Finally Climbing Free of the Storm
When the icy winds of Winter Storm Uri swept across Texas in early 2021, life there was upended. A populace already struggling through a catastrophic pandemic now faced new health and safety risks, not the least stemming from systemic blackouts that rendered lifesaving equipment inoperable, but also including widespread food and water shortages in a state ill-equipped to deal with winter weather.
Amid the chaos, the top priority at Tri-County Electric Cooperative was keeping the power flowing to its 103,000 primarily residential members, with 132,000 meters across 16 counties spreading from the outskirts of Fort Worth to the northwest – members who were suddenly using much more power than ever before to heat their now-frigid homes. Maintaining distribution lines in punishing conditions, linemen toiled while executives purchased unprecedented amounts of energy – an effort that seemed impossible when the disastrously low temperatures froze natural gas at the wellheads so it couldn’t flow to the majority of the state’s power plants, which rely on it for fuel.
As Uri moved out after unloading five days of misery, millions of Texans worked to recover from damage to homes, property and vehicles, while electric cooperatives like Tri-County were facing a different kind of reckoning: the bill for the power they’d bought.
The Texas power supply is managed by the Electric Reliability Council of Texas (ERCOT), which uses strict supply and demand calculations to set market pricing. During Uri, when exceptional demand combined with minimal supply, prices skyrocketed up to $9,000 per MWH – and electric distribution cooperatives, cities, retail electric providers and the power companies that supply them had no choice but to accept the terms.
“ERCOT is designed for prices to correct automatically with market forces, but with inadequate supply, prices stayed elevated for a week while they worked to bring supply online,” said Darryl Schriver, Tri-County’s president and chief executive officer. “Our power bill for one week was what we normally spend in two and a half years.”
Faced with this astronomical cost, utilities across the state faced excruciating decisions. Several power providers have declared bankruptcy, including Tri-County’s own wholesale power supplier. Others have taken the securitization route, issuing bonds on the institutional market to obtain the funds to cover their power bill, with repayment, including interest, secured by future revenues.
Sitting down with CoBank immediately felt like our world was about to change for the better
These weren’t appealing options for Tri-County’s board, which charged its management team to do everything it could to avoid bankruptcy while paying Uri’s monumental price tag.
“We were tasked by our board to explore every option and had gone pretty far down the securitization path, but as CFO of this cooperative, I couldn’t, in good faith, pledge our members’ future accounts receivable,” said Melissa Watts, Tri-County’s CFO and vice president of finance. “At the same time, we didn’t think we had the balance sheet for traditional financing.”
Working with a consultant, Tri-County explored multiple options, including the creation of a regulatory asset it could carry on its balance sheet. Then they approached CoBank, hoping to hear a different answer than they’d heard from other lenders.
“Sitting down with CoBank immediately felt like our world was about to change for the better,” said Watts. “It was an impressive meeting, but also refreshing to find a lender who hasn’t lost perspective on customer service, and who understands what we’re trying to accomplish in serving our members.”
With its nimble approach to meeting customer needs, CoBank quickly assembled a $585 million financial package that included a dedicated line of credit for operational costs as well as funds to cover Winter Storm Uri’s toll, tapping the financial capacity of 12 Farm Credit partners. The package also delivered maximum flexibility at a good rate with lower fees than a commercial bank securitization would have carried, including multiple tranches and early pay-off options.
“Winter Storm Uri was the single largest challenge Tri-County has ever faced, and we had genuine concerns that it would simply obliterate us and we would lose control of our cooperative,” said Schriver. “From our very first meeting with CoBank, with their entire team from the CEO on down, I felt like someone was finally listening to us with undivided attention, and was committed to helping us through this.”