PEC ponders surcharge for winter storm debt

Pedernales Electric Cooperative directors will consider implementing a temporary “winter storm surcharge” to all members’ bills at their August board meeting, CEO Julie Parsley told the Burnet County Commissioners Court Tuesday, July 27.

The surcharge is being levied to help PEC pay off $200 million in debt incurred due to February’s Winter Storm Uri, which knocked out power to more than 109,000 customers during sub-freezing temperatures and caused damage throughout the district’s 8,100-square-mile service territory.

The surcharge amount is per kilowatt-hour and the average surcharge member’s will see is about $10 per month, based on the normal average consumption of about 1,250 killowatt-hours, Parsley said. The surcharge will only last for a 24-month period.

“Some months may be $8 and some may be $12, depending on if it is the summer or the winter, but that is what we will do to fully repay that $200 million,” she said. “It will be on the bill as a separate line item and very clearly delineated that it is a surcharge for the winter storm costs.

“The board will be considering the final resolution at our August board meeting and if it is adopted, it will begin in October and run for two years. If we can shorten it up or some other money comes in the door from some other source, then we’ll be able to make that shorter.

“That’s what we’re going to try to do to keep ourselves financially healthy,” she added. “We feel like if we can do this quickly for 24 months, we can move on and none of our members will have to endure that debt for the next 20 years.”

Parsley said part of the reason for the high cost was the high wholesale price of electricity during the four days of the storm. She said wholesale electric prices peaked at $9,000 per megawatt-hour (compared to their normal rate of $38 to $40), while ancillary services jumped to $20,000 per megawatt-hour (compared to $40). Meanwhile, natural gas costs spiked from $2.50 per BTU to between $250 to $300 per BTU.

“All of that meant we ended up with a very large bill at the end of the day from LCRA for both power and gas because we procure our power from LCRA and they manage that portfolio for us,” Parsley said.

“We also had about $10 million in infrastructure damage that we had to repair — poles, wires and trucks that went into ditches. All in all, it cost us approximately $160 million that we had to pay to LCRA and others.”

Parsley said PEC was able to borrow $200 million in commercial paper — which is unsecured, short-term debt issued by a corporation typically issued for the financing of payroll, accounts payable, inventories, and meeting other short-term liabilities — at an almost unreal 0.2 percent interest rate, thanks to the cooperative’s AA- minus bond rating from Fitch.

“It does roll, and in 90 days, we’ll be reprocuring, so the interest rate does vary, but we’re able right now to carry it on our books at a very low rate,” Parsley said. “In order to maintain our AA- rating with Fitch, we have to clear the books in three years.

“We have reduced our capital infrastructure budget and expenses about $100 million for the next three years, but that wasn’t enough to get it fully off the books, which is why we have to implement the surcharge.”

Parsley said, prior to the storm, chief financial officer Randy Kruger was able to defease some “non-defeasible bonds” and get a lot of high-interest-rate debt off PEC’s books to put the district on good financial footing.

“We were hoping we wouldn’t have anything like the storm, but the benefit is that because we got that debt off our books, we are able to have more room for the debt we incurred due to storm,” she said.

Parsley said it is important that PEC pay off the debt in three years in order to maintain its AA- rating.

“It allowed us to participate in this commercial-paper market,” Parsley said. “If we lose that, we won’t be able to participate in markets like that anymore and we’ll dependent on bank debt, which is far more expensive. “We have the flexibility

“We have the flexibility and financial health to access these low-interest-rate programs, which is what we’re trying to do for the benefit of all our members for the longterm. Everyone is doing their best to make sure the lights stay on this summer.”