Securitization: What you need to know
Where does the electricity come from?
CoServ is an electric distribution utility that delivers electricity to nearly 300,000 electric meters throughout North Texas.
As of March 1, 2023, CoServ controls 100 percent of our power purchases from a mix of suppliers, including power plants and renewable energy sources across the state. That gives CoServ the flexibility to meet its energy needs while saving money for our Members.
CoServ previously purchased the majority of its power from Brazos Electric Power Cooperative. CoServ’s contractual obligation to purchase power from Brazos ended on Feb. 28, 2023, as part of Brazos’ bankruptcy settlement.
From the point of generation, the electricity flows on transmission lines to the substations throughout North Texas. Brazos still owns the transmission lines and substations that deliver power to CoServ. The substations step down the voltage before it flows onto CoServ’s local distribution lines and equipment that deliver power to our Members.
The Brazos Bankruptcy
Brazos filed for bankruptcy in the aftermath of Winter Storm Uri, the extraordinary weather event that caused several Brazos power plants to fail. After its plants failed, Brazos could not meet its obligations to supply power to its 16 members, including CoServ.
Brazos’ generation failures left Brazos short on electricity at a time when prices were at the highest levels allowed in the ERCOT market at the time, $9,000 per megawatt. Brazos’ purchases of electricity at those high prices led to Brazos filing for bankruptcy in March 2021.
CoServ works for our Members
In the week leading up to Uri, CoServ anticipated severe conditions and proactively purchased additional power to serve our Members. Ultimately, those power purchases covered most of the 25% of power supply not supplied by Brazos plants. These purchases were made at much lower market prices than the prices in effect during Uri. This proactive action by CoServ saved our Members approximately $150 million, reducing the overall financial impact to our Members.
As previously stated, CoServ now has full control of its power purchases and expects to continue passing on savings to Members.
CoServ also successfully negotiated a settlement with Brazos that further reduces the debt owed to Brazos by $124 million, lowering the impact to our Members.
Brazos Bankruptcy Impact to Members
As a result of Uri, the Texas Legislature enacted Senate Bill 1580 (codified at Texas Utilities Code §§ 41.151 – 41.163), which allows electric cooperatives to utilize a financing mechanism called securitization to pay the extraordinary costs and expenses from Uri. On September 14th, 2022, your CoServ Board of Directors voted to adopt a Financing Order pursuant to Senate Bill 1580 authorizing a securitization financing transaction.
The securitization financing will allow CoServ to spread these extraordinary Uri costs and expenses over a period of 25 years to keep your monthly bills lower than they would be absent the securitization financing.
CoServ Members began seeing the Securitized Charges Recovery Factor (SCRF) appear on their bills in January 2023. At present, the SCRF adds $0.0054 per kWh to your bills or approximately $5.40 per 1,000 kWh used.
Estimated Residential Impact
This amount would be added to your bill
Average = 1,350 kWh
| 500 kWh | 1,000 kWh | 1,500 kWh | 2,000 kWh |
|---|---|---|---|
| $2.70 | $5.40 | $8.10 | $10.80 |
Estimated Commercial & Small Public Buildings Impact
This amount would be added to your bill
Average = 1,500 kWh
| 1,000 kWh | 1,500 kWh | 2,000 kWh | 2,500 kWh |
|---|---|---|---|
| $5.70 | $8.10 | $10.80 | $13.50 |
Estimated Industrial & Large Public Buildings Impact
This amount would be added to your bill
Average = 40,000 kWh
| 30,000 kWh | 35,000 kWh | 40,000 kWh | 45,000 kWh |
|---|---|---|---|
| $162.00 | $189.00 | $216.00 | $234.00 |
Calculation: kWh x Securitized Charges Recovery Factor = Total additional charges
At least every six months, the amount that is charged on a per kWh basis will be reviewed, and adjusted as needed, to ensure CoServ is collecting the appropriate charges. As CoServ continues to grow, the per kWh amount that is charged should be reduced due to additional contributions from new CoServ Members.
The Brazos Electric Ratepayer Hardship Fund provides bill credits to eligible low-income residential Members to help offset some of the financial impacts due to the high costs incurred during Winter Storm Uri. Click here for additional information about the program, including eligibility requirements, and to submit your application.
Looking Ahead
Under the bankruptcy reorganization plan filed by Brazos, Brazos will be selling their generation assets in 2023. Additionally, CoServ no longer has a power purchase agreement requiring us to buy power from Brazos.
CoServ can now purchase power directly from any of the more than 500 generating plants and other power traders that sell power in the ERCOT market. By directing our own power purchases, CoServ expects that it will save millions of dollars per year relative to the costs that we previously paid to Brazos.
We firmly believe that this ability to buy competitively in the power market will allow CoServ to mitigate the impacts of the securitization charges that our Members will see on their future monthly bills. Because we will be able to reduce our power purchase costs it will lower the costs that are passed through to our Members, ultimately balancing out the securitization charges.
ERCOT
It is important to remember that the effects of Uri and the extraordinary costs that were incurred during this time, not only affected CoServ but all of Texas under ERCOT.
Retail Electric Providers and Cooperatives alike are having to distribute these costs to their customers and Members. Some have already started recouping these costs and others, like CoServ, have been trying to find the best solution for their Members to reduce the impact.
Annual Securitization Notice
NOTICE: Pursuant to a securitization transaction authorized by a Financing Order adopted in September 2022 by the CoServ Electric board of directors under Subchapter D of Chapter 41 of the Texas Utilities Code (the “Financing Act”), (i) CoServ Securitization 2022, LLC (the “Bond Issuer”) used proceeds from its issuance of Securitized Bonds (as defined in the Financing Act) to purchase Securitized Property (as defined in the Financing Act) from CoServ Electric, and (ii) CoServ Electric used the sale proceeds to pay extraordinary costs and expenses arising out of the February 2021 Winter Storm Uri. The SCRF charge on your monthly electricity bill includes Securitized Charges (as defined in the Financing Act) remitted to and used by the Bond Issuer to pay the Securitized Bonds. The Securitized Property and the Securitized Charges are owned by the Bond Issuer and not CoServ Electric.
FAQ
No. We are committed to providing safe and reliable power at a reasonable cost to all Members.
Why isn’t CoServ asking for help from the state or federal governments?
There are no state or federal funds available to recover the winter storm costs. State lawmakers enacted Senate Bill 1580 allowing the use of securitization for cooperatives to address certain weather-related extraordinary costs and expenses.
How long will I have to pay this charge?
At present, the Financing Order calls for the recovery of these extraordinary costs and expenses to be spread over a period of 25 years to keep your monthly bills lower than they would be absent securitization.
At least every six months, the amount that is charged on a per kWh basis will be reviewed, and adjusted as needed, to ensure CoServ is collecting the appropriate amount. As CoServ continues to grow, the per kWh amount that is charged should be reduced.
Since Brazos is the company that went bankrupt, why does CoServ owe Brazos money?
Following Winter Storm Uri in February 2021, Brazos filed for bankruptcy and did not bill its member cooperatives for most of the costs of Winter Storm Uri pending the outcome of the bankruptcy. Once the bankruptcy plan is approved, CoServ will owe Brazos for the balance of the February 2021 charges that are approved for payment as part of the bankruptcy plan. CoServ's amount owed will be approximately $451 million, but it could have been $700 million if CoServ had not acted proactively to reduce costs (see graph above).
What if I can't afford to pay the securitization charges?
Most have implemented or are considering increases to recover winter storm costs. Many have higher costs to recover.
I joined the cooperative after the winter storm. Am I subject to the securitization charge?
Yes. Per Senate Bill 1580, all Members in CoServ’s service area are required to pay the securitization charges.
How will the securitization charge compare from residential to commercial Members?
Because everyone’s usage is different and the securitization charge is per kWh, the charge will be different from Member to Member.
How much will the securitization charge affect the average Member?
The average residential Member will see an increase of about $7.70 per month based upon an average usage of 1,350 kWh.
Would I be better off if I lived in the deregulated market with retail electric choice?
No. The unprecedented costs from Winter Storm Uri will affect everyone, including the retail electric providers (REPs) in Texas. Based on CoServ’s analysis, REPs have increased the margins embedded in their rates to help them recover from Winter Storm Uri.
In November 2022, the average REP rate is 15.35 cents per kilowatt-hour for a fixed 12-month plan based on 1,000 kilowatt-hours of usage as shown on PowertoChoose.org. That’s still higher than CoServ’s current rate for the same usage. For a true apples-to-apples comparison, both the average REP rate and CoServ's rate are calculated with all applicable energy, wires and customer charges factored in.
It's important to note that REPs may not itemize the Winter Storm Uri charge on bills and they aren’t under obligation to communicate about it. CoServ is letting Members know that the charge will be factored into bills on or about January 2023.
Can CoServ ensure Members have adequate power if another extreme winter storm occurs?
Additional Resources:
Documents:
Related Content:
- Financial Assistance
- How is my bill calculated?
- Understanding Your Bill
- Senate Bill 1580
- Texas Utilities Code §§ 41.151 – 41.163.
Have questions? Please email [email protected].