Texans are still paying for the 2021 winter storm and prices could rise


Texans may still be paying too much for 2021 winter storm expenses, and those extra costs are coming at the worst possible time.

Texans are hammered at the pump, with gas topping $4.50 a gallon. Grocery prices have skyrocketed in recent months as expectations are only higher for the future. Although some households have received increases, few are seeing their wages come close to inflation.

With all of this, however, there are ways the state of Texas can help ease the tax burden on its residents right now. An example is ensuring the lowest possible funding costs on bonds related to the historic winter storm of 2021. This may seem like a rickety question, but it is both timely and significant in terms of financial implications.

Following the cataclysmic spike in electricity and natural gas prices caused by the storm, the Texas legislature wisely authorized the sale of bonds by the state and utility providers. These financings involve affected utilities or Texas government entities selling long-term bonds to pay for increased electricity and natural gas costs caused by the storm. The bonds are then repaid by taxpayers over time, sometimes up to 30 years, through a separate monthly charge on their utility bills.

The funding effectively spreads the cost of electricity and gas price increases caused by the winter storm over time, reducing the financial burden on ratepayers. Without this bond debt, taxpayers would be required to immediately pay tens of billions of dollars in utility costs, which would have crushed the budgets of many households.

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As with all borrowing, the trick to getting the best value for money is to achieve the lowest possible interest rate. Since payments on this debt are simply passed through from the utility to the taxpayer, a lower interest rate on financing will result in lower monthly charges for Texas residents. Conversely, a higher rate leads to a higher monthly payment.

It is therefore crucial that utilities and government entities selling and overseeing such financing be vigilant in their pricing and execution. In fact, such vigilance is mandated by law for these types of electric utility obligations by the Texas Public Utility Regulatory Act.

Unfortunately, based on a recent sale of utility bonds, Texas taxpayers should be concerned that they may not receive the lowest cost on these transactions. Simply put, some financial best practices appear to be missing (or at least undisclosed) in the pricing of this debt, including the lowest cost process. At the very least, this particular utility funding would have benefited from greater transparency in evaluating the results of the transaction.

For many of us, bond pricing is “in the weeds,” but it’s a very big issue right now, with more than $2 billion in electricity bonds authorized but not yet sold. Additionally, the Texas Public Finance Authority plans to sell $3.4 billion in debt, one of the largest bond sales expected in the U.S. municipal market this year, to fund storm-related natural gas costs. of 2021.

These fundings will significantly affect Texas residents’ utility costs for decades to come. For example, $5.4 billion of 20-year bonds sold with a lower interest rate of 0.50% (e.g. 3.5% instead of 4.0%) would generate approximately $540 million nominal interest cost savings over 20 years, which would benefit Texas utility ratepayers. Texans should be very concerned about these costs.

Texans are watching every penny they spend these days. We must demand that Texas governments and the utilities they oversee do the same.

Martin J. Luby is an associate professor at the Lyndon B. Johnson School of Public Affairs at the University of Texas at Austin. He wrote this for The Dallas Morning News.

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