Texans could pay an extra $100 million for deadly winter storm


The February 2021 freeze could cost Texans an additional $100 million on top of the $16 billion in the initial price hike, as state officials fail to secure the lowest possible interest rates when they are paying off our huge storm debts, experts warn.

The Texas Public Utilities Commission appears to have cut corners while preparing to sell government bonds that electric customers will pay off over the next 20 years, a former PUC chairman and a professor of science have warned. government finances in separate letters.

The state sold $2.2 billion in bonds last week and by the end of the summer will sell another $3.4 billion to pay off natural gas suppliers in one of the most largest bond issues in Texas history. Even a slight difference in interest rates could cost Texans tens of millions of dollars that will go straight into the pockets of Wall Street.

The February freeze spiked billions of dollars in unpaid electricity and natural gas bills, and trying to pay them immediately would have caused widespread bankruptcies. Thus, the Texas Legislature authorized the PUC, the Texas Public Finance Authority and the Railroad Commission to oversee bond sales to repay debts.

The legislature has authorized extra charges on our electric and gas bills to pay off bond investors over the next 5, 10, 20, or 30 years with interest. Texas law requires bond-issuing entities to obtain the best possible price.

In a $290 million bond issued in March, the PUC appeared to ignore best practices designed to secure the lowest possible rates, according to Martin Luby, a professor at the LBJ School of Public Affairs who also advises governments outside the Texas on municipal bond sales.

In a letter to the Texas Public Finance Authority, Luby said his analysis of publicly available documents regarding recently issued Entergy Texas Restoration Bonds found that PUC staff did not appear to be following best practices in pricing bonds. obligations.

PUC staff failed to properly analyze the interest rates assigned to ETR bonds, Luby wrote. Rather than explicitly comparing ETR bonds to similar bonds sold at or around this time, staff compared interest rates to other Texas electric utility bonds issued over the past 21 years, which is similar to comparing mortgage rates over decades.

Brett Perlman, former PUC commissioner and now CEO of the Center for Houston’s Future, said the PUC conducted the kind of analysis Luby recommended when he was in office from 1999 to 2003. The comparison made this year was flawed. , he warned in a letter to the PUC, because bond interest rates are constantly changing. Timing is everything.

“This practice has been misleading in a low interest rate environment like the one we have enjoyed over the past 10 years,” he wrote. “Furthermore, the rising interest rate environment we face today will prove the error of this approach.”

Luby also warned that the PUC may have improperly allowed the underwriter, in this case Goldman Sachs, to push for higher interest rates because their “key investors” wanted them. But it allows the fox to keep the chicken coop because, as Perlman points out, the underwriter’s job is to get higher rates.

“We understood that the underwriters did not represent the interests of the commission or the ratepayers,” Perlman wrote. “They were on the other side of the negotiating table, and the commission needed to take a more active role in protecting (consumers).”

The PUC should have relied on and demanded more of its rate adviser, whose job it is to help get the lowest rates. The PUC could have insisted that Goldman Sachs offer the bonds to more investors or guarantee the debt at the best interest rate.

Finally, Luby and Perlman questioned why PUC staff made the legally required statement that they sold the bonds at the best possible interest rates. Often this certification is done by the independent underwriting advisor, in this case, Drexel Hamilton.

If the pricing advisor refuses to swear under penalty that the bonds were sold at the best price, this is a red flag.

Spokesman Rich Parsons insisted the PUC was following best practices.

“The PUC absolutely follows processes and procedures that ensure transparency and ensure the best and most beneficial results for Texans,” he wrote in an email.

Since Luby’s letter, the PUC has authorized another $2.2 billion bond sale to pay off the power generators at an average interest rate of 4.97%. These bonds seem to have had similar problems.

What difference can a slight change in the interest rate make? On a $3.4 billion bond issue, each 0.01% surcharge would cost Texans $5.26 million over 30 years in today’s dollars.

Analyzing bond prices requires specialized skills that I don’t have. But an eyeball estimate of current interest rate differentials suggests Texans could be paying about $100 million or more in mispriced interest on the $2.2 billion in PUC-approved bonds.

Luby’s letter asked the Texas Public Finance Authority to avoid the same mistakes and provide more transparency with the $3.4 billion in bonds to pay our natural gas bills. Seems reasonable to ask.

Tomlinson writes commentary on money, politics, and life in Texas.


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