The Electric Reliability Council of Texas, or ERCOT, is sponsoring a $2.1 billion in recovery bond transaction, raising the proceeds to offset costs related to shoring up the overall reliability of the electric grid in its service area.
ERCOT operates an electric infrastructure that controls the dispatch of more than 92,000 megawatts (MW) of electricity. That makes up about 90% of the state’s electric load and serves more than 26 million people, according to a pre-sale report from Moody’s Investors Service.
Another part of Texas’ spot and ancillary electricity markets are the obligated load servicing entities (LSEs), which are either municipally owned utilities, electric cooperatives, or a retail electric provider (REP) that still participates in a state authorized securitization framework.
ERCOT will distribute the proceeds from the recovery bonds to any LSEs that can demonstrate that had to buy electricity from ERCOT for their customers at wholesale prices as a result of the power outages after winter storm URI in February 2021, and they had to do so for longer than expected, Moody’s said. Wholesale prices spiked to $9,000 per megawatt-hour, a rate that is almost 300 times the typical price before the storm.
Citigroup Global Markets is the underwriter on the transaction.
This securitization relies on the framework of subchapter N chapter 39 of Texas’ Public Utility Regulatory Act, or PURA. Under the irrevocable Debt Obligation Order, the Public Utility Commission of Texas authorized the ERCOT to recover the $2.1 billion of upfront costs related to winter storm Uri.
Moody’s expects to assign ‘Aaa’ ratings through the entire series of notes, from classes A-1 through A-4. The notes have a legal final maturity dates ranging from August 2036 through February 2052.
