager Alicia Hooks explained why the utility was planning on seeking approximately $20 million in short term financing to help defray the costs of the bill. Hooks said some electric companies are already facing bankruptcy filings due to the shortfall.

"If you are still standing, you pay a portion of those costs," Hooks said, adding GEUS is also having to consider the approach of the spring severe thunderstorm season and the potential for more costs which could be associated with weather damage. Hooks recalled the storms in June 2019, which caused widespread destruction in Greenville.

"Those are the kinds of unknowns which keep you up at night," she said.

In detailing the issue GEUS is facing, Hooks said this year's winter storm was harsher in all aspects, by far, when compared to the last major winter event in February 2011 and that ERCOT was unprepared to deal with the situation.

"The rules in the energy market are just not constructed to handle a crisis of this magnitude," she said.

The costs of supplying power across the state rose as hundreds of plants had been idled for the winter, while the peak demand kept getting higher and higher.

The Public Utility Commission set an emergency order, capping power supply costs, which would be in effect for the duration of the worst of the winter weather event, which Hooks said lasted a record 85 straight hours.

But Hooks said there were no caps on the costs utilities had to pay on the open market for any additional power, also known as ancillary services.

"So the impact on the energy market is that prices skyrocketed, to 10,000% higher than during that same period one year earlier," Hooks said, comparing the event to "filing up your car with cash at $3 per gallon and you are pulling up the pump and suddenly there are some extra zeroes on it."

The bills are starting to come due in a hurry.

"As these prices are skyrocketing, every utility that participated in the market is having to come up with that cash, and make those payments," Hooks said.

GEUS was fortunate in that its power plant was able to also use both natural gas and diesel to operate, which helped alleviate some of the price hike. But the costs for diesel also soared, and there were issues connected with being able to obtain the diesel from trucks which were stranded due to frozen roads.

"It only got here two hours before we were going to run out," said Board Chair Sue Ann Harting.

GEUS also benefited by obtaining some power from wind and solar outlets, which Hooks said were on fixed-base contracts, so their costs did not fluctuate.

GEUS was also able to arrange to advance purchase some power at a fixed rate just ahead of the arrival of the storm.

"Even with all of these things in place, we did have some exposure to the ERCOT market prices," Hooks said, to the tune of $19.3 million. The average costs for GEUS in February during the past three years was $1.3 million.

Hooks said ERCOT is facing an estimated shortfall, between the utilities which are facing bankruptcy and those which have exited the market, of $3.08 billion.

Should GEUS issue the $20 million in bonds, Hooks said the utility intends to pay off the debt quickly, in part by delaying a rate reduction which had been planned in October.

"Due to this event, this will likely not happen," Hooks said.

The utility may also tap some of the $1.87 million in cash reserves which have been saved from fuel adjustment charges, but Harting said they can't take too much out of the bank without running into other financial issues.

"What we are talking about is cash flow," she said.

Too little cash on hand could damage GEUS' bond rating, causing a long term impact for the utility and its customers.

Harting said every utility has been damaged by ERCOT's mistakes.

"They should have had something better in place and it was not," Harting said. "It is a mess for everybody."

Greenville Mayor David Dreiling and Council member David Atkins were on hand for the meeting and both credited GEUS for its efforts at managing the crisis.

"If you need to go through short term financing, go ahead and do it," Atkins said.

The board intends to take action on the measure at an upcoming meeting.