Utility costs have surged across the nation this year, leaving millions of Americans falling behind on their monthly bills. It might get more challenging as households nationwide can expect to pay higher utility costs for decades to come due to storm recovery bond charges.
Natural disasters have ravaged the United States in recent years, from hurricanes to winter freezes. These weather events have destroyed infrastructure and cost electric and gas utility firms billions of dollars in repairs and maintenance.
The numbers confirm that more companies have taken on recovery bonds this year. In the first nine months of 2022, Bloomberg data show that businesses have issued a record $17 billion in recovery bonds, with estimates suggesting it could top $20 billion by the end of the year.
According to advisory firm Saber Partners, around $12.4 billion in weather-related utilities debt was issued in the past year, although this figure only includes debt that customers will have to pay. This is a huge jump compared to nearly $7 billion in long-term recovery bonds issued by states and utilities between 2007 and 2021.
Most utility debt has been weather-related as these companies try to strengthen their power grids against fierce storms and harsh conditions.
Bond issuers receive the money upfront from investors and repay the loan over time with funds from customers’ monthly bills. Financial experts note that this type of debt securitization can mean a cheaper month-over-month option than conventional financing alternatives, ranging from 1–13 percent of average client bills.
While this has been standard practice since the deregulation efforts in the 1990s, the measure has accelerated over the last several years.
Industry experts note that the enormous debt increase in 2022 was caused by Winter Storm Uri, the significant snow and ice storm and tornado outbreak that left millions of homes without power in Texas in February 2021. The week-long weather event, which was the deadliest winter storm in North America since 1993, had been estimated to cost nearly $200 billion in damages.
Uri also caused the price of electricity and natural gas to spike across multiple states.
Experts purport that ratepayer-supported bonds have their advantages and disadvantages. These funding mechanisms can avoid costly bill shocks or lower energy costs amid expensive disasters.
In February, the Railroad Commission of Texas approved a financing order that allowed several utilities, including Atoms Energy, CenterPoint, and Texas Gas Service, to issue customer rate-relief bonds. This would authorize these companies to spread out additional charges for their customers.
“The financing order allows natural gas utilities to spread the high cost of gas incurred during last year’s winter storm across multiple monthly bills rather than having customers face a large spike in one bill. This order is not a windfall for natural gas utilities and is for the benefit of Texas consumers,” the commission stated.
This past summer, the Kansas Corporation Commission let the Kansas Gas Service (KGS) issue securitized bonds to recover more than $300 million in deferred and carrying costs due to Uri. For the next seven to 10 years, customers would pay a winter event securitized cost of as much as $6.42. Without securitized bonds, households would face monthly charges between $9.04 and $13.90, according to a report from the commission.
Earlier this month, the Louisiana Utilities Restoration Corp./ENO announced it intends to issue nearly $210 million in storm recovery bonds that maintain a final maturity date of September 2037.
At the same time, there have been concerns that the costs are unequal, as households in different parts of the country may pay more over time. Today, five states pay the highest percentage of securitization charges on their monthly bills: New York, Texas, Louisiana, New Hampshire, and Oklahoma.
Despite efforts to mitigate the financial pain of utility bills, millions of Americans are struggling to keep the lights on and water running.
The National Energy Assistance Directors Association (NEADA) reported last month that more than 20 million families were behind on their utility bills. The policy organization also found that the collective amount owed totaled about $16 billion, up from $8.1 billion at the end of 2019. The average delinquent bill jumped from $403 to $792.
“The increase in the energy burden for families in the bottom 40 percent of the U.S. income distribution, is of even greater concern,” the NEADA noted in a report (pdf). “From 2020 to 2022, families’ average energy costs increased from $3,098 to $3,770, and the amount spent on gasoline increased from $1,035 to $1,662. This increase in utility costs reflects the continued high prices for natural gas, heating oil and propane, as well as this past summer’s heat waves that increased the cost of air conditioning from an average of $450 the previous summer to about $600.”
A recent LendingTree survey discovered that more than one-third (34 percent) of households struggled to pay for food and medicine because of high utility bills. Twenty-three percent of households could not pay a portion of their energy bill in the past year.
“Life is getting more expensive by the day, and it’s shrinking Americans’ already tiny financial margin for error down to zero,” said LendingTree chief credit analyst Matt Schulz in a statement. “Unless they’ve been able to increase their income, millions of Americans have had to make sacrifices because of inflation to pay the bills. Perhaps the worst part is that inflation likely isn’t going anywhere anytime soon. That means that short-term quick fixes won’t cut it.”
In November, electricity prices surged 13.7 percent year over year, according to the Bureau of Labor Statistics (BLS). Utility piped gas service rose at an annualized rate of 15.5 percent.
The average cost of home heating is forecast to rise 17.2 percent since last winter’s heating season, totaling $1,208, the NEADA stated (pdf).
Reporting from The Epoch Times.